Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment; Ambulatory Surgical Center Payment; Hospital Value-Based Purchasing Program; Physician Self-Referral; and Patient Notification Requirements in Provider Agreements

Summary

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This final rule with comment period revises the Medicare hospital outpatient prospective payment system (OPPS) for CY 2012 to implement applicable statutory requirements and changes arising from our continuing experience with this system. In this final rule with comment period, we describe the changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the OPPS. In addition, this final rule with comment period updates the revised Medicare ambulatory surgical center (ASC) payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system. In this final rule with comment period, we set forth the relative payment weights and payment amounts for services furnished in ASCs, specific HCPCS codes to which these changes apply, and other ratesetting information for the CY 2012 ASC payment system. We are revising the requirements for the Hospital Outpatient Quality Reporting (OQR) Program, adding new requirements for ASC Quality Reporting System, and making additional changes to provisions of the Hospital Inpatient Value-Based Purchasing (VBP) Program. We also are allowing eligible hospitals and CAHs participating in the Medicare Electronic Health Record (EHR) Incentive Program to meet the clinical quality measure reporting requirement of the EHR Incentive Program for payment year 2012 by participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot. Finally, we are making changes to the rules governing the whole hospital and rural provider exceptions to the physician self-referral prohibition for expansion of facility capacity and changes to provider agreement regulations on patient notification requirements.

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Federal Register, Volume 76 Issue 230 (Wednesday, November 30, 2011)

Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)

Rules and Regulations

Pages 74122-74584

From the Federal Register Online via the Government Printing Office www.gpo.gov

FR Doc No: 2011-28612

Page 74121

Vol. 76

Wednesday,

No. 230

November 30, 2011

Part II

Department of Health and Human Services

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Centers for Medicare and Medicaid Services

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42 CFR Parts 410, 411, 416 et al.

Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment; Ambulatory Surgical Center Payment; Hospital Value-Based Purchasing Program; Physician Self-Referral; and Patient Notification Requirements in Provider Agreements; Final Rule

Federal Register / Vol. 76 , No. 230 / Wednesday, November 30, 2011 / Rules and Regulations

Page 74122

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 416, 419, 489, and 495

CMS-1525-FC

RIN 0938-AQ26

Medicare and Medicaid Programs: Hospital Outpatient Prospective Payment; Ambulatory Surgical Center Payment; Hospital Value-Based Purchasing Program; Physician Self-Referral; and Patient Notification Requirements in Provider Agreements

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period revises the Medicare hospital outpatient prospective payment system (OPPS) for CY 2012 to implement applicable statutory requirements and changes arising from our continuing experience with this system. In this final rule with comment period, we describe the changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the OPPS.

In addition, this final rule with comment period updates the revised Medicare ambulatory surgical center (ASC) payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system. In this final rule with comment period, we set forth the relative payment weights and payment amounts for services furnished in ASCs, specific HCPCS codes to which these changes apply, and other ratesetting information for the CY 2012 ASC payment system.

We are revising the requirements for the Hospital Outpatient Quality Reporting (OQR) Program, adding new requirements for ASC Quality Reporting System, and making additional changes to provisions of the Hospital Inpatient Value-Based Purchasing (VBP) Program.

We also are allowing eligible hospitals and CAHs participating in the Medicare Electronic Health Record (EHR) Incentive Program to meet the clinical quality measure reporting requirement of the EHR Incentive Program for payment year 2012 by participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot.

Finally, we are making changes to the rules governing the whole hospital and rural provider exceptions to the physician self-referral prohibition for expansion of facility capacity and changes to provider agreement regulations on patient notification requirements.

DATES: Effective Date: This final rule with comment period is effective on January 1, 2012.

Comment Period: To be assured consideration, comments on the payment classifications assigned to HCPCS codes identified in Addenda B, AA, and BB of this final rule with comment period with the ``NI'' comment indicator and on other areas specified throughout this final rule with comment period, and comments on the suspension of the effective dates of the Hospital-Acquired Condition (HAC), Agency for Healthcare Research and Quality (AHRQ), and Medicare spending per beneficiary measures discussed in section XVI.A.2. of this final rule with comment period, must be received at one of the addresses provided in the ADDRESSES section no later than 5 p.m. EST on January 3, 2012.

Application Deadline--New Class of New Technology Intraocular Lenses: Requests for review of applications for a new class of new technology intraocular lenses must be received by 5 p.m. EST on March 2, 2012, at the following address: ASC/NTOL, Division of Outpatient Care, Mailstop C4-05-17, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

ADDRESSES: In commenting, please refer to file code CMS-1525-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (no duplicates, please):

1. Electronically. You may (and we encourage you to) submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions under the ``submit a comment'' tab.

2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1525-FC, P.O. Box 8013, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1525-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses:

a. For delivery in Washington, DC-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-

in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.

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

If you intend to deliver your comments to the Baltimore address, please call the telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

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

For information on viewing public comments, we refer readers to the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Marjorie Baldo, (410) 786-4617, Hospital outpatient prospective payment issues.

Char Thompson, (410) 786-2300, Ambulatory surgical center issues.

Michele Franklin, (410) 786-4533, and Jana Lindquist, (410) 786-4533, Partial hospitalization and community mental health center issues.

James Poyer, (410) 786-2261, Reporting of Hospital Outpatient Quality Reporting (OQR) and ASC Quality Reporting Program issues.

Teresa Schell, (410) 786-8651, Physician Ownership and Investment in Hospitals issues.

Georganne Kuberski, (410) 786-0799, Patient Notification Requirements issues.

James Poyer, (410) 786-2261, and Ernessa Brawley (410) 786-2075, Hospital Value-Based Purchasing (VBP) Program issues.

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SUPPLEMENTARY INFORMATION:

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

Comments received timely will also be available for public inspection, generally beginning approximately 3 weeks after publication of the rule, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4 p.m. EST. To schedule an appointment to view public comments, phone 1-(800) 743-3951.

Electronic Access

This Federal Register document is also available from the Federal Register online database through Federal Digital System (FDsys), a service of the U.S. Government Printing Office. This database can be accessed via the internet at http://www.gpo.gov/fdsys/.

Addenda Available Only Through the Internet on the CMS Web Site

In the past, a majority of the Addenda referred to throughout the preamble of our OPPS/ASC proposed and final rules were published in the Federal Register as part of the annual rulemakings. However, beginning with the CY 2012 proposed rule, all of the Addenda will no longer appear in the Federal Register as part of the annual OPPS/ASC proposed and final rules to decrease administrative burden and reduce costs associated with publishing lengthy tables. Instead, these Addenda will be published and available only on the CMS Web site. The Addenda relating to the OPPS are available at: http://www.cms.gov/HospitalOutpatientPPS. The Addenda relating to the ASC payment system are available at: http://www.cms.gov/ASCPayment/. For complete details on the availability of the Addenda referenced in this final rule with comment period, we refer readers to section XVII. Readers who experience any problems accessing any of the Addenda that are posted on the CMS Web site identified above should contact Charles Braver at (410) 786-0378.

Alphabetical List of Acronyms Appearing in This Federal Register Document

ACEP American College of Emergency Physicians

AHA American Hospital Association

AHIMA American Health Information Management Association

AHRQ Agency for Healthcare Research and Quality

AMA American Medical Association

AMP Average Manufacturer Price

AOA American Osteopathic Association

APC Ambulatory Payment Classification

ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-

5

ASC Ambulatory Surgical Center

ASP Average Sales Price

AWP Average Wholesale Price

BBA Balanced Budget Act of 1997, Public Law 105-33

BBRA Medicare, Medicaid, and SCHIP State Children's Health Insurance Program Balanced Budget Refinement Act of 1999, Public Law 106-113

BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Public Law 106-554

BLS Bureau of Labor Statistics

CAH Critical Access Hospital

CAP Competitive Acquisition Program

CBSA Core-Based Statistical Area

CCN CMS Certification Number

CCR Cost-to-Charge Ratio

CDC Centers for Disease Control

CERT Comprehensive Error Rate Testing

CLFS Clinical Laboratory Fee Schedule

CMHC Community Mental Health Center

CMS Centers for Medicare & Medicaid Services

CPT Current Procedural Terminology (copyrighted by the American Medical Association)

CQM Clinical Quality Measure

CR Cardiac Rehabilitation

CY Calendar Year

DFO Designated Federal Official

DHS Designated Health Service

DRA Deficit Reduction Act of 2005, Public Law 109-171

DSH Disproportionate Share Hospital

EACH Essential Access Community Hospital

E/M Evaluation and Management

EHR Electronic Health Record

ESRD End-Stage Renal Disease

FACA Federal Advisory Committee Act, Public Law 92-463

FAR Federal Acquisition Regulations

FDA Food and Drug Administration

FFS Fee-for-Service

FSS Federal Supply Schedule

FY Fiscal Year

GAO Government Accountability Office

HAC Hospital-Acquired Condition

HAI Healthcare-Associated Infection

HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems

HCERA Health Care and Education Reconciliation Act of 2010, Public Law 111-152

HCP Healthcare Personnel

HCPCS Healthcare Common Procedure Coding System

HCRIS Hospital Cost Report Information System

HHA Home Health Agency

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

HOPD Hospital Outpatient Department

Hospital OQR Hospital Outpatient Quality Reporting

ICR Intensive Cardiac Rehabilitation

IDE Investigational Device Exemption

IHS Indian Health Service

IQR Inpatient Quality Reporting

I/OCE Integrated Outpatient Code Editor

IOL Intraocular Lens

IPPS Hospital Inpatient Prospective Payment System

MAC Medicare Administrative Contractor

MedPAC Medicare Payment Advisory Commission

MIEA-TRHCA Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief Health Care Act of 2006, Public Law 109-

432

MIPPA Medicare Improvements for Patients and Providers Act of 2008, Public Law 110-275

MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173

MPFS Medicare Physician Fee Schedule

MSA Metropolitan Statistical Area

NCCI National Correct Coding Initiative

NHSN National Healthcare Safety Network

NCD National Coverage Determination

NPP Nonphysician practitioner

NQF National Quality Forum

NTIOL New Technology Intraocular Lens

OIG HHS Office of the Inspector General

OMB Office of Management and Budget

OPD Hospital Outpatient Department

OPPS Hospital Outpatient Prospective Payment System

OQR Outpatient Quality Reporting

PBD Provider-Based Department

PHP Partial Hospitalization Program

PPI Producer Price Index

PPS Prospective Payment System

PR Pulmonary Rehabilitation

PRA Paperwork Reduction Act

QAPI Quality Assessment and Performance Improvement

QIO Quality Improvement Organization

RAC Recovery Audit Contractor

RFA Regulatory Flexibility Act

RHHI Regional Home Health Intermediary

SBA Small Business Administration

SCH Sole Community Hospital

SDP Single Drug Pricer

SI Status Indicator

TEP Technical Expert Panel

TOPs Transitional Outpatient Payments

VBP Value-Based Purchasing

WAC Wholesale Acquisition Cost

In this document, we address two payment systems under the Medicare program: the OPPS and the ASC payment system. In addition, we are making changes to the rules governing limitations on certain physician referrals to hospitals in which

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physicians have an ownership or investment interest, the provider agreement regulations on patient notification requirements, and the rules governing the Hospital Inpatient Value-Based Purchasing (VBP) Program. The provisions relating to the OPPS are included in sections I. through XII., section XIV., and sections XVII. through XXI. of this final rule with comment period. Addenda A, B, C, D1, D2, E, L, M, and N, which relate to the OPPS, are referenced in section XVII. of this final rule with comment period and are available via the Internet on the CMS Web site at the URL indicated in section XVII. The provisions related to the ASC payment system are included in sections XIII., XIV., and XVII. through XXI. of this final rule with comment period. Addenda AA, BB, DD1, DD2, and EE, which relate to the ASC payment system, are referenced in section XVII. of this final rule with comment period and are available via the Internet on the CMS Web site at the URL indicated in section XVII. The provisions relating to physician referrals to hospitals in which physicians have an ownership or investment interest and to the provider agreement regulations on patient notification requirements are included in section XV., and the provisions relating to the Hospital Inpatient VBP Program are included in section XVI. of this final rule with comment period.

Table of Contents

I. Background and Summary of the CY 2012 OPPS/ASC Proposed Rule and This Final Rule With Comment Period

A. Legislative and Regulatory Authority for the Hospital Outpatient Perspective Payment System

B. Excluded OPPS Services and Hospitals

C. Prior Rulemaking

D. Advisory Panel on Ambulatory Payment Classification (APC) Groups

1. Authority of the APC Panel

2. Establishment of the APC Panel

3. APC Panel Meetings and Organizational Structure

E. Summary of the Major Contents of the CY 2012 OPPS/ASC Proposed Rule

1. Updates Affecting OPPS Payments

2. OPPS Ambulatory Payment Classification (APC) Group Policies

3. OPPS Payment for Devices

4. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

5. Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices

6. OPPS Payment for Hospital Outpatient Visits

7. Payment for Partial Hospitalization Services

8. Procedures That Would Be Paid Only as Inpatient Procedures

9. Policies on Supervision Standards for Outpatient Services in Hospitals and CAHs

10. OPPS Payment Status and Comment Indicators

11. OPPS Policy and Payment Recommendations

12. Updates to the Ambulatory Surgical Center (ASC) Payment System

13. Reporting Quality Data for Annual Payment Rate Updates

14. Changes to EHR Incentive Program for Eligible Hospitals and CAHs Regarding Electronic Submission of Clinical Quality Measures (CQMs)

15. Changes to Provisions Relating to Physician Self-Referral Prohibition and Provider Agreement Regulations on Patient Notification Requirements

16. Additional Changes to the Hospital Inpatient VBP Program

17. Economic and Federalism Analyses

F. Public Comments Received in Response to the CY 2012 OPPS/ASC Proposed Rule

G. Public Comments Received on the CY 2011 OPPS/ASC Final Rule With Comment Period

II. Updates Affecting OPPS Payments

A. Recalibration of APC Relative Weights

1. Database Construction

a. Database Source and Methodology

b. Use of Single and Multiple Procedure Claims

c. Calculation and Use of Cost-to-Charge Ratios (CCRs)

2. Data Development Process and Calculation of Median Costs

a. Claims Preparation

b. Splitting Claims and Creation of ``Pseudo'' Single Procedure Claims

(1) Splitting Claims

(2) Creation of ``Pseudo'' Single Procedure Claims

c. Completion of Claim Records and Median Cost Calculations

d. Calculation of Single Procedure APC Criteria-Based Median Costs

(1) Device-Dependent APCs

(2) Blood and Blood Products

(3) Allergy Tests (APCs 0370 and 0381)

(4) Hyperbaric Oxygen Therapy (APC 0659)

(5) Payment for Ancillary Outpatient Services When Patient Expires (APC 0375)

(6) Endovascular Revascularization of the Lower Extremity (APCs 0083, 0229, and 0319)

(7) Non-Congenital Cardiac Catheterization (APC 0080)

(8) Cranial Neurostimulator and Electrodes (APC 0318)

(9) Brachytherapy Sources

e. Calculation of Composite APC Criteria-Based Median Costs

(1) Extended Assessment and Management Composite APCs (APCs 8002 and 8003)

(2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001)

(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC (APC 8000)

(4) Mental Health Services Composite APC (APC 0034)

(5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 8008)

(6) Cardiac Resynchronization Therapy Composite APC (APCs 0108, 0418, 0655, and 8009)

3. Changes to Packaged Services

a. Background

b. Packaging Issues

(1) CMS Presentation of Findings Regarding Expanded Packaging at the February 28-March 1, 2011 and August 10-12, 2011 APC Panel Meetings

(2) Packaging Recommendations of the APC Panel at Its February 28-March 1, 2011 Meeting

(3) Packaging Recommendations of the APC Panel at Its August 2011 Meeting

(4) Other Packaging Proposals and Policies for CY 2012

4. Calculation of OPPS Scaled Payment Weights

B. Conversion Factor Update

C. Wage Index Changes

D. Statewide Average Default CCRs

E. OPPS Payment to Certain Rural and Other Hospitals

1. Hold Harmless Transitional Payment Changes

2. Adjustment for Rural SCHs and EACHs Under Section 1833(t)(13)(B) of the Act

F. OPPS Payments to Certain Cancer Hospitals Described by Section 1886(d)(1)(B)(v) of the Act

1. Background

2. Study of Cancer Hospital Costs Relative to Other Hospitals

3. CY 2011 Proposed Payment Adjustment for Certain Cancer Hospitals

4. Proposed CY 2011 Cancer Hospital Payment Adjustment That Was Not Finalized

5. Payment Adjustment for Certain Cancer Hospitals for CY 2012

G. Hospital Outpatient Outlier Payments

1. Background

2. Proposed Outlier Calculation

3. Final Outlier Calculation

4. Outlier Reconciliation

H. Calculation of an Adjusted Medicare Payment From the National Unadjusted Medicare Payment

I. Beneficiary Copayments

1. Background

2. OPPS Copayment Policy

3. Calculation of an Adjusted Copayment Amount for an APC Group

III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. OPPS Treatment of New CPT and Level II HCPCS Codes

1. Treatment of New Level II HCPCS Codes and Category I CPT Vaccine Codes and Category III CPT Codes for Which We Solicited Public Comments in the CY 2012 Proposed Rule

2. Process for New Level II HCPCS Codes and Category I and Category III CPT Codes for Which We Are Soliciting Public Comments on This CY 2012 OPPS/ASC Final Rule With Comment Period

B. OPPS Changes--Variations Within APCs

1. Background

2. Application of the 2 Times Rule

3. Exceptions to the 2 Times Rule

C. New Technology APCs

1. Background

2. Movement of Procedures From New Technology APCs to Clinical APCs

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D. OPPS APC-Specific Policies

1. Cardiovascular Services

a. Cardiovascular Computed Tomography (CCT) (APCs 0340 and 0383)

b. Cardiac Imaging (APC 377)

c. Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes (APC 0108)

d. Implantable Loop Recorder Monitoring (APC 0690)

e. Echocardiography (APCs 0128, 0269, 0270, and 0697)

2. Gastrointestinal Services

a. Upper Gastrointestinal (GI) Services (APCs 0141, 0419, and 0422)

b. Gastrointestinal Transit and Pressure Measurement (APC 0361)

3. Genitourinary Services

a. Laser Lithotripsy (APC 0163)

b. Percutaneous Renal Cryoablation (APC 0423)

4. Nervous System Services

a. Revision/Removal of Neurotransmitter Electrodes (APCs 0040 and 0687)

b. Magnetoencephalography (MEG) (APCs 0065, 0066, and 0067)

c. Transcranial Magnetic Stimulation Therapy (TMS) (APC 0218)

5. Ocular and Ophthalmic Services

a. Placement of Amniotic Membrane (APCs 0233 and 0244)

b. Insertion of Anterior Segment Aqueous Drainage Device (APC 0673)

c. Scanning Ophthalmic Diagnostic Imaging (APC 0230)

d. Intraocular Laser Endoscopy (APC 0233)

6. Orthopedic and Musculoskeletal Services

a. Percutaneous Laminotomy/Laminectormy (APC 0208)

b. Level II Arthroscopy (APC 0042)

c. Closed Treatment Fracture of Finger, Toe, and Trunk (APCs 0129, 0138, and 0139)

d. Level I and II Strapping and Cast Application (APCs 0058 and 0426)

7. Radiology Services

a. Proton Beam Therapy (APCs 0664 and 0667)

b. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs 0065, 0066, 0067, and 0127)

c. Adrenal Imaging (APC 0408)

d. Positron Emission Tomography (PET) Imaging (APC 0308) (Created From Myocardial Positron Emission Tomography (PET) Imaging (APC 0307) and Nonmyocardial Positron Emission Tomography (PET) Imaging (APC 0308))

e. Device Construction for Intensity Modulated Radiation Therapy (IMRT) (APC 0305)

f. Computed Tomography of Abdomen/Pelvic (APCs 0331 and 0334)

g. Complex Interstitial Radiation Source Application (APC 0651)

h. Radioelement Applications (APC 0312)

8. Respiratory Services

a. Pulmonary Rehabilitation (APC 0102)

b. Bronchial Thermoplasty (APC 0415)

c. Insertion of Bronchial Valve (APC 0415)

9. Other Services

a. Skin Repair (APCs 0133, 0134, and 0135)

b. Nasal Sinus Endoscopy (APC 0075)

c. Bioimpedance Spectroscopy (APC 0097)

d. Autologous Blood Salvage (APC 0345)

IV. OPPS Payment for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices

a. Background

b. CY 2012 Policy

2. Provisions for Reducing Transitional Pass-Through Payments To Offset Costs Packaged Into APC Groups

a. Background

b. CY 2012 Policy

B. Adjustment to OPPS Payment for No Cost/Full Credit and Partial Credit Devices

1. Background

2. APCs and Devices Subject to the Adjustment Policy

V. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

A. OPPS Transitional Pass-Through Payment for Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals

1. Background

2. Drugs and Biologicals With Expiring Pass-Through Status in CY 2011

3. Drugs, Biologicals, and Radiopharmaceuticals With New or Continuing Pass-Through Status in CY 2012

4. Provisions for Reducing Transitional Pass-Through Payments for Diagnostic Radiopharmaceuticals and Contrast Agents To Offset Costs Packaged Into APC Groups

a. Background

b. Payment Offset Policy for Diagnostic Radiopharmaceuticals

c. Payment Offset Policy for Contrast Agents

B. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status

1. Background

2. Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals

a. Background

b. Cost Threshold for Packaging of Payment for HCPCS Codes That Describe Certain Drugs, Nonimplantable Biologicals, and Therapeutic Radiopharmaceuticals (``Threshold-Packaged Drugs'')

c. Packaging Determination for HCPCS Codes That Describe the Same Drug or Biological But Different Dosages

d. Packaging of Payment for Diagnostic Radiopharmaceuticals, Contrast Agents, and Implantable Biologicals (``Policy-Packaged'' Drugs and Devices)

3. Payment for Drugs and Biologicals Without Pass-Through Status That Are Not Packaged

a. Payment for Specified Covered Outpatient Drugs (SCODs) and Other Separately Payable and Packaged Drugs and Biologicals

b. CY 2012 Payment Policy

c. Payment Policy for Therapeutic Radiopharmaceuticals

4. Payment for Blood Clotting Factors

5. Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data

VI. Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices

A. Background

B. Estimate of Pass-Through Spending

VII. OPPS Payment for Hospital Outpatient Visits

A. Background

B. Policies for Hospital Outpatient Visits

1. Clinic Visits: New and Established Patient Visits

2. Emergency Department Visits

3. Visit Reporting Guidelines

VIII. Payment for Partial Hospitalization Services

A. Background

B. PHP APC Update for CY 2012

C. Separate Threshold for Outlier Payments to CMHCs

IX. Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

B. Changes to the Inpatient List

X. Policies for the Supervision of Outpatient Services in Hospitals and CAHs

A. Background

B. Issues Regarding the Supervision of Hospital Outpatient Therapeutic Services Raised by Hospitals and Other Stakeholders

1. Independent Review Process

a. Selection of Review Entity

b. Review Process

c. Evaluation Criteria

2. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories

3. Technical Corrections to the Supervision Standards for Hospital Outpatient Therapeutic Services Furnished in Hospitals or CAHs

C. Summary of CY 2012 Final Policies on Supervision Standards for Outpatient Therapeutic Services in Hospitals and CAHs

1. Independent Review Process

2. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories

3. Technical Corrections

XI. Final CY 2012 OPPS Payment Status and Comment Indicators

A. Final CY 2012 OPPS Payment Status Indicator Definitions

1. Payment Status Indicators To Designate Services That Are Paid Under the OPPS

2. Payment Status Indicators To Designate Services That Are Paid Under a Payment System Other Than the OPPS

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

4. Payment Status Indicators To Designate Services That Are Not Payable by Medicare on Outpatient Claims

B. Final CY 2012 Comment Indicator Definitions

XII. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

B. APC Panel Recommendations

C. OIG Recommendations

XIII. Updates to the Ambulatory Surgical Center (ASC) Payment System

A. Background

1. Legislative Authority for the ASC Payment System

2. Prior Rulemaking

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3. Policies Governing Changes to the Lists of Codes and Payment Rates for ASC Covered Surgical Procedures and Covered Ancillary Services

B. Treatment of New Codes

1. Process for Recognizing New Category I and Category III CPT Codes and Level II HCPCS Codes

2. Treatment of New Level II HCPCS Codes and Category III CPT Codes Implemented in April and July 2011 for Which We Solicited Public Comments in the CY 2012 OPPS/ASC Proposed Rule

3. Process for New Level II HCPCS Codes and Category I and Category III CPT Codes for Which We Are Soliciting Public Comments in This CY 2012 OPPS/ASC Final Rule With Comment Period

C. Update to the Lists of ASC Covered Surgical Procedures and Covered Ancillary Services

1. Covered Surgical Procedures

a. Additions to the List of ASC Covered Surgical Procedures

b. Covered Surgical Procedures Designated as Office-Based

(1) Background

(2) Changes for CY 2012 to Covered Surgical Procedures Designated as Office-Based

c. ASC Covered Surgical Procedures Designated as Device-

Intensive

(1) Background

(2) Changes to List of Covered Surgical Procedures Designated as Device-Intensive for CY 2012

d. ASC Treatment of Surgical Procedures Removed From the OPPS Inpatient List for CY 2012

2. Covered Ancillary Services

D. ASC Payment for Covered Surgical Procedures and Covered Ancillary Services

1. Payment for Covered Surgical Procedures

a. Background

b. Update to ASC-Covered Surgical Procedure Payment Rates for CY 2012

c. Adjustment to ASC Payments for No Cost/Full Credit and Partial Credit Devices

d. Waiver of Coinsurance and Deductible for Certain Preventive Services

e. Payment for the Cardiac Resynchronization Therapy Composite

2. Payment for Covered Ancillary Services

a. Background

b. Payment for Covered Ancillary Services for CY 2012

E. New Technology Intraocular Lenses (NTIOLs)

1. NTIOL Cycle and Evaluation Criteria

2. NTIOL Application Process for Payment Adjustment

3. Requests To Establish New NTIOL Classes for CY 2012

4. Payment Adjustment

5. Announcement of CY 2012 Deadline for Submitting Requests for CMS Review of Appropriateness of ASC Payment for Insertion of an NTIOL Following Cataract Surgery

F. ASC Payment and Comment Indicators

1. Background

2. ASC Payment and Comment Indicators

G. ASC Policy and Payment Recommendations

H. Calculation of the ASC Conversion Factor and the ASC Payment Rates

1. Background

2. Calculation of the ASC Payment Rates

a. Updating the ASC Relative Payment Weights for CY 2012 and Future Years

b. Updating the ASC Conversion Factor

3. Display of CY 2012 ASC Payment Rates

XIV. Hospital Outpatient Quality Reporting Program Updates and ASC Quality Reporting

A. Background

1. Overview

2. Statutory History of Hospital Outpatient Quality Reporting (Hospital OQR) Program

3. Technical Specification Updates and Data Publication

a. Maintenance of Technical Specifications for Quality Measures

b. Publication of Hospital OQR Program Data

B. Revision to Measures Previously Adopted for the Hospital OQR Program for the CY 2013 and CY 2014 Payment Determinations

1. Background

2. Revision to OP-22 Left Without Being Seen

C. New Quality Measures for the CY 2014 and CY 2015 Payment Determinations

1. Considerations in Expanding and Updating Quality Measures Under Hospital OQR Program

2. New Hospital OQR Program Quality Measures for the CY 2014 Payment Determination

a. New National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) Measure for the CY 2014 Payment Determination: Surgical Site Infection (NQF 0299)

b. New Chart-Abstracted Measures for the CY 2014 Payment Determination

c. New Structural Measures

(1) Safe Surgery Checklist Use Measure

(2) Hospital Outpatient Department Volume for Selected Outpatient Surgical Procedures Measure

3. Hospital OQR Program Measures for the CY 2015 Payment Determination

a. Retention of CY 2014 Hospital OQR Measures for the CY 2015 Payment Determination

b. New NHSN HAI Measure for the CY 2015 Payment Determination

D. Possible Quality Measures Under Consideration for Future Inclusion in the Hospital OQR Program

E. Payment Reduction for Hospitals That Fail To Meet the Hospital OQR Requirements for the CY 2012 Payment Update

1. Background

2. Reporting Ratio Application and Associated Adjustment Policy for CY 2012

F. Extraordinary Circumstances Extension or Waiver for CY 2012 and Subsequent Years

G. Requirements for Reporting of Hospital OQR Data for CY 2013 and Subsequent Years

1. Administrative Requirements for CY 2013 and Subsequent Years

2. Form, Manner, and Timing of Data Submission for CY 2013 and Subsequent Years

a. CY 2013 and CY 2014 Data Submission Requirements for Chart-

Abstracted Measure Data Submitted Directly to CMS

b. Eligibility to Voluntarily Sample and Data Submission Exception for Low Patient Volume for CY 2013 and Subsequent Years

c. Population and Sampling Data Requirements Beginning With the CY 2013 Payment Determination and for Subsequent Years

d. Claims-Based Measure Data Requirements for the CY 2013 and CY 2014 Payment Determinations

e. Structural Measure Data Requirements for the CY 2013 and CY 2014 Payment Determinations

f. Data Submission Deadlines for the NHSN HAI Surgical Site Infection Measure for the CY 2014 Payment Determination

g. Data Submission Requirements for OP-22: ED-Patient Left Before Being Seen for the CY 2013 and CY 2014 Payment Determinations

3. Hospital OQR Validation Requirements for Chart-Abstracted Measure Data Submitted Directly to CMS: Data Validation Approach for the CY 2013 Payment Determination

a. Randomly Selected Hospitals

b. Use of Targeting Criteria for Data Validation Selection for CY 2013

(1) Background

(2) Targeting Criteria for Data Validation Selection for CY 2013

c. Encounter Selection

d. Validation Score Calculation

4. Additional Data Validation Conditions Under Consideration for CY 2014 and Subsequent Years

H. Hospital OQR Reconsideration and Appeals Procedures for CY 2013 and Subsequent Years

I. Electronic Health Records (EHRs)

J. 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Hospitals and CAHs

1. Background

2. Electronic Reporting Pilot

3. CQM Reporting Under the Electronic Reporting Pilot

K. ASC Quality Reporting Program

1. Background

2. ASC Quality Reporting Program Measure Selection

a. Timetable for Selecting ASC Quality Measures

b. Considerations in the Selection of Measures for the ASC Quality Reporting Program

3. ASC Quality Measures for the CY 2014 Payment Determination

a. Claims-Based Measures Requiring Submission of Quality Data Codes (QDCs) Beginning January 1, 2012

(1) Patient Burns (NQF 0263)

(2) Patient Falls (NQF 0266)

(3) Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong Implant (NQF 0267)

(4) Hospital Transfer/Admission (NQF 0265)

(5) Prophylactic Intravenous (IV) Antibiotic Timing (NQF 0264)

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(6) Ambulatory Patient With Appropriate Method of Surgical Hair Removal (NQF 0515)

(7) Selection of Prophylactic Antibiotic: First OR Second Generation Cephalosporin (NQF 0268)

b. Surgical Site Infection Rate (NQF 0299)

4. ASC Quality Measures for the CY 2015 Payment Determination

a. Retention of Measures Adopted for the CY 2014 Payment Determination in the CY 2015 Payment Determination

b. Structural Measures for the CY 2015 Payment Determination

(1) Safe Surgery Checklist Use

(2) ASC Facility Volume Data on Selected ASC Surgical Procedures

5. ASC Quality Measures for the CY 2016 Payment Determination

a. Retention of Measures Adopted for the CY 2015 Payment Determination in the CY 2016 Payment Determination

b. HAI Measure: Influenza Vaccination Coverage Among Healthcare Personnel (HCP) (NQF 0431)

6. ASC Measure Topics for Future Consideration

7. Technical Specification Updates and Data Publication for the CY 2014 Payment Determination

a. Maintenance of Technical Specifications for Quality Measures

b. Publication of ASC Quality Reporting Program Data

8. Requirements for Reporting of ASC Quality Data for the CY 2014 Payment Determination

a. Data Collection and Submission Requirements for the Claims-

Based Measures

b. Data Submission Deadlines for the Surgical Site Infection Rate Measure

XV. Changes to Whole Hospital and Rural Provider Exceptions to the Physician Self-Referral Prohibition: Exception for Expansion of Facility Capacity; and Changes to Provider Agreement Regulations on Patient Notification Requirements

A. Background

B. Changes Made by the Affordable Care Act

1. Provisions Relating to Exception to Ownership and Investment Prohibition (Section 6001(a) of the Affordable Care Act)

2. Provisions of Section 6001(a)(3) of the Affordable Care Act

C. Process for Requesting an Exception to the Prohibition on Expansion of Facility Capacity

1. General Comments

2. Applicable Hospital

a. Percentage Increase in Population

b. Inpatient Admissions

c. Nondiscrimination

d. Bed Capacity

e. Bed Occupancy

3. High Medicaid Facility

a. Number of Hospitals in County

b. Inpatient Admissions

c. Nondiscrimination

4. Procedures for Submitting a Request

5. Community Input

6. Permitted Increase

a. Amount of Permitted Increase

b. Location of Permitted Increase

7. Decisions

8. Limitation on Review

9. Frequency of Request

D. Changes Related to Provider Agreement Regulations on Patient Notification Requirements

XVI. Additional Hospital Value-Based Purchasing (Hospital VBP) Program Policies

A. Hospital VBP Program

1. Legislative Background

2. Overview of the Hospital Inpatient VBP Program Final Rule

3. Additional FY 2014 Hospital VBP Program Measures

4. Minimum Number of Cases and Measures for the Outcome Domain for the FY 2014 Hospital VBP Program

a. Background

b. Minimum Number of Cases for Mortality Measures, AHRQ Composite Measures, and HAC Measures

c. Minimum Number of Measures for Outcome Domain

5. Performance Periods and Baseline Periods for FY 2014 Measures

a. Clinical Process of Care Domain and Patient Experience of Care Domain Performance Period and Baseline Period

b. Outcome Domain Performance Periods and Baseline Periods

6. Performance Standards for the FY 2014 Hospital VBP Program

a. Background

b. Mortality Measures

c. Clinical Process of Care and Patient Experience of Care FY 2014 Performance Standards

d. AHRQ Measures

e. HAC Measures

7. FY 2014 Hospital VBP Program Scoring Methodology

a. FY 2014 Domain Scoring Methodology

b. HAC Measures Scoring Methodology

8. Ensuring HAC Reporting Accuracy

9. Domain Weighting for FY 2014 Hospital VBP Program

B. Review and Correction Process Under the Hospital VBP Program

1. Background

2. Review and Correction of Data Submitted to the QIO Clinical Warehouse on Chart-Abstracted Process of Care Measures and Measure Rates

3. Review and Correction Process for Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Data

a. Phase One: Review and Correction of HCAHPS Data Submitted to the QIO Clinical Warehouse

b. Phase Two: Review and Correction of the HCAHPS Scores for the Hospital VBP Program

XVII. Files Available to the Public via the Internet

A. Information in Addenda Related to the Final CY 2012 Hospital OPPS

B. Information in Addenda Related to the Final CY 2012 ASC Payment System

XVIII. Collection of Information Requirements

A. Legislative Requirements for Solicitation of Comments

B. Requirements in Regulation Text

1. ICRs Regarding Basic Commitments of Providers (Sec. 489.20)

2. ICRs Regarding Exceptions Process Related to the Prohibition of Expansion of Facility Capacity (Sec. 411.362)

C. Associated Information Collections Not Specified in Regulatory Text

1. Hospital Outpatient Quality Reporting (Hospital OQR) Program

2. Hospital OQR Program Measures for the CY 2012, CY 2013, CY 2014, and CY 2015 Payment Determinations

a. Previously Adopted Hospital OQR Program Measures for the CY 2012, CY 2013, and CY 2014 Payment Determinations

b. Additional Hospital OQR Program Measures for CY 2014

c. Hospital OQR Program Measures for CY 2015

3. Hospital OQR Program Validation Requirements for CY 2013

4. Hospital OQR Program Reconsideration and Appeals Procedures

5. ASC Quality Reporting Program

6. 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Hospitals and CAHs

7. Additional Topics

XIX. Response to Comments

XX. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction

2. Statement of Need

3. Overall Impacts for OPPS and ASC Provisions

4. Detailed Economic Analyses

a. Effects of OPPS Changes in This Final Rule With Comment Period

(1) Limitations of Our Analysis

(2) Estimated Effects of This Final Rule With Comment Period on Hospitals

(3) Estimated Effects of This Final Rule With Comment Period on CMHCs

(4) Estimated Effect of This Final Rule With Comment Period on Beneficiaries

(5) Effects on Other Providers

(6) Effects on the Medicare and Medicaid Programs

(7) Alternatives Considered

b. Effects of ASC Payment System Changes in This Final Rule With Comment Period

(1) Limitations of Our Analysis

(2) Estimated Effects of This Final Rule With Comment Period on Payments to ASCs

(3) Estimated Effects of This Final Rule With Comment Period on Beneficiaries

(4) Alternatives Considered

c. Accounting Statements and Tables

d. Effects of Requirements for the Hospital Outpatient Quality Reporting (OQR) Program

e. Effects of Changes to Physician Self-Referral Regulations

f. Effects of Changes to Provider Agreement Regulations on Patient Notification Requirements

g. Effects of Additional Hospital VBP Program Requirements

h. Effects of the 2012 Electronic Reporting Pilot

B. Regulatory Flexibility Act (RFA) Analysis

C. Unfunded Mandates Reform Act Analysis

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D. Conclusion

XXI. Federalism Analysis

Regulation Text

I. Background and Summary of the CY 2012 OPPS/ASC Proposed Rule and This Final Rule With Comment Period

A. Legislative and Regulatory Authority for the Hospital Outpatient Prospective Payment System

When Title XVIII of the Social Security Act (the Act) was enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the reasonable cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) added section 1833(t) to the Act authorizing implementation of a PPS for hospital outpatient services. The OPPS was first implemented for services furnished on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR Part 419.

The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) made major changes in the hospital OPPS. The following Acts made additional changes to the OPPS: the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554); the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173); the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171), enacted on February 8, 2006; the Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) (Pub. L. 109-432), enacted on December 20, 2006; the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173), enacted on December 29, 2007; the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), enacted on July 15, 2008; the Patient Protection and Affordable Care Act (Pub. L. 111-

148), enacted on March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010 (These two public laws are collectively known as the Affordable Care Act.); and most recently the Medicare and Medicaid Extenders Act of 2010 (MMEA, Pub. L. 111-309).

Under the OPPS, we pay for hospital outpatient services on a rate-

per-service basis that varies according to the ambulatory payment classification (APC) group to which the service is assigned. We use the Healthcare Common Procedure Coding System (HCPCS) (which includes certain Current Procedural Terminology (CPT) codes) to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this final rule with comment period. Section 1833(t)(1)(B) of the Act provides for payment under the OPPS for hospital outpatient services designated by the Secretary (which includes partial hospitalization services furnished by community mental health centers (CMHCs)) and hospital outpatient services that are furnished to inpatients who have exhausted their Part A benefits, or who are otherwise not in a covered Part A stay.

The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the hospital inpatient wage index value for the locality in which the hospital or CMHC is located.

All services and items within an APC group are comparable clinically and with respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with section 1833(t)(2) of the Act, subject to certain exceptions, items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median cost (or mean cost, if elected by the Secretary) for an item or service in the APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the ``2 times rule''). In implementing this provision, we generally use the median cost of the item or service assigned to an APC group.

For new technology items and services, special payments under the OPPS may be made in one of two ways. Section 1833(t)(6) of the Act provides for temporary additional payments, which we refer to as ``transitional pass-through payments,'' for at least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of other medical devices. For new technology services that are not eligible for transitional pass-through payments, and for which we lack sufficient data to appropriately assign them to a clinical APC group, we have established special APC groups based on costs, which we refer to as New Technology APCs. These New Technology APCs are designated by cost bands which allow us to provide appropriate and consistent payment for designated new procedures that are not yet reflected in our claims data. Similar to pass-through payments, an assignment to a New Technology APC is temporary; that is, we retain a service within a New Technology APC until we acquire sufficient data to assign it to a clinically appropriate APC group.

B. Excluded OPPS Services and Hospitals

Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. It also excludes screening mammography, diagnostic mammography, and effective January 1, 2011, an annual wellness visit providing personalized prevention plan services. The Secretary exercised the authority granted under the statute to also exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the Clinical Laboratory Fee Schedule (CLFS); services for beneficiaries with end-stage renal disease (ESRD) that are paid under the ESRD composite rate; and services and procedures that require an inpatient stay that are paid under the hospital inpatient prospective payment system (IPPS). We set forth the services that are excluded from payment under the OPPS in 42 CFR 419.22 of the regulations.

Under Sec. 419.20(b) of the regulations, we specify the types of hospitals and entities that are excluded from payment under the OPPS. These excluded entities include: Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; critical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service (IHS) hospitals.

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C. Prior Rulemaking

On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was first implemented for services furnished on or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS, not less often than annually, and to revise the groups, relative payment weights, and other adjustments that take into account changes in medical practices, changes in technologies, and the addition of new services, new cost data, and other relevant information and factors.

Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our continuing experience with this system. These rules can be viewed on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/. The CY 2011 OPPS/ASC final rule with comment period appears in the November 24, 2010 Federal Register (75 FR 71800). In that final rule with comment period, we revised the OPPS to update the payment weights and conversion factor for services payable under the CY 2011 OPPS on the basis of claims data from January 1, 2009, through December 31, 2009, and to implement certain provisions of the Affordable Care Act. In addition, we responded to public comments received on the provisions of the CY 2010 final rule with comment period (74 FR 60316) pertaining to the APC assignment of HCPCS codes identified in Addendum B to that rule with the new interim (``NI'') comment indicator, and public comments received on the August 3, 2010 OPPS/ASC proposed rule for CY 2011 (75 FR 46170).

On July 18, 2011, the CY 2012 OPPS/ASC proposed rule appeared in the Federal Register (76 FR 42170). This proposed rule, with a 60-day comment period that ended on August 30, 2011, proposed to revise the Medicare OPPS and the ASC payment system to implement applicable statutory requirements and changes arising from our continuing experience with these systems.

D. Advisory Panel on Ambulatory Payment Classification (APC) Groups

1. Authority of the Advisory Panel on Ambulatory Payment Classification (APC) Groups (the APC Panel)

Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of Public Law 106-113, and redesignated by section 202(a)(2) of Public Law 106-113, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and their weights under the OPPS. The Act further specifies that the panel will act in an advisory capacity. The APC Panel, discussed under section I.D.2. of this final rule, fulfills these requirements. The APC Panel is not restricted to using data compiled by CMS, and it may use data collected or developed by organizations outside the Department in conducting its review.

2. Establishment of the APC Panel

On November 21, 2000, the Secretary signed the initial charter establishing the APC Panel. This expert panel, which may be composed of up to 15 representatives of providers (currently employed full-time, not as consultants, in their respective areas of expertise) subject to the OPPS, reviews clinical data and advises CMS about the clinical integrity of the APC groups and their payment weights. The APC Panel is technical in nature, and it is governed by the provisions of the Federal Advisory Committee Act (FACA). Since its initial chartering, the Secretary has renewed the APC Panel's charter five times: on November 1, 2002; on November 1, 2004; on November 21, 2006; on November 2, 2008 and November 12, 2010. The current charter specifies, among other requirements, that: the APC Panel continues to be technical in nature; is governed by the provisions of the FACA; may convene up to three meetings per year; has a Designated Federal Official (DFO); and is chaired by a Federal Official designated by the Secretary.

The current APC Panel membership and other information pertaining to the APC Panel, including its charter, Federal Register notices, membership, meeting dates, agenda topics, and meeting reports, can be viewed on the CMS Web site at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage.

3. APC Panel Meetings and Organizational Structure

The APC Panel first met on February 27 through March 1, 2001. Since the initial meeting, the APC Panel has held multiple meetings, with the last meeting taking place on August 10-12, 2011. Prior to each meeting, we publish a notice in the Federal Register to announce the meeting and, when necessary, to solicit nominations for APC Panel membership and to announce new members.

The APC Panel has established an operational structure that, in part, currently includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Visits and Observation Subcommittee, and the Subcommittee for APC Groups and Status Indicator (SI) Assignments (previously known as the Packaging Subcommittee).

The Data Subcommittee is responsible for studying the data issues confronting the APC Panel and for recommending options for resolving them. The Visits and Observation Subcommittee reviews and makes recommendations to the APC Panel on all technical issues pertaining to observation services and hospital outpatient visits paid under the OPPS (for example, APC configurations and APC payment weights). The Subcommittee for APC Groups and SI Assignments advises the Panel on the following issues: the appropriate SIs to be assigned to HCPCS codes, including but not limited to whether a HCPCS code or a category of codes should be packaged or separately paid; and the appropriate APCs to be assigned to HCPCS codes regarding services for which separate payment is made.

Each of these subcommittees was established by a majority vote from the full APC Panel during a scheduled APC Panel meeting, and the APC Panel recommended that the subcommittees continue at the August 2011 APC Panel meeting. We accept those recommendations of the APC Panel. All subcommittee recommendations are discussed and voted upon by the full APC Panel.

Discussions of the other recommendations made by the APC Panel at the February/March 2011 and August 2011 APC Panel meetings are included in the sections of this final rule with comment period that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we refer readers to previously published hospital OPPS/ASC proposed and final rules, the CMS Web site mentioned earlier in this section, and the FACA database at: http://fido.gov/facadatabase/public.asp.

E. Summary of the Major Contents of the CY 2012 OPPS/ASC Proposed Rule

In the CY 2012 OPPS/ASC proposed rule that appeared in the Federal Register on July 18, 2011 (76 FR 42170), we set forth proposed changes to the Medicare hospital OPPS for CY 2012 to implement statutory requirements and changes arising from our continuing

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experience with the system. In addition, we set forth proposed changes to the revised Medicare ASC payment system for CY 2012, including proposed updated payment weights, covered surgical procedures, and covered ancillary items and services based on the proposed OPPS update. In addition, we proposed to make changes to the rules governing limitations on certain physician referrals to hospitals in which physicians have an ownership or investment interest, provider agreement regulations on patient notification requirements, and the rules governing the Hospital Inpatient Value-Based Purchasing (VBP) Program.

The following is a summary of the major changes that we proposed to make for CY 2012:

1. Updates Affecting OPPS Payments

In section II. of the proposed rule, we set forth--

The methodology used to recalibrate the proposed APC relative payment weights.

The proposed changes to packaged services.

The proposed update to the conversion factor used to determine payment rates under the OPPS. In this section, we proposed changes in the amounts and factors for calculating the full annual update increase to the conversion factor.

The proposed consideration of adopting a policy that would address situations where IPPS wage index adjustments result in significant fluctuations in the wage index.

The proposed update of statewide average default CCRs.

The proposed application of hold harmless transitional outpatient payments (TOPs) for certain small rural hospitals, extended by section 3121 of the Affordable Care Act.

The proposed payment adjustment for rural SCHs.

The proposed payment adjustment for cancer hospitals.

The proposed calculation of the hospital outpatient outlier payment.

The calculation of the proposed national unadjusted Medicare OPPS payment.

The proposed beneficiary copayments for OPPS services.

2. OPPS Ambulatory Payment Classification (APC) Group Policies

In section III. of the proposed rule, we discussed--

The proposed additions of new HCPCS codes to APCs.

The proposed establishment of a number of new APCs.

Our analyses of Medicare claims data and certain recommendations of the APC Panel.

The application of the 2 times rule and proposed exceptions to it.

The proposed changes to specific APCs.

The proposed movement of procedures from New Technology APCs to clinical APCs.

3. OPPS Payment for Devices

In section IV. of the proposed rule, we discussed the proposed pass-through payment for specific categories of devices and the proposed adjustment for devices furnished at no cost or with partial or full credit.

4. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

In section V. of the proposed rule, we discussed the proposed CY 2012 OPPS payment for drugs, biologicals, and radiopharmaceuticals, including the proposed payment for drugs, biologicals, and radiopharmaceuticals with and without pass-through status.

5. Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices

In section VI. of the proposed rule, we discussed the estimate of CY 2012 OPPS transitional pass-through spending for drugs, biologicals, and devices.

6. OPPS Payment for Hospital Outpatient Visits

In section VII. of the proposed rule, we set forth our proposed policies for the payment of clinic and emergency department visits and critical care services based on claims data.

7. Payment for Partial Hospitalization Services

In section VIII. of the proposed rule, we set forth our proposed payment for partial hospitalization services, including the proposed separate threshold for outlier payments for CMHCs.

8. Procedures That Would Be Paid Only as Inpatient Procedures

In section IX. of the proposed rule, we discussed the procedures that we proposed to remove from the inpatient list and assign to APCs for payment under the OPPS.

9. Policies on Supervision Standards for Outpatient Services in Hospitals and CAHs

In section X. of the proposed rule, we discussed proposed policy changes relating to the supervision of outpatient services furnished in hospitals and CAHs.

10. OPPS Payment Status and Comment Indicators

In section XI. of the proposed rule, we discussed our proposed changes to the definitions of status indicators assigned to APCs and presented our proposed comment indicators.

11. OPPS Policy and Payment Recommendations

In section XII. of the proposed rule, we addressed recommendations made by the Medicare Payment Advisory Commission (MedPAC) in its March 2011 report to Congress, by the Office of Inspector General (OIG), and by the APC Panel regarding the OPPS for CY 2012.

12. Updates to the Ambulatory Surgical Center (ASC) Payment System

In section XIII. of the proposed rule, we discussed the proposed updates of the revised ASC payment system and payment rates for CY 2012.

13. Reporting Quality Data for Annual Payment Rate Updates

In section XIV. of the proposed rule, we discussed the proposed measures for reporting hospital outpatient quality data for the OPD fee schedule increase factor for CY 2013 and subsequent calendar years; set forth the requirements for data collection and submission; and discuss the reduction to the OPPS OPD fee schedule increase factor for hospitals that fail to meet the Hospital OQR Program requirements. We also discussed proposed measures for reporting ASC quality data for the annual payment update factor for CYs 2014, 2015, and 2016; and set forth the requirements for data collection and submission for the annual payment update.

14. Changes to EHR Incentive Program for Eligible Hospitals and CAHs Regarding Electronic Submission of Clinical Quality Measures (CQMs)

In section XIV.J. of the proposed rule, we proposed to allow eligible hospitals and CAHs participating in the Medicare EHR Incentive Program to meet the CQM reporting requirement of the EHR Incentive Program for payment year 2012 by participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot.

15. Changes to Provisions Relating to Physician Self-Referral Prohibition and Provider Agreement Regulations on Patient Notification Requirements

In section XV. of the proposed rule, we presented our proposed exception

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process for expansion of facility capacity under the whole hospital and rural provider exceptions to the physician self-referral law, and proposed changes to the provider agreement regulations on patient notification requirements.

16. Additional Changes Relating to the Hospital Inpatient VBP Program

In section XVI. of the proposed rule, we presented our proposed requirements for the FY 2014 Hospital Inpatient VBP Program.

17. Economic and Federalism Analyses

In sections XX. and XXI. of the proposed rule, we set forth an analysis of the regulatory and federalism impacts that the proposed changes would have on affected entities and beneficiaries.

F. Public Comments Received in Response to the CY 2012 OPPS/ASC Proposed Rule

We received approximately 1,356 timely pieces of correspondence containing multiple comments on the CY 2012 OPPS/ASC proposed rule that appeared in the Federal Register on July 18, 2011. We note that we received some public comments that were outside the scope of the CY 2012 OPPS/ASC proposed rule. Out of scope public comments are not addressed in this CY 2012 OPPS/ASC final rule with comment period. Summaries of the public comments that are within the scope of the proposed rule and our responses are set forth in the various sections of this final rule with comment period under the appropriate headings.

G. Public Comments Received on the CY 2011 OPPS/ASC Final Rule With Comment Period

We received approximately 43 timely pieces of correspondence on the CY 2011 OPPS/ASC final rule with comment period that appeared in the Federal Register on November 24, 2010 (75 FR 71800), some of which contained multiple comments on the interim APC assignments and/or status indicators of HCPCS codes identified with comment indicator ``NI'' in Addendum B to that final rule with comment period. Summaries of those public comments on topics open to comment in the CY 2012 OPPS/

ASC final rule with comment period and our responses to them are set forth in various sections of this final rule with comment period under the appropriate headings.

II. Updates Affecting OPPS Payments

A. Recalibration of APC Relative Weights

1. Database Construction

a. Database Source and Methodology

Section 1833(t)(9)(A) of the Act requires that the Secretary review not less often than annually and revise the relative payment weights for APCs. In the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we explained in detail how we calculated the relative payment weights that were implemented on August 1, 2000 for each APC group.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42179), for the CY 2012 OPPS, we proposed to recalibrate the APC relative payment weights for services furnished on or after January 1, 2012, and before January 1, 2013 (CY 2012), using the same basic methodology that we described in the CY 2011 OPPS/ASC final rule with comment period. That is, we proposed to recalibrate the relative payment weights for each APC based on claims and cost report data for hospital outpatient department (HOPD) services, using the most recent available data to construct a database for calculating APC group weights. Therefore, for the purpose of recalibrating the proposed APC relative payment weights for CY 2012, we used approximately 138 million final action claims (claims for which all disputes and adjustments have been resolved and payment has been made) for hospital outpatient department services furnished on or after January 1, 2010, and before January 1, 2011. For this final rule with comment period, for the purpose of recalibrating the final APC relative payment weights for CY 2012, we used approximately 148 million final action claims (claims for which all disputes and adjustments have been resolved and payment has been made) for hospital outpatient department services furnished on or after January 1, 2010, and before January 1, 2011. (For exact counts of claims used, we refer readers to the claims accounting narrative under supporting documentation for the proposed rule and this final rule with comment period on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/.)

Of the 148 million final action claims for services provided in hospital outpatient settings used to calculate the final CY 2012 OPPS payment rates for this final rule with comment period, approximately 112 million claims were the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 112 million claims, approximately 3 million claims were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost-to-charge ratios (CCRs) or no HCPCS codes reported on the claim). From the remaining approximately 109 million claims, we created approximately 110 million single records, of which approximately 75 million were ``pseudo'' single or ``single session'' claims (created from approximately 25 million multiple procedure claims using the process we discuss later in this section). Approximately 888,000 claims were trimmed out on cost or units in excess of +/-3 standard deviations from the geometric mean, yielding approximately 108 million single bills for median setting. As described in section II.A.2. of this final rule with comment period, our data development process is designed with the goal of using appropriate cost information in setting the APC relative weights. The bypass process is described in section II.A.1.b. of this final rule with comment period. This section discusses how we develop ``pseudo'' single procedure claims (as defined below), with the intention of using more appropriate data from the available claims. In some cases, the bypass process allows us to use some portion of the submitted claim for cost estimation purposes, while the remaining information on the claim continues to be unusable. Consistent with the goal of using appropriate information in our data development process, we only use claims (or portions of each claim) that are appropriate for ratesetting purposes. Ultimately, we were able to use for CY 2012 ratesetting some portion of approximately 94 percent of the CY 2010 claims containing services payable under the OPPS.

The final APC relative weights and payments for CY 2012 in Addenda A and B to this final rule with comment period (which are referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) were calculated using claims from CY 2010 that were processed before July 1, 2011, and continue to be based on the median hospital costs for services in the APC groups. Under the methodology we are adopting in this final rule with comment period, we select claims for services paid under the OPPS and match these claims to the most recent cost report filed by the individual hospitals represented in our claims data.

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We continue to believe that it is appropriate to use the most current full calendar year claims data and the most recently submitted cost reports to calculate the median costs underpinning the APC relative payment weights and the CY 2012 payment rates.

b. Use of Single and Multiple Procedure Claims

For CY 2012, in general, we proposed to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based, with some exceptions as discussed below in this section. We generally use single procedure claims to set the median costs for APCs because we believe that the OPPS relative weights on which payment rates are based should be derived from the costs of furnishing one unit of one procedure and because, in many circumstances, we are unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service.

It is generally desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those claims for multiple procedures. As we have for several years, we proposed to continue to use date of service stratification and a list of codes to be bypassed to convert multiple procedure claims to ``pseudo'' single procedure claims. Through bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases, this enabled us to create multiple ``pseudo'' single procedure claims from claims that were submitted as multiple procedure claims spanning multiple dates of service, or claims that contained numerous separately paid procedures reported on the same date on one claim. We refer to these newly created single procedure claims as ``pseudo'' single procedure claims. The history of our use of a bypass list to generate ``pseudo'' single procedure claims is well documented, most recently in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71811 through 71822). In addition, for CY 2008, we increased packaging and created the first composite APCs. We have continued our packaging policies and the creation of composite APCs for CYs 2009, 2010, and 2011, and we proposed to continue them for CY 2012. Increased packaging and creation of composite APCs also increased the number of bills that we were able to use for median calculation by enabling us to use claims that contained multiple major procedures that previously would not have been usable. Further, for CY 2009, we expanded the composite APC model to one additional clinical area, multiple imaging services (73 FR 68559 through 68569), which also increased the number of bills we were able to use to calculate APC median costs. We have continued the composite APCs for multiple imaging services for CYs 2010 and 2011, and we proposed to continue to create them for CY 2012. We refer readers to section II.A.2.e. of the proposed rule and this final rule with comment period for a discussion of the use of claims to establish median costs for composite APCs.

We proposed to continue to apply these processes to enable us to use as much claims data as possible for ratesetting for the CY 2012 OPPS. This methodology enabled us to create, for the proposed rule, approximately 67 million ``pseudo'' single procedure claims, including multiple imaging composite ``single session'' bills (we refer readers to section II.A.2.e.(5) of the proposed rule for further discussion), to add to the approximately 33 million ``natural'' single procedure claims. For the proposed rule, ``pseudo'' single procedure and ``single session'' procedure bills represented approximately 67 percent of all single procedure bills used to calculate median costs.

For CY 2012, we proposed to bypass 460 HCPCS codes for CY 2012 that were identified in Addendum N to the proposed rule (which is available via the Internet on the CMS Web site). Since the inception of the bypass list, which is the list of codes to be bypassed to convert multiple procedure claims to ``pseudo'' single procedure claims, we have calculated the percent of ``natural'' single bills that contained packaging for each HCPCS code and the amount of packaging on each ``natural'' single bill for each code. Each year, we generally retain the codes on the previous year's bypass list and use the updated year's data (for CY 2012, data available for the February 28-March 1, 2011 APC Panel meeting from CY 2010 claims processed through September 30, 2010, and CY 2009 claims data processed through June 30, 2010, used to model the payment rates for CY 2011) to determine whether it would be appropriate to propose to add additional codes to the previous year's bypass list. For CY 2012, we proposed to continue to bypass all of the HCPCS codes on the CY 2011 OPPS bypass list. We updated HCPCS codes on the CY 2011 bypass list that were mapped to new HCPCS codes for CY 2012 ratesetting by evaluating data for the replacement codes under the empirical criteria described below and also removing the HCPCS codes that we proposed to be deleted for CY 2012, which were listed in Table 1 of the proposed rule. We also proposed to remove HCPCS codes that were not separately paid under the OPPS because the purpose of the bypass list is to obtain more data for those codes relevant to ratesetting. None of these deleted codes were ``overlap bypass codes'' (those HCPCS codes that are both on the bypass list and are members of the multiple imaging composite APCs). We also proposed to add to the bypass list for CY 2012 all HCPCS codes not on the CY 2011 bypass list that, using either the CY 2011 final rule data (CY 2009 claims) or the February 28-March 1, 2011 APC Panel data (first 9 months of CY 2010 claims), met the empirical criteria for the bypass list that are summarized below. The entire list proposed for CY 2012 (including the codes that remain on the bypass list from prior years) was open to public comment. Because we must make some assumptions about packaging in the multiple procedure claims in order to assess a HCPCS code for addition to the bypass list, we assumed that the representation of packaging on ``natural'' single procedure claims for any given code is comparable to packaging for that code in the multiple procedure claims. The proposed criteria for the bypass list were:

There are 100 or more ``natural'' single procedure claims for the code. This number of single procedure claims ensures that observed outcomes are sufficiently representative of packaging that might occur in the multiple claims.

Five percent or fewer of the ``natural'' single procedure claims for the code have packaged costs on that single procedure claim for the code. This criterion results in limiting the amount of packaging being redistributed to the separately payable procedures remaining on the claim after the bypass code is removed and ensures that the costs associated with the bypass code represent the cost of the bypassed service.

The median cost of packaging observed in the ``natural'' single procedure claims is equal to or less than $55. This criterion also limits the amount of error in redistributed costs. During the assessment of claims against the bypass criteria, we do not know the dollar value of the packaged cost that should be appropriately attributed to the other procedures on the claim. Therefore, ensuring that redistributed costs associated with a bypass code are small in amount and volume protects the validity of cost estimates for low

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cost services billed with the bypassed service.

In response to comments to the CY 2010 OPPS/ASC proposed rule requesting that the packaged cost threshold be updated, we considered whether it would be appropriate to update the $50 packaged cost threshold for inflation when examining potential bypass list additions. As discussed in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60328), the real value of this packaged cost threshold criterion has declined due to inflation, making the packaged cost threshold more restrictive over time when considering additions to the bypass list. Therefore, adjusting the threshold by the market basket increase would prevent continuing decline in the threshold's real value. For CY 2011, based on CY 2009 claims data, we proposed to apply the final market basket increase of 3.6 percent published in the CY 2009 OPPS/ASC final rule with comment period (73 FR 26584) to the $50 packaged cost threshold used in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60325). This calculation led us to a proposed packaged cost threshold for bypass list additions for CY 2011 of $50 ($51.80 rounded to $50). We stated that we believe that applying the market basket increase from the year of claims data to the packaged cost threshold, rounded to the nearest $5 increment, would appropriately account for the effects of inflation when considering additions to the bypass list because the market basket increase reflects the extent to which the price of inputs for hospital services is expected to increase compared to the price of inputs for hospital services in the prior year. We proposed for CY 2012, based on the same rationale described for the CY 2011 OPPS/ASC final rule with comment period (75 CFR 71812), to continue to update the packaged cost threshold by the market basket increase. By applying the final CY 2011 market basket increase of 1.85 percent to the prior non-rounded dollar threshold of $51.80 (75 FR 71812), we determined that the threshold increases for CY 2012 to $55 ($52.76 rounded to $55, the nearest $5 increment). Therefore, we proposed to set the median packaged cost threshold on the CY 2010 claims at $55 for a code to be considered for addition to the CY 2012 OPPS bypass list.

The code is not a code for an unlisted service.

In addition, we proposed to continue to include, on the bypass list, HCPCS codes that CMS medical advisors believe have minimal associated packaging based on their clinical assessment of the complete CY 2012 OPPS proposal. Some of these codes were identified by CMS medical advisors and some were identified in prior years by commenters with specialized knowledge of the packaging associated with specific services. We also proposed to continue to include on the bypass list certain HCPCS codes in order to purposefully direct the assignment of packaged costs to a companion code where services always appear together and where there would otherwise be few single procedure claims available for ratesetting. For example, we have previously discussed our reasoning for adding HCPCS code G0390 (Trauma response team associated with hospital critical care service) and the CPT codes for additional hours of drug administration to the bypass list (73 FR 68513 and 71 FR 68117 through 68118).

As a result of the multiple imaging composite APCs that we established in CY 2009, the program logic for creating ``pseudo'' single procedure claims from bypassed codes that are also members of multiple imaging composite APCs changed. When creating the set of ``pseudo'' single procedure claims, claims that contain ``overlap bypass codes'' (those HCPCS codes that are both on the bypass list and are members of the multiple imaging composite APCs) were identified first. These HCPCS codes were then processed to create multiple imaging composite ``single session'' bills, that is, claims containing HCPCS codes from only one imaging family, thus suppressing the initial use of these codes as bypass codes. However, these ``overlap bypass codes'' were retained on the bypass list because, at the end of the ``pseudo'' single processing logic, we reassessed the claims without suppression of the ``overlap bypass codes'' under our longstanding ``pseudo'' single process to determine whether we could convert additional claims to ``pseudo'' single procedure claims. (We refer readers to section II.A.2.b. of the proposed rule and this final rule with comment period for further discussion of the treatment of ``overlap bypass codes.'') This process also created multiple imaging composite ``single session'' bills that could be used for calculating composite APC median costs. ``Overlap bypass codes'' that are members of the proposed multiple imaging composite APCs were identified by asterisks (*) in Addendum N to the proposed rule (which is available via the Internet on the CMS Web site).

Addendum N to the proposed rule included the proposed list of bypass codes for CY 2012. The list of bypass codes contains codes that were reported on claims for services in CY 2010 and, therefore, includes codes that were in effect in 2010 and used for billing but were deleted for CY 2011. We retained these deleted bypass codes on the proposed CY 2012 bypass list because these codes existed in CY 2010 and were covered OPD services in that period, and CY 2010 claims data are used to calculate CY 2012 payment rates. Keeping these deleted bypass codes on the bypass list potentially allowed us to create more ``pseudo'' single procedure claims for ratesetting purposes. ``Overlap bypass codes'' that were members of the proposed multiple imaging composite APCs were identified by asterisks (*) in the third column of Addendum N to the proposed rule. HCPCS codes that we proposed to add for CY 2012 were identified by asterisks (*) in the fourth column of Addendum N.

Comment: One commenter recommended that CMS add CPT code 77332 (Treatment devices, design and construction; simple (simple block, simple bolus)) to the bypass list in order to yield additional claims for ratesetting for composite APC 8001 (LDR Prostate Brachytherapy Composite). The commenter's analysis showed that bypassing the code would yield a significant increase in the number of claims to set the composite rate.

Response: As discussed above, we perform an analysis on the natural single major claims to determine possible additions to the bypass list. In doing so, we apply a set of empirical criteria to identify codes that would be appropriate for addition to the bypass list, based on how well they represent the clinical use of the service as well as the limited packaging impact of bypassing those codes. These criteria are consistent with the goal of using appropriate data for ratesetting. The commenter suggested that bypassing the code would be appropriate because it would yield additional claims without a discussion of the impact of bypassing the code. In the APC Panel 2012 data used to create the bypass list proposal, the code failed to meet the empirical criteria. Of the 134 available natural single major claims, 117 (87 percent) of those claims contained packaging, which exceeds the 5 percent limit for a code to be placed on the bypass list. Additionally, the median cost of packaging on those claims was $200.23, which exceeds the $55 limit for the code to be placed on the bypass list. These data suggest that bypassing the code may potentially and relatively often, distribute packaged costs, where it

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might not be appropriate. For example, where CPT code 77332 is furnished on the day on which a visit was the only other payable service, if CPT code 77332 were on the bypass list, the packaging would be associated with the visit, not with CPT code 77332, because we use the line-item costs for codes on the bypass list without their attendant packaging to establish the median cost for the bypass code. This would inappropriately reduce the median cost for CPT code 77332. While we seek to use as much available information as possible that is available in the OPPS claims data set, we do so with the goal of using appropriate cost information in setting the APC relative weights. In this case, we believe that adding the CPT code 77332 to the bypass list would create considerable risk in assigning packaging that rightfully should be associated with CPT code 77332 to other services. Therefore we are not adding CPT code 77332 to the bypass list for CY 2012.

Comment: One commenter recommended that CMS continue to explore additional methodologies to increase the number of procedure claims used for rate setting, including expanding the criteria for inclusion on the bypass list.

Response: We are always seeking additional methodologies that would enable us to increase the number of procedure claims used for rate setting. However, it is important to us that we ensure that any new methodology or change to current methodology or criteria would not result in costs that are appropriately packaged into a service being inappropriately assigned to another service, as, for example, we believe would be the case if we were to place CPT code 77332 on the bypass list.

After consideration of the public comments we received, we are adopting as final the proposed ``pseudo'' single claims process and the final CY 2012 bypass list of 460 HCPCS codes, as displayed in Addendum N of this final rule with comment period (available via the Internet on the CMS Web site). Table 1 below contains the list of codes that we are removing from the CY 2012 bypass list because these codes were either deleted from the HCPCS before CY 2010 (and therefore were not covered OPD services in CY 2010) or were not separately payable codes under the CY 2012 OPPS because these codes are not used for ratesetting (and therefore would not need to be bypassed). None of these deleted codes were ``overlap bypass'' codes.

GRAPHIC TIFF OMITTED TR30NO11.000

c. Calculation and Use of Cost-to-Charge Ratios (CCRs)

In the CY 2012 OPPS/ASC proposed rule (76 FR 42181), for CY 2012, we proposed to continue to use the hospital-specific overall ancillary and departmental CCRs to convert charges to estimated costs through application of a revenue code-to-cost center crosswalk. To calculate the APC median costs on which the proposed CY 2012 APC payment rates were based, we calculated hospital-specific overall ancillary CCRs and hospital-specific departmental CCRs for each hospital for which we had CY 2010 claims data from the most recent available hospital cost reports, in most cases, cost reports beginning in CY 2009. For the CY 2012 OPPS proposed rates, we used the set of claims processed during CY 2010. We applied the hospital-specific CCR to the hospital's charges at the most detailed level possible, based on a revenue code-to-cost center crosswalk that contains a hierarchy of CCRs used to estimate costs from charges for each revenue code. That crosswalk is available for review and continuous comment on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage.

To ensure the completeness of the revenue code-to-cost center crosswalk, we reviewed changes to the list of revenue codes for CY 2010 (the year of the claims data we used to calculate the proposed CY 2012 OPPS payment rates). For CY 2010, the National Uniform Billing Committee added revenue codes 860 (Magnetoencephalography (MEG); general classification) and 861 (Magnetoencephalography (MEG)). For purposes of applying a CCR to charges reported under revenue codes 860 and 861, we proposed to use nonstandard Medicare cost report cost center 3280 (Electrocardiogram (EKG) and Electroencephalography (EEG)) as the primary cost center and to use standard cost center 5400 (Electroencephalography (EEG)) as the secondary cost center. We believe that MEG, which evaluates brain activity, is

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similar to EEG, which also evaluates brain activity, and that the few hospitals that furnish MEG are likely to furnish it in the same department of the hospital in which they furnish EEG services. Therefore, we believe that the CCRs that we apply to the EEG revenue codes are more likely to result in a more accurate estimated cost for MEG than would the application of the hospital-specific overall ancillary CCR. For hospitals that report charges under revenue code 860 or 861 but do not report costs on their cost report under cost center 3280 or 5400, we proposed to apply the hospital-specific overall CCR to the charges reported under revenue code 860 or 861 for purposes of estimating the cost of these services. We discuss MEG, including the issue of the CCR to be applied to charges for MEG, in section III.D. of this final rule with comment period. We note that revenue codes with effective dates in CY 2011 are not relevant to this process because these new revenue codes were not applicable to claims for services furnished during CY 2010.

In accordance with our longstanding policy, we calculated CCRs for the standard and nonstandard cost centers accepted by the electronic cost report database. In general, the most detailed level at which we calculated CCRs was the hospital-specific departmental level. For a discussion of the hospital-specific overall ancillary CCR calculation, we refer readers to the CY 2007 OPPS/ASC final rule with comment period (71 FR 67983 through 67985). One longstanding exception to this general methodology for calculation of CCRs used for converting charges to costs on each claim is the calculation of median blood costs, as discussed in section II.A.2.d.(2) of the proposed rule and this final rule with comment period and which has been our standard policy since the CY 2005 OPPS.

For the CCR calculation process, we used the same general approach that we used in developing the final APC rates for CY 2007 and thereafter, using the revised CCR calculation that excluded the costs of paramedical education programs and weighted the outpatient charges by the volume of outpatient services furnished by the hospital. We refer readers to the CY 2007 OPPS/ASC final rule with comment period for more information (71 FR 67983 through 67985). We first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2010 before determining whether the CCRs for such hospitals were valid.

We then calculated the CCRs for each cost center and the overall ancillary CCR for each hospital for which we had claims data. We did this using hospital-specific data from the Hospital Cost Report Information System (HCRIS). We used the most recent available cost report data, in most cases, cost reports with cost reporting periods beginning in CY 2009. For the proposed rule, we used the most recently submitted cost reports to calculate the CCRs to be used to calculate median costs for the proposed CY 2012 OPPS payment rates. If the most recent available cost report was submitted but not settled, we looked at the last settled cost report to determine the ratio of submitted to settled cost using the overall ancillary CCR, and we then adjusted the most recent available submitted, but not settled, cost report using that ratio. We then calculated both an overall ancillary CCR and cost center-specific CCRs for each hospital. We used the overall ancillary CCR referenced in section II.A.1.c. of the proposed rule for all purposes that require use of an overall ancillary CCR. We proposed to continue this longstanding methodology for the calculation of median costs for CY 2012.

Since the implementation of the OPPS, some commenters have raised concerns about potential bias in the OPPS cost-based weights due to ``charge compression,'' which is the practice of applying a lower charge markup to higher cost services and a higher charge markup to lower cost services. As a result, the cost-based weights may reflect some aggregation bias, undervaluing high-cost items and overvaluing low-cost items when an estimate of average markup, embodied in a single CCR, is applied to items of widely varying costs in the same cost center.

To explore this issue, in August 2006, we awarded a contract to RTI International (RTI) to study the effects of charge compression in calculating the IPPS cost-based relative weights, particularly with regard to the impact on inpatient diagnosis-related group (DRG) payments, and to consider methods to better capture the variation in cost and charges for individual services when calculating costs for the IPPS relative weights across services in the same cost center. RTI issued a report in March 2007 with its findings on charge compression, which is available on the CMS Web site at: http://www.cms.gov/reports/downloads/Dalton.pdf. Although this report was focused largely on charge compression in the context of the IPPS cost-based relative weights, because several of the findings were relevant to the OPPS, we discussed that report in the CY 2008 OPPS/ASC proposed rule (72 FR 42641 through 42643) and discussed those findings again in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66599 through 66602).

In August 2007, we contracted with RTI to evaluate the cost estimation process for the OPPS relative weights because its 2007 report had concentrated on IPPS DRG cost-based relative weights. The results of RTI's analyses had implications for both the OPPS APC cost-

based relative weights and the IPPS MS-DRG (Medicare severity) cost-

based relative weights. The RTI final report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf. For a complete discussion of the RTI recommendations, public comments, and our responses, we refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68519 through 68527).

We addressed the RTI finding that there was aggregation bias in both the IPPS and the OPPS cost estimation of expensive and inexpensive medical supplies in the FY 2009 IPPS final rule. Specifically, we finalized our proposal for both the OPPS and IPPS to create one cost center for ``Medical Supplies Charged to Patients'' and one cost center for ``Implantable Devices Charged to Patients,'' essentially splitting the then current CCR for ``Medical Supplies and Equipment'' into one CCR for low-cost medical supplies and another CCR for high-cost implantable devices in order to mitigate some of the effects of charge compression. Accordingly, in Transmittal 20 of the Provider Reimbursement Manual, Part II (PRM-II), Chapter 36, Form CMS-2552-96, which was issued in July 2009, we created a new subscripted Line 55.01 on Worksheet A for the ``Implantable Devices Charged to Patients'' cost center. This new subscripted cost center, placed under the standard line for ``Medical Supplies Charged to Patients,'' is available for use for cost reporting periods beginning on or after May 1, 2009. A subscripted cost center is the addition of a separate new cost center line and description which bears a logical relationship to the standard cost center line and is located immediately following a standard cost center line. Subscripting a cost center line adds flexibility and cost center expansion capability to the cost report. For example, Line 55 of Worksheet A on Form CMS 2552-96 (the Medicare hospital cost report) is ``Medical Supplies Charged to Patients.'' The additional cost center, which isolates the costs of ``Implantable Medical Supplies Charged to Patients'', was created by adding subscripted Line

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55.01 to Worksheet A and is defined as capturing the costs and charges billed with the following UB-04 revenue codes: 0275 (Pacemaker); 0276 (Intraocular lens); 0278 (other implants); and 0624 (FDA investigations devices) (73 FR 48458).

In preparation for the FY 2012 IPPS proposed rule and the CY 2012 OPPS proposed rule, we assessed the availability of data in the ``Implantable Devices Charged to Patients'' cost center. In order to develop a robust analysis regarding the use of cost data from the ``Implantable Devices Charged to Patients'' cost center, we believe that it is necessary to have a critical mass of cost reports filed with data in this cost center. The cost center for ``Implantable Devices Charged to Patients'' is effective for cost reporting periods beginning on or after May 1, 2009. We checked the availability of CY 2009 cost reports in the December 31, 2010 quarter ending update of HCRIS, which is the latest upload of CY 2009 cost report data that we could use for the proposed rule. We determined that there were only 437 hospitals that had completed the ``Implantable Devices Charged to Patients'' cost center (out of approximately 3,500 IPPS hospitals). We stated in the proposed rule that we do not believe this is a sufficient amount of data from which to generate a meaningful analysis. Therefore, we did not propose to use data from the ``Implantable Devices Charged to Patients'' cost center to create a distinct CCR for Implantable Devices Charged to Patients for use in calculating the OPPS relative weights for CY 2012. We stated that we would reassess the availability of data for the ``Implantable Devices Charged to Patients'' cost center for the CY 2013 OPPS rulemaking cycle. Because there is approximately a 3-year lag in the availability of cost report data for IPPS and OPPS ratesetting purposes in a given calendar year, we believe we may be able to use data from the revised Medicare hospital cost report form to estimate costs from charges for implantable devices for the CY 2013 OPPS relative weights. For a complete discussion of the rationale for the creation of the new cost center for ``Implantable Devices Charged to Patients,'' public comments, and our responses, we refer readers to the FY 2009 IPPS final rule (73 FR 48458 through 45467).

In the CY 2009 OPPS/ASC final rule with comment period, we indicated that we would be making some other OPPS-specific changes in response to the RTI report recommendations. Specifically, these changes included modifications to the cost reporting software and the addition of three new nonstandard cost centers. With regard to modifying the cost reporting preparation software in order to offer additional descriptions for nonstandard cost centers to improve the accuracy of reporting for nonstandard cost centers, we indicated that the change would be made for the next release of the cost report software. These changes have been made to the cost reporting software with the implementation of CMS Transmittal 21, under Chapter 36 of the PRM-II, available on the CMS Web site at: http://www.cms.gov/Manuals/PBM/, which is effective for cost reporting periods ending on or after October 1, 2009.

We also indicated that we intended to add new nonstandard cost centers for ``Cardiac Rehabilitation,'' ``Hyperbaric Oxygen Therapy,'' and ``Lithotripsy.'' We note that, in January 2010, CMS issued Transmittal 21 which updated the PRM-II, Chapter 36, Form CMS-2552-96. One of the updates in this transmittal established nonstandard cost centers for ``Cardiac Rehabilitation,'' ``Hyperbaric Oxygen Therapy,'' and ``Lithotripsy'' for use on Worksheet A. These three new nonstandard cost centers became available for cost reporting periods ending on or after October 1, 2009, and are included in the revenue code to cost center crosswalk we proposed to use for calculating payment rates for the CY 2012 OPPS (76 FR 42183). Specifically, the nonstandard cost centers are: 3120 (Cardiac Catheterization Laboratory); 3230 (CAT Scan); 3430 (Magnetic Resonance Imaging (MRI)). The revenue code to cost center crosswalk that we proposed to use for purposes of estimating the median costs of items and services for the CY 2012 OPPS is available for review and continuous comment (outside of comment on this final rule with comment period) on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage.

Furthermore, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create new standard cost centers for ``Computed Tomography (CT),'' ``Magnetic Resonance Imaging (MRI),'' and ``Cardiac Catheterization,'' and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS/LTCH PPS and CY 2009 OPPS/ASC proposed and final rules, RTI found that the costs and charges of CT scans, MRI, and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and OPPS relative weights would better estimate the costs of those services if CMS were to add standard costs centers for CT scans, MRI, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more detailed discussion on the reasons for the creation of standard cost centers for CT scans, MRI, and cardiac catheterization.) The new standard cost centers for MRI, CT scans, and cardiac catheterization are effective for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10. CMS issued the new hospital cost report Form CMS-2552-10 on December 30, 2010. The new cost report form can be accessed at the CMS Web site at: https://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021935&intNumPerPage=10. Once at this Web site, users should double click on ``Chapter 40.''

We believe that improved cost report software, the incorporation of new standard and nonstandard cost centers, and the elimination of outdated requirements will improve the accuracy of the cost data contained in the electronic cost report data files and, therefore, the accuracy of our cost estimation processes for the OPPS relative weights. We will continue our standard practice of examining ways in which we can improve the accuracy of our cost estimation processes.

Comment: Commenters requested that CMS reconsider its position to not use the data from the implantable device cost center to calculate the APC relative weights for CY 2012. Commenters noted that in the FY 2012 IPPS proposed rule, CMS found that only 437 hospitals out of approximately 3,500 IPPS hospitals reported data in the ``Implantable Devices Charged to Patients'' cost center of the Medicare hospital cost report based on the December 2010 update of FY 2009 HCRIS. Several commenters said that an analysis by their contractor identified nearly 800 hospitals using the new cost center in the April 2011 HCRIS update and estimated that 1000 hospitals would be using the new cost center by August 2011. Therefore, the commenters believed there is now a sufficient amount of data to use the implantable device CCR to calculate the relative weights and improve the

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accuracy of the payment rates. Commenters also suggested that because the IPPS and OPPS use CCRs calculated at different levels, the analysis of robustness for the new cost center is less significant in the OPPS than in the IPPS, and should not be necessary before adopting the CCRs from the Implantable Device cost center. One commenter suggested that the only justifiable reason to not implement the new CCR would be for issues related to suspect data, and that the limited use of the cost center should not delay implementation of the new Implantable Medical Device cost center CCR. One commenter suggested that, should the available data be deemed insufficient, CMS should provide additional analysis justifying why that data were insufficient, provide data on the representativeness of the hospitals reporting under the implantable medical device cost center and explore other alternatives in addressing charge compression.

Response: In the CY 2012 OPPS/ASC proposed rule, we indicated that we did not have sufficient cost report data to develop the kind of robust analysis that we assured the public we would provide prior to implementing a new CCR for implantable medical devices. Therefore, we stated that we would reassess the availability of data for CY 2013. We have reviewed the availability of FY 2009 cost reports in the June 30, 2011 quarter ending update of HCRIS, which is the latest upload of FY 2009 cost report data that we currently have available. We have determined that, for cost reporting periods beginning on or after May 1, 2009, the effective date of line 55.30 (Implantable Devices Charged to Patients), there were 363 hospitals paid under the OPPS whose claims were used for the calculation of median costs in the CY 2012 OPPS/ASC proposed rule (out of approximately 4,000 OPPS hospitals) that have completed the ``Implantable Devices Charged to Patients'' cost center in the HCRIS data for the quarter ending December 31, 2010. In contrast, we found that there were 1,689 OPPS hospitals that reported costs in the implantable device cost center in the HCRIS data for the quarter ending June 30, 2011, that were used to calculate the median costs that are the basis for the CY 2012 payment rates established in this final rule with public comment period.

We agree that there are differences between the OPPS and IPPS in the calculation of the CCRs and their use in establishing estimated costs. However, we believe that it is important to analyze the CCRs used for calculation of the median costs for procedures that use implantable devices and the impact of changes in these median costs on payments for all services before the new CCRs for implantable devices are adopted. Such analysis is important because it allows the opportunity for the public to provide comment on the impact of the adoption of those CCRs on payment for services that do not use implantable devices. In a budget neutral payment system, payment for services that do not require implantable devices would be reduced as a result of increases in payment for services that use implantable devices. Quarterly HCRIS updates and the commenters themselves indicate that hundreds of hospitals would report cost report data for the new implantable device cost center in the HCRIS data used for this final rule with comment period, although such data was not available for the proposed rule. This would create the possibility that changes to payments for services that include implantable devices that appear in the final rule with comment period could be vastly different from the proposed payments for those services in the CY 2012 proposed rule. Similarly, if we were to use the CCRs for implantable devices in the calculation of the median costs for this final rule with comment period, the public would not have had an opportunity to comment on the impact of their use on payments for services that do not use implantable devices.

We are not finalizing relative payment weights based on the new CCR for implantable devices charged to patients for CY 2012 because we believe that the transition in reporting charges and costs for implantable medical devices from the general medical supplies cost centers to a highly specialized cost center for high cost items means that the final rule relative weights would otherwise be very different from the proposed rule relative weights. In the proposed rule cost report data, 363 hospitals reported approximately $4.9 billion in costs in the implantable medical device cost center in Worksheet A. In the final rule cost report data, 1,689 hospitals reported approximately $20.7 billion in costs in the implantable medical device cost center on Worksheet A. Therefore, it was not possible to calculate proposed payment rates that would reflect the same use of the implantable medical device CCR as would be used for the final rule due to the transition. To the extent that the use of a CCR for implantable medical devices in the final rule might create median costs for services that require high cost implantable medical devices that differ significantly from those we estimated for the proposed rule, the public would not have had an opportunity to comment on the unexpected changes to payments for all other services that would occur as a result of using the CCR for implantable medical devices.

We believe that it is more appropriate to wait until CY 2013, when we expect to provide an impact analysis that enables the public to assess the full impact of the use of the new CCR that is specific to implantable devices on payments for all services. Therefore, we are not using the CCRs that are specific to implantable devices in calculating the APC relative weights for CY 2012.

Comment: Commenters urged CMS to increase education efforts to encourage faster hospital adoption of the use of the implantable medical device cost center. One commenter suggested that more widespread use of the implantable device cost center would improve the validity of payment weights based on those estimated costs.

Response: We agree that it is important that hospitals understand how to accurately report data in the ``Implantable Devices Charged to Patients'' cost center, and we have worked to add more clarity to the cost report instructions. In addition, we also believe that the December 31, 2010 update of HCRIS reflected relatively few entries for this cost center because the corresponding cost center line was only available for use for cost reporting periods beginning on or after May 1, 2009. This timing of this effective date meant that hospital data for this cost center line would not be evident to CMS until the March 31, 2011 HCRIS update. However, this update occurred after the December 31, 2010 HCRIS update we used when we prepared the proposed rule.

Comment: Commenters suggested that CMS monitor the accuracy of the data reported in the implantable device cost center on the Medicare hospital cost report. Commenters urged CMS to impress upon the Medicare Administrative Contractors (MACs) the importance of establishing a mechanism to audit the implantable device cost center to ensure that the costs and charges are appropriately reported. In addition, one commenter suggested that the cost reporting software be modified to create a level 1 error in the case where no data is reported on line 55.30 (Implantable Devices Charged to Patients) to compel hospitals to report that information.

Response: We agree with the commenters that the cost reporting lines, whether they are for implantable devices charged to patients, MRI, CT scans, cardiac catheterization, or any

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others, should be subject to greater audit scrutiny from the Medicare contractors. The new Medicare cost report form CMS-2552-10, on line 121 of Worksheet S-2, Part I, asks ``Did this facility incur and report costs for implantable devices charged to a patient? Enter in column 1 `Y' for yes or `N' for no.'' All hospital types, including non-IPPS hospitals, CAHs, and Maryland inpatient short-term acute hospitals, are required to properly report their costs and charges, and if the answer to this question is ``Y'' for any type of hospital, then line 72, column 26, of Worksheet B, Part I must be greater than 0, with an accurate amount that reflects the hospital's costs for implantable devices charged to patients. In addition, we note that a Level 1 edit on the CMS-2552-10 form already exists that ensures that line 72, column 26, of Worksheet B, Part I (Implantable Devices Charged to Patients on Worksheet A of the CMS-2552-10 form) is greater than 0 if Worksheet S-2, Part I, line 121 is ``Y.'' The edit is also set up for the reverse scenario; that is, if there is an amount on Worksheet B, Part I, line 72, column 26, then the response on Worksheet S-2, Part I, line 121 must be ``Y.'' We do not agree with commenters that a level 1 error should be established to force hospitals to report costs on line 55.30 because it is possible that some hospitals do not provide services for which charges are reported in the revenue codes that correspond to the costs that are to be reported on line 55.30 (for example, psychiatric hospitals).

Comment: One commenter believed that the standard cost centers for Computed Tomography and Magnetic Resonance Imaging would be artificially low due to hospital allocation of capital costs across the hospital rather than to particular cost centers, and suggested that payments based on these CCRs would not accurately reflect the resources used in providing those services. As a result, the commenter recommended that CMS exercise a similar degree of caution as that in the approach for the new ``Implantable Devices Charged to Patients'' cost center CCRs before using any data based on the new CT and MRI cost centers.

Response: We provided background on the creation of the new standard cost centers in the proposed rule and will reassess the availability of data for the ``Implantable Devices Charged to Patients'' cost center, and the ``MRI, CT Scans, and Cardiac Catheterization'' cost centers, for the CY 2013 OPPS rulemaking cycle. If appropriate, we will propose to create distinct CCRs for these cost centers at that time.

Comment: Commenters asked that CMS create a new cost center exclusively for the costs of MEG so that the calculation of the median cost for MEG would more accurately reflect the expense of the equipment, maintenance contract and dedicated staff necessary to furnish the service. Several commenters suggested that cost center 5400 should be the primary cost center assignment and 3280 should be the secondary cost center assignment for revenue codes 0860 (Magnetoencephalography (MEG)--General Classification) and 0861 Magnoetoecnephalography (MEG). This would reverse the current cost center assignments for these revenue codes. Some commenters asked that CMS adopt the non-standard subscripted cost center assignment that one MAC had allowed for its hospitals that furnish MEG.

Response: In the absence of recommendations for use of other existing cost center's CCRs, we continue to believe that for revenue codes 0860 and 0861 nonstandard cost center 3280 ``EKG and EEG'' is an appropriate primary cost center mapping and cost center 5400 ``Electroencephalography'' is an appropriate secondary cost center mapping. We welcome recommendations on more suitable currently existing standard or nonstandard cost center CCRs. We will also discuss the issue with the APC Panel.

With regard to the request to create a new cost center exclusive to the costs of MEG, as we stated in the CY 2011 OPPS/ASC final rule with comment period, we do not believe a new cost center is needed to capture the costs of MEG. Over the past several years, we have either proposed or discussed potential new standard and nonstandard cost centers for the Medicare hospital cost report in our 2008, 2009, 2010, 2011 hospital inpatient and outpatient final rules. All of the potential cost centers that we have discussed for addition to the cost report, whether standard or nonstandard, have demonstrated volume in the electronic hospital cost report data. In its July 2008 report on using cost report data to estimate costs for both the IPPS and OPPS (http://www.rti.org/reports/cms/), RTI International examined the electronic hospital cost report database and recommended new standard and nonstandard cost centers on the basis of reporting volume across hospitals. RTI International typically identified no fewer than 200 institutions reporting a specific service category, such as cardiac catheterization or cardiac rehabilitation, in subscripted or other lines for the new nonstandard and standard cost centers. Historically, our rationale for adding an official nonstandard cost center to the cost report has been at the request of Medicare contractors experiencing a significant volume of requests for a cost center for a specific type of service.

In contrast, the volume of MEG services has been and continues to be extremely low. In the hospital outpatient CY 2010 OPPS claims data, hospitals reported 150 units of MEG spread among the three CPT codes for MEG: 75 units of CPT code 95965 (Magnetoencephalography (MEG), recording and analysis; for spontaneous brain magnetic activity (e.g. epileptic cerebral cortex localization)); 38 units of CPT code 95966 (Magnetoencephalography (MEG), recording and analysis; for spontaneous brain magnetic activity (e.g. epileptic cerebral cortex localization) for evoked magnetic fields, single modality (e.g. sensory, motor, language or visual cortex localization)); and 37 units of CPT code 95967 (Magnetoencephalography (MEG), recording and analysis; for spontaneous brain magnetic activity (e.g. epileptic cerebral cortex localization), for evoked magnetic fields, each additional modality (e.g. sensory, motor language, or visual cortex localization (List separately in addition to code for primary procedure))). This continues the pattern of very low volumes of the total of the 3 MEG codes that have been reported in the outpatient setting since the creation of the codes in CY 2005 (39 units in CY 2005, 75 units in CY 2006, 102 units in CY 2007, 75 units in 2008, 131 units in 2009, and 150 units in CY 2010). Therefore, we continue to believe that a specific cost center is not appropriate for MEG, given the longstanding low volume of this service.

For a discussion of the APC Panel recommendation on the final payment policy for MEG, we refer readers to section III.D. of this final rule with comment period.

Comment: Commenters requested that CMS outline a method by which more discrete cost center lines could be requested for capital-

expensive services having their own NUBC revenue codes.

Response: The process by which a hospital may request permission to use a subscripted line on a cost report is found in the Provider Reimbursement Manual, Part II (PRM-II), Chapter 40. Contractor approval is not necessary to subscript lines on the cost report for use in reporting nonstandard cost centers, as long as hospitals follow the Medicare guidelines in the PRM. However, as discussed above with regard to creation of national cost centers, we have either

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proposed or discussed potential new standard and nonstandard cost centers for the Medicare hospital cost report in cases where doing so would provide more accurate information that would justify the resources and costs associated with doing so. For example, we have proposed and finalized nonstandard cost centers such as those for Cardiac Rehabilitation, Hyperbaric Oxygen Therapy, and Lithotripsy (74 FR 60344) as well as standard cost centers for Implantable Medical Devices Charged to Patients, Cardiac Catheterization, Computed Tomography, and Magnetic Resonance Imaging through the annual rulemaking process.

Comment: Several commenters requested that CMS modify the revenue code-to-cost center crosswalk to include data on the number of providers billing using each revenue code in the claims data whose cost reports contain the associated cost center under each mapping.

Response: All of the data that are required to perform this analysis is available to the public. The HCRIS data, which include information from the hospital cost reports, are available on the CMS Web site at http://www.cms.gov/CostReports/CostReportsFY/list.asp#TopOfPage, while our CMS Web site, http://www.cms.gov/HospitalOutpatientPPS, includes information about purchasing the ``OPPS Limited Data Set''. The HCRIS data can be used to extract the cost center information the commenters request while the claims data in the OPPS Limited Data Set include the revenue codes and HCPCS on the claims billed by each OPPS provider.

2. Data Development Process and Calculation of Median Costs

In this section of this final rule with comment period, we discuss the use of claims to calculate OPPS payment rates for CY 2012. The hospital OPPS page on the CMS Web site on which this final rule with comment period is posted provides an accounting of claims used in the development of the final payment rates at: http://www.cms.gov/HospitalOutpatientPPS. The accounting of claims used in the development of this final rule with comment period is included on the CMS Web site under supplemental materials for this CY 2012 OPPS/ASC final rule with comment period. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, below in this section we discuss the file of claims that comprises the data set that is available for purchase under a CMS data use agreement. Our CMS Web site, http://www.cms.gov/HospitalOutpatientPPS, includes information about purchasing the ``OPPS Limited Data Set,'' which now includes the additional variables previously available only in the OPPS Identifiable Data Set, including ICD-9-CM diagnosis codes and revenue code payment amounts. This file is derived from the CY 2010 claims that were used to calculate the proposed and final payment rates for the CY 2012 OPPS.

We used the methodology described in sections II.A.2.a. through II.A.2.e. of this final rule with comment period to calculate the median costs we use to establish the relative weights used in calculating the OPPS payment rates for CY 2012 shown in Addenda A and B to the this rule with comment period (which are available via the Internet on the CMS Web site). We refer readers to section II.A.4. of the proposed rule and this final rule with comment period for a discussion of the conversion of APC median costs to scaled payment weights.

Comment: Commenters expressed concern with respect to the volatility of the OPPS payment rates from year to year. One commenter suggested a ``stability policy'' that the median costs from claims be adjusted to limit changes from year to year and asked that CMS limit any decreases in payment compared to the prior year to no more than a 5-percent decline.

Response: As previously discussed in the CY 2011 OPPS/ASC final rule with comment period (FR 75 71833), there are a number of factors that contribute to median costs fluctuations from one year to the next including (but not limited to) hospital behavior in adjusting mix of services, hospital costs and charges changes each year resulting in changes to the CCRs, reassignments of HCPCS codes, changes to OPPS payment policy (for example, changes to packaging), and implementation of composite APCs. We cannot stabilize hospital-driven fundamental inputs to the calculation of OPPS payment rates. However, we have strived to resolve some of the other potential reasons for instability from year to year. Specifically, we continue to seek ways to use more claims data so that we have fewer APCs for which there are small numbers of single bills used to set the APC median costs. Moreover, we have tried to eliminate APCs with very small numbers of single bills where we could do so. We recognize that changes to payment policies, such as the packaging of payment for ancillary and supportive services and the implementation of composite APCs, may contribute to volatility in payment rates in the short term. However, we believe that larger payment packages and bundles should help to stabilize payments in the long term by enabling us to use more claims data and by establishing payments for larger groups of services. Further, in seeking to mitigate fluctuations in the OPPS, implementing such a system would make payments less reflective of the true service costs. Limiting decreases to payments across all APCs in a budget neutral payment system could unfairly reduce the payments for other services due to the effects of the scaling that is necessary to maintain budget neutrality and would distort the relativity of payment that is based on the cost of all services.

Comment: Several commenters expressed concerns over the payment reductions for device-dependent APCs, blood and blood products, multiple imaging composites, and packaged services citing impact to beneficiary access to necessary procedures and patient safety. The commenters were also concerned that payments do not accurately reflect the costs of providing the procedures.

Response: We discuss the public comments we received on the payment for particular services throughout this final rule with comment period. However, in general, we believe that our methodology for calculating the payments made for services furnished in hospital outpatient departments comports with the statutory requirements and results in payments that reflect the relative cost of these services within the statutory constraints of a budget neutral system. Indeed, our data show significant increase in payment as a percentage of cost since the inception of the OPPS.

a. Claims Preparation

For this final rule with comment period, we used the CY 2010 hospital outpatient claims processed before July 1, 2011, to calculate the median costs of APCs that underpin the relative weights for CY 2012. To begin the calculation of the relative weights for CY 2012, we pulled all claims for outpatient services furnished in CY 2010 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, critical access hospital (CAH) claims and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital).

We then excluded claims with condition codes 04, 20, 21, and 77 because these are claims that providers submitted to Medicare knowing that no payment would be made. For example,

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providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands because hospitals in those geographic areas are not paid under the OPPS, and, therefore, we do not use claims for services furnished in these areas in ratesetting.

We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 112 million claims that contain hospital bill types paid under the OPPS.

1. Claims that were not bill types 12X (Hospital Inpatient (Medicare Part B only)), 13X (Hospital Outpatient), 14x (Hospital--

Laboratory Services Provided to Nonpatients), or 76X (Clinic--Community Mental Health Center). Other bill types are not paid under the OPPS; therefore, these claims were not used to set OPPS payment.

2. Claims that were bill types 12X, 13X or 14X. Claims with bill types 12X and 13X are hospital outpatient claims. Claims with bill type 14X are laboratory specimen claims, of which we use a subset for the limited number of services in these claims that are paid under the OPPS.

3. Claims that were bill type 76X (CMHC).

To convert charges on the claims to estimated cost, we multiplied the charges on each claim by the appropriate hospital-specific CCR associated with the revenue code for the charge as discussed in section II.A.1.c. of this final rule with comment period. We then flagged and excluded CAH claims (which are not paid under the OPPS) and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all-inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than 0.0001); and those from hospitals with overall ancillary CCRs that were identified as outliers (that exceeded +/-3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center (that is, departmental) level by removing the CCRs for each cost center as outliers if they exceeded +/- 3 standard deviations from the geometric mean. We used a four-tiered hierarchy of cost center CCRs, which is the revenue code-to-cost center crosswalk, to match a cost center to every possible revenue code appearing in the outpatient claims that is relevant to OPPS services, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's cost center CCR was deleted by trimming, we set the CCR for that cost center to ``missing'' so that another cost center CCR in the revenue center hierarchy could apply. If no other cost center CCR could apply to the revenue code on the claim, we used the hospital's overall ancillary CCR for the revenue code in question as the default CCR. For example, if a visit was reported under the clinic revenue code but the hospital did not have a clinic cost center, we mapped the hospital-specific overall ancillary CCR to the clinic revenue code. The revenue code-to-cost center crosswalk is available for inspection and comment on the CMS Web site: http://www.cms.gov/HospitalOutpatientPPS. Revenue codes that we do not use to set medians or to model impacts are identified with an ``N'' in the revenue code-to-cost center crosswalk.

We applied the CCRs as described above to claims with bill type 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands and claims from all hospitals for which CCRs were flagged as invalid.

We identified claims with condition code 41 as partial hospitalization services of hospitals and moved them to another file. We note that the separate file containing partial hospitalization claims is included in the files that are available for purchase as discussed above.

We then excluded claims without a HCPCS code. We moved to another file claims that contained nothing but influenza and pneumococcal pneumonia (PPV) vaccines. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates.

We next copied line-item costs for drugs, blood, and brachytherapy sources to a separate file (the lines stay on the claim, but are copied onto another file). No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median cost and a per day mean and median cost for drugs and nonimplantable biologicals, therapeutic radiopharmaceutical agents, and brachytherapy sources, as well as other information used to set payment rates, such as a unit-to-day ratio for drugs.

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60517), we first adopted a policy to redistribute some portion of total cost of packaged drugs and biologicals to the separately payable drugs and biologicals as acquisition and pharmacy overhead and handling costs. As discussed further in section V.B.3. of this final rule with comment, as we proposed, we are continuing this policy for CY 2012. Therefore, we used the line-item cost data for drugs and biologicals for which we had a HCPCS code with ASP pricing information to calculate the ASP+X values, first for all drugs and biologicals with HCPCS codes, whether separately paid or packaged, and then for separately payable drugs and biologicals and for packaged drugs and biologicals, respectively, by taking the ratio of total claim cost for each group relative to total ASP dollars (per unit of each drug or biological HCPCS code's July 2011 ASP amount multiplied by total units for each drug or biological in the CY 2010 claims data). These values are ASP+9 percent (for all drugs and biologicals with HCPCS codes, whether separately paid or packaged), ASP-2 percent (for drugs and biologicals that are separately paid), and ASP+192 percent (for drugs and biologicals that have HCPCS codes and that are packaged), respectively. As we discuss in section V.B.3. of this final rule with comment period, and as we proposed, we are redistributing $169 million of the total cost in our claims data for coded packaged drugs and biologicals with an ASP to payment for separately payable drugs and biologicals. We also are redistributing an additional $71.3 million from the cost of uncoded packaged drugs billed under pharmacy revenue code series 025X (Pharmacy) and 026X (IV Therapy). This total excludes the cost of diagnostic and therapeutic radiopharmaceuticals because they are not reported under pharmacy revenue codes or under the pharmacy cost center on the hospital cost report. Our CY 2012 redistribution of $240.3 million in estimated costs from coded and uncoded packaged drugs to separately payable drugs represents the $200 million in total packaged drug costs redistributed from the CY 2011 OPPS/ASC final rule with comment period (75 FR 71967), updated by the PPI for Pharmaceuticals for Human Use, to derive a proportion of redistributed costs to total costs. We then updated our analysis for this CY 2012 OPPS/ASC final rule with comment period, holding the proportion of redistributed pharmacy overhead and handling cost constant, both for packaged coded drugs (35 percent) and for packaged uncoded drugs (10.7 percent), constant between the proposed rule and the final rule with comment period. This allowed us to keep the proportion of redistributed costs (and

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thus the ASP+X percent) stable between the proposed rule and the final rule with comment period. Redistributing a total of $240.3 million in pharmacy overhead cost from packaged drugs and biologicals reduces the $1.4 billion cost of packaged drugs and biologicals with HCPCS codes and ASPs to $1.16 billion, approximately a 17-percent reduction. Redistributing $71.3 million from the cost of uncoded packaged drugs and biologicals reduces the $666 million cost of uncoded drugs and biologicals to $594.7 million, approximately an 11-percent reduction. To implement our CY 2012 policy to redistribute $169 million from the pharmacy overhead cost of coded packaged drugs and biologicals to separately payable drugs and biologicals and $71.3 million from the cost of uncoded packaged drugs, we multiplied the cost of each packaged drug or biological with a HCPCS code and ASP pricing information in our CY 2010 claims data by 0.77, and we multiplied all uncoded packaged pharmacy drug costs in our CY 2010 claims data, excluding those for diagnostic radiopharmaceuticals, by 0.89. We also added the redistributed $240.3 million to the total cost of separately payable drugs and biologicals in our CY 2010 claims data, which increased the relationship between the total cost for separately payable drugs and biologicals and ASP dollars for the same drugs and biologicals from ASP-2 percent to ASP+4 percent. We refer readers to section V.B.3. of this final rule with comment period for a complete discussion of our policy to pay for separately paid drugs and biologicals and pharmacy overhead for CY 2012.

We then removed line-items that were not paid during claim processing, presumably for a line-item rejection or denial. The number of edits for valid OPPS payment in the Integrated Outpatient Code Editor (I/OCE) and elsewhere has grown significantly in the past few years, especially with the implementation of the full spectrum of National Correct Coding Initiative (NCCI) edits. To ensure that we are using valid claims that represent the cost of payable services to set payment rates, we removed line-items with an OPPS status indicator that were not paid during claims processing in the claim year, but have a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' in the prospective year's payment system. This logic preserves charges for services that would not have been paid in the claim year but for which some estimate of cost is needed for the prospective year, such as services newly proposed to come off the inpatient list for CY 2011 that were assigned status indicator ``C'' in the claim year. It also preserves charges for packaged services so that the costs can be included in the cost of the services with which they are reported, even if the CPT codes for the packaged services were not paid because the service is part of another service that was reported on the same claim or the code otherwise violates claims processing edits.

For CY 2012, we proposed to continue the policy we implemented for CY 2011 to exclude line-item data for pass-through drugs and biologicals (status indicator ``G'' for CY 2010) and nonpass-through drugs and biologicals (status indicator ``K'' for CY 2010) where the charges reported on the claim for the line were either denied or rejected during claims processing. Removing lines that were eligible for payment but were not paid ensures that we are using appropriate data. The trim avoids using cost data on lines that we believe were defective or invalid because those rejected or denied lines did not meet the Medicare requirements for payment. For example, edits may reject a line for a separately paid drug because the number of units billed exceeded the number of units that would be reasonable and, therefore, is likely a billing error (for example, a line reporting 55 units of a drug for which 5 units is known to be a fatal dose). As with our trimming in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71828) of line-items with a status indicator of ``S,'' ``T,'' ``V,'' or ``X,'' we believe that unpaid line-items represent services that are invalidly reported and, therefore, should not be used for ratesetting. We believe that removing lines with valid status indicators that were edited and not paid during claims processing increases the accuracy of the single bills used to determine the mean unit costs for use in the ASP+X calculation described in section V.B.3. of this final rule with comment period.

b. Splitting Claims and Creation of ``Pseudo'' Single Procedure Claims

(1) Splitting Claims

As we proposed, for this CY 2012 final rule with comment period, we then split the remaining claims into five groups: single majors; multiple majors; single minors; multiple minors; and other claims. (Specific definitions of these groups follow below.) For CY 2012, we proposed to continue our current policy of defining major procedures as any HCPCS code having a status indicator of ``S,'' ``T,'' ``V,'' or ``X;'' defining minor procedures as any code having a status indicator of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' ``R,'' ``U,'' or ``N,'' and classifying ``other'' procedures as any code having a status indicator other than one that we have classified as major or minor. For CY 2012, we proposed to continue assigning status indicator ``R'' to blood and blood products; status indicator ``U'' to brachytherapy sources; status indicator ``Q1'' to all ``STVX-packaged codes;'' status indicator ``Q2'' to all ``T-packaged codes;'' and status indicator ``Q3'' to all codes that may be paid through a composite APC based on composite-

specific criteria or paid separately through single code APCs when the criteria are not met. As discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68709), we established status indicators ``Q1,'' ``Q2,'' and ``Q3'' to facilitate identification of the different categories of codes. We proposed to treat these codes in the same manner for data purposes for CY 2012 as we have treated them since CY 2008. Specifically, we proposed to continue to evaluate whether the criteria for separate payment of codes with status indicator ``Q1'' or ``Q2'' are met in determining whether they are treated as major or minor codes. Codes with status indicator ``Q1'' or ``Q2'' are carried through the data either with status indicator ``N'' as packaged or, if they meet the criteria for separate payment, they are given the status indicator of the APC to which they are assigned and are considered as ``pseudo'' single procedure claims for major codes. Codes assigned status indicator ``Q3'' are paid under individual APCs unless they occur in the combinations that qualify for payment as composite APCs and, therefore, they carry the status indicator of the individual APC to which they are assigned through the data process and are treated as major codes during both the split and ``pseudo'' single creation process. The calculation of the median costs for composite APCs from multiple procedure major claims is discussed in section II.A.2.e. of this final rule with comment period.

Specifically, we divided the remaining claims into the following five groups:

1. Single Procedure Major Claims: Claims with a single separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X,'' which includes codes with status indicator ``Q3''); claims with one unit of a status indicator ``Q1'' code (``STVX-packaged'') where there was no code with status indicator ``S,'' ``T,'' ``V,'' or ``X'' on the same claim on the same date; or claims with one unit of a status indicator ``Q2'' code (``T-packaged'') where there was no code

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with a status indicator ``T'' on the same claim on the same date.

2. Multiple Procedure Major Claims: Claims with more than one separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X,'' which includes codes with status indicator ``Q3''), or multiple units of one payable procedure. These claims include those codes with a status indicator ``Q2'' code (``T-packaged'') where there was no procedure with a status indicator ``T'' on the same claim on the same date of service but where there was another separately paid procedure on the same claim with the same date of service (that is, another code with status indicator ``S,'' ``V,'' or ``X''). We also include, in this set, claims that contained one unit of one code when the bilateral modifier was appended to the code and the code was conditionally or independently bilateral. In these cases, the claims represented more than one unit of the service described by the code, notwithstanding that only one unit was billed.

3. Single Procedure Minor Claims: Claims with a single HCPCS code that was assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' ``R,'' ``U,'' or ``N'' and not status indicator ``Q1'' (``STVX-

packaged'') or status indicator ``Q2'' (``T-packaged'') code.

4. Multiple Procedure Minor Claims: Claims with multiple HCPCS codes that are assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' ``R,'' ``U,'' or ``N;'' claims that contain more than one code with status indicator ``Q1'' (``STVX-packaged'') or more than one unit of a code with status indicator ``Q1'' but no codes with status indicator ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service; or claims that contain more than one code with status indicator ``Q2'' (T-

packaged), or ``Q2'' and ``Q1,'' or more than one unit of a code with status indicator ``Q2'' but no code with status indicator ``T'' on the same date of service.

5. Non-OPPS Claims: Claims that contain no services payable under the OPPS (that is, all status indicators other than those listed for major or minor status). These claims were excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory tests, and do not contain a code for a separately payable or packaged OPPS service. Non-OPPS claims include claims for therapy services paid sometimes under the OPPS but billed, in these non-OPPS cases, with revenue codes indicating that the therapy services would be paid under the Medicare Physician Fee Schedule (MPFS).

The claims listed in numbers 1, 2, 3, and 4 above are included in the data file that can be purchased as described above. Claims that contain codes to which we have assigned status indicators ``Q1'' (``STVX-packaged'') and ``Q2'' (``T-packaged'') appear in the data for the single major file, the multiple major file, and the multiple minor file used for ratesetting. Claims that contain codes to which we have assigned status indicator ``Q3'' (composite APC members) appear in both the data of the single and multiple major files used in this final rule with comment period, depending on the specific composite calculation.

We did not receive any public comments on our proposed process of organizing claims by type. Therefore, for the reasons set forth in the proposed rule (76 FR 42185 through 41286), we are finalizing our CY 2012 proposal without modification. (2) Creation of ``Pseudo'' Single Procedure Claims

As we proposed, to develop ``pseudo'' single procedure claims for this final rule with comment period, we examined both the multiple procedure major claims and the multiple procedure minor claims. We first examined the multiple major procedure claims for dates of service to determine if we could break them into ``pseudo'' single procedure claims using the dates of service for all lines on the claim. If we could create claims with single major procedures by using dates of service, we created a single procedure claim record for each separately payable procedure on a different date of service (that is, a ``pseudo'' single).

As we proposed, for this final rule with comment period, we also used the bypass codes listed in Addendum N to this final rule with comment period (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) and discussed in section II.A.1.b. of this final rule with comment period to remove separately payable procedures which we determined contained limited or no packaged costs or that were otherwise suitable for inclusion on the bypass list from a multiple procedure bill. As discussed above, we ignore the ``overlap bypass codes,'' that is, those HCPCS codes that are both on the bypass list and are members of the multiple imaging composite APCs, in this initial assessment for ``pseudo'' single procedure claims. The CY 2012 ``overlap bypass codes'' are listed in Addendum N to this final rule with comment period (which is available via the Internet on the CMS Web site). When one of the two separately payable procedures on a multiple procedure claim was on the bypass list, we split the claim into two ``pseudo'' single procedure claim records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS code charges. We also removed lines that contained multiple units of codes on the bypass list and treated them as ``pseudo'' single procedure claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single, separately payable procedure code remained on the claim after removal of the multiple units of the bypass code, we created a ``pseudo'' single procedure claim from that residual claim record, which retained the costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use claims that would otherwise be multiple procedure claims and could not be used.

As we proposed, for this final rule with comment period, we then assessed the claims to determine if the criteria for the multiple imaging composite APCs, discussed in section II.A.2.e.(5) of this final rule with comment period, were met. Where the criteria for the imaging composite APCs were met, we created a ``single session'' claim for the applicable imaging composite service and determined whether we could use the claim in ratesetting. For HCPCS codes that are both conditionally packaged and are members of a multiple imaging composite APC, we first assessed whether the code would be packaged and, if so, the code ceased to be available for further assessment as part of the composite APC. Because the packaged code would not be a separately payable procedure, we considered it to be unavailable for use in setting the composite APC median cost. Having identified ``single session'' claims for the imaging composite APCs, we reassessed the claim to determine if, after removal of all lines for bypass codes, including the ``overlap bypass codes,'' a single unit of a single separately payable code remained on the claim. If so, we attributed the packaged costs on the claim to the single unit of the single remaining separately payable code other than the bypass code to create a ``pseudo'' single procedure claim. We also identified line-items of overlap bypass codes as a ``pseudo'' single procedure claim. This

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allowed us to use more claims data for ratesetting purposes.

As we proposed, for this final rule with comment period, we also examined the multiple procedure minor claims to determine whether we could create ``pseudo'' single procedure claims. Specifically, where the claim contained multiple codes with status indicator ``Q1'' (``STVX-packaged'') on the same date of service or contained multiple units of a single code with status indicator ``Q1,'' we selected the status indicator ``Q1'' HCPCS code that had the highest CY 2011 relative weight, set the units to one on that HCPCS code to reflect our policy of paying only one unit of a code with a status indicator of ``Q1.'' We then packaged all costs for the following into a single cost for the ``Q1'' HCPCS code that had the highest CY 2011 relative weight to create a ``pseudo'' single procedure claim for that code: additional units of the status indicator ``Q1'' HCPCS code with the highest CY 2011 relative weight; other codes with status indicator ``Q1''; and all other packaged HCPCS codes and packaged revenue code costs. We changed the status indicator for the selected code from the data status indicator of ``N'' to the status indicator of the APC to which the selected procedure was assigned for further data processing and considered this claim as a major procedure claim. We used this claim in the calculation of the APC median cost for the status indicator ``Q1'' HCPCS code.

Similarly, as we proposed, for this final rule with comment period, where a multiple procedure minor claim contained multiple codes with status indicator ``Q2'' (``T-packaged'') or multiple units of a single code with status indicator ``Q2,'' we selected the status indicator ``Q2'' HCPCS code that had the highest CY 2011 relative weight, set the units to one on that HCPCS code to reflect our policy of paying only one unit of a code with a status indicator of ``Q2.'' We then packaged all costs for the following into a single cost for the ``Q2'' HCPCS code that had the highest CY 2011 relative weight to create a ``pseudo'' single procedure claim for that code: additional units of the status indicator ``Q2'' HCPCS code with the highest CY 2011 relative weight; other codes with status indicator ``Q2''; and other packaged HCPCS codes and packaged revenue code costs. We changed the status indicator for the selected code from a data status indicator of ``N'' to the status indicator of the APC to which the selected code was assigned, and we considered this claim as a major procedure claim.

As we proposed, for this final rule with comment period, where a multiple procedure minor claim contained multiple codes with status indicator ``Q2'' (``T-packaged'') and status indicator ``Q1'' (``STVX-

packaged''), we selected the T-packaged status indicator ``Q2'' HCPCS code that had the highest relative weight for CY 2011 and set the units to one on that HCPCS code to reflect our policy of paying only one unit of a code with a status indicator of ``Q2.'' We then packaged all costs for the following into a single cost for the selected (``T packaged'') HCPCS code to create a ``pseudo'' single procedure claim for that code: additional units of the status indicator ``Q2'' HCPCS code with the highest CY 2011 relative weight; other codes with status indicator ``Q2''; codes with status indicator ``Q1'' (``STVX-packaged''); and other packaged HCPCS codes and packaged revenue code costs. We favor status indicator ``Q2'' over ``Q1'' HCPCS codes because ``Q2'' HCPCS codes have higher CY 2011 relative weights. If a status indicator ``Q1'' HCPCS code had a higher CY 2011 relative weight, it would become the primary code for the simulated single bill process. We changed the status indicator for the selected status indicator ``Q2'' (``T-

packaged'') code from a data status indicator of ``N'' to the status indicator of the APC to which the selected code was assigned and we considered this claim as a major procedure claim.

We then applied our process for creating ``pseudo'' single procedure claims to the conditionally packaged codes that do not meet the criteria for packaging, which enabled us to create single procedure claims from them, where they meet the criteria for single procedure claims. Conditionally packaged codes are identified using status indicators ``Q1'' and ``Q2,'' and are described in section XI.A.1. of this final rule with comment period.

Lastly, as we proposed, for this final rule with comment period, we excluded those claims that we were not able to convert to single procedure claims even after applying all of the techniques for creation of ``pseudo'' single procedure claims to multiple procedure major claims and to multiple procedure minor claims. As has been our practice in recent years, we also excluded claims that contained codes that were viewed as independently or conditionally bilateral and that contained the bilateral modifier (Modifier 50 (Bilateral procedure)) because the line-item cost for the code represented the cost of two units of the procedure, notwithstanding that hospitals billed the code with a unit of one.

Comment: Commenters supported the proposed process for creating pseudo single procedure claims.

Response: We appreciate the commenters' support and will continue to look for ways to refine the process to secure more claims data for use in calculating median costs.

After consideration of the public comments we received, as we proposed, we are continuing to apply the proposed methodology described above for the purpose of creating pseudo single procedure claims for the CY 2012 OPPS.

c. Completion of Claim Records and Median Cost Calculations

(1) General Process

As we proposed, for this final rule with comment period, we then packaged the costs of packaged HCPCS codes (codes with status indicator ``N'' listed in Addendum B to this final rule with comment period (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) and the costs of those lines for codes with status indicator ``Q1'' or ``Q2'' when they are not separately paid), and the costs of the services reported under packaged revenue codes in Table 2 below that appeared on the claim without a HCPCS code into the cost of the single major procedure remaining on the claim.

As noted in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66606), for the CY 2008 OPPS, we adopted an APC Panel recommendation that CMS should review the final list of packaged revenue codes for consistency with OPPS policy and ensure that future versions of the I/

OCE edit accordingly. As we have in the past, we will continue to compare the final list of packaged revenue codes that we adopt for CY 2012 to the revenue codes that the I/OCE will package for CY 2012 to ensure consistency.

In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68531), we replaced the NUBC standard abbreviations for the revenue codes listed in Table 2 of the CY 2009 OPPS/ASC proposed rule with the most current NUBC descriptions of the revenue code categories and subcategories to better articulate the meanings of the revenue codes without changing the proposed list of revenue codes. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60362 through 60363), we finalized changes to the packaged revenue code list based on our examination of the updated NUBC codes and public comment to the CY 2010 proposed list of packaged revenue

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codes. For CY 2012, as we did for CY 2011, we reviewed the changes to revenue codes that were effective during CY 2010 for purposes of determining the charges reported with revenue codes but without HCPCS codes that we would propose to package for the CY 2012 OPPS. We believe that the charges reported under the revenue codes listed in Table 2 below continue to reflect ancillary and supportive services for which hospitals report charges without HCPCS codes. Therefore, for CY 2012, as we proposed, we are continuing to package the costs that we derive from the charges reported without HCPCS code under the revenue codes displayed in Table 2 below for purposes of calculating the median costs on which the CY 2012 OPPS are based.

We did not receive any public comments on our proposed list of packaged revenue codes. Therefore, for the reasons set forth in the proposed rule (76 FR 42187 through 42188), we are finalizing the proposed packaged revenue codes for CY 2012, without modification, which are identified in Table 2 below. We note that these revenue codes include only revenue codes that were in effect in CY 2010, the year of the claims data on which the CY 2012 OPPS payment rates are based.

BILLING CODE 4120-01-P

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GRAPHIC TIFF OMITTED TR30NO11.001

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GRAPHIC TIFF OMITTED TR30NO11.002

BILLING CODE 4120-01-C

In accordance with our longstanding policy, as we proposed, we are continuing to exclude: (1) Claims that had zero costs after summing all costs on the claim; and (2) claims containing packaging flag number 3. Effective for services furnished on or after July 1, 2004, the I/OCE assigned packaging flag number 3 to claims on which hospitals submitted token charges less than $1.01 for a service with status indicator ``S'' or ``T'' (a major separately payable service under the OPPS) for which the fiscal intermediary or MAC was required to allocate the sum of charges for services with a status indicator equaling ``S'' or ``T'' based on the relative weight of the APC to which each code was assigned. We do not believe that these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resources. Therefore, we deleted these claims. We also deleted claims for which the charges equaled the revenue center payment (that is, the Medicare payment) on the assumption that, where the charge equaled the payment, to apply a CCR to the charge would not yield a valid estimate of relative provider cost. We are continuing these processes for the CY 2012 OPPS.

As we proposed, for this final rule with comment period, for the remaining claims, we then standardized 60 percent of the costs of the claim (which we have previously determined to be the labor-related portion) for geographic differences in labor input costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital

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by that wage index. The claims accounting that we provide for the proposed and final rule contains the formula we use to standardize the total cost for the effects of the wage index. As has been our policy since the inception of the OPPS, we proposed to use the pre-

reclassified wage indices for standardization because we believe that they better reflect the true costs of items and services in the area in which the hospital is located than the post-reclassification wage indices and, therefore, would result in the most accurate unadjusted median costs.

In accordance with our longstanding practice, as proposed, for this final rule with comment period, we also excluded single and pseudo single procedure claims for which the total cost on the claim was outside 3 standard deviations from the geometric mean of units for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes).

After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, approximately 109 million claims were left. Using these 109 million claims, we created approximately 110 million single and ``pseudo'' single procedure claims, of which we used slightly more than 108 million single bills (after trimming out approximately 888,000 claims as discussed in section II.A.1.a. of this final rule with comment period) in the CY 2012 median development and ratesetting.

We used these claims to calculate the final CY 2012 median costs for each separately payable HCPCS code and each APC. The comparison of HCPCS code-specific and APC medians determines the applicability of the 2 times rule. Section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (the 2 times rule). We note that, for purposes of identifying significant HCPCS for examination in the 2 times rule, we consider codes that have more than 1,000 single major claims or codes that have both greater than 99 single major claims and contribute at least 2 percent of the single major claims used to establish the APC median cost to be significant (75 FR 71832). This longstanding definition of when a HCPCS code is significant for purposes of the 2 times rule was selected because we believe that a subset of 1,000 claims is negligible within the set of approximately 100 million single procedure or single session claims we use for establishing median costs. Similarly, a HCPCS code for which there are fewer than 99 single bills and which comprises less than 2 percent of the single major claims within an APC will have a negligible impact on the APC median. Unlisted codes are not used in establishing the percent of claims contributing to the APC, nor are their costs used in the calculation of the APC median. Finally, we reviewed the median costs for the services for which we are proposing to pay separately under this final rule with comment period, and we reassigned HCPCS codes to different APCs where it was necessary to ensure clinical and resource homogeneity within the APCs. Section III. of this final rule with comment period includes a discussion of many of the HCPCS code assignment changes that resulted from examination of the median costs and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes. Both the HCPCS code-specific medians and the APC medians were weighted to account for the inclusion of multiple units of the bypass codes in the creation of ``pseudo'' single procedure claims.

As we discuss in sections II.A.2.d. and II.A.2.e. and in section VIII.B. of this final rule with comment period, in some cases, APC median costs are calculated using variations of the process outlined above. Specifically, section II.A.2.d. of this final rule with comment period addresses the calculation of single APC criteria-based median costs. Section II.A.2.e. of this final rule with comment period discusses the calculation of composite APC criteria-based median costs. Section VIII.B. of this final rule with comment period addresses the methodology for calculating the median costs for partial hospitalization services.

We did not receive any public comments on this aspect of the median calculation process that we proposed for CY 2012. Therefore, we are adopting it as final.

After consideration of the public comments we received, we are finalizing our proposed methodology for calculating median costs for purposes of creating payment weights and subsequent payment rates for the CY 2012 OPPS.

(2) APC Panel Recommendations Regarding Data Development

At the February 28-March 1, 2011 APC Panel Meeting, we provided the APC Panel Data Subcommittee with a list of all APCs fluctuating by greater than 10 percent when comparing the CY 2011 OPPS final rule median costs based on CY 2009 claims processed through June 30, 2010, to those based on CY 2010 OPPS/ASC final rule data (CY 2008 claims processed through June 30, 2009). We included explanatory data where possible to allow the Data Subcommittee to focus on APC median changes that required more investigation, based on its request (75 FR 71834). The APC Panel Data Subcommittee reviewed the fluctuations in the APC median costs but did not express particular concerns with the median cost changes.

We also provided the APC Panel Data Subcommittee with a summary of cost and CCR data related to the Myocardial Positron Emission Tomography (PET) imaging APC, APC 0307, as well as the associated diagnostic radiopharmaceutical, Rb82 rubidium, based on a request for data related to the decline in the APC median cost from the CY 2010 OPPS final rule to the CY 2011 OPPS proposed rule. The Data Subcommittee noted a decline in the CCRs associated with the HCPCS codes in APC 0307, as well as declines in the line-item costs of the associated diagnostic radiopharmaceutical.

At the February 28-March 1, 2011 APC Panel Meeting, the APC Panel made a number of recommendations related to the data process. The Panel's recommendations and our responses follow.

Recommendation 1: The Panel commends the CMS staff for responding to the data requests of the Data Subcommittee.

CMS Response to Recommendation 1: We appreciate this recommendation.

Recommendation 2: The Panel recommends that the work of the Data Subcommittee continue.

CMS Response to Recommendation 2: We are accepting this recommendation.

Recommendation 3: The Panel recommends that Agatha Nolen, D.Ph., M.S., F.A.S.H.P., serve as acting chairperson for the winter 2011 meeting of the Data Subcommittee.

CMS Response to Recommendation 3: We are accepting this recommendation.

At the August 10-12, 2011 APC Panel Meeting, CMS again provided the APC Panel Data Subcommittee with a list of all APCs fluctuating by greater than 10 percent when comparing the CY 2012 OPPS proposed rule median costs based

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on CY 2010 claims processed through December 21, 2010, to those based on CY 2011 OPPS/ASC final rule data (CY 2009 claims processed through June 30, 2010). We also gave an overview of the ASP+X calculation and the CY 2012 proposal for separately paid drugs, and an overview of the proposed payment (with DRG Cap) for Cardiac Resynchronization Therapy-

Defibrillator (CRT-D) composite. The APC Panel made a number of recommendations related to specific services. Recommendations (4-9) are discussed as part of the discussion of the specific service to which they pertain.

Recommendation 10: The Panel recommends that the work of the Data Subcommittee continue.

CMS Response to Recommendation 10: We are accepting this recommendation.

Recommendation 14: The Panel recommends that Daniel J. Pothen, M.S., R.H.I.A, C.H.P.S., C.P.H.I.M.S., C.C.S., C.C.S.-P., C.H.C., be named the chair of the Data Subcommittee

CMS Response to Recommendation 14: We are accepting this recommendation.

d. Calculation of Single Procedure APC Criteria-Based Median Costs

(1) Device-Dependent APCs

Device-dependent APCs are populated by HCPCS codes that usually, but not always, require that a device be implanted or used to perform the procedure. For a full history of how we have calculated payment rates for device-dependent APCs in previous years and a detailed discussion of how we developed the standard device-dependent APC ratesetting methodology, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66739 through 66742). Overviews of the procedure-to-device edits and device-to-procedure edits used in ratesetting for device-dependent APCs are available in the CY 2005 OPPS final rule with comment period (69 FR 65761 through 65763) and the CY 2007 OPPS/ASC final rule with comment period (71 FR 68070 through 68071).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42190), for CY 2012, we proposed to use the standard methodology for calculating median costs for device-dependent APCs that was finalized in the CY 2011 OPPS/

ASC final rule with comment period (75 FR 71834 through 71837). (We referred readers to section II.D.6. and II.A.e.6. of the proposed rule for detailed explanations of the proposed nonstandard methodology regarding cardiac resynchronization therapy). This methodology utilizes claims data that generally represent the full cost of the required device. Specifically, we proposed to calculate the median costs for device-dependent APCs for CY 2012 using only the subset of single procedure claims from CY 2010 claims data that pass the procedure-to-

device and device-to-procedure edits; do not contain token charges (less than $1.01) for devices; do not contain the ``FB'' modifier signifying that the device was furnished without cost to the provider, supplier, or practitioner, or where a full credit was received; and do not contain the ``FC'' modifier signifying that the hospital received partial credit for the device. The procedure-to-device edits require that when a particular procedural HCPCS code is billed, the claim must also contain an appropriate device code, while the device-to-procedure edits require that a claim that contains one of a specified set of device codes also contain an appropriate procedure code. We stated in the proposed rule that we continue to believe the standard methodology for calculating median costs for device-dependent APCs gives us the most appropriate median costs for device-dependent APCs in which the hospital incurs the full cost of the device.

Table 3 of the proposed rule (76 FR 42191) listed the APCs for which we proposed to use our standard device-dependent APC ratesetting methodology (as explained in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71834 through 71837)) for CY 2012. In the proposed rule, we noted that there are five proposed device-dependent APC title changes and one proposed deletion for CY 2012. As discussed in detail in section II.A.2.d.(6) of the proposed rule, we proposed to change the title of APC 0083 from ``Coronary or Non-Coronary Angioplasty and Percutaneous Valvuloplasty'' to ``Level I Endovascular Revascularization of the Lower Extremity''; the title of APC 0229 from ``Transcatheter Placement of Intravascular Shunt and Stents'' to ``Level II Endovascular Revascularization of the Lower Extremity''; and the title of APC 0319 from ``Endovascular Revascularization of the Lower Extremity'' to ``Level III Endovascular Revascularization of the Lower Extremity.'' We also proposed to change the title of APC 0040 from ``Percutaneous Implantation of Neurostimulator Electrodes'' to ``Level I Implantation/Revision/Replacement of Neurostimulator Electrodes,'' and the title of APC 0061 from ``Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes'' to ``Level II Implantation/Revision/Replacement of Neurostimulator Electrodes,'' as discussed in section III.D.1. of the proposed rule. In addition, as discussed in section II.A.2.e.(6) of the proposed rule, we proposed to delete APC 0418 (Insertion of Left Ventricular Pacing Electrode) for CY 2012. As we discussed in detail in section III.D.6. of the proposed rule, we proposed to limit the payment for services that are assigned to APC 0108 to the proposed IPPS standardized payment amount for MS-DRG 227 (Cardiac Defibrillator Implant without Cardiac Catheterization and without Medical Complications and Comorbidities), and we proposed to continue to apply the device edits and other standard features of the device-dependent APCs to APC 0108. Finally, we referred readers to Addendum A to the proposed rule for the proposed payment rates for device-dependent APCs for CY 2012.

Comment: Several commenters supported CMS' proposal to continue using the standard methodology for calculating median costs for device-

dependent APCs as well as the continued use of device coding edits to ensure that hospitals are reporting charges for implanted devices. Some commenters recommended that CMS continue examining and refining the ratesetting methodology for procedures involving devices in order to encourage the continued development and proliferation of new technology, and that CMS further improve the accuracy of estimates for the costs of devices included in multiple procedure claims used for the purpose of setting relative weights. Some commenters asked for continued focus on coding education, particularly as it impacts the use of proper HCPCS supply codes, so that these codes are appropriately reported by hospital coders. Other commenters supported the mandatory reporting of all device HCPCS codes.

Response: We appreciate the commenters' support of the continued use of the standard device-dependent APC ratesetting methodology and the procedure-to-device and device-to-procedure edits. As we have stated in the past (75 FR 71835 and 74 FR 60367), we agree with the commenters that we should continue to encourage the development and proliferation of new technology under the OPPS. We have special mechanisms to provide payment for new technologies and services under the OPPS, including new technology APCs and transitional pass-through payments devices. We refer readers to sections III.C. and IV.A., respectively, of

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this final rule with comment period for more information on these payment methodologies. For all OPPS services, we continue our efforts to use the data from as many claims as possible, through approaches such as use of the bypass list and date splitting of claims as described further in section II.A. of this final rule with comment period, and through methodologies such as increased packaging and composite APCs.

As we have stated in the past (73 FR 68535 through 68536 and 74 FR 60367), we agree that accurate reporting of device, supply, and technology charges will help to ensure that these items are appropriately accounted for in future years' OPPS payment rates. We encourage stakeholders to carefully review HCPCS code descriptors, as well as any guidance CMS may have provided for specific HCPCS codes. In addition, we have provided further instructions on the billing of medical and surgical supplies in the October 2008 OPPS update (Transmittal 1599, Change Request 6196, dated September 19, 2008) and the April 2009 OPPS update (Transmittal 1702, Change Request 6416, dated March 13, 2009). For HCPCS codes that are paid under the OPPS, providers may also submit inquiries to the AHA Central Office on HCPCS, which serves as a clearinghouse on the proper use of Level I HCPCS codes for hospitals and certain Level II HCPCS codes for hospitals, physicians, and other health professionals. Inquiries must be submitted using the approved form, which may be downloaded from the AHA Web site (http://www.ahacentraloffice.org) and either faxed to (312) 422-4583 or mailed directly to the AHA Central Office: Central Office on HCPCS, American Hospital Association, One North Franklin, Floor 29, Chicago, IL 60606.

Comment: Some commenters concurred with CMS' proposed determination that APC 0385 (Level I Prosthetic Urological Procedures) and APC 0386 (Level II Prosthetic Urological Procedures) should be categorized as device-dependent APCs. Other commenters expressed appreciation for the proposed increase in payment for APC 0425 (Level II Arthroplasty or Implantation with Prosthesis).

Response: We appreciate the commenters' support of the designation of APC 0385 and APC 0386 as device-dependent APCs and the proposed payment increase for APC 0425.

Comment: Several commenters expressed concern that the proposed CY 2012 payment rate for the implantation of cochlear implants, described by CPT code 69930 (cochlear device implantation, with or without mastoidectomy) which is assigned to APC 0259 (Level VII ENT Procedures), decreased by approximately 12 percent from that in the CY 2011 OPPS/ASC final rule with comment period. According to commenters, this payment rate is inconsistent with the average decrease in proposed payment of all OPPS APCs relative to CY 2011 of approximately 6 percent and is insufficient to cover hospitals' costs for providing this service and ensure that beneficiaries will continue to have access to cochlear implants. The commenters observed, based on their analysis of Medicare claims data, that while the overall median cost of APC 0259 decreased, the component parts of the APC (that is, the device, the procedure, and the other bundled supplies and services) either remained the same or increased. The commenters requested that CMS evaluate the data upon which the proposed CY 2012 payment rate for APC 0259 is based in order to ensure its validity.

Response: We appreciate the commenters' concerns regarding the proposed payment rate for procedures involving cochlear implants. Under the standard device-dependent APC ratesetting methodology, the median cost for APC 0259 is calculated using only those single bills that reflect the full cost of the cochlear implant device. While we will monitor the changes in APC 0259 over time, we believe that the payment rate for this service, calculated according to the standard device-

dependent APC ratesetting methodology for the proposed rule and this final rule with comment period, appropriately reflects hospitals' relative costs for providing this procedure as reported to us in the claims and cost report data. We note that the median cost for CPT code 69930 calculated from the CY 2010 hospital claims and cost report data available for this final rule with comment is $28,892, approximately 6 percent less than the median cost of $30,730 calculated from the CY 2009 hospital claims and cost report data upon which the final CY 2011 payment rate was calculated.

After consideration of the public comments we received, we are finalizing our proposed CY 2012 payment policies for device-dependent APCs with modification. The CY 2012 OPPS payment rates for device-

dependent APCs are based on their median costs calculated from CY 2010 claims and the most recent cost report data, using only single procedure claims that pass the procedure-to-device and device-to-

procedure edits, do not contain token charges for devices (less than $1.01), do not have an ``FB'' modifier signifying that the device was furnished without cost or with full credit, and do not contain an ``FC'' modifier signifying that the hospital received partial credit for the device. We continue to believe that the median costs calculated from the single claims that meet these criteria represent the most valid estimated relative costs of these services to hospitals when they incur the full cost of the devices required to perform the procedures.

Table 3 below lists the APCs for which we used our standard device-

dependent APC ratesetting methodology for CY 2012. We note that we are not finalizing our proposal to limit the payment for services that are assigned to APC 0108 to the IPPS standardized payment amount for MS-DRG 227, and that we are continuing to apply the device edits and other standard features of the device-dependent APCs to this APC for CY 2012. We also are deleting APC 0418 and changing the titles of APC 0108 and 0655 as we proposed. We refer readers to section II.A.2.e.(6) of this final rule with comment period for a detailed discussion of these final policies. We also note that we are revising the APC titles for APC 0083, 0229, and 0319 for CY 2012, as we discuss in section II.A.2.d.(6) of this final rule with comment period and that we are changing the APC titles for APC 0040 and APC 0061 as discussed in section III.D.4.a. of this final rule with comment period. We refer readers to Addendum A to this final rule with comment period (which is available via the Internet on the CMS Web site) for the final payment rates for these APCs for CY 2012.

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(2) Blood and Blood Products

Since the implementation of the OPPS in August 2000, we have made separate payments for blood and blood products through APCs rather than packaging payment for them into payments for the procedures with which they are administered. Hospital payments for the costs of blood and blood products, as well as for the costs of collecting, processing, and storing blood and blood products, are made through the OPPS payments for specific blood product APCs.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42191 through 42192), we proposed to continue to establish payment rates for blood and blood products using our blood-specific CCR methodology, which utilizes actual or simulated CCRs from the most recently available hospital cost reports to convert hospital charges for blood and blood products to costs. This methodology has been our standard ratesetting methodology for blood and blood products since CY 2005. It was developed in response to data analysis indicating that there was a significant difference in CCRs for those hospitals with and without blood-specific cost centers, and past public comments indicating that the former OPPS policy of defaulting to the overall hospital CCR for hospitals not reporting a blood-specific cost center often resulted in an underestimation of the true hospital costs for blood and blood products. Specifically, in order to address the differences in CCRs and to better reflect hospitals' costs, we proposed to continue to simulate blood CCRs for each hospital that does not report a blood cost center by calculating the ratio of the blood-specific CCRs to hospitals' overall CCRs for those hospitals that do report costs and charges for blood cost centers. We would then apply this mean ratio to the overall CCRs of hospitals not reporting costs and charges for blood cost centers on their cost reports in order to simulate blood-specific CCRs for those hospitals. We calculated the median costs upon which the proposed CY 2012 payment rates for blood and blood products are based using the actual blood-specific CCR for hospitals that reported costs and charges for a blood cost center and a hospital-specific simulated blood-specific CCR for hospitals that did not report costs and charges for a blood cost center.

As we stated in the proposed rule (76 FR 42192), we continue to believe the hospital-specific, blood-specific CCR methodology best responds to the absence of a blood-specific CCR for a hospital than alternative methodologies, such as defaulting to the overall hospital CCR or applying an average blood-specific CCR across hospitals. Because this methodology takes into account the unique charging and cost accounting structure of each hospital, we believe that it yields more accurate estimated costs for these products. We believe that continuing with this methodology in CY 2012 would result in median costs for blood and blood products that appropriately reflect the relative estimated costs of these products for hospitals without blood cost centers and, therefore, for these blood products in general.

Comment: Some commenters asserted that there is a gap between CMS' proposed payments for blood and blood products and the costs incurred by

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hospitals for the acquisition, management, and processing of blood and blood products, including high volume products such as leukocyte reduced red blood cells, described by HCPCS codes P9016 (Red blood cells, leukocytes reduced, each unit), P9021 (Red blood cells unit), and P9040 (Red blood cells, leukoreduced irradiated). These commenters stated that CMS should implement appropriate payment policies, such as paying no less than the payment rates in effect for CY 2011 for individual blood products in CY 2012, to close the gap between OPPS payment and the costs of blood and blood products and to ensure continued beneficiary access. They stated that this action is crucial, given that those costs continue to rise for a variety of reasons. For example, one commenter cited federally mandated requirements and recommendations by the U.S. Food and Drug Administration (FDA) as having a significant impact on the increasing costs of blood products, while another commenter noted that transfusion safety officers are being hired in most major hospitals to address improper transfusion and inappropriate use of blood. The commenters argued that, given the 2-

year lag inherent in available claims data in the OPPS ratesetting process, the use of hospital claims data without adjustments likely will not reflect these rising costs in a timely manner.

Response: As we indicated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71838 through 71839), we continue to believe that using blood-specific CCRs applied to hospital claims data results in payments that appropriately reflect hospitals' relative costs of providing blood and blood products as reported to us by hospitals, which would reflect hospitals' changing costs due to factors cited by the commenters, such as FDA requirements, to the extent that these are affecting blood costs. We annually update payment groups and payment weights using the most recently available hospital claims and cost report data. This process allows us to recalibrate the payment groups and payment weights in response to changes in hospitals' costs from year to year in the most timely manner possible. A fundamental principle of the OPPS is that it is based on relative weights, and as we have stated in the past (73 FR 68541), it is the relativity of the costs to one another, rather than absolute cost, that is important in setting payment rates. To deviate from our standard OPPS ratesetting methodology by paying no less than the payment rates in effect for CY 2011 for individual blood products in CY 2012 would skew this relativity. We also note that the median costs per unit (calculated using the blood-specific CCR methodology) for this final rule with comment period increase for the majority of the most commonly provided blood and blood products (including the highest volume blood and blood product, described by HCPCS code P9016) compared to the CY 2011 median costs. For all APCs whose payment rates are based upon relative payment weights, we note that the quality and accuracy of reported units and charges significantly influence the median costs that are the basis for our payment rates, especially for low volume items and services.

After consideration of the public comments we received, we are finalizing, without modification, our CY 2012 proposal to calculate median costs upon which the CY 2012 payments rates for blood and blood products are based using our blood-specific CCR methodology, which utilizes actual or simulated CCRs from the most recently available hospital cost reports to convert hospital charges for blood and blood products to costs (the methodology we have utilized since CY 2005). We believe that continuing this methodology in CY 2012 results in median costs for blood and blood products that appropriately reflect the relative estimated costs of these products for hospitals without blood cost centers and, therefore, for these products in general.

We refer readers to Addendum B to this final rule with comment period (which is available via the Internet on the CMS Web site) for the final CY 2012 payment rates for blood and blood products (which are identified with status indicator ``R''). For a more detailed discussion of the blood-specific CCR methodology, we refer readers to the CY 2005 OPPS proposed rule (69 FR 50524 through 50525). For a full history of OPPS payment for blood and blood products, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66807 through 66810).

(3) Allergy Tests (APCs 0370 and 0381)

In the CY 2006 OPPS final rule with comment period (70 FR 68610), we discussed the confusion raised by a number of providers related to the reporting of units for single and multiple allergy tests described by CPT codes 95004 through 95078. According to the providers, while some of these codes instruct providers to specify the number of tests or use the singular word ``tests'' or ``testing'' in their descriptors, others do not contain such instruction or do not contain ``tests'' or ``testing'' in their descriptors. In light of the variable hospital billing that may be inconsistent with the CPT code descriptors, as discussed in detail in the CY 2006 OPPS final rule with comment period (70 FR 68610), we examined CY 2004 claims and determined that the charges reported on many single procedure claims represent a ``per visit'' charge, rather than a ``per test'' charge, including claims for the allergy test codes that instruct providers to specify the number of tests. As a result of our analysis of our claims data, we differentiated single allergy tests (``per test'' from multiple allergy tests (``per visit'') by placing these services in two different APCs. We believed that making this distinction clarified billing for these services and more accurately placed them with like services sharing similar resource costs. We also provided billing guidance in CY 2006 in Transmittal 804 (issued on January 3, 2006) specifically clarifying that hospitals should report charges for the CPT codes that describe single allergy tests to reflect charges ``per test'' rather than ``per visit'' and should bill the appropriate number of units (as defined in the CPT code descriptor) of these CPT codes to describe all of the tests provided. Since 2006, we have analyzed our claims data to determine whether the reporting of these services has improved.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42192), we proposed to continue to use our methodology of differentiating single allergy tests (``per test'') from multiple allergy tests (``per visit'') by assigning these services to two different APCs to provide accurate payments for these tests in CY 2012. Specifically, services proposed to be assigned to APC 0381 (Single Allergy Tests) reflect the CPT codes that describe single allergy tests in which CPT instructions direct providers to specify the number of tests performed. Alternatively, the procedures proposed for assignment to APC 0370 (Allergy Tests) describe multiple allergy tests per encounter; therefore, for these procedures, only one unit of the service is billed even if multiple tests are performed.

As discussed in the CY 2012 OPPS/ASC proposed rule (76 FR 42192), our analysis of the CY 2010 claims data available for the proposed rule for the single allergy tests, specifically those services assigned to APC 0381, did not reflect improved and more consistent hospital billing practices of ``per test'' for single allergy tests. The median cost of APC 0381 calculated for the proposed rule according to the standard single

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claims OPPS methodology was approximately $51, significantly higher than the CY 2011 OPPS/ASC final rule median cost of approximately $33 that was calculated according to the ``per unit'' methodology, and greater than we would expect for these procedures that are to be reported ``per test'' with the appropriate number of units. Some claims for single allergy tests still appear to provide charges that represent a ``per visit'' charge, rather than a ``per test'' charge. Therefore, consistent with our payment policy for single allergy tests since CY 2006, we calculated a proposed ``per unit'' median cost for APC 0381, based upon 601 claims containing multiple units or multiple occurrences of a single CPT code. The proposed CY 2012 median cost for APC 0381 using the ``per unit'' methodology was approximately $34. For a full discussion of the ``per unit'' methodology for APC 0381, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66737).

In addition, we proposed that multiple allergy tests continue to be assigned to APC 0370 with a median cost calculation based on the standard OPPS methodology for CY 2012. This resulted in a proposed APC median cost of approximately $97 based on 283 claims.

We did not receive any public comments on our CY 2012 proposal for payment of single or multiple allergy tests. We are finalizing our CY 2012 proposal, without modification, to calculate a ``per unit'' median cost for APC 0381 as described above in this section. The final CY 2012 median cost of APC 0381 is approximately $31.

Furthermore, we also are finalizing our CY 2012 proposal, without modification, to use the standard OPPS methodology to set the APC payment rate for APC 0370. We are revising the title of APC 0370 from ``Allergy Tests'' to ``Multiple Allergy Tests'' so that the APC title more accurately describes all the services assigned to the APC. The final CY 2012 median cost of APC 0370 is approximately $80 based on 306 claims.

(4) Hyperbaric Oxygen Therapy (APC 0659)

Since the implementation of OPPS in August 2000, the OPPS has recognized HCPCS code C1300 (Hyperbaric oxygen under pressure, full body chamber, per 30 minute interval) for hyperbaric oxygen (HBOT) provided in the hospital outpatient setting. In the CY 2005 final rule with comment period (69 FR 65758 through 65759), we finalized a ``per unit'' median cost calculation for APC 0659 (Hyperbaric Oxygen) using only claims with multiple units or multiple occurrences of HCPCS code C1300 because delivery of a typical HBOT service requires more than 30 minutes. We observed that claims with only a single occurrence of the code were anomalies, either because they reflected terminated sessions or because they were incorrectly coded with a single unit. In the same rule, we also established that HBOT would not generally be furnished with additional services that might be packaged under the standard OPPS APC median cost methodology. This enabled us to use claims with multiple units or multiple occurrences. Finally, we also used each hospital's overall CCR to estimate costs for HCPCS code C1300 from billed charges rather than the CCR for the respiratory therapy or other departmental cost centers. Our rationale for using the hospital's overall CCR can be found in the CY 2005 OPPS final rule with comment period (69 FR 65758 through 65759). The public comments on the CY 2005 OPPS proposed rule effectively demonstrated that hospitals report the costs and charges for HBOT in a wide variety of cost centers. Since CY 2005, we have used this methodology to estimate the median cost for HBOT. The median costs of HBOT using this methodology have been relatively stable for several years.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42192), we proposed to continue using the same methodology to estimate a ``per unit'' median cost for HCPCS code C1300 for CY 2012. This methodology resulted in a proposed APC median cost of approximately $107 using 370,519 claims with multiple units or multiple occurrences for HCPCS code C1300 for CY 2012.

We did not receive any public comments on our proposal to continue to use our established ratesetting methodology for calculating the median cost of APC 0659 for payment of HBOT for CY 2012. We are finalizing our CY 2012 proposal, without modification, to continue to use our established ratesetting methodology for calculating the median cost of APC 0659 for payment of HBOT, with a final CY 2012 median cost of approximately $105.

(5) Payment for Ancillary Outpatient Services When Patient Expires (APC 0375)

In the November 1, 2002 final rule with comment period (67 FR 66798), we discussed the creation of the new HCPCS modifier ``-CA'' to address situations where a procedure on the OPPS inpatient list must be performed to resuscitate or stabilize a patient (whose status is that of an outpatient) with an emergent, life-threatening condition, and the patient dies before being admitted as an inpatient. HCPCS modifier ``CA'' is defined as a procedure payable only in the inpatient setting when performed emergently on an outpatient who expires prior to admission. In Transmittal A-02-129, issued on January 3, 2003, we instructed hospitals on the use of this modifier. For a complete description of the history of the policy and the development of the payment methodology for these services, we refer readers to the CY 2007 OPPS final rule with comment period (71 FR 68157 through 68158).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42192 through 42193), we proposed to continue to use our established ratesetting methodology for calculating the median cost of APC 0375 (Ancillary Outpatient Services When Patient Expires) and to continue to make one payment under APC 0375 for the services that meet the specific conditions for using HCPCS modifier ``-CA.'' That is, we proposed to calculate the relative payment weight for APC 0375 by using all claims reporting a status indicator ``C'' (inpatient procedures) appended with HCPCS modifier ``-CA.'' For the history and detailed explanation of the methodology, we refer readers to the CY 2004 OPPS final rule (68 FR 63467 through 63468). We stated in the proposed rule that we continue to believe that this established ratesetting methodology results in the most appropriate aggregate median cost for the ancillary services provided in these unusual clinical situations.

We stated that we believe that hospitals are reporting the HCPCS modifier ``-CA'' according to the policy initially established in CY 2003. We noted that the claims frequency for APC 0375 has been relatively stable over the past few years. We noted that the median cost for APC 0375 has decreased based on the CY 2010 OPPS claims data used for the development of the proposed rates for CY 2012 compared to that for CY 2011. Variation in the median cost for APC 0375 is expected because of the small number of claims and because the specific cases are grouped by the presence of the HCPCS modifier ``-CA'' appended to an inpatient only procedure and not according to the standard APC criteria of clinical and resource homogeneity. Cost variation for APC 0375 from year to year is anticipated and acceptable as long as hospitals continue judicious reporting of the HCPCS modifier ``-CA.'' Table 4 of the proposed rule showed the number of claims and the median costs

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for APC 0375 for CYs 2007, 2008, 2009, 2010, and 2011, and the proposed median cost for APC 0375 for CY 2012. For CY 2012, we proposed a median cost of approximately $5,711 for APC 0375 based on 155 claims.

We did not receive any public comments regarding this proposal. For the reasons explained in the CY 2012 OPPS/ASC proposed rule, we are finalizing our CY 2012 proposal, without modification, to continue to use our established ratesetting methodology for calculating the median cost of APC 0375, which has a final CY 2012 APC median cost of approximately $6,039. Table 4 below shows the number of claims and the final median costs for APC 0375 for CYs 2007, 2008, 2009, 2010, 2011, and 2012.

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(6) Endovascular Revascularization of the Lower Extremity (APCs 0083, 0229, and 0319)

For the CY 2011 update, the AMA's CPT Editorial Panel created 16 new CPT codes in the Endovascular Revascularization section of the 2011 CPT code book to describe endovascular revascularization procedures of the lower extremity performed for occlusive disease. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71841 through 71845), we discussed the process and methodology by which we assigned the new CY 2011 endovascular revascularization CPT codes to APCs that we believe are comparable with respect to clinical characteristics and resources required to furnish the services. Specifically, we were able to use the existing CY 2009 hospital outpatient claims data and most recent cost report data to create simulated medians for 12 of the 16 new separately payable codes for CY 2011. Because the endovascular revascularization CPT codes are new for CY 2011, we used our CY 2009 single and ``pseudo'' single claims data to simulate the new CY 2011 CPT code definitions. As shown in Table 7 of the CY 2011 OPPS/ASC final rule with comment period (75 FR 71844), many of the new endovascular revascularization CPT codes were previously reported using a combination of CY 2009 CPT codes. In order to simulate median costs, we selected claims that we believe meet the definition for each of the new endovascular revascularization CPT codes. Table 7 showed the criteria we applied to select a claim to be used in the calculation of the median cost for the new codes (shown in Column A). As we stated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71842), we developed these criteria based on our clinicians' understanding of services that were reported by CY 2009 CPT codes that, in various combinations, reflect the services provided that are described by the new CPT codes for CY 2011.

After determining the simulated median costs for the procedures, we assigned each CPT code to appropriate APCs based on their clinical homogeneity and resource use. Of the 16 new codes, we assigned 9 CPT codes to APC 0083 (Coronary or Non-Coronary Angioplasty and Percutaneous Valvuloplasty) and 5 CPT codes to APC 0229 (Transcatheter Placement of Intravascular Shunts), and created new APC 0319 (Endovascular Revascularization of the Lower Extremity) for 2 CPT codes. Table 8 of the CY 2011 OPPS/ASC final rule with comment period displayed their final CY 2011 APC assignments and CPT median costs (75 FR 71845). We noted that because these CPT codes are new for CY 2011, they are identified with comment indicator ``NI'' in Addendum B to the CY 2011 OPPS/ASC final rule with comment period to identify them as a new interim APC assignment for the new year and subject to public comment. We specifically requested public comment on our methodology for simulating the median costs for these new CY 2011 CPT codes in addition to public comments on the payment rates themselves (75 FR 71845).

At its February 28-March 1, 2011 meeting, the APC Panel recommended that CMS provide data to allow the Panel to investigate and monitor the APC weights for the lower extremity revascularization procedures in light of CPT coding changes for CY 2011. In the CY 2012 OPPS/ASC proposed rule, we indicated that we were accepting the APC Panel's recommendation and will provide additional data to the Panel at an upcoming meeting.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42190), we proposed to continue with the CY 2011 methodology that was described previously in this section in determining the APC assignments for the CPT codes that describe endovascular revascularization of the lower extremity. The predecessor endovascular revascularization CPT codes were in existence prior to CY 2011 and were assigned to APCs based on claims data and cost report data. Given that these data are available for the services described by the predecessor endovascular revascularization CPT codes, we proposed to continue for CY 2012 to use the existing hospital outpatient claims and cost report data from the previous endovascular revascularization CPT codes to simulate an estimated median cost for the new endovascular revascularization CPT codes in determining the appropriate APC

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assignments. As has been our practice since the implementation of the OPPS in 2000, we review our latest claims data for ratesetting and, if necessary, revise the APC assignments for the upcoming year. In this case, review of the procedures with significant claims data in APC 0083 showed a 2 times rule violation. Specifically, APC 0083, as it was initially configured, showed that the range of the CPT median costs for the procedures with significant claims data was approximately between $3,252 (for CPT code 35476 (Transluminal balloon angioplasty, percutaneous; venous)) and $7,174 (for CPT code 37221 (Revascularization, endovascular, open or percutaneous, iliac artery, unilateral, initial vessel; with transluminal stent placement(s), includes angioplasty within the same vessel, when performed)), resulting in a 2 times rule violation. Because of its median cost, we stated that we believe that CPT code 37221 would be more appropriately placed in APC 0229, which had an initial estimated median cost of approximately $8,606, based on the clinical and resource characteristics of other procedures also assigned to APC 0229. Therefore, for CY 2012, we proposed to revise the APC assignment for CPT code 37221, from APC 0083 to APC 0229, to accurately reflect the cost and clinical features of the procedure. This proposed reassignment of CPT code 37221 from APC 0083 to APC 0029 would eliminate the 2 times rule violation for APC 0083 noted above. Based on this reconfiguration, the CY 2010 claims data available for the proposed rule were used to calculate a median cost of approximately $4,683 for APC 0083, approximately $8,218 for APC 0229, and approximately $14,556 for APC 0319. All three proposed median costs for CY 2012 were significantly greater than the CY 2011 OPPS/ASC final rule median costs of approximately $3,740 for APC 0083, approximately $7,940 for APC 0229, and approximately $13,751 for APC 0319.

In addition, we proposed to revise the APC titles for APCs 0083, 0229, and 0319 to better describe the procedures assigned to these APCs. Specifically, we proposed to revise the APC title for APC 0083 from ``Coronary or Non-Coronary Angioplasty and Percutaneous Valvuloplasty'' to ``Level I Endovascular Revascularization of the Lower Extremity''; for APC 0229, from ``Transcatheter Placement of Intravascular Shunt and Stents'' to ``Level II Endovascular Revascularization of the Lower Extremity''; and for APC 0319, from ``Endovascular Revascularization of the Lower Extremity'' to ``Level III Endovascular Revascularization of the Lower Extremity.''

We solicited public comments on the proposed status indicators and APC assignments for the endovascular revascularization of the lower extremity CPT codes for CY 2012. Table 5 of the proposed rule listed the endovascular revascularization of the lower extremity CPT codes along with their proposed status indicator and APC assignments for CY 2012. As noted previously, because these CPT codes are new for CY 2011, they are identified with comment indicator ``NI'' in Addendum B to the CY 2011 OPPS/ASC final rule with comment period to identify them as a new interim APC assignment for the new year and subject to public comment. We specifically requested public comment on our methodology for simulating the median costs for these new CY 2011 CPT codes in addition to public comments on the payment rates themselves (75 FR 71845). We respond to any public comments received on the CY 2011 OPPS/

ASC final rule with comment period and the CY 2012 OPPS/ASC proposed rule below.

At its August 10-12, 2011 meeting, the APC Panel supported CMS' proposal to move HCPCS code 37221 (Revascularization, endovascular, open or percutaneous, iliac artery, unilateral, initial vessel; with transluminal stent placement(s), includes angioplasty within the same vessel, when performed) to APC 0229.

Comment: Several commenters supported the CY 2012 proposal to rename APCs 0083, 0229, and 0319 to better describe the procedures assigned to these APCs, and requested that CMS finalize these changes. The commenters also supported the proposed status indicator assignments of ``T'' for each of these APCs. One commenter agreed with the proposed renaming of APC 0229 and 0319 but asked that CMS change the APC title of APC 0038 to ``Coronary Angioplasty, Valvuloplasty, and Level I Endovascular Revascularization of the Lower Extremity'' in order to reflect the coronary as well as endovascular procedures assigned to that APC.

Response: We appreciate the commenters' support of our proposal to revise the titles for APCs 0083, 0229, and 0319. We agree with the commenter that a title of ``Coronary Angioplasty, Valvuloplasty, and Level I Endovascular Revascularization of the Lower Extremity'' would more accurately describe the procedures assigned to APC 0083. Therefore, we are finalizing our CY 2012 proposal, with modification, to revise the APC title for APC 0083 from ``Coronary or Non-Coronary Angioplasty and Percutaneous Valvuloplasty'' to ``Coronary Angioplasty, Valvuloplasty, and Level I Endovascular Revascularization of the Lower Extremity''; for APC 0229, from ``Transcatheter Placement of Intravascular Shunt and Stents'' to ``Level II Endovascular Revascularization of the Lower Extremity''; and for APC 0319, from ``Endovascular Revascularization of the Lower Extremity'' to ``Level III Endovascular Revascularization of the Lower Extremity.'' We also are finalizing our proposal, without modification, to continue to assign status indicator ``T'' to each of these APCs.

Comment: Many commenters supported our overall methodology for calculating simulated medians for the endovascular revascularization CPT codes established for 2011 and agreed with the APC reassignment for CPT code 37221 from APC 0083 to APC 0229. A few commenters cited that, during the August 2011 APC Panel meeting, the APC Panel recommended that CMS finalize this proposal.

Response: We appreciate the commenters' support of our overall methodology for calculating simulated medians for the endovascular revascularization CPT codes established for 2011. Based on our analysis of the hospital claims and cost report data available for this final rule with comment period, and in accordance with the feedback we received from many commenters, we continue to believe that CPT code 37221 is more appropriately placed in APC 0229 than in APC 0083. Our data shows 4,673 simulated single claims (out of 4,710 total claims) for CPT code 37221 with a CPT median cost of approximately $7,053, which is closer to the APC median cost of approximately $8,088 for APC 0229 than to the APC 0083 median cost of approximately $4,611.28. We also note that if CPT code 37221 were assigned to APC 0083, a 2 times violation would likely result. Therefore, after consideration of the public comments received and the APC Panel recommendation at its August 2011 meeting, we are finalizing our proposal, without modification, to assign CPT code 37221 to APC 0229, which has a final CY 2012 median cost of approximately $8,088.

Comment: Several commenters disagreed with the continued APC assignment for CPT code 37223 (Revascularization, endovascular, open or percutaneous, iliac artery, each additional ipsilateral iliac vessel; with transluminal stent placement(s),

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includes angioplasty within the same vessel, when performed) in APC 0083. They stated that the service described by CPT code 37223 is more similar clinically and in terms of resource utilization to the procedures assigned to APC 0229 because this service involves stent placement. The commenters also argued that CPT code 37223 is an add-on code to CPT code 37221, and should be assigned to APC 0229, which is the APC to which CPT code 37221 is assigned. They pointed out that CPT codes 37206 (Transcatheter placement of an intravascular stent(s) (except coronary, carotid, and vertebral vessel, and lower extremity arteries), percutaneous; each additional vessel) and 37208 (Transcatheter placement of an intravascular stent(s) (non-coronary vessel other than iliac and lower extremity arteries), open; each additional vessel) are also add-on CPT codes, and that they are assigned to the same APC as the primary codes with which they are billed (that is, APC 0229). The commenters further added that CPT code 37223, like CPT code 37221, requires the use of an implantable endovascular stent, and that the CY 2012 OPPS proposed payment rate of approximately $4,520 for CPT code 37223 does not take the cost of the device into consideration. They noted that any efficiencies to be gained by performing the procedure described by CPT code 37223 at the same time as the procedure described by CPT code 37223 would be captured appropriately in the multiple procedure discount that would apply as a result of both procedures being assigned status indicator ``T.''

Response: We are unable to simulate a median cost for CPT code 37223 using the CY 2010 claims data available for this final rule with comment period because we have no single service claims data that appropriately describe the procedure associated with CPT code 37223. Therefore, analysis of our hospital outpatient claims data does not support an APC reassignment for CPT code 37223 from APC 0083 to APC 0229 based on resource homogeneity, and we believe that the service described by CPT code 37223 is clinically similar to procedures in APC 0083. We note that we will have CY 2011 hospital claims available for CPT code 37223 and the other new endovascular revascularization CPT codes for the first time for CY 2013 OPPS ratesetting, and that we will closely monitor our data to ensure that the APC placements appropriately reflect hospitals' costs for these procedures.

We also note that when hospitals report CPT code 37223, we expect them to also report one of the following device HCPCS C-codes for the implantable stent used in those procedures:

C1874 (Stent, coated/covered, with delivery system)

C1875 (Stent, coated/covered, without delivery system)

C1876 (Stent, non-coated/non-covered, with delivery system)

C1877 (Stent, non-coated/non-covered, without delivery system)

C2617 (Stent, non-coronary, temporary, without delivery system)

C2625 (Stent, non-coronary, temporary, with delivery system)

These HCPCS C-codes were made effective April 1, 2001, and are a part of the procedure-to-device edits for CPT code 37223. Procedure-to-

device edits, which have been in place for many procedures since 2005, require that when a particular service or procedural CPT or Level II HCPCS code is billed, the claim must also contain an appropriate device code.

After analysis of our claims data and consideration of the public comments received, we are finalizing our proposal, without modification, to continue to assign CPT code 37223 to APC 0083, which has a final CY 2012 median cost of approximately $4,611.

Comment: Some commenters disagreed with the APC assignment for CPT codes 37224 (Revascularization, endovascular, open or percutaneous, femoral/popliteal artery(s), unilateral; with transluminal angioplasty) and 37235 (Revascularization, endovascular, open or percutaneous, tibial/peroneal artery, unilateral, each additional vessel; with transluminal stent placement(s) and atherectomy, includes angioplasty within the same vessel, when performed) to APC 0083, and stated that both procedures would be more appropriately placed in APC 0229 based on the economic and clinical coherence to other procedures already assigned to APC 0229.

Response: Analysis of our hospital outpatient claims shows 4,288 simulated single claims (out of 4,320 total claims) with a median cost of approximately $5,418 for CPT code 37224, while there were no claims submitted upon which we could simulate a median cost for CPT code 37235. The range of the median costs for APC 0083 with significant claims data is approximately between $3,230 to approximately $5,766, which is in line with the median cost of approximately $5,418 for CPT code 37224. Based on our claims data, we believe that CPT code 37224 is appropriately placed in APC 0083 which has a final median cost is approximately $4,611. As is the case with CPT code 37223, we do not have claims data to support the reassignment of CPT code 37235 to a different APC. We also believe that CPT codes 37224 and 37235 are sufficiently similar clinically to the other procedures in APC 0083 to warrant their continued placement in that APC. Therefore, we will continue to assign CPT codes 37224 and 37235 to APC 0083 for CY 2012.

We note that, similar to CPT code 37223, both CPT codes 37224 and 37235 are included as part of the procedure-to-device edits, and hospitals are reminded to refer to the latest edits on the CMS OPPS Web site. The updated lists of edits can be found under ``Device, Radiolabeled Product, and Procedure Edits'' at http://www.cms.gov/HospitalOutpatientPPS/.

After consideration of the public comments received on the CY 2011 OPPS/ASC final rule with comment period and the CY 2012 OPPS/ASC proposed rule and review of our claims data, we are finalizing our CY 2012 proposal, without modification, to continue with the CY 2011 methodology that we described in the CY 2012 OPPS/ASC proposed rule (76 FR 42193 through 42194) in determining the APC assignments for the CPT codes that describe endovascular revascularization of the lower extremity for the reasons set forth above. We also are finalizing our CY 2012 proposal, without modification, to revise the APC assignment for CPT code 37221, from APC 0083 to APC 0229. We are finalizing our CY 2012 proposal, with modification, to revise the APC titles for APCs 0083, 0229, and 0319 as described previously. Table 5 below lists the endovascular revascularization of the lower extremity CPT codes along with their final status indicator and APC assignments for CY 2012.

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(7) Non-Congenital Cardiac Catheterization (APC 0080)

For CY 2011, the AMA CPT Editorial Panel deleted 19 non-congenital cardiac catheterization-related CPT codes and replaced them with 20 new CPT codes in the Cardiac Catheterization and Injection-Related section of the 2011 CPT Code Book to describe more precisely the specific services provided during cardiac catheterization procedures. In particular, the CPT Editorial Panel deleted 19 non-congenital cardiac catheterization-related CPT codes from the 93500 series and created 14 new CPT codes in the 93400 series and 6 in the 93500 series. We discussed these coding changes in detail in the CY 2011 OPPS/ASC final rule with comment period, along with the process by which we assigned the new CPT codes to APCs that we believe are comparable with respect to clinical characteristics and resources required to furnish the cardiac catheterization services described by the new CPT codes (75 FR 71846 through 71849). As discussed in the final rule with comment period, we were able to use the existing CY 2009 hospital outpatient claims data and the most recent cost report data to create simulated medians for the new separately payable CPT codes for CY 2011. Specifically, to estimate the hospital costs associated with the 20 new non-congenital cardiac catheterization-related CPT codes based on their CY 2011 descriptors, we used claims and cost report data from CY 2009. Because of the substantive coding changes associated with the new non-

congenital cardiac catheterization-related CPT codes for CY 2011, we used our CY 2009 single and ``pseudo'' single claims data to simulate the new CY 2011 CPT code definitions. We stated that many of the new CPT codes were previously reported using multiple CY 2009 CPT codes, and we provided a crosswalk of the new CY 2011 cardiac catheterization CPT codes mapped to the CY 2009 cardiac catheterization CPT codes in Table 11 of the CY 2011 OPPS/ASC final rule with comment period (75 FR 71849). Table 11 showed the criteria we applied to select a claim to be used in the calculation of the median cost for the new codes (shown in column A). As we stated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71847 through 71848), we developed these criteria based on our clinicians' understanding of services that were reported by CY 2009 CPT codes that, in various combinations, reflect the services provided that are described in the new CPT codes. We used approximately 175,000 claims for the new non-congenital catheterization-related CPT codes, together with the single and ``pseudo'' single procedure claims for the remaining congenital catheterization-related CPT codes in APC 0080, to calculate CPT level median costs and the median cost for APC 0080 of approximately $2,698. We noted that, because the CPT codes listed in Table 11 are new for CY 2011, they were identified with comment indicator ``NI'' in Addendum B of that final rule with comment period to identify them

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as subject to public comment. We specifically requested public comment on our methodology for simulating the median costs for these new CY 2011 CPT codes, in addition to public comments on the payment rates themselves (75 FR 71848).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42195), for CY 2012, we proposed to continue to use the CY 2011 methodology in determining the APC assignments for the cardiac catheterization CPT codes. The predecessor cardiac catheterization CPT codes were in existence prior to CY 2011 and were assigned to APC 0080 based on claims data and cost report data. Given that these data are available for the services described by the predecessor cardiac catheterization CPT codes, we proposed for CY 2012 to continue to use the existing hospital outpatient claims and cost report data from the predecessor cardiac catheterization CPT codes to simulate an estimated median cost for the new cardiac catheterization CPT codes in determining the appropriate APC assignments. As has been our practice since the implementation of the OPPS in 2000, we review our latest claims data for ratesetting and, if necessary, revise the APC assignments for the upcoming year. Based on analysis of the CY 2010 claims data available for the proposed rule, the proposed median cost for APC 0080 was approximately $2,822 for CY 2012, which was slightly greater than the median cost of approximately $2,698 for the CY 2011 OPPS/ASC final rule with comment period. For CY 2012, we did not propose any changes to the CY 2011 APC assignments of any of the codes assigned to APC 0080 because the claims data available for the proposed rule support continuation of these APC assignments.

We solicited public comments on the proposed status indicators and the APC assignments for CY 2012 for the cardiac catheterization CPT codes. Table 6 of the proposed rule listed the new CY 2011 cardiac catheterization CPT codes along with their proposed status indicators and APC assignments for CY 2012.

Comment: Some commenters supported our CY 2012 proposal for payment of non-congenital cardiac catheterization.

Response: We appreciate the commenters' support of our payment methodology for the non-congenital cardiac catheterization procedures. Therefore, consistent with our rationale set forth above, we are finalizing our CY 2012 proposal, without modification, to continue with the CY 2011 methodology in determining the APC assignments for the non-

congenital cardiac catheterization CPT codes. The final CY 2012 median cost for APC 0080 is approximately $2,721.

Table 6 below lists the CY 2012 cardiac catheterization CPT codes along with their final status indicators and APC assignments for CY 2012.

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(8) Cranial Neurostimulator and Electrodes (APC 0318)

For CY 2011, the AMA CPT Editorial Panel created a new CPT code 64568 (Incision for implantation of cranial nerve (e.g., vagus nerve) neurostimulator electrode array and pulse generator) and indicated that it describes the services formerly included in the combinations of (1) CPT code 64573 (Incision for implantation of neurostimulator electrodes; cranial nerve) and CPT code 61885 (Insertion or replacement of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to a single electrode array); or (2) CPT code 64573 and CPT code 61886 (Insertion or replacement of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to two or more electrode arrays). As we discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71850), our standard process for assigning new CPT codes to APCs is to assign the code to the APC that we believe contains services that are comparable with respect to clinical characteristics and resources required to furnish the service. A new CPT code is given a comment indicator of ``NI'' to identify it as a new interim APC assignment for the first year and the APC assignment for the new code is then open to public comment. In some, but not all, cases, we are able to use the existing data from established codes to simulate an estimated median cost for the new code to guide us in the assignment of the new code to an APC. For CY 2011, in the case of the new neurostimulator electrode and pulse generator implantation CPT code, we were able to use the existing CY 2009 claims and most current cost report data to create a simulated median cost.

Specifically, to estimate the hospital costs of CPT code 64568 based on its CY 2011 descriptor, we used CY 2009 claims and the most recent cost report data, using the single and ``pseudo'' single claims within this data set to simulate the definition of this service. We selected claims with CPT code 64573 on which CPT code 61885 or 61886 was also present and consistent with the description of the new CPT code 64568. We treated the summed costs on these claims as if they were a

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single procedure claim for CPT code 64568. We created an estimated median cost of approximately $22,562 for CPT code 64568 from 298 single claims to set a final payment rate for CY 2011 for the new code. We created APC 0318 (Implantation of Cranial Neurostimulator Pulse Generator and Electrode) for CY 2011, to which CPT code 64568 is the only procedure assigned. APC 0225 (Implantation of Neurostimulator Electrodes, Cranial Nerve), which contained only the predecessor CPT code 64573, was deleted effective January 1, 2011. We noted that, because CPT code 64568 is new for CY 2011, it was identified with comment indicator ``NI'' in Addendum B of the CY 2011 OPPS/ASC final rule with comment period to identify it as subject to public comment. We specifically requested public comment on our methodology for simulating the median costs for this new CY 2011 CPT code, in addition to public comments on the payment rate itself (75 FR 71850).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42195 through 42196), we proposed to use the same methodology we used in CY 2011 to estimate the hospital costs of CPT code 64568 and to continue to maintain CPT code 64568 as the only code assigned to APC 0318 for CY 2012.

Comment: One commenter on the CY 2011 OPPS final rule with comment period expressed appreciation for CMS' efforts to establish APC 0318.

Response: We appreciate the commenters' support for the creation of APC 0318.

We did not receive any public comments on our proposals for cost estimation or APC assignment of CPT code 64568 for CY 2012. We are finalizing our CY 2012 proposal, without modification, to use the same methodology we used in CY 2011 to estimate hospital costs of CPT code 64568. For this final rule with comment period, we created an estimated median cost of approximately $24,262 for CPT code 64568 from 455 single claims to set a payment rate for APC 0318 for CY 2012. We are maintaining CPT code 64568 as the only code assigned to APC 0318 for CY 2012.

(9) Brachytherapy Sources

(A) Background

Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) of Pub. L. 108-173 (MMA), mandated the creation of additional groups of covered OPD services that classify devices of brachytherapy consisting of a seed or seeds (or radioactive source) (``brachytherapy sources'') separately from other services or groups of services. The additional groups must reflect the number, isotope, and radioactive intensity of the brachytherapy sources furnished and include separate groups for palladium-103 and iodine-125 sources.

Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Public Law 108-173, established payment for brachytherapy sources furnished from January 1, 2004 through December 31, 2006, based on a hospital's charges for each brachytherapy source furnished adjusted to cost. Under section 1833(t)(16)(C) of the Act, charges for the brachytherapy sources may not be used in determining any outlier payments under the OPPS for that period in which payment is based on charges adjusted to cost. Consistent with our practice under the OPPS to exclude items paid at cost from budget neutrality consideration, these items were excluded from budget neutrality for that time period as well.

Subsequent to the MMA, various amendments to the Act were made that resulted in the extension of the payment period for brachytherapy sources based on a hospital's charges adjusted to cost through December 31, 2009. The CY 2011 OPPS/ASC final rule with comment period summarizes these amendments to the Act and our proposals to pay for brachytherapy sources at prospective payment rates based on their source specific median costs from CY 2007 through CY 2009 (75 FR 71977 through 71981).

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60533 through 60537), we adopted for CY 2010 the general OPPS prospective payment methodology for brachytherapy sources, consistent with section 1833(t)(2)(C) of the Act, with payment rates based on source-specific median costs. For CY 2011, we continued to use the general OPPS prospective payment methodology for brachytherapy sources, consistent with section 1833(t)(2)(C) of the Act (75 FR 71980). We also finalized our proposals to continue the policy we first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60537 and 75 FR 71980) regarding payment for new brachytherapy sources for which we have no claims data, based on the same reasons we discussed in the 2008 OPPS/ASC final rule with comment period (72 FR 66786; which was superseded by section 142 of Pub. L. 110-275). That policy is intended to enable us to assign future new HCPCS codes for new brachytherapy sources to their own APCs, with prospective payment rates based on our consideration of external data and other relevant information regarding the expected costs of the sources to hospitals.

Consistent with our policy regarding APC payments made on a prospective basis, for CYs 2010 and 2011, we finalized proposals to subject brachytherapy sources to outlier payments under section 1833(t)(5) of the Act, and also to subject brachytherapy source payment weights to scaling for purposes of budget neutrality (75 FR 71980 through 71981 and 75 FR 60537). Hospitals could receive outlier payments for brachytherapy sources if the costs of furnishing brachytherapy sources meet the criteria for outlier payment. In addition, as noted in the CY 2010 and CY 2011 OPPS/ASC final rules with comment period (74 FR 60534 and 75 FR 71978 and 71979, respectively), implementation of prospective payments for brachytherapy sources provided opportunities for eligible hospitals to receive additional payments in CY 2010 and CY 2011 under certain circumstances through the 7.1 percent rural adjustment, as described in section II.E. of this final rule with comment period.

(B) OPPS Payment Policy

As we have stated previously (72 FR 66780, 73 FR 41502, 74 FR 60533 through 60534, and 75 FR 71978), we believe that adopting the general OPPS prospective payment methodology for brachytherapy sources is appropriate for a number of reasons. The general OPPS payment methodology uses median costs based on claims data to set the relative payment weights for hospital outpatient services. This payment methodology results in more consistent, predictable, and equitable payment amounts per source across hospitals by eliminating some of the extremely high and low payment amounts resulting from payment based on hospitals' charges adjusted to cost. We believe that the OPPS prospective payment methodology, as opposed to payment based on hospitals' charges adjusted to cost, would also provide hospitals with incentives for efficiency in the provision of brachytherapy services to Medicare beneficiaries. Moreover, this approach is consistent with our payment methodology for the vast majority of items and services paid under the OPPS.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42196 through 42197), we proposed to use the median costs from CY 2010 claims data for setting the proposed CY 2012 payment rates for brachytherapy sources, as we proposed for most other items and services that will be paid under the CY 2012 OPPS. We proposed to continue the other payment policies for brachytherapy

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sources we finalized and first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60537). We proposed to pay for the stranded and non-stranded NOS codes, HCPCS codes C2698 and C2699, at a rate equal to the lowest stranded or non-stranded prospective payment rate for such sources, respectively, on a per source basis (as opposed, for example, to a per mCi), which is based on the policy we established in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66785). The proposed payment methodology for NOS sources would provide payment to a hospital for new sources and, at the same time, encourage interested parties to quickly bring new sources to our attention so that specific coding and payment could be established.

We also proposed to continue the policy we first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60537) regarding payment for new brachytherapy sources for which we have no claims data, based on the same reasons we discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66786; which was superseded for a period of time by section 142 of Pub. L. 110-275). That policy is intended to enable us to assign new HCPCS codes for new brachytherapy sources to their own APCs, with prospective payment rates set based on our consideration of external data and other relevant information regarding the expected costs of the sources to hospitals.

Consistent with our policy regarding APC payments made on a prospective basis, as we did for CY 2011, we proposed to subject brachytherapy sources to outlier payments under section 1833(t)(5) of the Act, and also to subject brachytherapy source payment weights to scaling for purposes of budget neutrality. Hospitals can receive outlier payments for brachytherapy sources if the costs of furnishing brachytherapy sources meet the criteria for outlier payment. In addition, as noted in the CY 2010 and CY 2011 OPPS/ASC final rules with comment period (74 FR 60534 and 75 FR 71978 through 71979, respectively), implementation of prospective payments for brachytherapy sources would provide opportunities for eligible hospitals to receive additional payments in CY 2012 under certain circumstances through the 7.1 percent rural adjustment, as described in section II.E. of the proposed rule.

Therefore, we proposed to pay for brachytherapy sources at prospective payment rates based on their source-specific median costs for CY 2012. We referred readers to Addendum B to the proposed rule (which is available via the Internet on the CMS Web site) for the proposed CY 2012 payment rates for brachytherapy sources, identified with status indicator ``U.'' For more detailed discussion of the legislative history surrounding brachytherapy sources and our proposed and final policies for CY 2004 through CY 2011, we refer readers to the CY 2011 OPPS/ASC final rule with comment period (75 FR 71977 through 71981).

Comment: Some commenters requested that CMS discard its prospective payment methodology for brachytherapy sources based on source-specific median costs, and revert to payments based on brachytherapy charges adjusted to costs, for a variety of reasons. The commenters claimed that the claims data show a huge variation in costs per unit; that there continues to be, in the CY 2012 proposed rule data, longstanding instability and fluctuation of costs; that more than one half of the current brachytherapy sources have proposed payment rates based on 50 or fewer hospitals (a number that a commenter reported has declined from 2010 to 2012); and that proposed payment rates are unstable and fluctuate significantly. The commenters were also concerned that rank order anomalies continue to exist in proposed source payment rates, such as between C2635, high activity palladium, and C2640 and C2641, which represent forms of low activity palladium. The commenters also claimed that the charges adjusted to cost method would cost the Medicare program approximately $10.8 million less than the prospective payment methodology based on median cost per source. The commenters claimed that the number of hospitals providing brachytherapy treatment and the number of beneficiaries treated with brachytherapy have declined from 2010 to 2011 because some hospitals cannot recover their costs under the prospective payment rates adopted in CY 2010. The commenters also pointed out that High Dose Rate (HDR) Iridium-192 may treat multiple patients over a 90-day source life, making its true cost dependent on the number of patients treated, and thus making fair prospective payment difficult to achieve.

Response: As we stated previously (72 FR 66782; 74 FR 60534; 75 FR 71979), we believe that median costs based on hospital claims data for brachytherapy sources have produced reasonably consistent per-source cost estimates over the past several years, comparable to the patterns we have observed for many other OPPS services whose payments are set based upon relative payment weights from claims data. We believe that our per-source payment methodology specific to each source's radioisotope, radioactive intensity, and stranded or non-stranded configuration, supplemented by payment based on the number of sources used in a specific clinical case, adequately accounts for the major expected sources of variability across treatments. As we also explained previously (72 FR 66782; 74 FR 60535; 75 FR 71979), a prospective payment system such as the OPPS relies on the concept of averaging, where the payment may be more or less than the estimated cost of providing a service for a particular patient, but with the exception of outlier cases, it is adequate to ensure access to appropriate care. In the case of brachytherapy sources for which the law requires separate payment groups, without packaging, the costs of these individual items could be expected to show greater variation than some other APCs under the OPPS because higher variability in costs for some component items and services is not balanced with lower variability for others and because relative weights are typically estimated using a smaller set of claims. Nevertheless, we believe that prospective payment for brachytherapy sources based on median costs from claims calculated according to the standard OPPS methodology is appropriate and provides hospitals with the greatest incentives for efficiency in furnishing brachytherapy treatment.

As we have stated previously (75 FR 71979), under the budget neutral provision for the OPPS, it is the relativity of costs of services, not their absolute costs, that is important, and we believe that brachytherapy sources are appropriately paid according to the standard OPPS payment approach. Furthermore, we are not concerned that some sources may have median costs and payment rates based on 50 or fewer providers, because it is not uncommon for OPPS prospective payment rates to be based on claims from a relatively small number of hospitals that furnished the service in the year of claims data available for the OPPS update year. Fifty hospitals may report hundreds of brachytherapy source claims for many cases and comprise the universe of providers using particular low volume sources, for which we are required to pay separately by statute. Further, our methodology for estimating median costs for brachytherapy sources utilizes all line-

item charges for those sources, which allows us to use all

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hospital reported charge and estimated cost information to set payment rates for these items. Therefore, no brachytherapy source claims are lost. We have no reason to believe that prospective payment rates based on claims from those providers furnishing a particular source do not appropriately reflect the cost of that source to hospitals.

In the case of high and low activity iodine-125 sources, our claims data show that the cost of the high activity source is greater than the low activity sources, as we have noticed in the past. However, this relationship is reversed for palladium-103 sources, as one commenter pointed out. As we have stated in the past (75 FR 71979), we have no information about the expected cost differential between high and low activity sources of various isotopes other than what is available in our claims and hospital cost report data. For high activity palladium-

103, only 12 hospitals reported this service in CY 2010, compared to 150 and 211 providers for low activity palladium sources described by HCPCS codes C2640 and C2641, respectively. As we stated regarding this issue in the CY 2010 and CY 2011 OPPS/ASC final rule with comment period (74 FR 60535 and 75 FR 71979), it is clear that fewer providers furnished high activity palladium-103 sources than low activity palladium sources, and we expect that the hospital cost distribution for those hospitals could be different than the cost distribution of the large number of providers reporting the low activity sources. These varied cost distributions clearly contribute to the observed relationship in median costs between the different types of sources. However, we see no reason why our standard ratesetting methodology for brachytherapy sources that relies on all claims from all hospitals furnishing brachytherapy sources would not yield valid median costs for those hospitals furnishing the different brachytherapy sources upon which CY 2012 prospective payments rates are based.

Prospective payment for brachytherapy sources based on their median costs makes the source payment an integral part of the OPPS, rather than a separate cost-based payment methodology within the OPPS, as indicated previously (75 FR 71980). We believe that consistent and predictable prospectively established payment rates under the OPPS for brachytherapy sources are appropriate because we do not believe that the hospital resource costs associated with specific brachytherapy sources would vary greatly across hospitals or clinical conditions under treatment, other than through differences in the numbers of sources utilized that would be accounted for in the standard OPPS payment methodology we are finalizing for CY 2012.

As we indicated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71980), we agree that high dose rate (HDR) brachytherapy sources such as HDR irirdium-192 have a fixed active life and must be replaced every 90 days; as a result, hospitals' per-treatment cost for the source would be dependent on the number of treatments furnished per source. The source cost must be amortized over the life of the source. Therefore, in establishing their charges for HDR iridium, we expect hospitals to project the number of treatments that would be provided over the life of the source and establish their charges for the source accordingly, as we have stated previously (72 FR 66783; 74 FR 60535; 75 FR 71980). For most of these OPPS services, our practice is to establish prospective payment rates based on the median costs from hospitals' claims data to provide incentives for efficient and cost-

effective delivery of these services.

We do not agree with the commenters that prospective brachytherapy source payment based on median costs would increase aggregate Medicare expenditures using the charges-adjusted-to-cost methodology compared to the proposed prospective payment methodology. Our past studies, such as that discussed in the CY 2010 final rule with comment period (74 FR 60535), have shown that payment at charges adjusted to cost results in higher aggregate payment for brachytherapy sources than does prospective payment. As we indicated in the CY 2010 final rule with comment period and the CY 2011 final rule with comment period (74 FR 60535 and 75 FR 71980), we have traditionally found that charge inflation for brachytherapy sources appears to be higher than the market basket inflation update applicable to prospective payments under the OPPS. Therefore, we found that the estimated payments we calculated for brachytherapy charges adjusted to cost were greater than the estimated prospective payment rates because the hospital market basket grows more slowly than the charges for brachytherapy sources. The commenter did not provide its aggregate payments study in its comment to the CY 2012 OPPS/ASC proposed rule, and we do not know whether the commenter's study took into account factors such as charge inflation. Moreover, the OPPS is a prospective payment system that ensures equitable prospective payment of services across providers, and efficient use of resources, including brachytherapy sources, which since CY 2010 are part of OPPS prospective payment.

Concerning the comment that some providers may have decided to discontinue offering brachytherapy services because the OPPS payment rates for sources were too low, as we have noted in the past (75 FR 71980), there are many reasons why some providers may discontinue services, such as brachytherapy. For example, changes in medical technology or emphasis on different treatment forms for a medical condition can influence whether a set of services are continued. In addition, providers accept payment from a number of payers in addition to Medicare, and we believe a global shift by a provider to discontinue any services would be influenced by factors other than our payment rates alone.

Comment: One commenter supported the proposed payment policy for new brachytherapy sources for which we have no claims data, namely, to assign new HCPCS codes for new brachytherapy sources to their own APCs, with prospective payment rates based on CMS' consideration of external data and other relevant information regarding the expected costs of the sources to hospitals.

Response: We appreciate the commenter's support for this payment policy.

After consideration of the public comments we received, we are finalizing our proposal to pay for brachytherapy sources at prospective payment rates based on their source-specific median costs for CY 2012. We refer readers to Addendum B to this final rule with comment period (which is available via the Internet on the CMS Web site) for the final CY 2012 payment rates for brachytherapy sources, identified with status indicator ``U.'' We also are finalizing our proposals to continue our policies regarding payment for NOS codes for stranded and non-stranded sources and new brachytherapy sources for which we have no claims data. Specifically, we are finalizing our proposals to continue payment for stranded and non-stranded NOS codes, HCPCS codes C2698 and C2699, at a rate equal to the lowest stranded or non-stranded prospective payment for such sources, respectively as discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66786); and our proposal to assign HCPCS codes for new brachytherapy sources to their own APCs, with proposed payment rates based on consideration of external data and other

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relevant information, in the absence of claims data. Once claims data are available, our standard ratemaking process will be applied to the calculation of the median cost for the new brachytherapy source.

Consistent with our policy regarding APC payments made on a prospective basis, we are finalizing our proposal to subject the cost of brachytherapy sources to the outlier provision of section 1833(t)(5) of the Act, and also to subject brachytherapy source payment weights to scaling for purposes of budget neutrality.

As stated in the proposed rule (76 FR 42197), we continue to invite hospitals and other parties to submit recommendations to us for new HCPCS codes to describe new brachytherapy sources consisting of a radioactive isotope, including a detailed rationale to support recommended new sources. Such recommendations should be directed to the Division of Outpatient Care, Mail Stop C4-05-17, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244. We will continue to add new brachytherapy source codes and descriptors to our systems for payment on a quarterly basis.

e. Calculation of Composite APC Criteria-Based Median Costs

As discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66613), we believe it is important that the OPPS enhance incentives for hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible. For CY 2008, we developed composite APCs to provide a single payment for groups of services that are typically performed together during a single clinical encounter and that result in the provision of a complete service. Combining payment for multiple independent services into a single OPPS payment in this way enables hospitals to manage their resources with maximum flexibility by monitoring and adjusting the volume and efficiency of services themselves. An additional advantage to the composite APC model is that we can use data from correctly coded multiple procedure claims to calculate payment rates for the specified combinations of services, rather than relying upon single procedure claims which may be low in volume and/or incorrectly coded. Under the OPPS, we currently have composite APC policies for extended assessment and management services, low dose rate (LDR) prostate brachytherapy, cardiac electrophysiologic evaluation and ablation services, mental health services, and multiple imaging services. We refer readers to the CY 2008 OPPS/ASC final rule with comment period for a full discussion of the development of the composite APC methodology (72 FR 66611 through 66614 and 66650 through 66652).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42197), for CY 2012, we proposed to continue, with some modifications, our established composite APC policies for extended assessment and management, LDR prostate brachytherapy, cardiac electrophysiologic evaluation and ablation, mental health services, and multiple imaging services, as discussed in sections II.A.2.e.(1), II.A.2.e.(2), II.A.2.e.(3), II.A.2.e.(4), and II.A.2.e.(5), respectively, of the proposed rule. We also proposed to create a new composite APC for cardiac resynchronization therapy services, as discussed in section II.A.2.e.(6) of the proposed rule.

After consideration of the public comments we received as discussed below, for CY 2012, we are finalizing, without modification, our proposal to modify some aspects of our established composite APC policies for extended assessment and management, LDR prostate brachytherapy, cardiac electrophysiologic evaluation and ablation, mental health services, and multiple imaging services, as discussed in sections II.A.2.e.(1), II.A.2.e.(2), II.A.2.e.(3), II.A.2.e.(4), and II.A.2.e.(5), respectively, of this final rule with comment period. We also are finalizing, with modification, our proposal to create a new composite APC for cardiac resynchronization therapy services, as discussed in section II.A.2.e.(6) of this final rule with comment period.

(1) Extended Assessment and Management Composite APCs (APCs 8002 and 8003)

In the CY 2012 OPPS/ASC proposed rule (76 FR 42197 through 42198), for CY 2012, we proposed to continue to include composite APC 8002 (Level I Extended Assessment and Management Composite) and composite APC 8003 (Level II Extended Assessment and Management Composite) in the OPPS for CY 2012. For CY 2008, we created these two composite APCs to provide payment to hospitals in certain circumstances when extended assessment and management of a patient occur (an extended visit). In most circumstances, observation services are supportive and ancillary to the other services provided to a patient. In the circumstances when observation care is provided in conjunction with a high level visit or direct referral and is an integral part of a patient's extended encounter of care, payment is made for the entire care encounter through one of two composite APCs as appropriate.

As defined for the CY 2008 OPPS, composite APC 8002 describes an encounter for care provided to a patient that includes a high level (Level 5) clinic visit or direct referral for observation services in conjunction with observation services of substantial duration (72 FR 66648 through 66649). Composite APC 8003 describes an encounter for care provided to a patient that includes a high level (Level 4 or 5) Type A emergency department visit, a high level (Level 5) Type B emergency department visit, or critical care services in conjunction with observation services of substantial duration. HCPCS code G0378 (Observation services, per hour) is assigned status indicator ``N,'' signifying that its payment is always packaged. As noted in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66648 through 66649), the Integrated Outpatient Code Editor (I/OCE) evaluates every claim received to determine if payment through a composite APC is appropriate. If payment through a composite APC is inappropriate, the I/OCE, in conjunction with the OPPS Pricer, determines the appropriate status indicator, APC, and payment for every code on a claim. The specific criteria that must be met for the two extended assessment and management composite APCs to be paid are provided below in the description of the claims that were selected for the calculation of the proposed CY 2012 median costs for these composite APCs. We did not propose to change these criteria for the CY 2012 OPPS.

When we created composite APCs 8002 and 8003 for CY 2008, we retained as general reporting requirements for all observation services those criteria related to physician order and evaluation, documentation, and observation beginning and ending time as listed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66812). These are more general requirements that encourage hospitals to provide medically reasonable and necessary care and help to ensure the proper reporting of observation services on correctly coded hospital claims that reflect the full charges associated with all hospital resources utilized to provide the reported services. We also issued guidance clarifying the correct method for reporting the starting time for observation services (sections 290.2.2 through 290.5 in the Medicare Claims Processing Manual (Pub. 100-4), Chapter 4, through Transmittal 1745, Change Request 6492, issued May 22, 2009 and implemented July 6, 2009).

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We did not propose to change these reporting requirements for the CY 2012 OPPS.

For CY 2012, we proposed to continue the extended assessment and management composite APC payment methodology for APCs 8002 and 8003 (76 FR 42198). We stated that we continue to believe that the composite APCs 8002 and 8003 and related policies provide the most appropriate means of paying for these services. We proposed to calculate the median costs for APCs 8002 and 8003 using all single and ``pseudo'' single procedure claims for CY 2010 that meet the criteria for payment of each composite APC.

Specifically, to calculate the proposed median costs for composite APCs 8002 and 8003, we selected single and ``pseudo'' single procedure claims that met each of the following criteria:

1. Did not contain a HCPCS code to which we have assigned status indicator ``T'' that is reported with a date of service 1 day earlier than the date of service associated with HCPCS code G0378. (By selecting these claims from single and ``pseudo'' single claims, we already assure that they would not contain a code for a service with status indicator ``T'' on the same date of service.);

2. Contained eight or more units of HCPCS code G0378; and

3. Contained one of the following codes:

In the case of composite APC 8002, HCPCS code G0379 (Direct referral of patient for hospital observation care) on the same date of service as HCPCS code G0378; or CPT code 99205 (Office or other outpatient visit for the evaluation and management of a new patient (Level 5)); or CPT code 99215 (Office or other outpatient visit for the evaluation and management of an established patient (Level 5)) provided on the same date of service or one day before the date of service for HCPCS code G0378.

In the case of composite APC 8003, CPT code 99284 (Emergency department visit for the evaluation and management of a patient (Level 4)); CPT code 99285 (Emergency department visit for the evaluation and management of a patient (Level 5)); CPT code 99291 (Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes); or HCPCS code G0384 (Level 5 hospital emergency department visit provided in a Type B emergency department) provided on the same date of service or one day before the date of service for HCPCS code G0378. (As discussed in detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68684), we added HCPCS code G0384 to the eligibility criteria for composite APC 8003 for CY 2009.)

As discussed further in section VII. of the proposed rule and this final rule with comment period, and consistent with our CY 2008, CY 2009, CY 2010, and CY 2011 final policies (as discussed in section IX. of the final rules with comment period for these calendar years), when calculating the median costs for the clinic, Type A emergency department visit, Type B emergency department visit, and critical care APCs (0604 through 0617 and 0626 through 0630), we utilize our methodology that excludes those claims for visits that are eligible for payment through the two extended assessment and management composite APCs, that is APC 8002 or APC 8003. We believe that this approach results in the most accurate cost estimates for APCs 0604 through 0617 and 0626 through 0630 for CY 2012.

At its February 28-March 1, 2011 meeting, the APC Panel recommended that CMS consider expanding the extended assessment and management composite APCs for CY 2012. In the proposed rule, we indicated that we are accepting this recommendation.

As discussed in the CY 2012 OPPS/ASC proposed rule (76 FR 42198), consistent with our decision to accept the APC Panel's recommendation, we have examined various ways of potentially expanding the current extended assessment and management composite APCs to further limit the possibility that total beneficiary copayments would exceed the inpatient deductible during extended observation encounters. We did not propose for CY 2012 the expanded extended assessment and management composite APCs that we analyzed because, while the composites that we modeled would serve to further limit the number of beneficiaries with copayments that exceeded the inpatient deductible, the modeled composites also had the effect of possibly increasing copayments by a small amount for the majority of beneficiaries undergoing extended observation. In addition, expanded assessment and management composite APCs do not address certain concerns about extended observation services raised by stakeholders at CMS' observation listening session last year (that is, observation time not counting towards the 3-day prior hospitalization requirement for the skilled nursing facility benefit). As we stated in the proposed rule, we will continue our efforts to model other composite structures for a possible new extended assessment and management composite structure for CY 2013.

In summary, for CY 2012, we proposed to continue to include composite APCs 8002 and 8003 in the OPPS. We proposed to continue the extended assessment and management composite APC payment methodology and criteria that we finalized for CYs 2009, 2010, and 2011. We also proposed to calculate the median costs for APCs 8002 and 8003 using the same methodology that we used to calculate the medians for composite APCs 8002 and 8003 for the CY 2008 OPPS (72 FR 66649). That is, we used all single and ``pseudo'' single procedure claims from CY 2010 that met the criteria for payment of each composite APC and applied the standard packaging and trimming rules to the claims before calculating the proposed CY 2012 median costs. The proposed CY 2012 median cost resulting from this methodology for composite APC 8002 was approximately $395, which was calculated from 16,770 single and ``pseudo'' single bills that met the required criteria. The proposed CY 2012 median cost for composite APC 8003 was approximately $735, which was calculated from 225,874 single and ``pseudo'' single bills that met the required criteria.

Comment: Commenters supported CMS' policy to package payment for observation care and to not provide additional payment through an extended assessment and management composite APC payment when observation services are billed with significant surgical procedures. One commenter stated that the observation services in such cases are most likely related to post-procedural recovery, and thus no additional payment is warranted. The commenter argued, however, that when observation services are billed along with minor surgical procedures, the observation services should be paid separately. The commenter suggested that CMS utilize the MPFS definition of minor surgical procedures and reassign the codes currently assigned status indicator ``T'' to two newly created status indicators ``T1''(for general surgical procedures) and ``T2'' (for minor surgical procedure as defined in MPFS) in order to allow observation services to be paid separately when provided with a minor surgical procedure with the suggested status indicator ''T2.''

Response: We appreciate the commenters' support of our policy not to allow payment of APC 8002 or 8003 for claims that include a HCPCS code to which we have assigned status indicator ``T'' that is reported with a date of service on the same day as or one day prior to the date of the service

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associated with HCPCS code G0378. We agree with the commenters that payment for such services is included in the payment for the surgical procedure. We appreciate the commenter's suggestions to define minor surgical procedures and to develop new status indicators to allow for separate payment for observation services when billed with a minor surgical procedure and will take these suggestions into consideration for possible future rulemaking. At this time, we have not proposed to make any policy changes to allow for separate payment for observation services when billed with a minor surgical procedure, nor have we proposed to create new status indicators for CY 2012. Therefore, we are not making any such changes in this final rule with comment period.

After consideration of the public comments we received, we are adopting as final, without modification, our CY 2012 proposal to continue to include composite APCs 8002 and 8003 in the OPPS and to continue the extended assessment and management composite APC payment methodology and criteria that we finalized for CYs 2009 through 2011. We applied the standard packaging and trimming rules to the claims and calculated the median costs for APCs 8002 and 8003 using all single and ``psuedo'' single procedure claims from CY 2010 that meet the criteria for payment of each composite APC. The final CY 2012 median cost resulting from this methodology for APC 8002 is approximately $393, which was calculated from 18,447 single and ``psuedo'' single bills that met the required criteria. The final CY 2012 median cost for composite APC 8003 is approximately $721, which was calculated from 247,334 single and ``psuedo'' single bills that met the required criteria.

(2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001)

LDR prostate brachytherapy is a treatment for prostate cancer in which hollow needles or catheters are inserted into the prostate, followed by permanent implantation of radioactive sources into the prostate through the needles/catheters. At least two CPT codes are used to report the composite treatment service because there are separate codes that describe placement of the needles/catheters and the application of the brachytherapy sources: CPT code 55875 (Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy) and CPT code 77778 (Interstitial radiation source application; complex). Generally, the component services represented by both codes are provided in the same operative session in the same hospital on the same date of service to the Medicare beneficiary being treated with LDR brachytherapy for prostate cancer. As discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66653), OPPS payment rates for CPT code 77778, in particular, had fluctuated over the years. We were frequently informed by the public that reliance on single procedure claims to set the median costs for these services resulted in use of mainly incorrectly coded claims for LDR prostate brachytherapy because a correctly coded claim should include, for the same date of service, CPT codes for both needle/catheter placement and application of radiation sources, as well as separately coded imaging and radiation therapy planning services (that is, a multiple procedure claim).

In order to base payment on claims for the most common clinical scenario, and to further our goal of providing payment under the OPPS for a larger bundle of component services provided in a single hospital encounter, beginning in CY 2008, we began providing a single payment for LDR prostate brachytherapy when the composite service, reported as CPT codes 55875 and 77778, is furnished in a single hospital encounter. We based the payment for composite APC 8001 (LDR Prostate Brachytherapy Composite) on the median cost derived from claims for the same date of service that contain both CPT codes 55875 and 77778 and that do not contain other separately paid codes that are not on the bypass list. In uncommon occurrences in which the services are billed individually, hospitals have continued to receive separate payments for the individual services. We refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66652 through 66655) for a full history of OPPS payment for LDR prostate brachytherapy and a detailed description of how we developed the LDR prostate brachytherapy composite APC.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42199), we proposed to continue paying for LDR prostate brachytherapy services using the composite APC methodology proposed and implemented for CY 2008 through CY 2011. That is, we proposed to use CY 2010 claims on which both CPT codes 55875 and 77778 were billed on the same date of service with no other separately paid procedure codes (other than those on the bypass list) to calculate the payment rate for composite APC 8001. Consistent with our CY 2008 through CY 2011 practice, we proposed not to use the claims that meet these criteria in the calculation of the median costs for APCs 0163 (Level IV Cystourethroscopy and Other Genitourinary Procedures) and 0651 (Complex Interstitial Radiation Source Application), the APCs to which CPT codes 55875 and 77778 are assigned, respectively. We proposed that the median costs for APCs 0163 and 0651 would continue to be calculated using single and ``pseudo'' single procedure claims. We stated that we believe that this composite APC contributes to our goal of creating hospital incentives for efficiency and cost containment, while providing hospitals with the most flexibility to manage their resources. We also continue to believe that data from claims reporting both services required for LDR prostate brachytherapy provide the most accurate median cost upon which to base the composite APC payment rate.

Using a partial year of CY 2010 claims data available for the CY 2012 proposed rule, we were able to use 556 claims that contained both CPT codes 55875 and 77778 to calculate the median cost upon which the proposed CY 2012 payment for composite APC 8001 is based. The proposed median cost for composite APC 8001 for CY 2012 was approximately $3,364. This was an increase compared to the CY 2011 final median cost for this composite APC of approximately $3,195 based on 849 single bill claims from a full year of CY 2009 claims data. The proposed CY 2012 median cost for this composite APC was slightly less than $3,555, the sum of the proposed median costs for APCs 0163 and 0651 ($2,658 + $897), the APCs to which CPT codes 55875 and 77778 map if one service is billed on a claim without the other. We stated that we believe the proposed CY 2012 median cost for composite APC 8001 of approximately $3,364, calculated from claims we believe to be correctly coded, would result in a reasonable and appropriate payment rate for this service in CY 2012.

Comment: One commenter expressed concern with CMS' methodology to use claims for median cost calculation for APC 8001 with both CPT codes 55875 and 77778 on the same date of service and no other separately paid services that are not on the bypass list, which resulted in 556 CY 2012 proposed rule claims. The commenter noted that this is only 12 percent of all CY 2012 proposed rule claims containing CPT codes 55875 and 77778. The commenter stated that its analysis of commonly included procedure codes with LDR procedures would include CPT code

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77332 (Treatment devices, design and construction; simple (simple block, simple bolus)), which the commenter recommended be added to the bypass list. This would add 406 claims to the median cost calculation based on the commenter's analysis of CY 2012 proposed rule claims.

Response: We disagree with the commenter that 556 claims is not a robust number of single claims for ratesetting purposes. There are many services for which we have median costs based on hundreds of single and ``pseudo'' single claims. Moreover, the CY 2012 proposed rule median cost of approximately $3,364, the CY 2012 final median cost of approximately $3,340, and the CY 2011 final median cost of approximately $3,195 all compare favorably and show stability in the median cost calculation for APC 8001. We do not believe the median cost would remain stable to such a degree if the claims used in ratesetting for composite APC 8001 were inadequate or inaccurately reflected hospitals' costs for providing the service described by CPT codes 55875 and 77778. We also do not believe it is appropriate to include CPT code 77332 on the bypass list for the reasons discussed in section II.A.1.b. of this final rule with comment period.

Comment: One commenter requested that CMS implement the proposed CY 2012 payment rate for composite APC 8001, due to the increased median cost for APC 8001.

Response: We appreciate the commenter's support for our proposed payment rate for composite APC 8001. We note that we base final OPPS rates on median costs calculated using a full year of hospital claims and cost report data rather than a partial year's data, which were the data available for the proposed rule.

After consideration of the public comments we received, we are finalizing, without modification, our proposal to continue paying for LDR prostate brachytherapy services using the composite APC methodology implemented for CYs 2008, 2009, 2010, and 2011 described above in this section. The final CY 2012 median cost for composite APC 8001 is approximately $3,340, calculated from 595 single bills.

(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC (APC 8000)

Cardiac electrophysiologic evaluation and ablation services frequently are performed in varying combinations with one another during a single episode of care in the hospital outpatient setting. Therefore, correctly coded claims for these services often include multiple codes for component services that are reported with different CPT codes and that, prior to CY 2008, were always paid separately through different APCs (specifically, APC 0085 (Level II Electrophysiologic Evaluation), APC 0086 (Ablate Heart Dysrhythm Focus), and APC 0087 (Cardiac Electrophysiologic Recording/Mapping)). As a result, there would never be many single bills for cardiac electrophysiologic evaluation and ablation services, and those that are reported as single bills would often represent atypical cases or incorrectly coded claims. As described in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66655 through 66659), the APC Panel and the public expressed persistent concerns regarding the limited and reportedly unrepresentative single bills available for use in calculating the median costs for these services according to our standard OPPS methodology.

Effective January 1, 2008, we established APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite) to pay for a composite service made up of at least one specified electrophysiologic evaluation service and one specified electrophysiologic ablation service. Calculating a composite APC for these services allowed us to utilize many more claims than were available to establish the individual APC median costs for these services, and we also saw this composite APC as an opportunity to advance our stated goal of promoting hospital efficiency through larger payment bundles. In order to calculate the median cost upon which the payment rate for composite APC 8000 is based, we used multiple procedure claims that contained at least one CPT code from group A for evaluation services and at least one CPT code from group B for ablation services reported on the same date of service on an individual claim. Table 9 in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66656) identified the CPT codes that are assigned to groups A and B. For a full discussion of how we identified the group A and group B procedures and established the payment rate for the cardiac electrophysiologic evaluation and ablation composite APC, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66655 through 66659). Where a service in group A is furnished on a date of service that is different from the date of service for a code in group B for the same beneficiary, payments are made under the appropriate single procedure APCs and the composite APC does not apply.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42200), we proposed to continue to pay for cardiac electrophysiologic evaluation and ablation services using the composite APC methodology proposed and implemented for CY 2008 through CY 2011. Consistent with our CY 2008 through CY 2011 practice, we proposed not to use the claims that meet the composite payment criteria in the calculation of the median costs for APC 0085 and APC 0086, to which the CPT codes in both groups A and B for composite APC 8000 are otherwise assigned. Median costs for APCs 0085 and 0086 would continue to be calculated using single procedure claims. We stated that we continue to believe that the composite APC methodology for cardiac electrophysiologic evaluation and ablation services is the most efficient and effective way to use the claims data for the majority of these services and best represents the hospital resources associated with performing the common combinations of these services that are clinically typical. Furthermore, this approach creates incentives for efficiency by providing a single payment for a larger bundle of major procedures when they are performed together, in contrast to continued separate payment for each of the individual procedures.

For CY 2012, using a partial year of CY 2010 claims data available for the proposed rule, we were able to use 11,156 claims containing a combination of group A and group B codes and calculated a proposed median cost of approximately $11,598 for composite APC 8000. This was an increase compared to the CY 2011 final median cost for this composite APC of approximately $10,673 based on a full year of CY 2009 claims data. We stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42200) that we believe the proposed median cost of $11,598 calculated from a high volume of correctly coded multiple procedure claims would result in an accurate and appropriate proposed payment for cardiac electrophysiologic evaluation and ablation services when at least one evaluation service is furnished during the same clinical encounter as at least one ablation service.

Comment: One commenter supported CMS' proposal to continue its current composite methodology for cardiac electrophysiologic evaluation and ablation services, stating that it is the most efficient and effective method to use claims data for most of the cardiac

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electrophysiologic services, and best represents the resources associated with the combined services.

Response: We appreciate the commenter's support.

We are finalizing our proposal for CY 2012, without modification, to continue to pay for cardiac electrophysiologic evaluation and ablation services using the composite APC methodology implemented for CY 2008 through CY 2011. For this final rule with comment period, we were able to use 11,706 claims from CY 2010 containing a combination of group A and group B codes and calculated a final CY 2012 median cost of approximately $11,313 for composite APC 8000. Table 7 below list the groups of procedures upon which we based composite APC 8000 for CY 2012.

GRAPHIC TIFF OMITTED TR30NO11.009

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(4) Mental Health Services Composite APC (APC 0034)

In the CY 2012 OPPS/ASC proposed rule (76 FR 42200 through 42201), for CY 2012, we proposed to continue our longstanding policy of limiting the aggregate payment for specified less resource-intensive mental health services furnished on the same date to the payment for a day of partial hospitalization, which we consider to be the most resource-intensive of all outpatient mental health treatment for CY 2012. We refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18452 through 18455) for the initial discussion of this longstanding policy. We stated that we continue to believe that the costs associated with administering a partial hospitalization program represent the most resource-intensive of all outpatient mental health treatment. Therefore, we did not believe that we should pay more for a day of individual mental health services under the OPPS than the partial hospitalization per diem payment.

As discussed in detail in section VIII. of the proposed rule, for CY 2012, we proposed to continue using a provider-specific two tiered payment approach for partial hospitalization services that distinguishes payment made for services furnished in a CMHC from payment made for services furnished in a hospital. Specifically, we proposed one APC for partial hospitalization program days with three services furnished in a CMHC (APC 0172 (Level I Partial Hospitalization (3 services) for CMHCs)) and one APC for days with four or more services furnished in a CMHC (APC 0173 (Level II Partial Hospitalization (4 or more services) for CMHCs)). We proposed that the payment rates for these two APCs be based upon the median per diem costs calculated using data only from CMHCs. Similarly, we proposed one APC for partial hospitalization program days with three services furnished in a hospital (APC 0175, Level I Partial Hospitalization (3 services) for Hospital-Based PHPs), and one APC for days with four or more services furnished in a hospital (APC 0176, Level II Partial Hospitalization (4 or more services) for Hospital-Based PHPs). We proposed that the payment rates for these two APCs be based on the median per diem costs calculated using data only from hospitals.

Because our longstanding policy of limiting the aggregate payment for specified less resource-intensive mental health services furnished on the same date to the payment rate for the most resource-intensive of all outpatient mental health treatment, for CY 2012, we proposed to continue to set the payment rate for APC 0034 (Mental Health Services Composite) at the same rate as we proposed for APC 0176, which is the maximum partial hospitalization per diem payment. As we stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42201), we believe this APC payment rate would provide the most appropriate payment for composite APC 0034, taking into consideration the intensity of the mental health services and the differences in the HCPCS codes for mental health services that could be paid through this composite APC compared with the HCPCS codes that could be paid through partial hospitalization APC 0176. When the aggregate payment for specified mental health services provided by one hospital to a single beneficiary on one date of service based on the payment rates associated with the APCs for the individual services exceeds the maximum per diem partial hospitalization payment, we proposed that those specified mental health services would be assigned to APC 0034. We proposed that APC 0034 would have the same payment rate as APC 0176 and that the hospital would continue to be paid one unit of APC 0034. The I/OCE currently determines whether to pay these specified mental health services individually or to make a single payment at the same rate as the APC 0176 per diem rate for partial hospitalization for all of the specified mental health services furnished by the hospital on that single date of service, and we proposed for CY 2012 that it would continue to determine this.

We did not receive any comments on this proposal. We continue to believe that the costs associated with administering a partial hospitalization program represent the most resource intensive of all outpatient mental health treatment, and we do not believe that CMS should pay more for a day of individual mental health services under the OPPS than the partial hospitalization per diem payment. Therefore, we are finalizing our CY 2012 proposal, without modification, to limit the aggregate payment for specified less intensive outpatient mental health services furnished on the same date by a hospital to the payment for a day of partial hospitalization, specifically APC 0176.

(5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 8008)

Prior to CY 2009, hospitals received a full APC payment for each imaging service on a claim, regardless of how many procedures were performed during a single session using the same imaging modality. Based on extensive data analysis, we determined that this practice neither reflected nor promoted the efficiencies hospitals can achieve when performing multiple imaging procedures during a single session (73 FR 41448 through 41450). As a result of our data analysis, and in response to ongoing recommendations from MedPAC to improve payment accuracy for imaging services under the OPPS, we expanded the composite APC model developed in CY 2008 to multiple imaging services. Effective January 1, 2009, we provide a single payment each time a hospital bills more than one imaging procedure within an imaging family on the same date of service. We utilize three imaging families based on imaging modality for purposes of this methodology: (1) Ultrasound; (2) computed tomography (CT) and computed tomographic angiography (CTA); and (3) magnetic resonance imaging (MRI) and magnetic resonance angiography (MRA). The HCPCS codes subject to the multiple imaging composite policy and their respective families are listed in Table 13 of the CY 2011 OPPS/ASC final rule with comment period (75 FR 71859 through 71860).

While there are three imaging families, there are five multiple imaging composite APCs due to the statutory requirement at section 1833(t)(2)(G) of the Act that we differentiate payment for OPPS imaging services provided with and without contrast. While the ultrasound procedures included in the policy do not involve contrast, both CT/CTA and MRI/MRA scans can be provided either with or without contrast. The five multiple imaging composite APCs established in CY 2009 are:

APC 8004 (Ultrasound Composite);

APC 8005 (CT and CTA without Contrast Composite);

APC 8006 (CT and CTA with Contrast Composite);

APC 8007 (MRI and MRA without Contrast Composite); and

APC 8008 (MRI and MRA with Contrast Composite).

We define the single imaging session for the ``with contrast'' composite APCs as having at least one or more imaging procedures from the same family performed with contrast on the same date of service. For example, if the hospital performs an MRI without contrast during the same session as at least one other MRI with contrast, the hospital will receive payment for APC 8008, the ``with contrast'' composite APC.

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Hospitals continue to use the same HCPCS codes to report imaging procedures, and the I/OCE determines when combinations of imaging procedures qualify for composite APC payment or map to standard (sole service) APCs for payment. We make a single payment for those imaging procedures that qualify for composite APC payment, as well as any packaged services furnished on the same date of service. The standard (noncomposite) APC assignments continue to apply for single imaging procedures and multiple imaging procedures performed across families. For a full discussion of the development of the multiple imaging composite APC methodology, we refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68559 through 68569).

At its February 2010 meeting, the APC Panel recommended that CMS continue providing analysis on an ongoing basis of the impact on beneficiaries of the multiple imaging composite APCs as data become available. In the CY 2011 OPPS/ASC proposed rule, we indicated that we were accepting this recommendation and would provide the requested analysis to the APC Panel at a future meeting (75 FR 46212). As we discuss in the CY 2012 OPPS/ASC proposed rule, at the February 28-March 1, 2011 APC Panel meeting, CMS staff provided an updated analysis of the multiple imaging composite APCs to the Panel, comparing partial year CY 2010 imaging composite cost and utilization data to comparable CY 2009 data in order to meet the APC Panel request that we provide analysis of the impact on beneficiaries of the multiple imaging composite APCs (76 FR 42201).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42201), for CY 2012, we proposed to continue paying for all multiple imaging procedures within an imaging family performed on the same date of service using the multiple imaging composite payment methodology. The proposed CY 2012 payment rates for the five multiple imaging composite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 8008) were based on median costs calculated from a partial year of CY 2010 claims available for the CY 2012 OPPS/ASC proposed rule that qualified for composite payment under the current policy (that is, those claims with more than one procedure within the same family on a single date of service). To calculate the proposed median costs, we used the same methodology that we used to calculate the final CY 2011 median costs for these composite APCs. That is, we removed any HCPCS codes in the OPPS imaging families that overlapped with codes on our bypass list (``overlap bypass codes'') to avoid splitting claims with multiple units or multiple occurrences of codes in an OPPS imaging family into new ``pseudo'' single claims. The imaging HCPCS codes that we removed from the bypass list for purposes of calculating the proposed multiple imaging composite APC median costs appear in Table 9 of the CY 2012 OPPS/ASC proposed rule. (We noted that, consistent with our proposal in section II.A.1.b. of the CY 2012 proposed rule to add CPT code 71550 (Magnetic resonance (eg, proton) imaging, chest (eg, for evaluation of hilar and mediastinal lymphadenopathy); without contrast material(s)) to the list of bypass codes for CY 2012, we also proposed to add CPT code 71550 to the list of proposed OPPS imaging family services overlapping with HCPCS codes on the proposed CY 2012 bypass list (76 FR 42201 through 42202). We integrated the identification of imaging composite ``single session'' claims, that is, claims with multiple imaging procedures within the same family on the same date of service, into the creation of ``pseudo'' single procedure claims to ensure that claims were split in the ``pseudo'' single process into accurate reflections of either a composite ``single session'' imaging service or a standard sole imaging service resource cost. Like all single bills, the new composite ``single session'' claims were for the same date of service and contained no other separately paid services in order to isolate the session imaging costs. Our last step after processing all claims through the ``pseudo'' single process was to reassess the remaining multiple procedure claims using the full bypass list and bypass process in order to determine if we could make other ``pseudo'' single bills. That is, we assessed whether a single separately paid service remained on the claim after removing line-items for the ``overlap bypass codes.''

As discussed in detail in section III.D.2. of the CY 2012 OPPS/ASC proposed rule, we proposed to establish two APCs to which we would propose to assign the codes created for CY 2011 by the AMA's CPT Editorial Board for combined abdominal and pelvis CT services (76 FR 42235). Specifically, we proposed to create new APC 0331 (Combined Abdominal and Pelvis CT Without Contrast), to which we proposed to assign CPT code 74176 (Computed tomography, abdomen and pelvis; without contrast material); and we proposed to create new APC 0334 (Combined Abdominal and Pelvis CT With Contrast), to which we proposed to assign CPT codes 74177 (Computed tomography, abdomen and pelvis; with contrast material(s)) and 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by contrast material(s) and further sections in one or both body regions) for the CY 2012 OPPS. As noted and listed in section III.D.2. of the proposed rule, we selected claims of predecessor codes of new CPT codes 74176, 74177, and 74178 to calculate the costs of proposed new APCs 0331 and 0334, respectively (76 FR 42235). Therefore, we proposed not to use those claims listed in Table 21 in section III.D.2. of the proposed rule in calculating the costs of APCs 8005 and 8006.

We were able to identify 1 million ``single session'' claims out of an estimated 2 million potential composite cases from our ratesetting claims data, or approximately half of all eligible claims, to calculate the proposed CY 2012 median costs for the multiple imaging composite APCs. We listed in Table 8 of the proposed rule the HCPCS codes that would be subject to the proposed multiple imaging composite policy, the approximate proposed median costs for the imaging composite APCs, and their respective families for CY 2012. The HCPCS codes listed in Table 8 were assigned status indicator ``Q3''' in Addendum B to the proposed rule (which is available via the Internet on the CMS Web site) to identify their status as potentially payable through a composite APC. Their proposed composite APC assignment was identified in Addendum M to the proposed rule (which is available via the Internet on the CMS Web site). Table 9 of the proposed rule listed the OPPS imaging family services that overlap with HCPCS codes on the proposed CY 2012 bypass list.

Comment: Some commenters requested that CMS provide separate APC payment when multiple imaging services are provided on the same date of service but at different times, because, according to the commenters, services at different times require additional resources than services performed together. The commenters indicated that hospitals providing emergent services are more likely than other hospitals to provide multiple imaging services, some of which are provided in the same day but at different times. The commenters stated that when imaging services are not provided at the same encounter, the same economies of scale are not realized as when imaging services are provided together. For example, cases in which it

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is necessary to perform CT scans of the chest, abdomen, and pelvis, and also a CT scan of the brain and/or soft tissues of the neck, must be split into two separate encounters separated by a period of time, due to required repositioning of the patient, and safety requirements. One commenter requested that hospitals report a modifier or condition code to report situations in which multiple imaging services are provided on the same date but at different times, in order to afford additional payment in those circumstances. The commenter further opined that the fact that CMS allows separate payment for multiple E/M services on the same date of service shows that CMS recognizes that resources are expended for each clinic visit, and that this is an identical concept to multiple imaging services on the same date but at differing sessions.

Response: As we stated in the CY 2010 and CY 2011 final rules with comment period (74 FR 60399 and 75 FR 71858 through 71859), we do not agree with the commenters that multiple imaging procedures of the same modality provided on the same date of service but at different times should be exempt from the multiple imaging composite payment methodology. As we indicated in the CY 2009 through CY 2011 OPPS/ASC final rules with comment period (73 FR 68565; 74 FR 60399; 75 FR 71859), we believe that composite payment is appropriate even when procedures are provided on the same date of service but at different times because hospitals do not expend the same facility resources each and every time a patient is seen for a distinct imaging service in a separate imaging session. In most cases, we expect that patients in these circumstances would receive imaging procedures at different times during a single prolonged hospital outpatient encounter. The efficiencies that may be gained from providing multiple imaging procedures during a single session are achieved in ways other than merely not having to reposition the patient. Even if the same level of efficiencies could not be gained for multiple imaging procedures performed on the same date of service but at different times, we expect that any higher costs associated with these cases would be reflected in the claims data and cost reports we use to calculate the median costs for the multiple imaging composite APCs and, therefore, in the payment rates for the multiple imaging composite APCs. Therefore, we do not believe it is necessary or appropriate for hospitals to report imaging procedures provided on the same date of service but during different sittings any differently than they would report imaging procedures performed consecutively in one sitting with no time in between the imaging services. In addition, for the above reasons, we do not believe it is necessary to implement a modifier or condition code to distinguish between such cases. We believe that the comparison to our E/M visit policy of providing separate payments to separate clinic visits on the same day is not relevant because, unlike radiology departments, clinics often operate independently from each other in different parts of the hospital with separate staffs providing different services.

Comment: A few commenters, who expressed concern that providers may receive inadequate compensation and a resulting decrease in beneficiary access, stated that CMS should continue to provide analyses to the APC Panel of the impact of its imaging composite APC policy on payment and usage of imaging services. One commenter noted the updated analysis that CMS staff provided at the February 28-March 1, 2011 APC Panel meeting. The commenter appreciated the shared information, and recommended that CMS continue to monitor costs, provide information on the impact of multiple imaging composite APCs, and use the information learned to ensure beneficiary access, as well as to evaluate whether the existing multiple imaging composite APC methodology accurately reflects all costs of proving the services. Other commenters agreed with CMS' decision not to propose any expansion of imaging composite APCs, opining that no expansion of the imaging composite APCs should be considered until robust data on the current policy is available for public review and comment. One commenter expressed concern with CMS' proposal to create two additional multiple imaging composite APCs.

Response: We will continue to monitor the multiple imaging composite APC rate methodology and the cost of providing imaging services. We will report any information to the APC Panel and the public, as appropriate. Any expansion to the multiple imaging composite APCs would be subject to notice and comment rulemaking. We note that we did not propose to create two additional multiple imaging composite APCs for CY 2012 as one commenter indicated.

Comment: Some commenters stated that, while they understood the multiple imaging composite APCs are intended to encourage efficiencies, they were concerned that the methodology employs arbitrary reductions absent data and may adversely affect beneficiary access to those imaging services subject to the policy. Other commenters stated that the efficiencies to be gained from multiple imaging procedures cannot be extrapolated across modalities.

Response: The median costs upon which the payment rates for the multiple imaging composite APCs are based are calculated using CY 2010 claims that qualified for composite payment, including those with only two imaging procedures and those with substantially higher numbers of imaging procedures. Therefore, because the payment rates reflect actual hospitals' actual costs for providing multiple imaging services during a single session, we do not agree with the commenter that the policy employs arbitrary reductions. As we have stated in the past (75 FR 71858 and 74 FR 60400), we do not agree that the composite APC payment rates are insufficient to reflect the current costs of diagnostic imaging procedures when more than two imaging procedures are performed, and we do not believe that, in aggregate, OPPS payment for multiple imaging services will be inadequate so as to limit beneficiary access. We note that the multiple imaging composite APC methodology is applied only when multiple imaging procedures of the same imaging modality are performed during the same session, and is not applied across imaging modalities.

After consideration of the public comments we received, we are adopting our CY 2012 proposal, without modification, to continue paying for all multiple imaging procedures within an imaging family performed on the same date of service using the multiple imaging composite payment methodology. The CY 2012 payment rates for the five multiple imaging composite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 8008) are based on median costs calculated from the CY 2010 claims that would have qualified for composite payment under the current policy (that is, those claims with more than one procedure within the same family on a single date of service). Using the same ratesetting methodology described in the CY 2012 OPPS/ASC proposed rule (76 FR 42202), we were able to identify approximately 1.1 million ``single session'' claims out of an estimated 2.2 million potential composite cases from our ratesetting claims data, or approximately half of all eligible claims, to calculate the final CY 2012 median costs for the multiple imaging composite APCs.

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Table 8 below lists the HCPCS codes that will be subject to the multiple imaging composite policy and their respective families and approximate composite APC median costs for CY 2012. Table 9 below lists the OPPS imaging family services that overlap with HCPCS codes on the CY 2012 bypass list.

BILLING CODE 4120-01-P

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(6) Cardiac Resynchronization Therapy Composite APC (APCs 0108, 0418, 0655, and 8009)

Cardiac resynchronization therapy (CRT) uses electronic devices to sequentially pace both sides of the heart to improve its output. CRT utilizes a pacing electrode implanted in combination with either a pacemaker or an implantable cardioverter defibrillator (ICD). CRT performed by the implantation of an ICD along with a pacing electrode is referred to as ``CRT-D.'' CRT performed by the implantation of a pacemaker along with a pacing electrode is referred to as ``CRT-P.''

CRT-D services are described by combinations of CPT codes for the insertion of pulse generators and the insertion of the leads associated with ICDs, along with the insertion of the pacing electrode. For the implantation of a pulse generator, hospitals may use CPT code 33240 (Insertion of single or dual chamber pacing cardioverter-defibrillator pulse generator), which is the only CPT code assigned to APC 0107 (Insertion of Cardioverter-Defibrillator) for CY 2011, in combination with CPT code 33225 (Insertion of pacing electrode, cardiac venous system, for left ventricular pacing, at time of insertion of pacing cardioverter-defibrillator or pacemaker pulse generator (including upgrade to dual chamber system)), which is assigned to APC 0418 (Insertion of Left Ventricular Pacing Electrode) for CY 2011. For the implantation of a pulse generator and leads, hospitals may use CPT code 33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generator), which is the only CPT code assigned to APC 0108 (Insertion/

Replacement/Repair of Cardioverter-Defibrillator Leads) for CY 2011, in combination with CPT code 33225.

For CRT-P services, hospitals may use CPT codes 33206 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); atrial) and 33207 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); ventricular), which are assigned to APC 0089 (Insertion/Replacement of Permanent Pacemaker and Electrodes) for CY 2011, in combination with CPT code 33225. Hospitals also may use CPT code 33208 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); atrial and ventricular), for the implantation of a pacemaker with leads, which is assigned to APC 0655 (Insertion/

Replacement/Conversion of a Permanent Dual Chamber Pacemaker), in combination with CPT code 33225.

A number of commenters who responded to prior OPPS proposed rules, as well as public presenters to the APC Panel, have recommended that CMS establish new composite APCs for CRT-D services, citing significant fluctuations in the median cost for CPT code 33225 and the payment rate for APC 0418. The commenters and presenters have pointed out that, because the definition of CPT code 33225 specifies that the pacing electrode is inserted at the same time as an ICD or pacemaker, CMS would not have many valid single or pseudo single claims upon which to calculate an accurate median cost. These commenters and presenters also asserted that claims data for these services demonstrate that the percentage of single claims available for use in CRT ratesetting is very low compared to the total number of claims submitted for CRT-D or CRT-P services. The APC Panel at its February and August 2009 meetings recommended that CMS evaluate the implications of the creation of a new composite APC for CRT-D services and recommended that CMS reconsider creating a composite APC or a group of composite APCs for CRT-D and CRT-P services. While we did not propose to create any new composite APCs for CY 2010 or CY 2011, we accepted both of these APC Panel recommendations (75 FR 71852).

As described in the CY 2012 OPPS/ASC proposed rule (76 FR 42203 through 42206), in response to the APC Panel recommendations and the comments we received, we evaluated the implications of creating four composite APCs for CRT services, which would include the ICD and pacemaker insertion procedures listed previously in this section (described by CPT codes 33240, 33249, 33206, 33207, and 33208) performed in combination with the insertion of a pacing electrode (described by CPT code 33225). Table 10 of the proposed rule and Table 10 below outline the four potential composite APCs that we modeled. Specifically, we provide a description of each potential composite APC, the combination of CPT codes that we used to define the potential composite APC, the frequency of claims that met the definition of the potential composite APC that could be used to calculate a median cost for the potential composite APC, and the median cost calculated for the potential composite APC using CY 2010 claims data available for the proposed rule, that is, those claims processed between January 1 and December 31, 2010.

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For CY 2012, under the authority of section 1833(t)(1)(B) of the Act, we proposed to create a new composite APC 8009 (Cardiac Resynchronization Therapy with Defibrillator Composite), listed as potential composite APC ``B'' in Table 10 above, for CRT-D services. This proposed composite APC was the only modeled composite in the study with significant claims volume, as shown above in Table 10, and would provide a single payment for a procedure currently assigned to APC 0418 together with a procedure currently assigned to APC 0108 (Insertion/

Replacement/Repair of Cardioverter-Defibrillator Leads) when performed on the same date of service. Specifically, we proposed to create composite APC 8009, which would be used when the procedures described by CPT code 33225 and CPT code 33249 are performed on the same day, in order to recognize the inherent challenges in calculating accurate median costs for CPT code 33225 based on single procedure claims utilized in the standard OPPS ratesetting methodology, and to address the public commenters' concerns regarding the fluctuations in median costs for APC 0418. We stated that we believe a composite payment methodology is appropriate for these services and would result in more accurate payment for these services because such a methodology is specifically designed to provide payment for two or more procedures when they are provided in the same encounter, thus enabling us to use more claims data to calculate median costs, and to use claims data that more accurately represents the full cost of the services when they are furnished in the same encounter. We also stated that we believe that there is sufficient claims volume for CPT code 33225 and CPT code 33249 provided in the same encounter to warrant creation of the composite APC. In addition, we indicated that we believe the claims volume for CPT 33225 and CPT 33249 is sufficient to demonstrate that these services are commonly performed

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together. While the other combinations of CRT procedures listed in Table 10 may also be performed together, we did not propose to implement composite APCs for these services because of the low frequency with which CPT code 33225 was reported in the claims data in combination with other CPT codes that describe the insertion of an ICD and a pacemaker. As we have stated previously (74 FR 60392), because of the complex claims processing and ratesetting logic involved, in the past, we have explored composite APCs only for combinations of services that are commonly performed together. Because of the low frequency of the other combinations of CRT procedures listed in Table 10 above, we did not consider them to be commonly performed together.

Under the authority of section 1833(t)(2)(E) of the Act, we also proposed to cap the payment rate for composite APC 8009 at the most comparable Medicare-severity diagnosis-related group (MS-DRG) payment rate established under the IPPS that would be provided to acute care hospitals for providing CRT-D services to hospital inpatients. Specifically, we proposed a payment rate for APC 8009 as the lesser of the APC 8009 median cost or the IPPS payment rate for MS-DRG 227 (Cardiac Defibrillator Implant without Cardiac Catheterization without Major Complication or Comorbidity), as adopted in the FY 2012 IPPS/LTCH PPS final rule. We stated that we would establish the OPPS payment amount as the FY 2012 IPPS standardized payment amount for MS-DRG 227 under this proposal. In the FY 2012 IPPS/LTCH proposed rule, this amount was $26,364.93. We calculated the standardized payment rate for MS-DRG 227 ($26,364.93) by multiplying the normalized weight from Table 5 of the FY 2012 IPPS/LTCH proposed rule (5.1370) by the sum of the non-labor and labor-related shares of the proposed FY 2012 IPPS operating standardized amount (nonwage-adjusted) ($5,132.36), which were obtained from Table 1B of the FY 2012 IPPS/LTCH proposed rule. For further detail on the calculation of the IPPS proposed FY 2012 payments rates, we refer readers to the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26028 through 26029).

We stated that we consider the standardized payment rate for MS-DRG 227 to represent appropriate payment for a comparable package of services furnished to outpatients. We also stated that we believe that, because this MS-DRG includes defibrillator implantation for those inpatients without major complications or comorbidities, it represents the payment made for hospital inpatients who are most similar to patients who would receive CRT-D services on an outpatient basis because hospital outpatients are generally less sick than hospital inpatients and because patients who have complications or comorbitities would be most likely to be admitted to inpatient status to receive CRT-

D services. Similar to the proposed payment rate for composite APC 8009, the proposed payment rate for MS-DRG 227 included the device costs associated with CRT-D services, along with the service costs associated with CPT codes 33225 and 33249, which are the procedures that are reported for implanting those devices. We stated that we believe that we should not pay more for these services under the proposed OPPS composite APC payment than under the IPPS because the OPPS payment would, by definition, include fewer items and services than the corresponding IPPS MS-DRG payment. For example, the IPPS MS-

DRG payment includes payment for drugs and diagnostic tests that would be separately payable under the OPPS. We explained that a payment cap is necessary, therefore, to ensure that we do not create an inappropriate payment incentive to provide CRT-D services in one setting of care as opposed to another by paying more for CRT-D services in the outpatient setting compared to the inpatient setting. We also explained that we believe that limiting payment for CRT-D services under the OPPS to the IPPS MS-DRG payment will ensure appropriate and equitable payment to hospitals because patients who receive these services in the hospital outpatient setting are not as sick as patients who have been admitted to receive this same service in the hospital inpatient setting. Therefore, we expect it would be less costly to provide care for these patients, who would also spend less time in the facility.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42241 through 42242), we also addressed cases when CPT codes 33225 and 33249 are performed on different dates of service. We proposed to retain CPT code 33249 in APC 0108, but to reassign CPT code 33225 to APC 0108 on the basis that these codes are similar in clinical characteristics and median cost. We proposed to revise the title of APC 0108 to read ``Insertion/

Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes'' for CY 2012. We also proposed to reassign CPT code 33224 (Insertion of pacing electrode, cardiac venous system, for left ventricular pacing, with attachment to previously placed pacemaker or pacing cardioverter-

defibrillator pulse generator (including revision of pocket, removal, insertion, and/or replacement of generator)) from APC 0418 to APC 0655, and to change the title of APC 0655 from ``Insertion/Replacement/

Conversion of a Permanent Dual Chamber Pacemaker'' to ``Insertion/

Replacement/Conversion of a Permanent Dual Chamber Pacemaker or Pacing Electrode.'' In the CY 2012 OPPS/ASC proposed rule (76 FR 42205), we stated that we believe that reassigning CPT code 33224 to APC 0655 will promote stability in payment for CPT code 33224 because CPT code 33224 would then be assigned to an APC with similar median costs, but with a higher volume of services and, therefore, will benefit from the stability in APC median costs and payment rates that generally result as the volume of services within an APC increases. Because these proposed actions would result in APC 0418 containing no CPT codes, we proposed to delete APC 0418.

In addition, as with composite APC 8009 and under the authority of section 1833(t)(2)(E) of the Act, we proposed to limit the payment for services assigned to APC 0108 to the IPPS standardized payment amount for MS-DRG 227. In other words, we proposed a payment rate for APC 0108 as the lesser of the APC 0108 median cost or the IPPS standardized payment rate for MS-DRG 227. We stated that we believe that MS-DRG 227 is the most comparable DRG to APC 0108 because, like APC 0108, MS-DRG 227 includes implantation of a defibrillator in patients who do not have medical complications or comorbidities. If we were to base payment for APC 0108 on our calculated median cost of approximately $27,361, it would result in a payment under the CY 2012 OPPS that would exceed our proposed standardized payment under the IPPS for MS-DRG 227 of $26,364.93. We stated that we do not believe that it would be equitable to pay more for the implantation of a cardioverter defibrillator or implantation of a left ventricular pacing electrode for an outpatient encounter, which, by definition, includes fewer items and services than an inpatient stay during which the patient has the same procedure.

In order to ensure that hospitals correctly code for CRT services in the future, we proposed to create claim processing edits that would return claims to providers unless CPT code 33225 is billed in conjunction with one of the following CPT codes, as specified by the AMA in the CPT code book:

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33206 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); atrial);

33207 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); ventricular);

33208 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); atrial and ventricular);

33212 (Insertion or replacement of pacemaker pulse generator only; single chamber, atrial or ventricular);

33213 (Insertion or replacement of pacemaker pulse generator only; dual chamber, atrial or ventricular);

33214 (Upgrade of implanted pacemaker system, conversion of single chamber system to dual chamber system (includes removal of previously placed pulse generator, testing of existing lead, insertion of new lead, insertion of new pulse generator));

33216 (Insertion of a single transvenous electrode, permanent pacemaker or cardioverter-defibrillator);

33217 (Insertion of 2 transvenous electrodes, permanent pacemaker or cardioverter-defibrillator);

33222 (Revision or relocation of skin pocket for pacemaker);

33233 (Removal of permanent pacemaker pulse generator);

33234 (Removal of transvenous pacemaker electrode(s); single lead system, atrial or ventricular);

33235 (Removal of transvenous pacemaker electrode(s); dual lead system, atrial or ventricular);

33240 (Insertion of single or dual chamber pacing cardioverter-defibrillator pulse generator); or

33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generator).

In summary, for CY 2012, we proposed to create a composite APC for CRT-D services billed with CPT code 33225 and CPT code 33249 on the same date of service (Composite APC 8009 (Cardiac Resynchronization Therapy--ICD Pulse Generator and Leads)), for which we proposed that payment would be capped at the IPPS payment rate for MS-DRG 227. In other words, we would calculate payment for APC 8009 based on the lesser of the APC 8009 median cost or the IPPS standardized payment for MS-DRG 227. We also proposed to reassign CPT code 33225 to APC 0108 and to continue to assign CPT code 33249 to APC 0108 when they are furnished on different dates of service; to calculate payment for APC 0108 based on the lesser of the APC 0108 median cost or the IPPS standardized payment for MS-DRG 227; and to delete APC 0418. Finally, we proposed to implement claims processing edits that would return to providers incorrectly coded claims on which a pacing electrode insertion (CPT code 33225) is billed without an ICD or pacemaker insertion. The proposed changes would all be made in a budget neutral manner, in the same way that payment for other composite APCs and the reassignment of codes to APCs are budget neutral within the OPPS.

At its August 10-11 meeting, the APC Panel recommended that CMS establish the payment rates for APC 8009 (Cardiac Resynchronization Therapy with Defibrillator, Composite) and APC 0108 (Insertion/

Replacement/Repair of Cardioverter-Defibrillator Leads) using only outpatient claims data. We are accepting this recommendation and will use only outpatient claims data to establish the payment rates for ICD and CRT-D implantation procedures, as discussed in greater detail in response to comments below.

Comment: Many commenters supported the creation of a composite APC for CRT-D services, and the restructuring of APC 0108 in order to address the median cost fluctuations in APC 0418. Many commenters objected to the proposal to cap payments for the composite APC 8009 and for APC 0108 at the IPPS payment rate for MS-DRG 227. While some commenters acknowledged that limiting the payment for CRT-D services provided to hospital outpatients makes intuitive sense and applauded CMS for exploring Medicare payment across payment systems rather than limiting policy proposals to within a single payment system, they expressed concern that CMS had not demonstrated that the services included in composite APC 8009 and APC 0108 are the same services included in MS-DRG 227. Many commenters noted that there could be legitimate explanations for the higher hospital outpatient cost estimates for CRT that would support higher hospital outpatient payments, such as the inclusion of less expensive ICD-only cases in the MS-DRG 227 payment bundle and geographic variations in cost for CRT-D devices provided to hospital inpatients and hospital outpatients. They asserted that MS-DRG 227 is an inappropriate comparator because it includes CRT-D implantation procedures, along with less expensive ICD-

only cases. Other commenters argued that a payment cap is inappropriate because the proposed payment rate of approximately $26,365 for composite APC 8009 would fail to cover the cost of CRT-D devices used in the procedures described by CPT codes 33225 and 33249 based on CMS' calculation of APC costs associated with devices presented in Table 24 of the CY 2012 OPPS/ASC proposed rule.

The leading manufacturers of CRT devices argued that the payment cap is unnecessary, projecting that average actual payment differences (after accounting for wage index adjustments, indirect medical education (IME) payments, and disproportionate share hospital (DSH) payments) under the CRT-D composite APC (with no payment cap applied) and MS-DRG 227 would be unsubstantial and unlikely to create inappropriate payment incentives, indicating that a significant shift in site of care (from hospital inpatient to hospital outpatient) for implantable defibrillator implants has already been taking place over the past several years despite lower OPPS payment rates. Other commenters urged CMS to postpone the proposal to link IPPS and OPPS payments for CRT services until data from the new cost centers for implantable devices provides more accurate information for median cost development.

Many commenters also stated that the cap as described in the proposed rule is not an accurate reflection of the equivalent IPPS payment for CRT-D services because the operating and capital standardized amounts paid to inpatient hospitals were not included, indicating that, according to the IPPS final rule, the total payment cap should be approximately $29,000. Other commenters added that IME and DSH payments also should be included in the cap calculation. The commenters urged CMS to take these MS-DRG payment adjustments into consideration if an IPPS payment cap were applied to composite APC 8009 and APC 0108.

Response: We appreciate the commenters' suggestions presented in response to our proposal to cap the OPPS payment for CRT-D services at the IPPS payment for MS-DRG 227, and the commenters' support for the creation of a composite APC for CRT-D services. After revisiting this issue, we agree that while MS-DRG 227 includes less expensive ICD-only cases, along with CRT-D system implants, proposed APC 8009 would include only CRT-D cases (and not ICD-only cases), and therefore does not represent a comparable package of services. Therefore, because there are significant differences in these payment bundles, and because we believe a payment cap would only be appropriate for comparable packages of services, we agree with the commenters that a better approach at this time would be to refrain from implementing our CY 2012 proposal to cap the hospital outpatient payment rate for CRT-D services or ICD

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implantation procedures based on the IPPS payment rate for MS-DRG 227.

As described in the proposed rule, we continue to believe that we should recognize the inherent challenges in calculating accurate median costs for CPT code 33225 based on single procedure claims utilized in the standard OPPS ratesetting methodology, and that we should address the commenters' past concerns regarding the fluctuations in median costs for the APC to which this service has been assigned. We also continue to believe that it is important to ensure that we do not create an inappropriate payment incentive to provide services in one setting of care as opposed to another, also as stated in the proposal. In light of these goals, and taking into consideration the commenters' observations that the hospital inpatient and outpatient payment bundles for CRT-D services are different, we are modifying our proposal to create composite APC 8009 for CRT-D services. Under this final rule with comment period, we will treat CPT codes 33225 and 33249 as a single, composite service when they are performed on the same day as proposed, but rather than assigning them to composite APC 8009, we are assigning them to existing APC 0108 for CY 2012. We believe that this APC assignment is appropriate because the CRT-D procedure described by the combination of CPT codes 33225 and 33249 is clinically similar to the basic (nonresynchronization) ICD insertion procedure described by CPT code 33249 when it is performed by itself and assigned to APC 0108. Both procedures involve the insertion of one or more electrodes into the heart with subsequent connection to a cardiac pacing and defibrillation device. The difference between CRT-D and ICD insertion is the use of an additional pacing wire, but we note that APC 0108, in general, and CPT code 33249, specifically, already reflect a range of numbers of electrodes. We also note that the CRT-D procedure and the ICD-only procedure have similar final CY 2012 median costs of approximately $38,468 (based on 3,145 single claims) and $26,988 (based on 7,910 single claims), respectively, and that the placement of these procedures in the same APC does not violate the 2 times rule. We also are finalizing our proposal to change the title of APC 0108 to ``Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes'' because this APC will provide payment for ICD procedures, including CRT-D services.

In calculating the median costs upon which the payment rate for APC 0108 is based for CY 2012, for this final rule with comment period, we included single procedure claims for the individual services assigned to APC 0108, as well as single procedure claims that contain the composite CRT-D service, defined as the combination of CPT codes 33225 and 33249 with the same date of service. We were able to use 11,055 single bills from the CY 2012 final rule claims data (3,145 composite CRT-D service claims and 7,910 claims for other services assigned to APC 0108) to calculate a median cost of approximately $29,839. We note that under this policy, hospitals will continue to use the same CPT codes to report CRT-D procedures, and the I/OCE will determine when combinations of procedures qualify for composite service payment or map to standard (sole service) APCs for payment. We will make a single payment for those procedures that qualify for composite service payment, as well as any packaged services furnished on the same date of service. Because CPT codes 33225 and 33249 may be treated as a composite service for payment purposes, we are assigning them status indicator ``Q3'' (Codes that may be paid through a composite APC) in Addendum B to this final rule with comment period. The assignment of CPT codes 33225 and 33249 to APC 0108 when treated as a composite service also will be reflected in Addendum M to this final rule with comment period (which is available via the Internet on the CMS Web site).

By continuing to recognize these procedures as a single, composite service, we are able to use a higher volume of correctly coded claims for CPT code 33225 and, therefore, to address the inherent ratesetting challenges associated with CPT code 33225 and stabilize payment for this service. We also note that this policy is consistent with the principles of a prospective payment system, specifically to place similar services that utilize technologies with varying costs in the same APC in order to promote efficiency and decisionmaking based on individual patient's clinical needs rather than financial considerations. By calculating the median cost for APC 0108 using claims from both ICD-only cases and CRT-D cases, we allow the costs of each to influence the overall median cost for the APC, which will rise or fall in the future depending on hospitals' utilization patterns. As indicated earlier, this methodology allows us to accept the APC Panel's recommendation to calculate payment for these services using only hospital outpatient claims data.

Comment: A few commenters questioned CMS' authority under section 1833(t)(2)(E) of the Act to cap the payment rate for an OPPS composite APC at a comparable MS-DRG payment rate established under the IPPS, arguing that they believe this provision of the Act applies only to adjustments made within the OPPS, and does not give CMS authority to make equitable adjustments across payment systems.

Many commenters pointed out that CMS has held strongly to the principle of setting OPPS payment rates based only on hospital outpatient claims and cost report data since the beginning of the OPPS, often refusing stakeholders' requests to use external data or make cross-system payment comparisons as the basis for setting payment rates. The commenters stated that for CMS to cross payment systems and deviate from this longstanding policy would introduce a significant level of uncertainty and unpredictability. Other commenters stated that crossing payment systems for the first time under the OPPS represents a significant departure from the standard OPPS ratesetting methodology, undermines the integrity of the OPPS, discourages hospitals from providing care in the most appropriate setting, and adversely affects investment in new technologies.

Some commenters also argued that CMS should not assume the hospital inpatient cost data for CRT-D services is more valid than hospital outpatient cost data. To the contrary, commenters noted that there are various mechanisms in place for hospital outpatient claims, such as the procedure-to-device edits, to ensure that hospitals report the full costs of devices provided in hospital outpatient departments, while there are no similar mechanisms in place for devices provided in hospital inpatient settings of care. The commenters pointed out that the OPPS and the IPPS have been designed to be internally consistent but not comparable to each other, noting that the methods used to establish relative weights in each system are independent and unrelated.

Commenters also stated that if CMS were to set a precedent for looking across payment systems in this circumstance, then CMS should be consistent and make cross-system payment comparisons for all items and services, such as separately payable drugs and biologicals, which are paid at a lower per drug payment rate when they are provided in hospital outpatient settings compared to physician office settings.

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Response: Although we are not finalizing our proposal to institute a payment cap for composite APC 8009 and APC 0108, we believe we have broad authority under the statute to implement a cap on the payment rate for an OPPS APC at a comparable MS-DRG payment rate established under the IPPS. We also disagree that we cannot explore this policy option because it would be unprecedented and involve data other than data obtained from hospital outpatient claims. It is not unprecedented for CMS to use data from one payment system in the calculations for another in specific circumstances. For example, as described in detail in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72033) and in section XIII.C.1.b. of this CY 2012 OPPS/ASC final rule with comment period, we use physician claims data in determining which procedures will be designated as ``office-based'' for the ASC list of covered surgical procedures, and in setting the ASC payment rate, we use the lower of the MPFS nonfacility PE RVU -based amount or the amount calculated using the ASC standard ratesetting methodology for the procedure. Even if the use of such data were unprecedented, we do not believe that we should neglect to pursue innovations and refinements to Medicare payment policy because any such innovations and refinements would be new. We also disagree that a payment policy to create payment parity between the IPPS and OPPS in one clinical area would necessitate the creation of parity across payment systems for all items and services. We note that there could be many different payment approaches that could be chosen for comparison purposes for any given item or service, giving rise to implementation issues. That is, comparisons could be made between the OPPS and the payment methodologies for services furnished in the physician's office setting such as the MPFS for physicians' services or ASP for certain covered Part B drugs, as the commenter suggested, or comparisons could be made between the OPPS and the IPPS or other payment systems, and the ``payment parity'' resulting from those comparisons would be vastly different. For example, while the commenters' suggested approach to achieve payment parity between the hospital outpatient setting and the physician office setting for drugs and biologicals would usually result in higher hospital outpatient payment rates of ASP+ 6 percent, an approach that would achieve payment parity between the hospital outpatient setting and the hospital inpatient setting would result in payment for most drugs and biologicals being packaged into the associated APC procedure payment, because payment for most drugs and biologicals under the IPPS is included in the MS-DRG payment. In addition, immediately applying such a policy across all items and services (rather than incrementally for items and services in one clinical area or a handful of clinical areas through notice-and-comment rulemaking) may result in payment instability as payments would potentially increase and decrease for thousands of services.

We note that we may consider examining the issue of payment parity with respect to other payment systems, even when the data upon which the cost of a service is calculated are from a different source, because such an approach may deter inappropriate migration of services to a setting of care based on financial consideration rather than clinical needs.

Although we are not implementing our proposal to cap payment for CRT-D services in CY 2012, we will continue to explore methods to ensure our payment systems do not provide inappropriate payment incentives to provide services in one setting of care as opposed to another setting of care.

Comment: Some commenters contested the statement in the CY 2012 OPPS/ASC proposed rule that hospital outpatients are generally less sick than hospital inpatients, arguing that not all patients with comorbidities are admitted as inpatients. Several commenters stated that CMS has not provided evidence to support the claim that CRT-D services on an outpatient basis would include fewer items and services than on an inpatient basis.

Response: As indicated previously, we are not implementing our proposal to cap payment for CRT-D services at the IPPS payment rate for MS-DRG 227. We continue to believe, however, that the Medicare beneficiaries who receive a service on an outpatient basis would generally not be expected to be as sick as those who are admitted to the hospital to receive the same service. The Medicare Benefit Policy Manual (100-02), Chapter 1, Section 10 (available on the CMS Web site at: http://www.cms.gov/manuals/Downloads/bp102c01.pdf) defines an inpatient as a person who has been admitted to a hospital for bed occupancy for purposes of receiving inpatient hospital services. As stated in the manual, factors to be considered when making the decision to admit include such things as the severity of the signs and symptoms exhibited by the patient and the medical predictability of something adverse happening to the patient. We believe this supports our statement that, generally, patients who can receive a service on an outpatient basis rather than be admitted as inpatients are not as sick as patients who would need to be admitted as inpatients to receive those same services.

We also continue to believe that the costs of providing a service to a hospital inpatient, in general, may exceed the costs for providing the same service on an outpatient basis. In general, payment for outpatient care through an APC consists only of the cost of the procedure, certain packaged ancillary services, and the cost of nursing and other staff care during the immediate recovery period. Patients are able to go home quickly (and if they are not able to go home quickly, they would typically be admitted). In general, the payment for operating costs of inpatient hospital services under the IPPS includes similar services that would be paid under the OPPS through an APC, plus associated diagnostic testing, drugs, laboratory tests, and the cost of an extended recovery over several days. Inpatient care is typically associated with longer periods of recovery, which may be triggered by increased complications, increased comorbidity, or increased risk. Although an individual outpatient case may be more expensive than an individual inpatient case, inpatients, on the average, will be sicker and more costly than outpatients receiving similar services.

Comment: A few commenters disagreed with the proposed reassignment of CPT code 33224 to APC 0655, and the proposed reassignment of CPT code 33225 to APC 0108. According to the commenters, the claims data upon which CMS calculated the proposed median cost of CPT code 33225 was flawed because it included many claims that should have been rejected if CMS applied its device-to-procedure edits. The commenters provided data analysis indicating that there were only 13 single bills that met the criteria of the device-dependent APC ratesetting methodology, and that the median cost calculated from those 13 single bills is approximately $8,149 rather than the median cost of approximately $34,018 calculated by CMS using 458 single bills from the data available for the CY 2012 proposed rule. The commenters requested that CMS maintain APC 0418, and continue to assign to it CPT codes 33224 and 33225, based on their estimated median cost of approximately $8,149 for CPT code 33225 and CMS' estimated median cost of approximately $12,418 for CPT code 33224. The commenters expressed

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general concern that the device-to-procedure edits were not being applied correctly to hospital outpatient claims.

Response: We appreciate the commenters bringing to our attention potential problems with the claims used to calculate the proposed CY 2012 median cost for CPT code 33225. We are investigating the possibility that erroneous claims may have made it pass the claims processing logic in place to enforce the device-to-procedure and procedure-to-device edits, and how they may have been present in the set of claims we used in ratesetting for the proposed rule. We note that we used a total of 28 single bills for CPT code 33225 to calculate a median cost of approximately $18,855 for this final rule with comment period, which is consistent with the much lower number of single bills identified by the commenters in the proposed rule data set and consistent with the number of single bills for this service in prior years' hospital outpatient claims data. We will continue to examine this issue in order to ensure that the claims we use to calculate median costs for these CPT codes, as well as all CPT codes assigned to device-dependent APCs, conform with the device-dependent APC ratesetting methodology outlined in section II.A.2.d.(1) of this final rule with comment period.

We do not agree with the commenters that we should maintain APC 0418 for CPT codes 33224 and 33225. Based on the hospital outpatient claims and cost report data available for this final rule with comment period, we calculated a final median cost of approximately $12,418 using 198 single bills (out of 831 total bills) for CPT code 33224, and a final median cost of approximately $18,855 using 28 single bills (out of 10,424 total bills) for CPT code 33225. We continue to believe that CPT code 33224 appropriately aligns, both in terms of clinical characteristics and resource utilization, with other procedures assigned to APC 0655, which has a final CY 2012 median cost of approximately $9,638, because the median cost of CPT code 33224 is relatively close to the overall APC median cost and APC 0655 includes pacemaker insertion procedures. Therefore, we are finalizing our proposal, without modification, to assign CPT code 33224 to APC 0655.

In addition, we agree with commenters that CPT code 33225 should not be assigned to APC 0108. We believe that CPT code 33225 should be assigned to APC 0655, rather than APC 0108 or APC 0418, when it is not performed on the same day as the service described by CPT code 33249, based upon the median cost calculated for CPT code 33225 using data available for this final rule with comment period and based upon the commenters' estimates presented in their analysis of this CPT code's cost. While we acknowledge that the final rule median cost of approximately $18,855 is higher than the median costs of the other procedures assigned to APC 0655, we believe this is an appropriate assignment for this CPT code from a clinical perspective because the procedure described by CPT code 33225 differs from the procedure described by CPT code 33224 (which is in APC 0655) only in the position of the end of the electrode within the heart. In addition, CPT code 33225 is also similar to other procedures assigned to APC 0655, such as CPT code 33214 (Upgrade of implanted pacemaker system, conversion of single chamber system to dual chamber system (includes removal of previously placed pulse generator, testing of existing lead, insertion of new lead, insertion of new pulse generator), which describes the upgrade of a pacemaker which generally includes new hardware and placement of a new electrodes. We also note that this assignment does not violate the 2 times rule. Therefore, for CY 2012, we are modifying our proposal to reassign CPT code 33225 to APC 0108 when it is performed without CPT code 33249. Instead, CPT code 33225 is reassigned to APC 0655 when it is performed without CPT code 33249. We also are finalizing our proposals to change the title of APC 0655 to ``Insertion/Replacement/Conversion of a Permanent Dual Chamber Pacemaker or Pacing Electrode'' and to delete APC 0418.

Comment: Many commenters supported the proposal to implement claims processing edits that would return claims to providers unless CPT code 33225 is billed in conjunction with one of the clinically appropriate CPT codes specified by the AMA in the CPT code book.

Response: We appreciate the commenters' support. We are implementing our CY 2012 proposal, without modification, to create claims processing edits for CPT code 33225 that would return claims to providers if CPT code 33225 is not correctly billed on the claim in conjunction with one of the clinically appropriate CPT codes specified by the AMA in the CPT code book, as described previously in this section.

In summary, after consideration of the public comments we received and the APC Panel recommendation, we are not finalizing our proposal to implement a payment cap for CRT-D services and ICD implantation procedures based upon the payment rate for IPPS MS-DRG 227 as proposed. Instead, we will recognize CPT codes 33225 and 33249 as a single, composite service when they are performed on the same day as proposed. However, for CY 2012, rather than assigning the procedures described by CPT codes 33225 and 33249 when they are performed on the same day to composite APC 8009, we are assigning them to existing APC 0108. We are implementing our proposal to change the title of APC 0108 to ``Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes'' because this APC will provide payment for ICD procedures including CRT-D services. Hospitals will continue to use the same CPT codes to report CRT-D procedures and ICD-only procedures, and the I/OCE will identify when the combination of CPT codes 33225 and 33249 on the same day qualify for composite service payment. We will make a single composite payment for such cases. When not performed on the same day as the service described by CPT code 33225, the service described by CPT code 33249 will continue to be assigned to APC 0108. When not performed on the same day as the service described by CPT code 33249, the service described by CPT code 33225 will be assigned to APC 0655 (we note that this is a modification from our proposal to assign CPT code 33225 when it does not appear with CPT code 33249 to APC 0108). We also are finalizing our proposals to reassign CPT code 33224 to APC 0655 for CY 2012, to change the title of APC 0655 from ``Insertion/Replacement/

Conversion of a Permanent Dual Chamber Pacemaker'' to ``Insertion/

Replacement/Conversion of a Permanent Dual Chamber Pacemaker or Pacing Electrode,'' and to delete APC 0418.

In addition, we are finalizing our proposed policy to implement claims processing edits that will return to providers incorrectly coded claims on which a pacing electrode insertion (the procedure described by CPT code 33225) is billed without a procedure to insert an ICD or pacemaker.

3. Changes to Packaged Services

a. Background

The OPPS, like other prospective payment systems, relies on the concept of averaging, where the payment may be more or less than the estimated cost of providing a service or bundle of services for a particular patient, but with the exception of outlier cases, the payment is adequate to ensure access to appropriate care. Packaging payment for

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multiple interrelated services into a single payment creates incentives for providers to furnish services in the most efficient way by enabling hospitals to manage their resources with maximum flexibility, thereby encouraging long-term cost containment. For example, where there are a variety of supplies that could be used to furnish a service, some of which are more expensive than others, packaging encourages hospitals to use the least expensive item that meets the patient's needs, rather than to routinely use a more expensive item. Packaging also encourages hospitals to negotiate carefully with manufacturers and suppliers to reduce the purchase price of items and services or to explore alternative group purchasing arrangements, thereby encouraging the most economical health care. Similarly, packaging encourages hospitals to establish protocols that ensure that necessary services are furnished, while carefully scrutinizing the services ordered by practitioners to maximize the efficient use of hospital resources. Packaging payments into larger payment bundles promotes the stability of payment for services over time. Finally, packaging also may reduce the importance of refining service specific payment because there is more opportunity for hospitals to average payment across higher cost cases requiring many ancillary services and lower cost cases requiring fewer ancillary services. For these reasons, packaging payment for services that are typically ancillary and supportive to a primary service has been a fundamental part of the OPPS since its implementation in August 2000.

We assign status indicator ``N'' to those HCPCS codes that we believe are always integral to the performance of the primary modality; therefore, we always package their costs into the costs of the separately paid primary services with which they are billed. Services assigned status indicator ``N'' are unconditionally packaged.

We assign status indicator ``Q1'' (``STVX-Packaged Codes''), ``Q2'' (``T-Packaged Codes''), or ``Q3'' (Codes that may be paid through a composite APC) to each conditionally packaged HCPCS code. An ``STVX-

packaged code'' describes a HCPCS code whose payment is packaged when one or more separately paid primary services with the status indicator of ``S,'' ``T,'' ``V,'' or ``X'' are furnished in the hospital outpatient encounter. A ``T-packaged code'' describes a code whose payment is packaged when one or more separately paid surgical procedures with the status indicator of ``T'' are provided during the hospital outpatient encounter. ``STVX-packaged codes'' and ``T-packaged codes'' are paid separately in those uncommon cases when they do not meet their respective criteria for packaged payment. ``STVX-packaged codes'' and ``T-packaged codes'' are conditionally packaged. We refer readers to section XI.A.1. of this final rule with comment period and Addenda D1 (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) with other Addenda, for a complete listing of status indicators and the meaning of each.

We use the term ``dependent service'' to refer to the HCPCS codes that represent services that are typically ancillary and supportive to a primary diagnostic or therapeutic modality. We use the term ``independent service'' to refer to the HCPCS codes that represent the primary therapeutic or diagnostic modality into which we package payment for the dependent service. In future years, as we consider the development of larger payment groups that more broadly reflect services provided in an encounter or episode of-care, it is possible that we might propose to bundle payment for a service that we now refer to as ``independent.''

Hospitals include HCPCS codes and charges for packaged services on their claims, and the estimated costs associated with those packaged services are then added to the costs of separately payable procedures on the same claims in establishing payment rates for the separately payable services. We encourage hospitals to report all HCPCS codes that describe packaged services that were provided, unless the CPT Editorial Panel or CMS provide other guidance. The appropriateness of the OPPS payment rates depends on the quality and completeness of the claims data that hospitals submit for the services they furnish to our Medicare beneficiaries.

In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66610 through 66659), we adopted the packaging of payment for items and services in seven categories into the payment for the primary diagnostic or therapeutic modality to which we believe these items and services are typically ancillary and supportive. The seven categories are: (1) Guidance services; (2) image processing services; (3) intraoperative services; (4) imaging supervision and interpretation services; (5) diagnostic radiopharmaceuticals; (6) contrast media; and (7) observation services. We specifically chose these categories of HCPCS codes for packaging because we believe that the items and services described by the codes in these categories are typically ancillary and supportive to a primary diagnostic or therapeutic modality and, in those cases, are an integral part of the primary service they support.

In addition, in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66650 through 66659), we finalized additional packaging for the CY 2008 OPPS, which included the establishment of new composite APCs for CY 2008, specifically APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite), APC 8001 (LDR Prostate Brachytherapy Composite), APC 8002 (Level I Extended Assessment & Management Composite), and APC 8003 (Level II Extended Assessment & Management Composite). In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68559 through 68569), we expanded the composite APC model to one new clinical area--multiple imaging services. We created five multiple imaging composite APCs for payment in CY 2009 that incorporate statutory requirements to differentiate between imaging services provided with contrast and without contrast as required by section 1833(t)(2)(G) of the Act. The multiple imaging composite APCs are: (1) APC 8004 (Ultrasound Composite); (2) APC 8005 (CT and CTA without Contrast Composite); (3) APC 8006 (CT and CTA with Contrast Composite); (4) APC 8007 (MRI and MRA without Contrast Composite); and (5) APC 8008 (MRI and MRA with Contrast Composite). We discuss composite APCs in more detail in section II.A.2.e. of this final rule with comment period.

We recognize that decisions about packaging and bundling payment involve a balance between ensuring that payment is adequate to enable the hospital to provide quality care and establishing incentives for efficiency through larger units of payment. Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42206), we invited public comments regarding our packaging proposals for the CY 2012 OPPS.

b. Packaging Issues

(1) CMS Presentation of Findings Regarding Expanded Packaging at the February 28-March 1, 2011 and August 10-11, 2011 APC Panel Meetings

In deciding whether to package a service or pay for a code separately, we have historically considered a variety of factors, including whether the service is normally provided separately or in conjunction with other services; how likely it is for the costs of the packaged code to be appropriately mapped to the

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separately payable codes with which it was performed; and whether the expected cost of the service is relatively low.

As discussed in section I.D. of the proposed rule and this final rule with comment period, the APC Panel advises CMS on the clinical integrity of payment groups and their weights, and the APC Panel has had a Packaging Subcommittee that is now renamed the Subcommittee for APC Groups and Status Indicator (SI) Assignments to reflect that its function has expanded to include assisting CMS with assignment of HCPCS codes to APCs. As part of its function, the APC Panel studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but whose payments are bundled or packaged into APC payments. The APC Panel has considered packaging issues at several earlier meetings. For discussions of earlier APC Panel meetings and recommendations, we refer readers to previously published hospital OPPS/ASC proposed and final rules on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/list.asp.

(2) Packaging Recommendations of the APC Panel at its February 28-March 1, 2011 Meeting

During the February 28-March 1, 2011 APC Panel meeting, the APC Panel accepted the report of the Subcommittee for APC Groups and Status Indicator (SI) Assignment, heard several public presentations related to packaged services, discussed the deliberations of the subcommittee, and made five recommendations related to packaging and to the function of the subcommittee. The Report of the February 28-March 1, 2011 meeting of the APC Panel may be found at the CMS Web site at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

To summarize, the APC Panel made five recommendations regarding the packaging of payment under the CY 2012 OPPS. Below we present each of these five packaging recommendations and our responses to those recommendations. The first APC Panel recommendation that relates to packaging and that we discuss in this section is APC Panel Recommendation 4. Two other recommendations, Recommendations 12 and 13, which evolved from the discussions of the APC Groups and Status Indicator Subcommittee, are related specifically to HCPCS codes, were discussed in section III.D. of the proposed rule, and are addressed in section III.D. of this final rule with comment period. Recommendation 12 was that CMS reassign HCPCS code 65778 (Placement of amniotic membrane on the ocular surface for wound healing; self-retaining) and HCPCS code 65779 (Placement of amniotic membrane on the ocular surface for wound healing; single layer, sutured) to APC 0233 (Level III Anterior Segment Eye Procedures) and that CMS furnish data when data become available for these two codes. Recommendation 13 was that CMS create an intermediate-level upper gastrointestinal procedures APC.

APC Panel Recommendation 4: That HCPCS code 31627 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with computer-assisted, image-guided navigation (List separately in addition to code for primary procedures)) should continue to be assigned a status indicator of ``N.'' The Panel further recommended that CMS continue to collect claims data for HCPCS code 31627.

CMS Response to Recommendation 4: HCPCS code 31627 was new for CY 2010, and we assigned a new interim status indicator of ``N'' in our CY 2010 OPPS/ASC final rule with comment period based on our policy of packaging guidance and intraoperative services that are ancillary and dependent upon an independent separately paid procedure. At the APC Panel's February 2010 meeting, the manufacturer of the electromagnetic navigation bronchoscopy (ENB) technology, one of several technologies that can be used to perform the service described by HCPCS code 31627, asserted that use of the ENB technology during a bronchoscopy procedure enables access to distal lesions that are otherwise not accessible without use of the ENB technology. The manufacturer also stated that without separate payment for the ENB technology, hospitals would likely not adopt the technology and the population that would likely benefit from the ENB technology would not have access to this technology. In response to the manufacturer's presentation at the February 2010 Panel meeting, the APC Panel asked CMS to consider whether HCPCS code 31627 should be packaged or paid separately; and if it should be paid separately, the APC Panel asked CMS to investigate the appropriate APC assignment. The report of the February 2010 APC Panel meeting is available at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

We stated in the CY 2011 OPPS/ASC proposed rule (75 FR 46223) that we considered and analyzed the information available to us for HCPCS code 31627 and believed that the code described a procedure that is supportive of and ancillary to the primary diagnostic or therapeutic modality. Therefore, we proposed to package payment for HCPCS code 31627. We stated that, by proposing to package payment for this procedure, we would be treating it in the same manner as similar computer assisted, navigational diagnostic procedures that are supportive of and ancillary to a primary diagnostic or therapeutic modality.

At its August 23-24, 2010 meeting, the APC Panel listened to discussions regarding whether HCPCS code 31627 should remain packaged for CY 2011. After hearing presentations from the public, the APC Panel recommended that CMS continue to package payment for HCPCS code 31627 into payment for the major separately paid procedure with which it is performed and asked that CMS bring claims data on the cost of HCPCS code 31627 to the APC Panel's winter 2011 meeting for review. After consideration of all of the information provided by commenters on this issue, and hearing the discussion of the issue by the APC Panel at its August 23-24, 2010 meeting, we accepted the APC Panel's recommendation to continue to package payment for HCPCS code 31627 into the payment for the major separately paid procedure with which it is reported for CY 2011. In addition, we also accepted the APC Panel's recommendation that CMS bring claims data for HCPCS code 31627 to the winter 2011 APC Panel meeting. The report of the August 2010 APC Panel meeting is available at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

At its meeting on February 28-March 1, 2011, the APC Panel listened to a public presentation in which the manufacturer of the ENB technology requested that HCPCS code 31627 be paid separately on the basis that the cost of the technology is substantially higher than the OPPS payment for APC 0076 (Level I Endoscopy Lower Airway), the APC to which most bronchoscopy codes are assigned and into which payment for HCPCS code 31627 is packaged. The manufacturer stated that if CMS does not pay HCPCS code 31627 separately, hospitals will not furnish the procedure to hospital outpatients.

In response to the request of the APC Panel at its August 2010 meeting, we presented the available data on HCPCS code 31627 that could be derived from the hospital outpatient claims that were paid under the OPPS for services on and after January 1, 2010 through and

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including September 30, 2010, as processed through the CMS common working file by December 31, 2010. Specifically, using the limited set of APC Panel data, CMS found that 119 hospitals billed for 573 units of HCPCS code 31627, and that HCPCS code 31627 had a median cost of approximately $329 per unit. We also found that HCPCS code 31627 is reported on 0 to 4 percent of the claims for bronchoscopy codes with which CPT guidance states that it is permissible to report HCPCS code 31627, with the exception of HCPCS code 31626 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of fiducial markers, single or multiple). HCPCS code 31627 was reported on approximately 52 percent of claims for HCPCS code 31626 in the APC Panel data. The APC Panel considered this information in its formulation of Recommendation 4 that CMS continue to package payment for HCPCS code 31627 into the payment for the bronchoscopy code with which HCPCS code 31627 is reported. Subsequent to the APC Panel meeting, examination and analysis of the CY 2012 proposed rule data found that 149 hospitals reported 867 units of HCPCS code 31627, and that HCPCS code 31627 had a proposed rule median cost of approximately $344 per unit.

After considering the public presentation and the information presented by CMS staff, the APC Panel recommended that HCPCS code 31627 continue to be assigned a status indicator of ``N.'' The Panel further recommended that CMS continue to collect claims data for HCPCS code 31627. In the CY 2012 OPPS/ASC proposed rule (76 FR 42208), we proposed to accept both of the APC Panel's recommendations for the CY 2012 OPPS. Specifically, we proposed to assign HCPCS code 31627 to status indicator ``N'' for the CY 2012 OPPS and, therefore, proposed to package payment for the procedure into payment for the bronchoscopy to which we believe that it is ancillary and supportive. As with all packaged items and services, we propose that the cost we calculate for CPT code 31627 would be added to the costs on the single bill for the bronchoscopy code with which the service reported by CPT code 31627 is furnished, and therefore, the cost of CPT code 31627 would be incorporated into the payment for the APC to which that bronchoscopy code is assigned. We stated in the proposed rule that we continue to believe that HCPCS code 31627, for which there are several different technologies, describes a service that is supportive and ancillary to the primary bronchoscopy procedure with which it must be reported, as defined by CPT. HCPCS code 31627 describes a computer assisted image guided navigation service that is not furnished without a bronchoscopy. As defined by CPT, HCPCS code 31627 may only be furnished in addition to a bronchoscopy service and, therefore, we believe that it is ancillary and supportive to the bronchoscopy service with which it must be reported. We agreed to provide further claims information on HCPCS code 31627 to the APC Panel when it becomes available.

Comment: One commenter supported the APC Panel recommendation at its February 2011 meeting that CMS provide further claims information on HCPCS code 31627 to the APC Panel when it becomes available.

Response: We appreciate the commenter's support and will furnish further information on HCPCS code 31627 to the APC Panel at a future meeting.

For CY 2012, we are continuing to package payment for HCPCS code 31627 into payment for the separately paid procedure with which it is furnished because we continue to believe that it is ancillary and supportive to the bronchoscopy with which it is performed, as set forth in the CY 2012 proposed rule (76 FR 42207 through 42208). Therefore, we have assigned HCPCS code 31627 a status indicator of ``N'' for CY 2012.

APC Panel Recommendation 5: That CMS consider a more appropriate APC assignment for HCPCS code 31626 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of fiducial markers), the most common code with which HCPCS code 31627 was billed in 2010.

CMS Response to Recommendation 5: In the CY 2012 OPPS/ASC proposed rule, we accepted this recommendation and, therefore, proposed to reassign HCPCS code 31626 (which had a proposed CY 2012 APC median cost of approximately $2,708) from APC 0076 (which had a proposed CY 2012 APC median cost of approximately $751) to APC 0415 (Level II Endoscopy Lower Airway), which had a proposed CY 2012 APC median cost of approximately $2,007. We agreed with the APC Panel that it appears that the proposed APC median cost of HCPCS code 31626 of $2,708 justified placement in an APC that has a median cost that is more similar to the APC median cost for this code. We stated that we believe that APC 0415 is the most appropriate clinically similar APC because the proposed CY 2012 median cost for APC 0415 of $2,007 is more similar in clinical resource for HCPCS code 31626 than the proposed CY 2012 median cost for APC 0076 of $715.

Comment: Commenters supported our proposal to move HCPCS code 31626 to APC 0415 for CY 2012.

Response: We appreciate the commenters' support and are finalizing our proposal for the reasons set forth above.

For CY 2012, we are moving HCPCS code 31626 from APC 0076 to APC 0415, which has a final median cost of approximately $2,024.

APC Panel Recommendation 6: That Judith Kelly, R.H.I.T., R.H.I.A., C.C.S., continue to chair the APC Groups and Status Indicator (SI) Assignments Subcommittee for 2011.

CMS Response to Recommendation 6: In the CY 2012 OPPS/ASC proposed rule, we indicated that we accepted the APC Panel's recommendation that Judith Kelly, R.H.I.T., R.H.I.A., C.C.S. continue to chair the APC Groups and Status Indicator Assignments Subcommittee for 2011.

We did not receive any public comments on this recommendation. We appreciate the services of Ms. Kelly as chair of the Subcommittee for CY 2011.

APC Panel Recommendation 7: That CMS furnish the results of its investigation of claims that contain the following unconditionally packaged codes without separately paid procedures:

HCPCS code G0177 (Training and educational services related to the care and treatment of patient's disabling mental health problems per session (45 minutes or more));

HCPCS code G0378 (Hospital observation service, per hour);

HCPCS code 75940 (Percutaneous placement of IVC filter, radiological supervision and interpretation); and

HCPCS code 76937 (Ultrasound guidance for vascular access requiring ultrasound evaluation of potential access sites, documentation of selected vessel patency, concurrent realtime ultrasound visualization of vascular needle entry, with permanent recording and reporting (List separately in addition to code for primary procedure)).

CMS Response to Recommendation 7: In the CY 2012 OPPS/ASC proposed rule, we indicated that we accepted the APC Panel's recommendation that CMS furnish the results of its investigation of claims that contain the unconditionally packaged codes, HCPCS code G0177, HCPCS code G0378, HCPCS code 75940,

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and HCPCS code 76937, at a future APC Panel meeting.

Comment: One commenter supported the APC Panel recommendation that CMS furnish the results of its investigation of claims that contain the following unconditionally packaged codes without separately paid procedures: HCPCS code 75940 and HCPCS code 76937.

Response: As we indicated in the proposed rule (76 FR 42208), we will furnish this information to the APC Panel at a future meeting.

APC Panel Recommendation 8: That the work of the APC Groups and Status Indicator (SI) Assignments Subcommittee continue.

CMS Response to Recommendation 8: In the CY 2012 OPPS/ASC proposed rule, we indicated that we accepted the APC Panel's recommendation that the work of the APC Groups and Status Indicator Assignments Subcommittee continue.

We did not receive any public comments on this recommendation.

(3) Packaging Recommendations of the APC Panel at Its August 2011 Meeting

During the August 10-11, 2011 APC Panel meeting, the APC Panel accepted the report of the Subcommittee for APC Groups and Status Indicator (SI) Assignments, heard several public presentations related to packaged services, discussed the deliberations of the subcommittee, and made three recommendations related to packaging and to the function of the subcommittee. The subcommittee also made recommendations with regard to APC placement of specific services that are discussed in section III.D of this final rule with comment period. The Report of the August 10-11, 2011 meeting of the APC Panel may be found at the CMS Web site at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

Below we present each of the three recommendations related to packaging and our responses to those recommendations. Recommendations that evolved from the discussions of the Subcommittee on APC Groups and Status Indicator Assignments that are specific to the APC assignment of HCPCS codes and removal of HCPCS codes from the inpatient only list are discussed in sections III and IX, respectively, of this final rule with comment period.

APC Panel Recommendation 9: That CMS give HCPCS code 65778 (Placement of amniotic membrane on the ocular surface for wound healing; self-retaining) a status indicator of ``T'' and provide the Panel with correlating claims data when available.

CMS Response to Recommendation 9: We refer readers section III.D.5.a of this final rule with comment period for discussion of this recommendation.

APC Panel Recommendation 11: The Panel recommends that Judith Kelly, R.H.I.T., R.H.I.A., C.C.S., remain the chair of the APC Groups and SI Assignments Subcommittee.

CMS Response to Recommendation 11: We accept the recommendation that Judith Kelly, R.H.I.T., R.H.I.A., C.C.S., remain the chair of the APC Groups and SI Assignments Subcommittee. We appreciate Ms. Kelly's continuing service in this position.

APC Panel Recommendation 12: The Panel recommends that the work of the APC Groups and SI Assignments Subcommittee continue.

CMS Response to Recommendation 12: We are accepting the APC Panel's recommendation that the work of the APC Groups and SI Assignments Subcommittee continue.

(4) Other Packaging Proposals and Policies for CY 2012

The HCPCS codes that we proposed be packaged either unconditionally (for which we continue to assign status indicator ``N''), or conditionally (for which we continue to assign status indicators ``Q1,'' ``Q2,'' or ``Q3''), were displayed in Addendum B of the CY 2012 OPPS/ASC proposed rule (76 FR 42208). The supporting documents for the CY 2012 OPPS/ASC proposed rule, including but not limited to Addendum B, are available at the CMS Web site at: www.cms.hhs.gov/HospitalOutpatientPPS/HORD. To view the proposed status indicators by HCPCS code in Addendum B, select ``CMS 1525-P'' and then select the folder labeled ``2012 OPPS Proposed Rule Addenda'' or ``2012 OPPS Final Rule with Comment Period Addenda'' from the list of supporting files. Open the zipped file and select Addendum B, which is available as both an Excel file and a text file.

Comment: Commenters stated that CMS' packaging policies would likely lead to less efficient use of resources, limited access to innovative treatment options, and greater instability in payments because the policies are based on several flawed assumptions. Commenters believed that, to the extent that hospitals control the array of services they provide, CMS' packaging policies assume that the same incentives apply to services furnished in hospital outpatient departments as to inpatient services. One commenter stated that under the hospital inpatient prospective payment system (IPPS), hospitals have an incentive to provide care, including advanced technologies, in an efficient manner to ensure the lowest cost for the patient's diagnosis. In contrast, in hospital outpatient departments, because Medicare payment is based on procedures rather than diagnoses, the commenter believed that hospitals have an incentive to provide the lowest cost item or service included in an APC. The commenter further believed that if that service does not fully address the patient's needs, the hospital would receive better payment by bringing the patient back for a second visit or admitting the patient for inpatient care than by providing a more costly option within the same APC.

Moreover, the commenters believed that when an APC's payment rate is significantly less than the cost of a technology, hospitals have a strong disincentive to use that technology, even if it could reduce the costs of care at a later date. The commenters believed that CMS' use of expanded packaging has the risk of encouraging hospitals to forego performing needed services and using new technologies that may be more resource intensive during one visit, but could save the patient future outpatient department visits or inpatient care.

Response: Packaging payment for items and services that are ancillary to and dependent on the major procedure for which a payment rate is established is a fundamental concept of the OPPS, based in regulation in the definition of costs that are included in the national payment rate for a service (42 CFR 419.2(b)) and in place since the inception of the OPPS (65 FR 18447). We continue to believe that packaging creates incentives for hospitals and their physician partners to work together to establish appropriate protocols that eliminate unnecessary services where they exist and institutionalize approaches to providing necessary services more efficiently. With respect to new services or new applications of existing technology, we believe that packaging payment for ancillary and dependent services creates appropriate incentives for hospitals to seriously consider whether a new service or a new technology offers a benefit that is sufficient to justify the cost of the new service or new technology. Where this review results in reductions in services that are only marginally beneficial or influences hospitals' choices to not utilize certain technologies, we believe that these changes could improve, rather than harm, the quality of care for Medicare beneficiaries because every service furnished in a hospital carries

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some level of risk to the patient and the beneficiary would be spared the risk associated with the additional service or different technology. Moreover, we believe that hospitals strive to provide the best care they can to the patients they serve so that when new technologies are proven to improve the quality of care, their utilization will increase appropriately, whether the payment for them is packaged or not. While we believe hospitals are committed to provide optimal care to their patients, we are aware that there are financial pressures on hospitals that might motivate some providers to split services among different hospital encounters in such a way as to maximize payments. While we do not expect that hospitals would routinely change the way they furnish services or the way they bill for services in order to maximize payment, we recognize that it would be possible and we consider that possibility as we annually review hospital claims data. We will continue to examine claims data for patterns of fragmented care, and if we find a pattern in which a hospital appears to be dividing care across multiple days, we will refer it for investigation to the QIO or to the Program Safeguard Contractor, as appropriate to the circumstances we find.

Comment: Commenters asked that CMS make underlying payment rates for packaged services, including utilization rates, estimated median costs, and numbers of hospitals furnishing various services, available to the public. In addition, commenters asked that CMS study and report annually to the APC Panel and to the public on the impact of packaged payment on beneficiary access to care. One commenter believed that the APC Panel recommended that CMS report annually on the impact of packaging on net payments for patient care.

Response: Each year, CMS makes available an extensive amount of OPPS data that can be used for any data analysis an interested party would care to perform. Specifically, we make available a considerable amount of data for public analysis each year through the supporting data files that are posted on the CMS Web site in association with the display of the proposed and final rules. In addition, as we discuss in detail in section II.A.2. of this final rule with comment period, we make available the public use files of claims, including, for CY 2008 and later, supplemental line item cost data for every HCPCS code under the OPPS, and a detailed narrative description of our data process for the annual OPPS/ASC proposed and final rules that the public can use to perform any desired analyses. Therefore, commenters are able to examine and analyze these data to develop specific information to assess the impact and effect of packaging for the services of interest to them. This information is available to support public requests for changes to payments under the OPPS, whether with regard to separate payment for a packaged service or other issues. We understand that the OPPS is a complex payment system and that it may be difficult to determine the quantitative amount of packaged cost included in the median cost for every independent service. However, commenters routinely provide us with meaningful analyses at a very detailed and service-specific level based on the claims data we make available. We routinely receive complex and detailed public comments, including extensive code-specific data analysis on packaged and separately paid codes, using the data from current and prior proposed and final rules. The APC Panel did not recommend at either the February 2011 or August 2011 meetings that CMS should report annually on the impact of packaging on net payments for patient care.

Comment: Commenters stated that CMS assumes that its packaging policies will allow it to continue to collect the data it needs to set appropriate, stable payment rates in the future, but that this assumption is flawed. Commenters stated that CMS' past experience with packaging payment for ancillary items indicates that hospitals do not submit codes for services that do not directly affect their payment and see no reason to believe that this will change. The commenters asked that CMS require complete and correct coding for packaged services so that all items and services that are not individually paid must be included on the claim to provide CMS with essential data for future OPPS updates. Commenters expressed concern about what they believed to be decreases in the number of hospitals reporting services as a result of packaging and bundling. They believed that the decline could be due to one or both of two reasons: Hospitals may no longer be providing these services; or hospitals could be providing these services but not reporting codes and charges for them, denying CMS accurate data for use in rate setting. The commenters were concerned that decreased reporting of services will result in the costs of packaged services not being included in the payment for the independent service with which they are furnished.

Response: We do not believe that there has been or will be a significant change in what hospitals report and charge for the outpatient services they furnish to Medicare beneficiaries and other patients as a result of our current packaging methodology. Medicare cost reporting standards specify that hospitals must impose the same charges for Medicare patients as for other patients. We are often told by hospitals that many private payers pay based on a percentage of charges and that, in accordance with Medicare cost reporting rules and generally accepted accounting principles, hospital chargemasters do not differentiate between the charges to Medicare patients and other patients. Therefore, we have no reason to believe that hospitals will stop reporting HCPCS codes and charges for packaged services they provide to Medicare beneficiaries. As we stated in the CY 2009 OPPS/ASC final rule with comment period (74 FR 68575), we strongly encourage hospitals to report a charge for each packaged service they furnish, either by billing the packaged HCPCS code and a charge for that service if separate reporting is consistent with CPT and CMS instructions, by increasing the charge for the separately paid associated service to include the charge for the packaged service, or by reporting the charge for the packaged service with an appropriate revenue code but without a HCPCS code. Any of these means of charging for the packaged service will result in the cost of the packaged service being incorporated into the cost we estimate for the separately paid service. If a HCPCS code is not reported when a packaged service is provided, we acknowledge that it can be challenging to specifically track the utilization patterns and resource cost of the packaged service itself. However, we have no reason to believe that hospitals have not considered the cost of the packaged service in reporting charges for the independent, separately paid service. We expect that hospitals, as other prudent businesses, have a quality review process that ensures that they accurately and completely report the services they furnish, with appropriate charges for those services to Medicare and all other payers. We encourage hospitals to report on their claim for payment all HCPCS codes that describe packaged services that were furnished, unless the CPT Editorial Panel or CMS provides other guidance. To the extent that hospitals include separate charges for packaged services on their claims, the estimated costs of those packaged services are then added to the costs of separately paid procedures on the same claims and used in establishing

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payment rates for the separately paid services. It is impossible to know with any certainty whether hospitals are failing to report HCPCS codes and charges for services for which the payment is packaged into payment for the independent service with which the packaged service is furnished. Moreover, if a hospital fails to report the HCPCS codes and charges for packaged services, the reason may be that the hospital has chosen to package the charge for the ancillary and dependent service into the charge for the service with which it is furnished. Although we prefer that hospitals report HCPCS codes and charges for all services they furnish, if the hospital's charge for the independent service also reflects the charge for all ancillary and supportive services it typically provides, the absence of HCPCS codes and separate charges would not result in inappropriately low median cost for the independent service, although CMS would not know which specific ancillary and supportive services were being furnished. If a hospital is no longer providing a service, there may be many reasons that a hospital chooses not to provide a particular service or chooses to cease providing a particular service, including, but not limited to, because the hospital has determined that it is no longer cost effective for the hospital to furnish the service and that there may be other hospitals in the community that can furnish the service more efficiently.

Comment: One commenter asked that CMS reinstate separate payment for radiation oncology guidance procedures because these services are vital to the safe provision of radiation therapy and unconditionally packaging payment for them may discourage hospitals from providing them.

Response: We recognize that radiation oncology guidance services, like most packaged services, are important to providing safe and high quality care to patients. However, we continue to believe that hospitals will invest in services that represent genuinely increased value to patient care, and if hospitals can furnish them efficiently. We will continue to pay separately for innovative technologies if a device meets the conditions for separate payment as a pass-through device or if a new procedure meets the criteria for payment as a new technology APC.

After considering the public comments we received, for CY 2012, we are continuing to package payment for the services for which we proposed unconditional or conditional packaged payment in the proposed rule for the reasons set forth above. The HCPCS codes for which payment will be packaged into payment for the independent separately paid procedures with which the codes are reported either unconditionally (for which we continue to assign status indicator ``N''), or conditionally (for which we continue to assign status indicators ``Q1'', ``Q2'', or ``Q3'') are displayed in Addendum B of this final rule with comment period (which is referenced in section XVIII. of this final rule with comment period and available via the Internet on the CMS Web site). The supporting documents for this CY 2012 OPPS/ASC final rule with comment period, including but not limited to Addendum B, are available at www.cms.gov/HospitalOutpatientPPS/HORD. To view the status indicators by HCPCS code in Addendum B, select ``CMS 1525-FC'' and then select the folder labeled ``2012 OPPS Proposed Rule Addenda'' or ``2012 OPPS Final Rule With Comment Period Addenda'' from the list of supporting files. Open the zipped file and select Addendum B, which is available as both an Excel file and a text file.

The continuation of our standard policy regarding packaging of drugs and biologicals, implantable biologicals, contrast agents and diagnostic radiopharmaceuticals is discussed in section V.B. of this final rule with comment period. We note that an implantable biological that is surgically inserted or implanted through a surgical incision or a natural orifice is commonly referred to throughout this final rule with comment period as an ``implantable biological.''

The creation of a new composite APC for CY 2012 for payment of the insertion of cardiac resynchronization devices is discussed in section II.A.2.e.(6) of this final rule with comment period.

4. Calculation of OPPS Scaled Payment Weights

As we proposed in the CY 2012 OPPS/ASC proposed rule (76 FR 42209), using the APC median costs discussed in sections II.A.1. and II.A.2. of this final rule with comment period, we calculated the final relative payment weights for each APC for CY 2012 shown in Addenda A and B to this final rule with comment period (which are referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site). In years prior to CY 2007, we standardized all the relative payment weights to APC 0601 (Mid Level Clinic Visit) because mid-level clinic visits were among the most frequently performed services in the hospital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC.

Beginning with the CY 2007 OPPS (71 FR 67990), we standardized all of the relative payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted APC 0601 as part of the reconfiguration of the clinic visit APCs. We selected APC 0606 as the base because APC 0606 was the mid-level clinic visit APC (that is, Level 3 of five levels). Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42209), for CY 2012, to maintain consistency in using a median for calculating unscaled weights representing the median cost of some of the most frequently provided services, we proposed to continue to use the median cost of the mid-level clinic visit APC (APC 0606) to calculate unscaled weights. Following our standard methodology, but using the proposed CY 2012 median cost for APC 0606, for CY 2012, we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the proposed median cost for APC 0606 to derive the proposed unscaled relative payment weight for each APC. The choice of the APC on which to base the proposed relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a budget neutral manner. Budget neutrality ensures that the estimated aggregate weight under the OPPS for CY 2012 is neither greater than nor less than the estimated aggregate weight that would have been made without the changes. To comply with this requirement concerning the APC changes, we proposed to compare the estimated aggregate weight using the CY 2011 scaled relative weights to the estimated aggregate weight using the proposed CY 2012 unscaled relative weights. For CY 2011, we multiplied the CY 2011 scaled APC relative weight applicable to a service paid under the OPPS by the volume of that service from CY 2010 claims to calculate the total weight for each service. We then added together the total weight for each of these services in order to calculate an estimated aggregate weight for the year. For CY 2012, we performed the same process using the proposed CY 2012 unscaled weights rather than scaled weights. We then calculated the weight scaler by dividing the CY 2011 estimated aggregate weight by the

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proposed CY 2012 estimated aggregate weight. The service-mix is the same in the current and prospective years because we use the same set of claims for service volume in calculating the aggregate weight for each year. For a detailed discussion of the weight scaler calculation, we refer readers to the OPPS claims accounting document available on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/. We included payments to CMHCs in our comparison of estimated unscaled weight in CY 2012 to estimated total weight in CY 2011 using CY 2010 claims data, holding all other components of the payment system constant to isolate changes in total weight. Based on this comparison, we adjusted the unscaled relative weights for purposes of budget neutrality. The proposed CY 2012 unscaled relative payment weights were adjusted by multiplying them by a proposed weight scaler of 1.4647 to ensure that the proposed CY 2012 relative weights are budget neutral.

Section 1833(t)(14) of the Act provides the payment rates for certain ``specified covered outpatient drugs.'' That section states that ``Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.'' Therefore, the cost of those specified covered outpatient drugs (as discussed in section V.B.3. of the proposed rule and this final rule with comment period) was included in the proposed budget neutrality calculations for the CY 2012 OPPS.

We did not receive any public comments on the proposed methodology for calculating scaled weights from the median costs for the CY 2012 OPPS. Therefore, for the reasons set forth in the proposed rule (76 FR 42209), we are finalizing our proposed methodology without modification, including updating of the budget neutrality scaler for this final rule with comment period as we proposed. Under this methodology, the final unscaled payment weights were adjusted by a weight scaler of 1.3588 for this final rule with comment period. The final scaled relative payment weights listed in Addenda A and B to this final rule with comment period (which are referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) incorporate the final recalibration adjustments discussed in sections II.A.1. and II.A.2. of this final rule with comment period.

B. Conversion Factor Update

Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis by applying the OPD fee schedule increase factor. For purposes of section 1833(t)(3)(C)(iv) of the Act, subject to sections 1833(t)(17) and 1833(t)(3)(F) of the Act, the OPD fee schedule increase factor is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689), consistent with current law, based on IHS Global Insight, Inc.'s second quarter 2011 forecast of the FY 2012 market basket increase, the FY 2012 IPPS market basket update is 3.0 percent. However, sections 1833(t)(3)(F) and 1833(t)(3)(G)(ii) of the Act, as added by section 3401(i) of the Public Law 111-148 and as amended by section 10319(g) of such law and further amended by section 1105(e) of Public Law 111-152, provide adjustments to the OPD fee schedule update for CY 2012.

Specifically, section 1833(t)(3)(F) requires that the OPD fee schedule increase factor under subparagraph (C)(iv) be reduced by the adjustments described in section 1833(t)(3)(F) of the Act. Specifically, section 1833(t)(3)(F)(i) of the Act requires that the OPD fee schedule increase factor under subparagraph (C)(iv) be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act for 2012 and subsequent years. Section 1886(b)(3)(B)(xi)(II) of the Act defines the productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period) (the ``MFP adjustment''). We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51690 through 51692) for a discussion of the calculation of the MFP adjustment. The final MFP adjustment for FY 2012 is 1.0 percentage point.

We proposed that if more recent data are subsequently available after the publication of the proposed rule (for example, a more recent estimate of the market basket and MFP adjustment), we would use such data, if appropriate, to determine the CY 2012 market basket update and the MFP adjustment in the CY 2012 final rule. Consistent with this proposal, in this CY 2012 OPPS/ASC final rule with comment period, we reduced the OPD fee schedule increase factor for CY 2012 by the final MFP adjustment of 1.0 percentage point for FY 2012. Because the OPD fee schedule increase factor is based on the IPPS hospital inpatient market basket percentage increase, we believe that it is appropriate to apply the same MFP adjustment that is used to reduce the IPPS market basket increase to the OPD fee schedule increase factor. Consistent with the FY 2012 IPPS/LTCH PPS final rule, we applied the updated final FY 2012 market basket percentage increase and the MFP adjustment to the OPD fee schedule increase factor for the CY 2012 OPPS. We believe that it is appropriate to apply the MFP adjustment, which is calculated on a fiscal year basis, to the OPD fee schedule increase factor, which is used to update the OPPS payment rates on a calendar year basis, because we believe that it is appropriate for the numbers associated with both components of the calculation (the underlying OPD fee schedule increase factor and the productivity adjustment) to be aligned so that changes in market conditions are aligned.

In addition, section 1833(t)(3)(F)(ii) of the Act requires that the OPD fee schedule increase factor under subparagraph (C)(iv) be reduced by the adjustment described in subparagraph (G) for each of 2010 through 2019. For CY 2012, section 1833(t)(3)(G)(ii) of the Act provides a 0.1 percentage point reduction to the OPD fee schedule increase factor under subparagraph (C)(iv). Therefore, as we proposed, we are applying a 0.1 percentage point reduction to the OPD fee schedule increase factor.

We note that section 1833(t)(F) of the Act provides that application of this subparagraph may result in the increase factor under subparagraph (C)(iv) being less than 0.0 for a year, and may result in payment rates under the payment system under this subsection for a year being less than such payment rates for the preceding year. As described in further detail below, we are applying an OPD fee schedule increase factor of 1.9 percent for the CY 2012 OPPS (3.0 percent, which is the final estimate of the hospital market basket increase, less the 1.0 percentage point MFP adjustment, less the 0.1 percentage point additional adjustment).

In the CY 2012 OPPS/ASC proposed rule (76 FR 42210), we proposed to revise 42 CFR 419.32(b)(1)(iv)(B) by adding a new paragraph (3) to reflect the requirement in section 1833(t)(3)(F)(i) of the Act that, for CY 2012, we reduce the OPD fee schedule increase factor by the

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multifactor productivity adjustment as determined by CMS, and to reflect the requirement in section 1833(t)(3)(G)(ii) of the Act, as required by section 1833(t)(3)(F)(ii) of the Act, that we reduce the OPD fee schedule increase factor by 0.1 percentage point for CY 2012. We also proposed to amend Sec. 419.32(b)(1)(iv)(A) to indicate that the hospital inpatient market basket percentage increase applicable under section 1886(b)(3)(B)(iii) of the Act is further reduced by the adjustments necessary to satisfy the requirements in sections 1833(t)(3)(F) and (t)(3)(G) of the Act.

We did not receive any public comments on our proposed adjustments to the OPD fee schedule increase factor or on the proposed changes to Sec. 419.32(b)(1)(iv)(B) to add a new paragraph (3). We also did not receive any public comments on our proposed change to Sec. 419.32(b)(1)(iv)(A). For the reasons discussed above, we are adjusting the OPD fee schedule increase factor and are making the two changes to Sec. 419.32 as proposed.

To set the OPPS conversion factor for CY 2012, we increased the CY 2011 conversion factor of $68.876 by 1.9 percent. In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2012 to ensure that any revisions we make to the updates for a revised wage index and rural adjustment are made on a budget neutral basis. We calculated an overall budget neutrality factor of 1.0005 for wage index changes by comparing total estimated payments from our simulation model using the FY 2012 IPPS final wage indices to those payments using the current (FY 2011) IPPS wage indices, as adopted on a calendar year basis for the OPPS.

For CY 2012, we are not making a change to our rural adjustment policy. Therefore, the budget neutrality factor for the rural adjustment is 1.0000.

For CY 2012, we are finalizing a payment adjustment policy for dedicated cancer hospitals, as discussed in section II.F. of this final rule with comment period. Consistent with the final cancer hospital payment adjustment policies discussed in section II.F. of this final rule with comment period, we calculated a CY 2012 budget neutrality adjustment factor of 0.9978 by comparing the estimated total payments under section 1833(t) of the Act, including the cancer hospital adjustment under section 1833(t)(18)(B) and 1833(t)(2)(E) of the Act, to hospitals described in section 1886(d)(1)(B)(v) of the Act to the estimated total payments under section 1833(t) of the Act if there were no cancer hospital adjustment, including TOPS that would otherwise be made to hospitals described in section 1886(d)(1)(B)(v) of the Act. As discussed in section II.F. of this final rule with comment period, in terms of dollars, the budget neutrality payment reduction is estimated to be $71 million for CY 2012; that is, we estimate that total payments with a cancer hospital payment adjustment would increase total payments by $71 million and this amount needs to be offset by adjusting other payments. Therefore, we applied a budget neutrality adjustment factor of 0.9978 to the conversion factor to make the hospital adjustment budget neutral.

For this final rule with comment period, we estimate that pass-

through spending for both drugs and biologicals and devices for CY 2012 will equal approximately $89 million, which represents 0.22 percent of total projected CY 2012 OPPS spending. Therefore, the conversion factor is also adjusted by the difference between the 0.15 percent estimate of pass-through spending for CY 2011 and the 0.22 percent estimate of CY 2012 pass-through spending, resulting in an adjustment for CY 2012 of 0.07 percent. Finally, estimated payments for outliers remain at 1.0 percent of total OPPS payments for CY 2012.

The OPD fee schedule increase factor of 1.9 percent for CY 2012 (that is, the estimate of the hospital market basket increase of 3.0 percent less the 1.0 percentage point MFP adjustment and less the 0.1 percentage point adjustment which were necessary in order to comply with the requirements of the Affordable Care Act), the required wage index budget neutrality adjustment of approximately 1.0005, the cancer hospital payment adjustment of 0.9978, and the adjustment of 0.07 percent of projected OPPS spending for the difference in the pass-

through spending result in a conversion factor for CY 2012 of $70.016. This conversion factor for CY 2012 of $70.016 reflects the full OPD fee schedule increase, after including the adjustments which were necessary in order to comply with the requirements of the Affordable Care Act.

As we stated in the proposed rule, hospitals that fail to meet the reporting requirements of the Hospital OQR Program would continue to be subject to a further reduction of additional 2.0 percentage points from the OPD fee schedule increase factor adjustment to the conversion factor that would be used to calculate the OPPS payment rates made for their services as required by section 1833(t)(17) of the Act. For a complete discussion of the Hospital OQR requirements and the payment reduction for hospitals that fail to meet those requirements, we refer readers to section XIV. E. of the proposed rule and this final rule with comment period. To calculate the CY 2012 reduced market basket conversion factor for those hospitals that fail to meet the requirements of the Hospital OQR Program for the full CY 2012 payment update, we are making all other adjustments discussed above, but using a reduced OPD fee schedule update factor of -0.1 percent (that is, the OPD fee schedule increase factor of 1.9 percent further reduced by 2.0 percentage points as required by section 1833(t)(17)(A)(i) of the Act for failure to comply with the Hospital OQR requirements). This resulted in a reduced conversion factor for CY 2012 of $68.616 for those hospitals that fail to meet the Hospital OQR requirements (a difference of -$1.40 in the conversion factor relative to those hospitals that met the Hospital OQR requirements).

We did not receive any public comments on our proposed methodology for calculating the CY 2012 conversion factor.

In summary, for CY 2012, we are using a final conversion factor of $70.016 in the calculation of the national unadjusted payment rates for those items and services for which payment rates are calculated using median costs. We did not receive any public comments on this proposal. Therefore, for the reasons we discuss above, we are amending Sec. 419.32(b)(1)(iv)(B) by adding a new paragraph (3) to reflect the reductions to the OPD fee schedule increase factor that are required for CY 2012 in order to satisfy the statutory requirements of sections 1833(t)(3)(F) and (t)(3)(G)(ii) of the Act. We also are amending Sec. 419.32(b)(1)(iv)(A) to indicate that the hospital inpatient market basket percentage increase is reduced by the adjustments described in Sec. 419.32(b)(1)(iv)(B). We are using a reduced conversion factor of $68.616 in the calculation of payments for hospitals that fail to comply with the Hospital OQR requirements to reflect the reduction to the OPD fee schedule increase factor that is required by section 1833(t)(17) of the Act for these hospitals.

C. Wage Index Changes

Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographic wage differences, the portion of the OPPS payment rate, which includes the copayment standardized amount, that is attributable to labor and labor-

related cost. This portion of the OPPS payment rate is called the OPPS

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labor-related share. This adjustment must be made in a budget neutral manner and budget neutrality is discussed in section II.B. of this final rule with comment period.

The OPPS labor-related share is 60 percent of the national OPPS payment. This labor-related share is based on a regression analysis that determined that, for all hospitals, approximately 60 percent of the costs of services paid under the OPPS were attributable to wage costs. We confirmed that this labor-related share for outpatient services is appropriate during our regression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule with comment period (70 FR 68553). Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR42211), we did not propose to revise this policy for the CY 2012 OPPS. We refer readers to section II.H. of this final rule with comment period for a description and example of how the wage index for a particular hospital is used to determine the payment for the hospital.

As discussed in section II.A.2.c. of this final rule with comment period, for estimating national median APC costs, we standardize 60 percent of estimated claims costs for geographic area wage variation using the same FY 2012 pre-reclassified wage index that the IPPS uses to standardize costs. This standardization process removes the effects of differences in area wage levels from the determination of a national unadjusted OPPS payment rate and the copayment amount.

As published in the original OPPS April 7, 2000 final rule with comment period (65 FR 18545), the OPPS has consistently adopted the final fiscal year IPPS wage index as the calendar year wage index for adjusting the OPPS standard payment amounts for labor market differences. Thus, the wage index that applies to a particular acute care short-stay hospital under the IPPS also applies to that hospital under the OPPS. As initially explained in the September 8, 1998 OPPS proposed rule, we believed that using the IPPS wage index as the source of an adjustment factor for the OPPS is reasonable and logical, given the inseparable, subordinate status of the HOPD within the hospital overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually.

The Affordable Care Act contains provisions that affect the final FY 2012 IPPS wage index values, including revisions to the reclassification wage comparability criteria that were finalized in the FY 2009 IPPS final rule (73 FR 48568 through 48570), and the application of rural floor budget neutrality on a national, rather than State-specific, basis through a uniform, national adjustment to the area wage index (76 FR 26021). In addition, section 10324 of the Affordable Care Act requires CMS to establish an adjustment to create a wage index floor of 1.00 for hospitals located in States determined to be frontier States.

Section 10324 of the Affordable Care Act specifies that, for services furnished beginning CY 2011, the wage adjustment factor applicable to any HOPD that is located in a frontier State (as defined in section 1886(d)(3)(E)(iii)(II) of the Act) may not be less than 1.00. Further, section 10324 states that this adjustment to the wage index for these outpatient departments should not be made in a budget neutral manner. As such, for the CY 2012 OPPS, as we proposed, we are continuing to adjust the FY 2012 IPPS wage index, as adopted on a calendar year basis for the OPPS, for all hospitals paid under the OPPS, including non-IPPS hospitals (providers that are not paid under the IPPS) located in a frontier State, to 1.00 in instances where the FY 2012 wage index (that reflects Medicare Geographic Classification Review Board (MGCRB) reclassifications, the application of the rural floor, and the rural floor budget neutrality adjustment) for these hospitals is less than 1.00. Similar to our current policy for HOPDs that are affiliated with multicampus hospital systems, we fully expect that the HOPD will receive a wage index based on the geographic location of the specific inpatient hospital with which it is associated. Therefore, if the associated hospital is located in a frontier State, the wage index adjustment applicable for the hospital will also apply for the affiliated HOPD. We refer readers to the FY 2011 and FY 2012 IPPS/LTCH PPS final rules (75 FR 50160 and 76 FR 51581, respectively) for a detailed discussion regarding this provision, including our methodology for identifying which areas meet the definition of frontier States as provided for in section 1886(d)(3)(E)(iii)(II)) of the Act.

In addition to the changes required by the Affordable Care Act, we note that the FY 2012 IPPS wage indices continue to reflect a number of adjustments implemented over the past few years, including, but not limited to, reclassification of hospitals to different geographic areas, the rural floor provisions, an adjustment for occupational mix, and an adjustment to the wage index based on commuting patterns of employees (the out-migration adjustment). We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51581 through 51605) for a detailed discussion of all changes to the FY 2012 IPPS wage indices. In addition, we refer readers to the CY 2005 OPPS final rule with comment period (69 FR 65842 through 65844) and subsequent OPPS rules for a detailed discussion of the history of these wage index adjustments as applied under the OPPS.

Section 3137 of the Affordable Care Act extended, through FY 2010, section 508 reclassifications as well as certain special exceptions. The most recent extension of the provision was included in section 102 of the Medicare and Medicaid Extender Act, which extends, through FY 2011, section 508 reclassifications as well as certain special exceptions. The latest extension of these provisions expired on September 30, 2011, and is no longer applicable effective with FY 2012. As we did for CY 2010, we revised wage index values for certain special exception hospitals from January 1, 2011 through December 31, 2011, under the OPPS, in order to give these hospitals the special exception wage indices under the OPPS for the same time period as under the IPPS. In addition, because the OPPS pays on a calendar year basis, the effective date under the OPPS for all other nonsection 508 and non-

special exception providers was July 1, 2011, instead of April 1, 2011, so that these providers also received a full 6 months of payment under the revised wage index comparable to the IPPS.

For purposes of the OPPS, as we proposed, we are continuing our policy in CY 2012 of allowing non-IPPS hospitals paid under the OPPS to qualify for the out-migration adjustment if they are located in a section 505 out-migration county (section 505 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)). We note that, because non-IPPS hospitals cannot reclassify, they are eligible for the out-migration wage adjustment. Table 4J listed in the FY 2012 IPPS/LTCH PPS final rule (and made available via the Internet on the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/01_overview.asp) identifies counties eligible for the out-migration adjustment and hospitals that will receive the adjustment for FY 2012. We note that, beginning with FY 2012, under the IPPS, an eligible hospital that waives its Lugar status in order to receive the out-

migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS, including being considered rural for the disproportionate share hospital (DSH)

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payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599) for a more detailed discussion on the Lugar redesignation waiver for the out-migration adjustment). As we have done in prior years, we are including Table 4J as Addendum L to this final rule with comment period with the addition of non-IPPS hospitals that will receive the section 505 out-migration adjustment under the CY 2012 OPPS. Addendum L is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site.

As stated earlier in this section, our longstanding policy for OPPS has been to adopt the final wage index used in IPPS. Therefore, for calculating OPPS payments in CY 2012, we used the FY 2012 IPPS wage indices. However, section 1833(t)(2)(D) of the Act confers broad discretionary authority upon the Secretary in determining the wage adjustment factor used under the OPPS. Specifically, this provision provides that ``subject to paragraph (19), the Secretary shall determine a wage adjustment factor to adjust the portion of payment and coinsurance attributable to labor-related costs for relative differences in labor and labor-related costs across geographic regions. * * *'' In other prospective payment systems, we do not adopt the adjustments applied to the IPPS wage index, such as the out-migration adjustment, reclassifications, and the rural floor. For the OPPS, using the IPPS wage index as the source of an adjustment factor for geographic wage differences has, in the past, been both reasonable and logical, given the inseparable, subordinate status of the outpatient department within the hospital overall.

However, in recent years, we have become concerned that hospitals converting their status significantly inflate wage indices across a State. In the FY 2008 IPPS final rule (72 FR 47324 and 47325), we discussed a situation where a CAH may have converted back to IPPS status in order to increase the rural floor.

The FY 2012 IPPS/LTCH PPS final rule (76 FR 51824) shows the impact of this CAH conversion. Hospitals in Massachusetts can expect an approximate 8.7percent increase in IPPS payments due to the conversion and the resulting increase of the rural floor. Our concern is that the manipulation of the rural floor is of sufficient magnitude that it requires all hospital wage indices to be reduced approximately 0.62 percent as a result of nationwide budget neutrality for the rural floor (or more than a 0.4 percent total payment reduction to all IPPS hospitals).

In addition to the CAH conversion, we recently received two requests from urban hospitals to convert to rural hospital status under section 1886(d)(8)(E) of the Act, which would inflate other States' rural floors, through the conversion of what would otherwise be urban hospitals to rural status. While we recognize that conversions from urban-to-rural status are permitted under section 1886(d)(8)(E) of the Act, we are concerned with individual urban to rural conversions allowing payment redistributions of this magnitude.

We believe the above discussions demonstrate that the rural floor is resulting in significant disparities in wage index and, in some cases, resulting in situations where all hospitals in a State receive a wage index higher than that of the single highest wage index urban hospital in the State. As stated above, the statute does not require the Secretary to use the IPPS wage adjustment factor to wage adjust OPPS payments and copayments, nor to apply to OPPS payment and copayment calculations the same wage adjustment factor that the law requires be applied to IPPS payments.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42212), we stated that we were considering the adoption of a policy that would address situations where IPPS wage index adjustments, such as the rural floor, result in significant fluctuations in the wage index within a State. One option we proposed would be not to apply the rural floor wage index at all in the OPPS where the rural floor is set by a small number of hospitals in a State and results in a rural floor that benefits all hospitals in the State. Alternatively, we proposed that we could apply within-State rural budget neutrality to the OPPS wage index as we did for both the IPPS and OPPS wage index beginning in FY 2009. In the proposed rule, we sought public comment on whether to: (1) Adopt the IPPS wage index for the OPPS in its entirety including the rural floor, geographic reclassifications, and all other wage index adjustments (our current policy); (2) adopt the IPPS wage index for the OPPS in its entirety except when a small number of hospitals set the rural floor for the benefit of all other hospitals in the State, and, if so, then not apply the rural floor wage index; (3) adopt the IPPS wage index for the OPPS in its entirety except apply rural floor budget neutrality within each State instead of nationally; or (4) adopt another decision rule for when the rural floor should not be applied in the OPPS when we have concerns about disproportionate impact.

We also requested public comments on an option that we were considering adopting for both the IPPS and the OPPS, where we would determine the applicable rural wage index floor using only data from those hospitals geographically rural under OMB and the Census Bureau's MSA designations, and without including wage data associated with hospitals reclassified from urban to rural status under section 1886(d)(8)(E) of the Act. Such a policy would eliminate the incentive to reclassify from urban to rural status primarily to increase rural floors across a State, and would ensure that the rural floor is based upon hospitals located in rural areas.

Comment: Commenters that were in favor of maintaining the current policy (option 1 listed above) of adopting the IPPS wage indices under the OPPS cited several different reasons for their choice. Several commenters believed that hospital inpatient and outpatient departments are ``inseparable'' because they are subject to the same labor cost environment, and, therefore, should have the same wage index where applicable. Other commenters preferred maintaining the current wage index policy and implementing wage index changes in the context of comprehensive wage index reform. These commenters believed that only comprehensive wage index reform can revise the wage index in such as way as ``to minimize volatility of the wage index and remove incentives to game the system.'' Commenters stated that an additional reason for maintaining the current policy was that different wage indices for inpatient and outpatient payments would add a level of administrative complexity that is overly burdensome and unnecessary.

Several commenters expressed a preference for wage index policy option 2 included in the proposed rule (to adopt the IPPS wage index for the OPPS in its entirety except when a small number of hospitals set the rural floor for the benefit of all other hospitals in the State, and, if so, then not apply the rural floor wage index). These commenters typically viewed this option to be the best in terms of addressing current inequities. However, some of the commenters requested that CMS explicitly define a ``small number'' threshold as well as what is considered as a ``benefit'' for all other hospitals in the State. Some commenters that supported option 2 preferred option 2 to option 3 (the adoption of the IPPS wage index policies but application of statewide rather than national budget

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neutrality for the rural floor policy). Commenters that preferred option 2 rather than option 3 argued that a national level adjustment was in keeping with Congressional intent, especially given that Congress enacted legislation to establish national budget neutrality for the rural floor in the IPPS under the Affordable Care Act (effective in FY 2011). These commenters also were concerned about CMS deciding when budget neutrality adjustments should be applied at the State versus national levels.

Several commenters favored option 3 because they supported the application of statewide level budget neutrality for the rural floor policy. These commenters favored basing the wage index on Bureau of Labor Statistics (BLS) data rather than hospital cost reports but believed that, in the absence of broader wage index reform, option 3 was the most equitable policy. One commenter, although supportive of systematic wage index reform, stated that CMS ``should not wait for reform to address obvious and significant immediate problems'' and therefore advocated for option 3.

Instead of recommending other policy options, for the fourth potential wage index policy option (adopting another decision rule), most commenters simply requested further detail. Several commenters did not exhibit any preferences for any specific wage index policy options, choosing instead to comment generally about issues of concern. One commenter believed that ``looking at one policy in isolation serves only to address one issue while likely creating other inequities in the system.'' Another commenter was concerned that any new rule could unnecessarily harm rural providers. Another commenter that supported systematic wage index reform advocated not making changes until reports from the Institute of Medicine are completed and the CMS report to Congress, which is due on December 31, 2011, are fully analyzed. Commenters requested further detail to formulate a policy position on the four options presented and urged CMS to include impact analyses for the final rule.

Response: We appreciate the public comments. We acknowledge that there may be inequities in the current application of the wage index policy and its various adjustments. This is why we described various methods and wage index options that we might consider under the OPPS to address manipulation of wage index adjustment policies, and, in this specific case, the rural floor wage index and its national level budget neutrality.

In the CY 2012 OPPS/ASC proposed rule, we referred specifically to the conversion of one CAH to IPPS status to increase the rural floor for the State, which would increase IPPS and OPPS payments to that State, while decreasing IPPS and OPPS payments to hospitals in other States, under a policy in which the rural floor wage index budget neutrality was applied at the national level. Similarly, we are aware of requests from urban hospitals to convert to rural hospital status, which would inflate those States' rural floors. While we recognize that conversions from urban-to-rural status are permitted under section 1886(d)(8)(E) of the Act, we are concerned with individual urban-to-

rural conversions that would result in payment redistributions of this magnitude.

However, we agree with the commenters that stated that maintaining the current policy for CY 2012 would be the best option, given the broader wage index reform currently under development and consideration. This includes the Report to Congress with a plan for wage index reform, which is due December 31, 2011, under the Affordable Care Act. We will continue to consider these policy options in future rulemaking, especially in the context of other significant wage index revisions. In response to commenters' recommendations that we provide more detailed impact analysis, we are providing a State level impact table, similar to the table provided in the FY 2012 IPPS/LTCH final rule (76 FR 51824 through 51825), that displays the impact of the rural floor and imputed floor policies with national budget neutrality on OPPS hospitals and their payments by State. This table is included in section XX. of this final rule with comment period.

Comment: A few commenters responded to our request for comments on setting the applicable rural wage index floor using only data from hospitals that are geographically rural according to OMB and MSA designations, and without including wage data associated with hospitals reclassified from urban to rural status under section 1886(d)(8)(E) of the Act. One commenter opposed using data from geographically rural hospitals alone in setting the rural floor because reclassified hospitals are considered rural for all payment policies. Several commenters agreed that wage data associated with hospitals that are reclassified should be excluded from calculation of the rural floor. One commenter questioned why it is necessary to maintain the rural floor wage index policy under the OPPS.

Response: For the reasons stated above, in this final rule with comment period, we are adopting the IPPS wage index and its adjustments for use under the OPPS. However, in the IPPS proposed rule for FY 2013, we may address the issue of including hospitals reclassified from urban to rural status under section 1886(d)(8)(E) of the Act.

Comment: One commenter asked whether an increase similar to the 1.1 percent increase included in the FY 2012 IPPS/LTCH final rule (76 FR 51788) should also apply under the OPPS.

Response: The increase cited by the commenter is limited to IPPS payments. Budget neutrality (including that for the rural floor) is calculated prospectively each year under the OPPS. While we have historically adopted the IPPS wage index when developing the wage indices for calculating payments under the OPPS, the budget neutrality factors that applied to the standardized amount under IPPS as a result of the rural floor were not applied to the OPPS conversion factor, and thus would not have any effect on OPPS budget neutrality.

After consideration of the public comments we received, we are finalizing our policy to adopt the FY 2012 IPPS wage index for the CY 2012 OPPS in its entirety including the rural floor, geographic reclassifications, and all other wage index adjustments.

With the exception of the out-migration wage adjustment table (Addendum L to this final rule with comment period, which is available via the Internet on the CMS Web site), which includes non-IPPS hospitals paid under the OPPS, we are not reprinting the final FY 2012 IPPS wage indices referenced in this discussion of the wage index. We refer readers to the CMS Web site for the OPPS at: http://www.cms.gov/HospitalOutpatientPPS/. At this link, readers will find a link to the final FY 2012 IPPS wage index tables.

D. Statewide Average Default CCRs

In addition to using CCRs to estimate costs from charges on claims for ratesetting, CMS uses overall hospital-specific CCRs calculated from the hospital's most recent cost report to determine outlier payments, payments for pass-through devices, and monthly interim transitional corridor payments under the OPPS during the PPS year. Medicare contractors cannot calculate a CCR for some hospitals because there is no cost report available. For these hospitals, CMS uses the statewide average default CCRs to determine the payments mentioned above until a hospital's Medicare contractor is able to

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calculate the hospital's actual CCR from its most recently submitted Medicare cost report. These hospitals include, but are not limited to, hospitals that are new, have not accepted assignment of an existing hospital's provider agreement, and have not yet submitted a cost report. CMS also uses the statewide average default CCRs to determine payments for hospitals that appear to have a biased CCR (that is, the CCR falls outside the predetermined ceiling threshold for a valid CCR) or for hospitals in which the most recent cost report reflects an all-

inclusive rate status (Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, Section 10.11). As we proposed in the CY 2012 OPPS/ASC proposed rule (76 FR 42213), we are updating the default ratios for CY 2012 using the most recent cost report data. We discuss our policy for using default CCRs, including setting the ceiling threshold for a valid CCR, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68594 through 68599) in the context of our adoption of an outlier reconciliation policy for cost reports beginning on or after January 1, 2009.

We proposed to continue to use our standard methodology of calculating the statewide average default CCRs using the same hospital overall CCRs that we use to adjust charges to costs on claims data for setting the CY 2012 OPPS relative weights. Table 11 published in the proposed rule listed the proposed CY 2012 default urban and rural CCRs by State and compared them to last year's default CCRs. These proposed CCRs represented the ratio of total costs to total charges for those cost centers relevant to outpatient services from each hospital's most recently submitted cost report, weighted by Medicare Part B charges. We also adjusted ratios from submitted cost reports to reflect final settled status by applying the differential between settled to submitted overall CCRs for the cost centers relevant to outpatient services from the most recent pair of final settled and submitted cost reports. We then weighted each hospital's CCR by the volume of separately paid line-items on hospital claims corresponding to the year of the majority of cost reports used to calculate the overall CCRs. We refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66680 through 66682) and prior OPPS rules for a more detailed discussion of our established methodology for calculating the statewide average default CCRs, including the hospitals used in our calculations and our trimming criteria.

We did not receive any public comments on our CY 2012 proposal. We are finalizing our proposal to apply our standard methodology of calculating the statewide average default CCRs using the same hospital overall CCRs that we used to adjust charges to costs on claims data for setting the CY 2012 OPPS relative weights. We used this methodology to calculate the statewide average default CCRs listed in Table 11 below.

For this CY 2012 OPPS/ASC final rule with comment period, approximately 47 percent of the submitted cost reports utilized in the default ratio calculations represented data for cost reporting periods ending in CY 2010 and 53 percent were for cost reporting periods ending in CY 2009. For Maryland, we used an overall weighted average CCR for all hospitals in the Nation as a substitute for Maryland CCRs. Few hospitals in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The weighted CCR is used for Maryland because it takes into account each hospital's volume, rather than treating each hospital equally. We refer readers to the CY 2005 OPPS final rule with comment period (69 FR 65822) for further discussion and the rationale for our longstanding policy of using the national average CCR for Maryland. In general, observed changes in the statewide average default CCRs between CY 2011 and CY 2012 are modest and the few significant changes are associated with areas that have a small number of hospitals.

Table 11 below lists the finalized statewide average default CCRs for OPPS services furnished on or after January 1, 2012.

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E. OPPS Payments to Certain Rural and Other Hospitals

1. Hold Harmless Transitional Payment Changes

When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (called either transitional corridor payments or transitional outpatient payments (TOPs)) if the payments it received for covered OPD services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system (referred to as the pre-BBA amount). Section 1833(t)(7) of the Act provides that the TOPs were temporary payments for most providers and intended to ease their transition from the prior reasonable cost-based payment system to the OPPS system. There are two exceptions to this temporary provision, cancer hospitals and children's hospitals. Such a hospital could receive TOPs to the extent its PPS amount was less than its pre-BBA amount in the applicable year. Section 1833(t)(7)(D)(i) of the Act originally provided for TOPs to rural hospitals with 100 or fewer beds for covered OPD services furnished before January 1, 2004. However, section 411 of Pub. L. 108-173 (the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) amended section 1833(t)(7)(D)(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the TOPs to sole community hospitals (SCHs) located in rural areas for services furnished during the period that began with the provider's first cost reporting period beginning on or after January 1, 2004, and ending on December 31, 2005. Accordingly, the authority for making TOPs under section 1833(t)(7)(D)(i) of the Act, as amended by section 411 of Public Law 108-173, for rural hospitals having 100 or fewer beds and SCHs located in rural areas expired on December 31, 2005.

Section 5105 of Public Law 109-171 (the Deficit Reduction Act of 2005) extended the TOPs for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. Section 5105 also reduced the TOPs to rural hospitals from 100 percent of the difference between the provider's OPPS payments and the pre-BBA amount. When the OPPS payment was less than the provider's pre-BBA amount, the amount of payment was increased by 95 percent of the amount of the difference between the two amounts for CY 2006, by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of that difference for CY 2008.

For CY 2006, we implemented section 5105 of Public Law 109-171 through Transmittal 877, issued on February 24, 2006. In the Transmittal, we did not specifically address whether TOPs apply to essential access community hospitals (EACHs), which are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, under the statute, EACHs are treated as SCHs. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010), we stated that EACHs were not eligible for TOPs under Public Law 109-171. However, we stated they were eligible for the adjustment for rural SCHs authorized under section 411 of Public Law 108-173. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010 and 68228), we updated Sec. 419.70(d) of our regulations to reflect the requirements of Public Law 109-171.

In the CY 2009 OPPS/ASC proposed rule (73 FR 41461), we stated that, effective for services provided on or after January 1, 2009, rural hospitals having 100 or fewer beds that are not SCHs would no longer be eligible for TOPs, in accordance with section 5105 of Public Law 109-171. However, subsequent to issuance of the CY 2009 OPPS/ASC proposed rule, section 147 of Public Law 110-275 amended section 1833(t)(7)(D)(i) of the Act by extending the period of TOPs to rural hospitals with 100 beds or fewer for 1 year, for services provided before January 1, 2010. Section 147 of Public Law 110-275 also extended TOPs to SCHs (including EACHs) with 100 or fewer beds for covered OPD services provided on or after January 1, 2009, and before January 1, 2010. In accordance with section 147 of Public Law 110-275, when the OPPS payment is less than the provider's pre-BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payment amounts for CY 2009.

For CY 2009, we revised our regulations at Sec. Sec. 419.70(d)(2) and (d)(4) and added a new paragraph (d)(5) to incorporate the provisions of section 147 of Public Law 110-275. In addition, we made other technical changes to Sec. 419.70(d)(2) to more precisely capture our existing policy and to correct an inaccurate cross-reference. We also made technical corrections to the cross-references in paragraphs (e), (g), and (i) of Sec. 419.70.

For CY 2010, we made a technical correction to the heading of Sec. 419.70(d)(5) to correctly identify the policy as described in the subsequent regulation text. The paragraph heading now indicates that the adjustment applies to small SCHs, rather than to rural SCHs.

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60425), we stated that, effective for services provided on or after January 1, 2010, rural hospitals and SCHs (including EACHs) having 100 or fewer beds would no longer be eligible for TOPs, in accordance with section 147 of Public Law 110-275. However, subsequent to issuance of the CY 2010 OPPS/ASC final rule with comment period, section 3121(a) of the Affordable Care Act amended section 1833(t)(7)(D)(i)(III) of the Act by extending the period of TOPs to rural hospitals that are not SCHs with 100 beds or fewer for 1 year, for services provided before January 1, 2011. Section 3121(a) of the Affordable Care Act amended section 1833(t)(7)(D)(i)(III) of the Act and extended the period of TOPs to SCHs (including EACHs) for 1

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year, for services provided before January 1, 2011, and section 3121(b) of the Affordable Care Act removed the 100-bed limitation applicable to such SCHs for covered OPD services furnished on and after January 1, 2010, and before January 1, 2011. In accordance with section 3121 of the Affordable Care Act, when the OPPS payment is less than the provider's pre-BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payment amounts for CY 2010. Accordingly, in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71882), we updated Sec. 419.70(d) of the regulations to reflect the TOPs extensions and amendments described in section 3121 of the Affordable Care Act.

Section 108 of the Medicare and Medicaid Extenders Act of 2010 (MMEA) (Pub. L. 111-309) extended for 1 year the hold harmless provision for a rural hospital with 100 or fewer beds that is not an SCH (as defined in section 1886(d)(5)(D)(iii) of the Act). Therefore, for such a hospital, for services furnished before January 1, 2012, when the PPS amount is less than the provider's pre-BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payments. In addition, section 108 of the MMEA also extended for 1 year the hold harmless provision for an SCH (as defined in section 1886(d)(5)(D)(iii) of the Act (including EACHs) and removed the 100-bed limit applicable to such SCHs for covered OPD services furnished on or after January 1, 2010 and before January 1, 2012. Therefore, for such hospitals, for services furnished before January 1, 2012, when the PPS amount is less than the provider's pre-

BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payments. Effective for services provided on or after January 1, 2012, a rural hospital with 100 or fewer beds that is not an SCH and an SCH (including EACHs) will no longer be eligible for TOPs, in accordance with section 108 of the MMEA. In the CY 2012 OPPS/ASC proposed rule (76 FR 42216), we proposed to revise our regulations at Sec. 419.70(d) to conform the regulation text to the self-implementing provisions of section 108 of the MMEA described above.

We did not receive any public comments on our proposed policy to update the language in Sec. 419.70(d) of the regulations. For the reasons we specified in the CY 2012 OPPS/ASC proposed rule (76 FR 42215 and 42216), we are finalizing our proposed revisions of Sec. 419.70(d) without modification.

2. Adjustment for Rural SCHs and EACHs Under Section 1833(t)(13)(B) of the Act

In the CY 2006 OPPS final rule with comment period (70 FR 68556), we finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy sources, and devices paid under the pass-

through payment policy in accordance with section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary the authority to make an adjustment to OPPS payments for rural hospitals, effective January 1, 2006, if justified by a study of the difference in costs by APC between hospitals in rural areas and hospitals in urban areas. Our analysis showed a difference in costs for rural SCHs. Therefore, for the CY 2006 OPPS, we finalized a payment adjustment for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding separately payable drugs and biologicals, brachytherapy sources, and devices paid under the pass-

through payment policy, in accordance with section 1833(t)(13)(B) of the Act.

In CY 2007, we became aware that we did not specifically address whether the adjustment applies to EACHs, which are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute, EACHs are treated as SCHs. Therefore, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010 and 68227), for purposes of receiving this rural adjustment, we revised Sec. 419.43(g) to clarify that EACHs are also eligible to receive the rural SCH adjustment, assuming these entities otherwise meet the rural adjustment criteria. Currently, three hospitals are classified as EACHs, and as of CY 1998, under section 4201(c) of Public Law 105-33, a hospital can no longer become newly classified as an EACH.

This adjustment for rural SCHs is budget neutral and applied before calculating outliers and copayment. As we stated in the CY 2006 OPPS final rule with comment period (70 FR 68560), we would not reestablish the adjustment amount on an annual basis, but we may review the adjustment in the future and, if appropriate, would revise the adjustment. We provided the same 7.1 percent adjustment to rural SCHs, including EACHs, again in CYs 2008 through 2011. Further, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68590), we updated the regulations at Sec. 419.43(g)(4) to specify, in general terms, that items paid at charges adjusted to costs by application of a hospital-specific CCR are excluded from the 7.1 percent payment adjustment.

For the CY 2012 OPPS, we proposed to continue our policy of a budget neutral 7.1 percent payment adjustment for rural SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding separately payable drugs and biologicals, devices paid under the pass-

through payment policy, and items paid at charges reduced to costs (76 FR 46232). In the CY 2012 OPPS/ASC proposed rule, we indicated that we intend to reassess the 7.1 percent adjustment in the near future by examining differences between urban hospitals' costs and rural hospitals' costs using updated claims data, cost reports, and provider information.

We did not receive any public comments regarding the proposed continuation of the 7.1 rural adjustment. We are finalizing our CY 2012 proposal, without modification, to apply the 7.1 percent payment adjustment to rural SCHs, including EACHs, for all services and procedures paid under the OPPS in CY 2012, excluding separately payable drugs and biologicals, devices paid under the pass-through payment policy, and items paid at charges reduced to costs because we continue to believe that the adjustment is appropriate for application in CY 2012.

F. OPPS Payments to Certain Cancer Hospitals Described by Section 1886(d)(1)(B)(v) of the Act

1. Background

Since the inception of the OPPS, which was authorized by the Balanced Budget Act of 1997 (BBA), Medicare has paid cancer hospitals identified in section 1886(d)(1)(B)(v) of the Act (cancer hospitals) under the OPPS for covered outpatient hospital services. There are 11 cancer hospitals that meet the classification criteria in section 1886(d)(1)(B)(v) of the Act. These 11 cancer hospitals are exempted from payment under the IPPS. With the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999, Congress created section 1833(t)(7) of the Act, ``Transitional Adjustment to Limit Decline in Payment,'' to serve as a permanent payment floor by limiting cancer hospitals' potential losses under the OPPS. Through section 1833(t)(7)(D)(ii) of the Act, a cancer hospital receives the full amount of the difference between payments for covered outpatient services under the OPPS and a ``pre-BBA'' amount. That is, cancer hospitals

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are permanently held harmless to their ``pre-BBA'' amount, and they receive transitional outpatient payments (TOPs) to ensure that they do not receive a payment that is lower under the OPPS than the payment they would have received before implementation of the OPPS, as set forth in section 1833(t)(7)(F) of the Act. The ``pre-BBA'' payment amount is an amount equal to the product of the reasonable cost of the hospital for covered outpatient services for the portions of the hospital's cost reporting period (or periods) occurring in the current year and the base payment-to-cost ratio (PCR) for the hospital. The ``pre-BBA'' amount, including the determination of the base PCR, are defined at 42 CFR 419.70(f). TOPs are calculated on Worksheet E, Part B, of the Hospital and Hospital Health Care Complex Cost Report (Form CMS-2552-96 or Form CMS-2552-10, as applicable) each year. Section 1833(t)(7)(I) of the Act exempts TOPs from budget neutrality calculations. Almost all of the 11 cancer hospitals receive TOPs each year. The volume weighted average PCR for the cancer hospitals is 0.83, or the outpatient payment with TOPs to cancer hospitals is 83 percent of reasonable cost.

Section 3138 of the Affordable Care Act amended section 1833(t) of the Social Security Act by adding a new paragraph (18), which instructs the Secretary to conduct a study to determine if, under the OPPS, outpatient costs incurred by cancer hospitals described in section 1886(d)(1)(B)(v) of the Act with respect to APC groups exceed the costs incurred by other hospitals furnishing services under section 1833(t) of the Act, as determined appropriate by the Secretary. In addition, section 3138 of the Affordable Care Act requires the Secretary to take into consideration the cost of drugs and biologicals incurred by such hospitals when studying cancer hospital costliness. Further, section 3138 of the Affordable Care Act provides that if the Secretary determines that cancer hospitals' costs with respect to APC groups are determined to be greater than the costs of other hospitals furnishing services under section 1833(t) of the Act, the Secretary shall provide an appropriate adjustment under section 1833(t)(2)(E) of the Act to reflect these higher costs. Cancer hospitals described in section 1886(d)(1)(B)(v) of the Act remain eligible for TOPs (which are not budget neutral) and outlier payments (which are budget neutral).

2. Study of Cancer Hospitals' Costs Relative to Other Hospitals

It has been our standard analytical approach to use a combination of explanatory and payment regression models to assess the costliness of a class of hospitals while controlling for other legitimate influences of costliness, such as ability to achieve economies of scale, to ensure that costliness is due to the type of hospital and to identify appropriate payment adjustments. We used this approach in our CY 2006 OPPS final rule with comment period to establish the 7.1 percent payment adjustment for rural SCHs (70 FR 68556 through 68561). In our discussion for the CY 2006 OPPS proposed rule, we stated that a simple comparison of unit costs would not be sufficient to assess the costliness of a class of hospitals because the costs faced by individual hospitals, whether urban or rural, are a function of many varying factors, including local labor supply and the complexity and volume of services provided (70 FR 42699).

In constructing our analysis of cancer hospitals' costs with respect to APC groups relative to other hospitals, we considered whether our standard analytical approach to use a combination of explanatory and payment regression models would lead to valid results for this particular study, or whether we should develop a different or modified analytic approach. We note that the analyses presented in the CY 2006 OPPS proposed and final rules were designed to establish an adjustment for a large class of rural hospitals. In contrast, section 3138 of the Affordable Care Act is specifically limited to identifying an adjustment for 11 cancer hospitals to the extent their costs with respect to APC groups exceeded those costs incurred by other hospitals furnishing services under section 1833(t) of the Act. With such a small sample size (11 out of approximately 4,000 hospitals paid under the OPPS), we were concerned that the standard explanatory and payment regression models used to establish the rural hospital adjustment would lead to imprecise estimates of payment adjustments for this small group of hospitals. Further, section 3138 of the Affordable Care Act specifies explicitly that cost comparisons between classes of hospitals must include the cost of drugs and biologicals. In our CY 2006 analysis of rural hospitals, we excluded the cost of drugs and biologicals in our model because the extreme units associated with proper billing for some drugs and biologicals can bias the calculation of a service mix index, or volume weighted average APC relative weight, for each hospital (70 FR 42698). Therefore, we chose not to pursue our standard combination of explanatory and payment regression modeling to determine a proposed cancer hospital adjustment.

As discussed in the CY 2011 OPPS/ASC proposed rule (75 FR 46235), while we chose not to use our standard models to calculate a proposed cancer hospital adjustment, we determined it still would be appropriate to construct our usual provider-level analytical dataset consisting of variables related to assessing costliness with respect to APC groups, including average cost per unit for a hospital and the hospital's average APC relative weight as an indicator of the hospital's resource intensity, as measured by the APC relative weights. We used these variables to calculate univariate statistics that describe the costliness with respect to APC groups and related aspects of cancer hospitals and other hospitals paid under the OPPS. While descriptive statistics cannot control for the myriad factors that contribute to observed costs, we believed that stark differences in cost between cancer hospitals and other hospitals paid under the OPPS that would be observable by examining descriptive univariate statistics would provide some indication of relative costliness. We began our analysis of the cancer hospitals by creating an analytical dataset of hospitals billing under the OPPS for CY 2009 (a total of 3,933) that were included in our claims dataset for establishing the CY 2011 OPPS proposed APC relative weights. This analytical dataset included the 3,933 OPPS hospitals' total estimated cost (including packaged cost), total lines, total discounted units as modeled for CY 2011 OPPS payment, and the average weight of their separately payable services (total APC weight divided by total units) as modeled for the CY 2011 OPPS. We then summarized estimated utilization and payment for each hospital (``hospital-

level''). These files consist of hospital-level aggregate costs (including the cost of packaged items and services), total estimated discounted units under the modeled proposed CY 2011 OPPS, total estimated volume of number of occurrences of separately payable HCPCS codes under the modeled proposed CY 2011 OPPS, and total relative weight of separately payable services under the modeled proposed CY 2011 OPPS. After summarizing modeled payment to the hospital-level, we removed 48 hospitals in Puerto Rico

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from our dataset because we did not believe that their cost structure reflected the costs of most hospitals paid under the OPPS and because they could bias the calculation of hospital-weighted statistics. We then removed an additional 66 hospitals with a cost per unit of more than 3 standard deviations from the geometric mean (mean of the natural log) because including outliers in hospital-weighted descriptive statistics also could bias those statistics. This resulted in a dataset with 11 cancer hospitals and 3,808 other hospitals.

We included the following standard hospital-level variables that describe hospital costliness in our analysis file: Outpatient cost per discounted unit under the modeled CY 2011 OPPS (substituting a cost per administration, rather than a cost per unit, for drugs and biologicals); each hospital's proposed CY 2011 wage index as a measure of relative labor cost; the service-mix index, or volume-weighted average proposed CY 2011 APC relative weight (including a simulated weight for drugs and biologicals created by dividing the CY 2010 April ASP-based payment amount at ASP+6 percent appearing in Addendum A and B of the proposed rule by the proposed conversion factor of $68.267); outpatient volume based on number of occurrences of HCPCS codes in the CY 2009 claims data; and number of beds. We used these variables because they are key indicators of costliness with respect to APC groups under the modeled OPPS system, and they allowed us to assess the relative costliness of classes of hospitals under the proposed CY 2011 OPPS. A hospital's service mix index is a measure of resource intensity of the services provided by the hospital as measured by the proposed CY 2011 OPPS relative weights, and standardizing the cost per discounted unit by the service mix index creates an adjusted cost per unit estimate that reflects the remaining relative costliness of a hospital remaining after receiving the estimated payments that we proposed to make under the CY 2011 OPPS. In short, if a class of hospitals demonstrates higher cost per unit after standardization by service mix, it is an early indication that the class of hospitals may be significantly more costly in the regression models. We used these data to calculate the descriptive univariate statistics for cancer hospitals appearing in Table 12 below. We note that because drugs and biologicals are such a significant portion of the services that the cancer hospitals provide, and because section 3138 of the Affordable Care Act explicitly requires us to consider the cost of drugs and biologicals, we included the cost of these items in our total cost calculation for each hospital, counting each occurrence of a drug in the modeled proposed CY 2011 data (based on units in CY 2009 claims data). That is, we sought to treat each administration of a drug or biological as one unit.

In reviewing these descriptive statistics, we observed that cancer hospitals had a standardized cost per discounted unit of $150.12 compared to a standardized cost per discounted unit of $94.14 for all other hospitals. That is, cancer hospitals' average cost per discounted unit remained high even after accounting for payment under the modeled proposed CY 2011 payment system, which is not true for all other hospitals. Observing such differences in standardized cost per discounted unit led us to conclude that cancer hospitals are more costly with respect to APC groups than other hospitals furnishing services under the OPPS, even without the inferential statistical models that we typically employ.

GRAPHIC TIFF OMITTED TR30NO11.021

3. CY 2011 Proposed Payment Adjustment for Certain Cancer Hospitals

Having reviewed the cost data from the standard analytic database and determined that cancer hospitals are more costly with respect to APC groups than other hospitals furnishing services under the OPPS system, we decided to examine hospital cost report data from Worksheet E, Part B (where TOPs are calculated on the Hospital and Hospital Health Care Complex Cost Report each year) in order to determine whether our findings were further supported by cost report data and to determine an appropriate proposed payment adjustment methodology for CY 2011 based on cost report data. Analyses on

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our standard analytic database and descriptive statistics presented in Table 12 above did not consider TOPs in assessing costliness of cancer hospitals relative to other hospitals furnishing services under section 1833(t) of the Act. There were several reasons for this. One reason was that TOPs have no associated relative weight that could be included in an assessment of APC-based payment. TOPs are paid at cost report settlement on an aggregate basis, not on a per service basis, and we would have no way to break these payments down into a relative weight to incorporate these retrospective aggregate payments in the form of a relative weight. The cost report data we selected for the analysis were limited to the OPPS-specific payment and cost data available on Worksheet E, Part B. These data include aggregate OPPS payments, including outlier payments and the cost of medical and other health services. These aggregate measures of cost and payment also include the cost and payment for drugs and biologicals and other adjustments that we typically include in our regression modeling, including wage index adjustment and rural adjustment, if applicable. While these cost report data cannot provide an estimate of cost per unit after controlling for other potential factors that could influence cost per unit, we used this aggregate cost and payment data to examine the cancer hospitals' OPPS PCR and compare these to the OPPS PCR for other hospitals. PCRs calculated from the most recent cost report data available at the time of the CY 2011 OPPS/ASC proposed rule also indicated that costs relative to payments at cancer hospitals were higher than those at other hospitals paid under the OPPS (that is, cancer hospitals have lower PCRs). In order to calculate PCRs for hospitals paid under the OPPS (including cancer hospitals), we used the same extract of cost report data from the Hospital Cost Report Information System (HCRIS) that we used to calculate the CCRs that were used to estimate median costs for the CY 2011 OPPS. We limited the dataset to the hospitals with CY 2009 claims data that we used to model the CY 2011 proposed APC relative weights.

We estimated that, on average, the OPPS payments to the 11 cancer hospitals, not including TOPs, were approximately 62 percent of reasonable cost (that is, we calculated a PCR of 0.615 for the cancer hospitals), whereas we estimated that, on average, the OPPS payments to other hospitals furnishing services under the OPPS were approximately 87 percent of reasonable cost (resulting in a PCR of 0.868).

Based on our findings that cancer hospitals, as a class, have a significantly lower volume weighted average PCR than the volume weighted PCR of other hospitals furnishing services under the OPPS and our findings that the cancer hospitals cost per discounted unit standardized for service mix remains much higher than the standardized cost per discounted unit of all other hospitals, we proposed an adjustment for cancer hospitals to reflect these higher costs, effective January 1, 2011. For purposes of calculating a proposed adjustment, we chose to rely on this straightforward assessment of payments and costs from the cost report data because of the concerns outlined above with respect to the small number of hospitals, and because of the challenges associated with accurately including drug and biological costs in our standard regression models. We believed that an appropriate adjustment would redistribute enough payments from other hospitals furnishing services under the OPPS to the cancer hospitals to give cancer hospitals a PCR that was comparable to the average PCR for other hospitals furnishing services under the OPPS. Therefore, we proposed a hospital-specific payment adjustment determined as the percentage of additional payment needed to raise each cancer hospital's PCR to the weighted average PCR for other hospitals furnishing services under the OPPS (0.868) in the CY 2011 dataset. This would be accomplished by adjusting each cancer hospital's OPPS APC payment by the percentage difference between the hospital's individual PCR (without TOPs) and the weighted average PCR of the other hospitals furnishing services under the OPPS. This cancer hospital payment adjustment proposed for CY 2011 would have resulted in an estimated aggregate increase in OPPS payments to cancer hospitals of 41.2 percent and a net increase in total payments, including TOPs, of 5 percent for CY 2011.

4. Proposed CY 2011 Cancer Hospital Payment Adjustment Was Not Finalized

The public comments associated with the cancer hospital adjustment that we proposed for CY 2011 are detailed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71886 through 71887). Many commenters urged CMS to consider TOPs when calculating the cancer hospital payment adjustment, stating that the proposed methodology results, largely, in a change in the form of outpatient payments to cancer hospitals by shifting payment from hold harmless payment under the TOPs provision to APC payments. Noting that the majority of cancer care provided in the country is provided by the non-cancer hospitals that would experience a payment reduction under the CY 2011 proposal, commenters also suggested that the associated budget neutral payment reduction of 0.7 percent was not appropriate or equitable to other OPPS hospitals. Commenters also expressed concern that the proposed payment adjustment would increase beneficiary copayments. That is, they believed that the proposed cancer hospital adjustment would increase APC payments and, because beneficiary copayment is a percentage of the APC payment, Medicare beneficiaries seeking services at the 11 designated cancer hospitals would experience higher copayments due to the proposed methodology. These commenters encouraged CMS to implement the adjustment in a way that does not increase beneficiary copayments. As indicated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71887), because the many public comments we received identified a broad range of very important issues and concerns associated with the proposed cancer hospital payment adjustment, we determined that further study and deliberation was necessary and, therefore, we did not finalize the CY 2011 proposed payment adjustment for certain cancer hospitals.

5. Payment Adjustment for Certain Cancer Hospitals for CY 2012

After further review and deliberation of the issues associated with the cancer hospital payment adjustment, in the CY 2012 OPPS/ASC proposed rule, we proposed a cancer hospital payment adjustment reflecting the same approach as we took in the CY 2011 OPPS/ASC proposed rule, that is, an adjustment under which cancer hospitals would receive additional payments (based on estimates) so that each cancer hospital's PCR would be comparable to the weighted average PCR for other hospitals furnishing services under section 1833(t) of the Act. Therefore, for services furnished on and after January 1, 2012, we proposed that, for a cancer hospital with an individual PCR below the weighted average PCR for other hospitals furnishing services under the OPPS in the CY 2012 dataset, we would make a hospital-specific payment adjustment by adjusting the wage-adjusted OPPS payment for covered OPD services (except devices receiving pass-through status because these items and services are always paid at the estimated full cost and, therefore, a

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payment adjustment above zero percent is unnecessary) furnished on and after January 1, 2012, by the percent difference between the hospital's individual PCR and the weighted average PCR of other hospitals furnishing services under the OPPS in the CY 2012 dataset. This methodology resulted in estimated percentage payment adjustments for the 11 cancer hospitals that ranged between 10.1 percent and 61.8 percent, with an estimated aggregate increase in OPPS payment to cancer hospitals of 39 percent for CY 2012 and an estimated net increase in total payments, including TOPs, of 9 percent.

Because section 7101 of the Affordable Care Act expanded the 340B drug program to include certain cancer hospitals, we also proposed that the cancer hospital payment adjustment be recalculated each year. The 340B drug program allows certain hospitals to purchase certain outpatient drugs at reduced prices. We understand from commenters that, currently, two cancer hospitals participate in the 340B program. However, inclusion of cancer hospitals in the 340B drug program should lower drug costs at participating cancer hospitals going forward and, therefore, may cause changes in each cancer hospital's PCR compared to the previous year's calculation.

Comment: Many commenters urged CMS to consider TOPs when calculating the cancer hospital payment adjustment. The commenters stated that the proposed methodology to adjust each cancer hospital's OPPS payment by the percentage difference between their individual PCR without TOPs and the weighted average PCR of the other hospitals paid under OPPS results, largely, in a change in the form of outpatient payments to cancer hospitals by shifting payment from hold harmless payments under the TOPs provision to APC payments. This substitution of TOPs for APC payments, in turn, results in savings to the Medicare program which, the commenters asserted, is in violation of the statutory requirement that the policy be budget neutral. The commenters suggested that because the Congressional Budget Office scoring of section 3138 of the Affordable Care Act estimates no Federal budgetary impact, Congress did not intend for savings under this provision.

Commenters also suggested that the associated budget neutral payment reduction to other hospitals is not appropriate or equitable to other hospitals paid under the OPPS. The commenters indicated that it was not the intent of Congress for the provision to impact the non-

cancer hospitals in a manner that is disproportionate to the benefits obtained by the cancer hospitals. Many commenters noted that the majority of cancer care provided in the country is provided by the non-

cancer hospitals that would experience a payment reduction under the proposal.

Commenters also expressed concern that the proposed payment adjustment would increase beneficiary copayments. That is, they believed that the proposed cancer hospital adjustment would increase APC payments and, because beneficiary copayment is a percentage of the APC payment, Medicare beneficiaries seeking services at the 11 designated cancer hospitals will experience higher copayments due to the proposed methodology. The commenters encouraged CMS to implement the adjustment in a way that does not increase beneficiary copayments, such as providing the adjustment amount in aggregate instead of on a per claim basis through enhanced APC payments.

Commenters indicated that CMS selected an inappropriate benchmark against which to compare each cancer hospital's PCR. Specifically, the commenters indicated that CMS should have taken into account the concentration of outpatient services at the designated cancer hospitals as compared to other PPS hospitals and adjust the PCR benchmark higher. The commenters argued that other PPS hospitals have the ability to improve their Medicare margins through other payment systems, but that cancer hospitals receive the majority of their Medicare payments through the OPPS. These commenters asserted that, because concentration of outpatient services was not considered in establishing the benchmark, the proposed adjustment was not valid. The commenters also indicated that, because outliers were included in the calculation of hospital PCRs, application of the payment adjustment to the APC payment amount will result in PCRs less than the intended target for cancer hospitals with relatively large outlier payments and suggested that the payment adjustment be applied to outlier payments as well as APC payments. In addition, the commenters opposed annual recalculation of the cancer adjustment stating that CMS should not expect significant cost savings at the cancer hospitals as a result of the inclusion of cancer hospitals in the 340B drug program and that the cancer hospitals require payment stability and predictability over the long term. Other commenters supported the proposal to annually recalculate the cancer hospital adjustment, stating that this will ensure more equitable payments. In addition, these commenters indicated that CMS must make the payment adjustment effective for services furnished on or after January 1, 2011, in order to comply with section 3138 of the Affordable Care Act.

Several commenters addressed CMS' study methodology. One commenter suggested that the CMS analysis is inadequate to conclude that costs are higher in cancer hospitals and that an adjustment is warranted. This commenter noted that the CMS analysis did not control for the many factors that might explain differences in costliness or assess to what extent cost differences could be explained by differences in efficiency. This commenter also asserted that the exclusion of TOPs from the comparison of costliness distorts the analysis and makes the findings invalid. Another commenter suggested that CMS examine the costs of cancer patients generally for all hospitals and compare the costs of these 11 hospitals to all hospitals providing cancer care to ensure an adjustment does not reinforce high-cost characteristics of the 11 designated cancer hospitals. This commenter also indicated that additional payments to cancer hospitals should be guided by quality of care and, because the Affordable Care Act requires the 11 cancer hospitals to begin submitting quality data in fiscal year 2014, suggested that the additional payments to cancer hospitals be delayed until these quality data are available to serve as a basis for the payment adjustment.

Response: We analyzed the various issues raised by commenters, and in this final rule with comment period, we are adopting final policies that reflect a number of modifications to our proposed policies. We believe that a number of points raised by the commenters have merit and, consistent with our broad authority under the statute, we are adopting some (but not all) of their recommendations.

As discussed above, section 3138 of the Affordable Care Act added a new section 1833(t)(18) to the Social Security Act, providing for an adjustment under section 1833(t)(2)(E) of the Social Security Act to address higher costs incurred by cancer hospitals. Section 1833(t)(2)(E) of the Act, in turn, directs the Secretary to establish, ``in a budget neutral manner,'' payment ``adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals.''

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Under sections 1833(t)(18) and 1833(t)(2)(E) of the Social Security Act, the agency's authority with respect to the cancer hospital adjustment is broad; similarly, under section 1833(t)(2)(E) of the Act, the agency's authority with respect to calculating budget neutrality is broad. In contrast, the provision of the statute for calculating TOPs is prescriptive.

Commenters requested that CMS maintain TOPs at their current level, that is, calculate TOPs by ignoring the cancer hospital payment adjustment under sections 1833(t)(18) and 1833(t)(2)(E) of the Act. Under the statute, however, the calculation of TOPs is directly tied to what is paid under section 1833(t) of the Act. Specifically, under section 1833(t)(7)(D)(ii) of the Act, ``for covered OPD services for which the PPS amount is less than the pre-BBA amount, the amount of payment under this subsection 1833(t) shall be increased by the amount of such difference.'' The ``PPS amount'' means, with respect to covered OPD services, ``the amount payable under this title Title 18 for such services (determined without regard to this paragraph) * * *'' (section 1833(t)(7)(E) of the Act). Under this provision, the cancer hospital payment adjustment is included in the calculation of the ``PPS amount'' because it is an adjustment under sections 1833(t)(18) and 1833(t) (2)(E) of the Act and, therefore, is the ``amount payable under this title.'' To the extent the PPS amount is less than the pre-BBA amount, a cancer hospital would qualify for a TOP.

With respect to the issue of establishing, in a budget neutral manner, the cancer hospital payment adjustment, we agree with the commenters that it is appropriate to consider that, to some extent, the cancer hospital payment adjustment changes the form of payments (from TOPs to cancer hospital adjustment payments). The cancer hospital payment adjustment presents a unique circumstance insofar as the cancer hospital adjustment can result in lower TOPs. Consistent with section 1833(t)(2)(E) of the Act, we agree that, in determining the baseline for the budget neutrality calculation, it is appropriate to consider TOPs that would otherwise be made if there were no cancer hospital payment adjustment. In determining the budget neutrality adjustment factor, we compare estimated CY 2012 total payments with the cancer hospital payment adjustment under sections 1833(t)(18) and 1833(t)(2)(E) of the Act to estimated CY 2012 total payments without a cancer hospital payment adjustment, taking into account TOPs that would otherwise be made in the absence of a cancer hospital payment adjustment. The inclusion of TOPs in the baseline significantly increases the baseline, and accordingly decreases the amount that other payments need to be reduced to offset the increased payments resulting from the cancer hospital payment adjustment. The budget neutrality adjustment factor for the cancer hospital payment adjustment is 0.9978. In percentage terms, the budget neutrality reduction to the conversion factor is 0.2 percent in this final rule with comment period, as opposed to 0.7 percent in the proposed rule. In dollar terms, the budget neutral payment reduction associated with the cancer hospital payment adjustment is an estimated $71 million for CY 2012 based on updated cost report information. That is, the cancer hospital payment adjustment is estimated to increase total payments by $71 million over the baseline (which accounts for TOPs) and this amount must be offset by reductions in other payments (resulting in the 0.2 percent reduction to the conversion factor). For this final rule with comment period, we are adopting the above-described approach of calculating budget neutrality, consistent with our broad authority under the statute, for the reasons stated above and because we believe it will increase equity to hospitals paid under the OPPS that are not cancer hospitals, as urged by the commenters.

In response to commenters who urged us to implement the cancer hospital payment adjustment in a manner that does not increase beneficiary copayments, such as providing the adjustment amount in aggregate instead of on a per claim basis through enhanced APC payments, we reexamined the manner in which the cancer hospital payment adjustment is applied. We have broad discretion in designing the cancer hospital payment adjustment under sections 1833(t)(18)(B) and 1833(t)(2)(E) of the Act. Consistent with this broad authority, we agree that it is appropriate to make the cancer hospital payment adjustment through the form of an aggregate payment determined at cost report settlement to each cancer hospital, as opposed to an adjustment at the APC level, thereby avoiding the higher copayments for beneficiaries associated with providing the adjustment on a claims basis through increased APC payments. Therefore, in order to implement the cancer hospital payment adjustment in a way that does not increase beneficiary copayments as urged by commenters, and in light of the discretion afforded by the statute, we are providing the cancer hospital payment adjustment as an aggregate payment to each cancer hospital at cost report settlement instead of through enhanced APC payments as proposed. As explained further below, the aggregate adjustment adopted in this final rule with comment period (like the proposed APC-level adjustment) is based on the comparison of each cancer hospital's PCR to the weighted average PCR of the other hospitals that furnish services under the OPPS using the most recent submitted or settled cost report available at the time of this final rule with comment period.

In addition, commenters suggested that CMS take into account the cancer hospitals' significant Medicare outpatient concentration (which, based on the comment letter, is the portion of the cancer hospitals' total Medicare payments that are OPPS payments) when establishing an appropriate PCR benchmark. In other words, the commenter argued that CMS should take into account the portion of the cancer hospitals' total Medicare payments that are OPPS payments compared to the non-cancer hospitals' total Medicare payments that are OPPS payments. Section 3138 of the Affordable Care Act provides that if the Secretary determines under section 1833(t)(18)(A) of the Act that costs incurred by cancer hospitals exceed those costs of other hospitals furnishing services under section 1833(t), the Secretary shall provide for an appropriate adjustment to reflect the higher costs. We are not persuaded that Medicare outpatient concentration in and of itself has an impact on the costs incurred for providing OPD services at cancer hospitals relative to other OPPS hospitals that warrants an adjustment in determining the cancer hospital adjustment. Therefore, we are not adopting this suggestion of the commenters.

With respect to commenters that indicated that because outliers were included in the calculation of hospital PCRs, application of the payment adjustment to the APC payment amount will result in PCRs less than the intended target for cancer hospitals with relatively large outlier payments, we examined this issue and believe commenters made a valid argument that cancer hospitals with relatively large outlier payments will be provided less additional payment than intended under the proposed methodology because the payment adjustment would be applied only to the APC portion of

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the payment and not to the outlier amounts. If we were to finalize the implementation of the cancer hospital payment adjustment through increased APC payments as proposed, the PCR used to determine the amount of the adjustment would need to be recalculated to exclude outlier payments. This change would provide a larger APC adjustment to cancer hospitals that have large outlier payments relative to other OPPS hospitals. However, because we are providing the cancer hospital payment adjustment in aggregate at cost report settlement and not through adjustments to the APC payment, it is appropriate to continue to include outlier payments in the calculation of the PCRs used to determine the payment adjustment amount.

In response to the commenters who suggested that annual recalculation of the PCRs for purposes of calculating the cancer hospital payment adjustment is not necessary because significant cost savings are not expected at the cancer hospitals as a result of the inclusion of cancer hospitals in the 340B drug program, we believe that annual recalculation of the cancer hospital payment adjustment will provide a timely assessment of the changes in OPPS payments relative to costs due to any reason and, therefore, will enable CMS to provide OPPS payments that are accurate and equitable.

With regard to the implementation date for the cancer hospital payment adjustment, the agency did not finalize the proposed cancer hospital adjustment for CY 2011 for a variety of reasons, as explained in the CY 2011 OPPS/ASC final rule with comment period. Significantly, the majority of all commenters expressed concerns about implementation of the adjustment and, based on the broad range of important issues and concerns raised by them, we did not implement a cancer hospital adjustment for CY 2011. Moreover, the obligation to provide a cancer hospital payment adjustment is triggered only insofar as the Secretary determines under section 1833(t)(18)(A) of the Act that costs incurred by hospitals described in section 1886(d)(1)(B)(v) of the Act exceed those costs incurred by other hospitals furnishing services under this subsection. Several commenters raised concerns about the agency's study of costliness conducted under section 1833(t)(18)(A) of the Act; for example, a commenter suggested that the CMS analysis was inadequate to conclude that costs are higher in cancer hospitals and that an adjustment was warranted. Given the uncertainty surrounding these issues as well as public comments arguing against implementing a cancer hospital payment adjustment for CY 2011, we decided not to do so for CY 2011. We note that, insofar as the cancer adjustment is budget neutral, the lack of a cancer hospital payment adjustment for CY 2011 also means that other payments were not reduced for CY 2011 to offset the increased payments from the adjustment.

Regarding the commenter's concerns related to the agency's study conducted pursuant to section 1833(t)(18)(A) of the Act, as detailed above and in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71883), we determined that we could not use our standard analytical approach, which uses a combination of explanatory and payment regression models while controlling for other legitimate influences of costliness, to assess the costliness of cancer hospitals relative to other OPPS hospitals. Although this kind of analysis would allow us to control for the many factors that might explain differences in costliness, as suggested by the commenter, we believe that this approach would lead to imprecise estimates of costliness due to the small sample size (11 hospitals).

With respect to commenters who suggested that it would be more appropriate for the CMS study on costliness to compare the costs of providing OPD services at the 11 cancer hospitals to the costs of providing services related to cancer care at other hospitals furnishing services under section 1833(t) of the Act, we believe such an approach is not appropriate because section 3138 of the Affordable Care Act does not specify that the comparison be made with regard to particular APC groups related to cancer services.

In addition, with respect to the commenter who believed that the amount of additional payments to cancer hospitals should be guided by quality of care information and, therefore, be delayed until 2014 when the cancer hospitals begin to submit quality data to CMS, we note that section 1833(t)(18) of the Act did not include such a requirement nor did it include quality measures as a requirement for the additional payments to cancer hospitals. Therefore, we do not believe it is appropriate to delay implementation of the cancer hospital payment adjustment until cancer hospitals have submitted quality data to CMS.

After consideration of the public comments we received, we are adopting in this final rule with comment period a number of the commenters' suggestions and a number of changes to our proposed CY 2012 policies regarding the cancer hospital payment adjustment including modifications to our CY 2012 proposal with regard to the calculation of the budget neutrality adjustment associated with the cancer hospital payment adjustment. The budget neutral payment reduction that is associated with the cancer hospital payment adjustment for CY 2012 is calculated as the difference in estimated CY 2012 total payments to cancer hospitals, including the cancer hospital payment adjustment, and estimated CY 2012 total payments to cancer hospitals without the cancer adjustment, including TOPs. Therefore, based on updated cost report data, the budget neutrality adjustment to the OPPS conversion factor is 0.9978, a reduction of 0.2 percent (as opposed to a reduction of 0.7 percent in the proposed rule). In addition, we are providing the CY 2012 cancer hospital payment adjustment to cancer hospitals in the form of an aggregate payment at cost report settlement instead of through an increased adjustment to APC payments on a claims basis, as was proposed.

Consistent with the approach in the proposed rule, the CY 2012 cancer hospital payment adjustment adopted in this final rule with comment period is intended to provide additional payments to cancer hospitals so that the hospital's PCR with the payment adjustment is equal to the weighted average PCR for other hospitals, which we refer to as the ``target PCR.'' In contrast to the approach in the proposed rule, however, in this final rule with comment period, we are adopting a policy under which the amount of the payment adjustment will be made on an aggregate basis at cost report settlement. Under this final rule with comment period, we will examine each cancer hospital's data at cost report settlement, determine the cancer hospital's PCR (before the cancer hospital payment adjustment), and in turn determine the lump sum amount necessary (if any) to make the cancer hospital's PCR equal to the target PCR. To the extent at cost report settlement a cancer hospital's PCR (before the cancer hospital payment adjustment) is above the target PCR, a cancer hospital payment adjustment of zero is given. This is because we believe that this would indicate that the cancer hospital's costs do not exceed the costs incurred by other hospitals furnishing services under the OPPS, and therefore a payment adjustment above zero would not be necessary. We are amending are regulations at Sec. 419.43 to capture the above-described final policy.

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Consistent with the approach in the proposed rule, the target PCR is set in advance and is calculated using the most recent submitted or settled cost report data that are available at the time of this final rule with comment period. For CY 2012, the target PCR for purposes of the cancer hospital payment adjustment is 0.91. To calculate the target PCR, we used the same extract of cost report data from HCRIS, as discussed in section II.A of this final rule with comment period, used to estimate median costs for the CY 2012 OPPS. Using these cost report data, we included data from Worksheet E, Part B, for each hospital, using data from each hospital's most recent cost report, whether as submitted or settled. We then limited the dataset to the hospitals with CY 2010 claims data that we use to model the impact of the CY 2012 final APC relative weights (4,018 hospitals) because it is appropriate to use the same set of hospitals that we are using to calibrate the modeled CY 2012 OPPS. The cancer hospitals in this dataset largely had cost report data from cost reporting periods ending in FY 2010. The cost report data for the other hospitals were from cost report periods with fiscal year ends ranging from 2009 to 2010. We then removed the cost report data of the 47 hospitals located in Puerto Rico from our data set because we do not believe that their cost structure reflects the costs of most hospitals paid under the OPPS and, therefore, their inclusion may bias the calculation of hospital-weighted statistics. We also removed 223 hospitals with cost report data that were not complete (missing aggregate OPPS payments (which include outliers), missing aggregate cost data, or missing both), so that all cost reports in the study would have both the payment and cost data necessary to calculate a PCR for each hospital, leading to a final analytic file of 3,748 hospitals with cost report data. We believe that the costs and PPS payments reported on Worksheet E, Part B, for the hospitals included in our CY 2012 modeling is sufficiently accurate for assessing hospital's relative costliness because all of the key elements that we believe are necessary for the analysis (payment and cost) are contained on this worksheet.

Using this smaller dataset of cost report data, we estimated that, on average, the OPPS payments to the 11 cancer hospitals, not including TOPs, are approximately 67 percent of reasonable cost (that is, we calculated a PCR of 0.674 for the cancer hospitals), whereas, we estimated that, on average, the OPPS payments to other hospitals furnishing services under the OPPS are approximately 91 percent of reasonable cost (weighted average PCR of 0.91). Individual cancer hospital's OPPS PCRs range from approximately 0.63 to approximately 0.78. Based on these data, a target PCR of 0.91 will be used to determine the CY 2012 cancer hospital payment adjustment to be paid at cost report settlement. Therefore, the payment amount associated with the cancer hospital adjustment to be determined at cost report settlement will be the additional payment needed to result in a PCR equal to 0.91 for each cancer hospital.

Using the same data described above, we calculated estimates of the percentage difference between each cancer hospital's PCR and the target PCR. Table 13 below indicates estimates in percentage terms of the CY 2012 payment adjustment for each cancer hospital. The actual amount of the CY 2012 cancer hospital payment adjustment for each cancer hospital will be determined at cost report settlement and will depend on each hospital's CY 2012 payments and costs. Under the policies in this final rule with comment period, the payment adjustments for cancer hospitals are estimated to result in an aggregate increase in OPPS payments to cancer hospitals of 34.5 percent for CY 2012 and a net increase in total payment, including TOPs, of 9.5 percent. We note that the changes made by section 1833(t)(18) of the Act do not affect the existing statutory provisions that provide for TOPs for cancer hospitals. The TOPs will be assessed as usual after all payments, including the cancer hospital payment adjustment, have been made for a cost reporting period.

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GRAPHIC TIFF OMITTED TR30NO11.022

G. Hospital Outpatient Outlier Payments

1. Background

Currently, the OPPS provides outlier payments on a service-by-

service basis. For CY 2011, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $2,025 fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 2005, in addition to the traditional multiple threshold, in order to better target outliers to those high cost and complex procedures where a very costly service could present a hospital with significant financial loss. If the cost of a service meets both of these conditions, the multiple threshold and the fixed-dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate. Before CY 2009, this outlier payment had historically been considered a final payment by longstanding OPPS policy. We implemented a reconciliation process similar to the IPPS outlier reconciliation process for cost reports with cost reporting periods beginning on or after January 1, 2009 (73 FR 68594 through 68599).

It has been our policy for the past several years to report the actual amount of outlier payments as a percent of total spending in the claims being used to model the proposed OPPS. Our current estimate of total outlier payments as a percent of total CY 2010 OPPS payment, using available CY 2010 claims and the revised OPPS expenditure estimate for the 2011 Trustee's Report, is approximately 1.13 percent of the total aggregated OPPS payments. Therefore, for CY 2010, we estimate that we paid at 0.13 percent above the CY 2010 outlier target of 1.0 percent of total aggregated OPPS payments.

As explained in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71887 through 71889), we set our projected target for aggregate outlier payments at 1.0 percent of the estimated aggregate total payments under the OPPS for CY 2011. The outlier thresholds were set so that estimated CY 2011 aggregate outlier payments would equal 1.0 percent of the total estimated aggregate payments under the OPPS. Using CY 2010 claims data and CY 2011 payment rates, we currently estimate that the aggregate outlier payments for CY 2011 will be approximately 1.06 percent of the total CY 2011 OPPS payments. The difference between 1.0 percent and 1.06 percent is reflected in the regulatory impact analysis in section XX. of this final rule with comment period. We note that we provide estimated CY 2012 outlier payments for hospitals and CMHCs with claims included in the claims data that we used to model impacts in the Hospital-Specific Impacts--Provider-Specific Data file on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/.

2. Proposed Outlier Calculation

In the CY 2012 OPPS/ASC proposed rule (76 FR 42222), we proposed for CY 2012 to continue our policy of estimating outlier payments to be 1.0 percent of the estimated aggregate total payments under the OPPS for outlier payments. We proposed that a portion of that 1.0 percent, specifically 0.14 percent, would be allocated to CMHCs for PHP outlier payments. This is the amount of estimated outlier payments that would result from the proposed CMHC outlier threshold as a proportion of total estimated outlier payments. As

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discussed in section VIII.C. of the proposed rule, for CMHCs, we proposed to continue our longstanding policy that if a CMHC's cost for partial hospitalization services, paid under either APC 0172 (Level I Partial Hospitalization (3 services) for CMHCs) or APC 0173 (Level II Partial Hospitalization (4 or more services) for CMHCs), exceeds 3.40 times the payment for APC 0173, the outlier payment would be calculated as 50 percent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate. For further discussion of CMHC outlier payments, we refer readers to section VIII.C. of this final rule with comment period.

To ensure that the estimated CY 2012 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS, we proposed that the hospital outlier threshold be set so that outlier payments would be triggered when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $2,100 fixed-dollar threshold. This proposed threshold reflected the methodology discussed below in this section, as well as the proposed APC recalibration for CY 2012.

We calculated the proposed fixed-dollar threshold for the proposed rule using largely the same methodology as we did in CY 2011 (75 FR 71887 through 71889). For purposes of estimating outlier payments for the proposed rule, we used the hospital-specific overall ancillary CCRs available in the April 2011 update to the Outpatient Provider-Specific File (OPSF). The OPSF contains provider-specific data, such as the most current CCR, which are maintained by the Medicare contractors and used by the OPPS Pricer to pay claims. The claims that we use to model each OPPS update lag by 2 years. For the proposed rule, we used CY 2010 claims to model the CY 2012 OPPS. In order to estimate the proposed CY 2012 hospital outlier payments for the proposed rule, we inflated the charges on the CY 2010 claims using the same inflation factor of 1.0908 that we used to estimate the IPPS fixed-dollar outlier threshold for the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26024). We used an inflation factor of 1.0444 to estimate CY 2011 charges from the CY 2010 charges reported on CY 2010 claims. The methodology for determining this charge inflation factor is discussed in the FY 2012 IPPS/LTCH PPS proposed rule and final rule (76 FR 26024 and 51792, respectively). As we stated in the CY 2005 OPPS final rule with comment period (69 FR 65845), we believe that the use of these charge inflation factors are appropriate for the OPPS because, with the exception of the inpatient routine service cost centers, hospitals use the same ancillary and outpatient cost centers to capture costs and charges for inpatient and outpatient services.

As noted in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68011), we are concerned that we could systematically overestimate the OPPS hospital outlier threshold if we did not apply a CCR inflation adjustment factor. Therefore, in the CY 2012 OPPS/ASC proposed rule, we proposed to apply the same CCR inflation adjustment factor that we proposed to apply for the FY 2012 IPPS outlier calculation to the CCRs used to simulate the proposed CY 2012 OPPS outlier payments that determine the fixed-dollar threshold. Specifically, for CY 2012, we proposed to apply an adjustment of 0.9850 to the CCRs that were in the April 2011 OPSF to trend them forward from CY 2011 to CY 2012. The methodology for calculating this proposed adjustment was discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26024 through 26025).

Therefore, to model hospital outlier payments for the CY 2012 OPPS/

ASC proposed rule, we applied the overall CCRs from the April 2011 OPSF file after adjustment (using the proposed CCR inflation adjustment factor of 0.9850 to approximate CY 2012 CCRs) to charges on CY 2010 claims that were adjusted (using the proposed charge inflation factor of 1.0908 to approximate CY 2012 charges). We simulated aggregated CY 2012 hospital outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple threshold constant and assuming that outlier payments would continue to be made at 50 percent of the amount by which the cost of furnishing the service would exceed 1.75 times the APC payment amount, until the total outlier payments equaled 1.0 percent of aggregated estimated total CY 2012 OPPS payments. We estimated that a proposed fixed-dollar threshold of $2,100, combined with the proposed multiple threshold of 1.75 times the APC payment rate, would allocate 1.0 percent of aggregated total OPPS payments to outlier payments. We proposed to continue to make an outlier payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the proposed fixed-dollar threshold of $2,100 are met. For CMHCs, we proposed that, if a CMHC's cost for partial hospitalization services, paid under either APC 0172 or APC 0173, exceeds 3.40 times the payment for APC 0173, the outlier payment would be calculated as 50 percent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate.

Section 1833(t)(17)(A) of the Act, which applies to hospitals as defined under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to report data required for the quality measures selected by the Secretary, in the form and manner required by the Secretary under 1833(t)(17)(B) of the Act, incur a 2.0 percentage point reduction to their OPD fee schedule increase factor, that is, the annual payment update factor. The application of a reduced OPD fee schedule increase factor results in reduced national unadjusted payment rates that will apply to certain outpatient items and services furnished by hospitals that are required to report outpatient quality data and that fail to meet the Hospital OQR requirements. For hospitals that fail to meet the Hospital OQR requirements, we proposed to continue our policy that we implemented in CY 2010 that the hospitals' costs would be compared to the reduced payments for purposes of outlier eligibility and payment calculation. For more information on the Hospital OQR Program, we refer readers to section XIV. of this final rule with comment period.

Comment: One commenter opposed the proposed increase to the fixed-

dollar threshold, stating that it would reduce the number of cases eligible for outlier payments across the industry. Another commenter supported the proposed policy of estimating outlier payments to be 1.0 percent of the estimated aggregate total payments under the OPPS for outlier payments and of increasing the fixed-dollar outlier threshold to $2,100.

Response: As indicated above, we introduced a fixed-dollar threshold in order to better target outliers to those high cost and complex procedures where a very costly service could present a hospital with significant financial loss. We maintain the target outlier percentage of 1.0 percent of estimated aggregate total payment under the OPPS and have a fixed-dollar threshold so that OPPS outlier payments are made only when the hospital would experience a significant loss for supplying a particular service. For CY 2012, based on updated data, we have established a fixed-dollar threshold of $1,900 which, together with a multiple threshold of 1.75, will enable us to meet

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our target outlier payment of 1 percent of total OPPS spending.

3. Final Outlier Calculation

Consistent with historical practice, we used updated data for this final rule with comment period for our outlier calculation. For CY 2012, we are applying the overall CCRs from the July 2011 Outpatient Provider-Specific File with a CCR adjustment factor of 0.9903 to approximate CY 2012 CCRs to charges on the final CY 2010 claims that were adjusted to approximate CY 2012 charges (using the final 2-year charge inflation factor of 1.0794). These are the same CCR adjustment and charge inflation factors that were used to set the IPPS fixed-

dollar threshold for the FY 2012 IPPS/LTCH PPS final rule (76 FR 51792 through 51795). We simulated aggregated CY 2012 hospital outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple threshold constant and assuming that outlier payment would continue to be made at 50 percent of the amount by which the cost of furnishing the service would exceed 1.75 times the APC payment amount, until the total outlier payments equaled 1.0 percent of aggregated estimated total CY 2011 OPPS payments. We estimate that a fixed-dollar threshold of $1,900, combined with the multiple threshold of 1.75 times the APC payment rate, will allocate 1.0 percent of estimated aggregated total OPPS payments to outlier payments.

In summary, for CY 2012, we will continue to make an outlier payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the final fixed-dollar threshold of $1,900 are met. For CMHCs, if a CMHC's cost for partial hospitalization services, paid under either APC 0172 or APC 0173, exceeds 3.40 times the payment for APC 0173, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate. We estimate that this threshold will allocate 0.12 percent of outlier payments to CMHCs for PHP outlier payments.

4. Outlier Reconciliation

In the CY 2009 OPPS/ASC final rule with comment period (73 CFR 68599), we adopted as final policy a process to reconcile hospital or CMHC outlier payments at cost report settlement for services furnished during cost reporting periods beginning in CY 2009. OPPS outlier reconciliation more fully ensures accurate outlier payments for those facilities that have CCRs that fluctuate significantly relative to the CCRs of other facilities, and that receive a significant amount of outlier payments (73 FR 68598). As under the IPPS, we do not adjust the fixed-dollar threshold or the amount of total OPPS payments set aside for outlier payments for reconciliation activity because such action would be contrary to the prospective nature of the system. Our outlier threshold calculation assumes that overall ancillary CCRs accurately estimate hospital costs based on the information available to us at the time we set the prospective fixed-dollar outlier threshold. For these reasons, as we have previously discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68596) and as we proposed for CY 2012, we did not incorporate any assumptions about the effects of reconciliation into our calculation of the OPPS fixed-dollar outlier threshold.

H. Calculation of an Adjusted Medicare Payment From the National Unadjusted Medicare Payment

The basic methodology for determining prospective payment rates for HOPD services under the OPPS is set forth in existing regulations at 42 CFR Part 419, subparts C and D. As proposed, for this final rule with comment period, the payment rate for most services and procedures for which payment is made under the OPPS is the product of the conversion factor calculated in accordance with section II.B. of this final rule with comment period and the relative weight determined under section II.A. of this final rule with comment period. Therefore, as proposed, for this final rule with comment period, the national unadjusted payment rate for most APCs contained in Addendum A to this final rule with comment period (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) and for most HCPCS codes to which separate payment under the OPPS has been assigned in Addendum B to this final rule with comment period (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) was calculated by multiplying the CY 2012 scaled weight for the APC by the CY 2012 conversion factor.

We note that section 1833(t)(17) of the Act, which applies to hospitals as defined under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to submit data required to be submitted on quality measures selected by the Secretary, in the form and manner and at a time specified by the Secretary, incur a reduction of 2.0 percentage points to their OPD fee schedule increase factor, that is, the annual payment update factor. The application of a reduced OPD fee schedule increase factor results in reduced national unadjusted payment rates that apply to certain outpatient items and services provided by hospitals that are required to report outpatient quality data and that fail to meet the Hospital Outpatient Quality Reporting (OQR) Program (formerly referred to as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP)) requirements. For further discussion of the payment reduction for hospitals that fail to meet the requirements of the Hospital OQR Program, we refer readers to section XVI.D. of this final rule with comment period.

We demonstrate in the steps below how to determine the APC payments that will be made in a calendar year under the OPPS to a hospital that fulfills the Hospital OQR Program requirements and to a hospital that fails to meet the Hospital OQR Program requirements for a service that has any of the following status indicator assignments: ``P,'' ``Q1,'' ``Q2,'' ``Q3,'' ``R,'' ``S,'' ``T,'' ``U,'' ``V,'' or ``X'' (as defined in Addendum D1 to this final rule with comment period), in a circumstance in which the multiple procedure discount does not apply, the procedure is not bilateral, and conditionally packaged services (status indicator of ``Q1'' and ``Q2'') qualify for separate payment. We note that, although blood and blood products with status indicator ``R'' and brachytherapy sources with status indicator ``U'' are not subject to wage adjustment, they are subject to reduced payments when a hospital fails to meet the Hospital OQR Program requirements.

Individual providers interested in calculating the payment amount that they would receive for a specific service from the national unadjusted payment rates presented in Addenda A and B to this final rule with comment period (which are referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) should follow the formulas presented in the following steps. For purposes of the payment calculations below, we refer to the national unadjusted payment rate for hospitals that meet the requirements of the Hospital OQR Program as the ``full'' national unadjusted payment rate. We refer to the national unadjusted payment rate for hospitals that fail to meet the requirements of the Hospital OQR Program as the ``reduced'' national

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unadjusted payment rate. The reduced national unadjusted payment rate is calculated by multiplying the reporting ratio of 0.980 times the ``full'' national unadjusted payment rate. The national unadjusted payment rate used in the calculations below is either the full national unadjusted payment rate or the reduced national unadjusted payment rate, depending on whether the hospital met its Hospital OQR Program requirements in order to receive the full CY 2012 OPPS fee schedule increase factor of 1.90 percent.

Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted payment rate. Since the initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. We refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18496 through 18497) for a detailed discussion of how we derived this percentage. We confirmed that this labor-related share for hospital outpatient services is appropriate during our regression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule with comment period (70 FR 68553).

The formula below is a mathematical representation of Step 1 and identifies the labor-related portion of a specific payment rate for a specific service.

X is the labor-related portion of the national unadjusted payment rate.

X = .60 * (national unadjusted payment rate)

Step 2. Determine the wage index area in which the hospital is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the geographic statistical areas (which are based upon OMB standards) to which hospitals are assigned for FY 2012 under the IPPS, reclassifications through the MGCRB, section 1886(d)(8)(B) ``Lugar'' hospitals, reclassifications under section 1886(d)(8)(E) of the Act, as defined in Sec. 412.103 of the regulations, and hospitals designated as urban under section 601(g) of Public Law 98-21. We note that the reclassifications of hospitals under section 508 of Public Law 108-173, as extended by sections 3137 and 10317 of the Affordable Care Act, expired on September 30, 2010. Section 102 of the Medicare and Medicaid Extenders Act of 2010 extends Section 508 and certain additional special exception hospital reclassifications from October 1, 2010 through September 30, 2011. Therefore, these reclassifications will not apply to the CY 2012 OPPS. (For further discussion of the changes to the FY 2012 IPPS wage indices, as applied to the CY 2012 OPPS, we refer readers to section II.C. of this final rule with comment period.) As we proposed, we are continuing to apply a wage index floor of 1.00 to frontier States, in accordance with section 10324 of the Affordable Care Act.

Step 3. Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hospital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Public Law 108-173. Addendum L to this final rule with comment period (which is referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site) contains the qualifying counties and the associated wage index increase developed for the FY 2012 IPPS and listed as Table 4J in the FY 2012 IPPS/LTCH PPS final rule and available via the Internet on the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/01_overview.asp. This step is to be followed only if the hospital is not reclassified or redesignated under section 1886(d)(8) or section 1886(d)(10) of the Act.

Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by the amount determined under Step 1 that represents the labor-

related portion of the national unadjusted payment rate.

The formula below is a mathematical representation of Step 4 and adjusts the labor-related portion of the national payment rate for the specific service by the wage index.

Xa is the labor-related portion of the national unadjusted payment rate (wage adjusted).

Xa = .60 * (national unadjusted payment rate) * applicable wage index

Step 5. Calculate 40 percent (the nonlabor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted payment rate for the relevant wage index area.

The formula below is a mathematical representation of Step 5 and calculates the remaining portion of the national payment rate, the amount not attributable to labor, and the adjusted payment for the specific service.

Y is the nonlabor-related portion of the national unadjusted payment rate.

Y = .40 * (national unadjusted payment rate)

Adjusted Medicare Payment = Y + Xa

Step 6. If a provider is a SCH, set forth in the regulations at Sec. 412.92, or an EACH, which is considered to be a SCH under section 1886(d)(5)(D)(iii)(III) of the Act, and located in a rural area, as defined in Sec. 412.64(b), or is treated as being located in a rural area under Sec. 412.103, multiply the wage index adjusted payment rate by 1.071 to calculate the total payment.

The formula below is a mathematical representation of Step 6 and applies the rural adjustment for rural SCHs.

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 1.071

We have provided examples below of the calculation of both the full and reduced national unadjusted payment rates that will apply to certain outpatient items and services performed by hospitals that meet and that fail to meet the Hospital OQR Program requirements, using the steps outlined above. For purposes of this example, we use a provider that is located in Brooklyn, New York that is assigned to CBSA 35644. This provider bills one service that is assigned to APC 0019 (Level I Excision/Biopsy). The CY 2012 full national unadjusted payment rate for APC 0019 is $307.74. The reduced national unadjusted payment rate for a hospital that fails to meet the Hospital OQR Program requirements is $301.59. This reduced rate is calculated by multiplying the reporting ratio of 0.980 by the full unadjusted payment rate for APC 0019.

The FY 2012 wage index for a provider located in CBSA 35644 in New York is 1.3142. The labor-related portion of the full national unadjusted payment is $242.66 (.60 * $307.74 * 1.3142). The labor-

related portion of the reduced national unadjusted payment is $237.81 (.60 * $301.59 * 1.3142). The nonlabor-related portion of the full national unadjusted payment is $123.10 (.40 * $307.74). The nonlabor-

related portion of the reduced national unadjusted payment is $120.63(.40 * $301.59). The sum of the labor-related and nonlabor-

related portions of the full national adjusted payment is $365.76 ($242.66 + $123.10). The sum of the reduced national adjusted payment is $358.44 ($237.81 + $120.63).

I. Beneficiary Copayments

1. Background

Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining the unadjusted copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national

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unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that the effective copayment rate (determined on a national unadjusted basis) for that service in the year does not exceed a specified percentage. As specified in section 1833(t)(8)(C)(ii)(V) of the Act, for all services paid under the OPPS in CY 2010, and in calendar years thereafter, the percentage is 40 percent of the APC payment rate.

Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or group of such services) furnished in a year, the national unadjusted copayment amount cannot be less than 20 percent of the OPD fee schedule amount. However, section 1833(t)(8)(C)(i) of the Act limits the amount of beneficiary copayment that may be collected to the amount of the inpatient deductible, which for CY 2012 is $1,156.

Section 4104 of the Affordable Care Act eliminated the Part B coinsurance for preventive services furnished on and after January 1, 2011 that meet certain requirements, including flexible sigmoidoscopies and screening colonscopies, and waived the Part B deductible for screening colonoscopies that become diagnostic during the procedure. Our discussion of the changes made by the Affordable Care Act with regard to copayments for preventive services furnished on and after January 1, 2011 may be found in section XII.B. of the CY 2011 OPPS/ASC final rule with comment period (75 FR 72013).

2. OPPS Copayment Policy

In the CY 2012 OPPS/ASC proposed rule (76 FR42224), we proposed to determine copayment amounts for new and revised APCs using the same methodology that we implemented beginning in CY 2004. (We refer readers to the November 7, 2003 OPPS final rule with comment period (68 FR 63458).) In addition, we proposed to use the same standard rounding principles that we have historically used in instances where the application of our standard copayment methodology would result in a copayment amount that is less than 20 percent and cannot be rounded, under standard rounding principles, to 20 percent. (We refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66687) in which we discuss our rationale for applying these rounding principles.) The proposed national unadjusted copayment amounts for services payable under the OPPS that would be effective January 1, 2012, were shown in Addenda A and B to the proposed rule (which were available via the Internet on the CMS Web site). As discussed in section XIV.E. of the proposed rule and this final rule with comment period, for CY 2012, the Medicare beneficiary's minimum unadjusted copayment and national unadjusted copayment for a service to which a reduced national unadjusted payment rate applies will equal the product of the reporting ratio and the national unadjusted copayment, or the product of the reporting ratio and the minimum unadjusted copayment, respectively, for the service.

We did not receive any public comments regarding the proposed methodology for calculating copayments for CY 2012. Therefore, for the reasons set forth in the proposed rule (76 FR 42225), we are finalizing our CY 2012 copayment amounts without modification. We note that we received public comments on the copayments that would apply to beneficiaries who receive services from dedicated cancer hospitals under our proposal to provide an adjustment to payments to these hospitals. Those copayment-related public comments are discussed in section II.F. of this final rule with comment period.

3. Calculation of an Adjusted Copayment Amount for an APC Group

Individuals interested in calculating the national copayment liability for a Medicare beneficiary for a given service provided by a hospital that met or failed to meet its Hospital OQR Program requirements should follow the formulas presented in the following steps.

Step 1. Calculate the beneficiary payment percentage for the APC by dividing the APC's national unadjusted copayment by its payment rate. For example, using APC 0019, $61.55 is 20 percent of the full national unadjusted payment rate of $307.74. For APCs with only a minimum unadjusted copayment in Addenda A and B of this final rule with comment period (which are available via the Internet on the CMS Web site), the beneficiary payment percentage is 20 percent.

The formula below is a mathematical representation of Step 1 and calculates national copayment as a percentage of national payment for a given service.

B is the beneficiary payment percentage.

B = National unadjusted copayment for APC/national unadjusted payment rate for APC

Step 2. Calculate the appropriate wage-adjusted payment rate for the APC for the provider in question, as indicated in Steps 2 through 4 under section II.H. of this final rule with comment period. Calculate the rural adjustment for eligible providers as indicated in Step 6 under section II.H. of this final rule with comment period.

Step 3. Multiply the percentage calculated in Step 1 by the payment rate calculated in Step 2. The result is the wage-adjusted copayment amount for the APC.

The formula below is a mathematical representation of Step 3 and applies the beneficiary percentage to the adjusted payment rate for a service calculated under section II.H. of this final rule with comment period, with and without the rural adjustment, to calculate the adjusted beneficiary copayment for a given service.

Wage-adjusted copayment amount for the APC = Adjusted Medicare Payment * B

Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted Medicare Payment * 1.071) * B

Step 4. For a hospital that failed to meet its Hospital OQR Program requirements, multiply the copayment calculated in Step 3 by the reporting ratio of 0.980.

The unadjusted copayments for services payable under the OPPS that will be effective January 1, 2012, are shown in Addenda A and B to this final rule with comment period (which are referenced in section XVII. of this final rule with comment period and available via the Internet on the CMS Web site). We note that the national unadjusted payment rates and copayment rates shown in Addenda A and B to this final rule with comment period reflect the full CY 2012 OPD fee schedule increase factor discussed in section XIV.E. of this final rule with comment period.

Also as noted above, section 1833(t)(8)(C)(i) of the Act limits the amount of beneficiary copayment that may be collected to the amount of the inpatient deductible, which for CY 2012 is $1,156.

III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. OPPS Treatment of New CPT and Level II HCPCS Codes

CPT and Level II HCPCS codes are used to report procedures, services, items, and supplies under the hospital OPPS. Specifically, CMS recognizes the following codes on OPPS claims:

Category I CPT codes, which describe medical services and procedures;

Category III CPT codes, which describe new and emerging

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technologies, services, and procedures; and

Level II HCPCS codes, which are used primarily to identify products, supplies, temporary procedures, and services not described by CPT codes.

CPT codes are established by the American Medical Association (AMA) and the Level II HCPCS codes are established by the CMS HCPCS Workgroup. These codes are updated and changed throughout the year. CPT and HCPCS code changes that affect the OPPS are published both through the annual rulemaking cycle and through the OPPS quarterly update Change Requests (CRs). CMS releases new Level II HCPCS codes to the public or recognizes the release of new CPT codes by the AMA and makes these codes effective (that is, the codes can be reported on Medicare claims) outside of the formal rulemaking process via OPPS quarterly update CRs. This quarterly process offers hospitals access to codes that may more accurately describe items or services furnished and/or provides payment or more accurate payment for these items or services in a timelier manner than if CMS waited for the annual rulemaking process. We solicit comments on these new codes and finalize our proposals related to these codes through our annual rulemaking process. As we proposed in the CY 2012 OPPS/ASC proposed rule (76 FR 42225 through 42226), in Table 14 below (also Table 14 of the proposed rule), we summarize our process for updating codes through our OPPS quarterly update CRs, seeking public comments, and finalizing their treatment under the OPPS. We note that because of the timing of the publication of the proposed rule, the codes that were implemented through the July 2011 OPPS quarterly update were not included in Addendum B of the proposed rule (which is available via the Internet on the CMS Web site), while those codes based upon the April 2011 OPPS quarterly update were included in Addendum B.

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This process is discussed in detail below. We have separated our discussion into two sections based on whether we solicited public comments in the CY 2012 OPPS/ASC proposed rule or whether we are soliciting public comments in this CY 2012 OPPS/ASC final rule with comment period. In the CY 2012 OPPS/ASC proposed rule, we noted that we sought public comment in the CY 2011 OPPS/ASC final rule with comment period on the new CPT and Level II HCPCS codes that were effective January 1, 2011. We also sought public comments in the CY 2011 OPPS/ASC final rule with comment period on the new Level II HCPCS codes effective October 1, 2010. These new codes, with an effective date of October 1, 2010, or January 1, 2011, were flagged with comment indicator ``NI'' (New code, interim APC assignment; comments will be accepted on the interim APC assignment for the new code) in Addendum B to the CY 2011 OPPS/ASC final rule with comment period to indicate that we were assigning them an interim payment status and an APC and payment rate, if applicable, which were subject to public comment following publication of the CY 2011 OPPS/ASC final rule with comment period. We are responding to public comments and finalizing our proposed OPPS treatment of these codes in this CY 2012 OPPS/ASC final rule with comment period.

We received comments on several new codes that were assigned to comment indicator ``NI'' in Addendum B of the CY 2011 OPPS/ASC final rule with comment period. We respond to those comments in sections II.A. and III.D. of this final rule with comment period. Table 15 lists the long descriptors for the CPT codes that were assigned to comment indicator ``NI'' for which we received public comments to the CY 2011 OPPS/ASC final rule with comment period and the specific sections where the comments are addressed.

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1. Treatment of New Level II HCPCS Codes and Category I CPT Vaccine Codes and Category III CPT Codes for Which We Solicited Public Comments in the CY 2012 Proposed Rule

Through the April 2011 OPPS quarterly update CR (Transmittal 2174, Change Request 7342, dated March 18, 2011) and the July 2011 OPPS quarterly update CR (Transmittal 2234, Change Request 7443, dated May 27, 2011), we recognized several new HCPCS codes for separate payment under the OPPS. Effective April 1 and July 1 of CY 2011, we made effective a total of 22 new Level II HCPCS codes and 14 Category III CPT codes. Specifically, 5 new Level II HCPCS codes were effective for the April 2011 update and another 17 new Level II HCPCS codes were effective for the July 2011 update for a total of 22. Fourteen new Category III CPT codes were effective for the July 2011 update. Of the 22 new Level II HCPCS codes, we recognized for separate payment 16 of these codes, and of the 14 new Category III CPT codes, we recognized for separate payment 12 of these codes, for a total of 28 new HCPCS codes that are recognized for separate payment for CY 2012.

Through the April 2011 OPPS quarterly update CR, we allowed separate payment for each of the five new Level II HCPCS codes. Specifically, as displayed in Table 16 below (Table 15 of the proposed rule), we provided separate payment for the following HCPCS codes:

HCPCS code C9280 (Injection, eribulin mesylate, 1 mg)

HCPCS code C9281 (Injection, pegloticase, 1 mg)

HCPCS code C9282 (Injection, ceftaroline fosamil, 10 mg)

HCPCS code Q2040 (Injection, incobotulinumtoxin A, 1 unit)

HCPCS code C9729 (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with ligamentous resection, discectomy, facetectomy and/or foraminotomy, when performed) any method under indirect image guidance, with the use of an endoscope when performed, single or multiple levels, unilateral or bilateral; lumbar)

We note that HCPCS code Q2040 replaced HCPCS code C9278 (Injection, incobotulinumtoxin A, 1 unit) beginning April 1, 2010. HCPCS code C9278 was effective January 1, 2011, and deleted March 30, 2011, because it was replaced with HCPCS code Q2040. HCPCS code C9278 was assigned to pass-through status beginning January 1, 2011, when the code was implemented. Because HCPCS code Q2040 describes the same drug as HCPCS code C9278, we are continuing its pass-through status and assigning the HCPCS Q-code to the same APC and status indicator as its predecessor HCPCS C-code, as shown in Table 16 below. Specifically, HCPCS code Q2040 is assigned to APC 9278 and status indicator ``G.''

In the CY 2012 OPPS/ASC proposed rule, we solicited public comments on the proposed status indicators and APC assignments of HCPCS codes C9280, C9281, C9282, C9729, and Q2040, which were listed in Table 15 of that proposed rule (76 FR 42226) and now

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appear in Table 16 of this final rule with comment period. We did not receive any public comments on the proposed APC assignments and status indicators for HCPCS codes C9280, C9281, C9282, C9729, and Q2040. However, for CY 2012, the HCPCS Workgroup replaced HCPCS C9280, C9281, C9282, and Q2040 with permanent HCPCS J-codes. Specifically, C9280 was replaced with J9179 (Injection, eribulin mesylate, 0.1 mg), C9281 with J2507 (Injection, pegloticase, 1 mg), C9282 with J0712 (Injection, ceftaroline fosamil, 10 mg), and Q2040 with J0588 (Injection, incobotulinumtoxin A, 1 unit). Consistent with our general policy of using permanent HCPCS codes if appropriate rather than using temporary HCPCS codes for the reporting of drugs under the OPPS in order to streamline coding, we are showing the replacement HCPCS codes effective January 1, 2012 in Table 16 that replaced HCPCS C9280, C9281, C9282, and Q2040.

Similarly, for CY 2012, we deleted HCPCS code C9729 on June 30, 2011 because it was replaced with CPT code 0275T. Further discussion of CPT code 0275T can be found below.

Because HCPCS codes J2507, J0712, and J0588 describe the same drugs and the same dosages currently designated by HCPCS codes C9281, C9282, and Q2040, respectively, these drugs will continue their pass-through status in CY 2012. Therefore, we are assigning HCPCS codes J2507, J0712, and J0588 to the same status indicators and APCs as their predecessor HCPCS codes, as shown in Table 16.

However, we note that the replacement code for HCPCS code C9280 does not describe the same dosage descriptor, and consequently, the replacement HCPCS code will be assigned a new APC number. Specifically, C9280 has a dosage descriptor of 1 mg; however, its replacement HCPCS code J9179 has a dosage descriptor of 0.1 mg. Therefore, effective January 1, 2012, HCPCS codes J9179 will be assigned to APC 1426 to maintain data consistency for future rulemaking. Because the predecessor HCPCS code C9280 was assigned to pass-through status, HCPCS code J9179 will continue to be assigned status indicator ``G'' for CY 2012.

We did not receive any public comments on the new Level II HCPCS codes that were implemented in April 2011. We are adopting as final, without modification, our proposal to assign the Level II HCPCS codes listed in Table 16 to the APCs and status indicators as proposed for CY 2012, with the exception of HCPCS code J9179, which will be assigned to APC 1426. Table 16 shows the final APC and status indicator assignments for all five Level II HCPCS codes.

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Through the July 2011 OPPS quarterly update CR, which included HCPCS codes that were made effective July 1, 2011, we allowed separate payment for 11 of the 17 new Level II HCPCS codes. Specifically, as displayed in Table 16 of

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the proposed rule (Table 17 of this final rule with comment period), we provided separate payment for the following HCPCS codes:

HCPCS code C9283 (Injection, acetaminophen, 10 mg)

HCPCS code C9284 (Injection, ipilimumab, 10 mg)

HCPCS code C9285 (Lidocaine 70 mg/tetracaine 70 mg, per patch)

HCPCS code C9365 (Oasis Ultra Tri-Layer Matrix, per square centimeter)

HCPCS code C9406 (Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries)

HCPCS code C9730 (Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 1 lobe)

HCPCS code C9731 (Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 2 or more lobes)

HCPCS code Q2041 (Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco)

HCPCS code Q2042 (Injection, hydroxyprogesterone caproate, 1 mg)

HCPCS code Q2043 (Sipuleucel-t, minimum of 50 million autologous cd54+ cells activated with pap-gm-csf, including leukapheresis and all other preparatory procedures, per infusion)

HCPCS code Q2044 (Injection, belimumab, 10 mg)

We note that two of the Level II HCPCS Q-codes that were made effective July 1, 2011, were previously described by a HCPCS J-code and a C-code that were assigned to pass-through status under the hospital OPPS. Specifically, HCPCS code Q2041 replaced HCPCS code J7184 (Injection, von willebrand factor complex (human), Wilate, per 100 iu vwf:rco) beginning July 1, 2011. HCPCS code J7184 was assigned to pass-

through status when it was made effective January 1, 2011; however, the code is ``Not Payable by Medicare'' because HCPCS code J7184 is replaced with HCPCS code Q2041 effective July 1, 2011. Therefore, HCPCS code J7184 was reassigned to status indicator ``E'' effective July 1, 2011. Because HCPCS code J7184 describes the same drug as HCPCS code Q2041, we continued its pass-through status and assigned HCPCS code Q2041 to status indicator ``G'' effective July 1, 2011. However, because the dosage descriptor for HCPCS code Q2041 is not the same as HCPCS code J7184, we reassigned HCPCS code Q2041 to a new APC to maintain data consistency for future rulemaking. Specifically, HCPCS code Q2041 was assigned to APC 1352 effective July 1, 2011. In addition, HCPCS code Q2043 replaced HCPCS code C9273 (Sipuleucel-t, minimum of 50 million autologous cd54+ cells activated with pap-gm-csf, including leukapheresis and all other preparatory procedures, per infusion) beginning July 1, 2011. HCPCS code C9273 was assigned to pass-through status when it was made effective October 1, 2010. Because HCPCS code Q2043 describes the same product as HCPCS code C9273, we continued its pass-through status and assigned HCPCS code Q2043 to status indicator ``G'' as well as assigned it to the same APC, specifically APC 9273, effective July 1, 2011.

Of the 17 HCPCS codes that were made effective July 1, 2011, we did not recognize for separate payment six HCPCS codes that describe durable medical equipment (DME) because DME is paid under the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Fee Schedule and not the OPPS. These codes were listed in Table 16 of the proposed rule, and were assigned to either status indicator ``Y'' or ``A'' effective July 1, 2011.

In the CY 2012 OPPS/ASC proposed rule, we solicited public comments on the status indicators and APC assignments where applicable for the 17 HCPCS codes that were listed in Table 16 of that proposed rule (76 FR 42227 through 42228) and now appear in Table 17 of this final rule with comment period. We received a comment on the APC assignments for HCPCS codes C9730 and C9731. A summary of the comments and our responses can be found in section III.D.8.b. (Bronchial Thermoplasty) of this final rule with comment period. In addition, we received some comments on the long descriptor for HCPCS code Q2043. A summary of the comments and our responses can be found in section V.A.3. of this final rule with comment period.

With the exception of HCPCS codes C9730, C9731, and Q2043, we received no other public comments on the 14 other Level II HCPCS codes listed in Table 16 of the CY 2011 OPPS/ASC proposed rule. However, for CY 2012, the HCPCS Workgroup replaced several HCPCS C-codes with an A-

code, J-code, or Q-code. Specifically, C9283 was replaced with J0131 (Injection, acetaminophen, 10 mg), C9284 with J9228 (Injection, ipilimumab, 1 mg), C9365 with Q4124 (Oasis Ultra Tri-Layer Matrix, per square centimeter), C9406 with A9584 (Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries), Q2041 with J7183 (Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco), Q2042 with J1725 (Injection, hydroxyprogesterone caproate, 1 mg), and Q2044 with J0490 (Injection, belimumab, 10 mg).

Because HCPCS codes J0131, J9228, Q4124, A9584, J7183 and J0490 describe the same drugs and the same dosages currently designated by HCPCS codes C9283,C9284, C9365, C9406, Q2041, and Q2044, respectively, these drugs will continue their pass-through status in CY 2012. Therefore, we are assigning HCPCS codes J0131, J9228, Q4124, A9584, J7183 and J0490 to the same status indicators and APCs as their predecessor HCPCS codes, as shown in Table 17. We note that since HCPCS code Q2042 is assigned to status indicator ``K'' (Nonpass-Through Drugs; Paid under OPPS; Separate APC payment), its replacement HCPCS code J1725 will also continue its nonpass-through status in CY 2012.

Further, for CY 2012, the CPT Editorial Panel made effective Category III CPT codes 0276T and 0277T on January 1, 2012. Because Category III CPT codes 0276T and 0277T describe the same procedures as HCPCS code C9730 and C9731, we are deleting HCPCS codes C9730 and C9731 on December 31, 2011, and assigning both CPT codes to the same status indicator and APC assignment as its predecessor HCPCS code, as shown in Table 17.

As stated previously, we did not receive any other public comments on the new Level II HCPCS codes that were implemented in July 2011, other than HCPCS codes C9730, C9731, and Q2043, which are discussed in sections III.D.8.b. and V.A.3., respectively, of this final rule with comment period. We are adopting as final, without modification, our proposal to assign the 17 Level II HCPCS codes listed in Table 12 to the APCs and status indicators as proposed for CY 2012.

Table 17 below includes a complete list of the Level II HCPCS codes that were made effective July 1, 2011, with their final status indicators, APC assignments, and payment rates for CY 2012.

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In the CY 2012 OPPS/ASC proposed rule (76 FR 42228), for CY 2012, we proposed to continue our established policy of recognizing Category I CPT vaccine codes for which FDA approval is imminent and Category III CPT codes that the AMA releases in January of each year for implementation in July through the OPPS quarterly update process. Under the OPPS, Category I vaccine codes and Category III CPT codes that are released on the AMA Web site in January are made effective in July of the same year through the July quarterly update CR, consistent with the AMA's implementation date for the codes. Through the July 2011 OPPS quarterly update CR, we allowed separate payment for 12 of the 14 new Category III CPT codes effective July 1, 2011. Specifically, as displayed in Table 17 of the proposed rule, we allow separate payment for the following Category III CPT codes:

CPT code 0263T (Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure including unilateral or bilateral bone marrow harvest)

CPT code 0264T (Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure excluding bone marrow harvest)

CPT code 0265T (Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; unilateral or bilateral bone marrow harvest only for intramuscular autologous bone marrow cell therapy)

CPT code 0267T (Implantation or replacement of carotid sinus baroreflex activation device; lead only, unilateral (includes intra-operative interrogation, programming, and repositioning, when performed))

CPT code 0268T (Implantation or replacement of carotid sinus baroreflex activation device; pulse generator only (includes intra-operative interrogation, programming, and repositioning, when performed))

CPT code 0269T (Revision or removal of carotid sinus baroreflex activation device; total system (includes generator placement, unilateral or bilateral lead placement, intra-operative interrogation, programming, and repositioning, when performed))

CPT code 0270T (Revision or removal of carotid sinus baroreflex activation device; lead only, unilateral (includes intra-

operative interrogation, programming, and repositioning, when performed))

CPT code 0271T (Revision or removal of carotid sinus baroreflex activation device; pulse generator only (includes intra-

operative interrogation, programming, and repositioning, when performed))

CPT code 0272T (Interrogation device evaluation (in person), carotid sinus baroreflex activation system, including telemetric iterative communication with the implantable device to monitor device diagnostics and programmed therapy values, with interpretation and report (eg, battery status, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day))

CPT code 0273T (Interrogation device evaluation (in person), carotid sinus baroreflex activation system, including telemetric iterative communication with the implantable device to monitor device diagnostics and programmed therapy values, with interpretation and report (eg, battery status, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day); with programming)

CPT 0274T (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with or without ligamentous resection, discectomy, facetectomy and/or foraminotomy) any method under indirect image guidance (eg, fluoroscopic, CT), with or without the use of an endoscope, single or multiple levels, unilateral or bilateral; cervical or thoracic)

CPT 0275T (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural

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elements, (with or without ligamentous resection, discectomy, facetectomy and/or foraminotomy) any method under indirect image guidance (eg, fluoroscopic, CT), with or without the use of an endoscope, single or multiple levels, unilateral or bilateral; lumbar) (As published in the July 2011 OPPS quarterly update CR, CPT code 0275T replaced Level II HCPCS code C9729 effective July 1, 2011.)

We note that Category III CPT codes 0262T (Implantation of catheter-delivered prosthetic pulmonary valve, endovascular approach) and 0266T (Implantation or replacement of carotid sinus baroreflex activation device; total system (includes generator placement, unilateral or bilateral lead placement, intra-operative interrogation, programming, and repositioning, when performed)) were assigned to status indicator ``C'' (Inpatient Procedures) under the hospital OPPS beginning July 1, 2011. As we stated in the proposed rule (76 FR 42229), we believe these procedures should only be paid when provided in the inpatient setting because of the clinical circumstances under which these procedures are performed. There are no new Category I Vaccine CPT codes for the July 2011 update.

Furthermore, for CY 2012, the CPT Editorial Panel made effective Category III CPT code 0275T on July 1, 2011. Because Category III CPT code 0275T describes the same procedure as HCPCS code C9729, we deleted HCPCS code C9729 on June 30, 2011. Through the July 2011 OPPS quarterly update CR, we also instructed hospitals to report the procedure previously described by HCPCS code C9729 with Category III CPT code 0275T effective July 1, 2011. Because Category III CPT code 0275T describes the same procedure designated by HCPCS code C9729, we assigned Category III CPT code 0275T to the same status indicator and APC assignment as its predecessor HCPCS code, as shown in Table 16 and Table 18.

We received a comment on the APC assignment and long descriptor for Category III CPT code 0275T. A summary of the comment and our response can be found in section III.D.6.a. (Percutaneous Laminotomy/

Laminectomy) of this final rule with comment period. Table 18 lists the Category III CPT codes that were implemented in July 2011, along with their final status indicators, final APC assignments where applicable, and final payment rates for CY 2012.

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In the CY 2012 OPPS/ASC proposed rule (76 FR 42227 through 42229), we solicited public comments on the CY 2012 proposed status indicators and the proposed APC assignments and payment rates, if applicable, for the Level II HCPCS codes and the Category III CPT codes that are newly recognized in April or July 2011 through the respective OPPS quarterly update CRs. These codes were listed in Tables 15, 16, and 17 of the proposed rule. We proposed to finalize their status indicators and their APC assignments and payment rates, if applicable, in this CY 2012 OPPS/ASC final rule with comment period. Because the July 2011 OPPS quarterly update CR was issued close to the publication of the proposed rule, the Level II HCPCS codes and the Category III CPT codes implemented through the July 2011 OPPS quarterly update CR could not be included in Addendum B to the proposed rule, but these codes were listed in Tables 16 and 17, respectively. We proposed to incorporate these codes into Addendum B to this CY 2012 OPPS/ASC final rule with comment period, which is consistent with our annual OPPS update policy. The Level II HCPCS codes implemented or modified through the April 2011 OPPS update CR and displayed in Table 15 were included in Addendum B to the proposed rule (which is available via the Internet on the CMS Web site), where their proposed CY 2012 payment rates were also shown. We did not receive any additional comments on this process. The final status indicators, APC assignments, and payment rates, if applicable, for the Level II HCPCS codes and the Category III CPT codes that are newly recognized in April or July 2011 through the respective OPPS quarterly update CRs are found in Addendum B to this CY 2012 OPPS/ASC final rule with comment period (which is available via the Internet on the CMS Web site).

2. Process for New Level II HCPCS Codes and Category I and Category III CPT Codes for Which We Are Soliciting Public Comments on This CY 2012 OPPS/ASC Final Rule With Comment Period

As has been our practice in the past, we incorporate those new Category I and III CPT codes and new Level II HCPCS codes that are effective January 1 in the final rule with comment period updating the OPPS for the following calendar year. These codes are released to the public via the CMS HCPCS (for Level II HCPCS codes) and AMA Web sites (for CPT codes), and also through the January OPPS quarterly update CRs. In the past, we also have released new Level II HCPCS codes that are effective October 1 through the October OPPS quarterly update CRs and incorporated these new codes in the final rule with comment period updating the OPPS for the following calendar year. All of these codes are flagged with comment indicator ``NI'' in Addendum B to the OPPS/ASC final rule with comment period to indicate that we are assigning them an interim payment status which is subject to public comment. Specifically, the status indicator and the APC assignment and payment rate, if applicable, for all such codes flagged with comment indicator ``NI'' are open to public comment in the final rule with comment period, and we respond to these comments in the OPPS/ASC final rule with comment period for the next calendar year's OPPS/ASC update. In the CY 2012 OPPS/ASC proposed rule (76 FR 42230), we proposed to continue this process for CY 2012. Specifically, for CY 2012, we proposed to include in Addendum B to this CY 2012 OPPS/ASC final rule with comment period (which is available via the Internet on the CMS Web site) the new Category I and III CPT codes effective January 1, 2012 (including the Category III CPT codes that were released by the AMA in July 2011) that would be incorporated in the January 2012 OPPS quarterly update CR and the new Level II HCPCS codes, effective October 1, 2011, or January 1, 2012, that would be released by CMS in its October 2011 and January 2012 OPPS quarterly update CRs. As proposed, in this final rule with comment period, these codes are flagged with comment indicator ``NI'' in Addendum B to this CY 2012 OPPS/ASC final rule with comment period to indicate that we have assigned them an interim OPPS payment status for CY 2012. As

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proposed, in this final rule with comment period, their status indicators and their APC assignments and payment rates, if applicable, are open to public comment and will be finalized in the CY 2013 OPPS/

ASC final rule with comment period. We note that the CPT codes that were released by the AMA in July 2011 that were subject to comment in the CY 2012 OPPS/ASC proposed rule, and were listed in Table 17, will not be assigned to comment indicator ``NI'' in Addendum B because comments about these codes will be addressed in this CY 2012 OPPS/ASC final rule with comment period.

Comment: One commenter recommended that, through a Web posting, CMS request public input on the APC assignments of the Category I CPT vaccine codes, Category III CPT codes, and Level II HCPCS codes that are made effective on October 1 or January 1 of subsequent years but are made available to the public by the completion of each year's OPPS proposed rule. The commenter indicated that some of these codes have already been released to the public, either through the CMS or AMA CPT Web site, by July 1 of any given year. This same commenter suggested that the lack of stakeholder input on the interim APC assignments may negatively impact Medicare beneficiaries. In particular, the commenter stated that interim payment assignments have been influential in determining whether hospitals provide services to Medicare beneficiaries or not, and further suggested that if the payment for a procedure or service does not adequately reflect the true costs of furnishing the service, then hospitals may decide not to offer the service to Medicare beneficiaries.

Response: The commenter is correct that Category I Vaccine and Category III CPT codes that are effective January 1 of a subsequent year are released on the AMA CPT Web site on or about July 1. However, some Level II HCPCS codes are not released on the CMS Web site until much later. For the October update, the Level II HCPCS C-codes that are effective October 1 are usually released and posted on the CMS Web site in August or September, depending on the number of OPPS new technology service and pass-through drug and device applications that are evaluated. Therefore, we do not have sufficient time to evaluate the new codes, determine proposed APC assignments, post those proposed assignments to the CMS Web site, accept and consider public comments, and respond to public comments between the time that the new codes become available and the time that we must meet our systems deadlines for our claims processing and payment files for the upcoming quarter. Given the challenges and time constraints in meeting the quarterly CPT and Level II HCPCS systems deadlines, we will continue to assign the new codes that are effective October 1 and January 1 of subsequent year to interim APC assignments. If we were to wait for comments on the interim APC assignments for the new codes before making them effective on October 1 or January 1, this may result in services and items not being paid for separately for a whole year, which would ultimately disadvantage both the hospital outpatient facilities and Medicare beneficiaries.

The OPPS is a prospective payment system that provides payment for groups of services that share clinical and resource use characteristics. It should be noted that, with all new codes, our policy has been to assign the service to an APC based on input from a variety of sources, including but not limited to review of the clinical similarity of the service to existing procedures; input from CMS medical advisors; information from interested specialty societies; and review of all other information available to us, including information provided to us by the public, whether through meetings with stakeholders or additional information that is mailed or otherwise communicated to us.

After consideration of the public comments we received, we are finalizing our proposed policy, without modification, to assign the new CPT and Level II HCPCS codes that are effective October 1 and January 1 of subsequent years to interim APC assignments and request comments on the codes in the annual OPPS/ASC final rule with comment period, as described above.

Comment: Some commenters requested that CMS implement a 1 to 2 year dampening period to minimize significant fluctuations in payments from year to year for newly bundled or packaged procedure codes. One commenter specifically stated that limiting the payment reduction to 10 percent would prevent hospitals from experiencing substantial payment reductions and would allow hospitals reasonable time to appropriately update their chargemasters to reflect the newly packaged codes.

Response: We do not believe it is necessary or appropriate to limit payment reductions for any individual service in order to prevent hospitals from experiencing substantial payment reductions as the commenter indicates. While payment rates for individual services may decrease from year to year, the total estimated payments made to hospitals remains the same because the OPPS is, by statute, a budget neutral payment system. In order to accurately report charges on their claims, hospitals must be cognizant of HCPCS coding changes, specifically with respect to Category I and III CPT codes and Level II HCPCS codes that occur throughout the year, including the quarterly updates (April 1, July 1, and October 1) as well as the annual updates (January 1). In recent years, the CMS and the AMA's CPT Editorial Panel have increasingly created new codes that use a single HCPCS code to report combinations of services that were previously reported by multiple HCPCS codes or multiple units of a single HCPS code. For example, effective January 1, 2010, CMS created HCPCS code G0424 (Pulmonary rehabilitation, including exercise (includes monitoring), per hour, per session) to represent a comprehensive program of pulmonary therapy and the CPT Editorial Panel created CPT code 77338 (Multi-leaf collimator (MLC) device(s) for intensity modulated radiation therapy (IMRT), design and construction per IMRT plan) to report all devices furnished under a single IMRT treatment plan. As we have stated before, we expect hospitals to carefully review each new HCPCS code when setting charges for the forthcoming year. However, in particular, hospitals should be especially careful to thoughtfully establish charges for new codes that use a single code to report multiple services that were previously reported by multiple codes. It is vital in these cases that hospitals carefully establish charges that fully include all of the charges for all of the predecessor services that are reported by the new code. To fail to carefully construct the charge for a new code that reports a combination of services that were previously reported separately, particularly in the first year of the new code, under-represents the cost of providing the service describing by the new code and can have significant adverse impact on future payments under the OPPS for the individual service described by the new code.

B. OPPS Changes--Variations Within APCs

1. Background

Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient department services. Section 1833(t)(2)(B) of the Act provides that the Secretary may establish groups of covered OPD services within this

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classification system, so that services classified within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification system, referred to as Ambulatory Payment Classifications (APCs), as set forth in Sec. 419.31 of the regulations. We use Level I and Level II HCPCS codes to identify and group the services within each APC. The APCs are organized such that each group is homogeneous both clinically and in terms of resource use. Using this classification system, we have established distinct groups of similar services. We also have developed separate APC groups for certain medical devices, drugs, biologicals, therapeutic radiopharmaceuticals, and brachytherapy devices.

We have packaged into payment for each procedure or service within an APC group the costs associated with those items or services that are directly related to, and supportive of, performing the main independent procedures or furnishing the services. Therefore, we do not make separate payment for these packaged items or services. For example, packaged items and services include:

(1) Use of an operating, treatment, or procedure room;

(2) Use of a recovery room;

(3) Observation services;

(4) Anesthesia;

(5) Medical/surgical supplies;

(6) Pharmaceuticals (other than those for which separate payment may be allowed under the provisions discussed in section V. of the proposed rule and this final rule with comment period);

(7) Incidental services such as venipuncture;

(8) Guidance services, image processing services, intraoperative services, imaging, supervision and interpretation services, diagnostic radiopharmaceuticals, and contrast media.

Further discussion of packaged services is included in section II.A.3. of this final rule with comment period.

In CY 2008, we implemented composite APCs to provide a single payment for groups of services that are typically performed together during a single clinical encounter and that result in the provision of a complete service (72 FR 66650 through 66652). Under CY 2011 OPPS policy, we provide composite APC payment for certain extended assessment and management services, low dose rate (LDR) prostate brachytherapy, cardiac electrophysiologic evaluation and ablation, mental health services, and multiple imaging services. Further discussion of composite APCs is included in section II.A.2.e. of this final rule with comment period.

Under the OPPS, we generally pay for hospital outpatient services on a rate-per-service basis, where the service may be reported with one or more HCPCS codes. Payment varies according to the APC group to which the independent service or combination of services is assigned. Each APC weight represents the hospital median cost of the services included in that APC, relative to the hospital median cost of the services included in APC 0606 (Level 3 Hospital Clinic Visits). The APC weights are scaled to APC 0606 because it is the middle level hospital clinic visit APC (the Level 3 hospital clinic visit CPT code out of five levels), and because middle level hospital clinic visits are among the most frequently furnished services in the hospital outpatient setting.

Section 1833(t)(9)(A) of the Act requires the Secretary to review, on a recurring basis occurring no less than annually, and revise the groups, the relative payment weights, and the wage and other adjustments to take into account changes in medical practice, changes in technology, the addition of new services, new cost data, and other relevant information and factors. Section 1833(t)(9)(A) of the Act also requires the Secretary to consult with an expert outside advisory panel composed of an appropriate selection of representatives of providers to review (and advise the Secretary concerning) the clinical integrity of the APC groups and the relative payment weights (the APC Panel recommendations for specific services for the CY 2012 OPPS and our responses to them are discussed in the relevant specific sections throughout this final rule with comment period).

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 cost (or mean cost as elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost (or mean cost, if so elected) for an item or service within the same group (referred to as the ``2 times rule''). We use the median cost of the item or service in implementing this provision. The statute authorizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low-volume items and services (but the Secretary may not make such an exception 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).

2. Application of the 2 Times Rule

In accordance with section 1833(t)(2) of the Act and Sec. 419.31 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resources, if the median cost of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group. In making this determination, we consider only those HCPCS codes that are significant based on the number of claims. We note that, for purposes of identifying significant HCPCS codes for examination in the 2 times rule, we consider codes that have more than 1,000 single major claims or codes that have both greater than 99 single major claims and contribute at least 2 percent of the single major claims used to establish the APC median cost to be significant (75 FR 71832). This longstanding definition of when a HCPCS code is significant for purposes of the 2 times rule was selected because we believe that a subset of 1,000 claims is negligible within the set of approximately 100 million single procedure or single session claims we use for establishing median costs. Similarly, a HCPCS code for which there are fewer than 99 single bills and which comprises less than 2 percent of the single major claims within an APC will have a negligible impact on the APC median. In the CY 2012 OPPS/ASC proposed rule (76 FR 42231), we proposed to make exceptions to this limit on the variation of costs within each APC group in unusual cases, such as low-volume items and services for CY 2012.

During the APC Panel's February 2011 meeting, we presented median cost and utilization data for services furnished during the period of January 1, 2010, through September 30, 2010, about which we had concerns or about which the public had raised concerns regarding their APC assignments, status indicator assignments, or payment rates. The discussions of most service-specific issues, the APC Panel recommendations, if any, and our proposals and final policies for CY 2012 are contained mainly in sections III.C. and III.D. of this final rule with comment period.

In addition to the assignment of specific services to APCs that we discussed with the APC Panel, we also identified APCs with 2 times violations that were not specifically discussed

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with the APC Panel but for which we proposed changes to their HCPCS codes' APC assignments in Addendum B to the proposed rule. We note that Addendum B did not appear in the printed version of the Federal Register as part of the CY 2012 OPPS/ASC proposed rule. Rather, it was published and made available only via the Internet on the CMS Web site at: http://www.cms.gov/. In these cases, to eliminate a 2 times violation or to improve clinical and resource homogeneity, we proposed to reassign the codes to APCs that contain services that are similar with regard to both their clinical and resource characteristics. We also proposed to rename existing APCs or create new clinical APCs to complement proposed HCPCS code reassignments. In many cases, the proposed HCPCS code reassignments and associated APC reconfigurations for CY 2012 included in the proposed rule were related to changes in median costs of services that were observed in the CY 2010 claims data newly available for CY 2012 ratesetting. We also proposed changes to the status indicators for some codes that were not specifically and separately discussed in the proposed rule. In these cases, we proposed to change the status indicators for some codes because we believe that another status indicator would more accurately describe their payment status from an OPPS perspective based on the policies that we proposed for CY 2012. Addendum B of the CY 2012 OPPS/ASC proposed rule identified with a comment indicator ``CH'' those HCPCS codes for which we proposed a change to the APC assignment or status indicator as assigned in the April 2011 Addendum B Update (available via the Internet on the CMS Web site at: http://www.cms.gov/). In contrast, Addendum B of this final rule with comment period identifies with the ``CH'' comment indicator the final CY 2012 changes compared to the codes' status as reflected in the October 2011 Addendum B update.

3. Exceptions to the 2 Times Rule

As discussed earlier, we may make exceptions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low volume items and services. Taking into account the APC changes that we proposed for CY 2012 based on the APC Panel recommendations that were discussed mainly in sections III.C. and III.D. of the proposed rule, the other proposed changes to status indicators and APC assignments as identified in Addendum B to the proposed rule (which was available via the Internet on the CMS Web site), and the use of CY 2010 claims data to calculate the median costs of procedures classified in the APCs, we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule. We used the following criteria to decide whether to propose exceptions to the 2 times rule for affected APCs:

Resource homogeneity;

Clinical homogeneity;

Hospital outpatient setting;

Frequency of service (volume); and

Opportunity for upcoding and code fragments.

For a detailed discussion of these criteria, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18457 and 18458).

Table 18 of the CY 2012 OPPS/ASC proposed rule (76 FR 42232) listed 17 APCs that we proposed to exempt from the 2 times rule for CY 2012 based on the criteria cited above.

For cases in which a recommendation by the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel's recommendation because those recommendations were based on explicit consideration of resource use, clinical homogeneity, site of service, and the quality of the CY 2010 claims data used to determine the APC payment rates that we proposed for CY 2012. The median costs for hospital outpatient services for these and all other APCs that were used in the development of the CY 2012 OPPS/

ASC proposed rule and this final rule with comment period can be found on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp.

For the CY 2012 OPPS/ASC proposed rule, we based the listed exceptions to the 2 times rule on claims data for dates of service between January 1, 2010, and December 31, 2010, that were processed before January 1, 2011. For this final rule with comment period, we used claims data for dates of service between January 1, 2010, and December 31, 2010, that were processed on or before June 30, 2011 and updated CCRs, if available. Although we stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42232) that the list of APC exemptions that appeared in Table 18 were based on claims data processed from January 1, 2010, through September 30, 2010, we are clarifying that the listed exceptions were based on claims data processed between January 1, 2010, and December 31, 2010, consistent with past practice of using claims data processed between January 1 and December 31 of an applicable year to determine APCs that are exempted from the 2 times rule. Thus, after considering the public comments we received on the CY 2012 OPPS/ASC proposed rule and making changes to APC assignments based on those comments, we analyzed the CY 2010 claims data used for this final rule with comment period to identify the APCs with 2 times violations. Based on the final CY 2010 claims data, we found that there are 23 APCs with 2 times rule violations, a cumulative increase of 6 APCs from the proposed rule. We applied the criteria as described earlier to identify the APCs that are exceptions to the 2 times rule for CY 2012, and identified additional APCs that meet the criteria for exception to the 2 times rule for this final rule with comment period:

APC 0076 (Level I Endoscopy Lower Airway)

APC 0135 (Level III Skin Repair)

APC 0148 (Level I Anal/Rectal Procedures)

APC 0262 (Plain Film of Teeth)

APC 0317 (Level II Miscellaneous Radiology Procedures)

0330 (Dental Procedures)

APC 0341 (Skin Tests)

APC 0403 (Level I Nervous System Imaging)

APC 0409 (Red Blood Cell Tests)

APC 0607 (Level 4 Hospital Clinic Visits)

In addition, we also determined that there are five APCs that no longer violate the 2 times rule:

APC 0016 (Level IV Debridement & Destruction)

APC 0105 (Repair/Revision/Removal of Pacemakers, AICDs, or Vascular Devices)

APC 0245 (Level I Cataract Procedures without IOL)

APC 0263 (Level I Miscellaneous Radiology)

APC 0432 (Health and Behavior Services)

We have not included in this count those APCs where a 2 times violation is not a relevant concept, such as APC 0375 (Ancillary Outpatient Services when Patient Expires), with an APC median cost set based on multiple procedure claims; therefore, we have identified only final APCs, including those with criteria-based median costs, such as device-dependent APCs, with 2 times rule violations.

Comment: One commenter supported CMS' proposal to exempt APCs 0016 and 0058 from the 2 times rule. According to the commenter, because the procedures included in both APCs are similar based on clinical homogeneity and resource costs, there is little opportunity to upcode, and therefore, it is appropriate to exempt APCs 0016 and 0058 from the 2 times rule.

Response: We appreciate the commenter's support. Based on our

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analysis of the CY 2010 claims used for the final rule with comment period, we found that APC 0016 no longer violated the 2 times rule. However, APC 0058 continued to violate the 2 times rule. The range in median costs for the procedures with significant claims data in APC 0058 is between $49 and $116. Currently, there are only two levels of APCs for services that describe strapping and cast application, which include APC 0058 and APC 0426 (Level II Strapping and Cast Application). In contrast to APC 0058, our claims data show that the range in median costs for the procedures with significant claims data in APC 0426 is between $150 and $197. Because of the range in median costs in APC 0426, we believe that the procedures in APC 0058 should continue to be placed in APC 0058. Therefore, we are finalizing our proposal to continue to exempt APC 0058 from the 2 times rule.

After consideration of the public comment that we received and our review of the CY 2010 costs from claims available for this final rule with comment period, we are finalizing our proposal to exempt 12 original APCs (that appeared in Table 18 of the CY 2012 OPPS/ASC proposed rule with comment period and also appears in Table 19 below) from the 2 times rule for CY 2012, with modification. Specifically, we removed five APCs that no longer violated the 2 times rule and increased the number of APC exceptions from 17 to 23 APCs, as described previously in this section. Our final list of 23 APCs exempted from the 2 times rule is displayed in Table 19 below.

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C. New Technology APCs

1. Background

In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service to an appropriate clinical APC. This policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient data upon which to base a decision for reassignment have not been collected.

We note that the cost bands for New Technology APCs range from $0 to $50 in increments of $10, from $50 to $100 in increments of $50, from $100 to $2,000 in increments of $100, and from $2,000 to $10,000 in increments of $500. These cost bands identify the APCs to which new technology procedures and services with estimated service costs that fall within those cost bands are assigned under the OPPS. Payment for each APC is made at the mid-point of the APC's assigned cost band. For example, payment for New Technology APC 1507 (New Technology--Level VII ($500-$600)) is made at $550. Currently, there are 82 New Technology APCs, ranging from the lowest cost band assigned to APC 1491 (New Technology--Level IA ($0-$10)) through the highest cost band assigned to APC 1574 (New Technology--Level XXXVII ($9,500-$10,000). In CY 2004 (68 FR 63416), we last restructured the New Technology APCs to make the cost intervals more consistent across payment levels and refined the cost bands for these APCs to retain two parallel sets of New Technology APCs, one set with a status indicator of ``S''' (Significant Procedures, Not Discounted when Multiple; Paid under OPPS; separate APC payment) and the other set with a status indicator of ``T'' (Significant Procedure, Multiple Reduction Applies; Paid under OPPS; separate APC payment). These current New Technology APC configurations allow us to price new technology services more appropriately and consistently.

Every year we receive many requests for higher payment amounts under our New Technology APCs for specific procedures under the OPPS because they require the use of expensive equipment. We are taking this opportunity to reiterate our response in general to the issue of hospitals' capital expenditures as they relate to the OPPS and Medicare.

Under the OPPS, one of our goals is to make payments that are appropriate for the services that are necessary for the treatment of Medicare beneficiaries. The OPPS, like other Medicare payment systems, is budget neutral and increases are limited to the annual hospital inpatient market basket increase. We believe that our payment rates generally reflect the costs that are associated with providing care to Medicare beneficiaries in cost-efficient settings, and we believe that our rates are adequate to ensure access to services.

For many emerging technologies, there is a transitional period during which utilization may be low, often because providers are first learning about the techniques and their clinical utility. Quite often, parties request that Medicare make higher payment amounts under our New Technology APCs for new procedures in that transitional phase. These requests, and their accompanying estimates for expected total patient utilization, often reflect very low rates of patient use of expensive equipment, resulting in high per use costs for which requesters believe Medicare should make full payment. Medicare does not, and we believe should not, assume responsibility for more than its share of the costs of procedures based on Medicare beneficiary projected utilization and does not set its payment rates based on initial projections of low utilization for services that require expensive capital equipment. For the OPPS, we rely on hospitals to make informed business decisions regarding the acquisition of high cost capital equipment, taking into consideration their knowledge about their entire patient base (Medicare beneficiaries included) and an understanding of Medicare's and other payers' payment policies.

We note that, in a budget neutral environment, payments may not fully cover hospitals' costs in a particular circumstance, including those for the purchase and maintenance of capital equipment. We rely on hospitals to make their decisions regarding the acquisition of high cost equipment with the understanding that the Medicare program must be careful to establish its initial payment rates, including those made through New Technology APCs, for new services that lack hospital claims data based on realistic utilization projections for all such services delivered in cost-efficient hospital outpatient settings. As the OPPS acquires claims data regarding hospital costs associated with new procedures, we regularly examine the claims data and any available new information regarding the clinical aspects of new procedures to confirm that our OPPS payments remain appropriate for procedures as they transition into mainstream medical practice.

2. Movement of Procedures From New Technology APCs to Clinical APCs

As we explained in the November 30, 2001 final rule (66 FR 59902), we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected sufficient data to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information (although it was the best information available at the time), or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC cost bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost.

Consistent with our current policy, in the CY 2012 OPPS/ASC proposed rule (76 FR 42233), we proposed for CY 2012 to retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service to a clinically appropriate APC. The flexibility associated with this policy allows us to move a service from a New Technology APC in less than 2 years if sufficient claims data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient claims data upon which to base a decision for reassignment have not been collected. Table 19 of the proposed rule listed the HCPCS codes and associated status indicators that we proposed to reassign from a New Technology APC to a clinically appropriate APC or to a different New Technology APC for CY 2012.

Currently, in CY 2011, there are three procedures described by a HCPCS G-code receiving payment through a New Technology APC. Specifically, HCPCS code G0417 (Surgical pathology, gross and microscopic examination for prostate needle saturation biopsy sampling, 21-40 specimens) is assigned to New Technology APC 1506 (New Technology--Level VI ($400--$500)); HCPCS code G0418 (Surgical pathology, gross and microscopic examination for prostate needle saturation biopsy sampling, 41-60 specimens) is assigned to New Technology APC 1511 (New

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Technology--Level XI ($900-$1,000)); and HCPCS code G0419 (Surgical pathology, gross and microscopic examination for prostate needle saturation biopsy sampling, greater than 60 specimens) is assigned to New Technology APC 1513 (New Technology--Level XIII ($1,100-$1,200)).

Analysis of our hospital outpatient data for claims submitted for CY 2010 indicates that prostate saturation biopsy procedures are rarely performed on Medicare patients. For OPPS claims submitted from CY 2009 through CY 2010, our claims data show that there were only five claims submitted for HCPCS code G0417 in CY 2009 and only one in CY 2010 with a proposed median cost of approximately $532. Our claims data did not show any hospital outpatient claims for HCPCS codes G0418 and G0419 from either CY 2009 or CY 2010.

While we believe that these procedures will always be low volume, given the number of specimens being collected, we believe that we should continue their New Technology payments for another year for HCPCS codes G0417, G0418, and G0419 to see if more claims data become available. For CY 2012, we proposed to revise the APC assignments for these procedures and continue the New Technology APC payments for HCPCS G-codes G0417, G0418, and G0419. Specifically, we proposed to reassign HCPCS code G0417 from APC 1506 to APC 1505 (New Technology-Level V ($300-$400)), HCPCS code G0418 from APC 1511 to APC 1506 (New Technology-Level VI ($400-$500)), and HCPCS G0419 code from APC 1513 to APC 1508 (New Technology-Level VIII ($600-$700)). We stated in the proposed rule that we believe that the proposed revised APC assignments would more appropriately reflect the procedures described by these three HCPCS G-codes, based on clinical and resource considerations. These procedures and their proposed APC assignments are displayed in Table 19 of the proposed rule.

We did not receive any public comments on the APC reassignments for HCPCS codes G0417, G0418, and G0419. Therefore, for the reasons set forth above, we are finalizing our proposal, without modification, to assign HCPCS code G0417 to APC 1505, HCPCS code G0418 to APC 1506, and to assign HCPCS code G0419 to APC 1508. The final CY 2012 payment rates for HCPCS codes G0417, G0418, and G0419 can be found in Addendum B of this final rule with comment period (which is available via the Internet on the CMS Web site). Table 20 below lists the HCPCS codes and associated status indicators that we are reassigning from a New Technology APC to a different New Technology APC for CY 2012.

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D. OPPS APC-Specific Policies

1. Cardiovascular Services

a. Cardiovascular Computed Tomography (CCT) (APC 0340 and 0383)

The CPT Editorial Panel created the following new codes for cardiovascular computed tomography (CCT) services effective January 1, 2010: CPT codes 75571 (Computed tomography, heart, without contrast material, with quantitative evaluation of coronary calcium), 75572 (Computed tomography, heart, with contrast material, for evaluation of cardiac structure and morphology (including 3D image postprocessing, assessment of cardiac function, and evaluation of venous structures, if performed)), 75573 (Computed tomography, heart, with contrast material, for evaluation of cardiac structure and morphology in the setting of congenital heart disease (including 3D image postprocessing, assessment of LV cardiac function, RV structure and function and evaluation of venous structures, if performed)), and 75574 (Computed tomographic angiography, heart, coronary arteries and bypass grafts (when present), with contrast material, including 3D image postprocessing (including evaluation of cardiac structure and morphology, assessment of cardiac function, and evaluation of venous structures, if performed)). These Category I CPT codes replaced eight Category III CPT codes that had been in effect through December 31, 2009. For CY 2010, we assigned CPT code 75571 to APC 0340 (Minor Ancillary Procedures), and we assigned CPT codes 75572, 75573, and 75574 to APC 0383 (Cardiac Computed Tomographic Imaging). For CY 2011, we maintained these APC assignments, with final payment rates for APC 0340 and 0383 of $46.23 and $256.86, respectively. For CY 2012, we proposed to maintain the assignments of CPT code 75571 to APC 0340 and CPT codes 75572, 75573, and 75574 to APC 0383. APCs 0340 and 0383 have final CY 2012 median costs of approximately $46 and $262, respectively.

Comment: One commenter was concerned that hospitals may be failing to report the services in APC 0383 with CPT codes 75572, 75573, and 75574, which were effective January 1, 2010, and are continuing to report the related services using the expired Category III CPT codes previously used through December 31, 2009. The commenter requested that CMS analyze the CY 2010 claims data to determine whether the expired CCT codes are being used to report CCT services and, if so, to use those claims in calculating the APC 0383 final median cost. The commenter

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also urged CMS to reassign CPT code 75571 from APC 0340 to APC 0282 (Miscellaneous Computed Axial Tomography) for reasons of clinical coherence and resource use similarity to procedures in APC 0282. The commenter contended that APC 0340 contains several procedures that do not require the same equipment or clinical staff as CPT code 75571, while APC 0282 contains services that do have similar clinical and resource characteristics to CPT code 75571.

In addition, the commenter expressed concerns that hospitals do not report their costs in a consistent and accurate way and do not update their chargemasters regularly with charges that reflect appropriate relativity, and offered to work with CMS to develop a standard methodology to address these issues. The commenter also recommended that CMS promote the need to accurately and completely report all services provided.

Response: We believe that the CY 2012 median costs we have calculated for CPT codes 75572, 75573, and 75574 and APC 0383 appropriately reflect valid estimates of the cost of these services. We compared the median costs and single procedure claims based on CY 2009 claims (used for final CY 2011 payment rates) with median costs and single procedure claims based on CY 2010 claims (which we are using for the final CY 2012 payment rates). The final CY 2011 APC 0383 median cost of approximately $254 used 11,323 single bills based on 6 of the category III CPT codes used prior to CPT codes 75572, 75573, and 75574. The final CY 2012 APC 0383 median cost of approximately $262 used 15,253 single bills based on CPT codes 75572, 75573, and 75574. This shows consistency across years in median costs and an increase in the number of single bills used. Therefore, we have no reason to believe that the median costs we have calculated do not reflect valid estimates of the costs of CPT codes 75572, 75573, and 75574, which went into effect on January 1, 2010.

We believe that CPT code 75571 is a minor ancillary procedure and is appropriately assigned to APC 0340, in terms of resources and clinical similarity. CPT code 75571 has a final median cost of approximately $31, and APC 0340 has a final median cost of approximately $46. In contrast, APC 0282 has a final median cost of approximately $107, driven largely by a single major procedure CPT code, that is, CPT code 76380 (Computed tomography, limited or localized follow-up study), with a final median cost of approximately $107. Therefore, CPT code 75571, with a final median cost of approximately $31, would not be an appropriate resource similarity for APC 0282, while CPT code 75571 is similar to other codes in APC 0340 with respect to resource use. Therefore, we believe it is appropriately assigned to APC 0340. We agree with the commenter that accurate reporting of charges for all services will help to ensure that these items are appropriately accounted for in future years' OPPS payment rates. As we often state (73 FR 68535 through 68536; 74 FR 60367; and 75 FR 71835), we encourage stakeholders to carefully review HCPCS code descriptors, as well as any guidance CMS may have provided for specific HCPCS codes. We note that the definition of charges in the regulations at 42 CFR 413.53(b) states that implicit in the use of charges as the basis of apportionment is the objective that charges for services be related to the cost of the services. As new HCPCS codes are developed or existing HCPCS code descriptors are revised from year to year (for example, by redefining units of service), we expect that hospitals' submitted Medicare charges relate appropriately to the costs of those services. Therefore, we do not share the commenter's belief that we should modify our standard ratesetting methodology (for example, by using claims data for deleted codes) in order to calculate the median costs for the services described by CPT codes 75572, 75573, and 75574. We refer readers to the Provider Reimbursement Manual (Pub. 15-2, Part 2, Chapter 40 Hospital and Hospital Health Care, Form CMS 2552-10) for CMS' instructions for reporting costs.

After considering the public comments we received and reviewing our claims data, we are maintaining the assignment of CPT code 75571 to APC 0340, for which we have calculated a final rule median cost of approximately $46 for CY 2012, and we are maintaining the assignment of CPT codes 75572, 75573, and 75574 to APC 0383, for which we have calculated a final rule median cost of approximately $262 for CY 2012.

b. Cardiac Imaging (APC 0377)

For CY 2012, we proposed to assign the following CPT codes to APC 0377 (Level II Cardiac Imaging): 78451(Myocardial perfusion imaging, tomographic (SPECT) (including attenuation correction, qualitative or quantitative wall motion, ejection fraction by first pass or gated technique, additional quantification, when performed); single study, at rest or stress (exercise or pharmacologic)); 78452 (Myocardial perfusion imaging, tomographic (SPECT) (including attenuation correction, qualitative or quantitative wall motion, ejection fraction by first pass or gated technique, additional quantification, when performed); multiple studies, at rest and/or stress (exercise or pharmacologic) and/or redistribution and/or rest reinjection); 78453 (Myocardial perfusion imaging, planar (including qualitative or quantitative wall motion, ejection fraction by first pass or gated technique, additional quantification, when performed); single study, at rest or stress (exercise or pharmacologic)); and 78454 (Myocardial perfusion imaging, planar (including qualitative or quantitative wall motion, ejection fraction by first pass or gated technique, additional quantification, when performed); multiple studies, at rest and/or stress (exercise or pharmacologic) and/or redistribution and/or rest reinjection). APC 0377 had a proposed national unadjusted payment rate of approximately $677.

The national unadjusted payment for APC 0377 for CY 2011 is approximately $760. However, it is important to note that the national unadjusted payment rate for APC 0377 for CY 2011 was based on CY 2009 claims data and CPT codes 78451, 78452, 78453 and 78454 had not been created in CY 2009. In CY 2009, APC 0377 was populated with CPT codes 78460 (Myocardial perfusion imaging (planar) single study, at rest of stress (exercise and/or pharmacologic), with or without quantification); 78461 (Myocardial perfusion imaging (planar) single study, at rest or stress (exercise and/or pharmacologic), with or without quantification; multiple studies (planar), at rest and/or stress (exercise and/or pharmacologic), and redistribution and/or rest injection, with or without quantification); 78464 (Myocardial perfusion imaging (planar) single study, at rest or stress (exercise and/or pharmacologic), with or without quantification; tomographic (SPECT) single study (including attenuation correction when performed), at rest or stress (exercise and/or pharmacologic), with or without quantification); and 78465 (Myocardial perfusion imaging (planar) single study, at rest or stress (exercise and/or pharmacologic), with or without quantification; tomographic (SPECT) multiple studies (including attenuation correction when performed), at rest or stress (exercise and/or pharmacologic), with or without quantification), which were also cardiac imaging services. Therefore, CY 2009 is the first year in which hospitals established charges for the new CPT codes for CY 2010 on which the CY

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2012 proposed rule and final rule medians are based.

Comment: Several commenters expressed concern over the proposed 11 percent payment reduction to APC 0377. Commenters believed that there were irregularities in the hospital cost data that suggest inaccurate reporting of costs associated with procedures in APC 0377, rather than an actual decline in resource use. Commenters particularly pointed out that CPT code 78453 (Myocardial perfusion imaging, planar, single study) has a higher mean and median cost than CPT code 78454 (Myocardial perfusion imaging, planar, multiple studies), according to CMS data. The commenters stated that it is illogical to expect hospitals to use fewer resources for furnishing multiple studies than for furnishing a single study. In light of these irregularities, and the continued decline in the proposed payment, the commenters recommended that CMS reevaluate the data used to set the payment rate for APC 0337, to ensure that the data indeed capture the entire universe of claims for these APCs and reflect all procedure and radiopharmaceutical costs. The commenters further recommended that CMS recalculate median costs for these procedures after additional refinement of the data, including eliminating hospital claims with CCRs of 0.2 or less and, if subsequent review still warrants a payment reduction for either APC, such a reduction should be phased in over several years. Commenters suggested a 1- to 2-year ``dampening period'' beginning with the first year that CMS could utilize claims for ratesetting, given that APC 0377 contains four CPT codes that were new for CY 2010 and replaced previously existing services that were assigned to APC 0377. Commenters stated that hospitals are often slow to update their charge masters following coding changes. Additionally, the commenters recommended that CMS establish a threshold change of 10 percent that triggers an enhanced CMS validation process for all APCs, including accounting for all packaged costs and review of excluded/

included claims. The commenters also recommended that CMS limit year-

to-year changes in payment rates to a maximum of 5 to 10 percent for a single year, unless CMS or public commenters identify factors responsible for significant fluctuations in cost data, such as the introduction of new technologies or changes in the composition of an APC.

Response: In accordance with sections 1833(t)(2)(B) and 1833(t)(9)(A) of the Act and Sec. Sec. 419.31 and 419.50 of the regulations, we annually review the items and services within an APC group with respect to comparability of the use of resources and clinical homogeneity. The payment rates, including the relative weights, set annually for these services are based on the claims and cost report data used for ratesetting. For the CY 2012 update, the payment rates for APCs 0337 are based on data from claims submitted during CY 2010 according to the standard OPPS ratesetting methodology. Specifically, we used 502,757 single claims (out of 584,855 total claims) from CY 2012 proposed rule claims data to calculate the proposed rule median cost of approximately $701, and we used 539,100 single claims (out of 640,458 total claims) from CY 2012 final rule claims data to calculate the median cost for APC 0337 of approximately $672, on which we based the CY 2012 national unadjusted payment rate.

We note that the final CY 2012 median cost represents a slight decline from the median cost of approximately $701, upon which the CY 2012 proposed payment rate for this APC was based and the median cost of approximately $752, upon which the final CY 2011 payment rate was based. As we have in the past (75 FR 71916), we note that our cost-

finding methodology is based on reducing each hospital's charge for its services to an estimated cost by applying the most discrete hospital-

specific CCR available for the hospital that submitted the claim. Therefore, it is the hospital's claims and cost reports that determine the estimated costs that are used to calculate the median cost for each service and, when aggregated into APC groups, the hospital data are used to calculate the median cost for the APC on which the APC payment rate is based. As we have previously, we note that, as part of our standard ratesetting process, we already engage in a standard review process for all APCs that experience significant changes in median costs (74 FR 60365).

We examined our claims data for APC 0377 for the CY 2011 OPPS final rule with comment period, the CY 2012 proposed rule, and this CY 2012 final rule with comment period. Specifically we looked at the following data elements for all single and pseudo single procedure bills for the four CPT codes that are assigned to APC 0377 and that, therefore, are the data points on which the median cost for the APC is based: median CCR; median charge; median line item cost (that is, without packaging); and median amount of packaging (shown in Table 21). We also show in Table 21 the count of single and pseudo single procedure claims for the APC and the total frequency for the APC.

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GRAPHIC TIFF OMITTED TR30NO11.034

We observe from this information that the median charge for services that are assigned to APC 0377 has increased from the CY 2011 final rule data (CY 2009 claims containing charges for the deleted codes) to the CY 2012 proposed and final rule data sets (based on charges for the codes that were effective January 1, 2010). The CCRs that are applied to the codes remained the same from the CY 2011 final rule data to the CY 2012 proposed rule data but declined slightly in the CY 2012 final rule data, with the updating of the data with more current cost reports. Therefore, the line item median costs increased between the CY 2011 final rule data and the CY 2012 proposed rule data but declined in the CY 2012 final rule data due to the decrease in the CCRs. We also observe that the packaged cost for codes in APC 0377 declined 61 percent from the CY 2011 final rule data to the CY 2012 proposed rule data and further declined another 3 percent in the CY 2012 final rule data. Therefore, we believe that the reduction in the payment rate for APC 0377 is attributable to the slight decline in the CCRs and the significant decline in the packaged cost.

We acknowledge that some hospitals may charge at different markups over cost for different services. However, as long as the cost report is correctly completed and the charges are mapped to the cost center in which the costs for the service are recorded, the CCRs will represent a valid reflection of the relationship between the costs and the charges. The OPPS, like all other prospective payment systems, assumes that hospitals complete the cost report properly, including mapping the charges for a service to the cost center in which the costs for that service are captured.

We recognize that there is considerable variability in the charges that hospitals established for the four CPT codes that were new for CY 2010 and replaced deleted codes for reporting these services that had been assigned to APC 0377, but it is not uncommon for a high level of variability in the charges for a service to occur. In addition, it is normal that such variability would be carried through to the calculation of estimated costs for the service. Hospitals charges are a reflection of the monetary value that the hospital places on the service, and we do not advise hospitals with regard to what they should charge for a service other than to require that the charges be reasonably related to their cost for the service, and that they must charge all payers the same amount for the same service. (We refer readers to the definition of ``charges'' at 42 CFR 413.53(b).) However, our use of the median charge to establish payment levels was specifically designed to address wide variances in hospital cost accounting systems and billing patterns, and also has consistently been a reliable mechanism for promoting increased consistency without introducing additional regulations.

We recognize that it appears peculiar that the estimated cost for CPT code 78453, which represents the cost of a single myocardial perfusion imaging (MPI) study, would be greater than the estimated cost for CPT code 78454, which represents the cost of multiple myocardial perfusion imaging studies done in a single session. However, our costs are based on the amount of the charge that the hospital established for the service and the hospital's CCR from its Medicare cost report. It is not unusual for hospitals to establish charges that do not comport with our expectation of the charges they would establish based on the definition of the code for the service for which they are establishing charges and on which we based simulated medians. Moreover, because the median cost is the 50th percentile of the array of costs from different hospitals, case-mix and volume differences between different hospitals can also result in seemingly peculiar relativity between median costs.

Based on our review of the claims data and cost report data, we believe our estimated median cost for APC 0377 is a valid estimate of the relative cost of the services under the APC and, therefore, see no reason to adopt an alternative methodology that would eliminate claims from hospitals with CCRs below 0.2 or limit the decline in the median cost to 5 to 10 percent. In addition, based on the significant volume of single bills used to calculate the median cost (539,100 single procedure bills of 640,458 total frequency or 84 percent of the total frequency for the services in the APC), we have no reason to believe that the median cost we have calculated should not be used to establish the payment for APC 0377 and, therefore, will not implement a 1- to 2-

year ``dampening period,'' as suggested by the commenters. To the extent that hospitals determine that their charges should be revised to better reflect the resources required to furnish the services currently assigned to APC 0377, the revised charges would be reflected in future years' OPPS payment rates.

Comment: Commenters asked that CMS post to the CMS Web site the data analysis that was made available to the

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APC Panel for all APCs for which the APC Panel median costs fluctuated by more than 10 percent compared to the CY 2011 OPPS final rule median costs to allow all interested stakeholders to review and comment on the data.

Response: During the August 10-11, 2011 meeting of the APC Panel, we presented a list of all APCs whose median costs fluctuated by greater than 10 percent when comparing the CY 2011 final rule median costs to CY 2012 proposed rule median costs. While the proposed payment for APC 0377 represented a reduction in payment of 11 percent, the decline in median cost was less than 10 percent; therefore, it was not included on the list presented to the APC Panel during its August 10-

11, 2011 meeting. The comparisons of APCs with median costs fluctuating by more than 10 percent is based on median cost data available on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS. Additionally, the OPPS Limited Data Set (LDS), which contain claims used to establish median cost for use in ratesetting, is available for purchase on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS. Therefore, interested stakeholders have access to the same data that we examined and presented to the APC Panel.

After considering the public comments we received and examining the reasons for the decline in the median cost for APC 0377, we are declining to make any of the adjustments to the median cost that commenters requested because we believe that the data on which the median cost for APC 0377 is calculated are valid and that the median cost is an appropriate reflection of the 50th percentile of the array of the estimated costs of services assigned to APC 0377. Therefore, we are finalizing our CY 2012 proposal, without modification, to continue to assign CPT codes 78451, 78452, 78453, and 78454 to APC 0377. We are finalizing a payment rate for APC 0377 for CY 2012 based on the CY 2012 OPPS final rule median cost of approximately $672.

c. Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes (APC 0108)

We refer readers to section II.A.2.E.(6) of this final rule with comment period for a detailed discussion of this issue.

d. Implantable Loop Recorder Monitoring (APC 0690)

For CY 2012, we proposed to reassign CPT code 93299 (Interrogation device evaluation(s), (remote) up to 30 days; implantable cardiovascular monitor system or implantable loop recorder system, remote data acquisition(s), receipt of transmissions and technician review, technical support and distribution of results) from APC 0691 (Level III Electronic Analysis of Devices) to APC 0690 (Level I Electronic Analysis of Devices), with a proposed payment rate of approximately $35.

Comment: Some commenters objected to the reassignment of CPT code 93299 from APC 0691 to APC 0690. They believed that the reassignment will result in inadequate payment to hospitals for the resources required to provide the service and may be a disincentive to hospitals to provide this service.

Response: The calculated median cost for CPT code 93299 based on CY 2010 hospital claims and cost report data available for this final rule with comment period is approximately $38. We are confident that the observed costs in the claims data are representative of the costs of providing this service in CY 2010 because almost all of the claims are single claims (2,249 out of 2,253) that can be used for ratesetting. The calculated median cost of approximately $38 for CPT code 93299 is similar to that of most of the CPT codes in APC 0690, and very close to the overall APC median cost of approximately $35. In contrast, the overall APC median cost for APC 0691 is approximately $168, more than four times the median cost of CPT code 93299. Therefore, we do not agree with commenters that the placement of CPT code 93299 in APC 0690 does not meet the APC recalibration standards of clinical and resource homogeneity and would result in inadequate payment to hospitals. Thus, we are finalizing our proposal, without modification, to reassign CPT code 93299 to APC 0690 for CY 2012.

e. Echocardiography (APCs 0128, 0269, 0270, and 0697)

Under the OPPS, echocardiography services are reported using a combination of CPT codes and HCPCS C-codes. Hospitals report the echocardiography CPT codes when performing echocardiography procedures without contrast. Alternatively, hospitals report the HCPCS C-codes when performing echocardiography procedures with contrast, or without contrast followed by with contrast. In addition to the HCPCS C-codes, hospitals should also report the appropriate units of the HCPCS codes for the contrast agents used in the performance of the echocardiograms.

Currently, there are four APCs that describe echocardiography services

APC 0128 (Echocardiogram With Contrast)

APC 0697 (Level I Echocardiogram Without Contrast)

APC 0269 (Level II Echocardiogram Without Contrast)

APC 0270 (Level III Echocardiogram Without Contrast)

For CY 2012, we proposed payment rates for these APCs of approximately $564, $219, $384, and $567, respectively.

Comment: Some commenters expressed concern with the proposed payment rate of approximately $384 for CPT code 93306 (Echocardiography, transthoracic real-time with image documentation (2D), includes M-mode recording, when performed, complete, with spectral Doppler echocardiography, and with color flow Doppler echocardiography), stating that the 5-percent decrease in the payment rate could be the result of miscoding. The commenters suggested that hospitals were continuing to bill CPT code 93307 (Echocardiography, transthoracic, real-time with image documentation (2D), includes M-mode recording, when performed, complete, without spectral or color Doppler echocardiography) in conjunction with CPT codes 93320 (Doppler echocardiography, pulsed wave and/or continuous wave with spectral display (List separately in addition to codes for echocardiographic imaging); complete) and 93325 (Doppler echocardiography color flow velocity mapping), rather than using CPT code 93306 because they were still adjusting to billing with CPT code 93306. The commenters requested that CMS confirm that the calculation of the median cost for APC 0269, which is the APC that CMS proposed to continue to assign to CPT code 93306, is based on correct coding.

Response: CPT code 93306 was made effective on January 1, 2009. Consistent with our statement in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71947), we find no evidence that would suggest that the fluctuations in cost data for echocardiography APCs are due to incorrect hospital billing practices. For this CY 2012 OPPS/ASC final rule with comment period, which is based on the CY 2010 hospital outpatient claims for ratesetting, our claims show a significant volume of data for CPT code 93306. Specifically, our analysis reveals a CPT median cost of approximately $394 based on 975,213 single claims (out of 990,809 total claims) for CPT code 93306, which represents 90 percent of the claims in APC 0269. Given the significant volume of claims and its CPT median cost of

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approximately $394, we believe that CPT code 93306 is appropriately placed in APC 0269, which has a final APC median cost of approximately $393 for CY 2012.

Therefore, after consideration of the public comments that we received, we are finalizing our CY 2012 proposal, without modification, to continue to assign CPT code 93306 to APC 0269. As has been our practice since the implementation of the OPPS, we annually review all the items and services within an APC group to determine, with respect to comparability of the use of resources, for any 2 times rule violations. In making this determination, we review our claims data and determine whether we need to make changes to the current APC assignments for the following year. We will again reevaluate the status indicator and APC assignment for CPT code 93306 for the CY 2013 OPPS rulemaking cycle.

Comment: Several commenters requested that CMS reassign CPT codes 76825 (Echocardiography, fetal, cardiovascular system, real time with image documentation (2d), with or without m-mode recording) and 76826 (Echocardiography, fetal, cardiovascular system, real time with image documentation (2d), with or without m-mode recording; follow-up or repeat study) from the proposed APC 0697 to APC 0269. The commenters believed that fetal echocardiography is just as resource intensive as adult echocardiography. Another commenter stated that the low median cost for these services is the result of low frequency for these services, and suggested that some of the charges reported may be the result of miscoding.

Response: In Addendum B of the CY 2012 OPPS/ASC proposed rule, we flagged CPT codes 76825 and 76826 with comment indicator ``CH'' to indicate that we are reassigning the APC assignments for these codes. Specifically, we proposed to reassign CPT code 76825 from APC 0270 to APC 0697, and reassign CPT code 76826 from APC 0269 to APC 0697. Because these codes have been in existence for almost 20 years, and have been reportable under the hospital OPPS since it was implemented in 2000, we believe that the low frequency of these services is the result of infrequent use of this procedure on Medicare patients. Analysis of our claims data from the past 3 years, specifically from CY 2008, CY 2009, and CY 2010, reveal that these procedures are relatively low volume procedures. CPT code 76825 has had fewer than 330 single claims for ratesetting for each year (327 single claims in CY 2008, 291 single claims in CY 2009, and 282 single claims in CY 2010), with a CPT median cost that has ranged between $89 and $126. Similarly, CPT code 76826 has had fewer than 50 single claims for ratesetting for each year (25 single claims in CY 2008, 23 single claims in CY 2009, and 43 single claims in 2010), with a CPT median cost that has ranged between $85 and $92. Based on our claims data, we believe that CPT codes 76825 and 76826 are more appropriately placed in APC 0697 based on their clinical homogeneity and resource costs to the other procedure assigned to APC 0697. Furthermore, despite the relatively low volumes, the median costs for these services are notably stable and are more consistent with the median costs of the services assigned to lowest level echocardiogram APC, specifically, APC 0697, than to the services assigned to APC 0269, which has an APC median cost of approximately $393.

After consideration of the public comments received on our proposed APC reassignment, we are finalizing our CY 2012 proposal, without modification, to reassign CPT code 76825 from APC 0270 to APC 0697, and to reassign CPT code 76826 from APC 0269 to APC 0697, which has a final CY 2012 median cost of approximately $221.

Commenter: Several commenters expressed concern that the proposed payment rate of approximately $567 for the non-contrast echocardiogram procedures that are assigned to APC 0270 is higher than the proposed payment rate of approximately $564 for the contrast echocardiograms procedures that are assigned to APC 0128. The commenters indicated that it is not appropriate for an APC with contrast enhanced echocardiogram procedures to have a lower median cost and lower payment rate than an APC with non-contrast enhanced echocardiogram procedures. The commenters requested that CMS develop a more consistent and stable payment methodology for echocardiograms that utilize contrast agents because the cost of the contrast agents is approximately $117 and requires significantly more work when compared to non-contrast echocardiogram procedures. One commenter recommended that CMS adopt three APCs for contrast-enhanced echocardiogram procedures to parallel the three APCs that exist for non-contrast enhanced echocardiogram procedures, while another commenter requested data analysis supporting the higher proposed payment rate for APC 0270. Several commenters urged CMS to pay separately for the administration and cost of the contrast agent.

Response: As stated above, we have four separate APCs to which echocardiography services are assigned. Procedures that utilize contrast agents are assigned to APC 0128, while procedures without contrast agents are assigned to one of three APCs, specifically, APC 0270, APC 0269, or APC 0697. As described above, in the CY 2012 OPPS/

ASC proposed rule, the proposed payment rates for APCs 0270, APC 0269, and APC 0697 varied between $219 and $567. Analysis of our claims data show that the median costs for two of the non-contrast echocardiogram APCs (APC 0697 and 0269) are lower than the median cost of the contrast echocardiogram APC (APC 0128). Specifically, our claims data show an APC median cost of approximately $221 for APC 0697 and approximately $393 for APC 0269, compared to the median cost of approximately $557 for APC 0128. Our claims data show a higher median cost for one of the non-contrast echocardiography APCs, specifically, APC 0270, which has a median cost of approximately $581. We agree with the commenters that, in general, contrast-based echocardiography procedures would involve more resources than non-contrast echocardiography services. However, we believe that some non-echocardiography procedures are more complex than contrast-based echocardiography procedures despite the lack of contrast use, and as a result, we expect their costs to be higher. As shown by our claims data, the costs involved with the non-contrast echocardiography procedures assigned to APC 0270 are significantly higher than the contrast-based echocardiography procedures that are assigned to APC 0128. As we do every year, we will again review our claims data for these services for the CY 2013 OPPS rulemaking cycle. We find no evidence that would suggest that the median costs calculated for these APCs based on hospital claims and cost report data incorrectly reflect the relative resource costs of providing the services in APC 0128 or APC 0697. We also do not believe that it is necessary to separate APC 0128 into three APCs as one commenter suggested, because the current composition results in no 2 times rule violation and the major procedures in the APC are similar based on resource costs, ranging from approximately $505 to approximately $732.

In addition, payment for the administration of contrast agents as well

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as the contrast agent products are included in payment for the associated imaging procedure, as discussed in section V.B.2.d. of this final rule with comment period. In limited circumstances, we pay separately for contrast agents that are approved for pass-through status under the OPPS, as discussed in section V.A. of this final rule with comment period. Payment for pass-through status is limited to a minimum of 2 years but no more than 3 years.

Furthermore, as we stated above, hospitals should report the appropriate units of the HCPCS codes for the contrast agents used in the performance of the echocardiograms procedures. It is extremely important that hospitals report all HCPCS codes, consistent with their descriptors, CPT and/or CMS instructions, and correct coding principles, for all charges for all services they furnish, whether payment for the services is made separately or is packaged. The appropriateness of the OPPS payment rates depend on the quality and completeness of the claims data that hospitals submit for the services they furnish to Medicare beneficiaries.

After consideration of the public comments we received, we are finalizing, without modification, our CY 2012 proposal to continue to calculate our median costs for the non-contrast echocardiography procedures based on APCs 0697, 0269, and 0270, and to calculate our median costs for the contrast-echocardiography procedures based on APC 0128. We believe that continuing this methodology in CY 2012 results in payment rates for the contrast echocardiography and non-contrast echocardiography procedures that appropriately reflect the costs for these services. For a more detailed discussion and history of the OPPS payment for echocardiography services, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66644 through 66646), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68542 through 68544), and the CY 2010 OPPS/ASC final rule with comment period (74 FR 60374 through 60383). Table 22 below shows the procedures and final median costs assigned to the four echocardiography APCs.

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GRAPHIC TIFF OMITTED TR30NO11.035

2. Gastrointestinal Services

a. Upper Gastrointestinal (GI) Services (APCs 0141, 0419, and 0422)

For CY 2012 we proposed to create new APC 0419 (Level II Upper GI Procedures), an intermediate APC between APC 0141 (Level I Upper GI Procedures) and APC 0422 (Level II Upper GI Procedures, which we proposed to rename ``Level III Upper GI Procedures''). For APC 0141, we calculated a proposed rule median cost for CY 2012 of approximately $603. For proposed new APC 0419, we calculated a proposed rule median cost of approximately $904. For APC 0422, we calculated a proposed rule median cost of approximately $1,833.

For CY 2011, there are two upper gastrointestinal (GI) procedure APCs, APC 0141, which has a CY 2011 national unadjusted payment rate of $611.73, and APC 0422, which has a CY 2011 national unadjusted payment rate of $1,148.75. In the CY 2011 OPPS/ASC proposed rule, we proposed to reconfigure APCs 0141 and APC 0422 by moving several CPT codes from APC 0141 to APC 0422. We had received public comments on the CY 2011 proposed rule objecting to our CY 2011 proposal on the basis that the reconfiguration would reduce the median cost and, therefore, the payment for services to which APC 0422 was assigned and would not maintain the clinical homogeneity of these services. Instead commenters, including the applicable medical specialty societies, asked that we reconfigure APCs 0141 and 0422 to create three APCs by adding a new APC for upper GI procedures. They also recommended a HCPCS configuration that they believed would provide payment rates that would more accurately reflect the median costs of the services in APCs 0141 and 0422. We

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finalized our proposed changes to APCs 0141 and 0422 for CY 2011 without establishing a third APC for upper GI procedures for the reasons discussed in the CY 2011 OPPS/ASC final rule with public comment period (75 FR 71907).

However, when we developed the median costs for APCs 0141 and 0422 using CY 2010 claims data for discussion at the APC Panel meeting of February 28-March 1, 2011, we observed that there was a 2 times rule violation for APC 0141 that had not existed for the CY 2010 OPPS. For the APC Panel meeting, we simulated the HCPCS codes and APC median costs that would result from the reconfiguration that was recommended by the stakeholders in their comments on the CY 2011 OPPS/ASC final rule with comment period, and we discussed the results with the APC Panel. The APC Panel recommended that CMS create an intermediate level upper GI procedures APC (APC Panel Recommendation 13). The APC Panel recommendations and report may be found at the APC Panel Web site, located at: http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp.

For the reasons we discuss below, as stated in the proposed rule, we accepted the APC Panel recommendation to propose to establish three levels of upper GI procedure APCs and to propose to adopt the reconfiguration recommended by stakeholders because we believe that the proposed reconfiguration will provide payments that are more closely aligned with the median costs of the services. We stated that creating an intermediate APC for upper GI procedures would provide APC median costs that are more closely aligned with the median costs for the many CPT codes for upper GI procedures, and therefore, the APC median costs better reflect the resources required to provide these services as defined by the CPT codes for them. Moreover, we believed that the proposed reconfiguration would resolve the 2 times rule violation that would result in APC 0141 if we were to apply the CY 2011 APC configuration to the CY 2012 proposed rule data. Therefore, we stated in the proposed rule that we believed that we would need to propose to reassign HCPCS codes, regardless of whether we created the intermediate APC for CY 2012. We stated that we believed that the proposed reconfiguration to create the intermediate APC would be the most appropriate means of avoiding a 2 times rule violation that would otherwise exist for CY 2012 and that the resulting median costs would provide payments that are more reflective of the relative costs of the services being furnished.

Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42238), for CY 2012, we proposed to create new APC 0419 (Level II Upper GI Procedures), as recommended by the stakeholders, and we proposed to reassign HCPCS codes previously assigned to APCs 0141 and 0422 to the three APC configuration. Table 23 of the proposed rule contained the proposed HCPCS code reassignments for CY 2012 using the proposed three APC reconfiguration. We believe that this proposed reconfiguration classifies upper GI CPT codes in groups that demonstrate the best clinical and resource homogeneity. For APC 0141, we calculated a proposed rule median cost for CY 2012 of approximately $603. For proposed new APC 0419, we calculated a proposed rule median cost of approximately $904. For APC 0422, we calculated a proposed rule median cost of approximately $1,833.

At its August 10-11, 2011 APC Panel meeting, the APC Panel recommended that CMS adopt the proposed APC reconfiguration for upper gastrointestinal (GI) procedures and the creation of a new APC 0419 (Level II Upper GI Procedures). The Panel further recommended that HCPCS code 43227 (Esophagoscopy, rigid or flexible; with control of bleeding (e.g., injection, bipolar cautery, unipolar cautery, laser, heater probe, stapler, plasma coagulator)) and HCPCS code 43830 (Gastrostomy, open; without construction of gastric tube (e.g., Stamm procedure) (separate procedure)) be reassigned to APC 0422 (proposed to be renames ``Level III Upper GI Procedures'').

Response to APC Panel Recommendation: We do not agree with the APC Panel recommendation to move CPT code 43227 to APC 0422 because CPT code 43227 is a very low volume service with a total frequency of 45 in CY 2010, for which the median cost has varied considerably over the past few years ($1,010 in CY 2011; $725 in CY 2010). We will reassess the placement of CPT code 43227 for CY 2013. However, we agree with the APC Panel's recommendation to move CPT code 43830 to APC 0422 because the median cost for CPT code 43830 of approximately $1,630 is more similar to the median cost for APC 0422 of approximately $1,819 and is less similar to the median cost for APC 0319 of approximately $887. Therefore, we are assigning CPT code 43830 to APC 0422 for the CY 2012 OPPS.

Comment: Many commenters supported the creation of new APC 0419. Commenters indicated that creation of the new intermediate APC would result in APCs for upper GI procedures that are more cohesive with regard to the resources used to provide the services and would provide for more equitable payment for these services. In particular, commenters were pleased to with the proposed reassignment of CPT code 43228 to APC 0422 because they believed that the assignment would enable facilities to cover the cost of the device and provide patients with greater access to the service. One commenter objected to the reconfiguration of these APCs on the basis that some of the services in each APC have median costs that are higher than the median cost for the APC and, therefore, would be paid less than their median cost.

Response: We continue to believe that it is appropriate to create a third level of upper GI procedures and that it is appropriate to assign CPT code 43228 to APC 0422 for the reasons discussed in the proposed rule as summarized at the beginning of this section. Therefore, we are adopting our proposal to create new APC 0419 for CY 2012, and we have assigned CPT code 43228 to APC 0422 for CY 2012. We disagree with the commenter who objected to the reconfiguration of the upper GI procedure APCs on the basis that the medians for some HCPCS codes in each APC were higher than the median cost for the APC. The median cost by definition is the 50th percentile of the array of the costs of single bills. Therefore, the median costs for some HCPCS codes will always fall below the median cost for the APC. A fundamental principle of a prospective payment system like the OPPS is that prospective payment is set at a measure of central tendency that, on average, pays an amount that is appropriately reflective of the relative cost of the services in the group to which the payment rate applies.

Comment: Several commenters objected to the proposed assignment of CPT code 43257 (Upper gastrointestinal endoscopy including esophagus, stomach, and either the duodenum and/or jejunum as appropriate; with delivery of thermal energy to the muscle of lower esophageal sphincter and/or gastric cardia, for treatment of gastroesophageal reflux disease) and CPT code C9724 (Endoscopic full thickness placation in the gastric cardia using endoscopic placation system (EPS); includes endoscopy) to APC 0422 and asked that CMS create an APC for transoral surgical endoscopy to which these codes would be assigned. The commenters believe that CPT codes 43257 and C9724 are clinically different

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from most other services in APC 0422 because these services provide surgical therapy and that the resources required to furnish them are much greater than the resources required to furnish the other services in APC 0422. Commenters requested the creation of the new level IV upper GI procedure APC that they believed would result in appropriate payment for these procedures and would also improve the accuracy of the payment for the procedures that will remain in APC 0422. Commenters stated that current claims data for CPT code 43257 underestimates the cost of the service because hospitals are using the code incorrectly. They also stated that the CY 2010 claims data for CPT code 43257 reports the cost of a generation 1 Stretta catheter that was sold at a cost of $1,225, although since 2010 hospitals have been using a generation 2 catheter which has an average sales price of $2,450. Therefore, the commenters asserted that the use of CY 2010 claims data will not fully reflect the cost of the devices that will be used in CY 2012. Commenters suggested that CMS designate the new level IV APC that they requested as device dependent, establish procedure-to-device edits, and use only the claims that meet the device edits in setting the rates for the applicable APCs.

Response: We disagree that it is necessary to create a fourth level upper GI APC to which to assign HCPCS codes 43257 and C9724. We believe that CPT codes 43257 and C9724 are clinically similar to the other services assigned to APC 0422 such as CPT codes 43228 (Esophagoscopy, rigid or flexible; with ablation of tumor(s), polyp(s), or other lesion(s), not amenable to removal by hot biopsy forceps, bipolar cautery or snare technique), and 43870 (Closure of gastrostomy, surgical), which are both therapeutic upper GI procedures. Moreover, the final median cost for CPT code 43257 of approximately $1,535 falls below the final median cost for APC 0422 of approximately $1,819. As we discuss in section II.A. of this final rule with public comment, we calculate the median costs of services based on the most recent charges and cost reports that are available to us at the time we are preparing the proposed and final rules. To the extent that the costs for the catheter used to furnish CPT code 43257 increased after CY 2010, those costs will be used to establish payment rates for the years in which the claims are used. With regard to HCPCS code C9724, we note that it is a low volume service for which the median cost has varied widely over the past few years (for example, $1,370 for CY 2009 OPPS; $2,947 for CY 2010 OPPS; and $5,139 for CY 2011 OPPS), and we believe that its median cost of approximately $5,944 and low volume make it unsuited for establishment of a single service APC for CY 2012 OPPS. We note that placement of HCPCS code C9724 in APC 0422 is not a violation of the 2 times rule because HCPCs code C9724 is not a significant procedure to which the 2 times rule applies because it has a single bill frequency of less than 1,000 and also has a single bill frequency that is less than 99 and the single bills represent less than 2 percent of the single bills used to calculate the median cost for APC 0422. We refer readers to section III.B. of this final rule with comment period for additional information regarding the 2 times rule.

After consideration of the comments we received, we are finalizing our proposals to create new APC 0419 (Level II Upper GI Procedures), to rename APC 0422 as ``Level III Upper GI Procedures'', and to reassign the HCPCS codes for upper GI procedures to the three APC configuration (APCs 0141, 0419 and 0422) for CY 2012 OPPS, as shown in Table 23 below. We are not creating a level IV upper GI procedure APC into which to place HCPCS codes 43257 and C9724 because we believe that HCPCS codes 43257 and C9724 are appropriately assigned to APC 0422 for CY 2012. We are not accepting the APC Panel's recommendation that we reassign CPT code 43227 to APC 0422 because it is a very low volume service for which the median cost has not been stable over the past few years. We are accepting the APC Panel's recommendation that we reassign CPT code 43830 to APC 0422, and we have done so for the CY 2012 OPPS.

BILLING CODE 4120-01-P

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b. Gastrointestinal Transit and Pressure Measurement (APC 0361)

The AMA CPT Editorial Panel created CPT code 0242T (Gastrointestinal tract transit and pressure measurement, stomach through colon, wireless capsule, with interpretation and report) effective January 1, 2011. For CY 2011, we assigned CPT code 0242T to APC 0361 (Level II Alimentary Tests) with a payment rate of $282.48. For CY 2012, we proposed to maintain the assignment of CPT code 0242T to APC 0361 with a proposed rule median cost of approximately $295, and a proposed payment of $284.80. (The CY 2012 OPPS/ASC final rule median cost for APC 0361 is approximately $286.)

Comment: Several commenters on the CY 2011 final rule with comment period regarding the APC assignment of CPT code 0242T, requested reassignment of CPT code 0242T from APC 0361 to New Technology APC 1510 (New Technology APC--Level X), which has a payment rate of $850. The commenters claimed that CPT code 0242T is not similar to the other procedures assigned to APC 0361 either in terms of clinical similarity or resource costs; therefore, it should be assigned to a New Technology APC because there currently are insufficient utilization and claims data for the service. The commenters believed that CPT code 0242T is significantly different than the other procedures in APC 0361, which

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are predominantly indicated to assess the esophagus, while CPT code 0242T is purportedly a unique test that provides transit, pressure, pH, and temperature measurement of the GI tract from the stomach to the colon. The commenters also stated that the resources, including clinical labor, for the procedures in APC 0361 differ from those of CPT code 0242T. The commenters claimed that the manometric tests assigned to APC 0361 measure neuromuscular activity in an anatomically specific, fixed manner, utilizing a reusable catheter, while CPT code 0242T utilizes a disposable capsule and a special meal to capture multiple pressure and transit measurements throughout the GI tract and cost $600 per procedure. Adding other procedure costs to the disposable costs yields total procedure costs in excess of $800, according to the commenters. The commenters point to the past assignment of CPT code 91110 (Gastrointestinal tract imaging, intraluminal (eg, capsule endoscopy), esophagus through ileum, with physician interpretation and report) to a New Technology APC until sufficient claims data were gathered for assignment to a clinical APC, and they request a similar approach to APC assignment for CPT code 0242T.

Response: We disagree that assignment to a clinical APC necessarily implies that there are clinical and cost data for a new service. We routinely make assignments of new CPT codes to clinical APCs before we have claims data that are indicative of their source costs of a procedure. We make these assignments initially using the best currently available information, while reviewing claims data once such data become available and making reassignments accordingly based on those data. We expect to do the same regarding CPT code 0242T.

As was the case when we made the initial assignment for CY 2011, we continue to believe that there are relevant clinical similarities between the CPT code 0242T service and other services in APC 0361 to continue to justify this APC assignment. CPT code 0242T and the services in APC 0361 all involve tests of the alimentary canal. Regarding resource costs, the final rule median cost of APC 0361 is approximately $288, with a median cost range of procedures in the APC from approximately $235 to approximately $680. We do not believe a New Technology APC is warranted for this procedure at this time. We believe that the clinical attributes and CY 2012 median costs of the services found in APC 0361 support the assignment of CPT code 0242T to APC 0361 as an initial assignment. We generally wait until median cost claims data are available before reassignment to a new APC. For CY 2012, we will maintain our assignment of CPT code 0242T to APC 0361, which has a final median cost of approximately $286. We will review this assignment for CY 2013 when some claims data should be available for this procedure.

3. Genitourinary Services

a. Laser Lithotripsy (APC 0163)

For CY 2012, we proposed to continue to assign CPT codes 52353 (Cystourethroscopy, with ureteroscopy and/or pyeloscopy; with lithotripsy (ureteral catheterization is included)) and 50590 ((Fragmenting of kidney stone) to their existing CY 2011 APCs. That is, we proposed to continue to assign CPT code 52353 to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures), which had a proposed payment rate of approximately $2,566, and to continue to assign CPT code 50590 to APC 0169 (Lithotripsy), which had a proposed payment rate of approximately $3,568. CPT code 50590 was made effective January 1, 1986, and describes an extracorporeal shock wave lithotripsy. CPT code 52353 was made effective January 1, 2001, and describes a cystourethroscopy with lithotripsy. Our understanding is that the lithotripsy described in CPT code 52353 is laser lithotripsy.

At the August 2011 APC Panel Meeting, a presenter requested the Panel to recommend to CMS to reassign CPT code 52353 from APC 0163 to the same APC as CPT code 50590, which is APC 0169. The presenter stated that the proposed payment rate for APC 0169 for CY 2012 shows an increase of approximately 23 percent in the OPPS and approximately 25 percent in the ASCs, while the proposed payment rate for APC 0163 shows a 0.3 percent decrease in the OPPS and a 1.3 percent decrease in the ASCs, thereby creating a significant financial advantage for shock wave lithotripsy over ureteroscopy with lithotripsy. The presenter further suggested that placing CPT code 52353 in APC 0169 would be clinically appropriate because both procedures describe lithotripsy of stones in the ureter and kidney, and also because their historical median costs have tracked closely over time. After discussion of the of the median costs observed for both CPT codes 52353 and 50590, the APC Panel made no recommendation on the CY 2012 APC assignment for CPT code 52353.

Comment: Some commenters recommended the reassignment CPT code 52353 to the same APC as CPT code 50590, which is APC 0169. One commenter argued that the reassignment of CPT code 52353 to APC 0169 would avoid potential incentives to use shock wave lithotripsy over ureteroscopy with lithotripsy. This commenter further stated that these two similar and competing procedures should be placed in the same APC so that their OPPS and ASC payment rates will increase, or decrease, consistently in the future.

Response: CPT code 50590 has been assigned to APC 0169 since the OPPS was implemented in 2000. CPT code 52353 was initially assigned to APC 0162 (Level III Cystourethroscopy Procedures) when the CPT code was made effective in 2001. However, in CY 2002, we revised the APC assignment for CPT code 52353 to APC 0163 (Level IV Cystourethroscopy Procedures) based on input from our clinical advisors that the procedure is similar to the other procedures in APC 0163 based on clinical homogeneity and resource costs. Since CY 2002, CPT code 52353 has been assigned to APC 0163.

In addition, we disagree with the commenter that placing these two procedures in two separate APCs creates an incentive to use one procedure over another. We believe that physicians would choose the most appropriate procedure based on a patient's diagnosis and other relevant clinical factors. Further, based on our claims data, we do not believe that placing both procedures in the same APC would be appropriate. Our analysis of the final CY 2012 claims data reveal that shock wave lithotripsy (CPT code 50590) is more commonly performed on Medicare patients than ureteroscopy with lithotripsy (CPT code 52353). Specifically, our data show a CPT median cost of approximately $2,711, based on 3,366 single claims, for CPT code 52353. CPT code 52353 represents 22 percent of the claims within APC 0163, and its CPT median cost of approximately $2,711 is relatively close to the CY 2012 final APC median cost of approximately $2,596 for APC 0163.

In contrast, the CY 2012 final median cost for CPT code 50590, which is in APC 0169, is approximately $3,647, based on 30,178 single claims. This final median cost of approximately $3,647 for CPT code 50590 is higher than the final median cost of approximately $2,711 for CPT code 52353.

Comment: One commenter suggested that the increase in the median cost for CPT code 50590 may be a result of the application of a CCR calculated from costs and charges reported in the nonstandard cost center data for lithotripsy.

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Response: The nonstandard lithotripsy cost center 07699 is a feature of the hospital cost report CMS 2552-10. No CMS 2552-10 cost reports were used in determining the payment rates for the CY 2012 OPPS. The CCRs in the CY 2012 OPPS are created from the hospital cost report CMS 2552-96, and there is no standard or nonstandard lithotripsy cost center in the CMS 2552-96 cost report.

Given our claims data for the CY 2012 update for these lithotripsy procedures, we believe that CPT code 52353 is appropriately placed in APC 0163 based on its clinical homogeneity and resource cost compared to other procedures already assigned in APC 0163. As has been our practice since the implementation of the OPPS in 2000, we review, on an annual basis, the APC assignments for the procedures and services paid under the OPPS. We will continue to review on an annual basis the APC assignment for CPT code 52353 and determine whether a reassignment in the APC is necessary.

Therefore, after consideration of the public comments we received, we are finalizing our CY 2012 proposal, without modification, to continue to assign CPT code 52353 to APC 0163, which has a final CY 2012 median cost of approximately $2,596, and to continue to assign CPT code 50590 to APC 0169, which has a final CY 2012 median cost of approximately $3,647.

b. Percutaneous Renal Cryoablation (APC 0423)

For CY 2012, we proposed to continue to assign CPT code 50593 (Ablation, renal tumor(s), unilateral, percutaneous, cryotherapy) to APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures), with a proposed payment rate of approximately $3,969. This CPT code was new in CY 2008; however, the same service was previously described by CPT code 0135T (Ablation renal tumor(s), unilateral, percutaneous, cryotherapy). We note that in CY 2007, based upon the APC Panel's recommendation made at the March 2006 APC Panel meeting, we reassigned CPT code 50593 (then CPT code 0135T) from APC 0163 ((Level IV Cystourethroscopy and other Genitourinary Procedures)) to APC 0423. We expect hospitals, when reporting CPT code 50593, to also report the device HCPCS code, C2618 (Probe, cryoablation), associated with the procedure.

Comment: One commenter disagreed with the proposed continued assignment for CPT code 50593 to APC 0423 because, the commenter stated, this APC includes other procedures that do not require the use of high-cost devices, such as cryoablation probes. The commenter reported that the payment rate of approximately $3,969 for the procedure does not accurately reflect the costs incurred by hospitals that perform this procedure, and, as a result, hospitals are reluctant to perform this procedure. The commenter suggested that CMS determine the payment rate for CPT code 50593 based on its mean cost, rather than on median cost. The commenter stated that the proposed mean cost for APC 0423 is approximately $4,835, and approximately $5,394 for CPT code 50593. Further, the commenter recommended that CMS designate CPT code 50593 as a device-dependent procedure and require hospitals to submit claims with the appropriate HCPCS code, C2618, so that charges can be reported appropriately. The commenter stated that CPT code 50593 cannot be performed without the device, and adding CPT code 50593 to the device-dependent procedure list would result in more accurate claims data for future ratesetting.

Response: First, we believe that CPT code 50593 is appropriately placed in APC 0423 based on clinical and resource costs when compared to other procedures also assigned to APC 0423. As we stated in the CY 2007 OPPS final rule with comment period (71 FR 68049 through 68050), the CY 2008 OPPS/ASC final rule with comment period (72 FR 66709), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68611), the CY 2010 OPPS/ASC final rule with comment period (74 FR 60444), and the CY 2011 OPPS/ASC final rule with comment period (75 FR 71910), we revised the APC assignment for the percutaneous renal cryoablation procedure from APC 0163 to APC 0423 in CY 2007 based on the APC Panel's recommendation to reassign the procedure to APC 0423.

For CY 2012, we proposed to assign four CPT codes to APC 0423. These procedures share similar median costs ranging from approximately $3,733 to approximately $4,493, which are well within the two-fold variation in median cost that is permitted by the law for an OPPS payment group. Therefore, the grouping of these procedures in the same APC does not violate the 2 times rule. We note that all four of these procedures are relatively low volume, with fewer than 1,800 total claims each for CY 2010 and fewer than 700 single claims each for ratesetting. We believe that grouping these clinically similar, low-

volume procedures for the percutaneous ablation of renal, liver, or pulmonary tumors in the same payment group helps to promote payment stability for these low volume services.

Secondly, as we stated in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68611), the final APC relative weights and payment rates are based on median hospital costs, not mean costs, for APC groups. The OPPS relies on the relativity of costs for procedures as reported by hospitals in establishing payment rates, and we do not believe it would be appropriate to utilize a different payment methodology based on mean cost for one APC, while the payment rates for the other clinical APCs would be based on median costs. Mean and median costs are two different statistical measures of central tendency and, based on common distributions, mean costs typically are higher than median costs. Therefore, we do not believe it would be appropriate to use a combination of these measures to establish the payment weights for different APCs under the OPPS.

Further, as we stated in the CY 2007 OPPS final rule with comment period (71 FR 68049 through 68050), the CY 2008 OPPS/ASC final rule with comment period (72 FR 66709), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68611), the CY 2010 OPPS/ASC final rule with comment period (74 FR 60444), and the CY 2011 OPPS/ASC final rule with comment period (75 FR 71910), we designate a procedure as device-

dependent service based on consideration of all the procedures in a single APC. While all of the procedures assigned to APC 0423 require the use of implantable devices, for many of the procedures, there are no Level II HCPCS codes that describe all of the technologies that may be used in the procedures. Therefore, it would not be possible for us to develop procedure-to-device edits for all of the CPT codes assigned to APC 0423.

Finally, we remind hospitals that we expect all of the HCPCS codes to be reported that appropriately describe the items used to provide services, regardless of whether the HCPCS codes are packaged or paid separately. When reporting CPT code 50593, we expect hospitals to also report the device HCPCS code C2618, which is associated with this procedure. If hospitals use more than one probe in performing the CPT code 50593 procedure, we expect hospitals to report this information on the claim and adjust their charges accordingly. Hospitals should report the number of cryoablation probes used to perform the CPT code 50593 procedure as the units of HCPCS code C2618, which describes these devices, with their charges for the probes. Since CY

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2005, we have required hospitals to report device HCPCS codes for all devices used in procedures if there are appropriate HCPCS codes available. In this way, we can be confident that hospitals have included charges on their claims for devices used in procedures when they submit claims for those procedures.

After consideration of the public comment we received, we are finalizing our CY 2012 proposal, without modification, to continue to assign CPT code 50593 to APC 0423, which has a final CY 2012 APC median cost of approximately $4,096.

4. Nervous System Services

a. Revision/Removal of Neurostimulator Electrodes (APCs 0040 and 0687)

As discussed in detail in the CY 2012 OPPS/ASC proposed rule (76 FR 42233 through 42234), for CY 2012, we proposed to move CPT codes 63663 (Revision, including replacement, when performed, of spinal neurostimulator electrode percutaneous array(s), including fluoroscopy, when performed) and 63664 (Revision, including replacement, when performed, of spinal neurostimulator electrode plate/paddle(s) placed via laminotomy or laminectomy, including fluoroscopy, when performed) from APC 0687 (Revision/Removal of Neurostimulator Electrodes) to APC 0040 (Level I Implantation/Revision/Replacement of Neurostimulator Electrodes). We noted that the proposed CY 2012 median costs for CPT codes 63663 and 63664 of approximately $4,316 and $4,883, respectively, are more consistent with the proposed median cost of APC 0040 of approximately $4,516 than with the proposed median cost of APC 0687 of approximately $1,492. We also proposed to change the title of APC 0040 from ``Percutaneous Implantation of Neurostimulator Electrodes'' to ``Level I Implantation/Revision/Replacement of Neurostimulator Electrodes'' and the title of APC 0061 (Level II Implantation/Revision/

Replacement of Neurostimulator Electrodes) from ``Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes'' to ``Level II Implantation/Revision/Replacement of Neurostimulator Electrodes.'' CPT codes 63661 (Removal of spinal neurostimulator electrode percutaneous array(s), including fluoroscopy, when performed), 63662 (Removal of spinal neurostimulator electrode plate/paddle(s) placed via laminotomy or laminectomy, including fluoroscopy, when performed), 63663, and 63664 were all effective January 1, 2010. We proposed that CPT codes 63661 and 63662 would remain in APC 0687.

In addition, for CY 2012, we proposed to assign CPT 64569 (Revision or replacement of cranial nerve (eg, vagus nerve) neurostimulator electrode array, including connection to existing pulse generator), effective January 1, 2011, to APC 0687.

Comment: Several commenters supported the proposed reassignment of CPT codes 63663 and 63664 from APC 0687 to APC 0040. The commenters believed that the proposed reassignment places these CPT codes in an APC that is consistent with their median costs. The commenters also supported the retention of CPT code 63661 and 63662 in APC 0687 because their proposed CY 2012 median costs are consistent with the overall proposed APC 0687 median costs. In addition, the commenters agreed with the proposed title changes for APC 0040 and APC 0061. One commenter agreed with the proposed reassignment of CPT codes 63663 and 63664 to APC 0040 but recommended the creation of two new HCPCS codes to allow hospitals to differentiate between revision and replacement procedures and to foster analysis of the cost differences between revision and replacement procedures for purposes of future APC assignments. The commenter also sought device-to-procedure and procedure-to-device edits to ensure device costs are completely captured.

Response: We appreciate the commenters' support for the reassignment of CPT codes 63663 and 63664 from APC 0687 to APC 0040, the continued assignment of CPT codes 63661 and 63664 to APC 0687, and the title changes to APC 0040 and APC 0061. We agree with the commenters that the proposed changes would ensure that all four codes are in APCs that are consistent with their median costs. Therefore, we are finalizing our proposals to reassign CPT codes 63663 and 63664 to APC 0040, to continue to assign CPT codes 63661 and 63662 to APC 0687, and to change the titles of APC 0040 to ``Level I Implantation/

Revision/Replacement of Neurostimulator Electrodes'' and APC 0061 to ``Level II Implantation/Revision/Replacement of Neurostimulator Electrodes.''

We do not agree that it is necessary to create new HCPCS codes in order to differentiate between neurostimulator electrode replacement and revision procedures. As we discussed in the CY 2012 OPPS/ASC proposed rule (76 FR 42234), we examined the CY 2010 claims data available for the proposed rule to compare the frequency of claims containing CPT codes 63663 or 63664 that were billed with and without HCPCS code C1778 (Lead, neurostimulator (implantable)) or HCPCS code C1897 (Lead, neurostimulator test kit (implantable)) in order to determine whether they describe mainly device revision or replacement procedures. Because the majority of claims did not contain HCPCS code C 1778 or C1897, these findings suggested that these CPT codes are being used by hospitals to describe mainly device revision procedures, although there were a significant number of cases with device replacement procedures in the claims data. We also note that we implemented claims processing logic to allow CPT codes 63663 and 63664 to satisfy the device-to-procedure edits for HCPCS codes C1778 and C1897, effective January 1, 2012. We cannot implement procedure-to-

device edits for CPT codes 63663 and 63664 because they do not always involve the implantation of a device.

Comment: One commenter objected to the proposed assignment of CPT code 64569 to APC 0687. The commenter stated that CPT code 64569 is clinically similar to CPT codes 63663 and 63664, the only difference being CPT code 64569 is an incision-based procedure, while CPT codes 63663 and 63664 are percutaneous. The commenter also argued that assigning CPT code 64569 to APC 0687 would result in significant financial losses for hospitals and presented simulated data using claims for CPT code 63663 and 63664 to estimate a median cost for CPT code 64569 ranging between approximately $5,551 and $7,790.

Response: We are assigning CPT code 64569 to APC 0687, as we proposed, with a CY 2012 final rule median cost of approximately $1,451. We do not agree that CPT code 64569 is inappropriately assigned to APC 0687. Our clinical analysis indicates that CPT code 64569 is similar to the other device revision and replacement procedures in APC 0687. Furthermore, since CPT code 64569 was effective January 1, 2011, we do not have frequency and cost information upon which to make an assessment of whether there is a meaningful difference between the cost of revising the VNS electrodes and generator or replacing them. We do not agree with the commenter that it is possible to derive meaningful estimates of the costs of providing the service described by CPT code 64569 by using data for CPT codes 63663 and 63664 because these codes involve different types of devices. Therefore, we are not

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convinced by the commenter that the assignment of the CPT code 64569 to APC 0687 is inappropriate. As we did with the CPT codes 63661 through 63664, we will continue to monitor and analyze the data for CPT code 64569 when it becomes available.

After consideration of the public comments we received, we are finalizing our proposal, without modification, to assign CPT codes 63663 and 63664 to APC 0040 and to assign CPT codes 63661, 63662, and 64569 to APC 0687. We also are finalizing our proposal to change the title of APC 0040 from ``Percutaneous Implantation of Neurostimulator Electrodes'' to ``Level I Implantation/Revision/Replacement of Neurostimulator Electrodes'' and the title of APC 0061 from ``Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes'' to ``Level II Implantation/Revision/

Replacement of Neurostimulator Electrodes.''

b. Magnetoencephalography (MEG) (APCs 0065, 0066, and 0067)

There are three CPT codes associated with MEG: 95965 (Magnetoencephalography (meg), recording and analysis; for spontaneous brain magnetic activity (eg, epileptic cerebral cortex localization)); 95966 (Magnetoencephalography (meg), recording and analysis; for evoked magnetic fields, single modality (eg, sensory, motor, language, or visual cortex localization)); and 95967 (Magnetoencephalography (meg), recording and analysis; for evoked magnetic fields, each additional modality (eg, sensory, motor, language, or visual cortex localization)). For CY 2012 we calculated a proposed rule median cost of approximately $1,821 for CPT code 95965 based on a frequency of 48 single bills out of a total frequency of 50 bills. We proposed to continue to assign CPT code 95965 to APC 0067 (Level III Stereotactic Radiosurgery, MRgFUS, and MEG), which had a proposed rule median cost of approximately $3,368.

At its August 10-11, 2011 meeting, the APC Panel made two recommendations with regard to CPT code 95965. First, the APC Panel recommended that CMS implement appropriate edits requiring hospitals to use the new MEG revenue code, 086X, with CPT codes 95965, 95966, and 95967. We address this recommendation in the context of a comment from the public to which we respond below. Second, the APC Panel recommended that CMS move CPT code 95965 from APC 0067 to APC 0066 (Level II Stereotactic Radiosurgery, MRgFUS, and MEG), for consistency. We agree with this recommendation and have reassigned CPT code 95965 to APC 0066 because the median cost in the data available for this final rule with comment period for CPT code 95965 of approximately $1,741 is similar to the median cost of APC 0066 of approximately $2,521. In contrast, the median cost of APC 0067 of approximately $3,374 is substantially above the median cost for CPT code 95965. We note that the procedure described by CPT code 95965 is a low-volume service for which we have a single bill frequency of 70, compared to a total bill frequency of 75, in our CY 2012 OPPS final rule data. Although it is a low-volume service, single bills represent 93 percent of total frequency for CPT code 95965.

Comment: Commenters stated that the costs of MEG are far higher than the costs of electroencephalograms (EEG) and electrocardiograms (ECG) and that therefore CMS should not use the CCRs from the cost centers for these services to reduce the charges for MEG to costs. Instead, according to commenters, CMS should create a new cost center on the Medicare hospital cost report to isolate the costs of MEG and calculate and apply a CCR from the dedicated MEG cost center to the charges for MEG to secure a more accurate estimated cost for MEG.

Response: We refer readers to section II.A.1.c. of this final rule with comment period for a summary of public comments and responses related to the use of the CCRs for cost centers 3280 (EKG and EEG) as primary and 5400 (Electroencephalography) as secondary, to reduce the charges for MEG to estimated relative costs.

Comment: Commenters urged CMS to require that hospitals use revenue codes that are specific to MEG. One hospital that furnished comments indicated that its MEG services are furnished through the radiology department, but that the department through which MEG services are furnished varies across hospitals. (As indicated previously, the APC Panel recommended that CMS implement appropriate edits requiring hospitals to use the MEG specific revenue codes, 086X, with CPT codes 95965, 95966, and 95967.)

Response: As we indicate in the Section 20.5, Chapter 4, of the Medicare Claims Processing Manual, generally, CMS does not instruct hospitals on the assignment of HCPCS codes to revenue codes for services provided under OPPS because hospitals' assignment of cost vary (available on the CMS Web site at: http://www.cms.gov/Manuals; select Internet Only Manuals). Where explicit instructions are not provided, hospitals should report their charges under the revenue code that will result in the charges being assigned to the same cost center to which the cost of those services are assigned in the cost report. We do not believe that establishing edits to require hospitals to report the charges for MEG under the dedicated MEG revenue code series is necessary or appropriate. Medicare pays for a low volume of MEG services for which there are no special requirements that would justify creation of edits that force hospitals to report particular revenue codes for particular CPT codes. Specifically, in the CY 2012 final rule claims data, a small number of hospitals reported one of the three CPT codes for MEG. We believe that it is not reasonable to implement national CPT-to-revenue code edits to enforce the use of MEG-specific revenue codes when a small number of hospitals reported only 144 lines of MEG total for the 3 MEG codes in CY 2010. Specifically, in the final rule single bills on which we are basing the CY 2012 median costs, 4 hospitals reported 31 lines of CPT code 95967; 6 hospitals reported 384 lines of CPT code 95966; and 10 hospitals reported 75 lines of CPT code 95965. The MEG codes were first paid under the OPPS as new technology services in CY 2006 and the total frequency of services and the number of hospitals that furnish the service have always been very low.

For CY 2012, as stated previously, we are accepting the APC Panel's recommendation to reassign CPT code 95965 to APC 0066 because the CY 2012 final rule median cost of CPT code 95965 of approximately $1,741 is more similar to the final median cost of APC 0066 of approximately $2,521 than to the median cost of APC 0067, which is approximately $3,374. We are not accepting the APC Panel's recommendation to implement edits requiring that hospitals that furnish MEG must report the charges for the service using the MEG specific revenue code series 086X for the reasons stated above. For a response to the commenters' requests for a dedicated cost center on the Medicare cost report, we refer readers to section II.A.c. of this final rule with comment period.

c. Transcranial Magnetic Stimulation Therapy (TMS) (APC 0218)

For CY 2011, the CPT Editorial Panel deleted CPT code 0160T (Therapeutic repetitive transcranial magnetic stimulation treatment planning) on December 31, 2010, and replaced it with CPT codes 90867 (Therapeutic repetitive transcranial magnetic

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stimulation treatment; planning) effective January 1, 2011. Similarly, CPT code 0161T (Therapeutic repetitive transcranial magnetic stimulation treatment delivery and management, per session) was deleted on December 31, 2010, and was replaced with CPT code 90868 (Therapeutic repetitive transcranial magnetic stimulation treatment; delivery and management, per session) effective January 1, 2011.

In Addendum B to the CY 2011 OPPS/ASC final rule with comment period, CPT codes 90867 and 90868 were assigned to APC 0216 (Level III Nerve and Muscle Tests) with a payment rate of approximately $186 and were flagged with comment indicator ``NI'' to indicate that these codes were new codes for CY 2011 with an interim APC assignment subject to public comment. We stated that we would address any public comments on issues regarding these new codes in this CY 2012 OPPS/ASC final rule with comment period.

In addition, in the CY 2012 OPPS/ASC proposed rule, we proposed to continue to assign CPT codes 90867 and 90868 to APC 0216 for CY 2012.

Comment: One commenter on the CY 2011 OPPS/ASC final rule with comment period agreed with the APC assignment for CPT code 90867 and indicated that APC 0216 is appropriate, based on the resources required to perform TMS planning and its similarity to other procedures with similar resource costs in this APC. However, this same commenter disagreed with the placement of CPT code 90868 in APC 0216. The commenter stated there are no clinically similar procedures in APC 0216 whose resources are comparable to that of TMS treatment delivery, and recommended the reassignment of CPT code 90868 from APC 0216 to APC 0320 (Electroconvulsive Therapy), which has a payment rate of approximately $414 for CY 2011. The commenter asserted that the hospital outpatient claims data for TMS is not reliable and, therefore, should not be used as the basis for the assignment of CPT code 90868 to APC 0216.

Response: Although both CPT codes 90867 and 90868 were new codes for CY 2011, the services they describe are not new because they were previously described by two predecessor CPT codes, specifically Category III CPT codes 0160T and 0161T. CPT code 90867 was previously described by CPT code 0160T, and CPT code 90868 was previously described by CPT code 0161T. Both CPT codes 0160T and 0161T were made effective July 1, 2006, and deleted on December 31, 2010. From July 1, 2006 through December 31, 2010, both CPT codes 0160T and 0161T were assigned to APC 0216.

We do not agree with the commenter that CPT code 90868 should be placed in APC 0320 based on resource similarity. Based on analysis of our hospital outpatient claims data for predecessor CPT codes 0160T and 0161T from CY 2006 through CY 2010, we believe that both CPT codes 90867 and 90868 would be more appropriately placed in APC 0218 (Level II Nerve and Muscle Tests) rather than in the proposed APC 0216. There were no claims data for either procedure (as described by CPT codes 0160T and 0161T) during CY 2006, CY 2007, and CY 2008. For the CY 2011 OPPS/ASC final rule with comment period, we used claims processed during CY 2009 for ratesetting, and our claims data showed a CPT median cost of approximately $176 for CPT code 0160T based on 17 single claims (out of 17 total claims), and a CPT median cost also of approximately $176 for CPT code 0161T based on 68 single claims (out of 69 total claims), which closely resemble the APC median cost of approximately $184 for APC 0216 for the CY 2011 OPPS. However, for this CY 2012 OPPS/

ASC final rule with comment period, which is based on the CY 2010 hospital outpatient claims for ratesetting, our claims data show a CPT median cost of approximately $88 for CPT code 0160T (which is now described by CPT code 90867) based on 6 single claims (out of 9 total claims), and a CPT median cost of approximately $105 for CPT code 0161T (which is now described by CPT code 90868) based on 211 single claims (out of 221 total claims). Given our claims data for predecessor CPT codes 0160T and 0161T, we believe that both CPT codes 90867 and 90868 are appropriately placed in APC 0218, which has a final APC median cost of approximately $84 for CY 2012 based on clinical homogeneity and resource costs. We note that the OPPS methodology allows hospitals to actively contribute on an ongoing basis to the ratesetting process and to influence future payment rates for services by submitting correctly coded and accurately priced claims for the services they provide. According to this methodology, it is generally not our policy to judge the accuracy of hospital coding and charging for purposes of ratesetting. We also do not agree with the commenter that the procedure described by CPT code 90868 would fit into APC 0320 from a clinical perspective because the provision of electroconvulsive therapy generally requires more extensive monitoring and services (for example, muscle blockade) than transcranial magnetic treatment delivery and management.

Therefore, after consideration of the public comment we received on the CY 2011 OPPS/ASC final rule with comment period, we are finalizing our CY 2012 proposal, with modification. That is, we are reassigning CPT codes 90867 and 90868 from APC 0216 to APC 0218, which has a final CY 2012 median cost of approximately $84. Given the information reflected in the CY 2012 final rule claims data for predecessor CPT codes 0160T, which shows a median cost of approximately $105, and a median cost of approximately $88 for CPT code 0161T, we believe our claims data show the costs of these procedures are similar to the costs of other procedures assigned to APC 0218. We also believe that these procedures are similar to the other procedures assigned to APC 0218 from a clinical standpoint. We will reevaluate the APC assignment for CPT codes 90867 and 90868 in future OPPS updates as additional information becomes available to us.

5. Ocular and Ophthalmic Services

a. Placement of Amniotic Membrane (APCs 0233 and 0244)

For the CY 2011 update, the AMA CPT Editorial Panel revised the long descriptor for CPT code 65780 (Ocular surface reconstruction; amniotic membrane transplantation, multiple layers) to include the words ``multiple layers'' to further clarify the code descriptor. In addition, the AMA CPT Editorial Panel created two new CPT codes that describe the placement of amniotic membrane on the ocular surface without reconstruction; one describing the placement of a self-

retaining (non-sutured/non-glued) device on the surface of the eye, and the other describing a single layer of amniotic membrane sutured to the surface of the eye. Specifically, the AMA CPT Editorial Panel created CPT codes 65778 (Placement of amniotic membrane on the ocular surface for wound healing; self-retaining) and 65779 (Placement of amniotic membrane on the ocular surface for wound healing; single layer, sutured), effective January 1, 2011.

As has been our practice since the implementation of the OPPS in 2000, we review all new procedures before assigning them to an APC. In determining the APC assignments for CPT codes 65778 and 65779, we took into consideration the clinical and resource characteristics involved with placement of amniotic membrane products on the eye for wound healing via a self-retaining device and a sutured,

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single-layer technique. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72402), we assigned CPT code 65780 to APC 0244 (Corneal and Amniotic Membrane Transplant) with a CY 2011 payment rate of approximately $2,681. We assigned CPT code 65778 to APC 0239 (Level II Repair and Plastic Eye Procedures) with a payment rate of approximately $559, and CPT code 65779 to APC 0255 (Level II Anterior Segment Eye Procedures) with a payment rate of approximately $519. In addition, we assigned both CPT codes 65778 and 65779 to comment indicator ``NI'' in Addendum B of the CY 2011 OPPS/ASC final rule with comment period to indicate that both codes were new codes for CY 2011 with an interim APC assignment subject to public comment. We further stated that we would address any public comments on issues regarding these new codes in this CY 2012 OPPS/ASC final rule with comment period.

At the APC Panel at the February 28-March 1, 2011 meeting, a presenter requested the reassignment of both new CPT codes 65778 and 65779 to APC 0244, which is the same APC to which CPT code 65780 is assigned. The presenter indicated that, prior to CY 2011, the procedures described by CPT codes 65578 and 65779 were previously reported under the original version of CPT code 65780, which did not specify ``multiple layers,'' and, as such, these new codes should continue to be assigned to APC 0244. Further, the presenter stated that the costs of the new procedures described by CPT codes 65778 and 65779 are very similar to the procedure described by CPT code 65780.

The APC Panel recommended that CMS reassign both CPT codes 65778 and 65779 to APC 0233 (Level III Anterior Segment Eye Procedures), citing clinical similarity to procedures already in APC 0233. Based on clinical as well as resource similarity to the other procedures currently assigned to APC 0233, in the CY 2012 OPPS/ASC proposed rule (76 FR 42237), we proposed to accept the APC Panel's recommendations to reassign CPT code 65778 from APC 0239 to APC 0233 and to reassign CPT code 65779 from APC 0255 to APC 0233. However, based upon our further review and analysis of the clinical characteristics of the procedure described by CPT code 65778, we also proposed to conditionally package CPT code 65778. The service described by CPT code 65778 would rarely be provided as a separate, stand-alone service in the HOPD; it would almost exclusively be provided in addition to and following another procedure or service. Our medical advisors indicated that the procedure described by CPT code 65778 is not significantly different than placing a bandage contact lens on the surface of the eye to cover a corneal epithelial defect. CPT code 65778 describes the simple placement of a special type of bandage (a self-retaining amniotic membrane device) on the surface of the eye, which would most commonly be used in the HOPD to cover the surface of the eye after a procedure that results in a corneal epithelial defect. In fact, the self-retaining amniotic membrane device is structurally similar to a bandage contact lens, except that the central material is amniotic membrane instead of contact lens polymer. Given the characteristics of this procedure, the device used in the procedure, and its likely use in the HOPD, we proposed to conditionally package CPT code 65778 for CY 2012 and reassign its status indicator from ``T'' to ``Q2'' to indicate that the procedure is packaged when it is billed on the same date with another procedure or service that is also assigned to status indicator ``T.'' Otherwise, separate payment would be made for the procedure.

In summary, for CY 2012, we proposed to reassign CPT code 65778 from APC 0239 to APC 0233 with a conditionally packaged status of ``Q2,'' to reassign CPT code 65779 from APC 0255 to APC 0233, which had a proposed median cost of approximately $1,214, and to continue to assign CPT code 65780 to APC 0244, which had a proposed median cost of approximately $2,767.

At the August 2011 APC Panel Meeting, a presenter urged the Panel to recommend to CMS not to conditionally package CPT code 65778 for CY 2012, and instead, assign it to status indicator ``T.'' Based on information presented at the meeting, and after further discussion on the issue, the APC Panel recommended that CMS reassign the status indicator for CPT code 65778 from conditionally packaged ``Q2'' to status indicator ``T.''

Comment: Several commenters urged CMS not to finalize its proposal to conditionally package CPT code 65778 by assigning it to status indicator ``Q2,'' and instead adopt the APC Panel's recommendation to assign it to status indicator ``T.'' One commenter expressed concern that conditionally packaging CPT code 65778 is inappropriate because it will result in no payment for the procedure despite the significant costs hospitals incur in furnishing the service, which includes the cost of the Prokera device (the self-retaining amniotic membrane device) that is used with this procedure. Further, this same commenter disagreed with CMS' assertion that the service described by CPT code 65778 is merely a minor procedure that involves placing a bandage contact lens on the surface of the eye, and stated that the service is a significant, separate procedure that should continue to be separately paid.

Response: We disagree that the procedure described by CPT code 65778 is a significant procedure. The procedure has been described by the manufacturer as ``like inserting a contact lens.'' The manufacturer's Web site states the following about the Prokera self-

retaining amniotic membrane device: ``The ProKerareg device configuration enables easy insertion in the office, hospital bedside or following surgical procedures to prevent adhesions while delivering the wound repair and wound healing actions of amniotic membrane.'' Because this is a type of specialized bandage that is typically placed on the surface of the eye immediately after a surgery that has resulted in a corneal epithelial defect, we believe that assigning CPT code 65778 to a conditionally packaged status encourages hospitals to use resources more efficiently. We expect hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible. We expect that, for most surgically induced corneal epithelial defects, hospitals will use a conventional eye patch or a standard bandage contact lens to promote faster wound healing and greater patient comfort, and that they will reserve very high cost products, such as the self-retaining amniotic membrane device, for rare and exceptional vision-threatening cases. We believe that the conditional packaging of CPT code 65778 is consistent with this expectation and will encourage efficient hospital outpatient care under these circumstances. Based on the nature of this procedure, we believe that assigning CPT code 65778 to status indicator ``Q2'' is appropriate under the hospital OPPS. Therefore, we are not accepting the APC Panel's recommendation to reassign this procedure to status indicator ``T.''

After consideration of the public comments we received and the APC Panel's August 2011 recommendation, we are finalizing our proposal, without modification, to assign status indicator ``Q2'' to CPT code 65778. When the service is furnished with a separately payable surgical procedure with status indicator ``T''' on the same day, payment for CPT code 65778 is packaged. Otherwise, payment for CPT

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code 65778 is made separately through APC 0233, which has a CY 2012 final median cost of approximately $1,164. We also are finalizing our proposal to accept the APC Panel's recommendation to reassign CPT code 65779 from APC 0255 to APC 0233, which has a final CY 2012 median cost of approximately $1,164. Further, we are finalizing our proposal, without modification, to continue to assign CPT code 65780 to APC 0244, which has a final CY 2012 median cost of approximately $2,654.

As has been our practice since the implementation of the OPPS, we annually review all the items and services within an APC group to determine, with respect to comparability of the use of resources, for any 2 times rule violations. In making this determination, we review our claims data and determine whether we need to make changes to the current APC assignments for the following year. In CY 2012, we will again reevaluate the status indicator and APC assignments for CPT codes 65778, 65779, and 65780 for the CY 2013 OPPS rulemaking cycle. The amniotic membrane procedures and their CY 2012 final APC assignments are displayed in Table 24 below.

GRAPHIC TIFF OMITTED TR30NO11.039

b. Insertion of Anterior Segment Aqueous Drainage Device (APC 0673)

The AMA CPT Editorial Panel created category III CPT code 0253T (Insertion of anterior segment aqueous drainage device, without extraocular reservoir; internal approach, into the suprachoroidal space) effective on January 1, 2011. We assigned CPT code 0253T to APC 234 (Level IV Anterior Segment Eye Procedures) in the OPPS, effective January 1, 2011 with a comment indicator ``NI'' in Addendum B of the CY 2011 OPPS/ASC final rule with comment period (75 FR 72448). For CY 2012, we proposed to continue to assign CPT code 0253T to APC 0234, with a proposed payment rate of approximately $1,754.

Comment: A few commenters requested that CMS reassign CPT code 0253T to APC 0673 (Level V Anterior Segment Eye Procedures), with a proposed CY 2012 payment rate of approximately $2,901. The commenters claimed that CPT code 0253T would be more appropriately placed in APC 0673 based on clinical homogeneity and resource costs. Specifically, the commenters stated that, because CPT code 0253T is a glaucoma treatment with an implantable device, it should be assigned to APC 0673 because, unlike the procedures assigned to APC 0234, the procedures assigned to APC 0673 are primarily glaucoma treatments with an implantable device. Commenters also stated that the procedure described by CPT code 0253T is very similar to the procedure described by CPT code 0191T (Insertion of anterior segment aqueous drainage device, without extraocular reservoir; external approach), which is assigned to APC 0673. Finally, the commenters stated that the cost of the device used in CPT code 0253T is similar to that of other devices used in glaucoma treatment procedures assigned to APC 0673.

Response: After revisiting this issue and reexamining the clinical and resource characteristics of CPT code 0253T, we agree with the commenters that CPT code 0253T is similar clinically and in terms of resource utilization to the procedures currently assigned to APC 0673. In fact, the procedure described by CPT code 0253T is almost the same as the procedure described by CPT code 0191T, which is currently assigned to APC 0673. Also, both of these procedures employ the same type of internally inserted implantable glaucoma drainage device. Therefore, after consideration of the public comments we received, we are modifying our proposal and reassigning CPT code 0253T from APC 0234 to APC 0673, which has a final median cost of approximately $2,911 for CY 2012. We will monitor claims and cost report data related to CPT code 0253T as the data become available for future updates.

c. Scanning Ophthalmic Diagnostic Imaging (APC 0230)

For CY 2011, the CPT Editorial Panel deleted CPT codes 0187T (Scanning computerized ophthalmic diagnostic imaging, anterior segment, with interpretation and report, unilateral) and 92135 (Scanning computerized ophthalmic diagnostic imaging, posterior segment, (e.g., scanning laser) with interpretation and report, unilateral) on December 31, 2010, and replaced them with three new codes effective January 1, 2011. Specifically, CPT code 0187T was replaced with CPT code 92132 (Scanning computerized ophthalmic diagnostic imaging, anterior segment, with interpretation and report, unilateral or bilateral), and CPT code 92135 was replaced with CPT codes 92133 (Scanning computerized ophthalmic diagnostic imaging, posterior segment, with interpretation and report, unilateral or bilateral; optic nerve) and 92134 (Scanning computerized ophthalmic diagnostic imaging, posterior segment, with interpretation and report, unilateral or bilateral; retina).

In Addendum B of the CY 2011 OPPS/ASC final rule with comment period, CPT codes 92132, 92133, and 92134 were assigned to APC 0230 (Level I Eye Tests & Treatments) with a payment rate of approximately $42 and were flagged with comment indicator ``NI'' to indicate that these codes were

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new codes for CY 2011 with an interim APC assignment subject to public comment. We stated that we would address any public comments on issues regarding these new codes in this CY 2012 OPPS/ASC final rule with comment period.

In addition, in the CY 2012 OPPS/ASC proposed rule, we proposed to continue to assign CPT codes 92132, 92133, and 92134 to APC 0230.

Comment: One commenter on the CY 2011 OPPS/ASC final rule with comment period requested that CMS reassign CPT codes 92132, 92133, and 92134 from APC 0230 to APC 0698 (Level II Eye Tests & Treatments), which has a CY 2011 payment rate of approximately $67, to account for the long descriptor changes for the new codes. Specifically, the commenter indicated that the predecessor codes, specifically, CPT codes 0187T and 92135 described a unilateral procedure; however, the new codes, specifically, CPT codes 92132, 92133, and 92134, describe a ``unilateral or bilateral'' procedure in the code descriptors. Further, the commenter expressed concern that the new codes are paid at half the CY 2010 payment rate, which the commenter believed is inappropriate since the typical patient encounter involves two tests.

Response: As indicated above, CPT codes 92132, 92133, and 92134 were assigned to APC 0230 effective on January 1, 2011. We assigned these new codes to the same APC and status indicator as their predecessor CPT codes 0187T and 92135. We note that these predecessor CPT codes were active codes for some time. CPT code 92135 was made effective January 1, 1999 and deleted on December 31, 2010, while CPT code 0187T was made effective January 1, 2008, and deleted on December 31, 2010. Given the history of the predecessor codes, we reviewed our claims.

For the CY 2012 update, the payment rates are based on data from claims submitted during CY 2010 according to the standard OPPS ratesetting methodology. Based on our analysis, we found significant claims data for predecessor CPT codes 92135 and 0187T. Our CY 2012 final claims data show that the median cost for CPT code 92135 is approximately $41 based on 191,170 single claims (out of 191,934 total claims), and approximately $44 based on 341 single claims (out of 348 total claims) for CPT code 0187T. We believe that the final rule median costs of approximately $41 and $44 are similar to the final median cost of approximately $48 for APC 0230. We also believe that the resources consumed in performing these procedures are not significantly different for unilateral versus bilateral imaging.

After consideration of the public comment we received on the CY 2011 OPPS/ASC final rule with comment period, we are finalizing our CY 2012 proposal, without modification. Given the significant information reflected in the CY 2012 final rule claims data for predecessor CPT codes 92135 and 0187T, we believe our claims data are sufficient for us to continue to assign these services to APC 0230, which has a final CY 2012 median cost of approximately $45. We will reevaluate the APC assignment for CPT codes 92132, 92133, and 92134 in future OPPS updates as additional information becomes available to us. Also, we expect to have the first claims data available for CPT codes 92132, 92133, and 92134 for the CY 2013 OPPS/ASC rulemaking cycle.

d. Intraocular Laser Endoscopy (APC 0233)

CPT code 66711 (Ciliary body destruction; cyclophotocoagulation, endoscopic) is assigned to APC 0233 (Level III Anterior Segment Eye Procedures) for CY 2011, with a CY 2011 payment rate of $1,233.03. In the CY 2012 OPPS/ASC proposed rule, we proposed continued assignment for CPT code 66711 for CY 2012 to APC 0233, with a proposed payment rate of $1,171.65. The final rule median cost for APC 0233 is approximately $1,164.

Comment: One commenter, the manufacturer of a single use intraocular laser endoscope, indicated that the device used to accomplish CPT code 66711 is used to treat patients with glaucoma and retinal disease. The commenter had previously manufactured a multiple use version of the intraocular laser endoscope, and claimed that the multiple use device had lower per unit costs per use than the new single use device, but that it could no longer be manufactured due to supply constraints of a part used in the manufacturing process. The commenter stated that the most frequent service code used to deliver this service is represented by CPT code 66711, and stated that the multiple procedure discount typically applies, which reduces the OPPS payment rate to approximately $616 for CY 2011. The commenter stated that the procedure is also performed in the ASC setting with a payment rate of approximately $694 for CY 2011, but a multiple procedure discount typically applies, for a payment rate of approximately $347. The commenter requested that CMS use one of several suggested approaches to pay for the higher costs associated with the single use device. One approach the commenter mentioned was to establish a device pass-through category for the single use intraocular laser endoscope, while noting that it had filed an OPPS pass-through application, and that it expected a separate decision on the pass-through application. Another alternative suggested by the commenter was for CMS to use its equitable adjustment authority under section 1833(t)(2)(E) of the SSA, to adjust payment rates when necessary to ensure patients' treatment options are not inappropriately limited as a result of CMS policies. The third option the commenter listed was to temporarily assign the CPT code 66711 procedure to a different clinical APC or to a new technology APC, based on external data provided by the commenter, until Medicare claims data are available for ratesetting.

Response: As stated above, CPT code 66711 is assigned to APC 0233 for CY 2011, which has a CY 2011 final rule median cost of approximately $1,168. CPT code 66711 has a CY 2012 final median cost of approximately $1,430. The commenter stated that the CPT code 66711 procedure will not change with use of the single use laser endoscope over the multi-use endoscope. We do not believe that it is necessary to invoke the equitable adjustment clause in this case. There are several clinical APCs for anterior segment eye procedures that are potential APCs for this type of service, and the particular APC assignment depends in part on the underlying claims data for the procedure. Upon further review of the various procedures in APC 0233 and APC 0234 (Level IV Anterior Segment Eye Procedures), we believe that CPT code 66711 is more clinically similar to the range of procedures in APC 0234 than the procedures in APC 0233. Both APCs 0233 and 0234 consist of anterior segment eye procedures, but APC 0234 includes several intraocular procedures for the treatment of glaucoma, which also describes CPT code 66711. From a resource perspective, CPT code 66711 fits in either APC 0233 or APC 0234, which have CY 2012 final median costs of approximately $1,164 and $1,631, respectively. Therefore, we are reassigning CPT code 66711 to APC 0234 for CY 2012.

We agree with the commenter that we will decide on any device pass-

through application by means of our normal process for that payment mechanism.

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6. Orthopedic and Musculoskeletal Services

a. Percutaneous Laminotomy/Laminectomy (APC 0208)

We created new HCPCS code C9729 (Percutaneous laminotomy/

laminectomy (intralaminar approach) for decompression of neural elements, (with ligamentous resection, discectomy, facetectomy and/or foraminotomy, when performed) any method under indirect image guidance, with the use of an endoscope when performed, single or multiple levels, unilateral or bilateral; lumbar), and assigned it to APC 0208 (Laminotomies and Laminectomies) effective April 1, 2011. AMA's CPT Editorial Panel thereafter created CPT code 0275T (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with or without ligamentous resection, discectomy, facetectomy and/or foraminotomy) any method under indirect image guidance (eg, fluoroscopic, CT), with or without the use of an endoscope, single or multiple levels, unilateral or bilateral; lumbar) effective July 1, 2011. We assigned CPT code 0275T to APC 0208 and deleted HCPCS code C9729 effective July 1, 2011. For CY 2011, APC 0208 has a payment rate of $3,535.92. For CY 2012 we proposed to maintain assignment of percutaneous laminotomy/laminectomy (HCPCS code C9729 is used in the CY 2012 proposed rule, while CPT code 0275T is used in this CY 2012 final rule with comment period) to APC 0208, because we believe the service is similar clinically and with regard to resources to other APC 0208 procedures, APC 0208 had a CY 2012 proposed rule median cost of approximately $3,676, and has a final rule median cost of approximately $3,553

Comment: One commenter believed it is appropriate to assign CPT code 0275T to APC 0208, in the case of ``unilateral'' percutaneous laminotomy/laminectomy, but not in the case of bilateral or multiple level procedures, which are, according to the commenter, more resource intensive. The commenter claimed that the phrase ``unilateral or bilateral'' in the CPT code 0275T descriptor suggests to providers that the code must be reported unmodified when the procedure is performed either unilaterally or bilaterally, which will preclude the use of modifier ``50'' when the bilateral approach is employed, even though additional physician and facilities resources are used. Additionally, the commenter believed that the CPT code 0275T descriptor's inclusion of ``single or multiple levels'' will preclude providers from reporting modifier ``51'' with CPT code 0275T, to reflect the additional resources consumed when the procedure is performed on multiple levels of the spine. Therefore, the commenter believed that the APC 0208 payment rate is not adequate when CPT code 0275T is performed bilaterally or on multiple levels. The commenter recommended that, for CY 2012, CMS either allow the use of modifiers when CPT code 0275T is used, or that CMS create a HCPCS G-code that describes the service when performed bilaterally or on multiple levels. The commenter anticipated that the CPT Editorial Panel will take up the issue of bilateral or multiple levels in the CPT code 0275T code descriptor for CY 2013.

Response: Concerning the request for availability of modifiers 50 or 51, or modification to the descriptor for CPT code 0275T, we refer the commenter to the CPT Editorial Panel. CPT code 0275T is the property of the AMA, and CMS may not modify any CPT codes. We also will wait to see if the CPT Editorial Panel changes the descriptor for CY 2013, and we will not create a HCPCS G-code for CY 2012.

CPT code 0275T is a new code effective July 1, 2011 (as was its predecessor code, HCPCS code C9729, which was available for one quarter, beginning April 1, 2011), and as such we have no claims data at this time. For CY 2013, we should have partial CY 2011 data for both HCPCS code C9729 and CPT code 0275T, which we can use to reevaluate any APC assignment for percutaneous laminotomy/laminectomy for CY 2013. These claims data will include the hospital costs related to all of the various clinical options to perform this service, (that is, unilateral versus bilateral, and single versus multiple levels) to the extent they were performed. Based on those claims, we will reevaluate the APC placement of CPT code 0275T.

After consideration of the public comments we received, we are finalizing our proposed assignment of CPT code 0275T to APC 0208 for CY 2012, which is clinically similar to the procedures in APC 0208, and which has a median cost of approximately $3,553.

b. Level II Arthroscopy (APC 0042)

The CY 2012 proposed rule median cost for APC 0042 (Level II Arthroscopy) was approximately $3,485, based on 5,676 single bill claims from the 28 procedures assigned to APC 0042. The CY 2011 final rule median is $3,301, based on 6,297 single bill claims from those 28 arthroscopic procedures. Our CY 2012 final rule data consist of a median cost of approximately $3,996, based on 3,140 single bill claims based on 234 procedures.

Comment: One commenter believed that the procedures currently assigned to APC 0042 have widely varying median costs, which range from approximately $88 to more than $10,000, according to the CY 2012 proposed rule data. The commenter claimed that the APC currently violates the 2 times rule. The commenter recommended that CMS reconfigure APC 0042 and create two additional APCs in order to group procedures similar in clinical features and resources together. The commenter recommended that CMS place the following hip procedures in the reconfigured APC 0042: CPT codes 29861 (Arthroscopy, hip, surgical; with removal of loose body or foreign body), 29914 (Arthroscopy, hip, surgical; with femoroplasty (ie, treatment of cam lesion)), 29915 (Arthroscopy, hip, surgical; with acetabuloplasty (ie, treatment of pincer lesion)), and 29916 (Arthroscopy, hip, surgical; with labral repair). The commenter also recommended that CMS separate the remaining CPT codes in APC 0042 into new APC 0043 (proposed descriptor ``Level III Upper Extremity Arthroscopy'') and APC 0044 (Level IV Lower Extremity Arthroscopy), with respective payment amounts based on the median costs of those service groupings.

Response: We do not agree that the HCPCS codes comprising APC 0042 have widely varying median costs or that there is a 2 times rule violation for services currently assigned to APC 0042, as claimed by the commenter. As we stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42231), in accordance with section 1833(t)(2) of the Act and Sec. 419.31 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resources, if the median cost of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group. In making this determination, we consider only those HCPCS codes that are significant based on the number of claims. We note that, for purposes of identifying significant HCPCS codes for examination in the 2 times rule, we consider codes that have more than 1,000 single major claims or codes that have both greater than 99 single major claims and contribute at least 2 percent of the single major claims used to establish the APC median cost to be significant (75 FR

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71832). Based on this rule, we have no 2 times rule violations in APC 0042. Using our CY 2012 final rule claims data, the highest significant procedure in APC 0042 is CPT code 29827 (Arthroscopy, shoulder, surgical; with rotator cuff repair) with a final median cost of approximately $4,817, and the lowest significant procedure in the APC is CPT code 29823 (Arthroscopy, shoulder, surgical; debridement, extensive), with a final median cost of approximately $2,959, leading to a ratio of approximately 1.6, well below the 2.0 required for a violation. Furthermore, we do not agree with the commenter's recommendation to establish an arthroscopy APC with the four hip arthroscopy procedures, specifically, CPT codes 29861, 29914, 29915, and 29916, as a viable alternative, because all four of those CPT codes have no CY 2010 median costs. Therefore, there would be no basis for establishing an APC median cost and payment amount for those four procedures. We see no compelling reason to revise the current procedures of APC 0042 for CY 2012 because they are similar both clinically and in terms of resource utilization. We will keep the current HCPCS code configuration of APC 0042 for CY 2012, and will review the APC 0042 and component HCPCS code median costs again next year for clinical and resource similarity.

c. Closed Treatment Fracture of Finger, Toe, and Trunk (APCs 0129, 0138, and 0139)

In Addendum A (Proposed OPPS APCs for CY 2012) of the CY 2012 OPPS/

ASC proposed rule, we proposed to continue with the existing group titles for APCs 0129, 0138, and 0139 to read as follows:

APC 0129 (Level I Closed Treatment Fracture Finger/Toe/Trunk)

APC 0138 (Level II Closed Treatment Fracture Finger/Toe/Trunk)

APC 0139 (Level III Closed Treatment Fracture Finger/Toe/

Trunk)

We note that Addendum A did not appear in the printed version of the Federal Register as part of the CY 2012 OPPS/ASC proposed rule. Rather, it was published and made available only via the Internet on the CMS Web site at: http://www.cms.gov/.

Comment: One commenter recommended that CMS remove the words ``Finger/Toe/Trunk'' from the group titles for APCs 0129, 0138, and 0139 because there is no need to make this distinction since there are no other APCs that describe closed treatment fractures.

Response: We appreciate the commenter's suggestion, and we accept this recommendation. We agree that removing the words ``Finger/Toe/

Trunk'' from the group titles for APCs 0129, 0138, and 0139 more appropriately describe these APCs.

After consideration of the public comment we received, we are revising the group titles for APCs 0129, 0138, and 0139 to ensure that the title describes all procedures assigned to these APCs. Table 25 shows the final group titles for APCs 0129, 0138, and 0139 for CY 2012.

GRAPHIC TIFF OMITTED TR30NO11.040

d. Level I and II Strapping and Cast Application (APCs 0058 and 0426)

In Addendum A (Proposed OPPS APCs for CY 2012) of the CY 2012 OPPS/

ASC proposed rule, we proposed to continue with the existing group titles for APCs 0058 and 0426 to read as follows:

APC 0058 (Level I Strapping and Cast Application)

APC 0426 (Level II Strapping and Cast Application)

We note that Addendum A did not appear in the printed version of the Federal Register as part of the CY 2012 OPPS/ASC proposed rule. Rather, it was published and made available only via the Internet on the CMS Web site at: http://www.cms.gov/.

Comment: One commenter stated there is only a single level APC for the strapping procedures; therefore, the designation ``Level I'' is not appropriate in the group title because there is no ``Level II.''

Response: We disagree with the commenter. There is another level APC for the strapping procedures, specifically, APC 0426 which reads ``Level II Strapping and Cast Application.'' Under the OPPS, APC 0426 was made effective January 1, 2005. We remind hospitals that APCs with multiple levels are not always in sequential order and, as a result, may not always appear close to each other in Addendum B.

After consideration of the public comment we received, we are finalizing our CY 2012 proposal, without modification, to continue to title APC 0058 to read ``Level I Strapping and Cast Application'' and APC 0426 to read ``Level II Strapping and Cast Application.''

7. Radiology Services

a. Proton Beam Therapy (APC 0664 and 0667)

For CY 2012, we proposed to continue to assign CPT codes 77520 (Proton treatment delivery; simple, without compensation) and 77522 (Proton treatment delivery; simple, with compensation) to APC 0664 (Level I Proton Beam Radiation Therapy), which had a proposed payment rate of approximately $992. We also proposed to continue to assign CPT codes 77523 (Proton treatment delivery; intermediate) and 77525 (Proton treatment delivery; complex) to APC 0667 (Level II Proton Beam Radiation Therapy), which had a proposed payment rate of approximately $1,298.

Comment: Some commenters appreciated the relative stability in the hospital outpatient proton therapy rates and supported the proposed payments for the proton beam treatment CPT codes.

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Other commenters indicated that they were pleased with CMS' proposal to exempt APC 0667 from the 2 times rule based on the list of APCs that appeared in Table 18 of the CY 2012 OPPS/ASC proposed rule, but expressed concern with the proposed decrease in payments for the proton beam therapy APCs.

Response: In accordance with sectionS 1833(t)(2)(B) and 1833(t)(9)(A) of the Act and Sec. Sec. 419.31 and 419.50 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resources and clinical homogeneity. The payment rates, including the relative weights, set annually for these services are based on review of the claims data used for ratesetting. For the CY 2012 update, the payment rates for APCs 0664 and 0667 are based on data from claims submitted during CY 2010 according to the standard OPPS ratesetting methodology. Specifically, we used 12,263 single claims (out of 13,364 total claims) from CY 2012 proposed rule claims data (and we used 13,437 single claims (out of 14,519 total claims) from CY 2012 final rule claims data) to calculate the median cost upon which the CY 2012 payment rate for APC 0664 is based. In addition, we used 3,379 single claims (out of 3,879 total claims) from CY 2012 proposed rule claims data (and we used 3,638 single claims (out of 4,145 total claims) from CY 2012 final rule claims data) to calculate the median cost for APC 0667.

For CY 2012, we are setting the final payment rate for proton beam therapy based on median costs of approximately $1,184 for APC 0664 and approximately $1,549 for APC 0667. We note that these median costs are higher than the median costs upon which the CY 2012 proposed payment rates for these APCs were based ($1,028.10 and $1,344.90, respectively) and higher than the median costs upon which the final CY 2011 payment rates were based ($1,020.72 and $1,335.24, respectively). As we have in the past (75 FR 71916), we note that our cost-finding methodology is based on reducing each hospital's charge for its services to an estimated cost by applying the most discrete hospital-specific CCR available for the hospital that submitted the claim. Therefore, it is the hospitals' claims and cost reports that determine the estimated costs that are used to calculate the median cost for each service and, when aggregated into APC groups, the hospital data are used to calculate the median cost for the APC on which the APC payment rate is based.

After consideration of the public comments we received, we are finalizing our CY 2012 proposal, without modification, to pay for proton beam therapy through APCs 0664 and 0667, with payment rates based upon the most current claims and cost report data for these services. Specifically, we will continue to assign CPT codes 77520 and 77522 to APC 0664, with a final CY 2012 APC median cost of approximately $1,184, and CPT codes 77523 and 77525 to APC 0667, with a final CY 2012 APC median cost of approximately $1,549 because we continue to believe these placements are appropriate in light of the resource cost and clinical intensity of the services describe by these CPT codes.

b. Stereotactic Radiosurgery (SRS) Treatment Delivery Services (APCs 0065, 0066, 0067, and 0127)

For CY 2012, we proposed to continue to assign CPT code 77371 (Radiation treatment delivery, stereotactic radiosurgery (SRS), complete course of treatment of cranial lesion(s) consisting of 1 session; multi-source Cobalt 60 based) to APC 0127 (Level IV Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment rate of approximately $7,368. We also proposed to continue to recognize four existing HCPCS G-codes that describe linear accelerator-based SRS treatment delivery services for separate payment in CY 2012. Specifically, we proposed the following: to assign HCPCS code G0173 (Linear accelerator based stereotactic radiosurgery, complete course of therapy in one session) and HCPCS code G0339 (Image-guided robotic linear accelerator-based stereotactic radiosurgery, complete course of therapy in one session or first session of fractionated treatment) to APC 0067 (Level III Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment rate of approximately $3,251; to assign HCPCS code G0251 (Linear accelerator-based stereotactic radiosurgery, delivery including collimator changes and custom plugging, fractionated treatment, all lesions, per session, maximum five sessions per course of treatment) to APC 0065 (Level I Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment rate of approximately $864; and to assign HCPCS code G0340 (Image-guided robotic linear accelerator-based stereotactic radiosurgery, delivery including collimator changes and custom plugging, fractionated treatment, all lesions, per session, second through fifth sessions, maximum five sessions per course of treatment) to APC 0066 (Level II Stereotactic Radiosurgery, MRgFUS, and MEG), with a proposed payment rate of approximately $2,447. Further, we proposed to continue to assign SRS CPT codes 77372 (Radiation treatment delivery, stereotactic radiosurgery (SRS) (complete course of treatment of cerebral lesion(s) consisting of 1 session); linear accelerator based) and 77373 (Stereotactic body radiation therapy, treatment delivery, per fraction to 1 or more lesions, including image guidance, entire course not to exceed 5 fractions) status indicator ``B'' (Codes that are not recognized by OPPS when submitted on an outpatient hospital Part B bill type (12x and 13x)) under the OPPS, to indicate that these CPT codes are not payable under the OPPS.

Comment: One commenter requested that CMS continue to recognize HCPCS codes G0173, G0251, G0339, and G0340 for CY 2012 as proposed and supported the proposed assignment of status indicator ``B'' to CPT codes 77372 and 77373. The commenter also recommended that CMS revise the code descriptors for HCPCS code G0173, G0251, G0339, and G0340 to distinguish between robotic and nonrobotic gantry-based SRS systems. Based on analysis of claims data for HCPCS codes G0339 and G0340, the commenter found that 41 and 42 percent of the claims submitted for HCPCS codes G0339 and G0340, respectively, during CY 2010 were paid to hospitals without image-guided robotic SRS systems. The commenter suggested specific code descriptor changes for the four HCPCS G-codes to ensure submission of correctly coded claims. Alternatively, the commenter requested that CMS provide guidance on the reporting of the existing SRS HCPCS G-codes if no change is made to the HCPCS code descriptors.

Response: As we have stated in the past (75 FR 71915), these HCPCS G-codes for SRS have been in effect for several years and, based on questions brought to our attention by hospitals, we have no reason to believe that hospitals are confused about the reporting of these codes. Moreover, based on our analysis of the hospital outpatient claims data that we use for ratesetting, we see resource differences reflected in the median costs of the four HCPCS G-codes that are reasonably consistent with our expectations for different median costs for the services based on the current code descriptors. We continue to believe it would be confusing to hospitals if we were to revise the code descriptors for HCPCS codes G0173, G0251, G0339, and G0340 at this point in time and could lead to instability in our median costs and inaccurate payments for some services. Therefore, we believe that modifying the

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HCPCS G-code descriptors is not necessary for us to continue to provide appropriate payment for the services they describe. Further, we have provided instruction on the reporting of these SRS codes in Chapter 4, Section 200.3 of the Medicare Claims Processing Manual of the Internet-

Only Manual.

After consideration of the public comment we received, we are finalizing our CY 2012 proposals, without modification, to maintain the existing CY 2011 APC assignments for the SRS HCPCS codes for CY 2012. Specifically, we are continuing to assign HCPCS G-codes G0173 and G0339 to APC 0067, which has a final CY 2012 APC median cost of approximately $3,374; HCPCS G-code G0251 to APC 0065, which has a final CY 2012 APC median cost of approximately $903; HCPCS G-code G0340 to APC 0066, which has a final CY 2012 APC median cost of approximately $2,521; and CPT code 77371 to APC 0127, which has a final CY 2012 APC median cost of approximately $7,461 because we continue to believe these placements are appropriate in light of the resource cost and clinical intensity of the services describe by these CPT codes. In addition, we are finalizing our proposals, without modification, to continue to assign CPT codes 77372 and 77373 to status indicator ``B'' under the OPPS.

c. Adrenal Imaging (APC 0408)

For CY 2012, we proposed to reassign CPT code 78075 (Adrenal imaging, cortex and/or medulla) from APC 0408 (Level III Tumor/

Infection Imaging), which had a proposed payment rate of approximately $953, to APC 0414 (Level II Tumor/Infection Imaging), which had a proposed payment rate of approximately $485.

Comment: Commenters questioned CMS' rationale for the proposal to reassign CPT code 78075 from APC 0408 to APC 0414, citing a lack of clinical reasoning to justify its movement as well as CPT code 78075's cost similarity to a clinically similar procedure assigned to APC 0408. Commenters requested that CMS reevaluate the reassignment of CPT code 78075 and consider maintaining its placement in APC 0408. Commenters further recommended that CMS provide rationale in all proposed rules when any CPT code placement change is proposed.

Response: After revisiting this issue and analyzing the final CY 2012 median cost for CPT code 78075, we agree with commenters' assertion that CPT code 78075 should remain in APC 0408 and, therefore, we will continue to assign CPT code 78075 to APC 0408 for CY 2012 based on its final median cost of approximately $997 (calculated using 99 single claims out of 127 total claims), which is similar to the APC median cost of APC 0408 of approximately $958. . We note that the proposed rule does not include service-specific discussions for each separately paid HCPCS code reassignment or for each APC. Rather, we discuss the general methodology used to calculate the median costs upon which the proposed payment rates are based (76 FR 42183 through 42190) and the principles applied in determining APC configurations (76 FR 42230 through 42232). We discuss specific APCs or services in the proposed rule only when we have a specific reason to do so, such as when we apply a nonstandard ratesetting methodology to calculate a proposed payment rate for a particular item or service. In most cases, a proposed reduction of a median cost for an APC or for a HCPCS code that is calculated from actual charges and cost data will not result in a service specific discussion in the propose rule. The number of APCs and the volume of HCPCS codes for which median costs are calculated prohibit a detailed explanation of each in the proposed rule.

After consideration of the public comments we received, we are modifying our CY 2012 proposal to reassign CPT code 78075 to APC 0414 and will instead continue to assign it to APC 0408, with a final CY 2012 APC median cost of approximately $958.

d. Positron Emission Tomography (PET) Imaging (APC 0308) (Created From Myocardial Positron Emission Tomography (PET) Imaging (APC 0307) and Non-Myocardial Positron Emission Tomography (PET) Imaging (APC 0308))

For CY 2012, we proposed to continue to assign CPT codes 78459 (Myocardial imaging, positron emission tomography (PET), metabolic evaluation), 78491 (Myocardial imaging, positron emission tomography (PET), perfusion; single study at rest or stress), and 78492 (Myocardial imaging, positron emission tomography (PET), perfusion; multiple studies at rest and/or stress) to APC 0307 (Myocardial Position Emission Tomography (PET) Imaging), for which we proposed a national unadjusted payment rate of approximately $921. The CY 2011 national unadjusted payment rate is approximately $1,107.

For CY 2012, we proposed to continue to assign CPT codes 78608 (Brain imaging, positron emission tomography (PET); metabolic evaluation), 78811 (Tumor imaging, positron emission tomography (PET) imaging; limited area (eg, chest, head/neck)), 78812 (Tumor imaging, positron emission tomography (PET) imaging; skull base to mid-thigh), 78813 (Tumor imaging, positron emission tomography (PET) imaging; whole body), 78814 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization imaging; limited area (eg, chest, head/neck)), 78815 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization imaging; skull base to mid-thigh), and 78816 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization imaging; whole body) to APC 0308 (Non-Myocardial Positron Emission Tomography (PET) imaging), for which we proposed a national unadjusted payment rate of $1,015. The CY 2011 national unadjusted payment rate for APC 0308 is approximately $1,042.

Comment: Commenters objected to the proposed decrease in the payment rate for APC 0307. Commenters were concerned with the volatility of the payment rates from one year to the next and the proposed reduction in the payment rate for CY 2012, particularly in view of the reduction in the payment rate from CY 2010 to CY 2011. The commenters urged CMS to validate the costs estimated from the CY 2010 hospital claims and cost report data for the limited number of hospitals reporting CPT codes 78459, 78491, and 78492 to determine the reason for the proposed change in payment. Several commenters asked that CMS limit to 5 to 10 percent the amount of decrease in the payment rate for CY 2012 compared to CY 2011 because they believed that the reduction CMS proposed for myocardial PET for CY 2012 would jeopardize access to the service. One commenter asked that CMS combine APC 0307 and APC 0308 into one single PET imaging APC because the commenter believed that myocardial PET and non-myocardial PET are clinically similar and have similar resource requirements. The commenter also believe that merging the APCs would result in more appropriate payment for myocardial PET services and would increase the stability of payment for myocardial PET services.

Several commenters indicated that they believed that aberrant CCRs for a few hospitals that furnish myocardial PET services are affecting the median cost for APC 0307 and that the

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methodology must be flawed to permit this to occur. Commenters stated that their analyses of the claims data showed that 4 of the top 25 hospitals contribute 34 percent of all single bills used in ratesetting for CPT code 78492 and that these hospitals have substantially lower calculated costs as compared to their peer institutions. The commenters believed that the CCRs of these institutions are aberrantly low and have skewed the data and lowered the overall median cost for APC 0307 due to the significant percentage of single bills attributable to them. The commenter recommended that CMS delete claims from hospitals with a CCR lower than 0.15 or 0.20 from ratesetting for APC 0307 to remove the effect of these hospitals on the APC 0307 median cost. In contrast, another commenter asked that CMS ensure that claims from every hospital that furnished a service assigned to APC 0307 are included in the calculation of the median for APC 0307.

One commenter stated that the median cost for myocardial PET services is decreasing because they are performed at a relatively small number of hospitals and because hospitals do not always align the costs and charges for the service properly in their accounts and, therefore, the CCRs that result from the cost reports understate the cost of the services. Commenters also stated that they were concerned that hospitals had not charged appropriately for the services and the radiopharmaceutical that is needed to furnish the service. Some commenters objected to the absence of a strict definition of what costs should be included in each cost center because this results in a wide variance in the calculation of costs. One commenter stated that the absence of CMS guidance to hospitals with regard to how to charge for services results in the potential for hospitals to set charges at 4 to 5 times the cost for established procedures but to establish charges at 1.5 times the cost for new, more expensive procedures. One commenter urged CMS to remind hospitals to accurately report all myocardial PET costs on their Medicare cost reports to improve the accuracy of the CCRs in the futures, while another commenter suggested that CMS establish a new cost center or CCRs for PET to moderate the fluctuations in the median cost calculation for PET services.

Response: We agree that myocardial PET and non-myocardial PET have similar clinical characteristics and, currently, appear to have somewhat similar resource requirements. Therefore, for CY 2012, we are deleting the myocardial PET APC (APC 0307) and are reassigning CPT codes 78459, 78491, and 78492 to APC 0308, which we have renamed ``Positron Emission Tomography (PET) Imaging.'' The CY 2012 final rule median cost for newly reconfigured APC 0308 is approximately $1,038.

We were influenced in this decision by a significant unexpected and unusual decrease in the median cost for CPT code 78492 between the proposed rule data and the final rule data for the CY 2012 OPPS. CPT code 78492 comprises approximately 98 percent of the volume of the 3 myocardial PET services that were assigned to APC 0307 and therefore largely would control the median cost for APC 0307 if it had been retained for CY 2012 OPPS. The proposed rule median cost for CPT code 78492 was approximately $954, but the final rule median cost for CPT code 78492 is approximately $778, a decrease of approximately 18 percent from the proposed rule median cost and a decrease of approximately 29 percent from the CY 2011 OPPS median cost of approximately $1,096. APC 0307 had a median cost of approximately $1,096 for CY 2011, a median cost of approximately $954 for the CY 2012 proposed rule, and had we not deleted it for this final rule, APC 0307 would have had a median cost of approximately $809, a 15-percent decrease from the median cost on which the CY 2012 proposed payment rate was based.

We examined the claims and cost report data for the single procedure claims for CPT code 78492 to determine why it declined substantially from the CY 2011 OPPS final rule data and the CY 2012 proposed rule and yet further between the CY 2012 proposed rule and the CY 2012 final rule data. We believe that there are multiple reasons that the median cost for APC 0307 declined from CY 2011 to CY 2012. Specifically, we looked at the following elements for CPT code 78492 across the three data sets: Line item CCRs; line item charges; line item costs; packaged costs; number of hospitals billing the service; and number of single bills. Our findings are contained in Table 26 below.

GRAPHIC TIFF OMITTED TR30NO11.041

We note three significant observations from these data for CPT code 78492, which is the myocardial PET imaging service that represents 98 percent of the volume of APC 0307. First, the median line item CCR for CPT code 78492

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decreased 21 percent from the CY 2011 final rule claims data to the CY 2012 proposed rule claims data, although the median charge increased only 5 percent over the same time between the two data sets. Similarly, the median line item CCR for CPT code 78492 decreased 5.8 percent from the CY 2012 proposed rule data to the CY 2012 final rule data, although the line item charge remained the same in both data sets. Therefore, the median line item CCR for CPT code 78492 decreased 25.5 percent from the CT 2011 final rule data to the CY 2012 final rule data although the median line item charge increased only 5 percent over the same period, thus resulting in a significant decrease in the CY 2012 final rule line item median cost compared to both the CY 2011 line item median cost and the CY 2012 line item median cost. Secondly the estimated median cost of the packaged radiopharmaceutical and other supplies necessary to furnish the service decreased in each data set. Specifically, the estimated median packaged cost decreased by 16.2 percent from the CY 2011 final rule data to the CY 2012 proposed rule data and by 16.6 percent from the CY 2012 proposed rule data to the CY 2012 final rule data, or a decrease of 30.1 percent from the CY 2012 final rule data to the CY 2012 final rule data. Third, we observed that the number of hospitals that furnished the service increased in a significant proportion and that the volume of services furnished increased by 25 percent from CY 2009 (CY 2011 final rule data) to CY 2010 (CY 2012 proposed and final rule data sets) and by an additional 6.7 percent from the CY 2012 proposed rule data set to the CY 2012 final rule data set, or a total increase from CY 2009 to CY 2010 of 33.3 percent.

We are particularly concerned with the volatility that is displayed in the data, particularly from the CY 2012 proposed rule data to the CY 2012 final rule data. In particular, there seems to be a transition in CCRs underway that should stabilize itself once the number of hospitals that furnish the service is stable and once the volume of services being furnished each year is stable. We believe that the CCR changes are increasing the instability in the median costs for CY 2012 and that combining the two APCs is a reasonable response for the CY 2012 final rule, particularly because both former APC 0307 and APC 0308 are for PET imaging services and because it is reasonable to expect that the costs would be similar. However, we will reevaluate the relative resource utilization of the services after the cost center transitions are complete. In general, large volumes of services enhance stability of median costs, and we believe that by reassigning CPT codes 78459, 78491 and 78492 to APC 0308, we can lessen the volatility of payment changes for these services for CY 2012. There are many legitimate reasons why costs for these services may go down (for example, hospitals are becoming more efficient as they provide greater volumes of these services without incurring additional substantial costs for equipment and staff, the radiopharmaceuticals used to provide these services are furnished by use of a generator that produces a dose periodically for 28 days and, therefore, additional doses are no more costly during the life of the generator, among others). If we determine that the per unit costs for providing myocardial PET have genuinely decreased over time and stabilized, we believe that it is appropriate that our payment rates would reflect these diminishing costs.

With regard to the comments that we should exclude claims from hospitals with CCRs less than 0.15 or 0.20, we note that we applied our standard policy regarding calculation of CCRs to the calculation of the median cost of myocardial PET services for the proposed and final rule data for the CY 2012 OPPS. Specifically, as we discuss in detail in the claims accounting description that accompanies this final rule with comment period, we excluded claims from hospitals whose CCRs were flagged as invalid. These included claims for hospitals without a CCR, for hospitals paid an all inclusive rate, for CAHs, for hospitals with obviously erroneous CCRs (greater than 90 or less than .0001), and for hospitals with CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). This longstanding practice has resulted in enhancing the number of claims we use for ratesetting, while eliminating claims that cannot be reduced to cost or for which hospital CCRs are clearly erroneous. In the case of myocardial PET services, the commenter indicated that the claims that the commenter requested be deleted from the set of claims used for ratesetting comprise 34 percent of the set of single bills and were submitted by hospitals with CCRs lower than 0.15. Assuming that the commenter's statement is correct, we believe that to remove 34 percent of the claims (more than 1 in every 3 single bills) from hospitals because their CCRs are lower than 0.15 would result in a skewed set of single bills and that the resulting median cost would not be an accurate representation of the relative cost of the service furnished by the full population of providers that furnish the service. These claims would be retained in the dataset used to set median costs under our standard process because they would not be affected by the standard claim trims. We refer readers to section II.A.2.c. of this final rule with comment period for discussion of our policy with regard to trimming of claim records before median cost calculation. The OPPS is a system of averages in which the measure of central tendency is used as the basis for the payment for a service, and to delete 34 percent of the data points would necessarily result in a median cost that would be a less accurate, if perhaps higher, reflection of the cost of the service. We believe that the low CCRs that are of concern to the commenter may be only one element in the transition in the data for these codes. For CY 2012, we believe that deleting APC 0307 and reassigning CPT codes 78459, 78491, and 78492 to APC 0308 is a more reasonable response than deleting 34 percent of the single bills for the procedures. Similarly, we do not believe that it is necessary to create a service-specific cost center for the purpose of calculating a PET-specific CCR because correct and consistent reporting of the costs of PET services on the Medicare hospital cost report and accurate crosswalking of the charges for PET to the cost center in which the costs are housed will result in appropriate estimates of the cost of PET services when the CCR for the cost center is applied to the charges for the services.

With regard to what the commenter viewed as the absence of CMS guidance regarding what cost centers should be used to record the costs of services and how hospitals should charge for services, we note that CMS provides extensive instructions on how cost reports should be completed in the Provider Reimbursement Manual. However, hospitals charges are a reflection of the monetary value that the hospital establishes for service it is furnishing and the only CMS restriction on hospital charges is that charges must be reasonably related to cost and that the same amount must be charged to all payers for the same service (we refer readers to the definition of ``charges'' for cost reporting purposes in 42 CFR 413.53(b)). We recognize that some hospitals may charge at different markups over cost for similar services. However, as long as the cost report is correctly completed and the charges are mapped to the cost center in which the costs for the service are recorded, the CCRs should represent a valid reflection

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of the relationship between the costs and the charges in the aggregate for services for which the cost is reported in that cost center. The OPPS, like all other prospective payment systems, assumes that hospitals complete the cost report properly, including mapping the charges for a service to the cost center in which the costs for that service are captured. Therefore, when the appropriate CCR is applied to the charge for a service for which the costs are housed in the cost center from which the CCR is calculated, the result should be a reasonable estimate of the cost of the service.

With regard to the comment that we should limit the decline in payment for APC 0307 in CY 2012 to 5 to 10 percent compared to the payment for these services in CY 2011, we do not believe that it is appropriate to limit the decrease in payment in such an arbitrary manner for CY 2012. Moreover, for the reasons we discuss above, we have deleted APC 0307 for CY 2012. Accordingly, we also believe that there will be no adverse impact on access to care as a result of deleting APC 0307 and reassigning CPT codes 78459, 78491 and 78492 to APC 0308.

Comment: One commenter asked CMS to explain why it proposed to pay more for the non-myocardial PET APC (APC 0308) than for the myocardial PET APC (APC 0307).

Response: We proposed to pay more for non-myocardial PET (APC 0308) than for myocardial PET (APC 0307) because the proposed rule median cost we calculated for APC 0308 of approximately $1,051 was higher than the proposed rule median cost we calculated for APC 0307 of approximately $954. We calculated both median costs using our longstanding standard cost estimation methodology which applied each hospital's most current, hospital-specific and departmental-specific CCR to that hospital's charge for services furnished in CY 2010. However, we are deleting APC 0307 for CY 2012 and, therefore, all PET imaging services will be paid at the same payment rate for CY 2012, based on the APC 0308 median cost of approximately $1,038.

Comment: Commenters noted that the median cost for single myocardial PET scans, represented by CPT code 78491, has been higher than the median cost for multiple scans, represented by CPT code 78492 in CYs 2007, 2009 and 2010. The commenters believed that this is evidence indicating that the data on which CMS is basing the payment rate are flawed. One commenter also stated that the CY 2012 proposed payment rate for APC 0307 is below the mean cost for each of the codes assigned to APC 0307 (CPT codes 78459, 78491, and 78492) and is also below the median cost for three of the codes in APC 0307 that comprise 10,929 of the 11,060 total claims for the APC.

Response: We do not believe that the presence of a median cost for multiple scans that is greater than the median cost for a single scan indicates that the data are flawed. There are many reasons that the median cost for a single scan could be higher than the median cost for multiple scans, including different charging practices and cost structures across hospitals and different hospital utilization of single versus multiple scans. Our standard ratesetting methodology converts the hospital's charge to cost by application of the most specific departmental or overall hospital-specific CCR and after trimming claims for which the cost exceeds +/-3 standard deviations from the geometric mean, and calculates the 50th percentile, that is, the median cost, the array of costs. Variation in hospital patterns of utilization combined with differential hospital charging practices can result in valid relative costs, as we define them for the OPPS, in which the median cost for single scans exceeds the median cost for multiple scans.

With respect to the commenter's observation that the proposed rule mean cost for APC 0307 as it was proposed is higher than its proposed rule median cost, we note that it is very common for the mean cost to be higher than the median cost for services that are paid under the OPPS because there is frequently a wide range between the minimum cost and the maximum cost. For example, for CPT code 78492, the CY 2012 proposed rule minimum cost on a single bill was approximately $175 and the maximum cost was approximately $7,828, although the median cost was approximately $954 and the mean cost was approximately $1,186. Therefore, it is clear that the cost of most of the single bills were closer to $175 than they were to $7,827, but when all of the single bill costs were averaged, the mean cost (approximately $1,186) was greater than the median cost (approximately $954). We do not understand what is meant by the commenter's additional statement that the CY 2012 proposed rule median cost for APC 0307 ``is also below the median cost for three of the codes in APC 0307 that comprise 10,929 of the 11,060 total claims for the APC'' because there were only three codes in APC 0307. CPT codes 78459, 78491, and 78492 were the only CPT codes assigned to now deleted APC 0307. We note that it is not surprising that the median cost for APC 0307 in the CY 2012 proposed rule data was equal to the median cost for CPT code 78492 because CPT code 78492 contained 98 percent of the single bills in APC 0307 (deleted for CY 2012) and, therefore, CPT code 78492 would be likely to control the median cost in the array of single procedure bills.

Comment: One commenter objected to the absence of a CMS presentation and explanation of the change in median cost for APC 0307 at either the winter or summer APC Panel meetings in 2011 and to the limited amount of information furnished in the proposed rule.

Response: We do not discuss all services paid under the OPPS at the APC Panel meetings. The APC Panel meetings offer the opportunity for any member of the public to make presentations on any issue of interest that is within scope of the Panel's charter and for CMS to seek Panel comment and advice on issues for which CMS believes such comment and advice would be useful. The winter APC Panel meeting generally reviews concerns of the public with regard to the final rule for that year and provides an opportunity for the public and CMS to seek the Panel's comment and advice on issues for the forthcoming year's OPPS. The summer APC Panel meeting occurs during the comment period of the proposed rule and is generally limited to hearing the views of the public on the proposed rule for the upcoming year. No member of the public asked to make a presentation on the payment rate for APC 0307 at either the Panel's winter or the summer meetings in 2011. Moreover, we had no clinical or resource-related question related to APC 0307 for which we believed that APC Panel input would be useful. Therefore, like many other topics applicable to the CY 2012 OPPS, there was no discussion of the proposed payment for APC 0307 for CY 2012.

We also note that the proposed rule does not include service-

specific discussions of the calculation of median cost for each separately paid HCPCS code or for each APC. Rather, we discuss the general methodology used to calculate the median costs on which the proposed payment rates are based and the principles applied in determining APC configurations. We discuss specific APCs or services in the proposed rule only when we have a specific reason to do so, such as when we apply a nonstandard ratesetting methodology to calculate a proposed payment rate for a particular item or service. In most cases, a proposed reduction of a median cost for an APC or for a HCPCS code that is calculated from actual charges and cost

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data does not result in a service-specific discussion in the proposed rule. The number of APCs and the volume of HCPCS codes for which median costs are calculated prohibit a detailed explanation of each change in a median cost in the proposed rule because annual changes to hospital charges and costs generally result in changes to median costs for each HCPCS code and, therefore, for each APC each year.

Comment: Commenters objected to the proposed decrease in the payment rate for non-myocardial PET imaging services assigned to APC 0308.

Response: For CY 2012, the payment rate for APC 0308 is based on data from claims submitted during CY 2010 according to the standard OPPS ratesetting methodology after the reassignment of CPT codes 78459, 78491, and 78492 to APC 0308 for the reasons we discuss above. Specifically, we used 249,026 single procedure bills (out of 289,786 total claims) from CY 2012 final rule claims data to calculate the final median cost upon which the CY 2012 payment rate for APC 0308 is based. For CY 2012, we are setting the final payment rate for all PET imaging services (including CPT codes 78459, 78491 and 78492 that were in APC 0307 for CY 2011) based on final rule median costs of approximately $1,038 for APC 0308. This median cost results in a modest decline in the final CY 2012 median cost for PET imaging services compared to the CY 2011 median cost for non-myocardial PET imaging services. We note that our cost-finding methodology is based on converting each hospital's charge for its services to an estimated cost by applying the most discrete hospital-specific CCR available for the hospital that submitted the claim. Therefore, it is each hospital's claims and cost reports that determine the estimated costs that are used to calculate the median cost for each service and, when aggregated into APC groups, the hospital data are used to calculate the median cost for the APC on which the APC payment rate is based.

In summary, based on our review of the claims and cost report data and our assessment of the similarity of the services in APCs 0307 and 0308, we have reassigned CPT codes 78459, 78491, and 78492 to APC 0308, for which we have calculated a median cost of approximately $1,038 for CY 2012. We have revised the description of APC 0308 to be ``Positron Emission Tomography (PET) Imaging,'' so that it will describe both non-

myocardial PET and myocardial PET services, and we have deleted APC 0307 for CY 2012 for the reasons we discuss previously in this section. We have made no other reassignments to APC 0308 nor have we removed codes that are assigned to APC 0308 for CY 2011 from APC 0308 for CY 2012.

We will reassess whether it continues to be appropriate to assign both the non-myocardial PET and the myocardial PET services to the same APC for CY 2013 based on the CY 2013 OPPS cost data. We would propose to make any reassignments that we may believe to be necessary through the standard annual notice-and-comment rulemaking process.

e. Device Construction for Intensity Modulated Radiation Therapy (IMRT) (APC 0305)

CPT code 77338 (Multi-leaf collimator (MLC) device(s) for intensity modulated radiation therapy (IMRT), design and construction per IMRT plan) was new for CY 2010. The service was previously reported using multiple units of CPT code 77334 (Treatment devices, design and construction; complex (irregular blocks, special shields, compensators, wedges, molds or casts)). For CY 2012, the first year of claims data for CPT code 77338, we proposed to assign CPT code 77338 to APC 0305 (Level II Therapeutic Radiation Treatment Preparation), with a proposed median cost of approximately $266 because we calculated a proposed rule median cost for CPT code 77338 of approximately $186 based on a single bill frequency of 32,547 (out of a total bill frequency of 41,663) in the CY 2010 claims data that we used to establish the proposed payment rates for the CY 2012 OPPS.

For CY 2011, we had assigned CPT code 77338 to APC 0310 (Level III Therapeutic Radiation Treatment Preparation) based on a simulated median cost of approximately $792 that we calculated using CY 2009 claims data for CPT code 77334, the predecessor code to CPT code 77338. Using CY 2009 claims data, we estimated that hospitals would furnish 4 units of CPT code 77334 per IMRT treatment plan and that the estimated CY 2009 cost per unit for CPT code 77334 was $198, thus resulting in an estimated cost per IMRT plan of $792. Based on this simulated median cost for CPT code 77338, we assigned the code to APC 0310 which had a CY 2011 median cost of approximately $917. We stated that, for the CY 2012 OPPS, we planned to use our standard cost estimation process using the CY 2010 claims data and the most recent cost report data to establish a median cost for CPT code 77338, and that, based on that data, we would assess whether placement of CPT code 77338 in APC 0310 would remain appropriate for the CY 2012 OPPS (75 FR 71916).

Using the claims data from CY 2010, upon which we proposed to base the CY 2012 OPPS payment rates, we proposed to move CPT code 77338 from APC 0310 to APC 0305 for CY 2012 because its presence in APC 0310 would have created a 2 times rule violation. We refer readers to section III.B. of this final rule with comment period for discussion of the 2 times rule. Specifically, the proposed rule median cost for APC 0310 of approximately $953 was more than twice the median cost of approximately $186 that we calculated for CPT code 77338, and the single bill frequency for CPT code 77338 of 32,547 caused it to meet the criteria as a significant procedure in APC 0310. To resolve the 2 times rule violation, we proposed to move CPT code 77338 to APC 0305 for CY 2012 OPPS.

Comment: Commenters objected to our proposal to move CPT code 77338 from APC 0310 to APC 0305. They believed that even if assigned to APC 0310, the code is being underpaid because the predecessor code CPT code 77334 would have been charged 3 to 9 units for the initial IMRT treatment and that additional units would be charged 3 to 9 units for the successive IMRT treatments. Therefore, the commenters stated that if CPT code 77334 had not been replaced by CPT code 77338, they would have charged and been paid approximately $4,625 for 18 total units of CPT code 77334. Commenters stated that it is illogical that the proposed rule median cost of $213 for CPT code 77334, which is for one device, would be greater than the median cost of $186 for CPT code 77338, which is for all devices in an IMRT plan of treatment. One commenter stated that its analysis revealed there is huge variability in hospital charges for CPT code 77338, specifically, that 25 percent of hospitals charge less than $500 and 8.5 percent of hospitals charge more than $5,000 for one unit of CPT code 77338. This commenter noted that this variability is carried through the CMS cost data, with CMS finding costs of less than $100 for 17.5 percent of hospitals and costs of more than $1,000 for 10 percent of hospitals. Another commenter indicated that its analysis of the proposed rule claims data indicated that only 13 percent of hospitals submitted claims in line with CMS expectations of the charges for CPT code 77338. Many commenters stated that it is clear that hospitals require guidance with regard to billing for this service before improved data should be used to establish payment rates. Commenters asked that CMS reassign CPT code

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77338 to APC 0301 (Level II Radiation Therapy), or alternatively assign the procedure to an APC that would pay for construction of 10 to 20 devices or assign the code to a new technology APC. Commenters also asked that CMS provide guidance to ensure that hospitals bill appropriately for this new service because they believed that their data analysis shows that median costs are not accurate.

Response: After consideration of the public comments, the nature of the service being reported by CPT code 77338, and our claims data, we are finalizing our placement of CPT code 77338 in APC 0305, consistent with the median cost that we calculated based on the actual charges reported by 965 hospitals for CPT code 77338, converted to cost by application of the CCRs we calculated from the billing hospitals' most recently submitted cost reports. CPT code 77338 has similar clinical characteristics to the services in APC 0305 (Level II Therapeutic Radiation Treatment Preparation). In addition, the final rule median cost for CPT code 77338 of approximately $188 is more similar to the median cost for APC 0305 of approximately $264 than it is similar to the median cost for APC 0310 of approximately $955.

Our examination of the CY 2010 claims that we used to calculate the final median cost of approximately $188 for CPT code 77338 reveals that the median charge in the single bills used for ratesetting for CPT code 77338 was approximately $826. The median CCR that we used to reduce the hospital established charges to costs was 0.23. We used 36,860 single procedure bills from 965 hospitals (out of 47,589 total lines) or approximately 78 percent of the total lines containing actual charges for CPT code 77338, to calculate the final rule median cost for CPT code 77338, which is defined as including all devices required for an IMRT treatment plan.

We recognize that there is considerable variability in the charges that hospitals established for these new codes, but it is not uncommon for there to be a high level of variability in the charges for a service, and it is normal that such variability would be carried through to the calculation of estimated costs for the service. We do not advise hospitals with regard to what they should charge for a service other than to require that the charges be reasonably related to their cost for the service and that they must charge all payers the same amount for the same service. However, our use of the median charges to establish payment levels was specifically designed to address wide variances in hospital cost accounting systems and billing patterns, and has also consistently been a reliable mechanism for promoting increased consistency without introducing additional regulations. We recognize that it is peculiar that the estimated cost for CPT code 77334, which represents the cost of a single device, would be greater than the estimated cost for CPT code 77338, which represents the cost of all devices in a single IMRT plan of treatment, but our estimated costs are based on the amounts of the charges established by hospitals for the service and the hospitals' CCRs, which are calculated from their Medicare cost reports. There are many reasons why this apparent anomaly could exist, including clinical rationales such as the inclusion of labor-intensive physical blocks, shields, and molds in the service described by CPT code 77334, as well as accounting rationales such as the crosswalking of a single collimator setting to the charges for the construction of a physical block, also in the service described by CPT code 77334. It is not unusual for hospitals to establish charges that do not comport with our expectation of the charges they would establish based on the definition of the code for the service for which they are establishing charges and on which we based simulated medians.

The OPPS is based on the expectation that hospital charges reflect the relative resources that are required to furnish the service for which they are requesting a specified amount of payment. This self-

selected hospital charge is converted to an estimated cost by the application of a CCR for the billing hospital which is calculated from the billing hospital's own cost report. As described previously, in this case the single bills used to calculate the median cost were submitted in significant volume by 965 hospitals (36,860 single bills were used for ratesetting out of 47,589 total lines). Therefore, we have no reason to believe that the median cost we have calculated from such a robust submission of charge data from a significant number of hospitals should not be used to establish the payment for the service reported by CPT code 77338 for CY 2012. To the extent that hospitals determine that their charges should be revised to better reflect the resources required to furnish the service as defined by CPT code 77338, the revised charges would be reflected in future years' OPPS payment rates. However, for CY 2012, based on the robust set of single procedure bills containing actual charges for CPT code 77338 by 965 hospitals, we believe that it is appropriate to apply our longstanding cost-finding methodology, as we proposed, to calculate the median cost on which the payment for CPT code 77338 is based for CY 2012. We see no basis to ignore our robust set of single procedure claims submitted by a significant number of hospitals by continuing to simulate a median cost for CPT code 77338.

In conclusion, we see no irregularities in our calculation of the median cost for CPT code 77338 based on the actual charges reported on 36,860 single procedure bills submitted by 965 hospitals. Therefore, we are finalizing our assignment of CPT code 77338, which has a final median cost of approximately $188 to APC 0305, which has a final median cost of $264 for CY 2012.

f. Computed Tomography of Abdomen and Pelvis (APC 0331 and 0334)

The AMA CPT Editorial Panel created three codes for computed tomography (CT) of abdominal and pelvis that were effective January 1, 2011, specifically, CPT code 74176 (Computed tomography, abdomen and pelvis; without contrast material); CPT code 74177 (Computed tomography, abdomen and pelvis; with contrast material(s)); and CPT code 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by contrast material(s) and further sections in one or both body regions). As with all new CPT codes for CY 2011, these new codes were announced through the publication of the CY 2011 CPT in November 2010, effective on January 1, 2011.

In accordance with our longstanding policy, we made an interim APC assignment for each new code for CY 2011 based on our understanding of the resources required to furnish the service as the service was defined in the new code (75 FR 71898). Specifically, for CY 2011, we assigned new CPT code 74176 to APC 0332 (Computed Tomography without Contrast), which has a CY 2011 payment rate of approximately $194; we assigned CPT code 74177 to APC 0283 (Computed Tomography with Contrast), which has a CY 2011 payment rate of approximately $300; and we assigned CPT code 74178 to APC 0333 (Computed Tomography Without Contrast Followed by with Contrast), which has a CY 2011 payment rate of approximately $334. For CY 2011, we also made these codes eligible for composite payment under the multiple imaging composite APC methodology when they are furnished with other CT

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procedures to the same patient on the same day.

As is our standard practice each year, our clinicians review each of the many CPT code changes that will be effective in the forthcoming year and make a decision regarding status indicator and/or APC assignment based on their understanding of the nature of the services furnished. We are unable to include a proposed status indicator and/or APC assignment in the proposed rule for codes that are not announced by the AMA CPT Editorial Board prior to the proposed rule. Therefore, in accordance with our longstanding policy, we include, in the final rule with comment period, an interim status indicator and/or APC assignment for all new CPT codes that are announced by the AMA CPT Editorial Board subsequent to the OPPS/ASC proposed rule to enable payment to be made for new services as soon as the code is effective. In accordance with our longstanding practice, we identified the new codes for abdominal/

pelvis CT for CY 2011 in Addendum B of the CY 2011 OPPS/ASC final rule with comment period as having new interim APC assignments by showing a comment indicator of ``NI,'' and we provided a public comment period. As we do with all new CPT codes, we are responding to the public comments in this OPPS/ASC final rule with comment period for CY 2012. This longstanding process enables us to pay for new services as soon as the new CPT codes for them go into effect, despite the fact that they first become publicly available around the same time the final rule with comment period for the upcoming year is made public.

At its February 28-March 1, 2011 meeting, the APC Panel heard public presentations on this issue and recommended that CMS provide more data on the new CPT codes for combined abdomen and pelvis CT as soon as these data are available. In the CY 2012 OPPS/ASC proposed rule (76 FR 42235), we stated that we were accepting this recommendation, and we would provide claims data as soon as the data are available. We noted that, because these codes were effective January 1, 2011, the first available claims data for these codes will be the APC Panel claims data for the CY 2013 OPPS rulemaking. These data will be for dates of service January 1, 2011 through and including September 30, 2011, as processed through the Common Working File on or before September 30, 2011.

As we described in the proposed rule, in general, stakeholders who provided comments on the interim assignment of these codes for CY 2011 stated that the most appropriate approach to establishing payment for these new codes is to assign these procedures to APCs that recognize that each of the new codes reflects the reporting under a single code of two services that were previously reported under two separate codes and that, therefore, payments would be more accurate and better reflective of the relative cost of the services under the OPPS if we were to establish payment rates for the codes for CY 2012 using claim data that reflect the combined cost of the two predecessor codes. They noted that when these services were reported in CY 2010 using two CPT codes, rather than a single code, the services that are being reported under CPT code 74176 were assigned to imaging composite APC 8005 (CT and CTA without Contrast) for which the CY 2010 payment was $419.45. Similarly, the services being reported under CPT code 74177 or CPT code 74178 were assigned to composite APC 8006 (CT and CTA with Contrast) for which the CY 2010 payment was $628.49. They indicated that they believed that simulating the median cost for CPT codes 74176, 74177, and 74178 using historic claims data from the predecessor codes in a manner similar to that used to create the composite APC medians would result in the best estimates of costs for these codes and, therefore, the most accurate payment rate for these codes.

After considering the presentations at the APC Panel meeting, the views of stakeholders who met with us to discuss this issue, and the comments in response to the CY 2011 final rule with public comment period, and after examining our claims data for the predecessor codes, we stated in the proposed rule that we believe that establishment of payment rates for these services based on historic claims data for the combinations of predecessor codes that are now reported by CPT codes 74176, 74177, and 74178 would result in a more accurate and appropriate payment for these services for CY 2012 because it would take into account the full cost of both services that are now reported by a single CPT code. We indicated that we believe that the best way to secure the most appropriate payments for CY 2012 is to use the claims data from the predecessor codes under which the new codes were reported for CY 2010 to simulate median costs for the new codes and to create APCs that are appropriate to the services. To do so should reflect both the full cost of the service as reported by the new code and should also reflect the efficiencies of reporting the service represented by the single new code. Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42234), we proposed to establish two APCs to which we proposed to assign the combined abdominal and pelvis CT services. Specifically, we proposed to create new APC 0331 (Combined Abdominal and Pelvis CT Without Contrast), to which we proposed to assign CPT code 74176 and for which we proposed to base the CY 2012 OPPS payment rate on a median cost of approximately $417. We also proposed to create new APC 0334 (Combined Abdominal and Pelvis CT With Contrast), to which we proposed to assign CPT codes 74177 and 74178 for the CY 2012 OPPS and for which we proposed to base the CY 2012 OPPS payment rate on a median cost of approximately $592. We proposed to create two new APCs to which to assign these codes, rather than one, because CPT code 74176 is furnished without contrast, while CPT codes 74177 and 74178 are furnished with contrast. Section 1833(t)(2)(G) of the Act requires that services with contrast may not be assigned to APCs that contain services without contrast. Therefore, we could not assign CPT code 74176, which does not require contrast, to the same APC as CPT codes 74177 and 74178, which require contrast.

We proposed to create new APC 0331 to which we proposed to assign CPT code 74176 and to create new APC 0334 to which we proposed to assign CPT codes 74177 and 74178 because the proposed methodology for simulating the median costs for CPT codes 74176, 74177, and 74178, which uses claims data for the predecessor codes is unique to these CPT codes. Therefore, we believe that it is appropriate to create APCs comprised only of services for which we calculated medians using claims data for the predecessor codes. We stated in the proposed rule that, to the extent this policy is finalized, we would reassess whether it continues to be appropriate to pay these codes under APCs 0331 and 0334 once the median costs for the proposed CY 2013 OPPS are calculated using our standard methodology, based on hospitals' CY 2011 charges for CPT codes 74176, 74177, and 74178.

To calculate the proposed median costs for proposed APCs 0331 and 0334 for CY 2012, we selected claims that contained one unit of both of the predecessor CPT codes that appear in the CY 2011 CPT for CPT codes 74176, 74177, and 74178. The predecessor codes were limited to the codes in Table 20 of the proposed rule (now Table 27 of this final rule with comment period).

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For purposes of selecting claims to be used to calculate simulated median costs, we selected only claims that contained one (and only one) unit of each of the predecessor codes in the allowed combinations identified in Table 21 of the proposed rule (now Table 28 of this final rule with comment period). We used only claims that contained one and only one unit of each of the code combinations because we believe that it represents the best simulation of the definition of the new codes. Where more than one unit of either or both codes were reported, the claim would be paid under an imaging composite APC, not under APC 0331 or 0334. For median calculation, claims that contained more than one unit of either or both codes were assigned to the applicable imaging composite APC. We refer readers to section II.A.2.e.5. of the proposed rule and this final rule with comment period for discussion of the imaging composite APCs.

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After we selected the claims that contained one and only one unit of each code in each combination, we deleted claims that contained other separately paid HCPCS codes if those codes did not appear on the bypass list (we refer readers to section II.A.1.b. of the proposed rule and this final rule with comment period, and to Addendum N, which was available via the Internet on the CMS Web site). We bypassed the costs for codes that appeared on the

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bypass list to create simulated single procedure claims for CPT codes 74176, 74177, and 74178. Using the remaining simulated single procedure claims for the combined abdominal and pelvis CT services, we applied our standard trimming, packaging, and wage standardization methodology to calculate the median cost for each combined abdominal and pelvis CT code for the two proposed APCs. We refer readers to section II.A.2.c. of the proposed rule and this final rule with comment period for discussion of our standard trimming, packaging, and wage standardization methodology.

We found that using the proposed methodology resulted in a simulated median cost for CPT code 74176 of approximately $417, and that, because we proposed that CPT code 74176 would be the only HCPCS code assigned to APC 0331, the simulated median cost for APC 0331 also would be approximately $417. We found that using this proposed methodology, the simulated median cost for CPT code 74177 was approximately $570 and the simulated median cost for CPT code 74178 was approximately $638, and that the simulated median cost for proposed APC 0334 was approximately $592. We proposed to use this simulation methodology to establish proposed median costs for proposed APCs 0331 and 0334 for the CY 2012 OPPS.

We also proposed that, in cases where CPT code 74176 is reported with CT codes that describe CT services for other regions of the body other than the abdomen and pelvis in which contrast is not used, it would be assigned to imaging composite APC 8005 (CT and CTA without Contrast), for which we proposed a median cost of approximately $445 for the CY 2012 OPPS. In cases where CPT code 74177 or 74178 is reported with CT codes that describe CT services for regions of the body other than abdomen and pelvis in which contrast is used, we proposed that the code would be assigned to APC 8006 (CT and CTA with Contrast), for which we proposed a median cost of approximately $744 for the CY 2012 OPPS. We proposed to assign CPT codes 74176 to imaging composite APC 8005 and to assign CPT codes 74177 and 74178 to imaging composite APC 8006 because the predecessor codes for CPT codes 74176, 74177, and 74178 (identified in Table 20 of the proposed rule) continue to be reported when either abdominal CT or pelvis CT (but not both) is furnished, and we proposed to continue to assign them to imaging composite APCs 8005 and 8006. We stated that we believe that it would be inconsistent with our proposed imaging composite policy if we did not propose to assign CPT codes 74176, 74177, and 74178 to the applicable imaging composite APC for CY 2012. We refer readers to section II.A.2.e.(5) of the proposed rule and this final rule with comment period for the discussion of the calculation of our median costs for APCs 8005 and 8006 for CY 2012.

In summary, we proposed to establish new APCs 0331 and 0334 to which we would assign the abdominal and pelvis CT codes that were created by the AMA CPT Editorial Panel for CY 2011 and to use the simulation methodology we describe above to establish simulated median costs on which we would base the CY 2012 payment rates because we believe that to do so would result in relative payment weights for these new services that will more accurately reflect the resources required to furnish these services as defined by CPT than would be true of continued assignment of the codes to the single service APCs to which we made interim assignments for CY 2011. We noted that claims and cost data for these services will be available for the CY 2013 OPPS rulemaking, and we will reassess the payment policy for these codes based on the cost data that are used to establish the CY 2013 OPPS median cost and payment rates.

At its August 10-11, 2011 meeting, the APC Panel recommended that CMS adopt the proposal to create new APC 0331 (Combined Abdomen and Pelvis CT computed tomography without Contrast), for payment of CPT code 74176 (Computed tomography, abdomen and pelvis; without contrast material); and new APC 0334 (Combined Abdomen and Pelvis CT with Contrast), for payment of CPT code 74177 (Computed tomography, abdomen and pelvis; with contrast material(s)); and CPT code 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followed by contrast material(s) and further sections in one or both body regions). We respond to the Panel's recommendation as part of the response to comments below.

Comment: Commenters supported the use of data for the predecessor codes for the services that were combined into CPT codes 74176, 74177, and 74178 to create simulated median costs for use in establishing payments for CY 2012. Commenters supported the creation of APC 0331, to which we proposed to assign CPT code 74176, and APC 0334, to which we proposed to assign CPT codes 74177 and 74178 for CY 2012. As described previously, commenters on the CY 2011 OPPS/ASC final rule with comment period also stated that the most appropriate approach to establishing payment for these new codes is to assign these procedures to APCs that recognize that each of the new codes reflects the reporting under a single code of two services that were previously reported under two separate codes and that, therefore, payments would be more accurate and better reflective of the relative cost of the services under the OPPS if we were to establish payment rates for the codes for CY 2012 using claims data that reflect the combined cost of the two predecessor codes.

Response: We continue to believe that it is appropriate to base payment for CPT codes 74176, 74177, and 74178 on simulated median costs established using the cost data for predecessor codes for CY 2012 for the reasons we stated in the proposed rule, as summarized in the discussion above. Therefore, the median costs for CPT codes 74176, 74177, and 74178 for CY 2012 are based on the cost data for the predecessor codes, and we are establishing new APCs 0331 and 0334 to which these codes are assigned, as we proposed. The final rule median cost for CPT code 74176, which is the only code in APC 0331, is approximately $406. The final median cost for CPT code 74177 is approximately $561 and the final median cost for CPT code 74178 is approximately $631. The final median cost for APC 0334 to which CPT codes 74177 and 74178 are assigned is approximately $581.

We have a large volume of services in the predecessor data on which to base the simulated median costs for APCs 0331 and 0334. Specifically, to calculate the medians for CPT code 71476, we used 222,193 claims; for CPT code 71477, we used 331,262 claims; and for CPT code 74178, we used 201,693 claims. Because these codes were created effective January 1, 2011, we will have claims data containing actual charges for use in calculating the median cost of these services for the CY 2013 OPPS. We expect to have a very robust set of claims data containing actual hospital charges to which we expect to apply our standard processes to calculate the median costs for these codes for CY 2013 because of the large volume of services that we found in the predecessor data that meet the definition of the new codes. At that time, we will decide whether it is necessary and appropriate to propose to retain APCs 0331 and 0334. However, we note that the extent to which hospitals establish charges in a manner that reflects that the new codes report both the abdominal and pelvis CT services will greatly affect the median

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costs that are calculated, using our longstanding methodology, from the charge data present on claims for services in CY 2011.

Comment: One commenter on the CY 2012 proposed rule and several commenters on the CY 2011 final rule with comment period asked that CMS increase payment for the services described by CPT codes 74176, 74177, and 74178 for CY 2011 because they believe that CMS inappropriately reduced payment for these services as a result of the assignment of CPT code 74176 to APC 0332 and the assignment of CPT codes 74177 and 74178 to APC 0333 for CY 2011. Commenters on the CY 2011 final rule with comment period objected to the assignment of CPT code 74176 to APC 0332 and to the assignment of CPT codes 74177 and 741178 to APC 0333 on the basis that the payments for these single service APCs reduced the payment for the services which, when coded using multiple CPT codes in CY 2010, would have been paid as imaging composite APCs at much higher payment rates.

Response: The prospective payments that were established as a result of publication of the CY 2011 OPPS/ASC final rule with comment period are generally final payments, with the exception of any outlier payment or transitional outpatient payment to which the hospital may be entitled. We generally do not change payments that we implement as a result of the standard regulatory process during the year in which the payments are in effect unless required by legislation. We followed our longstanding policy when we made an interim assignment of CPT code 74176 to APC 0332 and when we made an interim assignment of CPT codes 74177 and 74178 to APC 0333 for CY 2011, based on our understanding of the hospital resources required to furnish these services. It is our longstanding practice to assign new CPT codes to interim APCs without having an opportunity to acquire comment from the public because the new codes are not announced to the public until after the opportunity for public comment has ended. This interim assignment remains in effect for the calendar year under this established process. The first opportunity to change the APC assignment for new codes is the final rule with comment period following the year the new codes are first recognized for OPPS payment.

After consideration of the public comments we received, for CY 2012, for the reasons we discussed previously in this section, we are creating new APC 0331, to which we are assigning CPT code 74176, and new APC 0334, to which we are assigning CPT codes 74177 and 74178. Using the claims data for the predecessor codes and the methodology we identify above and in the proposed rule, we calculated a simulated median cost of approximately $406 for APC 0331 and a simulated median cost of approximately $581 for APC 0334 for CY 2012. We will reassess whether there is a continued need for these APCs for the CY 2013 OPPS once we have actual charges for these services.

For the reasons we discuss previously in this section, we also are finalizing our proposal to assign CPT code 74176 to imaging composite APC 8005 where CPT code 74176 is reported with CT codes that describe CT services for regions of the body other than the abdomen and pelvis in which contrast is not used and to assign CPT codes 74177 and 74178 to APC 8006 when either of them is reported with CT codes that describe CT services for regions of the body other than abdomen and pelvis in which contrast is used. For CY 2012, APC 8005 has a median cost of approximately $432 and APC 8006 has a median cost of approximately $722.

g. Complex Interstitial Radiation Source Application (APC 0651)

APC 0651 (Complex Interstitial Radiation Source Application) consists of one service described by CPT code 77778 (Interstitial radiation source application; complex). Composite APC 8001 (Low Dose Rate Prostate Brachytherapy Composite) employs claims on which both CPT code 77778 and CPT code 55875 (Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy) are found on the same date of service, as described in section II.A.2.e.(2) of this final rule with comment period. For the CY 2012 proposed rule, APC 0651 had a median cost of approximately $897, based on 96 claims. APC 0651 has a final CY 2012 median cost of approximately $835, based on 92 single claims.

Comment: Several commenters expressed concern about the low volume of single and ``pseudo'' single claims used for APC 0651 ratesetting. They pointed out that both CY 2011 and CY 2012 payment rates for APC 0651 are based on fewer than 100 claims, and that the proposed CY 2012 payment rate for APC 0651 of $866.08 is a 23.3 percent decrease from the final CY 2011 payment rate of $1,129.46. The commenters believed the 96 claims used to set the proposed CY 2012 rate for APC 0651 are inadequate, and recommended that CMS continue to explore additional methodologies to increase the number of multiple procedure claims used for brachytherapy ratesetting.

Response: While we agree that 96 single claims associated with CPT code 77778 is not optimal for APC 0651 ratesetting, we believe that a low volume of single claims for this code is not unexpected due to the clinical nature of the procedure. As we describe in section II.A.2.e.(2) of this final rule with comment period, the application of brachytherapy sources described by CPT code 77778 and the placement of needles or catheters into the prostate described by CPT code 55875 are generally provided in the same operative session in the same hospital on the same date of service to the Medicare beneficiary being treated with LDR brachytherapy for prostate cancer. For this reason, we are continuing to pay for these two procedures when performed together through composite APC 8001. However, as we indicate in that section, we understand that there are a few occasions when a physician places the needles or catheters outside the hospital and the patient is then transferred to a hospital for brachytherapy source application, in which case CPT code 77778 would be reported alone in the hospital outpatient setting. While we agree with the commenter that it would be preferable if we had more single bills on which to base the payment for APC 0651, we believe the variation in the median costs for CPT code 77778 between the CY 2011 final rule and the CY 2012 final rule appears to be normal variation that we would expect to see for low-volume services. We also found from examining the single bills for CPT code 77778 that they are from different hospitals from year to year, which also could result in fluctuations in the median costs. We will continue to evaluate additional refinements and improvements to our ratesetting methodologies to maximize our use of claims data generally and continue to study means by which we can use more claims data to establish the payment rate for APC 0651 in particular.

For CY 2012, the final median cost for APC 0651 is approximately $835, based on 92 single bills. We will continue to use this median cost to establish payment for APC 0651 for CY 2012, and are finalizing our policy for CY 2012 that CPT code 77778, when billed alone, will be paid at the APC 0651 payment rate.

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h. Radioelement Applications (APC 0312)

APC 0312 consists of six radioelement application codes, one of which is unlisted CPT code 77799 (Unlisted procedure, clinical brachytherapy). For the CY 2012 proposed rule, APC 0312 had a median cost of approximately $338 based on 168 single claims. For CY 2011, APC 0312 had a final rule median cost of $351.17, based on 254 single claims.

Comment: One commenter stated that the number of APC 0312 single claims is sparse and shows large and random variations in yearly median costs. The commenter pointed to a decrease in single claims from the CY 2011 final rule to the CY 2012 proposed rule of 33 percent, and a decrease in the CY 2011 final payment rate to the CY 2012 proposed payment rate of 8.1 percent. The commenter recommended that CMS continue to explore additional methodologies to increase the number of multiple procedure claims used for brachytherapy ratesetting, such as for APC 0312.

Response: The CY 2012 final median cost of approximately $378 shows an increase of 7.8 percent from the CY 2011 final median of $351.17. We believe the variation in the median costs between the CY 2011 final rule and the CY 2012 final rule appears to be normal variation that we would expect to see for low-volume services. We agree with the commenter that it would be preferable if we had more single bills on which to base the payment for APC 0312, and we will continue to evaluate additional refinements and improvements to our ratesetting methodologies generally to maximize our use of claims data generally and continue to study means by which we can use more claims data to establish the payment rate for APC 0312 in particular. However, we note that 268, or approximately 36 percent, of the 736 total lines reported for services that are assigned to APC 0312 in the CY 2012 final rule data, were reported as CPT code 77799, which we do not use for setting the median cost for the APC because there is no definition of the service that was furnished. Therefore, some of the approximately 36 percent of the lines paid under APC 0312 might be used to establish the median cost for services in APC 0312 if they had been coded specifically, or in cases in which there is no existing code for the service, a new code were to be created to describe the services being furnished.

After consideration of the public comments we received, we are finalizing a CY 2012 median cost for APC 0312 of approximately $378, based on 183 single claims.

8. Respiratory Services

a. Pulmonary Rehabilitation (APC 0102)

Section 144(a)(1) of Public Law 110-275 (MIPPA) added section 1861(fff) to the Act to provide Medicare Part B coverage and payment for a comprehensive program of pulmonary rehabilitation services furnished to beneficiaries with chronic obstructive pulmonary disease, effective January 1, 2010. Accordingly, in the CY 2010 OPPS/ASC final rule with comment period, we established a policy to pay for pulmonary rehabilitation services furnished as a part of the comprehensive pulmonary rehabilitation program benefit (74 FR 60567). There was and continues to be no single CPT code that fully and accurately describes the comprehensive pulmonary rehabilitation benefit provided in section 1861(fff) of the Act. Moreover, at that time, there were no alphanumeric HCPCS codes that described the comprehensive pulmonary rehabilitation benefit in effect for CY 2008 (on which the CY 2010 OPPS was based) or CY 2009 (on which the CY 2011 OPPS was based). Therefore, for CY 2010, we created new HCPCS code G0424 (Pulmonary rehabilitation, including exercise (includes monitoring), one hour, per session, up to two sessions per day) and assigned the code to APC 0102 (Level II Pulmonary Treatment), which we also created for the CY 2010 OPPS. Because none of the pulmonary treatment codes for which there were charges for CY 2008 or CY 2009 accurately described the comprehensive pulmonary rehabilitation service for which MIPPA provided coverage, we did not assume that the charge reported on any one of the previously existing HCPCS codes under which pulmonary treatments were reported would represent the full charge for the comprehensive pulmonary rehabilitation service.

Instead, for the CY 2010 OPPS, which was based on claims for services in CY 2008, we calculated a median ``per session'' cost that we simulated from historical hospital claims data for pulmonary therapy services that were billed in combination with one another, much like we create composite APC median costs by summing the costs of multiple procedures that are typically provided on the same date. Our methodology for calculating the ``per session'' median cost that we used as the basis for the CY 2010 OPPS payment rate for HCPCS code G0424 and APC 0102 is discussed in detail in the CY 2010 OPPS final rule with comment period (74 FR 60567 through 60570).

Specifically, to simulate the ``per session'' median cost of new HCPCS code G0424 from claims data for existing services, we used only claims that contained at least one unit of HCPCS code G0239 (Therapeutic procedures to improve respiratory function or increase strength or endurance of respiratory muscles, two or more individuals (includes monitoring), the group code that is without limitation on time duration, and one unit of HCPCS code G0237 (Therapeutic procedures to increase strength or endurance of respiratory muscles, one on one, face to face, per 15 minutes (includes monitoring) or HCPCS code G0238 (Therapeutic procedures to improve respiratory function or increase strength or endurance of respiratory muscles, one on one, face to face, per 15 minutes (includes monitoring), the individual, face-to-face codes that report 15 minutes of service, on the same date of service. We reasoned that patients in a pulmonary rehabilitation program would typically receive individual and group services in each session of approximately 1 hour in duration. This was consistent with public comments that suggested that pulmonary rehabilitation is often provided in group sessions in the HOPD, although patients commonly require additional one-on-one care in order to fully participate in the program. We note that our use of ``per session'' claims reporting one unit of HCPCS code G0237 or G0238 and one unit of HCPCS code G0239 in this simulation methodology was also consistent with our overall finding of approximately 2.4 service units of the HCPCS G-codes per day on a single date of service, usually consisting of both individual and group services, for patients receiving pulmonary therapy services in the HOPD based upon CY 2008 claims. We concluded that the typical session of pulmonary rehabilitation would be 1 hour based on public comments that indicated that a session of pulmonary rehabilitation is typically 1 hour and based on our findings that the most commonly reported HCPCS code for pulmonary treatment is HCPCS code G0239, which has no time definition for this group service.

We included all costs of the related tests and assessment services (CPT codes 94620 (Pulmonary stress testing; simple (e.g., 6-minute walk test, prolonged exercise test for bronchospasm with pre- and post-

spirometry and oximetry)); 94664 (Demonstration and/or evaluation of

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patient utilization of an aerosol generator, nebulizer, metered dose inhaler or IPPB device); and 94667 (Manipulation chest wall, such as cupping, percussion and vibration to facilitate lung function; initial demonstration and/or evaluation), and all CPT codes for established patient clinic visits, on the same date of service as the HCPCS G-codes in the claims we used to simulate the median cost for HCPCS code G0424. After identifying these ``per session'' claims, which we believe to represent 1 hour of care, we summed the costs on them and calculated the median cost for the set of selected claims. In light of the cost and clinical similarities of pulmonary rehabilitation and the existing services described by HCPCS codes G0237, G0238, and G0239 and the CPT codes for related assessments and tests, and the significant number of ``per session'' hospital claims we found, we believed that the simulated median cost for HCPCS code G0424, constructed to include the costs of these services where furnished, was our best estimate of the expected hospital cost of a pulmonary rehabilitation session, given that we did not have hospital charges for the comprehensive pulmonary rehabilitation service provided by MIPPA for which we created HCPCS code G0424. We indicated in our discussion of the simulated median that we expected hospitals would establish charges for pulmonary rehabilitation that would reflect all of the services that are included in comprehensive benefit that would be reported by one unit of HCPCS code G0424 (76 FR 42240).

We used the resulting simulated median ``per session'' cost of approximately $50 as the basis for the payment for pulmonary rehabilitation service for CY 2010, the first year in which the comprehensive pulmonary rehabilitation benefit was covered. For CY 2011, which was based on claims for services furnished in CY 2009, we continued to assign HCPCS code G0424 to APC 0102 and to apply the simulation methodology that we used in CY 2010 to claims for services in CY 2009 to calculate a median ``per session'' cost simulated from historical hospital claims data for similar pulmonary therapy services for the CY 2011 OPPS. The CY 2011 OPPS final rule median cost of approximately $62 resulted in a national unadjusted payment rate for CY 2011 of approximately $63.

For the CY 2012 OPPS, however, we have a very robust set of claims for HCPCS code G0424 on which hospitals reported the charges for the comprehensive pulmonary rehabilitation service for which MIPPA provided the pulmonary rehabilitation benefit beginning on January 1, 2010. Specifically, the CY 2012 OPPS proposed rule data, based on CY 2010 claims, contained a total frequency of 393,056 lines of HCPCS code G0424, of which we were able to use 391,901 single procedure bills or almost 100 percent of the claims submitted for HCPCS code G0424. This is an extremely robust volume of single procedure bills containing charges for HCPCS code G0424 on which to base a median cost. In general, we have found that higher volumes of single bills both in absolute numbers and as a percentage of total frequency provide very stable estimates of hospital costs.

Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42239 and 42240), we proposed that the payment rate for HCPCS code G0424 and, therefore, for APC 102, would be based on the median cost for the service as derived from claims for services furnished in CY 2010 and the most current available cost report information, using our longstanding process for estimating the median cost of a service described by a HCPCS code. We refer readers to section II. of the proposed rule and this final rule with comment period for a description of our longstanding standard process for calculating the median costs on which the OPPS payment rates are based. Using our standard median calculation process for HCPCS code G0424 resulted in a proposed median cost of approximately $38 for HCPCS code G0424 and, therefore, for APC 0102. Given that the volume of claims in the CY 2012 OPPS proposed rule data was so robust for HCPCS code G0424, we believed that the proposed median cost we calculated for HCPCS code G0424 was a valid reflection of the relative cost of the comprehensive pulmonary rehabilitation service described by HCPCS code G0424 and that the proposed median cost for HCPCS code G0424 was an appropriate basis on which to establish the proposed national unadjusted payment rate for APC 0102.

We indicated in the proposed rule that we recognized that there is a significant difference between our simulated median cost for CY 2011 and the CY 2012 proposed rule median cost of approximately $38 that was derived from application of our standard median calculation process to hospital claims data for CY 2010. We believe that this difference arises because the median simulation methodology we used for CY 2010 and CY 2011 selected claims that contained multiple procedures and packaged the costs of numerous services into the ``per session'' cost for the simulated code where numerous services appeared on the same date of service. Our simulation methodology assumed that hospitals would include the charges for these additional services in their CY 2010 charges for HCPCS code G0424 because the services are included in the definition of comprehensive pulmonary rehabilitation.

In response to the CY 2012 OPPS proposed median cost of approximately $38 for HCPCS code G0424, we looked at our claims data in more depth. We found that 1,048 hospitals, approximately 25 percent of hospitals paid under the OPPS, reported HCPCS code G0424 and that the median line item median cost (exclusive of packaging) was approximately $38, virtually no different from the median cost per unit that we derived from the single bills. We also examined the charges that were submitted for HCPCS code G0424 in CY 2010 and the CCRs that were applied to the charges for HCPCS code G0424 to calculate the estimated median cost for the code for the CY 2012 proposed rule. We also looked at the revenue codes under which charges for HCPCS code G0424 were reported and the percentage of cost that was associated with packaged costs, such as oxygen, drugs, and medical supplies. We found that the median line item charge for HCPCS code G0424 in the CY 2012 proposed rule data was approximately $150 and that the median CCR was 0.29. We also found that the most frequently reported revenue code for HCPCS code G0424 was revenue code 410 (Respiratory therapy), approximately 108,000 single bills, and with revenue code 948 (Pulmonary Rehabilitation), approximately 81,000 single bills, being the second most commonly reported revenue code for HCPCS code G0424. We found that only 0.02 percent of the cost of HCPCS code G0424 was packaged cost (for example, oxygen, drugs, and supplies). In general, our detailed examination of total and line item charges for pulmonary rehabilitation, the CCRs used to reduce the charges to estimated costs on the single bills, the revenue codes reported, and the absence of packaging on the single bills supports the proposed median cost of approximately $38 per unit as a valid estimate of the relative cost of one unit of HCPCS code G0424.

In summary, our examination of the claims and cost data for HCPCS code G0424 caused us to believe that the proposed median cost that we calculated from claims data for HCPCS code G0424 was calculated correctly

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according to our longstanding standard median cost calculation methodology. Therefore, we proposed to base the CY 2012 OPPS payment rate for HCPCS code G0424 and APC 0102 on the median cost that we derive from applying our standard median calculation methodology to the CY 2010 charges and cost data for HCPCS code G0424.

Comment: Commenters objected to the proposed CY 2012 payment because it proposed a significant reduction in payment from the payment that resulted from the simulated median cost for pulmonary rehabilitation for CY 2010 and CY 2011. They stated that such a reduction in payment would not cover the labor cost of the service and would result in hospitals ceasing to furnish the service and, therefore, would reduce access to care for beneficiaries. Commenters believed that hospitals do not understand the nature of HCPCS code G0424 as a unit of a comprehensive service. They believed that hospitals are very familiar with HCPCS code G0237, which is for 15 minutes of care for patients with chronic pulmonary diseases, and they believed that hospitals presumed that a single code for very similar services correlated to a different diagnosis would also be a 15 minute code and that they set the charge for HCPCS code G0424, which is for similar services but is limited to persons with chronic obstructive pulmonary disease (COPD), accordingly. Commenters stated that CMS data support that hospitals are not reporting charges associated with the corollary services that are part of HCPCS code G0424. They urged CMS to freeze the payment for pulmonary rehabilitation for CY 2012 at the CY 2011 rate and to shift from the use of a standard cost center to the use of a nonstandard cost center for determining the relative cost of pulmonary rehabilitation services because they believed that using a standard cost center does not adequately capture the cost of the services. The commenters believed that continuing the CY 2011 payment for CY 2012 is justified because there is strong historical data for HCPCS codes G0237 through G0239 and a weak data base for HCPCS code G0424 and that using 10 years of data for HCPCS codes G0237 through G0239 is wiser than using one year of artifact data for HCPCS code G0424 as the basis for the payment for HCPCS code G0424. They indicated that the proposed payment for pulmonary rehabilitation will reduce access to care and thereby result in CMS losing an important tool for reducing readmissions and decreasing length of stay in inpatient hospital settings. The commenters stated that HCPCS codes G0237 through G0239 are used to report individual pulmonary services while HCPCS code G0424 is generally recognized as a group code with a maximum ratio of one staff to four patients. However, they stated that this is not always the case and that HCPCS code G0424 is sometimes requires a one-

to-one staff to patient ratio. Therefore, until such time as a more robust set of data is available, the commenters asked that CMS continue to base payment for HCPCS code G0424 on the data for HCPCS codes G0237 through G0239 using the simulated median methodology that was the basis for payments for HCPCS code G0424 for CY 2010 and 2011.

Response: After considering the comments and reexamining our claims data, we are establishing the CY 2012 median cost on which the CY 2012 payment for HCPCS code G0424 will be based on our claims and cost report data. The final rule median cost for APC 0102 to which HCPCS code G0424 is assigned is approximately $37. Our final rule data shows that hospitals billed a total frequency of 448,396 lines of pulmonary rehabilitation, of which we were able to use 446,456 or nearly 100 percent of the billed lines, for the calculation of the final median cost for HCPCS code G0424 for CY 2012. We disagree with commenters that these claims are artifact claims that should not be used.

For this final rule we expanded our data analysis to look not only at the charges and CCRs for HCPCS code G0424, but also to look at the charges and CCRs for HCPCS code G0237 through G0239, which the commenters indicated are similar services, and also to look at the cost centers that were used to reduce the charges to costs. We found that the median charge for one unit of HCPCS code G0424 is approximately $152 and the median charge for HCPCS code G0239, which is defined to include services to two or more persons, rather than one on one service, is approximately $120. Commenters stated that HCPCS code G0424 is generally, but not always, considered to be a group service with a staff to patient ratio of 1:4. Therefore, we view it as most similar to HCPCS code G0239, which is defined as a group service and which was the basis for the simulated median cost methodology on which we based the OPPS payments for CY 2010 and CY 2011. Therefore, it seems logical that hospitals charged more for the comprehensive pulmonary rehabilitation service of HCPCS code G0424 than for HCPCS code G0239 which is not a comprehensive service but which is a group service for which time is not limited. Hospital charges represent the hospital's statement of the dollar value of the service they furnish and we conclude that hospitals place a higher dollar value on HCPCS code G0424 than on G0239. We do not view HCPCS code G0237 or G0238, which have median charges of approximately $88 and $85, respectively, and which represent 15 minutes of care to be similar to HCPCS code G0424 because each of them is for one-on-one care, as opposed to the group nature of HCPCS codes G0239 and G0424. For that reason, when we simulated median costs for CY 2010 and CY 2011, we based the simulation on the presence of HCPCS code G0239 on the claim, with HCPCS code G0237 and/or HCPCS code G0238 being a secondary requirement.

We next looked at the revenue codes under which hospitals reported HCPCS code G0424 and G0239. We found that the most commonly reported revenue codes on the lines with the single bills for HCPCS code G0424 were 0410, Respiratory Services, with 108,154 single bills; 0948, Pulmonary Rehabilitation, with 84,126 single bills; 0460, Pulmonary Function, with 64,641 single bills; 0419, Other Respiratory Services, with 37,833 single bills, and 0940, Other Therapeutic, with 59,533 single bills. Therefore, of the 446,456 single bills used to set the median cost for APC 102, 345,738 bills (excluding the single bills reported as ``Other therapeutic''), or 77 percent, were reported under revenue codes that were specific to respiratory services of some nature (that is, revenue codes 0410, 0948, 0460, and 0419). The remaining single bills were reported under a variety of revenue codes. We next looked at the cost centers that were applied to the charges on the single bills, and we found that we used the respiratory therapy cost center, cost center 4900 on the hospital cost report CMS 2552-96, to reduce the charges on the line to costs on 63 percent of the single bills. When we looked at the CCRs used to reduce charges to cost for HCPCS codes G0424 and G0239, we found that both the HCPCS codes G0424 and G0239 have a CCR of 0.25, which is consistent with our finding that charges for both codes were usually reduced by the CCR for cost center 4900, Respiratory Therapy. We disagree with the commenters' request that we create a nonstandard cost center for pulmonary rehabilitation because we believe that it is not necessary and would not result in more accurate estimated median costs for pulmonary rehabilitation.

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Stakeholders have repeatedly told us that respiratory therapists furnish most pulmonary rehabilitation. Therefore, we expect that the costs of pulmonary rehabilitation are captured in the standard cost center 4900 (Respiratory Therapy), which is used to convert charges to costs for pulmonary rehabilitation for approximately 63 percent of single bills used to establish the median cost for pulmonary rehabilitation. We note also that a nonstandard cost center, which commenters' requested, is not required to be used to report costs. However, a standard cost center, like cost center 4900, must be completed by a hospital if it has a cost account for those costs in its general ledger. Hence, the creation of a nonstandard cost center would not necessarily be used.

Everything we observe in the claims data for the 446,456 single bills used to report the CY 2010 charges from which we calculated the median cost for HCPCS code G0424 leads us to believe that the calculation of the median cost of approximately $37 for HCPCS code G0424 is appropriate, based on the charge that hospitals set for the service. The median cost was calculated using charges, the majority of which are reported under pulmonary specific revenue codes and using CCRs, and which mostly used the respiratory therapy cost center.

With regard to the comment that the payment that results from a median cost of approximately $37 would be insufficient to pay the labor cost for the service, we note that, given that HCPCS code G0424 is generally recognized to be a group service, generally with a ratio of 1 staff to 4 patients, the payment for an hour of service would usually be 3 to 4 times the payment for one unit of HCPCS code G0424.

We do not agree with the commenters that freezing the payment for HCPCS code G0424 at the rate that was based on the simulated median cost for CY 2011 would be appropriate, given the results of our analysis of the robust charge data and cost report data that hospitals submitted. Similarly, we see no basis for continuing to use the simulated methodology to calculate median costs for pulmonary rehabilitation because we now have an abundant number of single bills containing the actual charges that hospitals requested in payment for the service they are furnishing. With regard to the comment that hospitals established their charges based on misunderstanding of the nature of the service or based on charges for services that they wrongly viewed to be similar, we note that the median hospital charge for HCPCS code G0424 is higher than the median charge for HCPCS code G0239, the group respiratory service as we would expect given that HCPCS code G0424 is a comprehensive service. The charges that hospitals establish for services are the amount they seek to be paid for the service they furnish, and therefore, we view them as being a reflection of the monetary value the hospital places on the service. Under our longstanding methodology, we use hospital charges to calculate the median costs on which the OPPS payment is based.

Lastly, we do not agree with commenters that payment based on the median cost we derived from hospital's costs and charges for CY 2010 will necessarily result in reduced access to care for Medicare patients. We note that the respiratory therapy services reported under HCPCS code G0239, which commenters stated is for an hour of group respiratory therapy and is the most similar code to HCPCS code G0424, has a median cost of approximately $31, which compares reasonably to the median cost of approximately $37 which we found for HCPCS code G0424, a service of more complexity. We note that in CY 2010, when the payment rate for HCPCS code G0239 was $27.39, hospitals reported a total frequency of 146,616, which indicates no absence of access to care at a payment rate significantly less than the median cost for HCPCS code G0424 in CY 2012.

Comment: Commenters also stated that some CMS instructions to contractors were not issued until May 2010 and that some MACs did not permit billing of HCPCS code G0424 until October of 2010. Moreover, they stated that some MACs instructed hospitals to report HCPCS codes G0237 through G0239 for pulmonary rehabilitation for COPD patients contrary to CMS instructions. They added that, given these issues with implementation of billing and payment for HCPCS code G0424, it is understandable that hospitals struggled with developing charges for a one hour code for COPD patients when charges were already in place for very similar services for patients with other chronic pulmonary diseases.

Response: Hospitals are responsible for updating their billing systems to recognize changes to codes and payment for services, particularly with regard to the quarterly changes to HCPCS codes, including the addition of new codes. CMS posts all instructions regarding new codes on the CMS Web site, issues Medicare Learning Network (MLN) Matters articles on new codes and hosts Hospital Open Door Forum calls regularly to provide easy ways for hospitals to stay up to date on changes in Medicare payment policy. The instructions to MACs are available to the public via the Web site. If a hospital believes that a MAC is not in compliance with the instructions and cannot achieve satisfaction from discussing the issue with the MAC, the hospital should bring it to the attention of the CMS regional office staff for the area in which the hospital is located. We acknowledge that Change Request (CR) 6823 regarding coverage and implementation of pulmonary rehabilitation was issued by CMS on May 7, 2010, effective for services furnished on and after January 1, 2010. However, the Federal Register notice of the OPPS for CY 2010, which was posted to http://www.cms.gov/HospitalOutpatientPPS/ on October 30, 2009, contained the coverage and payment policy for the pulmonary rehabilitation benefit, a discussion of how the services should be coded, including a full discussion of HCPCS code G0424 and an explanation of how the simulated median was created, including how CMS viewed HCPCS code G0424 to be similar to HCPCS codes G0237 through G0239 (74 FR 60569). Moreover, CMS hosted regular Hospital Open Door Forum calls between November 2009 and January 1, 2010 at which CMS staff was available to discuss any issue arising from the Medicare hospital OPPS. CMS expected that hospitals would use the detailed explanation of how we arrived at the simulated median that was articulated in the CY 2010 OPPS/ASC final rule with comment period that was posted on the CMS Web site as a basis for establishing charges for the services for HCPCS code G0424 for CY 2010, because CMS advised hospitals of how the simulated median was created. Therefore, notwithstanding the delay in the issuance of CR 6823, we believe that hospitals had access to all of the information that was necessary to report the new codes and to establish appropriate charges for HCPCS code G0424 beginning with the January 1, 2010 effective date.

Comment: Commenters asked that, for hospital cost reports filed January 1, 2012 and later, CMS require that pulmonary rehabilitation be reported in a nonstandard cost center rather than a standard cost center. They believed that the recommendations of RTI in its 2006 report, with regard to the creation of a new nonstandard cost center for cardiac rehabilitation, should also apply to pulmonary rehabilitation because the

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authorizing legislation is almost identical and because they believed that this would result in more accurate charge data and cost reports for pulmonary rehabilitation.

Response: We do not agree that the accuracy of median calculation would be improved if CMS would create a nonstandard cost center for pulmonary rehabilitation. There is already a cost center in which hospitals can isolate the costs of respiratory services (which may include the cost of hospital staff other than respiratory therapists who furnish respiratory therapy): Cost center 4900, Respiratory Therapy, on the CMS form 2552-96 and cost center 6600, Respiratory Therapy, on the CMS form 2552-10. However, we believe that respiratory therapists provide the majority of pulmonary rehabilitation and that the costs of respiratory therapists are largely reported on the cost report under the respiratory therapy cost center. Therefore, we believe that most of the costs of pulmonary rehabilitation are already carried in the Respiratory Therapy cost center, based on our finding that the CCR for the Respiratory Therapy cost center (4900 in the CMS hospital cost report form 2552-96) is reported sufficiently often that it was used to reduce the charge for 279,803 of the 446,456 single bills, or 63 percent of the single bills, to cost. In view of the existence of the standard cost center for respiratory therapy on both the CMS form 2552-96 and the CMS form 2552-10 hospital cost reports, we have no reason to believe that creation of a nonstandard cost center would result in more specific and accurate cost data for HCPCS code G0424. In contrast, unlike respiratory therapy, which has long had a dedicated cost center, the costs of the staff who furnish cardiac rehabilitation were not predominantly carried in a single cost center before the creation of the cardiac rehabilitation cost center. For this reason, the creation of a cardiac rehabilitation cost center does not justify the creation of a pulmonary rehabilitation cost center.

Comment: One commenter asked that CMS reconsider the valuation of the cost of HCPCS code G0424 to appropriately account for the services delivered by physical therapists. The commenter asked that, alternatively, CMS create a separate HCPCS code that can be used to delineate those patients who require individualized physical therapy within the pulmonary rehabilitation program. The commenter stated that the need for the service that would be reported by the new code would be determined by conducting separate screening that has clear and distinct criteria that justify the need for the physical therapy services.

Response: Pulmonary rehabilitation is a comprehensive service in which it would be inappropriate to create a code for a particular type of professional who participates in providing the service. The charge a hospital establishes for HCPCS code G0424 is a charge for the comprehensive package of services that are encompassed in the pulmonary rehabilitation benefit and includes the charge for whatever portion of those services may be furnished by a physical therapist. We do not believe that it would be appropriate to create a new and separate code for the services furnished by a physical therapist as part of a comprehensive pulmonary rehabilitation service because those services are already included in the charge for HCPCS code G0424. Similarly no additional payment should be made for those services because payment for HCPCS code G0424 includes payment for the comprehensive package of services for which payment is claimed when a hospital reports HCPCS code G0424.

In summary, for CY 2010, we are establishing payment for APC 0102, for which HCPCS code G0424 is the only assigned code, based on the median cost of approximately $37 that we calculated using 446,456 single bills of 448,396 total frequency, or nearly 100 percent, of the billed lines for HCPCS code G0424 and the most recent hospital cost reports for the hospitals whose bills are being used. We are not establishing a special purpose cost center for pulmonary rehabilitation because the service is largely furnished by respiratory therapists for which there is standard cost center (4900, Respiratory Therapy), which is already used to reduce most charges for HCPCS code G0424 to costs. Therefore, we do not believe that creating a pulmonary rehabilitation cost center in addition to the standard respiratory therapy cost center is necessary to the calculation of the median cost of HCPCS code G0424.

b. Bronchial Thermoplasty (APC 0415)

We created two new HCPCS codes, C9730 (Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 1 lobe) and C9731 (Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 2 or more lobes), also known as bronchial thermoplasty, and assigned them to APC 0415 (Level II Endoscopy lower airway), effective July 1, 2011. Bronchial thermoplasty is indicated for the treatment of severe persistent asthma, and the bronchial thermoplasty system consists of a radiofrequency (RF) controller and a single use device with an electrode array that is delivered through the working channel of a bronchoscope. The bronchial thermoplasty services, technology, and estimated costs came to our attention via an application for the services to be placed into a New Technology APC. The APC 0415 median cost for the CY 2012 proposed rule is $2,094.64. AMA's CPT Editorial Panel has recently created two new Category III CPT codes to be effective January 1, 2012, specifically, CPT codes 0276T (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with bronchial thermoplasty, 1 lobe) and 0277T (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with bronchial thermoplasty, 2 or more lobes). At the August 2011 APC Panel meeting, the APC Panel heard from a presenter regarding APC placement for bronchial thermoplasty, but the Panel did not make any recommendations to CMS. We indicated at the August 2011 APC Panel meeting that we anticipate retiring HCPCS codes C9730 and C9731, and replacing them with CPT codes 0276T and 0277T, respectively, effective January 1, 2012. For CY 2012, we proposed maintaining assignment of bronchial thermoplasty services to APC 0415.

Comment: One commenter stated that the bronchial thermoplasty codes, HCPCS codes C9730 and C9731, should not be assigned to APC 0415 for CY 2012 because the resources are not covered by the CY 2012 proposed rule median cost for APC 0415 of $2,094.64. The commenter's estimated costs for the bronchial thermoplasty procedures range from approximately $4,130 to $5,087, which includes its estimated cost of $2,500 for the single use catheter, while the CY 2012 proposed rule median costs of service codes assigned to APC 0415 range from approximately $1,780 to $3,122. The commenter contended that no existing clinical APCs are appropriate both in terms of clinical characteristics and resource costs. On the other hand, the commenter requested that CMS consider an assignment of the bronchial thermoplasty codes to APC 0423 (Level II percutaneous abdominal and biliary procedures). The commenter argued that APC 0423 includes CPT code 32998 (Ablation therapy for reduction or eradication of one or more pulmonary tumor(s) including pleura or chest wall when involved by tumor extension,

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percutaneous, radiofrequency, unilateral), a service that the commenter claimed is a better comparator for bronchial thermoplasty in terms of procedural costs as well as clinical similarity. The commenter stated that, clinically, the two procedures entail similar supplies and equipment and involve ablative techniques. However, the commenter stated that CPT code 32998 is performed percutaneously, while bronchial thermoplasty is performed through a bronchoscope. The commenter asserted that bronchial thermoplasty requires a disposable catheter costing $2,500, while CPT code 32998 requires a disposable probe costing approximately $1,375. Also, the commenter asserted that because the CY 2012 proposed median cost of CPT code 32998 is approximately $3,962 and the CY 2012 proposed median cost of APC 0423 is about $4,112, bronchial thermoplasty should be assigned to APC 0423 because of greater resource similarity as reflected in the higher median cost. The second option recommended by the commenter is to revise existing APC 0415 into APCs ``0415A'' and ``0415B'' and place the two bronchial thermoplasty codes into an APC 0415B with CPT codes 31626 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of fiducial markers, single or multiple), 31631 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of tracheal stent(s) (includes tracheal/bronchial dilation as required)), and 31636 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of bronchial stent(s) (includes tracheal/bronchial dilation as required), initial bronchus). The commenter's third, final and preferred recommendation was to assign bronchial thermoplasty codes to a New Technology APC.

Response: As stated above, effective January 1, 2012, newly created CPT codes 0276T and 0277T will be the codes used to report bronchial thermoplasty, and HCPCS codes C9730 and C9731 will be deleted effective that date. Regarding the commenter's recommended option to assign bronchial thermoplasty codes to APC 0423, we do not believe that the bronchial thermoplasty service is clinically similar to the procedures in APC 0423. APC 0423 consists of percutaneous procedures, while CPT codes 0276T and 0277T are bronchoscopic procedures, clinically similar to services in bronchoscopy APCs. We also do not agree that APC 0415 needs to be split into 2 APCs at this time. All of the bronchoscopy procedures in APC 0415 are clinically similar, and the final rule median costs for procedures within APC 0415 range from approximately $1,745 to approximately $3,300, with an overall median cost of approximately $2,048. We proposed to assign bronchial thermoplasty to APC 0415 because it is similar clinically to the bronchoscopy procedures in APC 0415, particularly CPT code 31641 (Bronchoscopy, with destruction of tumor or relief of stenosis by any method other than excision (e.g., laser therapy, cryotherapy)), and because the estimated resource costs are approximately similar to the upper end of the range of median costs for procedures assigned to APC 0415. We generally prefer to wait until median cost claims data are available before reassignment of a service to a new APC. We also note that, according to our usual practice, when adequate actual hospital reported cost data become available for these procedures, we reevaluate their APC assignments and may reassign them to another APC, as appropriate. Regarding the option to assign the service to a New Technology APC, we believe that APC 0415 is an appropriate clinical APC for bronchial thermoplasty procedures. Therefore, we are maintaining assignment of the bronchial thermoplasty services to APC 0415.

We are finalizing our proposal to maintain the assignment of bronchial thermoplasty procedures (CPT codes 0276T and 0277T beginning January 1, 2012) to APC 0415 for CY 2012, which has a final median cost of approximately $2,024.

c. Insertion of Bronchial Valve (APC 0415)

AMA's CPT Editorial Panel created CPT code 0250T (Airway sizing and insertion of bronchial valve(s), each lobe) effective January 1, 2011 to report insertion of a bronchial valve for treatment of prolonged air leaks of the lung. CPT code 0250T is an add-on code; therefore, hospitals must list the code in addition to the primary bronchoscopy procedure code. For 2011, we assigned CPT code 0250T to APC 0415 (Level II Endoscopy lower airway), with a payment rate of $1,971.77. We believe CPT code 0250T is similar to other services in APC 0415 in its clinical characteristics. For 2012, we proposed to maintain the assignment of CPT code 0250T to APC 0415, which had a proposed rule median cost of approximately $2,095, and a proposed payment rate of approximately $2,022. The CPT code 0250T procedure is performed with a bronchial valve intended to control prolonged air leaks of the lung following three specific surgical procedures: Lobectomy, segmentectomy, or lung volume reduction surgery (LVRS).

Comment: One commenter stated that APC 0415 does not adequately cover the resource costs of CPT code 0250T, and recommended that CMS create a new clinical APC that would accurately reflect the device and procedural costs associated with CPT code 0250T. The commenter claimed that the cost for the bronchial valve that is necessary to perform the CPT code 0250T procedure is $2,750, and that a total device cost based on the number of valves (2.4 mean, or median of 2.0 valves) is $6,600 based on the mean number of valves and $5,500 based on the median valves. The commenter asserted that it certified to the FDA that the current price of $2,750 complies with Humanitarian Device Exemption (HDE) regulations governing the price of the device. The commenter estimated that the CY 2012 total procedural cost for CPT code 0250T is $7,268.91 (based on the mean number of valves) or $6,168.91 (based on the median). The commenter asserted that the highest paying bronchoscopy in APC 0415 does not adequately pay for the cost of CPT code 0250T and requested that CMS create a new clinical APC for bronchial valve insertion and reassign CPT code 0250T to that APC for CY 2012.

Response: CPT code 0250T is a new code as of January 1, 2011, and therefore, we have no CY 2010 claims data for this service for CY 2012 ratesetting. The commenter apparently agrees that the bronchoscopy APC classification is the correct clinical APC type for the CPT code 0250T procedure, but that the estimated resource costs support a higher paying bronchoscopy APC. We generally wait until median cost claims data are available before reassignment to a new APC, particularly when there are no comparable clinical procedures that would allow us to easily estimate the cost of this new procedure. We again note that CPT code 0250T is an add-on code to a base bronchoscopy code.

After consideration of the public comments we received, we are maintaining our assignment of CPT code 0250T to APC 0415 for CY 2012, which has a final median cost of approximately $2,024, because it is clinically similar to the services in APC 0415. We will review this assignment for CY 2013, when we should have some claims data for CPT code 0250T to determine the cost of the procedure.

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9. Other Services

a. Skin Repair (APCs 0133, 0134, and 0135)

For CY 2012, we proposed to reassign CPT code 15004 (Surgical preparation or creation of recipient site by excision of open wounds, burn eschar, or scar (including subcutaneous tissues), or incisional release of scar contracture, face, scalp, eyelids, mouth, neck, ears, orbits, genitalia, hands, feet and/or multiple digits; first 100 sq cm or 1% of body area of infants and children) from APC 0135 (Level III Skin Repair) to APC 0134 (Level II Skin Repair). Similarly, we also proposed to reassign CPT code 15430 (Acellular xenograft implant; first 100 sq cm or less, or 1% of body area of infants and children) from APC 0135 (Level III Skin Repair) to APC 0134 (Level II Skin Repair). We reassigned CPT codes 15004 and 15430 from APC 0135 to APC 0134 to avoid a 2 times rule violation in APC 0135.

For CY 2012, the AMA's CPT Editorial Panel deleted 24 skin replacement and skin substitute-related CPT codes and replaced them with 8 new CPT codes in the Integumentary System section of the 2012 CPT code book to describe more accurately the services associated with skin replacement procedures. In particular, the CPT Editorial deleted 24 skin replacement and skin substitute-related CPT codes in the range between CPT code 15170 through 15431 and created 8 new CPT codes in the range between 15271 through 15278, which will be effective January 1, 2012.

Our standard process for dealing with new CPT codes is to assign the code to the APC that we believe contains services that are comparable with respect to clinical characteristics and resources required to furnish the service. The new CPT code is given a comment indicator of ``NI'' (New code, interim APC assignment; comments will be accepted on the interim APC assignment for the new code) to identify it as a new interim APC assignment for the new year and the APC assignment for the new codes is then open to public comment. In the case of the new the skin replacement and skin substitute-related CPT codes, we crosswalked the existing CY 2011 CPT codes to the new CY 2012 CPT codes that appropriately describes them. In assigning the new codes to their appropriate APCs, we took into consideration the size of the wound described in the code descriptor. Specifically, we assigned the new codes to their appropriate APCs based on the following factors:

New codes whose long descriptors included the words ``each additional 25 sq cm'' were assigned to APC 0133;

New codes whose long descriptors included the words ``first 25 sq cm or less'' or ``each additional 100 sq cm'' were assigned to APC 0134; and

New codes whose long descriptors included the words ``first 100 sq cm'' were assigned to APC 0135

Table 29 below lists the CY 2011 APC assignments for the CY 2011 CPT codes that will be deleted on December 31, 2011, and crosswalked to the replacement codes, which are described by the new CY 2012 CPT codes that will be effective January 1, 2012. We note that because the eight new CPT codes will be effective January 1, 2012, they are flagged with comment indicator ``NI'' in Addendum B of this final rule, which will be published and made available only via the Internet on the CMS Web site at http://www.cms.gov/.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

Comment: Some commenters requested CMS to continue to assign CPT code 15004 to APC 0135 because the procedure is clinically similar to CPT codes 15002, 15003, and 15005, which are in APC 0135.

Response: As we stated above, we reassigned CPT code 15004 from APC 0135 to APC 0134 to eliminate a 2 times rule violation in APC 0135. Based on our analysis, our claims data show a CPT median cost of approximately $278 for CPT code 15004 based on 1,529 single claims (out of 5,116 total claims). The median cost of approximately $278 for CPT code 15004 is closer to the median cost of approximately $227 for APC 0134 than to the median cost of approximately $345 for APC 0135. Moreover, the range of the median costs for the procedures with significant claims data that are assigned to APC 0134 is between $157 and $291, while the range for the procedures with significant claims data that are assigned to APC 0135 is between $284 and $642. The median cost of approximately $278 for CPT code 15004 is in the range of median costs for the procedures with significant claims data in APC 0134 but not in the range of median costs for the procedures with significant claims data in APC 0135. Further, we believe that CPT code 15004 is similar to the procedures in APC 0134 based on clinical homogeneity and resource costs. We remind hospitals that we have more than two levels of skin repair APCs. Specifically, we have five levels of skin repair APCs as follows:

APC 0133 (Level I Skin Repair)

APC 0134 (Level II Skin Repair)

APC 0135 (Level III Skin Repair)

APC 0136 (Level IV Skin Repair)

APC 0137 (Level V Skin Repair)

Therefore, after consideration of the public comments that we received, we are finalizing our CY 2012 proposal, without modification, to reassign CPT code 15004 from APC 0135 to APC 0134, which has a final CY 2012 APC median cost of approximately $227.

Comment: Several commenters urged CMS not to finalize its proposal to assign CPT code 15430 to APC 0134 and requested that CMS continue to assign the code to APC 0135, which is the same APC that is assigned to its add-on CPT code 15431 (Acellular xenograft implant; each additional 100 sq cm, or each additional 1% of body area of infants and children, or part thereof). The commenters stated that APC 0135 is the appropriate APC assignment for CPT code 15430 based on its clinical homogeneity and resource costs to other procedures assigned in APC 0135. One commenter indicated that the proposed CPT median cost of approximately $300 is closer to the proposed payment rate of approximately $361 for APC 0135 than to the proposed payment rate of approximately $228 for APC 0134.

Response: Although we proposed to reassign CPT code 15430 from APC 0135 to APC 0134, the code will be deleted on December 31, 2011, and replaced with new CPT codes effective January 1, 2012. As listed in Table 29, the replacement codes for CPT code 15430 have been crosswalked to APC 0135 based on the code descriptor.

Comment: One commenter recommended that CMS provide proper notice and comment before deleting HCPCS codes from the system. The commenter indicated that, in the case of HCPCS code Q4109 (Tissuemend, per square centimeter), the public should be provided adequate notice before the code is deleted with an explanation for its deletion. This same commenter requested that CMS temporarily reassign HCPCS code Q4109 to status indicator ``K'' (Nonpass-Through Drugs and Nonimplantable Biologicals, Including Therapeutic Radiopharmaceuticals) for CY 2012.

Response: HCPCS code Q4109 was deleted on December 31, 2010. We are not considering a status indicator reassignment for this code because the HCPCS code is no longer active. This HCPCS code was assigned to status indicator ``D'' (Discontinued Codes) in Addendum B of the CY 2011 OPPS/ASC final rule with comment period. Every

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year hundreds of new codes are created, revised, and deleted as part of the annual HCPCS cycle. In its role as the Level II Alphanumeric HCPCS code set maintainer, the CMS HCPCS Workgroup identifies redundancies across the HCPCS Level II national code set which reduces opportunities for duplicate billing. Because we are not aware of all the coding changes for the upcoming year when we publish our proposed rules, we do not address the coding changes in the proposed rule. Any interested party that disagrees with the coding actions for the Level II Alphanumeric HCPCS codes is welcome to submit a request to CMS to review the matter by submitting an application using CMS' standard procedures. The application will be considered as part of CMS' standard code review process, including an opportunity for public comment in reaction to a published preliminary HCPCS coding decision. The application can be downloaded from this CMS Web site: https://www.cms.gov/MedHCPCSGenInfo/01a_Application_Form_and_Instructions.asp#TopOfPage.

b. Nasal Sinus Endoscopy (APC 0075)

For CY 2012, we proposed to assign CPT codes 31295 (Nasal/sinus endoscopy, surgical; with dilation of maxillary sinus ostium (e.g., balloon dilation), transnasal or via canine fossa), 31296 (Nasal/sinus endoscopy, surgical; with dilation of frontal sinus ostium (e.g., balloon dilation), and 31297 (Nasal/sinus endoscopy, surgical; with dilation of sphenoid sinus ostium (e.g., balloon dilation) to APC 0075 (Level V Endoscopy Upper Airway).

Comment: One commenter on the CY 2012 OPPS/ASC proposed rule objected to the assignment of CPT codes 31295, 31296, and 31297 to APC 0075 because the commenter believed that the payment rate for APC 0075 substantially underpays providers. Commenters on the CY 2011 OPPS/ASC final rule with comment period (75 FR 71800) relating to the interim APC assignments and/or status indicators of HCPCS codes identified with comment indicator ``NI'' in Addendum B to that final rule with comment period addressed the same issue. The commenters suggested that instead of assigning CPT codes 31295, 31296, and 31297 to APC 0075, CMS create a new device-dependent APC for these three CPT codes. Or, if CMS does not decide to create a new device-dependent APC, the commenters suggested that the three CPT codes should instead be assigned to one of four alternative APCs. The commenters believed that assigning these codes to APCs 0056 (Level II Foot Musculoskeletal Procedures), 0083 (Level I Endovascular Revascularization of the Lower Extremity), or 0114 (Thyroid/Lymphadenectomy Procedures) would be justified because the payment rates for these APCs more closely reflect the costs associated with CPT codes 31295, 31296, and 31297. Commenters also suggested that another option would be to assign these CPTs to the new technology APC 1525 (New Technology--Level XXV ($3500-$4000)) until more claims data are accumulated and an appropriate clinical APC can be assigned.

Response: We do not agree that CPT codes 31295, 31296, and 31297 should be assigned to a new device-dependent APC. When assigning procedures to an APC, we first consider the clinical and resource characteristics of a procedure and determine the most appropriate APC assignment. We believe that the most clinically appropriate APC is APC 0075, which includes other nasal and sinus endoscopy procedures. The APCs suggested by the commenters (APCs 0056, 0083, and 0114) are clinically unrelated to the procedures described by CPT codes 31295, 31296, and 31297. Regarding the resource costs of the procedures in question, the commenters asserted costs of approximately $4,000 for these procedures, which are currently assigned to the highest paying clinically appropriate APC (APC 0075), which is level 5 out of 5 levels of APCs for ``endoscopy upper airway.'' The highest median cost of all of the procedures assigned to APC 0075 is approximately $4,000. Therefore, even the non-claims data-based cost estimate for these procedures offered by the commenters is within the approximate range (although on the high end of the range) of median costs for procedures assigned to APC 0075. Therefore, we believe that, until we have claims data to better inform an APC assignment, the current APC assignment is the most appropriate. We have no further information at this time that indicates that a device-dependent APC, the assignment of status indicator ``S'' instead of status indicator ``T,'' or a new technology APC would be more appropriate at this time. Once OPPS claims data are available for these procedures, we will reevaluate their APC assignments, as we do for all procedures on an ongoing and annual basis.

c. Bioimpedance Spectroscopy (APC 0097)

CPT code 0239T (Bioimpedance spectroscopy (BIS), measuring 100 frequencies or greater, direct measurement of extracellular fluid differences between the limbs) was effective January 1, 2011. In accordance with our standard policy, we assessed the properties of the service as CPT code 0239T was defined by the AMA's CPT Editorial Board. We assigned it to the APC that we believed to have the most similar clinical characteristics and resource requirements. In the case of CPT code 0239T, we assigned bioimpedance spectroscopy to APC 0099 (Electrocardiogram/Cardiography). For CY 2012, we proposed to continue to assign CPT code 0239T, for which we had no claims data on which to calculate a median cost, to APC 0099 for CY 2012. We proposed a median cost of approximately $28 for APC 0099.

Comment: One commenter objected to the proposed assignment of CPT code 0239T to APC 0099 for CY 2012 on the basis that the proposed payment rate for APC 0099 would be inadequate to pay hospitals' costs and, therefore, would jeopardize beneficiary access to the service. The commenter stated that BIS is a method to aid surgeons and oncologists in the pre-surgical assessment and post-operative monitoring of unilateral lymphedema of the arm. The commenter also stated that BIS is an aid for therapists to assess and monitor the measurement of extra cellular fluid volume differences between the arms during the treatment phase for early stage lymphedema. The commenter stated that BIS is not a diagnostic test but rather an aid to the physician in the clinical assessment of the patient because the results require interpretation by the physician and review of previous results for clinical relevance.

The commenter asked that CMS reassign CPT code 0239T from APC 0099 to APC 0096 (Level II Noninvasive Physiologic Studies). The commenter stated that CPT code 239T is not similar to 93701 (Bioimpedance-derived physiologic cardiovascular analysis), which the commenter assumed was the CMS rationale for also placing 0239T into APC 0099. Instead the commenter indicated that CPT code 239T is more similar in resource time, for which the commenter stated that physician time is a proxy to CPT code 93924 (Noninvasive physiologic studies of lower extremity arteries, at rest and following treadmill stress testing, (i.e., bidirectional Doppler waveform or volume plethysmography recording and analysis at rest with ankle/brachial indices immediately after and at timed intervals following performance of a standardized protocol on a motorized treadmill plus recording of time of onset of claudication or other symptoms, maximal walking time, and time to

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recovery) complete bilateral study). The commenter stated that the work description for CPT code 93924 of setting the patient up, taking diagnostic measurements, and analyzing and interpreting the records is similar to the work involved for CPT code 0239T and, therefore, CPT code 0239T should be assigned to APC 0096 rather than to APC 0099. The commenter also stated that the resource time for CPT code 0239T is similar to the resource time, using physician time as a proxy, for CPT code 99214 (Office or other outpatient visit for the evaluation and management of an established patient, which requires at least 2 of these 3 key components: A detailed history; A detailed examination; Medical decision making of moderate complexity). The commenter believed that because CPT code 99214 is assigned to APC 0606, which has a median cost of approximately $99, CPT code 0239T should be assigned to an APC with a comparable payment rate. In addition, the commenter stated that the proposed payment for APC 0099 is not adequate to compensate hospitals for what the commenter indicated are the cost of the necessary machine (approximately $27,000) and supplies (approximately $50 per unit). The commenter stated that compensation under APC 0099 would not be adequate and without adequate compensation, hospitals would not provide the service.

Response: We have no CY 2010 claims data for the service reported by CPT code 239T because the CPT code is new for CY 2011. Therefore, under our longstanding policy, we assigned the new code to the APC that we believed to be most similar clinically and with regard to homogeneity of hospital resources. Specifically, we assigned HCPCS code 0239T to APC 0099 for CY 2011, and we proposed to continue that assignment for CY 2012. We disagree with the commenter that BIS is not a diagnostic service because the service is used for the diagnosis of a clinical condition. However, after examination of the information furnished by the commenter, we agree with the commenter that CPT code 0239T appears to be somewhat dissimilar in resource utilization to the services assigned to APC 0099. However, we do not agree with the commenters that CPT code 0239T should be assigned to APC 0096 because we do not believe that CPT code 0239T rises to the same level of complexity as codes that are assigned to APC 0096. For example, we believe that CPT code 93924, to which the commenters compared CPT code 239T, reports a service that is more complex clinically and more costly to hospitals than the service reported by CPT code 0239T. Similarly, we believe that there is neither clinical similarity nor similarity of hospital resources between the services reported by CPT code 0239T, which is used to diagnose lymphedema and CPT code 99214, which is an established patient outpatient visit.

Although we do not believe that CPT code 0239T should be assigned to APC 0096, we believe that CPT code 0239T is sufficiently more complex than the services that are assigned to APC 0099 that it would be more appropriately placed in APC 0097, based on its clinical homogeneity and resource similarity to other procedures in APC 0097. For example, we believe that CPT code 0239T is more similar to CPT code 93922 (Limited bilateral noninvasive physiologic studies of upper or lower extremity arteries, (eg, for lower extremity: ankle/brachial indices at distal posterior tibial and anterior tibial/dorsalis pedis arteries plus bidirectional, Doppler waveform recording and analysis at 1-2 levels, or ankle/brachial indices at distal posterior tibial and anterior tibial/dorsalis pedis arteries plus volume plethysmography at 1-2 levels, or ankle/brachial indices at distal posterior tibial and anterior tibial/dorsalis pedis arteries with transcutaneous oxygen tension measurements at 1-2 levels)), which is assigned to APC 0097, both clinically and in resource requirements, than to CPT code 93924. Therefore, we are reassigning CPT code 0239T from APC 0099 to APC 0097, which has a final median cost of approximately $65 for CY 2012. We will reassess the APC placement for CPT code 0239T when we have claims data for services furnished on and after January 1, 2011, the effective date for CPT code 0239T.

d. Autologous Blood Salvage (APC 0345)

For CY 2012, we proposed to assign CPT code 86891 (Autologous blood or component, collection processing and storage; intra- or postoperative salvage) to APC 0345 (Level I Transfusion Laboratory Procedures).

Comment: One commenter objected to the assignment of CPT code 86891 to APC 0345 because the commenter believed that the payment rate for APC 0345 underpays providers. The commenter stated that the reason for the inappropriately low payment is that CPT 86891 would never appear on a single procedure claim. The commenter suggested that this service should be further analyzed and a more appropriate payment level established based upon analysis using external data. The commenter further stated that the current way in which the groupings and payment levels for services under APCs are calculated does not appropriately address the autologous blood salvage service performed at hospitals.

Response: The calculated median cost for CPT code 86891 based on 2010 claims data for this final rule with comment period is approximately $21 based on 124 single procedure claims out of 332 total claims. The calculated median cost of approximately $21 for CPT code 86891 is within the range of the median costs of the other procedures assigned to APC 0345, and there is no violation of the 2 times rule. Therefore, assignment of CPT code 86891 to APC 0345 satisfies the APC assignment requirements of clinical and resource homogeneity. We do not agree that additional analysis of external data is necessary. We set the payment rates for APCs using our standard OPPS methodology based on relative costs from hospital outpatient claims and the most recent cost report data that are available. We have no reason to believe that our claims and cost report data, as reported by hospitals, do not accurately reflect hospitals' costs of the services assigned to APC 0345, including the service described by CPT code 86891. Furthermore, as the service described by CPT code 86891 is a transfusion laboratory procedure, this service is appropriately assigned to APC 0345, which is titled ``Level I Transfusion Laboratory Procedures'' and includes other transfusion laboratory procedures. Therefore, we are finalizing our proposal to assign CPT code 86891 to APC 0345 for CY 2012, which has a final rule median cost of approximately $15 for CY 2012.

IV. OPPS Payment for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices

a. Background

Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3, years. This pass-through payment eligibility period begins with the first date on which transitional pass-through payments may be made for any medical device that is described by the category. We may establish a new device category for pass-through payment in any quarter. Under our established policy, we base the pass-through status expiration date for a device category on

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the date on which pass-through payment is effective for the category. The date on which a pass-through category is in effect is the first date on which pass-through payment may be made for any medical device that is described by such category. We propose and finalize the dates for expiration of pass-through status for device categories as part of the OPPS annual update.

We also have an established policy to package the costs of the devices that are no longer eligible for pass-through payments into the costs of the procedures with which the devices are reported in the claims data used to set the payment rates (67 FR 66763). Brachytherapy sources, which are now separately paid in accordance with section 1833(t)(2)(H) of the Act, are an exception to this established policy.

There currently are three new device categories eligible for pass-

through payment. These device categories are described by HCPCS code C1749 (Endoscope, retrograde imaging/illumination colonoscope device (implantable)), which we announced in the October 2010 OPPS Update (Transmittal 2050, Change Request 7117, dated September 17, 2010); and HCPCS codes C1830 (Powered bone marrow biopsy needle), and C1840 (Lens, intraocular (telescopic)), which were made effective for pass-through payment October 1, 2011, and announced in Transmittal 2296, Change Request 7545, dated September 2, 2011. There are no categories for which we proposed expiration of pass-through status in CY 2011. If we create new device categories for pass-through payment status during the remainder of CY 2011, we will propose future expiration dates in accordance with the statutory requirement that they be eligible for pass-through payments for at least 2, but not more than 3, years from the date on which pass-through payment for any medical device described by the category may first be made.

b. CY 2012 Policy

As stated above, section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3 years. Device pass-through category C1749 was established for pass-

through payments on October 1, 2010, and will have been eligible for pass-through payments for more than 2 years but less than 3 years as of the end of CY 2012. Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42242), we proposed an expiration date for pass-through payment for device category C1749 of December 31, 2012. Therefore, under our proposal, beginning January 1, 2013, device category C1749 will no longer be eligible for pass-through payments. We will propose expiration dates for pass-through payment for device categories C1830 and C1840 in a future rulemaking.

Comment: Two commenters indicated that there was only one currently approved device for pass-through payment, noting that in the CY 2012 OPPS/ASC proposed rule, we stated that there was only one device category eligible for pass-through payment for CY 2012. These commenters opined that there has been a decrease in the number of categories eligible for pass-through payment over the past several years, and encouraged CMS to approve additional device categories for technologies that meet the criteria for pass-through payments. One commenter recommended that CMS reevaluate the criteria and approval process for device category pass-through eligibility. The commenter also recommended that CMS annually publish a list of all pass-through applications filed with CMS, along with CMS' determinations and rationale for the resulting decisions.

Response: As indicated, we currently have three device categories eligible for pass-through payment, rather than one category as stated in the CY 2012 proposed rule, and we believe this shows that we have a robust device pass-through evaluation and approval process. The number of device pass-through categories eligible for payment will always vary, and we believe that the number of active device pass-through categories eligible for pass-through payment at any time is a function of the quality of applications under consideration, that is, whether they fully meet the device pass-through criteria, rather than a function of our criteria and approval process, which we believe to be appropriate. As we stated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71922), we will take the recommendation to publish a list of all pass-through applications filed with us under advisement as we consider our device pass-through criteria and process in the future.

After consideration of the public comments we received, we are finalizing our proposal of an expiration date for pass-through payment for device category C1749 of December 31, 2012. Therefore, beginning January 1, 2013, device category C1749 will no longer be eligible for pass-through payments. We remind the public that as of January 1, 2013, device category C1749 will still be active for the billing and reporting of devices and their charges along with the HCPCS codes of the procedures with which they are used. When billing for procedures utilizing devices that have active device codes, hospitals are required to report the codes for the devices on their claims for the procedure.

2. Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged Into APC Groups

a. Background

We have an established policy to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of the associated devices that are eligible for pass-through payments (66 FR 59904). We deduct from the pass-through payments for identified device categories eligible for pass-through payments an amount that reflects the portion of the APC payment amount that we determine is associated with the cost of the device, defined as the device APC offset amount, as required by section 1833(t)(6)(D)(ii) of the Act. We have consistently employed an established methodology to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of an associated device eligible for pass-through payment, using claims data from the period used for the most recent recalibration of the APC rates (72 FR 66751 through 66752). We establish and update the applicable device APC offset amounts for eligible pass-through device categories through the transmittals that implement the quarterly OPPS updates.

We publish a list of all procedural APCs with the CY 2011 portions (both percentages and dollar amounts) of the APC payment amounts that we determine are associated with the cost of devices, on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp. The dollar amounts are used as the device APC offset amounts. In addition, in accordance with our established practice, the device APC offset amounts in a related APC are used in order to evaluate whether the cost of a device in an application for a new device category for pass-

through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices, as specified in our regulations at Sec. 419.66(d).

As of CY 2009, the costs of implantable biologicals without pass-

through status are packaged into the payment for the procedures in which they are inserted or implanted because implantable biologicals without pass-through status are not separately paid

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(73 FR 68633 through 68636). For CY 2010, we finalized a new policy to specify that the pass-through evaluation process and pass-through payment methodology for implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice; also referred to as ``implantable biologicals'') and that are newly approved for pass-through status beginning on or after January 1, 2010, be the device pass-through process and payment methodology only. As a result, for CY 2010, we included implantable biologicals in our calculation of the device APC offset amounts (74 FR 60476). We calculated and set the device APC offset amount for a newly established device pass-through category, which could include a newly eligible implantable biological, beginning in CY 2010 using the same methodology we have historically used to calculate and set device APC offset amounts for device categories eligible for pass-through payment (72 FR 66751 through 66752), with one modification. Because implantable biologicals are considered devices rather than drugs for purposes of pass-through evaluation and payment under our established policy, the device APC offset amounts include the costs of implantable biologicals. For CY 2010, we also finalized a policy to utilize the revised device APC offset amounts to evaluate whether the cost of an implantable biological in an application for a new device category for pass-through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices. Further, for CY 2010, we no longer used the ``policy-packaged'' drug APC offset amounts for evaluating the cost significance of implantable biological pass-through applications under review and for setting the APC offset amounts that would apply to pass-through payment for those implantable biologicals, effective for new pass-through status determinations beginning in CY 2010 (74 FR 60463).

For CY 2011, we continued our policy that the pass-through evaluation process and pass-through payment methodology for implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) and that are newly approved for pass-through status beginning on or after January 1, 2010, be the device pass-through process and payment methodology only.

b. CY 2012 Policy

In the CY 2012 OPPS/ASC proposed rule (76 FR 42243), we proposed to continue our policy, for CY 2012, that the pass-through evaluation process and pass-through payment methodology for implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) and that are newly approved for pass-through status beginning on or after January 1, 2010, be the device pass-through process and payment methodology only. The rationale for this policy is provided in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60471 through 60477). We also proposed to continue our established policies for calculating and setting the device APC offset amounts for each device category eligible for pass-

through payment. In addition, we proposed to continue to review each new device category on a case-by-case basis to determine whether device costs associated with the new category are already packaged into the existing APC structure. If device costs packaged into the existing APC structure are associated with the new category, we proposed to deduct the device APC offset amount from the pass-through payment for the device category. As stated earlier, these device APC offset amounts also would be used in order to evaluate whether the cost of a device in an application for a new device category for pass-through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices (Sec. 419.66(d)).

For CY 2012, we also proposed to continue our policy established in CY 2010 to include implantable biologicals in our calculation of the device APC offset amounts. In addition, we proposed to continue to calculate and set any device APC offset amount for a new device pass-

through category that includes a newly eligible implantable biological beginning in CY 2012 using the same methodology we have historically used to calculate and set device APC offset amounts for device categories eligible for pass-through payment, and to include the costs of implantable biologicals in the calculation of the device APC offset amounts, as we first finalized and implemented for CY 2010.

In addition, we proposed to update, on the CMS Web site at http://www.cms.gov/HospitalOutpatientPPS, the list of all procedural APCs with the final CY 2012 portions of the APC payment amounts that we determine are associated with the cost of devices so that this information is available for use by the public in developing potential CY 2012 device pass-through payment applications and by CMS in reviewing those applications.

In summary, for CY 2012, consistent with the policy established for CY 2010, we proposed to continue the following policies related to pass-through payment for devices: (1) Treating implantable biologicals, that are surgically inserted or implanted (through a surgical incision or a natural orifice) and that are newly approved for pass-through status on or after January 1, 2010, as devices for purposes of the OPPS pass-through evaluation process and payment methodology; (2) including implantable biologicals in calculating the device APC offset amounts; (3) using the device APC offset amounts to evaluate whether the cost of a device (defined to include implantable biologicals) in an application for a new device category for pass-through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices; and (4) reducing device pass-through payments based on device costs already included in the associated procedural APCs, when we determine that device costs associated with the new category are already packaged into the existing APC structure.

Comment: Several commenters recommended that all biological therapies, including implantable biologicals that are approved by the FDA under biological license applications (BLAs), be treated as drugs for pass-through payment status for CY 2012. The commenters claimed that Congress intended that all biologicals approved by the FDA under a BLA be paid under the current SCOD payment system, including according to the drug pass-through provisions. Another commenter requested that CMS clarify its policy to state that the device pass-through criteria apply only to biologicals with an FDA approved indication or indications that are only surgically implanted. This commenter believed that the current regulation is unclear regarding how CMS would evaluate pass-through eligibility of a biological that has indications in which the biological is surgically implanted for one indication and nonimplantable for another indication. The commenter recommended that CMS revise the regulations text at 42 CFR 419.64(a)(4) so that if refers to ``a biological that is not always surgically implanted into the body.''

Response: As stated in the CY 2010 OPPS/ASC final rule with comment period and reiterated in the CY 2011 OPPS/ASC final rule with comment period, we evaluate implantable biologicals that function as, and are substitutes for, implantable devices for OPPS payment purposes. This is done

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regardless of their FDA approval route, the intent of which is to ensure their safety and effectiveness through appropriate scientific review (74 FR 60476; 75 FR 71924).

We do not agree with the commenters who asserted that Congress intended biologicals approved under BLAs to be paid under the statutory provisions that apply to SCODs, including the pass-through provisions. Moreover, as we stated in the CY 2010 and CY 2011 OPPS/ASC final rules with comment period, Congress did not specify in the statute that we must pay for implantable biologicals as biologicals rather than devices, if these products that function as medical devices also meet our criteria for payment as devices (74 FR 60476; 75 FR 71924). We continue to believe that implantable biologicals are devices for the purposes of OPPS payment, and therefore that it is appropriate for us to treat implantable biologicals as implantable devices and not as nonimplantable biologicals.

We appreciate the commenter's request that we clarify our meaning of the regulation text at 42 CFR 419.64(a)(4)(iii), which states that a biological for pass-through status purposes must meet the following condition (among others): ``biological that is not surgically implanted or inserted into the body.'' By this regulatory language, we mean to exclude from consideration for drug and biological pass-through status any biological that has an indication such that it may function as a surgically implanted or inserted biological, even if there are also other indications in which the biological is not surgically implanted or inserted.

After consideration of the public comments we received, we are finalizing our proposal, without modification, to continue the policy to specify that the pass-through evaluation process and pass-through payment methodology for implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) and that are newly approved for pass-through status on or after January 1, 2010, be the device pass-through process and payment methodology only. We also are finalizing our other proposals, without modification, to continue the following policies regarding device offsets: (1) Including implantable biologicals in calculating the device APC offset amounts; (2) using the device APC offset amounts to evaluate whether the cost of a device (defined to include implantable biologicals) in an application for a new device category for pass-

through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices; and (3) reducing device pass-through payments based on device costs already included in the associated procedural APCs, when we determine that device costs associated with the new category are already packaged into the existing APC structure.

B. Adjustment to OPPS Payment for No Cost/Full Credit and Partial Credit Devices

1. Background

In recent years, there have been several field actions on and recalls of medical devices as a result of implantable device failures. In many of these cases, the manufacturers have offered devices without cost to the hospital or with credit for the device being replaced if the patient required a more expensive device. In order to ensure that payment rates for procedures involving devices reflect only the full costs of those devices, our standard ratesetting methodology for device-dependent APCs uses only claims that contain the correct device code for the procedure, do not contain token charges, do not contain the ``FB'' modifier signifying that the device was furnished without cost or with a full credit, and do not contain the ``FC'' modifier signifying that the device was furnished with partial credit. As discussed in section II.A.2.d.(1) of this final rule with comment period, as we proposed, we are continuing to use our standard ratesetting methodology for device-dependent APCs for CY 2012.

To ensure equitable payment when the hospital receives a device without cost or with full credit, in CY 2007, we implemented a policy to reduce the payment for specified device-dependent APCs by the estimated portion of the APC payment attributable to device costs (that is, the device offset) when the hospital receives a specified device at no cost or with full credit (71 FR 68071 through 68077). Hospitals are instructed to report no cost/full credit cases using the ``FB'' modifier on the line with the procedure code in which the no cost/full credit device is used. In cases in which the device is furnished without cost or with full credit, the hospital is instructed to report a token device charge of less than $1.01. In cases in which the device being inserted is an upgrade (either of the same type of device or to a different type of device) with a full credit for the device being replaced, the hospital is instructed to report as the device charge the difference between its usual charge for the device being implanted and its usual charge for the device for which it received full credit. In CY 2008, we expanded this payment adjustment policy to include cases in which hospitals receive partial credit of 50 percent or more of the cost of a specified device. Hospitals are instructed to append the ``FC'' modifier to the procedure code that reports the service provided to furnish the device when they receive a partial credit of 50 percent or more of the cost of the new device.

We reduce the OPPS payment for the implantation procedure by 100 percent of the device offset for no cost/full credit cases when both a specified device code is present on the claim and the procedure code maps to a specified APC. Payment for the implantation procedure is reduced by 50 percent of the device offset for partial credit cases when both a specified device code is present on the claim and the procedure code maps to a specified APC. Beneficiary copayment is based on the reduced payment amount when either the ``FB'' or the ``FC'' modifier is billed and the procedure and device codes appear on the lists of procedures and devices to which this policy applies. We refer readers to the CY 2008 OPPS/ASC final rule with comment period for more background information on the ``FB'' and ``FC'' payment adjustment policies (72 FR 66743 through 66749).

2. APCs and Devices Subject to the Adjustment Policy

In the CY 2012 OPPS/ASC proposed rule (76 FR 42244 through 42245), we proposed for CY 2012 to continue the existing policy of reducing OPPS payment for specified APCs by 100 percent of the device offset amount when a hospital furnishes a specified device without cost or with a full credit and by 50 percent of the device offset amount when the hospital receives partial credit in the amount of 50 percent or more of the cost for the specified device. Because the APC payments for the related services are specifically constructed to ensure that the full cost of the device is included in the payment, we stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42244) that we continue to believe it is appropriate to reduce the APC payment in cases in which the hospital receives a device without cost, with full credit, or with partial credit, in order to provide equitable payment in these cases. (We refer readers to section II.A.2.d.(1) of this final rule with comment period for a description of our standard ratesetting methodology for device-dependent APCs.) Moreover, the payment for these devices comprises a

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large part of the APC payment on which the beneficiary copayment is based, and we continue to believe it is equitable that the beneficiary cost sharing reflects the reduced costs in these cases.

In the CY 2012 OPPS/ASC proposed rule (76 FR 42244), we also proposed to continue using the three criteria established in the CY 2007 OPPS/ASC final rule with comment period for determining the APCs to which this policy applies (71 FR 68072 through 68077). Specifically: (1) All procedures assigned to the selected APCs must involve implantable devices that would be reported if device insertion procedures were performed; (2) the required devices must be surgically inserted or implanted devices that remain in the patient's body after the conclusion of the procedure (at least temporarily); and (3) the device offset amount must be significant, which, for purposes of this policy, is defined as exceeding 40 percent of the APC cost. We also proposed to continue to restrict the devices to which the APC payment adjustment would apply to a specific set of costly devices to ensure that the adjustment would not be triggered by the implantation of an inexpensive device whose cost would not constitute a significant proportion of the total payment rate for an APC. We stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42244) that we continue to believe these criteria are appropriate because free devices and device credits are likely to be associated with particular cases only when the device must be reported on the claim and is of a type that is implanted and remains in the body when the beneficiary leaves the hospital. We believe that the reduction in payment is appropriate only when the cost of the device is a significant part of the total cost of the APC into which the device cost is packaged, and that the 40-percent threshold is a reasonable definition of a significant cost.

As indicated in the CY 2012 OPPS/ASC proposed rule (76 FR 42244 through 42245), we examined the offset amounts calculated from the CY 2012 proposed rule data and the clinical characteristics of APCs to determine whether the APCs to which the no cost/full credit and partial credit device adjustment policy applied in CY 2011 continue to meet the criteria for CY 2012, and to determine whether other APCs to which the policy did not apply in CY 2011 would meet the criteria for CY 2012. Based on the CY 2010 claims data available for the proposed rule, we did not propose any changes to the APCs and devices to which this policy applies. However, as discussed in section II.A.2.e.(6) of the proposed rule, we proposed to delete APC 0418 (Insertion of Left Ventricular Pacing Electrode) for CY 2012 and, therefore, proposed to remove this APC from the list of APCs to which the no cost/full credit and partial credit device adjustment policy would apply in CY 2012.

Table 24 of the CY 2012 OPPS/ASC proposed rule (76 FR 42245) listed the proposed APCs to which the payment adjustment policy for no cost/

full credit and partial credit devices would apply in CY 2012 and displayed the proposed payment adjustment percentages for both no cost/

full credit and partial credit circumstances. We proposed that the no cost/full credit adjustment for each APC to which this policy would continue to apply would be the device offset percentage for the APC (the estimated percentage of the APC cost that is attributable to the device costs that are already packaged into the APC). We also proposed that the partial credit device adjustment for each APC would continue to be 50 percent of the no cost/full credit adjustment for the APC. Table 25 of the CY 2012 OPPS/ASC proposed rule (76 FR 42245) listed the proposed devices to which the payment adjustment policy for no cost/

full credit and partial credit devices would apply in CY 2012. We stated in the CY 2012 proposed rule (76 FR 42244) that we would update the lists of APCs and devices to which the no cost/full credit and partial credit device adjustment policy would apply for CY 2012, consistent with the three criteria discussed earlier in this section, based on the final CY 2010 claims data available for the CY 2012 OPPS/

ASC final rule with comment period.

Comment: One commenter asserted that the proposed full offset amount of 60 percent and proposed partial offset amount of 30 percent for APC 0425 is not supported by real world cost data. The commenter suggested that, based on its data on resource costs for the devices used in the procedures assigned to APC 0425, the full offset amount for this APC should be no greater than 40 percent. The commenter argued that a 60-percent offset would result in significant financial hardship to certain facilities and possibly lead to diminishing patient access to critical devices.

Response: We do not agree with the commenter that the CY 2012 proposed device offset percentage for APC 0425 is inaccurate. As we described in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71926), the device cost is estimated from the device HCPCS codes present on hospital claims and charges in the lines for four specific revenue codes: 275 (Medical/Surgical Supplies: Pacemaker); 276 (Medical/Surgical Supplies: Intraocular lens); 278 (Medical/Surgical Supplies: Other implants); and 624 (Medical/Surgical Supplies: FDA investigational devices). The commenter did not provide the ``real world cost data'' upon which it based its assertion that the full offset amount for APC 0425 should be no greater than 40 percent. Therefore, we do not know why there would be a discrepancy between that estimate and our estimated device offset percentage of approximately 60 percent stated in the proposed rule that was based on actual hospital cost as calculated from hospital claims as described above. We have no reason to believe that this device offset percentage does not accurately reflect the percent of cost attributable to devices in APC 0425. Therefore, we do not agree that it is necessary to limit the device offset percentage for no cost/full credit cases for APC 0425 to 40 percent, as the commenter suggested.

Comment: One commenter asked for clarification of CMS' policy for instances when a device upgrade occurs and the original device is refunded at full cost and the upgraded device is charged at full cost. According to the commenter, the new device is often more expensive than the original device, thus yielding additional device acquisition costs. The commenter believes that the ``FC'' modifier should be used in this situation.

Response: As stated in the Medicare Claims Processing Manual (Pub. 100-04, Chapter 4, Section 61.3.2), when a hospital replaces a device with a more expensive device and receives a credit in the amount that the device being replaced would otherwise cost, the hospital must append modifier ``-FB'' to the procedure code (not on the device code) that reports the service provided to replace the device. The hospital must charge the difference between its usual charge for the device being implanted and its usual charge for the device for which it received credit. This charge should be billed in the covered charge field. As we stated in the CY 2009 OPPS final rule with comment period (73 FR 68630), we do not agree that we need to modify the no cost/full credit and partial credit device adjustment policy to account for the cost of more expensive replacement devices when manufacturers provide device upgrades. We continue to believe that making the full APC payment would result in significant overpayment because, as described above, we use only those claims that reflect the full costs of devices in ratesetting for device-

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dependent APCs. In cases where a hospital incurs a cost for a device upgrade, the difference between the cost of the replacement device and the full credit the hospital receives for the device being replaced would likely be much less than the full cost of the device that is included in the device-dependent APC payment rate. To provide the full APC payment in these cases would favor a device upgrade, rather than replacement with a comparable device, in warranty or recall cases where the surgical procedure to replace the device is only medically necessary because of the original defective device, for which the manufacturer bears responsibility. Moreover, we also are concerned that a new policy to apply a smaller APC payment percentage reduction in an upgrade case, if we were eventually able to estimate such a percentage from sufficient claims data, could also favor device upgrades, rather than replacement with a comparable device in those situations for which the upgrade is only being provided because the old model failed (and for which the manufacturer provides a full credit) but is no longer available for use in the replacement procedure. We recognize that, in some cases, the estimated device cost and, therefore, the amount of the payment reduction will be more or less than the cost a hospital would otherwise incur for a no cost/full credit device. However, because averaging is inherent in a prospective payment system, we do not believe this is inappropriate. Therefore, we continue to believe that the full device offset reduction should be made when hospitals receive full credit for the cost of a replaced device against the cost of a more expensive replacement device.

After consideration of the public comments we received, we are finalizing our CY 2012 proposals, without modification, to continue the established no cost/full credit and partial credit adjustment policies.

Table 30 below lists the APCs to which the payment adjustment policy for no cost/full credit and partial credit devices will apply in CY 2012 and displays the final payment adjustment percentages for both no cost/full credit and partial credit circumstances. Table 31 below lists the devices to which no cost/full credit and partial credit device adjustment policy will apply for CY 2012, consistent with the three selection criteria discussed earlier in this section, based on the final CY 2010 claims data available for this final rule with comment period. For CY 2012, OPPS payments for implantation procedures to which the ``FB'' modifier is appended are reduced by 100 percent of the device offset for no cost/full credit cases when both a device code listed in Table 31 below, is present on the claim, and the procedure code maps to an APC listed in Table 30 below. OPPS payments for implantation procedures to which the ``FC'' modifier is appended are reduced by 50 percent of the device offset when both a device code listed in Table 31 is present on the claim and the procedure code maps to an APC listed in Table 30. Beneficiary copayment is based on the reduced amount when either the ``FB'' modifier or the ``FC'' modifier is billed and the procedure and device codes appear on the lists of procedures and devices to which this policy applies.

We note that, as discussed in section II.A.2.e.(6) of this final rule with comment period, we are finalizing our proposal to delete APC 0418 for CY 2012 and, therefore, will remove this APC from the list of APCs to which the no cost/full credit and partial credit device adjustment policy will apply in CY 2012.

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V. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

A. OPPS Transitional Pass-Through Payment for Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals

1. Background

Section 1833(t)(6) of the Act provides for temporary additional payments or ``transitional pass-through payments'' for certain drugs and biologicals (also referred to as biologics). As enacted by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113), this provision requires the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current drugs and biologicals and brachytherapy sources used for the treatment of cancer; and current radiopharmaceutical drugs and biologicals. For those drugs and biologicals referred to as ``current,'' the transitional pass-through payment began on the first date the hospital OPPS was implemented.

Transitional pass-through payments also are provided for certain ``new'' drugs and biologicals that were not being paid for as an HOPD service as of December 31, 1996, and whose cost is ``not insignificant'' in relation to the OPPS payments for the procedures or services associated with the new drug or biological. For pass-through payment purposes, radiopharmaceuticals are included as ``drugs.'' Under the statute, transitional pass-through payments for a drug or biological described in section 1833(t)(6)(C)(i)(II) of the Act can be made for a period of at least 2 years, but not more than 3 years, after the product's first payment as a hospital outpatient service under Medicare Part B. Proposed CY 2012 pass-through drugs and biologicals and their designated APCs were assigned status indicator ``G'' in Addenda A and B to the proposed rule, which are referenced in section XVII. of the proposed rule and this final rule with comment period and available via the Internet.

Section 1833(t)(6)(D)(i) of the Act specifies that the pass-through payment amount, in the case of a drug or biological, is the amount by which the amount determined under section 1842(o) of the Act for the drug or biological exceeds the portion of the otherwise applicable Medicare OPD fee schedule that the Secretary determines is associated with the drug or biological. If the drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the pass-through payment amount is determined by the Secretary to be equal to the average price for the drug or biological for all competitive acquisition areas and the year established under such section as calculated and adjusted by the Secretary.

As we noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68633), the Part B drug CAP program was postponed beginning in CY 2009 (Medicare Learning Network (MLN) Matters Special Edition 0833, available via the Web site: http://www.cms.gov). As of publication of this final rule with comment period, the postponement of the Part B drug CAP program remains in effect, and there is no effective CAP program rate for pass-through drugs and biologicals as of January 1, 2009. Consistent with what we indicated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71928), if the program is reinstituted during CY 2012 and Part B drug CAP rates become available, we would again use the Part B drug CAP rate for pass-through drugs and biologicals if they are a part of the Part B drug CAP program. Otherwise, we would continue to use the rate that would be paid in the physician's office setting for all drugs and biologicals with pass-

through status.

This methodology for determining the pass-through payment amount is set forth in regulations at 42 CFR 419.64, which specify that the pass-

through payment equals the amount determined under section 1842(o) of the Act minus the portion of the APC payment that CMS determines is associated with the drug or biological. Section 1847A of the Act establishes the average sales price (ASP) methodology, which is used for payment for drugs and biologicals described in section 1842(o)(1)(C) of the Act furnished on or after January 1, 2005. The ASP methodology, as applied under the OPPS, uses several sources of data as a basis for payment, including the ASP, the wholesale acquisition cost (WAC), and the average wholesale price (AWP). In this final rule with comment period, the term ``ASP methodology'' and ``ASP-based'' are inclusive of all data sources and methodologies described therein. Additional information on the ASP methodology can be found on the CMS Web site at: http://www.cms.gov/McrPartBDrugAvgSalesPrice.

For CYs 2005, 2006, and 2007, we estimated the OPPS pass-through payment amount for drugs and biologicals to be zero based on our interpretation that the ``otherwise applicable Medicare OPD fee schedule'' amount was equivalent to the amount to be paid for pass-

through drugs and biologicals under section 1842(o) of the Act (or section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract). We concluded for those years that the resulting difference between these two rates would be zero. For CYs 2008 and 2009, we estimated the OPPS pass-through payment amount for drugs and biologicals to be $6.6 million and $23.3 million, respectively. For CY 2010, we estimated the OPPS pass-through payment estimate for drugs and biologicals to be $35.5 million. For CY 2011, we estimated the OPPS pass-through payment for drugs and biologicals to be $15.5 million. Our OPPS pass-through payment estimate for drugs and biologicals in CY 2012 is $19 million, which is discussed in section VI.B. of this final rule with comment period.

The pass-through application and review process for drugs and biologicals is explained on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/04_passthrough_payment.asp.

2. Drugs and Biologicals With Expiring Pass-Through Status in CY 2011

In the CY 2012 OPPS/ASC proposed rule (76 FR 42246 through 42247), we proposed that the pass-through status of 19 drugs and biologicals would expire on December 31, 2011, as listed in Table 26 of the proposed rule (76 FR 42246 through 42247). All of these drugs and biologicals will have received OPPS pass-through payment for at least 2 years and no more than 3 years by December 31, 2011. These drugs and biologicals were approved for pass-through status on or before January 1, 2010. With the exception of those groups of drugs and biologicals that are always packaged when they do not have pass-through status, specifically diagnostic radiopharmaceuticals, contrast agents, and implantable biologicals, our standard methodology for providing payment for drugs and biologicals with expiring pass-through status in an upcoming calendar year is to determine the product's estimated per day cost and compare it with the OPPS drug packaging threshold for that calendar year (which is $75), as discussed further in section V.B.2. of this final rule with comment period. If the drug's or biological's estimated per day cost is less than or equal to the applicable OPPS drug packaging threshold, we would package payment for the drug or biological into the payment for the associated procedure in the upcoming calendar year. If the estimated per day cost of the drug or biological is greater than the OPPS drug packaging threshold, we would provide

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separate payment at the applicable relative ASP-based payment amount (which is ASP+4 percent for CY 2012, as discussed further in section V.B.3. of this final rule with comment period). Section V.B.2.d. of this final rule with comment period discusses the packaging of all nonpass-through contrast agents, diagnostic radiopharmaceuticals, and implantable biologicals.

Comment: A number of commenters requested that CMS continue pass-

through payments for a third year for certain drugs that, as of December 31, 2011, will have received pass-through payments for at least 2 years and no more than 3 years and which CMS proposed to remove from pass-through status in Table 26 of the CY 2012 OPPS/ASC proposed rule (76 CR 42246). Several commenters stated that the volume for products for which CMS proposed to expire pass-through status had been low for some portion of the pass-through period, and asserted that a third year of pass-through would permit CMS to collect more accurate and complete cost data on the products. Other commenters stated that the costs associated with certain drugs for which CMS proposed to expire pass-through status are high, so packaging the product in an APC is ``not appropriate.'' Several commenters urged CMS to adopt a 3-year pass-through period for all eligible products. One commenter requested that CMS grant an additional year of pass-through payments for the product described by HCPCS code C9248 (Injection, clevidipine butyrate, 1 mg) that was removed from the pass-through list on December 31, 2010, because the product had been subject to a 10-month long voluntary manufacturer's recall during its pass-through period.

Response: As described in section V.A.1 of this final rule with comment period, section 1833(t)(6)(C)(i)(II) of the Act permits CMS to make pass-through payments for a period of at least 2 years, but not more than 3 years, after the product's first payment as a hospital outpatient service under Medicare Part B. We believe this period of payment facilitates dissemination of these new products into clinical practice and for the collection of hospital claims data reflective of their costs for future OPPS ratesetting. Our longstanding practice has been to provide pass-through payment for a period of 2 to 3 years, with expiration of pass-through status proposed and finalized through the annual rulemaking process. Each year, when proposing to expire the pass-through status of certain drugs and biologicals, we examine our claims data for these products. We observe that hospitals typically have incorporated these products into their chargemasters based on the utilization and costs observed in our claims data. Under the existing pass-through policy, which has been generally supported by commenters, we begin pass-through payment on a quarterly basis that depends on when applications are submitted to us for consideration and, because we expire pass-through status only on an annual basis, there is no way to ensure that all pass-through drugs and biologicals receive pass-through payment for a full 3 years, while also providing pass-through payment for no more than 3 years as the statute requires. Further, based on our review of available data, we are confident that the period of time for which the products listed in Table 26 of the CY 2012 OPPS proposed rule (76 CR 42246) received pass-through payments is adequate for CMS to collect sufficient data to make a packaging determination and/or an APC assignment in CY 2012. We further note that, consistent with the Act, each of these products has received pass-through status for at least 2 years, but not more than 3 years. As noted in section V.A.1. of this final rule with comment period, when a product's pass-through status expires, it is either packaged by CMS into an APC if it is either a relatively low-cost product that does not exceed the packaging threshold or is ``policy packaged'', or, if it is a relatively high-

cost product, it is paid separately on the basis of the product's ASP (we refer readers to section V.B.3. of this final rule with comment period for more details regarding our payment policy for separately payable drugs). Because our policies for drugs with expiring pass-

through status recognize products' relative costliness and establish either separate or bundled payment as appropriate, based on such costliness, we disagree with commenters that certain relatively high cost products currently receiving pass-through payment would not be adequately paid if taken off pass-through, and as a result should continue with such status.

Regarding the request for a third year of pass-through status for the product described by HCPCS code C9248 (Injection, clevidipine butyrate, 1 mg) which was subject to a 10-month recall during its pass-

through period and for which pass-through status expired on December 31, 2010, we note that because CMS expires pass through status on an annual basis, if CMS were to extend the pass-through period for the product through CY 2012, as requested by the commenters, this would result in the pass-through period being in excess of 3 years; this result is not permitted under the statute.

After consideration of the public comments we received, we are finalizing, without modification, our proposal to expire the pass-

through status of the 19 drugs and biologicals listed in Table 32 below. Table 32 lists the drugs and biologicals for which pass-through status will expire on December 31, 2011, the status indicator, and the assigned APC for CY 2012.

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3. Drugs, Biologicals, and Radiopharmaceuticals With New or Continuing Pass-Through Status in CY 2012

In the CY 2012 OPPS/ASC proposed rule (76 FR 42247 through 42249), we proposed to continue pass-through status in CY 2012 for 33 drugs and biologicals. None of these drugs and biologicals will have received OPPS pass-through payment for at least 2 years and no more than 3 years by December 31, 2011. These drugs and biologicals, which were approved for pass-through status between April 1, 2010 and July 1, 2011, were listed in Table 27 of the proposed rule (76 FR 42248 through 42249). The APCs and HCPCS codes for these drugs and biologicals were assigned status indicator ``G'' in Addenda A and B, which are referenced in section XVII. of the proposed rule and this final rule with comment period and available via the Internet.

Section 1833(t)(6)(D)(i) of the Act sets the amount of pass-through payment for pass-through drugs and biologicals (the pass-through payment amount) as the difference between the amount authorized under section 1842(o) of the Act (or, if the drug or biological is covered under a CAP under section 1847B of the Act, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and the year established under such section as calculated and adjusted by the Secretary) and the portion of the otherwise applicable OPD fee schedule that the Secretary determines is associated with the drug or biological. Payment for drugs and biologicals with pass-through status under the OPPS is currently made at the physician's office payment rate of ASP+6 percent. We believe it is consistent with the statute to continue to provide payment for drugs and biologicals with pass-through status at a rate of ASP+6 percent in CY 2012, the amount that drugs and biologicals receive under section 1842(o) of the Act. Thus, for CY 2012, we proposed to pay for pass-

through drugs and biologicals at ASP+6 percent, equivalent to the rate these drugs and biologicals would receive in the physician's office setting in CY 2012. Therefore, the difference between ASP+6 percent and ASP+4 percent that we proposed to pay for nonpass-through separately payable drugs under the CY 2012 OPPS would be the CY 2012 pass-through payment amount for these drugs and biologicals. In the case of pass-

through contrast agents and diagnostic radiopharmaceuticals, the difference between ASP+6 percent and the ``policy-packaged'' drug APC offset amount for the associated clinical APC in which the drug or biological is utilized would be the CY 2012 pass-through payment amount for these policy-packaged products.

We note that we proposed to expire pass-through status for the remaining three implantable biologicals approved on or before January 1, 2010, under pass-through status as a drug or biological. Therefore, as described in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60476) and in this final rule with comment period, implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) will be evaluated under the device pass-through process and paid according to the device payment methodology. Payment for nonpass-through implantable biologicals would continue to be packaged into the payment for the associated procedure as described in section V.B.2.d. of this final rule with comment period.

In addition, we proposed to continue to update pass-through payment rates on a quarterly basis on the CMS Web site during CY 2012 if later quarter ASP submissions (or more recent WAC or AWP information, as applicable) indicate that adjustments to the payment rates for these pass-through drugs or biologicals are necessary. For a full description of this policy, we refer readers to the CY 2006 OPPS/ASC final rule with comment period (70 FR 42722 and 42723). If the Part B drug CAP is reinstated during CY 2012, and a drug or biological that has been granted pass-through status for CY 2012 becomes covered under the Part B drug CAP, we proposed to provide pass-though payment at the Part B drug CAP rate and to make the adjustments to the payment rates for these drugs and biologicals on a quarterly basis, as appropriate.

As is our standard methodology, we annually review new permanent HCPCS codes and delete temporary HCPCS C-codes if an alternate permanent HCPCS code is available for purposes of OPPS billing and payment. We specifically review drugs with pass-through status for CY 2012 that will change from C-code to permanent J-code for CY 2012. For our CY 2012 review, we have determined that HCPCS code J1557 (Injection, immune globulin (Gammaplex), intravenous, non-lyophilized (e.g. liquid), 500 mg) describes the product reported under HCPCS code C9270 (Injection, immune globulin (Gammaplex), intravenous, non-

lyophilized (e.g. liquid), 500 mg); HCPCS code J0894 (Injection, denosumab, 1 mg) describes the product reported under HCPCS code C9272 (Injection, denosumab, 1 mg); HCPCS code J0840 (Crotalidae Polyvalent Immune Fab (Ovine), 1 vial) describes the product reported under HCPCS code C9274 (Crotalidae Polyvalent Immune Fab (Ovine), 1 vial); HCPCS code J9043 (Injection, cabazitaxel, 1 mg) describes the product reported under HCPCS code C9276 (Injection, cabazitaxel, 1 mg); HCPCS code J0221 (Injection, alglucosidase alfa (Lumizyme), 1 mg) describes the product reported under HCPCS code C9277 (Injection, alglucosidase alfa (Lumizyme), 1 mg); HCPCS code J9179 (Injection, eribulin

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mesylate, 1 mg) describes the product reported under HCPCS code C9270 (Injection, eribulin mesylate, 1 mg); HCPCS code J2507 (Injection, pegloticase, 1 mg) describes the product reported under HCPCS code C9281 (Injection, pegloticase, 1 mg); HCPCS code J0712 (Injection, ceftaroline fosamil, 10 mg) describes the product reported under HCPCS code C9282 (Injection, ceftaroline fosamil, 10 mg); HCPCS code J0131 (Injection, acetaminophen, 10 mg) describes the product reported under HCPCS code C9283 (Injection, acetaminophen, 10 mg); and, HCPCS code J9228 (Injection, ipilimumab, 1 mg) describes the product reported under HCPCS code C9284 (Injection, ipilimumab, 1 mg).

In CY 2012, as is consistent with our CY 2011 policy for diagnostic and therapeutic radiopharmaceuticals, we proposed to provide payment for both diagnostic and therapeutic radiopharmaceuticals that are granted pass-through status based on the ASP methodology. As stated above, for purposes of pass-through payment, we consider radiopharmaceuticals to be drugs under the OPPS. Therefore, if a diagnostic or therapeutic radiopharmaceutical receives pass-through status during CY 2012, we proposed to follow the standard ASP methodology to determine the pass-through payment rate that drugs receive under section 1842(o) of the Act, which is ASP+6 percent. If ASP data are not available for a radiopharmaceutical, we proposed to provide pass-through payment at WAC+6 percent, the equivalent payment provided to pass-through drugs and biologicals without ASP information. If WAC information is also not available, we proposed to provide payment for the pass-through radiopharmaceutical at 95 percent of its most recent AWP.

Comment: Many commenters supported CMS' proposal to continue providing pass-through payments for drugs, biological, and radiopharmaceuticals. One commenter stated that it viewed the provision of pass-through payments as a ``temporary solution,'' and asserted that the global marketplace for Molybdenum and other medical isotopes could make historical payment data an inadequate indicator of costs. One commenter recommended that CMS require manufacturers to submit ASP data for all therapeutic radiopharmaceuticals currently paid under the OPPS.

Response: We appreciate the commenters' support for our pass-

through payment policy. Although we acknowledge that pass-through payments are, by statute, ``temporary'' (section 1833(t)(6)(C)(i)(II) of the Act permits CMS to make pass-through payments only for a period of at least 2 years, but not more than 3 years), we disagree with the commenter's assertion that historical payment data are an inadequate indicator of costs. We permit radiopharmaceutical manufacturers to voluntarily submit ASP data to us for therapeutic radiopharmaceuticals, and for diagnostic radiopharmaceuticals with pass-through status. These data are updated regularly, are as current as possible (the most recently available ASP data used for this final rule with comment period are from October 2011), and are an important component of payment. Therefore, we believe that CMS' use of recent ASP data, together with the most recently available cost and claims data, are adequately responsive to changes in global prices for Molybdenum and other medical isotopes.

We do not believe, however, that requiring manufacturers to submit ASP data for all therapeutic radiopharmaceuticals currently paid under the OPPS is appropriate. As we stated in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60524 through 60525), the challenges involved in reporting ASP for a radiopharmaceutical are significant, given the variety of manufacturing processes in some cases. Therefore, due to the fact that the added administrative burden of direct reporting outweighs the expected benefits, and given the relative accuracy of hospital claims data regarding such drugs, payment based on mean unit cost from historical hospital claims data offers the best proxy for average hospital acquisition cost and associated handling costs for a radiopharmaceutical in the absence of ASP. If ASP information is unavailable for a therapeutic radiopharmaceutical, meaning that a manufacturer is not willing or not able to submit ASP information, we will provide payment based on the mean unit cost of the product that is applicable to payment rates for the year the nonpass-

through therapeutic radiopharmaceutical is administered.

Comment: Several commenters supported CMS' proposal to provide payment at ASP+6 percent for drugs, biologicals, contrast agents, and radiopharmaceuticals that are granted pass-through status. One commenter approved of the proposal to use the ASP methodology that would provide payment based on WAC if ASP information is not available, and payment at 95 percent of AWP if WAC information is not available. Some commenters requested that CMS provide an additional payment for radiopharmaceuticals that are granted pass-through status.

Response: As discussed above, the statutorily mandated pass-through payment for pass-through drugs and biologicals for CY 2012 generally equals the amount determined under section 1842(o) of the Act minus the portion of the otherwise applicable APC payment that CMS determines is associated with the drug or biological. Therefore, the pass-through payment is determined by subtracting the otherwise applicable payment amount under the OPPS (determined to be ASP+4 percent for CY 2012) from the amount determined under section 1842(o) of the Act (ASP+6 percent).

Regarding the comments that CMS should provide an additional payment for radiopharmaceuticals that are granted pass-through status, we note that for CY 2012, consistent with our CY 2011 payment policy for diagnostic and therapeutic radiopharmaceuticals, we proposed to provide payment for both diagnostic and therapeutic radiopharmaceuticals with pass-through status based on the ASP methodology. As stated above, the ASP methodology, as applied under the OPPS, uses several sources of data as a basis for payment, including the ASP, WAC if ASP is unavailable, and 95 percent of the radiopharmaceutical's most recent AWP if ASP and WAC are unavailable. For purposes of pass-through payment, we consider radiopharmaceuticals to be drugs under the OPPS. Therefore, if a diagnostic or therapeutic radiopharmaceutical receives pass-through status during CY 2012, we proposed to follow the standard ASP methodology to determine its pass-

through payment rate under the OPPS. We have routinely provided a single payment for drugs, biologicals, and radiopharmaceuticals under the OPPS to account for the acquisition and pharmacy overhead costs, including compounding costs. We continue to believe that a single payment is appropriate for diagnostic radiopharmaceuticals with pass-

through status in CY 2012, and that the payment rate of ASP+6 percent (or payment based on the ASP methodology) is appropriate to provide payment for both the radiopharmaceutical's acquisition cost and any associated nuclear medicine handling and compounding costs. We refer readers to section V.B.3. of this final rule with comment period for further discussion of payment for therapeutic radiopharmaceuticals based on ASP information submitted by manufacturers and the CMS Web site at:

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http://www.cms.gov/HospitalOutpatientPPS/.

After consideration of the comments we received, we are finalizing our proposal to provide payment for both diagnostic and therapeutic radiopharmaceuticals that are granted pass-through status based on the ASP methodology. If a diagnostic or therapeutic radiopharmaceutical receives pass-through status during CY 2012, we will follow the standard ASP methodology to determine the pass-through payment rate that drugs receive under section 1842(o) of the Act, which is ASP+6 percent. If ASP data are not available for a radiopharmaceutical, we will provide pass-through payment at WAC+6 percent, the equivalent payment provided to pass-through drugs and biologicals without ASP information. If WAC information is also not available, we will provide payment for the pass-through radiopharmaceutical at 95 percent of its most recent AWP.

As discussed in more detail in section V.B.2.d. of this final rule with comment period, over the last 4 years, we implemented a policy whereby payment for all nonpass-through diagnostic radiopharmaceuticals, contrast agents, and implantable biologicals is packaged into payment for the associated procedure. In the CY 2012 OPPS/ASC proposed rule (76 FR 42247 through 42248), we proposed to continue the packaging of these items, regardless of their per day cost. As stated earlier, pass-through payment is the difference between the amount authorized under section 1842(o) of the Act (or, if the drug or biological is covered under a CAP under section 1847B of the Act, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and the year established under such section as calculated and adjusted by the Secretary) and the portion of the otherwise applicable OPD fee schedule that the Secretary determines is associated with the drug or biological. Because payment for a drug that is either a diagnostic radiopharmaceutical or a contrast agent (identified as a ``policy-

packaged'' drug, first described in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68639)) would otherwise be packaged if the product did not have pass-through status, we believe the otherwise applicable OPPS payment amount would be equal to the ``policy-

packaged'' drug APC offset amount for the associated clinical APC in which the drug or biological is utilized. The calculation of the ``policy-packaged'' drug APC offset amounts is described in more detail in section IV.A.2. of this final rule with comment period. It follows that the copayment for the nonpass-through payment portion (the otherwise applicable fee schedule amount that we would also offset from payment for the drug or biological if a payment offset applies) of the total OPPS payment for those drugs and biologicals would, therefore, be accounted for in the copayment for the associated clinical APC in which the drug or biological is used.

According to section 1833(t)(8)(E) of the Act, the amount of copayment associated with pass-through items is equal to the amount of copayment that would be applicable if the pass-through adjustment was not applied. Therefore, as we did in CY 2011, we proposed to continue to set the associated copayment amount for pass-through diagnostic radiopharmaceuticals and contrast agents that would otherwise be packaged if the item did not have pass-through status to zero for CY 2012. The separate OPPS payment to a hospital for the pass-through diagnostic radiopharmaceutical or contrast agent, after taking into account any applicable payment offset for the item due to the device or ``policy-packaged'' APC offset policy, is the item's pass-through payment, which is not subject to a copayment according to the statute. Therefore, we proposed to not publish a copayment amount for these items in Addenda A and B to the proposed rule (which are referenced in section XVII. of the proposed rule and this final rule with comment period and available via the Internet on the CMS Web site).

Comment: Several commenters supported the CY 2012 proposal to continue to set the associated copayment amounts for pass-through diagnostic radiopharmaceuticals, contrast agents, and implantable biologicals that would otherwise be packaged if the product did not have pass-through status to zero. The commenters noted that this policy is consistent with statutory requirements and provides cost-saving benefits to beneficiaries.

Response: We appreciate the commenters' support of our proposal. As discussed in the CY 2012 OPPS/ASC proposed rule (76 FR 42248), we believe that, for drugs and biologicals that are ``policy-packaged,'' the copayment for the nonpass-through payment portion of the total OPPS payment for this subset of drugs and biologicals is accounted for in the copayment for the associated clinical APC in which the drug or biological is used. According to section 1833(t)(8)(E) of the Act, the amount of copayment associated with pass-through items is equal to the amount of copayment that would be applicable if the pass-through adjustment was not applied. Therefore, we believe that the copayment amount should be zero for drugs and biologicals that are ``policy-

packaged,'' including diagnostic radiopharmaceuticals.

After consideration of the public comments we received, we are finalizing our proposal to continue to set the associated copayment amount for pass-through diagnostic radiopharmaceuticals and contrast agents that would otherwise be packaged if the item did not have pass-

through status to zero for CY 2012.

The 33 drugs and biologicals that we proposed to continue on pass-

through status for CY 2012 or that have been granted pass-through status as of July 2011 were displayed in Table 27 of the proposed rule (76 FR 42248 through 42249). We note that, for CY 2010 and the first two quarters of CY 2011, HCPCS code J1572 (Injection, immune globulin, (flebogamma/flebogamma dif), intravenous, non-lyophilized (e.g. liquid), 500 mg) was assigned a status indicator of ``K,'' meaning that this product was paid separately as a nonpass-through separately payable drug. Beginning on July 1, 2011, HCPCS code J1572 is assigned a status indicator of ``G'' and will be given pass-through status for at least 2, but not more than 3 years. The payment rate reflecting a pass-

through payment amount of ASP+6 percent was not included in Addenda A and B of the proposed rule because these Addenda solely reflect codes and prices effective as of the second quarter of CY 2011, or April 2011. The 38 drugs and biologicals that we are continuing on pass-

through status for CY 2012 or that have been granted pass-through status as of January 2012 are displayed in Table 33.

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4. Provisions for Reducing Transitional Pass-Through Payments for Diagnostic Radiopharmaceuticals and Contrast Agents To Offset Costs Packaged Into APC Groups

a. Background

Prior to CY 2008, diagnostic radiopharmaceuticals and contrast agents were paid separately under the OPPS if their mean per day costs were greater than the applicable year's drug packaging threshold. In CY 2008 (72 FR 66768), we began a policy of packaging payment for all nonpass-through diagnostic radiopharmaceuticals and contrast agents as ancillary and supportive items and services into their

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associated nuclear medicine procedures. Therefore, beginning in CY 2008, nonpass-through diagnostic radiopharmaceuticals and contrast agents were not subject to the annual OPPS drug packaging threshold to determine their packaged or separately payable payment status, and instead all nonpass-through diagnostic radiopharmaceuticals and contrast agents were packaged as a matter of policy. For CY 2012, we proposed to continue to package payment for all nonpass-through diagnostic radiopharmaceuticals and contrast agents, as discussed in section V.B.2.d. of this final rule with comment period.

b. Payment Offset Policy for Diagnostic Radiopharmaceuticals

As previously noted, radiopharmaceuticals are considered to be drugs for OPPS pass-through payment purposes. As described above, section 1833(t)(6)(D)(i) of the Act specifies that the transitional pass-through payment amount for pass-through drugs and biologicals is the difference between the amount paid under section 1842(o) of the Act (or the Part B drug CAP rate) and the otherwise applicable OPD fee schedule amount. There is currently one radiopharmaceutical with pass-

through status under the OPPS, HCPCS code A9584 (Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries). This product, which is presently referred to using HCPCS code A9584, was granted pass-through status using HCPCS code C9406 beginning July 1, 2011, and we proposed that it continue receiving pass-through status in CY 2012. We currently apply the established radiopharmaceutical payment offset policy to pass-through payment for this product. As described earlier in section V.A.3. of this final rule with comment period, we proposed that new pass-through diagnostic radiopharmaceuticals would be paid at ASP+6 percent, while those without ASP information would be paid at WAC+6 percent or, if WAC is not available, payment would be based on 95 percent of the product's most recently published AWP.

Because a payment offset is necessary in order to provide an appropriate transitional pass-through payment, we deduct from the pass-

through payment for radiopharmaceuticals an amount reflecting the portion of the APC payment associated with predecessor radiopharmaceuticals in order to ensure no duplicate radiopharmaceutical payment is made. In CY 2009, we established a policy to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of predecessor diagnostic radiopharmaceuticals when considering a new diagnostic radiopharmaceutical for pass-through payment (73 FR 68638 through 68641). Specifically, we use the ``policy-packaged'' drug offset fraction for APCs containing nuclear medicine procedures, calculated as 1 minus (the cost from single procedure claims in the APC after removing the cost for ``policy-packaged'' drugs divided by the cost from single procedure claims in the APC).

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60480 through 60484), we finalized a policy to redefine ``policy-packaged'' drugs as only nonpass-through diagnostic radiopharmaceuticals and contrast agents, as a result of the policy discussed in sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/ASC final rule with comment period (74 FR 60471 through 60477 and 60495 through 60499, respectively) that treats nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) and implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) with newly approved pass-through status beginning in CY 2010 or later as devices, rather than drugs. To determine the actual APC offset amount for pass-

through diagnostic radiopharmaceuticals that takes into consideration the otherwise applicable OPPS payment amount, we multiply the ``policy-

packaged'' drug offset fraction by the APC payment amount for the nuclear medicine procedure with which the pass-through diagnostic radiopharmaceutical is used and, accordingly, reduce the separate OPPS payment for the pass-through diagnostic radiopharmaceutical by this amount.

Beginning in CY 2011 and as discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71934 through 71936), we finalized a policy to require hospitals to append modifier ``FB'' to specified nuclear medicine procedures when the diagnostic radiopharmaceutical is received at no cost/full credit. These instructions are contained within the I/OCE CMS specifications on the CMS Web site at http://www.cms.gov/OutpatientCodeEdit/02_OCEQtrReleaseSpecs.asp#TopOfPage. For CY 2012 and future years, we proposed to continue to require hospitals to append modifier ``FB'' to specified nuclear medicine procedures when the diagnostic radiopharmaceutical is received at no cost/full credit. In addition, we proposed to continue to require that when a hospital bills with an ``FB'' modifier with the nuclear medicine scan, the payment amount for procedures in the APCs listed in Table 28 of the proposed rule (76 FR 42250) would be reduced by the full ``policy-packaged'' offset amount appropriate for diagnostic radiopharmaceuticals. Finally, we also proposed to continue to require hospitals to report a token charge of less than $1.01 in cases in which the diagnostic radiopharmaceutical is furnished without cost or with full credit.

Comment: Several commenters supported CMS for continuing to require that hospitals append modifier ``FB'' to specified nuclear medicine procedures when the diagnostic pharmaceutical is received at no cost/

full credit.

Response: We appreciate the commenters' support for this proposed policy.

Comment: One commenter recommended that CMS extend modifier ``FB'' to all procedures involving nuclear medicine in which all diagnostic radiopharmaceuticals are received at no cost or full credit. Further, the commenter recommended that CMS consider adopting this policy for all contrast-enhanced procedures in which the contrast agent is provided at no cost/full credit. The commenter stated that CMS could then publish a list of appropriate APCs to which contrast-enhanced procedures are assigned in a calendar year, and hospitals would then be required to list the ``FB'' modifier with the appropriate APC for the contrast-enhanced procedure; payment, according to the commenter, could then be reduced by a policy-packaged offset amount for contrast agents. As in our policy for reporting of diagnostic radiopharmaceuticals in nuclear medicine procedures, the commenter suggested that CMS also require hospitals report a token charge of less than $1.01 in cases in which the contrast agent is furnished without cost or with full credit. The commenter asserted that requiring hospitals to report modifier ``FB'' for contrast agents received at no cost/full credit would lead to more accurate payment and would lead to greater consistency between drugs.

Response: In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71934 through 71936), we discussed our proposed and finalized policy requiring that hospitals append modifier ``FB'' to specified nuclear medicine procedures when the diagnostic pharmaceutical is received at no cost/full credit. The policy, which was finalized in the CY

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2011 final rule with comment period and implemented in CY 2011, was prompted by questions from hospitals inquiring how to properly bill for diagnostic radiopharmaceuticals obtained free of charge, typically in cases when the radiopharmaceutical had been provided to the hospital as a free sample. Although we have not received similar billing questions from hospitals regarding contrast agents, and have no indications about how widespread the practice of a manufacturer is of providing ``sample'' contrast agents at no cost to a hospital, we agree with the commenter that requiring modifier ``FB'' in such circumstances would lead to more consistency between drugs and, potentially, to more accurate payment. As is the case with diagnostic radiopharmaceuticals, CMS also annually posts a proposed and final list of APCs to which a contrast offset may be applicable. We could foresee this list being a possible element of a future policy establishing a modifier ``FB'' reporting policy, policy-packaged offset amount, and token charge reporting requirement.

However, we note that contrast agents are different in some regards from diagnostic radiopharmaceuticals. Contrast agents are, in general, substantially less costly than diagnostic radiopharmaceuticals and are subject to a higher level of competition from generic competitors; this combination of lower price and higher potential for generic substitution may lead to fewer instances of manufacturers providing hospitals with free samples. Furthermore, many radiopharmaceuticals have a very limited shelf life, often requiring procurement for a specific patient or very narrow window. Contrast agents, on the other hand, have longer shelf lives, making it much more likely that ``wastage'' from a large vial could be used to reduce or eliminate the costs for a subsequent patient. Splitting single dose vials can be acceptable in certain situations and may create ``free'' contrast agent for a patient that does not economically justify an ``FB'' adjustment by the hospital. These complexities may reduce the utility of the ``FB'' modifier for contrast agents.

Regardless of the differences and similarities between diagnostic radiopharmaceutical products, and notwithstanding any possible policy merits of treating these two types of products similarly with regards to modifier ``FB,'' in the CY 2012 OPPS/ASC proposed rule, we did not propose to extend the modifier ``FB'' policy to contrast agents. However, we are interested in receiving comments from hospitals, manufacturers and other interested parties regarding the possible application of modifier ``FB'' to contrast agents when the product is received at no cost/full credit to the hospital, the establishment of a policy-packaged offset amount for contrast agents, and possible reporting of a token charge of less than $1.01 in cases in which the contrast agent is furnished without cost/full credit. Although we are not accepting the commenter's recommendation that CMS extend the modifier ``FB'' policy to contrast agents received at no cost/full credit to a hospital because it was not proposed by CMS in CY 2012, we anticipate considering these modifications for future rulemaking.

After consideration of the public comments we received, we are finalizing our proposal, without modification, to continue requiring hospitals to append modifier ``FB'' to specified nuclear medicine procedures when the diagnostic radiopharmaceutical is received at no cost/full credit in CY 2012. In addition, we will continue to reduce the payment amount for procedures in the APCs listed in Table 34 in this final rule with comment period by the full ``policy-packaged'' offset amount appropriate for diagnostic radiopharmaceuticals. Finally, we also will continue to require hospitals to report a token charge of less than $1.01 in cases in which the diagnostic radiopharmaceutical is furnished without cost or with full credit.

For CY 2011, we finalized a policy to apply the diagnostic radiopharmaceutical offset policy to payment for pass-through diagnostic radiopharmaceuticals, as described above. For CY 2012, we proposed to continue to apply the diagnostic radiopharmaceutical offset policy to payment for pass-through diagnostic radiopharmaceuticals.

Comment: One commenter requested that CMS post all data used to calculate the offset amounts and stated that, without these amounts, the public cannot make comments on the accuracy and appropriateness of CMS' calculation of radiopharmaceutical costs packaged into the nuclear medicine APC or the corresponding offset amounts for pass-through radiopharmaceuticals.

Response: The exact data used to calculate all of the proposed and final payment rates, including the associated offset amounts, for the CY 2012 OPPS are available for purchase under a CMS data use agreement through the CMS Web site at: http://www.cms.gov/hospitalOutpatientPPS. This Web site includes information about purchasing the ``OPPS Limited Data Set,'' which now includes the additional variables previously available only in the OPPS Identifiable Data Set, including ICD-9-CMS diagnosis codes and revenue code payment amounts. We typically have not posted the offset amounts by APC until publication of the final rule because we assign services to APCs based on our estimate of their full resource cost, including, but not limited to, packaged diagnostic radiopharmaceuticals. The offset amount is the portion of each APC payment rate that could reasonably be attributed to the cost of predecessor diagnostic radiopharmaceuticals when considering a new diagnostic radiopharmaceutical for pass-through payment and has no bearing on APC assignment.

After consideration of the public comments we received, we are finalizing our proposal to continue applying the diagnostic radiopharmaceutical offset policy to payment for pass-through diagnostic radiopharmaceuticals, as described in the CY 2012 OPPS/ASC proposed rule (76 FR 42249 through 42250).

Table 34 below displays the APCs to which nuclear medicine procedures will be assigned in CY 2012 and for which we expect that an APC offset could be applicable in the case of diagnostic radiopharmaceuticals with pass-through status.

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c. Payment Offset Policy for Contrast Agents

Section 1833(t)(6)(D)(i) of the Act specifies that the transitional pass-through payment amount for pass-through drugs and biologicals is the difference between the amount paid under section 1842(o) of the Act (or the Part B drug CAP rate) and the otherwise applicable OPD fee schedule amount. There is currently one contrast agent with pass-

through status under the OPPS: HCPCS code C9275 (Injection, hexaminolevulinate hydrochloride, 100 mg, per study dose). HCPCS code C9275 was granted pass-through status beginning January 1, 2011, and was proposed to continue with pass-through status in CY 2012. As described in section V.A.3 of the proposed rule, we proposed that new pass-through contrast agents would be paid at ASP+6 percent, while those without ASP information would be paid at WAC+6 percent or, if WAC is not available, payment would be based on 95 percent of the product's most recently published AWP.

We believe that a payment offset is necessary in order to provide an appropriate transitional pass-through payment for contrast agents because all of these items are packaged when they do not have pass-

through status. In accordance with our standard offset methodology, in the CY 2012 OPPS/ASC proposed rule (76 FR 42250 through 42251), we proposed for CY 2012 to deduct from the payment for pass-through contrast agents an amount that reflects the portion of the APC payment associated with predecessor contrast agents, in order to ensure no duplicate contrast agent payment is made.

In CY 2010, we established a policy to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of predecessor contrast agents when considering new contrast agents for pass-through payment (74 FR 60482 through 60484). For CY 2012, as we did in CY 2011, we proposed to continue to apply this same policy to contrast agents. Specifically, we proposed to utilize the ``policy-

packaged'' drug offset fraction for clinical APCs calculated as 1 minus (the cost from single procedure claims in the APC after removing the cost for ``policy-packaged'' drugs divided by the cost from single procedure claims in the APC). In CY 2010, we finalized a policy

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to redefine ``policy-packaged'' drugs as only nonpass-through diagnostic radiopharmaceuticals and contrast agents (74 FR 60495 through 60499). To determine the actual APC offset amount for pass-

through contrast agents that takes into consideration the otherwise applicable OPPS payment amount, we proposed to multiply the ``policy-

packaged'' drug offset fraction by the APC payment amount for the procedure with which the pass-through contrast agent is used and, accordingly, reduce the separate OPPS payment for the pass-through contrast agent by this amount. We proposed to continue to apply this methodology for CY 2012 to recognize that when a contrast agent with pass-through status is billed with any procedural APC listed in Table 29 of the proposed rule, a specific offset based on the procedural APC would be applied to payments for the contrast agent to ensure that duplicate payment is not made for the contrast agent.

We did not receive any public comments on our proposal to deduct, from the payment for pass-through contrast agents, an amount that reflects the portion of the APC payment associated with predecessor contrast agents in order to ensure no duplicate contrast agent payment is made. We are finalizing, as proposed, our policy to deduct from the payment for pass-through contrast agents an amount that reflects the portion of the APC payment for pass-through contrast agents, as described in the CY 2012 OPPS/ASC proposed rule (76 FR 42250 through 42251). We also are finalizing the proposed CY 2012 pass-through contrast agent offset policy to specify the procedural APCs to which offsets for pass through contrast agents would apply. In addition, as we proposed, for this final rule with comment period, procedural APCs for which we expect a contrast agent offset could be applicable in the case of a pass-through contrast agent have been identified as any procedural APC with a ``policy-packaged'' drug amount greater than $20 that is not a nuclear medicine APC identified in Table 34 above, and these APCs are displayed in Table 35 below. The methodology used to determine a threshold cost for application of a contrast agent offset policy is described in detail in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60483 through 60484). We are finalizing this methodology for CY 2012 to continue to recognize that, when a contrast agent with pass-through status is billed with any procedural APC listed in Table 35, a specific offset based on the procedural APC would be applied to payment for the contrast agent to ensure that duplicate payment is not made for the contrast agent.

As we proposed, for this final rule with comment period, we will continue to post annually on the CMS Web site at http://www.cms.gov/HospitalOutpatientPPS a file that contains the APC offset amounts that will be used for that year for purposes of both evaluating cost significance for candidate pass-through device categories and drugs and biologicals, including contrast agents, and establishing any appropriate APC offset amounts. Specifically, the file will continue to provide the amounts and percentages of APC payment associated with packaged implantable devices, ``policy-packaged'' drugs, and ``threshold-packaged'' drugs and biologicals for every OPPS clinical APC.

Procedural APCs for which we expect a contrast offset could be applicable in the case of a pass-through contrast agent have been identified as any procedural APC with a ``policy-packaged'' drug amount greater than $20 that is not a nuclear medicine APC identified in Table 34 above and these APCs are displayed in Table 35 below. The methodology used to determine a proposed threshold cost for application of a contrast agent offset policy is described in detail in the CY 2010 OPPS/ASC final rule with comment period (70 FR 60483 through 60484). For CY 2012, we proposed to continue to recognize that when a contrast agent with pass-through status is billed with any procedural APC listed in Table 29 of the proposed rule (76 FR 42251), a specific offset based on the procedural APC would be applied to payment for the contrast agent to ensure that duplicate payment is not made for the contrast agent.

We did not receive any public comments regarding this proposal and, therefore, are adopting it for CY 2012 without modification.

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B. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through Status

1. Background

Under the CY 2011 OPPS, we currently pay for drugs, biologicals, and radiopharmaceuticals that do not have pass-through status in one of two ways: as a packaged payment included in the payment for the associated service or as a separate payment (individual APCs). We explained in the April 7, 2000 OPPS final rule with comment period (65 FR 18450) that we generally package the cost of drugs and radiopharmaceuticals into the APC payment rate for the procedure or treatment with which the products are usually furnished. Hospitals do not receive separate payment for packaged items and supplies, and hospitals may not bill beneficiaries separately for any packaged items and supplies whose costs are recognized and paid within the national OPPS payment rate for the associated procedure or service.

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(Transmittal A-01-133, issued on November 20, 2001, explains in greater detail the rules regarding separate payment for packaged services.)

Packaging costs into a single aggregate payment for a service, procedure, or episode-of-care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of items and services into the payment for the primary procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility.

Section 1833(t)(16)(B) of the Act set the threshold for establishing separate APCs for drugs and biologicals at $50 per administration for CYs 2005 and 2006. Therefore, for CYs 2005 and 2006, we paid separately for drugs, biologicals, and radiopharmaceuticals whose per day cost exceeded $50 and packaged the costs of drugs, biologicals, and radiopharmaceuticals whose per day cost was equal to or less than $50 into the procedures with which they were billed. For CY 2007, the packaging threshold for drugs, biologicals, and radiopharmaceuticals that were not new and did not have pass-through status was established at $55. For CYs 2008 and 2009, the packaging threshold for drugs, biologicals, and radiopharmaceuticals that were not new and did not have pass-through status was established at $60. For CY 2010, the packaging threshold for drugs, biologicals, and radiopharmaceuticals that were not new and did not have pass-through status was established at $65. For CY 2011, the packaging threshold for drugs, biologicals, and radiopharmaceuticals that were not new and did not have pass-through status was established at $70. The methodology used to establish the $55 threshold for CY 2007, the $60 threshold for CYs 2008 and 2009, the $65 threshold for CY 2010, the $70 threshold for CY 2011, and our proposed approach for CY 2012 are discussed in more detail in section V.B.2.b. of this final rule with comment period.

2. Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals

a. Background

As indicated in section V.B.1. of this final rule with comment period, in accordance with section 1833(t)(16)(B) of the Act, the threshold for establishing separate APCs for payment of drugs and biologicals was set to $50 per administration during CYs 2005 and 2006. In CY 2007, we used the four quarter moving average Producer Price Index (PPI) levels for Pharmaceutical Preparations (Prescription) to trend the $50 threshold forward from the third quarter of CY 2005 (when the Pub. L. 108-173 mandated threshold became effective) to the third quarter of CY 2007. We then rounded the resulting dollar amount to the nearest $5 increment in order to determine the CY 2007 threshold amount of $55. Using the same methodology as that used in CY 2007 (which is discussed in more detail in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 68086)), we set the packaging threshold for establishing separate APCs for drugs and biologicals at $60 for CYs 2008 and 2009. For CY 2010, we set the packaging threshold at $65; and for CY 2011, we set the packaging threshold at $70.

Following the CY 2007 methodology, in the CY 2012 OPPS/ASC proposed rule, we used the most recently available four quarter moving average PPI levels to trend the $50 threshold forward from the third quarter of CY 2005 to the third quarter of CY 2012 and rounded the resulting dollar amount ($77.63) to the nearest $5 increment, which yielded a figure of $80, which we proposed as the packaging threshold for CY 2012. In performing this calculation, we used the most recent forecast of the quarterly index levels for the PPI for Pharmaceuticals for Human Use (Prescription) (Bureau of Labor Statistics (BLS) series code WPUSI07003) from CMS' Office of the Actuary (OACT). (We note that we did not propose a change to the PPI that is used to calculate the threshold for CY 2012; rather, this change in terminology reflects a change to the BLS naming convention for this series.) We refer below to this series generally as the PPI for Prescription Drugs.

We chose this PPI as it reflects price changes associated with the average mix of all pharmaceuticals in the overall economy. In addition, we chose this price series because it is publicly available and regularly published, improving public access and transparency. Forecasts of the PPI for Prescription Drugs are developed by IHS Global Insight, Inc., a nationally recognized economic and financial forecasting firm. As actual inflation for past quarters replaced forecasted amounts, the PPI estimates for prior quarters have been revised (compared with those used in the CY 2007 OPPS/ASC final rule with comment period) and have been incorporated into our calculation. Based on the calculations described above, we proposed a packaging threshold for CY 2012 of $80. (For a more detailed discussion of the OPPS drug packaging threshold and the use of the PPI for Prescription Drugs, we refer readers to the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 68086).)

b. Cost Threshold for Packaging of Payment for HCPCS Codes That Describe Certain Drugs, Nonimplantable Biologicals, and Therapeutic Radiopharmaceuticals (``Threshold-Packaged Drugs'')

In the CY 2012 OPPS/ASC proposed rule (76 FR 42252 through 42253), we calculated on a HCPCS code-specific basis the per day cost of all drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals (collectively called ``threshold-packaged'' drugs) that had a HCPCS code in CY 2010 and were paid (via packaged or separate payment) under the OPPS in order to determine their proposed CY 2012 packaging status. We used data from CY 2010 claims processed before January 1, 2011 for this calculation. However, we did not perform this calculation for those drugs and biologicals with multiple HCPCS codes that include different dosages as described in section V.B.2.c. of this final rule with comment period or for diagnostic radiopharmaceuticals, contrast agents, and implantable biologicals that we proposed to continue to package in CY 2012, as discussed in section V.B.2.d. of this final rule with comment period.

In order to calculate the per day costs for drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals to determine their proposed packaging status in CY 2012, we used the methodology that was described in detail in the CY 2006 OPPS proposed rule (70 FR 42723 through 42724) and finalized in the CY 2006 OPPS final rule with comment period (70 FR 68636 through 70 FR 68638). For each drug and nonimplantable biological HCPCS code, we used an estimated payment rate of ASP+4 percent (which is the payment rate we proposed for separately payable drugs and nonimplantable biologicals for CY 2012, as discussed in more detail in section V.B.3.b. of the proposed rule and this final rule with comment period) to calculate the CY 2012 proposed rule per day costs. We used the manufacturer submitted ASP data from the fourth quarter of CY 2010 (data that were used for payment purposes in the physician's office setting, effective April 1, 2011) to determine the proposed rule per day cost.

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As is our standard methodology, for CY 2012 we proposed to use payment rates based on the ASP data from the fourth quarter of CY 2010 for budget neutrality estimates, packaging determinations, impact analyses, and completion of Addenda A and B to the proposed rule (which were referenced in section XVII. of the proposed rule and available via the Internet) because these are the most recent data available for use at the time of development of the proposed rule. These data were also the basis for drug payments in the physician's office setting, effective April 1, 2011. For items that did not have an ASP-based payment rate, such as some therapeutic radiopharmaceuticals, we used their mean unit cost derived from the CY 2010 hospital claims data to determine their per day cost. We proposed to package items with a per day cost less than or equal to $80 and identified items with a per day cost greater than $80 as separately payable. Consistent with our past practice, we crosswalked historical OPPS claims data from the CY 2010 HCPCS codes that were reported to the CY 2011 HCPCS codes that we displayed in Addendum B of the proposed rule (which was referenced in section XVII. of the proposed rule and available via the Internet) for payment in CY 2012.

Comment: The majority of commenters objected to the proposed increase in the OPPS packaging threshold to $80 for CY 2012. Many stated that the $10 increase in the threshold from CY 2011 was larger than expected because recent increases in the packaging threshold have occurred in $5 increments. Several commenters recommended that CMS consider either eliminating the drug packaging threshold and providing separate payment for all drugs with HCPCS codes or freezing the packaging threshold at $70 for CY 2012. One commenter, in particular, suggested that CMS freeze the packaging threshold at $70 for at least 3 years. Many commenters objected to the use of a packaging threshold under the OPPS when one is not used for physician's office payment. These commenters expressed concern that the packaging threshold may impede beneficiary access to lower cost packaged drugs in the HOPD setting. A few commenters suggested that CMS limit increases in the packaging threshold amount to the market basket update for the year. One commenter also recommended that CMS not round up the threshold amount to the nearest $5 increment and, instead, defer increases in the threshold until changes in prices exceed $5.

Some commenters believed that eliminating the packaging threshold and paying separately for all drugs in the HOPD setting would allow a more accurate calculation of the separately payable payment amount for drugs (otherwise referred to as the ASP+X calculation).

Response: As discussed in detail in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66757 through 66758), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68643), the CY 2010 OPPS/ASC final rule with comment period (74 FR 60485 through 60487), and the CY 2011 final rule with comment period (75 FR 71940 through 71943), we continue to believe that unpackaging payment for all drugs, biologicals and radiopharmaceuticals is inconsistent with the concept of a prospective payment system and that such a change could create an additional reporting burden for hospitals. The OPPS and the MPFS that applies to physician's services are fundamentally different payment systems with essential differences in their payment policies and structures. Specifically, the OPPS is a prospective payment system based on the concept of payment for groups of services that share clinical and resource characteristics. Payment is made under the OPPS according to prospectively established payment rates that are related to the relative costs of hospital resources for services. When physician's services are furnished in an office setting, they are paid under the MPFS, which is a fee schedule based on the realative value of each component. Under the MPFS, separate payment is made for each service provided in the physician's office; when individual drugs are furnished in the physician's office, they are generally paid under the ASP methodology. In contrast, the OPPS includes various drugs within a prospective payment system, where payment for certain drugs is packaged into the associated procedure payment for the APC group. Given the fundamental differences in the way payment is made in an HOPD and a physician's office setting, differences in payment are to be expected.

In general, we do not believe that our packaging methodology under the OPPS results in limited beneficiary access to drugs because packaging is a fundamental component of a prospective payment system that accounts for the cost of certain items and services in larger payment bundles, recognizing that some clinical cases may be more costly and others less costly, but that, on average, OPPS payment is appropriate for the services provided. The growing utilization associated with packaged drugs and biologicals in our claims data suggests Medicare beneficiaries have sufficient access to these items.

We note that, in CYs 2005 and 2006, the statutorily mandated drug packaging threshold was set at $50, and we continue to believe that it is appropriate to continue a modest drug packaging threshold for the CY 2012 OPPS for the reasons set forth below. As stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68086), we believe that packaging certain items is a fundamental component of a prospective payment system, that packaging these items does not lead to beneficiary access issues and does not create a problematic site of service differential, that the packaging threshold is reasonable based on the initial establishment in law of a $50 threshold for the CY 2005 OPPS, that updating the $50 threshold is consistent with industry and government practices, and that the PPI for Prescription Drugs is an appropriate mechanism to gauge Part B drug inflation. Therefore, because of our continued belief that packaging is a fundamental component of a prospective payment system that continues to provide important flexibility and efficiency in the delivery of high quality hospital outpatient services, we are not adopting the commenters' recommendations to pay separately for all drugs, biologicals, and radiopharmaceuticals for CY 2012 or to eliminate or to freeze the packaging threshold at $70.

We disagree with the commenters who suggested that CMS should limit increases in the outpatient drug packaging threshold amount to the market basket update for the year. As stated above, we continue to believe that updating the $50 threshold is consistent with industry and government practices and that the PPI for Prescription Drugs is an appropriate mechanism to gauge Part B drug inflation. As we stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085), we believe that the PPI for Prescription Drugs reflects price changes at the wholesale or manufacturer stage. Because OPPS payment rates for drugs and biologicals are generally based on the ASP data that are reported by their manufacturers, we believe that the PPI for Prescription Drugs is an appropriate price index to use to update the packaging threshold for CY 2007 and beyond.

In contrast, the market basket update contains numerous price proxies, including, but not limited to, proxies for wages and salaries, utilities, and

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nonlabor-related expenses, that are not related to price increases for prescription drugs. Therefore, we believe that the market basket as a whole is not an appropriate mechanism for determining the outpatient drug packaging threshold amount. Within the calculation of the market basket update, we use the PPI for Prescription Drugs specifically to measure the price growth for prescription drugs, but price changes for prescription drugs are only one component of price changes for the numerous items and services hospitals purchase. Additionally, we disagree with the commenters' suggestion that we not round up the packaging threshold to the nearest $5 increment and, instead, defer any increases in the threshold until changes in prices exceed $5. We note that we equally round up or round down to the nearest $5 increment, and we continue to believe that rounding to the nearest $5 increment more accurately updates the 2005 statutorily mandated drug packaging threshold.

Finally, we believe that our continued application of the methodology initially adopted in CY 2007 to update the drug packaging threshold does not inhibit our ability to pay accurately for drugs and biologicals. We have made several refinements to the ASP+X drug payment methodology under the OPPS for nonpass-through drugs and biologicals over the past several years to improve its accuracy. During that time, we have continued to implement our established methodology for annually updating the drug packaging threshold. For CY 2010, we finalized an overhead adjustment methodology for determining payment for separately payable drugs without pass-through status while we have continued to consistently apply the methodology described above to update the drug packaging threshold.

Since publication of the CY 2012 OPPS/ASC proposed rule, consistent with our policy of updating the packaging threshold with more recently available data for the final rule, we have again followed the CY 2007 methodology for CY 2012 and used updated four quarter moving average PPI index levels provided by the CMS Office of the Actuary to trend the $50 threshold forward from the third quarter of CY 2005 to the third quarter of CY 2012. We then rounded the resulting dollar updated dollar amount ($77.44) to the nearest $5 increment, which yielded a figure of $75. We note that this calculation, by using the most recent forecast of the quarterly PPI index levels, resulted in a decrease in the trended dollar amount from $77.63 in the CY 2012 proposed rule to $77.44 for this final rule with comment period. Because it is our policy to round the dollar amount to the nearest $5 increment, the slight decrease in the trended dollar amount has resulted in a reduced packaging threshold, from $80 in the proposed rule, to a final CY 2012 packaging threshold of $75. Therefore, after consideration of the public comments we received, and consistent with our established methodology for establishing the packaging threshold using the most recent PPI forecast data, we are adopting a CY 2012 packaging threshold of $75.

Our policy during previous cycles of the OPPS has been to use updated ASP and claims data to make final determinations of the packaging status of HCPCS codes for drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals for the final rule with comment period. We note that it is also our policy to make an annual packaging determination for a HCPCS code only when we develop the OPPS/ASC final rule with comment period for the update year. Only HCPCS codes that are identified as separately payable in the final rule with comment period are subject to quarterly updates. For our calculation of per day costs of HCPCS codes for drugs and nonimplantable biologicals in this CY 2012 OPPS/ASC final rule with comment period, we proposed to use ASP data from the first quarter of CY 2011, which is the basis for calculating payment rates for drugs and biologicals in the physician's office setting using the ASP methodology, effective July 1, 2011, along with updated hospital claims data from CY 2010. We note that we also proposed to use these data for budget neutrality estimates and impact analyses for this CY 2012 OPPS/ASC final rule with comment period.

Payment rates for HCPCS codes for separately payable drugs and nonimplantable biologicals included in Addenda A and B to this final rule with comment period are based on ASP data from the second quarter of CY 2011. These data are the basis for calculating payment rates for drugs and biologicals in the physician's office setting using the ASP methodology, effective October 1, 2011. These physician's office payment rates will then be updated in the January 2012 OPPS update, based on the most recent ASP data to be used for physician's office and OPPS payment as of January 1, 2012. For items that do not currently have an ASP-based payment rate as proposed, we recalculate their mean unit cost from all of the CY 2010 claims data and updated cost report information available for this CY 2012 final rule with comment period to determine their final per day cost.

Consequently, the packaging status of some HCPCS codes for drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals in this CY 2012 OPPS/ASC final rule with comment period may be different from the same drug HCPCS code's packaging status determined based on the data used for the proposed rule. Under such circumstances, we proposed to continue to follow the established policies initially adopted for the CY 2005 OPPS (69 FR 65780) in order to more equitably pay for those drugs whose median cost fluctuates relative to the proposed CY 2012 OPPS drug packaging threshold and the drug's payment status (packaged or separately payable) in CY 2011. Specifically, consistent with our historical practice, we applied the following policies to these HCPCS codes for drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals whose relationship to the $75 drug packaging threshold changes based on the updated drug packaging threshold and on the final updated data:

HCPCS codes for drugs and nonimplantable biologicals that were paid separately in CY 2011 and that were proposed for separate payment in CY 2012, and that then have per day costs equal to or less than $75, based on the updated ASPs and hospital claims data used for this CY 2012 final rule with comment period, will continue to receive separate payment in CY 2012.

HCPCS codes for drugs and nonimplantable biologicals that were packaged in CY 2011 and that are proposed for separate payment in CY 2012, and that then have per day costs equal to or less than $75, based on the updated ASPs and hospital claims data used for this CY 2012 final rule with comment period, will remain packaged in CY 2012.

HCPCS codes for drugs and nonimplantable biologicals for which we proposed packaged payment in CY 2012 but then have per day costs greater than $75, based on the updated ASPs and hospital claims data used for this CY 2012 final rule with comment period, will receive separate payment in CY 2012.

We did not receive any public comments on our proposal to apply the established policies initially adopted for the CY 2005 OPPS (69 FR 65780) in order to more equitably pay for those drugs whose median cost fluctuates relative to the CY 2012 OPPS drug packaging threshold and the drug's payment status (packaged or separately payable) in CY 2011. Therefore, we are

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finalizing our proposal, without modification, for CY 2012.

We note that HCPCS codes J2513 (Pentastarch 10% solution), J3310 (Perphenazine injection), and J9351 (Topotecan) were paid separately for CY 2011 and were proposed for separate payment in CY 2012 and had final per day costs of less than the $75 drug packaging threshold, based on updated ASPs and the CY 2010 hospital claims data available for this CY 2012 final rule with comment period. Therefore, HCPCS codes J2513, J3310, and J9351 will continue to be paid separately in CY 2012 according to the established methodology set forth above.

In addition, we proposed to provide separate payment for HCPCS code J2597 (Inj desmopressin acetate) in CY 2012, which was packaged in CY 2011. Using updated ASPs and the CY 2010 hospital claims data available for this final rule with comment period, HCPCS code J2597 now has a per day cost of less than $75. In accordance with our established policy for such cases, for CY 2012, we are packaging payment for HCPCS code J2597.

We also proposed to package HCPCS codes 90378 (Rsv ig, im, 50mg), J0364 (Apomorphine hydrochloride), J1324 (Enfuvirtide injection), J1642 (Inj heparin sodium per 10 u), J1644 (Inj heparin sodium per 1000u), J1756 (Iron sucrose injection), J2700 (Oxacillin sodium injeciton), J3030 (Sumatriptan succinate/6 MG), J9070 (Cyclophosphamide 100 MG inj), J9185 (Fludarabine phosphate inj), J9206 (Irinotecan injection), J9390 (Vinorelbine tartrate inj), and Q4103 (Oasis burn matrix) . Using updated ASPs and the CY 2010 hospital claims data available for this final rule with comment period, HCPCS codes 90378, J0364, J1324, J1642, J1644, J1756, J2700, J3030, J9070, J9185, J9206, J9390, and Q4103 now have per day costs greater than $75. In accordance with our established policy for such cases, for CY 2012 we will pay for HCPCS codes 90378, J0364, J1324, J1642, J1644, J1756, J2700, J3030, J9070, J9185, J9206, J9390, and Q4103 separately.

Finally, because we did not have claims data for HCPCS code J9213 (Interferon alfa-2a inj) in the CY 2012 OPPS/ASC proposed rule, we had proposed a status indicator of ``E'' for this product in CY 2012. However, since publication of the proposed rule, we have received claims data and, because the per day cost for this product of approximately $70 is less than the final $75 CY 2012 packaging threshold, the product is packaged and has a CY 2012 status indicator of ``N.''

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60485 through 60489), we implemented a policy to treat oral and injectable forms of 5-HT3 antiemetics comparably to all other threshold packaged drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals under our standard packaging methodology of packaging drugs with a per day cost less than $65. In the CY 2012 OPPS/ASC proposed rule (76 FR 42252), we proposed for CY 2012 to continue our policy of not exempting these 5-HT3 antiemetic products from our standard packaging methodology. For CY 2012, we proposed to package payment for all of the 5-HT3 antiemetics except palonosetron hydrochloride, which for CY 2012 has an estimated per day cost, from the CY 2010 claims data, above the proposed CY 2012 drug packaging threshold. Our rationale for this policy is outlined in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60487 through 60488).

Comment: Several commenters suggested that CMS reinstate its policy of separate payment for 5-HT3 antiemetics, which are a class of drugs often used as part of an anti-cancer treatment regimen to treat nausea.

Response: We continue to believe that use of these antiemetics is an integral part of an anti-cancer treatment regimen and that OPPS claims data demonstrate their increasingly common hospital outpatient utilization. As we stated in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60488), we no longer believe that a specific exemption to our standard drug payment methodology is necessary to ensure access to the most appropriate antiemetic products for Medicare beneficiaries. We continue to believe that our analysis conducted in the CY 2010 OPPS/ASC proposed rule on 5-HT3 antiemetics (74 FR 35320), along with the historical stability in prescribing patterns for these products and the availability of generic alternatives for several of these products, allow us to continue our policy of specifically not exempting these products from the OPPS drug packaging threshold.

Comment: One commenter recommended that CMS not package any drugs used in anti-cancer regimens.

Response: We disagree with the commenter for the reasons mentioned above. We believe that packaging certain items, including items used in anti-cancer regimens, is a fundamental component of a prospective payment system, and is an essential feature that distinguishes a prospective payment system from a fee schedule. We do not believe that packaging drugs used in an anti-cancer regimen or in outpatient treatment of other significant diseases leads to beneficiary access issues. This finding is confirmed by our analysis of hospital claims data in which we have found that beneficiaries appear to have adequate access to cancer treatments, as is signified by ongoing volume growth in cancer-related APCs and stability in prescribing products for anti-

cancer drugs such as 5-HT3 antiemetics, for which CMS has continued to observe volume growth, even after we ended our multiyear exemption from the packaging threshold for these products. In summary, after consideration of the public comments we received, we are finalizing our proposal to continue our policy of not exempting 5-HT3 antiemetics from the drug packaging threshold for CY 2012. In addition, we are not providing any exceptions to the standard drug packaging methodology for any class of drugs, including anti-cancer therapies, for CY 2012. However, we note that the 5-HT3 antiemetic product described by HCPCS code J2469 (palonosetron hydrocholride) has a CY 2012 estimated per day cost, from the CY 2010 claims data, above the CY 2012 drug packaging threshold and, therefore, will receive separate payment in CY 2012.

c. Packaging Determination for HCPCS Codes That Describe the Same Drug or Biological But Different Dosages

In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66776), we began recognizing, for OPPS payment purposes, multiple HCPCS codes reporting different dosages for the same covered Part B drugs or biologicals in order to reduce hospitals' administrative burden by permitting them to report all HCPCS codes for drugs and biologicals. In general, prior to CY 2008, the OPPS recognized for payment only the HCPCS code that described the lowest dosage of a drug or biological. We extended this recognition to multiple HCPCS codes for several other drugs under the CY 2009 OPPS (73 FR 68665). During CYs 2008 and 2009, we applied a policy that assigned the status indicator of the previously recognized HCPCS code to the associated newly recognized code(s), reflecting the packaged or separately payable status of the new code(s). In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66775), we explained that once claims data were available for these previously unrecognized HCPCS codes, we would determine the packaging status and resulting status indicator for each HCPCS code according to the general, established HCPCS code-specific

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methodology for determining a code's packaging status for a given update year. However, we also stated that we planned to closely follow our claims data to ensure that our annual packaging determinations for the different HCPCS codes describing the same drug or biological did not create inappropriate payment incentives for hospitals to report certain HCPCS codes instead of others.

In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60490 through 60491), we finalized a policy to make a single packaging determination for a drug, rather than an individual HCPCS code, when a drug has multiple HCPCS codes describing different dosages. We analyzed CY 2008 claims data for the HCPCS codes describing different dosages of the same drug or biological that were newly recognized in CY 2008 and found that our claims data would result in several different packaging determinations for different codes describing the same drug or biological. Furthermore, we found that our claims data included few units and days for a number of newly recognized HCPCS codes, resulting in our concern that these data reflected claims from only a small number of hospitals, even though the drug or biological itself may be reported by many other hospitals under the most common HCPCS code. Based on these findings from our first available claims data for the newly recognized HCPCS codes, we believed that adopting our standard HCPCS code-specific packaging determinations for these codes could lead to payment incentives for hospitals to report certain HCPCS codes instead of others, particularly because we do not currently require hospitals to report all drug and biological HCPCS codes under the OPPS in consideration of our previous policy that generally recognized only the lowest dosage HCPCS code for a drug or biological for OPPS payment.

For CY 2012, we continue to believe that adopting the standard HCPCS code-specific packaging determinations for these codes could lead to payment incentives for hospitals to report certain HCPCS codes for drugs instead of others. Making packaging determinations on a drug-

specific basis eliminates these incentives and allows hospitals flexibility in choosing to report all HCPCS codes for different dosages of the same drug or only the lowest dosage HCPCS code. Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42253 through 42255), we proposed to continue our policy to make packaging determinations on a drug-specific basis, rather than a HCPCS code-specific basis, for those HCPCS codes that describe the same drug or biological but different dosages in CY 2012.

For CY 2012, in order to propose a packaging determination that is consistent across all HCPCS codes that describe different dosages of the same drug or biological, we aggregated both our CY 2010 claims data and our pricing information at ASP+4 percent across all of the HCPCS codes that describe each distinct drug or biological in order to determine the mean units per day of the drug or biological in terms of the HCPCS code with the lowest dosage descriptor. All HCPCS codes listed in Table 30 of the proposed rule (76 FR 42254 through 42255) had ASP pricing information available for the CY 2012 OPPS/ASC proposed rule. Therefore, we multiplied the weighted average ASP+4 percent per unit payment amount across all dosage levels of a specific drug or biological by the estimated units per day for all HCPCS codes that describe each drug or biological from our claims data to determine the estimated per day cost of each drug or biological at less than or equal to $80 (whereupon all HCPCS codes for the same drug or biological would be packaged) or greater than $80 (whereupon all HCPCS codes for the same drug or biological would be separately payable).

Although we did not receive any public comments regarding this methodology, as noted in section V.B.2.b. of this final rule with comment period, the final CY 2012 drug packaging threshold is $75, and not $80 as had been proposed in the CY 2012 OPPS proposed rule. Therefore, in preparation for the CY 2012 final rule with comment period, we again aggregated both our CY 2010 claims data and our pricing information at ASP+4 percent across all of the HCPCS codes that describe each distinct drug or biological in order to determine the mean units per day of the drug or biological in terms of the HCPCS code with the lowest dosage descriptor for those drugs listed in Table 30 of the proposed rule (76 FR 42254 through 42255). We then multiplied the weighted average ASP+4 percent per unit payment amount across all dosage levels of a specific drug or biological by the estimated units per day for all HCPCS codes that describe each drug or biological from our claims data to determine the estimated per day cost of each drug or biological at less than or equal to $75 (whereupon all HCPCS codes for the same drug or biological would be packaged) or greater than $75 (whereupon all HCPCS codes for the same drug or biological would be separately payable). In repeating this analysis, we found that two products for which we had proposed a CY 2012 status indicator of ``N,'' HCPCS J1642 (Injection, heparin sodium (heparin lock flush), per 10 units) and J1644 (Injection, heparin sodium, per 1000 units) had a recalculated per day cost in excess of the $75 packaging threshold. Therefore, HCPCS J1642 and J1644 are assigned status indicator ``K'' and will be separately payable in CY 2012.

With the exception of the changed status indicators for HCPCS J1642 and J1644, we are adopting as final the proposed packaging status of each drug and biological HCPCS code to which the aforementioned methodology applies. The products affected are displayed in Table 36 below.

BILLING CODE 4120-01-P

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GRAPHIC TIFF OMITTED TR30NO11.060

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GRAPHIC TIFF OMITTED TR30NO11.061

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BILLING CODE 4120-01-C

d. Packaging of Payment for Diagnostic Radiopharmaceuticals, Contrast Agents, and Implantable Biologicals (``Policy-Packaged'' Drugs and Devices)

Prior to CY 2008, the methodology of calculating a product's estimated per day cost and comparing it to the annual OPPS drug packaging threshold was used to determine the packaging status of drugs, biologicals, and radiopharmaceuticals under the OPPS (except for our CYs 2005 through 2009 exemption for 5-HT3 antiemetics). However, as established in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66766 through 66768), we began packaging payment for all diagnostic radiopharmaceuticals and contrast agents into the payment for the associated procedure, regardless of their per day costs. In addition, in CY 2009, we adopted a policy that packaged the payment for nonpass-

through

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implantable biologicals into payment for the associated surgical procedure on the claim (73 FR 68633 through 68636). We refer to diagnostic radiopharmaceuticals and contrast agents collectively as ``policy-packaged'' drugs and implantable biologicals as devices because, in CY 2010, we began to treat implantable biologicals as devices for all OPPS payment purposes.

According to our regulations at Sec. 419.2(b), as a prospective payment system, the OPPS establishes a national payment rate that includes operating and capital-related costs that are directly related and integral to performing a procedure or furnishing a service on an outpatient basis including, but not limited to, implantable prosthetics, implantable durable medical equipment, and medical and surgical supplies. Packaging costs into a single aggregate payment for a service, encounter, or episode-of-care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of items and services into the payment for the primary procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility.

Prior to CY 2008, we noted that the proportion of drugs, biologicals, and radiopharmaceuticals that were separately paid under the OPPS had increased in recent years, a pattern that we also observed for procedural services under the OPPS. Our final CY 2008 policy that packaged payment for all nonpass-through diagnostic radiopharmaceuticals and contrast agents, regardless of their per day costs, contributed significantly to expanding the size of the OPPS payment bundles and is consistent with the principles of a prospective payment system.

As discussed in more detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68645 through 68649), we presented several reasons supporting our initial policy to package payment of diagnostic radiopharmaceuticals and contrast agents into their associated procedures on a claim. Specifically, we stated that we believed packaging was appropriate because: (1) The statutorily required OPPS drug packaging threshold has expired; (2) we believe that diagnostic radiopharmaceuticals and contrast agents function effectively as supplies that enable the provision of an independent service; and (3) section 1833(t)(14)(A)(iii) of the Act requires that payment for specified covered outpatient drugs (SCODs) be set prospectively based on a measure of average hospital acquisition cost.

For these reasons, we believe it is appropriate to continue to treat diagnostic radiopharmaceuticals and contrast agents differently from SCODs for CY 2012. Therefore, in the CY 2012 OPPS/ASC proposed rule (76 FR 42255 through 42256), we proposed to continue packaging payment for all contrast agents and diagnostic radiopharmaceuticals, collectively referred to as ``policy-packaged'' drugs, regardless of their per day costs, for CY 2012. We also proposed to continue to package the payment for diagnostic radiopharmaceuticals into the payment for the associated nuclear medicine procedure and to package the payment for contrast agents into the payment of the associated echocardiography imaging procedure, regardless of whether the agent met the OPPS drug packaging threshold. We refer readers to the CY 2010 OPPS/ASC final rule with comment period for a detailed discussion of nuclear medicine and echocardiography services (74 FR 35269 through 35277).

Comment: Several commenters objected to CMS' proposal to package payment for all diagnostic radiopharmaceuticals and contrast agents in CY 2012. A number of commenters stated that diagnostic radiopharmaceuticals and contrast agents with per day costs over the proposed OPPS drug packaging threshold are defined as SCODs and, therefore, should be assigned separate APC payments. In particular, the commenters questioned CMS' authority to classify groups of drugs, such as diagnostic radiopharmaceuticals and contrast agents, and implement packaging and payment policies that do not reflect their status as SCODs. Several comments disagreed with CMS' labeling of radiopharmaceuticals as supplies and stated instead that they should be treated as other SCODs. The commenters recommended that diagnostic radiopharmaceuticals should be subject to the same per day cost drug packaging threshold that applies to other drugs, in order to determine whether their payment would be packaged or made separately.

Response: As discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66766), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68645), the CY 2010 OPPS/ASC final rule with comment period (74 FR 60497), and the CY 2011 final rule with comment period (75 FR 71949), we continue to believe that diagnostic radiopharmaceuticals and contrast agents are different from other drugs and biologicals for several reasons. We note that the statutorily required OPPS drug packaging threshold has expired, and we continue to believe that diagnostic radiopharmaceuticals and contrast agents function effectively as supplies that enable the provision of an independent service and are always ancillary and supportive to an independent service, rather than themselves serving as the therapeutic modality. We packaged their payment in CYs 2008, 2009, 2010, and 2011 as ancillary and supportive services in order to provide incentives for greater efficiency and to provide hospitals with additional flexibility in managing their resources. In order for payment to be packaged, it is not necessary that all products be interchangeable in every case, and we recognized that, in some cases, hospitals may utilize higher cost products and, in some cases, lower cost products, taking into consideration the clinical needs of the patient and efficiency incentives. While we recognize this variability from case to case, on average under a prospective payment system, we expect payment to pay appropriately for the services furnished. In the past, we have classified different groups of drugs for specific payment purposes, as evidenced by our CY 2005 through CY 2009 policy regarding 5-HT3 antiemetics and their exemption from the drug packaging threshold. We note that we treat diagnostic radiopharmaceuticals and contrast agents as ``policy-packaged'' drugs because our policy is to package payment for all of the products in the category.

In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68634), we also began packaging the payment for all nonpass-through implantable biologicals into payment for the associated surgical procedure because we consider these products to always be ancillary and supportive to independent services, similar to implantable nonbiological devices that are always packaged. Therefore, we currently package payment for nonpass-through implantable biologicals, also known as devices that are surgically inserted or implanted (through a surgical incision or a natural orifice) into the body. As we stated in the CY 2012 OPPS/ASC proposed rule (76 FR 42256), we continue to believe that payment should be packaged for nonpass-through implantable biologicals for CY 2012.

Although our final CY 2009 policy (which we are continuing for CY 2012 as discussed below) packages payment for all diagnostic radiopharmaceuticals,

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contrast agents, and nonpass-through implantable biologicals into the payment for their associated procedures, we are continuing to provide payment for these items in CY 2012 based on a proxy for average acquisition cost, as we did in CY 2009. We continue to believe that the line-item estimated cost for a diagnostic radiopharmaceutical, contrast agent, or nonpass-through implantable biological in our claims data is a reasonable approximation of average acquisition and preparation and handling costs for diagnostic radiopharmaceuticals, contrast agents, and nonpass-through implantable biologicals, respectively. As we discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68645), we believe that hospitals have adapted to the CY 2006 coding changes for radiopharmaceuticals and responded to our instructions to include charges for radiopharmaceutical handling in their charges for the radiopharmaceutical products. Further, because the standard OPPS packaging methodology packages the total estimated cost of each radiopharmaceutical, contrast agent, or nonimplantable biological on each claim (including the full range of costs observed on the claims) with the cost of associated procedures for ratesetting, this packaging approach is consistent with considering the average cost for radiopharmaceuticals, contrast agents, or nonpass-through implantable biologicals, rather than the median cost. In addition, as we noted in the CY 2009 OPPS/ASC final rule with comment period (72 FR 68646), these drugs, biologicals, or radiopharmaceuticals for which we have not established a separate APC and therefore, for which payment would be packaged rather than separately provided under the OPPS, are considered to not be SCODs. Similarly, drugs and biologicals with per day costs of less than $75 in CY 2012 that are packaged and for which a separate APC has not been established also are not SCODs. This reading is consistent with our final payment policy whereby we package payment for diagnostic radiopharmaceuticals, contrast agents, and nonpass-through implantable biologicals and provide payment for these products through payment for their associated procedures.

Comment: Several commenters disagreed with the proposal to distinguish between diagnostic and therapeutic radiopharmaceuticals for payment purposes under the OPPS. The commenters noted that CMS' identification of HCPCS code A9544 (Iodine I-131 tositumomab, diagnostic, per study dose) as a diagnostic radiopharmaceutical is inappropriate because this radiopharmaceutical functions as a dosimetric radiopharmaceutical and not as a diagnostic radiopharmaceutical. A few commenters explained that this particular radiopharmaceutical product is used as part of a therapeutic regimen and, therefore, should be considered therapeutic for OPPS payment purposes.

Response: As discussed above and in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66641), the CY 2009 OPPS/ASC final rule with comment period (73 FR 68645), the CY 2010 OPPS/ASC final rule with comment period (74 FR 60498), and the CY 2011 OPPS/ASC final rule with comment period (75 FR 71949), we classified each radiopharmaceutical into one of the two groups according to whether its long descriptor contained the term ``diagnostic'' or ``therapeutic''. HCPCS code A9544 contains the term ``diagnostic'' in its long code descriptor. Therefore, according to our established methodology, we continue to classify it as diagnostic for the purposes of CY 2012 OPPS payment. While we understand that this item is provided in conjunction with additional supplies, imaging tests, and therapeutic radiopharmaceuticals for patients already diagnosed with cancer, we continue to believe that the purpose of administering the product described by HCPCS code A9544 is diagnostic in nature. As we first stated in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66641), we continue to believe that the product described by HCPCS code A9544 is a diagnostic radiopharmaceutical. While it is not used to necessarily diagnose a general disease state, it is used to determine whether future therapeutic services would be beneficial to the patient and to determine how to proceed with therapy. We note that this is no different than the use of a lab test to guide therapy; the fact that the diagnostic test, a service which provides information, is used to guide therapy does not make it a therapeutic service, one which intended to improve a patient's clinical condition. While a group of associated services may be considered a therapeutic regimen by some commenters, HCPCS code A9544 is provided in conjunction with a series of nuclear medicine imaging scans. Many nuclear medicine studies using diagnostic radiopharmaceuticals are provided to patients who already have an established diagnosis. We continue to consider HCPCS code A9544 to be diagnostic because this item is provided for the purpose of conducting a diagnostic imaging procedure and is used to identify the proposed dose of the therapeutic agent to be provided at a later time.

Comment: Some commenters recommended using the ASP methodology to make payment for nonpass-through diagnostic radiopharmaceuticals, noting that it would be inconsistent for CMS to treat diagnostic radiopharmaceuticals as ``drugs'' for pass-through payment purposes and provide payment for diagnostic radiopharmaceuticals that have pass-

through status based on the ASP methodology, and, then, after the diagnostic radiopharmaceutical's pass-through payment status expires, package the costs included in historical hospital claims data, rather than use the ASP methodology to pay for the product and treat the drug as a supply. A few commenters suggested that diagnostic radiopharmaceuticals could be paid separately as therapeutic radiopharmaceuticals are paid, which would allow manufacturers to voluntarily submit ASP data, and then default to the mean unit cost when ASP data are unavailable. One commenter asserted that CMS, by paying separately for diagnostic radiopharmaceuticals, could reduce Medicare program expenditures through reduced outlier payments, decreased variability in packaged costs, and more accurate payments for nuclear medicine procedures. The commenter stated that this would occur at ``only a modest cost'' to the OPPS.

Response: As we stated above, the statutorily required OPPS drug packaging threshold has expired, and we continue to believe that diagnostic radiopharmaceuticals and contrast agents are always ancillary and supportive to an independent service, rather than services themselves as the therapeutic modality. We disagree with commenters who suggest that nonpass-through diagnostic radiopharmaceuticals should be paid under the ASP methodology, that nonpass-through diagnostic radiopharmaceuticals should be paid as pass-

through drugs and biologicals, or that nonpass-through diagnostic radiopharmaceuticals should be paid similarly to therapeutic radiopharmaceuticals. We continue to believe that nonpass-through diagnostic radiopharmaceuticals and contrast agents function effectively as supplies that enable the provision of an independent service. As we noted in the CY 2009 OPPS/ASC final rule with comment period (72 FR 68646) and restate above, drugs biologicals, or

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radiopharmaceuticals for which we have not established a separate APC will receive packaged payment under the OPPS, and are considered to not be SCODs. We are continuing to provide payment for these items in CY 2012 based on a proxy for average acquisition cost. We continue to believe that the line-item estimated cost for a diagnostic radiopharmaceutical, contrast agent, or nonpass-through implantable biological in our claims data is a reasonable approximation of average acquisition and preparation and handling costs for diagnostic radiopharmaceuticals, contrast agents and nonpass-through implantable biologicals, respectively.

Further, as we have stated above, we believe that packaging costs into a single aggregate payment for a service, encounter, or episode-

of-care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. Our policy of packaging payment for diagnostic radiopharmaceuticals, contrast agents, and implantable biologicals into the payment for the primary procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. Paying separately for diagnostic radiopharmaceuticals, contrast agents, or implantable biologicals, when each of these items is ancillary and supportive to an independent service, is contrary to this principle of a prospective payment system. Moreover, we note that SCODs, the payment methodology for which the commenters suggest that CMS adopt for diagnostic radiopharmaceuticals and contrast agents, receive OPPS payments based on the ASP+X methodology, which has consistently resulted in payment rates for SCODs that are equal to some amount greater than 100 percent of average sales price for these products; in CY 2012, as discussed in section V.B.3.b. of this final rule with comment period, SCODs will receive payment equal to 104 percent of ASP (ASP+4). We do not agree that payment for diagnostic radiopharmaceuticals and contrast agents, were it equal to the SCOD reimbursement amount calculated using the ASP+X methodology (or ASP+4 in CY 2012), could reduce outlier payments or APC variability to an extent sufficient enough to offset higher payment rates for these products under the ASP+X methodology. Finally, we do not agree with the commenter's assertion that separate payment for diagnostic radiopharmaceuticals would result in more accurate payment for these products. When CMS discussed possible ASP-based payment for diagnostic radiopharmaceuticals in the proposed and final rules for OPPS in CY 2006 (70 FR 68653 through 68657), numerous public commenters advised CMS that radiopharmaceuticals are formulated, distributed, compounded, and administered in unique distribution channels that preclude the determination of ASP relevant to a radiopharmaceutical HCPCS code. Further, commenters advised CMS that the manufacturer has no way to calculate the ASP of the end product patient dose and, consequently, could not supply CMS with accurate ASP data. In the intervening period between the CY 2006 final rule with comment period and the present, diagnostic radiopharmaceutical use has become more widespread, and their formulation more complex. Moreover, we believe that the phenomena described by commenters (including radiopharmaceutical manufacturers) in the comment period preceding the CY 2006 OPPS final rule, including the many preparatory and compounding steps between manufacturer and the patient's bedside, remain an impediment to manufacturers' calculations of accurate ASP, and thus accurate payment, for these products. Therefore, we do not believe that diagnostic radiopharmaceuticals should be paid separately under the OPPS such that manufacturers voluntarily can submit ASP data and then default to mean unit cost when ASP data are unavailable. We believe they are appropriately packaged into a single aggregate payment for the accompanying service provided.

Comment: A few commenters recommended that CMS provide separate payment for all diagnostic radiopharmaceuticals with a median per day cost greater than $200. The commenters believed that this recommendation is most consistent with the APC Panel's recommendation to CMS at the Panel's September 2007 meeting (described below). One commenter recommended that if CMS does not adopt the recommended $200 packaging threshold for diagnostic radiopharmaceuticals, that CMS adopt alternate packaging criteria providing separate payment when the cost of the product is greater than the total APC payment or when the coefficient of variation of the radiopharmaceutical exceeds a certain threshold.

Response: As we stated in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60499), at the September 2007 APC Panel meeting, the APC Panel recommended that CMS package radiopharmaceuticals with a median per day cost of less than $200 but pay separately for radiopharmaceuticals with a median per day cost of $200 or more. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66638), we did not accept the APC Panel's recommendation, citing an inability to determine an empirical basis for paying separately for radiopharmaceuticals with a median per day cost in excess of $200. Instead, as proposed, for CY 2008, we finalized the packaging of payment for all diagnostic radiopharmaceuticals. Consistent with the CY 2012 OPPS/ASC proposed rule, for this final rule with comment period, we continue to believe that diagnostic radiopharmaceuticals are ancillary and supportive to the nuclear medicine procedures in which they are used and that their costs should be packaged into the primary procedures with which they are associated. We do not believe it would be appropriate to set a cost threshold for packaging diagnostic radiopharmaceuticals because, regardless of their per day cost, they are always supportive of an independent procedure that is the basis for administration of the diagnostic radiopharmaceutical. We also do not believe that it is appropriate to consider alternate packaging criteria for nonpass-through diagnostic radiopharmaceuticals. We continue to believe that, regardless of their per-day cost, these items are always supportive of an independent procedure that is the basis for administration of the diagnostic radiopharmaceutical. Therefore, our policy of packaging costs for these products into an associated APC continues to be the approach best suited for use in a prospective payment system.

Further, we note that the OPPS, as a prospective payment system, already includes the costs associated with diagnostic radiopharmaceuticals into the APCs for which the product is ancillary or supportive. We believe that the cost associated with a given product at a given point in time is immaterial because the OPPS, as a prospective payment system with payments based on average costs associated with a covered procedure, already takes into account both higher and lower input costs associated with that procedure. We also note that the OPPS, like many of Medicare's prospective payment systems, has policies in place to provide hospitals with additional outlier payments for certain high-cost cases whose costs exceed certain thresholds. This system of outliers already provides hospitals (or, in the case of partial hospitalization services, community

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mental health centers) with additional reimbursement to offset costs that are high relative to the prospective payment amount, regardless of whether the costs are associated with radiopharmaceuticals or another relatively high-cost element in the patient's course of care.

Comment: Several commenters requested that CMS provide the public with data detailing how the full costs of diagnostic radiopharmaceuticals and contrast agents are reflected in procedural APC payments.

Response: The exact data used to calculate all of the proposed and final APC assignments and rates, including costs associated with diagnostic radiopharmaceuticals and contrast agents, for the CY 2012 OPPS are available for purchase under a CMS data use agreement through the CMS Web site at: http://www.cms.gov/hospitalOutpatientPPS. This Web site includes information about purchasing the ``OPPS Limited Data Set,'' which now includes the additional variables previously available only in the OPPS Identifiable Data Set, including ICD-9-CMS diagnosis codes and revenue code payment amounts. We typically have not posted the offset amounts by APC until publication of the final rule because we assign services to APCs based on our estimate of their full resource cost, including, but not limited to, packaged diagnostic radiopharmaceuticals.

In CY 2009, we adopted a final policy to package payment for all nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) like our longstanding policy that packaged payment for all implantable nonbiological devices without pass-through status. We finalized a policy in CY 2010 to package payment for nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) into the body, considering them to be devices.

For CY 2012, we proposed to continue to package payment for nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) into the body, considering them to be devices. Three of the products with expiring pass-through status for CY 2012 are biologicals that, according to their FDA-approved indications, are only surgically implanted. These products are described by HCPCS codes C9361 (Collagen matrix nerve wrap (NeuroMend Collagen Nerve Wrap), per 0.5 centimeter length), C9362 (Porous purified collagen matrix bone void filler (Integra Mozaik Osteoconductive Scaffold Strip), per 0.5 cc), and C9364 (Porcine implant, Permacol, per square centimeter). Like the two implantable biologicals with expiring pass-through status in CY 2011 that were discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71948 through 71950), we believe that the three biologicals specified above with expiring pass-through status for CY 2012 differ from other biologicals paid under the OPPS in that they specifically function as surgically implanted devices. As a result of our proposed packaged payment methodology for nonpass-through implantable biologicals, we proposed to package payment for HCPCS codes C9361, C9362, and C9364 and assign them status indicator ``N'' for CY 2012. In addition, any new biologicals without pass-through status that are surgically inserted or implanted (through a surgical incision or a natural orifice) would be packaged in CY 2012. Moreover, for nonpass-

through biologicals that may sometimes be used as implantable devices, we continue to instruct hospitals to not bill separately for the HCPCS codes for the products when used as implantable devices. This reporting ensures that the costs of these products that may be, but are not always, used as implanted biologicals are appropriately packaged into payment for the associated implantation procedures. We received no comments regarding our proposed packaging of nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) into the body.

After consideration of the public comments we received, we are finalizing our CY 2012 proposals, without modification, to continue to package payment for all nonpass-through diagnostic radiopharmaceuticals and contrast agents, and implantable biologicals that are surgically inserted or implanted into the body through a surgical incision or a natural orifice, regardless of their per day costs. Given the inherent function of contrast agents and diagnostic radiopharmaceuticals as ancillary and supportive to the performance of an independent procedure and the similar functions of implantable biologicals and nonbiological devices as integral to and supportive of the separately paid surgical procedures in which either may be used, we continue to view the packaging of payment for contrast agents, diagnostic radiopharmaceuticals, and implantable biologicals as a logical expansion of packaging payment for drugs and biologicals. In addition, as we initially established in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66768), we will continue to identify diagnostic radiopharmaceuticals specifically as those Level II HCPCS codes that include the term ``diagnostic'' along with a radiopharmaceutical in their long code descriptors, and therapeutic radiopharmaceuticals as those Level II HCPCS codes that include the term ``therapeutic'' along with a radiopharmaceutical in their long code descriptors. We believe that the current descriptors accurately discriminate between those pharmaceuticals which are used to gather information and those which are intended to improve the patient's medical condition.

In addition, any new biological lacking pass-through status that is surgically inserted or implanted through a surgical incision or natural orifice would be packaged in CY 2012. For three biologicals with expiring pass-through status and which differ from other biologicals paid under the OPPS in that they specifically function as surgically implanted devices, we are finalizing our proposal to package the products described by HCPCS code C9361, C9362, and C9364 and assign them status indictor ``N'' for this final rule with comment period.

We also are finalizing our proposal to package payment for contrast agents into the payment of the associated echocardiography imaging procedure, regardless of whether the agent met the OPPS drug packaging threshold. We refer readers to section III.D.1.e. of this final rule with comment period for more information on CMS' final echocardiography payment policy. For more information on how we set CY 2012 payment rates for nuclear medicine procedures in which diagnostic radiopharmaceuticals are used and echocardiography services provided with and without contrast agents, we refer readers to the CY 2010 OPPS/

ASC final rule with comment period for a detailed discussion of nuclear medicine and echocardiography services (74 FR 35269 through 35277).

3. Payment for Drugs and Biologicals Without Pass-Through Status That Are Not Packaged

a. Payment for Specified Covered Outpatient Drugs (SCODs) and Other Separately Payable and Packaged Drugs and Biologicals

Section 1833(t)(14) of the Act defines certain separately payable radiopharmaceuticals, drugs, and biologicals and mandates specific

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payments for these items. Under section 1833(t)(14)(B)(i) of the Act, a ``specified covered outpatient drug'' (SCOD) is a covered outpatient drug, as defined in section 1927(k)(2) of the Act, for which a separate APC has been established and that either is a radiopharmaceutical agent or is a drug or biological for which payment was made on a pass-through basis on or before December 31, 2002.

Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and biologicals are designated as exceptions and are not included in the definition of ``specified covered outpatient drugs''. These exceptions are--

A drug or biological for which payment is first made on or after January 1, 2003, under the transitional pass-through payment provision in section 1833(t)(6) of the Act.

A drug or biological for which a temporary HCPCS code has not been assigned.

During CYs 2004 and 2005, an orphan drug (as designated by the Secretary).

Section 1833(t)(14)(A)(iii) of the Act requires that payment for SCODs in CY 2006 and subsequent years be equal to the average acquisition cost for the drug for that year as determined by the Secretary, subject to any adjustment for overhead costs and taking into account the hospital acquisition cost survey data collected by the Government Accountability Office (GAO) in CYs 2004 and 2005, and later periodic surveys conducted by the Secretary as set forth in the statute. If hospital acquisition cost data are not available, the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847A, or section 1847B of the Act, as calculated and adjusted by the Secretary as necessary. Most physician Part B drugs are paid at ASP+6 percent pursuant to sections 1842(o) and 1847A of the Act.

Section 1833(t)(14)(E) of the Act provides for an adjustment in OPPS payment rates for overhead and related expenses, such as pharmacy services and handling costs. Section 1833(t)(14)(E)(i) of the Act required MedPAC to study pharmacy overhead and related expenses and to make recommendations to the Secretary regarding whether, and if so how, a payment adjustment should be made to compensate hospitals for overhead and related expenses. Section 1833(t)(14)(E)(ii) of the Act authorizes the Secretary to adjust the weights for ambulatory procedure classifications for SCODs to take into account the findings of the MedPAC study.

In the CY 2006 OPPS proposed rule (70 FR 42728 through 42731), we discussed the June 2005 report by MedPAC regarding pharmacy overhead costs in HOPDs and summarized the findings of that study:

Handling costs for drugs, biologicals, and radiopharmaceuticals administered in the HOPD are not insignificant;

Little information is available about the magnitude of pharmacy overhead costs;

Hospitals set charges for drugs, biologicals, and radiopharmaceuticals at levels that reflect their respective handling costs; and

Hospitals vary considerably in their likelihood of providing services that utilize drugs, biologicals, or radiopharmaceuticals with different handling costs.

As a result of these findings, MedPAC developed seven drug categories for pharmacy and nuclear medicine handling costs based on the estimated level of hospital resources used to prepare the products (70 FR 42729). Associated with these categories were two recommendations for accurate payment of pharmacy overhead under the OPPS.

1. CMS should establish separate, budget neutral payments to cover the costs hospitals incur for handling separately payable drugs, biologicals, and radiopharmaceuticals.

2. CMS should define a set of handling fee APCs that group drugs, biologicals, and radiopharmaceuticals based on attributes of the products that affect handling costs; CMS should instruct hospitals to submit charges for these APCs and base payment rates for the handling fee APCs on submitted charges reduced to costs.

In response to the MedPAC findings, in the CY 2006 OPPS proposed rule (70 FR 42729), we discussed our belief that, because of the varied handling resources required to prepare different forms of drugs, it would be impossible to exclusively and appropriately assign a drug to a certain overhead category that would apply to all hospital outpatient uses of the drug. Therefore, our CY 2006 OPPS proposed rule included a proposal to establish three distinct Level II HCPCS C-codes and three corresponding APCs for drug handling categories to differentiate overhead costs for drugs and biologicals (70 FR 42730). We also proposed: (1) To combine several overhead categories recommended by MedPAC; (2) to establish three drug handling categories, as we believed that larger groups would minimize the number of drugs that may fit into more than one category and would lessen any undesirable payment policy incentives to utilize particular forms of drugs or specific preparation methods; (3) to collect hospital charges for these HCPCS C-codes for 2 years; and (4) to ultimately base payment for the corresponding drug handling APCs on CY 2006 claims data available for the CY 2008 OPPS.

In the CY 2006 OPPS final rule with comment period (70 FR 68659 through 68665), we discussed the public comments we received on our proposal regarding pharmacy overhead. The overwhelming majority of commenters did not support our proposal regarding pharmacy overhead and urged us not to finalize this policy, as it would be administratively burdensome for hospitals to establish charges for HCPCS codes for pharmacy overhead and to report them. Therefore, we did not finalize this proposal for CY 2006. Instead, we established payment for separately payable drugs and biologicals at ASP+6 percent, which we calculated by comparing the estimated aggregate cost of separately payable drugs and biologicals in our claims data to the estimated aggregate ASP dollars for separately payable drugs and biologicals, using the ASP as a proxy for average acquisition cost (70 FR 68642). Hereinafter, we refer to this methodology as our standard drug payment methodology. We concluded that payment for drugs and biologicals and pharmacy overhead at a combined ASP+6 percent rate would serve as an acceptable proxy for the combined acquisition and overhead costs of each of these products.

In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68091), we finalized our proposed policy to provide a single payment of ASP+6 percent for the hospital's acquisition cost for the drug or biological and all associated pharmacy overhead and handling costs. The ASP+6 percent rate that we finalized was higher than the equivalent average ASP-based amount calculated from claims of ASP+4 percent according to our standard drug payment methodology, but we adopted payment at ASP+6 percent for stability while we continued to examine the issue of the costs of pharmacy overhead in the HOPD and awaited the accumulation of CY 2006 data as discussed in the CY 2006 OPPS/ASC final rule with comment period.

In the CY 2008 OPPS/ASC proposed rule (72 FR 42735), in response to ongoing discussions with interested parties, we proposed to continue our methodology of providing a combined payment rate for drug and biological acquisition and pharmacy overhead

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costs while continuing our efforts to improve the available data. We also proposed to instruct hospitals to remove the pharmacy overhead charge for both packaged and separately payable drugs and biologicals from the charge for the drug or biological and report the pharmacy overhead charge on an uncoded revenue code line on the claim. We believed that this would provide us with an avenue for collecting pharmacy handling cost data specific to drugs in order to package the overhead costs of these items into the associated procedures, most likely drug administration services. Similar to the public response to our CY 2006 pharmacy overhead proposal, the overwhelming majority of commenters did not support our CY 2008 proposal and urged us to not finalize this policy (72 FR 66761). At its September 2007 meeting, the APC Panel recommended that hospitals not be required to separately report charges for pharmacy overhead and handling and that payment for overhead be included as part of drug payment. The APC Panel also recommended that CMS continue to evaluate alternative methods to standardize the capture of pharmacy overhead costs in a manner that is simple to implement at the organizational level (72 FR 66761).

Because of concerns expressed by the APC Panel and public commenters, we did not finalize the proposal to instruct hospitals to separately report pharmacy overhead charges for CY 2008. Instead, in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66763), we finalized a policy of providing payment for separately payable drugs and biologicals and their pharmacy overhead at ASP+5 percent as a transition from their CY 2007 payment of ASP+6 percent to payment based on the equivalent average ASP-based payment rate calculated from hospital claims according to our standard drug payment methodology, which was ASP+3 percent for the CY 2008 OPPS/ASC final rule with comment period. Hospitals continued to include charges for pharmacy overhead costs in the line-item charges for the associated drugs reported on claims.

For CY 2009, we proposed to pay separately payable drugs and biologicals at ASP+4 percent, including both SCODs and other drugs without CY 2009 OPPS pass-through status, based on our standard drug payment methodology