Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa, Discover, or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register .

To order the disks containing this document, send your request to: Superintendent of Documents, Attention: Electronic Products, P.O. Box 37082, Washington, DC 20013-7082. Please specify, “Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2001,” and enclose a check or money order payable to the Superintendent of Documents, or enclose your VISA, Discover, or MasterCard number and expiration date. Credit card orders can be placed by calling the order clerk at (202) 512-1530 (or toll free at 1-888-293-6498) or by faxing to (202) 512-1262. The cost of the four disks is $25.

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

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

1. Go to the HCFA homepage (­http://www.hcfa.gov).

2. Click on “Medicare.”

3. Click on “Professional/Technical Information.”

4. Select Medicare Payment Systems.

5. Select Physician Fee Schedule.

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

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

Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), “Payment for Physicians' Services.” This section contains three major elements—(1) a fee schedule for the payment of physicians' services; (2) a sustainable growth rate for the rates of increase in Medicare expenditures for physicians' services; and (3) limits on the amounts that nonparticipating physicians can charge beneficiaries. The Act requires that payments under the fee schedule be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense, and malpractice expense.

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

In the July 2000 proposed rule (65 FR 44177), we listed all of the final rules published through November 1999, relating to the updates to the RVUs and revisions to payment policies under the physician fee schedule. In the July 2000 proposed rule (65 FR 44176), we discussed several issues affecting Medicare payment for physicians' services, including:

Refinement of resource-based practice expense RVUs;

• Changes to the geographic practice cost indices;

• Resource-based malpractice RVUs;

• Critical care RVUs;

• Care plan oversight and physician certification/recertification;

• Observation care codes;

• Ocular photodynamic therapy and other ophthalmological treatments;

• Electrical bioimpedance;

• The global period for insertion, removal, and replacement of pacemakers and cardioverter defibrillators;

• Antigen supply;

• Low intensity ultrasound; and

• The implantation of ventricular assist devices.

This proposed rule also discussed or clarified the payment policy for incomplete medical direction, pulse oximetry services, outpatient therapy supervision, outpatient therapy caps, and the second 5-year refinement of work RVUs for services furnished beginning January 1, 2002.

This final rule affects the regulations set forth at part 410, Supplementary medical insurance (SMI) benefits and part 414, Payment for Part B medical and other services.

The information in this final rule updates information in the July 2000 proposed rule and the May 3, 2000 interim final rule with comment period (65 FR 25664) discussed later.

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

For each physician fee schedule service, there are three relative values—(1) an RVU for physician work; (2) an RVU for practice expense; and (3) an RVU for malpractice expense. For each of these components of the fee schedule there is a geographic practice cost index (GPCI) for each fee schedule area. The GPCIs reflect the relative costs of practice expenses, malpractice insurance, and physician work in an area compared to the national average for each component.

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

The CF for CY 2001 appears in section V. The RVUs for CY 2001 are in Addendum B. The GPCIs for CY 2001 can be found in Addendum E.

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

Approximately 7,500 codes represent services included in the physician fee schedule. The 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 work RVUs for most codes in a cooperative agreement with us. In constructing the vignettes for the original RVUs, Harvard worked with panels of expert physicians and obtained input from physicians from numerous specialties.

The RVUs for radiology services were based on the American College of Radiology (ACR) relative value scale, which we integrated into the overall physician fee schedule. The RVUs for anesthesia services were based on RVUs from a uniform relative value guide. We established a separate CF for anesthesia services while we continue to recognize time as a factor in determining payment for these services. As a result, there is a separate payment system for anesthesia services.

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. No. 103-432), enacted on October 31, 1994, required us to develop a methodology for a resource-based system for determining practice expense RVUs for each physician service. As amended by the Balanced Budget Act of 1997 (BBA) (Pub. L. No. 105-33), section 1848(c) required the new payment methodology to be phased in over 4 years, effective for services furnished in 1999, with resource-based practice expense RVUs becoming fully effective in 2002. The BBA also requires us to implement resource-based malpractice RVUs for services furnished beginning in 2000.

In response to the publication of the July 2000 proposed rule, we received approximately 600 comments. We received comments from individual physicians, health care workers, and professional associations and societies. The majority of comments addressed the proposals related to practice expense, observation care, antigen supplies, care plan oversight, and certification and recertification of home health services.

The proposed rule discussed policies that affected the number of RVUs on which payment for certain services would be based. Certain changes implemented through this final rule are subject to the $20 million limitation on annual adjustments contained in section 1848(c)(2)(B)(ii)(II) of the Act.

After reviewing the comments and determining the policies we would implement, we have estimated the costs and savings of these policies, and added those costs and savings to the estimated costs associated with any other changes in RVUs for 2001. We discuss in detail the effects of these changes in the Regulatory Impact Analysis (section X).

For the convenience of the reader, the headings for the policy issues correspond to the headings used in the July 2000 proposed rule. More detailed background information for each issue can be found in the May 2000 interim final rule with comment period and the July 2000 proposed rule.

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. No. 103-432), enacted on October 31, 1994, required us to develop a methodology for a resource-based system for determining practice expense RVUs for each physician's services beginning in 1998. In developing the methodology, we were to consider the staff, equipment, and supplies used in furnishing medical and surgical services in various settings. The legislation specifically required that, in implementing the new system of practice expense RVUs, we must apply the same budget-neutrality provisions that we apply to other adjustments under the physician fee schedule.

Section 4505(a) of the BBA delayed the effective date of the resource-based practice expense RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge-based practice expense RVUs to resource-based RVUs. The practice expense RVUs for CY 1999 were the product of 75 percent of charge-based RVUs and 25 percent of the resource-based RVUs. For CY 2000, the RVUs were 50 percent charge-based and 50 percent resource-based. For CY 2001, the RVUs are 25 percent charge-based and 75 percent resource-based. After CY 2001, the RVUs will be totally resource-based.

Section 4505(e) of the BBA provided that, in 1998, the practice expense RVUs would be adjusted for certain services in anticipation of the implementation of resource-based practice expenses beginning in 1999. As a result, we increased practice expense RVUs for office visits. For other services in which practice expense RVUs exceeded 110 percent of the work RVUs and were furnished less than 75 percent of the time in an office setting, we reduced the 1998 practice expense RVUs to a number equal to 110 percent of the work RVUs. This limitation did not apply to services that had proposed resource-based practice expense RVUs that increased from their 1997 practice expense RVUs as reflected in the June 18, 1997 proposed rule (62 FR 33196). The services affected, and the final RVUs for 1998, were published in the October 1997 final rule (62 FR 59103).

The most recent legislation affecting resource-based practice expense was included in the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. No. 106-113). Section 212 of the BBRA stated that we must 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. These data would supplement the data we normally collect in determining the practice expense component of the physician fee schedule for payments in CY 2001 and CY 2002.

Effective with services on or after January 1, 1999, we established a new methodology for computing resource-based practice expense RVUs that used the two significant sources of actual practice expense data we have available: the Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The methodology is based on an assumption that current aggregate specialty practice costs are a reasonable way to establish initial estimates of relative resource costs of physicians' services across specialties. It then allocates these aggregate specialty practice costs to specific procedures and, thus, can be considered as a “top-down” approach. The methodology can be summarized as follows:

a. Practice Expense Cost Pools. We used actual practice expense data by specialty, derived from the 1995 through 1997 SMS survey data, to create six cost pools—administrative labor, clinical labor, medical supplies, medical equipment, office supplies, and all other expenses. There were three steps in the creation of the cost pools.

• Step (1) We used the AMA's SMS survey of actual cost data to determine practice expenses per hour by cost category. The practice expenses per hour for each physician respondent's practice was calculated as the practice expenses for the practice divided by the total number of hours spent in patient care activities. The practice expenses per hour for the specialty were an average of the practice expenses per hour for the respondent physicians in that specialty. In addition, for the CY 2000 physician fee schedule, we used data from a survey submitted by the Society of Thoracic Surgeons (STS) in calculating thoracic and cardiac surgery's practice expense per hour. (See the November 1999 final rule (64 FR 59391) for additional information concerning acceptance of this data.)

• Step (2) We determined the total number of physician hours (by specialty) spent treating Medicare patients. This was calculated from physician time data for each procedure code and from Medicare claims data.

• Step (3) We calculated the practice expense pools by specialty and by cost category by multiplying the specialty practice expenses per hour for each category by the total physician hours.

For services with work RVUs equal to zero (including the technical component (TC) of services with a TC and professional component (PC)), we created a separate practice expense pool, using the average clinical staff time from the CPEP data (since these codes by definition do not have physician time), and the “all physicians” practice expense per hour.

b. Cost Allocation Methodology. For each specialty, we separated the six practice expense pools into two groups and used a different allocation basis for each group.

For direct costs (including clinical labor, medical supplies, and medical equipment), we used the CPEP data as the allocation basis. The CPEP data for clinical labor, medical supplies, and medical equipment were used to allocate the clinical labor, medical supplies, and medical equipment cost pools, respectively.

For the separate practice expense pool for services with work RVUs equal to zero, we used 1998 practice expense RVUs to allocate the direct cost pools (clinical labor, medical supplies, and medical equipment cost pools) as an interim measure. Also, for all radiology services that are assigned work RVUs, we used the 1998 practice expense relative values for radiology services as an interim measure to allocate the direct practice expense cost pool for radiology. For all other specialties that perform radiology services, we used the CPEP data for radiology services in the allocation of that specialty's direct practice expense cost pools.

To allocate the cost pools for indirect costs, including administrative labor, office expenses, and all other expenses, we used the total direct costs, as described above, in combination with the physician fee schedule work RVUs. We converted the work RVUs to dollars using the Medicare CF (expressed in 1995 dollars for consistency with the SMS survey years).

The SMS pool was divided by the CPEP pool for each specialty to produce a scaling factor that was applied to the CPEP direct cost inputs. This was intended to match costs counted as practice expenses in the SMS survey with items counted as practice expenses in the CPEP process. When the specialty-specific scaling factor exceeds the average scaling factor by more than three standard deviations, we used the average scaling factor. (See the November 1999 final rule (64 FR 59390) for further discussion of this issue).

For procedures performed by more than one specialty, the final procedure code allocation was a weighted average of allocations for the specialties that perform the procedure, with the weights being the frequency with which each specialty performs the procedure on Medicare patients.

c. Other Methodological Issues.

For services with the PC and TC paid under the physician fee schedule, the global practice expense RVUs were set equal to the sum of the PC and TC.

Since many specialties identified in our claims data did not correspond exactly to the specialties included in the practice expense tables from the SMS survey data, it was necessary to crosswalk these specialties to the most appropriate SMS specialty category. We also made the following adjustments to the practice expense per hour data. (For the rationale for these adjustments to the practice expense per hour see the November 1998 final rule (63 FR 58841).)

• We set the medical materials and supplies practice expenses per hour for the specialty of “oncology” equal to the “all physician” medical materials and supplies practice expenses per hour.

• We based the administrative payroll, office, and other practice expenses per hour for the specialties of “physical therapy” and “occupational therapy” on data used to develop the salary equivalency guidelines for these specialties. We set the remaining practice expense per hour categories equal to the “all physician” practice expenses per hour from the SMS survey data.

• Due to uncertainty concerning the appropriate crosswalk and time data for the nonphysician specialty “audiologist,” we derived the resource-based practice expense RVUs for codes performed by audiologists from the practice expenses per hour of the other specialties that perform these codes.

• For the specialty of “emergency medicine,” we used the “all physician” practice expense per hour to create practice expense cost pools for the categories “clerical payroll” and “other expenses.”

• For the specialty of “podiatry,” we used the “all physician” practice expense per hour to create the practice expense pool.

• For the specialty of “pathology,” we removed the supervision and autopsy hours reimbursed through Part A of the Medicare program from the practice expense per hour calculation.

• For the specialty “maxillofacial prosthetics,” we used the “all physician” practice expense per hour to create practice expense cost pools and, as an interim measure, allocated these pools using the 1998 practice expense RVUs.

• We split the practice expenses per hour for the specialty “radiology” into “radiation oncology” and “radiology other than radiation oncology” and used this split practice expense per hour to create practice expense cost pools for these specialties.

The time data resulting from the refinement of the work RVUs have been, on average, 25 percent greater than the time data obtained by the Harvard study for the same services. We increased the Harvard research team's time data to ensure consistency between these data sources.

For services with no assigned physician time (such as, dialysis, physical therapy, psychology, and many radiology and other diagnostic services), we calculated estimated total physician time based on work RVUs, maximum clinical staff time for each service as shown in the CPEP data, or the judgment of our clinical staff.

We calculated the time for CPT codes 00100 through 01996, using the base and time units from the anesthesia fee schedule and the Medicare allowed claims data.

Section 4505(d)(1)(C) of the BBA required us to develop a refinement process to be used during each of the 4 years of the transition period. We did not propose a specific long-term refinement process in the June 1998 proposed rule (63 FR 30835). Rather, we set out the parameters for an acceptable refinement process for practice expense RVUs and solicited comments on our proposal. We received a large variety of comments about broad methodology issues, practice expense per hour data, and detailed code level data. We made some adjustments to our proposal when we were convinced an adjustment was appropriate. We also indicated that we would consider other comments for possible refinement and that the values of all codes would be considered interim for 1999 and for future years during the transition period.

We outlined in the November 1998 final rule (63 FR 58832) the steps we were undertaking as part of the initial refinement process. These steps included—

• Establishment of a mechanism to receive independent advice for dealing with broad practice expense RVU technical and methodological issues;

• Evaluation of any additional recommendations from the General Accounting Office, the Medicare Payment Advisory Commission (MedPAC), and the Practicing Physicians Advisory Council (PPAC); and

• Consultation with physician groups and other groups concerning these issues.

We also discussed a proposal submitted by the AMA's Specialty Society Relative Value Update Committee (RUC) for development of a new advisory committee, the Practice Expense Advisory Committee (PEAC), to review comments and recommendations on the code-specific CPEP data during the refinement period. In addition, we solicited comments and suggestions about our practice expense methodology from organizations that have a broad range of interests and expertise in practice expense and survey issues.

In the July 22, 1999 proposed rule, the November 1999 final rule, and the July 2000 proposed rule, we provided further information on refinement activities underway, including the recommendations from the PEAC and the support contract that we awarded to focus on methodologic issues. The following is an update on activities with respect to these initiatives, as well as the status of refinement with respect to other areas of concern such as the SMS data and CPEP inputs.

We have received many comments on both our 1998 and 1999 proposed and final rules from a number of medical specialty societies expressing concerns regarding the accuracy of the SMS data. Some commenters stated their belief that the sample size for their specialty was not large enough to yield reliable data. Other specialties not represented in the SMS survey objected that the crosswalk used for their practice expense per hour was not appropriate and requested that their own data be used instead. Commenters also raised questions about whether the direct patient care hours for their specialty were overstated by the SMS to the specialty's disadvantage.

We consider dealing with these issues to be one of the major priorities of the refinement effort. Therefore, we have undertaken the following activities:

On May 3, 2000, we published an interim final rule (65 FR 25664) that set forth the criteria for physician and non-physician specialty groups to submit supplemental practice expense survey data for use in determining payments under the physician fee schedule. Section 212 of the BBRA amended section 1848(c) of the Act to require us to establish a process under which we will accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations. These data will supplement the data we normally collect in determining the practice expense component of the physician fee schedule for payments in CY 2001 and CY 2002.

To obtain data that could be used in computing practice expense RVUs beginning January 1, 2001, we published the criteria in the May 2000 interim final rule (65 FR 25666) that we will apply to supplemental survey data submitted to us by August 1, 2000. We also provided a 60-day period for submission of comments on the criteria that we will consider for survey data submitted between August 2, 2000 and August 1, 2001 for use in computing the practice expense RVUs for the CY 2002 physician fee schedule. (See the May 2000 interim final rule for further information on the criteria and process). We are responding to comments received on the interim final rule in this rule, and are publishing the criteria to be used for 2001 submission.

The following are specific criteria and discussion in the May 2000 interim final rule.

• Physician groups must draw their sample from the AMA Physician Masterfile to ensure a nationally representative sample that includes both members and non-members of a physician specialty group.

• Physician groups must arrange for the AMA to send the sample directly to their survey contractor to ensure confidentiality of the sample; that is, to ensure comparability in the methods and data collected, specialties must not know the names of the specific individuals in the sample.

• Non-physician specialties not included in the AMA's SMS must develop a method to draw a nationally representative sample of members and non-members. At a minimum, these groups must include former members in their survey sample. The sample must be drawn by the non-physician group's survey contractor, or another independent party, in a way that ensures the confidentiality of the sample; that is, to ensure comparability in the methods and data collected, specialties must not know the names of the specific individuals in the sample.

• A group (or its contractors) must conduct the survey based on the SMS survey instruments and protocols, including administration and follow-up efforts, and definitions of practice expense and hours in patient care. In addition, any cover letters or other information furnished to survey sample participants must be comparable to such information previously supplied by the SMS contractor to its sample participants.

• A group must use a contractor that has experience with the SMS or a survey firm with experience successfully conducting national multi-specialty surveys of physicians using nationally representative random samples.

• A group must submit raw survey data to us, including all complete and incomplete survey responses as well as any cover letters and instructions that accompanied the survey, by August 1, 2000 for data analysis and editing to ensure consistency. All personal identifiers in the raw data must be eliminated. (Send data to Health Care Financing Administration, Department of Health and Human Services, Attn: Kenneth Marsalek, C4-03-06, 7500 Security Boulevard, Baltimore, MD 21244-8013.)

• Raw survey data submitted to us between August 2, 2000 and August 1, 2001 will be considered for use in computing practice expense RVUs for CY 2002.

• The physician practice expense data from surveys that we use in our code-level practice expense calculations are the practice expenses per physician hour in the six practice expense categories—clinical labor, medical supplies, medical equipment, administrative labor, office overhead, and other. Supplemental survey data must include data for these categories. Ideally, we would like to calculate practice expense values with precision; however, we recognize that we must achieve a balance. Conducting surveys is expensive, and there is a tension between achieving large sample sizes, which increases precision, and smaller ones, which conserves costs.

In addition, in the May 2000 interim final rule (65 FR 25666) we indicated that we believed an achievable level of precision is a coefficient of variation, that is, the ratio of the standard error of the mean to the mean expressed as a percent, not greater than 10 percent, for overall practice expenses or practice expenses per hour. For existing surveys the standard deviation is frequently the same magnitude as the mean. If the standard deviation equals the mean, then a usable sample size of 100 will yield a coefficient of variation of 10 percent. For small, homogeneous subspecialties, the variations in practice expenses may be lower because a smaller sample size achieves this level of precision. Other ways of expressing precision (for example, 95 percent confidence intervals) are also acceptable if they are approximately equivalent to a coefficient of variation of 10 percent or better. We indicated that will consider surveys for which the precision of the practice expenses are equal to or better than this level of precision and that meet the other survey criteria. Also, we indicated that we will require documentation regarding how the practice expenses were calculated and we will verify the calculations. We have the statutory authority, however, to determine the final practice expense RVUs.

We also indicated that, since the physician fee schedule is a national fee schedule, we would require that the survey be representative of the target population of physicians nationwide. We can presume national representativeness if a random sample is drawn from a complete nationwide listing of the physician specialty or subspecialty and the response rate, the percent of usable responses received from the sample, is high, for example, 80 to 90 percent. If any of these conditions (random sample, complete nationwide listing, and high response rate) are not achieved, then the potential impacts of the deviations upon national representativeness must be explored and documented. For example, if the response rate is low, then justification must be furnished to demonstrate that the responders are not significantly different from non-responders with regard to factors affecting practice expense. Differential weighting of subsamples may improve the representativeness. Minor deviations from national representativeness may be acceptable.

We received comments from 17 specialty groups concerning the criteria for the acceptance of supplemental data. While many of these comments contained positive feedback on aspects of our interim final rule, they all contained statements of opposition to specific requirements and/or suggestions for improving the process. Outlined below are the comments from specialty groups and our responses concerning the requirements for supplemental survey data.

Comment: Four groups stated that the requirement for survey respondents to be drawn solely from the AMA Physician Masterfile is inappropriate for the specialties of radiology and radiation oncology. They believe that hospital-based radiologists and radiation oncologists do not encounter the same practice expenses for staff and supplies as those radiologists and radiation oncologists working in freestanding centers. According to the groups, radiologists and radiation oncologists working in a freestanding center encounter capital intensive TC services not incurred by hospital-based physicians and, often, these TC component costs are borne by non-physician entities not included in the Physician Masterfile. The groups also believe that the small number of radiologists and radiation oncologists who own and operate a freestanding center will not be represented in a sample from the Physician Masterfile. The groups suggest that we work with the professional community to develop a list of freestanding radiation centers from which we could extract a geographically diverse sample. Alternatively, the groups suggest that, because of potential low response rates, we include all radiation practices in the survey sample and use the data for those physicians not working at freestanding centers only in the calculation of PC services.

One group expressed concern that by sampling from the AMA Physician Masterfile, a substantial number of emergency medicine practices are overlooked. The small number of physician practice owners leads to a strong possibility that these owners will not be selected in the random sample. They suggest that we permit an additional sample of large emergency medicine practice groups to supplement the current survey.

Response: The Physician Masterfile is the most extensive list of physicians in the United States, and, therefore, we believe it is the most appropriate list from which to develop a random sample of physicians within a specialty. Currently, we are not aware of a complete list of radiation and radiation oncology practices or emergency medicine practice groups that exists that is more comprehensive than the Physician Masterfile with the information necessary to extract a representative random sample. If such a list were to exist or be developed in the future, we would consider the appropriateness and potential uses for sampling. We would welcome information from physician and other organizations on specific data sources from which representative samples of physicians could be selected, if there is concern that the AMA Masterfile is not a comprehensive list for the specialty.

Comment: One group commented that the AMA Physician Masterfile may contain “self-designated” dermatologists who do not meet the criteria for “qualified” dermatologists. They defined “qualified” dermatologists as board certified dermatologists, associates and affiliate members such as osteopathic dermatologists, physicians conducting research in dermatology, and practicing dermatologists certified by a foreign board but now practicing in the United States. According to the group, other, “self-designated” dermatologists should not be included in the sample for dermatology because their practice expense data could be unrepresentative and potentially damaging to the practice expense RVUs for dermatology.

Response: Self-designation of specialty is not unique to dermatologists. In the Physician Masterfile, all specialties are based on self-designation. The SMS survey deals with the issue of self-designation by asking respondents if their specialty designation is representative of the specialty practice from which they gain the majority of their medical income. It is important to note that if any physician who is self-designated as a dermatologist furnishes dermatological services to Medicare patients, it is appropriate for this physician to be included in the sample because this physician receives income for dermatological services.

Comment: Three groups suggested that the requirement to sample from the Physician Masterfile may not be reasonable, as it serves only to limit specialties' ability to present alternative data to us. They noted that the requirement to sample from the Physician Masterfile is based on the assumption that physicians outside of the specialty group have different costs than members of the group. One commenter maintained that the substantial variance in practice expenses within members' practices makes it unlikely that non-members' practices would extend this variance. In addition, one group suggested that societies representing a smaller proportion of specialty practitioners should be allowed to explore options for addressing potential bias beyond sampling from the Physician Masterfile. According to the group, nonmembers of a specialty society are unlikely to respond to what they consider a time-consuming and intrusive survey about sensitive financial issues.

Response: We believe that the commenter is arguing that is should be sufficient to draw a sample from the members of a specialty society because there is unlikely to be a difference in practice expense per hour between members and nonmembers of a specialty society. Our goal in collecting practice expense data is to create practice expense values that reflect the costs of both members and non-members of a specialty society. We cannot assume that the average practice expenses of members and non-members of a specialty group are comparable without data to support this finding. The AMA Physician Masterfile is the most comprehensive list of physicians practicing in the United States. A specialty society's members are likely to include only a portion of the physicians practicing in that specialty. Thus, we believe that it is likely that a random sample selected from the AMA Physician Masterfile is going to be more representative of a specialty than a sample drawn from a specialty society's membership list. For this reason, we are maintaining the requirement that the sample of physicians must be drawn from the AMA Physician Masterfile.

Comment: One group expressed concern that the SMS survey does not account for care hours induced by the Emergency Treatment and Labor Act (EMTALA) in the patient care hours question, thereby overstating the hours and understating the practice expense costs. They recommend that a question be added to the SMS that asks respondents about the patient care hours they spend in an average week providing EMTALA-induced care. Each specialty's average amount of EMTALA-induced care should then be deducted from the total hours spent in patient care. The commenter recognized that this is a long-term recommendation and wished to work on an interim solution with us.

Response: We understand the group's concerns and have contracted with The Lewin Group to provide recommendations on both the modification of future surveys to account for EMTALA-induced patient care hours and the use of these data to adjust practice expense values. We have also made specific comments to the AMA requesting that this issue be addressed in any future work they may do with regard to collecting survey data. In the interim, we have made an adjustment to the practice expense per hour for emergency medicine to address this issue. We have no reason to believe emergency medicine is being disadvantaged in the interim as a result of this adjustment. We will consider The Lewin Group's recommendations.

Comment: Six groups questioned the adequacy of the SMS survey for the purpose of accurately assessing a particular specialty's practice expenses. For example, one group believes that additional questions are needed to account for cardiology TC questions. They recommend that we revise the criteria for supplemental surveys to allow for the collection of additional data through specialty-specific questions.

Response: We consider the SMS survey to be adequate for the purpose of accurately assessing practice expenses. However, we agree that additional clarification and examples tailored to specific specialties may improve the accuracy of the data collected. Although we do not want specialties to change the basic structure of the SMS practice expense module, we have not precluded any groups from collecting additional data specific to the specialty in their supplemental surveys.

Comment: One group suggested that we adopt the AMA's practice level Practice Expense survey in place of the SMS and revise the criteria for supplemental survey data accordingly. They also suggested that our references to the SMS survey may be misunderstood by specialty groups referencing the AMA's practice level survey instrument, and that we must clarify this distinction. Two groups recommended that the specialty groups should collect practice level data, rather than individual physician estimates. One group also suggested that a practice level survey should be developed to more appropriately capture the practice expenses.

Response: The AMA has fielded the practice expense level survey with minimal success. At this time, we understand that the AMA does not plan to continue with the practice expense level survey. We are currently using the physician level SMS as the basis for supplemental surveys, and will continue to use this survey to maintain consistency with our existing data. We cannot use the AMA's practice level survey, or any other survey, until it has been evaluated to determine if the survey data can be incorporated into our practice expense methodology. In addition, we would have to determine if it is possible to reconcile the outcomes of the physician level and practice level surveys. We have asked The Lewin Group to review the AMA's practice level survey to determine how the data collected could be used to calculate practice expenses per hour values.

Comment: Four groups requested that specialty groups be allowed to conduct the supplemental surveys by mail with follow-up phone interviews. The groups believe this will reduce the cost of administering a survey.

Response: As explained previously, to help obtain comparable data, we believe supplemental surveys should follow the SMS methodology.

Comment: Two groups expressed concern that requiring cover letters and other information furnished to survey participants to be comparable to those supplied by the SMS contractor will hamper response rates. They believe specialty groups should be able to provide correspondence that explains the importance of the data for the benefit of the specialty without our “censorship.”

Response: Although specialty-specific correspondence may increase response rates, it could potentially introduce bias into the practice expense data. We believe that it is essential to obtain unbiased data.

Comment: One group suggested we use the tax form 1120 as a foundation for validating practice expense data. They suggested that independent accountants could be used to compare the practice expense data submitted to the actual expenses on the tax form.

Response: The Lewin Group has considered this recommendation and, after discussions with the AMA and numerous physician specialty groups, has determined that practitioners may not respond to the survey if they believe their data may be audited. However, The Lewin Group does believe that a closer link between the survey worksheet and a practice's tax forms may improve the accuracy of the data. We may consider this as a longer-term refinement issue.

Comment: One group recommended that we develop a workable alternative to the SMS survey. They noted the indefinite suspension of the SMS survey, and the lack of evidence that the SMS is the best source of obtaining practice expense data at the specialty level as reasons for their suggestion. They suggested we develop a set of core questions and standard definitions to be incorporated in each specialty's survey. If we create an alternative to the SMS, They requested that we take into account the extensive amount of time involved in designing and conducting an effective practice expense survey.

Response: The Lewin Group has already worked with specialty groups to modify the SMS survey for administration as a supplemental survey. The Lewin Group will continue to help specialty groups field supplemental surveys.

Comment: One group requested that we keep the specialty groups updated on the status of the SMS survey and any potential solutions or alternate plans we develop to account for the absence of new SMS data. They stated that keeping the specialties current would allow them to anticipate extra spending on survey projects.

Response: The best source of current information on the status of the SMS survey would, of course, be from the AMA. Any plans on our part would be included in information provided as part of future revisions to practice expenses.

Comment: Seven groups objected to the response rate of 80 to 90 percent mentioned as a criterion for the presumed national representativeness of a sample. The groups stated that the SMS has never achieved a response rate this high, and that specialty groups should not be expected to achieve a response rate higher than that achieved by the SMS. Two groups suggested an acceptable response rate of 30 to 40 percent, and the American Academy of Ophthalmology (AAO) suggested an acceptable response rate of 30 percent. The ACR requested an acceptable response rate of no higher than 65 percent. Three groups objected to our response rate but did not suggest an alternative rate.

Response: The 80 to 90 percent response rate was presented as a rate at which we can presume that the sample is nationally representative, but not as an absolute requirement for the acceptance of data. As we stated in the May 3, 2000 interim final rule (65 FR 25666), we are attempting to be as reasonable as possible. However, surveys with a response rate lower than 80 percent cannot be assumed to be nationally representative, and, for us to accept these data, a specialty group must demonstrate that the survey respondents are not significantly different from non-respondents. In addition, based on our review of the supplemental surveys submitted, we are modifying our criteria concerning an acceptable level of precision for surveys. We now believe a reasonable level of precision for surveys to be used for supplementing current data is a 90-percent confidence interval with a range of plus or minus 10 percent of the mean (that is, 1.645 times the standard error of the mean, divided by the mean, should be equal to or less than 10 percent of the mean).

Comment: One group commented that it is highly unlikely that small specialties will be able to achieve the coefficient of variation of less than 10 percent for overall practice expenses or practice expenses per hour that we require for the acceptance of supplemental data. They note that the original SMS survey did not achieve this threshold for many small specialties and, therefore, question the application of the requirement to supplemental surveys.

Response: In developing the resource-based practice expense RVUs, we consulted widely with physician groups, researchers, and others to identify possible data sources. Nearly all commenters agreed that the SMS data, while not specifically designed for the purpose of establishing practice expense RVUs, was the best available data for this purpose. We believe our criteria, as discussed above, help assure that any data used to supplement the SMS data are statistically valid and representative. Further, we believe these criteria are reasonable and achievable. For example, a specialty society for thoracic surgeons submitted supplemental data that we incorporated last year. These data from the STS achieve our statistical criteria for supplemental surveys. We also note that the 90-percent confidence interval requirement seems very reasonable in that, in general, a 95-percent confidence interval is a more typical statistical standard value.

Comment: One group requested that we provide the specialty groups “with a comprehensive definition of ‘complete' and ‘incomplete' data in addition to an explanation of the extent to which incomplete data will be excluded or utilized in practice expense calculations.” At a minimum, the group requested indicators for required and non-required data fields on the survey instrument.

Response: The required data fields for the survey instrument are available from our contractor, The Lewin Group, and from the protocols and guidelines we have created for the supplemental surveys. The original SMS survey data obtained from the AMA was accepted only for surveys with complete practice expense and patient care per-hour information. We will continue to use these criteria for the acceptance of data. (A copy of the guidelines and procedures may be obtained by contracting Lane Koeing at The Lewin Group at (703) 269-5659.)

Comment: Three groups commented on our use of the 1995 through 1997 specialty practice expense per-hour data from the SMS and our deflation of supplemental survey data to 1995 practice costs. The groups stated that we should use the most current data available for all specialties rather than earlier data of questionable relevance.

Response: We indicated in the July 2000 proposed rule (65 FR 44181) that, based on a recommendation by The Lewin Group, we have incorporated the 1998 SMS data into our practice expense per-hour calculations and that we are now basing our practice expense per-hour calculations on a 4-year average. Regarding the deflation of the practice costs to 1995, as long as the same deflator is used across specialties, the particular year to which the specialties are deflated is insignificant. The base year of 1995 was chosen to be consistent with the data we have already.

Comment: One group commented on our decision to weight average the supplemental data with the existing SMS data already being used. According to the group, this decision is flawed because it erroneously assumes that the SMS data currently in use is correct. In addition, they believe that the SMS sample size for emergency physicians has been too small to provide valid data for the calculation of practice expenses. The group suggested that it is inappropriate for us to weight average data from this unrepresentative sample with supplemental survey data for emergency physicians.

Response: The SMS data is the best data currently available for the calculation of practice expenses. As refinements of the practice expense methodology are identified and included, we will extrapolate and apply them to past SMS data to the extent possible. Weight averaging the supplemental survey data with the existing SMS data would be used to increase the sample size. We also established the criteria for supplemental surveys in the May 3, 2000 interim final rule (65 FR 25666) as a guideline for those specialties seeking to increase their sample size.

Comment: Three groups expressed concern with the short time frame we have provided for specialty groups to develop the survey methodologies, find a contractor, and provide the data for computation of RVUs.

Response: Section 212 of the BBRA required that we establish, through regulation, a process for any organization to collect and submit supplemental survey data for use in establishing payments for the calendar years 2001 and 2002 physician fee schedules. Thus, the amount of work required to be accomplished in a short time was largely due to the requirements of the statute itself.

Comment: Two groups commented that we should share the cost burden for the supplemental surveys. According to the groups, the supplemental surveys will be filling in the data gap left by the SMS and, therefore, we should subsidize the cost of completing the surveys. In addition, one group commented that the efforts needed to meet the supplemental survey requirements may be prohibitively costly for many specialties without subsidization from us. One group also commented that we should take into account the AMA's problems with the expense of administering the SMS before fully adopting the survey protocol. Specifically, they suggested that we look for less costly, and more cost-effective, ways of validating the data than telephone interviews.

Response: We have no funding for supplemental surveys, and we are not currently considering such approaches. As we have previously explained, we believe the SMS data are currently the best available source of practice cost information. We believe there are significant, methodological advantages to obtaining practice cost information through multi-specialty surveys such as SMS, rather than through surveys of more limited groups of specialties. The supplemental survey process allows specialties the option to provide additional information.

Comment: Two groups suggested that we should eliminate some of the criteria for the acceptance of outside survey data if a specialty can demonstrate that the collected data are valid practice expense data for the specialty. According to one commenter, some specialty groups may have valid data that does not exactly meet the criteria we outlined, but nevertheless could be a valuable data source.

Response: In the May 3, 2000 interim final rule (65 FR 25666), we presented the criteria for specialty societies seeking to collect new practice expense data through supplemental surveys. The process established by these criteria, as amended by this final rule, should be followed by specialty societies to collect future supplemental practice expense data.

Comment: One group expressed concern about contracting for survey research. According to the group, many specialties have staff capable of analyzing the survey data. Requiring specialties to contract for the surveys could eliminate certain subspecialties from administering a supplemental survey due to cost burden.

Response: We recognize the cost burden of contracting for the supplemental survey administration; however, to ensure the integrity of the practice expense data, we are requiring that a disinterested third party administer supplemental surveys.

Comment: One group questioned our requirement for specialties to use a survey contractor with experience in conducting national multi-specialty surveys of physicians using random samples. They believe that a contractor with experience surveying health care professionals and using random sample techniques should be sufficient.

Response: We believe our initial requirements represent a preferred way to collect valid and reliable data. We will, however, consider survey contractors with experience surveying health care professionals, collecting financial information, and using random samples.

Comment: Two groups are concerned with our requirement for raw survey data to be submitted to us. One group believes that we should outsource the analysis of the survey responses. The other group opposes the submission of raw data to us because they believe physicians will be unlikely to respond to sensitive financial questions if they are informed that their individual responses will be sent directly to the government.

Response: The raw survey data have been submitted to The Lewin Group, and they have provided us with only aggregate practice expense values.

Comment: One group expressed concern about our use of the supplemental survey data. Before administering an expensive survey, they want assurance from us that the supplemental data will be used. Alternatively, the group believes we should conduct a survey across all specialties. They commented that we must adopt one of these options to remove flawed data that does not account for the unique practice expenses related to emergency medicine.

Response: The criteria for the consideration of supplemental survey data are described in this final rule. We anticipate incorporating data that meet these criteria in the practice expense methodology.

Comment: One group requested that we provide specialty groups with the criteria for determining if data supplied between August 2, 2000 and August 1, 2001 is usable. We state in the interim final rule that submitted data will be considered, but we do not state whether the criteria for acceptance will be the same as the criteria for data supplied by August 1, 2000.

Response: The criteria for accepting supplemental survey data were presented in the May 3, 2000 interim final rule. These criteria were subject to public comment, and any modification we have made to these criteria, as a result of the comments, are part of this final rule.

The criteria published May 3, 2000 will be used for surveys submitted in 2001 with the following modifications.

• We had proposed that specialty groups use a contractor that has experience with the SMS or a survey firm with experience successfully conducting national multi-specialty surveys of physicians using nationally representative random samples. We have modified the criteria to provide for using a contractor that has experience surveying health care professionals, collecting financial information and using random samples.

• In addition, based on our review of the supplemental surveys submitted, we are modifying our criteria concerning an acceptable level of precision for surveys. We now believe a reasonable level of precision for surveys to be used for supplementing current data is a 90 percent confidence interval with a range of plus or minus 10 percent of the mean; (that is, 1.645 times the standard error of the mean, divided by the mean, should be equal to or less than 10 percent of the mean).

With respect to response rates, we are concerned about the low response rates received from supplemental surveys submitted to us in 2000. While we acknowledge that the timing of the surveys (that is, short-field time and time of year) contributed to the low response rates, we believe that groups will have more time to conduct surveys and, thus, are likely to obtain better response rates in future surveys. While we continue to believe that it is impossible and impractical to set rigid cutoffs, we are expecting higher response rates than were achieved in the supplemental surveys submitted to us in 2000. We would like to see detailed analyses that indicate the sample is representative of the population. While The Lewin Group was able to perform some limited analyses of response bias for the supplemental surveys received in 2000, we expect that these supplemental surveys received in 2001 will provide detailed analyses with respect to possible response bias on factors that could affect practice expenses. Such analyses should consider variables such as specialty society membership, years in practice, board certification, gender, geographic distribution of respondents, and practice arrangements (for example, solo practitioners or large group practices). We will not consider supplemental data in the practice expense methodology unless we receive detailed analyses that give us confidence that survey respondents are representative of the profession on items that affect practice expense. In addition, the data must appear reasonable and consistent with other data used to determine practice expense RVUs.

In response to the May 3, 2000 interim final rule, three organizations submitted supplemental survey data for consideration. One survey was submitted by the American Physical Therapy Association (APTA), and a joint survey was submitted by the American Association of Vascular Surgery (AAVS) and the Society for Vascular Surgery (SVS). Our contractor, The Lewin Group, has evaluated the data submitted by each organization and recommended that we use these data. The full recommendation and discussion will be made available on the HCFA website. We have decided to use the data submitted by the AAVS and SVS to supplement the information we are currently using. However, we have decided not to use the data submitted by the APTA. The revised practice expense per hour figures that we are using for vascular surgery are:

These figures are from the supplemental survey information provided to us from the Lewin Group adjusted by the MEI so the figures reflect 1995 data. That is, we divided the 1999 practice expense per hour data by the cumulative MEI for 1996-1999 (1.0877).

Both supplemental surveys have extremely low response rates (about 14 percent for vascular surgeons and 11 percent for physical therapists). We specified the criteria we would apply for supplemental surveys in the May 2000 interim final rule (65 FR 25666). While we did not establish a precise minimum response rate, we did indicate that surveys with response rates less than 80 percent to 90 percent require an analysis to determine to what extent the sample is representative of the population. The extremely low response rates achieved by these two supplemental surveys and the relatively small number of responses make it extremely difficult, and very subjective, to determine whether the data are representative of each specialty. Our contractor was able to make very limited assessments of this issue based on the data provided.

However, in our May 2000 interim final rule, we indicated that, based on our review of existing physician practice expense surveys, we believe that an achievable level of precision is a coefficient of variation, that is, the ratio of the standard error of the mean to the mean expressed as a percent, not greater than 10 percent, for overall practice expenses or practice expenses per hour. For existing surveys, the standard deviation is frequently the same magnitude as the mean. We indicated in the May 2000 interim final rule that we would consider practice expenses for which the precision of the practice expenses is equal to or better than this level of precision and that meet the other survey criteria.

The data submitted by the AAVS and the SVS met the level of precision. The data submitted by the APTA did not rise to this level of precision; they did not meet this objective criterion set out in the May 2000 interim final rule. Thus, we do not have, in the survey data submitted by the APTA, data that convince us of both the representativeness or the precision of the surveys. For that reason, we are unable to incorporate the supplemental survey data submitted by the APTA in the practice expense system.

We note, however, that we have made an adjustment to the practice expense data for physical and occupational therapy services based on other comments received. These comments and adjustments are described elsewhere in this regulation.

In addition, one specialty society also submitted data concerning clinical staff in the hospital setting. The data submitted were not in the context of supplemental survey data. We discuss the issues addressed by these data elsewhere in this preamble.

In the July 2000 proposed rule (65 FR 44180), we discussed the tasks that our contractor, The Lewin Group, was undertaking to assist us with broad practice expense technical and methodological issues. We also highlighted the recommendations that were contained in the first draft report that the contractor submitted, “Practice Expense Methodology,” dated September 24, 1999. This report is on our homepage under the title “Practice Expense Methodology Report.” (Access to our homepage is discussed under the “Supplementary Information” section above.)

The report contained various recommendations aimed at increasing the validity and reliability of the AMA's SMS survey. Although the Lewin Group's recommendations were made specifically to address improving the SMS survey for calculating practice expense RVUs, we believe the recommendations will be useful in making refinements to any other survey instrument that may be used in calculating practice expense RVUs. The recommendations fell into the three following areas:

• The use of data supplementary to the SMS survey.

• Suggested changes to the survey instrument.

• Recommendations for using the data in calculating the specialty-specific practice expense per hour.

In response to the report's recommendations on the use of the SMS data, we proposed to incorporate data from the 1998 SMS survey, which is the latest data available, into our practice expense per-hour calculations. In addition, we proposed basing the practice expense per hour calculations on a 4-year average, rather than the 3-year average recommended in the contractor's report. We published a table that contained the practice expense per-hour calculations for CY 2001 that resulted from the above proposals. We also proposed standardizing the practice expense data to reflect a 1995 cost year consistent with the pricing information we are using for the estimates of practice expense inputs for individual procedures. To standardize costs, we proposed inflating 1995 cost data by the MEI and deflating 1996 and 1997 costs data. This proposal has virtually no impact on the practice expense per-hour calculations.

After discussions with the AMA's SMS staff, we did not propose, as recommended by our contractor, to revise edits and trims to the SMS survey data to exclude data that fall outside set acceptable ranges.

In the July 2000 proposed rule (65 FR 44184), we also discussed the suggestions we made to the AMA for including additional questions in the SMS survey that would make it more useful for calculating specialty-specific practice expenses more precisely. It now appears that the AMA may no longer undertake a multi-specialty survey to collect practice expense information. While we will continue our discussion with the AMA regarding any future plans for practice expense data collection, as stated above, we believe these recommendations will be useful in the design of any other survey used in developing practice expense RVUs.

As we indicated earlier, we proposed to use data from the 1998 SMS to develop the 2001 practice expense RVUs. Furthermore, data from the 1999 SMS will become available later this year for use in developing the 2002 practice expense RVUs. In addition, section 1848(c)(2)(B) of the Act requires that not less often than every 5 years, we review and make adjustments to RVUs. Thus, we are required by the statute to review and make adjustments to the practice expense RVUs 5 years after the end of the transition period, that is, no later than 2007. Regardless of whether the AMA continues to collect data on practice expenses, we will be developing plans for making refinements to practice expense RVUs beyond 2002.

Comment: One specialty society indicated that SMS data from 1998 and 1999 is available and we have not used this data in the past because of fears that the data may be tainted now that some physicians know that the responses could affect Medicare fees. The commenter recommended that we use data from 1996 through 1999, rather than the 1995 through 1998 data we have proposed using.

Response: In the November 2, 1998 final rule (63 FR 58821), we expressed concern about the potential biases that may exist in surveys collected by individual specialties and in any survey data collected in the SMS survey process subsequent to our June 5, 1998 proposed rule. There is no relationship between this concern and any decisions that we have made with respect to incorporating available data from the SMS survey process into the practice expense methodology. Since SMS survey data from 1998 was collected more than 1 year before the June 1998 proposed rule announcing the “top down” methodology, any implication that we did not previously propose use of the data because of a concern about bias in the data is inaccurate. Rather, we have not previously proposed using the data because it was unavailable to us before this year's proposed rule. In addition, we did not propose using SMS data from 1999 because it was unavailable to us at the time of the proposed rule. We will consider using 1999 data from the SMS for setting 2002 physician fee schedule rates. As we stated in our July 2000 proposed rule (65 FR 44184), we welcome comments on long term strategies for collecting practice expense data in the future.

Comment: We received two comments that indicated that the SMS sample for gastroenterology is small and inadequate, that the response rate in the SMS is the lowest among any specialty, and that the practice expense calculations are probably inaccurate. One of these commenters also urged us to work with the AMA and the medical community to improve the aggregate specialty-specific data. A specialty society representing pediatrics reiterated the concern that the pediatric specialties are not adequately represented in the SMS, and a society representing geriatrics also believed that the sample size of geriatricians is not large enough to yield reliable data. Another commenter was concerned about the inadequate sample size of radiation oncologists in the SMS and believed that the use of the Physician Masterfile under-samples non-hospital based radiation oncologists and over-samples hospital-based radiation oncologists, who do not incur the same practice expenses for equipment and staff. Several imaging specialties stated that the SMS does not capture the practice expenses for TC services, probably because the SMS sample is skewed toward professional-component only providers. These commenters argued that, even if the sample of TC providers were adequate, the higher TC costs would be diluted by the lower PC costs, and thus it is necessary to perform a survey of only TC providers to use in the practice expense calculations.

Response: Since concerns regarding the representation of various specialty societies in the SMS data were raised previously, we are reiterating our general response that can be found in more detail in the November 2, 1998 final rule (63 FR 58821). As we indicated in that rule, many of the criticisms of the SMS data could well be made about any other practice expense survey. At the time, we proposed use of the SMS data for developing the practice expense RVUs, we indicated that it was the best available data source on aggregate practice expenses. Since we are continuing to rely on the SMS data in the process for determining practice expense RVUs, we believe that the specialty-specific representation in the data is now improved by incorporating an additional year of data. The practice expense per hour will be based on a larger number of survey responses that will likely result in improved representativeness of the data.

Comment: One commenter contended that the data in the practice expense per-hour table in the July 2000 proposed rule do not appear logical, objective, or consistent. There is an unexplained range of clerical payroll per hour among similar specialties, and the ranking of the practice expenses among specialties appears to be untenable; for example, the total practice expense per hour for dermatology is almost two times greater than for gastroenterology.

Response: We believe that different specialties are likely to have differences in practice expense per-hour for indirect types of costs depending upon the nature of the practice. With respect to the examples identified, dermatologists are generally in office-based practices, while gastroenterologists provide most services in hospitals. The nature of these types of practices may result in very different expenses for administrative personnel. Without disaggregating the costs and describing the different administrative activities that are performed by employees of the different types of specialties, it is difficult to explain deviations in the practice expense per hour among specialties. Nevertheless, we reviewed data on administrative practice expenses per hour across specialties for each individual SMS data year and found, with some exceptions, that there is stability among the relative practice expense per hour for this item across years. For instance, for 3 of the 4 years that there is survey data, the administrative practice expense per hour for gastroenterology is between 61 and 63 percent of dermatology (in the remaining year, it is 53 percent). We believe that the apparent stability of the relative practice expense per hour across specialties provide assurance of the data's reliability.

Comment: We received a number of comments expressing concern about our decision to incorporate 1998 SMS data into the practice expense methodology. Several commenters noted that there were a small number of usable responses for some specialties to calculate the practice expense per hour using the 1998 SMS data, citing that cardiac and thoracic surgeons and radiation oncologists had only three responses. Another commenter stated that, in the past, we have been unwilling to use SMS data if the number of survey respondents is low. Other commenters expressed concern that for some specialties, the small sample of physicians would mean that the practice expense per hour could not be calculated accurately and such unstable data would produce some substantial changes. These commenters suggested that we not incorporate additional data, including the 1998 SMS data, until a representative practice expense sample can be performed with an adequate number of respondents for all specialties.

One specialty commented that inclusion of the 1998 SMS data is premature because of questions regarding its validity, since AMA is redeveloping the SMS with the possibility of seeking specialty-society input, and there are questions regarding the validity of the 1998 SMS data. While some commenters agreed with the general principle of using the most current data, they argued that the quality of the 1998 SMS data does not merit inclusion into our practice expense per-hour calculations. One commenter stated that the SMS survey does not recognize the unique nature of emergency medicine.

Alternatively, there were many comments that supported our use of the 1998 SMS data. These commenters generally indicated that we should use the most current data because practice expenses may change over time. In addition, these commenters indicated that there is no evidence that the 1998 SMS data is tainted or otherwise objectionable. Other commenters indicated that including more survey responses from later SMS years will result in practice expense values that are more representative of physicians' costs. Some commenters indicated that practice expense data based on a 4-year sample provides greater assurance of its quality. Many of the commenters that suggested incorporating the 1998 SMS data also indicated that we should use the 1999 data from the SMS when it becomes available. Other commenters supported our proposal to base the practice expense per-hour calculation on a 4-year average of SMS data as opposed to a 3-year average, because it will help to compensate for the low number of survey responses from some specialties in the prior years' SMS surveys.

One commenter believed that we should follow our contractor's recommendation and use a rolling 3-year average, because using 4 years results in older data completed by persons less familiar with the SMS. Other commenters supported using only the latest 3 years of data to eliminate the oldest practice expense data from the methodology.

Response: While the lower response rates in the 1998 SMS data are a concern, we continue to believe it is appropriate to incorporate these additional data into the practice expense methodology. In general, even though there are fewer responses in the 1998 SMS data, it is unclear to us why this alone indicates that we should reject incorporating the data. Generally, the inclusion of more survey data will improve the data's representativeness and lead to more stability in the practice expense methodology. Furthermore, to the extent that there are fewer responses to the 1998 SMS survey, there will be less impact on a given specialty because the practice expense per-hour calculation is weighted by the number of respondents from each respective year. With respect to the stability of the data, the AMA indicated that a statistical test of the data “revealed only marginal evidence of a statistically significant change in PE-HR across specialties when all specialty-level changes were considered jointly. In other words, the combined set of changes in relative PE-HR were with the range of what could be expected by sampling error.” Thus, although there may have been some large changes in practice expense per hour across years for some specialties, there appears to be overall stability across years among all physicians.

In general, use of the 1998 SMS improves the stability of the practice expense per hour and results in little specialty level impact. For the 35 specialties listed in our impact table in the July 2000 proposed rule (65 FR 44203), 21 specialties will experience an impact that is near zero. There are nine specialties that will experience an impact of approximately 1 percent as a result of inclusion of the data. For two (cardiac and thoracic surgery) of the four specialties that show a payment impact of approximately 2 percent, the data were affected by more than just the inclusion of the 1998 SMS data. In the November 1999 final rule (64 FR 59391), we indicated that supplemental data would be incorporated in the practice expense per hour and we would not include data from the 1995 SMS. We are now adding the 1995 SMS data as well as the 1998 SMS data to the calculation of practice expense per hour and increased the likelihood that there would be a larger impact on the practice expense per hour. For one specialty (physical and occupational therapy, included in the nonphysician practitioner category), we made an error in the practice expense per hour calculation in the July 2000 proposed rule. After correcting this error, there is only approximately a 1-percent increase in the nonphysician practitioner category from incorporating the additional SMS data. We believe that these results support the argument that the practice expense per hour is generally stable and that it is appropriate to include 1998 SMS data in the practice expense methodology.

With respect to the comment that it is premature to incorporate 1998 SMS data into the practice expense methodology because of AMA efforts to redesign the survey and include specialty society input, we are unsure of the AMA's efforts in this regard. Nevertheless, while we would welcome multispecialty involvement in an effort to collect practice expense data specifically for the purpose of determining relative value units, we believe that such efforts should not have any bearing on our decision to incorporate later SMS data into the practice expense methodology at this time. If new data were to be collected under a redesigned survey process, it could be at least 2 years before such data is available to us. In the interim, we believe it is appropriate to include the latest SMS data into our methodology.

We disagree with the commenter who suggested that the older SMS data should be eliminated from the practice expense per hour calculations because the surveys were completed by respondents less familiar with the SMS. The SMS is a longstanding survey that was originally developed by the AMA in 1981. There is no evidence that data from earlier SMS surveys is less reliable than later survey information.

Comment: A commenter representing urologists stated that, if we are not going to accept our contractor's recommendation to revise the edits and trims to the SMS survey data, the use of median values, rather than means, would produce the most fair relative ranking of the practice expense per hour among medical specialties.

Response: We believe it is appropriate and consistent with the statute to use the mean practice expense per hour rather than the median. Under the practice expense methodology, the practice expense per hour for each specialty is multiplied by the physician time per procedure and number of Medicare allowed services and summed at the specialty level to produce aggregate specialty cost pools. In theory, the aggregate practice expense pools would reflect actual physicians' costs if the utilization data for all payers, not just Medicare payers, were used. (In reality, however, the data is potentially biased by the inclusion of mid-level practitioners. See the June 5, 1998 proposed rule (63 FR 30832) for a more detailed discussion of this issue). If the median practice expense per hour were used, however, the aggregate cost pools would not be reflective of physicians' actual expenses, because very high-cost or low-cost practice data would be excluded. Since the statute indicates that we should “recognize all staff, equipment, supplies and expenses,” we believe use of the mean rather than the median practice expense per hour will result in the practice expense RVUs being more reflective of all physician practice costs.

Comment: We received several comments that were concerned about the AMA's decision to no longer collect practice expense data from the SMS. One commenter noted that the Lewin Group recommendations described in the proposed rule were aimed at improving the SMS surveys and/or practice level surveys that the AMA no longer intends to perform. Other commenters expressed concern about plans for gathering practice expense data for years after 1999, particularly if the AMA will not continue the SMS survey. Two commenters recommended that we initiate a dialogue with specialty societies to develop a workable alternative and another that we consider creating and funding a survey to collect practice expense data in the future. One organization commented that the AMA's decision to no longer collect practice expense data means that issues related to uncompensated care in the practice expense methodology will not be addressed. This commenter stated that we should continue to work with emergency physicians to ensure that what the society feels are flawed practice expense data are no longer used to determine payment amounts for emergency physicians.

Response: We share these commenters' concerns about the AMA's decision to no longer collect practice expense data. However, we continue to believe that the recommendations of the Lewin Group and our suggestions to the AMA regarding improvements that could be made to the SMS and practice level survey will be helpful in future practice expense data collection efforts. As the AMA indicated in a letter to us (see 63 FR 30829 for the AMA's more detailed comments), the SMS data were never collected for the purpose of developing relative values. The Lewin Group recommendations and our suggestions to the AMA were intended to tailor the SMS or a practice level survey to be more suitable for this purpose. While our comments were addressed specifically to improving the ability of the SMS or a practice level survey to be used for developing practice expense RVUs, there is no reason that these suggestions would not be equally valid for any alternative practice expense survey instrument that may be developed. Thus, we continue to believe that there is merit in the work of the Lewin Group and in our suggestions on improvements to the AMA survey.

With respect to the concerns expressed about gathering practice expense data beyond 1999, we have published criteria that specialties must follow to submit supplementary practice expense survey data that can be included in the practice expense calculations. Thus, there is a process for specialties to collect representative data on practice expenses for a specialty that can be used to influence the calculation of practice expense RVUs. Furthermore, we are currently planning to use 1999 SMS data to determine the practice expense per hour for calculating practice expense RVUs for 2002. Thus, the fully implemented resource-based practice expense RVUs will be based on a weighted 5-year average of the latest SMS survey data.

Regardless of whether the AMA were to continue the SMS survey, it is unclear whether it would be necessary or even desirable to incorporate more recent practice expense per hour data into the methodology on an annual basis. While the practice expense may increase or decrease over time, the important variable for the practice expense methodology is whether there is a relative change among specialties in practice expense per hour. Again, with exceptions for some specialties, there generally appears to be stability in the relative practice expense per hour among specialties in the SMS data we are using. Indeed, there generally was little redistribution in payment resulting from use of the latest SMS data. For 21 of the 35 specialties listed in Table 1 of the July 2000 proposed rule (65 FR 44203), the percent change in practice expense from using the latest SMS data was near zero. For nine of the remaining 14 specialties, the impact on payments was only 1 percent. For only five of 35 specialties listed was the impact on payments 2 percent or greater. Thus, if there is year to year stability in the relative practice expense per hour among specialties, it will likely make little difference whether we incorporate additional practice expense data into the methodology.

However, it is possible that there will be more significant changes in relative practice expense per hour over time among specialties. The statute requires that we make refinements in the practice expense RVUs at least every 5 years. While we expect to continue making refinements to the inputs for individual codes on an annual basis, it could be several years before we might require practice expense data from a multi-specialty survey after the initial refinement period ends in 2002. While we consider how to approach this issue, we welcome the comments that suggested that we seek input from the medical community in developing a mutually satisfactory and equitable approach to obtaining the needed information on practice expenses for future refinement efforts.

Comment: A society representing vascular surgeons commented that separately billable income should be deducted from practice expenses as part of the practice expense per hour calculations, because the inclusion of this income may account for the inexplicably wide range in the practice expense calculations among specialties.

Response: We agree that it is desirable to identify separately billable services. As explained elsewhere, this is an issue for future SMS revisions.

Comment: One commenter suggested that we move the SMS clinical labor expenses to the indirect expense category, as was done with the administrative labor cost. The commenter stated that with the inclusion of high administrative costs, the indirect costs will vary considerably among specialties and expressed their concern that the determination of the scaling factor is not an equitable means to distribute these indirect costs. The commenter encouraged us, along with our contractor, to examine this issue in detail.

Response: We are reviewing issues related to indirect expenses with our contractor.

Comment: A commenter stated that separately billable income of mid-level practitioners should be deducted from practice expenses as part of the practice expense per hour calculations. The commenter suggested that the total practice expense pools should be adjusted by the Medicare income received by physicians for the work of physician assistants and other mid-level practitioners. The commenter indicated that the pools can be adjusted easily for cardiac and thoracic surgery because the data on billing for these mid-level practitioners are easily available from our data files.

Response: We believe that the numerator of the practice expense per hour calculation should exclude any costs associated with mid-level practitioners and the denominator should include their patient care hours. Unfortunately, the data from the SMS do not permit the calculations to be performed in this way. We believe that this issue should be addressed in any multispecialty survey instrument that will be used in the future to collect practice expense data and determine practice expense RVUs. We disagree with the commenter that there is a feasible way of making an adjustment to the aggregate practice expense pools themselves to address this issue. While it is unclear from the comment about how such an adjustment would be made, it is possible that the commenter believed that we can use Medicare utilization data to determine the proportion of total allowed services for cardiac thoracic surgery procedures, where the specialty data indicates that the service is performed by a mid-level practitioner assisting at surgery; perhaps the commenter assumes that we would use this proportion to reduce the size of the aggregate cost pool. We believe that it is not possible to make an equitable adjustment in this way. First, the aggregate cost pools are constructed using a total practice per hour figure, and the proportional adjustment would reflect only Medicare data. Second, it is not clear to us how such a calculation would be made. An assumption would have to be made that where a mid-level practitioner is performing a given type of service, the work is being furnished for a given type of physician specialist. For instance, if a physician assistant is assisting at surgery for a heart procedure, we would have to assume that practitioner is working for a cardiac or thoracic surgeon. Even this simplified example presents a dilemma, because it would be unclear whether to adjust the pool of the cardiac or thoracic surgeon in this instance. We believe that, even if these assumptions could be made for some services, it would be difficult to make similar assumptions, for example, for evaluation and management services when the mid-level practitioner could be working for one of many different specialists. For these reasons, we are not making an adjustment to the practice expense pools at this time.

In our July 2000 proposed rule (65 FR 44184), we discussed the many concerns that have been raised from various specialty societies concerning our calculation of direct patient care hours. Several previous commenters representing surgical specialty societies have raised concern that the hours computed for their specialties have been overstated, because non-billable hours, such as stand-by time, have been included. In addition, commenters representing emergency room physicians raised the issue that the hours spent on uncompensated care were probably also included in the survey responses to the detriment of this specialty.

We then discussed the steps we were taking to improve the future accuracy of these data. We recommended more precise wording for future survey questions so that only the appropriate practitioner hours are included.

We also discussed the second draft report issued by our contractor, entitled “Validating Patient Care Hours Used in HCFA's Practice Expense Methodology.” This report, which is on our homepage under the title “Validating Patient Care Hours,” explores alternative methods that we might use to validate the time data collected by the SMS survey. We have extended The Lewin Group's contract so that, among other refinement tasks, the above validations can be performed. We also solicited comments and suggestions as to other steps we could take to verify and improve the accuracy of the specialty-specific patient care hours.

Comment: We received several comments, primarily from surgical specialty societies, reiterating the concerns about patient care hours discussed in the July 2000 proposed rule. In particular, commenters urged that we find a way to identify non-billable hours, such as down-time between surgeries, stand-by time, phone calls, “curbstone” consultations, and uncompensated care, so that these non-billable hours can be subtracted from the specialties' direct patient care hours. In addition, several commenters raised the concern that the SMS survey data on patient care hours varies considerably by specialty.

The comments also contained a number of recommendations. One commenter suggested that we could use a blend of the all-physician and the specialty-specific hours. A specialty society, citing concerns about the variability between the SMS and the Harvard/RUC time data, recommended that we collect information on the Medicare share of practice hours in the SMS to produce a check of the meaningfulness of the pool allocations. Another specialty society, claiming that the SMS data on patient care hours are sure to be imprecise, urged us to use a standardized number of hours in the practice expense calculation or to statistically limit the impact of this variable. While one commenter recommended that we use the average number of hours per week that physicians' offices are open to calculate the practice expense per hour, another commenter argued that the assumption of a 40-hour work week for all specialties would result in a significant distortion of practice expenses per hour.

Response: We do agree that the patient care hours data would be more precise if we could ensure that there is a standard definition understood across specialties, so that non-billable hours would not be included in the data. As discussed in the July 2000 proposed rule (65 FR 44185), we suggested adding a clarifying definition of hours to be included to any future multi-specialty practice expense surveys. In addition, we referred to the work our contractor is doing to validate the patient care hours; one of the tasks will be a comparison between the SMS hours data and the Harvard/RUC physician time data. Once this analysis is completed, it could form a basis for deciding whether any adjustment to the SMS data is either advisable or workable. As for the recommendations that we use either a standard time for all specialties or the actual time the physicians' offices are open, we believe these recommendations stem from the mistaken impression that a specialty that actually works longer billable hours is somehow disadvantaged by our methodology. First, we believe that some specialties do put in more billable hours per week than other specialties, and using a standard number of hours for all specialties would thus be inaccurate and inequitable. Second, while it can be argued, as some commenters claimed, that most practice expense costs are generally incurred during the hours the physician's office is open, we do not have a two-tiered system of payment in which we pay less for surgeries performed at 6:00 a.m. than we do for those performed during office hours on the grounds that the earlier procedure somehow incurs less practice expense. Rather, we average the payments across each service, regardless of the time it is performed. Likewise, the practice expense per hour calculation is an average of the costs per hour, in which some hours would have higher costs and some lower. In addition, the direct patient care that takes place outside of office hours should be reflected in increases in the utilization data for that specialty that, in turn, increases the practice expense cost pools for the same specialty.

Comment: One commenter urged that any uncompensated care adjustment be allowed only for emergency department services that are furnished by practices in areas that have a disproportionate share of uncompensated care.

Response: If we were to propose any further adjustments for uncompensated care, we would publish them in a proposed rule, subject to comment by all interested parties.

Comment: A specialty society expressed concern that, because podiatrists are not surveyed by SMS, any validation of patient care hours performed by our contractor would not apply to podiatry. This commenter also stated that the specialty society has shared with us two of the society's own surveys containing patient care hour data, and requested that we either validate and use this data or take responsibility for collecting this data.

Response: We understand the points that are made by this commenter and will consider this further if we make adjustments to the patient care hours. In addition, now that a process and criteria have been spelled out for the submission of supplementary practice expense data, the specialty society can also submit additional survey data that should include information on podiatrists' patient care hours.

The PEAC, a subcommittee of the RUC, held its initial meetings last year to begin to refine the clinical staff, supply and equipment inputs for physician fee schedule services. In the November 1999 final rule (64 FR 59394), we responded to the RUC recommendations for the refinement of the direct inputs for 65 codes originally reviewed by the PEAC and subsequently approved by the RUC and noted that our actions on all of the recommended inputs were subject to comment. We received the following comments on our revisions to the RUC recommendations:

Comment: One specialty society questioned the removal of lysol, tissues, and biohazard bags from the supply list for all codes, since these items represent costs that physicians must pay. Additionally, one organization objected to our removal of self-administered drugs from all codes, and another society, as well as the RUC, objected to the removal of betadine from the supplies recommended for the post-procedure period.

Response: We believe that the removal of such items as tissues, lysol, and biohazard bags will help simplify the refinement of the CPEP supply data without having a noticeable impact on the payment for any service. We removed the costs of these minor supplies from the overall CPEP supply list either because of the difficulty in measuring their use or because the supplies were not fully used up during a single procedure. Throughout the supply data, the quantities for biohazard bags and tissues were reported incorrectly; for example, codes were assigned 5 boxes of tissues or 250 tissues when the intention was to assign 5 single tissues at a cost of 5 cents. The PEAC/RUC has since extended this simplification by eliminating paper towels and room disinfectant from their recent recommendations. We proposed to eliminate the very few self-administered drugs on our supply list from the CPEP data because we believe that it is reasonable to exclude non-covered items in the allocation of the specialty-specific cost pools. With respect to betadine, we note that it is included in the recommendations for the post-surgical supply package that we have accepted in this rule, which can be used by any surgical specialty for its codes. Therefore, we will not be adding back any of these individual supplies at this time.

Comment: One organization commented that we should have corrected the obvious and egregious anomaly in these codes whereby the payment for destruction of 14 lesions is considerably higher than the payment for 15 lesions.

Response: We agree that the values for these two codes appear anomalous. However, we do not assign practice expense RVUs to services. Rather, these RVUs are allocated based on the inputs that are associated with each service. Both of the above codes, along with CPT Code 17001, Destruction by any method, first lesion, were presented by the dermatology specialty societies to the PEAC, but we received recommendations only on the supplies for these services. We accepted these recommendations in general, but deleted many specific supplies from CPT Code 17003 because it is an add-on code. We have re-examined the current CPEP inputs for CPT Code 17001, 17003, and 17004, and believe that the inputs for labor and equipment appear to be appropriate. The source of the anomaly seems to be in the supply inputs for these services. To ensure that the appropriate revisions are made to the supply lists, we need specific recommendations from the RUC or the relevant specialty societies.

Comment: A commenter representing Mohs surgeons, while acknowledging the revisions made in the final rule to the lists of supplies, indicated that we erroneously omitted some supplies from the updated list. The commenter provided information on the supplies omitted, as well as the rationale for why these supplies need to be included.

Response: We appreciate the detailed explanation regarding the use of these supplies. After review, we note that, with few exceptions, all the supplies the commenter claimed were omitted are in fact already included in our CPEP database as originally recommended. We explained in the November 1999 final rule that we were deleting Valium, which is separately billable, and Tylenol, which is self-administrable from all codes; therefore, these drugs will not be included for any of these services. In addition, we are not convinced that it is typical to suture the wound after each stage of surgery, and the commenter stated that the wound is not closed until it is determined that no further procedures are necessary. Therefore, we believe that only one set of sutures and suture kit are typically needed, which we are including in the supplies only for CPT code 17304. We also note that the tincture benzoin swab requested by the commenter was not included in the original RUC recommendation, though we are adding it at this time.

Comment: A specialty society representing surgeons and the RUC objected to the decreases we made to the PEAC/RUC recommendations for the pre- and post-service times for this CPT code. They indicated that there were extensive discussions about this code at the PEAC/RUC meeting, and that adequate information was provided to support this change for pre-service time. The commenters also objected to our elimination of the time for the second registered nurse in the post-service period and requested that we provide the basis for determining that this is not typical practice.

Response: There was insufficient rationale for the PEAC recommendations transmitted to us. Moreover, the PEAC is currently working on establishing a standardized methodology for refining the pre- and post-procedure clinical staff times. This code, like all other surgical codes involving pre- and post-procedure staff time will undergo further refinement. We are not changing the clinical staff times now, but will review them upon receipt of the PEAC recommendations for pre- and post-procedure time for surgical procedures in general.

Comment: Three specialty societies representing ophthalmologists and the RUC expressed concern that we did not accept the RUC recommendation to increase the pre-service period to 42 minutes for the above CPT codes, but rather deleted all pre-service clinical staff time. The commenters also noted that the statement in the November 1998 final rule that we were retaining the original CPEP value of zero minutes was in error for CPT codes 66170, 66172, 66984, 67036, 67038, 67039, and 67040 because the CPEP panel had assigned 24 minutes of clinical staff pre-service times to these codes. Commenters requested that we accept RUC recommendations for 42 minutes of clinical staff time in the pre-service period for all these codes because facility-based surgical procedures require significant pre-service clinical staff work.

Response: We thank the commenters for pointing out our inadvertent error regarding the pre-service time in the original CPEP data for seven of the above ophthalmology codes. Although we are not convinced that each of the codes would have as much as 42 minutes of pre-service clinical staff time, we will use this as an interim value for pre-service time. We understand that the PEAC and RUC are planning to develop standardized approaches to assign the pre- and post-surgical clinical staff times, as well as coordination of care times, across wide ranges of codes for the different global periods. These pre-service times can then be revisited in light of future recommendations.

Comment: Several ophthalmic societies opposed our decision to decrease the post-service clinical staff time approved by the PEAC/RUC for ophthalmic surgical procedures. The commenter representing three ophthalmic sub-specialties also stated that we did not consider the consensus agreement to replace the Ophthalmic Medical Personnel (OMP) staff type with the Certified Ophthalmic Technician (COMT) staff type for ophthalmic procedures. Another specialty society believed we should have collapsed the two staff types into the OMP staff type, because this was agreed upon at the 1997 validation panels.

Response: At the time that the November 1999 final rule was developed, we had received a comment from the specialty society that had presented these codes to the PEAC. This comment described the building-block approach that was used to arrive at the post-service clinical times. Unfortunately, there was a miscommunication regarding the specific building blocks that were used to arrive at the total times, and our total times were different from those of the RUC. We have since received a clarification from the specialty society, and we are restoring the clinical post-service times to their recommended values.

There appears not be a consensus among the ophthalmic specialty societies regarding which staff type to use for ophthalmology codes. In addition, we have not used any of the decisions from the 1997 validation panels in refining the practice expense inputs, but have accepted the RUC recommendations for the use of the OMP staff types for the codes that have been refined to date. We have not received from the RUC any recommendation regarding a global change in the staff type for ophthalmology services, but would certainly consider any future recommendation from the RUC on this issue.

In the November 1999 rule (64 FR 59397), we stated that these were professional services and, if any practice expenses were incurred, they could be reported using other applicable codes. Therefore, we removed all practice expense inputs for these two codes.

Comment: Two specialty societies and the RUC requested that we use the recommendations of the RUC to establish a TC for CPT Code 85060, even though we would not use the RVUs for payment purposes, because other payers are increasingly using our RVUs to establish fees. The commenters also stated that the interpretation of blood smears can require additional slides and services. Commenters did not agree that the activity associated with the technical portion of CPT Code 85097 is included in payment for other services when this service is performed outside a hospital, as is increasingly occurring. They indicated that creation of a TC component for CPT Code 85097, using the RUC recommendations, would allow the laboratory that receives the specimen to bill for the technical costs in preparing the slide for examination by the physician, and recommended this TC component be paid under the physician fee schedule.

Response: We do not want, at this time, to create a TC for a code that we do not cover, such as CPT Code 85060. However, as mentioned elsewhere in this final rule, we are further considering the issue of valuing non-covered services. We will publish practice expense RVUs for CPT Code 85097, so that it can be paid when furnished in a nonfacility setting. We will use the RUC recommended inputs to calculate the practice expense RVUs.

Comment: Several commenters pointed out that, while we accepted the RUC recommendation that included filter paper in the list of supplies for this code, this was not reflected in the CPEP database.

Response: This item was omitted inadvertently from the CPEP database and will now be included.

In the November 1999 final rule, we deferred action on the RUC recommendations for a few groups of CPT codes on which we had significant questions. In the July 2000 proposed rule (65 FR 44185), we proposed to accept two groups of CPT codes of the RUC recommendations with the revisions noted below, while the RUC recommendation discussed below for the antigen service has not been previously addressed.

We discussed the inputs for these codes at length with the relevant specialty society, and arrived at a consensus on the staff, supplies, and equipment that were needed for these services.

Comment: The American Urological Association (AUA) applauded us for our proposal to accept the RUC recommendations for the three heat therapy prostate procedures and agreed that all inputs are now included in the CPEP data for these services. One manufacturer recommended that we adopt our proposal for CPT code 53850 in this final rule. Three individual urologists and a manufacturer commented that we should add equipment, such as an autoclave, rigid cystoscope, video system or ultrasound equipment to the equipment inputs for CPT Code 53852. The manufacturer also stated the prices in the CPEP database for the generator system and the hand piece are now outdated, and included the suggested current prices. Two of these commenters also included a list of supplies, most of which are already in the CPEP inputs for this code.

Response: Because our proposal is based on a recommendation from the RUC, and the AUA has stated that it believes the current inputs for this code are correct, we will not add the suggested equipment or supplies at this time, nor change the prices for any of the equipment. However, we have awarded a contract to have all of our direct cost inputs re-priced and any information that is sent to us on current pricing will be forwarded to our contractor.

The RUC had recommended 102 minutes of clinical staff time for CPT code 96408 and 121 minutes for CPT code 96410. After the publication of the November 1999 final rule we met with representatives of the American Society of Clinical Oncology (ASCO) and discussed the society's breakdown by specific tasks of the above staff times. Included in this breakdown were 20 minutes for pre- and post-procedure education and 15 minutes for three phone calls after each visit.

Because we believed that the times for patient education and phone calls should be averaged over the whole course of chemotherapy treatment, and because there appeared to be some duplication in the pre- and post-procedure education tasks, we reduced both the patient education and phone call times by 5 minutes. Therefore, we proposed 92 minutes of clinical staff time for CPT code 96408 and 111 minutes for CPT code 96410.

Comment: ASCO objected to the 10-minute reduction of the clinical staff time for CPT 96408 and 96410. The commenter argued that the original RUC recommendation was reasonable and appropriate for both services and should be adopted. The comment also objected to our revision of a RUC recommendation unless we have a concrete reason to do so.

Response: Upon reviewing the times the RUC has since recommended for patient education and post-visit phone calls for comparable services, we are adding the 5 minutes we had removed from both patient education and phone calls in the proposed rule. We will now use the RUC-recommended total times of 102 minutes of clinical staff time for CPT code 96408 and 121 minutes for CPT code 96410. We believe that the total time is consistent with subsequent recommendations that we are accepting, though as the PEAC and RUC continue to develop standardized times for clinical staff functions, all previously valued codes are subject to possible review.

The RUC did not forward any recommendations on the specific inputs required to perform the above service. However, we did receive a recommendation about the interpretation of the meaning of a dose for purposes of calculating the practice expense RVUs for this service. Because we did not believe the recommendation resolved the ambiguity and confusion in the medical community surrounding this issue, we did not accept this recommendation in the July proposed rule. Since that time, we have received clarifying comments from relevant specialties on both the definition of dose and the practice expense inputs to use for this code.

The practice expense inputs have been analyzed and adjusted so that they now correspond to the practice expense of preparing a one cc dose from a ten cc (ten dose) vial. The practice expense inputs for CPT code 95165 are based on an assumption that ten doses are typically included in each vial. Payment will be based on a maximum of ten doses per multidose vial. The practice expense RVUs for preparing a ten dose vial will remain the same, even if twenty doses are obtained from the vial (for example, if the physician administers 0.5cc doses, instead of one cc doses). Therefore, Medicare should be billed for a maximum of ten doses per vial, even if more than ten doses are obtained from the vial. Furthermore, when a physician dilutes a multidose vial (for example, by taking a one cc aliquot from a multidose vial and mixing it with nine cc's of diluent in a new multidose vial), Medicare should not be billed an additional amount for these diluted doses for CPT 95165. The additional clinical staff and supply costs for preparing such a diluted vial are minimal, because allergens represent over 80% of the direct costs of preparing a multidose vial. In a diluted vial there are no associated allergen costs, since they have already been billed in preparation of the initial vial. Therefore, we expect a maximum of ten doses to be billed for each multidose vial. If fewer doses are prepared from this vial, a dose number less than ten per vial should be billed.

The practice expense inputs per one cc dose are as follows:

If multiplied by ten, the inputs correspond to the total practice expense of a ten cc vial from which ten doses of one cc each are administered. Commenters recommended that a typical ten cc multidose vial contains five antigens and no diluent and that the total number of needles and syringes for the ten cc vial is five. The cost data for allergens was obtained from catalogue information and is based on the typical practice of using standardized extracts when available.

In view of the clarification we have made regarding practice expense inputs, we will revise Section 15050(B)(7) of the Medicare Carriers Manual. In May 1998, we changed the language of that section, in part, to clarify our payment policy for antigen preparation. At that time we stated, “A dose of code 95165 is the total amount of antigen to be administered to a patient during one treatment session, whether mixed or in separate visits.” Two examples of antigen preparation and administration follow immediately after this language.

We will revise this section of the carrier manual to define a dose as a one cc aliqout from a single multidose vial. With this clarification physicians will be able to bill Medicare for each dose prepared in each multidose vial. We plan to issue new instructions to the carriers and update the carrier manual to ensure that appropriate payment is made as of January 1, 2001.

We believe that the recommendations received this year from the PEAC/RUC for the refinement of the CPEP inputs for existing codes mark a positive step in the CPEP refinement process. We received recommendations for clinical staff, supply and equipment inputs for 49 CPT codes, and for the supply and equipment inputs for four additional services. But the significance of the recommendations goes beyond the number of codes that were refined. First, included in these recommendations were the refinements for the 15 major evaluation and management (E/M) codes. These 15 codes represent over 25% of the payments made under the physician fee schedule. This was a breakthrough not only because the clinical staff times for these codes had previously been a point of major contention, but also because agreement on the inputs for E/M services may make it easier in the future to refine the post-surgical visits for thousands of services. Second, the PEAC/RUC approved supply packages for three specialties: obstetrics-gynecology, ophthalmology and neurosurgery; as a result, the supply inputs for hundreds of codes are now refined. We also understand that the PEAC will be developing further supply packages and is also setting up workgroups to determine approaches to standardizing pre- and post-procedure clinical staff times.

We have reviewed the submitted RUC recommendations and have accepted all of them with only two minor revisions. In order to be consistent with a revision made previously in the November 1999 final rule, we have deleted the skin marking pen when it appears in a recommended supply list because it is not practical to allocate its use to individual procedures. In addition, for the ophthalmology codes that were refined before the supply packages were adopted, we have substituted the ophthalmology visit supply package as appropriate. If future decisions are made on standard clinical staff times, all of these refined codes can be revisited to determine whether any further refinements would be appropriate.

Following is a list of the CPT codes that were included in the PEAC/RUC recommendations: (The complete PEAC/RUC recommendations and the revised CPEP database can be found on our website. See the Supplementary Information section of this rule for directions on accessing our web site.)

Comment: One commenter asked that we clarify whether we plan to implement the RUC CPEP recommendations on a rolling basis, or whether all changes will be made at once.

Response: Unless we announce a change in approach, we plan to deal with the RUC's recommendations on a rolling basis as we receive them.

Comment: A commenter representing three ophthalmology sub-specialty societies expressed disappointment in our belief that it is preferable to have a multi-specialty agreement on changing the CPEP data, rather than accepting the recommendations of a single group. The commenter argued that there is little or no added value from such multi-specialty review when the impact of the changes is limited to a single specialty and when members of other specialties have no additional clinical knowledge.

Response: We strongly disagree with this comment. We have found that the input and recommendations of the RUC play a crucial role in the practice expense refinement. Also, because there are many codes that are shared across a number of specialties, changes in payment for even a specialty-specific service can affect the payment of the shared services that the specialty performs. Therefore, we believe that it is fair and equitable to have a multi-specialty consensus on these changes. In addition, we have found, in our role as observers at RUC meetings, that RUC members, of whatever specialty, ask pertinent questions and make clinically relevant observations.

Comment: A specialty society representing many medical specialties recommended that we should use panels, corresponding to the refinement panels we use for work, to make recommendations on code-level refinements that are submitted to us.

Response: We certainly do not rule out the use of such refinement panels for code-level practice expense recommendations when and if such panels would be necessary and useful. We have used these panels for work RVU refinement in those cases when we have not accepted the RUC recommendations on a number of codes and subsequently have received comments disagreeing with our actions. Because we have made so few revisions in this current final rule to the PEAC/RUC recommendations for practice expense inputs, there may be no need for practice expense panels next year, although we will consider this issue.

In the November 1999 final rule (64 FR 59399), we removed estimates of all clinical staff time allotted to the use of clinical staff in the facility setting from the CPEP data. Commenters have since noted that the clinical staff times reported by some CPEP panels for pre-and post-service times for 0-day global services performed in the office were recorded in the intra-service field in the CPEP database. These times were, therefore, deleted along with the times for the use of clinical staff in the facility setting.

In the July 2000 proposed rule (65 FR 44186), we stated that these data are not comparable to the data we excluded for clinical staff used in the facility setting. We reviewed the “CPEP Recorders' Notes Files” compiled for each CPEP panel by Abt Associates, Inc., the contractor managing the CPEP panels. When the notes indicated that clinical staff estimates were for activities performed in physicians' offices, we proposed to reinstate the time data for 0-day global services.

Comment: Many medical societies representing specialists such as gastroenterologists, internists, rheumatologists, cardiologists, osteopaths and podiatrists, as well as the AMA, expressed strong support for this proposal to reinstate the pre- and post-procedure clinical staff time in the office for 0-day global services. One reason given in the comments for this support is that this time for staff in the office is not comparable to the data excluded for clinical staff used in the facility setting.

Response: We are pleased that all commenters supported this proposal, and we are implementing this refinement in this rule.

Comment: An organization representing cardiologists stated, in a comment on the November 1999 final rule, that we should enlist the assistance of medical specialties to identify codes for which clinical staff are used in the physician's office during the intra-service period for facility services. In a comment on the current proposed rule, this society agreed with our proposal to add some pre- and post-service clinical staff time to 0-day global services and listed several 0-day cardiology services for which it recommended the addition of clinical staff time.

Response: In this proposal, we added only clinical staff time in the facility setting for those 0-day services when the CPEP recorder notes specified that the time was for pre- and post-service time for staff in the office. We believe that this is appropriate because these CPEP data are as valid as all other non-refined CPEP data. We also believe that changes to the CPEP data for this pre- and post-service clinical staff time should go through the same refinement process as other desired changes and that any group recommending the addition of such time should present this issue to the PEAC/RUC for refinement. We also understand that the issue of “coordination of care” clinical staff time is one that the PEAC may address across the board at some future meeting. In addition, from the description of the staff duties for the codes listed by the commenter, it is not clear that this staff is in the office, rather than in the facility performing facility nursing functions. Therefore, we will not be making these changes at this time.

Comment: An emergency physician organization recommended that we not limit this proposal to 0-day global period services and submitted the CPEP recorders' notes for emergency room visits, CPT codes 99281 through 99285. The notes indicate that the CPEP panel added 3 minutes of pre-service time and 4 minutes of post-service time for office staff involved in admissions to the emergency room. The commenter recommended that this time be reinstated for these emergency room visit codes.

Response: These emergency room visits have an XXX global period. By the current definition, XXX services do not include pre- and post-service times. Before implementing this specific recommendation, we hope to receive input from the RUC/PEAC on the general issue of appropriate pre- and post-staff times for the different global periods, in order to ensure consistency in our approach to this issue.

In the November 1999 final rule (64 FR 59399) we finalized our decision to remove from the CPEP data all clinical staff times associated with physician's staff used in the facility setting. We implemented this policy for the following reasons—(1) We should not pay twice for the same service; (2) It is not typical practice for most specialty societies to use their own staff in the facility setting; and (3) Inclusion of these costs is arguably inconsistent with both the statute and Medicare regulations. In response to the November 1999 final rule, we received many comments on this final decision, which, for the most part, reiterated comments that had been made on the original proposal.

Comment: Although several primary care groups expressed support for this decision, most of the commenters objected to the exclusion of this clinical staff CPEP data. Many of these organizations urged us to postpone the implementation of this policy and to collect additional information before making a decision on how to treat these costs. However, taking the opposite approach, a primary care organization stated that the clinical staff time should be removed for services furnished in the facility until the PEAC/RUC can determine that the time for these services is typical and not duplicative of physician work. Several commenters again raised the argument that the BBA prohibits us from excluding these clinical staff costs because the BBA requires us to recognize all costs, not just those that can be tied to specific procedures. Many organizations reiterated the claim that the practice of taking staff to the hospital is either typical or prevalent in their specialties. However, only the specialty society representing thoracic surgeons submitted any additional information to support this claim. The STS surveyed their members in July 2000,and reported that 74 percent of the respondents said they employ clinical staff who assist in the hospital, though more than half report that they receive Medicare payment for some of these personnel. Commenters made the following recommendations:

Several organizations contended that hospitals no longer supply the staff to furnish adequate care. In relation to this point, two commenters recommended that the issue of cost shifts between hospitals and other providers is one that we should not ignore, and, if there is any double payment, Part A payment to the affected hospitals should be adjusted.

Another specialty society recommended that we establish a modifier to allow for documentation of and payment for non-physician clinical staff who furnish services in a facility setting. This modifier would indicate whether there is a physician practice expense or a hospital practice expense that has been transferred to the physician practice, to ascertain whether payment should come from Medicare Part A or Part B.

One organization recommended that the SMS data be adjusted by the income received for the work of physician assistants.

Response: We have considered all the comments that we have received on this issue, both on the July 22, 1999 proposed rule and the November 1999 final rule. Though many of the commenters raised interesting points, there were neither new arguments nor evidence presented that would cause us to delay or abandon this policy. While we particularly appreciate the effort undertaken by the thoracic surgeons to develop data on the prevalence of their use of clinical staff in the hospital, the survey addresses only the question of typicality. As stated above, there are two other reasons why we eliminated this clinical staff time. First, we believe that we already pay the facility for the clinical staff needed for patient care. Much of what is claimed as physician's clinical staff time in the facility is either separately billable (as illustrated by the survey submitted by the commenter) or is accounted for in the work RVUs. Furthermore, by law, the hospital itself must furnish all services and items to a hospital patient, either directly or under arrangement. (For a more detailed description of our rationale for this policy, see the November 1999 final rule (64 FR 59402).)

As to the recommendations made by the commenters, we agree that it would be desirable to remove costs associated with these mid-level practitioners from the SMS data as well. This would answer the concern raised by another commenter that removing the clinical staff from the CPEP data introduces further inconsistency with the SMS data. It is for that reason that we had recommended to the AMA that several specific questions be added to the SMS survey to capture the needed information on this clinical staff issue, and we anticipate that we will, in the future, be able to obtain such data.

Although we would be interested in receiving data on the cost shifts between hospitals and other providers, we believe that the suggested use of a modifier for this purpose would be extremely difficult to implement and also burdensome for the practitioner. First, however, we must clarify that, even if the practice of bringing physician staff to the hospital pre-dates the advent of the hospital prospective payment system, any costs associated with such a practice were explicitly included in the hospital Diagnosis Related Group (DRG) payments in the September 1, 1983 interim final rule with comment and in the January 4, 1984 final rule. These rules reference section 1862(a)(14) of the Act, and the discussion makes clear that, with certain limited exceptions, all nonphysician services furnished to hospital inpatients are to be paid under Part A. The exception provided that, for any cost reporting period beginning before October 1, 1986, a hospital that has followed a practice, since before October 1, 1982, of allowing direct billing under Part B to an extent that immediate compliance with the bundling requirements would threaten the stability of patient care, could continue to bill under Part B. There is no indication that the waiver was extended. In response to a comment, we stated the following: “In order for a payment system that is based on a national average rate for a particular diagnosis to succeed, it is vital that the services and supplies included in the payment be essentially the same in every hospital. If the statute had not included the rebundling provision, it would have been possible for hospitals to collect the full prospective payment rate for inpatient services and, at the same time, reduce their costs by having outside providers and suppliers furnish many of the necessary services and bill Part B.” Furthermore, these rules state that, to calculate the PPS standardized amounts, base year costs were adjusted “to include the costs of services that were billed under Part B of the program by another provider or supplier during the base period but will be billed under Part A as inpatient hospital services effective October 1, 1983.”

We do agree that it would be helpful to determine whether hospitals are still providing the staffing that is assumed in their DRG payments. To this end, we have requested that the Office of Inspector General conduct an independent assessment of staffing arrangements between hospitals and thoracic surgeons.

In the November 1999 final rule, we deleted certain casting supplies from the CPEP data for the casting and strapping CPT codes 29000 through 29750. In the July 2000 proposed rule, we identified additional CPT codes for the treatment of fractures/dislocations and additional casting and splinting supplies that are separately billable under section 1861(s)(5) of the Act. Therefore, we proposed the removal of inputs for fiberglass roll, cast padding, cast shoe, stockingnet/stockinette, plaster bandage, Denver splint, dome paste bandage, cast sole, elastoplast roll, fiberglass splint, Ace wrap, Kerlix, Webril, malleable archbars, and elastics from the following CPT codes: 23500 through 23680; 24500 through 24685; 25500 through 25695; 26600 through 26785; 27500 through 27566; 27750 through 27848; 28400 through 28675, and 29000 through 29750.

Comment: Several specialty societies, representing orthopedic surgeons, podiatrists, and occupational therapists supported our proposal to delete casting supplies from the CPEP inputs for all applicable fracture management and cast/strapping application procedure codes for which these supplies are separately billable. The orthopedic surgery specialty society comment also included a list of non-fracture/dislocation codes for which it recommended deleting casting supplies and another list of non-fracture codes from which the supplies should be deleted if they are separately billable for these services and left in the CPEP data if they are not. This commenter also stated that the soft goods, such as stockinette, that we propose to delete do not currently have a HCPCS code, and requested that these supplies remain on the CPEP list until a separate code is established.

Response: We appreciate the support expressed for our proposal. Consistent with the statute that limits separate payment for casting supplies only to the treatment of fractures and dislocations, we are not deleting these supplies from either of the two lists of additional codes supplied in the above comment. Also, we will delete soft goods, such as stockinette, from the CPEP data for the appropriate codes, because these are casting supplies that may be separately billed. We will, however, also request that HCPCS codes be developed for these items. Therefore, we will implement the policy as proposed.

Comment: A commenter representing dermatologists sought clarification on whether the unna boot would be separately billable. The commenter stated that the unna boot is not in the list of supplies to be deleted from the CPEP data, but CPT code 29580, Application of paste boot, falls within the range of codes listed under this proposal.

Response: We are not deleting the unna boot from CPT code 29580, because this code can be appropriately used for cases other than fractures, and in those cases the supply is not separately billable.

Comment: One supplier of casting supplies agreed with our proposal to delete these casting supplies from the CPEP data, but suggested that we include their product, Procel cast liner, on this list as well, to clarify that it is separately billable.

Response: The purpose of the proposal was not to list all the casting supplies that could be separately billable, but rather to delete from our CPEP input database any casting supplies that are currently listed. Because the Procel cast liner is not currently in our database, it does not need to be deleted.

We currently use the original CPEP definitions for equipment that distinguish between “procedure specific” equipment and “overhead” equipment. Under the “top-down” methodology, the CPEP inputs are used only as allocators of the specialty-specific practice expense pools, and we believe the distinction between types of equipment has served to hinder the process of refining the CPEP inputs while not leading to a substantive distinction in how we value services. Therefore, we proposed to combine both categories of equipment into a single “equipment” category, assuming an average 50 percent utilization for all equipment.

We also proposed to delete from the CPEP data equipment that is not used typically with any service, but is on “standby” for many services, or that is used for multiple services at the same time. The following is the list of equipment that we proposed to delete from the CPEP inputs of all services: autoclave, wheelchair, refrigerator, film file cabinet, hazard material spill kit, embryo freezer, water system, flammable reagent cabinet, utility freezer, ultra low temperature freezer, acid cabinet, bulk storage refrigerator, abortion clinic security system, abortion clinic security guard, gomco suction machine, doppler, laser printer, lead shielding, defibrillator with cardiac monitor, blood pressure/pulse oximetry monitor, blood pressure monitor, printer, crash cart—no defibrillator, and smoke evacuator.

The following is a list of equipment that we proposed to delete as “standby” equipment for most codes, but that we believed typically may be used with a designated subset of procedures:

X-ray view box—four panels (retain when currently in the CPEP data for codes in the range CPT codes 70010 through 79999).

ECG machine—3 channel (retain when currently in the CPEP data for CPT codes 93000 through 93221).

Pulse oximeter (retain when currently in the CPEP data for CPT codes 94620, 94621, 94680, 94681 and 94690; 94760 through 94770, 95807 through 95811 and 95819).

ECG/blood pressure monitor—3 channel (retain when currently in the CPEP data for CPT codes 43200 through 43202 and 43234 through 43239).

Cardiac monitor (retain when currently in the CPEP data for CPT codes 31615 through 31628).

ECG-Burdick (except for HCPCS code G0166).

Comment: All the specialty societies that commented on these proposals were supportive of what one commenter characterized as “HCFA's efforts to streamline the treatment of medical equipment” and agreed that the changes will facilitate the refinement process. One of these commenters stated that a standardized utilization rate overstates the use of some equipment and understates it for others and recommended that we continue to seek reliable data on this issue. Another commenter recommended that we need to provide clear and specific criteria for including medical equipment in the direct practice expense inputs, and gave three possible options—(1) equipment used primarily for a specific procedure or group of procedures; (2) all equipment used for a specific procedure; or (3) all equipment that typically must be available when a specific procedure is performed.

Response: We agree that clear criteria are needed for including equipment in the inputs for a given procedure. The major criterion used for clinical staff time and supplies is that the suggested input must be typically used in the performance of a service to be included as a direct practice expense. We believe that the same criterion should be applied to equipment. This criterion can be applied more clearly than the other options mentioned by the commenters, and, thus, should result in more consistent assignment of equipment across all services. Regarding utilization rates, we did solicit information on specific equipment utilization rates in the 1997 Notice of Intent to Regulate, but very little hard data were submitted. For most specialties, equipment costs are a very small portion of total practice expense, averaging less than 5 percent of the total practice expense per hour for the “all physicians” category. In addition, for most equipment, a change in the utilization rate would produce a negligible difference in the practice expense RVUs for any service. Therefore, with perhaps a few specific exceptions, and because of the apparent difficulty in obtaining reliable objective data, we expect that this issue will not be a high priority issue during the refinement process.

Comment: One specialty society agreed that it is appropriate to capture as indirect expense the costs of the equipment that we have proposed to delete. The specialty society expressed concern that the SMS survey would not include most of this equipment as indirect expense, disadvantaging certain specialties who have relatively higher costs for indirect or stand-by equipment. Other commenters questioned how the costs of stand-by and multiple-use equipment can be reflected if the equipment is not included in the calculation of practice expense. One society stressed that, because of the high costs of radiology equipment, it is critical that overhead costs are accounted for.

Response: The commenter raised a valid point about the relationship between the deleted “indirect” equipment and the SMS cost pools. The costs for this deleted equipment are included in the SMS cost pools for each specialty. However, we believe this proposal simplifies the refinement of equipment without introducing new problems. First, it is not clear whether much of this equipment, such as laser printers, lead shielding, refrigerators and freezers, cabinets, water systems, security systems, smoke evacuators and hazard material spill kits, would have been included as medical equipment or as indirect costs in the SMS survey. Second, stand-by equipment, such as crash carts, wheelchairs and ECG machines, would often be available for more than one procedure at a time. Allocating costs of these items for every service for which they are available, rather than for services for which they are typically used, can mean that we are allocating more than their actual costs and thus overstating their value. Third, the inclusion of the costs of equipment that is not typically used in a service means that we have different criteria for equipment than we do for other direct inputs. Fourth, most of this equipment is relatively low cost, which is one reason the impacts of this proposal are not significant. We also want to clarify that combining all equipment into one category does not eliminate from the practice expense calculations any of the overhead equipment, such as the most expensive radiology equipment, that is typically used for a given service.

Comment: Societies representing various imaging specialties requested clarification on the doppler that was included in the list of potentially deleted items, because, if this is an image-directed spectral doppler, it should not be deleted. One of these commenters supported the elimination of x-ray boxes because they are no longer typically used in current radiology practice.

Response: The doppler we are deleting from all but the relevant procedures is a hand-held doppler, with a cost of $1350, that can be used on obstetric patients, not the ultrasonic doppler at $155,000.

Comment: A society representing obstetricians and gynecologists recommended that the following equipment that we proposed deleting from all services be retained for specific codes:

The doppler should be retained for the prenatal codes CPT 59400, 59425, 59426, 59510, 59610 and 59618.

The blood pressure and pulse oximetry monitors should be retained for procedures requiring anesthesia or sedation, CPT 58555, 58558, 58120, 58800, 59140, 59160, 59812, 59820, 59840 and 59841.

The suction machine should be maintained for procedures that include evacuation of the uterus, CPT 58120, 59140, 59160, 59812, 59820, 59821, 59840, 59841.

Response: We will retain the doppler, monitor and suction machine for the recommended services. Because these were the only code-specific changes recommended in comments on our equipment proposals, we will be implementing our proposals with only the above changes.

Comment: The American Academy of Dermatology (AAD) wanted clarification on whether we are proposing that dermatology-related standby equipment be assigned to the overhead category, because the specialty gains one percent on the overhead proposal and loses one percent on the standby equipment proposal.

Response: We are proposing to delete from the inputs the identified “standby” equipment from those codes for which the equipment is not typically used. It is a coincidence that the impact came out as it did.

Comment: One primary care specialty society recommended that we propose a methodology in the 2001 proposed rule for the use of an alpha-numeric code for billing unusual equipment costs associated with a procedure that are not properly captured in the practice expense data.

Response: We will certainly consider this idea, although we foresee many policy and operational difficulties in implementing this recommendation.

(v) CPEP Anomalies

In the November 1999 final rule, we made corrections to the CPEP data for a number of codes when we learned that the data contained errors and anomalies that we could easily correct. In the July 2000 proposed rule, we listed other egregious errors and anomalies that we are proposing to correct. As we have previously stated, though certain revisions may be made now, all practice expense inputs for these codes are still subject to further comment, refinement, and potential PEAC and RUC review and recommendations. We received the following comments on our proposed corrections.

Comment: A major primary care organization agreed with our decision to correct major errors in the CPEP practice expense data that had been identified by specialty societies. Another association stated appreciation for our correction of the supply list for CPT code 68761 to reflect the cost of a punctal plug.

Response: We are pleased that there was no disagreement on any of the proposed revisions we made in the November 1999 final rule and the July 2000 proposed rule to correct egregious errors and anomalies in CPEP data, with the exception of those discussed below. Therefore, we will be implementing all other changes at this time.

Comment: Two specialty societies, representing obstetrics and family practice, pointed out that we proposed to crosswalk the CPEP inputs for CPT 59618, which includes antepartum care, delivery and postpartum care, from CPT 59410, which only includes delivery and postpartum care. They recommended that we change the crosswalk to CPT 59510, Routine obstetric care including antepartum care, cesarean delivery, and postpartum care.

Response: The above proposed crosswalk was a typographical error. We thank the commenters for pointing this out, and we are now crosswalking the CPEP inputs for CPT 59618 from the inputs for CPT 59510 as requested.

Comment: A specialty society representing interventional radiologists agreed that we had appropriately removed the clinical supplies listed in the facility setting for CPT codes 47510, Insert catheter, bile duct and 47511, Insert bile duct drain. They recommended that these supplies be listed in the office setting, because these are 90-day global services with two post-procedure visits.

Response: We have added post-procedure supplies to these two codes by crosswalking from the supplies assigned to CPT code 45525, Change bile duct catheter, adjusted for two post-visits.

Comment: A radiology specialty society objected to our proposal to crosswalk the inputs of CPT code 78206, Liver image (3D) with flow from the inputs of CPT code 78205, Liver imaging (3D). The specialty society suggested that it will work with the PEAC and RUC to determine the appropriate additional expenses.

Response: We view crosswalks of CPEP inputs as a temporary solution, and we would welcome a recommendation from the RUC.

Comment: One specialty society commented that they had previously identified inaccurate inputs, which lead to anomalous RVUs that we have not yet addressed. The commenter requested the status of these suggested changes for 13 procedures. For 11 of these procedures there is a request to increase the number of post-operative office visits. For CPT code 52276, Cystourethroscopy with direct vision internal urethrotomy, the commenter questioned why the facility practice expense RVUs are much lower than those for CPT 52340, Cystourethroscopy with incision, fulguration, or resection of congenial posterior urethral valves, or congenital obstructive hypertrophic mucosal folds, even though the practice expenses are similar. The commenter also noted that the supply cost for a double stent (CPEP supply code 93119) should be decreased from $359 to $150.

Response: We do not view a request to increase the number of post-operative visits as a correction of an egregious error, because it is not clear without supporting evidence that the current number of post-operative visits in our database is inappropriate. It would be most beneficial to discuss this issue with the RUC, which could then make recommendations to us. In regard to the second issue, CPT 52340, a code that will be deleted in 2001, is a 90-day global service, while CPT 52276 is a 0-day global service and therefore has lower practice expense RVUs. The double stent is currently priced at $179.50. We appreciate the information that this may be overpriced. However, we have awarded a contract to have the prices of all the CPEP clinical staff, supply and equipment inputs updated in time for next year's proposed rule and will revise the costs at that time. If the society has documentation on the correct price for this item, we will send this information to our contractor.

Comment: An association representing psychiatrists reiterated their concern regarding the physician times assigned to the psychotherapy codes that include evaluation and management services (E/M). The society recommended that the times assigned to each psychotherapy E/M code be increased so that the total time would be 7 minutes more than the time assigned to the corresponding psychotherapy code without E/M. The commenter argued that this added time would be equal to the time assigned to CPT 99211, the lowest level office visit with an established patient, and that this corresponds to the adjustment made to the work RVUs for the psychotherapy codes with E/M services. In addition, the comment requested that we make the physician time for CPT 90847, Family psychotherapy (with patient present), equal to CPT 90846, Family psychotherapy (without the patient present) and the time for CPT 90857, Interactive group psychotherapy, equal to CPT 90853, Group psychotherapy.

Response: We agree that an increase of seven minutes in the physician times for the psychotherapy codes with E/M is reasonable, and we will make the appropriate changes in our physician time database. In addition, we also agree that the times for CPT 90847 and 90846 should be equal, as should the times for CPT 90857 and 90853, and we will make those increases in physician time as well.

Comment: The association representing psychiatrists also commented that the clinical staff times for psychotherapy with E/M services are underestimated and questioned why we did not correct this as an egregious error.

Response: We included as egregious errors and anomalies only those instances where there was a clear error or anomaly in the CPEP data and also where the correct input would be obvious, without the benefit of a multi-specialty recommendation. We did not consider the clinical staff times for psychotherapy codes to fall into that category; in fact, we have concerns that the clinical staff time for most of the psychotherapy codes is, in fact, overstated. Therefore, we believe that this issue might better be dealt with initially by the RUC.

Comment: A manufacturer of diathermy equipment commented that the practice expense RVUs for CPT code 97024, Application of a modality to one or more areas; diathermy, are undervalued. The commenter stated that this payment rate will threaten the ability of providers to make this service available to the Medicare population.

Response: In checking our direct cost inputs for this service, neither the clinical staff time nor the supplies seem inappropriate. The issue appears to arise from a discrepancy in the cost of the diathermy machine itself. The machine in our database is priced at $2850. The price range quoted by the manufacturer is for $18,000 to $30,000. There is obviously a wide range of machines available, and we will need to determine the most typical cost to a practice. As mentioned earlier, we have granted a contract to re-price all of our direct cost inputs, including equipment. We would welcome information on this and other equipment used by practitioners and would find recent invoices particularly helpful.

The Act requires payment of some practitioner services (services of certified registered nurse anesthetists, nurse practitioners, clinical nurse specialists, physician assistants, and certified nurse mid-wives) based on a percentage of the physician fee schedule payment amount. Since the payment under the physician fee schedule for a service performed by a mid-level practitioner is required to be based on a percentage of the amount paid to a physician for a service, we proposed using only physician practice expense data in determining the practice expense RVUs for each practitioner service. Removal of the services performed by mid-level practitioners from the practice expense calculations would assist in simplifying the methodology and would also be consistent with the statutory requirement that we pay for their services based on a percentage of the fee schedule amount.

Comment: A primary care organization expressed concern that removing the services performed by mid-level practitioners from the practice expense calculations might have implications that were not discussed in the proposed rule. The comment encouraged us to withdraw the proposal until there is more information and a thorough discussion of the issue. The AMA stated in its comment that it would be difficult for us to include such mid-level practitioner data since we do not have reliable information concerning the extent to which these practitioners are self-employed or are employed by physicians. The comment further noted that we have recommended that the AMA request in any practice expense survey the amount of revenue and patient care hours generated by mid-level practitioners. Another primary care organization agreed that this proposal will make the methodology more consistent with the statutory requirement.

Response: The statute specifies the payment amounts for practitioners such as nurse practitioners, physician assistants, and certified nurse specialists. Because payment for these practitioners is not based on the calculation of their own practice expense cost pools, we are removing these services from the practice expense computations and will consider further adjustments as additional information becomes available.

We have received, in response to previous rules, comments from several surgical specialties urging us to evaluate the Medicare claims data to eliminate potential errors in the specialties associated with each service. In the June 2000 proposed rule, we described the analyses we ran to determine whether potential errors in the claims data have an adverse impact on any specialty or merely represent “noise” that creates no significant effect. We tested, for neurosurgery, ophthalmology and otolaryngology, the impact of reassigning to the dominant specialty the small proportion of allowed services associated with specialties not expected to perform these services. The impacts did not even approach a 1-percent increase or decrease in any scenario.

We stated our belief that these simulations demonstrated that the small percentage of potential errors in our very large database have no adverse effect on specialty-specific practice expense RVUs. Therefore, we did not propose any further action at this time.

Comment: One surgical specialty society expressed concern that we had dismissed the impact of less than 1 percent as inconsequential and encouraged us to develop a software program to reassign obvious errors in the specialty-specific assignment of procedures to the appropriate specialty.

Response: We believe that developing software would not be an easy solution to what we still see as an issue of little significance for the calculation of practice expense RVUs. On what basis do we decide what an obvious error would be? At this time, we do not have policies that limit payment for given services to only certain physician specialties, and we are not convinced that the medical community would actually support our doing this. In addition, because many services are performed appropriately by more than one specialty, on what basis would we decide to which specialty the services should be reassigned? Therefore, though we would certainly want the possible error rate to be zero, at this time we do not plan to propose any changes in our method of handling the utilization data for the purposes of calculating practice expense.

In the July 2000 proposed rule, we discussed the work The Lewin Group had recently begun on the third phase of the project, which concentrates specifically on evaluating the indirect cost allocation methodology and considers alternatives to allocating indirect costs by the current method. We expect their report on this analysis, which will be placed on our website, to be available soon.

Comment: Two specialty societies commented that we should develop and implement ways to reduce or eliminate the pool leakage that can occur in the weight-averaging step of our methodology when procedures are performed by multiple specialties. One commenter argued that the problem is in the allocation formula that sets up the leakage, not the averaging.

Response: These comments refer to methodological issues surrounding the development of the practice expense relative value units under the “top down” methodology. We use a combination of data on practice expense per hour from the SMS survey, the time estimated to perform individual procedures and Medicare utilization data to create aggregate cost pools. These cost pools are allocated to individual codes. Once the costs are allocated, estimates of practice expenses for individual procedures are then weight-averaged by the specialties performing each procedure to produce practice expense RVUs for a procedure. The above commenters are concerned that this process does not result in practice expense payments to each specialty that equal the aggregate cost pools. To the extent that there is “pool leakage,” it implies that an individual specialty's practice expense payments are less than its aggregate practice expense pool. The implication of the comments we have received on this issue is that specialties that receive aggregate cost payments that are less than the aggregate cost pools are underpaid. We disagree. As we indicated in the November 1999 final rule (64 FR 59390), we believe it is more likely that the aggregate practice expense pools are overstated, rather than that aggregate practice expense payments to a specialty are too low.

As we indicated both in that rule and in the June 5, 1998 proposed rule (63 FR 30832), there are two potential sources of bias in the practice expense per hour data that may result in an overstatement of the aggregate practice expense pool. First, mid-level practitioners may have been included in the numerator of the practice expense per hour calculation even though there is generally separate payment for their services. Thus, a mid-level practitioner would be analogous to an employee physician who also generates revenue and whose costs are not included in the practice expense calculation, rather than to a registered nurse or other practitioner who cannot furnish a separately billable service. Second, the mid-level practitioner's hours spent are not included in the denominator of the practice expense per hour calculation even though, like a physician, the mid-level practitioner is generating patient care revenues during the hours spent in patient care. To the extent that a specialty depends on the use of mid-level practitioners, then the aggregate specialty practice expense pools are likely to be overstated. Based on information in our utilization data and comments made to us by one of the commenters, we believe this is the case with thoracic surgery. Rather than developing a process that ensures that aggregate practice expense payments are equal to overstated aggregate practice expense pools, we believe the better option is to address the issue of mid-level practitioners in the practice expense methodology. In this final rule, we have already addressed one aspect of this issue. Specifically, we have eliminated any utilization data that reflects that the service was performed by a mid-level practitioner. The other aspect of this proposal that we would like to address is the practice expense per hour calculation itself. As we have indicated elsewhere, we are interested in addressing this and other issues related to the practice expense methodology as we develop long-term plans for refining the practice expense RVUs beyond 2002.

There were no proposals in the July 2000 proposed rule on this issue. However, in the November 1999 final rule, we implemented the proposal to remove requested services from the zero work pool and return them to the specialty-specific cost pools.

Comment: Many specialty societies and the AMA expressed approval of our decision to remove a list of CPT codes from the “zero work pool” in response to specific requests to do so. Other organizations, representing specialties with technical services, supported our decisions—(1) not to modify the practice expense RVUs for diagnostic imaging “zero work” services in any substantial way at this time; and (2) to keep the zero work pool intact, at least until we can develop a methodology that accurately captures TC costs. Several commenters did express a concern that we erroneously removed from the pool an amount equal to the increased payment the removed services would receive in their own pools, rather than the payment rate the services were assigned in the zero-work pool. Another specialty society representing TC providers argued that the RVUs of the codes remaining in the pool should have been maintained at their previous level.

Response: We are pleased that there is general support of our adjustments to the zero work pool. With respect to the concern expressed, we did deal with the removal of services from the zero work pool in a manner that seems consistent with the views of the commenters. We only subtracted from the pool the dollars for the utilization associated with the removed services, which would represent the rate the services were assigned in the zero-work pool, not the increased rate in the specialty-specific pool. With regard to the recommendation that the RVUs of the remaining services in the zero-work pool should be maintained in spite of any adjustment we make, we believe that such an approach would be unfair to the other services in the fee schedule whose practice expense RVUs are not similarly protected from the effects of changes we make in the practice expense calculations.

In the July 2000 proposed rule, we clarified the definition of facility and nonfacility sites of service for the purposes of practice expense calculations. This distinction takes into account the higher expenses of the practitioner in the nonfacility setting. The major purpose of this distinction is to ensure that Medicare does not duplicate payment, to the physician and to the facility, for any of the practice expenses incurred in performing a service for a Medicare patient. For purposes of the site-of-service, we have defined hospitals, skilled nursing facilities (SNFs), and ambulatory surgical centers as facilities, because they will receive a facility payment for their provision of services. In the July 2000 proposed rule, we proposed to revise § 414.22(b)(5)(i) (Practice expense RVUs) to define community mental health centers (CMHCs) as facility settings since CMHCs also receive a separate facility payment for their services.

In addition, we clarified that the nonfacility practice expense RVUs should be applied to all outpatient therapy services (physical therapy, occupational therapy, and speech language pathology), even when they are provided in a facility. Only the facility can bill for therapy services furnished to hospital and SNF patients. Because there will be only one bill for this service and because the payment must reflect the practice expenses incurred in furnishing the service, the higher nonfacility RVUs are used to pay for therapy services even in the facility setting.

Comment: Three specialty societies representing gastroenterologists reiterated their disagreement with our site-of-service policy because they believe—

• The policy offers a financial incentive for physicians to perform certain gastroenterological procedures in their offices, rather than in an ASC or hospital outpatient department;

• The policy allows the procedures to be furnished in a physician's office that does not have to meet accreditation standards;

• The wide divergence between the payments in the two settings may be encouraging the performance of gastrointestinal procedures by non-gastroenterologists; and,

• This reduction of payments for endoscopy services in the facility setting is contrary to the intent of the statute.

The commenters had varying recommendations on this issue: one comment urged us to provide the same practice expense RVUs in the facility and nonfacility settings for 18 endoscopic gastroenterological procedures. Another commenter suggested that because we now pay therapy services at the nonfacility rate regardless of setting, we should do the same for the colorectal screening codes. A major specialty society stated that it is in the process of working with gastroenterology societies to develop a proposal to create a single site-of-service payment rate for those services that are furnished less than 10 percent of the time in the office.

Response: We believe that some of the commenters continue to misunderstand the reasons for the distinction between the facility and nonfacility sites of service and the actual implications of this distinction. We have perhaps added to this confusion by continuing, on occasion, to use the term “site-of-service differential” to describe this policy. Under the charge-based practice expense methodology, there was an actual differential; certain services were automatically reduced by a pre-determined amount when furnished in the facility setting. However, in our current resource-based “top-down” approach, we employ no such reduction. Rather, we carry out the statutory requirement to develop practice expense RVUs that reflect the relative resources involved with furnishing each service. We doubt that any specialty society would argue that the direct costs of performing a service in the office setting are not higher than in the facility setting. In the office setting, the physician must bear the costs for all of the clinical staff, supplies and equipment needed to perform a given service; in the facility setting, these costs are the responsibility of the facility. Our RVUs reflect the relative resources used in furnishing the service in each of the facility and nonfacility settings. Therefore, to the extent that we have correctly identified the relative direct costs, there should be no incentive to perform a service in either setting. It is true that we pay more to the physician if the service is furnished in the office, but that is because greater resources are involved with furnishing the service in that setting. The fact that there is a significant difference between the facility and nonfacility payment for any given service seems to us both expected and appropriate. We believe that properly reflecting the relative resources involved with furnishing services in the facility and nonfacility settings creates no incentive to perform a service in one setting or another. In contrast, a policy that paid the same amount for a service furnished in a facility and nonfacility setting would create an incentive to furnish the service in the facility setting and, thus, would not be incentive-neutral.

We have serious reservations about adopting a policy to develop a single site-of-service payment for services that are furnished less than 10 percent of the time in the office. First, if there are real concerns regarding patient safety when certain procedures are furnished in the office, sufficient evidence should be presented to the relevant parties so that an appropriate coverage decision can be made. We emphasize that such a decision would be a coverage decision, and would not be a payment policy issue. Second, a 10-percent threshold could eliminate payment in the office setting for some high-volume procedures done thousands of times there. Third, we have some concern that this issue may be a matter of contention between those specialties that generally perform procedures in physician-owned ASCs and other specialties that would utilize the office setting. We would suggest that this issue, either as a general proposal or on a code-specific level, be discussed in the PEAC/RUC, where a multi-specialty recommendation could then be submitted to us.

The site-of-service policy for therapy services mentioned by a commenter as a precedent is not applicable to other services in the physician fee schedule. As described above, the facility itself must bill for both the technical and professional portion of the therapy service; in these circumstances, the therapist does not bill Medicare at all. Therefore, the nonfacility RVUs are used to ensure that the facility is paid for the direct costs incurred in the service.

Comment: A specialty society representing pediatricians believed that the site-of-service differentials will likely have an adverse impact on pediatric specialty care that is primarily hospital-based. Most pediatric sub-specialists, most of whom are not hospital-employed, incur practice expense (in the form of a lease or rent) when they provide ambulatory services in a hospital-owned facility. This expense most typically includes administrative and clinical staff.

Response: We would need more information on the scenario described before we can formulate a definitive response on this issue. For example, it is not clear whether these pediatric services as described would always be considered “facility” services. A visit to a physician's office that is leased from a hospital could, in many circumstances, be considered a “non-facility” service by Medicare, if there is not a Part A bill for the same service. In addition, indirect expenses, such as rent or administrative staff salaries, are treated the same in all sites under our methodology. We would welcome further discussion on this issue.

Comment: A comment from an association representing providers of services in long-term care facilities contended that there should be a site-of-service differential for settings such as SNFs, where patient acuity is higher and where services must be transported to the patients. Use of data from the SMS survey for services performed outside of the physician's office is not appropriate. An occupational therapy association stated that, though they concur with our clarification that therapy services would always be paid at the nonfacility rate, the resources necessary to provide therapy services in facilities are not adequately reflected in our practice expense calculations. A commenter representing geriatricians commented that pre-and post-care involved in nursing home visits are not reflected in the nursing home visits.

Response: The practice expense RVUs for the office and facility settings differ primarily as a result of the differences in the direct costs in these sites. Because the SNF would bear the costs of the clinical staff, supplies and equipment, the cost to the practitioner is less than it would be in the office setting. It is not clear to us how the acuity of the patients in a SNF would affect the direct practice expense costs of the practitioner, or what resources are not reflected in our calculations, since the practitioner is not responsible for the direct costs in that setting. If there is clinical staff time for staff back in the office associated with nursing home visits, this issue should be brought to the attention of the PEAC/RUC, because they are considering an approach to standardizing “coordination of care” clinical staff times for various services to make recommendations to us on this issue.

Comment: A long-term care association recommended that we clarify our policy on mixed facilities, which are SNFs that also have nursing home beds, to state that the presumption should be made that the therapist is treating a nonfacility patient. A society representing podiatrists requested confirmation of this policy.

Response: We do not agree that the above recommendation would be a clarification of our policy on “mixed” facilities. We explicitly stated in our July 1999 proposed rule that a service in a mixed facility should be designated as a facility service (that is, the place of service would be a SNF), unless the practitioners can verify that no Part A claim will be made for the service. In the latter case, the place of service would be a nursing home, and the service would be paid at the nonfacility rate. We did not change this policy in our November 1999 final rule, and we believe that this is an appropriate policy.

Comment: Commenters were supportive of the expansion of the definition of facilities to include community mental health centers (CMHCs). However, one commenter, representing a state health department, requested that we clarify the distinction between CMHCs and other types of community mental health entities to which this would not apply.

Response: A CMHC is a distinct type of facility certified for Medicare participation for the purpose of providing “partial hospitalization services”. As we had explained in the proposed rule, Medicare payment to a facility typically includes the cost of services furnished. If an entity is not participating in the Medicare program, the nonfacility practice expense RVUs would apply to the services. We believe this may not have been clear in the proposed rule. We are revising § 414.22(b)(5)(i)(A) to specifically provide that, for calculation of practice expense RVUs, a CMHC is considered to be a facility and revising § 414.22(b)(5)(i)(B) to parallel the language of § 414.22(b)(5)(i)(A). We also specify that the nonfacility practice expense RVUs are applicable to outpatient therapy services regardless of the actual setting.

Comment: One organization commented that the proposed rule did not address coverage or payment for “inpatient” only services performed in the outpatient setting, and referenced the outpatient PPS rule published April 7, 2000.

Response: This issue is addressed in the outpatient prospective payment system rules.

Comment: One specialty society recommended that we keep the practice expense RVUs that will be fully resource-based in 2002 as interim RVUs for a minimum of another three years, during which we would consider comments for further code-level refinement.

Response: As long as there is a good faith effort on the part of all parties to continue the quality work that the PEAC/RUC has already undertaken, we do not plan to close the door on further code-level refinements in 2002. We understand the magnitude of this task and have an interest in ensuring that there is sufficient time to deal with the CPEP inputs of all services in a thoughtful and equitable manner.

Comment: A specialty society representing neurological surgeons made a number of comments critical of the methodology used to allocate practice expenses. These criticisms pertained to virtually every aspect of the methodology. For instance, there was criticism of the CPEP data, the SMS data, and the idea that indirect practice expenses are a function of the amount of time spent in patient care activities. The commenter further indicated that the “cursory efforts to ‘validate’ CPEP data by having it reviewed by RUC's Practice Expense Advisory Committee (PEAC) seems more pro forma rather than have it based on some independent appraisal of the real costs that may be involved.” In addition to the criticism cited above with respect to the methodology for allocating indirect costs, the commenter suggested that we should have summed the three indirect cost categories (administrative labor, office expense, and other expense), and allocated the result to individual codes based on the work RVUs. The commenter suggested that this was a better method than the “unnecessarily tortuous” approach we adopted that “used the total SMS pool and divided it by the pool of direct expenses * * * to generate a scaling factor that represented the fraction of the total that the CPEP data calculation claimed as direct.” In addition, the commenter objected to a “single adjustment” of 25 percent made to the Harvard physician time data that are being used to generate the practice cost pools. They indicated that this adjustment distorts time values for many codes. The commenter suggested that RUC time data would be more reliable than Harvard time data and that we should consider establishing a rank order reliability in the time data based on dependability of the process that generated the time values. For instance, the commenter suggested that operative logs would provide a measure of skin-to-skin time for intraoperative portion of surgical procedures that should rank above a group of estimates of the same time made by surgeons.

Response: With respect to the criticism of the CPEP data, we acknowledge that there are limitations and anomalies in the data that may distort values for some services. As required by the BBA, we have established a refinement process that will address the inputs for many codes. In this final rule, we are reflecting refinements to the practice expense inputs for office visits and office consultations. As a result, services that account for approximately 22 percent of Medicare allowed charges for physicians' services will have been reviewed and the inputs been refined. As we describe elsewhere in this rule, we are making other refinements with respect to how equipment costs are being allocated, and we are continuing to consult with the PEAC on developing supply cost packages that will facilitate refinement of this aspect of the practice expense inputs. Although the commenter believed that surveys of physician practices for resource inputs would be an improvement over the scrutiny being applied by the PEAC, we disagree. A survey process to collect direct cost inputs for the over 7,000 procedures on the Medicare physician fee schedule would be enormously expensive and time consuming and may be unlikely to yield better results than are being recommended by the RUC/PEAC. We believe the RUC/PEAC process allows for a multispecialty review of inputs for particular procedures. These RUC/PEAC recommendations have been helpful to us in simplifying the number of data inputs going into individual codes and in improving the overall quality of the data that are being used to determine practice expense RVUs.

With respect to the indirect methodology, the commenter is essentially suggesting that we abandon the direct inputs and use the work RVUs as the basis for allocating all indirect costs. While this approach may be simpler, we disagree that such a methodology will improve overall equity in Medicare payment for physicians' services. It would, of course, likely increase payments to specialties with relatively high work values and low direct costs. Furthermore, we do not believe this approach would be consistent with the statutory requirement to recognize “all staff, equipment and supplies and expenses” in determining the practice expense RVUs.

We do agree with the commenter that it may be helpful to validate physician time data using independent information sources such as operative logs. In fact, as we described in the July 2000 proposed rule (65 FR 44202), we have several efforts underway to obtain information on times spent performing individual procedures, including using inpatient and outpatient records and operative reports on skin-to-skin surgical times for selected procedures.

Comment: One surgical specialty society reiterated its contention that we have not been providing the impact analysis required by the BBA and requested that we do so. The osteopathic surgeons requested that we publish the impacts rounded to a tenth of a percent and that we display the impact for the entire period of the transition rather than for the individual year. A society representing radiation oncology also requested that we expand the percentage of impact by several decimal places; although the impact table for radiation oncology displays zero percentage impact for each category, there is a total increase of one percent. An ophthalmology society requested that we publish more detailed impacts, and enumerated five additional impact analyses or tables we should include in the final rule. Three other specialty societies urged us to conduct the sensitivity analyses recommended by the GAO, because, without knowing the effect of a change in methodology or data, it is difficult to know whether the proposed change is acceptable.

Response: We have addressed these comments in previous rules. We provide a discussion of impacts in each proposed and final rule. We also provide detailed information on the HCFA web page, which allows any group to select services of interest and determine the impacts resulting from payment rates.

Comment: A commenter suggested that we should identify a way to incorporate the cost of compliance with regulations into the practice expense payments or into the annual updates to the physician fee schedule.

Response: To the extent that these costs are due to increased clinical or administrative staff time, the SMS or supplementary surveys should reflect these expenses, so they are already reflected in the practice expense calculations.

Comment: A specialty society representing podiatrists requested clarification concerning the reduction in practice expense RVUs for CPT code 11750, Removal of nail bed, as compared to the previous charge-based RVUs.

Response: Because the charge-based practice expense RVUs were not based on the resources used to perform a service, the payment for many services either increased or decreased, some significantly, when we implemented resource-based practice expense. In themselves, such changes are not indicative of an error in our calculations. A comparison to the values assigned to codes in the same or similar families would be more important. It appears that the fully implemented practice expense RVUs for CPT 11750 are in the same range as the values for related services. If the specialty society believes this is not the case, we would need more information as to which codes' values appear anomalous.

Comment: An occupational therapy association noted that the fully-implemented practice expense RVUs for CPT 97110, Therapeutic exercises are greater than those for CPT 97530, Therapeutic activities, even though the CPEP inputs that we accepted should be the same for both services. The commenter also questioned why, in the November 1999 final rule, the practice expense RVUs for the occupational therapy evaluation and re-evaluation services, CPT 97003 and 97004, were lower than those for the physical therapy evaluation and re-evaluation services, CPT 97001 and 97002.

Response: We checked the CPEP inputs for CPT codes 97110 and 97530. The time associated with the use of procedure-specific equipment for CPT 97110 was inadvertently overstated, causing a slight increase in the equipment cost for that service. We have corrected this error. In addition, as we explained in the November 1999 final rule, we deleted the tables in the equipment lists from CPT 97530 because we believed the service would typically be performed while the patient was standing. However, even when two services have identical inputs, the final practice expense RVUs can differ, if a different mix of specialties perform the two services. One reason for the difference between the occupational and physical therapy evaluation and re-evaluation services is that the occupational therapy codes were only valued by one CPEP panel. The physical therapy codes were valued by two CPEP panels, one of which estimated higher staff times than the other, giving these codes a higher average time. The refinement of these codes should remove this issue, although, for the reason explained above, the practice expense RVUs may still not be identical.

Comment: Two organizations representing audiologists submitted a joint comment which reiterated their concern regarding our use of data from the other specialties that perform audiology services to calculate the practice expense RVUs for these services. The specialty society intended to perform a survey of audiologists' practice expenses in order to gather more accurate data.

Response: We have published the criteria and process for the submission of specialty-specific supplementary survey data. We would welcome this additional information.

Comment: A specialty society representing geriatricians contended that this specialty requires more office space than other providers and wanted us to increase the space requirements beyond what is allowed for internists. They believe we have set a precedent for this by altering the space allotment for physician and occupational therapists.

Response: Under our current practice expense methodology, we do not have space requirements for any physician specialty. The amount of office space needed would presumably be reflected in the SMS indirect costs for each surveyed specialty, but we have no way of knowing what this is, or of making an adjustment to these costs for a given specialty or sub-specialty. The adjustment for the physical therapists was a different issue. Because we believed that the crosswalk to the “all physician” rate that we used for physical therapy would overstate the indirect costs, we substituted a lower rate based on a study of physical and occupational therapists that computed costs for therapy services partially on the space used for therapy agencies and later made an adjustment to that rate. This adjustment would have no relevance to any other specialty.

Comment: A commenter objected to the use of salary equivalency guidelines to determine the indirect cost pools for physical therapists. The commenter indicated that the original estimate of 250 square feet was insufficient to reflect expenses for therapists in private practice. While we agreed that these space requirements were insufficient and increased the space to 500 square feet, the commenter continues to believe that the salary equivalency data is not an accurate measure of the expenses associated with operating a physical therapy office since these apply to therapy services furnished by an outside contractor to an outpatient hospital, skilled nursing facility, home health agency, clinic, rehabilitation agency or public health agency.

Response: In general, we believe it is better to use data that reflect a specific physician specialty or nonphysician practitioners' costs if they are available. For the direct expense items (clinical staff, equipment and medical supplies), there was no data available for physical therapy so we used a crosswalk to the all physician rate. For the indirect cost items, we used the information that is directly applicable to physical therapy for use in the practice expense methodology. While the use of salary equivalency guidelines data may have been developed for contract physical therapists providing services in facilities, we believe that a potential shortcoming for its use is related to the number of square feet of space that are allotted for each therapist. In response to previous comments we increased the space allocation to 500 square feet in the November 1999 final rule (64 FR 59404). While we are currently using 500 square feet for the space allotment and believe that that amount may recognize some components of indirect costs, the figure still may understate the space requirements for private practice physical therapists because it does not recognize other components of indirect costs that are not incurred by contract physical therapists working in a facility setting. In an earlier comment, the American Physical Therapy Association indicated that 250 square feet is inadequate for physical therapists in private practice. The comment indicates that approximately 700 to 850 square feet per therapist are necessary. We are increasing the space requirements from the salary equivalency guidelines for physical therapy to 750 square feet. This revision will result in use of the following practice expense per hour for physical therapy for calculation of the 2001 practice expense RVUs: