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Medicare Program; Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011

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AGENCY:

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

ACTION:

Final rule with comment period.

SUMMARY:

This final rule with comment period addresses changes to the physician fee schedule and other Medicare Part B payment policies to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. It finalizes the calendar year (CY) 2010 interim relative value units (RVUs) and issues interim RVUs for new and revised procedure codes for CY 2011. It also addresses, implements, or discusses certain provisions of both the Affordable Care Act (ACA) and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). In addition, this final rule with comment period discusses payments under the Ambulance Fee Schedule (AFS), the Ambulatory Surgical Center (ASC) payment system, and the Clinical Laboratory Fee Schedule (CLFS), payments to end-stage renal disease (ESRD) facilities, and payments for Part B drugs. Finally, this final rule with comment period also includes a discussion regarding the Chiropractic Services Demonstration program, the Competitive Bidding Program for durable medical equipment, prosthetics, orthotics, and supplies (CBP DMEPOS), and provider and supplier enrollment issues associated with air ambulances.

DATES:

Effective date: These regulations are effective on January 1, 2011. 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, 2011.

ADDRESSES:

In commenting, please refer to file code CMS-1503-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions for “submitting a comment.”

2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1503-FC, P.O. Box 8013, Baltimore, MD 21244-8013.

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 to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1503-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 before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201

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

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

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

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Sara Vitolo, (410) 786-5714, for issues related to malpractice RVUs.

Erin Smith, (410) 786-0763, for issues related to end-stage renal disease-related services for home dialysis.

Michael Moore, (410) 786-6830, for issues related to geographic practice cost indices.

Ken Marsalek, (410) 786-4502, for issues related to the physician practice information survey, the multiple procedure payment reduction, and payment for the technical component of pathology services.

Regina Walker-Wren, (410) 786-9160, for issues related to outpatient mental health add-on provision and increased payment for certified nurse-midwife services.

Elizabeth Truong, (410) 786-6005, or Sara Vitolo, (410) 786-5714, for issues related to potentially misvalued services.

Elizabeth Truong, (410) 786-6005, for issues related to the sustainable growth rate or anesthesia or physician fee schedule conversion factors.

Dorothy Shannon, (410) 786-3396, for issues related to outpatient therapy services.

Pamela West, (410) 786-2302, for issues related to payment for diabetes self-management training programs and kidney disease education services.

Ryan Howe, (410) 786-3355, for issues related to direct practice expense inputs and telehealth services.

Sara Vitolo, (410) 786-5714, for issues related to pulmonary rehabilitation services, application of skin substitutes, canalith repositioning, intranasal/oral immunization, and the refinement panel.

Roberta Epps, (410) 786-4503, for issues related to portable x-ray and bone density tests.

Chava Sheffield, (410) 786-2298, for issues related to equipment utilization rate assumption for advanced imaging services.

Chava Sheffield, (410) 786-2298, or Larry Chan, (410) 786-6864, for issues related the physician fee schedule practice expense methodology.

Stephanie Frilling, (410) 786-4507, or Erin Smith, (410) 786-0763, for issues related to the incentive payment programs for primary care and general surgery services, and payment for the annual wellness visit and preventive services.

Cheryl Gilbreath, (410) 786-5919, for issues related to payment for covered outpatient drugs and biologicals.

Roechel Kujawa, (410) 786-9111, for issues related to ambulance services.

Glenn McGuirk, (410) 786-5723, for clinical laboratory issues.

Randall Ricktor, (410) 786-4632, for Federally Qualified Health Center Issues.

Pauline Lapin, (410) 786-6883, for issues related to the chiropractic services demonstration BN issue.

Troy Barsky, (410) 786-8873, or Kristin Bohl, (410) 786-8680, for issues related to physician self-referral.Start Printed Page 73171

Troy Barsky, (410) 786-8873, or Fred Grabau (410) 786-0206, for issues related to timely filing rules.

Henry Richter, (410) 786-4562, or Lisa Hubbard, (410) 786-5472, for issues related to renal dialysis provisions and payments for end-stage renal disease facilities.

Diane Stern, (410) 786-1133, for issues related to the physician quality reporting initiative and incentives for e-prescribing.

Sheila Roman, (410) 786-6004, or Pamela Cheetham, 410-786-2259, for issues related to the Physician Resource Use Feedback Program and value-based purchasing.

Joel Kaiser, (410) 786-4499, for issues related to the DME provisions.

Sandra Bastinelli, (410) 786-3630, for issues related to provider and supplier enrollment issues.

Rebecca Cole, (410) 786-4497, for issues related to physician payment not identified above.

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SUPPLEMENTARY INFORMATION:

Comment Subject Areas: We will consider comments on the following subject areas discussed in this final rule with comment period that are received by the date and time indicated in the DATES section of this final rule with comment period:

(1) The interim final work, practice expense, and malpractice RVUs (including the direct practice expense (PE) inputs and the equipment utilization rate assumption, and the applicability of a multiple procedure payment reduction (MPPR)), for new and revised CY 2011 HCPCS codes. These codes and their CY 2011 interim final RVUs are listed in Addendum C to this final rule with comment period.

(2) The physician self-referral designated health services codes listed in Tables 98 and 99.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also 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.

Table of Contents

To assist readers in referencing sections contained in this preamble, we are providing a 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 (CFR). Information on the regulations impact appears throughout the preamble and, therefore, is not discussed exclusively in section XI. of this final rule with comment period.

I. Background

A. Development of the Relative Value System

1. Work RVUs

2. Practice Expense Relative Value Units (PE RVUs)

3. Resource-Based Malpractice (MP) RVUs

4. Refinements to the RVUs

5. Adjustments to RVUs Are Budget Neutral

B. Components of the Fee Schedule Payment Amounts

C. Most Recent Changes to Fee Schedule

D. Public Comments Received in Response to the CY 2011 PFS Proposed Rule

II. Provisions of the Final Rule for the Physician Fee Schedule

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

1. Overview

2. Practice Expense Methodology

a. Direct Practice Expense

b. Indirect Practice Expense per Hour Data

c. Allocation of PE to Services

(i) Direct costs

(ii) Indirect costs

d. Facility and Nonfacility Costs

e. Services with Technical Components (TCs) and Professional Components (PCs)

f. Alternative Data Sources and Public Comments on Final Rule for 2010

g. PE RVU Methodology

(1) Setup File

(2) Calculate the Direct Cost PE RVUs

(3) Create the Indirect Cost PE RVUs

(4) Calculate the Final PE RVUs

(5) Setup File Information

(6) Equipment Cost per Minute

3. PE Revisions for CY 2011

a. Equipment Utilization Rate

b. HCPCS Code-Specific PE Issues

(1) Biohazard Bags

(2) PE Inputs for Professional Component (PC) Only and Technical Component (TC) Only Codes Summing to Global Only Codes

(3) Equipment Time Inputs for Certain Diagnostic Tests

(4) Cobalt-57 Flood Source

(5) Venom Immunotherapy

(6) Equipment Redundancy

(7) Equipment Duplication

(8) Establishing Overall Direct PE Supply Price Inputs Based on Unit Prices and Quantities

c. AMA RUC Recommendations in CY 2010 for Changes to Direct PE Inputs

(1) Electrogastrography and Esophageal Function Test

(2) 64-Slice CT Scanner and Software

(3) Breath Hydrogen Test

(4) Radiographic Fluoroscopic Room

(5) Cystometrogram

d. Referral of Existing CPT Codes for AMA RUC Review

e. Updating Equipment and Supply Price Inputs for Existing Codes

f. Other Issues

B. Malpractice Relative Value Units (RVUs)

1. Background

2. Malpractice RVUs for New and Revised Services Effective Before the Next 5-Year Review

3. Revised Malpractice RVUs for Selected Disc Arthroplasty Services

C. Potentially Misvalued Services Under the Physician Fee Schedule

1. Valuing Services Under the PFS

2. Identifying, Reviewing, and Validating the RVUs of Potentially Misvalued Services Under the PFS

a. Background

b. Progress in Identifying and Reviewing Potentially Misvalued Codes

c. Validating RVUs of Potentially Misvalued Codes

3. CY 2011 Identification and Review of Potentially Misvalued Services

a. Codes on the Multispecialty Points of Comparison List

b. Codes with Low Work RVUs Commonly Billed in Multiple Units Per Single Encounter

c. Codes with High Volume and Low Work RVUs

d. Codes with Site-of-Service-Anomalies

e. Codes with “23-hour” Stays

4. Expanding the Multiple Procedure Payment Reduction (MPPR) Policy to Additional Nonsurgical Services

a. Background

b. CY 2011 Expansion of the Imaging Technical Component MPPR Policy to Additional Combinations of Imaging Services

c. CY 2011 Expansion of the MPPR Policy to Therapy Services

5. High Cost Supplies

a. Background

b. Future Updates to the Prices of High-Cost Supplies

D. Geographic Practice Cost Indices (GPCIs)

1. Background

2. GPCI Update

a. Physician Work GPCIs

b. Practice Expense GPCIs

(1) The Affordable Care Act Requirements for PE GPCIs

(A) General Methodology for the CY 2011 GPCIs

(B) Phase-In of PE GPCIs

(C) Data Analysis

(D) Determining the PE GPCI Cost Share Weights

(E) PE GPCI Floor for Frontier States

(2) Summary of CY 2011 PE GPCIs

c. Malpractice GPCIs

d. Public Comments and CMS Responses on the Proposed 6th GPCI Update

e. Summary of Final CY 2011 GPCIsStart Printed Page 73172

3. Payment Localities

E. PFS Update for CY 2010: Rebasing and Revising of the Medicare Economic Index (MEI)

1. Background

2. Use of More Current Data

3. Rebasing and Revising Expense Categories in the MEI

a. Developing the Weights for Use in the MEI

b. Physician's Own Time

c. Physician's Practice Expenses

(1) Nonphysician Employee Compensation

(2) Office Expenses

(3) Professional Liability Insurance (PLI) Expense

(4) Medical Equipment Expenses

(5) Medical Supplies Expenses

(6) Other Professional Expenses

4. Selection of Price Proxies for Use in the MEI

a. Cost (Expense) Categories in the MEI

(1) Physician's Own Time (Physician Compensation)

(2) Nonphysician Employee Compensation

(3) Utilities

(4) Chemicals

(5) Paper

(6) Rubber and Plastics

(7) Telephone

(8) Postage

(9) All Other Services

(10) All Other Products

(11) Fixed Capital

(12) Moveable Capital

(13) Professional Liability Insurance (PLI)

(14) Medical Equipment

(15) Medical Materials and Supplies

(16) Other Professional Expenses

(b) Productivity Adjustment to the MEI

5. Results of Rebasing

6. Medicare Economic Index Technical Advisory Panel

7. Summaries of Comments and the Associated Responses

a. Timing of Rebasing and Revising the MEI

b. PPIS Data

c. Office Expenses

d. Purpose of the MEI

e. Technical Panel

f. Other

8. Adjustments to the RVU Shares To Match the Proposed Rebased MEI Weights

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

1. Medicare Sustainable Growth Rate

2. Physicians' Services

3. Preliminary Estimate of the SGR for 2011

4. Revised Sustainable Growth Rate for 2010

5. Final Sustainable Growth Rate for 2009

6. Calculation of 2011, 2010, and 2009 Sustainable Growth Rates

a. Detail on the CY 2011 SGR

(1) Factor 1 Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for CY 2011

(2) Factor 2 The Percentage Change in the Average Number of Part B Enrollees From CY 2010 to CY 2011

(3) Factor 3 Estimated Real Gross Domestic Product Per Capita Growth in 2011

(4) Factor 4 Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in CY 2011 Compared With CY 2010

b. Detail on the CY 2010 SGR

(1) Factor 1 Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for 2010

(2) Factor 2 The Percentage Change in the Average Number of Part B Enrollees from CY 2009 to CY 2010

(3) Factor 3 Estimated Real Gross Domestic Product Per Capita Growth in CY 2010

(4) Factor 4 Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in CY 2010 Compared With CY 2009

c. Detail on the CY 2009 SGR

(1) Factor 1 Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for 2009

(2) Factor 2 The Percentage Change in the Average Number of Part B Enrollees from CY 2008 to CY 2009

(3) Factor 3 Estimated Real Gross Domestic Product Per Capita Growth in CY 2009

(4) Factor 4 Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in CY 2009 Compared With CY 2008

G. The Update Adjustment Factor (UAF)

1. Calculation under Current Law

H. Physician and Anesthesia Fee Schedule Conversion Factors for CY 2011

1. Physician Fee Schedule Update and Conversion Factor

a. CY 2011 PFS Update

b. CY 2011 PFS Conversion Factor

2. Anesthesia Conversion Factor

III. Code-Specific Issues for the PFS

A. Therapy Services

1. Outpatient Therapy Caps for CY 2011

2. Alternatives to Therapy Caps

a. Background

b. Current Activities

c. Potential Short-Term Approaches to Therapy Caps

B. Diabetes Self-Management Training (DSMT) Services (HCPCS Codes G0108 and G0109)

1. Background

2. Payment for DSMT Services

C. End-Stage Renal Disease Related Services for Home Dialysis (CPT code 90963, 90964, 90965, and 90966)

1. End-Stage Renal Disease Home Dialysis Monthly Capitation Payment Services (CPT codes 90963, 90964, 90965, and 90966)

2. Daily and Monthly ESRD-Related Services (CPT Codes 90951 through 90970)

D. Portable X-Ray Set-Up (HCPCS code Q0092)

E. Pulmonary Rehabilitation Services (HCPCS Code G0424)

F. Application of Tissue Cultured Skin Substitutes to Lower Extremities (HCPCS Codes G0440 and G0441)

G. Canalith Repositioning (CPT code 95992)

H. Intranasal/Oral Immunization Codes (CPT codes 90467, 90468, 90473, and 90474)

I. Refinement Panel Process

J. Remote Cardiac Monitoring Services (CPT codes 93012, 93229, 93268, and 93271)

IV. Medicare Telehealth Services for the Physician Fee Schedule

A. Billing and Payment for Telehealth Services

1. History

2. Current Telehealth Billing and Payment Policies

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

C. Submitted Requests for Addition to the List of Telehealth Services for CY 2011

1. Individual KDE Services

2. Individual DSMT Services

3. Group KDE, MNT, DSMT, and HBAI Services

4. Initial, Subsequent, and Discharge Day Management Hospital Care Services

5. Initial, Subsequent, Discharge Day Management, and Other Nursing Facility Care Services

6. Neuropsychological Testing Services

7. Speech-Language Pathology Services

8. Home Wound Care Services

9. Other Issues

D. Summary of CY 2011 Telehealth Policies

E. Telehealth Originating Site Facility Fee Payment Amount Update

V. Addressing Interim Final Relative Value Units from CY 2010 and Establishing Interim Relative Value Units for CY 2011

A. Background

B. Addressing Interim Final RVUs from CY 2010

1. CY 2010 Interim Final Work RVUs Referred to the Refinement Panel

2. CY 2010 Interim Final RVUs for which Public Comments Were Received

a. Insertion of Breast Prosthesis (CPT code 19340)

b. Computed Tomographic Colonography (CPT code 74261)

c. Myocardial Perfusion Imaging (CPT codes 78451, 78452, 78453, and 78454)

d. Nerve Conduction Test (CPT code 95905)

e. Kidney Disease Education Services (HCPCS codes G0420 and G0421)

f. Excision of Soft Tissue and Bone Tumors (CPT codes 21011 through 21016, 21552, 21554 through 21558, 21930 through 21933, 21395, 21936, 22900 through 22905, 23071, 23073, 23075 through 23078, 23200, 23210, 23220, 24071, 24073, 24075 through 24077, 24079, 24150 through 24153, 25071, 25073, 25075 through 25078, 25170, 26111, 26113, 26115 through 26118, 26250, 26255, 26260, 26262, 27043, 27045, 27047 through 27049, 27059, 27075 through 27078, 27327 through 27329, 27337, 27339, 27364, 27365, 27615, 27616, 27618, 27619, 27632, 27634, 27619, 27645 through 27647, 28039, 28041, 28043, 28045 through 28047, 28171, 28173, and 28175)

g. Cryoablation of Prostate (CPT code 55873)

h. Urodynamics Studies (CPT Codes 51728 and 51729)

i. Coronary Computed Tomographic Angiography (CPT codes 75571, 75572, 75573, and 75574)Start Printed Page 73173

j. Adjacent Tissue Transfer or Rearrangement (CPT codes 14301 and 14302)

k. Insertion of a Temporary Prostatic Urethral Stent (CPT code 53855)

l. High Dose Rate Brachytherapy (CPT codes 77785, 77786, and 77787)

m. Injection of Facet Joint (CPT codes 64490, 64491, 64492, 64493, 64494, and 64495)

n. Knee Arthroscopy (CPT code 29870)

3. Status of Interim Final Work RVUs for Potentially Misvalued Site-of-Service Anomaly Codes from CY 2009 and CY 2010

4. Other New, Revised, or Potentially Misvalued Codes with CY 2010 Interim Final RVUs Not Specifically Discussed in the CY 2011 Final Rule with Comment Period

C. Establishment of Interim Final RVUs for CY 2011

1. Establishment of Interim Final Work RVUs for CY 2011

a. Background

b. CY 2011 Interim Final Work RVUs for New and Revised Codes

(i) CY 2011 New and Revised Codes that Do Not Represent Major New Comprehensive Services

(1) Excision and Debridement (CPT codes 11010, 11011, 11012, 11042, 11043, 11044, 11045, 11046, 11047, and 97598)

(2) Arthrodesis Including Discectomy (CPT code 22551)

(3) Strapping Lower Extremity (CPT codes 29540 and 29550)

(4) Paraesophageal Hernia Procedures (CPT codes 43333 and 43335)

(5) Vaginal Radiation Afterloading Apparatus for Clinical Brachytherapy (CPT codes 57155 and 57156)

(6) Vagus Nerve Stimulator (CPT codes 61885, 64568, 64569, and 64570)

(7) Ultrasound of Extremity (CPT codes 76881 and 76882)

(8) Evaluation of Fine Needle Aspirate (CPT code 88172)

(9) Immunization Administration (CPT code 90460 and 90461)

(10) Diabetic Retinopathy Imaging (CPT code 92228)

(11) Speech-Language Pathology Services (CPT codes 92508 and 92606)

(12) Sleep Testing (CPT codes 95806 and 95807)

(13) Subsequent Hospital Observation Care

(ii) Comprehensive Codes for a Bundle of Existing Component Services

(iii) Work Budget Neutrality for Clinical Categories of CPT Codes

c. CY 2011 Interim Final Work RVUs for Potentially Misvalued Codes

(1) Excision and Debridement (CPT codes 11043 and 11044)

(2) Strapping Lower Extremity (CPT code 29540)

(3) Control Nasal Hemorrhage (CPT code 30901)

(4) Cystourethroscopy (CPT codes 52281 and 52332)

(5) Vaginal Radiation Afterloading Apparatus for Clinical Brachytherapy (CPT code 51755)

(6) Obstetrical Care Codes (CPT codes 59440, 59410, 59510, 59515, 59610, 59614, 59618, and 59622)

(7) Vagus Nerve Stimulator (CPT code 61885)

(8) Transforaminal Epidural Injection (CPT code 64483)

(9) CT Thorax (CPT code 71250)

(10) CT Spine (CPT code 72125)

(11) CT Upper and CT Lower Extremity (CPT code 73200 and 73700)

(12) Radiation Treatment Management (CPT code 77427)

2. Establishment of Interim Final Direct PE Inputs for CY 2011

a. Background

b. CY 2011 Interim Final Direct PE Inputs for New, Revised, and Potentially Misvalued Codes

(1) General Equipment Time

(2) Equipment Time and Clinical Labor for Conscious Sedation

(3) Equipment Time for Add-On Codes

(4) Changes in Standard Uses of Certain Supplies

(5) New Supply and Equipment Items

(6) Endovascular Revascularization Stents

(7) Nasal/Sinus Endoscopy Supply and Equipment Items

3. Establishment of Interim Final Malpractice RVUs for CY 2011

VI. Provisions of the Affordable Care Act

A. Section 3002: Improvements to the Physician Quality Reporting System

B. Section 3003: Improvements to the Physician Feedback Program and Section 3007: Value-based payment modifier under the physician fee schedule

1. Background

2. Effect of the ACA of 2010 on the Program

3. Phase II Proposed Changes

4. Implementation of Sections 3003 and 3007 of ACA

5. Comments Sought on Specific Statistical Issues Related to ACA Sections 3003 and 3007

a. Risk Adjustment

b. Attribution

c. Benchmarking and Peer Groups

d. Cost and Quality Measures and Compositing Methods

C. Section 3102: Extension of the Work Geographic Index Floor and Revisions to the Practice Expense Geographic Adjustment under the Medicare Physician Fee Schedule, and Protections for Frontier States as amended by Section 10324

D. Section 3103: Extension of Exceptions Process for Medicare Therapy Caps

E. Section 3104: Extension of Payment for Technical Component of Certain Physician Pathology Services

F. Section 3105 and 10311: Extension of Ambulance Add-Ons

1. Amendment to Section 1834(l)(13) of the Act

2. Amendment to Section 146(b)(1) of MIPAA

3. Amendment to Section 1834(l)(12) of the Act

G. Section 3107: Extension of Physician Fee Schedule Mental Health Add-On

H. Section 3108: Permitting Physician Assistants to Order Post-Hospital Extended Care Services

I. Section 3111: Payment for Bone Density Tests

J. Section 3114: Improved Access for Certified Nurse-Midwife Services

K. Section 3122: Extension of Medicare Reasonable Costs Payments for Certain Clinical Diagnostic Laboratory Tests Furnished to Hospital Patients in Certain Rural Areas

L. Section 3134: Misvalued Codes Under the Physician Fee Schedule

M. Section 3135: Modification of Equipment Utilization Factor for Advanced Imaging Services

1. Adjustment in Practice Expense to Reflect Higher Presumed Utilization

2. Adjustment in Technical Component “Discount” on Single-Session Imaging to Consecutive Body Parts

N. Section 3136: Revision for Payment for Power-Driven Wheelchairs

1. Payment Rules for Power Wheelchairs

2. Revision of Payment Amounts for Power Wheelchairs

3. Elimination of Lump Sum Payment for Standard Power Wheelchairs

O. Section 3139: Payment for Biosimilar Biological Products

P. Section 3401: Revision of Certain Market Basket Updates and Incorporation of Productivity Improvements into Market Basket Updates That Do Not Already Incorporate Such Improvements

1. ESRD Market Basket Discussion

2. Productivity Adjustment regarding Ambulatory Surgical Center, Ambulance, Clinical Laboratory and DMEPOS Fee Schedules

a. Ambulatory Surgery Centers (ASCs)

b. Ambulance Fee Schedule (AFS)

c. Clinical Lab Fee Schedule

d. DMEPOS Fee Schedule

Q. Section 4103: Medicare Coverage of Annual Wellness Visit Providing a Personalized Prevention Plan

1. Background and Statutory Authority

a. Medicare Coverage of Preventive Physical Examinations and Routine Checkups

b. Requirements for Coverage of an Annual Wellness Visit

2. Regulatory Revisions—Summary of Proposed Rule and Comments

a. Revisions to § 411.15, Particular Services Excluded from Coverage

b. Revisions to Part 410, Subpart B—Medical and Other Health Services

(1) Definitions

(2) Requirements of the First Annual Wellness Visit Providing Personalized Prevention Plan Services

(3) Requirements of Subsequent Annual Wellness Visits Providing Personalized Prevention Plan Services

3. Payment for the Annual Wellness Visit Providing Personalized Prevention Plan Services (PPPS)

R. Section 4104: Removal of Barriers to Preventive Services in Medicare

1. Definition of “Preventive Services”

2. Deductible and Coinsurance for Preventive Services

3. Extension of Waiver of Deductible to Services Furnished in Connection With or in Relation to a Colorectal Cancer Screening Test that Becomes Diagnostic or TherapeuticStart Printed Page 73174

S. Section 5501: Expanding Access to Primary Care Services and General Surgery Services

1. Section 5501(a): Incentive Payment Program for Primary Care Services

a. Background

b. Primary Care Incentive Payment Program (PCIP)

(1) Primary Specialty Designation

(2) Primary Care Percentage Calculation

(3) Period of Claims Data for Primary Care Percentage Calculation

(4) PCIP Payment

(5) Summary of Final PCIP Policies

2. Section 5501(b): Incentive Payment Program for Major Surgical Procedures Furnished in Health Professional Shortage Areas

a. Background

b. HPSA Surgical Incentive Payment Program (HSIP)

3. Sections 5501(a) and (b) of the Affordable Care Act and Payment for Critical Access Hospital Professional Services Under the Optional Method

T. Section 6003: Disclosure Requirements for In-Office Ancillary Services Exception to the Prohibition on Physician Self-Referral for Certain Imaging Services

1. Background

2. Disclosure Requirement

a. Services the Trigger the Disclosure Requirement

b. General Disclosure Requirements

c. List of Alternate Suppliers

d. Documentation of Disclosure

e. Effective Date

f. Other comments

U. Section 6404: Maximum Period for Submission of Medicare Claims Reduced to Not More than 12 Months

1. Background

2. Provisions of ACA

V. Section 6410 of the Affordable Care Act and Section 154 of MIPPA: Adjustments to the Metropolitan Statistical Areas (MSA) for Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive Acquisition Program

1. Background

2. Subdividing Large MSAs under Round 2

3. Exclusions of Certain Areas after Round 2 and Prior to 2015

4. Expansion of Round 2

W. Section 10501(i)(3): Collection of HCPCS data for Development and Implementation of a Prospective Payment System for the Medicare Federally Qualified Health Center Program

VII. Other Provisions of the Final Rule

A. Part B Drug Payment: Average Sales Price (ASP) Issues

1. “Carry Over” ASP

2. Partial Quarter ASP Data

3. Determining the Payment Amount for Drugs and Biologicals Which Include Intentional Overfill

4. WAMP/AMP

5. AMP Threshold and Price Substitutions

6. Out of Scope Comments

B. Ambulance Fee Schedule: Policy for Reporting Units when Billing for Ambulance Fractional Mileage

1. History of Medicare Ambulance Services

a. Statutory Coverage of Ambulance Services

b. Medicare Regulations for Ambulance Services

2. Mileage Reporting—Summary of the Provisions of the CY 2011 Proposed Rule

a. Background and Current Process for Reporting Ambulance Mileage

b. Concerns Regarding the Potential for Inaccuracies in Reporting Units and Associated Considerations

c. Billing of Fractional Units for Mileage

3. Analysis of and Responses to Public Comments

a. Basis for Reconsideration of the Ambulance Mileage Reporting Requirements

b. Appropriateness of Fractional Mileage Reporting Policy

(1) Financial Impact of Fractional Mileage Policy

c. Administrative Impact

(2) Technical and Other Considerations

(A) Ability to Measure Fractional Miles

(B) Ambulance Provider versus Supplier Billing

(C) Billing Software

(D) Enforcement and Compliance

(E) Air Ambulance

(F) Miscellaneous Comments

4. Applicability of the Fractional Billing Policy to Other Services

5. Final Fractional Mileage Billing Policy

C. Clinical Laboratory Fee Schedule: Signature on Requisition

D. Discussion of Budget Neutrality for the Chiropractic Services Demonstration

E. Provisions Related to Payment for Renal Dialysis Services Furnished by End-Stage Renal Disease (ESRD) Facilities

(1) Update to the Drug Add-on Adjustment to the Composite Rate

(2) Estimating Per Patient Growth

(3) Update to the Drug Add-on Adjustment

(4) Update to the Geographic Adjustments to the Composite Rate

(5) Updates to Core-Based Statistical Area (CBSA) Definitions

(6) Updated Wage Index Values

(7) Wage index Values for Areas With No Hospital Data

(8) Reduction to the ESRD Wage Index Floor

(9) Budget Neutrality Adjustment

(10) ESRD Wage Index Tables

F. Issues Related to the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)

1. Section 131: Physician Payment, Efficiency, and Quality Improvements—Physician Quality Reporting System

a. Program Background and Statutory Authority

b. Incentive Payments for the 2011 Physician Quality Reporting System

c. 2011 Reporting Periods for Individual Eligible Professionals

d. 2011 Physician Quality Reporting System Reporting Mechanisms for Individual Eligible Professionals

(1) Final Requirements for Individual Eligible Professionals Who Choose the Claims-based Reporting Mechanism

(2) Final Requirements for Individual Eligible Professionals Who Choose the Registry-based Reporting Mechanism

(3) Final Requirements for Individual Eligible Professionals Who Choose the EHR based Reporting Mechanism

(4) Final Qualification Requirements for Registries

(5) Final Qualification Requirements for EHR Vendors and Their Products

e. Criteria for Satisfactory Reporting of Individual Quality Measures for Individual Eligible Professionals

f. Criteria for Satisfactory Reporting Measures Groups for Individual Eligible Professionals

g. Reporting Option for Satisfactory Reporting on Quality Measures by Group Practices

(1) Background and Authority

(2) Definition of “Group Practice”

(3) Process for Physician Group Practices to Participate as Group Practices and Criteria for Satisfactory Reporting

A. Group Practice Reporting Option for Physician Group Practices with 200 or More NPIs GPRO I

B. Group Practice Reporting Option for Group Practices of 2-199 NPIs—GPRO-II

h. Statutory Requirements and Other Considerations for 2011 Physician Quality Reporting System Measures

(1) Statutory Requirements for 2011 Physician Quality Reporting System Measures

(2) Other Considerations for 2011 Physician Quality Reporting System Measures

(3) Summary of Comments and Responses

i. The Final 2011 Physician Quality Reporting System Quality Measures for Individual Eligible Professionals

(1) 2011 Individual Quality Measures Selected From the 2010 Physician Quality Reporting System Quality Measures Set Available for Claims based Reporting and Registry-based Reporting

(2) 2011 Individual Quality Measures Selected From the 2010 Physician Quality Reporting System Quality Measures Set Available for Registry-based Reporting Only

(3) New Individual Quality Measures for 2011

(4) 2011 Measures Available for EHR-based Reporting

(5) Measures Proposed for Inclusion in 2011 Measures Groups

j. 2011 Physician Quality Reporting System Quality Measures for Group Practices Selected to Participate in the Group Practice Reporting Option (GPRO I)

k. Public Reporting of Physician Quality Reporting System Data

l. Other Relevant ACA Provisions

(1) Section 3002 (b)—Incentive Payment Adjustment for Quality Reporting

(2) Section 3002(c)—Maintenance of Certification Programs and Section 10327 Improvements to the Physician Quality Reporting System

(3) Section 3002(d)—Integration of Physician Quality Reporting and EHR Reporting

(4) Section 3002(e)—Feedback

(5) Section 3002(f)—Appeals

2. Section 132: Incentives for Electronic Prescribing (eRx)- The Electronic Prescribing Incentive ProgramStart Printed Page 73175

a. Program Background and Statutory Authority

b. The 2011 eRx Incentive

(1) The 2011 Reporting Period for the eRx Incentive Program

(2) Criteria for Determination of Successful Electronic Prescriber for Eligible Professionals

(A) Reporting the Electronic Prescribing Measure

(B) The Reporting Denominator for the Electronic Prescribing Measure

(C) Qualified Electronic Prescribing System—Required Functionalities and Part D eRx Standards

(D) The Reporting Numerator for the Electronic Prescribing Measure

(E) Criteria for Successful Reporting of the Electronic Prescribing Measure

(3) Determination of the 2011 Incentive Payment Amount for Individual Eligible Professionals Who Are Successful Electronic Prescribers

(4) Reporting Option for Satisfactory Reporting of the Electronic Prescribing Measure by Group Practices

(A) Definition of “Group Practice”

(B) Process for Group Practices to Participate as Group Practices and Criteria for Successful Reporting of the Electronic Prescribing Measure by Group Practices

c. The 2012 eRx Payment Adjustment

(1) The eRx Payment Adjustment Reporting Period

(2) Criteria for Determining Applicability of the 2012 eRx Payment Adjustment to Individual Eligible Professionals

(3) Criteria for Determining Applicability of the 2012 eRx Payment Adjustment to Group Practices

(4) Significant Hardship Exemption

d. The 2013 eRx Payment Adjustment

e. Public Reporting of Names of Successful Electronic Prescribers

G. DMEPOS Provisions

1. Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP)

a. Legislative and Regulatory History of DMEPOS CBP

b. Implementation of a National Mail Order DMEPOS Competitive Bidding Program (CBP) for Diabetic Testing Supplies

(1) Future Competitions for Diabetic Testing Supplies

(2) Definition of Mail Order Item

(3) Special Rule in Case of Competition for Diabetic Testing Strips

(4) Anti-switching Rule in Case of Competition for Diabetic Test Strips

c. Off-the-Shelf (OTS) Orthotics Exemption

d. Grandfathering Rules Resulting in Additional Payments to Contract Suppliers under the DMEPOS Competitive Bidding Program (CBP)

e. Appeals Process

(1) Purpose and Definitions: (§ 414.402)

(2) Applicability

(3) Contract Termination

(4) Notice of Termination

(5) Corrective Action Plan

(6) Right to Request a Hearing by the CBIC Hearing Officer (HO)

(7) Scheduling of the Hearing

(8) Burden of Proof

(9) Role of the Hearing Officer (HO)

(10) CMS's Final Determination

(11) Effective Date of the Contract Termination

(12) Effect of Contract Termination

2. Changes to Payment Rules for Oxygen and Oxygen Equipment

a. Background

b. Furnishing Oxygen Equipment after the 36-Month Rental Period (CAP)

c. Furnishing Oxygen Equipment during the 36-Month Rental Period (CAP)

H. Provider and Supplier Enrollment Issue: Air Ambulance Provision

I. Technical Corrections

1. Physical Therapy, Occupational Therapy and Speech-language Pathology

2. Scope of Benefits

J. Physician Self-Referral Prohibition: Annual Update to the List of CPT/HCPCS Codes

1. General

2. Annual Update to the Code List

a. Background

b. Response to Comments

c. Revisions Effective for 2011

VIII. Waiver of Proposed Rulemaking and Delay in Effective Date

IX. Collection of Information Requirements

A. ICRs Regarding Diagnostic X-ray Tests, Diagnostic Laboratory Tests, and Other Diagnostic Tests: Conditions (§ 410.32)

B. ICRs Regarding General Exceptions to the Referral Prohibition Related to Both Ownership/Investment and Compensation (§ 411.355)

C. ICRs Regarding Appeals Process for Termination of Competitive Bidding Contract (§ 414.423)

D. ICRs Regarding Additional Provider and Supplier Requirements for Enrolling and Maintaining Active Enrollment status in the Medicare Program (§ 424.516)

E. Additional Information Collection Requirements

1. Part B Drug Payment

2. Physician Quality Reporting Initiative (PQRI)

3. Electronic Prescribing (eRx) Incentive Program

X. Response to Comments

XI. Regulatory Impact Analysis

A. RVU Impacts

1. Resource Based Work, PE, and Malpractice RVUs

2. CY 2011 PFS Impact Discussion

a. Changes in RVUs

b. Combined Impact

B. Geographic Practice Cost Indices (GPCIs)

C. Rebasing and Revising of the MEI

D. The Affordable Care Act Provisions

1. Section 3002: Improvements to the Physician Quality Reporting System

2. Sections 3003 and 3007: Improvements to the Physician Feedback Program and Value-Based Payment Under the Physician Fee Schedule

2. Section 3103: Extension of Exceptions Process for Medicare Therapy Caps

3. Section 3102: Extension of the Work Geographic Index Floor and Revisions to the Practice Expense Geographic Adjustment under the Medicare Physician Fee Schedule, and Protections for Frontier States as amended by Section 10324

4. Section 3103: Extension of Exceptions Process for Medicare Therapy Caps

5. Section 3104: Extension of Payment for Technical Component of Certain Physician Pathology Services

6. Sections 3105 and 10311: Extension of Ambulance Add-Ons

7. Section 3107: Extension of Physician Fee Schedule Mental Health Add-On

8. Section 3108: Permitting Physician Assistants to Order Post-Hospital Extended Care Services

9. Section 3111: Payment for Bone Density Tests

10. Section 3114: Improved Access for Certified Nurse-Midwife Services

11. Section 3122: Extension of Medicare Reasonable Costs Payments for Certain Clinical Diagnostic Laboratory Tests Furnished to Hospital Patients in Certain Rural Areas

12. Section 3134: Misvalued Codes Under the PFS

13. Section 3135: Modification of Equipment Utilization Factor For Advanced Imaging Services

14. Section 3136: Revisions in Payments for Power Wheelchairs

15. Section 3139: Payment for Biosimilar Biological Products

16. Section 3401: Revisions of Certain Market Basket Updates and Incorporation of Productivity Adjustments

17. Section 4103: Medicare Coverage of Annual Wellness Visit Providing a Personalized Prevention Plan

18. Section 4104: Removal of Barriers to Preventive Services in Medicare

19. Section 5501: Expanding Access to Primary Care Services and General Surgery Services

20. Section 6003: Disclosure Requirements for In-office Ancillary Services Exception to the Prohibition of Physician Self-referral for Certain Imaging Services

21. Section 6404: Maximum Period for Submission of Medicare Claims Reduced to Not More Than 12 Months

22. Section 6410 of Patient Accountability and Affordable Care Act and Section 154 of MIPPA: Adjustments to the Metropolitan Statistical Areas (MSA) for Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies Competitive Acquisition Program

23. Section 10501(i)(3): Collection of HCPCS Data for the Development and Implementation of a Prospective Payment System for the Medicare FQHC Program

E. Other Provisions of the Proposed Regulation

1. Part B Drug Payment: ASP Issues

2. Ambulance Fee Schedule: Proposed Policy for Reporting Units when Billing for Ambulance Fractional Mileage

3. Chiropractic Services Demonstration

4. Renal Dialysis Services Furnished by ESRD Facilities

5. Section 131(b) of the MIPPA: Physician Payment, Efficiency, and Quality Improvements—Physician Quality Reporting System

6. Section 132 of the MIPPA: Incentives for Electronic Prescribing (eRx)—The eRx Incentive ProgramStart Printed Page 73176

7. Durable Medical Equipment-Related Issues

a. Off-the-Shelf (OTS) Orthotics Exemption

b. Changes to Payment for Oxygen Equipment

c. Diabetic Testing Supplies

d. Metropolitan Statistical Areas

8. Air Ambulance

F. Alternatives Considered

G. Impact on Beneficiaries

H. Accounting Statement

Regulations Text

Addendum A—Explanation and Use of Addendum B

Addendum B—Relative Value Units and Related Information Used In Determining Medicare Payments for CY 2011

Addendum C—Codes With Interim RVUS

Addendum D—Final 2011 Geographic Adjustment Factors (GAFS)

Addendum E—Final 2011****Geographic Practice Cost Indicies (GPCIS) By State and Medicare Locality

Addendum F—CY 2011 Diagnostic Imaging Services Subject To The Multiple Procedure Payment Reduction

Addendum G—CPT/HCPCS Imaging Codes Defined By Section 5102(B) of the DRA

Addendum H—CY 2011 “Always Therapy” Services* Subject to the Multiple Procedure Payment Reduction

Addendum I—[Reserved]

Addendum J—List of CPT1/HCPCS Codes Used to Define Certain Designated Health Service Categories2 Under Section 1877 of the Social Security Act Effective January 1, 2011

Addendum K—CY 2011 ESRD Wage Index For Urban Areas Based On CBSA Labor Market Areas

Addendum L— CY 2011 Wage Index For Rural Areas Based On CBSA Labor Market Areas

Acronyms

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

AA Anesthesiologist assistant

AACVPR American Association of Cardiovascular and Pulmonary Rehabilitation

AANA American Association of Nurse Anesthetists

ABMS American Board of Medical Specialties

ABN Advanced Beneficiary Notice

ACA “Affordable Care Act”

ACC American College of Cardiology

ACGME Accreditation Council on Graduate Medical Education

ACLS Advanced cardiac life support

ACP American College of Physicians

ACR American College of Radiology

ACS American Community Survey

AED Automated external defibrillator

AFROC Association of Freestanding Radiation Oncology Centers

AFS Ambulance Fee Schedule

AHA American Heart Association

AHFS-DI American Hospital Formulary Service-Drug Information

AHRQ [HHS] Agency for Healthcare Research and Quality

AMA American Medical Association

AMA-DE American Medical Association Drug Evaluations

AACE American Association of Clinical Endocrinologists

AADE American Association of Diabetes Educators

AMP Average manufacturer price

AO Accreditation organization

AOA American Osteopathic Association

APA American Psychological Association

APC Administrative Procedures Act

APTA American Physical Therapy Association

ARRA American Recovery and Reinvestment Act (Pub. L. 111-5)

ASC Ambulatory surgical center

ASP Average sales price

ASRT American Society of Radiologic Technologists

ASTRO American Society for Therapeutic Radiology and Oncology

ATA American Telemedicine Association

AWP Average wholesale price

AWV Annual Wellness Visit

BBA Balanced Budget Act of 1997 (Pub. L. 105-33)

BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)

BPM Benefit Policy Manual

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

BLS Bureau of Labor Statistics

BN Budget neutrality

BPM Benefit Policy Manual

CABG Coronary artery bypass graft

CAD Coronary artery disease

CAH Critical access hospital

CAHEA Committee on Allied Health Education and Accreditation

CAP Competitive acquisition program

CARE Continuity Assessment Record and Evaluation

CBIC Competitive Bidding Implementation Contractor

CBP Competitive Bidding Program

CBSA Core-Based Statistical Area

CDC Centers for Disease Control and Prevention

CEM Cardiac Event Monitoring

CF Conversion factor

CFC Conditions for Coverage

CFR Code of Federal Regulations

CKD Chronic kidney disease

CLFS Clinical laboratory fee schedule

CMA California Medical Association

CMD Contractor Medical Director

CMHC Community mental health center

CMP Civil money penalty

CMS Centers for Medicare & Medicaid Services

CNS Clinical nurse specialist

CoP Condition of participation

COPD Chronic obstructive pulmonary disease

CORF Comprehensive Outpatient Rehabilitation Facility

COS Cost of service

CPEP Clinical Practice Expert Panel

CPI Consumer Price Index

CPI-U Consumer price index for urban consumers

CPR Cardiopulmonary resuscitation

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

CR Cardiac rehabilitation

CRNA Certified registered nurse anesthetist

CRP Canalith repositioning

CRT Certified respiratory therapist

CSW Clinical social worker

CT Computed Tomography

CTA Computed Tomography Angography

CSC Computer Sciences Corporation

CWF Common Working File

CY Calendar year

DEA Drug Enforcement Agency

DOTPA Development of Outpatient Therapy Alternatives

DHS Designated health services

DHHS Department of Health and Human Services

DME Durable medical equipment

DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies

DOQ Doctors Office Quality

DOS Date of service

DRA Deficit Reduction Act of 2005 (Pub. L. 109-171)

DSMT Diabetes self-management training

EGC Electrocardiogram

E/M Evaluation and management

EDI Electronic data interchange

EEG Electroencephalogram

EHR Electronic health record

EKG Electrocardiogram

EMG Electromyogram

EMTALA Emergency Medical Treatment and Active Labor Act

EOG Electro-oculogram

EPO Erythopoeitin

eRx Electronic Prescribing

ESO Endoscopy Supplies

ESRD End-stage renal disease

FAA Federal Aviation Administration

FAX Facsimile

FDA Food and Drug Administration (HHS)

FFS Fee-for-service

FOTO Focus On Therapeutic Outcomes

FQHC Federally Qualified Health Center

FR Federal Register

GAF Geographic adjustment factor

GAO General Accounting Office

GEM Generating Medicare [Physician Quality Performance Measurement Results]

GFR Glomerular filtration rate

GPRO Group Practice Reporting Option

GPO Group purchasing organization

GPCI Geographic practice cost index

GPS Geographic Positioning System

GSA General Services Administration

HAC Hospital-acquired conditions

HBAI Health and behavior assessment and intervention

HCC Hierarchal Condition Category

HCPAC Health Care Professional Advisory Committee

HCPCS Healthcare Common Procedure Coding System

HCRIS Healthcare Cost Report Information System

HEMS Helicopter Emergency Medical Services

HDRT High dose radiation therapyStart Printed Page 73177

HH PPS Home Health Prospective Payment System

HHA Home health agency

HHRG Home health resource group

HHS [Department of] Health and Human Services

HIPAA Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191)

HIT Health information technology

HITECH Health Information Technology for Economic and Clinical Health Act (Title IV of Division B of the Recovery Act, together with Title XIII of Division A of the Recovery Act)

HITSP Healthcare Information Technology Standards Panel

HIV Human immunodeficiency virus

HOPD Hospital outpatient department

HPSA Health Professional Shortage Area

HRA Health Risk Assessment

HRSA Health Resources Services Administration (HHS)

HSIP HPSA Surgical Incentive Program

HUD Housing and Urban Development

IACS Individuals Access to CMS Systems

ICD International Classification of Diseases

ICF Intermediate care facilities

ICF International Classification of Functioning, Disability and Health

ICR Intensive cardiac rehabilitation

ICR Information collection requirement

IDTF Independent diagnostic testing facility

IGI IHS Global Insight, Inc.

IFC Interim final rule with comment period

IMRT Intensity-Modulated Radiation Therapy

IOM Internet Only Manual

IPCI indirect practice cost index

IPPE Initial preventive physical examination

IPPS Inpatient prospective payment system

IRS Internal Revenue Service

ISO Insurance services office

IVD Ischemic Vascular Disease

IVIG Intravenous immune globulin

IWPUT Intra-service work per unit of time

TJC Joint Commission

JRCERT Joint Review Committee on Education in Radiologic Technology

KDE Kidney disease education

LCD Local coverage determination

MA Medicare Advantage

MA-PD Medicare Advantage-Prescription Drug Plans

MAC Medicare Administrative Contractor

MAV Measure Applicability Validation

MCMP Medicare Care Management Performance

MCP Monthly Capitation Payment

MDRD Modification of Diet in Renal Disease

MedCAC Medicare Evidence Development and Coverage Advisory Committee (formerly the Medicare Coverage Advisory Committee (MCAC))

MedPAC Medicare Payment Advisory Commission

MGMA Medical Group Management Association

MEI Medicare Economic Index

MIEA-TRHCA Medicare Improvements and Extension Act of 2006 (that is, Division B of the Tax Relief and Health Care Act of 2006 (TRHCA) (Pub. L. 109-432)

MIPPA Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275)

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173)

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173)

MNT Medical nutrition therapy

MOC Maintenance of certification

MP Malpractice

MPC Mulitspecialty Points of Comparison

MPPR Multiple procedure payment reduction

MQSA Mammography Quality Standards Act of 1992 (Pub. L. 102-539)

MRA Magnetic Resonance Angiography

MRI Magnetic Resonance Imaging

MSA Metropolitan Statistical Area

MSP Medicare Secondary Payer

MUE Medically Unlikely Edit

NCCI National Correct Coding Initiative

NCD National Coverage Determination

NCQA National Committee for Quality Assurance

NCQDIS National Coalition of Quality Diagnostic Imaging Services

NDC National drug code

NF Nursing facility

NISTA National Institute of Standards and Technology Act

NP Nurse practitioner

NPI National Provider Identifier

NPP Nonphysician practitioner

NQF National Quality Forum

NBRC National Board for Respiratory Care

NRC Nuclear Regulatory Commission

NTSB National Transportation Safety Board

NUBC National Uniform Billing Committee

OACT [CMS] Office of the Actuary

OBRA Omnibus Budget Reconciliation Act

OCR Optical Character Recognition

ODF Open door forum

OES Occupational Employment Statistics

OGPE Oxygen generating portable equipment

OIG Office of Inspector General

OMB Office of Management and Budget

ONC [HHS] Office of the National Coordinator for Health IT

OPPS Outpatient prospective payment system

OSCAR Online Survey and Certification and Reporting

PA Physician assistant

PACE Program of All-inclusive Care for the Elderly

PAT Performance assessment tool

PC Professional component

PCI Percutaneous coronary intervention

PCIP Primary Care Incentive Payment Program

PDP Prescription drug plan

PE Practice expense

PE/HR Practice expense per hour

PEAC Practice Expense Advisory Committee

PECOS Provider Enrollment Chain and Ownership System

PERC Practice Expense Review Committee

PFS Physician Fee Schedule

PGP [Medicare] Physician Group Practice

PHI Protected health information

PHP Partial hospitalization program

PIM [Medicare] Program Integrity Manual

PLI Professional liability insurance

POA Present on admission

POC Plan of care

PPI Producer price index

PPIS Physician Practice Information Survey

PPPS Personalized Prevention Plan Services

PPS Prospective payment system

PPTA Plasma Protein Therapeutics Association

PQRI Physician Quality Reporting Initiative

PR Pulmonary rehabilitation

PRA Paperwork Reduction Act

PSA Physician scarcity areas

PT Physical therapy

PTCA Percutaneous transluminal coronary angioplasty

PTA Physical therapy assistant

PVBP Physician and Other Health Professional Value-Based Purchasing Workgroup

QDCs (Physician Quality Reporting System) Quality Data Codes

RA Radiology assistant

RAC Medicare Recovery Audit Contractor

RBMA Radiology Business Management Association

RFA Regulatory Flexibility Act

RHC Rural health clinic

RHQDAPU Reporting Hospital Quality Data Annual Payment Update Program

RIA Regulatory impact analysis

RN Registered nurse

RNAC Reasonable net acquisition cost

RPA Radiology practitioner assistant

RRT Registered respiratory therapist

RUC [AMAs Specialty Society] Relative (Value) Update Committee

RVRBS Resource-Based Relative Value Scale

RVU Relative value unit

SBA Small Business Administration

SCHIP State Children's Health Insurance Programs

SDW Special Disability Workload

SGR Sustainable growth rate

STATS Short Term Alternatives for Therapy Services

SLP Speech-language pathology

SMS [AMAs] Socioeconomic Monitoring System

SNF Skilled nursing facility

SOR System of record

SRS Stereotactic radiosurgery

SSA Social Security Administration

SSI Social Security Income

STARS Services Tracking and Reporting System

STATS Short Term Alternative Therapy Services

TC Technical Component

TIN Tax identification number

TRHCA Tax Relief and Health Care Act of 2006 (Pub. L. 109-432)

TTO Transtracheal oxygen

UAF Update Adjustment Factor

UPMC University of Pittsburgh Medical Center

URAC Utilization Review Accreditation Committee

USDE United States Department of Education

USP-DI United States Pharmacopoeia-Drug Information

VA Veterans Administration

VBP Value-based purchasing

WAC Wholesale Acquisition CostStart Printed Page 73178

WAMP Widely available market price

WHO World Health Organization

CPT (Current Procedural Terminology) Copyright Notice

Throughout this final rule with comment period, we use CPT codes and descriptions to refer to a variety of services. We note that CPT codes and descriptions are copyright 2010 American Medical Association. All Rights Reserved. CPT is a registered trademark of the American Medical Association (AMA). Applicable FARS/DFARS apply.

I. Background

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) are based on national uniform relative value units (RVUs) based on the relative 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. Before the establishment of the resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges. We note that throughout this final rule with comment period, unless otherwise noted, the term “practitioner” is used to describe both physicians and eligible nonphysician practitioners (such as physician assistants, nurse practitioners, clinical nurse specialists, certified nurse-midwives, psychologists, or social workers) that are permitted to furnish and bill Medicare under the PFS for the services under discussion.

A. 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 (Pub. L. 101-239), and OBRA 1990, (Pub. L. 101-508). The final rule, published on 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 (DHHS). In constructing the code-specific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the Federal government, and obtained input from numerous physician specialty groups.

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, with appropriate adjustment of the conversion factor (CF), in a manner to assure that fee schedule amounts for anesthesia services are consistent with those for other services of comparable value. We established a separate CF for anesthesia services, and we continue to utilize time units as a factor in 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 our review of 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 physicians' service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs.

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 physicians' 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 (RNs)) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physicians' service in both the office setting and out-of-office setting. We have since refined and revised these inputs based on recommendations from the RUC. 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 (HOPD). The difference between the facility and nonfacility RVUs reflects the fact that a facility typically 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.

Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary of Health and Human Services (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 a 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 through March 1, 2005.

In the calendar year (CY) 2007 PFS final rule with comment period (71 FR 69624), we revised the methodology for calculating direct PE RVUs from the top-down to the bottom-up methodology beginning in CY 2007 and provided for a 4-year transition for the new PE RVUs under this new methodology. This transition ended in CY 2010 and direct PE RVUs are calculated in CY 2011 using this methodology, unless otherwise noted.

In the CY 2010 PFS final rule with comment period, we updated the PE/hour (HR) data that are used in the Start Printed Page 73179calculation of PE RVUs for most specialties (74 FR 61749). For this update, we used the Physician Practice Information Survey (PPIS) conducted by the AMA. The PPIS is a multispecialty, nationally representative, PE survey of both physicians and nonphysician practitioners (NPPs) using a survey instrument and methods highly consistent with those of the SMS and the supplemental surveys used prior to CY 2010. We note that in CY 2010, for oncology, clinical laboratories, and independent diagnostic testing facilities (IDTFs), we continued to use the supplemental survey data to determine PE/HR values (74 FR 61752).

3. Resource-Based Malpractice (MP) RVUs

Section 4505(f) of the BBA amended section 1848(c) of the Act requiring us to implement resource-based malpractice (MP) RVUs for services furnished on or after CY 2000. The resource-based MP RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380). The MP RVUs were 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 5 years. The first Five-Year Review of the physician work RVUs was published on November 22, 1996 (61 FR 59489) and was effective in 1997. The second Five-Year Review was published in the CY 2002 PFS final rule with comment period (66 FR 55246) and was effective in 2002. The third Five-Year Review of physician work RVUs was published in the CY 2007 PFS final rule with comment period (71 FR 69624) and was effective on January 1, 2007. (Note: Additional codes relating to the third Five-Year Review of physician work RVUs were addressed in the CY 2008 PFS final rule with comment period (72 FR 66360).) The fourth Five-Year Review of physician work RVUs was initiated in the CY 2010 PFS final rule with comment period where we solicited candidate codes from the public for this review (74 FR 61941). Changes due to the fourth Five-Year Review of physician work RVUs will be effective January 1, 2012.

In 1999, the AMA RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMAs Current Procedural Terminology (CPT) codes). As part of the CY 2007 PFS final rule with comment period (71 FR 69624), we implemented a new bottom-up methodology for determining resource-based PE RVUs and transitioned the new methodology over a 4-year period. A comprehensive review of PE was undertaken prior to the 4-year transition period for the new PE methodology from the top-down to the bottom-up methodology, and this transition was completed in CY 2010. In CY 2010, we also incorporated the new PPIS data to update the specialty-specific PE/HR data used to develop PE RVUs. Therefore, the next Five-Year Review of PE RVUs will be addressed in CY 2014.

In the CY 2005 PFS final rule with comment period (69 FR 66236), we implemented the first Five-Year Review of the MP RVUs (69 FR 66263). Minor modifications to the methodology were addressed in the CY 2006 PFS final rule with comment period (70 FR 70153). The second Five-Year Review and update of resource-based malpractice RVUs was published in the CY 2010 PFS final rule with comment period (74 FR 61758) and was effective in CY 2010.

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 revisions to the 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.

For CY 2010, we adopted a number of new payment policies for which we estimated the potential for a redistributive effect under the PFS, including the use of the new PPIS data to develop the specialty-specific PE/HR used for the PE RVUs (74 FR 61749 through 61752) and the elimination of the reporting of all CPT consultation codes in order to allow for correct and consistent coding and appropriate payment for evaluation and management services under the PFS (74 FR 61767 through 61775). In the CY 2011 PFS proposed rule (75 FR 40047), we acknowledged that clinical experience with these new PFS policies has been growing over the first 6 months of CY 2010 and noted that as we seek to improve future PFS payment accuracy for services, we were interested in public comments on the perspectives of physicians and nonphysician practitioners caring for Medicare beneficiaries under the current PFS coding and payment methodologies for physicians' services.

Comment: Many commenters expressed various concerns regarding new Medicare coding and payment methodologies adopted for CY 2010 and continuing in CY 2011. Some commenters indicated that the effects of using PPIS data to develop the specialty-specific practice expense per hour (PE/HR) significantly reduced the payment for certain services and procedures. Commenters were concerned that the reductions in practice costs reflected in the PPIS data were inaccurate and that CMS reliance on the PPIS data caused undue hardship to certain specialties. Some commenters requested that CMS utilize new PE survey data for specific specialties.

A number of commenters were also particularly concerned with the decision by CMS to no longer recognize the CPT consultation codes for Part B payment of evaluation and management (E/M) services beginning in CY 2010. Many commenters recommended resuming payment for consultation codes under the PFS to recognize the unique physician work and practice expenses when consultation services are furnished at the request of other practitioners. Several commenters argued that consultation services were especially important to ensuring high-quality, coordinated care for complex patients and to prevent unnecessary, expensive tests. Based on findings from a survey of affected specialties, these commenters expressed concern that CMS policy decision to no longer recognize the CPT consultation codes for PFS payment purposes resulted in: (1) A reduction in the number of new Medicare patients seen by specialists; (2) a reduction in overall specialist time spent with individual Medicare patients; (3) a reduction in the number of consultations provided to hospital inpatients; (4) diminished continuity and coordination of care; and (5) the elimination of physicians' office staff and postponement of physicians purchasing new equipment because of practice cost concerns. Finally, other commenters requested that, in the absence of recognition of the CPT consultation codes for PFS payment, CMS should revise the current prolonged services and new patient definitions in order to allow for higher payments for services that, prior to CY 2010, would have been billed using the CPT consultation codes. Specifically, Start Printed Page 73180the commenters believe that CMS should adopt the current CPT policy of identifying patients seen by physicians in a different subspecialty within a group practice as “new” patients, rather than continuing to use the same physician specialty as the decision point. In addition, some commenters encouraged CMS to adopt the CPT inpatient setting guidelines for determining whether a service meets the prolonged service criteria, which allow physicians to include time spent on a patients floor or unit performing tasked related to the patients care, rather than just face-to-face time as specified under current CMS policy.

Response: We appreciate the concerns of the commenters regarding current PFS coding and payment methodologies. We welcome the perspective of physicians and nonphysician practitioners caring for Medicare beneficiaries. We understand that in some cases, recent policy changes under the PFS reduced payments for certain professional services, albeit with the goal of providing payment for services that appropriately reflects their relative value in the context of PFS payment for all other services. It is in the nature of any budget neutral payment system for changes, such as the use of PPIS data and the elimination of PFS payment for the CPT consultation codes, to have a somewhat differential impact on various groups of physicians and/or nonphysician practitioners. Furthermore, we note that all physicians benefited from the budget neutral increase in the payment levels for the other evaluation and management (E/M) CPT codes that resulted from the consultation code policy change.

For CY 2010, we adopted the PPIS data for developing the PE RVUs as the most recent data on physicians office practice expenses that used a consistent survey instrument across all specialty and healthcare professional groups. The PPIS was a nationally representative survey providing the most up-to-date and comprehensive data available from 51 specialties, using a survey instrument that was carefully designed, tested, and implemented. As discussed in the CY 2010 PFS final rule with comment period (75 FR 61751), because we recognized that some specialties would likely experience significant payment reductions with the use of the PPIS data, we adopted a 4-year transition from the previous PE RVUs to the PE RVUs developed using the new PPIS data in order to allow physicians and others time to adjust to the payment changes. We note that CY 2010 was the first year of the transition, with payment based upon 75 percent of the previous PE RVUs and 25 percent of the PE RVUs using the new PPIS data. This blend will move to 50/50 in CY 2011, and we intend to continue to closely monitor Medicare PFS utilization data to detect any emerging issues that may be of concern during this transition period, such as access problems for Medicare beneficiaries. To date, we have identified no specific problems that would warrant our proposal of a change with respect to the final CY 2010 policy regarding development of the PE RVUs based on the PPIS data. Going forward, as discussed further in section II.A.2.f. of this final rule with comment period, we remain interested in the thoughts of stakeholders regarding the MedPAC comment that “CMS should consider alternatives to collecting specialty-specific cost data or options to decrease the reliance on such data.” We encourage interested parties to contact us at any time if they have information to share or discuss in this regard.

In response to extensive public comment on the CY 2010 PFS proposal to eliminate payment for the CPT consultation codes, we explained our rationale in detail in the CY 2010 PFS final rule with comment period (75 FR 61767 through 61775). Prior to the CY 2010 PFS rulemaking cycle, we had made numerous attempts to resolve issues related to the reporting of the CPT consultation codes, including developing and implementing relevant guidance and educating physicians regarding documentation, transfer of care, and consultation policy. Despite these efforts, there was still substantial disagreement and inconsistency within the physician community regarding these issues. In addition, we believe that in most cases there is no substantial difference in physician work between E/M visits and services that would otherwise be reported with CPT consultation codes. Therefore, we continue to believe that E/M services that could previously have been reported using the CPT consultation codes may now be appropriately reported and paid using other E/M codes, specifically office and other outpatient, initial hospital and nursing facility care, and subsequent hospital and nursing facility care E/M codes. This policy allows for correct and consistent coding for E/M services furnished by physicians and nonphysician practitioners, as well as provides for appropriate payment for the specific services that were previously billed using the CPT consultation codes.

While we continue to believe that promoting effective coordination of care must be an essential goal of our payment systems, we are currently not aware of any evidence that the CY 2010 policy change to no longer recognize the CPT consultation codes is creating problems regarding care coordination and communication among physicians that negatively impact the health of Medicare beneficiaries. As we stated in the CY 2010 PFS final rule with comment period in response to similar hypothetical concerns expressed by some commenters (75 FR 61774), if we become aware of such evidence in the future, we would certainly consider whether there is an appropriate policy response to promote more effective coordination of care. However, we continue to believe it is premature to consider what the appropriate responses might be unless specific evidence of an issue affecting the health of Medicare beneficiaries comes to our attention. We will continue to be attentive to any concerns that develop about the effects of the policy on the goal of promoting effective coordination of care.

In the CY 2010 PFS final rule with comment period (75 FR 61772), we explained that, although we estimated that there would be redistributional effects among specialties, we did not believe the estimated impacts of the change in consultation code policy were disproportionate to the goals we sought to achieve in finalizing the proposal. While we understand that commenters are concerned with the effects of this policy change and that these comments were submitted after only a half year's experience with the revised policy, the commenters on the CY 2011 proposed rule did not fundamentally address the underlying issues that led to our decision to no longer recognize the consultation codes for PFS payment purposes.

We appreciate the suggestions of the commenters regarding policy changes to the definitions of new patients and prolonged services. Regarding the definition of “new” patient, we note that we continue to consider requests on an ongoing basis for new Medicare physician specialty codes and may establish new codes upon evaluating the submissions based on the criteria listed in the Medicare Claims Processing Manual, Pub. 100-04, chapter 26, section 10.8. In fact, we have approved four new Medicare physician specialty codes in the past 2 years. These additions allow more patients of those subspecialties to be considered new based on the narrower range of services provided by the subspecialty within a broader specialty group practice. We encourage interested stakeholders to submit requests for new specialty codes Start Printed Page 73181if they desire a specific code for a different medical specialty or subspecialty. We do not believe it is necessary to change our current policy to one that would routinely adopt the CPT policy of identifying patients seen by physicians in a different subspecialty as “new” patients because our current criteria for establishing new Medicare physician specialty codes already accounts for many of these scenarios. Medicare physician specialty codes describe the unique types of medicine that physicians practice. Therefore, we believe our current definition of “new” for reporting office visits to a group practice appropriately relies upon the Medicare definition of a different specialty so that that the differential physician resources required to care for a patient who is truly new to the physician's unique type of medical practice are appropriately recognized.

Finally, we note that our prolonged service criterion that allows counting only of face-to-face time for inpatients, as it does for outpatients, is longstanding. Given that the highest level initial hospital care E/M visit by a physician typically extends for 70 minutes, in order to report the prolonged physician service CPT code in the inpatient setting, a physician would need to spend at least an additional 30 minutes caring for the patient. We are uncertain whether many inpatient E/M services that would otherwise be reported as CPT consultation codes extend beyond 100 minutes, even if we were to consider adopting a policy change to allow counting of unit/floor time in addition to face-to-face time. If we were to consider such a policy change in the counting of physician time, we are also concerned that available documentation in the medical record could make evaluating the medical necessity of a prolonged service especially problematic. Therefore, we do not believe it would be appropriate to modify our interpretation of the counting of time for purposes of reporting the prolonged service inpatient codes. In most cases, we believe that the additional time that may be required for an E/M visit to a hospital inpatient that would otherwise be reported by a CPT consultation code may be appropriately paid through the Medicare payment for the level of initial or subsequent hospital care E/M code that is reported that takes into consideration the face-to-face time the consulting physician spends with the patient.

We appreciate the commenters' varied perspectives on caring for Medicare beneficiaries under the recent PFS coding and payment changes adopted for CY 2010 and continuing in CY 2011. While we did not make CY 2011 proposals to modify our established policies regarding the use of the PPIS data to calculate the PE RVUs or the reporting of E/M visits that would otherwise be reported under the CPT consultation codes, and we are not modifying them for CY 2011, we will continue to monitor the impact of these policies. We look forward to continuing our dialogue with stakeholders regarding these and future policy changes under the PFS.

B. Components of the Fee Schedule Payment Amounts

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

RVUs are converted to dollar amounts through the application of a CF, which is calculated by CMS Office of the Actuary (OACT).

The formula for calculating the Medicare fee schedule payment 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.

C. Most Recent Changes to the Fee Schedule

The CY 2010 PFS final rule with comment period (74 FR 61738) implemented changes to the PFS and other Medicare Part B payment policies. It also finalized some of the CY 2009 interim RVUs and implemented interim RVUs for new and revised codes for CY 2010 to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. The CY 2010 PFS final rule with comment period also addressed other policies, as well as certain provisions of the MIPPA.

As required by the statute at the time of its issuance on October 30, 2009, the CY 2010 PFS final rule with comment period announced the following for CY 2010: The PFS update of −21.2 percent; the initial estimate for the sustainable growth rate of −8.8 percent; and the CF of $28.4061.

On December 10, 2009, we published a correction notice (74 FR 65449) to correct several technical and typographical errors that occurred in the CY 2010 PFS final rule with comment period. This correction notice announced a revised CF for CY 2010 of $28.3895.

On December 19, 2009, the Department of Defense Appropriations Act, 2010 (Pub. L. 111-118) was signed into law. Section 1011 of Public Law 111-118 provided a 2-month zero percent update to the CY 2010 PFS effective only for dates of service from January 1, 2010 through February 28, 2010.

On March 2, 2010, the Temporary Extension Act of 2010 (Pub. L. 111-144) was signed into law. Section 2 of Public Law 111-144 extended through March 31, 2010 the zero percent update to the PFS that was in effect for claims with dates of service from January 1, 2010 through February 28, 2010.

In addition, on April 15, 2010, the Continuing Extension Act of 2010 (Pub. L. 111-157) was signed into law. Section 4 of Public Law 111-157 extended through May 31, 2010 the zero percent update to the PFS that was in effect for claims with dates of services from January 1, 2010 through March 31, 2010. The provision was retroactive to April 1, 2010.

In the May 11, 2010 Federal Register (75 FR 26350), we published a subsequent correction notice to correct several technical and typographical errors that occurred in the CY 2010 PFS final rule with comment period and the December 10, 2009 correction notice. The May 11, 2010 correction notice announced a revised CF for CY 2010 of $28.3868.

On June 25, 2010, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (Pub. L. 111-192) was signed into law. This law required application of a 2.2 percent update to the PFS for claims with dates of services from June 1, 2010 through November 30, 2010. As a result of this change, the PFS conversion factor was revised to $36.8729 for services furnished during this time period.

On March 23, 2010 the Patient Protection and Affordable Care Act (Pub. L. 111-148) was signed into law. Shortly thereafter, on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) was signed into law. These two laws are discussed in this final rule with comment period and are collectively referred to as the “Affordable Care Act” (ACA) throughout this final rule with comment period.Start Printed Page 73182

D. Public Comments Received in Response to the CY 2011 PFS Proposed Rule

We received approximately 8,500 timely pieces of correspondence containing multiple comments on the CY 2011 PFS proposed rule. We note that we received some comments that were outside the scope of the CY 2011 PFS proposed rule, including public comments on new CY 2011 HCPCS codes that were not presented in the CY 2011 PFS proposed rule and existing CY 2010 HCPCS codes with final values for which we made no proposals for CY 2011. These comments are not addressed in this CY 2011 PFS final rule with comment period. New and revised CY 2011 HCPCS codes and their CY 2011 interim PFS work, malpractice, and PE RVUs are displayed in Addendum C to this final rule with comment period, and these values are open to public comment on this final rule with comment period. Summaries of the public comments that are within the scope of the proposals and our responses to those comments are set for the in the various sections of this final rule with comment period under the appropriate headings.

II. Provisions of the Final Rule for the Physician Fee Schedule

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

1. Overview

Practice expense (PE) is 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 personnel wages but excluding malpractice expenses, as specified in section 1848(c)(1)(B) of the Act. Section 121 of the Social Security Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, required CMS to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. We develop PE RVUs by looking at the direct and indirect physician practice resources involved in furnishing each service. Direct expense categories include clinical labor, medical supplies, and medical equipment. Indirect expenses include administrative labor, office expense, and all other expenses. The sections that follow provide more detailed information about the methodology for translating the resources involved in furnishing each service into service-specific PE RVUs. In addition, we note that 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. Therefore, if revisions to the 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. We refer readers to the CY 2010 PFS final rule with comment period (74 FR 61743 through 61748) for a more detailed history of the PE methodology.

2. Practice Expense Methodology

a. Direct Practice Expense

We use a bottom-up approach to determine the direct PE by adding the costs of the resources (that is, the clinical staff, equipment, and supplies) typically required to provide each service. The costs of the resources are calculated using the refined direct PE inputs assigned to each CPT code in our PE database, which are based on our review of recommendations received from the American Medical Association's (AMA's) Relative Value Update Committee (RUC). For a detailed explanation of the bottom-up direct PE methodology, including examples, we refer readers to the Five-Year Review of Work Relative Value Units Under the PFS and Proposed Changes to the Practice Expense Methodology proposed notice (71 FR 37242) and the CY 2007 PFS final rule with comment period (71 FR 69629).

b. Indirect Practice Expense per Hour Data

We use survey data on indirect practice expenses incurred per hour worked (PE/HR) in developing the indirect portion of the PE RVUs. Prior to CY 2010, we primarily used the practice expense per hour (PE/HR) by specialty that was obtained from the AMA's Socioeconomic Monitoring Surveys (SMS). These surveys were conducted from 1995 through 1999. For several specialties that collected additional PE/HR data through supplemental surveys, we incorporated these data in developing the PE/HR values used annually.

While the SMS was not specifically designed for the purpose of establishing PE RVUs, we found these data to be the best available at the time. The SMS was a multispecialty survey effort conducted using a consistent survey instrument and method across specialties. The survey sample was randomly drawn from the AMA Physician Master file to ensure national representativeness. The AMA discontinued the SMS survey in 1999.

As required by the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), we also established a process by which specialty groups could submit supplemental PE data. In the May 3, 2000 Federal Register, we issued the Medicare Program; Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule (65 FR 25664) in which we established criteria for acceptance of supplemental data. The criteria were modified in the CY 2001 and CY 2003 PFS final rules with comment period (65 FR 65380 and 67 FR 79971, respectively). In addition to the SMS, we previously used supplemental survey data for the following specialties: Cardiology; dermatology; gastroenterology; radiology; cardiothoracic surgery; vascular surgery; physical and occupational therapy; independent laboratories; allergy/immunology; independent diagnostic testing facilities (IDTFs); radiation oncology; medical oncology; and urology.

Because the SMS data and the supplemental survey data were from different time periods, we historically inflated them by the Medicare Economic Index (MEI) to put them on as comparable a time basis as we could when calculating the PE RVUs. This MEI proxy was necessary in the past due to the lack of contemporaneous, consistently collected, and comprehensive multispecialty survey data.

The AMA administered a new survey in CY 2007 and CY 2008, the Physician Practice Expense Information Survey (PPIS), which was expanded (relative to the SMS) to include nonphysician practitioners (NPPs) paid under the PFS. The PPIS was designed to update the specialty-specific PE/HR data used to develop PE RVUs. The AMA and the CMS contractor, The Lewin Group (Lewin), analyzed the PPIS data and calculated the PE/HR for physician and nonphysician specialties, respectively. The AMA's summary worksheets and Lewin's final report are available on the CMS Web site at http://www.cms.gov/​PhysicianFeeSched/​PFSFRN/​itemdetail.asp?​filterType=​none&​filterByDID=​-99&​sortByDID=​4&​sortOrder=​descending&​itemID=​CMS1223902&​intNumPerPage=​10. (See downloads labeled AMA PPIS Worksheets 1-3 and Physician Practice Expense non MDDO Final Report)

The PPIS is a multispecialty, nationally representative, PE survey of both physicians and NPPs using a consistent survey instrument and methods highly consistent with those used for the SMS and the supplemental surveys. The PPIS gathered information Start Printed Page 73183from 3,656 respondents across 51 physician specialty and healthcare professional groups.

We believe the PPIS is the most comprehensive source of PE survey information available to date. Therefore, we used the PPIS data to update the PE/HR data for almost all of the Medicare-recognized specialties that participated in the survey for the CY 2010 PFS. When we changed over to the PPIS data beginning in CY 2010, we did not change the PE RVU methodology itself or the manner in which the PE/HR data are used in that methodology. We only updated the PE/HR data based on the new survey. Furthermore, as we explained in the CY 2010 PFS final rule with comment period (74 FR 61751), because of the magnitude of payment reductions for some specialties resulting from the use of the PPIS data, we finalized a 4-year transition (75/25 for CY 2010, 50/50 for CY 2011, 25/75 for CY 2012, and 0/100 for CY 2013) from the previous PE RVUs to the PE RVUs developed using the new PPIS data.

Section 303 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) added section 1848(c)(2)(H)(i) of the Act, which requires us to use the medical oncology supplemental survey data submitted in 2003 for oncology drug administration services. Therefore, the PE/HR for medical oncology, hematology, and hematology/oncology reflects the continued use of these supplemental survey data.

We do not use the PPIS data for reproductive endocrinology, sleep medicine, and spine surgery since these specialties are not separately recognized by Medicare, and we do not know how to blend these data with Medicare-recognized specialty data.

Supplemental survey data on independent labs, from the College of American Pathologists, were implemented for payments in CY 2005. Supplemental survey data from the National Coalition of Quality Diagnostic Imaging Services (NCQDIS), representing IDTFs, were blended with supplementary survey data from the American College of Radiology (ACR) and implemented for payments in CY 2007. Neither IDTFs nor independent labs participated in the PPIS. Therefore, we continue to use the PE/HR that was developed from their supplemental survey data.

Finally, consistent with our past practice, the previous indirect PE/HR values from the supplemental surveys for medical oncology, independent laboratories, and IDTFs were updated to CY 2006 using the MEI to put them on a comparable basis with the PPIS data. In the CY 2010 PFS final rule with comment period (74 FR 61753), we miscalculated the indirect PE/HR for IDTFs as part of this update process. Therefore, for CY 2011, we are using a revised indirect PE/HR of $479.81 for IDTFs, consistent with our final policy to update the indirect PE/HR values from prior supplemental survey data that we are continuing to use in order to put these data on a comparable basis with the PPIS data. This revision changes the IDTF indirect percentage from 51 percent to 50 percent for CY 2011.

Previously, we had established PE/HR values for various specialties without SMS or supplemental survey data by crosswalking them to other similar specialties to estimate a proxy PE/HR. For specialties that were part of the PPIS for which we previously used a crosswalked PE/HR, we instead use the PPIS-based PE/HR. We continue previous crosswalks for specialties that did not participate in the PPIS. However, beginning in CY 2010 we changed the PE/HR crosswalk for portable x-ray suppliers from radiology to IDTF, a more appropriate crosswalk because these specialties are more similar to each other with respect to physician time.

In the CY 2010 PFS final rule with comment period (74 FR 61752), we agreed that, under the current PE methodology, the PPIS data for registered dieticians should not be used in the calculation of PE RVUs since these dieticians are paid 85 percent of what a physician would be paid for providing the service. To include their survey data in the PE calculation would influence the ratesetting by incorporating what the services would be paid if performed by registered dieticians and not strictly what the payment rates would be if provided by physicians. We further stated that we would utilize the “All Physicians” PE/HR, as derived from the PPIS, in the calculation of resource-based PE RVUs in lieu of the PE/HR associated with registered dieticians. In the resource-based PE methodology for CY 2010, while we removed the specialty of registered dieticians from the ratesetting step we did not assign the “All Physicians” PE/HR to services furnished by registered dieticians. Instead, we allowed the PE/HR for those services to be generated by a weighted average of all the physician specialties that also furnished the services. This method was consistent with our policy to not use the registered dietician PPIS PE/HR in calculating the PE RVUs for services furnished by registered dieticians but we did not actually crosswalk the specialty of registered dietician to the “All Physicians” PE/HR data as we had intended according to the final policy. Nevertheless, we are affirming for CY 2011 that the final resource-based PE RVUs have been calculated in accordance with the final policy adopted in the CY 2010 PFS final rule with comment period (74 FR 61752) for registered dietician services that crosswalks the specialty to the “All Physicians” PE/HR data.

As provided in the CY 2010 PFS final rule with comment period (74 FR 61751), CY 2011 is the second year of the 4-year transition to the PE RVUs calculated using the PPIS data. Therefore, in general, the CY 2011 PE RVUs are a 50/50 blend of the previous PE RVUs based on the SMS and supplemental survey data and the new PE RVUS developed using the PPIS data as described above. Note that the reductions in the PE RVUs for expensive diagnostic imaging equipment attributable to the change to an equipment utilization rate assumption of 75 percent (see 74 FR 61753 through 61755 and section II.A.3. of this final rule with comment period) are not subject to the transition.

CMS' longstanding policy in a PFS transition payment year is that if the CPT Editorial Panel creates a new code for that year, the new code would be paid at its fully implemented PFS amount and not at a transition rate for that year. Consistent with this policy, all new CY 2011 CPT codes will not be paid based on transitional PE RVUs in CY 2011. Instead, we will pay these services based on the fully implemented PE RVUs in CY 2011. Additionally, existing CPT codes for which the global period has changed in CY 2011 will not be subject to the PPIS PE RVU transition. We believe that changing the global period of a code results in the CPT code describing a different service to which the previous PE RVUs would no longer be relevant when the code is reported for a service furnished in CY 2011. The five CY 2011 existing CPT codes with global period changes from CY 2010 to CY 2011 are: 11043 (Debridement, muscle, and/or fascia (includes epidermis, dermis, and subcutaneous tissue, if performed); first 20 sq cm or less); 11044 (Debridement, bone (includes epidermis, dermis, subcutaneous tissue, muscle and/or fascia, if performed); first 20 sq cm or less); 57155 (Insertion of uterine tandems and/or vaginal ovoids for clinical brachytherapy); 97597 (Debridement (e.g., high pressure waterjet with/without suction, sharp selective debridement with scissors, Start Printed Page 73184scalpel and forceps), open wound, (e.g., fibrin, devitalized epidermis and/or dermis, exudate, debris, biofilm), including topical application(s), wound assessment, use of a whirlpool, when performed and instruction(s) for ongoing care, per session, total wound(s) surface area; first 20 square centimeters or less); and 97598 (Debridement (e.g., high pressure waterjet with/without suction, sharp selective debridement with scissors, scalpel and forceps), open wound, (e.g., fibrin, devitalized epidermis and/or dermis, exudate, debris, biofilm), including topical application(s), wound assessment, use of a whirlpool, when performed and instructions(s) for ongoing care, per session, total wound(s) surface area; each additional 20 square centimeters, or part thereof (List separately in addition to code for primary procedure)).

c. Allocation of PE to Services

To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service.

(i) Direct costs. The relative relationship between the direct cost portions of the PE RVUs for any two services is determined by the relative relationship between the sum of the direct cost resources (that is, the clinical staff, equipment, and supplies) typically required to provide the services. The costs of these resources are calculated from the refined direct PE inputs in our PE database. For example, if one service has a direct cost sum of $400 from our PE database and another service has a direct cost sum of $200, the direct portion of the PE RVUs of the first service would be twice as much as the direct portion of the PE RVUs for the second service.

(ii) Indirect costs. Section II.A.2.b. of this final rule with comment period describes the current data sources for specialty-specific indirect costs used in our PE calculations. We allocate the indirect costs to the code level on the basis of the direct costs specifically associated with a code and the greater of either the clinical labor costs or the physician work RVUs. We also incorporate the survey data described earlier in the PE/HR discussion. The general approach to developing the indirect portion of the PE RVUs is described below.

  • For a given service, we use the direct portion of the PE RVUs calculated as described above and the average percentage that direct costs represent of total costs (based on survey data) across the specialties that perform the service to determine an initial indirect allocator. For example, if the direct portion of the PE RVUs for a given service were 2.00 and direct costs, on average, represented 25 percent of total costs for the specialties that performed the service, the initial indirect allocator would be 6.00 since 2.00 is 25 percent of 8.00.
  • We then add the greater of the work RVUs or clinical labor portion of the direct portion of the PE RVUs to this initial indirect allocator. In our example, if this service had work RVUs of 4.00 and the clinical labor portion of the direct PE RVUs was 1.50, we would add 6.00 plus 4.00 (since the 4.00 work RVUs are greater than the 1.50 clinical labor portion) to get an indirect allocator of 10.00. In the absence of any further use of the survey data, the relative relationship between the indirect cost portions of the PE RVUs for any two services would be determined by the relative relationship between these indirect cost allocators. For example, if one service had an indirect cost allocator of 10.00 and another service had an indirect cost allocator of 5.00, the indirect portion of the PE RVUs of the first service would be twice as great as the indirect portion of the PE RVUs for the second service.
  • We next incorporate the specialty-specific indirect PE/HR data into the calculation. As a relatively extreme example for the sake of simplicity, assume in our example above that, based on the survey data, the average indirect cost of the specialties performing the first service with an allocator of 10.00 was half of the average indirect cost of the specialties performing the second service with an indirect allocator of 5.00. In this case, the indirect portion of the PE RVUs of the first service would be equal to that of the second service.

d. Facility and Nonfacility Costs

For procedures that can be furnished in a physician's office, as well as in a hospital or facility setting, we establish two PE RVUs: Facility and nonfacility. The methodology for calculating PE RVUs is the same for both the facility and nonfacility RVUs, but is applied independently to yield two separate PE RVUs. Because Medicare makes a separate payment to the facility for its costs of furnishing a service, the facility PE RVUs are generally lower than the nonfacility PE RVUs.

e. Services With Technical Components (TCs) and Professional Components (PCs)

Diagnostic services are generally comprised of two components: A professional component (PC) and a technical component (TC), each of which may be performed independently or by different providers, or they may be performed together as a “global” service. When services have PC and TC components that can be billed separately, the payment for the global component equals the sum of the payment for the TC and PC. This is a result of using a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PCs, and TCs for a service. (The direct PE RVUs for the TC and PC sum to the global under the bottom-up methodology.)

f. Alternative Data Sources and Public Comments on Final Rule for 2010

In the CY 2010 PFS final rule with comment period (74 FR 61749 through 61750), we discussed the Medicare Payment Advisory Commission's (MedPAC's) comment that in the future, “CMS should consider alternatives to collecting specialty-specific cost data or options to decrease the reliance on such data.” We agreed with MedPAC that it would be appropriate to consider the future of the PE RVUs moving forward. We sought comments from other stakeholders on the issues raised by MedPAC for the future. In particular, we requested public comments regarding MedPAC's suggestion that we consider alternatives for collecting specialty-specific cost data or options to decrease the reliance on such data. We noted MedPAC's comment that, “CMS should consider if Medicare or provider groups should sponsor future data collection efforts, if participation should be voluntary (such as surveys) or mandatory (such as cost reports), and whether a nationally representative sample of practitioners would be sufficient for either a survey or cost reports.” MedPAC also stated that one option for decreasing the reliance on specialty-specific cost data would be the elimination of the use of indirect PE/HR data in the last step of establishing the indirect cost portion of the PE RVUs as described previously.

Almost all of the commenters on the CY 2010 PFS final rule with comment period that addressed this issue expressed a general willingness to work with CMS on methodological improvements or future data collection efforts. Although no commenters detailed a comprehensive overall alternative methodology, several commenters did provide suggestions regarding future data collection efforts Start Printed Page 73185and specific aspects of the current methodology.

The commenters on the CY 2010 PFS final rule with comment period that addressed the issue of surveys supported the use of surveys if they yielded accurate PE information. The few commenters that addressed the issue of cost reports were opposed to physician cost reports. The commenters varied with respect to their opinions regarding whether data collection efforts should be led by organized medicine, individual specialty societies, or CMS. Several commenters that addressed the issue of voluntary versus mandatory data collection efforts supported voluntary data collection efforts and opposed mandatory data collection efforts.

Some commenters recommended no changes to the methodology or PE data in the near future. Other commenters indicated that the methodology and data changes needed to be made for CY 2011. Although most commenters did not directly address the use of the indirect PE/HR data, those that did predominately opposed the elimination of the use of these data.

Many commenters addressed specifics of the PE methodology (as further described in section II.A.2.c. of this final rule with comment period). Some were opposed to the scaling factor applied in the development of the direct PE portion of the PE RVUs so that in the aggregate the direct portion of the PE RVUs do not exceed the proportion indicated by the survey data (See Step 4 in g.(ii) below). Several of these commenters advocated the elimination of this direct scaling factor, while others indicated that the issue should be examined more closely.

A few commenters recommended that physician work not be used as an allocator in the development of the indirect portion of the PE RVUs as described earlier in this section. A few indicated that physician time, but not physician work, should be used in the allocation. Other commenters suggested that indirect costs should be allocated solely on the basis of direct costs.

We note that many of the issues raised by commenters on the CY 2010 PFS final rule with comment period are similar to issues raised in the development of the original resource-based PE methodology and in subsequent revisions to the methodology, including the adoption of the bottom-up methodology. While we did not propose a broad methodological change or broad data collection effort in the CY 2011 PFS proposed rule, we invited comments on our summary of the issues raised by the commenters on the CY 2010 PFS final rule with comment period, as discussed in the CY 2011 PFS proposed rule (75 FR 40050). The complete public comments on the CY 2010 PFS final rule with comment period are available for public review at http://www.regulations.gov by entering “CMS-1413-FC” in the search box on the main page.

Comment: A number of commenters believe the PPIS data are flawed and, therefore, should not be used to set the PE RVUs for all or certain categories of PFS services. Other commenters supported the adoption of the PPIS data and, whether ultimately favoring the adoption of the PPIS data or not, many commenters stated that the 4-year transition adopted by CMS is important to physicians and Medicare beneficiaries to ensure access to care. The commenters explained that the transition gives physician specialty societies the opportunity to collect new and more detailed data where appropriate for refinement and CMS the opportunity to more carefully analyze the new data and its appropriateness. Although once again the commenters did not provide specific recommendations on alternatives to a comprehensive survey of practice expenses or options to decrease the PFS reliance on specialty-specific cost data, the commenters offered the following suggestions regarding future practice expense data collection.

  • Select a reputable company with experience in health care market research.
  • Base changes on a comprehensive data source with adequate participation rates.
  • Have data independently reviewed in order to ensure accuracy.
  • Make data publicly available in time to allow for review and comment by stakeholders.

Several commenters emphasized the administrative complexity and burden if CMS were to require all physicians to submit cost reports. One commenter supported a limited study of practice costs estimated by cost reports to determine if the current PE RVUs were appropriately paying physicians for the physician's office costs of services. The commenter believes that cost reports would be more accurate than the PPIS methodology. Finally, several commenters indicated a willingness to engage CMS in more detailed discussion about potential refinements to the current PE/HR data.

Response: We appreciate the commenters' recommendations regarding factors we should consider in developing future practice expense data collection efforts in order to improve the accuracy of the information. While we are continuing the transition that was adopted in the CY 2010 PFS final rule with comment period (74 FR 61751) under the CY 2011 PFS to full implementation of the PPIS data for the CY 2013 PFS PE RVUs, we continue to remain interested in the thoughts of stakeholders regarding the MedPAC comment that “CMS should consider alternatives to collecting specialty-specific cost data or options to decrease the reliance on such data.” More specifically, we encourage stakeholders to contact us at any time if they encounter additional information to share, develop further ideas or analyses that could inform our ongoing consideration of physicians' practice expenses, or otherwise would like to discuss this topic further as part of an open dialogue with us. While to date, no stakeholders have presented a comprehensive overall alternative methodology, we remain interested in potential novel or refined approaches. We also continue to welcome more limited suggestions for improvements to our current PE methodology or future practice expense information collection activities.

g. PE RVU Methodology

For a more detailed description of the PE RVU methodology, we refer readers to the CY 2010 PFS final rule with comment period with comment period (74 FR 61745 through 61746).

(1) Setup File

First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialty-specific PE/HR data from the surveys.

(2) Calculate the Direct Cost PE RVUs

Sum the costs of each direct input.

Step 1: Sum the direct costs of the inputs for each service. Apply a scaling adjustment to the direct inputs.

Step 2: Calculate the current aggregate pool of direct PE costs. This is the product of the current aggregate PE (aggregate direct and indirect) RVUs, the CF, and the average direct PE percentage from the survey data.

Step 3: Calculate the aggregate pool of direct costs. This is the sum of the product of the direct costs for each service from Step 1 and the utilization data for that service.

Step 4: Using the results of Step 2 and Step 3 calculate a direct PE scaling adjustment so that the aggregate direct cost pool does not exceed the current aggregate direct cost pool and apply it Start Printed Page 73186to the direct costs from Step 1 for each service.

Step 5: Convert the results of Step 4 to an RVU scale for each service. To do this, divide the results of Step 4 by the CF. Note that the actual value of the CF used in this calculation does not influence the final direct cost PE RVUs, as long as the same CF is used in Step 2 and Step 5. Different CFs will result in different direct PE scaling factors, but this has no effect on the final direct cost PE RVUs since changes in the CFs and changes in the associated direct scaling factors offset one another.

(3) Create the Indirect Cost PE RVUs

Create indirect allocators.

Step 6: Based on the survey data, calculate direct and indirect PE percentages for each physician specialty.

Step 7: Calculate direct and indirect PE percentages at the service level by taking a weighted average of the results of Step 6 for the specialties that furnish the service. Note that for services with TCs and PCs, the direct and indirect percentages for a given service do not vary by the PC, TC, and global components.

Step 8: Calculate the service level allocators for the indirect PEs based on the percentages calculated in Step 7. The indirect PEs are allocated based on the three components: The direct PE RVUs, the clinical PE RVUs, and the work RVUs.

For most services the indirect allocator is: Indirect percentage * (direct PE RVUs/direct percentage) + work RVUs.

There are two situations where this formula is modified:

  • If the service is a global service (that is, a service with global, professional, and technical components), then the indirect allocator is: Indirect percentage (direct PE RVUs/direct percentage) + clinical PE RVUs + work RVUs.
  • If the clinical labor PE RVUs exceed the work RVUs (and the service is not a global service), then the indirect allocator is: Indirect percentage (direct PE RVUs/direct percentage) + clinical PE RVUs.

Note:

For global services, the indirect allocator is based on both the work RVUs and the clinical labor PE RVUs. We do this to recognize that, for the PC service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVUs and the clinical labor PE RVUs. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.)

For presentation purposes in the examples in Table 2, the formulas were divided into two parts for each service.

  • The first part does not vary by service and is the indirect percentage (direct PE RVUs/direct percentage).
  • The second part is either the work RVUs, clinical PE RVUs, or both depending on whether the service is a global service and whether the clinical PE RVUs exceed the work RVUs (as described earlier in this step).

Apply a scaling adjustment to the indirect allocators.

Step 9: Calculate the current aggregate pool of indirect PE RVUs by multiplying the current aggregate pool of PE RVUs by the average indirect PE percentage from the survey data.

Step 10: Calculate an aggregate pool of indirect PE RVUs for all PFS services by adding the product of the indirect PE allocators for a service from Step 8 and the utilization data for that service.

Step 11: Using the results of Step 9 and Step 10, calculate an indirect PE adjustment so that the aggregate indirect allocation does not exceed the available aggregate indirect PE RVUs and apply it to indirect allocators calculated in Step 8.

Calculate the indirect practice cost index.

Step 12: Using the results of Step 11, calculate aggregate pools of specialty-specific adjusted indirect PE allocators for all PFS services for a specialty by adding the product of the adjusted indirect PE allocator for each service and the utilization data for that service.

Step 13: Using the specialty-specific indirect PE/HR data, calculate specialty-specific aggregate pools of indirect PE for all PFS services for that specialty by adding the product of the indirect PE/HR for the specialty, the physician time for the service, and the specialty's utilization for the service across all services performed by the specialty.

Step 14: Using the results of Step 12 and Step 13, calculate the specialty-specific indirect PE scaling factors.

Step 15: Using the results of Step 14, calculate an indirect practice cost index at the specialty level by dividing each specialty-specific indirect scaling factor by the average indirect scaling factor for the entire PFS.

Step 16: Calculate the indirect practice cost index at the service level to ensure the capture of all indirect costs. Calculate a weighted average of the practice cost index values for the specialties that furnish the service. (Note: For services with TCs and PCs, we calculate the indirect practice cost index across the global components, PCs, and TCs. Under this method, the indirect practice cost index for a given service (for example, echocardiogram) does not vary by the PC, TC, and global component.)

Step 17: Apply the service level indirect practice cost index calculated in Step 16 to the service level adjusted indirect allocators calculated in Step 11 to get the indirect PE RVUs.

(4) Calculate the Final PE RVUs

Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs from Step 17 and apply the final PE budget neutrality (BN) adjustment, MEI rebasing adjustment, and multiple procedure payment reduction (MPPR) adjustment.

The final PE BN adjustment is calculated by comparing the results of Step 18 (prior to the MEI rebasing and MPPR adjustments) to the current pool of PE RVUs. This final BN adjustment is required primarily because certain specialties are excluded from the PE RVU calculation for ratesetting purposes, but all specialties are included for purposes of calculating the final BN adjustment. (See “Specialties excluded from ratesetting calculation” below in this section.)

As discussed in section II.E.5. of this final rule with comment period, we are rebasing and revising the Medicare Economic Index (MEI) for CY 2011. As discussed in section II.C.4. of this final rule with comment period, section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) specifies that the Secretary shall identify potentially misvalued codes by examining multiple codes that are frequently billed in conjunction with furnishing a single service. There is inherent duplication in the PE associated with those services which are frequently furnished together, so reducing PFS payment for the second and subsequent services to account for the efficiencies in multiple service sessions may be appropriate. Consistent with this provision of the ACA, we are adopting a limited expansion of the current MPPR policy for imaging services for CY 2011 and a new MPPR policy for therapy services.

(5) Setup File Information

  • Specialties excluded from ratesetting calculation: For the purposes of calculating the PE RVUs, we exclude certain specialties, such as certain nonphysician practitioners paid at a percentage of the PFS and low-volume specialties, from the calculation. These specialties are included for the purposes of calculating the BN adjustment. They are displayed in Table 1.Start Printed Page 73187

Table 1—Specialties Excluded from Ratesetting Calculation

Specialty codeSpecialty description
42Certified nurse midwife.
49Ambulatory surgical center.
50Nurse practitioner.
51Medical supply company with certified orthotist.
52Medical supply company with certified prosthetist.
53Medical supply company with certified prosthetist-orthotist.
54Medical supply company not included in 51, 52, or 53.
55Individual certified orthotist.
56Individual certified prosthestist.
57Individual certified prosthetist-orthotist.
58Individuals not included in 55, 56, or 57.
59Ambulance service supplier, e.g., private ambulance companies, funeral homes, etc.
60Public health or welfare agencies.
61Voluntary health or charitable agencies.
73Mass immunization roster biller.
74Radiation therapy centers.
87All other suppliers (e.g., drug and department stores).
88Unknown supplier/provider specialty.
89Certified clinical nurse specialist.
95Competitive Acquisition Program (CAP) Vendor.
96Optician.
A0Hospital.
A1SNF.
A2Intermediate care nursing facility.
A3Nursing facility, other.
A4HHA.
A5Pharmacy.
A6Medical supply company with respiratory therapist.
A7Department store.
1Supplier of oxygen and/or oxygen related equipment.
2Pedorthic personnel.
3Medical supply company with pedorthic personnel.
  • Crosswalk certain low volume physician specialties: Crosswalk the utilization of certain specialties with relatively low PFS utilization to the associated specialties.
  • Physical therapy utilization: Crosswalk the utilization associated with all physical therapy services to the specialty of physical therapy.
  • Identify professional and technical services not identified under the usual TC and 26 modifiers: Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVUs. For example, the professional service, CPT code 93010 (Electrocardiogram, routine ECG with at least 12 leads; interpretation and report only), is associated with the global service, CPT code 93000 (Electrocardiogram, routine ECG with at least 12 leads; with interpretation and report).
  • Payment modifiers: Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier.
  • Work RVUs: The setup file contains the work RVUs from this final rule with comment period.

(6) Equipment Cost Per Minute

The equipment cost per minute is calculated as:

(1/(minutes per year * usage)) * price * ((interest rate/(1−(1/((1 + interest rate)life of equipment)))) + maintenance)

Where:

minutes per year = maximum minutes per year if usage were continuous (that is, usage = 1); generally 150,000 minutes.

usage = equipment utilization assumption; 0.75 for certain expensive diagnostic imaging equipment (see 74 FR 61753 through 61755 and section II.A.3. of this final rule with comment period) and 0.5 for others.

price = price of the particular piece of equipment.

interest rate = 0.11.

life of equipment = useful life of the particular piece of equipment.

maintenance = factor for maintenance; 0.05.

Note:

The use of any particular conversion factor (CF) in Table 2 to illustrate the PE calculation has no effect on the resulting RVUs.

Start Printed Page 73188

TABLE 2—Calculation of PE RVUs Under Methodology for Selected Codes

StepSourceFormula99213 Office visit, est Nonfacility33533 CABG, arterial, single facility71020 Chest x-ray Nonfacility71020-TC Chest x-ray Nonfacility71020-26 Chest x-ray Nonfacility93000 ECG, complete Nonfacility93005 ECG, tracing Nonfacility93010 ECG, report Nonfacility
(1) Labor cost (lab)Step 1AMA13.3277.525.745.740.006.126.120.00
(2) Supply cost (sup)Step 1AMA2.987.343.393.390.001.191.190.00
(3) Equipment cost (eqp)Step 1AMA0.190.658.178.170.000.120.120.00
(4) Direct cost (dir)Step 1=(1) + (2) + (3)16.5085.5117.3117.310.007.437.430.00
(5) Direct adjustment (dir adj)Steps 2-4See footnote*0.500.500.500.500.500.500.500.50
(6) Adjusted laborSteps 2-4=Lab * Dir adj=(1)*(5)6.6838.872.882.880.003.073.070.00
(7) Adjusted suppliesSteps 2-4=Sup * Dir adj=(2)*(5)1.503.681.701.700.000.600.600.00
(8) Adjusted equipmentSteps 2-4=Eqp * Dir adj=(3)*(5)0.100.334.104.100.000.060.060.00
(9) Adjusted directSteps 2-4=(6) + (7) + (8)8.2742.878.688.680.003.733.730.00
(10) Conversion factor (CF)Step 5PFS36.8736.8736.8736.8736.8736.8736.8736.87
(11) Adj labor cost convertedStep 5=(Lab * Dir adj)/CF=(6)/(10)0.181.050.080.080.000.080.080.00
(12) Adj supply cost convertedStep 5=(Sup * Dir adj)/CF=(7)/(10)0.040.100.050.050.000.020.020.00
(13) Adj equipment cost convertedStep 5=(Eqp * Dir adj)/CF=(8)/(10)0.000.010.110.110.000.000.000.00
(14) Adj. direct cost convertedStep 5=(11) + (12) + (13)0.221.160.240.240.000.100.100.00
(15) Work RVUsSetup FilePFS0.9733.750.220.000.220.170.000.17
(16) Dir pctSteps 6,7Surveys0.260.180.290.290.290.290.290.29
(17) Ind pctSteps 6,7Surveys0.740.820.710.710.710.710.710.71
(18) Ind alloc formula (1st part)Step 8See Step 8((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)((14)/(16))* (17)
(19) Ind alloc (1st part)Step 8See (18)0.655.290.580.580.000.250.250.00
(20) Ind alloc formulas (2nd part)Step 8See Step 8(15)(15)(15) + (11)(11)(15)(15) + (11)(11)(15)
(21) Ind alloc (2nd part)Step 8See (20)0.9733.750.300.080.220.250.080.17
(22) Indirect allocator (1st + 2nd)Step 8=(19) + (21)1.6239.040.880.660.220.500.330.17
(23) Indirect adjustment (ind adj)Steps 9-11See footnote**0.370.370.370.370.370.370.370.37
(24) Adjusted indirect allocatorSteps 9-11=Ind alloc * ind adj0.6014.470.330.240.080.190.120.06
(25) Ind. practice cost index (IPCI)Steps 12-16See Steps 12-161.110.830.900.900.900.920.920.92
(26) Adjusted indirectStep 17= Adj ind alloc * IPCI=(24) * (25)0.6712.040.290.220.070.170.110.06
(27) MEI rebasing adjustmentStep 18PFS1.181.181.181.181.181.181.181.18
(28) MPPR adjustmentsStep 18PFS1.011.011.011.011.011.011.011.01
(29) PE RVUStep 18=(Adj dir + Adj ind) * budn * MEI adj * MPPR adj=((14) + (26)) * budn * (27) * (28)1.0615.680.630.540.090.320.250.07
Note:
PE RVUs in Table 2, row 29, may not match the values in Addendum B due to rounding.
* The direct adj = [current pe rvus * CF * avg dir pct]/[sum direct inputs] = [Step 2]/[Step 3].
** The indirect adj = [current pe rvus * avg ind pct]/[sum of ind allocators] = [Step 9]/[Step 10].
Start Printed Page 73189

3. PE Revisions for CY 2011

a. Equipment Utilization Rate

As part of the PE methodology associated with the allocation of equipment costs for calculating PE RVUs, we currently use an equipment utilization rate assumption of 50 percent for most equipment, with the exception of expensive diagnostic imaging equipment (which is equipment priced at over $1 million, for example, computed tomography (CT) and magnetic resonance imaging (MRI) scanners), for which we adopted a 90 percent utilization rate assumption and provided for a 4-year transition beginning in CY 2010 (74 FR 61755). Therefore, CY 2010 is the first transitional payment year. Payment is made in CY 2010 for the diagnostic services listed in Table 3 (those that include expensive diagnostic imaging equipment in their PE inputs) of the CY 2011 PFS proposed rule (75 FR 40054) based on 25 percent of the new PE RVUs and 75 percent of the prior PE RVUs for those services.

Section 1848(b)(4)(C) of the Act (as added by section 3135(a) of the ACA) requires that with respect to fee schedules established for CY 2011 and subsequent years, in the methodology for determining PE RVUs for expensive diagnostic imaging equipment under the CY 2010 PFS final rule with comment period, the Secretary shall use a 75 percent assumption instead of the utilization rates otherwise established in that rule. The provision also requires that the reduced expenditures attributable to this change in the utilization rate for CY 2011 and subsequent years shall not be taken into account when applying the budget neutrality limitation on annual adjustments described in section 1848(c)(2)(B)(ii)(II) of the Act.

As a result, the 75 percent equipment utilization rate assumption will be applied to expensive diagnostic imaging equipment in a non-budget neutral manner for CY 2011, and the resulting changes to PE RVUs will not be transitioned over a period of years. We will apply the 75 percent utilization rate assumption in CY 2011 to all of the services to which we currently apply the transitional 90 percent equipment utilization rate assumption in CY 2010. These services are listed in a file on the CMS Web site that is posted under downloads for the CY 2010 PFS final rule with comment period at http://www.cms.gov/​physicianfeesched/​downloads/​CODES_​SUBJECT_​TO_​90PCT_​USAGE_​RATE.zip. These codes are also displayed in Table 3 at the end of this section.

Comment: Several commenters argued that the 75 percent utilization rate assumption should not be applied because of the imprecise data on which the policy was based. The commenters explained that based on an independent survey, actual equipment utilization rates are close to 50 percent. In addition, the commenters postulated that rural imaging centers would be adversely affected by the change due to lower equipment utilization rates than non-rural centers. The commenters requested that CMS base equipment utilization rate assumptions on actual utilization data rather than assumptions.

Several other commenters supported the implementation of the 75 percent utilization rate assumption, and MedPAC recommended that CMS explore increasing the equipment utilization rate assumption for diagnostic imaging equipment that costs less than $1 million. Finally, several commenters clarified that certain procedures were not subject to the provision, including nuclear cardiology services and therapeutic interventional radiology.

Response: Section 1848(b)(4)(C) of the Act (as added by section 3135(a) of the ACA) requires that with respect to fee schedules established for CY 2011 and subsequent years, in the methodology for determining PE RVUs for expensive diagnostic imaging equipment under the CY 2010 PFS final rule with comment period, the Secretary shall use a 75 percent assumption instead of the utilization rates otherwise established in that rule. We acknowledge that further data regarding actual equipment utilization in the physician's office setting may be informative, but our use of such data to set the equipment utilization rate assumption for expensive diagnostic imaging equipment at a value other than 75 percent would require a statutory change.

We did not propose to expand the 75 percent equipment utilization rate assumption for CY 2011 to other procedures beyond those that use CT and MRI scanners as listed in Table 4 of the CY 2011 PFS proposed rule (75 FR 40055) and Table 3 at the end of this section. Any future changes in equipment utilization rate assumptions, including any expansion of the 75 percent equipment utilization rate assumption to additional expensive diagnostic imaging equipment, would be made through the annual PFS notice and comment rulemaking cycle. Furthermore, any changes in equipment utilization rate assumptions for less costly diagnostic imaging equipment (less than $1 million) or for therapeutic imaging or other equipment would not be subject to the statutory provision that specifies a 75 percent assumption. We note that we are constantly reassessing our methodology for developing the PE RVUs and would propose any changes to the equipment utilization rate assumptions for these types of equipment through the annual PFS rulemaking cycle if we determine such changes could be appropriate.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal without modification. The 75 percent equipment utilization rate assumption will be applied to expensive diagnostic imaging equipment in a non-budget neutral manner for CY 2011, and the changes to the PE RVUs will not be transitioned over a period of years. We will apply the 75 percent utilization rate assumption in CY 2011 to all of the services to which we currently apply the transitional 90 percent utilization rate assumption in CY 2010. The CY 2011 codes are displayed in Table 3 at the end of this section that lists all the codes to which the 75 percent equipment utilization rate assumption applies for CY 2011. In addition, the codes subject to this policy are posted under the downloads for the CY 2011 PFS final rule with comment period on the CMS Web site at http://www.cms.gov/​PhysicianFeeSched/​PFSFRN/​list.asp#TopOfPage.

Additionally, for CY 2011, we proposed to expand the list of services to which the higher equipment utilization rate assumption applies to include all other diagnostic imaging services that utilize similar expensive CT and MRI scanners. The additional 24 CPT codes (listed in Table 4 of the CY 2011 PFS proposed rule (75 FR 40055)) to which we proposed to apply the 75 percent equipment utilization rate assumption also have expensive diagnostic imaging equipment (priced at over $1 million) included in their PE inputs. These services are predominantly diagnostic computed tomographic angiography (CTA) and magnetic resonance angiography (MRA) procedures that include similar expensive CT and MRI scanners in their direct PE inputs. We indicated in the CY 2010 PFS final rule with comment period (74 FR 61754) that we were persuaded by PPIS data on angiography that the extrapolation of MRI and CT data (and their higher equipment utilization rate) may be inappropriate. However, this reference was limited to those procedures that include an angiography room in the direct PE inputs, such as CPT code 93510 (Left heart catheterization, retrograde, from Start Printed Page 73190the brachial artery, axillary artery or femoral artery; percutaneous). In contrast, CTA and MRA procedures include a CT room or MRI room, respectively, in the direct PE inputs, and the PPIS data confirm that a higher assumed utilization rate than 50 percent would be appropriate. The PPIS angiography room data that reflected a 56 percent equipment utilization rate would not specifically apply to CTA and MRA procedures. Thus, on further review, we believe it is appropriate to include CTA and MRA procedures in the list of procedures for which we assume a 75 percent equipment utilization rate, and we proposed to do so beginning in CY 2011.

Consistent with section 1848(c)(2)(B)(v)(III) of the Act (as amended by section 3135 of the ACA), the reduced expenditures attributable to this change in the utilization rate assumption applicable to CY 2011 shall not be taken into account when applying the budget neutrality limitation on annual adjustments described in section 1848(c)(2)(B)(ii)(II) of the Act.

As provided in the CY 2010 PFS final rule with comment period (74 FR 61751), CY 2011 is the second year of the 4-year transition to the PE RVUs calculated using the PPIS data. We note that the reductions in the PE RVUs for expensive diagnostic imaging equipment attributable to the change to an equipment utilization rate assumption of 75 percent for CY 2011 are not subject to the transition.

Comment: Several commenters urged CMS not to finalize the proposed expansion of the list of procedures to which the 75 percent equipment utilization rate assumption would apply, pending further evaluation of equipment utilization data. While noting the statutory requirement of section 1848(b)(4)(C) of the Act (as added by section 3135(a) of the ACA), the commenters believe that CMS is not required to add additional services to the policy for CY 2011. Other commenters, including MedPAC, supported the proposed increase in the equipment utilization rate assumption from 50 percent to 75 percent for the 24 additional services that use diagnostic imaging equipment priced at over $1 million.

Response: No commenters presented a rationale for not including the proposed 24 additional services to the 75 percent equipment utilization rate assumption, when the proposed additions use the same diagnostic CT or MRI imaging equipment as the current codes to which the policy applies. We note that the 90 percent equipment utilization rate assumption that we finalized in the CY 2010 PFS final rule with comment period (74 FR 61755) applies to CT and MRI scanners when used as diagnostic imaging equipment, one of these two pieces of equipment is listed as a direct PE input for the proposed MRA and CTA services, and no commenters recommended that we remove the CT or MRI equipment inputs from the additional codes. Therefore, we continue to believe that it is appropriate to apply the 75 percent equipment utilization rate assumption beginning in CY 2011 to MRA and CTA procedures, as we proposed.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to include CTA and MRA procedures in the 75 percent equipment utilization rate assumption policy because they include expensive CT and MRI scanners that cost more than $1 million as direct PE inputs for these diagnostic imaging procedures. We are modifying our proposal, however, and will not include CPT code 77079 (Computed tomography, bone mineral density study, 1 or more sites; appendicular skeleton (peripheral) (e.g., radius, wrist, heel)) because, upon further analysis for this final rule with comment period, we noted that the procedure does not include a CT room in its direct PE inputs.

For CY 2011, we are also adding to the 75 percent equipment utilization rate assumption policy three new CY 2011 CPT codes for diagnostic imaging procedures that include a CT room in their direct PE inputs, specifically CPT codes 74176 (Computed tomography, abdomen and pelvis; without contrast material); 74177 (Computed tomography, abdomen and pelvis; with contrast material); and 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by with contrast material(s) and further sections in one or both body regions). As new codes for CY 2011, the work, PE, and malpractice RVUs for these CPT codes that are displayed in Addendum C to this final rule with comment period are interim final values that are open to comment. Similarly, the assignment of the 75 percent equipment utilization rate assumption to these CPT codes, which contributes to the development of their PE RVUs, is being made on an interim final basis. We refer readers to section V.C. of this final rule with comment period for further discussion of the establishment of interim final RVUs for CY 2011 new and revised codes.

As a result of the CY 2011 changes, the 75 percent equipment utilization rate assumption will be applied to all diagnostic imaging procedures with nationally established rates under the PFS in CY 2011 and which include a CT or MRI scanner in their direct PE, consistent with the statutory requirement of section 1848(b)(4)(C) of the Act (as added by section 3135(a) of the ACA).

Consistent with section 1848(c)(2)(B)(v)(III) of the Act (as amended by section 3135 of the ACA), the reduced expenditures attributable to the change in the utilization rate assumption applicable to CY 2011 (from the CY 2011 transitional rate for the 90 percent equipment utilization rate assumption for expensive diagnostic imaging equipment costing over $1 million (CT and MRI scanners) that would have applied under the final policy established in the CY 2010 PFS final rule with comment period to the 75 percent rate required under section 1848(b)(4)(C) of the Act) shall not be taken into account when applying the budget neutrality limitation on annual adjustments described in section 1848(c)(2)(B)(ii)(II) of the Act.

Table 3 below lists the codes to which the 75 percent equipment utilization rate assumption applies for CY 2011. The codes subject to this policy are also posted under the downloads for the CY 2011 PFS final rule with comment period on the CMS Web site at http://www.cms.gov/​PhysicianFeeSched/​PFSFRN/​list.asp#TopOfPage.

Table 3—Final CPT Codes Subject to 75 Percent Equipment Utilization Rate Assumption in CY 2011

CPT codeShort descriptor
70336Mri, temporomandibular joint(s).
70450Ct head/brain w/o dye.
70460Ct head/brain w/dye.
70470Ct head/brain w/o & w/dye.
70480Ct orbit/ear/fossa w/o dye.
Start Printed Page 73191
70481Ct orbit/ear/fossa w/dye.
70482Ct orbit/ear/fossa w/o & w/dye.
70486Ct maxillofacial w/o dye.
70487Ct maxillofacial w/dye.
70488Ct maxillofacial w/o & w/dye.
70490Ct soft tissue neck w/o dye.
70491Ct soft tissue neck w/dye.
70492Ct soft tissue neck w/o & w/dye.
70496Ct angiography, head.
70498Ct angiography, neck.
70540Mri orbit/face/neck w/o dye.
70542Mri orbit/face/neck w/dye.
70543Mri orbit/face/neck w/o & w/dye.
70544Mri angiography head w/o dye.
70545Mri angiography head w/dye.
70546Mri angiography head w/o & w/dye.
70547Mri angiography neck w/o dye.
70548Mri angiography neck w/dye.
70549Mri angiography neck w/o & w/dye.
70551Mri brain w/o dye.
70552Mri brain w/dye.
70553Mri brain w/o & w/dye.
70554Fmri brain by tech.
71250Ct thorax w/o dye.
71260Ct thorax w/dye.
71270Ct thorax w/o & w/dye.
71275Ct angiography, chest.
71550Mri chest w/o dye.
71551Mri chest w/dye.
71552Mri chest w/o & w/dye.
71555Mri angio chest w/or w/o dye.
72125CT neck spine w/o dye.
72126Ct neck spine w/dye.
72127Ct neck spine w/o & w/dye.
72128Ct chest spine w/o dye.
72129Ct chest spine w/dye.
72130Ct chest spine w/o & w/dye.
72131Ct lumbar spine w/o dye.
72132Ct lumbar spine w/dye.
72133Ct lumbar spine w/o & w/dye.
72141Mri neck spine w/o dye.
72142Mri neck spine w/dye.
72146Mri chest spine w/o dye.
72147Mri chest spine w/dye.
72148Mri lumbar spine w/o dye.
72149Mri lumbar spine w/dye.
72156Mri neck spine w/o & w/dye.
72157Mri chest spine w/o & w/dye.
72158Mri lumbar spine w/o & w/dye.
72159Mri angio spine w/o & w/dye.
72191Ct angiography, pelv w/o & w/dye.
72192Ct pelvis w/o dye.
72193Ct pelvis w/dye.
72194Ct pelvis w/o & w/dye.
72195Mri pelvis w/o dye.
72196Mri pelvis w/dye.
72197Mri pelvis w/o &w/dye.
72198Mri angio pelvis w/or w/o dye.
73200Ct upper extremity w/o dye.
73201Ct upper extremity w/dye.
73202Ct upper extremity w/o & w/dye.
73206Ct angio upper extr w/o & w/dye.
73218Mri upper extr w/o dye.
73219Mri upper extr w/dye.
73220Mri upper extremity w/o & w/dye.
73221Mri joint upper extr w/o dye.
73222Mri joint upper extr w/dye.
73223Mri joint upper extr w/o & w/dye.
73225Mri angio upr extr w/o & w/dye.
73700Ct lower extremity w/o dye.
73701Ct lower extremity w/dye.
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73702Ct lower extremity w/o & w/dye.
73706Ct angio lower extr w/o & w/dye.
73718Mri lower extremity w/o dye.
73719Mri lower extremity w/dye.
73720Mri lower extr w/& w/o dye.
73721Mri joint of lwr extre w/o dye.
73722Mri joint of lwr extr w/dye.
73723Mri joint of lwr extr w/o & w/dye.
73725Mri angio lower extr w or w/o dye.
74150Ct abdomen w/o dye.
74160Ct abdomen w/dye.
74170Ct abdomen w/o & w/dye.
74175Ct angio abdom w/o & w/dye.
74176Ct abd & pelvis w/o contrast.
74177Ct abdomen & pelvis w/contrast.
74178Ct abd & pelv 1+ section/regns.
74181Mri abdomen w/o dye.
74182Mri abdomen w/dye.
74183Mri abdomen w/o and w/dye.
74185Mri angio, abdom w/or w/o dye.
74261Ct colonography, w/o dye.
74262Ct colonography, w/dye.
75557Cardiac mri for morph.
75559Cardiac mri w/stress img.
75561Cardiac mri for morph w/dye.
75563Cardiac mri w/stress img & dye.
75565Card mri vel flw map add-on.
75571Ct hrt w/o dye w/ca test.
75572Ct hrt w/3d image.
75573Ct hrt w/3d image, congen.
75574Ct angio hrt w/3d image.
75635Ct angio abdominal arteries.
76380CAT scan follow up study.
77058Mri, one breast.
77059Mri, both breasts.
77078Ct bone density, axial.
77084Magnetic image, bone marrow.

b. HCPCS Code-Specific PE Issues

In this section, we discuss other specific CY 2011 proposals and changes related to direct PE inputs. The changes that follow were proposed in the CY 2011 PFS proposed rule and included in the proposed CY 2011 direct PE database, which is available on the CMS Web site under the downloads for the CY 2011 PFS proposed rule at http://www.cms.gov/​PhysicianFeeSched/​. The final direct PE database for CY 2011 is available under the downloads for the CY 2011 PFS final rule with comment period at the same location.

(1) Biohazard Bags

We identified 22 codes for which the supply item “biohazard bag” (SM004) is currently considered a direct PE input. The item is already properly accounted for in the indirect PE because it is not attributable to an individual patient service. Therefore, we proposed to remove the biohazard bag from the CY 2011 direct PE database and noted that the changes in direct PE inputs for the associated services were reflected in the proposed CY 2011 direct PE database.

We did not receive any public comments on our proposal to remove biohazard bags as a supply input. Therefore, we are finalizing our CY 2011 proposal to remove the supply item as a direct PE input for the associated services. This change is reflected in the final CY 2011 direct PE database.

(2) PE Inputs for Professional Component (PC) Only and Technical Component (TC) Only Codes Summing to Global Only Codes

In the case of certain diagnostic tests, different but related CPT codes are used to describe global, professional, and technical components of a service. These codes are unlike the majority of other diagnostic test CPT codes where modifiers may be used in billing a single CPT code in order to differentiate professional and technical components. When different but related CPT codes are used to report the components of these services, the different CPT codes are referred to as “global only,” “professional component (PC) only,” and “technical component (TC) only” codes. Medicare payment systems are programmed to ensure that the PE RVUs for global only codes equal the sum of the PE RVUs for the PC and TC only codes. However, it came to our attention that the direct PE inputs for certain global only codes do not reflect the appropriate summation of their related TC only and PC only component code PE inputs as they appear in the direct PE database. While the PFS payment calculations have been programmed to apply the correct PE RVUs for the global only code based on a summation of component code PE RVUs, the direct PE database has reflected incorrect inputs that are overridden by the payment system. Therefore, we proposed to correct the direct PE inputs for the global only codes so that the inputs reflect the appropriate summing of the PE inputs for the associated PC only and TC only codes. The proposed CY 2011 direct PE database included PE Start Printed Page 73193corrections to the 14 CPT codes listed in Table 4.

Table 4—Groups of Related CPT Codes with Proposed Changes to PE Inputs so that Inputs for Professional Component (PC) Only and Technical Component (TC) Only Codes Sum to Global Only Codes

CPT CodeLong descriptor
93224Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage, with visual superimposition scanning; includes recording, scanning analysis with report, physician review and interpretation.
93225Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage, with visual superimposition scanning; recording (includes connection, recording, disconnection).
93226Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage, with visual superimposition scanning; scanning analysis with report.
93230Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage without superimposition scanning utilizing a device capable of producing a full miniaturized printout; including recording, microprocessor-based analysis with report, physician review and interpretation.
93231Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage without superimposition scanning utilizing a device capable of producing a full miniaturized printout; recording (includes connection, recording, and disconnection).
93232Wearable electrocardiographic rhythm derived monitoring for 24 hours by continuous original waveform recording and storage without superimposition scanning utilizing a device capable of producing a full miniaturized printout; microprocessor-based analysis with report.
93268Wearable patient activated electrocardiographic rhythm derived event recording with presymptom memory loop, 24-hour attended monitoring, per 30 day period of time; includes transmission, physician review and interpretation.
93270Wearable patient activated electrocardiographic rhythm derived event recording with presymptom memory loop, 24-hour attended monitoring, per 30 day period of time; recording (includes connection, recording, and disconnection).
93271Wearable patient activated electrocardiographic rhythm derived event recording with presymptom memory loop, 24-hour attended monitoring, per 30 day period of time; monitoring, receipt of transmissions, and analysis.
93720Plethysmography, total body; with interpretation and report.
93721Plethysmography, total body; tracing only, without interpretation and report.
93784Ambulatory blood pressure monitoring, utilizing a system such as magnetic tape and/or computer disk, for 24 hours or longer; including recording, scanning analysis, interpretation and report.
93786Ambulatory blood pressure monitoring, utilizing a system such as magnetic tape and/or computer disk, for 24 hours or longer; recording only.
93788Ambulatory blood pressure monitoring, utilizing a system such as magnetic tape and/or computer disk, for 24 hours or longer; scanning analysis with report.

Comment: A number of commenters expressed support for CMS' proposal to ensure that the direct PE inputs for certain global only codes reflect the appropriate summation of their related TC only and PC only component code PE inputs as they appear in the direct PE database. One commenter questioned why the prior clinical labor time for the global only codes in the PE database did not match the direct PE inputs that must have been used in CY 2010 to generate the PE RVUs, given that the PE RVUs for the global only codes were the sum of the PE RVUs for the component codes.

Response: We appreciate the commenters' support for the proposal, and we are finalizing our correction of the direct PE inputs for the global only codes so that the inputs reflect the appropriate summing of the PE inputs for the associated PC only and TC only codes. In response to the commenter who questioned why prior clinical labor time for the global only codes in the PE database did not match the direct PE inputs that must have been used to generate the PE RVUs for payment, we note that Medicare payment systems are programmed to ensure that the PE RVUs for global only codes equal the sum of the PE RVUs for the PC and TC only codes. Therefore, rather than relying upon the direct PE inputs for the global only codes to determine the PE RVUs, which would have not resulted in values that equaled the summation of the component code PE RUVs, our PFS system was programmed so that the PE RVUs for the global only codes were set as the sum of the PE RVUS for the component codes. We expect the corrections to the inputs as incorporated in the direct PE database to alleviate any confusion caused by the prior inclusion of inputs associated with the global only codes that were not actually used to generate the PE RVUs.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to correct the direct PE inputs for the global only codes so that the inputs reflect the appropriate summing of the PE inputs for the associated PC only and TC only codes. The final CY 2011 direct PE database includes PE corrections to the 14 CPT codes listed in Table 4.

(3) Equipment Time Inputs for Certain Diagnostic Tests

In the CY 2011 PFS proposed rule (75 FR 40056), we stated that we had recently identified equipment time PE inputs that we believed were incorrect for four CPT codes associated with certain diagnostic tests (each is displayed in Table 4):

  • CPT code 93225 is the TC only code that includes the connection, recording, and disconnection of the holter monitor (CMS Equipment Code EQ127) used in 24-hour continuous electrocardiographic rhythm derived monitoring. The CY 2010 equipment time input for the holter monitor is 42 minutes, which parallels the intra-service clinical labor input time for the CPT code. However, we believed that the equipment time should reflect the 24 hours of continuous monitoring in which the device is used exclusively by the patient. Therefore, we proposed to change the monitor equipment time for CPT code 93225 to 1440 minutes, the number of minutes in 24 hours.
  • CPT code 93226 is the TC only code that includes the scanning analysis with report. We believed that the number of minutes the monitor (CMS Equipment Start Printed Page 73194Code EQ127) is used in this service should parallel the intra-service clinical labor input time of 52 minutes during which the monitor is in use, instead of the CY 2010 equipment time of 1440 minutes, because this code does not represent 24 hours of device use. Therefore, we proposed to change the monitor equipment time for CPT code 93226 to 52 minutes.
  • CPT 93224 is the global only code that includes the connection, recording, and disconnection of the monitor (CMS Equipment Code EQ127) and the scanning analysis with report, as well as the physician review and interpretation. We proposed direct PE inputs for CPT code 93224 to include 1492 total minutes of monitor time (which represents the total monitor time we proposed for CPT codes 93225 and 93226).
  • CPT code 93788 is the TC only code that describes the scanning analysis with report for ambulatory blood pressure monitoring. We believed that the equipment time input for the blood pressure monitor should parallel the 10 minutes of clinical labor input for the CPT code since that is the time during which the monitor is in use. In CY 2010, the equipment time input for the monitor is 1440 minutes, which is appropriate only for CPT code 93786, the code that describes the 24 hours of ambulatory blood pressure monitoring recording. Therefore, we proposed to correct the equipment time input for the ambulatory blood pressure monitor in CPT code 93788 to 10 minutes.
  • CPT code 93784 is the global only code that includes the recording, the scanning analysis with report, and the physician interpretation and report for ambulatory blood pressure monitoring. We proposed to establish the direct PE inputs for CPT code 93784 to include 1450 total minutes of time for the ambulatory blood pressure monitor (which represents the proposed total amount of monitor time included in CPT codes 93786 and 93788).

The proposed CY 2011 direct PE database reflected these changes.

Comment: Several commenters pointed out that the prior assignment of the 1440 minutes of holter monitor equipment time to CPT code 93226 stemmed from discussions between CMS and provider groups that resulted in PE policies initially implemented in CY 2007 (72 FR 18910). The commenters recommended that CMS retain the 1440 minutes of holter monitor equipment for CPT code 93326, consistent with current policy, rather than reassign the 1440 minutes of holter monitor equipment time as proposed to CPT code 93226.

Response: We agree with the commenters that it would be most appropriate to maintain our established policy for the equipment times associated with CPT codes 93225 and 93226, based upon further description of the direct practice expenses experienced by the current providers that typically furnish these services to Medicare beneficiaries. Therefore, we are not adopting the equipment time changes that we proposed for CPT codes 93225 and 93226. However, we are revising the direct PE inputs for CPT code 93224, a global only code, to include the total equipment time for the holter monitor that is incorporated in component codes CPT codes 93225 and 93226, as discussed in section II.A.3.b.(2). of this final rule with comment period. The PE inputs for CPT code 93224 did not previously correctly reflect the summation of the direct PE inputs for the component codes.

Comment: One commenter supported the proposed changes to the direct PE inputs for CPT codes 93784 through 93788. However, the commenter was confused about why 1440 minutes of equipment time were assigned to CPT code 93786, which the commenter stated is used only for the technical component of scanning the data rather than recording the data.

Response: As we stated in our proposal, we believe that the direct PE inputs for CPT code 93786 are currently correct because the code describes the recording of the data. We believe that the commenter may have inadvertently referred to CPT code 93786 instead of CPT code 93788, which is the technical component code that describes the scanning rather than the recording of the data. We proposed to remove the 1440 minutes associated with the scanning analysis from the inputs for CPT code 93788, not CPT code 93786.

After consideration of the public comments we received, we are finalizing our CY 2011 proposals to change the ambulatory blood pressure monitor equipment times included as direct PE inputs for CPT codes 938784 and 93788, while maintaining the current equipment time direct PE input for CPT code 93786. However, we are not finalizing our proposals to change the holter monitor equipment times included as direct PE inputs for CPT codes 93225 and 93226, but instead will maintain the inputs for CPT codes 93225 and 93226 as they were for CY 2010. We are also revising the direct PE inputs for CPT code 93224 to include the total equipment time for the holter monitor that is incorporated in CPT codes 93225 and 93226. The equipment times in the final CY 2011 direct PE database reflect these decisions.

(4) Cobalt-57 Flood Source

Stakeholders requested that CMS reevaluate the useful life of the Cobalt-57 flood source (CMS Equipment Code ER001), given their estimate of approximately 271 days for the source's half-life. The CY 2010 useful life input in the CY 2010 direct PE database for the Cobalt-57 flood source is 5 years. Using publicly available catalogs, we found that the Cobalt-57 flood source is marketed with a useful life of 2 years. Therefore, we proposed to change the useful life input from the current 5 years to 2 years. The Cobalt-57 flood source was included with the revised useful life input for 96 HCPCS codes in the proposed CY 2011 direct PE database.

Comment: One commenter supported the proposal to change the useful life input from 5 years to 2 years for the Cobalt-57 flood source.

Response: We appreciate the commenter's support for our proposal.

After consideration of the public comment we received, we are finalizing our CY 2011 proposal to change the useful life input in the direct PE database for the Cobalt-57 flood source from 5 years to 2 years. This change is included in the final CY 2011 direct PE database.

(5) Venom Immunotherapy

One stakeholder provided updated price information for the venoms used for the five venom immunology CPT codes, specifically 95145 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy (specify number of doses); single stinging insect venom); 95146 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy (specify number of doses); 2 single stinging insect venoms); 95147 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy (specify number of doses); 3 single stinging insect venoms); 95148 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy (specify number of doses); 4 single stinging insect venoms); 95149 (Professional services for the supervision of preparation and provision of antigens for allergen immunotherapy (specify number of doses); 5 single stinging insect venoms).

In the CY 2004 PFS final rule with comment period (68 FR 63206), we adopted a pricing methodology that utilizes the average price of a 1 milliliter Start Printed Page 73195dose of venom and adds that price per dose as direct PE inputs for CPT codes 95145 and 95146. When a patient requires three stinging insect venoms, as for CPT code 95147, the price input for a 3-vespid mix is used. This 3-vespid mix price is also used to value CPT codes 95148 (four venoms) and 96149 (five venoms), with the single venom price added once to CPT code 97148 and twice to CPT code 97149.

As requested by the stakeholder, we updated the price inputs for the 1-milliliter dose of venom to $16.67 and for the 3-vespid mix to $30.22 in the proposed CY 2011 direct PE database.

Comment: One commenter supported the proposal to update the price inputs for the venoms used for venom immunotherapy.

Response: We appreciate the information provided by stakeholders regarding the price inputs for venom immunotherapy supplies, consistent with our interest in utilizing accurate market prices as the direct PE inputs for these items.

After consideration of the public comment we received, we are finalizing our CY 2011 proposals to update the price inputs for the 1-milliliter dose of venom to $16.67 and for the 3-vespid mix to $30.22 in the CY 2011 direct PE database. These changes are included in the final CY 2011 direct PE database.

(6) Equipment Redundancy

Stakeholders recently brought to our attention that the ECG, 3-channel (with SpO2, NIBP, temp, resp) (CMS Equipment Code EQ011) incorporates all of the functionality of the pulse oximeter with printer (CMS Equipment Code EQ211). Therefore, in HCPCS codes where CMS Equipment Code EQ011 is present, CMS Equipment Code EQ211 is redundant. On this basis, we proposed to remove the pulse oximeter with printer (CMS Equipment Code EQ211) as an input for the 118 codes that also contain the ECG, 3-channel (with SpO2, NIBP, temp, resp) (CMS Equipment Code EQ011). We made these adjustments in the proposed CY 2011 direct PE database.

We received no public comments regarding this proposal to address the pulse oximeter equipment redundancy. Therefore we are finalizing our CY 2011 proposal without modification. We have made these adjustments in the final CY 2011 direct PE database.

(7) Equipment Duplication

We recently identified a number of CPT codes with duplicate equipment inputs in the PE database. We proposed to remove the duplicate equipment items and modified the proposed CY 2011 direct PE database accordingly as detailed in Table 5.

TABLE 5—CPT Codes With Proposed Removal of Duplicate Equipment Items in the Direct PE Database

CPT CodeCMS equipment code for duplicate equipmentDescription of equipment
19302P-mastectomy w/1n removalEF014 ED005light, surgical. camera, digital system, 12 megapixel (medical grade).
19361Breast reconstr w/lat flapEF031 EQ168table, power. light, exam.
44157Colectomy w/ileoanal anastEF031 EQ168table, power. light, exam.
44158Colectomy w/neo-rectum pouchEF031 EQ168table, power. light, exam.
56440Surgery for vulva lesionEF031 EQ170table, power. light, fiberoptic headlight w-source.
57296Revise vag graft, open abdEF031 EQ170table, power. light, fiberoptic headlight w-source.
58263Vag hyst w/t/o & vag repairEF031table, power.
59610Vbac deliveryEF031table, power.
67228Treatment of retinal lesionEL005 EQ230lane, exam (oph). slit lamp (Haag-Streit), dedicated to laser use.
76813Ob us nuchal meas, 1 gestED024film processor, dry, laser.
77371Srs, multisourceEQ211pulse oximeter w-printer.
ED018computer workstation, cardiac cath monitoring.
EL011room, angiography.
93540Injection, cardiac cathEQ011ECG, 3-channel (with SpO2, NIBP, temp, resp).
EQ032IV infusion pump.
EQ088contrast media warmer.
EQ211pulse oximeter w-printer.
93542Injection for heart x-raysED018computer workstation, cardiac cath monitoring.
EL011room, angiography.
EQ011ECG, 3-channel (with SpO2, NIBP, temp, resp).
EQ032IV infusion pump.
EQ088contrast media warmer.
EQ211pulse oximeter w-printer.

Comment: One commenter pointed out that the equipment duplication issue for CPT codes 93540 and 93542 is irrelevant because these codes would no longer be reported for Medicare in CY 2011. The commenter stated that the codes are being replaced by a new set of diagnostic cardiac catheterization CPT codes.

Response: We agree with the commenter's assessment that our proposal for these codes is not relevant for CY 2011 because these codes are being deleted.

Comment: One commenter reviewed the duplicate inputs and offered a correction regarding CPT code 19302 (Mastectomy, partial (eg, lumpectomy, Start Printed Page 73196tylectomy, quadrantectomy, segmentectomy); with axillary lymphadenectomy). The commenter pointed out that one of the line-items erroneously duplicated (light, surgical, EF014) for that code should have originally been applied to CPT code 19304 (Mastectomy, subcutaneous).

Response: We appreciate the commenter bringing this error to our attention and we agree with the commenter's assessment.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to remove the duplicate equipment items from the CY 2011 direct PE database as detailed in Table 5, with modification to transfer the duplicate surgical light input from CPT code 19302 to CPT code 19304. These changes are reflected in the final CY 2011 direct PE database.

(8) Establishing Overall Direct PE Supply Price Inputs Based on Unit Prices and Quantities

In the CY 2011 PFS proposed rule (75 FR 40057), we stated that we had identified minor errors in total price inputs for a number of supply items due to mathematical mistakes in multiplying the item unit price and the quantity used in particular CPT codes for the associated services. We proposed to modify the direct PE database to appropriately include the overall supply price input for a supply item as the product of the unit price and the quantity of the supply item used in the CPT code. Most of the overall supply price input changes were small, and we adjusted the proposed CY 2011 direct PE database accordingly. The CPT and Level II HCPCS codes and associated supplies for nonfacility and facility settings that were subject to these corrections are displayed in Tables 6 and 7, respectively.

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Comment: Several commenters agreed that the overall supply price inputs should be equal to the product of the supply price and the quantity associated with each code. Some commenters pointed out that for many of the supply items displayed in Tables 6 and 7, the overall supply prices remained incorrect in the proposed CY 2011 direct PE database. The commenters speculated that an underlying programming error may have led to incorrect calculations.

Response: In constructing the proposed CY 2011 direct PE database posted on the CMS web site, we inadvertently retained a display column of data that reflected our previous calculation error, despite our correct calculation of the values for PFS ratesetting purposes. We have corrected the underlying process error that led to the incorrect display. We have modified the direct PE database for the CY 2011 PFS final rule with comment period to appropriately display the overall supply price input for a supply item as the product of the unit price and the quantity of the supply item used in the CPT code.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to modify the direct PE database to include the overall supply price input for a supply item as the product of the unit price and the quantity of the supply item used in the CPT code. We have modified the display column within the publicly available database to reflect the proper calculation. These changes are reflected in the final CY 2011 direct PE database.

c. AMA RUC Recommendations in CY 2010 for Changes to Direct PE Inputs

In a March 2010 letter, the AMA RUC made specific PE recommendations that we considered in the CY 2011 PFS proposed rule (75 FR 40062 through 40063). The proposed changes that follow were included in the proposed CY 2011 direct PE database, which is available on the CMS Web site under the downloads for the CY 2011 PFS proposed rule at http://www.cms.gov/​PhysicianFeeSched/​. The final direct PE database for CY 2011 is available under the downloads for the CY 2011 PFS final rule with comment period at the same location.

(1) Electrogastrography and Esophageal Function Test

We proposed to accept the AMA RUC recommendations for the CY 2011 PE inputs for the following CPT codes: 91132 (Electrogastrography, diagnostic, transcutaneous); 91133 (Electrogastrography, diagnostic, transcutaneous; with provocative testing); 91038 (Esophageal function test, gastroesophageal reflux test with nasal catheter intraluminal impedance electrode(s) placement, recording, analysis and interpretation; prolonged (greater than 1 hour, up to 24 hours)). For CPT code 91038, we assumed a useful life of 5 years for the equipment item “ZEPHR impedance/pH reflux monitoring system with data recorder, software, monitor, workstation and cart,” based on its entry in the AHA's publication, “Estimated Useful Lives of Depreciable Hospital Assets,” which we use as a standard reference. The proposed CY 2011 direct PE database was changed accordingly.

(2) 64-Slice CT Scanner and Software

The AMA RUC submitted an updated recommendation regarding the correct pricing of the 64-slice CT scanner and its accompanying software. Based on the documentation accompanying the recommendation, we accepted this recommendation and proposed to update the price input for the 64-slice scanner and software. This affected the following four CPT codes that use either the scanner, the software, or both: 75571 (computed tomography, heart, without contrast material, with quantitative evaluation of coronary calcium); 75572 (Computed tomography, heart, with contrast material, for evaluation of cardiac structure and morphology (including 3D image postprocessing, assessment of cardiac function, and evaluation of venous structures, if performed)); 75573 (Computed tomography, heart, with contrast material, for evaluation of cardiac structure and morphology in the setting of congenital heart disease (including 3D image postprocessing, assessment of LV cardiac function, RV structure and function and evaluation of venous structures, if performed)); and 75574 (Computed tomographic angiography, heart, coronary arteries and bypass grafts (when present), with contrast material, including 3D image post processing (including evaluation of cardiac structure and morphology, assessment of cardiac function, and evaluation of venous structure, if performed)). The proposed CY 2011 direct PE database was modified accordingly.

(3) Breath Hydrogen Test

The AMA RUC provided recommendations regarding the PE inputs for CPT code 91065 (breath Start Printed Page 73204hydrogen test (e.g., for detection of lactase deficiency, fructose intolerance, bacterial overgrowth, or oro-cecal gastrointestinal transit). We accepted the recommendations with two modifications. We folded the two pieces of equipment listed as “quinGas Table-Top Support Stand, 3 Tank” and “Drying Tube, Patient Sample” into the “BreathTrackerDigital SC Instrument” and summed their inputs into one equipment line-item, since these equipment items are used together specifically for the service in question. We increased the useful life input of the “BreathTrackerDigital SC Instrument” from 7 to 8 years based on our use of the American Hospital Association (AHA)'s publication entitled, “Estimated Useful Lives of Depreciable Hospital Assets” as a standard reference. Additionally, because the AMA RUC did not include equipment times in their recommendations for this CPT code, we used 53 minutes as the total time for all equipment items based on the total intra-service period for the clinical labor, consistent with our general policy for establishing equipment times. These modifications were reflected in the proposed CY 2011 direct PE database.

(4) Radiographic Fluoroscopic Room

A recent AMA RUC review of services that include the radiographic fluoroscopic room (CMS Equipment Code EL014) as a direct PE input revealed that the use of the item is no longer typical for certain services in which it is specified within the current direct cost inputs. The AMA RUC recommended to CMS that the radiographic fluoroscopic room be deleted from CPT codes 64420 (Injection, anesthetic agent; intercostal nerve, single); 64421 (Injection, anesthetic agent; intercostal nerves, multiple, regional block); and 64620 (Destruction by neurolytic agent, intercostal nerve). We accepted these recommendations and, therefore, these changes were included in the proposed CY 2011 direct PE database.

Comment: Several commenters generally expressed support for our acceptance of these AMA RUC-recommended direct PE inputs with the stated refinements. The AMA RUC expressed appreciation for CMS' acceptance of the committee's recommendations.

Response: We appreciate the assistance of stakeholders in our efforts to utilize the most accurate direct PE inputs for PFS services. We also appreciate the judicious work of the AMA RUC in providing these recommendations in time for us to respond to them and include our proposals in the CY 2011 proposed rule.

Comment: One commenter expressed concern about these recommendations on the basis of the flawed professional composition of the AMA RUC. The commenter stated that without fair representation by all specialties, including nonphysician practitioners who may bill Part B directly under the PFS, CMS' reliance on the AMA RUC as representing the professional views and knowledge of all healthcare specialties for purposes of establishing the direct PE inputs for services paid under the PFS is deeply flawed.

Response: As we have stated previously (69 FR 66243), because the AMA RUC is an independent committee, we are not in a position to set the requirements for AMA RUC membership. Concerned stakeholders should communicate directly with the AMA RUC regarding its professional composition. We note that we alone are responsible for all decisions about the direct PE inputs for purposes of PFS payment so, while the AMA RUC provides us with recommendations for new and revised CPT codes in the context of what we believe is its broad expertise, we ultimately remain responsible for determining the direct PE inputs for all new or revised services.

After consideration of the public comments we received, we are finalizing our CY 2011 proposals to accept the AMA RUC recommendations, with certain changes described above, regarding the direct PE inputs for electrogastrography and esophageal function tests, the 64-slice CT scanner and software, the breath hydrogen test, and certain procedures that no longer require a radiographic fluoroscopic room. These decisions are reflected in the final CY 2011 direct PE database.

(5) Cystometrogram

The AMA RUC recently identified a rank order anomaly regarding CPT code 51726 (Complex cystometrogram (i.e., calibrated electronic equipment)). Currently, this procedure has higher PE RVUs, despite being less resource-intensive than the three CPT codes for which it serves as the base: 51727 (Complex cystometrogram (i.e., calibrated electronic equipment); with urethral pressure profile studies (i.e., urethral closure pressure profile), any technique); 51728 (Complex cystometrogram (i.e., calibrated electronic equipment); with voiding pressure studies (that is, bladder voiding pressure), any technique); and 51729 (Complex cystometrogram (i.e., calibrated electronic equipment); with voiding pressure studies (that is, bladder voiding pressure) and urethral pressure profile studies (that is, urethral closure pressure profile), any technique).

Since the AMA RUC's general view is that CPT codes with a 0-day global period do not have pre-service time associated with the code, the AMA RUC recommended removing the nonfacility pre-service clinical labor time from the PE inputs for 51726. Additionally, the AMA RUC recommended that the nonfacility clinical intra-service staff time for CPT code 51276 be reduced from the 118 minutes of intra-service clinical labor time currently assigned to the code to 85 minutes of intra-service clinical labor time. These changes would resolve the rank order anomaly and bring the PE inputs for CPT code 51726 into alignment with the other three codes. Finally, and for the reasons stated above, the AMA RUC recommended that CMS remove the 23 minutes of pre-service nonfacility clinical labor time from CPT code 51725 (Simple cystometrogram (CMG) (for example, spinal manometer)). We agreed with the AMA RUC recommendations, proposed to accept these recommendations for CY 2011 and, therefore, changed the direct PE inputs for CPT codes 51725 and 51726 in the nonfacility setting in the proposed CY 2011 direct PE database.

Comment: Some commenters argued that the rank order anomaly resulted from clinical labor inputs that were too low in the more complex codes, rather than too high in the base codes. These commenters stated that the AMA RUC and CMS had addressed the wrong “end” of the rank order anomaly in making the changes to the clinical labor minutes assigned to CPT codes 51725 and 51726. Several commenters on the CY 2010 PFS final rule with comment period, where new CY 2011 CPT code 51727, 51728, and 51729 were assigned interim direct PE inputs, also argued that CPT codes 51727, 51728, and 51729 should have additional clinical labor inputs, including a greater number of minutes during the intra-service period and minutes during the pre-service period.

Response: We have reviewed the direct PE inputs for all five CPT codes in this series and continue to agree with the AMA RUC's recommendations regarding changes for CY 2011. Specifically, we believe the pre-service nonfacility clinical labor time for the 0-day global period CPT codes 51725 and 51726 should be removed and the intra-service clinical labor time for CPT code 51726 should also be reduced, consistent with the usual treatment of Start Printed Page 73205other 0-day global codes. We believe the AMA RUC provided recommendations to us regarding the direct PE inputs for these four cystometrogram services that accurately reflect the costs of the resources (that is, the clinical labor, equipment, and supplies) typically required to furnish these services to Medicare beneficiaries.

Comment: Several commenters requested that CMS change the supply inputs included in the direct PE database for the complex cystometrogram services. For example, the commenters requested that single dual sensor catheters replace the single sensor catheters currently included as direct PE inputs for these codes. The commenters stated that both the catheters and their price inputs are outdated. In other cases, the commenters explained that certain supplies in the database were not those typically used by certain physician specialties in performing the services.

Response: We rely on our review of recommendations received from the AMA RUC in order to make changes to the clinical labor, supply, and equipment inputs for CPT codes within the direct PE database. We have no reason to believe that the supplies used in the complex cystometrogram procedures described by CPT codes 51727, 51728, and 51729 are outdated because these were new codes for CY 2010 and the AMA RUC recently addressed their direct PE inputs when initially recommending values for the services. We believe the AMA RUC's extensive expertise and broad perspective generally allows it to accurately identify the direct PE inputs for new and revised CPT codes. We encourage stakeholders who believe that enhancements in technology or changes in medical practice have resulted in changes in the supplies or equipment typically used in furnishing a particular service to address these concerns with the AMA RUC.

As we discuss further in section II.A.3.e. of this final rule with comment period with respect to our proposal regarding updating supply and equipment price inputs, we welcome public requests for updates to supply price and equipment price and useful life inputs associated with existing codes through the process we are adopting beginning in CY 2011.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to accept the recommendations of the AMA RUC regarding the revised direct PE inputs for CPT codes 51725 and 52726. The final direct PE inputs are included in the final CY 2011 direct PE database.

d. Referral of Existing CPT Codes for AMA RUC Review

As part of our review of high cost supplies, we conducted a clinical review of the procedures associated with high cost supplies to confirm that those supplies currently are used in the typical case described by the CPT codes. While we confirmed that most high cost supplies could be used in the procedures for which they are currently direct PE inputs, we noted that one of the high cost supplies, fiducial screws (CMS Supply Code SD073) with a current price of $558, is included as a direct PE input for two CPT codes, specifically 77301 (Intensity modulated radiotherapy plan, including dose-volume histograms for target and critical structure partial tolerance specifications) and 77011 (Computed tomography guidance for stereotactic localization). The documentation used in the current pricing of the supply item describes a kit that includes instructions, skull screws, a drill bit, and a collar for the TALON® System manufactured by Best nomos. Best nomos' literature describes the insertion of the screws into the patient's skull to ensure accurate set-up. When CPT codes 77301 and 77011 were established in CY 2002 and CY 2003, respectively, we accepted the AMA RUC recommendations to include fiducial screws in the PE for these services. Upon further review, while we understand why this supply may still be considered a typical PE input for CPT code 77011, we do not now believe that fiducial screws, as described in the Best nomos literature, would typically be used in CPT code 77301, where the most common clinical scenario would be treatment of prostate cancer.

Therefore, in order to ensure that CPT codes 77301 and 77011 are appropriately valued for CY 2011 through the inclusion or exclusion of fiducial screws in their PE, in the CY 2011 PFS proposed rule (75 FR 40063), we asked the AMA RUC to review these CPT codes with respect to the inclusion of fiducial screws in their PE. We requested that the AMA RUC make recommendations to us regarding whether this supply should be included in the PE or removed from the PE for CPT codes 77301 and 77011 in a timeframe that would allow us to adopt interim values for these codes for CY 2011, should the AMA RUC recommend a change. Were the AMA RUC to continue to recommend the inclusion of fiducial screws in the PE for CPT code 77301 and/or 77011 for CY 2011, we requested that the AMA RUC provide us with a detailed rationale for the inclusion of this specialized supply in the PE for the typical case reported under the relevant CPT code. We also requested that the AMA RUC furnish updated pricing information for the screws if they were to continue to recommend the screws as a PE input for one or both of these CPT codes in CY 2011.

Comment: The AMA RUC recommended that CMS remove the fiducial screws as a direct PE input from both CPT codes 77011 and 77301. Several commenters also agreed that the fiducial screws would not typically be used with CPT code 77301. Additionally, multiple commenters pointed out that the fiducial screws may now be reported using HCPCS supply code A4648 (Tissue marker, implantable, any type, each) when the markers are implanted.

Response: We appreciate the responsiveness of the AMA RUC to our request and the interest of the other commenters in this issue.

After consideration of the public comments we received and the AMA RUC recommendation following publication of the CY 2011 PFS proposed rule, for CY 2011, we are accepting the AMA RUC's recommendation and removing fiducial screws from the direct PE database as inputs for CPT codes 77011 and 77301. Because the direct PE inputs for these codes are being revised on an interim final basis for CY 2011, the changes are subject to public comment on this final rule with comment period.

e. Updating Equipment and Supply Price Inputs for Existing Codes

Historically, we have periodically received requests to change the PE price inputs for supplies and equipment in the PE database. In the past, we have considered these requests on an ad hoc basis and updated the price inputs as part of quarterly or annual updates if we believed them to be appropriate. In the CY 2011 PFS proposed rule (75 FR 49963), we proposed to establish a regular and more transparent process for considering public requests for changes to PE database price inputs for supplies and equipment used in existing codes.

We proposed to act on public requests to update equipment and supply price inputs annually through rulemaking by following a regular and consistent process as discussed in the following paragraphs. We proposed to use the annual PFS proposed rule released in the summer and the final rule with comment period released on or about Start Printed Page 73206November 1 each year as the vehicle for making these changes.

We would accept requests for updating the price inputs for supplies and equipment on an ongoing basis; requests must be received no later than December 31 of each calendar year to be considered for inclusion in the next proposed rule. In that next proposed rule, we would present our review of submitted requests to update price inputs for specific equipment or supplies and our proposals for the subsequent calendar year. We would then finalize changes in the final rule with comment period for the upcoming calendar year. Our review of the issues and consideration of public comments may result in the following outcomes that would be presented in the final rule with comment period:

  • Updating the equipment or supply price inputs, as requested.
  • Updating the equipment or supply price inputs, with modifications.
  • Rejecting the new price inputs.
  • Declining to act on the request pending a recommendation from the AMA RUC.

To facilitate our review and preparation of issues for the proposed rule, at a minimum, we would expect that requesters would provide the following information:

In order to best evaluate the requests in the context of our goal of utilizing accurate market prices for these items as direct PE inputs, we also would expect requestors to provide multiple invoices from different suppliers/manufacturers. In some cases, multiple sources may not be available, whereupon a detailed explanation should be provided to support the request. When furnishing invoices, requestors should take into consideration the following parameters:

++ May be either print or electronic but should be on supplier and/or manufacturer stationery (for example, letterhead, billing statement, etc.)

++ Should be for the typical, common, and customary version of the supply or equipment that is used to furnish the services.

++ Price should be net of typical rebates and/or any discounts available, including information regarding the magnitude and rationale for such rebates or discounts.

++ If multiple items are presented on the same invoice, relevant item(s) should be clearly identified.

We solicited public comments on this process, including the information that requestors should furnish to facilitate our full analysis in preparation for the next calendar year's rulemaking cycle.

Comment: Several commenters supported establishing a regular and more transparent process for considering public requests for changes to the direct PE price inputs for supplies and equipment used in existing codes. However, other commenters were concerned that the process might prevent CMS from making timely corrections to the database that are brought to the attention of the agency by specialty societies or other stakeholders. These commenters suggested creating an expedited process whereby mistakes could be corrected.

Response: We appreciate the broad support for the proposal. We believe that this process, though regular, would not limit our ability to correct technical errors that are discovered by the agency or brought to our attention by stakeholders. On these occasions, we would continue to correct errors and issue correction notices to final rules when appropriate. The regular process for updating supply and equipment prices is intended to reflect significant changes in the market prices of supplies and equipment that are used in the direct PE database. It would not substitute for the timely correction of technical errors.

Comment: Some commenters were concerned that the proposed process would necessitate a 12- to 24-month delay between CMS' acknowledgement of a price update and the resulting change in PE RVU calculations. The commenters pointed out that the current ad hoc process has historically resulted in a fairly timely response from the agency in most circumstances and were concerned that the formalization of the process might result in unnecessary delays. One commenter suggested creating a process for quarterly updates to the supply and equipment price inputs.

Response: We understand that some commenters are concerned about the timelines for price updates. However, we believe that the value of the transparency of the proposed process outweighs its potential for slowing the previous ad hoc process. Additionally, it is important to acknowledge that in most previous cases, price input updates would not have been immediately effective since such updates have always required CMS' review, concurrence, and processing through the rate setting methodology prior to any change in Medicare payment rates. Additionally, many stakeholders already provide public comments to CMS regarding specific issues addressed in our annual rate setting for the PFS through the notice and comment rulemaking process. Therefore, we believe that the annual process offers both an economic use of stakeholders' resources, as well as the best opportunity for broad public input into proposed price changes. These are qualities any accelerated alternative, such as quarterly updates, would lack.

We believe that an annual update process most effectively promotes both timeliness and transparency, while also allowing for public comment and input regarding our proposals before the adoption of pricing changes that could have a significant effect on payment for services under the PFS.

Comment: Some commenters asserted that it may be more difficult to obtain invoices for some supplies that are not frequently used and there should be acceptable alternative sources of information, including price lists or other information from the manufacturer. One commenter suggested that in the case of items that are not used in high volumes in physicians' office, volume or other discounts are unlikely for physicians' practices.

Response: Even though the direct PE inputs should reflect the resource costs required for typical cases, we understand that there may be circumstances in which updated invoices or invoices that reflect volume or other discounts may be difficult to obtain. As stated in our proposal, we will consider a detailed written explanation in support of requests submitted without the documentation usually required.

Comment: One commenter urged that the updating of supply and equipment prices be only for “like” items and not for “newer technology” items. The commenter requested that CMS refer the initial review of new supply and equipment inputs to the AMA RUC Practice Expense Subcommittee for review and recommendation back to CMS. Other commenters made specific requests for additions, deletions, or substitutions of supply and equipment items associated with particular codes.

Response: We appreciate the opportunity to clarify that this regular and consistent process would only apply to the price inputs for supply and equipment items. As part of our review of equipment price inputs, we will also consider updates to the useful life of equipment insofar as that information is Start Printed Page 73207supported by similar documentation. However, we will continue to encourage stakeholders who believe that there should be additions, deletions, or substitutions of direct PE inputs associated with particular codes to address these concerns through the AMA RUC, including when a stakeholder believes that enhanced technology has replaced older technology in the typical case of a particular service. We believe the AMA RUC recommendations are an efficient and effective mechanism to inform our review of changes to the clinical labor, supply, and equipment inputs within the direct PE database.

Comment: One commenter was concerned about the potential for CMS to reject the requested price input outright and suggested that CMS be required to explain its rejection of the request for an updated price input.

Response: We appreciate the concerns of the commenter and consider this perspective as providing additional support for instituting such a regular and transparent process. As we stated in the CY 2011 proposed rule (75 FR 40063), we would present our review of submitted requests to update price inputs for specific equipment or supplies and our proposals for the subsequent calendar year in the annual proposed rule. This process would provide CMS an annual opportunity to explain our review and decisions regarding public requests for changes in direct PE price inputs.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to act on public requests to update equipment and supply price inputs annually through rulemaking by following a regular and consistent process as discussed in the preceding paragraphs. We will use the annual PFS proposed rule released in the summer and the final rule with comment period released on or about November 1 each year as the vehicle for making these changes. In order to make the most effective use of the rulemaking process and be responsive to the concerns of stakeholders that we consider the most recent evidence available, we ask that requests for updates to supply price inputs or equipment price or useful life inputs be submitted as comments to the PFS final rule with comment period each year, subject to the deadline for public comments applicable to that rule. Alternatively, stakeholders may submit requests to CMS on an ongoing basis throughout a given calendar year to CMS PE_Price_Input_Update@cms.hhs.gov. Requests received by the end of a calendar year will be considered in rulemaking during the following year. For example, requests received by December 31, 2010 will be considered in conjunction with the CY 2012 PFS rulemaking cycle. We refer readers to the description earlier in this section of the minimum information we are requesting that stakeholders provide in order to facilitate our review and preparation of issues for the proposed rule.

In the CY 2012 PFS proposed rule, scheduled to be released in the summer of CY 2011, we will present a review of any timely requests we receive to update supply price inputs or equipment price or useful life inputs. After reviewing the issues and responding to the public comments, we will finalize our decision as one of the outcomes listed below for each request in the final rule with comment period for CY 2012.

  • Updating the equipment or supply price inputs, as requested.
  • Updating the equipment or supply price inputs, with modifications.
  • Rejecting the new price inputs.
  • Declining to act on the request pending a recommendation from the AMA RUC.

f. Other Issues

We received other public comments on matters related to direct PE inputs that were not the subject of proposals in the CY 2011 PFS proposed rule. We thank the commenters for sharing their views and suggestions. Because we did not make any proposals regarding these matters, we do not generally summarize or respond to such comments in this final rule with comment period. However, we are summarizing and responding to several of the public comments in order to reiterate or clarify certain information.

Comment: Several commenters stated that the clinical labor minutes for CPT code 37210 (Uterine fibroid embolization (UFE, embolization of the uterine arteries to treat uterine fibroids, leiomyomata), percutaneous approach inclusive of vascular access, vessel selection, embolization, and all radiological supervision and interpretation, intraprocedural roadmapping, and imaging guidance necessary to complete the procedure) are inconsistent with recommendations forwarded to CMS by the AMA RUC for CY 2007 and accepted by CMS in the CY 2007 PFS final rule with comment period (71 FR 69643). The commenters indicated that 10 minutes of clinical labor time were erroneously not attributed to this CPT code in the proposed CY 2011 direct PE database.

Response: We agree with the commenters' assessment and appreciate being informed of the error. The 10 minutes of clinical labor time missing from the direct PE inputs for CPT code 37210 have been incorporated and this change is reflected in the final CY 2011 direct PE database.

Comment: Several commenters expressed concerns regarding the current direct PE inputs for various services. One commenter submitted extensive information regarding a perceived disparity between the equipment inputs for echocardiography services and those for other ultrasound services. Another commenter requested that CMS ask the AMA RUC to establish nonfacility RVUs for the placement or insertion of high dose rate brachytherapy catheters/applicators because it is common practice, especially in gynecology, for physicians to perform such procedures in their offices or in freestanding clinics. One commenter stated that the proposed PE RVUs do not provide sufficient payment to cover the cost of prothrombin time (PT)/international normalized ratio (INR) home monitoring services and recommended that CMS alter the direct PE inputs for those services. Another commenter requested that CMS alter direct PE inputs for holter monitoring based on changes to the language in CPT code descriptors from the current “24 hours” to “up to 48 hours,” even when the AMA RUC did not recommend such changes.

Response: We did not propose CY 2011 changes to the direct PE inputs for any of those services referenced by the commenters and, therefore, their direct PE inputs have already been finalized in a prior year's PFS rulemaking. As we have previously stated in this section, we encourage stakeholders who believe a change is required in the direct PE inputs associated with a particular service in the typical case that is furnished in the facility or nonfacility setting to address these concerns with the AMA RUC with respect to codes that have been reviewed by the AMA RUC. The direct PE inputs for existing services paid under the PFS have all been adopted through rulemaking that has allowed for public notice and comment, so their current direct PE inputs are final unless we would make a proposal to change them in a future year. In most cases, we like to receive and review recommendations from the AMA RUC for new and revised codes or other codes for which another review has been conducted in order to assist us in determining whether we should make changes to the clinical labor, supply, and equipment inputs within the direct Start Printed Page 73208PE database and, if so, what revisions should be made.

Additionally, throughout the year we meet with parties who want to share their views on topics of interest to them. These discussions may provide us with information regarding changes in medical practice and afford opportunities for the public to bring to our attention issues they believe we should consider for future rulemaking. Thus, we encourage stakeholders to contact us at any time if there are topics related to the direct PE inputs for physicians' services that they would like to discuss.

B. Malpractice Relative Value Units (RVUs)

1. Background

Section 1848(c) of the Act requires that each service paid under the PFS be comprised of three components: Work, PE, and malpractice. From 1992 to 1999, malpractice RVUs were charge-based, using weighted specialty-specific malpractice expense percentages and 1991 average allowed charges. Malpractice RVUs for new codes after 1991 were extrapolated from similar existing codes or as a percentage of the corresponding work RVU. Section 4505(f) of the BBA required us to implement resource-based malpractice RVUs for services furnished beginning in 2000. Therefore, initial implementation of resource-based malpractice RVUs occurred in 2000.

The statute also requires that we review, and if necessary adjust, RVUs no less often than every 5 years. The first review and update of resource-based malpractice RVUs was addressed in the CY 2005 PFS final rule with comment period (69 FR 66263). Minor modifications to the methodology were addressed in the CY 2006 PFS final rule with comment period (70 FR 70153). In the CY 2010 PFS final rule with comment period, we implemented the second review and update of malpractice RVUs. For a discussion of the second review and update of malpractice RVUs see the CY 2010 PFS proposed rule (74 FR 33537) and final rule with comment period (74 FR 61758).

2. Malpractice RVUs for New and Revised Services Effective Before the Next 5-Year Review

Currently, malpractice RVUs for new and revised codes effective before the next 5-Year Review (for example, effective CY 2011 through CY 2014) are determined by a direct crosswalk to a similar “source” code or a modified crosswalk to account for differences in work RVUs between the new/revised code and the source code. For the modified crosswalk approach, we adjust the malpractice RVUs for the new/revised code to reflect the difference in work RVUs between the source code and the AMA RUC's recommended work value (or the work value we are applying as an interim final value under the PFS) for the new code. For example, if the interim final work RVUs for the new/revised code are 10 percent higher than the work RVUs for the source code, the malpractice RVUs for the new/revised code would be increased by 10 percent over the source code RVUs. This approach presumes the same risk factor for the new/revised code and source code but uses the work RVUs for the new/revised code to adjust for risk-of-service. The assigned malpractice RVUs for new/revised codes effective between updates remain in place until the next 5-Year Review.

For CY 2011, we explained that we will continue our current approach for determining malpractice RVUs for new/revised codes that become effective before the next 5-Year Review and update. Under this approach we crosswalk the new/revised code to the RVUs of a similar source code and adjust for differences in work (or, if greater, the clinical labor portion of the fully implemented PE RVUs) between the source code and the new/revised code. Additionally, we stated that we would publish a list of new/revised codes and the analytic crosswalk(s) used for determining their malpractice RVUs in the CY 2011 final rule with comment period, which we have not previously done. We also explained that the CY 2011 malpractice RVUs for new/revised codes would be implemented as interim final values in the CY 2011 PFS final rule with comment period, where they would be subject to public comment, and finalized in the CY 2012 PFS final rule with comment period.

Comment: Several commenters supported the continuation of our current approach to determining malpractice RVUs for new/revised codes that become effective before the next 5-Year Review and update. The commenters stated that publication of the new/revised codes and the analytic crosswalk(s) used for determining their malpractice RVUs in the final rule is a move toward greater transparency. A few commenters requested that CMS provide the rationale used for selecting crosswalks for new/revised codes and subject the rationale to public comment.

Response: For purposes of determining malpractice RVUs for the CY 2011 new/revised codes, we accepted all source code recommendations submitted by the AMA RUC. We understand that the AMA RUC-recommended source codes for new/revised codes were based on the expected similar specialty mix of practitioners furnishing the source code and the new/revised code. In other words, the medical specialties furnishing a source code were expected to be similar to the specialty mix furnishing the new/revised code. In adopting all of the AMA RUC's source code recommendations for CY 2011, we agree with its assessment of these similarities in each new/revised code case. If we were to disagree with the AMA RUC's malpractice source code recommendations in a future year for any new/revised codes, we would provide the rationale for both our difference of opinion and the alternative source code we select for purposes of establishing the interim final malpractice RVUs.

After consideration of the public comments we received, we are continuing our current approach of assigning the interim final malpractice RVUs for new/revised codes based on the methodology described earlier in this section. We adjusted the malpractice RVUs of the CY 2011 new/revised codes for differences in work RVUs (or, if greater, the clinical labor portion of the fully implemented PE RVUs) between the source code and the new/revised code to reflect the specific risk-of-service for the new/revised code. The source code crosswalks for the CY 2011 new/revised codes are being adopted on an interim final basis and are subject to public comment on this CY 2011 final rule with comment period, as are the CY 2011 malpractice RVUs of the new/revised codes that are listed in Addendum C to this final rule with comment period. The malpractice RVUs for the CY 2011 new/revised codes will be finalized in the CY 2012 PFS final rule with comment period, where we will also respond to the public comments received on the values that are included in this CY 2011 final rule with comment period.

Table 8 lists the CY 2011 new/revised codes and their respective source codes for determining the interim final CY 2011 malpractice RVUs. We are also posting this crosswalk on the CMS Web site under the downloads for the CY 2011 PFS final rule with comment period at: http://www.cms.gov/​PhysicianFeeSched/​PFSFRN/​list.asp#TopOfPage.

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3. Revised Malpractice RVUs for Selected Disc Arthroplasty Services

As discussed in the CY 2010 PFS proposed rule (74 FR 33539), we assign malpractice RVUs to each service based upon a weighted average of the risk factors of all specialties that furnish the service. For the CY 2010 review of malpractice RVUs, we used CY 2008 Medicare payment data on allowed services to establish the frequency of a service by specialty. CPT code 22856 (Total disc arthroplasty (artificial disc), anterior approach, including discectomy with end plate preparation (includes osteophytectomy for nerve root or spinal cord decompression and microdissection), single interspace, cervical) had zero allowed services for CY 2008. Therefore, our contractor initially set the level of services to 1, and assigned a risk factor according to the average risk factor for all services that do not explicitly have a separate technical or professional component. We proposed to adopt our contractor's initial malpractice RVUs for CPT code 22856 in the CY 2010 proposed rule. Application of the average physician risk factor would have resulted in a significant decrease in malpractice RVUs for CPT code 22856 in CY 2010.

Several commenters on the CY 2010 PFS proposed rule expressed concern regarding the proposed malpractice RVUs for CPT code 22856, which represented a proposed reduction of more than 77 percent. The commenters stated that this service is predominantly furnished by neurosurgeons and orthopedic surgeons. Given the high risk factors associated with these specialty types and the changes in malpractice RVUs for comparable services, the commenters stated that a reduction in the malpractice RVUs of this magnitude for CPT code 22856 could not be correct.

After consideration of the public comments, for CY 2010, we set the risk factor for CPT code 22856 as the weighted average risk factor of six comparable procedures mentioned by the commenters: CPT code 22554 (Arthrodesis, anterior interbody technique, including minimal discectomy to prepare interspace (other than for decompression); cervical below C2); CPT code 22558 (Arthrodesis, anterior interbody technique, including minimal discectomy to prepare interspace (other than for decompression); lumbar); CPT code 22857 (Total disc arthroplasty (artificial disc), anterior approach, including discectomy to prepare interspace (other than for decompression), single interspace, lumbar); CPT code 22845 (Anterior instrumentation; 2 to 3 vertebral segments (list separately in addition to code for primary procedure)); CPT code 63075 (Discectomy, anterior, with decompression of spinal cord and/or nerve root(s), including osteophytectomy; cervical, single interspace); and CPT code 20931 (Allograft for spine surgery only; structural (list separately in addition to code for primary procedure)). The weighted average risk factor for these services is 8.4.

Since publication of the CY 2010 PFS final rule with comment period, stakeholders have mentioned that we made significant changes to the malpractice RVUs for CPT code 22856 in CY 2010. The commenters also brought to our attention that other services are clinically similar to CPT code 22856 and have similar work RVUs and, therefore, some stakeholders believe these services should all have similar malpractice RVUs. Services mentioned by the stakeholders that are clinically similar to CPT code 22856 include CPT code 22857; CPT code 22861 (Revision including replacement of total disc arthroplasty (artificial disc), anterior approach, single interspace; Start Printed Page 73214cervical); CPT code 22862 (Revision including replacement of total disc arthroplasty (artificial disc) anterior approach, lumbar); CPT code 22864 (Removal of total disc arthroplasty (artificial disc), anterior approach, single interspace; cervical); and CPT code 22865 (Removal of total disc arthroplasty (artificial disc), anterior approach, single interspace; lumbar).

After further review of this issue, for CY 2011 we proposed to apply the same risk factor used for CPT code 22856 to certain other services within this family of services (CPT codes 22857 through 22865) for which there were no allowed services in CY 2008. CPT codes 22861 and 22864 had zero allowed services in CY 2008 and our contractor initially set their malpractice RVUs in the same way as it did for CPT code 22856. Therefore, for CY 2011 we proposed to assign the weighted average risk factor used for CPT code 22856 (that is, the weighted average of the risk factors for CPT codes 20931, 22554, 22558, 22845, 22857, and 63075) to CPT codes 22861 and 22864. However, CPT codes 22857, 22862, and 22865 are low volume services (allowed services under 100). Our policy for low volume services is to apply the risk factor of the dominant specialty as indicated by our claims data. Thus, for CY 2011 we proposed to continue to apply our policy for low volume services to CPT codes 22857, 22862, and 22865.

Comment: A few commenters expressed support for the proposed changes in malpractice RVUs for disc arthroplasty services that are similar to CPT code 22856. One commenter urged CMS to finalize the proposal in the CY 2011 PFS final rule.

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

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to apply the same risk factor used for CPT code 22856 to CPT codes 22861 and 22864 for purposes of setting the malpractice RVUs for these codes prior to the next 5-Year Review of malpractice RVUs.

C. Potentially Misvalued Services Under the Physician Fee Schedule

1. Valuing Services Under the PFS

As discussed in section I. of this final rule with comment period, in order to value services under the PFS, section 1848(c) of the Act requires the Secretary to determine relative values for physicians' services based on three components: The work, practice expense (PE), and malpractice components. Section 1848(c)(1)(A) of the Act defines the work component to include “the portion of the resources used in furnishing the service that reflects physician time and intensity in furnishing the service.” Additionally, the statute provides that the work component shall include activities that occur before and after direct patient contact. Furthermore, the statute specifies that with respect to surgical procedures, the valuation of the work component for the code would reflect a “global” concept in which pre-operative and post-operative physicians' services related to the procedure would also be included.

In addition, section 1848(c)(2)(C)(i) of the Act specifies that “the Secretary shall determine a number of work relative value units (RVUs) for the service based on the relative resources incorporating physician time and intensity required in furnishing the service.” As discussed in detail in sections I.A.2. and I.A.3. of this final rule with comment period, the statute also defines the PE and malpractice components and provides specific guidance in the calculation of the RVUs for each of these components. Section 1848(c)(1)(B) of the Act defines the PE component as “the portion of the resources used in furnishing the service that reflects the general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising practice expenses.”

Section 1848(c)(2)(C)(ii) of the Act specifies that the “Secretary shall determine a number of practice expense relative value units for the services for years beginning with 1999 based on the relative practice expense resources involved in furnishing the service.” Furthermore, section 1848(c)(2)(B) of the Act directs the Secretary to conduct a periodic review, not less often than every 5 years, of the RVUs established under the PFS. Finally, on March 23, 2010, the ACA was enacted, further requiring the Secretary to periodically review and identify potentially misvalued codes and make appropriate adjustments to the relative values of those services identified as being potentially misvalued. Section 3134(a) of the ACA added a new section 1848(c)(2)(K) of the Act which requires the Secretary to periodically identify potentially misvalued services using certain criteria, and to review and make appropriate adjustments to the relative values for those services. Section 3134(a) of the ACA also added a new section 1848(c)(2)(L) of the Act which requires the Secretary to develop a validation process to validate the RVUs of potentially misvalued codes under the PFS and make appropriate adjustments.

As discussed in section I.A.1. of this final rule with comment period, we establish physician work RVUs for new and revised codes based on our review of recommendations received from the AMA RUC. The AMA RUC also provides recommendations to CMS on the values for codes that have been identified as potentially misvalued. To respond to concerns expressed by MedPAC, the Congress, and other stakeholders regarding accurate valuation of services under the PFS, the AMA RUC created the Five-Year Review Identification Workgroup in 2006. In addition to providing recommendations to CMS for work RVUs, the AMA RUC's Practice Expense Subcommittee reviews direct PE (clinical labor, medical supplies, and medical equipment) for individual services and examines the many broad methodological issues relating to the development of PE RVUs.

In accordance with section 1848(c) of the Act, we determine appropriate adjustments to the RVUs, taking into account the recommendations provided by the AMA RUC and MedPAC, and publish the explanation for the basis of these adjustments in the PFS proposed and final rules. We note that section 1848(c)(2)(A)(ii) of the Act authorizes the use of extrapolation and other techniques to determine the RVUs for physicians' services for which specific data are not available, in addition to taking into account the results of consultations with organizations representing physicians.

2. Identifying, Reviewing, and Validating the RVUs of Potentially Misvalued Services Under the PFS

a. Background

In its March 2006 Report to Congress, MedPAC noted that “misvalued services can distort the price signals for physicians' services as well as for other health care services that physicians order, such as hospital services.” In that same report MedPAC postulated that physicians' services under the PFS can become misvalued over time for a number of reasons: “For example, when a new service is added to the physician fee schedule, it may be assigned a relatively high value because of the time, technical skill, and psychological stress that are required to perform it. Over time, skill, and stress involved may decline as physicians become more familiar with the service and more efficient at providing it. The amount of physician work needed to furnish an existing service may decrease when new technologies are incorporated. Services Start Printed Page 73215can also become overvalued when practice expenses decline. This can happen when the costs of equipment and supplies fall, or when equipment is used more frequently, reducing its cost per use. Likewise, services can become undervalued when physician work increases or practice expenses rise.” In the ensuing years since MedPAC's 2006 report, additional groups of potentially misvalued services have been identified by Congress, CMS, MedPAC, the AMA RUC, and other stakeholders.

In recent years CMS and the AMA RUC have taken increasingly significant steps to address potentially misvalued codes. As MedPAC noted in its March 2009 Report to Congress, in the intervening years since MedPAC made the initial recommendations, “CMS and the AMA RUC have taken several steps to improve the review process.” Most recently, section 1848(c)(2)(K)(ii) of the Act (as added by section 3134 of the ACA) directed the Secretary to specifically examine potentially misvalued services in seven categories as follows:

(1) Codes and families of codes for which there has been the fastest growth.

(2) Codes or families of codes that have experienced substantial changes in practice expenses.

(3) Codes that are recently established for new technologies or services.

(4) Multiple codes that are frequently billed in conjunction with furnishing a single service.

(5) Codes with low relative values, particularly those that are often billed multiple times for a single treatment.

(6) Codes which have not been subject to review since the implementation of the RBRVS (the so-called “Harvard-valued codes”).

(7) Other codes determined to be appropriate by the Secretary.

Section 1848(c)(2)(K)(iii) of the Act (as added by section 3134 of the ACA) also specifies that the Secretary may use existing processes to receive recommendations on the review and appropriate adjustment of potentially misvalued services. In addition, the Secretary may conduct surveys, other data collection activities, studies, or other analyses as the Secretary determines to be appropriate to facilitate the review and appropriate adjustment of potentially misvalued services. This section authorizes the use of analytic contractors to identify and analyze potentially misvalued codes, conduct surveys or collect data, and make recommendations on the review and appropriate adjustment of potentially misvalued services. Finally, section 1848(c)(2)(K)(iii)(V) of the Act (as added by section 3134 of the ACA) specifies that the Secretary may make appropriate coding revisions (including using existing processes for consideration of coding changes) which may include consolidation of individual services into bundled codes for payment under the physician fee schedule.

b. Progress in Identifying and Reviewing Potentially Misvalued Codes

Over the last several years, CMS, in conjunction with the AMA RUC, has identified and reviewed numerous potentially misvalued codes in all seven of the categories specified in section 1848(c)(2)(K)(ii) (as added by section 3134 of the ACA), and we plan to continue our work examining potentially misvalued codes in these areas over the upcoming years, consistent with the new legislative mandate on this issue. In the current process, the AMA RUC reviews potentially misvalued codes that are identified either by CMS or through its own processes and recommends revised work RVUs and/or direct PE inputs for those codes to CMS. CMS then assesses the recommended revised work RVUs and/or direct PE inputs and, in accordance with section 1848(c) of the Act, we determine if the recommendations constitute appropriate adjustments to the RVUs under the PFS. Since CY 2009, CMS and the AMA RUC have identified over 700 potentially misvalued codes.

For example, in regard to the first category (codes and families of codes for which there has been the fastest growth), for CY 2009 CMS identified over 100 potentially misvalued codes for which an analysis of the utilization data showed an annual growth in allowed services of 10 percent (or more) for 3 consecutive years (73 FR 38586). Each of these codes had allowed charges of $1 million or more in CY 2007. We published this list in the CY 2009 PFS proposed rule (73 FR 38586 through 38589) and requested that the AMA RUC immediately begin a review of the codes on this list. Meanwhile, in parallel with CMS' efforts, the AMA RUC also initiated processes to identify and review potentially misvalued codes on an ongoing basis using certain screens, including screens for “CMS fastest growing procedures” and “high volume growth.” Both of these AMA RUC screens are applicable to the first category of potentially misvalued codes specified in the ACA. We plan to continue to analyze Medicare claims data over future years to identify additional services that exhibit rapid growth and high Medicare expenditures for referral to the AMA RUC for review as potentially misvalued codes.

Pertaining to the second category specified in section 1848(c)(2)(K)(ii) of the Act (as added by section 3134 of the ACA) (codes or families of codes that have experienced substantial changes in practice expenses), in CY 2009 we requested that the AMA RUC continue its review of direct PE inputs, focusing particularly on high-volume codes where the PE payments are increasing significantly under the transition to the new PE methodology (73 FR 38589). The AMA RUC has responded by sending CMS recommendations for revised direct PE inputs for codes identified for PE review on an ongoing basis.

Additionally in CY 2009, we began an initiative to review and update the prices for high-cost supplies in order to ensure the accuracy and completeness of the direct PE inputs. We discuss our most recent efforts in refining the process to update the prices of high-cost supplies in section II.C.5. of this final rule with comment period.

For the third category of potentially misvalued codes identified in section 1848(c)(2)(K)(ii) (as added by section 3134 of the ACA) (codes that are recently established for new technologies or services), the AMA RUC routinely identifies such codes through a screen based on 3 years of Medicare claims data, and sends CMS recommendations for revised work RVUs and/or direct PE inputs for these codes on an ongoing basis. The AMA RUC may determine that a code for a new service requires reevaluation or does not require reevaluation, or it may conclude, on a case-by-case basis, that more than 3 years of claims data are necessary before the code can be reviewed. In that case, it would determine the appropriate future timeframe for review.

We also note that in its June 2008 Report to Congress entitled “Reforming the Health Care System” and in the context of a discussion about primary care, MedPAC acknowledges, “* * * Efficiency can improve more easily for other types of services, such as procedures, with advances in technology, technique, and other factors. Ideally, when such efficiency gains are achieved, the fee schedule's relative value units (RVUs) for the affected services should decline accordingly, while budget neutrality would raise the RVUs for the fee schedule's primary care services.” (page 27). Section II.C.5. of this final rule with comment period includes a discussion regarding periodic updates to the costs of high-cost supplies. This discussion is highly relevant to new technology services, where growth in volume of a Start Printed Page 73216service as it diffuses into clinical practice may lead to a decrease in the cost of expensive supplies. We also expect that other efficiencies in physician work and PE may be achieved after an initial period of relative inefficiency that reflects the “learning curve.” We plan to pay particular attention to the work values and direct PE inputs for these new services and the AMA RUC's periodic review process to ensure that any efficiencies are captured under the PFS over time, recognizing that the appropriate timing for revaluing these services needs to be considered on a case-by-case basis depending on the growth rate in service volume.

We have also addressed the fourth category (multiple codes that are frequently billed in conjunction with furnishing a single service) in rulemaking prior to the enactment of the ACA. As discussed in the CY 2009 PFS proposed rule (73 FR 38586), we have a longstanding policy of reducing payment for multiple surgical procedures performed on the same patient, by the same physician, on the same day. Over the ensuing years, the multiple procedure payment reduction (MPPR) policy has been extended to a number of nuclear diagnostic and diagnostic imaging procedures. We continue our work to recognize efficiencies in this area with a new CY 2011 policy to expand the MPPR policy to additional combinations of imaging services and to therapy services for CY 2011 as described in section II.C.4. of this final rule with comment period.

We note the AMA RUC has also established a screen to identify services performed by the same physician on the same date of service 95 percent of the time or more. Over the past 2 years, the CPT Editorial Panel has established new bundled codes to describe a comprehensive service for certain combinations of these existing services that are commonly furnished together, and the AMA RUC has recommended work values and direct PE inputs to CMS for these comprehensive service codes that recognize the associated efficiencies. We look forward to working with the AMA RUC in this joint effort to examine codes commonly reported together and more appropriately value common combinations services.

We address the fifth category of potentially misvalued codes (codes with low relative values, particularly those that are often billed multiple times for a single treatment) in section II.C.3.b. of this final rule with comment period. That is, we have provided a list of services with low work RVUs that are commonly reported with multiple units in a single encounter and requested that the AMA RUC review these codes that we have identified as potentially misvalued.

The sixth category (codes which have not been subject to review since the implementation of the RBRVS (the so-called “Harvard-valued codes”)) also continues to be addressed by CMS and the AMA RUC on an ongoing basis. As we noted in the CY 2009 PFS proposed rule (73 FR 38589), there were at that time approximately 2,900 codes, representing $5 billion in annual spending, that were originally valued using Harvard data and had not subsequently been evaluated by the AMA RUC. Consequently, in CY 2009, we requested that the AMA RUC engage in an ongoing effort to review the remaining Harvard-valued codes, focusing first on the high-volume, low-intensity codes (73 FR 38589). In response to our request, the AMA RUC initially conducted an analysis of Harvard-valued services with utilization above 10,000 services per year, which resulted in a list of 296 distinct services (73 FR 69883). The AMA RUC, in its public comment on the CY 2009 proposed rule, stated that it believes it would be effective to limit any review to these 296 services and also noted that of the 296 services identified, 23 had already been identified by another screen and were in the process of being reviewed (73 FR 69883). To date, the AMA RUC has reviewed and submitted to CMS recommendations for revised work RVUs and/or direct PE inputs for a number of Harvard-valued codes, prioritizing those codes with utilization of over 1 million services. The AMA RUC and CMS intend to continue our ongoing assessment of Harvard-valued codes, next targeting codes with utilization of over 100,000 services.

Finally, the seventh category of potentially misvalued codes in section 1848(c)(2)(K)(ii) (as added by section 3134 of the ACA) is all other codes determined to be appropriate by the Secretary. In this category, CMS has previously proposed policies and requested that the AMA RUC review codes for which there have been shifts in the site-of-service (site-of-service anomalies), as well as codes that qualify as “23-hour stay” outpatient services. The policies for valuation of both the site-of-service anomaly codes and the “23-hour stay” codes are developed further in sections II.C.3.d. and e., respectively, of this final rule with comment period. For CY 2011, we have also identified codes with low work RVUs but that are high volume based on claims data as another category of potentially misvalued codes and referred these codes to the AMA RUC for review, as discussed in section II.C.3.b. of this final rule with comment period. In addition, for CY 2011 we have newly targeted key codes that the AMA RUC uses as reference services for valuing other services, termed “multispecialty points of comparison” services, and referred these to the AMA RUC for review as potentially misvalued codes as described in section II.C.3.a. of this final rule with comment period. Finally, we note the AMA RUC has also established screens to identify potentially misvalued codes in additional categories, including codes with a high intra-service work per unit of time (IWPUT) and codes representing services that had been surveyed by one specialty, but are now performed by a different specialty. We will continue to review AMA RUC recommendations for revised work RVUs and/or direct PE inputs for codes that fall into these categories.

As a result of the combined efforts of CMS and the AMA RUC to address potentially misvalued codes, for CY 2009 the AMA RUC recommended revised work values and/or PE inputs for 204 misvalued services (73 FR 69883). For CY 2010, an additional 113 codes were identified as misvalued and the AMA RUC provided new recommendations for revised work RVUs and/or PE inputs to CMS as discussed in the CY 2010 PFS final rule with comment period (74 FR 61778). Upon review of the AMA RUC-recommended work RVUs, CMS accepted the majority of the values as appropriate adjustments to the RVUs under the PFS, in accordance with section 1848(c) of the Act. However, for a number of codes, mainly the site-of-service anomaly codes, we indicated that although we would accept the AMA RUC valuations for these codes on an interim basis through CY 2010, we had ongoing concerns about the methodology used by the AMA RUC to review these services (73 FR 69883 and 74 FR 61776 through 61778, respectively). In the CY 2010 PFS final rule with comment period, we requested that the AMA RUC reexamine the site-of-service anomaly codes and use the building block methodology to revalue the services (74 FR 61777). In that same rule, we also stated that we would continue to examine these codes and consider whether it would be appropriate to propose additional changes in future rulemaking. We discuss our CY 2011 proposals with respect to these codes in section II.C.3.d. of this final rule with comment period.Start Printed Page 73217

c. Validating RVUs of Potentially Misvalued Codes

In addition to identifying and reviewing potentially misvalued codes, section 1848(c)(2)(L) (as added by section 3134 of the ACA) specifies that the Secretary shall establish a formal process to validate relative value units under the PFS. The validation process may include validation of work elements (such as time, mental effort and professional judgment, technical skill and physical effort, and stress due to risk) involved with furnishing a service and may include validation of the pre-, post-, and intra-service components of work. The Secretary is directed to validate a sampling of the work RVUs of codes identified through any of the seven categories of potentially misvalued codes specified by section 1848(c)(2)(K)(ii) of the Act (as added by section 3134 of the ACA). Furthermore, the Secretary may conduct the validation using methods similar to those used to review potentially misvalued codes, including conducting surveys, other data collection activities, studies, or other analyses as the Secretary determines to be appropriate to facilitate the validation of RVUs of services. Currently, while CMS does assess the AMA RUC-recommended work RVUs to determine if the recommendations constitute appropriate adjustments to the RVUs under the PFS, we intend to establish a more extensive validation process of RVUs in the future in accordance with the requirements of section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA). Therefore, in the CY 2011 PFS proposed rule (75 FR 40068), we solicited public comments on possible approaches and methodologies that we should consider for a validation process. We were interested in public comments regarding approaches, including the use of time and motion studies, to validate estimates of physician time and intensity that are factored into the work RVUs for services with rapid growth in Medicare expenditures, one of the categories that the statute specifically directs CMS to examine. We indicated that we plan to discuss the validation process in a future PFS rule once we have considered the matter further in conjunction with any public comments and other input from stakeholders that we receive.

Comment: Some commenters were skeptical that there could be viable alternative methods to the existing AMA RUC code review process for validating physician time and intensity that would preserve the appropriate relativity of specific physician's services under the current payment system. These commenters generally urged CMS to rely solely on the AMA RUC to provide valuations for services under the PFS. A number of commenters expressed the belief that since CMS has reviewed the AMA RUC recommendations for codes and generally accepted these valuations in the past, these actions constitute a “CMS validation process.” The commenters asserted that this current “CMS validation process” more than meets the requirement of section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA).

In addition, a number of commenters opposed the approach of using time and motion studies to validate estimates of physician time and intensity, stating that properly conducted time and motion studies are extraordinarily expensive and, given the thousands of codes paid under the PFS, it would be unlikely that all codes could be studied. The commenters generally opposed applying different methodologies to valuing different services under the PFS and supported using a consistent methodology for all codes. Some commenters observed that it would be extremely difficult for CMS to establish a process by which to validate a sample of work RVUs under the PFS because of the relative nature of the system. Specifically, one commenter noted that the “advantages of a relative system are considerable—they allow scaling based on available funds and make it far easier for a payer such as Medicare to set rates for multiple services with a single adjustment to the conversion factor. However, one disadvantage of a relative system is that it cannot be externally validated unless all components are included in the validation. Services cannot be examined for absolute accuracy, only for relative precision. If we identify some component of the calculation used to generate the RVU that is incorrect, it is impossible to know whether this is a systemic error or an issue with an individual code. If it is a systemic error, then it does not invalidate the relative value system, which merely must operate on an even playing field.” That is, many commenters believe that as long as appropriate relativity is maintained in the work RVUs for services valued under the PFS, the specific methodology for valuing services is less important. Accordingly, many commenters expressed support for the AMA RUC's use of “magnitude estimation” to develop the recommended value for a service and urged CMS to accept the AMA RUC's recommendations as the most informed and best estimation of the true value of physician work for a service.

In contrast, some commenters declared that “the flaws inherent in the RUC system are the lack of accountability and transparency.” These commenters believe that the AMA RUC's composition as a professional panel puts cognitive services at a disadvantage and suggested that “the composition of the RUC needs to be modified to more accurately reflect the desired workforce composition. At present primary care specialties are under-represented which we [the commenters] believe contributes to the overvaluation of procedural codes and undervaluation of cognitive codes.” Similarly, other commenters noted that while certified registered nurse anesthetists (CRNAs) furnished approximately 32 million anesthesia services in the United States annually and can bill Medicare directly for their services, “the AMA RUC excludes CRNAs from directly participating in its deliberations because CRNAs are not physicians.” These commenters noted that “without fair representation by all specialties that bill Part B directly, CMS' reliance on the AMA-RUC as representing the professional views and knowledge of all healthcare specialties is deeply flawed.” The commenters also advised that “while the RUC relies on persuasion and brokering deals, RVUs need to be validated empirically.” In general, these commenters believe that since section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA) expressly specifies that CMS has the authority to conduct surveys and studies and collect data, CMS should develop a process that uses empirical evidence as the basis for validation of work RVUs.

Response: We agree with the commenters that the work before us to develop a formal validation process as specified by section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA) will be a challenging but worthwhile effort to ensure accurate valuation of physician work under the PFS. While we have reviewed AMA RUC recommendations for codes and frequently accepted these valuations in the past, we disagree with the commenters' assertion that these actions constitute a formal CMS validation process as envisioned by section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA). Section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA) clearly specifies a new requirement that “the Secretary shall establish a process to validate relative value units under the fee schedule.” While we solicited Start Printed Page 73218comments on the possibility of using time and motion studies to support a future validation process, we understand that these studies would require significant resources and we remain open to suggestions for other approaches to developing a validation process.

In response to the commenters who raised the issue of the AMA RUC's most commonly used approach for valuing codes, referred to as “magnitude estimation,” we note that the AMA RUC does not rely on a single consistent methodology to value codes. Based on our historical and current review of the AMA RUC recommendation summaries which accompany the work RVU recommendations for each code newly valued or revalued by the AMA RUC each year, we have noticed that the AMA RUC appears to use a variety of methodologies in its valuation process. For some codes, the AMA RUC uses magnitude estimation in conjunction with survey data from surveys conducted by the specialty societies to support the values. For other codes, the AMA RUC uses magnitude estimation to override the results of the survey data, recommending to CMS a value that is not based on survey data, but rather, justified in terms of its appropriate relativity within the system to other similar services. The AMA RUC may also elect to use a crosswalk approach in valuing a code by applying a work value from a currently valued code to the code under review based on the clinical similarity of the procedures or explicit considerations of pre-, intra-, and post-service time. In some instances, we note that the AMA RUC has asserted that it uses the building block methodology to value the code, a methodology we have historically supported (74 FR 61777). Since the AMA RUC uses a variety of methodologies for valuing codes, not just magnitude estimation supported by survey data, or our recommended methodology of valuation based on building blocks, we foresee that validation of the work RVUs will be complex, perhaps requiring an initial study of the all the possible valuation methodologies currently being employed by the AMA RUC so that we can better understand how relativity between services under the PFS has developed and been maintained over the years.

As we have stated previously (69 FR 66243), because the AMA RUC is an independent committee, we are not in a position to set the requirements for AMA RUC membership regarding primary care specialties or other types of practitioners. Concerned stakeholders should communicate directly with the AMA RUC regarding its professional composition. We note that we alone are responsible for all decisions about establishing the RVUs for purposes of PFS payment so, while the AMA RUC provides us with recommendations regarding the work and direct PE inputs for new and revised CPT codes in the context of its broad expertise, we determine the interim final RVUs for all new or revised services. Additionally, the interim RVUs are subject to public comment and we respond to those comments in a final rule when we adopt the final RVUs for the new and revised CPT codes. We believe that the formal validation process will further complement the ongoing work of the AMA RUC to provide recommendations to us regarding the valuation of PFS services.

Comment: While a number of commenters strongly opposed CMS' plans to develop a formal validation process, many other commenters expressed support for the development and establishment of a system-wide validation process of the work RVUs under the PFS. The commenters commended CMS for seeking new approaches to validation, as well as being open to suggestions from the public on this process. A number of commenters submitted technical advice and offered their time and expertise as resources for CMS to draw upon in any examination of possible approaches to developing a formal validation process.

Furthermore, MedPAC advised that a formal validation process should include validating the fee schedule's estimates of physician time. MedPAC noted that “Contract research for CMS and the Assistant Secretary for Planning and Evaluation has shown that some of the time estimates are likely too high. In addition, the Government Accountability Office has found that the fee schedule does not adequately account for efficiencies occurring when a physician furnishes multiple services for the same patient on the same day.” Finally, MedPAC suggested that CMS should consider alternative approaches, “such as collecting data on a recurring basis from a cohort of practices and other facilities where physicians and nonphysician clinical practitioners work.”

Some commenters noted that “involving RUC experts, those who are most intimately acquainted with and possess the deepest level of expertise and experience makes the most sense” and stated that these individuals “are also those best equipped to provide insights and guidance to help shape an independent validation system.” A number of commenters asked CMS to confirm that stakeholders would be given the opportunity to comment on any specific proposals for a validation process that CMS plans to implement.

Response: We thank the many commenters who generously offered to help and provided technical suggestions, including the use of statistical modeling and possible sources of data that we should consider in developing a validation process. We will review MedPAC's suggestions to examine physician time in the formal validation process. We will also consider the commenters' recommendation that we include the AMA RUC and other professional groups who also have a stake in ensuring appropriate payment for practitioners' services. As we stated previously, we intend to establish a more extensive validation process of RVUs in the future in accordance with the requirements of section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA). We note that MedPAC, in providing comments to the CY 2011 PFS proposed rule, “strongly supports efforts to improve the accuracy of the fee schedule's RVUs.” We plan to discuss the validation process in more detail in a future PFS rule once we have considered the matter further in conjunction with the public comments that we have received in response to our solicitation in the CY 2011 proposed rule as well as other input from stakeholders. Moreover, we note that any proposals we would make on the formal validation process would be subject to public comment, and we would consider those comments before finalizing any policies.

3. CY 2011 Identification and Review of Potentially Misvalued Services

In this section, we discuss codes that may be potentially misvalued according to five different criteria:

  • Codes on the multi-specialty points of comparison list;
  • Codes with low work RVUs commonly billed in multiple units per single encounter;
  • Codes with high volume and low work RVUs;
  • Codes with site-of-service anomalies; and
  • Codes that qualify as “23-hour stay” outpatient services.

a. Codes on the Multispecialty Points of Comparison List

The AMA RUC uses a scale referred to as the multispecialty points of comparison (MPC) to evaluate the reasonableness of a specialty society's recommended RVU value for a service. Start Printed Page 73219The MPC list contains reference codes of established comparison services that are used in the valuation of new codes. The current MPC list consists of 316 codes which the AMA RUC may use to compare and contrast the relativity of codes under review to existing relative values. Since the AMA RUC may use the values on the MPC list as a basis for relativity when determining the values for new, revised, and newly reviewed codes (including potentially misvalued codes), it is essential that the services on the MPC list be appropriately valued since any codes misvalued on the MPC list could contribute to the misvaluing of other codes under review. While we believe that the entire MPC list should be assessed to ensure that services are paid appropriately under the PFS, we prioritized the review of the MPC list, ranking the codes by allowed service units and charges based on CY 2009 claims data. We proposed to refer the codes in Table 9 to the AMA RUC for review in CY 2011.

Table 9—Codes on the MPC List Referred for AMA RUC Review

CPT codeShort descriptor
66984Cataract surg w/iol, 1 stage.
97110Therapeutic exercises.
43239Upper GI endoscopy, biopsy.
20610Drain/inject, joint/bursa.
78815Pet image w/ct, skull-thigh.
45385Lesion removal colonoscopy.
45380Colonoscopy and biopsy.
11721Debride nail, 6 or more.
17000Destruct premalg lesion.
92980Insert intracoronary stent.
74160Ct abdomen w/dye.
71020Chest x-ray.
11100Biopsy, skin lesion.
66821After cataract laser surgery.
52000Cystoscopy.
92083Visual field examination(s).
73721Mri jnt of lwr extre w/o dye.
93010Electrocardiogram report.
77334Radiation treatment aid(s).
92250Eye exam with photos.
95810Polysomnography, 4 or more.
77003Fluoroguide for spine inject.
11056Trim skin lesions, 2 to 4.
76700Us exam, abdom, complete.
77290Set radiation therapy field.
77300Radiation therapy dose plan.
43235Uppr gi endoscopy, diagnosis.
71275Ct angiography, chest.
95900Motor nerve conduction test.
31231Nasal endoscopy, dx.
95165Antigen therapy services.
94060Evaluation of wheezing.
31575Diagnostic laryngoscopy.

Comment: While some commenters agreed with CMS that the entire MPC list should be assessed to ensure that services are paid appropriately under the PFS, and supported the proposal that the AMA RUC review the services listed in Table 9, a number of other commenters expressed surprise that CMS seemed to be suggesting that any code on the MPC list could be classified as potentially misvalued. Many commenters noted that the MPC list of codes is considered the “gold standard” within the PFS and it is used to help judge the appropriate relativity of procedures across specialties. A number of commenters assured CMS that the codes on the MPC list have been thoroughly vetted and, therefore, these commenters took issue with CMS for implying that the codes could somehow be considered potentially misvalued. Specifically, one commenter noted, “[t]he assumption of the specialties, the RUC and CMS has been that these services are appropriately valued and well established.” Another commenter expressed the concern as follows: “[c]hallenging the rank order of the MPC list essentially negates 20 years of RUC work. Obtaining new data to validate the old data inevitably leads to the problem of what should be done if the data yield different results. Is there any reason to believe that a newer survey is a more accurate survey, or that the data analysis and subsequent opinion of the current or future RUCs will be more valid than that of previous RUCs? Admittedly data collection methods have become more refined in the past 20 years, but that neither means nor implies that relativity amongst physician services has changed.” Some commenters reminded CMS that the AMA RUC is already planning to review some codes on the MPC list in the coming year, while other commenters noted that some of the codes on the MPC list have been reviewed by the AMA RUC within the past 6 years. Some commenters did not believe that some of the well-established services on the MPC list would need another review and that the resources required to re-review such services could be better used elsewhere. Furthermore, some commenters believe that if a code has been surveyed as part of the potentially misvalued services initiative during the last 5 years and it is identified again using a different screen, that it need not be resurveyed again.

Finally, several commenters noted that while reviewing all the codes on the MPC list would “be a substantial undertaking for the RUC, properly valuing these services will help restore equity in the physician payment system.” The commenters further suggested that CMS should specify to the AMA RUC what it considers good survey methodology, including the use of peer review and time studies.

Response: We note that the vast majority of commenters, whether they supported or opposed our proposal, acknowledged the significant and central role that the MPC list plays in the valuation of services under the PFS. Because it is currently the “gold standard” to which other codes, across specialties, are compared, we agree with the commenters who suggested that codes on this list should be vetted, though we disagree that we should assume this has been done or occurs automatically and systematically. We also acknowledge that the AMA RUC recently has reviewed some of the codes and is planning to review more codes on the MPC list. Our proposal suggested prioritizing the review of the codes by ranking them according to utilization which, in our view, would potentially provide the most immediate benefit to the system.

If a code on the MPC list has not been reviewed recently—certainly more recently than 6 years ago—we believe that the code is vulnerable to being potentially misvalued and that the misvaluation of an MPC code could disproportionately affect the correct valuation of other related services under the PFS. Given the rapid changes in medical practice, we have no reason to believe that the relativity of the MPC codes would not have changed over the past 20 years and we would expect that more recent survey data would more accurately reflect the physician work in current medical practice. If the codes are resurveyed and newer more accurate data are available, we would support using the most recent available data to value physician work under the PFS, which is consistent with our general policy to use the most current data whenever possible and practicable to update the PFS.

Given the evolving review process of the AMA RUC over the past several years, CMS' strong interest in ensuring current and appropriate physician work values for PFS services, and the increased emphasis on revaluing established services that are potentially misvalued, we are requesting that the AMA RUC provide a current and comprehensive recommendation on the appropriate physician work value, including describing and affirming the methodology for the recommended work value, for all of the codes listed in Table 9. To the extent the AMA RUC chooses to limit its work in reexamining MPC codes that have recently been evaluated, consistent with our usual practice, we will consider the context when we evaluate the AMA RUC's recommendation for the value of the code.Start Printed Page 73220

Although valuation is ultimately our responsibility, the AMA RUC and CMS remain partners in ensuring the appropriate valuation of physician work for services under the PFS and we believe our proposal serves to enhance this process. Accordingly, after consideration of the public comments we received, we are finalizing our CY 2011 proposal and we look forward to receiving the AMA RUC's recommendations for the codes listed in Table 9.

b. Codes With Low Work RVUs Commonly Billed in Multiple Units Per Single Encounter

Consistent with section 1848(c)(2)(K)(ii) of the Act (as added by section 3134 of the ACA) which identifies categories of potentially misvalued codes for our review, we believe services with low work RVUs that are commonly billed with multiple units in a single encounter are an additional appropriate category for identifying potentially misvalued codes. An example of a high multiple/low work RVU service is CPT code 95004 (Percutaneous tests (scratch, puncture, prick) with allergenic extracts, immediate type reaction, including test interpretation and report by a physician, specify number of tests). For purposes of compiling a list of the high multiple/low work RVU services, we defined a high multiple service as one that is commonly performed in multiples of 5 or more per day. Then, we selected from high multiple services with work RVUs of less than or equal to 0.5 RVUs. We note that in selecting 5 per day as the minimum threshold for the number of common services performed in a multiple service encounter, we intended to establish a meaningful threshold which, in conjunction with the threshold for work RVUs of 0.5 RVUs or less, would produce a reasonable number of services for the RUC to review that have substantial total work RVUs for the comprehensive service furnished during a single treatment. That is, as a general example, with a work RVU threshold of 0.5 RVUs and a multiple threshold of 5 per day, the total work RVUs for a typical treatment would equate to 2.5 RVUs, which is approximately comparable to a high level office visit, an interpretation of a complex imaging procedure, or a minor surgical procedure.

In the CY 2011 PFS proposed rule (75 FR 40069), we requested that the AMA RUC review the codes in Table 10.

Table 10—Codes With Low Work RVUs That are Commonly Billed in Multiple Units Referred for AMA RUC Review

CPT codeShort descriptor
95904Sense nerve conduction test.
17003Destruct premalg les, 2-14.
95004Percut allergy skin tests.
11101Biopsy, skin add-on.
95024Id allergy test, drug/bug.
76000Fluoroscope examination.
95144Antigen therapy services.
95010Percut allergy titrate test.
88300Surgical path, gross.
95027Id allergy titrate—airborne.
95015Id allergy titrate—drug/bug.
95148Antigen therapy services.

c. Codes With High Volume and Low Work RVUs

We believe that codes that have low work RVUs but are high volume based on claims data are another category of potentially misvalued codes. Although these codes have low work RVUs (less than or equal to 0.25 RVUs), the high utilization of these codes represents significant expenditures under the PFS such that their appropriate valuation is especially important. Table 11 contains a list of such codes and we requested that the AMA RUC review these codes in the CY 2011 PFS proposed rule (75 FR 40069).

Table 11: Codes With Low Work RVUs That Are High Volume Referred for AMA RUC Review

CPT codeShort descriptor
71010Chest x-ray.
73510X-ray exam of hip.
97035Ultrasound therapy.
88313Special stains group 2.
73630X-ray exam of foot.
72100X-ray exam of lower spine.
73030X-ray exam of shoulder.
73562X-ray exam of knee, 3.
73560X-ray exam of knee, 1 or 2.
94010Breathing capacity test.
77052Comp screen mammogram add-on.
88304Tissue exam by pathologist.
73564X-ray exam, knee, 4 or more.
72170X-ray exam of pelvis.
74000X-ray exam of abdomen.
73610X-ray exam of ankle.
11719Trim nail(s).
73620X-ray exam of foot.
92567Tympanometry.
73110X-ray exam of wrist.
73130X-ray exam of hand.
93701Bioimpedance, cv analysis.
72040X-ray exam of neck spine.
92543Caloric vestibular test.

Comment: A number of commenters agreed with CMS' proposal for the AMA RUC to review codes with low work RVUs that are commonly billed with multiple units, and codes with high volume and low work RVUs. Other commenters did not support these proposals based on a belief that just because a code has low work RVUs, the conclusion should not necessarily be drawn that the code is potentially misvalued.

Response: While we do not believe that low work RVUs automatically indicate that the code is misvalued, we believe that some codes in this category may be vulnerable to being potentially misvalued because they have not been subject to review recently, there are particular challenges associated with establishing appropriate low work RVUs for services, and these services would not likely be subject to AMA RUC revaluation without CMS' recommendation. Accordingly, after consideration of the public comments we received, we are finalizing our CY 2011 proposal and we look forward to receiving the AMA RUC's recommendation for the codes listed in Tables 10 and 11.

d. Codes With Site-of-Service-Anomalies

In previous years, we requested that the AMA RUC review codes that, according to the Medicare claims database, have experienced a change in the typical site of service since the original valuation of the code. For example, we have found services that originally were furnished in the inpatient setting but for which current claims data show the typical case has shifted to being furnished outside the inpatient setting. Since the procedures were typically performed in the inpatient setting when the codes were originally valued, the work RVUs for these codes would have been valued to include the inpatient physician work furnished, as well as to reflect the intensive care and follow-up normally associated with an inpatient procedure. If the typical case for the procedure has shifted from the inpatient setting to an outpatient or physician's office setting, it is reasonable to expect that there have been changes in medical practice, and that such changes would represent a decrease in physician time or intensity or both. The AMA RUC reviewed and recommended to CMS revised work RVUs for 29 codes for CY 2009 and 11 codes for CY 2010 that were identified as having site-of-service anomalies.

In the CY 2010 PFS proposed and final rules with comment period (74 FR 33556 and 74 FR 61777, respectively), we encouraged the AMA RUC to utilize the building block methodology when revaluing services with site-of-service Start Printed Page 73221anomalies. Specifically, where the AMA RUC has determined in its review that changes in the inclusion of inpatient hospital days, office visits, and hospital discharge day management services (that is, the “building blocks” of the code) are warranted in the revaluation of the code, we asked the AMA RUC to adjust the site-of-service anomaly code for the work RVUs associated with those changes.

Additionally, we suggested that in cases where the AMA RUC has adjusted the pre-service, intra-service and post-service times of the code under review, the AMA RUC should also make associated work RVU adjustments to account for those changes. However, we remained concerned that in the AMA RUC's recommendations of the work RVUs for the CYs 2009 and 2010 site-of-service anomaly codes, the AMA RUC may have determined that eliminating or reallocating pre-service and post-service times, hospital days, office visits, and hospital discharge day management services was appropriate to reflect the typical case that is now occurring in a different setting, but the work RVUs associated with those changes may not have been systematically extracted or reallocated from the total work RVU value for the service.

In the CYs 2009 and 2010 PFS final rules with comment period (73 FR 69883 and 74 FR 61776 through 61778, respectively), we indicated that although we would accept the AMA RUC valuations for these site-of-service anomaly codes on an interim basis through CY 2010, we had ongoing concerns about the methodology used by the AMA RUC to review these services. We requested that the AMA RUC reexamine the site-of-service anomaly codes and use the building block methodology to revalue the services (74 FR 61777). We also stated that we would continue to examine these codes and consider whether it would be appropriate to propose additional changes in future rulemaking.

Accordingly, in preparation for CY 2011 rulemaking, we conducted a comprehensive analysis of the codes that the AMA RUC reviewed for CYs 2009 and 2010 due to site-of-service anomaly concerns. We systematically applied the reverse building block methodology to the 29 codes from CY 2009 and 11 codes from CY 2010 as follows:

  • First, we obtained the original work RVU value assigned to the code (this is the “starting value”) and made a list of the building block services with RVUs that were originally associated with the code (that is, before the AMA RUC reviewed the code for site-of-service anomalies).
  • Next, we examined the AMA RUC-recommended changes to the building blocks of the code.
  • We then deducted the RVUs associated with the AMA RUC's recommended eliminations from the code's starting RVU value.

Generally, the AMA RUC eliminated inpatient hospital visit building blocks from the value of the code since the site-of-service for the code has shifted from the inpatient setting to another setting. We noted in some cases, the AMA RUC left an inpatient hospital visit in the valuation of the code. We believe this is inconsistent with the change in the site-of-service to non-inpatient settings. Accordingly, we adhered to the methodology and deducted the RVUs associated with all inpatient hospital visits from the starting value. In cases where the AMA RUC recommended adding or substituting outpatient visits, we also added or substituted the RVUs associated with those changes to the starting value. If the AMA RUC recommended changes to the pre-,intra-, or post-service times, we calculated the incremental change in RVUs associated with that time and either added or deducted that RVU amount from the starting value. We noted that the RVU values associated with the incremental time change were calculated using the intensity associated with the particular pre-, intra-, or post-period. For the intensity of the intra-service period, we utilized the original IWPUT associated with the code. The AMA RUC generally recommended allowing only half of a hospital discharge day management service for the site-of-service anomaly codes. That is, CPT code 99238 (Hospital discharge day management; 30 minutes or less) has a work RVU value of 1.28; therefore, half the value associated with CPT code 99238 is 0.64. Accordingly, if a code had one CPT code 99238 listed as part of the original valuation, we deducted 0.64 RVUs from the starting value.

We standardized the methodology so that each of the site-of-service anomaly codes had half of a hospital discharge day management service value accounted in the valuation. Finally, we noted that while we eliminated the RVUs associated with all inpatient hospital visits built into the code's starting value, because the typical case no longer occurs in the inpatient setting, we allowed for the possibility that in some cases, some part of the work which had been furnished in the inpatient setting may continue to be furnished even in the outpatient setting. Therefore, to be conservative in our deductions of work RVUs associated with the inpatient hospital codes from the starting values, we allowed the intra-time of any inpatient hospital visits included in the original valuation to migrate to the post-service period of the code. Accordingly, while we deducted the full RVUs of an inpatient hospital visit from the starting value, we added the intra-service time of the inpatient hospital visit to the post-service time of the code and accounted for the incremental change in RVUs. The following description provides an example of our methodology.

CPT code 21025 (Excision of bone (e.g., for osteomyelitis or bone abscess); mandible) has a starting value of 11.07 RVUs. Table 12 shows the building blocks that are included in the original valuation of the code.

Table 12

Pre-service timeMedian intra-service timeImmediate post-service time992319923299238992119921299213Original IWPUT
75 min120 min43 min1 visit (0.76 RVUs)1 visit (1.39 RVUs)1 visit (1.28 RVUs)2 visits (0.36 RVUs)2 visits (0.96 RVUs)2 visits (1.94 RVUs)0.0145

The AMA RUC removed two inpatient hospital visits and reduced the outpatient visits from 6 to 4 visits. Table 13 shows the building blocks that were recommended for CY 2009 by the AMA RUC after its review of the code for site-of-service anomalies.Start Printed Page 73222

Table 13

Pre-service timeMedian intra-service timeImmediate post-service time992319923299238992119921299213Original IWPUT
85 min90 min30 min2 visits2 visits0.0530

Next we calculated the RVUs associated with the changes to the building blocks recommended by the AMA RUC. We note that the immediate post-service value of 0.38 RVUs (Table 14) includes 30 minutes of intra-service time from inpatient hospital CPT code 99231 (Level 1 subsequent hospital care, per day). Also, the median intra-service value of 0.44 RVUs (Table 14) was determined using the starting IWPUT value of 0.0145. Additionally, our methodology accounted for a half of a hospital discharge day management service (CPT code 99238) for the site-of-service anomaly code. Table 14 shows the RVU changes to the building blocks that were calculated based on the methodology discussed above.

Table 14

Pre-service timeMedian intra-service timeImmediate post-service time992319923299238992119921299213
0.22 RVUs−0.44 RVUs0.38 RVUs−0.76 RVUs−1.39 RVUs−0.64 RVUs−0.36 RVUs

In the final step, the RVUs associated with the changes to the building blocks recommended by the AMA RUC (Table 14) were deducted from or added to the starting value of 11.07 RVUs, which resulted in the CY 2011 reverse building block value of 8.08 RVUs (11.07 + 0.22-0.44 + 0.38 - 0.76 - 1.39 - 0.64 - 0.36 = 8.08).

The methodology discussed above was applied to each of the site-of-service anomaly codes from CYs 2009 and 2010 and the results are summarized in Tables 15 and 16.

Start Printed Page 73223

Start Printed Page 73224

For most codes in Tables 15 and 16, the CY 2011 reverse building block methodology produced a value that was somewhat lower than the AMA RUC-recommended value. While our results suggested that the majority of the codes with site-of-service anomalies continue to be overvalued under the AMA RUC's most recent recommendations, we also found that the methodology may produce a result that is considerably reduced or, in several cases, a negative value. We understand that in previous years, stakeholders have expressed confusion as to why the application of a building block methodology would produce negative values. We believe in some cases, the starting value, that is, the original work RVU, may have been misvalued using building block inputs that were not consistent with the service, although the overall work value of the code may have been consistent with the values for other similar services. Moreover, a number of these services are the Harvard-valued codes, for which the RVUs were established many years ago based on historical inputs that may no longer be appropriate for the code. An attempt to extract the RVUs associated with these inappropriate inputs through the reverse building block methodology could produce aberrant results. Furthermore, in some cases, we noticed that the original IWPUT of the code was negative even before the code was reviewed by the AMA RUC for a site-of-service anomaly. A negative value for the IWPUT is counterintuitive to the IWPUT concept, indicating that the code was originally misvalued at the building block level. At a minimum, we believe that in cases where the reverse building block methodology produced aberrant results, and where clinical review indicated a need for further analysis, the codes should be referred back to the AMA RUC for review and new valuation should be performed based on the building block methodology.

We noted the application of the reverse building block methodology is an objective way to account for changes in the resources resulting from the change in the site-of-service in which the typical service is furnished. However, because relative values under the PFS are “relative,” that is, where work relative value units for a code are established relative to work relative value units for other codes, the recommended methodology of valuing services based on input building blocks is best applied within the context of the AMA RUC discussion. For example, we recognize that the AMA RUC looks at families of codes and may assign RVUs based on a particular code ranking within the family. This method of valuing services preserves relativity within the relative value scale for that code family. However, we have stated that we believe the relative value scale requires each service to be valued based on the resources used in furnishing the service as specified in section 1848(c)(1)(A) of the Act, which defines the physician work component to include “the portion of the resources used in furnishing the service that reflects physician time and intensity in furnishing the service.” Furthermore, section 1848(c)(2)(C)(i) of the Act specifies that “the Secretary shall determine a number of work relative value units (RVUs) for the service based on the relative resources incorporating physician time and intensity required in furnishing the service.” Read together, these two sections of the statute support our intention to rely on the building block methodology to determine appropriate work RVUs for codes.

We noted that we continue to rely on the extensive expertise provided by the AMA RUC to recommend appropriate input building blocks for codes. Additionally, the AMA RUC's unique infrastructure and broad perspective permits the valuation of a code within the context of relativity to the entire relative value system. Therefore, we believe that the recommended methodology of valuing services based on input building blocks is best applied within the context of the AMA RUC discussion.

Accordingly, in the CY 2011 PFS proposed rule (75 FR 40072), we requested that the AMA RUC review the CPT codes displayed in Tables 15 and 16. In addition, where the application of the CY 2011 reverse building block methodology produced an aberrant result that is clearly not a reflection of physician work for the service, we requested that the AMA RUC review the Start Printed Page 73225input building blocks and recommend an appropriate RVU value that is both consistent with the building blocks of the code and appropriate relative to the values for other codes in the family. For other codes where the application of the CY 2011 reverse building block methodology produced a result that is consistent with the physician work for the service, we encouraged the AMA RUC to confirm the values and recommend these work values for CY 2011. In this way, we hoped to receive new AMA RUC recommendations for all of the codes in Tables 15 and 16 for CY 2011. Furthermore, we indicated that if the recommendations that we received from the AMA RUC were not consistent with the building block methodology and not appropriate relative to the values of other services, and the application of the CY 2011 reverse building block methodology produced a result that CMS medical advisors believe is consistent with the work for the service, we proposed to adopt the CY 2011 reverse building block methodology values that are listed in Tables 15 and 16 for CY 2011. In cases where the reverse building block methodology produced a negative work value, we suggested that the AMA RUC review and revise the building blocks of the code so that a new valuation could be determined based on the building block methodology. For such codes, if the revised recommendations that we hoped to receive from the AMA RUC were still not consistent with the building block methodology upon revision, because we could not pay for these services based on negative work RVUs, we proposed to modify the AMA RUC-recommended values for these codes as CMS determined to be clinically appropriate and adopt the CMS-modified RVUs on a interim final basis for CY 2011.

In their future work, we urged the AMA RUC to use the building block methodology when valuing services or provide CMS with extensive rationale for cases where the AMA RUC believes the building block methodology is inappropriate for a specific code. Since section 1848(c)(2)(L) of the Act (as added by section 3134 of the ACA) specifies that the Secretary shall establish a process to validate work RVUs of potentially misvalued codes under the PFS, as we have discussed earlier in this section, we believe codes that are valued using the building block methodology would be more likely to meet the standards of a systematic RVU validation process that could be developed in accordance with the requirements of the statute.

Comment: While several commenters supported CMS' recommendation to use the reverse building block methodology to value physician work for codes identified as having site-of-service anomalies, the majority of commenters strongly opposed the reverse building block methodology, expressing concern that the methodology produced very low or negative work RVUs for a number of the codes listed in Tables 14 and 15. Several letter writing campaigns by groups of providers and beneficiaries affected by some of the codes listed in Tables 14 and 15 produced scores of comments expressing confusion and alarm that CMS appeared to be on the verge of finalizing negative work RVUs. Some commenters noted that the values calculated by the application of the reverse building block methodology would result in rank order anomalies across the PFS.

Many commenters reiterated CMS' observation that some of the codes were originally Harvard-valued, for which the RVUs were established many years ago based on historical inputs that may no longer be appropriate for the code, and an attempt to extract the RVUs associated with these inappropriate inputs through the reverse building block methodology would produce aberrant (that is, very low or negative) results. Some commenters disagreed with CMS' statement that if the typical case for the procedure has shifted from the inpatient setting to an outpatient or physician's office setting, it would be reasonable to expect that there have been changes in medical practice, and that such changes would represent a decrease in physician time, or intensity, or both. These commenters believe that that this assumption is fundamentally wrong and that the reverse actually may be true. One commenter noted, “When a procedure migrates from the inpatient to the outpatient setting, the physician work and practice expense actually increase. The result is more office visits, more utilization of office staff, more consumption of office supplies, and no decrease in legal liability to the physician (and in some instances increased legal liability as functions formerly performed by hospital staff are now done by physician office staff).”

A number of commenters asserted that any mathematical or computational methodology used to value physician work is simply absurd. Many commenters stated their preference for the AMA RUC's established valuation process which the commenters believe is based on specialty society survey data. Other commenters asserted that the AMA RUC's use of magnitude estimation is the only methodology that makes sense in assigning physician work values to individual services because the PFS is a relative system and maintaining appropriate relativity between the services is paramount in valuing physician work.

Response: We acknowledge that commenters overwhelmingly objected to the proposed reverse building block methodology because, in some cases, it produced very low or negative physician work values. While we explained in the proposed rule (75 FR 40071 through 40072) the possible reasons why negative values could be generated in the application of the reverse building block methodology, the commenters generally disregarded this explanation and summarily dismissed the methodology as invalid based on the reasoning that negative work values are absurd. Responding to the commenters who were concerned that CMS was preparing to implement negative work RVUs imminently, we assure the commenters that at no time was this a possibility, as we made clear in the CY 2011 PFS proposed rule (75 FR 40072) where we acknowledge that we could not pay for services based on negative work RUVs. As we stated in the proposed rule, in cases where the reverse building block methodology produced a negative work value, we suggested that the AMA RUC review and revise the building blocks of the code so that a new valuation could be determined based on the building block methodology. We further proposed that if we did not believe the AMA RUC recommended values were consistent with the building block methodology, we would modify the recommended values as we determined to be clinically appropriate and adopt the modified RVUs on an interim final basis for CY 2011.

The AMA RUC has not provided revised work recommendations to us for these codes for CY 2011. Therefore, in light of the strong public opposition to the reverse building block methodology and since we remain convinced that the values for the codes with site-of-service anomalies listed in Tables 14 and 15 continue to be misvalued based on our clinical review of the building blocks for those services as recommended previously by the AMA RUC, we believe that the most appropriate action is to continue to await the further AMA RUC review of these codes that we requested in the CY 2011 PFS proposed rule (75 FR 40072). However, after consideration of the public comments we received, we are modifying our CY 2011 proposal and we will not apply the reverse building block methodology to value any of these codes for CY 2011 as we proposed. We Start Printed Page 73226are requesting that the AMA RUC reconsider its previously recommended values that have been applied on an interim basis in CYs 2009 and 2010, as applicable, and revise the work RVUs to better reflect the intensity of the services and the revised physician times and post-procedure visits included in the valuation of these codes. As we stated in the CY 2011 PFS proposed rule (75 FR 40072), we suggest that the AMA RUC review and revise the building blocks of the codes so that a new valuation can be determined based on the building block methodology. Until we receive the revised values from the AMA RUC for CY 2012 and can make a determination regarding them, we will continue to accept the existing AMA RUC-recommended work RVUs listed in Tables 14 and 15 on an interim basis for CY 2011. We would follow our usual method of reviewing the AMA RUC recommendations in the context of the associated valuation methodologies it used for CY 2012 and would either accept the recommendations for these codes or provide alternative work values that would be adopted on an interim final basis for CY 2012 and open to public comment on the CY 2012 PFS final rule with comment period.

e. Codes With “23-hour” Stays

In the CY 2010 PFS proposed rule (74 FR 33557), we requested that the AMA RUC review services that are typically performed in the outpatient setting and require a hospital stay of less than 24 hours. We stated in the proposed rule that we believed these to be primarily outpatient services and expressed concern that the value of evaluation and management (E/M) visits for inpatients was inappropriately included in the valuation of codes that qualify as “23-hour stay” outpatient services.

We received a number of comments in response to the discussion in the CY 2010 proposed rule. The AMA RUC stated that it already values stays of less than 23 hours appropriately by reducing the hospital discharge day management service (that is, CPT code 99238), from 1 day to a half day. The AMA RUC also explained that when the AMA RUC refers to 23-hour stay services in discussions at AMA RUC meetings, it is referring primarily to services that are reported in the Medicare claims database as typically outpatient services, but where the patient is kept overnight and, on occasion, even longer in the hospital. Because the AMA RUC believes the patient stays overnight in the hospital, it believes the inclusion of inpatient E/M visits to be appropriate in the valuation of this category of codes.

We believe that the 23-hour stay issue encompasses several scenarios. The typical patient is commonly in the hospital for less than 24 hours, which often means the patient may indeed stay overnight in the hospital. On occasion, the patient may stay longer than a single night in the hospital; however, in both cases, the patient is considered for Medicare purposes to be a hospital outpatient, not an inpatient, and our claims data support that the typical 23-hour stay service is billed as an outpatient service. Accordingly, we believe that the valuation of the codes that fall into the 23-hour stay category should not reflect work that is typically associated with an inpatient service. For example, inpatient E/M visit codes such as CPT codes 99231 (Level 1 subsequent hospital care, per day); 99232 (Level 2 subsequent hospital care, per day); and 99233 (Level 3 subsequent hospital care, per day), should not be included at the full value in the valuation of 23-hour stay services.

Currently, the valuation of 23-hour stay services is conducted in a nonuniform manner by the AMA RUC. The AMA RUC has indicated that it currently includes a half hospital discharge day management service and no hospital inpatient visits for outpatient services with expected hospital stays of 23 hours or less. In contrast, for those outpatient services where the AMA RUC believes that the recovery period could be longer than 23 hours, the AMA RUC stated in its comment on the CY 2010 PFS proposed rule that it currently includes a full hospital discharge day management service and one or more inpatient E/M visits in the code's value. However, we note the typical 23-hour stay service is billed as an outpatient service and so long as the typical case continues to be billed as an outpatient service, we believe the code should not incorporate physician work values for services that are typically associated with an inpatient service. In the CY 2010 PFS proposed rule and final rule with comment period (74 FR 33556 and 74 FR 61777, respectively), we stated that we believed the use of inpatient E/M visit codes for services rendered in the post-service period for outpatient 23-hour stay procedures would result in overpayment for pre- and post-service work that would not be furnished. Accordingly, we proposed in the CY 2010 proposed rule (74 FR 33556 through 33557) not to allow any additional inpatient E/M service to be billed for care furnished during the post-procedure period when care is furnished for an outpatient service requiring less than a 24-hour hospital stay.

However, we find it is plausible that while the patient receiving the 23-hour stay service remains a hospital outpatient, the patient would typically be cared for by the physician furnishing the procedure during that post-procedure period. While we do not believe that post-procedure hospital “visits” would be at the inpatient level since the typical case is an outpatient who would be ready to be discharged from the hospital in 23 hours or less, we agree that the intra-service time of the inpatient hospital visit may be included in the valuation for the 23-hour stay code.

Accordingly, for CY 2011 we modified our proposed CY 2010 approach and suggested that in the future, when the AMA RUC reviews new and potentially misvalued codes that are identified as 23-hour stay services, the AMA RUC would apply the following methodology:

  • Begin with the starting RVU value of the 23-hour stay code under review and decrease the hospital discharge day management service from one day to a half day.
  • Deduct the RVUs of inpatient hospital visits from the starting RVU value.
  • Reallocate the time associated with the intra-service portion of the inpatient hospital visits to the immediate post-service time of the 23-hour stay code under review.

Example: A 23-hour stay code is currently valued at 15 RVUs and has 1 hospital discharge day management service and 1 level 3 subsequent hospital care visit incorporated in this value.

  • Applying step (1): 15−0.64* = 14.36
  • Applying step (2): 14.36−2** = 12.36
  • Applying step (3): 12.36 + (30 minutes x 0.0224)*** = 13.032 RVUs

* Value associated with 1/2 hospital discharge day management service.

** Value associated with an inpatient hospital visit, CPT code 99233.

*** Value associated with the reallocated intra-service time multiplied by the post-service intensity of the 23-hour stay code.

Finally, we note that since work relative value units are established by the Secretary in the context of relativity to other codes in the system, the recommended methodology for the evaluation of 23-hour stay codes is best applied within the context of relativity. We appreciate that the AMA RUC has the ability to assess the 23-hour stay code after application of the recommended methodology to ensure Start Printed Page 73227appropriate relativity of this code and other codes within the system. We strongly encourage the AMA RUC to apply the recommended methodology to ensure the consistent and appropriate valuation of the physician work for these services.

Comment: A number of commenters asserted that if a service is performed in the hospital and the patient stays overnight, the work of the physician is typically the same regardless of whether the hospital designates the patient receiving the services as an inpatient or outpatient. Other commenters supported CMS' position in that it is appropriate for physicians' services related to the post-procedure care of the patient to be recognized and the intra-service time of the inpatient hospital visit should be included in the valuation for the 23-hour stay code. Some commenters noted that recent issues associated with hospital observation care may also be impacting CPT observation care codes, and these commenters “request that any changes in the 23+ hour stay policy be deferred until after the RUC conducts its consideration of hospital observation services in February 2011.”

Response: While some commenters advocated for a deferral on the issue of valuing 23-hour stay services, we note that a number of commenters supported CMS' proposed approach. As we stated in the CY 2010 PFS proposed rule (74 FR 33557) and affirmed in the CY 2011 PFS proposed rule (75 FR 40072), we believe these services, for a typical patient, would be considered for Medicare purposes to be hospital outpatient services, not inpatient services, and our claims data support that the typical 23-hour stay service is billed as an outpatient service. Furthermore, since the typical patient commonly remains in the hospital for less than 24 hours, even if the stay extends overnight, and discharge from the hospital is therefore imminent, we believe the acuity of the typical patient is less than that of a typical inpatient who is admitted to the hospital, resulting in less intensity for the physician work to care for the hospital outpatient immediately following a 23-hour stay procedure. Accordingly, we believe that the valuation of the codes that fall into the 23-hour stay category should not reflect physician work that is typically associated with an inpatient service. Furthermore, we do not believe that it would be more beneficial to suspend valuing 23-hour services in the manner we discussed in the proposed rule until after the AMA RUC's review of hospital observation care services. Even if the AMA RUC were to provide future recommendations to us for valuing surgical procedures in which hospital observation care services were substituted for hospital inpatient care visits, we believe that we should treat the valuation of the physician time in the same manner as discussed previously, that is, by valuing the intra-service time of the hospital observation care service in the immediate post-service time of the 23-hour stay code being valued.

Accordingly, in light of the support from the commenters, we are finalizing our proposed approach to valuing 23-hour stay services by allowing the intra-service portion of the subsequent hospital care visits (or observation care visits in the future if the AMA RUC were to recommend them instead as building blocks for outpatient surgical services) furnished to outpatients in the hospital post-procedure to be allocated to the immediate post-service time of the procedure to account for the physician work in these cases. We encourage the AMA RUC to apply this methodology itself in the recommendations it provides to us for valuing 23-hour stay codes, in order to ensure the consistent and appropriate valuation of the physician work for these services.

4. Expanding the Multiple Procedure Payment Reduction (MPPR) Policy to Additional Nonsurgical Services

a. Background

Medicare has a longstanding policy to reduce payment by 50 percent for the second and subsequent surgical procedures furnished to the same patient by the same physician on the same day, largely based on the presence of efficiencies in the practice expense (PE) and pre- and post-surgical physician work. Effective January 1, 1995, the MPPR policy, with the same percentage reduction, was extended to nuclear medicine diagnostic procedures (CPT codes 78306, 78320, 78802, 78803, 78806, and 78807). In the CY 1995 PFS final rule with comment period (59 FR 63410), we indicated that we would consider applying the policy to other diagnostic tests in the future.

Consistent with recommendations of MedPAC in its March 2005 Report to Congress on Medicare Payment Policy, under the CY 2006 PFS, the MPPR policy was extended to the technical component (TC) of certain diagnostic imaging procedures performed on contiguous areas of the body in a single session (70 FR 70261). The reduction recognizes that, for the second and subsequent imaging procedures, there are some efficiencies in clinical labor, supplies, and equipment time. In particular, certain clinical labor activities and supplies are not duplicated for subsequent procedures and, because equipment time and indirect costs are allocated based on clinical labor time; those would also be reduced accordingly.

The imaging MPPR policy currently applies to computed tomography (CT) and computed tomographic angiography (CTA), magnetic resonance imaging (MRI) and magnetic resonance angiography (MRA), and ultrasound services within 11 families of codes based on imaging modality and body region. When we adopted the policy in CY 2007, we stated that we believed efficiencies were most likely to occur when contiguous body areas are the focus of the imaging because the patient and equipment have already been prepared for the second and subsequent procedures, potentially yielding resource savings in areas such as clerical time, technical preparation, and supplies (70 FR 45850). Therefore, the MPPR policy currently applies only to procedures involving contiguous body areas within a family of codes, not across families, and to those procedures that are furnished in a single session. Additionally, while the MPPR policy applies to TC-only services and to the TC of global services, it does not apply to professional component (PC) services.

Under the current imaging MPPR policy, full payment is made for the TC of the highest-paid procedure, and payment is reduced by 25 percent of the TC for each additional procedure when an MPPR scenario applies. We had originally planned to phase in the MPPR policy over a 2-year period, with a 25 percent reduction in CY 2006 and a 50 percent reduction in CY 2007 (70 FR 70263). However, the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171) capped the PFS payment amount for most imaging procedures at the amount paid under the hospital outpatient prospective payment system (OPPS). In view of the DRA, we determined that it would be prudent to retain the MPPR at 25 percent while we continued to examine the appropriate payment levels (71 FR 69659). The DRA also exempted reduced expenditures attributable to the MPPR policy from the PFS budget neutrality provision. Most recently, effective July 1, 2010, section 3135(b) of the ACA increased the MPPR on the TC of imaging services under the policy established in the CY 2006 PFS final rule with comment period from 25 to 50 percent and exempted the reduced expenditures attributable to this further change from the PFS budget neutrality provision.Start Printed Page 73228

In the July 2009 GAO report entitled, “Medicare Physician Payments: Fees Could Better Reflect Efficiencies Achieved when Services are Provided Together,” the GAO recommended that we take further steps to ensure that fees for services paid under the PFS reflect efficiencies that occur when services are furnished by the same physician on the same beneficiary on the same day. The GAO recommended the following: (1) Expanding the existing MPPR policy to the PC to reflect efficiencies in physician work for certain imaging services; and (2) expanding the MPPR to reflect PE efficiencies that occur when certain nonsurgical, nonimaging services are furnished together. The GAO also encouraged us to focus on service pairs that have the most impact on Medicare spending.

In the March 2010 report, MedPAC noted its concerns about mispricing of services under the PFS. MedPAC indicated that it would explore whether expanding the unit of payment through packaging or bundling would improve payment accuracy and encourage more efficient use of services.

In the CYs 2009 and 2010 PFS proposed rules (73 FR 38586 and 74 FR 33554, respectively), we stated that we planned to analyze nonsurgical services commonly furnished together (for example, 60 to 75 percent of the time) to assess whether an expansion of the MPPR policy could be warranted. MedPAC encouraged us to consider duplicative physician work, as well as PE, in any expansion of the MPPR policy.

b. CY 2011 Expansion of the Imaging Technical Component MPPR Policy to Additional Combinations of Imaging Services

Over the past 2 years, the AMA RUC has examined several services billed 90 percent or more of the time together as part of the potentially misvalued service initiative and, in several cases, created one code to describe the complete service, with a value that reflects the expected efficiencies. Notwithstanding the bundling work of the RUC, there may be additional imaging and other diagnostic services that are furnished together less than 90 percent of the time where we could still expect efficiencies in the TC, and in some cases in the PC, resulting in potential overpayment for these services under current policy when furnished together.

Section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) specifies that the Secretary shall identify potentially misvalued codes by examining multiple codes that are frequently billed in conjunction with furnishing a single service, and review and make appropriate adjustments to their relative values. As a first step in applying this provision, we proposed a limited expansion of the current imaging MPPR policy for CY 2011. We will continue to review other possible expansions of the MPPR policy to the TC and/or PC of imaging procedures or other diagnostic tests for the future. Any further changes will be addressed in future rulemaking.

In a related policy for hospital outpatient payment of imaging services, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68559 through 68569), the OPPS adopted a policy to pay for two or more CT and CTA, MRI and MRA, or ultrasound procedures furnished in the same session through a single composite ambulatory payment classification (APC) group. These composite APC payments were based on the 11 families of codes subject to the MPPR under the PFS that were collapsed into 3 imaging families for the OPPS according to their modality—1 for ultrasound, 1 for CT and CTA, and 1 for MRI and MRA services.

At that time, we stated our belief that the contiguous body area concept that was incorporated in the PFS imaging families was not necessary for potential efficiencies to be achieved in an imaging session. We provided examples to illustrate that we would not expect second and subsequent imaging services of the same modality involving noncontiguous body areas to require duplicate facility resources (comparable to the TC under the PFS) for clinical labor activities such as greeting the patient, providing education and obtaining consent, retrieving prior exams, setting up an intravenous infusion, and preparing and cleaning the room, any more than second and subsequent imaging procedures of the same modality involving contiguous body areas. While we noted that multiple imaging claims under the OPPS are generally within the same imaging modality and involve contiguous body areas the vast majority of the time, we estimated that the collapsed 3 families, as opposed to the 11 PFS families, would add 12 percent additional claims to those eligible for a single composite APC payment under the OPPS based on the provision of 2 or more imaging services in a single session, allowing us to capture additional claims with efficiencies.

Taking into consideration the OPPS policy that was adopted in the CY 2009 OPPS/ASC final rule with comment period, for CY 2011 under the PFS, we proposed to apply the MPPR regardless of family, that is, the policy would apply to multiple imaging services furnished within the same family of codes or across families. This proposal would simplify the current imaging MPPR policy in a way that is consistent with the standard PFS MPPR policy for surgical procedures that does not group procedures by body region. Therefore, the MPPR would apply to CT and CTA, MRI and MRA, and ultrasound procedures services furnished to the same patient in the same session, regardless of the imaging modality, and not limited to contiguous body areas.

Because of the different pieces of equipment used for CT/CTA, MRI/MRA, and ultrasound procedures, it would be unlikely that a single practitioner would furnish more than one imaging procedure involving 2 different modalities to one patient in a single session where the proposed MPPR policy would apply. On the other hand, while most multiple procedures furnished with a single modality in one session would involve procedures currently assigned to one of the 11 imaging families, it would not be uncommon for more than one imaging procedure of the same modality to be furnished across families and, like the scenario for hospital outpatient imaging services, we would expect efficiencies to occur in these cases. Therefore, we believe that an expansion of the current imaging MPPR policy to account for efficiencies in such situations would allow us to pay more appropriately for these multiple imaging procedure sessions, consistent with our ongoing efforts to address misvalued services.

The expansion of the imaging MPPR policy to include all of the current codes in a single family to which the standard 50 percent reduction for second and subsequent procedures would apply would reduce payment for 20 percent more services than the current MPPR policy under the PFS. Thus, in CY 2011, we would capture additional efficiencies and pay more appropriately in these cases. We note that section 1848(c)(2)B)(v)(VI) (as added by section 3135(b) of the ACA)) specifies that reduced expenditures attributable to the increase in the imaging MPPR from 25 to 50 percent in CY 2011 are excluded from the PFS budget neutrality adjustment. However, the reduced payment for code combinations that would newly be subject to the imaging MPPR policy under this proposal would be made in a budget neutral manner under the PFS, as these new combinations are not included under section 1848(b)(4)(D) (as added by section 3135(b) of the ACA), which addresses “single-session imaging to Start Printed Page 73229consecutive body parts” under the established imaging MPPR policy.

We also proposed to add the CY 2010 codes displayed in Table 17 of the CY 2011 PFS proposed rule (75 FR 40075) to the list of imaging services subject to the MPPR policy in CY 2011. These four codes (CPT codes 75771 through 75774) were newly created for CY 2010 and are similar to codes currently in imaging family 2, titled CT and CTA (Chest/Thorax/Abdomen/Pelvis).

We further note that new CY 2010 CPT codes 74261 (Computed tomography (CT) colonography, diagnostic, including image postprocessing; without contrast material) and 74262 (Computed tomography (CT) colonography, diagnostic, including image postprocessing; with contrast material(s) including non-contrast images, if performed) were added to the CY 2010 MPPR policy through the July 2010 PFS quarterly update, with a retroactive effective date of January 1, 2010. These codes replaced CPT code 0067T (Computed tomographic (CT) colonography (that is, virtual colonoscopy); diagnostic) in CY 2010, which was on the list of procedures subject to the imaging MPPR policy prior to CY 2010.

As discussed earlier in this section, reduced expenditures attributable to the increase in the MPPR for multiple imaging procedures to consecutive body parts (that is, those previously designated in the same family of codes) are exempt from the budget neutrality provision of the PFS. However, the reduced expenditures attributable to the MPPR for combinations of multiple imaging procedures that we proposed for CY 2011 (the MPPR for multiple imaging procedures not involving consecutive body parts) would be subject to budget neutrality adjustment under the PFS. We note that this formulation for whether reduced expenditures are exempt from budget neutrality applies both to procedures currently subject to the imaging MPPR and to new codes that would be subject to the policy in CY 2011 and in future years. To the extent that imaging procedures described by the new codes are furnished in combination with other procedures that are subject to the imaging MPPR on consecutive body areas, the reduced expenditures attributable to the MPPR for these combinations would be exempt from the PFS budget neutrality adjustment.

Comment: With one exception, the commenters uniformly opposed the proposal to consolidate the imaging families for application of the imaging MPPR and urged CMS not to finalize the proposal. The exception was MedPAC, which supported the policy as reasonable and consistent with the hospital OPPS policy on multiple imaging and the PFS MPPR policy for multiple surgical procedures, neither of which are limited to procedures involving contiguous body areas.

Many commenters pointed out that the AMA RUC has worked to resolve any duplication in the direct PE inputs for services commonly furnished together over the past few years. The commenters stated that new bundled services were implemented in CY 2010 and speculated that additional ones would be implemented in the future and, therefore, concluded that a general MPPR to adjust PFS payment when imaging services are commonly furnished together is not necessary. The commenters argued that any duplication in the PE should be resolved at the code pair level. The AMA RUC urged CMS to continue to work within the established processes and offered for its Practice Expense Subcommittee to review specific code pairs about which CMS was concerned regarding potential PE duplication and recommend a course of action that would be fair and consistent.

Response: The imaging MPPR is not intended to supersede the AMA RUC process that values services described by CPT codes. We encourage the AMA RUC to continue examining code pairs for PE duplication based upon the typical case and appropriately valuing new comprehensive codes for bundled services that are established by the CPT Editorial Panel. However, we believe that it is necessary to address the PE duplication immediately for imaging code pairs that have not been recently reviewed or bundled into single comprehensive codes. We note that as more code combinations are bundled into a single complete service reported by one CPT code, they would no longer be subject to the MPPR. For example, there are new CY 2011 codes to describe abdominal and pelvic CT scans furnished together, specifically CPT codes 74176 (Computed tomography, abdomen and pelvis; without contrast material); 74177 (Computed tomography, abdomen and pelvis; with contrast material); and 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by with contrast material(s) and further sections in one or both body regions). We are accepting the AMA RUC recommendations for the direct PE inputs for these codes for CY 2011 and, therefore, their TCs are valued accordingly. Whereas prior to CY 2011, the 50 percent imaging MPPR would have applied to the TC of the second service when an abdominal and pelvic CT were furnished in the same imaging session, this will no longer be the case in CY 2011. Instead, the TC payment for the comprehensive code will reflect the valuing of the specific services furnished in combination with one another. Thus, we believe our current and proposed MPPR formulations are consistent with the AMA RUC's work to review code pairs for potential PE duplication and to appropriately value comprehensive codes for a bundle of component services.

Comment: Numerous commenters opposed applying the MPPR to noncontiguous body area imaging services using the same modality and to combinations of imaging services involving different modalities. Many commenters indicated that there is no major duplication in clinical labor activities when two studies of noncontiguous body areas using a single imaging modality are furnished in the same session and even less duplication when imaging services are furnished in a separate session on the same day using different modalities. The commenters argued that the duplication in clinical labor activities that occurs in the pre- and post-operative periods for multiple surgical procedures does not apply to imaging services.

More specifically, several commenters observed that the minimal duplicate costs of a few minutes of technician time do not justify a 50 percent payment reduction in the TC for the second service. Some commenters also believe that the imaging MPPR creates an incentive for physicians to order separate procedures on different days, thereby discouraging efficiencies. In addition, the commenters contended that the imaging MPPR is detrimental to patient care, access, and convenience.

One commenter asserted that it is not appropriate to compare the OPPS composite ambulatory payment classification (APC) groups to office-based imaging as a justification for expanding the imaging MPPR under the PFS. The commenter cited an analysis of OPPS payment demonstrating that CMS pays hospitals for the second imaging study at nearly 100 percent of the amount paid for a single study, concluding that not until the third study would the payment be reduced from the sum of what would otherwise be paid under the OPPS if the studies were performed alone.

Another commenter agreed that the current PFS imaging families could be further collapsed to eliminate the contiguous body area concept but opposed applying the MPPR across Start Printed Page 73230modalities. The commenter suggested establishing three families to parallel the modality-based APC groups used under the OPPS, that is, CT/CTA, MRI/MRA, and ultrasound. Another commenter noted that highly specialized clinics often treat complex conditions and perform multiple imaging services on noncontiguous body areas primarily for good patient care. As an example of a situation when complex imaging services are used to diagnose and treat significant medical conditions, the commenter indicated that a CT of the chest may be furnished, resulting in a diagnosis of lung cancer. In addition, the same commenter noted that appropriate treatment of the patient's neurological signs and symptoms also requires a CT of the head, because primary lung tumors account for 50 percent of all metastatic brain tumors. The commenter explained that these medically necessary combinations of imaging services are often performed in a single imaging session. Results of the initial imaging service, contended the commenter, could change the course of treatment for the patient and it would be prudent not to delay or complicate a patient's treatment plan. The commenter also pointed out that it is a convenience to the patient to have same day access for all imaging services.

Another commenter acknowledged that while some efficiencies are gained in certain situations and settings when multiple imaging services are furnished together, the expanded MPPR policy would not appropriately pay for the additional studies required for the majority of patients with significant medical conditions. The commenter explained that highly organized clinics treating these complex patients often structure patient encounters so that there are intervening consultations with multiple providers and additional tests in between imaging services.

Response: While most multiple procedures furnished with a single modality in 1 session would involve procedures currently assigned to 1 of the 11 imaging families, it would not be uncommon for more than 1 imaging procedure of the same modality to be furnished across families, and we would expect efficiencies to occur in these cases. As noted by MedPAC, the proposed PFS MPPR expansion to eliminate the concept of contiguous body areas as the basis for a payment reduction due to efficiencies is consistent with the established hospital OPPS policy on multiple imaging and the PFS MPPR policy for multiple surgical procedures, neither of which is limited to procedures involving contiguous body areas. While we acknowledge that the OPPS composite imaging APCs utilize a different payment methodology than an MPPR to reflect the level of efficiencies when multiple imaging services are furnished together, consideration of the specific body areas imaged is not an aspect of the OPPS policy. The OPPS methodology continues to distinguish among services using different imaging modalities in part because of the statutory requirement that APCs be clinically homogenous. This same limitation would not apply to an MPPR. Despite the differences in their payment methodologies, both the OPPS and the PFS strive to recognize the efficiencies in the TCs when multiple imaging services are furnished together. We continue to believe that there are significant efficiencies in the TCs when multiple imaging procedures of the same modality are furnished on noncontiguous body areas in the same imaging a session, and believe that an expanded imaging MPPR under the PFS is an important policy refinement to pay more appropriately for the comprehensive imaging service under such circumstances.

Because most of the combinations of imaging services furnished in one session that are not now subject to the imaging MPPR occur within one modality, we believe it would be unnecessarily complex to continue separate families (even if fewer than 11) for different imaging modalities to address the limited circumstances when imaging services furnished with more than one modality are performed in a single imaging session. Even in these unusual cases, we would expect certain efficiencies in the TCs, such as the establishment of venous access only one time. Finally, the more general proposed policy would provide a streamlined basis for our further consideration of other possible expansions of an MPPR policy to the TC and/or PC of imaging procedures or other diagnostic tests in the future.

Consistent with our current expectations for provider ordering practices under the established imaging MPPR policy for single modality, contiguous body area imaging studies, under an expanded MPPR we would not expect providers to order multiple imaging procedures of different modalities or for noncontiguous body areas on different days or order different imaging sessions on the same day simply to garner increased payment unless it were medically reasonable and necessary that the studies be furnished on different days or in different sessions on the same day. However, where it is medically necessary to have intervening consultations among multiple providers or other diagnostic tests furnished to a patient between imaging services on the same day to which the MPPR would otherwise apply, such cases would constitute separate imaging sessions and the MPPR would not apply.

Comment: Many commenters addressed CMS' assertion that because of the different pieces of equipment used for CT/CTA, MRI/MRA, and ultrasound procedures it would be unlikely that a single practitioner would furnish more than one imaging procedure involving two different modalities to one patient in a single session where the proposed MPPR policy would apply. While most commenters agreed with this statement, the commenters questioned why CMS would implement the proposal if this were the case. When procedures are furnished across modalities, the commenters believe them to be separate and distinct procedures with little or no overlap and argue that efficiencies cannot be achieved. The commenters asserted that CMS offered no data to support its expectation that efficiencies would occur when different imaging modalities are furnished at the same time. Many commenters requested a more rigorous analysis, validated evidence to support the proposed expansion, and an opportunity for stakeholders to comment on the analysis.

A number of the commenters agreed that specialized staff with different expertise and certification is often needed to furnish services within the different imaging modalities. When multiple imaging is necessary, the commenters explained that two appointments are created, and the patient is checked in twice, prepared and instructed twice, educated on each study independently, transported from one room to another, and furnished separate supplies such as contrast and IV tubing, following which the two rooms are cleaned.

Response: We agree with the majority of commenters that in most cases a practitioner would not furnish more than one imaging procedure involving two different modalities to one patient in a single session. While there may be some instances where the MPPR applies to two different modalities used in a single session, the MPPR would not apply in most cases because this clinical scenario is uncommon. In response to the commenters who questioned why we proposed to apply an MPPR across modalities, we believe that if, in the unusual case, more than one imaging service of different modalities were Start Printed Page 73231furnished to a patient in a single session, there would be some efficiencies in the TC, such as greeting the patient only one time and setting up one intravenous line. We acknowledge that the application of a general MPPR policy to numerous imaging service combinations may result in an overestimate of the efficiencies in some cases and an underestimate in others, but this can be true for any service paid under the PFS, and we believe it is important to establish a general policy to pay appropriately for the TCs of combinations of imaging services upon which we may consider building in the future. We do not believe that it is administratively efficient or necessary for appropriate payment to maintain modality-specific imaging families given the uncommon occurrences of pairs of imaging services involving different modalities furnished by one practitioner on the same day to a single patient that we observe in our claims data.

Comment: Several commenters generally opposed the inclusion of nondiagnostic radiation oncology imaging procedures in any future expansion of the MPPR policy, given the clinical differences between radiation oncology and diagnostic imaging. In addition, one commenter noted that cardiologists commonly provide echocardiography services and peripheral vascular ultrasound tests. While both types of services use ultrasound technology that resembles the technology used in the ultrasound procedures currently subject to the imaging MPPR, the commenter reported that these services are furnished using a different machine and different staff who have different expertise so the imaging MPPR policy.

Response: We did not propose to expand the existing contiguous body area MPPR policy, which currently includes only nonobstetrical chest, abdominal, and pelvic ultrasound services, to include peripheral vascular ultrasound services or echocardiography services in CY 2011. While we explained in the CY 2011 PFS proposed rule (75 FR 40074) that we would continue to review other possible expansions of the MPPR policy to the TC and/or PC of imaging procedures or other diagnostic tests for the future, we have not proposed to do so at this time. Further changes to include services such as nondiagnostic radiation oncology imaging services or echocardiography or peripheral vascular ultrasound services would be addressed in future rulemaking.

Comment: A few commenters reported that it is often difficult for imaging providers to understand when an encounter begins and ends and, therefore, urged CMS to better define a single session. They explained that it is not always easy to identify when the use of the -59 modifier (Distinct procedural services), denoting a separate session under the current imaging MPPR policy, is appropriate. This ambiguity leaves the responsibility for determining whether imaging services are furnished in a separate session to the judgment of the imaging technologist, leading to inconsistent determinations and, therefore, variable payment for the same services furnished in similar clinical scenarios. One commenter specifically requested further parameters of a separate encounter be defined to include the same exam room, a specific timeframe, or a specific action. Another commenter noted that distinguishing separate sessions is a particular challenge for ultrasound imaging.

Response: In the CY 2006 PFS final rule with comment period (70 FR 70262), we indicated that a single imaging session is one encounter where a patient could receive one or more radiological studies. If a patient has a separate encounter on the same day for a medically necessary reason and receives a second imaging service, this would represent a separate session. Physicians would report the -59 modifier to indicate multiple sessions and the MPPR would not apply. This same policy would continue in CY 2011 under the consolidation of the imaging families to expand the imaging MPPR under the PFS. We believe that providers' 5 years of previous experience with this policy should allow them to continue to appropriately distinguish separate imaging sessions by reporting the -59 modifier, even under the expanded MPPR policy. We may provide further subregulatory guidance to providers on this issue in the future in view of our CY 2011 expanded imaging MPPR policy if specific issues arise that we believe warrant further clarification regarding the characteristics of separate imaging sessions.

After consideration of the public comments we received, we are finalizing our proposal, without modification, to apply the 50 percent imaging MPPR to all of the ultrasound, CT, CTA, MRI, and MRA services to which the current contiguous body area and modality-specific policy applies, regardless of the specific combinations of imaging services furnished to the patient in a single session. We believe this proposal is consistent with our overall strategy to pay more appropriately for services that are commonly furnished together, consistent with section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) that instructs the Secretary to identify multiple codes that are frequently billed in conjunction with furnishing a single service, and review and make appropriate adjustments to their relative values.

As stated earlier in this section, expenditures attributable to the increase in the MPPR for multiple imaging procedures to consecutive body parts (that is, those previously designated in the same family of codes) are exempt from the budget neutrality provision of the PFS. However, the reduced expenditures attributable to the MPPR for new combinations of multiple imaging procedures that we are finalizing for CY 2011 (the MPPR for multiple imaging procedures not involving consecutive body parts) would be subject to budget neutrality adjustment under the PFS. We note that this formulation for whether reduced expenditures are exempt from budget neutrality applies both to procedures currently subject to the imaging MPPR and to new codes that are subject to the policy in CY 2011 and in future years. To the extent that imaging procedures described by the new codes are furnished in combination with other procedures that are subject to the imaging MPPR on consecutive body areas, the reduced expenditures attributable to the MPPR for these combinations would be exempt from the PFS budget neutrality adjustment.

The complete list of codes subject to the CY 2011 MPPR policy for diagnostic imaging services is included in Addendum F to this final rule with comment period and the CY 2011 code additions to the MPPR policy are listed in Table 17. The codes being added to the policy are those we proposed, as well as new CY 2011 codes or newly covered codes that are clinically similar to the imaging codes subject to the MPPR in CY 2010. The new codes include CPT codes 74176 (Computed tomography, abdomen and pelvis; without contrast material); 74177 (Computed tomography, abdomen and pelvis; with contrast material(s)); and 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by contrast material(s) and further sections in one or both body regions). The newly covered codes are CPT codes 72159 (Magnetic resonance angiography, spinal canal and contents, with or without contrast material) and 73225 (Magnetic resonance angiography, upper extremity, with or without contrast material). These codes are being added on an interim final Start Printed Page 73232basis and are open to public comment on this final rule with comment period. The complete list of CPT codes newly added to the diagnostic imaging MPPR for CY 2011 is displayed in Table 17 below.

TABLE 17—CPT Code Additions to the Diagnostic Imaging MPPR Policy for CY 2011

CPT codeShort descriptorSubject to comment in CY 2011 PFS final rule
72159Mr angio spine w/o & w/dyeYes.
73225Mr angio upr extr w/o & w/dyeYes.
74176Ct abd & pelvis w/o contrastYes.
74177Ct abdomen & pelvis w/contrastYes.
74178Ct abd & pelv 1+ section/regnsYes.
75571Ct hrt w/o dye w/ca testNo.
75572Ct hrt w/3d imageNo.
75573Ct hrt w/3d image, congenNo.
75574Ct angio hrt w/3d imageNo.

c. CY 2011 Expansion of the MPPR Policy to Therapy Services

In the July 2009 GAO report entitled, “Medicare Physician Payments: Fees Could Better Reflect Efficiencies Achieved when Services are Provided Together,” the GAO found efficiencies when multiple physical therapy services were furnished in one session and concluded that an MPPR policy could be appropriate for these services. In the report, the GAO noted that officials from the AMA RUC explained that time spent on pre-service and post-service therapy activities is spread across the number of services in a typical session in order to avoid duplication of the PE for the services. Nevertheless, the GAO found that there was duplication of certain activities in the intra-service period, and provided the example of time spent testing range of motion or muscle flexibility that was duplicated in commonly observed code pairs.

In the typical clinical scenario for therapy services, we believe that therapy services are misvalued for PFS payment when multiple services are furnished to a patient in a single session because duplicate clinical labor and supplies are included in the PE of the services furnished. We believe this duplication should be accounted for under the PFS, as we currently account for efficiencies in multiple surgical and multiple diagnostic imaging procedures furnished in a single session. Over the past 2 years, the AMA RUC has examined several services billed 90 percent or more of the time together as part of its potentially misvalued service initiative and, in several cases, created one code to describe the complete service, with a value that reflects the expected efficiencies. Notwithstanding the AMA RUC's analyses, in most cases it has not created one code to describe a complete therapy service, in part because many of the core therapy CPT codes are timed codes based on increments of treatment time.

Therefore, in the CY 2011 PFS proposed rule (75 FR 40075), we proposed a further step to implement section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) that specifies that the Secretary shall identify potentially misvalued codes by examining multiple codes that are frequently billed in conjunction with furnishing a single service. For CY 2011 we proposed an MPPR policy for the HCPCS codes listed in Table 18, specifically the separately payable “always therapy” services that are only paid by Medicare when furnished under a therapy plan of care. These services are designated “always therapy” services regardless of who furnishes them and always require therapy modifiers to be reported, specifically -GP (Services rendered under outpatient physical therapy plan of care); -GO (Services rendered under outpatient occupational therapy plan of care); or -GN (Services rendered under outpatient speech-language pathology plan of care). The therapy codes are available in a file on the CMS Web site at: http://www.cms.gov/​TherapyServices/​. We excluded both contractor-priced and bundled codes from Table 18 because, under our proposal, an MPPR would not be applicable for “always therapy” services furnished in combination with these codes. In the case of bundled codes that are not separately paid, there are no explicit efficiencies in the direct PE to be reflected in payment for the second and subsequent therapy services furnished to the patient on the same day. In the case of contractor-priced codes, there is no nationally established pricing that could be uniformly adjusted to reflect the expected efficiencies when multiple therapy services are furnished.

Table 18—Separately Payable “Always Therapy” Services Proposed as Subject to the CY 2011 MPPR Policy *

CPT/HCPCS codeShort descriptor
92506Speech/hearing evaluation.
92507Speech/hearing therapy.
92508Speech/hearing therapy.
92526Oral function therapy.
92597Oral speech device eval.
92607Ex for speech device rx, 1hr.
92608Ex for speech device rx addl.
92609Use of speech device service.
96125Cognitive test by hc pro.
97001Pt evaluation.
97002Pt re-evaluation.
97003Ot evaluation.
97004Ot re-evaluation.
97010Hot or cold packs therapy.
97012Mechanical traction therapy.
97016Vasopneumatic device therapy.
97018Paraffin bath therapy.
97022Whirlpool therapy.
97024Diathermy eg, microwave.
97026Infrared therapy.
97028Ultraviolet therapy.
97032Electrical stimulation.
97033Electric current therapy.
97034Contrast bath therapy.
97035Ultrasound therapy.
97036Hydrotherapy.
97110Therapeutic exercises.
97112Neuromuscular reeducation.
97113Aquatic therapy/exercises.
97116Gait training therapy.
97124Massage therapy.
97140Manual therapy.
97150Group therapeutic procedures.
97530Therapeutic activities.
97533Sensory integration.
97535Self care mngment training.
97537Community/work reintegration.
97542Wheelchair mngment training.
97750Physical performance test.
97755Assistive technology assess.
97760Orthotic mgmt and training.
97761Prosthetic training.
97762C/o for orthotic/prosth use.
G0281Elec stim unattend for press.
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G0283Elec stim other than wound.
G0329Electromagnetic tx for ulcers.
*Excludes contractor-priced and bundled codes.

We did not propose an MPPR policy for “sometimes therapy” services, specifically those services that may be furnished under a therapy plan of care or otherwise by physicians or NPPs as medical services. We believe that the care patterns are different for the latter group of services that may sometimes be furnished as therapy services, and we noted that they are less commonly furnished with multiple services in a single session than the “always therapy” services. In the discussion that follows, our reference to therapy services means those HCPCS codes designated annually as “always therapy” services by CMS.

Based on CY 2009 PFS claims data, we identified over 500 therapy service code pairs billed for the same patient in a single session. We then reviewed a sample of the most common therapy code pairs, specifically those high volume code pairs with more than 250,000 combined services per year, to examine the potential for duplication in the PE. These code pairs represented more than half of the occurrences of therapy services billed together. While we acknowledged that the PE inputs per service for some therapy services were included in the direct PE database based on one-half of the total PE inputs required for two services furnished in a single session, which would account for some duplication, this was not the case for all combinations of therapy services. Of the high volume therapy services examined, approximately one-fourth of the code pairs were not valued based on two services. In addition, we noted that the CY 2009 PFS claims data for services paid under the PFS (excluding services furnished in facility settings that were paid at PFS rates) show that when multiple therapy services are billed on a claim for the same date of service, the median number is four services per day. Therefore, even for those clinical labor times that may reflect the allocation of total time across two units of therapy services, we believe that some elements of the current PE inputs are duplicated based on current patterns of therapy service delivery where most multiple service claims involve delivery of more than two services in a session.

In the CY 2011 proposed rule (75 FR 40076), we stated that duplicate labor activities currently included in the PE for the service period for these high volume pairs of therapy services are as follows: clean room/equipment; education/instruction/counseling/coordinating home care; greet patient/provide gowning; obtain measurements, for example, ROM/strength/edema; and post-treatment patient assistance. The most common duplicate supply item included in the PE was the multispecialty visit pack. Examples of duplicated and unduplicated labor activities and supplies for two sample therapy code pairs and our estimates of potential clinically appropriate time and quantity reductions for multiple service sessions (which were also included in our proposed rule) are displayed in Table 19. We note that CY 2009 PFS claims data for these sample code pairs include over 3.4 million pairs of CPT codes 97112 (Therapeutic procedure, 1 or more areas, each 15 minutes; neuromuscular reeducation of movement, balance, coordination, kinesthetic sense, posture, and/or proprioception for sitting and/or standing activities) and 97110 (Therapeutic procedure, 1 or more areas, each 15 minutes; therapeutic exercises to develop strength and endurance, range of motion and flexibility) furnished by the same practitioner on the same day and over 500,000 pairs of CPT codes 97001 (Physical therapy evaluation) and 97140 (Manual therapy techniques (eg, mobilization/manipulation, manual lymphatic drainage, manual traction), 1 or more regions, each 15 minutes).

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In the CY 2011 PFS proposed rule (75 FR 40078), we did not remove minutes for clinical labor tasks that were not duplicated. For example, for CPT code pair 97001 and 97140 the following tasks were not duplicated: post treatment patient assistance; prep and position patient; and prepare room, equipment, and supplies. In addition, we did not remove any supply items that would be required for only one of the separate services because these would not be duplicated in the PE applicable to the combination of services. We estimated no reduction for equipment time, even though efficiencies would be expected for equipment that is used in both services when they are furnished together. Finally, a corresponding reduction to the indirect expenses would be appropriate since indirect costs are allocated partially based on direct costs. For five high volume therapy code pairs that each occur over 2 million times in PFS claims for multiple therapy services and account for almost half of such claims, we estimated that the resulting reduction in the PE for the lower paying code would range from 28 to 56 percent.

As we summarized in the CY 2011 PFS proposed rule (75 FR 40078), given the duplicative clinical labor activities and supplies as shown in the code combination examples, we believe it would be appropriate to extend the MPPR policy that is currently applied to surgical services and the TC of imaging services, to the PE component of certain therapy services. Specifically, we proposed to apply a 50 percent payment Start Printed Page 73236reduction to the PE component of the second and subsequent therapy services for multiple “always therapy” services furnished to a single patient in a single day. Because we believed it would be difficult to determine the precise beginning and end of therapy sessions and we did not believe that beneficiaries would typically have more than one therapy session furnished in a single day, we proposed to apply the 50 percent MPPR policy to the PE component of subsequent therapy services furnished to the same patient on the same day, rather than limiting the proposed policy to services furnished in the same session.

We noted that many therapy services are time-based CPT codes, so multiple units of a single code may be billed for a single session that lasts for a longer period of time than one unit of the code. The proposed MPPR policy would apply to multiple units of the same therapy service, as well as to multiple different services, when furnished to the same patient on the same day. Therefore, we proposed that full payment would be made for the service or unit with the highest PE and payment would be made at 50 percent of the PE component for the second and subsequent procedures or units of the same service.

We proposed that the work and malpractice components of the therapy service payment would not be reduced. For therapy services furnished by an individual or group practice or “incident to” a physician's service, the MPPR would apply to all “always therapy” services furnished to a patient on the same day, regardless of whether the services are furnished in one therapy discipline or multiple disciplines, for example, physical therapy, occupational therapy, or speech-language pathology. The MPPR policy would apply to both those services paid under the PFS that are furnished in the office setting and those services paid at the PFS rates that are furnished by outpatient hospitals, home health agencies, comprehensive outpatient rehabilitation facilities (CORFs), and other entities that are paid by Medicare for outpatient therapy services. Table 20 provides a sample calculation of the current and proposed CY 2011 payment for multiple therapy services furnished in on the same day. For those services paid under the PFS, the PFS budget neutrality provision would apply so that the estimated reduced expenditures for therapy services would be redistributed to increase payment for other PFS services.

TABLE 20—Sample Payment Calculation for Multiple Therapy Services Furnished to a Single Patient on the Same Day

Procedure 1 Unit 1Procedure 1 Unit 2Procedure 2Current total paymentProposed CY 2011 total paymentProposed payment calculation
Work$7.00$7.00$11.00$25.00$25.00no reduction
PE$10.00$10.00$8.00$28.00$19.00$10 + (0.5 × $10) + (0.5 × $8)
Malpractice$1.00$1.00$1.00$3.00$3.00no reduction
Total$18.00$18.00$20.00$56.00$47.00$18 + $7 + (0.5 × $10) + $1 + $11 + (0.5 × $8) + $1

In the CY 2011 PFS proposed rule (75 FR 40078), we stated that we believe the proposed therapy MPPR policy would provide more appropriate payment for therapy services that are commonly furnished together by taking into account the duplicative clinical labor activities and supplies in the PE that are not furnished more than once in the single therapy session. This approach is consistent with the statutory requirement for the Secretary to identify, review and adjust the relative values of potentially misvalued services under the PFS as specified by section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA). We also believe this proposed policy is responsive to continued concerns about significant growth in therapy spending and to MedPAC and GAO recommendations regarding the expansion of MPPR policies under the PFS to account for additional efficiencies. We observed that paying more appropriately for therapy services based on PE relative values that are adjusted for the clinical scenario under which the services are furnished would result in reduced therapy expenditures, and beneficiaries would be able to receive more medically necessary outpatient therapy services before reaching the therapy cap. For a further discussion of potential alternatives to the therapy caps, we refer readers to section III.A.2. of this final rule with comment period.

Comment: Many commenters opposed application of the proposed MPPR policy to therapy services. The commenters characterized the proposal as drastic, arbitrary, and unfair, resulting in across-the-board cuts based on flawed assumptions that would lead to therapy underpayments that would jeopardize access to necessary care and harm patients. The commenters requested that CMS withdraw the proposal, study the issue further, and share the analyses with the public.

In contrast, MedPAC supported the general direction of the proposed policy, but suggested that CMS better justify how a 50 percent reduction would capture the duplicate inputs related to multiple therapy services performed in a single session. MedPAC also recommended that CMS request that the AMA RUC review the values of all outpatient therapy codes to ensure that the practice expenses are not duplicated, regardless of whether or not the current values of those codes assume that two services are furnished during a single visit.

Numerous commenters requested a detailed justification for the proposed policy's 50 percent reduction, including an explanation of the methodology used to calculate the new payments that would result. These commenters asked CMS to work with stakeholders to finalize a policy that would not adversely impact access to care, particularly in rural and other underserved areas. The commenters further urged consideration of other payment methods and alternatives to the therapy caps that would preserve and improve access to therapy services. The commenters stated that between 80 to 90 percent of physical therapy services furnished in private practices would potentially be subject to the MPPR, concluding that the policy would result in payment decreases of 19.2 percent and 17.8 percent for physical therapy services in facilities Start Printed Page 73237and offices, respectively, notably more than the CMS' impact estimate of 11 percent for the proposed rule.

The commenters provided analyses to show that the duplication of supplies is very limited and argued that a more thorough analysis of duplication based on expert clinical review would result in considerably lower estimates of duplication. For example, the AMA RUC explained that for a typical single session combination of 2 units of CPT code 97110 (Therapeutic procedure, 1 or more areas, each 15 minutes; therapeutic exercises to develop strength and endurance, range of motion and flexibility) and one unit of 97140 (Manual therapy techniques (e.g., mobilization/manipulation, manual lymphatic drainage, manual traction), 1 or more regions, each 15 minutes), a $12 PE payment reduction from the MPPR would be applied to adjust for $3.60 in potentially duplicated costs.

Before implementing an MPPR, the commenters urged CMS to take time to ensure that individual services were valued correctly based upon the resources needed to deliver them. The commenters advised CMS to conduct a more thorough analysis, taking into consideration the fact that the direct PE inputs for therapy services were already reduced to avoid duplication. The commenters alleged that CMS provided incorrect examples of duplication in the proposed rule examples by overestimating the duplication compared to the standard time allocated by the AMA RUC for certain activities. The commenters explained that PE for therapy services was valued by the AMA RUC based upon three units of service, not two units of service as stated by CMS in the proposed rule. Three units of service are typical, and the commenters contended that no duplication of PE exists when the typical three units of service are delivered using typical time allotments for clinical labor activities. The commenters submitted multiple examples of combinations of therapy services, using the most frequently billed therapy codes and providing valuations for each of the components of PE, such as pre-service and post-service physical therapy assistant activities. The commenters pointed out that in the case of single unit therapy claims, or claims with one therapeutic procedure and one modality, there would currently be underpayment based on how therapy services are valued. The commenters further argued that it would not be fair to apply the MPPR to all subsequent services when some of the code combinations are already undervalued.

Many commenters observed that the AMA RUC has worked in good faith to resolve any duplication in the PE inputs over the past few years and pointed out that CMS has historically accepted over 90 percent of the AMA RUC's recommendations. In April 2010, some commenters reported that the AMA RUC reviewed high volume therapy code pairs that included the most frequently billed therapy CPT code 97110, and the commenters conveyed the AMA RUC's conclusion that there is no duplication in the work or PE inputs for the most frequently reported therapy codes.

The commenters pointed out that single comprehensive codes for certain bundles of component services were implemented in CY 2010, and that additional ones would be created in the future. Therefore, the commenters disagreed with CMS' reasoning for proposing a general MPPR that is not code pair-specific in the context of these ongoing efforts of the CPT Editorial Panel and the AMA RUC to revise the coding and values for services that are commonly furnished together. Instead, the commenters urged CMS to continue to work within the established processes and resolve duplication, where it exists, at the code pair level rather than with payment.

Response: We appreciate the detailed information provided by the commenters regarding the historical AMA RUC process to value the therapy codes and the additional examples of the practice expenses as they apply to the many combinations of therapy services that may be reported. We understand that the AMA RUC valued many of the therapy services based on certain assumptions about the typical combinations of services furnished in a therapy session. However, as the commenters pointed out, there are numerous combinations of therapy services observed in the PFS claims data that we posted on the CMS Web site under supporting files for the CY 2011 PFS proposed rule that are commonly furnished in the physician's office setting. In the context of this large number of commonly observed combinations, we do not believe that our usual PFS methodology of valuing the typical service adequately accounts for the duplication in PE that occurs in the many possible therapy service combinations. Although they are frequent, they do not represent the typical case used by the AMA RUC in valuing the individual component services and, thus, do not fully account for duplications in PE. We proposed the therapy MPPR in order to pay more appropriately for therapy services in general by adjusting for the duplicate payment for the PE that may occur when combinations of therapy services are furnished together.

We agree with the commenters that, when considering all claims for therapy services paid under the PFS, the median number of services is three. Thus, that number may have been appropriate for the AMA RUC to use in valuing therapy services. However, the median number of four services that we presented in the CY 2011 PFS proposed rule was based upon all claims for multiple therapy services, and did not include claims for a single therapy service. It was the multiple service claims that we examined for purposes of the MPPR analysis, and it is these claims to which the MPPR would apply. Therefore, we continue to believe that the median number of four is the appropriate reference point when evaluating an MPPR. We note further that when the AMA RUC valued certain therapy services based on the assumption that a combination of three types of therapy services would be furnished to the patient, then in the case of multiple service claims where the median number of services is four, some PE duplication would clearly occur for the typical multiple service case with more than three services.

Although we continue to believe that 50 percent would generally be an appropriate level for an MPPR for the PE component of payment for therapy services, consistent with the current PFS MPPR policies for imaging and surgical services and our PE overlap analysis of certain therapy code combinations for the CY 2011 PFS proposed rule, we acknowledge there are particular challenges associated with establishing an MPPR for therapy services to account for the duplication in PE. For example, the current coding structure for therapy services relies upon timed units in many cases, and as a result, the number of commonly observed combinations is very large. The PE overlaps vary depending upon the specific combinations of services furnished to the patient, which may include evaluation services, therapeutic procedures, and therapeutic modalities. The common occurrence of such a great variety of multiple therapy code combinations contrasts with the relatively lesser number of combinations and/or frequency of combinations of surgical procedures or diagnostic imaging procedures to which the established PFS MPPR policies apply.

As the commenters pointed out, the direct PE inputs for certain therapy services were systematically established Start Printed Page 73238based upon a standard AMA RUC methodology of three therapy services furnished in a session that included two therapeutic procedures and one therapeutic modality and that assigned certain PE inputs solely to the two therapeutic procedures. However, the scenarios utilized by the AMA RUC in this process are an incomplete representation of the usual combinations of services reported when therapy services are furnished in a practitioner's office. For example, the most common combination of CPT codes for therapy services in CY 2009 PFS claims data consisted of an average of 3.5 services which were comprised of some combination of one or more units of a single therapeutic procedure CPT code and one or more units of a single modality CPT code, rather than 3 total units of the services. The second most common combination was a therapeutic procedure CPT code alone, with an average of 2.8 units, while the AMA RUC relied upon 2 therapeutic procedures in a session for its assignment of certain PE inputs. Other commonly observed combinations of codes included 3.4 to 4.6 therapy services, with different numbers of therapeutic procedures and therapeutic modalities furnished to the patient than were assumed by the AMA RUC under the scenarios that were the basis for establishing the PE inputs for certain therapy CPT codes. Therefore, despite the AMA RUC's consideration of multiple services for valuation, the therapy code combinations as actually reported by practitioners would typically have some additional duplication in their PE. Thus, while the current PFS values for therapy services may reflect some efficiencies in the PE for certain code combinations based on the AMA RUC approach to valuation (to the extent we accepted the AMA RUC recommendations), the actual efficiencies are not fully recognized in the PE inputs for the most commonly reported therapy code combinations, nor are they necessarily recognized in the many other common code combinations that were not considered by the AMA RUC as the typical case.

Based on our review of the scenarios submitted by the commenters, we continue to believe that there is significant overlap in the PE when many combinations of therapy services are furnished together and that this overlap has not been adequately accounted for in the direct PE inputs that the AMA RUC has recommended to us for the component services. We believe the overlaps remain substantial and they can be potentially higher than 50 percent for some combinations while lower for others. Our analysis of five high volume therapy code pairs as noted in the CY 2011 PFS proposed rule (75 FR 40078) suggested a reduction in the PE for the lower paying code of 28 to 56 percent to account for PE duplication.

In response to the commenters who projected that the impact on physician's office payment for physical therapy services would be greater than the 11 percent reduction we modeled for the proposed rule (75 FR 40232), we note that an additional element of our analysis was the continued transition to setting the PE RVUs based on the PPIS data. The PPIS transition is expected to significantly increase payment for the PE component of therapy services in CY 2011. While we acknowledge that the estimated change in PE RVUs due to the proposed therapy MPPR alone would result in a payment decrease for the specialty of physical and occupational therapy of somewhat more than 11 percent, it is the combined consideration of all factors affecting the CY 2011 PE RVUs that resulted in the 11 percent decrease for physical and occupational therapists in the proposed rule specialty impact table (75 FR 40232). We note further that the estimated impact of all the PE RVU changes for physical and occupational therapy based upon our proposals for CY 2011 if there were no remaining transition to the new PE RVUs using the PPIS data would be −7 percent.

Any MPPR policy, such as the MPPR that currently applies to surgical services and imaging procedures, is a relatively blunt payment policy tool that improves the overall accuracy of payment when combinations of services are furnished together but is not, by its nature, a specific policy that precisely values each code combination. A general MPPR is not unlike the well-established PFS pricing methodology that relies on the typical case, where we readily acknowledge that the clinician's resources used to furnish a specific service to a specific patient on a specific day may be more or less than those used in the typical case. Similarly, while we believe that an MPPR would generally improve the accuracy of PFS payment when multiple therapy services are furnished to a single patient in a single session, we understand that for a specific combination of services for a given patient, the resources required may be more or less than those recognized for payment under the MPPR policy. In view of the requirements of section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) which specify that the Secretary shall identify potentially misvalued codes by examining multiple codes that are frequently billed in conjunction with furnishing a single service and make RVU adjustments, we continue to believe it would be appropriate to expand the current PFS MPPR policies to address those scenarios where we conclude that combinations of services commonly furnished together are systematically overvalued.

We believe the more specific valuation of common code combinations is best conducted with input from the AMA RUC as it evaluates single new comprehensive codes for a bundle of component services when those new codes are established by the CPT Editorial Panel. In such cases where a single code is used to report a comprehensive service, an MPPR would no longer apply, which would be appropriate because the potential for PE duplication would have been explicitly considered in determining the PE inputs for the comprehensive service. As we stated earlier in this section concerning the MPPR for imaging services, the MPPR is not intended to supersede the AMA RUC process. We encourage the AMA RUC to reexamine the values and direct PE inputs for therapy services, including code pairs, for duplication in the PE, and to recommend therapy services to the CPT Editorial Panel for consideration of bundling into comprehensive codes. However, we believe it is appropriate to use an MPPR to address the PE duplication that is currently present within the PFS RVUs for the therapy codes when more than one service is furnished to a patient.

After consideration of the public comments we received, we are adopting, with modifications, our proposal to establish a MPPR policy for “always therapy” services for CY 2011. However, given the complexities involved in establishing an MPPR for the very large number of therapy codes and combinations, rather than the proposed 50 percent payment reduction to the PE component of the second and subsequent “always therapy” services billed by the same practitioner or facility on the same date of service for the same patient, we are adopting a 25 percent MPPR for “always therapy” services furnished in CY 2011. We continue to believe that a 50 percent MPPR for therapy services may be appropriate in light of our analysis of five high volume therapy code pairs that each occur over 2 million times in PFS claims for multiple therapy services and account for almost half of such claims, and for which we estimated that the resulting reduction in the PE for the lower paying code would range from 28 to 56 percent. However, we believe a 25 Start Printed Page 73239percent MPPR represents an appropriate and conservative first step toward eliminating payment for duplicative PE when multiple “always therapy” services are furnished to the same patient by the same therapy provider on the same date of service. We note that a 25 percent MPPR represents half the proposed reduction, and is slightly less than the lower range of the reduction suggested by our analysis of high volume code pairs. During CY 2011 and future years, we will continue to refine our analyses and consider whether further modifications to the policy would be appropriate, including the possible adoption of a 50 percent MPPR or a different payment percentage reduction. Any further changes to the MPPR for therapy services will be addressed in future rulemaking, including the possible adoption of any alternative percentage payment reduction to the 25 percent MPPR that will be in place for CY 2011. We will also closely follow the work of the CPT Editorial Panel and the AMA RUC with respect to the coding and valuation for therapy services over the next few years as we assess the potential merits of further changes to the MPPR policy. We note that the typical reductions in total PFS payment for high utilization therapy code combinations due to the MPPR alone would fall within the range of 7 to 9 percent under our final policy, but this decrease will be mitigated by the continued transition to use of the PPIS data. As displayed in Table 101 of this final rule with comment period, we estimate that the CY 2011 impact on the PE RVUs of the new therapy MPPR and continued PPIS transition is a reduction in PFS payment to physical and occupational therapists of approximately −3 percent.

The final list of CY 2011 CPT codes for “always therapy” services that are subject to the therapy MPPR is displayed in Table 21 at the end of this section.

Comment: Some commenters pointed out that CMS' analysis was based only on data from physicians and private practice therapists, which the commenters opposed as unrepresentative of the typical therapy session because the data represent only 35 percent of outpatient therapy services paid under Medicare. The commenters objected that no data from skilled nursing facilities (SNFs), rehabilitation agencies, CORFs, and hospital outpatient departments were considered in the analysis. The commenters reported that application of the MPPR policy on a per-day basis would be inconsistent with the delivery of therapy services in provider settings where multiple sessions of the same or different disciplines of therapy on the same day are commonly furnished to “captive” patients and would unfairly reduce payment for the resources used to provide these services. The commenters believe there is no duplication in the PE in such circumstances. Some commenters suggested that reductions should not be applied when there is a break in services into more than one session in the same day.

Response: With respect to payment under the PFS, according to section 1848(c)(1)(B) of the Act, the term “practice expense component” means the portion of the resources used in furnishing the service that reflects the general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising practice expenses. Under section 1848(c)(2)(C)(ii) of the Act, we are required to determine PE RVUs based on the relative practice expense resources involved in furnishing services. We develop these resource-based PE RVUs by looking at the direct and indirect physician practice resources involved in furnishing each service. To establish the direct PE inputs for services paid under the PFS, we consider the typical clinical scenario in which those services are delivered and paid by Medicare. In the case of therapy services that are paid under the PFS, the scenarios we consider are office-based (not institutional) because these therapy services are the only ones that are actually paid under the PFS (section 1848 of the Act) and subject to all of the provisions of the PFS, including budget neutrality under section 1848(c)(2)(B)(ii)(II) of the Act. Section 1834(k)(3) of the Act then requires that we pay for all outpatient therapy services at the applicable PFS amount. Therefore, our analyses and policy development regarding the therapy MPPR were based solely on claims for office-based therapy services and, given the applicable statutory payment provisions; we do not believe it would have been appropriate for us to consider institutional patterns of care in setting PFS rates for therapy services.

We are required to establish the values for services paid under the PFS (office-based services) so that therapy services are valued appropriately in the context of all other services paid under the PFS, and that means ensuring that therapy services are appropriately valued for the office setting. In the case of other services paid under the PFS that may be furnished in both facility and nonfacility settings, we generally establish separate but related facility and nonfacility values to differentially value the services when furnished in each of the two types of settings. However, therapy services are only paid under the PFS when furnished in the office setting, so we establish the PFS values for therapy services based on patterns of care in the office setting. This approach ensures equitable and relative treatment of all services paid under the PFS with respect to the statutory provisions that apply to the PFS, including year-to-year budget neutrality. In contrast to other services paid under the PFS, the statute then specifies that we pay for therapy services furnished in facility settings at the applicable PFS amount (which, as discussed above, is established based upon our resource-based methodology for services furnished in nonfacility settings). Although the statutory payment scheme for therapy services differs from most other services, we note that this treatment ensures that Medicare payment is the same across all settings for outpatient Part B therapy services.

We acknowledge the commenters' point that multiple therapy sessions furnished to one patient by one provider (one National Provider Identifier (NPI)) in a single day are more common in facility settings than in the office setting. However, we continue to believe that in these situations there would be some overlaps in the PE, including patient education and obtaining measurements, that would be appropriately accounted for through the therapy MPPR. Furthermore, given the nature of therapy services and the associated coding, we believe it would be very challenging to determine the medical necessity of multiple therapy sessions on one date of service or the precise beginning and ending of therapy sessions if we were to exclude from the MPPR those therapy services furnished by the same provider to a single patient on the same day but in different sessions, although we acknowledge that this modification would be consistent with our established policy for the imaging MPPR.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to apply the therapy MPPR when multiple therapy services are billed on the same date of service for the same patient by the same practitioner or facility under the same NPI, regardless of whether those therapy services are furnished in separate sessions.

Comment: Many commenters objected to applying the MPPR across therapy disciplines because the commenters argued that physical therapy, Start Printed Page 73240occupational therapy, and speech-language pathology (SLP) are separate and distinct interventions furnished independently by individually licensed professionals, each of which is certified to provide unique and specialized services that do not cross discipline or service lines. Several commenters explained that each discipline involves entirely different skills, equipment, supplies, and treatment goals, and separate disciplines are often located in different treatment settings. Individual plans of care, explained the commenters, are separately maintained for each therapy discipline and contain specific goals and treatments. Some commenters compared the proposal to claiming that services furnished to a single patient on the same day by a cardiologist and internal medicine specialist contain duplicative PE inputs. The same commenters described administrative contact with the patient in this scenario as distinct and separate, observing that greeting and gowning the patient, cleaning, and assistant activities are furnished independently by the second or subsequent discipline, and cannot be shared.

The large majority of commenters argued that the proposal did not make logical distinctions between therapy treatments or specialties or even properly distinguish between the skills of rehabilitation practitioners. While physical therapists and occupational therapists report the same CPT codes, the commenters noted that the codes do not represent the same service and the plan and approach to treatments differ depending on the discipline.

Response: We recognize that the therapy disciplines are separately qualified professionals who address specific impairments using separate and unique skills. However, in the office setting which is the basis for our valuing therapy services for payment under the PFS as discussed previously, although we believe it would be uncommon for services to be furnished to a single patient by different therapy disciplines and billed by a single provider (one NPI) on the same date of service, we continue to believe that there would be some overlap in the PE in this circumstance. The PE overlaps that we would anticipate include greeting the patient, obtaining vital signs, and post-visit phone calls. We do not agree with the commenters that we should accept such multiple discipline cases from the therapy MPPR that would otherwise apply.

After consideration of the public comments we received, we are finalizing our CY 2011 proposal to apply the therapy MPPR to all therapy services across the disciplines billed on the same date of service for the same patient by the same practitioner or facility under the same NPI.

Comment: Several commenters pointed out that, unlike other therapy services, many SLP services contain therapist work in their PE because SLPs have no assistants. These commenters requested that the therapy MPPR not be implemented, or at least be delayed, until the AMA RUC completes its plan to recommend moving SLP work from PE to work. In addition to bundled codes, the commenters also requested that add-on codes, such as CPT code 92608 (Evaluation for prescription for speech-generating augmentative and alternative communication device, face-to-face with the patient; each additional 30 minutes (List separately in addition to code for primary procedure)), be exempted from the therapy MPPR, since the PE inputs for add-on codes explicitly take into consideration the PE inputs for a base code that is always reported. The commenters reported that the major SLP codes include a wide variety of service types and are essentially bundled already, meaning that SLP practitioners rarely bill two different services on the same day for the same patient. The commenters expressed concern because SLP services are furnished and valued differently than physical and occupational therapy, yet the proposed rule contained no SLP examples to justify including SLP codes in the MPPR or to estimate the impact on SLP services.

Response: We note that most of the SLP codes will have been valued with therapist work in the work component of the SLP service RVUs by CY 2011, although we do not see the continued valuation of therapist work in the PE as an impediment to application of the MPPR to SLP services. Since many single SLP codes represent multiple component services that are reported using a single comprehensive code, the impact of the therapy MPPR on PFS payment for SLP services would be minimal. For those services that may occasionally be billed with more than one SLP code for a session, we see no basis for treating SLP services differently than other therapy services because we believe there would also be PE duplication in these cases.

However, we agree with the commenters that add-on codes should not be subject to the MPPR for therapy services because their PE inputs already consider that the add-on code is always furnished along with a primary service.

Therefore, after consideration of the public comments we received, we are removing add-on therapy CPT code 92608 from the list of “always therapy” services that we proposed for application of the therapy MPPR policy. In addition, we are removing CPT code 97010 (Application of a modality to 1 or more areas; hot or cold pack) which is a bundled code that was inadvertently included on the proposed list. These changes are reflected in the final list of codes subject to the therapy MPPR policy that is displayed in Table 21 at the end of this section. This policy parallels our treatment of the MPPR for surgical services, where surgical add-on codes are not subject to the surgical MPPR.

Comment: Some commenters characterized the proposed therapy MPPR as contrary to the objectives of the ACA, which the commenters believe was designed to shift care to the most effective and efficient delivery setting to ensure beneficiary access to cost-effective, high quality and coordinated care. Because therapy services do not involve expensive drugs or testing, yet they assist patients in avoiding or reducing other medical costs, many commenters believe that physical therapy is the most efficient and cost-effective treatment to return patients to independent function. The commenters contended that growing Medicare expenditures for the treatment of common musculoskeletal problems could easily be controlled by earlier access of patients to physical therapy services.

The commenters were concerned that lower therapy payments would exacerbate the shortage of therapists, lead to restricted access to therapy services, especially in rural areas, and result in patients who are more prone to injuries and functioning at a lower level. Undertreated functional impairments, argued the commenters, would lead to increased spending for medication and medical costs associated with decreased mobility, pain and falls, increased emergency room services, longer inpatient stays, quicker returns to the hospital setting, and earlier placement in nursing homes.

In addition, some commenters were concerned that the MPPR would provide an incentive to schedule patients in a manner that would be inefficient, inappropriate, and inconvenient for patients. The commenters noted that research proves therapy is more effective for many elderly patients with several visits on the same day, separated by rest. The commenters indicated that patients in rural communities prefer multiple therapy service visits to minimize lengthy commutes.Start Printed Page 73241

Response: Through the CY 2011 proposed rule and its associated public comment period, we have invited public involvement in the process of policy development regarding an MPPR for therapy services. We believe the therapy MPPR policy is fully consistent with section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA) which specifies that the Secretary shall identify potentially misvalued codes by examining multiple codes that are frequently billed in conjunction with furnishing a single service, and review and make appropriate adjustments to their relative values. Therefore, we do not agree with the commenters that the MPPR policy undermines the goals of the ACA but, instead, we believe the policy fulfills one of our statutory obligations by valuing more appropriately combinations of therapy services furnished to patients and paid under the PFS. We have no reason to believe that appropriately valuing services for payment under the PFS by reducing payment for duplication in the resource-based PE payment for the component services would contribute to therapist workforce shortages or limit patients' access to medically reasonable and necessary therapy services.

With respect to the ordering and scheduling of therapy services for Medicare beneficiaries, we require that Medicare-covered services be appropriate to patient needs and that a physician certifies each patient's plan of care. We would not expect the adoption of an MPPR for therapy services to result in therapy services being furnished on separate days by one provider so that the provider may garner increased therapy payment unless this pattern of care is the most clinically appropriate for the patient. We agree with the commenters that this unprofessional behavioral response on the part of practitioners would be inefficient and inappropriate and could result in patient compliance problems with the plan of care. We will continue to monitor access to care and patterns of delivery for therapy services, with particular attention focused on identifying any changes in the delivery of same day therapy services that may be inappropriate.

Comment: Several commenters noted that CMS has contracted with Computer Sciences Corporation (CSC) and RTI International to develop outpatient therapy payment alternatives and urged CMS to place a high priority on the development of an alternative payment approach for therapy services rather than applying the proposed MPPR. Many commenters supported bundled per-session codes that would vary based on the severity of the patient and the complexity of evaluation and treatment services, and some commenters believe this payment approach would be more equitable than the proposed MPPR. The commenters argued for a scientific approach to the development of alternatives to the current payment system, which the commenters believe contrasts with the analysis presented by CMS to support the MPPR. However, most commenters encouraged further study and development before implementation of any alternatives. Many commenters pledged to work with CMS in the future to further develop a bundled service approach based on episodes of care.

Response: We appreciate the effort and useful information contributed by stakeholders to the discussion and development of alternatives to the therapy caps and we refer readers to section III.A.2. of this final rule with comment period for a further discussion of the public comments and our responses on this issue. We look forward to the continued cooperation of stakeholders as we continue our work in this area over the coming years. However, we do not believe short-term alternative payment options for therapy services are sufficiently developed to warrant immediate implementation, and the commenters on the CY 2011 PFS proposed rule generally shared that view. In contrast, we believe that we can implement an appropriate MPPR for therapy services beginning in CY 2011 that would immediately provide more appropriate payment for the PE component of therapy services when multiple therapy services are furnished to one patient on one date of service by one provider. Paying more appropriately for therapy services in CY 2011 will allow patients to receive more medically necessary therapy services before reaching the therapy cap. To the extent that the therapy MPPR encourages the future bundling of therapy codes into a single comprehensive service that would be specifically valued, we support the exploration of that concept to capture the specific efficiencies associated with certain combinations of therapy services.

Comment: Several commenters asserted that the therapy MPPR proposal violated the Administrative Procedure Act (APA), alleging the proposal was arbitrary and capricious. In addition, some commenters argued that CMS did not provide sufficient information regarding the data and analysis used to develop the policy to allow the informed public input from qualified providers of therapy services.

Response: Consistent with the requirements of the APA, a full description of our analysis and the rationale we used as the basis for the proposed therapy MPPR policy was presented in the proposed rule, the public comments on our proposal have been reviewed, and our responses are provided in this final rule with comment period. Although many commenters requested that we share more data to support the proposed policy, several commenters demonstrated that they have their own access to Medicare data by submitting reports to us along with their comments in order to support their views or to refute the examples we presented in the proposed rule. We note further that we posted therapy utilization data on the CMS web site after publication of the proposed rule to provide additional information regarding the specific combinations and utilization of therapy services on PFS claims. The information was posted under downloads for the CY 2011 PFS proposed rule at: http://www.cms.gov/​PhysicianFeeSched/​PFSFRN/​list.asp#TopOfPage. Therefore, we believe the final MPPR for therapy services is being adopted in compliance with the notice and comment rulemaking process under the APA.

In summary, after consideration of the public comments we received, we are adopting our CY 2011 proposal to apply an MPPR to the PE component of Medicare payment for the second and subsequent outpatient “always therapy” services, with a modification to apply a 25 percent reduction for CY 2011 rather than the 50 percent reduction we had proposed. Specifically, beginning in CY 2011 we are adopting an MPPR for “always therapy” services under which a 25 percent reduction will be applied to the PE component of payment for the second and subsequent “always therapy” service(s) (those displayed in Table 21) that are furnished to a single patient by a single provider on one date of service in all settings where outpatient therapy services are paid under Part B. This policy applies to office-based therapy services paid under the PFS as well as to institutional therapy services paid under Part B at the PFS rates. We note that the MPPR would apply only when multiple therapy services are billed on the same date of service for one patient by the same practitioner or facility under the same NPI. This policy does not apply to add-on, bundled, or contractor-priced “always therapy” codes. It does, however, apply to all “always therapy” services furnished on a single date of service by the same provider to a single Start Printed Page 73242patient, including “always therapy” services furnished in different sessions or in different therapy disciplines.

For those therapy services paid under the PFS, we are required to make a budget neutrality adjustment under section 1848(c)(2)(B)(ii)(II) of the Act. As a result, the estimated reduced expenditures for therapy services due to the 25 percent MPPR will be redistributed to increased CY 2011 payments for other PFS services. We refer readers to XI.A.2. of this final rule with comment period for further discussion of the impact of this policy. The final list of CY 2011 “always therapy” CPT codes subject to the MPPR policy for therapy services is displayed in Table 21.

Table 21—“Always Therapy” Services Subject To The CY 2011 MPPR Policy*

CPT codeShort descriptor
92506Speech/hearing evaluation.
92507Speech/hearing therapy.
92508Speech/hearing therapy.
92526Oral function therapy.
92597Oral speech device eval.
92607Ex for speech device rx, 1 hr.
92609Use of speech device service.
96125Cognitive test by hc pro.
97001Pt evaluation.
97002Pt re-evaluation.
97003Ot evaluation.
97004Ot re-evaluation.
97012Mechanical traction therapy.
97016Vasopneumatic device therapy.
97018Paraffin bath therapy.
97022Whirlpool therapy.
97024Diathermy eg, microwave.
97026Infrared therapy.
97028Ultraviolet therapy.
97032Electrical stimulation.
97033Electric current therapy.
97034Contrast bath therapy.
97035Ultrasound therapy.
97036Hydrotherapy.
97110Therapeutic exercises.
97112Neuromuscular reeducation.
97113Aquatic therapy/exercises.
97116Gait training therapy.
97124Massage therapy.
97140Manual therapy.
97150Group therapeutic procedures.
97530Therapeutic activities.
97533Sensory integration.
97535Self care mngment training.
97537Community/work reintegration.
97542Wheelchair mngment training.
97750Physical performance test.
97755Assistive technology assess.
97760Orthotic mgmt and training.
97761Prosthetic training.
97762C/o for orthotic/prosth use.
G0281Elec stim unattend for press.
G0283Elec stim other than wound.
G0329Electromagntic tx for ulcers.
*Excludes contractor-priced, bundled, and add-on “always therapy” codes.

5. High Cost Supplies

a. Background

MedPAC and the AMA RUC have long recommended that CMS establish a frequent price update process for high-cost supplies that are direct PE inputs in the PE database for services paid under the PFS because of their speculation that prices for these items may decrease over time as competition increases and new technologies disseminate into medical practice. MedPAC in particular has perennially noted that it is important for CMS to update the prices of high-priced supplies on a regular basis as inaccurate prices can distort PE RVUs over time, contributing to the misvaluation of established services under the PFS.

Most of the current prices for high-cost supplies included in the direct PE database are from 2004 or earlier. There are currently 62 unique supplies with prices of $150 or more in the proposed CY 2011 PE database, which is available on the CMS Web site under the supporting data files for the CY 2011 PFS proposed rule at http://www.cms.gov/​PhysicianFeeSched/​. Finally, we note that we do not actually pay the supply prices included in the PE database but, instead, use them to develop the PE RVUs according to our standard PE methodology as described in section II.A.2. of this final rule with comment period. Payment for a procedure that uses a supply is based upon the PE RVUs that result from the PE methodology, and supplies are among the direct PE inputs for procedures. Therefore, it is the relativity of high-cost supply prices to prices for other PE items (equipment, low-cost supplies, and clinical labor) that is important.

Accordingly, in the CY 2009 PFS proposed rule (73 FR 38582), we proposed a process to update the prices for high-cost supplies priced at $150 or more that are included in the PE inputs for procedures paid under the PFS PE methodology. The CY 2009 proposed rule described a publicly transparent process in which CMS would publish a list of the high-cost supplies in the PFS proposed rule (65 supplies were included in the CY 2009 PFS proposed rule), and specialty societies or other relevant organizations would provide acceptable documentation supporting the pricing for the supplies during the 60-day public comment period. Furthermore, in that same proposed rule (73 FR 38582), we provided guidance on what constitutes valid, reliable documentation that reflects the typical price of the high-cost item in the marketplace. We outlined examples of acceptable documentation, such as a detailed description (including system components), sources, and current pricing information, confirmed by copies of catalog pages, invoices, and quotes from manufacturers, vendors, or distributors. We indicated that documentation that does not include specific pricing information such as phone numbers and addresses of manufacturers, vendors, or distributors or Web site links without pricing information would not be acceptable. We also noted that if acceptable documentation was not received within the proposed rule's 60-day public comment period, we would use prices from the Internet, retail vendors, and supply catalogs to determine the appropriate cost, and that we would use the lowest price identified by these sources (73 FR 38582). Finally, we solicited public comments on alternatives that could be used to update pricing information in the absence of acceptable documentation provided by specialty societies or other interested organizations.

In the CY 2009 PFS final rule with comment period (73 FR 69882), we indicated that we received many comments on the proposed process and, while some commenters expressed support, others believed the proposed process was flawed and burdensome. Moreover, although we received some data in response to our request for information on the 65 high-cost supplies with prices of $150 or more, much of what we received was not complete or did not represent typical market prices. In particular, we expressed concern that the submitted data often represented manufacturer list prices for the premier models of many supplies, while we believed there were less expensive alternatives. Therefore, we were unable to determine the most appropriate, typical supply prices for our PFS payment methodology that prices the typical service described by a HCPCS code. Rather than finalizing the proposed process for updating high-cost supplies and revising the prices for the 65 supplies based on inadequate pricing information, we stated in the CY 2009 PFS final rule with comment period (73 FR 69882) that we would research the possibility of using an independent contractor to assist us in obtaining accurate pricing information. Furthermore, we informed the public that we planned to study the limitations of available pricing data and determine how to revise our proposed process to elicit better data.

In the CY 2010 PFS proposed rule and final rule with comment period (74 FR 33554 and 61776, respectively), we Start Printed Page 73243stated that we were continuing to examine ways to obtain accurate pricing information for high-cost supplies. We noted again in the CY 2010 PFS proposed rule that we would depend upon the cooperation of the medical community to obtain typical prices in the marketplace, and we provided stakeholders with another opportunity to submit public comments on the process. In the CY 2010 PFS final rule with comment period, we acknowledged commenters' general support for an initiative to ensure accurate pricing of high-cost supplies. In general, the commenters strongly preferred a transparent and public process, and we stated that we would consider this perspective as we explore the best way to ensure that accurate supply pricing information is used in the PFS payment methodology.

b. Future Updates to the Prices of High-Cost Supplies

In working towards refining a process to update the prices of high-cost supplies and consistent with our intention expressed in the CY 2009 PFS final rule with comment period (73 FR 69882), we contracted with an independent contractor during CY 2009 to help us study the availability of accurate pricing information. We requested that the independent contractor, L&M Policy Research, research pricing information for the 65 high-cost supplies listed in the CY 2009 proposed rule (73 FR 38583 through 38585) and determine what, if any, pricing information reflecting typical market prices could be obtained for these high-cost supplies.

We first requested that the contractor explore publicly available sources to obtain typical market prices for these supplies. The contractor utilized supply vendor catalogs and web sites and directly contacted vendors, manufacturers, group purchasing organizations (GPOs), and any other suppliers that the contractor identified in their research in order to identify prices for each of the supplies. Where more than one version of a supply item appeared to match a description of a high-cost supply and/or more than one possible vendor or manufacturer was identified, the contractor attempted to obtain prices from the multiple sources.

Upon review of the high-cost supply list, the contractor refined the list to 62 unique high-cost items with prices of $150 or more for the study. The original list only consisted of 64 items but included one item inadvertently listed twice (CMS Supply Code SD207 (suture device for vessel closure (Perclose A-T))) and one item (CMS Supply Code SH079 (collagen implant)) that was deleted from the PE database after CY 2007 because it was no longer used as an input for any codes. While the contractor was able to obtain prices for 37 of the 62 unique supplies, the contractor was unable to obtain pricing information for the remaining 25 supplies. Documentation of these prices, a requirement we discussed in the CY 2009 PFS proposed rule (73 FR 38582), was only obtained for 25 of the 36 supplies with new pricing information. For the remainder, while the contractor was given price quotes over the phone, the sales agents or customer service representatives declined to provide any form of written documentation, in some cases because company policies restricted providing pricing documentation to prospective customers without an account. Moreover, information on typical discounts was obtained for only seven products, and only one discount was documented. In the case of these products, companies disclosed the maximum available discounts, ranging from 18 percent to 45 percent. Relative to prices currently included in the PE database, the contractor found higher prices for the majority of the medical supplies that were researched, specifically 23 supplies with higher prices, 8 with lower prices, and 3 with the same price. The high-cost supplies studied by the contractor and their current database prices are displayed in Table 22.

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Next, we directed the contractor to access the United States General Services Administration (GSA) medical supply schedule to augment the results obtained through review of vendor materials and direct contact with vendors, manufacturers, and GPOs. We note that the GSA establishes long-term government-wide contracts with commercial firms for many products, negotiating contracts and determining prices to be fair and reasonable prior to placing them on schedule. Included on the schedule are thousands of medical supplies at prices that, in most cases, are established through competition. The GSA schedule is an open solicitation and a business of any size, if it is stable and financially sound, can request to be included on the schedule. GSA's vendors usually are nationwide Start Printed Page 73248vendors with substantial non-government sales, and products on the schedule must be manufactured in the U.S. or in a nation with a trade agreement with the United States. Submissions for the schedule are received 365 days per year, vendor contracts can be of varying lengths, and vendors can add or delete products from the schedule. Depending on the aggregate cost estimate associated with the vendor's supply items, the time to achieve inclusion on the schedule can vary from as short as several months to as long as 2 years. The GSA has delegated authority to the Department of Veterans Affairs (VA) to procure medical supplies under the VA Federal Supply Schedules Program.

Using the GSA general search engine under the category “Laboratory, Scientific, & Medical” available at https://www.gsaadvantage.gov/​advgsa/​advantage/​main/​start_​page.do, the contractor obtained nine prices for items similar to the high-cost supplies in the PE database and that are displayed in Table 20 from the publicly available information on the Internet, including pricing for one product for which its prior work did not yield an updated price. We believe that additional items that are similar to the high-cost supplies in the PE database and that may be used with the same procedures may be on the GSA schedule but we are still working through the crosswalk between our supplies and the way the supplies are presented on the GSA schedule. In the proposed rule (75 FR 40081), we stated that examples of high-cost supplies in the PE database that the contractor located on the GSA schedule include: (1) Kit, capsule, ESO, endoscopy w-application supplies (ESO), priced at $450 in the PE database and $444 on the GSA schedule; and (2) tube, jejunostomy, priced at $195 the PE database and $60 to $83 on the GSA schedule, depending on the characteristics of the tube. We note that the price of the “jejunostomy” tube that we included in the proposed rule was incorrect. The actual price of that supply item in the PE database is $97.50, a lower value that is still substantially higher than the price range on the GSA schedule.

Since the GSA medical supply schedule is a source for pricing information that is public and transparent and reflects the best government contract price for a product, we believe it is a desirable resource for us to use in a refined process for updating the prices of high-cost supplies. For historical context, CMS has previously proposed to use VA prices that result from the competitive marketplace as comparison points to limit the Medicare prices for oxygen and certain items of durable medical equipment and prosthetic devices (62 FR 38100 through 38107, and 64 FR 44227 through 44231) in 1997 and 1999, respectively. These prior proposals were based on our determination that the Medicare payment amounts for these items as durable medical equipment or prosthetics (not as physicians' services) were not inherently reasonable. We noted, however, that our current interest in the GSA schedule for pricing high-cost supplies for payment of physicians' services is not based on considerations of inherent reasonableness, and we do not actually pay the prices in the PE database for supplies under the PFS.

We further noted that public commenters on pricing high-cost supplies have consistently requested that we ensure that the pricing information used to update the prices is provided publicly. The commenters have observed that this transparency would enable stakeholders to evaluate and provide feedback to the agency on pricing accuracy (74 FR 61776). We also acknowledged that our past attempts over several years to identify typical market prices for the high-cost supplies have been inhibited by the limited availability of public data that meet the documentation requirements we have previously established. Individual vendors do not always publish their product prices or provide typical discounts. Moreover, discounts may vary depending on suppliers and the volume of supplies purchased. In the CY 2011 PFS proposed rule (75 FR 40082), we explained that our understanding of the GSA medical supply schedule is that the publicly listed fair and reasonable prices on the schedule generally do not include volume and or certain other discounts that may be subsequently negotiated by the buyer. Consequently, we would consider the prices available on the GSA schedule to represent the “individual item ceiling” price for a single item purchase, which we believe would be appropriate to estimate the high-cost supply prices for physicians' office purchases. We solicited public comments regarding the high-cost supplies in the direct PE database for the CY 2011 PFS proposed rule, available on the CMS Web site as noted earlier in this section, and the corresponding supplies or alternative items that could be used for the same function that are currently on the GSA supply schedule. We encouraged commenters to provide a detailed analysis of the current relationships between the items in the PE database and those on the GSA schedule.

In the CY 2011 PFS proposed rule (75 FR 40082), we described a refined process for regularly updating prices for high-cost supplies under the PFS and solicit comments on how we could improve on this process. The process could occur every 2 years beginning as soon as CY 2013, although we noted that we would propose the refined process through rulemaking before revising the prices for any high-cost supply item based on the GSA schedule. We could also consider establishing a different price update period depending on whether a high-cost supply was a new supply in the PE database or had been in use for some time, in which case we might expect that the price would have stabilized and, therefore, could be updated less frequently. In general, we would expect that the periodicity of updating prices for high-cost supplies that we eventually adopted would balance the associated administrative burden with the rate of price changes, to ensure that the associated procedures remain appropriately valued, rather than increasingly misvalued, over time.

We envisioned that we would base high-cost supply price inputs on the publicly available price listed on the GSA medical supply schedule. Since the medical community would have several years to examine the GSA medical supply schedule before the refined process would be adopted, and we had found no apparent limitations on vendors placing products on the GSA schedule, beyond the schedule's interest in competitive, best value procurements, stakeholders would have the opportunity to ensure that any high-cost direct PE input for a PFS service that may currently be missing from the GSA medical supply schedule would be included before CMS needs to access the publicly available price for the item. If a supply price were not publicly available on the GSA medical supply schedule by the time CMS needs to access the price, we would propose to reduce the current price input for the supply by a percentage that would be based on the relationship between GSA prices at that time and the existing PE database prices for similar supplies (currently an average 23 percent reduction). We believe that this refined process would be desirable because it is consistent with commenters' repeated requests for the updating methodology to be transparent and predictable.

Moreover, the VA (with responsibility delegated by the GSA) determines whether prices are fair and reasonable by comparing the prices and discounts that a company offers the government Start Printed Page 73249with the prices and discounts that the company offers to commercial customers. Therefore, using the GSA medical supply schedule as a source for publicly available prices would also better account for product-specific market dynamics than the alternative of an across-the-board percentage reduction for supplies not on the GSA schedule based on general price trends for the high-cost supplies on the schedule. That is, if the market price of a particular supply were not to drop according to broad trends for other high-cost supplies, suppliers would have the opportunity to provide their price to the public on the GSA schedule in order to preclude any reduction in Medicare payment for procedures associated with that supply.

Finally, we reiterated our interest in receiving detailed public comments on the refined process discussed above, including all aspects of the price update methodology that we have presented. Moreover, we believe a similar approach could potentially be appropriate to update the prices for other supplies in the PE database that would not fall under our definition of high-cost supplies, and we welcomed further public comments on that possible extension. We also invited further suggestions for alternative approaches to updating high-cost supply prices, specifically those that would result in a predictable, public, and transparent methodology that would ensure that the prices in the PE database reflect typical market prices. These principles are particularly important in order to ensure that the services that utilize the high-cost supplies when provided in the physician's office are appropriately valued under the PFS and continue to be appropriately valued over time.

Comment: Many commenters agreed with the need for a frequent, transparent price update process for high-cost supplies based on publicly available sources of pricing information. MedPAC supported CMS' description of the process update the prices of high-cost supplies presented in the CY 2011 PFS proposed rule: “As an initial step, it is reasonable to use the GSA schedule as a source for the prices of high-cost supply items and to reduce the prices of items not on the GSA schedule by the average difference between the GSA prices and the prices in CMS' PE database for similar supplies.”

Response: We appreciate the general affirmation by many stakeholders of the significance of accurate pricing of high-cost supplies relative to other PE items (equipment, low-cost supplies, and clinical labor). We also value MedPAC's support for the update process that we described for the prices of high-cost supplies.

Comment: Many commenters asserted that because the medical supply prices on the GSA schedule reflect the best price for government entities, these prices are not representative of typical prices available to practitioners caring for Medicare beneficiaries. The commenters suggested that physicians in private practices do not have the requisite purchasing power to negotiate such large discounts on their own and that the sales environments for the government and private markets are vastly different. Therefore, the commenters argued, because the GSA schedule is a streamlined buying process that the government uses to buy products and services through registered vendors at pre-negotiated prices, the schedule does not provide an accurate reflection of prices faced by any physician practice. Some commenters also observed that the prices on this schedule have historically been used only by manufacturers and suppliers in the context of providing these high-cost supplies to the VA alone, and do not reflect prices to other non-governmental entities.

Response: We appreciate the differences in the purchasing power of the federal government and individual practitioners. However, we have reason to believe that prices on the GSA schedule do not reflect the full volume discounts available to large purchasers like the Federal government. In fact, while the GSA has delegated the authority to the VA to procure medical supplies under the VA Federal Supply Schedules Program, we understand that the prices that appear on the schedule do not reflect the prices the VA itself would usually pay for a medical supply. Instead, the VA determines the schedule prices to be fair and reasonable prior to placing them on the schedule, and uses that schedule price as a starting point for its own negotiations with supply vendors for specific purchases.

While several commenters explained how vendors provide the VA itself with discounts that are greater than those offered to other buyers, and a few additional commenters made uncorroborated claims that prices on the GSA supply schedule reflect discounts unavailable to other providers, we received no evidence that the prices contained on the schedule are atypical of medical supply prices in the private marketplace. We agree that the prices on the GSA schedule may reflect some discounting, but we do not believe that the prices reflect the full discounting available to the VA itself for many purchases. Instead, we believe that the discounting on the GSA schedule reflects what the VA has deemed reasonable for other government buyers in the context of prices and discounts that a vendor offers to commercial customers.

We also believe that typical practitioners receive discounts from vendors' listed prices for supply items for a variety of reasons, although we acknowledge that the basis for the discounts reflected on the GSA schedule may differ from the basis for the discounts that are available to typical practitioners. Therefore, we do not necessarily agree with the premise underlying many commenters' concerns that the usefulness of the GSA schedule as a source for PFS high-cost supply prices is necessarily undermined solely because large government buyers benefit from some exclusive discounts.

We believe that in a relative payment system, maintaining the relativity of discounting among the prices for supply items may be more significant than any concern associated with the reasons different buyers receive particular discounts. At the moment, we have no reason to believe that the prices on the GSA schedule are atypical of the non-government market, despite broad assertions by the commenters that the government may receive discounts for different reasons than those available to private purchasers. As we consider this high-cost supply update process for the future, we would be interested in receiving further public comments that substantiate the claims that medical supply prices on the GSA schedule are not representative of actual prices paid by typical practitioners caring for Medicare patients.

Comment: Some commenters expressed concern that pricing high-cost supplies based on the GSA supply schedule could result in loss of appropriate relativity in PE RVUs because pricing for other supplies would be determined using other methodologies.

Response: As stated earlier in this section, we do not actually pay the supply prices included in the PE database but instead use them to develop the PE RVUs according to our standard PE methodology as described in section II.A.2. of this final rule with comment period. However, we believe that inaccuracies in the prices for high-cost supplies that are specific to a very few PFS services may disproportionately distort physician payment by leading to inaccurate PE RVUs for services using those high-cost supplies. We believe that neglecting to incorporate any discounts or typical reductions in the market price for a Start Printed Page 73250high-cost supply that is sold to a practitioner for use in a specific service would result in a greater likelihood that the service would be misvalued under a relative payment system than would similar imprecision in the prices for lower-cost supplies that are commonly used in many services and where price changes are typically less extreme. Finally, we note that we also remain interested in the possibility of using the GSA supply schedule for all PFS supply and equipment price inputs, as we stated in the CY 2011 PFS proposed rule (75 FR 40082).

Comment: One commenter suggested that using the GSA schedule for supply price inputs might allow a single supplier furnishing a small volume of a product at a divergent price to distort the PE RVU calculations. On the other hand, MedPAC stated that the current CMS' process of “using price information voluntarily submitted by specialty societies, individual practitioners, suppliers, and product developers might not result in objective and accurate prices because each group has a financial stake in the process.”

Another commenter recommended that if CMS were to use the GSA schedule prices as high-cost inputs, then CMS should guarantee that physicians may purchase supplies at the GSA schedule prices. The commenter claimed that failure to do so would result in inherently unfair, lower PE RVUs for certain procedures, which could ultimately create an access to care problem for Medicare beneficiaries.

Response: We believe that our current system of accepting voluntarily submitted invoices for supply and equipment price direct PE inputs may be problematic for high-cost supplies because the prices for such supplies may be particularly susceptible to distortions that significantly influence the PE RVUs that we use for payment of the associated services. We also believe that any attempt to account for these distortions and more appropriately value the services must be transparent to the stakeholders. Because the prices on the GSA supply schedule are developed based on the interaction between parties that have competing financial interests (the VA and supply vendors), we believe that these prices are more likely to be representative of competitive market prices than are prices that are voluntarily submitted by individuals with financial stakes in the PFS payment process. We agree that distortions—whether price overstatements or understatements—in the values of the direct PE inputs, resulting in misvalued services, have the potential to create financial incentives for practitioners that are detrimental to ensuring access to medically necessary and reasonable care for Medicare beneficiaries. Based in part on prior analysis by MedPAC, we believe that the greater risk of misvalued PE RVUs results from overvaluing high-cost supplies since we believe that prices for these items may generally decrease over time as competition increases.

As we discussed in our response to a previous comment, we do not actually use the prices in the PE database for supplies but instead those prices are the basis for the PE RVUs for the associated services developed under the budget neutral PFS. Therefore, we do not agree with the commenter that we should guarantee that physicians may purchase supplies at the GSA schedule prices. Where our goal is for the high-cost supply prices we use for PFS ratesetting to reflect typical market prices for these items, especially in a relative sense, for many reasons different supplies may not be available to individual practitioners purchasing them at the prices in the PE database. The PFS is not a payment system that reimburses health care practitioners based on their individual costs, and the price available to an individual practitioner for a supply item may be high or lower than the price in the PE database that is used for setting the PFS PE RVUs for the associated procedure.

Comment: One commenter claimed that no U.S. manufacturer sells cryoablation probes through the GSA supply schedule and, therefore, asserted that the pricing process for high-cost supplies described in the CY 2011 PFS proposed rule would be inappropriate for that particular supply. Other commenters reported difficulty locating particular medical supplies on the GSA supply schedule.

Response: While we recognize that not all high-cost supplies are currently on the GSA supply schedule, as we stated in the CY 2011 PFS proposed rule (75 FR 40082), we believe that since we have provided the medical community several years to examine the GSA medical supply schedule before its use could be adopted under the PFS, stakeholders would have the opportunity to ensure that any high-cost direct PE input for a PFS service that may currently be missing from the GSA medical supply schedule would be included before CMS needs to access the publicly available price for the item. Furthermore, we have found that the use of multiple clinically related search terms under the GSA schedule search engine improves our ability to locate supply items that are related to those that we currently include in the direct PE database for the PFS. We believe that the mistaken assumption that certain supplies are unavailable on the GSA supply schedule, resulting from some commenters' inconclusive searches, may have influenced many commenters' responses to the process we discussed in the CY 2011 PFS proposed rule.

Prior to adopting use of the GSA supply schedule to update the prices for high-cost supplies under the PFS, we believe it would be appropriate to work with interested stakeholders to consider developing a crosswalk between supply items included the direct PE database and the GSA supply schedule.

Comment: One commenter contended that implementation of a process to update high-cost supply prices based on the GSA schedule would disadvantage all medical device companies that have chosen to provide devices directly to the armed services or facilities for the treatment of veterans. A few commenters speculated that many supply vendors would resist placing their products on the GSA schedule for a variety of reasons, including avoiding any unnecessary regulatory burden or the scrutiny of GSA audits.

Response: We have no reason to believe that vendors who sell directly to the VA at discounts must incorporate negotiated discounted prices on the GSA schedule, so we do not believe that utilizing publicly available prices as direct PE inputs would have a disproportionately unfair impact on suppliers who sell directly to the VA. At the same time, we also understand that not every medical supply vendor would choose to place their products on the GSA schedule. That is why we stated in the proposed rule (75 FR 40082) that if a supply price were not publicly available on the GSA medical supply schedule by the time CMS needs to access the price, we would consider proposing to reduce the current price input in the PE database for the supply by a percentage that would be based on the relationship between GSA prices at that time and the existing PE database prices for similar supplies. Vendors would need to balance their concerns about placing their products on the GSA supply schedule with the alternative pricing policy that would apply.

Comment: Several commenters objected to a reduction of supply price inputs based on the relationship between GSA prices at the time the prices are being updated and the existing PE database prices for similar supplies. Many of the commenters stated that the 23 percent reduction presented as an example in the CY 2011 PFS proposed rule (75 FR 40082) was Start Printed Page 73251based on a very small sample of items and appeared arbitrary. One commenter contended that the percentage reduction would need to be validated for application to current pricing and argued that it would be inappropriate for use on an item-specific basis.

Additional commenters, including the AMA RUC, pointed out the discrepancy between the price of the “jejunostomy tube” supply item listed in the chart of high-cost supplies and in the direct PE database. These commenters were concerned that this discrepancy may have led CMS to incorrectly calculate the average difference between GSA prices and current prices in the direct PE database. One commenter reasoned that it would be unfair for CMS to change the price inputs for innovative medical devices by relying on “speculation that prices for these items may decrease over time as competition increases and new technologies disseminate into medical practice.”

Response: We appreciate the commenters' concerns regarding the example of the 23 percent reduction mentioned in the CY 2011 PFS proposed rule. We provided that sample percentage as an example based on a current analysis of a small sample of supplies. We appreciate commenters correctly pointing out that we displayed an outdated price input for the supply item “jejunostomy tube” in the CY 2011 PFS proposed rule (75 FR 40080 through 40081). As we explained in the proposed rule, we are still working through the crosswalk between our supplies and the way the supplies are presented on the GSA schedule. We included the 23 percent figure as a rough guide based on a comparison of current GSA schedule and PE database prices for a small sample of high-cost supply items.

Prior to implementing any price update based on GSA supply schedule prices, we would conduct a thorough analysis of the validity of the GSA pricing data in question. We believe that using such data for price comparisons, validated, and expanded to include all applicable supply items, may be more likely to approximate typical prices for these supplies than any available alternative—especially failing to update the high-cost supply price inputs with the necessary frequency. In cases where the prices for certain high-cost supplies do not follow the broad trends for other high-cost supplies, suppliers would have the opportunity to provide their price to the public on the GSA schedule in order to preclude any reduction in Medicare payment for procedures associated with that supply.

Comment: Some commenters asserted that CMS should conduct independent market research similar in kind to the research CMS claims that the VA conducts in placing supply items and their associated prices on the GSA schedule. Another commenter recommended that CMS use a particular market research contractor to price these supplies.

Response: As we stated in the CY 2011 PFS proposed rule (75 FR 40079), we contracted with an independent contractor during CY 2009 to help us study the availability of accurate pricing information for high-cost supplies. We believe such research needs to be conducted with transparency, including using publicly available sources and contacting supply vendors directly. The contractor reported tremendous difficulty in identifying typical market prices using these methods. We have no reason to believe that a different contractor using similar methods would have greater success in acquiring market pricing information without utilizing a methodology that would be burdensome to practitioners or supply vendors or other stakeholders. Because the supply vendors in contact with the VA generally have a financial incentive to cooperate with their market research directly, we believe that the VA's methodology in this case would yield more accurate information than information derived from market researchers who do not have such cooperation, like the contractor working previously on behalf of CMS.

Comment: Several commenters, including the AMA RUC, recommended that CMS consider creating HCPCS codes to be reported by rendering physicians for high-cost supplies when used for the care of a patient during procedure. The supplies could then be removed from the direct PE database and appropriate pricing for these supply HCPCS codes could be determined by CMS on an annual basis. One commenter requested that CMS explore whether such a methodology would be budget neutral under the PFS, since the commenter did not support an approach that would reduce PFS payments for cognitive services.

Response: We appreciate the commenters' suggestions, but we believe creating separately reportable HCPCS codes for high-cost supplies and paying separately for these items would merely shift the pricing challenge rather than resolve it, and could compound the problem of misvaluing services by explicitly paying for high-cost supplies at the expense of other low-cost supplies, equipment, and clinical labor included in the PE component of PFS payment. We do not understand how this suggestion would help CMS price the supply items accurately, nor how it would lead to more appropriate payment for high-cost supplies under the relativity of the budget neutral PFS. This approach would be required to be budget neutral under the PFS and, to the extent that our current PE methodology pays less than the direct PE database cost for a supply item, payment for individual high-cost supplies at prices we establish could redistribute dollars from other PFS services to payment for these supply items if we were to pay more for them separately. Finally, unbundling payment for high-cost supplies from the associated procedures would be contrary to the current public policy interest in increasing the size of the payment bundles used for Medicare payment to encourage efficiencies in the delivery of services.

Comment: Several commenters expressed a readiness to provide any additional information that may help CMS in pricing high-cost supplies, in lieu of using the GSA schedule prices for that purpose.

Response: We appreciate commenters' offers of assistance regarding the pricing of direct PE inputs. However, based on the public comments from stakeholders that we received on the process we proposed in the CY 2009 PFS proposed rule and the experience of the CMS' contractor who attempted to acquire market pricing for supply items directly from supply vendors, we believe that use of the GSA schedule would have greater potential to provide us systematically and transparently with typical market prices for high-cost supply items that could be updated with an appropriate periodicity.

Comment: Some commenters expressed concern that CMS had not presented any information about how prices for Medicare PE purposes would actually be developed from the GSA supply schedule and had not specified how the Agency would do so nor whether (or when) CMS intended to make the approach available for public comment.

Response: We appreciate the commenters' concerns regarding the practical implementation of a high-cost supply price update process based on prices on the GSA supply schedule. In the CY 2011 PFS proposed rule (75 FR 40082), our discussion was intended to encourage broad stakeholder comment, including consideration of potential alternatives to the process presented. Prior to implementing a high-cost supply update methodology, such as the use of prices on the GSA schedule that was the focus of our proposed rule Start Printed Page 73252discussion, we would expect to use annual rulemaking in order to propose a more detailed process that would be subject to modification based upon our consideration of the public comments.

In summary, we appreciate the many public comments we received on our discussion of a process that would use GSA schedule prices to update the prices for high-cost supplies utilized for developing PE RVUs under the PFS. In the context of our explicit responsibility to review and adjust the PFS values for potentially misvalued services under section 1848(c)(2)(K) of the Act (as added by section 3134 of the ACA), we believe it is especially important to soon establish a periodic and transparent process to update the cost of high-cost supplies to reflect typical market prices so that these supply items are appropriately considered in our ratesetting methodology. While public commenters expressed some concerns regarding our discussion of use of the GSA supply schedule prices in such a process, at this point we remain optimistic that this approach has significant potential to be used under the PFS and, based on our several year history of work in this area, we do not see other viable alternatives at this point. We will continue to study the issue of how to update the prices for high-cost supplies over the upcoming months, and we encourage stakeholders to also further consider the process we discussed in CY 2011 rulemaking and provide their additional thoughts and perspectives to us on an ongoing basis.

D. Geographic Practice Cost Indices (GPCIs)

1. Background

Section 1848(e)(1)(A) of the Act requires us to develop separate Geographic Practice Cost Indices (GPCIs) to measure resource cost differences among localities compared to the national average for each of the three fee schedule components (that is, work, PE, and malpractice). 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. In addition, section 1848(e)(1)(G) of the Act sets a permanent 1.5 work GPCI floor in Alaska for services furnished beginning January 1, 2009. Section 1848(e)(1)(C) of the Act requires us to review and, if necessary, adjust the GPCIs not less often than every 3 years. This section also specifies that if more than 1 year has elapsed since the last GPCI revision, we must phase in the adjustment over 2 years, applying only one-half of any adjustment in each year. As discussed in the CY 2009 PFS final rule with comment period (73 FR 69740), the CY 2009 adjustment to the GPCIs reflected the fully implemented fifth comprehensive GPCI update. CY 2010 would have typically included no adjustments to the GPCIs. However, section 3102(a) of the ACA amended section 1848(e)(1)(E) of the Act to extend the 1.0 work GPCI floor for services furnished through December 31, 2010. Additionally, section 3102(b) of the ACA added a new subparagraph (H) to section 1848(e)(1) of the Act, which specifies that for CY 2010 and CY 2011, the employee compensation and rent portions of the PE GPCI must reflect only one-half of the relative cost differences for each locality compared to the national average. The new subparagraph also includes a “hold harmless” provision for CY 2010 and CY 2011 for any PFS locality that would otherwise receive a reduction to its PE GPCI resulting from the limited recognition of cost differences. Additionally, section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA) established a 1.0 PE GPCI floor for services furnished in frontier States effective January 1, 2011. In May 2010, we provided our Medicare contractors with an updated CY 2010 payment file that included the 1.0 work GPCI floor and the PE GPCIs calculated according to the methodology required by section 1848(e)(1)(H) of the Act (as added by section 3102(b) of the ACA) for CY 2010, to be used for payment of services furnished on or after January 1, 2010.

For the CY 2011 PFS proposed rule, we completed the sixth review of the GPCIs and proposed new GPCIs. We noted that section 1848(e)(1)(E) of the Act (as amended by section 3102(a) of the ACA) extends the 1.0 work GPCI floor only through December 31, 2010. Under current statute, the 1.0 work GPCI floor will expire on January 1, 2011. Therefore, the CY 2011 physician work GPCIs, and summarized geographic adjustment factors (GAFs), do not reflect the 1.0 work floor. However, section 1848(e)(1)(G) of the Act (as amended by section 134(b) of the MIPPA) set a permanent 1.5 work GPCI floor in Alaska for services furnished beginning January 1, 2009 and, as noted above, section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA) provides for a permanent 1.0 PE GPCI floor for frontier States effective January 1, 2011. Therefore, as required by the statute, the 1.5 work GPCI floor for Alaska and the 1.0 PE GPCI floor for frontier States will be in effect for CY 2011. In addition to the limited recognition of certain cost differences for the PE GPCIs, section 1848(e)(1)(H) of the Act (as added by section 3102 (b) of the ACA) also requires us to complete an analysis of the data sources used and cost share weights assigned to the PE GPCIs. Implementation of the ACA provisions related to the CY 2011 PE GPCIs is discussed in more detail in the GPCI update section below.

2. GPCI Update

As discussed in the CY 2011 PFS proposed rule (75 FR 40083), the updated GPCI values were developed by Acumen, LLC (Acumen) under contract to CMS. As mentioned above, there are three GPCI components (physician work, PE, and malpractice), and all GPCIs are developed through comparison to a national average for each component. Additionally, each of the three GPCIs relies on its own data source(s) and methodology for calculating its value as described below.

a. Physician Work GPCIs

The physician work GPCIs are designed to capture the relative cost of physician labor by Medicare PFS locality. Previously, the physician work GPCIs were developed using the median hourly earnings from the 2000 Census of workers in seven professional specialty occupation categories which we used as a proxy for physicians' wages and calculated to reflect one-quarter of the relative cost differences for each locality compared to the national average. Physicians' wages are not included in the occupation categories because Medicare payments are a key determinant of physicians' earnings. Including physicians' wages in the physician work GPCIs would, in effect, have made the indices dependent upon Medicare payments.

The physician work GPCIs were updated in CYs 2001, 2003, 2005, and 2008 using professional earnings data from the 2000 Census. However, wage and earnings data are no longer available from the Census long form and the 2000 data are outdated. Therefore, for the proposed sixth GPCI update, we used the 2006 through 2008 Bureau of Labor Statistics (BLS) Occupational Employment Statistics (OES) data as a replacement for the 2000 Census data. The use of BLS OES data as a replacement for the 2000 Census data is discussed in more detail in the update of the PE GPCIs section. As noted above, the 1.0 work GPCI floor is set to expire under current statute on December 31, 2010. Therefore, the CY 2011 proposed Start Printed Page 73253physician work GPCIs reflected the removal of this floor.

b. Practice Expense GPCIs

(1) The Affordable Care Act Requirements for PE GPCIs

(A) General Methodology for the CY 2011 GPCIs

The ACA added a new subparagraph (H) to section 1848(e)(1) of the Act which revised the methodology for calculating the PE GPCIs for CY 2010 and CY 2011 so that the employee compensation and rent portions of the PE GPCIs reflect only one-half of the relative cost differences for each locality compared to the national average. Additionally, under section 1848(e)(1)(H)(iii) of the Act (as added by section 3102(b) of the ACA), each PFS locality is held harmless so that the PE GPCI will not be reduced as a result of the change in methodology for PE GPCIs. In accordance with section 1848(e)(1)(H)(ii) of the Act (as added by section 3102(b) of the ACA), the employee compensation and rent components of the proposed CY 2011 PE GPCIs were calculated to reflect one-half of the cost differences for each PFS locality relative to the national average cost. Additionally, as required by the statute, physicians' services furnished in each PFS locality would be adjusted by the higher of the locality's PE GPCI calculated with the limited recognition of employee compensation and rent cost differences or the PE GPCI calculated without the limited recognition of cost differences.

(B) Phase-In of PE GPCIs

Section 1848(e)(1)(C) of the Act requires us to phase in GPCI adjustments over 2 years if there was more than 1 year between GPCI adjustments. In accordance with the statute, we proposed to phase in the updated PE GPCIs using one-half of the CY 2010 values and one-half of the fully implemented values (as described in this section). To apply the phase-in and hold harmless provisions of the Act, we calculated transitional PE GPCIs based on two scenarios. Under the first scenario, we calculated transitional CY 2011 PE GPCIs using the full recognition of employee compensation and rent cost differences for each locality as compared to the national average. As discussed below, the first scenario reflects the “hold harmless” transitional PE GPCI value that would apply to any PFS locality receiving a reduction to its PE GPCI resulting from the application of the limited recognition of PE cost differences. The CY 2011 transitional PE GPCI values with full recognition of cost differences were calculated using one-half of the CY 2010 PE GPCI values with full recognition of cost differences and one-half of the updated PE GPCIs with full recognition of cost differences. The first scenario represents the transitional PE GPCI values prior to the limited recognition of cost differences (the pre-ACA CY 2011 transitional values). In other words, this scenario does not include the effects of sections 1848(e)(1)(H)(i) and (ii) of the Act (as added by section 3102(b) of the ACA).

For the second scenario, we calculated transitional CY 2011 PE GPCIs with the limited recognition of cost differences for the employee compensation and rent components (as required by sections 1848(e)(1)(H)(i) and (ii) of the Act (as added by section 3102(b) of the ACA)). The CY 2011 transitional PE GPCI values with the limited recognition of cost differences were calculated using one-half of the CY 2010 PE GPCIs with the limited cost differences and one-half of the updated PE GPCIs with the limited cost differences. The hold harmless provision under section 1848(e)(1)(H)(iii) of the Act (as added by section 3102(b) of the ACA) was applied by selecting the greater of the CY 2011 transitional PE GPCI value calculated with the limited recognition of cost differences or the CY 2011 transitional PE GCPI value calculated with full recognition of cost differences (the pre-ACA CY 2011 transitional values). The phase-in of the CY 2011 PE GPCIs and application of the hold harmless provision are illustrated in Table 23 below.

Table 23—Phase-In of the CY 2011 PE GPCIs

CY 2010Updated GPCIsCY 2011 (transitional year)Hold harmless
File 1:
PE GPCI Without 3102(b) of ACAWithout ACAWithout ACA (Updated Data)(1/2 of 2010) + (1/2 Updated GPCI)Greater of File 1 Transitional Value or File 2 Transitional Value.
File 2:
PE GPCI With 3102(b) of ACAWith ACAWith ACA (Updated Data)(1/2 of 2010 w/ACA) + (1/2 Updated GPCI w/ACA)

(C) Data Analysis

Section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA) also requires the Secretary to “analyze current methods of establishing practice expense adjustments under subparagraph (A)(i) and evaluate data that fairly and reliably establishes distinctions in the cost of operating a medical practice in different fee schedule areas.” Section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA) requires that such analysis shall include an evaluation of the following:

  • The feasibility of using actual data or reliable survey data developed by medical organizations on the costs of operating a medical practice, including office rents and non-physician staff wages, in different fee schedule areas.
  • The office expense portion of the practice expense geographic adjustment, including the extent to which types of office expenses are determined in local markets instead of national markets.
  • The weights assigned to each area of the categories within the practice expense geographic adjustment.

This section also requires the Secretary to make appropriate adjustments to the PE GPCIs no later than by January 1, 2012. To begin to implement this statutory requirement based on our initial analysis, we proposed to implement changes in PE data sources and cost share weights discussed herein effective beginning in CY 2011.

In accordance with section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA), we initially analyzed the current methods and data sources used in the establishment of the PE GPCIs. With respect to the method used, we began with a review of the GAO's March 2005 Report entitled, “MEDICARE PHYSICIAN FEES: Geographic Adjustment Indices Are Valid in Design, but Data and Methods Need Refinement” (GAO-05-119). While we have raised concerns in the past about some of the GAO's GPCI Start Printed Page 73254recommendations, we noted that with respect to the PE GPCIs, the GAO did not indicate any significant issues with the methods underlying the PE GPCIs. Rather, the report focused on some of the data sources used in the method. For example, the GAO stated that the wage data used for the PE GPCIs are not current. Similarly, upon our reexamination of public comments we had received on the PE GPCIs for previous updates, we noted that the commenters predominately focused on either the data sources used in the method or raised issues such as incentivizing the provision of care in different geographic areas. However, the latter issue (incentivizing the provision of care) is outside the scope of the statutory requirement that the PE GPCIs reflect the relative costs of the mix of goods and services comprising practice expenses in the different fee schedule areas relative to the national average.

One key component of the PE GPCI method that our analysis identified involved the office expense portion of the PE GPCIs and the cost share weight assigned to this component. Most significantly, we proposed that the weight for the office rent component be revised from 12.209 percent to 8.410 percent to reflect our more detailed breakout of the types of office expenses that are determined in local markets instead of national markets. For example, for previous GPCI updates, we used the office expenses cost category as the cost share weight for office rent and, therefore, all individual components previously included in the office expenses category were adjusted for local area cost differences by the GPCIs. As discussed in section II.E. of this final rule with comment period, we proposed to disaggregate the broader office expenses component into 9 new cost categories as part of the proposed CY 2011 MEI rebasing. The disaggregation of the office expenses category indicates that the fixed capital cost category, for which the consumer price index (CPI) for owner's equivalent rent is the price proxy, is the office expense category applicable to the office rent component of the PE GPCI. Therefore, the fixed cost capital cost category is the only component of office expenses that we proposed to adjust for local area cost differences beginning in CY 2011. We proposed to assign other newly defined components of the office expenses category (for example, utilities, chemicals, paper, rubber and plastics, telephone, postage, and moveable capital) to the medical equipment, supplies, and other miscellaneous expenses cost component of the PE GPCIs. As discussed later in this section, the medical equipment, supplies, and other miscellaneous expenses component of the PE GPCIs is assumed to have a national market and, therefore, this component is not adjusted for local area cost differences.

The proposed expense categories for the PE GPCIs, along with their respective cost share weights, are primarily derived from the 2006 American Medical Association (AMA) Physician Practice Information Survey (PPIS) for self-employed physicians and selected self-employed non-medical doctor specialties. The PPIS is the most comprehensive, multispecialty, contemporaneous, and consistently collected PE data source available. It was developed by medical organizations and captures the costs of operating a medical practice, including office rents and nonphysician staff wages. Moreover, we also examined the feasibility of using the American Community Survey (ACS) and the Bureau of Labor and Statistics (BLS) Occupational Employment Statistics (OES) data for the employee compensation component of the PE GPCI. For previous updates, the employee compensation component was based on the 2000 Decennial Census long form data. Since the Census data are significantly outdated and the 2010 Census no longer includes occupational wage data, we believe the ACS or BLS OES data might be viable alternatives. While the ACS 3-year public use microsample (PUMS) is currently available, it reflects only about 3 percent of households and the data exhibit significant variation due to the small sample. In particular, the ACS PUMS has fewer than 10 observations of pharmacists in the Manhattan; Beaumont, Texas; and Southern Maine localities. Therefore, we believe it would be premature to use the ACS data for determining GPCI values. The 2006, 2007, and 2008 panels from the BLS OES represent a larger sample than the ACS PUMS and more recent data than the 2000 Census. As such, we proposed to use the BLS OES data for updating the GPCIs. We look forward to exploring the use of the full ACS data when they become available. Additionally, we explored other sources of rent data (including commercial rental data and survey data) for use in calculating the PE GPCIs. We could not identify a reliable alternative rental data source available on a national basis with coverage of nonmetropolitan areas.

We do not believe there is a national data source better than the Housing and Urban Development (HUD) data for determining the relative cost differences in office rents. Therefore, based on our review of the available data sources, we proposed to use the 2010 apartment rental data produced by HUD at the 50th percentile as a proxy for the relative cost difference in physician office rents.

In the proposed rule (75 FR 40085), we indicated that we believe our analysis of the current methods of establishing PE GPCIs and our evaluation of data that fairly and reliably establish distinctions in the cost of operating a medical practice in the different fee schedule areas meet the statutory requirements of section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA). A more detailed discussion of our analysis of current methods of establishing PE GPCIs and evaluation of data sources is included in Acumen's draft report. Acumen's draft report and associated analysis of the sixth GPCI update, including the PE GPCIs, was posted on the CMS Web site after display of the CY 2011 PFS proposed rule. The draft report may be accessed from the PFS Web site at: http://www.cms.gov/​PhysicianFeeSched/​ under the “Downloads” section of the CY 2011 PFS proposed rule Web page. Acumen's final report and associated analysis of the sixth GPCI update will be posted on the CMS Web site after publication of the CY 2011 PFS final rule with comment.

(D) Determining the PE GPCI Cost Share Weights

To determine the cost share weights for the CY 2011 GPCIs, we proposed to use the proposed 2006-based Medicare Economic Index (MEI) as discussed in section II.E. of this final rule with comment period. The proposed MEI was rebased and revised to reflect the weighted-average annual price change for various inputs needed to provide physicians' services. As discussed in detail in that section, the proposed expense categories in the MEI, along with their respective weights, were primarily derived from data collected in the 2006 AMA PPIS for self-employed physicians and selected self-employed non-medical doctor specialties.

For the cost share weight for the PE GPCIs, we used the 2006-based MEI weight for the PE category of 51.734 percent minus the professional liability insurance category weight of 4.295 percent. Therefore, we proposed a cost share weight for the PE GPCIs of 47.439 percent. For the employee compensation portion of the PE GPCIs, we used the nonphysician employee compensation category weight of 19.153 percent. The fixed capital category weight of 8.410, for which the CPI for Start Printed Page 73255owner's equivalent rent is the price proxy, was used for the office rent component. To determine the medical equipment, supplies, and other miscellaneous expenses component, we removed professional liability (4.295 percent), nonphysician employee compensation (19.153 percent), and fixed capital (8.410 percent) from the PE category weight (51.734 percent). Therefore, we proposed a cost share weight for the medical equipment, supplies, and other miscellaneous expenses component of 19.876 percent.

Furthermore, the physician compensation cost category and its weight of 48.266 percent reflected the proposed work GPCI cost share weight and the professional liability insurance weight of 4.295 percent was used for the malpractice GPCI cost share weight. In the proposed rule (75 FR 40085), we stated that we believe our analysis and evaluation of the weights assigned to each of the categories within the PE GPCIs meets the statutory requirements of section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA).

The proposed cost share weights for the CY 2011 GPCIs are displayed in Table 24 below.

Table 24—Cost Share Weights for CY 2011 GPCI Update

Expense categoryCurrent cost share weight (%)Proposed cost share weight (%)
Physician Work52.46648.266
Practice Expense43.66947.439
—Employee Compensation18.65419.153
—Office Rent12.2098.410
—Equipment, Supplies, Other12.80619.876
Malpractice Insurance3.8654.295
Total100100

(E) PE GPCI Floor for Frontier States

Section 10324(c) of the ACA added a new subparagraph (I) under section 1848(e)(1) of the Act to establish a 1.0 PE GPCI floor for physicians' services furnished in frontier States. In accordance with section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA), beginning in CY 2011, we applied a 1.0 PE GPCI floor for physicians' services furnished in States determined to be frontier States. The statute requires us to define any State as a frontier State if at least 50 percent of the State's counties are determined to be frontier counties, which the statute defines as counties that have a population density less than 6 persons per square mile. However, section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA) also specifies that this provision shall not apply to States receiving a non-labor related share adjustment under section 1886(d)(5)(H) of the Act (which excludes Alaska and Hawaii from qualifying as a frontier State).

Consistent with the proposed FY 2011 hospital inpatient prospective payment system (IPPS) 1.0 wage index floor for frontier States (as required by section 10324(a) of the ACA) (75 FR 30920 through 30921), we proposed to identify frontier counties by analyzing population data and county definitions based upon the most recent annual population estimates published by the U.S. Census Bureau. We divided each county's population total by each county's reported land area (according to the decennial census) in square miles to establish population density. We also proposed to update this analysis from time to time, such as upon publication of a subsequent decennial census, and if necessary, add or remove qualifying States from the list of frontier States based on the updated analysis.

For a State that qualifies as a frontier State, in accordance with section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA), we proposed that physicians' services furnished within that State would receive the higher of the applicable PE GPCI value calculated according to the standard CY 2011 methodology or a minimum value of 1.00. Furthermore, in accordance with section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA), the frontier State PE GPCI floor is not subject to budget neutrality and would only be extended to physicians' services furnished within a frontier State.

For determining the proposed CY 2011 PFS PE GPCI values, the frontier States are the following: Montana; Wyoming; North Dakota; Nevada; and South Dakota (as reflected in Table 25).

Table 25—Frontier States Under Section 1848(e)(1)(I) of the Act

[as Added by Section 10324(c) of the ACA]

StateTotal countiesFrontier countiesPercent frontier counties
Montana564580
Wyoming231774
North Dakota533668
Nevada171165
South Dakota663452

(2) Summary of the CY 2011 PE GPCIs

The PE GPCIs include three components: employee compensation, office rent, and medical equipment, supplies and miscellaneous expenses as discussed below:

  • Employee Compensation: We used the 2006 through 2008 BLS OES data to determine the proposed employee Start Printed Page 73256compensation component of the PE GPCIs. The proposed employee compensation component accounted for 40.4 percent of the total PE GPCIs.
  • Office Rents: Consistent with the previous GPCI update, we used the most recent residential apartment rental data produced by HUD (2010) at the 50th percentile as a proxy for the relative cost differences in physician office rents. The proposed office rent component accounted for 17.7 percent of the PE GPCIs.
  • Medical Equipment, Supplies, and other Miscellaneous Expenses: We assumed that items such as medical equipment and supplies have a national market and that input prices do not vary among geographic areas. As discussed in previous GPCI updates in the CY 2005 and CY 2008 PFS proposed rules, specifically the fourth GPCI update (69 FR 47503) and fifth GPCI update (72 FR 38138), respectively, some price differences may exist, but we believe these differences are more likely to be based on volume discounts rather than on geographic market differences. For example, large physicians' practices may utilize more medical equipment and supplies and therefore may or may not receive volume discounts on some of these items. To the extent that such discounting may exist, it is a function of purchasing volume and not geographic location. The proposed medical equipment, supplies, and miscellaneous expenses component was factored into the PE GPCIs with a component index of 1.000. The proposed medical equipment, supplies, and other miscellaneous expense component accounted for 41.9 percent of the PE GPCIs.

c. Malpractice GPCIs

The malpractice GPCIs are calculated based on insurer rate filings of premium data for $1 million to $3 million mature claims-made policies (policies for claims made rather than services furnished during the policy term). The CY 2011 malpractice GPCI update reflects 2006 and 2007 premium data.

d. Public Comments and CMS Responses on the Proposed 6th GPCI Update

We received many public comments regarding the CY 2011 proposed GPCIs. Summaries of the comments and our responses follow.

Comment: Many commenters requested that CMS delay implementation of the changes in underlying PE GPCI data and cost share weights until complete findings and recommendations from the Institute of Medicine's study of geographic adjustment factors for physician payment, the Secretary's Medicare Geographic Payment Summit, and the MEI technical advisory panel have been developed and considered. A few commenters acknowledged that the BLS OES data is the best data source for updating the GPCIs for CY 2011 but expressed concern that it provides data for MSAs and rest of state areas and not counties. The commenters believe that collecting data at the MSA level distorts the accuracy of the input costs and requested that CMS delay the update until the full ACS data can be evaluated and compared with the BLS OES data. A few commenters requested that CMS delay the GPCI update for CY 2011 as was done in the CY 2004 PFS final rule with comment period for the 4th GPCI update.

Additionally, several commenters stated that a more comprehensive analysis and evaluation of the PE GPCI is required by the ACA, further noting that section 1848(e)(1)(H)(v) of the Act (as added by section 3102(b) of the ACA) allows CMS until January 1, 2012 to implement the findings from the analysis of PE data. To that end, several commenters requested a more comprehensive analysis of the occupational groups used to determine the employee wage component of the PE GPCI to reflect the “true costs” incurred by physician groups in the delivery of health care to Medicare beneficiaries. The commenters cited pharmaceutical, accounting, legal, computer science, and management professionals as examples of the types of nonphysician labor costs that should be included in the determination of the employee compensation index. Several commenters also stated that HUD rental data does not reflect the “actual costs” of physician office rent and therefore should be replaced by another data source.

Response: Section 1848(e)(1)(C) of the Act requires us to review and update the GPCIs at least every 3 years. When updating the GPCIs we believe we should use the best data that are currently available. As mentioned by the commenters, the BLS OES data are more timely data than the 2000 census data (which has been used for previous GPCI updates). We believe that the BLS OES data, which are currently available, are an appropriate and relevant data source for updating the work GPCIs and employee compensation component of the PE GPCIs. Also because of the timeliness of the data, we believe that using the BLS OES data would result in a more accurate reflection of the geographic practice cost differences among PFS localities than not updating the GPCIs for CY 2011.

While we believe it is appropriate to finalize updated GPCIs for CY 2011 using the most current data, we also acknowledge that there is much ongoing analysis that may inform future GPCI changes. Therefore, as discussed below, we are not using the revised cost share weights for the CY 2011 GPCIs that would apply under the revised and rebased MEI for CY 2011. We will address the GPCI cost share weights once again in the CY 2012 PFS proposed rule, and we may make additional proposals that would further modify the GPCI data and/or methods for CY 2012.

Additionally, we will review the complete findings and recommendations from the Institute of Medicine's study of geographic adjustment factors for physician payment, the Secretary's Medicare Geographic Payment Summit, and the MEI technical advisory panel, and we will continue to study the issues as required by section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA). We will once again consider the GPCIs for CY 2012 in the context of our annual PFS rulemaking beginning in CY 2011 based on the information available at that time. The CY 2011 GPCIs arising from the 6th GPCI update reflect our initial review and response to the currently available GPCI data, methods, and cost share weights. Once the full ACS data are available, we will reassess the occupational groups used to determine the employee compensation component of the PE GPCI and continue to explore the use of commercial rent data as part of our ongoing analysis of the GPCIs. We anticipate that further information, including our review of the full ACS data, may lead to proposed additional refinements to the GPCIs for future years. We have addressed the CY 2011 GPCI cost share weights in response to other public comments received on the CY 2011 PFS proposed rule that are summarized later in this section.

With regard to the commenters who expressed concern that the BLS OES data are not collected at the county level, we note that the 2000 Decennial Census data are only available at the county level for approximately 10 percent of counties. For previous updates, the GAFs for more than 90 percent of counties were developed based on MSAs or larger geographic areas (for example, data for all rural areas in a State were combined and used to proxy values for each rural county in a State). Therefore, using BLS OES data and disaggregating data to the county Start Printed Page 73257level is not a significant departure from previous GPCI updates.

Moreover, we acknowledge that in the CY 2004 PFS proposed and final rules (68 FR 49042 and 68 FR 63213 respectively), we updated only the malpractice GPCI because the special tabulation of census data used for the physician work GPCI and employee compensation portion of the PE GPCI was not yet available. We explained that no acceptable data sources could be found to update the work GPCIs and the employee compensation portion of the practice expense GPCIs. Therefore, we made no changes to the work GPCIs and PE GPCIs for CY 2004. However, in view of the statutory requirement to update the GPCIs at least every 3 years, we do not believe it would be appropriate to finalize an update only for malpractice GPCIs for CY 2011, while delaying the update of the work GPCI and PE GPCI, when we currently have appropriate updated data available to us for this purpose. As discussed previously, we will review the GPCIs as part of the CY 2012 PFS rulemaking cycle (beginning in CY 2011) based on the information available at that time, and we may propose changes to the GPCIs prior to the next 3-year GPCI update.

Comment: Several commenters stated that the use of HUD rental data is not an appropriate proxy for determining the office rent index and suggested that CMS use data on actual physician office rents instead. Additionally, one commenter questioned CMS' analysis of the Medical Group Management Association's (MGMA's) survey data on rent. The commenter raised questions as to why CMS rejected the use of MGMA rental data due to insufficiency in sample size and representation, despite admitting that the physician response rate on the MGMA survey was typical for surveys of business.

Response: As we have previously explained in the CY 2005 and CY 2008 final rules with comment period (69 FR 66262 and 72 FR 66245 respectively), we recognize that apartment rents may not be a perfect proxy for measuring the relative cost differences in physician office rents. However, we believe the HUD rental data are the most comprehensive and valid indicator that is available of the real estate rental market in all areas of the country. We continue to believe that HUD rental data remain the best data source for determining the relative cost differences in physicians' office rent among all areas of the country. The data are regularly updated and available nationally, and retain consistency area-to-area and year-to-year. We would welcome any alternative rental data source that is available nationally with sufficient representation among PFS localities.

With regard to our review of MGMA survey data, we have concerns with both the sample size and representativeness of the MGMA data. For example, the responses represent only about 2,250 physician practices nationwide and have disproportionate sample sizes by State, suggesting very uneven response rates geographically. In addition, we also have concerns that the MGMA data have the potential for response bias. The MGMA's substantial reliance on its membership base suggests a nonrandom selection into the respondent group. Some evidence for such issues in the MGMA data arises from the very different sample sizes by State. For example, in the MGMA data, 10 States have fewer than 10 observations each, and California, New York, and New Jersey have fewer than 10 observations per locality. Therefore, we continue to believe the MGMA survey data would not be a sufficient rental data source for all PFS localities.

Comment: One commenter expressed concern that the BLS OES wage data may result in the undervaluation of physician earnings because the data exclude incomes of self-employed professionals.

Response: The GPCIs are not an absolute measure of physician earnings; rather, they are a measure of the relative cost differences for each of the three PFS components. We have no evidence to suggest that self-employment income would have different geographic variation than non-self-employed income. Absent such evidence, we would expect that including wage data from self-employed professionals would result in a geographic distribution of professional wages similar to the BLS OES data source.

Comment: Many commenters stated that implementing PE GPCI changes in CY 2011 would reduce payment to urban areas and, therefore, would violate the “hold harmless” provision as required by the ACA.

Response: Section 1848(e)(1)(H) of the Act (as added by section 3102 (b) of the ACA) requires that we apply a limited recognition of cost differences for the rent component and employee compensation component of the PE GPCI as compared to the national average. This section also includes a “hold harmless” provision for CY 2010 and CY 2011 for any PFS locality that would receive a reduction to its PE GPCI resulting from the limited recognition of PE cost differences. For CY 2010 and CY 2011, we applied the limited recognition of PE cost differences and “hold harmless provision” in accordance with the statutory requirement, which is specific only to the limited recognition of rent and employee wage cost differences. In other words, the “hold harmless” (non-budget neutral) provision under section 1848(e)(1)(H)(iii) of the Act (as added by section 3102 (b) of the ACA) does not apply to the effects of updated data incorporated into the GPCIs as a result of our normal GPCI update process. As discussed earlier in this section, the proposed GPCI update reflected our preliminary review based on the best information currently available. We anticipate that further information may lead to proposed additional refinements to the GPCIs in future years.

Comment: One commenter recommended that CMS track the “hold harmless” transitional GPCIs to determine whether certain regions of the country are underpaid as a result of the application of the limited recognition of PE cost differences.

Response: The “hold harmless” provision under section 1848(e)(1)(H)(iii) of the Act (as added by section 3102(b) of ACA) was applied by selecting the greater of the CY 2011 transitional PE GPCI value calculated with the limited recognition of cost differences or the CY 2011 transitional PE GCPI value calculated with full recognition of cost differences. Therefore, no locality is “underpaid” by the application of the limited recognition of PE cost differences.

Comment: One commenter requested that CMS consider applying a 1.0 GPCI floor to non-frontier States that serve significant rural populations. The commenter was not specific as to which GPCI (work, PE, or malpractice) the floor should be applied.

Response: As discussed previously in this section, section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA) established a permanent 1.0 PE GPCI floor only for frontier States, and section 3102(a) of the ACA amended section 1848(e)(1)(E) of the Act to extend the 1.0 work GPCI floor for services furnished only through December 31, 2010. We do not otherwise have the authority to establish GPCI floors that do not consider the differences in physicians' resource costs among localities.

Comment: A few commenters requested that CMS release underlying data sources, including county level GPCI values and budget neutrality estimates, which would allow interested parties to replicate GPCI calculations.

Response: We strive to be as transparent as possible in all of our proposals. To that end, we have made Start Printed Page 73258numerous files available on the CMS Web site under the downloads for the CY 2011 PFS proposed rule to assist in the public's review of the CY 2011 proposal. These files include: The preliminary contractor's report on data for the 6th GPCI update; the CY 2010 through CY 2012 GPCIs, both as proposed (including the ACA provisions) and without the ACA provisions to permit isolation of the impacts of the updated data; and web links to the publicly available source data and copies of data files that are not otherwise publicly available, for example county and locality-specific RVUs from Medicare claims data and malpractice insurance premium data. In combination, this information allows the public to apply our methodology to replicate our calculations for the proposed GPCIs.

Comment: Many commenters expressed concern about the proposed cost share weights for the rent component and medical equipment, supplies, and other miscellaneous component of the PE GPCI. The commenters stated that the proposed cost share weights would unjustifiably shift Medicare payment away from urban localities to rural localities. Several commenters suggested that portions of the “all other services” component of the office expenses cost category, (which includes maintenance services, storage, security and janitorial services, office equipment, information technology systems, and medical record systems) and the stand-alone “other professional services” cost category (which includes accounting services, legal services, office management services, continuing education, professional association memberships, journals, and professional care expenses) are wage-related and, therefore, should be adjusted for locality cost differences. Additionally, a few commenters stated that the cost share weight attributed to the rent component of the PE GPCI should vary by region because one national cost share weight for rent penalizes areas where office rent is a higher portion of practice expenses.

Response: Although we typically update the GPCI cost share weights concurrently with the most recent MEI revision and rebasing, the commenters raised many points regarding the reallocation of labor-related costs from the medical equipment and supplies and miscellaneous component to the employee compensation component of the PE GPCI. After consideration of the public comments we received on this issue, we will continue to use the current GPCI cost share weights for CY 2011. We have asked the Institute of Medicine to evaluate the accuracy of the geographic adjustment factors used for Medicare physician payment. The Institute of Medicine will prepare two reports for Congress and the Secretary of the Department of Health and Human Services. The first report, expected in spring 2011, will include an evaluation of the accuracy of geographic adjustment factors, and the methodology and data used to calculate them. The second report, expected in spring 2012, will evaluate the effects of the adjustment factors on the distribution of the health care workforce, quality of care, population health, and the ability to provide efficient, high-value care. For more information on the Institute of Medicine's study on Medicare geographic adjustment factors, we refer readers to the Institute of Medicine Web site: http://iom.edu/​Activities/​HealthServices/​GeographicAdjustments.aspx.

We will explore further the options that were raised to us by the commenters and the recommendations in the forthcoming Institute of Medicine report(s). We will also continue our analysis of the cost share weights attributed to the PE GPCI as required by section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA), including the possibility of assigning cost share weights to the rent component of the PE GPCI that vary among fee schedule areas. We will address the GPCI cost share weights again in the CY 2012 PFS proposed rule.

Comment: MedPAC suggested an alternative method for calculating the PE GPCI. This alternative PE GPCI method would account for variations in the cost share of equipment and supplies across services.

Response: We appreciate MedPAC's suggestion of an alternative method that would vary the portion of PE that is geographically adjusted for locality differences based on the characteristics of individual services, rather than applying a uniform percentage across all PFS services. We recommend that MedPAC continue to analyze this or other alternative geographic adjustment methods, including their administrative feasibility.

Comment: A few commenters stated that the “range of disparity” between the highest and lowest paid PFS localities is too large and contradicts data studies showing little to no distinction in physician practice expenses throughout the nation. For example, the commenters stated that the AMA's analysis of its own PPIS data concluded that “expenses did not differ significantly by either metro location or Census region.” One commenter requested an explanation of the discrepancy between the AMA's findings of no measurable practice expense distinctions and CMS' findings that continue to show substantial distinctions in physician practice expenses among the Medicare payment localities. Another commenter stated that a 2007 survey conducted by the journal, Medical Economics, indicated that the average practice expenses are highest in the Midwestern States (which is contrary to the proposed CY 2011 GPCIs).

Response: We have reviewed the studies referenced by the commenters and compared their findings with the GPCI values calculated for the CY 2011 PFS proposed rule. As mentioned by the commenters, both the AMA and Medical Economics studies aggregated per-physician expenses at the Census region level. The AMA PPIS analysis showed the Northeast as having the lowest per-physician expenses, followed by the Midwest then the West, with the South identified as having the highest expenses. Although there is about a 20 percent difference in total expenses between the Northeast and South, the study noted that the difference was not significant after controlling for practice setting and physician specialty. The Medical Economics survey findings showed about a 30 percent difference in costs, with the East showing the lowest expenses and the Midwest with the highest. Both studies demonstrated that rural areas have the highest per-physician expenses and highly populated areas the lowest.

To compare the variation of PE GPCI values calculated for the CY 2011 PFS proposed rule to the AMA and Medical Economics studies, we used PE RVUs to create weighted averages of the PE GPCIs by Census region. Additionally, because the AMA and Medical Economics data reported total per-physician practice expenses, whereas the GPCI is a cost index, we produced indices for each source to create comparable measures of variation. We then normalized each index to the lowest cost area from each data source. Consequently, the index values show the percent difference in costs relative to the lowest cost area. For example, the AMA study shows the Northeast as having the lowest per-physician expenses, thus establishing an index value of 1.00 for that area. For the AMA study, the Midwest index value is 1.07 which signifies that costs in the Midwest are 7 percent above the Northeast AMA values. The PE GPCI data indicate that the Midwest has the lowest costs; and the South, with an Start Printed Page 73259index value of 1.01, has costs that are 1 percent above the Midwest GPCI values. When aggregated to the Census region, the PE GPCIs showed less variation in costs than the comparison data sources (AMA PPIS and Medical Economics). Using the PE GPCI data to calculate Census region indices produced only a 16 percent difference in costs between the most costly and least costly areas, equating to roughly half the variation found in the Medical Economics survey and about 75 percent of the variation found in the PPIS study. Table 26 compares the results on the disparity in costs by Census region.

Table 26—Census Region Cost Indices by Data Source

AMAMedical economicsPE GPCI dataPE GPCI components
RentWagesOffice supplies
Midwest1.071.291.001.001.041.00
South1.211.201.011.121.001.00
West1.111.061.141.471.171.00
Northeast1.001.001.161.551.181.00

Additionally, the conceptual approaches to the GPCIs and the data sources noted by the commenters are sufficiently different to make comparisons extremely difficult. The different rank ordering in the costs by regions, as shown in Table E4, may also reflect the different strategies used to measure costs. Specifically, the AMA and Medical Economics studies ordered areas based on total physicians' expenses, whereas the GPCIs are intended to provide a local cost index that is then applied to each PFS component; work, practice expense, and malpractice expense. Based on our review of the AMA PPIS and Medical Economics studies, a key factor in explaining differences with the proposed GPCI values is differences in practice patterns across the different areas. Specifically, rural practitioners tend to see more patients, incurring higher expenses. However, as noted in the Medical Economics study, higher patient loads result in higher payment. To place this in the context of Medicare PFS payment, seeing more patients produces more billed services, allowed charges, and payments. Therefore, the greater number of patients seen by rural physicians is accounted for in total RVUs to the physician, rather than through the GPCI values.

Moreover, the very low cost ranking of the Northeast in both the AMA PPIS and Medical Economics datasets suggests a possible influence of economies of scale. The GPCIs are designed to capture differences in the prices of inputs facing physicians in each region. The input prices are used to create GPCI values as a measure of the relative cost differences in operating a medical practice in one locality versus another. It is likely that the AMA and Medical Economics studies are capturing differences in the production of services, distinct from the input prices. In particular, the geographic differences may reflect differences in economies of scale in more and less urbanized areas. More rural practitioners are less likely to work in large practices, leading to higher per-physician costs, all else being equal. For example, a two-physician practice may need the same number of front office staff as a one-physician practice. When this expense is measured on a per-physician basis, the single physician pays twice as much for front office support. This type of variation can occur within localities and may reflect the practitioner's choice to work in a small or large physician practice. Nevertheless, there is no mechanism within the existing GPCI approach to account for the influence of economies of scale, despite its potentially significant impact on the effective per-unit costs of providing care.

Comment: Several commenters recommended that CMS use data from a reliable survey of physicians' practices, such as the AMA PPIS or the MGMA survey, to develop the office rent index and employee compensation index.

Response: Because of the limited sample sizes of the AMA PPIS (n = 2,137) and MGMA studies (n = 2,246), we do not believe that it would be possible to calculate reliable indices for all Medicare PFS localities based upon these data. As mentioned previously, in the MGMA data, 10 States have fewer than 10 observations each, and California, New York, and New Jersey have fewer than 10 observations per locality.

In light of the comments received suggesting the use of survey data to determine GPCI values and the typical response rates for existing physician surveys, we are continuing to consider the possibility of establishing a physician cost report and requiring a sufficiently large sample of physicians in each locality to report data on actual costs incurred. However, we believe that a physician cost report could take years to develop and implement, and could be prohibitively expensive. We also have some concerns about the administrative burden this approach would place on physician's office staff. Therefore, we are requesting specific public comments regarding the potential benefits to be gained from establishing a physician cost report and whether this approach is appropriate to achieve potentially greater precision in measuring the relative cost differences in physicians' practices among PFS localities. We are also requesting public comments on the potential administrative burden of requiring physicians to routinely complete and submit a cost report and whether this requirement should be mandatory for all physician practices. Additionally, we have asked the Institute of Medicine to look at the use of survey data in the context of their geographic adjustment analysis. It is also our understanding that MedPAC is considering the issue of data sources used to determine geographic payment adjustments under the PFS.

Comment: One commenter stated that all geographic adjustment factors should be eliminated from the Medicare PFS “except for those designed to achieve a specific public policy goal, for example, to encourage physicians to practice in underserved areas.” The commenter requested that CMS utilize the most broadly applicable methodology allowed by law to reduce geographic payment disparity.

Response: We are required by section 1848(b)(1)(C) and (e)(1)(A) of the Act to develop and apply separate GPCIs to adjust for resource cost differences among localities compared to the national average for each of the three PFS components: work, practice expense, and malpractice expense. The purpose of the GPCIs is not to reduce Start Printed Page 73260geographic payment disparity; rather, the GPCIs distribute PFS payments among areas in order to adjust for area cost differences. In general the data show that urban areas usually are higher cost, while rural areas are lower cost. However, there are several provisions currently in place that have the effect of reducing geographic payment disparities. For example, the statute requires that only one-quarter of area cost differences in physician work be recognized, and we assign a 1.0 index to the medical equipment, supplies, and miscellaneous component of the PE GPCI because we believe there is a national market for these items. In addition, 34 States and 2 territories are “Statewide” payment localities wherein all physicians, whether urban or rural, are paid the same. Moreover, many geographic areas are designated as Health Professional Shortage Areas (HPSAs). Physicians in these areas may be eligible for a 10 percent HPSA bonus payment in addition to the amount paid under the Medicare PFS for services they furnish. Beginning in CY 2011, general surgeons furnishing major surgical procedures in these areas may be eligible for the HPSA surgical incentive payment program (HSIP) that also pays 10 percent in addition to the amount paid under the PFS as discussed in section VI.S.2. of this final rule with comment period. For complete information on the HPSA bonus payment program and a list of eligible areas for both programs by zip code, we refer readers to the CMS Web site at: http://www.cms.hhs.gov/​hpsapsaphysicianbonuses/​01_​overview.asp. All of these factors mentioned above have the effect of reducing geographic payment disparities under the Medicare PFS.

Comment: One commenter encouraged CMS to follow the GAO's recommendations, as outlined in the GAO's March 2005 Report (GAO-05-119), for improving underlying GPCI data and methods by taking the following actions:

  • Transition from Census Bureau's Decennial Census data to the annual ACS for earning and wage data.
  • Include physician assistant wage data to improve the measurement of the PE GPCI.
  • Consider the feasibility of using a commercial rent index or a residential rent index directly based on ACS data for determining the rent component of the PE GPCI.
  • Collect malpractice premium data from all States, accounting for at least half of the malpractice business in a State.
  • Standardize collection of malpractice premium data, for example by using data from Physician Insurer's Association of America.

Response: As previously discussed, the full ACS data were not available in time for the 6th GPCI update. We intend to explore the use of ACS data for determining the work GPCI and the employee compensation component of the PE GPCI, as well as evaluate its possible use as an office rent index once the data are fully available. We also intend to continue exploring the potential use of commercial rent data as part of our ongoing review and refinement of the GPCIs.

Additionally, we have considered the use of physician assistant wages in calculating the employee compensation index. However, since physician assistants can furnish medical services and bill the Medicare program directly, their wages are influenced by Medicare PFS payment. Therefore, we have some concern that a circular effect could occur if we included physician assistants among the occupational groups comprising the employee compensation component, similar to our concern with including physicians' salaries in the determination of the work GPCI.

With regard to the collection of malpractice premium data, the CY 2011 malpractice GPCI update reflects 2006 and 2007 premium data which were also used for the CY 2010 update to the malpractice RVUs. As compared to previous malpractice RVU updates, we substantially increased the number of States from which we were able to collect rate filings. We were able to collect malpractice premium data from every State except for Mississippi and Puerto Rico. Premium data were selected from at least two companies in each State, with more selected if necessary to reach 50 percent of the market share in that State. To ensure consistency across States we collected premium data from State Departments of Insurance. For States where we were not able to collect rate fillings, we used premium information from the Medical Liability Monitor Survey data from 2005 through 2008.

e. Summary of Final CY 2011 GPCIs

After consideration of the public comments received on the GPCIs, we are finalizing the 6th GPCI update using the most current data, with modifications; we are not finalizing the proposal to change the GPCI cost share weights for CY 2011. Instead, we are continuing to use the current GPCI cost share weights for determining the PE GPCI values and locality GAFs in CY 2011, and we will address the cost share weights again in the CY 2012 PFS proposed rule. As a result, the cost share weight for the physician work GPCI (as a percentage of the total) will be 52.5 percent (current and for CY 2011) rather than 48.3 percent (as proposed), and the cost share weight for the PE GPCI will be 43.7 percent (current and for CY 2011) rather than 47.4 percent (as proposed) with only a slight difference in the employee compensation component (18.7 percent rather than 19.2 percent as proposed). However, the cost share weight for the office rent component of the PE GPCI will be 12.2 percent (current and for CY 2011) rather than 8.4 percent (as proposed), and the medical equipment, supplies, and other miscellaneous expenses component will be 12.8 percent (current and for CY 2011) rather than 19.9 percent (as proposed). Moreover, the cost share weight for the malpractice GPCI will be 3.9 percent (current and for CY 2011) rather than 4.3 percent (as proposed).

Additionally, we will review the complete findings and recommendations from the Institute of Medicine's study of geographic adjustment factors for physician payment, the Secretary's Medicare Geographic Payment Summit, and the MEI technical advisory panel, and continue to study the issues as required by section 1848(e)(1)(H)(iv) of the Act (as added by section 3102(b) of the ACA). We will once again consider the GPCIs for CY 2012 in the context of our annual PFS rulemaking beginning in CY 2011 based on the information available at that time.

We are using the 2006 through 2008 panels from the BLS OES data for updating the work GPCIs and the employee compensation component of the PE GPCIs. We are also using the 2010 apartment rental data produced by HUD at the 50th percentile as a proxy for the relative cost difference in physicians' office rents and 2006 and 2007 malpractice premium data for determining the malpractice GPCIs.

As required by section 1848(e)(1)(H)(ii) and (iii) of the Act (as added by section 3102(b) of the ACA), the CY 2011 GPCIs reflect only one-half of the relative cost differences for the employee compensation and rent portions of the PE GPCI, and the “hold harmless” provision ensures that no locality receives a payment reduction resulting from the limited recognition of PE cost differences. For CY 2011, the “hold harmless” provision was applied by selecting the greater of the CY 2011 transitional PE GPCI value calculated with the limited recognition of cost differences or the CY 2011 transitional Start Printed Page 73261PE GPCI value calculated with full recognition of cost differences.

In accordance with section 1848(e)(1)(I) of the Act (as added by section 10324(c) of the ACA), and consistent with the final FY 2011 hospital IPPS (75 FR 5160 through 5161), we applied a 1.0 PE GPCI floor for services furnished in frontier States. The frontier States are the following: Montana; Wyoming; North Dakota; Nevada; and South Dakota. As we indicated above in this section, section 1848(e)(1)(E) of the Act (as amended by section 3102(a) of the ACA) extended the 1.0 work GPCI floor only through December 31, 2010. Therefore, the CY 2011 physician work GPCIs and summarized GAFs do not reflect the 1.0 work floor. However, the permanent 1.5 work GPCI floor for Alaska (as established by section 134(b) of the MIPPA) will remain in effect for CY 2011.

We are finalizing the CY 2011 GPCIs shown in Addendum E. The GPCIs have been budget neutralized to ensure that nationwide, total RVUs are not impacted by changes in locality GPCIs. The 1.0 PE GPCI floor for frontier States and the PE GPCI “hold harmless” provision were applied to the budget neutralized GPCIs.

Typically when we complete a review and update of the GPCIs, the values shown represent the first year of the 2-year GPCI update transition. Although the CY 2011 GPCIs have been set on that basis, we note that we will be assessing the results of the various studies regarding the GPCIs and cost share weights (once they are completed), and exploring the use of the full ACS data. Based on these assessments, we may make additional proposals that would further modify the GPCIs for CY 2012, which would result in changes to the CY 2012 GPCIs shown in Addendum E to this final rule with comment period. Therefore, the final CY 2011 GPCIs may not reflect a true mid-point “phase-in” to the updated GPCIs, although, as noted above, they have been set for CY 2011 on that basis. The CY 2011 updated GAFs and GPCIs may be found in Addenda D and E of this final rule with comment period.

3. Payment Localities

The current PFS locality structure was developed and implemented in 1997. There are currently 89 localities; 34 localities are Statewide areas. There are 52 localities in the other 18 States, with 10 States having 2 localities, 2 States having 3 localities, 1 State having 4 localities, and 3 States having 5 or more localities. The District of Columbia, Maryland, and Virginia suburbs, Puerto Rico, and the Virgin Islands are additional localities that make up the remainder of the total of 89 localities. The development of the current locality structure is described in detail in the CY 1997 PFS proposed rule (61 FR 34615) and the subsequent final rule with comment period (61 FR 59494).

As we have previously noted in the CYs 2008 and 2009 proposed rules (72 FR 38139 and 73 FR 38513), any changes to the locality configuration must be made in a budget neutral manner within a State and can lead to significant redistributions in payments. For many years, we have not considered making changes to localities without the support of a State medical association in order to demonstrate consensus for the change among the professionals whose payments would be affected (with some increasing and some decreasing). However, we have recognized that, over time, changes in demographics or local economic conditions may lead us to conduct a more comprehensive examination of existing payment localities.

For the past several years, we have been involved in discussions with physician groups and their representatives about recent shifts in relative demographics and economic conditions, most notably within the current California payment locality structure. We explained in the CY 2008 PFS final rule with comment period that we intended to conduct a thorough analysis of potential approaches to reconfiguring localities and would address this issue again in future rulemaking. For more information, we refer readers to the CY 2008 PFS proposed rule (72 FR 38139) and subsequent final rule with comment period (72 FR 66245).

As a follow-up to the CY 2008 PFS final rule with comment period, we contracted with Acumen to conduct a preliminary study of several options for revising the payment localities on a nationwide basis. The contractor's interim report was posted on the CMS Web site on August 21, 2008, and we requested comments from the public. The report entitled, “Review of Alternative GPCI Payment Locality Structures,” remains accessible from the CMS PFS Web page under the heading “Interim Study of Alternative Payment Localities under the PFS.” The report may also be accessed directly from the following link: http://www.cms.hhs.gov/​PhysicianFeeSched/​10_​Interim_​Study.asp#TopOfPage.

We accepted public comments on the interim report through November 3, 2008. The alternative locality configurations discussed in the report are described briefly below in this section.

Option 1: CMS Core-Based Statistical Area (CBSA) Payment Locality Configuration

This option uses the Office of Management and Budget (OMB's) Metropolitan Statistical Area (MSA) designations for the payment locality configuration. MSAs would be considered as urban CBSAs. Micropolitan Areas (as defined by OMB) and rural areas would be considered as non-urban (rest of State) CBSAs. This approach would be consistent with the IPPS pre-reclassification CBSA assignments and with the geographic payment adjustments used in other Medicare payment systems. This option would increase the number of PFS localities from 89 to 439.

Option 2: Separate High-Cost Counties from Existing Localities (Separate Counties)

Under this approach, higher cost counties are removed from their existing locality structure and they would each be placed into their own locality. This option would increase the number of PFS localities from 89 to 214, using a 5 percent GAF differential to separate high-cost counties.

Option 3: Separate MSAs from Statewide Localities (Separate MSAs)

This option begins with statewide localities and creates separate localities for higher cost MSAs (rather than removing higher cost counties from their existing locality as described in Option 2). This option would increase the number of PFS localities from 89 to 130, using a 5 percent GAF differential to separate high-cost MSAs.

Option 4: Group Counties Within a State Into Locality Tiers Based on Costs (Statewide Tiers)

This option creates tiers of counties (within each State) that may or may not be contiguous but share similar practice costs. This option would increase the number of PFS localities from 89 to 140, using a 5 percent GAF differential to group similar counties into statewide tiers.

As discussed in Acumen's interim report, all four studied alternative locality configurations would increase the number of localities and separate higher cost areas from rural “rest of state” areas. As a result, payments to urban areas would increase, while rural areas would see a decrease in payment because they would no longer be grouped with higher cost “urbanized” areas. A number of public commenters Start Printed Page 73262on the draft report expressed support for Option 3 (separate MSAs from Statewide localities) because the commenters believed this alternative would improve payment accuracy over the current locality configuration and could mitigate possible payment reductions to rural areas as compared to Option 1 (CMS CBSAs). Therefore, Acumen is conducting a more in-depth analysis of the dollar impacts that would result from the application of Option 3. For a detailed discussion of the public comments on the contractor's interim locality study report, we refer readers to the CY 2010 PFS proposed rule (74 FR 33534) and subsequent final rule with comment period (74 FR 61757).

We note that the discussion of PFS payment localities and our preliminary study of alternative payment locality configurations in the CY 2011 PFS proposed rule was intended for informational purposes only. We did not make any proposals regarding the PFS locality configurations for CY 2011 and, therefore, public comments on the PFS locality configurations are not within scope of the CY 2011 PFS proposed rule. We thank the commenters for sharing their views and suggestions; however, we are not summarizing or responding to ‘out of scope’ comments in this final rule with comment period.

E. PFS Update for CY 2010: Rebasing and Revising of the Medicare Economic Index (MEI)

1. Background

The Medicare Economic Index (MEI) was originally required by section 1842(b)(3) of the Act, which states that prevailing charge levels beginning after June 30, 1973 may not exceed the level from the previous year except to the extent that the Secretary finds, on the basis of appropriate economic index data, that such higher level is justified by year-to-year economic changes. We continued to use the MEI as part of the statutory update formula (specified under section 1848 of the Act) when the physician fee schedule was implemented in 1992 (56 FR 59511).

Beginning July 1, 1975, and continuing through today, the MEI has served these purposes by reflecting the weighted-average annual price change for various inputs needed to furnish physicians' services. As such, the index is necessarily a fixed-weight input price index, with an adjustment for the change in economy-wide, private nonfarm business multifactor productivity. The MEI is comprised of two broad categories: (1) Physician's own time; and (2) physician's practice expense (PE).

The MEI was first published on June 16, 1975 (40 FR 25446), and became effective for services furnished beginning July 1, 1975. The original MEI had a base period of 1971. The structure of the original MEI remained essentially unchanged from its original until the CY 1993 final rule (57 FR 55896) in which we finalized a comprehensive rebasing and revision process with a 1989 base year. The new index was based in part on the recommendations of a Congressionally-mandated meeting of experts held in March 1987. The MEI was again rebased in the CY 1999 final rule (63 FR 58845), which moved the cost structure of the index from a 1989 base to a 1996 base. The methodology for the productivity adjustment was revised in the CY 2003 final rule (67 FR 80019) to reflect the percentage change in the 10-year moving average of economy-wide private nonfarm business multifactor productivity (previously the index was adjusted by a measure of labor productivity). The current form of the MEI was detailed in the CY 2004 PFS final rule (68 FR 63239) which updated the cost structure of the index from a base year of 1996 to 2000.

We proposed to rebase and revise the MEI and incorporate it into the CY 2011 PFS update. The terms “rebasing” and “revising”, while often used interchangeably, actually denote different activities. Rebasing refers to moving the base year for the structure of costs of an input price index, while revising relates to other types of changes such as changing data sources, cost categories, or price proxies used in the price index. As is always the case with a rebasing and revising exercise, we have used the most recently available, relevant, and appropriate information to develop the proposed MEI cost category weights and price proxies. In the following sections of this final rule with comment period, we detail our proposals and respond to comments regarding the updated cost weights for the MEI expense categories, our rationale for selecting the price proxies in the MEI, and the results of the rebasing and revising of the MEI.

2. Use of More Current Data

The MEI was last rebased and revised in 2003 in the CY 2004 PFS final rule with comment period (68 FR 63239). The current base year for the MEI is 2000, which means that the cost weights in the index reflect physicians' expenses in 2000. However, we believe it is desirable to periodically rebase and revise the index so that the expense shares and their associated price proxies reflect more current conditions. For the CY 2011 PFS update, we are finalizing the proposal to rebase and revise the MEI to reflect appropriate physicians' expenses in 2006.

Compared to the 2000-based MEI, we proposed to make several changes to the MEI cost structure. First, we proposed to exclude the Pharmaceutical cost category as pharmaceuticals are neither paid for under the PFS nor are they included in the definition of “physicians' services” for purposes of calculating the physician update via the SGR system (for more details see the CY 2010 PFS final rule with comment period (74 FR 61961 through 61962)). We also proposed to exclude the expenses associated with separately billable supplies since these items are not paid for under the PFS. Our primary data source, the 2006 Physician Practice Information Survey (PPIS), collected data on these costs enabling us to accurately remove them from the index. In addition, we proposed to include nine new cost categories that disaggregate the costs under the broader Office Expenses cost category. The 2000-based MEI did not break these expenses into individual cost categories. As a result of comments received, which are described more fully below in this section, we are modifying this proposal to instead include ten detailed cost categories. As indicated in the CY 2011 PFS proposed rule, we proposed to continue to adjust the MEI for economy-wide multifactor productivity based on changes in the 10-year moving average of private nonfarm business multifactor productivity. After considering the comments received, we are finalizing our proposal to continue to adjust the MEI for economy-wide multifactor productivity based on changes in the 10-year moving average of private nonfarm business multifactor productivity.

3. Rebasing and Revising Expense Categories in the MEI

The MEI is used in conjunction with the SGR system to update the PFS and represents the price component of that update. The proposed expense categories in the index, along with their respective weights, are primarily derived from data collected in the 2006 AMA PPIS for self-employed physicians and selected self-employed non-medical doctor specialties. As noted, in addition to data on medical doctors, we included data from several non-medical doctor specialties in the MEI cost weight calculations (including optometrists, oral surgeons, podiatrists, and chiropractors) consistent with the definition of the term “physician” in section 1861(r) of the Act. In summary, Start Printed Page 73263the term “physician” when used in connection with the performance of functions or actions an individual is legally authorized to perform means the following: (1) A doctor of medicine or osteopathy; (2) a doctor of dental surgery or of dental medicine; (3) a doctor of podiatric medicine; (4) a doctor of optometry; or (5) a chiropractor. For a complete definition, please see section 1861(r) of the Act. We weighted the expense data from the above-referenced specialties with the self-employed physician expense data using physician counts by specialty, the same methodology used in the AMA PPIS.

The AMA PPIS data were used to determine the expenditure weights in the MEI for all of the major cost categories including total expenses, physicians' earnings, physicians' benefits, employed physician payroll, nonphysician compensation, office expenses, professional liability insurance (PLI), medical equipment, medical supplies, and other professional expenses. We are finalizing our proposal to further disaggregate both non-physician compensation and office expenses into subcategories reflecting more detailed expenses. We used several data sources for further disaggregation of expenses including: data from the 2002 Bureau of Economic Analysis (BEA) Benchmark Input-Output table (I/O), the 2006 Bureau of the Census Current Population Survey (CPS), the 2006 Bureau of Labor Statistics (BLS) Occupational Employment Survey (OES), the 2006 Employment Cost for Employee Compensation Survey (ECEC), and the 2006 Internal Revenue Service (IRS) Statistics of Income (SOI) data. The development of each of the cost categories using these sources is described in detail below.

a. Developing the Weights for Use in the MEI

Developing a rebased and revised MEI requires selecting a base year and determining the appropriate expense categories. We proposed to rebase the MEI to CY 2006. We choose CY 2006 as the base year as: 1) this is the most recent year for which comprehensive physician expense data are available; and (2) we believe these data represent an accurate proxy for the physician expense distribution in CY 2011.

Table 27 lists the set of mutually exclusive and exhaustive cost categories that make up the final rebased and revised MEI, including the addition of the All Other Products category we are adopting in response to public comments.

Table 27—Final 2006 MEI Cost Categories, Weights, and Price Proxies Compared to the 2000 MEI Cost Categories and Weights

Cost categoryFinal 2006-cost weights (1,2)2000 Cost weights2006 Price proxies
Total100.00100.000
Physician's Compensation (Own Time) (3)48.26652.466
Wages and Salaries43.88042.730AHE Total Nonfarm Private for Production & Nonsupervisory Employees.(5)
Benefits (3),(4)4.3869.735ECI-Benefits Total Nonfarm Private.(6)
Physician's Practice Expense51.73447.534
Nonphysician Employee Compensation19.15318.654
Nonphysician Employee Wages and Salaries13.75213.809
Prof/Tech Wages6.0065.887ECI-Wages/Salaries: Private Professional &Technical.
Managerial Wages1.4463.333ECI-Wages/Salaries: Private Managerial.
Clerical Wages4.4663.892ECI-Wages/Salaries: Private Clerical.
Services Wages1.8340.696ECI-Wages/Salaries: Private Service.
Nonphysician Employee Benefits (4)5.4014.845ECI-Ben: Private Blend.
Office Expenses20.03512.209
Utilities1.266CPI Fuel & Utilities.(7)
Chemicals0.723PPI for Other Basic Organic Chemical Manufacturing.(8)
Paper0.657PPI for Converted Paper.
Rubber & Plastics0.598PPI for Rubber and Plastics.
Telephone1.501CPI for Telephone Services.
Postage0.898CPI for Postage.
All Other Services3.582ECI Compensation Services Occupations.
All Other Products0.500CPI-U All Items Less Food and Energy.
Fixed Capital8.957CPI for Owner's Equivalent Rent.
Moveable Capital1.353PPI for Machinery and Equipment.
PLI4.2953.865CMS-Prof. Liab. Phys. Premiums.
Medical Equipment1.9782.055PPI-Medical Instruments & Equip.
Pharmaceuticals and Medical Materials and Supplies1.7604.320
Pharmaceuticals2.309
Medical Materials and Supplies1.7602.011PPI Surg. Appliances and Supplies/CPI(U) Med Supplies.
Start Printed Page 73264
Other Professional Expenses4.513CPI-U All Items Less Food and Energy.
Other Expenses6.433
(1) Due to rounding, weights may not sum to 100.000 percent.
(2) Sources: 2006 Physician Practice Information Survey (PPIS), Center for Health Policy Research, American Medical Association; 2006 Employment Cost for Employee Compensation, U.S. Department of Labor, Bureau of Labor Statistics; 2006 Occupational Employment Statistics (OES), BLS; U.S. Department of Commerce, Bureau of Economic Analysis 2002 Benchmark Input Output Tables, and U.S. Department of Commerce, Bureau of the Census, 2006 Current Population Survey.
(3) Includes employed physician payroll.
(4) Includes paid leave.
(5) Average Hourly Earnings (AHE)
(6) Employment Cost Index (ECI)
(7) Consumer Price Index (CPI)
(8) Producer Price Index (PPI)

The development of each of the cost categories in the final 2006 MEI is described, in detail, as follows.

b. Physician's Own Time

The component of the MEI that reflects the physician's own time is represented by the net income portion of business receipts. The proposed 2006 cost weight associated with the physician's own time (otherwise referred to as the Physician Compensation cost weight) is based on 2006 AMA PPIS data for mean physician net income (physician compensation) for self-employed physicians and for the selected self-employed specialties referenced previously in this rule.

We proposed to continue to add employed physician compensation to self-employed physician compensation in order to calculate an aggregate Physician Compensation cost weight. By including the compensation of employed physicians in the Physician Compensation expense category, these expenses will be adjusted by the appropriate price proxies for a physician's own time. The proposed 2006 Physician Compensation cost weight is 48.266 percent as compared to a 52.466 percent share in the 2000-based MEI. We split the Physician Compensation component into two subcategories: Wages & Salaries; and Benefits. For self-employed physician's compensation, the ratios for Wages & Salaries and Benefits were calculated using data from the PPIS. Self-employed physician wages & salaries accounted for 92.2 percent of physician compensation while physician benefits accounted for the remaining 7.8 percent. For employed physician payroll, the distribution for wages & salaries and benefits for 2006 was 85.8 percent and 14.2 percent, respectively. This ratio was determined by calculating a weighted average of available SOI data for partnerships, corporations, and S-corporations specific to physicians and outpatient care centers. Based on these methods, the proposed 2006 Physician Wages & Salaries cost weight was 43.880 percent and the proposed 2006 Physician Benefits cost weight was 4.386 percent.

c. Physician's Practice Expenses

To determine the remaining individual Practice Expenses cost weights, we used mean expense data from the 2006 PPIS survey expressed as a percentage of total expenses. The detailed explanations for the derivation of the individual weights under Practice Expenses are listed below.

(1) Nonphysician Employee Compensation

The cost weight for Nonphysician Employee Compensation was developed using the 2006 AMA PPIS mean expenses for these costs. We further divided this cost share into Wages & Salaries and Benefits using 2006 BLS Employer Costs for Employee Compensation (ECEC) data for the Health Care and Social Assistance (private industry) category. Although this survey does not contain data only for offices of physicians, data are available to help determine the shares associated with wages & salaries and benefits for private industry health care and social assistance services (which include offices of physicians, hospitals, nursing homes, and offices of dentists). We believe these data provide a reasonable estimate of the split between wages and benefits for employees in physicians' offices. Data for 2006 in the ECEC for Health Care and Social Assistance indicate that wages and benefits are 71.8 percent and 28.2 percent of compensation, respectively. The 2000-based MEI included a wage and benefit split of 74.0 percent and 26.0 percent of compensation.

We proposed to use 2006 Current Population Survey (CPS) data and 2006 BLS Occupational Employment Statistics (OES) data to develop cost weights for wages for nonphysician occupational groups. These are the same data sources that were used in the 2000-based MEI. We determined total annual earnings for offices of physicians using employment data from the CPS and mean annual earnings from the OES. To arrive at a distribution for these separate categories, we determined annual earnings for each of the four categories (which are Professional & Technical workers, Managers, Clerical workers, and Service workers), using the Standard Occupational Classification (SOC) system. We then determined the overall share of the total for each. The resulting proposed distribution, as well as the distribution from the 2000-based MEI, are presented in Table 28.

TABLE 28—Percent Distribution of Nonphysician Payroll Expense by Occupational Group: 2006 and 2000

BLS Occupational Group2006 Expenditure shares2000 Expenditure shares
Total100.000100.000
Start Printed Page 73265
Professional & Technical Workers43.67142.635
Managers10.51724.138
Clerical Workers32.47728.187
Service Workers13.3365.040
Values may not sum to 100 due to rounding.

The decrease in the Managers expenditure share is directly related to a decrease in the total number of employees in Management occupations in physicians' offices, in particular, “Medical and health service managers.” The decrease in expenditure share may also be due, in part, to the methods used in this rebasing. That is, for the 2006-based MEI, we are using data limited to “Offices of physicians.” In the 2000-based version of the index, the only data that were available to inform these estimates were inclusive of physician offices and clinics (“Offices of physicians and clinics”). An examination of 2006 CPS and OES data comparing “Outpatient care centers” to “Offices of physicians” indicates that there is a higher share of management occupations in the “Outpatient care centers” than in “Offices of physicians”.

The increase in the Service Workers expenditures share is attributable to a substantive increase in the number of employees in service occupations, particularly, “Medical assistants and other health care support occupations”.

(2) Office Expenses

The aggregate Office Expenses cost weight was derived using the 2006 AMA PPIS and was calculated as the mean office expenses expressed as a percentage of mean total expenses. This calculation resulted in a 20.035 percent share of total costs in 2006 compared to a 12.209 percent share in the 2000-based index. The Office Expenses cost weight used in the 2000-based MEI was based on the AMA 1997 Socioeconomic Monitoring System (SMS) survey, which defined office expenses as rent, mortgage interest, depreciation on medical buildings, utilities, and telephones. The AMA expanded the office expense question in the 2006 PPIS survey to include additional expenses, described in more detail below in this section.

As a result, and in order to provide for a higher level of precision in assigning appropriate price proxies to underlying costs, we proposed to further disaggregate the Office Expenses cost category into 9 detailed cost categories using the BEA 2002-Benchmark I/O data for Offices of Physicians, Dentists, and Other Health Practitioners (North American Industrial Classification System (NAICS) 621A00). In response to comments, and as described more fully below, we are finalizing those nine categories, as well as adding a tenth detailed cost category.

The proposed Office Expenses cost categories and associated cost weights were developed by matching the BEA I/O data as closely as possible to the 2006 AMA PPIS survey, which defined office expenses as “office (non-medical) equipment and office (nonmedical) supplies, as well as rent, mortgage, interest, maintenance, refrigeration, storage, security, janitorial, depreciation on medical buildings used in your practice, utilities, or other office computer systems (including information management systems/electronic medical record systems) and telephone.” In most instances, the proposed underlying detailed cost categories and associated cost weights were chosen to be consistent with the NAICS 3-digit classification. BEA I/O expense data is published on a NAICS-basis. Some of the proposed underlying detailed cost categories such as All Other Services include various 3-digit NAICS codes for service related industries. Similar methods are used in the other legislatively-required market baskets developed by CMS. After we categorized the BEA I/O data, we calculated the relative share for each category as a percentage of the total office expenses categories within the I/O data. We then aged the 2002 weights forward to 2006 to derive the 2006 detailed Office Expense cost weights as a percent of total Office Expenses. The methodology we used to age the data forward was to apply the annual price changes from each respective price proxy to the appropriate cost categories. We repeated this practice for each year of the interval from 2002 to 2006. We then applied the resulting 2006 distributions to the aggregate 2006 AMA Office Expenses weight of 20.035 percent to yield the detailed 2006 Office Expenses' weights as a percent of total expenses.

In response to public comments that are detailed in the subsequent sections of this rule, we conducted an additional review of the BEA I/O data used to disaggregate the Office Expense cost category, comparing the I/O's detailed categories with the questions on the AMA PPIS survey. This review led to small revisions to the underlying Office Expense cost weights and resulted in the inclusion of one additional cost weight in that category: All Other Products. These products, which were previously assumed to be captured in the Other Professional Expenses category (as measured by the AMA PPIS survey), include a variety of miscellaneous products, such as miscellaneous wood and building products, that we believe respondents included in Office Expenses as maintenance expense. Table 27 provides the revised MEI weights.

We believe the introduction of these new, more detailed categories for the 2006-based index allow for an increased level of precision while maintaining appropriate levels of aggregation in the index. The individual price proxies are described in more detail in section II.E.4.of this final rule.

The following is a description of the types of expenses included in each of the detailed Office Expense cost categories.

  • Utilities: The Utilities cost weight includes expenses classified in the fuel, oil and gas, water and sewage, and electricity industries. These types of industries are classified in NAICS and include NAICS 2211 (Electric power generation, transmission, and distribution), 2212 (Natural gas distribution), and 2213 (Water, sewage, and other systems). The cost weight for utilities is 1.266 percent.
  • Chemicals: The Chemicals cost weight includes expenses classified in the NAICS 325 (Chemical manufacturing), excluding pharmaceuticals and biologicals. This would include, but is not limited to, expenses such as soap and cleaning compounds, as well as photocopier Start Printed Page 73266toners and laser printer toners. The cost weight for chemicals is 0.723 percent.
  • Paper: The Paper cost weight includes expenses classified in NAICS 322 (paper manufacturing) and NAICS 323 (printing and related support activities). This would include expenses associated with items such as paper, paperboard, sanitary paper products, and printing. The cost weight for paper is 0.657 percent.
  • Rubber and Plastics: The Rubber and Plastics cost weight includes expenses classified in NAICS 326 (Plastics and Rubber Products Manufacturing). This would include, but is not limited to expenses associated with plastic bags, plastic trash cans, and plastic plumbing fixtures. The cost weight for Rubber and Plastics is 0.598 percent.
  • Telephone: The Telephone cost weight includes expenses classified in NAICS 517 (Telecommunications) and NAICS 518 (Internet service providers), and NAICS 515 (Cable and other subscription programming). Telephone service, which is one component of the Telecommunications expenses, accounts for the majority of the expenditures in this cost category. The cost weight for Telephone services is 1.501 percent.
  • Postage: The Postage cost weight includes expenses classified in NAICS 491 (Postal services) and NAICS 492 (Courier services). The cost weight for Postage is 0.898 percent.
  • All Other Services: The All Other Services cost weight includes other service expenses including, but not limited to, nonresidential maintenance and repair, machinery repair, janitorial, and security services. This cost weight does not include expenses associated with professional services such as accounting, billing, legal, and marketing which are included in the Other Professional Expenses cost weight derived using the AMA PPIS survey. The cost weight for All Other Services is 3.582 percent.
  • All Other Products: The All Other Products cost weight, which we are adding based upon our further review in response to public comments, includes other miscellaneous expenses, including but not limited to, a variety of miscellaneous building products (such as wood and concrete). The cost weight for All Other Products is 0.500 percent.
  • Fixed Capital: The Fixed Capital cost weight includes expenses for building leases, mortgage interest, and depreciation on medical buildings. The cost weight for Fixed Capital is 8.957 percent.
  • Moveable Capital: The Moveable Capital cost weight includes expenses and depreciation costs for non-medical equipment including but not limited to, computer equipment and software and the rental and leasing of industrial machinery equipment. The cost weight for Moveable Capital is 1.353 percent.

(3) Professional Liability Insurance (PLI) Expense

The proposed weight for PLI expense was derived from the 2006 AMA survey and was calculated as the mean PLI expense expressed as a percentage of mean total expenses. This calculation resulted in a 4.295-percent share of total costs in 2006 compared to a 3.865-percent share in the 2000-based index. The increase in the weight for PLI reflects the current prices of premiums, as well as an update to the level of coverage purchased by physicians in 2006 compared to 2000.

(4) Medical Equipment Expenses

The proposed weight for Medical Equipment was calculated using the 2006 AMA PPIS mean expense data expressed as a percentage of mean total expenses. This calculation resulted in a 1.978-percent share of total costs in 2006 compared to a 2.055-percent share in the 2000-based index. By definition, this category includes the expenses related to depreciation, maintenance contracts, and the leases or rental of medical equipment used in diagnosis or treatment of patients. The category would also include the tax-deductible portion of the purchase price or replacement value of medical equipment, if not leased.

(5) Medical Supplies Expenses

The proposed weight for Medical Supplies was calculated using the 2006 AMA PPIS mean expense data expressed as a percentage of mean total expenses. This calculation resulted in a 1.760-percent share of total costs in 2006 compared to a 2.011-percent share in the 2000-based index. By definition, this category includes the expenses related to medical supplies such as sterile gloves, needles, bandages, specimen containers, and catheters. Additionally, we proposed to exclude the expenses related to separately billable supplies as these expenses are not paid for under the PFS. The Medical Supply cost category does not include expenses related to drugs.

(6) Other Professional Expenses

The proposed weight for Other Professional expenses was calculated using the 2006 AMA PPIS mean expense data expressed as a percentage of mean total expenses. This calculation resulted in a 4.513-percent share of total costs in 2006. By definition, this category includes the expenses related to tax-deductible expenses for any other professional expenses not reported in another category from the PPIS. These expenses would include fees related to legal, marketing, accounting, billing, office management services, professional association memberships, maintenance of certification or licensure, journals and continuing education, professional car upkeep and depreciation, and any other general expenses or other professional expenses not reported elsewhere on the PPIS.

In summary, we are finalizing the proposed 2006-based MEI cost categories and respective cost weights for all categories except for the underlying detailed Office Expense cost categories and cost weights. In response to public comments, we reexamined the BEA I/O data and compared it again with the specific types of costs sought by the AMA PPIS survey question on Office Expenses. Although we are finalizing the proposed Office Expense cost weight of 20.035 percent, our re-evaluation resulted in slight changes to the underlying detail of the Office Expense cost categories and cost weights. Specifically, we are finalizing the nine proposed detailed cost categories and adding one additional detailed cost category, All Other Products. The final detailed cost categories and cost weights for the underlying Office Expense cost categories are shown in Table 27.

Table 29 shows a comparison of the proposed MEI Office Expense cost categories and weights to the final MEI Office Expense cost categories and weights. In addition to adding the subcategory All Other Products, the final Office Expenses' category weights were updated in response to public comments to reflect the removal of automobile-related expenses, which were in effect being double-counted, from the Movable Capital category. Further examination of the AMA's PPIS questions showed that automobile costs, such as those associated with leasing and depreciation, were captured in the question related to other professional expenses and are, thus accounted for in Other Professional Expenses (with a final cost weight of 4.513 percent). Notably, that cost weight is not impacted as, again, those costs were captured there in the survey.Start Printed Page 73267

Table 29—Comparison of Proposed Office Expense Cost Categories and Cost Weights to the Final Office Expense Cost Categories and Cost Weights

Cost categories2006 Final weight (%)2006 Proposed weight (%)
Office Expenses20.03520.035
Utilities1.2661.139
Chemicals0.7230.679
Paper0.6570.616
Rubber & Plastics0.5980.563
Telephone1.5011.415
Postage0.8980.661
All Other Services3.5824.718
All Other Products0.500
Fixed Capital8.9578.410
Moveable Capital1.3531.834

4. Selection of Price Proxies for Use in the MEI

After the 2006 cost weights for the rebased and revised MEI were developed, we reviewed all of the price proxies to evaluate their appropriateness. As was the case in the development of the 2000-based MEI (68 FR 63239), most of the proxy measures we considered are based on BLS data and are grouped into one of the following five categories:

  • Producer Price Indices (PPIs): PPIs measure price changes for goods sold in markets other than retail markets. These fixed-weight indexes are a measure of price change at the intermediate or final stage of production. They are the preferred proxies for physician purchases as these prices appropriately reflect the product's first commercial transaction.
  • Consumer Price Indices (CPIs): CPIs measure changes in the prices of final goods and services bought by consumers. Like the PPIs, they are fixed-weight indexes. Since they may not represent the price changes faced by producers, CPIs are used if there are no appropriate PPIs or if the particular expenditure category is likely to contain purchases made at the final point of sale.
  • Average Hourly Earnings (AHEs): AHEs are available for production and nonsupervisory workers for specific industries, as well as for the nonfarm business economy. They are calculated by dividing gross payrolls for wages & salaries by total hours. The series reflects shifts in employment mix and, thus, is representative of actual changes in hourly earnings for industries or for the nonfarm business economy.
  • ECIs for Wages & Salaries: These ECIs measure the rate of change in employee wage rates per hour worked. These fixed-weight indexes are not affected by employment shifts among industries or occupations and thus, measure only the pure rate of change in wages.
  • ECIs for Employee Benefits: These ECIs measure the rate of change in employer costs of employee benefits, such as the employer's share of Social Security taxes, pension and other retirement plans, insurance benefits (life, health, disability, and accident), and paid leave. Like ECIs for wages & salaries, the ECIs for employee benefits are not affected by employment shifts among industries or occupations.

When choosing wage and price proxies for each expense category, we evaluate the strengths and weaknesses of each proxy variable using the following four criteria:

  • Relevance: The price proxy should appropriately represent price changes for specific goods or services within the expense category. Relevance may encompass judgments about relative efficiency of the market generating the price and wage increases.
  • Reliability: If the potential proxy demonstrates a high sampling variability, or inexplicable erratic patterns over time, its viability as an appropriate price proxy is greatly diminished. Notably, low sampling variability can conflict with relevance—since the more specifically a price variable is defined (in terms of service, commodity, or geographic area), the higher the possibility of high sampling variability. A well-established time series is also preferred.
  • Timeliness of actual published data: For greater granularity and the need to be as timely as possible, we prefer monthly and quarterly data to annual data.
  • Public availability: For transparency, we prefer to use data sources that are publicly available.

The BLS price proxy categories previously described meet the criteria of relevance, reliability, timeliness, and public availability. Below we discuss the price and wage proxies for the rebased and revised MEI (as shown in Table E4), along with a summary of the public comments we received on our proposals and our responses to those comments.

a. Cost (Expense) Categories in the MEI

(1) Physician's Own Time (Physician Compensation)

For the revised and rebased MEI, we proposed to continue to use the AHE for production and non-supervisory employees for the private nonfarm economy as the proxy for the Physician Wages & Salaries component (BLS series code: CEU0500000008).

The AHE for the private nonfarm economy reflects general earnings including the impacts of supply, demand, and economy-wide productivity for the average worker in the economy. As such, use of this proxy is consistent with the original intent of the Congress for the change in the MEI to follow reflect changes in expenses of practice and general earnings levels.[1] The current 2000-based MEI uses the ECI for Total Benefits (BLS series code: CIU2030000000000I) for total private industry as the price proxy for Physician Benefits. We proposed to continue using the same proxy for the 2006-based MEI and received no public comment on this particular aspect of the index. This means that both the wage and benefit proxies for physician earnings are derived from the private nonfarm business sector and are computed on a per-hour basis.

(2) Nonphysician Employee Compensation

For the 2006-based MEI, we proposed to use the same ECI private series for each occupational group as in the 2000-based MEI. In particular, we proposed to use the ECI for Professional and Technical Workers, the ECI for Managerial Services, the ECI for Administrative Support Services, and the ECI for Service Occupations.

As described in the CY 2008 PFS proposed rule (72 FR 38190), as a result of the discontinuation of the White Collar Benefit ECI for private workers, we proposed to continue to use a composite ECI benefit index. We are continuing to use the composite ECI for non-physician employees in the proposed rebased and revised MEI; however, we proposed to rebase the weights within that blend in order to reflect the more recent 2006 data. Table 30 lists the four ECI series and corresponding weights used to construct the 2006 composite benefit index.Start Printed Page 73268

Table 30—CMS Composite Price Index for Nonphysician Employee Benefits

ECI series2006 weight (%)
Benefits, Private, Professional & Related44
Benefits, Private, Management, Business, Financial11
Benefits, Private, Office & Administrative Support32
Benefits, Private, Service Occupations13

(3) Utilities

For the 2006-based MEI, we proposed to use the CPI for Fuel and Utilities (BLS series code #CUUR0000SAH2) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(4) Chemicals

For the 2006-based MEI, we proposed to use the PPI for Other Basic Organic Chemical Manufacturing (BLS series code #PCU32519-32519) to measure the price changes of this cost category. We are using this industry-based PPI because BEA's 2002 benchmark I/O data show that the majority of the office of physicians' chemical expenses are attributable to Other Basic Organic Chemical Manufacturing (NAICS 32519). This cost category was not broken out separately in the 2000-based MEI.

(5) Paper

For the 2006-based MEI, we proposed to use the PPI for Converted Paper and Paperboard (BLS series code #WPU0915) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(6) Rubber and Plastics

For the 2006-based MEI, we proposed to use the PPI for Rubber and Plastic Products (BLS series code #WPU07) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(7) Telephone

For the 2006-based MEI, we proposed to use the CPI for Telephone Services (BLS series code #CUUR0000SEED) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(8) Postage

For the 2006-based MEI, we proposed to use the CPI for Postage (BLS series code #CUUR0000SEEC01) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(9) All Other Services

For the 2006-based MEI, we proposed to use the ECI for Compensation for Service Occupations (private industry) (BLS series code #CIU2010000300000I) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(10) All Other Products

As noted previously, we are adding this category in this final rule with comment period in response to public comments. This category includes a variety of miscellaneous expenses such as miscellaneous building products; thus, we will use the CPI-U for All Items Less Food and Energy as a proxy for price changes. This cost category was not broken out separately in the 2000-based MEI.

(11) Fixed Capital

For the 2006-based MEI, we proposed to use the CPI for Owner's Equivalent Rent (BLS series code #CUUS0000SEHC) to measure the price growth of this cost category. This price index represents about 50 percent of the CPI for Housing, which was used in the 2000-based MEI to proxy total Office Expenses.

(12) Moveable Capital

For the 2006-based MEI, we proposed to use the PPI for Machinery and Equipment (series code #WPU11) to measure the price growth of this cost category. This cost category was not broken out separately in the 2000-based MEI.

(13) Professional Liability Insurance (PLI)

Each year, we solicit PLI premium data for physicians from a sample of commercial carriers. This information is not collected through a survey form, but instead is requested directly from, and provided by (on a voluntary basis), several national commercial carriers. As we require for our other price proxies, the professional liability price proxy is intended to reflect the pure price change associated with this particular cost category. Thus, it does not include changes in the mix or level of liability coverage. To accomplish this result, we obtain premium information from a sample of commercial carriers for a fixed level of coverage, currently $1 million per occurrence and a $3 million annual limit. This information is collected for every State by physician specialty and risk class. Finally, the State-level, physician-specialty data are aggregated by effective premium date to compute a national total, using counts of physicians by State and specialty as provided in the AMA publication, Physician Characteristics and Distribution in the U.S.

The resulting data provide a quarterly time series, indexed to a base year consistent with the MEI, and reflect the national trend in the average professional liability premium for a given level of coverage, generally $1 million/$3 million of claims-made mature policies. From this series, quarterly and annual percent changes in PLI are estimated for inclusion in the MEI.

The most comprehensive data on professional liability costs are held by the State insurance commissioners, but these data are available only with a substantial time lag and hence, the data currently incorporated into the MEI are much timelier. We believe that, given the limited data available on professional liability premiums, the information and methodology described above produces an adequate proxy of the PLI price trends facing physicians.

(14) Medical Equipment

The Medical Equipment cost category includes depreciation, leases, and rent on medical equipment. We proposed to use the PPI for Medical Instruments and Equipment (BLS series code: WPU156201) as the price proxy for this category, consistent with the price proxy used in the 2000-based MEI and other CMS input price indexes.

(15) Medical Materials and Supplies

As was used in the 2000-based MEI, we proposed to use a blended index comprised of a 50/50 blend of the PPI Surgical Appliances (BLS series code: WPU156301) and the CPI-U for Medical Equipment and Supplies (BLS series code: CUUR0000SEMG). We believe physicians purchase the types of supplies contained within these proxies, including such items as bandages, dressings, catheters, intravenous (I.V.) equipment, syringes, and other general disposable medical supplies, via wholesale purchase, as well as at the retail level. Consequently, we proposed to combine the two aforementioned indexes to reflect those modes of purchase.Start Printed Page 73269

(16) Other Professional Expenses

This category includes the residual subcategory of other professional expenses such as accounting services, legal services, office management services, continuing education, professional association memberships, journals, professional car expenses, and other general expenses and other professional expenses not captured elsewhere. Given this heterogeneous mix of goods and services, we are finalizing our proposal to use the CPI-U for All Items Less Food and Energy. In summary, we are finalizing the proposed 2006-based MEI price proxies with one modification. Since an additional cost category, All Other Products, was added to the office expense disaggregation, we are also finalizing the decision to use the CPI for All Items Less Food and Energy as the price proxy for that category.

(b) Productivity Adjustment to the MEI

The MEI has been adjusted for changes in productivity since its inception. In the CY 2003 PFS final rule (67 FR 80019), we implemented a change in the way the MEI was adjusted to account for those changes in productivity. The MEI used for the 2003 physician payment update incorporated changes in the 10-year moving average of private nonfarm business multifactor productivity that were applied to the entire index. Previously, the index incorporated changes in productivity by adjusting the labor portions of the index by changes in the 10-year moving average of economy-wide private nonfarm business labor productivity.

We proposed to continue to use the current method for adjusting the full MEI for multifactor productivity in the rebased and revised MEI, and are finalizing that proposal.

As described in the CY 2003 PFS final rule, we believe this adjustment is appropriate because it explicitly reflects the productivity gains associated with all inputs (both labor and non-labor). We believe that using the 10-year moving average percent change in private nonfarm business multifactor productivity is appropriate for deriving a stable measure that helps alleviate the influence that a peak (or a trough) of a business cycle may have on the measure. The adjustment will be based on the latest available historical e private nonfarm business multifactor productivity data as measured and published by BLS.

5. Results of Rebasing

Table 31 illustrates the results of updating the MEI cost weights for Physician Compensation, Practice Expenses (excluding PLI), and PLI from a 2000-based cost distribution to a 2006-based cost distribution, including all the proposed and finalized revisions as specified in this final rule.

Table 31—Percent Distribution of Selected Physician Expenses Used To Calibrate RVUs: CYs 2006 and 2000

CY 2006 weight (%)CY 2000 weight (%)
Physician Compensation (Own Time)48.26652.466
Practice Expenses (less PLI)47.43943.669
PLI4.2953.865

The rebased and revised MEI has several differences as compared to the 2000-based MEI; these changes have been discussed in detail in prior sections of this rule. Table E8 shows the average calendar year percent change for CY 2004 to CY 2011 for both the 2000- and 2006-based MEIs. The 2006-based MEI annual percent changes differ from the 2000-based MEI annual percent changes by 0.0 to 0.8 percentage point. For CYs 2007 through 2011, the annual percent change in the rebased and revised MEI was within 0.3 percentage point of the percent change in the 2000-based MEI. In the earlier years, there were larger differences between the annual percent change in the rebased and revised MEI and the 2000-based MEI. The majority of these differences can be attributed to the lower benefit cost weight, as measured by the 2006 AMA data, and the exclusion of the Pharmaceuticals cost category. The remaining differences are attributable to the higher cost weight for PLI, as measured by the 2006 AMA data.

Table 32—Annual Percent Changes in the 2000-based and Revised 2006-based MEI

Update year (A)Final 2006-based MEICurrent 2000-based MEI
CY 20042.32.6
CY 20051.82.6
CY 20061.82.4
CY 20071.61.9
CY 20081.91.8
CY 20091.61.6
CY 20101.51.2
CY 2011(B)0.40.3
Average Change for CYs 2004- 20111.61.8
(A) Update year based on historical data through the second quarter of the prior calendar year. For example, the 2010 update is based on historical data through the second quarter 2009.
(B) Based on historical data through the 2nd quarter 2010.

As shown in Table 33, the percent change of the rebased and revised MEI for the CY 2011 PFS final rule is an increase of 0.4 percent, one tenth of a percentage point higher than the 2000-based MEI for the same period. The proposed rule included an estimated increase of 0.3 percent for 2011 based on projected data from IHS Global Insight, Inc. The 0.4 percent increase was calculated based on historical data through the second quarter of 2010, including revised data from the BLS on the 10-year moving average of BLS private nonfarm business multifactor productivity published on October 6, 2010 (http://www.bls.gov/​news.release/​pdf/​prod3.pdf). The 0.1 percentage point difference in the MEI update factor from the 0.3-percent estimate indicated in the proposed rule to our current figure of 0.4 percent is primarily related to the incorporation of more recent historical data for private nonfarm business multifactor productivity.

Table 33—Annual Percent Change in the 2000-based and Revised 2006-based MEI for CY 2011

2006-based MEI2000-based MEI
CY 20110.40.3
Start Printed Page 73270

Table 34—Annual Percent Change in the Revised and Rebased MEI CY 2011, All Categories 1

Cost categories2006 weight 2 (%)CY 2011 percent change
MEI Total, productivity adjusted100.0000.4
Productivity: 10-year moving average of MFPN/A1.2
MEI Total, without productivity adjustment100.0001.6
Physician Compensation (Own Time)348.2662.4
Wages and Salaries43.8802.5
Benefits4.3861.7
Physician's Practice Expenses51.7340.7
Nonphysician Employee Compensation19.1531.5
Nonphysician Employee Wages13.7521.4
Prof/Tech Wages6.0061.2
Managerial Wages1.4461.2
Clerical Wages4.4661.7
Services Wages1.8341.7
Nonphysician Employee Benefits5.4011.6
Other Practice Expenses26.3080.1
Office Expenses20.0350.6
Utilities1.266-3.1
Chemicals0.723-2.5
Paper0.657-0.3
Rubber & Plastics0.598-0.3
Telephone1.5010.8
Postage0.8984.7
All Other Services3.5821.8
All Other Products0.5001.4
Fixed Capital8.9570.6
Moveable Capital1.3530.1
PLI 44.295-2.9
Medical Equipment1.9780.5
Medical Materials and Supplies1.7600.4
Other Professional Expenses4.5131.4
1 The estimates are based upon the latest available Bureau of Labor Statistics data on the 10-year moving average of BLS private nonfarm business multifactor productivity published on October 6, 2010 (http://www.bls.gov/​news.release/​pdf/​prod3.pdf).
2 The weights shown for the MEI components are the 2006 base-year weights, which may not sum to subtotals or totals because of rounding. The MEI is a fixed-weight, Laspeyres input price index whose category weights indicate the distribution of expenditures among the inputs to physicians' services for CY 2006. To determine the MEI level for a given year, the price proxy level for each component is multiplied by its 2006 weight. The sum of these products (weights multiplied by the price index levels) yields the composite MEI level for a given year. The annual percent change in the MEI levels is an estimate of price change over time for a fixed market basket of inputs to physicians' services.
3 The measures of Productivity, Average Hourly Earnings, Employment Cost Indexes, as well as the various Producer and Consumer Price Indexes can be found on the Bureau of Labor Statistics (BLS) Web site at http://stats.bls.gov.
4 Derived from a CMS survey of several major commercial insurers.
N/A Productivity is factored into the MEI as a subtraction from the total index growth rate; therefore, no explicit weight exists for productivity in the MEI.

6. Medicare Economic Index Technical Advisory Panel

In the CY 2011 PFS proposed rule, we notified the public of our intent to convene a Medicare Economic Index Technical Advisory Panel (MEI TAP) to study all aspects of the MEI including its cost categories, their associated cost weights and price proxies, and the adjustment of the index by an economy-wide measure of multi-factor productivity. We will be convening the MEI TAP. More details regarding this issue can be found in the next section of this rule.

7. Summary of Comments and the Associated Responses

a. Timing of Rebasing and Revising the MEI

Comment: Many commenters support the rebasing and revising of the MEI using CY 2006 as a base year and the incorporation of practice cost changes reflected in the 2006 AMA PPIS. Many of these commenters also indicated their support for the upcoming MEI technical advisory panel, but stressed that CMS should not delay moving forward with rebasing and revising the MEI for CY 2011. Several people wrote that they believe that the rebasing, along with the addition of new product categories, will result in a more accurate distribution of expenses among physician compensation, practice expense, and professional liability. The commenters believe that the proposal to rebase to 2006 will make the MEI more representative of current conditions in the health care marketplace and, in particular, more reflective of the higher burden of practice expenses in relation to physician compensation in modern physician practices. The commenters agree that the use of more current data and the expansion of the categories used in determining the MEI update are a technical improvement over the 2000-based MEI and urge CMS to proceed accordingly.

Response: We agree with the commenters that the 2006-based MEI reflects a more current estimate of the cost distribution associated with furnishing physicians' services. Therefore we are finalizing our proposals (with minor modifications described above) to rebase and revise the MEI, and are proceeding with implementation of the 2006-based MEI for CY 2011.

Comment: Many commenters indicated CMS should postpone implementation of the rebased and revised MEI until the MEI technical advisory panel can conduct a comprehensive review of all aspects of the index. These commenters believe that it is premature to finalize proposals Start Printed Page 73271that will significantly change the MEI prior to receiving recommendations from the technical advisory panel and therefore strongly support convening the technical advisory panel first and rebasing and revising the MEI afterwards.

Response: We agree with the commenters that the MEI technical advisory panel should move forward (discussed in more detail below). However, we do not find any compelling technical reason to postpone finalizing the proposed changes to the index. We believe rebasing and revising the index for CY 2011 to reapportion the work, practice expense, and malpractice weights will allow the MEI to appropriately reflect more recent data. For these reasons we disagree with the commenters that support delaying the rebasing of the MEI until the technical panel has had a chance to convene and make further recommendations. Should we concur with recommendations from the technical advisory panel that would result in technical improvements to the MEI, we would propose any changes in a future rulemaking exercise.

Comment: One commenter questioned the need for changes in the MEI in 2011, particularly since there is no statutory timeframe for these changes and the most recent changes in practice expenses from the PPIS survey are in the first year of a 4-year phase-in.

Response: The current MEI reflects the physician practice cost structure for 2000. Based on both our own analysis and supporting public comments, it is evident that this cost structure has changed from 2000 to 2006. Accordingly, we believe it is technically appropriate to update to a more recent base year for use in CY 2011.

Comment: A commenter suggested that when rebasing is done in the future, CMS should propose phasing in the changes, perhaps over 2 years, in order to mitigate negative consequences.

Response: We do not believe it would be appropriate to phase in changes to the MEI associated with rebasing and revising the index. These periodic efforts are done to ensure that the MEI is reflecting the latest available information and echoes current cost distributions associated with furnishing physicians' services. Our approach is consistent across all of the Medicare market baskets in this regard and is likewise consistent with how technical improvements are incorporated into other published price indexes, such as the CPI or PPI.

Comment: Some commenters asked CMS to delay rebasing the MEI until the summit on geographic practice costs and the IOM studies have been completed.

Response: We believe that it is technically appropriate to update the MEI to reflect the more current cost structure as determined by using the 2006 AMA PPIS data. We note that the MEI is constructed independent of the GPCIs. While the GPCI weights have historically been linked to the MEI cost weights, we do not believe it would be appropriate to postpone rebasing the MEI in anticipation of the summit's or the IOM's findings.

b. PPIS Data

Comment: Many commenters stated they, like CMS, are unaware of another more robust or more current source of available data on physician practice costs than the PPIS. Other commenters noted that CMS and the AMA have supported using PPIS data to update the practice expense per hour (PE/HR) calculations beginning in CY 2010. The commenters believe that if the data were sufficient to adjust PE/HR, then they are sufficient to update the MEI. Other commenters indicate they support periodic updates to the index, recognizing the difficulties associated with updating the MEI's cost categories and weights on an annual basis.

Response: We agree with the commenters that the PPIS is the most up-to-date and comprehensive data source available on physician practice costs. We also believe that the estimates derived from the PPIS are current, valid, and appropriate for use in rebasing and revising the MEI. Likewise, we concur that a variety of data-related issues would make updating the MEI on an annual basis difficult and believe that periodic revisions such as the one we are adopting in this final rule with comment period are more appropriate.

Comment: A few commenters expressed general concerns over using data from the PPIS. One commenter specifically notes that the MEI changes are allegedly being proposed to reflect changes in med