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DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 410, 414, 416, 419, 421, 485, and 488 [CMS-1506-P; CMS-4125-P] RIN 0938-AO15 Medicare Program; The Hospital Outpatient Prospective Payment System and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical Center Covered Procedures List; the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates; Medicare Administrative Contractors; and Reporting Hospital Quality Data for FY 2008 Inpatient Prospective Payment System Annual Payment Update Program -HCAHPS® Survey, SCIP, and Mortality AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: This proposed rule would revise the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system, and to implement certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, and the Deficit Reduction Act (DRA) of 2005. The proposed rule describes proposed changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. These changes would be applicable to services furnished on or after January 1, 2007.

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In addition, this proposed rule would revise the current list of procedures that are approved when furnished in a Medicare-approved ambulatory surgical center (ASC), which would be applicable to services furnished on or after January 1, 2007. Further, this proposed rule would revise the ASC facility payment system to implement provisions of the MMA and other applicable statutory requirements, and update the ASC payment rates. Changes to the ASC facility payment system and the payment rates would be applicable to services furnished on or after January 1, 2008. This proposed rule would revise the emergency medical screening requirements for critical access hospitals (CAHs). In addition, this proposed rule would support implementation of a restructuring of the contracting entities responsibilities and functions that support the adjudication of Medicare fee-for-service (FFS) claims. This restructuring is directed by section 1874A of the Act, as added by section 911 of the MMA. The prior separate Medicare intermediary and Medicare carrier contracting authorities under Title XVIII of the Act have been replaced with the Medicare Administrative Contractor (MAC) authority. This proposed rule would also continue to implement the requirements of the DRA that require that we expand the “starter set” of 10 quality measures that we used in FY 2005 and FY 2006 for the hospital Inpatient Prospective Payment System (IPPS) Reporting Hospital Quality Data for the Annual Payment Update (RHQDAPU) program. We began to adopt expanded measures effective for payments beginning in FY 2007. We are proposing to add additional quality measures to the expanded set of measures for FY 2008 payment purposes. These measures include the HCAHPS® survey, as well as

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Surgical Care Improvement Project (SCIP, formerly Surgical Infection Prevention (SIP)), and Mortality quality measures. DATES: To be assured consideration, comments on all sections of the preamble of this proposed rule, except section XVIII., must be received at one of the addresses provided in the "ADDRESSES" section, no later than 5 p.m. on October 10, 2006. To be assured consideration, comments on section XVIII. of this preamble relating to the proposed revised ASC payment system and the related regulation changes for implementation January 1, 2008, must be received at one of the addresses provided in the “ADDRESSES’ section, no later than 5 p.m. on November 6, 2006. ADDRESSES: In commenting on all provisions except those found in section XXIII. of the preamble, please refer to file code CMS-1506-P. In commenting on the provisions found in section XXIII. of the preamble for the FY 2008 IPPS RHQDAPU program, please refer to file code CMS-4125-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (no duplicates, please): 1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click on the link “Submit electronic comments on CMS regulations with an open comment period.” (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.) 2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services,

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Department of Health and Human Services, Attention: CMS-1506-P, or CMS-4125-P, P.O. Box 8011, Baltimore, MD 21244-1850. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1506-P, or CMS-4125-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850.

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If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. (Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain proof of filing by stamping in and retaining an extra copy of the comments being filed.) Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. Submission of Comments on Paperwork Requirements. You may submit comments on this document’s paperwork requirements by mailing your comments to the addresses provided at the end of the “Collection of Information Requirements” section in this document. For information on viewing public comments, see the beginning of the “SUPPLEMENTARY INFORMATION” section. FOR FURTHER INFORMATION CONTACT: Alberta Dwivedi, (410) 786-0378,

Hospital outpatient prospective payment issues

Dana Burley, (410) 786-0378,

Ambulatory surgery center issues

Suzanne Asplen, (410) 786-4558,

Partial hospitalization and community mental health centers issues

CMS-1506-P Mary Collins, (410) 786-3189,

6 Critical access hospital emergency medical planning issues

Sandra M. Clarke, (410) 786-6975, Medicare Administrative Contractors issues Mark Zobel, (410) 786-6905,

Medicare Administrative Contractors issues

Liz Goldstein, (410) 786-6665,

FY 2008 IPPS RHQDAPU HCAHPS® issues

Bill Lehrman, (410) 786-1037,

FY 2008 IPPS RHQDAPU HCAHPS® issues

Sheila Blackstock, (410) 786-3506, FY 2008 IPPS RHQDAPU SCIP and mortality issues SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on all issues set forth in this proposed rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1506-P or file code CMS-4125-P for FY 2008 RHQDAPU program issues, and the specific “issue identifier” that precedes the section on which you choose to comment. Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link “Electronic Comments on CMS Regulations” on that Web site to view public comments.

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Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. Electronic Access 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. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents’ home page address is http://www.gpoaccess.gov/index.html, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required). Alphabetical List of Acronyms Appearing in the Proposed Rule ACEP

American College of Emergency Physicians

AHA

American Hospital Association

AHIMA

American Health Information Management Association

AMA

American Medical Association

APC

Ambulatory payment classification

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AMP

Average manufacturer price

ASC

Ambulatory Surgical Center

ASP

Average sales price

AWP

Average wholesale price

BBA

Balanced Budget Act of 1997, Pub. L. 105-33

BBRA

Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113

BCA

Blue Cross Association

BCBSA

Blue Cross and Blue Shield Association

BIPA

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

CAH

Critical access hospital

CBSA

Core-Based Statistical Area

CCR

Cost-to-charge ratio

CMHC

Community mental health center

CMS

Centers for Medicare & Medicaid Services

CNS

Clinical nurse specialist

CORF

Comprehensive outpatient rehabilitation facility

CPT

[Physicians’] Current Procedural Terminology, Fourth Edition, 2006, copyrighted by the American Medical Association

CRNA

Certified registered nurse anesthetist

CY

Calendar year

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DMEPOS

Durable medical equipment, prosthetics, orthotics, and supplies

DMERC

Durable medical equipment regional carrier

DRA

Deficit Reduction Act of 2005, Pub. L. 109-171

DSH

Disproportionate share hospital

EACH

Essential Access Community Hospital

E/M

Evaluation and management

EPO

Erythropoietin

ESRD

End-stage renal disease

FACA

Federal Advisory Committee Act, Pub. L. 92-463

FAR

Federal Acquisition Regulations

FDA

Food and Drug Administration

FFS

Fee-for-service

FSS

Federal Supply Schedule

FY

Federal fiscal year

GAO

Government Accountability Office

HCPCS

Healthcare Common Procedure Coding System

HCRIS

Hospital Cost Report Information System

HHA

Home health agency

HIPAA

Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191

ICD-9-CM

International Classification of Diseases, Ninth Edition, Clinical Modification

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IDE

Investigational device exemption

IPPS

[Hospital] Inpatient prospective payment system

IVIG

Intravenous immune globulin

MAC

Medicare Administrative Contractors

MedPAC

Medicare Payment Advisory Commission

MDH

Medicare-dependent, small rural hospital

MMA

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

MPFS

Medicare Physician Fee Schedule

MSA

Metropolitan Statistical Area

NCCI

National Correct Coding Initiative

NCD

National Coverage Determination

NTIOL

New technology intraocular lens

OCE

Outpatient Code Editor

OMB

Office of Management and Budget

OPD

[Hospital] Outpatient department

OPPS

[Hospital] Outpatient prospective payment system

PA

Physician assistant

PHP

Partial hospitalization program

PM

Program memorandum

PPI

Producer Price Index

PPS

Prospective payment system

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PPV

Pneumococcal pneumonia (virus)

PRA

Paperwork Reduction Act

QIO

Quality Improvement Organization

RFA

Regulatory Flexibility Act

RHQDAPU

Reporting hospital quality data for annual payment update

RHHI

Regional home health intermediary

SBA

Small Business Administration

SCH

Sole community hospital

SDP

Single Drug Pricer

SI

Status indicator

TEFRA

Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248

TOPS

Transitional outpatient payments

USPDI

United States Pharmacopoeia Drug Information In this document, we address three payment systems under the Medicare program:

the hospital outpatient prospective payment system (OPPS), the hospital inpatient prospective payment system (IPPS), and the ambulatory surgical center (ASC) payment system. The provisions relating to the OPPS are included in sections I. through XIII., XV., XVI., XX., XXIV., XXVI., and XXVII. of the preamble and in Addenda A, B, C (available on the Internet only; see section XXIV. of the preamble of this proposed rule), D1, D2, and E of this proposed rule. The provisions related to IPPS are included in sections XXIII., XXV. through XXVII. of the preamble. The provisions related to ASCs

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are included in sections XVII,. XVIII., and XXIV. through XXVII. of the preamble and in Addenda AA, BB, and CC of the proposed rule. In addition, in this document, we address our proposed implementation of the Medicare contracting reform provisions of the MMA that replace the prior Medicare intermediary and carrier authorities formerly found in sections 1816 and 1842 of the Act with Medicare administrative contractor (MAC) authority under a new section 1874A of the Act. The provisions relating to MACs are included in sections XIX., XXVI., and XXVII.E. of this preamble. To assist readers in referencing sections contained in this document, we are providing the following table of contents: Table of Contents I. Background for the OPPS A. Legislative and Regulatory Authority for the Hospital Outpatient Prospective Payment System B. Excluded OPPS Services and Hospitals C. Prior Rulemaking D. APC Advisory Panel 1. Authority of the APC Panel 2. Establishment of the APC Panel 3. APC Panel Meetings and Organizational Structure E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 1. Reduction in Threshold for Separate APCs for Drugs

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2. Special Payment for Brachytherapy F. Provisions of the Deficit Reduction Act of 2005 1. 3-Year Transition of Hold Harmless Payments 2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic Aneurysms G. Summary of the Major Contents of This Proposed Rule 1. Proposed Updates Affecting Payment for CY 2007 2. Proposed Ambulatory Payment Classification (APC) Group Policies 3. Proposed Payment Changes for Devices 4. Proposed Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals 5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, and Radiopharmaceuticals 6. Proposed Brachytherapy Payment Changes 7. Proposed Coding and Payment for Drug and Vaccine Administration 8. Proposed Hospital Coding for Evaluation and Management (E/M) Services 9. Proposed Payment for Blood and Blood Products 10. Proposed Payment for Observation Services 11. Procedures That Will Be Paid Only as Inpatient Services 12. Proposed Nonrecurring Policy Changes 13. Emergency Medical Screening in Critical Access Hospitals (CAHs) 14. Proposed OPPS Payment Status and Comment Indicator 15. OPPS Policy and Payment Recommendations

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16. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007 17. Proposed Revised Ambulatory Surgical Center (ASC) Payment System for Implementation January 1, 2008 18. Medicare Provider Contractor Reform Mandate 19. Reporting Quality Data for Improved Quality and Costs under the OPPS 20. Promoting Effective Use of Health Information Technology 21. Health Care Information Transparency Initiative 22. Reporting Hospital Quality Data for Annual Payment Update under the IPPS 23. Impact Analysis II. Proposed Updates Affecting OPPS Payments for CY 2007 A. Proposed Recalibration of APC Relative Weights for CY 2007 1. Database Construction a. Database Source and Methodology b. Proposed Use of Single and Multiple Procedure Claims c. Proposed Revision to the Overall Cost-to-Charge Ratio (CCR) Calculation 2. Proposed Calculation of Median Costs for CY 2007 3. Proposed Calculation of Scaled OPPS Payment Weights 4. Proposed Changes to Packaged Services B. Proposed Payment for Partial Hospitalization 1. Background 2. Proposed PHP APC Update for CY 2007

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3. Proposed Separate Threshold for Outlier Payments to CMHCs C. Proposed Conversion Factor Update for CY 2007 D. Proposed Wage Index Changes for CY 2007 E. Proposed Statewide Average Default CCRs F. OPPS Payments to Certain Rural Hospitals 1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 (DRA) 2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L. 108-173 (MMA) G. Proposed CY 2007 Hospital Outpatient Outlier Payments H. Calculation of the Proposed OPPS National Unadjusted Medicare Payment I. Proposed Beneficiary Copayments for CY 2007 1. Background 2. Proposed Copayment for CY 2007 3. Calculation of a Proposed Adjusted Copayment Amount for an APC Group for CY 2007 III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies A. Proposed Treatment of New HCPCS and CPT Codes 1. Proposed Treatment of New HCPCS Codes Included in the Second and Third Quarterly OPPS Updates for CY 2006 2. Proposed Treatment of New CY 2007 Category I and III CPT Codes and Level II HCPCS Codes

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3. Proposed Treatment of New Mid-Year CPT Codes B. Proposed Changes -- Variations Within APCs 1. Background 2. Application of the 2 Times Rule 3. Exceptions to the 2 Times Rule C. New Technology APCs 1. Introduction 2. Proposed Movement of Procedures from New Technology APCs to Clinical APCs a. Nonmyocardial Positron Emission Tomography (PET) Scans b. PET/Computed Tomography (CT) Scans c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services d. Magnetoencephalography (MEG) Services e. Other Services in New Technology APCs D. Proposed APC-Specific Policies 1. Skin Replacement Surgery and Skin Substitutes (APCs 0024, 0025 and 0027) 2. Treatment of Fracture/Dislocation (APC 0046) 3. Electrophysiologic Recording/Mapping (APC 0087) 4. Insertion of Mesh or Other Prosthesis (APC 0154) 5. Percutaneous Renal Cryoablation (APC 0163) 6. Keratoprosthesis (APC 0244) 7. Medication Therapy Management Services

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8. Complex Interstitial Radiation Source Application (APC 0651) 9. Single Allergy Tests (APC 0381) 10. Hyperbaric Oxygen Therapy (APC 0659) 11. Myocardial Positron Emission Tomography (PET) Scans (APCs 0306, 0307) 12. Radiology Procedures (APCs 0333, 0662, and Other Imaging APCs) IV. Proposed OPPS Payment Changes for Devices A. Proposed Treatment of Device-Dependent APCs 1. Background 2. Proposed CY 2007 Payment Policy 3. Devices Billed in the Absence of an Appropriate Procedure Code 4. Proposed Payment Policy When Devices are Replaced Without Cost or Where Credit for a Replaced Device is Furnished to the Hospital B. Proposed Pass-Through Payments for Devices 1. Expiration of Transitional Pass-Through Payments for Certain Devices a. Background b. Proposed Policy for CY 2007 2. Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged Into APC Groups a. Background b. Proposed Policy for CY 2007 V. Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

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A. Proposed Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals 1. Background 2. Expiration in CY 2006 of Pass-Through Status for Drugs and Biologicals 3. Drugs and Biologicals With Proposed Pass-Through Status in CY 2007 B. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status 1. Background 2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals 3. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status That Are Not Packaged a. Proposed Payment for Specified Covered Outpatient Drugs b. Proposed CY 2007 Payment for Nonpass-Through Drugs, Biologicals, Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data VI. Proposed Estimate of OPPS Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, Radiopharmaceuticals, and Devices A. Total Allowed Pass-Through Spending B. Proposed Estimate of Pass-Through Spending for CY 2007 VII. Proposed Brachytherapy Source Payment Changes A. Background B. Proposed Payments for Brachytherapy Sources in CY 2007

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VIII. Proposed Changes to OPPS Drug Administration Coding and Payment for CY 2007 A. Background B. Proposed CY 2007 Drug Administration Coding Changes C. Proposed CY 2007 Drug Administration Payment Changes IX. Proposed Hospital Coding and Payment for Visits A. Background 1. Guidelines Based On the Number or Type of Staff Interventions 2. Guidelines Based On the Time Staff Spent With the Patient 3. Guidelines Based On a Point System Where a Certain Number of Points Are Assigned to Each Staff Intervention Based On the Time, Intensity, and Staff Type Required for the Intervention 4. Guidelines Based On Patient Complexity B. CY 2007 Proposed Coding 1. Clinic Visits 2. Emergency Department Visits 3. Critical Care Services C. CY 2007 Proposed Payment Policy D. CY 2007 Proposed Treatment of Guidelines 1. Background 2. Outstanding Concerns With the AHA/AHIMA Guidelines a. Three Versus Five Levels of Codes

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b. Lack of Clarity for Some Interventions c. Treatment of Separately Payable Services d. Some Interventions Appear Overvalued e. Concerns of Specialty Clinics f. American with Disabilities Act g. Differentiation Between New and Established Patients, and Between Standard Visits and Consultations h. Distinction Between Type A and Type B Emergency Departments X. Proposed Payment for Blood and Blood Products A. Background B. Proposed Policy Changes for CY 2007 XI. Proposed OPPS Payment for Observation Services XII. Proposed Procedures That Will be Paid Only as Inpatient Procedures A. Background B. Proposed Changes to the Inpatient Only List C. Proposed CY 2007 Payment for Ancillary Outpatient Services When Patient Expires (-CA Modifier) 1. Background 2. Proposed Policy for CY 2007 XIII. Proposed OPPS Nonrecurring Policy Changes A. Removal of Comprehensive Outpatient Rehabilitation Facility (CORF) Services from the List of Services Paid under the OPPS

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B. Addition of Ultrasound Screening for Abdominal Aortic Aneurysms (AAAs) (Section 5112 of Pub. 109-171 (DRA)) 1. Background 2. Proposed Assignment of New HCPCS Code for Payment of Ultrasound Screening for Abdominal Aortic Aneurysm (AAA) (Section 5112) 3. Handling of Comments Received in Response to This Proposal XIV. Emergency Medical Screening in Critical Access Hospitals (CAHs) A. Background B. Proposed Policy Change XV. Proposed OPPS Payment Status and Comment Indicators A. Proposed CY 2007 Status Indicator Definitions 1. Proposed Payment Status Indicators to Designate Services That Are Paid under the OPPS 2. Proposed Payment Status Indicators to Designate Services That Are Paid under a Payment System Other Than the OPPS 3. Proposed Payment Status Indicators to Designate Services That Are Not Recognized under the OPPS But That May Be Recognized by Other Institutional Providers 4. Proposed Payment Status Indicators to Designate Services That Are Not Payable by Medicare B. Proposed CY 2007 Comment Indicator Definitions XVI. OPPS Policy and Payment Recommendations

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A. MedPAC Recommendations B. APC Panel Recommendations C. GAO Recommendations XVII. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007 A. ASC Background 1. Legislative History 2. Current Payment Method 3. Published Changes to the ASC List B. Proposed ASC List Update Effective for Services Furnished On or After January 1, 2007 1. Criteria for Additions to or Deletions from the ASC List 2. Response to Comments to the May 4, 2005 Interim Final Rule for the ASC Update 3. Procedures Proposed for Additions to the ASC List 4. Suggested Additions Not Accepted 5. Rationale for Payment Assignment 6. Other Comments on the May 4, 2005 Interim Final Rule C. Proposed Regulatory Changes for CY 2007 D. Implementation of Section 5103 of Pub. L. 109-171 (DRA) E. Proposal to Modify the Current ASC Process for Adjusting Payment for New Technology Intraocular Lenses (NTIOLs) 1. Background

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a. Current ASC Payment for Insertion of IOLs b. Classes of NTIOLs Approved for Payment Adjustment 2. Proposed Changes a. Process for Recognizing IOLs as Belonging to an Active IOL Class b. Public Notice and Comment Regarding Adjustments of NTIOL Payment Amounts c. Factors CMS Considers in Determining Whether a Payment Adjustment for Insertion of a New Class of IOL is Appropriate d. Proposal to Revise Content of a Request to Review e. Notice of CMS Determination f. Proposed Payment Adjustment XVIII. Proposed Revised ASC Payment System for Implementation January 1, 2008 A. Background 1. Provisions of Pub. L. 108-173 2. Other Factors Considered B. Procedures Proposed for Medicare Payment in ASCs Effective for Services Furnished On or After January 1, 2008 1. Proposed Payable Procedures a. Proposed Definition of Surgical Procedure b. Procedures Proposed for Exclusion from Payment Under the Revised ASC System

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2. Proposed Treatment of Unlisted Procedure Codes and Procedures That Are Not Paid Separately under the OPPS 3. Proposed Treatment of Office-Based Procedures 4. Listing of Surgical Procedures Proposed for Exclusion from Payment of an ASC Facility Fee Under the Revised Payment System C. Proposed Ratesetting Method 1. Overview of Current ASC Payment System 2. Proposal to Base ASC Relative Payment Weights on APC Groups and Relative Payment Weights Established Under the OPPS 3. Proposed Packaging Policy 4. Payment for Corneal Tissue Under the Revised ASC Payment System 5. Proposed Payment for Office-Based Procedures 6. Payment Policy for Multiple Procedure Discounting 7. Proposed Geographic Adjustment 8. Proposed Adjustment for Inflation 9. Proposed Beneficiary Coinsurance 10. Proposal to Phase-In Implementation of Payment Rates Calculated under the CY 2008 Revised ASC Payment System 11. Proposed Calculation of ASC Conversion Factor and Payment Rates for CY 2008 a. Overview b. Budget Neutrality Requirement

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c. Proposed Calculation of the ASC Payment Rates for CY 2008 d. Proposed Calculation of the ASC Payment Rates for CY 2009 and Future Years e. Alternative Option for Calculating the Budge Neutrality Adjustment Considered 12. Proposed Annual Updates D. Information in Addenda Related to the Revised CY 2008 ASC Payment System E. Technical Changes to 42 CFR Parts 414 and 416 XIX. Medicare Contracting Reform Mandate A. Background B. CMS’s Vision for Medicare Fee-for-Service and MACs C. Provider Nomination and the Former Medicare Acquisition Authorities D. Summary of Changes Made to Sections 1816 of the Act E. Provisions of the Proposed Regulations 1. Definitions 2. Assignments of Providers and Suppliers to MACs 3. Other Proposed Technical and Conforming Changes a. Definition of “Intermediary” b. Intermediary Functions c. Options Available to Providers and CMS d. Nomination for Intermediary

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e. Notification of Actions on Nominations, Changes to Another Intermediary or to Director Payment, and Requirements for Approval of an Agreement f. Considerations Relating to the Effective and Efficient Administration of the Medicare Program g. Assignment and Reassignment of Providers by CMS h. Designation of National or Regional Intermediaries and Designation of Regional and Alternative Designated Regional Intermediaries for Home Health Agencies and Hospices i. Awarding of Experimental Contracts XX. Reporting Quality Data for Improved Quality and Costs under the OPPS XXI. Promoting Effective Use of Health Care Technology XXII. Health Care Information Transparency Initiative XXIII. Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for the FY 2008 IPPS Annual Payment Update A. Background B. Proposed Additional Quality Measures for FY 2008 1. Introduction 2. HCAHPS® Survey and the Hospital Quality Initiative 3. Surgical Care Improvement Project (SCIP) Quality Measures 4. Mortality Outcome Measures C. General Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program

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D. HCAHPS® Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program 1. Introduction 2. HCAHPS® Hospital Pledge and Beginning Date for Data Collection 3. HCAHPS® Dry Run 4. HCAHPS® Data Collection Requirements 5. HCAHPS® Registration Requirements 6. HCAHPS® Additional Steps 7. HCAHPS® Survey Completion Requirements 8. HCAHPS® Public Reporting 9. Reporting HCAHPS® Results for Multi-Campus Hospitals E. SCIP & Mortality Measure Requirements for the FY 2008 RHQDAPU Program F. Conclusion XXIV. Files Available to the Public Via the Internet XXV. Collection of Information Requirements XXVI. Response to Comments XXVII. Regulatory Impact Analysis A. Overall Impact 1. Executive Order 12866 2. Regulatory Flexibility Act (RFA) 3. Small Rural Hospitals

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4. Unfunded Mandates 5. Federalism B. Effects of Proposed OPPS Changes in This Proposed Rule 1. Alternatives Considered a. Alternatives Considered for CPT Coding and Payment Policy for Evaluation and Management Codes b. Options Considered for Brachytherapy Source Payments c. Options Considered for Payment of Radiopharmaceuticals 2. Limitation of Our Analysis 3. Estimated Impact of This Proposed Rule on Hospitals 4. Estimated Effect of This Proposed Rule on Beneficiaries 5. Accounting Statement 6. Conclusion C. Effects of Proposed Changes to the ASC Payment System for CY 2007 1. Alternatives Considered 2. Limitations on Our Analysis 3. Estimated Effects of This Proposed Rule on ASCs 4. Estimated Effects of This Proposed Rule on Beneficiaries 5. Conclusion 6. Accounting Statement D. Effects of the Proposed Revisions to the ASC Payment System for CY 2008 1. Alternatives Considered

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2. Limitations on Our Analysis 3. Estimated Effects of This Proposed Rule on ASCs 4. Estimated Effects of This Proposed Rule on Beneficiaries 5. Conclusion E. Effects of the Medicare Contractor Reform Mandate F. Effects of Proposed Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for IPPS FY 2008 1. Alternatives Considered 2. Estimated Effects of This Proposed Rule a. Effects on Hospitals b. Effects on Other Providers c. Effects on the Medicare and Medicaid Program G. Executive Order 12866 Regulation Text Addenda Addendum A--OPPS Proposed List of Ambulatory Payment Classification (APCs) with Status Indicators (SI), Relative Weights, Payment Rates, and Copayment Amounts-- CY 2007 Addendum AA--Proposed List of Medicare Approved ASC Procedures for CY 2007 With Additions and Payment Rates; Including Rates That Result From Implementation of Section 5103 of the DRA

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Addendum B--OPPS Proposed Payment Status By HCPCS Code and Related Information Calendar Year 2007 Addendum BB--Proposed List of Medicare Approved ASC Procedures for CY 2008 With Additions and Payment Rates Addendum CC--Proposed List of Procedures for CY 2008 Subject to Payment Limitation at the Medicare Physician Fee Schedule (MPFS) Nonfacility Amount Addendum D1--Proposed Payment Status Indicators Addendum D2--Proposed Comment Indicators Addendum E--Proposed CPT Codes That Are Paid Only As Inpatient Procedures I. Background for the OPPS A. Legislative and Regulatory Authority for the Hospital Outpatient Prospective Payment System When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the reasonable cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33), added section 1833(t) to the Social Security Act (the Act) authorizing implementation of a PPS for hospital outpatient services (OPPS). The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), made major changes in the hospital OPPS. The Medicare,

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Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554), made further changes in the OPPS. Section 1833(t) of the Act was also amended by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-173). The Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171), enacted on February 8, 2006, made additional changes in the OPPS. A discussion of the provisions contained in Pub. L. 109-171 that are specific to the calendar year (CY) 2007 OPPS is included in section II.F. of this preamble. The OPPS was first implemented for services furnished on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR Part 419. Under the OPPS, we pay for hospital outpatient services on a rate-per-service basis that varies according to the ambulatory payment classification (APC) group to which the service is assigned. We use Healthcare Common Procedure Coding System (HCPCS) codes (which include certain Current Procedural Terminology (CPT) codes) and descriptors to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this preamble. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment under the OPPS for hospital outpatient services designated by the Secretary (which includes partial hospitalization services furnished by community mental health centers (CMHCs)) and hospital outpatient services that are furnished to inpatients who have exhausted their Part A benefits or who are otherwise not in a covered Part A stay. Section 611 of Pub. L. 108-173 added provisions for Medicare coverage of an initial

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preventive physical examination, subject to the applicable deductible and coinsurance, as an outpatient department service, payable under the OPPS. The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the inpatient hospital wage index value for the locality in which the hospital or CMHC is located. All services and items within an APC group are comparable clinically and with respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with section 1833(t)(2) of the Act, subject to certain exceptions, services and items within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the “2 times rule”). In implementing this provision, we use the median cost of the item or service assigned to an APC group. Special payments under the OPPS may be made for new technology items and services in one of two ways. Section 1833(t)(6) of the Act provides for temporary additional payments which we refer to as “transitional pass-through payments” for at least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of other medical devices. For new technology services that are not eligible for transitional pass-through payments and for which we lack sufficient data to appropriately assign them to a clinical APC group,

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we have established special APC groups based on costs, which we refer to as new technology APCs. These new technology APCs are designated by cost bands which allow us to provide appropriate and consistent payment for designated new procedures that are not yet reflected in our claims data. Similar to pass-through payments, an assignment to a new technology APC is temporary; that is, we retain a service within a new technology APC until we acquire sufficient data to assign it to a clinically appropriate APC group. B. Excluded OPPS Services and Hospitals Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to exclude OPPS payment for screening and diagnostic mammography services. The Secretary exercised the authority granted under the statute to exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the clinical diagnostic laboratory fee schedule; services for beneficiaries with end-stage renal disease (ESRD) that are paid under the ESRD composite rate; and, services and procedures that require an inpatient stay that are paid under the hospital inpatient

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prospective payment system (IPPS). We set forth the services that are excluded from payment under the OPPS in §419.22 of the regulations. Under §419.20(b) of the regulations, we specify the types of hospitals and entities that are excluded from payment under the OPPS. These excluded entities include Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; critical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service hospitals. C. Prior Rulemaking On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was first implemented for services furnished on or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS not less often than annually and to revise the groups, relative payment weights, and other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our experience with this system. We last published such a document on November 10, 2005 (70 FR 68516). In that final rule with comment period, we revised the OPPS to update the payment weights and conversion factor for services payable

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under the CY 2006 OPPS on the basis of claims data from January 1, 2004, through December 31, 2004, and to implement certain provisions of Pub. L. 108-173. In addition, we responded to public comments received on the provisions of November 15, 2004 final rule with comment period pertaining to the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicators; and public comments received on the July 25, 2005 OPPS proposed rule for CY 2006 (70 FR 42674). We published a correction of the November 10, 2005 final rule with comment period on December 23, 2005 (70 FR 76176). This correction document corrected a number of technical errors that appeared in the November 10, 2005 final rule with comment period. D. APC Advisory Panel 1. Authority of the APC Panel Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and their weights under the OPPS. The Act further specifies that the panel will act in an advisory capacity. The Advisory Panel on Ambulatory Payment Classification (APC) Groups (the APC Panel), discussed under section I.D.2. of this preamble, fulfills these requirements. The APC Panel is not restricted to using data compiled by CMS and may use data collected or developed by organizations outside the Department in conducting its review. 2. Establishment of the APC Panel

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On November 21, 2000, the Secretary signed the initial charter establishing the APC Panel. This expert panel, which may be composed of up to 15 representatives of providers subject to the OPPS (currently employed full-time, not as consultants, in their respective areas of expertise), reviews and advises CMS about the clinical integrity of the APC groups and their weights. For purposes of this Panel, consultants or independent contractors are not considered to be full-time employees. The APC Panel is technical in nature and is governed by the provisions of the Federal Advisory Committee Act (FACA). Since its initial chartering, the Secretary has twice renewed the APC Panel’s charter: on November 1, 2002, and on November 1, 2004. The current charter indicates, among other requirements, that the APC Panel continues to be technical in nature; is governed by the provisions of the FACA; may convene up to three meetings per year; has a Designated Federal Officer (DFO); and is chaired by a Federal official who also serves as a CMS medical officer. The current APC Panel membership and other information pertaining to the Panel, including its charter, Federal Register notices, meeting dates, agenda topics, and meeting reports can be viewed on the CMS Web site at http://new.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

3. APC Panel Meetings and Organizational Structure The APC Panel first met on February 27, February 28, and March 1, 2001. Since that initial meeting, the APC Panel has held nine subsequent meetings, with the last meeting taking place on March 1 and 2, 2006. (The APC Panel did not meet on March 3, 2006, as announced in the meeting notice published on December 23, 2005 (70 FR 76313).) Prior to each meeting, we publish a notice in the Federal Register to

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announce the meeting and, when necessary, to solicit and announce nominations for APC Panel membership. The APC Panel has established an operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Observation Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel and for recommending options for resolving them. The Observation Subcommittee reviews and makes recommendations to the APC Panel on all issues pertaining to observation services paid under the OPPS, such as coding and operational issues. The Packaging Subcommittee studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but are bundled or packaged APC payments. Each of these subcommittees was established by a majority vote of the APC Panel during a scheduled APC Panel meeting. All subcommittee recommendations are discussed and voted upon by the full APC Panel. Discussions of the recommendations resulting from the APC Panel’s March 2006 meeting are included in the sections of this preamble that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we reference previous hospital OPPS final rules or the Web site mentioned earlier in this section.

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E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, Pub. L. 108-173, made changes to the Act relating to the Medicare OPPS. In the January 6, 2004 interim final rule with comment period and the November 15, 2004 final rule with comment period, we implemented provisions of Pub. L. 108-173 relating to the OPPS that were effective for services provided in CY 2004 and CY 2005, respectively. In the November 10, 2005 final rule with comment period, we implemented provisions of Pub. L. 108-173 relating to the OPPS that went into effect for services provided in CY 2006 (70 FR 68521). We note below those provision of Pub. L. 108-173 that will expire at the end of CY 2006. 1. Reduction in Threshold for Separate APCs for Drugs Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of the Act to set a $50 per administration threshold for the establishment of separate APCs for drugs and biologicals furnished from January 1, 2005, through December 31, 2006. Because this statutory provision will no longer be in effect for CY 2007, we have included a discussion of the proposed methodology that we would use for the drug administration threshold for CY 2007 in section V. of this preamble. 2. Special Payment for Brachytherapy Section 621(b)(1) of Pub. L. 108-173 amended section 1833(t)(16) of the Act to require that payment for brachytherapy devices consisting of a seed or seeds (or radioactive source) furnished on or after January 1, 2004, and before January 1, 2007, be

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paid based on the hospital's charge for each device furnished, adjusted to cost. Because this statutory provision will no longer be in effect for CY 2007, we discuss our proposed methodology for payment for brachytherapy devices for CY 2007 in section VII.B. of this preamble. F. Provisions of the Deficit Reduction Act of 2005 The Deficit Reduction Act (DRA) of 2005, Pub. L. 109-171, enacted on February 8, 2006, included three provisions affecting the OPPS, as discussed below. 1. 3-Year Transition of Hold Harmless Payments Section 5105 of Pub. L. 109-171 provides a 3-year transition of hold harmless OPPS payments for hospitals located in a rural area with not more than 100 beds that are not defined as sole community hospitals (SCHs). This provision provides an increased payment for such hospitals for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, if the OPPS payment they receive is less than the pre-BBA payment amount that they would have received for the same covered OPD services. This provision specifies that, in such cases, the amount of payment to the specified hospitals shall be increased by the applicable percentage of such difference. Section 5105 specifies the applicable percentage as 95 percent for CY 2006, 90 percent for CY 2007, and 85 percent for CY 2008. 2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic Aneurysms Section 5112 of Pub. L. 109-171 amended section 1861 of the Act to include coverage of ultrasound screening for abdominal aortic aneurysms for certain individuals on or after January 1, 2007. The provision will apply to individuals (a) who receive a

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referral for such an ultrasound screening as a result of an initial preventive physical examination; (b) who have not been previously furnished with an ultrasound screening under Medicare; and (c) who have a family history of abdominal aortic aneurysm or manifest risk factors included in a beneficiary category recommended for screening (as determined by the United States Preventive Services Task Force). Ultrasound screening for abdominal aortic aneurysm will be included in the initial preventive physical examination. Section 5112 also added ultrasound screening for abdominal aortic aneurysm to the list of services for which the beneficiary deductible does not apply. These amendments apply to services furnished on or after January 1, 2007. G. Summary of the Major Content of This Proposed Rule In this proposed rule, we are setting forth proposed changes to the Medicare hospital OPPS for CY 2007. These changes would be effective for services furnished on or after January 1, 2007. We are setting forth proposed changes to the Medicare ASC program for CY 2007 and CY 2008. We are setting forth proposed changes to the way we process FFS claims under Medicare Part A and Part B. Some of these changes were effective on October 1, 2005 and all of the changes are to be fully implemented by October 1, 2011. Finally, we are setting forth a notice seeking comments on the RHQDAPU program under the Medicare hospital IPPS for FY 2008. These changes would be effective for payments beginning with FY 2008. The following is a summary of the major changes that we are proposing to make: 1. Proposed Updates Affecting Payments for CY 2007 In section II. of this preamble, we set forth--

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● The methodology used to recalibrate the proposed APC relative payment weights and the proposed recalibration of the relative payment weights for CY 2007. ● The proposed payment for partial hospitalization, including the proposed separate threshold for outlier payments for CMHCs. ● The proposed update to the conversion factor used to determine payment rates under the OPPS for CY 2007. ● The proposed retention of our current policy to apply the IPPS wage indices to wage adjust the APC median costs in determining the OPPS payment rate and the copayment standardized amount for CY 2007. ● The proposed update of statewide average default cost-to-charge ratios. ● Proposed changes relating to the expiring hold harmless payment provision. ● Proposed changes to payment for rural sole community hospitals for CY 2007. ● Proposed changes in the way we calculate hospital outpatient outlier payments for CY 2007. ● Calculation of the proposed national unadjusted Medicare OPPS payment. ● The proposed beneficiary copayment for OPPS services for CY 2007. 2. Proposed Ambulatory Payment Classification (APC) Group Policies In section III. of this preamble, we discuss the proposed additions of new procedure codes to the APCs; our proposal to establish a number of new APCs; and our proposal to make changes to the assignment of HCPCS codes under a number of existing APCs based on our analyses of Medicare claims data and recommendations of the APC Panel. We also discuss the application of the 2 times rule and proposed exceptions to it;

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proposed changes for specific APCs; the proposed refinement of the New Technology cost bands; and the proposed movement of procedures from the New Technology APCs. 3. Proposed Payment Changes for Devices In section IV. of this preamble, we discuss proposed changes to the device-dependent APCs, and to the pass-through payment for categories of devices. 4. Proposed Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals In section V. of this preamble, we discuss proposed changes for drugs, biologicals, and radiopharmaceuticals. 5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, and Devices In section VI. of this preamble, we discuss the proposed methodology for estimating total pass-through spending and whether there should be a pro rata reduction for transitional pass-through drugs, biologicals, radiopharmaceuticals, and categories of devices for CY 2007. 6. Proposed Brachytherapy Payment Changes In section VII. of this preamble, we discuss our proposal concerning coding and payment for the sources of brachytherapy. 7. Proposed Coding and Payment for Drug and Vaccine Administration In section VIII. of this preamble, we discuss our proposed coding and payment changes for drug and vaccine administration services.

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8. Proposed Hospital Coding for Evaluation and Management (E/M) Services In section IX. of this preamble, we discuss our proposal for developing the coding guidelines for evaluation and management services. 9. Proposed Payment for Blood and Blood Products In section X. of this preamble, we discuss our proposed payment changes for blood and blood products. 10. Proposed Payment for Observation Services In section XI. of this preamble, we discuss our proposed criteria and coding changes for separately payable observation services. 11. Procedures That Will Be Paid Only as Inpatient Services In section XII. of this preamble, we discuss the procedures that we propose to remove from the inpatient list and assign to APCs. 12. Proposed Nonrecurring Policy Changes In section XIII. of this preamble, we discuss proposed changes to certain comprehensive outpatient rehabilitation facility (CORF) services paid under the OPPS. In this section, we also discuss proposed payment for ultrasound screening for abdominal aortic aneurysms (AAAs). 13. Emergency Medical Screening in Critical Access Hospitals (CAHs) In section XIV. of this preamble, we discuss proposed changes to a regulation governing emergency medical screening in critical access hospitals (CAHs).

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14. Proposed OPPS Payment Status and Comment Indicator In section XV. of this preamble, we discuss proposed changes to the list of status indicators assigned to APCs and present our proposed comment indicators for the CY 2007 OPPS final rule. 15. OPPS Policy and Payment Recommendations In section XVI. of this preamble, we address recommendations made by MedPAC and the APC Panel regarding the OPPS for CY 2007. 16. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007 In section XVII. of this preamble we discuss proposed payment changes affecting ASCs in CY 2007, the proposed list of updated ASC procedures, and proposed modification of the ASC payment adjustment process for new technology intraocular lenses (NTIOLs). 17. Proposed Revised Ambulatory Surgical Center (ASC) Payment System for Implementation January 1, 2008 In section XVIII. of this preamble, we discuss our proposal to implement a new ASC payment system for services furnished on or after January 1, 2008, and the regulatory changes related to the proposed new system. 18. Medicare Provider Contractor Reform Mandate In section XIX of this preamble, we discuss proposed changes to the regulations under 42 CFR Part 421, Subpart B to conform them to the statutory changes required by section 911 of Pub. L. 108-173 related to Medicare contracting reform. 19. Reporting Quality Data for Improved Quality and Costs under the OPPS

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In section XX. of this preamble, we discuss the expenditure growth in outpatient hospital services, invite comment on value-based purchasing specifically related to hospital outpatient departments, and discuss a value-based purchasing program proposal for the CY 2007 OPPS. 20. Promoting Effective Use of Health Information Technology In section XXI. of this preamble, we invite comments on promoting hospitals’ effective use of health information technology. 21. Health Care Information Transparency Initiative In section XXII. of this preamble, we discuss HHS' major health information transparency initiative which we are launching in 2006. 22. Reporting Hospital Quality Data for Annual Payment Update under the IPPS In section XXIII of this preamble, we invite comment on our proposal for the FY 2008 IPPS annual payment update to add the HCAHPS® survey, measures from the Surgical Care Improvement Project (SCIP), and Mortality measures to the quality of care measures to be used in FY 2007 for purposes of the IPPS annual payment update. 23. Impact Analysis In section XXVII. of this preamble, we set forth an analysis of the impact that the proposed changes will have on affected entities and beneficiaries.

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II. Proposed Updates Affecting OPPS Payments for CY 2007 A. Proposed Recalibration of APC Relative Weights for CY 2007 (If you choose to comment on the issues in this section, please include the caption “APC Relative Weights” at the beginning of your comment.) 1. Database Construction a. Database Source and Methodology Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually. In the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we explained in detail how we calculated the relative payment weights that were implemented on August 1, 2000, for each APC group. Except for some reweighting due to a small number of APC changes, these relative payment weights continued to be in effect for CY 2001. This policy is discussed in the November 13, 2000 interim final rule (65 FR 67824 through 67827). We are proposing to use the same basic methodology that we described in the April 7, 2000 final rule with comment period to recalibrate the APC relative payment weights for services furnished on or after January 1, 2007, and before January 1, 2008. That is, we would recalibrate the relative payment weights for each APC based on claims and cost report data for outpatient services. We are proposing to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating APC relative payment weights in this proposed rule for CY 2007, we used approximately 131.9 million final action claims for hospital OPD services furnished on or after January 1, 2005, and before January 1, 2006. Of the

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131.9 million final action claims for services provided in hospital outpatient settings, 102.9 million claims were of the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 102.9 million claims, approximately 48.5 million were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost-to-charge ratios or no HCPCS codes reported on the claim). We were able to use 50.7 million whole claims of the remaining 54.4 million claims to set the proposed OPPS APC relative weights for CY 2007 OPPS. From the 50.7 million whole claims, we created 91.4 million single records, of which 62.8 million were "pseudo" single claims (created from multiple procedure claims using the process we discuss in this section). The proposed APC relative weights and payments for CY 2007 in Addenda A and B to this proposed rule were calculated using claims from this period that had been processed before January 1, 2006. We selected claims for services paid under the OPPS and matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. We are proposing that the APC relative weights for CY 2007 continue to be based on the median hospital costs for services in the APC groups. For the CY 2007 OPPS final rule, we are proposing to base APC median costs on claims for services furnished in CY 2005 and processed before June 30, 2006. b. Proposed Use of Single and Multiple Procedure Claims For CY 2007, we are proposing to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based. We have received many requests asking that we ensure that the data from claims that contain

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charges for multiple procedures are included in the data from which we calculate the relative payment weights. Requesters believe that relying solely on single procedure claims to recalibrate APC relative payment weights fails to take into account data for many frequently performed procedures, particularly those commonly performed in combination with other procedures. They believe that, by depending upon single procedure claims, we base relative payment weights on the least costly services, thereby introducing downward bias to the medians on which the weights are based. We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those with multiple procedures. We generally use single procedure claims to set the median costs for APCs because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. However, by bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases, this enables us to create multiple “pseudo” single claims from claims that, as submitted, contained multiple separately paid procedures on the same claim. For the CY 2007 OPPS, we are proposing to use the date of service on the claims and a list of codes to be bypassed to create “pseudo” single claims from multiple procedure claims, as we did in recalibrating the CY 2006 APC relative payment weights. We refer to these newly created single procedure claims as “pseudo” single claims because they were submitted by providers as multiple procedure claims.

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For CY 2003, we created “pseudo” single claims by bypassing HCPCS codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and 71020 (Chest x-ray) on a submitted claim. However, we did not use claims data for the bypassed codes in the creation of the median costs for the APCs to which these three codes were assigned because the level of packaging that would have remained on the claim after we selected the bypass code was not apparent and, therefore, it was difficult to determine if the medians for these codes would be correct. For CY 2004, we created “pseudo” single claims by bypassing these three codes and also by bypassing an additional 269 HCPCS codes in APCs. We selected these codes based on a clinical review of the services and because it was presumed that these codes had only very limited packaging and could appropriately be bypassed for the purpose of creating “pseudo” single claims. The APCs to which these codes were assigned were varied and included mammography, cardiac rehabilitation, and Level I plain film x-rays. To derive more “pseudo” single claims, we also split the claims where there were dates of service for revenue code charges on that claim that could be matched to a single procedure code on the claim on the same date. For the CY 2004 OPPS, as in CY 2003, we did not include the claims data for the bypassed codes in the creation of the APCs to which the 269 codes were assigned because, again, we had not established that such an approach was appropriate and would aid in accurately estimating the median costs for those APCs. For CY 2004, from approximately 16.3 million otherwise unusable claims, we used approximately 9.5 million multiple procedure claims to create approximately 27 million “pseudo” single

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claims. For CY 2005, we identified 383 bypass codes and from approximately 24 million otherwise unusable claims, we used approximately 18 million multiple procedure claims to create approximately 52 million “pseudo” single claims. For CY 2005, we used the claims data for the bypass codes combined with the single procedure claims to set the median costs for the bypass codes. For CY 2006, we continued using the codes on the CY 2005 OPPS bypass list and expanded it to include 404 bypass codes, including 3 bladder catheterization codes (CPT codes 51701, 51702, and 51703), which did not meet the empirical criteria discussed below for the selection of bypass codes. We added these three codes to the CY 2006 bypass list because a decision to change their payment status from packaged to separately paid would have resulted in a reduction of the number of single bills on which we could base median costs for other major separately paid procedures that were billed on the same claim with these three procedure codes. That is, single bills which contained other procedures would have become multiple procedure claims when these bladder catheterization codes were converted to separately paid status. We believed and continue to believe that bypassing these three codes does not adversely affect the medians for other procedures because we believe that when these services are performed on the same day as another separately paid service, any packaging that appears on the claim would be appropriately associated with the other procedure and not with these codes. Consequently, for CY 2006, we identified 404 bypass codes for use in creating “pseudo” single claims and used some part of 90 percent of the total claims that were eligible for use in OPPS ratesetting and modeling in developing the final rule with

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comment period. This process enabled us to use, for CY 2006 OPPS, 88 million single bills for ratesetting: 55 million “pseudo” singles and 34 million “natural” single bills (bills that were submitted containing only one separately payable major HCPCS code). (These numbers do not sum to 88 million because more than 800,000 single bills were removed when we trimmed at the HCPCS level at +/- 3 standard deviations from the geometric mean.) For CY 2007, we are proposing to continue using date-of-service matching as a tool for creation of “pseudo” single claims and to continue the use of a bypass list to create “pseudo” single claims. The process we are proposing for CY 2007 OPPS results in our being able to use some part of 94.8 percent of the total claims that are eligible for use in the OPPS ratesetting and modeling in developing this proposed rule. This process enabled us to use, for CY 2007, 62.8 million “pseudo” singles and 29.6 million “natural” single bills. We are proposing to bypass the 454 codes identified in Table 1 to create new single claims and to use the line-item costs associated with the bypass codes on these claims, together with the single procedure claims, in the creation of the median costs for the APCS into which they are assigned. Of the codes on this list, 404 codes were used for bypass in CY 2006. We are proposing to continue the use of the codes on the CY 2006 OPPS bypass list and to expand it by adding codes that, using data presented to the APC Panel at its March 2006 meeting, meet the same empirical criteria as those used in CY 2006 to create the bypass list, or which our clinicians believe would contain minimal packaging if the services were correctly coded (for example, ultrasound

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guidance). Our examination of the data against the criteria for inclusion on the bypass list, as discussed below for the addition of new codes, shows that the empirically selected codes used for bypass for the CY 2006 OPPS generally continue to meet the criteria or come very close to meeting the criteria, and we have received no comments against bypassing them. To facilitate comment, Table 1 indicates the list of codes we are proposing to bypass for creation of “pseudo” singles for CY 2007 OPPS. Bypass codes shown in Table 1 with an asterisk indicate the HCPCS codes we are proposing to add to the CY 2006 OPPS listed codes for bypass in CY 2007. The criteria we are proposing to use to determine the additional codes to add to the CY 2006 OPPS bypass list in order to create the bypass list for CY 2007 OPPS are discussed below. The following empirical criteria were developed by reviewing the frequency and magnitude of packaging in the single claims for payable codes other than drugs and biologicals. We assumed that the representation of packaging on the single claims for any given code is comparable to packaging for that code in the multiple claims: ● There were 100 or more single claims for the code. This number of single claims ensured that observed outcomes were sufficiently representative of packaging that might occur in the multiple claims. ● Five percent or fewer of the single claims for the code had packaged costs on that single claim for the code. This criterion results in limiting the amount of packaging being redistributed to the payable procedure remaining on the claim after the bypass code

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is removed and ensures that the costs associated with the bypass code represent the cost of the bypassed service. ● The median cost of packaging observed in the single claim was equal to or less than $50. This limits the amount of error in redistributed costs. ● The code is not a code for an unlisted service. In addition, we are proposing to add to the bypass list codes that our clinicians believe contain minimal packaging and codes for specified drug administration for which hospitals have requested separate payment but for which it is not possible to acquire median costs unless we add these codes to the bypass list. A more complete discussion of the effects of adding these drug administration codes to the bypass list is contained in the discussion of drug administration in section VIII.C. of this preamble. We specifically invite public comment on the “pseudo” single process, including the bypass list and the criteria. Table 1.--Proposed CY 2007 HCPCS Bypass Codes for Creating “Pseudo” Single Claims for Calculating Median Costs HCPCS Code 11056 11057 11719 11720 11721 17003 31231 31579 51701 51702 51703 51798 54240

Short Descriptor Trim skin lesions, 2 to 4 Trim skin lesions, over 4 Trim nail(s) Debride nail, 1-5 Debride nail, 6 or more Destroy lesions, 2-14 Nasal endoscopy, dx Diagnostic laryngoscopy Insert bladder catheter Insert temp bladder cath Insert bladder cath, complex Us urine capacity measure Penis study

Status Indicator T T T T T T T T X X T X T

APC 0012 0013 0009 0009 0009 0010 0072 0073 0340 0340 0164 0340 0164

Bypass Indicator*

CMS-1506-P HCPCS Code 67820 70030 70100 70110 70130 70140 70150 70160 70200 70210 70220 70250 70260 70328 70330 70336 70355 70360 70370 70371 70450 70480 70486 70544 70551 71010 71015 71020 71021 71022 71023 71030 71034 71035 71090 71100 71101 71110 71111 71120 71130

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Short Descriptor Revise eyelashes X-ray eye for foreign body X-ray exam of jaw X-ray exam of jaw X-ray exam of mastoids X-ray exam of facial bones X-ray exam of facial bones X-ray exam of nasal bones X-ray exam of eye sockets X-ray exam of sinuses X-ray exam of sinuses X-ray exam of skull X-ray exam of skull X-ray exam of jaw joint X-ray exam of jaw joints Magnetic image, jaw joint Panoramic x-ray of jaws X-ray exam of neck Throat x-ray & fluoroscopy Speech evaluation, complex Ct head/brain w/o dye Ct orbit/ear/fossa w/o dye Ct maxillofacial w/o dye Mr angiography head w/o dye Mri brain w/o dye Chest x-ray Chest x-ray Chest x-ray Chest x-ray Chest x-ray Chest x-ray and fluoroscopy Chest x-ray Chest x-ray and fluoroscopy Chest x-ray X-ray & pacemaker insertion X-ray exam of ribs X-ray exam of ribs/chest X-ray exam of ribs X-ray exam of ribs/chest X-ray exam of breastbone X-ray exam of breastbone

Status Indicator S X X X X X X X X X X X X X X S X X X X S S S S S X X X X X X X X X X X X X X X X

APC 0698 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0261 0260 0260 0335 0260 0260 0272 0272 0332 0332 0332 0336 0336 0260 0260 0260 0260 0260 0272 0260 0272 0260 0272 0260 0260 0260 0261 0260 0260

Bypass Indicator*

N

CMS-1506-P HCPCS Code 71250 72040 72050 72052 72069 72070 72072 72074 72080 72090 72100 72110 72114 72120 72125 72128 72141 72146 72148 72170 72190 72192 72220 73000 73010 73020 73030 73050 73060 73070 73080 73090 73100 73110 73120 73130 73140 73200 73218 73221 73510

55

Short Descriptor Ct thorax w/o dye X-ray exam of neck spine X-ray exam of neck spine X-ray exam of neck spine X-ray exam of trunk spine X-ray exam of thoracic spine X-ray exam of thoracic spine X-ray exam of thoracic spine X-ray exam of trunk spine X-ray exam of trunk spine X-ray exam of lower spine X-ray exam of lower spine X-ray exam of lower spine X-ray exam of lower spine Ct neck spine w/o dye Ct chest spine w/o dye Mri neck spine w/o dye Mri chest spine w/o dye Mri lumbar spine w/o dye X-ray exam of pelvis X-ray exam of pelvis Ct pelvis w/o dye X-ray exam of tailbone X-ray exam of collar bone X-ray exam of shoulder blade X-ray exam of shoulder X-ray exam of shoulder X-ray exam of shoulders X-ray exam of humerus X-ray exam of elbow X-ray exam of elbow X-ray exam of forearm X-ray exam of wrist X-ray exam of wrist X-ray exam of hand X-ray exam of hand X-ray exam of finger(s) Ct upper extremity w/o dye Mri upper extremity w/o dye Mri joint upr extrem w/o dye X-ray exam of hip

Status Indicator S X X X X X X X X X X X X X S S S S S X X S X X X X X X X X X X X X X X X S S S X

APC 0332 0260 0261 0261 0260 0260 0260 0260 0260 0261 0260 0261 0261 0261 0332 0332 0336 0336 0336 0260 0260 0332 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0332 0336 0336 0260

Bypass Indicator*

N

CMS-1506-P HCPCS Code 73520 73540 73550 73560 73562 73564 73565 73590 73600 73610 73620 73630 73650 73660 73700 73718 73721 74000 74010 74150 74210 74220 74230 74235 74240 74245 74246 74247 74249 74250 74300 74301 74305 74327 74340 74350 74355 74360 74363 74475 74480

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Short Descriptor X-ray exam of hips X-ray exam of pelvis & hips X-ray exam of thigh X-ray exam of knee, 1 or 2 X-ray exam of knee, 3 X-ray exam, knee, 4 or more X-ray exam of knees X-ray exam of lower leg X-ray exam of ankle X-ray exam of ankle X-ray exam of foot X-ray exam of foot X-ray exam of heel X-ray exam of toe(s) Ct lower extremity w/o dye Mri lower extremity w/o dye Mri jnt of lwr extre w/o dye X-ray exam of abdomen X-ray exam of abdomen Ct abdomen w/o dye Contrst x-ray exam of throat Contrast x-ray, esophagus Cine/vid x-ray, throat/esoph Remove esophagus obstruction X-ray exam, upper gi tract X-ray exam, upper gi tract Contrst x-ray uppr gi tract Contrst x-ray uppr gi tract Contrst x-ray uppr gi tract X-ray exam of small bowel X-ray bile ducts/pancreas X-rays at surgery add-on X-ray bile ducts/pancreas X-ray bile stone removal X-ray guide for GI tube X-ray guide, stomach tube X-ray guide, intestinal tube X-ray guide, GI dilation X-ray, bile duct dilation X-ray control, cath insert X-ray control, cath insert

Status Indicator X X X X X X X X X X X X X X S S S X X S S S S S S S S S S S X X X S X X X S S S S

APC 0261 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0260 0332 0336 0336 0260 0260 0332 0276 0276 0276 0296 0276 0277 0276 0276 0277 0276 0263 0263 0263 0296 0272 0263 0263 0296 0297 0297 0296

Bypass Indicator*

N

CMS-1506-P HCPCS Code 74485 75894 75898 75901 75902 75945 75960 75961 75962 75964 75966 75968 75970 75978 75980 75982 75984 75992 75993 75994 75995 76012 76013 76040 76061 76062 76066 76070 76071 76075 76076 76077 76078 76095 76096 76100 76101 76355 76360 76362 76370

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Short Descriptor X-ray guide, GU dilation X-rays, transcath therapy Follow-up angiography Remove cva device obstruct Remove cva lumen obstruct Intravascular us Transcath iv stent rs&i Retrieval, broken catheter Repair arterial blockage Repair artery blockage, each Repair arterial blockage Repair artery blockage, each Vascular biopsy Repair venous blockage Contrast xray exam bile duct Contrast xray exam bile duct Xray control catheter change Atherectomy, x-ray exam Atherectomy, x-ray exam Atherectomy, x-ray exam Atherectomy, x-ray exam Percut vertebroplasty fluor Percut vertebroplasty, ct X-rays, bone evaluation X-rays, bone survey X-rays, bone survey Joint survey, single view Ct bone density, axial Ct bone density, peripheral Dxa bone density, axial Dxa bone density/peripheral Dxa bone density/v-fracture Radiographic absorptiometry Stereotactic breast biopsy X-ray of needle wire, breast X-ray exam of body section Complex body section x-ray Ct scan for localization Ct scan for needle biopsy Ct guide for tissue ablation Ct scan for therapy guide

Status Indicator S S X X X S S S S S S S S S S S X S S S S S S X X X X S S S S X X X X X X S S S S

APC 0296 0297 0263 0263 0263 0267 0668 0668 0668 0668 0668 0668 0668 0668 0297 0297 0263 0279 0279 0279 0279 0274 0274 0261 0261 0261 0260 0288 0282 0288 0665 0260 0260 0264 0263 0261 0263 0283 0283 0333 0282

Bypass Indicator*

N N

N N

N N N

CMS-1506-P HCPCS Code 76380 76393 76394 76511 76512 76513 76514 76516 76519 76536 76645 76700 76705 76770 76775 76778 76801 76811 76816 76817 76830 76856 76857 76870 76880 76930 76932 76936 76940 76941 76942 76945 76946 76948 76950 76965 76970 76975 76977 76986 77280

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Short Descriptor CAT scan follow-up study Mr guidance for needle place MRI for tissue ablation Ophth us, quant a only Ophth us, b w/non-quant a Echo exam of eye, water bath Echo exam of eye, thickness Echo exam of eye Echo exam of eye Us exam of head and neck Us exam, breast(s) Us exam, abdom, complete Echo exam of abdomen Us exam abdo back wall, comp Us exam abdo back wall, lim Us exam kidney transplant Ob us < 14 wks, single fetus Ob us, detailed, sngl fetus Ob us, follow-up, per fetus Transvaginal us, obstetric Transvaginal us, non-ob Us exam, pelvic, complete Us exam, pelvic, limited Us exam, scrotum Us exam, extremity Echo guide, cardiocentesis Echo guide for heart biopsy Echo guide for artery repair Us guide, tissue ablation Echo guide for transfusion Echo guide for biopsy Echo guide, villus sampling Echo guide for amniocentesis Echo guide, ova aspiration Echo guidance radiotherapy Echo guidance radiotherapy Ultrasound exam follow-up GI endoscopic ultrasound Us bone density measure Ultrasound guide intraoper Set radiation therapy field

Status Indicator S S S S S S X S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S X S X

APC 0282 0335 0335 0266 0266 0266 0340 0265 0266 0266 0265 0266 0266 0266 0266 0266 0266 0267 0265 0266 0266 0266 0265 0266 0266 0268 0268 0268 0268 0268 0268 0268 0268 0268 0268 0268 0265 0266 0340 0266 0304

Bypass Indicator* N N N

N

N N N N N N N N N N N

CMS-1506-P HCPCS Code 77285 77290 77295 77300 77301 77315 77326 77327 77328 77331 77332 77333 77334 77336 77370 77401 77402 77403 77404 77407 77408 77409 77411 77412 77413 77414 77416 77417 77418 77470 78350 80500 80502 85060 86585 86850 86870 86880 86885 86886 86890

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Short Descriptor Set radiation therapy field Set radiation therapy field Set radiation therapy field Radiation therapy dose plan Radiotherapy dose plan, imrt Teletx isodose plan complex Brachytx isodose calc simp Brachytx isodose calc interm Brachytx isodose plan compl Special radiation dosimetry Radiation treatment aid(s) Radiation treatment aid(s) Radiation treatment aid(s) Radiation physics consult Radiation physics consult Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiation treatment delivery Radiology port film(s) Radiation tx delivery, imrt Special radiation treatment Bone mineral, single photon Lab pathology consultation Lab pathology consultation Blood smear interpretation TB tine test RBC antibody screen RBC antibody identification Coombs test, direct Coombs test, indirect, qual Coombs test, indirect, titer Autologous blood process

Status Indicator X X X X X X X X X X X X X X X S S S S S S S S S S S S X S S X X X X X X X X X X X

APC 0305 0305 0310 0304 0310 0305 0304 0305 0305 0304 0303 0303 0303 0304 0304 0300 0300 0300 0300 0300 0300 0300 0301 0301 0301 0301 0301 0260 0412 0299 0260 0433 0342 0342 0341 0345 0346 0409 0409 0409 0347

Bypass Indicator* N

N

N

N

CMS-1506-P HCPCS Code 86900 86901 86905 86906 86930 86970 88104 88106 88107 88108 88112 88160 88161 88162 88172 88182 88184 88300 88304 88305 88311 88312 88313 88321 88323 88325 88331 88342 88346 88347 88348 88358 88360 88365 88368 90781 90801 90804 90805 90806 90807

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Short Descriptor Blood typing, ABO Blood typing, Rh (D) Blood typing, RBC antigens Blood typing, Rh phenotype Frozen blood prep RBC pretreatment Cytopathology, fluids Cytopathology, fluids Cytopathology, fluids Cytopath, concentrate tech Cytopath, cell enhance tech Cytopath smear, other source Cytopath smear, other source Cytopath smear, other source Cytopathology eval of fna Cell marker study Flowcytometry/ tc, 1 marker Surgical path, gross Tissue exam by pathologist Tissue exam by pathologist Decalcify tissue Special stains Special stains Microslide consultation Microslide consultation Comprehensive review of data Path consult intraop, 1 bloc Immunohistochemistry Immunofluorescent study Immunofluorescent study Electron microscopy Analysis, tumor Tumor immunohistochem/manual Insitu hybridization (fish) Insitu hybridization, manual drug admin subs hour Psy dx interview Psytx, office, 20-30 min Psytx, off, 20-30 min w/e&m Psytx, off, 45-50 min Psytx, off, 45-50 min w/e&m

Status Indicator X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X S S S S S S

APC 0409 0409 0345 0345 0347 0345 0433 0433 0433 0433 0343 0433 0433 0433 0343 0344 0344 0433 0343 0343 0342 0433 0433 0433 0343 0344 0343 0343 0343 0343 0661 0344 0344 0344 0344 0438 0323 0322 0322 0323 0323

Bypass Indicator*

N N N

N N N N N N

CMS-1506-P HCPCS Code 90808 90809 90810 90818 90826 90845 90846 90847 90853 90857 90862 92002 92004 92012 92014 92020 92081 92082 92083 92135 92136 92225 92226 92230 92240 92250 92275 92285 92286 92520 92541 92546 92548 92552 92553 92555 92556 92557 92567 92582 92585

61

Short Descriptor Psytx, office, 75-80 min Psytx, off, 75-80, w/e&m Intac psytx, off, 20-30 min Psytx, hosp, 45-50 min Intac psytx, hosp, 45-50 min Psychoanalysis Family psytx w/o patient Family psytx w/patient Group psychotherapy Intac group psytx Medication management Eye exam, new patient Eye exam, new patient Eye exam established pat Eye exam & treatment Special eye evaluation Visual field examination(s) Visual field examination(s) Visual field examination(s) Opthalmic dx imaging Ophthalmic biometry Special eye exam, initial Special eye exam, subsequent Eye exam with photos Icg angiography Eye exam with photos Electroretinography Eye photography Internal eye photography Laryngeal function studies Spontaneous nystagmus test Sinusoidal rotational test Posturography Pure tone audiometry, air Audiometry, air & bone Speech threshold audiometry Speech audiometry, complete Comprehensive hearing test Tympanometry Conditioning play audiometry Auditor evoke potent, compre

Status Indicator S S S S S S S S S S X V V V V S S S S S S S S T S S S S S X X X X X X X X X X X S

APC 0323 0323 0322 0323 0323 0323 0324 0324 0325 0325 0374 0601 0602 0600 0601 0230 0230 0230 0230 0230 0698 0230 0230 0699 0231 0230 0231 0230 0698 0660 0363 0660 0660 0364 0365 0364 0364 0365 0364 0365 0216

Bypass Indicator*

N

CMS-1506-P HCPCS Code 92604 93005 93225 93226 93231 93232 93236 93270 93271 93278 93303 93307 93320 93325 93731 93732 93733 93734 93735 93736 93741 93742 93743 93744 93786 93788 93797 93798 93875 93880 93882 93886 93888 93922 93923 93924 93925 93926 93930 93931 93965

62

Short Descriptor Reprogram cochlear implt 7 > Electrocardiogram, tracing ECG monitor/record, 24 hrs ECG monitor/report, 24 hrs Ecg monitor/record, 24 hrs ECG monitor/report, 24 hrs ECG monitor/report, 24 hrs ECG recording Ecg/monitoring and analysis ECG/signal-averaged Echo transthoracic Echo exam of heart Doppler echo exam, heart Doppler color flow add-on Analyze pacemaker system Analyze pacemaker system Telephone analy, pacemaker Analyze pacemaker system Analyze pacemaker system Telephonic analy, pacemaker Analyze ht pace device sngl Analyze ht pace device sngl Analyze ht pace device dual Analyze ht pace device dual Ambulatory BP recording Ambulatory BP analysis Cardiac rehab Cardiac rehab/monitor Extracranial study Extracranial study Extracranial study Intracranial study Intracranial study Extremity study Extremity study Extremity study Lower extremity study Lower extremity study Upper extremity study Upper extremity study Extremity study

Status Indicator X S X X X X X X X S S S S S S S S S S S S S S S X X S S S S S S S S S S S S S S S

APC 0366 0099 0097 0097 0097 0097 0097 0097 0097 0099 0269 0269 0671 0697 0690 0690 0690 0690 0690 0690 0689 0689 0689 0689 0097 0097 0095 0095 0096 0267 0267 0267 0266 0096 0096 0096 0267 0266 0267 0266 0096

Bypass Indicator*

N

N

N N N N

CMS-1506-P HCPCS Code 93970 93971 93975 93976 93978 93979 93990 94015 94681 95115 95117 95165 95805 95806 95807 95812 95813 95816 95819 95822 95864 95867 95872 95900 95921 95925 95926 95930 95937 95950 95953 95957 95970 95972 95974 95978 96000 96100 96115 96117 96150

63

Short Descriptor Extremity study Extremity study Vascular study Vascular study Vascular study Vascular study Doppler flow testing Patient recorded spirometry Exhaled air analysis, o2/co2 Immunotherapy, one injection Immunotherapy injections Antigen therapy services Multiple sleep latency test Sleep study, unattended Sleep study, attended Eeg, 41-60 minutes Eeg, over 1 hour Eeg, awake and drowsy Eeg, awake and asleep Eeg, coma or sleep only Muscle test, 4 limbs Muscle test cran nerv unilat Muscle test, one fiber Motor nerve conduction test Autonomic nerv function test Somatosensory testing Somatosensory testing Visual evoked potential test Neuromuscular junction test Ambulatory eeg monitoring EEG monitoring/computer EEG digital analysis Analyze neurostim, no prog Analyze neurostim, complex Cranial neurostim, complex Analyze neurostim brain/1h Motion analysis, video/3d Psychological testing Neurobehavior status exam Neuropsych test battery Assess hlth/behave, init

Status Indicator S S S S S S S X X X X X S S S S S S S S S S S S S S S S S S S S S S S S S X X X S

APC 0267 0266 0267 0267 0266 0266 0266 0367 0368 0352 0353 0353 0209 0213 0209 0213 0213 0213 0213 0213 0218 0218 0218 0215 0218 0216 0216 0216 0218 0209 0209 0214 0218 0692 0692 0692 0216 0382 0373 0382 0432

Bypass Indicator*

N

N

N

N

CMS-1506-P HCPCS Code 96151 96152 96412 96423 96900 96910 96912 96913 98925 98926 98940 98941 99212 99213 99214 99241 99242 99243 99244 99245 99272 99273 99274 99275 G0101 G0127 G0130 G0166 G0175 G0344 Q0091

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Short Descriptor Assess hlth/behave, subseq Intervene hlth/behave, indiv drug admin subs hour drug admin subs hour Ultraviolet light therapy Photochemotherapy with UV-B Photochemotherapy with UV-A Photochemotherapy, UV-A or B Osteopathic manipulation Osteopathic manipulation Chiropractic manipulation Chiropractic manipulation Office/outpatient visit, est Office/outpatient visit, est Office/outpatient visit, est Office consultation Office consultation Office consultation Office consultation Office consultation Confirmatory consultation Confirmatory consultation Confirmatory consultation Confirmatory consultation CA screen;pelvic/breast exam Trim nail(s) Single energy x-ray study Extrnl counterpulse, per tx OPPS Service,sched team conf Initial preventive exam Obtaining screen pap smear

Status Indicator S S S S S S S S S S S S V V V V V V V V V V V V V T X T V V T

APC 0432 0432 0439 0439 0001 0001 0001 0683 0060 0060 0060 0060 0600 0601 0602 0600 0600 0601 0602 0602 0600 0601 0602 0602 0600 0009 0260 0678 0602 0601 0191

Bypass Indicator* N N N N

N N N

N

N N

*Bypass indicator “N” equals new

c. Proposed Revision to the Overall Cost-to-Charge Ratio (CCR) Calculation We calculate both an overall CCR and cost center-specific cost-to-charge ratios (CCRs) for each hospital. For CY 2007 OPPS, we are proposing to change the methodology for calculating the overall CCR. The overall CCR is used in many

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components of the OPPS. We use the overall CCR to estimate costs from charges on a claim when we do not have an accurate cost center CCR. This does not happen very often. For the vast majority of services, we are able to use a cost center CCR to estimate costs from charges. However, we also use the overall CCR to identify the outlier threshold, to model payments for services that are paid at charges reduced to cost, and, during implementation, to determine outlier payments and payments for other services. We have discovered that the calculation of the overall CCR that the fiscal intermediaries are using to determine outlier payment and payment for services paid at charges reduced to cost differs from the overall CCR that we use to model the OPPS. In Program Transmittal A-03-04 on “Calculating Provider-Specific Outpatient Cost-to-Charge Ratios (CCRs) and Instructions on Cost Report Treatment of Hospital Outpatient Services Paid on a Reasonable Cost Basis” (January 17, 2003), we revised the overall CCR calculation that the fiscal intermediaries use in determining outlier and other cost payments. Until this point, each fiscal intermediary had used an overall CCR provided by CMS, or calculated an updated CCR at the provider’s request using the same calculation. The calculation in Program Transmittal A-03-04, that is, the fiscal intermediary calculation, diverged from the “traditional” overall CCR that we used for modeling. It should be noted that the fiscal intermediary overall CCR calculation noted in Program Transmittal A-03-04 was created with feedback and input from the fiscal intermediaries. CMS’ “traditional” calculation consists of summing the total costs from Worksheet B, Part I (Column 27), after removing the costs for nursing and paramedical

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education (Columns 21 and 24), for those ancillary cost centers that we believe contain most OPPS services, summing the total charges from Worksheet C, Part I (Columns 6 and 7) for the same set of ancillary cost centers, and dividing the former by the later. We exclude selected ancillary cost centers from our overall CCR calculation, such as 5700 Renal Dialysis, because we believe that the costs and charges in these cost centers are largely paid for under other payment systems. The specific list of ancillary cost centers, both standard and nonstandard, included in our overall CCR calculation is available on our Web site in the revenue center-to-cost center crosswalk workbook: http://www.cms.hhs.gov/HospitalOutpatientPPS. The overall CCR calculation provided in Program Transmittal A-03-04, on the other hand, takes the CCRs from Worksheet C, Part I, Column 9, for each specified ancillary cost center; multiplies them by the Medicare Part B outpatient specific charges in each corresponding ancillary cost center from Worksheet D, Parts V and VI (Columns 2, 3, 4, and 5 and subscripts thereof); and then divides the sum of these costs by the sum of charges for the specified ancillary cost centers from Worksheet D, Parts V and VI (Columns 2, 3, 4, and 5 and subscripts thereof). Compared with our “traditional” overall CCR calculation that has been used for modeling OPPS and to calculate the median costs, this fiscal intermediary calculation of overall CCR fails to remove allied health costs and adds weighting by Medicare Part B charges. In comparing these two calculations, we discovered that, on average, the overall CCR calculation being used by the fiscal intermediary resulted in higher overall CCRs than under our “traditional” calculation. Using the most recent cost report data available

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for every provider with valid claims for CY 2004 as of November 2005, we estimated the median overall CCR using the traditional calculation to be 0.3040 (mean 0.3223) and the median overall CCR using the fiscal intermediary calculation to be 0.3309 (mean 0.3742). There also was much greater variability in the fiscal intermediary calculation of the overall CCR. The standard deviation under the “traditional” calculation was 0.1318, while the standard deviation using the fiscal intermediary’s calculation was 0.2143. In part, the higher median estimate for the fiscal intermediary calculation is attributable to the inclusion of allied health costs for the over 700 hospitals with allied health programs. It is inappropriate to include these costs in the overall CCR calculation, because CMS already reimburses hospitals for the costs of these programs through cost report settlement. The higher median estimate and greater variability also is a function of the weighting by Medicare Part B charges. Because the fiscal intermediary overall CCR calculation is higher, on average, CMS has underestimated the outlier payment thresholds and, therefore, overpaid outlier payments. We also have underestimated spending for services paid at charges reduced to cost in our budget neutrality estimates. In examining the two different calculations, we decided that elements of each methodology had merit. Clearly, as noted above, allied health costs should not be included in an overall CCR calculation. However, weighting by Medicare Part B charges from Worksheet D, Parts V and VI, makes the overall CCR calculation more specific to OPPS. Therefore, we are proposing to adopt a single overall CCR calculation that incorporates weighting by Medicare Part B charges but excludes allied health costs for

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modeling and payment. Specifically, the proposed calculation removes allied health costs from cost center CCR calculations for specified ancillary cost centers, as discussed above, multiplies them by the Medicare Part B charges on Worksheet D, Parts V and VI, and sums these estimated Medicare costs. This sum is then divided by the sum of the same Medicare Part B charges for the same specified set of ancillary cost centers. Using the same cost report data, we estimated a median overall CCR for the proposed calculation of 0.3081 (mean 0.3389) with a standard deviation of 0.1583. The similarity to the median and standard deviation of the “traditional” overall CCR calculation noted above (median 0.3040 and standard deviation of 0.1318) masks some sizeable changes in overall CCR calculations for specific hospitals due largely to the inclusion of Medicare Part B weighting. In order to isolate the overall impact of adopting this methodology on APC medians, we used the first 9 months of CY 2005 claims data to estimate APC median costs varying only the two methods of determining overall CCR. We expected the impact to be limited because the majority of costs are estimated using a cost center-specific CCR and not the overall. As predicted, we observed minor changes in APC median costs from the adoption of the proposed overall CCR calculation. We largely observed differences of no more than 5 percent in either direction. The median overall percent change in APC cost estimates was -0.3 percent. We typically observe comparable changes in APC medians when we update our cost report data. The impact of the proposed CCR calculation on the outlier threshold is discussed further in section II. G. of this preamble. Using updated cost report data for the calculations in this

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proposed rule, we estimate a median overall CCR across all hospitals of 0.2999 using the proposed overall CCR calculation. We believe that a single overall CCR calculation should be used for all components of the OPPS for both modeling and payment. Therefore, we are proposing to use the modified overall CCR calculation as discussed above when the hospital-specific overall CCR is used for any of the following calculations--in the CMS calculation of median costs for OPPS ratesetting, in the CMS calculation of the outlier threshold, in the fiscal intermediary calculation of outlier payments, in the CMS calculation of statewide CCRs, in the fiscal intermediary calculation of pass-through payments for devices, and for any other fiscal intermediary payment calculation in which the current hospitalspecific overall CCR may be used now or in the future. If this proposal is finalized, we would issue a Medicare program instruction to fiscal intermediaries that would instruct them to recalculate and use the hospital-specific overall CCR as we are proposing for these purposes. 2. Proposed Calculation of Median Costs for CY 2007 In this section of the preamble, we discuss the use of claims to calculate the proposed OPPS payment rates for CY 2007. The hospital outpatient prospective payment page on the CMS Web site on which this proposed rule is posted provides an accounting of claims used in the development of the proposed rates: http://www.cms.hhs.gov/HospitalOutpatientPPS. The accounting of claims used in the development of this proposed rule is included on the Web site under supplemental materials for the CY 2007 proposed rule. That accounting provides additional detail

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regarding the number of claims derived at each stage of the process. In addition, below we discuss the files of claims that comprise the data sets that are available for purchase under a CMS data user contract. Our CMS Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS, includes information about purchasing the following two OPPS data files: “OPPS Limited Data Set” and “OPPS Identifiable Data Set.” We are proposing to use the following methodology to establish the relative weights to be used in calculating the proposed OPPS payment rates for CY 2007 shown in Addenda A and B to this proposed rule. This methodology is as follows: We used outpatient claims for the full CY 2005, processed before January 1, 2006, to set the relative weights for this proposed rule for CY 2007. To begin the calculation of the relative weights for CY 2007, we pulled all claims for outpatient services furnished in CY 2005 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, CAH claims, and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital). We then excluded claims with condition codes 04, 20, 21, and 77. These are claims that providers submitted to Medicare knowing that no payment will be made. For example, providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, and the U.S. Virgin Islands because hospitals in those geographic areas are not paid under the OPPS.

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We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 103 million claims that contain hospital bill types paid under the OPPS. 1. Claims that were not bill types 12X, 13X, 14X (hospital bill types), or 76X (CMHC bill types). Other bill types are not paid under the OPPS and, therefore, these claims were not used to set OPPS payment. 2. Claims that were bill types 12X, 13X, or 14X (hospital bill types). These claims are hospital outpatient claims. 3. Claims that were bill type 76X (CMHC). (These claims are later combined with any claims in item 2 above with a condition code 41 to set the per diem partial hospitalization rate determined through a separate process.) For the CCR calculation process, we used the same general approach as we used in developing the final APC rates for CY 2006 (70 FR 68537), with a change to the development of the overall CCR as discussed above. That is, we first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2005 before determining whether the CCRs for such hospitals were valid. We then calculated the CCRs at a cost center level and overall for each hospital for which we had claims data. We did this using hospital-specific data from the Healthcare Cost Report Information System (HCRIS). We used the most recent available cost report data, in most cases, cost reports for CY 2004. For this proposed rule, we used the most recent cost report available, whether submitted or settled. If the most recent available cost report was submitted but not settled, we looked at the last settled cost

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report to determine the ratio of submitted to settled cost using the overall CCR, and we then adjusted the most recent available submitted but not settled cost report using that ratio. We are proposing to use the most recently submitted cost reports to calculate the CCRs to be used to calculate median costs for the OPPS CY 2007 final rule. We calculated both an overall CCR and cost center-specific CCRs for each hospital. We used the proposed overall CCR calculation discussed in II.A.1.c. of this preamble for all purposes. We then flagged CAH claims, which are not paid under the OPPS, and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all-inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center level by removing the CCRs for each cost center as outliers if they exceeded +/- 3 standard deviations from the geometric mean. This is the same methodology that we used in developing the final CY 2006 CCRs. For CY 2007, we are proposing to trim at the departmental CCR level to eliminate aberrant CCRs that, if found in high volume hospitals, could skew the medians. We used a four-tiered hierarchy of cost center CCRs to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital’s cost center CCR was deleted by trimming, we set the CCR for that cost center to “missing,” so that another cost center CCR in the revenue center hierarchy

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could apply. If no other departmental CCR could apply to the revenue code on the claim, we used the hospital’s overall CCR for the revenue code in question. For example, a visit reported under the clinic revenue code, but the hospital did not have a clinic cost center, we mapped the hospital-specific overall CCR to the clinic revenue code. The hierarchy of CCRs is available for inspection and comment at the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS. We then converted the charges to costs on each claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. Table 2 below contains a list of the allowed revenue codes. Revenue codes not included in Table 2 are those not allowed under the OPPS because their services cannot be paid under the OPPS (for example, inpatient room and board charges) and, thus charges with those revenue codes were not packaged for creation of the OPPS median costs. One exception is the calculation of median blood costs, as discussed in section X. of this preamble. Thus, we applied CCRs as described above to claims with bill types 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, and the U.S. Virgin Islands, and claims from all hospitals for which CCRs were flagged as invalid. We identified claims with condition code 41 as partial hospitalization services of hospitals and moved them to another file. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate.

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We then excluded claims without a HCPCS code. We also moved claims for observation services to another file. We moved to another file claims that contained nothing but flu and pneumococcal pneumonia (“PPV”) vaccine. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We note that the two above mentioned separate files containing partial hospitalization claims and the observation services claims are included in the files that are available for purchase as discussed above. We next copied line-item costs for drugs, blood, and devices (the lines stay on the claim, but are copied off onto another file) to a separate file. No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median and a per administration mean and median for drugs, radiopharmaceutical agents, blood and blood products, and devices, including but not limited to brachytherapy sources, as well as other information used to set payment rates, including a unit to day ratio for drugs. We then divided the remaining claims into the following five groups: 1. Single Major Claims: Claims with a single separately payable procedure (that is, status indicator S, T, V, or X), all of which would be used in median setting. 2. Multiple Major Claims: Claims with more than one separately payable procedure (that is, status indicator S, T, V, or X), or multiple units for one payable procedure. As discussed below, some of these can be used in median setting. 3. Single Minor Claims: Claims with a single HCPCS code that is packaged (that is, status indicator N) and not separately payable.

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4. Multiple Minor Claims: Claims with multiple HCPCS codes that are packaged (that is, status indicator N) and not separately payable. 5. Non-OPPS Claims: Claims that contain no services payable under the OPPS (that is, all status indicators other than S, T, V, X, or N). These claims are excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory, and do not contain either a code for a separately paid service or a code for a packaged service. In previous years, we made a determination of whether each HCPCS code was a major code, or a minor code, or a code other than a major or minor code. We used those code specific determinations to sort claims into these five identified groups. For CY 2007 OPPS, we are proposing to use status indicators, as described above, to sort the claims into these groups. We believe that using status indicators is an appropriate way to sort the claims into these groups and also to make our process more transparent to the public. We further believe that this proposed method of sorting claims will enhance the public’s ability to derive useful information and become a more informed commenter on this proposed rule. We note that the claims listed in numbers 1, 2, 3, and 4 above are included in the data files that can be purchased as described above. We set aside the single minor, multiple minor claims and the non-OPPS claims (numbers 3, 4, and 5 above) because we did not use these claims in calculating median cost. We then examined the multiple major claims for date of service to determine if we could break them into single procedure claims using the dates of service on all lines on

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the claim. If we could create claims with single major procedures by using date of service, we created a single procedure claim record for each separately paid procedure on a different date of service (that is, a “pseudo” single). We then used the “bypass codes” listed in Table 1 of this preamble and discussed in section II.A.1.b. to remove separately payable procedures that we determined contain limited costs or no packaged costs, or were otherwise suitable for inclusion on the bypass list, from a multiple procedure bill. When one of the two separately payable procedures on a multiple procedure claim was on the bypass code list, we split the claim into two single procedure claims records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS charges. We also removed lines that contained multiple units of codes on the bypass list and treated them as “pseudo” single claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single separately paid procedure code remained on the claim after removal of the multiple units of the bypass code, we created a “pseudo” single claim from that residual claim record, which retained the costs of packaged revenue codes and packaged HCPCS codes. This enables us to use claims that would otherwise be multiple procedure claims and could not be used. We excluded those claims that we were not able to convert to singles even after applying all of the techniques for creation of “pseudo” singles.

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We then packaged the costs of packaged HCPCS codes (codes with status indicator “N” listed in Addendum B to this proposed rule) and packaged revenue codes into the cost of the single major procedure remaining on the claim. The list of packaged revenue codes is shown below in Table 2. After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, 97.5 million claims were left. Of these 97.5 million claims, we were able to use some portion of 50.7 million whole claims (93.2 percent of the 54.4 million potentially usable claims) to create the 91.4 million single and “pseudo” single claims for use in the CY 2007 median payment ratesetting. Approximately 43 million claims were for services not paid under the OPPS. We also excluded (1) claims that had zero costs after summing all costs on the claim and (2) claims containing payment flag 3. Effective for services furnished on or after July 1, 2004, the Outpatient Code Editor (OCE) assigns payment flag number 3 to claims on which hospitals submitted token charges for a service with status indicator "S" or "T" (a major separately paid service under OPPS) for which the fiscal intermediary is required to allocate the sum of charges for services with a status indicator equaling "S" or "T" based on the weight for the APC to which each code is assigned. We do not believe that these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resources. Therefore, we are proposing to delete these claims. We also deleted claims for which the charges equal the revenue center payment (that is, the

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Medicare payment) on the assumption that where the charge equals the payment, to apply a CCR to the charge would not yield a valid estimate of relative provider cost. For the remaining claims, we then standardized 60 percent of the costs of the claim (which we have previously determined to be the labor-related portion) for geographic differences in labor input costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital by that wage index. As has been our policy since the inception of the OPPS, we are proposing to use the pre-reclassified wage indices for standardization because we believe that they better reflect the true costs of items and services in the area in which the hospital is located than the post-reclassification wage indices, and would result in the most accurate adjusted median costs. We also excluded claims that were outside 3 standard deviations from the geometric mean of units for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes). We then deleted 299,022 single bills reported with modifier 50 that were assigned to APCs that contained HCPCS codes that are considered to be conditional or independent bilateral procedures under the OPPS and that are subject to special payment provisions implemented through the OCE. Modifier 50 signifies that the procedure was performed bilaterally. Although these are apparently single claims for a separately payable service and although there is only one unit of the code reported on the claim, the presence of modifier 50 signifies that two services were furnished. Therefore, costs reported on these claims are for two

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procedures and not for a single procedure. Hence, we deleted these multiple procedure records, which we would have treated as single procedure claims in prior OPPS updates. We are seeking comments on the relative benefits of deleting these claims versus dividing the costs for the two procedures by two to create two “pseudo” single claims. We used the remaining claims to calculate median costs for each separately payable HCPCS code and each APC. The comparison of HCPCS and APC medians determines the applicability of the “2 times” rule. As stated previously, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (“the 2 times rule”). Finally, we reviewed the medians and reassigned HCPCS codes to different APCs as deemed appropriate. Section III.B. of this preamble includes a discussion of the HCPCS code assignment changes that resulted from examination of the medians and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes. Both the HCPCS medians and the APC medians were weighted to account for the inclusion of multiple units of the bypass codes in the creation of pseudo single bills. A detailed discussion of the proposed medians for blood and blood products is included in section X. of this preamble. A discussion of the proposed medians for APCs that require one or more devices when the service is performed is included in section IV.A. of this preamble. A discussion of the proposed median for observation

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services is included in section XI. of this preamble and a discussion of the proposed median for partial hospitalization is included below in section II.B. of this preamble. Table 2.--CY 2007 Proposed Packaged Services by Revenue Code Revenue Code 250 251 252 254 255 257 258 259 260 262 263 264 269 270 271 272 274 275 276 278 279 280 289 290 343 344 370 371 372 379 390 399 560 569 621 622 624 630

Description PHARMACY GENERIC NONGENERIC PHARMACY INCIDENT TO OTHER DIAGNOSTIC PHARMACY INCIDENT TO RADIOLOGY NONPRESCRIPTION DRUGS IV SOLUTIONS OTHER PHARMACY IV THERAPY, GENERAL CLASS IV THERAPY/PHARMACY SERVICES SUPPLY/DELIVERY IV THERAPY/SUPPLIES OTHER IV THERAPY M&S SUPPLIES NONSTERILE SUPPLIES STERILE SUPPLIES PROSTHETIC/ORTHOTIC DEVICES PACEMAKER DRUG INTRAOCULAR LENS SOURCE DRUG OTHER IMPLANTS OTHER M&S SUPPLIES ONCOLOGY OTHER ONCOLOGY DURABLE MEDICAL EQUIPMENT DIAGNOSTIC RADIOPHARMS THERAPEUTIC RADIOPHARMS ANESTHESIA ANESTHESIA INCIDENT TO RADIOLOGY ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC OTHER ANESTHESIA BLOOD STORAGE AND PROCESSING OTHER BLOOD STORAGE AND PROCESSING MEDICAL SOCIAL SERVICES OTHER MEDICAL SOCIAL SERVICES SUPPLIES INCIDENT TO RADIOLOGY SUPPLIES INCIDENT TO OTHER DIAGNOSTIC INVESTIGATIONAL DEVICE (IDE) DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS

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Revenue Code 631 632 633 681 682 683 684 689 700 709 710 719 720 721 762 810 819 942

Description SINGLE SOURCE MULTIPLE RESTRICTIVE PRESCRIPTION TRAUMA RESPONSE, LEVEL I TRAUMA RESPONSE, LEVEL II TRAUMA RESPONSE, LEVEL III TRAUMA RESPONSE, LEVEL IV TRAUMA RESPONSE, OTHER CAST ROOM OTHER CAST ROOM RECOVERY ROOM OTHER RECOVERY ROOM LABOR ROOM LABOR OBSERVATION ROOM ORGAN ACQUISITION OTHER ORGAN ACQUISITION EDUCATION/TRAINING

3. Proposed Calculation of Scaled OPPS Payment Weights Using the median APC costs discussed previously, we calculated the proposed relative payment weights for each APC for CY 2007 shown in Addenda A and B of this proposed rule. In prior years, we scaled all the relative payment weights to APC 0601 (Mid Level Clinic Visit) because it is one of the most frequently performed services in the hospital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC. For CY 2007 OPPS, we are proposing to scale all of the relative payment weights to APC 0606 (Level III Clinic Visits) because we are proposing to delete APC 0601 as part of the reconfiguration of the visit APCs. We chose APC 0606 as the scaling base because under our proposal to reconfigure the APCs where clinic visits are assigned for

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CY 2007, APC 0606 is the middle level clinic visit APC (that is, Level III of five levels). We have historically used the median cost of the middle level clinic visit APC (that is APC 0601 through CY 2006) to calculate unscaled weights because mid-level clinic visits are among the most frequently performed services in the hospital outpatient setting. Therefore, to maintain consistency in using as a median the most frequently used services, we are proposing to continue to use the median cost of the middle clinic level, proposed ASC 0606, to calculate unscaled weights. Following our standard methodology, but using the proposed CY 2007 median for APC 0606, we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the median cost for APC0606 to derive the unscaled relative payment weight for each APC. The choice of the APC on which to base the relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality. Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2007 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2006 relative weights to aggregate payments using the CY 2007 proposed relative payment weights. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The unscaled relative payment weights were adjusted by 1.354626473 for budget neutrality. We recognize the scaler, or

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weight scaling factor, for budget neutrality that we are proposing for CY 2007 is higher than any previous OPPS weight scaler as a result of our proposal to use APC 0606 as the base for calculation of relative weights. Our proposed use of the median cost for APC 0606 of $83.67 causes the unscaled weights to be lower than they would have been if we had chosen APC 0605 (Level 2 Clinic Visits; median $62.12) as the scaling base. The CY 2007 median cost of APC 0606 is significantly higher than the CY 2006 median cost of APC 0601 for mid-level clinic visits, which was used in CY 2006 and earlier years to calculate unscaled weights. Historically, the median cost for APC 0601 has been similar to the CY 2007 proposed median cost for APC 0605. In order to appropriately scale the total weight estimated for OPPS in CY 2007 to be similar to the total weight in OPPS for CY 2006, we calculated a scaler of 1.354626473, which is higher using APC 0606 as the base than it would be if we used APC 0605 as the base. In addition to adjusting for increases and decreases in weight due the recalibration of APC medians, the scaler also accounts for any change in the base. The proposed relative payment weights listed in Addenda A and B of this proposed rule incorporate the recalibration adjustments discussed in sections II.A.1. and 2. of this preamble. Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that “Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.” Section 1833(t)(14) of the Act provides the payment rates for

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certain “specified covered outpatient drugs.” Therefore, the cost of those specified covered outpatient drugs (as discussed in section V. of this preamble) is now included in the budget neutrality calculations for CY 2007 OPPS. Under section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) is to be made at charges adjusted to cost for services furnished on or after January 1, 2004, and before January 1, 2007. As we stated in our January 6, 2004 interim final rule, charges for the brachytherapy sources were not used in determining outlier payments, and payments for these items were excluded from budget neutrality calculations for the CY 2006 OPPS. We excluded these payments from budget neutrality calculations, in part, because of the challenge posed by estimating hospital-specific cost payment. For CY 2007, we are proposing a specific payment rate for brachytherapy sources, which will be subject to scaling for budget neutrality. (We provide a discussion of brachytherapy payment issues, including their continued exclusion from outlier payments, under section VII. of this preamble.) Therefore, the costs of brachytherapy sources are accounted for in the scaler of 1.354626473. 4. Proposed Changes to Packaged Services (If you choose to comment on the issues in this section, please include the caption “Packaged Services” at the beginning of your comment.) Payments for packaged services under the OPPS are bundled into the payments providers receive for separately payable services provided on the same day. Packaged services are identified by the status indicator “N.” Hospitals include charges for

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packaged services on their claims, and the costs associated with these packaged services are then bundled into the costs for separately payable procedures on those same claims in establishing payment rates for the separately payable services. This is consistent with the principles of a prospective payment system based upon groupings of services and in contrast to a fee schedule that provides individual payment for each service billed. Hospitals may use CPT codes to report any packaged services that were performed, consistent with CPT coding guidelines. As a result of requests from the public, a Packaging Subcommittee to the APC Panel was established to review all the procedural CPT codes with a status indicator of “N.” Providers have often suggested that many packaged services could be provided alone, without any other separately payable services on the claim, and requested that these codes not be assigned status indicator “N.” In deciding whether to package a service or pay for a code separately, we consider a variety of factors, including whether the service is normally provided separately or in conjunction with other services; how likely it is for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed; and whether the expected cost of the service is relatively low. The Packaging Subcommittee identified areas for change for some packaged CPT codes that it believed could frequently be provided to patients as the sole service on a given date and that required significant hospital resources as determined from hospital claims data.

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Based on the comments received, additional issues, and new data that we shared with the Packaging Subcommittee concerning the packaging status of codes for CY 2007, the Packaging Subcommittee reviewed the packaging status of numerous HCPCS codes and reported its findings to the APC Panel at its March 2006 meeting. The APC Panel accepted the report of the Packaging Subcommittee, heard several presentations on certain packaged services, discussed the deliberations of the Packaging Subcommittee, and recommended that-● CMS pay separately for HCPCS code 0069T (Acoustic heart sound recording and computer analysis only). ● CMS maintain the packaged status of HCPCS code 0152T (Computer aided detection with further physician review for interpretation, with or without digitization of films radiographic images; chest radiograph(s)). ● CMS maintain the packaged status of CPT code 36500 (venous catheterization for selective blood organ sampling). ● CMS pay separately for CPT code 36540 (Collect blood, venous access device) if there are no separately payable OPPS services on the claim. ● CMS pay separately for CPT code 36600 (Arterial puncture; withdrawal of blood for diagnosis) if there are no separately payable OPPS services on the claim. ● CMS pay separately for CPT code 38792 (Sentinel node identification) if there are no separately payable OPPS services on the claim. ● CMS maintain the packaged status of CPT codes 74328 (Endoscopic catheterization of the biliary ductal system, radiological supervision and interpretation),

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74329 (Endoscopic catheterization of the pancreatic ductal system, radiological supervision and interpretation), and 74330 (Combined endoscopic catheterization of the biliary and pancreatic ductal systems, radiological supervision and interpretation). ● CMS pay separately for CPT code 75893 (Venous sampling through catheter, with or without angiography, radiological supervision and interpretation) if there are no separately payable OPPS services on the claim. ● CMS continue to separately pay for CPT code 76000 (Fluoroscopy, up to one hour physician time). ● CMS maintain the packaged status of CPT codes 76001 (Fluoroscopy, physician time more than one hour), 76003 ((Fluoroscopic guidance for needle placement), and 76005 (Fluoroscopic guidance and localization of needle or catheter tip). ● CMS maintain the packaged status of CPT codes 76937 (Ultrasound guidance for vascular access) and 75998 (Fluoroscopic guidance for central venous access device placement, replacement, or removal). ● CMS provide separate payment for CPT codes 94760 (Noninvasive ear or pulse oximetry for oxygen saturation; single determination), 94761 (Noninvasive ear or pulse oximetry for oxygen saturation; multiple determinations), and 94762 (Noninvasive ear or pulse oximetry for oxygen saturation by continuous overnight monitoring) if there are no separately payable OPPS services on the claim. ● CMS pay separately for CPT code 96523 (Irrigation of implanted venous access device) if there are no separately payable OPPS services on the claim.

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● CMS maintain the packaged status of HCPCS code G0269 (Placement of occlusive device into either a venous or arterial access site). ● CMS pay separately for HCPCS code P9612 (Catheterization for collection of specimen, single patient) if there are no separately payable OPPS services on the claim. ● CMS bring data to the next APC Panel meeting that show the following: (a) how the costs of packaged items and services are incorporated into the median costs of APCs and (b) how the costs of these packaged items and services influence payments for associated procedures. ● The Packaging Subcommittee continue until the next APC Panel meeting. For CY 2007, we are proposing to maintain CPT code 0069T as a packaged service and not adopt the APC Panel’s recommendation to pay separately for this code. The service uses signal processing technology to detect, interpret, and document acoustical activities of the heart through special sensors applied to a patient’s chest. This code was a new Category III CPT code implemented in the CY 2005 OPPS and assigned a new interim status indicator of “N” in the CY 2005 OPPS final rule. The APC Panel recommended packaging CPT code 0069T for CY 2006, and we accepted that recommendation when we finalized the status indicator “N” assignment to 0069T for CY 2006. This code is indicated as an add-on code to an electrocardiography service, according to the AMA’s CY 2006 CPT book. In its presentation to the APC Panel, the manufacturer requested that we pay separately for CPT code 0069T and assign it to APC 0099 (Electrocardiograms), based on its estimated cost and clinical characteristics.

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At the APC Panel meeting, the manufacturer stated that the acoustic heart sounds recording and analysis service may be provided with or without a separately reportable electrocardiogram. Members of the APC Panel engaged in extensive discussion of clinical scenarios as they considered whether CPT code 0069T could or could not be appropriately reported alone or in conjunction with several different procedure codes. We note that the parenthetical information following the AMA’s code descriptor indicates that CPT code 0069T is to be reported in conjunction with CPT code 93005 (Electrocardiogram, routine ECG with at least 12 leads; tracing only, without interpretation and report). In addition, we do not believe that, based on its expected clinical uses as described by the manufacturer, CPT code 0069T would ever be performed as a sole service without other separately payable OPPS services and payment for CPT code 0069T could always be packaged into payments for those other services. Therefore, we believe that CPT code 0069T is appropriately packaged because it is closely linked to the performance of an ECG, should never be reported alone, and is estimated to require only modest hospital resources. Using CY 2005 claims, we had only 9 single claims for CPT code 0069T, with a median line-item cost of $1.93, consistent with its low expected cost. Packaging payment for CPT code 0069T is consistent with the principles of a prospective payment system that provides payments for groups of services. To the extent that the acoustic heart sounding recording service may be more frequently provided in the future in association with ECGs or other OPPS services as its clinical indications evolve, we expect that its cost would also be increasingly reflected in the median costs for those other services, particularly ECG procedures.

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For CY 2007, we are proposing to accept the APC Panel’s recommendation to maintain the packaged status of CPT code 0152T. The service involves the application of computer algorithms and classification technologies to chest x-ray images to acquire and display information regarding chest x-ray regions that may contain indications of cancer. This code was a new Category III CPT code implemented in the CY 2006 OPPS and assigned a new interim status indicator of “N” in the CY 2006 OPPS final rule with comment period. The code is indicated as an add-on code to chest x-ray CPT codes, according to the AMA’s CY 2006 CPT book. In its presentation to the APC Panel, the manufacturer requested that we pay separately for this service and assign it to a New Technology APC with a payment rate of $15, based on its estimated cost, clinical considerations, and similarity to other image post-processing services that are paid separately. Under the OPPS we make payment for medically necessary services either separately or packaged into our payments for other services. We agree with the APC Panel that packaged payment for diagnostic chest x-ray computer-aided detection (CAD) under a prospective payment methodology for outpatient hospital services is appropriate because of the close relationship of chest x-ray CAD to chest x-ray services and its projected modest cost. Because 0152T is a new CPT code for CY 2006, we have no CY 2005 hospital claims data available for analysis. To the extent that CAD may be more frequently provided in the future to aid in the review of diagnostic chest x-rays as its clinical indications evolve, we expect that its cost would also be increasingly reflected in the median costs for chest x-ray procedures.

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For CY 2007, we are proposing to accept the recommendation of the APC Panel and maintain the packaged status of CPT code 36500. We note that several providers have commented that CPT code 36500 is sometimes billed only with its corresponding radiological supervision and interpretation code, 75893, but with no other separately payable OPPS services. In those cases, the provider would not receive any payment. For CY 2006, we accepted the APC Panel’s recommendation to package both CPT codes 36500 and 75893 and to examine claims data. Our initial review of several clinical scenarios submitted by the public seemed to suggest that other separately payable procedures, such as venography, would likely be billed on the same claim. Our claims data indicate that there are usually separately payable codes that are billed on claims with CPT codes 36500 and 75893. However, we acknowledge that these two codes may occasionally be provided without any separately payable procedures. In these uncommon instances, the provider historically has not received any payment under the OPPS. We also understand that there is a cost associated with registering a patient and providing these services. For CY 2006, we have approximately 160 single claims for CPT code 75893, with a median cost of $269. Based on the proposal described below for “special” packaged codes, for CY 2007, when CPT codes 36500 and 75893 are billed on a claim with no separately payable OPPS services, CPT code 75893 would become separately payable and would receive payment for APC 0668. In this circumstance, payment for CPT code 36500 would be packaged into the separate payment for CPT code 75893.

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For CY 2007, we are proposing to accept the APC Panel’s recommendation and pay separately for CPT codes 36540, 36600, 38792, 75893, 94762, and 96523 when any of these codes appear on a claim with no separately payable OPPS services also reported for the same date of service. We will refer to this subset of codes as “special” packaged codes. We acknowledge that there is a cost to the hospital associated with registering and treating a patient, regardless of whether the specific service provided requires minimal or significant hospital resources. While we continue to believe that these “special” packaged codes are almost always provided along with a separately payable service, our claims analyses indicate that there are rare instances when one of these services is provided without another separately payable OPPS service on the claim for the same date of service. In these instances, providers do not currently receive any payment. Therefore, we are proposing to provide payment for the “special” packaged codes listed above when they are billed on a claim without another separately payable OPPS service on the same date. When any of the “special” packaged codes are billed with other codes that are separately payable under the OPPS on the same date of service, the “special” packaged code would be treated as a packaged code, and the cost of the packaged code would be bundled into the costs of the other separately payable services on the claim. The payments that the provider receives for the separately payable services would include the bundled payment for the packaged code(s). We have heard concerns from the public stating that they are unable to submit claims to CMS that report only packaged codes. We note that although these claims are processed by the OCE and are ultimately rejected for payment, they are received by

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CMS, and we have cost data for packaged services based upon these claims. However, we recognize that the data used in our analyses to assess the frequencies with which packaged services are provided alone and their median costs are somewhat limited. It is possible that an unknown number of hospitals chose not to submit claims to CMS when a packaged code(s) was provided without other separately payable services on their claims, realizing that they would not receive payment for those claims. While we have been told that some hospitals may bill for a low-level visit if a packaged service only is provided so that they receive some payment for the encounter, we note that providers should bill a low-level visit code in such circumstances only if the hospital provides a significant, separately identifiable low-level visit in association with the packaged service. Through OCE logic, the PRICER would automatically assign payment for a “special” packaged service reported on a claim if there are no other services separately payable under the OPPS on the claim for the same date of service. In all other circumstances, the “special” packaged codes would be treated as packaged services. We are proposing to assign status indicator “Q” to these “special” packaged codes to indicate that they are usually packaged, except for special circumstances when they are separately payable. Through OCE logic, the status indicator of a “special” packaged code would be changed either to “N” or to the status indicator of the APC to which the code is assigned for separate payment, depending upon the presence or absence of other OPPS services also reported on the claim for the same date. Table 3 below lists the proposed status indicators and APC assignments for these “special” packaged codes when they are separately payable. We note that the payment for these “special” packaged codes is

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intended to make payment for all of the hospital costs, which may include patient registration and establishment of a medical record, in an outpatient hospital setting even when no separately payable services are provided to the patient on that day. Table 3. --Proposed Status Indicators and APC Assignments for “Special” Packaged CPT Codes

CPT Code 36540 36600 38792 75893 94762 96523

Descriptor Collect blood, venous access device Arterial puncture; withdrawal of blood for diagnosis Sentinel node identification Venous sampling through catheter, with or without angiography, radiological supervision and interpretation Noninvasive ear or pulse oximetry for oxygen saturation by continuous overnight monitoring Irrigation of implanted venous access device

Proposed CY 2007 APC Median $32.96 $12.45

Proposed CY 2007 APC 0624 0035

Proposed Status Indicator S T

0389 0668

S S

$86.92 $393.35

0443

X

$61.39

0624

S

$32.96

In the case of a claim with two or more “special” packaged codes only reported on a single date of service, the PRICER would assign separate payment only to the “special” packaged code that would receive the highest payment. The other “special” codes would remain packaged and would not receive separate payment. We will monitor and analyze the claims frequency and claims detail for situations in which these codes are billed alone and then separately paid. This will allow us to determine both which providers are billing these codes most often and under what circumstances these codes are billed. We expect that hospitals scheduling and providing

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services efficiently to Medicare beneficiaries will continue to generally provide these minor services in conjunction with other medically necessary services. For CY 2007, we are proposing to accept the APC Panel’s recommendation and maintain the packaged status of CPT codes 74328, 74329, and 74330. The AMA notes that these radiological supervision and interpretation codes should be reported with procedure codes 43260-43272. In fact, our data indicate that these supervision and interpretation codes are billed with 43260-43272 more than 90 percent of the time, indicating their routine use. We believe that some providers may be concerned that although the payment for the endoscopic procedure includes the bundled payment for the supervision and interpretation performed by the radiology department, the payment for the comprehensive service may be directed to the hospital department that performed the endoscopic procedure, rather than to the radiology department. While we understand this concern, the OPPS pays hospital for services provided, and we believe that hospitals are responsible for attributing payments to hospital departments as they believe appropriate. We do not believe that packaging these radiological supervision and interpretation codes leads to inaccurate payments for the full hospital resources associated with endoscopic retrograde cholangiopancreatography procedures. For CY 2007, we are proposing to accept the APC Panel’s recommendation to continue to package CPT codes 76001, 76003, and 76005 and to continue to pay separately for CPT code 76000. We received a comment which stated that it was inconsistent to pay separately for CPT code 76000 (Fluoroscopy (separate procedure), up to one hour physician time) but to package CPT code 76001 (Fluoroscopy, physician time

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more than one hour) when CPT code 76001 appears to be a similar code, except that it is for a longer period of physician time. The Packaging Subcommittee believed that many of the claims that listed CPT code 76001 were erroneously billed, as many of the procedure codes that were billed with CPT code 76001 included fluoroscopy as an integral part of the procedure. In other cases, the Packaging Subcommittee noted that a procedure-specific fluoroscopy code should probably have been billed, instead of CPT code 76001. The Packaging Subcommittee believed that CPT code 76000 could often be provided as a sole service, with no other separately payable procedures. The Packaging Subcommittee recommended that CMS continue to pay separately for CPT code 76000, consistent with the AMA’s definition of this code, which specifies that it is a separate procedure, and to continue to package CPT codes 76001, 76003, and 76005. For CY 2007, we are proposing to accept the APC Panel’s recommendation to continue to package CPT codes 76937 and 75998. In the CY 2006 OPPS final rule with comment period (70 FR 68544 and 68545), we reviewed in detail the data related to these two codes and promised to share CY 2004 and early CY 2005 data with the Packaging Subcommittee. We reviewed current data with the Packaging Subcommittee, and it recommended that we continue to package these codes. In summary, we believe that these services would always be provided with another separately payable procedure, so their costs would be appropriately bundled with the definitive vascular access device procedures. The costs for these guidance procedures are relatively low compared to the CY 2007 proposed payment rates for the separately payable services they most frequently accompany. If we were to unpackage CPT codes 76937 and 75998, the single bills

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available to develop median costs for vascular access device insertion services would be significantly reduced. Therefore, we are proposing to continue to package both CPT codes 76937 and 75998 for CY 2007. For CY 2007, we are proposing to accept the APC Panel’s recommendation to continue to package HCPCS code G0269. This code should never be billed without another separately payable procedure. Recent data indicate that 94 percent of the time HCPCS code G0269 was billed with either CPT code 93510 or 93526. In addition, the median cost of G0269 is low compared to the costs of the procedures with which it is typically associated. For CY 2007, we are proposing to continue packaging CPT codes 94760 (Noninvasive ear or pulse oximetry for oxygen saturation; single determination) and 94761 (Noninvasive ear or pulse oximetry for oxygen saturation; multiple determinations) and not adopt the APC Panel’s recommendation to provide separate payment for these services if there are no other separately payable OPPS services on the claim for the same date of service. Our data review revealed that these services are very frequently provided in the OPPS, with over 1 million claims in CY 2005 for the single pulse oximetry determination service and over 400,000 claims for the multiple determinations service. These high frequencies may actually be understated as both of these services are packaged codes, and we have been told that some hospitals may not report the HCPCS codes for services for which they receive no separate payments. Single and multiple pulse oximetry determinations are almost always provided in association with other services that are separately payable under the OPPS, into which

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their costs may be appropriately packaged. Specifically, OPPS hospital claims data revealed that out of the total instances of CPT code 94760 appearing on claims used for setting payment rates for this CY 2007 OPPS proposed rule, CPT code 94760 was billed only 4 percent of the time in association with no other separately payable OPPS services, with a median cost of $14. Using the same data, CPT code 94761 was billed only 7 percent of the time in association with no other separately payable OPPS services, with a median cost of $36. These pulse oximetry services have a relatively low cost compared with the OPPS services they frequently accompany. If we were to provide separate payment for these pulse oximetry determinations when performed as stand alone procedures by hospitals, we are concerned that hospitals would lose their incentive to provide these basic, low cost, and brief services as efficiently as possible, generally during the same encounters where they are providing other services to the same patients. We believe their appropriate provision as single services should be very rare. Therefore, for CY 2007 we are proposing not to include these codes on the list of “special” packaged codes, so their payment would remain packaged in all circumstances. For CY 2007, we are proposing to assign status indicator “A” to HCPCS code P9612 and reject the APC Panel’s recommendation to pay separately under the OPPS for this code when it is billed without any separately payable OPPS services. This code is currently payable on the clinical lab fee schedule. Its status indicator of “A” would provide payment for the service whenever it is billed, regardless of the presence or absence of other reported services. In addition, for consistency we are proposing to assign status indicator “A” to HCPCS code P9615 as it is also payable on the clinical lab

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fee schedule. In general, when a code is payable on the clinical lab fee schedule, we defer to that fee schedule and do not assign payment under the OPPS. The APC Panel Packaging Subcommittee remains active, and additional issues and new data concerning the packaging status of codes will be shared for its consideration as information becomes available. We continue to encourage submission of common clinical scenarios involving currently packaged HCPCS codes to the Packaging Subcommittee for its ongoing review. Additional detailed suggestions for the Packaging Subcommittee should be submitted to [email protected], with “Packaging Subcommittee” in the subject line. B. Proposed Payment for Partial Hospitalization (If you choose to comment on issues in this section, please include the caption “Partial Hospitalization” at the beginning of your comment.) 1. Background Partial hospitalization is an intensive outpatient program of psychiatric services provided to patients as an alternative to inpatient psychiatric care for beneficiaries who have an acute mental illness. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified community mental health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. The Medicare regulations at 42 CFR 419.21(c) that implement this provision specify that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs. Section 1883(t)(2)(C) of the Act requires that we establish relative payment weights

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based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC, effective for services furnished on or after August 1, 2000. For a detailed discussion, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18452). Historically, the median per diem cost for CMHCs has greatly exceeded the median per diem cost for hospital-based PHPs and has fluctuated significantly from year to year while the median per diem cost for hospital-based PHPs has remained relatively constant ($200-$225). We believe that CMHCs may have increased and decreased their charges in response to Medicare payment policies. As discussed in more detail in section II.B.2. of the preamble of this proposed rule and in the CY 2004 OPPS final rule with comment period (68 FR 63470), we believe that some CMHCs manipulated their charges in order to inappropriately receive outlier payments. In the CY 2003 OPPS update, the difference in median per diem cost for CMHCs and hospital-based PHPs was so great, $685 for CMHCs and $225 for hospital-based PHPs, that we applied an adjustment factor of .583 to CMHC costs to account for the difference between “as submitted” and “final settled” cost reports. By doing so, the CMHC median per diem cost was reduced to $384, resulting in a combined hospital-based and CMHC PHP median per diem cost of $273. As with all APCs in the

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OPPS, the median cost for each APC was scaled relative to the cost of a mid-level office visit and the conversion factor was applied. The resulting per diem rate for PHP for CY 2003 was $240.03. In the CY 2004 OPPS update, the median per diem cost for CMHCs grew to $1,038, while the median per diem cost for hospital-based PHPs was again $225. After applying the .583 adjustment factor in the CY 2004 proposed rule to the median CMHC per diem cost, the median CMHC per diem cost was $605. Because the CMHC median per diem cost exceeded the average per diem cost of inpatient psychiatric care, we proposed a per diem rate for CY 2004 based solely on hospital-based PHP data. The proposed PHP per diem for CY 2004, after scaling, was $208.95. However, by the time we published the OPPS final rule with comment period for CY 2004, we had received updated CCRs for CMHCs. Using the updated CCRs significantly lowered the CMHC median per diem cost to $440. As a result, we determined that the higher per diem cost for CMHCs was not due to the difference between “as submitted” and “final settled” cost reports, but was the result of excessive increases in charges which may have been done in order to receive higher outlier payments. Therefore, in calculating the PHP median per diem cost for CY 2004, we did not apply the .583 adjustment factor to CMHC costs to compute the PHP APC. Using the updated CCRs for CMHCs, the combined hospital-based and CMHC median per diem cost for PHP was $303. After scaling, we established the CY 2004 PHP APC of $286.82. For CY 2005, the PHP per diem amount was based on 12 months of hospital and CMHC PHP claims data (for services furnished from January 1, 2003, through

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December 31, 2003). We used data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs because CMHCs are Medicare providers only for the purpose of providing partial hospitalization services. We used CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills, to estimate the provider's cost for a day of PHP services. Per diem costs were then computed by summing the line-item costs on each bill and dividing by the number of days on the bill. In a Program Memorandum issued on January 17, 2003 (Transmittal A-03-004), we directed fiscal intermediaries to recalculate hospital and CMHC CCRs by April 30, 2003, using the most recently settled cost reports. Following the initial update of CCRs, fiscal intermediaries were further instructed to continue to update a provider's CCR and enter revised CCRs into the outpatient provider specific file. Therefore, for CMHCs, we used CCRs from the outpatient provider specific file. In the CY 2005 OPPS update, the CMHC median per diem cost was $310 and the hospital-based PHP median per diem cost was $215. No adjustments were determined to be necessary and, after scaling, the combined median per diem cost of $289 was reduced to $281.33. We believed that the reduction in the CMHC median per diem cost indicated that the use of updated CCRs had accounted for the previous increase in CMHC charges, and represented a more accurate estimate of CMHC per diem costs for PHP. For the CY 2006 OPPS final rule with comment period, we analyzed 12 months of the most current claims data available for hospital and CMHC PHP services furnished between January 1, 2004, and December 31, 2004. We also used the most currently

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available CCRs to estimate costs. The median per diem cost for CMHCs was $154, while the median per diem cost for hospital-based PHPs was $201. Based on the CY 2004 claims data, the average charge per day for CMHCs was $760, considerably greater than hospital-based per day costs but significantly lower than what it was in CY 2003 ($1,184). We believed that a combination of reduced charges and slightly lower CCRs for CMHCs resulted in a significant decline in the CMHC median per diem cost between CY 2003 and CY 2004. Following the methodology used for the CY 2005 OPPS update, the CY 2006 OPPS update combined hospital-based and CMHC median per diem cost was $161, a decrease of 44 percent compared to the CY 2005 combined median per diem amount. We believed that this amount was too low to cover the cost for all PHPs. Therefore, as stated in the CY 2006 OPPS final rule with comment period (70 FR 68548 and 68549), we considered the following three alternatives to our update methodology for the PHP APC for CY 2006 to mitigate this drastic reduction in payment for PHP services: (1) base the PHP APC on hospital-based PHP data alone; (2) apply a different trimming methodology to CMHC costs in an effort to eliminate the effect of data for those CMHCs that appeared to have excessively increased their charges in order to receive outlier payments; and (3) apply a 15-percent reduction to the combined hospital-based and CMHC median per diem cost that was used to establish the CY 2005 PHP APC. (We refer readers to the CY 2006 OPPS final rule with comment period for a full discussion of the three alternatives (70 FR 68548).) After carefully considering these three alternatives and all comments received on them, we adopted the third alternative for

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CY 2006. We adopted this alternative because we believed and continue to believe that a reduction in the CY 2005 median per diem cost would strike an appropriate balance between using the best available data and providing adequate payment for a program that often spans 5-6 hours a day. We believe that 15 percent is an appropriate reduction because it recognizes decreases in median per diem costs in both the hospital data and the CMHC data, and also reduces the risk of any adverse impact on access to these services that might result from a large single-year rate reduction. However, we adopted this policy as a transitional measure, and stated in the CY 2006 OPPS final rule with comment period that we would continue to monitor CMHC costs and charges for these services and work with CMHCs to improve their reporting so that payments can be calculated based on better empirical data, consistent with the approach we have used to calculate payments in other areas of the OPPS (70 FR 68548). To apply this methodology for CY 2006, we reduced $289 (the CY 2005 combined unscaled hospital-based and CMHC median per diem cost) by 15 percent, resulting in a combined median per diem cost of $245.65 for CY 2006. 2. Proposed PHP APC Update for CY 2007 For CY 2007, we are proposing to calculate the CY 2007 PHP per diem payment rate using the same update methodology that we adopted in CY 2006. That is, we are proposing to apply an additional 15-percent reduction to the combined hospital-based and CMHC median per diem cost that was used to establish the CY 2006 per diem PHP payment.

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For CY 2007, we analyzed 12 months of data for hospital and CMHC PHP claims for services furnished between January 1, 2005 and December 31, 2005. We also used the most currently available CCRs to estimate costs. Using these CY 2005 claims data, the median per diem cost for CMHCs was $165 and the median per diem cost for hospital-based PHPs was $209. Following the methodology used for the CY 2005 update, the CY 2007 combined hospital-based and CMHC median per diem cost is $172. While the combined hospital-based and CMHC median per diem cost is about $10 higher using the CY 2005 data compared to the CY 2004 data ($172 compared to $161), we believe this amount is still too low to cover the cost for PHPs. We continue to believe that the policy we adopted for CY 2006 – a 15-percent reduction applied to the current median cost – provides an appropriate decrease in median per diem costs for both the hospital and CMHC data. Therefore, for CY 2007, we are proposing an additional 15-percent reduction to the combined hospital-based and CMHC median per diem cost. We will continue to monitor and work with CMHCs to improve their reporting. If CMHC data continues to be a problem, we would consider using data from hospital-based PHPs only. To calculate the CY 2007 APC PHP per diem cost, we reduced $245.65 (the CY 2005 combined hospital-based and CMHC median per diem cost of $289 reduced by 15 percent) by 15 percent, which resulted in a combined median per diem cost of $208.80.

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3. Proposed Separate Threshold for Outlier Payments to CMHCs In the November 7, 2003 final rule with comment period (68 FR 63469), we indicated that, given the difference in PHP charges between hospitals and CMHCs, we did not believe it was appropriate to make outlier payments to CMHCs using the outlier percentage target amount and threshold established for hospitals. There was a significant difference in the amount of outlier payments made to hospitals and CMHCs for PHP. In addition, further analysis indicated that using the same OPPS outlier threshold for both hospitals and CMHCs did not limit outlier payments to high cost cases and resulted in excessive outlier payments to CMHCs. Therefore, for CYs 2004, 2005, and 2006, we established a separate outlier threshold for CMHCs. For CYs 2004 and 2005, we designated a portion of the estimated 2.0 percent outlier target amount specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS in each of those years, excluding outlier payments. For CY 2006, we set the estimated outlier target at 1.0 percent and allocated a portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. The CY 2006 CMHC outlier threshold is met when the cost of furnishing services by a CMHC exceeds 3.40 times the PHP APC payment amount. The CY 2006 OPPS outlier payment percentage is 50 percent of the amount of costs in excess of the threshold. The separate outlier threshold for CMHCs became effective January 1, 2004, and has resulted in more commensurate outlier payments. In CY 2004, the separate outlier threshold for CMHCs resulted in $1.8 million in outlier payments to CMHCs. In CY 2005, the separate outlier threshold for CMHCs resulted in $0.5 million in outlier

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payments to CMHCs. In contrast, in CY 2003, more than $30 million was paid to CMHCs in outlier payments. We believe this difference in outlier payments indicates that the separate outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs in line with the percentage of OPPS payments made to CMHCs. As discussed in section II.B.2. of this preamble, the CY 2005 CMHC data produce median per diem cost too low to use for the CY 2007 partial hospitalization payment rate. Due to the continued volatility of the CMHC charge data, we are proposing to maintain the existing outlier threshold for CMHCs for CY 2007 at 3.40 times the APC payment amount and the CY 2007 outlier payment percentage applicable to costs in excess of the threshold at 50 percent. As noted in section II.G. of this preamble, for CY 2007, we are proposing to continue our policy of setting aside 1.0 percent of the aggregate total payments under the OPPS for outlier payments. We are proposing that a portion of that 1.0 percent, an amount equal to 0.25 percent of outlier payments and 0.0025 percent of total OPPS payments would be allocated to CMHCs for PHP service outliers. As discussed in section II.G. of this preamble, we again are proposing to set a dollar threshold in addition to an APC multiplier threshold for OPPS outlier payments. However, because the PHP is the only APC for which CMHCs may receive payment under the OPPS, we would not expect to redirect outlier payments by imposing a dollar threshold. Therefore, we are not proposing to set a dollar threshold for CMHC outliers. As noted above, we are proposing to set the outlier threshold for CMHCs for CY 2007 at 3.40 percent times the APC

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payment amount and the CY 2007 outlier payment percentage applicable to costs in excess of the threshold at 50 percent. CMS and the Office of the Inspector General are continuing to monitor the excessive outlier payments to CMHCs. C. Proposed Conversion Factor Update for CY 2007 (If you choose to comment on issues in this section, please include the caption “Conversion Factor” at the beginning of your comment.) Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for CY 2007, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act. The forecast of the hospital market basket increase for FY 2007 published in the IPPS proposed rule on April 25, 2006 is 3.4 percent (71 FR 24148). To set the OPPS proposed conversion factor for CY 2007, we increased the CY 2006 conversion factor of $59.511, as specified in the November 10, 2005 final rule with comment period (70 FR 68551), by 3.4 percent. In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2006 to ensure that the revisions we are making to our updates for a revised wage index and expanded rural adjustment are made on a budget neutral basis. We calculated a budget neutrality factor of 0.999908021 for wage index changes by comparing total payments from our simulation model using the FY 2007 IPPS

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proposed wage index values to those payments using the current (FY 2006) IPPS wage index values. To reflect the inclusion of essential access community hospitals (EACHs) as rural SCHs (discussed in section II.F. of this preamble), we calculated an additional budget neutrality factor of 0.999883468 for the rural adjustment, including EACHs. For CY 2007, we estimate that allowed pass-through spending would equal approximately $43.2 million, which represents 0.13 percent of total OPPS projected spending for CY 2007. The proposed conversion factor also is adjusted by the difference between the 0.17 percent pass-through dollars set-aside in CY 2006 and the 0.13 percent estimate for CY 2007 pass-through spending. Finally, proposed payments for outliers remain at 1.0 percent of total payments for CY 2007. The proposed market basket increase update factor of 3.4 percent for CY 2007, the required wage index budget neutrality adjustment of approximately 0.999908021, the return of 0.04 percent for the difference in the pass-through set-aside, and the proposed adjustment for the rural payment adjustment for rural SCHs, including rural EACHs, of 0.999883468 result in a proposed conversion factor for CY 2007 of $61.551. D. Proposed Wage Index Changes for CY 2007 (If you choose to comment on issues in this section, please include the caption “OPPS: Wage Indices” at the beginning of your comment.) Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographic wage differences, the portion of the OPPS payment rate and the copayment standardized amount attributable to labor and labor-related cost. This adjustment must be made in a budget neutral manner. As we

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have done in prior years, we are proposing to adopt the IPPS wage indices and extend these wage indices to hospitals that participate in the OPPS but not the IPPS (referred to in this section as “non-IPPS” hospitals). As discussed in section II.A. of this preamble, we standardize 60 percent of estimated costs (labor-related costs) for geographic area wage variation using the IPPS wage indices that are calculated prior to adjustments for reclassification to remove the effects of differences in area wage levels in determining the OPPS payment rate and the copayment standardized amount. As published in the original OPPS April 7, 2000 final rule with comment period (65 FR 18545), OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. Thus, the wage index that applies to a particular hospital under the IPPS will also apply to that hospital under the OPPS. As initially explained in the September 8, 1998 OPPS proposed rule, we believed and continue to believe that using the IPPS wage index as the source of an adjustment factor for OPPS is reasonable and logical, given the inseparable, subordinate status of the hospital outpatient within the hospital overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. In this proposed rule, we are using the proposed FY 2007 hospital IPPS wage indices published in the Federal Register on April 25, 2006, which include the wage indices proposed to be in effect through March 31, 2007, and those proposed to be in effect on or after April 1, 2007, to accommodate the expiring reclassification provisions under section 508 of Pub. L. 108-173, to determine the wage adjustments for the OPPS payment rate and

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the copayment standardized amount for CY 2007. However, in accordance with our established policy, we are proposing to use the FY 2007 final version of these wage indices to determine the wage adjustments for the OPPS payment rate and copayment standardized amount that we will publish in our final rule for CY 2007. On May 17, 2006 (71 FR 28644), in response to a court order in Bellevue Hosp. Ctr. v. Leavitt, we published a second IPPS proposed rule that would revise the methodology for calculating the occupational mix adjustment for FY 2007. We proposed to replace in full the descriptions of the data and methodology that would be used in calculating the occupational mix adjustment discussed in the first FY 2007 IPPS proposed rule. The second proposed rule also states that, because of the collection of new occupational mix data, we would publish the FY 2007 occupational mix adjusted wage index tables and related impacts on the CMS Web site shortly after we publish the FY 2007 IPPS final rule, and in advance of October 1, 2006. The weights and factors would also be published on the CMS Web site after the FY 2007 IPPS final rule, but in advance of October 1, 2006. (71 FR 28650). Thus, for purposes of determining OPPS wage indices, readers are also directed to refer to the wage index tables that are published after the FY 2007 IPPS final rule. We note that the FY 2007 IPPS wage indices continue to reflect a number of changes implemented in FY 2005 as a result of the revised Office of Management and Budget (OMB) standards for defining geographic statistical areas, the implementation of an occupational mix adjustment as part of the wage index, and new wage adjustments provided for under Pub. L. 108-173. The following is a brief summary of the proposed

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changes in the FY 2005 IPPS wage indices, continued for FY 2007, and any adjustments that we are applying to the OPPS for CY 2007. We refer the reader to the FY 2007 IPPS proposed rule (71 FR 24074 through 24091) for a detailed discussion of the proposed changes to the wage indices. Readers should refer to our proposed rule published May 17, 2006, for proposed changes to the occupational mix adjustment and related issues (71 FR 28644-28653), In this proposed rule, we are not reprinting the proposed FY 2007 IPPS wage indices. We also refer readers to the CMS Web site for the OPPS at http://www.cms.hhs.gov/providers/hopps. At this Web site, the reader will find a link to the proposed FY 2007 IPPS wage indices tables. (However, as noted above, these tables may change as a result of the May 17, 2006 occupational mix proposed rule discussed above.) 1. The proposed continued use of the Core Based Statistical Areas (CBSAs) issued by the OMB as revised standards for designating geographical statistical areas based on the 2000 Census data, to define labor market areas for hospitals for purposes of the IPPS wage index. The OMB revised standards were published in the Federal Register on December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 IPPS final rule, CMS adopted the new OMB definitions for wage index purposes. In the FY 2007 IPPS proposed rule, we again stated that hospitals located in MSAs will be urban and hospitals that are located in Micropolitan Areas or outside CBSAs will be rural. To help alleviate the decreased payments for previously urban hospitals that became rural under the new geographical definitions, we allowed these hospitals to maintain for the 3-year period

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from FY 2005 through FY 2007, the wage index of the MSA where they previously had been located. To be consistent with the IPPS, we will continue the policy we began in CY 2005 of applying the same urban-to-rural transition to non-IPPS hospitals paid under the OPPS. That is, we would maintain the wage index of the MSA where the hospital was previously located for purposes of determining a wage index for CY 2007. Beginning in FY 2008, the 3-year transition will end and these hospitals will receive their statewide rural wage index. However, hospitals paid under the IPPS will be eligible to apply for reclassification. For the occupational mix adjustment, we refer readers to CMS’s May 17, 2006 occupational mix proposed rule discussed above. Under this proposed rule, wage indices would be adjusted 100 percent for occupational mix. In addition, as stated above, CMS plans that wage index tables and other adjustment factors would be published after publication of the FY 2007 IPPS final rule, but prior to October 1, 2006. As noted above, for purposes of estimating an adjustment for the OPPS payment rates to accommodate geographic differences in labor costs in this proposed rule, we have used the wage indices identified in the FY 2007 IPPS proposed rule. For the CY 2007 OPPS final rule, we plan to use the revised FY 2007 IPPS wage indices that will be fully adjusted for differences in occupational mix using the new survey data and available after October 1, 2006. In all cases, we will use the final FY 2007 IPPS wage indices, which include the wage indices to be in effect through March 31, 2007, and those to be in effect on or after April 1, 2007, with any subsequent corrections, for calculating OPPS payment in CY 2007.

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2. The reclassifications of hospitals to geographic areas for purposes of the wage index. For purposes of the OPPS wage index, we are proposing to adopt all of the IPPS reclassifications for FY 2007, including reclassifications that the Medicare Geographic Classification Review Board (MGCRB) approved under the one-time appeal process for hospitals under section 508 of Pub. L. 108-173. We note that section 508 reclassifications will terminate March 31, 2007, and that this expiration, along with the calendar year operating period of OPPS, impacts the calculation of the OPPS payment and the budget neutrality adjustment for the wage index. In the FY 2007 IPPS proposed rule (71 FR 24085 through 24087), we proposed procedural rules for hospitals that wished to reclassify for the second half of FY 2007 (April 1, 2007, through September 30, 2007) under section 1886(d)(10) of the Act. These rules essentially provided procedures for some hospitals to retain section 508 reclassifications for the first half of FY 2007 and also be eligible to maintain an approved reclassification under section 1886(d)(10) for the second half of FY 2007. Rather than calculating one wage index that reflected all final reclassification adjustments, we proposed two separate wage indices for FY 2007, one to be in effect October 1 through March 31, 2007, and one to be in effect April 1 through September 30, 2007. These procedural rules also impact a hospital’s eligibility to receive the out-migration wage adjustment, discussed in greater detail in section III.I. of the FY 2007 IPPS proposed rule (71 FR 24087) and under section II.D.4. of this preamble. A hospital cannot receive an out-migration wage adjustment if it is reclassified under section 1886(d)(10) of the Act. Hospitals declining reclassification status for any part of

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the year become eligible to receive the out-migration wage adjustment if they are located in an adjustment county. Because the OPPS operates on a calendar year (January 1 through December 31) and not a fiscal year, the expiring reclassification status under section 508 of Pub. L. 108-173 results in different wage indices for OPPS for the first quarter of CY 2007 (January 1, 2007, through March 31, 2007) and the last three quarters of CY 2007 (April 1, 2007, through December 31, 2007). 3. The out-migration wage adjustment to the wage index. In FY 2007 IPPS proposed rule (71 FR 24087), we discussed the out-migration adjustment under section 505 of Pub. L. 109-173 for counties under this adjustment. Hospitals paid under the IPPS located in the qualifying section 505 “out-migration” counties receive a wage index increase unless they have already been otherwise reclassified. (See the IPPS FY 2007 proposed rule for further information on out-migration.) For OPPS purposes, we propose to continue our policy from CY 2006 to allow non-IPPS hospitals paid under the OPPS to qualify for out-migration adjustment if they are located in a section 505 out-migration county. Because non-IPPS hospitals cannot reclassify, they are eligible for the out-migration wage adjustment. Tables identifying counties eligible for the outmigration adjustment will be published after the FY 2007 IPPS final rule and CMS plans to publish them in advance of October 1, 2006. These tables will reflect updated county listing to reflect changes to the occupation mix adjustment made in response to Bellevue court case discussed above. Because we are proposing to adopt the final FY 2007 IPPS wage index, we will adopt any changes in a hospital’s classification status that would

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make them either eligible or ineligible for the out-migration wage adjustment both through March 31, 2007, and on or after April 1, 2007. With the exception of reclassifications resulting from the implementation of the one-time appeal process under section 508 of Pub. L. 108-173, all changes to the wage index resulting from geographic labor market area reclassifications or other adjustments must be incorporated in a budget neutral manner. Accordingly, in calculating the OPPS budget neutrality estimates for CY 2007, in this proposed rule, we have included the wage index changes that would result from MGCRB reclassifications, implementation of section 505 of Pub. L. 108-173, and other refinements made in the FY 2007 IPPS proposed rule, such as the hold harmless provision for hospitals changing status from urban to rural under the new CBSA geographic statistical area definitions. However, section 508 sets aside $900 million to implement the section 508 reclassifications. We considered the increased Medicare payments that the section 508 reclassifications would create in both the IPPS and OPPS when we determined the impact of the one-time appeal process. Because the increased OPPS payments already count against the $900 million limit, we did not consider these reclassifications when we calculated the proposed OPPS budget neutrality adjustment. Under the procedural rules described under section II.D.3. of this proposed rule above and in section III.H.5. of the FY 2007 IPPS proposed rule (71 FR 24085) regarding expiring section 508 reclassifications, different wage indices may be in effect for the first quarter of the calendar year and the last three quarters of the calendar year. These rules have implications for budget neutrality adjustments. Any additional payment attributable

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to reclassifications due to section 508 between January 1 and April 1, 2007, must be excluded from a budget neutrality adjustment, and all other adjustments to the wage index are subject to budget neutrality. Rather than calculating two different conversion factors, with different budget neutrality adjustments, we are proposing to calculate one budget neutrality adjustment that reflects the combined adjustments required for the first quarter and last three quarters of the calendar year, respectively. We followed the same approach in the FY 2007 IPPS proposed rule (71 FR 24087). E. Proposed Statewide Average Default CCRs (If you choose to comment on issues in this section, please include the caption “OPPS: Cost-to-Charge Ratios” at the beginning of your comment.) CMS uses CCRs to determine outlier payments, payments for pass-through devices, and monthly interim transitional corridor payments under the OPPS. Some hospitals do not have a valid CCR. These hospitals include, but are not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, or hospitals that have recently given up their all-inclusive rate status. Last year, we updated the default urban and rural CCRs for CY 2006 in our final rule, published on November 10, 2005 (70 FR 68553 through 68555). In this proposed rule, we are proposing to update the default ratios for CY 2007 using the most recent cost report data. We calculated the statewide default CCRs using the same overall CCRs that we use to adjust charges to costs on claims data. Please refer to section II.A.1.c. of this preamble for a discussion of our proposed revision to the overall CCR calculation.

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Table 4 lists the proposed CY 2007 default urban and rural CCRs by State and compares them to last year’s default CCRs. These CCRs are the ratio of total costs to total charges from each provider’s most recently submitted cost report, for those cost centers relevant to outpatient services weighted by Medicare Part B charges. We also adjusted these ratios to reflect final settled status by applying the differential between settled to submitted costs and charges from the most recent pair of settled to submitted cost reports. For this proposed rule, 81.79 percent of the submitted cost reports represented data for CY 2004. We only used valid CCRs to calculate these default ratios. That is, we removed the CCRs for all-inclusive hospitals, CAHs, and hospitals in Guam and the U.S. Virgin Islands because these entities are not paid under the OPPS, or in the case of all-inclusive hospitals, because their CCRs are suspect. We further identified and removed any obvious error CCRs and trimmed any outliers. We limited the hospitals used in the calculation of the default CCRs to those hospitals that billed for services under the OPPS during CY 2004. Finally, we calculated an overall average CCR, weighted by a measure of volume for CY 2004, for each State except Maryland. This measure of volume is the total lines on claims and is the same one that we use in our impact tables. For Maryland, we used an overall weighted average CCR for all hospitals in the Nation as a substitute for Maryland CCRs, which appear in Table 4. Very few providers in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The observed differences between last year’s default statewide CCRs and the proposed CCRs are a combination of the general decline in the

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ratio between costs and charges widely observed in the cost report data and the change in the proposed overall CCR calculation. Table 4.-- CY 2007 Proposed Statewide Average Cost-to-Charge Ratios (CCRs) State

ALABAMA ALABAMA ALASKA ALASKA ARIZONA ARIZONA ARKANSAS ARKANSAS CALIFORNIA CALIFORNIA COLORADO COLORADO CONNETICUT CONNETICUT DELAWARE DELAWARE DISTRICT OF COLUMBIA FLORIDA FLORIDA GEORGIA GEORGIA HAWAII HAWAII IDAHO IDAHO ILLINOIS ILLINOIS INDIANA INDIANA IOWA IOWA

Urban/Rural

RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN URBAN

Previous Default CCR (CY 2006 OPPS Final Rule) 0.23418 0.21741 0.54605 0.39832 0.30658 0.24132 0.29108 0.27611 0.26409 0.22126 0.39223 0.28236 0.38081 0.38571 0.35359 0.42436 0.34874

Default CCR (CY 2007 Proposed Rule) 0.23848 0.22622 0.50899 0.38447 0.29252 0.23972 0.27462 0.2851 0.25004 0.23368 0.36875 0.27766 0.3996 0.3619 0.34217 0.38385 0.35563

RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN

0.22179 0.20998 0.30927 0.29195 0.34871 0.32641 0.41757 0.46269 0.31279 0.27474 0.35138 0.3498 0.40375 0.34645

0.23522 0.20922 0.29765 0.29652 0.35833 0.31973 0.43046 0.44003 0.31332 0.28922 0.32102 0.32312 0.39978 0.34709

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KANSAS KANSAS KENTUCKY KENTUCKY LOUISIANA LOUISIANA MAINE MAINE MARYLAND MARYLAND MASSACHUSETTS MICHIGAN MICHIGAN MINNESOTA MINNESOTA MISSISSIPPI MISSISSIPPI MISSOURI MISSOURI MONTANA MONTANA NEBRASKA NEBRASKA NEVADA NEVADA NEW HAMPSHIRE NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW MEXICO NEW YORK NEW YORK NORTH CAROLINA NORTH CAROLINA NORTH DAKOTA NORTH DAKOTA

Urban/Rural

RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN URBAN RURAL URBAN RURAL URBAN RURAL

Previous Default CCR (CY 2006 OPPS Final Rule) 0.34407 0.26461 0.28358 0.29116 0.27617 0.25738 0.385 0.43839 0.3362 0.30235 0.34321 0.36976 0.33319 0.46788 0.34301 0.28672 0.25325 0.30823 0.2907 0.45445 0.41281 0.39625 0.29024 0.46867 0.21197 0.37552 0.32278 0.28231 0.29838 0.37082 0.43021 0.41179 0.32018

Default CCR (CY 2007 Proposed Rule) 0.33427 0.26187 0.26221 0.27205 0.28148 0.27371 0.42345 0.42616 0.32614 0.30353 0.3511 0.35363 0.33755 0.49593 0.34369 0.29642 0.24606 0.29987 0.30528 0.43682 0.46472 0.37935 0.29122 0.37343 0.21756 0.37656 0.32278 0.29955 0.27646 0.38823 0.43867 0.42315 0.32241

URBAN

0.35682

0.37787

RURAL URBAN

0.37434 0.36945

0.36243 0.36858

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OHIO OHIO OKLAHOMA OKLAHOMA OREGON OREGON PENNSYLVANIA PENNSYLVANIA PUERTO RICO RHODE ISLAND SOUTH CAROLINA SOUTH CAROLINA SOUTH DAKOTA SOUTH DAKOTA TENNESSEE TENNESSEE TEXAS TEXAS UTAH UTAH VERMONT VERMONT VIRGINIA VIRGINIA WASHINGTON WASHINGTON WEST VIRGINIA WEST VIRGINIA WISCONSIN WISCONSIN WYOMING WYOMING

Urban/Rural

RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN URBAN URBAN RURAL

Previous Default Default CCR CCR (CY 2006 (CY 2007 OPPS Final Proposed Rule) Rule) 0.38349 0.366 0.30535 0.2849 0.31287 0.30327 0.27113 0.26631 0.38707 0.35467 0.3986 0.40869 0.32748 0.30925 0.25961 0.25357 0.42501 0.48156 0.30402 0.31786 0.25726 0.28136

URBAN

0.25645

0.27408

RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN RURAL URBAN

0.37687 0.31324 0.28343 0.2595 0.30769 0.27468 0.47797 0.43421 0.44428 0.39407 0.29042 0.2976 0.40571 0.381 0.32565 0.38024 0.39136 0.3672 0.4687 0.38414

0.36726 0.31922 0.27491 0.2558 0.30747 0.27448 0.44525 0.43018 0.42728 0.35054 0.28773 0.29006 0.37823 0.38207 0.31576 0.38494 0.36842 0.37414 0.4701 0.32782

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As stated above, CMS uses default statewide CCRs for several groups of hospitals, including, but not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, and hospitals that have recently given up their all-inclusive rate status. Current OPPS policy also requires hospitals that experience a change of ownership, but that do not accept assignment of the previous hospital's provider agreement, to use the previous provider's CCR. For CY 2007, we are proposing to apply this treatment of using the default statewide CCR to include an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with 42 CFR 489.18, and that has not yet submitted its first Medicare cost report. We are proposing that this policy be effective for hospitals experiencing a change of ownership on or after January 1, 2007. We believe that a hospital that has not accepted assignment of an existing hospital's provider agreement is similar to a new hospital that will establish its own costs and charges. We believe that the hospital that has chosen not to accept assignment may have different costs and charges than the existing hospital. Furthermore, we believe that the hospital should be provided time to establish its own costs and charges. Therefore, we are proposing to use the default statewide CCR to determine cost-based payments until the hospital has submitted its first Medicare cost report.

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F. OPPS Payments to Certain Rural Hospitals (If you choose to comment on issues in this section, please include the caption "OPPS: Rural Hospitals Hold Harmless Transitional Payments" at the beginning of your comment.) 1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 (DRA) When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (transitional corridor payment) if the payments it received for covered OPD services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system. Section 1833(t)(7) of the Act provides that the transitional corridor payments are temporary payments for most providers, with two exceptions, to ease their transition from the prior reasonable cost-based payment system to the OPPS system. Cancer hospitals and children’s hospitals receive the transitional corridor payments on a permanent basis. Section 1833(t)(7)(D)(i) of the Act originally provided for transitional corridor payments to rural hospitals with 100 or fewer beds for covered OPD services furnished before January 1, 2004. However, section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the transitional corridor payments to sole community hospitals (SCHs) located in rural areas for services furnished during the period that begins with the provider’s first cost reporting period beginning on or after January 1, 2004, and ends on December 31, 2005. Accordingly, the authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of the

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Act, as amended by section 411 of Pub. L. 108-173, expired for rural hospitals having 100 or fewer beds and SCHs located in rural areas on December 31, 2005. Section 5105 of Pub. L. 109-171 reinstituted the hold harmless transitional outpatient payments (TOPs) for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. When the OPPS payment is less than the payment the provider would have received under the previous reasonable cost-based system, the amount of payment is increased by 95 percent of the amount of the difference between those two payment systems for CY 2006, by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of that difference for CY 2008. For CY 2006, we have implemented section 5106 of Pub. L. 109-171 through Transmittal 877, issued on February 24, 2006. We did not specifically address whether TOPs payments apply to EACHs, which are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, under the statute, EACHs are treated as SCHs. Therefore, we believe that EACHs are not eligible for TOPs payment under Pub. L. 109-171. We are proposing to update §419.70(d) to reflect the requirements of Pub. L. 109-171.

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2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L. 108-173 (MMA) (If you choose to comment on issues in this section, please include the caption "OPPS: Rural SCH Payments" at the beginning of your comment.) In the CY 2006 OPPS final rule with comment period (70 FR 68556), we finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy seeds, and services paid under pass-through payment policy in accordance with section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary the authority to make an adjustment to OPPS payments for rural hospitals effective January 1, 2006 if justified by a study of the difference in costs by APC between hospitals in rural and urban areas. Our analysis showed a difference in costs only for rural SCHs and we implemented a payment adjustment for those hospitals beginning January 1, 2006. We recently became aware that we did not specifically address whether the adjustment applies to EACHs, which are considered to be SCHs pursuant to section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute, EACHs are treated as SCHs. Currently, fewer than 10 hospitals are classified as EACHs. As of CY 1998, under section 4201(c) of Pub. L. 105-33, a hospital can no longer become newly classified as an EACH. Therefore, for purposes of receiving this rural adjustment, we are clarifying that EACHs are treated as SCHs for purposes of receiving this adjustment, assuming these entities otherwise meet the rural adjustment criteria.

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This adjustment is budget neutral and applied before calculating outliers and coinsurance. We also stated that we would not reestablish the adjustment amount on an annual basis, but that we might review the adjustment in the future and, if appropriate, would revise the adjustment. For CY 2007, we are proposing to continue our current policy of a budget neutral 7.1 percent payment increase for rural SCHs for specified services. G. Proposed CY 2007 Hospital Outpatient Outlier Payments (If you choose to comment on issues in this section, please include the caption “Outlier Payments” at the beginning of your comment.) Currently, the OPPS pays outlier payments on a service-by-service basis. For CY 2006, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,250 fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 2005 in addition to the traditional multiple threshold in order to better target outliers to those high cost and complex procedures where a very costly service could present a hospital with significant financial loss. If a provider meets both of these conditions, the multiple threshold and the fixed-dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate. For a discussion on CMHC outliers, see section II.B.3. of the preamble to this proposed rule. As explained in our CY 2006 OPPS final rule with comment period (70 FR 68561), we set our projected target for aggregate outlier payments at 1.0 percent

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of aggregate total payments under the OPPS. Our outlier thresholds were set so that estimated CY 2006 aggregate outlier payments would equal 1.0 percent of aggregate total payments under the OPPS. In our CY 2006 OPPS final rule with comment period (70 FR 68563), we also published total outlier payments as a percent of total expenditures for past years. At this time, we do not have a complete set of CY 2005 claims in order to produce this number for CY 2005. We will report on CY 2005 outlier payments in our CY 2007 OPPS final rule. For CY 2007, we are proposing to continue our policy of setting aside 1.0 percent of aggregate total payments under the OPPS for outlier payments. A portion of that 1.0, an amount equal to 0.25 percent of outlier payments and 0.0025 percent of total OPPS payments would be allocated to CMHCs for partial hospitalization program service outliers. In order to ensure that estimated CY 2007 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS, we are proposing that the outlier threshold be set so that outlier payments are triggered when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,825 fixed-dollar threshold. We calculated the fixed-dollar threshold for this proposed rule using the same methodology as we did in CY 2006 except we used the revised overall CCR calculation discussed in section II.A.1.c. of this preamble. As discussed in section II.A.1.c. of this preamble, we discovered that the calculation of the overall CCR that the fiscal intermediaries are using to determine outlier payment and payment for services paid at

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charges reduced to cost differs from the overall CCR that we traditionally use to model the outlier thresholds. We discovered this during our calculations of the outlier threshold for our CY 2006 final rule with comment period, and we indicated in our preamble discussion for that rule, that we may revisit the threshold estimate in light of identified differences in the overall CCR calculation. Because, on average, the overall CCR calculation used by the fiscal intermediaries results in higher CCRs than those estimated using our “traditional” CCR sets, the outlier threshold is too low. The OPPS impact table in section XXVII. of this preamble demonstrates an estimated payment differential of 0.25 percent of total spending for hospital outlier payments in CY 2006 because of the differences in overall CCR calculations. The revised overall CCR calculation that we are proposing for CY 2007 aligns the two CCR calculations by removing allied and nursing health costs for those hospitals with paramedical education programs from the fiscal intermediary’s CCR calculation and weighting our “traditional” calculation by total Medicare Part B charges. We expected this proposed change in the overall CCR calculation to raise the outlier threshold. The claims that we use to model each OPPS lag by 2 years. For this proposed rule, we used CY 2005 claims to model the CY 2007 OPPS. In order to estimate CY 2007 outlier payments for this proposed rule, we inflated the charges on the CY 2005 claims using the same inflation factor of 1.1515 that we used to estimate the IPPS fixed-dollar outlier threshold for the IPPS FY 2007 proposed rule. For 1 year, the inflation factor is 1.0757. The methodology for determining this charge inflation factor was discussed in the FY 2007 IPPS proposed rule (71 FR 24150). As we stated in our

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CY 2005 final rule with comment period, we believe that the use of this charge inflation factor is appropriate for OPPS because, with the exception of the routine service cost centers, hospitals use the same cost centers to capture costs and charges across inpatient and outpatient services (69 FR 65845, November 15, 2004). As also noted in the FY 2006 IPPS final rule, we believe that a charge inflation factor is more appropriate than an adjustment to costs because this methodology closely captures how actual outlier payments are made and calculated (70 FR 47495, August 12, 2005). We then applied the revised overall CCR that we calculated from each hospital’s most recent cost report (CMS-2552-96) and, if the cost report was not settled, we adjusted it by a settled-to-submitted ratio. We simulated aggregated outlier payments using these costs for several different fixed-dollar thresholds holding the 1.75 multiple constant until the total outlier payments equaled 1.0 percent of aggregated total OPPS payments. We estimate that a threshold of $1,825 combined with the multiple threshold of 1.75 times the APC payment rate would allocate 1.0 percent of aggregated total OPPS payments to outlier payments. For CMHCs, in CY 2007 we project the outlier threshold is met when the cost of furnishing a service or procedure by a CMHC exceeds 3.40 times the APC payment rate. If a CMHC provider meets this condition, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.40 times the APC payment rate. We are proposing to continue the same threshold policy for CY 2007 as we have established for CY 2006. An explanation for this proposed policy is discussed in section II.B.3. the preamble of this proposed rule.

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The following is an example of an outlier calculation for CY 2007 under our proposed policy. A hospital charges $20,000 for a procedure. The wage adjusted, and rural adjusted, if applicable, APC payment for the procedure is $3,500. Using the provider’s CCR of 0.35, the estimated cost to the hospital is $7,000 (0.35 x $20,000). To determine whether this provider is eligible for outlier payments for this procedure, the provider must determine whether the cost for the service exceeds both the APC outlier cost threshold (1.75 x APC payment) and the fixed-dollar threshold ($1,825 + APC payment). In this example, the provider meets both criteria: (1) $7,000 exceeds $6,125 (1.75 x $3,500) (2) $7,000 exceeds $5,325 ($3,500 + $1,825) To calculate the outlier payment, which is 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC rate, subtract $6,125 (1.75 x $3,500) from $7,000 (resulting in $825). The provider is eligible for 50 percent of the difference, in this case $437.50 ($825/2). The formula is (cost - (1.75 x APC payment rate))/2. H. Calculation of the Proposed OPPS National Unadjusted Medicare Payment (If you choose to comment on issues in this section, please include the caption “OPPS: National Unadjusted Medicare Payment” at the beginning of your comment.) The basic methodology for determining prospective payment rates for OPD services under the OPPS is set forth in existing regulations at §419.31 and §419.32. The payment rate for services and procedures for which payment is made under the OPPS is the product of the conversion factor calculated in accordance with section II.C. of this

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proposed rule and the relative weight determined under section II.A. of this proposed rule. Therefore, the national unadjusted payment rate for APCs contained in Addendum A to this proposed rule and for HCPCS codes to which payment under the OPPS has been assigned in Addendum B to this proposed rule (Addendum B is provided as a convenience for readers) was calculated by multiplying the proposed CY 2007 scaled weight for the APC by the proposed CY 2007 conversion factor. However, to determine the payment that will be made in a calendar year under the OPPS to a specific hospital for an APC for a service other than a drug, in a circumstance in which the multiple procedure discount does not apply, we take the following steps: Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted payment rate. Since the initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. (Refer to the April 7, 2000 final rule with comment period (65 FR 18496 through 18497) for a detailed discussion of how we derived this percentage.) Step 2. Determine the wage index area in which the hospital is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the new geographic statistical areas as a result of revised OMB standards (urban and rural) to which hospitals are assigned for FY 2007 under the IPPS, reclassifications through the Medicare Classification Geographic Review Board, section 1866(d)(8)(B) “Lugar” hospitals, and section 401 of Pub. L. 108-173, and the reclassifications of hospitals under the one-time appeals process under section 508 of Pub. L. 108-173. The wage index values include the occupational mix adjustment

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described in section II.D. of this proposed rule that was developed for the proposed FY 2007 IPPS payment rates. We note that the original proposal for calculating the FY 2007 IPPS wage index has been recently changed. (Refer to the May 17, 2006 FY 2007 IPPS proposed rule, 71 FR 28644).) Final FY 2007 IPPS wage indices will be adjusted 100 percent for differences in occupational mix. Although we have not incorporated those changes in this proposed rule due to the availability of new survey data, as is our practice, we propose to adopt changes made to the FY 2007 IPPS wage index values after they have been finalized. Step 3. Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hospital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173. Addendum L contains the qualifying counties and the proposed wage index increase developed for the FY 2007 IPPS. This step is to be followed only if the hospital has chosen not to accept reclassification under Step 2 above. Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by the amount determined under Step 1 that represents the labor-related portion of the national unadjusted payment rate. Step 5. Calculate 40 percent (the nonlabor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted payment rate for the relevant wage index area. Step 6. If a provider is a SCH, as defined in §419.92, and located in a rural area, as defined in §412.63(b), or is treated as being located in a rural area under §412.103 of

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the Act, multiply the wage index adjusted payment rate by 1.071 to calculate the total payment. I. Proposed Beneficiary Copayments for CY 2007 (If you choose to comment on issues in this section, please include the caption “OPPS: Beneficiary Copayments” at the beginning of your comment.) 1. Background Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that the effective copayment rate (determined on a national unadjusted basis) for that service in the year does not exceed specified percentages. For all services paid under the OPPS in CY 2007, and in calendar years thereafter, the specified percentage is 40 percent of the APC payment rate (section 1833(t)(8)(C)(ii)(V) of the Act). Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or group of such services) furnished in a year, the national unadjusted coinsurance amount cannot be less than 20 percent of the OPD fee schedule amount. 2. Proposed Copayment for CY 2007 For CY 2007, we are proposing to determine copayment amounts for new and revised APCs using the same methodology that we implemented for CY 2004 (Refer to the November 7, 2003 OPPS final rule with comment period, 68 FR 63458.) The

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proposed unadjusted copayment amounts for services payable under the OPPS that would be effective January 1, 2007, are shown in Addendum A and Addendum B of this proposed rule. 3. Calculation of a Proposed Adjusted Copayment Amount for an APC Group for CY 2007 To calculate the OPPS adjusted copayment amount for an APC group, take the following steps: Step 1. Calculate the beneficiary payment percentage for the APC by dividing the APC’s national unadjusted copayment by its payment rate. For example, using APC 0001, $7.00 is 23 percent of $30.14. Step 2. Calculate the wage adjusted payment rate for the APC, for the provider in question, as indicated in section II.H. of this preamble. Calculate the rural adjustment for eligible providers as indicated in section II.H. of this preamble. Step 3. Multiply the percentage calculated in Step 1 by the payment rate calculated in Step 2. The result is the wage-adjusted copayment amount for the APC.

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III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies A. Proposed Treatment of New HCPCS and CPT Codes (If you choose to comment on issues in this section, please include the caption “OPPS: New HCPCS and CPT Codes” at the beginning of your comment.) 1. Proposed Treatment of New HCPCS Codes Included in the Second and Third Quarterly OPPS Updates for CY 2006 During the second and third quarters of CY 2006, we created a total of four new Level II HCPCS codes that were not addressed in the November 10, 2005 final rule with comment period that updated the CY 2006 OPPS. We have designated the payment status of those codes and added them either through the April update (Transmittal 896, dated March 24, 2006) or the July update of the CY 2006 OPPS (Transmittal 970, dated May 30, 2006). In this proposed rule, we are soliciting public comments on the status indicators and APC assignments of these services, which are listed in Table 5. Because of the timing of this proposed rule, those codes implemented through the July 2006 OPPS update are not included in Addendum B of this proposed rule, while those codes based upon the April 2006 OPPS update are included in Addendum B. We intend to finalize the assignments for all of these services in the OPPS CY 2007 final rule. Table 5.--New HCPCS Codes Implemented in April or July 2006 HCPCS Code Description C9227 Injection, micafungin sodium, per 1 mg C9228 Injection, tigecycline, per 1 mg C9229 Injection ibandronate sodium C9230 Injection, abatacept

Assigned Status Indicator G

Assigned APC 9227

Implementation Date April 1, 2006

G G G

9228 9229 9230

April 1, 2006 July 1, 2006 July 1, 2006

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2. Proposed Treatment of New CY 2007 Category I and III CPT Codes and Level II HCPCS Codes As has been our practice in the past, we implement new Category I and III CPT codes and new Level II HCPCS codes, which are released in the fall of each year for annual updating, effective January 1 in the final rule updating the OPPS for the following calendar year. These codes are flagged with Comment Indicator “NI” in Addendum B of the OPPS final rule to indicate that we are assigning them an interim payment status which is subject to public comment following publication of the final rule that implements the annual OPPS update. (See the discussion immediately below concerning our modified policy for implementing new Category I and III mid-year CPT codes.) We are proposing to continue this recognition and process for CY 2007. New Category I and III CPT codes and new Level II HCPCS codes, effective January 1, 2007, will be designated in Addendum B of the CY 2007 OPPS final rule with Comment Indicator “NI.” The status indicator, the APC assignment, or both for all such codes flagged with Comment Indicator “NI,” will be open to public comment. We will respond to all comments received in a subsequent final rule. 3. Proposed Treatment of New Mid-Year CPT Codes Twice each year, the AMA issues Category III CPT codes, which the AMA defines as temporary codes for emerging technology, services, and procedures. (In addition, AMA issues mid-year Category I CPT codes for vaccines for which FDA approval is imminent, to ensure timely availability of a code.) The AMA establishes

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these codes to allow collection of data specific to the service described by the code, as these services could otherwise only be reported using a Category I CPT unlisted code. The AMA releases Category III CPT codes in January, for implementation beginning the following July, and in July, for implementation beginning the following January. Prior to CY 2006, we treated new Category III CPT codes implemented in July of the previous year or January of the OPPS update year in the same manner that new Category I CPT codes and new Level II HCPCS codes implemented in January of the OPPS update year are treated; that is, we provided APC and status indicator assignments or both in the final rule updating the OPPS for the following calendar year. New Category I and Category III CPT codes, as well as new Level II HCPCS codes, were flagged with Comment Indicator “NI” in Addendum B of the final rule to indicate that we were assigning them an interim payment status which was subject to public comment following publication of the final rule that implemented the annual OPPS update. As stated in the CY 2006 OPPS final rule with comment period (70 FR 68567), we modified our process for implementing the Category III codes that the AMA releases each January for implementation in July to ensure timely collection of data pertinent to the services described by the codes; to ensure patient access to the services the codes describe; and to eliminate potential redundancy between Category III CPT codes and some of the C-codes, which are payable under the OPPS and created by us in response to applications for new technology services. Therefore, beginning on July 1, 2006, we implemented in the OPPS seven Category III CPT codes that the AMA released in January 2006 for implementation in July 2006. The codes are shown in Table 6. These

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codes are not included in Addendum B of this proposed rule, which is based upon the April 2006 OPPS update. In this proposed rule, we are soliciting public comments on the status indicators and, if applicable, the APC assignments of these services. We intend to finalize the assignments of these Category III CPT codes implemented in July 2006 in the CY 2007 OPPS final rule. Table 6.--Category III CPT Codes Implemented in July 2006 HCPCS Code 0155T 0156T 0157T 0158T 0159T

0160T 0161T

Long Descriptor Laparoscopy, surgical, implantation or replacement of gastric stimulation electrodes, lesser curvature (ie, morbid obesity) Laparoscopy, surgical, revision or removal of gastric stimulation electrodes, lesser curvature (ie, morbid obesity) Laparotomy, implantation or replacement of gastric stimulation electrodes, lesser curvature (ie, morbid obesity) Laparotomy, revision or removal of gastric stimulation electrodes, lesser curvature (ie, morbid obesity) Computer aided detection, including computer algorithm analysis of MRI image data for lesion detection/characterization, pharmacokinetic analysis, with further physician review for interpretation, breast MRI Therapeutic repetitive transcranial magnetic stimulation treatment planning Therapeutic repetitive transcranial magnetic stimulation treatment delivery and management, per session

Status APC Indicator T 0130 T

0130

C C N

X

0340

X

0340

Some of the new Category III CPT codes describe services that we have determined to be similar in clinical characteristics and resource use to HCPCS codes in an existing APC. In these instances, we may assign the Category III CPT code to the appropriate clinical APC. Other Category III CPT codes describe services that we have

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determined are not compatible with an existing clinical APC, yet are appropriately provided in the hospital outpatient setting. In these cases, we may assign the Category III CPT code to what we estimate is an appropriately priced New Technology APC. In other cases, we may assign a Category III CPT code one of several nonseparately payable status indicators, including N, C, B, or E, which we believe is appropriate for the specific code. We expect that we will have received applications for new technology status for some of the services described by new Category III CPT codes, which may assist us in determining appropriate APC assignments. If the AMA establishes a Category III CPT code for a service for which an application has been submitted to CMS for new technology status, CMS may not have to issue a temporary Level II HCPCS code to describe the service, as has often been the case in the past when Category III CPT codes were only recognized by the OPPS on an annual basis. Therefore, for CY 2007, we are proposing to include in Addendum B of the OPPS CY 2007 final rule the new Category III CPT codes and the new Category I CPT codes for vaccines released in January 2006 for implementation on July 1, 2006 (through the OPPS quarterly update process) and the Category III and vaccine Category I CPT codes released in July 2006 for implementation on January 1, 2007. However, only those new Category III codes and the new vaccine codes implemented effective January 1, 2007, will be flagged with Comment Indicator “NI” in Addendum B of the CY 2007 final rule to indicate that we are assigning them an interim payment status which is subject to public comment. As discussed earlier, Category III codes and Category I vaccine codes

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implemented in July 2006, which are listed in Table 6, are subject to comment through this proposed rule and their status will be made final in the CY 2007 OPPS final rule. B. Proposed Changes--Variations within APCs (If you choose to comment on issues in this section, please include the caption “OPPS: 2 Times Rule” at the beginning of your comment.) 1. Background Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient services. Section 1833(t)(2)(B) of the Act provides that this classification system may be composed of groups of services, so that services within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification system, referred to as the Ambulatory Payment Classification Groups (or APCs), as set forth in §419.31 of the regulations. We use Level I and Level II HCPCS codes and descriptors to identify and group the services within each APC. The APCs are organized such that each group is homogeneous both clinically and in terms of resource use. Using this classification system, we have established distinct groups of surgical, diagnostic, and partial hospitalization services, as well as medical visits. We also have developed separate APC groups for certain medical devices, drugs, biologicals, radiopharmaceuticals, and brachytherapy devices. We have packaged into each procedure or service within an APC group the costs associated with those items or services that are directly related and integral to performing a procedure or furnishing a service. Therefore, we do not make separate payment for

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packaged items or services. For example, packaged items and services include: (1) use of an operating, treatment, or procedure room; (2) use of a recovery room; (3) most observation services; (4) anesthesia; (5) medical/surgical supplies; (6) pharmaceuticals (other than those for which separate payment may be allowed under the provisions discussed in section V of this preamble); and (7) incidental services such as venipuncture. Our packaging methodology is discussed in section II.A. of this proposed rule. Under the OPPS, we pay for hospital outpatient services on a rate-per-service basis that varies according to the APC group to which the service is assigned. Each APC weight represents the hospital median cost of the services included in that APC relative to the hospital median cost of the services included in APC 0606. The APC weights are scaled to APC 0606 because we are proposing it to be the middle level clinic visit APC (that is, where the Level III Clinic Visit HCPCS code of five proposed levels of clinic visits is assigned), and because middle level clinic visits are among the most frequently furnished services in the outpatient hospital setting. See section II.A.3. of this preamble for a complete discussion of the reasons for choosing APC 0606 as the basis for scaling the APC relative weights. Section 1833(t)(9)(A) of the Act requires the Secretary to review the components of the OPPS not less than annually and to revise the groups and relative payment weights and make other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Section 1833(t)(9)(A) of the Act, as amended by

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section 201(h) of the BBRA of 1999, also requires the Secretary, beginning in CY 2001, to consult with an outside panel of experts to review the APC groups and the relative payment weights (the APC Panel recommendations for specific services for CY 2007 OPPS and our responses to them are discussed in section III.D. of this preamble). Finally, as discussed earlier, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (referred to as the “2 times rule”). We use the median cost of the item or service in implementing this provision. The statute authorizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low-volume items and services. 2. Application of the 2 Times Rule In accordance with section 1833(t)(2) of the Act and §419.31 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resources, if the median of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group (“2 times rule”). We make exceptions to this limit on the variation of costs within each APC group in unusual cases such as low-volume items and services. During the APC Panel’s March 1-2, 2006 meeting, we presented median cost and utilization data for services furnished during the period of January 1, 2005, through

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September 30, 2005, about which we had concerns or about which the public had raised concerns regarding their APC assignments, status indicator assignments, or payment rates. The discussions of service-specific issues, the APC Panel recommendations if any, and our proposals for CY 2007 are contained in section III.D. of this preamble. In addition to the assignment of specific services to APCs which we discussed with the APC Panel, we also identified APCs with 2 times violations that were not specifically discussed with the APC Panel but for which we are proposing changes to their HCPCS codes’ APC assignments in Addendum B of this proposed rule. In these cases, to eliminate a 2 times violation, we reassigned the codes to APCs that contained services that were similar with regard to both resource use and clinical homogeneity. We also are proposing changes to the status indicators for some codes that are not specifically and separately discussed in this proposed rule. In these cases, we changed the status indicators for some codes because we thought that another status indicator more accurately describes their payment status from an OPPS perspective based on our CY 2007 proposed policies. Addendum B of this proposed rule identifies with a comment indicator “CH” those HCPCS codes for which we are proposing a change to the APC assignment or status indicator as assigned in the January 2006 Addendum B. These proposed reassignments of APC or status indicator are subject to public comment under this proposed rule.

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3. Exceptions to the 2 Times Rule As discussed earlier, we may make exceptions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low-volume items and services. Taking into account the APC changes that we are proposing for CY 2007 based on the APC Panel recommendations discussed in section III.D. of this preamble, the proposed changes to status indicators and APC assignments as identified in Addendum B, and the use of CY 2005 claims data to calculate the median costs of procedures classified in the APCs, we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule. We used the following criteria to decide whether to propose exceptions to the 2 times rule for affected APCs: ● Resource homogeneity ● Clinical homogeneity ● Hospital concentration ● Frequency of service (volume) ● Opportunity for upcoding and code fragments. For a detailed discussion of these criteria, refer to the April 7, 2000 OPPS final rule with comment period (65 FR 18457). Table 7 lists the APCs that we are proposing to exempt from the 2 times rule based on the criteria cited above. For cases in which a recommendation by the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel’s recommendation because those recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization,

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and the quality of the data used to determine the APC payment rates that we are proposing for CY 2007. The median costs for hospital outpatient services for these and all other APCs which were used in development of this proposed rule can be found on the CMS Web site: http://www.cms.hhs.gov. Table 7.--Proposed APC Exceptions to the 2 Times Rule for CY 2007 APC 0007 0010 0019 0024 0031 0040 0043 0058 0060 0081 0085 0093 0105 0111 0112 0204 0235 0245 0251 0252 0274 0303 0307 0312 0323 0330 0409 0418 0432 0437 0604 0664

APC Description Level II Incision & Drainage Level I Destruction of Lesion Level I Excision/ Biopsy Level I Skin Repair Smoking Cessation Services Percutaneous Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve Closed Treatment Fracture Finger/Toe/Trunk Level I Strapping and Cast Application Manipulation Therapy Non-Coronary Angioplasty or Atherectomy Level II Electrophysiologic Evaluation Vascular Reconstruction/Fistula Repair without Device Revision/Removal of Pacemakers, AICD, or Vascular Blood Product Exchange Apheresis, Photopheresis, and Plasmapheresis Level I Nerve Injections Level I Posterior Segment Eye Procedures Level I Cataract Procedures without IOL Insert Level I ENT Procedures Level II ENT Procedures Myelography Treatment Device Construction Myocardial Positron Emission Tomography (PET) Imaging Radioelement Applications Extended Individual Psychotherapy Dental Procedures Red Blood Cell Tests Insertion of Left Ventricular Pacing Elect. Health and Behavior Services Level II Drug Administration Level I Clinic Visits Level I Proton Beam Radiation Therapy

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C. New Technology APCs (If you choose to comment on issues in this section, please include the caption “New Technology APCs” at the beginning of your comment.) 1. Introduction In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service to a clinically appropriate APC. This policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected. We note that the cost bands for new technology APCs range from $0 to $50 in increments of $10, from $50 to $100 in an increment of $50, from $100 through $2,000 in intervals of $100, and from $2,000 through $6,000 in intervals of $500. These intervals, which are in two parallel sets of New Technology APCs, one with status indicator “S” and the other with status indicator “T,” allow us to price new technology services more appropriately and consistently. Every year we receive many requests for higher payment amounts for specific procedures under the OPPS because they require the use of expensive equipment. We are taking this opportunity to reiterate our response in general to the issue of hospitals’ capital expenditures as they relate to the OPPS and Medicare.

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Under the OPPS, one of our goals is to make payments that are appropriate for the services that are necessary for treatment of Medicare beneficiaries. The OPPS like other Medicare payment systems is budget neutral and so, although we do not pay full hospital costs for procedures, we believe that our payment rates generally reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings. Further, we believe that our rates are adequate to assure access to services for most beneficiaries. For many emerging technologies there is a transitional period during which utilization may be low, often because providers are first learning about the techniques and their clinical utility. Quite often, the requests for higher payment amounts are for new procedures in that transitional phase. These requests, and their accompanying estimates for expected Medicare beneficiary or total patient utilization, often reflect very low rates of patient use, resulting in high per use costs for which requesters believe Medicare should make full payment. Medicare does not, and we believe should not, assume responsibility for more than its share of the costs of procedures based on Medicare beneficiary projected utilization and does not set its payment rates based on initial projections of low utilization for services that require expensive capital equipment. For the OPPS, we rely on hospitals to make their business decisions regarding acquisition of high cost capital equipment taking into consideration their knowledge about their entire patient base (Medicare beneficiaries included) and an understanding of Medicare’s and other payers’ payment policies.

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We note that in a budget neutral environment, payments may not fully cover hospitals’ costs, including those for the purchase and maintenance of capital equipment. We rely on providers to make their decisions regarding the acquisition of high cost equipment with the understanding that the Medicare program must be careful to establish its initial payment rates for new services that lack hospital claims data based on realistic utilization projections for all such services delivered in cost-efficient hospital outpatient settings. As the OPPS acquires claims data regarding hospital costs associated with new procedures, we will regularly examine the claims data and any available new information regarding the clinical aspects of new procedures to confirm that our OPPS payments remain appropriate for procedures as they transition into mainstream medical practice. 2. Proposed Movement of Procedures from New Technology APCs to Clinical APCs As we explained in the November 30, 2001 final rule (66 FR 59897), we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected data sufficient to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information, or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost. The procedures presented below represent services assigned to New Technology APCs for CY 2006 for which we believe we have sufficient data to reassign them to

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clinically appropriate APCs for CY 2007. Therefore, we are proposing to reassign them to clinically appropriate APCs as indicated specifically in our discussion and in Table 10. a. Nonmyocardial Positron Emission Tomography (PET) Scans Positron emission tomography (PET) is a noninvasive diagnostic imaging procedure that assesses the level of metabolic activity and perfusion in various organ systems of the human body. PET serves an important role in the clinical care of many Medicare beneficiaries. We recognize that PET is a useful technology in many instances and want to ensure that the technology remains available to Medicare beneficiaries when medically necessary. Since August 2000, nonmyocardial PET procedures have been assigned to a New Technology APC in the OPPS. As a result of our collection of 5 full years worth of hospital claims data, we believe that we have sufficient data to assign nonmyocardial PET scans to a clinically appropriate APC for CY 2007. Note that we assign a service to a New Technology APC only when we do not have adequate claims data upon which to determine the median cost of performing the procedure, and we expect that the service’s clinical or resource characteristics will differ from all other procedures already assigned to clinical APCs. Each New Technology APC represents a particular cost band (for example, $1,400-1,500), and we assign procedures to these APCs based on our analysis of the procedures’ costs. Payment for items assigned to a New Technology APC is the midpoint of the band (for example, $1,450). We move a service from a New Technology APC to a clinical APC when we have adequate claims data upon which to base its future payment rate. In the case of nonmyocardial PET

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services, we believe that we now have sufficient data to assign them to a clinically appropriate APC. We last proposed changes in payments for nonmyocardial PET procedures for CY 2005. At that time, while we had large numbers of single claims reflecting that the median cost of PET procedures was substantially lower than their CY 2004 payment rate of $1,450, we had some concerns that abruptly lowering the payment rate for nonmyocardial PET scans could hinder access to this technology. Therefore, we proposed three options to develop the CY 2005 payment rate for these procedures in the August 16, 2004 proposed rule (69 FR 50468). Specifically, we proposed the following options and invited comments on each of the options. ● Option 1: Continue in CY 2005 the CY 2004 assignment of the scans to New Technology APC 1516 prior to assigning to a clinical APC. ● Option 2: Assign the PET scans to a clinically appropriate APC priced according to the median cost of the scans based on CY 2003 claims data. Under this option, we would assign PET scans to APC 0420, PET imaging. ● Option 3: Transition assignment to a clinical APC in CY 2006 by setting payment in CY 2005 based on a 50/50 blend of the median cost of PET scans and their CY 2004 New Technology payment rate. We would assign the scans to New Technology APC 1513 for a blended transition payment. Based on comments received, we decided to set the CY 2005 payment rate for nonmyocardial PET scans based on option 3 at $1,150. We further stated in the November 15, 2004 final rule with comment period (69 FR 65716) that we believed there

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were sufficient claims data to assign nonmyocardial PET scans to a single clinical APC. However, to minimize any potential impact that a payment reduction resulting from this move might have had on beneficiary access to this technology, we set the CY 2005 OPPS payment rate for nonmyocardial PET scans based on a 50/50 blend of their median cost based on CY 2003 claims data and the payment rate of the CY 2004 New Technology APC to which they were assigned. Therefore, nonmyocardial PET scans were assigned to New Technology APC 1513 (New Technology--Level XIV ($1,000-$1,200) for a blended payment rate of $1,150 in CY 2005. In CY 2005, in the context of an expansion in Medicare coverage for PET procedures, we also simplified coding for PET services by instructing hospitals to bill several more general CPT codes in place of numerous disease-specific G-codes. We continued with these coding and payment methodologies in CY 2006. For CY 2007, we are proposing the assignment of nonmyocardial PET procedures to a clinically appropriate APC as we have several years of robust and stable claims data upon which to determine the median cost of performing these procedures. Based on analysis of our claims data, the median costs for nonmyocardial PET scans have ranged between approximately $852 and $924 for claims submitted from CY 2002 through CY 2005, yet our payment rates have been significantly higher than the median costs throughout this same time period. We have observed significant growth in the number of nonmyocardial PET scans performed on Medicare beneficiaries, from about 48,000 in CY 2002, to 68,000 in CY 2003, and once again to 121,000 in CY 2004, the year when we first reduced the OPPS nonmyocardial PET scan payment rates from $1,450 to

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$1,150. For the CY 2007 proposed rule, we have about 45,000 single PET claims from CY 2005, yielding a stable median cost for PET procedures of about $867. Although the CY 2005 claims data are not yet complete, the apparent decline in numbers of claims for nonmyocardial PET scans alone in the CY 2005 claims data is likely related to the large number of claims for PET/CT scans now observed in CY 2005, when codes for that combined service were first available for billing. In fact, the total number of PET scans provided to Medicare beneficiaries in CY 2005, defined as PET scans and PET/CT scans, continued to climb to almost 128,000 based upon the CY 2005 claims data available for this proposed rule, in comparison to final claims for CY 2004 of approximately 121,000 for PET scans. Therefore, we are proposing to assign nonmyocardial PET scans, in particular, CPT codes 78608, 78811, 78812, and 78813, to new APC 0308 (Nonmyocardial PET Imaging) with a median cost of $865.30 for CY 2007. We are confident, in the face of our stable median costs for nonmyocardial PET scans over the past 4 years, that their additional 2-year period of receiving New Technology APC payments at the blended rate of $1,150 for CY 2005 and CY 2006 as we transitioned the services to a clinical APC should ensure continued availability of this technology now that its services will be paid through a clinical APC for CY 2007, like most other OPPS services. b. PET/Computed Tomography (CT) Scans Since August 2000, we have paid separately for PET and CT scans. In CY 2004, the payment rate for nonmyocardial PET scans was $1,450, while it was $193 for typical diagnostic CT scans. Prior to CY 2005, nonmyocardial PET and the PET portion of

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PET/CT scans were described by G-codes for billing to Medicare. Several commenters to the November 15, 2004 final rule with comment period (69 FR 65682) urged that we replace the G-codes for nonmyocardial PET and PET/CT scan procedures with the established CPT codes. These commenters stated that movement to the established CPT codes would greatly reduce the burden on hospitals of tracking and billing the G-codes which are not recognized by other payers and would allow for more uniform hospital billing of these scans. We agreed with the commenters that movement from the G-codes to the established CPT codes for nonmyocardial PET and PET/CT scans would allow for more uniform billing of these scans. As a result of a Medicare national coverage determination (Publication 100-3, Medicare Claims Processing Manual section 220.6) that was made effective January 28, 2005, we discontinued numerous G-codes that described myocardial PET and nonmyocardial PET procedures and replaced them with the established CPT codes. The CY 2005 payment rate for concurrent PET/CT scans using the CPT codes 78814, 78815, and 78816 was $1,250, which was $100 higher than the payment rate for PET scans alone. These PET/CT CPT codes were placed in New Technology APC 1514 (New Technology--Level XIV, $1,200-$1,300) for CY 2005. We continued with these coding and payment methodologies in CY 2006. For CY 2007, we are proposing the assignment of concurrent PET/CT scans, specifically CPT codes 78814, 78815, and 78816, to a clinically appropriate APC because we believe we have adequate claims data from CY 2005 upon which to determine the median cost of performing these procedures. Based on our analysis of CY 2005 single claims, the median cost of PET/CT scans is $865 from over almost

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64,000 single claims. Comparison of the median cost of nonmyocardial PET procedures of $867 with the median cost of concurrent PET/CT scans demonstrates that the median costs of PET scans with or without concurrent CT scans for attenuation correction and anatomical localization are about the same. This result is not unexpected because many newer PET scanners also have the capability of rapidly acquiring CT images for attenuation correction and anatomical localization, sometimes with simultaneous image acquisition. To explore the possibility that the similarity in median costs for PET and PET/CT procedures could be related to different groups of hospitals billing the two types of PET services based on their available equipment, rather than the true comparability of hospital resources required for the two types of services, we analyzed claims from a subset of hospitals billing both PET and PET/CT scans in CY 2005. This analysis looked at 362 providers who billed a PET HCPCS code and a PET/CT CPT code at least one time each during CY 2005. The median cost from this subset of claims for nonmyocardial PET scans was $890, in comparison with $863 for the PET/CT scans. Thus, we observed the same close relationship between median costs of PET and PET/CT procedures from hospitals billing both sets of services as we did for all OPPS CY 2005 claims available for this proposed rule for these scans. We believe that our claims data accurately reflect the comparable hospital resources required to provide PET and PET/CT procedures, and the scans have obvious clinical similarity as well. Therefore, for CY 2007 we are proposing to assign the CPT codes for PET/CT scans, along with the CPT codes for PET

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scans, to the same new APC 0308 (Nonmyocardial PET Imaging) with a median cost of $865.30. We note that we have been paying separately for fluorodeoxyglucose (FDG), the radiopharmaceutical described by HCPCS code A9552 (F18 fdg), that is commonly administered during nonmyocardial PET and PET/CT procedures. For CY 2007, we are proposing to continue paying separately for FDG, according to the methodology described in section V. (Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals) of the preamble of this proposed rule. c. Stereotactic Radiosurgery (SRS) Treatment Delivery Services For the past several years, we have collected hospital costs associated with the planning and delivery of stereotactic radiosurgery services (hereafter referred to as SRS). As new technology emerged in the field of SRS, public commenters urged us to recognize cost differences associated with the various methods of SRS planning and delivery. Beginning in CY 2001, we established G-codes to capture any such cost variations associated with the various methods of planning and delivery of SRS. For CY 2004, based on comments received regarding the G-codes used for SRS, we made some modifications to the coding (68 FR 63431 and 63432). First, we received comments regarding the descriptors for HCPCS codes G0173 and G0251, indicating that these codes did not distinguish image-guided robotic SRS systems from other forms of linear accelerator-based SRS systems to account for the cost variation in delivering these services. In response, for CY 2004 we created two new G-codes (G0339 and G0340) to describe complete and fractionated image-guided robotic linear accelerator-based SRS

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treatment. We placed HCPCS code G0339 in APC 1528 at a payment rate of $5,250, and HCPCS code G0340 in APC 1525 at a payment rate of $3,750. Second, we received comments on HCPCS code G0242 which requested that we modify the code descriptor to avoid confusion and misuse of the code, and also to appropriately describe treatment planning for both linear accelerator-based and Cobalt 60-based SRS treatments. In response, for CY 2004, we created HCPCS code G0338 to distinguish linear accelerator-based SRS treatment planning from Cobalt 60-based SRS treatment planning. We placed HCPCS code G0338 in APC 1516 at a payment rate of $1,450. In CY 2005, there were no changes to the coding or New Technology APC payment rates for the SRS planning or treatment delivery codes from CY 2004. We stated in the CY 2005 OPPS final rule with comment period (69 FR 65711) that any SRS code changes would be premature without cost data to support a code restructuring. Therefore, we maintained HCPCS codes G0173, G0242, G0243, G0251, G0338, G0339, and G0340 in their respective New Technology APCs for CY 2005. We further stated that until we had completed an analysis of claims for these procedure codes, we would continue to maintain HCPCS codes G0173, G0242, G0243, G0251, G0338, G0339, and G0340 in their respective New Technology APCs for CY 2005 as we considered the adoption of CPT codes to describe all SRS procedures for CY 2006. At its February 2005 meeting, the APC Panel discussed the clinical and resource cost similarities between planning for Cobalt 60-based and linear accelerator-based SRS. The APC Panel also discussed the use of CPT codes instead of specific G-codes to describe the services involved in SRS planning, noting the clinical similarities in

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radiation treatment planning regardless of the mode of treatment delivery. Given the APC Panel’s thoughts about the possible need for CMS to separately track planning for SRS, the APC Panel eventually recommended that we create a single HCPCS code to encompass both Cobalt 60-based and linear accelerator-based SRS planning. Because we had no programmatic need to separately track SRS planning services, in the CY 2006 OPPS final rule with comment period (70 FR 68585) we discontinued HCPCS codes G0242 and G0338 for the reporting of charges for SRS planning and instructed hospitals to bill charges for SRS planning, regardless of the mode of treatment delivery, using all of the available CPT codes that most accurately reflect the services provided. Furthermore, the APC Panel recommended that we make no changes to the coding or APC placement of SRS treatment delivery HCPCS codes G0173, G0243, G0251, G0339, and G0340 for CY 2006. In addition, presenters to the APC Panel described ongoing deliberations among interested professional societies around the descriptions and coding for SRS. The APC Panel and presenters suggested that we wait for the outcome of these deliberations before making any significant changes to SRS delivery coding or payment rates. To date, we have received no report from participating professional societies as to the outcome of such deliberations. In response to comments for CY 2006 regarding the mature technology and stable median costs associated with Cobalt 60-based SRS treatment delivery described by G0243, we reassigned G0243 from a New Technology APC to new clinical APC 0127 (Stereotactic Radiosurgery) with a payment rate of $7,305 established based on the CY 2004 median cost of G0243. We made no changes for CY 2006 to the New

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Technology APC assignments of the other four SRS treatment codes, specifically, G0173, G0251, G0339, and G0340. Since we first established the full group of SRS treatment delivery codes in CY 2004, we now have 2 years of hospital claims data reflecting the costs of each of these services. Based on analysis of our claims data from CY 2004 and CY 2005, the median costs for linear accelerator-based SRS treatment delivery procedures as described by HCPCS codes G0173, G0251, G0339, and G0340 have been stable and generally lower than our New Technology APC payment rates in effect from CY 2004 through CY 2006. Specifically, the payment rate for HCPCS code G0173, a complete course of non-image guided, non-robotic linear accelerator-based SRS treatment, has been set at $5,250, yet our claims data indicate a median cost of $2,802 from CY 2004 claims and $3,665 from CY 2005 claims, based upon hundreds of single claims from each year. For HCPCS code G0251, fractionated non-image guided, non-robotic linear accelerator-based SRS treatment, the corresponding median costs have been $1,028 and $1,386 based upon over 1,000 single claims from each year, and relatively consistent with the procedure’s New Technology APC payment of $1,150. With respect to the complete course of therapy in one session or first fraction of image-guided, robotic linear accelerator-based SRS, described by HCPCS code G0339, its median costs have been $4,917 and $4,809 for CY 2004 and CY 2005 respectively, based upon over 500 single bills in each year, in comparison with the procedure’s payment rate of $5,250 for those years. Lastly, the median costs of HCPCS code G0340, the second through fifth sessions of image-guided, robotic linear accelerator-based SRS treatment, have been $2,502 for CY 2004 and

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$2,917 for CY 2005 as determined by over 1,000 single bills during each year, significantly lower than its payment rate of $3,750. Unquestionably, the claims data from CY 2004 and CY 2005 for linear accelerator-based SRS treatment delivery services reveal highly stable median costs from year to year based on significant claims volume. Based on the above findings, we believe that we have adequate claims data to assign the SRS treatment delivery procedures to clinically appropriate APCs, and we believe that such movement is appropriate. For CY 2007, we are proposing to create several new SRS clinical APCs of different levels to assign the HCPCS codes describing linear accelerator-based SRS treatment, G0173, G0251, G0339, and G0340, based on their clinical and hospital resource similarities and differences. In particular, we are proposing to assign HCPCS codes G0339 and G0173 to the same Level III SRS APC, because we believe these codes that describe the complete or first fraction of all types of linear accelerator-based SRS treatments have substantial hospital resource and clinical similarity, as observed in their median costs and recognized previously in their equivalent New Technology APC payments. The codes describing subsequent fractions of image-guided, robotic and non-image guided, non-robotic linear accelerator-based SRS treatments will be each assigned to their own clinical APCs, as they demonstrate significant differences in resource utilization as reflected in their median costs. Their previous assignments to different New Technology APCs anticipated these resource distinctions. We are proposing to continue our assignment of HCPCS code G0243 for Cobalt 60-based SRS treatment delivery to clinical APC 0127, renamed Level IV

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Stereotactic Radiosurgery. Our proposed reassignments of SRS services from New Technology APCs to clinical APCs are listed in Table 8 below. Table 8. -- Proposed APC Reassignment for SRS Treatment Delivery Services for CY 2007

HCPCS Code G0173 G0251 G0339 G0340

Short Descriptor Linear acc stereo radsur com Linear acc based stero radio Robot lin-radsurg com, first Robt lin-radsurg fractx 2-5

CY 2006 SI S S S S

CY 2006 APC 1528 1513 1528 1525

CY 2006 Payment Rate $5,250.00 $1,150.00 $5,250.00 $3,750.00

Proposed CY 2007 SI S S S S

Proposed CY 2007 APC 0067 0065 0067 0066

Proposed CY 2007 APC Median Cost $4,059.61 $1,386.20 $4,059.61 $2,916.68

d. Magnetoencephalography (MEG) Services Magnetoencephalography (MEG) is a non-invasive diagnostic tool that assists surgeons presurgery by measuring and mapping brain activity. It may be used for epilepsy and brain tumor patients. Since CY 2002, the MEG procedures described by CPT codes 95965 (Meg, spontaneous), 95966 (Meg, evoked, single), and 95967 (Meg, evoked, each additional) have been assigned to New Technology APCs. In the July 25, 2005 proposed rule (70 FR 42709), we proposed to reassign MEG procedures to clinical APC 0430 using CY 2004 claims data to establish median costs on which the CY 2006 payment rates would be based. This proposal involved the reassignment of the three MEG procedures, specifically CPT codes 95965, 95966, and 95967, from three separate New Technology APCs into one new clinical APC with a status indicator of “T.” Commenters to this proposal believed that their assignment to clinical APC 0430 would be inappropriate because the proposed payment level of $674 was inadequate to cover the costs of the procedures, and because the procedures should not be assigned to only one level as their required hospital resources differ significantly. They further stated that our

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data did not represent the true costs of the procedures because MEG procedures are performed on very few Medicare patients. Analysis of our hospital data for claims submitted from CY 2002 through CY 2005 indicates that these procedures are rarely performed on Medicare beneficiaries. For claims submitted from CY 2002 through CY 2005, our single claims data show that there were annually only between 2 and 23 claims submitted for CPT code 95965, 3 and 7 claims for CPT code 95966, and only 1 for CPT code 95967. Additionally, the hospital claims median costs for these codes have varied widely, perhaps due to our small volume of claims. The median cost for CPT code 95965 has ranged from $332 using CY 2002 claims to $3,166 based upon CY 2005 claims. The median cost for CPT code 95966 has varied widely from CY 2002 to CY 2005. For single claims submitted during CY 2002, the median cost was $1,949, while it was $507 for CY 2003, $1,435 for CY 2004, and $701 from 3 single claims for CY 2005. The median cost for CPT code 95967 based upon 1 single claim from CY 2005 claims is $217. We have no hospital median cost data for CPT code 95967 prior to CY 2005. In the November 10, 2005 final rule with comment period (70 FR 68579), we stated that we carefully considered our claims data, information provided by the commenters, and the APC Panel recommendation for CY 2006 that we retain the MEG procedures in New Technology APCs. As a result of this analysis, we determined that using a 50/50 blend of the code specific median costs from our most recent CY 2004 hospital claims data and the CY 2005 New Technology APC code-specific payments amounts as the basis for assignment of the procedures for CY 2006 would be an

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appropriate way to recognize both the current payment rates for the procedures, which were originally based on the theoretical costs to hospitals of providing MEG services, and the median costs based upon our hospital claims data regarding actual MEG services provided to Medicare beneficiaries by hospitals. Therefore, CPT codes 95965, 95966, and 95967 were assigned to different New Technology APCs for CY 2006 based on this blended methodology, with payment rates of $2,750, $1,250, and $850 respectively. At the March 2006 APC Panel meeting, the Panel recommended that CMS move CPT codes 95965 (MEG, spontaneous), 95966 (MEG, evoked, single), and 95967 (MEG, evoked, each additional) from their CY 2006 New Technology APCs which were assigned based on the blended methodology described above to clinical APC(s) for CY 2007. Following that meeting, interested parties have provided us with CY 2005 charge and cost information from six hospitals that provided MEG services. These external data show wide variation in hospitals’ costs and charges for MEG procedures, with generally higher values for CPT code 95965 and lower values for CPT codes 95966 and 95967 but no consistent proportionate relationship among those costs and charges. In some cases, the charges and costs for CPT codes 95966 and 95967 are quite similar for the two related services, one of which describes MEG for a single modality of evoked magnetic fields and the other that describes MEG for each additional modality of evoked magnetic fields. The individual hospital cost and charge data for specific services demonstrate significant variations of up to six fold across the hospitals, with an apparent inverse relationship between the numbers of services provided and the costs of the procedures. This finding is not unexpected, given the dependence of MEG procedures on

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the use of expensive capital equipment. As we have previously stated, our OPPS payment rates generally reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings. For emerging technologies, we establish payment rates for new services that lack hospital claims data based on realistic utilization projections for all such services delivered in cost-efficient hospital outpatient settings. Given that we now have 4 years of hospital claims data for MEG procedures, because MEG is no longer a new technology, we do not believe these external data from 6 hospitals that performed MEG services in CY 2005 provide a better estimate of the hospital resources used in MEG procedures during the care of Medicare beneficiaries than our standard OPPS historical claims methodology. We agree with the APC Panel and are proposing to accept their recommendation to move the MEG CPT codes into clinical APCs for CY 2007. While the volumes for the MEG procedures are low, almost all procedures, including those with very low Medicare volume, are assigned to clinical APCs under the OPPS, with their payment rates based on the median costs of their assigned APCs. Therefore, we are proposing to assign CPT code 95965 to new clinical APC 0038 (Spontaneous MEG) with a proposed median cost of $3,166.30 and to assign both CPT codes 95966 and 95967 to APC 0209 (Level II MEG, Extended EEG Studies, and Sleep Studies) with a proposed median cost of $709.36. We believe that the assignment of CPT codes 95966 and 95967 to APC 0209 is appropriate because MEG studies are similar to EEGs and sleep studies in measuring activity of the brain over a significant time period, and our hospital claims data show that

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their hospital resources are also relatively comparable. MEG procedures and their CY 2007 proposed APC assignments are displayed in Table 9. Table 9.-- Proposed CY 2007 APC Assignment for MEG

HCPCS Code 95965 95966 95967

Short Descriptor Meg, spontaneous Meg, evoked, single Meg, evoked, each additional

CY 2006 SI S S S

CY 2006 APC 1523 1514 1510

CY 2006 Payment Rate $2,750.00 $1,250.00 $850.00

Proposed CY 2007 SI S S S

Proposed CY 2007 APC 0038 0209 0209

Proposed CY 2007 APC Median Cost $3,166.30 $709.36 $709.36

As these procedures are performed on very few Medicare patients, we expect to continue to have small Medicare claims volumes for MEG services each year. However, we are confident that over time our claims data for these procedures will become more consistent and reflective of the full hospital resources used in MEG services, especially because only a small subset of hospitals provide MEG services. We have been told that hospitals performing MEG procedure recently have been paying increased attention to accurately reporting charges for all necessary hospital resources on their claims. We are optimistic that both increased public awareness of Medicare coding for these procedures and improved understanding of the standard OPPS methodology for establishing APC payment rates should result in improved claims data in the future that more accurately reflect the required hospital resources. e. Other Services in New Technology APCs (If you choose to comment on issues in this section, please include the caption “Other New Technology Services” at the beginning of your comment.) Other than the PET, PET/CT, and SRS new technology services discussed above, there are 23 procedures currently assigned to New Technology APCs for which we

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believe we also have data adequate to support their assignment to clinical APCs. For CY 2007, we are proposing to reassign these procedures to clinically appropriate APCs, applying their CY 2005 claims data to develop their clinical APC median costs on which payments would be based. These procedures and their proposed APC assignments are displayed in Table10. Table 10.-- Proposed APC Reassignment of Other New Technology Procedures to Clinical APCs for CY 2007

HCPCS Code 0003T 0101T 0102T 0133T 19296 19297 20982 28890 36566 77421 78804 79403 90473 90474 91035 C9716 G0248 G0249 G0293 G0294 G0375 G0376 G3001

Short Descriptor Cervicography Extracorp shockwv tx,hi enrg Extracorp shockwv tx,anesth Esophageal implant injexn Place po breast cath for rad Place breast cath for rad Ablate, bone tumor(s) perq High energy eswt, plantar f Insert tunneled cv cath Stereoscopic x-ray guidance Tumor imaging, whole body Hematopoietic nuclear tx Immune admin oral/nasal Immune admin oral/nasal addl G-esoph reflx tst w/electrod Radiofrequency energy to anu Demonstrate use home inr mon Provide test material,equipm Non-cov surg proc,clin trial Non-cov proc, clinical trial Smoke/tobacco counseling 3-10 Smoke/tobacco counseling >10 Admin + supply, tositumomab

CY 2006 SI S T T T S S T T T S S S S S S S S S S S S S S

CY 2006 APC 1492 1547 1547 1556 1524 1523 1557 1547 1564 1502 1508 1507 1491 1491 1506 1519 1503 1503 1505 1502 1491 1491 1522

CY 2006 Payment Rate $15.00 $850.00 $850.00 $1,750.00 $3,250.00 $2,750.00 $1,850.00 $850.00 $4,750.00 $75.00 $650.00 $550.00 $5.00 $5.00 $450.00 $1,750.00 $150.00 $150.00 $350.00 $75.00 $5.00 $5.00 $2,250.00

Proposed CY 2007 SI T T T T T T T T T S S S S S X T V V X X X X S

Proposed CY 2007 APC 0191 0050 0050 0422 0030 0029 0050 0050 0623 0257 0408 0413 0436 0436 0361 0150 0604 0604 0340 0340 0031 0031 0442

Proposed CY 2007 APC Median Cost $9.22 $1,548.05 $1,548.05 $1,704.85 $2,533.62 $1,822.38 $1,548.05 $1,548.05 $1,703.97 $88.39 $308.82 $315.17 $10.71 $10.71 $242.86 $1,818.31 $49.45 $49.45 $38.52 $38.52 $10.60 $10.60 $1,515.80

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D. Proposed APC-Specific Policies 1. Skin Replacement Surgery and Skin Substitutes (APCs 0024, 0025, 0027) (If you choose to comment on issues in this section, please include the caption “Skin Replacement Surgery and Skin Substitutes” at the beginning of your comment.) For CY 2006, the American Medical Association (AMA) made comprehensive changes, including code additions, deletions, and revisions, accompanied by new and revised introductory language, parenthetical notes, subheadings and cross-references, to the Integumentary, Repair (Closure) subsection of surgery in the CPT book to facilitate more accurate reporting of skin grafts, skin replacements, skin substitutes, and local wound care. In particular, the section of the CPT book previously titled “Free Skin Grafts” and containing codes for skin replacement and skin substitute procedures was renamed, reorganized, and expanded. New and existing CPT codes related to skin replacement surgery and skin substitutes were organized into five subsections: Surgical Preparation, Autograft/Tissue Cultured Autograft, Acellular Dermal Replacement, Allograft/Tissue Cultured Allogeneic Skin Substitute, and Xenograft. As part of the CY 2006 CPT code update in the newly named “Skin Replacement Surgery and Skin Substitutes” section, certain codes were deleted that previously described skin allograft and tissue cultured and acellular skin substitute procedures, including CPT 15342 (Application of bilaminate skin substitute/ neodermis; 25 sq cm); CPT 15343 (Application of bilaminate skin substitute/neodermis; each additional 25 sq cm); CPT 15350 (Application of allograft, skin; 100 sq cm or less), and CPT 15351 (Application of allograft, skin; each additional 100 sq cm). Thirty-seven new CPT codes

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were created in the “Skin Replacement Surgery and Skin Substitutes” section, and these codes received interim final status indicators and APC assignments in the CY 2006 final rule with comment period and were subject to comment. At its March 2006 meeting, the APC Panel heard several presentations on some of the new CY 2006 CPT codes for skin replacement and skin substitute procedures, and CMS has received additional information from the public regarding a number of these services. In particular, 18 new CPT codes that were created to more specifically describe skin allograft, skin replacement, and skin substitute procedures were the subject of the APC Panel discussion and recommendations. These codes are as follows: ● CPT 15170 (Acellular dermal replacement, trunk, arms, legs; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15171 (Acellular dermal replacement, trunk, arms, legs; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15175 (Acellular dermal replacement, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15176 (Acellular dermal replacement, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15300 (Allograft skin for temporary wound closure, trunk, arms, legs; first 100 sq cm or less, or one percent of body area of infants and children)

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● CPT 15301 (Allograft skin for temporary wound closure; trunk, arms, legs; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15320 (Allograft skin for temporary wound closure, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15321 (Allograft skin for temporary wound closure, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15340 (Tissue cultured allogeneic skin substitute; first 25 sq cm or less) ● CPT 15341 (Tissue cultured allogeneic skin substitute; each additional 25 sq cm) ● CPT 15360 (Tissue cultured allogeneic dermal substitute; trunk, arms, legs; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15361 (Tissue cultured allogeneic dermal substitute; trunk, arms, legs; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15365 (Tissue cultured allogeneic dermal substitute, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or less, or one percent of body area of infants and children)

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● CPT 15366 (Tissue cultured allogeneic dermal substitute, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15420 (Xenograft skin (dermal), for temporary wound closure, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15421 (Xenograft skin (dermal), for temporary wound closure, face, scalp, eyelids, mouth neck, ears, orbits, genitalia, hands, feet and/or multiple digits; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) ● CPT 15430 (Acellular xenograft implant; first 100 sq cm or less, or one percent of body area of infants and children) ● CPT 15431 (Acellular xenograft implant; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof). The CY 2006 interim final APC assignments of these codes, the recommendations made by the APC Panel at its March 2006 meeting, and our proposed placement of the codes for CY 2007 are listed in Table 11 below. Note that in general, biological skin substitutes and replacements used in procedures described by these CPT codes are proposed for separate payment under the OPPS for CY 2007, according to the methodology outlined in section V. of the preamble of this proposed rule.

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Table 11.-- CY 2007 Proposed Assignments of Skin Substitute and Skin Replacement Procedures CPT Code

15170 15171 15175 15176 15300 15301 15320 15321 15340 15341 15360 15361 15365 15366 15420 15421 15430 15431

Short Descriptor Cell graft trunk/arm/legs Cell graft t/arm/leg add-on Acellular graft, f/n/hf/g Acell graft, f/n/hf/g/add-on Apply skin allograft, t/arm/lg Apply sknallograft t/a/l addl Apply skin allogrft f/n/hf/g Aply sknallogrft f/n/hfg add Apply cult skin substitute Apply cult skin sub add-on Apply cult derm sub, t/a/l Aply cult derm sub t/a/l/ add-on Apply cult derm sub f/n/hf/g Apply cult derm f/hf/g add Apply skin xgraft, f/n/hf/g Apply skn xgraft, f/n/hf/g add Apply acellular xenograft Apply acellular xgraft add

CY 2006 Assignment APC APC SI Median

APC Panel Recommendation

CY 2007 Proposed Assignment APC APC SI Median

24

T

$92.22

27

25

T

$314.58

24 24

T T

$92.22 $92.22

25 27

25 25

T T

$314.58 $314.58

24

T

$92.22

25

25

T

$314.58

27

T

$1081.66

N/A

25

T

$314.58

25

T

$315.37

N/A

25

T

$314.58

25

T

$315.37

27

25

T

$314.58

25

T

$315.37

25

25

T

$314.58

24

T

$92.22

27

25

T

$314.58

24

T

$92.22

25

25

T

$314.58

24

T

$92.22

27

25

T

$314.58

24

T

$92.22

25

25

T

$314.58

24

T

$92.22

27

25

T

$314.58

24

T

$92.22

25

25

T

$314.58

25

T

$315.37

27

25

T

$314.58

25

T

$315.37

25

25

T

$314.58

25

T

$315.37

27

25

T

$314.58

25

T

$315.37

25

25

T

$314.58

We reviewed the presentations to the APC Panel; the APC Panel’s recommendations; the CPT code descriptors, introductory explanations, cross-references, and parenthetical notes; the clinical characteristic of the procedures; and the code-specific

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median costs for all related CPT codes available from our CY 2005 claims data. While we agree with the APC Panel that the codes currently placed in APC 0024 (Level I Skin Repair) should be assigned to an APC with a higher median cost for CY 2007, we disagree that these procedures should be placed in APC 0027 (Level IV Skin Repair). APC Panel presenters reasoned that some of the codes (CPTs 15170, 15175, 15320, 15340, 15360, 15365, 15420, and 15430) for the first increment of body surface area treated should be placed in APC 0027 because they are similar to CPT code 15300 (Allograft skin for temporary wound closure, trunk, arms, legs; first 100 sq cm or less, or one percent of body area of infants and children). Upon further review of the clinical and expected hospital resource characteristics of CPT code 15300, we believe that this procedure is not appropriately placed in APC 0027. Split-thickness and full thickness skin autograft procedures currently assigned to APC 0027 are likely to require greater hospital resources, including additional operating room time and special equipment, in comparison to application of a separately paid allograft skin product. Instead, for CY 2007 we are proposing to reassign CPT code 15300 to APC 0025 (Level II Skin Repair), with an APC median cost of $314.58. We agree, in principle, that other CPT codes for the first increment of body surface area treated with a skin replacement or skin substitute are similar clinically and from a hospital resource perspective to CPT code 15300 and are, therefore, proposing to assign these procedures to APC 0025 as well for CY 2007. Similarly, presenters reasoned that the related add-on codes (CPTs 15171, 15176, 15321, 15342, 15361, 15366, 15421, and 15431) for procedures to treat additional body

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surface areas are similar to CPT code 15301 (Allograft skin for temporary wound closure, trunk, arms, legs; each additional 100 sq cm, or each additional one percent of body area of infants and children, or part thereof) in terms of required hospital resources. CPT code 15301 is assigned to APC 0025 for CY 2006. We are proposing to maintain the assignment of CPT code 15301 to APC 0025 for CY 2007 and to reassign the other add-on codes to this APC. Note that APC 0025 has a status indicator of “T,” so that the add-on codes will experience the standard OPPS multiple surgical procedure reduction when properly billed with the first body surface area treatment codes that are assigned to the same clinical APC. We believe that this reduction in payment for the procedural resources associated with the add-on services is appropriate. 2. Treatment of Fracture/Dislocation (APC 0046) (If you choose to comment on issues in this section, please include the caption “Treatment of Fracture/Dislocation” at the beginning of your comment.) APC 0046 is a large clinical APC to which many procedures related to the percutaneous or open treatment of fractures and dislocations are assigned for CY 2006. Most of the approximately 100 procedures in the APC are relatively low volume, with even fewer single bills available for ratesetting. The median costs of the significant procedures in this APC as configured for CY 2006 range from a low of about $1,415 to a high of about $3,893. We received comments to the CY 2006 proposed rule (70 FR 42674) requesting that we distinguish procedures containing “with or without external fixation” in their descriptors to provide greater payments when external fixation is used to treat fractures. The commenters explained that when external fixation devices

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are used, the costs of the procedures increase, and, therefore, the current APC placement significantly underpays those procedures in those instances. In the CY 2006 final rule with comment period (70 FR 68607), we declined to reassign procedures that could include external fixation at that time but we acknowledged that we had treated APC 0046 as an exception to the 2 times rule for several years. For CY 2006, we again treated APC 0046 as an exception to the 2 times rule, but noted we would ask the APC Panel to consider whether this APC could be reconfigured to improve its clinical and resource homogeneity. At the March 2006 meeting of the APC Panel, we asked the Panel to consider a possible reconfiguration of APC 0046 based on partial year CY 2005 claims data. The reconfiguration would create three new APCs and would divide the codes in APC 0046 among them. The APC Panel recommended that CMS continue to evaluate the refinement of APC 0046 (Open/Percutaneous Treatment Fracture or Dislocation) into at least three APC levels, with consideration of a fourth level should data support this additional level. We are accepting the APC Panel’s recommendation and are proposing for CY 2007 to split APC 0046 into three new APCs: APC 0062 (Level I Treatment Fracture/ Dislocation); APC 0063 (Level II Treatment Fracture/Dislocation); and APC 0064 (Level III Treatment Fracture/Dislocation). To ensure clinical and resource homogeneity in the new APCs, their proposed configurations are based on the procedure code descriptors, clinical considerations specific to each procedure, and service-specific hospital resource utilization as shown in the claims data from CY 2005. Restructuring

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APC 0046 into these three new APCs eliminates 2 times rule violations in the Fracture/Dislocation series. We are not currently proposing a fourth APC level in the Fracture/Dislocation series because we do not believe our claims data are sufficiently robust and consistent from year to year to support differential payment for another service level. One code, CPT 27615 (Radical resection of tumor (e.g., malignant neoplasm), soft tissue of leg or ankle area), is not clinically coherent with the other procedures in APC 0046, and we are proposing to reassign this procedure outside of the Fracture/Dislocation series to APC 0050 (Level II Musculoskeletal Procedures Except Hand and Foot) for CY 2007. Table 12.-- Reconfiguration of APC 0046 HCPCS Code 21336 21805 23515 23530 23532 23550 23552 23585 23615 23616 23630 23660 23670 23680 24515 24516 24538 24545 24546 24566 24575 24579 24582 24586 24587 24615

Description Treat nasal septal fracture Treatment of rib fracture Treat clavicle fracture Treat clavicle dislocation Treat clavicle dislocation Treat clavicle dislocation Treat clavicle dislocation Treat scapula fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat shoulder dislocation Treat dislocation/fracture Treat dislocation/fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat humerus fracture Treat elbow fracture Treat elbow fracture Treat elbow dislocation

Proposed APC 0063 0062 0064 0063 0062 0063 0063 0064 0064 0064 0064 0063 0064 0063 0064 0064 0062 0064 0064 0062 0064 0064 0062 0064 0064 0064

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175 HCPCS Code 24635 24665 24666 24685 25515 25525 25526 25545 25574 25575 25611 25620 25628 25645 25651 25652 25670 25671 25676 25685 25695 26608 26615 26650 26665 26676 26685 26686 26715 26727 26735 26746 26756 26765 26776 26785 27202 27509 27524 27566 27615 27756 27758 27759 27766 27784 27792 27814 27822

Description Treat elbow fracture Treat radius fracture Treat radius fracture Treat ulnar fracture Treat fracture of radius Treat fracture of radius Treat fracture of radius Treat fracture of ulna Treat fracture radius & ulna Treat fracture radius/ulna Treat fracture radius/ulna Treat fracture radius/ulna Treat wrist bone fracture Treat wrist bone fracture Pin ulnar styloid fracture Treat fracture ulnar styloid Treat wrist dislocation Pin radioulnar dislocation Treat wrist dislocation Treat wrist fracture Treat wrist dislocation Treat metacarpal fracture Treat metacarpal fracture Treat thumb fracture Treat thumb fracture Pin hand dislocation Treat hand dislocation Treat hand dislocation Treat knuckle dislocation Treat finger fracture, each Treat finger fracture, each Treat finger fracture, each Pin finger fracture, each Treat finger fracture, each Pin finger dislocation Treat finger dislocation Treat tail bone fracture Treatment of thigh fracture Treat kneecap fracture Treat kneecap dislocation Remove tumor, lower leg Treatment of tibia fracture Treatment of tibia fracture Treatment of tibia fracture Treatment of ankle fracture Treatment of fibula fracture Treatment of ankle fracture Treatment of ankle fracture Treatment of ankle fracture

Proposed APC 0064 0063 0064 0063 0063 0063 0063 0063 0064 0064 0062 0064 0063 0063 0062 0063 0062 0062 0062 0062 0062 0062 0063 0062 0063 0062 0063 0064 0063 0062 0063 0063 0062 0063 0062 0062 0063 0062 0063 0063 0050 0062 0063 0064 0063 0063 0063 0063 0063

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176 HCPCS Code 27823 27826 27827 27828 27829 27832 27846 27848 28406 28415 28420 28436 28445 28456 28465 28476 28485 28496 28505 28525 28531 28545 28546 28555 28576 28585 28606 28615 28636 28645 28666 28675

Description Treatment of ankle fracture Treat lower leg fracture Treat lower leg fracture Treat lower leg fracture Treat lower leg joint Treat lower leg dislocation Treat ankle dislocation Treat ankle dislocation Treatment of heel fracture Treat heel fracture Treat/graft heel fracture Treatment of ankle fracture Treat ankle fracture Treat midfoot fracture Treat midfoot fracture, each Treat metatarsal fracture Treat metatarsal fracture Treat big toe fracture Treat big toe fracture Treat toe fracture Treat sesamoid bone fracture Treat foot dislocation Treat foot dislocation Repair foot dislocation Treat foot dislocation Repair foot dislocation Treat foot dislocation Repair foot dislocation Treat toe dislocation Repair toe dislocation Treat toe dislocation Repair of toe dislocation

Proposed APC 0064 0063 0064 0064 0063 0063 0063 0063 0062 0063 0063 0062 0063 0062 0063 0062 0063 0062 0063 0063 0063 0062 0062 0063 0062 0063 0062 0063 0062 0063 0062 0063

3. Electrophysiologic Recording/Mapping (APC 0087) (If you choose to comment on issues in this section, please include the caption “Electrophysiologic Recording/Mapping” at the beginning of your comment.) At its March 2006 meeting, the APC Panel heard testimony from a presenter who asked that the Panel recommend that CPT codes 93609 (intraventricular and/or intra-atrial mapping of tachycardia, add-on), 93613 (intracardiac electrophysiologic 3-D

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mapping), and 93631 (intra-operative epicardial & endocardial pacing & mapping to localize zone of slow conduction for surgical correction) be removed from APC 0087. The presenter asked the APC Panel to recommend that these codes be placed in APC 0086 for improved clinical and resource alignment. The presenter indicated that the median costs for these CPT codes were more than two times the median cost of the least costly HCPCS code in APC 0087 and, therefore, constituted a 2 times violation. The presenter also indicated that the median cost of APC 0087 had declined in recent years, and argued that the payment rate for APC 0087 was too low to adequately compensate providers for these services. The APC Panel did not recommend that CMS move these codes from APC 0087 to APC 0086, but instead recommended that CMS maintain the three codes in APC 0087 for CY 2007. The APC Panel noted that, due to the low volume of these and other services assigned to APC 0087, under the CMS’ rules there was no 2 times violation in APC 0087. Moreover, the APC Panel found that the services under discussion were cardiac electrophysiologic mapping services, like other procedures also assigned to APC 0087, and were, therefore, clinically coherent with other services in APC 0087. The APC Panel did not believe that these three cardiac electrophysiologic mapping procedures were similar clinically or from a resource perspective to the intracardiac catheter ablation procedures residing in APC 0086. We agree with the APC Panel’s assessment and are accepting this APC Panel recommendation. Therefore, we are proposing that CPT codes 93609, 93613, and 93631 remain assigned to APC 0087 for CY 2007.

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4. Insertion of Mesh or Other Prosthesis (APC 0154) (If you choose to comment on issues in this section, please include the caption “Insertion of Mesh or Other Prosthesis” at the beginning of your comment.) During the March 2006 APC Panel meeting, a presenter requested that we reassign CPT code 57267 (Insertion of mesh or other prosthesis for repair of pelvic floor defect, each site (anterior, posterior compartment), vaginal approach) to a more clinically and resource-appropriate APC than its CY 2006 assignment to APC 0154 (Hernia/Hydrocele Procedures). The presenter expressed concern that the procedure is currently assigned to an APC with a “T” status indicator and stated that payment would be more accurate if it were assigned to an APC that has an “S” status indicator. The mesh insertion procedure is a CPT add-on code and is, by definition, performed at the same time as certain other procedures and will, therefore, be discounted every time it is performed. The presenter objected to our assignment of CPT code 57267 to an APC that is subject to the multiple procedure discount because it is always a secondary procedure, and the discounted payment amount is not adequate to pay even for the cost of the implantable mesh. The presenter also believed that its assignment to an APC where hernia and hydrocele procedures were also assigned was clinically inappropriate. The APC Panel recommended that CMS reassign CPT code 57267 to a more clinically and resource-appropriate APC. In the CY 2005 claims data, the median cost for CPT code 57267 is $529.14, the lowest by far for procedures in APC 0154, which has an APC median cost of $1,821 for CY 2007. However, the median cost of CPT code 57267 is based on only 6 single claims

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of the total 1,038 submitted for the service. Because the procedure always is performed in addition to other related procedures, we expect that claims for this service will be multiple claims. Therefore, we are not confident that the procedure’s median cost based upon the six single claims is accurate. Therefore, in order to obtain more information about the cost of the procedure, we performed additional analyses of CY 2005 claims data in an attempt to specifically explore the cost of the mesh implant packaged into the payment for CPT code 57267. We believe that a significant portion of the procedural cost should be related to the cost of the mesh, based on information presented at the March 2006 APC Panel meeting. We looked at all claims that included charges for the HCPCS code for implantable mesh (C1781) and either CPT code 57267 or 49568 (Implantation of mesh or other prosthesis for incisional or ventral hernia repair). We examined the bills for CPT code 49568 in addition to those for CPT code 57267 because it is a high volume procedure that also uses implantable mesh, and we expected that the extra volume would improve our chances of identifying meaningful charge data. We found 210 claims with charges reported for both CPT code 57267 and HCPCS code C1781 on the same day and 6,345 claims with reported charges for both CPT code 49568 and HCPCS code C1781 on the same day. Costs developed from these two claims subsets included the cost of the implanted mesh device that was used in performing the procedure. Table 13 below displays the median costs from those claims. The costs shown in the column titled “Line-item Median Cost” are those we obtained by looking at all CY 2005 OPPS claims on which charges for both the procedure code

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(either CPT code 57267 or 49568) and the code for the implantable mesh (HCPCS code C1781) were reported. The costs shown in the column titled “Single Claims Median Cost” are the median costs calculated using only single procedure claims for the specific procedure that also included the C-code for the mesh. Our additional data analysis supports the APC Panel presenter’s assertion that the cost of the mesh is greater than 50 percent of the total cost of CPT code 57267, but it also indicates that the mesh cost is far less than 50 percent of the payment amount for APC 0154. In CY 2006 the payment rate for APC 0154 is $1,704.59, and the payment when the multiple procedure discount is taken is $852.30, which is much greater than both the line-item median cost of the mesh and the median single claims cost of CPT code 57267 (which explicitly includes the implantable mesh) reflected in our claims data. Table 13.-- Median Costs of HCPCS Code C1781 and Associated Procedures

HCPCS Code 57267 C1781 (billed with 57267) 49568 C1781 (billed with 49568)

Short Descriptor Insert mesh/pelvic flr add-on Mesh (implantable) Hernia repair w/mesh Mesh (implantable)

Line-Item Median Cost $423.28 $383.35 $363.41 $242.20

Single Claims Median Cost $529.14 N/A $1,323.29 N/A

CY 2006 APC 0154 Payment Amount (T Status) $1,704.59 N/A $1,704.59 N/A

We agree with the APC Panel that the procedure should be assigned to a more clinically appropriate APC, and therefore, we are proposing to accept its recommendation and reassign CPT code 57267 to APC 0195 (Level IX Female Reproductive Procedures), with status indicator “T” for CY 2007. The proposed median cost of APC 0195 is $1,777 for CY 2007, very comparable to the CY 2006 median cost of APC 0154, where CPT code 57267 is currently assigned. The median cost for the procedure remains very low in

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comparison with other procedures assigned to APC 0195, so that payment for the service when the multiple procedure reduction is applied should be appropriate. While not affecting the procedure’s payment significantly, this reassignment improves the clinical homogeneity of APCs 0154 and 0195. 5. Percutaneous Renal Cryoablation (APC 0163) (If you choose to comment on issues in this section, please include the caption “Percutaneous Renal Cryoablation” at the beginning of your comment.) During the March 2006 APC Panel meeting, a presenter requested that we reassign CPT code 0135T (Ablation renal tumor(s), unilateral, percutaneous, cryotherapy) to APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures). The presenter provided information about the costs of performing these procedures and compared the resource requirements for the procedures to those for CPT code 47382 (Ablation, one or more liver tumor(s), percutaneous, radiofrequency), which is currently assigned to APC 0423. The presenter proposed reassignment of CPT code 0135T to APC 0423 because that is where CPT code 47382 is assigned, and stated that the costs of the two procedures are very similar. The APC Panel recommended that we assign CPT code 0135T to APC 0423 for CY 2007. CPT code 0135T is new for CY 2006 and therefore, we have no claims data on which to base our APC assignment decision. The procedure currently has an interim assignment to APC 0163 (Level IV Cystourethroscopy and Other Genitourinary Procedures), with a CY 2006 payment amount of $1,999.35.

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We are proposing to accept the APC Panel’s recommendation to reassign CPT code 0135T to APC 0423 for CY 2007. We believe that assignment of CPT code 0135T to APC 0423 is clinically appropriate, and that the CY 2007 median cost of APC 0423 of $2,410 is reasonably close to our expectations regarding the resource requirements for the renal cryoablation procedure. 6. Keratoprosthesis (APC 0244) (If you choose to comment on issues in this section, please include the caption “Keratophrosthesis” at the beginning of your comment.) CPT code 65770 is a surgical procedure for implantation of a keratoprosthesis, an artificial cornea. The keratoprosthesis device that is required for the implantation is described by HCPCS code C1818 (Integrated keratoprosthesis), a device category that received transitional pass-through payment under the OPPS from July 2003 through December 2005. When the device came off pass-through status for CY 2006 and its costs were packaged into the implantation procedure, CPT code 65770 continued to be assigned to APC 0244 (Corneal Transplant), with a payment rate of about $2,275, despite an increase in the median cost of the implantation procedure of about $1,200 associated with the packaging of the device. There is no 2 times violation in APC 0244 for CY 2006. At the March 2006 meeting of the APC Panel, following a presentation regarding the procedure to implant a keratoprosthesis that described the clinical and hospital resource characteristics of CPT code 65770, the Panel recommended moving CPT code 65770 to a more appropriate APC in order to make appropriate payment. We agree with the

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recommendation of the APC Panel. Claims data from CY 2005 demonstrate that the median cost for implantation of a keratoprosthesis of $3,127.51 remains significantly higher than the median costs of other procedures assigned to APC 0244, although there is no 2 times violation. In addition, CPT code 65770 contributes less than 1 percent of the single claims in the APC available for ratesetting, and it is likely to continue to be an uncommon procedure among Medicare beneficiaries, resulting in its persistent small contribution to the median cost of APC 0244. Therefore, for CY 2007 we are proposing to create a new APC 0293 (Level V Anterior Segment Eye Procedures) with a median cost of $3,127.51 and to move CPT code 65770 into that APC in order to more appropriately pay for the procedure and the related device. 7. Medication Therapy Management Services (If you choose to comment on issues in this section, please include the caption “Medication Therapy Management Services” at the beginning of your comment.) Following a presentation at its March 2006 meeting, the APC Panel made two recommendations regarding Category III CPT codes for pharmacist medication therapy management services that were new for CY 2006. These services include CPT codes 0115T (medication therapy management services provided by a pharmacist, individual, face-to-face with patient, initial 15 min., w/ assessment and intervention if provided; initial encounter), 0116T (medication therapy management; subsequent encounter), and 0117T (medication therapy management; additional 15 min.). These codes were assigned status indicator “B” in the CY 2006 OPPS final rule with comment period, indicating that they are not recognized by the OPPS when submitted on an

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outpatient hospital Part B bill type, with comment indicator “NI” to identify them as subject to comment. The APC Panel recommended that we create a new APC, with a nominal payment, to which we would assign these codes; implement the assignment in July 2006, if possible, or otherwise in CY 2007; and provide guidance to hospitals on how and when these codes should be reported. We are not accepting the APC Panel’s recommendations. Rather, we are proposing to continue to assign status indicator “B” to CPT codes 0115T, 0116T, and 0117T for CY 2007. According to the AMA, the purpose of Category III CPT codes is to facilitate data collection on and assessment of new services and procedures. Medication therapy management services are not new services in the OPPS, as they have been provided to patients by hospitals in the past as components of a wide variety of services provided by hospitals, including clinic and emergency room visits, procedures, and diagnostic tests. As such, we believe their associated hospital resource costs are already incorporated into the OPPS payments for these other services that are based on historical hospital claims data. The three Category III CPT codes specifically describe medication therapy management services provided by a pharmacist. We have no need to distinguish medication therapy management services provided by a pharmacist in a hospital from medication therapy management services provided by other hospital staff, as the OPPS only makes payments for services provided incident to physicians’ services. Hospitals providing medication therapy management services incident to physicians’ services may choose a variety of staffing configurations to provide those services, taking into account other relevant factors such as State and local laws and hospital policies.

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In general, we do not establish new clinical APCs for new codes and set payment rates for those APCs when we have no cost data for any services populating the APCs. New codes where we believe that there are no existing clinical APCs compatible with their expected clinical and hospital resource characteristics are often assigned to New Technology APCs until we have sufficient cost data to determine appropriate clinical APC assignments. However, these medication therapy management codes would not be eligible to map to New Technology APCs because they are not new services which are unrepresented in historical hospital claims data. As stated earlier, because we believe the costs of medication therapy management services are imbedded as a component within our claims data, we are confident that our claims data reflect the costs of pharmacist medication management services provided to hospital outpatients who are receiving hospital services. 8. Complex Interstitial Radiation Source Application (APC 0651) (If you choose to comment on issues in this section, please include the caption “Complex Interstitial Radiation Source Application” at the beginning of your comment.) APC 0651 (Complex Interstitial Radiation Source Application), contains only one code, CPT code 77778 (Complex interstitial application of brachytherapy sources). The coding, APC assignment, median cost, and resulting payment rate for CPT code 77778 have not been stable since the inception of the OPPS, and that instability has been a source of concern to hospitals that furnish the service and to specialty societies. The vast majority of claims for interstitial brachytherapy are for the treatment of patients with a diagnosis of prostate cancer. The historical coding, APC assignments, and payment rates

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for CPT code 77778 and the related service CPT code 55859 (Transperitoneal placement of needles or catheters into the prostate for application of brachytherapy sources), are shown in Table 14. Table 14. -- Historical Payment Rates for Complex Interstitial Application of Brachytherapy Sources OPPS CY 2000 2001 2002 2003 (if prostate brachytherapy with iodine sources) 2003 (if prostate brachytherapy with palladium sources) 2003 (if not prostate brachytherapy, not including sources) 2004 2005 2006

Combination APC N/A N/A N/A G0261 APC 648 $5154.34 G0256 APC 649 $5998.24

N/A N/A N/A N/A

CPT Code 77778 $198.31 $205.495 $6344.67

APC for 77778 APC 312 APC 312 APC 312

CPT Code 55859 $848.04 $878.72 $2068.23

APC for 55859 APC 162 APC 162 APC 163

N/A

N/A

N/A

N/A

Packaged

N/A

N/A

N/A

N/A

Packaged Separate payment based on scaled median cost per source Cost Cost Cost

$2853.58 $558.24 $1248.93 $666.21

APC 651 APC 651 APC 651 APC 651

$1479.60 $1848.55 $2055.63 $1993.35

APC 163 APC 163 APC 163 APC 163

Source Pass-through Pass-through Pass-through with pro rata reduction

We have frequently been told by the public that the instability in our payment rates for APC 0651 creates difficulty in planning and budgeting for hospitals. Moreover, we have been told that in this case reliance on single procedure claims results in use of only incorrectly coded claims for prostate brachytherapy because, for application to the prostate, which is estimated to be 85 percent of all occurrences of CPT code 77778, a correctly coded claim is a multiple procedure claim. Specifically, we are told that a correctly coded claim for prostate brachytherapy should include, for the same date of service, both CPT codes 55859 and 77778, brachytherapy sources reported with C-codes, and typically separately coded imaging and radiation therapy planning services. We are

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further advised that in the cases of complex interstitial brachytherapy where sources are placed in sites other than the prostate, the charges for both placing the needles or catheters and for applying the sources may be reported by CPT code 77778 alone because there are no other specific CPT codes for placement of needles or catheters in those sites. In other cases, the placement of needles or catheters may be reported with not otherwise classified codes specific to the treated body area. At the March 2006 APC Panel meeting, presenters urged the Panel to recommend that CMS use only single procedure claims that contain charges for brachytherapy sources on the same claim with CPT code 77778 to set the median cost for APC 0651. Presenters also urged that CMS adopt a process for using multiple procedure claims to set the median for APC 0651 that would sum the costs on multiple procedure claims containing CPT codes 77778 and 55859 (and no other separately payable services not on the bypass list) and, excluding the costs of sources, split the resulting aggregate median cost on the multiple procedure claim according to a preestablished attribution ratio between CPT codes 77778 and 55859. Presenters also urged that we provide hospital education on correct coding of brachytherapy services and devices of brachytherapy required to perform brachytherapy procedures. They indicated that any claim for a brachytherapy service that did not also report a brachytherapy source should be considered to be incorrectly coded and thus not reflective of the hospital resources required for the interstitial source application procedure. They believed that these claims should be excluded from use in establishing the median cost for APC 0651. They believed that hospitals which report the brachytherapy sources on their claims are more

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likely to report complete charges for the associated brachytherapy procedure than hospitals that do not report the separately payable brachytherapy sources. The APC Panel recommended that CMS reevaluate the proposed payment for brachytherapy services in APC 0651 for CY 2007. The APC Panel also recommended that CMS formally work with the Coalition for the Advancement of Brachytherapy, American Brachytherapy Society, and the American Society for Therapeutic Radiology and Oncology to evaluate the methodology for setting brachytherapy service payment rates in APC 0651. In response to the APC Panel recommendations, we are explicitly analyzing the standard OPPS methodology that we used in determining our proposed payment rate for APC 0651 in this proposed rule in the context of alternative multiple bill methodologies. In addition, we note that we routinely accept requests from interested organizations to discuss their views about OPPS payment policy issues. The organizations that the APC Panel asked us to work with have frequently brought their concerns to our attention through the rulemaking process and otherwise. We will consider the input of any individual or organization to the extent allowed by Federal law including the Administrative Procedure Act (APA) and the Federal Advisory Committee Act (FACA). We establish the OPPS rates through regulations. We are required to consider the timely comments of interested organizations, establish the payment policies for the forthcoming year, and respond to the timely comments of all public commenters in the final rule in which we establish the payments for the forthcoming year.

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For this proposed rule, we developed a median cost for APC 0651 using single procedure claims using the general OPPS process, but we also looked at multiple procedure claims that contain the most common combinations of codes used with APC 0651. Our single procedure claims process results in using 1,123 claims to calculate a median cost of $1028.93 for APC 0651. We have added CPT code 76965, a CPT code for ultrasound guidance that commonly appears on claims for complex interstitial brachytherapy, to the bypass list for CY 2007 after close clinical review because we believe that it would typically have little associated packaging. We believe that this change, along with maintenance of CPT code 77290 for complex therapeutic radiology simulation-aided field setting on the bypass list, is responsible for the growth in single procedure claims from the 381 single bills on which the APC 0651 median cost was calculated for the CY 2006 OPPS final rule with comment period. However, only 6 of these 1,123 single and “pseudo” single claims also included brachytherapy sources used in complex interstitial brachytherapy source application, and the median cost for these 6 claims at $600.68 is significantly less than the median cost for all single claims. It is unclear why so many of these claims do not contain brachytherapy sources, which were separately paid at cost in CY 2005. Because we are proposing to pay separately for brachytherapy sources again for CY 2007, we see no reason to believe that these few claims for brachytherapy services that included sources, which also do not report CPT code 55859 for placement of needles or catheters into the prostate, are more correctly coded than those claims which do not separately report brachytherapy sources. We believe it is possible that hospitals billing CPT code 77778 and not the associated

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brachytherapy sources may have bundled their charges for the brachytherapy sources into their charge for CPT code 77778. We also identified multiple procedure claims that contained both CPT codes 77778 and 55859 and also included any one or more of the following procedure codes, which have repeatedly appeared as common procedures that are reported on the same claim with CPT codes 55859 and 77778: 76000, 76965, or 77290. We then calculated median costs for interstitial prostate brachytherapy in two different ways: (1) bypassing the line item charges for these three ancillary codes; and (2) packaging the costs of these three ancillary codes. We applied this methodology both (1) to all claims that met these criteria with and without sources and (2) to claims that met the criteria and also separately reported brachytherapy sources that would be expected to be reported with CPT code 77778. See Tables 15 and 16 below for the results of this investigation. We found 10,571 multiple procedure claims with CPT codes 55859 and 77778 reported on the claim, including those both with and without separately reported sources. We found that 7,181 of the 10,571 claims contained any combination of the 3 ancillary codes (76000, 76965, or 77290). Table 15 shows the results of bypassing and packaging the line-item costs of the 3 ancillary procedures. Table 15.-- Multiple Procedure Claims Including CPT Codes 55859 and 77778 Frequency Ancillary Codes Packaged Ancillary Codes Bypassed

Minimum Cost

Maximum Cost

Mean Cost

Median Cost

7180 (1 lost to trimming)

$828.46

$11,202.81

$3,326.50

$3062.99

7181

$811.95

$11,203.81

$3,300.16

$3030.01

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We found 9,791 multiple procedure claims with CPT codes 55859 and 77778 reported on the claim that also included brachytherapy sources that would be used with CPT code 77778. We found that 6,748 of the 9,791 claims contained any combination of the 3 ancillary codes. Table 16 shows the results of bypassing and packaging the line-item costs of the 3 ancillary procedures. Table 16.-- Multiple Procedure Claims Including CPT codes 55859 and 77778 and One or More Brachytherapy Sources Frequency Ancillary Codes Packaged Ancillary Codes Bypassed

Minimum Cost

Maximum Cost

Mean Cost

Median Cost

6748

$890.56

$10,224.17

$3,240.13 $3,026.62

6748

912.81

$10,307.37

$3,215.75 $2,992.60

The claims containing CPT codes 55859 and 77778 and any combination of the three identified ancillary codes have mean and median costs that are very close to one another, regardless of whether the hospital billed separately for the brachytherapy sources on the claim with the procedure codes. Moreover, most of the multiple procedure claims we identified contained sources. This leads us to conclude that the presence of sources on the claim does not make a significant difference in the median cost of the combined service. Moreover, when we calculate the total median cost from single bills for the APCs for the two major procedures codes without regard to the separate payments that would be made for CPT codes 76000, 76965, and 77290, the sum of the CY 2007 proposed medians for APC 0651 and APC 0163 is $3,197.07, which is greater than the combination medians, even when the three ancillary services are packaged into the

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combination median. Under our proposed policies for CY 2007, hospitals would also be paid separately for brachytherapy sources, guidance services, and radiation therapy planning services that may be provided in support of services reported with CPT codes 55859 and 77778. Therefore, we believe that the summed median cost for APC 0651 and APC 0163 results in an appropriate level of full payment for the dominant type of service provided under APC 0651, interstitial prostate brachytherapy. We are proposing to use the median cost of $1,028.93, as derived from all single bills for APC 0651 according to our standard OPPS methodology, to establish the median for that APC. We recognize that prostate brachytherapy is not the sole use of CPT code 77778, although it is the predominant use. Costs attributable to the placement of needles and catheters and to the interstitial application of brachytherapy sources to sites other than the prostate may also be reported on claims whose data map to APC 0651. This clinically driven variability in the claims data is difficult to assess without adding additional levels of complexity to the issue by considering diagnoses in establishing payments rates. However, recognizing that a PPS is a system based on averages and, to the extent that claims for all types of complex interstitial brachytherapy source application are included in the body of claims used to set the median cost for APC 0651, we believe that the payment for these services is appropriate.

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9. Single Allergy Tests (APC 0381) (If you choose to comment on issues in this section, please include the caption “Allergy Testing” at the beginning of your comment.) We are proposing to continue with our methodology of differentiating single allergy tests (“per test”) from multiple allergy tests (“per visit”) by assigning these services to two different APCs to provide accurate payments for these tests in CY 2007. Multiple allergy tests are assigned to APC 0370, with a median cost calculated based on the standard OPPS methodology. We provided billing guidance in CY 2006 in Transmittal 804 (issued on January 3, 2006) specifically clarifying that hospitals should report charges for the CPT codes that describe single allergy tests to reflect charges “per test” rather than “per visit” and should bill the appropriate number of units of these CPT codes to describe all of the tests provided. However, our CY 2005 claims data available for the CY 2007 proposed rule do not yet reflect the improved and more consistent hospital billing practices of “per test” “for single allergy tests. Some claims for single allergy tests still appear to provide charges that represent a “per visit” charge, rather than a “per test” charge. Therefore, consistent with our payment policy for CY 2006, we are proposing to calculate a “per unit” median cost for APC 0381, based upon 349 claims containing multiple units or multiple occurrences of a single CPT code, where packaging on the claims is allocated equally to each unit of the CPT code. Using this methodology, we are proposing a median cost of $13.29 for APC 0381 for CY 2007. We are hopeful that the better and more accurate hospital reporting and charging practices for these

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single allergy test CPT codes beginning in CY 2006 will allow us to calculate the median cost of APC 0381 using the standard OPPS process in future OPPS updates. 10. Hyperbaric Oxygen Therapy (APC 0659) (If you choose to comment on issues in this section, please include the caption “Hyperbaric Oxygen Therapy” at the beginning of your comment.) When hyperbaric oxygen therapy (HBOT) is prescribed for promoting the healing of chronic wounds, it typically is prescribed for 90 minutes and billed using multiple units of HBOT on a single line or multiple occurrences of HBOT on a claim. In addition to the therapeutic time spent at full hyperbaric oxygen pressure, treatment involves additional time for achieving full pressure (descent), providing air breaks to prevent neurological and other complications from occurring during the course of treatment, and returning the patient to atmospheric pressure (ascent). The OPPS recognizes HCPCS code C1300 (Hyperbaric oxygen under pressure, full body chamber, per 30 minute interval) for HBOT provided in the hospital outpatient setting. In the CY 2005 final rule with comment period (69 FR 65758 through 65759), we finalized a “per unit” median cost calculation for HBOT using only claims with multiple units or multiple occurrences of HCPCS code C1300 because delivery of a typical HBOT service requires more than 30 minutes. We observed that claims with only a single occurrence of the code were anomalies, either because they reflected terminated sessions or because they were incorrectly coded with a single unit. In the same rule, we also established that HBOT would not generally be furnished with additional services that might be packaged under the standard OPPS APC median cost methodology. This

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enabled us to use claims with multiple units or multiple occurrences. Finally, we also used each hospital’s overall cost-to-charge ratio (CCR) to estimate costs for HCPCS code C1300 from billed charges rather than the CCR for the respiratory therapy cost center. Comments on the CY 2005 proposed rule effectively demonstrated that hospitals report the costs and charges for HBOT in a wide variety of cost centers. We used this methodology to estimate payment for HBOT in CYs 2005 and 2006. For CY 2007, we are proposing to continue using the same methodology to estimate a “per unit” median cost for HCPCS code C1300. Using 50,311 claims with multiple units or multiple occurrences, we estimate a median cost of $98.36. 11. Myocardial Positron Emission Tomography (PET) Scans (APCs 0306, 0307) (If you choose to comment on issues in this section, please include the caption “Myocardial PET Scans” at the beginning of your comment.) From August 2000 to December 31, 2005, under the OPPS we assigned to one clinical APC all myocardial positron emission tomography (PET) scan procedures, which were reported with multiple G-codes through March 31, 2005. Effective April 1, 2005, myocardial PET scans were reported with three CPT codes, specifically CPT codes 78459, 78491, and 78492, under the OPPS. Public comments to the CY 2006 OPPS proposed rule suggested that the HCPCS codes describing multiple myocardial PET scans should be assigned to a separate APC from single study codes because their hospital resource costs are significantly higher than single scans. Review of the CY 2004 claims data for myocardial PET scans revealed a median cost of $2,482 for the 9 G-codes that describe multiple myocardial PET scans, based upon 978 single claims of 2,001 total

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claims for multiple scan procedures. The CY 2004 claims data showed a median cost of $800 for the 6 G-codes describing single PET studies, based on 391 single claims of 575 total claims. A review of CY 2003 claims data showed a similar pattern of significantly higher hospital costs for multiple myocardial PET studies in comparison with single studies, although there were fewer claims for the procedures in CY 2003 in comparison with CY 2004. In response to the comments received and based on this claims information, myocardial PET services were assigned to two clinical APCs for the CY 2006 OPPS. HCPCS codes for single scans were assigned to APC 0306 with a payment rate of $800.55, and HCPCS codes for the multiple scan procedures were assigned to APC 0307 with a payment rate of $2,484.88. Analysis of the latest CY 2005 claims data for myocardial PET scans reveals that the APC median costs for the single and multiple myocardial PET codes are $836 and $680 respectively, based on 296 single claims for single studies and 1,150 single claims for multiple scan procedures. Despite more CY 2005 single claims for multiple scan procedures, the median cost of these procedures declined significantly from CY 2004 to CY 2005, dropping below the median cost of single studies. As indicated earlier, there was a significant coding change for myocardial PET services in CY 2005, with the reporting of a single CPT code for multiple studies (CPT code 78492) for most of CY 2005, in comparison with nine G-codes in CY 2004. We examined the single bills for multiple scan procedures from CY 2004 and noted 17 hospitals were represented, with the majority of those claims from a single hospital. In contrast, in the CY 2005 claims, 25 hospitals were represented in the single bills for multiple scan procedures, and

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no single hospital contributed a majority of claims to the median cost calculation. We also examined differences in charges associated with G-codes versus the CPT code to determine if hospitals had adjusted the charge for the CPT code to reflect the termination of the multiple study G-codes. However, the individual charging practices of hospitals did not appear to vary with the use of a G-code versus the CPT code in either the CY 2004 or the CY 2005 claims. Greater volume of claims and consistent charging for both the G-codes and CPT code by hospitals suggest that the median appropriately captures the greater variability in relative hospital costs for multiple myocardial PET studies in the CY 2005 claims data. Based on our claims data, the use of myocardial PET scan technology has become more widely prevalent in hospitals, and as a result, we now have more data to support our proposed payment rates. We believe that the median costs from our CY 2005 claims data for myocardial PET scan services, calculated based upon our standard OPPS methodology and based on almost 1,500 single claims, for both the single and multiple scans, should be reflective of the hospital resources required to provide the services to Medicare beneficiaries in the outpatient hospital setting. Based on these data, the differential median costs of the single and multiple study procedures do not support the present two-level APC payment structure. Although we acknowledge that some people may believe that multiple scan procedures should require increased resources at some hospitals in comparison with single scans, particularly because of the longer scan times required for multiple studies, our data do not support a resource differential that would necessitate the placement of these single and multiple scan procedures into two separate

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APCs. As myocardial PET scans are being provided more frequently at a greater number of hospitals than in the past, it is possible that most hospitals performing multiple PET scans are particularly efficient in their delivery of higher volumes of these services and, therefore, incur hospital costs that are similar to those of single scans, which are provided less commonly. When all myocardial PET scan procedure codes are combined into a single clinical APC, as they were prior to CY 2006, the APC median cost for myocardial PET services is about $721, very similar to the $703 median cost of their single CY 2005 clinical APC. Therefore, for CY 2007, we are proposing to assign CPT codes 78459, 78491, and 78492 to a single APC, specifically, APC 0307 titled Myocardial Positron Emission Tomography (PET) Imaging, with a proposed median cost of $721. We believe that the assignment of these three CPT codes to APC 0307 is appropriate as the CY 2005 claims data reveal that more hospitals are providing multiple myocardial PET scan services, most myocardial PET scans are multiple studies, and the hospital resource costs of single and multiple studies are similar. We believe that the proposed median cost appropriately reflects the hospital resources associated with providing myocardial PET scans to Medicare beneficiaries in cost-efficient settings. Further, we believe that the proposed rates are adequate to ensure appropriate access to these services for Medicare beneficiaries. We are seeking comments on our proposal to provide a single payment rate for all myocardial PET scans in CY 2007. The myocardial PET scan CPT codes and their CY 2007 proposed APC assignments are displayed in Table 17.

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Table 17. – Proposed CY 2007 APC Assignment for Myocardial PET HCPCS Code 78459 78491 78492

Short Descriptor Heart muscle imaging (PET) Heart image (pet), single Heart image (pet), multiple

Proposed CY 2007 SI

Proposed CY 2007 APC

$800.55

S

0307

$721.26

0306

$800.55

S

0307

$721.26

0307

$2,484.88

S

0307

$721.26

CY 2006 SI

CY 2006 APC

S

0306

S S

CY 2006 Payment Rate

Proposed CY 2007 APC Median Cost

12. Radiology Procedures (APCs 0333, 0662, and Other Imaging APCs) (If you choose to comment on issues in this section, please include the caption “Radiology Procedures” at the beginning of your comment.) At its March 2006 meeting, the APC Panel made three recommendations regarding radiology services. These include the following: ● Reaffirming the CY 2005 recommendation that CMS postpone implementation of the multiple procedure reduction policy for imaging services as included in the CY 2006 OPPS proposed rule for CY 2007, to allow CMS to gather more data on the efficiencies associated with multiple imaging procedures that may already be reflected in OPPS payment rates for imaging services. ● Recommending that CMS review payment rates for computed tomography (CT) and computed tomographic angiography (CTA) procedures to ensure that their payment rates are comparatively consistent and that they accurately reflect resource use. ● Recommending that CMS invite comments on ways that hospitals can uniformly and consistently report charges and costs related to radiology services. In the CY 2006 OPPS final rule with comment period (70 FR 68707), we indicated that based on the APC Panel’s recommendations and public comments

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received, we decided not to finalize our CY 2006 proposal to reduce OPPS payments for some second and subsequent diagnostic imaging procedures performed in the same session. Our analyses did not disprove the commenters’ contentions that there are efficiencies already reflected in their hospital costs, and, therefore, their CCRs and the median costs for the procedures. Over the past 7 months, we have conducted additional studies of our hospital claims data for single and multiple diagnostic imaging procedures, and our analyses to date support continued deferral for CY 2007 of implementation of a multiple imaging procedure payment reduction policy in the OPPS. Therefore, we are accepting the APC Panel’s recommendation to not adopt such a policy for CY 2007 pending the results of further analyses. Depending upon the findings from such studies, in a future rulemaking we may propose revisions to the structure of our rates to further refine these rates in the context of additional study findings. We also are accepting the APC Panel’s recommendation to review the CY 2007 proposed payment rates for CT and CTA procedures to ensure that their rates are comparatively consistent and accurately reflective of hospitals’ resource costs. Presenters at the March 2006 APC Panel meeting indicated to the Panel that hospital resources for CTA procedures are similar to those for CT procedures that include scans without contrast followed by scans with contrast, but additional resources are required for the 3-dimensional reconstruction that is part of the CTA procedures. As a result of this image postprocessing, CTA scans display the vasculature in a 3-dimensional format rather than in the 2-dimensional cross-sectional images of conventional CT scans. Based upon CY 2005 claims data, the CY 2007 proposed median cost for APC 0333 for

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CT procedures that include scans without contrast material, followed by contrast scans to complete the studies is $309, and the CY 2007 proposed median cost for APC 0662 for CTA procedures is $304. As has been the case for the past several years, the median costs associated with these two APCs are virtually identical to one another and are also quite consistent with their historical costs from prior years of claims data. The CY 2007 proposed median costs for APCs 0333 and 0662 are based on about 500,000 and 150,000 single claims, respectively. The stability of these APC median costs, based on large numbers of single claims, is consistent with our belief that the median costs of these APCs accurately reflect hospitals’ resource use. From CY 2004 to CY 2005 the number of CTA procedures performed in the outpatient department increased by 50 percent, whereas the number of CT procedures that included a scan without contrast followed by a scan with contrast to complete each full study increased by only about 1 percent. The large annual increases in the OPPS frequencies of CTA procedures through CY 2005 provide no evidence that Medicare beneficiaries are experiencing difficulty accessing these services in the hospital outpatient setting. CTA procedures are being more commonly performed for various clinical indications, likely resulting in more consistent and efficient use of the associated image postprocessing technology. Accordingly, it is not surprising that the hospital costs of typical CTA procedures in contemporary medical practice are very similar to the hospital costs of the more involved and resource-intensive complex CT services that, like CTA procedures, include scans without contrast material, followed by scans with contrast. Thus, we believe that our CY 2007 proposed payment

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rates for CT and CTA procedures are generally consistent with one another and accurately reflective of hospitals’ resource costs. With respect to the APC Panel’s recommendation regarding the reporting of costs and charges for radiology services, CMS requires hospitals to report their costs and charges through the cost report with sufficient specificity to support CMS’ use of cost report data for monitoring and payment. Within generally accepted principles of cost accounting, we allow providers flexibility to accommodate the unique attributes of each institution’s accounting systems. For example, providers must match the generally intended meaning of the line-item cost centers, both standard and nonstandard, to the unique configuration of department and service categories used by each hospital’s accounting system. Also, while the cost report provides recommended bases of allocation for the general services cost centers, a provider is permitted, within specified guidelines, to use an alternative basis for a general service cost if it can justify to its fiscal intermediary that the alternative is more accurate than the recommended basis. This approach creates internal consistency between a hospital’s accounting system and the cost report, but cannot guarantee the precise comparability of costs and charges for individual cost centers across institutions. However, we believe that achieving greater uniformity by, for example, specifying the exact components of individual cost centers, would be very burdensome for hospitals and auditors. Hospitals would need to tailor their internal accounting systems to reflect a national definition of a cost center. It is not clear that the marginal improvement in precision created by such a requirement would justify the additional

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administrative burden. The current hospital practice of matching costs to the general intended meaning of a cost center ensures that most services in the cost center will be comparable across providers, even if the precise composition of a cost center among hospitals differs. Further, every hospital provides a different mix of services. Even if CMS specified the components of each cost center, costs and charges on the cost report would continue to reflect each individual hospital’s mix of services. At the same time, internal consistency is very important to the OPPS. Costs are estimated on claims by matching cost-to-charge ratios for a given hospital to their own claims data through a cost center-to-revenue code crosswalk. OPPS relative weights are based on the median cost for all services in an APC. The components resulting in CCRs for a given revenue code would have to be dramatically different for the providers contributing the majority of claims used to calculate an APC’s median cost in order to impact relative weights. We are accepting the APC Panel’s recommendation and specifically inviting comments on ways that hospitals can uniformly and consistently report charges and costs related to all cost centers, not just radiology, that also acknowledge the ubiquitous tradeoff between greater precision in developing CCRs and administrative burden associated with reduced flexibility in hospital accounting practices.

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IV. Proposed OPPS Payment Changes for Devices A. Proposed Treatment of Device-Dependent APCs (If you choose to comment on issues in this section, please include the caption “Device-Dependent APCs” at the beginning of your comment.) 1. Background Device-dependent APCs are populated by HCPCS codes that usually, but not always, require that a device be implanted or used to perform the procedure. For the CY 2002 OPPS, we used external data, in part, to establish the device-dependent APC medians used for weight setting. At that time, many devices were eligible for pass-through payment. For the CY 2002 OPPS, we estimated that the total amount of pass-through payments would far exceed the limit imposed by statute. To reduce the amount of a pro rata adjustment to all pass-through items, we packaged 75 percent of the cost of the devices, using external data furnished by commenters on the August 24, 2001 proposed rule and information furnished on applications for pass-through payment, into the median costs for the device-dependent APCs associated with these pass-through devices. The remaining 25 percent of the cost was considered to be pass-through payment. In the CY 2003 OPPS, we determined APC medians for device-dependent APCs using a three-pronged approach. First, we used only claims with device codes on the claim to set the medians for these APCs. Second, we used external data, in part, to set the medians for selected device-dependent APCs by blending that external data with claims data to establish the APC medians. Finally, we also adjusted the median for any APC

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(whether device-dependent or not) that declined more than 15 percent. In addition, in the CY 2003 OPPS we deleted the device codes (“C” codes) from the HCPCS file in the belief that hospitals would include the charges for the devices on their claims, notwithstanding the absence of specific codes for devices used. In the CY 2004 OPPS, we used only claims containing device codes to set the medians for device-dependent APCs and again used external data in a 50/50 blend with claims data to adjust medians for a few device-dependent codes when it appeared that the adjustments were important to ensure access to care. However, hospital device code reporting was optional. In the CY 2005 OPPS, which was based on CY 2003 claims data, there were no device codes on the claims and, therefore, we could not use device-coded claims in median calculations as a proxy for completeness of the coding and charges on the claims. For the CY 2005 OPPS, we adjusted device-dependent APC medians for those device-dependent APCs for which the CY 2005 OPPS payment median was less than 95 percent of the CY 2004 OPPS payment median. In these cases, the CY 2005 OPPS payment median was adjusted to 95 percent of the CY 2004 OPPS payment median. We also reinstated the device codes and made the use of the device codes mandatory where an appropriate code exists to describe a device utilized in a procedure. We also implemented HCPCS code edits to facilitate complete reporting of the charges for the devices used in the procedures assigned to the device-dependent APCs. In the CY 2006 OPPS, which was based on CY 2004 claims data, we set the median costs for device-dependent APCs for CY 2006 at the highest of: (1) the median

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cost of all single bills; (2) the median cost calculated using only claims that contained pertinent device codes and for which the device cost is greater than $1; or (3) 90 percent of the payment median that was used to set the CY 2005 payment rates. We set 90 percent of the CY 2005 payment median as a floor rather than 85 percent as proposed, in consideration of public comments that stated that a 15-percent reduction from the CY 2005 payment median was too large of a transitional step. We noted in our CY 2006 proposed rule that we viewed our proposed 85-percent payment adjustment as a transitional step from the adjusted medians of past years to the use of unadjusted medians based solely on hospital claims data with device codes in future years (70 FR 42714). We also incorporated, as part of our CY 2006 methodology, the recommendation to base payment on medians that were calculated using only claims that passed the device edits. As stated in the CY 2006 OPPS final rule with comment period (70 FR 68620), we believed that this policy provided a reasonable transition to full use of claims data in CY 2007, which would include device coding and device editing, while better moderating the amount of decline from the CY 2005 OPPS payment rates. 2. Proposed CY 2007 Payment Policy For CY 2007, we are proposing to base the device-dependent APC medians on CY 2005 claims, the most current data available. As stated earlier, in CY 2005 we reinstated the use of device codes and made the reporting of device codes mandatory where an appropriate code exists to describe a device utilized. In CY 2005, we also implemented HCPCS code edits to facilitate complete reporting of the charges for the devices used in the procedures assigned to the device-dependent APCs. We implemented

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the first set of device edits on April 1, 2005, for those APCs for which the CY 2005 payment rate was based on an adjusted median cost. We continued to take public comment on the remaining device edits after April 1, 2005, and implemented device edits for the remaining device-dependent APCs on October 1, 2005. Subsequent to the implementation of the device edits, we received public comments that caused us to remove the requirement for edits for several APCs on the basis that the services in them do not always require the use of a device or there may be no suitable device codes available for reporting all devices that may be used to perform the procedures. For example, we removed the requirement for device codes for APC 0080 (Diagnostic Cardiac Catheterization) based on the information provided by hospitals that the codes assigned to this APC do not always require a device for which there is an appropriate HCPCS code. Therefore, we no longer consider this APC to be device dependent and have removed it from the list of device-dependent APCs. In the case of some procedures assigned to other device-dependent APCs, where we determined that no device was required to provide a particular service or where there were no HCPCS codes that described all devices that could be used to furnish the service, we removed the requirement for a device code for the individual procedure code but retained the device requirement for other procedure codes assigned to that device-dependent APC. In its February 2005 meeting, the APC Panel recommended that we consider calculating the median costs for APCs 0107 (Insertion of Cardioverter Defibrillator) and 0108 ( Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads) by bypassing the line-item costs of CPT code 33241 (Subcutaneous removal of single or dual chamber

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pacing cardioverter-defibrillator pulse generator) and packaging the line item-costs of CPT codes 93640 (Electrophysiological evaluation of single or dual chamber pacing cardioverter-defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluation of sensing and pacing for arrhythmia termination) at time of initial implantation or replacement) and 93641 (Electrophysiological evaluation of single or dual chamber pacing cardioverter-defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluation of sensing and pacing for arrhythmia termination) at time of initial implantation or replacement; with testing of single or dual chamber pacing cardioverter-defibrillator) when these codes, separately or in combination, are reported on the same claim with HCPCS codes G0297 (Insertion of single chamber pacing cardioverter defibrillator pulse generator), G0298 (Insertion of dual chamber pacing cardioverter defibrillator pulse generator), G0299 ( Insertion or repositioning of electrode lead for single chamber pacing cardioverter defibrillator and insertion of pulse generator) and G0300 (Insertion or repositioning of electrode lead(s) for dual chamber pacing cardioverter defibrillator and insertion of pulse generator), which are assigned to APCs 0107 and 0108. The APC Panel recommended bypassing the line-item costs for CPT code 33241 because members believed that when a pacing cardioverter-defibrillator (ICD) pulse generator removal is performed in the same operative session as the insertion of a new pulse generator described by a procedure code assigned to APC 0107 or 0108, the packaging on the claim is appropriately assigned to the procedure code in APC 0107 or 0108. Moreover, CPT codes 93640 and 93641 may only be correctly coded when the electrophysiologic evaluation of ICD leads is

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performed at the time of initial implantation or replacement of an ICD pulse generator and/or leads, with or without testing of the pulse generator. Thus, the APC Panel expected that the costs of the evaluations of the ICD leads (CPT codes 93640 and 93641) could be appropriately packaged with the procedure codes that describe the insertion of ICD generators, which are assigned to APCs 0107 and 0108, or the insertion of ICD leads assigned to APCs 0106 (Insertion/Replacement/Repair of Pacemaker and/or Electrodes), 0108, and 0418 (Insertion of Left Ventricular Pacing Elect). Because APCs 0107 and 0108 have typically had very few single bills on which the medians have been based, and because the APC Panel indicated that it believed that we could use many more claims if we bypassed CPT code 33241 and packaged CPT codes 93640 and 93641, we calculated median costs for APCs 0107 and 0108 using these rules. We excluded claims that did not meet the device edits, and we also excluded token claims. The effect of packaging CPT codes 93640 and 93641 into claims that both pass the device edits and also contain no token charges for devices are shown in Table 19 below. This affected APCs 0106, 0107, 0108, and 0418. Bypassing the line-item cost of CPT code 33241 could not be done for all claims on which this CPT code was reported because there are clinical circumstances in which the ICD pulse generator is removed and no new device is implanted. Therefore, the APC assignment for CPT code 33241 and the payment for that code need to reflect the packaging associated with the procedure when it is performed alone. Because of this problem with assigning packaging in all the circumstances in which the procedure may be reported, we decided against proposing to

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bypass CPT code 33241, either in general for all procedures or selectively, when it is reported with the procedures in APCs 0107 and 0108. However, CPT codes 93640 and 93641 are always performed during an operative procedure for ICD initial implantation or replacement or with implantation, revision or replacement of leads, and, therefore, it would be appropriate to package them into the surgical procedure with which they are performed. Moreover, as a result of the descriptors of the lead evaluation CPT codes, they should never be billed as single procedure claims and packaging them would also resolve the problem of setting their payment rates in part on the basis of claims that reflect erroneous coding. Packaging the costs of the intraoperative electrophysiologic testing of the ICD leads yields many more single bills on which to set median costs and also increases the median costs for APCs 0106, 0107, 0108, and 0418. Therefore, we are proposing to package CPT codes 93640 and 93641 for CY 2007. We calculated the median cost for device-dependent APCs using two different sets of claims. We first calculated a median cost using all single procedure claims for the procedure codes in those APCs. We also calculated a second median cost using only claims that contain allowed device codes and also for which charges for all device codes were in excess of $1.00 (nontoken charge device claims). We excluded claims for which the charge for a device was less than $1.01, in part, to recognize hospital charging practices due to a recall of cardioverter defibrillator and pacemaker pulse generators in CY 2005 for which the manufacturers provided replacement devices without cost to the

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beneficiary or hospital. We also found that there are other devices for which the charge was less than $1.01, and we removed those claims also. As expected, the median costs calculated using all single procedure bills, including both bills that lack appropriate device codes (where there are edits) and bills with token charges for devices, are, in many cases, less than the medians calculated using only claims that contain appropriate device codes and that have no token charges for devices. In some cases the medians are significantly different when claims either without device codes or which have only token device charges are removed. We believe that the claims that reflect the best estimated costs for these APCs, including the costs of the devices, are those claims that contain appropriate devices and which also have no token charges for devices. (See section IV.A.4. below for our discussion of payments when the hospital incurs no cost for the principal device required for the service.) When we compare the proposed median costs calculated using only CY 2005 claims that contain correct device codes and which do not contain token charges for devices to the unadjusted median costs that were derived from CY 2004 claims data, we find that the medians for only 2 APCs decline (6.3 percent for APC 0061 (Laminectomy or Incision for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve) and 2.78 percent for APC 0115 (Cannula/Access Device Procedures)). When we compared the proposed CY 2007 medians to the adjusted medians used to set the payment rates for CY 2006, only 6 APCs would decline more than 10 percent in median cost. This compares favorably to the data for the CY 2006 OPPS final rule with comment period in which 12 APCs declined more than 10 percent when the unadjusted median cost from the

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data for the CY 2006 OPPS final rule with comment period were compared to the adjusted median cost on which the CY 2005 OPPS payments were based. Some APC cost variation from year to year, whether increasing or decreasing, is to be expected. Therefore, we are proposing to base the payment rates for CY 2007 for these device-dependent APCs on median costs calculated using claims with appropriate device codes and which have no token charges for devices reported on the claim. We do not believe that adjustment of these median costs is necessary to provide adequate payment for these services, and, therefore, we are not proposing to adjust the median costs for these APCs to moderate any decreases in medians from CY 2006 to CY 2007. We recognize that, notwithstanding the device edits, it may continue to be necessary for purposes of median cost calculations to remove claims that do not contain devices because it is likely that there would be incidental occurrences of interrupted procedures in which a device is not used and does not appear on the claim. (The interrupted procedure modifier nullifies the device edit.) Moreover, there are likely to continue to be incidental occurrences of token charges for devices as a result of devices that are replaced without cost by the manufacturer. However, each of these circumstances could cause the procedure code median cost to underrepresent the cost of the complete procedure, including the device cost, where the hospital purchases the device. Hence, we believe that use of claims that meet the device edits and which do not contain token charges for devices are the appropriate claims to use to set the median costs for the device-dependent APCs, ensuring that the costs of the principal devices are included in the APC medians. In addition, we believe that, with our proposed changes to

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the OPPS packaging status of two codes for electrophysiologic evaluation of ICD leads, no special payment policies are needed to establish payment rates that correctly reflect the relative costs of these procedures to other procedures paid under the OPPS. Table 18. -- CY 2007 Proposed Median Costs for Device-Dependent APCs

APC Group Title APC SI 0039 S Level I Implantation of Neurostimulator 0040 S Percutaneous Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve 0061 S Laminectomy or Incision for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve 0081 T Non-Coronary Angioplasty or Atherectomy 0082 T Coronary Atherectomy 0083 T Coronary Angioplasty and Percutaneous Valvuloplasty 0085 T Level II Electrophysiologic Evaluation 0086 T Ablate Heart Dysrhythm Focus 0087 T Cardiac Electrophysiologic Recording/Mapping 0089 T Insertion/Replacement of Permanent Pacemaker and Electrodes 0090 T Insertion/Replacement of Pacemaker Pulse Generator 0104 T Transcatheter Placement of Intracoronary Stents 0106 T Insertion/Replacement/Repair of Pacemaker and/or Electrodes 0107 T Insertion of CardioverterDefibrillator 0108 T Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads

Hospitals Billing the APC in CY 2005 CY 2005 (Based on CY 2005 All Single Total Bill CY 2005 Data) Frequency Frequency 192 1692 704

CY 2005 All Single Bill Median $10,828.96

Proposed CY 2007 Nontoken Pass Edit Frequency 610

Proposed CY 2007 Nontoken Pass Edit Median Cost $10,866.68

699

11468

2568 $3,309.88

1112 $3,482.71

223

2239

429 $5,599.60

205 $5,203.01

756

136188

2574 $2,437.57

1950 $2,649.11

15 213

195 4046

19 $3,426.83 442 $3,254.89

6 $4,706.61 299 $3,551.16

515

19083

2109 $2,136.32

1290 $2,143.82

311

9622

895 $2,829.20

632 $2,912.10

93

13123

666

155

$964.13

47 $2,027.77

4264

1931 $6,736.01

332 $7,531.77

313

6540

583 $5,806.75

449 $6,042.93

198

4607

583 $4,588.58

348 $5,434.23

325

3819

494 $2,549.70

409 $2,764.49

206

16276

886 $11,215.82

481 $17,245.40

262

9075

2950 $22,362.68

2577 $22,887.64

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APC Group APC SI Title 0115 T Cannula/Access Device Procedures 0202 T Level X Female Reproductive Proc 0222 T Implantation of Neurological Device 0225 S Implantation of Neurostimulator Electrodes, Cranial Nerve 0227 T Implantation of Drug Infusion Device 0229 T Transcatherter Placement of Intravascular Shunts 0259 T Level VI ENT Procedures 0315 T Level II Implantation of Neurostimulator 0384 T GI Procedures with Stents 0385 S Level I Prosthetic Urological Procedures 0386 S Level II Prosthetic Urological Procedures 0418 T Insertion of Left Ventricular Pacing Elect. 0425 T Level II Arthroplasty with Prosthesis 0427 T Level III Tube Changes and Repositioning 0622 T Level II Vascular Access Procedures 0623 T Level III Vascular Access Procedures 0648 T Breast Reconstruction with Prosthesis 0652 T Insertion of Intraperitoneal and Pleural Catheters 0653 T Vascular Reconstruction/Fistula Repair with Device 0654 T Insertion/Replacement of a permanent dual chamber pacemaker 0655 T Insertion/Replacement/Conver sion of a permanent dual chamber pacemaker

214 Hospitals Billing the APC in CY 2005 CY 2005 (Based on CY 2005 All Single Bill CY 2005 Total Frequency Frequency Data) 882 7952 2094 8613

CY 2005 All Single Bill Median $1,873.02

Proposed CY 2007 Nontoken Pass Edit Frequency 1276

Proposed CY 2007 Nontoken Pass Edit Median Cost $1,820.60

2541.39

3679

2648.26

1762

15937

713

6400

2043 $10,864.54

1694 $11,002.44

114

848

162 $14,463.01

59 $14,463.32

283

3085

535 $9,696.85

260 $11,315.39

441

48773

1148 $4,015.60

773 $4,081.53

152 179

1168 682

687 $22,962.48 535 $14,682.42

417 $25,127.88 453 $14,550.70

1343 317

20932 810

6246 $1,398.50 551 $4,687.67

6155 $1,400.71 193 $4,902.56

844

4580

3197 $8,002.65

1460 $8,383.48

113

4824

225 $9,696.51

146 $16,546.34

268

1050

412 $6,544.76

369 $6,495.73

680

6604

2104

54138

27113 $1,387.19

22001 $1,401.99

2356

63703

34569 $1,703.94

20221 $1,758.15

271

1301

271 $2,944.82

229 $3,012.92

984

5420

3360 $1,805.43

3357 $1,805.17

399

27131

656 $1,942.96

623 $1,914.77

658

25762

1914 $6,053.10

1037 $6,932.30

1156

12967

7533 $8,294.96

704 $9,459.63

2778

$684.79

1632

$711.67

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APC Group APC SI Title 0656 T Transcatheter Placement of Intracoronary Drug-Eluting Stents 0670 S Level II Intravascular and Intracardiac Ultrasound and Flow Reserve 0674 T Prostate Cryoablation 0680 S Insertion of Patient Activated Event Recorders 0681 T Knee Arthroplasty

215 Hospitals Billing the APC in CY 2005 CY 2005 (Based on CY 2005 All Single Bill CY 2005 Total Frequency Frequency Data) 374 24013 3226

CY 2005 All Single Bill Median $6,509.27

Proposed CY 2007 Nontoken Pass Edit Frequency 2469

Proposed CY 2007 Nontoken Pass Edit Median Cost $6,602.19

135

8295

199 $1,578.43

127 $1,836.44

292 627

2901 2065

1868 $6,557.73 1318 $4,275.01

1495 $6,660.22 860 $4,625.52

59

588

393 $10,436.25

270 $10,689.90

Table 19. -- Effect of Packaging CPT Codes 93640 and 93641 on All Single Bills Proposed Proposed CY 2007 CY 2007 Single Bill Single Bill Median Post Cost Frequency 93640/93641 Total 93640/93641 Not APC SI APC Group Title Frequency Not Packaged Packaged 0106 T Insertion/Replacement/ 3819 457 $2,459.08 Repair of Pacemaker and/or Electrodes 0107 T Insertion of 16276 481 $9,669.32 CardioverterDefibrillator 0108 T Insertion/Replacement/ 9075 929 $18,030.96 Repair of CardioverterDefibrillator Leads 0418 T Insertion of Left 4824 142 $5,098.03 Ventricular Pacing Elect.

Proposed CY 2007 Single Bill Frequency 93640/93641 Packaged 494

Proposed CY 2007 Single Bill Median 93640/93641 Packaged $2,549.70

886

$11,215.82

2950

$22,362.68

225

$9,696.51

3. Devices Billed in the Absence of an Appropriate Procedure Code In the course of examining claims data for creation of the payment rates for this proposed rule, we identified circumstances in which hospitals billed a device code but failed to also bill any procedure code with which the device could be used correctly.

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These errors in billing lead to the costs of the device being packaged with an incorrect procedure code and also cause the hospital to be paid incorrectly for the service furnished if the device was appropriately reported. We discussed the billing of devices with incorrect procedure codes with the APC Panel at its March 2006 meeting, and the APC Panel recommended that we explore the extent to which it would be appropriate to establish edits for HCPCS device codes to ensure that hospitals also bill procedures in which the devices would be used on the same claim. We examined our CY 2005 claims data and found that incorrect billing occurs more often with some devices than with others. We are taking this opportunity to inform the public that we expect to implement device to procedure code edits for the specified devices and their associated procedures, which we believe must be reported on a claim with the specified device for the claim to be correctly coded and the device costs properly attributed to procedures with which they are used. The devices for which we expect to implement edits are shown below in Table 20 and are posted on the CMS outpatient hospital Web site, along with our initial draft of all the procedures with which they could be appropriately used and thus reported. We believe the establishment of claims edits reflects merely operational and administrative practice. However, as the public may assist in establishing appropriate edits, we, therefore, are asking that comments regarding the specific associations of device codes and procedure codes be provided to the following email address: [email protected] This is the same email address to which comments on the existing procedure to device edits should be directed.

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Comments submitted on this issue to this mail box are not comments on this proposed rule and we will not respond to them in the CY 2007 OPPS final rule. Table 20. -- Devices Which Must be Billed With Associated Procedure Codes Device C1721 C1722 C1767 C1777 C1778 C1779 C1785 C1786 C1820 C1882 C1895 C1896 C1897 C1898 C1899 C1900 C2619 C2620 C2621

Description AICD, dual chamber AICD, single chamber Generator, neuro non-recharg Lead, AICD, endo single coil Lead, neurostimulator Lead, pmkr, transvenous VDD Pmkr, dual, rate-resp Pmkr, single, rate-resp Generator, neuro rechg bat sys AICD, other than sing/dual Lead, AICD, endo dual coil Lead, AICD, non sing/dual Lead, neurostim test kit Lead, pmkr, other than trans Lead, pmkr/AICD combination Lead, coronary venous Pmkr, dual, non rate-resp Pmkr, single, non rate-resp Pmkr, other than sing/dual

4. Proposed Payment Policy When Devices are Replaced Without Cost or Where Credit for a Replaced Device is Furnished to the Hospital. As we discuss above in the context of the calculation of median costs for ICDs and pacemakers, in recent years there have been several field actions and recalls with regard to failure of these devices. In many of these cases, the manufacturers have offered replacement devices without cost to the hospital or credit for the device being replaced if the patient required a more expensive device. In some circumstances manufacturers have also offered, through a warranty package, to pay specified amounts for unreimbursed

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expenses to persons who had replacement devices implanted. In addition, we believe that incidental device failures that are covered by manufacturer warranties occur routinely. While we understand that some device malfunctions may be inevitable as medical technology grows increasingly sophisticated, we believe that early recognition of problems would reduce the number of people with the potential to be adversely affected by these device problems. The medical community needs heightened and early awareness of patterns of device failures, voluntary field actions, and recalls so that they can take appropriate action to care for our beneficiaries. Systematic efforts must be undertaken by all interested and involved parties, including manufacturers, insurers, and the medical community, to ensure that device problems are recognized and addressed as early as possible so that people’s health is protected and high quality medical care is provided. We are taking several steps to assist in the early recognition and analysis of patterns of device problems to minimize the potential for harmful device-related effects on the health of Medicare beneficiaries and the public in general. In recent years, CMS has recognized the importance of data collection as a condition of Medicare coverage for selected services. In 2005, CMS issued a National Coverage Determination (NCD) that expanded coverage of ICDs and required registry participation when the devices were implanted for certain clinical indications. The NCD included this requirement in order to ensure that the care received by Medicare beneficiaries was reasonable and necessary and, therefore, appropriately reimbursed. Presently, the American College of Cardiology – National Cardiovascular Data Registry (ACC-NCDR) collects these data and maintains the registry.

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In addition to ensuring appropriate payment of claims, collection, and ongoing analysis of ICD implantation, data can speed public health action in the event of future device recalls. The systematic recording of device manufacturer and model number can enhance patient and provider notification. Analysis of registry data may uncover patterns in complication rates (for example, device malfunction, device-related infection, and early battery depletion) associated with particular devices that signify the need for a more specific investigation. Patterns found in registry data may identify problems earlier than the currently available mechanisms, which do not systematically collect such detailed information surrounding procedures. We encourage the medical community to work to develop additional registries for implantable devices, so that timely and comprehensive information is available regarding devices, recipients of those devices, and their health status and outcomes. While participation in an ICD registry is required as a condition of coverage for ICD implantation for certain clinical conditions, we believe that the potential benefits of registries extend well beyond their application in Medicare’s specific national coverage determinations. As medical technology continues to swiftly advance, data collection regarding the short and long term outcomes of new technologies, and especially concerning implanted devices that may remain in the bodies of patients for their lifetimes, will be essential to the timely recognition of specific problems and patterns of complications. This information will facilitate early interventions to mitigate harm and improve the quality and efficiency of health care services.

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Moreover, data from registries may help further the development of high quality, evidence-based clinical practice guidelines for the care of patients who may receive device-intensive procedures. In turn, widespread use of evidence-based guidelines may reduce variation in medical practice, leading to improved personal and public health. Registry information may also contribute to the development of more comprehensive and refined quality metrics that may be used to systematically assess and then improve the safety and quality of health care. Such improvements in the quality of care that result in better personal health will require the sustained commitment of industry, payers, health care providers, and others towards that goal, along with excellent and open communication and rapid system-wide responses in a comprehensive effort to protect and enhance the health of the public. We look forward to further discussions with the public about new strategies to recognize device problems early and how to definitively address them, in order to minimize both the harmful health effects and increased health care costs that may result. In addition, we believe that the routine identification of Medicare claims where hospitals identify and then appropriately report selected services performed under the OPPS when devices are replaced without cost to the hospital or with full credit to the hospital for the cost of the replaced device, should provide comprehensive information regarding the outpatient hospital experiences of Medicare beneficiaries with certain devices that are being replaced. Because Medicare beneficiaries are common recipients of implanted devices, this claims information may be particularly helpful in identifying

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patterns of device problems early in their natural history so that appropriate strategies to reduce future problems may be developed. In addition to our concern for the public health, we also have a fiduciary responsibility to the Medicare trust fund to ensure that Medicare pays only for covered services. Therefore, we are proposing, effective for services furnished on or after January 1, 2007, to reduce the APC payment and beneficiary copayment for selected APCs in cases in which an implanted device is replaced without cost to the hospital or with full credit for the removed device. Specifically, we are proposing to revise the existing regulations by adding new §419.45, Payment and copayment reduction for replaced devices. This regulation is intended to cover certain devices for which credit for the replaced device is given or which are replaced as a result of or pursuant to a warranty, field action, voluntary recall, involuntary recall, and certain devices which are provided free of charge. It would provide for a reduction in the APC payment rate when we determine that the device is replaced without cost to the provider or beneficiary or when the provider receives full credit for the cost of a replaced device. The amount of the reduction to the APC payment rate would be calculated in the same manner as the offset amount that would be applied if the implanted device assigned to the APC had pass-through status as defined under §419.66. The beneficiary’s copayment amount would be calculated based on the reduced APC payment rate. We believe that this is appropriate because in these cases the full cost of the replaced device is not incurred and, therefore, we believe that an adjustment to the APC payment is necessary to remove the cost of the device. We believe that the averaging

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nature of the calculation of the amount of the adjustment causes it to be appropriately applied to cases of credit for the replaced device, regardless of whether there is a residual cost due to the implantation of a more expensive device. We also believe that the proposed adjustment is consistent with section 1862(a)(2) of the Act, which excludes from Medicare coverage an item or service for which neither the beneficiary nor anyone on his or her behalf has an obligation to pay. Payment of the full APC payment rate in these cases in which the device was replaced under warranty or in which there was a full credit for the price of the recalled or failed device effectively results in Medicare payment for a noncovered item. Moreover, it results in creation of a beneficiary liability for the copayment associated with the device for which the beneficiary has no liability. Therefore, we are proposing to adjust the APC payment rate in these circumstances under the authority of section 1833(t)(2)(E) of the Act, which permits us to make equitable adjustments to the OPPS payment rates. We recognize that in many cases, the packaged cost of the device is a relatively modest part of the APC payment for the procedure into which the device cost is packaged. In the case of devices of modest cost, we believe that the averaging nature of payments under the OPPS based on the conversion of charges to costs with CCRs would incorporate any significant savings from a warranty replacement, field action, or recall into the payment rate for the associated procedural APC and that no specific adjustment would be necessary or appropriate. However, in other cases, such as implantation of an ICD, the cost of the device is the majority of the cost of the APC and payment at the full

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payment rate for the procedural APC would pay the hospital much in excess of its incurred cost of the service. As we discuss above, we are proposing to set the APC payment rates for device-dependent APCs for the CY 2007 OPPS using only claims that contain appropriate devices to ensure that we make appropriate full payment when the hospital initially incurs the full cost of the device. Beginning in CY 2005, we required that device codes be billed for devices used and specifically required that hospitals bill certain device codes for some services. We are using the CY 2005 claims to set the payment rates for the CY 2007 OPPS. Currently, where the device is furnished without cost to the hospital, we have authorized hospitals to charge less than $1.01, although Medicare’s longstanding policy has been that, in these cases, providers may not charge for the device furnished to them without cost. (See the Medicare Internet Only Manual, Medicare Benefit Policy Manual, Publication 100-02 Chapter 16, section 40.4.) We authorized this charge because the CMS device edits require that the hospital must report an appropriate device if they bill for certain codes that cannot be performed without a device or the claim will be returned. Moreover, the Fiscal Intermediary Standard System will not accept the claim unless there is a charge for each HCPCS code billed. In addition, we were seeking a means of identifying these recall cases in the data. Therefore, by authorizing hospitals to charge less than $1.01 for the device we enabled the claim to be paid and also provided a mechanism for identifying devices for which the hospital incurred no expense.

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Where we set the payment rates for these device-dependent APCs using only claims that contain the full costs of devices when they are purchased by hospitals and exclude claims for which there is no appropriate device code or a charge for the device of less than $1.01, the proposed APC payments into which the full costs of the devices have been packaged would result in excessive program payments and beneficiary copayments for the services being furnished if the devices were provided without cost to hospitals. To avoid excessive payments in these circumstances, as noted previously we are proposing to adjust the APC payment rates when implanted devices have been replaced without cost to the hospital or beneficiary or where full credit for such a device has been given because the replacement device is of greater cost than the originally implanted device. We are proposing that the adjustment would be limited to the APCs listed in Table 21, but only when the purpose of the procedure is to replace a device that is reported by a HCPCS code in Table 22 which was furnished without cost or at full credit by the manufacturer. We are proposing that the following three criteria must each be met for an APC to be subject to the adjustment. We selected the APCs in Table 21 on the basis of these three criteria. The first criterion is that all procedures assigned to the selected APCs must require implantable devices that would be reported if device replacement procedures were performed. Therefore, the device being replaced must be necessary for the service to be furnished and without the devices, the services assigned to the APCs could not be performed. For services, and, therefore, their assigned APCs, where a device is not

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needed or where it may or may not be needed to perform a procedure, we do not believe that reducing the payment for the APCs would be appropriate because the charges for the devices are unlikely to be a significant factor in establishing the rates for the APCs. The second criterion is that the required devices must be surgically inserted or implanted devices that remain in the patient’s body after the conclusion of the procedures, at least temporarily. We believe this is necessary to establish that the replacement device is a direct replacement for the device being removed. In cases of failures of devices that are surgically inserted or implanted but do not remain in the patient’s body after the conclusion of procedures, we believe that it is highly likely that the replacement device is not specifically used to care for the patient on whom the original defective device was used and that, where a defective device of this type is used, there is no savings to the hospital. For example, if a vascular catheter fails during a procedure, we believe that the physician will probably use another similar catheter to finish the procedure. In these cases the hospital would correctly charge for the catheter that was used, and there would be no savings to the hospital from that procedure. The hospital would likely charge for both the defective device and the device used to complete the procedure because both catheters were used to provide the full service. We believe that if a replacement catheter is furnished to the hospital under warranty from the manufacturer, it would be used at a much later date on a different patient, it would most likely be charged to that patient account, and it would be unlikely to be specifically identified as being furnished without cost to the hospital. In these cases, we expect that any cost savings from the replacement devices such as these (for example, catheters) that

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are furnished without cost would be incorporated into the median costs for the procedures in the normal course of the data process through application of the CCRs generated from the cost reports. The third criterion is that the offset percent for the APC (that is, the median cost of the APC without device costs divided by the median cost of the APC with devices) must be significant. For this purpose, we are defining a significant offset percent as exceeding 40 percent. We believe that this percent is appropriate because our studies have shown that approximately 60 percent of the cost of OPPS services is wage-related, and that approximately 40 percent of the cost of OPPS services is not wage related. This is why we wage adjust 60 percent of the APC payment rates for all APCs, including APCs for which a greater percentage of the APC payment is for the cost of a device. We believe that once the device share of an APC exceeds the 40 percent we attribute to costs other than wage costs (for example, device costs, capital costs, plant costs, and supplies other than devices), the device cost is a significant part of the APC cost. Therefore, where the device costs in an APC exceed 40 percent, which is the average of all types of nonwage-related costs across all APCs, we are proposing to define the device costs as “significant” for purposes of this proposed policy. We recognize that it may be appropriate to define “significant” for this purpose at a different percentage of the APC cost because there are costs other than device costs (for example, capital costs and other supply costs) in the 40 percent of service costs to which the wage adjustment does not apply. We would reassess for future years whether it is appropriate to define “significant” for this purpose at a level other than 40 percent.

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For purposes of making the proposed adjustment, we would adapt the methodology that we have employed to establish an offset for the device costs incorporated into APCs in cases where a pass-through device is also being billed. We currently calculate the offset amount by first calculating a median including the device costs and then calculating a median excluding device costs using single bills that contain devices. We then divide the “without device” median by the “with device” median and subtract the percent from 100 to acquire the percent of cost attributable to devices in the APC. We apply this percent to the payment rate of the APC to determine the offset amount. For example, this is the methodology we used to calculate the offset amount for APC 0222 when current pass-through device C1820 (Generator, neuro rechg bat sys) is billed on the same claim. We believe that it is appropriate to apply this same methodology in circumstances when we need to remove the cost of the device from the APC payment, not because the device is being paid under pass-through but because the hospital is either not incurring the cost for the replaced device or has been given full credit for the replaced device. In both cases, the intent is to remove the cost of the device from the APC payment rate. Using this methodology, we calculated the proposed offset amounts in Table 21 by first calculating an APC median cost including device costs and then calculating a median cost excluding device costs, using only single bills that meet our device edits and do not have token charges for devices. We then divided the “without device” median cost by the “with device” median cost and subtracted the percent from 100 to acquire the

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percent of cost attributable to devices in the APC. We next applied this percent to the payment rate for the APC to determine the offset amount. The following is an example of the payment reduction in the case of replacement of an ICD under warranty. Where the cardioverter defibrillator pulse generator described by HCPCS code C1721 (AICD, dual chamber) is replaced under warranty during a procedure described by HCPCS code G0298 (Insertion of dual chamber pacing cardioverter defibrillator pulse generator), the hospital would report HCPCS code G0298 with a specified modifier and would also report HCPCS code C1721 with a token charge for the device. Assuming the hospital had a wage index of 1, the payment rate for APC 0107 after adjustment would be $1862.27. That is, the adjusted payment rate would equal the unadjusted payment rate for APC 0107 ($17,185.34) less the warranty reduction percentage in Table 21 of 89.13 percent ($15,317.29). Because the adjustment amount is set for the APC, the same adjustment amount would be removed if devices reported under HCPCS code C1722 or C1882 were reported with HCPCS code G0297. This is identical to the amount of adjustment that would apply to the payment for a pass-through device if there were, hypothetically, a new ICD to which we had given pass-through status (no ICD currently has pass-through status). We are proposing to both adjust the APC payment to remove payment for the device furnished without cost to the hospital or beneficiary and also to decrease the beneficiary copayment in proportion to the reduced APC payment so that the beneficiary would, in many but not all cases, share in the cost savings attributable to the provision of the device without cost by the manufacturer. We are proposing that when a device is

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replaced without cost to the hospital under warranty or recall or a credit is provided for the cost of a failed or recalled device (unlike cases of offset for a pass-through device), the beneficiary’s copayment would be calculated based on the reduced APC payment rate, maintaining the same percentage copayment as applies to the unadjusted APC payment if the inpatient deductible is not exceeded. We believe that it is appropriate to reduce the beneficiary copayment in these cases because the device is being furnished or credited by the manufacturer without obligation on the part of the beneficiary. We note, however, that in the case of some high cost APCs, making the payment adjustment in a recall or warranty situation may not result in reduction of the copayment because the copayment, although based on the reduced payment rate, may continue to exceed the inpatient deductible and, therefore, would continue to be set at the inpatient deductible. In contrast, in the case of pass-through devices, the beneficiary is liable for the copayment on the full APC amount (which, in the case of high cost APCs, is limited to the Medicare inpatient deductible) but pays no copayment for the incremental cost of the pass-through device. This is appropriate in the case of payment for pass-through devices because the hospital incurs costs for both the service and the device, and Medicare pays for both the service through the full APC payment and for the incremental cost of the pass-through device above the costs of associated devices already reflected in the APC payment at charges reduced to cost by a CCR. The pass-through payment amount is reduced only to prevent the program from making duplicate payment for a portion of the device, once as part of the APC payment and once through the pass-through payment.

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We are proposing to implement the adjustment through the use of an appropriate modifier specific to a device replacement without cost or crediting of the cost of a device by the manufacturer. Hospitals would be required to report the modifier appended to a specific procedure on claims for services when two conditions are met. The first condition is that the procedure is assigned to one of the APCs in Table 21. We have discussed above the criteria that we employed for selecting the APCs in Table 21. The second condition is that the device for which the manufacturer furnished a replacement device (or provided credit for the device being replaced) is one of the devices included in Table 22. We are restricting the devices to which the adjustment would apply to those included in Table 22 in order to ensure that the adjustment is not triggered by the replacement of an inexpensive device whose cost does not constitute a significant proportion of the total payment rate for an APC. The presence of the modifier would trigger the adjustment in payment for the APCs in Table 21. While we recognize that this creates a reporting burden for hospitals, we believe the reporting requirement is unavoidable. Only hospitals can report whether the circumstances for reduced payment as described above are met and, therefore, we see no option other than to have hospitals report this information to us. We recognize that the current FB modifier (“Item furnished without cost to provider, supplier or practitioner”) may not be appropriate in cases in which the replacement device is a more expensive device than the device being removed and may need to be changed to expand its use for all potential APC payment adjustment scenarios.

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Our proposed policy would accomplish three important goals. First and foremost, it would advise us of the extent to which devices are being replaced due to device failures so that, if patterns are identified, we can explore them to see if there are systemic problems with certain devices. The reporting of a specific modifier with certain procedure codes would allow us to examine patterns of delivery of specific hospital services when implanted devices are replaced without cost or with full credit for the cost of a device by the manufacturer, in comparison with publicly available information about problematic devices. Analysis of outpatient hospital claims would serve as an additional source of information to the medical community about patterns of device failures, voluntary field actions, and recalls, contributing to improved awareness and understanding of problems. Secondly, it would ensure equitable adjustment to the payments for surgical procedures to replace problematic devices by providing payments to hospitals only for the nondevice related procedural costs when a device is replaced without cost to the hospital for the device or with full credit for the removed device. Thirdly, it would also identify those claims that contain reduced device charges due to the full credit provided by the manufacturer for a replaced device so that in the future we can assess the impact of these claims on median costs for the services into which the device costs are packaged. This proposed policy would be effective for services furnished on or after January 1, 2007. We believe that this proposed policy is necessary to enable us to secure claims data that may be used to identify trends in device problems that lead to device replacements. It is also necessary to fulfill our fiduciary responsibility to the Medicare

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program by not providing payments for items that are excluded from coverage under Medicare law because neither the beneficiary nor any party on his or her behalf has an obligation to pay. Table 21. -- Proposed Adjustment to APCs in Cases of Replacement of or Full Credit for Failed or Recalled Device

APC 0039

SI S

0040

S

0061 0089 0090 0106 0107 0108 0222 0225 0226 0227 0229 0259 0315 0385 0386 0418 0654 0655 0680 0681

S T T T T T T S T T T T T S S T T T S T

APC Group Title Level I Implantation of Neurostimulator Percutaneous Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve Laminectomy or Incision for Implantation of Neurostimulator Electrodes, Excludin Insertion/Replacement of Permanent Pacemaker and Electrodes Insertion/Replacement of Pacemaker Pulse Generator Insertion/Replacement/Repair of Pacemaker and/or Electrodes Insertion of Cardioverter-Defibrillator Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads Implantation of Neurological Device Implantation of Neurostimulator Electrodes, Cranial Nerve Implantation of Drug Infusion Reservoir Implantation of Drug Infusion Device Transcatherter Placement of Intravascular Shunts Level VI ENT Procedures Level II Implantation of Neurostimulator Level I Prosthetic Urological Procedures Level II Prosthetic Urological Procedures Insertion of Left Ventricular Pacing Elect. Insertion/Replacement of a permanent dual chamber pacemaker Insertion/Replacement/Conversion of a permanent dual chamber pacemaker Insertion of Patient Activated Event Recorders Knee Arthroplasty

CY 2007 Proposed Offset Percent 78.51% 54.66% 60.59% 77.14% 74.56% 41.04% 89.13% 89.15% 78.10% 80.62% 62.21% 81.50% 42.32% 84.03% 83.52% 46.88% 61.32% 86.11% 76.73% 76.89% 77.03% 73.26%

Table 22. -- Devices for Which the Proposed Modifier Must be Reported with the Procedure Code When Furnished Without Cost or at Full Credit for a Replaced Device Device C1721 C1722 C1764 C1767 C1771

Description AICD, dual chamber AICD, single chamber Event recorder, cardiac Generator, neurostim, imp Rep dev, urinary, w/sling

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Description Infusion pump, programmable Joint device (implantable Lead, AICD, endo single coil Lead, neurostimulator Lead, pmkr, transvenous VDD Pmkr, dual, rate-resp Pmkr, single, rate-resp Prosthesis, penile, inflatab Pros, urinary sph, imp Generator, neuro rechg bat sys AICD, other than sing/dual Infusion pump, non-prog, perm Lead, AICD, endo dual coil Lead, AICD, non sing/dual Lead, neurostim, test kit Lead, pmkr, other than trans Lead, pmkr/AICD combination Lead coronary venous Pmkr, dual, non rate-resp Pmkr, single, non rate-resp Pmkr, other than sing/dual Prosthesis, penile, non-inf Infusion pump, non-prog, temp Rep dev, urinary, w/o sling Cochlear device/system

B. Proposed Pass-Through Payments for Devices (If you choose to comment on issues in this section, please include the caption “Pass-Through Devices” at the beginning of your comment.) 1. Expiration of Transitional Pass-Through Payments for Certain Devices a. Background Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3, years. This period begins with the first date on which a transitional pass-through

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payment is made for any medical device that is described by the category. The device category codes became effective April 1, 2001, under the provisions of the BIPA. Prior to pass-through device categories, Medicare payments for pass-through devices under the OPPS were made on a brand-specific basis. All of the initial 97 category codes that were established as of April 1, 2001, have expired; 95 categories expired after CY 2002, and 2 categories expired after CY 2003. In addition, nine new categories have expired since their creation. We currently have no category codes for pass-through devices that will expire January 1, 2007. We created one new category effective January 1, 2006, for C1820 (Generator, neurostimulator (implantable), with rechargeable battery and charging system), which we are proposing to continue to pay under the pass-through provision in CY 2007 under the OPPS. This category was created after we published modifications to our criteria in the CY 2006 OPPS final rule with comment period on November 10, 2005 (70 FR 68628 through 68631) allowing CMS to refine previous pass-through category descriptions that would have prevented us from making pass-through payments for a new technology that otherwise met our criteria. These modifications amended the original criteria and process for creating additional device categories for pass-through payment that we published on November 2, 2001 (66 FR 55850 through 55857). Under our established policy, we base the expiration dates for the category codes on the date on which a category was first eligible for pass-through payment. In the November 1, 2002 OPPS final rule, we established a policy for payment of devices included in pass-through categories that are due to expire (67 FR 66763). For CY 2003 through CY 2006, we packaged the costs of the devices no longer eligible for

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pass-through payments into the costs of the procedures with which the devices were billed in the claims data used to set the payment rates for those years. Brachytherapy sources, which are now separately paid in accordance with section 1833(t)(2)(H) of the Act, are an exception to this established policy (with the exception of brachytherapy sources for prostate brachytherapy, which were packaged in the CY 2003 OPPS only). b. Proposed Policy for CY 2007 As we stated earlier, currently we have one effective device category for pass-through payment, C1820, which we created for pass-through payment effective January 1, 2006. We are proposing to continue to make payment under the pass-through provisions for category C1820 for CY 2007. We are proposing that this category would expire from pass-through payment after December 31, 2007. This would provide the category transitional pass-through payment status for a 2-year period, in accordance with the statutory requirement that no category be paid as a pass-through device for less than 2 years, nor more than 3 years. 2. Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged into APC Groups a. Background In the November 30, 2001 OPPS final rule, we explained the methodology we used to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of the associated devices that are eligible for pass-through payments (66 FR 59904). Beginning with the implementation of the CY 2002 OPPS quarterly update (April 1, 2002), we deducted from the pass-through payments for the identified

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devices an amount that reflected the portion of the APC payment amount that we determined was associated with the cost of the device, as required by section 1833(t)(6)(D)(ii) of the Act. In the November 1, 2002 interim final rule with comment period, we published the applicable offset amounts for CY 2003 (67 FR 66801). For the CY 2002 and CY 2003 OPPS updates, to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of an associated device eligible for pass-through payment, we used claims data from the period used for recalibration of the APC rates. That is, for CY 2002 OPPS updating, we used CY 2000 claims data, and for CY 2003 OPPS updating, we used CY 2001 claims data. For CY 2002, we used median cost claims data based on specific revenue centers used for device-related costs because C-code cost data were not available until CY 2003. For CY 2003, we calculated a median cost for every APC without packaging the costs of associated C-codes for device categories that were billed with the APC. We then calculated a median cost for every APC with the costs of the associated device category C-codes that were billed with the APC packaged into the median. Comparing the median APC cost without device packaging to the median APC cost, including device packaging, enabled us to determine the percentage of the median APC cost that is attributable to the associated pass-through devices. By applying those percentages to the APC payment rates, we determined the applicable amount to be deducted from the pass-through payment, the ‘‘offset’’ amount. We created an offset list comprised of any APC for which the device cost was at least 1 percent of the APC’s cost.

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The offset list that we published for CY 2002 through CY 2004 was a list of offset amounts associated with those APCs with identified offset amounts developed using the methodology described above. As a rule, we do not know in advance which procedures residing in certain APCs may be billed with new device categories. Therefore, an offset amount is applied only when a new device category is billed with a HCPCS procedure code that is assigned to an APC appearing on the offset list. For CY 2004, we modified our policy for applying offsets to device pass-through payments. Specifically, we indicated that we would apply an offset to a new device category only when we could determine that an APC contains costs associated with the device. We continued our existing methodology for determining the offset amount, described earlier. We were able to use this methodology to establish the device offset amounts for CY 2004 because providers reported device codes (C-codes) on the CY 2002 claims used for the CY 2004 OPPS update. For the CY 2005 update to the OPPS, our data consisted of CY 2003 claims that did not contain device codes and, therefore, for CY 2005, we utilized the device percentages as developed for CY 2004. In the CY 2004 OPPS update, we reviewed the device categories eligible for continuing pass-through payment in CY 2004 to determine whether the costs associated with the device categories are packaged into the existing APCs. Based on our review of the data for the device categories existing in CY 2004, we determined that there were no close or identifiable costs associated with the devices relating to the respective APCs that are normally billed with them. Therefore, for those device categories, we set the offset amount to $0 for

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CY 2004. We continued this policy of setting the offset amount to $0 for the device categories that continued to receive pass-through payment in CY 2005. For the CY 2006 OPPS update, CY 2004 hospital claims were available for analysis. Hospitals billed device C-codes in CY 2004 on a voluntary basis. We reviewed our CY 2004 data and found that the numbers of claims for services in many of the APCs for which we calculated device percentages using CY 2004 data were quite small. We also found that many of these APCs already had relatively few single claims available for median calculations compared with the total bill frequencies because of our inability to use many multiple bills in establishing median costs for all APCs. In addition, we found that our claims demonstrated that relatively few hospitals specifically coded for devices utilized in CY 2004. Thus, we were not confident that CY 2004 claims reporting C-codes represented the typical costs of all hospitals providing the services. Therefore, we did not use CY 2004 claims with device coding to calculate CY 2006 device offset amounts. In addition, we did not use the CY 2005 methodology, for which we utilized the device percentages as developed for CY 2004. Two years had passed since we developed the device offsets for CY 2004, and the device offsets originally calculated from CY 2002 hospitals’ claims data may either have overestimated or underestimated the contributions of device costs to total procedural costs in the outpatient hospital environment of CY 2004. In addition, a number of the APCs on the CY 2004 and CY 2005 device offset percentage lists were either no longer in existence or were so significantly reconfigured that the past device offsets likely did not apply.

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For CY 2006, we reviewed the single new device category established thus far, C1820, to determine whether device costs associated with the new category are packaged into the existing APC structure. Under our established policy, if we determine that the device costs associated with the new category are closely identifiable to device costs packaged into existing APCs, we set the offset amount for the new category to an amount greater than $0. Our review of the service indicated that the median costs for the applicable APC 0222 (Implantation of Neurological Device) contained costs for neurostimulators similar to the costs of the new device category C1820. Therefore, we determined that a device offset would be appropriate. We announced an offset amount for that category in Program Transmittal No. 804, dated January 3, 2006. For CY 2006, we are using available partial year CY 2005 hospital claims data to calculate device percentages and potential offsets for CY 2006 applications for new device categories. Effective January 1, 2005, we require hospitals to report device C-codes and their costs when hospitals bill for services that utilize devices described by the existing C-codes. In addition, during CY 2005, we implemented device edits for many services that require devices and for which appropriate device C-codes exist. Therefore, we expected that the number of claims that include device codes and their respective costs to be much more robust and representative for CY 2005 than for CY 2004. We believe that use of the most current claims data to establish offset amounts when they are needed to ensure appropriate payment is consistent with our stated policy; therefore, we are proposing to continue to do so for the CY 2007 OPPS. Specifically, if we create a new device category for payment in CY 2007, to calculate potential offsets

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we are proposing to examine the most current available claims data, including device costs, to determine whether device costs associated with the new category are already packaged into the existing APC structure, as indicated earlier. If we conclude that some related device costs are packaged into existing APCs, we are proposing to use the methodology described earlier and first used for the CY 2003 OPPS to determine an appropriate device offset percentage for those APCs with which the new category would be reported. We did not publish a list of APCs with device percentages as a transitional policy for CY 2006 because of the previously discussed limitations of the CY 2004 OPPS data with respect to device costs associated with procedures. We stated in the CY 2006 final rule with comment period (70 FR 68628) that we expected to reexamine our previous methodology for calculating the device percentages and offset amounts for the CY 2007 OPPS update, which would be based on CY 2005 hospital claims data where device C-code reporting is required. b. Proposed Policy for CY 2007 For CY 2007, we are proposing to continue to review each new device category on a case-by-case basis as we have done in CY 2004, CY 2005, and CY 2006, to determine whether device costs associated with the new category are packaged into the existing APC structure. If we determine that, for any new device category, no device costs associated with the new category are packaged into existing APCs, we are proposing to continue our current policy of setting the offset amount for the new category to $0 for CY 2007. There is currently one new device category that would continue for

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pass-through payment in CY 2007. This category, described by HCPCS code C1820, currently has an offset amount of $8,647.81, which is applied to APC 0222. We are proposing to update this offset for CY 2007 based on the full year of claims data for CY 2005, the claims data year for our CY 2007 rate update. We are proposing an offset amount for C1820 of 78.1 percent of the proposed CY 2007 payment rate for APC 0222 based on the CY 2005 data used to calculate the proposed payment amount in this proposed rule. (See Addendum A of this proposed rule for a listing of the proposed CY 2007 APC payment rates.) We are proposing to continue our existing policy to establish new categories in any quarter when we determine that the criteria for granting pass-through status for a device category are met. If we create a new device category and determine that our data contain a sufficient number of claims with identifiable costs associated with the new category of devices in any APC, we are proposing to adjust the APC payment if the offset amount is greater than $0. If we determine that a device offset greater than $0 is appropriate for any new category that we create, we are proposing to announce the offset amount in the program transmittal that announces the new category. In summary, for CY 2007, we are proposing to use CY 2005 hospital claims data to calculate device percentages and potential offsets for CY 2007 applications for new device categories. We are proposing to publish, through program transmittals, any new or updated offsets that we calculate for CY 2007, corresponding to newly created categories or existing categories, respectively.

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V. Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals A. Proposed Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals (If you choose to comment on issues in this section, please include the caption “Pass-Through Drugs” at the beginning of your comment.) 1. Background Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through payments” for certain drugs and biological agents. As originally enacted by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub.L. 106-113), this provision requires the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current drugs and biological agents and brachytherapy sources used for the treatment of cancer; and current radiopharmaceutical drugs and biological products. For those drugs and biological agents referred to as “current,” the transitional pass-through payment began on the first date the hospital OPPS was implemented (before enactment of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act BIPA of 2000 (Pub. L. 106-554), on December 21, 2000). Transitional pass-through payments are also required for certain “new” drugs and biological agents that were not being paid for as a hospital outpatient department service as of December 31, 1996, and whose cost is “not insignificant” in relation to the OPPS

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payments for the procedures or services associated with the new drug or biological. Under the statute, transitional pass-through payments can be made for at least 2 years but not more than 3 years. In Addenda A and B of this proposed rule, proposed CY 2007 pass-through drugs and biological agents are identified by status indicator “G.” The process to apply for transitional pass-through payment for eligible drugs and biological agents can be found on our CMS Web site: www.cms.hhs.gov. If we revise the application instructions in any way, we will post the revisions on our Web site and submit the changes to the Office of Management and Budget (OMB) for approval, as required under the Paperwork Reduction Act (PRA). Notification of new drugs and biologicals application processes is generally posted on the OPPS Web site at: http://www.cms.hhs.gov/providers/hopps. 2. Expiration in CY 2006 of Pass-Through Status for Drugs and Biologicals Section 1833(t)(6)(C)(i) of the Act specifies that the duration of transitional pass-through payments for drugs and biologicals must be no less than 2 years and no longer than 3 years. The 12 drugs and biologicals listed in Table 23, whose pass-through status will expire on December 31, 2006, meet that criterion. For all drugs and biologicals with pass-through status expiring on December 31, 2006, that are currently assigned temporary C-codes, if there is a permanent HCPCS code available for CY 2007 that describes the product, then we are proposing to delete the C-code and use the permanent HCPCS code for purposes of OPPS billing and payment for the product in CY 2007. Based on our review of the existing permanent HCPCS codes available at the time of this proposed rule, we have determined that HCPCS code J7344 (Nonmetabolic

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active tissue) appropriately describes the product reported under HCPCS code C9221 in the CY 2006 OPPS; therefore, we propose to delete C9221 and pay for this product using J7344 in CY 2007. The coding changes for the other products will depend on what the final HCPCS codes are for CY 2007, which will be included in the CY 2007 OPPS final rule. We specifically request comments on this proposed policy for CY 2007. Table 23.-- Proposed List of Drugs and Biologicals for Which Pass-Through Status Expires December 31, 2006 HCPCS C9220 C9221 C9222 J0128 J0878 J2357 J2783 J2794 J7518 J9035 J9055 J9305

APC 9220 9221 9222 9216 9124 9300 0738 9125 9219 9214 9215 9213

Short Descriptor Sodium hyaluronate Graftjacket Reg Matrix Graftjacket Sft Tis Abarelix injection Daptomycin injection Omalizumab injection Rasburicase Risperidone, long acting Mycophenolic acid Bevacizumab injection Cetuximab injection Pemetrexed injection

3. Drugs and Biologicals With Proposed Pass-Through Status in CY 2007 We are proposing to continue pass-through status in CY 2007 for nine drugs and biologicals. These items, which are listed in Table 24 below, were given pass-through status as of April 1, 2006. The APCs and HCPCS codes for drugs and biologicals that we are proposing to continue with pass-through status in CY 2007 are assigned status indicator “G” in Addenda A and B of this proposed rule. Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-through eligible drugs (assuming that no pro rata reduction in pass-through payment is necessary) as the

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amount determined under section 1842(o) of the Act. We note that this section of the Act also states that if a drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the payment rate is equal to the average price for the drug or biological for all competitive acquisition areas and the year established as calculated and adjusted by the Secretary. Section 1847A of the Act, as added by section 303(c) of Pub. L. 108-173, establishes the use of the average sales price (ASP) methodology as the basis for payment of drugs and biologicals described in section 1842(o)(1)(C) of the Act and furnished on or after January 1, 2005. This payment methodology is set forth in §419.64 of the regulations. Section 1847B of the Act, as added by section 303(d) of Pub. L.108-173, establishes the payment methodology for drugs and biologicals under the competitive acquisition program. The competitive acquisition program was implemented as of July 1, 2006. The list of drugs and biologicals covered under this program can be found on http://www.cms.hhs.gov/CompetitiveAcquisforBios, along with their payment rates and information on the program’s methodology. Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-through eligible drugs as the amount determined under section 1842(o) of the Act, or if a drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the payment rate is equal to the average price for the drug or biological for all competitive acquisition areas and the year established as calculated and adjusted by the Secretary. For CY 2007, under the OPPS we are proposing payment for drugs and biologicals with pass-through status that will also be covered under the competitive

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acquisition program to be based on the competitive acquisition program methodology. Similar to the payment policy established for pass-through drugs and biologicals in CY 2006, we are proposing to pay under the OPPS for all other drugs and biologicals with pass-through status in CY 2007 consistent with the provisions of section 1842(o) of the Act, as amended by section 621 of Pub. L. 108-173, at a rate that is equivalent to the payment these drugs and biologicals would receive in the physician office setting. Table 24 lists the drugs and biologicals for which we are proposing that pass-through status continue in CY 2007. Of these nine drugs and biologicals, only HCPCS codes J2503 (Pegaptanib sodium injection) and J9264 (Paclitaxel injection) are covered under the competitive acquisition program at the time of the development of this proposed rule. Therefore, in CY 2007, we are proposing to set payment for HCPCS codes J2503 and J9264 at the amounts determined under the competitive acquisition program, which will be a rate slightly different than the rate determined under the ASP methodology. Payment for all other drugs and biologicals would be equivalent to the payment these drugs and biologicals would receive in the physician office setting in CY 2007, where payment will be determined by the methodology described in §419.904 and generally be equal to ASP+6 percent. In accordance with the ASP methodology, in the absence of ASP data, we are continuing the policy we implemented during CYs 2005 and 2006 of using the wholesale acquisition cost (WAC) for the product to establish the initial payment rate. We note, however, that if the WAC is also unavailable, then we would make payment at 95 percent of the product’s most recent AWP. We adopted this interim payment methodology in order to be consistent with how

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we pay for new drugs, biologicals, and radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 OPPS final rule with comment period (70 FR 68669). We further note that with respect to items for which we currently do not have ASP data, once their ASP data become available in later quarter submissions, their payment rates under OPPS will be adjusted so that the rates are based on the ASP methodology and set to ASP+6 percent. Currently, there are no radiopharmaceuticals that would have pass-through status in CY 2007. In the event that a new radiopharmaceutical agent receives pass-through status in CY 2007, we propose to base its payment on the WAC for the product as ASP data for radiopharmaceuticals are not available. We note, however, that if the WAC is also unavailable, then we would calculate payment for the radiopharmaceutical at 95 percent of its most recent AWP. We are proposing to adopt this interim payment methodology in order to be consistent with how we pay for new drugs, biologicals, and radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 OPPS final rule with comment period (70 FR 68669). Section 1833(t)(6)(D)(i) of the Act also sets the amount of additional payment for pass-through eligible drugs and biologicals (the pass-through payment amount). The pass-through payment amount is the difference between the amount authorized under section 1842(o) of the Act (or under section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract), and the portion of the otherwise applicable fee schedule amount (that is, the APC payment rate) that the Secretary determines is associated with the drug or biological.

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We discuss in section V.B.3.b. of the preamble that we are proposing to make separate payment in CY 2007 for new drugs and biologicals with a HCPCS code, consistent with the provisions of section 1842(o) of the Act at a rate that is equivalent to the payment they would receive in a physician office setting (or under section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract), whether or not we have received a pass-through application for the item. Accordingly, in CY 2007 the pass-through payment amount would equal zero for those new drugs and biologicals that we determine have pass-through status. That is, when we subtract the amount to be paid for pass-through drugs and biologicals under section 1842(o) of the Act (or section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract), from the portion of the otherwise applicable fee schedule amount or the APC payment rate associated with the drug or biological that would be the amount paid for drugs and biologicals under section 1842(o) of the Act (or section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract), the resulting difference is equal to zero. We are proposing to use payment rates based on the ASP data from the fourth quarter of CY 2005 for budget neutrality estimates, impact analyses, and to complete Addenda A and B of this proposed rule because these are the most recent data available to us at this time. These payment rates are also the basis for drug payments in the physician office setting effective April 1, 2006. To be consistent with the ASP-based payments that would be made when these drugs and biologicals are furnished in physician offices, we are proposing to make any appropriate adjustments to the amounts

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shown in Addenda A and B of this proposed rule when we publish our CY 2007 OPPS final rule and also on a quarterly basis on our Web site during CY 2007 if later quarter ASP submissions (or more recent WACs or AWPs) indicate that adjustments to the payment rates for these pass-through drugs and biologicals are necessary. The payment rate for a radiopharmaceutical with pass-through status would also be adjusted accordingly. We also are proposing to make appropriate adjustments to the payment rates for these drugs and biologicals in the event that they become covered under the competitive acquisition program in the future. For drugs and biologicals that are currently covered under the competitive acquisition program, we are proposing to use the payment rates calculated under this program that are in effect as of July 1, 2006. We are proposing to update these payment rates if the rates change in the future. Table 24 lists the drugs and biologicals for which we are proposing that pass-through status continue in CY 2007. We assigned pass-through status to these drugs and biologicals as of April 1, 2006. We also have included in Addenda A and B of this proposed rule, the proposed CY 2007 APC payment rates for all pass-through drugs and biologicals, based on ASP data from the fourth quarter of CY 2005 (or if applicable, payment rates calculated under the competitive acquisition program) as described above. Table 24.-- Proposed List of Drugs and Biologicals With Pass-Through Status in CY 2007 HCPCS C9225 C9227 C9228 J2278 J2503 J8501

APC 9225 9227 9228 1694 1697 0868

Short Descriptor Fluocinolone acetonide Injection, micafungin sodium Injection, tigecycline Ziconotide injection Pegaptanib sodium injection Oral aprepitant

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APC Short Descriptor 1710 Clofarabine injection 1712 Paclitaxel injection 9126 Natalizumab injection

B. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status (If you choose to comment on issues in this section, please include the caption “OPPS: Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals” at the beginning of your comment.) 1. Background Under the CY 2006 OPPS, we currently pay for drugs, biologicals, and radiopharmaceuticals that do not have pass-through status in one of two ways: packaged payment within the payment for the associated service or separate payment (individual APCs). We explained in the April 7, 2000 OPPS final rule with comment period (65 FR 18450) that we generally package the cost of drugs and radiopharmaceuticals into the APC payment rate for the procedure or treatment with which the products are usually furnished. Hospitals do not receive separate payment from Medicare for packaged items and supplies, and hospitals may not bill beneficiaries separately for any packaged items and supplies whose costs are recognized and paid within the national OPPS payment rate for the associated procedure or service. (Program Memorandum Transmittal A-01-133, issued on November 20, 2001, explains in greater detail the rules regarding separate payment for packaged services.)

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Packaging costs into a single aggregate payment for a service, procedure, or episode of care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of items and services into the payment for the primary procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. Notwithstanding our commitment to package as many costs as possible, we are aware that packaging payments for certain drugs, biologicals, and radiopharmaceuticals, especially those that are particularly expensive or rarely used, might result in insufficient payments to hospitals, which could adversely affect beneficiary access to medically necessary services. Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of Pub. L. 108 -173, requires that the threshold for establishing separate APCs for drugs and biologicals be set at $50 per administration for CYs 2005 and 2006. However, this requirement for establishing the packaging threshold will expire at the end of CY 2006. For CY 2006, we finalized our policy to continue paying separately for drugs, biologicals, and radiopharmaceuticals whose per day cost exceeds $50 and packaging the costs of drugs, biologicals, and radiopharmaceuticals whose per day cost is less than $50 into the procedures with which they are billed. For CY 2006, we also continued an exception policy to our packaging rule for one particular class of drugs, the oral and injectable 5HT3 forms of anti-emetic treatments (70 FR 68635 through 68638).

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2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals During the March 2006 meeting of the APC Panel, the Panel recommended that CMS maintain the $50 packaging threshold or if the threshold is reevaluated, that CMS provide the Panel with data that indicate the costs of packaged drugs that are incorporated into drug administration payment rates. As indicated above, in accordance with section 1833(t)(16)(B) of the Act, the threshold for establishing separate APCs for drugs and biologicals was set to $50 per administration during CYs 2005 and 2006. Because this packaging threshold will expire at the end of CY 2006, we evaluated four options for packaging levels so that we could determine what the appropriate packaging threshold proposal for drugs, biologicals, and radiopharmaceuticals would be for the CY 2007 OPPS update. One of the packaging options we considered for the CY 2007 OPPS update was to pay separately for all drugs, biologicals, and radiopharmaceuticals with a HCPCS code. This would be a straightforward policy that would speed the creation of procedural APC medians. However, this policy would be inconsistent with OPPS packaging principles, reduce hospitals’ incentives for economy and efficiency, and increase hospitals’ administrative burden related to separate billing for more drugs, biologicals, and radiopharmaceuticals. The second option we considered for CY 2007 was to increase the packaging threshold to a level much higher than the current $50 threshold. This option would result in the packaging of more drugs, biologicals, and radiopharmaceuticals and would be

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more consistent with OPPS packaging principles. This option would also provide greater administrative simplicity for hospitals. However, implementation of this option might result, in some cases, in the drug administration payments being less than the cost of the packaged drugs. Relatively expensive drugs, biologicals, and radiopharmaceuticals could also be packaged under this option. The third packaging threshold option we evaluated was to maintain the packaging threshold at $50. We believe that this is a reasonable policy option that would provide stability to the payment system, as the packaging threshold has been set at $50 since CY 2004. This policy option would also be consistent with the APC Panel recommendation to maintain the packaging threshold at $50 in CY 2007; however, this policy would not take into account price inflation in determining the drug packaging threshold since the $50 threshold was initially established. Consequently, the fourth option we considered and are proposing for CY 2007 and subsequent years is to update the packaging threshold for inflation using an inflation adjustment factor based on the Producer Price Index (PPI) for prescription preparations. In order to update the packaging threshold for CY 2007 under this proposal, we used the four quarter moving average PPI levels for prescription preparations to trend the $50 threshold forward from the third quarter of CY 2005 (when the Pub. L. 108-173-mandated threshold became effective) to the third quarter of CY 2007. We are proposing that for each year beginning with CY 2007, we would adjust the packaging threshold by the PPI for prescription drugs, and the adjusted dollar amount would be rounded to the nearest $5 increment in order to determine the new threshold.

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The adjusted amount for CY 2007 was calculated to be $55.99, which we are rounding to $55. Therefore, for CY 2007, we are proposing to pay separately for drugs, biologicals, and radiopharmaceuticals whose per day cost exceeds $55 and packaging the costs of drugs, biologicals, and radiopharmaceuticals whose per day cost is less than or equal to $55 into the procedures with which they are billed. This proposed policy is consistent with the principle employed in many health care payment policy areas (and many other areas of government policy) of acknowledging the real costs by using an inflation adjustment instead of static dollar values. We believe that our proposed policy is consistent with the APC Panel’s recommendation because we would be maintaining the $50 threshold in terms of its real value during the calendar year in which it would be in effect. Also, in the absence of a mechanism to update the threshold, we believe that current relatively inexpensive drugs would begin to receive separate payment over time. The PPI for prescription preparations reflects price changes at the wholesale or manufacturer stage. Because OPPS payment rates for drugs and biologicals are generally based on average sales price (ASP) data that are reported by their manufacturers, we believe that the PPI for prescription preparations would be an appropriate price index to use to update the packaging threshold for CY 2007 and beyond. For CY 2007, we are also proposing to continue our policy of exempting the oral and injectable 5HT3 anti-emetic products from our packaging rule (Table 25), thereby making separate payment for all of the 5HT3 anti-emetic products. As stated in the CY 2005 OPPS final rule with comment period (69 FR 65779 through 65780),

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chemotherapy is very difficult for many patients to tolerate, as the side effects are often debilitating. In order for Medicare beneficiaries to achieve the maximum therapeutic benefit from chemotherapy and other therapies with side effects of nausea and vomiting, anti-emetic use is often an integral part of the treatment regimen. We believe that we should continue to ensure that Medicare payment rules do not impede a beneficiary’s access to the particular anti-emetic that is most effective for him or her as determined by the beneficiary and his or her physician. We solicit comments on these packaging proposals. Table 25.--Proposed Anti-Emetics to Exempt from Proposed $55 Packaging Requirement HCPCS Code J1260 J1626 J2405 J2469 Q0166 Q0179 Q0180

Short Description Dolasetron mesylate Granisetron HCl injection Ondansetron HCl injection Palonosetron HCl Granisetron HCl 1 mg oral Ondansetron HCl 8 mg oral Dolasetron mesylate oral

To determine their CY 2007 proposed packaging status, we calculated the per day cost of all drugs, biologicals, and radiopharmaceuticals that had a HCPCS code in CY 2005 and were paid (via packaged or separate payment) under the OPPS using claims data from January 1, 2005, to December 31, 2005. In CY 2005, multisource drugs and radiopharmaceuticals had two HCPCS codes that distinguished the innovator multisource (brand) drug or radiopharmaceutical from the noninnovator multisource (generic) drug or radiopharmaceutical. We aggregated claims for both the brand and generic HCPCS codes in our packaging analysis of these multisource products. In order to calculate the

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per day cost for drugs, biologicals, and radiopharmaceuticals to determine their packaging status in CY 2007, we are proposing to use the methodology that was described in detail in the CY 2006 OPPS proposed rule (70 FR 42723 through 42724) and finalized in the CY 2006 OPPS final rule with comment period (70 FR 68636 through 68638). However, in our calculation of per day costs for this proposed rule for the CY 2007 OPPS update, we used the payment rate for each drug and biological at its ASP+5 percent which was based on manufacturer-submitted ASP data from the fourth quarter of CY 2005. The ASP data from this period were also the basis for determining payments for drugs and biologicals in the physician office setting, effective April 1, 2006. The rationale for using ASP+5 percent as the payment for drugs and biologicals is described in section V.B.3.a.2. of this preamble. For items that did not have an ASP-based payment rate, we used their mean unit cost derived from the CY 2005 hospital claims data to determine their per day cost. We packaged the items with per day cost less than or equal to $55 and made items with per day cost greater than $55 separately payable. We are requesting comments on the methodology we are proposing to use to determine the per day cost of drugs, biologicals, and radiopharmaceuticals under the CY 2007 OPPS update. Our policy during previous cycles of the OPPS has been to use updated data for the final rules. For the CY 2007 OPPS final rule, we are proposing to use the ASP data from the first quarter of CY 2006, which would be the basis for calculating payment rates for drugs and biologicals in the physician office setting using the ASP methodology effective July 1, 2006, along with updated hospital claims data from CY 2005 to

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determine the final per day costs of drugs, biologicals, and radiopharmaceuticals and their packaging status in CY 2007. Subsequently, payment rates for CY 2007 separately payable drugs and biologicals will be updated to reflect applicable ASP-based rates effective in the physician office setting for services effective January 1, 2007. Because, for the CY 2007 OPPS final rule, we are proposing to use ASP data from the first quarter of CY 2006, which would be the basis for calculating payment rates for drugs and biologicals in the physician office setting using the ASP methodology, effective July 1, 2006, along with updated hospital claims data from CY 2005 to determine the final per day costs of drugs, biologicals, and radiopharmaceuticals, the packaging status of these items using the updated data may be different from their packaging status determined based on the data we are using for this proposed rule. Under such circumstances, we are proposing to apply the following policies to these drugs, biologicals, and radiopharmaceuticals whose relationship to the $55 threshold changes based on the final updated data: ● Drugs, biologicals, and radiopharmaceuticals that were paid separately in CY 2006 (which are proposed for separate payment in CY 2007), and then have per day costs less than $55 based on the updated ASPs and hospital claims data that would be used for the CY 2007 final rule with comment period, would continue to receive separate payment in CY 2007. ● Drugs, biologicals, and radiopharmaceuticals that were packaged in CY 2006, (which are proposed for separate payment in CY 2007), and then have per day costs less

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than $55 based on the updated ASPs and hospital claims data that would be used for the CY 2007 final rule with comment period, would remain packaged in CY 2007. ● Drugs, biologicals, and radiopharmaceuticals for which we propose packaged payment in CY 2007 but then have per day costs greater than $55 based on the updated ASPs and hospital claims data that would be used for the CY 2007 final rule with comment period, would receive separate payment in CY 2007. We are requesting specific comments on these proposed policies for CY 2007. 3. Proposed Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status That Are Not Packaged a. Proposed Payment for Specified Covered Outpatient Drugs (1) Background Section 1833(t)(14) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, requires special classification of certain separately paid radiopharmaceuticals, drugs, and biologicals and mandates specific payments for these items. Under section 1833(t)(14)(B)(i) of the Act, a “specified covered outpatient drug” is a covered outpatient drug, as defined in section 1927(k)(2) of the Act, for which a separate APC exists and that either is a radiopharmaceutical agent or is a drug or biological for which payment was made on a pass-through basis on or before December 31, 2002. Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and biologicals are designated as exceptions and are not included in the definition of “specified covered outpatient drugs.” These exceptions are--

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● A drug or biological for which payment is first made on or after January 1, 2003, under the transitional pass-through payment provision in section 1833(t)(6) of the Act. ● A drug or biological for which a temporary HCPCS code has not been assigned. ● During CYs 2004 and 2005, an orphan drug (as designated by the Secretary). Section 1833(t)(14)(A)(iii) of the Act, as added by section 621(a)(1) of Pub. L. 108 173, requires that payment for specified covered outpatient drugs in CY 2006 and subsequent years be equal to the average acquisition cost for the drug for that year as determined by the Secretary subject to any adjustment for overhead costs and taking into account the hospital acquisition cost survey data collected by the Government Accountability Office (GAO) in CYs 2004 and 2005. If hospital acquisition cost data are not available, the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847A, or section 1847B of the Act as calculated and adjusted by the Secretary as necessary. For CY 2006, we adopted a policy of paying for the acquisition and overhead costs of separately paid drugs and biologicals at a combined rate of ASP+6 percent. To calculate the ASP+6 percent payment rate, we evaluated the three data sources that were available to us for setting the CY 2006 payment rates for drugs and biologicals. As described in the CY 2006 OPPS final rule with comment period (70 FR 68639 through 68644), these data sources were the GAO reported average purchase prices for 55 specified covered outpatient drug categories for the period July 1, 2003 to June 30, 2004

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collected via a survey of 1,400 acute care Medicare-certified hospitals; ASP data; and mean costs derived from CY 2004 hospital claims data used in developing the CY 2006 final rule with comment period. For the CY 2006 final rule with comment period, we used ASP data from the second quarter of CY 2005, which were used to set payment rates for drugs and biologicals in the physician office setting effective October 1, 2005. We also used updated claims data, reflecting all of the hospital claims data from CY 2004 and updated CCRs. In our data analysis for the CY 2006 OPPS final rule with comment period, we compared the payment rates for drugs and biologicals using data from all three sources described above. We estimated aggregate expenditures for all drugs and biologicals (excluding radiopharmaceuticals) that would be separately payable in CY 2006 and for the 55 drugs and biologicals reported by the GAO using mean costs from the claims data, the GAO mean purchase prices, and the ASP-based payment amounts (ASP+6 percent in most cases), and then calculated the equivalent average ASP-based payment rate under each of the three payment methodologies. The results based on updated ASP and claims data were published in Table 24 of the CY 2006 OPPS final rule with comment period. For a full discussion of our reasons for using these data, refer to section V.B.3.a. of the CY 2006 OPPS final rule with comment period (70 FR 68639 through 68644). As noted in the CY 2006 OPPS final rule with comment period, findings from a MedPAC survey of hospital charging practices indicated that hospitals set charges for drugs, biologicals, and radiopharmaceuticals high enough to reflect their pharmacy handling costs as well as their acquisition costs. Therefore, we believe the MedPAC

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survey indicated that payment for drugs and biologicals and pharmacy overhead at a combined ASP+6 percent rate would serve as the best proxy for the combined acquisition and overhead costs of each of these products. (2) Proposed Payment Policy for CY 2007 The provision in section 1833(t)(14)(A)(iii) of the Act, as described above, continues to be applicable to determining payments for specified covered outpatient drugs for CY 2007. Similar to CY 2006, this provision requires that in CY 2007 payment for specified covered outpatient drugs be equal to the average acquisition cost for the drug for that year as determined by the Secretary subject to any adjustment for overhead costs and taking into account the hospital acquisition cost survey data collected by the Government Accountability Office (GAO) in CYs 2004 and 2005. If hospital acquisition cost data are not available, the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847A, or section 1847B of the Act as calculated and adjusted by the Secretary as necessary. Additionally, section 1833(t)(14)(E)(ii) authorizes the Secretary to adjust APC weights for specified covered outpatient drugs to take into account the MedPAC report relating to overhead and related expenses, such as pharmacy services and handling costs. For the CY 2007 proposed rule, we evaluated two data sources that we have available to us for setting the CY 2007 payment rates for drugs and biologicals. The first source of drug pricing information that we have is the ASP data from the fourth quarter of CY 2005, which were used to set payment rates for drugs and biologicals in the physician office setting effective April 1, 2006. We have ASP-based prices for

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approximately 500 drugs and biologicals (including contrast agents) payable under the OPPS; however, we currently do not have any ASP data on radiopharmaceuticals. Payments for most of the drugs and biologicals paid in the physician office setting are based on ASP+6 percent, and payments for items with no reported ASP are based on wholesale acquisition cost (WAC). The second source of cost data that we have for drugs, biologicals, and radiopharmaceuticals are the mean and median costs derived from the CY 2005 hospital claims data. As section 1833(t)(14)(A)(iii) of the Act clearly specifies that payment for specified covered outpatient drugs in CY 2007 be equal to the “average” acquisition cost for the drug, we limited our analysis to the mean costs of drugs determined using the hospital claims data, instead of using median costs. In our data analysis, we compared the payment rates for drugs and biologicals using data from both sources described above. We estimated aggregate expenditures for all drugs and biologicals (excluding radiopharmaceuticals) that would be separately payable in CY 2007 using mean costs from the hospital claims data and the ASP-based payment amounts (ASP+6 percent in most cases), and calculated the equivalent average ASP-based payment rate under both payment methodologies. The results of our data analysis indicate that using mean unit cost to set the payment rates for the drugs and biologicals that would be separately payable in CY 2007 would be equivalent to basing their payment rates, on average, at ASP+5 percent. As noted in the CY 2006 proposed and final rules, findings from a MedPAC survey of hospital charging practices indicated that hospitals set charges for drugs, biologicals, and

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radiopharmaceuticals high enough to reflect their pharmacy handling costs as well as their acquisition costs. Therefore, the mean costs calculated using charges from hospital claims data converted to costs are representative of hospital acquisition costs for these products, as well as their related pharmacy overhead costs. Our calculations indicate that using mean unit costs to set the payment rates for all separately payable drugs and biologicals would be equivalent to basing their payment rates on the ASP+5 percent, on average. Because pharmacy overhead costs are already built into the charges for drugs, biologicals, and radiopharmaceuticals, our current data therefore indicate that payment for drugs and biologicals and pharmacy overhead at a combined ASP+5 percent rate would serve as the best proxy for the combined acquisition and overhead costs of each of these products. Therefore, for CY 2007, we are proposing a policy of paying for the acquisition and overhead costs of separately paid drugs and biologicals at a combined rate of ASP+5 percent. In its final report on the hospital acquisition cost survey of specified covered outpatient drugs titled “Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-setting Challenges for CMS”, the GAO recommended that Secretary validate, on an occasional basis, manufacturers’ reported drug ASPs as a measure of hospitals’ acquisition costs using a survey of hospitals or other method that CMS determines to be similarly accurate and efficient. As we indicated in our written comments to the GAO on its draft report, we will continue to consider the best approach for setting payment rates for drugs and biologicals in light of this recommendation. We also indicated that we will continue to

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analyze the adequacy of ASP-based pricing in light of our hospital claims data, which for this CY 2007 OPPS proposed rule indicates that ASP+5 percent would be the best available proxy for hospitals’ average acquisition and handling costs of drugs and biologicals in CY 2007. We note that ASP data are unavailable for some drugs and biologicals. For these few drugs and biologicals, we are proposing to use the mean costs from the CY 2005 hospital claims data to determine their packaging status for ratesetting. Until we receive ASP data for these items, payment will be based on their mean cost calculated from CY 2005 hospital claims data. The payment rates for separately payable drugs and biologicals shown in Addenda A and B to this proposed rule represent payments for their acquisition and overhead costs. Our proposal uses payment rates based on ASP data from the fourth quarter of 2005 because these are the most recent numbers available to us at this time. To be consistent with the ASP data that would be used to determine payments for these drugs and biologicals when furnished in physician offices, we propose to make any appropriate adjustments to the amounts shown in Addenda A and B to this proposed rule for those items on a quarterly basis as more recent ASP data become available and post the payment rate changes on our Web site during each quarter of CY 2007. We note that we would determine the packaging status of each drug or biological only once during the year during the update process; however, for the separately payable drugs and biologicals, we would update their ASP-based payment rates on a quarterly basis.

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During the March 2006 meeting of the APC Panel, the Panel recommended that CMS examine pharmacy overhead costs issues and work with appropriate associations to study how to measure pharmacy overhead costs. The Panel also recommended that CMS solicit feedback on how pharmacy overhead costs should be reimbursed in the future. In response to the APC Panel recommendations, we will continue to work on issues related to pharmacy overhead costs and request comments on other proposals that we can consider when establishing a future pharmacy overhead cost methodology. In addition, we note that we routinely accept requests from interested organizations to discuss their views about OPPS payment policy issues. We will consider the input of any individual or organization to the extent allowed by Federal law, including the Administrative Procedure Act (APA) and the Federal Advisory Committee Act (FACA). We establish the OPPS rates through regulations. We are required to consider the timely comments of interested organizations, establish the payment policies for the forthcoming year, and respond to the timely comments of all public commenters in the final rule in which we establish the payments for the forthcoming year. We are specifically requesting public comments on our proposal to pay for acquisition and overhead costs of drugs and biologicals under the OPPS at ASP+5 percent and the adequacy of the payment rates to account for actual acquisition and overhead costs incurred by hospitals for these items. In its October 31, 2005 letter of comment on proposed 2006 SCOD rates titled “Comments on Proposed 2006 SCOD Rates,” the GAO recommended that to better approximate hospitals’ acquisition costs of SCODs the Secretary reconsider the level of

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proposed payment rates for drug SCODs, in relation to survey data on average purchase price, the role of rebates in determining acquisition costs, and the desirability of setting payment rates for SCODs at average acquisition costs. In the CY 2006 OPPS proposed rule (70 FR 42726), we noted that the comparison between the GAO purchase price data and the ASP data indicated that the GAO data on average were equivalent to ASP+3 percent. However, we also indicated that using mean unit cost from the CY 2004 hospital claims data to set the payment rates for the drugs and biologicals that would be separately payable in CY 2006 would be equivalent to basing their payment rates, on average, at ASP+8 percent. Therefore, we had proposed to establish payment for drugs and biologicals and their overhead costs at a combined rate of ASP+8 percent, where ASP+6 percent represented the acquisition cost of these items and 2 percent of ASP was for their overhead costs. For the CY 2006 OPPS final rule with comment period, where more recent ASP data, updated CCRs, and updated CY 2004 hospital claims data were available, we found that the comparison between the GAO purchase price data and the ASP data indicated that the GAO data on average were equivalent to ASP+4 percent, and using mean unit cost from hospital claims to set the payment rates for the drugs and biologicals that would be separately payable in CY 2006 would be equivalent to basing their payment rates, on average, at ASP+6 percent. Because pharmacy overhead costs are already built into the charges for drugs, biologicals, and radiopharmaceuticals, we noted in the CY 2006 OPPS final rule with comment period that our claims data indicated that payment for drugs and biologicals and their pharmacy overhead at a combined ASP+6 percent rate served as the best proxy for the combined acquisition and overhead costs of

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each of these products. For the CY 2007 proposed rule, as indicated earlier in the preamble, we compared the CY 2005 hospital claims data with more recent ASP data and determined that using mean unit cost to set payment rates for separately payable drugs and biologicals in CY 2007 would be equivalent to basing their payment rates, on average, at ASP+5 percent. This is the policy we are proposing for CY 2007, and we believe that this payment level would serve as the best proxy for the combined acquisition and overhead costs of separately payable drugs and biologicals in CY 2007. In the CY 2006 OPPS final rule with comment period (70 FR 68661), we indicated that we will be paying for blood clotting factors at ASP+6 percent during CY 2006 under the OPPS and providing payment for the furnishing fee that is also a part of the payment for blood clotting factors furnished in physician offices under Medicare Part B. This furnishing fee will be updated each calendar year based on the consumer price index, and we will update the amount appropriately each year under the OPPS based upon the final amount noted in the Medicare Physician Fee Schedule final rule. In CY 2006, the furnishing fee is $0.146 per unit. For the CY 2007 OPPS, we are proposing to make payment for blood clotting factors at ASP+5 percent along with continuing payment for the furnishing fee using the updated amount for CY 2007. The proposed CY 2007 regulations establishing the ASP methodology and the furnishing fee for blood clotting factors under Medicare Part B can be found in the CY 2007 Medicare Physician Fee Schedule proposed rule. The updated furnishing fee amount for CY 2007 under the OPPS will be announced in the CY 2007 OPPS final rule.

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(3) CY 2007 Proposed Payment Policy for Radiopharmaceuticals Section 303(h) of Pub. L. 108-173 exempted radiopharmaceuticals from ASP pricing in the physician office setting where the fewer numbers (relative to the hospital outpatient setting) of radiopharmaceuticals are priced locally by Medicare contractors. Consequently, we do not have ASP data for radiopharmaceuticals. However, the law also requires us to make payments for specified covered outpatient drugs, including radiopharmaceuticals, equal to the average acquisition cost for the drug as determined by the Secretary and subject to any adjustment for overhead costs. We expect hospitals’ different purchasing and preparation and handling practices for radiopharmaceuticals to be reflected in their charges. Therefore, for CY 2006, we calculated per day costs of radiopharmaceuticals using mean unit costs from the CY 2004 hospital claims data to determine the items’ packaging status similar to the drugs and biologicals with no ASP data. For CY 2006, we implemented a 1-year temporary policy to pay for separately payable radiopharmaceuticals based on the hospital’s charge for each radiopharmaceutical adjusted to cost. We clearly stated in our CY 2006 OPPS final rule with comment period that we did not intend to maintain the CY 2006 methodology permanently (70 FR 68656) and that we would actively seek other methodologies for setting payments for radiopharmaceuticals in CY 2007. During the March 2006 meeting of the APC Panel, the Panel recommended that CMS work with stakeholders to continue to develop a methodology to pay for radiopharmaceuticals. We note that we routinely accept requests from interested organizations to discuss their views about OPPS payment policy issues. We will consider

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the input of any individual or organization to the extent allowed by Federal law, including the Administrative Procedure Act (APA) and the Federal Advisory Committee Act (FACA). We establish OPPS rates through regulations. We are required to consider the timely comments of interested organizations, establish the payment policies for the forthcoming year, and respond to the timely comments of all public commenters in the final rule in which we establish the payments for the forthcoming year. We have considered comments and information from interested organizations in developing these policy options for CY 2007. Over this past year, despite reviews of the literature and numerous discussions with interested individuals and organizations from the radiopharmaceutical industry, we have received no specific suggestions from hospitals or industry regarding alternative prospective payment methodologies for radiopharmaceuticals that could be used in place of our CY 2006 cost-based payment methodology. However, in its final report on the hospital acquisition cost survey of specified covered outpatient drugs, titled “ Medicare Hospital Pharmaceuticals: Survey Shows Price Variations and Highlights Data Collection Lesson and Outpatient Rate-setting Challenges for CMS,” the GAO acknowledged that the distinctive nature of radiopharmaceuticals as compared with other drugs poses special challenges for collecting and interpreting hospital cost data. They discussed the challenges of balancing accuracy and efficiency in obtaining price data on radiopharmaceutical specified covered outpatient drugs. They concluded that the best option available to CMS, in terms of accuracy and efficiency, is for the Secretary to collect and use ready-to-use unit-dose prices paid by hospitals when available as the data

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source for setting and updating Medicare payment rates for radiopharmaceutical specified covered outpatient drugs. As we indicated in our written comments to the GAO on its draft report, we remain uncertain about whether a survey to collect unit-dose acquisition costs would be conducted as a survey of hospitals or manufacturers. We are also concerned about the level of expense and administrative burden that would be placed on the party reporting such information, based on the GAO’s experience in surveying hospitals regarding radiopharmaceutical acquisition costs. The survey approach could lead to a very inefficient methodology for establishing payment rates. We also note that in conducting a survey to obtain ready-to-use unit-dose prices for radiopharmaceuticals, we would be able to collect this information for only a small number of radiopharmaceuticals that are purchased in unit-dose forms by hospitals; however, we believe that it is important to apply a consistent payment methodology to determine payments for all separately payable radiopharmaceuticals. Even though we are not proposing to adopt the GAO’s recommendation for CY 2007, we will continue to explore this recommendation for future updates of the OPPS. In developing the payment policy proposal for separately payable radiopharmaceuticals for the CY 2007 proposed rule, we considered several additional policy options. The first option we considered proposing was to package additional radiopharmaceuticals, either through packaging payments for all radiopharmaceuticals with payments for the services with which they are billed or increasing the packaging threshold for radiopharmaceuticals from a cost of $55 per day to a higher amount. In contrast to other separately payable drugs where the administration of many drugs is

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reported with only a few drug administration HCPCS codes, only a small number of specific radiopharmaceuticals may be appropriately provided in the performance of each particular nuclear medicine procedure. Because the provision of nuclear medicine procedures always requires one or more radiopharmaceuticals, packaging more radiopharmaceuticals effectively results in some increases in the costs of the associated nuclear medicine procedures to reflect the greater packaging of the radiopharmaceuticals. The specific increased procedural costs observed are dependent upon the volumes and costs of various radiopharmaceuticals used in the procedures and thus reflect an average cost across clinical scenarios where providers may choose among several radiopharmaceuticals for the procedures. A policy to package additional radiopharmaceuticals would be very consistent with OPPS packaging principles and payment policies which generally provide appropriate payment for the average service and would provide greater administrative simplicity for hospitals. Because we believe that radiopharmaceutical handling costs are included in hospitals charges for the radiopharmaceuticals themselves, payments for the nuclear medicine procedures would include payments for the handling costs of the radiopharmaceuticals used under this option. In examining our claims data for CY 2005, we noted that significant numbers of claims for nuclear medicine procedures included no HCPCS codes for radiopharmaceuticals. While it is possible that hospitals used packaged radiopharmaceuticals in some studies and therefore chose not to report them separately, it is also possible that some hospitals may have included charges for the required

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radiopharmaceuticals in their charges for the nuclear medicine procedures themselves. Packaging additional radiopharmaceuticals would be consistent with the charging practices of some hospitals that already may not be separately reporting radiopharmaceuticals, even when those radiopharmaceuticals would receive separate payment under the OPPS. Were we to package additional radiopharmaceuticals under the OPPS, consistent with our packaging policies for implantable devices, we might need to establish edits to ensure that radiopharmaceutical charges were always included on claims for nuclear medicine procedures, as has been suggested to us by interested organizations. However, under a policy of increased packaging of radiopharmaceuticals, payments for certain nuclear medicine procedures could potentially be less than the costs of some of the packaged radiopharmaceuticals and relatively expensive and high volume radiopharmaceuticals could become packaged. In addition, our payment policy could discourage selection of the most clinically appropriate radiopharmaceutical for a particular nuclear medicine procedure, especially if that radiopharmaceutical were expensive and not commonly used so that its costs were not fully reflected in the payment for the nuclear medicine procedure. In addition, the statutory definition of a “specified covered outpatient drug” for OPPS purposes that includes radiopharmaceutical agents appears more consistent with the treatment of radiopharmaceuticals like other drugs under the OPPS, at least when this is feasible. We solicit public comment on the merits of establishing a higher packaging threshold for radiopharmaceuticals, given their unique characteristics.

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The second option that we considered proposing was to continue the temporary CY 2006 methodology of paying for separately payable radiopharmaceuticals at charges reduced to cost, where payment would be determined using each hospital’s overall CCR, and establishing our radiopharmaceutical packaging threshold at $55, as we are proposing for other drugs under the CY 2007 OPPS. This policy would provide stability to the payment methodology for radiopharmaceuticals from CY 2006 to CY 2007. As we indicated for CY 2007, this payment methodology provides an acceptable proxy for the average acquisition of the radiopharmaceutical along with its handling cost. However, as also indicated previously, we stated in the CY 2006 OPPS final rule with comment period that this payment policy was intended to be only a temporary policy, and that we would consider alternative methodologies to base radiopharmaceutical payments on for the CY 2007 OPPS update. We generally do not make payments under the OPPS for items and services at cost, particularly if we do not expect the costs of services to vary substantially and unpredictably over time and if we have hospital claims data available. Paying for radiopharmaceuticals at cost provides hospitals with no incentive to supply radiopharmaceuticals in the most efficient manner. In its comments on the CY 2006 OPPS proposed rule, the GAO expressed concern that this methodology would be likely to result in payments that exceed hospitals’ acquisition costs for certain radiopharmaceuticals. Estimates of our CY 2006 payments for radiopharmaceuticals reveal variation from the 25th to 75th payment percentile of 2 to 9 fold, depending on the specific radiopharmaceutical. We do not believe that the radiopharmaceutical acquisition and handling costs for different hospitals to provide most

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radiopharmaceuticals should vary that greatly. In addition, using hospitals’ overall CCRs to determine payments likely results in an overstatement of radiopharmaceutical costs, which are likely reported in several cost centers such as diagnostic radiology that have lower CCRs than hospitals’ overall CCRs. The third option that we considered and are proposing for CY 2007 is to establish prospective payment rates for separately payable radiopharmaceuticals using mean costs derived from the CY 2005 claims data, where the costs are determined using our standard methodology of applying hospital-specific departmental CCRs to radiopharmaceutical charges, defaulting to hospital-specific overall CCRs only if appropriate departmental CCRs are unavailable. This proposal establishes our packaging threshold for radiopharmaceuticals at $55, as for other drugs under the CY 2007 OPPS. We believe this option provides us with the most consistent, accurate, and efficient methodology for prospectively establishing payment rates for separately payable radiopharmaceuticals. This is our preferred payment proposal for radiopharmaceuticals because this methodology is consistent with how payment rates for other services are determined under the OPPS and provides for prospective payments that serve as appropriate proxies for the average acquisition costs of the radiopharmaceuticals along with their handling costs. The MedPAC has indicated that hospitals currently include the charge for radiopharmaceutical handling in their charge for the radiopharmaceutical. In addition, this approach provides an average payment to hospitals, consistent with the statutory requirement that we pay the average acquisition cost, in comparison with our CY 2006

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cost-based policy which paid each hospital differently for each claim based on the claim’s charges and the hospital’s overall CCR. We believe that this methodology would likely pay more accurately for radiopharmaceuticals, and provide incentives for their efficient acquisition and preparation. Also, as discussed earlier, MedPAC indicated that hospitals include charges for handling costs in their charge for radiopharmaceuticals; therefore, mean costs based on our claims data would represent both the acquisition and overhead costs of the separately payable radiopharmaceuticals. We believe that this payment policy could also be an appropriate long-term radiopharmaceutical payment policy that would allow us to consistently establish prospective OPPS payment rates for the acquisition and overhead costs of separately payable radiopharmaceuticals. Because we will be paying separately for radiopharmaceuticals with mean costs per day greater than $55, without additional radiopharmaceutical packaging for CY 2007, we see no reason to establish edits for the presence of radiopharmaceutical codes on claims for nuclear medicine procedures as, in many cases, payments for the procedures do not include payments for the radiopharmaceuticals used. Under each of the payment options for radiopharmaceuticals, we considered that beginning with CY 2007 and going forward we would update the packaging threshold for inflation using an inflation adjustment factor based on the Producer Price Index (PPI) for prescription preparations. As discussed elsewhere in the preamble, the adjusted amount for CY 2007 was determined to be $55.

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In its October 31, 2005 letter of comment on proposed 2006 SCOD rates titled “Comments on Proposed 2006 SCOD Rates”, the GAO recommended that to better approximate hospitals’ acquisition costs of SCODs that the Secretary reconsider the decision to base payment rates for radiopharmaceutical SCODs exclusively on estimated costs in light of the availability of data on actual prices paid for key radiopharmaceuticals. As we did not have ASPs for radiopharmaceuticals that best represent market prices, in the CY 2006 OPPS final rule with comment period, we finalized a temporary 1-year policy for CY 2006 to pay for radiopharmaceuticals that were separately payable in CY 2006 based on the hospital’s charge for each radiopharmaceutical agent adjusted to cost. We noted that MedPAC has indicated that hospitals currently include the charge for pharmacy overhead costs in their charge for the radiopharmaceutical. Therefore, we believed that paying for these items on the basis of charges converted to cost would be the best available proxy for the average acquisition cost of the radiopharmaceutical along with its handling cost in CY 2006. We did not use the GAO hospital purchase prices as the basis for setting payments because when we examined differences between the CY 2005 payment rates for these nine radiopharmaceuticals and their GAO mean purchase prices, we found that the GAO purchase prices were substantially lower for several of these agents. We indicated that our intent was to maintain consistency, whenever possible, between the payment rates for these agents from CY 2005 to CY 2006. For CY 2007, however, we considered several payment options for radiopharmaceuticals that we discussed above and are proposing to

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establish prospective payment rates for separately payable radiopharmaceuticals using mean costs derived from the CY 2005 claims data. We note that the National HCPCS Panel changed the codes and the descriptors of many of the radiopharmaceutical products effective January 1, 2006, in some cases moving from prior code descriptors based upon units of radioactivity to new descriptors based on study doses. The hospital claims data we used for our analysis are based on radiopharmaceutical HCPCS codes that were in effect during CY 2005. Because there were significant changes in HCPCS code descriptors for several radiopharmaceuticals from CY 2005 to CY 2006, implementation of the proposed payment methodology for radiopharmaceuticals requires us to crosswalk the cost data for these radiopharmaceuticals that are in terms of the CY 2005 codes to the updated CY 2006 codes that we expect to be in effect during CY 2007. The mean cost data per unit of many CY 2005 codes can be directly crosswalked to the new CY 2006 codes because the products and units included in the code descriptors are essentially the same. However, there are several CY 2005 codes with descriptors specifying units of radioactivity that were changed to per study dose units in CY 2006. For these radiopharmaceuticals, we are proposing to calculate their per day costs based on the CY 2005 codes and use those per day costs as proxies for the per study dose costs of the CY 2006 codes. We believe that patients would generally receive one study dose of these radiopharmaceuticals each day, and our CY 2005 claims data show that they were most commonly billed with specific nuclear medicine procedures that normally include a single radiopharmaceutical dose on a given day. Therefore, the per day costs of these radiopharmaceuticals

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calculated based on claims reporting the CY 2005 codes should be an appropriate basis for determining the payment rates for the CY 2006 HCPCS codes. Out of the 39 radiopharmaceutical HCPCS codes that we are proposing to pay separately for in CY 2007, we are able to directly crosswalk the CY 2005 cost data to 31 of these codes. The descriptors for the remaining eight codes changed from per unit of radioactivity in CY 2005 to new descriptors based on per study doses in CY 2006. Therefore, we are proposing to use the per day costs based on the CY 2005 claims data as proxies for the per study dose costs for this subset of radiopharmaceutical HCPCS codes to be reported in CY 2007. There are three cases where two CY 2005 HCPCS codes were mapped to one new CY 2006 code that will be reported in CY 2007. These three CY 2006 HCPCS codes are A9550, A9553, and A9559. Because of the complicated nature of crosswalking the cost data for two predecessor HCPCS codes with different units in their descriptors to each of these new HCPCS codes, we are proposing to crosswalk the cost data only from the predecessor HCPCS codes with the most claims volume in CY 2005 to each of these three HCPCS codes to be reported for CY 2007. Table 26 below lists all of the CY 2007 separately payable radiopharmaceuticals and the predecessor HCPCS codes whose claims data were used to set the CY 2007 proposed payment rates and notes the crosswalk methodology used for the proposed rates.

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Table 26.-- Proposed Payment Rates and Payment Crosswalk for CY 2007 Separately Payable Radiopharmaceuticals

2005 HCPCS

A4642

A9500

A9502

A9505

A9507

A9508

A9516

A9517

Description Supply of satumomab pendetide, radiopharmaceutical diagnostic imaging agent, per dose Supply of radiopharmaceutical diagnostic imaging agent, technetium tc 99m sestamibi, per dose Supply of radiopharmaceutical diagnostic imaging agent, technetium tc 99m tetrofosmin, per unit dose Supply of radiopharmaceutical diagnostic imaging agent, thallous chloride tl 201, per mci Supply of radiopharmaceutical diagnostic imaging agent, indium in 111 capromab pendetide, per dose Supply of radiopharmaceutical diagnostic imaging agent, iobenguane sulfate i-131, per 0.5 mci Supply of radiopharmaceutical diagnostic imaging agent, i-123 sodium iodide capsule, per 100 uci Supply of radiopharmaceutical therapeutic imaging agent, i-131 sodium iodide capsule, per mci

2007 HCPCS

Description Indium in-111 satumomab pendetide, diagnostic, per study dose, up to 6 A4642 millicuries

2005 Days

2005 Units

557

613

CY 2007 CY 2007 Proposed Proposed Payment Payment Rate Crosswalk

$192.12

Unit cost

Technetium tc-99m sestamibi, diagnostic, per study dose, up to A9500 40 millicuries

380,256 608,483

$82.58

Unit cost

Technetium tc-99m tetrofosmin, diagnostic, per study dose, up to 40 A9502 millicuries

222,588 353,488

$73.81

Unit cost

Thallium tl-201 thallous chloride, diagnostic, per A9505 millicurie

132,448 407,956

$27.18

Unit cost

Indium in-111 capromab pendetide, diagnostic, per study dose, up to 10 A9507 millicuries

2,109

2,109

$928.19

Unit cost

Iodine i-131 iobenguane sulfate, diagnostic, per 0.5 A9508 millicurie

423

593

$429.55

Unit cost

Iodine i-123 sodium iodide capsule(s), diagnostic, per 100 A9516 microcuries

32,098

73,760

$27.44

Unit cost

Iodine i-131 sodium iodide capsule(s), therapeutic, per A9517 millicurie

9,836

231,507

$14.54

Unit cost

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A9521

A9524

A9526

A9528

A9530

A9511

A9515

C1082

280 CY 2007 CY 2007 Proposed Proposed Payment Payment Rate Crosswalk

2007 2005 2005 Description HCPCS Description Days Units Supply of radiopharmaceutical Technetium tc-99m exametazime, diagnostic imaging diagnostic, per study agent, technetium tc99m exametazine, per dose, up to 25 dose A9521 millicuries 4,258 4,355 $317.07 Supply of radiopharmaceutical diagnostic imaging Iodine i-131 iodinated agent, iodinated i-131 serum albumin, diagnostic, per 5 serum albumin, 5 microcuries A9524 microcuries 356 1,543 $36.78 Supply of radiopharmaceutical Nitrogen n-13 diagnostic imaging ammonia, diagnostic, agent, ammonia n-13, per study dose, up to per dose A9526 40 millicuries 63 80 $230.77 Supply of Iodine i-131 sodium radiopharmaceutical diagnostic agent, i-131 iodide capsule(s), diagnostic, per sodium iodide capsule, A9528 millicurie 4,246 20,556 $24.86 per millicurie Supply of radiopharmaceutical Iodine i-131 sodium therapeutic agent, i-131 iodide solution, sodium iodide solution, therapeutic, per per millicurie A9530 millicurie 1,931 66,609 $12.60 Supply of radiopharmaceutical diagnostic imaging Technetium tc-99m agent, technetium tc depreotide, diagnostic, per study dose, up to 99m, depreotide, per mci A9536 35 millicuries 582 777 $67.91 Supply of radiopharmaceutical Technetium tc-99m pentetate, diagnostic, diagnostic imaging per study dose, up to agent, technetium tc99m pentetate, per mci A9539 25 millicuries 18,523 211,597 $56.77 Supply of radiopharmaceutical Indium in-111 ibritumomab tiuxetan, diagnostic imaging diagnostic, per study agent, indium-111 ibritumomab tiuxetan, dose, up to 5 per dose A9542 millicuries 384 384 $1,344.34

Unit cost

Unit cost

Unit cost

Unit cost

Unit cost

Per Day Cost

Per Day Cost

Unit cost

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C1083

C1080

C1081

C1079

C1091

C1092

C1122

Q3006

Description Supply of radiopharmaceutical therapeutic imaging agent, yttrium 90 ibritumomab tiuxetan, per dose Supply of radiopharmaceutical diagnostic imaging agent, i-131 tositumomab, per dose Supply of radiopharmaceutical therapeutic imaging agent, i-131 tositumomab, per dose Supply of radiopharmaceutical diagnostic imaging agent, cyanocobalamin co 57/58, per 0.5 microcurie Supply of radiopharmaceutical diagnostic imaging agent, indium 111 oxyquinoline, per 0.5 millicurie Supply of radiopharmaceutical diagnostic imaging agent, indium 111 pentetate, per 0.5 millicurie Supply of radiopharmaceutical diagnostic imaging agent, technetium tc 99m arcitumomab, per vial Supply of radiopharmaceutical diagnostic imaging agent, technetium tc 99m glucepatate, per 5 mci

281

2007 HCPCS

CY 2007 CY 2007 Proposed Proposed Payment Payment Rate Crosswalk

2005 Days

2005 Units

Yttrium y-90 ibritumomab tiuxetan, therapeutic, per treatment dose, up to A9543 40 millicuries

362

362

$12,130.20

Unit cost

Iodine i-131 tositumomab, diagnostic, per study A9544 dose

249

249

$1,368.17

Unit cost

Iodine i-131 tositumomab, therapeutic, per A9545 treatment dose

191

191

$11,868.78

Unit cost

Cobalt co-57/58, cyanocobalamin, diagnostic, per study dose, up to 1 A9546 microcurie

125

2,401

$149.44

Per Day Cost

Indium in-111 oxyquinoline, diagnostic, per 0.5 A9547 millicurie

4,296

4,591

$306.51

Unit cost

Indium in-111 pentetate, diagnostic, A9548 per 0.5 millicurie

5,065

6,381

$262.81

Unit cost

Technetium tc-99m arcitumomab, diagnostic, per study dose, up to 25 A9549 millicuries

145

145

$255.95

Unit cost

Technetium tc-99m sodium gluceptate, diagnostic, per study dose, up to 25 A9550 millicurie

58

72

$236.53

Per Day Cost

Description

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2007 2005 2005 Description HCPCS Description Days Units Supply of radiopharmaceutical Technetium tc-99m sodium gluceptate, diagnostic imaging diagnostic, per study agent, technetium tc 99m sodium dose, up to 25 C1200 glucoheptonate, per vial A9550 millicurie 48 48 Supply of Technetium tc-99m radiopharmaceutical diagnostic imaging succimer, diagnostic, per study dose, up to agent, technetium tc C1201 99m succimer, per vial A9551 10 millicuries 447 447 Supply of radiopharmaceutical diagnostic imaging agent, Fluorodeoxyglucose ffluorodeoxyglucose f18 (2-deoxy-2-[18f]fluoro18 fdg, diagnostic, per study dose, up to 45 d-glucose), per dose (4C1775 40 mci/ml) A9552 millicuries 136,012 136,012 Chromium cr-51 sodium chromate, Injection, sodium diagnostic, per study chromate cr51, per 0.25 dose, up to 250 C9000 mci A9553 microcuries 438 488 Supply of Chromium cr-51 radiopharmaceutical sodium chromate, diagnostic imaging diagnostic, per study agent, 51 sodium dose, up to 250 C9102 chromate, per 50 mci A9553 microcuries 279 326 Supply of Rubidium rb-82, radiopharmaceutical diagnostic imaging diagnostic, per study dose, up to 60 agent, rubidium rb-82, Q3000 per dose A9555 millicuries 2,059 3,837 Supply of radiopharmaceutical diagnostic imaging Gallium ga-67 citrate, diagnostic, per agent, gallium ga 67, per Q3002 mci A9556 millicurie 3,597 15,880 Supply of radiopharmaceutical Technetium tc-99m bicisate, diagnostic, diagnostic imaging per study dose, up to agent, technetium tc99m Q3003 bicisate, per unit dose A9557 25 millicuries 1,622 1,652 Supply of co 57 Cobalt co-57 cobaltous chloride, cyanocobalamin, oral, radiopharmaceutical diagnostic, per study diagnostic imaging dose, up to 1 C9013 agent A9559 microcurie 3 3

282 CY 2007 CY 2007 Proposed Proposed Payment Payment Rate Crosswalk

N/A

N/A

$84.79

Unit cost

$235.56

Unit cost

$167.62

Per Day Cost

N/A

N/A

$239.83

Unit cost

$22.73

Unit cost

$254.46

Unit cost

N/A

N/A

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Q3012

Q3010

Q3005

Q3007

Q3011

Q3008

C1093

A9600

A9605

Description Supply of oral radiopharmaceutical diagnostic imaging agent, cyanocobalamin cobalt co57, per 0.5 mci Supply of radiopharmaceutical diagnostic imaging agent, technetium tc99m - labeled red blood cells, per mci Supply of radiopharmaceutical diagnostic imaging agent, technetium tc99m mertiatide, per mci Supply of radiopharmaceutical diagnostic imaging agent, sodium phosphate p32, per mci Supply of radiopharmaceutical diagnostic imaging agent, chromic phosphate p32 suspension, per mci Supply of radiopharmaceutical diagnostic imaging agent, indium 111-in pentetreotide, per 3 mci Supply of radiopharmaceutical diagnostic imaging agent, technetium tc 99m fanolesomab, per dose (10 - 20 mci) Supply of therapeutic radiopharmaceutical, strontium-89 chloride, per mci Supply of therapeutic radiopharmaceutical, samarium sm 153 lexidronamm, 50 mci

283

2007 HCPCS

Description Cobalt co-57 cyanocobalamin, oral, diagnostic, per study dose, up to 1 A9559 microcurie

2005 Days

2005 Units

112

112

CY 2007 CY 2007 Proposed Proposed Payment Payment Rate Crosswalk

$63.74

Per Day Cost

Technetium tc-99m labeled red blood cells, diagnostic, per study dose, up to 30 A9560 millicuries 20,662 274,695

$132.95

Per Day Cost

Technetium tc-99m mertiatide, diagnostic, per study dose, up to A9562 15 millicuries

$180.08

Per Day Cost

23,306 120,392

Sodium phosphate p32, therapeutic, per A9563 millicurie

307

623

$117.11

Unit cost

Chromic phosphate p32 suspension, therapeutic, per A9564 millicurie

23

87

$222.35

Unit cost

Indium in-111 pentetreotide, diagnostic, per A9565 millicurie

2,856

4,546

$185.60

Unit cost

Technetium tc-99m fanolesomab, diagnostic, per study dose, up to 25 A9566 millicuries

1,123

1,123

$527.31

Unit cost

519

1,311

$533.58

Unit cost

959

1,631

$1,316.41

Unit cost

Strontium sr-89 chloride, therapeutic, A9600 per millicurie Samarium sm-153 lexidronamm, therapeutic, per 50 A9605 millicuries

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We specifically request public comment on the radiopharmaceutical payment methodology that we are proposing for the CY 2007 OPPS update. We also seek public comment on the possibility of developing an alternative packaging threshold for radiopharmaceuticals to provide greater administrative simplicity for hospitals. Additionally, we request public comment on the crosswalk that we are proposing to use to determine the CY 2007 payment rates for separately payable radiopharmaceuticals. While payments for drugs, biologicals and radiopharmaceuticals are taken into account when calculating budget neutrality, we note that we are proposing to make payments for drugs, biologicals, and radiopharmaceuticals without scaling these payment amounts. Section 1833(t)(14)(A)(iii)(I) requires that, beginning in CY 2006, we pay for a separately payable drug on the basis of “the average acquisition cost of the drug.” As we stated in the CY 2006 OPPS final rule with comment period (70 FR 42728), we believe that the best interpretation of the specific requirement that we pay for such drugs on the basis of average acquisition cost, is that these payments themselves should not be adjusted as part of meeting the statutory budget neutrality requirement. If we were to apply a budget neutrality scalar to these payments, we would no longer be paying the average acquisition cost, but rather an adjusted average acquisition cost, for separately payable drugs, biologicals, and radiopharmaceuticals. We believe that these amounts, without a budget neutrality scalar applied, are the best proxies we have for the aggregate average acquisition and pharmacy overhead and handling costs of drugs, biologicals, and radiopharmaceuticals.

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b. Proposed CY 2007 Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data Pub. L. 108-173 does not address the OPPS payment in CY 2005 and after for new drugs, biologicals, and radiopharmaceuticals that have assigned HCPCS codes, but that do not have a reference AWP or approval for payment as pass-through drugs or biologicals. Because there is no statutory provision that dictated payment for such drugs and biologicals in CY 2005, and because we had no hospital claims data to use in establishing a payment rate for them, we investigated several payment options for CY 2005 and discussed them in detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 through 65799). For CYs 2005 and 2006, we finalized the policy to pay separately for new drugs, biologicals, and radiopharmaceuticals with HCPCS codes, but which did not have pass-through status at a rate that was equivalent to the payment they received in the physician office setting, which was established in accordance with the ASP methodology. For CY 2007, we are proposing to continue payment for these new drugs and biologicals with HCPCS codes as of January 1, 2007, but which do not have pass-through status, at a rate that is equivalent to the payment they would receive in the physician office setting, which would be established in accordance with the ASP methodology described in the CY 2006 Medicare Physician Fee Schedule final rule, where payment would generally be equal to ASP+6 percent. In accordance with the ASP methodology, in the absence of ASP data, we are continuing the policy we implemented during CYs 2005 and 2006 of using the wholesale acquisition cost (WAC) for the product to establish the initial

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payment rate. We note, however, that if the WAC is also unavailable, we would make payment at 95 percent of the product’s most recent AWP. We are proposing to adopt this interim payment methodology in order to be consistent with how we pay for new drugs, biologicals, and radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 OPPS final rule with comment period (70 FR 68669). We further note that with respect to items for which we do not have ASP data, once their ASP data become available in later quarter submissions, their payment rates under OPPS will be adjusted so that the rates are based on the ASP methodology and set to ASP+6 percent. In the event that the drug or biological is covered under the competitive acquisition program, then we propose to pay for it at the payment rate calculated under this program consistent with the provisions in section 1847B of the Act. We propose to base payment for new radiopharmaceuticals with HCPCS codes as of January 1, 2007, but which do not have pass-through status, on the WACs for these products as ASP data for radiopharmaceuticals are not available. In addition, we note that if the WACs are also unavailable, then we would make payment for the radiopharmaceuticals at 95 percent of their most recent AWPs. We are proposing to adopt this interim payment methodology in order to be consistent with how we pay for new drugs, biologicals, and radiopharmaceuticals without HCPCS codes, as discussed in the CY 2006 OPPS final rule with comment period (70 FR 68669). To be consistent with the ASP-based payments that would be made when the new drugs and biologicals are furnished in physician offices, we are proposing to make any appropriate adjustments to their payment amounts in the CY 2007 OPPS final rule and also on a quarterly basis on our Web site

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during CY 2007 if later quarter ASP submissions (or more recent WACs or AWPs) indicate that adjustments to the payment rates for these drugs and biologicals are necessary. The payment rates for new radiopharmaceuticals would also be adjusted accordingly. We are also proposing to make appropriate adjustments to the payment rates for new drugs and biologicals in the event that they become covered under the competitive acquisition program in the future. As discussed in the CY 2005 OPPS final rule with comment period (69 FR 65797), and the CY 2006 OPPS final rule with comment period (70 FR 68666), new drugs, biologicals, and radiopharmaceuticals may be expensive, and we are concerned that packaging these new items might jeopardize beneficiary access to them. In addition, we do not want to delay separate payment for these items solely because a pass-through application was not submitted. The payment methodologies described above are the same as the methodologies that would be used to calculate the OPPS payment amount that pass-through drugs, biologicals, and radiopharmaceuticals would be paid in CY 2007. We refer readers to section V.A. of this preamble for a discussion of payment policies of pass-through drugs, biologicals, and radiopharmaceuticals under OPPS. Consequently, we are proposing to continue to treat new drugs, biologicals, and radiopharmaceuticals with newly established HCPCS codes the same, irrespective of whether pass-through status has been determined. We also are proposing to assign status indicator "K" to HCPCS codes for new drugs, biologicals, and radiopharmaceuticals for which we have not received a pass-through application. We specifically request comments on our proposed payment policies for new drugs, biologicals, and

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radiopharmaceuticals with HCPCS codes but which do not have pass-through status as of January 1, 2007. The new CY 2007 HCPCS codes for drugs, biologicals, and radiopharmaceuticals are not available at the time of the development of this proposed rule; however, they will be included in the CY 2007 OPPS final rule. There are several drugs, biologicals, and radiopharmaceuticals that were payable during CY 2005 or where HCPCS codes for products were created effective January 1, 2006, for which we do not have any CY 2005 hospital claims data. In order to determine the packaging status of these items for CY 2007, we calculated an estimate of the per day cost of each of these items by multiplying the payment rate for each product based on ASP+5 percent similar to other separately payable nonpass-through drugs and biologicals under the OPPS and, as determined using the ASP methodology as described in section V.B.3.a.2. of this preamble, by an estimated average number of units of each product that would typically be furnished to a patient during one administration in the hospital outpatient setting. We are proposing to package items for which we estimate the per administration cost to be less than $55, which is the packaging threshold that we are proposing for drugs, biologicals, and radiopharmaceuticals in CY 2007, and pay separately for items with an estimated per administration cost greater than $55. We are proposing that the CY 2007 payment for separately payable items would be based on rates determined using the ASP methodology established in the physician office setting and set to ASP+5 percent, similar to other separately payable nonpass-through drugs and biologicals under the OPPS. In accordance with the ASP methodology used in the physician office setting, in the absence of ASP data, we would use the WAC for the

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product to establish the initial payment rate. We note, however, that if the WAC is also unavailable, then we would make payment at 95 percent of the most recent AWP available. We note that for radiopharmaceutical agents that do not have any CY 2005 hospital claims data, we propose to determine their packaging status and, if the items are separately payable, then establish their payment rates using the WACs for the products because ASP data are not available for any radiopharmaceuticals. We also note that if the WACs are unavailable, then we would use payment at 95 percent of the most recent AWPs to determine their packaging status and payment rates. In order to determine the packaging status and payment rates for these drugs, biologicals, and radiopharmaceuticals in this proposed rule, we used ASP data from the fourth quarter of 2005 or the most recent WAC or AWP data available at this time, as appropriate. Table 27 below lists all of the items without available CY 2005 claims data to which these policies would apply in CY 2007. There are three HCPCS codes for which we were not able to determine payment rates based on the ASP methodology. The HCPCS codes are 90393 (Vaccina ig, im), 90693 (Typhoid vaccine, akd, sc), and A9567 (Technitium TC-99m aerosol). Because we are unable to estimate the per administration cost of these items, we are proposing to package them in CY 2007. We are seeking comments on our proposed policies for determining the per administration cost of the drugs, biologicals, and radiopharmaceuticals that are payable under the OPPS, but do not have any CY 2005 claims data.

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290 Table 27.-- Drugs, Biologicals, and Radiopharmaceuticals Without CY 2005 Claims Data

HCPCS Code 90714 90727 A9535 J0132 J0200 J0278 J0288 J0350 J0395 J1452 J2425 J2805 J2850 J3355 J3471 J3472 J7341 J8540 J9225 Q9958 Q9959 Q9960 Q9961 Q9962 Q9963 Q9964

Description Td vaccine no prsrv >/= 7 im Plague vaccine, im Injection, methylene blue Acetylcysteine injection Alatrofloxacin mesylate Amikacin sulfate injection Ampho b cholesteryl sulfate Injection anistreplase 30 u Arbutamine HCl injection Intraocular Fomivirsen na Palifermin injection Sincalide injection Inj secretin synthetic human Urofollitropin, 75 iu Ovine, up to 999 USP units Ovine, 1000 USP units Non-human, metabolic tissue Oral dexamethasone Histrelin implant HOCM <=149 mg/ml iodine, 1ml HOCM 150-199mg/ml iodine,1ml HOCM 200-249mg/ml iodine,1ml HOCM 250-299mg/ml iodine,1ml HOCM 300-349mg/ml iodine,1ml HOCM 350-399mg/ml iodine,1ml HOCM>= 400mg/ml iodine, 1ml

ASP-Based Payment Rate $18.09 $150.00 $2.87 $1.86 $16.03 $1.33 $12.00 $2,265.46 $160.00 $210.00 $11.37 $44.14 $20.31 $48.84 $0.11 $133.77 $1.64 $0.07 $2,019.82

Est. Average Number of Units Per Administration 1 1 10 210 2.5 5.25 35 1 1 1 84 1 14 2 150 1 50 80 1

$0.06

100

N

$0.08

100

N

$0.09

100

N

$0.17

100

N

$0.14

100

N

$0.39

100

N

$0.19

100

N

CY 2007 Proposed SI N K N K N N K K K K K N K K N K K N K

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VI. Proposed Estimate of OPPS Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, Radiopharmaceuticals, and Devices (If you choose to comment on issues in this section, please include the caption “OPPS: Estimated Transitional Pass-Through Spending” at the beginning of your comment.) A. Total Allowed Pass-Through Spending Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of devices for a given year to an "applicable percentage" of projected total Medicare and beneficiary payments under the hospital OPPS. For a year before CY 2004, the applicable percentage was 2.5 percent; for CY 2004 and subsequent years, we specify the applicable percentage up to 2.0 percent. If we estimate before the beginning of the calendar year that the total amount of pass-through payments in that year would exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform reduction in the amount of each of the transitional pass-through payments made in that year to ensure that the limit is not exceeded. We make an estimate of pass-through spending to determine not only whether payments exceed the applicable percentage, but also to determine the appropriate reduction to the conversion factor for the projected level of pass-through spending in the following year. For devices, making an estimate of pass-through spending in CY 2007 entails estimating spending for two groups of items. The first group consists of those items for

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which we have claims data for procedures that we believe used devices that were eligible for pass-through status in CY 2005 and CY 2006 and that would continue to be eligible for pass-through payment in CY 2007. The second group consists of those items for which we have no direct claims data, that is, items that became, or would become, eligible in CY 2006 and would retain pass-through status in CY 2007, as well as items that would be newly eligible for pass-through payment beginning in CY 2007. B. Proposed Estimate of Pass-Through Spending for CY 2007 We are proposing to set the applicable percentage cap at 2.0 percent of the total OPPS projected payments for CY 2007. As we discuss in section IV.B. of this preamble, there is one device category receiving pass-through payment in CY 2006 that will continue for payment during CY 2007. Therefore, we estimate pass-through spending attributable to the first group of items described above to be $36.8 million. To estimate CY 2007 pass-through spending for device categories in the second group, that is, items for which we have no direct claims data, we used the following approach: For additional device categories that are approved for pass-through status after July 1, 2006, but before January 1, 2007, we are proposing to use price information from manufacturers and volume estimates based on claims for procedures that would most likely use the devices in question because we do not have any CY 2005 claims data upon which to base a spending estimate. We are proposing to project these data forward to CY 2007 using inflation and utilization factors based on total growth in OPPS services as projected by CMS’ Office of the Actuary (OACT) to estimate CY 2007 pass-through spending for this group of device categories. We may use an alternate growth factor for

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any specific new device category based on our claims data or the device’s clinical characteristics, or both. For device categories that become eligible for pass-through status in CY 2007, we are proposing to use the same methodology. We anticipate that any new categories for January 1, 2007, would be announced after the publication of this proposed rule, but before publication of the final rule with comment period. Therefore, the estimate of pass-through spending in the CY 2007 OPPS final rule with comment period would incorporate any pass-through spending for device categories made effective January 1, 2007, and during subsequent quarters of CY 2007. With respect to CY 2007 pass-through spending for drugs and biologicals, as we explain in section V.A.3. of this proposed rule, the pass-through payment amount for new drugs and biologicals that we determine have pass-through status will equal zero. Therefore, our estimate of pass-through spending for drugs and biologicals with pass-through status in CY 2007 equals zero. In the CY 2005 OPPS final rule with comment period (69 FR 65810), we indicated that we are accepting pass-through applications for new radiopharmaceuticals that are assigned a HCPCS code on or after January 1, 2005. (Prior to this date, radiopharmaceuticals were not included in the category of drugs paid under the OPPS, and therefore, were not eligible for pass-through status.) We have no new radiopharmaceuticals that were added for pass-through payment in CY 2005 or to this point in CY 2006, and we currently have no information identifying new radiopharmaceuticals to which a HCPCS code might be assigned on or after January 1, 2007, for which pass-through payment status would be sought. We also have

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no data regarding payment for new radiopharmaceuticals with pass-through status under the methodology that we specified in the CY 2005 OPPS final rule with comment period. However, we do not believe that pass-through spending for new radiopharmaceuticals in CY 2007 will be significant enough to materially affect our estimate of total pass-through spending in CY 2007. Therefore, we are not including radiopharmaceuticals in our estimate of pass-through spending for CY 2007. We discuss the methodology for determining the proposed CY 2007 payment amount for radiopharmaceuticals with pass-through status in section V.B.3.b. of this preamble. In accordance with the methodology described above, we estimate that total pass-through spending for both device categories that are continuing into CY 2007 and that first become eligible for pass-through status during CY 2007 would equal approximately $43.2 million, which represents 0.13 percent of total OPPS projected payments for CY 2007. This figure includes estimates for the current device category continuing into CY 2007, which equals $36.8 million, in addition to projections for categories that may become eligible after publication of this proposed rule but before the end of CY 2006, and for projections for new categories that may become eligible during CY 2007. Table 28.-- Estimates for CY 2007 Transitional Pass-Through Spending for Current Pass-Through Categories Continuing into CY 2007 Existing Pass-Through HCPCS APC Device Category C1820 1820 Generator, neurostimulator (implantable), with rechargeable battery and charging system

CY 2007 Estimated Utilization 4,568

CY 2007 Estimated Pass-Through Payments $36,766,720

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Because we estimate pass-through spending in CY 2007 will not amount to 2.0 percent of total projected OPPS CY 2007 spending, we are proposing to return 1.87 percent of the pass-through pool to adjust the conversion factor, as we discuss in section II.C. of this preamble. VII. Proposed Brachytherapy Source Payment Changes (If you choose to comment on issues in this section, please include the caption “OPPS: Brachytherapy” at the beginning of your comment.) A. Background Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) of Pub. L. 108-173, mandated the creation of separate groups of covered OPD services that classify brachytherapy devices separately from other services or groups of services. The additional groups must reflect the number, isotope, and radioactive intensity of the devices of brachytherapy furnished, including separate groups for Palladium-103 and Iodine-125 devices. In accordance with this provision, since CY 2004 we have established four new brachytherapy source codes and descriptors. Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, established payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) based on a hospital’s charges for the service, adjusted to cost. The period of payment under this provision is for brachytherapy sources furnished from January 1, 2004, through December 31, 2006. Under section 1833(t)(16)(C) of the Act, charges for the brachytherapy devices may not be used in determining any outlier payments under the OPPS for that period of payment. Consistent with our practice under

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the OPPS to exclude items paid at cost from budget neutrality consideration, these items have been excluded from budget neutrality for that time period as well. In the OPPS interim final rule with comment period published on January 6, 2004 (69 FR 827), we implemented sections 621(b)(1) and (b)(2)(C) of Pub. L. 108-173. In that rule, we stated that we would pay for the brachytherapy sources listed in Table 4 of the interim final rule with comment period (69 FR 828) on a cost basis, as required by the statute. Since January 1, 2004, we have used status indicator “H” to denote nonpass-through brachytherapy sources paid on a cost basis, a policy that we finalized in the CY 2005 final rule with comment period (69 FR 65838). Furthermore, we adopted a standard policy for brachytherapy code descriptors, beginning January 1, 2005. We included “per source” in the HCPCS code descriptors for all those brachytherapy source descriptors for which units of payment were not already delineated. Section 621(b)(3) of Pub. L. 108-173 requires the Government Accountability Office (GAO) to conduct a study to determine appropriate payment amounts for devices of brachytherapy, and to submit a report on its study to the Congress and the Secretary, including recommendations. The GAO's final report, published at the end of July 2006, was not available in time to review and discuss in this proposed rule. We plan to discuss the report's findings and recommendations in the CY 2007 OPPS final rule with comment period.

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B. Proposed Payments for Brachytherapy Sources in CY 2007 As indicated above, the provision to pay for brachytherapy sources at charges reduced to cost expires after December 31, 2006, in accordance with section 1833(t)(16)(C) of the Act. However, under section 1833(t)(2)(H) of the Act, we are still required to create APC groupings that classify devices of brachytherapy separately from other services or groups of services in a manner reflecting the number, isotope, and radioactive intensity of the devices of brachytherapy furnished. We are proposing to pay separately for each of the sources listed in Table 29 below on a prospective basis for CY 2007, with payment rates to be determined using the CY 2005 claims-based median cost per source for each brachytherapy device. Consistent with our policy regarding APC payments made on a prospective basis, we are proposing that the cost of brachytherapy sources be subject to the outlier provisions of section 1833(t)(5) of the Act. As indicated in section II.A.2. of the preamble to this proposed rule, for CY 2007, we are proposing a specific payment rate for brachytherapy sources, which will be subject to scaling for budget neutrality. Table 29 includes a complete listing of the HCPCS codes, long descriptors, APC assignments, APC titles, and status indicators that we currently use for brachytherapy sources paid under the OPPS in CY 2006 and that we are proposing to use for CY 2007. The brachytherapy sources and related information in Table 29 are the same sources and information as those listed in Table 28 of the OPPS CY 2006 final rule with comment period (70 FR 68676). No additional brachytherapy sources have been added since the CY 2006 final rule with comment period.

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Table 29.-- Proposed Separately Payable Brachytherapy Sources for CY 2007 HCPCS Code Long Descriptor C1716 Brachytherapy source, Gold 198, per source C1717 Brachytherapy source, High Dose Rate Iridium 192, per source C1718 Brachytherapy source, Iodine 125, per source C1719 Brachytherapy source, Non-High Dose Rate Iridium 192, per source C1720 Brachytherapy source, Palladium 103, per source C2616 Brachytherapy source, Yttrium-90, per source C2632 Brachytherapy solution, Iodine125, per mCi C2633 Brachytherapy source, Cesium-131, per source C2634 Brachytherapy source, High Activity, Iodine-125, greater than 1.01 mCi (NIST), per source C2635 Brachytherapy source, High Activity, Palladium-103, greater than 2.2 mCi (NIST), per source C2636 Brachytherapy linear source, Palladium103, per 1MM C2637 Brachytherapy source, Ytterbium-169, per source

APC APC Title 1716 Brachytx source, Gold 198

New Status Indicator K

1717 Brachytx source, HDR Ir-192

K

1718 Brachytx source, Iodine 125

K

1719 Brachytx source, Non-HDR Ir-192 1720 Brachytx source, Palladium 103 2616 Brachytx source, Yttrium-90

K

2632 Brachytx sol, I-125, per mCi

K

2633 Brachytx source, Cesium-131

K

2634 Brachytx source, HA, I-125

K

2635 Brachytx source, HA, P-103

K

2636 Brachytx linear source, P-103

K

2637 Brachytx, Ytterbium-169

K

K K

There are a number of advantages to this proposed payment method. The OPPS is a prospective payment system under which payment rates are generally established based on median costs from historical hospital claims. Therefore, under this payment method, brachytherapy sources would be paid using the same basic median cost methodology as the overall OPPS. The payment of sources would thus be an integral part of the OPPS, rather than a separate cost-based payment methodology within the OPPS. In addition, consistent and predictable prospectively established payment rates under the OPPS for brachytherapy sources are appropriate because we do not believe that the hospital resource costs associated with specific brachytherapy sources should vary greatly

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across hospitals or across clinical conditions under treatment, other than through differences in the numbers of sources utilized, which are already accounted for in our per source payment methodology. This prospective payment methodology would promote efficiency in the provision of sources, while continuing to provide payments that reflect the wide clinical variation in the use of brachytherapy sources related to many factors, including tumor type and stage, patient anatomy, and planned brachytherapy dose. In addition, under this method, we would continue to pay for brachytherapy sources separately using the same C-codes and descriptors that hospitals have reported for the last several years. We note that High Dose Rate (HDR) Iridium-192 (C1717) is a reusable source, across treatment sessions and across patients. It is unclear whether hospitals are reporting the number of units provided accurately. Thus, while we are currently proposing that HDR Iridium be paid separately on the basis of the median cost per source as we are proposing to pay for the other brachytherapy sources, we invite comments on alternatives to using this methodology for this source, such as on the basis of median costs per treatment day on hospital claims. During the March 1-2, 2006 APC Panel meeting, we discussed median cost data for brachytherapy sources developed from the partial CY 2005 hospitals claims data available for analysis at the time of the meeting. While the APC Panel made no specific recommendations about a specific OPPS CY 2007 payment methodology for brachytherapy sources, the Panel reviewed the median costs for the sources of

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brachytherapy and generally commented that the median costs appeared reasonable for the commonly furnished brachytherapy sources. Because brachytherapy sources would no longer be paid on the basis of their charges reduced to costs, we are proposing to discontinue our use of payment status indicator “H” for APCs assigned to brachytherapy sources. We are proposing to use status indicator "K" for all brachytherapy source APCs for CY 2007. We are also proposing for CY 2007 to change the definition of status indicator “K” to ensure that “K” appropriately describes brachytherapy source APCs. Payment status indicators are discussed in section XV.A. of this preamble. There is one source for which we have no claims data or payment information. We added Ytterbium-169 (HCPCS code C2637) for payment effective October 1, 2005, because it met the requirements of section 1833(t)(2)(H) of the Act as a separate brachytherapy source. It is our understanding that this source, which is for use in high dose rate (HDR) brachytherapy, is not yet marketed by the manufacturer, although it has been approved by the Food and Drug Administration (FDA). Therefore, we have no claims data for this brachytherapy source in order to develop a prospective payment rate, as we do for the other brachytherapy sources for CY 2007. In addition, it is our understanding that no price for the product exists, as it has not yet been marketed. Thus, we also have no external information regarding the cost of this source to hospitals. We are weighing our payment options for CY 2007 for brachytherapy sources for which we have no payment or claims information, such as the present case with Ytterbium-169. This includes considering our CY 2007 payment options for other new brachytherapy

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sources that come to our attention, which historically have been newly recognized under the OPPS on a quarterly basis. One option for CY 2007 would be to pay for the currently existing HCPCS code C2637 at charges converted to costs. However, this would be inconsistent with our proposed policy with regard to payment for brachytherapy sources under prospectively established payment rates. We paid for all brachytherapy sources based upon charges converted to costs for CYs 2004 through 2006 because the law required us to do so. However, that provision will expire for the CY 2007 OPPS. In addition, this methodology would be inconsistent with the prospective payment methodologies we use to provide payments for other new items and services under the OPPS for which we do not yet have claims data. A second option would be to assign the code to its own APC or to a New Technology APC with a payment rate set at or near the lowest proposed payment rate for any source of brachytherapy paid on a per source basis (as opposed, for example, per mCi), for CY 2007. However, we have no claims data or other information regarding the cost of HCPCS code C2637 to hospitals. This payment policy would resemble our policy regarding the APC assignment of not otherwise classified codes, which are assigned to the lowest level APC in their clinically compatible series. However, HCPCS code C2637 is a specifically defined brachytherapy source, and such a payment rate would not recognize the clinical distinctions among brachytherapy sources, including their differences in isotopes, activity levels, and clinical uses in low dose rate (LDR) versus HDR brachytherapy. The solid brachytherapy source with the lowest proposed median

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cost for CY 2007 is HCPCS code C2634, for High Activity Iodine-125, with a median cost of $25.77 per source, which is implanted in LDR brachytherapy. A third option would be to assign HCPS code C2637 to its own APC or to a New Technology APC with a payment rate established at or near the proposed payment rate for HCPCS code C1717, which describes HDR Iridium-192. Like HCPCS code C2637, HCPCS code C1717 is used for HDR brachytherapy, and HCPCS code C1717 is the most commonly used source for HDR brachytherapy under the OPPS. However, this approach would not take into consideration significant differences in the two sources, including their radioactive isotopes and energy levels. The fourth option would be to assign HCPCS code C2637 to its own APC or to a New Technology APC with a prospective payment rate based on external data provided to us regarding the expected cost of the source to hospitals. If we were provided reliable and relevant cost information for the source, we could establish its payment rate based on that information and our review of other pertinent considerations, as we do for new technology services under the OPPS. Under this option, in the absence of external cost information, we would not recognize HCPCS code C2637 under the OPPS for CY 2007 until we received such information and could establish a payment rate in a quarterly OPPS update. CMS provided the brachytherapy source Ytterbium-169 a HCPCS code in CY 2005 at the manufacturer’s request, based on the belief that the source would be marketed shortly. However, the product has not yet been marketed. Therefore, we currently have a recognized HCPCS code for an item that is not currently available to hospitals. We do not typically issue and maintain as payable a HCPCS code for an item

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that is not marketed. Under this option, if the source were marketed mid-quarter in CY 2007 and cost information was provided to us, there would be no payment available for the source until the next OPPS quarterly update, which would establish the payment rate for HCPCS code C2637 and its effective date. After weighing the above options, we are proposing the second option discussed, that is, to assign C2637 to its own APC or a New Technology APC with a payment rate set at or near the lowest proposed payment rate for any source of brachytherapy paid on a per source basis. This option resembles our policy regarding the APC assignment of not otherwise classified codes, in the absence of any data currently available. Once we have claims data, or obtain external data, we can consider movement to another APC, if warranted. However, as we indicate below, we are interested in the public's comments on the four options we have presented. We are specifically inviting comments on how we should establish the CY 2007 payment amount for Ytterbium-169 (HCPCS code C2637), especially with consideration of the four options discussed above, and on how we should generally proceed on setting payment amounts for established or new brachytherapy sources eligible for separate payment under section 1833(t)(2)(H) of the Act, for which we have no claims-based cost data in the future. Note that under option 4, for a future new source we would need cost information regarding the source in order to establish a code for which we could set an appropriate OPPS payment rate. We intend to avoid routinely establishing HCPCS codes for brachytherapy sources which hospitals could not be using, and, therefore, for which payments would not be necessary.

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As we have consistently done in the past, we are inviting the public to submit recommendations for new codes to describe new brachytherapy sources in a manner reflecting the number, isotope, and radioactive intensity of the sources. We are requesting that commenters provide a detailed rationale to support recommended new sources and send recommendations to us. We will continue our endeavor to add new brachytherapy source codes and descriptors to our systems for payment on a quarterly basis. Such recommendations should be directed to the Division of Outpatient Care, Mail Stop C4-05-17, Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244. We have considered the definition of the term “brachytherapy source” in the context of current medical practice, and in light of the language in section 1833(t)(2)(H) of the Act. We are proposing to define a device of brachytherapy eligible for separate payment under the OPPS as a “seed or seeds (or radioactive source)” as indicated in section 1833(t)(2)(H) of the Act, which refers to sources that are themselves radioactive, meaning that the sources contain a radioactive isotope. Therefore, for example, we do not consider specific devices that do not utilize radioactive isotopes to deliver radiation to be radioactive sources as envisioned by the statute. While the public may recommend any item that it wishes us to consider as a brachytherapy source, we remind the public of our interpretation of a device of brachytherapy eligible for separate payment under section 1833(t)(2)(H) of the Act.

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VIII. Proposed Changes to OPPS Drug Administration Coding and Payment for CY 2007 (If you choose to comment on issues in this section, please include the caption “OPPS: Drug Administration” at the beginning of your comment.) A. Background From the start of the OPPS until the end of CY 2004, three HCPCS codes were used to bill drug administration services provided in the hospital outpatient department: ● Q0081 (Infusion therapy, using other than chemotherapeutic drugs, per visit) ● Q0083 (Chemotherapy administration by other than infusion technique only, per visit) ● Q0084 (Chemotherapy administration by infusion technique only, per visit). A fourth OPPS drug administration HCPCS code, Q0085 (Administration of chemotherapy by both infusion and another route, per visit), was active from the beginning of the OPPS through the end of CY 2003. Each of these four HCPCS codes mapped to an APC (that is, Q0081 mapped to APC 0120, Q0083 mapped to APC 0116, Q0084 mapped to APC 0117, and Q0085 mapped to APC 0118), and the APC payment rates for these codes were made on a per-visit basis. The per-visit payment included payment for all hospital resources (except separately payable drugs) associated with the drug administration procedures. For CY 2004, we discontinued using HCPCS code Q0085 to identify drug administration services and moved to a combination of HCPCS codes Q0083 and Q0084 that allowed more accurate calculations when determining OPPS payment rates.

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In CY 2005, in response to the recommendations made by commenters and the hospital industry, OPPS transitioned to the use of CPT codes for drug administration services. These CPT codes allowed for more specific reporting of services, especially regarding the number of hours for an infusion, and provided consistency in coding between Medicare and other payers. However, we did not have any data to revise the CY 2005 per-visit APC payment structure for infusion services. In order to collect data for future ratesetting purposes, we implemented claims processing logic that collapsed payments for drug administration services and paid a single APC amount for those services for each visit, unless a modifier was used to identify drug administration services provided in a separate encounter on the same day. Hospitals were instructed to bill all applicable CPT codes for drug administration services provided in a hospital outpatient department, without regard to whether or not the CPT code would receive a separate APC payment during OPPS claims processing. While hospitals were just adopting CPT codes for outpatient drug administration services in CY 2005, physicians paid under the Medicare Physician Fee Schedule were using HCPCS G-codes in CY 2005 to report office-based drug administration services. These G-codes were developed in anticipation of substantial revisions to the drug administration CPT codes by the CPT Editorial Panel that were expected for CY 2006. In CY 2006, as anticipated, the CPT Editorial Panel revised its coding structure for drug administration services, incorporating new concepts such as initial, sequential, and concurrent services into a structure that previously distinguished services based on type of administration (chemotherapy/nonchemotherapy), method of administration

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(injection/infusion/push), and for infusion services, first hour and additional hours. For CY 2006, we proposed a crosswalk that mapped the expected CY 2006 CPT codes (represented by CY 2005 G-codes used in the physician office setting, the closest proxy at the time) to the APC payment structure implemented in CY 2005. Our crosswalk was reviewed by the APC Panel at both the February and August 2005 meetings, and was included in the CY 2006 OPPS proposed rule. During the proposed rule comment period, we received a number of comments that prompted several revisions to our proposed crosswalk, including the development of complex claims processing logic to assign correct payment for certain drug administration services that would vary based on other drug administration services provided during the same patient visit. These revisions were a result of the growing understanding, facilitated by the preview of CPT drug administration coding guidelines developed by the CPT Editorial Panel, in the hospital community of the multiple implications associated with adopting the newly introduced CPT concepts of initial, sequential, and concurrent services. Upon review of the completed revisions to our proposed CY 2006 methodology, and following comprehensive assessment of all public comments, we implemented 20 of the 33 CY 2006 drug administration CPT codes that did not reflect the concepts of initial, sequential, and concurrent services, and we created 6 new HCPCS C-codes that generally paralleled the CY 2005 CPT codes for the same services. We chose not to implement the full set of CY 2006 CPT codes because of our concerns regarding the interface between the complex claims processing logic required for correct payments and hospitals’ challenges in correctly coding their claims to receive accurate payments for these

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services. In addition, numerous commenters indicated that implementing certain CPT codes in a fashion consistent with the code descriptors would present hospitals with difficult operational and administrative challenges because concepts integral to the codes were inconsistent with the clinical patterns of drug administration services provided in hospital outpatient departments. In addition to coding changes, CY 2006 payment rates for drug administration services were updated based upon CY 2004 claims, and we continued the claims processing logic that required hospitals providing drug administration services to report all applicable drug administration HCPCS codes, despite some codes being collapsed into one APC for payment purposes. B. Proposed CY 2007 Drug Administration Coding Changes For the CY 2007 OPPS, we are proposing to continue the CY 2006 OPPS drug administration coding structure, which combines CPT codes with several C-codes. However, we welcome comments from hospitals regarding their experiences in implementing, for purposes of reporting to other payers, the CY 2006 CPT codes that incorporate the concepts of initial, sequential, and concurrent drug administration services. While we are not proposing to transition to the full set of CPT codes in CY 2007, we retain this as an option for the future. In addition, because of the discrepancies between APC payments (based on per-visit hospital claims data) and per-service CPT/HCPCS coding, we provided special instructions to hospitals in CY 2005 and CY 2006 regarding modifier 59 in order to ensure proper OPPS payments, consistent with our claims processing logic. As we do not expect any changes to our coding structure for CY 2007 and because we have updated

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service-specific claims data from CY 2005, we no longer have the need for specific drug administration instructions regarding modifier 59. Instead, for CY 2007 we are proposing that hospitals apply modifier 59 to drug administration services using the same correct coding principles that they generally use for other OPPS services. C. Proposed CY 2007 Drug Administration Payment Changes CY 2007 is the first year that we have more detailed claims data to inform our ratesetting process. Through CY 2006, payment for additional hours of drug infusion has always been packaged, although separate codes for reporting these hours have been used under the OPPS since CY 2005. Specifically, hospitals began reporting more precise CPT codes in CY 2005 that included separate coding for the first hour of infusion versus additional hours of infusion. In order to analyze these data, because we expected that additional hours of infusion codes would always be reported with codes for the first hour of infusion, thereby resulting in multiple bills for the additional hours of infusion CPT codes, we added the following three CY 2005 drug administration CPT codes to the bypass list utilized to create “pseudo” single claims: CPT codes 90781 (Intravenous infusion for therapy/diagnosis, administered by physician or under direct supervision of physician; each additional hour, up to eight (8) hours); 96412 (Chemotherapy administration, intravenous; infusion technique, one to 8 hours, each additional hour); and 96423 (Chemotherapy administration, intra-arterial; infusion technique, one to 8 hours, each additional hour). The standard OPPS methodology, as described in section II.A. of this proposed rule, was used to calculate HCPCS medians for these three drug administration codes. We then mapped all the data for the three additional hours of

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infusion CPT codes from the single and “pseudo” single claims to the APCs to which we are proposing to assign the CY 2005 claims data for these codes for purposes of calculating APC median costs. While bypassing these three CPT codes and developing additional “per unit” claims provide a methodology to calculate median costs for these previously packaged drug administration services and to attribute all of their cost data to their assigned APCs, we note that this methodology allocates all packaging on the claim related to drug administration to the associated first hour drug administration code. Because these additional hours of infusion codes are not reported alone in conjunction with other separately payable nondrug administration services, we would not expect that the packaging related to additional hours of infusion would be inappropriately assigned to nondrug administration services. While we realize that there are some packaged costs that truly are clinically related to the second and subsequent hours of infusion, especially for infusions of packaged drugs that span several hours, and would, therefore, be most appropriately allocated to the additional hours of infusion codes, we are not able at this time to accurately assign representative portions of packaging costs to multiple different services at this time due to the limitations of our claims data. We believe this proposed methodology takes into account all of the packaging on claims for drug administration services and provides a reasonable framework for developing median costs for drug administration services that are often provided in combination with one another. Upon review of the HCPCS median costs for all drug administration services, including injections and antigen therapy services, we created a comprehensive set of new

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APC groupings of CY 2005 HCPCS codes for drug administration services, with our assignments based both upon hospital resources utilized as reflected in HCPCS median costs and clinical coherence. The result of this analysis was the development of six proposed drug administration APC levels for the proposed CY 2007 payment rates, as shown in Table 30-1. Table 30-1.--Proposed 6-Level APC Structure of CY 2005 CPT Drug Administration Codes Used to Develop CY 2007 APC Payment Rates Proposed CY 2007 Drug Administration APC Level

LEVEL I

LEVEL II

LEVEL III

CY 2005 CPT/HCPCS Code 90472 90473 90474 90799 95115 96549 90471 90781 90782 90788 95117 95144 95145 95146 95147 95148 95149 95165 95170 G0008 G0009 G0010 90783 90784 96400 96405 96406 96412 96423 96542

Description Immunization admin, each add Immune admin oral/nasal Immune admin oral/nasal addl Ther/prophylactic/dx inject Immunotherapy, one injection Chemotherapy, unspecified Immunization admin IV infusion, additional hour Injection, sc/im Injection of antibiotic Immunotherapy injections Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Admin influenza virus vac Admin pneumococcal vaccine Admin hepatitis b vaccine Injection, ia Injection, iv Chemotherapy, sc/im Chemo intralesional, up to 7 Chemo intralesional over 7 Chemo, infuse method add-on Chemo ia infuse each addl hr Chemotherapy injection

Proposed CY 2007 APC Reflecting Claims Data

0436

0437

0438

CMS-1506-P Proposed CY 2007 Drug Administration APC Level LEVEL IV

LEVEL V

LEVEL VI

312 CY 2005 CPT/HCPCS Code 96408 96420 96440 96445 90780 96520 96530 96410 96414 96422 96425 96450

Description Chemotherapy, push technique Chemo, ia, push technique Chemotherapy, intracavitary Chemotherapy, intracavitary IV infusion therapy, 1 hour Port pump refill & main Syst pump refill & main Chemotherapy,infusion method Chemo, infuse method add-on Chemo ia infusion up to 1 hr Chemotherapy,infusion method Chemotherapy, into CNS

Proposed CY 2007 APC Reflecting Claims Data 0439

0440

0441

As shown above, the placement of HCPCS codes into the proposed six levels follows logical, clinically coherent principles and is consistent with both expected and observed differences in hospital resource costs, both across levels and within each level. For example, the first hour of chemotherapy infusion is assigned to proposed Level VI, while additional hours of chemotherapy infusion are assigned to proposed Level III. This proposed structure is mirrored by the nonchemotherapy codes that show the first hour of nonchemotherapy infusion assigned to proposed Level V, while additional hours of nonchemotherapy infusion are assigned to proposed Level II. Using this structure as a base, the CY 2006 OPPS drug administration codes were assigned to the proposed 6-level APC structure based on their clinical and expected hospital resource characteristics, as seen in Table 30-2. This proposed structure was presented to the APC Panel during the March 2006 meeting. The Panel recommended using the bypass methodology as described above for the three additional hours of infusion codes to develop their median costs and supported

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separate payment for each additional hour of infusion for CY 2007, as shown in Table 30-2. Table 30-2.--CY 2007 Proposed 6-Level Drug Administration APC Structure Proposed CY 2007 APC

APC Status Indicator

Proposed CY 2007 APC Median

0436

S

$10.71

0437

S

$25.49

0438

S

$48.99

CPT/HCPCS Code 90472 90473 90474 90779 95115 96549 90772 90471 95117 95144 95145 95146 95147 95148 95149 95165 95170 C8951 G0008 G0009 90773 96401 96402 96405 96406 96423 96542 C8952

0439

S

$97.84

C8955 96420 96440 96445 C8953

Description Immunization admin, each add Immune admin oral/nasal Immune admin oral/nasal addl Ther/prop/diag inj/inf proc Immunotherapy, one injection Chemotherapy, unspecified Ther/proph/diag inj, sc/im Immunization admin Immunotherapy injections Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Antigen therapy services Intravenous infusion for therapy/diagnosis; each additional hour Admin influenza virus vac Admin pneumococcal vaccine Ther/proph/diag inj, ia Chemo, anti-neopl, sq/im Chemo hormon antineopl sq/im Chemo intralesional, up to 7 Chemo intralesional over 7 Chemo ia infuse each addl hr Chemotherapy injection Therapeutic, prophylactic or diagnostic injection; intravenous push Chemotherapy administration, intravenous; infusion technique, each additional hour Chemo, ia, push technique Chemotherapy, intracavitary Chemotherapy, intracavitary Chemotherapy administration, intravenous; push technique

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Proposed CY 2007 APC

APC Status Indicator

Proposed CY 2007 APC Median

0440

S

$112.94

CPT/HCPCS Code 96521 96522 C8950 96416 96422 96425 96450

0441

S

$154.86

C8954

C8957

Description Refill/maint, portable pump Refill/maint pump/resvr syst Intravenous infusion for therapy/diagnosis; up to 1 hour Chemo prolong infuse w/pump Chemo ia infusion up to 1 hr Chemotherapy, infusion method Chemotherapy, into CNS Chemotherapy administration, intravenous; infusion technique, up to one hour Intravenous infusion for therapy/diagnosis; initiation of prolonged infusion (more than 8 hours), requiring use of portable or implantable pump

We are accepting the APC Panel’s recommendation for CY 2007 to use the bypass and “per unit” methodology as described in proposing a drug administration payment structure that includes a methodology to pay for infusion services by the hour. Therefore, we are proposing to assign HCPCS codes for CY 2007 to six new drug administration APCs, as listed in Table 30-2, with payment rates based on median costs for the APCs from CY 2005 claims data as assigned in Table 30-1. For CY 2007, the APC Panel also recommended that CMS reevaluate payment for IVIG administration, especially considering the resource intensity of IVIG infusions. We are accepting this APC Panel recommendation and believe that our proposed CY 2007 drug administration payment policy that would provide specific payment for each hour of infusion would provide more accurate and appropriate payment for lengthy infusions, including the administration of IVIG. IVIG administration in the outpatient hospital setting typically occurs over 3-6 hours, and under our proposal hospitals would receive separate payment for the first hour of infusion, along with payments for each of

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the additional 2-5 hours generally required for the IVIG infusion. Considerable hospital resources are used throughout the infusion period, including significant clinical staff time to monitor and adjust infusions based on patients’ evolving conditions, so we believe separate payment for each additional hour is appropriate. With respect to separate payment for IVIG preadministration-related services, the APC Panel recommended that CMS maintain separate payment as long as it remains appropriate. For CY 2006 only, we created the temporary G-code G0332 (Preadministration-related services for intravenous infusion of immunoglobulin, per infusion encounter). We are accepting this APC Panel recommendation and have considered whether separate payment for IVIG preadministration-related services remains appropriate. Based upon our ongoing review of the IVIG marketplace and our CY 2007 proposed payment policies for items and services under the OPPS, we believe that separate payment for preadministration-related services specific to IVIG infusions would not be necessary in CY 2007 to ensure Medicare beneficiary access to IVIG. Hospitals’ cooperation during CY 2005 in reporting all drug administration services, whether or not separate payments were made for all such services, has allowed us to develop robust median costs for individual services so that we have sufficient information to propose this more specific APC payment structure for drug administration services for CY 2007. We believe that this proposed structure would make appropriate payments for the hospital resources required to provide drug administration services, as we have large numbers of claims for many specific drug administration services that reveal significant and differential costs. In particular, using this proposed APC structure

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should allow us to make more accurate payments to hospitals for complex and lengthy drug administration services furnished to Medicare beneficiaries for many medical conditions, while also providing accurate payments for individual services when they are provided alone. IX. Proposed Hospital Coding and Payments for Visits (If you choose to comment on issues in this section, please include the caption “Visits” at the beginning of your comment.) A. Background Currently, CMS instructs hospitals to use the CY 2006 CPT codes used by physicians and listed in Table 31 to report clinic and emergency department visits and critical care services on claims paid under the OPPS. Table 31.--CY 2006 CPT Codes Used to report Clinic and Emergency Department Visits and Critical Care Services CPT Evaluation and Management Codes CPT Code 99201 99202 99203 99204 99205 99211 99212 99213

Descriptor Office or other outpatient visit for the evaluation and management of a new patient (Level 1) Office or other outpatient visit for the evaluation and management of a new patient (Level 2) Office or other outpatient visit for the evaluation and management of a new patient (Level 3) Office or other outpatient visit for the evaluation and management of a new patient (Level 4) Office or other outpatient visit for the evaluation and management of a new patient (Level 5) Office or other outpatient visit for the evaluation and management of an established patient (Level 1) Office or other outpatient visit for the evaluation and management of an established patient (Level 2) Office or other outpatient visit for the evaluation and management of an established patient (Level 3)

CMS-1506-P CPT Code 99214 99215 99241 99242 99243 99244 99245 CPT Code 99281 99282 99283 99284 99285

317 Descriptor Office or other outpatient visit for the evaluation and management of an established patient (Level 4) Office or other outpatient visit for the evaluation and management of an established patient (Level 5) Office consultation for a new or established patient (Level 1) Office consultation for a new or established patient (Level 2) Office consultation for a new or established patient (Level 3) Office consultation for a new or established patient (Level 4) Office consultation for a new or established patient (Level 5) Emergency Department Visit CPT Codes Descriptor Emergency department visit for the evaluation and management of a patient (Level 1) Emergency department visit for the evaluation and management of a patient (Level 2) Emergency department visit for the evaluation and management of a patient (Level 3) Emergency department visit for the evaluation and management of a patient (Level 4) Emergency department visit for the evaluation and management of a patient (Level 5) Critical Care Services CPT Codes

CPT Code 99291 99292

Descriptor Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes Each additional 30 minutes

The majority of CPT code descriptors are applicable to both physician and facility resources associated with specific services. However, we have acknowledged from the beginning of the OPPS that we believe that CPT Evaluation and Management (E/M) codes were defined to reflect the activities of physicians and do not describe well the range and mix of services provided by hospitals during visits of clinic and emergency department patients and critical care encounters. Presently, CPT indicates that office or

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other outpatient visit codes are used to report E/M services provided in the physician’s office or in an outpatient or other ambulatory facility. For OPPS purposes, we refer to these as clinic visit codes. CPT also indicates that emergency department visit codes are used to report E/M services provided in the emergency department, defined as an “organized hospital-based facility for the provision of unscheduled episodic services to patients who present for immediate medical attention. The facility must be available 24 hours a day.” For OPPS purposes, we refer to these as emergency visit codes. CPT defines critical care services as the “direct delivery by a physician(s) of medical care for a critically ill or critically injured patient.” It also states that “critical care is usually, but not always, given in a critical care area, such as …the emergency care facility.” In the April 7, 2000 OPPS final rule (65 FR 18434), CMS instructed hospitals to report facility resources for clinic and emergency department visits using CPT E/M codes and to develop internal hospital guidelines to determine what level of visit to report for each patient. While awaiting the development of a national set of facility-specific codes and guidelines, we have advised that each hospital’s internal guidelines should follow the intent of the CPT code descriptors, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the codes. During the January 2002 APC Panel meeting, the APC Panel recommended that CMS adopt the American College of Emergency Physicians (ACEP) intervention-based guidelines for facility coding of emergency department visits and develop guidelines for clinic visits that are modeled on the ACEP guidelines.

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In the August 9, 2002 OPPS proposed rule, we proposed 10 new G-codes (Levels 1-5 Facility Emergency Services and Levels 1-5 Facility Clinic Services) for use in the OPPS to report hospital visits. We also asked for public comments regarding national guidelines for hospital coding of emergency and clinic visits. We discussed various types of models, reflecting on the advantages and disadvantages of each. We reviewed in detail the considerations around various discrete types of specific guidelines, including guidelines based on staff interventions, based upon staff time spent with the patient, based on resource intensity point scoring, and based on severity acuity point scoring related to patient complexity. We note below our analysis of the various models. 1. Guidelines based on the number or type of staff interventions: Under this model, the level of service reported would be based on the number and/or type of interventions performed by nursing or ancillary staff. In the intervention model, baseline care (including registration, triage, initial nursing assessment, periodic vital signs as appropriate, simple discharge instructions, and exam room set up/clean up) and possibly a single minor intervention (for example, suture removal, rapid strep test, or visual acuity) would be reported by the lowest level of service. Higher levels of service would be reported as the number and/or complexity of staff interventions increased. The most commonly recommended intervention-based guidelines were the facility-coding guidelines developed by the ACEP. The ACEP model uses examples of interventions to illustrate appropriate coding. Coders extrapolate from these examples to determine the correct level of service to report. The ACEP model uses the types of interventions rather than the number of interventions to determine the appropriate level of

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service. This means that the single most complex intervention determines the level of service, whether it was the only service provided (in addition to baseline care), whether other similarly complex interventions were also provided, or whether other interventions of less complexity were also provided. The intervention model is based on emergency department/clinic resource use, is simple, reflects the care given to the patient, and does not require additional facility documentation. However, we expressed concern that the intervention model may provide an incentive to provide unnecessary services and that it is susceptible to upcoding. In addition, it is not particularly focused on measuring and appropriately reporting a code reflecting total hospital resources used in a visit. Furthermore, the ACEP model requires extrapolation from a set of examples that could make it prone to variability across hospitals. 2. Guidelines based on the time staff spent with the patient: Under this model, the level of service would be determined based on the amount of time hospital staff spent with a patient. The underlying assumption is that staff time spent with the patient is an appropriate proxy for total hospital resource consumption. In this model, if only baseline care (as described above) were provided, a Level 1 service would be reported. Higher levels of service would be reported based on increments of staff time beyond baseline care. For example, Level 2 could be reported for 11 to 20 minutes beyond baseline care, and Level 3 could be reported for 21 to 30 minutes beyond baseline care. This model is simple, correlates with total hospital resource use, and provides an objective standard for all hospitals to follow. However, we observed that this model would require additional, potentially burdensome documentation of staff time,

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could provide an incentive to work slowly or use less efficient personnel, and has the potential for upcoding and gaming. 3. Guidelines based on a point system where a certain number of points are assigned to each staff intervention based on the time, intensity, and staff type required for the intervention: In this model, points or weights are assigned to each facility service and/or intervention provided to a patient in the clinic or emergency department. The level of service is determined by the sum of the points for all services/interventions provided. Commenters to the August 9, 2002 proposed rule recommended various approaches to a point system, including point systems that assigned points based on the amount of staff time spent with the patient, the number of activities performed during the visit, and a combination of patient condition and activities performed. A point system would correlate with facility resource consumption and provide an objective standard. In addition, it is not as easily gamed because time-based interventions can be assigned a set number of points. However, we noted that a point system could present a significant burden for hospitals in terms of requiring additional, clinically unnecessary documentation. Point systems that are complex could require dedicated staff to monitor and maintain them. 4. Guidelines based on patient complexity: Several variations were recommended in comments to the August 9, 2002 proposed rule, including assignment of levels of service based on ICD-9-CM (International Classification of Diseases, Ninth Edition, Clinical Modification) diagnosis

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codes, based on complexity of medical decision making, or based on presenting complaint or medical problem. The premise for these guideline systems is that many emergency departments follow established protocols based on patients’ presenting complaints and/or diagnoses. Therefore, assigning a level of service based on patient diagnosis should correlate with facility resource consumption. These systems may require the use of a coding “grid,” which lists more than 100 examples of patient conditions and diagnoses and assigns a level of service to each example. When the patient presents with a condition that does not appear on the grid, the coder must extrapolate from the grid to the individual patient. We expressed concern that these systems are extremely complex, demand significant interpretive work on the part of the coder (who may not have clinical experience), and are subject to variability across hospitals. While no clinically unnecessary documentation would be required because the system is based on diagnoses that are already reported on claims, there is a significant potential for upcoding and gaming. In the August 9, 2002 OPPS proposed rule, we also stated that we were concerned about counting separately paid services (for example, intravenous infusions, x-rays, electrocardiograms, and lab tests) as “interventions” or including their associated “staff time” in determining the level of service. We believed that the level of service should be determined by resource consumption that is not otherwise captured in payments for other separately payable services. We are now reconsidering this perspective and will discuss this further in section IX.D. of the preamble of this proposed rule.

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In the November 1, 2002 OPPS final rule, we specified that we would not create new codes to replace existing CPT E/M codes for reporting hospital visits until national guidelines have been developed, in response to commenters who were concerned about implementing code definitions without national guidelines. We noted that an independent panel of experts would be an appropriate forum to develop codes and guidelines that are simple to understand and implement, and that are compliant with the HIPAA requirements We explained that organizations such as the American Hospital Associations (AHA) and the American Health Information Management Association (AHIMA) had such expertise and would be capable of creating hospital visit guidelines and providing ongoing education of providers. We also articulated a set of principles that any national guidelines for facility visit coding should satisfy, including that coding guidelines should be based on facility resources, should be clear to facilitate accurate payments and be usable for compliance purposes and audits, should meet the HIPAA requirements, should only require documentation that is clinically necessary for patient care, and should not facilitate upcoding or gaming. We stated that the distribution of codes should result in a normal curve. We concluded that we believed the most appropriate forum for development of code definitions and guidelines was an independent expert panel that would makes recommendations to CMS. The AHA and AHIMA originally supported the ACEP model for emergency visit coding, but we expressed concern that the ACEP guidelines allowed counting of separately payable services in determining a service level, which could result in the double counting of hospital resources in establishing visit payment rates and payment

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rates for those separately payable services. Subsequently, on their own initiative, the AHA and AHIMA formed an independent expert panel, the Hospital Evaluation and Management Coding Panel, comprised of members with coding, health information management, documentation, billing, nursing, finance, auditing, and medical experience. This panel included representatives from the AHA, AHIMA, ACEP, Emergency Nurses Association, and American Organization of Nurse Executives. CMS and AMA representatives observed the meetings. On June 24, 2003, the AHA and AHIMA submitted their recommended guidelines, hereafter referred to as the AHA/AHIMA guidelines, for reporting three levels of hospital clinic and emergency visits and a single level of critical care services to CMS, with the hope that CMS would publish the guidelines in the CY 2004 proposed rule. The AHA and AHIMA acknowledged that “continued refinement will be required as in all coding systems. The Panel…looks forward to working with CMS to incorporate any recommendations raised during the public comment period” (AHA/AHIMA guidelines report, page 9). The AHA and AHIMA indicated that the guidelines were field-tested several times by panel members at different stages of their development. The guidelines are based on an intervention model, where the levels are determined by the numbers and types of interventions performed by nursing or ancillary hospital staff. Higher levels of services are reported as the number and/or complexity of staff interventions increase. Although we did not publish the guidelines, the AHA and AHIMA released the guidelines through their Web sites. Consequently, we received numerous comments from providers and associations, some in favor and some opposed to the guidelines. We

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undertook a critical review of the recommendations from the AHA and AHIMA and made some modifications to the guidelines based on comments we received from outside hospitals and associations on the AHA/AHIMA guidelines, clinical review, and changing payment policies in the OPPS regarding some separately payable services. In an attempt to validate the modified AHA/AHIMA guidelines and examine the distribution of services that would result from their application to hospital clinic and emergency visits paid under the OPPS, we contracted a study that began in September 2004 and concluded in September 2005 to retrospectively code, under the modified AHA/AHIMA guidelines, hospital visits by reviewing hospital visit medical chart documentation gathered through the Comprehensive Error Rate Testing (CERT) work. While a review of documentation and assignment of visit levels based on the modified AHA/AHIMA guidelines to 12,500 clinic and emergency visits was initially planned, the study was terminated after a pilot review of only 750 visits. The contractor identified a number of elements in the guidelines that were difficult for coders to interpret, poorly defined, nonspecific, or regularly unavailable in the medical records. The contractor’s coders were unable to determine any level for about 25 percent of the clinic cases and about 20 percent of the emergency cases reviewed. The only agreement observed between the levels reported on the claims and levels according to the modified AHA/AHIMA guidelines was the classification of Level 1 services, where the review supported the level on the claims 54-70 percent of the time. In addition, the vast majority of the clinic and emergency visits reviewed were assigned to Level 1 during the review. Based on these findings, we believed that it was not necessary to review additional

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records after the initial sample. The contractor advised that multiple terms in the guidelines required clearer definition and believed that more examples would be helpful. Although we believe that all of the visit documentation for each case was available for the contractor’s review, we were unable to determine definitively that this was the case. Thus, there is some possibility that the contractor’s assignments would have differed if additional documentation from the medical records was available for the visits. In summary, while testing of the modified AHA/AHIMA guidelines was helpful in illuminating areas of the guidelines that would benefit from refinement, we were unable to draw conclusions about the relationship between the distribution of current hospital reporting of visits using CPT E/M codes that are assigned according to each hospital’s internal guidelines and the distribution of coding under the AHA/AHIMA guidelines, nor were we able to demonstrate a normal distribution of visit levels under the modified AHA/AHIMA guidelines. B. CY 2007 Proposed Coding As discussed above, the majority of all CPT code descriptors are applicable to both physician and facility resources associated with specific services. However, we believe that CPT E/M codes were defined to reflect the activities of physicians and do not describe well the range and mix of services provided by hospitals during visits of clinic and emergency department patients and critical care encounters. While awaiting the development of a national set of facility-specific codes and guidelines, we have advised that each hospital’s internal guidelines should follow the intent of the CPT code

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descriptors, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the codes. In the November 1, 2002 OPPS final rule, we specified that we would not create new codes to replace existing CPT E/M codes for reporting hospital visits until national guidelines have been developed, in response to commenters who were concerned about implementing code definitions without national guidelines. While we do not yet have a formal set of guidelines that we believe may be appropriately applied nationally to report different levels of hospital clinic and emergency department visit and to report critical care services, we have made significant progress in developing potential guidelines and, therefore, are proposing for CY 2007 the establishment of HCPCS codes to describe hospital clinic and emergency department visits and critical care services. Prior to our implementation of national guidelines for the new hospital visit HCPCS codes, we are proposing that hospitals may continue to use their existing internal guidelines to determine the visit levels to be reported with these codes. We anticipate that many providers would choose to use their existing guidelines for reporting visits with CPT codes. We do not expect a substantial workload for a provider that chooses to adjust its guidelines to reflect our proposed policies. We acknowledge that it can be burdensome for providers to bill G-codes rather than CPT codes. In this case, because current CPT E/M codes do not describe hospital visit resources, we have no alternative other than to create new G-codes. CPT has not yet created clinic and emergency department visit and critical care services codes that

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describe hospital resource utilization. It is important to note that G-codes may be recognized by other payers. 1. Clinic Visits For clinic visits, we are proposing five new codes, to replace hospitals’ reporting of the CPT clinic visit E/M codes for new and established patients and consultations listed in Table 31. Providers have been reporting five levels of CPT codes through CY 2006, and we believe that it should be fairly easy to crosswalk current internal hospital guidelines to these five proposed new codes. Commenters to prior rules have stated that the hospital resources used for new and established patients to provide a specific level of service are very similar, and that it is unnecessary and burdensome from a coding perspective to distinguish between the two types of visits. The new codes are proposed in Table 32 below. Table 32.--Proposed CY 2007 HCPCS Codes to be Used to Report Clinic Visits HCPCS Code Gxxx1 Gxxx2 Gxxx3 Gxxx4 Gxxx5

Short Descriptor Level 1 hosp clinic visit Level 2 hosp clinic visit Level 3 hosp clinic visit Level 4 hosp clinic visit Level 5 hosp clinic visit

Long Descriptor Level 1 hospital clinic visit Level 2 hospital clinic visit Level 3 hospital clinic visit Level 4 hospital clinic visit Level 5 hospital clinic visit

2. Emergency Department Visits As described above, CPT defines an emergency department as “an organized hospital-based facility for the provision of unscheduled episodic services to patients who present for immediate medical attention. The facility must be available 24 hours a day.” Under the OPPS, we have restricted the billing of emergency department CPT codes to

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services furnished at facilities that meet this CPT definition. Facilities open less than 24 hours a day should not use the emergency department codes. Sections 1866(a)(1)(I), 1866(a)(1)(N), and 1867 of the Act impose specific obligations on Medicare-participating hospitals and critical access hospitals that offer emergency services. These obligations concern individuals who come to a hospital’s dedicated emergency department (DED) and request examination or treatment for medical conditions, and apply to all of these individuals, regardless of whether or not they are beneficiaries of any program under the Act. Section 1867(h) of the Act specifically prohibits a delay in providing required screening or stabilization services in order to inquire about the individual’s payment method or insurance status. Section 1867(d) of the Act provides for the imposition of civil monetary penalties on hospitals and physicians responsible for failing to meet the provisions listed above. These provisions, taken together, are frequently referred to as the Emergency Medical Treatment and Labor Act (EMTALA). EMTALA was passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 Pub. L. 99-272 (COBRA). Section 489.24 of the EMTALA regulations defines “dedicated emergency department” as any department or facility of the hospital, regardless of whether it is located on or off the main hospital campus, that meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously

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scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment. We believe that every emergency department that meets the CPT definition of emergency department also qualifies as a dedicated emergency department under EMTALA. However, we are aware that there are some departments or facilities of hospitals that meet the definition of a DED under the EMTALA regulations but that do not meet the more restrictive CPT definition of an emergency department. For example, a hospital department or facility that meets the definition of a DED may not be available 24 hours a day, 7 days a week. Nevertheless, hospitals with such departments or facilities incur EMTALA obligations with respect to an individual who presents to the department and requests, or has requested on his or her behalf, examination or treatment for an emergency medical condition. However, because they do not meet the CPT requirements for reporting emergency visit E/M codes, these facilities must bill clinic visit codes for the services they furnish. We have no way to distinguish in our hospital claims data the costs of visits provided in DEDs that do not meet the CPT definition of emergency department from the costs of clinic visits. Some hospitals have requested that they be permitted to bill emergency visit codes under the OPPS for services furnished in a facility that meets CPT’s definition for reporting emergency visit E/M codes, except that they are not available 24 hours a day.

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These hospitals believe that their resource costs are more similar to those of emergency departments that meet the CPT definition than they are to the resource costs of clinics. Representatives of such facilities have argued that emergency department visit payments are more appropriate, on the grounds that their facilities treat patients with emergency conditions whose costs exceed the resources reflected in the clinic visit APC payments, even though these emergency departments are not available 24 hours per day. In addition, these hospital representatives indicated that their facilities have EMTALA obligations and should, therefore, be able to receive emergency visit payments. While these emergency departments may provide a broader range and intensity of hospital services and require significant resources to assure their availability and capabilities in comparison with typical hospital outpatient clinics, the fact that they do not operate with all capabilities full-time suggests that hospital resources associated with visits to emergency departments or facilities available less than 24 hours a day may not be as great as the resources associated with emergency departments or facilities that are available 24 hours a day and that fully meet the CPT definition. To determine whether visits to emergency departments or facilities (referred to as Type B emergency departments) that incur EMTALA obligations but do not meet more prescriptive expectations that are consistent with the CPT definition of an emergency department (referred to as Type A emergency departments) have different resource costs than visits to either clinics or Type A emergency departments, for CY 2007 we are proposing a set of five G-codes for use by all entities that meet the definition of a DED under the EMTALA regulations in §489.24 but that are not Type A emergency

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departments, as described in Table 33 below. These codes will be called “Type B emergency visit codes.” Table 33.--Proposed CY 2007 HCPCS Codes to be Used to Report Emergency Visits Provided in Type B Emergency Departments HCPCS Code

Short Descriptor

Gzzz1

Lev 1 hosp type B ED visit

Gzzz2

Lev 2 hosp type B ED visit

Gzzz3

Lev 3 hosp type B ED visit

Long Descriptor Level 1 hospital emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 2 hospital emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 3 hospital emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment)

CMS-1506-P HCPCS Code

Short Descriptor

Gzzz4

Lev 4 hosp type B ED visit

Gzzz5

Lev 5 hosp type B ED visit

333 Long Descriptor Level 4 hospital emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 5 hospital emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment)

For CY 2007, we also are proposing to create five G-codes to be reported by the subset of provider-based emergency departments or facilities of the hospital, called Type A emergency departments, that are available to provide services 24 hours a day, 7 days per week and meet one or both of the following requirements related to the EMTALA definition of DED, specifically: (1) It is licensed by the State in which it is located under the applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment. These codes will be called “Type A emergency visit codes” and would replace hospitals’ current reporting of the CPT

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emergency department visit E/M codes listed in Table 33. Our intention is to allow hospital-based emergency departments or facilities that are currently appropriately reporting CPT emergency department visit E/M codes to bill these new Type A emergency visit codes. We believe that this proposed definition of Type A emergency departments will neither narrow nor broaden the group of emergency departments or facilities that may bill the Type A emergency visit codes in comparison with those that are currently correctly billing CPT emergency department visit E/M codes. Rather, we are refining and clarifying the definition for use in the hospital context. We believe that because the concepts employed in the definition of a DED for EMTALA purposes are already familiar to hospitals, it is appropriate to employ those concepts, rather than the concepts employed in the CPT definition of emergency department, for purposes of defining these new G-codes. As we have previously noted, the CPT codes were defined to reflect the activities of physicians and do not always describe well the range and mix of services provided by hospitals during visits of emergency department patients. We believe that these new codes that we are proposing for reporting emergency visits to Type A emergency departments are more specific to the hospital context. For example, one feature that distinguishes Type A hospital emergency departments from other departments of the hospital is that Type A emergency departments do not generally provide scheduled care, but rather regularly operate to provide immediately available unscheduled services. The new codes that we are proposing for CY 2007 are listed in Table 34 below.

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Table 34.--Proposed CY 2007 HCPCS Codes to be Used to Report Emergency Visits Provided in Type A Emergency Departments HCPCS Code

Short Descriptor

Gyyy1

Lev 1 hosp type A ED visit

Gyyy2

Lev 2 hosp type A ED visit

Gyyy3

Lev 3 hosp type A ED visit

Gyyy4

Lev 4 hosp type A ED visit

Gyyy5

Lev 5 hosp type A ED visit

Long Descriptor Level 1 hospital emergency visit provided in a Type A hospital-based facility or department. (The facility or department must be open 24 hours a day, 7 days a week and meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 2 hospital emergency visit provided in a Type A hospital-based facility or department. (The facility or department must be open 24 hours a day, 7 days a week and meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 3 hospital emergency visit provided in a Type A hospital-based facility or department. (The facility or department must be open 24 hours a day, 7 days a week and meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 4 hospital emergency visit provided in a Type A hospital-based facility or department. (The facility or department must be open 24 hours a day, 7 days a week and meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment) Level 5 hospital emergency visit provided in a Type A hospital-based facility or department. (The facility or department must be open 24 hours a day, 7 days a week and meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment)

3. Critical Care Services For critical care services, we are proposing two new codes, to replace hospitals’ reporting of the CPT E/M critical care codes listed in Table 31. Providers have been reporting two CPT codes through CY 2006, and we believe that it should be fairly easy to

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crosswalk current internal hospital guidelines to these two new proposed codes. The proposed new codes are listed in Table 35 below. Table 35.--Proposed CY 2007 HCPCS Codes to be Used to Report Critical Care Services HCPCS Code Short Descriptor Gccc1 Hosp critical care,30-74 min Gccc2

Hosp critical care,add 30min

Long Descriptor Hospital critical care services, first 30-74 minutes Hospital critical care services, each additional 30 minutes

C. CY 2007 Proposed Payment Policy Since the implementation of the OPPS, outpatient visits provided by hospitals have been paid at three payment levels for both clinic and emergency department visits, even though hospitals have been reporting five resource-based coding levels of clinic and emergency department visits using CPT E/M codes. Critical care services have been paid at one level, with separate payment for the first 30 to 74 minutes of care and bundling of payment for all additional 30 minute increments of critical care services into payment for the first 30-74 minutes. If the critical care service is less than 30 minutes in duration, then it is to be billed as either a clinic visit or an emergency visit CPT code. Because the three payment rates for clinic and emergency department visits are based on five levels of CPT codes as listed in Table 31, in general the two lowest levels of CPT codes (1 and 2) are assigned to the low-level visit APCs and the two highest levels of CPT codes (4 and 5) are assigned to the high-level visit APCs, with the single middle CPT level CPT code (3) assigned to the mid-level visit APCs. Hospital claims data indicate that the cost of providing a visit of the same level is generally significantly higher for emergency

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visits in comparison with clinic visits, with the differential increasing at higher levels of services. Based upon CY 2005 claims data processed through December 31, 2005, the median costs of clinic visit, emergency visit, and critical care APCs as configured for CY 2006 are listed below. Table 36.--Median Costs of Clinic and Emergency Visit and Critical Care APCs as Configured for CY 2006 Clinic Visits APC Title Low Level Clinic Visits Mid Level Clinic Visits High Level Clinic Visits

APC Median $53.94 $63.73 $91.27

Levels of CPT Codes Assigned to APC Level 1 Clinic Visit, Level 2 Clinic Visit Level 3 Clinic Visit Level 4 Clinic Visit, Level 5 Clinic Visit

Emergency Department Visits APC Title Low Level Emergency Visits Mid Level Emergency Visits High Level Emergency Visits

APC Median $76.43 $133.98 $237.17

Levels of CPT Codes Assigned to APC Level 1 ED Visit, Level 2 ED Visit Level 3 ED Visit Level 4 ED Visit, Level 5 ED Visit

Critical Care Services APC Title Critical Care

APC Median $495.16

CPT Code Assigned to APC Critical care, first hour

Historical hospitals claims data, however, have generally reflected significantly different median costs for the two levels of services assigned to the low and high level visit APCs. While the median costs of these services do not violate the 2 times rule within their assigned APCs, this may not be the most accurate method of payment for these very common hospital levels of visits which clearly demonstrate differential hospital resources. In particular, because of the relatively low volume of the highest levels of services in the clinic and emergency department, our payment rates may be

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especially low. Therefore, we are proposing five payment levels for clinic and emergency visits and one payment level for critical care services. As discussed in the previous section, we are proposing to create 17 new G-codes to replace the CPT E/M codes that hospitals are currently billing to report visits and critical care services. To determine appropriate payment rates for the new G-codes, we are proposing to map the data from the CY 2005 CPT E/M codes and other HCPCS codes currently assigned to the clinic visit APCs to 11 new APCs, 5 for clinic visits, 5 for emergency visits, and 1 for critical care services as shown in Table 37 to develop median costs for these APCs. We mapped the CPT E/M codes and other HCPCS codes to the new APCs based on median costs and clinical considerations. Table 37.--Proposed Assignment of Claims Data from CY 2005 CPT E/M Codes and Other HCPCS Codes to New Visit APCs for CY 2007 Proposed CY 2007 APC Title

Level 1 Hospital Clinic Visits

Level 2 Hospital Clinic Visits

Proposed HCPCS Code Short Descriptor CY 2007 APC 92012 Eye exam established pat 99201 Office/outpatient visit, new (Level 1) 99211 Office/outpatient visit, est (Level 1) G0101 CA screen; pelvic/breast exam 0604 G0245 Initial foot exam pt lops G0248 Demonstrate use home inr mon G0249 Provide test material, equipm G0264 Assmt otr CHF, CP, asthma 92002 Eye exam, new patient 92014 Eye exam and treatment 99202 Office/outpatient visit, new (Level 2) 99212 Office/outpatient visit, est (Level 2) 99213 Office/outpatient visit, est (Level 3) 99241 Office consultation (Level 1) 0605 99242 Office Consultation (Level 2) 99271 Confirmatory consultation (Level 1) 99272 Confirmatory consultation (Level 2) 99431 Initial care, normal newborn G0246 Folloup eval of foot pt lop G0344 Initial preventive exam

CMS-1506-P Proposed CY 2007 APC Title Level 3 Hospital Clinic Visits

Level 4 Hospital Clinic Visits

Level 5 Hospital Clinic Visits Level 1 Type A Emergency Visits Level 2 Type A Emergency Visits Level 3 Type A Emergency Visits Level 4 Type A Emergency Visits Level 5 Type A Emergency Visits Critical Care

339 Proposed HCPCS Code Short Descriptor CY 2007 APC 92004 Eye exam, new patient 99203 Office/outpatient visit, new (Level 3) 0606 99214 Office/outpatient visit, est (Level 4) 99243 Office consultation (Level 3) 99204 Office/outpatient visit, new (Level 4) 99215 Office/outpatient visit, est (Level 5) 0607 99244 Office consultation (Level 4) 99273 Confirmatory consultation (Level 3) 99274 Confirmatory consultation (Level 4) 99205 Office/outpatient visit, new (Level 5) 99245 Office consultation (Level 5) 0608 99275 Confirmatory consultation (Level 5) G0175 OPPS service, sched team conf 0609

99281

Emergency department visit

0613

99282

Emergency depepartment visit

0614

99283

Emergency department visit

0615

99284

Emergency department visit

0616 0617

99285 99291

Emergency department visit Critical care, first hour

In the case of the CPT E/M codes for emergency visits, the assignment of data from a single visit code to the new Type A Emergency Visit APC of the same level was straightforward. Similarly, the assignment of data from the only separately payable critical care CPT code to the new APC for critical care services was clear-cut. However, in some cases of the data for CPT clinic visit E/M codes, we assigned a code to an appropriate clinic visit APC level based upon resource and clinical homogeneity considerations, and that APC assignment did not correspond to the visit level described by the code. For example, CPT 99213 is a level 3 clinic visit code for an established patient, which would seem to logically map to the Level 3 Clinic Visit APC. However,

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because CPT 99213 has a median cost of $63.04, it maps more appropriately to the Level 2 Clinic Visit APC, which has an overall median cost of $62.12. In general, CPT codes for established patient visits had lower median costs than new patient visit or consultation codes of the same E/M level, and that variability is reflected in their respective proposed APC data assignments for CY 2007. We believe that in CY 2007, when hospitals utilize their own internal guidelines to report clinic visits, without codes that differentiate among new, established, or consultation visits, they will report G-code levels that reflect their resources used. We expect that payments provided for G-codes of each level, based upon the CY 2005 claims data assignments as listed in Table 38, would provide appropriate resource-based payments for visits reported at each level. After the CY 2005 CPT E/M codes and other HCPCS codes were mapped to an appropriate new APC as shown in Table 38, the next step required was to assign an APC to each new G-code for which no data were available. We assigned these 16 new separately payable G-codes to an appropriate APC level based on the code level alone as shown in Table 38. For example, both the Level 1 Hospital Clinic Visit and Level 1 Hospital Type B ED visit codes are mapped to the Level 1 Hospital Clinic Visit APC, 0604. Similarly, the Level 1 Hospital Type A ED visit code is mapped to the Level 1 Type A Emergency Visit APC, 0609. We expect that this configuration would provide appropriate resource-based payments for visits reported at each level. We are proposing to assign status indicator “B” to the CPT E/M codes for CY 2007, with no APC assignment, because we are proposing new G-codes for the OPPS for CY 2007, as

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delineated in Table 38. Table 38 also removes codes that were deleted by CPT for CY 2007, and only includes codes that would be effective under the OPPS for CY 2007. Table 38.--CY 2007 Proposed Clinic Visit, Emergency Visit, and Critical Care Services APC Assignments CPT/HCPCS Code for Reporting in CY 2007 Gxxx1 Gzzz1 92012 G0101 G0245 G0248 G0249 G0264 Gxxx2 Gzzz2 92002 92014 G0246 G0344 Gxxx3 Gzzz3 92004 Gxxx4 Gzzz4 Gxxx5 Gzzz5 G0175

Description Level 1 hosp clinic visit Lev 1 hosp general ED visit Eye exam established pat CA screen; pelvic/breast exam Initial foot exam pt lops Demonstrate use home inr mon Provide test material, equipm Assmt otr CHF, CP, asthma Level 2 hosp clinic visit Lev 2 hosp general ED visit Eye exam, new patient Eye exam and treatment Folloup eval of foot pt lop Initial preventive exam Level 3 hosp clinic visit Lev 3 hosp general ED visit Eye exam, new patient Level 4 hosp clinic visit Lev 4 hosp general ED visit Level 5 hosp clinic visit Lev 5 hosp general ED visit OPPS service, sched team conf

Gyyy1

Lev 1 hosp special ED visit

Gyyy2

Lev 2 hosp special ED visit

Gyyy3

Lev 3 hosp special ED visit

Gyyy4

Lev 4 hosp special ED visit

Gyyy5 Gccc1

Lev 5 hosp special ED visit Critical care, first hour

Proposed CY 2007 APC Median

Proposed CY 2007 APC

APC Status Indicator

Level 1 Hospital Clinic Visits

0604

V

$49.93

Level 2 Hospital Clinic Visits

0605

V

$62.12

Level 3 Hospital Clinic Visits

0606

V

$83.67

Level 4 Hospital Clinic Visits

0607

V

$105.50

Level 5 Hospital Clinic Visits

0608

V

$130.38

0609

V

$51.41

0613

V

$84.79

0614

V

$133.98

0615

V

$214.88

0616

V

$332.14

0617

S

$495.16

Proposed CY 2007 APC Title

Level 1 Special Emergency Visits Level 2 Special Emergency Visits Level 3 Special Emergency Visits Level 4 Special Emergency Visits Level 5 Special Emergency Visits Critical Care

We are proposing to map the five new clinic visit G-codes to the five new Clinic Visit APCs, 0604, 0605, 0606, 0607, and 0608. We are proposing to assign the five new

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Type A emergency visit codes for services provided in a Type A emergency department to the five new Type A Emergency Visit APCs, 0609, 0613, 0614, 0615, and 0616. For CY 2007, we are proposing to assign the five new Type B emergency visit codes for services provided in a Type B emergency department to the five new Clinic Visit APCs, 0604, 0605, 0606, 0607, and 0608. This payment policy for Type B emergency visits is similar to our current policy which requires services furnished in emergency departments that have an EMTALA obligation but do not meet the CPT definition of emergency department to be reported using CPT clinic visit E/M codes, resulting in payments based upon clinic visit APCs. As mentioned above, CPT requires an emergency department to be open 24 hours per day in order for it to be eligible to bill emergency department E/M codes. While maintaining the same payment policy for Type B emergency department visits in CY 2007, the reporting of specific G-codes for emergency visits provided in Type B emergency departments will permit us to specifically collect and analyze the hospital resource costs of visits to these facilities in order to determine in the future whether a proposal of an alternative payment policy may be warranted. This approach to more refined data collection is similar to our approach to drug administration services under the OPPS over the past several years. We collected hospital claims data for specific detailed services using CPT and HCPCS codes for CYs 2005 and 2006, while making payments based on claims data available to us for the less specific HCPCS codes billed by hospitals prior to CY 2005. We recognize that reporting specific drug administration services for which hospitals received no separate or additional payments created some additional

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administrative burden on hospitals for a period of time, but the resource information collected through the claims submissions has been critical to the development of our proposal of more refined drug administration payment policies. The hospital claims data based upon the CY 2005 drug administration coding structure now form the foundation of our CY 2007 proposal for drug administration services as described in section VIII.C. of the preamble to this proposed rule. Although we believe that our proposed payment policy for CY 2007 for Type B emergency department visits is consistent with our past policy regarding visits to emergency departments that do not meet the CPT definition of an emergency department, we are interested in public comments regarding this policy. The OPPS rulemaking cycle for CY 2009 will be the first year that we will have cost data for these new Type B emergency department HCPCS codes available for analysis. In the interim, we are particularly concerned with ensuring that necessary emergency department services are available to rural Medicare beneficiaries. We recognize that rural emergency departments may be disproportionately likely to offer essential emergency department services less than 24 hours per day, 7 days a week because of the limited demand for those services and the high costs and inefficiencies associated with providing full emergency department availability during times when few patients present for emergency care. We believe that our OPPS payment policies for Type A and Type B emergency visits should support the ability of hospitals to provide their communities with essential and appropriate emergency department services efficiently and effectively. We also believe that the payment policies should present no payment incentive for hospitals to

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provide necessary emergency services less than 24 hours per day, 7 days per week, which could result in limited access to emergency services for Medicare beneficiaries, thereby leading to adverse effects on their health. We are proposing to map code Gccc1, the new proposed hospital critical care services code for the first 30-74 minutes of care, to the proposed new Critical Care APC 0617. We are proposing to assign status indicator “N” to proposed HCPCS code Gccc2, to indicate that the code is packaged, as the predecessor code to Gccc2 was also packaged. D. CY 2007 Proposed Treatment of Guidelines 1. Background As described in section IX.A. of the preamble of this proposed rule, since April 7, 2000 we have instructed hospitals to report facility resources for clinic and emergency department outpatient hospital visits using the CPT E/M codes and to develop internal hospital guidelines for reporting the appropriate visit level. In the CY 2003 OPPS final rule with comment period, we noted that an independent panel of experts would be an appropriate forum to develop codes and guidelines. In that final rule with comment period, we also articulated a set of principles that any national guidelines for facility visit coding should satisfy, including that coding guidelines should be based on facility resources, should be clear to facilitate accurate payments and be usable for compliance purposes and audits, should meet the HIPAA requirements, should only require documentation that is clinically necessary for patient care, and should not

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facilitate upcoding or gaming. We stated that the distribution of codes should result in a normal curve. Subsequently, as described above, the AHA and AHIMA formed an independent expert panel, the Hospital Evaluation and Management Coding Panel, and submitted the AHA/AHIMA guidelines for reporting three levels of hospital clinic and emergency visits and a single level of critical care services to CMS. The guidelines are based on an intervention model, where the levels are determined by the numbers and types of interventions performed by nursing or ancillary hospital staff. We undertook a critical review of the recommendations and made some modifications to the guidelines based on comments we received from outside hospitals and associations, clinical review, and changing payment policies in the OPPS regarding some separately payable services. In addition, as previously stated, we contracted a study to retrospectively code, under the modified AHA/AHIMA guidelines, hospital visits by reviewing hospital visit medical chart documentation gathered through CERT work. In summary, while the testing of the modified AHA/AHIMA guidelines was helpful in illuminating areas of the guidelines that would benefit from refinement, we were unable to draw conclusions about the relationship between the distribution of current hospital reporting of visits using CPT E/M codes that are assigned according to each hospital’s internal guidelines and the distribution of code levels under the AHA/AHIMA guidelines, nor were we able to demonstrate a normal distribution of visit levels under the modified AHA/AHIMA guidelines.

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Despite the inconclusive findings from the validation study, after reviewing the AHA/AHIMA guidelines, as well as approximately a dozen other guidelines for outpatient visits submitted by various hospitals and hospital associations, we believe that the AHA/AHIMA guidelines are the most appropriate and well-developed guidelines for use in the OPPS of which we are aware. Our particular interest in these guidelines is based upon the broad-based input into their development, the need for CMS to move definitively to promulgate national outpatient hospital visit coding guidelines in the near future, and full consideration of the characteristics of alternative types of guidelines. We also think that hospitals will react favorably to guidelines developed and supported by the AHA and AHIMA, national organizations that have great interest in hospital coding and payment issues and possess significant medical, technical and practical expertise due to their broad membership, which includes hospitals and health information management professionals. Anecdotally, we have been told that a number of hospitals are successfully utilizing the AHA/AHIMA guidelines to report levels of hospital visits. However, other organizations have expressed concern that the AHA/AHIMA guidelines may result in a significant redistribution of hospital visits to higher levels, reducing the ability of the OPPS to discriminate among the hospital resources required for various different levels of visits. We, too, remain concerned about the potential redistributive effect on OPPS payments for other services or among levels of hospital visits when national guidelines for outpatient visit coding are adopted. We recognize that there may be difficulty crosswalking historical hospital claims data from current CPT E/M codes reported based on individual internal hospital guidelines to payments for any new coding system

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developed, in order to provide appropriate payment levels for hospital visits reported based on national guidelines in the future. There are several types of problems with the AHA/AHIMA guidelines that have been identified based upon extensive staff review and contractor use of the guidelines during the validation study. We believe the AHA/AHIMA guidelines require short -term refinement prior to their full adoption by the OPPS, as well as continued refinement over time after their implementation. Our modified version of the AHA/AHIMA guidelines provides some possibilities for addressing certain issues. Our eight general areas of concern regarding the AHA/AHIMA model are listed below. In addition, we have posted to the CMS Web site both the original AHA/AHIMA guidelines and our modified draft version, and we are seeking public input before we adopt national guidelines. We continue to commit that we will provide a minimum of 6-12 months notice to hospitals prior to implementation of national guidelines to provide sufficient time for providers to make the necessary systems changes and educate their staff. 2. Outstanding Concerns with the AHA/AHIMA Guidelines a. Three versus five levels of codes The AHA/AHIMA guidelines describe three levels of codes for clinic and emergency visits, rather than the five levels of codes that we are proposing for clinic and Type A and Type B emergency visits. It would be impossible to pay at five levels using these guidelines, unless the guidelines were revised. As discussed above, our claims data indicate that five payment levels are justified for both clinic and Type A emergency visits, and, therefore, we are proposing five levels of G-codes so that providers may code

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at five visit levels and receive payments at five levels as well. In fact, the materials explaining the AHA/AHIMA guidelines state that one of the reasons that the model includes only three coding levels is because CMS only paid at three payment levels. We are now proposing to pay at five payment levels, and if our proposed CY 2007 payment policy is finalized, the AHA/AHIMA guidelines may need to be revised to reflect five visit levels. b. Lack of clarity for some interventions Some interventions are vague, unclear, or nonspecific, without sufficient examples of documentation in the medical record that may support those interventions. For instance, it is unclear what documentation for the intervention stated as “Patient registration, room set up, patient use of room, room cleaning” and assigned in the AHA/AHIMA guidelines to a low-level clinic visit would be necessary to support all aspects of that intervention. In another case, the intervention “Frequent monitoring/assessment as evidenced by two sets of vital sign measurements or assessments” that is attributable to a mid-level emergency visit in the guidelines explains that this may include assessment of cardiovascular, pulmonary, or neurological status. However, it is unclear exactly what coders should look for in the medical record to support this intervention and whether narrative hospital staff descriptions of patient status would be considered to be assessments. These examples, and others, were identified by the contractor engaged in medical chart reviews as part of the guidelines validation study. The AHA/AHIMA guidelines may benefit from revisions to clarify some interventions and/or provide additional examples based upon questions that arose during field testing of

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the guidelines or that are raised by hospitals reviewing the AHA/AHIMA guidelines and the modified version posted on our Web site. c. Treatment of separately payable services CMS and the APC Panel stated that separately payable services should be excluded from the guidelines because of their concern over the potential for double payment for hospital resources attributed to visit services when those resources were actually used to provide the separately payable services. Consistent with this policy, at the time of their development the AHA/AHIMA guidelines excluded all services separately payable under the OPPS from the list of interventions. For policy consistency, in our modified draft version of the guidelines, we removed interventions that have now become separately payable under the OPPS through CY 2006, such as bladder catheterizations and some wound care services. However, upon further reflection as we move forward to implement national guidelines, we are open to reconsidering whether the inclusion of some separately payable services in guidelines to determine visit levels could serve as a proxy for the resources that the patient will consume and that should be attributable to the hospital visit, not the separately payable services. In such cases, consideration of separately payable services in reporting visit levels may not result in double payment for components of those separately payable services. There may be hospital resources used in visits that are not captured in the AHA/AHIMA guidelines’ limited number of interventions that are not separately payable. We believe that, in general, a patient with high medical acuity will consume more hospital resources in the visit than a patient with moderate acuity. However, when separately payable

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interventions are removed from the model, it may be difficult for the limited interventions remaining in the guidelines for each visit level to capture the acuity level of the patient. In addition, the list of HCPCS codes that are packaged can change annually. For example, in the CY 2006 OPPS, bladder catheterization services, which had been packaged in prior years, were first made separately payable. If the guidelines strictly excluded all separately payable services, then the guidelines could also change from year to year, possibly requiring additional education of hospital staff on an annual basis. An extremely ill emergency department patient who may need a significant number of separately payable procedures, but only one or two minor interventions that are not separately payable, may require significant time and attention from hospital staff that is unrelated to the hospital resources generally required for the separately payable procedures. The guidelines may indicate that a low level emergency department visit code should be billed, while in fact the patient may require significantly more hospital resources than a mildly ill patient who received the same two minor interventions. We are open to further discussion and welcome public comments on the exclusion of separately payable services from the national visit guidelines and whether their inclusion could pose a risk of attributing the same hospital resources to both visits and separately payable services, potentially resulting in duplicate payments for those resources. d. Some interventions appear overvalued Several interventions that we believe may be minor are valued at a high level in the guidelines. This could result in visits with relatively less resource intensive interventions being coded as high level visits, leading to an overall visit distribution that

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was skewed toward the high end. Claims data then would fail to reflect the differential hospital resources associated with hospital visits of five levels. For example, the AHA/AHIMA guidelines consider oxygen administration, described as initiation and/or adjustment from a baseline oxygen regimen, to be a mid level emergency department intervention, while we believe that the associated hospital resources could be more consistent with its characterization as a low level emergency department intervention. In another example, the AHA/AHIMA guidelines consider specimen collection(s), other than venipuncture and other separately payable services, to be a mid level clinic intervention, while we believe this may be more consistent with other low level clinic interventions, depending upon the numbers and types of different specimens collected. We encourage specific comments on the levels assigned to various interventions in the guidelines, with the goal of differentiating five levels of services in a normal distribution, based on their respective hospital resources. e. Concerns of specialty clinics The AHA/AHIMA guidelines are unlikely to sufficiently address the concerns of various specialty clinics (for example, pain management clinics, oncology clinics, and wound care centers). Anecdotally, we have heard that the interventions listed in the AHA/AHIMA guidelines do not include many of the interventions commonly performed in specialty clinics and that some of the interventions in the guidelines would never be performed in certain types of clinics. Currently, each provider has its own set of guidelines, and we believe that some specialty clinics have customized guidelines to facilitate coding their visits at different levels based upon the specific hospital resources

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commonly used in visits to their clinics. While we prefer to have one model that can be applied nationally to each level of clinic visit code for which we make a specific OPPS payment, we are unsure as to whether one model can adequately characterize visit levels for all types of clinics. For example, we have been told that the most appropriate proxy for facility resource consumption in cancer care is staff time due to the intensive staff interactions required to care for patients with cancer, regardless of the reasons for their clinic visits. We are interested in comments regarding the feasibility of applying national guidelines to specialty clinic visits while ensuring appropriate OPPS payments for those services and suggestions for revisions to the guideline models posted that could improve their utility in reporting such visits. f. Americans with Disabilities Act We are concerned that the AHA/AHIMA guidelines’ intervention related to the special needs of certain patients may be in violation of the Americans with Disabilities Act, as it may increase the visit level reported, thereby increasing a patient’s copayment. Even if additional hospital resources are required to treat patients with disabilities, patients must not have additional financial liability for those services based on their disabilities. g. Differentiation between new and established patients, and between standard visits and consultations The AHA/AHIMA guidelines do not differentiate between new versus established patients or consultations versus standard visits for clinic visits. During the summer 2002 APC Panel meeting, the APC Panel recommended that CMS not differentiate among visit

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types, specifically new, established, and consultation visits, for the purposes of clinic visit facility coding. Therefore, in the August 9, 2002 OPPS proposed rule, we proposed to accept the APC Panel’s recommendation to create five new G-codes to replace the CPT new and established clinic visit and consultation E/M codes. We did not finalize the codes for CY 2003 because of concerns then about creating new G-codes without national guidelines. During CY 2006 and earlier, there has not been a payment difference between new and established patient visits of the same level, as generally both were mapped to the same APC. The information describing the AHA/AHIMA guidelines indicates that only one set of guidelines was developed for five levels of codes for clinic visits, regardless of a patient’s status as a new or established patient or the provision of a consultation visit. This approach may have been related to the lack of a payment differential for different types of clinic visits of the same level under the OPPS when those guidelines were developed. However, several years of hospital claims data regarding the median costs of the specific CPT clinic visit E/M codes consistently indicate that new patients generally are more resource intensive than existing patients across all visit levels, and that consultations are more resource intensive than standard visits. For example, based upon CY 2005 claims used by the OPPS for CY 2007 ratesetting, CPT code 99213, the level 3 clinic visit code for established patients, has a median cost of $63.04. CPT code 99203, the level 3 clinic visit code for new patients, has a median cost of $74.12. CPT code 99243, the level 3 consultation visit code, has a median cost of $84.14. Finally, CPT code 99273, the level 3 confirmatory consultation visit code which was deleted for

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CY 2006, had a median cost of $100.77. We encourage public comments that discuss the potential differences in hospital clinic resource consumption for new patient visits, established patient visits, and consultations. If there are significant additional hospital resources required to provide new patient visits or consultations, we are unsure whether the interventions in the AHA/AHIMA guidelines would reliably capture these additional resources. h. Distinction between Type A and Type B emergency departments There are no AHA/AHIMA guidelines for the reporting of visits to Type B emergency departments that meet the EMTALA definition of a DED, but do not meet the proposed definition of a Type A emergency department, as discussed above. When the AHA and AHIMA created these guidelines, emergency departments that did not meet the CPT definition of emergency department were instructed to bill CPT clinic visit E/M codes. There was no distinction in reporting between emergency departments that, as DEDs, had an EMTALA obligation but did not meet the CPT definition of emergency department and outpatient hospital clinics that did not provide emergency services. If we finalize our proposal to create new G-codes for CY 2007 for Type B emergency departments to use in reporting visits, in the short run hospitals will use internal guidelines to determine their visit levels for Type B emergency department visits, as they will for visits to both clinics and Type A emergency departments. However, with the implementation of national hospital visit guidelines we will need to specify those guidelines to be used for the purposes of Type B emergency visit reporting. The AHA and AHIMA have not yet had the opportunity to consider the issue of Type B emergency

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visit reporting in their guidelines, and we welcome public comments to provide additional perspectives on the appropriate guidelines for reporting visit levels in these Type B emergency departments. The public comments that we receive on this guidelines section of this proposed rule will be publicly available to the AHA and AHIMA and their expert panel, along with comments that we receive on the two versions of the guidelines posted on our Web site. We hope to receive input from them over the upcoming months to address the eight areas of concern that are discussed above, as well as other issues brought to our attention by the public. We understand that some issues will not be able to be fully addressed by their expert panel until we finalize our CY 2007 payment policies for visits in the OPPS. We plan to communicate progress on the development of OPPS visit guidelines through updates to the OPPS Web site, and we may post other versions of draft guidelines in order to solicit additional public input during CY 2007. When we post additional materials to the web for purposes of providing information or soliciting further comments regarding national guidelines, we will update the public through all means practically available to us, including communications with professional associations, list-serves, etc. While we understand the interest of some hospitals in our moving quickly to promulgate national guidelines that will assure standardized reporting of outpatient hospital visit levels, we believe that the issues we have identified and others that may arise are important and require serious consideration prior to the implementation of national guidelines. Because of our commitment to provide hospitals with 6-12 months notice prior to implementation of national guidelines, we expect that we will not implement

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national guidelines prior to CY 2008. We acknowledge that, once implemented, the guidelines will require periodic review and updating based on factors such as changing medical practices, hospital experiences in reporting the codes, new payment policies under the OPPS, and median costs for levels of services calculated from claims data. We are hopeful that the information received from the AHA, AHIMA and others on such reviews would permit us to effectively, and in a timely manner, address emerging guideline implementation issues, as well as develop desirable future modifications to the guidelines based on hospitals’ experiences reporting commonly provided visits. We believe that this ongoing system should provide the most successful approach to ensuring that OPPS national visit guidelines continue to facilitate consistent and standardized reporting of outpatient hospital visits, in a manner that is resource-based and supportive of appropriate OPPS payments for the efficient and effective provision of visits in hospital outpatient settings. X. Proposed Payment for Blood and Blood Products A. Background (If you choose to comment on issues in this section, please include the caption “Blood and Blood Products” at the beginning of your comment.) Since the implementation of the OPPS in August 2000, separate payments have been made for blood and blood products through APCs rather than packaging them into payments for the procedures with which they were administered. Hospital payments for the costs of blood and blood products, as well as the costs of collecting, processing, and storing blood and blood products, are made through the OPPS payments for specific

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blood product APCs. On April 12, 2001, CMS issued the original billing guidance for blood products to hospitals (Program Transmittal A-01-50). In response to requests for clarification of these instructions, CMS issued Program Transmittal 496 on March 4, 2005. The comprehensive billing guidelines in the Program Transmittal also addressed specific concerns and issues related to billing for blood-related services, which the public had brought to our attention. In the CY 2000 OPPS, payments for blood and blood products were established based on external data provided by commenters due to limited Medicare claims data. From the CY 2000 OPPS to the CY 2002 OPPS, payment rates for blood and blood products were updated for inflation. For the CY 2003 OPPS, as described in the November 1, 2002 final rule with comment period (67 FR 66773), we applied a special adjustment methodology to blood and blood products that had significant reductions in payment rates from the CY 2002 OPPS to the CY 2003 OPPS, when median costs were first calculated from hospital claims. Using the adjustment methodology, we limited the decrease in payment rates for blood and blood products to approximately 15 percent. For the CY 2004 OPPS, as recommended by the APC Panel, we froze payment rates for blood and blood products at CY 2003 levels as we studied concerns raised by commenters and presenters at the August 2003 and February 2004 APC Panel meetings. For the CY 2005 OPPS, we established new APCs that allowed each blood product to be assigned to its own separate APC, as several of the previous blood product APCs contained multiple blood products with no clinical homogeneity or whose product-specific median costs may not have been similar. Some of the blood product

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HCPCS codes were reassigned to the new APCs (Table 34 of the November 15, 2004 final rule with comment period (69 FR 65819)). We also noted in the November 15, 2004 final rule with comment period, that public comments on previous OPPS rules had stated that the CCRs that were used to adjust charges to costs for blood products in past years were too low. Past commenters indicated that this approach resulted in an underestimation of the true hospital costs for blood and blood products. In response to these comments and APC Panel recommendations from its February 2004 and September 2004 meetings, we conducted a thorough analysis of the CY 2003 claims (used to calculate the CY 2005 APC payment rates) to compare CCRs between those hospitals reporting a blood-specific cost center and those hospitals defaulting to the overall hospital CCR in the conversion of their blood product charges to costs. As a result of this analysis, we observed a significant difference in CCRs utilized for conversion of blood product charges to costs for those hospitals with and without blood-specific cost centers. The median hospital blood-specific CCR was almost two times the median overall hospital CCR. As discussed in the November 15, 2004 final rule with comment period, we applied a methodology for hospitals not reporting a blood-specific cost center, which simulated a blood-specific CCR for each hospital that we then used to convert charges to costs for blood products. Thus, we developed simulated medians for all blood and blood products based on CY 2003 hospital claims data (69 FR 65816). For the CY 2005 OPPS, we also identified a subset of blood products that had less than 1,000 units billed in CY 2003. For these low-volume blood products, we based the

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CY 2005 OPPS payment rate on a 50/50 blend of the CY 2004 OPPS product-specific OPPS median costs and the CY 2005 OPPS simulated medians based on the application of blood-specific CCRs to all claims. We were concerned that, given the low frequency in which these products were billed, a few occurrences of coding or billing errors may have led to significant variability in the median calculation. The claims data may not have captured the complete costs of these products to hospitals as fully as possible. This low-volume adjustment methodology also allowed us to further study the issues raised by commenters and by presenters at the September 2004 APC Panel meeting, without putting beneficiary access to these low-volume blood products at risk. Overall, median costs from CY 2003 (used for the 2005 OPPS) to CY 2004 (used for the 2006 OPPS) were relatively stable, with a few significant increases and decreases from the CY 2005 adjusted median costs for some specific blood products. For the CY 2006 OPPS, we adopted a payment adjustment policy that limited significant decreases in APC payment rates for blood and blood products from the CY 2005 OPPS to the CY 2006 OPPS to not more than 5 percent. We applied this adjustment to 11 blood and blood product APCs for the CY 2006 OPPS, which we identified in Table 33 of the CY 2006 OPPS final rule with comment period. For the CY 2006 OPPS we set the final median costs for blood and blood products at the greater of: (1) the simulated median costs calculated from the CY 2004 claims data; or (2) 95 percent of the CY 2005 OPPS adjusted median costs for these products, as reflected in Table 33 published in the CY 2006 OPPS final rule with comment period.

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B. Proposed Policy Changes for CY 2007 For the CY 2007 OPPS, we are proposing to establish payment rates for blood and blood products by using the same simulation methodology described in the November 15, 2004 final rule with comment period (69 FR 65816), which utilized hospital-specific actual or simulated CCRs for blood cost centers to convert hospital charges for blood and blood products to costs. We continue to believe that using blood-specific CCRs applied to hospital claims data will result in payments that more fully reflect hospitals’ true costs of providing blood and blood products than our general methodology of defaulting to the overall hospital CCR when more specific CCRs are unavailable. The median costs for blood and blood products in this proposed rule are derived from the CY 2005 claims data and have the benefit of reflecting, in part, the clarifications about reporting that were provided through CMS Program Transmittal 496, which we issued on March 4, 2005. This instruction articulated and clarified many questions that had been raised by hospitals and others about how hospitals should report charges for blood and blood products. These instructions went into effect for services furnished on or after July 1, 2005, and therefore were in effect for the last 6 months of CY 2005. Thus, we expect that the reporting of charges and units for blood and blood products in CY 2005 has improved over past years, especially with respect to hospitals’ inclusion of all charges related to the acquisition, processing, and handling of blood and blood products as specifically described in each of the relevant P-code descriptors. We believe that the median costs for blood and blood products from the CY 2005 claims data reflect

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this improved reporting of charges and units for these products, particularly with regard to the most commonly furnished blood and blood products. Of the 34 blood products, median costs per unit (calculated using the simulated blood CCR methodology) rise for 23 of them compared to the CY 2006 final rule with comment period unadjusted median unit costs. These 23 products account for 92.4 percent of all units of blood products furnished in our CY 2005 claims data. As has been the case in the past, the low volume products (which we define as fewer than 1,000 units) show the most volatility. Of the 12 low volume products, 6 products have increases in their unit costs compared to their CY 2006 unadjusted median unit costs, and 6 products show decreases in their median unit costs compared to their CY 2006 unadjusted median unit costs. The low-volume products for which the medians decline compared to their unadjusted median costs in CY 2006 represent only 0.29 percent of the total units of blood products furnished in the CY 2005 OPPS claims data. Fewer blood products increased in projected costs from CY 2006 to the proposed median costs for CY 2007 because we adjusted the CY 2006 median costs for blood and blood products. Of the 34 blood products, median costs rise for 19 of them compared to the CY 2006 OPPS adjusted median costs on which the CY 2006 payments were based (and which were adjusted to no less than 95 percent of the CY 2005 payment medians). These 19 products accounted for 91.6 percent of all units of blood products furnished in our CY 2005 claims data. Of the 12 low-volume products, 4 show increases in their median unit costs compared to the CY 2006 OPPS adjusted median unit costs, and 8 show decreases compared to their CY 2006 OPPS adjusted median unit costs. The

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low-volume products that show a decline in medians compared to their CY 2006 adjusted median costs represent only 0.4 percent of the total units of blood products reflected in the CY 2005 claims data. We are proposing to set the payment rates for blood and blood products for CY 2007 based on the unadjusted median costs for blood and blood products which are derived from the CY 2005 claims data as we have described. We believe that, in most cases, the unadjusted unit costs developed by this process are valid reflections of the estimated median costs of furnishing these specific blood products, and that no adjustment is required to result in appropriate payments for blood and blood products in CY 2007. Under this proposed policy, based on the CY 2005 claims data, the projected payments would rise for approximately 92 percent of the blood product units paid under OPPS if patterns of furnishing blood products in CY 2007 were similar to those in CY 2005. The low-volume products whose median costs decline compared to their CY 2006 unadjusted median costs are furnished very rarely and by very few providers because, in part, more commonly available products may be used for similar clinical indications. We have no reason to believe that the median costs for low-volume products are not valid reflections of the costs of furnishing these low-volume services, particularly given that so few providers furnish them and it is their claims data that is used to develop the medians. We note, as well, that the median costs of several low-volume blood products show a significant increase for CY 2007. We welcome public comments on this issue.

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Displayed in Table 39 is the list of blood product HCPCS codes with their proposed CY 2007 payment medians. Table 39.--Proposed CY 2007 Payment Medians for Blood and Blood Products

HCPCS Code

SI

APC

P9010

K

0950

P9011 P9012

K K

0967 0952

P9016

K

0954

P9017 P9019 P9020 P9021

K K K K

9508 0957 0958 0959

P9022

K

0960

P9023

K

0949

P9031

K

1013

P9032

K

9500

P9033

K

0968

P9034*

K

9507

P9035

K

9501

P9036

K

9502

P9037 P9038

K K

1019 9505

P9039

K

9504

P9040

K

0969

P9043

K

0956

P9044

K

1009

Short Description Whole blood for transfusion, per unit Blood split unit, specify amount Cryoprecipitate each unit RBC leukocytes reduced, each unit Plasma 1 donor frz w/in 8 hr, each unit Platelets, each unit Platelet rich plasma unit Red blood cells unit Washed red blood cells unit Frozen plasma, pooled, sd, each unit Platelets leukocytes reduced, each unit Platelets, irradiated, each unit Platelets leukoreduced irrad, each unit Platelets, pheresis, each unit Platelet pheresis leukoreduced, each unit Platelet pheresis irradiated, each unit Plate pheresis leukoredu irrad, each unit RBC irradiated, each unit RBC deglycerolized, each unit RBC leukoreduced irradiated, each unit Plasma protein fract,5%,50ml Plasma, cryoprecipitate reduced, each unit

Proposed CY 2007 Units

Proposed CY 2007 OPPS Median Unit Cost

CY 2006 Unadjusted Median Cost

CY 2006 Adjusted Median Cost

2060

$134.80

$117.91

$117.91

136 4155

$136.42 $52.94

$82.50 $40.33

$82.50 $47.10

556100

$177.51

$163.16

$163.16

40113 25796 657 145507

$72.12 $60.49 $156.49 $129.99

$70.40 $51.50 $277.42 $121.48

$70.40 $51.50 $277.42 $121.48

2455

$216.35

$172.40

$189.22

388

$55.96

$60.38

$76.15

19368

$94.61

$98.30

$98.30

4579

$129.45

$73.46

$86.55

4802

$130.89

$102.18

$150.58

9292

$465.60

$434.01

$434.01

40933

$490.51

$493.12

$493.12

1476

$413.58

$317.43

$325.87

17766 4130

$616.68 $201.36

$581.01 $147.47

$581.01 $147.47

818

$352.72

$343.44

$343.44

57857

$228.76

$218.04

$218.04

430

$24.81

$67.94

$67.94

5868

$80.23

$74.52

$74.52

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SI

364

APC

Proposed CY 2007 Units

Proposed CY 2007 OPPS Median Unit Cost

CY 2006 Unadjusted Median Cost

CY 2006 Adjusted Median Cost

398

$193.39

$127.36

$315.70

495

$253.43

$245.14

$994.64

3364 1809

$135.83 $649.06

$207.72 $609.48

$207.72 $609.48

895

$722.82

$654.13

$654.13

493

$89.33

$89.73

$261.93

534

$379.91

$526.00

$526.00

3720

$134.43

$162.42

$178.37

71

$427.35

$345.53

$345.53

1965

$264.47

$256.76

$266.89

3118

$73.28

$74.70

$74.70

283

$73.60

$94.72

$94.72

Short Description Plasma protein fract, 5%, 250ml P9048 K 0966 Granulocytes, pheresis P9050 K 9506 unit Blood, l/r, cmv-neg, each unit P9051 K 1010 P9052 K 1011 Platelets, hla-m, l/r, unit Plt, pher, l/r cmv-neg, irr, P9053 K 1020 each unit Blood, l/r, froz/degly/wash, each unit P9054 K 1016 Plt, aph/pher, l/r, cmvP9055 K 1017 neg, each unit Blood, l/r, irradiated, P9056 K 1018 each unit RBC, frz/deg/wsh, l/r, irrad, each unit P9057 K 1021 RBC, l/r, cmv-neg, irrad, P9058 K 1022 each unit Plasma, frz between 8P9059 K 0955 24hour, each unit Fr frz plasma donor retested, each unit P9060 K 9503 * After removal of two claims with grossly excessive units.

XI. Proposed OPPS Payment for Observation Services (If you choose to comment on issues in this section, please include the caption “OPPS: Observation Services” at the beginning of your comment.) Observation care is a well-defined set of specific, clinically appropriate services that include ongoing short-term treatment, assessment, and reassessment, before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients with unexpectedly prolonged recovery after surgery and to patients who present to the emergency department and who then require a significant

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period of treatment or monitoring before a decision is made concerning their next placement. For CY 2006, we adopted two coding changes that affect how observation services are reported, and we made changes in the OCE to shift from individual providers to the OPPS claims processing systems the determination of whether or not observation services are separately payable or packaged. Observation services reported using HCPCS code G0378 (Hospital observation services, per hour) that are eligible for separate payment map to APC 0339 (Observation). The CY 2006 payment rate for APC 0339 is $425.08. The proposed CY 2007 median cost for APC 0339 is $442.16, reflecting relative stability in hospital costs for separately payable observation care. Direct admission to observation (G0379), when separately payable, is currently assigned for payment to APC 0600 (Low Level Clinic Visit) with a CY 2006 payment rate of $52.37. As discussed below, for CY 2007 we are proposing to assign direct admission to observation, when separately payable, to APC 0604 (Low Level Clinic Visit). The CY 2007 proposed median cost for APC 0604 is $49.93. As we stated in the November 10, 2005 OPPS final rule with comment period (70 FR 68688), the changes that we adopted for CY 2006 were intended to ensure more consistent hospital billing for observation services in order to guide our future analyses of payment for observation care and to simplify how observation services are reported and paid. We refer readers to the CY 2006 OPPS final rule with comment period for a detailed discussion of the G-codes for observation services and the OCE logic changes implemented for CY 2006 (70 FR 68688), and to Program Transmittal 787, issued on

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December 16, 2005, in which we updated Chapter 4, Section 290 of the Medicare Claims Processing Manual (Pub. 100-04) to reflect the CY 2006 changes and to provide additional guidance to contractors and hospitals. During the APC Panel’s March 2006 meeting, the Observation Subcommittee did not make any recommendations to the Panel other than to request its review of additional data on observation services at the Panel’s 2007 winter meeting. The APC Panel adopted the Observation Subcommittee’s report and recommended no changes to the criteria for separate payment for observation services or to the coding and payment methodology for observation services. Therefore, for CY 2007, we are proposing to continue applying the criteria for separate payment for observation services and the coding and payment methodology for observation services that were implemented in CY 2006, with one exception. In section IX. of this preamble, we are proposing changes in coding and payment for clinic and emergency room visits. As part of these proposed changes, low level clinic visits would move from APC 0600 to APC 0604, with a CY 2007 proposed median cost of $49.93. Under the circumstances where direct admission to observation is separately payable, we are proposing to assign HCPCS code G0379 to APC 0604 consistent with its CY 2006 placement in the APC for Low Level Clinic Visits. As we stated in Program Transmittal A-02-129 released in January 2003, we will continue to include in the October quarterly update of the OPPS any changes to the list of ICD-9-CM codes required for separate payment of HCPCS code G0378 resulting from the October 1 annual update of ICD-9-CM codes. The currently applicable ICD-9-CM

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codes are listed in Table 34 of the CY 2006 OPPS final rule with comment period (70 FR 68692), and any changes to that list will be included in the CY 2007 OPPS final rule with comment period. XII. Proposed Procedures That Will be Paid Only as Inpatient Procedures A. Background Section 1833(t)(1)(B)(i) of the Act gives the Secretary broad authority to determine the services to be covered and paid for under the OPPS. Before implementation of the OPPS in August 2000, Medicare paid reasonable costs for services provided in the outpatient department. The claims submitted were subject to medical review by the fiscal intermediaries to determine the appropriateness of providing certain services in the outpatient setting. We did not specify in regulations those services that were appropriate to provide only in the inpatient setting and that, therefore, should be payable only when provided in that setting. In the April 7, 2000 final rule with comment period, we identified procedures that are typically provided only in an inpatient setting and, therefore, would not be paid by Medicare under the OPPS (65 FR 18455). These procedures comprise what is referred to as the "inpatient list." The inpatient list specifies those services that are only paid when provided in an inpatient setting because of the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. As we discussed in the April 7, 2000 final rule with comment period (65 FR 18455) and the November 30, 2001 final rule (66 FR 59856), we use the following criteria when

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reviewing procedures to determine whether or not they should be moved from the inpatient list and assigned to an APC group for payment under the OPPS: ● Most outpatient departments are equipped to provide the services to the Medicare population. ● The simplest procedure described by the code may be performed in most outpatient departments. ● The procedure is related to codes that we have already removed from the inpatient list. In the November 1, 2002 final rule with comment period (67 FR 66741), we removed 43 procedures from the inpatient list for payment under OPPS. We also added the following criteria for use in reviewing procedures to determine whether they should be removed from the inpatient list and assigned to an APC group for payment under the OPPS: ● We have determined that the procedure is being performed in numerous hospitals on an outpatient basis; or ● We have determined that the procedure can be appropriately and safely performed in an ambulatory surgical center (ASC) and is on the list of approved ASC procedures or proposed by us for addition to the ASC list. We believe that these additional criteria help us to identify procedures that are appropriate for removal from the inpatient list.

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B. Proposed Changes to the Inpatient Only List (If you choose to comment on issues in this section, please include the caption “Inpatient Only Procedures” at the beginning of your comment.) For CY 2007 OPPS, we used the same methodology as described in the November 15, 2004 final rule with comment period (69 FR 65835) to identify a subset of procedures currently on the inpatient list that are being widely performed on an outpatient basis. These procedures were then clinically reviewed for possible removal from the inpatient list. We solicited input from the APC Panel on the appropriateness of the removal of seven procedures from the inpatient list at the March 1, 2006 APC Panel meeting. During CY 2006, we have received no other candidate HCPCS codes for removal from the OPPS inpatient list based on recommendations from the public. The APC Panel recommended that one of the procedures (CPT code 21181, Reconstruction by contouring of benign tumor of cranial bones, extracranial) be removed from the list and that we solicit approval from the relevant physician specialty societies prior to proposing removal of the other procedures. Consistent with our established policy for removing procedures from the inpatient list, we rely on our utilization data and clinical staff input in determining which procedures are candidates for removal. We believe that our policy of proposing the procedures for removal and soliciting comments from the public, which includes physician specialty societies, is the most appropriate process to receive input from the public on this issue. Rather than solicit approval from a select group (for example, specific physician specialty societies), we believe that solicitation of comments from all

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interested parties is more consistent with meeting our obligation to the public regarding outpatient services provided by hospitals. The utilization data and clinical review findings for the eight procedures support our proposal to remove them from the inpatient list, and therefore, we are proposing to remove these procedures from the inpatient list and to assign them to clinically appropriate APCs, as shown in Table 40. The changes to the inpatient list would be effective for services furnished on or after January 1, 2007. Table 40.--Proposed Procedure Codes to Remove from Inpatient List and Proposed APC Assignments, Effective January 1, 2007

HCPCS Code 16035 21181 22851 57292 57335 61720 62000 64804

Long Descriptor Escharotomy; initial incision Reconstruction by contouring of benign tumor of cranial bones, extracranial Apply spine prosth device Construction of artificial vagina; with graft Vaginoplasty for intersex state Creation of lesion by stereotactic method, including burr holes and localizing and recording techniques, single of multiple stages; globus pallidus or thalamus Elevation of depressed skull fracture; simple extradural Sympathectomy, cervicothoracic

Proposed New APC Assignment 0016

Current Status Indicator C

Proposed New Status Indicator T

0254 0049 0195 0195

C C C C

T T T T

0221

C

T

0254 0220

C C

T T

C. Proposed CY 2007 Payment for Ancillary Outpatient Services When Patient Expires (-CA Modifier) (If you choose to comment on issues in this section, please include the caption “Ancillary Outpatient Services” at the beginning of your comment.) 1. Background In the November 1, 2002 final rule with comment period (67 FR 66798), we discussed the creation of a new HCPCS modifier -CA to address situations where a procedure on the OPPS inpatient list must be performed to resuscitate or stabilize a

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patient (whose status is that of an outpatient) with an emergent, life-threatening condition, and the patient dies before being admitted as an inpatient. In Transmittal A-02-129, issued on January 3, 2003, we instructed hospitals on the use of this modifier when submitting a claim on bill type 13x for a procedure that is on the inpatient list and assigned the payment status indicator (SI) “C” (to indicate inpatient services that are not paid under the OPPS). Conditions to be met for hospital payment for a claim reporting a service billed with modifier -CA include a patient with an emergent, life-threatening condition on whom a procedure on the inpatient list is performed on an emergency basis to resuscitate or stabilize the patient. For CY 2003, a single payment for otherwise payable outpatient services billed on a claim with a procedure appended with this new -CA modifier was made under APC 0977 (New Technology Level VIII, $1,000-$1,250), due to the lack of available claims data to establish a payment rate based on historical hospital costs. As discussed in the November 7, 2003 final rule with comment period, we created APC 0375 (Ancillary Outpatient Services When Patient Expires) to pay for services furnished on the same date as a procedure with SI “C” and billed with the modifier -CA (68 FR 63467) because we were concerned that payment under a New Technology APC would not result in an appropriate payment. Payment under a New Technology APC is a fixed amount that does not have a relative payment weight and, therefore, is not subject to recalibration based on hospital costs. In the absence of hospital claims data to determine costs, the clinical APC 0375 payment rate for CY 2004 was set at $1,150,

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which was the payment amount for the newly structured New Technology APC that replaced APC 0977. For CYs 2005 and 2006, the payment rates for APC 0375 for services billed on the same date as a “C” status procedure appended with modifier –CA were established in accordance with the same methodology we followed to set payment rates for the other procedural APCs in those years, based on the relative payment weight calculated for APC 0375. For APC 0375 specifically, we calculated the relative payment weight from all claims reporting a “C” status procedure appended with modifier –CA, using charge data from the relevant calendar year claims for line items with a HCPCS code and status indicator “V,” “S,” “T,” “X,” “N,” “K,” “G,” and “H,” in addition to charges for revenue codes without a HCPCS code. We continued to make one payment in CYs 2005 and 2006 under APC 0375 for the services that met the specific conditions discussed in previous rules for using modifier –CA. In the CY 2006 final rule with comment period (70 FR 68700) we discussed our concern about the large increase in the volume of hospital claims billed with modifier -CA from CY 2003 to CY 2004, growing from 18 to 300 claims over that 1-year time period. We acknowledged that because modifier -CA was first introduced for CY 2003, the use of the modifier in CYs 2003 and 2004 may have reflected such an increase due to hospitals’ learning curve with respect to the modifier’s appropriate use on claims for services payable under the OPPS. We also expressed some concern that numerous claims reflected unanticipated examples of “C” status procedures reported with modifier –CA that may not have been provided to patients with emergency

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life threatening conditions, where the inpatient procedure was performed on an emergency basis to resuscitate or stabilize the patient. We promised to monitor CY 2005 claims data for similar increases. Our review of the CY 2005 claims data revealed a decrease in the use of modifier –CA in comparison with CY 2004 claims. In CY 2005 there were only 210 claims submitted reporting modifier -CA. Because of the diverse individual clinical scenarios where modifier –CA may be appropriately reported, we expect some variation from year to year in the number of OPPS claims reporting the modifier. It would appear that the hospital learning curve regarding use of modifier –CA may have been completed over the past 3 year period, and that we may expect relatively consistent reporting of this modifier in future years. We wish to particularly note that not only was there no increase in the number of claims reporting modifier –CA in CY 2005, but there were also far fewer apparently inappropriate instances of use. Our CY 2005 claims data show the majority of reporting of modifier –CA was in association with what were likely to have been urgent interventions, including the insertion of intra-aortic balloon assist devices and exploratory laparotomies. We believe that the data support our speculation that much of the increase in reporting of the modifier observed in CY 2004 data was a result of hospitals’ learning curve regarding the appropriate use of the modifier. 2. Proposed Policy for CY 2007 We do not propose any change to our policies regarding reporting of modifier -CA for CY 2007, or to our payment policy regarding APC 0375. Therefore, for CY 2007, we are proposing that hospitals continue reporting modifier –CA only under

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circumstances described in section VI. of Transmittal A-02-129, which provided specific billing guidance for the use of modifier –CA. In addition, we are proposing to continue to make one payment under APC 0375 for the services that meet the specific conditions discussed in previous rules for using modifier –CA, based on calculation of the relative payment weight for APC 0375 as described above. We applaud hospitals’ improved billing practices and as before, will continue to monitor use of modifier –CA. The CY 2007 proposed APC 0375 median cost is $3,539, significantly increased from the $2,527 median cost proposed in the CY 2006 proposed rule. This variation in median costs, however, is expected because the specific cases that populate the claims data for APC 0375 likely exhibit only limited clinical and resource homogeneity among all the claims attributable to that APC in a given year and across different years for the same APC. The cost variation of APC 0375 from year to year could be expected because APC 0375 is unique in the OPPS and, by its definition, should always be limited in its use. XIII. Proposed Nonrecurring Policy Changes A. Removal of Comprehensive Outpatient Rehabilitation Facility (CORF) Services from the List of Services Paid under the OPPS (If you choose to comment on issues in this section, please include the caption “CORF Services” at the beginning of your comment.) We are proposing to make a technical change to the regulations at 42 CFR 419.21(d) to remove from the list of services paid under the OPPS certain services furnished by a comprehensive outpatient rehabilitation facility (CORF) when

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they are provided outside the patient’s plan of care (for example, hepatitis B vaccine). Section 1834(k) of the Act, as added by section 4541(a) of Pub. L. 105-33 (BBA), requires that CORF services be paid using the lesser of actual charges or a fee schedule amount. We instructed fiscal intermediaries to use the Medicare Physician Fee Schedule (MPFS) for payments to CORFs. We have not required CORF cost reports, or paid CORFs under the OPPS, since 2001. The proposed revision of the regulation to delete certain CORF services from the list of specified services paid under the OPPS is necessary to conform the regulations to the statutory requirement. B. Addition of Ultrasound Screening for Abdominal Aortic Aneurysms (AAAs) (Section 5112 of Pub. 109-171 (DRA)) (If you choose to comment on the issues in this section, please include the caption "AAA Screening" at the beginning of your comment.) 1. Background Section 5112 of the Deficit Reduction Act of 2005, Pub. L. 109-171 (DRA), amended section 1861 and related provisions of the Act to provide for coverage under Part B of ultrasound screening for abdominal aortic aneurysms (AAAs), effective for services furnished on or after January 1, 2007, subject to certain eligibility and other limitations. The proposed rule governing this new Part B coverage will be established through a separate document, specifically the CY 2007 Medicare Physician Fee Schedule proposed rule. We refer readers to that document for a full and complete explanation of this coverage provision.

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2. Proposed Assignment of New HCPCS Code for Payment of Ultrasound Screening for Abdominal Aortic Aneurysm (AAA) (Section 5112) There is no current CPT code that specifically describes an ultrasound screening for AAA. Therefore, we are proposing to establish the following new HCPCS code, GXXXX (Ultrasound, B-scan and or real time with image documentation; for abdominal aortic aneurysm (AAA) screening) to be used to bill for the new service under both the Medicare Physician Fee Schedule and the OPPS. As required by the statute, Medicare will allow payment for a one-time only screening examination, and this screening test will be available even if the qualifying patient does not present signs or symptoms of disease or illness. In addition, this code does not include any other preventive services that are currently separately covered and paid under the Medicare Part B screening benefits. When these other preventive services are performed, they should be reported using the existing appropriate codes. We are proposing to base the payment for GXXXX on equivalent hospital resources and intensity to those contained in CPT code 76775, which is assigned to APC 0266 (Level II Diagnostic and Screening Ultrasound) under the OPPS for CY 2007. We believe that the hospital costs associated with the screening study are very similar to those of the limited retroperitoneal ultrasound diagnostic examination and, therefore, that the screening and diagnostic studies should be assigned to the same clinical APC for reasons of clinical and resource homogeneity. Thus, we are proposing to assign GXXXX to APC 0266 with a median cost of $98.59 for CY 2007.

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3. Handling of Comments Received in Response to This Proposal We noted previously that ultrasound screening for AAAs is also addressed in detail in our proposed rule to update the Medicare Physician Fee Schedule for CY 2007. We will respond to all comments regarding the proposed elements required for the ultrasound screening for AAA, whether the examination is performed in a physician's office or an outpatient hospital setting, and the exception from the Part B annual deductible, in the final rule implementing the Medicare Physician Fee Schedule for CY 2007. We will respond to all comments regarding payment for GXXXX under the OPPS in the CY 2007 OPPS final rule. XIV. Emergency Medical Screening in Critical Access Hospitals (CAHs) (If you choose to comment on issues in this section, please include the caption “CAHs: Emergency Medical Screening” at the beginning of your comment.) A. Background Section 1820 of the Act, as amended by section 4201 of the Balanced Budget Act of 1997, provides for the establishment of Medicare Rural Hospital Flexibility Programs (MRHFPs), under which individual States may designate certain facilities as critical access hospitals (CAHs). Facilities that are so designated and meet the CAH conditions of participations (CoPs) under 42 CFR Part 485, Subpart F, will be certified as CAHs by CMS. The MRHFP replaced the Essential Access Community Hospital (EACH)/Rural Primary Care Hospital (RPCH) program.

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B. Proposed Policy Change Existing regulations governing CAHs at §485.618(d) require on-call doctors and nonphysician practitioners who may be attending to urgent/acute medical problems in other areas of the CAH or outside the CAH to report to the CAH’s emergency room within 30 minutes (60 minutes if the CAH is located in a frontier or remote area or permissible under the State's rural health care plan) to see a patient in the emergency room of a CAH. Often, these patients do not have emergency medical conditions. With changes to the regulations at §489.24 that implement the Emergency Medical Treatment and Labor Act (EMTALA) over the past few years, some practitioners have noted to CMS that the requirements regarding who should respond to calls to see patients who present to the emergency department of a CAH are more stringent than for general hospitals. The provider community recently requested that we change the emergency on-call personnel requirements for CAHs to conform to the regulatory changes published in the FY 2005 IPPS final rule (69 FR 49271). In response to this request, we are proposing to revise the current CAH CoPs to align the emergency medical screening requirements in CAHs with those applicable to acute care hospitals. The proposed change would allow registered nurses, in addition to the personnel currently required at §485.618(d), to serve as qualified medical personnel to screen individuals who present to the CAH emergency room if the nature of the patient’s request is within the registered nurse’s scope of practice under State law and such screening is permitted by the CAH's bylaws. This proposed change would effectively eliminate the need for a doctor or mid-level

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practitioner to report to the emergency department to attend to a nonemergent request for medical care if a registered nurse is on site at the CAH and has made a determination that the care needed is of a non-emergent nature. The EMTALA statute at section 1867 of the Act states that a hospital in this context must provide an appropriate (suitable for the symptoms presented) medical screening examination within the capability of the hospital’s emergency department to determine whether or not an emergency medical condition exists (section 1866(a)(1)(I) of the Act imposes the section 1867 requirements on a CAH) . The EMTALA regulations at §489.24(a) state that the examination must be conducted by qualified medical personnel. These qualified medical personnel designated to perform medical screening examinations must be determined qualified by the hospital’s bylaws or rules and regulations and must be practicing within the scope of practice under State law. The regulations at §489.24(c) relating to the use of dedicated emergency department for nonemergency services were added in September 2003 (68 FR 53262) to state that if an individual goes to a hospital’s dedicated emergency department to request medical treatment, and the nature of the request makes it clear that the medical condition is not of an emergency nature, the hospital is required only to perform such screening as would be appropriate to determine that the individual does not have an emergency medical condition. Although EMTALA also applies to CAHs, the CoP for CAH emergency services (§485.618(d)) states that a physician, a physician assistant, a nurse practitioner, or a clinical nurse specialist with training or experience in emergency care must be on call and

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available onsite at a CAH within a specified timeframe. These are the CAH personnel who would be available to conduct an emergency medical screening under §489.24(c). In contrast, the emergency services CoP for acute care hospitals at §482.55 does not specify the type of personnel who must be available to provide emergency services and who would, therefore, perform assessments and screenings. The regulation states only that the services must be organized and supervised under the direction of a qualified member of the medical staff. Therefore, an acute care hospital may, if it chooses, have protocols that permit a registered nurse to conduct specific emergency medical screenings if the nature of the individual’s request for examination and treatment is within the scope of practice of a registered nurse. For emergencies that are outside of a registered nurse’s scope of practice, another qualified medical personnel (operating within his or her scope of practice under State law) would conduct the emergency medical screening. We are proposing to revise the CAH standard at §485.618(d) to allow a CAH, if applicable, the flexibility of including a registered nurse, with training and experience in emergency care and who is on site at the CAH, as one of the qualified medical personnel available for emergency services, particularly emergency medical screenings, if the nature of the individual’s request makes clear that the medical condition is not of an emergency nature and the individual’s request for examination and treatment is within the registered nurse’s scope of practice under State law. If the registered nurse begins the emergency medical screening and determines that the nature of the individual’s conditions is outside his or her scope of practice under State law, the physician, physician assistant, nurse practitioner or a clinical nurse specialist must be contacted to see the

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patient within 30 or 60 minutes to conduct the emergency medical screening and provide stabilizing treatment. If the registered nurse knows initially that the medical screening for the presenting complaint is outside the applicable scope of practice under State law, the physician or other nonphysician practitioner must see the individual within the 30 or 60 minute timeframes (as currently specified in §485.618(d)(1)). We recognize that not all CAHs will be able to utilize this flexibility. Some State licensure boards have stated that it is not within the authorized scope of practice for a registered nurse to independently perform an appropriate emergency medical screening for the purpose of determining if an emergency medical condition exists. However, the licensure boards in these States further maintain that it is within the scope of practice for a registered nurse to assess the health status of an individual to determine a nonemergent condition and to provide nursing care or to refer the individual to appropriate medical resources. Therefore, based on State law, some CAHs will not be able to designate registered nurses as qualified medical personnel under our proposed revision to the regulations governing CAHs. However, as we wish to provide flexibility to CAHs and to be consistent with existing EMTALA policy, we are proposing the revision to the regulation at §485.618(d).

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XV. Proposed OPPS Payment Status and Comment Indicators A. Proposed CY 2007 Status Indicator Definitions (If you choose to comment on issues in this section, please include the caption “OPPS Status Indicator” at the beginning of your comment.) The OPPS payment status indicators (SIs) that we assign to HCPCS codes and APCs play an important role in determining payment for services under the OPPS. They indicate whether a service represented by a HCPCS code is payable under the OPPS or another payment system and also whether particular OPPS policies apply to the code. Our proposed CY 2007 status indicator assignments for APCs and HCPCS codes are shown in Addendum A and Addendum B, respectively. We are proposing to use the status indicators and definitions that are listed in Addendum D1, which we discuss below in greater detail: 1. Proposed Payment Status Indicators to Designate Services That Are Paid under the OPPS Indicator G H

K

K

Item/Code/Service Pass-Through Drugs and Biologicals (1) Pass-Through Device Categories (2) Radiopharmaceutical Agents (1) Non-Pass-Through Drugs and Biologicals (2) Brachytherapy Sources (3) Blood and Blood Products

OPPS Payment Status Paid under OPPS; Separate APC payment includes pass-through amount. (1) Separate cost-based pass-through payment; Not subject to coinsurance. (2) Separate cost-based non-passthrough payment. (1) Paid under OPPS; Separate APC payment. (2) Paid under OPPS; Separate APC payment. (3) Paid under OPPS; Separate APC payment.

CMS-1506-P Indicator N

383 Item/Code/Service Items and Services Packaged into APC Rates

P

Partial Hospitalization

Q

Packaged Services Subject to Separate Payment Under OPPS Payment Criteria.

S

Significant Procedure, Not Discounted when Multiple Significant Procedure, Multiple Reduction Applies Clinic or Emergency Department Visit Ancillary Services

T V X

OPPS Payment Status Paid under OPPS; Payment is packaged into payment for other services, including outliers. Therefore, there is no separate APC payment. Paid under OPPS; Per diem APC payment. Paid under OPPS; Addendum B displays APC assignments when services are separately payable. (1) Separate APC payment based on OPPS payment criteria. (2) If criteria are not met, payment is packaged into payment for other services, including outliers. Therefore, there is no separate APC payment. Paid under OPPS; Separate APC payment. Paid under OPPS; Separate APC payment. Paid under OPPS; Separate APC payment. Paid under OPPS; Separate APC payment.

2. Proposed Payment Status Indicators to Designate Services That Are Paid under a Payment System Other Than the OPPS Indicator A

Item/Code/Service Services furnished to a hospital outpatient that are paid under a fee schedule or payment system other than OPPS, for example: ● Ambulance Services ● Clinical Diagnostic Laboratory Services ● Non-Implantable Prosthetic and Orthotic Devices ● EPO for ESRD Patients

OPPS Payment Status Not paid under OPPS. Paid by fiscal intermediaries under a fee schedule or payment system other than OPPS.

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384 Item/Code/Service ● Physical, Occupational, and Speech Therapy ● Routine Dialysis Services for ESRD Patients Provided in a Certified Dialysis Unit of a Hospital ● Diagnostic Mammography ● Screening Mammography Inpatient Procedures

OPPS Payment Status

Corneal Tissue Acquisition; Certain CRNA Services; and Hepatitis B Vaccines Influenza Vaccine; Pneumococcal Pneumonia Vaccine Items and Services Not Billable to the Fiscal Intermediary Non-Implantable Durable Medical Equipment

Not paid under OPPS. Admit patient. Bill as inpatient. Not paid under OPPS. Paid at reasonable cost. Not paid under OPPS. Paid at reasonable cost; Not subject to deductible or coinsurance. Not paid under OPPS. Not paid under OPPS. All institutional providers other than home health agencies bill to DMERC.

3. Proposed Payment Status Indicators to Designate Services That Are Not Recognized under the OPPS But That May Be Recognized by Other Institutional Providers Indicator B

Item/Code/Service Codes that are not recognized by OPPS when submitted on an outpatient hospital Part B bill type (12x,13x, and 14x).

OPPS Payment Status Not paid under OPPS. ● May be paid by intermediaries when submitted on a different bill type, for example, 75x (CORF), but not paid under OPPS. ● An alternate code that is recognized by OPPS when submitted on an outpatient hospital Part B bill type (12x, 13x, and 14x) may be available.

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4. Proposed Payment Status Indicators to Designate Services That Are Not Payable by Medicare Indicator D E

Item/Code/Service Discontinued Codes Items, Codes, and Services: ● That are not covered by Medicare based on statutory exclusion ● That are not covered by Medicare for reasons other than statutory exclusion ● That are not recognized by Medicare but for which an alternate code for the same item or service may be available ● For which separate payment is not provided by Medicare

OPPS Payment Status Not paid under OPPS or any other Medicare payment system. Not paid under OPPS or any other Medicare payment system.

To make it more relevant to the proposed update of the OPPS, we are displaying in Addendum B of this proposed rule those HCPCS codes that describe items or services that are payable under the OPPS as well as nonpayable codes for which we are proposing a change in status. Status indicators for items and services that are payable under the OPPS are listed in section XV.A.1 of this preamble. A complete listing of HCPCS codes with OPPS payment status indicators and APC assignments proposed for CY 2007 is available electronically on the CMS Web site.

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B. Proposed CY 2007 Comment Indicator Definitions (If you choose to comment on issues in this section, please include the caption “OPPS Comment Indicator” at the beginning of your comment.) In the November 15, 2004 final rule with comment period (69 FR 65827 and 65828), we made final our policy to use three comment indicators to identify in an OPPS final rule the assignment status of a specific HCPCS code to an APC and the timeframe when comments on the HCPCS APC assignment will be accepted. These three comment indicators are listed below: ● ‘‘NF’’—New code, final APC assignment; Comments were accepted on a proposed APC assignment in the Proposed Rule; APC assignment is no longer open to comment. ● “NI’’—New code, interim APC assignment; Comments will be accepted on the interim APC assignment for the new code. In the November 10, 2005 final rule with comment period (70 FR 68702 and 68703), we adopted a new comment indicator: ● “CH”—Active HCPCS codes in current and next calendar year; status indicator and/or APC assignment have changed. We implemented comment indicator “CH” to designate a change in payment status indicator and/or APC assignment for HCPCS codes in Addendum B of the CY 2006 final rule with comment period. We also stated that codes flagged with the “CH” indicator in that final rule would not be open to comment because the changes were previously subject to comment during the proposed rule comment period. We are

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proposing to continue that policy in the CY 2007 OPPS final rule. When used in an OPPS final rule, the “CH” indicator is only intended to facilitate the public’s review of changes made from one calendar year to another. We are proposing to use the “CH” indicator in the CY 2007 final rule to indicate HCPCS codes for which the status indicator and/or APC assignment will change in CY 2007. However, only HCPCS codes with comment indicator “NI” in the CY 2007 OPPS final rule would be subject to comment during the final rule comment period. We also are proposing to use the “CH” indicator to call attention to changes in payment status indicator and/or APC assignment in this proposed rule to update the OPPS for CY 2007. We believe that using the “CH” indicator in this proposed rule will facilitate the public’s review of the changes that we are proposing to make final in CY 2007. Use of the “CH” indicator in the proposed rule is significant because it highlights changes that are subject to comment during the proposed rule comment period. The three comment indicators that we are proposing to implement in CY 2007 and their definitions are listed in Addendum D2 of this proposed rule. XVI. OPPS Policy and Payment Recommendations (If you choose to comment on issues in this section, please include the caption “Policy and Payment Recommendations” at the beginning of your comment.) A. MedPAC Recommendations The Medicare Payment Advisory Commission (MedPAC) submits reports to Congress in March and June that summarize payment policy recommendations. The

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March 2006 MedPAC report included the following recommendation relating specifically to the hospital OPPS: Recommendation 2A: The Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2007 by the projected increase in the hospital market basket index less half of the Commission’s expectation for productivity growth. A discussion regarding updates to the market basket is included in section II.C. (“Proposed OPPS Conversion Factor Update for 2007”) of this preamble. B. APC Panel Recommendations Recommendations made by the APC Panel are discussed in sections of this preamble that correspond to topics addressed by the APC Panel. Minutes of the APC Panel’s March 1-2, 2006 meeting are available online at http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassification Groups.asp C. GAO Recommendations A discussion of the October 31, 2005 GAO letter of comment on proposed 2006 specified covered outpatient drug (SCOD) rates (GAO-06-17R “Comments on Proposed 2006 SCOD Rates”) is contained in section V.3.B.a. of this preamble. A discussion of the April 2006 GAO report entitled “Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-setting Challenges for CMS” (GAO-06-372) is contained in section V.3.B.a. of this preamble.

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XVII. Proposed Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007 A. ASC Background 1. Legislative History Section 1832(a)(2)(F)(i) of the Act provides that benefits under the Medicare Supplementary Medical Insurance program (Part B) include payment for facility services furnished in connection with surgical procedures the Secretary specifies which are performed in an ASC. To participate in the Medicare program as an ASC, a facility must meet the standards specified in section 1832(a)(2)(F)(i) of the Act; in 42 CFR 416, subpart B of our regulations, which sets forth general conditions and requirements for ASCs; and in 42 CFR 416, subpart C of our regulations, which provides specific conditions for coverage for ASCs. The ASC services benefit was enacted by Congress through the Omnibus Reconciliation Act of 1980 (Pub. L. 96-499). For a detailed discussion of the legislative history related to ASCs, we refer readers to the June 12, 1998 proposed rule (63 FR 32291). Section 626(b) of Pub. L. 108-173, repealed the requirement formerly found in section 1833(i)(2)(A) of the Act that the Secretary conduct a survey of ASC costs for purposes of updating ASC payment rates and, instead, requires the Secretary to implement a revised ASC payment system, to be effective not later than January 1, 2008. Section XVIII. of this proposed rule contains our proposal for a revised ASC payment system that would be implemented on January 1, 2008.

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Section 5103 of Pub. L. 109-171, amended section 1833(i)(2) of the Act by adding a new subparagraph (E) to place a limitation on payments for surgical procedures in ASCs. If the standard overhead amount under section 1833(i)(2)(A) of the Act for a facility service for such procedure, without application of any geographic adjustment exceeds the Medicare OPPS payment amount for the service for that year, without application of any geographic adjustment, the Secretary shall substitute the OPPS payment amount for the ASC standard overhead amount. This provision applies to surgical procedures furnished in ASCs on or after January 1, 2007, and before the effective date of the revised ASC payment system. We discuss in section XVII.C. of this preamble, the regulatory changes that we are proposing for our current ASC payment system. In section XVII.D. of this proposed rule, we are addressing the changes in payment to ASCs mandated by section 5103 of Pub. L. 109-171, as well as additions to and deletions from the list of Medicare-approved ASC procedures to be implemented January 1, 2007, prior to implementation of the revised ASC payment system. In addition, in section XVII.E. of this preamble, we are proposing changes in the process to review payment adjustments for insertion of new technology intraocular lenses (NTIOLs). The CY 2007 OPPS final rule that we issue in the fall of 2006 will implement changes to the ASC list that will go into effect January 1, 2007. In section XVIII. of this preamble, we are proposing a revised payment system for ASCs to be implemented effective January 1, 2008, including revisions to the ASC list for CY 2008, the ratesetting method, and the applicable ASC regulations to incorporate the requirements and payments for ASC facility services under the proposed

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revised ASC system. We expect that a final rule implementing the revised ASC payment system will be published separately in the spring of 2007. 2. Current Payment Method There are two primary elements in the total cost of performing a surgical procedure: (a) the cost of the physician’s professional services to perform the procedure and (b) the cost of items and services furnished by the facility where the procedure is performed (for example, surgical supplies, equipment, and nursing services). Payment for the first element is made under the Medicare physician fee schedule. This proposed rule addresses the second element, the payment of facility fees for ASC services. This proposed rule also addresses coverage of ASC services. Under the current ASC facility services payment system, the ASC payment rate is a standard overhead amount established on the basis of our estimate of a fee that takes into account the costs incurred by ASCs generally in providing facility services in connection with performing a specific procedure. The report of the Conference Committee accompanying section 934 of the Omnibus Reconciliation Act of 1980 (ORA), Pub. L. 96–499, which enacted the ASC benefit in December 1980, states that this overhead amount is expected to be calculated on a prospective basis using sample survey data and similar techniques to establish reasonable estimated overhead allowances, which take into account volume (within reasonable limits), for each of the listed procedures. (H.R. Rep. No. 96–1479, at 134-35 (1980)). To establish those reasonable estimated allowances for services furnished prior to implementation of the revised ASC payment system, section 626(b)(1) of

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Pub. L. 108-173 amended section 1833(i)(2)(A)(i) of the Act to require us to take into account the audited costs incurred by ASCs to perform a procedure, in accordance with a survey. Payment for ASC facility services is subject to the usual Medicare Part B deductible and coinsurance requirements and the amounts paid by Medicare must be 80 percent of the standard fee. Section 1833(i)(1) of the Act requires us to specify, in consultation with appropriate medical organizations, surgical procedures that are appropriately performed on an inpatient basis in a hospital but that can be safely performed in an ASC and to review and update the list of ASC procedures at least every 2 years. Section 141(b) of the Social Security Act Amendments of 1994, Pub. L. 103-432, requires us to establish a process for reviewing the appropriateness of the payment amount provided under section 1833(i)(2)(A)(iii) of the Act for intraocular lenses (IOLs) for a class of NTIOLs. That process was the subject of a separate final rule entitled "Adjustment in Payment Amounts for New Technology Intraocular Lenses Furnished by Ambulatory Surgical Centers," published in the June 16, 1999 Federal Register (64 FR 32198). As stated earlier, in section XVII.E. of this proposed rule, we discuss the changes that we are proposing to that process. A summary of changes to ASC payment rates made prior to CY 1998 may be found in the June 12, 1998 proposed rule (63 FR 32292). The 1998 rule proposed to rebase the ASC payment rates using cost, charge, and utilization data collected by a 1994 survey of ASCs. In that proposed rule, we also proposed to refine the ratesetting methodology that was implemented in the February 8, 1990 Federal Register

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(55 FR 4577). However, the changes that were proposed for the ratesetting methodology were not implemented because of a combination of circumstances resulting in the delayed publication of a final rule. Those circumstances included several extensions to the comment period which ended July 30, 1999, Year 2000 (Y2K) Medicare systems compliancy considerations, and legislative changes required by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA), Pub. L. 106-113 and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), Pub. L. 106-554. Readers may refer to the March 28, 2003 ASC List Update final rule (68 FR 15269) for a detailed discussion of these circumstances and the legislative changes. 3. Published Changes to the ASC List Section 1833(i)(1)(A) of the Act requires the Secretary to specify surgical procedures that, although appropriately performed in an inpatient hospital setting, can also be performed safely on an ambulatory basis in an ASC, a CAH, or a hospital outpatient department. The report accompanying the legislation explained that the Congress intended procedures currently performed on an ambulatory basis in a physician’s office that do not generally require the more elaborate facilities of an ASC not be included in the list of ASC covered procedures (H.R. Rep. No. 96–1167, at 390-91, reprinted in 1980 U.S.C.C.A.N. 5526, 5753-54). In a final rule published August 5, 1982, in the Federal Register (47 FR 34082), we established regulations that included criteria for specifying which surgical procedures were to be included for purposes of implementing the ASC facility benefit.

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Section 416.65(a) of the regulations specifies general standards for procedures on the ASC list. ASC procedures are those surgical and other medial procedures that are-● Commonly performed on an inpatient basis but may be safely performed in an ASC; ● Not of a type that are commonly performed or that may be safely performed in physicians’ offices; ● Limited to procedures requiring a dedicated operating room or suite and generally requiring a post-operative recovery room or short term (not overnight) convalescent room; and ● Not otherwise excluded from Medicare coverage. Specific standards in §416.65(b) limit covered ASC procedures to those that do not generally exceed 90 minutes operating time and a total of 4 hours recovery or convalescent time. If anesthesia is required, the anesthesia must be local or regional anesthesia, or general anesthesia of not more than 90 minutes duration. Section 416.65(b)(3) of the regulations excludes from the ASC list procedures that generally result in extensive blood loss, that require major or prolonged invasion of body cavities, that directly involve major blood vessels, or that are generally emergency or life-threatening in nature. A detailed history of published changes to the ASC list and ASC payment rates may be found in the June 12, 1998 proposed rule (63 FR 32292). Subsequently, in accordance with §416.65(c), we published updates of the ASC list in the Federal Register on March 28, 2003 (68 FR 15268) and May 4, 2005 (70 FR 23690).

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During years when we have not updated the ASC list in the Federal Register, we have revised the list to be consistent with annual calendar year changes to HCPCS and CPT codes. These annual coding updates have been implemented through program instructions to the carriers that process ASC claims. The most recent update to the list to conform with CPT and HCPCS coding changes was published in Transmittal R-720-CP, Change Request 4082, on October 21, 2005. It may be found on our Web site at: http://www.cms.hhs.gov/Transmittals/. B. Proposed ASC List Update Effective for Services Furnished On or After January 1, 2007 1. Criteria for Additions to or Deletions from the ASC List In April 1987, we adopted quantitative criteria for identifying procedures that were commonly performed either in a hospital inpatient setting or in a physician’s office. Collectively, commenters responding to a notice published on February 16, 1984 in the Federal Register (49 FR 6023) had recommended that virtually every surgical CPT code be included on the ASC list. Consulting with other specialist physicians and medical organizations as appropriate, our medical staff reviewed the recommended additions to the list to determine which code or series of codes were appropriately performed on an ambulatory basis within the framework of the regulatory criteria in §416.65. However, when we arrayed the proposed procedures by the site where they were most frequently performed according to our claims payment data files (1984 Part B Medicare Data (BMAD)), we found that many procedures were not commonly performed on an inpatient basis or were performed in a physician’s office the majority of the time, and, thus, would

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not meet the standards in our regulations. Therefore, we decided that if a procedure was performed on an inpatient basis 20 percent of the time or less, or in a physician’s office 50 percent of the time or more, it would be excluded from the ASC list. (April 21, 1987 (52 FR 13176)). At the time, we believed that these utilization thresholds best reflected the legislative objectives of moving procedures from the more expensive hospital inpatient setting to the less expensive ASC setting without encouraging the migration of procedures from the generally less expensive physician’s office setting to the ASC. We applied these quantitative standards not only to codes proposed for addition to the ASC list, but also to the codes that were currently on the list, to delete codes that did not meet the thresholds. The trend towards performing surgery on an ambulatory or outpatient basis grew steadily and, by 1995, we discovered that a number of procedures that were on the ASC list at the time fell short of the 20 percent and 50 percent thresholds even though the procedures were obviously appropriate in the ASC setting. The most notable of these was cataract extraction with intraocular lens insertion that were already being performed predominately in outpatient settings by the early 1990s, although more than 20 percent were also performed as inpatient procedures. The thresholds would also have excluded from the ASC list certain newer procedures, such as CPT code 66825 (Repositioning of intraocular lens prosthesis, requiring an incision (separate procedure)), that were rarely performed on a hospital inpatient basis but that were appropriate for the ASC setting. Strict adherence to the same 20 percent and 50 percent thresholds both to add and remove

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procedures did not provide latitude for minor fluctuations in utilization across settings or errors that could occur in the site-of-service data drawn from the National Claims History File that we were then using for analysis. In an effort to avoid these anomalies but still retain a relatively objective standard for determining which procedures should comprise the ASC list, we adopted in the Federal Register notice with comment period published on January 26, 1995 (60 FR 5185), a modified standard for deleting procedures already on the list. We deleted from the list only those procedures whose combined inpatient, hospital outpatient, and ASC site-of-service volume was less than 46 percent of the procedure’s total volume and that were either performed 50 percent of the time or more in the physician’s office or 10 percent of the time or less in an inpatient hospital setting. We retained the 20 percent and 50 percent standard to determine which procedures would be appropriate additions to the ASC list. We are not proposing changes to the criteria for adding or deleting items from the ASC list effective January 1, 2007. However, please see section XVIII.B. of this proposed rule for a discussion of proposed changes in the context of developing a revised ASC payment system to be effective January 1, 2008. The proposed changes to the criteria result in the addition for CY 2008 of many procedures that do not meet the current criteria for addition to the list. 2. Response to Comments to May 4, 2005 Interim Final Rule for the ASC Update In accordance with section 1833(i)(1) of the Act, in this proposed rule, we are proposing to update the list of procedures that are covered when furnished in an ASC,

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effective January 1, 2007. In the process of determining which procedures to add to the list, we focused on requests we received from the public in their comments on our May 4, 2005 interim final rule (70 FR 23690). We evaluated codes for which we received requests from the public. The public comments include requests for addition and deletion of specific procedures and for assignment to higher payment groups for specific procedures. 3. Procedures Proposed for Addition to the ASC List Using the current criteria as described in section XVII.B.1. of this preamble, we identified 14 procedures that we are proposing to add to the ASC list effective January 1, 2007. The procedures would be assigned to one of the nine existing ASC payment groups as indicated in Table 41 Table 41.--Procedures Proposed for Addition to the ASC List Effective January 1, 2007 CPT

Short Descriptor

ASC Payment Group 13102 Repair wound/lesion add-on 1 13122 Repair wound/lesion add-on 1 13133 Repair wound/lesion add-on 1 19297 Place breast cath for rad 9 21356 Treat cheek bone fracture 3 22520 Percutaneous vertebroplasty, thor 9 22521 Percutaneous vertebroplasty, lumb 9 22522 Percutaneous vertebroplasty, add’l 1 35476 Repair venous blockage 9 36818 AV fuse, upper arm, cephalic 3 37205 Transcath IV stent, percutaneous 9 37206 Transcath IV stent/perc, add’l 1 43761 Reposition gastrostomy tube 1 46946 Ligation of hemorrhoids 1

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4. Suggested Additions Not Accepted There are a number of procedures for which we received requests for additions to the ASC list that we are not proposing to add to the ASC list because they do not meet the criteria set forth in section 416.65 of the CFR. Those procedures are listed in Tables 42 and 43 below. Our medical advisors believe that the procedures listed in Tables 42 and 43 may be of a type that: ● Are performed predominantly in the hospital inpatient or physician office setting; ● Require an overnight or inpatient stay; ● Require a total of 90 minutes of operating time or 4 hours or more of recovery time; •

Require major or prolonged invasion of body cavities or involve major

blood vessels; •

Are generally emergent or life-threatening; or



Are of a type that result in extensive blood loss.

We are not proposing to add 19 procedures for which we received requests for addition to the ASC list because they are procedures that are furnished predominantly in the physician office setting and according to the current criteria are not eligible for inclusion on the list. Those procedures are displayed in Table 42. One request was made that we add CPT code 66990 (Use of ophthalmic endoscope) to the list. As we stated in our May 5, 2005 interim final rule (70 FR 23704), this code is used to recognize the use of equipment that is integral to a surgical procedure

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and is not a surgical procedure. For this reason, we do not believe that it is an appropriate addition to the list. Table 42.-- Procedures Not Proposed for Addition to 2007 ASC List Because They Are Predominantly Performed in the Physician’s Office CPT 31040 45300 45303 45330 46221 46604 46614 46900 46910 46916 62367 62368 67028 67105 67110 67145 67210 67221 67228

Short Descriptor Exploration behind upper jaw Proctosigmoidoscopy dx Proctosigmoidoscopy dilate Diagnostic sigmoidoscopy Ligation of hemorrhoid(s) Anoscopy and dilation Anoscopy, control bleeding Destruction, anal lesion(s) Destruction, anal lesion(s) Destruction, anal lesion(s) Analyze spine infusion pump Analyze spine infusion pump Injection eye drug Repair detached retina Repair detached retina Treatment of retina Treatment of retinal lesion Ocular photodynamic ther Treatment of retinal lesion

We are proposing not to add to the ASC list 14 procedures for which we received requests because our medical advisors determined that those procedures do not meet the clinical criteria (§416.65) for addition. That is, the procedures either require more than 4 hours of recovery time, or may result in excessive blood loss, etc., making them ineligible for addition to the list of ASC procedures. Those procedures are displayed in Table 43.

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Table 43.-- Procedures Not Added to the ASC List Because They Do Not Meet Current Clinical Criteria for Addition to the ASC List CPT 27412 27415 29866 29867 29868 35470 35475 47562 47563 47564 63030 63035 63042 63047

Short Descriptor Autochondrocyte implant knee Osteochondral knee allograft Autgrft implnt, knee w/scope Allgrft implnt, knee w/scope Meniscal trnspl, knee w/scpe Repair arterial blockage Repair arterial blockage Laparoscopic cholecystectomy Laparo cholecystectomy/graph Laparo cholecystectomy/explr Low back disk surgery Spinal disk surgery add-on Laminotomy, single lumbar Removal of spinal lamina

5. Rationale for Payment Assignment Currently, procedures on the ASC list are assigned to one of nine payment groups based on our estimate of the costs incurred by the facility to perform the procedure. We are proposing no changes to those nine payment groups and are proposing to assign the additional procedures to one of those existing payment groups. The payment group to which we propose each addition to the ASC list be classified is based on the payment group, which our medical advisors judged to be similar in terms of time and resource inputs to procedures currently on the list. The proposed list of procedures eligible for Medicare payment of a facility fee and the proposed rates are displayed in Addendum AA of this proposed rule. The procedures that are effected by the payment limit required by section 5103 of Pub. L. 109-171 are identified in that addendum along with their proposed rates.

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6. Other Comments on the May 4, 2005 Interim Final Rule In the May 4, 2005 interim final rule (70 FR 23690), we also invited public comments on the payment assignments for specific procedure codes that we added to the ASC list in that rule that had not been proposed for addition to the ASC list in the November 26, 2004 proposed rule (69 FR 69178). We received comments on 14 of those newly-added procedures. A summary of those comments and our proposed treatment of them for CY 2007 is discussed below. Several comments requested that we delay adding to the ASC list CPT codes 33212 (Insertion or replacement of pacemaker pulse generator only; single chamber, atrial or ventricular), 33213 (Insertion or replacement of pacemaker pulse generator only; dual chamber), and 33233 (Removal of permanent pacemaker pulse generator) until we implement the new ASC payment system. We added these procedures to the ASC list in response to a request from a commenter. Our medical advisors evaluated the request and determined that these were appropriate procedures for performance in the ASC setting. We continue to believe that the procedures are appropriate for performance in the ASC and see no reason to remove them from the list at this time. Therefore, we are proposing to make no change in the ASC assignments for these three procedures. Two commenters requested that we reassign CPT codes 57155 (Insertion of uterine tandems and /or vaginal ovoids for clinical brachytherapy) and 58346 (Insertion of Heyman capsules for clinical brachytherapy) to the highest ASC payment group. The

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commenters believe that payment at a higher level is necessary in order to cover the costs of the equipment and supplies used in performing the procedures. We reviewed the OPPS cost data for these procedures and found that the median cost for CPT code 57155 is $506 and that for CPT code 58346 is $364. We do not have median cost data for the procedures performed in the ASC but the ASC payment amount for both services is $446, which is within the range of the median costs for those procedures in the generally more costly hospital outpatient setting. This leads us to believe that the $446 payment in the ASC is quite adequate. We are not proposing to assign the procedures to higher ASC payment groups. Several commenters wrote regarding CPT codes 36475 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, radiofrequency; first vein); 36476 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, radiofrequency; second and subsequent veins in single extremity, each through separate access sites); 36478 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, laser; first vein); and 36479 (Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, laser; second and subsequent veins treated in a single extremity, each through separate access sites). The commenters requested that we remove these procedures from the ASC list, and suggested that if we were unwilling to remove them from the list, that we assign the procedures to a higher payment group. They believe that these procedures require

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significantly more facility resources than other procedures with which they are currently grouped in payment level 3. The commenters explained that if the procedures were excluded from the list, more adequate payments would be made to physicians under the Medicare physician fee schedule for the required resources. We added these procedures to the list in response to public comments. We initially assigned the codes to ASC payment group 3, consistent with other procedures with similar clinical indications. We continue to believe that these procedures are appropriate for performance in the ASC setting and will not remove them from the list. However, we agree with the commenters’ point that these procedures require significantly more facility resources than traditional vein removal procedures, and, therefore, we are proposing to reassign them to ASC payment group 9. We believe that this is an appropriate payment level that takes into consideration the costs of the required equipment and supplies. Two comments requested that we assign CPT code 46947 (Hemorrhoidopexy by stapling) to a higher ASC payment group. The commenters stated that due to the cost of the stapler used in the procedure, the resources required for this procedure are not similar to the other surgical procedures for the treatment of hemorrhoids that are also assigned to ASC payment group 3. The commenters suggested that it would be more appropriate to assign this procedure to ASC payment group 7. We agree with the commenters and are proposing to reassign this procedure to ASC payment group 7 for CY 2007.

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One commenter raised concern about payment for CPT code 49419 (Insertion of intraperitoneal cannula or catheter, with subcutaneous reservoir, permanent). The commenter reported that the catheter that is used in performing this procedure is billed separately under the DMEPOS fee schedule, and that Medicare carriers have discretion over whether or not to allow that payment. According to the commenter, in some areas, separate payment is not made for the catheter that is integral to the procedure. We believe that the commenter may be misinformed, because cannulas and catheters are not considered durable medical equipment, and they are not paid under the DMEPOS fee schedule. Rather, they are considered to be supplies. Payment for supplies furnished by an ASC in connection with a surgical procedure is bundled into the payment for the surgical procedure for which the supplies are required. One commenter requested that we allow separate payment for the material used as the sling in the procedure described by CPT code 51992 (Laparoscopy, surgical; sling operation for stress incontinence (e.g. fascia or synthetic)). The commenter stated that without separate payment for the sling material, the Medicare payment for performing the procedure is inadequate to cover the service. The commenter also stated that there is no specific HCPCS code to use for billing the synthetic sling material. We added CPT code 51992 to the ASC list in the last update in response to comments. We assigned CPT code 51992 to ASC payment group 5, the same ASC payment group to which other procedures to treat stress incontinence are assigned. We realize that the synthetic material for the sling may be costly, but there is no identifiable HCPCS code available for use in ASCs to report the material, and such material is not

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eligible for separate payment from Medicare in the ASC or in any other setting. Further, CPT code 51992 describes a procedure that may be performed using synthetic material or fascia. As such, we cannot know whether the more costly synthetic material is used in any specific procedure and do not believe it is appropriate to fully incorporate the synthetic supply costs into the payment for all of the procedures performed. We continue to believe that ASC payment group 5 is an appropriate assignment for the procedure, and we are not proposing to change that assignment. One commenter requested that we make separate payment for the microinserts that are used in performing CPT code 58565 (Hysteroscopy, surgical; with bilateral fallopian tube cannulation to induce occlusion by placement of permanent implants) even though there is no specific HCPCS code to describe the microinserts for billing, making separate payment impossible. We added CPT code 58565 to the ASC list in the last update in response to public comment. We assigned the procedure to ASC payment group 4 with other procedures with similar clinical indications. After further review, we are convinced that the procedure described by CPT code 58565 is significantly more resource-intensive than the other procedures in ASC payment group 4 and, therefore, we are proposing to reassign it to ASC payment group 9 for CY 2007. Several comments requested that CMS issue instructions to permit separate payment for the catheters that are inserted during the procedures described by CPT codes 19296 (Placement of radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application following partial mastectomy, includes imaging

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guidance; on date separate from partial mastectomy) and 19298 (Placement of radiotherapy afterloading brachytherapy catheters into the breast for interstitial radioelement application following partial mastectomy, includes imaging guidance). One commenter supported adding CPT code 19296 to the ASC list and assigning it to ASC payment group 9, but asserted that separate payment should also be provided for the balloon catheter inserted during the procedure. With regard to CPT code 19298, other commenters also stated that the payment level is inadequate and that separate payment should be allowed for the catheters inserted during the procedure. One of the commenters explained that the catheters used to perform the procedure described by CPT code 19298 are not high cost items (about $18.50 each) but these procedures typically use 30 catheters which makes the catheters a significant cost factor in performing the procedure. The catheters used in these procedures are classified as surgical supplies and as such, are not included on the DMEPOS fee schedule and are, therefore, not eligible for separate payment in the ASC. Payments for the costs of the catheters are packaged into the payments for performing the procedures. Currently CPT code 19298 is assigned to ASC payment group 1. Based on the information provided by the commenters we are persuaded that reassignment to a higher ASC payment group is warranted. Therefore, we are proposing to reassign CPT code 19298 to ASC payment group 9 for CY 2007. C. Proposed Regulatory Changes for CY 2007 As stated earlier, we are proposing a revised payment system for ASCs to be implemented effective January 1, 2008, including revisions to the ASC list for CY 2008,

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the ratesetting method, and the applicable ASC regulations to incorporate the requirements and payments for ASC facility services under the proposed revised ASC system. We expect that a final rule implementing the revised ASC payment system will be published separately in the spring of 2007. The revised ASC payment system will not take effect until January 1, 2008. However, we need to revise our current regulations at part 416, subparts D and E to ensure that the rules governing our current system are clearly distinguishable from those that would apply to the revised system beginning January 1, 2008. Therefore, we are proposing to revise subparts D and E to part 416 to reflect that these are the rules governing the APC payment system prior to January 1, 2008, and to redesignate the existing subpart F as subpart G under part 416 to codify the rules governing the ASC payment adjustment for NTIOLs. In addition, we are proposing to revise existing-● §416.1 (Basis and scope) to remove the obsolete reference to “a hospital outpatient department,” to add provisions of section 5103 of Pub. L. 109-171, and applicable provisions of Pub. L. 108-173. ● §416.65 (Covered surgical procedures) to modify the introductory text to clearly denote the section’s application to covered surgical procedures furnished before January 1, 2008. In addition, we are proposing to remove the obsolete cross-reference in paragraph (a)(4) to §405.310 and replace it with the correct cross-reference to §411.15. ● §416.125 (ASC facility services payment rate) to incorporate the limitation on payment imposed by section 5103 of Pub. L. 109-171.

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● §488.1 (Definitions) to correct a longstanding error by adding ambulatory surgical centers to the definition of a supplier in conformance with section 1861(d) of the Act. We also are proposing to add a new §416.76 and §416.121 to subparts D and E, respectively, to clearly state that the provisions of subparts D and E apply to services furnished before January 1, 2008. D. Implementation of Section 5103 of Pub. L. 109-171 (DRA) (If you choose to comment on issues in this section, please include the caption “Section 5103” at the beginning of your comments.) As noted in section XVII.A.1. of this preamble, section 5103 of Pub. L. 109-171 requires us to substitute the OPPS payment amount for the ASC standard overhead amount for surgical procedures performed at an ASC on or after January 1, 2007, but prior to the revised payment system when the ASC standard overhead amount exceeds the OPPS payment amount for the procedure. In Addendum AA of this proposed rule, we identify the HCPCS codes that we believe would be subject to section 5103 based on a comparison of the CY 2007 proposed OPPS payment rates and the ASC standard overhead amounts that are effective in CY 2007. We are proposing to add paragraph (c) to §416.125 to reflect this change.

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E. Proposal to Modify the Current ASC Process for Adjusting Payment for New Technology Intraocular Lenses (NTIOLs) 1. Background (If you choose to comment on issues in this section, please include the caption "NTIOL" at the beginning of your comments.) At the inception of the ASC benefit on September 7, 1982, Medicare paid 80 percent of the reasonable charge for IOLs supplied for insertion concurrent with or following cataract surgery performed in an ASC (see 47 FR 34082, August 5, 1982). Section 4063(b) of OBRA 1987, Pub. L. 100-203, amended the Act to mandate that we include payment for an IOL furnished by an ASC for insertion during or following cataract surgery as part of the ASC facility fee for insertion of the IOL, and that the facility fee include payment that is reasonable and related to the cost of acquiring the class of lens involved in the procedure. Section 4151(c)(3) of the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990), Pub. L. 101–508, froze the IOL payment amount at $200 for IOLs furnished by ASCs in conjunction with surgery performed during the period beginning November 5, 1990, and ending December 31, 1992. We continued paying an IOL allowance of $200 from January 1, 1993, through December 31, 1993. Section 13533 of the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993), Pub. L. 103–66, mandated that payment for an IOL furnished by an ASC be equal to $150 beginning January 1, 1994, through December 31, 1998.

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Section 141(b)(1) of the Social Security Act Amendments of 1994 (SSAA 1994), Pub. L. 103-432, required us to develop and implement a process under which interested parties may request a review of the appropriateness of the payment amount for insertion of an IOL, to ensure that the facility fee for the procedure includes payment that is reasonable and related to the cost of acquiring a lens that belongs to a class of NTIOLs. In the February 8, 1990 Federal Register (55 FR 4526), we published a final notice entitled ‘‘Revision of Ambulatory Surgery Center Payment Rate Methodology,’’ which implemented Medicare payment for an IOL furnished at an ASC as part of the ASC facility fee for insertion of the IOL. In the June 16, 1999 Federal Register (64 FR 32198), we published a final rule entitled "Adjustment in Payment Amounts for New Technology Intraocular Lenses Furnished by Ambulatory Surgical Centers" to add a subpart F (§§416.180 through 416.200) to 42 CFR Part 416, which established a process for adjusting payment amounts for insertion of a class of NTIOLs furnished by ASCs. Our current regulations §§416.180 through §416.200 define the terms relevant to the process, establish the payment review process, and establish $50 as the payment adjustment amount that is added to the ASC facility fee for insertion of a lens that CMS determines is an NTIOL. Section 416.200 provides that the payment adjustment applies for a 5-year period that begins when we recognize the first lens that establishes a class of NTIOLs. In accordance with §416.200(b), insertion of a lens that we subsequently recognize as belonging to an existing NTIOL class would receive the payment adjustment for the remainder of the 5-year period established for the class. Section 416.185(f)(2)

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provides that after July 16, 2002, we have the option of changing the $50 adjustment amount through proposed and final rulemaking in connection with ASC services. Since June 16, 1999, we have issued a series of Federal Register notices to list lenses for which we received requests for a NTIOL payment adjustment and to solicit comments on those requests, or to announce the lenses that we have determined meet the criteria and definition of NTIOLs. We last published a Federal Register notice pertaining to NTIOLs on April 28, 2006 (71 FR 25176). a. Current ASC Payment for Insertion of IOLs The current ASC payment groups, payment rates and procedural HCPCS codes for cataract extraction with IOL insertion are as follows: Payment Group 6--$826 ($676 + $150 IOL Allowance) ● CPT code 66985, Insertion of intraocular lens prosthesis (secondary implant), not associated with concurrent cataract removal ● CPT code 66986, Exchange of intraocular lens Payment Group 8--$973 ($823 + $150 IOL allowance) ● CPT code 66982 Extracapsular cataract removal with insertion of intraocular lens prosthesis (one stage procedure), manual or mechanical technique (for example, irrigation and aspiration or phacoemulsification), complex, requiring devices or techniques not generally used in routine cataract surgery (for example, iris expansion device, suture support for intraocular lens, or primary posterior capsulorrhexis) or performed on patients in the amblyogenic developmental stage

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● CPT code 66983 Intracapsular cataract extraction with insertion of intraocular lens prosthesis (one stage procedure) ● CPT code 66984 Extracapsular cataract removal with insertion of intraocular lens prosthesis (one stage procedure), manual or mechanical technique (for example, irrigation and aspiration or phacoemulsification) b. Classes of NTIOLs Approved for Payment Adjustment Since implementation of the process for adjustment of payment amounts for NTIOLs, that was established in the June 16, 1999 Federal Register, we have approved three classes of NTIOLs, as shown in the following table: NTIOL HCPCS Category Code 1 Q1001

$50 Approved for Services Furnished On or After May 18, 2000, through May 18, 2005

NTIOL Characteristic Multifocal

2

Q1002

May 18, 2000, through May 18, 2005

Reduction in Preexisting Astigmatism

3

Q1003

February 27, 2006, through February 26, 2011

Reduced Spherical Aberration

IOLs Eligible for Adjustment Allergan AMO Array Multifocal lens, model SA40N STAAR Surgical Elastic Ultraviolet-Absorbing Silicone Posterior Chamber IOL with Toric Optic, models AA4203T, AA4203TF, and AA4203TL Advanced Medical Optics (AMO) Tecnis® IOL models Z9000, Z9001, and ZA9003; Alcon Acrysof IQ Model SN60WF

2. Proposed Changes a. Process for Recognizing IOLs as Belonging to an Active NTIOL Class Currently, we accept and review applications for inclusion in an active NTIOL class on a continuous basis throughout the year in accordance with §§416.180 through 416.200 of the regulations. We are proposing to continue this established process and to

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update and streamline it, as discussed below, to specify the request and comment review process, the information that a request must include to be accepted for review, the specific factors to be considered in evaluating requests, and the process to provide notification of determinations. As stated in section XVII.D. of this preamble, we are proposing to redesignate existing subpart F of part 416 as subpart G, which would include the regulations pertaining to the ASC payment adjustment for NTIOLs. In addition, we are proposing to revise redesignated subpart G to add new §416.180, §416.185, §416.190, §416.195, and §416.200 to the regulations to reflect the changes that we are proposing to this process. One of the regulatory changes that we are proposing is to revise existing §416.180 to establish the basis and scope for this ASC payment adjustment. This proposal would eliminate the definitions currently included in that section for “Class of new technology intraocular lenses (IOLs),” “Interested party,” “New technology IOL,” and “New technology subset.” We do not believe that we need to retain these definitions because additional revisions that we are proposing to the regulations at part 416 would eliminate the term “interested party” from §§416.185(c) and 416.190 and the term “new technology subset” from §§416.185(g), 416.200(a), (b), and (c) and further clarify the terms “new technology IOL” and “class of new technology intraocular lenses (IOLs).” The other changes that we are proposing to part 416, pertaining to the ASC payment adjustment for NTIOLs, are discussed in this section.

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b. Public Notice and Comment Regarding Adjustments of NTIOL Payment Amounts We are proposing to update and streamline the process for determining whether an IOL that is to be inserted during or subsequent to cataract extraction qualifies for payment adjustment as a NTIOL, as set forth in existing §416.185 of our regulations. The basis for the current NTIOL payment review process was enacted in 1994 and has been implemented through a series of separate Federal Register notices specific to NTIOLs. We are proposing to modify the current process of using separate Federal Register notices to notify the public of requests to review lenses for membership in new NTIOL classes, to solicit public comment on requests, and to notify the public of CMS determinations concerning new classes of NTIOLs for which an ASC payment adjustment would be made. We are proposing that these NTIOL–related notifications would be fully integrated into the annual notice and comment rulemaking for updating the ASC payment rates, the specific payment system in which NTIOL payment adjustments are made. Given that the NTIOL payment adjustments are applicable to ASC services and that the proposal for updating the new ASC payment system to be implemented in January 2008 anticipates an annual update process in coordination with notice and comment rulemaking on the OPPS, aligning the NTIOL process with this annual update would promote coordination and efficiency, thereby streamlining and expediting the NTIOL notification, comment, and review process. Specifically, we are proposing the following process: ● We would announce annually in the Federal Register document that proposes the update of ASC payment rates for the following calendar year, a list of all requests to

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establish new NTIOL classes accepted for review during the calendar year in which the proposal is published and the deadline for submission of public comments regarding those requests. The deadline would be 30 days following publication of the list of requests. ● In the Federal Register document that finalizes the update of ASC payment rates for the following calendar year we would-+ provide a list of determinations made as a result of our review of all requests and public comments; and + publish the deadline for submitting requests for review in the following calendar year. We believe that the coordination of public notice and comment regarding requests to establish new NTIOL classes with the update of ASC payment rates would facilitate judicious and comprehensive review and comment by interested parties, thereby resulting in more timely access to improved health technologies for Medicare beneficiaries. Accordingly, we are proposing to revise §416.185 to reflect these proposed changes to the current process for publishing separate Federal Register notices specific to NTIOLs. We note that we did not receive any review requests in response to the specific NTIOL April 28, 2006 notice (71 FR 25176) soliciting CY 2006 requests for review of the appropriateness of the payment amount for particular NTIOLs furnished in ASCs.

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c. Factors CMS Considers in Determining Whether an Adjustment of Payment for Insertion of a New Class of NTIOL Is Appropriate In determining whether a lens belongs to a new class of NTIOLs for which the ASC payment amount for insertion in conjunction with cataract surgery is appropriate, we expect that the insertion of the candidate IOL would result in significantly improved clinical outcomes compared to currently available IOLs. In addition, to establish a new NTIOL class, the candidate lens must be distinguishable from lenses already approved as members of active or expired classes of NTIOLs that share a predominant characteristic associated with improved clinical outcomes that was identified for each class. We are proposing to base our determinations on consideration of the following factors: ● The IOL must have been approved by the FDA and claims of specific clinical benefits and/or lens characteristics with established clinical relevance in comparison with currently available IOLs must have been approved by the FDA for use in labeling and advertising. ● The IOL is not described by an active or expired NTIOL class; that is, it does not share the predominant, class-defining characteristic associated with improved clinical outcomes with designated members of an active or expired NTIOL class. ● Evidence demonstrating that use of the IOL results in measurable, clinically meaningful, improved outcomes in comparison with use of currently available IOLs. According to the statute, and consistent with previous examples provided by CMS, superior outcomes that would be considered include the following: + Reduced risk of intraoperative or postoperative complication or trauma;

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+ Accelerated postoperative recovery; + Reduced induced astigmatism; + Improved postoperative visual acuity; + More stable postoperative vision; + Other comparable clinical advantages, such as-++ Reduced dependence on other eyewear (for example, spectacles, contact lenses, and reading glasses) ++ Decreased rate of subsequent diagnostic or therapeutic interventions, such as the need for YAG laser treatment. ++ Decreased incidence of subsequent IOL exchange. ++ Decreased blurred vision, glare, other quantifiable symptom or vision deficiency. In order to assess the clinical performance of a candidate IOL to establish a new NTIOL class, outcomes from use of the candidate lens would be compared with outcomes of use of currently available IOLs. Due to the rapid evolution of medical technology, we expect that the baseline of currently available IOLs for comparison would change from year to year. It is our expectation that the current ASC payment adjustment for active NTIOL classes should support the development and dissemination of new IOL technologies that would continue to improve the clinical outcomes of Medicare beneficiaries furnished IOLs after cataract extraction. Accordingly, we are proposing to revise our process for determining whether a lens belongs to a new class of NTIOLs for which an ASC payment adjustment is

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appropriate by setting forth the factors that we propose to consider in making this determination. In addition, we are proposing to revise §416.195 of the regulations to incorporate these proposed factors. Further, we are seeking public comments on the desirability of further interpreting the phrase “currently available lenses” for purposes of comparison and specific approaches to providing such clarifications. We believe that further interpretation could be helpful to requestors seeking to provide the most relevant, authoritative evidence concerning the clinical benefits of their lenses in comparison with those currently available lenses and to us as we review the information provided in requests to establish new NTIOL classes. However, we also believe that any clarifications should incorporate our expectations for technological progression of the baseline comparison lenses over time as we make future annual determinations regarding the establishment of new NTIOL classes. Therefore, we believe that the public’s comments regarding practical and meaningful approaches to elaborating on the phrase “currently available lenses” would facilitate both requestors’ submission of complete requests for review and appropriate determinations by CMS regarding new NTIOL classes to receive the ASC payment adjustment. d. Proposal to Revise Content of a Request to Review To enable us to make a determination that the criteria for a payment adjustment for a new NTIOL class are met, we are proposing to require that a request include the information listed below. We are proposing to revise the content of a request (as currently set forth in §416.195(a)) based on our experience in evaluating applications for

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OPPS pass-through status for new device categories over the past 6 years. We have found that the additional information allows our medical advisors to complete a more comprehensive evaluation, which would ensure that a payment adjustment is appropriate. We also have found that such information must be updated in a timely manner to ensure its relevancy to advancing technologies. Therefore, we also are proposing to post the information listed below on the CMS Web site at: http://www.cms.hhs.gov/center/asc/asp to provide easy access for updating rather than incorporating it in §416.195(a) of the regulations. In addition, we are proposing to continue to require that a separate request would be required for each NTIOL for which a payment review as member of a new class is sought. We are proposing that a request that does not include all of the following information would be considered incomplete and could not be accepted for review until all information is furnished: ● Proposed name or description of a new class of NTIOLs. ● Trade/brand name, manufacturer, and model number of the IOL for which the request to establish a new NTIOL class is being made. (Applications must include the name and description of at least one marketed IOL that would be placed in the proposed new NTIOL class.) ● A list of all active or expired NTIOL classes that describe similar IOLs. For each active or expired class, provide a detailed explanation as to why that class would not describe the candidate IOL.

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● Detailed description of the FDA approved clinical indications for the candidate IOL. ● Description of the IOL-+ What is it? Provide a complete physical description of the IOL, including its components, for example, its composition; coating or covering; haptics; material; and construction. + What does it do? + How is it used? + What makes it different from other currently available IOLs? + What makes it superior to other currently available IOLs used for similar indications? + What are its clinical characteristics, for example, is it used for treatment of specific pathology; what is its life span; what are the complications associated with its use; and for what patient populations is it intended? + Submit relevant booklets, pamphlets, brochures, product catalogues, price lists, and/or package inserts that further describe and illuminate the nature of the IOL. ● If the candidate IOL replaces or improves upon an existing IOL, identify the trade/brand name and model of the existing IOL(s). ● Full discussion of the clinically meaningful, improved outcomes that result from use of the candidate IOL compared to use of other currently available IOLs. This discussion must include evidence to demonstrate that use of the IOL results in

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measurable, clinically significant improvement over currently available IOLs in one or more of the following areas: + Reduced risk of intraoperative or postoperative complication or trauma. + Accelerated postoperative recovery. + Reduced induced astigmatism. + Improved postoperative visual acuity; + More stable postoperative vision. + Other comparable clinical advantages, such as-++ Reduced dependence on other eyewear (for example, spectacles, contact lenses, and reading glasses); ++ Decreased rate of subsequent diagnostic or therapeutic interventions, such as the need for YAG laser treatment; ++ Decreased incidence of subsequent IOL exchange; and ++ Decreased blurred vision, glare or other quantifiable symptom or vision deficiency. ● Provide the following information for the IOL(s) for which a new class is proposed: + Dates the candidate IOL was first marketed, reporting inside the United States and outside the United States separately. + Dates of sale of the first unit of the IOL, reporting inside the United States and outside the United States separately. + Number of IOLs that have been sold up to the date of the application.

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+ A copy of the FDA’s original approval notification. ● A copy of the labeling claims approved by the FDA for the IOL, indicating its clinical advantages and/or the lens characteristics with clinical relevance. ● A copy of the FDA’s summary of the IOL’s safety and effectiveness. ● Reports of modifications made after the original FDA approval. We strongly encourage and may give greater consideration for the submission of published, peer-reviewed literature and other materials that demonstrate substantial clinical improvement with use of the candidate IOL over use of currently available IOLs. Proposed §416.190(d) provides that, in order for CMS to invoke the protection allowed under Exemption 4 of the Freedom of Information Act (5 U.S.C. 552(b)(4)) and, with respect to trade secrets, the Trade Secrets Act (18 U.S.C. 1905), the requestor must clearly identify all information that is to be characterized as confidential. For the stated reasons, we are proposing to revise §416.190 to reflect these proposed changes to the content of a request for payment review of an IOL, to clarify when a request can be submitted and who may submit, and to also clarify the process for maintaining confidentiality of information included in a request. As stated earlier, we are not proposing to incorporate the list of proposed information required with each request in the regulations, but are proposing to post it on the CMS Web site to ensure that such information is updated in a timely manner and relevant to advancing IOL technologies. We are proposing to revise §416.190 to require that the content of each request for an IOL review must include all information as specified on the CMS Web for the request to be considered complete.

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e. Notice of CMS Determination We are proposing three possible outcomes from review of a request for determination of a new NTIOL class. As appropriate, for each completed request for a candidate IOL that is received by the established deadline, one of the following determinations would be announced annually in the final rule updating the ASC payment rates for the next calendar year: ● The request for a payment adjustment is approved for the IOL for 5 full years as a member of a new NTIOL class described by a new code. ● The request for a payment adjustment is approved for the IOL for the balance of time remaining as a member of an active NTIOL class. ● The request for a payment adjustment is not approved. We also are proposing to summarize briefly in the ASC final rule the evidence that was reviewed, the public comments, and the basis for our determination. When a new NTIOL class is established, we are proposing to identify the predominant characteristic of NTIOLs in that class that sets them apart from other IOLs (including those previously approved as members of other expired or active NTIOL classes) and is associated with improved clinical outcomes. The date of implementation of a payment adjustment in the case of approval of an IOL as a member of a new NTIOL class would be set prospectively as of 30 days after publication of the ASC payment update final rule, consistent with the statutory requirement. The date of implementation of a payment adjustment in the case of approval of a lens as a member of an active NTIOL class would be set prospectively as of the publication date of the ASC payment update final rule.

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f. Proposed Payment Adjustment The current payment adjustment for a 5-year period from the implementation date of a new NTIOL class is $50. We are not proposing to revise this payment adjustment for CY 2007. For CY 2007, we are proposing to revise §416.200(a) through (c) to clarify how the IOL payment adjustment would be made and how a NTIOL would be paid after expiration of the payment adjustment. We also are proposing minor editorial changes to §416.200(d). XVIII. Proposed Revised Ambulatory Surgical Center (ASC) Payment System for Implementation January 1, 2008 A. Background Generally, there are two primary elements in the total cost of performing a surgical procedure: the cost of the physician’s professional services for performing the procedure and the cost of services furnished by the facility where the procedure is performed (for example, surgical supplies, equipment, nursing services, and overhead). The former is covered by the Medicare physician fee schedule. In 1980, a new Medicare benefit was enacted, authorizing payment of a fee to ASCs for facility services furnished in connection with performing certain surgical procedures. The statute requires us to specify surgical procedures that are appropriately and safely performed on an ambulatory basis in an ASC. Moreover, we are to review and update the list of these procedures not less often than every 2 years, in consultation with appropriate trade and professional associations. The ASC list was limited in 1982 to

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approximately 100 procedures. Currently, the list consists of more than 2,500 CPT codes encompassing a cross-section of surgical services, although 150 of these codes account for more than 90 percent of the approximately 4.5 million procedures paid for each year under the ASC Part B benefit. Eye, pain management, and gastrointestinal endoscopic procedures are the highest volume ASC surgeries under the present payment system. Medicare only allows payment to ASCs for procedures on the ASC list. Medicare pays 80 percent of the prospectively determined fee; the coinsurance rate is 20 percent for all procedures on the ASC list. In Pub. L. 108-173, the Congress mandated implementation of a revised payment system for ASC surgical services by no later than January 1, 2008. Pub. L. 108-173 sets forth several requirements for the revised payment system, but does not amend those provisions of the statute pertaining to the ASC list. In section XVIII. of this preamble, we describe the provisions of the revised ASC payment system that we are proposing to implement, as required by Pub.L.108-173, not later than January 1, 2008. Our proposal encompasses two components: first, our proposal for establishing and maintaining the ASC list of Medicare approved procedures under the revised payment system, and second, the method we are proposing to use to set payment rates for ASC facility services furnished in association with procedures on the ASC list. We also discuss in this section regulatory changes that we are proposing to 42 CFR Parts 416 and 488 to incorporate the rules governing ASC facility payments under the revised payment system that would be applicable beginning in CY 2008.

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1. Provisions of Pub. L. 108-173 Section 626(a) of Pub.L.108-173 amended section 1833(i)(2)(C) of the Act, which requires the Secretary to update ASC payment rates using the Consumer Price Index for all urban consumers (U.S. City average) (CPI-U) if the Secretary has not otherwise updated the amounts under the revised ASC payment system. As amended by Pub. L. 108-173, this section requires that if the Secretary is required to apply the CPI-U increase, the CPI-U percentage increase is to be applied on a fiscal year basis beginning with FY 1986 through FY 2005 and on a calendar year basis beginning with 2006. Pub. L. 108-173 further amended section 1833(i)(2)(C) of the Act to require us in FY 2004, beginning April 1, 2004, to increase the ASC payment rates using the CPI-U as estimated for the 12-month period ending March 31, 2003, minus 3.0 percentage points. Pub. L. 108-173 also requires that the CPI adjustment factor equal zero percent in FY 2005, the last quarter of CY 2005, and each CY from 2006 through 2009. Section 626(b) of Pub.L. 108-173 repeals the requirement that CMS conduct a survey of ASC costs upon which to base a standard overhead payment amount for surgical services performed in ASCs, and adds section 1833(i)(2)(D)(iii) to the Act, which requires us to implement by no earlier than January 1, 2006, and not later than January 1, 2008, a revised ASC payment system. The revised payment system under section 1833(i)(2)(D)(i) of the Act is to take into account the recommendations contained in a Report to Congress that the GAO was required to submit by January 1, 2005. Section 1833(i)(2)(D)(ii) of the Act requires that the revised ASC payment system be designed to result in the same aggregate amount of expenditures for surgical services

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furnished in ASCs the year the system is implemented as would be made if the new system did not apply as estimated by the Secretary. This requirement is to take into account the limitation in ASC expenditures resulting from implementation of section 5103 of Pub. L. 109-171 beginning January 1, 2007, as we describe in section XVII.A.1 of this preamble. Section 1833(i)(2)(D)(iv) of the Act exempts the classification system, relative weights, payment amounts, and geographic adjustment factor (if any) under the revised ASC payment system from administrative and judicial review. Section 626(c) of Pub.L. 108-173 adds a conforming amendment to section 1833(a)(1) of the Act providing that the amounts paid under the revised ASC payment system shall equal 80 percent of the lesser of the actual charge for the services or the payment amount that we determine. 2. Other Factors Considered On August 2, 2005, we convened a listening session teleconference on revising the Medicare ASC payment system. Over 450 callers participated, including ASC staff, physicians, and representatives of industry trade associations. The listening session provided an opportunity for participants to identify the issues and concerns that they wanted us to address as we developed the revised ASC payment system. Callers encouraged us to foster beneficiary access to ASCs by creating incentives for physicians to use ASCs. The issues raised by participants included suggestions to expand or eliminate altogether the ASC list, recommendations to model payment on the hospital OPPS, and concerns about how we would propose to treat the geographic wage

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index adjustment and the annual ASC payment rate update. Several callers also raised concerns about ensuring adequate payment for supplies, ancillary services, and implantable devices under the new payment system, as well as developing a process to allow special payment for new technology. We have also met with representatives of the ASC industry over the past several years to discuss options for ratesetting other than conducting a survey, to discuss timely updates to the ASC list, and to listen to industry concerns related to the implementation of a new payment system. We appreciate the thoughtful suggestions that have been presented. We have carefully considered the concerns and issues brought to our attention, and a number of the proposals in this section for revising the ASC list and the method by which we set ASC payment rates take these concerns and issues into account. We look forward to receiving comments on the proposed changes set forth in this proposed rule and to continued input from representatives of industry associations and professional societies as we develop the final rule. B. Procedures Proposed for Medicare Payment in ASCs Effective for Services Furnished On or After January 1, 2008 1. Proposed Payable Procedures (If you choose to comment on issues in this section, please include the caption “ASC Payable Procedures” at the beginning of your comments.) In its March 2004 Report to the Congress, MedPAC recommended replacing the current “inclusive” list of procedures, which are the only procedures for which Medicare allows payment of an ASC facility fee, with an “exclusionary” list. That is, rather than

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limiting payment of an ASC facility fee to a list of procedures that CMS specifies, Medicare would allow payment to an ASC facility for any surgical procedure except those that CMS explicitly excludes from payment. MedPAC further recommended that clinical safety standards and the need for an overnight stay be the only criteria for excluding a procedure from payment of an ASC facility fee. MedPAC suggested that some of the criteria, such as site-of-service volume and time limits, which we have used in the past to identify procedures for the ASC list, are probably no longer clinically relevant. We have given careful consideration to MedPAC’s recommendations and participated in considerable discussion and consultation with members of ASC trade associations and physicians who represent a variety of surgical specialties regarding the criteria that we would use to identify procedures that we would propose for payment under the new ASC payment system. We agree that adoption of a policy like that recommended by MedPAC would serve both to protect beneficiary safety and increase beneficiary access to procedures in appropriate clinical settings, recognizing the ASC industry’s interest in obtaining Medicare payment for a much wider spectrum of services than is now allowed. Therefore, we are proposing that, under the revised ASC payment system for services furnished on or after January 1, 2008, Medicare would allow payment of an ASC facility fee for any surgical procedure performed at an ASC, except those surgical procedures that we determine are not payable under the ASC benefit. Further, we are proposing to establish beneficiary safety and the need for an overnight stay as the principal clinical considerations and factors in determining whether

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payment of an ASC facility fee would be allowed for a particular surgical procedure. As discussed in section XVIII.B.2 below, we also are proposing to exclude from payment under the ASC revised payment system those surgical procedures that are not eligible for separate payment under the OPPS and CPT surgical unlisted procedure codes. We discuss below the criteria that we are proposing as the basis for identifying procedures that would pose a significant safety risk to a Medicare beneficiary when performed in an ASC, or procedures following which we would expect a Medicare beneficiary to require overnight care. a. Proposed Definition of Surgical Procedure In order to delineate the scope of procedures that constitute “outpatient surgical procedures,” we must first clarify what we consider to be a “surgical” procedure. Under the current ASC payment system, we define as a surgical procedure any procedure described within the range of CPT Category I codes that the AMA defines as “surgery” (CPT codes 10000-69999) for purposes of the ASC payment system. Under the revised payment system, we are proposing to continue that standard. However, we seek comment on whether all services contained in this range are appropriately defined as “surgery.” For example, should procedures that are primarily office-based (see Addendum CC) or procedures that require relatively inexpensive resources to perform be excluded from the list? Within the CPT surgical code range, such procedures that either require very limited facility resources or are primarily performed in procedure rooms in physician offices could be considered not to be surgical procedures, in that they may not require typical surgical resources, such as a fully equipped operating room or significant

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postoperative recovery area, that are generally associated with surgical procedures that are predominantly performed in facility settings or have significant associated resource costs. Procedures that require relatively inexpensive resources to perform could be defined based on an ASC payment threshold, for example $100 or $200, such that procedures below this threshold would be excluded from the ASC list of procedures. We seek comment on what an appropriate payment threshold would be for defining procedures that require relatively inexpensive resources. In addition, we are proposing to include within the scope of surgical procedures payable in an ASC certain services that are described by HCPCS alphanumeric codes (Level II HCPCS codes) or by CPT Category III codes which directly crosswalk to or are clinically similar to procedures in the CPT surgical range. We are proposing to include these three types of codes in our definition of surgical procedures because they all are eligible for payment under the OPPS and, to the extent it is reasonable to do so, we are proposing that the new ASC payment system parallel the OPPS in its policies. An example of a Level II HCPCS code that we believe represents a procedure that could be safely and appropriately performed in an ASC is HCPCS code G0297 (Insertion of single chamber pacing cardioverter defibrillator pulse generator). We developed this alphanumeric code for use in the OPPS because CPT code 33240, which describes the surgical insertion of cardioverter defibrillator pulse generators, does not distinguish insertion of a single chamber cardioverter defibrillator generator from insertion of a dual chamber cardioverter defibrillator generator. We were concerned that different facility resources could be required for the insertion of these two types of cardioverter

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defibrillator pulse generators, so we developed alternate codes to permit hospitals to more accurately report the resources required when these surgical procedures are performed for payment under the OPPS. In instances such as this, when an alphanumeric Level II HCPCS code is established as a substitute for a CPT surgical procedure code which does not adequately describe, from a facility perspective, the nature of a surgical service, we are proposing to allow payment for the alphanumeric code under the proposed new ASC payment system. We are proposing not to allow payment of an ASC facility fee for Level II HCPCS codes or Category III CPT codes that describe services which fall outside the scope of surgical procedures described by CPT codes 10000-69999. We recognize that continuing to use this definition of surgery would exclude from payment of an ASC facility fee certain invasive, “surgery-like” procedures, such as cardiac catheterization or certain radiation treatment services which are assigned codes outside the CPT surgical range. However, we believe that continuing to rely on the CPT definition of surgery would be administratively straightforward, uncontroversial, and consistent with our proposal to allow ASC payment for all outpatient surgical procedures. Since 1987, the ASC list has consisted of CPT codes that are defined as surgery by CPT. Given the number of other changes that we expect to be implemented as part of the proposed new payment system, along with the significant expansion of the ASC list that we are proposing, we believe that it would be prudent at the outset to continue to define surgery as it is defined by the CPT code set, which is used to report services for payment under both the Medicare Physician Fee Schedule (MPFS) and the OPPS. However, we are interested in commenters’ opinions regarding the appropriateness of including

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primarily office-based procedures or including procedures that require relatively inexpensive resources to perform on the approved list of ASC procedures and we seek comment on this issue. That said, we have reviewed thousands of CPT codes in the surgical range (CPT codes 10000 through 69999), and we are proposing to not exclude payment for more than 750 additional surgical procedures, as well as continuing to not exclude payment for the more than 2,500 CPT codes on the current ASC list. If we were to consider CPT codes in the surgical range that were predominantly office-based to not be surgical procedures for purposes of the ASC payment system, the additions to the ASC list for CY 2008 would be limited to no more than about 300 other procedures. Similarly, if we were to define procedures requiring relatively inexpensive resources to not be surgical procedures, then additions to the ASC list for ASC payment would be more limited than under our current proposal. However, we are cognizant of the dynamic nature of ambulatory surgery, which has resulted in a dramatic shift of services from inpatient to outpatient settings over the past two decades. Therefore, we are soliciting comments regarding other services which are invasive and “surgery-like,” which could safely and appropriately be performed at an ASC, and which require the resources typical of an ASC, even though the procedures are described by codes that fall outside the range of CPT surgical codes. In particular, we would be interested in considering commenters’ views of what constitutes a “surgical” procedure.

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b. Procedures Proposed for Exclusion from Payment Under the Revised ASC System As stated above, we are proposing to allow payment of an ASC facility fee for all procedures within the surgical range of CPT codes that do not pose a safety risk to Medicare beneficiaries or require an overnight stay. Having established what we would propose as constituting a “surgical procedure,” we next considered criteria that would enable us to identify procedures that could pose a significant safety risk when performed in an ASC or that would require an overnight stay within the bounds of prevailing medical practice. We discuss in this section how we propose to identify procedures that could pose a significant safety risk. (1) Significant Safety Risk First, we are proposing to exclude from payment of an ASC facility fee any procedure that is included on the current OPPS inpatient list. (See Addendum E to this proposed rule and section XII. of this preamble for a discussion of the OPPS inpatient list.) The procedures included on that list are typically performed in the inpatient hospital setting due to the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. We believe that any procedure for which we do not allow payment in the hospital outpatient setting due to safety concerns would not be safe to perform in an ASC. Second, we are proposing to exclude from payment of an ASC facility fee procedures that the CY 2005 Part B Extract Summary System (BESS) data indicate are performed 80 percent or more of the time in the hospital inpatient setting, even if those

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procedures are not included on the OPPS inpatient list. (See Table 4.) We selected an 80 percent threshold because we believe that an 80 percent level of inpatient performance is a fair indicator that a procedure is most appropriately performed on an inpatient basis and as such, would pose significant safety risks for Medicare beneficiaries if performed in an ASC. We find that procedures with inpatient utilization frequencies above this proposed threshold are complex and are likely to require a longer and more intensive level of care postoperatively than what is provided in a typical ASC. We believe that performing these procedures in an ASC, where immediate access to the full resources of an acute care hospital is not the norm, would pose a significant safety risk for beneficiaries. Third, we are proposing to retain the specific criteria for evaluating safety risks that are listed in §416.65(b)(3). Procedures that involve major blood vessels; prolonged or extensive invasion of body cavities; extensive blood loss; or are emergent or life-threatening in nature could, by definition, pose a significant safety risk. Therefore, we are proposing to exclude from payment of an ASC facility fee, procedures that may be expected to involve any of these characteristics based on evaluation by our medical advisors. We note that most of the procedures that our medical advisors identified as involving any of the characteristics listed currently in §416.65(b)(3), also require overnight or inpatient stays, reinforcing their exclusion from being paid when performed in an ASC. Finally, we are proposing not to continue applying under our proposed revised system the current time-based prescriptive criteria at §416.65(b)(1) and (2), which exclude from the ASC list procedures that exceed 90 minutes of operating time or 4 hours

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of recovery time or 90 minutes of anesthesia. We believe these criteria are no longer clinically appropriate for purposes of defining a significant safety risk for surgical procedures. In light of these proposed changes for evaluating procedures that pose a significant safety risk for beneficiaries under our proposed revised system, we believe that it would not be appropriate to apply the existing standard at §416.65(a)(1), which states that covered surgical procedures are those that are commonly performed on an inpatient basis but may be safely performed in an ASC, because this standard is no longer relevant to prevailing medical practice in the realm of ambulatory or outpatient surgery. Similarly, we believe that it would not be appropriate to continue applying the existing standard at §416.65(a)(2), which states that procedures performed in an ASC are not of a type that are commonly performed, or that may be performed in a physician’s office. This standard is no longer relevant within the context of our proposal only to exclude from payment of an ASC facility fee under the revised payment system those surgical procedures that pose a safety risk or require an overnight stay. We would expect the types of procedures that are commonly performed or that may be performed in a physician’s office to pose no significant safety risk and to require no overnight care. Therefore, we are proposing to add new subpart F to reflect coverage, scope and payment for ASC services under the revised payment system. Included in these changes will be new §416.166 that will reflect these changes that we are proposing to our current policy for evaluating and identifying those procedures that would pose a significant safety risk for beneficiaries and would be excluded from our list of ASC covered

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procedures beginning January 1, 2008. To set apart the provisions that are applicable to our current ASC payment system from those that would apply to our proposed revised system, we are proposing to revise the section headings of subparts D and E to clearly denote the provisions that would govern covered surgical procedures furnished before January 1, 2008. We also will add new §§416.76 and 416.121 to clearly denote the effective dates of subparts D and E. (2) Overnight Stay A longstanding criterion for determining which procedures are appropriate for inclusion on the ASC list has been that the procedures on the list do not require an extended recovery time. Section 416.65(a)(3) of the regulations provides that ASC procedures “[a]re limited to those requiring a dedicated operating room (or suite), and generally requiring a post-operative recovery room or short-term (not overnight) convalescent room.” Under §416.65(b)(1)(ii), we have considered procedures that require more than 4 hours recovery or convalescent time to be inappropriately performed in the ASC. We have heard many differing opinions as to what constitutes an “overnight” stay, ranging from “more than 24 hours” to time spent in recovery after sunset. After careful deliberation and consideration of several options, we are proposing to exclude from payment of an ASC facility fee any procedure for which prevailing medical practice dictates that the beneficiary will typically be expected to require active medical monitoring and care at midnight following the procedure. Our clinical staff evaluated each procedure using available claims and physician pricing data, as well as clinical

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judgment, to determine which procedures would be expected to require monitoring at midnight of the day on which the surgical procedure was performed. We are proposing to use midnight as the defining measure of an overnight stay for several reasons. First, a patient’s location at midnight is a generally accepted standard for determining his or her status as a hospital inpatient or skilled nursing facility patient and as such, it seems reasonable to apply the same standard in the ASC setting. Second, overnight care is not within the scope of ASC facility services for which Medicare makes payment. The expectation is that procedures performed at an ASC are ambulatory in nature; that is, patients undergoing a procedure in an ASC will recover from anesthesia and return home on the same day that they report to the ASC for a scheduled procedure. Finally, the expected need for monitoring at midnight is a straightforward and easily understood definition of “overnight stay.” We are proposing to add the requirement that procedures not require an overnight stay to proposed new §416.166. 2. Proposed Treatment of Unlisted Procedure Codes and Procedures that are Not Paid Separately under the OPPS. (If you choose to comment on issues in this section, please include the caption “ASC Unlisted Procedures” at the beginning of your comment.) Unlisted procedure CPT codes are used to report services and procedures that are not accurately described by any other, more specific CPT codes. An example of an unlisted CPT code is 33999 (Unlisted procedure, cardiac surgery). Within the surgical range of CPT codes, there are 91 such codes. None of the unlisted CPT codes in the surgical range is on the current ASC list of approved procedures. Under the OPPS, we

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assign unlisted CPT codes to the lowest weighted APC in the relevant clinical group regardless of the median cost for the unlisted procedure code, and we do not include the highly variable claims-based cost information for unlisted services in calculating APC median costs for purposes of establishing APC relative payment weights. Payment for unlisted CPT codes is made only at the discretion of the carrier under the MPFS. Because of concerns about the potential for safety risks when procedures that may only be reported with CPT unlisted procedure codes are performed, we are proposing to continue excluding unlisted procedure codes from payment of an ASC facility fee. For example, when CPT code 33999 is reported on a claim, we know only that some kind of cardiac surgery was performed. We have no other information about the procedure, and we have no way of knowing whether the procedure involved major blood vessels, prolonged or extensive invasion of body cavities, extensive blood loss, or was emergent or life-threatening in nature. Therefore, because of potential safety concerns, we are proposing to continue to exclude the unlisted surgical codes from payment of an ASC facility fee under the revised payment system. Prior to our evaluation of surgical procedure codes for their safety risk, we decided to propose that we would not make separate payment under the revised ASC payment system for CPT codes in the surgical range that are “packaged” under the OPPS. Packaged CPT codes under the OPPS are identified by status indicator ‘N’ in Addendum B of this proposed rule. We are making this proposal for three reasons. First, we would not be able to establish an ASC payment rate for packaged surgical procedures using the same method we are proposing for all other ASC procedures because packaged

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surgical codes have no relative payment weights under the OPPS upon which to base an ASC payment rate. Second, because we want an ASC system that is as similar to the OPPS as possible, we believe that surgical procedures whose costs we package under the OPPS should also be packaged in the ASC system. Finally, ASCs, just like hospitals, would receive payment for these surgical procedures because their costs are already packaged into the APC relative payment weights for associated separately payable procedures, for which we are proposing to pay a derivative ASC facility fee. 3. Proposed Treatment of Office-Based Procedures (If you choose to comment on issues in this section, please include the caption “ASC Office-Based Procedures” at the beginning of your comment.) According to the general standard in §416.65(a)(2) of the regulations, procedures that “are commonly performed, or that may be safely performed, in physicians’ offices” are excluded from the ASC list. We are not proposing to continue to apply this provision under our revised system. Rather we are proposing to allow payment of an ASC facility fee for surgical procedures that are commonly and safely performed in the office setting. We reason that the types of procedures performed in physician offices would neither pose a significant safety risk nor require an overnight stay when performed in an ASC. However, we have concerns that allowing payment for office-based procedures under the ASC benefit may create an incentive for physicians inappropriately to convert their offices into ASCs or to move all their office surgery to an ASC. In section XVIII.C.5 below, to address this concern, we propose to limit payment for office-based procedures to help neutralize any such incentive. We also propose in new §416.171(e) to set forth

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rules governing office-based procedures. We specifically invite comment regarding the effect on the Medicare program and on practice patterns for ambulatory surgery generally of our proposal to allow payment of an ASC facility fee for office-based procedures that historically have been excluded from the ASC list. As discussed elsewhere in this proposed rule, we are proposing to limit payment for office-based procedures in an attempt to mitigate potentially inappropriate migration of services from the physician office setting to the ASC. Alternatively, we could entirely exclude office-based procedures or procedures that require relatively inexpensive resources to perform from the approved ASC list of procedures. 4. Listing of Surgical Procedures Proposed for Exclusion from Payment of an ASC Facility Fee under the Revised Payment System Tables 44 and 45 below, list the codes and short descriptors for surgical procedures that, in addition to the codes that comprise the inpatient list in Addendum E of this proposed rule, we are proposing to exclude from payment of an ASC facility fee for services furnished on or after January 1, 2008 because they pose a significant safety risk or require an overnight stay. We discuss in section XVIII.B.1.b.(1) above, our rationale for excluding the procedures in Table 44 from payment of an ASC facility fee. For many of the procedures listed in Table 45, several disqualifying criteria could be applicable, such as “requires inpatient stay” or “could potentially cause extensive blood loss” or “is emergent in nature.” Rather than list multiple disqualifying criteria for individual codes in Table 45, we have defaulted to the one characteristic that is common to all the codes listed. That is, we believe that, at a minimum, prevailing medical practice

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would dictate the provision of overnight care following each of the procedures listed in Table 45. We acknowledge that we had to exercise a degree of clinical judgment in identifying procedures for which we are proposing to exclude payment of an ASC facility fee. Therefore, we are soliciting comments on the appropriateness of excluding these procedures from payment of an ASC facility fee under the revised payment system. We request that commenters who disagree with a proposed exclusion from payment of an ASC facility fee submit clinical evidence that demonstrates that the criteria we are proposing in proposed new §416.166 of the regulations are not factors when the procedure is performed in the majority of cases, including data to support that the preponderance of Medicare beneficiaries upon whom the procedure is performed do not require overnight care or monitoring following the surgery. Simply asserting that the procedure can be safely performed in an ASC without providing corroborative evidence and data does not furnish us with sufficient information upon which to make an informed decision. Table 44. -- CPT Surgical Procedures Proposed for Exclusion from Payment of an ASC Facility Fee Because At Least 80 Percent of Medicare Cases Are Performed on an Inpatient Basis HCPCS 20100 21195 21408 22612 22614 22899 23470 24150 24151 27216 27235

Short Descriptor Explore wound, neck Reconst lwr jaw w/o fixation Treat eye socket fracture Lumbar spine fusion Spine fusion, extra segment Spine surgery procedure Reconstruct shoulder joint Extensive humerus surgery Extensive humerus surgery Treat pelvic ring fracture Treat thigh fracture

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444 HCPCS 27446 31600 31610 32005 32020 32201 32601 32602 32603 32604 32605 32606 33207 33208 33210 33211 33235 33244 34101 34111 34201 34203 34421 34471 35201 35226 35231 35256 35261 35286 35459 35485 35491 35500 35685 35686 35860 35879 35881 36597 37207 37208

Short Descriptor Revision of knee joint Incision of windpipe Incision of windpipe Treat lung lining chemically Insertion of chest tube Drain, percut, lung lesion Thoracoscopy, diagnostic Thoracoscopy, diagnostic Thoracoscopy, diagnostic Thoracoscopy, diagnostic Thoracoscopy, diagnostic Thoracoscopy, diagnostic Insertion of heart pacemaker Insertion of heart pacemaker Insertion of heart electrode Insertion of heart electrode Removal pacemaker electrode Remove eltrd, transven Removal of artery clot Removal of arm artery clot Removal of artery clot Removal of leg artery clot Removal of vein clot Removal of vein clot Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair arterial blockage Atherectomy, open Atherectomy, percutaneous Harvest vein for bypass Bypass graft patency/patch Bypass graft/av fist patency Explore limb vessels Revise graft w/vein Revise graft w/vein Reposition venous catheter Transcath iv stent, open Transcath iv stent/open addl

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445 HCPCS 37209 37501 37565 37600 37605 37620 38120 38240 42227 43289 43651 43752 43830 43831 44206 44207 44208 44238 44500 44901 44979 47370 47371 47490 49021 49041 49061 49200 49323 49492 50542 50543 50544 50549 54692 56805 57109 57284 57555 58770 58823 58925

Short Descriptor Change iv cath at thromb tx Vascular endoscopy procedure Ligation of neck vein Ligation of neck artery Ligation of neck artery Revision of major vein Laparoscopy, splenectomy Bone marrow/stem transplant Lengthening of palate Laparoscope proc, esoph Laparoscopy, vagus nerve Nasal/orogastric w/stent Place gastrostomy tube Place gastrostomy tube Lap part colectomy w/stoma L colectomy/coloproctostomy L colectomy/coloproctostomy Laparoscope proc, intestine Intro, gastrointestinal tube Drain app abscess, percut Laparoscope proc, app Laparo ablate liver tumor rf Laparo ablate liver cryosurg Incision of gallbladder Drain abdominal abscess Drain, percut, abdom abscess Drain, percut, retroper absc Removal of abdominal lesion Laparo drain lymphocele Rpr ing hern premie, blocked Laparo ablate renal mass Laparo partial nephrectomy Laparoscopy, pyeloplasty Laparoscope proc, renal Laparoscopy, orchiopexy Repair clitoris Vaginectomy partial w/nodes Repair paravaginal defect Remove cervix/repair vagina Create new tubal opening Drain pelvic abscess, percut Removal of ovarian cyst(s)

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446 HCPCS 59030 59074 59409 59414 59612 60659 62160 62351 63001 63003 63005 63011 63012 63015 63016 63017 63020 63030 63035 63040 63042 63045 63046 63047 63048 63055 63056 63057 63064 63066 63075 63741 64446 64447 64448 64449 69725 69955 69960

Short Descriptor Fetal scalp blood sample Fetal fluid drainage w/us Obstetrical care Deliver placenta Vbac delivery only Laparo proc, endocrine Neuroendoscopy add-on Implant spinal canal cath Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Neck spine disk surgery Low back disk surgery Spinal disk surgery add-on Laminotomy, single cervical Laminotomy, single lumbar Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina Remove spinal lamina add-on Decompress spinal cord Decompress spinal cord Decompress spine cord add-on Decompress spinal cord Decompress spine cord add-on Neck spine disk surgery Install spinal shunt N blk inj, sciatic, cont inf N block inj fem, single N block inj fem, cont inf N block inj, lumbar plexus Release facial nerve Release facial nerve Release inner ear canal

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Table 45. -- CPT Surgical Procedure Codes Proposed for Exclusion from ASC Facility Fee Payment Because They Require an Overnight Stay HCPCS/CPT Code 15170 15171 15175 15176 15842 19240 19260 20101 20102 20950 21049 21175 21261 21263 21470 21742 21743 22100 22101 22222 24935 25170 26037 27096 27220 27412 27415 27440 27475 27524 28360 29000 29046 29866 29867 29868 31040 31293

Short Descriptor Cell graft trunk/arms/legs Cell graft t/arm/leg add-on Acellular graft, f/n/hf/g Acell graft, f/n/hf/g add-on Flap for face nerve palsy Removal of breast Removal of chest wall lesion Explore wound, chest Explore wound, abdomen Fluid pressure, muscle Excis uppr jaw cyst w/repair Reconstruct orbit/forehead Revise eye sockets Revise eye sockets Treat lower jaw fracture Repair stern/nuss w/o scope Repair sternum/nuss w/scope Remove part of neck vertebra Remove part, thorax vertebra Revision of thorax spine Revision of amputation Extensive forearm surgery Decompress fingers/hand Inject sacroiliac joint Treat hip socket fracture Autochondrocyte implant knee Osteochondral knee allograft Revision of knee joint Surgery to stop leg growth Treat kneecap fracture Reconstruct cleft foot Application of body cast Application of body cast Autogrft implnt, knee w/scope Allgrft implnt, knee w/scope Meniscal trnspl, knee w/scope Exploration behind upper jaw Nasal/sinus endoscopy, surg

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448 HCPCS/CPT Code 31294 31500 31601 31785 34490 34501 34510 34520 34530 35011 35180 35184 35190 35206 35236 35266 35321 35458 35460 35470 35471 35472 35475 35484 35490 35493 35494 35495 35903 36455 36460 36838 37183 37195 37201 37202 37204 37206 37606 37615 38720

Short Descriptor Nasal/sinus endoscopy, surg Insert emergency airway Incision of windpipe Remove windpipe lesion Removal of vein clot Repair valve, femoral vein Transposition of vein valve Cross-over vein graft Leg vein fusion Repair defect of artery Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Repair blood vessel lesion Rechanneling of artery Repair arterial blockage Repair venous blockage Repair arterial blockage Repair arterial blockage Repair arterial blockage Repair arterial blockage Atherectomy, open Atherectomy, percutaneous Atherectomy, percutaneous Atherectomy, percutaneous Atherectomy, percutaneous Excision, graft, extremity Bl exchange/transfuse non-nb Transfusion service, fetal Dist revas ligation, hemo Remove hepatic shunt (tips) Thrombolytic therapy, stroke Transcatheter therapy infuse Transcatheter therapy infuse Transcatheter occlusion Transcath iv stent/perc addl Ligation of neck artery Ligation of neck artery Removal of lymph nodes, neck

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449 HCPCS/CPT Code 39400 42225 42842 42844 43020 43130 43280 43510 43652 44180 44186 44213 44970 45541 47011 47562 47563 47564 47564 48511 49491 50020 50021 50080 50081 50541 50945 51990 53500 57106 57107 57120 57267 57295 57310 57330 57425 58553 58554 58920 60210

Short Descriptor Visualization of chest Reconstruct cleft palate Extensive surgery of throat Extensive surgery of throat Incision of esophagus Removal of esophagus pouch Laparoscopy, fundoplasty Surgical opening of stomach Laparoscopy, vagus nerve Lap, enterolysis Lap, jejunostomy Lap, mobil splenic fl add-on Laparoscopy, appendectomy Correct rectal prolapse Percut drain, liver lesion Laparoscopic cholecystectomy Laparo cholecystectomy/graph Laparo cholecystectomy/explr Laparo cholecystectomy/explr Drain pancreatic pseudocyst Rpr hern preemie reduc Renal abscess, open drain Renal abscess, percut drain Removal of kidney stone Removal of kidney stone Laparo ablate renal cyst Laparoscopy ureterolithotomy Laparo urethral suspension Urethrlys, transvag w/ scope Remove vagina wall, partial Remove vagina tissue, part Closure of vagina Insert mesh/pelvic flr addon Change vaginal graft Repair urethrovaginal lesion Repair bladder-vagina lesion Laparoscopy, surg, colpopexy Laparo-vag hyst, complex Laparo-vag hyst w/t/o, compl Partial removal of ovary(s) Partial thyroid excision

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450 HCPCS/CPT Code 60212 60220 60225 60240 60252 60260 60500 60512 61623 61626 63030 63035 63042 63047 63048

Short Descriptor Partial thyroid excision Partial removal of thyroid Partial removal of thyroid Removal of thyroid Removal of thyroid Repeat thyroid surgery Explore parathyroid glands Autotransplant parathyroid Endovasc tempory vessel occl Transcath occlusion, non-cns Low back disk surgery Spinal disk surgery add-on Laminotomy, single lumbar Removal of spinal lamina Remove spinal lamina add-on

C. Proposed Ratesetting Method 1. Overview of Current ASC Payment System (If you choose to comment on issues in this section, please include the caption “ASC Ratesetting” at the beginning of your comment.) The current ASC payment system consists of 9 standard overhead amounts ranging from $333 to $1339, based on data collected in a 1986 survey of ASC costs. An ASC payment “group” currently consists of all the procedures assigned to a particular standard overhead amount. ASC payment groups are heterogeneous in terms of clinical characteristics, cutting across all body systems and types of surgery. Medicare pays a $150 allowance for IOLs that are inserted during or subsequent to cataract surgery and an additional $50 for IOLs that we approved as NTIOLs. Medicare also makes separate payment for implantable prosthetic devices and implantable durable medical equipment surgically inserted at an ASC. Payment for all other facility services that are directly

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related to performing a surgical procedure is packaged into the prospectively determined ASC facility fee. The statute requires that ASC facility services amount be increased by the CPI-U in years when the amounts are not updated. However, since 1990, the Congress has frozen or reduced the update adjustment for periods of varying duration. ASC payment rates are currently frozen at their FY 2003 level. Carriers account for geographic wage variations when calculating individual ASC payments by applying the hospital IPPS wage index value established for the county in which the ASC is located to 34.45 percent of the national ASC standard overhead amount. The 1986 survey data are the basis for attributing 34.45 percent of ASC overhead costs to labor-related expenses. Medicare pays 80 percent of the standard overhead amount; the beneficiary coinsurance rate is 20 percent for all procedures on the list of Medicare approved ASC procedures. The standard overhead amounts for procedures on the ASC list were last rebased in 1990 using data collected in a 1986 survey of ASC costs. The process and methodology that we used to establish the current payment system are explained in the February 8, 1990 Federal Register (55 FR 4526). In the June 12, 1998 Federal Register, we issued a proposed rule to revise the ASC payment rates and ratesetting methodology based on data collected in a 1994 survey of ASC costs (63 FR 32290). In that proposed rule, we also proposed to expand the ASC list and establish payment groups similar to those being considered for the hospital OPPS, which was under development at the time, but which was not implemented until August 2000. Although

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we never implemented the revised ASC payment rates and ratesetting methodology proposed in 1998, we did make final some of the 1998 proposed additions to the ASC list in the March 28, 2003 final rule with comment period (68 FR 15268). In that rule, we explained in detail why we did not implement the ratesetting methodology and payment amounts proposed in the June 12, 1998 proposed rule. The ASC payment system that we are proposing in this proposed rule would implement requirements set forth in section 626 of Pub.L. 108-173. The revised payment system mandated by section 626(d) of Pub. L. 108-173 requires us to take into account recommendations in a report to Congress prepared by the GAO. The GAO recommendations are to be based on its study of the comparative relative costs of procedures furnished in ASCs and procedures furnished in hospital outpatient departments paid under the OPPS, and the extent to which the APCs reflect procedures performed in ASCs. Although the statutory due date for this report is January 1, 2005, CMS has not yet received the report or recommendations from the GAO. We are moving forward with our proposal for a revised ASC payment system without the benefit of GAO’s recommendations because we are concerned that further delay would not give the public sufficient opportunity to review and comment on our proposed methodology, and the ASC industry and CMS would not have adequate time to prepare for changes scheduled for implementation January 1, 2008.

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2. Proposal to Base ASC Relative Payment Weights on APC Groups and Relative Payment Weights Established Under the OPPS We considered several strategies and methodologies for setting ASC payment rates under a revised payment system. We could require ASCs to submit modified cost reports as a basis for establishing ASC costs. We could simply expand the number and payment range of the current ASC payment groups. We could base payments to ASCs on the relative weights for surgical services established under the MPFS. We could base payments to ASCs on the relative weights for surgical services established under the Medicare OPPS, as suggested in Pub. L. 108-173. We could base payments to ASCs on a flat percentage of the payment for the same services established under the OPPS, as advocated by representatives of several ASC associations. After carefully reviewing the advantages and disadvantages of each of these approaches, we are proposing, within the parameters of section 626 of Pub. L. 108-173, to use the APC groups and the relative payment weights for surgical procedures established under the OPPS as the basis of the payment groups and the relative payment weights for surgical procedures performed at ASCs. These payment weights would be multiplied by an ASC conversion factor in order to calculate the ASC payment rates. Several factors persuaded us to advance this proposal over the other approaches that we considered. First, in section 626(d) of Pub. L. 108-173, the Congress explicitly targets the OPPS for consideration by the GAO in its study of ASC payments. We believe it is reasonable to assume that Congress, by so doing, was highlighting the relative payment

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weights under the OPPS as a theoretical model for ASC relative payment weights under the revised payment system. Second, the ASC benefit provides payment for facility services associated with performing surgical procedures. The OPPS has equipped us with nearly a decade of experience in developing and refining a relative payment system for facility services furnished in connection with outpatient surgical procedures. Third, Pub. L. 108-173 applies for the first time a budget neutrality requirement to the ASC benefit. That is, in the year the revised system is implemented, the system is to be designed to result in the same aggregate amount of expenditures that would be made if the revised payment system were not implemented. Because the OPPS is also a prospective payment system for facility services that is subject to budget neutrality requirements, it provides useful parallels for a ratesetting methodology based on relative facility payment weights for surgical services under the revised ASC payment system. Fourth, in our analysis of the APC groups to which surgical procedures are assigned for payment under the OPPS, we found a significant overlap between surgical procedures furnished in the hospital outpatient setting and those performed in ASCs. Currently, of the 150 highest volume surgical procedures furnished in hospital outpatient departments, more than half (80) are also among the 150 highest volume procedures performed in ASCs. Finally, the ASC industry in numerous meetings with us over the past several years has frequently voiced its preference for a payment system that parallels the OPPS for the sake of promoting transparency across sites of service in the arena of outpatient

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surgery and to streamline and modernize how Medicare sets payments and determines what is payable under the ASC benefit. As we explain in sections I through XVI of this proposed rule, the OPPS payment rates are based on relative payment weights which are updated annually. APCs to which surgical procedures are assigned are generally homogeneous both in terms of clinical characteristics and resource requirements. The APCs have been continually refined over the past 6 years through the work of the APC Panel and as a result of comments received during the OPPS annual rulemaking cycles. Moreover, we believe that the APC groups and the relativity in resource utilization among APCs containing surgical procedures have matured so that they are reasonable and appropriate models for grouping outpatient surgical procedures and determining the relativity in the ASC payment weights in terms of clinical and resource homogeneity. For example, whether performed in a hospital outpatient department or in an ASC, we believe the time and facility resources required to perform a routine laparoscopic hernia repair (CY 2006 OPPS relative payment weight of 43.0498) are approximately 4 times higher than those required to perform a diagnostic colonoscopy (CY 2006 OPPS relative payment weight of 8.5588). Thus, we believe that the relative payment weights established under the OPPS for procedures performed in the outpatient hospital setting reasonably reflect the relative resources required for such procedures and do so with sufficient coherence to be applicable to other ambulatory sites of service. Taking all these factors into account, we are proposing to use the APCs as a “grouper” and the APC relative payment weights as the basis for ASC relative payment weights and

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for calculating ASC payment rates under the revised payment system. Accordingly, we are proposing to establish provisions in proposed new subpart F §§416.167, 416.169, and 416.171 to reflect these proposed changes for calculating the ASC payment rates beginning January 1, 2008. In the following sections, we focus on several additional basic assumptions that affect how we are proposing to calculate the ASC payment rates for implementation in January 2008. 3. Proposed Packaging Policy (If you choose to comment on issues in this section, please include the caption “ASC Packaging” at the beginning of your comment.) Payment for a surgical procedure under both the current OPPS and ASC payment systems represents payment for a package of various items and services, all of which are directly related and required in order to perform the procedure. In both systems, we package into a single facility fee the payment for a bundle of direct and indirect costs incurred by the facility to perform the procedure. These costs include, but are not limited to, use of the facility, including an operating suite or procedure room and recovery room; nursing, technician, and related services; administrative, recordkeeping and housekeeping items and services; medical and surgical supplies and equipment; surgical dressings; and materials for anesthesia. Medicare currently applies different rules under the ASC payment system and the OPPS system for determining whether payment for other items and services directly related to a surgical procedure is packaged into the facility payment for the associated

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surgical procedure or paid for separately. These other items and services include drugs, biologicals, contrast agents, implantable devices, and diagnostic services such as imaging. Currently, Medicare packages payment for the costs for all drugs, biologicals, and diagnostic services, including imaging, into the ASC standard overhead amount for the surgical procedure with which these items and services are associated. Under the OPPS, Medicare pays separately for some of these items and services, in addition to paying for the surgical procedure. ASCs currently receive separate payment for prosthetic implants and implantable durable medical equipment (DME). Conversely, under the OPPS, payment for prosthetic implants and implantable DME is packaged into the facility fee for the surgical procedure performed to insert the implants. Payment for IOLs and implantable surgical supplies, such as stents, mesh, guide wires, pins, and catheters is packaged into the associated surgical facility fee under both the OPPS and the ASC payment systems. We considered several packaging options for the revised ASC payment system. First, we considered making no change to the current policy regarding items and services for which payment is packaged into the ASC facility fee. That is, we would continue under the revised ASC payment system to package into the facility fee payment for overhead, payment for all drugs, biologicals, surgical dressings, supplies, splints, casts, and appliances and equipment directly related to the provision of surgical procedures; diagnostic or therapeutic services or items directly related to the provision of a surgical procedure; materials for anesthesia; and IOLs. In addition, we would continue to pay separately under other fee schedules for items and services such as NTIOLs, prosthetic implants and

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implantable DME surgically inserted at an ASC (DMEPOS fee schedule); laboratory services (clinical lab fee schedule); physician services (MPFS); and X-ray or diagnostic procedures other than those directly related to performance of the surgical procedure (MPFS). Section 416.164(a) addresses the services for which payment is included in the ASC facility fee, and §416.164(b) addresses those services that are not included in the ASC facility fee. We also considered proposing to apply the OPPS packaging rules to the ASC payment system and to pay under the new ASC system the same way we pay under the OPPS for items and services directly related to a surgical procedure. If we adopted this option, payment for certain imaging procedures, drugs, biologicals, and contrast agents directly related to performing a surgical procedure would not be packaged into the facility fee for the procedure but would, instead, be paid separately. Conversely, payment for most surgically implanted devices and implantable DME would be packaged. Each of the preceding two options have characteristics that are inconsistent with a fundamental principle of a prospective payment system, which is to base payment on large bundles of items and services so as to promote the efficient provision of services. To preserve as much as possible the elements of a prospective payment system within the revised ASC payment system, we are proposing a third option. That is, we are proposing to continue the current policy of packaging into the ASC facility fee payment all direct and indirect costs incurred by the facility to perform a surgical procedure. This would include payment for all drugs, biologicals, contrast agents, anesthesia materials, and

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imaging services, as well as the other items and services that are currently packaged into the ASC facility fee as listed in §416.164(a). In addition, we are proposing to cease making separate payment for implantable prosthetic devices and implantable DME inserted surgically at an ASC. Instead, under the revised payment system, we are proposing to package into the ASC facility fee payment for implantable prosthetic devices and implantable DME when they are surgically inserted, as we do under the OPPS. However, we are proposing to continue excluding from payment as part of the ASC facility fee the other services addressed in §416.164(b). That is, payment for items and services for which payment is made under other Part B fee schedules, with the exception of implantable prosthetic devices and implantable DME, would not be included in the ASC facility fee. Payment for items and services, such as physicians’ professional services, for laboratory, X-ray or diagnostic procedures (other than those directly related to performance of the surgical procedure), nonimplantable prosthetic devices, ambulance services, leg, arm, back and neck braces, artificial limbs, and durable medical equipment for use in the patients’ home would not be included in the ASC facility fee. We are proposing this option for a number of reasons. First, this approach to packaging is most consistent with the principles of a prospective payment system. Second, we believe that ASCs generally treat a less complex and severely ill patient case mix and, as a result, we believe that ASCs are less likely to provide on a regular basis many of the separately paid items and services that patients might receive more consistently in a hospital outpatient setting. Thus, we do not believe there is a need to

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pay for these services separately in ASCs, because that would unbundle some items and services that are currently packaged into the ASC facility fee, reduce incentives for costefficient delivery of services at ASCs, and increase the complexity of the revised ASC payment system. In addition, we believe it is critical to continue to focus the ASC payment system on appropriate payment for surgical services provided in ASCs. Moreover, after careful analysis of OPPS claims for surgical procedures, we were unable to identify ancillary items and services that are repeatedly and consistently reported separately in association with specific ambulatory surgical procedures. Rather, the OPPS claims for surgical procedures were of two types: one group showed a broad range of items and services that were provided on the same day that a surgical procedure was performed in the hospital outpatient department, only some of which were likely to be directly related to the surgical procedure; the second group of claims revealed that many surgical procedures are only infrequently associated with ancillary items and services paid separately under the OPPS. Therefore, we are proposing to reflect this proposed packaging policy in proposed new §416.164. We are seeking comments from ASC clinical and administrative staff and from physicians who perform surgery at ASCs regarding nonsurgical ancillary services or items that are directly related to a surgical procedure that would be paid separately under the OPPS but that would be packaged under our proposal for the revised ASC payment system. We are specifically requesting that commenters provide data to indicate the frequency with which specific items and services are typically furnished in association with given procedures, the reasons why one patient might require the additional items and

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services whereas another patient would not, and the costs of those items and services relative to the other costs incurred to perform the associated surgery. 4. Payment for Corneal Tissue under the Revised ASC Payment System (If you choose to comment on issues in this section, please include the caption “ASC Payment for Corneal Tissue” at the beginning of your comment.) In a memorandum dated May 21, 1992, CMS (known at the time as the Health Care Financing Administration or “HCFA”) notified Regional Administrators that carriers could pay corneal tissue acquisition costs when HCPCS code V2785 (Processing, preserving and transporting corneal tissue), is reported with corneal transplant procedures performed in an ASC. The memorandum indicated that payment for corneal tissue acquisition costs is subject to the usual copayment and deductible requirements, and could be paid as an add-on to either the ASC facility fee or the physician’s fee for corneal transplant surgery performed at an ASC. In the June 12, 1998 proposed rule to revise the ASC ratesetting methodology and payment rates, we proposed to package the costs incurred by an ASC to procure corneal tissue into the payment for the associated cornea transplant procedure rather than continue making separate payment for those costs (63 FR 32312 and 32313). We also proposed to package corneal tissue acquisition costs into the APC payment for corneal transplant procedures in the September 8, 1998 proposed rule to implement the OPPS (63 FR 47760). We received numerous comments from physicians, eye banks, and health care associations opposing both proposals. In the April 7, 2000 final rule with comment period, which implemented the OPPS, we summarize the comments that we received in

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response to the September 8, 1998 proposal, and we determined that we would not implement our proposal to package payment under the OPPS for corneal tissue costs but would, instead, make separate payment based on hospitals’ reasonable costs to procure corneal tissue (65 FR 18448 and 18449). Because we never made final the changes in the ASC payment rates and ratesetting methodology that we proposed in the June 12, 1998 Federal Register, the policy issued in the June 1992 memorandum remains in effect, which allows carriers to make separate payment for the costs incurred to procure corneal tissue for transplant at an ASC. We are proposing under the revised ASC payment system to continue to pay ASCs separately, based on their invoiced costs, for the procurement of corneal tissue. We have no evidence to suggest that costs incurred to procure corneal tissue are any less variable now than they were in 1992, in 1998 or in 2000. If we were to package payment for the procurement of corneal tissue into the APC for corneal transplant procedures, we believe the resulting payment rate would continue to overpay those facilities that are able to acquire corneal tissue at little or no cost through philanthropic organizations and underpay those facilities that must pay for corneal tissue processing, testing, preservation, and transportation costs. Therefore, we are proposing to include in proposed new §416.164, our proposal to exclude payment for corneal tissue furnished in an ASC on or after January 1, 2008, from the ASC facility payment rate. We invite comment and data that support or challenge this proposal to continue paying ASCs for corneal tissue on an acquisition cost basis.

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5. Proposed Payment for Office-Based Procedures (If you choose to comment on issues in this section, please include the caption “ASC Payment for Office-Based Procedures” at the beginning of your comment.) Since the inception of the ASC benefit, procedures that are commonly performed or that can be safely performed in a physician’s office have generally been excluded from the ASC list. For the sake of convenience, we refer to these procedures as “office-based” in this preamble discussion. Over the past 15 years, physicians and ASC associations have urged CMS to add office-based procedures to the ASC list or to retain on the ASC list procedures that were originally performed most commonly in an institutional setting, but that have subsequently moved to an office setting as surgical techniques and technology have advanced. Representatives of the ASC industry argue that although, for most patients, the office is an appropriate setting for most high volume office procedures, there are some patients for whom an ASC or another more resource-intensive setting is required. The physician may decide that a facility setting is necessary for individual patients for various clinical reasons, such as the need for more nursing staff, a sterile operating room, or a piece of equipment not typically available in the office setting. CPT code 52000 (Cystourethroscopy (separate procedure)) is a prime example of a high volume procedure that is performed more than 80 percent of the time in an office setting, but for which a small number of patients require resources usually available only at an ASC or hospital. Unless we make an exception to the criteria that currently govern which procedures comprise the ASC list and allow an office-based procedure to remain on the ASC list, as we have done with CPT code 52000, the hospital would be the only facility

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setting available as an alternative to the office setting. ASC industry commenters assert that this limitation is burdensome both to physicians and to beneficiaries and could, in some cases, limit beneficiary access to needed surgery. We generally interpret “office-based” or “commonly performed in a physician’s office” to mean a surgical procedure that the most recent BESS data available indicate is performed more than 50 percent of the time in the physician’s office setting. In section XVIII.B.1 of this preamble, we are proposing to expand the ASC list to allow payment for all surgical procedures, except those procedures that pose a significant safety risk or require an overnight stay. Because office-based surgical procedures typically do not pose a significant safety risk and do not require an overnight stay, we are proposing not to exclude them from payment of an ASC facility fee under the revised ASC payment system. However, we are seeking comment on the appropriateness of excluding officebased procedures or procedures that require relatively inexpensive resources to perform from the approved ASC list of procedures. We recognize that paying an ASC facility fee for office-based procedures based on OPPS relative payment weights could have a significant impact on Medicare program costs. Approximately two-thirds of the additional procedures for which we propose to not exclude for payment beginning in CY 2008 are office-based, that is, they are performed in the physician office more than 50 percent of the time. The Medicare payment for many of these procedures under the MPFS would be lower than the payment for the same procedures when they are performed in an ASC where the facility fee is based on OPPS relative weights. The separate physician payment and facility payment when the procedures are performed in

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an ASC would exceed the combined payment when they are performed in the physician office. Therefore, ASC payment rates based on the OPPS relative payment weights could result in a significant program cost were these high volume procedures to shift from the office to the ASC setting. One reason why we are concerned if there were to be a sizable shift of office-based procedures to ASCs is the impact that would have on ASC payments in light of the statutory requirements that the revised ASC payment system be designed to result in the same aggregate amount of expenditures as would be made if the revised payment system were not implemented. (See section XVIII.A.1. of this preamble for a discussion of this requirement). An influx of high-volume, relatively low cost office-based procedures into the ASC setting under the revised payment system could lower the payment amounts for other procedures paid for in the ASC due to the constraints of budget neutrality. In other words, we would have to scale the ASC conversion factor downward in order for estimated aggregate expenditures under the revised system to not exceed what they would have been if the new payment system were not implemented. Payment for procedures with relatively high payments would have to be reduced in order to offset increased aggregate costs resulting from an influx of relatively low cost, high volume office procedures shifting to ASCs. (See section XVIII.C.10. of this preamble for a detailed discussion of our proposal for calculating an ASC conversion factor.) We are committed to refining Medicare payment systems wherever possible to prevent payment incentives from inappropriately driving decisions about where to perform a surgical procedure when those decisions should be based on clinical

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considerations. We strive to promote value-based purchasing in all Medicare payment systems that leads to significant positive effects on the health of Medicare beneficiaries by improving quality and efficiency in the delivery of health services. We are also committed to ensuring Medicare payments that are efficient and reasonable. To mitigate the impact of office-based procedures migrating to the more expensive ASC setting if we were to implement our proposal not to exclude them from payment of an ASC facility fee under the revised ASC payment system, we are proposing to cap payment for office-based surgical procedures for which payment of an ASC facility fee would be allowed under the revised payment system as of January 1, 2008, at the lesser of the MPFS nonfacility practice expense payment or the ASC rate under the revised ASC payment system. We also are proposing to exempt procedures that are on the ASC list as of January 1, 2007, that meet our criterion for designation as office-based, from the payment limitation proposed for office-based procedures for which payment of an ASC facility fee would be allowed for the first time beginning January 1, 2008. Accordingly, we are proposing to incorporate in proposed new §416.171(e) the limitation on payment for these procedures beginning January 1, 2008. As discussed elsewhere in this proposed rule, we are proposing to limit payment for office-based procedures in an attempt to mitigate potentially inappropriate migration of services from the physician office setting to the ASC. Alternatively, we could entirely exclude office-based procedures or procedures that require relatively inexpensive resources to perform from the approved ASC list of procedures, although this is not the approach we are advancing. In considering value-based purchasing, we seek comment

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concerning whether procedures that are currently primarily office-based or that require relatively inexpensive resources are most efficiently and effectively provided in the ASC facility setting, which typically possesses greater surgical capacity than such procedures would generally require. When we started to identify the codes that we would propose to classify as office-based beginning in CY 2008, we encountered some anomalous cases that required further refinement of our office-based criterion beyond strict application of a 50-percent utilization threshold. For example, we identified some CPT codes that meet the 50-percent office utilization threshold for which a nonfacility practice expense amount has not been developed under the MPFS. We are proposing to classify as office-based any surgical codes that our physician claims data indicate are performed more than 50 percent in an office setting, even if the codes lack a nonfacility practice expense RVU under the MPFS. We further propose to cap payment for these procedures, as appropriate, once a nonfacility practice expense RVU is established. Until that time, we are proposing to calculate payment for these office-based surgical CPT codes using the methodology we propose in sections XVIII.C.11.c. and d. below, for other surgical procedures. Similarly, until a national nonfacility practice expense RVU is established for office-based surgical CPT codes that are “carrier priced” under the MPFS, we are proposing to calculate the ASC facility payment using the same methodology that we are proposing for surgical procedures that are not office-based. Application of the cap to codes designated as office-based would be updated through rulemaking as part of the annual ASC payment update.

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In applying the data-based 50-percent threshold, we discovered some contradictions in the data that required us to further refine our definition of office-based. For example, we noted instances in which seemingly very similar procedures had inconsistent site of service utilization. The BESS data showed high levels of office utilization for some complex procedures which we expected to be performed infrequently in an office setting whereas simpler but related procedures showed lower levels of office utilization. We therefore undertook another, more detailed level of review and identified groups of CPT surgical codes related to procedures that are performed 50 percent or more of the time in the office setting to determine if there was a logical correlation between procedure complexity within a group of related procedures and the frequency with which those procedures were performed in the office setting. For example, according to CPT coding, the following three codes are related: 13120, Repair, complex, scalp arms and/or legs; 1.1cm to 2.5 cm 13121, Repair, complex, scalp arms and/or legs; 2.6 cm to 7.5 cm 13122, Repair, complex, scalp arms and/or legs; each additional 5 cm or less As is often the case for groups of related codes in the CPT coding system, the first of these codes is the least complex clinically and, in this example, the complexity of the procedure increases in proportion to the increase in the size of the area to be repaired. If utilization data indicated that CPT code 13122 was performed in the office 67 percent of the time in CY 2005, we would expect to find that both CPT codes 13120 and 13121 were also performed in the physician office more than 50 percent of the time during that

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year. Because the most complex procedure was provided in the office most of the time, logically, the less complex procedures would also have been performed in that site of service. However, the BESS data showed that this was not always the case. So, although our expectation was that, the less complex procedures within a group of related procedure codes would typically be performed most often in the office and the more complex procedures less often in the office, there are instances in which the less complex procedures with the code group were billed more often in an ASC or hospital outpatient department and the more complex procedures within the code billed in the office setting. In our analysis of the BESS site of service data, we also took into consideration the volume of cases represented in the data. There were a few instances in which we initially identified a procedure as office-based because the data indicated that 100 percent of the cases were performed in the physician office. However, closer inspection revealed that there was only one case reported for the procedure with physician’s office as the site of service. We were concerned about using such low volume as the basis for identifying a procedure as office-based. Because of the unevenness of the data associated with some of the codes we initially classified as office-based, we conducted a code-by-code analysis to buttress inconclusive data with the clinical judgment of our medical advisors. As a result, on the basis of clinical judgement overriding inadequate or insufficient claims data, there are some procedures that we deem meet the 50-percent threshold when taken in isolation from other closely related codes that we have designated as office-based.

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We are proposing to assess each year based on the most recent available BESS and other data available to us whether there are additional procedures that we would propose to classify as office-based. We would solicit comment on proposed classification of additional codes as office-based as part of the annual OPPS/ASC rulemaking cycle. In addition, we are proposing that once we identify a procedure as office-based, that classification would not change in future updates of the ASC payment system. We reason that once a procedure becomes safe enough to be performed in more than 50 percent of cases in the office setting, it would be improbable for it to revert to an institutional setting. To summarize, the list of codes that we propose as office-based in this rule takes into account the most recent available volume and utilization data for each individual procedure code and, if appropriate, the utilization and volume of related codes. While we are proposing to apply the office-based designation only to procedures that would no longer be excluded from payment of an ASC facility fee beginning in CY 2008, were we to exclude office-based services from ASC payments, we expect that the same approach to developing and updating the set of procedures in the CPT surgical code range that we consider to be office-based would be applicable. Finally, we are concerned that our proposal to allow payment of an ASC facility fee for office-based procedures, even if the ASC payment amount were capped at the lesser of the MPFS nonfacility practice expense payment or the revised ASC rate, would result in a downward adjustment to ASC payments overall, and would increase Medicare spending.

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We propose to exempt all procedures on the CY 2007 ASC list from application of the office-based classification. The procedures that we are proposing to designate as subject to the office-based payment limit are identified in new Addendum CC of this proposed rule. Those procedures for which the proposed CY 2008 payment would be based on the MPFS nonfacility practice expense RVU are flagged in Addendum BB. The ASC relative payment weight shown for procedures in Addendum BB that would be capped by the MPFS nonfacility practice expense RVU has been adjusted to reflect the capped payment amount. We remind readers that the ASC payment rates in Addendum BB of this proposed rule are based on proposed CY 2007 OPPS relative payment weights and proposed MPFS nonfacility practice expense RVUs. The final ASC relative weights and payment amounts for CY 2008 would be different from the rates published in this proposed rule because they would take into account the CY 2008 updates of both the OPPS and the MPFS. The proposed and final ASC relative weights and payment amounts for CY 2008 would be published in the Federal Register during the proposed and final rulemaking cycles for the CY 2008 OPPS. 6. Payment Policy for Multiple Procedure Discounting We are proposing to mirror the OPPS policy for discounting when a beneficiary has more than one surgical procedure performed on the same day at an ASC. The current policy for multiple procedure discounting in the ASC, as specified in §416.120(c)(2)(ii), is based on a simple count of procedures performed on the same day. The most costly procedure is paid the full amount and all other procedures are discounted by half.

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Under the OPPS, certain surgical procedures are not subject to the discounting policy. Generally, the procedures that are exempted are those performed to implant costly devices. They are not discounted even when performed in association with other surgical procedures because the cost of the implantable device does not change, so resource savings due to efficiencies would be minimal. Until now, there has been no reason to exempt any procedure from the multiple procedure discounting policy in ASCs because separate payments have been made for implantable devices. Thus, although the facility payment for the procedure may have been discounted, the cost of the device was paid outside of that rate and was unaffected by the multiple procedure discount. Under the revised ASC payment system, we are proposing to package into the payment for the procedure payment for implantable devices in the ASC, as in the OPPS. Because we are trying wherever possible to implement parallel payment policy across both systems, we are proposing to adopt the OPPS discounting policy that is applied more specifically to surgical procedures so that the costs of performing multiple procedures that require implantation of costly devices are taken into account. Thus, payment for the same set of multiple procedures in the OPPS and the ASC would be made using similar packaging and payment rules. Table 46 below lists the procedures that would be exempt from multiple procedure discounting. These exempt procedures are those surgical procedures proposed for payment of an ASC facility fee that are assigned a status indicator other than ‘T’ under the OPPS, to indicate that a multiple surgical procedure reduction does not apply.

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We are proposing to update this list annually in the OPPS/ASC proposed rule, soliciting comment on the list. We are proposing to incorporate our proposed policy on multiple procedure discounts in proposed new §416.172(e). Table 46.--Procedures Proposed for Exemption from Multiple Procedure Discounting HCPCS Code

Short Descriptor

APC

61885 63650 64555 64560 64561 64565 29020 29025 29040 29049 29058 29085 29086 29105 29125 29126 29130 29131 29200 29220 29240 29260 29280 29440 29450 29505 29515 29520 29530 29540 29550

Insrt/redo neurostim 1 array Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Application of body cast Application of body cast Application of body cast Application of figure eight Application of shoulder cast Apply hand/wrist cast Apply finger cast Apply long arm splint Apply forearm splint Apply forearm splint Application of finger splint Application of finger splint Strapping of chest Strapping of low back Strapping of shoulder Strapping of elbow or wrist Strapping of hand or finger Addition of walker to cast Application of leg cast Application, long leg splint Application lower leg splint Strapping of hip Strapping of knee Strapping of ankle and/or ft Strapping of toes

0039 0040 0040 0040 0040 0040 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0058

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474 HCPCS Code

Short Descriptor

APC

29580 29590 29700 29705 29715 29720 29730 29740 29750 29799 63655 64575 64577 64580 64581 36430 36440 36450 38999 36511 36512 36513 36514 38205 38206 38242 36515 36516 36522 38230 38241 G0104 64553 64573 68200 65450 67500 68760 68761 68810 53440 53444

Application of paste boot Application of foot splint Removal/revision of cast Removal/revision of cast Removal/revision of cast Repair of body cast Windowing of cast Wedging of cast Wedging of clubfoot cast Casting/strapping procedure Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Implant neuroelectrodes Blood transfusion service Bl push transfuse, 2 yr or < Bl exchange/transfuse, nb Blood/lymph system procedure Apheresis wbc Apheresis rbc Apheresis platelets Apheresis plasma Harvest allogenic stem cells Harvest auto stem cells Lymphocyte infuse transplant Apheresis, adsorp/reinfuse Apheresis, selective Photopheresis Bone marrow collection Bone marrow/stem transplant CA screen;flexi sigmoidscope Implant neuroelectrodes Implant neuroelectrodes Treat eyelid by injection Treatment of corneal lesion Inject/treat eye socket Close tear duct opening Close tear duct opening Probe nasolacrimal duct Male sling procedure Insert tandem cuff

0058 0058 0058 0058 0058 0058 0058 0058 0058 0058 0061 0061 0061 0061 0061 0110 0110 0110 0110 0111 0111 0111 0111 0111 0111 0111 0112 0112 0112 0123 0123 0159 0225 0225 0230 0231 0231 0231 0231 0231 0385 0385

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475 HCPCS Code

Short Descriptor

APC

54400 53445 53447 54401 54405 54410 54416 37250 37251 29010 29015 29035 29044 29055 29065 29075 29305 29325 29345 29355 29358 29365 29405 29425 29435 29445 29710 19295 31620 33282 62252 62367 62368 65205 65210 65220 65222 65430 67820 67938 68040 68801

Insert semi-rigid prosthesis Insert uro/ves nck sphincter Remove/replace ur sphincter Insert self-contd prosthesis Insert multi-comp penis pros Remove/replace penis prosth Remv/repl penis contain pros Iv us first vessel add-on Iv us each add vessel add-on Application of body cast Application of body cast Application of body cast Application of body cast Application of shoulder cast Application of long arm cast Application of forearm cast Application of hip cast Application of hip casts Application of long leg cast Application of long leg cast Apply long leg cast brace Application of long leg cast Apply short leg cast Apply short leg cast Apply short leg cast Apply rigid leg cast Removal/revision of cast Place breast clip, percut Endobronchial us add-on Implant pat-active ht record Csf shunt reprogram Analyze spine infusion pump Analyze spine infusion pump Remove foreign body from eye Remove foreign body from eye Remove foreign body from eye Remove foreign body from eye Corneal smear Revise eyelashes Remove eyelid foreign body Treatment of eyelid lesions Dilate tear duct opening

0385 0386 0386 0386 0386 0386 0386 0416 0416 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0426 0657 0670 0680 0691 0691 0691 0698 0698 0698 0698 0698 0698 0698 0698 0698

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476 HCPCS Code

Short Descriptor

APC

68840 19298

Explore/irrigate tear ducts Place breast rad tube/caths

0698 1524

7. Proposed Geographic Adjustment (If you choose to comment on issues in this section, please include the caption “ASC Wage Index” at the beginning of your comment.) Currently, Medicare adjusts 34.45 percent of the national ASC payment rates using wage index values and localities that were established under the IPPS prior to implementation of the new Core Based Statistical Areas (CBSAs) issued by OMB in June 2003. Medicare currently adjusts 60 percent of national OPPS payment rates by the IPPS wage index value assigned to hospitals using the June 2003 OMB definitions for geographical statistical areas and wage adjustments required under Pub. L. 108-173. Since 1990, ASC payments have been adjusted for regional wage variations using the hospital IPPS wage index values. We believe that standardization continues to be appropriate in recognition of widely varying labor market costs tied to geographic localities. We also believe that it is advisable to maintain the consistency in locality designations between ASCs and hospitals and acknowledge parity of labor costs between ASCs and HOPDs that are competing for staff in the same locality. Therefore, we are proposing to apply to ASCs the IPPS pre-reclassification wage index values associated with the June 2003 OMB geographic localities, as recognized under the IPPS and OPPS, to adjust national ASC payment rates for geographic wage differences under the revised payment system.

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Although we have not collected new data to identify whether the current labor-related share is correct, the results of a 1994 survey of ASC costs supported the current 34.45 percent labor adjustment factor, and we have received no complaints from the ASC community about our continued use of the 34.45/65.55 ratio of labor to nonlabor costs for purposes of adjusting payments for regional wage differences. Moreover, we believe it is reasonable to expect ASCs to have a lower labor adjustment factor than that of a hospital. For example, most OPPS hospital outpatient departments are staffed 24 hours per day to provide emergency department services and observation care. Therefore, we are proposing to continue using 34.45 percent as the labor adjustment factor for regional wage differences under the ASC revised payment system, beginning in CY 2008. We are proposing to establish rules governing this proposed new §416.172(c). 8. Proposed Adjustment for Inflation (If you choose to comment on issues in this section, please include the caption “ASC Inflation” at the beginning of your comment.) As noted above, section 1833(i)(2)(C)(iv) of the Act, as amended by section 626(a) of Pub. L. 108-173, requires the adjustment of ASC facility services amounts for inflation for FY 2005, the last quarter of CY 2005, and each of CYs 2006 through 2009, to equal zero percent. Otherwise, section 1833(i)(2)(C)(i) of the Act provides that ASC facility services amounts are to be adjusted by the percentage increase in the CPI-U during years when the ASC amounts are not updated. As explained in section II.C. of the preamble of this proposed rule, the OPPS conversion factor is updated annually using the hospital inpatient market basket

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percentage increase. Although section 626(d) of Pub. L. 108-173 suggests that the Congress found merit in linking the ASC payment system to the OPPS relative payment weights and APC groups, it did not require that the new ASC payment system be updated using the hospital market basket that is the basis for annual OPPS updates. However, we believe that an update of the ASC amount is performed through the annual relative ASC payment weight adjustments that we propose in section XVIII.C.11.d.(1) below, which obviates the requirement for the statutory CPI adjustment. Nonetheless, although we are not compelled to do so by the statute, we are proposing under the revised ASC payment system, beginning in CY 2008, to apply a CPI-U adjustment to update the ASC conversion factor for inflation on an annual basis, in accordance with the statutory formula. The CPI-U adjustment in CY 2008 and CY 2009 would equal zero. Beginning in CY 2010, we would update the ASC conversion factor by the percentage increase in the CPI-U (U.S. city average) as estimated for the 12-month period ending with the midpoint of the year involved. As we explain in section XVIII.C.11.d.(2) below, we are proposing to adjust the conversion factor for inflation annually to ensure that ASC payments keep up with cost increases attributable to inflation. Accordingly, we are proposing to establish rules in proposed new §§416.171 and 416.172 to reflect our proposed policies for standardizing labor-related costs, applying an inflationary adjustment, and calculating a conversion factor, respectively under the proposed new payment system beginning January 1, 2008.

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9. Proposed Beneficiary Coinsurance (If you choose to comment on issues in this section, please include the caption “ASC Coinsurance” at the beginning of your comment.) Payment for ASC facility services is subject to the Medicare Part B deductible and coinsurance requirements. Currently, Medicare pays participating ASCs 80 percent of a prospectively determined rate, adjusted for regional wage variations. The beneficiary deductible and coinsurance make up the other 20 percent. Section 626(c) of Pub. L. 108-173 amended section 1833(a)(1) of the Act to provide that, beginning with the implementation date of the revised payment system, the Medicare program payment to ASCs shall equal 80 percent of the lesser of the actual charge for the services or the payment amount that we determine under the revised payment system for the services. We are proposing to make this change and to continue to maintain the beneficiary deductible and coinsurance at 20 percent. We are proposing to reflect this statutory requirement in proposed new §416.172(b) and (d). 10. Proposal to Phase In Implementation of Payment Rates Calculated under the CY 2008 Revised ASC Payment System (If you choose to comment on issues in this section, please include the caption “ASC Phase In” at the beginning of your comment.) We discuss in section XXVII.D. of this preamble our analysis of the impact the revised ASC payment system and estimated payment rates proposed for implementation in CY 2008 could have on certain ASCs that specialize in or perform high volumes of procedures for which payment under the new system would decrease. We want to ensure

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that the revised payment system does not cause a sudden, unwarranted migration of services from ASCs to other ambulatory settings, or the reverse; that ASCs would have an opportunity to balance their Medicare case mix between procedures whose rates decrease and procedures whose rates increase; and, that beneficiaries and their physicians would continue to have a robust choice of sites where important preventive and other surgical services are paid for by Medicare. Therefore, we propose to implement the revised ASC payment system in CY 2008 using transitional payment rates that would be based upon a 50/50 blend of the payment rate for procedures on the CY 2007 list of approved ASC procedures and the payment rate for that procedure calculated under the revised payment methodology described in the next section and reflected in proposed new §416.171(c). (Procedures added for payment of an ASC facility fee beginning in CY 2008 would be paid the full amount calculated under the revised payment methodology for CY 2008 rather than a blended amount.) We further propose that, in CY 2009, we would fully implement the ASC payment rates calculated under the payment methodology proposed in the next section, discontinuing the blended transitional payment rate for services furnished beginning January 1, 2009. This is proposed in new §416.171(d).

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11. Proposed Calculation of ASC Conversion Factor and Payment Rates for CY 2008 (If you choose to comment on issues in this section, please include the caption “ASC Conversion Factor” at the beginning of your comment.) a. Overview In section XVIII.C.2 of this preamble, we are proposing to base ASC relative payment weights and rates under the revised system on APC groups and relative payment weights established under the OPPS. In section XVIII.C.4 of this preamble, we are proposing to set the ASC relative payment weight for certain office-based surgical procedures so that the national ASC payment rate does not exceed the MPFS nonfacility practice expense payment. The proposed ASC payment weights are multiplied by an ASC conversion factor to calculate the proposed ASC payment rates. For CY 2008, our current estimate of the budget neutral ASC conversion factor is $39.688. The final ASC conversion factor may be higher or lower than this figure for a number of reasons, including (1) the final OPPS relative payment weights for CY 2008, (2) the final physician fee schedule practice expense payments for CY 2008 and (3) updated utilization data. b. Budget Neutrality Requirement Section 626(b) of the MMA amended section 1833(i)(2) of the Act by adding subparagraph (D) to require that in the year the new system is implemented: “…..[S]uch system shall be designed to result in the same aggregate amount of expenditures for such services as would be made if this subparagraph did not apply, as estimated by the Secretary. . . .”

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The ASC conversion factor is calculated so that aggregate expenditures under the new system are estimated to be the same as the aggregate expenditures for ASC facility services in CY 2008 that would have been paid had the ASC payment system not been revised, taking into consideration the cap on payments in CY 2007 as required under section 5103 of Pub. L. 109-171, which we discuss in section XVII.D., that is, the conversion factor is calculated so the new system is budget neutral. Note that we consider expenditures in the context of section 626(b) of the Pub. L. 108-173 budget neutrality requirement to mean expenditures from the Medicare Part B Trust Fund. We do not consider expenditures to include beneficiary coinsurance and copayments. We note, however, that the exclusion of beneficiary coinsurance payments does not impact the calculation of the ASC conversion factor under our proposed methodology. (See section XXVI.D. of this preamble for impacts of the revised ASC system on beneficiary coinsurance.) c. Proposed Calculation of the ASC payment rates for CY 2008 We are proposing to calculate the ASC payment rates for CY 2008 as follows: Estimated payments under the current ASC system Step 1: To estimate the aggregate amount of expenditures that would be made in CY 2008 under the current ASC payment system, we first multiplied the estimated CY 2008 ASC volume for each CPT code on the current ASC list by the estimated CY 2008 ASC payment rate for the CPT code under the current ASC system. The estimated CY 2008 ASC payment rates are based on the proposed CY 2007 ASC payment rates, which are found in Addendum BB to take into account the OPPS cap on

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ASC services as required by section 5103 of Pub. L. 109-171 and to reflect the zero percent CY 2008 update for ASC services mandated by section 1833(i)(2)(C) of the Act. We then summed the results over all services on the current ASC list. Estimated payments under the new ASC system Step 2: To estimate the aggregate amount of expenditures that would be made in CY 2008, we used estimated CY 2008 OPPS payment amounts instead of estimated CY 2008 ASC payment amounts under the current system, and we multiplied the estimated CY 2008 ASC volume for each CPT code on the current ASC list by the estimated CY 2008 OPPS payment rate for the CPT code. We summed the results over all services on the current ASC list. Calculate the CY 2008 budget neutrality adjustment Step 3: To calculate the CY 2008 ASC budget neutrality adjustment, we divided the total expenditures calculated in Step 1 by the total expenditures calculated in Step 2. The result is 0.62. Apply the CY 2008 budget neutrality adjustment to determine the CY 2008 ASC conversion factor Step 4: To determine the CY 2008 ASC conversion factor, we multiplied the estimated CY 2008 OPPS CF by the results in Step 3. Our current estimate of the CY 2008 OPPS CF is $64.013. Multiplying the estimated CY 2008 OPPS conversion factor by the 0.62 budget neutrality adjustment yields our current estimate of the CY 2008 ASC conversion factor: $39.688.

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Calculate the CY 2008 ASC payment rate under the new ASC system Step 5: To determine the national ASC payment rate under the new system (including the beneficiary 20 percent coinsurance), we multiplied the ASC conversion factor from Step 4 by the ASC relative payment rate. The ASC relative payment weights are primarily based on the APC groups and relative payment weights established under the OPPS as described in section XVIII.C.2 of this preamble. However, as described in section XVIII.C.4 of this preamble, the ASC relative payment weights for certain office-based surgical procedures are set so that the national ASC payment rate does not exceed the MPFS nonfacility practice expense payment. As discussed elsewhere in this proposed rule, we are proposing to limit payment for office-based procedures in an attempt to mitigate potentially inappropriate migration of services from the physician office setting to the ASC. Alternatively, we could entirely exclude office-based procedures or procedures that require relatively inexpensive resources to perform from the approved ASC list of procedures, although this is not the approach we are advancing. The ASC relative payment weights are listed in Addendum BB of this proposed rule. Calculate the CY 2008 ASC payment rate under the transition Step 6: As described in section XVIII.C.10. of this preamble, we are proposing under the revised payment system a 2-year transition to 100 percent implementation of the new ASC payment rates for procedures on the CY 2007 list of approved ASC procedures. In

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the first year of this transition, the payment rate would be based on 50 percent of the final CY 2007 ASC standard overhead amount and 50 percent of the final payment rate calculated under the revised payment methodology proposed in this section of the preamble. d. Proposed Calculation of the ASC Payment Rates for CY 2009 and Future Years (1) Updating the ASC relative payment weights We are proposing to update the ASC relative payment weights each year using the national OPPS relative payment weights for that calendar year and, for the office-based procedures, the practice expense payments under the physician fee schedule for that calendar year. We further propose to uniformly scale the ASC relative payment weights each year so that estimated aggregate expenditures using updated ASC relative payment weights are the same as estimated aggregate expenditures using the current year ASC relative payment weights. That is, we propose to make the relative payment weights budget neutral to ensure that changes in the relative payment weights from year to year do not cause the estimated amount of expenditures to ASCs to increase or decrease as a function of those changes. For example, we propose to uniformly scale the ASC relative payment weights for CY 2009 so that estimated expenditures for CY 2009 using the updated CY 2009 ASC relative payment weights are the same as they would be using the CY 2008 ASC relative payment weights. We propose to uniformly scale the ASC relative payment weights for CY 2010 so that estimated expenditures for CY 2010 using the updated CY 2010 ASC relative payment weights are the same as they would be using the CY 2009 ASC relative payment weights.

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We are proposing to scale the relative payment weights annually because we believe that the purpose of using relative payment weights as part of the rate setting methodology under the revised ASC system is to establish appropriate relativity among surgical procedures paid for in an ASC. Scaling the relative payment weights each year would also serve as a buffer to protect ASCs from sudden changes that could occur under the OPPS. For example, by making the relative payment weights budget neutral under the revised ASC payment system, the ASC relative weights would not drop were there to be a sudden upsurge in costs associated with hospital outpatient emergency or clinic visits relative to outpatient surgical costs. Moreover, making the ASC relative weights budget neutral would shield the ASC payment system against the inadvertent impact of unrelated aggregate changes in OPPS expenditures. We propose to continue this methodology to update the ASC payment system in future years. (2) Updating the ASC Conversion Factor In section XVIII.11.d.1, above, we propose to scale the relativity among surgical procedures each year so that aggregate expenditures under the ASC are budget neutral notwithstanding changes in the relative payment weights. In section XVIII.11.c, above, we propose to calculate the ASC payment rates each year as the product of the ASC relative payment weight and the ASC conversion factor which have been adjusted for budget neutrality. Section 1833(i)(2)(C) of the Act requires that if the Secretary has not updated the ASC facility services amounts in a calendar year after CY 2009, the payment amounts shall be increased by the percentage increase in the CPI-U as estimated by the Secretary for the 12-month period ending with the midpoint of the year involved.

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Although we are only required to increase ASC payment rates by the percentage increase in the CPI-U in years when we do not update the ASC payment amounts, beginning with the CY 2008 revised ASC payment system, we propose to update the ASC conversion factor annually using the CPI-U. For example, for CY 2009, the statute requires a zero percent CPI-U increase for ASC services. Therefore, the CY 2009 conversion factor would be equal to the CY 2008 conversion factor. For CY 2010, we would increase the CY 2009 conversion factor by the estimated percent increase in the CPI-U for the 12-month period ending June 30, 2010; in CY 2011, we would increase the CY 2010 conversion factor by the estimated percent increase in the CPI-U for the 12-month period ending June 30, 2011, and so forth, each year thereafter. We propose to apply this adjustment annually to ensure that ASC payments keep up with cost increases attributable to inflation. Moreover, we propose to use the CPI-U to adjust the conversion factor for inflation because we have used the CPI-U to adjust payments to ASCs for inflation since July 1987, when we first updated the ASC payment rates in effect at the time by the projected increase in the CPI-U (52 FR 20467). This proposal is reflected in §416.167 and §416.171. e. Alternative Option for Calculating the Budget Neutrality Adjustment Considered We considered an alternative approach to calculating the budget neutrality adjustment under the new payment system, which would take into account the effects of the migration of procedures between ASCs, physicians’ offices, and hospital outpatient departments that might be attributable to the new ASC payment system. In the following discussion the phrase “new ASC procedure” refers to a procedure not currently on the

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ASC list of approved procedures that we are proposing for inclusion on the ASC list of approved procedures beginning in CY 2008. Under this alternative, we assumed that 25 percent of the hospital outpatient department utilization for new ASC procedures would migrate to the ASC and we assumed that 15 percent of the physician office utilization for new ASC procedures would migrate to the ASC. We believe that our assumptions of a 25 percent and 15 percent migration from hospital outpatient departments and physician offices to ASCs, respectively, are reasonable given the general utilization relationships between these settings for services currently on the ASC list. For services on the current ASC list that are predominately performed in ASC and outpatient hospital department settings, they are on average performed 30 percent of the time in the ASC setting. For services on the current ASC list that are predominately performed in the ASC and physician office settings, they are on average performed 17 percent of the time in the physician office setting. We assumed that new ASC services would migrate at slightly lower rates in the first year of the revised ASC system, yielding our migration assumptions of 25 percent for the hospital outpatient department setting and 15 percent for the physician office setting. We also assumed that the net impact of migration on services currently on the ASC list is negligible. We note that payment rates for the current highest volume ASC procedures would generally decrease under the proposed new ASC system, and the lower volume ASC procedures would experience significant payment increases. We believe it is reasonable to assume that some of the higher volume services will migrate from ASCs

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to other settings, and some of the current lower volume procedures will migrate to the ASC setting as a result of the payment changes. In order to calculate the budget neutrality adjustment, first, we estimated expenditures that would occur if we did not revise the ASC payment system. We estimated CY 2008 expenditures if the ASC payment weights were not revised and the ASC list of approved procedures was not expanded. As described below (see Step 1). Estimated payments under the current system Step 1: Hospital outpatient department migration valued using estimated CY 2008 OPPS payment rates (a) Assuming 25 percent of the outpatient hospital department utilization for new ASC procedures will migrate to the ASC, multiple 0.25 times the hospital outpatient department utilization for each new ASC procedure. (b) For each new ASC procedure, multiple the results of Step 1(a) by the estimated CY 2008 OPPS payment rate for the procedure. (c) Sum the results of Step 1(b) across all new ASC procedures. Step 2: Physician office migration valued using estimated CY 2008 physician payment rates (a) Assuming 15 percent of the physician office utilization for new ASC procedures will migrate to the ASC, multiple 0.15 times the physician office utilization for each new ASC procedure. (b) For each new ASC procedure, multiple the results of Step 2(a) by the estimated CY 2008 physician office payment rate for the procedure.

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(c) Sum the results of Step 2(b) across all new ASC procedures. Step 3: Current ASC services valued using the estimated CY 2008 ASC payment rates under the current ASC system (a) This is described under Step 1 in the Proposed Calculation of the ASC Conversion Factor section above. Step 4: Sum the results of Steps 1-3. Estimated payments under the new system Step 5: Hospital outpatient department migration valued using estimated CY 2008 OPPS payment rates (a) Same as Step 1 in this section. Step 6: Identify new ASC procedures currently considered to be office-based (for example, insert examples and see Addendum BB) Step 7: Physician office migration for new ASC procedures currently considered to be office based valued using the estimated CY 2008 OPPS payment rates capped at the estimated CY 2008 physician office payment rates (a) For each new ASC procedure considered to be office based, multiple the results of Step 2(a) by the lesser of (1) the estimated CY 2008 OPPS rate for the procedure, and, (2) the estimated CY 2008 physician fee schedule office rate for the procedure. (b) Sum the results of Step 7(a) across all new ASC procedures considered to be office-based.

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Step 8: Physician office migration for new ASC procedures not currently considered office based valued using the estimated CY 2008 OPPS rates (a) For each new ASC procedure not considered to be office based, multiple the results of Step 2(a) by the estimated CY 2008 OPPS rate for the procedure. (b) Sum the results of Step 8(a) across all new ASC procedures not considered to be office based. Step 9: Physician office migration valued using the estimated CY 2008 physician fee schedule out-of-office payment rate. (a) For each new ASC procedure, multiple the results of Step 2(a) by the estimated CY 2008 out of office physician rate for the procedure. (b) Sum the results of Step 9(a) across all new ASC procedures. Step 10: Current ASC services valued using the estimated CY 2008 OPPS payment rates (a) This is described under Step 2 in this section. Step 11: Sum the results of Steps 5, 7-10. Calculate the budget neutrality adjustment Step 12: Divide the result of Step 4 by the result of Step 11. Step 13: The application of the cap at the estimated CY 2008 physician office payment rates that occurs in Step 7 is dependent on the ASC conversion factor. The ASC budget neutrality adjustment resulting from Step 12 is calibrated to take into account the interactive nature of the ASC conversion factor and the physician office payment cap. The resulting budget neutrality adjustment is 0.62, indicating that under the migration assumptions described above the difference between our proposed budget

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neutrality adjustment without migration (0.62) and this alternative budget neutrality adjustment with migration (0.62) is equal rounded to the nearest hundredth. Discussion of the alternative calculation of the budget neutrality adjustment: We have chosen to propose calculation of the budget neutrality adjustment based on the CY 2007 final ASC list of approved services and current ASC utilization because we believe this is the most appropriate approach to estimating expenditures so as to result in a budget neutral payment system in CY 2008. We have no data which would enable us to precisely estimate the net potential migration of services between the ASC setting, the outpatient hospital setting, and the physician office setting that might result from implementation of the new ASC payment system. Moreover, basing our estimate of expenditures on current ASC utilization without including migration from other sites of service is consistent with how we estimate expenditures for purposes of maintaining budget neutrality in other Medicare payment systems. We expect that some commenters may believe it is more appropriate to estimate the ASC budget neutrality adjustment taking into account the potential migration of services between the ASC setting, the outpatient hospital setting, and the physician office setting. We welcome data supporting the use of specific migration assumptions in the calculation of the ASC budget neutrality adjustment. We describe above the budget neutrality calculation under the alternative approach based on our current best estimate of the potential migration of services between the different settings so as to facilitate and stimulate comment and to encourage the submission of pertinent quantitative evidence of surgical migration resulting from changes in payment rates. We welcome data on all of

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the migration assumptions under this alternative approach. We note again that under the reasonable migration assumptions described above, our proposed budget neutrality calculation without migration (0.62) and the alternative budget neutrality adjustment with migration (0.62) is equal rounded to the nearest hundredth. However, if we exclude office-based procedures from the approved list of procedures, under the alternative budget neutrality adjustment that takes into account migration across different practice settings, payment rates for the ASC services remaining on the list (those procedures that are not office-based) would be slightly higher due to the statutory budget neutrality requirement. 12. Proposed Annual Updates (If you choose to comment on issues in this section, please include the caption “ASC Updates” at the beginning of your comment.) Currently, we update the ASC list every 2 years through the notice and comment regulation process. We make additions to and deletions from the ASC list based on clinical judgment and data that are available regarding utilization of care settings. The last update was published in the May 4, 2005 Federal Register (70 FR 23690) and the update for CY 2007 is proposed in section XVII of this preamble. The process we follow currently to update the ASC list is explained in section XVII of this preamble. Under the revised ASC payment system, which would be implemented effective January 1, 2008, we are proposing to update on an annual calendar year basis the ASC conversion factor, the relative payment weights and APC assignments, the ASC payment rates, and the list of procedures for which Medicare would not make payment of an ASC

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facility fee. To the extent possible under the rules and policies of the revised ASC payment system, we are proposing to maintain consistency between the OPPS and the ASC payment systems in the way we treat new and revised HCPCS and CPT codes for payment under the ASC payment system. We also are proposing to invite comment as part of the annual update cycle to determine if there are procedures that we exclude from payment in the ASC setting that merit reconsideration as a result of changes in clinical practice or innovations in technology. We are proposing to update the ASC list and payment system as part of the annual proposed and final rulemaking cycle updating the hospital OPPS. We believe that including the ASC update as part of the OPPS rulemaking cycle would ensure that updates of the ASC payment rates and the list of surgical procedures for which Medicare pays an ASC facility fee would be issued in a regular, predictable, and timely manner. Moreover, the ASC payment system would be updated concurrent with changes in the APC groups and the OPPS inpatient list, making it easier to predict changes in payment for particular services from year to year. In the first part of CY 2007, we are proposing to issue a final rule in which we would respond to comments submitted timely regarding the proposals set forth in this proposed rule and make final the policy and regulations for the revised ASC payment system for implementation effective January 1, 2008. We are proposing to include the CY 2008 ASC payment rates as part of the proposed and final rules for the CY 2008 OPPS update.

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We are proposing to evaluate each year all new CPT and alphanumeric HCPCS codes that describe surgical procedures to make preliminary determinations regarding whether or not they should be payable in the ASC setting and, if so, whether they are office-based procedures. In the absence of claims data that would indicate where procedures described by new codes are being performed, and resources required to perform them, we are proposing to use other available information, including our clinical advisors’ judgment, predecessor CPT and HCPCS codes, information submitted by representatives of specialty societies and professional associations, and information submitted by commenters during the public comment period following publication of the final rule with comment period in the Federal Register. We would publish in the annual OPPS/ASC payment update final rule those interim determinations for the new codes to be active January 1 of the update year. Those procedures would be open to comment on that final rule, and we would respond to comments about our determinations in the final rule for the following year, just as we currently respond to comments about our APC assignments for new codes in the OPPS final rule for the following year. After our review of public comments and in the absence of physicians’ claims data, if our determination regarding the new codes is that they should reside on the ASC list as office-based procedures subject to the payment limitation, this determination would remain preliminary until there are adequate physicians’ claims data available for these procedures to assess their predominant sites of service. Using those data, if we confirm our determination that the new codes are office-based because they were performed in the physician office setting more than 50 percent of the time, the codes would then be

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permanently assigned to the list of office-based procedures subject to the payment limitation. Accordingly, we are proposing to reflect this annual rulemaking and publication of revised payment methodologies and payment rates in new §416.173 in proposed new subpart F. D. Information in Addenda Related to the Revised CY 2008 ASC Payment System (If you choose to comment on issues in this section, please include the caption “ASC Addenda” at the beginning of your comment.) The ASC payment rates, copayment amounts, and relative payment weights displayed in Addendum BB of this proposed rule are presented to model the ratesetting methodology that we are proposing for the revised ASC payment system required by Pub. L. 108-173. Actual payment rates proposed and made final for CY 2008 are dependent upon the final policies and regulations affecting the revised payment system that we would publish in a final rule in CY 2007; the proposed and final APC groups, APC relative payment weights, and MPFS nonfacility practice expense RVUs for CY 2008; and, the ASC conversion factor updated to reflect CY 2006 utilization data and CY 2007 ASC standard overhead payment amounts. E. Technical Changes to 42 CFR Parts 414 and 416 We are proposing to make the following technical change to 42 CFR 414: ● §414.22 (Non-facility practice expense RVUs) is revised to conform to changes occurring under the ASC revised payment system. The change will be effective January 1, 2008.

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We are proposing to make the following technical changes to 42 CFR 416: ● §416.65(a)(4) is revised to replace the obsolete cross-reference to §405.310 with §411.15. ● §416.120 is revised by replacing the incorrect cross-reference to “Part 413” with “Part 419.” ● §416.150 (Beneficiary appeals) is deleted because it does not conform with the appeals process provisions of 42 CFR Part 405, subparts H and I. XIX. Medicare Contracting Reform Mandate A. Background Section 911 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, amended Title XVIII of the Act to add section 1874A, Contracts with Medicare Administrative Contractors (MACs). Section 1874A of the Act replaces the prior Medicare intermediary and carrier contracting authorities formerly found in sections 1816 and 1842 of the Act, respectively. This reform (commonly referred to as "Medicare contracting reform" for Medicare feefor-service) is intended to improve Medicare’s administrative services to beneficiaries and health care providers and to bring standard contracting principles to Medicare, such as competition and performance incentives, which the government has long applied to other Federal programs under the Federal Acquisition Regulation (FAR). For Department of Health and Human Services acquisitions, the FAR is supplemented by the Department of Health and Human Services Acquisition Regulation (HHSAR) (48 CFR chapter 3). Using competitive procedures, CMS will replace its current claims payment

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contractors (intermediaries and carriers) with new contract entities, MACs. Section 911(d)(1)(C) of Pub. L. 108-173 requires that CMS compete and transition all Medicare claims processing workloads to MACs by October 1, 2011. In accordance with section 911(e) of Pub. L. 108-173, on or after October 1, 2005, any reference to an “intermediary” or “carrier” in a regulation shall be deemed a reference to a MAC. The process of transition from intermediaries and carriers to MACs is not a single point-in-time occurrence, but rather necessarily happens over a multiyear period due to the size and nature of the claims workloads involved. Therefore, for the purposes of clarity, the term “intermediary” is used throughout this proposed rule to describe a Medicare contractor, pursuant to the authority of section 1816 of the Act, that has not yet transitioned to a MAC. In addition, for the purpose of clarity, the term "carrier" is used throughout this proposed rule to describe a Medicare contractor, pursuant to the authority of section 1842 of the Act, that has not yet transitioned to a MAC. B. CMS’ Vision for Medicare Fee-for-Service and MACs CMS’ vision for the Medicare fee-for-service (FFS) program is that of a premier health plan that allows for comprehensive, quality care and world-class beneficiary and provider service. Achieving this vision requires substantial improvement of CMS’ current FFS administrative structure. Further information on CMS’ plans to improve Medicare FFS may be obtained through the Medicare Contracting Reform Web site: http://www.cms.hhs.gov/medicarereform/contractingreform/.

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In 2006, there are 24 intermediaries and 17 carriers that process FFS claims. Intermediaries process claims for Medicare Parts A and B relating to services furnished by health care facilities, including hospitals and SNFs. Carriers process claims for Medicare Part B, in particular, for physician, laboratory, and other nonfacility services. In addition, 4 intermediaries serve as regional home health intermediaries (RHHIs) and process Medicare claims for home health services and hospice services. (Section 1816 of the Act was amended in 1977 to allow the Secretary to designate regional or national intermediaries, which we refer to as RHHIs, to process claims for home health services. We have designated these RHHIs to serve both the home health agency (HHA) and the hospice provider communities.) For a complete listing of the current Medicare intermediaries and carriers, refer to the CMS Web site: http://www.cms.hhs.gov/contacts/incardir.asp. Although health care delivery in the United States has evolved with advances in modern technology, the contracting authorities relating to the Medicare FFS administrative structure did not substantially evolve between the enactment of the Medicare statute in 1965 and the enactment of Pub. L. 108-173. Prior to passage of Pub. L. 108-173, intermediary and carrier acquisition authorities did not permit full and open competition or unified processing of Medicare Part A and Part B claims. Medicare contracting was significantly hampered by the absence of performance-based incentives and cumbersome termination procedures. In an effort to achieve Congress’ goal of a more efficient and effective Medicare operation, CMS developed a plan for most current Medicare Part A and Part B

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intermediary and carrier responsibilities to be integrated into a single contract entity to be administered by a single contractor in each area of the country. These new MACs will handle claims processing and related activities traditionally performed by intermediaries and carriers. Under Medicare contracting reform, the MACs will perform all the core claims processing operations for both Medicare Part A and Part B. CMS will ensure that MACs focus on providing a high level of customer service to providers and beneficiaries. MACs will be the providers’ primary contact with Medicare, and CMS will hold the MACs accountable for overall provider and beneficiary satisfaction and correct claims payment. With respect to financial management, as was required of intermediaries and carriers, MACs will promote the fiscal integrity of the program and be accountable stewards of the Medicare Trust Fund dollars. The MACs will be required to pay claims timely, accurately, and in a reliable manner while promoting cost efficiency and the delivery of maximum value to the program. We recognize the potential for improving the efficiency and effectiveness of services to Medicare beneficiaries and providers through the Medicare contracting reform provisions contained in section 1874A of the Act. Through our implementation of these provisions, we expect to realize significant performance improvements. The future environment is designed to generate substantial savings both from an administrative and programmatic standpoint and will safeguard CMS' mission.

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C. Provider Nomination and the Former Medicare Acquisition Authorities As originally enacted in 1965 and until the enactment of Pub. L. 108-173, section 1816 of the Act afforded groups or associations and individual providers of services (as defined at section 1861(a) of the Act) the right to nominate (appoint) their intermediary. The intermediary agreements were governed by Medicare laws that diverge from the FAR in a number of important respects. Prior to Pub. L. 108-173, section 1816 of the Act precluded the Medicare program from competing intermediary functions on a full and open basis. Rather, institutional providers of services, such as hospitals and nursing facilities, nominated a particular intermediary to process and pay their Medicare Part A claims. In a significant historical development that took place shortly after Medicare’s enactment in 1965, the American Hospital Association and other provider trade associations nominated the Blue Cross Association (BCA) to serve as the intermediary for their membership. The BCA merged with the Blue Shield Association in the 1970s to form today’s Blue Cross and Blue Shield Association (BCBSA.) CMS and the BCBSA then entered into a prime contract, which continues to currently exist through the annual renewal process. In turn, the BCBSA subcontracted most operational intermediary functions to its member plans. The BCBSA assigned the majority of the nation’s hospitals to its local Blue Cross plans. Some providers of services nominated commercial insurers to serve as their intermediaries. Most recently, section 911(b) of Pub. L. 108-173 amended section 1816 of the Act to remove the provider nomination authority. The section has been renamed:

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“Provisions Relating to the Administration of Part A.” Section 1816(a) of the Act, which authorized providers to select a contractor to perform claims payment and audit functions, has been amended. It now contains one sentence mandating the use of contracts with MACs to administer section 1816 of the Act. Sections 1816(e), (f), and (g), which authorized the Secretary to develop standards, criteria, and procedures for the assignment of providers to intermediaries and to reassign providers periodically, have been repealed. Section 911(d) of Pub. L. 108-173 permits the Secretary to transition the current intermediary and carrier functions to the MACs. More information about CMS’ plans to implement Medicare contracting reform, including the Report to the Congress on this subject, can be obtained at the CMS Web site: http://www.cms.hhs.gov/medicarereform/contractingreform/. MACs will perform all core claims processing operations for both Medicare Part A and Part B. The Part A and Part B MACs will operate in distinct, nonoverlapping geographic jurisdictions, which will form the basis of the Medicare claims processing operations. A transitional period runs between October 1, 2005, and October 1, 2011. During this period, any existing intermediary and carrier contracts could be maintained until replaced by a MAC contract. The statute requires that all intermediary and carrier contract functions are to be competed and awarded as MAC contracts by October 1, 2011. D. Summary of Changes Made to Section 1816 of the Act Substantial changes to section 1816 of the Act that were required by sections 911(b) and 911(c) of Pub. L. 108-173 took effect on October 1, 2005. The

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changes that we are proposing in this proposed rule to the regulations under 42 CFR Part 421, Subpart B (discussed under section XIX.E. of this preamble) are intended to conform the regulations to these statutory changes. Prior to the statutory developments directed by Pub. L. 108-173, section 1816 of the Act provided the foundation acquisition authority for agreements between CMS, acting for the Secretary, and intermediaries, for the purpose of administering benefits under Medicare Part A and making payments to providers of services. In particular, section 1816(a) of the Act formerly gave groups and associations of providers of services (which, under section 1861(u) of the Act, includes hospitals, critical access hospitals (CAHs), skilled nursing facilities (SNFs), comprehensive outpatient rehabilitation facilities (CORFs), HHAs, hospices, and, for the purposes of sections 1814(g) and 1835(e) of the Act, funds) the power to nominate their servicing intermediary to determine and make Medicare payments to their members. Under this provision, an intermediary could be a “national, state, or other public or private agency or organization.” As previously stated, under this provision, the American Hospital Association nominated the national Blue Cross Association to serve as the prime Medicare intermediary for its membership in 1965, an arrangement that continues to exist. Moreover, prior to the enactment of Pub. L. 108-173, section 1816(d) of the Act allowed individual providers and groups of providers to-● Part with their group or association and nominate another entity to serve as their intermediary; and

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● Withdraw its/their nomination from an intermediary, and obtain services from another intermediary that had an agreement with the Secretary. Finally, section 1816(e) of the Act, as it formerly read, specified the substantial procedural requirements to be followed by the Secretary in the event that the Secretary desired to assign or reassign individual providers of services to any intermediary other than the nominated entity. This provision also gave limited authority to the Secretary to designate a regional or national intermediary for a particular “class” of providers of services. However, this authority was subject to substantial procedural requirements. Among these procedural requirements were: ● The Secretary had to promulgate standards, criteria and procedures for evaluating the performance of intermediaries under section 1816(f) of the Act; ● The Secretary had to make a finding, after applying such standards, criteria, and procedures, that the reassignment of the individual provider and/or the designation of the regional or national intermediary would result in more efficient and effective administration of the Medicare program; ● The Secretary had to provide a full explanation of his reasons for determining that the intermediary change would result in more efficient and effective administration; and ● Affected agencies and organizations were given the right to a hearing, and any determinations of the Secretary on nominations and provider assignments were subject to judicial review.

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In the former sections 1816(e)(4) and 1816(e)(5) of the Act, the Secretary was given authority to establish regional intermediaries with respect to HHAs and hospice providers, although certain procedural requirements still had to be met. In summary, while, under section 1816 of the Act, the Secretary was not required to accept all Medicare intermediary nominations, the Secretary had no independent authority to contract with any entity for Medicare intermediary services outside the nomination process. Moreover, while providers of services were given the opportunity to seek a reassignment to a new intermediary, the Secretary could not assign or reassign individual providers or classes of providers unless substantial procedural requirements were followed. The existing Medicare regulations under 42 CFR Part 421, particularly those within Subparts A and B, were substantially shaped by this statutory framework relating to provider nominations and the assignment or reassignment of providers of services to intermediaries. In particular, the following regulatory provisions have their basis in the statutory provisions of sections 1816(a), (d), and (e) of the Act (all are located within 42 CFR Part 421): ● §421.1(c), which discusses criteria to be used in assigning and reassigning providers; ● §421.3, which provides exceptions to definitions to accommodate the designation of regional intermediaries for HHAs and intermediaries for hospices; ● §421.103, which identifies options available to providers for receiving Medicare payments;

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● §421.104, which provides the procedural framework governing the administration of provider nominations for intermediaries; ● §421.105, which obligates CMS to provide notice as to its action on nominations; ● §421.106, which specifies the process to be used by a provider desiring a change of intermediary; ● §421.112, which provides the considerations to be taken into account by CMS when, among other things, it desires to assign or reassign a provider to an intermediary or designate a regional or national intermediary for a class of providers; ● §421.114, which governs the assignment or reassignment of individual providers; ● §421.116, which specifies the requirements for designating national or regional intermediaries consistent with sections 1816(e)(1) through (e)(3) of the Act; and ● §421.117, which specifies the parameters for assigning HHAs and hospice providers to regional intermediaries consistent with sections 1816(e)(4) and (e)(5) of the Act. In addition to the provisions discussed above that relate to provider nominations, prior to the enactment of Pub. L. 108-173, section 1816 of the Act also contained other provisions governing agreements with Medicare intermediaries that were not consistent with the mainstream of Federal acquisition and procurement authorities, as this mainstream is reflected in the FAR. For instance--

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● Section 1816(b) of the Act contains provisions that limited payment under all intermediary agreements to a cost-reimbursement basis only; ● Section 1816(f) of the Act required the Secretary to publish his performance criteria and standards for intermediary agreements in the Federal Register, and specified requirements relating to the application of such criteria and standards; and ● Section 1816(g) afforded intermediaries the right to terminate their agreements with CMS, but limited the right of the Secretary to terminate the agreement; in particular, no provision was made for the normal right of the government to terminate for convenience. In section 911(b) of Pub. L. 108-173, Congress reiterated the requirement that CMS begin to move beyond the legacy nomination-based intermediary agreements during FY 2006. This was done by repealing outright or substantially modifying many of the provisions of section 1816 of the Act, effective October 1, 2005. In particular, section 911(b) of Pub. L. 108-173-● Repealed the prior language of section 1816(a) of the Act, including the basic provider nomination provision, and replaced it with a statement indicating that Medicare Part A administrative functions would be contracted through section 1874A of the Act; ● Repealed section 1816(b) of the Act in full, including its provisions limiting payment to cost reimbursement; ● Repealed the contract-related provisions of section 1816(c) of the Act; ● Repealed sections 1816(d), (e), (f), (g), (h), (i), and (l) of the Act; and ● Made conforming changes to sections 1816(c), (j), and (k) of the Act.

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With these changes, section 1816 of the Act is no longer an acquisition authority, and there is no vestige of the former provider nomination provisions or the partial exceptions to those provisions relating to home health and hospice providers. While section 911(d)(1)(B) of Pub. L. 108-173 allows the Secretary to continue intermediary and carrier contracts in effect prior to October 1, 2005, under their terms and conditions until October 1, 2011, there was no similar extension for existing nomination arrangements. Section 911(d)(2)(A) of Pub. L. 108-173 provides the Secretary with authority to enter into intermediary agreements outside of the provider nomination process starting with the date of enactment of Pub. L 108-173 (December 8, 2003). Therefore, while Congress specified that the Secretary should submit his plan for implementing section 911 at the start of FY 2005, the Secretary was authorized to contract outside of the section 1816 nomination provisions immediately and in advance of delivery of his report. This analysis requires that similar, conforming changes be made in our regulations as set forth in this proposed rule. E. Provisions of the Proposed Regulations As discussed under section XIX.A. of this preamble, based on the authority provided in sections 1874A(a) through (d) of the Act, as established by section 911(a)(1) of Pub. L. 108-173, we are proposing to establish regulations pertaining to MACs in a new Subpart E of 42 CFR Part 421. Moreover, based on the substantial changes to section 1816 of the Act, including the repeal of all of the section 1816 provisions relating to the ability of providers to nominate their servicing intermediary, as enacted by section 911(b) of Pub. L. 108-173, we also are proposing a number of changes to Subparts A

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and B of 42 CFR Part 421. In addition, we are proposing to change the title of Part 421 from “Intermediaries and Carriers” to “Medicare Contracting” and make conforming revisions to Subpart B of Part 421. As discussed earlier, section 911(b) of Pub. L. 108-173 either repealed outright or substantially modified sections 1816(a), (b), (c), (d), (e), (f), (g), (h), (i), and (l) of the Act, and made clear that the acquisition authority for Part A claims processing would, after October 1, 2005, be found in section 1874A of the Act. Among all these changes, each of the former “provider nomination” provisions within section 1816 of the Act was repealed. In addition, section 911(d)(2)(A) of Pub. L. 108-173 gave the Secretary authority to disregard the provider nomination provisions in his contracting, even prior to October 1, 2005. In accordance with these statutory changes, we are proposing to substantially modify or delete §§421.1(c), 421.3, 421.103, 421.104, 421.105, 421.106, 421.112, 421.114, 421.116, and 421.117 of the regulations. As discussed earlier, the amendment to title XVIII of the Act (to allow for the new section 1874A: “Contracts with Medicare Administrative Contractors”) requires CMS to contract with eligible entities to perform Medicare functions using the FAR. We are proposing to add regulations pertaining to MAC contracts in a new subpart E (Medicare Administrative Contractors) under Part 421 as follows: Subpart E- Medicare Administrative Contractors Sec. 421.400 Basis and scope. 421.401 Definitions.

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421.404 Assignment of providers and suppliers to MACs. 1. Definitions Under proposed §421.401, we define a "Medicare administrative contractor (MAC)" as an agency, organization, or other person with a contract to perform any or all of the functions set forth under section 1874A of the Act. With respect to the performance of a particular function in relation to an individual entitled to benefits under Medicare Part A or enrolled under Medicare Part B, or both, a specific provider of services or supplier (or class of such providers of services or suppliers), we are proposing to define an "appropriate MAC" as a MAC that has a contract to perform a Medicare administrative function in relation to a particular individual, provider of services, or supplier or class of providers. 2. Assignment of Providers and Suppliers to MACs We are proposing to establish a new §421.404 to incorporate the rules governing the processing of claims submitted by providers and suppliers that enroll with and receive Medicare payment and other Medicare services. As a general rule, Medicare providers and suppliers will be assigned to the MAC that is contracted to administer the types of services (benefits) billed by the provider or supplier within the geographic locale in which the provider or supplier is physically located or furnishes health care services, respectively. One significant exception to this general rule pertains to suppliers of durable medical equipment, prosthetics, orthotics, and supplies. CMS would continue to allow these suppliers to bill to the contractor assigned to the locale in which the beneficiary receiving the items or supplies resides.

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In the past, under the provider nomination provisions that were repealed by section 911 of Pub. L. 108-173, CMS had considered (and occasionally approved) requests from certain classes of institutional providers covered by these section 1816 provisions, primarily, hospitals, SNFs, and CAHs, to bill an intermediary other than the one servicing providers in the geographic locale of the provider. The process and criteria for making these determinations are set forth in detail in the existing regulations under 42 CFR Part 421, Subpart B (which we are proposing to remove in accordance with the changes effectuated by section 911(b) of Pub. L. 108-173. In particular, not automatically but on a fairly frequent basis, CMS approved requests from large multi-State groups of such providers under common ownership and control , called “chain providers,” to bill a single intermediary on behalf of all the individual providers in the chain through the headquarters office, or “home office,” of the chain provider. These chain providers were granted “single intermediary” status. The premise behind granting privileges to bill a single intermediary to such large multi-State chain providers was that this might reduce administrative billing expenses for the chain and reduce the administrative expenses of the Medicare program. In particular, assigning a large multi-State chain provider to a single intermediary facilitated the Medicare cost report audit and reimbursement functions, because findings with respect to the cost report of the chain’s home office could affect the individual provider’s cost report. Otherwise, these audit and reimbursement issues would need to be coordinated among multiple intermediaries.

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In addition to applying the relevant regulatory requirements in 42 CFR Part 421, Subpart B in our review of chain provider requests for single intermediary status, we applied additional criteria to focus our analysis and to ensure that the exception to our normal practice of assigning providers to their “local” intermediary was warranted. We advised the chain provider that it would have to demonstrate that having a single intermediary would be consistent with efficient and effective administration of the Medicare program, and that the intermediary would need to have sufficient capacity to effectively serve the chain (these elements were restatements of the regulatory criteria). In addition, we required the chain to meet the following requirements: ● Size – The provider chain had to be comprised of 10 participating facilities or 500 certified beds, or 5 facilities or 300 certified beds spread across 3 or more contiguous States. ● Central Controls – The provider chain had to demonstrate that it exercised central controls, assuring substantial uniformity in operating procedures, utilization controls, personnel administration, and fiscal operations among the individual providers. The administrative efficiencies gained by both the large multi-State chain providers and the Medicare program by allowing single intermediary relationships to exist may not be as significant as they were formerly. Prior to the implementation of the Administration Simplification provisions of Part C of Title XI of the Act, the various intermediaries required providers to use somewhat divergent transaction and formatting standards in their electronic claims processing systems. A provider chain with centralized billing processes could make a good business case that it should be permitted

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to bill only one intermediary. Moreover, prior to the implementation of the many prospective payment systems required by the Balanced Budget Act of 1997 and subsequent public laws, a greater percentage of Medicare program payments hinged on the Medicare cost report audit and reimbursement process. In such an environment, there was potential benefit to both a chain provider and the government to minimize coordination issues. Finally, the former Medicare environment involved many intermediaries, so there were naturally more geographic boundaries among contractors that a multi-State chain could cross. We understand the provisions of section 1874A of the Act and, more particularly, the revisions to section 1816 of the Act made by section 911(b) of Pub. L. 108-173 to authorize the Secretary to assign all providers and suppliers, even the members of multi-State entities, to the geographically-based MACs based on their physical location. This action is consistent with CMS’ vision, as articulated in the Secretary’s Report to Congress on Medicare Contracting, of establishing a claims processing environment where most Medicare Part A and Part B claims involving a particular beneficiary are administered by the same contractor. However, as indicated in that Report (page V-4), we recognize that there may still be some legitimate business value to allowing large multi-State chains of providers that formerly were able to nominate their intermediary to bill on a consolidated basis to one MAC. While Congress has clearly mandated that the former provider nomination framework be abolished, we believe that allowing the practice of consolidated billing by large chains is within the discretion of the Secretary under section 911 of

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Pub. L. 108-173. Accordingly, in this proposed rule, we are proposing under §421.404 that-● Providers (as defined in 42 CFR 400.202) will generally be assigned to the MAC with claims processing jurisdiction over the geographic locale in which the provider is physically located. ● Large chain providers comprised of individual providers that were formerly permitted by CMS to “nominate” an intermediary, which we refer to as “qualified chain providers,” will be permitted to request opportunity to consolidate their Medicare billing activities to the MAC with jurisdiction over the geographic locale in which the chain’s home office is located. ● Qualified chain providers that were formerly granted single intermediary status do not need to re-request such privileges on behalf of the entire chain at this time. ● CMS may grant other exceptions to the general rule for assigning providers to MACs, but only based on a finding that such an exception will support the implementation of the MACs or if CMS deems the exception to be in the compelling interest of the Medicare program. We are proposing to incorporate a definition of "qualified chain provider." The criteria that constitute the proposed definition of a “qualified chain provider” mirror the elements that were historically applied. We believe these are appropriate criteria to employ in reviewing whether a chain provider should even be considered for consolidated billing. Less stringent criteria would clearly cut against the statutory mandate to establish MACs and end the provider nomination process. More stringent

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criteria might disrupt the operations of many entities that formerly were approved for single intermediary handling under the old criteria. Smaller chains of otherwise eligible providers (for example, hospitals, SNFs, and CAHs) might also desire consolidated billing, as well as other types of providers (for example, HHAs and hospices). In the latter case, the other types of providers (termed “ineligible providers” in this proposed rule) did not have the opportunity to request assignment to (nominate) a particular intermediary prior to October 1, 2005. In some cases, these other types of providers were assigned to regional intermediaries based on a nexus of statutory and administrative actions. In other cases, assignments were made through administrative action. In the case of smaller chains of otherwise eligible providers, we note that Pub. L. 108-173 clearly mandates the end of the provider nomination process and appears to us to anticipate the use of regional contractors. We believe that our establishment of MACs that, in most cases, will administer claims from multiple States will largely resolve the concerns these other providers may have. Under our proposed approach, for instance, we believe that few chain providers will have to bill more than two MACs even if they fail to meet the tests for being a “qualified chain provider.” Finally, with respect to suppliers (as also defined in 42 CFR 400.202 of our regulations), we are proposing to assign suppliers (including physicians and other practitioners) to MACs based on the geographic jurisdiction in which they operate and furnish services. These requirements mirror the various Part B claims jurisdiction rules that have been in place. CMS may grant an exception to this policy only if CMS finds

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the exception will support the implementation of MACs or will serve some compelling interest of the Medicare program.. However, we do incorporate the current special billing requirements relating to suppliers of durable medical equipment, prosthetics, orthotics, and supplies under §421.210 and §421.212. As we move forward to implement MAC contracting in keeping with the statutory mandate of section 911 of Pub. L. 108-173 and the Secretary’s Report to Congress, we invite public comments on the above issues, including our proposed definitions and criteria. (Once the MACs are initially implemented, we may propose more stringent criteria for consolidated billing status, in keeping with the overall thrust of section 911 of Pub. L. 108-173.) 3. Other Proposed Technical and Conforming Changes a. Definition of "Intermediary" (§421.3) We are proposing to revise the definition of the term “intermediary” under existing §421.3 to delete reference to “alternative regional intermediaries.” CMS no longer allows HHAs and hospice care providers to select an alternative regional intermediary. Over the years, as the number of intermediaries in the program has decreased, the availability of alternative intermediaries for HHAs and hospices has declined. We have implemented the policy that all HHAs and hospice care facilities are to be assigned to the designated regional intermediary that serves their geographic jurisdiction. This is required for the efficient and effective administration of the Medicare program as the agency moves forward to implement the MACs.

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b. Intermediary Functions (§421.100) Section 1816(a) of the Act, which allowed providers to nominate an intermediary, required that only nominated intermediaries perform the functions of determining payment amounts and making payments to providers. Section 1874A of the Act, as added by section 911 of Pub. L. 108-173, eliminates the intermediary nomination process. All activities carried out under intermediary agreements will be transitioned to MAC contracts by September 30, 2011. During the transition period, CMS will still require regulations to support its intermediary agreements. We are proposing to amend §421.100, concerning functions to be included in intermediary agreements, to address the dual intermediary responsibilities. We are proposing to revise existing §421.100(i), Dual intermediary responsibilities, to delete the reference to §421.117 from this section, as the statutory provision that made this necessary was repealed by Pub. L. 108-173. c. Options Available to Providers and CMS (§421.103) We are proposing to change the title of §421.103 to “Payment to Providers” and to revise the contents of §421.103 to clarify that, all providers must receive payments for covered services furnished to Medicare beneficiaries through an intermediary (under §421.404) and eventually through a MAC (under §421.404). We are proposing that this function must remain with the intermediaries. We would no longer allow providers to receive payments directly from CMS, nor would we allow providers to receive payments from alternative regional intermediaries. We believe the inclusion of this function is consistent with the effective and efficient administration of the Medicare program.

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d. Nomination for Intermediary (§421.104) We are proposing to change the title of §421.104 to “Assignment of Providers of Services to Intermediaries During Transition to Medicare Administrative Contractors (MACs)”and to revise the contents of the section to provide that new providers that enter the Medicare program during the transition period will be assigned to the local designated intermediary that serves the jurisdiction in which the provider is located. We believe this change is necessary as we prepare to transition from intermediary agreements and carrier contracts to contracts with the MACs. In the MAC environment, providers will be assigned based on their geographic location to the MAC that has jurisdiction for their provider type. e. Notification of Actions on Nominations, Changes to Another Intermediary or to Direct Payment, and Requirements for Approval of an Agreement (§421.105 and §421.106) We are proposing to remove §421.105 and §421.106 from the regulations, as the sections would no longer be applicable with implementation of the new Subpart E. f. Considerations Relating to the Effective and Efficient Administration of the Medicare Program (§421.112) We are proposing to revise §421.112 (a). As stated previously in this proposed rule, provider requests to be assigned or reassigned to a particular intermediary will no longer be considered. However, we may deem it necessary to reassign providers if we find it is necessary for the efficient and effective administration of the program. In addition, there will no longer be a national intermediary to serve a class of providers.

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g. Assignment and Reassignment of Providers by CMS (§421.114) We are proposing to revise §421.114 to specify that we may consider it necessary to assign and reassign providers if the assignment or reassignment is in the best interest of the program. Before making these determinations, we will no longer review provider requests to be reassigned to another intermediary. This is consistent with the proposed policy to eliminate a provider request to change to another intermediary or to direct payment. Under Medicare contracting reform, we require increased flexibility to realign providers to geographical jurisdictions for effective implementation of the MACs. We reserve the right to reassign providers to other jurisdictions if we deem it to be in the best interest of the program. h. Designation of National or Regional Intermediaries (§421.116) and Designation of Regional and Alternative Designated Regional Intermediaries for Home Health Agencies and Hospices (§421.117) We are proposing to delete §421.116, Designation of national or regional intermediaries, and §421.117, Designation of regional and alternative designated regional intermediaries for HHAs and hospices. The statutory provisions that made these regulations necessary were repealed by Pub. L. 108-173. Therefore, we no longer need these regulations. All providers will receive payment for covered services as described in §421.103. i. Awarding of Experimental Contracts (§421.118) We are proposing to delete §421.118, which specifies the provisions under which CMS may award a fixed price or performance incentive contract under the experimental

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authority contained in 42 U.S.C. 1395b-1 for performance of intermediary functions under §421.100. The provisions of this section became obsolete with the enactment of section 911 of Pub. L. 108-173. XX. Reporting Quality Data for Improved Quality and Costs under the OPPS (If you choose to comment of issues in this section, please include the caption "Hospital Quality Data" at the beginning of your comment.) As noted previously, CMS’ Office of the Actuary currently projects that Medicare Part B expenditures will continue to grow at a significant rate, as a result of rapid growth in the use of both physician-related services and hospital outpatient services in the original Medicare fee-for-service program. Specifically, the actuaries project that the expenditures under the OPPS in CY 2007 will be approximately $32.540 billion. This represents approximately a 9.2 percent increase over our estimated expenditure of $29.809 billion for the OPPS in CY 2006, and reflects even more rapid spending growth in recent years. As the following table shows, implementation of the OPPS has not slowed outpatient spending growth; in fact, double-digit spending growth has been occurring. Table 47.--Growth in Expenditures under OPPS from CY 2001 through CY 2007 (Projected Expenditures for CY 2006 and CY 2007) in Millions OPPS Growth CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 Incurred Cost 19,172 19,561 21,146 23,912 26,643 29,809 32,540 Percent Increase 2.0 8.1 13.1 11.4 11.9 9.2 Source: FY 2007 Mid-Session Review, Budget of the U.S. Government

The current rate of growth in expenditures for hospital outpatient services is of great concern to us. As with the other Medicare fee-for-service payment systems that are experiencing rapid spending growth, brisk growth in the intensity and utilization of

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services is the primary reason for the current rate of growth in the OPPS, rather than general price or enrollment changes. The table below illustrates the increases in the volume and intensity of outpatient hospital services over the last several years. Table 48.--Percent Increase in Volume/Intensity of Hospital Outpatient Services Percent Increase

CY 2002

CY 2003

CY 2004

CY 2005 (Est.)

CY 2006 (Est.)

3.0

2.0

8.0

8.0

10.0

Source: FY 2007 Mid-Session Review, Budget of the U.S. Government

For outpatient hospital services, the volume and intensity for CY 2005 are estimated to continue to increase significantly at a rate of 8 percent, in excess of the long-term trend. This increase follows the 8 percent increase in CY 2004, and the growth is projected to be 10 percent in CY 2006. As we have stated repeatedly, this rapid growth in utilization of services in the OPPS shows that Medicare is paying mainly for more services each year, regardless of their quality or impact on beneficiary health. The program should promote higher quality services, so that Medicare spending is directed in the most efficient manner toward higher quality services. Medicare payments should encourage doctors and other providers in their efforts to achieve better health outcomes for Medicare beneficiaries at a lower cost. Therefore, we have been examining the concept of "value-based purchasing" in a number of payment systems. “Value-based purchasing” may use a range of incentives to achieve identified quality and efficiency goals, as a means of promoting better quality of care and more effective resource use in the Medicare payment systems. In developing the concept of value-based purchasing, we have been working closely with stakeholder partners, including health professionals and providers.

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In this proposed rule, we are seeking public comment on value-based purchasing as related specifically to hospital outpatient departments. As part of our overall goal of promoting value-based purchasing in outpatient payment, we also make one specific proposal in the OPPS for CY 2007. Section 1833(t)(2)(E) of the statute permits the Secretary to “establish, in a budget neutral manner, … adjustments as determined to be necessary to ensure equitable payments” under the OPPS. The absence of OPPS measures to promote high quality in the provision of services to Medicare beneficiaries creates an issue of payment equity. In general, payments to providers in Medicare’s payment systems do not vary on the basis of quality or efficiency differences among the providers of services. As a result, Medicare’s payment systems direct additional resources to hospitals that deliver care that is not of the highest quality. For that reason, each Medicare dollar spent does not result in the same quality and efficiency of care for Medicare beneficiaries. We believe that the collection and submission of performance data and the public reporting of comparative information about hospital performance can provide a strong incentive to encourage hospital accountability in general and quality improvement in particular. Measurement and reporting can focus the attention of hospitals and consumers on specific goals and on hospitals’ performance relative to those goals. Development and implementation of performance measurement and reporting by hospitals can thus produce quality improvement in actual health care delivery. Hospital performance measures may also provide a foundation for performance-based rather than volume-based payments, which are used in the OPPS today.

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We have obtained some evidence of the potential for improving quality of care in hospitals by means of the collection and submission of performance data from the Premier Hospital Quality Incentive Demonstration.1 This demonstration was designed to test whether the quality of inpatient care for Medicare beneficiaries can improve when financial incentives are provided. Under the demonstration, about 270 hospitals of Premier, Inc., a nationwide alliance of not-for-profit hospitals, have been voluntarily providing data on 34 quality measures related to 5 clinical conditions: heart attack, heart failure, pneumonia, coronary artery bypass graft, and hip and knee replacements. Using the quality measures, CMS identifies hospitals with the highest quality performance in each of the five clinical areas. Hospitals scoring in the top 10 percent in each clinical area receive a 2-percent bonus payment in addition to the regular Medicare DRG payment for the measured condition. Hospitals in the second highest 10 percent receive a 1-percent bonus payment. In the third year of the demonstration, if some hospitals do not achieve absolute improvements above the demonstration’s first year composite score baseline (the lowest 20 percent) for that condition, then they will have their DRG payments reduced by one or two percent, depending on how far their performance is below the baseline. Following the first year of the demonstration (FY 2004), CMS awarded a total of $8.85 million to participating hospitals in the top two deciles for each clinical area. In the aggregate, quality of care improved in all five clinical areas that were measured.

1

The Premier Hospital Quality Incentive Demonstration was authorized under section 402 of Pub. L 90-248, Social Security Amendments of 1967 (42 U.S.C. 1395b-1). This section authorizes certain types of demonstration projects that waive compliance with the regular payment methods used in the Medicare program.

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Preliminary information from the second year of the demonstration indicates that quality is continuing to improve, particularly for the hospitals that were initially poorest performing.2 We believe that these results indicate that reporting of quality data may in and of itself lead to improved outcomes for Medicare beneficiaries. Since 2003, we have operated the Hospital Quality Initiative,3 which is designed to stimulate improvements in inpatient hospital care by standardizing hospital performance measures and data transmission to ensure that all payers, hospitals, and oversight and accrediting entities use the same measures when publicly reporting on hospital performance. Section 501(b) of Pub. L. 108-173 authorized us to link the collection of data for an initial starter set of 10 quality measures to the hospital IPPS annual payment update. In order to implement this provision, we created the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program. For FYs 2005 and 2006, hospitals that met the RHQDAPU program's requirements received the full IPPS annual payment update, while hospitals that did not comply received an update that was reduced by 0.4 percentage points. For FY 2005, virtually every hospital in the country that was eligible to participate submitted data (98.3 percent), and approximately 96 percent of all participating hospitals met the requirements to receive the full update. The data regarding the starter set of 10 quality measures, as well as additional, voluntarily-reported data on other quality measures, are available to the public through the Hospital Compare Web site at: http://www.hospitalcompare.hhs.gov. 2

Additional information on the Premier Hospital Quality Incentive Demonstration is available on the CMS Web site at: http://www.cms.hhs.gov/HospitalQualityInits/35_HospitalPremier.asp. 3 Additional information on CMS' Hospital Quality Initiative is available on the CMS Web site at: http://www.cms.hhs.gov/HospitalQualityInits/.

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The starter set of 10 quality measures that was established for the IPPS RHQDAPU as of November 1, 2003, are: Heart Attack (Acute Myocardial Infarction/AMI) ● Was aspirin given to the patient upon arrival to the hospital? ● Was aspirin prescribed when the patient was discharged? ● Was a beta-blocker given to the patient upon arrival to the hospital? ● Was a beta-blocker prescribed when the patient was discharged? ● Was an ACE inhibitor given for the patient with heart failure? Heart Failure (HF) ● Did the patient get an assessment of his or her heart function? ● Was an ACE inhibitor given to the patient? Pneumonia (PNE) ● Was an antibiotic given to the patient in a timely way? ● Had the patient received a pneumococcal vaccination? ● Was the patient's oxygen level assessed? For FY 2007 and each subsequent year, section 5001(a) of Pub. L. 109-171 amended section 1886(b)(3)(B) of the Act and made changes to the program established under section 501(b) of Pub. L. 108-173. These changes require us to expand the number of measures for which data must be submitted, and to change the percentage point reduction in the annual payment update from 0.4 percentage points to 2.0 percentage points for IPPS hospitals that do not report the required quality measures in a form and manner, and at a time, specified by the Secretary.

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Effective for payments beginning with FY 2007, new section 1886(b)(3)(B)(viii)(IV) of the Act requires the Secretary to begin to adopt the expanded set of performance measures set forth in the IOM’s 2005 report entitled, "Performance Measurement: Accelerating Improvement."4 Those measures include the HQA measures and the HCAHPS® patient perspective survey. Effective for payments beginning with FY 2008, the Secretary must add other measures that reflect consensus among affected parties and may replace existing measures as appropriate. New section 1886(b)(3)(B)(viii)(VII) of the Act requires the Secretary to post hospital quality data on these measures on the CMS Web site. A proposed list of expanded quality measures to be used for the FY 2007 update was included in the FY 2007 IPPS proposed rule (71 FR 24093). The final expanded set of 21 quality measures for the FY 2007 update, as listed in the FY 2007 IPPS final rule, is outlined below: Heart Failure (Acute Myocardial Infarction/AMI) ● Aspirin at arrival ● Aspirin prescribed at discharge ● ACE inhibitor (ACE-I) or Angiotensin Receptor Blocker (ARBs) for left ventricular systolic dysfunction ● Beta blocker at arrival ● Beta blocker prescribed at discharge ● Thrombolytic agent received within 30 minutes of hospital arrival

4

Institute of Medicine, "Performance Measurement: Accelerating Improvement," December 1, 2005, available at http://www.iom.edu/CMS/3809/19805/31310.aspx.

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● Percutaneous Coronary Intervention (PCI) received within 120 minutes of hospital arrival ● Adult smoking cessation advice/counseling Heart Failure (HF) ● Left ventricular function assessment ● ACE inhibitor (ACE-1) or Angiotensin Receptor Blocker (ARBs) for left ventricular systolic dysfunction ● Discharge instructions ● Adult smoking cessation advice/counseling Pneumonia (PNE) ● Initial antibiotic received within 4 hours of hospital arrival ● Oxygenation assessment ● Pneumococcal vaccination status ● Blood culture performed before first antibiotic received in hospital ● Adult smoking cessation advice/counseling ● Appropriate initial antibiotic selection ● Influenza vaccination status Surgical Care Improvement Project (SCIP) ● Prophylactic antibiotic received within 1 hour prior to surgical incision ● Prophylactic antibiotics discontinued within 24 hours after surgery end time In order to receive the full FY 2007 IPPS update, hospitals are required to continue to collect data for all 10 starter set quality measures (or begin collecting such

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data, if newly participating in the program) and are required to provide a written pledge to submit data on the set of 21 expanded quality measures, in addition to completing several administrative tasks regarding quality reporting. All of the measures for the IPPS RHQDAPU program are to be reported on inpatient hospital discharges. We are proposing to employ our equitable adjustment authority under section 1833(t)(2)(E) of the Act to adapt the quality improvement mechanism provided by the IPPS RHQDAPU program for use in the OPPS. As we have discussed above, failure to account at all for quality in payment systems raises a fundamental issue of payment equity. In the absence of mechanisms that provide incentives for higher quality care, Medicare’s payment systems can direct more resources to hospitals that do not deliver high quality care to Medicare beneficiaries. In this rule, we are proposing to initiate a Reporting Hospital Quality Data for Annual Payment Update under the OPPS, (OPPS RHQDAPU program) effective for payments beginning January 1, 2007. We propose to add a new §419.43(h) to our regulations to implement this proposal. Under proposed new §419.43(h)(1), we would initially implement an OPPS RHQDAPU program by reducing the OPPS conversion factor update in CY 2007 for those hospitals that are required to report quality data under the IPPS RHQDAPU program in order to receive the FY 2007 update, and fail to meet the requirements for receiving the full FY 2007 IPPS payment update. These hospitals would receive an update to the CY 2007 OPPS conversion factor that is reduced by 2.0 percentage points. Under proposed §419.43(h)(2), any reduction would not affect a hospital's OPPS update in a subsequent calendar year. Hospitals that meet the IPPS

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RHQDAPU program's requirements for FY 2007 and receive the full IPPS annual payment update would also receive the full update to the conversion factor used to determine payments for CY 2007 under the OPPS. For this initial phase of implementing an OPPS RHQDAPU program in CY 2007, it will be necessary to provide an exception for certain hospital outpatient departments to the requirement that quality data be submitted under the IPPS RHQDAPU program in order to receive the full OPPS update. The quality data submission requirements of the IPPS RHQDAPU program apply only to “subsection (d)” hospitals. “Subsection (d)” hospitals are defined under section 1886(d)(1)(B) of the Act as hospitals that are located in the fifty states or the District of Columbia other than those categories of hospitals or hospital units that are specifically excluded from the IPPS, including psychiatric, rehabilitation, long-term care, children’s, and cancer hospitals or hospital units. In other words, the provision does not apply to hospitals and hospital units excluded from the IPPS, or to hospitals located in Puerto Rico or the U.S. territories. For the initial stage of implementing the OPPS RHQDAPU program in CY 2007, hospitals that are paid under the OPPS but that do not qualify as “subsection (d)” hospitals will continue to receive the full update to the OPPS conversion factor. However, as we discuss below, our intention is to expand the OPPS RHQDAPU in the future program by requiring all hospitals that receive payment under the OPPS to participate in the program in order to receive a full update, by appropriate expansion, adaptation, and/or extension of quality performance measures and quality reporting mechanisms.

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We believe that it is fair and appropriate, for purposes of the initial phase of implementing an OPPS RHQDAPU program, to take timely and accurate reporting of IPPS RHQDAPU program quality measures into account under our equitable adjustment authority. We think that the 10 original quality measures and the expanded set of 21 process measures as reported for inpatient discharges for heart attack, heart failure, pneumonia, and surgical care reflect the quality of care in the outpatient department as well as the inpatient hospital, so they are appropriate for initial use in the OPPS as specific measures are being developed to reflect the quality of care for hospital outpatients. We believe that hospitals generally function as integrated systems that provide health care services to patients in both inpatient and outpatient settings for many of the same clinical conditions, while recognizing the different typical levels of acuity in the two settings. Hospital quality measures for multiple conditions reflect, in part, the systems of care established by hospitals in the outpatient setting such as the emergency department. Therefore, the well-developed quality measures reported for the FY 2007 IPPS regarding inpatient hospital discharges should reasonably represent the quality of care provided to hospital outpatients, so we are proposing their interim use for the CY 2007 OPPS while quality measures specific to hospital outpatients are being developed and refined. This use of multiple measures for several clinical conditions serves as a proxy for the quality of the systems of care established by hospitals. As we expand quality measurement for the hospital outpatient setting, we intend to move from measures that serve as proxies for the quality of care to actual performance measures for the outpatient setting. The discussion below focuses on the expanded list of 21 quality of

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care measures, as the 10 original measures continue to be included in the quality measurement expansion. There are 7 quality measures assessing the processes of care for patients presenting to the hospital with an acute myocardial infarction, focused on the care on arrival, the promptness of interventions, and discharge care. For the common urgent condition of a patient presenting to the hospital with chest pain that results in a clinical suspicion of acute myocardial infarction, in their effort to provide consistent, high quality care that is founded on evidence-based guidelines, hospitals often utilize clinical care pathways that are standardized for such patients presenting to the emergency room of the hospital. Such care pathways generally apply to patients with specific medical conditions who present to the hospital initially as outpatients, regardless of their eventual discharge home from the outpatient department or inpatient admission. Thus, we believe that all 7 of these measures likely serve as reasonable proxies for the quality of care for patients presenting to the hospital outpatient department with chest pain related to a myocardial infarction, who commonly receive care along the continuum from outpatient to inpatient services in a hospital that provides such care in an integrated system. Similarly, there are 7 process measures related to the care of patients with pneumonia, who often present urgently to the hospital’s emergency room with symptoms suggestive of the diagnosis of pneumonia. Because of the established clinical evidence regarding assessment and treatment activities that improve the quality of care for patients with pneumonia, most of the interventions that are measured, including oxygenation assessment, drawing of blood cultures, assessment of the patient’s pneumococcal and

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influenza vaccine status, and selection and provision of an initial antibiotic in a timely manner, would generally be performed in the outpatient department, sometimes prior to a clinical decision about the patient’s ultimate need for inpatient admission. In particular, the measures of vaccine status are quality measures that may be especially appropriate as hospital outpatient prevention measures. Their use in the hospital setting provides an opportunity for quality improvement in the hospital by encouraging assessment of immunization status and appropriate provision of immunizations, so we see no reason why their reporting on hospital inpatients is not also reflective of the quality of hospital outpatient care. While we acknowledge that in general the clinical picture of patients who are admitted to the hospital with pneumonia differs from that of patients who are not hospitalized, we expect there to be many common elements in their assessment, treatment, and counseling regarding the significance of smoking as the hospital provides their initial and subsequent care in the outpatient and/or inpatient settings. Therefore, we believe that all 7 of the measures related to the treatment of pneumonia are likely appropriately reflective of the quality of the care systems established by hospitals for outpatients with a diagnosis of pneumonia. There are 4 quality measures related to the treatment of patients with heart failure, including assessment of their cardiac function, use of certain medications in their treatment, counseling regarding smoking cessation, and provision of discharge instructions. Patients with heart failure, a common chronic medical condition, are seen frequently in hospital clinics and emergency departments with exacerbations of their symptoms. Once again, their initial treatment is often standardized and provided in the

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outpatient setting without consideration of their eventual discharge from the outpatient department or inpatient admission, a decision which ultimately depends on clinical considerations, including their response to treatment. Thus, we believe that all 4 of the inpatient quality measures regarding the treatment of patients with heart failure are reasonable surrogates for the quality of hospital systems of care for outpatients with heart failure. Likewise, under the expanded list of quality measures for the FY 2007 IPPS the surgical infection prevention quality measures indicating the provision of a prophylactic antibiotic within 1 hour prior to surgical incision and prophylactic antibiotics discontinued within 24 hours after surgery end time likely serve as a reasonable representation of the quality of surgical care for hospital outpatients. Many of the same surgical procedures are commonly performed on both hospital outpatients and inpatients, sometimes in the same operating room suites with attendance by the same clinical staff. Hospitals often have standardized protocols for providing antibiotics prior to surgery and postoperatively based on the types of procedures performed, rather than on the inpatient or outpatient status of the patient, and a decision to admit a patient may not even be made until after the completion of a procedure. Thus, we have no reason to believe that the preoperative and postoperative antibiotic experiences of a patient undergoing outpatient surgery would systemically vary from that of a hospital inpatient. In summary, we believe that quality improvement is usually a function of the entire institution as an integrated system that provides both inpatient and outpatient services to patients with an overlapping range of medical conditions. Quality

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improvement in a hospital inpatient department is likely to correlate with, and indeed to promote, similar quality improvement in the hospital’s outpatient department and other sectors of the institution. Conversely, hospitals that fail to promote quality improvement in key sectors such as inpatient care are also unlikely to improve quality in the hospital outpatient department. We believe that the FY 2007 IPPS quality measures for multiple clinical conditions reflect the quality of hospitals’ systems of care that customarily include key outpatient settings such as the emergency department. Therefore, as an interim measure while specific quality measures are being developed and refined for reporting on the quality of care to hospital outpatients, we are proposing that the initial CY 2007 OPPS RHQDAPU incorporate all of the quality measures that are applicable to the IPPS during FY 2007. We welcome public comments on the applicability to the OPPS of the various FY 2007 IPPS quality measures as proxies for the quality of care in hospital systems that include outpatient departments, with consideration of both the 10 starter set measures and the 11 new measures in the expanded set for FY 2007. Elsewhere in this proposed rule (section XXIII.), proposed additional quality measures for hospital reporting of quality data for the FY 2008 IPPS are discussed in detail. The proposed areas of expansion for the FY 2008 IPPS include the HCAHPS® survey, which incorporates questions measuring patients’ perspectives on their hospital experiences; 3 additional measures related to the processes of surgical care to supplement the 2 initial Surgical Care Improvement Project (SCIP) measures to be implemented in FY 2007; and 3 risk-adjusted assessments of mortality within 30 days of hospital

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admission for acute myocardial infarction, heart failure, and pneumonia. For the same reasons detailed above for the FY 2007 IPPS SCIP measures, we believe that the additional surgical process of care measures are a reasonable interim proxy for the quality of surgical care for hospital outpatients. In addition, the questions on the hospital HCAHPS® survey assess aspects of the patient’s hospital experience, including communication with doctors and nurses, responsiveness of the staff, pain management, and discharge information. These areas of questioning are all relevant to a hospital’s care for its outpatients, who may be treated in the hospital outpatient department for an extended period of time, particularly if they are in observation status or recovering from a significant surgical procedure. As described above, because hospitals generally function as integrated systems, with both inpatients and outpatients with related medical conditions passing through the same departments and interacting with similar staff, we believe that this survey of patients who have been admitted to the hospital may reasonably reflect hospital outpatients’ perspectives on their care experiences as well. Finally, with respect to the 30-day mortality measures, these measures are linked to the same 3 medical conditions for which quality process measures have already been implemented in the IPPS RHQDAPU program, in order to expand the quality data to more fully reflect the true outcomes of care. These mortality measures are risk-adjusted based on historical medical care use, including inpatient and outpatient hospital care and physician offices visits, and reflect outcomes of care specifically for Medicare patients. Since we are proposing that the full set of FY 2007 IPPS process of care quality measures

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are acceptable proxies for the quality of care to hospital outpatients as previously discussed, and we believe that some of the value of health care process measures is their relative ease of measurement and their ultimate relationship to health outcomes, we believe that the 30-day mortality measures for inpatients may also reflect the quality of care to hospital outpatients with the same medical conditions. In addition, in view of the common clinical courses of acute myocardial infarction, heart failure, and pneumonia in Medicare beneficiaries, it is highly likely that hospital outpatient services may be provided to previously hospitalized patients within the measures’ timeframe of 30 days after hospital discharge, thereby contributing to their care and health outcomes. Therefore, our intention is to adopt the full set of FY 2008 IPPS quality measures as proposed for the CY 2008 OPPS RHQDAPU program, while we continue to develop a set of specific quality measures for hospital outpatient care. We welcome public comments on the applicability of the FY 2008 IPPS additional quality measures that are proposed in this rule to the care of hospital outpatients. We also welcome public comments on alternative measures of quality of care, including measures of the cost or efficiency of care, that are suitable for adoption to reduce the incidence of lower-quality and high-cost outpatient hospital care for Medicare beneficiaries. We will formalize our proposal regarding the CY 2008 OPPS RHQDAPU program in the CY 2008 OPPS proposed rule, which may include proposing to adopt none, some, or all of the FY 2008 IPPS RHQDAPU measures, and may also reflect quality measures that are discussed in comments on this proposed rule.

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For purposes of computing the update to the conversion factor under the OPPS in CY 2007, therefore, we are proposing to reduce the update to the OPPS conversion factor by 2.0 percentage points for any hospital that is eligible to participate in the IPPS RHQDAPU program, but that has had its IPPS payment update reduced because it failed to comply with that program's requirements. Under this proposal, hospitals that fail to qualify for the full CY 2007 OPPS update would receive payments based on a conversion factor of $60.36, reflecting an update of 1.4 percent, in place of the conversion factor of $61.551 reflecting the full update of 3.4 percent. Under proposed §419.43(h)(1), in order to avoid reduction to the CY 2007 OPPS update, hospitals that are eligible to participate in the IPPS RHQDAPU program must meet the requirements for receiving the full IPPS update for FY 2007. Updated procedures and requirements for the IPPS RHQDAPU program are included in the FY 2007 IPPS final rule. In addition to publication in the final rule, all revised procedures will be added to the "Reporting Hospital Quality Data for Annual Payment Update Reference Checklist" section of the QualityNet Exchange Web site (www.qnetexchange.org). For purposes of determining which hospitals have not qualified to receive the full update under the OPPS for CY 2007, we will follow the determination for FY 2007 full IPPS payment update eligibility under the IPPS RHQDAPU program. These determinations will be released on or about September 1, 2006. As we noted above, we are undertaking this initiative under the authority granted by section 1833(t)(2)(E) of the Act, which authorizes the Secretary to “establish, in a

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budget neutral manner, … adjustments as determined to be necessary to ensure equitable payments” under the OPPS. Proposed §419.43(h)(3) provides that the reduction to the CY 2007 update that we will implement for hospitals that fail to meet the requirements described above will be implemented in a budget neutral manner. Therefore, if we determine that some hospitals will receive a reduced update for CY 2007 as a result of failure to meet the requirements established under this initial phase of the OPPS RHQDAPU program, we will also make an adjustment to the OPPS conversion factor, so that estimated aggregate payments under the OPPS for CY 2007, taking into account the reduced update for some hospitals, equal the aggregate payments that we estimate would have been made in CY 2007 if all hospitals received the full update to the conversion factor. As we noted above, determinations concerning which hospitals fail to meet the requirements for receiving the full update to the OPPS conversion factor in CY 2007 will be available on or about September 1, 2006. We are therefore unable at this time to determine how many hospitals will receive a reduced update in CY 2007, or to determine the budget neutrality adjustment factor that will be necessary to ensure that estimated aggregate payments under the OPPS for CY 2007 do not change as a result of implementing the proposed OPPS RHQDAPU program. However, very few hospitals have failed to qualify for the full annual updates under the IPPS RHQDAPU program. We therefore anticipate that any further adjustment to the CY 2007 conversion factor to satisfy the budget neutrality requirement under section 1833(t)(2)(E) of the Act will be negligible.

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It is not our intention to maintain the specific requirements described above beyond a short initial phase of implementing an OPPS RHQDAPU program. Rather our intention is to develop this program beyond its initial stage in at least two ways. As we have stated previously, we believe that it is appropriate and fair during this initial phase of the OPPS RHQDAPU program, to take quality data reporting under the IPPS RHQDAPU program into consideration for purposes of determining the update for hospitals under the OPPS. However, it will be important for a fully developed OPPS RHQDAPU program to be based on reporting measures that are defined in terms of the quality considerations that are most appropriate and applicable in the hospital outpatient setting. In collaboration with health care stakeholders, we intend to begin work on a set of quality and cost of care measures specific to hospital outpatient departments for implementation in a later phase of the OPPS RHQDAPU program. We intend to implement a hospital outpatient-specific set of such quality and cost of care measures at the earliest possible date. Reporting of a more fully developed, outpatient-specific set of quality and cost of care measures may be effective for purposes of determining the update as early as CY 2009. However, in implementing the system we will allow adequate time for development of the appropriate measures; announcement of the quality and cost of care measures we have selected; consideration of comments from the hospital community, patient advocates, and other stakeholders; establishment of the requisite mechanisms for reporting the measure; and initiation of actual reporting of the measures by hospitals. As we begin to develop such a set of hospital outpatient-specific quality and cost of care measures, we welcome comments on this issue.

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Specifically, we invite comments on the following (and related) questions: Which current quality and cost of care measures, such as IPPS quality measures (especially the measure set as expanded under the DRA), physician practice measures, HCAHPS®/ACAHPS®, etc., are most applicable in the hospital outpatient setting? What would be the characteristics of an ideal measure set of quality and cost of care measures for the outpatient setting? What quality and cost of care measures are currently available for the outpatient setting? What privately-led organizations or alliances are best suited to conduct needed development and consensus endorsement of outpatient quality measures? As we discussed above, for the initial stage of implementing the OPPS RHQDAPU program in CY 2007, hospitals that are paid under the OPPS but that do not qualify as “subsection (d)” hospitals will receive the full update to the OPPS conversion factor. However, we believe that it is essential to expand the requirements of the OPPS RHQDAPU program that we are proposing to all hospital outpatient departments paid under the OPPS. We will therefore also undertake to study, for CYs 2008 and beyond, approaches to adapting and expanding the current quality and cost of care measures under the IPPS RHQDAPU program for use in reporting on the quality of outpatient care in hospitals that are paid under the OPPS but that do not qualify as “subsection (d)” hospitals. We will also begin development of mechanisms by which these hospitals can report the requisite quality data in a timely and effective manner. We welcome comments on ways in which we can expand the proposed OPPS RHQDAPU program to all hospital outpatient departments that are paid under the OPPS, and on quality and cost

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of care measures that are specifically appropriate for reporting by hospital outpatient departments paid under the OPPS but that do not qualify as “subsection (d)” hospitals. Our ultimate goal is implementation of an OPPS RHQDAPU program that extends to all hospital outpatient departments that are paid under the OPPS, that is based on a set of quality and cost of care reporting measures that are specific to the hospital outpatient setting, and that is appropriately aligned with developments in quality reporting and value-based purchasing in other payment systems such as the IPPS. We will take into consideration issues related to the appropriate alignment of quality and cost of care reporting and value-based purchasing under the IPPS and OPPS during the planning process mandated by section 5001(b) of the DRA for implementation of inpatient value-based purchasing by FY 2009. We plan to include all hospital services, whether inpatient or outpatient, in the report on implementation of value-based purchasing. We have often heard from stakeholders that a more comprehensive, systematic approach to quality should be our focus. Quality reporting of inpatient and outpatient services is consistent with such comments, and will provide more comprehensive information about the quality of services provided by hospitals. We specifically request comments on the alignment of scope and other issues that should be considered during this planning process, including quality and cost of care reporting measures, data and program infrastructure, incentives, and public reporting of quality and cost of care measures under value-based purchasing. Finally, we request comments on the most effective use of our authority under section 1833(t)(2)(E) of the Act, in light of the concerning evidence of rapid and uneven

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payment growth in the OPPS with limited evidence of patient benefit. In particular, commenters who believe that the proposed quality reporting initiative is not the most effective use of this authority should consider submitting comments on alternative, more effective approaches to using this and related authorities available to CMS under the Act to promote higher quality, more equitable care. We do not believe that the status quo, with rapid and uneven growth in spending and limited evidence of its value, is consistent with a sustainable hospital outpatient payment program and affordable health care for Medicare beneficiaries, and we expect to take further steps to address this important concern. As we have noted elsewhere, continuing rapid growth in Medicare spending that is not addressed by effective payment reforms often results in across-the-board reductions in payment rates. In addition, we seek comment on whether section 1833(t)(2)(F) of the Act also supports the proposed use of quality reporting to determine a hospital’s update under the OPPS. XXI. Promoting Effective Use of Health Information Technology (If you choose to comment of issues in this section, please include the caption "Health Information Technology" at the beginning of your comment.) We recognize the potential for health information technology (HIT) to facilitate improvements in the quality and efficiency of health care services. One recent RAND study found that broad adoption of electronic health records could save more than $81 billion annually and, at the same time, improve quality of care.5 The largest potential savings that the study identified was in the hospital setting because of shorter hospital

5 RAND News Release: Rand Study Says Computerizing Medical Records Could Save $81 Billion Annually and Improve the Quality of Medical Care, September 14, 2005, available at: http://rand.org/news/press.05/09.14.html.

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stays promoted by better coordinated care; less nursing time spent on administrative tasks; better use of medications in hospitals; and better utilization of drugs, laboratory services, and radiology services in hospital outpatient settings. The study also identified potential quality gains through enhanced patient safety, decision support tools for evidence-based medicine, and reminder mechanisms for screening and preventive care. Despite such large potential benefits, the study found that only about 20 to 25 percent of hospitals have adopted HIT systems. It is important to note the caveats to the RAND study. The projected savings are across the health care sector, and any Federal savings would be a reduced percentage. In addition, there are significant assumptions made in the RAND study. National savings are projected in some cases based on one or two small studies. Also, the study assumes patient compliance, in the form of participation in disease management programs and following medical advice. For these reasons, extreme caution should be used in interpreting these results. In summary, there are mixed signals about the potential of HIT to reduce costs. Some studies have indicated that HIT adoption does not necessarily lead to lower costs and improved quality. In addition, some industry experts have stated that factors such as an aging population, medical advances, and increasing provider expenses would make any projected savings impossible. In his 2004 State of the Union Address, President Bush announced a plan to ensure that most Americans have electronic health records within 10 years.6 One part of

6

Transforming Health Care: The President’s Health Information Technology Plan, available at: http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap3.html.

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this plan involves developing voluntary standards and promoting the adoption of interoperable HIT systems that use these standards. The 2007 Budget states that "The Administration supports the adoption of health information technology (IT) as a normal cost of doing business to ensure patients receive high quality care." Over the past several years, CMS has undertaken several activities to promote the adoption and effective use of HIT in coordination with other Federal agencies and with the Office of the National Coordinator for Health Information Technology. One of those activities is promotion of data standards for clinical information, as well as for claims and administrative data. In addition, through our 8th Scope of Work contract with the QIOs, we are offering assistance to hospitals on how to adopt and redesign care processes to effectively use HIT to improve the quality of care for Medicare beneficiaries, including computerized physician order entry (CPOE) and bar coding systems. Finally, our Premier Hospital Quality Incentive Demonstration provides additional financial payments for hospitals that achieve improvements in quality, which effective HIT systems can facilitate. We are considering the role of interoperable HIT systems in increasing the quality of hospital services while avoiding unnecessary costs. As noted above, the Administration supports the adoption of HIT as a normal cost of doing business. While payments under the OPPS do not vary depending on the adoption and use of HIT, hospitals that leverage HIT to provide better quality services may more efficiently reap the reward of any resulting cost savings. In addition, the adoption and use of HIT may contribute to improved processes and outcomes of care, including shortened hospital

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stays and the avoidance of adverse drug reactions. We are seeking comments on our statutory authority to encourage the adoption and use of HIT. We also are seeking comments on the appropriate role of HIT in any value-based purchasing program, beyond the intrinsic incentives of the OPPS, to provide efficient care, encourage the avoidance of unnecessary costs, and increase quality of care. In addition, we are seeking comments on promotion of the use of effective HIT through hospital conditions of participation, perhaps by adding a requirement that hospitals use HIT that is compliant with and certified in its use of the HIT standards adopted by the Secretary. We anticipate that the American Health Information Community will provide advice to the Secretary on these issues. XXII. Health Care Information Transparency Initiative (If you choose to comment of issues in this section, please include the caption "Transparency of Health Care Information" at the beginning of your comment.) The United States (U.S.) faces a dilemma in health care. Although the rate of increase in health care spending slowed last year, costs are still growing at an unsustainable rate. The U.S. spends $1.9 trillion on health care, or 16 percent of the gross domestic product (GDP). By 2015, projections are that health care will consume 20 percent of GDP. The Medicare program alone consumes 3.4 percent of the GDP; by 2040, it will consume 8.1 percent of the GDP and by 2070, 14 percent of the GDP. Part of the reason health care costs are rising so quickly is that most consumers of health care--the patients--are frequently not aware of the actual cost of their care. Health insurance shields them from the full cost of services, and they have only limited

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information about the quality and costs of their care. Consequently, consumers do not have the incentive or means to carefully shop for providers offering the best value. Thus, providers of care are not subject to the competitive pressures that exist in other markets for offering quality services at the best possible price. Reducing the rate of increase in health care prices and avoiding health services of little value could help to stem the growth in health care spending, and potentially reduce the number of individuals who are unable to afford health insurance. Part of the President’s health care agenda is to expand Health Savings Accounts (HSAs), which would provide consumers with greater financial incentives to compare providers in terms of price and quality, and choose those that offer the best value. In order to exercise those choices, consumers must have accessible and useful information on the price and quality of health care items and services. Typically, health care providers do not publicly quote or publish their prices. Moreover, list prices, or charges, generally differ from the actual prices negotiated and paid by different health plans. Thus, even if consumers were financially motivated to shop for the best price, it would be very difficult at the current time for them to access usable information. For these reasons, DHHS is launching a major health care information transparency initiative in 2006. This effort builds on steps taken by CMS to make quality and price information available. For example, Medicare has provided unprecedented information about drug prices in the Medicare drug benefit, and is now adding to these efforts in other areas. We recently posted Medicare payment information for common elective procedures and other common admissions for all hospitals by county on our Web

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site at http://www.cms.hhs.gov/HealthCareConInit/01_Overview.asp#TopOfPage. We will post geographically-based Medicare payment information for common elective procedures for ambulatory surgery centers this summer and for common hospital outpatient and physician services this fall. In addition, a number of tools providing usable health care information are already available to Medicare beneficiaries Consumers can access “Compare” Web sites through www.medicare.gov where they can evaluate important aspects of their health care options for care at a hospital, nursing home, home health agency, and dialysis facility, as well as compare their costs and coverage when choosing a prescription drug plan. CMS is developing a transparency initiative with the goals of providing more comprehensive information on quality and costs, including more complete measures of health outcomes, satisfaction, and volume of services that matter to consumers, and more comprehensive measures of costs for entire episodes of care, not just payments for particular services and admissions. We intend for the project to combine public and private health care data to provide cost and quality of care information at the physician and hospital levels. Quality, cost, pricing, and patient information will be reported to consumers and purchasers of health care in a meaningful and transparent way. In addition, we anticipate the project will provide a national template for performance measures and a payment structure that aligns payment and performance.

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XXIII. Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for the FY 2008 IPPS Annual Payment Update (If you choose to comment on issues in this section, please include the caption “FY 2008 IPPS RHQDAPU" at the beginning of your comments.) A. Background Section 5001(a) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171) sets out new requirements for the IPPS Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program. The IPPS RHQDAPU program was established to implement section 501(b) of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173). It builds on our ongoing voluntary Hospital Quality Initiative which is intended to empower consumers with quality of care information to make more informed decisions about their health care while also encouraging hospitals and clinicians to improve the quality of care. Section 5001(a) of Pub. L. 109-171 revises the mechanism used to update the standardized amount for payment for hospital inpatient operating costs. New sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment update for FY 2007 and each subsequent fiscal year will be reduced by 2.0 percentage points for any “subsection (d) hospital” that does not submit certain quality data in a form and manner, and at a time, specified by the Secretary. Under sections 1886(b)(3)(B)(viii)(III) and (IV) of the Act, we must expand the “starter set” of quality measures that we have used since FY 2005, and to begin to adopt the baseline set of performance measures as set forth in a 2005 report issued by the Institute of Medicine of the National Academy of Sciences

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(IOM) under section 238(b) of the MMA, effective for payments beginning with FY 2007. The 2005 IOM report's "baseline" quality measures include Hospital Quality Alliance (HQA)-approved clinical quality measures, the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS®) patient perspective survey, and three structural measures. The structural measures are: (1) implementation of computerized provider order entry for prescriptions, (2) staffing of intensive care units with intensivists, and (3) evidence-based hospital referrals. These measures originate from the Leapfrog Group's original "three leaps," and are part of the NQF's 30 safe practices. In 2002, the Secretary of HHS initiated a partnership with several collaborators intended to promote hospital quality improvement and public reporting of hospital quality information. This collaboration is known as the Hospital Quality Alliance (HQA). The collaborators include the American Hospital Association, the Federation of American Hospitals, the Association of American Medical Colleges, the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the National Quality Forum (NQF), the American Medical Association, the Consumer-Purchaser Disclosure Project, the American Association of Retired Persons, the American Federation of Labor Congress of Industrial Organizations, the Agency for Healthcare Research and Quality, as well as CMS, Quality Improvement Organizations (QIOs), and others. In the FY 2007 IPPS proposed rule, we proposed to add to our 10-measure "starter set" of quality measures, 11 HQA-approved measures for purposes of the FY 2007 update (71 FR 24093).

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Under section 1886(b)(3)(B)(viii)(V) of the Act, for payments beginning with FY 2008, we are required to add other measures that reflect consensus among affected parties and, to the extent feasible and practicable, must include measures set forth by one or more national consensus building entities. Commenters on the FY 2007 IPPS proposed rule requested that we notify the public as far in advance as possible of any proposed expansions of the measure set and program procedures to encourage broad collaboration and to give hospitals time to prepare for any anticipated changes. Other commenters requested that we adopt additional quality measures and that we do as soon as feasible. For example, several commenters urged that we adopt the HCAHPS® patient survey as a part of the IPPS RHQDAPU program, while others suggested that we adopt more of the IOM measures as well as more outcome measures, including mortality measures that were not included in the 2005 IOM report's "baseline" quality measures. In response to these comments and as part of our continuing efforts to strengthen the IPPS RHQDAPU program, we are seeking comments on this proposal to expand, for FY 2008, the measurement set beyond those measures we proposed to adopt for purposes of the FY 2007 update. This proposed expanded set would further broaden the scope of the IPPS RHQDAPU program by including the HCAHPS® patients’ perspectives of care measures as well as surgical care and mortality outcome measures.

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B. Proposed Additional Quality Measures for FY 2008 1. Introduction For FY 2008, we propose to add the following categories to the measure set: ● HCAHPS® Survey HCAHPS® is also known as Hospital CAHPS or the CAHPS Hospital Survey. The HCAHPS® survey is composed of the following 27 questions: + 18 substantive questions that measure critical aspects of the hospital experience (communication with doctors; communication with nurses; responsiveness of hospital staff; cleanliness and quietness of hospital environment; pain management; communication about medicines; and discharge information). + 4 questions that direct patients to complete only those survey questions that apply to them. + 3 questions to be used to adjust the mix of patients across hospitals. + 2 questions that support Congressionally-mandated reports, the “National Healthcare Disparities Report,” and the “National Healthcare Quality Report.” ● Surgical Care Improvement Project (SCIP) + SCIP-VTE 1: Venous thromboembolism prophylaxis ordered for surgery patient + SCIP-VTE 2: VTE prophylaxis within 24 hours pre/post surgery + SCIP Infection 2: Prophylactic antibiotic selection for surgical patients ● Mortality + AMI 30-day mortality –- Medicare patients

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+ HF 30-day mortality – Medicare patients + Pneumonia 30-day mortality – Medicare patients We discuss these proposed measures in detail below. 2. HCAHPS® Survey and the Hospital Quality Initiative We have partnered with the Agency for Healthcare Research and Quality (AHRQ), another HHS agency, to develop HCAHPS®. The intent of the HCAHPS® initiative is to provide a standardized survey instrument and data collection methodology for measuring patients’ perspectives of hospital care. While many hospitals currently collect information on patients’ satisfaction with care, there is currently no national standard for collecting or publicly reporting this information that would enable valid comparisons to be made across hospitals. To make the appropriate comparisons to support consumer choice, we believe it is necessary to introduce a standard measurement approach. HCAHPS® can be viewed as a core set of questions that can be combined with a broader, customized set of hospital-specific items. HCAHPS® is intended to complement the data hospitals currently collect to support improvements in internal customer services and quality related initiatives within the hospital. Three broad goals have shaped HCAHPS®. The survey is designed to produce data on the patient’s perspective on care that allows objective and meaningful comparisons between hospitals on issues that are important to consumers. In addition, public reporting of the survey results is designed to create incentives for hospitals to improve their quality of care. Also, public reporting will serve to enhance public accountability in health care by increasing the transparency of the quality of hospital care

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provided in return for the public investment. With these goals in mind, the HCAHPS® initiative has taken substantial steps to assure that the survey will be credible, useful, and practical. Throughout the HCAHPS® development process, AHRQ and CMS have solicited and received a great deal of public input. AHRQ published a Federal Register notice that called for measures in July 2002 (67 FR 48477) and we solicited input on drafts of the HCAHPS® instrument and its implementation strategy (February 2003, June 2003, and December 2003—68 FR 5889, 68 FR 38346, 68 FR 68087). In addition to the public comments received, results from a 3-State Pilot Study were used to reduce the pool of 66 survey questions to 25 questions. In addition to the development and review processes, we submitted the 25-item version of the HCAHPS® instrument to the NQF. The NQF is a voluntary consensus standard-setting organization established to standardize health care quality measurement and reporting for its review and endorsement through its consensus development process. NQF endorsement represents the consensus of numerous health care providers, consumer groups, professional associations, purchasers, Federal agencies, and research and quality organizations. Following a thorough, multi-stage review process, HCAHPS® was endorsed by the NQF board in May 2005. In the process, NQF recommended a few modifications to the instrument. As a result of the recommendations of the NQF Consensus Development Process, questions regarding courtesy and respect were added to the survey. The NQF review committee believes that these questions are important to all patients, and may be particularly meaningful to patients who are members of racial and

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ethnic minority groups. Upon the recommendation of the NQF, we further examined the costs and benefits of the 27-item HCAHPS® survey. This cost-benefit analysis of HCAHPS® was conducted by Abt Associates, Inc. The report of this analysis can be found at http://www.cms.hhs.gov/HospitalQualityInits/downloads/HCAHPSCostsBenefits200512. pdf. We published a Federal Register notice soliciting comments on the draft 27-item HCAHPS® Survey in November 2005 (70 FR 67476). The HCAHPS® survey received approval by the Office of Management and Budget (OMB) on December 22, 2005. Shortly thereafter, we began final preparations for the voluntary national implementation (as a part of the Hospital Quality Initiative) with the support of the HQA. The HQA is a private/public partnership that includes the American Hospital Association, the Federation of American Hospitals, the Association of American Medical Colleges, JCHAO, NQF, American Association of Retired Persons (AARP), CMS, AHRQ, and other stakeholders who share a common interest in reporting on hospital quality. The HQA has been proactive in making performance data on hospitals accessible to the public, thereby improving patient care. We also offered training sessions for hospitals self-administering the survey and survey vendors acting on behalf of hospitals in February and April 2006. Since HCAHPS® was a new initiative, we decided that it was critical to hospitals, survey vendors, and CMS to acquire first-hand experience with data collection, including sampling and data submission to the QualityNet Exchange, prior to collecting data for

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public reporting. For hospitals participating in the national implementation of HCAHPS® on October 1, 2006, we required participation in a short dry run period of at least one month. A hospital could choose to sample and survey discharges in April, May, and/or June 2006. Data from this "dry run" are not publicly reported. National implementation begins October 2006 for this first set of hospitals and survey vendors that will be participating in the HCAHPS® voluntary initiative The initial public reporting period will cover nine months of patient discharges (October 2006 through June 2007). In late 2007, hospital results will be publicly reported on the CMS Hospital Compare Web site (www.hospitalcompare.hhs.gov). After the initial implementation, the Web site will contain 12 months of HCAHPS® data and will be updated quarterly. The HCAHPS® survey is currently available in English and Spanish. During the HCAHPS® dry run and initial national implementation (discussed more fully below), we will be soliciting comments from participating hospitals and survey vendors regarding additional languages for HCAHPS®. This information can be submitted to our HCAHPS® mailbox, [email protected] From the information we receive, we will establish priorities for HCAHPS translation into additional languages. In order for the remaining hospitals to participate in HCAHPS®, future training sessions for hospital personnel and survey vendors will take place in early 2007. Hospitals may choose to self-administer HCAHPS®, or may choose to hire a vendor who has completed the training. A brief dry run of March 2007 discharges will allow newly participating hospitals and vendors to get “first-hand” experience with all phases of the

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data collection and submission process. Details about the HCAHPS® requirements, and the additional requirements proposed for HCAHPS® under the IPPS RHQDAPU program, are included in section XXIII.C. and XXIII.D. of this preamble. 3. Surgical Care Improvement Project (SCIP) Quality Measures The Surgical Care Improvement Project (SCIP) is a national quality partnership of organizations committed to improving the safety of surgical care through the reduction of post-operative complications. The primary goal of the partnership is to save lives by reducing the incidence of surgical complications by 25 percent by the year 2010. Partners in SCIP believe that a meaningful reduction in complications requires a systems approach to our challenges, which means that surgeons, anesthesiologists, primary care physicians and internal medicine specialists, perioperative nurses, pharmacists, infection control professionals, and hospital executives must work together to make surgical care improvement a priority. SCIP partners coordinate their efforts through a steering committee that includes representatives of the American Hospital Association, the American College of Surgeons, the American Society of Anesthesiologists, the Association of Perioperative Registered Nurses, the JCAHO, the Institute of Healthcare Improvement, the Department of Veterans Affair (VA), the Agency for Healthcare Research and Quality (AHRQ), CMS and the Centers for Disease Control and Prevention (CDC). SCIP is a comprehensive program, integrated into the quality improvement agenda of the CMS, JCAHO, the CDC, the American College of Surgeons, the Veterans Health Administration, as well as the other organizations that comprise the SCIP Steering

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Committee. There are a number of activities underway from these and other partnering organizations. 4. Mortality Outcome Measures CMS recognizes that the current set of hospital performance measures should be expanded to more fully reflect outcomes of care. The 30-day mortality measures for patients with acute myocardial infarction (AMI), heart failure (HF) and pneumonia are three separate claims-based, risk-adjusted assessments of mortality within 30 days of admission for each of the three conditions. The measures reflect outcomes of care for Medicare patients only, and rely on Medicare patients' historical medical care use, including inpatient and physician office visits and outpatient care 1 year before their hospitalizations, for the risk adjustment calculation. The 30-day mortality rate measures for AMI and HF were endorsed by the NQF in 2005 (see http://www.qualityforum.org/news/tb3Hospspecsforweb02-10-06.pdf). We anticipate that the 30-day mortality rate measure for pneumonia will also be endorsed by the NQF since it reflects the same underlying methodology as the other 30-day mortality measures. In contrast to the HCAHPS® and SCIP quality measures added to the measure set for FY 2008, no additional data collection from hospitals will be required to calculate the 30-day mortality measures. All three measures can be calculated based on Medicare inpatient and outpatient claims data that are already reported to the Medicare program for payment purposes. We anticipate that we will conduct a national dry run for the AMI and HF measures in late 2006 to test implementation and educate hospitals on the

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methodology. During this dry run, hospitals will be given the opportunity to examine their rates and other data associated with the measures, and to provide feedback to CMS on questions related to the calculation of the rates. The rates that will be developed for the dry run will be used for quality improvement purposes and will not be publicly reported to the Hospital Compare. More information about the dry run will be provided to hospitals through QualityNet Exchange Web site (www.qnetexchange.org). We expect to calculate and publicly report 30-day mortality rates for the AMI and HF conditions in the June 2007 update of the Hospital Compare Web site. Rates for the 30-day pneumonia mortality measure will be posted as soon as possible after we receive NQF endorsement. As is currently the case for the other measures, hospitals will be provided a 30-day period in which they will be permitted to preview their rates before publication. As is currently the case for the “starter set” measures, hospitals that have pledged to submit data for full annual payment update for FY 2008 will not be permitted to suppress or withhold publication of the rates on the Hospital Compare Web site, except under highly limited circumstances. C. General Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program All revised procedures for FY 2008 also will be added to the “Reporting Hospital Quality Data for Annual Payment Update Reference Checklist” section of the QualityNet Exchange Web site. This checklist also links to all of the forms to be completed by hospitals participating in the program.

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To participate in the RHQDAPU program, we are proposing that hospitals must follow these steps: ● Complete all registration steps; this information can be found on “Reporting Hospital Quality Data for Annual Payment Update Reference Checklist” located on the QualityNet Exchange Web site. ● Continue to collect data for all clinical quality measures that are currently part of the RHQDAPU program, and submit the data to the QIO Clinical Warehouse either using the CMS Abstraction & Reporting Tool (CART), the JCAHO ORYX® Core Measures Performance Measurement System, or another third-party vendor tool that has met specification requirements for data transmission to QualityNet Exchange. The submission must be done through QualityNet Exchange. Because the information in the QIO Clinical Warehouse is considered QIO information, it is subject to the stringent QIO confidentiality regulations in 42 CFR Part 480. In addition, for purposes of the annual payment update, we will continue to require hospitals to pass our validation requirements. We originally set forth these requirements in the FY 2006 IPPS final rule (70 FR 47421), and we will continue to require that hospitals achieve an 80-percent reliability. We will also continue to post information related to validation requirements on the QualityNet Exchange Web site. In addition to these general procedures, the specific procedures below apply to these proposed additional measures.

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D. HCAHPS® Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program 1. Introduction Under sections 1886(b)(3)(B)(viii)(III) and (IV)of the Act, CMS must begin to adopt the baseline set of performance measurements as set forth in a 2005 report issued by the Institute of Medicine (IOM) of the National Academy of Sciences under section 238(b) of Pub.L.108-173, effective for payments beginning with FY 2007. The 2005 IOM report recommends that we expand the “starter” measures by including the HCAHPS® patient perspective survey. We began to adopt the IOM measures in the FY 2007 IPPS final rule, in which we adopted 11 additional HQA-approved quality measures. In this proposed rule, we are proposing to expand the set of IOM measures hospitals will be required to report to receive the full IPPS market basket update for FY 2008. In addition, section 1886(b)(3)(B)(viii)(V) of the Act states that effective for payments beginning with FY 2008, we must add “other measures that reflect consensus among affected parties and, to the extent feasible and practicable,” include “measures set forth by one or more national consensus building entities.” Accordingly, we are proposing to add additional SCIP quality and measures and three 30-day mortality measures. 2. HCAHPS® Hospital Pledge and Beginning Date for Data Collection Under the FY 2008 RHQDAPU program, we are proposing that hospitals will need to submit HCAHPS® data to the QIO Clinical Warehouse beginning with discharges that occur in the third calendar quarter of 2007 (July through September discharges). In

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order to meet HCAHPS® requirements for the RHQDAPU program, we are proposing that all hospitals, including hospitals new to HCAHPS® and hospitals that have been collecting data since October 1, 2006, must submit a formal pledge to CMS by July 1, 2007 stating that they will collect and submit HCAHPS® data to the QIO Clinical Warehouse starting with July 2007 discharges. We are proposing that to meet HCAHPS® requirements for the RHQDAPU program for FY 2008, all hospitals must submit this pledge to CMS. 3. HCAHPS® Dry Run We are proposing to require that hospitals that have not had experience collecting and submitting HCAHPS® data to the QIO Clinical Warehouse as a result of participating in the 2006 voluntary initiative must participate in a dry run of the survey in March 2007. We are proposing to require the submission of March 2007 dry run data to the QIO Clinical Warehouse by July 13, 2007 from those hospitals not yet collecting and submitting HCAHPS® data. 4. HCAHPS® Data Collection Requirements To collect HCAHPS® data, we are proposing that a hospital can either contract with an approved HCAHPS® survey vendor that will conduct the survey and submit data on the hospital’s behalf to the QIO Clinical Warehouse, or a hospital can self-administer the survey without using a survey vendor provided that the hospital meets Minimum Survey Requirements as specified at (www.HCAHPSonline.org/programapplication.asp). A current list of approved HCAHPS® survey vendors can be found at www.HCAHPSonline.org/app_vendor.asp.

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5. HCAHPS® Registration Requirements ● We are proposing that HCAHPS® registration requirements for the RHQDAPU program will include: + The hospital must be a registered user of QualityNet Exchange. Hospitals that are self-administering HCAHPS® or survey vendors hired by the hospitals must collect and submit HCAHPS® survey person-level data electronically to the QIO Clinical Warehouse via QualityNet Exchange, using prescribed file specifications that can be found at www.HCAHPSonline.org/techspecs.asp. 6. Additional Steps for HCAHPS® Participation In order to participate in HCAHPS®, we are proposing that hospitals that self-administer the survey and survey vendors that collect and submit data on behalf of client hospitals must follow these steps: ● Attend Hospital/Survey Vendor Training. Hospitals and survey vendors that intend to actually administer the survey must attend HCAHPS® training. Hospitals contracting with a survey vendor or another hospital to administer the survey on behalf of the hospital do not need to attend training. The next training session will be offered via Webinar in late January 2007. Please see www.HCAHPSonline.org for updated information on training opportunities and registration. At a minimum, the hospital’s or survey vendor’s project manager must attend the HCAHPS® training for administering the survey. Hospitals and survey vendors that attended training in February or April 2006 and are participating in the voluntary HCAHPS data submission beginning October 2006 do not need to participate in the January 2007 training sessions. In

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addition, we may hold short refresher training sessions for all hospitals self-administering the survey and survey vendors in the spring of 2007. ● Review and follow the HCAHPS® Quality Assurance Guidelines and Updates. HCAHPS Quality Assurance Guidelines have been developed to standardize the survey data collection process and to ensure comparability of data reported through HCAHPS®. They are located on www.hcahpsonline.org and will also be presented at the HCAHPS® hospital/survey vendor training. The HCAHPS® Quality Assurance Guidelines (the Guidelines) provide detailed information regarding: technical support; sampling protocols; the four allowed modes of survey administration; data specifications and coding; data preparation and submission; data reporting and the exceptions process. The Guidelines describe technical support that is available to hospitals and survey vendors administering HCAHPS® by using a toll-free number or by e-mail. It provides details regarding the protocol for sampling involving drawing a simple random sample each month from the sampling frame of eligible discharges. Sampling can be done at one time after the end of the month, or continuously throughout the month, as long as a simple random sample is generated for the month. The Guidelines include very specific information about the four allowed modes of survey administration: mail only, telephone only, a mixed methodology of mail with telephone follow up, and active interactive voice response (IVR). All modes of administration require following a standardized protocol. The Guidelines describe a standardized approach for the coding of all data from assigning the unique tracking number, the decision rules for capturing data, the file specifications, the file layout, the procedure for

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assigning disposition codes, the definition of a completed survey, and the procedure for calculating the total survey response rate. Data preparation and submission guidelines cover registration for data submission via the QualityNet Exchange, creation of data files, instructions for data submission via the QualityNet Exchange, and confirmation of accuracy of data. Data reporting covers internal and external reports; among them are the hospital preview reports and the public reports on CMS Hospital Compare. The Quality Assurance Guidelines describe the exceptions process to review requests for methodologies that vary from the standard HCAHPS® protocols and the appeals process if an exception is denied. For the initial implementation phase of the HCAHPS® survey, we are proposing that no exceptions to the four approved modes of survey administration will be allowed. In addition, hospitals/survey vendors must follow any updates that are posted on www.HCAHPSonline.org ● Develop Hospital/Survey Vendor HCAHPS® Quality Assurance Plan. Hospitals self-administering the survey and survey vendors must develop a Quality Assurance Plan for survey administration in accordance with the Quality Assurance Guidelines presented at the HCAHPS® hospital/survey vendor training and posted on www.HCAHPS®online.org/programapplication.asp. The HCAHPS® Quality Assurance Plan should include the following: + Organizational chart + Work plan for survey implementation + Description of survey procedures and quality controls

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+ Plans for quality assurance oversight of on-site work and of all subcontractors' work (including survey vendor, if used) + Confidentiality/Privacy and Security procedures in accordance with the Health Insurance Portability and Accountability Act (HIPAA). The hospital or survey vendor must make the HCAHPS® Quality Assurance Plan available to the HCAHPS® project team upon request. The project team includes CMS, the Health Services Advisory Group (HSAG) that is helping CMS implement HCAHPS, and HSAG’s subcontractors for this project. ● Attest to the Accuracy of the Organization’s Data Collection. Hospitals selfadministering the survey and survey vendors must review and agree that the HCAHPS survey was administered in accordance with the HCAHPS® Quality Assurance Guidelines. ● Participate in HCAHPS® oversight activities. Hospitals and survey vendors must participate in a quality oversight process conducted by the HCAHPS® project team. Prior to July 2007, the purpose of the oversight activities will be to provide feedback to hospitals and survey vendors on data collection procedures. Starting in July 2007, CMS may ask hospitals/survey vendors to correct any problems that are found and provide follow-up documentation of corrections for review within a defined time period. If we find that the hospital has not made these corrections, CMS may determine that the hospital is not submitting appropriate HCAHPS® data for the RHQDAPU program. As part of these activities, HCAHPS® project staff will review and discuss with survey vendors and hospitals self-administering the survey their specific Quality

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Assurance Plans; survey management procedures; sampling and data collection protocols; and data preparation and submission. This review may take place in-person or through other means of communication. 7. HCAHPS® Survey Completion Requirements We are proposing that hospitals must submit complete HCAHPS® data in accordance with the HCAHPS® Quality Assurance Guidelines located at www.HCAHPSonline.org and made available at the hospital/survey vendor training. These requirements specify that hospitals are required to survey a random sample of eligible discharges on a monthly basis. Hospitals should target to collect at least 300 completed surveys over the public reporting period. For the initial HCAHPS® national implementation, the public reporting period is 9 months, from October 2006 through June 2007. After this initial implementation, the public reporting period will be 12 months and hospitals should be targeting to collect at least 300 completed HCAHPS® surveys over a 12 month period. The initial public reporting period is 9 months, because of the broad interest of making HCAHPS results publicly available as quickly as possible. Smaller hospitals that cannot collect 300 completed HCAHPS® surveys during a public reporting period will only be required to collect as many completed surveys as possible. A small hospital is defined for the purposes of HCAHPS® as any hospital that cannot achieve 300 completed HCAHPS® surveys during a public reporting period, because of its dearth of eligible hospital discharges during that period. For those hospitals that cannot collect 300 completed HCAHPS® surveys, we plan to note this on www.hospitalcompare.hhs.gov that the results for those hospitals are based on less than

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100 completed HCAHPS® surveys or between 100 and 299 completed HCAHPS® surveys. 8. HCAHPS® Public Reporting We propose to display HCAHPS® data on our Web site for public viewing in accordance with section 1886(b)(3)(B)(viii)(VII) of the Act, which states that the Secretary must report quality measures that relate to patients’ perspectives on care on our Web site. Before we display this information, hospitals will be permitted to review their data to be made public as we have recorded it. As we discussed above, there are 27 questions included in the HCAHPS® survey. The survey is comprised of substantive questions that directly pertain to seven domains of primary importance to the target audience: doctor communication, nurse communication; cleanliness and quiet of the hospital environment; responsiveness of hospital staff; pain management; communication about medicines; and discharge information. It also includes two overall questions that measure the patient’s overall satisfaction of the hospital and willingness to recommend the hospital. Each of the seven domains is constructed from two or three questions from the survey and is reported as a composite score. For public reporting purposes, the seven composite scores and two overall ratings will be displayed. There will be both national and state comparisons for each of the nine reported results. We are currently conducting testing with consumers to ensure that the HCAHPS® displays on www.hospitalcompare.hhs.gov are consumer friendly. Generally, for CAHPS® measures in other settings we display bar graphs with the top response categories, such as the

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percent of people surveyed that gave the hospital a “10” for a 0 to 10 rating, or the percent that said their doctors “always” communicate well. Users of the site can “drill down” to get more detailed information regarding the distribution for the response categories underlying the survey questions. 9. Reporting HCAHPS® Results for Multi-Campus Hospitals Currently, hospitals that share Medicare provider numbers combine their clinical data across campuses for submission and publication of their data. Our current plan for HCAHPS® is for these data to be combined across campuses. However, we are considering ways in which data could potentially be displayed by campus rather than by hospital system in the future. As a starting point, we are trying to determine a way to identify those hospitals that share Medicare provider numbers, which will allow CMS to denote that the measures are made up of multiple campuses on www.hospitalcompare.hhs.gov. In the future, if feasible, we would like to move towards obtaining and reporting information at the campus level. We encourage comments regarding this issue. E. SCIP & Mortality Measure Requirements for the FY 2008 RHQDAPU Program ● We are proposing that hospitals be required to complete and return a written form on which they agree to participate in the RHQDAPU program for FY 2008. ● For the SCIP measures, we are proposing to require hospitals to submit data starting with discharges that occur in CY 2007. Hospitals will be required to submit data on these measures to the QIO Clinical Warehouse beginning with discharges that occur in the first calendar year quarter of 2007 (January through March discharges). We are

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proposing that the deadline for hospitals to submit their data for first calendar quarter of 2007 will be August 15, 2007. ● For the Mortality measures, we are proposing to use claims data that is already being collected for index hospitalizations to calculate the mortality rates, therefore, no additional data will need to be submitted by hospitals for these measures. Index hospitalization is the initial hospitalization for an episode of care. Claims data submitted to CMS for index hospitalizations occurring from July 2005 through June 2006 (3rd quarter CY 2005 through 2nd quarter CY 2006) will be used to calculate the mortality rates that will be used for FY 2008 annual payment determination. These rates will be posted on Hospital Compare in June 2007. ● We are proposing to display on our Web site data collected on the SCIP and Mortality measures for public viewing in accordance with section 1886(b)(3)(B)(viii)(VII) of the Act. Before we display this information, hospitals will be permitted to review their data that are to be made public as we have recorded it. F. Conclusion We believe that our proposal to include HCAHPS®, SCIP and Mortality measures as part of the FY 2008 IPPS RHQDAPU program's reporting requirements meets the requirements of section 1886(b)(3)(B)(viii)(III) of the Act. This provision states that we must expand for FY 2007 and each subsequent fiscal year, consistent with sections 1886(b)(3)(B)(viii)(IV) through 1886(b)(3)(viii)(VII) of the Act, the set of measures that the Secretary determines to be “appropriate” for the measurement of care furnished by

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hospitals in inpatient settings beyond the original 10-measure starter set of quality measures that applied in FY 2005 and FY 2006. Section 1886(b)(3)(B)(viii)(IV) of the Act requires us to begin to adopt the baseline set of performance measures set forth in the 2005 IOM report effective for payment beginning with FY 2007. We began to adopt these measures for FY 2007 and are now proposing to adopt additional measures, including several measures that are from this report. HCAHPS® and the SCIP Infection 2 measures are measures set forth in the 2005 IOM report. Thus, we believe our proposal to expand the measure set to include HCAHPS® and SCIP Infection 2 measures for the FY 2008 IPPS RHQDAPU program meets this requirement of the Act. Section 1886(b)(3)(B)(viii)(V) of the Act states that effective for payments beginning with fiscal year 2008, we must add "other measures that reflect consensus among affected parties and, to the extent feasible and practicable," include "measures set forth by one or more national consensus building entities." In addition to proposing to add additional measures from the baseline measures found in the 2005 IOM report, we are proposing to add additional SCIP quality measures and three 30-day mortality measures. In selecting these measures to adopt consistent with this section for the FY 2008 payment update and thereafter, CMS is proposing to add standardized quality measures that have been adopted or endorsed by a national consensus building entity that utilizes a national consensus building process that endorses measures based on (1) its consideration of issues such as the validity, reliability, impact and feasibility of the

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measures, and (2) input from a wide variety of stakeholders including, but not limited to, health care consumers and patients, clinicians and providers, purchasers, and researchers. We believe that adopting measures that have been endorsed as a result of this process achieves the type of consensus that Congress envisioned in enacting section 5001(a) of Pub. L. 109-171. The NQF, is one consensus building entity that administers this process and takes these factors into account when endorsing measures. NQF is a voluntary consensus standard-setting organization established to standardize health care quality measurement and reporting, for its review and endorsement through its consensus development process. NQF endorsement, which occurs following a thorough, multi-stage review process, represents the consensus of numerous health care providers, consumer groups, professional associations, purchasers, Federal agencies, and research and quality organizations. We recognize that the 30-day Pneumonia mortality is not currently NQF-endorsed. We anticipate, however, that the NQF will endorse this measure soon. We do not plan to adopt the 30-day Pneumonia mortality measure unless it is endorsed by the NQF. The HQA is another such consensus building entity. The HQA is a public-private collaboration of numerous stakeholder groups. One goal of HQA is to identify a robust set of standardized and easy-to-understand hospital quality measures that would be used by all stakeholders in the health care system in order to improve quality of care and the ability of consumers to make informed health care choices. We also note that HQA currently relies on the NQF process as part of its process.

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CMS anticipates that other consensus building entities that take into account the issues of validity, reliability, impact and feasibility of the measures and involves a wide array of stakeholders may develop. XXIV. Files Available to the Public Via the Internet Addenda A and B to this proposed rule provide various data pertaining to the proposed CY 2007 payments for services under the OPPS. Addenda AA, BB, and CC to this proposed rule include various data pertaining the proposed ASC list of covered procedures and payment rates for procedures furnished in ASCs in CYs 2007 and 2008, respectively. To conserve resources and to make Addendum B more relevant to the OPPS, we are including in Addendum B of this proposed rule HCPCS codes (including CPT codes) for services that are assigned a payable status indicator under the OPPS and HCPCS codes for which we are proposing a change in status indicator and/or APC assignment for CY 2007. A list of all active HCPCS codes, regardless of their assigned payable status, is available to the public on the CMS Web site at: http://www.cms.hhs.gov/providers/hopps. For the convenience of the public, we are also including on this same CMS Web site a table that displays the HCPCS data in Addendum B sorted by APC assignment, identified as Addendum C. In addition, we are including on the CMS Web site, in a format that can be easily downloaded and manipulated, Addendum A. Similarly, we are including Addenda AA, BB, and CC on the CMS Web site at: http://www.cms.hhs.gov/center/asc.asp.

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We are not including as addenda in this proposed rule, reprints of wage index related tables from the FY 2007 IPPS proposed rule (71 FR 24235 through 24272) as they would be used for the OPPS for CY 2007. Rather, we are providing a link on the CMS Web site at: http://www.cms.hhs.gov/providers/hopps to all of the proposed FY 2007 IPPS wage index related tables. For additional assistance, contact Anita Heygster, (410) 786-4486. XXV. Collection of Information Requirements Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues: ● The need for the information collection and its usefulness in carrying out the proper functions of our agency. ● The accuracy of our estimate of the information collection burden. ● The quality, utility, and clarity of the information to be collected. ● Recommendations to minimize the information collection burden on the affected public, including automated collection techniques. The following information collection requirements included in this proposed rule and their associated burdens are subject to the PRA.

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We are soliciting public comment on each of the issues for the following section of this document that contain information collection requirements and are not currently approved by the OMB. Proposed Additional Quality Measures for FY 2008: Surgical Care Improvement Project (SCIP) Section 5001(a) of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171) sets out new requirements for the IPPS Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program. Under section 1886(b)(3)(B)(viii)(V) of the Act, for payments beginning with FY 2008, we are required to add other measures that reflect consensus among affected parties and, to the extent feasible and practicable, must include measures set forth by one or more national consensus building entities. In this proposed rule, we are setting out the additional measures that we propose to require for FY 2008. The burden associated with this section is the time and effort associated with collecting, copying and submitting the data. As part of the Surgical Care Improvement Project (SCIP), we estimate that there will be approximately 3,700 respondents per year. All of these hospitals must submit SCIP Infection 1 and 3 to receive the annual payment update covering FY 2007. Additional surgical procedures covering approximately 6,000,000 discharges annually will be sampled at a 10 percent rate per hospital, so an additional 600,000 discharges will be abstracted and submitted by hospitals for the additional SCIP measures (SCIP Infection 2 and VTE 1, 2). The 10 percent sampling rate is a minimum threshold specified in the most current version of the joint

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CMS/JCAHO Hospital Quality Measures Specifications Manual. We estimate that it will take 450,000 hours (3/4 hour per sampled discharge) to abstract and submit data for these additional sampled discharges. In addition, hospitals must abstract and submit additional information needed for the additional SCIP measures covering the surgical procedures already covered in SCIP Infection 1 and 3. We estimate that about 275,000 discharges will be sampled and abstracted covering these surgical procedures. We estimate that it will take an additional 137,500 hours (1/2 hour per sampled discharge) for hospitals to abstract and submit this additional information. Both estimates include overhead. In total, we estimate that an additional 587,500 hours will be used by hospitals to abstract and submit the additional SCIP measures. This estimate includes overhead. Further, we note that there is no additional burden associated with the incorporation of mortality outcome measures as this information is currently collected with claims data. We have submitted a copy of this proposed rule to the OMB for its review of the aforementioned information collection requirements. This proposed rule also includes associated information collections for which CMS has obtained the OMB’s approval. The following is a discussion of these currently OMB approved collections. As discussed in section XXIII of this preamble, the IPPS RHQDAPU program expands upon the Hospital Quality Initiative which is intended to empower consumers with quality of care information to make more informed decisions about their health care

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while also encouraging hospitals and clinicians to improve the quality of care. The information collection associated with the IPPS RHQDAPU is the Hospital Quality Alliance (formerly known as the National Voluntary Hospital Reporting Initiative) -Hospital Quality Measures. The OMB approved this information collection under OMB control number 0938-0918, with an expiration date of December 31, 2008. As a result of the increase from 10 to 21 quality measures, CMS created a revised information collection request to include the new quality measures. CMS announced the revised information collection in a 60-day Federal Register notice that published on June 9, 2006 (71 FR 33458). CMS will publish a 30-day Federal Register notice prior to the submission of the revised information collection being proposed in this rule to OMB. Further, as discussed in section XXIII. of this preamble, for FY 2008, we are proposing to expand the IPPS RHQDAPU program to include the HCAHPS® Survey, also known as the Hospital CAHPS or the CAHPS Hospital Survey. The HCAHPS® Survey is composed of 27 questions: 18 substantive questions that encompass critical aspects of the hospital experience (communication with doctors, communication with nurses, responsiveness of hospital staff, cleanliness and quietness of hospital environment, pain management, communication about medicines, and discharge information); four questions to skip patients to appropriate questions; three questions to adjust for the mix of patients across hospitals; and two questions to support congressionally-mandated reports. As explained in section XXIII. of this preamble, CMS published a Federal Register notice soliciting comments on the draft 27-item

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HCAHPS® Survey in November 2005 (70 FR 67476). The OMB approved the HCAHPS® Survey under OMB control number 0938-0981, with an expiration date of December 31, 2007. Proposed Revised §416.190(c)—Request for Review of Payment Amount The collection of information requirements at 5 CFR 1320 are applicable to requirements affecting 10 or more entities. Proposed revised §416.190(c) would require that a request for review of the ASC payment amount for insertion of an IOL must include all the information that CMS specifies on its Web site. While this section of the proposed rule contains information collection requirements, we estimate that less than 10 ASCs will be affected; therefore, we believe these collection requirements are exempt from OMB for review and approval, as specified at 5 CFR 1320.3(c)(4). Consequently, this section of the proposed rule need not be reviewed by the OMB under the authority of the PRA. If you comment on any of these information collection and record keeping requirements, please mail copies directly to the following: Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Regulations Development Group, Attn.: Melissa Musotto, CMS-1506-P, Room C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850; and Office of Information and Regulatory Affairs,

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Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Carolyn Lovett, CMS Desk Officer, (CMS-1506-P), [email protected] Fax (202) 395-6974. XXVI. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the “DATES” section of this preamble, and, when we proceed with a subsequent document(s), we will respond to those comments in the preamble to that document(s). XXVII. Regulatory Impact Analysis (If you choose to comment on issues in this section, please include the caption “Impact” at the beginning of your comment.) A. Overall Impact We have examined the impacts of this proposed rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

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1. Executive Order 12866 Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). We estimate that the effects of the OPPS provisions that would be implemented by this proposed rule would result in expenditures exceeding $100 million in any 1 year. We estimate that adding 14 procedures to the ASC list and implementing section 5103 of Pub. L. 109-171) in CY 2007 would result in savings to the Medicare program of approximately $150 million. We further estimate that the revised ASC payment system and expanded list of payable ASC services which we are proposing to implement in CY 2008 would have no effect on Medicare expenditures compared to CY 2007. A more detailed discussion of the effects of the proposed changes to the ASC list of procedures for CY 2007 and the effects of proposed revisions to the ASC payment system in CY 2008 is provided in sections XXVII. C. and D. below. In addition, we estimate that the changes that we are proposing in section XIX. of this preamble to implement Medicare contracting reform mandated by section 911 of Pub. L. 108-173 have no economic effect on current Medicare payments in CY 2007. This aspect of our proposal would amend our current Medicare contractor regulations to

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conform them to the statutory changes mandated by Pub. L. 108-173 and in and of itself does not affect in any way Medicare’s coverage or payment policies for hospital outpatient services or any other covered Medicare services. Accordingly, we believe that this provision has no immediate economic effect on Medicare payments in CY 2007. Further, we estimate that the changes that we are proposing in section XXIII. of this preamble to implement an expanded set of quality measures for the IPPS Reporting Hospital Quality Data for the Annual Payment Update (RHQDAPU) program in accordance with sections 1886(b)(3)(B)(viii)(III) and (IV) of the Act will not have a significant economic effect on Medicare payments to hospitals in CY 2007. A more detailed discussion of the effects of this proposal are included in section XXIII. of this preamble and section XXVII.F. below. However, we estimate the total increase (from changes in this proposed rule as well as enrollment, utilization, and case-mix changes) in expenditures under the OPPS for CY 2007 compared to CY 2006 to be approximately $2.98 billion. Therefore, this proposed rule is an economically significant rule under Executive Order 12866, and a major rule under 5 U.S.C. 804(2). 2. Regulatory Flexibility Act (RFA) The RFA requires agencies to determine whether a rule would have a significant economic impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental agencies. Most hospitals and most other providers and suppliers are small entities, either

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by nonprofit status or by having revenues of $6 million to $29 million in any 1 year (65 FR 69432). For purposes of the RFA, we have determined that approximately 37 percent of hospitals and 73 percent of ambulatory surgery centers would be considered small entities according to the Small Business Administration (SBA) size standards. We do not have data available to calculate the percentages of entities in the pharmaceutical preparation manufacturing, biological products, or medical instrument industries that would be considered to be small entities according to the SBA size standards. For the pharmaceutical preparation manufacturing industry (NAICS 325412), the size standard is 750 or fewer employees and $67.6 billion in annual sales (1997 business census). For biological products (except diagnostic) (NAICS 325414), with $5.7 billion in annual sales, and medical instruments (NAICS 339112), with $18.5 billion in annual sales, the standard is 50 or fewer employees (see the standards Web site at: http://www.sba.gov/regulations/siccodes/). Individuals and States are not included in the definition of a small entity. Not for profit organizations are also considered to be small entities under the RFA. There are 2,163 voluntary hospitals that we consider to be not for profit organizations to which this proposed rule applies. 3. Small Rural Hospitals In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of

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the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we previously defined a small rural hospital as a hospital with fewer than 100 beds that is located outside of a Metropolitan Statistical Area (MSA) (or New England County Metropolitan Area (NECMA)). However, under the new labor market definitions that we adopted in the November 15, 2004 final rule with comment period, for CY 2005 (consistent with the FY 2005 IPPS final rule), we no longer employ NECMAs to define urban areas in New England. Therefore, we now define a small rural hospital as a hospital with fewer than 100 beds that is located outside of an MSA. Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the adjacent NECMA. Thus, for purposes of the OPPS, we classify these hospitals as urban hospitals. We believe that the changes to the OPPS in this proposed rule would affect both a substantial number of rural hospitals as well as other classes of hospitals and that the effects on some may be significant although the proposed changes to the ASC payment system for CY 2007 and CY 2008 would have no effect on small rural hospitals. Therefore, we conclude that this proposed rule would have a significant impact on a substantial number of small entities. 4. Unfunded Mandates Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. The

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maximum nationwide cost to hospitals will be $16.9 million for HCAHPS® (Abt Report), $58.7 million in noncaptial costs for SCIP, and no cost for mortality measure. This proposed rule will not mandate any requirements for State, local, or tribal government, nor will it affect private sector costs. 5. Federalism Executive Order 13132 establishes certain requirements that an agency must meet when it publishes any rule (proposed or final) that imposes substantial direct costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have examined this proposed rule in accordance with Executive Order 13132, Federalism, and have determined that it would not have an impact on the rights, roles, and responsibilities of State, local or tribal governments. As reflected in Table 49 we estimate that OPPS payments to governmental hospitals (including State, local, and tribal governmental hospitals) would increase by 3.0 percent under this proposed rule. The proposals related to payments to ASCs in CYs 2007 and 2008 would not affect payments to government hospitals. In addition, the proposals related to MACs and HCAHPS would not affect payments to government hospitals. B. Effects of Proposed OPPS Changes in This Proposed Rule (If you choose to comment on issues in this section, please include the caption “OPPS Impact” at the beginning of your comment.) We are proposing several changes to the OPPS that are required by the statute. We are required under section 1833(t)(3)(C)(ii) of the Act to update annually the

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conversion factor used to determine the APC payment rates. We are also required under section 1833(t)(9)(A) of the Act to revise, not less often than annually, the wage index and other adjustments. In addition, we must review the clinical integrity of payment groups and weights at least annually. Accordingly, in this proposed rule, we are proposing to update the conversion factor and the wage index adjustment for hospital outpatient services furnished beginning January 1, 2007, as we discuss in sections II.C. and II.D., respectively, of this preamble. However, we are also proposing to reduce the update to the CY 2007 OPPS conversion factor by 2.0 percentage points for any hospital that is required to report quality data under the IPPS RHQDAPU for the FY 2007 update, and that fails to meet the requirements for receiving the full IPPS payment update in that payment year. We also are proposing to revise the relative APC payment weights using claims data from January 1, 2005, through December 31, 2005, and updated cost report information. In response to a provision in Pub. L. 108-173 that we analyze the cost of outpatient services in rural hospitals relative to urban hospitals, we are proposing to continue increased payments to rural SCHs, including EACHs. Section II.F. of this preamble provides greater detail on this rural adjustment. Finally, we are not proposing to remove any device categories from pass-through payment status in CY 2007. Under this proposed rule, the update change to the conversion factor as provided by statute would increase total OPPS payments by 3.4 percent in CY 2007. The update change to the OPPS conversion factor for any hospital that is required to report quality data under the IPPS RHQDAPU for the FY 2007 update, but fails to meet the requirements for receiving the full IPPS payment update in that payment year would

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increase OPPS payments by 1.4 percent in CY 2007. The expiration of the one-time wage reclassification under section 508 in April 2007 which is not budget neutral and an increase in the fixed-dollar outlier threshold to account for the under estimation of outlier payments in CY 2006 results in a net increase of 3.0 percent. The proposed changes to the APC weights, changes to the wage indices, the continuation of a payment adjustment for rural SCHs, and the proposed expansion of the rural adjustment to EACHs would not increase OPPS payments because these changes to the OPPS are budget neutral. However, these updates do change the distribution of payments within the budget neutral system as shown in Table 49 and described in more detail in this section. 1. Alternatives Considered Alternatives to the changes we are proposing to make and the reasons that we have chosen these options are discussed throughout this proposed rule. Some of the major issues discussed in this proposed rule and the options considered are discussed below. a. Alternatives Considered for CPT Coding and Payment Policy for Evaluation and Management Codes. In section IX. of this preamble we are proposing to create five new G-codes to replace CPT clinic E/M codes, five new G-codes for emergency visits provided in Type B emergency departments, five new G-codes for emergency visits provided in Type A emergency departments to replace CPT emergency department E/M codes, and two new G-codes to replace CPT critical care codes. CMS instructed hospitals to report facility resources for clinic and emergency department visits using CPT E/M codes and to

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develop internal hospital guidelines to determine what level of visit to report for each patient. However, since the beginning of the OPPS, we have acknowledged that the CPT E/M codes do not adequately describe the facility resources required to perform the services. Therefore, we are proposing G-codes to be used by hospitals to report clinic and emergency visits, and critical care services, which describe hospital resource use. We acknowledge that it can be burdensome for providers to bill G-codes rather than CPT codes. CPT has not yet created clinic and emergency department visit and critical care services codes that describe hospital resource utilization. In this case, because the current CPT E/M codes do not describe hospital visit resources, we have no alternative other than to create new G-codes. It is important to note that G-codes may be recognized by other payers. Some hospitals have requested that they be permitted to bill emergency visit codes under the OPPS for services furnished in a facility that meets CPT’s definition for reporting emergency visit E/M codes, except that these hospitals are not available 24 hours a day. For CY 2007, we are proposing to establish a set of codes for visits provided in dedicated emergency departments that have an EMTALA obligation. These codes would be billed by Type B emergency departments, specifically those that do not meet the Type A requirements. We are also proposing to establish a separate set of codes for visits provided in a specific subset of dedicated emergency departments, called Type A emergency departments, that are open 24 hours per day, 7 days per week and/or that do not have an EMTALA obligation solely based on providing at least one-third of their outpatient visits for the treatment of emergency medical conditions on an urgent

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basis without requiring a previously scheduled appointment. An alternative to this policy is to continue to uphold past policy and allow only the Type A subset of dedicated emergency departments to bill emergency department codes. However, this would not allow us to determine whether visits to dedicated emergency departments or facilities that incur EMTALA obligations but do not meet more prescriptive expectations that are consistent with the CPT definition of an emergency department have different resource costs than visits to either clinics or the Type A subset of dedicated emergency departments that meet more prescriptive expectations, including 24 hours per day, 7 days per week availability. We must also establish payment rates for these new G-codes. For CY 2007, we are proposing to pay at five payment levels for both clinic and emergency department visits and one payment level for critical care services. We see meaningful differences among the median costs of five levels of clinic and emergency department codes that suggest that five payment levels are more appropriate than three levels. In addition, providers have indicated that it is administratively burdensome to code for five levels, but receive payment at only three levels, as has been the historical policy in the OPPS. If future data indicate that three payment levels are more appropriate, we may revert back to three payment levels. An alternative to this policy is to continue paying at three payment levels for both clinic and emergency department visits and one payment level for critical care services. However, for the reasons described above, we are proposing to pay at five levels for clinic and emergency department visits for CY 2007 to ensure that payments more accurately reflect the median costs of the services provided.

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For CY 2007, we are proposing to pay emergency visits to Type B dedicated emergency departments that are not part of the specific subset identified as Type A emergency departments at the same rate as clinic visits, consistent with current policy. This payment policy is similar to our current policy that requires services furnished in emergency departments that have an EMTALA obligation but do not meet the CPT definition of emergency department to be reported using CPT clinic visit E/M codes, resulting in payments based upon clinic visit APCs. While maintaining the same payment policy for CY 2007, the reporting of specific G-codes for emergency visits provided in Type B dedicated emergency departments would permit us to specifically collect and analyze the hospital resource costs of visits to these facilities in order to determine whether a future proposal of an alternative payment policy may be warranted. An alternative would be to provide payment for services billed by Type B emergency departments at payment rates other than the clinic visit rates. However, we do not know what the hospital facility costs of these visits would be because we are unable to identify these services in our historical claims data. In some respects, their costs may resemble the costs of visits to clinics because they may not be available 24 hours per day or may not require the same high state of readiness as Type A emergency departments. In other respects, their costs may resemble the costs of visits to Type A emergency departments because they both provide predominantly unscheduled visits. Therefore, we currently would have no accurate methodology for establishing payment rates that are appropriate for visits to Type B emergency departments. Therefore, consistent with past payment policies for certain services, such as drug administration, in which we maintained current

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payment policies while gathering more detailed cost data, we are proposing to continue payment to Type B emergency departments at clinic visit rates while we gather hospital claims data specific to these visits to review their costs. b. Options Considered for Brachytherapy Source Payments Pursuant to sections 1833(t)(2)(H) and 1833(t)(16)(C) of the Act, we have paid for brachytherapy sources furnished on or after January 1, 2004, and before January 1, 2007, on a per source basis at an amount equal to the hospital’s charge adjusted to cost by application of the hospital specific overall CCR. For CY 2007, we are proposing to pay for brachytherapy sources at a prospectively based rate for each source, which is assigned to a source-specific APC. We are proposing to convert the median cost to a relative weight by dividing it by the median for APC 0606, to scale the unscaled weight for budget neutrality, and to multiply the scaled weight by the conversion factor to calculate the payment rate per source. This is our standard OPPS methodology for using median costs to calculate the payment for each APC. We considered establishing a per day payment for brachytherapy sources based on our CY 2005 claims data. While this alternative would be consistent with the philosophy of a prospective payment system and would mitigate the effects on payment of inaccurate coding of the number of sources used, we believe that a per day payment may not provide source payment variation specifically addressed to the hospital resources used under the unique clinical circumstances of each individual treatment. There is considerable clinical variation in the number of sources used for brachytherapy services, and we believe a per day payment based on an average number of sources used may not

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as accurately reflect appropriate payment for an individual Medicare beneficiary’s treatment as the per source payment methodology. Therefore, we are not proposing to set payments on a per day basis. We also considered continuing to make separate payment for sources of brachytherapy under the current methodology of hospital charges reduced to costs. Although hospitals are familiar with this methodology and this alternative is consistent with the requirement that sources be paid separately, we believe that to continue to pay on this basis would be inconsistent with the general methodology of a prospective payment system and would provide no incentive for a hospital to provide services efficiently and at the lowest cost. Therefore, for CY 2007, we are proposing to pay for each brachytherapy source on a per source rate that is calculated using our standard OPPS methodology. c. Options Considered for Payment of Radiopharmaceuticals In developing the payment policy proposal for separately payable radiopharmaceuticals for this CY 2007 proposed rule, we considered three policy options. The first option we considered was to propose packaging additional radiopharmaceuticals, either through packaging payments for all radiopharmaceuticals with payments for the services with which they are billed or increasing the packaging threshold for radiopharmaceuticals from a cost of $55 per day to a higher amount. In contrast to other separately payable drugs where the administration of many drugs is reported with only a few drug administration HCPCS codes, only a small number of specific radiopharmaceuticals may be appropriately provided in the performance of each

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particular nuclear medicine procedure. Because the provision of nuclear medicine procedures always requires one or more radiopharmaceuticals, packaging more radiopharmaceuticals effectively results in some increases in the costs of the associated nuclear medicine procedures to reflect the greater packaging of the radiopharmaceuticals. A policy to package additional radiopharmaceuticals would be very consistent with the OPPS packaging principles and payment policies which generally provide appropriate payment for the “average” service and would provide greater administrative simplicity for hospitals. However, under a policy of increased packaging of radiopharmaceuticals, payments for certain nuclear medicine procedures could potentially be less than the costs of some of the packaged radiopharmaceuticals and relatively expensive and high volume radiopharmaceuticals could become packaged. In addition, our payment policy could discourage selection of the most clinically appropriate radiopharmaceutical for a particular nuclear medicine procedure, especially if that radiopharmaceutical were expensive and not commonly used so that its costs were not fully reflected in the payment for the nuclear medicine procedure. The second option that we considered was to propose to continue the temporary CY 2006 methodology of paying for separately payable radiopharmaceuticals at charges reduced to cost, where payment would be determined using each hospital’s overall CCR, and establishing our radiopharmaceutical packaging threshold at $55, as we are proposing for other drugs for the CY 2007 OPPS. This policy would provide stability to the payment methodology for radiopharmaceuticals from CY 2006 to CY 2007. As we indicated for CY 2007, this payment methodology would provide an acceptable proxy for

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the average acquisition of the radiopharmaceutical along with its handling cost. However, as indicated previously, we stated in the CY 2006 final rule with comment period that this payment policy was intended to be only a temporary policy, and that we would consider alternative methodologies on which to base radiopharmaceutical payments for the CY 2007 OPPS update. Paying for radiopharmaceuticals at cost provides hospitals with no incentive to supply radiopharmaceuticals in the most efficient manner. In addition, using hospitals’ overall CCRs to determine payments likely results in an overestimation of radiopharmaceutical cost, which are likely reported in several cost centers such as diagnostic radiology that have lower CCRs than hospitals’ overall CCRs. The third option that we considered and are proposing for CY 2007 is to establish prospective payment rates for separately payable radiopharmaceuticals using mean costs derived from the CY 2005 claims data, where the costs are determined using our standard methodology of applying hospital-specific departmental CCRs to radiopharmaceutical charges and defaulting to hospital-specific overall CCRs only if appropriate departmental CCRs are unavailable. This proposal establishes our packaging threshold for radiopharmaceuticals at $55, as proposed for other drugs under the CY 2007 OPPS. We believe this option provides us with the most consistent, accurate, and efficient methodology for prospectively establishing payment rates for separately payable radiopharmaceuticals; in addition, this proposed methodology is consistent with how payment rates for other services are determined under the OPPS and provides for

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prospective payments that serve as appropriate proxies for the average acquisition costs of the radiopharmaceuticals along with their handling costs. 2. Limitations of Our Analysis The distributional impacts presented here are the projected effects of the policy changes, as well as the statutory changes that would be effective for CY 2007, on various hospital groups. We estimate the effects of individual policy changes by estimating payments per service while holding all other payment policies constant. We use the best data available but do not attempt to predict behavioral responses to our policy changes. In addition, we do not make adjustments for future changes in variables such as service volume, service-mix, or number of encounters. As we have done in previous proposed rules, we are soliciting comments and information about the anticipated effect of these proposed changes on hospitals and our methodology for estimating them. One limitation of our analysis in this proposed rule is that we are unable at this time to estimate the impact of our proposal to reduce the update to the CY 2007 OPPS conversion factor by 2.0 percentage points for any hospital that is required to report quality data under the IPPS RHQDAPU for the FY 2007 update, and that fails to meet the requirements for receiving the full IPPS payment update in that payment year. As we discuss in section XXIII of the preamble of this proposed rule, we are unable at this time to determine how many hospitals will receive a reduced update in CY 2007. Determinations concerning which hospitals have failed to meet the requirements for receiving the full update to the OPPS conversion factor in CY 2007 will only become available on or about September 1, 2006.

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Experience with mandatory reporting of quality data under the IPPS RHQAPU indicates that only a small number of hospitals have failed to meet the requirements to receive the full update to their payments under the IPPS. However, the statute requires that the reduction to the update for those IPPS hospitals that fail to meet the quality reporting requirement will increase from 0.4 percentage point to 2.0 percentage points for purposes of payment in FY 2007. This increase in the size of the update reduction significantly increases the already strong incentive to submit quality data. We therefore believe that the already small number of hospitals that fail to meet the requirements for receiving the full update may actually decrease significantly. We expect that only very few, if any, hospitals will fail to receive the full update to the OPPS conversion factor in CY 2007. However, due to the uncertainty concerning the degree to which the increased incentive to report quality data will affect hospital behavior, we are unable to predict with any confidence the number of hospitals that will receive the reduced update under the OPPS RHQDAPU, or to incorporate any specific data concerning the impact of this proposal into impact Table 49 below. We are also unable to determine the budget neutrality adjustment factor that will be necessary to ensure that estimated aggregate payments under the OPPS for CY 2007 do not change as a result of implementing the proposed OPPS RHQDAPU. We also expect, however, that the distributional impact of the proposal will be quite minimal. We also expect that any budget neutrality adjustment that we determine to be necessary once the determinations concerning compliance with the quality data reporting requirements become available will be correspondingly negligible. At the same time, any hospital that

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has reason to believe that it will not meet the requirements for receiving a full update under our proposal should be able to assess the potential impact of receiving the reduced update, simply by estimating the payments that the hospital will receive using the reduced conversion factor of $60.36, reflecting an update of 1.4 percent, in place of the conversion factor of $61.551 reflecting the full proposed update of 3.4 percent. Over time, the proposed OPPS RHQDAPU may have a discernible, positive impact on the quality of care available to Medicare beneficiaries in hospital outpatient departments. Meanwhile, the impact analysis below assumes that there will be full compliance with the requirements of the proposed OPPS RHQDAPU for purposes of receiving the full update in CY 2007, that all OPPS outpatient departments will therefore receive payments reflecting the full update in CY 2007, and that no additional adjustment to the OPP conversion factor will be necessary to ensure budget neutrality in CY 2007. 3. Estimated Impacts of This Proposed Rule on Hospitals The estimated increase in the total payments made under the OPPS is limited by the increase to the conversion factor set under the methodology in the statute. The distributional impacts presented do not include assumptions about changes in volume and service-mix. The enactment of Pub. L. 108-173 on December 8, 2003, provided for the additional payment outside of the budget neutrality requirement for wage indices for specific hospitals reclassified under section 508 through CY 2007. Table 49 shows the estimated redistribution of hospital payments among providers as a result of a new APC structure, wage indices, and proposed adjustment for rural SCHs and EACHs, which are budget neutral; the estimated distribution of increased payments in CY 2007 resulting

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from the combined impact of the proposed APC recalibration, wage effects, the rural SCH and EACH adjustment, and the proposed market basket update to the conversion factor; and, finally, estimated payments considering all proposed payments for CY 2007 relative to all payments for CY 2006, including the impact of expiring wage provisions and changes in the outlier threshold. Because updates to the conversion factor, including the update of the market basket and the addition of money