Federal Register: November 30, 2001 (Volume 66, Number 231)

[Federal Register: November 30, 2001 (Volume 66, Number 231)]
[Rules and Regulations]
[Page 59855-59904]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30no01-30]

To assist readers in referencing sections contained in this
document, we are providing the following table of contents.

Outline of Contents

Summary
Glossary

I. Background
A. Authority
B. Summary of Rulemaking
C. Summary of Changes in the August 24, 2001 Proposed Rule
1. Changes Required by BIPA 2000
2. Additional Changes
3. Provider-Based Changes
D. Public Comments and Responses to the August 24, 2001
Proposed Rule
II. Changes to the Ambulatory Payment Classification (APC) Groups
and Relative Weights
A. Recommendations of the Advisory Panel on APC Groups
1. Establishment of the Advisory Panel
2. Specific Recommendations of the Advisory Panel and Our
Responses
B. Additional APC Changes Resulting from BIPA Provisions
1. Coverage of Glaucoma Screening
2. APCs for Contrast Enhanced Diagnostic Procedures
3. Coding and Payment for Mammography Services
a. Screening Mammography
b. Diagnostic Mammography
c. Coding and Payment for New Technology Mammography Services
C. Other Changes Affecting the APCs
1. Changes in Revenue Code Packaging
2. Special Revenue Code Packaging for Specific Types of
Procedures
3. Limit on Variation of Costs of Services Classified Within a
Group
4. Observation Services
5. List of Procedures That Will Be Paid Only As Inpatient
Procedures
6. Additional New Technology APC Groups
D. Recalibration of APC Weights for CY 2002
III. Wage Index Changes
IV. Copayment Changes
A. BIPA 2000 Coinsurance Limit
B. Impact of BIPA 2000 Payment Rate Increase on Coinsurance
C. Coinsurance and Copayment Changes Resulting from Change in an
APC Group
V. Outlier Policy Changes
VI. Other Policy Decisions and Changes
A. Change in Services Covered Within the Scope of the OPPS
B. Categories of Hospitals Subject To and Excluded from the OPPS
C. Conforming Changes: Additional Payments on a Reasonable Cost
Basis
D. Hospital Coding for Evaluation and Management Services
E. Annual Drug Pricing Update
F. Definition of Single-Use Devices
G. Criteria for New Technology APCs
1. Background
2. Modifications to the Criteria and Process for Assigning
Services to New Technology APCs
a. Services Paid Under New Technology APCs
b. Criteria for Assignment to New Technology APC
c. Revision of Application for New Technology Status
d. Length of Time in a New Technology APC
VII. Transitional Pass-Through Payment Issues
A. Background
B. Discussion of Pro-Rata Reduction
C. Reducing Transitional Pass-Through Payments to Offset Costs
Packaged into APC Groups
VIII. Conversion Factor Update for CY 2002
IX. Summary of and Responses to MedPAC Recommendations
X. Provider-Based Issues
A. Background and April 7, 2000 Regulations
B. Provider-Based Issues/Frequently Asked Questions
C. Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
1. Two-Year "Grandfathering"
2. Geographic Location Criteria
3. Criteria for Temporary Treatment as Provider-Based
D. Commitment to Re-examine EMTALA Applicability to Off-Campus
Locations, and to Further Revise Provider-Based Regulations
E. Changes to Provider-Based Regulations
1. Clarification of Requirements for Adequate Cost Data and Cost
Finding
2. Scope and Definitions
3. BIPA Provisions on Grandfathering and Temporary Treatment as
Provider-Based
4. Reporting
5. Geographic Location Criteria
6. Notice to Beneficiaries of Coinsurance Liability
7. Clarification of Protocols for Off-Campus Departments
8. Other Changes
F. Comments on Other Issues
XI. Summary of the Final Rule
A. Changes Required by BIPA
B. Additional Changes
C. Technical Corrections
XII. Collection of Information Requirements
XIII. Regulatory Impact Analysis Regulations Text

Addenda

Addendum A List of Ambulatory Payment Classifications (APCs) with
Status Indicators, Relative Weights, Payment Rates,
and Copayment Amounts
Addendum B Payment Status by HCPCS Code, and Related Information
Addendum C Hospital Outpatient Payment for Procedures by APC:
Displayed on Website Only
Addendum D Payment Status Indicators for the Hospital Outpatient
Prospective Payment System
Addendum E CPT Codes Which Would Be Paid Only As Inpatient
Procedures
Addendum G Service Mix Indices by Hospital: Displayed on Website
only
Addendum H Wage Index for Urban Areas
Addendum I Wage Index for Rural Areas
Addendum J Wage Index for Hospitals That Are Reclassified

[[Page 59855]]

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Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413, 419, and 489

Medicare Program; Changes to the Hospital Outpatient Prospective
Payment System for Calendar Year 2002; Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413, 419, and 489

[CMS-1159-F2]
RIN 0938-AK54

Medicare Program; Changes to the Hospital Outpatient Prospective
Payment System for Calendar Year 2002

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

ACTION: Final rule.

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SUMMARY: This final rule revises the Medicare hospital outpatient Go back
prospective payment system to implement applicable statutory
requirements, including relevant provisions of the Medicare, Medicaid,
and SCHIP Benefits Improvement and Protection Act of 2000, and changes
arising from our continuing experience with this system. In addition,
it describes changes to the amounts and factors used to determine the
payment rates for Medicare hospital outpatient services paid under the
prospective payment system. This final rule also announces a uniform
reduction of 68.9 percent to be applied to each of the transitional
pass-through payments. These changes are applicable to services
furnished on or after January 1, 2002.

EFFECTIVE DATE: This final rule is effective January 1, 2002 and is
applicable to services furnished on or after January 1, 2002.

FOR FURTHER INFORMATION CONTACT: George Morey (410) 786-4653, for
provider-based issues; and Nancy Edwards (410) 786-0378, for all other
issues.

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $9. As an alternative, you can view and
photocopy the Federal Register document at most libraries designated as
Federal Depository Libraries and at many other public and academic
libraries throughout the country that receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Web site address is: http://
www.access.gpo.gov/nara/index.html.
Information on the outpatient prospective payment system can be
found on our homepage. You can access these data by using the following
directions:
1. Go to CMS homepage.
2. Click on "Professionals."
3. Under the heading "Physicians and Health Care Professionals,"
click on "Medicare Coding and Payment Systems."
4. Select Hospital Outpatient Prospective Payment System.
Or, you can go directly to the Hospital Outpatient Prospective
Payment System page.

Outline of Contents [moved to top of this online copy]

Go back

Alphabetical List of Acronyms Appearing in the Proposed Rule

APC Ambulatory payment classification
APG Ambulatory patient group
ASC Ambulatory surgical center
AWP Average wholesale price
BBA 1997 Balanced Budget Act of 1997
BBRA 1999 Balanced Budget Refinement Act of 1999
BIPA 2000 Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000
CAH Critical access hospital
CAT Computerized axial tomography
CCI Correct Coding Initiative
CCR Cost-to-charge ratio
CMHC Community mental health center
CMS Centers for Medicare & Medicaid Services (Formerly known as the
Health Care Financing Administration)
CORF Comprehensive outpatient rehabilitation facility
CPI Consumer Price Index
CPT (Physician's) Current Procedural Terminology, Fourth Edition,
2001, copyrighted by the American Medical Association
DME Durable medical equipment
DMEPOS DME, prosthetics (which include prosthetic devices and
implants), orthotics, and supplies
DRG Diagnosis-related group
EMTALA Emergency Medical Treatment and Active Labor Act
FDA Food and Drug Administration
FQHC Federally qualified health center
HCPCS Healthcare Common Procedure Coding System
HHA Home health agency
ICD-9-CM International Classification of Diseases, Ninth Edition,
Clinical Modification
IME Indirect medical education
JCAHO Joint Commission on Accreditation of Healthcare Organizations
MRI Magnetic resonance imaging
MSA Metropolitan statistical area
NECMA New England County Metropolitan Area
OPPS Hospital outpatient prospective payment system
PPS Prospective payment system
RFA Regulatory Flexibility Act
RHC Rural health clinic
RRC Rural referral center
SCH Sole community hospital
SNF Skilled nursing facility
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I. Background

A. Authority

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 cost-based payment
methodology with a prospective payment system (PPS). The Balanced
Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997,
added section 1833(t) to the Social Security Act (the Act) authorizing
implementation of a PPS for hospital outpatient services. The Balanced
Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113), enacted on
November 29, 1999, made major changes that affected the hospital
outpatient PPS (OPPS). The Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554),
enacted on December 21, 2000, made further changes in the OPPS. The
BIPA provisions that affect the OPPS are summarized below, in section
I.C. The OPPS was first implemented for services furnished on or after
August 1, 2000.

B. Summary of Rulemaking

On September 8, 1998, we published a proposed rule (63 FR
47552) to establish in regulations a PPS for hospital outpatient
services, to eliminate the formula-driven overpayment for certain
hospital outpatient services, and to extend reductions in payment for
costs of hospital outpatient services. On June 30, 1999, we published a
correction notice (64 FR 35258) to correct a number of technical and
typographic errors in the September 1998 proposed rule including the
proposed amounts and factors used to determine the payment rates.
On April 7, 2000, we published a final rule with comment
period (65 FR 18438) that addressed the provisions of the PPS for
hospital outpatient services scheduled to be effective for services
furnished on or after July 1, 2000. Under this system, Medicare payment
for hospital outpatient services included in the PPS is made at a
predetermined, specific rate. These outpatient services are classified
according to a list of ambulatory payment classifications (APCs). The
April 7 final rule with comment period also established requirements
for provider departments and provider-based entities and prohibited
Medicare payment for nonphysician services furnished to a hospital
outpatient by a provider or supplier other than a hospital unless the
services are furnished under arrangement. In addition, this rule
extended reductions in payment for costs of hospital outpatient
services as required by the BBA of 1997 and amended by the BBRA of
1999. Medicare regulations governing the hospital OPPS are set forth at
42 CFR 419.
On June 30, 2000, we published a notice (65 FR 40535)
announcing a delay in implementation of the OPPS from July 1, 2000 to
August 1, 2000.
On August 3, 2000, we published an interim final rule with
comment period (65 FR 47670) that modified criteria that we use to
determine which medical devices are eligible for transitional pass-
through payments. The August 3, 2000 rule also corrected and clarified
certain provider-based provisions included in the April 7, 2000 rule.
On November 13, 2000, we published an interim final rule
with comment period (65 FR 67798). This rule provided for the annual
update to the amounts and factors for OPPS payment rates effective for
services furnished on or after January 1, 2001. We also responded to
public comments on those portions of the April 7, 2000 final rule that
implemented related provisions of the BBRA and public comments on the
August 3, 2000 rule.
On August 24, 2001, we published a proposed rule (66 FR
44672) that set forth proposed changes to the Medicare hospital OPPS
and calendar year (CY) 2002 payment rates. It also set forth proposed
changes to the amounts and factors used to determine these payment
rates.

C. Summary of Changes in the August 24, 2001 Proposed Rule

On August 24, 2001, we published a proposed rule (66 FR 44672) that
set forth proposed changes to the Medicare hospital OPPS and CY 2002
payment rates including changes to the amounts and factors used to
determine these payment rates.
The following is a summary of the major changes that we proposed
and the

[[Page 59858]]

issues we addressed in the August 24, 2001 proposed rule.
1. Changes Required by BIPA 2000
We proposed the following changes to the OPPS, to implement the
provisions of BIPA 2000:
Limit coinsurance to a specified percentage of APC payment
amounts.
Provide hold-harmless payments to children's hospitals.
Provide separate APCs for services that use contrast
agents and those that do not.
Payment for glaucoma screening as a covered service.
Payment for certain new technology used in diagnostic
mammograms.
2. Additional Changes
We proposed the following additional changes to the OPPS:
Add APCs, delete APCs, and modify the composition of
services within some existing APCs.
Add an APC group that would provide separate payment for
observation services in limited circumstances to patients having
specific diagnoses.
Recalibrate the relative payment weights of the APCs.
Update the conversion factor and wage index.
Revise the APC payment amounts to reflect the APC
reclassifications, the recalibration of payment weights and the other
required updates and adjustments.
Make reductions in pass-through payments for specific
drugs and categories of devices to account for the drug and device
costs that are included in the APC payment for associated procedures
and services.
Apply a standard procedure to calculate copayment amounts
when new APCs are created or when APC payment rates are increased or
decreased as a result of recalibrated relative weights.
Calculate outlier payments on a service-by-service basis
beginning in 2002. We also proposed a methodology for allocating
packaged services to individual APCs in determining costs of a service
and we proposed to use a hospital's overall outpatient cost-to-charge
ratio to convert charges to costs.
Set the threshold for outlier payments to require costs to
exceed 3 times the APC payment amount and payment at 50 percent of any
excess costs above the threshold.
Exclude hospitals located outside the 50 states, the
District of Columbia and Puerto Rico from the OPPS.
Exclude from payment under the OPPS certain services that
are furnished to inpatients of hospitals that do not submit claims for
outpatient services under Medicare Part B.
Make conforming changes to regulations text to reflect the
exclusion from the OPPS of certain items and services (for example, bad
debts, direct medical education and certain certified registered nurse
anesthetists services) that are paid on a cost basis.
Update the payments for pass-through radiopharmaceuticals,
drugs, and biologicals on a calendar year basis to reflect increases in
AWP.
Allow reprocessed single use devices to be considered
eligible for pass-through payments if the reprocessing process for
single use devices meets the FDA's most recent criteria.
Revise the criteria we will use to determine whether a
procedure or service is eligible to be assigned to a new technology
APC.
Revise the list of information that must be submitted to
request assignment of a service or procedure to a new technology APC.
Provide more flexibility in the amount of time a service
may be paid under a new technology APC.
A description of the Secretary's estimate of the total
amount of pass-through payments for CY 2002 and the need for a pro rata
reduction to those payments in that year.
3. Provider-Based Changes
We proposed to make changes to the provider-based regulations to
reflect the provisions of section 404 of BIPA and to codify certain
clarifications on provider-based status that were posted on the CMS Web
site.

D. Public Comments Received in Response to the August 24, 2001 Proposed
Rule

We received approximately 400 timely items of correspondence
containing multiple comments on the proposed rule. Major issues
addressed by the commenters included the following:
The implementation of a uniform reduction in the
transitional pass-through payments for CY 2002.
Changes to APC classifications and weights for certain
outpatient services including mammography, stereotactic radiosurgery
and intensity modulated radiation therapy, and positive emission
tomography (PET) scans.
Changes to the eligibility criteria for payment as a new
technology service.
On November 2, 2001, we published a final rule (66 FR 55857) that
responded to the comments on the Secretary's estimate of the total
amount of transitional pass-through payments for CY 2002 and the need
for a uniform reduction in the pass-through payments for that year as
well as comments on the proposed conversion factor for CY 2002. That
final rule announced that the conversion factor for CY 2002 is $50.904
and that the Secretary is implementing a pro rata reduction in 2002
(expected to be between 65 and 70 percent) to each pass-through payment
(we stated that we would announce the exact amount of the reduction
before the beginning of 2002).
Summaries of the remaining public comments received and our
responses to those comments are set forth below under the appropriate
heading. In addition, we are announcing that the pro rata reduction is
68.9 percent.
Go back
II. Changes to the APC Groups and Relative Weights

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 median hospital
cost of the services included in that APC relative to the median
hospital cost of the services included in APC 0601, Mid-Level Clinic
Visits. As described in the April 7, 2000 final rule (65 FR 18484), the
APC weights are scaled to APC 0601 because a mid-level clinic visit is
one of the most frequently performed services in the outpatient
setting.
Section 1833(t)(9)(A) of the Act requires the Secretary to review
the components of the OPPS not less often than annually and to revise
the groups and related payment adjustment factors to take into account
changes in medical practice, changes in technology, and the addition of
the new services, new cost data, and other relevant information.
Section 1833(t)(9)(A) of the Act requires the Secretary, beginning in
2001, to consult with an outside panel of experts when annually
reviewing and updating the APC groups and the relative weights.
Finally, 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 item or service in the group is more than 2
times greater than the lowest median or mean cost 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

[[Page 59859]]

unusual cases, such as low volume items and services."
For the proposed rule and for this final rule, we analyzed the APC
groups within this statutory framework.

A. Recommendations of the Advisory Panel on APC Groups

1. Establishment of the Advisory Panel
Section 1833(t)(9)(A) of the Act, which requires that we consult
with an outside panel of experts when annually reviewing and updating
the APC groups and the relative weights, specifies that the panel will
act in an advisory capacity. The expert panel, which is to be composed
of representatives of providers, is to review and advise us about the
clinical integrity of the APC groups and their weights. The Panel is
not restricted to using our data and may use data collected or
developed by organizations outside the Department in conducting its
review.
On November 21, 2000, the Secretary signed the charter establishing
an "Advisory Panel on APC Groups" (the Panel). The Panel is technical
in nature and is governed by the provisions of the Federal Advisory
Committee Act (FACA) as amended (Public Law 92-463). To establish the
Panel, we solicited members in a notice published in the Federal
Register on December 5, 2000 (65 FR 75943). We received applications
from more than 115 individuals nominating either themselves or a
colleague. After carefully reviewing the applications, CMS chose 15
highly qualified individuals to serve on the Panel. The Panel was
convened for the first time on February 27, February 28, and March 1,
2001. We published a notice in the Federal Register on February 12,
2001 (66 FR 9857) to announce the location and time of the Panel
meeting, a list of agenda items, and that the meeting was open to the
public. We also provided additional information through a press release
and our website.
2. Specific Recommendations of the Advisory Panel and Our Responses
In the proposed rule, we summarized the issues considered by the
Panel, the Panel's APC recommendations, and our subsequent action with
regard to the Panel's recommendations. The data used by the Panel in
making its recommendation are the 1996 claims that were used to set the
APC weights and payment rates for CY 2000 and 2001. In the proposed
rule, we provided a detailed summary of the Panel discussion and
recommendations (66 FR 44675-44686). See the proposed rule for more
details regarding these discussions.
As discussed below, the Panel sometimes declined to recommend a
change in an APC even though the APC violated the 2 times rule. In
section II.C.3 of this preamble, we discuss our policies regarding the
2 times rule based on the data we are using to recalibrate the 2002 APC
relative weights (that is, claims for services furnished on or after
July 1, 1999 and before July 1, 2000). That section also details the
criteria we use in deciding to make an exception to the 2 times rule.
We asked the Panel to review many of the exceptions we implemented in
2000 and 2001. The exceptions are referred to as "violations of the 2
times" rule in the following discussion.
We did not receive comments on the APC changes we proposed based on
the recommendations of the Panel except for our proposal regarding
stereotactic radiosurgery (APCs 0300 and 0302). We discuss that
proposal in detail below along with the comments and our responses. For
all other APC Panel proposed changes, we briefly discuss the Panel's
recommendation, our proposal, and the final changes we have made. We
also received comments on APCs and the assignment of codes to APCs for
which we made no specific proposal in the proposed rule. We address
those comments below in section II.A.3. of this preamble.

APC 0016: Level V Debridement & Destruction

APC 0017: Level VI Debridement & Destruction

We asked the Panel to review the current placement of CPT code
56501, Destruction of lesion(s), vulva; simple, any method, in APC 0016
because the APC violates the 2 times rule. Because the procedure is a
simple destruction of skin and superficial subcutaneous tissues, we
will not expect it to have a median cost of $500. Thus, we believe that
the higher costs associated with this code were the result of incorrect
coding. To ensure that procedures in APC 0016 comply with the 2 times
rule, we asked the Panel to consider one of the following clinical
options:
Move CPT code 56501 to APC 0017.
Retain CPT code 56501 in APC 0016 but split APC 0016 into
three APCs to distinguish simple destruction lesions from extensive
destruction lesions.
The Panel recommended the following:
Move CPT code 56501 from APC 0016 to APC 0017.
Move CPT code 46917 from APC 0014 to APC 0017.
After considerable discussion the Panel recommended these changes
to achieve clinical coherence and resource similarity among the
procedures assigned to these APCs. Because CPT code 46917 is performed
using laser equipment and requires anesthesia, the Panel believed it
appropriate to move this procedure to APC 0017. Although the Panel
considered the reassignment of CPT code 54055 to APC 0017, it did not
recommend this change. The Panel's recommended changes will group in
APC 0017 simple destruction of lesion procedures that use laser or
surgical techniques with extensive destruction of lesion procedures.
We proposed to accept the Panel's recommendation regarding CPT code
56501 and to revise the APC accordingly. We are adopting these changes
in final; however, as shown below in Table 3, we are making additional
changes to these APCs because of the 2 times rule.

APC 0024: Level I Skin Repair

APC 0025: Level II Skin Repair

APC 0026: Level III Skin Repair

APC 0027: Level IV Skin Repair

The composition of procedures in APCs 0025 and 0027 results in
these APCs violating the 2 times rule. Therefore, we requested the
Panel's advice in exploring other clinical options for reconfiguring
the four skin repair APCs to achieve clinical and resource homogeneity
among the procedures assigned to APCs 0025 and 0027 while retaining
clinical and resource homogeneity for APCs 0024 and 0026. We asked the
Panel to consider the following clinical options to achieve this
result:
Rearrange the procedures assigned to APCs 0024 through
0027 based on the size or the length of the skin incision.
Rearrange the procedures assigned to APCs 0024 through
0027 based on the complexity of the repair, such as distinguishing
repairs that involve layers of skin, flaps, or grafts from those that
do not.
The Panel reviewed the various options presented, which were
modeled based on the 1996 claims data used in constructing the current
APC groups and payment rates. The Panel recommended the following:
Make no changes to APCs 0024 and 0027.
Reevaluate these APCs with new data when the Panel meets
in 2002.
The Panel, in preparation for the 2002 meeting, will
discuss options with and gather clinical and utilization information
from their respective hospitals regarding these procedures.

[[Page 59860]]

We proposed to accept the Panel's recommendations. We are adopting
these recommendations as final; however, as discussed below in section
II.C., we are making additional changes to these APCs based on the use
of new data and application of the 2 times rule.

APC 0058: Level I Strapping and Casting Application

APC 0059: Level II Strapping and Casting Application

APC 0058 (which consists of the simpler casting, splinting, and
strapping procedures) violates the 2 times rule. The median costs for
high volume procedures in APC 0058 vary widely, ranging from $27 to
$83. The median costs associated with presumably more resource-
intensive procedures in APC 0059 are fairly uniform, ranging from $69
to $119. To limit the cost variation in APC 0058, we asked the Panel to
consider the following options:
Move the following four codes from APC 0058 to APC 0059:
CPT code 29515, Application of short splint (calf to foot); CPT code
29520, Strapping; hip; CPT code 29530, Strapping; knee; and CPT code
29590, Denis-Brown splint strapping.
Create a new APC to include a third level of strapping and
casting application procedures by regrouping all procedures assigned to
both APCs 0058 and 0059 based on the following clinical distinctions:
removal/revision, strapping/splinting, and casting.
Package certain CPT codes assigned to APC 0058 with
relevant procedures.
The Panel recommended that we do the following:
Make no changes to APC 0058.
Provide appropriate education and guidance to hospitals
regarding appropriate use and billing of codes in APC 0058.
Resubmit APC 0058 to the Panel for reevaluation when later
data are available.
We proposed to accept the Panel's recommendations except that we
proposed to move CPT code 29515 to APC 0059 due to the 2 times rule and
the newer data we are using for this rule. These changes have been
adopted as final in this document.

APC 0079: Ventilation Initiation and Management

The codes in APC 0079 represent respiratory treatment and support
provided in the outpatient setting. The cost variation among the
assigned procedures in this APC raises concern about hospital coding
practices. The median costs for these procedures range from $40 to
$315. We asked the Panel to clarify whether these procedures are
performed on outpatients or if they are performed on patients who come
to the emergency room and are later admitted to the hospital as
inpatients.
The Panel recommended the following:
Remove CPT code 94660 from APC 0079 and create a new APC
for this one procedure.
We proposed to accept the Panel's recommendation by creating a new
APC 0065, CPAP Initiation. We have adopted this change in this final
rule.

APC 0094: Resuscitation and Cardioversion

We requested the Panel's assistance in determining whether it is
clinically appropriate to remove the cardioversion procedures from APC
0094 because the rest of the procedures assigned to APC 0094 are
emergency procedures rather than elective. We proposed that the Panel
consider the creation of a new APC for the cardioversion procedures or
reassignment of the procedures to another APC that would be more
appropriate in terms of clinical coherence and resource similarity.
Splitting APC 0094 into two distinct groups, one for resuscitation
procedures and the other for internal and external electrical
cardioversion procedures, would not result in a significant difference
in the APC payment rate for either of the new APCs.
The Panel recommended that the only action we take would be to move
CPT code 92961, Cardioversion, elective, electrical conversion of
arrhythmia; internal (separate procedure) from APC 0094 to APC 0087,
Cardiac Electrophysiology Recording/Mapping.
We proposed to accept the APC Panel recommendation. We are adopting
this change as final.

APC 0102: Electronic Analysis of Pacemakers/Other Devices

The neurologic procedures included in APC 0102 (CPT codes 95970
through 95975), are significantly more complex than the routine cardiac
pacemaker programming codes also assigned to this APC. Because we
believe these codes are clinically different, we asked the Panel to
consider the following:
Create a new APC for the neurologic codes.
Move the neurologic codes to APC 0215, Level I Nerve and
Muscle Tests.
The Panel recommended the following reorganization of APC 0102 to
better reflect clinical coherence:
Split APC 0102 into four new APCs: one APC for analysis
and programming of infusion pumps and CSF shunts; a second for analysis
and programming of neurostimulators; a third for analysis and
programming of pacemakers and internal loop recorders; and a fourth for
analysis and programming of cardioverter-defibrillators.
We proposed to accept the Panel's recommendations and proposed to
create four new APCs as follows:

APC 0689: Electronic Analysis of Cardioverter-Defibrillator
APC 0690: Electronic Analysis of Pacemakers and Other Cardiac Devices
APC 0691: Electronic Analysis of Programmable Shunts/Pumps
APC 0692: Electronic Analysis of Neurostimulator Pulse Generators.

We have made these changes final in this rule.

APC 0110: Transfusion

APC 0111: Blood Product Exchange

APC 0112: Extracorporeal Photopheresis

The procedures included in APC 0110 are those related only to the
services associated with performing the blood transfusion and
monitoring the patient during the transfusion; the costs associated
with the blood products themselves are not included in APC 0110. We
advised the Panel that we were not certain that cost data for blood
transfusions excluded the costs of the blood products because the APC
0110 median cost of $289 seemed excessive. We expressed concern about
hospital coding and billing practices for blood products, blood
processing, storage, and transportation charges as represented in the
1996 data. We asked the Panel to advise us on how to clarify hospital
billing and coding practices for blood transfusions; we also asked if
the Panel members believe that the median costs for transfusion
procedures include the costs for blood products and, if so, how the
procedures should be adjusted to eliminate these costs.
After considerable discussion, the Panel recommended the following:
Take no action on APC 0110.
Move CPT code 36521 from APC 0111 to APC 0112 to achieve
clinical coherence and resource similarity with photopheresis
procedures included in APC 0112. However, the Panel cautioned that the
payment for APC 0112 captured the cost of the entire procedure
including the cost of the adsorption column. For this reason, any
additional payment for the adsorption column through the transitional
pass-through payment mechanism will be a duplicate payment. Therefore,
the Panel asked that CMS address this problem when considering their
recommendation.

[[Page 59861]]

We proposed to accept the Panel's recommendations. We noted that
effective April 1, 2001, the Prosorba column is no longer eligible for
a transitional pass-through payment (see PMA-01-40 issued on March 27,
2001).
We have adopted the proposed changes in final in this document.

APC 0116: Chemotherapy Administration by Other Technique Except
Infusion

APC 0117: Chemotherapy Administration by Infusion Only

APC 0118: Chemotherapy Administration by Both Infusion and Other
Technique

Based on previous comments we had received, we asked the Panel to
review whether oral delivery of chemotherapy and delivery of
chemotherapy by infusion pumps and reservoirs should be recognized for
payment under the OPPS.
In summary, the Panel recommended the following:
Allow hospitals to bill for patient education on the
administration of oral anticancer agents under the appropriate clinic
codes.
Assign CPT codes 96520 and 96530 to a new APC.
Continue to use the current HCPCS Level II Q codes for
chemotherapy administration.
There is no need to develop a new HCPCS code for
"extended chemotherapy infusions."
CMS should consider developing a new HCPCS code for
flushing of ports and reservoirs.
We proposed to accept all the Panel's recommendations except for
the recommendation regarding flushing of ports and reservoirs. Flushing
is performed in conjunction with either a chemotherapy administration
service or an outpatient clinic visit. In the first case, flushing is
part of the chemotherapy administration and its costs are adequately
captured in the costs of the chemotherapy administration code. In the
second case, we believe that the costs of flushing are adequately
captured in the costs of the clinic visit and need not be paid
separately. We proposed to create a new APC 0125, Refilling of Infusion
Pump.
We are adopting these changes as final in this rule.

APC 0123: Bone Marrow Harvesting and Bone Marrow/Stem Cell
Transplant

In APC 0123, the 1996 median cost for CPT code 38230, Bone marrow
harvesting for transplantation, was only $15. We believe that this cost
is lower than the actual cost of the procedure. Further, we do not have
sufficient data to determine how often bone marrow and stem cell
transplant procedures are performed on an outpatient basis. For these
reasons, we requested the Panel's advice in clarifying the resources
used in performing the procedures assigned to APC 0123, and the extent
to which these procedures are performed on an outpatient basis.
The Panel recommended the following:
Make no changes in the procedures assigned to APC 0123 in
the absence of sufficient data to support such modifications.
The two presenters on this APC issue should submit cost
data for the Panel to use in reevaluating this issue at its 2002
meeting.
We noted in the proposed rule that our analysis of the more recent
claims data we are using to reclassify and recalibrate the APCs reveals
a significant increase in costs for this APC resulting in a payment
rate that is double the current rate. However, very few procedures
(fewer than 20) were billed on an outpatient basis. As we indicated in
the proposed rule, we will have the Panel review this APC again at
their next meeting.

APC 0142: Small Intestine Endoscopy

APC 0143: Lower GI Endoscopy

APC 0145: Therapeutic Anoscopy

APC 0147: Level II Sigmoidoscopy

APC 0148: Level I Anal/Rectal Procedures

APC 0149: Level II Anal/Rectal Procedures

APC 0150: Level III Anal/Rectal Procedures

We presented these seven APCs to the Panel because of the
inconsistencies in the median costs for some procedures included in
APCs 0142, 0143, 0145, and 0147. We advised the Panel that our cost
data do not show a progression of median costs proportional to
increases in clinical complexity as we would expect. For example, the
data indicate that a therapeutic anoscopy assigned to APC 0145 costs
more than twice as much as a flexible or rigid sigmoidoscopy assigned
to APC 0147. We stated our concern that cost disparity could provide
incentives to use inappropriate procedures. Because of these concerns,
we asked the Panel's advice in determining whether one of the following
actions should be taken:
Divide the codes in APC 0142 into separate APCs
representing ileoscopy and small intestine procedures.
Combine diagnostic anoscopy and Level I sigmoidoscopy.
Merge APCs 0143, 0145, and 0147 into one APC.
We also asked the Panel whether the costs associated with codes in
APC 0145 appeared to be valid.
The Panel recommended that we do the following:
Make no changes to APCs 0142, 0143, 0145, and 0147.
Provide information and guidance to better assist
hospitals in understanding how to bill appropriately for services
included in APCs 0142, 0143, 0145, and 0147.
Resubmit these APCs to the Panel for review when newer
data are available.
We proposed to accept the Panel's recommendations.
We have adopted these recommendations in this final rule.

APC 0151: Endoscopic Retrograde Cholangio-Pancreatography (ERCP)

We advised the Panel that we have received comments that indicate
that it is inappropriate to assign both diagnostic and therapeutic ERCP
procedures to the same APC. The commenters allege that virtually every
hospital performs diagnostic ERCPs but only teaching hospitals perform
therapeutic ERCPs. Based on our current data, if we created two APCs
for ERCP procedures, the APC payment rate for therapeutic ERCPs would
be lower than that for diagnostic ERCPs (approximately $526 and $535,
respectively). Therefore, we requested the Panel's advice to help us
determine whether to create separate APCs for diagnostic and
therapeutic ERCP procedures.
The Panel recommended that we do the following:
Do not reconfigure the ERCP procedures in APC 0151.
Resubmit this issue to the Panel for review when more
recent data are available.
Explore the feasibility of using multiple claims rather
than single claims to calculate appropriate APC payment rates for ERCP
procedures.
We proposed to accept the Panel's recommendations. As we stated in
the proposed rule, we are reviewing the potential for using multiple
claims data for determining payment rates for ERCP procedures. As a
first step in the process, in the proposed rule, we determined a
payment rate for ERCP procedures based on both single claims for ERCP
procedures and, because ERCP procedures are typically done under
radiologic guidance, on claims that included both an ERCP procedure and
a radiologic supervision or guidance procedure in this APC. We

[[Page 59862]]

accomplished this by changing the status indicator for radiologic
guidance and supervision codes to "N", which results in these codes
being packaged. Using these additional claims resulted in significantly
increasing the number of claims used to determine the payment rate for
this APC and in a much higher payment rate (about $780 in this final
rule).
We will be presenting this issue again to the APC Panel at their
next meeting.

APC 0160: Level I Cystourethroscopy and other Genitourinary
Procedures

APC 0161: Level II Cystourethroscopy and other Genitourinary
Procedures

APC 0162: Level III Cystourethroscopy and Other Genitourinary
Procedures

APC 0163: Level IV Cystourethroscopy and Other Genitourinary
Procedures APC 0169: Lithotripsy

We advised the Panel that we had previously received a number of
comments that advocated moving CPT code 52337, Cystoscopy, with
ureteroscopy and/or pyeloscopy; with lithotripsy (ureteral
catheterization is included), from APC 0162 to APC 0163. (We note that
CPT code 52337 was deleted for 2001 and replaced with an identical CPT
code, 52353. We will use the new code in the following discussion.)
Because of these comments, we sought the Panel's advice in examining
the clinical and resource distinctions between CPT code 52353 and other
procedures assigned to APC 0162. Other information shared with the
Panel noted that most of the procedures included in APC 0162 are
complicated cystourethroscopies while those assigned to APC 0163 are
largely prostate procedures.
The Panel recommended that we move CPT code 52353 from APC 0162 to
APC 0169 because both codes 52353 and 50590 are lithotripsy procedures.
We reviewed the Panel discussion very carefully and noted the close
vote. After careful consideration, we proposed to disagree with the
Panel's recommendation and move code 52353 to APC 0163. The 1999-2000
cost data used for the proposed rule, which contained over 400 single
claims for code 52353 (reported under code 52337) and over 6,000 single
claims for code 50590, showed that the median cost for code 52353 is
much more similar to the median cost of other procedures in APC 0163
than it is to the median cost of APC 0169. Although both codes involve
lithotripsy, the type of equipment used in the two procedures is very
different. Clinically, the surgical approach used for code 52353 and
the resources used (e.g., anesthesia and operating room costs) are much
more similar to other procedures in APC 0163 than to those for code
50590. Additionally, the median cost for code 50590, which was $700
higher than that of code 52353, is dependent on the widely variable
arrangements hospitals make for use of the extracorporeal lithotriptor.
Therefore, we believe that placing code 52353 in APC 0163 maintains its
clinical coherence and similar use of resources.
Based on the updated 1999-2000 data base available for the final
rule, we find that the cost relationship between codes 52353 and 50590
continues to reflect a difference. There are now almost 500 single
claims for code 52353 and almost 7,000 single claims for code 50590.
The median cost for 50590 remains about $700 higher than the median
cost for code 52353. Therefore, we are adopting as final our proposal
to move code 52353 to APC 0163.

APC 0191: Level I Female Reproductive Procedures

APC 0192: Level II Female Reproductive Procedures

APC 0193: Level III Female Reproductive Procedures

APC 0194: Level IV Female Reproductive Procedures

APC 0195: Level V Female Reproductive Procedures

This group of APCs was presented to the Panel because APC 0195
violates the 2 times rule. To facilitate the Panel's review of this
issue, we distributed cost data on all the female reproductive
procedures assigned to these five APCs. These data showed that the
median costs for procedures assigned to APC 0195 ranged from a low of
$365 to a high of $1,817. The CPT code 57288, Sling operation for
stress incontinence (e.g., fascia or synthetic), which is assigned to
APC 0195, has the highest median cost of the procedures in this group.
We discussed with the Panel two clinical options for rearranging the
procedures assigned to APC 0195 to comply with the 2 times rule. The
first option would split APC 0195 into two separate APCs by separating
vaginal procedures from abdominal procedures. The second option would
split APC 0195 into three distinct APCs by retaining the separate APCs
for abdominal and vaginal procedures and further distinguishing vaginal
procedures based on whether they are simple or complex.
The Panel closely reviewed the four APCs for female reproductive
procedures (APCs 0191, 0192, 0193, and 0194) to ensure each was
clinically homogeneous. As a result of this review, the Panel
recommended a number of changes for these APCs. These recommendations
and those for APC 0195 are as follows:
Move CPT codes 56350, Hysteroscopy, diagnostic, and 58555,
Hysterosocopy, diagnostic/separate procedure, from APC 0191 to APC 0194
(In 2001, CPT code 56350 was replaced with CPT code 58555.)
Divide APC 0195 into two APCs to distinguish vaginal
procedures from abdominal procedures.
Retain the following vaginal procedures in APC 0195:

------------------------------------------------------------------------
CPT code Descriptor
------------------------------------------------------------------------
57555............................ Excision of cervical stump, vaginal
approach: with anterior and/or
posterior repair.
58800............................ Drainage of ovarian cyst(s),
unilateral or bilateral, (separate
procedure); vaginal approach.
58820............................ Drainage of ovarian abscess; vaginal
approach, open.
57310............................ Closure of urethrovaginal fistula;
57320............................ Closure of vesicovaginal fistula;
vaginal approach
57530............................ Trachelectomy (cervicectomy),
amputation of cervix (separate
procedure).
57291............................ Construction of artificial vagina;
without graft.
57220............................ Plastic operation on urethral
sphincter, vaginal approach (e.g.,
Kelly urethral plication).
57550............................ Excision of cervical stump, vaginal
approach.
57556............................ Excision of cervical stump, vaginal
approach; with repair of enterocele.
57289............................ Pereyra procedure, including anterior
colporrhapy.
57300............................ Closure of rectovaginal fistula;
vaginal or transanal approach.

[[Page 59863]]

57284............................ Paravaginal defect repair (including
repair of cystocele, stress urinary
incontinence, and/or incomplete
vaginal prolapse).
57265............................ Combined anteroposterior
colporrhaphy; with enterocele
repair.
57268............................ Repair of enterocele vaginal approach
(separate procedure).
56625............................ Vulvectomy simple; complete.
58145............................ Myomectomy excision of fibroid tumor
of uterus, single or multiple
(separate procedure); vaginal
approach.
57260............................ Combined anteroposterior
colporrhaphy;
57240............................ Anterior colporrhaphy, repair of
cystocele with or without repair of
urethrocele.
57250............................ Posterior colporrhaphy, repair of
rectocele with or without
perineorrhaphy.
56620............................ Vulvectomy simple; partial.
57522............................ Conization of cervix, with or without
fulguration, with or without
dilation and curettage, with or
without repair; loop electrode
excision.
------------------------------------------------------------------------

Include the following abdominal procedures in a new APC
titled "Level VI Female Reproductive Procedures."

------------------------------------------------------------------------
CPT code Descriptor
------------------------------------------------------------------------
58920............................ Wedge resection or bisection of
ovary, unilateral or bilateral.
58900............................ Biopsy of ovary, unilateral or
bilateral (separate procedure).
58925............................ Ovarian cystectomy, unilateral or
bilateral.
57288............................ Sling operation for stress
incontinence (e.g., fascia or
synthetic).
57287............................ Removal or revision of sling for
stress incontinence (e.g., fascia or
synthetic).
------------------------------------------------------------------------

Move CPT code 57107 from APC 0194 to APC 0195, Level V
Female Reproductive Procedures.
Move CPT code 57109, Vaginectomy with removal of
paravaginal tissue (radical vaginectomy) with bilateral total pelvic
lymphadenectomy and para-aortic lymph node sampling (biopsy), from APC
0194 to the new APC, Level VI Female Reproductive Procedures.
We proposed to accept all of these Panel recommendations. These
APCs would be reconfigured and renumbered as APCs 0188 to 0194. We also
proposed to add new APCs for Level VII and Level VIII Female
Reproductive Procedures (APCs 0195 and 0202, respectively) based on the
1999-2000 claims data and the 2 times rule. These proposed changes have
been adopted as final in this document.

APC 0210: Spinal Tap

APC 0211: Level I Nervous System Injections

APC 0212: Level II Nervous System Injections

The Panel heard testimony from two presenters regarding the merits
of modifying these three APCs. The first presenter, speaking on behalf
of a manufacturer, discussed a new code for 2001, CPT code 64614,
Chemodenervation of muscles; extremities and/or trunk muscles (e.g.,
for dystonia, cerebral palsy, multiple sclerosis).
The second presenter, representing a specialty society, proposed
regrouping the procedures assigned to APCs 0210, 0211, and 0212 based
on similar levels of complexity and median costs. The presenter's
proposal also included reassignment to these APCs of interventional
pain procedures currently assigned to APCs 040, Arthrocentesis and
Ligament/Tendon Injection, 0105, Revision/Removal of Pacemakers, AICD,
or Vascular Device, and 0971. The presenter proposed establishing the
following five levels of interventional pain procedures by regrouping
the procedures into new APCs as stated below:
Level I Nerve Injections (to include Trigger Point, Joint,
Other Injections, and Lower Complexity Nerve Blocks):

------------------------------------------------------------------------
Reassigned
CPT code from APC
------------------------------------------------------------------------
20550...................................................... 040
20600...................................................... 040
20605...................................................... 040
20610...................................................... 040
64612...................................................... 0211
64613...................................................... 0211
64614...................................................... 0971
64400-64418................................................ 0211
64425...................................................... 0211
64430...................................................... 0211
64435...................................................... 0211
64445...................................................... 0211
64450...................................................... 0211
64505...................................................... 0211
64508...................................................... 0211
------------------------------------------------------------------------

Level II Nerve Injections (to include Moderate Complexity
Nerve Blocks and Epidurals):

Level III Nerve Injections (to include Moderately High
Complexity Epidurals, Facet Blocks, and Disk Injections):

------------------------------------------------------------------------
Reassigned
CPT Code from APC
------------------------------------------------------------------------
62280-62282................................................ 0212
62290...................................................... (\1\)
62291...................................................... (\1\)
64420-64421................................................ 0211
64470...................................................... 0211
64472...................................................... 0211
64475-64476................................................ 0211
64479...................................................... 0211
64480...................................................... 0211
64483-64484................................................ 0211
64510...................................................... 0211
64520...................................................... 0211
64530...................................................... 0211
64630...................................................... 0211
64640...................................................... 0211
------------------------------------------------------------------------
\1\ Currently packaged.

Level IV Nerve Injections (to include High Complexity
Lysis of Adhesions, Neurolytic Procedures, Removal of Implantable Pumps
and Stimulators):

------------------------------------------------------------------------
Reassigned
CPT Code from APC
------------------------------------------------------------------------
62263...................................................... 0212
64600...................................................... 0211
64605...................................................... 0211
64610...................................................... 0211
64620...................................................... 0211
64622-64623................................................ 0211
64626-64627................................................ 0211
64680...................................................... 0211
62355...................................................... 0105
62365...................................................... 0105
------------------------------------------------------------------------

Level V Nerve Injections (to include Highest Complexity
Disk and Spinal Endoscopies): CPT code 62287, Aspiration or
decompression procedure, percutaneous, of nucleus pulposus of
invertebral disk, any method, single or multiple levels, lumbar (e.g.,
manual or automated percutaneous diskectomy, percutaneous laser
diskectomy), reassigned from APC 0220, Level I Nerve Procedures.
The Panel recommended reassignment of CPT code 64614 from APC 0971
to APC 0211.
Concerning the suggested regrouping of interventional pain
procedures, the Panel agreed that the recommended division of these
procedures by clinical complexity would reflect resource use and was a
reasonable approach to take. It was pointed out to the Panel that the
costs for CPT codes 62290, Injection procedure for diskography, each
level; lumbar, and 62291, Injection procedure for diskography, each
level; cervical or thoracic, were packaged into the procedures with
which they were billed. Therefore, the Panel concurred with the
regrouping of procedures to establish

[[Page 59864]]

Levels I, II, III, and IV with the following exceptions:
The Panel recommended that we not include CPT codes 62290
and 62291 in Level III because they are packaged injections and should
not be unpackaged and paid separately.
The Panel opposed moving CPT codes 62355, Removal of
previously implanted intrathecal or epidural catheter, and 62365,
Removal of subcutaneous reservoir or pump, previously implanted for
intrathecal or epidural infusion, from APC 0105 to Level IV Nerve
Injections because they were neither clinically similar nor similar in
resource use to the other codes assigned to this APC.
The Panel opposed the creation of Level V Nerve Tests as
it included only one code and recommended that CPT code 62287 remain in
APC 220.
We proposed to accept the Panel's recommendations for
these services and we proposed to create new APCs 0203, 0204, 0206, and
0207 to accommodate these changes. We are adopting these proposed
changes as final.

APC 0215: Level I Nerve and Muscle Tests

APC 0216: Level II Nerve and Muscle Tests

APC 0217: Level III Nerve and Muscle Tests

We advised the Panel that we had received a comment contending that
assignment of CPT code 95863, Needle electromyography, three
extremities with or without related paraspinal areas, to APC 0216
created an inappropriate incentive to perform tests on three
extremities rather than two or four extremities. The payment of about
$144 for APC 0216 is greater than the payment of about $58 for the same
tests when performed on one, two, or four extremities. This is because
CPT codes 95860, 95861, and 95864, Needle electromyography, one, two,
and four extremities with or without related paraspinal areas,
respectively, are assigned to APC 0215. We distributed data to the
Panel that showed a median cost of about $141 for CPT code 95863, which
is more than 3 times that of the median cost of $41 for CPT code 95864.
We asked the Panel to consider the reassignment of CPT code 95863 from
APC 0216 to APC 0215 and advised the Panel that, based on cost data
available at the time of our meeting, this change could potentially
reduce the payment for APC 0216. It was also noted that this change
could result in a payment increase for APC 0215.
The Panel reviewed the cost data for APCs 0215 and 0216 and noted
that the median costs for both CPT codes 95863 and 95864 appeared
aberrant. Based on the information presented, the Panel recommended
that we move CPT code 95863 from APC 0216 to APC 0215. We proposed to
accept the Panel's recommendation with one exception. We proposed to
revise these APCs based on the 1999-2000 cost data and the 2 times
rule, and CPT code 95863 would be assigned to a reconfigured APC for
Level II Nerve and Muscle Tests (APC 0218).
The changes we proposed to APCs 0215, 0216, and 0217 have been
adopted as final in this document.

APC 0237: Level III Posterior Segment Eye Procedures

We advised the Panel that procedures assigned to APC 0237 are high
volume procedures and rank among the top outpatient procedures billed
under Medicare. We have received a number of comments disagreeing with
the assignment of CPT code 67027, Implantation of intravitreal drug
delivery system (e.g., ganciclovir implant), includes concomitant
removal of vitreous, to APC 0237. This procedure was added to the CPT
coding system after 1996 and, therefore, was not included in the 1996
data. We advised the Panel that ganciclovir, the drug implanted during
this procedure, is paid separately as a transitional pass-through item.
Because the drug is paid separately, it should not be included in
determining whether the resources associated with the surgical
procedure are similar to the resources required to perform the other
procedures assigned to APC 0237. We advised the Panel that, of the
procedures assigned to APC 0237, we believe that CPT code 67027 is
related to codes 65260, 65265, and 67005, all of which involve removal
of foreign bodies and vitreous from the eye. To ensure that CPT code
67027 is assigned to the appropriate APC, we asked the Panel to
consider creation of a new APC, Level IV Posterior Segment Eye
Procedures, for CPT codes 65260, 65265, 67005, and 67027. Based on the
APC rates effective January 1, 2001, the suggested change could lower
the APC rate for the four procedures by $400.
The Panel reviewed the data and did not believe it was sufficient
to support the creation of a new APC for these four procedures.
Therefore, the Panel recommended that APC 0237 remain intact and that
more recent claims data be analyzed to determine whether CPT code 67027
is similar to the other procedures assigned to APC 0237.
Based on the 1999-2000 claims data, we have determined that the
resources used for code 67027 are similar to other procedures in APC
0237. However, we will present APCs 0235, 0236, and 0237 to the Panel
at their next meeting to determine whether any further changes should
be made. We proposed to make various other changes to these APCs based
on the new data and the 2 times rule, which we are incorporating as
final in this document.

APC 0251: Level I ENT Procedures

This APC violates the 2 times rule because it consists of a wide
variety of minor ENT procedures, many of which are low volume services
or codes for nonspecific procedures. In order to correct this problem,
we recommended to the Panel that this APC be split by surgical site
(for example, nasal and oral). After reviewing cost data, the Panel
agreed that the APC should be split but that current data were
insufficient to determine how that split should be made. Therefore, the
Panel asked that this APC, along with more recent cost data, be placed
on the agenda at the next meeting.
We agree that this APC should be reviewed by the Panel at its next
meeting. However, our review of the more recent cost data indicates
that significant violations of the 2 times rule still exist. In order
to correct this problem, but keep the APC as intact as possible, we
proposed to move CPT codes 30300, Remove foreign body, intranasal;
office type procedure, 40804, Removal of embedded foreign body,
vestibule of mouth; simple, and 42809, Removal of foreign body from
pharynx, to APC 0340, Minor Ancillary Procedures. This APC consists of
procedures such as removal of earwax that require similar resources.
Based on the latest 1999-2000 data, we find that the reasons for our
proposed revision are still valid, therefore, we have incorporated
those changes as final in this rule.

APC 0264: Level II Miscellaneous Radiology Procedures

We asked the Panel to review this APC because it violated the 2
times rule and consisted of a wide variety of unrelated procedures.
Specifically, we believe that the costs associated with CPT codes
74740, Hysterosalpingography, radiological supervision and
interpretation, and 76102, Radiologic examination, complex motion
(e.g., hypercycloidal) body section (e.g., mastoid polytomography),
other than with urography; bilateral, were aberrant and that we would
significantly underpay these procedures if we moved them into a lower
paying APC. We also asked the Panel to determine whether this APC

[[Page 59865]]

and APC 0263, Level I Miscellaneous Radiology Procedures, should be
reconfigured by body system.
After considerable discussion, the Panel agreed that the procedures
in these APCs were not clinically homogeneous; however, it recommended
that we leave these APCs intact because the data do not support any
more coherent reorganization. The Panel requested that this APC be
placed on the agenda for the 2002 meeting.
We stated in the proposed rule that we agreed with the Panel's
recommendations with the following revisions. First, BIPA requires us
to assign procedures requiring contrast into different APCs from
procedures not requiring contrast. This required changes to a number of
radiologic APCs including APCs 0263 and 0264. In addition, we proposed
to move CPT code 75940, Percutaneous Placement of IVC filter,
radiologic supervision and interpretation, to a new APC 0187,
Placement/Reposition Miscellaneous Catheters, because its costs were
significantly higher than the costs of the procedures remaining in APC
0264.
We are adopting the changes discussed in the proposed rule as
final. However, as discussed in a comment and response below in section
II.A.3 of this preamble, we are revising the title and status indicator
for APC 0187.

APC 0269: Echocardiogram Except Transesophageal

APC 0270: Transesophageal Echocardiogram

We asked the Panel to consider splitting these APCs based on
whether or not 2D imaging is employed. After review of the data, the
Panel recommended that we leave these APCs intact.
We proposed to leave APC 0270 intact except for the addition of two
new codes for transesophageal echocardiography. We also proposed to
split APC 0269 into two APCs, APC 0269, Level I Echocardiogram Except
Transesophageal and APC 0697, Level II Echocardiogram Except
Transesophageal. One APC (0269) would include comprehensive
echocardiograms and the other APC (0697) would include limited/follow-
up echocardiograms and doppler add-on procedures.
We have included these proposed changes in the APCs set forth in
this final rule.

APC 0274: Myelography

We advised the Panel that APC 0274 is clinically homogeneous but
that it violates the 2 times rule. Procedures assigned to this APC
include radiological supervision and interpretation of diagnostic
studies of central nervous system structures (e.g., spinal cord and
spinal nerves) performed after injection of contrast material. We
shared data with the Panel that showed the median costs for the
procedures assigned to this APC ranged from a low of about $109 to a
high of about $295. We asked the Panel's recommendation for
reconfiguring APC 0274 to comply with the 2 times rule.
We informed the Panel members that we packaged the costs associated
with radiologic injection codes into the radiological supervision and
interpretation codes with which they were reported. The reason for
doing this is that hospitals incur expenses for providing both services
and they typically perform both an injection and a supervision and
interpretation procedure on the same patient. Therefore, since neither
an injection code nor a supervision and interpretation code should be
billed alone, it would not be appropriate for us to use single claims
data to determine the costs of performing these procedures. However, we
are using single claims data in order to accurately determine the costs
of performing procedures. Therefore, in order to accurately determine
the costs of a complete radiologic procedure, we had to package the
costs of the injection component into the cost of the supervision and
interpretation component with which it was billed.
The Panel recommended the following:
Make no changes to APC 0274.
Review new cost data to determine whether payment would
increase for APC 0274.
We proposed to accept the Panel's recommendation. We have made no
further changes in this APC.

APC 0279: Level I Diagnostic Angiography and Venography

APC 0280: Level II Diagnostic Angiography and Venography

We presented these codes to the Panel for several reasons. APC 0279
violates the 2 times rule, there are numerous codes in these APCs with
no cost data, there are numerous "add on" codes in these APCs, and
many of these procedures were performed infrequently in the outpatient
setting in 1996.
The Panel recommended the following:
Create a new APC (APC 0287, Complex Venography) with the
following CPT codes: 75831, 75840, 75842, 75860, 75870, 75872, and
75880.
Move CPT codes 75960, 75961, 75964, 75968, 75970, 75978,
75992, and 75995 from APC 0279 to APC 0280.
We proposed to accept the Panel's recommendations. We noted that,
as proposed, APC 0279 violated the 2 times rule because of the low cost
data for CPT code 75660, Angiography, external carotid, unilateral
selective, radiological supervision and interpretation. We believe
that, for these procedures, these cost data are aberrant. This code is
clinically similar to the other codes in APC 0279 and moving code 75660
to an APC with a lower weight could be an inappropriate APC assignment.
Therefore, we stated in the proposed rule that we believe that an
exception to the 2 times rule is warranted.
We are adopting the proposed changes as final. We note that APC
0279 continues to violate the 2 times rule due to the median cost of
CPT code 75660. However, we continue to believe an exception is
warranted.

APC 0300: Level I Radiation Therapy

APC 0302: Level III Radiation Therapy

As discussed in the proposed rule, we presented this APC to the
technical advisory Panel because we had received comments that the
assignment of CPT code 61793, Stereotactic radiosurgery (particle beam,
gamma ray, or linear accelerator), one or more sessions, to APC 0302
would result in inappropriate payment for this service. Many commenters
wrote that stereotactic radiosurgery and intensity modulated radiation
therapy (IMRT) required significantly more staff time, treatment time,
and resources than other types of radiation therapy. Other commenters
disagreed with our decision, effective January 1, 2001, to discontinue
recognizing CPT code 61793, and to create two HCPCS level 2 codes,
G0173, Stereotactic radiosurgery, complete course of therapy in one
session, and G0174, Intensity modulated radiation therapy (IMRT) plan,
per session, to report both stereotactic radiosurgery and IMRT.
We reported to the Panel that the APC assignment of these G codes
and their payment rate was based on our understanding that stereotactic
radiosurgery was generally performed on an inpatient basis and
delivered a complete course of treatment in a single session, while
IMRT was performed on an outpatient basis and required several sessions
to deliver a complete course of treatment. We also explained to the
Panel that it was our understanding that multiple CPT codes were billed
for each session of stereotactic radiosurgery and

[[Page 59866]]

IMRT. Therefore, we believed that the payment for APC 0302 was only a
fraction of the total payment a hospital received for performing
stereotactic radiosurgery or IMRT on an outpatient basis.
Radiosurgery equipment manufacturers, physician groups, and patient
advocacy groups submitted comments and provided testimony to the APC
Panel on these issues. These comments convinced us that we did not
clearly understand either the relationship of IMRT to stereotactic
radiosurgery or the various types of equipment used to perform these
services.
We proposed a new coding structure to more accurately reflect the
clinical use of these services and the resources required to perform
them. In the proposed rule, we stated that there are essentially two
services required to deliver stereotactic radiosurgery and IMRT. First,
there is "treatment planning," which includes such activities as
determining the location of all normal and abnormal tissues,
determining the amount of radiation to be delivered to the abnormal
tissue, determining the dose tolerances of normal tissues, and
determining how to deliver the required dose to abnormal tissue while
delivering a dose to adjacent normal tissues within their range of
tolerance. We noted that planning activities include the ability to
manufacture various treatment devices for protection of normal tissue
as well as the ability to ensure that the plan will deliver the
intended doses to normal and abnormal tissue by simulating the
treatment. Second, there is "treatment delivery," which is the actual
delivery of radiation to the patient in accordance with the treatment
plan and includes such activities as adjusting the collimator (a device
that filters the radiation beams), doing setup and verification images,
treating one or more areas, and performing quality control.
We noted that treatment planning for IMRT requires specialized
equipment including a duplicate of the actual equipment used to deliver
the treatment, the ability to perform a CT scan, various disposable
supplies, and involvement of various staff such as the physician, the
physicist, the dosimetrist, and the radiation technologist. Treatment
delivery requires specialized equipment to deliver the treatment and
the involvement of the radiation technologist. The physician and
physicist provide general oversight of this process.
Our proposal stated that although there are several types of
equipment, produced by several manufacturers, used to accomplish this
treatment, it was the consensus of the commenters and the Panel that
the most useful way to categorize stereotactic radiosurgery and IMRT is
by the source of radiation used for the treatment and not by the type
of equipment used. One reason for this is that the clinical indications
for stereotactic radiosurgery and IMRT overlap. Therefore, a single
disease process can be treated by either modality but the cost of
treatment varies by source of radiation used for the treatment. Second,
while both stereotactic radiosurgery and IMRT can deliver a complete
course of treatment in either one or multiple sessions, the cost of
treatment delivery per session is relatively fixed, and is closely
related to the source of radiation used for the treatment. On the basis
of this understanding we made the following proposal: Appropriate APC
assignment and payment were to be made by creating four HCPCS codes to
describe these services.
The proposed codes are as follows:
GXXX1 Multi-source photon stereotactic radiosurgery
(Cobalt 60 multi-source converging beams) plan, including dose volume
histograms for target and critical structure tolerances, plan
optimization performed for highly conformal distributions, plan
positional accuracy and dose verification, all lesions treated, per
course of treatment.
GXXX2 Multi-source photon stereotactic radiosurgery,
delivery including collimator changes and custom plugging, complete
course of treatment, per lesion.
G0174 Intensity modulated radiation therapy (IMRT)
delivery to one or more treatment areas, multiple couch angles/fields/
arcs custom collimated pencil-beams with treatment setup and
verification images, complete course of therapy requiring more than one
session, per session.
G0178 Intensity modulated radiation therapy (IMRT) plan,
including dose volume histograms for target and critical structure
partial tolerances, inverse plan optimization performed for highly
conformal distributions, plan positional accuracy and dose
verification, per course of treatment.
We also proposed that HCPCS codes GXXX1, G0174, and G0178 have
status indicators of S, while GXXX2 has a status indicator of T. We
believe these are the correct status indicators because G0178 has a
"per session" designation, while GXXX2 has a "per lesion"
designation. This was based on our understanding that GXXX1 would not
be billed on a "per lesion" basis as the planning process would take
into account all lesions being treated and it would be extremely
difficult to determine resource utilization for planning on a "per
lesion" basis. Because the costs of performing GXXX1 will vary based
on the number of lesions treated, payment would reflect a weighted
average.
We based our proposal on our understanding that single-source
photon stereotactic radiosurgery (or linear accelerator) planning and
delivery are similar to IMRT planning and delivery in terms of clinical
use and resource requirements. Therefore, we proposed to require coding
for single-source photon stereotactic radiosurgery under HCPCS codes
G0174 and G0178.
We also noted that the AMA is establishing codes for IMRT planning
and treatment delivery for 2002 and we proposed to retire G0174 and
G0178 (with the usual 90-day phase out) and recognize the applicable
CPT codes when they are established in January 2002.
Because all activities required to perform stereotactic
radiosurgery and IMRT were to be included in the codes described above,
we proposed to discontinue the use of any other radiation therapy codes
for activities involved with planning and delivery of stereotactic
radiosurgery and IMRT for purposes of hospital billing in OPPS.
Therefore, we also proposed continuing to not recognize CPT code 61793
for hospital billing purposes.
We believed that our proposal would not only simplify the reporting
process for hospitals, but also appropriately recognize the clinical
practice and resource requirements for stereotactic radiosurgery and
IMRT.
We sought comments on our proposal, including the code titles,
descriptors, and coding requirements discussed above. We also requested
information regarding appropriate APC assignment and payment rates to
inform our decision-making. We specifically asked for information
regarding the costs of treatment delivery including any differences
between the cost of a complete treatment in single versus multiple
sessions.
Finally, we noted that several commenters had requested placement
of the stereotactic delivery codes in surgical APCs, therefore, we
requested clarification and support for these comments within the
context of our coding proposal. Specifically, we were concerned that
appropriate payment be made for GXXX2, which has a "per lesion"
descriptor.
We received numerous comments on our proposal. These comments
concerned our proposed coding scheme

[[Page 59867]]

and payment amounts as well as the need for separate codes recognizing
linear accelerator-based radiosurgery. Many of the comments were part
of a write-in campaign asking us to categorize radiosurgery as a
surgical procedure and not a radiologic procedure. These letters also
asserted that our payment amount for stereotactic radiosurgery should
be $15,000. Below, we address each major issue raised by the
commenters.
Comment: We received several comments regarding our coding
proposal. The commenters indicated the following:
Our proposed codes are duplicative of currently existing
codes.
We should recognize CPT code 61793 in the APC system.
Our proposed codes would not allow billing for single
session and fractionated linear accelerator-based radiosurgery.
We incorrectly believe that multisession radiosurgery is
similar in resource use to IMRT.
We should delete our proposed codes for stereotactic
radiosurgery planning and recognize CPT code 77295 for this purpose.
CMS should clarify the other codes that would be billable
with our proposed codes.
Conflicting comments on whether the proposed code for
stereotactic radiosurgery delivery should be "per lesion" or "per
session" or "per course of treatment."
Commenters were also concerned about our ability to establish APC
weights using claims that contained two significant procedures (e.g.,
stereotactic radiosurgery planning and stereotactic radiosurgery
delivery).
Response: We reviewed all these comments very carefully. After
completing our review, we have decided to make the following
modifications to our proposed coding scheme:
IMRT--We are not making any changes to our proposal for
IMRT coding. We will delete the applicable G codes (G0174 and G0178)
and recognize the new CPT codes for IMRT planning (code 77301) and IMRT
delivery (code 77418) as established by the AMA.
GXXX1--Under our proposal, GXXX1 (now G0242) would have
been used only for Cobalt-based radiosurgery. After review of the
comments, we believe that the planning for Cobalt-based and linear
accelerator-based radiosurgery is similar both clinically and in terms
of resource consumption. Therefore, at the next coding update, we will
change the descriptor for this code to include linear accelerator-based
radiosurgery planning. We do not know whether radiosurgery planning is
similar clinically and in terms of resource consumption to CPT code
77295 (therapeutic radiology simulation-added field setting; three-
dimensional). Use of G0242 will allow us to collect claims data and
cost information that will aid us in determining whether G0242 is
similar in resource use to 77295. However, we believe that tracking the
utilization of G0242 as well as the codes with which it is submitted is
very important for future APC reclassification and recalibration
purposes, therefore, at this time, we do not intend to discontinue use
of this code.
GXXX2--Most of the comments concerned whether this code
(now G0243) should be "per lesion." After extensive review of the
comments, we have determined that it is more appropriate for this code
to be used "per session" or "per course of treatment." We have
concluded that the resource consumption for stereotactic treatment
delivery varies significantly depending on the size, shape, and depth
of the lesion(s) being treated. It is quite possible for the treatment
of two superficial, spherical lesions to be less resource intensive
than the treatment of a single, large, irregular lesion deep within the
brain. Furthermore, the method of treatment and the manner in which the
resources are used make a "per lesion" description inappropriate. For
example, in Cobalt-based treatment, patients are administered "spheres
of dose" and moved in and out of the machine after each "sphere of
dose." The number of "spheres of dose" per lesion varies widely so
therefore "per sphere of dose" might be an alternative description
for this service. However, we have concluded that any descriptor other
than "per session" or "per course of treatment" will result in, or
create the incentive to bill for, inappropriate payments for this
service. Furthermore, it is our understanding that hospitals usually
have a single charge for this service and that charge is based on the
average resource use for all patients undergoing the procedure whether
those patients have one, two, or more lesions treated. Because of the
variability of treatment delivery per lesion, hospitals would be
overpaid for multi-lesion patients if their charge is based on the
average resource use over all patients. Finally, a "per session"
description is more consistent with a prospective payment system.
Because a "per session" payment reflects an average that includes all
patients, unless a hospital specializes in treatment of multi-lesion
patients, the OPPS payment is likely to be appropriate across all
patient types. That is, the payment will be slightly higher than costs
for single lesion treatments, and slightly lower than costs for
multiple lesion treatments, averaging out over all patients.
Linear accelerator-based radiosurgery--This treatment
poses an especially difficult problem because linear accelerator-based
radiosurgery can be delivered in a single dose like Cobalt-based
treatment, or it can be delivered in fractions, with a maximum of five
fractions. We do not have any cost information concerning the resource
use of linear accelerator-based treatment delivery, but we do
understand that there are two types of linear accelerator-based
delivery of radiosurgery: "gantry-based" and "image-directed." We
do not know if the resource use of these two subtypes of linear
accelerator based-radiosurgery is similar. Furthermore, we do not know
whether the total resource consumption of fractionated radiosurgery
delivered from a linear accelerator is different from the resource
consumption of single dose radiosurgery delivered by a linear
accelerator.
Therefore, in order to collect data on this procedure, we will
designate current code G0173 for reporting single session radiosurgery
delivered by a linear accelerator, either gantry-based or image-
directed. At the next coding update, we will revise the descriptor for
G0173 to reflect this change. Additionally, at the next coding update,
we will create a new G code for use by facilities for fractionated
radiosurgery delivered by a linear accelerator (either gantry-based or
image-directed). The number of fractions will be limited to no more
than five. Both G0173 and the new code for fractionated linear
accelerator-based radiosurgery will be temporary while we collect cost
and utilization data for these services. Once we have collected these
data, we will determine whether permanent codes are needed.
In general, we have tried to strike a balance between recognizing
clinically dissimilar treatments with individual codes and avoiding the
creation of equipment-specific codes for purposes of the OPPS. We
believe that the codes established in this final rule reflect this
balance.
For multiple procedure claims, we do not believe there is a problem
recognizing claims with more than one significant procedure to assist
us in determining appropriate APC weights. We have analyzed all the
claims in the 1999-2000 data base for CPT code 61793 to determine the
codes with which it was billed and in what

[[Page 59868]]

frequencies. We have developed coding edits based on this claims
analysis and, as discussed below, the payments for stereotactic
radiosurgery reflect the median costs for all services that will be
included in the payment for stereotactic radiosurgery planning and
delivery. We have discussed these coding edits in great detail with the
American Society for Therapeutic Radiology and Oncology (ASTRO) and
they concur with the edits.
Comment: Many commenters asked us to place stereotactic
radiosurgery in a "surgical" APC.
Response: We do not understand these comments. We realize that a
neurosurgeon is present during stereotactic radiosurgery but, unlike
the hospital inpatient PPS, we have no APC designation of "surgical."
We have interpreted this comment to mean that commenters do not want
stereotactic radiosurgery to be in the same APC as IMRT or fractionated
stereotactic radiosurgery. As discussed below, our new assignments of
the codes to APCs will effectively create this change.
Comment: We received numerous comments concerning the status
indicators we had proposed for the various radiosurgery procedures.
Response: In view of the change in the descriptor for G0243, we
will be changing the status indicator for G0243 to "S." This is
because there will not be multiple units of this service billed and the
costs for providing single dose stereotactic radiosurgery is relatively
fixed and it would be inappropriate to give this procedure, as
finalized, a "T" designation (that is, the multiple procedure
reduction is not applicable).
Comment: Many comments addressed the payment rate for stereotactic
radiosurgery and IMRT. Suggested amounts for payment of IMRT treatment
planning and delivery varied from less than $300 to over $2,000 and
suggested amounts for radiosurgery planning and treatment ranged from
less than $1,000 to $15,000.
Response: We have no cost data specifically associated with IMRT
upon which to base payment for IMRT. Therefore, we used information
that provided the basis for IMRT payment under the physician fee
schedule and we have established APC assignments that result in payment
rates for IMRT planning and treatment delivery similar to payment under
the physician fee schedule. We believe this is appropriate because the
resource use for these procedures is similar in freestanding facilities
and in hospitals. Because we have no claims data on the costs of IMRT,
these procedures will be assigned to new technology APCs. As cost data
are incorporated in the OPPS claims data base, they will be used to
recalibrate the payment for these services and determine their future
APC assignment. We would note that payment for IMRT planning includes
payment for the following CPT codes: 77300, 77280-77295, 77305-77321.
The only CPT codes that may be billed in addition to G0242 (IMRT
planning) are the CPT codes 72332-72334 for treatment devices. We plan
to incorporate the costs of those codes into IMRT planning when we have
collected the cost data. The APC assignment for G0242 is APC 0714, New
Technology--IX ($1250-$1500).
In order to determine appropriate payment amounts for both planning
and treatment of stereotactic radiosurgery, we did an extensive
analysis of our claims data base for code 61793 because that was the
code used for stereotactic radiosurgery during 1999-2000. We collected
all claims for 61793 and determined which CPT codes were billed with
61793 and the frequency with which each of those codes was billed with
61793. Within the subset of claims including CPT code 61793, we
determined the median costs for 61793 and for each CPT code billed with
61793. In analyzing these claims, it was clear that 61793 was generally
used to bill for treatment delivery and other codes were used, in
combination, to bill for treatment planning. For example, 61793 was
billed with 77300 on 57 percent of the claims, with either 77295 or
77290 on 62 percent of the claims, with either 77370 or 77336 on 77
percent of the claims (occasionally both of these codes were on the
same claim), and with either 77305, 77315, or 77321 on 59 percent of
the claims.
Based on these data, we have determined the total cost for
stereotactic radiosurgery as follows: For stereotactic radiosurgery
planning, we added the median costs (when billed with 61793) of 77295
(the most typical simulation code billed with 61793), 77300, 77370 (the
most common physics consult billed with 61793), and 77315 (the most
common dose plan billed with 61793) and will use the sum of these
medians as the basis for our APC assignment for 2002. The medians of
these codes are: $134.06 for 77300; $146.97 for 77370; $955.88 for
77295; and $206.56 for 77315. The total median cost for these codes is
$1,443.47. Effective for services furnished on or after January 1,
2002, we will no longer allow these codes to be billed with
stereotactic radiosurgery. No other codes were billed frequently enough
with 61793 to justify including their costs in our stereotactic
radiosurgery planning code. However, treatment device codes (77332-
77334) were billed with 61793 on 42 percent of the claims, so we will
allow one of those codes to be billed with each claim for stereotactic
radiosurgery. We will consider incorporating their costs into the
payment for stereotactic radiosurgery in the future. We note that the
median cost of 77334 (the most common treatment device code billed with
61793) was $174.27 when it was billed with 61793.
CPT Code 20660, application of cranial tongs, caliper, or
stereotactic frame, including removal (separate procedure), was billed
with 61793 on only 23 percent of the claims. Because 20660 is required
in order to perform stereotactic radiosurgery treatment, we will
package the costs associated with 20660 into G0243, the radiosurgery
treatment delivery code. We also note that 61793 was billed with an MRI
of the brain on 71 percent of the claims. We will allow CTs and MRIs to
be billed in addition to stereotactic radiosurgery planning.
For stereotactic radiosurgery delivery, we determined that the
median cost of 61793 (using all claims) was $5,734.22 and will use that
amount as the basis for our APC assignment for stereotactic
radiosurgery for 2002. No other radiotherapy treatment code was billed
frequently enough with 61793 to justify incorporation of its cost into
our payment (that is, the treatment code most commonly billed with
61793 was 77470 (33 percent of the claims) and the next most common was
77412 (6 percent of the claims)). We will not allow billing of any
other radiation treatment delivery codes with stereotactic radiosurgery
treatment.
Therefore, we are assigning G0243 to APC 0721, New Technology--XVI
($5,000 to $6,000).
We will pay the same amount for linear accelerator-based
stereotactic radiosurgery as for multiple source-based radiosurgery.
For fractionated linear accelerator-based radiosurgery, we will divide
the payment for single session radiosurgery by five and allow up to
five payments. This will make total payment for fractionated linear
accelerator based radiosurgery similar to linear accelerator-based
single dose radiosurgery while allowing us to collect cost and
utilization data for setting payments in 2003. Note that because
application of a stereotactic frame is not required for linear
accelerator-based radiosurgery, we will not be packaging the costs of
code 20660 into the costs for linear accelerator-based radiosurgery.
Linear accelerator-based radiosurgery planning will be coded with
the same

[[Page 59869]]

code as multiple source-based radiosurgery; therefore, the APC
assignment will be the same as well. We note that all of these codes
associated with radiosurgery are assigned to new technology APCs as we
have no claim data on the procedures. Once we have collected data, the
procedures will be assigned to other APCs.
The final APC assignments are as follows:
77301 is assigned to APC 0712
77418 is assigned to APC 0710
G0173 is assigned to APC 0721
G0242 is assigned to APC 0714
G0243 is assigned to APC 0721.

APC 0311: Radiation Physics Services

APC 0312: Radio Element Application

APC 0313: Brachytherapy

We presented APC 0311 to the Panel because we believed our cost
data for CPT codes 77336, Continuing medical physics consultation,
including assessment of treatment parameters, quality assurance of dose
delivery, and review of patient treatment documentation in support of
the radiation oncologist, reported per week of therapy; 77370, Special
medical radiation physics consultation; and 77399, Unlisted procedure,
medical radiation physics, dosimetry, and treatment devices, and
special services, were inaccurate. We were concerned that these
procedures, particularly code 77370, were not being paid appropriately
in APC 0311.
Presenters pointed out that, as with all radiation oncology
services, the usual practice is to bill multiple CPT codes on the same
date of service. Therefore, single claims were likely to be inaccurate
bills and did not represent the true costs of the procedure. For this
reason, presenters believed that using single claims to set payment
rates for radiation oncology procedures was inappropriate and that we
needed to develop a methodology that allowed the use of multiple claims
data to set payment rates for these services.
For radiation physics consultation, presenters stated that the
staff costs associated with CPT code 77370 were significantly greater
than the costs of CPT codes 77336 and 77399. Therefore, they
recommended that CPT codes 77336 and 77399 be moved from APC 0311 to
APC 0304, Level I Therapeutic Radiation Treatment Preparation, and CPT
code 77370 be moved from APC 0311 to APC 0305, Level II Therapeutic
Radiation Treatment Preparation. The Panel agreed with this
recommendation and we proposed to accept the Panel's recommendation. We
also agreed that we should review the use of single claims to set
payment rates for radiation oncology services. We plan to present this
issue again at the 2002 Panel meeting.
We presented APCs 0312 and 0313 to the Panel because commenters
were concerned that the payment rates were too low for the procedures
assigned to the APCs and that there were insufficient data to set
payment rates for these APCs. The Panel agreed that the issue regarding
the use of single claim data affected the payment rates for these
services. However, there were insufficient data for the Panel to make
any recommendations regarding these APCs. The Panel did request to look
at the issue of radiation oncology at its 2002 meeting.
Therefore, we proposed to make no changes to APCs 0312 and 0313 but
will address radiation oncology issues at the Panel's 2002 meeting. We
note that our updated claims data show very few single claims for
procedures in these APCs. However, moving any of these procedures into
other radiation oncology APCs would lower their payment rates. We are
making no further changes to these APCs.

APC 0371: Allergy Injections

We presented this APC to the Panel because it violates the 2 times
rule. The median costs for CPT codes 95115, Professional services for
allergen immunotherapy not including provision of allergenic extracts;
single injection, and 95117, Professional services for allergen
immunotherapy not including provision of allergenic extracts; two or
more injections, were lower than the median costs for the other
services in this APC.
The Panel agreed that because codes 95115 and 95117 included
administration of an injection only, the resource utilization for these
services was lower than for the other services. The other services
involve preparation of antigen and require more staff time and hospital
resources to perform.
In order to create clinical and resource homogeneity, the Panel
recommended that we create a new APC for codes 95115 and 95117 and that
we leave the other services in APC 0371. We proposed to accept the
Panel recommendation and create a new APC 0353, Level II Allergy
Injections, and revise the title of APC 0371 to Level I Allergy
Injections. These proposed changes are incorporated as final in this
rule.

Observation Services

See the discussion on observation services in section II.C.4 of
this preamble for the Panel's recommendations and our proposal as well
as a discussion of the comments we received.

Inpatient Procedure List

See the discussion of the inpatient procedures list in section
II.C.5 of this preamble for the Panel's recommendations and our
proposal and a discussion of the comments we received on the list.
3. Other APC Issues

APC 0285: Positron Emission Tomography (PET)

Comment: Commenters expressed concern about the calculation of the
payment rate for APC 0285, Positron Emission Tomography (PET), which
includes PET for myocardial perfusion imaging. One specific concern is
that single service claims are used to calculate relative weights
although the applicable procedure codes for these studies are always
linked to another diagnostic study and, therefore, they should not
appear on single service claims. Second, the commenters are concerned
that it is not appropriate to place both single study and multiple
study PET procedures in the same APC.
Response: While the PET procedures are linked with a previous
diagnostic procedure, the latter need not have been performed on the
same day or in the same facility. Upon review of our claims data base,
we find that nearly 50 percent of all claims for PET myocardial
perfusion imaging studies are single service claims. We believe this to
be a sufficient frequency for setting payment rates consistent with the
overall methodology for setting rates in the OPPS. With regard to the
second concern, after further analysis of claims, we concluded that
there is not sufficient variation in the cost among the relevant codes,
whether single or multiple studies, to warrant a change in the APC
structure.

PET Scans Assigned to APC 0976: New Technology--Level VII ($750-
$1000)

In the April 7, 2000 final rule, we assigned PET scans that use 18-
flurodeoxyglucose (FDG) to APC 0980, New Technology--Level XII ($2000-
$2500) because there were no claims for these procedures in the 1996
data used to establish the APC relative weights for 2000. However,
based on the data from over 4,000 claims for services furnished between
July 1, 1999 through June 30, 2000, the data base that was used to set
the proposed APC weights, we found that the reported median costs for
these procedures was closer to $900. Therefore, in the proposed rule,
we

[[Page 59870]]

assigned the FDG PET scans to APC 0976, New Technology--Level VII
($750-$1000). We received a large number of comments on this proposed
change.
Comment: Commenters expressed concern that the proposed APC
assignment resulted in a much reduced payment rate for FDG PET scans.
Many of these commenters expressed particular concern that the proposed
rate of about $850 would not cover the cost of purchasing FDG in
addition to the direct and indirect costs of a PET scan. The commenters
requested that we review our data and the data they submitted and
assign these procedures to a higher level new technology APC.
Response: As we discussed in detail in the April 7, 2002 final rule
(65 FR 18476-78), the purpose of assigning a service to a new
technology APC is to pay for a new technology based on its expected
costs (as evidenced by data collected by us from various external
sources) while we collect claims data that would allow assignment of
the service to a clinically appropriate APC based on the actual
resource use of the service. Our current policy is that a service
remains in a new technology APC for 2 to 3 years while we collect the
necessary claims data. (See section VI.G of this preamble for a
discussion of changes we are making to this policy effective CY 2002.)
Because FDG PET scans were assigned to a new technology APC at the
implementation of the OPPS in August 2000, they will continue to be
assigned to a new technology APC through 2002. However, when we
reviewed the claims data in our 1999-2000 data base, there were about
5,000 single claims for these PET scans, with a median cost of about
$900. Therefore, we proposed to move these procedures from APC 0980 to
APC 0976.
As requested by the commenters and consistent with our policy on
pricing services for assignment to new technology APCs, we reviewed the
external data provided by the commenters as well as our claims data.
These data suggest that our claims cost data may not have accurately
captured the entire costs of the procedure, particularly the cost of
the FDG. Based on our analysis, we believe that the cost of an FDG PET
scan is between $1,200 and $1,800, with a midpoint of $1,500. According
to our methodology for pricing new technology services, these services
will be reassigned to APC 0978, New Technology--Level IX ($1250-$1500),
which results in a payment rate of $1,375.

Cryoablation of the Prostate

Comment: We received several comments concerning our proposal to
place CPT code 55873, cryosurgical ablation of the prostate, into APC
0163, Level IV Cystourethroscopy and other Genitourinary Procedures.
Commenters believe that we had insufficient cost data to justify moving
this code from its current assignment, APC 0980, New Technology--XI
($1750-$2000). They also believe that cryoablation of the prostate is
not clinically similar to other procedures in APC 0163. One commenter
requested moving code 55873 into either APC 0984, New Technology--XV
($3500-$5000) or 0132, Level III Laparoscopy.
Response: We have reviewed our 1999-2000 cost data for code 55873,
and have 4 claims that show a median cost of just over $4,000, which
includes the cost of the procedure as well as the associated devices.
The devices associated with this procedure are eligible for
transitional pass-through payments. After subtracting the estimated
cost of the pass-through devices, we believe that the approximate
expected cost of this procedure warrants its assignment to APC 0982 New
Technology--XIII ($2500-$3000), with a status indicator of "T." The
devices associated with this procedure remain eligible for transitional
pass-through payments in 2002 in addition to the APC payment amount.

Water-Induced Thermotherapy

Comment: We received a comment from the manufacturer of the
equipment used for water-induced thermotherapy (a treatment for benign
prostatic hyperplasia), CPT code 53853, that our proposal to assign
this procedure in new technology APC 0977, New Technology--VIII ($1000-
$1250) did not accurately reflect the costs and resources required to
furnish this procedure. The commenter believes that 53853 should be
placed in APC 0982, New Technology--XIII ($2500-$3000) with other
minimally invasive thermotherapy treatments for benign prostatic
hyperplasia.
Response: We disagree with the commenter and are finalizing our
proposal. Based on the information provided by the commenters and our
own clinical knowledge, we understand that the resources required to
deliver water-induced thermotherapy are less than the resources
required for the procedures assigned to APC 0982 (CPT codes 53850,
transurethral destruction of prostate tissue; by microwave
thermotherapy, and 53852, transurethral destruction of prostate tissue;
by radiofrequency thermotherapy). Less intraoperative staff time and
less equipment resources are required for 53853 than for the other
procedures. In addition, unlike codes 53850 and 53852, which require
sedation or regional anesthesia, code 53853 requires only local
anesthesia. Finally, recovery time is shorter (in part because of the
local anesthesia) and requires fewer facility resources. Therefore, we
believe code 53853 is appropriately assigned to APC 0977.

Ultrasound Radiologic Guidance Codes

Comment: Several commenters inquired about a change in the proposed
rule that resulted in the packaging of certain ultrasound and
radiologic guidance codes. The commenters urged us to publish the data
and rationale for these changes and recommended that the proposed
changes not be made final, pending further review and a fuller
discussion of the proposed changes. The commenters recommended separate
rather than packaged payment for the guidance codes.
Response: As we explain above in section II.A.2 of this preamble
under the discussion for APC 0151, we accepted the APC Panel's
recommendation to consider the use of multiple claims data to determine
payment rates for endoscopic retrograde cholangio-pancreatography
(ERCP). The payment rate that we proposed for ERCP was based on both
single claims for ERCP procedures and on claims that included both an
ERCP procedure and a radiologic supervision or guidance procedure. That
is, rather than making separate payment for the radiologic supervision
and guidance furnished in connection with ERCP, we packaged those costs
into the proposed rate for APC 0151.
Our experience using multiple procedure claims to price ERCP in
accordance with the Panel's recommendation led us to consider other
services that could be priced similarly. We believe that the following
procedures assigned to APC 0268, Guidance Under Ultrasound, would never
be performed alone, but would always be performed in connection with
and be considered integral to the performance of another procedure:
76930, 76932, 76934, 76938, 76941, 76942, 76945, 76946, 76948, 76950,
76960, 76965, G0161. Therefore, if a claim listed one of the procedures
in APC 0268 in addition to another procedure, we retained that claim in
the pool of single-procedure bills used to calculate median costs for
services within the various APCs. Costs

[[Page 59871]]

associated with the codes in APC 0268 were therefore packaged into the
APCs of procedures with which they were billed between July 1, 1999
through June 30, 2000.
We continue to believe that the most appropriate way to pay for
ultrasound guidance is to package its costs as part of the cost of
performing the procedure for which the guidance is needed. Therefore,
in the proposed rule, we assigned status indicator "N" to still
active codes that had previously been in APC 0268. We applied the same
principle to several radiologic guidance codes (76393, 19290, 19291,
and 19295). We assigned status indicator "N" to these codes because
they represent services that are always furnished in connection with
another procedure. That is, they are integral to performing another
procedure and would never be performed alone, as a single service.
Therefore, costs associated with such radiologic guidance codes are
more appropriately packaged than paid for separately.
It is crucial that hospitals bill charges for codes with status
indicator "N" to ensure that costs for packaged services are
appropriately captured in the APCs with which they are associated. For
the 2003 OPPS update, we will consider proposing to package additional
guidance services with whichever procedures they are billed, including
the following:
76095, Stereotactic localization guidance for breast biopsy or
needle placement.
76355, Computerized tomography guidance for stereotactic
localization.
76360, Computerized tomography guidance for needle placement.
We will report to the Panel on our progress in treating bills with
certain packaged services as single procedure claims. We will also
include on the agenda of the next Panel meeting a follow-up discussion
to review the services that we have packaged thus far and to consider
other codes that would also be more appropriately paid as packaged
rather than separate services. To identify all the procedures with
which the ultrasound and radiologic guidance services are packaged
would require a review of the raw outpatient claims that make up the
1999-2000 data that we are using to recalibrate the 2002 APC weights
because we have previously packaged the guidance costs with whatever
procedure they are billed in preparing the claims data base used for
recalibration.

Breast Biopsy

Comment: A few commenters, including the manufacturer of a
minimally invasive breast biopsy system, expressed concern that the
higher APC relative weight for surgical breast biopsy procedures would
discourage Medicare beneficiary access to less invasive procedures. The
commenters were also concerned that the proposed payment for less
invasive breast biopsy procedures was inadequate.
Response: As we discuss below in section II.D. of this preamble,
the APC weights reflect hospital median costs (as determined from the
charges reflected on claims submitted by hospitals) for a given
procedure relative to the costs for other procedures. We expect that
the costs for an open surgical procedure will be higher than those for
less invasive procedures because open surgery is more resource
intensive, especially in terms of recovery time, anesthesia, and
nursing care. We do not agree that the higher relative weight for open
surgical biopsy will serve as an incentive to perform this procedure
rather than the less costly, less invasive options. The payment rate
for the less invasive options are based on the costs of those
procedures as reported by hospitals. We note that the payment rate for
the breast biopsy procedure assigned to APC 0974, New Technology--Level
V ($300-$500) (CPT code 19103, Percutaneous, automated vacuum assisted
or rotating biopsy device, using imaging guidance) is higher in this
final rule relative to the proposed rule (see the discussion in section
II.D. of this preamble, below).
Comment: Several commenters questioned why the proposed rule
indicated that CPT code 76095, Stereotactic localization guidance for
breast biopsy, would be moved from APC 0264, Level II Miscellaneous
Radiology Procedures, with a status indicator of "X" (ancillary
service) to APC 0187, Placement/Repositioning Miscellaneous Catheters,
with a status indicator of "T" (significant procedure, multiple
procedure reduction applies). The commenters were concerned that the
"T" status indicator would result in a lower payment for the
procedure when it is billed with other procedures.
Response: We agree with commenters that the title for APC 0187 in
the proposed rule is misleading given the procedures that are included
within the APC. Therefore, in the final rule, we are changing the name
of APC 0187 to "Miscellaneous Placement/Repositioning". We are also
changing the status indicator for APC 0187 from "T" to "X". We
created APC 0187 to pay more appropriately for certain guidance codes,
including code 76095.

Status Indicators

Comment: A commenter asserted that some hospitals believe that
procedure codes designated with status indicators of "S," "T,"
"V," and "X" mean that the procedure must be performed in the
outpatient setting.
Response: This is not the case. These status indicators were
developed to assist us with our pricing policy in OPPS, not to dictate
where the procedures could be performed. Although a status indicator of
"C" means that the procedure will not be paid if performed in the
outpatient setting, the status indicators paid under the OPPS do not
dictate where that service or procedure is covered. We pay for any
covered service or procedure performed in the inpatient setting as an
inpatient service as long as the patient's condition merits admission
to the hospital as an inpatient.

B. Additional APC Changes Resulting from BIPA Provisions

1. Coverage of Glaucoma Screening
Section 102 of the BIPA amended section 1861(s)(2) of the Act to
provide payment for glaucoma screening for eligible Medicare
beneficiaries, specifically, those with diabetes mellitus or a family
history of glaucoma, and certain other individuals found to be at high
risk for glaucoma as specified by our rulemaking. The implementation of
this provision is discussed in detail in a separate final rule
concerning the revisions in the physician fee schedule payment policy
for CY 2002, published in the Federal Register on November 1, 2001 (66
FR 55272).
In order to implement section 102 of BIPA, we have established two
new HCPCS codes for glaucoma screening:
G0117--Glaucoma screening for high risk patients furnished
by an optometrist or ophthalmologist.
G0118--Glaucoma screening for high risk patients furnished
under the direct supervision of an optometrist or ophthalmologist.
We proposed to assign the glaucoma screening codes to APC 0230,
Level I Eye Tests. We further proposed to instruct our fiscal
intermediaries to make payment for glaucoma screening only if it is the
sole ophthalmologic service for which the hospital submits a bill for a
visit. That is, the services included in glaucoma screening (a dilated
eye examination with an intraocular pressure measurement and direct
opthalmoscopy or slit-lamp biomicroscopy) would generally be performed
during the delivery of another opthalmologic service that is furnished
on the same day. If the

[[Page 59872]]

beneficiary receives only a screening service, however, we would pay
for it under APC 0230.
2. APCs for Contrast Enhanced Diagnostic Procedures
Section 430 of the BIPA amended section 1833(t)(2) of the Act to
require the Secretary to create additional APC groups to classify
procedures that utilize contrast agents separately from those that do
not, effective for items and services furnished on or after July 1,
2001. On June 1, 2001, we issued a Program Memorandum, Transmittal A-
01-73, in which we made numerous coding and grouping changes to
implement this provision. (This transmittal can be found at
www.hcfa.gov/pubforms/transmit/AO173.pdf) We removed the radiological
procedures whose descriptors included either "without contrast
material" or "without contrast material followed by contrast
material" from APC groups 0282, Level I, Computerized Axial
Tomography; APC 0283, Level II, Computerized Axial Tomography; and APC
0284, Magnetic Resonance Imaging. As a result, APCs 0283 and 0284 now
include only imaging procedures that are performed with contrast
materials. Additionally, reconfigured APC 0282 no longer includes
radiological procedures that use contrast agents.
Effective for items or services furnished on or after July 1, 2001,
we created six new APC groups for the procedures removed from APCs
0282, 0283, and 0284, as shown below. (Effective October 1, 2001, we
eliminated APC 0338. Refer to Transmittal A-01-73 for a detailed
description of this change.) For services furnished on or after July 1,
2001 and before January 1, 2002, the payment rates for the new imaging
APCs are the same as those associated with the APCs from which the
procedures were moved. For the proposed rule, we calculated separate
weights for the new APCs based on the data available at the time for
recalibration. In this final rule, we are establishing separate weights
for the new APCs based on the final data used to recalibrate the
weights for 2002.

Table 1.--APC Groups Reconfigured To Separate Imaging Procedures That Use Contrast Material From Procedures That
Do Not Use Contrast Material
----------------------------------------------------------------------------------------------------------------
APC SI APC title
----------------------------------------------------------------------------------------------------------------
0282............................. S Miscellaneous Computerized Axial Tomography.
0283............................. S Computerized Axial Tomography with Contrast.
0284............................. S Magnetic Resonance Imaging and Angiography with
Contrast.
0332............................. S Computerized Axial Tomography w/o Contrast.
0333............................. S CT Angio and Computerized Axial Tomography w/o
Contrast followed by with Contrast.
0335............................. S Magnetic Resonance Imaging, Temporomandibular Joint.
0336............................. S Magnetic Resonance Angiography and Imaging without
Contrast.
0337............................. S Magnetic Resonance Imaging and Angiography w/o
Contrast followed by with Contrast.
----------------------------------------------------------------------------------------------------------------

The HCPCS codes that are reassigned to the new imaging APCs in this
final rule are as follows:

------------------------------------------------------------------------
APC HCPCS SI Short descriptor
------------------------------------------------------------------------
0282................. 76370 S CAT scan for therapy
guide.
76375 S 3d/holograph reconstr
add-on.
76380 S CAT scan for follow-up
study.
G0131 S Ct scan, bone density
study.
G0132 S Ct scan, bone density
study.
0283................. 70460 S Ct head/brain w/dye.
70481 S Ct orbit/ear/fossa w/
dye.
70487 S Ct maxillofacial w/
dye.
70491 S Ct soft tissue neck w/
dye.
71260 S Ct thorax w/dye.
72126 S Ct neck spine w/dye.
72129 S Ct chest spine w/dye.
72132 S Ct lumbar spine w/dye.
72193 S Ct pelvis w/dye.
73201 S Ct upper extremity w/
dye.
73701 S Ct lower extremity w/
dye.
74160 S Ct abdomen w/dye.
76355 S CAT scan for
localization
76360 S CAT scan for needle
biopsy.
0284................. 70542 S MRI orbit/face/neck w/
dye.
70545 S Mr angiography head w/
dye.
70548 S Mr angiography neck w/
dye.
70552 S MRI brain w/dye.
71551 S MRI chest w/dye.
72142 S MRI neck spine w/dye.
72147 S MRI chest spine w/dye.
72149 S MRI lumbar spine w/
dye.
72196 S MRI pelvis w/dye.
73219 S MRI upper extremity w/
dye.
73222 S MRI joint upr extrem w/
dye.
73719 S MRI lower extremity w/
dye.
73722 S MRI joint of lwr extr
w/dye.

[[Page 59873]]

74182 S MRI abdomen w/dye.
75553 S Heart MRI for morph w/
dye.
C8900 S MRA w/cont, abd.
C8903 S MRI w/cont,
breast,uni.
C8906 S MRI w/cont, breast,
bi.
C8909 S MRA w/cont, chest.
C8912 S MRA w/cont, lwr ext.
0332................. 70450 S CAT scan of head or
brain.
70480 S Ct orbit/ear/fossa w/o
dye.
70486 S Ct maxillofacial w/o
dye.
70490 S Ct soft tissue neck w/
o dye.
71250 S Ct thorax w/o dye.
72125 S Ct neck spine w/o dye.
72128 S Ct chest spine w/o
dye.
72131 S Ct lumbar spine w/o
dye.
72192 S Ct pelvis w/o dye.
73200 S Ct upper extremity w/o
dye.
73700 S Ct lower extremity w/o
dye.
74150 S Ct abdomen w/o dye.
0333................. 70470 S Ct head/brain w/o&w
dye.
70482 S Ct orbit/ear/fossa w/
o&w dye.
70488 S Ct maxillofacial w/o&w
dye.
70492 S Ct sft tsue nck w/o &
w/dye.
70496 S Ct angiography, head.
70498 S Ct angiography, neck.
71270 S Ct thorax w/o&w dye.
71275 S Ct angiography, chest.
72127 S Ct neck spine w/o&w
dye.
72130 S Ct chest spine w/o&w
dye.
72133 S Ct lumbar spine w/o&w
dye.
72191 S Ct angiograph pelv w/
o&w dye.
72194 S Ct pelvis w/o&w dye.
73202 S Ct uppr extremity w/
o&w dye.
73206 S Ct angio upr extrm w/
o&w dye.
73702 S Ct lwr extremity w/o&w
dye.
73706 S Ct angio lwr extr w/
o&w dye.
74170 S Ct abdomen w/o&w dye.
74175 S Ct angio abdom w/o&w
dye.
75635 S Ct angio abdominal
arteries.
0335................. 70336 S Magnetic image, jaw
joint.
75554 S Cardiac mri/function.
75555 S Cardiac mri/limited
study.
76390 S Mr spectroscopy.
76400 S Magnetic image, bone
marrow.
0336................. 70540 S MRI orbit/face/neck w/
o dye.
70544 S Mr angiography head w/
o dye.
70547 S Mr angiography neck w/
o dye.
70551 S MRI brain w/o dye.
71550 S MRI chest w/o dye.
72141 S MRI neck spine w/o
dye.
72146 S MRI chest spine w/o
dye.
72148 S MRI lumbar spine w/o
dye.
72195 S MRI pelvis w/o dye.
73218 S MRI upper extremity w/
o dye.
73221 S MRI joint upr extrem w/
o dye.
73718 S MRI lower extremity w/
o dye.
73721 S MRI joint of lwr extre
w/o d.
74181 S MRI abdomen w/o dye.
75552 S Heart MRI for morph w/
o dye.
C8901 S MRA w/o cont, abd.
C8904 S MRI w/o cont, breast,
uni.
C8910 S MRA w/o cont, chest.
C8913 S MRA w/o cont, lwr ext.
0337................. 70543 S MRI orbt/fac/nck w/o&w
dye.
70546 S Mr angiograph head w/
o&w dye.
70549 S Mr angiograph neck w/
o&w dye.
70553 S MRI brain w/o&w dye.
71552 S MRI chest w/o&w dye.
72156 S MRI neck spine w/o&w
dye.
72157 S MRI chest spine w/o&w
dye.
72158 S MRI lumbar spine w/o&w
dye.
72197 S MRI pelvis w/o&w dye.
73220 S MRI uppr extremity w/
o&w dye.
73223 S MRI joint upr extr w/
o&w dye.

[[Page 59874]]

73720 S MRI lwr extremity w/
o&w dye.
73723 S MRI joint lwr extr w/
o&w dye.
74183 S MRI abdomen w/o&w dye.
C8902 S MRA w/o fol w/cont,
abd.
C8905 S MRI w/o fol w/cont,
brst, uni.
C8908 S MRI w/o fol w/cont,
breast, bi.
C8911 S MRA w/o fol w/cont,
chest.
C8914 S MRA w/o fol w/cont,
lwr ext.
------------------------------------------------------------------------

Refer to Addendum A or Addendum B of this final rule for the
updated weights, payment rates, national unadjusted copayment, and
minimum unadjusted copayment for all of the procedures listed above.
3. Coding and Payment for Mammography Services
a. Screening Mammography. Screening mammography means a radiologic
procedure provided to a woman without signs or symptoms of breast
disease for the purpose of early detection of breast cancer. Under
Medicare, screening mammography services can be billed in three ways:
(1) For the physician's interpretation of the results of the screening
mammogram (that is, the professional component of mammography
services); (2) for all services other than the physician's
interpretation (that is, the technical component); or (3) for both the
professional and technical components (global billing), although global
billing is not permitted for services furnished in the hospital
outpatient setting.
Section 4163 of the Omnibus Budget Reconciliation Act of 1990 (Pub.
L. 101-508) added section 1834(c) of the Act to provide for Part B
coverage of screening mammography performed on or after January 1,
1991. Section 1834(c) of the Act governing those screenings did not
include screening mammography under the physician fee schedule; it
provided for payment under a separate statutory methodology. Payment
for screening mammography services furnished in the hospital outpatient
setting before January 1, 2002 is subject to the payment method set by
the statute at section 1834(c) of the Act. When Medicare implemented
the OPPS for services furnished beginning August 1, 2000, payment for
screening mammography services continued to be based on the payment
method set by the statute at section 1834(c) (the lower of hospital
charges or the national payment limitation) of the Act and was not made
under the OPPS.
Section 104 of BIPA amended section 1848(j)(3) of the Act to
include screening mammography as a physician service. As a result of
this amendment, the payment limit that is currently the basis for
payment is replaced beginning January 1, 2002 by payment under the
Medicare physician fee schedule. Payments for all services under the
physician fee schedule are resource-based and have geographic
adjustments that reflect cost differences among areas. A discussion of
how payment for screening mammography services is determined under the
physician fee schedule can be found in the final rule, "Revisions to
Payment Policies and Five-Year Review of and Adjustments to the
Relative Value Units Under the Physician Fee Schedule for Calendar Year
2002," published in the November 1, 2001 Federal Register (66 FR
55246). Beginning January 1, 2002, Medicare payment for screening
mammography services furnished in a hospital outpatient setting is no
longer the lower of hospital charges or the national payment
limitation; however, payment will continue to be excluded from the
OPPS. For screening mammography furnished in the outpatient setting,
Medicare will pay hospitals the technical component amount established
under the Medicare physician fee schedule.
Comment: A few commenters questioned why we had not established an
APC or a payment rate for screening mammography in the proposed rule.
One commenter expressed grave concern that our failure to include an
APC for screening mammography in the proposed rule meant that Medicare
beneficiaries would not be able to receive screening mammography
services in the hospital outpatient setting. These commenters urged
that we establish an APC for screening mammography services and that
the payment rate be consistent with the cost of taking a screening
mammogram in the hospital outpatient setting rather than the payment
rate proposed for diagnostic mammograms in APC 0271, Mammography. One
commenter, citing a survey conducted by a professional society,
reported the average cost of doing a screening mammogram in a hospital
to be about $97. Several commenters supported the physician fee
schedule payment rate for screening mammography services as a more
reasonable recognition of associated costs than the payment rate
proposed for diagnostic mammography under APC 0271.
Response: The fact that we have not assigned the HCPCS codes for
screening mammography services to an APC does not mean that Medicare
does not pay hospitals for these services when they are furnished in
the outpatient setting. Rather, as we explain in the April 7, 2000
final rule, we excluded screening mammography services from payment
under the OPPS because they were already subject to an existing fee
schedule or other prospectively determined payment rate (65 FR 18442).
When the OPPS was implemented on August 1, 2000, screening mammography
services were assigned payment status indicator "A" to specify that
payment would be the "lower of charge or national rate," consistent
with section 1834(c)(3) of the Act (65 FR 18445).
As a result of section 104 of BIPA, which amended section
1848(j)(3) of the Act to define screening mammography as a physician
service, Medicare payment for screening mammography services furnished
on or after January 1, 2002 is no longer subject to the payment
methodology established under section 1834(c) of the Act. Therefore,
payment for both the professional and technical components of screening
mammography services furnished on or after January 1, 2002 is made
under the physician fee schedule. This means that, effective for
services furnished on or after January 1, 2002, the payment amount to
hospitals for screening mammography services furnished in the
outpatient setting will be based on the amount established for the
technical component of screening mammography under the physician fee
schedule.
Hospitals are to use the following codes to bill for screening
mammography services effective January 1, 2002:
CPT code 76092, Screening mammography, bilateral (two view
film study of each breast)

[[Page 59875]]

HCPCS code G0202, Screening mammography, direct digital
image, bilateral, all views
CPT code 76085, Computer-aided detection add-on code for
screening mammography (can only be billed with CPT code 76092)
We further discuss in section II.B.3.c, below, coding and payment
for screening and diagnostic mammograms that use advanced new
technologies.
Payment for screening mammography services furnished in a hospital
outpatient department beginning January 1, 2002 is equal to 80 percent
of the lower of the hospital's actual charge or the locality specific
technical component payment amount under the physician fee schedule.
Coinsurance equals 20 percent of the lower of the actual charge or the
physician fee schedule amount. The Medicare Part B deductible does not
apply to screening mammography. The November 1 physician fee schedule
final rule lists the relative value units for screening mammography
services and the physician fee schedule conversion factor for CY 2002
(66 FR 55334). In addition to the technical component payment made to
the hospital, physicians are paid an additional amount for professional
services furnished in connection with these procedures.
In this final rule, we are changing the descriptor of payment
status indicator "A" for the screening mammography codes to
"Physician Fee Schedule" to conform with the BIPA change.
b. Diagnostic Mammography. Medicare covers a radiological mammogram
as a diagnostic test under the following conditions:
A patient has distinct signs and symptoms for which a
mammogram is indicated;
A patient has a history of breast cancer; or
A patient is asymptomatic, but on the basis of the
patient's history and other factors the physician considers
significant, the physician's judgment is that a mammogram is
appropriate.
Payment for a diagnostic mammogram furnished in a hospital
outpatient setting is made under the OPPS. The following codes are used
to report diagnostic mammography: CPT code 76090, Mammography;
unilateral, and CPT code 76091, Mammography, bilateral are used to
report a diagnostic mammogram. These two codes are assigned to APC
0271, Mammography, and we proposed no changes to the assignment of
these codes in the proposed rule. (We discuss in section III.B.3.c,
below, coding changes for the CY 2002 related to new technology
mammography.)
In the proposed rule, the relative weight for APC 0271 was equal to
0.64. We recalibrated all the APC relative weights, including that for
APC 0271, using claims data for services furnished beginning July 1,
1999 through June 30, 2000 in accordance with the process explained in
the proposed rule (66 FR 44695).
Comment: We received numerous comments, many of which were the
product of a "write-in" campaign, regarding the relative weight and
payment rate proposed for APC 0271. The commenters asserted that the
current payment rate for APC 0271 is inadequate to support the
provision of mammography services in the hospital outpatient setting,
and they expressed disbelief that the proposed payment rate for 2002 is
lower than the current rate. Commenters expressed grave concern that
the proposed payment rate for diagnostic mammography would have a
generally negative impact on beneficiary access to mammography
services. Many commenters cited a practice cost survey conducted by the
American College of Radiology that indicated the average cost for
performing a screening mammogram in a hospital outpatient setting to be
$97. The commenters argued that diagnostic mammography is more complex
technically and more resource intensive, requiring more than double the
clinical labor, supply, and equipment inputs than those required for
screening mammography. One commenter stated that the technical cost of
providing screening mammography in the hospital setting is nearly twice
the cost of providing the same service in a physician office setting.
Other commenters recommended that payment for all mammography
services furnished in the outpatient setting, both screening and
diagnostic, be paid under the physician fee schedule to eliminate the
significant payment disparity that will result if the proposed OPPS
rates for diagnostic mammography are implemented in 2002. Several
commenters complained that we provided no rationale or data to show how
the proposed payment rate for APC 0271 was calculated nor did we
explain why the proposed payment for these services is lower than the
current payment. Commenters urged that we recalculate the payment rate
for APC 0271 to represent a payment rate that is reflective of the
resources used to perform the procedure.
Response: We calculated the relative weight for APC 0271 in the
April 7, 2000 final rule in accordance with the process we described in
that rule (65 FR 18482), using, as required by the statute, claims from
1996 and data from the most recent available hospital cost reports.
Because we did not recalibrate the relative weights for any APC groups
in the November 13, 2000 final rule, the relative weight (0.70) for APC
0271 as well as the relative weights for the other APC groups have not
changed since August 1, 2000.
Using 1999-2000 claims data, we recalibrated all the APC weights in
the proposed rule in accordance with the process that we explained in
that rule (66 FR 44695). The relative weight for every APC group
changed for two reasons: the use of more recent claims data, and the
statutory requirements for budget neutrality. Section 1833(t)(9)(B) of
the Act requires that estimated spending for services covered under the
OPPS be neither greater nor less than it would have been had the
recalibration and reclassification changes not been made. Because of
this, the weights and, therefore, the payment rates for a specific
service may increase or decrease depending on the change in charges
hospitals report for that service relative to the change in charges
hospitals report for other outpatient services. The decrease in the
relative weight for diagnostic mammography proposed for 2002 can be
attributed to a decrease in the relative level of charges for
diagnostic mammography that hospitals reported for services furnished
from July 1, 1999 through June 30, 2000 compared to the relative level
of charges hospitals reported for all other outpatient services
furnished during the same period. However, that weight does reflect the
hospital resources used to perform mammograms. We note that the weight
for APC 0271 in both the proposed and final rules is calculated from
the median cost of almost 900,000 single-procedure claims.
The weight for APC 0271 in this final rule is 0.60. This weight was
recalibrated, like all of the APC weights in this final rule, in
accordance with the methodology described in section II.D. of this
preamble. We note that the weight for APC 0271, like the weights for
all of the nondevice-related APCs, has decreased from the proposed
weight. This decrease is the result of our incorporating a portion of
the cost of pass-through devices into the base costs of the APCs with
which the devices are associated. As we explained in the final rule
published on November 2, 2001, the additional pass-through device costs
that were incorporated into the base APC costs are not evenly
distributed among the APCs, but rather are concentrated in a relatively
small

[[Page 59876]]

number of APCs that include the procedures that use pass-through
devices (66 FR 55862). Whereas the weights of these APCs increased as a
result of the added device costs, in general, the weights for APCs that
do not include device costs, such as APC 0271, decreased by
approximately 8 percent. For a more detailed discussion of how the
incorporation of device costs into the base APCs affects the relative
weights, see sections II.D. and VII, below.
Unlike screening mammography, the statute makes no specific
designation for the technical component of diagnostic mammography
services furnished in the hospital outpatient setting to be defined as
a physicians' service. Therefore, we believe that the payment for
diagnostic mammography should be included in the OPPS.
Comment: Several commenters expressed concern that the reduced
payment rate for diagnostic mammography would have an especially
onerous and negative impact on small, low volume hospitals, most of
which are located in rural areas. The commenters noted that although
these small rural hospitals are generally the sole providers of
mammography and radiology services to the surrounding communities,
volume in these hospitals is nonetheless too low to offset the fixed
costs incurred for certified staff and equipment.
Response: In order to limit potential reductions in payment to
hospitals under the OPPS, section 1833(t)(7) of the Act requires us to
provide transitional payment adjustments for hospitals whose OPPS
payments are less than our estimate of the hospital's pre-BBA payments.
Section 1833(t)(7)(D)(i) of the Act includes a special "hold
harmless" provision, which applies to hospital outpatient services
furnished before 2004 by hospitals that are located in a rural area and
that have no more than 100 beds. Under section 1833(t)(7)(D)(i) of the
Act, small rural hospitals will be paid a predetermined pre-BBA amount
for services covered under the OPPS if payment under the OPPS would be
less than the pre-BBA amount. This hold harmless provision establishes
a payment floor until January 1, 2004 for small rural hospitals. These
provisions should provide some measure of protection to small hospitals
in rural areas to the extent that the reduced payment for diagnostic
mammography services results in overall payment reductions.
c. Coding and Payment for New Technology Mammography Services.
Section 104(d) of BIPA prescribes a payment methodology for both
diagnostic and screening mammography furnished during the period April
1, 2001 through December 31, 2001 that use a new technology, as defined
in section 104(d)(3) of BIPA. Section 104(d)(2) of BIPA directs the
Secretary to determine, for mammography performed after 2001, whether
the assignment of a new HCPCS code is appropriate for mammography that
uses a new technology. The following codes have been established to
identify the new technology mammography services and will be used
effective January 1, 2002:
HCPCS code G0202, Screening mammography producing direct
digital image, bilateral, all views.
CPT code 76085, Digitization of film radiographic images
with computer analysis for lesion detection and further physician
review for interpretation, screening mammography. (This code can only
be billed with CPT code 76092, Screening mammography, bilateral.)
HCPCS code G0204, Diagnostic mammography, direct digital
image, bilateral, all views.
HCPCS code G0206, Diagnostic mammography, direct digital
image, unilateral, all views.
HCPCS code G0236, Digitization of film radiographic images
with computer analysis for lesion detection and further physician
review for interpretation, diagnostic mammography. (This code can only
be billed with code CPT code 76090, Diagnostic mammography, unilateral,
or CPT code 76091, Diagnostic mammography, bilateral.)
In the proposed rule, we assigned computer-aided detection (CAD)
and full field digital mammography (FFDM) services used for diagnostic
mammography to APC 0271. We proposed to assign payment status indicator
"A," designating that payment would be "lower of charges or national
rate," to the CAD and FFDM codes for screening mammography. Numerous
commenters addressed our proposed payment for CAD and FFDM new
technology mammography services. Their comments are summarized below.
Comment: One commenter recommended that CAD used in conjunction
with film screening mammography be assigned to a new technology APC
under the OPPS rather than being paid under the physician fee schedule.
The commenter argued that although section 104(a) of BIPA provided for
payment for screening mammography under the physician fee schedule,
payment for a new technology such as CAD is provided under a separate
BIPA provision, section 104(d)(3), and therefore is not linked to the
physician fee schedule.
Response: We do not agree with the commenter's recommendation that
CPT code 76085 for CAD used with screening mammography be assigned for
payment to a new technology APC under the OPPS. Because CPT code 76085
is an add-on code that can be paid only when it is billed with CPT code
76092 for screening mammography, we believe it is more appropriate to
pay for both CPT codes 76085 and 76092 under the physician fee schedule
than to pay for them separately under two different payment systems.
Comment: Most commenters recommended assignment of CAD and FFDM
services used with diagnostic mammography to a new technology APC on
the grounds that no existing APC would be appropriate both clinically
and in terms of payment for these services. Commenters were unanimous
in opposing assignment of the CAD and FFDM services used for diagnostic
mammography to APC 0271. Several commenters were concerned that payment
for these services under the physician fee schedule was so much higher
than that proposed under the OPPS.
Response: We agree that the new technology procedures associated
with diagnostic mammography should be assigned to a new technology APC
until we have collected cost data to make a more clinically and
resource use appropriate APC assignment. Therefore, effective for
services furnished on or after January 1, 2002, HCPCS codes G0204 and
G0206 will be assigned to APC 0971 and HCPCS code G0236 will be
assigned to APC 0970.
The difference in payment amounts for the new technology
mammography services between the physician fee schedule and the OPPS is
attributable to differences in the payment methodology required under
the statute.
Final Action: See section II.B.3.a. for the codes used to bill for
new technology screening mammography services. The following codes and
APC groups are effective for new technology services used for
diagnostic mammography beginning January 1, 2002:
HCPCS codes G0205 and G0207 are deleted.
Use HCPCS codes G0204 and G0206 for full field digital diagnostic
mammography services; assigned to APC 0707.
Use HCPCS code G0236 for computer-assisted detection with CPT code
76090 and CPT code 76091 for diagnostic mammography; assigned to APC
0706.

[[Page 59877]]

C. Other Changes Affecting the APCs

1. Changes in Revenue Code Packaging
In the April 7, 2000 final rule, we described how, in calculating
the per procedure and per visit costs to determine the median cost of
an APC (and therefore its relative weight), we used the charges billed
using the revenue codes that contained items that were integral to
performing the procedure or visit (65 FR 18483). The complete list of
the revenue centers by type of APC group was printed in the April 7,
2000 rule (65 FR 18484).
In the November 13, 2000 interim final rule, we made some changes
to the list of revenue codes to reflect the charges associated with
implantable devices (65 FR 67806 and 67825). We were later able to
incorporate revenue codes 274 (prosthetic/orthotic devices), 275
(pacemaker), and 278 (other implants) in our database, and effective
January 1, 2001, we updated the APC payment rates to reflect inclusion
of this information.
As discussed in the proposed rule, we have continued to review and
revise the list of revenue codes to be included in the database and we
proposed several changes to the list of revenue codes that are packaged
with the costs used to calculate the proposed APC rates. Some of these
changes reflect the addition of revenue codes and others are a further
refinement of our methodology. The following are the specific changes
we proposed:
Package additional revenue centers that may be used to
bill for implantable devices (including durable medical equipment (DME)
and brachytherapy seeds) with surgical procedures. These additional
centers are revenue codes 280 (oncology), 289 (other oncology), 290
(DME), and 624 (investigational devices).
Package revenue codes 280, 289, and 624 with other
diagnostic and radiology services.
Package the revenue codes for medical social services, 560
(medical social services) and 569 (other medical social services).
These services are not paid separately in the hospital outpatient
setting but often constitute discharge-planning services if provided
with an outpatient service.
Package revenue code 637 (self-administered drug (insulin
administered in an emergency diabetic coma)) with medical visits.
Although this is a self-administrable drug, it is covered when
administered as described.
Remove revenue code 723 (circumcision) from the list of
packaged revenue codes because circumcision is a payable procedure
under OPPS and should not be packaged.
Package revenue code 942 (education/training) with medical
visits and the category of "All Other APC Groups." Patient training
and education are generally not paid as a separate service under
Medicare, but may be included as part of an otherwise payable service
such as a medical visit. We believe that training and education
services generally occur as part of a medical visit or psychiatric
service.
Remove the revenue codes in the range of 890 through 899
(donor bank), as these are no longer valid revenue codes.
Comment: One commenter disagreed with our proposal to package
revenue code 942 (education/training). The commenter stated that such a
policy would be inappropriate because revenue code 942 is the proper
revenue code to use when billing diabetes training with HCPCS codes
G0108 and G0109. If CMS does package that revenue code, the commenter
wanted to know what revenue code should be billed for diabetes
education.
Response: Although under OPPS we will package charges for education
and training when billed with revenue code 942, training and education
associated with diabetes management, identified by HCPCS codes G0108
and G0109, is not paid under the OPPS and, therefore, is not a packaged
service. The list of packaged revenue codes contained in the proposed
rule represents revenue codes that are packaged when they appear on a
bill with an OPPS service and are not billed with a HCPCS code for a
service, like diabetes education, which is paid by Medicare but paid
outside of the OPPS.
Comment: One commenter questioned our proposal to package
additional revenue centers that may be used to bill for implantable
devices (including brachytherapy seeds) with surgical procedures. The
commenter asked for details on how such packaging would be accomplished
and specifically how we would account for the varying number of costly
brachytherapy seeds used in each procedure.
Response: In determining the median cost of a procedure or service,
we take into account the costs associated with any packaged revenue
center that appears on a bill as well as the cost associated with the
specific line item that reflects the HCPCS code for the procedure or
service. Thus, when a hospital bills a charge for brachytherapy seeds
using one of the revenue codes that are identified as a packaged
revenue code, we convert that charge to a cost by multiplying the
billed charge by the hospital-specific cost-to-charge ratio for the
related cost center. The cost of the brachytherapy seeds is then added
to all other costs on the bill that are attributable to the procedure
to arrive at the cost of the bill. Under this methodology, the varying
numbers of brachytherapy seeds used and the varying costs of the seeds
are accurately captured in the median cost data we use to calculate
median cost for the APC. That is, we would expect that the cost
associated with a bill would reflect the number of seeds used in a
particular procedure and the median cost for that procedure overall
would be an average of the varying numbers of seeds used by hospitals.
2. Special Revenue Code Packaging for Specific Types of Procedures
We proposed that the same packaging used for surgical procedures be
used for corneal tissue implant procedures in APC 0244, Corneal
Transplant, except that organ acquisition revenue codes and the revenue
codes used to bill implantable devices are not packaged with corneal
implants.
There are certain other diagnostic procedures with CPT codes that
are similar to surgical procedures. The cost of these procedures (HCPCS
codes 92980-92996, 93501-93505, and 93510-93536) reflects both the
revenue code packaging for ambulatory surgical center (ASC) and other
surgery, as well as the revenue code packaging for other diagnostic
services.
A complete listing of the revenue codes that we used for purposes
of calculating median costs of services are shown below in Table 2.

Table 2.--Packaged Services by Revenue Code

Surgery

250 Pharmacy
251 Generic
252 Nongeneric
257 Nonprescription Drugs
258 IV Solutions
259 Other Pharmacy
260 IV Therapy, general class
262 IV Therapy/pharmacy services
263 IV Therapy/drug supply/delivery
264 IV Therapy/supplies
269 Other IV Therapy
270 M&S supplies
271 Nonsterile supplies
272 Sterile supplies
274 Prosthetic/orthotic devices
275 Pacemaker drug
276 Intraocular lens source drug
278 Other implants
279 Other M&S supplies
280 Oncology
289 Other oncology

[[Page 59878]]

762 Observation room
810 Organ acquisition
290 Durable medical equipment
370 Anesthesia
379 Other anesthesia
390 Blood storage and processing
399 Other blood storage and processing
560 Medical social services
569 Other medical social services
624 Investigational device (IDE)
630 Drugs requiring specific identification, general class
631 Single source
632 Multiple
633 Restrictive prescription
700 Cast room
709 Other cast room
710 Recovery room
719 Other recovery room
720 Labor room
721 Labor
819 Other organ acquisition

Medical Visit

250 Pharmacy
251 Generic
252 Nongeneric
257 Nonprescription drugs
258 IV solutions
259 Other pharmacy
270 M&S supplies
271 Nonsterile supplies
272 Sterile supplies
279 Other M&S supplies
560 Medical social services
569 Other medical social services
630 Drugs requiring specific identification, general class
631 Single source drug
632 Multiple source drug
633 Restrictive prescription
637 Self-administered drug (insulin admin. in emergency diabetic coma)
700 Cast room
709 Other cast room
762 Observation room
942 Education/training

Other Diagnostic

254 Pharmacy incident to other diagnostic
280 Oncology
289 Other oncology
372 Anesthesia incident to other diagnostic
560 Medical social services
569 Other medical social services
622 Supplies incident to other diagnostic
624 Investigational device (IDE)
710 Recovery room
719 Other recovery room
762 Observation room

Radiology

255 Pharmacy incident to radiology
280 Oncology
289 Other oncology
371 Anesthesia incident to radiology
560 Medical social services
569 Other medical social services
621 Supplies incident to radiology
624 Investigational device (IDE)
710 Recovery room
719 Other recovery room
762 Observation room

All Other APC Groups

250 Pharmacy
251 Generic
252 Nongeneric
257 Nonprescription drugs
258 IV Solutions
259 Other pharmacy
260 IV Therapy, general class
262 IV Therapy pharmacy services
263 IV Therapy drug/supply/delivery
264 IV Therapy supplies
269 Other IV therapy
270 M&S supplies
271 Nonsterile supplies
272 Sterile supplies
279 Other M&S supplies
560 Medical social services
569 Other medical social services
630 Drugs requiring specific identification, general class
631 Single source drug
632 Multiple source drug
633 Restrictive prescription
762 Observation room
942 Education/training
3. Limit on Variation of Costs of Services Classified Within a Group
Section 1833(t)(2) of the Act provides that the items and services
within an APC group cannot be considered comparable with respect to the
use of resources if the highest cost item or service within a group is
more than 2 times greater than the lowest cost item or service within
the same group. However, the Secretary may make exceptions to this
limit on the variation of costs within each group in unusual cases such
as low volume items and services. No exception may be made, however, in
the case of a drug or biological that has been designated as an orphan
drug under section 526 of the Federal Food, Drug, and Cosmetic Act.
Based on the APC changes discussed above in this section of this
preamble and our use of more current data to calculate the median cost
of procedures classified to APCs, we reviewed all the APCs to determine
which of them would not meet the 2 times limit. We use the following
criteria when deciding whether to make exceptions to the 2 times rule
for affected APCs:
Resource homogeneity.
Clinical homogeneity.
Hospital concentration.
Frequency of service (volume).
Opportunity for upcoding and code fragmentation.
For a detailed discussion of these criteria, refer to the April 7, 2000
final rule (65 FR 18457).
The proposed rule set forth a list of APCs that we proposed to
exempt from the 2 times rule based on the criteria cited above (66 FR
44690). In cases in which compliance with the 2 times rule appeared to
conflict with a recommendation of the APC Advisory Panel, we generally
proposed to accept the Panel recommendation. This was because Panel
recommendations were based on explicit consideration of resource use,
clinical homogeneity, hospital specialization, and the quality of the
data used to determine payment rates.
We received no comments on our proposal. The following is the final
list of APCs we exempted from the 2 times rule. This list reflects the
final APCs as recalibrated based on the updated 1999-2000 data base as
well as the incorporation of 75 percent of the estimated cost of the
pass-through devices (See section II.D).
List of APCs exempted from the "two times" requirement:

0001 Photochemotherapy
0004 Level I Needle Biopsy/Aspiration Except Bone Marrow
0043 Closed Treatment Fracture Finger/Toe/Trunk
0044 Closed Treatment Fracture/Dislocation Except Finger
0047 Arthroscopy without Prosthesis
0058 Level I Strapping and Cast Application
0060 Manipulation Therapy
0077 Level I Pulmonary Treatment
0093 Vascular Repair/Fistula Construction
0096 Non-Invasive Vascular Studies
0097 Cardiac Monitoring for 30 Days
0115 Cannula/Access Device Procedures
0121 Level I Tube Changes and Repositioning
0140 Esophageal Dilation without Endoscopy
0141 Upper GI Procedures
0142 Small Intestine Endoscopy
0147 Level II Sigmoidoscopy
0164 Level I Urinary and Anal Procedures
0165 Level III Urinary and Anal Procedures
0182 Insertion of Penile Prosthesis
0187 Placement/Repositioning Misc Catheters
0198 Pregnancy and Neonatal Care Procedures
0203 Level V Nerve Injections
0204 Level VI Nerve Injections
0207 Level IV Nerve Injections
0213 Extended EEG Studies and Sleep Studies, Level I

[[Page 59879]]

0215 Level I Nerve and Muscle Tests
0218 Level II Nerve and Muscle Tests
0233 Level II Anterior Segment Eye Procedures
0234 Level III Anterior Segment Eye Procedures
0237 Level III Posterior Segment Eye Procedures
0247 Laser Eye Procedures Except Retinal
0251 Level I ENT Procedures
0252 Level II ENT Procedures
0260 Level I Plain Film Except Teeth
0263 Level I Miscellaneous Radiology Procedures
0264 Level II Miscellaneous Radiology Procedures
0265 Level I Diagnostic Ultrasound Except Vascular
0279 Level I Angiography and Venography Except Extremity
0285 Positron Emission Tomography (PET)
0294 Level I Therapeutic Nuclear Medicine
0296 Level I Therapeutic Radiologic Procedures
0305 Level II Therapeutic Radiation Treatment Preparation
0322 Brief Individual Psychotherapy
0345 Level I Transfusion Laboratory Procedures
0354 Administration of Influenza/Pneumonia Vaccine
0355 Level I Immunizations
0356 Level II Immunizations
0363 Otorhyinolaryngologic Function Tests
0364 Level I Audiometry
0373 Neuropsychological Testing
0600 Low Level Clinic Visits
0601 Mid Level Clinic Visits
0602 High Level Clinic Visits
0694 Level III Excision/Biopsy
4. Observation Services
Frequently, beneficiaries are placed in "observation status" in
order to receive treatment or be monitored before making a decision
concerning their next placement (that is, admit to the hospital or
discharge to home). This occurs most frequently after surgery or a
visit to the emergency department. In the proposed rule, we discussed
the clinical and payment history of observation services. We also
discussed at length the issues we considered in determining whether to
make separate payment for observation services. For a more detailed
discussion of our deliberations, see 66 FR 44690-91. After careful
consideration, we proposed the following:
To continue to package observation services into surgical
procedures and most clinic and emergency visits.
To create a single APC, APC 0339, Observation, to make
separate payment for observation services for three medical conditions,
chest pain, asthma, and congestive heart failure, when certain criteria
(as described below) are met.
We also proposed to instruct hospitals that payment under APC 0339
for observation services would be subject to the following billing
requirements and conditions:
An emergency department visit (APC 0610, 0611, or 0612) or
a clinic visit (APC 0600, 0601, or 0602) is billed in conjunction with
each bill for observation services.
Observation care is billed hourly for a minimum of 8 hours
up to a maximum of 48 hours. We would not pay separately for any hours
a beneficiary spends in observation over 24 hours, but all costs beyond
24 hours would be packaged into the APC payment for observation
services.
Observation time begins at the clock time appearing on the
nurse's observation admission note. (We note that this coincides with
the initiation of observation care or with the time of the patient's
arrival in the observation unit.)
Observation time ends at the clock time documented in the
physician's discharge orders, or, in the absence of such a documented
time, the clock time when the nurse or other appropriate person signs
off on the physician's discharge order. (This time coincides with the
end of the patient's period of monitoring or treatment in observation.)
The beneficiary is under the care of a physician during
the period of observation, as documented in the medical record by
admission, discharge, and other appropriate progress notes, timed,
written, and signed by the physician.
The medical record includes documentation that the
physician used risk stratification criteria to determine that the
beneficiary would benefit from observation care. (These criteria may be
either published generally accepted medical standards or established
hospital-specific standards.)
The hospital furnishes certain other diagnostic services
along with observation services to ensure that separate payment is made
only for those beneficiaries truly requiring observation care. We
believe that these tests are typically performed on beneficiaries
requiring observation care for the three specified conditions and they
are medically necessary to determine whether a beneficiary will benefit
from being admitted to observation care and the appropriate disposition
of a patient in observation care. The diagnostic tests are as follows:
For chest pain, at least two sets of cardiac enzymes and
two sequential electrocardiograms.
For asthma, a peak expiratory flow rate (PEFR) (CPT code
94010) and nebulizer treatments.
For congestive heart failure, a chest x-ray, an
electrocardiogram, and pulse oximetry.
We proposed to make payment for APC 0339 only if the tests
described above are billed on the same claim as the observation
service. (We did not propose to require telemetry and other ongoing
monitoring services as criteria to make separate payment for
observation services. Although these services are often medically
necessary to ensure prompt diagnosis of cardiac arrhythmias and other
disorders, we do not believe they are necessary to support separate
payment for observation services.) In the proposed rule, we listed the
following ICD-9-CM diagnosis codes that hospitals would be required to
bill to receive payment for APC 0339:

For Chest Pain:

411.1 Intermediate coronary syndrome
411.81 Coronary occlusion without myocardial infarction
411.0 Postmyocardial infarction syndrome
411.89 Other acute ischemic heart disease
413.0 Angina decubitus
413.1 Prinzmetal angina
413.9 Other and unspecified angina pectoris
786.05 Shortness of breath
786.50 Chest pain, unspecified
786.51 Precordial pain
786.52 Painful respiration
786.59 Other chest pain

For Asthma:

493.01 Extrinsic asthma with status asthmaticus
493.02 Extrinsic asthma with acute exacerbation
493.11 Intrinsic asthma with status asthmaticus
493.12 Intrinsic asthma with acute exacerbation
493.21 Chronic obstructive asthma with status asthmaticus
493.22 Chronic obstructive asthma with acute exacerbation
493.91 Asthma, unspecified with status asthmaticus
493.92 Asthma, unspecified with acute exacerbation

For Congestive Heart Failure:

428.0 Congestive heart failure
428.1 Left heart failure
428.9 Heart failure, unspecified

[[Page 59880]]

In the proposed rule, we specified the following process to
identify the appropriate median cost for APC 0339 (66 FR 44692). First,
we identified in the 1999-2000 claims data all hospital outpatient
claims for observation using revenue codes 760, 761, 762, and 769. We
then selected the subset of these claims that were billed for patients
with chest pain, asthma, and congestive heart failure. Because no
standard method for coding these claims was in place in 1996, we
identified all diagnosis codes that could reasonably have been used to
classify beneficiaries as having chest pain, asthma, and congestive
heart failure. We then verified that these beneficiaries received
appropriate observation care for chest pain, asthma, or congestive
heart failure by identifying the claims in which one or more of the
tests identified above were performed. The median costs of these claims
were used to establish the median costs of APC 0339.
Finally, we stated that we would consider medical research
submitted to support the benefits of observation services for
conditions other than those we had proposed. This information will
assist us in determining whether these other conditions meet the
criteria we used to select the three conditions we proposed to include
in APC 0339.
We received a large number of comments on this proposal. Many
commenters commended our proposal to pay separately for observation
services. However, other commenters either had questions about or
suggestions on revising our proposal. Those comments and our responses
appear below.
Comment: We received comments requesting that we expand the list of
conditions for which we would make a separate payment for observation
services. Some commenters listed specific conditions that should be
added to the list (for example, abdominal pain, atrial fibrillation, or
pyelonephritis) while others asserted that any condition a physician
thought required observation should qualify for separate payment. One
commenter submitted medical literature as supportive evidence that we
should expand our list of conditions. One commenter argued that
developing a restrictive list of conditions for which separate payment
would be made is inconsistent with the medical literature and with
InterQual, which publishes the criteria used by Peer Review
Organizations to assess whether admission to the hospital as an
inpatient is necessary.
Response: We wish to clarify that our proposal merely specified a
list of conditions for which we would make separate payment for
observation services. For all other conditions, payment for observation
services would be packaged into the APC in which those services were
provided. For example, if a patient with syncope goes to the emergency
room and receives emergency services and observation services, the
payment to the hospital for the emergency visit includes payment for
the observation service. The payment rate calculated for clinic and
emergency visits includes the packaged costs of observation services to
the extent that those costs were included on the visit bills.
We have reviewed the commenters' suggestions for additional
conditions and the medical literature that they submitted in support of
their requests. At this time, we are finalizing our proposal without
expanding the list of conditions for which separate observation payment
will be made. As noted in the proposed rule, we believe that chest
pain, asthma, and congestive heart failure are the only conditions that
require a well-defined set of hospital services that are distinctly
different from the services provided in a clinic or emergency service.
Thus, they are the services for which a separately payable observation
period is clinically appropriate. Given the clinically improper use of
observation care by hospitals in the recent past, we want to minimize
the risk of future improper use while ensuring a valid medical benefit
to the patient for appropriate medical care. Therefore, we believe it
is premature to expand the conditions for which we will separately pay
for observation services. We want to observe the effect of separate
payment for this limited set of conditions to determine what clinical
and payment issues arise before expanding the list of conditions.
Furthermore, an essential issue for Medicare is that separate payment
for observation be made only when those services are clearly distinct
and separate from prolonged clinic or emergency department care and
when observation provides a distinct clinical benefit that cannot be
obtained by sending the patient home or admitting the patient to the
hospital. We believe that the medical literature demonstrates such a
benefit exists for patients with chest pain, congestive heart failure,
and asthma.
We will continue to review this issue and any information that is
provided to us. If we believe an expansion of the list of conditions is
appropriate, we will include such a proposal in a future proposed rule.
Comment: An association of hospitals provided an explanation of
their concept of "rapid treatment," which they distinguished from
observation. They defined observation as a service required by managed
care contracts that involves only physiologic monitoring, frequent
nursing assessment, and the patient's routine daily medication.
Response: This level of care would not qualify as an observation
service, either packaged or separately paid, under Medicare. We require
that during observation, patients be actively assessed and, if
necessary, treated in order to determine if they should be admitted or
may be safely discharged.
Comment: Several commenters pointed out that correct coding
guidelines allow hospitals to code the reason for a patient's visit in
any one of several fields on the claim including the principal
diagnosis field, the secondary diagnosis field, and the admitting
diagnosis field. These commenters suggested that facilities be allowed
to report the appropriate diagnosis code supporting the provision of
observation services in the admitting, principal, or secondary
diagnosis field.
Response: We agree with the commenters and will ensure that our
software is designed to allow this.
Comment: Commenters argued that additional ICD-9-CM diagnosis codes
for chest pain, congestive heart failure, and asthma be added to the
proposed list of diagnoses qualifying observation care for separate
payment. These included: for asthma: 493.00, 493.10, 493.20, 493.90;
for congestive heart failure: 391.8, 398.91, 402.01, 402.11, 402.91,
404.01, 404.03, 404.11, 404.13, 404.91, 404.93; for chest pain: codes
for weakness, shortness of breath, palpitations, rapid heart beat, and
syncope. One commenter asked that we include codes for chronic
obstructive pulmonary disease (COPD) on the list of qualifying
diagnoses. One commenter believes that 428.1 and 428.9 are not to be
used for congestive heart failure and should be deleted from the list.
Response: With regard to the comments to add diagnosis codes for
asthma, our proposal included codes for status asthmaticus and acute
exacerbations of asthma. The codes suggested by the commenters are used
for chronic, stable asthma, or unspecified asthma. Our clinical
judgment is that these patients do not require active observation care
that meets our definition and, thus, a separate payment is not
warranted. Therefore, we have not revised our list of qualifying
diagnoses for asthma.
With regard to the suggested codes to be added for congestive heart
failure, we agree with the commenters and are adding the codes to the
list.

[[Page 59881]]

With regard to the suggested codes for chest pain, we note that
786.05, Shortness of breath, was included on our proposed list of
qualifying codes. If a patient has one of the other suggested symptoms
(weakness, palpitations, rapid heartbeat, and syncope), it would be
appropriate to use one of the proposed codes as the diagnosis (for
example, 413.9, other and unspecified angina). Therefore, we believe
the list we proposed covers the additions suggested by the commenter.
With regard to the requested deletions of codes 428.1 and 428.9, we
disagree. Code 428.1 is specified for use in patients with acute
pulmonary edema and 428.9 is used for patients with congestive heart
failure without a specific diagnosis and both codes are therefore
appropriately included on the list.
Comment: Several commenters believe that dedicated observation
units would not be financially viable if only three conditions
qualified for payment.
Response: We want to emphasize that we are making payment for all
observation services provided in the outpatient setting. Payment for
observation services not meeting the requirements for separate payment
in APC 0339 is included in the payment for the clinic or emergency
department visit. That is, the payment for each clinic or emergency
department visit contains a payment for packaged observation services.
This means that hospitals are being paid for observation every time a
clinic or emergency visit is billed.
Our policy of separate payment for certain observation services is
not intended to increase the total amount of money paid for observation
services. Instead, our policy redistributes payments into a separate
APC; the relative weight of the new APC for observation services
reflects costs that would otherwise be reflected in the relative
weights for other relevant APCs. Thus, the payments for clinic and
emergency visits are slightly lower than would have been the case had
we not created a separate payment for observation. The only hospitals
that could be disadvantaged are those that provided observation care
for packaged conditions to an unusually large number of patients.
Hospitals with large numbers of observation cases for chest pain,
asthma, and congestive heart failure will benefit from our new policy.
Hospitals with an average number of observation cases will be neither
advantaged nor disadvantaged by our new policy.
Comment: Some commenters believe it is inappropriate "not to pay
for observation" for other conditions. Others argued that because
pulse oximetry, one of the diagnostic tests we identified as a
condition of separate payment for congestive heart failure, is a
packaged service, it is not paid for and therefore cannot be reported
on the bill. This would place hospitals in a "Catch-22" situation
because they would be required to report pulse oximetry to be paid
separately for observation but could not report pulse oximetry because
it is packaged.
Response: These comments reflect a misunderstanding of what it
means for a service to be "packaged." The concept is perhaps most
clearly understood in terms of the anesthesia used during surgery. The
costs of the anesthesia drugs and administration are associated with
the surgery with which they were billed, and become part of the payment
for the surgery. It is understood that anesthesia is paid for, but not
paid for separately from the surgical procedure. Similarly, we packaged
the cost of observation whenever it was billed. It is packaged into
surgical procedures as well as clinic and emergency visits. Each time a
hospital bills for a procedure or visit, any associated observation
cost is recognized. Because, according to the literature, observation
is billed in fewer than 6 percent of emergency room visits, the cost is
not always readily identifiable. However, we wish to emphasize that it
is important for hospital bills to show that observation was provided
and the charges associated with it. This is because the charges for
packaged services might affect outlier and transitional corridor
payments, and are used to update the APC weights. Thus, hospitals
should report pulse oximetry on the bill even though it is not
separately payable.
Comment: Surgeons reported that hospitals, believing that
observation is not payable, would not allow postoperative observation
for patients such as those who have undergone mastectomy or
thyroidectomy.
Response: Surgery performed in the outpatient setting should not,
as a rule, require a period of postoperative observation. As provided
in section 230.6E of the Medicare Hospital Manual, standing orders for
observation following outpatient surgery is not a covered service. In
addition, that section states that the availability of an outpatient
observation unit at a hospital is not a reason to perform, on an
outpatient basis, surgeries for which an overnight stay is anticipated.
Although an occasional surgical case may require a longer recovery
period, as a rule, surgical outpatients should not require observation.
We note, however, that to the extent that observation care is provided
to surgical patients, the cost of that care is packaged into the
payment for the surgical APC.
Comment: There were many comments on the list of diagnostic tests
required for separate payment for observation services. Several
commenters pointed out that nebulizer treatments, by definition, are
not diagnostic. These commenters also noted that observation of asthma
patients need not involve nebulizer treatments (that is, some patients
are treated with intravenous steroids or inhalers). Others indicated
that pulse oximetry is a routine test and is not usually coded. Other
commenters were concerned that the required tests would not all be
performed within the period of observation; that is, some tests might
be performed in the emergency department before admission to
observation status.
Response: The requirement that certain diagnostic tests be
performed in order to receive separate payment for observation services
reflects our concern that observation not be considered a way to keep a
patient in a "holding pattern." We are aware that some patients are
considered to be in observation overnight when they are placed in a bed
on a nursing unit, with vital signs taken every 4 hours. This is not
the service we recognize as observation, which we define as an active
treatment to determine if a patient's condition is going to require
that he or she be admitted as an inpatient, or if it resolves itself so
that the patient may be discharged. The services we included on the
list of required treatment were designed to indicate that an active
assessment of the patient was being undertaken. We believe this is
consistent with the clinical practice of observation.
We agree that nebulizer treatments are not diagnostic, and,
although, based on the experience of our clinical staff, are frequently
used in acute asthma, they need not be used for every asthma patient
receiving observation services. We agree that occasionally patients may
use their own inhaler or be given intravenous medications without
nebulizer treatments. Thus, we are not including this treatment on the
final list of services required for separate payment of observation. As
discussed above, pulse oximetry, although packaged, should be reported
on the bill when furnished.
We agree that some of the required diagnostic testing (for example,
cardiac enzymes) may be performed as part of the emergency or clinic
visit before the

[[Page 59882]]

beneficiary is admitted to observation status. We will ensure that our
software identifies when the required diagnostic tests were performed
in the clinic or emergency department as well as diagnostic tests
performed during the period of observation.
Comment: Several commenters claimed that requiring specific
clinical interventions for observation care was an intrusion into the
practice of medicine.
Response: We disagree with the commenters. We are setting
conditions only for separate payment for observation. All observation
care that does not meet the criteria for classification into APC 0339
will continue to be paid as part of the service into which it is
packaged. In order to ensure that we are making separate payment only
when it is warranted, we are providing as a condition for separate
payment that a minimal number of appropriate diagnostic tests must be
performed. The hospital will continue to receive packaged payment for
observation care for beneficiaries who require such care but for whom
the required tests were not performed.
As stated above, we are withdrawing the proposed condition of
administering nebulizer treatments. We will allow either pulse oximetry
or peak expiratory flow rate to be performed as a requirement to
receive separate payment for observation of asthma patients. We are
finalizing our requirements for chest pain and congestive heart
failure. We note that none of the commenters had any clinical
disagreement with the designation of these specific tests. Their only
concern stemmed from the misconception that these tests would be
required to be performed in order to receive payment for observation
care. We will closely follow the impact of these requirements and, if
we believe that changes are necessary, we will propose them in a future
rule.
Comment: Several commenters argued that packaging the first 8 hours
of observation was arbitrary and would be difficult to document. We
also received comments that we should eliminate our minimum time
requirement for observation or reduce it to 6 hours. The following
reasons were given for these comments: asthma patients do not require 8
hours of observation; no evaluation and management (E/M) service lasts
for more than 1 hour and 45 minutes; and emergency visits typically
last 3-4 hours so any potential for abuse of observation would be
reduced with a minimum time requirement of 6 hours because 6 hours does
not overlap with the length of a typical emergency visit.
Response: We believe it is important to ensure that payment for
clinic and emergency department services does not duplicate payments
for observation. We also want to make clear that we do not consider a
long emergency room visit to be "observation." We believe that
observation is a specific type of service that should be specifically
ordered by a physician and should involve specific goals and a plan of
care that is distinct from the goals and plan of care for an emergency
or clinic visit. We believe that requiring 8 hours of care as a
condition for separate payment of observation is reasonable and will
minimize confusion for hospitals. We will be including the first 8
hours of observation care as a packaged service and make payment as
part of the clinic or emergency visit with which it occurs. Therefore,
the payment rate for emergency and clinic visit will reflect the extent
to which patients are observed for less than 8 hours. Although
occasionally patients with asthma may require less than 8 hours of
observation, we believe that intensity and variety of services provided
to patients with an acute asthma exacerbation or status asthmaticus who
require 8 or more hours of observation is different from the service
provided when they require less than 8 hours of observation. The less
intensive services provided to asthma patients who require less than 8
hours of observation is appropriately paid for as part of an emergency
or clinic visit. We note that we received no comments disagreeing with
our minimum time requirement for patients with chest pain and
congestive heart failure. Finally, we believe that a clear requirement
of 8 hours will allow hospitals to prospectively develop clinical
protocols and plans of care facilitating the appropriate use of
observation services. However, we will closely monitor the impact of
the 8-hour time requirement and, if appropriate, consider changes for a
future proposed rule.
Comment: Commenters raised concerns about our requirement that
physicians write progress notes in the medical record. They believe
that admission and discharge notes are generally sufficient to document
observation care. The commenters also raised questions about
determining when observation starts and ends, with one commenter
describing the proposed documentation requirement as "rigid and
inflexible." Others expected documentation to be difficult in
hospitals without emergency department staff or house staff. One
commenter stated that specific requirements for determining the time
observation stops would not reflect the variety of methods hospitals
and physicians have to document time in the medical record. Commenters
asserted that the period of treatment and monitoring can continue
beyond the time that a discharge order is written by the physician or
taken off by the nurse.
One commenter discussed the difficulty in determining when a
patient is "moved to observation status" and the need for physicians
to be able to write orders specifying discharge at a "future time."
Several commenters expressed concerns about requiring documentation
that the physician used risk stratification criteria to determine that
the beneficiary would benefit from observation care because documenting
use of risk stratification criteria would be burdensome and is not
required for any other services.
Response: We appreciate these concerns and, although we are
finalizing our proposal, we wish to clarify several aspects of these
requirements to reassure commenters. With regard to writing progress
notes, we wish to emphasize that the requirement is only to write
"appropriate" progress notes. We understand that, in many cases,
writing a progress note is unnecessary (because the admission and
discharge notes are sufficient), while in other cases it is necessary
to write progress notes because of the length and complexity of care
provided or because of a change in the patient's condition. We wish to
clarify that progress notes are not required in every case but only in
those cases in which the physician deems it appropriate to write a
progress note.
With regard to documenting the times that observation starts and
ends, we have to balance the potential for improper billing of
observation status against creating burdens for hospitals that will
have to support their claims for observation treatment in the medical
record. We believe that our policy strikes this balance appropriately.
Typically both physicians' orders and nurses' removal of those orders
are timed; therefore, we do not believe this requirement places a
significant burden on physicians or hospitals because no change in the
processes of care will be required. We do not believe that for chest
pain, congestive heart failure, and asthma, orders are written for a
future discharge time because those patients may not be discharged
until treatment goals are met, and determining this requires current
(not future) physician intervention (for example, to review lab tests
or examine the patient).

[[Page 59883]]

An important reason we are requiring clocked time to determine the
period of observation is because we want to minimize confusion and
separate observation care from prolonged emergency or clinic visits.
Our requirements will assist hospitals to prospectively ensure that
observation is appropriately billed. Although it is possible that
treatment and monitoring may continue for a significant period of time
after a discharge order is written or taken off, we believe such an
occurrence is the exception rather than the rule; additionally, it is
frequently difficult to determine exactly when facility services are
discontinued. One problem is that it is typical for those patients to
remain in the observation area for a significant period of time after
treatment is finished, most commonly because the patient is waiting for
transportation home. As stated above, we need a bright line rule with
regard to the stop time for observation.
With regard to documenting the use of risk stratification, we did
not mean to require any extra documentation in the medical record. We
just wish to put physicians and hospitals on notice as to what type of
medical record evidence reviewers will use when reviewing claims for
observation. We believe that a well-documented observation record will
satisfy this requirement without any extra documentation. Therefore, we
are clarifying that the manner in which documentation of risk
stratification is made is at the discretion of the physician. As with
all the criteria we are establishing for payment of APC 0339, we will
monitor the effects of these requirements on the provision of
observation care and consider making changes if appropriate.
Comment: We received a variety of comments asking for clarification
as to how observation services should be reported; whether notes may be
written by house staff or fellows; whether orders may be phoned in;
whether additional diagnostic tests during observation would be paid
for; how observation would be treated by local medical review policies;
whether short inpatient stays for congestive heart failure and asthma
would no longer be allowed; how billing would occur for patients who
are admitted directly to a chest pain center without being seen in the
emergency department; and whether payment for observation is made per
hour or per day.
Response: Observation services should be tracked by the hour. If
the number of hours is less than 8, then payment is packaged into the
associated clinic or emergency visit. If more than 24 hours of
observation are billed, payment for any time over 24 hours is packaged
into the payment for 8 to 24 hours of observation. Therefore, the
payment rate for observation will reflect those cases in which
observation actually occurs for more than 24 hours. That is, just as
the payment for emergency visits reflects payment for observation of up
to 8 hours, so will payment for APC 0339 reflect payment for
observation care up to 48 hours. Effective for services furnished on or
after January 1, 2001, we have created a new HCPCS code for use with
our new APC 0339 to help distinguish packaged observation form
separately payable observation. The code is G0224, Observation care
provided by a facility to a patient with CHF, chest pain, or asthma,
minimum eight hours, maximum forty-eight hours. The previously
available CPT codes for observation, 99234-99236, should continue to be
used for packaged observation services.
With regard to house staff writing notes and orders, teaching
physician rules apply to Part B payments for observation care. With
regard to facility payments, observation may be billed if the notes are
written by house staff. Physicians may phone in orders but if those
orders are for admission or discharge to observation, they must be
timed. Moreover, the physician must write admission and discharge notes
in the medical record.
We note that we will pay separately for all nonpackaged diagnostic
tests furnished to observation patients.
We will continue pay for inpatient admissions for chest pain,
asthma, and congestive heart failure when appropriate and our
observation payment policy is subject to local medical review policies.
With regard to direct admissions from physician offices, separate
payment for observation will not be made unless a physician is present
to order the initiation of observation services and to monitor the
patient as clinically appropriate.
The following are the final requirements for billing G0244 and
assignment to APC 0339.
The acceptable diagnosis codes are:

For Chest Pain

391.8 Other acute rheumatic heart disease
398.91 Rheumatic heart failure (congestive)
402.01 Malignant hypertensive heart disease with
congestive heart failure
402.11 Benign hypertensive heart disease with congestive
heart failure
402.91 Unspecified hypertensive heart disease with
congestive heart failure
404.01 Malignant hypertensive heart and renal disease
with congestive heart failure
404.03 Malignant hypertensive heart and renal disease
with congestive heart and renal failure
404.11 Benign hypertensive heart and renal disease with
congestive heart failure
404.13 Benign hypertensive heart and renal disease with
congestive heart and renal failure
404.91 Unspecified hypertensive heart and renal disease
with congestive heart failure
404.93 Unspecified hypertensive heart and renal disease
with congestive heart and renal failure
411.1 Intermediate coronary syndrome
411.81 Coronary occlusion without myocardial infarction
411.0 Postmyocardial infarction syndrome
411.89 Other acute ischemic heart disease
413.0 Angina decubitus
413.1 Prinzmetal angina
413.9 Other and unspecified angina pectoris
786.05 Shortness of breath
786.50 Chest pain, unspecified
786.51 Precordial pain
786.52 Painful respiration
786.59 Other chest pain

For Asthma

For Congestive Heart Failure

428.0 Congestive heart failure
428.1 Left heart failure
428.9 Heart failure, unspecified

The required tests are as follows:
For chest pain, at least two sets of cardiac enzymes and two
sequential electrocardiograms.
For asthma, a peak expiratory flow rate (PEFR) (CPT code 94010).
For congestive heart failure, a chest x-ray, an electrocardiogram,
and pulse oximetry.

[[Page 59884]]

5. List of Procedures That Will Be Paid Only As Inpatient Procedures
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
OPPS. In the April 7, 2000 final rule, we defined a set of services
that are typically provided only in an inpatient setting and, hence,
would not be paid by Medicare under the OPPS (65 FR 18455). This set of
services is referred to as the "inpatient list." The inpatient list
specifies those services that are appropriate to provide only in an
inpatient setting and that, therefore, are only paid when provided in
an inpatient setting. These are services that require inpatient care
because of the invasive 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.
At its February 2001 meeting, the APC Advisory Panel generally
favored the elimination of the inpatient list. In the proposed rule, we
stated that we disagreed with the position taken by the Panel and we
proposed to continue the current policy of reviewing the HCPCS codes on
the inpatient list and eliminating procedures from the list if they can
be appropriately performed on the Medicare population in the outpatient
setting. Our medical and policy staff, supplemented as appropriate by
the APC Advisory Panel, would review comments submitted by the public
and consider advances in medical practice in making decisions to remove
codes from the list. We stated that we would continue to use the
following criteria, which we discussed in the April 7, 2000 final rule,
when deciding to remove codes from the list:
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 we have already moved
off the inpatient list (for example, the radiologic part of an
interventional cardiology procedure).
In the proposed rule, we indicated that we would continue to update
the list in response to comments as often as quarterly through program
memoranda to reflect current advances in medical practice. We proposed
no further changes to the inpatient list, which we set forth in
Addendum E to the proposed rule.
Comment: Several specialty organizations, hospitals, and device
manufacturers recommended that we remove certain procedures from the
inpatient only list and assign them to APCs.
Response: We reviewed these requests in accordance with our
previously published criteria and moved several of the procedures from
the list. However, in our clinical judgment, the remainder of the
procedures should not be moved. We are referring some of them to the
APC Advisory Panel for review and further discussion at the next
meeting. As noted in the proposed rule, we plan to continue updating
the list on a quarterly basis, as needed. Set forth below is the list
of procedures that commenters requested be moved off the inpatient list
and the final action that we are taking in this rule.

Procedures That Remain Inpatient

34800--Endovascular repair of infrarenal abdominal aortic
aneurysm or dissection
34802--Endovascular repair of infrarenal abdominal aortic
aneurysm or dissection
34804--Endovascular repair of infrarenal abdominal aortic
aneurysm or dissection
34808--Endovascular placement of iliac artery occlusion device
34812--Open femoral artery exposure for delivery of aortic
endovascular prosthesis
34813--Placement of femoral-femoral prosthetic graft
34820--Occlusion during endovascular therapy
34825--Placement of proximal or distal extension prosthesis
34826--Infrarenal abdominal aortic aneurysm
33968--Removal of intra-aortic balloon assist device,
percutaneous
44901--Incision and drainage of appendiceal abscess;
percutaneous
49021--Drainage of peritoneal abscess or localized
peritonitis; percutaneous
49041--Drainage of subdiaphragmatic or subphrenic abscess;
percutaneous
49061--Drainage of retroperitoneal abscess; percutaneous
61624--Transcatheter occlusion or embolization (e.g., for
tumor destruction, to achieve hemostasis, to occlude a vascular
malformation), percutaneous, any method; central nervous system
(intracranial, spinal cord)

Procedures Referred to the APC Advisory Panel

21390--Open treatment of orbital floor blowout fracture
27216--Percutaneous skeletal fixation of posterior pelvic ring
fracture and/or dislocation
27235--Percutaneous skeletal fixation of femoral fracture,
proximal end, neck
32201--Pneumonostomy; with percutaneous drainage of abscess or
cyst
47490--Percutaneous cholecystostomy
64820--Sympathectomy, digital arteries, with magnification,
each digit
92986--Percutaneous balloon valvuloplasty; aortic valve
92987--Percutaneous balloon valvuloplasty; mitral valve
92990--Percutaneous balloon valvuloplasty; pulmonary valve
92997--Percutaneous transluminal pulmonary artery balloon
angioplasty; single vessel
92998--Percutaneous transluminal pulmonary artery balloon
angioplasty; each additional vessel (list separately in addition to
code for primary procedure)

Procedures Moved to APCs

23440--Resection or transplantation of long tendon of biceps
(APC 0052)
23470--Arthroplasty, glenohumeral joint; hemiarthroplasty (APC
0048)
47011--Hepatotomy; for percutaneous drainage of abscess or
cyst, one or two stages (APC 0005)
48511--External drainage, pseudocyst of pancreas; percutaneous
(APC 0005)
49200--Excision or destruction by any method of intra-
abdominal or retroperitoneal tumors or cysts or endometriomas (APC
0130)
50021--Drainage of perirenal or renal abscess; percutaneous
(APC 0005)
58823--Drainage of pelvic abscess, transvaginal or transrectal
approach, percutaneous (APC 0193)
61626--Transcatheter occlusion or embolization (e.g., for
tumor destruction, to achieve hemostasis, to occlude a vascular
malformation), percutaneous, any method; non-central nervous system,
head or neck extracranial, brachiocephalic branch) (APC 0081)
61791--Creation of lesion by stereotactic method,
percutaneous, by neurolytic agent (e.g., alcohol, thermal, electrical,
radiofrequency); trigeminal medullary tract (APC 0204)
63655--Laminectomy for implantation of neurostimulator
electrodes, plate/paddle, epidural (APC 0225)
6. Additional New Technology APC Groups
In the April 7, 2000 final rule, we created 15 new technology APC
groups to pay for new technologies that do not meet the statutory
requirements for

[[Page 59885]]

transitional pass-through payments and for which we have little or no
data upon which to base assignment to an appropriate APC. APC groups
0970 through 0984 are the current new technology APCs. We currently
assign services to a new technology APC for 2 to 3 years based solely
on costs, without regard to clinical factors. This method of paying for
new technologies allows us to gather data on their use for subsequent
assignment to a clinically-based APC. Payment rates for the new
technology APCs are based on the midpoint of ranges of possible costs.
After evaluating the costs of services in the new technology APCs,
we proposed that APC 0982, which covers a range of costs from $2500 to
$3500, be split into two APCs, as follows: APC 0982, which would
encompass services whose costs fall between $2500 and $3000, and APC
0983, which would encompass those services whose costs fall between
$3000 and $3500. APC 0984 would then encompass services whose costs
fall between $3500 and $5000 and we would create a new APC, 0985, for
services whose costs fall between $5000 and $6000. We believe that
subdividing the current range of costs within APC 0982 would allow us
to pay more accurately for the services in that cost range.
In section VI.G of this preamble, we describe several modifications
and refinements to the criteria and process for assigning services to
new technology APCs that we are implementing in this final rule.
We received no comments on adding a new technology APC group and
have included this change in the final APCs. However, we note that in
this final rule, we are making additional changes to the new technology
APCs to improve our ability to pay appropriately for new technology
services.
We are designating 16 additional APC groups, APCs 0706 through
0721, as new technology APCs and reassigning some services currently
assigned to APC groups 0970 through 0985 so that, beginning with
services furnished on or after January 1, 2002, there will be two
parallel sets of new technology APCs. This is an administrative
adjustment to distinguish between those new technology services
designated with a status indicator of "S" and those designated "T."
The new APCs will allow us to assign to the same APC group procedures
that are appropriately subject to a multiple procedure payment
reduction (T) with those that should not be so discounted (S). Each set
of new technology APC groups will have identical group titles, payment
rates, and minimum unadjusted copayments, but a different status
indicator. That is, the new technology APC groups 0970 through 0985
will, effective January 1, 2002, be assigned status indicator "T" and
all services grouped in APCs 970 through 985 will be subject to the
multiple procedure reduction. Each of the new technology APC groups
0706 through 0721 will be assigned status indicator "S." Therefore,
effective January 1, 2002, new technology services currently grouped
under APC 0971, 0974, 0976, and 0981 are reassigned to APC 0707, 0710,
0712, and 0717, respectively, in order to retain the payment status
indicator "S."

D. Recalibration of APC Weights for CY 2002

Section 1833(t)(9)(A) of the Act requires that the Secretary review
and revise the relative payment weights for APCs at least annually
beginning in 2001 for application in 2002. In the April 7, 2000 final
rule (65 FR 18482), we explained in detail how we calculated the
relative payment weights that were implemented on August 1, 2000 for
each APC group. Except for some reweighting due to APC changes, these
relative weights continued to be in effect for 2001. (See the November
13, 2000 interim final rule (65 FR 67824-67827).)
To recalibrate the relative APC weights for services furnished on
or after January 1, 2002 and before January 1, 2003, we proposed to use
the same basic methodology that we described in the April 7, 2000 final
rule to recalibrate the relative weights for 2002. That is, we would
recalibrate the weights based on claims and cost report data for
outpatient services. We proposed to use the most recent available data
to construct the database for calculating APC group weights. For the
purpose of recalibrating the proposed APC relative weights for 2002,
the most recent available claims data are the approximately 98 million
final action claims for hospital outpatient department services
furnished on or after July 1, 1999 and before July 1, 2000. We matched
these claims to the most recent cost report filed by the individual
hospitals represented in our claims data. The APC relative weights
would continue to be based on the median hospital costs for services in
the APC groups.
The methodology we followed to calculate the final APC relative
weights for CY 2002 is similar to the proposed except that there are
now over 107 million final action claims and as discussed below in
section VII of this preamble, we have incorporated a portion of pass-
through device costs into device-related procedures. That action has
increased the median costs for those procedures. The methodology for
calculating the final APC relative weights is as follows:
We excluded from the data approximately 16.2 million
claims for those bill and claim types that would not be paid under the
OPPS (for example, bill type 72X for dialysis services for patients
with ESRD).
Using the most recent available cost report from each
hospital, we converted billed charges to costs and aggregated them to
the procedure or visit level first by identifying the cost-to-charge
ratio specific to each hospital's cost centers ("cost center specific
cost-to-charge ratios" or CCRs) and then by matching the CCRs to
revenue centers used on the hospital's 1999-2000 outpatient bills. The
CCRs included operating and capital costs but excluded costs paid on a
reasonable cost basis that are described elsewhere in this preamble.
We eliminated from the hospital CCR data 283 hospitals
that we identified as having reported charges on their cost reports
that were not actual charges (for example, they make uniform charges
for all services).
We calculated the geometric mean of the total operating
CCRs of hospitals remaining in the CCR data. We removed from the CCR
data 67 hospitals whose total operating CCR exceeded the geometric mean
by more than 3 standard deviations.
We excluded from our data approximately 2.1 million claims
from the hospitals that we removed or trimmed from the hospital CCR
data.
We matched revenue centers from the remaining universe of
approximately 89.1 million claims to CCRs of 5,672 hospitals.
We separated the 89.1 million claims that we had matched
with a cost report into two distinct groups: single-procedure claims
and multiple-procedure claims. Single-procedure claims were those that
included only one HCPCS code (other than laboratory and incidentals
such as packaged drugs and venipuncture) that could be grouped to an
APC. Multiple-procedure claims included more than one HCPCS code that
could be mapped to an APC. There were approximately 39.9 million
single-procedure claims and 49.2 million multiple-procedure claims.
To calculate median costs for services within an APC, we
used only single-procedure bills. We did not use multiple-procedure
claims because we are not able to specifically allocate charges or
costs for packaged items and services such as anesthesia, recovery
room, drugs, or supplies to a particular

[[Page 59886]]

procedure when more than one significant procedure or medical visit is
billed on a claim. Use of the single-procedure bills minimizes the risk
of improperly assigning costs to the wrong procedure or visit.
For each single-procedure claim, we calculated a cost for
every billed line item charge by multiplying each revenue center charge
by the appropriate hospital-specific CCR. If the appropriate cost
center did not exist for a given hospital, we crosswalked the revenue
center to a secondary cost center when possible, or to the hospital's
overall cost-to-charge ratio for outpatient department services. We
excluded from this calculation all charges associated with HCPCS codes
previously defined as not paid under the OPPS (for example, laboratory,
ambulance, and therapy services).
To calculate the per-service costs, we used the charges
shown in the revenue centers that contained items integral to
performing the service. These included those items that we previously
discussed as being subject to our proposed packaging provision. For
instance, in calculating the surgical procedure cost, we included
charges for the operating room, treatment rooms, recovery, observation,
medical and surgical supplies, pharmacy, anesthesia, and donor tissue,
bone, and organ. For medical visit cost estimates, we included charges
for items such as medical and surgical supplies, drugs, and observation
in those instances in which it is still packaged. See sections II.C.1
and II.C.2 of this preamble for a discussion and complete listing of
the revenue centers that we used to calculate per-service costs. In
addition, for device-related procedures, we incorporated 75 percent of
the estimated cost of the pass-through device into the per-service
costs.
We standardized costs for geographic wage variation by
dividing the labor-related portion of the operating and capital costs
for each billed item by the current FY 2002 hospital inpatient
prospective payment system wage index published in the Federal Register
on August 1, 2001 (65 FR 40038). We used 60 percent to represent our
estimate of that portion of costs attributable, on average, to labor. A
more detailed discussion of wage index adjustments is found in section
III of this preamble.
We summed the standardized labor-related cost and the
nonlabor-related cost component for each billed item to derive the
total standardized cost for each procedure or medical visit.
We removed extremely unusual costs that appeared to be
errors in the data using a trimming methodology analogous to what we
use in calculating the DRG weights for the hospital inpatient PPS. That
is, we eliminated any bills with costs outside of 3 standard deviations
from the geometric mean.
After trimming the procedure and visit level costs, we
mapped each procedure or visit cost to its assigned APC, including, to
the extent possible, the proposed APC changes described elsewhere in
this preamble.
We calculated the median cost, weighted by procedure
volume, for each APC.
Using the weighted median APC costs, we calculated the
relative payment weights for each APC. 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. This approach is consistent with that used in developing
relative value units for the Medicare physician fee schedule. 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. The median cost for APC 0601 is
$54.00.
Section 1833(t)(9)(B) of the Act requires that APC reclassification
and recalibration changes and wage index changes be made in a manner
that ensures that aggregate payments under the OPPS for 2002 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
2001 relative weights to aggregate payments using the CY 2002 final
weights. Based on this comparison, in this final rule we are making an
adjustment of 0.945 to the weights; that is, each weight is reduced by
this factor (the scaler). The final weights for 2002, which incorporate
the recalibration adjustments explained in this section, are listed in
Addendum A and Addendum B of the final rule.
We note that in the proposed rule, we inadvertently applied the
weight adjustment factor of 1.022 to the relative weights of the new
technology APCs. This was incorrect. The payment rates for the new
technology APCs are based on the mid-point of the cost range
represented by the APC. Therefore the payment rates should be static
from year to year. In this final rule, the payment rates for APCs 0970-
0985 correctly reflect no adjustment.
Comment: We received numerous comments regarding HCPCS codes and
APC groups for which the payment rate proposed for 2002 is lower than
the current payment rate. Commenters expressed concern that the
proposed decrease in payment would have adverse effects both on
beneficiary access to services and hospital solvency. Many commenters
suggested that a lower rate was a data or a calculation error and
requested that a particular weight be confirmed. Many commenters stated
that because the lower proposed payment rate was inadequate to pay
hospital costs for the service, we should adjust the rate to a more
appropriate level.
Response: As explained above, the methodology we used to
recalibrate the final 2002 relative weights is essentially the same
methodology that we followed to recalibrate the weights in the August
24, 2001 proposed rule, with the exception of the additional step of
folding pass-through device costs into certain base APC costs. (We
discuss the reason for this additional step in the November 2, 2001
OPPS final rule (66 FR 55857).)
In both the proposed rule and this final rule, the relative weights
for the APC groups change for two reasons: The use of more recent
claims data, and the statutory requirements governing how payment for
all services under the OPPS must be determined.
The use of more recent claims data: We calibrated the relative
weights published in the April 7, 2000 final rule using, as required by
the statute, claims from 1996 and data from the most recent available
hospital cost reports. These relative payment weights were implemented
on August 1, 2000 and they have remained largely unchanged throughout
2001. In the August 24 proposed rule, we proposed to use the same basic
methodology to recalibrate the weights that we described in the April
7, 2000 final rule (65 FR 18482). But we also proposed to use the most
recent available data, rather than 1996 data, to construct the database
for calculating APC group weights. For 2002, the most recent data are
from final action claims for hospital outpatient services furnished
beginning July 1, 1999 through June 30, 2000. In recalibrating the
final weights for 2002, we had the benefit of data from additional
claims that had not been received when we recalibrated the relative
payment weights for the August 24, 2001 proposed rule. We matched these
claims to the most recent cost report filed by the various hospitals
represented in the claims data. Hospital costs reflected in claims for
the period July 1, 1999 through June 30, 2000 have

[[Page 59887]]

changed from those taken from 1996 claims.
Statutory requirements governing how payment for OPPS services is
to be determined. Section 1833(t)(9)(B) of the Act requires that
estimated spending for services covered under the OPPS be neither
greater nor less than it would have been had we not recalibrated the
APC weights nor made changes in the APC groups. Because of this, the
weights and, therefore, the payment rates for a specific service may
increase or decrease depending on the change in charges hospitals
report for that service relative to the change in charges hospitals
report for other outpatient services.
Under any prospective payment system or fee schedule that bases
rates on a system of relative weights within limits imposed by a budget
neutrality requirement, some weights will increase and others will
decrease from year to year. A decrease in the relative weight for an
APC is the result of a decrease in the relative level of charges for
the services in that APC that hospitals reported for the period from
July 1, 1999 through June 30, 2000, compared to the relative level of
charges the same hospitals reported for all other outpatient services
furnished during the same period. In addition, the application of the
budget neutrality adjustment required by section 1833(t)(9)(B) of the
Act will further decrease a relative weight if the adjustment is less
than 1.000.
In this final rule, some weights are lower than what we had
proposed. The further lowering of weights for some APCs is the result
of our incorporating a portion of the cost of pass-through devices into
the basic costs of the APCs with which the devices are associated. As
we explained in the final rule published on November 2, 2001 (66 FR
55857), the portion of the pass-through device costs that were
incorporated into APC costs are not evenly distributed among the APCs,
but rather are concentrated in a relatively small number of APCs that
include the procedures that use pass-through devices. Whereas the
weights of these APCs have increased as a result of the added device
costs, the weights for all APCs that do not include device costs have
decreased.
In preparing the weights for this final rule, we were particularly
attentive to APCs such as APC 0169, Lithotripsy, APC 0245, Level I
Cataract Procedures without IOL Insert, and APC 0246, Cataract
Procedures with IOL Insert, about which commenters had expressed
concern. As a result, we have a high level of confidence in the
appropriateness of the weights that are in this final rule. Therefore,
we are not increasing the relative weight or payment rate for an APC
group simply because its payment is lower in 2002 than it was in 2001
nor are we reducing the relative weight or payment rate for an APC
group simply because its payment is higher in 2002 than it was in 2001.
Go back
III. Wage Index Changes

Under section 1833(t)(2)(D) of the Act, we are required to
determine a wage adjustment factor to adjust for geographic wage
differences, in a budget neutral manner, that portion of the OPPS
payment rate and copayment amount that is attributable to labor and
labor-related costs.
We used the May 4, 2001 proposed Federal fiscal year (FY) 2002
hospital inpatient PPS wage index (66 FR 22646) to make wage
adjustments in determining the proposed payment rates set forth in the
proposed rule. We also proposed to use the final FY 2002 hospital
inpatient wage index to calculate the final CY 2002 payment rates and
coinsurance amounts for OPPS. We received no comments on this issue and
are implementing our proposed policy in final.
The final FY 2002 hospital inpatient wage index published in the
August 1, 2001 Federal Register (66 FR 39828) is reprinted in this
final rule as Addendum H, Wage Index for Urban Areas; Addendum I, Wage
Index for Rural Areas; and Addendum J, Wage Index for Hospitals That
Are Reclassified. Those wage index values will be used to calculate the
OPPS payment rates and coinsurance amounts for calendar year (CY) 2002.
Go back
IV. Copayment Changes

We note that in section 1833(t) of the Act, the terms "copayment"
and "coinsurance" appear to be used interchangeably. To be consistent
with CMS usage, we make a distinction between the two terms throughout
this preamble. We are making conforming changes to part 419 of the
regulations to reflect the following usage:
"Coinsurance" means the percent of the Medicare-approved
amount that beneficiaries pay for a service furnished in the hospital
outpatient department (after they meet the Part B deductible).
"Copayment" means the set dollar amount that
beneficiaries pay under the OPPS. For example, if the payment rate for
an APC is $200 and the beneficiary is responsible for paying $50, the
copayment is $50 and the coinsurance is 25 percent.

A. BIPA 2000 Coinsurance Limit

As discussed in section I.C of this preamble, certain provisions of
BIPA 2000 affect beneficiary copayment amounts under the OPPS. Section
111 of the BIPA added section 1833(t)(8)(C)(ii) of the Act, to
accelerate the reduction of beneficiary copayment amounts, providing
that, for services furnished on or after April 1, 2001 and before
January 1, 2002, the national unadjusted coinsurance for an APC cannot
exceed 57 percent of the APC payment rate. The statute provides for
further reductions in future years so that the national unadjusted
coinsurance for an APC cannot exceed 55 percent in 2002 and 2003, 50
percent in 2004, 45 percent in 2005, and 40 percent in 2006 and
thereafter.
We implemented the reduction in beneficiary copayments for 2001
effective April 1, 2001 through changes to the OPPS PRICER software
used to calculate OPPS payments to hospitals from the Medicare Program
and beneficiary copayments.
We proposed to revise Sec. 419.41 to conform the regulations text
to this provision.
We received no comments on this proposal and are implementing the
required 55 percent limit on the national unadjusted coinsurance rate
of the final APCs. We are also adopting as final the proposed changes
to the regulations text.

B. Impact of BIPA 2000 Payment Rate Increase on Coinsurance

Under the statute as enacted by BBA 1997, APC payment rates for
2001 were to be based on the payment rates for 2000 increased by the
inpatient hospital market basket percentage increase minus 1 percentage
point; however, section 401 of the BIPA 2000 increased APC payment
rates for 2001 to reflect an update based on the full market basket
percentage increase. The Congress intended for the increased payment to
be in effect for the entire calendar year 2001; however, to provide us
sufficient time to make the change, the Congress adopted a special
payment rule for 2001. Under section 401(c) of the BIPA, the payment
rates in effect for services furnished on or after January 1, 2001 and
before April 1, 2001 are the rates as determined under the statute
prior to the enactment of BIPA. For services furnished on or after
April 1, 2001 and before January 1, 2002 the payment rates reflect the
full market basket update and are further increased by 0.32 percent to
account for the timing delay in implementing the full market basket
update for 2001. The 0.32 percent

[[Page 59888]]

increase is a temporary increase that applies only to the period April
1 through December 31, 2001 and is not considered in updating the OPPS
conversion factor for 2002. The increase in APC payment rates for 2001
was implemented effective April 1, 2001 through changes to the OPPS
PRICER software. We proposed to revise Sec. 419.32 to conform to the
statute.
The section 401 increase to the APC payment rates affected
beneficiary copayments in several ways. In cases for which the
beneficiary coinsurance was already based on 20 percent of the APC
payment rate, the increase in the APC payment rate caused a
corresponding increase in the copayment for the APC. For all other
APCs, the copayment amount remained at the same level. In addition,
because the minimum copayment amount for an APC, which is the lowest
amount a provider may elect to charge if it chooses to reduce
copayments for an APC, is based on 20 percent of the APC amount, the
increase to an APC payment rate under section 401 of BIPA resulted in
an increase to the minimum copayment amount for each APC.
We received no comments on this issue, and we are implementing the
changes to the regulations text in final.

C. Coinsurance and Copayment Changes Resulting From Change in an APC
Group

National unadjusted copayment amounts for the original APCs that
went into effect on August 1, 2000 were, by statute, based on 20
percent of the national median charge billed for services in the APC
group during calendar year 1996, trended forward to 1999, but could be
no lower than 20 percent of the APC payment rate. Although the BBA 1997
specified how copayments were to be determined initially, the statute
does not specify how copayments are to be determined in the future as
the APC groups are recalibrated or as individual services are
reclassified from one APC group to another. In the proposed rule, we
provided the method we intend to apply in determining copayments for
new APCs (that is, those created after 2001) and for APCs that are
revised because of recalibration and reclassification. We also
discussed the issues we considered in developing a proposed approach to
be used in determining copayments for new or revised APCs.
The following describes how we proposed to determine copayment
amounts for new and revised APCs for 2002 and subsequent years:
1. If a newly created APC group consists of services that were not
included in the 1996 data base or whose charges were not separately
calculated in that data base (that is, the services were excluded or
packaged) the unadjusted copayment amount would be 20 percent of the
APC payment rate.
2. If recalibrating the relative payment weights results in an APC
having a decrease in its payment rate for a subsequent year, the
unadjusted copayment amount will be calculated so that the coinsurance
percentage for the APC remains the same as it was before the payment
rate decrease. For example, assume the APC had a payment rate of $100
and an unadjusted copayment amount of $50, resulting in a coinsurance
percentage of 50 percent. If the new payment rate for the APC is
lowered to $80, the copayment amount is calculated using the prior
coinsurance percentage of 50 percent; therefore, the new copayment
amount would be 50 percent of $80 or $40.
3. If recalibrating the relative payment weights results in an APC
having an increase in its payment rate for a subsequent year, the
unadjusted copayment amount would be calculated so that the copayment
dollar amount for the APC remains the same as it was before the payment
rate increase. That is, the unadjusted copayment amount would not
change. For example, assume the APC had a payment rate of $100 and an
unadjusted copayment amount of $60 (a coinsurance percentage of 60
percent). If the new payment rate for the APC is increased to $150, the
unadjusted copayment amount would remain at $60 (a coinsurance
percentage of 40 percent).
4. If a newly created APC group consists of services from two or
more existing APCs, the unadjusted copayment amount would be calculated
based on the lowest coinsurance percentage of the contributing APCs.
For example, a new APC is created by moving some or all of the services
from two existing APCs into the new APC. Assume that one contributing
APC had a payment rate of $100 and an unadjusted copayment amount of
$40, a coinsurance percentage of 40 percent. Assume the other
contributing APC had a payment rate of $150 and an unadjusted copayment
amount of $75, a coinsurance percentage of 50 percent. If the new APC
had a payment rate of $130, the unadjusted copayment amount for the new
APC would be based on a coinsurance percentage of 40. The unadjusted
copayment amount for the new APC would be 40 percent of $130, or $52.
These changes will in general reduce beneficiary copayment for
services in affected APCs. For 2002, we believe the size of these
changes will be modest. If in the future the size of such changes
appears likely to be large, we may revisit this policy.
5. If an APC payment rate is increased due to a conversion factor
update, the unadjusted copayment amount for the APC would not change.
We received no comments on this proposal. Therefore, we are
implementing the proposed methodology for calculating copayment amounts
in this final rule.
Go back
V. Outlier Policy Changes

For OPPS services furnished before January 1, 2002, section
1833(t)(5)(D) of the Act explicitly authorizes the Secretary to apply
the outlier payment provision based upon all of the OPPS services on a
bill. We exercised that authority and, since the beginning of the OPPS
on August 1, 2000, we have calculated outlier payments in the aggregate
for all OPPS services that appear on a bill. However, beginning January
1, 2002, we proposed to calculate outlier payments based on each
individual OPPS service. That is, we proposed to revise the aggregate
method that we are currently using to calculate outlier payments and
begin to determine outliers on a service-by-service basis for OPPS
services furnished on or after January 1, 2002.
In the proposed rule, we discussed in detail the difficulties we
faced with calculating outliers based on individual services. We also
discussed possible solutions to those problems including requiring
hospitals to submit separate bills for each OPPS service and allocating
the charges for any packaged service among the individual OPPS services
that appear on the bill. We stated that we prefer using one of the
approaches that would allocate packaged charges among the APCs on a
bill to avoid disruptive billing changes. We proposed that charges be
allocated to each OPPS service based on the percent the APC payment
rate for that service bears to the total APC rates for all OPPS
services on the bill.
We also proposed to convert charges to costs for calculating
outlier payments by continuing to apply a single overall hospital-
specific cost-to-charge ratio instead of applying hospital-specific
departmental cost-to-charge ratios. In the proposed rule, we explained
that, for purposes of calculating outlier payments under the OPPS, the
use of departmental cost-to-charge ratios is not feasible given
currently available information because we do not have a way of
defining, in a uniform manner that is accurate for all hospitals, which
departmental cost-to charge ratio to

[[Page 59889]]

apply to a revenue code billed by a hospital. We also explained that
collecting the data necessary to make it feasible to use departmental
cost-to-charge ratios would impose significant burden and
administrative costs on hospitals and our contractors. We then stated
that given that outliers represent only 2 to 3 percent of total OPPS
expenditures, we believe that the increased accuracy in calculating
outlier payments that we could gain would not be sufficient to justify
the significant additional administrative burden and cost that would be
required. For this reason, we proposed to continue to apply a single
hospital-specific outpatient cost-to-charge ratio to convert billed
charges to costs for calculating outlier payments.
As explained in the April 7, 2000 final rule (65 FR 18498), we set
a target for outlier payments at 2.0 percent of total payments. We also
explained that, for purposes of simulating payments to calculate
outlier thresholds, we set the parameters for determining outlier
payments as if the target were 2.5 percent. We believed that it would
be likely that using simulation 1996 claims data would overstate the
percentage of payments that would be made. Based on the simulations, we
set a threshold for outlier payments at 2.5 times the claim cost and a
payment percent of 75 percent of the cost above the threshold for both
2000 and 2001.
In setting the proposed CY 2002 outlier threshold and payment
percentage, we accounted for the change to service level rather than
claim level outlier calculation. We proposed to set the target for
outlier payment at 2.0 percent as we had for CY 2001. We believe that
the claims data we are using to set the 2002 payment rates reflect much
better coding of services than did the 1996 data so we set the proposed
threshold and proposed payment percentage based on simulations of
payments so that the percentage of outlier payments under the
simulations was 2.0 percent, rather than 2.5 percent as we did in
simulating payments to set the outlier criteria for the April 7, 2000
final rule. Based on our simulations, the proposed threshold for 2002
is 3 times the service costs and the proposed payment percentage for
costs above that threshold is set at 50 percent. Based on the
simulations using the updated claims data from July 1, 1999 to June 30,
2000, the final threshold for 2002 is 3 times the service costs and the
final payment percentage for costs above that threshold is set at 50
percent (the same as the proposed thresholds).
We received many comments on our proposed changes to the outlier
policy, which are summarized below along with our responses.
Comment: Several commenters expressed concern that we proposed to
increase the outlier threshold while lowering the payment percentage
without providing sufficient analysis in the proposed rule to document
and justify these changes. A number of commenters contended that the
quality of the data is not sufficient to justify these dramatic changes
and urged us to maintain the current threshold and payment percentage
until better data become available. One commenter recommended that we
either furnish hospitals with the information that explains the
significant changes, providing an additional opportunity to comment, or
maintain the current threshold and payment percentage amounts. Another
commenter stated that, in the annual proposed and final rules for
hospital inpatient PPS, the data to support any modifications to
outlier payments are presented in detail and the commenter believes we
should include similar information in the annual proposed and final
OPPS rules.
Response: In the April 7, 2000 final rule (65 FR 18498), we
described the general methodology that we use to set the outlier
threshold and payment percentage. We use historical claims data and
simulate payments for those claims by applying the payment rates and
policies for the upcoming year. We calibrate the threshold and payment
percentage by applying an iterative process in which we try different
combinations of thresholds and payment percentages until an appropriate
combination results in outlier payments under the simulation equal to
the target percentage (for purposes of the simulation) of total OPPS
payments under the simulation.
There are two major sources of the changes between the threshold
and payment percentage for 2001 and these proposed 2002. First, the
outlier payment simulations for the proposed rule reflected the
proposed change in the outlier payment policy from a bill-level
calculation to service-level calculation. Second, the outlier payment
simulations for the proposed rule were based on updated claims data
which were considerably more recent than the 1996 claims we used
previously. We believe that the updated data reflect more accurate
coding of the outpatient services hospitals furnished compared to the
1996 data.
When updated data or a change in policy (or, as in this case, both)
dictate a significant change in the outlier parameters, we believe it
is, in general, a better policy to adjust both the threshold and the
outlier payment percentage. For 2002, an adjustment made only to the
threshold amount would greatly limit the number of services that would
qualify for an outlier payment. Conversely, an adjustment only to the
outlier payment percentage would have significantly decreased the
amount of the outlier payment made for the services that do qualify. By
adjusting both of the parameters, we hope to strike a balance. That is,
for 2002 as compared to 2001, we do not wish to drastically lower the
number of services qualifying for outlier payment nor do we wish to
significantly decrease the amount of payment hospitals may receive for
services that qualify as outliers. Based on this premise, we both
raised the outlier threshold and decreased the payment percentage in
order to prevent, to the extent possible, large changes in the outlier
payments made to hospitals.
Comment: One commenter stated that, because we provided no data to
demonstrate that the target for CY 2001 would be exceeded, we should
provide that if the proposed changes are put into place and actual
outlier payments in 2002 are significantly less than the 2002 outlier
target, the "shortfall" from 2001 and 2002 will be made up by
increased outlier payments in subsequent years.
Response: The outlier threshold and payment percentage are
determined each year based on our best estimate of what threshold and
payment percentage are needed to achieve a certain level of outlier
payments. For example, for CY 2002, we set the threshold and payment
percentage based on estimates so that outlier payments are projected to
equal 2.0 percent of total OPPS payments.
Section 1833(t)(5)(C) of the Act requires that the outlier payment
estimate for a year be made by the Secretary before the beginning of
the year. Consistent with our outlier policies in other prospective
payment systems, we will not adjust outlier payments in subsequent
years to account for an underestimation (or overestimation) of outlier
payments in a previous year. The statute does not provide for such an
adjustment. We set the outlier policies prospectively, using the best
available data. Outlier payments, like many aspects of a prospective
payment system, reflect estimates, and we believe it would be
inappropriate to adjust the outlier payments (upward or downward) for a
given year simply because an estimate for a previous year ultimately
turned out to be inaccurate. If we underestimate or overestimate the
percentage of outlier payments, the divergence of our estimate from
actual experience may

[[Page 59890]]

provide information that might help us improve future estimates, but it
would have no direct effect on the amount of outlier payments for any
following year.
Comment: One commenter suggested that we lack reliable data on
actual claims experience that are critical in determining which
hospitals are receiving outlier payments and for which specific
services. The commenter believes that once such data become available,
they can be used to improve the APC system, reducing the overall need
for outliers and to refine the outlier methodology to target outlier
payments as most appropriate.
Response: As coding on outpatient claims improves, the median costs
we use to calculate APC weights and, ultimately, APC payment rates will
also more accurately reflect the resources associated with furnishing
the services within each APC. It is possible that this may reduce the
incidence of outlier payments for specific services as well as decrease
the need for outlier payments across all services.
Comment: One commenter pointed out that the increase in the outlier
threshold and the decrease in the percent of the excess costs that will
be paid as an outlier payment are based on an outlier target of 2.0
percent of estimated total OPPS payments. In order to not penalize
hospitals that treat high cost cases, the commenter recommended that
the outlier target be set at 3.0 percent of estimated total OPPS
payments.
Response: Section 1833(t)(5)(C) of the Act limits projected outlier
payments for years prior to 2004 to no more than 2.5 percent of
projected total OPPS payments. For CY 2002, we proposed to set the
target for outlier payments at 2.0 percent. Although we could increase
that amount to 2.5 percent, we have chosen not to do so because
increasing the outlier target percentage would require a corresponding
decrease to APC payment amounts due to budget neutrality. Given the
decrease in many of the APC payment rates that results from the
incorporation of 75 percent of device pass-through costs into the APCs
(see section II.D. of this preamble), we believe it is appropriate not
to increase the outlier target percentage so that there is no
additional reduction in the APC payments. Once we have claims data that
reflect payments made under the OPPS, our analysis of those data may
lead us to revise our policy of setting the outlier target below the
limit allowed.
Comment: One commenter estimated that the proposed changes in the
threshold and the payment percentage would reduce outlier payments by
as much as 50 percent. Several other commenters claimed that the
proposed changes would result in drastic cuts in outlier payments to
certain community mental health centers (CMHCs) in Louisiana and
Mississippi. These commenters contended that the payment reductions
would be so severe that CMHCs would be forced to close, thereby
eliminating services for the seriously and persistently mentally ill.
These commenters requested that the CY 2002 outlier payments for CMHCs
continue to be calculated using the CY 2001 outlier threshold and
payment percentage.
Another commenter asked that we provide data on outlier payments
made since the implementation of the OPPS to provide greater
information about the impact of outliers on cancer care. The commenter
stated that, in the area of cancer care, hospital outpatient
departments often provide the only access point for patients needing
complex therapies or new therapies not yet specifically recognized by
the coding system and outlier payments provide an important safeguard
against any adverse impact of providing this care. The commenter
specifically requested information on how the outlier payments have
been applied to cancer patients across the country. If actual outlier
payments are less than the 2.0 percent target, the commenter urged us
to direct more of the outlier monies to cancer care or apply any
difference between projected and actual outlier amounts to the
transitional pass-through payments for drugs and devices.
Response: As discussed above, the difference between the 2001 and
proposed 2002 outlier threshold and payment percentage arises from the
use of newer claims data and the change to a service-level rather than
claim-level outlier payment calculation. In accordance with section
1833(t)(5) of the act, we set a "fixed" threshold that applies to all
OPPS services. Thus, we apply a uniform threshold to all OPPS services
in a given calendar year; the statute does not provide for different
thresholds for different classes of providers or different types of
OPPS services. Similarly, we set the payment percentage prospectively
before the beginning of each year and apply it to all OPPS services
qualifying for outlier payments in that year.
Currently, we do not have adequate data for OPPS claims to perform
a useful analysis of actual outlier payments under the OPPS, but we
expect to discuss information on actual outlier payments in future
regulation documents after sufficient information becomes available.
For the suggestion concerning the redistribution of outlier
payments to pass-through drugs and devices, we note that the statute
provides for both the outlier and transitional pass-through payments
and establishes the 2.5 percent limits on those payments for the years
before 2004 (when the limit for outliers increases to 3.0 percent and
the limit for transitional pass-throughs decreases to 2.0 percent).
Thus, we do not have the administrative authority to make the change
that this commenter has recommended. Rather, legislative action would
be required to make any of these changes.
Comment: Although some commenters were in favor of calculating
outlier payments on an individual service basis, several commenters
requested that we reconsider our proposal and recommended that we
continue to use the aggregate bill method. Another commenter believes
that the increased specificity gained under the proposed outlier
methodology would not offset the additional costs and administrative
burden to hospitals of making information system changes necessary to
calculate and verify outlier payments. One commenter asserted that
multiple service claims are not used in calculating the APC relative
weights because we are unable to accurately allocate packaged items and
services when more than one service is billed on a claim. The commenter
is concerned that the same problem would occur with the proposed
methodology for paying outliers and recommends that, to avoid
inappropriate outlier payments, we should continue to calculate
outliers on a claim-level basis until an equitable method of assigning
packaged costs is developed.
Another commenter believes that the current methodology more
accurately meets the intent of outlier payments, which is to pay
facilities for unusual expenses incurred on behalf of patients, not
specific line items or individual services. The commenter stated that
the allocation of charges to develop service-by-service outliers
presents an administrative problem to those hospitals that must
significantly alter their systems in order to monitor and audit their
payments.
Several commenters expressed concern that the proposed service-
level approach could result in very few services qualifying for
additional payment and asked for a delay in the policy. One hospital
association requested a delay so it would have an opportunity to
evaluate CYs 2000 and 2001 data to better understand the impact the
change would have on its member hospitals. Another hospital

[[Page 59891]]

association believes that the data that are currently available (that
is, data for services furnished prior to implementation of the OPPS)
may not accurately reflect the financial impact of the proposed change
and asked for a delay in calculating service-level outliers until OPPS
data are available and can be provided to the hospital industry for
analysis. Several commenters urged us to delay implementation of
service-level outlier calculations until hospitals and fiscal
intermediaries had adequate time to perform systems testing related to
the change.
Response: We believe that calculating outliers on a service-by-
service basis is the most appropriate way to calculate outliers for
outpatient services. Outliers on a bill basis requires both the
aggregation of costs and the aggregation of OPPS payments thereby
introducing some degree of offset among services; that is, the
aggregation of low cost services and high cost services on a bill may
result in no outlier payment being made. While service-based outliers
are somewhat more complex to administer, under this method, outlier
payments will be more appropriately directed to those specific services
for which a hospital incurs significantly increased costs. We are
revising the outpatient PRICER program to calculate outliers on a
service-by-service basis, and we do not anticipate that our contractors
will have any significant problems being able to calculate outlier
payments under this revised policy.
Comment: Two commenters requested clarification concerning how
outlier payments would be calculated on a service-by-service basis in
the case of multiple surgical procedures appearing on the same claim
when all of the surgical charges are combined into a single line on the
claim. One commenter stated that if hospitals will be required to
change the practice of combining surgical charges for all procedures on
a single line item, they may require significant resources to comply
with such a change.
Response: The commenters raise a valid concern. When a hospital
performs several surgical procedures during the same operative session,
it is an acceptable billing practice to show the entire charge for use
of the operating room or treatment room on the line with one of the
surgical HCPCS codes and zero charges on the lines with the remaining
surgical HCPCS codes. We do not intend to require that hospitals change
this practice. Hospitals will continue to have the option of splitting
out the charges among the individual surgical procedures based on the
resources that are attributable to each procedure or they may show a
single combined charge with one of the surgical HCPCS codes and zero
charges with the others. If the hospital chooses the latter option, in
calculating outliers on a service-by-service basis, we will allocate
the combined operating or treatment room charge among all of the
surgical procedures on the bill. The charges will be allocated to each
surgical procedure based on the proportion that the APC payment for the
procedure bears to the total APC payments for all surgical procedures
performed on that day.
Comment: One commenter supported calculating outliers on a service-
by-service basis and agreed with using an overall cost-to-charge ratio,
but disagreed with the proposal to allocate packaged services. Several
commenters asserted that while it is not possible to directly assign
packaged services to a payable procedure in all cases, it is possible
in some cases. As an example, the commenters stated that on a claim
with a surgical procedure and a visit or diagnostic service, it would
be logical and reasonable to assign anesthesia, recovery room, and
device charges completely to the surgical procedure, instead of
allocating a portion to the visit or diagnostic service.
Another commenter recommended that we modify our proposal for
allocating packaged services and develop a set of rules to directly
assign the packaged services for those obvious situations when there is
a clear relationship of the packaged item or service to the payable
service or procedure.
Response: We believe that the policy the commenters are
recommending is problematic. For example, anesthesia and recovery room
services are not limited to surgical procedures but may also be billed
with certain diagnostic procedures. Although we agree that we may in
the future be able to improve the allocation of packaged services for a
service-level outlier calculation, we also must be careful that the
calculation does not become so complex that hospitals are unable to
understand how their outlier payments have been determined. Therefore,
we are not adopting the commenter's suggestion. We will however
continue to analyze possible refinements to this policy.
Comment: One commenter acknowledged the complexities we would face
in using a cost report line-specific method of calculating the cost-to-
charge ratios (CCRs) for outlier payments but believes the issue
warrants further study. The commenter contends that using line-specific
CCRs is the only way to ensure that outlier payments are equitable on a
service level.
Response: We agree with the commenter that applying appropriate
departmental cost-to-charge ratios (CCRs) would generally be more
accurate than using an overall outpatient CCR. However, as discussed
above and in the proposed rule, it is currently unfeasible to use
departmental cost-to-charge ratios for purposes of outlier payments
under the OPPS because we currently do not have the necessary
information. We continue to believe that the increased accuracy that
would be achieved by use of departmental CCRs would not justify the
significant administrative burden that would be placed on both
hospitals and fiscal intermediaries.
Comment: A number of commenters raised concerns about the hospital-
specific CCRs we have used since the beginning of OPPS to calculate
outlier payments as well as transitional pass-through payments and
interim transitional corridor payments. The commenters raised issues
relating to the accuracy of CCR calculations, the basis of future CCR
updates, and the timing of CCR updates.
Response: We are working on instructions to our fiscal
intermediaries that will address both how and when the CCRs will be
revised and updated and those instructions will be published in a
forthcoming program memorandum.
Go back
VI. Other Policy Decisions and Proposed Changes

A. Change in Services Covered Within the Scope of the OPPS

Section 1833(t)(1)(B) of the Act defines the term "covered OPD
services" that are to be paid under the OPPS. "Covered OPD services"
are "hospital outpatient services designated by the Secretary" and
include "inpatient hospital services designated by the Secretary that
are covered under this part and furnished to a hospital inpatient who
(1) is entitled to benefits under Part A but has exhausted benefits for
inpatient hospital services during a spell of illness, or (2) is not so
entitled" (that is, "Part B-only" services). "Part B-only"
services are certain ancillary services furnished to inpatients for
which the hospital receives payment under Medicare Part B. These
services, which are specified in section 3110 of the Medicare
Intermediary Manual and section 2255C of the Medicare Carriers Manual
include diagnostic tests; X-ray and radioactive isotope therapy;
surgical dressings, splints and casts; prosthetic

[[Page 59892]]

devices; and limb braces and trusses and artificial limbs and eyes.
In the April 7, 2000 final rule, we included inpatient "Part B-
only" services within the definition of services payable under the
OPPS (68 FR 18543). In the proposed rule, we discussed some hospitals'
concerns about the administrative burden and prohibitive costs they
would incur if they were to change their billing systems to accommodate
OPPS requirements solely to receive payment for "Part B-only"
services. We proposed to revise Sec. 419.22 by adding paragraph (r) to
exclude Part B-only services that are furnished to inpatients of
hospitals that do no other billing for hospital outpatient services
under Part B from payment under the OPPS.
We noted that under this proposed revision of the regulations,
hospitals with outpatient departments would continue to bill under the
OPPS for Part B-only services that they furnish to their inpatients.
However, a hospital that does not have an outpatient department would
be unable to bill under the OPPS for any Part B-only service the
hospital furnished to its inpatients because those services would not
fall within the scope of covered OPD services. If a hospital with no
outpatient department is currently billing under the OPPS, the hospital
would have to revert to its previous payment methodology for services
furnished on or after January 1, 2002. That methodology would be an
all-inclusive rate for hospitals paid that way prior to the
implementation of OPPS and reasonable cost for other hospitals.
We received several comments on this proposal, which are summarized
below.
Comment: Several commenters requested that the proposed change be
made retroactive to the implementation of OPPS on August 1, 2000. These
commenters observed that, without retroactive effect, the hospitals
would be unable to bill for inpatient ancillary services provided to
beneficiaries with Part B-only coverage during the period from August
1, 2000 until January 1, 2002. Another commenter contended that the
proposed policy should have retroactive effect. The commenter raised
two alternative reasons for this contention. One was that section
1833(t)(1)(B)(ii) of the Act should not have been interpreted to apply
to inpatients who have exhausted their Part A coverage because of the
190-day lifetime limit on inpatient psychiatric days, because the
statutory language refers only to hospital inpatients who have
"exhausted benefits for inpatient hospital services during a spell of
illness." The other was that, allegedly, CMS had never designated
through formal regulations those Part B services that are subject to
the OPPS. Until such a rule is adopted, the commenter contended, no
service provided on an inpatient basis to beneficiaries with Part B-
only coverage can be subject to OPPS.
Response: Contrary to the assertion of the commenter, we have in
fact designated those Part B services to be covered under the OPPS
through formal regulations. In the April 7, 2000, final rule, we
specifically included services furnished to inpatients who have
exhausted their Part A benefits in the list of "Services Included
Within the Scope of the Hospital Outpatient PPS," and provided
examples of those services (65 FR 18444). The statutory language gives
the agency broad authority to define the services that are to be
included under the OPPS. The statute broadly includes both "hospital
outpatient services designated by the Secretary" and "inpatient
hospital services designated by the Secretary that are covered under
this part and furnished to a hospital inpatient who (1) is entitled to
benefits under Part A but has exhausted benefits for inpatient hospital
services during a spell of illness, or (2) is not so entitled" within
the definition.
We designated Part B-only services as OPPS services through notice
and comment rulemaking, and the policy has been in effect since the
inception of OPPS. As discussed in the proposed rule, representatives
of hospitals approached us after publication of the April 7, 2000 final
rule to express concerns about the policy. We have considered those
concerns, and we are changing the policy prospectively. We believe not
only that applying the policy change on a prospective basis only is
fair (particularly given that the current policy was established
through notice and comment rulemaking) but also that applying the
policy change on a retroactive basis would constitute impermissible
retroactive rulemaking.
Comment: Several commenters requested that CMS clarify that those
hospitals to which this change applies may resume billing under the per
diem based methodology that they employed prior to the implementation
of OPPS.
Response: As we stated in the proposed rule (66 FR 44699), "If a
hospital with no outpatient department is currently billing under the
OPPS, the hospital would have to revert to its previous payment
methodology for services furnished on or after January 1, 2002. That
methodology would be an all-inclusive rate for hospitals paid that way
prior to the implementation of OPPS and reasonable cost for other
hospitals." The hospitals to which this change applies may therefore
resume billing under the per diem or reasonable cost methodology that
was applicable to them prior to the implementation of the OPPS.
Comment: One commenter asked that we recognize the situation of two
other classes of hospitals. Some hospitals that have outpatient
departments submit claims for only a limited range of outpatient
services under Part B. Other hospitals have outpatient departments (for
example, for children's psychiatric services) but submit no claims
under Medicare Part B. The commenter contended that these hospitals do
not have the capacity to bill for the full range of inpatient ancillary
services under the OPPS.
Response: We believe that it is very important to restrict this
exception to those hospitals that do not provide Medicare Part B
services through an outpatient department. As stated in the April 7,
2000 final rule, in developing a hospital OPPS, we "wanted to ensure
that all services furnished in a hospital outpatient setting will be
paid on a prospective basis." (65 FR 18442.) We believe that hospitals
that have outpatient departments and that bill for some outpatient
services under Part B should also be paid for the services in question
under the OPPS. Therefore, those hospitals will not be excluded from
billing under the OPPS. On the other hand, the exception will apply to
those hospitals that do not bill under Medicare Part B, even if they
have outpatient departments; that is, they do not treat Medicare
beneficiaries in their outpatient departments.
Comment: Several commenters requested that CMS clarify whether the
proposed provision in Sec. 419.22(r) of the regulations would include
therapy services (for example, physical therapy) so that the State
psychiatric hospitals included in the exception could resume billing
therapies at the per diem all-inclusive rate. The commenters pointed
out that these services are currently included in the list of ancillary
services under section 3110 of the Medicare Intermediary Manual and
section 2255C of the Medicare Carrier Manual. In the proposed rule, CMS
specified that the Part B-only services to which the proposed exception
would apply were ancillary services listed in those manual sections,
but did not specifically list the therapy services in the proposed
rule. Some of these commenters raised the same question about
diagnostic laboratory services, which CMS had also not specifically
listed in the preamble text, but which are included in the list of
ancillary services under section 3110

[[Page 59893]]

of the Medicare Intermediary Manual and section 2255C of the Medicare
Carrier Manual.
Response: Section 1833(t)(1)(B)(iv) of the Act specifically
excludes outpatient physical therapy, outpatient speech-language
pathology, and outpatient occupational therapy from the definition of
services payable under the OPPS. Therefore, we specifically did not
include them in the list of Part-B only services to which the exception
would apply in the proposed rule. These services are subject to fee
schedules that were established prior to the OPPS.
We agree with the commenters that diagnostic laboratory services
are included in the list of ancillary services that are excluded from
the OPPS under this policy.

B. Categories of Hospitals Subject To and Excluded from the OPPS

Under Sec. 419.20(b), certain hospitals in Maryland that qualify
under section 1814(b)(3) of the Act for payment under the State's
payment system are excluded from the OPPS. Critical access hospitals
(CAHs), which are paid under a reasonable cost-based system as required
under section 1834(g) of the Act, are also excluded. In addition, we
stated in the April 7, 2000 final rule that the outpatient services
provided by the hospitals of the Indian Health Services (IHS) will
continue to be paid under separately established rates. We also noted
that we intended to consult with the IHS and develop a plan to
transition these hospitals into OPPS. With these exceptions, the OPPS
applies to all other hospitals that participate in the Medicare
program.
In the proposed rule, we noted that under the statute, hospitals
located in Guam, Saipan, American Samoa, and the Virgin Islands are
excluded from the hospital inpatient PPS. We proposed to revise
Sec. 419.20 of the regulations by adding paragraph (b)(3) to exclude
these hospitals from OPPS consistent with their treatment under
inpatient PPS. In addition, we proposed to revise paragraph (b)(4) of
that section to include the hospitals of the IHS to clarify that they
are excluded from OPPS until we develop a plan to include them. We
noted that it might also be possible to include the hospitals in the
territories in the OPPS in the future.
We received one comment on this proposal, as set forth below.
Comment: A commenter asked for clarification about the meaning of
"hospital of the Indian Health Service" in the context of our
proposal. The commenter requested that CMS define the term to include
several classes of hospitals, not only those owned and operated by the
IHS, but also those that are operated by Tribes and Tribal
organizations, but owned or leased by the IHS.
Response: We agree with the commenter that clarification of the
term "hospital of the Indian Health Service" is appropriate, and we
are taking this opportunity to do so. Specifically, we will use here
the definition at 42 CFR 413.65(l), where the term is defined to
include facilities and organizations that, on or before April 7, 2000,
furnished only services that were billed as if they were furnished by a
hospital operated by the IHS or by a Tribe and that are: owned and
operated by the Indian Health Service; owned by a Tribe or Tribal
organization but leased from the Tribe or Tribal organization by the
IHS under the Indian Self-Determination Act (Pub. L. 93-638) in
accordance with applicable regulations and policies of the Indian
Health Service in consultation with Tribes; or owned by the Indian
Health Service but leased and operated by the Tribe or Tribal
organization under the Indian Self-Determination Act (Pub. L. 93-638)
in accordance with applicable regulations and policies of the Indian
Health Service in consultation with Tribes.

C. Conforming Changes: Additional Payments on a Reasonable Cost Basis

Hospitals subject to the OPPS are paid for certain items and
services that are outside the scope of the OPPS on a reasonable cost or
other basis. Payments for the following services are made on a
reasonable cost basis or otherwise applicable methodology:
a. The direct costs of medical education as described in
Sec. 413.86.
b. The costs of nursing and allied health programs as described in
Sec. 413.85.
c. The costs associated with interns and residents not in approved
teaching programs as described in Sec. 415.202.
d. The costs of teaching physicians attributable to Part B services
for hospitals that elect cost-based payment for teaching physicians
under Sec. 415.160.
e. The costs of anesthesia services furnished to hospital
outpatients by qualified nonphysician anesthetists (certified
registered nurse anesthetists and anesthesiologists' assistants)
employed by the hospital or obtained under arrangements, for hospitals
that meet the requirements under Sec. 412.113(c).
f. Bad debts for uncollectible deductible and coinsurance amounts
as described in Sec. 413.80(b).
g. Organ acquisition costs paid under Part B.
Interim payments for these services are made on a biweekly basis
and final payments are determined at cost report settlement.
We proposed to revise Sec. 419.2(c) to make conforming changes that
reflect the exclusion of these costs from the OPPS rates.
We received one comment on this proposal, as follows.
Comment: The commenter supported the clarification, but requested a
statement concerning how CMS will ensure that the appropriate interim
biweekly payments for these services are made.
Response: We are working on appropriate operating instructions to
our intermediaries with directions to ensure that the appropriate
interim payments for these items and services are made.

D. Hospital Coding for Evaluation and Management Services

In the April 7, 2000 final rule, we emphasized the importance of
each facility accurately assessing the intensity, resource use, and
charges for evaluation and management (E/M) services, in order to
ensure proper reporting of the service provided. In the proposed rule,
we stated that we understand that facilities have developed several
different systems for determining resource consumption to assign proper
E/M codes. Some of these systems are based on clinical ("condition")
criteria, and others are based on weighted scoring criteria. We
continue to believe that proper facility coding of E/M services is
critical for assuring appropriate payments. In order to achieve this,
we are interested in developing and implementing a standardized coding
process for facility reporting of E/M services. This process could
include the use of current HCPCS codes or the establishment of new
HCPCS codes in conjunction with guidelines for facility coding.
In the proposed rule, we solicited comments from hospitals and
other interested parties on this issue. We stated that we would submit
these comments to the APC Advisory Panel and ask for the Panel's
recommendations regarding the development and implementation of a
facility coding process for E/M services. We will review both the
public comments and the recommendations from the Panel and propose a
coding process in the proposed rule for 2003.

E. Annual Drug Pricing Update

1. Payment for Drugs and Biologicals
Under the OPPS, we pay for drugs and biologicals in one of three
ways.

[[Page 59894]]

a. Packaged Payment. As we explained in the April 7, 2000 final
rule, we generally package the cost of drugs, biologicals, and
pharmaceuticals into the APC payment rate for the primary procedure or
treatment with which the drugs are usually furnished (65 FR 18450). No
separate payment is made under the OPPS for drugs, biologicals, and
pharmaceuticals whose costs are packaged into the APCs with which they
are associated.
b. Transitional Pass-Through Payments for Eligible Drugs and
Biologicals. As we also explained in the April 7, 2000 final rule and
in section VII of this preamble, the BBRA 1999 provided for special
transitional pass-through payments for a period of 2 to 3 years for the
following drugs and biologicals:
Current orphan drugs, as designated under section 526 of
the Federal Food, Drug, and Cosmetic Act;
Current drugs and biologic agents used for treatment of
cancer;
Current radiopharmaceutical drugs and biological products;
and
New drugs and biologic agents in instances where the item
was not being paid for as a hospital outpatient service as of December
31, 1996, and where the cost of the item is "not insignificant" in
relation to the hospital outpatient PPS payment amount.
In this context, "current" refers to those items for which
hospital outpatient payment was being made on August 1, 2000, the date
on which the OPPS was implemented. A "new" drug or biological is a
product that was not paid as a hospital outpatient service before
January 1, 1997 and for which the cost is not insignificant in relation
to the payment for the APC to which it is assigned. In the proposed
rule, we discussed in detail the statutory basis and payment
methodology for transitional pass-through payments for drugs and
biologicals. In addition, we included an illustration of the payment
methodology.
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 amount determined under section
1842(o) of the Act, that is, 95 percent of the applicable average
wholesale price (AWP). 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 95 percent of the applicable AWP 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. Therefore, as we explained in the April 7, 2000
final rule (65 FR 18481), in order to determine the correct pass-
through payment amount, we first had to determine the cost that was
packaged for the drug or biological within its related APC. In order to
determine this amount, we used the following methodology, which we also
explained in the April 7, 2000 final rule.
When we implemented the OPPS on August 1, 2000, costs for drugs and
biologicals eligible for transitional pass-through payment were, to the
extent possible, not included in the payment rates for the APC groups
into which they had been packaged prior to enactment of the BBRA 1999.
That is, to the extent feasible, we removed from the APC groups into
which they were packaged, the costs of as many of the pass-through
eligible drugs and biologicals as we could identify in the 1996 claims
data. Then, we assigned each drug and biological eligible for a pass-
through payment to its own, separate APC group, the total payment rate
for which was set at 95 percent of the applicable AWP.
Next, in order to establish the applicable beneficiary copayment
amount and pass-through payment amount, we had to determine the cost of
the pass-through eligible drug or biological that would have been
included in the payment rate for its associated APC had the drug or
biological been packaged. We used hospital acquisition costs as a proxy
for the amount that would have been packaged, based on data taken from
an external survey of hospital drug costs. (See the April 7, 2000 final
rule (65 FR 18481).) We imputed the acquisition cost for the various
drugs and biologicals in pass-through APCs by multiplying their
applicable AWP by one of the following ratios. The following ratios are
based on the survey data, and they represent, on average, hospital drug
acquisition cost relative to AWP:
For drugs with one manufacturer (sole-source), the ratio
of acquisition cost to AWP equals 0.68.
For drugs with more than one manufacturer (multi-source),
the ratio of acquisition cost to AWP equals 0.61.
For drugs with more than one manufacturer and with generic
competitors, the ratio of acquisition cost to AWP equals 0.43.
In accordance with section 1833(t)(7) of the Act, we base
beneficiary copayment amounts for pass-through drugs only on that
portion of the drug's cost that would have been included in the payment
amount for an associated APC had the drug been packaged. Therefore,
having determined the hospital acquisition cost of the drug based on
the ratios described above, we multiply the acquisition cost by 20
percent to calculate the beneficiary copayment for the pass-through
drug or biological APCs. Finally, to calculate the actual pass-through
payment amount, we subtract the hospital acquisition cost from the
applicable 95 percent of AWP. The Medicare program payment is the sum
of the acquisition cost and the pass-through amount, less the
beneficiary copayment amount.
To illustrate this payment methodology, consider a current sole
source drug with an average wholesale price (AWP) of $100 per dose.
Under section 1842(o) of the Act, the total allowed payment for the
drug is $95, that is, 95 percent of AWP. We impute the cost of the drug
based on survey data, which indicate hospital acquisition costs for
this type of drug on average to be 68 percent of its AWP (or $68). In
the absence of the pass-through provisions, this cost would be packaged
into the APC payment for the procedure or service with which the drug
or biological is furnished. Therefore, we define the beneficiary
coinsurance as 20 percent of the imputed cost of $68, resulting in a
copayment amount of $13.60. The pass-through payment amount is $27 (the
difference between 95 percent of AWP ($95) and the portion of the APC
payment that is based on the cost of the drug ($68)). The total
Medicare program payment in this example equals $81.40 (cost of the
drug in the APC ($68) less beneficiary copayment ($13.60), plus pass-
through payment ($27)). In the proposed rule, we clarified that, for
purposes of calculating transitional pass-through payment amounts, we
make no distinction between new and current drugs and biologicals.
Rather, we assume that drugs and biologicals defined as "new" under
section 1833(t)(6)(A)(iv)(I) of the Act, that is, for which payment was
not being made as of December 31, 1996, nonetheless replace or are
alternatives to drugs, biologicals, or therapies whose costs would have
been reflected in our 1996 claims data and, thus, have been packaged
into an associated APC. Therefore, we assume that our imputed
acquisition cost, based on the external survey data, represents that
portion of the APC payment attributable to new as well as current drugs
and biologicals. For that reason, we are discontinuing use of the
payment status indicator "J" that we introduced in the November 13,

[[Page 59895]]

2000 final rule to designate a "new" drug/biological pass-through.
Instead, we stated that we would assign payment status indicator "G"
to both current and new drugs that are eligible for pass-through
payment under the OPPS. (Addendum D of this final rule lists the
definition of the OPPS payment status indicators.)
c. Separate APCs for Drugs Not Eligible for Transitional Pass-
Through Payment. There are some drugs and biologicals for which we did
not yet have adequate cost data that are not eligible for transitional
pass-through payments. Beginning with the April 7, 2000 final rule, we
created separate APCs for these drugs and biologicals to allow separate
payment so as not to discourage their use where appropriate.
We based the payment rate for these APCs on median hospital
acquisition costs. To determine the hospital acquisition cost for the
drugs, we imputed a cost using the same ratios of drug acquisition cost
to AWP used in connection with calculating acquisition costs for
transitional pass-through drug payments. That is, we multiplied the AWP
for the drug by the applicable ratio (sole, multi, or generic source)
based on data collected in an external survey of hospital drug
acquisition costs.
We set beneficiary copayment amounts for these drugs APCs at 20
percent of the imputed acquisition cost. We use status indicator "K"
to denote the APCs for drugs, biologicals, and pharmaceuticals that are
paid separately from and in addition to the procedure or treatment with
which they are associated yet are not eligible for transitional pass-
through payment. Refer to Addendum A of this final rule to identify
these APCs.
2. Annual Drug Pricing Update
a. Drugs Eligible for Pass-Through Payments. We used the AWPs
reported in the Drug Topics Red Book to determine the payment rates for
the pass-through drugs and biologicals. In the proposed rule we
referred to a discussion in the November 13, 2000 interim final rule.
When we developed that interim final rule, it was our understanding
that, although there are quarterly updates to the AWPs in the Red Book,
the annual update is published in April of each year. It was our
intention to update the AWPs for drugs each July 1, the quarter
following the annual publication, and we did use the April 2001 version
of the Red Book to update the APC rates for drugs eligible for pass-
through payments. The pass-through payment rates for drugs and
biologicals updated for 2001 went into effect July 1, 2001 (Program
Memorandum A-01-73, issued on June 1, 2001).
We found that doing an update for all the pass-through drugs and
biologicals at mid-year was disruptive to both our computer systems and
pricing software. Thus, we proposed to update the APC rates for drugs
that are eligible for pass-through payments in 2002 using the July 2001
or October 2001 version of Red Book. The updated rates effective
January 1, 2002 would remain in effect until we implement the next
annual update in 2003, when we would again update the AWPs based on the
latest quarterly version of the Red Book. This would place the update
of pass-through drug prices on the same calendar year schedule as the
other annual OPPS updates.
b. Drugs in Separate APCs Not Eligible for Pass-Through Payments.
We used the conversion factor published in the November 13, 2000 final
rule (65 FR 67827) to update, effective January 1, 2001, the APC rates
for the drugs that are not eligible for pass-through payments that are
in separate APCs. We also made payment adjustments to these APC groups
effective April 1, 2001, as required by section 401(c) of the BIPA,
which sets forth a special payment rule that had the effect of
providing a full market basket update in 2001.
For 2002, we proposed to recalibrate the weights for the APCs for
drugs that are not pass-through items and make the other adjustments
applicable to the APC groups that we discuss in sections III, IV, and
VIII of this preamble.
We received several comments on our discussion of the payment for
drugs under the OPPS. These comments are summarized below.
Comment: One commenter expressed concern that the "three
methodologies for drug payment reductions in the proposed rule" may
not take into account the most recent data. The commenter requested an
estimate of the magnitude of the expected reduction, and the data used
to develop the estimate.
Response: We did not propose three methodologies for drug payment
reductions in the proposed rule. Rather we described, in greater detail
than we have previously, the three methods by which drug costs are paid
under the OPPS. In the final rule that we published on November 2, 2001
(66 FR 55857), we announced that we would be implementing a reduction
in the payments made for one category of drugs, namely those drugs that
qualify for transitional pass-through payments. As we described in that
final rule, this reduction is applied on a uniform basis to all pass-
through payments (including payments for devices) and is required to
enforce a statutory limit on the size of those estimated payments
relative to the estimate of all spending under the OPPS.
Comment: One commenter was confused by an apparent discrepancy
between our description of how the pass-through payment amount for a
drug is calculated and our example of how the amount is calculated. The
description indicated that the beneficiary coinsurance is subtracted
from the applicable 95 percent of AWP and imputed acquisition cost, but
the example did not include this subtraction.
Response: We regret that the written description was not entirely
clear. The example was accurate. The pass-through payment is the
difference between 95 percent of AWP and imputed acquisition cost. The
beneficiary coinsurance is 20 percent of the imputed acquisition cost.
The Medicare program payment is the pass-through amount, plus the
imputed acquisition cost, minus the beneficiary copayment. Total
payment to the hospital is the pass-through amount, plus the imputed
acquisition cost, plus the beneficiary copayment. In our example (see
above), the AWP for the drug was $100, and 95 percent of AWP was thus
$95. The imputed acquisition cost for the drug was 68 percent of AWP,
or $68. Beneficiary coinsurance was 20 percent of $68, or $13.60. The
Medicare program payment is $27 (the pass-through amount), plus $68
(the imputed acquisition cost), minus $13.60 (the beneficiary
copayment), for a total of $81.40. Total payment to the hospital is
$81.40 (the Medicare program payment) plus $13.60 (the beneficiary
copayment), for a total of $95.
Comment: Several commenters objected that our drug pricing is based
on annual updates using 6-month old data and on ratios of drug
acquisition costs to AWP that derive from outdated and limited data.
Some of these commenters objected to the use of the acquisition cost
study to establish the ratios of drug acquisition costs to AWP. One
commenter asked that CMS clarify why the new system is too complex to
undertake quarterly updates of drug prices.
Response: We are placing the updates for the drugs that are
eligible for pass-through payments on the same annual update schedule
as the rest of the OPPS. We will always use the most recent available
version of the Red Book in doing this update. Assuming that the October
Red Book becomes available in time for use in the final rule
establishing the annual OPPS updates, our drug

[[Page 59896]]

pricing may be based on data that are only 3 months old when it becomes
effective. In any event, it is not unusual for updates to prospective
payment systems to reflect data that are 6 months old or older. We have
always considered the use of the study-derived ratios of drug costs to
AWP to be an interim measure until we are able to obtain data on
hospitals' actual costs for drugs from claims. We anticipate having
this data available for use in setting payment rates for 2003.
Revisions to our payment systems require a long lead-time, and thus it
would be very difficult to implement more than one update in a year. We
note that rate-based payment systems are commonly updated annually, and
we see no compelling reason why the update of drug prices under the
OPPS should be updated more frequently than the other payment rates
under the system.
Comment: Several commenters requested more information about the
methodology that CMS uses to compute payment rates for drugs,
radiopharmaceuticals, and biologicals, particularly those that are not
sole source.
Response: We employ the methodology provided in 42 CFR
Sec. 405.517(c) to determine the payment rates. Specifically, we
compute the median price of each drug, radiopharmaceutical, or
biological, using the median price of the generic versions or the
lowest of the prices of the brand versions from the Red Book. (For
drugs with both generic and brand manufacturers, we use the lower cost
of the two.) For the denominator, we employ measures of dosage and
concentration that are compatible with the HCPCS code descriptor. We
also consider route of administration (for example, intravenous or
perenteral) and dose. As an example, if drug A has a descriptor of 10
mg As the dose, we usually utilize the AWP for 5 mg and 10 mg doses,
but not for 25 mg or 50 mg doses. This is because the latter two doses
could not be administered to provide a 10 mg dose. If drug B has a
descriptor for 25 mg injection and the drug is manufactured in 5 mg per
ml, 25 mg per ml, and 50 mg per ml concentrations, we would utilize the
AWP for the 25 and 50 mg per ml concentrations, but not the 5 mg per ml
concentration. This is because we would not expect a beneficiary to
receive a 5 ml injection, which would be necessary to utilize the
lowest concentration dose to provide 25 mg of the drug at the 5 mg per
ml concentration.
However, we lack precise information for many drugs in the Red Book
concerning the size of vials/ampules and the numbers of vials/ampules
per packaging. In these cases, we are unable to employ this
methodology, and we simply use the list price. We are continuously
seeking further information on these drugs, and we will revise the
pricing as we obtain additional information.
Comment: Several commenters called our attention to instances in
which the Medicare payment is higher than the cost for certain drugs,
especially radiopharmaceuticals.
Response: We thank the commenters for bringing these cases to our
attention. We have experienced some difficulty in determining
appropriate payment rates for radiopharmaceuticals due to several
factors. First, the Red Book lacks information concerning the dosage
per vial after the elements are compounded to create the radioactive
substance, the numbers of doses that can be obtained per vial, and the
cost per vial when more than one dose may be given from the vial.
Nuclear medicine experts have informed us that multiple doses for
multiple patients can often be obtained with one vial and that we have
often unnecessarily assumed the cost for the entire vial. At the same
time, there are circumstances in which an entire vial is appropriately
charged for one patient. We have made the appropriate modifications for
those agents that have been identified to us. We welcome any additional
information that would help us to ensure that payment rates reflect as
accurately as possible the cost and usage of these agents.
Comment: One commenter requested that CMS clarify whether
repackaged products are included in its calculations.
Response: There is no separate calculation for any repackaging
process. We use only AWPs to calculate drugs and biological prices.
Comment: One commenter asked us to clarify how we pay for the
pharmacy overhead costs associated with administering drugs. The
commenter expressed concern that the data in the survey of drug costs
did not capture these costs.
Response: For the drugs paid for under the OPPS, hospitals can bill
both for the drug and for the administration of the drug. The overhead
cost is captured in the administration codes, along with the costs of
all drugs that are not paid for separately. Each time a drug is billed
with an administration code, the total payment thus includes the
acquisition cost for the billed drug, the packaged cost of all other
drugs, and the overhead costs.

F. Definition of Single-Use Devices

Our definition of a device eligible for pass-through payment
includes a criterion whereby eligible devices are used for one patient
only and are single use (65 FR 47674, August 3, 2000). In the November
13, 2000 interim final rule, we stated, in response to a comment, that
additional pass-through payments would not be made for devices that are
reprocessed or reused because they are not single-use items. We further
indicated that hospitals submitting pass-through claims for these
devices might be considered to be engaging in fraudulent billing
practices (65 FR 67822).
In the proposed rule, we discussed issues that have come to our
attention regarding reprocessed single-use devices. We noted that the
FDA published guidance for the reprocessing of single-use devices
(FDA's "Enforcement Priorities for Single-Use Devices Reprocessed by
Third Parties and Hospitals," issued August 14, 2000). This document
presents a phased-in regulatory scheme for reprocessed devices. We
proposed to follow FDA's guidance on reprocessed single-use devices. We
stated that we would consider reprocessed single-use devices that are
otherwise eligible for pass-through payment as part of a category of
devices to be eligible for that payment if they meet FDA's most recent
regulatory criteria on single-use devices. Also, reprocessed devices
must meet any FDA guidance or other regulatory requirements in the
future regarding single use. We proposed to consider reprocessed
devices adhering to these guidelines as having met our criterion of
approval or clearance by the FDA. We have met with and will continue to
meet and coordinate with the FDA concerning that Federal agency's
definition and regulation of single-use devices. We also stated our
expectation that hospital charges on claims submitted for pass-through
payments for reprocessed single-use devices would reflect the lower
cost of these devices.
We received several comments on this proposal, which are summarized
below.
Comment: One commenter expressed agreement with our decision to
allow hospitals to submit claims for pass-through payment for
reprocessed devices, as long as the device is reprocessed in accordance
with FDA policy on reprocessing.
Response: We appreciate the comment. It is important to emphasize
that, in order to qualify for pass-through payment, a reprocessed
device must clearly fit into one of the currently open device
categories established for pass-

[[Page 59897]]

through payment. We also expect that the charges for the reprocessed
device will accurately reflect any lower cost of reprocessed devices.
Comment: One commenter recommended that CMS not expect hospitals to
charge less for reprocessed devices, claiming that paying hospitals
less for reprocessed devices would perpetuate an incentive to use new
devices instead of reprocessed devices.
Response: We disagree. Hospitals would not necessarily have a
greater incentive to use new devices if their charges for reprocessed
devices are in accordance with their costs. If the charges reflect the
lower costs of the reprocessed devices to the hospital, the margins for
reprocessed versus new devices should remain relatively constant. This
would not create an incentive for hospitals to use either new or
reprocessed devices. On the other hand, if hospitals to charge the same
amount for reprocessed and original devices, this would inflate the
margins of pass-through payment for reprocessed devices and create an
incentive to use reprocessed over new devices.
Comment: Several commenters asked that CMS clarify how we will
implement and enforce our pass-through payment policy for reprocessed
single-use devices. A device manufacturer pointed out that Pre-Market
Approval and 510k submissions for approval of reprocessed single-use
devices are still pending with the FDA, awaiting final decisions. These
commenters also asked how CMS would prohibit noncompliant single-use
devices from receiving Medicare payment.
Response: As we indicated in the proposed rule, we will follow the
most recent FDA guidance or regulatory criteria on the issue of
reprocessed single-use devices. When the FDA requires reprocessors,
including hospitals, to have FDA approval or clearance regarding safety
and effectiveness, prior to use in a health setting. Hospitals must
adhere to these requirements, and will not be entitled to receive a
pass-though payment if they do not comply. We will employ our standard
procedures for claims reviews to enforce these requirements.
Comment: One commenter recommended that CMS develop and implement a
tracking mechanism to differentiate and collect data on reprocessed
versus original device costs and use. This commenter also recommended
either creating a modifier or establishing pairs of categories for
original and reprocessed devices.
Response: Reprocessed devices will be subsumed under the same
categories as the original devices, and the average cost for the
category will accurately reflect the cost of reprocessed and new
devices. We do not believe that it is practical or advisable to create
special modifiers or categories for items that will be receiving pass-
though payments for only a limited period of time.
Comment: One commenter recommended that CMS provide hospitals with
guidance on how to adjust their charges for reprocessed devices
eligible for pass-through payment, taking into account the costs of
reprocessing and amortization of the initial cost of the device.
Response: We expect those hospitals' charges for reprocessed
single-use devices will reflect their costs, just as in the case of the
first-use devices. The device's full cost to the hospital is reflected
in the payment the first time it is used for a Medicare patient. The
cost of the reprocessed device to the hospital will already include the
cost of reprocessing. No amortization of the initial cost of the device
will apply for single use devices, since they are intended for one time
use only.

G. Criteria for New Technology APCs

1. Background
In the April 7, 2000 final rule (68 FR 18477), we created a set of
new technology APCs to pay for certain new technology services under
the OPPS. New technology APCs are intended to pay for new technology
services that are not addressed by the transitional pass-through
provisions of the BBRA 1999 and BIPA 2000. New technology APCs are
defined on the basis of costs and not the clinical characteristics of a
service. The payment rate for each new technology APC is based on the
midpoint of a range of costs.
The new technology APCs that were implemented on August 1, 2000
were populated with 11 new technology services. We stated in the April
7, 2000 rule that we will pay for an item or service under a new
technology APC for at least 2 years but no more than 3 years,
consistent with the term of transitional pass-through payments. After
that period of time, during the annual APC update cycle, we stated that
we will move the item or service into the existing APC structure based
on its clinical attributes and, based on claims data, its resource
costs. For a new technology APC, the beneficiary coinsurance is 20
percent of the APC payment rate.
In the April 7, 2000 rule, we specified an application process and
the information that must be supplied for us to consider a request for
payment under the new technology APCs (65 FR 18478). We also described
the five criteria we would use to determine whether a service is
eligible for assignment to a new technology APC group. These criteria,
which we are currently using, are as follows:
The item or service is one that could not have been billed
to the Medicare program in 1996 or, if it was available in 1996, the
costs of the service could not have been adequately represented in 1996
data.
The item or service does not qualify for an additional
payment under the transitional pass-through payments provided for by
section 1833(t)(6) of the Act as a current orphan drug, as a current
cancer therapy drug or biological or brachytherapy, as a current
radiopharmaceutical drug or biological product, or as a new medical
device, drug, or biological.
The item or service has a HCPCS code.
The item or service falls within the scope of Medicare
benefits under section 1832(a) of the Act.
The item or service is determined to be reasonable and
necessary in accordance with section 1862(a)(1)(A) of the Act.
2. Modifications to the Criteria and Process for Assigning Services to
New Technology APCs
Based on the experience we have gained and data we have collected
since publication of the April 7, 2000 final rule, we proposed in the
August 24 proposed rule to revise--(1) the definition of what is
appropriately paid for under the new technology APCs; (2) the criteria
for determining whether a service may be paid under the new technology
APCs; (3) the information that we will require to determine eligibility
for assignment to a new technology APC; and 4) the length of time we
will pay for a service in a new technology APC.
We invited comment on the changes to the definition, criteria,
application process, and timeframe that we proposed for services and
procedures that may qualify for assignment to a new technology APC
under the OPPS. We received numerous comments on the proposed changes,
primarily from drug and device manufacturers and their trade
associations, but also from medical specialty societies and hospital
associations. Although several commenters supported the changes that we
proposed, most commenters expressed concern that the new requirements
might make it extremely difficult or virtually impossible for any new
technology to qualify for

[[Page 59898]]

assignment to a new technology APC. Many commenters urged us to
maintain flexibility in approving services and products for new
technology APCs rather than adhering to rigid criteria. The comments
are summarized below.
a. Services Paid Under New Technology APCs. We proposed to limit
eligibility for placement in new technology APCs to complete services
or procedures. That is, items, materials, supplies, apparatuses,
instruments, implements, or equipment that are used to accomplish a
more comprehensive service or procedure would not be eligible for
placement in a new technology APC. Devices or any drug, biologic,
radiopharmaceutical, product, or commodity for which payment could be
made under the transitional pass-through provisions would continue to
be excluded from assignment to a new technology APC. We proposed to
limit new technology APCs to comprehensive services or procedures that
are truly new. In addition, we clarified that we do not consider a
different approach to an existing treatment or procedure to qualify a
service for assignment to a new technology APC.
A few commenters supported our proposal to limit eligibility to
complete services and procedures, and to exclude changes to an existing
service or procedure from new technology APCs. They cited this approach
as a means of better controlling and managing payment and improving the
predictability of cost estimates for new services or procedures under
the OPPS. However, most commenters were opposed to these proposals. (In
our responses to comments in this section VI.G., we use "HCPCS code"
to mean a Level II HCPCS/National Code and "CPT code" to mean a Level
I HCPCS code.)
Comment: One commenter was concerned that the new criteria for
identifying devices that will be eligible for assignment to a new
technology APC will make it more difficult for new devices to qualify.
Response: The commenter is correct. The changes that we proposed
are intended to clarify, sharpen, and refine the scope of what we
assign and pay for under a new technology APC. We want to clarify that
new technology APCs are not meant to be the payment vehicle for items
that can be paid under a transitional pass-through device category. Nor
are new technology APCs meant to be a means of paying for drugs,
biologicals, or radiopharmaceutical drugs that are otherwise eligible
for transitional pass-through payments. The cost of a device that is
not eligible for transitional pass-through payment and that is not
associated with a comprehensive service or treatment eligible for
assignment to a new technology APC will become incorporated into the
weight of the APC or APCs associated with its use as hospitals begin to
use it. The same is true for other items, supplies, and equipment that
are furnished incident to a service or procedure and are used as a tool
or serve as an aid in performing a variety of procedures.
Comment: A number of commenters were opposed to limiting new
technology APCs to services and procedures that are "truly new"
because what constitutes "truly new" is vague and difficult to define
and does not reflect the significant advances in medical technology
that are incremental and build on existing technology or procedures.
One commenter argued that transformational technology often changes
significantly the way that a procedure is done, for example, changing a
traditionally human resource (for example, labor) or time intensive
procedure to one that is technology intensive. Commenters were
concerned that the requirement that a new technology be "truly new"
could result in lack of adequate payment for important new therapies
and severely limit patient access to such therapies. For example, a new
interventional radiology or other minimally invasive procedure such as
the recent advances in endovascular techniques and device technology
that replace traditional open surgery could be viewed as a "different
approach to an existing treatment" and therefore not qualify for
assignment to a new technology APC. One commenter concluded that this
requirement would limit new technology APCs to inpatient procedures
that move to an outpatient setting or procedures that are fundamentally
different enough to qualify for a new CPT code. Many commenters
recommended that innovation that improves current procedures be
recognized and paid for in addition to "truly new" services. Several
commenters stated that we should publish the definition of "truly
new" in the Federal Register for public comment before implementing
this criterion.
Response: In fact, we do want to limit new technology APCs to those
services that would be eligible for a new HCPCS code. For example,
there are existing codes for wound repair which hospitals have been
using to bill for Medicare services for many years. The use of a new,
expensive instrument for tissue debridement or a new, expensive wound
dressing does not in and of itself warrant creation of a new HCPCS code
to describe the instrument or dressing; rather, the existing wound
repair code appropriately describes the service that is being
furnished, that is, the service is a wound repair, regardless of
whether or not a new instrument or a new wound dressing is involved. We
would consider it inappropriate to pay for the wound repair performed
with the new, expensive dressing or instrument under a new technology
APC because an APC group that includes the wound repair procedure
already exists. (However, we note that the dressing or instrument could
qualify for transitional pass-through payments.) Similarly, the
invention of a new endoscope or new suturing material would not qualify
for a new technology APC unless the procedure in which it is used
cannot be appropriately billed under an existing code.
By contrast, new services such as cryosurgery of the prostate,
coronary artery brachytherapy, and 3-D electrophysiologic mapping of
the heart are not adequately described with current codes, and they do
not fit appropriately within an existing APC group. The new technology
APCs are intended to address appropriate payment for these latter types
of services, which cannot be accurately described by existing codes and
are not similar either clinically or in terms of resource use with an
existing APC group.
We want to ensure appropriate allocation of Medicare expenditures
and access for our beneficiaries to breakthrough technologies. The
appropriate method of reflecting changes in the costs of supplies and
equipment used to provide existing services is to incorporate those
changes into the payment for such services during the yearly
reclassification and recalibration of the APCs. We believe it is
appropriate for those new technologies that can be appropriately
reported by existing codes and do not qualify for transitional pass-
through payments to be grouped with older technologies, and have their
costs gradually incorporated into APCs when APC weights are adjusted.
In summary, the most important criterion that will determine
whether a technology is "truly new" and appropriate for a new
technology APC is the inability to appropriately, and without
redundancy, describe the new, complete (or comprehensive) service with
any combination of existing HCPCS and CPT codes. We acknowledge the
need to critically evaluate, on an ongoing basis, our criteria for new
technology APCs. We remind interested parties that eligibility

[[Page 59899]]

of a procedure for a temporary HCPCS code and assignment to a new
technology APC does not guarantee that a permanent code will ultimately
be approved for the service or procedure. Conversely, the fact that a
new CPT or HCPCS code has been assigned to a service or procedure does
not automatically qualify it for placement in a new technology APC
unless it meets the criteria we have established for this purpose.
Comment: A few commenters indicated that we need to better define
"complete services or procedures" and "a more comprehensive
service" with a clearer explanation of the underlying intent and
examples to clarify when assignment to a new technology APC would be
appropriate and when it would not. A couple of commenters stated that
our proposal to permit only "complete" or "comprehensive" services
or procedures to qualify for assignment to a new technology APC is
contrary to the underlying concepts of the OPPS. These commenters
argued that hospital outpatient departments, in order to provide a
"complete" or "comprehensive" service, are allowed and expected to
bill the appropriate set of CPT and HCPCS codes that combine to
describe a particular service, often resulting in claims with multiple
codes matched to multiple APCs. The same commenters asserted that a new
technology or procedure will likely consist of multiple codes and
multiple APCs and that this can be most effectively evaluated as part
of the data collection during the period that the technology or
procedure is assigned to a new technology APC. One commenter stated
that medical technologies, even when considered transformational, are
not usually "complete services and procedures."
Response: These comments focus on our concept of the type of
services appropriate for assignment to new technology APCs under the
OPPS. A service that qualifies for a new technology APC may be a
complete, stand-alone service (for example, water-induced thermotherapy
of the prostate or cryosurgery of the prostate) or it may be a service
that would always be billed in combination with other services (for
example, coronary artery brachytherapy). In the latter case, the new
technology procedure, even though billed in combination with other,
previously existing procedures, describes a distinct procedure with a
beginning, middle, and end. Drugs, supplies, devices, and equipment in
and of themselves are not a distinct procedure with a beginning,
middle, and end. Rather, drugs, supplies, devices, and equipment are
used in the performance of a procedure. Therefore, taken individually
and apart from the procedure or service with which they are used, these
items will not be eligible for new technology APCs. (As noted above,
these items may qualify for transitional pass-through payments.)
Furthermore, unbundled components that are integral to a service or
procedure (for example, preparing a patient for surgery or preparation
and application of a wound dressing for wound care) are not eligible
for consideration for a new technology APC.
We understand that hospitals frequently bill multiple codes to
describe multiple services furnished to a given patient. Therefore, we
are not making eligibility for new technology APCs contingent on
whether hospitals would bill other HCPCS codes in conjunction with a
proposed new technology procedure. However, we reiterate that the
inability to describe appropriately, and without redundancy, a complete
(or comprehensive) service with any combination of current CPT or HCPCS
codes is crucial to determining eligibility for a new technology APC.
It is possible that a procedure for which assignment to a new
technology APC is sought can only be described by several current codes
and the applicant believes it is important to establish a single HCPCS
code to describe the procedure in a more comprehensive manner (for
example, stereotactic radiosurgery or intensity modulated
radiotherapy). We agree with this and will consider creating such new
HCPCS codes if reporting a combination of current codes does not
adequately describe the service or does not properly account for the
resources used to deliver the comprehensive service.
In short, we consider that a "truly new" service is one that
cannot be appropriately described by existing HCPCS codes and that a
new HCPCS code needs to be established in order to describe the new
procedure.
Claims for services assigned to new technology APCs should include,
in addition to other HCPCS codes billed, the appropriate revenue codes
and charges for the resources required to deliver the service. We
evaluate these data to identify the complete package of resources
required to perform the new technology service, the cost of this
package of services, and, subsequently, the extent to which the new
technology service is, or is not, consistent with services in an
existing APC. If, over time, our claims data indicate that the package
of resources and the clinical components of the new technology are
unique and bear no similarity to services in any existing APC, we may
create a separate APC for the new technology service when it is
reassigned from a new technology APC. Examples of services that are
currently in new technology APCs due to lack of data include water-
induced thermotherapy, coronary artery thrombectomy, and coronary
artery brachytherapy.
Comment: Several commenters stated that we should eliminate the
proposed criteria for defining services eligible for new technology
APCs and suggested, instead, that we be flexible and work closely with
manufacturers, providers, the APC Panel, and other experts "to
consider circumstances unique to the individual technology" when
determining whether a new technology APC is appropriate.
Response: We will continue to work with manufacturers and their
representative associations, with hospitals, with the APC Panel, with
other experts, and with applicants as we evaluate requests for new
technology APC assignments and determine which are appropriate for new
technology APCs. The review of an application for new technology APC
assignment by our medical officers and clinical experts is a dynamic,
interactive process that involves ongoing consultation with the
applicant, with hospitals and physicians who are furnishing the service
or who participated in clinical trials, with the manufacturers of the
new technology, and with other agencies such as the FDA that may have
pertinent information. We believe that the criteria that we proposed
serve to inform, guide, and expedite the review process and help to
guard against inappropriate assignment of services to a new technology
APC simply on the basis of those services being characterized as
"new."
Comment: One commenter recommended that an applicant be the one to
determine whether to seek pass-through payment for a drug used as part
of the service or new technology APC status for the entire service,
including the drug.
Response: We agree. Application for pass-through payment or new
technology APC status is voluntary and the determination of which
application(s) to submit is left solely to the interested party.
However, as part of the review process, we would expect to work with
the applicant to arrive at the most appropriate classification for the
service under consideration.
Comment: Several commenters recommended that we further clarify the
proposed criteria to ensure that all new technologies and services that
do not

[[Page 59900]]

qualify for pass-through status and that would not be adequately paid
under existing APCs can be assigned to new technology APCs. These
commenters also recommended that, when a pass-through category expires,
we consider reclassifying medical devices in the expired category into
a new technology APC to give beneficiaries seamless access to expensive
new medical technology.
Response: As we discussed above, devices eligible for pass-through
payments fall outside the scope of services appropriate for new
technology APCs. As data associated with pass-through items are
collected and incorporated into the APCs with which they are
associated, they will be reflected in the weight of the APC. The
services assigned to the new technology APCs are those for which we do
not have adequate data to make an appropriate APC assignment. Thus, it
would not be appropriate to assign a pass-through device for which we
have collected data to a new technology APC.
b. Criteria for Assignment to New Technology APC. In the proposed
rule, we proposed that the following criteria be used to determine
whether a service be assigned to a new technology APC. These proposals
represent modifications to criteria that are based on changes in data
(we are no longer using 1996 data to set payment rates) and our
continuing experience with the system of assigning new technology APCs.
The service is one that could not have been adequately
represented in the claims data being used for the most current annual
payment update. (Current criterion based on 1996 data.)
The service does not qualify for an additional payment
under the transitional pass-through provisions. (This criterion is
unchanged.)
The service cannot reasonably be placed in an existing APC
group that is appropriate in terms of clinical characteristics and
resource costs. We believe it is unnecessary to assign a new service to
a new technology APC if it may be appropriately placed in a current
APC. (This criterion for assignment to a new technology APC is implied
but not explicitly stated in the April 7, 2000 final rule.)
The service falls within the scope of Medicare benefits
under section 1832(a) of the Act. (This criterion is unchanged.)
The service is determined to be reasonable and necessary
in accordance with section 1862(a)(1)(A) of the Act. (This criterion is
unchanged.)
We further proposed to delete the criterion that the service must
have a HCPCS code in order to be assigned to a new technology APC. We
wish to clarify that our proposal to delete the criterion that a
service must have a HCPCS code refers to the discussion in the April 7,
2000 final rule which implied that assignment of a HCPCS code through
the annual HCPCS cycle is required. On the contrary, as we state
throughout this section, in order to be considered for a new technology
APC, a truly new service cannot be adequately described by existing
codes. Therefore, in the absence of an appropriate HCPCS code, we would
consider creating a HCPCS code that describes the new technology
service. These HCPCS codes would be solely for hospitals to use when
billing under the OPPS.
Most commenters supported the proposal not to require a HCPCS code
for products or services in order to be considered for assignment to a
new technology APC. The few commenters that addressed the proposed
criterion that would define a new technology APC service as one that
could not have been adequately represented in the claims data being
used for the most current annual payment update (rather than on 1996
claims data) concurred with the proposed change; no one opposed the
change. The remaining comments on these proposed criteria are
summarized below.
Comment: One commenter wanted to confirm our intention to assign a
new service or procedure to an existing APC only in those instances
where a clinically similar APC exists and the associated APC payment
rate meets or exceeds the cost of furnishing the new technology service
as itemized in the application for a new technology APC.
Response: Our experience to date in evaluating requests for new
technology APC classification prompted us to propose changes regarding
the information that would be required in an application. One of the
principal reasons that we proposed to require submission of a clinical
vignette, including a detailed description of the resources used to
furnish the service, was to enable us to determine whether a clinically
similar APC exists and whether the APC payment rate adequately
addresses the costs associated with the nominated new technology
service. However, we will not limit our determination of the cost of
the procedure to information submitted by the applicant. Our staff will
obtain information on cost from other appropriate sources before making
a determination of the cost of the procedure to hospitals.
Comment: A number of commenters strongly opposed the criterion
excluding any service involving a new drug or biological that qualifies
for transitional pass-through payment from possible eligibility as a
new technology APC. Commenters stated that continuing to exclude drugs
or biologicals eligible for pass-through payments from being eligible
for a new technology APC seems to suggest that an entirely new service
that includes a new drug would only be eligible for pass-through
payments for the drug, rather than the entire service being eligible
for payment under a new technology APC. Under this criterion, novel
treatments such as those in the growing field of radioimmunotherapy
that involve both a new drug and new procedures for both calculating
appropriate dosages and administering treatment would not be paid as a
new technology APC. Instead, the hospital would be paid for the cost of
the drug through the applicable pass-through payment, which may result
in underpaying hospitals for the total package of items and services
associated with the treatment.
Commenters requested that we clarify that a brand new service in
which a pass-through drug or device is used could be eligible for
either a pass-through payment for the drug or device or for a new
technology APC for the entire service and that we permit a new
technology that includes the provision of a new drug or biological to
be eligible for payments under a new technology APC. A few commenters
recommended that we eliminate this requirement altogether and allow new
medical device technology to be included in new tech APCs.
Response: In the April 7, 2000 final rule we adopted a criterion
that provided that an item or service that qualifies as a transitional
pass-through item would not be considered for assignment to a new
technology APC. We proposed to retain that criterion without
modification. We have never intended new technology APCs to be a
substitute payment vehicle for individual items that qualify for
payment under a transitional pass-through device category. Nor are new
technology APCs meant to be the means of payment for drugs,
biologicals, or radiopharmaceutical drugs that are otherwise eligible
for transitional pass-through payments. From the outset of the OPPS,
our policy regarding payment for devices, drugs, and biologicals that
do not qualify for transitional pass-through payment has been to
package payment with the items' associated APCs, with the exception of
a few drugs for which we had insufficient data.
Many commenters expressed concern and disagreement with this
criterion. We believe the commenters misunderstood our explanation of
this

[[Page 59901]]

criterion. Therefore, we reiterate that we have never intended to
disqualify from assignment to a new technology APC a truly new,
comprehensive service, procedure, or therapy that involves the use of a
drug or device which, on its own, might also qualify for a transitional
pass-through payment. That is, a truly new, comprehensive service could
qualify for assignment to a new technology APC even if it involves a
device or drug that could, on its own, qualify for a pass-through
payment.
Take, for example, a case in which a drug that qualifies for a
pass-through payment is integral to a service that may be considered a
new, comprehensive procedure or service appropriate for a new
technology APC. In this case, an interested party has several options.
The first option is to simply submit a request for the drug pass-
through payment. Under this option, the therapy or procedure or service
associated with administration of the drug would be paid through an
existing APC that most closely approximates the service clinically and
in terms of resources. (In this option, if the new service associated
with the drug can be appropriately described by one or more existing
HCPCS codes, it is possible that the new service might not qualify for
a new technology APC.) A second option would be for the interested
party to apply for a pass-through payment for the drug and submit a
separate application for assignment of the therapy or procedure
associated with administration of the drug to a new technology APC. A
third option is to submit an application to have the entire service,
including the potential pass-through drug, which is an integral part of
the service, assigned to a new technology APC. In that case, the cost
of the drug would be taken into account and packaged with the other
costs associated with the service so that the drug cost is reflected
and accounted for within the new technology APC payment rate for the
service. We believe the third option represents a simple, unburdensome
approach that would ensure timely and appropriate payment in a new
technology APC for a new service that includes administration of a new
drug or biological and that meets the other criteria for a new
technology APC. For both options two and three, we would first consider
whether assigning a new HCPCS code is appropriate and, if it is, we
would then determine whether the new code should be assigned to an
existing APC. If not, we would assign it to a new technology APC.
c. Revision of Application for New Technology Status. In the August
24 proposed rule we proposed to change the information that interested
parties must submit to have a service or procedure considered for
assignment to a new technology APC. Specifically, to be considered, we
proposed to require that requests include the following information:
The name by which the service is most commonly known. We
currently require only the trade/brand name.
A clinical vignette, including patient diagnoses that the
service is intended to treat, the typical patient, and a description of
what resources are used to furnish the service by both the facility and
the physician. For example, for a surgical procedure this would include
staff, operating room, and recovery room services as well as equipment,
supplies, and devices, etc. This criterion would replace the criterion
that requires a detailed description of the clinical application of the
service.
A list of any drugs or devices used as part of the service
that require approval from the Food and Drug Administration (FDA) and
information to document receipt of FDA approval/clearances and the date
obtained.
A description of where the service is currently being
performed (by location) and the approximate number of patients
receiving the service in each location.
An estimate of the number of physicians who are furnishing
the service nationally and the specialties they represent.
Information about the clinical use and efficacy of the
service such as peer-reviewed articles.
The CPT or HCPCS Level II code(s) that are currently being
used to report the service and an explanation of why use of these HCPCS
codes is inadequate to report the service under the OPPS.
A list of the CPT or HCPCS Level II codes for all items
and procedures that are an integral part of the service. This list
should include codes for all procedures and services that, if coded in
addition to the code for the service under consideration for new
technology status, would represent unbundling.
A list of all CPT and HCPCS Level II codes that would
typically be reported in addition to the service.
A proposal for a new HCPCS code, including a descriptor
and rationale for why the descriptor is appropriate. The proposal
should include the reason why the service does not have a CPT or HCPCS
Level II code, and why the CPT or HCPCS Level II code or codes
currently used to describe the service are inadequate.
An itemized list of the costs incurred by a hospital to
furnish the new technology service, including labor, equipment,
supplies, overhead, etc. (This criterion is unchanged.)
The name, address, and telephone number of the party
making the request. (This criterion is unchanged.)
Other information as CMS may require to evaluate specific
requests. (This criterion is unchanged.)
One commenter stated that, on the whole, the proposed changes to
the information that interested parties must submit to have a service
or procedures considered for assignment to a new technology APC seem
reasonable and designed to minimize the need for time-consuming
requests for supplemental information from applicants. Other comments
on the proposed changes are summarized below.
Comment: A few commenters stated that the significant amount of
additional data required to file an application is unnecessarily
burdensome, and, in some cases, may not be available when new products
are launched. In particular, one commenter was concerned that the
information needed to provide a clinical vignette (patient diagnoses
that the service is intended to treat, the typical patient, a
description of resources used to furnish the service such as staff,
equipment, supplies, and similar facility and professional resources)
may not always be available when a new product is launched. The
commenter was also concerned that upcoming implementation of the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) will make
providers reluctant to furnish necessary data to manufacturers. The
need for consent releases and storage retention required by the HIPAA
regulations are added administrative costs that will have to be
incurred. Instead, the commenter recommended that we request a detailed
description of the service which, if possible, includes the resources
used during the procedure.
Response: Our experience with new technology applications has
revealed the critical need for the information on clinical factors and
resource utilization that is described as part of a "clinical
vignette." Without this information, it is difficult to understand
what the nominated service involves in both clinical and resource
terms. We need the fullest possible description of every aspect of the
service to help us understand how it is being furnished in hospitals
and the costs associated with the service. This information is
indispensable in assessing the appropriate payment rate for the

[[Page 59902]]

nominated service. We believe that those seeking to apply for new
technology APC status for a service will have sufficient expertise and
experience with the service to enable them to furnish the full and
detailed description of the service that is required as part of the
clinical vignette. Based on our experience to date in reviewing
applications for new technology APCs, there is strong evidence that
close cooperative working relationships exist among manufacturers,
hospitals, and clinicians who seek to have a service assigned to a new
technology APC. When we have had to ask for additional information of
the type we proposed to require for future applications, this
information has been readily available and promptly supplied.
Comment: One commenter stated that the requirement for "a
description of where the service is currently being performed (by
location) and the approximate number of patients receiving the service
in each location" appears excessive if all that is sought through this
requirement is the identification of medical contacts. A commenter
expressed concern that having to identify all facilities or physicians
performing the procedure would in many cases appear to be
administratively excessive and a potential breach of confidentiality. A
commenter recommended that, if medical contacts are desired, the
requirement should be for the names, contact information and
approximate number of patients treated for a "representative" sample
of facilities and/or physicians performing the procedure or service who
are willing to serve as such contacts.
Response: While this requirement would furnish us with medical
contacts, it also provides us with other significant information. For
example, knowing the locations where the service is being performed and
the approximate number of patients receiving the service provides
insight into the extent to which the service is being performed
(rarely, occasionally, or frequently); the types of hospitals where it
is being performed (small rural or suburban hospitals, large urban
teaching hospitals); and a geographic profile of where the service is
currently available. We believe it is crucial to our evaluation of
nominated procedures that we have a detailed understanding of, among
other things, the indications and contraindications for the procedure,
the current utilization of the procedure, the patient populations for
which the procedure is performed, the types of hospitals where it is
performed, the sites (for example, inpatient hospital, physician
office) and locations (for example, teaching hospitals, community
hospitals) where the procedure is performed. Without such information,
we cannot make an appropriate determination as to whether the procedure
is "truly new". This information, along with information about the
specialties of physicians performing the service, assists our medical
advisors and clinicians in their evaluation of whether or not the
service should be assigned to a new technology APC.
Comment: One commenter wanted assurance that "information about
the clinical use and efficacy of the service such as peer-reviewed
articles' would be referred to the Office of Clinical Standards and
Quality if the intent of this new requirement were to determine whether
the new technology should be "covered."
Response: The purpose of this requirement is to help us better
understand the clinical dimensions of the service. Neither assignment
of one or more new HCPCS code(s) to a procedure or assignment of a
procedure to a new technology APC assures that Medicare will cover the
procedure. In order for a procedure to be covered by Medicare, it must
be determined, either locally, or nationally, that the procedure is
medically reasonable and necessary. Information about how to obtain a
national coverage decision is posted on the CMS website at http://
www.hcfa.gov/coverage. To receive Medicare payment, services must be
considered reasonable and necessary and each use of a service is
subject to medical review for determination of whether its use was
reasonable and necessary.
d. Length of Time in a New Technology APC. We proposed to change
the period of time during which a service may be paid under a new
technology APC. We noted that although section 1833(t)(6)(B) of the
Act, as amended by section 201 of BBRA 1999, sets a 2 to 3 year period
of payment for transitional pass-through payments, this requirement
does not extend to new technology APCs. We proposed to modify the time
frame that we established for new technology APCs in the April 7, 2000
final rule and to retain a service within a new technology APC group
until we have acquired adequate data that allow us to assign the
service to a clinically appropriate APC. This policy would allow us to
move a service from a new technology APC in less than 2 years if
sufficient data were available and would also allow us to retain a
service in a new technology APC for more than 3 years if sufficient
data upon which to base a decision had not been collected.
Comment: One commenter supported eliminating the 2 to 3 year
assignment to a new tech APC, which would give CMS greater flexibility
to base future payment on adequate pricing data that could take less
than 2 or more than 3 years to collect.
Several commenters stated that we should clarify at the time of the
assignment to the new technology APC how the decision will be made to
move it into a permanent APC. Specifically, these commenters indicated
that we should publish the methodology used to reassign services from
new technology APCs into existing APC categories, including how we will
evaluate clinical and cost data to determine whether or not a service
in a new technology APC should be reassigned to an existing APC.
Most commenters supported keeping a procedure in a new technology
APC for a minimum of 2 years of data collection to ensure that an
adequate claims database is available to make appropriate decisions
about ultimate APC assignment, structuring, packaging, and payment.
These commenters noted that limited procedure volume and coding
confusion immediately following market release of a new technology
could limit the amount of useful data that would be available in the
first year.
Response: We agree with commenters that adequate claims data is
more important than completion of a fixed time span for determining
when to reassign a new technology APC service. We expect that,
practically speaking, we will need a full year of available claims
data. We use the same methodology to reassign services from a new
technology APC to an existing APC group, or to a new APC group if that
is indicated, that we use in our annual review of all APC weights and
assignments. That is, we review claims-based charge and utilization
data and the most recent available cost report data. This process may
include consulting the APC Advisory Panel for its recommendations
regarding appropriate APC assignments.
Comment: Several commenters urged us not to reassign new medical
procedures from one new technology APC to another during the yearly
updates to the APC system absent current and complete data. These
commenters asserted that during the period when a new procedure is
assigned to a new technology APC, there may be reasons why claims data
used for the annual updates to the APC system are not representative of
actual hospital experience in providing the service. Therefore, we
should recognize that the reasons that support a multi-

[[Page 59903]]

year assignment to a new technology APC, that is, the need to gather
data, also argue for caution in moving services from one new technology
APC (and payment rate) to another.
Response: In general, we agree that once a device has been assigned
to a new technology APC, it will remain there until we have collected
the data necessary to move it to a clinically appropriate APC. However,
we have on occasion, made an assignment to a new technology APC based
on information that later was found to have been inaccurate. In those
cases, we believe that it is appropriate to move the service to the new
technology APC that better reflects the cost. We note that when we have
made these changes in the past, services were moved to higher-paying
APCs as well as lower-paying APCs.
Comment: One commenter urged that any new criteria that we adopt be
applied prospectively to those applications submitted after the
effective date of the final rules.
Response: Changes in the criteria and application process for
assigning services to a new technology APC will be made prospectively,
effective upon implementation of this final rule.
Comment: Although the new technology APCs and pass-through device
categories were to be updated on a quarterly basis, many applications
have taken much longer to process. CMS should establish a mechanism to
process applications in a timely manner. One commenter suggested
monthly updates.
Response: The volume of applications and changes we have had to
make in the OPPS following enactment of BIPA have combined to stretch
our resources to the maximum. Also, the need to seek additional
information to enable us to complete a thorough and rigorous evaluation
of applications for new technology APC assignments has often caused
delays in making a final determination. We believe the additional
information that we proposed to require in an application for new
technology APC status will assist us in completing our reviews and
making final determinations in a timely manner. CMS and our fiscal
intermediaries' systems constraints preclude making updates more
frequently than quarterly.
Comment: One commenter stated that the amount of information
provided in the proposed rule does not satisfy the requirement of the
Administrative Procedures Act that the public be informed and allowed
to comment on major regulatory changes. The commenter requested full
disclosure of data, methodology and options considered prior to
implementation of the methodology with a suitable time of at least 60
days for public comment. The commenter requested that we retain the
criteria established in the April 2000 final rule but that we eliminate
the need for a HCPCS code.
Response: We believe that our description of the proposed changes
to the criteria and application process for new technology APCs allowed
ample opportunity for substantive comment, and we did receive numerous
substantive comments on the proposed changes. In addition, changes in
the process and information required to apply for new technology APC
status under the OPPS are subject to provisions of the Paperwork
Reduction Act (PRA) of 1995, as further explained in section XII of
this final rule.
Final Action: We are making final the changes we proposed regarding
the definition of what is appropriately paid for under a new technology
APC, the criteria for determining assignment to a new APC, the
information that must be supplied for a request to be considered, and
the period of time during which payment in a new technology APC can be
made. The schedule for submission of applications and the process and
information required for a new technology APC designation is posted on
the CMS website at http://www.hcfa.gov/medlearn.

VII. Transitional Pass-Through Payment Issues Go back

A. Background

Section 1833(t)(6) of the Act provides for temporary additional
payments or "transitional pass-through payments" for certain
innovative medical devices, drugs, and biologicals. As originally
enacted by the BBRA, this provision required 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; current drugs, biologic agents, and brachytherapy devices used for
the treatment of cancer; and current radiopharmaceutical drugs and
biological products. Transitional pass-through payments are also
required for new medical devices, drugs, and biologic agents that were
not being paid for as a hospital outpatient service as of December 31,
1996 and whose cost is "not insignificant" in relation to the OPPS
payment for the procedures or services associated with the new device,
drug, or biological. Under the statute, transitional pass-through
payments are to be made for at least 2 years but not more than 3 years.
Section 402 of BIPA, which was enacted on December 21, 2000, made
several changes to section 1833(t)(6) of the Act. First, section
1833(t)(6)(B)(i) of the Act, as amended, requires us to establish by
April 1, 2001, initial categories to be used for purposes of
determining which medical devices are eligible for transitional pass-
through payments. We fulfilled this requirement through the issuance on
March 22, 2001 of two Program Memoranda, Transmittals A-01-40 and A-01-
41. These Program Memoranda can be found on the CMS homepage at
www.hcfa.gov/pubforms/transmit/A0140.pdf and www.hcfa.gov/pubforms/
transmit/A0141.pdf, respectively. We note that section
1833(t)(6)(B)(i)(II) of the Act explicitly authorizes the Secretary to
establish initial categories by program memorandum.
Transmittal A-01-41 includes a list of the initial device
categories and a crosswalk of all the item-specific C-codes for
individual devices that were approved for transitional pass-through
payments as of January 20, 2001 to the initial category code by which
the device is to be billed beginning April 1, 2001.
Section 1833(t)(6)(B)(ii) of the Act also requires us to establish,
through rulemaking, criteria that will be used to create additional
categories, other than those established initially. On November 2,
2001, we published an interim final rule with comment that established
the criteria for new categories (66 FR 55850).
Transitional pass-through categories are for devices only; they do
not apply to drugs or biologicals. The regulations governing
transitional pass-through payments for eligible drugs and biologicals
remain unchanged. The process to apply for transitional pass-through
payment for eligible drugs and biological agents, including
radiopharmaceuticals, can be found in the April 7, 2000 Federal
Register (65 FR 18481) and on the CMS web site at http://www.hcfa.gov/
medlearn/appdead.htm. If we revise the application instructions in any
way, we will post the revisions on our web site and submit the changes
for the Office of Management and Budget (OMB) review under the
Paperwork Reduction Act. The application process for new categories can
be found on the CMS web site at http://www.hcfa.gov//medicare/
newcatapp1030f.rtf.

B. Discussion of Pro Rata Reduction

Section 1833(t)(6)(E) of the Act limits the total projected amount
of transitional pass-through payments for a given year to an
"applicable percentage" of projected total payments under the
hospital OPPS. For a year before 2004,

[[Page 59904]]

the applicable percentage is 2.5 percent; for 2004 and subsequent
years, the applicable percentage is specified by the Secretary up to
2.0 percent. If the Secretary estimates 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 (prospective) 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.
As discussed above, on November 2, 2001, we published a final rule
that announced the implementation of a pro rata reduction for CY 2002.
That document describes the methodology for estimating pass-through
payments and indicates that we expected the reduction would be between
65 and 70 percent. Based on the final APC weights, which incorporate 75
percent of the estimated device pass-through costs, the final pro rata
reduction is 68.9 percent.

C. Reducing Transitional Pass-Through Payments To Offset Costs Packaged
Into APC Groups

As discussed in the proposed rule, in the November 13, 2000 interim
final rule (65 FR 67806 and 67825), we had excluded costs in revenue
codes 274 (Prosthetic/orthotic devices), 275 (Pacemaker), and 278
(Other implants) from the calculation of APC payment rates. This was
because, before enactment of the BBRA 1999, we had proposed to pay for
implantable devices outside of the OPPS. After the enactment of the
BBRA, it was not feasible to revise our database to include these
revenue codes in developing the April 7, 2000 final rule. We were able
to make the necessary revisions and adjustments in time for
implementation on January 1, 2001. When we packaged costs from these
revenue codes to recalculate APC rates for 2001, to comply with the
BBRA 1999 requirement, the median costs for a handful of procedures
related to pacemakers and neurostimulators significantly increased.
Therefore, we restructured the affected APCs to account for these
changes in procedure level median costs.
Under section 1833(t)(6)(D)(ii) of the Act, as added by the BBRA
1999 and redesignated by BIPA, the amount of additional payment for an
eligible device is the amount by which the hospital's cost exceeds the
portion of the otherwise applicable APC payment amount that the
Secretary determines is associated with the device. Thus, beginning
January 1, 2001, for eligible devices, we deducted from transitional
pass-through payments the dollar increase in the rates for the new APCs
for procedures associated with the devices. Effective April 1, 2001, we
revised our policy to subtract the dollar amount from the otherwise
applicable pass-through payment for each category of device. The dollar
amount subtracted in 2001 from transitional pass-through payments for
affected categories of devices is as follows:

Table 4.--CY 2001 Reductions To Pass-Through Payments to Offset Device-
Related Costs Packaged in Associated APC Groups
------------------------------------------------------------------------
Subtract
from the
pass-
For item billed under HCPCS code. * * * through
payment the
following
amount:
------------------------------------------------------------------------
C1767 Generator, neurostimulator (implantable)............ $643.73
C1778 Lead, neurostimulator (implantable)................. 501.27
C1785 Pacemaker, dual chamber, rate-responsive 2,843.00
(implantable).............................................
C1786 Pacemaker, single chamber, rate-responsive 2,843.00
(implantable).............................................
C1816 Receiver and/or transmitter, neurostimulator 537.83
(implantable).............................................
C2619 Pacemaker, dual chamber, non rate-responsive 2,843.00
(implantable).............................................
C2620 Pacemaker, single chamber, non rate-responsive 2,843.00
(implantable).............................................
------------------------------------------------------------------------

The increase in certain APC rates for device costs on January 1,
2001 was offset by the simultaneous reduction of the associated pass-
through payments. Payments for the procedures in the affected APCs that
did not include a pass-through device increased for 2001 and for
procedures that did include devices, total payment for the procedure
plus the device or devices did not change.
For 2002, we estimated in the proposed rule the portion of each APC
rate that could reasonably be attributed to the cost of associated
devices that are eligible for pass-through payments. This amount will
be deducted from the pass-through payments for those devices as
required by the statute. Since the deductions to the pass-through
payments for costs included in APCs for 2002 are included in the
recalibration of the weights and the "fixed pool" of dollars for
outpatient services, the total payment for the procedure plus device or
devices will be reduced rather than remain constant as they did in
2001.
We described our methodology for calculating these reductions for
the proposed rule. First, we reviewed the APCs to determine which of
them contained services that are associated with a category of devices
eligible for a transitional pass-through payment. We then estimated the
portion of the costs in those APCs that could reasonably be attributed
to the cost of pass-through devices as follows:
For each procedure associated with a pass-through device
or devices, we examined all single-service bills (that is, bills that
include services payable only under one APC) to determine utilization
patterns for specific revenue centers that would reasonably be used for
device-related charges in revenue codes 272 (sterile supplies), 275
(pacemakers), and 278 (other implants).
We removed the costs in those revenue codes to calculate a
cost for the bill net of device-related costs (reduced cost). For
example, the average bill cost (in 1999-2000 dollars) for insertion of
a cardiac pacemaker (CPT 33208) was $5,733. The average cost associated
with revenue code 275 was $4,163, so the reduced cost for the procedure
was $1,570. We calculated the ratio of the reduced cost ($1,570) to the
full bill costs ($5,733), and we applied that ratio to the costs on any
bills for CPT 33208 that did not use revenue code 275 to establish
reduced cost at the procedure code level across all claims.
To determine the reduced cost at the APC level and that
portion of the APC payment rate associated with device costs, we
calculated the median cost of the reduced cost bills for each relevant
APC. For this calculation of the median, we allowed the full costs of
bills for services in the APC that were not associated with pass-
through devices.
We calculated, for the APC, the percentage difference
between the APC median of full cost or unreduced bills and the APC
median where some or all of the bills had reduced costs. We applied
this percent difference to the proposed APC payment rate in order to
calculate the share of that rate attributable to the device or devices
associated with procedures in the APC.
In column 3 of Table 5, we show the amount of the offset that we
have computed with this methodology for each of the 25 APCs that we
determined to have device costs represented in their rates. We note
that the list of 25 APCs with device costs in their rates has changed
slightly since the publication of the proposed rule. Specifically, APC
0185, Removal or Repair of Penile

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