Medicare: Hospital outpatient prospective payment system and 2008 CY payment rates; ambulatory service center procedures,

 
CONTENT

[Federal Register: August 2, 2007 (Volume 72, Number 148)]

[Proposed Rules]

[Page 42627-43129]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr02au07-34]

[[Page 42627]]

Part III

Book 2 of 2 Books

Pages 42627-43130

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 414 et al.

Medicare and Medicaid Programs: CY 2008 Proposed Changes; Proposed Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 414, 416, 419, 482, and 485

[CMS-1392-P]

RIN 0938-AO71

Medicare Program: Proposed Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates; Proposed Changes to the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates; Medicare and Medicaid Programs: Proposed Changes to Hospital Conditions of Participation; Proposed Changes Affecting Necessary Provider Designations of Critical Access Hospitals

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

ACTION: Proposed rule.

SUMMARY: This proposed rule would revise the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system. In this proposed rule, we describe the proposed changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. These changes would be applicable to services furnished on or after January 1, 2008.

In addition, this proposed rule would update the revised Medicare ambulatory surgical center (ASC) payment system to implement certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). In this proposed rule, we propose the applicable relative payment weights and amounts for services furnished in ASCs, specific HCPCS codes to which the final policies of the ASC payment system would apply, and other pertinent ratesetting information for the CY 2008 ASC payment system. These changes would be applicable to services furnished on or after January 1, 2008.

In this proposed rule, we also are proposing changes to the policies relating to the necessary provider designations of critical access hospitals (CAHs) that are being recertified when a CAH enters into a new co-location arrangement with another hospital or CAH or when the CAH creates or acquires an off-campus location.

Further, we are proposing changes to several of the current conditions of participation that hospitals must meet to participate in the Medicare and Medicaid programs to require the completion and documentation in the medical record of medical histories and physical examinations of patients conducted after admission and prior to surgery or a procedure requiring anesthesia services and for postanesthesia evaluations of patients before discharge or transfer from the postanesthesia recovery area.

DATES: To be assured consideration, comments on all sections of the preamble of this proposed rule must be received at one of the addresses provided in the ADDRESSES section no later than 5 p.m. on September 14, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1392-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click

on the link ``Submit electronic comments on CMS regulations with an open comment period.'' (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.)

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS- 1392-P, P.O. Box 8011, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1392-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244- 1850.

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

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

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

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective payment issues. Dana Burley, (410) 786-0378, Ambulatory surgical center issues. Suzanne Asplen, (410) 786-4558, Partial hospitalization and community mental health centers issues. Sheila Blackstock, (410) 786-3502, Reporting of quality data issues. Mary Collins, (410) 786-3189, and Jeannie Miller, (410) 786-3164, Necessary provider designations for CAHs Issues. Scott Cooper, (410) 786-9465, and Jeannie Miller, (410) 786-3164, Hospital conditions of participation Issues.

SUPPLEMENTARY INFORMATION:

Submitting Comments: We welcome comments from the public on all issues set forth in this proposed rule to assist us in fully considering issues and developing policies. You can assist us by referencing file code CMS-1392-P and the specific ``issue identifier'' that precedes the section on which you choose to comment.

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

CMS Regulations'' on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication

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of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents' home page address is http://www.gpoaccess.gov/index.html, by using local WAIS client

software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then login as guest (no password required).

Alphabetical List of Acronyms Appearing in the Proposed Rule

ACEP American College of Emergency Physicians AHA American Hospital Association AHIMA American Health Information Management Association AMA American Medical Association APC Ambulatory payment classification AMP Average manufacturer price ASC Ambulatory Surgical Center ASP Average sales price AWP Average wholesale price BBA Balanced Budget Act of 1997, Pub. L. 105-33 BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113 BCA Blue Cross Association BCBSA Blue Cross and Blue Shield Association BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, Pub. L. 106-554 CAH Critical access hospital CAP Competitive Acquisition Program CBSA Core-Based Statistical Area CCR Cost-to-charge ratio CERT Comprehensive Error Rate Testing CMHC Community mental health center CMS Centers for Medicare & Medicaid Services CoP [Hospital] Condition of participation CORF Comprehensive outpatient rehabilitation facility CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 2007, copyrighted by the American Medical Association CRNA Certified registered nurse anesthetist CY Calendar year DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DMERC Durable medical equipment regional carrier DRA Deficit Reduction Act of 2005, Pub. L. 109-171 DSH Disproportionate share hospital EACH Essential Access Community Hospital E/M Evaluation and management EPO Erythropoietin ESRD End-stage renal disease FACA Federal Advisory Committee Act, Pub. L. 92-463 FAR Federal Acquisition Regulations FDA Food and Drug Administration FFS Fee-for-service FSS Federal Supply Schedule FTE Full-time equivalent FY Federal fiscal year GAO Government Accountability Office HCPCS Healthcare Common Procedure Coding System HCRIS Hospital Cost Report Information System HHA Home health agency HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191 HOPD Hospital outpatient department HOP QDRP Hospital Outpatient Quality Data Reporting Program ICD-9-CM International Classification of Diseases, Ninth Edition, Clinical Modification IDE Investigational device exemption IOL Intraocular lens IPPS [Hospital] Inpatient prospective payment system IVIG Intravenous immune globulin MAC Medicare Administrative Contractors MedPAC Medicare Payment Advisory Commission MDH Medicare-dependent, small rural hospital MIEA-TRHCA Medicare Improvements and Extension Act under Division B, Title I of the Tax Relief Health Care Act of 2006, Pub. L. 109-432 MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173 MPFS Medicare Physician Fee Schedule MSA Metropolitan Statistical Area NCCI National Correct Coding Initiative NCD National Coverage Determination NTIOL New technology intraocular lens OCE Outpatient Code Editor OMB Office of Management and Budget OPD [Hospital] Outpatient department OPPS [Hospital] Outpatient prospective payment system PHP Partial hospitalization program PM Program memorandum PPI Producer Price Index PPS Prospective payment system PPV Pneumococcal pneumonia (virus) PRA Paperwork Reduction Act QIO Quality Improvement Organization RFA Regulatory Flexibility Act RHQDAPU Reporting Hospital Quality Data for Annual Payment Update

[Program]

RHHI Regional home health intermediary SBA Small Business Administration SCH Sole community hospital SDP Single Drug Pricer SI Status indicator TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248 TOPS Transitional outpatient payments USPDI United States Pharmacopoeia Drug Information WAC Wholesale acquisition cost

In this document, we address two payment systems under the Medicare program: the hospital outpatient prospective payment system (OPPS) and the revised ambulatory surgical center (ASC) revised payment system. The provisions relating to the OPPS are included in sections I. through XV., XVII., and XIX. through XXII. of this proposed rule and in Addenda A, B, C (Addendum C is available on the Internet only; see section XIX. of this proposed rule), D1, D2, E, L, and M to this proposed rule. The provisions related to the revised ASC payment system are included in sections XVI., XVII., and XIX. through XXII. of this proposed rule and in Addenda AA, BB, DD1, and DD2 to this proposed rule.

Table of Contents

I. Background for the OPPS

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

B. Excluded OPPS Services and Hospitals

C. Prior Rulemaking

D. APC Advisory Panel

1. Authority of the APC Panel

2. Establishment of the APC Panel

3. APC Panel Meetings and Organizational Structure

E. Provisions of the Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act of 2006

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F. Summary of the Major Contents of This Proposed Rule

1. Proposed Updates Affecting OPPS Payments

2. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies

3. Proposed OPPS Payment for Devices

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

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

6. Proposed OPPS Payment for Brachytherapy Sources

7. Proposed OPPS Coding and Payment for Drug Administration Services

8. Proposed OPPS Hospital Coding and Payment for Visits

9. Proposed OPPS Payment for Blood and Blood Products

10. Proposed OPPS Payment for Observation Services

11. Proposed Procedures That Will Be Paid Only as Inpatient Services

12. Proposed Nonrecurring Technical and Policy Changes

13. Proposed OPPS Payment Status and Comment Indicators

14. OPPS Policy and Payment Recommendations

15. Proposed Update of the Revised ASC Payment System

16. Proposed Quality Data for Annual Payment Updates

17. Proposed Changes Affecting Necessary Provider Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs)

18. Regulatory Impact Analysis II. Proposed Updates Affecting OPPS Payments

A. Proposed Recalibration of APC Relative Weights

1. Database Construction

a. Database Source and Methodology

b. Proposed Use of Single and Multiple Procedure Claims

(1) Proposed Use of Date of Service Stratification and a Bypass List To Increase the Amount of Data Used To Determine Medians

(2) Exploration of Allocation of Packaged Costs to Separately Paid Procedure Codes

c. Proposed Calculation of CCRs

2. Proposed Calculation of Median Costs

3. Proposed Calculation of OPPS Scaled Payment Weights

4. Proposed Changes to Packaged Services

a. Background

b. Addressing Growth in OPPS Volume and Spending

c. Proposed Packaging Approach

(1) Guidance Services

(2) Image Processing Services

(3) Intraoperative Services

(4) Imaging Supervision and Interpretation Services

(5) Diagnostic Radiopharmaceuticals

(6) Contrast Agents

(7) Observation Services

d. Proposed Development of Composite APCs

(1) Background

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

(a) Background

(b) Proposed Payment for LDR Prostate Brachytherapy

(3) Proposed Cardiac Electrophysiologic Evaluation and Ablation Composite APC

(a) Background

(b) Proposed Payment for Cardiac Electrophysiologic Evaluation and Ablation

e. Service-Specific Packaging Issues

B. Proposed Payment for Partial Hospitalization

1. Background

2. Proposed PHP APC Update

3. Proposed Separate Threshold for Outlier Payments to CMHCs

C. Proposed Conversion Factor Update

D. Proposed Wage Index Changes

E. Proposed Statewide Average Default CCRs

F. Proposed OPPS Payments to Certain Rural Hospitals

1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 (DRA)

2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L. 108-173 (MMA)

G. Proposed Hospital Outpatient Outlier Payments

H. Calculation of the Proposed National Unadjusted Medicare Payment

I. Proposed Beneficiary Copayments

1. Background

2. Proposed Copayment

3. Calculation of a Proposed Adjusted Copayment Amount for an APC Group III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies

A. Proposed Treatment of New HCPCS and CPT Codes

1. Proposed Treatment of New HCPCS Codes Included in the April and July Quarterly OPPS Updates for CY 2007

2. Proposed Treatment of New Category I and III CPT Codes and Level II HCPCS Codes

B. Proposed Changes--Variations Within APCs

1. Background

2. Application of the 2 Times Rule

3. Proposed Exceptions to the 2 Times Rule

C. New Technology APCs

1. Introduction

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

a. Positron Emission Tomography (PET)/Computed Tomography (CT) Scans (New Technology APC 1511)

b. IVIG Preadministration-Related Services (New Technology APC 1502)

c. Other Services in New Technology APCs

D. Proposed APC-Specific Policies

1. Hyperbaric Oxygen Therapy (APC 0659)

2. Skin Repair Procedures (APCs 0024, 0025, 0027, and 0686)

3. Cardiac Computed Tomography and Computed Tomographic Angiography (APCs 0282, 0376, 0377, and 0398)

4. Ultrasound Ablation of Uterine Fibroids With Magnetic Resonance Guidance (MRgFUS) (APCs 0195 and 0202)

5. Single Allergy Tests (APC 0381)

6. Myocardial Positron Emission Tomography (PET) Scans (APC 0307)

7. Implantation of Cardioverter-Defibrillators (APCs 0107 and 0108)

8. Implantation of Spinal Neurostimulators (APC 0222)

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

10. Blood Transfusion (APC 0110)

11. Screening Colonscopies and Screening Flexible Sigmoidoscopies (APCs 0158 and 0159) IV. Proposed OPPS Payment for Devices

A. Proposed Treatment of Device-Dependent APCs

1. Background

2. Proposed Payment

3. Proposed Payment When Devices Are Replaced With Partial Credit to the Hospital

B. Pass-Through Payments for Devices

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

a. Background

b. Proposed Policy

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

a. Background

b. Proposed Policy V. Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

A. Proposed Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals

1. Background

2. Drugs and Biologicals with Expiring Pass-Through Status in CY 2007

3. Drugs and Biologicals With Proposed Pass-Through Status in CY 2008

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

1. Background

2. Proposed Criteria for Packaging Payment for Drugs and Biologicals

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

a. Payment for Specified Covered Outpatient Drugs

(1) Background

(2) Proposed Payment Policy

(3) Proposed Payment for Blood Clotting Factors

(4) Proposed Payment for Radiopharmaceuticals

(a) Background

(b) Proposed Payment for Diagnostic Radiopharmaceuticals

(c) Proposed Payment for Therapeutic Radiopharmaceuticals

b. Proposed Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices

A. Total Allowed Pass-Through Spending

B. Proposed Estimate of Pass-Through Spending VII. Proposed OPPS Payment for Brachytherapy Sources

A. Background

B. Proposed Payment for Brachytherapy Sources

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VIII. Proposed OPPS Drug Administration Coding and Payment

A. Background

B. Proposed Coding and Payment for Drug Administration Services IX. Proposed Hospital Coding and Payments for Visits

A. Background

B. Proposed Policies for Hospital Outpatient Visits

1. Clinic Visits: New and Established Patient Visits and Consultations

2. Emergency Department Visits

C. Proposed Visit Reporting Guidelines

1. Background

2. CY 2007 Work on Visit Guidelines

3. Proposed Visit Guidelines X. Proposed OPPS Payment for Blood and Blood Products

A. Background

B. Proposed Payment for Blood and Blood Products XI. Proposed OPPS Payment for Observation Services XII. Proposed Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

B. Proposed Changes to the Inpatient List XIII. Proposed Nonrecurring Technical and Policy Changes

A. Outpatient Hospital Services and Supplies Incident to a Physician Service

B. Interrupted Procedures

C. Transitional Adjustments Hold Harmless Provisions

D. Reporting of Wound Care Services

E. Reporting of Cardiac Rehabilitation Services

F. Reporting of Bone Marrow and Stem Cell Processing Services XIV. Proposed OPPS Payment Status and Comment Indicators

A. Proposed Payment Status Indicator Definitions

1. Proposed Payment Status Indicators to Designate Services That Are Paid under the OPPS

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

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

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

B. Proposed Comment Indicator Definitions XV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

B. APC Panel Recommendations XVI. Proposed Update of the Revised Ambulatory Surgical Center Payment System

A. Legislative and Regulatory Authority for the ASC Payment System

B. Rulemaking for the Revised ASC Payment System

C. Revisions to the ASC Payment System Effective January 1, 2008

1. Covered Surgical Procedures under the Revised ASC Payment System

a. Definition of Surgical Procedure

b. Identification of Surgical Procedures Eligible for Payment under the Revised ASC Payment System

c. Payment for Covered Surgical Procedures under the Revised ASC Payment System

(1) General Policies

(2) Office-Based Procedures

(3) Device-Intensive Procedures

(4) Multiple and Interrupted Procedure Discounting

(5) Transition to Revised ASC Payment Rates

2. Covered Ancillary Services under the Revised ASC Payment System

a. General Policies

b. Payment Policies for Specific Items and Services

(1) Radiology Services

(2) Brachytherapy Sources

(3) Drugs and Biologicals

(4) Implantable Devices with Pass-Through Status under the OPPS

(5) Corneal Tissue Acquisition

3. General Payment Policies

a. Geographic Adjustment

b. Beneficiary Coinsurance

D. Proposed Treatment of New HCPCS Codes

1. Treatment of New CY 2008 Category I and III CPT Codes and Level II HCPCS Codes

2. Proposed Treatment of New Mid-Year Category III CPT Codes

3. Proposed Treatment of Level II HCPCS Codes Released on a Quarterly Basis

E. Proposed Updates to Covered Surgical Procedures and Covered Ancillary Services

1. Identification of Covered Surgical Procedures

a. General Policies

b. Proposed Changes in Designation of Covered Surgical Procedures as Office-Based

c. Proposed Changes in Designation of Covered Surgical Procedures as Device-Intensive

2. Proposed Changes in Identification of Covered Ancillary Services

F. Proposed Payment for Covered Surgical Procedures and Covered Ancillary Services

1. Proposed Payment for Covered Surgical Procedures

a. Proposed Update to Payment Rates

b. Payment Policies When Devices Are Replaced at No Cost or With Credit

(1) Policy When Devices Are Replaced at No Cost or With Full Credit

(2) Proposed Policy When Implantable Devices Are Replaced With Partial Credit

2. Proposed Payment for Covered Ancillary Services

G. Physician Payment for Procedures and Services Provided in ASC

H. Proposed Changes to Definitions of ``Radiology and Certain Other Imaging Services'' and ``Outpatient Prescription Drugs''

I. New Technology Intraocular Lenses

1. Background

2. Changes to the NTIOL Determination Process Finalized for CY 2008

3. NTIOL Application Process for CY 2008 Payment Adjustment

4. Classes of NTIOLS Approved for Payment Adjustment

5. Payment Adjustment

6. Proposed CY 2008 ASC Payment for Insertion of IOLs

J. Proposed ASC Payment and Comment Indicators

K. ASC Policy and Payment Recommendations

L. Proposed Calculation of the ASC Conversion Factor and ASC Payment Rates

1. Overview

2. Budget Neutrality Requirement

3. Calculation of the ASC Payment Rates for CY 2008

4. Calculation of the ASC Payment Rates for CY 2009 and FutureYears XVII. Reporting Quality Data for Annual Payment Rate Updates

A. Background

1. Reporting Hospital Outpatient Quality Data for Annual Payment Update

2. Reporting ASC Quality Data for Annual Payment Increase

B. Proposed Hospital Outpatient Measures

C. Other Proposed Hospital Outpatient Measures

D. Proposed Implementation of the HOP QDRP

E. Proposed Requirements for HOP Quality Data Reporting for CY 2009 and Subsequent Calendar Years

1. Administrative Requirements

2. Data Collection and Submission Requirements

3. HOP QDRP Validation Requirements

F. Publication of HOP QDRP Data Collected

G. Proposed Attestation Requirement for Future Payment Years

H. HOP QDRP Reconsiderations

I. Reporting of ASC Quality Data XVIII. Proposed Changes Affecting Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs)

A. Proposed Changes Affecting CAHs

1. Background

2. Co-Location of Necessary Provider CAHs

3. Provider-Based Facilities of CAHs

4. Termination of Provider Agreement

5. Proposed Regulation Changes

B. Proposed Revisions to Hospital CoPs

1. Background

2. Provisions of the Proposed Regulations

a. Proposed Timeframes for Completion of the Medical History and Physical Examination

b. Proposed Requirements for Preanesthesia and Postanesthesia Evaluations

c. Proposed Technical Amendment to Nursing Services CoP XIX. Files Available to the Public Via the Internet

A. Information in Addenda Related to the CY 2008 Hospital OPPS

B. Information in Addenda Related to the CY 2008 ASC Payment System XX. Collection of Information Requirements XXI. Response to Comments XXII. Regulatory Impact Analysis

A. Overall Impact

1. Executive Order 12866

2. Regulatory Flexibility Act (RFA)

3. Small Rural Hospitals

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4. Unfunded Mandates

5. Federalism

B. Effects of OPPS Changes in This Proposed Rule

1. Alternatives Considered

2. Limitation of Our Analysis

3. Estimated Impact of This Proposed Rule on Hospitals and CMHCs

4. Estimated Effect of This Proposed Rule on Beneficiaries

5. Conclusion

6. Accounting Statement

C. Effects of ASC Payment System Changes in This Proposed Rule

1. Alternatives Considered

2. Limitations on Our Analysis

3. Estimated Effects of This Proposed Rule on ASCs

4. Estimated Effects of This Proposed Rule on Beneficiaries

5. Conclusion

6. Accounting Statement

D. Effects of the Proposed Requirements for Reporting of Quality Data for Hospital Outpatient Settings

E. Effects of the Proposed Policy on CAH Off-Campus and Co- Location Requirements

F. Effects of Proposed Policy Revisions to the Hospital CoPs

G. Executive Order 12866

Regulation Text

Addenda

Addendum A--Proposed OPPS APCs for CY 2008 Addendum AA--Proposed ASC Covered Surgical Procedures for CY 2008 (Including Surgical Procedures for Which Payment is Packaged) Addendum B--Proposed OPPS Payment By HCPCS Code for CY 2008 Addendum BB--Proposed ASC Covered Ancillary Services Integral to Covered Surgical Procedures for CY 2008 (Including Ancillary Services for Which Payment Is Packaged) Addendum D1--Proposed OPPS Payment Status Indicators Addendum D2--Proposed OPPS Comment Indicators Addendum DD1--Proposed ASC Payment Indicators Addendum DD2--Proposed ASC Comment Indicators Addendum E--Proposed HCPCS Codes That Would Be Paid Only as Inpatient Procedures for CY 2008 Addendum L--Proposed Out-Migration Adjustment Addendum M--Proposed HCPCS Codes for Assignment to Composite APCs for CY 2008

I. Background for the OPPS

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

When the Medicare statute was originally enacted, Medicare payment for hospital outpatient services was based on hospital-specific costs. In an effort to ensure that Medicare and its beneficiaries pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the reasonable cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act (BBA) of 1997 (Pub. L. 105-33) added section 1833(t) to the Social Security Act (the Act) authorizing implementation of a PPS for hospital outpatient services (OPPS).

The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113) made major changes in the hospital OPPS. The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) made further changes in the OPPS. Section 1833(t) of the Act was also amended by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-173). The Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171), enacted on February 8, 2006, made additional changes in the OPPS. In addition, the Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act (MIEA- TRHCA) of 2006 (Pub. L. 109-432), enacted on December 20, 2006, made further changes in the OPPS. A discussion of these provisions is included in sections I.E., VII., and XVII. of this proposed rule.

The OPPS was first implemented for services furnished on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR Part 419.

Under the OPPS, we pay for hospital outpatient services on a rate- per-service basis that varies according to the ambulatory payment classification (APC) group to which the service is assigned. We use the Healthcare Common Procedure Coding System (HCPCS) codes (which include certain Current Procedural Terminology (CPT) codes) and descriptors to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except those identified in section I.B. of this proposed rule. Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment under the OPPS for hospital outpatient services designated by the Secretary (which includes partial hospitalization services furnished by community mental health centers (CMHCs)) and hospital outpatient services that are furnished to inpatients who have exhausted their Part A benefits, or who are otherwise not in a covered Part A stay. Section 611 of Pub. L. 108-173 added provisions for Medicare coverage of an initial preventive physical examination, subject to the applicable deductible and coinsurance, as an outpatient department service, payable under the OPPS.

The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-related amount. The labor-related amount is adjusted for area wage differences using the 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, services and items within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the ``2 times rule''). In implementing this provision, we use the median cost of the item or service assigned to an APC group.

Special payments under the OPPS may be made for New Technology items and services in one of two ways. Section 1833(t)(6) of the Act provides for temporary additional payments, which we refer to as ``transitional pass-through payments,'' for at least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of other medical devices. For New Technology services that are not eligible for transitional pass-through payments, and for which we lack sufficient data to appropriately assign them to a clinical APC group, 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

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1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. Section 614 of Pub. L. 108- 173 amended section 1833(t)(1)(B)(iv) of the Act to exclude OPPS payment for screening and diagnostic mammography services. The Secretary exercised the authority granted under the statute to exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the clinical diagnostic laboratory fee schedule (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 Sec. 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 hospitals.

C. Prior Rulemaking

On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was first implemented for services furnished on or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS, no 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. We published in the Federal Register on November 24, 2006 the CY 2007 OPPS/ASC final rule with comment period (71 FR 67960). 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 2007 OPPS on the basis of claims data from January 1, 2005, through December 31, 2005, and to implement certain provisions of Pub. L. 108- 173 and Pub. L. 109-171. In addition, we responded to public comments received on the provisions of the November 10, 2005 final rule with comment period (70 FR 86516) pertaining to the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicator; and public comments received on the August 23, 2006 OPPS/ASC proposed rule for CY 2007 (71 FR 49506).

D. APC Advisory Panel

1. Authority of the APC Panel

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

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

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

3. APC Panel Meetings and Organizational Structure

The APC Panel first met on February 27, February 28, and March 1, 2001. Since the initial meeting, the APC Panel has held 11 subsequent meetings, with the last meeting taking place on March 7 and 8, 2007. Prior to each meeting, we publish a notice in the Federal Register to announce the meeting, and when necessary to solicit and announce nominations for the APC Panel's membership.

The APC Panel has established an operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Observation and Visit Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel, and for recommending options for resolving them. The Observation and Visit 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 Packaging Subcommittee 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. Each of these subcommittees was established by a majority vote from the full APC Panel during a scheduled APC Panel meeting, and their continuation as subcommittees was approved at the March 2007 APC Panel meeting. All subcommittee recommendations are discussed and voted upon by the full APC Panel.

Discussions of the recommendations resulting from the APC Panel's March

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2007 meeting are included in the sections of this proposed rule that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we reference previous hospital OPPS final rules or the Web site mentioned earlier in this section.

E. Provisions of the Medicare Improvements and Extension Act Under Division B of Title I of the Tax Relief and Health Care Act of 2006

The Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act (MIEA-TRHCA) of 2006, Pub. L. 109-432, enacted on December 20, 2006, included the following provisions affecting the OPPS:

1. Section 107(a) of the MIEA-TRHCA amended section 1833(t)(16)(C) of the Act to extend the period for payment of brachytherapy devices based on the hospital's charges adjusted to cost for 1 additional year, through December 31, 2007.

2. Section 107(b)(1) of the MIEA-TRHCA amended section 1833(t)(2)(H) of the Act by adding stranded and non-stranded devices furnished on or after July 1, 2007, as additional classifications of brachytherapy devices for which separate payment groups must be established for payment under the OPPS. Section 107(b)(2) of the MIEA- TRCHA provides that the Secretary may implement the section 107(b)(1) amendment to section 1833(t)(2)(H) of the Act ``by program instruction or otherwise.''

3. Section 109(a) of the MIEA-TRHCA added new paragraph (17) to section 1833(t) of the Act which authorizes the Secretary, beginning in 2009 and each subsequent year, to reduce the OPPS full annual update by 2.0 percentage points if a hospital paid under the OPPS fails to submit data as required by the Secretary in the form and manner specified on selected measures of quality of care, including medication errors. In accordance with this provision, the selected measures are those that are appropriate for the measurement of quality of care furnished by hospitals in the outpatient setting, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more of the national consensus entities, and that may be the same as those required for reporting by hospitals paid under the IPPS. This provision specifies that a reduction for 1 year cannot be taken into account when computing the OPPS update for a subsequent year. In addition, this provision requires the Secretary to establish a process for making the submitted data available for public review.

F. Summary of the Major Contents of This Proposed Rule

In this proposed rule, we are setting forth proposed changes to the Medicare hospital OPPS for CY 2008. These changes would be effective for services furnished on or after January 1, 2008. We are also setting forth proposed changes to the Medicare ASC payment system for CY 2008. These changes would be effective for services furnished on or after January 1, 2008. The following is a summary of the major changes that we are proposing to make: 1. Proposed Updates Affecting OPPS Payments

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

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

The proposed payment for partial hospitalization services, including the proposed separate threshold for outlier payments for CMHCs.

The proposed update to the conversion factor used to determine payment rates under the OPPS.

The proposed retention of our current policy to use the IPPS wage indices to adjust, for geographic wage differences, the portion of the OPPS payment rate and the copayment standardized amount attributable to labor-related cost.

The proposed update of statewide average default CCRs.

The proposed application of hold harmless transitional outpatient payments (TOPs) for certain small rural hospitals.

The proposed payment adjustment for rural SCHs.

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. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies

In section III. of this proposed rule, we discuss the proposed additions of new procedure codes to the APCs; our proposal to establish a number of new APCs; and our analyses of Medicare claims data and certain recommendations of the APC Panel. We also discuss the application of the 2 times rule and proposed exceptions to it; proposed changes to specific APCs; and the proposed movement of procedures from New Technology APCs to clinical APCs. 3. Proposed OPPS Payment for Devices

In section IV. of this proposed rule, we discuss proposed payment for device-dependent APCs and the pass-through payment for specific categories of devices. 4. Proposed OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals

In section V. of this proposed rule, we discuss the proposed CY 2008 OPPS payment for drugs, biologicals, and radiopharmaceuticals, including the proposed payment for drugs, biologicals, and radiopharmaceuticals with and without pass-through status. 5. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, and Devices

In section VI. of this proposed rule, we discuss the estimate of CY 2008 OPPS transitional pass-through spending for drugs, biologicals, and devices. 6. Proposed OPPS Payment for Brachytherapy Sources

In section VII. of this proposed rule, we discuss our proposal concerning coding and payment for brachytherapy sources. 7. Proposed OPPS Coding and Payment for Drug Administration Services

In section VIII. of this proposed rule, we set forth our proposed policy concerning coding and payment for drug administration services. 8. Proposed OPPS Hospital Coding and Payments for Visits

In section IX. of this proposed rule, we set forth our proposed changes to policies for the coding and reporting of clinic and emergency department visits and critical care services on claims paid under the OPPS. 9. Proposed OPPS Payment for Blood and Blood Products

In section X. of this proposed rule, we discuss our proposed payment for blood and blood products. 10. Proposed OPPS Payment for Observation Services

In section XI. of this proposed rule, we discuss the proposed payment policies for observation services furnished to patients on an outpatient basis. 11. Proposed Procedures That Will Be Paid Only as Inpatient Services

In section XII. of this proposed rule, we discuss the procedures that we are

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proposing to remove from the inpatient list and assign to APCs. 12. Proposed Nonrecurring Technical and Policy Changes

In section XIII. of this proposed rule, we set forth our proposals for nonrecurring technical and policy changes and clarifications relating to outpatient hospital services and supplies incident to a physician service; payment for interrupted procedures prior to and after the administration of anesthesia; transitional adjustments to payments for covered outpatient services furnished by small rural hospitals and SCHs located in rural areas; and reporting requirements for wound care services, cardiac rehabilitation services, and bone marrow and stem cell processing services. 13. Proposed OPPS Payment Status and Comment Indicators

In section XIV. of this proposed rule, we discuss proposed changes to the definitions of status indicators assigned to APCs and present our proposed comment indicators for the OPPS/ASC final rule with comment period. 14. OPPS Policy and Payment Recommendations

In section XV. of this proposed rule, we address recommendations made by MedPAC and the APC Panel regarding the OPPS for CY 2008. 15. Proposed Update of the Revised ASC Payment System

In section XVI. of this proposed rule, we discuss the proposed update of the revised ASC payment system payment rates for CY 2008. We also discuss our proposed changes to our regulations Sec. 414.22 (b)(5)(i)(A) and (B) regarding physician payment for performing noncovered ASC surgical procedures in ASCs. In addition, we are proposing to revise the definitions of ``radiology and certain other imaging services'' and ``outpatient prescription drugs'' when provided integral to an ASC covered surgical procedure. 16. Reporting Quality Data for Annual Payment Rate Updates

In section XVII. of this proposed rule, we discuss the proposed quality measures for reporting hospital outpatient quality data for CY 2009 and subsequent years and set forth the requirements for data collection and submission for the annual payment update. We also briefly discuss the legislative provisions of the MIEA-TRHCA that give the Secretary authority to develop quality measures for reporting by ASCs. 17. Proposed Changes Affecting Necessary Provider Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs)

In section XVIII. of this proposed rule, we discuss our proposed changes affecting necessary provider designations for CAHs that are being recertified when the CAH enters into a new co-location arrangement with another hospital or CAH or when the CAH creates or acquires an off-campus location. We also discuss our proposed changes relating to several hospital CoPs to require the completion of physical examinations and medical histories, and documentation in the medical records, for patients after admission and prior to surgery or a procedure requiring anesthesia services and for postanesthesia evaluations of patients before discharge or transfer from the postanesthesia recovery area. 18. Regulatory Impact Analysis

In section XXII. of this proposed rule, we set forth an analysis of the impact the proposed changes will have on affected entities and beneficiaries.

II. Proposed Updates Affecting OPPS Payments

A. Proposed Recalibration of APC Relative Weights

(If you choose to comment on issues in this section, please include the caption ``APC Relative Weights'' at the beginning of your comment.) 1. Database Construction a. Database Source and Methodology

Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually. In the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we explained in detail how we calculated the relative payment weights that were implemented on August 1, 2000, for each APC group. Except for some reweighting due to a small number of APC changes, these relative payment weights continued to be in effect for CY 2001. This policy is discussed in the November 13, 2000 interim final rule (65 FR 67824 through 67827).

We are proposing to use the same basic methodology that we described in the April 7, 2000 OPPS final rule with comment period to recalibrate the APC relative payment weights for services furnished on or after January 1, 2008, and before January 1, 2009. That is, we are proposing to recalibrate the relative payment weights for each APC based on claims and cost report data for outpatient services. We are proposing to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating the proposed APC relative payment weights for CY 2008, we used approximately 131 million final action claims for hospital OPD services furnished on or after January 1, 2006, and before January 1, 2007. (For exact counts of claims used, we refer readers to the claims accounting narrative under supporting documentation for this proposed rule on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/ ). Of the 131 million final action claims

for services provided in hospital outpatient settings, approximately 101 million claims were of the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 101 million claims, approximately 46 million 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). We were able to use approximately 50 million whole claims of the approximately 54 million claims that remained to set the OPPS APC relative weights we are proposing for the CY 2008 OPPS. From the 50 million whole claims, we created approximately 88 million single records, of which approximately 58 million were ``pseudo'' single claims (created from multiple procedure claims using the process we discuss in this section). Approximately 822,000 claims trimmed out on cost or units in excess of 3 standard deviations from the geometric mean, yielding approximately 87 million single bills used for median setting. Ultimately, we were able to use for proposed CY 2008 ratesetting some portion of 92 percent of the CY 2006 claims containing services payable under the OPPS.

The proposed APC relative weights and payments for CY 2008 in Addenda A and B to this proposed rule were calculated using claims from this period that were processed before January 1, 2007, and continue to be based on the median hospital costs for services in the APC groups. We selected claims for services paid under the OPPS and matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. We continue to believe that it is appropriate to use the most current full calendar year claims data and the most

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recently submitted cost reports to calculate the median costs which we are proposing to convert to relative payment weights for purposes of calculating the CY 2008 payment rates. b. Proposed Use of Single and Multiple Procedure Claims

For CY 2008, in general, we are proposing 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. We have received many requests asking that we ensure that the data from claims that contain charges for multiple procedures are included in the data from which we calculate the relative payment weights. Requesters believe that relying solely on single procedure claims to recalibrate APC relative payment weights fails to take into account data for many frequently performed procedures, particularly those commonly performed in combination with other procedures. They believe that if a service is frequently performed in combination with others, the individual services are more complex and more resource-intensive than if they were performed alone. Stakeholders have suggested that including data from multiple procedure claims could increase the median cost estimates for the individual services. They believe that depending upon single procedure claims alone results in basing relative payment weights on the least costly services that are not representative of the typical services, thereby introducing downward bias to the medians on which the weights are based.

We generally use single procedure claims to set the median costs for APCs because we believe that it is important that the OPPS relative weights on which payment rates are based be appropriate when one and only one procedure is furnished and because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those claims for multiple procedures. We engaged in several efforts this year to improve our use of multiple procedure claims for ratesetting. As we have for several years, we 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. We also continued our internal efforts to better understand the patterns of services and costs from multiple bills toward the goal of using more multiple bill information by assessing the amount of packaging in the multiple bills and, specifically, by exploring the amount of packaging for drug administration services in the single and multiple bill claims. Moreover, in many cases, the proposed expansion of packaging also enables the use of more claims data by enabling us to treat claims with multiple procedure codes as single claims. We refer readers to section II.A.4. of this proposed rule for a full discussion of this proposal for CY 2008. (1) Proposed Use of Date of Service Stratification and a Bypass List To Increase the Amount of Data Used To Determine Medians

By bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases, this enables us to create multiple ``pseudo'' single claims from claims that, as submitted, contained multiple separately paid procedures on the same claim. We refer to these newly created single procedure claims as ``pseudo'' single claims because they were submitted by providers as multiple procedure claims. The history of our use of a bypass list to generate ``pseudo'' single claims is well documented, most recently in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67969 through 67970).

The date of service stratification and bypass list process we used for the CY 2007 OPPS (combined with the packaging changes we are proposing in section II.A.4. of this proposed rule) resulted in our being able to use some part of approximately 92 percent of the total claims that are eligible for use in the OPPS ratesetting and modeling for this proposed rule. This process enabled us to create, for CY 2008 approximately 58 million ``pseudo'' singles and approximately 30 million ``natural'' single bills. For this proposed rule, ``pseudo'' single procedure bills represented 66 percent of all single bills used to calculate median costs. This compares favorably to the CY 2007 OPPS final rule data in which ``pseudo'' single bills represented 68 percent of all single bills used to calculate the median costs on which the CY 2007 OPPS payment rates were based. We believe that the reduction in the percent of ``pseudo'' single bills and the corresponding increase in the proportion of ``natural'' single bills occurred largely because of our proposal to increase packaging as discussed in section II.A.4. of this proposed rule. In many cases, the packaging proposal for CY 2008 enabled us to use claims that would otherwise have been considered to be multiple procedure claims and, absent the proposal for additional packaging, could have been used for ratesetting only if we had been able to create ``pseudo'' single claims from them.

For CY 2008, we are proposing to bypass 425 HCPCS codes that are identified in Table 1 of this proposed rule. We are proposing to continue the use of the codes on the CY 2007 OPPS bypass list but to remove codes we are proposing to package for CY 2008. We also are proposing to remove codes that were on the CY 2007 bypass list that ceased to meet the empirical criteria under the proposed packaging changes when clinical review confirmed that their removal would be appropriate in the context of the full proposal for the CY 2008 OPPS. Since the inception of the bypass list, we have calculated the percent of natural single bills that contained packaging for each code and the amount of packaging in each ``natural'' single bill for each code. We retained the codes on the previous year's bypass list and used the update year's data to determine whether it would be appropriate to add additional codes to the previous year's bypass list. The entire list (including the codes that remained on the bypass list from prior years) was open to public comment. For this CY 2008 proposed rule, we explicitly reviewed all ``natural'' single bills against the empirical criteria for all codes on the CY 2007 bypass list because of the proposal for greater packaging discussed in section II.A.4. of this proposed rule, as this effort increased the packaging associated with some codes. We removed 106 HCPCS codes from the CY 2007 bypass list for the CY 2008 proposal. We note also that many of the codes we are proposing to newly package for CY 2008 were on the bypass list used for setting the OPPS payment rates for CY 2007 and are no longer proposed for bypass because we are proposing to package them, as discussed in more detail below. We also are proposing to add to the bypass list HCPCS codes that, using the proposed rule data, meet the same previously established empirical criteria for the bypass list that are reviewed below or which our clinicians believe would have little associated packaging if the services were correctly coded.

The CY 2008 packaging proposal minimally reduced the percentage of total claims that we were able to use, in whole or in part, from 93 percent for CY 2007 to 92 percent for this proposed rule. The proposed packaging approach increased the number of ``natural'' single bills, in spite of reducing the

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universe of codes requiring single bills for ratesetting, but reduced the number of ``pseudo'' single bills. More ``natural'' single procedure bills can be created by the packaging of codes that always appear with another procedure because these dependent services are supportive of and ancillary to the primary independent procedures for which payment is being made. A claim containing two independent procedure codes on the same date of service and not on the bypass list previously could not be used for ratesetting, but packaging the cost of one of the codes on the claim frees the claim to be used to calculate the median cost of the procedure that is not packaged. On the other hand, our proposed packaging approach reduced the number of codes eligible for the bypass list because of the limitation on packaging set by our previously established empirical criteria. A smaller bypass list and the presence of greater packaging on claims reduced the final number of ``pseudo'' single claims. In prior years, roughly 68 percent of single bills were ``pseudo'' single bills, but based on the CY 2008 proposed rule data, 66 percent of single bills were ``pseudo'' singles. Moreover, the number of ``natural'' single bills and ``pseudo'' single bills are reduced by the volume of services that we are proposing to package. Hence, our CY 2008 proposal to package payment for some HCPCS codes with relatively high frequencies would eliminate for ratesetting the number of available ``natural'' and ``pseudo'' single bills attributable to the codes that we are proposing to package.

As in prior years, we are proposing to use the following empirical criteria to determine the additional codes to add to the CY 2007 bypass list to create the CY 2008 bypass list. We assume that the representation of packaging on the single claims for any given code is comparable to packaging for that code in the multiple claims:

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

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

The median cost of packaging observed in the single claims is equal to or less than $50. This limits the amount of error in redistributed costs.

The code is not a code for an unlisted service.

In addition, we are proposing to add to the bypass list codes that our clinicians believe have minimal associated packaging based on their clinical assessment of the full CY 2008 OPPS proposal. We note that this list contains bypass codes that are appropriate to claims for services in CY 2006 and, therefore, includes codes that have been deleted for CY 2007. Moreover, there are codes on the bypass list that are new for CY 2007 and which are appropriate additions to the bypass list in preparation for use of the CY 2007 claims for creation of the CY 2009 OPPS.

In order to keep the established empirical criteria for the bypass list constant, we are seeking public comment on whether we should adjust the $50 packaging cost criterion for inflation each year and, if so, recommendations for the source of the adjustment. Adding an inflation adjustment factor would ensure that the same amount of packaging associated with candidate codes for the bypass list is reviewed each year relative to nominal costs.

Table 1.--Proposed CY 2008 Bypass Codes for Creating ``Pseudo'' Single Claims for Calculating Median Costs

HCPCS code

Short descriptor

11056............................ Trim skin lesions, 2 to 4. 11057............................ Trim skin lesions, over 4. 11300............................ Shave skin lesion. 11301............................ Shave skin lesion. 11719............................ Trim nail(s). 11720............................ Debride nail, 1-5. 11721............................ Debride nail, 6 or more. 11954............................ Therapy for contour defects. 17003............................ Destruct premalg les, 2-14. 31231............................ Nasal endoscopy, dx. 31579............................ Diagnostic laryngoscopy. 51798............................ Us urine capacity measure. 54240............................ Penis study. 56820............................ Exam of vulva w/scope. 67820............................ Revise eyelashes. 69210............................ Remove impacted ear wax. 69220............................ Clean out mastoid cavity. 70030............................ X-ray eye for foreign body. 70100............................ X-ray exam of jaw. 70110............................ X-ray exam of jaw. 70120............................ X-ray exam of mastoids. 70130............................ X-ray exam of mastoids. 70140............................ X-ray exam of facial bones. 70150............................ X-ray exam of facial bones. 70160............................ X-ray exam of nasal bones. 70200............................ X-ray exam of eye sockets. 70210............................ X-ray exam of sinuses. 70220............................ X-ray exam of sinuses. 70250............................ X-ray exam of skull. 70260............................ X-ray exam of skull. 70328............................ X-ray exam of jaw joint. 70330............................ X-ray exam of jaw joints. 70336............................ Magnetic image, jaw joint. 70355............................ Panoramic x-ray of jaws. 70360............................ X-ray exam of neck. 70370............................ Throat x-ray & fluoroscopy. 70371............................ Speech evaluation, complex. 70450............................ Ct head/brain w/o dye. 70480............................ Ct orbit/ear/fossa w/o dye. 70486............................ Ct maxillofacial w/o dye. 70490............................ Ct soft tissue neck w/o dye. 70544............................ Mr angiography head w/o dye. 70551............................ Mri brain w/o dye. 71010............................ Chest x-ray. 71015............................ Chest x-ray. 71020............................ Chest x-ray. 71021............................ Chest x-ray. 71022............................ Chest x-ray. 71023............................ Chest x-ray and fluoroscopy. 71030............................ Chest x-ray. 71034............................ Chest x-ray and fluoroscopy. 71035............................ Chest x-ray. 71100............................ X-ray exam of ribs. 71101............................ X-ray exam of ribs/chest. 71110............................ X-ray exam of ribs. 71111............................ X-ray exam of ribs/chest. 71120............................ X-ray exam of breastbone. 71130............................ X-ray exam of breastbone. 71250............................ Ct thorax w/o dye. 72010............................ X-ray exam of spine. 72020............................ X-ray exam of spine. 72040............................ X-ray exam of neck spine. 72050............................ X-ray exam of neck spine. 72052............................ X-ray exam of neck spine. 72069............................ X-ray exam of trunk spine. 72070............................ X-ray exam of thoracic spine. 72072............................ X-ray exam of thoracic spine. 72074............................ X-ray exam of thoracic spine. 72080............................ X-ray exam of trunk spine. 72090............................ X-ray exam of trunk spine. 72100............................ X-ray exam of lower spine. 72110............................ X-ray exam of lower spine. 72114............................ X-ray exam of lower spine. 72120............................ X-ray exam of lower spine. 72125............................ Ct neck spine w/o dye. 72128............................ Ct chest spine w/o dye. 72131............................ Ct lumbar spine w/o dye. 72141............................ Mri neck spine w/o dye. 72146............................ Mri chest spine w/o dye. 72148............................ Mri lumbar spine w/o dye. 72170............................ X-ray exam of pelvis. 72190............................ X-ray exam of pelvis. 72192............................ Ct pelvis w/o dye. 72202............................ X-ray exam sacroiliac joints. 72220............................ X-ray exam of tailbone. 73000............................ X-ray exam of collar bone. 73010............................ X-ray exam of shoulder blade. 73020............................ X-ray exam of shoulder. 73030............................ X-ray exam of shoulder. 73050............................ X-ray exam of shoulders. 73060................ X-ray exam of humerus. 73070................ X-ray exam of elbow. 73080................ X-ray exam of elbow. 73090................ X-ray exam of forearm. 73100................ X-ray exam of wrist. 73110................ X-ray exam of wrist. 73120................ X-ray exam of hand.

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73130................ X-ray exam of hand. 73140................ X-ray exam of finger(s). 73200................ Ct upper extremity w/o dye. 73218................ Mri upper extremity w/o dye. 73221................ Mri joint upr extrem w/o dye. 73510................ X-ray exam of hip. 73520................ X-ray exam of hips. 73540................ X-ray exam of pelvis & hips. 73550................ X-ray exam of thigh. 73560................ X-ray exam of knee, 1 or 2. 73562................ X-ray exam of knee, 3. 73564................ X-ray exam, knee, 4 or more. 73565................ X-ray exam of knees. 73590................ X-ray exam of lower leg. 73600................ X-ray exam of ankle. 73610................ X-ray exam of ankle. 73620................ X-ray exam of foot. 73630................ X-ray exam of foot. 73650................ X-ray exam of heel. 73660................ X-ray exam of toe(s). 73700................ Ct lower extremity w/o dye. 73718................ Mri lower extremity w/o dye. 73721................ Mri jnt of lwr extre w/o dye. 74000................ X-ray exam of abdomen. 74010................ X-ray exam of abdomen. 74020................ X-ray exam of abdomen. 74022................ X-ray exam series, abdomen. 74150................ Ct abdomen w/o dye. 74210................ Contrst x-ray exam of throat. 74220................ Contrast x-ray, esophagus. 74230................ Cine/vid x-ray, throat/esoph. 74246................ Contrst x-ray uppr gi tract. 74247................ Contrst x-ray uppr gi tract. 74249................ Contrst x-ray uppr gi tract. 76020................ X-rays for bone age. 76040................ X-rays, bone evaluation. 76061................ X-rays, bone survey. 76062................ X-rays, bone survey. 76065................ X-rays, bone evaluation. 76066................ Joint survey, single view. 76070................ Ct bone density, axial. 76071................ Ct bone density, peripheral. 76075................ Dxa bone density, axial. 76076................ Dxa bone density/peripheral 76077................ Dxa bone density/v-fracture. 76078................ Radiographic absorptiometry. 76100................ X-ray exam of body section. 76400................ Magnetic image, bone marrow. 76510................ Ophth us, b & quant a. 76511................ Ophth us, quant a only. 76512................ Ophth us, b w/non-quant a. 76513................ Echo exam of eye, water bath. 76514................ Echo exam of eye, thickness. 76516................ Echo exam of eye. 76519................ Echo exam of eye. 76536................ Us exam of head and neck. 76645................ Us exam, breast(s). 76700................ Us exam, abdom, complete. 76705................ Echo exam of abdomen. 76770................ Us exam abdo back wall, comp. 76775................ Us exam abdo back wall, lim. 76778................ Us exam kidney transplant. 76801................ Ob us /= 14 wks, sngl fetus. 76811................ Ob us, detailed, sngl fetus. 76816................ Ob us, follow-up, per fetus. 76817................ Transvaginal us, obstetric. 76830................ Transvaginal us, non-ob. 76856................ Us exam, pelvic, complete. 76857................ Us exam, pelvic, limited. 76870................ Us exam, scrotum. 76880................ Us exam, extremity. 76970................ Ultrasound exam follow-up. 76977................ Us bone density measure. 76999................ Echo examination procedure. 77300................ Radiation therapy dose plan. 77301................ Radiotherapy dose plan, imrt. 77315................ Teletx isodose plan complex. 77326................ Brachytx isodose calc simp. 77327................ Brachytx isodose calc interm. 77328................ Brachytx isodose plan compl. 77331................ Special radiation dosimetry. 77336................ Radiation physics consult. 77370................ Radiation physics consult. 77401................ Radiation treatment delivery. 77402................ Radiation treatment delivery. 77403................ Radiation treatment delivery. 77404................ Radiation treatment delivery. 77407................ Radiation treatment delivery. 77408................ Radiation treatment delivery. 77409................ Radiation treatment delivery. 77411................ Radiation treatment delivery. 77412................ Radiation treatment delivery. 77413................ Radiation treatment delivery. 77414................ Radiation treatment delivery. 77416................ Radiation treatment delivery. 77418................ Radiation tx delivery, imrt. 77470................ Special radiation treatment. 77520................ Proton trmt, simple w/o comp. 77523................ Proton trmt, intermediate. 80500.............. Lab pathology consultation. 80502.............. Lab pathology consultation. 85097.............. Bone marrow interpretation. 86510.............. Histoplasmosis skin test. 86850.............. RBC antibody screen. 86870.............. RBC antibody identification. 86880.............. Coombs test, direct. 86885.............. Coombs test, indirect, qual. 86886.............. Coombs test, indirect, titer. 86890.............. Autologous blood process. 86900.............. Blood typing, ABO. 86901.............. Blood typing, Rh (D). 86903.............. Blood typing, antigen screen. 86904.............. Blood typing, patient serum. 86905.............. Blood typing, RBC antigens. 86906.............. Blood typing, Rh phenotype. 86930.............. Frozen blood prep. 86970.............. RBC pretreatment. 88104.............. Cytopath fl nongyn, smears. 88106.............. Cytopath fl nongyn, filter. 88107.............. Cytopath fl nongyn, sm/fltr. 88108.............. Cytopath, concentrate tech. 88112.............. Cytopath, cell enhance tech. 88160.............. Cytopath smear, other source. 88161.............. Cytopath smear, other source. 88162.............. Cytopath smear, other source. 88172.............. Cytopathology eval of fna. 88173.............. Cytopath eval, fna, report. 88182.............. Cell marker study. 88184.............. Flowcytometry/tc, 1 marker. 88185.............. Flowcytometry/tc, add-on. 88300.............. Surgical path, gross. 88302.............. Tissue exam by pathologist. 88304.............. Tissue exam by pathologist. 88305.............. Tissue exam by pathologist. 88307.............. Tissue exam by pathologist. 88311.............. Decalcify tissue. 88312.............. Special stains. 88313.............. Special stains. 88321.............. Microslide consultation. 88323.............. Microslide consultation. 88325.............. Comprehensive review of data. 88331.............. Path consult intraop, 1 bloc. 88342.............. Immunohistochemistry. 88346.............. Immunofluorescent study. 88347.............. Immunofluorescent study. 88348.............. Electron microscopy. 88358.............. Analysis, tumor. 88360.............. Tumor immunohistochem/manual. 88365.............. Insitu hybridization (fish). 88368.............. Insitu hybridization, manual. 88399.............. Surgical pathology procedure. 89049.............. Chct for mal hyperthermia. 89230.............. Collect sweat for test. 89240.............. Pathology lab procedure. 90761............ Hydrate iv infusion, add-on. 90766............ Ther/proph/dg iv inf, add-on. 90801............ Psy dx interview. 90802............ Intac psy dx interview. 90804............ Psytx, office, 20-30 min. 90805............ Psytx, off, 20-30 min w/e&m. 90806............ Psytx, off, 45-50 min. 90807............ Psytx, off, 45-50 min w/e&m. 90808............ Psytx, office, 75-80 min. 90809............ Psytx, off, 75-80, w/e&m. 90810............ Intac psytx, off, 20-30 min. 90812............ Intac psytx, off, 45-50 min. 90816............ Psytx, hosp, 20-30 min. 90818............ Psytx, hosp, 45-50 min. 90826............ Intac psytx, hosp, 45-50 min. 90845............ Psychoanalysis. 90846............ Family psytx w/o patient. 90847............ Family psytx w/patient. 90853............ Group psychotherapy. 90857............ Intac group psytx. 90862............ Medication management. 92002............ Eye exam, new patient. 92004............ Eye exam, new patient. 92012............ Eye exam established pat. 92014............ Eye exam & treatment. 92020............ Special eye evaluation. 92081............ Visual field examination(s). 92082............ Visual field examination(s). 92083............ Visual field examination(s). 92135............ Opthalmic dx imaging. 92136............ Ophthalmic biometry. 92225............ Special eye exam, initial. 92226............ Special eye exam, subsequent. 92230............ Eye exam with photos. 92240............ Icg angiography. 92250............ Eye exam with photos. 92275............ Electroretinography. 92285............ Eye photography. 92286............ Internal eye photography. 92520............ Laryngeal function studies. 92541............ Spontaneous nystagmus test. 92546............ Sinusoidal rotational test. 92548............ Posturography. 92552............ Pure tone audiometry, air. 92553............ Audiometry, air & bone. 92555............ Speech threshold audiometry.

[[Page 42639]]

92556............ Speech audiometry, complete. 92557............ Comprehensive hearing test. 92567............ Tympanometry. 92582............ Conditioning play audiometry. 92585............ Auditor evoke potent, compre. 92603............ Cochlear implt f/up exam 7 >. 92604............ Reprogram cochlear implt 7 >. 92626............ Eval aud rehab status. 93005............ Electrocardiogram, tracing. 93225............ ECG monitor/record, 24 hrs. 93226............ ECG monitor/report, 24 hrs. 93231............................ Ecg monitor/record, 24 hrs. 93232............................ ECG monitor/report, 24 hrs. 93236............................ ECG monitor/report, 24 hrs. 93270............................ ECG recording. 93271............................ Ecg/monitoring and analysis. 93278............................ ECG/signal-averaged. 93727............................ Analyze ilr system. 93731............................ Analyze pacemaker system. 93732............................ Analyze pacemaker system. 93733............................ Telephone analy, pacemaker. 93734............................ Analyze pacemaker system. 93735............................ Analyze pacemaker system. 93736............................ Telephonic analy, pacemaker. 93741............................ Analyze ht pace device sngl. 93742............................ Analyze ht pace device sngl. 93743............................ Analyze ht pace device dual. 93744............................ Analyze ht pace device dual. 93786............................ Ambulatory BP recording. 93788............................ Ambulatory BP analysis. 93797............................ Cardiac rehab. 93798............................ Cardiac rehab/monitor. 93875............................ Extracranial study. 93880............................ Extracranial study. 93882............................ Extracranial study. 93886............................ Intracranial study. 93888............................ Intracranial study. 93922............................ Extremity study. 93923............................ Extremity study. 93924............................ Extremity study. 93925............................ Lower extremity study. 93926............................ Lower extremity study. 93930............................ Upper extremity study. 93931............................ Upper extremity study. 93965............................ Extremity study. 93970............................ Extremity study. 93971............................ Extremity study. 93975............................ Vascular study. 93976............................ Vascular study. 93978............................ Vascular study. 93979............................ Vascular study. 93990............................ Doppler flow testing. 94015............................ Patient recorded spirometry. 94690............................ Exhaled air analysis. 95115............................ Immunotherapy, one injection. 95117............................ Immunotherapy injections. 95165............................ Antigen therapy services. 95805............................ Multiple sleep latency test. 95806............................ Sleep study, unattended. 95807............................ Sleep study, attended. 95808............................ Polysomnography, 1-3. 95812............................ Eeg, 41-60 minutes. 95813............................ Eeg, over 1 hour. 95816............................ Eeg, awake and drowsy. 95819............................ Eeg, awake and asleep. 95822............................ Eeg, coma or sleep only. 95869............................ Muscle test, thor paraspinal. 95900............................ Motor nerve conduction test. 95921............................ Autonomic nerv function test. 95925............................ Somatosensory testing. 95930............................ Visual evoked potential test. 95950............................ Ambulatory eeg monitoring. 95953............................ EEG monitoring/computer. 95970............................ Analyze neurostim, no prog. 95972............................ Analyze neurostim, complex. 95974............................ Cranial neurostim, complex. 95978............................ Analyze neurostim brain/1h. 96000............................ Motion analysis, video/3d. 96101............................ Psycho testing by psych/phys. 96111............................ Developmental test, extend. 96116............................ Neurobehavioral status exam. 96118............................ Neuropsych tst by psych/phys. 96119............................ Neuropsych testing by tec. 96150............................ Assess hlth/behave, init. 96151............................ Assess hlth/behave, subseq. 96152............................ Intervene hlth/behave, indiv. 96153............................ Intervene hlth/behave, group. 96415............................ Chemo, iv infusion, addl hr. 96423............................ Chemo ia infuse each addl hr. 96900............................ Ultraviolet light therapy. 96910............................ Photochemotherapy with UV-B. 96912............................ Photochemotherapy with UV-A. 96913............................ Photochemotherapy, UV-A or B. 96920............................ Laser tx, skin 10. M0064............................ Visit for drug monitoring. Q0091............................ Obtaining screen pap smear.

(2) Exploration of Allocation of Packaged Costs to Separately Paid Procedure Codes

During its August 23-24, 2006 meeting, the APC Panel recommended that CMS provide claims analysis of the contributions of packaged costs (including packaged revenue code charges and charges for packaged HCPCS codes) to the median cost of each drug administration service. (We refer readers to Recommendation 28 in the August 23-24, 2006 meeting recommendation summary on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGroups.asp#TopOfPage. ) In

our continued effort to better understand the multiple claims in order to extract single bill information from them, we examined the extent to which the packaging in multiple procedure claims differs from the packaging in the single procedure claims on which we base the median costs both in general and more specifically for drug administration services. We performed this analysis using the claims data on which we based the CY 2007 OPPS/ASC final rule with comment period. We examined the amount of packaging in multiple procedure versus single procedure claims in general and in claims for drug administration services in particular. We conducted this analysis without taking into account the proposed packaging approach presented in this proposed rule. However, we do not expect the services newly proposed for packaged payment to commonly appear with a drug administration service. Therefore, we believe that the analysis conducted on the CY 2007 final rule with comment period data is sufficient to inform our development of this proposed rule.

In general, we do not believe that the proportionate amount of packaged costs in the multiple bills relative to the number of primary services is greater than that in the single bills. The costs in uncoded revenue codes and HCPCS codes with a packaged status indicator account for 22 percent of observed costs in the universe of all CY 2005 claims that we used to model the CY 2007 OPPS (including both the single and multiple procedure bills). Similarly, the costs in uncoded revenue codes and HCPCS codes with a packaged status indicator account for 18 percent of the total cost in the subset of CY 2005 single bills that we used to calculate the median costs on which the relative weights are based.

However, the bypass methodology creates a ``pseudo'' single bill for all claims for services or items on the bypass list, and these ``pseudo'' single bills have no associated packaging, by definition of the application of the bypass list. Excluding the total cost associated with bypass codes, 28 percent of observed costs in the single

[[Page 42640]]

bills are attributable to packaged services, and 29 percent of observed costs across all claims are attributable to packaged services. Therefore, we conclude that, in general, the extent of packaging in all bills is similar to the amount of packaging in the single procedure bills we use to set median costs for most APCs.

We recognize that aggregate numbers do not address the packaging associated with single and multiple procedure claims for specific services. We have received comments stating that the amount of packaging in the single bills for drug administration services is not representative of the typical packaged costs of these drug administration services, which are usually performed in combination with one another, because the single bills represent less complex and less resource-intensive services than the usual cases.

We published a study in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68120 through 68121) that discussed the amount of packaging on the single bills for drug administration procedure codes, and we promised to replicate that study for the APC Panel. We discussed the results of this study with the APC Panel at its March 2007 meeting, in accordance with the APC Panel's August 2006 recommendation. Table 2 below shows the drug administration HCPCS codes and their descriptors, status indicators, deleted code status, and CY 2007 APC assignments in columns 1, 2, 3, and 4, respectively. HCPCS codes for additional hours of infusion services are not presented because these codes were included on the CY 2007 bypass list and, therefore, we explicitly associated no packaged costs with them, as discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68117 through 68118). Column 6 of the table contains the number of single bills relative to total occurrences of the code in the CY 2005 claims, and column 8 shows the percentage of single bills used to set payment rates. Drug administration services demonstrate reasonable single bill representation in comparison with other OPPS services. Single bills for drug administration constitute, roughly, 30 percent of all observed occurrences of drug administration services, varying by code from 7 to 55 percent. Columns 10 through 13 of the table show measures of central tendency for packaged costs as a percentage of total cost on each single claim. Columns 10 and 11 show the mean and median of all packaged costs as a percentage of total costs, and columns 12 and 13 break out the costs of packaged drug HCPCS codes and uncoded pharmacy revenue code charges for revenue codes in the 0250 series (Pharmacy), 0260 series (IV Therapy), and 0630 series (Pharmacy--Extension). These columns demonstrate that packaged costs substantially contribute to median cost estimates for the majority of drug administration HCPCS codes.

For all single bills for CPT code 90780 (Intravenous infusion for therapy/diagnosis, administered by physician or under direct supervision of physician; up to one hour), on average, packaged costs were 31 percent of total cost (median 27 percent). For the same code, packaged drug and pharmacy costs comprised, on average, 23 percent of total costs (median 15 percent). Single bills make up 34 percent of all line-item occurrences of the service, suggesting that this single bill median cost was fairly robust and probably captured packaging adequately. On the other hand, CPT code 90784 (Therapeutic, prophylactic or diagnostic injection (specify material injected); subcutaneous or intramuscular) demonstrates limited packaging (median 0 percent and mean 17 percent), and the median cost for the code is derived from only 7 percent of all occurrences of the code. Across all drug administration codes, over half show significant median packaged costs largely attributable to packaged drug and pharmacy costs.

Table 2.--Packaged Cost Data for CY 2005 Single Claims for Drug Administration Services

All packaged costs Packaged drug and as a percent of pharmacy costs as a Deleted

Single Total Percent Median

total cost

percent of total HCPCS code Short descriptor SI code APC bills frequency single cost ($) ----------------------

cost bills

Median Mean Median Mean (1)

(2)............... (3).... (4)....... (5)

(6)

(7)

(8)

(9) (10) (11) (12) (13)

90780...... IV infusion

S...... X......... 0440 1,008,055 2,974,785 33.9 110.43 27.1 30.8 15.3 22.6 therapy, 1 hour. 90782...... Injection, sc/im.. S...... X......... 0437 1,326,094 2,894,231 45.8 24.77

0.0 10.1

0.0

8.7 90783...... Injection, ia..... S...... X......... 0438

427

3,012 14.2 51.35

0.0 10.9

0.0

6.8 90784...... Injection, iv..... S...... X......... 0438 183,096 2,812,204

6.5 49.54

0.0 16.7

0.0

9.7 90788...... Injection of

S...... X......... 0437 19,400 141,293 13.7 45.96 24.6 32.3 20.7 30.4 antibiotic. 96400...... Chemotherapy, sc/ S...... .......... 0438 57,472 81,546 70.5 51.98

0.0

6.3

0.0

4.5 im. 96405...... Chemo

S...... .......... 0438

142

181 78.5 193.65

0.0 12.0

0.0 10.5 intralesional, up to 7. 96406...... Chemo

S...... .......... 0438

2

7 28.6 46.42

0.0

0.0

0.0

0.0 intralesional over 7. 96408...... Chemotherapy, push S...... .......... 0439 21,113 134,447 15.7 96.85 10.6 21.3

2.4 13.6 technique. 96410...... Chemotherapy, S...... .......... 0441 161,872 555,170 29.2 151.55 21.4 27.0 12.4 19.6 infusion method. 96414...... Chemo, infuse S...... .......... 0441

2,370 14,561 16.3 182.89 15.4 23.0

8.6 15.6 method add-on. 96420...... Chemo, ia, push S...... .......... 0439

170

933 18.2 99.86

9.6 27.6

4.2 15.4 tecnique. 96422...... Chemo ia infusion S...... .......... 0441

556

1,814 30.7 162.94 45.9 46.5 31.0 35.1 up to 1 hr. 96425...... Chemotherapy, S...... .......... 0441

149

557 26.8 216.68 29.4 33.5 14.7 24.4 infusion method. 96440...... Chemotherapy, S...... .......... 0439

38

104 36.5 37.12

0.0

2.1

0.0

1.5 intracavitary. 96445...... Chemotherapy, S...... .......... 0439

43

137 31.4 61.98 23.8 25.0 23.7 21.1 intracavitary. 96450...... Chemotherapy, into S...... .......... 0441

394

869 45.3 160.03 25.8 28.7

2.0

8.3 CNS. 96520...... Port pump refill & S...... .......... 0440

9,771 23,928 40.8 140.66 29.0 31.5 16.8 23.6 main. 96530...... Syst pump refill & S...... .......... 0440

8,334 19,283 43.2 100.00

7.4 22.2

0.7 13.7 main. 96542...... Chemotherapy

S...... .......... 0438

511

929 55.0 51.56

0.0 10.8

0.0

6.5 injection.

By definition, we are unable to precisely assess the amount of packaging associated with drug administration codes in the multiple bills. As a proxy, we estimated packaging as a percent of total cost on

[[Page 42641]]

each claim for two subsets of claims. Both analyses suggest the presence of moderate packaged costs, especially drug and pharmacy costs, associated with drug administration services in the multiple bills. Table 3 below shows measures of central tendency for packaging percentages in the multiple bills or portions of multiple bills remaining after ``pseudo'' singles have been created. We refer to this group of the multiple bills as the ``hardcore'' multiple bills. For the first subset of ``hardcore'' multiple bills with only drug administration codes, that is, where multiple drug administration codes are the only separately paid procedure codes on the claim (defined as procedure codes with a status indicator of ``S,'' ``T,'' ``V,'' ``X,'' or ``P''), we estimate that packaged costs are 22 percent of total costs (27 percent, on average), where total costs consist of costs for all payable codes. Costs for packaged drug HCPCS codes and pharmacy revenue codes comprise 13 percent of total cost at the median (19 percent, on average). For the second subset of ``hardcore'' multiple bills with any drug administration code, that is, where a drug administration code appears with other payable codes (largely radiology services and visits), we estimate packaged costs are 13 percent of total cost at the median (19 percent, on average). Costs for packaged drugs and pharmacy revenue codes comprise 6 percent of total cost at the median (10 percent, on average). The amount of packaging in both proxy measures, but especially the first subset, closely resembles the packaged costs as a percentage of drug administration costs observed in the single bills for drug administration services. While finding a way to accurately use data from the ``hardcore'' multiple bills to estimate drug administration median costs undoubtedly would impact medians, these comparisons suggest that the multiple bill data probably would support current median estimates.

Table 3.--Packaged Costs on Multiple Bill Claims for Drug Administration Services

All packaged costs as a Packaged drug and pharmacy percent of total cost

costs as a percent of total Total frequency

--------------------------------

cost

Median

Mean

Median

Mean

Subset 1: ``Hardcore'' Multiple Claims with Only Drug Administration Codes

693,925.........................................

21.6

26.8

12.7

19.3

Subset 2: ``Multiple'' Claims with At Least One Drug Administration Code

4,816,338.......................................

13.2

19.4

5.8

10.0

We have received several comments over the past few years offering algorithms for packaging the costs associated with specific revenue codes or packaged drugs with certain drug administration codes. Because of the complexity of even routine OPPS claims, prior research suggests that such algorithms have limited power to generate additional single bill claims and do little to change median cost estimates. We continue to look for simple, but powerful, methodologies like the bypass list and packaging of HCPCS codes for additional ancillary and supportive services to assign packaged costs to all services within the ``hardcore'' multiple bills. Ideally, these methodologies should be intuitive to the provider community, easily integrated into the complexity of OPPS median cost estimation, and simple to maintain from year to year. We solicit and will carefully consider methodologies for creation of single bills that meet these criteria. c. Proposed Calculation of CCRs

We calculate hospital-specific overall CCRs and hospital-specific departmental CCRs for each hospital for which we have claims data in the period of claims being used to calculate the median costs that we convert to scaled relative weights for purposes of setting the OPPS payment rates. We apply 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.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage. Comments on the proposed configuration of the

crosswalk for CY 2008 should be included with comments on this section of this proposed rule. We calculate CCRs for the standard and nonstandard cost centers accepted by the electronic cost report database. In general, the most detailed level at which we calculate CCRs is the hospital-specific departmental level.

Following the expiration of most medical devices from pass-through status in CY 2003, prior to which devices were paid at charges reduced to cost using the hospital's overall CCR, we received comments that our OPPS cost estimates for device implantation procedures systematically underestimate the cost of the devices included in the packaged payment for the procedures. Commenters informed us that hospitals routinely mark up charges for low cost items to a much greater extent than they mark up high cost items, and that these items are often combined in a single cost center on their Medicare cost report. Commenters stated that when items with widely varying costs are combined in a single cost center using that cost center's CCR to estimate costs from charges for those items, this approach will overestimate the cost of low cost items and underestimate the cost of high cost items. This is commonly known as ``charge compression.'' They stated that, in the case of implantable devices, the charges for both high cost devices and low cost supplies typically are reported under the medical supply revenue code series and that the costs of both typically are reported in the medical supply cost center on the cost report. Commenters stated that the application of one medical supply CCR to charges for all items reported under the medical supply revenue code underestimates the cost of expensive medical supplies and overestimates the cost of inexpensive supplies. They indicated that when these costs are packaged into the costs of the procedures in which they are used, the result is inaccurate median costs for the HCPCS codes and APCs, and thus the standard OPPS ratesetting methodology systematically distorts

[[Page 42642]]

relative payment weights for procedures using devices.

In CY 2006, the device industry commissioned a study to interpolate a device-specific CCR from the medical supply CCR, using publicly available hospital claim and Medicare cost report data rather than proprietary data on device costs. After reviewing the device industry's data analysis and study model, CMS contracted with RTI International (RTI) to study the impact of charge compression on the cost-based weight methodology adopted in the FY 2007 IPPS final rule, to evaluate this model and to propose solutions. For more information, interested individuals can view RTI's report on the CMS Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf .

Any study of cost estimation in general, and charge compression specifically, has obvious importance for both the OPPS and the IPPS. RTI's research explicitly focused on the IPPS for several reasons, which include greater Medicare expenditure under the IPPS, a desire to evaluate the model quickly given IPPS regulation deadlines, and a focus on other components of the new FY 2007 IPPS cost-based weight methodology (CMS Contract No. 500-00-0024-T012, ``A Study of Charge Compression in Calculating DRG Relative Weights,'' page 5). The study first addressed the possibility of cross-aggregation bias in the CCRs used to estimate costs under the IPPS created by the IPPS methodology of aggregating cost centers into larger departments before calculating CCRs. The report also addressed potential bias created by estimating costs using a CCR that reflects the combined costs and charges of services with wide variation in the amount of hospital markup. In its assessment of the latter, RTI targeted its attempt to identify the presence of charge compression to those cost centers presumably associated with revenue codes demonstrating significant IPPS expenditures and utilization. RTI assessed the correlation between cost report CCRs and the percent of charges in a cost center attributable to a set of similar services represented by a group of revenue codes. RTI did not examine the correlation between CCRs and revenue codes without significant IPPS expenditures or a demonstrated concentration in a specific Diagnosis Related Group (DRG). For example, RTI did not examine revenue code groups within the pharmacy cost center with low proportionate inpatient charges that might be important to the OPPS, such as ``Pharmacy Incident to Radiology.'' RTI states this limitation in its study and specifically recommends that disaggregated CCRs be reestimated for outpatient hospital charges.

Cost report CCRs combine both inpatient and outpatient services. Ideally, RTI would be able to examine the correlation between CCRs for Medicare inpatient services and inpatient claim charges and the correlation between CCRs for Medicare outpatient services and outpatient claim charges. However, the comprehensive nature of the cost report CCR (which combines inpatient and outpatient services) argues for an analysis of the correlation between CCRs and combined inpatient and outpatient claim charges. As noted, the RTI study accepted some measurement error in its analysis by matching an ``all charges'' CCR to inpatient estimates of charges for groups of similar services represented by revenue codes because of short timelines and because inpatient costs dominate outpatient costs in many ancillary cost centers. We believe that CCR adjustments used to calculate payment should be based on the comparison of cost report CCRs to combined inpatient and outpatient charges. An ``all charges'' model would reduce measurement error and estimate adjustments to disaggregated CCRs that could be used in both hospital inpatient and outpatient payment systems.

RTI made several short-term recommendations for improving the accuracy of DRG weight estimates from a cost-based methodology to address bias in combining cost centers and charge compression that could be considered in the context of OPPS policy. We discuss each recommendation within the context of the OPPS and provide our assessment of its application to the OPPS. We do not discuss RTI's recommendations to change cost report policy, which, by definition, would not have an effect on payment weight estimates until several years in the future.

(1) RTI recommends expansion of the number of CCRs used under the IPPS (RTI study, pages 11 and 85). Our OPPS methodology is already more specific than the RTI recommendation. To the extent possible, the OPPS uses hospital-specific cost centers, both standard and nonstandard, to reduce charges to estimated costs and, therefore, the OPPS ratesetting methodology is already more specific than the RTI recommendation.

(2) RTI recommends disaggregation of emergency department and blood products from the ``other services'' CCR used in the IPPS (RTI study, pages 11 and 85). Because we use standard and nonstandard cost center data, our OPPS methodology already comports with this RTI recommendation. Further, we estimate a CCR for blood that is often higher than that in the cost report based on a special methodology that is discussed further in section X of this proposed rule. Therefore, the OPPS is already meeting, and in several cases exceeding, the RTI recommendation for specificity with regard to estimating the costs associated with emergency department and blood product services.

(3) RTI recommends reclassification of intermediate care charges from the intensive care unit to the routine cost center (RTI study, pages 10 and 85). This recommendation is not relevant to the OPPS because our methodology for calculating costs under the OPPS relies solely on ancillary cost centers and does not use either cost center included in the recommendation to estimate costs for hospital outpatient services.

(4) RTI recommends establishment of regression-based estimates as a temporary or permanent method for disaggregating national average CCRs for medical supplies, drugs, and radiology services under the IPPS (RTI study, pages 11 and 86). With regard to radiology services, RTI estimated significantly lower CCRs for the cost centers for computed tomography (CT) scans and magnetic resonance imaging (MRI) services. RTI triangulated its findings with lower observed CCRs for the one- third of providers reporting nonstandard cost centers, specifically MRI Scan and CT Scan. However, in using CCRs for nonstandard cost centers, including MRI Scan and CT Scan, the OPPS already has partially implemented RTI's recommendation to use lower CCRs to estimate costs for those OPPS services allocated to these two imaging cost centers.

For reasons discussed in more detail below, we are proposing to develop an all-charges model that would compare variation in CCRs with variation in combined inpatient and outpatient charges for sets of similar services and establish disaggregated CCRs that could be applied to both inpatient and outpatient charges. We are proposing to evaluate the results of that methodology for purposes of determining whether the resulting disaggregated CCRs should be proposed for use in developing the CY 2009 OPPS payment rates. The revised all-charges model and resulting disaggregated CCRs will not be available in time for use in the CY 2008 OPPS/ASC final rule with comment period.

There are several reasons that we are not proposing to use the intradepartmental CCRs that RTI estimated using IPPS charges for the CY 2008 OPPS estimation of median costs. We agree with RTI that the

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intradepartmental CCRs it calculated for the IPPS would not always be appropriate for application to the OPPS (RTI study, pages 34 and 35). While RTI recommends that the model be recalibrated for outpatient charges before it is applied to the OPPS, we believe that the combined nature of the CCRs available from the cost report prevents an accurate outpatient recalibration that would be appropriate for the OPPS alone. The addition of outpatient charges could change the variability of combined charges for some groups of services. For example, if hospitals use a high volume of less complex devices with lower charges in the outpatient department, the inclusion or omission of the outpatient charges for these high volume and lower cost devices could change the estimated disaggregated device CCR. Furthermore, RTI's analysis excluded some revenue codes with extensive outpatient charges because these revenue codes play a minor role in the IPPS. Therefore, we believe that an all-charges model examining an expanded subset of revenue codes is most appropriate, and that this model must be developed before we could apply the resulting disaggregated CCRs to the charges for supplies paid under the OPPS.

Moreover, to implement the disaggregated IPPS-based CCRs in the OPPS that RTI estimated for CY 2008 could result in greater instability in relative payment weights for CY 2008 than would otherwise occur. Significant changes in CCRs, both increases and decreases, could prompt the reassignment of services to different APCs due to the new estimates of median costs and require modification of the overall APC structure. Not only might there be significant fluctuations in payment between the CY 2007 and CY 2008 OPPS, but a subsequent change to application of the disaggregated CCRs resulting from development of an all-charges model might also result in significant fluctuations in median costs and increased instability in payments from CY 2008 to CY 2009. Therefore, these sequential changes could result in significant increases in median costs in one year and significant declines in median costs in the next year.

Therefore, we are not proposing to adopt the RTI disaggregated CCRs under the CY 2008 OPPS. We will consider whether it would be appropriate to adopt disaggregated CCRs for the OPPS after we analyze the results of the use of both inpatient and outpatient charges across all payers to recalculate disaggregated CCRs. 2. Proposed Calculation of Median Costs

In this section of this proposed rule, we discuss the use of claims to calculate the proposed OPPS payment rates for CY 2008. The hospital OPPS page on the CMS Web site on which this proposed rule is posted provides an accounting of claims used in the development of the proposed rates on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS. The accounting of claims used in the development

of this proposed rule is included on the Web site under supplemental materials for the CY 2008 proposed rule. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, below we discuss the files of claims that comprise the data sets that are available for purchase under a CMS data user contract. Our CMS Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS , includes information about purchasing the

following two OPPS data files: ``OPPS Limited Data Set'' and ``OPPS Identifiable Data Set.''

We used the following methodology to establish the relative weights we are proposing to use in calculating the OPPS payment rates for CY 2008 shown in Addenda A and B to this proposed rule. This methodology is as follows:

We used outpatient claims for the full CY 2006, processed before January 1, 2007, to set the proposed relative weights for CY 2008. To begin the calculation of the relative weights for CY 2008, we pulled all claims for outpatient services furnished in CY 2006 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, CAH claims and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital).

We then excluded claims with condition codes 04, 20, 21, and 77. These are claims that providers submitted to Medicare knowing that no payment will be made. For example, providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands because hospitals in those geographic areas are not paid under the OPPS.

We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 101 million claims that contain hospital bill types paid under the OPPS.

1. Claims that were not bill types 12X, 13X, 14X (hospital bill types), or 76X (CMHC bill types). Other bill types are not paid under the OPPS and, therefore, these claims were not used to set OPPS payment.

2. Claims that were bill types 12X, 13X, or 14X (hospital bill types). These claims are hospital outpatient claims.

3. Claims that were bill type 76X (CMHC). (These claims are later combined with any claims in item 2 above with a condition code 41 to set the per diem partial hospitalization rate determined through a separate process.)

For the CCR calculation process, we used the same general approach as we used in developing the final APC rates for CY 2007, using the revised CCR calculation which 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 2006 before determining whether the CCRs for such hospitals were valid.

We then calculated the CCRs for each cost center and the overall CCR for each hospital for which we had claims data. We did this using hospital-specific data from the Healthcare Cost Report Information System (HCRIS). We used the most recent available cost report data, in most cases, cost reports for CY 2005. We used the most recently submitted cost report to calculate the CCRs to be used to calculate median costs for the proposed CY 2008 OPPS 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 CCR, and we then adjusted the most recent available submitted but not settled cost report using that ratio. We calculated both an overall CCR and cost center-specific CCRs for each hospital. We used the overall CCR calculation discussed in section II.A.1.c. of this proposed rule for all purposes that require use of an overall CCR.

We then flagged CAH claims, which are not paid under the OPPS, and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all- inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with

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overall CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center (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 to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's cost center CCR was deleted by trimming, we set the CCR for that cost center to ``missing,'' so that another cost center CCR in the revenue center hierarchy could apply. If no other cost center CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question. For example, 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 CCR to the clinic revenue code. The hierarchy of CCRs is available for inspection and comment on the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS .

We then converted the charges to costs on each claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. Table 4 of this proposed rule contains a list of the allowed revenue codes. Revenue codes not included in Table 4 are those not allowed under the OPPS because their services cannot be paid under the OPPS (for example, inpatient room and board charges), and thus charges with those revenue codes were not packaged for creation of the OPPS median costs. One exception is the calculation of median blood costs, as discussed in section X. of this proposed rule.

Thus, we applied CCRs as described above to claims with bill types 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, 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. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate.

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 note that the separate file containing partial hospitalization claims is included in the files that are available for purchase as discussed above. Unlike years past, we did not create a separate file of claims containing observation services because we are proposing to package all observation care for the CY 2008 OPPS.

We next copied line-item costs for drugs, blood, and devices (the lines stay on the claim, but are copied onto another file) to a separate file. No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median and a per day mean and median for drugs, radiopharmaceutical agents, blood and blood products, and devices, including, but not limited to, brachytherapy sources, as well as other information used to set payment rates, such as a unit-to-day ratio for drugs.

We then divided the remaining claims into the following five groups:

1. Single Major Claims: Claims with a single separately payable procedure (that is, status indicator ``S,'' `` T,'' ``V,'' or ``X'').

2. Multiple Major Claims: Claims with more than one separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X''), or multiple units for one payable procedure. As discussed below, some of these can be used in median setting. We also included in this set claims that contain one unit of one code when the bilateral modifier is appended to the code and the code is one that is conditionally or independently bilateral. In these cases, these claims represent more than one unit of the service described by the code, notwithstanding that only one unit is billed.

3. Single Minor Claims: Claims with a single HCPCS code that is assigned to status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N.''

4. Multiple Minor Claims: Claims with multiple HCPCS codes that are assigned to status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N.''

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 are excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory tests, and do not contain either a code for a separately paid service or a code for a packaged service.

We use status indicator ``Q'' in Addendum B to this proposed rule to identify services that receive separate HCPCS code-specific payment when specific criteria are met, and payment for the individual service is packaged in all other circumstances. We are proposing several different sets of criteria to determine whether separate payment would be made for specific services. For example, HCPCS code G0379 (Direct admission of patient for hospital observation care) is assigned to status indicator ``Q'' in Addendum B to this proposed rule because we are proposing that it receive separate payment only if it is billed on the same date of service as HCPCS code G0378 (Hospital observation service, per hour), without any services with status indicator ``T'' or ``V,'' or Critical Care (APC 0617). Proposed payment for observation services is discussed in section XI. of this proposed rule. The specific services in the proposed composite APCs discussed in section II.A.4. of this proposed rule also are assigned to status indicator ``Q'' in Addendum B to this proposed rule because we are proposing that their payment would be bundled into a single composite payment for a combination of major procedures under certain circumstances. These services would only receive separate code-specific payment if certain criteria are met. The same is true for those less intensive outpatient mental health treatment services for which payment is limited to the partial hospitalization per diem rate and which also are assigned to status indicator ``Q'' in Addendum B to this proposed rule. According to longstanding OPPS payment policy (65 FR 18455), payment for these individual mental health services is bundled into a single payment, APC 0034 (Mental Health Services Composite), when the sum of the individual mental health service payments for all of these mental health services provided on the same day would exceed payment for a day of partial hospitalization services. However, the largest number of specific HCPCS codes identified by status indicator ``Q'' in Addendum B to this proposed rule are those codes that we identify as ``special'' packaged codes, where we are proposing that a service receives separate payment when it appears on the same day on a claim without another service that is assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X.'' We are proposing to package payment for these HCPCS codes when the code appears on the same date of service with any other service that is

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assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X.''

This last and largest subset of conditionally packaged services have to be integrated into the identification of single and multiple bills to ensure that the costs for these services are appropriately packaged when they appear with any other separately paid service. We handle these conditionally packaged services in the data by assigning the HCPCS code an APC and a data status indicator of ``N.'' When the conditionally packaged HCPCS code appears with a HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service, it is treated as a packaged code. The costs that appear on the line with the code are packaged into the cost of the HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' When the conditionally packaged HCPCS code appears by itself, we change the status indicator on the line to the status indicator of the APC to which the conditionally packaged code is assigned, converting the service from a minor to a major procedure. This creates single bills for these conditionally packaged services that are then used to set the median cost for the conditionally packaged code and for the APC to which it is assigned when it is separately paid.

The claims listed in numbers 1, 2, 3, and 4 above are included in the data files that can be purchased as described above.

In years prior to the CY 2007 OPPS, we made a determination of whether each HCPCS code was a major code or a minor code or a code other than a major or minor code. We used those code-specific determinations to sort claims into the five groups identified above. For the CY 2007 OPPS, we used status indicators to sort the claims into these groups. We defined major procedures as any procedure having a status indicator of ``S,'' ``T,'' ``V,'' or ``X;'' defined minor procedures as any code having a status indicator of ``N;'' and classified ``other'' procedures as any code having a status indicator other than ``S,'' ``T,'' ``V,'' ``X,'' or ``N.'' For the CY 2007 OPPS proposed rule limited data set and identifiable data set, these definitions excluded claims on which hospitals billed drugs and devices without also billing separately paid procedure codes and, therefore, these public use files did not contain all claims used to calculate the drug and device frequencies and medians. We corrected this for the CY 2007 OPPS/ASC final rule with comment period limited data set and identifiable data set by extracting claims containing drugs and devices from the set of ``other'' claims and adding them to the public use files.

At its March 2007 meeting, the APC Panel recommended that CMS edit and return for correction claims that contain a HCPCS code for a separately paid drug or device but that also do not contain a HCPCS code assigned to a procedural APC (that is, those not assigned status indicator ``S,'' ``T,'' ``V,'' or ``X''). The APC Panel stated that this edit should improve the claims data and may increase the number of single bills available for ratesetting. We note that such an edit would be broader than the device-to-procedure code edits we implemented for CY 2007 for selected devices. While we encourage hospitals to code correctly in accordance with CPT, CMS, and local contractor guidance, in general we have historically implemented claims processing edits under the OPPS when we believe that these edits help ensure complete claims data for ratesetting. In the case of such Outpatient Code Editor (OCE) edits for drugs and devices that are separately paid, it is unclear to us that these edits would improve our claims data for median cost calculation because the items receive separate payment and do not result in multiple procedure claims when they are reported. We also are uncertain about the clinical circumstances that could result in a hospital submitting an OPPS claim that only reported a separately paid drug or device. We are soliciting comments specifically on the impact of establishing such edits on hospital billing processes and on related potential improvements to claims data used for median setting.

Therefore, in view of the prior public comments and our desire to ensure that the public data files contain all appropriate data, for the CY 2008 OPPS, we are proposing to define major procedures as HCPCS codes that have a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' We are proposing to define minor procedures as HCPCS codes that have a status indicator of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N'' but, as we discuss above, to make single bills out of any claims for single procedures with a minor code that also has an APC assignment. This ensures that the claims that contain only codes for drugs and biologicals or devices but that do not contain codes for procedures are included in the limited data set and the identifiable data set. It also ensures, as discussed above, that conditionally packaged services that receive separate payment only when they are billed without any other separately payable OPPS services are treated appropriately for purposes of median cost calculations. We are proposing to define ``other'' services as HCPCS codes that have a status indicator other than those defined as major or minor procedures.

We continue to believe that using status indicators, with the proposed changes, is an appropriate way to sort the claims into these groups and also to make our process more transparent to the public. We further believe that this proposed method of sorting claims would enhance the public's ability to derive useful information for analysis and public comment on this proposed rule.

We set aside the single minor, multiple minor, and non-OPPS claims (numbers 3, 4, and 5 above) because we did not use these claims in calculating median costs of procedural APCs. We then examined the multiple major claims for dates of service to determine if we could break them into single procedure claims using the dates of service on all lines on the claim. If we could create claims with single major procedures by using date of service, we created a single procedure claim record for each separately paid procedure on a different date of service (that is, a ``pseudo'' single).

We then used the bypass codes listed in Table 1 of this proposed rule and discussed in section II.A.1.b. of this proposed rule to remove separately payable procedures that we determined contain limited costs or no packaged costs or were otherwise suitable for inclusion on the bypass list from a multiple procedure bill. When one of the two separately payable procedures on a multiple procedure claim was on the bypass list, we split the claim into two ``pseudo'' single procedure claims records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS code charges.

We also removed lines that contained multiple units of codes on the bypass list and treated them as ``pseudo'' single claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single, separately paid procedure code remained on the claim after removal of the multiple units of the bypass code, we created a ``pseudo'' single claim from that residual claim record, which retained the costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use claims that would otherwise be multiple procedure claims and could not be used. We excluded those claims that we were not able to

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convert to single claims even after applying all of the techniques for creation of ``pseudo'' singles. Among those excluded were claims that contain codes that are viewed as independently or conditionally bilateral and that contain the bilateral modifier (Modifier 50, Bilateral procedure) because the line-item cost for the code represents the cost of two units of the procedure, notwithstanding that the code appears with a unit of one. Therefore, the charge on the line represents the charge for two services rather than a single service and using the line as reported would overstate the cost of a single procedure. We then packaged the costs of packaged HCPCS codes (codes with status indicator ``N'' listed in Addendum B to this proposed rule) and packaged revenue codes into the cost of the single major procedure remaining on the claim.

The list of packaged revenue codes is shown in Table 4 of this proposed rule. At its March 2007 meeting the APC Panel recommended that CMS review the final list of packaged revenue codes for consistency with OPPS policy and ensure that future versions of the OCE edit accordingly. We compared the packaged revenue codes in the OCE to the finalized list of packaged revenue codes for the CY 2007 OPPS (71 FR 67989 through 67990) that we used for packaging costs in median calculation. As a result of that analysis, we are accepting the APC Panel's recommendation and we are proposing to change the list of packaged revenue codes for the CY 2008 OPPS in the following manner. First, we are proposing to remove revenue codes 0274 (Prosthetic/ Orthotic devices) and 0290 (Durable Medical Equipment) from the list of packaged revenue codes because we do not permit hospitals to report implantable devices in these revenue codes (Internet Only Manual 100-4, Chapter 4, section 20.5.1.1). We also are proposing to add revenue code 0273 (Take Home Supplies) to the list of packaged revenue codes because we believe that the charges under this revenue code are for the incidental supplies that hospitals sometimes provide for patients who are discharged at a time when it is not possible to secure the supplies needed for a brief time at home. We are proposing to conform the list of packaged revenue codes in the OCE to the OPPS for CY 2008.

We packaged the costs of the HCPCS codes that are shown with status indicator ``N'' into the cost of the independent service to which the packaged service is ancillary or supportive. We refer readers to section II.A.4. of this proposed rule for a more complete discussion of the packaging changes we are proposing for CY 2008.

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 54 million claims were left. Of these 54 million claims, we were able to use some portion of approximately 50 million whole claims (92 percent of approximately 54 million potentially usable claims) to create approximately 88 million single and ``pseudo'' single claims, of which we used 87 million single bills (after trimming out just over 822,000 claims as discussed below) in the CY 2008 median development and for ratesetting.

We also excluded (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 OCE assigns packaging flag number 3 to claims on which hospitals submit token charges for a service with status indicator ``S'' or ``T'' (a major separately paid service under the OPPS) for which the fiscal intermediary is required to allocate the sum of charges for services with a status indicator equaling ``S'' or ``T'' based on the weight for the APC to which each code is assigned. We do not believe that these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resources. Therefore, we deleted these claims. We also deleted claims for which the charges equal the revenue center payment (that is, the Medicare payment) on the assumption that where the charge equals the payment, to apply a CCR to the charge would not yield a valid estimate of relative provider cost.

For the remaining claims, we then standardized 60 percent of the costs of the claim (which we have previously determined to be the labor-related portion) for geographic differences in labor input costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital by that wage index. As has been our policy since the inception of the OPPS, we are proposing to use the pre-reclassified wage indices for standardization because we believe that they better reflect the true costs of items and services in the area in which the hospital is located than the post- reclassification wage indices and, therefore, would result in the most accurate unadjusted median costs.

We also excluded claims that were outside 3 standard deviations from the geometric mean of units for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes).

We used the remaining claims to calculate the CY 2008 proposed median costs for each separately payable HCPCS code and each APC. The comparison of HCPCS and APC medians determines the applicability of the ``2 times'' rule. Section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (``the 2 times rule''). Finally, we reviewed the medians and reassigned HCPCS codes to different APCs where we believed that it was appropriate. Section III. of this proposed rule includes a discussion of certain proposed HCPCS code assignment changes that resulted from examination of the medians and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes. Both the HCPCS medians and the APC medians were weighted to account for the inclusion of multiple units of the bypass codes in the creation of ``pseudo'' single bills.

In our review of median costs for HCPCS codes and their assigned APCs, we have frequently noticed that some services are consistently rarely performed in the hospital outpatient setting for the Medicare population. In particular, there are a number of services, such as several procedures related to the care of pregnant women, that have annual Medicare claims volume of 100 or fewer occurrences. By definition, these services also have a small number of single bills from which to estimate median costs. In addition, in some cases, these codes have been historically assigned to clinical APCs where all the services are low volume. Therefore, the median costs for these services and APCs often fluctuate from year to year, in part due to the variability created by such a small number of claims. One of the benefits of basing payment on the median cost of many HCPCS codes with sufficient single bill representation in an APC is that such fluctuation is moderated by the increased number of observations for similar services on which the APC median cost is also based. We considered proposing a distinct methodology for calculation of the

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median cost of low total volume APCs in order to provide more stability in payment from year to year for these low total volume services. However, after examination of the low total volume OPPS services and their assigned APCs, we concluded that there were other clinical APCs with higher volumes of total claims to which these low total volume services could be reassigned, while ensuring the continued clinical and resource homogeneity of the clinical APCs to which they would be newly reassigned. Therefore, we believe that it is more appropriate to reconfigure clinical APCs to eliminate most of the low total volume APCs. These low volume services differ from other OPPS services only because they are not often furnished to the Medicare population. Therefore, we are proposing to reconfigure certain clinical APCs for CY 2008 as a way to promote stability and appropriate payment for the services assigned to them, including low total volume services. We believe that these proposed reconfigurations maintain APC clinical and resource homogeneity. We are proposing these changes as an alternative to developing specific quantitative approaches to treating low total volume APCs differently for purposes of median calculation. As a result of this proposal, 3 APCs proposed for CY 2008 (all of which are New Technology APCs) have a total volume of services less than 100, and only 17 APCs have a total volume of less than 1,000, in comparison with CY 2007 where 9 APCs (including 3 New Technology APCs) had a total volume of less than 100 and 36 APCs had a total volume of less than 1,000.

A detailed discussion of the medians for blood and blood products is included in section X. of this proposed rule. A discussion of the medians for APCs that require one or more devices when the service is performed is included in section IV.A. of this proposed rule. A discussion of the median for partial hospitalization is included below in section II.B. of this proposed rule.

Table 4.--Proposed CY 2008 Packaged Revenue Codes

Revenue code

Description

0250.................. PHARMACY. 0251.................. GENERIC. 0252.................. NONGENERIC. 0254.................. PHARMACY INCIDENT TO OTHER DIAGNOSTIC. 0255.................. PHARMACY INCIDENT TO RADIOLOGY. 0257.................. NONPRESCRIPTION DRUGS. 0258.................. IV SOLUTIONS. 0259.................. OTHER PHARMACY. 0260.................. IV THERAPY, GENERAL CLASS. 0262.................. IV THERAPY/PHARMACY SERVICES. 0263.................. SUPPLY/DELIVERY. 0264.................. IV THERAPY/SUPPLIES. 0269.................. OTHER IV THERAPY. 0270.................. M&S SUPPLIES. 0271.................. NONSTERILE SUPPLIES. 0272.................. STERILE SUPPLIES. 0273.................. TAKE HOME SUPPLIES. 0275.................. PACEMAKER DRUG. 0276.................. INTRAOCULAR LENS SOURCE DRUG. 0278.................. OTHER IMPLANTS. 0279.................. OTHER M&S SUPPLIES. 0280.................. ONCOLOGY. 0289.................. OTHER ONCOLOGY. 0343.................. DIAGNOSTIC RADIOPHARMS. 0344.................. THERAPEUTIC RADIOPHARMS. 0370.................. ANESTHESIA. 0371.................. ANESTHESIA INCIDENT TO RADIOLOGY. 0372.................. ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC. 0379.................. OTHER ANESTHESIA. 0390.................. BLOOD STORAGE AND PROCESSING. 0399.................. OTHER BLOOD STORAGE AND PROCESSING. 0560.................. MEDICAL SOCIAL SERVICES. 0569.................. OTHER MEDICAL SOCIAL SERVICES. 0621.................. SUPPLIES INCIDENT TO RADIOLOGY. 0622.................. SUPPLIES INCIDENT TO OTHER DIAGNOSTIC. 0624.................. INVESTIGATIONAL DEVICE (IDE). 0630.................. DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS. 0631.................. SINGLE SOURCE. 0632.................. MULTIPLE. 0633.................. RESTRICTIVE PRESCRIPTION. 0681.................. TRAUMA RESPONSE, LEVEL I. 0682.................. TRAUMA RESPONSE, LEVEL II. 0683.................. TRAUMA RESPONSE, LEVEL III. 0684.................. TRAUMA RESPONSE, LEVEL IV. 0689.................. TRAUMA RESPONSE, OTHER. 0700.................. CAST ROOM. 0709.................. OTHER CAST ROOM. 0710.................. RECOVERY ROOM. 0719.................. OTHER RECOVERY ROOM. 0720.................. LABOR ROOM.

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0721.................. LABOR. 0762.................. OBSERVATION ROOM. 0810.................. ORGAN ACQUISITION. 0819.................. OTHER ORGAN ACQUISITION. 0942.................. EDUCATION/TRAINING.

3. Proposed Calculation of OPPS Scaled Payment Weights

Using the median APC costs discussed previously, we calculated the proposed relative payment weights for each APC for CY 2008 shown in Addenda A and B to this proposed rule. In years prior to CY 2007, we standardized all the relative payment weights to APC 0601 (Mid Level Clinic Visit) because it is one of the most frequently performed services in the hospital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC.

Beginning with the CY 2007 OPPS, 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 visit APCs. We chose APC 0606 as the base because under our proposal to reconfigure the APCs where clinic visits are assigned for CY 2007, APC 0606 is the middle level clinic visit APC (that is, Level 3 of five levels). We have historically used the median cost of the middle level clinic visit APC (that is APC 0601 through CY 2006) to calculate unscaled weights because mid-level clinic visits are among the most frequently performed services in the hospital outpatient setting. Therefore, to maintain consistency in using 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 APC, proposed APC 0606, to calculate unscaled weights. Following our standard methodology, but using the CY 2007 median for APC 0606, for CY 2007 we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the median cost for APC 0606 to derive the unscaled relative payment weight for each APC. The choice of the APC on which to base the relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality. We are again proposing to use APC 0606 as the base for the CY 2008 OPPS relative weights.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2008 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2007 relative weights to aggregate payments using the CY 2008 proposed relative weights. This year, we included payments to CMHCs in our comparison. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The unscaled relative payment weights were adjusted by a weight scaler of 1.3665 for budget neutrality. In addition to adjusting for increases and decreases in weight due to the recalibration of APC medians, the scaler also accounts for any change in the base, other than changes in volume, which are not a factor in the weight scaler.

The proposed relative payment weights listed in Addenda A and B to this proposed rule incorporate the recalibration adjustments discussed in sections II.A.1. and 2. of this proposed rule.

Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that ``Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.'' Section 1833(t)(14) of the Act provides the payment rates for certain ``specified covered outpatient drugs.'' Therefore, the cost of those specified covered outpatient drugs (as discussed in section V. of this proposed rule) is included in the budget neutrality calculations for the CY 2008 OPPS. 4. Proposed Changes to Packaged Services

(If you choose to comment on the issues in this section, please include the caption ``OPPS: Packaged Services'' at the beginning of your comment.) a. Background

When the Medicare program was first implemented, it paid for hospital services (inpatient and outpatient) based on hospital-specific reasonable costs attributable to furnishing services to Medicare beneficiaries. Later the law was amended to limit payment to the lesser of the hospital's reasonable cost or customary charges for services furnished to Medicare beneficiaries. Specific service-based methodologies were then developed for certain types of services, such as clinical laboratory tests and durable medical equipment, while payments for outpatient surgical procedures and other diagnostic tests were based on a blend of the hospital's aggregate Medicare costs for these services and Medicare's payment for similar services in other ambulatory settings. While this mix of different payment methodologies was in use, hospital outpatient services were growing rapidly following the implementation of the IPPS in 1983. The brisk increase in hospital outpatient services led to an interest in creating payment incentives to promote more efficient delivery of hospital outpatient services through a Medicare prospective payment system for hospital outpatient services, and the final statutory requirements for the OPPS were established by the BBA and the BBRA. During the period of time when different approaches to prospective payment for hospital outpatient services were being considered, a variety of reports to Congress (June 1988, September 1990, and March 1995) discussed three major issues related to defining the unit of payment for the payment system, specifically the extent to which clinically similar procedures should be grouped for payment purposes and the logic that should be used for the groupings; the extent to which payment for minor, ancillary services associated with a significant

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procedure should be packaged into a single payment for the procedure (which we refer to as ``packaging''); and the extent to which payment for multiple significant procedures related to an outpatient encounter or to an episode of care should be bundled into a single unit of payment (which we refer to as ``bundling''). Both packaging and bundling were presented as approaches to creating incentives for efficiency, with their potential policy disadvantages including inconsistency with other ambulatory fee schedules, reduced transparency of service-specific payment, and the potential for hospitals shifting the delivery of packaged or bundled services to delivery settings other than the hospital outpatient department (HOPD).

The OPPS, like other prospective payment systems, relies on the concept of averaging, where the payment may be more or less than the estimated costs of providing a service or package of services for a particular patient, but with the exception of outlier cases, it is adequate to ensure access to appropriate care. Decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In many situations, the final payment rate for a package of services may do a better job of balancing variability in the relative costs of component services compared to individual rates covering a smaller unit of service without packaging or bundling. Packaging payments into larger payment bundles promotes the stability of payment for services over time, a characteristic that reportedly is very important to hospitals. Unlike packaged services, the costs of individual services typically show greater variation because the higher variability for some component items and services cannot be balanced with lower variability for others and because relative weights are typically estimated using a smaller set of claims. When compared to service-specific payment, packaging or bundling payment for component services may change payment at the hospital level to the extent that there are systematic differences across hospitals in their performance of the services included in that unit of payment. Hospitals spending more per case than payment received would be encouraged to review their service patterns to ensure that they furnish services as efficiently as possible. Similarly, we believe that unpackaging services heightens the hospital's focus on pricing individual services, rather than the efficient delivery of those services. Over the past several years of the OPPS, greater unpackaging of payment has occurred simultaneously with continued tremendous growth in OPPS expenditures as a result of increasing volumes of individual services, as discussed in further detail below. Also discussed in further detail below, most recently in its comments to the CY 2007 OPPS/ASC proposed rule and in the context of this rapid spending growth, the Medicare Payment Advisory Commission (MedPAC) encouraged CMS to broaden the payment bundles under the OPPS to encourage providers to use resources efficiently.

As permitted under section 1833(t)(2)(B) of the Act, the OPPS establishes groups of covered HOPD services, namely APC groups, and uses them as the basic unit of payment. During the evolution of the OPPS over the past 7 years, significant attention has been concentrated on service-specific payment for services furnished to particular patients, rather than on creating incentives for the efficient delivery of services through encounter or episode-of-care-based payment. Overall packaging included in the clinical APCs has decreased, and the procedure groupings have become smaller as the focus has shifted to refining service-level payment. Specifically, in the CY 2003 OPPS, there were 569 APCs, but by CY 2007, the number of APCs had grown to 862, a 51-percent increase in 4 years. Similarly, the percentage of CPT codes for procedural services that receive packaged payment declined by over 10 percent between CY 2003 and CY 2007.

Currently, the APC groups reflect a modest degree of packaging, including packaged payment for minor ancillary services, inexpensive drugs, medical supplies, implantable devices, capital-related costs, operating and recovery room use, and anesthesia services. Bundling payment for multiple significant services provided in the same hospital outpatient encounter or during an episode of care is not currently a common OPPS payment practice, because the APC groups generally reflect only the modest packaging associated with individual procedures or services. Unconditionally packaged services with HCPCS codes are identified by the status indicator ``N.'' Conditionally packaged services, specifically those services whose payment is packaged unless specific criteria for separate payment are met, are assigned to status indicator ``Q.'' To the extent possible, hospitals may use HCPCS codes to report any packaged services that were performed, consistent with CPT or CMS coding guidelines, but packaged costs also may be uncoded and included in specific revenue code charges. Hospitals include charges for packaged services on their claims, and the costs associated with those packaged services are then added into the costs of separately payable procedures on the same claims in establishing payment rates for the separately payable services.

Packaging and bundling payment for 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 costs of purchased 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 services are furnished only when they are important and to carefully scrutinize the services ordered by practitioners to maximize the efficient use of hospital resources. Finally, packaging payments into larger payment bundles promotes the stability of payment for services over time. 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. b. Addressing Growth in OPPS Volume and Spending

Creating additional incentives for providing only necessary services in the most efficient manner is of vital importance to Medicare today, in view of the recent explosion of growth in program expenditures for hospital outpatient services paid under the OPPS. As illustrated in Table 5 below, total spending has been growing at a rate of roughly 10 percent per year under the OPPS, and the Medicare Trustees project that total spending under the OPPS will increase by more than $3 billion from CY 2007 through CY 2008 to nearly $35 billion. Implementation of the OPPS has not

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slowed outpatient spending growth over the past few years; in fact, double-digit spending growth has generally been occurring. We are greatly concerned with this rate of increase in program expenditures under the OPPS.

Table 5.--Growth in Expenditures Under OPPS From CY 2001-CY 2008 [Projected Expenditures for CY 2006-CY 2008, in Billions]

OPPS growth

CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008

Incurred Cost................... 17.702 19.561 21.156 23.866 26.572 29.338 31.641 34.960 Percent Increase................ ........ 10.5 8.2 12.8 11.3 10.4 7.8 10.5

Source: CY 2007 Medicare Trustees' Report.

As with the other Medicare fee-for-service payment systems that are experiencing rapid spending growth, brisk growth in the intensity and utilization of services is the major reason for the current rates of growth in the OPPS, rather than general price or enrollment changes. Table 6 below illustrates the increases in the volume and intensity of hospital outpatient services over the past several years.

Table 6.--Percent Increase in Volume and Intensity of Hospital Outpatient Services

CY 2006 CY 2007 CY 2008 CY 2002 CY 2003 CY 2004 CY 2005 (Est.) (Est.) (Est.)

Percent Increase................................. 3.5 2.5 7.6 7.4 8.6 6.4 5.8

Source: CY 2007 Medicare Trustees' Report.

For hospital outpatient services, the volume and intensity of services are estimated to have continued to increase significantly in recent years, at a rate of 8.6 percent between CY 2005 and CY 2006, the last two completed calendar years. As we discussed in the CY 2007 OPPS/ ASC final rule with comment period (71 FR 68189 through 68190), the rapid growth in utilization of services under the OPPS shows that Medicare is paying mainly for more services each year, regardless of their quality or impact on beneficiary health. In its March 2007 Report to Congress (pages 55 and 56), MedPAC confirmed that much of the growth in service volume from 2003 to 2005 resulted from increases in the number of services per beneficiary who received care, rather than from increases in the number of beneficiaries served. The MedPAC found that while the rate of growth in service volume declined over that time period, the complexity of services, defined as the sum of the relative payment weights of all OPPS services divided by the volume of all services, increased, and that most of the growth was attributable to the insertion of devices and the provision of complex imaging services. The MedPAC further found that regression analysis suggested that relatively complex hospital outpatient services may be more profitable for hospitals than less complex services. In addition, its analysis indicated that favorable payments for complex services give hospitals an incentive to provide more of those complex services rather than fewer basic services, which increases overall service complexity. The MedPAC expressed concern about this relationship and concluded that the historically large increases in outpatient volume and service complexity suggest a need to recalibrate the OPPS. In the future, MedPAC plans to examine options for recalibrating the payment system to accurately match payments to the costs of individual services (Medicare Payment Advisory Commission Report to the Congress: Medicare Payment Policy, March 2007, pages 55 and 56).

As proposed for the CY 2007 OPPS and finalized for the CY 2009 OPPS, we developed a plan to promote higher quality services under the OPPS, so that Medicare spending would be directed toward those higher quality services (71 FR 68189 through 68197). We believe that Medicare payments should encourage physicians and other providers in their efforts to achieve better health outcomes for Medicare beneficiaries at a lower cost. In the CY 2007 OPPS/ASC final rule with comment period, we discussed the concept of ``value-based purchasing'' in the OPPS as well as in other Medicare payment systems. ``Value-based purchasing'' may use a range of incentives to achieve identified quality and efficiency goals, as a means of promoting better quality of care and more effective resource use in the Medicare payment systems. In developing the concept of value-based purchasing for Medicare, we have been working closely with stakeholder partners.

We continue to believe that the collection and submission of performance data and the public reporting of comparative information are strong incentives for hospital accountability in general and quality improvement in particular, while encouraging the most efficient and effective care. Measurement and reporting can focus the attention of hospitals and consumers on specific goals and on hospitals' performance relative to those goals. Development and implementation of performance measurement and reporting by hospitals can thus produce quality improvement in health care delivery. Hospital performance measures may also provide a foundation for performance-based rather than volume-based payments.

In the CY 2007 OPPS/ASC final rule with comment period, as a first step in the OPPS toward value-based purchasing, we finalized a policy that would employ our equitable adjustment authority under section 1833(t)(2)(E) of the Act to establish an OPPS Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program based on measures specifically developed to characterize the quality of outpatient care (71 FR 68197). We finalized implementation of the program for CY 2009, when we would implement a 2.0 point reduction to the OPPS conversion factor update for those hospitals that do not meet the specific requirements of the CY 2009 OPPS RHQDAPU program. We described the

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CY 2009 program which would be based upon CY 2008 hospital reporting of appropriate measures of the quality of hospital outpatient care that have been carefully developed and evaluated, and endorsed as appropriate, with significant input from stakeholders. We reiterated our belief that ensuring that Medicare beneficiaries receive the care they need and that such services are of high quality are the necessary initial steps to incorporating value-based purchasing into the OPPS. We explained that we are specifically seeking to encourage care that is both efficient and of high quality in the HOPD.

Subsequent to the publication of the CY 2007 OPPS/ASC final rule with comment period, section 109(b) of the MIEA-TRHCA specifies that in the case of a subsection (d) hospital (defined under section 1886(d)(1)(B) of the Act as hospitals that are located in the 50 States or the District of Columbia other than those categories of hospitals or hospital units that are specifically excluded from the IPPS, including psychiatric, rehabilitation, long-term care, children's, and cancer hospitals or hospital units) that does not submit to the Secretary the quality reporting data required for CY 2009 and each subsequent year, the OPPS annual update factor shall be reduced by 2.0 percentage points. The quality reporting program proposed for CY 2008 according to this provision is referred to as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP) and is discussed in detail in section XVII. of this proposed rule.

As the next step in our movement toward value-based purchasing under the OPPS and to complement the HOP QDRP for CY 2009, with measure reporting beginning in CY 2008, we believe it is important to initiate specific payment approaches to explicitly encourage efficiency in the hospital outpatient setting that we believe will control future growth in the volume of OPPS services. While the HOP QDRP will encourage the provision of higher quality hospital outpatient services that lead to improved health outcomes for Medicare beneficiaries, we believe that more targeted approaches are also necessary to encourage increased hospital efficiency. Two alternatives we have considered that would be feasible under current law include establishing a methodology to measure the growth in volume and reduce OPPS payment rates to account for unnecessary increases in volume or developing payment incentives for hospitals to ensure that they provide necessary services as efficiently as possible.

With respect to the first alternative, section 1833(t)(2)(F) of the Act requires us to establish a methodology for controlling unnecessary increases in the volume of covered OPPS services, and section 1833(t)(9)(C) of the Act authorizes us to adjust the update to the conversion factor if, under section 1833(t)(2)(F) of the Act, we determine that there is growth in volume that exceeds established tolerances. As we indicated in the September 8, 1998 proposed rule proposing the establishment of the OPPS (63 FR 47585), we considered creating a system that mirrors the sustainable growth rate (SGR) methodology applied to the MPFS update to control unnecessary growth in service volume. However, implementing such a system could have the potentially undesirable effect of escalating service volume as payment rates stagnate and hospital costs rise, thus actually resulting in a growth in volume rather than providing an incentive to control volume. Therefore, this approach to addressing the volume growth under the OPPS could inadvertently result in the exact opposite of our desired outcome.

The second alternative we considered is to expand the packaging of supportive ancillary services and ultimately bundle payment for multiple independent services into a single OPPS payment. We believe that this would create incentives for hospitals to monitor and adjust the volume and efficiency of services themselves, by enabling them to manage their resources with maximum flexibility. Instead of external controls on volume, we believe that it is preferable for the OPPS to create payment incentives for hospitals to carefully scrutinize their service patterns to ensure that they furnish only those services that are necessary for high quality care and to ensure that they provide care as efficiently as possible. Specifically, we believe that increased packaging and bundling are the most appropriate payment strategies to establish such incentives in a prospective payment system, and that this approach is clearly preferable to the establishment of an SGR or other methodology that seeks to control spending by addressing significant growth in volume and program spending with lower payments.

In its October 6, 2006 letter of comment on the CY 2007 OPPS/ASC proposed rule, MedPAC urged us to establish broader payment bundles in both the revised ASC and hospital outpatient prospective payment systems to promote efficient resource use and better align the two payment systems. In particular, our proposal for the CY 2008 revised ASC payment system proposed to package payment for all items and services directly related to the provision of covered surgical procedures into the ASC facility payment for the associated surgical procedure (71 FR 49468). These other items and services included all drugs, biologicals, contrast agents, implantable devices, and diagnostic services such as imaging. Because a number of these items and services are separately paid under the OPPS and the proposal included the establishment of most ASC payment weights based on the procedures' corresponding OPPS payment weights, MedPAC encouraged us to align the payment bundles in the two payment systems by increasing the size of the payment bundles under the OPPS.

Moreover, MedPAC staff indicated in testimony at the January 9, 2007 MedPAC public meeting that the growth in OPPS spending and volume raises questions about whether the OPPS should be changed to encourage greater efficiency (page 390 of the January 9, 2007 MedPAC meeting transcript available at http://www.medpac.gov). MedPAC staff explained

at that time that MedPAC intends to perform a long-term assessment of the design of the OPPS, including considering the bundling of payments for procedures and visits furnished over a period of time into a single payment, assessing whether there should be an expenditure target for hospital outpatient services, evaluating whether payments for multiple imaging services provided in the same session should be discounted, and reviewing the methodology used by CMS to determine relative payment weights for hospital outpatient services. We welcome MedPAC's study of these areas, particularly with regard to how we might develop appropriate payment rates for larger bundles of services.

Because we believe it is important that the OPPS create enhanced incentives for hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible, we have given considerable thought to how we could increase packaging under the OPPS in a manner that would not place hospitals at substantial financial risk but which would create incentives for efficiency and volume control, while providing hospitals with flexibility to provide care in the most appropriate way for each Medicare beneficiary. We are considering the possibility of greater bundling of payment for major hospital outpatient services, which could result in establishing OPPS payments for episodes of care, and for this reason we particularly welcome MedPAC's

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exploration of how such an approach might be incorporated into the OPPS payment methodology. We are particularly concerned about the potential for shifting higher cost bundled services to other ambulatory settings, and we welcome ideas on deterring such activity. We are currently considering the complex policy issues related to the possible development and implementation of a bundled payment policy for hospital outpatient services that involves significant services provided over a period of time which could be paid through an episode-based payment methodology, but we consider this possible approach to be a long-term policy objective. We encourage public comments regarding the specific hospital outpatient services, clinical and financial issues, ratesetting methodologies, and operational challenges we should consider in our exploratory work in this area.

We also are examining how we might possibly establish payments for same-day care encounters, building upon the current use of APCs for payment through greater packaging of supportive ancillary services. This could include conditional packaging of supportive ancillary services into payment for the procedure that is the reason for the OPPS encounter (for example, diagnostic tests performed on the day of a scheduled procedure). Another approach could include creation of composite APCs for frequently performed combinations of surgical procedures (for example, one APC payment for multiple cardiac electrophysiologic procedures performed on the same date). Not only could these encounter-based payment groups create enhanced incentives for efficiency, but they may also enable us to utilize for ratesetting many of the multiple procedure claims that are not now used in our establishment of OPPS rates for single procedures. (We refer readers to section II.A.1.b. of this proposed rule for a more detailed discussion of the treatment of multiple procedure claims in the ratesetting process.) For CY 2008, we are proposing two new composite APCs for CY 2008 payment of combinations of services in two clinical care areas, as discussed under section II.A.4.d. of this proposed rule. We look forward to receiving public comment on this proposal as we explore the possibility of moving toward basing OPPS payment on larger packages and bundles of services provided in a single hospital outpatient encounter.

We intend to involve the APC Panel in our future exploration of how we can develop encounter-based and episode-based payment groups, and we look forward to the findings and recommendations of MedPAC in this area. This is a significant change in direction for the OPPS, and we specifically seek the recommendations of all stakeholders with regard to which ancillary services could be packaged and those combinations of services provided in a single encounter or over time that could be bundled together for payment. We are hopeful that expanded packaging and, ultimately, greater bundling under the OPPS may result in sufficient moderation of growth in volume and spending that further controls would not be needed. However, if spending were to continue to escalate at the current rates, even after we have exhausted our options for increased packaging and bundling, we are considering multiple options under our authority to address these issues, including the possibility of imposing external controls that could link growth in volume to reduced payments under the OPPS in the future. c. Proposed Packaging Approach

With the exception of the two composite APCs that we are proposing for CY 2008 and discuss in detail in section II.A.4.d. of this proposed rule, we are not currently prepared to propose an episode-based or fully developed encounter-based payment methodology for CY 2008 as our next step in value-based purchasing for the OPPS. However, in reviewing our approach to revising payment packages and bundles, we have examined services currently provided under the OPPS, looking for categories of ancillary items and services for which we believe payment could be appropriately packaged into larger payment packages for the encounter. For this first step in creating larger payment groups, we examined the HCPCS code definitions (including CPT code descriptors) to see whether there were categories of codes for which packaging would be a logical expansion of the longstanding packaging policy that has been a part of the OPPS since its inception. In general, we have often packaged the costs of selected HCPCS codes into payment for services reported with other HCPCS codes where we believed that one code reported an item or service that was integral to the provision of care that was reported by another HCPCS code.

As an example of a previous change in the OPPS packaging status for a HCPCS code that is ancillary and supportive, under the CY 2007 OPPS, we note that CPT code 93641 (Electrophysiologic evaluation of single or dual chamber pacing cardioverter defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluate of sensing an pacing for arrhythmia termination) at the time of initial implantation or replacement; with testing of single chamber or dual chamber cardioverter defibrillator) went from separate to packaged payment. This service is only performed during the course of a surgical procedure for implantation or replacement of implantable cardioverter- defibrillator (ICD) leads, and these surgical implantation procedures are currently assigned to APC 0106 (Insertion/Replacement/Repair of Pacemaker and/or Electrodes) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads). We considered the electrophysiologic evaluation service (CPT code 93641) to be an ancillary supportive service that may be performed only in the same operative session as a procedure that could otherwise be performed independently of the electrophysiologic evaluation service. In this particular case, the APC Panel recommended for CY 2007 that we package payment for this diagnostic test and we adopted that recommendation for the CY 2007 OPPS. Making this payment change in this specific case resulted in the availability of significantly more claims data and, therefore, establishment of more valid and representative estimated median costs for the lead insertion and electrophysiologic evaluation services furnished in the single hospital encounter.

In the case of much of the care furnished in the HOPD, we believe that it is appropriate to view a complete service as potentially being reported by a combination of two or more HCPCS codes, rather than a single code, and to establish payment policy that supports this view. Ideally, we would consider a complete HOPD service to be the totality of care furnished in a hospital outpatient encounter or in an episode of care. In general, we believe that it is particularly appropriate to package payment for those items and services that are typically ancillary and supportive into the payment for the primary diagnostic or therapeutic modalities in which they are used. As a significant first step towards creating payment units that represent larger units of service, we examined whether there are categories of HCPCS codes that are typically ancillary and supportive to diagnostic and therapeutic modalities.

Specifically, as our initial substantial step toward creating larger payment groups for hospital outpatient care, we are proposing to package payment for

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items and services in the seven categories listed below into the payment for the primary diagnostic or therapeutic modality to which we believe these items and services are typically ancillary and supportive. 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 the HCPCS codes that 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. We are proposing to assign status indicator ``N'' to those HCPCS codes that we believe are always integral to the performance of the primary modality and to package their costs into the costs of the separately paid primary services with which they are billed. We are proposing to assign status indicator ``Q'' to those HCPCS codes that we believe are typically integral to the performance of the primary modality and to package payment for their costs into the costs of the separately paid primary services with which they are usually billed but to pay them separately in those uncommon cases in which no other separately paid primary service is furnished in the hospital outpatient encounter.

For ease of reference in our subsequent discussion in each of the seven areas, we refer to the HCPCS codes for which we are proposing to package (or conditionally package) payment as dependent services. We use the term ``independent service'' to refer to the HCPCS codes that represent the primary therapeutic or diagnostic modality into which we are proposing to package payment for the dependent service. We note that, 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'' in this proposed rule.

Specifically, we are proposing to package the payment for HCPCS codes describing the dependent items and services in the following seven categories into the payment for the independent services with which they are furnished:

Guidance services.

Image processing services.

Intraoperative services.

Imaging supervision and interpretation services.

Diagnostic radiopharmaceuticals.

Contrast media and.

Observation services.

We identify the HCPCS codes we are proposing to package for CY 2008, explain our rationale for proposing to package the codes in these categories, provide examples of how HCPCS and APC median costs and payments would change under these proposals, and discuss the impact of these changes in the discussion below under each category.

The median costs of services at the HCPCS level for many separately paid procedures change as a result of this proposal because we are proposing to change the composition of the payment packages associated with the HCPCS codes. Moreover, as a result of changes to the HCPCS median costs, we are proposing to reassign some HCPCS codes to different clinical APCs for CY 2008 to avoid 2 times violations and to ensure continuing clinical and resource homogeneity of the APCs. Therefore, the APC median costs change not only as a result of the increased packaging itself but also as a result of the migration of HCPCS codes into and out of APCs through APC reconfiguration. The file of HCPCS code and APC median costs resulting from our proposal is found under supporting documentation for this proposed rule on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/list.asp#TopOfPage .

Review of the HCPCS median costs indicates that, while the proposed median costs rise for some HCPCS codes as a result of increased packaging that expands the costs included in the payment packages, there are also cases in which the proposed median costs decline as a result of these proposed changes. While it seems intuitive to believe that the proposed median costs of the remaining separately paid services should rise when the costs of services previously paid separately are packaged into larger payment groups, it is more challenging to understand why the proposed median costs of separately paid services would not change or would decline when the costs of previously paid services are packaged.

Medians are generally more stable than means because they are less sensitive to extreme observations, but medians typically do not reflect subtle changes in cost distributions. The OPPS' use of medians rather than means usually results in relative weight estimates being less sensitive to packaging decisions. Specifically, the median cost for a particular independent procedure generally will be higher as a result of added packaging, but also could change little or be lower because median costs typically do not reflect small distributional changes and also because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. Such a decline, no change, or an increase in the median cost at the HCPCS code level could result from a change in the number of single bills used to set the median cost. With greater packaging, more ``natural'' single bills are created for some codes but fewer ``pseudo'' single bills are created. Thus, some APCs gain single bills and some lose single bills due to packaging changes, as well as to the reassignment of some codes to different APCs. When more claims from a different mix of providers are used to set the median cost for the HCPCS code, the median cost could move higher or lower within the array of per claim costs.

Similarly, proposed revisions to APC assignments that are necessary to resolve 2 times violations that could arise as a result of changes in the HCPCS median cost for one or more codes due to additional packaging may also result in increases or decreases to APC median costs and, therefore, to increases or decreases in the payments for HCPCS codes that would not be otherwise affected except for the CY 2008 proposed packaging approach for the seven categories of items and services.

We have examined the proposed aggregate impact of making these changes on payment for CY 2008. Because the OPPS is a budget neutral payment system in which the amount of payment weight in the system is annually adjusted for changes in expenditures created by changes in APC weights and codes (but is not currently adjusted based on estimated growth in service volume), the effects of the packaging changes we are proposing result in changes to scaled weights and, therefore, to the payment rates for all separately paid procedures. These changes result from both shifts in median costs as a result of increased packaging, changes in multiple procedure discounting patterns, and a higher weight scaler that is applied to all unscaled APC weights. (We refer readers to section II.A.3. of this proposed rule for an explanation of the weight scaler.) In a budget neutral system, the monies previously paid for services that are now proposed to be packaged are not lost, but are redistributed to all other services. A higher weight scaler would increase payment rates relative to observed median costs for independent services by redistributing the lost weight of packaged items that historically have

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been paid separately and the lost weight when the median costs of independent services do not completely reflect the full incremental cost of the packaged services. The impact of this proposed change on proposed CY 2008 OPPS payments is discussed in section XXII B. of this proposed rule, and the impact on various classifications of hospitals is shown in Column 2B in Table 67 in that section.

We estimate that our CY 2008 proposal would redistribute approximately 1.2 percent of the estimated CY 2007 base year expenditures under the OPPS. The monies associated with this redistribution would be in addition to any increase that would otherwise occur due to a proposed higher median cost for the APC as a result of the expanded payment package. If the relative weight for a particular APC decreases as a result of the proposed packaging approach, the increased weight scaler may or may not result in a relative weight that is equal to or greater than the relative weight that would occur without the proposed packaging approach. In general, the packaging that we are proposing would have more effect on payment for some services than on payment for others because the dependent items and services that we are proposing for packaging are furnished more often with some independent services than with others. However, because of the amount of payment weight that would be redistributed by this proposal, there would be some impact on payments for all OPPS services whose rates are set based on payment weights, and the impact on any given hospital would vary based on the mix of services furnished by the hospital.

The following discussion separately addresses each of the seven categories of items and services for which we are proposing to package payment under the CY 2008 OPPS as part of our packaging proposal. Many codes that we are proposing to package for CY 2008 could fit into more than one of those seven categories. For example, CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)) could be included in both the intraoperative and image processing categories. Therefore, for organizational purposes, both to ensure that each code appears in only one category and to facilitate discussion of our CY 2008 proposal, we have created a hierarchy of categories that determines which category each code appropriately falls into. This hierarchy is organized from the most clinically specific to the most general type of category. The hierarchy of categories is as follows: guidance services, image processing services, intraoperative services, and imaging supervision and interpretation services. Therefore, while CPT code 93325 may logically be grouped with either imaging processing services or intraoperative services, it is treated as an image processing service because that group is more clinically specific and precedes intraoperative services in the hierarchy. We did not believe it was necessary to include diagnostic radiopharmaceuticals, contrast media, or observation categories in this list because those services generally map to only one of those categories. We note that there is no cost estimation or payment implications related to the assignment of a HCPCS code for purposes of discussion to any specific category. (1) Guidance Services

We are proposing to package payment for HCPCS guidance codes for CY 2008, specifically those codes that are reported for supportive guidance services, such as ultrasound, fluoroscopic, and stereotactic navigation services, that aid the performance of an independent procedure. We performed a broad search for such services, relying upon the American Medical Association's (AMA's) CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, which identified specific HCPCS codes as guidance codes. Moreover, we performed a clinical review of all HCPCS codes to capture additional codes that are not necessarily identified as ``guidance'' services but describe services that provide directional information during the course of performing an independent procedure. For example, we are proposing to package CPT code 61795 (Stereotactic computer-assisted volumetric (navigational) procedure, intracranial, extracranial, or spinal (List separately in addition to code for primary procedure)) because we consider it to be a guidance service that provides three-dimensional information to direct the performance of intracranial or other diagnostic or therapeutic procedures. We also included HCPCS codes that existed in CY 2006 but were deleted and were replaced in CY 2007. We included the CY 2006 HCPCS codes because we are proposing to use the CY 2006 claims data to calculate the CY 2008 OPPS median costs on which the CY 2008 payment rates would be based. Many, although not all, of the CPT guidance codes we identified are designated by CPT as add-on codes that are to be reported in addition to the CPT code for the primary procedure. We also note that there are a number of CPT codes describing independent surgical procedures but which the code descriptors indicate that guidance is included in the code reported for the surgical procedure if it is used and, therefore, packaged payment is already made for the associated guidance service under the OPPS. For example, the independent procedure described by CPT code 55873 (Cryosurgical ablation of the prostate (includes ultrasonic guidance for interstitial cryosurgical probe placement)) already includes the ultrasound guidance that may be used. We believe packaging payment for every guidance service under the OPPS would provide consistently packaged payment for all these services that are used to direct independent procedures, even if they are currently separately reported.

Because these dependent guidance procedures support the performance of an independent procedure and they are generally provided in the same operative session as the independent procedure, we believe that it would be appropriate to package their payment into the OPPS payment for the independent procedure performed. However, guidance services differ from some of the other categories of services that we are proposing to package for CY 2008. Hospitals sometimes may have the option of choosing whether to perform a guidance service immediately preceding or during the main independent procedure, or not at all, unlike many of the imaging supervision and interpretation services, for example, which are generally always reported when the independent procedure is performed. Once a hospital decides that guidance is appropriate, the hospital may have several options regarding the type of guidance service that can be performed. For example, when inserting a central venous access device, hospitals have the option of using no guidance, ultrasound guidance, or fluoroscopic guidance, and the selection in any specific case will depend upon the specific clinical circumstances of the device insertion procedure. In fact, the historical hospital claims data demonstrate that various guidance services for the insertion of these devices, which have historically received packaged payment under the OPPS, are used frequently for the insertion of vascular access devices.

Thus, we recognize hospitals have several options regarding the performance and types of guidance services they use. However, we believe that hospitals utilize the most appropriate form of guidance for the specific procedure that is performed.

[[Page 42655]]

We do not want to create payment incentives to use guidance for all independent procedures or to provide one form of guidance instead of another. Therefore, by proposing to package payment for all forms of guidance, we are specifically encouraging hospitals to utilize the most cost effective and clinically advantageous method of guidance that is appropriate in each situation by providing them with the maximum flexibility associated with a single payment for the independent procedure. Similarly, hospitals may appropriately not utilize guidance services in certain situations based on clinical indications.

Because guidance services can be appropriately reported in association with many independent procedures, under our proposed packaging of guidance services for CY 2008, the costs associated with guidance services would be mapped to a larger number of independent procedures than some other categories of codes that we are proposing to package. For example, CPT code 76001 (Fluoroscopy, physician time more than one hour, assisting a non-radiologic physician (e.g., nephrostolithotomy, ERCP, bronchoscopy, transbronchial biopsy)) can be reported with a wide range of services. According to the CPT code descriptor, these procedures include nephrostolithotomy, which may be reported with CPT code 50080 (Percutaneous nephrostolithotomy or pyelostolithotomy, with or without dilation, endoscopy, lithotripsy, stenting, or basket extraction; up to 2 cm), and endoscopic retrograde cholangiopancreatography, which may be reported with CPT code 43260 (Endoscopic retrograde cholangiopancreatography (ERCP); diagnostic, with or without collection of specimen(s) by brushing or washing (separate procedure)). Therefore, the cost of the fluoroscopic guidance would be reflected in the payment for each of these independent services, in addition to numerous other procedures, rather than in the payment for only one or two independent services, as is the case for some of the other categories of codes that we are proposing to package for CY 2008.

In addition, because independent procedures such as CPT code 20610 (Arthrocentesis, aspiration and/or injection; major joint or bursa (e.g., shoulder, hip, knee joint, subacromial bursa)) may be reported with or without guidance, the cost for the guidance will be reflected in the median cost for the independent procedure as a function of the frequency that guidance is reported with that procedure. As we stated previously, the median cost for a particular independent procedure generally will be higher as a result of added packaging, but also could change little or be lower because median costs typically do not reflect small distributional changes and because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. In fact, the CY 2007 CPT book indicates that if guidance is performed with CPT code 20610, it may be appropriate to bill CPT code 76942 (Ultrasonic guidance for needle placement (e.g. biopsy, aspiration, injection, localization device), imaging supervision and interpretation); 77002 (Fluoroscopic guidance for needle placement (e.g. biopsy, aspiration, injection, localization device)); 77012 (Computed tomography guidance for needle placement (e.g. biopsy, aspiration, injection, localization device), radiological supervision and interpretation); or 77021 (Magnetic resonance guidance for needle placement (e.g., for biopsy, needle aspiration, injection, or placement of localization device) radiological supervision and interpretation). The CY 2007 CPT book also implies that it is not always clinically necessary to use guidance in performing an arthrocentesis described by CPT code 20610.

The guidance procedures that we are proposing to package for CY 2008 vary in their resource costs. Resource cost was not a factor we considered when proposing to package guidance procedures. Notably, most of the guidance procedures are relatively low cost in comparison to the independent services they frequently accompany.

The codes we are proposing to identify as guidance codes for CY 2008 that would receive packaged payment are listed in Table 8 below.

Several of these codes, including CPT 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)), are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned to status indicator ``N.'' Payment for these services is currently made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We are not proposing status indicator changes for the five guidance procedures that were unconditionally packaged for CY 2007.

We are proposing to change the status indicators for 31 guidance procedures from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services.

We are proposing to change the status indicator for 1 guidance procedure from separately paid to conditionally packaged (status indicator ``Q''), and we will treat it as a ``special'' packaged code for the CY 2008 OPPS, specifically, CPT code 76000 (Fluoroscopy (separate procedure), up to 1 hour physician time, other than 71023 or 71034 (e.g. cardiac fluoroscopy)). This code was discussed in the past with the Packaging Subcommittee of the APC Panel which determined that, consistent with its code descriptor as a separate procedure, this procedure could sometimes be provided alone, without any other services on the claim. We believe that this procedure would usually be provided by a hospital as guidance in conjunction with another significant independent procedure on the same date of service but may occasionally be provided without another independent service. As a ``special'' packaged code, if the fluoroscopy service were billed without any other service assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X'' reported on the same date of service, under our proposal we would not treat the fluoroscopy procedure as a dependent service for purposes of payment. If we were to unconditionally package payment for this procedure, treating it as a dependent service, hospitals would receive no payment at all when providing this service alone, although the procedure would not be functioning as a guidance service in that case. However, according to our proposal, its conditionally packaged status with its designation as a ``special'' packaged code would allow payment to be provided for this ``Q'' status fluoroscopy procedure, in which case it would be treated as an independent service under these limited circumstances. On the other hand, when the fluoroscopy service is furnished as a guidance procedure on the same day and in the same hospital as independent, separately paid services that are assigned to status indicator ``S,''

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``T,'' ``V,'' or ``X,'' we are proposing to package payment for it as a dependent service. In all cases, we are proposing that hospitals that furnish independent services on the same date as dependent guidance services must bill them all on the same claim. We believe that when dependent guidance services and independent services are furnished on the same date and in the same facility, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the guidance service which supports the independent service.

We have calculated the median costs on which the proposed CY 2008 payment rates are based using the packaging status of each code as provided in Table 8 below. As we discussed earlier in more detail, this has the effect of both changing the median cost for the independent service into which the cost of the dependent service is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, CPT code 76940 (Ultrasound guidance for, and monitoring of, parenchymal tissue ablation) is assigned to APC 0268 (Level I Ultrasound Guidance Procedures) for CY 2007. We are proposing to discontinue APC 0268 for CY 2008 and to provide packaged payment for the HCPCS codes that were previously assigned to APC 0268. CPT code 76940 was billed with CPT code 47382 (Ablation, one or more liver tumor(s), percutaneous, radiofrequency) 148 times in the CY 2008 OPPS proposed rule claims data, and 42 percent of the claims for CPT code 76940 reported CPT code 47382 on the same date of service. Similarly, we note that almost 19 percent of the claims for CPT code 47382 also reported the ultrasound guidance service described by CPT code 76940. Under our proposed policy for the CY 2008 OPPS, we are proposing to expand the packaging associated with CPT code 47382 so that payment for the ultrasound guidance, if performed, would be packaged into the payment for the liver tumor ablation. Specifically, we would package payment for CPT code 76940 so that under the CY 2008 OPPS, the dependent procedure, in this case ultrasound guidance, would receive packaged payment through the separate OPPS payment for the independent procedure, in this case, the liver tumor ablation. The payment rates for this example associated with our CY 2008 proposal are outlined in Table 7 below.

In this case, the proposed CY 2008 median cost for APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures) to which CPT code 47382 is assigned is $2,775.33, while the CY 2007 median cost of APC 0423 is $2,283.08 and of APC 0268 is $72.61. However, as discussed in section II.A.4.c. of this proposed rule concerning our general proposed packaging approach, the added effect of the budget neutrality adjustment that would result from the aggregate effects of the CY 2008 packaging proposal (were there no further budget neutrality adjustment for other reasons) significantly changes the final payment rates relative to median cost estimates. Table 7 presents a comparison of the CY 2007 payment for CPT codes 47382 and 76940, where CPT code 76940 is paid separately, to the CY 2008 payment we are proposing for CPT codes 47382 and 76940, where payment for CPT code 76940 would be packaged. This example cannot demonstrate the overall impact of packaging guidance services on payment to any given hospital because each individual hospital's case-mix and billing patterns would be different. The overall impact of packaging payment for CPT code 76940, as well as all the other proposed packaging changes we are proposing for CY 2008, can only be assessed in the aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impacts file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under

supporting documentation for this proposed rule.

Table 7.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for CPT Codes 76940 and 47382

Sum of CY 2007 Sum of CY 2008 payment (76940 proposed HCPCS code

Short descriptor

paid payment (76940 separately) packaged)

76940..................................... Us guide, tissue ablation spine

$73.04

$0.00 (dependent service). 47382..................................... Percut ablate liver rf (independent

2,296.47

2,810.08 service).

Total Payment......................... ....................................

2,369.51

2,810.08

The estimated overall impact of these changes presented in section XXII.B. of this proposed rule is based on the assumption that hospital behavior would not change with regard to when these dependent services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the guidance services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to guidance services in particular, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these guidance services generally must be furnished on the same date and at the same operative location as the independent procedure in order for the guidance service to meaningfully contribute to the treatment of the patient in directing the performance of the independent procedure. We do not believe the clinical characteristics of the guidance services reported with the guidance HCPCS codes listed in Table 8 below will change in the immediate future.

As we indicated earlier, in all cases we are proposing that hospitals that furnish the guidance service on the same date as the independent service

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must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that Quality Improvement Organizations (QIOs) review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

Table 8.--Guidance HCPCS Codes Proposed for Packaged Payment in CY 2008

Inactive HCPCS Code effective 1/1/2008 or Proposed Proposed earlier

Short

HCPCS code Short descriptor CY 2007 CY 2007 CY 2008 CY 2008 (listed on the descriptor of SI

APC

SI

APC same line as the inactive its

HCPCS code replacement code)

19295............ Place breast

S 0657

N

n/a clip, precut. 61795............ Brain surgery

S 0302

N

n/a using computer. 62160............ Neuroendoscopy

T 0122

N

n/a add-on. 76000............ Fluoroscope

X 0272

Q 0272 examination. 76001............ Fluoroscope

N

n/a

N

n/a exam, extensive. 76930............ Echo guide,

S 0268

N

n/a cardiocentesis. 76932............ Echo guide for

S 0309

N

n/a heart biopsy. 76936............ Echo guide for

S 0309

N

n/a artery repair. 76937............ Us guide,

N

n/a

N

n/a vascular access. 76940............ Us guide, tissue

S 0268

N

n/a ablation. 76941............ Echo guide for

S 0268

N

n/a transfusion. 76942............ Echo guide for

S 0268

N

n/a biopsy. 76945............ Echo guide,

S 0268

N

n/a villus sampling. 76946............ Echo guide for

S 0268

N

n/a amniocentesis. 76948............ Echo guide, ova

S 0309

N

n/a aspiration. 76950............ Echo guidance

S 0268

N

n/a radiotherapy. 76965............ Echo guidance

S 0308

N

n/a radiotherapy. 76975............ GI endoscopic

S 0266

N

n/a ultrasound. 76998............ Us guide,

S 0266

N

n/a

76986 Ultrasound intraop.

guide intraoper. 77001............ Fluoro guide for

N

n/a

N

n/a

75998 Fluoro guide vein device.

for vein device. 77002............ Needle

N

n/a

N

n/a

76003 Needle localization by

localization xray.

by xray. 77003............ Fluoroguide for

N

n/a

N

n/a

76005 Fluoroguide for spine inject.

spine inject. 77011............ Ct scan for

S 0283

N

n/a

76355 Ct scan for localization.

localization. 77012............ Ct scan for

S 0283

N

n/a

76360 Ct scan for needle biopsy.

needle biopsy. 77013............ Ct guide for

S 0333

N

n/a

76362 Ct guide for tissue ablation.

tissue ablation. 77014............ Ct scan for

S 0282

N

n/a

76370 Ct scan for therapy guide.

therapy guide. 77021............ Mr guidance for

S 0335

N

n/a

76393 Mr guidance for needle place.

needle place. 77022............ Mri for tissue

S 0335

N

n/a

76394 Mri for tissue ablation.

ablation. 77031............ Stereotact guide

X 0264

N

n/a

76095 Stereotactic for brst bx.

breast biopsy. 77032............ Guidance for

X 0263

N

n/a needle, breast. 77417............ Radiology port

X 0260

N

n/a film(s). 77421............ Stereoscopic x-

S 0257

N

n/a ray guidance. 95873............ Guide nerv

S 0215

N

n/a destr, elec stim. 95874............ Guide nerv

S 0215

N

n/a destr, needle emg. 0054T............ Bone surgery

S 0302

N

n/a using computer. 0055T............ Bone surgery

S 0302

N

n/a using computer. 0056T............ Bone surgery

S 0302

N

n/a using computer.

(2) Image Processing Services

We are proposing to package payment for ``image processing'' HCPCS codes for CY 2008, specifically those codes that are reported as supportive dependent services to process and integrate diagnostic test data in the development of images, performed concurrently or after the independent service is complete. We performed a broad search for such services, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, which identified specific codes as ``processing'' codes. In addition, we performed a clinical review of all HCPCS codes to capture additional codes that we consider to be image processing. For example, we are proposing to package payment for CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)) because it is an image processing procedure, even though the code descriptor does not specifically indicate it as such.

An image processing service processes and integrates diagnostic test data that were captured during another independent procedure, usually one that is separately payable under the OPPS. The image processing service is not necessarily provided on the same date of service as the independent procedure. In fact, several of the image processing services that we are proposing to package for CY 2008 do not need to be provided face-to-face with the patient in the same encounter as the independent service. While this approach to service delivery may be administratively advantageous from a hospital's perspective, providing separate payment for each image processing service whenever it is performed is not consistent with encouraging value-based purchasing under the OPPS. We believe it is important to package payment for supportive dependent services that accompany independent services but that may not need to be provided face-to-face with the patient in the same

[[Page 42658]]

encounter because the supportive services utilize data that were collected during the preceding independent services and packaging their payment encourages the most efficient use of hospital resources. We are particularly concerned with any continuance of current OPPS payment policies that could encourage certain inefficient and more costly service patterns. As stated above, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources. Our standard methodology to calculate median costs packages the costs of dependent services with the costs of independent services on ``natural'' single claims across different dates of service, so we are confident that we would capture the costs of the supportive image processing services for ratesetting when they are packaged according to our CY 2008 proposal, even if they were provided on a different date than the independent procedure.

We list the image processing services that would be packaged for CY 2008 in Table 10 below. As these services support the performance of an independent service, we believe it would be appropriate to package their payment into the OPPS payment for the independent service provided.

As many independent services may be reported with or without image processing services, the cost of the image processing services will be reflected in the median cost for the independent HCPCS code as a function of the frequency that image processing services are reported with that particular HCPCS code. Again, while the median cost for a particular independent procedure generally will be higher as a result of added packaging, it could also change little or be lower because median costs typically do not reflect small distributional changes and because changes to the packaged HCPCS codes affect both the number and composition of single bills and the mix of hospitals contributing those single bills. For example, CPT code 70450 (Computed tomography, head or brain; without contrast material) may be provided alone or in conjunction with CPT code 76376 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; not requiring image postprocessing on an independent workstation). In fact, CPT code 70450 was provided approximately 1.5 million times based on CY 2008 proposed rule claims data. CPT code 76376 was provided with CPT code 70450 less than 2 percent of the total instances that CPT code 70450 was billed. Therefore, as the frequency of CPT code 76376 provided in conjunction with CPT code 70450 increases, the median cost for CPT code 70450 would be more likely to reflect that additional cost.

The image processing services that we are proposing to package vary in their hospital resource costs. Resource cost was not a factor we considered when proposing to package supportive image processing services. Notably, the majority of image processing services that we are proposing to package have modest median costs in relationship to the cost of the independent service that they typically accompany.

Several of these codes, including CPT code 76350 (Subtraction in conjunction with contrast studies), are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned to status indicator ``N.'' Payment for these services is made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We are not proposing status indicator changes for the four image processing services that were unconditionally packaged for CY 2007.

We are proposing to change the status indicator for seven image processing services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent service that they support and, therefore, their payment would be appropriately packaged. We have calculated the median costs on which the proposed CY 2008 payment rates are based using the packaging status of each code as provided in Table 10 below. As we discuss above in more detail, this has the effect of both changing the median cost for the independent service into which the cost of the dependent service is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)) is assigned to APC 0697 (Level I Echocardiogram Except Transesophageal) for CY 2007. The proposed CY 2008 median cost of APC 0697 is $302.40. CPT code 93325 was billed with CPT code 93350 (Echocardiography, transthoracic, real-time with image documentation (2D), with or without M-mode recording, during rest and cardiovascular stress test using treadmill, bicycle exercise and/or pharmacologically induced stress, with interpretation and report) approximately 43,000 times in the CY 2008 OPPS proposed rule data, and 5 percent of the claims for CPT code 93325 reported CPT code 93350 on the same date of service. Similarly, we note that almost 35 percent of the claims for CPT code 93350 also reported the image processing service described by CPT code 93325. Because CPT code 93350 is designated by CPT as an add- on code to a stress test service, as would be expected, we also observed that a CPT code for a stress test, most commonly CPT code 93017 (Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; with physician supervision, with interpretation and report) was also frequently reported on the same claim on the same day as both of the other two CPT codes. CPT code 93017 is assigned to APC 0100 (Cardiac Stress Tests) with a proposed CY 2008 median cost of $180.10. Under our proposed policy for the CY 2008, we are proposing to expand the packaging associated with the independent stress test and echocardiography services so that payment for the echocardiography color flow velocity mapping, if performed, would be packaged. Specifically, we would package payment for CPT code 93325, the echocardiography color flow velocity mapping, so that this dependent procedure would receive packaged payment through the separate OPPS payments for the independent procedures, here the stress test and echocardiography services. The payment rates for this example associated with our CY 2008 proposal are outlined in Table 9 below.

In this case, the proposed CY 2008 median cost for APC 0100 to which CPT code 93017 is assigned is $180.10. The proposed CY 2008 median cost for APC 0697, to which CPT code 93350 is assigned, is $302.40. The CY 2007 median cost for APC 0100 is $154.83 and the median cost for APC 0697 is $97.61. However, as discussed in section II.A.4.c. of this proposed rule concerning our general proposed packaging approach, the added effect of the budget neutrality adjustment that would result from the aggregate effects of the CY 2008 packaging proposal

[[Page 42659]]

(were there no further budget neutrality adjustment for other reasons) significantly changes the final payment rates relative to the median cost estimates. Table 9 presents a comparison of payments for CPT codes 93017, 93350, and 93325 in CY 2007, where payment for CPT code 93325 is made separately, to our CY 2008 proposed payments for CPT codes 93017, 93350, and 93325, where payment for CPT code 93325 would be packaged. This example cannot demonstrate the overall impact of packaging image processing services on payment to any given hospital because each individual hospital's case-mix and billing patterns would be different. The overall impact of packaging payment for CPT code 93325, as well as the proposed packaging changes that we are proposing for CY 2008, can only be assessed in the aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes that we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impacts file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under

supporting documentation for this proposed rule.

Table 9.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for CPT Codes 93325, 93350, and 93017

Sum of CY 2007 Sum of CY 2008 payment (93325 proposed HCPCS code

Short descriptor

paid payment (93325 separately) Packaged)

93325..................................... Doppler color flow add-on (dependent

$98.18

$0.00 service). 93350..................................... Echo transthoracic (independent

197.64

306.18 service). 93017..................................... Cardiovascular stress test

155.74

182.36 (independent service).

Total Payment......................... ....................................

451.56

488.54

The estimated overall impact of these proposed changes presented in section XXII.B. of this proposed rule is based on the assumption that hospital behavior would not change with regard to how often these dependent image processing services are performed in conjunction with the independent services. To the extent that hospitals could change their behavior and perform the image processing services more or less frequently, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments.

As we indicated earlier, in all cases we are proposing that hospitals that furnish the image processing procedure in association with the independent service must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

Table 10.--Image Processing HCPCS Codes Proposed for Packaged Payment in CY 2008

Inactive CPT code effective 1/ 1/08 or earlier Short descriptor of HCPCS code

Short descriptor

CY 2007 SI

CY 2007 APC

Proposed CY 2008 SI (listed on the the inactive CPT same line as its

code replacement code

76125................ Cine/video x-rays X.................... 0260................. N

.................... add-on. 76350................ Special x-ray

N.................... n/a.................. N

.................... contrast study. 76376................ 3d render w/o

X.................... 0340................. N

.................... postprocess. 76377................ 3d rendering w/ S.................... 0282................. N

.................... postprocess. 93325................ Doppler color flow S.................... 0697................. N

.................... add-on. 93613................ Electrophys map 3d, T.................... 0087................. N

.................... add-on. 95957................ EEG digital analysis S.................... 0214................. N

.................... 0159T................ Cad breast MRI...... N.................... n/a.................. N

.................... 0174T................ Cad cxr remote...... N.................... n/a.................. N....................

0152T Computer chest add- on. 0175T................ Cad cxr with interp. N.................... n/a.................. N....................

0152T Computer chest add- on. G0288................ Recon, CTA for surg S.................... 0417................. N

.................... plan.

(3) Intraoperative Services

We are proposing to package payment for ``intraoperative'' HCPCS codes for CY 2008, specifically those codes that are reported for supportive dependent diagnostic testing or other minor procedures performed during independent procedures. We performed a broad search for possible intraoperative HCPCS codes, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, to identify specific codes as ``intraoperative'' codes. Furthermore, we performed a clinical review of all HCPCS codes to capture additional supportive diagnostic testing or other minor intraoperative or intraprocedural codes that are not necessarily identified as ``intraoperative'' codes. For example, we are proposing to package payment for CPT code 95955 (Electroencephalogram (EEG) during

[[Page 42660]]

nonintracranial surgery (e.g., carotid surgery)) because it is a minor intraoperative diagnostic testing procedure even though the code descriptor does not indicate it as such. Although we use the term ``intraoperative'' to categorize these procedures, we also have included supportive dependent services in this group that are provided during an independent procedure, although that procedure may not necessarily be a surgical procedure. These dependent services clearly fit into this category because they are provided during, and are integral to, an independent procedure, like all the other intraoperative codes, but the independent procedure they accompany may not necessarily be a surgical procedure. For example, we are proposing to package HCPCS code G0268 (Removal of impacted cerumen (one or both ears) by physician on same date of service as audiologic function testing). While specific audiologic function testing procedures are not surgical procedures performed in an operating room, they are independent procedures that are separately payable under the OPPS, and HCPCS code G0268 is a supportive dependent service always provided in association with one of these independent services. All references to ``intraoperative'' below refer to services that are usually or always provided during a surgical procedure or other independent procedure.

By definition, a service that is performed intraoperatively is provided during and, therefore, on the same date of service as another procedure that is separately payable under the OPPS. Because these intraoperative services support the performance of an independent procedure and they are provided in the same operative session as the independent procedure, we believe it would be appropriate to package their payment into the OPPS payment for the independent procedure performed. Therefore, we are not proposing to package payment for CY 2008 for those diagnostic services, such as CPT code 93005 (Electrocardiogram, routine ECG with at least 12 leads; tracing only, without interpretation and report) that are sometimes or only rarely performed and reported as supportive services in association with other independent procedures. Instead, we are proposing to include those HCPCS codes that are usually or always performed intraoperatively, based upon our review of the codes described above. The intraoperative services that we are proposing to package vary in hospital resource costs. Resource cost was not a factor we considered when determining which supportive intraoperative procedures to package.

The codes we are proposing to identify as intraoperative services for CY 2008 that would receive packaged payment under the OPPS are listed in Table 12 below.

Several of these codes, including CPT code 93640 (Electrophysiologic evaluation of single or dual chamber pacing cardioverter-defibrillator leads including defibrillation threshold evaluation (induction of arrhythmia, evaluation of sensing and pacing for arrhythmia termination) at the time of initial implantation or replacement), are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned to status indicator ``N.'' Payment for these services is made through the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We are not proposing status indicator changes for the five diagnostic intraoperative services that were unconditionally packaged for CY 2007.

We are proposing to change the status indicator for 34 intraoperative services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services.

We are also proposing to change the status indicator for one intraoperative procedure from unconditionally packaged to conditionally packaged (status indicator ``Q'') as a ``special'' packaged code for the CY 2008 OPPS, specifically, CPT code 0126T (Common carotid intima- media thickness (IMT) study for evaluation of atherosclerotic burden or coronary heart disease risk factor assessment). This code was discussed in the past with the Packaging Subcommittee of the APC Panel which determined that, consistent with its code descriptor as a separate procedure, this procedure could sometimes be provided alone, without any other OPPS services on the claim. We believe that this procedure would usually be provided by a hospital in conjunction with another independent procedure on the same date of service but may occasionally be provided without another independent service. As a ``special'' packaged code, if the study were billed without any other service assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X'' reported on the same date of service, under our proposal we would not treat the IMT study as a dependent service for purposes of payment. If we were to continue to unconditionally package payment for this procedure, treating it as a dependent service, hospitals would receive no payment at all when providing this service alone, although the procedure would not be functioning as an intraoperative service in that case. However, according to our proposal, its conditionally packaged status as a ``special'' packaged code would allow payment to be provided for this ``Q'' status IMT study when provided alone, in which case it would be treated as an independent service under these limited circumstances. On the other hand, when this service is furnished as an intraoperative procedure on the same day and in the same hospital as independent, separately paid services that are assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we are proposing to package payment for it as a dependent service. In all cases, we are proposing that hospitals that furnish independent services on the same date as this IMT procedure must bill them all on the same claim. We believe that when dependent and independent services are furnished on the same date and in the same facility, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the intraoperative procedure that supports the independent service.

We have calculated the median costs on which the proposed CY 2008 payment rates are based using the packaging status of each code as provided in Table 12 below. As we discuss above in more detail, this has the effect of both changing the median cost for the independent service into which the cost of the dependent service is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, CPT code 92547 (Use of vertical electrodes (List separately in addition to code for primary procedure)) is assigned to APC 0363 (Level I Otorhinolaryngologic Function Tests) for CY 2007. The proposed CY 2008 median cost of APC 0363 is $53.73. CPT code 92547 was billed with CPT code 92541 (Spontaneous nystagmus test, including gaze and fixation nystagmus, with recording) 6,056 times in the CY 2008 OPPS proposed rule data, and 97

[[Page 42661]]

percent of the claims for CPT code 92547 reported CPT code 92541 on the same date of service. Similarly, we note that over half of the claims for CPT code 92541 also reported the service described by CPT code 92547. Under our proposed policy for the CY 2008 OPPS, we are proposing to expand the packaging associated with the independent nystagmus test so that payment for the use of vertical electrodes, if used, would be packaged. Specifically, we would package payment for CPT code 92547 so that under the CY 2008 OPPS the commonly billed dependent procedure, the use of vertical electrodes, would receive packaged payment through the separate OPPS payment for the independent procedure, in this case the nystagmus test. The payment rates for this example associated with our CY 2008 proposal are outlined in Table 11 below.

In this case, the proposed CY 2008 median cost for APC 0363, to which CPT code 92541 is assigned, is $53.73, while the CY 2007 median cost of this APC with status indicator ``S'' and to which both CPT codes 92547 and 02541 are assigned is $52.09. However, as discussed in the section II.A.4. of this proposed rule concerning our general proposed packaging approach, the added effect of the budget neutrality adjustment that would result from the aggregate effects of the complete CY 2008 packaging proposal (were there no further budget neutrality adjustment for other reasons) significantly changes the final payment rates relative to median cost estimates. Table 11 presents a comparison of payment for CPT codes 92541 and 92547 in CY 2007, where CPT code 92547 is paid separately, to our CY 2008 proposed payment for CPT codes 92541 and 92547, where payment for CPT code 92547 would be packaged. This example cannot demonstrate the overall impact of packaging intraoperative services on payment to any given hospital because each individual hospital's case-mix and billing patterns would be different. The overall impact of packaging payment for CPT code 92547, as well as all other packaging changes we are proposing for CY 2008, can only be assessed in the aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impacts file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under

supporting documentation for this proposed rule.

Table 11.-- Example of the Effects of the CY 2008 Packaging Proposal on Payment for CPT Codes 92541 and 92547

Sum of CY 2007 Sum of CY 2008 payment (92547 proposed HCPCS Code

Short descriptor

paid payment (92547 separately) packaged)

92541..................................... Spontaneous nystagmus study

$52.40

$54.41 (independent service). 92547..................................... Supplemental electrical test

52.40

0.00 (dependent service).

Total Payment...............................................................

104.80

54.41

The estimated overall impact of these proposed changes is based on the assumption that hospital behavior would not change with regard to when these dependent intraoperative services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the intraoperative services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to intraoperative services in particular, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these intraoperative services generally must be furnished on the same date and at the same operative location as the independent procedure in order to be considered intraoperative. For these codes, we assume that both the dependent and independent services would be furnished on the same date in the same hospital, and hospitals should bill them on the same claim with the same date of service.

As we indicated earlier, in all cases we are proposing that hospitals that furnish the intraoperative procedure on the same date as the independent service must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

Table 12.--Intraoperative HCPCS Codes Proposed for Packaged Payment in CY 2008

HCPCS Code

Short descriptor

CY 2007 SI

CY 2007 APC Proposed CY 2008 SI

20975.................. Electrical bone

X......................

0340 N stimulation. 31620.................. Endobronchial us add- S......................

0670 N on. 37250.................. Iv us first vessel add- S......................

0416 N on. 37251.................. Iv us each add vessel S......................

0416 N add-on. 58110.................. Bx done w/colposcopy T......................

0188 N add-on. 67299.................. Eye surgery procedure. T......................

0235 N 73530.................. X-ray exam of hip..... X......................

0261 N 74300.................. X-ray bile ducts/ X......................

0263 N pancreas.

[[Page 42662]]

74301.................. X-rays at surgery add- X......................

0263 N on. 75898.................. Follow-up angiography. X......................

0263 N 78020.................. Thyroid met uptake.... S......................

0399 N 78478.................. Heart wall motion add- S......................

0399 N on. 78480.................. Heart function add-on. S......................

0399 N 78496.................. Heart first pass add- S......................

0399 N on. 92547.................. Supplemental

X......................

0363 N electrical test. 92978.................. Intravasc us, heart S......................

0670 N add-on. 92979.................. Intravasc us, heart S......................

0416 N add-on. 93320.................. Doppler echo exam, S......................

0697 N heart. 93321.................. Doppler echo exam, S......................

0697 N heart. 93571.................. Heart flow reserve S......................

0670 N measure. 93572.................. Heart flow reserve S......................

0416 N measure. 93609.................. Map tachycardia, add- T......................

0087 N on. 93613.................. Electrophys map 3d, T......................

0087 N add-on. 93621.................. Electrophysiology T......................

0085 N evaluation. 93622.................. Electrophysiology T......................

0085 N evaluation. 93623.................. Stimulation, pacing T......................

0087 N heart. 93631.................. Heart pacing, mapping. T......................

0087 N 93640.................. Evaluation heart

N......................

n/a N device. 93641.................. Electrophysiology N......................

n/a N evaluation. 93662.................. Intracardiac ecg (ice) S......................

0670 N 95829.................. Surgery

S......................

0214 N electrocorticogram. 95920.................. Intraop nerve test add- S......................

0216 N on. 95955.................. EEG during surgery.... S......................

0213 N 95999.................. Neurological procedure S......................

0215 N 96020.................. Functional brain

X......................

0373 N mapping. 0126T.................. Chd risk imt study.... N......................

n/a Q 0173T.................. Iop monit io pressure. N......................

n/a N G0268.................. Removal of impacted X......................

0340 N wax md. G0275.................. Renal angio, cardiac N......................

n/a N cath. G0278.................. Iliac art angio,

N......................

n/a N cardiac cath.

(4) Imaging Supervision and Interpretation Services

We are proposing to change the packaging status of many imaging supervision and interpretation codes for CY 2008. We define ``imaging supervision and interpretation codes'' as HCPCS codes for services that are defined as ``radiological supervision and interpretation'' in the radiology series, 70000 through 79999, of the AMA's CY 2007 book of CPT codes, with the addition of some services in other code ranges of CPT, Category III CPT tracking codes, or Level II HCPCS codes that are clinically similar or directly crosswalk to codes defined as radiological supervision and interpretation services in the CPT radiology range. We also included HCPCS codes that existed in CY 2006 but were deleted and were replaced in CY 2007. We included the CY 2006 HCPCS codes because we are proposing to use the CY 2006 claims data to calculate the CY 2008 OPPS median costs on which the CY 2008 payment rates would be based.

In its discussion of ``radiological supervision and interpretation,'' CPT indicates that ``when a procedure is performed by two physicians, the radiologic portion of the procedure is designated as `radiological supervision and interpretation'.'' In addition, CPT guidance notes that, ``When a physician performs both the procedure and provides imaging supervision and interpretation, a combination of procedure codes outside the 70000 series and imaging supervision and interpretation codes are to be used.'' In the hospital outpatient setting, the concept of one or more than one physician performing related procedures does not apply to the reporting of these codes, but the radiological supervision and interpretation codes clearly are established for reporting in association with other procedural services outside the CPT 70000 series. Because these imaging supervision and interpretation codes are always reported for imaging services that support the performance of an independent procedure and they are, by definition, always provided in the same operative session as the independent procedure, we believe that it would be appropriate to package their payment into the OPPS payment for the independent procedure performed.

In addition to radiological supervision and interpretation codes in the radiology range of CPT codes, there are CPT codes in other series that describe similar procedures that we are proposing to include in the group of imaging supervision and interpretation codes proposed for packaging under the CY 2008 OPPS. For example, CPT code 93555 (Imaging supervision, interpretation and report for injection procedure(s) during cardiac catheterization; ventricular and/or atrial angiography) whose payment under the OPPS is currently packaged, is commonly reported with an injection procedure code, such as CPT code 93543 (Injection procedure during cardiac catheterization; for selective left ventricular or left atrial angiography), whose payment is also currently packaged under the OPPS, and a cardiac catheterization procedure code, such as CPT code 93526 (Combined right heart catheterization and retrograde left heart catheterization), that is separately paid. In the case of cardiac catheterization, CPT code 93555 describes an imaging supervision and interpretation service in support of the cardiac catheterization procedure, and this dependent service is clinically quite similar to radiological supervision and interpretation codes in the radiology range of CPT. Payment for the cardiac catheterization imaging

[[Page 42663]]

supervision and interpretation services has been packaged since the beginning of the OPPS. Therefore, in developing this proposal for the CY 2008 proposed rule, we conducted a comprehensive clinical review of all Category I and Category III CPT codes and Level II HCPCS codes to identify all codes that describe imaging supervision and interpretation services. The codes we are proposing to identify as imaging supervision and interpretation codes for CY 2008 that would receive packaged payment are listed in Table 14 below.

Several of these codes, including CPT code 93555 discussed above, are already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned to status indicator ``N.'' Payment for these services is made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We are not proposing status indicator changes for the six imaging supervision and interpretation services that were unconditionally packaged for CY 2007.

We are proposing to change the status indicator for 33 imaging supervision and interpretation services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent services that they support and, therefore, their payment would be appropriately packaged because they would generally be performed on the same date and in the same hospital as the independent services.

We are proposing to change the status indicator for 93 imaging supervision and interpretation services from separately paid to conditionally packaged (status indicator ``Q'') as ``special'' packaged codes for the CY 2008 OPPS. These services may occasionally be provided at the same time and at the same hospital with one or more other procedures for which payment is currently packaged under the OPPS, most commonly injection procedures, and in these cases we would not treat the imaging supervision and interpretation services as dependent services for purposes of payment. If we were to unconditionally package payment for these imaging supervision and interpretation services as dependent services, hospitals would receive no payment at all for providing the imaging supervision and interpretation service and the other minor procedure(s). However, according to our proposal, their conditional packaging status as ``special'' packaged codes would allow payment to be provided for these ``Q'' status imaging supervision and interpretation services as independent services in these limited circumstances, and for which payment for the accompanying minor procedure would be packaged. However, when these imaging supervision and interpretation dependent services are furnished on the same day and in the same hospital as independent separately paid services, specifically, any service assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we are proposing to package payment for them as dependent services. In all cases, we are proposing that hospitals that furnish the independent services on the same date as the dependent services must bill them all on the same claim. We believe that when the dependent and independent services are furnished on the same date and in the same hospital, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the imaging supervision and interpretation service that supports the independent service.

In the case of services for which we are proposing conditional packaging, we would expect that, although these services would always be performed in the same session as another procedure, in some cases that other procedure's payment would also be packaged. For example, CPT code 73525 (Radiological examination, hip, arthrography, radiological supervision and interpretation) and CPT code 27093 (Injection procedure for hip arthrography; without anesthesia) could be provided in a single hospital outpatient encounter and reported as the only two services on a claim. In the case where only these two services were performed, the conditionally packaged status of CPT code 73525 would appropriately allow for its separate payment as an independent imaging supervision and interpretation arthrography service, into which payment for the dependent injection procedure would be packaged.

We have calculated the median costs on which the proposed CY 2008 payment rates are based using the packaging status of each code as provided in Table 14 below. As we discuss above in more detail, this has the effect of both changing the median cost for the independent service into which the cost of the dependent service is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, CPT code 72265 (Myelography, lumbosacral, radiological supervision and interpretation) is assigned to APC 0274 (Myelography) for CY 2007. The proposed CY 2008 median cost of APC 0274 is $245.38. CPT code 72265 was billed with CPT code 72132 (Computed tomography, lumbar spine; with contrast material) 20,233 times in the CY 2008 OPPS proposed rule data, and 62 percent of the claims for CPT code 72265 reported CPT code 72132 on the same date of service. Similarly, we note that over half of the claims for CPT code 72132 also reported the myelography service described by CPT code 72265. As would be expected, we also observed that a CPT code for the clinically necessary intrathecal injection, specifically CPT code 62284 (Injection procedure for myelography and/or computed tomography, spinal (other than C1-C2 and posterior fossa)) was also frequently reported on the same claim on the same day as both of the other two CPT codes. Payment for CPT code 62284 is already packaged under the OPPS for CY 2007, as is payment for most HCPCS codes that describe dependent injection procedures that accompany independent procedures. Under our proposed policy for the CY 2008 OPPS, we are proposing to expand the packaging associated with the independent spinal computed tomography (CT) scan so that payment for both the associated injection procedure and the related myelography service, if performed, would be packaged. Specifically, we would package payment for CPT code 72265 when it appears on the same claim with a separately paid service such as CPT code 72132, so that, under the CY 2008 OPPS, both commonly billed dependent procedures, the injection procedure and the myelography service, would receive packaged payment through the separate OPPS payment for the independent procedure, the CT scan. The payment rates for this example associated with our CY 2008 proposal are outlined in Table 13 below. The proposed conditionally packaged status for CPT code 72265 would ensure that if lumbosacral myelography was performed alone, separate payment for the myelography service would be made under the OPPS as the myelography service would not be a dependent service in that situation.

The proposed policy would result in no separate payment for CPT code 72265 when it is billed on the same day and by the same hospital as any separately paid service, such as CPT code 72132. Moreover, as discussed

[[Page 42664]]

later in this section, the proposed policy would provide packaged payment for the contrast agent that is required to perform the independent computed tomography service. For purposes of the example in Table 13 below, we include the payment for HCPCS code Q9947 (Low osmolar contrast material 200-249 mg/ml iodine concentration, per ml) which was reported on about one-third of the CY 2008 proposed rule claims for CPT code 72132. To calculate the CY 2007 payment for the contrast agent, we multiplied the mean number of units per day from our CY 2008 proposed rule data (48.3) by the April 2007 per unit payment rate for HCPCS code Q9947 ($1.33).

In this case, the proposed CY 2008 median cost for APC 0316 (Level II Computed Tomography with Contrast) to which CPT code 72132 is assigned is $741.80. The CY 2007 median cost for APC 0283 to which CPT code 72132 is assigned is $249.48 and the median cost of APC 0274 to which CPT code 72265 is assigned is $156.10. However, as discussed in section II.A.4.c. of this proposed rule concerning our general proposed packaging approach, the added effect of the budget neutrality adjustment that would result from the aggregate effects of the CY 2008 packaging proposal (were there no further budget neutrality adjustment for other reasons) significantly changes the final payment rates relative to median cost estimates. Table 13 presents a comparison of payment for CPT codes 72132 and 72265 and HCPCS code Q9947 in CY 2007, where CPT code 72265 and HCPCS code Q9947 are paid separately, to our CY 2008 proposed payment for CPT codes 72132 and 77265 and HCPCS code Q9947, where payment for CPT code 72265 and HCPCS code Q9947 would be packaged. This example cannot demonstrate the overall impact of packaging imaging supervision and interpretation services on payment to any given hospital because each individual hospital's case-mix and billing patterns would be different. The overall impact of packaging payment CPT code 77265 when it appears with any other separately paid service, as well as all other packaging changes that we are proposing for CY 2008, can only be assessed in aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impacts file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under supporting documentation for this proposed

rule.

Table 13.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for CPT Codes 72265 and 72132 and HCPCS Code Q9947

Sum of CY 2007 Sum of CY 2008 payment (72265 proposed HCPCS code

Short descriptor

paid payment (72265 separately) packaged)

62284...................................... Injection for myelogram (dependent

$0.00

$0.00 service). Q9947*..................................... LOCM 200-249mg/ml iodine, 1ml

64.24

0.00 (dependent service). 72265...................................... Contrast x-ray lower spine

157.01

0.00 (dependent service). 72132...................................... CT lumbar spine w/dye (independent

250.94

751.09 service).

Total Payment.......................... ...................................

472.14

751.09

* Based on the mean number of units per day from our CY 2008 proposed rule data (48.3) and the April 2007 per unit payment rate for Q9947 ($1.33).

The estimated overall impact of these changes presented in XXII.B. of this proposed rule is based on the assumption that hospital behavior would not change with regard to when these dependent services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the imaging supervision and interpretation services more or less frequently, on subsequent dates, or at settings outside of the hospital, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to the imaging supervision and interpretation services in particular, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services. By their definition, these imaging and supervision services generally must be furnished on the same date and at the same operative location as the independent procedure in order for the imaging service to meaningfully contribute to the diagnosis or treatment of the patient. For those radiological supervision and interpretation codes in the radiology range of CPT in particular, if the same physician is able to perform both the procedure and the supervision and interpretation as stated by CPT, we assume that both the dependent and independent services would be furnished on the same date in the same hospital, and hospitals should bill them on the same claim with the same date of service.

As we indicated earlier in this section, in all cases we are proposing that hospitals that furnish the imaging supervision and interpretation service on the same date as the independent service must bill both services on the same claim. We expect to carefully monitor any changes in billing practices on a service-specific and hospital- specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

[[Page 42665]]

Table 14.--Imaging Supervision and Interpretation HCPCS Codes Proposed for Packaged Payment in CY 2008

Inactive CPT code effective 1/ 1/2008 or Proposed CY 2008 Proposed CY earlier

Short descriptor of the

HCPCS code

Short descriptor

CY 2007 SI CY 2007 APC

SI

2008 APC (listed on

inactive CPT code the same line as its replacement code)

70010............ Contrast x-ray of brain. S................

0274 Q................

0274 70015............ Contrast x-ray of brain. S................

0274 Q................

0274 70170............ X-ray exam of tear duct. X................

0264 Q................

0264 70332............ X-ray exam of jaw joint. S................

0275 Q................

0275 70373............ Contrast x-ray of larynx X................

0263 Q................

0263 70390............ X-ray exam of salivary X................

0263 Q................

0263 duct. 71040............ Contrast x-ray of

X................

0263 Q................

0263 bronchi. 71060............ Contrast x-ray of

X................

0263 Q................

0263 bronchi. 71090............ X-ray & pacemaker

X................

0272 N................

n/a insertion. 72240............ Contrast x-ray of neck S................

0274 Q................

0274 spine. 72255............ Contrast x-ray, thorax S................

0274 Q................

0274 spine. 72265............ Contrast x-ray, lower S................

0274 Q................

0274 spine. 72270............ Contrast x-ray, spine... S................

0274 Q................

0274 72275............ Epidurography........... S................

0274 N................

n/a 72285............ X-ray c/t spine disk.... S................

0388 Q................

0388 72291............ Perq vertebroplasty, S................

0274 N................

n/a

76012 Perq vertebroplasty, fluor. fluor. 72292............ Perq vertebroplasty, ct. S................

0274 N................

n/a

76013 Perq vertebroplasty, ct. 72295............ X-ray of lower spine S................

0388 Q................

0388 disk. 73040............ Contrast x-ray of

S................

0275 Q................

0275 shoulder. 73085............ Contrast x-ray of elbow. S................

0275 Q................

0275 73115............ Contrast x-ray of wrist. S................

0275 Q................

0275 73525............ Contrast x-ray of hip... S................

0275 Q................

0275 73542............ X-ray exam, sacroiliac S................

0275 Q................

0275 joint. 73580............ Contrast x-ray of knee S................

0275 Q................

0275 joint. 73615............ Contrast x-ray of ankle. S................

0275 Q................

0275 74190............ X-ray exam of peritoneum S................

0264 Q................

0264 74235............ Remove esophagus

S................

0257 N................

n/a obstruction. 74305............ X-ray bile ducts/

X................

0263 N................

n/a pancreas. 74320............ Contrast x-ray of bile X................

0264 Q................

0264 ducts. 74327............ X-ray bile stone removal S................

0296 N................

n/a 74328............ X-ray bile duct

N................

n/a N................

n/a endoscopy. 74329............ X-ray for pancreas

N................

n/a N................

ma endoscopy. 74330............ X-ray bile/panc

N................

n/a N................

n/a endoscopy. 74340............ X-ray guide for GI tube. X................

0272 N................

n/a 74350............ X-ray guide, stomach X................

0263 N................

n/a tube. 74355............ X-ray guide, intestinal X................

0263 N................

n/a tube. 74360............ X-ray guide, GI dilation S................

0257 N................

n/a 74363............ X-ray, bile duct

S................

0297 N................

n/a dilation. 74425............ Contrast x-ray, urinary S................

0278 Q................

0278 tract. 74430............ Contrast x-ray, bladder. S................

0278 Q................

0278 74440............ X-ray, male genital S................

0278 Q................

0278 tract. 74445............ X-ray exam of penis..... S................

0278 Q................

0278 74450............ X-ray, urethra/bladder.. S................

0278 Q................

0278 74455............ X-ray, urethra/bladder.. S................

0278 Q................

0278 74470............ X-ray exam of kidney X................

0263 Q................

0263 lesion. 74475............ X-ray control, cath S................

0297 Q................

0297 insert. 74480............ X-ray control, cath S................

0296 Q................

0296 insert. 74485............ X-ray guide, GU dilation S................

0296 Q................

0296 74740............ X-ray, female genital X................

0264 Q................

0264 tract. 74742............ X-ray, fallopian tube... X................

0264 N................ 75600............ Contrast x-ray exam of S................

0280 Q................

0280 aorta. 75605............ Contrast x-ray exam of S................

0280 Q................

0280 aorta. 75625............ Contrast x-ray exam of S................

0280 Q................

0280 aorta. 75630............ X-ray aorta, leg

S................

0280 Q................

0280 arteries. 75635............ Ct angio abdominal

S................

0662 Q................

0662 arteries. 75650............ Artery x-rays, head & S................

0280 Q................

0280 neck. 75658............ Artery x-rays, arm...... S................

0279 Q................

0279 75660............ Artery x-rays, head & S................

0668 Q................

0668 neck. 75662............ Artery x-rays, head & S................

0280 Q................

0280 neck. 75665............ Artery x-rays, head & S................

0280 Q................

0280 neck. 75671............ Artery x-rays, head & S................

0280 Q................

0280 neck.

[[Page 42666]]

75676............ Artery x-rays, neck..... S................

0280 Q................

0280 75680............ Artery x-rays, neck..... S................

0280 Q................

0280 75685............ Artery x-rays, spine.... S................

0280 Q................

0280 75705............ Artery x-rays, spine.... S................

0668 Q................

0668 75710............ Artery x-rays, arm/leg.. S................

0280 Q................

0280 75716............ Artery x-rays, arms/legs S................

0280 Q................

0280 75722............ Artery x-rays, kidney... S................

0280 Q................

0280 75724............ Artery x-rays, kidneys.. S................

0280 Q................

0280 75726............ Artery x-rays, abdomen.. S................

0280 Q................

0280 75731............ Artery x-rays, adrenal S................

0280 Q................

0280 gland. 75733............ Artery x-rays, adrenals. S................

0668 Q................

0668 75736............ Artery x-rays, pelvis... S................

0280 Q................

0280 75741............ Artery x-rays, lung..... S................

0279 Q................

0279 75743............ Artery x-rays, lungs.... S................

0280 Q................

0280 75746............ Artery x-rays, lung..... S................

0279 Q................

0279 75756............ Artery x-rays, chest.... S................

0279 Q................

0279 75774............ Artery x-ray, each

S................

0279 N................

n/a vessel. 75790............ Visualize A-V shunt..... S................

0279 Q................

0279 75801............ Lymph vessel x-ray, arm/ X................

0264 Q................

0264 leg. 75803............ Lymph vessel x-ray,arms/ X................

0264 Q................

0264 legs. 75805............ Lymph vessel x-ray, X................

0264 Q................

0264 trunk. 75807............ Lymph vessel x-ray, X................

0264 Q................

0264 trunk. 75809............ Nonvascular shunt, x-ray X................

0263 Q................

0263 75810............ Vein x-ray, spleen/liver S................

0279 Q................

0279 75820............ Vein x-ray, arm/leg..... S................

0668 Q................

0668 75822............ Vein x-ray, arms/legs... S................

0668 Q................

0668 75825............ Vein x-ray, trunk....... S................

0279 Q................

0279 75827............ Vein x-ray, chest....... S................

0279 Q................

0279 75831............ Vein x-ray, kidney...... S................

0279 Q................

0279 75833............ Vein x-ray, kidneys..... S................

0279 Q................

0279 75840............ Vein x-ray, adrenal S................

0280 Q................

0280 gland. 75842............ Vein x-ray, adrenal S................

0280 Q................

0280 glands. 75860............ Vein x-ray, neck........ S................

0668 Q................

0668 75870............ Vein x-ray, skull....... S................

0668 Q................

0668 75872............ Vein x-ray, skull....... S................

0279 Q................

0279 75880............ Vein x-ray, eye socket.. S................

0668 Q................

0668 75885............ Vein x-ray, liver....... S................

0280 Q................

0280 75887............ Vein x-ray, liver....... S................

0279 Q................

0279 75889............ Vein x-ray, liver....... S................

0280 Q................

0280 75891............ Vein x-ray, liver....... S................

0279 Q................

0279 75893............ Venous sampling by

Q................

0668 Q................

0668 catheter. 75894............ X-rays, transcath

S................

0298 N................

n/a therapy. 75896............ X-rays, transcath

S................

0263 N................

n/a therapy. 75901............ Remove cva device

X................

0263 N................

n/a obstruct. 75902............ Remove cva lumen

X................

0263 N................

n/a obstruct. 75940............ X-ray placement, vein S................

0298 N................

n/a filter. 75945............ Intravascular us........ S................

0267 Q................

0267 75946............ Intravascular us add-on. S................

0266 N................

n/a 75960............ Transcath iv stent rs&i. S................

0668 N................

n/a 75961............ Retrieval, broken

S................

0668 N................

n/a catheter. 75962............ Repair arterial blockage S................

0668 Q................

0668 75964............ Repair Artery blockage, S................

0668 N................

n/a each. 75966............ Repair arterial blockage S................

0668 Q................

0668 75968............ Repair Artery blockage, S................

0668 N................

n/a each. 75970............ Vascular biopsy......... S................

0668 N................

n/a 75978............ Repair venous blockage.. S................

0668 Q................

0668 75980............ Contrast xray exam bile S................

0297 N................

n/a duct. 75982............ Contrast xray exam bile S................

0297 N................

n/a duct. 75984............ Xray control catheter X................

0263 N................

n/a change. 75989............ Abscess drainage under x- N................ ........... N................

n/a ray. 75992............ Atherectomy, x-ray exam. S................

0668 N................

n/a 75993............ Atherectomy, x-ray exam. S................

0668 N................

n/a 75994............ Atherectomy, x-ray exam. S................

0668 N................

n/a

[[Page 42667]]

75995............ Atherectomy, x-ray exam. S................

0668 N................

n/a 75996............ Atherectomy, x-ray exam. S................

0668 N................

n/a 76080............ X-ray exam of fistula... X................

0263 Q................

0263 76975............ GI endoscopic ultrasound S................

0266 Q................

0266 77053............ X-ray of mammary duct... X................

0263 Q................

0263

76086 X-ray of mammary duct. 77054............ X-ray of mammary ducts.. X................

0263 Q................

0263

76088 X-ray of mammary ducts. 93555............ Imaging, cardiac cath... N................

n/a N................

n/a 93556............ Imaging, cardiac cath... N................

n/a N................

n/a

(5) Diagnostic Radiopharmaceuticals

For CY 2008, we are proposing to change the packaging status of diagnostic radiopharmaceuticals as part of our overall enhanced packaging approach for the CY 2008 OPPS. 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 supportive items and services into the payment for the independent procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. As we stated in the CY 2007 OPPS/ASC final rule with comment period, we believe that a policy to package payment for additional radiopharmaceuticals (other than those already packaged when their per day costs are below the packaging threshold for OPPS drugs, biologicals, and radiopharmaceuticals based on data for the update year) is consistent with OPPS packaging principles and would provide greater administrative simplicity for hospitals (71 FR 68094).

All nuclear medicine procedures require the use of at least one radiopharmaceutical, and there are only a small number of radiopharmaceuticals that may be appropriately billed with each diagnostic nuclear medicine procedure. While examining the CY 2005 hospital claims data in preparation for the CY 2007 OPPS/ASC proposed rule, we identified a significant number of diagnostic nuclear medicine procedure claims that were missing HCPCS codes for the associated radiopharmaceutical. At that time, we believed that there could be two reasons for the presence of these claims in the data. One reason could be that the radiopharmaceutical used for the procedure was packaged under the OPPS and, therefore, some hospitals may have decided not to include the specific radiopharmaceutical HCPCS code and an associated charge on the claim. A second reason could be that the hospitals may have incorporated the cost of the radiopharmaceutical into the charges for the associated nuclear medicine procedures. A third possibility not offered in the CY 2007 OPPS/ASC proposed rule is that hospitals may have included the charges for radiopharmaceuticals on an uncoded revenue code line.

In the CY 2007 OPPS/ASC proposed rule, we did not propose packaging payment for radiopharmaceuticals with per day costs above the $55 CY 2007 packaging threshold because we indicated that we were concerned that payments for certain nuclear medicine procedures could potentially be less than the costs of some of the packaged radiopharmaceuticals, especially those that are relatively expensive. At the same time, we also noted the GAO's comment in reference to the CY 2006 OPPS proposed rule that stated a methodology that includes packaging all radiopharmaceutical costs into the payments for the nuclear medicine procedures may result in payments that exceed hospitals' acquisition costs for certain radiopharmaceuticals because there may be more than one radiopharmaceutical that may be used for a particular procedure. We also expressed concern that packaging payment for additional radiopharmaceuticals could provoke treatment decisions that may not reflect use of the most clinically appropriate radiopharmaceutical for a particular nuclear medicine procedure in any specific case (71 FR 68094).

After considering this issue further and examining our CY 2006 claims data for the CY 2008 OPPS update, we believe that it is most appropriate to package payment for some radiopharmaceuticals, specifically diagnostic radiopharmaceuticals, into the payment for diagnostic nuclear medicine procedures for CY 2008. We expect that packaging would encourage hospitals to use the most cost efficient diagnostic radiopharmaceutical products that are clinically appropriate. We anticipate that hospitals would continue to provide care that is aligned with the best interests of the patient. Furthermore, we believe that it would be the intent of most hospitals to provide both the diagnostic radiopharmaceutical and the associated diagnostic nuclear medicine procedure at the time the diagnostic radiopharmaceutical is administered and not to send patients to a different provider for administration of the radiopharmaceutical. We do not believe that our packaging proposal would limit beneficiaries' ability to receive clinically appropriate diagnostic procedures. Again, the OPPS is a system of averages, and payment in the aggregate is intended to be adequate, although payment for any one service may be higher or lower than a hospital's actual costs in that case.

For CY 2008, we have separated radiopharmaceuticals into two groupings. The first group includes diagnostic radiopharmaceuticals, while

[[Page 42668]]

the second group includes therapeutic radiopharmaceuticals. We identified all diagnostic radiopharmaceuticals as those Level II HCPCS codes that include the term ``diagnostic'' along with a radiopharmaceutical in their long code descriptors. Therefore, we were able to distinguish therapeutic radiopharmaceuticals from diagnostic radiopharmaceuticals as those Level II HCPCS codes that have the term ``therapeutic'' along with a radiopharmaceutical in their long code descriptors. There currently are no HCPCS C-codes used to report radiopharmaceuticals under the OPPS. For CY 2008, we are proposing to package payment for all diagnostic radiopharmaceuticals that are not otherwise packaged according to the proposed CY 2008 packaging threshold for drugs, biologicals, and radiopharmaceuticals. We are proposing this packaging approach for diagnostic radiopharmaceuticals, while we are proposing to continue to pay separately for therapeutic radiopharmaceuticals with an average per day cost of more than $60 as discussed in section V.B.3. of this proposed rule. In that section, we review our reasons for treating diagnostic radiopharmaceuticals (as well as contrast media) differently from other types of specified covered outpatient drugs identified in section 1833(t)(B) of the Act.

Diagnostic radiopharmaceuticals are always intended to be used with a diagnostic nuclear medicine procedure. In examining our CY 2006 claims data, we were able to match most diagnostic radiopharmaceuticals to their associated diagnostic procedures and most diagnostic nuclear medicine procedures to their associated diagnostic radiopharmaceuticals in the vast majority of single bills used for ratesetting. We estimate that less than 5 percent of all claims with a diagnostic radiopharmaceutical had no corresponding diagnostic nuclear medicine procedure. In addition, we found that only about 13 percent of all single bills with a diagnostic nuclear medicine procedure code had no corresponding diagnostic radiopharmaceutical billed. These statistics indicate that, in a majority of our single bills for diagnostic nuclear medicine procedures, a diagnostic radiopharmaceutical HCPCS code is included on the single bill. Table 15 presents the top 20 diagnostic nuclear medicine procedures in terms of the overall frequency with which they are reported in the OPPS claims data. Among these high volume diagnostic nuclear medicine procedures, their single bills include a HCPCS code for a diagnostic radiopharmaceutical at least 84 percent of the time for 19 out of the top 20 procedures. More specifically, 84 to 86 percent of the single bills for 4 diagnostic nuclear medicine procedures include a diagnostic radiopharmaceutical, 87 to 89 percent of the single bills for 8 diagnostic nuclear medicine procedures include a diagnostic radiopharmaceutical, and 90 percent or more of the single bills for 7 diagnostic nuclear medicine procedures include a diagnostic radiopharmaceutical.

Table 15.--Top 20 Diagnostic Nuclear Medicine Procedures Sorted by CY 2006 OPPS Total Volume

Single bills with a Single bills Total line- radiopharmaceutical as a percent HCPCS code

Short descriptor

SI

APC item frequency as a percent of all of total line- single bills item frequency

78465................... Heart image (3d), multiple..... S.......................

0377

566,252

88

9 78306................... Bone imaging, whole body....... S.......................

0396

368,452

90

76 78815................... Tumorimage pet/ct skul-thigh... S.......................

0308

122,126

100

84 78223................... Hepatobiliary imaging.......... S.......................

0394

69,066

85

90 78315................... Bone imaging, 3 phase.......... S.......................

0396

56,524

89

88 78464................... Heart image (3d), single....... S.......................

0398

35,866

93

29 78472................... Gated heart, planar, single.... S.......................

0398

32,154

89

80 78264................... Gastric emptying study......... S.......................

0395

31,190

88

94 78812................... Tumor image (pet)/skul-thigh... S.......................

0308

27,345

100

86 78007................... Thyroid image, mult uptakes.... S.......................

0391

23,703

84

96 78195................... Lymph system imaging........... S.......................

0400

20,187

89

18 78585................... Lung V/Q imaging............... S.......................

0378

20,036

91

48 78070................... Parathyroid nuclear imaging.... S.......................

0391

18,752

94

84 78006................... Thyroid imaging with uptake.... S.......................

0390

18,613

86

95 78300................... Bone imaging, limited area..... S.......................

0396

18,333

89

90 78320................... Bone imaging (3D).............. S.......................

0396

16,710

84

35 78588................... Perfusion lung image........... S.......................

0378

14,323

88

48 78707................... K flow/funct image w/o drug.... S.......................

0404

13,820

89

90 78580................... Lung perfusion imaging......... S.......................

0401

13,011

66

19 78816................... Tumor image pet/ct full body... S.......................

0308

12,349

100

86

Among the lower volume diagnostic nuclear medicine procedures (which are outside the top 20 in terms of volume), there is still good representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for most procedures. About 40 percent of the low volume diagnostic nuclear medicine procedures have at least 80 percent of the single bills for that diagnostic procedure that include a diagnostic radiopharmaceutical HCPCS code; about 37 percent of the low volume diagnostic procedures have between 50 to 79 percent of the single bills that include a diagnostic radiopharmaceutical HCPCS code; and about 23 percent of the low volume diagnostic procedures have less than 50 percent of the single bills that include a diagnostic radiopharmaceutical HCPCS code. For the few diagnostic nuclear medicine procedures where less than 50 percent of the single bills include a diagnostic radiopharmaceutical HCPCS code, we believe there could be several reasons why the percentage of single bills for the diagnostic nuclear medicine procedure with a diagnostic radiopharmaceutical HCPCS code is low.

As noted earlier, it is possible that hospitals may be including the charge for the radiopharmaceutical in the

[[Page 42669]]

charge for the diagnostic nuclear medicine procedure itself or on an uncoded revenue code line instead of reporting charges for a specific diagnostic radiopharmaceutical HCPCS code. We found that 24 percent of all single bills for a diagnostic nuclear medicine procedure but without a coded diagnostic radiopharmaceutical had uncoded costs in a revenue code that might contain diagnostic radiopharmaceutical costs, specifically, revenue codes 0254 (Drugs Incident to Other Diagnostic Services), 0255 (Drugs Incident to Radiology), 0343 (Diagnostic Radiopharmaceuticals), 0621 (Supplies Incident to Radiology), and 0622 (Supplies Incident to Other Diagnostic Services). In comparison, we found that only 2 percent of diagnostic nuclear medicine single bills with a nuclear medicine procedure and a coded diagnostic radiopharmaceutical had uncoded costs in these revenue codes. It is also possible that some of these procedures typically use a diagnostic radiopharmaceutical subject to packaged payment under the CY 2006 OPPS, and hospitals may have chosen not to report a separate charge for the diagnostic radiopharmaceutical. Payment for diagnostic radiopharmaceuticals commonly used with some diagnostic nuclear medicine procedures would already be packaged because these diagnostic radiopharmaceuticals' average per day cost were less than $50 in CY 2006. The CY 2008 proposal to package additional diagnostic radiopharmaceuticals would have little impact on the payment for those diagnostic procedures that typically use inexpensive diagnostic radiopharmaceuticals that would be packaged under our proposed CY 2008 packaging threshold of $60, except to the extent that the budget neutrality adjustment due to the broader packaging proposal leads to an increase in the scaler and an increase in the payment for procedures in general.

At its March 2007 meeting, the APC Panel recommended that CMS work with stakeholders on issues related to payment for radiopharmaceuticals, including evaluating claims data for different classes of radiopharmaceuticals and ensuring that a nuclear medicine procedure claim always includes at least one reported radiopharmaceutical agent. We are accepting the APC Panel's recommendation, and we specifically welcome public comment on the hospitals' burden involved should we require such precise reporting. We also are seeking comment on the importance of such a requirement in light of our above discussion on the representation of diagnostic radiopharmaceuticals in the single bills for diagnostic nuclear medicine procedures, the presence of uncoded revenue code charges specific to diagnostic radiopharmaceuticals on claims without a coded diagnostic radiopharmaceutical, and our proposal to package payment for all diagnostic radiopharmaceuticals.

It has come to our attention that several diagnostic radiopharmaceuticals may be used for multiple day studies; that is, a particular diagnostic radiopharmaceutical may be administered on one day and a related diagnostic nuclear medicine procedure may be performed on a subsequent day. While we understand that multiple day episodes for diagnostic radiopharmaceuticals and the related diagnostic nuclear medicine procedures occur, we expect that this would be a small proportion of all diagnostic nuclear medicine imaging procedures. We estimate that, roughly, 15 diagnostic radiopharmaceuticals have a half- life longer than one day such that they could support diagnostic nuclear medicine scans on different days. We believe these diagnostic radiopharmaceuticals would be concentrated in a specific set of diagnostic procedures. Excluding the 5 percent of diagnostic radiopharmaceutical claims with no matching diagnostic nuclear medicine scan for the same beneficiary, we found that a diagnostic nuclear medicine scan was reported on the same day as a coded diagnostic radiopharmaceutical 90 percent or more of the time for 10 of these 15 diagnostic radiopharmaceuticals. Further, between 80 and 90 percent single bills for each of the remaining 5 diagnostic radiopharmaceuticals had a diagnostic nuclear medicine scan on the same day. In the ``natural'' single bills we use for ratesetting, we package payment across dates of service. In light of such high percentages of extended half-life diagnostic radiopharmaceuticals with same day diagnostic nuclear medicine scans and the ability of ``natural'' singles to package costs across days, we believe that our standard OPPS ratesetting methodology of using median costs calculated from claims data adequately captures the costs of diagnostic radiopharmaceuticals associated with diagnostic nuclear medicine procedures that are not provided on the same date of service.

This packaging proposal reduces the overall frequency of single bills for diagnostic nuclear medicine procedures, but the percent of single bills out of total claims remains robust for the majority of diagnostic nuclear medicine procedures. Typically, packaging more procedures should improve the number of single bill claims from which to derive median cost estimates because packaging reduces the number of separately paid procedures on a claim, thereby creating more single procedure bills. In the case of diagnostic nuclear medicine procedures, packaging diagnostic radiopharmaceuticals reduces the overall number of single bills available to calculate median costs by increasing packaged costs that previously were ignored in the bypass process. In prior years, we did not consider the costs of radiopharmaceuticals when we used our bypass methodology to extract ``pseudo'' single claims because we assumed that the cost of radiopharmaceutical overhead and handling would be included in the line-item charge for the radiopharmaceutical, and the diagnostic radiopharmaceuticals were subject to potential separate payment if their mean per day cost fell above the packaging threshold. The bypass process sets empirical and clinical criteria for minimal packaging for a specific list of procedures and services in order to assign packaged costs to other procedures on a claim and is discussed at length in section II.A.1. of this proposed rule. Generally, changing the status of diagnostic radiopharmaceuticals to packaged increases packaging on each claim. This could make it both harder for nuclear medicine procedures to qualify for the bypass list and more difficult to assign packaging to individual diagnostic nuclear medicine procedures, resulting in a possible reduction of the number of ``pseudo'' singles that are produced by the bypass process. Notwithstanding this potentiality, diagnostic nuclear medicine procedures continue to have good representation in the single bills. On average, single bills as a percent of total occurrences remains substantial at 55 percent for individual procedures. We discuss our process for ratesetting, including the construction and use of single and multiple bills, in greater detail in section II.A.1. of this proposed rule.

We believe our CY 2006 claims data support our CY 2008 proposal to package payment for all diagnostic radiopharmaceuticals and lead to proposed payment rates for diagnostic nuclear medicine procedures that appropriately reflect payment for the costs of the diagnostic radiopharmaceuticals that are administered to carry out those diagnostic nuclear medicine procedures. Among the top 20 high volume

[[Page 42670]]

diagnostic nuclear medicine procedures, at least 84 percent of the single bills for almost every diagnostic nuclear medicine procedure included a diagnostic radiopharmaceutical HCPCS code. While a diagnostic radiopharmaceutical, by definition, would be anticipated to accompany 100 percent of the diagnostic nuclear medicine procedures, it is not unexpected that while percentages in our claims data are high, they are less than 100 percent. As noted previously, we have heard anecdotal reports that some hospitals may include the charges for diagnostic radiopharmaceuticals in their charge for the diagnostic nuclear medicine procedure or on an uncoded revenue code line, rather than reporting a HCPCS code for the diagnostic radiopharmaceutical. Thus, it is likely that the frequency of diagnostic radiopharmaceutical costs reflected in our claims data are even higher than the percentages indicate. Furthermore, we note that the OPPS ratesetting methodology is based on medians, which are less sensitive to extremes than means and typically do not reflect subtle changes in cost distributions. Therefore, to the extent that the vast majority of single bills for a particular diagnostic nuclear medicine procedure include a diagnostic radiopharmaceutical HCPCS code, the fact that the percentage is somewhat less than 100 percent is likely to have minimal impact on the median cost of the procedure in most cases. Even in those few instances where we have a low total number of single bills, largely because of low overall volume, we have ample representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for the majority of lower volume nuclear medicine procedures. We also continue to have reasonable representation of single bills out of total claims in general. Finally, as noted previously, to the extent that the diagnostic radiopharmaceuticals commonly used with a particular diagnostic nuclear medicine procedure are already packaged, the proposal to package additional diagnostic radiopharmaceuticals would have little impact on the payment for these procedures.

We have calculated the median costs on which we are proposing to base the CY 2008 payment rates using the packaging status of each diagnostic radiopharmaceutical HCPCS code as provided in Table 17 below. As we discussed earlier in more detail, this has the effect of both changing the median cost for the independent service (the diagnostic nuclear medicine procedure) into which the cost of the dependent service (the diagnostic radiopharmaceutical) is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, HCPCS code A9552 (Fluorodeoxyglucose F-18 FDG, Diagnostic, per study dose, up to 45 millicuries) that describes the diagnostic radiopharmaceutical commonly called FDG is frequently billed with CPT code 78815 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; skull base to mid-thigh). HCPCS code A9552 is assigned to APC 1651 (F18 fdg) for CY 2007. HCPCS code A9552 was billed with CPT code 78815 101,242 times in the single bills available for this CY 2008 proposed rule, and 97 percent of the single bills for CPT code 78815 also reported HCPCS code A9552. Under our proposed policy for CY 2008, we are proposing to package payment for HCPCS code A9552 into the payment for separately payable procedures that are provided in conjunction with HCPCS code A9552. In this example, HCPCS code A9552 would receive packaged payment through the separate OPPS payment for CPT code 78815. CPT code 78815 is assigned to APC 1511 (New Technology--Level XI ($900-$1000)) for CY 2007 with a CY 2007 median cost for PET/CT procedures of $850.36 and to APC 0308 (Non- Myocardial Positron Emission Tomography (PET) Imaging) for CY 2008 with a proposed CY 2008 APC median cost of $1,093.52.

The proposed CY 2008 payment rates associated with this example are outlined in Table 16 below. The table indicates that the proposed CY 2008 payment rate for the skull base to mid-thigh PET/CT scan would be substantially higher than the CY 2007 payment amount for that code. The proposed increase for the PET/CT scan is slightly more than the estimated average CY 2007 payment for the separately payable FDG (paid in CY 2007 at charges reduced to cost).

This example cannot demonstrate the overall impact of packaging diagnostic radiopharmaceuticals on payment to any given hospital because each individual hospital's case mix and billing patterns would be different. The overall impact of packaging diagnostic radiopharmaceuticals, as well as all other packaging changes proposed for CY 2008, can only be assessed in the aggregate for each hospital. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes that we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider- Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impacts file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under

supporting documentation for this proposed rule.

Table 16.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for HCPCS Code A9552 and CPT Code 78815

Sum of CY 2007 payment (A9552 Sum of CY 2008 HCPCS code

Short descriptor

paid

proposed separately at payment (A9552 cost)

packaged)

A9552..................................... F18 fdg (dependent service).........

*$279.29

0.00 78815..................................... Tumor image pet/ct skul-thigh

950.00

1,107.22 (independent service).

Total Payment...............................................................

1,229.29 1,107.22

*Estimated average CY 2007 payment at charges reduced to cost.

[[Page 42671]]

The estimated overall impact of these changes that we are proposing for CY 2008 is based on the assumption that hospital behavior would not change with regard to when the dependent diagnostic radiopharmaceuticals are provided by the same hospital that performs the independent services. In order to provide diagnostic nuclear medicine procedures under this proposal, hospitals would either need to administer the necessary diagnostic radiopharmaceuticals themselves or refer patients elsewhere for the administration of the diagnostic radiopharmaceuticals. In the latter case, claims data would show such a change in practice in future years and that change would be reflected in future ratesetting. However, with respect to diagnostic radiopharmaceuticals, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these items because diagnostic radiopharmaceuticals are typically provided on the same day as a diagnostic nuclear medicine procedure. It would be difficult for Hospital A to send patients to receive diagnostic radiopharmaceuticals from Hospital B and then have the patients return to Hospital A for the diagnostic nuclear medicine procedure in the appropriate timeframe (given the radiopharmaceutical's half life) to perform a high quality study. We would expect that hospitals would always bill the diagnostic radiopharmaceutical on the same claim as the other independent services for which the radiopharmaceutical was administered.

As we indicate above, in all cases, we are proposing that hospitals that furnish diagnostic radiopharmaceuticals in association with diagnostic nuclear medicine procedures bill both the item and the procedure on the same claim so that the costs of the diagnostic radiopharmaceuticals can be appropriately packaged into payment for the diagnostic nuclear medicine procedure. We expect to carefully monitor any changes in billing practices on a service-specific and hospital- specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

Table 17.--Diagnostic Radiopharmaceutical HCPCS Codes Proposed for Packaged Payment in CY 2008

HCPCS code

Short descriptor

CY 2007 SI

CY 2007 APC CY 2008 proposed SI

A4641.................. Radiopharm dx agent N......................

n/a N noc. A4642.................. In111 satumomab....... H......................

0704 N A9500.................. Tc99m sestamibi....... H......................

1600 N A9502.................. Tc99m tetrofosmin..... H......................

0705 N A9503.................. Tc99m medronate....... N......................

n/a N* A9504.................. Tc99m apcitide........ N......................

n/a N* A9505.................. TL201 thallium........ H......................

1603 N A9507.................. In111 capromab........ H......................

1604 N A9508.................. I131 iodobenguate, dx. H......................

1045 N A9510.................. Tc99m disofenin....... N......................

n/a N* A9512.................. Tc99m pertechnetate... N......................

n/a N* A9516.................. I123 iodide cap, dx... H......................

9148 N A9521.................. Tc99m exametazime..... H......................

1096 N A9524.................. I131 serum albumin, dx H......................

9100 N A9526.................. Nitrogen N-13 ammonia. H......................

0737 N A9528.................. Iodine I-131 iodide H......................

1088 N cap, dx. A9529.................. I131 iodide sol, dx... N......................

n/a N A9531.................. I131 max 100uCi....... N......................

n/a N* A9532.................. I125 serum albumin, dx N......................

n/a N A9536.................. Tc99m depreotide...... H......................

0739 N A9537.................. Tc99m mebrofenin...... N......................

n/a N* A9538.................. Tc99m pyrophosphate... N......................

n/a N* A9539.................. Tc99m pentetate....... H......................

0722 N* A9540.................. Tc99m MAA............. N......................

n/a N* A9541.................. Tc99m sulfur colloid.. N......................

n/a N* A9542.................. In111 ibritumomab, dx. H......................

1642 N A9544.................. I131 tositumomab, dx.. H......................

1644 N A9546.................. Co57/58............... H......................

0723 N A9547.................. In111 oxyquinoline.... H......................

1646 N A9548.................. In111 pentetate....... H......................

1647 N A9550.................. Tc99m gluceptate...... H......................

0740 N A9551.................. Tc99m succimer........ H......................

1650 N A9552.................. F18 fdg............... H......................

1651 N A9553.................. Cr51 chromate......... H......................

0741 N A9554.................. I125 iothalamate, dx.. N......................

n/a N A9555.................. Rb82 rubidium......... H......................

1654 N A9556.................. Ga67 gallium.......... H......................

1671 N A9557.................. Tc99m bicisate........ H......................

1672 N A9558.................. Xe133 xenon 10mci..... N......................

n/a N* A9559.................. Co57 cyano............ H......................

0724 N A9560.................. Tc99m labeled rbc..... H......................

0742 N A9561.................. Tc99m oxidronate...... N......................

n/a N* A9562.................. Tc99m mertiatide...... H......................

0743 N A9565.................. In111 pentetreotide... H......................

1677 N A9566.................. Tc99m fanolesomab..... H......................

1678 N A9567.................. Technetium TC-99m H......................

0829 N* aerosol.

[[Page 42672]]

A9568.................. Tc99m arcitumomab..... H......................

1648 N

* Indicates that the radiopharmaceutical would have been packaged under the $60 packaging threshold methodology in CY 2008, even in the absence of the broader packaging proposal for radiopharmaceuticals.

(6) Contrast Agents

For CY 2008, we are proposing to package payment for all contrast media into their associated independent diagnostic and therapeutic procedures as part of our proposed packaging approach for the CY 2008 OPPS. As noted in section II.A.4.c. of this proposed rule, packaging the costs of supportive items and services into the payment for the independent procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. We believe that contrast agents are particularly well suited for packaging because they are always provided in support of an independent diagnostic or therapeutic procedure that involves imaging, and thus payment for contrast agents can be packaged into the payment for the associated separately payable procedures.

Contrast agents are generally considered to be those substances introduced into or around a structure that, because of the differential absorption of x-rays, alteration of magnetic fields, or other effects of the contrast medium in comparison with surrounding tissues, permit visualization of the structure through an imaging modality. The use of certain contrast agents is generally associated with specific imaging modalities, including x-ray, computed tomography (CT), ultrasound, and magnetic resonance imaging (MRI), for purposes of diagnostic testing or treatment. They are most commonly administered through an oral or intravascular route in association with the performance of the independent procedures involving imaging that are the basis for their administration. Even in the absence of this proposal to package payment for all contrast agents, we would propose to package the majority of HCPCS codes for contrast agents recognized under the OPPS in CY 2008. We consider contrast agents to be drugs under the OPPS, and as a result they are packaged if their estimated mean per day cost is equal to or less than $60 for CY 2008. (For more discussion of our drug packaging criteria, we refer readers to section V.B.2 of this proposed rule.) Seventy-five percent of contrast agents HCPCS codes have an estimated mean per day cost equal to or less than $60 based on our CY 2006 claims data.

Contrast agents are described by those Level II HCPCS codes in the range from Q9945 through Q9964. There currently are no HCPCS C-codes or other Level II HCPCS codes outside the range specified above used to report contrast agents under the OPPS. As shown in Table 19, in CY 2007, we packaged 7 out of 20 of these contrast agent HCPCS codes based on the $55 packaging threshold. For CY 2008, we are proposing to package all drugs with a per day mean cost of $60 or less. For CY 2008, the vast majority of contrast agents would be packaged under the traditional OPPS packaging methodology using the $60 packaging threshold, based on the CY 2006 claims data available for this proposed rule. In fact, of the 20 contrast agent HCPCS codes we are including in our proposed packaging approach, 15 would have been proposed to be packaged for CY 2008 under our drug packaging methodology. These 15 codes represent 94 percent of all occurrences of contrast agents billed under the OPPS. We believe that this shift in the packaging status for several of these agents between CYs 2007 and 2008 may be because, in CY 2007, a number of the contrast agents exceeded the $55 threshold by only a small amount and, based on our latest claims data for CY 2008, a number of these products have now fallen below the proposed $60 threshold. Given that the vast majority of contrast agents billed would already be packaged under the OPPS in CY 2008, we believe it would be desirable to package payment for the remaining contrast agents as it promotes efficiency and results in a consistent payment policy across products that may be used in many of the same independent procedures. We also note that the significant costs associated with these 15 contrast agents would already be reflected in the proposed median costs for those independent procedures and, if we were to pay for the 5 remaining agents separately, we would be treating these 5 agents differently than the others. If the 5 agents remained separately payable, there would effectively be two payments for contrast agents when these 5 agents were billed--a separate payment and a payment for packaged contrast agents that was part of the procedure payment. This could potentially provide a payment incentive to administer certain contrast agents that might not be the most clinically appropriate or cost effective. Moreover, as noted previously, contrast agents are always provided with independent procedures and, under a consistent approach to packaging in keeping with our enhanced efforts to encourage hospital efficiency and promote value-based purchasing under the OPPS, their payment would be appropriately packaged for CY 2008.

We have calculated the median costs on which the proposed CY 2008 payment rates are based using the packaging status of each contrast agent HCPCS code as provided in Table 19 below. As we discussed earlier in more detail, this has the effect of both changing the median cost for the independent service (the diagnostic or therapeutic procedure requiring imaging) into which the cost of the dependent service (the contrast agent) is packaged and also of redistributing payment that would otherwise have been made separately for the service we are proposing to newly package for CY 2008.

For example, HCPCS code Q9947 (Low osmolar contrast material, 200- 249 mg/ml iodine concentration, per ml) is one of the contrast agents that we are proposing to package that would not otherwise be packaged in CY 2008 under the proposed $60 packaging threshold. HCPCS code Q9947 is sometimes billed with CPT code 71260 (Computed tomography, thorax; with contrast material(s)). HCPCS code Q9947 is assigned to APC 9159 (LOCM 200-249 mg/ml iodine, 1ml) for CY 2007. HCPCS code Q9947 was billed with CPT code 71260 8,172 times in the single bills available for this CY 2008 proposed rule, and 2 percent of the single bills for CPT code 71260 also reported HCPCS code Q9947. Under our proposed policy for CY 2008, we are proposing to package payment for

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HCPCS code Q9947 into the payment for separately payable procedures that are provided in conjunction with the contrast agent. Specifically, we would package payment for HCPCS code Q9947 so that, in this example, HCPCS code Q9947 would receive packaged payment through the separate OPPS payment for CPT code 71260. CPT code 71260 is assigned to APC 0283 (Computed Tomography with Contrast) for CY 2007 with a CY 2007 median cost of $249.48. The procedure is assigned to APC 0283, with a proposed APC name change to ``Level I Computed Tomography with Contrast'' for CY 2008 and a proposed CY 2008 median cost of $286.13.

The proposed CY 2008 payment rates associated with this example are outlined in Table 18 below. The table indicates that the CY 2008 payment that we are proposing for CPT code 71260 is higher than the CY 2007 payment amount for that code. The proposed increase in the payment rate for CPT code 71260 in CY 2008 is slightly greater than the estimated CY 2007 payment for the separately payable HCPCS code Q9947. Notably, a number of low osmolar contrast agents other than HCPCS code Q9947 that were separately paid in CY 2007 also are proposed for packaged payment in CY 2008 because their mean per day cost falls below the $60 packaging threshold for drugs, biologicals, and radiopharmaceuticals for CY 2008. Packaging the costs of these contrast media also affects the proposed payment rate for CPT code 71260. For another example of packaging contrast agents, we refer readers to the example included in Table 13 of section II.A.4.c.(4) of this proposed rule on packaging imaging supervision and interpretation services. That example illustrates the effect of packaging both a supervision and interpretation service (CPT code 72265 (Myelography, lumbosacral, radiological supervision and interpretation)) and a contrast agent (HCPCS code Q9947 (low osmolar contrast material, 200-249 mg/ml iodine, per ml)) into the payment for an imaging procedure (CPT code 72132 (Computed tomography, lumbar spine; with contrast material)).

This example cannot demonstrate the overall impact of packaging contrast agents on any given hospital because each individual hospital's case mix and billing pattern differs. The overall impact of packaging contrast agents, as well as all the other proposed packaging changes, can only be assessed in the aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impact file can be found on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under supporting documentation for this proposed

rule.

Table 18.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for CPT Code 72160 and HCPCS Code Q9947

Sum of CY 2007 Sum of CY 2008 payment (Q9947 proposed HCPCS code

Short descriptor

paid payment (Q9947 separately) packaged)

Q9947..................................... LOCM 200-249 mg/ml iodine, 1 ml

*$64.24

$0.00 (dependent service). 71260..................................... Ct thorax w/dye (independent

250.94

289.71 service).

Total Payment...............................................................

315.18

289.71

*Based on the mean number of units per day from our CY 2008 proposed rule data (48.3) and the April 2007 per unit payment rate for Q9947 ($1.33).

The estimated overall impact of these changes that we are proposing for CY 2008 is based on the assumption that hospital behavior would not change with regard to when the contrast agents are provided by the same hospital that performs the imaging procedure. Under this proposal, in order to provide imaging procedures requiring contrast agents, hospitals would either need to administer the necessary contrast agent themselves or refer patients elsewhere for the administration of the contrast agent. In the latter case, claims data would show such a change in practice in future years and that change would be reflected in future ratesetting. However, with respect to contrast agents, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services because contrast agents are typically provided on the same day immediately prior to an imaging procedure being performed. We would expect that hospitals would always bill the contrast agent on the same claim as the other independent services for which the contrast agent was administered.

As we indicated earlier, in all cases we are proposing that hospitals that furnish the supportive contrast agent in association with independent procedures involving imaging must bill both services on the same claim so that the cost of the contrast agent can be appropriately packaged into payment for the significant independent procedure. We expect to carefully monitor any changes in billing practices on a service-specific and hospital specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

Table 19.--Contrast Media HCPCS Codes Proposed for Packaged Payment in CY 2008

HCPCS code

Short descriptor

CY 2007 SI

CY 2007 APC Proposed CY 2008 SI

Q9945.................. LOCM = 400 mg/ml K......................

9163 N* iodine, 1 ml. Q9952.................. Inj Gad-base MR

K......................

9164 N* contrast, 1 ml. Q9953.................. Inj Fe-based MR

K......................

1713 N contrast, 1 ml. Q9954.................. Oral MR contrast, 100 K......................

9165 N* ml. Q9955.................. Inj perflexane lip K......................

9203 N* micros, ml. Q9956.................. Inj octafluoropropane K......................

9202 N mic, ml. Q9957.................. Inj perflutren lip K......................

9112 N micros, ml. Q9958.................. HOCM = 400 mg/ml

N......................

n/a N* iodine, 1 ml.

*Indicates that the contrast agent would have been packaged under the $60 packaging threshold methodology in CY 2008, even in the absence the broader packaging proposal for contrast agents.

(7) Observation Services

We are proposing to package payment for all observation care, reported under HCPCS code G0378 (Hospital observation services, per hour) for CY 2008. Payment for observation would be packaged as part of the payment for the separately payable services with which it is billed. We have defined observation care as a well-defined set of specific, clinically appropriate services that include ongoing short- term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their next placement or to patients with unexpectedly prolonged recovery after surgery. Throughout this proposed rule, as well as in our manuals and guidance documents, we use both of the terms ``observation services'' and ``observation care'' in reference to the services defined above.

Payment for all observation care under the OPPS was packaged prior to CY 2002. Since CY 2002, separate payment of a single unit of an observation APC for an episode of observation care has been provided in limited circumstances. Effective for services furnished on or after April 1, 2002, separate payment for observation was made if the beneficiary had chest pain, asthma, or congestive heart failure and met additional criteria for diagnostic testing, minimum and maximum limits to observation care time, physician care, and documentation in the medical record (66 FR 59856, 59879). Payment for observation care that did not meet these specified criteria was packaged. Between CY 2003 and CY 2006, several more changes were made to the OPPS policy regarding separate payment for observation services, such as: Clarification that observation is not separately payable when billed with ``T'' status procedures on the day of or day before observation care; development of specific Level II HCPCS codes for hospital observation services and direct admission to observation care; and removal of the initially established diagnostic testing requirements for separately payable observation (67 FR 66794, 69 FR 65828, and 70 FR 68688). Throughout this time period, we maintained separate payment for observation care only for the three specified medical conditions, and OPPS payment for observation for all other clinical conditions remained packaged.

Since January 1, 2006, hospitals have reported observation services based on an hourly unit of care using HCPCS code G0378. This code has a status indicator of ``Q'' under the CY 2007 OPPS, meaning that the OPPS claims processing logic determines whether the observation is packaged or separately payable. The OCE's current logic determines whether observation services billed under HCPCS code G0378 are separately payable through APC 0339 (Observation) or whether payment for observation services will be packaged into the payment for other separately payable services provided by the hospital in the same encounter based on criteria discussed subsequently. (We note that if an HOPD directly admits a patient to observation, Medicare currently pays separately for that direct admission reported under HCPCS code G0379 (Direct admission of patient for hospital observation care) in situations where payment for the actual observation care reported under HCPCS code G0378 is packaged.) For CY 2008, as discussed in more detail later in this proposed rule (section XI.), we are proposing to continue the coding and payment methodology for direct admission to observation status, with the exception of the requirement that HCPCS code G0379 is only eligible for separate payment if observation care reported under HCPCS code G0378 does not qualify for separate payment. This requirement would no longer be applicable under our proposal to package all observation services reported under HCPCS code G0378.

Currently, separate OPPS payment may be made for observation services reported under HCPCS code G0378 provided to a patient when all of the following requirements are met. The hospital would receive a single separate payment for an episode of observation care (APC 0339) when: 1. Diagnosis Requirements

a. The beneficiary must have one of three medical conditions: congestive heart failure, chest pain, or asthma.

b. Qualifying ICD-9-CM diagnosis codes must be reported in Form Locator (FL) 76, Patient Reason for Visit, or FL 67, principal diagnosis, or both in order for the hospital to receive separate payment for APC 0339. If a qualifying ICD-9-CM diagnosis code(s) is reported in the secondary diagnosis field, but is

[[Page 42675]]

not reported in either the Patient Reason for Visit field (FL 76) or in the principal diagnosis field (FL 67), separate payment for APC 0339 is not allowed. 2. Observation Time

a. Observation time must be documented in the medical record.

b. A beneficiary's time in observation (and hospital billing) begins with the beneficiary's admission to an observation bed.

c. A beneficiary's time in observation (and hospital billing) ends when all clinical or medical interventions have been completed, including followup care furnished by hospital staff and physicians that may take place after a physician has ordered the patient be released or admitted as an inpatient.

d. The number of units reported with HCPCS code G0378 must equal or exceed 8 hours. 3. Additional Hospital Services

a. The claim for observation services must include one of the following services in addition to the reported observation services. The additional services listed below must have a line-item date of service on the same day or the day before the date reported for observation:

An emergency department visit (APC 0609, 0613, 0614, 0615, or 0616); or

A clinic visit (APC 0604, 0605, 0606, 0607, or 0608); or

Critical care (APC 0617); or

Direct admission to observation reported with HCPCS code G0379 (APC 0604).

b. No procedure with a ``T'' status indicator can be reported on the same day or day before observation care is provided. 4. Physician Evaluation

a. The beneficiary must be in the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician.

b. The medical record must include documentation that the physician explicitly assessed patient risk to determine that the beneficiary would benefit from observation care.

In the context of our proposed CY 2008 packaging approach, for several reasons we believe that it is appropriate to package payment for all observation services reported with HCPCS code G0378 under the CY 2008 OPPS. Primarily, observation services are ideal for packaging because they are always provided as a supportive service in conjunction with other independent separately payable hospital outpatient services such as an emergency department visit, surgical procedure, or another separately payable service, and thus observation costs can logically be packaged into OPPS payment for independent services. As discussed extensively earlier in this section, packaging payment into larger payment bundles creates incentives for providers to furnish services in the most efficient way that meets the needs of the patient, encouraging long-term cost containment.

As we discussed in the general overview of the CY 2008 packaging approach earlier in this section (section II.A.4.b. of this proposed rule), there has been substantial growth in program expenditures for hospital outpatient services under the OPPS in recent years. The primary reason for this upsurge is growth in the intensity and utilization of services rather than the general price of services or enrollment changes. This observed trend is notably reflected in the frequency and costs of separately payable observation care for the last few years. While median costs for an episode of observation care that would meet the criteria for separate payment have remained relatively stable between CY 2003 and CY 2006, the frequency of claims for separately payable observation services has rapidly increased. Comparing claims data for separately payable observation care available for proposed rules spanning from CY 2005 to CY 2008 (that is, claims data reflecting services furnished from CY 2003 to CY 2006), we see substantial growth in separately payable observation care billed under the OPPS over that time. In CY 2003, the full first year when observation care was separately payable, there were approximately 56,000 claims for separately payable observation care. In CY 2004, there were approximately 77,000 claims for separately payable observation care. In CY 2005, that number increased to approximately 124,300 claims, representing about a 61 percent increase in one year. In addition, in the CY 2006 data available for this proposed rule, the frequency of claims for separately payable observation services increased again, to more than 271,200 claims, about a 118-percent increase over CY 2005 and more than triple the number of claims from 2 years earlier. While it is not possible to discern the specific factors responsible for the growth in claims for separately payable observation services, as there have been minor changes in both the process and criteria for separate payment for these services over this time period, the substantial growth by itself is noteworthy.

We are also concerned that the current criteria for separate payment for observation services may provide disincentives for efficiency. In order for observation services to be separately payable, they must last at least 8 hours. While this criterion was put in place to ensure that separate payment is made only for observation services of a substantial duration, it may create a financial disincentive for an HOPD to make a timely determination regarding a patient's safe disposition after observation care ends. By packaging payment for all observation services, regardless of their duration, we would provide incentives for more efficient delivery of services and timely decision- making. The current criterion also prohibits separate payment for observation services when a ``T'' status procedure (generally a surgical procedure) is provided on the same day or the previous day by the HOPD to the same Medicare beneficiary. Again, this may create a financial disincentive for hospitals to provide minor surgical procedures during a patient's observation stay, unless those procedures are essential to the patient's care during that time period, even if the most efficient and effective performance of those procedures could be during the single HOPD encounter.

Currently, the OPPS pays separately for observation care for only the three original medical conditions designated in CY 2002, specifically chest pain, asthma, and congestive heart failure. As discussed in more detail in the observation section (section XI.) of this proposed rule, the APC Panel recommended at its March 2007 meeting that we consider expanding separate payment for observation services to include two additional diagnoses, syncope and dehydration. As mentioned previously, we have defined observation care as a well-defined set of specific, clinically appropriate services, which include ongoing, short-term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether a patient will require further treatment as a hospital inpatient or if the individual is able to be discharged from the hospital. Given the definition of observation services, it is clear that, in certain circumstances, observation care could be appropriate for patients with a range of diagnoses. Both the APC Panel and numerous commenters to prior OPPS proposed rules have confirmed their agreement with this perspective. In addition, the June 2006

[[Page 42676]]

Institute of Medicine (IOM) Report entitled, ``Hospital-Based Emergency Care: At the Breaking Point,'' encourages hospitals to apply tools to improve the flow of patients through emergency departments, including developing clinical decisions units where observation care is provided. The IOM's Committee on the Future of Emergency Care in the United States Health System recommended that CMS remove the current limitations on the medical conditions that are eligible for separate observation care payment in order to encourage the development of such observation units.

As packaging payment provides desirable incentives for greater efficiency in the delivery of health care and provides hospitals with significant flexibility to manage their resources, we believe it is most appropriate to treat observation care for all diagnoses similarly by packaging its costs into payment for the separately payable independent services with which the observation is associated. This consistent payment methodology would provide hospitals with the flexibility to assess their approaches to patient care and patient flow and provide observation care for patients with a variety of clinical conditions when hospitals conclude that observation services would improve their treatment of those patients. Approximately 70 percent of the occurrences of observation care billed under the OPPS are currently packaged, and this proposal would extend the incentives for efficiency already present for the vast majority of observation services that are already packaged under the OPPS to the remaining 30 percent of observation services for which we currently make separate payment.

We have calculated the median costs on which the proposed CY 2008 payment rates are based according to our proposed packaging approach under which payment for HCPCS code G0378 would always be packaged (status indicator ``N''). As we discussed previously in more detail, in this section, this has the effect of both changing the median costs for the independent services into which the costs of the dependent and supportive observation services are packaged and also of redistributing payment that would otherwise have been made separately for the observation services we are proposing to newly package for CY 2008.

For example, separately payable observation care is frequently billed with CPT code 99285 (Emergency department visit for the evaluation and management of a patient (Level 5)). In the CY 2008 OPPS proposed rule claims data, CPT code 99285 was billed 157,668 times on claims with HCPCS code G0378 that meet our current criteria for separate payment for observation care. In addition, about 57 percent of the claims for HCPCS code G0378 that meet our current criteria for separate payment also reported CPT code 99285. Under our proposed policy for CY 2008, we are proposing to package payment for HCPCS code G0378 into the payment for separately payable procedures that are provided in conjunction with HCPCS code G0378. Specifically, we would package payment for HCPCS code G0378 when it is provided with a separately paid service such as CPT code 99285, so that in this example observation would receive packaged payment through the separate OPPS payment for the Level 5 emergency department visit. CPT code 99285 is assigned to APC 0616 (Level 5 Emergency Visits), with a CY 2007 APC median cost of $323.36 and a proposed CY 2008 median cost of $344.50. The CY 2007 median cost of APC 0339 for separately payable observation is $440.22.

The proposed CY 2008 payment rates associated with this example are outlined in Table 20 below. The table indicates that the proposed CY 2008 payment for a Level 5 emergency department visit is higher than the CY 2007 payment amount for that code. However, the proposed increase in the Level 5 emergency department visit payment rate for CY 2008 is significantly less than the CY 2007 payment for separately payable observation. This is due to the fact that, although observation services are commonly billed with a Level 5 emergency department visit, the proportion of all Level 5 emergency department visits that include observation (12 percent) is relatively small. Thus, when observation care that would have met the CY 2007 criteria for separate payment is packaged into payment for separately payable services such as a Level 5 emergency department visit, it raises the payment rate for that separately payable service for all occurrences of the service, even those occurrences where observation care is not provided. As a result, the payment rate for the separately payable service, the Level 5 emergency department visit, does not increase by the full amount of the former payment rate for separately payable observation care as that amount is spread over many more occurrences of Level 5 emergency department visits. In addition, OPPS' use of medians leads relative weight estimates to be less sensitive to packaging decisions.

Table 20.--Example of the Effects of the CY 2008 Packaging Proposal on Payment for Observation Care (HCPCS Code G0378) and CPT Code 99295

Sum of CY 2007 Sum of CY 2008 payment (some proposed HCPCS code

Short descriptor

G0378 paid payment (G0378 separately) packaged)

G0378 (under criteria for separately paid Hospital observation per hr

$442.81

$0.00 observation care).

(dependent service). 99285......................................... Emergency dept visit

325.26

348.81 (independent service).

Total Payment............................. ................................

768.07

348.81

This example cannot demonstrate the overall impact of packaging observation services on any given hospital because each individual hospital's case-mix and billing pattern would be different. The overall impact of packaging HCPCS code G0378, as well as all other packaging changes that we are proposing for CY 2008, can only be assessed in the aggregate for classes of hospitals. Section XXII.B. of this proposed rule displays the overall impact of APC weight recalibration and packaging changes that we are proposing by classes of hospitals, and the OPPS Hospital-Specific Impacts--Provider-Specific Data file presents our estimates of CY 2008 hospital payment

[[Continued on page 42677]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov] ]

[[pp. 42677-42726]] Medicare Program: Proposed Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates; Proposed Changes to the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates; Medicare and Medicaid Programs: Proposed Changes to [[Page 42677]]

[[Continued from page 42676]]

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for those hospitals we include in our ratesetting and payment simulation database. The hospital-specific impact file can be found at http://www.cms.hhs.gov/HospitalOutpatientPPS/ under supporting

documentation for this proposed rule.

The estimated overall impact of these changes that we are proposing for CY 2008 presented in section XXII.B. of this proposed rule is based on the assumption that hospital behavior would not change with regard to when the dependent observation care is provided in the same encounter and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and cease providing observation services, refer patients elsewhere for that care, or increase the frequency of observation services, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to observation care, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services because observation care, by definition, is short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital after receiving the independent services. We believe it is unlikely that hospitals would cease providing medically necessary observation care or refer patients elsewhere for that care if they were unable to reach a decision that the patient could be safely discharged from the outpatient department. We would expect that hospitals would always bill the supportive observation care on the same claim as the other independent services provided in the single hospital encounter.

As we indicated earlier, in all cases we are proposing that hospitals that furnish the observation care in association with independent services must bill those services on the same claim so that the costs of the observation care can be appropriately packaged into payment for the independent services. We expect to carefully monitor any changes in billing practices on a service-specific and hospital- specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

In summary, we are proposing to package payment for all observation services reported with HCPCS code G0378 for CY 2008. Payment for observation services would be made as part of the payment for the separately payable independent services with which they are billed. As part of this proposal, we would change the status indicator for HCPCS code G0378 from ``Q'' to ``N.'' In addition, we would no longer require the current criteria for separate payment related to hospital visits and ``T'' status procedures, minimum number of hours, and qualifying diagnoses. However, we would retain as general reporting requirements those criteria related to physician evaluation, documentation, and observation beginning and ending time as listed in sections II.A.2.a., b., and c., and 4.a. and b. of this proposed rule. Those 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. d. Proposed Development of Composite APCs (1) Background

As we discuss above in regard to our reasons for our proposed packaging approach for the CY 2008 OPPS, we believe that it is crucial that the payment approach of the OPPS create incentives for hospitals to seek ways to provide services more efficiently than exist under the current OPPS structure and allow hospitals maximum flexibility to manage their resources. The current OPPS structure usually provides payment for individual services which are generally defined by individual HCPCS codes. We currently package the costs of some items and services (such as drugs and biologicals with an average per day cost of less than $55) into the payment for separately payable individual services. However, because the extent of packaging in the OPPS is currently modest, furnishing many individual separately payable services increases total payment to the hospital. We believe that this aspect of the current OPPS structure is a significant factor in the growth in volume and spending that we discuss in our general overview and provides a primary rationale for our proposed packaging approach for services in the CY 2008 OPPS. While packaging payment for supportive dependent services into the payment for the independent services which they accompany promotes greater efficiency and gives hospitals some flexibility to manage their resources, we believe that payment for larger bundles of major separately paid services that are commonly performed in the same hospital outpatient encounter or as part of a multi-day episode of care would create even more incentives for efficiency, as discussed earlier. Moreover, defining the ``service'' paid under the OPPS by combinations of HCPCS codes for component services that are commonly performed in the same encounter and that result in the provision of a complete service would enable us to use more claims data and to establish payment rates that we believe more appropriately capture the costs of services paid under the OPPS.

Section 1833(t)(1)(B) of the Act permits us to define what constitutes a ``service'' for purposes of payment under the OPPS and is not restricted to defining a ``service'' as a single HCPCS code. For example, the OPPS currently packages payment for certain items and services reported with HCPCS codes into the payment for other separately payable services on the claim. Consistent with our statutory flexibility to define what constitutes a service under the OPPS, we are proposing to view a service, in some cases, as not just the diagnostic or treatment modality identified by one individual HCPCS code but as the totality of care provided in a hospital outpatient encounter that would be reported with two or more HCPCS codes for component services.

In view of this statutory flexibility to define what constitutes a ``service'' for purposes of OPPS payment, our desire to encourage efficiency in HOPD care, our focus on value-based purchasing, and our desire to use as much claims data as possible to set payment rates under the OPPS, we examined our claims data to determine how we could best use the multiple procedure claims (``hardcore'' multiples) that are otherwise not available for ratesetting because they include multiple separately payable procedures furnished on the same date of service. As discussed in more detail in our discussion of single and multiple procedure claims in section II.A.1.b. of this proposed rule, we have focused in recent years on ways to convert multiple procedure claims to single procedure claims to maximize our use of the claims data in setting median costs for separately payable procedures. We have been successful in using the bypass list to generate ``pseudo'' single procedure claims for use in median setting, but this approach generally does not enable us to use the hardcore multiple claims that contain multiple separately payable

[[Page 42678]]

procedures, all with associated packaging that cannot be split among them. We believe that we could use the data from many more multiple procedure claims by creating APCs for payment of those services defined as frequently occurring common combinations of HCPCS codes for component services that we see in correctly coded multiple procedure claims.

Our examination of data for multiple procedure claims identified two specific sets of services that we believe are good candidates for payment based on the naturally occurring common combinations of component codes that we see on the multiple procedure claims. These are low dose rate (LDR) prostate brachytherapy and cardiac electrophysiologic evaluation and ablation services.

Specifically, we have been told (and our data support) that claims for LDR prostate brachytherapy, when correctly coded, report at least two major separately payable procedure codes the majority of the time. For reasons discussed below, we are proposing to use these correctly coded claims that would otherwise be unusable hardcore multiples as the basis for an encounter-based composite APC that would make a single payment when both codes are reported with the same date of service. We also are proposing to pay separately for these procedure codes in cases where only one of the two procedures is provided in a hospital encounter, through the APC associated with that component procedure code that is furnished.

Similarly, we have been told (and our data support) that multiple cardiac electrophysiologic evaluation, mapping, and ablation services are typically furnished on the same date of service and that the correctly coded claims are typically the multiple procedure claims that include several component services and that we are unable to use in our current claims process. The CY 2007 CPT book introductory discussion in the section entitled ``Intracardiac Electrophysiological Procedures/ Studies'' notes that, in many circumstances, patients with arrhythmias are evaluated and treated at the same encounter. Therefore, as discussed in detail below, we are also proposing to establish an encounter based composite APC for these services that would provide a single payment for certain common combinations of component cardiac electrophysiologic services that are reported on the same date of service.

These composite APCs reflect an evolution in our approach to payment under the OPPS. Where the claims data show that combinations of services are commonly furnished together, in the future we will actively examine whether it would be more appropriate to establish a composite APC under which we would pay a single rate for the service reported with a combination of HCPCS codes on the same date of service (or different dates of service) than to continue to pay for these individual services under service-specific APCs. We are proposing these specific encounter-based composite APCs for CY 2008 because we believe that this approach could move the OPPS toward possible payment based on an encounter or episode-of-care basis, enable us to use more valid and complete claims data, create hospital incentives for efficiency, and provide hospitals with significant flexibility to manage their resources that do not exist when we pay for services on a per service basis. As such, these proposed composite APCs may serve as a prototype for future creation of more composite APCs, through which we could provide OPPS payment for other types of services in the future. We note that while these proposed composite APCs for CY 2008 are based on observed combinations of component HCPCS codes reported on the same date of service for a single encounter, we also will be exploring in the future how we could set payments based on episodes of care involving services that extend beyond the same date but which are all supportive of a single, related course of treatment. While we are not proposing to implement multi-day episode-of-care APCs in CY 2008, we welcome comments on the concept of developing these APCs to provide payment for such episodes in order to inform our future analyses in this area.

While we have never previously used the term ``composite'' APC under the OPPS, we do have one historical payment policy that resembles the CY 2008 proposed composite APC policy. Since the inception of the OPPS, CMS has limited the aggregate payment for specified less intensive mental health services furnished on the same date to the payment for a day of partial hospitalization, which we considered to be the most resource intensive of all outpatient mental health treatment (65 FR 18455). 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 we should pay more for a day of individual mental health services under the OPPS. Through the OCE, when the 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 would exceed the per diem partial hospitalization payment (listed as APC 0033 (Partial Hospitalization)), those specified mental health services are assigned to APC 0034, which has the same payment rate as APC 0033, and the hospital is paid one unit of APC 0034. This longstanding policy regarding payment of APC 0034 for combinations of independent services provided in a single hospital encounter resembles the payment policy for composite APCs that we are proposing for LDR prostate brachytherapy and cardiac electrophysiologic evaluation and ablation services for CY 2008. Similar to the logic for the proposed composite APCs, the OCE determines whether to pay these specified mental health services individually or to make a single payment at the same rate as the per diem rate for partial hospitalization for all of the specified mental health services furnished on that date of service. However, we note this established policy for payment of APC 0034 differs from the proposed policies for the new CY 2008 composite APCs because APC 0034 is only paid if the sum of the individual payment rates for the specified mental health services provided on one date of service exceeds the APC 0034 payment rate, which equals the per diem rate of APC 0033 for partial hospitalization.

We are not proposing to change this mental health services payment policy for CY 2008. However, we are proposing to change the status indicator from ``S'' to ``Q'' for the HCPCS codes for the specified mental health services to which APC 0034 applies because those codes are conditionally packaged when the sum of the payment rates for the single code APCs to which they are assigned exceeds the per diem payment rate for partial hospitalization. While we have not published APC 0034 in Addendum A in the past, we are including it in Addendum A to this proposed rule entitled ``Mental Health Composite,'' consistent with our naming taxonomy and publication of the two other proposed composite APCs. We are also including the mental health composite APC 0034 and its member HCPCS codes in Addendum M to this proposed rule in the same way that we show the HCPCS codes to which the LDR Prostate Brachytherapy Composite APC and Cardiac Electrophysiologic Evaluation and Ablation Composite APC apply.

[[Page 42679]]

In summary, we are not proposing a change to the longstanding payment policy under which the OPPS pays one unit of APC 0034 in cases in which the total payments for specified mental health services provided on the same date of service would otherwise exceed the payment rate for APC 0033. However, we are proposing to change the status indicator to ``Q'' for the HCPCS codes for mental health services to which this policy applies and which comprise this existing composite APC, because payment for these services would be packaged unless the sum of the individual payments assigned to the codes would be less than the payment for APC 0034.

We look forward to public comments on the concept of composite APCs in general and, specifically, the two new proposed encounter-based composite APCs for CY 2008, and we hope to involve the public and the APC Panel in the creation of additional composite APCs. Our goal would be to use the many naturally occurring multiple procedure claims that cannot currently be incorporated under the existing APC structure, regardless of whether the naturally occurring pattern of multiple procedure claims prevents the development of single bills. (2) Proposed Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (a) Background

LDR prostate brachytherapy is a treatment for prostate cancer in which needles or catheters are inserted into the prostate, and then radioactive sources are permanently implanted into the prostate through the hollow needles or catheters. The needles or catheters are then removed from the body, leaving the radioactive sources in the prostate forever, where they slowly give off radiation to destroy the cancer cells until the sources are no longer radioactive. At least two CPT codes are used to report the composite treatment service because there are separate codes that describe placement of the needles or catheters and application of the brachytherapy sources. LDR prostate brachytherapy cannot be furnished without the services described by both of these codes. Generally, the component services represented by both codes occur in the same operative session in the same hospital on the same date of service. However, we have been told of uncommon cases in which they are furnished in different locations, with the patient being transported from one location to another for application of the sources. In addition, other services, commonly CPT code 76965 (Ultrasonic guidance for interstitial radioelement application) and CPT code 77290 (Therapeutic radiology simulation-aided field setting; complex) are often provided in the same hospital encounter.

CPT code 55875 (Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy) reports the placement of the needles or catheters for services furnished on or after January 1, 2007. Before this date, including in the claims for services furnished in CY 2006 that were used to develop this proposed rule, CPT code 55859 (Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy) reported this service. All of the claims for CPT code 55859 (as reported in the CY 2006 claims data) are for the placement of needles or catheters for prostate brachytherapy, although not all are related to permanent brachytherapy source application.

CPT code 77778 (Interstitial radiation source application; complex) reports the application of brachytherapy sources and, when billed with CPT code 55859 (or CPT code 55875 after January 1, 2007) for the same encounter, reports placement of the sources in the prostate. We have been told that application of brachytherapy sources to the prostate is estimated to be about 85 percent of all occurrences of CPT code 77778 under the OPPS, consistent with our CY 2006 claims data used for CY 2008 ratesetting. CPT code 77778 is also used to report the application of sources of brachytherapy to body sites other than the prostate.

Historical coding, APC assignments, and payment rates for CPT codes 55859 (CPT code 55875 beginning in CY 2007) and 77778 are shown below in Table 21.

Table 21.--Historical Payment Rates for Complex Interstitial Application of Brachytherapy Sources

Payment rate for APC for Payment rate APC for OPPS CY

Combination APC

CPT code HCPCS code for CPT codes HCPCS code Brachytherapy source 77778

77778 55859/55875 55859

2000.................................... N/A........................ $198.31 APC 0312

$848.04 APC 0162 Pass-through. 2001.................................... N/A........................ 205.49 APC 0312

878.72 APC 0162 Pass-through. 2002.................................... N/A........................ 6,344.67 APC 0312

2,068.23 APC 0163 Pass-through with pro rata reduction. 2003 (prostate brachytherapy with iodine G0261, APC 648, $5,154.34..

n/a

n/a

n/a

n/a Packaged. sources). 2003 (prostate brachytherapy with

G0256, APC 649, $5,998.24..

n/a

n/a

n/a

n/a Packaged. palladium sources). 2003 (not prostate brachytherapy, not N/A........................ 2,853.58 APC 0651

1,479.60 APC 0163 Separate payment based on including sources).

scaled median cost per source. 2004.................................... N/A........................ 558.24 APC 0651

1,848.55 APC 0163 Cost. 2005.................................... N/A........................ 1,248.93 APC 0651

2,055.63 APC 0163 Cost. 2006.................................... N/A........................ 666.21 APC 0651

1,993.35 APC 0163 Cost. 2007.................................... N/A........................ 1,035.50 APC 0651

2,146.84 APC 0163 Cost.

Payment rates for CPT code 77778, in particular, have fluctuated over the years. We have frequently been informed by the public that reliance on single procedure claims to set the median costs for these services results in use of only incorrectly coded claims for LDR prostate brachytherapy because, for application of brachytherapy sources to the prostate, a correctly coded claim is a multiple procedure claim. Specifically, we have been informed that a correctly coded claim for LDR prostate brachytherapy should include, for the same date of service, both CPT

[[Page 42680]]

codes 55859 and 77778, brachytherapy sources reported with Level II HCPCS codes, and typically separately coded imaging and radiation therapy planning services, and that we should use correctly coded claims to set the median for APC 0651 (Complex Interstitial Radiation Source Application) in particular (where CPT code 77778 is assigned). In presentations to the APC Panel in its March 2006 meeting, and in response to the CY 2006 and CY 2007 OPPS proposed rules, commenters urged us to set the payment rate for LDR prostate brachytherapy services using only multiple procedure claims. Specifically for CY 2007, they urged us to sum the costs on multiple procedure claims containing CPT codes 77778 and 55859 (and no other separately payable services not on the bypass list) and, excluding the costs of sources, split the resulting aggregate median cost on the multiple procedure claim according to a preestablished attribution ratio between CPT codes 77778 and 55859. They indicated that any claim for a brachytherapy service that did not also report a brachytherapy source should be considered to be incorrectly coded and thus not reflective of the hospital's resources required for the interstitial source application procedure. The presenters to the APC Panel believed that claims that did not contain both brachytherapy source and source application codes should be excluded from use in establishing the median cost for APC 0651. They believed that hospitals that reported the brachytherapy sources on their claims were more likely to report complete charges for the associated brachytherapy source application procedure than hospitals that did not report the separately payable brachytherapy sources.

As a result of those comments, for both CY 2006 and CY 2007, we used multiple procedure claims containing both CPT codes 55859 and 77778 to determine a median cost for the totality of both services (with both packaging and bypassing of the other commonly furnished services). We compared the median calculated from this subset of claims reflecting the most common clinical scenario to the single bill median costs for CPT codes 55859 and 77778 as a method of determining whether the total payment to the hospital for both services furnished to provide LDR prostate brachytherapy would be reasonable. In both years, we found that the sum of the single bill medians was reasonably close to the median cost of both services from multiple claims when they were treated as a single procedure and the supporting services were either packaged or bypassed for purposes of calculating the median for the combined pair of codes. (We refer readers to the CY 2006 final rule with comment period (70 FR 68596) and the CY 2007 final rule with comment period (71 FR 68043) for specific discussion of these findings.) Hence, we concluded that the single bill median costs were reasonable and, for both the CY 2006 OPPS and CY 2007 OPPS, we based payment for CPT codes 55859 and 77778 on single procedure claims. (b) Proposed Payment for LDR Prostate Brachytherapy

For the CY 2008 OPPS, we are proposing to create a composite APC 8001, titled ``LDR Prostate Brachytherapy Composite,'' that would provide one bundled payment for LDR prostate brachytherapy when the hospital bills both CPT codes 55875 and 77778 as component services provided during the same hospital encounter. It is shown in Addendum A to this proposed rule as APC 8001 (LDR Prostate Brachytherapy Composite). As discussed in detail in section VII. of this proposed rule, we are proposing to continue to pay sources of brachytherapy separately in accordance with the requirements of the statute.

In the CY 2006 claims used to calculate the proposed CY 2008 median costs, CPT code 55859 was reported 14,083 times. The proposed rule median cost for CPT code 55859, calculated from 2,232 single and ``pseudo'' single bills, is $2,328.56. The CY 2008 proposed rule median cost for APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures) to which CPT code 55859 was assigned for CY 2006 and to which CPT code 55875 is assigned for CY 2007 is $2,322.30. In the set of claims used to calculate the median cost for APC 0651, to which CPT code 77778 is the only assigned service, CPT code 77778 was reported 11,850 times. The CY 2008 proposed rule median cost for APC 0651 (and, therefore, for CPT code 77778) based on 339 single and ``pseudo'' single procedure bills is $969.73.

In examining the claims data used to calculate the median costs for this proposed rule, we found 9,807 claims on which both CPT code 55859 and CPT code 77778 were billed on the same date of service. These data suggest that LDR prostate brachytherapy constituted at least 70 percent of CY 2006 claims for CPT code 55859, with the remainder of claims representing the insertion of needles or catheters for high dose rate prostate brachytherapy or unusual clinical situations where the LDR sources were not applied in the same operative session as the insertion of the needles or catheters. These data are consistent with our understanding of current clinical practice for prostate brachytherapy, and we believe that those multiple claims are correctly coded claims for this common clinical scenario. Similarly, 83 percent of the claims for complex interstitial brachytherapy source application CPT code 77778 also included the CPT code for inserting needles or catheters into the prostate, consistent with our understanding that the vast majority of cases of complex interstitial brachytherapy source application procedures are specifically for the treatment of prostate cancer, rather than other types of cancer.

Using the proposed packaging approach for imaging supervision and interpretation services and guidance services for CY 2008, we were able to identify 1,343 claims, 14 percent of all OPPS claims that reported these two procedures on the same date, that contain both CPT codes 55859 and 77778 on the same date of service and no other separately paid procedure code. We were not able to use more claims to develop this composite APC median cost because there are several radiation therapy planning codes that are commonly reported with CPT codes 55859 and 77778 and that are both separately paid and not on the bypass list because the amount of their associated packaging exceeds the threshold for inclusion on the bypass list. A complete discussion of the bypass list under our CY 2008 packaging proposal is provided in section II.A. of this proposed rule.

We packaged the costs of packaged revenue codes and packaged HCPCS codes into the sum of the costs for CPT codes 55859 and 77778 to derive a total proposed median cost of $3,127.35 for the composite LDR prostate brachytherapy service based upon the 1,343 claims that contained both CPT codes and no other separately paid procedure codes. This is reasonably comparable to $3,298.29, the sum of the CPT median costs we calculated using the single procedure bills for CPT codes 55859 and 77778 (($2,328.56 plus $969.73). We believe that the difference between the composite APC median cost based upon those claims that contain both codes and the sum of the median costs for the APCs to which the two individual CPT codes map is minimal and may be attributable to efficiencies in furnishing the services together during a single encounter.

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We believe that creation of the composite APC for the payment of LDR prostate brachytherapy is consistent with the statute and with our desire to use more claims data for ratesetting, particularly data from correctly coded claims that reflect typical clinical practice, and to make payment for larger packages and bundles of services to provide enhanced incentives for efficiency and cost containment under the OPPS and to maximize hospital flexibility in managing resources.

Under our proposal, hospitals that furnish LDR prostate brachytherapy would report CPT codes 55875 and 77778 and the codes for the applicable brachytherapy sources in the same manner that they currently report these items and services (in addition to reporting any other services provided), using the same HCPCS codes and reporting the same charges. We would require that hospitals report both CPT codes resulting in the composite APC payment on the same claim when they are furnished to a single Medicare beneficiary in the same facility on the same date of service, and we would make any necessary conforming changes to the billing instructions to ensure that they do not present an obstacle to correct reporting. We may implement edits to ensure that hospitals do not submit two separate claims for these two procedures when furnished on the same date in the same facility. When this combination of codes is reported, the OCE would assign the composite APC 8001 and the Pricer would pay based on the payment rate for the composite APC. The OCE would assign APC 0163 or APC 0651 only when both codes are not reported on the same claim with the same date of service, and we would expect this to be the atypical case. The composite APC would have a status indicator of ``T'' so that payment for other procedures also assigned to status indicator ``T'' with lower payment rates would be reduced by 50 percent when furnished on the same date of service as the composite service, in order to reflect the efficiency that occurs when multiple procedures are furnished to a Medicare beneficiary in a single operative session. We would not expect that the composite APC payment would be commonly reduced because we believe that it is unlikely that a higher paid procedure would be performed on the same date.

We are proposing to continue to establish separate payment rates for APC 0651 (to which only CPT code 77778 is assigned) and for APC 0163 (to which we are proposing to continue to assign CPT code 55875). In some cases, CPT 55875 may be reported for the insertion of needles or catheters for high dose rate prostate brachytherapy, and the low dose rate brachytherapy source application procedure (CPT code 77778) would not be reported. In high dose rate prostate brachytherapy, the sources are applied temporarily several times over a few days while the needles or catheters remain in the prostate, and the needles or catheters are removed only after all the treatment fractions have been completed. We have also been told by hospitals that, even when LDR prostate brachytherapy is planned, there are occasions in which the needles or catheters are inserted in one facility and the patient is moved to another facility for the application of the sources. In those cases, we would need to be able to appropriately pay the hospital that inserted the needles or catheters before the patient was discharged prior to source application. Moreover, there are cases in which the needles or catheters are inserted but it is not possible to proceed to the application of the sources and, therefore, the hospital would correctly report only CPT code 55875. Similarly, more than 10 brachytherapy sources can be applied interstitially (as described by CPT code 77778) to sites other than the prostate and it is, therefore, necessary to have a separate payment rate for CPT code 77778. Hence, for CY 2008 we are proposing to continue to pay for CPT code 55875 (the successor to CPT code 55859) through APC 0163 and to pay for CPT code 77778 through APC 0651 when the services are individually furnished other than on the same date of service in the same facility.

In summary, we are proposing to establish a composite APC, shown in Addendum A as APC 8001, to provide payment for LDR prostate brachytherapy when the composite service, billed as CPT codes 55875 and 77778, is furnished in a single hospital encounter and to base the payment for the composite APC on the median cost derived from claims that contain both codes. These two CPT codes are assigned to status indicator ``Q'' in Addendum B to this proposed rule to signify their conditionally packaged status, and their composite APC assignments are noted in Addendum M. This proposal would permit us to base payment on claims for the most common clinical scenario for interstitial radiation source application to the prostate. We note that this payment bundle would also include payment for the commonly associated imaging guidance services, which would be newly packaged under our proposed CY 2008 packaging approach. Most importantly, this composite APC payment methodology that we are proposing would contribute to our goal of providing payment under the OPPS for a larger bundle of component services provided in a single hospital outpatient encounter, creating additional hospital incentives for efficiency and cost containment, while providing hospitals with the most flexibility to manage their resources. (3) Proposed Cardiac Electrophysiologic Evaluation and Ablation Composite APC (a) Background

During its March 2007 meeting, members of the APC Panel indicated that the reason we found so few single bills for procedures assigned to APC 0087 (Cardiac Electrophysiologic Recording/Mapping), specifically 72 of 11,834 or 0.61 percent of all proposed rule CY 2006 claims, is that most of the services assigned to APCs 0085 (Level II Electrophysiologic Evaluation), 0086 (Ablate Heart Dysrhythm Focus), and 0087 are performed in varying combinations with one another. Therefore, correctly coded claims would most often include multiple codes for component services that are reported with different CPT codes and that are now paid separately through different APCs. There would never be many single bills and those that are reported as single bills would likely represent atypical cases or incorrectly coded claims.

We examined the combinations of services observed in our claims data across these three APCs to see whether there was the potential for handling the data differently so that we could use more claims data to set the payment rates for these procedures, particularly those services assigned to APC 0087 where we have had a persistent concern regarding the limited and reportedly unrepresentative single bills available for use in calculating the median cost according to our standard OPPS methodology. We initially developed and examined frequency distributions of unique combinations of codes on claims which contained at least one unit of any code assigned to APC 0085, 0086, or 0087 and then broadened these analysis to any combination of an electrophysiologic evaluation and ablation code.

Our initial frequency distributions supported the APC Panel members' description of their experiences. We identified and enumerated the most commonly appearing unique occurrences (either single procedures or combinations) of codes for services

[[Page 42682]]

assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X'' that contained at least one code assigned to APC 0085, 0086, or 0087. There were 7,379 claims in the top 100 occurrence types. Table 22 shows the 10 most common unique occurrences from CY 2006 claims available for this proposed rule.

Table 22.--Ten Most Frequently Occurring Unique Occurrences of Cardiac Electrophysiologic Evaluation, Mapping, and Ablation Procedures and Other Separately Payable Services

CY 2007 CY 2007 Combination number

Frequency HCPCS code

Short descriptor

APC

SI

1...................................

763

93620 Electrophysiology

0085

T evaluation. 2...................................

509

93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus. 3...................................

398

93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 4...................................

381

93650 Ablate heart dysrhythm

0086

T focus. 5...................................

376

93620 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 6...................................

248

93005 Electrocardiogram, tracing. 0099

S 93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus. 7...................................

225

93005 Electrocardiogram, tracing. 0099

S 93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 8...................................

225

93613 Electrophys map 3d, add-on. 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 9...................................

217

93005 Electrocardiogram, tracing. 0099

S 93620 Electrophysiology

0085

T evaluation. 10..................................

185

93613 Electrophys map 3d, add-on. 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus.

Although the number of claims for each unique occurrence was modest, we were able to determine that there were certain combinations of codes that occurred most often together. Based on our review of the most frequently occurring combinations of codes on claims that also contained at least one code assigned to APC 0085, 0086 or 0087 and our clinical review of the codes, we proceeded to study combination claims that contained at least one code from group A for evaluation services and at least one code from group B for ablation services reported on the same date of service on an individual claim, as specified in Table 23 below.

Table 23.--Groups of Cardiac Electrophysiologic Evaluation and Ablation Procedures for Further Analysis

Codes used in combinations: at least one in Group A and one in HCPCS code CY 2007 APC CY 2007 Group B

SI

Group A:

Electrophysiology evaluation...

93619

0085

T

Electrophysiology evaluation...

93620

0085

T Group B:

Ablate heart dysrhythm focus...

93650

0086

T

Ablate heart dysrhythm focus...

93651

0086

T

Ablate heart dysrhythm focus...

93652

0086

T

When we studied claims that contained a code in group A and also a code in group B, we found that there were 5,118 claims that met these criteria, and that of these 5,118 claims, 4,552 (89 percent) contained both CPT code 93620 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple

[[Page 42683]]

electrode catheters with induction or attempted induction of arrhythmia; with right atrial pacing and recording, right ventricular pacing and recording, His bundle recording) from APC 0085 and CPT code 93651 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of supraventricular tachycardia by ablation of fast or slow atrioventricular pathways, accessory atrioventricular connections or other atrial foci, singly or in combination) from APC 0086 with the same date of service. Given that CPT code 93651 had a total frequency of 8,091, this means that more than 55 percent of the claims for CPT code 93651 also contained CPT code 93620. CPT code 93620 had a total frequency of 12,624, approximately 50 percent higher than the total frequency for CPT code 93651, which is consistent with our expectations because CPT code 93620 describes a diagnostic service and CPT code 93651 is a treatment service that may be provided based upon the findings of the evaluation described by CPT code 93620. In addition to the codes for group A and group B services, the combination claims also contained costs for packaged services that were reported under revenue codes without HCPCS codes and under packaged HCPCS codes. As we discuss in considerable detail above, we lack a methodology that could be used to allocate these packaged costs to major separately paid procedures in a manner which gives us confidence that the costs would be attributed correctly. We have explored and will continue to explore an alternative strategy that would enable us to use these correctly coded multiple procedure claims for ratesetting.

In our review of these claims, not only did we find a high number of claims on which there was one code from group A and one code from group B, but we also found that claims for procedures assigned to APC 0087 for CY 2007 usually appeared on claims that contained a code from APC 0085 or APC 0086, or both. The most frequently appearing CPT codes that were assigned to APC 0087 for CY 2007 were, as shown above, 93609 (Intraventricular and/or intra-atrial mapping of tachycardia site(s), with catheter manipulation to record from multiple sites to identify origin of tachycardia (List separately in addition to code for primary procedure)), 93613 (Intracardiac electrophysiologic 3-dimensional mapping (List separately in addition to code for primary procedure)), 93621 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left atrial pacing and recording from coronary sinus or left atrium (List separately in addition to code for primary procedure)), 93622 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left ventricular pacing and recording (List separately in addition to code for primary procedure)), and 93623 (Programmed simulation and pacing after intravenous drug infusion (List separately in addition to code for primary procedure)). These codes are all CPT add-on codes that CPT indicates are to be reported in addition to the code for the primary procedure. Our clinical review of the services described by these five CPT codes determined that they are supportive dependent services that are provided most often as supplemental to procedures assigned to APCs 0085 and 0086. The procedures in APCs 0085 and 0086 can be performed without these supportive add-on procedures, but these dependent services cannot be done except as a supplement to another electrophysiologic procedure. Therefore, we are proposing to unconditionally package all of these five CPT codes under the grouping of intraoperative services for the CY 2008 OPPS. We discuss the packaging of intraoperative services in general, including these services, above.

However, packaging these supportive ancillary services that are so often reported with the cardiac electrophysiologic evaluation and ablation services does not enable us to use many more claims because, as we noted previously, the claims on which these codes most commonly appeared typically also contained at least one separately paid code from APC 0085 and one code from APC 0086. Although the most common combination of codes from APCs 0085 and 0086 is the pair of CPT codes 93620 and 93651, there are numerous other combinations of services from APCs 0085 and 0086 that are performed and, while not as frequent, these combinations are also reflected in the multiple claims.

In order to use more claims and adequately reflect the varied, common combinations of electrophysiologic evaluation and ablation CPT codes, we calculated a composite median cost from all claims containing at least one code from group A and at least one code from group B as if they were a single service. We selected multiple procedure claims that contained at least one code in group A and one code in group B on the same date of service and calculated a median cost from the total costs on these claims. Some claims had more than one code from each group. Although the claim was required to contain at least one code from each group to be included, the claim could also contain any number of codes from either group and any number of units of those codes. In addition, the costs of the five supportive intraoperative services previously assigned to APC 0087 that we identify above were packaged, as well as the costs of the other items and services proposed to be packaged for the CY 2008 OPPS. This selection process yielded 5,118 claims to use for the calculation. The proposed composite median cost for these claims using the CY 2008 proposed rule data is $8,528.83. We believe that this cost is attributable largely to the 4,552 claims that contain one unit each of CPT code 93620 and CPT code 93651 (and some unknown numbers and combinations of packaged services). In comparison, the sum of the CY 2008 proposed rule CPT code median costs for CPT code 93620 (which is $3,111.76) and CPT code 93651 (which is $5,643.95) is $8,755.71. If the 50 percent multiple procedure discount is applied to the CPT code median cost for the lower cost procedure based on its assignment to an APC with a ``T'' status, the adjusted sum of the median costs is $7,199.83 ($5,643.95 + $1,555.88). These medians were calculated using only claims that contain correct devices and do not contain token charges or the ``FB'' modifier. We believe the significant positive difference between the composite and discounted costs still reflects efficiencies, as the sum of the discounted median costs does not take into account the cost of other procedures also provided that are assigned to APCs 0085 and 0086, while the composite median cost of $8,528.83 does, to some extent, reflect the cost of other multiple procedures in APCs 0085 and 0086 that were also reported on the claims used to develop the composite median cost. In addition, these two calculations are based upon two different sets of claims, single procedure claims in one case (which do not represent the way the service is typically furnished) and the specified subset of clinically common combination claims in the second case. Moreover, while the 50 percent multiple procedure reduction is our best aggregate estimate of the overall degree of efficiency applicable to multiple surgeries, it may or may not be specifically appropriate to this particular combination of procedures.

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By selecting the multiple procedure claims that contained at least one code in each group, we were able to use many more claims than were available to establish the individual APC medians. The percents by CPT code for the composite configuration below in Table 24 represent the sum of the frequency of single bills used to set the medians for APCs 0085 and 0086 with packaging of the five intraoperative services and the frequency of multiple bills used to set the medians for the composite claims containing at least one code from each group and with packaging of the costs of the five intraoperative services, divided by the total frequency of each CPT code.

Table 24.--Percentage of Claims Used To Calculate Median Costs for Cardiac Electrophysiologic Evaluation and Ablation Procedures

Standard configuration Composite (with packaging of configuration intraoperative services) (with

packaging of intra- operative Codes used in combinations: at least HCPCS code Proposed CY SI

services) one in group A and one in Group B

2008 APC

CPT Overall APC -------------- percentage percentage CPT of single of single percentage of claims claims single and combination claims

Group A:

Electrophysiology evaluation.....

93619

0085 T.....

38.99

25.47

63.96

Electrophysiology evaluation.....

93620

0085 T.....

22.30

25.47

61.77 Group B:

Ablate heart dysrhythm focus.....

93650

0085 T.....

39.58

25.47

52.50

Ablate heart dysrhythm focus.....

93651

0086 T.....

4.59

4.68

63.30

Ablate heart dysrhythm focus.....

93652

0086 T.....

7.53

4.68

58.78

Moreover, by packaging CPT codes 93609, 93613, 93621, 93622, and 93623, we use many more of the claims for these codes from the most common clinical scenarios than would otherwise be possible if the supportive intraoperative services were separately paid. Wherever any of these codes appears on a claim that can be used for median setting, the cost data for these codes are packaged in the calculation of the median cost for the separately paid services on the claim. (b) Proposed Payment for Cardiac Electrophysiologic Evaluation and Ablation

In view of our findings with regard to how often the codes in groups A and B appear together on the same claim, we are proposing to establish one composite APC, shown in Addendum A as APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite), for CY 2008 that would pay for a composite service made up of any number of services in groups A and B when at least one code from group A and at least one code from group B appear on the same claim with the same date of service. The five CPT codes involved in this composite APC are assigned to status indicator ``Q'' in Addendum B to this proposed rule to identify their conditionally packaged status, and their composite APC assignments are identified in Addendum M. We are proposing to use the composite median cost of $8,528.83 as the basis for establishing the relative weight for this newly created APC for the composite electrophysiologic evaluation and ablation service. Under this composite APC, unlike most other APCs, we would make a single payment for all services reported in groups A and B. We are proposing that hospitals would continue to code using CPT codes to report these services and that the OCE would recognize when the criteria for payment of the composite APC are met and would assign the composite APC instead of the single procedure APCs as currently occurs. The Pricer would make a single payment for the composite APC that would encompass the program payment for the code in group A, the code in group B, and any other codes reported in groups A or B, as well as the packaged services furnished on the same date of service. The proposed composite APC would have a status indicator of ``T'' so that payment for other procedures also assigned to status indicator ``T'' with lower payment rates would be reduced by 50 percent when furnished on the same date of service as the composite service, in order to reflect the efficiency that occurs when multiple procedures are furnished to a Medicare beneficiary in a single operative session. We would not expect that the proposed composite APC payment would be commonly reduced because we believe that it is unlikely that a higher paid procedure would be performed on the same date. We are proposing to continue to pay separately for other separately paid services that are not reported under the codes in groups A and B (such as chest x-rays and electrocardiograms).

Moreover, 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, we are proposing that payments would be made under the single procedure APCs and the composite APC would not apply. Given our CY 2008 proposal to unconditionally package payment for five cardiac electrophysiologic CPT codes as members of the category of intraoperative services that were previously assigned to APCs 0085 and 0087, we are also proposing to reconfigure APCs 0084 through 0087, where many of the cardiac electrophysiologic procedures that will be separately paid when they are not paid according to the composite APC are assigned. Specifically, we are proposing to discontinue APC 0087, and reconfigure APCs 0084, 0085, and 0086, with proposed titles and median costs of Level I Electrophysiologic Procedures (APC 0084) at $647.41; Level II Electrophysiologic Procedures (APC 0085) at $3,059.46; and Level III Electrophysiologic Procedures (APC 0086) at $5,709.52, respectively. We refer readers to section IV.A.2. of this proposed rule for a discussion of

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calculation of median costs for device-dependent APCs. We believe this reconfiguration improves the clinical and resource homogeneity of these APCs which would provide payment for cardiac electrophysiologic procedures that would be individually paid when they do not meet the criteria for payment of the composite APC.

We believe that creation of the proposed composite APC 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. We believe that this proposed ratesetting methodology results in an appropriate median cost for the composite service when at least one evaluation service in group A is furnished on the same date as at least one ablation service in group B. 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. We expect to develop additional composite APCs in the future as we learn more about major currently separately paid services that are commonly furnished together during the same hospital outpatient encounter. e. Service-Specific Packaging Issues

As a result of requests from the public, a Packaging Subcommittee to the APC Panel was established to review all the procedural CPT codes with a status indicator of ``N.'' Commenters to past rules have suggested that certain packaged services could be provided alone, without any other separately payable services on the claim, and requested that these codes not be assigned status indicator ``N.'' In deciding whether to package a service or pay for a code separately, we 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 separately payable codes with which it was performed; and whether the expected cost of the service is relatively low. As discussed above regarding our proposed packaging approach for CY 2008, we have modified the historical considerations outlined above in developing our proposal for the CY 2008 OPPS. The Packaging Subcommittee discussed many HCPCS codes during the March 2007 APC Panel meeting, prior to development of the proposed packaging approach discussed above, and we have summarized and responded to the APC Panel's packaging-related recommendations below. Three of the codes reviewed by the Packaging Subcommittee at the March 2007 APC Panel meeting are included in the seven categories of services identified for packaging under the CY 2008 OPPS. For those three codes, we specifically applied the proposed CY 2008 criteria for determining whether a code should be proposed as packaged or separately payable for CY 2008. Specifically, we determined whether the service is a dependent service falling into one of the seven specified categories that is always or almost always provided integral to an independent service. For those four codes that were reviewed during the March 2007 APC Panel meeting but that do not fit into any of the seven categories of codes that are part of our CY 2008 proposed packaging approach, we applied the packaging criteria described above that were historically used under the OPPS. Moreover, we took into consideration our interest in expanding the size of payment groups for component services to provide encounter-based and episode-of-care-based payment in the future in order to encourage hospital efficiency and provide hospitals with maximal flexibility to manage their resources.

In accordance with a recommendation of the APC Panel, for the CY 2007 OPPS, we implemented a new policy that designates certain codes as ``special'' packaged codes, assigned to status indicator ``Q'' under the OPPS, where separate payment is provided if the code is reported without any other services that are separately payable under the OPPS on the same date of service. Otherwise, payment for the ``special'' packaged code is packaged into payment for the separately payable services provided by the hospital on the same date. We note that these ``special'' packaged codes are a subset of those HCPCS codes that are assigned to status indicator ``Q,'' which means that their payment is conditionally packaged under the OPPS. We are proposing to update our criteria to determine packaged versus separate payment for ``special'' packaged HCPCS codes assigned to status indicator ``Q'' for CY 2008. For CY 2008, payment for ``special'' packaged codes would be packaged when these HCPCS codes are billed on the same date of service as a code assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X.'' When one of the ``special'' packaged codes assigned to status indicator ``Q'' is billed on a date of service without a code that is assigned to any of the four status indicators noted above, the ``special'' packaged code assigned to status indicator ``Q'' would be separately payable.

The Packaging Subcommittee identified areas for change for some currently packaged CPT codes that it believed could frequently be provided to patients as the sole service on a given date and that required significant hospital resources as determined from hospital claims data. Based on the comments received, additional issues, and new data that we shared with the Packaging Subcommittee concerning the packaging status of codes for CY 2008, the Packaging Subcommittee reviewed the packaging status of numerous HCPCS codes and reported its findings to the APC Panel at its March 2007 meeting. The APC Panel accepted the report of the Packaging Subcommittee, heard several presentations on certain packaged services, discussed the deliberations of the Packaging Subcommittee, and recommended that--

1. CMS place CPT 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)) on the list of ``special'' packaged codes (status indicator ``Q''). (Recommendation 1)

2. CMS evaluate providing separate payment for trauma activation when it is reported on a claim for an ED visit, regardless of the level of the emergency department visit. (Recommendation 2)

3. CMS place CPT code 0175T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed remote from primary interpretation) on the list of ``special'' packaged codes (status indicator ``Q''). (Recommendation 3)

4. CMS place CPT code 0126T (Common carotid intima-media thickness (IMT) study for evaluation of atherosclerotic burden or coronary heart disease risk factor assessment) on the list of ``special'' packaged codes (status indicator ``Q'') and that CMS consider mapping the code to APC 340 (Minor Ancillary Procedures). (Recommendation 4)

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5. CMS place CPT code 0069T (Acoustic heart sound recording and computer analysis only) on the list of ``special'' packaged codes (status indicator ``Q'') and that CMS exclude APC 0096 (Non-Invasive Vascular Studies) as a potential placement for this CPT code. (Recommendation 5)

6. CMS maintain the packaged status of HCPCS code A4306 (Disposable drug delivery system, flow rate of less than 50 ml per hour) and that CMS present additional data on this system to the APC Panel when available. (Recommendation 6)

7. CMS reevaluate the packaged OPPS payment for CPT code 99186 (Hypothermia; total body) based on current research and availability of new therapeutic modalities. (Recommendation 7)

8. The Packaging Subcommittee remains active until the next APC Panel meeting. (Recommendation 8)

We address each of these recommendations in turn in the discussion that follows. Recommendation 1

For CY 2008, we are proposing to maintain CPT code 76937 as a packaged service. We are not adopting the APC Panel's recommendation to pay separately for this code in some circumstances as a ``special'' packaged code. In the CY 2006 OPPS final rule with comment period (70 FR 68544 through 68545), in response to several public comments, we reviewed in detail the claims data related to CPT code 76937. During its March 2006 APC Panel meeting, after reviewing data pertinent to CPT code 76937, the APC Panel recommended that CMS maintain the packaged status of this code for CY 2007, and we accepted that recommendation. During the March 2007 APC Panel meeting, after reviewing current data and listening to a public presentation, the Panel recommended that we treat this code as a ``special'' packaged code for CY 2008, noting that certain uncommon clinical scenarios could occur where it would be possible to bill this service alone on a claim, without any other separately payable OPPS services.

We are proposing to maintain CPT code 76937 as an unconditionally packaged service for CY 2008, fully consistent with the proposed packaging approach for the CY 2008 OPPS, as discussed above. Because CPT code 76937 is a guidance procedure and we are proposing to package payment for all guidance procedures for CY 2008, we believe it is appropriate to maintain the unconditionally packaged status of this code, which is a CPT designated add-on procedure that we would expect to be generally provided only in association with other independent services. We applied the updated criteria for determining whether this service should receive packaged or separately payment under the CY 2008 OPPS. Specifically, we determined that this service is a supportive ancillary service that is integral to an independent service, resulting in our CY 2008 proposal to packaged payment for the service.

We discussed this code extensively in both the CY 2006 and CY 2007 final rules with comment period (70 FR 68544 through 68545; 71 FR 67996 through 67997). Our hospital claims data demonstrate that guidance services are used frequently for the insertion of vascular access devices, and we have no evidence that patients lack appropriate access to guidance services necessary for the safe insertion of vascular access devices in the hospital outpatient setting. Because we believe that ultrasound guidance would almost always be provided with one or more separately payable independent procedures, its costs would be appropriately bundled with the handful of vascular access device insertion procedures with which it is most commonly performed. We further believe that hospital staff chooses whether to use no guidance or fluoroscopic guidance or ultrasound guidance on an individual basis, depending on the clinical circumstances of the vascular access device insertion procedure.

Therefore, we do not believe that CPT code 76937 is an appropriate candidate for designation as a ``special'' packaged code. The CY 2007 CPT book indicates that this code is an add-on code and should be reported in addition to the code reported for the primary procedure. According to our CY 2006 claims data available for this proposed rule, this code was billed over 60,000 times, yet less than one-tenth of 1 percent of all claims for the procedure were billed without any separately payable OPPS service on the claim. Because this code is provided alone only extremely rarely, we believe this code would not be appropriately treated as a ``special'' packaged code. Therefore, we are proposing to continue to unconditionally package CPT code 76937 for CY 2008. Recommendation 2

For CY 2008, we are proposing to maintain the packaged status of revenue code 068x, trauma response, when the trauma response is provided without critical care services. During the August 2006 APC Panel meeting, the APC Panel encouraged CMS to pay differentially for critical care services provided with and without trauma activation. For CY 2007, as a result of the APC Panel's August 2006 discussion and our own data analysis, we finalized a policy to pay differentially for critical care provided with and without trauma activation. The CY 2007 payment rate for critical care unassociated with trauma activation is $405.04 (APC 0617, Critical Care), while the payment rate for critical care associated with trauma activation is $899.58 (APC 0617 and APC 0618 (Trauma Response with Critical Care)). During the March 2007 APC Panel meeting, a presenter requested that CMS also pay differentially for emergency department visits provided with and without trauma activation. Two organizations that submitted comment letters for the APC Panel's review specifically requested separate payment for revenue code 068x every time it appears on a claim, regardless of the other services that were billed on that claim. The APC Panel recommended that CMS evaluate providing separate payment for trauma activation when it is reported on a claim for an emergency department visit, regardless of the level of the emergency department visit.

After accepting the APC Panel's recommendation and evaluating this issue, we continue to believe that, while it is currently appropriate to pay separately for trauma activation when billed in association with critical care services, it is also currently appropriate to maintain the packaged payment status of revenue code 068x when trauma response services are provided in association with both clinic and emergency department visits under the CY 2008 OPPS. As mentioned above, it is our general objective to expand the size of the payment groups under the OPPS to move toward encounter-based and episode-of-care-based payments in order to encourage maximum hospital efficiency with a focus on value-based purchasing. Because trauma activation in association with emergency department or clinic visits would always be provided in the same hospital outpatient encounter as the visit for care of the injured Medicare beneficiary, packaging payment for trauma activation when billed in association with both clinic and emergency department visits is most consistent with our proposed packaging approach. We are also concerned that unpackaging payment for trauma activation in those circumstances where the trauma response would be less likely to be essential to appropriately treating a

[[Page 42687]]

Medicare beneficiary would reduce the incentive for hospitals to provide the most efficient and cost-effective care. We note that, while we are proposing for CY 2008 to continue to provide separate payment for trauma activation in association with critical care services, we may reconsider this payment policy for future OPPS updates as we further develop encounter-based and episode-of-care-based payment approaches.

Furthermore, continued packaged payment for trauma activation when unassociated with critical care is consistent with the principles of a prospective payment system, where hospitals receive payment based on the median cost related to all of the hospital resources associated with the main service provided. In various situations, each hospital's costs may be higher or lower than the median cost used to set payment rates. In light of our proposed packaging approach for the CY 2008 OPPS, we believe it is particularly important not to make any changes in our payment policies for other services that are not fully aligned with promoting efficient, judicious, and deliberate care decisions by hospitals that allow them maximum flexibility to manage their resources through encouraging the most cost-effective use of hospital resources in providing the care necessary for the treatment of Medicare beneficiaries. Packaging payment encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources.

Therefore, we are adopting the APC Panel's recommendation that we evaluate providing separate payment for revenue code 068x when provided in association with emergency department visits. For CY 2008, after our thorough assessment, we are proposing to maintain the packaged status of revenue code 068x, except when revenue code 068x is billed in association with critical care services. Recommendation 3

For CY 2008, we are proposing to maintain the unconditionally packaged status of CPT codes 0174T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed concurrent with primary interpretation) and 0175T. These services involve the application of computer algorithms and classification technologies to chest x-ray images to acquire and display information regarding chest x-ray regions that may contain indications of cancer. CPT code 0152T (Computer aided detection (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation, with or without digitization of film radiographic images; chest radiograph(s) (List separately in addition to code for primary procedure)), the predecessor code to CPT codes 0174T and 0175T, was indicated as an add- on code to chest x-ray CPT codes for CY 2006, according to the AMA's CY 2006 CPT book. However, on July 1, 2006, the AMA released to the public an update that deleted CPT codes 0152T and replaced it with the two new Category III CPT codes 0174T and 0175T.

In its March 2006 presentation to the APC Panel, before the AMA had released the CY 2007 changes to CPT code 0152T, a presenter requested that we pay separately for this service and assign it to a New Technology APC with a payment rate of $15, based on its estimated cost, clinical considerations, and similarity to other image post processing services that are paid separately. We proposed to accept the APC Panel's recommendation to package CPT code 0152T for CY 2007.

In its August 2006 presentation to the APC Panel, after the AMA had released the CY 2007 code changes, the same presenter requested that we assign both of the two new codes to a New Technology APC with a payment rate of $15. The APC Panel members discussed these codes extensively. They considered the possibility of treating CPT code 0175T as a ``special'' packaged code, thereby assigning payment to the code only when it was performed by a hospital without any other separately payable OPPS service also provided on the same day. They questioned the meaning of the word ``remote'' in the code descriptor for CPT code 0175T, noting that was unclear as to whether remote referred to time, geography, or a specific provider. They believed it was likely that a hospital without a CAD system that performed a chest x-ray and sent the x-ray to another hospital for performance of the CAD would be providing the CAD service under arrangement and, therefore, would be providing at least one other service (chest x-ray) that would be separately paid. Thus, even in these cases, payment for the CAD service could be appropriately packaged. After significant and lengthy deliberation, the APC Panel recommended that we package payment for both of the new CPT codes, 0174T and 0175T, for CY 2007.

In its March 2007 presentation to the APC Panel, the same presenter requested that we pay separately for CPT codes 0174T and 0175T, mapping them to New Technology APC 1492, with a payment rate of $15. The presenter indicated that chest x-ray CAD is not a screening tool and should only be billed to Medicare when applied to chest x-rays suspicious for lung cancer. The presenter also explained that additional and distinct hospital resources are required for chest x-ray CAD that are not required for a standard chest x-ray. In addition, remote chest x-ray CAD described by CPT code 0175T can be performed at a different time or location or by a different provider than the chest x-ray service. The presenter expressed concern that if hospitals were not paid separately for this technology, hospitals would not be able to provide it, thereby limiting beneficiary access to chest x-ray CAD. The APC Panel recommended conditional packaging as a ``special'' packaged code for CPT code 0175T, but did not recommend a change to the unconditionally packaged status of CPT code 0174T. We are not adopting the APC Panel's recommendation for designation of CPT code 0175T as a ``special'' packaged code under the CY 2008 OPPS.

We believe that packaged payment for diagnostic chest x-ray CAD under a prospective payment methodology for outpatient hospital services is most appropriate. We are proposing to maintain CPT codes 0174T and 0175T as unconditionally packaged services for CY 2008, fully consistent with the proposed packaging approach for the CY 2008 OPPS, as discussed above. Because CPT codes 0174T and 0175T are supportive ancillary services that fit into the ``image processing'' category, and we are proposing to package payment for all image processing services for CY 2008, we believe it is appropriate to maintain the packaged status of these codes. We applied the updated criteria for determining whether these two CAD services should receive packaged or separate payment. Specifically, we determined that this service is a dependent service that is integral to an independent service, in this case, the chest x-ray or other OPPS service that we would expect to be provided in addition to the CAD service.

After hearing many public presentations and discussions regarding the use of chest x-ray CAD, we continue to believe that even the remote service would almost always be provided by a hospital either in conjunction with other separately payable services or

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under arrangement. For example, if a physician orders a chest x-ray and CAD service to be performed at hospital A, and hospital A, which does not have the CAD technology, sends the chest-ray to hospital B for the performance of chest x-ray CAD, hospital B could only provide the CAD service if it were provided under arrangement, to avoid the OPPS unbundling prohibition. Assuming that the CAD service was provided under arrangement, hospital A would bill for the chest x-ray CAD that was performed by hospital B and would pay hospital B for the service provided. In that case, hospital A would also bill the chest x-ray service that it provided. In another scenario that has been described to us, if a physician were to send a patient to a hospital clinic with the patient's chest x-ray for consultation, we believe that the patient would likely receive a visit service, in addition to the chest x-ray CAD. Therefore, in both of these circumstances, payment for the chest x-ray CAD would be appropriately packaged into payment for the separately payable services with which it was provided.

We also do not believe that CPT code 0175T should be treated as a ``special'' packaged code. As discussed earlier in this section with regard to our packaging proposal for image processing services for CY 2008, we are concerned with establishing payment policies that could encourage certain inefficient and more costly service patterns, particularly for those services that do not need to be provided as a face-to-face encounter with the patient. If we were to assign CPT code 0175T to ``special'' packaged status, we would likely create an incentive for hospitals to perform chest x-ray CAD remotely, for example, several days after performance of the initial chest x-ray, rather than immediately following the chest x-ray on the same day, to enable the hospital to receive separate payment for the service. In CY 2005, there were approximately 7.3 million claims for all chest x-ray services in the HOPD, so a payment policy that could induce such changes in service delivery would be problematic in light of our commitment to encouraging the most efficient and cost-effective care for Medicare beneficiaries. Creating such perverse payment incentives through conditional packaging is a particular problem for those services that do not need a face-to-face encounter with the patient. In fact, as part of our proposed CY 2008 packaging approach, we are also proposing to unconditionally package payment in CY 2008 for several other image processing services that are not always performed face-to- face, including HCPCS code G0288 (Reconstruction, computer tomographic angiography of aorta for surgical planning for vascular surgery) and CPT code 76377 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; requiring image postprocessing on an independent workstation).

The proposed unconditionally packaged treatment of the two CPT codes for chest x-ray CAD is fully consistent with the proposed packaging approach for the CY 2008 OPPS, as discussed above, and the principles and incentives for efficiency inherent in a prospective payment system based on groups of services. Packaging these services creates incentives for providers to furnish services in the most cost- effective way and provides them with the most flexibility to manage their resources. As stated above, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources. Therefore, we are proposing to continue to unconditionally package payment for CPT codes 0174T and 0175T for CY 2008. Recommendation 4

For CY 2008, we are adopting the APC Panel's recommendation and proposing to add CPT code 0126T to the list of ``special'' packaged codes and assign this code to APC 0340 (Minor Ancillary Procedures).

This service describes an ultrasound procedure that measures common carotid intima-media thickness to evaluate a patient's degree of atherosclerosis. This code became effective January 1, 2006. We received a comment to the CY 2007 proposed rule requesting that this code become separately payable for CY 2007. At that point, we had no cost data for the service and, as discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67998), we reviewed this code with the Packaging Subcommittee, as is our standard procedure for codes that we are asked to review during the comment period. The APC Panel noted that this service could sometimes be provided to a patient without any other separately payable services. Therefore, the APC Panel recommended that we add this code to the list of ``special'' packaged codes and pay for it separately when it is provided without any other separately payable services on the same day. For circumstances when this code is paid separately, the APC Panel recommended that we consider assigning this code to APC 0340.

While we continue to believe that this procedure would not commonly be provided alone, we are adopting the APC Panel recommendation and are proposing to treat this code as a ``special'' packaged code subject to conditional packaging, mapping to APC 0340 for CY 2008 when it would be separately paid. This is fully consistent with the proposed packaging approach for the CY 2008 OPPS, as discussed above. Because CPT code 0126T is almost always performed during another procedure, and we are proposing to package payment for all intraoperative procedures for CY 2008, we believe it is appropriate to designate this CPT code as a ``special'' packaged code. We applied the updated criteria for determining whether this service should receive packaged or separate payment. Specifically, we determined that this service is usually a dependent service that is integral to an independent service, but that it could sometimes be provided without an independent service.

As with all ``special'' packaged codes, we will closely monitor cost data and frequency of separate payment for this procedure as soon as we have more claims data available. Recommendation 5

For CY 2008, we are proposing to maintain the packaged status of CPT code 0069T, and we are not adopting the APC Panel's recommendation to designate this service as a ``special'' packaged code. This service uses signal processing technology to detect, interpret, and document acoustical activities of the heart through special sensors applied to a patient's chest. This code was a new Category III CPT code implemented in the CY 2005 OPPS. CPT code 0069T was an add-on code to an electrocardiography (EKG) service for CYs 2005 and 2006. However, effective January 1, 2007, the AMA changed the code descriptor to remove the add-on code designation for CPT code 0069T. This code has been packaged under the OPPS since CY 2005.

During the August 2005 APC Panel meeting, the APC Panel recommended packaging CPT code 0069T for CY 2005. In its March 2006 presentation to the APC Panel, a presenter requested that we pay separately for CPT code 0069T and assign it to APC 0099 (Electrocardiograms) based on its estimated cost and clinical characteristics. The presenter stated that

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the acoustic heart sound recording and analysis service may be provided with or without a separately reportable electrocardiogram. Members of the APC Panel engaged in extensive discussion of clinical scenarios as they considered whether CPT code 0069T could or could not be appropriately reported alone or in conjunction with several different procedure codes. Ultimately, the APC Panel recommended assigning this service to a separately payable status indicator. However, during the August 2006 meeting, the APC Panel further discussed CMS' proposal to package payment for CPT code 0069T for CY 2007 and considered the CY 2007 code descriptor change, finally recommending that CMS continue to package this code for CY 2007.

During the March 2007 APC Panel meeting, the same presenter requested that we pay separately for this service and assign it to APC 0096 (Non-Invasive Vascular Studies) or to APC 0097 (Cardiac and Ambulatory Blood Pressure Monitoring), with CY 2007 payment rates of $94.06 and $62.85, respectively. The presenter stated that the estimated true cost of this service lies between $62 and $94. The presenter clarified that this service is usually provided with an EKG, but noted that the test is sometimes provided without an EKG, according to its revised code descriptor for CY 2007. The presenter agreed that it would be rare for the acoustic heart sound procedure to be performed alone without any other separately payable OPPS services. The APC Panel recommended that we place CPT code on the list of ``special'' packaged codes and that we exclude APC 0096 as a potential placement for this CPT code.

Because this service does not fit into one of the seven identified categories of packaged codes proposed for the CY 2008 OPPS, we followed our historical packaging guidelines to determine whether to maintain the packaged status of this code or to pay for it separately. Based on the clinical uses that were described during the March 2007 and earlier APC Panel meetings, APC Panel discussions, and our claims data review, we continue to believe that it is highly unlikely that CPT code 0069T would be performed in the HOPD as a sole service without other separately payable OPPS services. In addition, our data indicate that this service is estimated to require only minimal hospital resources. Based on CY 2006 claims, we had only 8 single claims for CPT code 0069T, with a median line-item cost of $5.21, consistent with its low expected cost. Therefore, we believe that payment for CPT code 0069T is appropriately packaged because it would usually be closely linked to the performance of an EKG or other separately payable cardiac service, would rarely, if ever, be the only OPPS service provided to a patient in an encounter, and has a low estimated resource cost. The proposed packaged treatment of this code is consistent with the principles and incentives for efficiency inherent in a prospective payment system based on groups of services. Therefore, we are proposing to continue to package payment for CPT code 0069T for CY 2008. Recommendation 6

For CY 2008, we are proposing to adopt the APC Panel's recommendation and maintain the packaged status of HCPCS code A4306. As requested by the APC Panel, we will also present to the APC Panel additional data on this system when available.

HCPCS code A4306 describes a disposable drug delivery system with a flow rate of less than 50 ml per hour. As discussed in a presentation at the March 2007 APC Panel meeting, there is a particular disposable drug delivery system that is specifically used to treat postoperative pain. Since the implementation of the OPPS, this code was assigned to status indicator ``A,'' indicating that it was payable according to another fee schedule, in this case, the Durable Medical Equipment (DME) fee schedule. There were discussions during CYs 2005 and 2006 between CMS and a manufacturer, and it was determined that this code should be removed from the DME fee schedule as this code does not describe DME. For CY 2007, HCPCS code A4306 is payable under the OPPS, with status indicator ``N'' indicating that its payment is unconditionally packaged.

One presenter to the APC Panel requested that we pay separately for this supply under the OPPS. For CY 2007, we packaged payment for this code because it is considered to be a supply, and since the inception of the OPPS the established payment policy packages payment for supplies because they are directly related and integral to an independent service furnished under the OPPS.

Our CY 2006 claims data indicate that HCPCS code A4306 was billed on OPPS claims 1,773 times, yielding a line-item median cost of approximately $3. The APC Panel and a presenter believe that this code may not always be appropriately billed by hospitals as the data also show that this code was billed together with computed tomography (CT) scans of the thorax, abdomen, and pelvis approximately 40 percent of the time that this supply was reported. The APC Panel speculated that this code may be currently reported when other types of drug delivery devices are utilized for nonsurgical procedures or for purposes other than the treatment of postoperative pain. Therefore, the APC Panel requested that we share additional data when available.

In summary, because HCPCS code A4306 represents a supply and payment of supplies is packaged under the OPPS according to longstanding policy, we are proposing to maintain the packaged status of HCPCS code A4306 for CY 2008. Recommendation 7

For CY 2008, we are proposing to maintain the packaged status of CPT code 99186, consistent with the APC Panel's recommendation that we reevaluate the packaged OPPS payment for CPT code 99186 based on current research and the availability of new therapeutic modalities.

This service describes induced total body hypothermia that is performed on some post-cardiac arrest patients to avoid or lessen brain damage. The service has been packaged since the implementation of the OPPS. One presenter to the APC Panel at the March 2007 meeting requested that this code be assigned a separately payable status indicator under the OPPS. The presenter expressed concern that hospitals that provide this service and subsequently transfer the patient to another hospital prior to admission are not adequately paid for their services.

Because this service does not fit into one of the seven identified categories of packaged codes proposed for the CY 2008 OPPS, we followed our historical packaging guidelines to determine whether to maintain the packaged status of this code or to pay for it separately. Claims data indicate that this code was billed 39 times under the OPPS in CY 2006 and was never billed without another separately payable service on the same date. The proposed CY 2008 median cost for this code is $35, with individual costs ranging from $17 to $69, likely reflecting the costs associated with traditional methods of inducing total body hypothermia, such as ice packs applied to the body. In fact, the presenter noted that a technologically advanced total body hypothermia system costs $30,000, with an additional cost of $1,600 per disposable body suit. As expected, our claims data show that this service was provided most frequently with high level emergency department visits and critical care services.

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We believe that the circumstances in which total body hypothermia would be provided to a Medicare beneficiary and billed under the OPPS are extremely rare, as patients requiring this therapy would almost always be admitted as inpatients if they survive. We believe that, in the uncommon situation where a patient presents to one hospital and then is cooled and transported to another hospital without admission to the first hospital, payment for the hypothermia service would be most appropriately packaged into payment for the many other separately payable services that it most likely accompanied and that would be paid to the first hospital under the OPPS.

In addition, consistent with the principles and incentives for efficiency inherent in a prospective payment system based on groups of services, packaging payment for this procedure that is highly integrated with other services provided in the hospital outpatient encounter creates incentives for providers to furnish services in the most cost-effective way. In situations 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 most cost-effective item that meets the patient's needs. Recommendation 8

In response to the APC Panel's recommendation for the Packaging Subcommittee to remain active until the next APC meeting, we note that the APC Panel Packaging Subcommittee remains active, and additional issues and new data concerning the packaging status of codes will be shared for its consideration as information becomes available. We continue to encourage submission of common clinical scenarios involving currently packaged HCPCS codes to the Packaging Subcommittee for its ongoing review, and we also encourage recommendations of specific services or procedures whose payment would be most appropriately packaged under the OPPS. Additional detailed suggestions for the Packaging Subcommittee should be submitted to APCPanel@cms.hhs.gov, with ``Packaging Subcommittee'' in the subject line.

B. Proposed Payment for Partial Hospitalization

(If you choose to comment on issues in this section, please include the caption ``OPPS: Partial Hospitalization'' at the beginning of your comment.) 1. Background

Partial hospitalization is an intensive outpatient program of psychiatric services provided to patients as an alternative to inpatient psychiatric care for beneficiaries who have an acute mental illness. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified community mental health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. The Medicare regulations at 42 CFR 419.21 that implement this provision specify that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs as well as those furnished to hospital outpatients. Section 1833(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC, effective for services furnished on or after August 1, 2000. For a detailed discussion, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18452).

Historically, the median per diem cost for CMHCs greatly exceeded the median per diem cost for hospital-based PHPs and has fluctuated significantly from year to year, while the median per diem cost for hospital-based PHPs has remained relatively constant ($200-$225). We believe that CMHCs may have increased and decreased their charges in response to Medicare payment policies. As discussed in more detail in section II.B.2. of this proposed rule and in the CY 2004 OPPS final rule with comment period (68 FR 63470), we also believe that some CMHCs manipulated their charges in order to inappropriately receive outlier payments.

For CY 2005, the PHP per diem amount was based on 12 months of hospital and CMHC PHP claims data (for services furnished from January 1, 2003, through December 31, 2003). We used data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs because CMHCs are Medicare providers only for the purpose of providing partial hospitalization services. We used CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills to estimate the provider's cost for a day of PHP services. Per diem costs were then computed by summing the line- item costs on each bill and dividing by the number of days on the bill.

In the CY 2005 OPPS update, the CMHC median per diem cost was $310, the hospital-based PHP median per diem cost was $215, and the combined CMHC and hospital-based median per diem cost was $289. We believed that the reduction in the CY 2005 CMHC median per diem cost compared to prior years indicated that the use of updated CCRs had accounted for the previous increase in CMHC charges and represented a more accurate estimate of CMHC per diem costs for PHP.

For the CY 2006 OPPS final rule with comment period, we analyzed 12 months of the most current claims data available for hospital and CMHC PHP services furnished between January 1, 2004, and December 31, 2004. We also used the most currently available CCRs to estimate costs. The median per diem cost for CMHCs dropped to $154, while the median per diem cost for hospital-based PHPs was $201. Based on the CY 2004 claims data, the average charge per day for CMHCs was $760, considerably greater than hospital-based per day costs but significantly lower than what it was in CY 2003 ($1,184). We believed that a combination of reduced charges and slightly lower CCRs for CMHCs resulted in a significant decline in the CMHC median per diem cost between CY 2003 and CY 2004.

Following the methodology used for the CY 2005 OPPS update, the CY 2006 OPPS updated combined hospital-based and CMHC median per diem cost was $161, a decrease of 44 percent compared to the CY 2005 combined median per diem amount.

As we were concerned that this amount may not cover the cost for PHPs, as stated in the CY 2006 OPPS final rule with comment period (70 FR 68548 and 68549), we applied a 15-percent reduction to the combined hospital-based and CMHC median per diem cost to establish the CY 2005 PHP APC. (We refer readers to the CY 2006 OPPS final rule with comment period for a full discussion of how we established the CY 2006 PHP rate (70 FR 68548).) We stated our belief that a reduction in the CY 2005 median per diem cost would strike an appropriate balance between using the best available data and providing adequate payment for a program that often spans 5-6 hours a

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day. We stated that 15 percent was an appropriate reduction because it recognized decreases in median per diem costs in both the hospital data and the CMHC data, and also reduced the risk of any adverse impact on access to these services that might result from a large single-year rate reduction. However, we adopted this policy as a transitional measure, and stated in the CY 2006 OPPS final rule with comment period that we would continue to monitor CMHC costs and charges for these services and work with CMHCs to improve their reporting so that payments can be calculated based on better empirical data, consistent with the approach we have used to calculate payments in other areas of the OPPS (70 FR 68548).

To apply this methodology for CY 2006, we reduced the CY 2005 combined unscaled hospital-based and CMHC median per diem cost of $289 by 15 percent, resulting in a combined median per diem cost of $245.65 for CY 2006.

For the CY 2007 final rule with comment period, we analyzed 12 months of more current data for hospital and CMHC PHP claims for services furnished between January 1, 2005, and December 31, 2005. We also used the most currently available CCRs to estimate costs. Using these updated data, we recreated the analysis performed for the CY 2007 proposed rule to determine if the significant factors we used in determining the proposed PHP rate had changed. The median per diem cost for CMHCs increased $8 to $173, while the median per diem cost for hospital-based PHPs decreased $19 to $190. The CY 2005 average charge per day for CMHCs was $675, similar to the figure noted in the CY 2007 proposed rule ($673) but still significantly lower than what was noted as the average charge for CY 2003 ($1,184).

The combined hospital-based and CMHC median per diem cost would have been $175 for CY 2007. Rather than allowing the PHP median per diem cost to drop to this level, we proposed to reduce the PHP median cost by 15 percent, similar to the methodology used for the CY 2006 update. However, after considering all public comments received concerning the proposed CY 2007 PHP per diem rate and results obtained using the more current data, we modified our proposal to continue using the 15 percent reduction methodology as the basis for calculating the combined hospital based and CMHC median per diem cost for CY 2007. Instead, we made a 5 percent reduction to the CY 2006 median per diem rate to provide a transitional path to the per diem cost indicated by the data. We believed that this approach accounted for the downward direction of the data and addressed concerns raised by commenters about the magnitude of another 15 percent reduction in 1 year. Thus, to calculate the CY 2007 APC PHP per diem cost, we reduced $245.65 (the CY 2005 combined hospital-based and CMHC median per diem cost of $289 reduced by 15 percent) by 5 percent, which resulted in a combined per diem cost of $233.37. 2. Proposed PHP APC Update

For the past 2 years, we were concerned that we did not have sufficient evidence to support using the median per diem cost produced by the most current year's PHP data. After extensive analysis, we now believe we have determined the appropriate level of cost for the type of day services that is being provided. This analysis included an examination of revenue-to-cost center mapping, refinements to the per diem methodology, and an in-depth analysis of the number of units of service per day.

In the CY 2006 and CY 2007 OPPS updates, the data have produced median costs that we believe were too low to cover the cost of a program that typically spans 5 to 6 hours per day. However, we continued to observe a clear downward trend in the data. We stated that if the data continue to reflect a low PHP per diem cost in CY 2008, we expect to continue the transition of decreasing the PHP median per diem cost to an amount that is more reflective of the data.

We received a comment on the CY 2007 proposed rates that CMS understated the PHP median cost by not using a hospital-specific CCR for partial hospitalization. In our response to this comment in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68000), we noted that, although most hospitals do not have a cost center for partial hospitalization, we used the CCR as specific to PHP as possible. The following CMS Web site contains the revenue-code-to-cost-center crosswalk: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage .

This crosswalk indicates how charges on a claim are mapped to a cost center for the purpose of converting charges to cost. One or more cost centers are listed for most revenue codes that are used in the OPPS median calculations, starting with the most specific, and ending with the most general. Typically, we map the revenue code to the most specific cost center with a provider-specific CCR. However, if the hospital does not have a CCR for any of the listed cost centers, we consider the overall hospital CCR as the default. For partial hospitalization, the revenue center codes billed by PHPs are mapped to Primary Cost Center 3550 ``Psychiatric/Psychological Services''. If that cost center is not available, they are mapped to the Secondary Cost Center 6000 ``Clinic.'' We use the overall facility CCR for CMHCs because PHPs are CMHCs' only Medicare cost, and CMHCs do not have the same cost structure as hospitals. Therefore, for CMHCs, we use the CCR from the outpatient provider-specific file.

Closer examination of the revenue-code-to-cost-center crosswalk revealed that 10 of the revenue center codes (shown in the table below) that are common among hospital based PHP claims did not map to a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center of 6000 ``Clinic.''

Revenue center code

Revenue center description

0430............................. Occupational Therapy. 0431............................. Occupational Therapy: Visit charge. 0432............................. Occupational Therapy: Hourly charge. 0433............................. Occupational Therapy: Group rate. 0434............................. Occupational Therapy: Evaluation/re- evaluation. 0439............................. Occupational Therapy: Other occupational therapy. 0904............................. Psychiatric/Psychological Treatment: Activity therapy. 0940............................. Other Therapeutic Services. 0941............................. Other Therapeutic Services: Recreation Rx. 0942............................. Other Therapeutic Services: Education/ training.

We believe these 10 revenue center codes did not map to either a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center 6000 ``Clinic'' because these codes may be used for services that are not PHP or psychiatric related. For example, many Occupational Therapy claims are not furnished to PHP patients and, therefore, should be appropriately mapped to a Primary Cost Center 5100 ``Occupation Therapy'' (the general Occupational Therapy Cost Center). Another example would be claims for Diabetes Education, which is also not furnished to PHP patients.

In order to more accurately estimate costs for PHP claims, for purposes of our analysis, we remapped these 10 revenue center codes to a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center 6000 ``Clinic''. Once we remapped the

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codes, we computed an alternate cost for each line item of the CY 2006 hospital-based PHP claims. There are a total of 638,652 line items in the CY 2006 hospital-based PHP claims. Prior to remapping, there were 282,871 line items where a default CCR was used to estimate costs. After the remapping, there were 141,682 line items left defaulting to the hospitals' overall CCR. While this remapping creates a more accurate estimate of PHP per diem costs for a significant number of claims, there was not a large change in the resulting median per diem cost. The median per diem costs for hospital-based PHPs increased by $5.20 (from $191.80 to $197).

As part of our effort to produce the most accurate per diem cost estimate, we have reexamined our methodology for computing the PHP per diem cost. Section 1833(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. As explained in section II.B.1 of this proposed rule, payment to providers under OPPS for PHP services represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC. Other than being a per diem payment, we use the general OPPS ratesetting methodology for determining median cost.

As we have described in prior Federal Register notices, our current method for computing per diem costs is as follows: we use data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs. We use CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills to estimate the provider's cost for a day of PHP services. Per diem costs are then computed by summing the line-item costs on each bill and dividing by the number of days of PHP care provided on the bill. These computed per diem costs are arrayed from lowest to highest and the middle value of the array is the median per diem cost.

We have developed an alternate way to determine median cost by computing a separate per diem cost for each day rather than for each bill. Under this method, a cost is computed separately for each day of PHP care. When there are multiple days of care entered on a claim, a unique cost is computed for each day of care. All of these costs are then arrayed from lowest to highest and the middle value of the array would be the median per diem cost.

We believe this alternative method of computing a per diem median cost produces a more accurate estimate because each day gets an equal weight towards computing the median. We have considered this alternative method for several years, but in light of the volatility of the data, we have not believed it would provide a reasonable and appropriate median per diem cost. In light of the stabilizing trend in the data, and in light of the robustness of recent data analysis, we now believe it is appropriate to propose the adoption of this method. We believe this method for computing a PHP per diem median cost more accurately reflects the costs of a PHP and uses all available PHP data. Therefore, for CY 2008, we are proposing to adopt this alternate method for computing PHP median per diem costs.

As noted previously, for the past 2 years, the data have produced median costs that we believe were too low to cover the cost of a program that typically spans 5 to 6 hours per day. This length of day would include 5 or 6 services with a break for lunch. We looked at the number of units of service being provided in a day of care, as a possible explanation for the low per diem cost for PHP. Our analysis revealed that both hospital-based and CMHC PHPs have a significant number of days where less than 4 units of service were provided.

Specifically, 64 percent of the days that CMHCs were paid were for days where 3 or less units of services were provided, and 34 percent of the days that hospital-based PHPs were paid were for days where 3 or less units of service were provided. We believe these findings are significant because they may explain a lower per diem cost. Therefore, based on these findings, we computed median per diem costs in two categories:

(a) All days.

(b) Days with 4 units of service or more (removing days with 3 services or less).

These median per diem costs were computed separately for CMHCs and hospital based PHPs and are shown in the table below:

Hospital- CMHCs based PHPs

All Days......................................

$178

$186 Days with 4 units or more.....................

$191

$218

As expected, excluding the low unit days resulted in a higher median per diem cost estimate. However, if the programs have many ``low unit days,'' their cost and Medicare payment should reflect this level of service. It would not be appropriate to set the PHP rate to exclude the ``low unit days'' because these days are covered PHP days. We believe the analysis of the number of units of service per day supports a lower per diem cost. Therefore, including all days supports the data trend towards a lower per diem cost and we believe more accurately reflects the costs of providing these PHP services.

Although the minimum number of PHP services required in a PHP day is three, it was never our intention that this represented the typical number of services to be provided in a typical PHP day. Our intention was to cover days that consisted of only three services, generally because a patient was transitioning towards discharge. Rather than set separate rates for half-days and full-days, we believed it was appropriate to set one rate that would be paid for all PHP days, including those for patients transitioning towards discharge. We intend that the PHP benefit is for a full day, with shorter days only occurring while a patient transitions out of the PHP.

However, as indicated in the data, many programs have these ``low unit days,'' and we believe their cost and Medicare payment should reflect this level of service. It would not be appropriate to set the PHP rate excluding the low unit days because these days are covered. Again, we believe the data support the estimated per diem cost under $200 that we have observed in the data.

At this time, we believe the most appropriate payment rate for PHPs is computed using both hospital-based and CMHC PHP data, including the remapped data for all days, resulting in a median per diem cost of $178. Therefore, we are proposing a CY 2008 APC PHP per diem cost of $178. 3. Proposed Separate Threshold for Outlier Payments to CMHCs

In the November 7, 2003 final rule with comment period (68 FR 63469), we indicated that, given the difference in PHP charges between hospitals and CMHCs, we did not believe it was appropriate to make outlier payments to CMHCs using the outlier percentage target amount and threshold established for hospitals. There was a significant difference in the amount of outlier payments made to hospitals and CMHCs for PHP. In addition, further analysis indicated that using the same OPPS

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outlier threshold for both hospitals and CMHCs did not limit outlier payments to high cost cases and resulted in excessive outlier payments to CMHCs. Therefore, beginning in CY 2004, we established a separate outlier threshold for CMHCs. For CYs 2004 and 2005, we designated a portion of the estimated 2.0 percent outlier target amount specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS in each of those years, excluding outlier payments. For CY 2006, we set the estimated outlier target at 1.0 percent and allocated a portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. For CY 2007, we set the estimated outlier target at 1.0 percent and allocated a portion of that 1.0 percent, an amount equal to 0.15 percent of outlier payments and 0.0015 percent of total OPPS payments to CMHCS for PHP service outliers. The CY 2007 CMHC outlier threshold is met when the cost of furnishing services by a CMHC exceeds 3.40 times the PHP APC payment amount. The CY 2007 OPPS outlier payment percentage is 50 percent of the amount of costs in excess of the threshold.

The separate outlier threshold for CMHCs became effective January 1, 2004, and has resulted in more commensurate outlier payments. In CY 2004, the separate outlier threshold for CMHCs resulted in $1.8 million in outlier payments to CMHCs. In CY 2005, the separate outlier threshold for CMHCs resulted in $0.5 million in outlier payments to CMHCs. In contrast, in CY 2003, more than $30 million was paid to CMHCs in outlier payments. We believe this difference in outlier payments indicates that the separate outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs in line with the percentage of OPPS payments made to CMHCs.

As noted in section II.G. of this proposed rule, for CY 2008, we are proposing to continue our policy of setting aside 1.0 percent of the aggregate total payments under the OPPS for outlier payments. We are proposing that a portion of that 1.0 percent, an amount equal to 0.03 percent of outlier payments and 0.0003 percent of total OPPS payments, would be allocated to CMHCs for PHP service outliers. As discussed in section II.G. of this proposed rule, we again are proposing to set a dollar threshold in addition to an APC multiplier threshold for OPPS outlier payments. However, because the PHP is the only APC for which CMHCs may receive payment under the OPPS, we would not expect to redirect outlier payments by imposing a dollar threshold. Therefore, we are not proposing to set a dollar threshold for CMHC outliers. As noted above, we are proposing to set the outlier threshold for CMHCs for CY 2008 at 3.40 times the APC payment amount and the CY 2008 outlier payment percentage applicable to costs in excess of the threshold at 50 percent.

C. Proposed Conversion Factor Update

(If you choose to comment on issues in this section, please include the caption ``OPPS: Conversion Factor'' at the beginning of your comment.)

Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for CY 2008, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act.

The proposed hospital market basket increase for FY 2008 published in the IPPS proposed rule on May 3, 2007, is 3.3 percent (72 FR 24835). To set the OPPS proposed conversion factor for CY 2008, we increased the CY 2007 conversion factor of $61.468, as specified in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68003), by 3.3 percent.

In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2007 to ensure that the revisions that we are proposing to make to our updates for a revised wage index and rural adjustment are made on a budget neutral basis. We calculated an overall budget neutrality factor of 1.0025 for wage index changes by comparing total payments from our simulation model using the FY 2008 IPPS proposed wage index values to those payments using the current (FY 2007) IPPS wage index values. This adjustment reflects an adjustment of 1.0009 for changes to the wage index and an additional 1.0016 to accommodate the IPPS budget neutrality adjustment for inclusion of the rural floor. As discussed further in section II.D. of this proposed rule, for the first time, the proposed FY 2008 IPPS wage indices include a blanket budget neutrality adjustment for including the rural floor provision, which previously had been applied to the IPPS standardized amount. For further discussion of this proposed policy in its entirety, we refer readers to the FY 2008 IPPS proposed rule (72 FR 24787 through 24792). This proposed adjustment is specific to the IPPS. For the OPPS, we have increased the conversion factor by the proportional amount of the rural floor budget neutrality adjustment to accommodate this proposed change.

We estimated the rural adjustment for CY 2008 to reflect the proposed extension of the adjustment to payment for brachytherapy sources as discussed in section II.F.2. of this proposed rule, but as the impact of the proposed extension was negligible, we did not change the proposed rural adjustment. Therefore, we calculated a budget neutrality factor of 1.000 for the rural adjustment. For CY 2008, we estimate that allowed pass through spending for both drugs and devices would equal approximately $54 million, which represents 0.15 percent of total OPPS projected spending for CY 2008. The proposed conversion factor also is adjusted by the difference between the 0.21 percent pass through dollars set aside in CY 2007 and the 0.15 percent estimate for CY 2008 pass through spending. Finally, proposed payments for outliers remain at 1.0 percent of total payments for CY 2008.

The proposed market basket increase update factor of 3.3 percent for CY 2008, the required wage index and rural budget neutrality adjustment of approximately 1.0025, and the proposed adjustment of 0.06 percent for the difference in the pass-through set aside result in a proposed standard OPPS conversion factor for CY 2008 of $63.693.

D. Proposed Wage Index Changes

(If you choose to comment on issues in this section, please include the caption ``OPPS: Wage Index'' at the beginning of your comment.)

Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographic wage differences, the portion of the OPPS payment rate and the copayment standardized amount attributable to labor and labor related cost. Since the inception of the OPPS, CMS policy has been to wage adjust 60 percent of the OPPS payment, based on a regression analysis that determined that 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 still 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). We are not proposing to revise this policy for the CY 2008 OPPS. We refer readers to section II.H. of this proposed rule for a description and example of how the wage index for a

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particular hospital is used to determine the payment for the hospital. This adjustment must be made in a budget neutral manner. (As we have done in prior years, we are proposing to adopt the final IPPS wage indices for the OPPS and to extend these wage indices to hospitals that participate in the OPPS but not the IPPS (referred to in this section as ``non IPPS'' hospitals).)

As discussed in section II.A. of this proposed rule, we standardize 60 percent of estimated costs (labor-related costs) for geographic area wage variation using the IPPS pre-reclassified wage indices in order to remove the effects of differences in area wage levels in determining the 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), OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. Thus, the wage index that applies to a particular hospital under the IPPS will also apply to that hospital under the OPPS. As initially explained in the September 8, 1998 OPPS proposed rule, we believed and continue to believe that using the IPPS wage index as the source of an adjustment factor for OPPS is reasonable and logical, given the inseparable, subordinate status of the hospital outpatient within the hospital overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. In accordance with our established policy, we are proposing to use the final FY 2008 final version of these wage indices to determine the wage adjustments for the OPPS payment rate and copayment standardized amount that would be published in our final rule with comment period for CY 2008.

We note that the proposed FY 2008 IPPS wage indices continue to reflect a number of changes implemented over the past few years as a result of the revised Office of Management and Budget (OMB) standards for defining geographic statistical areas, the implementation of an occupational mix adjustment as part of the wage index, wage adjustments provided for under Pub. L. 105-33 and Pub. L. 108-173, and clarification of our policy for multicampus hospitals. The following is a brief summary of the components of the proposed FY 2008 IPPS wage indices and any adjustments that we are proposing to apply to the OPPS for CY 2008. We refer the reader to the FY 2008 IPPS proposed rule (72 FR 24776 through 24802) for a detailed discussion of the changes to the wage indices and to the correction notice to the FY 2008 IPPS proposed rule published in the Federal Register on June 7, 2007 (72 FR 31507). In this proposed rule, we are not reprinting the proposed FY 2008 IPPS wage indices referenced in the discussion below, with the exception of the out-migration wage adjustment table (Addendum L to this proposed rule). We also refer readers to the CMS Web site for the OPPS at http://www.cms.hhs.gov/providers/hopps. At this Web site, the reader will

find a link to the proposed FY 2008 IPPS wage indices tables and to those tables as corrected in the correction notice to the FY 2008 IPPS proposed rule published in the Federal Register on June 7, 2007.

1. The proposed continued use of the Core Based Statistical Areas (CBSAs) issued by the OMB as revised standards for designating geographical statistical areas based on the 2000 Census data, to define labor market areas for hospitals for purposes of the IPPS wage index. The OMB revised standards were published in the Federal Register on December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 IPPS final rule, CMS adopted the new OMB definitions for wage index purposes. In the FY 2008 IPPS proposed rule, we again stated that hospitals located in Metropolitan Statistical Areas (MSAs) will be urban and hospitals that are located in Micropolitan Areas or outside CBSAs will be rural. We also reiterated our policy that when an MSA is divided into one or more Metropolitan Divisions, we use the Metropolitan Division for purposes of defining the boundaries of a particular labor market area. To help alleviate the decreased payments for previously urban hospitals that became rural under the new geographical definitions, we allowed these hospitals to maintain for the 3-year period from FY 2005 through FY 2007, the wage index of the MSA where they previously had been located. This hold harmless provision expires after FY 2007. We adopted the same policy for OPPS, but because the OPPS operates on a calendar year, wage index policies are in effect through December 31, 2007. To be consistent with the IPPS, as proposed in the FY 2008 IPPS proposed rule, beginning in CY 2008 (January 1, 2008) under the OPPS, these hospitals will receive their statewide rural wage index. Hospitals paid under the IPPS are eligible to apply for reclassification in FY 2008.

As noted above, for purposes of estimating an adjustment for the OPPS payment rates to accommodate geographic differences in labor costs in this proposed rule, we have used the wage indices identified in the FY 2008 IPPS proposed rule and as corrected in the June 7, 2007 correction notice to the FY 2008 IPPS proposed rule, that are fully adjusted for differences in occupational mix using the entire 6-month survey data collected in 2006.

2. The reclassifications of hospitals to geographic areas for purposes of the wage index. For purposes of the OPPS wage index, we are proposing to adopt all of the IPPS reclassifications for FY 2008, including reclassifications that the Medicare Geographic Classification Review Board (MGCRB) approved. We note that reclassifications under section 508 of Pub. L. 108-173 were set to terminate March 31, 2007. However, section 106(a) of the MIEA-TRHCA extended any geographic reclassifications of hospitals that were made under section 508 and that would expire on March 31, 2007 until September 30, 2007. On March 23, 2007, we published a notice in the Federal Register (72 FR 13799) that indicated how we are implementing section 106 of the MIEA-TRHCA through September 30, 2007. Because the section 508 provision will expire on September 30, 2007, the OPPS wage index will not include any reclassifications under section 508 for CY 2008.

3. The out-migration wage adjustment to the wage index. In the FY 2008 IPPS proposed rule (72 FR 24798 through 24799), we discussed the out-migration adjustment under section 505 of Pub. L. 108-173 for counties under this adjustment. Hospitals paid under the IPPS located in the qualifying section 505 ``out-migration'' counties receive a wage index increase unless they have already been otherwise reclassified. We note that in the FY 2008 IPPS proposed rule, we propose using the post- reclassified, rather than the pre-reclassified wage indices, in calculating the out-migration adjustment. (See the FY 2008 IPPS proposed rule for further information on the out-migration adjustment.) For OPPS purposes, we are proposing to continue our policy in CY 2008 to allow 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. Because non-IPPS hospitals cannot reclassify, they are eligible for the out migration wage adjustment. Table 4J published in the addendum to the FY 2008 IPPS proposed rule and as corrected in the June 7, 2007 correction notice to the FY 2008 IPPS proposed rule identifies counties eligible for the out-migration adjustment. As stated earlier, we are reprinting the corrected

[[Page 42695]]

version of Table 4J in this proposed rule as Addendum L.

4. Wage Index for Multicampus Hospitals. We also wish to clarify that the IPPS policy for multicampus wage index payments also applies to OPPS. As a result of the new labor market areas introduced in FY 2005, there are hospitals with multiple campuses previously located in a single MSA that are now in more than one CBSA. A multicampus hospital is an integrated institution. For this reason, the multicampus hospital has one provider number and submits a single cost report that combines the total wages and hours of each of its campuses in the manner described in the FY 2008 IPPS proposed rule (72 FR 24783).

In the FY 2008 IPPS proposed rule, we proposed to apportion wages and hours across multiple campuses using full-time equivalent (FTE) staff data in order to include wage data for the individual campuses of a multicampus hospital in its local wage index calculation. To the extent that a multicampus hospital system has associated outpatient facilities, we would expect the FTEs for those outpatient facilities to be included in the FTE estimate for the closest inpatient facility. As part of this policy, we would fully expect that an OPD that is part of a multicampus hospital system would receive a wage index based on the geographic location of the inpatient campus with which it is associated. This would include cases where one inpatient campus reclassified. Affiliated outpatient facilities would receive the reclassified wage index of the inpatient campus. For further discussion of the FY 2008 IPPS proposed multicampus hospital policy in its entirety, we refer readers to the FY 2008 IPPS proposed rule (72 FR 24783 through 24784).

5. Rural Floor Provision. Section 4410 of Pub. L. 105-33 provides that the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas of the State (``the rural floor''). Table 4A in the FY 2008 IPPS proposed rule (72 FR 24924), as corrected in the June 7, 2007 correction notice (72 FR 31507), identifies urban areas where hospitals located in those areas are assigned the rural floor (noted by a superscript ``2''). For CY 2008 under the OPPS, we are proposing to continue our policy to allow non-IPPS hospitals paid under the OPPS to receive the rural floor wage index when applicable under the IPPS for FY 2008. For the first time, the proposed FY 2008 IPPS wage indices include a blanket budget neutrality adjustment for including the rural floor provision, which previously had been applied to the IPPS standardized amount. For further discussion of this proposed policy in its entirety, we refer readers to the FY 2008 IPPS proposed rule (72 FR 24787 through 24792).

We note that all changes to the wage index resulting from geographic labor market area reclassifications or other adjustments must be incorporated in a budget neutral manner. Accordingly, in calculating the OPPS budget neutrality estimates for CY 2008, in this proposed rule, we have included the wage index changes that would result from the MGCRB reclassifications, implementation of sections 4410 of Pub. L. 105-33 and 505 of Pub. L. 108-173, and other refinements proposed in the FY 2008 IPPS proposed rule. For the CY 2008 OPPS final rule, we are proposing to use the final FY 2008 IPPS wage indices, including the budget neutrality adjustment for the rural floor for calculating OPPS payment in CY 2008. We discuss how the proposed OPPS conversion factor compensates for the inclusion of this budget neutrality adjustment in the wage indices in the budget neutrality section (II.C.) of this proposed rule.

E. Proposed Statewide Average Default CCRs

(If you choose to comment on issues in this section, please include the caption ``OPPS: Statewide Cost-to Charge Ratios'' at the beginning of your comment.)

CMS uses CCRs to determine outlier payments, payments for pass- through devices, and monthly interim transitional corridor payments under the OPPS. Some hospitals do not have a valid CCR. These hospitals include, but are not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, or hospitals that have recently given up their all-inclusive rate status. Last year, we updated the default urban and rural CCRs for CY 2007 in our final rule with comment period (71 FR 68006 through 68009). In this proposed rule, we are proposing to update the default ratios for CY 2008 using the most recent cost report data.

We calculated the statewide default CCRs using the same overall CCRs that we use to adjust charges to costs on claims data. Table 25 lists the proposed CY 2008 default urban and rural CCRs by State and compares them to last year's default CCRs. These CCRs are the ratio of total costs to total charges from each provider's most recently submitted cost report, for those cost centers relevant to outpatient services weighted by Medicare Part B charges. We also adjusted these ratios to reflect final settled status by applying the differential between settled to submitted costs and charges from the most recent pair of settled to submitted cost reports.

For this proposed rule, 78.17 percent of the submitted cost reports represented data for CY 2005. We only used valid CCRs to calculate these default ratios. That is, we removed the CCRs for all-inclusive hospitals, CAHs, and hospitals in Guam, and the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands because these entities are not paid under the OPPS, or in the case of all-inclusive hospitals, because their CCRs are suspect. We further identified and removed any obvious error CCRs and trimmed any outliers. We limited the hospitals used in the calculation of the default CCRs to those hospitals that billed for services under the OPPS during CY 2006.

Finally, we calculated an overall average CCR, weighted by a measure of volume for CY 2006, for each state except Maryland. This measure of volume is the total lines on claims and is the same one that we use in our impact tables. For Maryland, we used an overall weighted average CCR for all hospitals in the nation as a substitute for Maryland CCRs. Few providers in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The observed differences between last year's and this year's default statewide CCRs largely reflect a general decline in the ratio between costs and charges widely observed in the cost report data. However, observed increases in some areas suggest that the decline in CCRs is moderating. Further, the addition of weighting by Part B charges to the overall CCR in CY 2007 slightly increases the variability of the overall CCR calculation.

As stated above, CMS uses default statewide CCRs for several groups of hospitals, including, but not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, and hospitals that have recently given up their all-inclusive rate status. Current OPPS policy also requires hospitals that experience a change of ownership, but that do not accept assignment of the previous hospital's provider agreement, to use the previous provider's CCR.

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For CY 2008, we are proposing to continue to apply this treatment of using the default statewide CCR, to include an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with Sec. 489.18, and that has not yet submitted its first Medicare cost report. This policy is effective for hospitals experiencing a change of ownership on or after January 1, 2007. As stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68006), we believe that a hospital that has not accepted assignment of an existing hospital's provider agreement is similar to a new hospital that will establish its own costs and charges. We also believe that the hospital that has chosen not to accept assignment may have different costs and charges than the existing hospital. Furthermore, we believe that the hospital should be provided time to establish its own costs and charges. Therefore, we are proposing to use the default statewide CCR to determine cost-based payments until the hospital has submitted its first Medicare cost report.

Table 25.--Proposed CY 2008 Statewide Average CCRs

Previous Proposed CY default CCR State

Rural/urban

2008 default (CY 2007 OPPS CCR

final rule)

ALASKA..................................... RURAL..............................

0.5389

0.5337 ALASKA..................................... URBAN..............................

0.3851

0.3830 ALABAMA.................................... RURAL..............................

0.2317

0.2321 ALABAMA.................................... URBAN..............................

0.2198

0.2228 ARKANSAS................................... RURAL..............................

0.2660

0.2645 ARKANSAS................................... URBAN..............................

0.2776

0.2749 ARIZONA.................................... RURAL..............................

0.2770

0.2823 ARIZONA.................................... URBAN..............................

0.2360

0.2323 CALIFORNIA................................. RURAL..............................

0.2305

0.2463 CALIFORNIA................................. URBAN..............................

0.2260

0.2324 COLORADO................................... RURAL..............................

0.3677

0.3704 COLORADO................................... URBAN..............................

0.2578

0.2672 CONNECTICUT................................ RURAL..............................

0.3888

0.3886 CONNECTICUT................................ URBAN..............................

0.3481

0.3491 DISTRICT OF COLUMBIA....................... URBAN..............................

0.3364

0.3392 DELAWARE................................... RURAL..............................

0.3192

0.3230 DELAWARE................................... URBAN..............................

0.3952

0.3953 FLORIDA.................................... RURAL..............................

0.2175

0.2191 FLORIDA.................................... URBAN..............................

0.1985

0.1990 GEORGIA.................................... RURAL..............................

0.2842

0.2846 GEORGIA.................................... URBAN..............................

0.2786

0.2888 HAWAII..................................... RURAL..............................

0.3781

0.3574 HAWAII..................................... URBAN..............................

0.3171

0.3199 IOWA....................................... RURAL..............................

0.3499

0.3489 IOWA....................................... URBAN..............................

0.3379

0.3428 IDAHO...................................... RURAL..............................

0.4369

0.4360 IDAHO...................................... URBAN..............................

0.4097

0.4159 ILLINOIS................................... RURAL..............................

0.2910

0.3082 ILLINOIS................................... URBAN..............................

0.2812

0.2878 INDIANA.................................... RURAL..............................

0.3207

0.3160 INDIANA.................................... URBAN..............................

0.3155

0.3204 KANSAS..................................... RURAL..............................

0.3201

0.3200 KANSAS..................................... URBAN..............................

0.2466

0.2523 KENTUCKY................................... RURAL..............................

0.2480

0.2508 KENTUCKY................................... URBAN..............................

0.2666

0.2698 LOUISIANA.................................. RURAL..............................

0.2727

0.2808 LOUISIANA.................................. URBAN..............................

0.2842

0.2730 MARYLAND................................... RURAL..............................

0.2924

0.3181 MARYLAND................................... URBAN..............................

0.3140

0.2978 MASSACHUSETTS.............................. URBAN..............................

0.3466

0.3487 MAINE...................................... RURAL..............................

0.4580

0.4568 MAINE...................................... URBAN..............................

0.4261

0.4294 MICHIGAN................................... RURAL..............................

0.3354

0.3461 MICHIGAN................................... URBAN..............................

0.3272

0.3286 MINNESOTA.................................. RURAL..............................

0.5094

0.5085 MINNESOTA.................................. URBAN..............................

0.3452

0.3383 MISSOURI................................... RURAL..............................

0.2916

0.2944 MISSOURI................................... URBAN..............................

0.2977

0.3034 MISSISSIPPI................................ RURAL..............................

0.2820

0.2841 MISSISSIPPI................................ URBAN..............................

0.2300

0.2312 MONTANA.................................... RURAL..............................

0.4664

0.4392 MONTANA.................................... URBAN..............................

0.4646

0.4628 NORTH CAROLINA............................. RURAL..............................

0.3007

0.3048 NORTH CAROLINA............................. URBAN..............................

0.3580

0.3700 NORTH DAKOTA............................... RURAL..............................

0.3831

0.3668 NORTH DAKOTA............................... URBAN..............................

0.3842

0.3945 NEBRASKA................................... RURAL..............................

0.3561

0.3756

[[Page 42697]]

NEBRASKA................................... URBAN..............................

0.2832

0.2899 NEW HAMPSHIRE.............................. RURAL..............................

0.3646

0.3700 NEW HAMPSHIRE.............................. URBAN..............................

0.3217

0.3249 NEW JERSEY................................. URBAN..............................

0.2908

0.2972 NEW MEXICO................................. RURAL..............................

0.2759

0.2741 NEW MEXICO................................. URBAN..............................

0.3691

0.3978 NEVADA..................................... RURAL..............................

0.3370

0.3348 NEVADA..................................... URBAN..............................

0.1949

0.2141 NEW YORK................................... RURAL..............................

0.4210

0.4446 NEW YORK................................... URBAN..............................

0.4177

0.4275 OHIO....................................... RURAL..............................

0.3629

0.3689 OHIO....................................... URBAN..............................

0.2760

0.2834 OKLAHOMA................................... RURAL..............................

0.2874

0.2949 OKLAHOMA................................... URBAN..............................

0.2517

0.2608 OREGON..................................... RURAL..............................

0.3344

0.3438 OREGON..................................... URBAN..............................

0.3899

0.4054 PENNSYLVANIA............................... RURAL..............................

0.2980

0.3052 PENNSYLVANIA............................... URBAN..............................

0.2448

0.2524 PUERTO RICO................................ URBAN..............................

0.4718

0.4689 RHODE ISLAND............................... URBAN..............................

0.3085

0.3087 SOUTH CAROLINA............................. RURAL..............................

0.2589

0.2546 SOUTH CAROLINA............................. URBAN..............................

0.2563

0.2479 SOUTH DAKOTA............................... RURAL..............................

0.3517

0.3479 SOUTH DAKOTA............................... URBAN..............................

0.2918

0.3035 TENNESSEE.................................. RURAL..............................

0.2607

0.2648 TENNESSEE.................................. URBAN..............................

0.2514

0.2491 TEXAS...................................... RURAL..............................

0.2823

0.2891 TEXAS...................................... URBAN..............................

0.2495

0.2580 UTAH....................................... RURAL..............................

0.4320

0.4410 UTAH....................................... URBAN..............................

0.4218

0.4161 VIRGINIA................................... RURAL..............................

0.2788

0.2821 VIRGINIA................................... URBAN..............................

0.2789

0.2805 VERMONT.................................... RURAL..............................

0.4329

0.4325 VERMONT.................................... URBAN..............................

0.3401

0.3376 WASHINGTON................................. RURAL..............................

0.3796

0.3742 WASHINGTON................................. URBAN..............................

0.3574

0.3717 WISCONSIN.................................. RURAL..............................

0.3633

0.3670 WISCONSIN.................................. URBAN..............................

0.3648

0.3638 WEST VIRGINIA.............................. RURAL..............................

0.3134

0.3162 WEST VIRGINIA.............................. URBAN..............................

0.3677

0.3691 WYOMING.................................... RURAL..............................

0.4655

0.4714 WYOMING.................................... URBAN..............................

0.3592

0.3520

F. Proposed OPPS Payments to Certain Rural Hospitals

1. Hold Harmless Transitional Payment Changes Made by Pub. L. 109-171 (DRA)

(If you choose to comment on issues in this section, please include the caption ``Rural Hospital Hold Harmless Transitional Payments'' at the beginning of your comment.)

When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (transitional corridor payment) if the payments it received for covered OPD services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system. Section 1833(t)(7) of the Act provides that the transitional corridor payments are temporary payments for most providers, with two exceptions, to ease their transition from the prior reasonable cost-based payment system to the OPPS system. Cancer hospitals and children's hospitals receive the transitional corridor payments on a permanent basis. Section 1833(t)(7)(D)(i) of the Act originally provided for transitional corridor payments to rural hospitals with 100 or fewer beds for covered OPD services furnished before January 1, 2004. However, section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the transitional corridor payments to SCHs located in rural areas for services furnished during the period that begins with the provider's first cost reporting period beginning on or after January 1, 2004, and ends on December 31, 2005. Accordingly, the authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of the Act, as amended by section 411 of Pub. L. 108-173, expired for rural hospitals having 100 or fewer beds and SCHs located in rural areas on December 31, 2005.

Section 5105 of Pub. L. 109-171 reinstituted the hold harmless transitional outpatient payments (TOPs) for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. When the OPPS payment is less than the payment the provider would have received under the previous

[[Page 42698]]

reasonable cost-based system, the amount of payment is increased by 95 percent of the amount of the difference between those two payment systems for CY 2006, by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of that difference for CY 2008.

For CY 2006, we implemented section 5105 of Pub. L. 109-171 through Transmittal 877, issued on February 24, 2006. We did not specifically address whether TOPs payments 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. Therefore, we believe that EACHs are not currently eligible for TOPs payment under Pub. L. 109-171. In the CY 2007 OPPS/ASC final rule with comment period, we updated Sec. 419.70(d) to reflect the requirements of Pub. L. 109 171 (71 FR 68010 and 68228).

2. Proposed Adjustment for Rural SCHs Implemented in CY 2006 Related to Public Law 108-173 (MMA)

(If you choose to comment on issues in this section, please include the caption ``OPPS: Rural SCH Payments'' at the beginning of your comment.)

In the CY 2006 OPPS final rule with comment period (70 FR 68556), we finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy seeds, and services paid under pass-through payment policy in accordance with section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108 173. Section 411 gave the Secretary the authority to make an adjustment to OPPS payments for rural hospitals, effective January 1, 2006, if justified by a study of the difference in costs by APC between hospitals in rural and urban areas. Our analysis showed a difference in costs only for rural SCHs and we implemented a payment adjustment for those hospitals beginning January 1, 2006.

Last year, 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. Currently, fewer than 10 hospitals are classified as EACHs. As of CY 1998, under section 4201(c) of Pub. L. 105-33, a hospital can no longer become newly classified as an EACH. Therefore, in the CY 2007 OPPS/ASC final rule with comment period 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 (71 FR 68010 and 68227).

This adjustment is budget neutral and applied before calculating outliers and coinsurance. As 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 might review the adjustment in the future and, if appropriate, would revise the adjustment.

For CY 2008, we are proposing to continue our current policy of a budget neutral 7.1 percent payment increase for rural SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding drugs, biologicals, and services paid under the pass-through payment policy in accordance with section 1833(t)(13)(B) of the Act. For CY 2008, we are proposing to include brachytherapy sources in the group of services eligible for the 7.1 percent payment increase because we are proposing to pay them at prospective rates based on their median costs as calculated from historical claims data. Consequently, we are proposing to revise Sec. 419.43 to reflect our proposal to make brachytherapy sources eligible for the 7.1 percent payment increase for rural SCHs. We plan to reassess the 7.1 percent adjustment in the near future by examining differences between urban and rural costs using updated claims, cost, and provider information. In that process, we will include brachytherapy sources in each hospital's mix of services.

G. Proposed Hospital Outpatient Outlier Payments

(If you choose to comment on issues in this section, please include the caption ``OPPS: Outlier Payments'' at the beginning of your comment.)

Currently, the OPPS pays outlier payments on a service-by-service basis. For CY 2007, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,825 fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 2005 in addition to the traditional multiple threshold in order to better target outliers to those high cost and complex procedures where a very costly service could present a hospital with significant financial loss. If a provider meets both of these conditions, the multiple threshold and the fixed-dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate.

As explained in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68011 through 68012), we set our projected target for aggregate outlier payments at 1.0 percent of aggregate total payments under the OPPS for CY 2007. The outlier thresholds were set so that estimated CY 2007 aggregate outlier payments would equal 1.0 percent of aggregate total payments under the OPPS. In that final rule with comment period (71 FR 68010), we also published total outlier payments as a percent of total expenditures for CY 2005. In the past, we have received comments asking us to publish estimated outlier payments to provide a context for the proposed outlier thresholds for the update year. Our current estimate, using available CY 2006 claims, is that outlier payments for CY 2006 would be approximately 1.1 percent of total CY 2006 OPPS payment. Using the same set of claims and CY 2007 payment rates, we currently estimate that outlier payments for CY 2007 would be approximately 1.0 percent of total CY 2007 OPPS payments. We note that we provide estimated CY 2008 outlier payments by hospital for hospitals with claims included in the claims data that we used to model impacts on the CMS Web site in the Hospital Specific Impacts--Provider-Specific Data file on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/ .

For CY 2008, we are proposing to continue our policy of setting aside 1.0 percent of aggregate total payments under the OPPS for outlier payments. We are proposing that a portion of that 1.0 percent, 0.03 percent, would be allocated to CMHCs for partial hospitalization program service outliers. This amount is the amount of estimated outlier payments resulting from the proposed CMHC outlier threshold of 3.4 times the APC payment rate, as a proportion of all payments dedicated to outlier payments. For further discussion of CMHC outliers, we refer readers to section II.B.3. of this proposed rule.

In order to ensure that estimated CY 2008 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS, we are proposing that the outlier threshold be set so that outlier payments 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 $2,000 fixed-dollar threshold. This proposed threshold reflects minor changes to the

[[Page 42699]]

methodology discussed below as well as APC recalibration, including changes due in part to the CY 2008 packaging proposal discussed in section II.A.4. of this proposed rule.

We calculated the fixed-dollar threshold for this CY 2008 proposed rule using largely the same methodology as we did in CY 2007, except that we are proposing to adjust the overall CCRs to reflect the anticipated annual decline in overall CCRs, discussed below, and to use CCRs from the most recent update to the Outpatient Provider-Specific File (OPSF), rather than CCRs we calculate internally for ratesetting. In November 2006, we issued Transmittal 1030, ``Policy Changes to the Fiscal Intermediary (FI) Calculation of Hospital Outpatient Payment System (OPPS) and Community Mental Health Center (CMHC) Cost-to-Charge Ratios (CCRs),'' instructing fiscal intermediaries (or, if applicable, the MAC) to update the overall CCR calculation for outlier and other cost-based payments using the CCR calculation methodology that we finalized for CY 2007. As discussed in the CY 2007 proposed and final rules, this methodology aligned the fiscal intermediary's CCR calculation and the CCR calculation we previously used to model outlier thresholds by removing allied and nursing health costs for those hospitals with paramedical education programs from the fiscal intermediary's CCR calculation and weighting our ``traditional'' CCR calculation by total Medicare Part B charges. We believe that the OPSF best estimates the CCRs that fiscal intermediaries (or, if applicable, MAC) would use to determine outlier payments in CY 2008. For this proposed rule, we used the April update to the OPSF. We supplemented a CCR calculated internally for the handful of providers with claims in our claims dataset that were not listed in the April update to the OPSF.

The claims that we use to model each OPPS update lag by 2 years. For this proposed rule, we used CY 2006 claims to model the CY 2008 OPPS. In order to estimate CY 2008 outlier payments for this proposed rule, we inflated the charges on the CY 2006 claims using the same inflation factor of 1.1504 that we used to estimate the IPPS fixed dollar outlier threshold for the FY 2008 IPPS proposed rule. For 1 year, the inflation factor is 1.0726. The methodology for determining this charge inflation factor was discussed in the FY 2008 IPPS proposed rule (72 FR 24837). As we stated in the CY 2005 OPPS final rule with comment period, we believe that the use of this charge inflation factor is appropriate for the OPPS because, with the exception of the routine service cost centers, hospitals use the same cost centers to capture costs and charges across inpatient and outpatient services (69 FR 65845).

In comments on the CY 2007 OPPS/ASC proposed rule, a commenter asked that CMS modify the charge methodology used to set the OPPS outlier threshold to account for the change in CCRs over time in a manner similar to that used for the FY 2007 IPPS. The commenter indicated that it would be appropriate to apply an inflation adjustment factor so that the CCRs that CMS uses to simulate OPPS outlier payments would more closely reflect the CCRs that would be used in CY 2007 to determine actual outlier payment. In the CY 2007 OPPS/ASC final rule with comment period, we expressed concern that cost increases between inpatient and outpatient departments could be different and indicated that we would study the issue and address any changes to the outlier methodology through future rulemaking (71 FR 68012).

In assessing the possibility of utilizing a cost inflation adjustment for the OPPS, we determined that we could not calculate an OPPS-specific reliable cost per unit, comparable to the cost per discharge component of the IPPS calculation, because of variability in definition of an OPPS unit of service across calendar years. However, we also believe that the costs and charges reported under the applicable cost centers largely are commingled inpatient and outpatient costs and charges. Notwithstanding fairly accurate estimates of outlier payments as a percent of total payments over the past few years, as discussed above, we do not want to systematically overestimate the OPPS outlier threshold as could occur if we did not apply a CCR inflation adjustment factor. Therefore, we are proposing to apply the CCR inflation adjustment factor that is proposed to be applied for IPPS outlier calculation to the CCRs used to simulate the CY 2008 OPPS outlier payments that determine the fixed dollar threshold. Specifically, for CY 2008, we are proposing to apply an adjustment of 0.9912 to the CCRs that are currently on the OPSF to trend them forward from CY 2007 to CY 2008. The methodology for calculating this adjustment is discussed in the FY 2008 IPPS proposed rule (72 FR 24837).

Therefore, for this CY 2008 proposed rule, we applied the overall CCRs from the April 2007 OPSF file after adjustment to approximate CY 2008 CCRs (using the proposed CCR inflation adjustment factor of 0.9912) to charges on CY 2006 claims that were adjusted to approximate CY 2008 charges (using the proposed charge inflation factor of 1.1504). We simulated aggregated CY 2008 outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple 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 2008 OPPS payments. We estimate that a proposed fixed dollar threshold of $2,000, 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 are proposing 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 fixed dollar $2,000 threshold are met. For CMHCs, if a CMHC provider's cost for partial hospitalization exceeds 3.4 times the payment rate for APC 0033, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.4 times the APC payment rate.

H. Calculation of the Proposed National Unadjusted Medicare Payment

(If you choose to comment on issues in this section, please include the caption ``OPPS: National Unadjusted Medicare Payment'' at the beginning of your comment.)

The basic methodology for determining prospective payment rates for OPD services under the OPPS is set forth in existing regulations at Sec. 419.31 and Sec. 419.32. The payment rate for services and procedures for which payment is made under the OPPS is the product of the conversion factor calculated in accordance with section II.C. of this proposed rule and the relative weight determined under section II.A. of this proposed rule. Therefore, the national unadjusted payment rate for each APC contained in Addendum A to this proposed rule and for HCPCS codes to which payment under the OPPS has been assigned in Addendum B to this proposed rule (Addendum B is provided as a convenience for readers) was calculated by multiplying the proposed CY 2008 scaled weight for the APC by the proposed CY 2008 conversion factor.

However, to determine the payment that will be made in a calendar year under the OPPS to a specific hospital for

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an APC for a service that has a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' in a circumstance in which the multiple procedure discount does not apply, we take the following steps:

Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted payment rate. Since the initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. (We refer readers to the April 7, 2000 final rule with comment period (65 FR 18496 through 18497) for a detailed discussion of how we derived this percentage.) We confirmed that this labor-related share for hospital outpatient services is still 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).

Step 2. Determine the wage index area in which the hospital is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the new geographic statistical areas as a result of revised OMB standards (urban and rural) to which hospitals are assigned for FY 2008 under the IPPS, reclassifications through the MCGRB, section 1886(d)(8)(B) ``Lugar'' hospitals, and section 401 of Pub. L. 108-173. We note that the reclassifications of hospitals under the one-time appeals process under section 508 of Pub. L. 108-173 expires on September 30, 2007, and is no longer applicable in this determination of appropriate wage values for CY 2008 OPPS. The wage index values include the occupational mix adjustment described in section II.D. of this proposed rule that was developed for the proposed FY 2008 IPPS payment rates published in the Federal Register on May 3, 2007 (72 FR 24777 through 27782).

Step 3. Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hospital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173. Addendum L to this proposed rule contains the qualifying counties and the proposed wage index increase developed for the FY 2008 IPPS as corrected in the June 7, 2007 correction notice to the FY 2008 IPPS proposed rule (72 FR 31507). This step is to be followed only if the hospital has chosen not to accept reclassification under Step 2 above.

Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by the amount determined under Step 1 that represents the labor- related portion of the national unadjusted payment rate.

Step 5. Calculate 40 percent (the nonlabor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted payment rate for the relevant wage index area.

Step 6. If a provider is a SCH, as defined in 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. 412.63(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.

I. Proposed Beneficiary Copayments

(If you choose to comment on issues in this section, please include the caption ``OPPS: Beneficiary Copayments'' at the beginning of your comment.) 1. Background

Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that the effective copayment rate (determined on a national unadjusted basis) for that service in the year does not exceed specified percentages. For all services paid under the OPPS in CY 2008, and in calendar years thereafter, the specified percentage is 40 percent of the APC payment rate (section 1833(t)(8)(C)(ii)(V) of the Act). Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or group of such services) furnished in a year, the national unadjusted coinsurance amount cannot be less than 20 percent of the OPD fee schedule amount. Sections 1834(d)(2)(C)(ii) and (d)(3)(C)(ii) of the Act further requires that the coinsurance for screening flexible sigmoidoscopies and screening colonoscopies be equal to 25 percent of the payment amount. We have applied the 25-percent coinsurance to screening flexible sigmoidoscopies and screening colonoscopies since the beginning of the OPPS. 2. Proposed Copayment

For CY 2008, we are proposing to determine copayment amounts for new and revised APCs using the same methodology that we implemented for CY 2004. (We refer readers to the November 7, 2003 OPPS final rule with comment period (68 FR 63458).) The proposed unadjusted copayment amounts for services payable under the OPPS that would be effective January 1, 2008, are shown in Addendum A and Addendum B to this proposed rule.

We note that we have historically used standard rounding principles to establish a 20 percent copayment for those few circumstances where the copayment rate was between 19.5 and 20 percent using our established copayment rules. For example, the CY 2008 proposed payment and copayment amounts for APC 9228 (Tigecycline injection) are $0.91 and $0.18, respectively. Twenty percent of $0.91 is $0.182. Because it would be impossible to set a copayment rate at exactly 20 percent in this case, that is, $0.182, we rounded the amount, using standard rounding principles, to $0.18. Also using standard rounding principles, 19.78 percent ($0.18 as a percentage of $0.91) rounds to 20 percent and meets the statutory requirement of a copayment amount of at least 20 percent. For CY 2008, APC 9046 (Iron Sucrose Injection) has a proposed payment amount and copayment amount of $0.37 and $0.08, respectively. Using our established copayment rules, 20 percent of $0.37 is $0.074. Normally, we would apply standard rounding principles to achieve an amount that is payable, here $0.07 rather than $0.074. However, if we were to set a copayment amount of $0.07, which is 18.9 percent of $0.37, we would not be setting a copayment rate that is at least 20 percent of the OPPS payment rate. We believe that section 1833(t)(3)(B) of the Act requires us to set a copayment amount that is at least 20 percent of the OPPS payment amount, not less than 20 percent. Therefore, we are proposing to set the copayment rate for APC 9046 at $0.08. Eight cents represents the lowest amount that we could set that would bring the copayment rate to 20 percent or, in this case, just above 20 percent. We are proposing to apply this same methodology in the future to instances where the application of our standard copayment methodology would result in a copayment amount that is under 20 percent and cannot be rounded, under standard rounding principles, to 20 percent. 3. Calculation of a Proposed Adjusted Copayment Amount for an APC Group

To calculate the OPPS adjusted copayment amount for an APC group, take the following steps:

Step 1. Calculate the beneficiary payment percentage for the APC by

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dividing the APC's national unadjusted copayment by its payment rate. For example, using APC 0001, $7.00 is 21 percent of $33.15.

Step 2. Calculate the wage adjusted payment rate for the APC, for the provider in question, as indicated in section II.H. of this proposed rule. Calculate the rural adjustment for eligible providers as indicated in section II.H. of this proposed rule.

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 proposed unadjusted copayments for services payable under the OPPS that would be effective January 1, 2008, are shown in Addendum A and Addendum B to this proposed rule.

III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies

A. Proposed Treatment of New HCPCS and CPT Codes

(If you choose to comment on issues in this section, please include the caption ``OPPS: New HCPCS and CPT Codes'' at the beginning of your comment.) 1. Proposed Treatment of New HCPCS Codes Included in the April and July Quarterly OPPS Updates for CY 2007

For the July quarter of CY 2007, we created a total of 16 new Level II HCPCS codes, specifically C2638, C2639, C2640, C2641, C2642, C2643, C2698, C2699, C9728, Q4087, Q4088, Q4089, Q4090, Q4091, Q4092, and Q4095 that were not addressed in the CY 2007 OPPS/ASC final rule with comment period that updated the CY 2007 OPPS. We designated the payment status of these codes and added them through the July 2007 update (Change Request 5623, Transmittal 1259, dated June 1, 2007). There were no new Level II HCPCS codes for the April 2007 update. In this CY 2008 OPPS/ASC proposed rule, we are soliciting public comment on the status indicators, APC assignments, and payment rates of these codes, which are listed in Table 26A and Table 26B of this proposed rule. Because of the timing of this proposed rule, the codes implemented through the July 2007 OPPS update are not included in Addendum B to this proposed rule. We are proposing to assign the new HCPCS codes for CY 2008 to the appropriate APCs with the proposed rates as displayed in the tables and incorporate them into our final rule with comment period for CY 2008, which is consistent with our annual APC updating policy.

Table 26A.--New Non-Drug HCPCS Codes Implemented in July 2007

Proposed CY Proposed CY 2008 Proposed CY 2008

HCPCS code

Long descriptor

status

2008 APC payment Implementation date indicator

rate

C2638............ Brachytherapy source, K...............

2638 $ 42.86 July 1, 2007. stranded, iodine-125, per source. C2639............ Brachytherapy source, K...............

2639

31.91 July 1, 2007. non-stranded, iodine- 125, per source. C2640............ Brachytherapy source, K...............

2640

62.24 July 1, 2007. stranded, palladium- 103, per source. C2641............ Brachytherapy source, K...............

2641

45.29 July 1, 2007. non-stranded, palladium- 103, per source. C2642............ Brachytherapy source, K...............

2642

97.72 July 1, 2007. stranded, cesium-131, per source. C2643............ Brachytherapy source, K...............

2643

51.35 July 1, 2007. non stranded, cesium- 131, per source. C2698............ Brachytherapy source, K...............

2698

42.86 July 1, 2007. stranded, not otherwise specified, per source. C2699............ Brachytherapy source, K...............

2699

29.93 July 1, 2007. non-stranded, not otherwise specified, per source. C9728............ Placement of

T...............

0156 194.91 July 1, 2007. interstitial device(s) for radiation therapy/ surgery guidance (eg, fiducial markers, dosimeter), other than prostate (any approach) single or multiple.

Table 26B.--New Drug HCPCS Codes Implemented in July 2007

Proposed CY Proposed CY 2008 Proposed CY 2008

HCPCS code

Long descriptor

status

2008 APC payment Implementation date indicator

rate

Q4087............ Injection, immune

K...............

0943 $ 33.48 July 1, 2007. globulin, (Octogam), intravenous, non- lyophilized, (e.g. liquid), 500 mg. Q4088............ Injection, immune

K...............

0944

31.20 July 1, 2007. globulin, (Gammagard), intravenous, non- lyophilized, (e.g. liquid), 500 mg. Q4089............ Injection, rho(d) immune K...............

0945

80.00 July 1, 2007. globulin (human), (Rhophylac), intravenous, 100 iu. Q4090............ Injection, hepatitis b K...............

0946

64.74 July 1, 2007. immune globulin (Hepagam B), intramuscular, 0.5 ml. Q4091............ Injection, immune

K...............

0947

32.61 July 1, 2007. globulin, (Flebogamma), intravenous, non- lyophilized, (e.g. liquid), 500 mg. Q4092............ Injection, immune

K...............

0948

31.86 July 1, 2007. globulin, (Gamunex), intravenous, non- lyophilized, (e.g. liquid), 500 mg. Q4095............ Injection, zoledronic K...............

0951 220.81 July 1, 2007. acid (Reclast), 1 mg.

2. Proposed Treatment of New Category I and III CPT Codes and Level II HCPCS Codes

As has been our practice in the past, we implement new Category I and III CPT codes and new Level II HCPCS codes, which are released in the summer through the fall of each year for annual updating, effective January 1, in the final rule updating the OPPS for the following calendar year. These codes are flagged with comment indicator ``NI'' in Addendum B to the OPPS/ASC final rule with comment period to indicate that we are assigning them an interim

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payment status which is subject to public comment following publication of the final rule that implements the annual OPPS update. (We refer readers to the discussion immediately below concerning our policy for implementing new Category I and III mid-year CPT codes.) We are proposing to continue this recognition and process for CY 2008. New Category I and III CPT codes and new Level II HCPCS codes, effective January 1, 2008, will be listed in Addendum B to the CY 2008 OPPS/ASC final rule with comment period and designated using comment indicator ``NI.'' The status indicator, the APC assignment, or both, for all such codes flagged with comment indicator ``NI'' will be open to public comment. We will respond to all comments received concerning these codes in a subsequent final rule.

In addition, we are proposing to continue our policy of the last 2 years of recognizing new mid-year CPT codes, generally Category III CPT codes, that the AMA releases in January for implementation the following July through the OPPS quarterly update process. Therefore, for CY 2008, we are proposing to include in Addendum B to the CY 2008 OPPS/ASC final rule with comment period the new Category III CPT codes released in January 2007 for implementation on July 1, 2007 (through the OPPS quarterly update process) and the new Category III codes released in July 2007 for implementation on January 1, 2008. However, only those new Category III CPT codes implemented effective January 1, 2008, will be flagged with comment indicator ``NI'' in Addendum B to the CY 2008 OPPS/ASC final rule with comment period, to indicate that we have assigned them an interim payment status which is subject to public comment. Category III CPT codes implemented in July 2007, which appear in Table 27 below, are subject to comment through this proposed rule, and their status will be finalized in the CY 2008 OPPS/ASC final rule with comment period.

Table 27.--Category III CPT Codes Implemented in July 2007

Proposed CY 2008 status HCPCS code

Long descriptor

indicator

Proposed CY 2008 APC

0178T.................. Electrocardiogram, 64 leads or B...................... Not applicable. greater, with graphic presentation and analysis; with interpretation and report. 0179T.................. Electrocardiogram, 64 leads or X...................... 0100. greater, with graphic presentation and analysis; tracing and graphics only, without interpretation and report. 0180T.................. Electrocardiogram, 64 leads or B...................... Not applicable. greater, with graphic presentation and analysis; interpretation and report only. 0181T.................. Corneal hysteresis

S...................... 0230. determination, by air impulse stimulation, bilateral, with interpretation and report. 0182T.................. High dose rate electronic S...................... 1519. brachytherapy, per fraction.

B. Proposed Changes--Variations Within APCs

(If you choose to comment on issues in this section, please include the caption ``OPPS: 2 Times Rule'' at the beginning of your comment.) 1. Background

Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient services. Section 1833(t)(2)(B) of the Act provides that this classification system may be composed of groups of services, so that services within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification system, referred to as APCs, as set forth in Sec. 419.31 of the regulations. We use Level I and Level II HCPCS codes and descriptors to identify and group the services within each APC. The APCs are organized such that each group is homogeneous both clinically and in terms of resource use. Using this classification system, we have established distinct groups of similar services, as well as medical visits. We also have developed separate APC groups for certain medical devices, drugs, biologicals, radiopharmaceuticals, and brachytherapy devices.

We have packaged into 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 procedures or furnishing services. Therefore, we do not make separate payment for packaged items or services. For example, packaged items and services include: (1) Use of an operating, treatment, or procedure room; (2) use of a recovery room; (3) most observation services; (4) anesthesia; (5) medical/surgical supplies; (6) pharmaceuticals (other than those for which separate payment may be allowed under the provisions discussed in section V. of this proposed rule); and (7) incidental services such as venipuncture. Our proposed packaging approach for CY 2008 is discussed in section II.A.4. of this proposed rule.

Under the OPPS, we pay for hospital outpatient services on a rate- per-service or, as proposed for CY 2008, on a rate-per-encounter basis that 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. The APC weights are scaled to APC 0606 because it is the middle level clinic visit APC (that is, where the Level 3 Clinic Visit HCPCS code of five levels of clinic visits is assigned), and because middle level 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 the components of the OPPS not less than annually and to revise the groups and relative payment weights and make other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA of 1999, also requires the Secretary, beginning in CY 2001, to consult with an outside panel of experts to review the APC groups and the relative payment weights (the APC Panel recommendations for specific services for the CY 2008 OPPS and our responses to them are discussed in the relevant specific sections throughout this proposed rule).

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Finally, as discussed earlier, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (referred to as the ``2 times rule''). We use the median cost of the item or service in implementing this provision. The statute authorizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low-volume items and services. 2. Application of the 2 Times Rule

In accordance with section 1833(t)(2) of the Act and 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 of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group (``2 times rule''). We make exceptions to this limit on the variation of costs within each APC group in unusual cases such as low volume items and services.

During the APC Panel's March 2007 meeting, we presented median cost and utilization data for services furnished during the period of January 1, 2006, through September 30, 2006, 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 for CY 2008 are contained principally in sections III.C. and III.D. of this proposed rule.

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 with the APC Panel but for which we are proposing changes to their HCPCS codes' APC assignments in Addendum B to this proposed rule. In these cases, to eliminate a 2 times violation or to improve clinical and resource homogeneity, we are proposing to reassign the codes to APCs that contained services that were similar with regard to both their clinical and resource characteristics. We also are proposing to rename existing APCs, discontinue 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 2008 included in this proposed rule are related to changes in median costs of services and APCs resulting from our proposed packaging approach for CY 2008, as discussed in section II.A.4. of this proposed rule. We also are proposing changes to the status indicators for some codes that are not specifically and separately discussed in this proposed rule. In these cases, we are proposing to change the status indicators for some codes because we believe that another status indicator more accurately describes their payment status from an OPPS perspective based on the policies that we are proposing for CY 2008.

Addendum B to this proposed rule identifies with a comment indicator ``CH'' those HCPCS codes for which we are proposing a change to the APC assignment or status indicator as assigned in the April 2007 Addendum B update. 3. Proposed Exceptions to the 2 Times Rule

As discussed earlier, we may make exceptions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low volume items and services. Taking into account the APC changes that we are proposing for CY 2008 based on the APC Panel recommendations discussed mainly in sections III.C. and III.D. of this proposed rule, the proposed changes to status indicators and APC assignments as identified in Addendum B to this proposed rule, and the use of CY 2006 claims data to calculate the median costs of procedures classified in the APCs, we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule. We used the following criteria to decide whether to propose exceptions to the 2 times rule for affected APCs:

Resource homogeneity.

Clinical homogeneity.

Hospital concentration.

Frequency of service (volume).

Opportunity for upcoding and code fragments.

For a detailed discussion of these criteria, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18457).

Table 28 lists the APCs that we are proposing to exempt from the 2 times rule for CY 2008 based on the criteria cited above. For cases in which a recommendation by the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel's recommendation because those recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization, and the quality of the data used to determine the APC payment rates that we are proposing for CY 2008. The median costs for hospital outpatient services for these and all other APCs that were used in the development of this proposed rule can be found on the CMS Web site at: http://www.cms.hhs.gov.

Table 28.--Proposed APC Exceptions to the 2 Times Rule for CY 2008

APC

APC title

0033............................. Partial Hospitalization. 0043............................. Closed Treatment Fracture Finger/Toe/ Trunk. 0060............................. Manipulation Therapy. 0080............................. Diagnostic Cardiac Catheterization. 0093............................. Vascular Reconstruction/Fistula Repair without Device. 0105............................. Repair/Revision/Removal of Pacemakers, AICDs, or Vascular Devices. 0106............................. Insertion/Replacement of Pacemaker Leads and/or Electrodes. 0109............................. Removal/Repair of Implanted Devices. 0235............................. Level I Posterior Segment Eye Procedures. 0251............................. Level I ENT Procedures. 0260............................. Level I Plain Film Except Teeth. 0278............................. Diagnostic Urography. 0282............................. Miscellaneous Computed Axial Tomography. 0303............................. Treatment Device Construction. 0323............................. Extended Individual Psychotherapy. 0330............................. Dental Procedures. 0340............................. Minor Ancillary Procedures. 0368............................. Level II Pulmonary Tests. 0381............................. Single Allergy Tests. 0409............................. Red Blood Cell Tests. 0432............................. Health and Behavior Services. 0438............................. Level III Drug Administration. 0604............................. Level 1 Hospital Clinic Visits. 0664............................. Level I Proton Beam Radiation Therapy. 0688............................. Revision/Removal of Neurostimulator Pulse Generator Receiver.

C. New Technology APCs

(If you choose to comment on issues in this section, please include the caption ``New Technology APCs'' at the beginning of your comment.) 1. Introduction

In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service

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to a clinically appropriate APC. This policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected.

We note that the cost bands for New Technology APCs range from $0 to $50 in increments of $10, from $50 to $100 in increments of $50, from $100 through $2,000 in increments of $100, and from $2,000 through $10,000 in increments of $500. These increments, which are in two parallel sets of New Technology APCs, one with status indicator ``S'' and the other with status indicator ``T,'' allow us to price new technology services more appropriately and consistently. 2. Proposed Movement of Procedures From New Technology APCs to Clinical APCs

As we explained in the November 30, 2001 final rule (66 FR 59897), we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected data sufficient to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information, or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC cost bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost.

At its March 2007 meeting, the APC Panel recommended that CMS keep services in New Technology APCs until sufficient data are available to assign them to clinical APCs, but for no longer than 2 years. We note that because of the potential for quarterly assignment of new services to New Technology APCs and the 2 year time lag in claims data for an OPPS update (that is, CY 2006 data are utilized for this CY 2008 OPPS rulemaking cycle), if we were to accept the APC Panel's recommendation, we would always reassign services from New Technology to clinical APCs based on 1 year or less of claims data. For example, if a new service was first assigned to a New Technology APC in July 2006, we would have 6 months of data for purposes of CY 2008 rulemaking but, in order to ensure that the service was in a New Technology APC for no longer than 2 years, we would need to move the service to a clinical APC for CY 2008. While we might have sufficient claims data from 6 months of CY 2006 to support a proposal for such a reassignment for CY 2008, we are not confident that this would always be the case for all new services, given our understanding of the dissemination of new technology procedures into medical practice and the diverse characteristics of new technology services that treat different clinical conditions. Therefore, we are not accepting the APC Panel's recommendation because we believe that accepting the recommendation would limit our ability to individually assess the OPPS treatment of each new technology service in the context of available hospital claims data. We are particularly concerned about continuing to provide appropriate payment for low volume new technology services that may be expected to continue to be low volume under the OPPS due to the prevalence of the target conditions in the Medicare population. We appreciate the APC Panel's thoughtful discussion of new technology services, and we agree with the APC Panel that it should be our priority to regularly reassign services from New Technology APCs to clinical APCs under the OPPS, so that they are treated like most other OPPS services for purposes of ratesetting once hospitals have had sufficient experience with providing and reporting the new services. Rather, consistent with our current policy, for CY 2008 we are proposing 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 data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient hospital claims data upon which to base a decision for reassignment have not been collected.

The procedures presented below represent services assigned to New Technology APCs for CY 2007 for which we believe we have sufficient data to reassign them to clinically appropriate APCs for CY 2008. Therefore, we are proposing to reassign them to clinically appropriate APCs as indicated specifically in our discussion and in Table 29 of this proposed rule. a. Positron Emission Tomography (PET)/Computed Tomography (CT) Scans (New Technology APC 1511)

(If you choose to comment on issues in this section, please include the caption ``PET/CT Scans'' at the beginning of your comment.)

From August 2000 through April 2005, we paid separately for PET and CT scans. In CY 2004, the payment rate for nonmyocardial PET scans was $1,450, while it was $193 for typical diagnostic CT scans. Prior to CY 2005, nonmyocardial PET and the PET portion of PET/CT scans were described by G-codes for billing to Medicare. Several commenters to the November 15, 2004 final rule with comment period (69 FR 65682) urged that we replace the G-codes for nonmyocardial PET and PET/CT scan procedures with the established CPT codes. These commenters stated that movement to the established CPT codes would greatly reduce the burden on hospitals of tracking and billing the G-codes which are not recognized by other payers and would allow for more uniform hospital billing of these scans. We agreed with the commenters that movement from the G-codes to the established CPT codes for nonmyocardial PET and PET/CT scans would allow for more uniform billing of these scans. As a result of a Medicare national coverage determination (Publication 100- 3, Medicare Claims Processing Manual section 220.6) that was made effective January 28, 2005, we discontinued numerous G-codes that described myocardial PET and nonmyocardial PET procedures and replaced them with the established CPT codes. The CY 2005 payment rate for concurrent PET/CT scans using the CPT codes 78814 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; 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; 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; whole body) was $1,250, which was $100 higher than the payment rate for PET scans alone. These PET/CT CPT codes were placed in New Technology APC 1514 (New Technology--Level XIV, $1,200-$1,300) for CY 2005.

We continued with these coding and payment methodologies in CY 2006. For CY 2007, while we proposed to reassign both PET and PET/CT Scans to the same new clinical APC, we finalized a policy that reassigned conventional PET procedures to APC 0308 (Non-

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Myocardial Positron Emission Tomography (PET) Imaging) with a final median cost of about $850. We also reassigned PET/CT services to a different New Technology APC for CY 2007, specifically New Technology APC 1511 (New Technology--Level XI, $900-$1000), thereby maintaining the historical payment differential of about $100 between PET and PET/ CT procedures. Furthermore, we stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68022) that we would wait for a full year of CPT coded claims data prior to assigning the PET/CT services to a clinical APC and that maintaining a modest payment differential between PET and PET/CT procedures was warranted for CY 2007.

For CY 2008, we are proposing the reassignment of concurrent PET/CT scans, specifically CPT codes 78814, 78815, and 78816, to a clinical APC because we believe we have adequate claims data from CY 2006 upon which to determine the median cost of performing these procedures. Based on our analysis of approximately 117,000 CY 2006 single claims, the median cost of PET/CT scans is $1,093.52. In comparison, the median cost of the nonmyocardial PET scans, as described by CPT codes 78608, 78811, 78812, and 78813, is $1,093.51 based on our analysis of approximately 34,000 single claims from CY 2006. We note that a comparison of the median cost of PET/CT scans with the median cost of nonmyocardial PET scans, as derived from CY 2006 claims data, demonstrates that these costs are almost the same, thereby reflecting significant hospital resource equivalency between the two types of services. This result is not unexpected because many newer PET scanners also have the capability of rapidly acquiring CT images for attenuation correction and anatomical localization, sometimes with simultaneous image acquisition. The median costs for both PET and PET/CT scans are significantly higher for CY 2008 than for CY 2007 due to our CY 2008 proposal to package payment for all diagnostic radiopharmaceuticals as described in section II.A.4. of this proposed rule that would package payment for the costs of the radiopharmaceuticals utilized similarly into the payment for both PET and PET/CT scans. We believe that our claims data accurately reflect the comparable hospital resources required to provide nonmyocardial PET and PET/CT procedures, and the scans have obvious clinical similarity as well. Therefore, for CY 2008 we are proposing to reassign the CPT codes for PET/CT scans to the clinical APC where nonmyocardial PET scans are also assigned, specifically APC 0308, with a proposed median cost of $1,093.52.

We note that we have been paying separately for fluorodeoxyglucose (FDG), the radiopharmaceutical described by HCPCS code A9552 (F18 fdg), that is commonly administered during nonmyocardial PET and PET/CT procedures. For CY 2008, consistent with our proposed packaging approach as discussed in section II.A.4. of this proposed rule, we are proposing to package payment for the diagnostic radiopharmaceutical FDG into payment for the associated PET and PET/CT procedures. Because FDG is the most commonly used radiopharmaceutical for both PET and PET/CT scans and our single claims for these procedures include FDG more than 80 percent of the time, the packaging of this radiopharmaceutical fully maintains the clinical and resource homogeneity of the reconfigured APC 0308 that we are proposing. b. IVIG Preadministration-Related Services (New Technology APC 1502)

(If you choose to comment on issues in this section, please include the caption ``IVIG Preadministration-Related Services'' at the beginning of your comment.)

In CY 2006, we created the temporary HCPCS G-code G0332 (Services for intravenous infusion of immunoglobulin prior to administration (this service is to be billed in conjunction with administration of immunoglobulin)). Based on our estimate of the costs of this service in comparison with other services, HCPCS code G0332 was assigned to New Technology APC 1502 (New Technology--Level II, $50-$100), with a payment rate of $75 effective January 1, 2006. In the CY 2007 OPPS/APC final rule with comment period, we indicated our belief that it was appropriate to continue the temporary IVIG preadministration-related services payment through HCPCS code G0332 and its continued assignment to New Technology APC 1502 for CY 2007, in order to help ensure continued patient access to IVIG (71 FR 68092).

For CY 2008, we are proposing to continue to provide separate payment for IVIG preadministration-related services through the assignment of HCPCS code G0332 to a clinical APC. This service has been assigned to a New Technology APC under the OPPS for 2 full years. As noted previously, under the OPPS, we retain services within New Technology APC groups where they are assigned according to our estimates of their costs until we gather sufficient claims data to enable us to assign the services to clinically appropriate APCs based on hospital resource costs as calculated from claims. According to our analysis of the hospital outpatient claims data, we believe we have adequate claims data from CY 2006 upon which to determine the median cost of performing IVIG preadministration related services and to reassign HCPCS code G0332 to an appropriate clinical APC for CY 2008. Our claims data for this high volume service show a total of over 49,000 services performed, with about 48,000 single claims available for ratesetting. The median cost of this service according to our claims data is $38.52. Therefore, we are proposing to reassign HCPCS code G0332 to new clinical APC 0430 (Drug Preadministration-Related Services) with a median cost of $38.52 for CY 2008, where it would be the only service assigned to the APC at this time.

We note that IVIG preadministration-related services are always provided in conjunction with other separately payable services such as drug administration services, and thus are well suited for packaging into the payment for the separately payable services. While at this time we have not made a determination about the appropriateness of continuing separate OPPS payment for HCPCS code G0332 after CY 2008, we would consider packaging payment for HCPCS code G0332 in future years if we determine separate payment is no longer warranted. We intend to reevaluate the appropriateness of separate payment for preadministration-related services for the CY 2009 OPPS rulemaking cycle, especially as we explore the potential for greater packaging and possible encounter-based or episode-based OPPS payment approaches. c. Other Services in New Technology APCs

(If you choose to comment on issues in this section, please include the caption ``Other Services in New Technology APCs'' at the beginning of your comment.)

Other than the concurrent PET/CT and IVIG preadministration-related new technology services discussed in sections III.C.2.a. and III.C.2.b. of this proposed rule, there are five procedures currently assigned to New Technology APCs for CY 2007 for which we believe we also have data that are adequate to support their reassignment to clinical APCs. For CY 2008, we are proposing to reassign these procedures to clinically appropriate APCs, applying their CY 2006 claims data to develop their

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clinical APC median costs upon which payments would be based. These procedures and their proposed APC assignments are displayed in Table 29 below.

Table 29.--Proposed CY 2008 APC Reassignments of Other New Technology Procedures to Clinical APCs

CY 2007 APC

Proposed CY HCPCS code Short descriptor CY 2007 SI CY 2007 APC payment Proposed CY Proposed CY 2008 APC rate

2008 SI 2008 APC median cost

19298.......... Place breast rad S.........

1524 $3,250 T...........

0648 $3,416.66 tube/caths. G0302.......... Pre-op service S.........

1509

750 S...........

0209 727.48 LVRS complete. G0303.......... Pre-op service S.........

1507

550 S...........

0209 727.48 LVRS 10-15dos. G0304.......... Pre-op service S.........

1504

250 S...........

0213 147.68 LVRS 1-9 dos. G0305.......... Post op service S.........

1504

250 S...........

0213 147.68 LVRS min 6.

D. Proposed APC-Specific Policies

1. Hyperbaric Oxygen Therapy (APC 0659)

(If you choose to comment on issues in this section, please include the caption ``Hyperbaric Oxygen Therapy'' at the beginning of your comment.)

When hyperbaric oxygen therapy (HBOT) is prescribed for promoting the healing of chronic wounds, it typically is prescribed for 90 minutes and billed using multiple units of HBOT on a single line or multiple occurrences of HBOT on a claim. In addition to the therapeutic time spent at full hyperbaric oxygen pressure, treatment involves additional time for achieving full pressure (descent), providing air breaks to prevent neurological and other complications from occurring during the course of treatment, and returning the patient to atmospheric pressure (ascent). The OPPS recognizes HCPCS code C1300 (Hyperbaric oxygen under pressure, full body chamber, per 30 minute interval) for HBOT provided in the hospital outpatient setting.

In the CY 2005 final rule with comment period (69 FR 65758 through 65759), we finalized a ``per unit'' median cost calculation for 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 cost center. Comments on the CY 2005 proposed rule effectively demonstrated that hospitals report the costs and charges for HBOT in a wide variety of cost centers. We used this methodology to estimate payment for HBOT in CYs 2005, 2006, and 2007. For CY 2008, we are proposing to continue using the same methodology to estimate a ``per unit'' median cost for HCPCS code C1300 of $98.63 using 60,774 claims with multiple units or multiple occurrences.

CY 2008 is the fourth year in which we would have a special methodology to develop the median cost for HBOT services that removed obviously erroneous claims and deviated from our standard methodology of using departmental CCRs, when available, to convert hospitals' charges to costs. Prior to CY 2005, our inclusion of significant numbers of miscoded claims in the median calculation for HBOT and our exclusion of the claims for multiple units of treatment, the typical scenario, resulted in payment rates that were artificially elevated. As explained earlier, beginning in CY 2005 and continuing through the present, we have adjusted the CCR used in the conversion of charges to costs for these services so that claims data would more accurately reflect the relative costs of the services. The median costs of HBOT calculated using this methodology have been reasonably stable for the last 4 years. We believe that this adjustment through use of the hospitals' overall CCRs is all that is necessary to yield a valid median cost for establishing a scaled weight for HBOT services. Therefore, for CY 2008, we are proposing to continue to use the same methodology that we have used since CY 2005 to estimate payment for HBOT. 2. Skin Repair Procedures (APCs 0024, 0025, 0027, and 0686)

For CY 2006, the AMA made comprehensive changes, including code additions, deletions, and revisions, accompanied by new and revised introductory language, parenthetical notes, subheadings and cross- references, to the Integumentary, Repair (Closure) subsection of surgery in the CPT book to facilitate more accurate reporting of skin grafts, skin replacements, skin substitutes, and local wound care. In particular, the section of the CPT book previously titled ``Free Skin Grafts'' and containing codes for skin replacement and skin substitute procedures was renamed, reorganized, and expanded. New and existing CPT codes related to skin replacement surgery and skin substitutes were organized into five subsections: Surgical Preparation, Autograft/Tissue Cultured Autograft, Acellular Dermal Replacement, Allograft/Tissue Cultured Allogeneic Skin Substitute, and Xenograft.

As part of the CY 2006 CPT code update in the newly named ``Skin Replacement Surgery and Skin Substitutes'' section, certain codes were deleted that previously described skin allograft and tissue cultured and acellular skin substitute procedures, including CPT code 15342 (Application of bilaminate skin substitute/neodermis; 25 sq cm), CPT code 15343 (Application of bilaminate skin substitute/neodermis; each additional 25 sq cm), CPT code 15350 (Application of allograft, skin; 100 sq cm or less), and CPT code 15351 (Application of allograft, skin; each additional 100 sq cm). Thirty-seven new CPT codes were created in the ``Skin Replacement Surgery and Skin Substitutes'' section, and these codes received interim final status indicators and APC assignments in the CY 2006 OPPS final rule with comment period and were subject to comment.

In considering the final CY 2007 APC assignments of these 37 ``Skin

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Replacement Surgery and Skin Repair'' codes, we reviewed the recommendations made by the APC Panel at its March 2006 meeting; presentations made to the APC Panel; comments received on the CY 2007 proposed rule; the CPT code descriptors, introductory explanations, cross-references, and parenthetical notes; the clinical characteristics of the procedures; and the code-specific median costs for all related CPT codes available from our CY 2005 claims data. A discussion of the final CY 2007 APC assignments of these procedures can be found in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68054 through 68057).

We now have CY 2006 data for the surgical procedures assigned to the 4 CY 2007 skin repair APCs, including the 37 codes considered last year that were new for CY 2006. These APCs are: APC 0024 (Level I Skin Repair); APC 0025 (Level II Skin Repair); APC 0686 (Level III Skin Repair); and APC 0027 (Level IV Skin Repair). Based on CY 2006 data available for this proposed rule, the median costs for the APCs as configured for CY 2007 are approximately: $93 for APC 0024; $251 for APC 0025; $1,027 for APC 0686; and $1,340 for APC 0027. Both APCs 0024 and 0025 have 2 times violations based on CY 2006 claims data. The HCPCS median costs of significant procedures in APC 0024 range from approximately $83 to $255. We note that a number of the procedures currently assigned to APC 0024 are very low volume, with few single claims available for ratesetting. Similarly, the median costs of the significant procedures in APC 0025 range from a low of $119 to a high of about $399. This APC also contains a number of low volume procedures, as well as some new CY 2007 CPT codes without CY 2006 claims data. There is also some variation in the median costs of the HCPCS codes assigned to APCs 0686 and 0027, but no 2 times violations in these two APCs.

At the March 2007 APC Panel meeting, we discussed with the APC Panel one possible reconfiguration of the skin repair APCs in order to address the 2 times violations in APCs 0024 and 0025 for CY 2008 by improving the resource homogeneity of the APCs, as well as ensuring their clinical homogeneity. We reviewed with the APC Panel the potential results associated with adding an additional level in this APC series and reallocating all of the procedures in the original four APCs among five new APCs, taking into account the frequency, resource utilization, and clinical characteristics of each procedure. We also gave particular attention to CPT code families in considering the clinical and resource homogeneity of each APC in the reconfigured series. The new configuration of APCs eliminates the 2 times violations that would otherwise exist in APCs 0024 and 0025. It also more accurately attributes higher cost procedures to the Levels IV and V APCs, which contain the surgical procedures of the greatest intensity and resource requirements, leading to a more balanced distribution of APC median costs across the five new APC levels.

The APC Panel made a recommendation at its March 2007 meeting supporting CMS' reorganization of the skin repair APCs into five levels. This recommendation also asked CMS to give special consideration to the APC assignments of ``add-on'' codes; in the context of skin procedures, these are generally those CPT codes that report treatment of an additional body area and that are reported along with a primary procedure for treatment of the first body area. We are accepting the APC Panel's recommendation through this CY 2008 proposal to reconfigure the skin APCs into five levels, and we have reexamined the placement of each of the add-on codes within the framework of the five APCs. We agree with the APC Panel that, because these skin repair APCs are assigned to status indicator ``T'' so that add-on codes would typically be paid at 50 percent of their APC payment rate, these add-on codes bear special examination with respect to their median costs and their appropriate APC assignments. As a result, several CPT code placements from the draft configuration discussed with the Panel were changed for this proposal.

In summary, for CY 2008 we are proposing to eliminate the four current skin repair APCs and replace them with five new APCs titled: APC 0133 (Level I Skin Repair); APC 0134 (Level II Skin Repair); APC 0135 (Level III Skin Repair); APC 0136 (Level IV Skin Repair); and APC 0137 (Level V Skin Repair). We are proposing to redistribute each of the procedures assigned to the current four levels of skin repair APCs into the five proposed APCs, with one exception. Specifically, we are proposing to reassign CPT code 15835 (Excision, excessive skin and subcutaneous tissue (including lipectomy); buttock) to APC 0022 (Level IV, Excision/Biopsy), where other CPT codes in its code family reside. The median costs of the five proposed APCs are $83.91 (APC 0133), $132.82 (APC 0134), $294.50 (APC 0135), $971.25 (APC 0136), and $1,316.85 (APC 0137). The proposed configurations of these new APCs are listed in Table 30 below.

Table 30--Proposed CY 2008 Skin Repair APC Configurations

Proposed CY HCPCS code

Short descriptor Proposed CY 2008 APC 2008 APC median cost

11950.............. Therapy for contour

0133 $83.91 defects. 11951.............. Therapy for contour defects. 11952.............. Therapy for contour defects. 11954.............. Therapy for contour defects. 12001.............. Repair superficial wound(s). 12002.............. Repair superficial wound(s). 12004.............. Repair superficial wound(s). 12005.............. Repair superficial wound(s). 12006.............. Repair superficial wound(s). 12007.............. Repair superficial wound(s). 12011.............. Repair superficial wound(s). 12013.............. Repair superficial wound(s). 12014.............. Repair superficial wound(s). 12015.............. Repair superficial wound(s). 12016.............. Repair superficial wound(s). 12017.............. Repair superficial wound(s). 12018.............. Repair superficial wound(s).

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12031.............. Layer closure of wound(s). 12041.............. Layer closure of wound(s). 12051.............. Layer closure of wound(s). 12052.............. Layer closure of wound(s). 12053.............. Layer closure of wound(s). 15775.............. Hair transplant punch grafts. 15776.............. Hair transplant punch grafts. 11760.............. Repair of nail bed.......

0134 $132.82 11920.............. Correct skin color defects. 11921.............. Correct skin color defects. 11922.............. Correct skin color defects. 12032.............. Layer closure of wound(s). 12034.............. Layer closure of wound(s). 12035.............. Layer closure of wound(s). 12036.............. Layer closure of wound(s). 12037.............. Layer closure of wound(s). 12042.............. Layer closure of wound(s). 12044.............. Layer closure of wound(s). 12045.............. Layer closure of wound(s). 12046.............. Layer closure of wound(s). 12047.............. Layer closure of wound(s). 12054.............. Layer closure of wound(s). 12055.............. Layer closure of wound(s). 12056.............. Layer closure of wound(s). 12057.............. Layer closure of wound(s). 13120.............. Repair of wound or lesion. 13122.............. Repair wound/lesion add- on. 13153.............. Repair wound/lesion add- on. 15040.............. Harvest cultured skin graft. 15170.............. Acell graft trunk/arms/ legs. 15171.............. Acell graft t/arm/leg add- on. 15340.............. Apply cult skin substitute. 15341.............. Apply cult skin sub add- on. 15360.............. Apply cult derm sub, t/a/ l. 15361.............. Aply cult derm sub t/a/l add. 15365.............. Apply cult derm sub f/n/ hf/g. 15366.............. Apply cult derm f/hf/g add. 15819.............. Plastic surgery, neck. 12020.............. Closure of split wound...

0135 $294.50 12021.............. Closure of split wound. 13100.............. Repair of wound or lesion. 13101.............. Repair of wound or lesion. 13102.............. Repair wound/lesion add- on. 13121.............. Repair of wound or lesion. 13131.............. Repair of wound or lesion. 13132.............. Repair of wound or lesion. 13133.............. Repair wound/lesion add- on. 13150.............. Repair of wound or lesion. 13151.............. Repair of wound or lesion. 13152.............. Repair of wound or lesion. 15000.............. Wound prep, 1st 100 sq cm. 15001.............. Wound prep, addl 100 sq cm. 15002.............. Wnd prep, ch/inf, trk/arm/ lg. 15003.............. Wnd prep, ch/inf addl 100 cm. 15004.............. Wnd prep ch/inf, f/n/hf/ g. 15005.............. Wnd prep, f/n/hf/g, addl cm. 15050.............. Skin pinch graft. 15110.............. Epidrm autogrft trnk/arm/ leg. 15111.............. Epidrm autogrft t/a/l add- on. 15115.............. Epidrm a-grft face/nck/hf/ g. 15116.............. Epidrm a-grft f/n/hf/g addl. 15150.............. Cult epiderm grft t/arm/ leg. 15151.............. Cult epiderm grft t/a/l addl. 15152.............. Cult epiderm graft t/a/l +%. 15155.............. Cult epiderm graft, f/n/ hf/g. 15156.............. Cult epidrm grft f/n/hfg add. 15157.............. Cult epiderm grft f/n/hfg +%. 15175.............. Acellular graft, f/n/hf/ g. 15176.............. Acell graft, f/n/hf/g add- on.

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15221.............. Skin full graft add-on. 15241.............. Skin full graft add-on. 15300.............. Apply skinallogrft, t/arm/ lg. 15301.............. Apply sknallogrft t/a/l addl. 15320.............. Apply skin allogrft f/n/ hf/g. 15321.............. Apply sknallogrft f/n/hfg add. 15330.............. Aply acell alogrft t/arm/ leg. 15331.............. Aply acell grft t/a/l add- on. 15335.............. Apply acell graft, f/n/hf/ g. 15336.............. Apply acell grft f/n/hf/g add. 15350.............. Skin homograft. 15351.............. Skin homograft add-on. 15400.............. Apply skin xenograft, t/a/ l. 15401.............. Apply skn xenogrft t/a/l add. 15420.............. Apply skin xgraft, f/n/hf/ g. 15421.............. Apply skn xgrft f/n/hf/g add. 15430.............. Apply acellular xenograft. 15431.............. Apply acellular xgraft add. 20926.............. Removal of tissue for graft. 43887.............. Remove gastric port, open. 11762.............. Reconstruction of nail

0136 $971.25 bed. 14000.............. Skin tissue rearrangement. 14001.............. Skin tissue rearrangement. 14020.............. Skin tissue rearrangement. 14021.............. Skin tissue rearrangement. 14040.............. Skin tissue rearrangement. 14041.............. Skin tissue rearrangement. 14060.............. Skin tissue rearrangement. 14061.............. Skin tissue rearrangement. 15130.............. Derm autograft, trnk/arm/ leg. 15131.............. Derm autograft t/a/l add- on. 15135.............. Derm autograft face/nck/ hf/g. 15136.............. Derm autograft, f/n/hf/g add. 15200.............. Skin full graft, trunk. 15201.............. Skin full graft trunk add- on. 15220.............. Skin full graft sclp/arm/ leg. 15240.............. Skin full grft face/genit/ hf. 15260.............. Skin full graft een & lips. 15261.............. Skin full graft add-on. 15740.............. Island pedicle flap graft. 15936.............. Remove sacrum pressure sore. 15952.............. Remove thigh pressure sore. 15953.............. Remove thigh pressure sore. 15956.............. Remove thigh pressure sore. 15958.............. Remove thigh pressure sore. 20920.............. Removal of fascia for graft. 20922.............. Removal of fascia for graft. 23921.............. Amputation follow-up surgery. 25929.............. Amputation follow-up surgery. 33222.............. Revise pocket, pacemaker. 33223.............. Revise pocket, pacing- defib. 11960.............. Insert tissue expander(s)

0137 $1,316.85 13160.............. Late closure of wound. 14300.............. Skin tissue rearrangement. 14350.............. Skin tissue rearrangement. 15100.............. Skin splt grft, trnk/arm/ leg. 15101.............. Skin splt grft t/a/l, add- on. 15120.............. Skn splt a-grft fac/nck/ hf/g. 15121.............. Skn splt a-grft f/n/hf/g add. 15570.............. Form skin pedicle flap. 15572.............. Form skin pedicle flap. 15574.............. Form skin pedicle flap. 15576.............. Form skin pedicle flap. 15600.............. Skin graft. 15610.............. Skin graft. 15620.............. Skin graft. 15630.............. Skin graft. 15650.............. Transfer skin pedicle flap. 15731.............. Forehead flap w/vasc pedicle.

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15732.............. Muscle-skin graft, head/ neck. 15734.............. Muscle-skin graft, trunk. 15736.............. Muscle-skin graft, arm. 15738.............. Muscle-skin graft, leg . 15750.............. Neurovascular pedicle graft. 15760.............. Composite skin graft. 15770.............. Derma-fat-fascia graft. 15820.............. Revision of lower eyelid. 15821.............. Revision of lower eyelid. 15822.............. Revision of upper eyelid. 15823.............. Revision of upper eyelid. 15824.............. Removal of forehead wrinkles. 15825.............. Removal of neck wrinkles. 15826.............. Removal of brow wrinkles. 15828.............. Removal of face wrinkles. 15829.............. Removal of skin wrinkles. 15840.............. Graft for face nerve palsy. 15841.............. Graft for face nerve palsy. 15842.............. Flap for face nerve palsy. 15845.............. Skin and muscle repair, face. 15876.............. Suction assisted lipectomy. 15877.............. Suction assisted lipectomy. 15878.............. Suction assisted lipectomy. 15879.............. Suction assisted lipectomy. 15922.............. Removal of tail bone ulcer. 15934.............. Remove sacrum pressure sore. 15935.............. Remove sacrum pressure sore. 15937.............. Remove sacrum pressure sore. 15944.............. Remove hip pressure sore. 15945.............. Remove hip pressure sore. 15946.............. Remove hip pressure sore. 20101.............. Explore wound, chest. 20102.............. Explore wound, abdomen. 20910.............. Remove cartilage for graft. 20912.............. Remove cartilage for graft. 43886.............. Revise gastric port, open. 43888.............. Change gastric port, open. 44312.............. Revision of ileostomy. 44340.............. Revision of colostomy

3. Cardiac Computed Tomography and Computed Tomographic Angiography (APCs 0282, 0376, 0377, and 0398)

(If you choose to comment on issues in this section, please include the caption ``Cardiac Computed Tomography and Computed Tomographic Angiography'' at the beginning of your comment.)

Cardiac computed tomography (CCT) and cardiac computed tomography angiography (CCTA) are noninvasive diagnostic procedures that assist physicians in obtaining detailed images of coronary blood vessels. The data obtained from these procedures can be used for further diagnostic evaluations and/or appropriate therapy for coronary patients.

Currently, there are eight Category III CPT codes that describe CCT and CCTA procedures. The CPT codes, which are shown in Table 31, are 0144T through 0151T. These codes were new for CY 2006. In the CY 2006 OPPS final rule with comment period, we assigned the CCT and CCTA procedure codes to interim APCs, which were subject to public comment. We received no comments on the interim APC assignments. Since January 2006, the CCT and CCTA procedure codes have been assigned to four APCs, specifically, APC 0282 (Miscellaneous Computerized Axial Tomography), APC 0376 (Level II Cardiac Imaging), APC 0377 (Level III Cardiac Imaging), and APC 0398 (Level I Cardiac Imaging).

In the CY 2007 OPPS/ASC proposed rule, we proposed to retain the existing APC assignments for the CCT and CCTA procedure codes. We received several comments on the proposed APCs assignments, which we addressed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68038 and 68039). Several of the commenters requested that we either not assign the CCT and CCTA procedures to any APCs or assign them to appropriate New Technology APCs. In addition, some commenters were also concerned that CCT and CCTA procedures were not clinically homogeneous with other procedures assigned to APCs 0282, 0376, 0377, and 0398, noting that the last three APCs previously contained only nuclear medicine cardiac imaging procedures.

In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68038), we indicated our belief that the clinical characteristics and expected resource use associated with the CCT and CCTA procedures were sufficiently similar to the other procedures assigned to APCs 0282, 0376, 0377, and 0398 that we believed those APC assignments were appropriate. While several of those APCs also contained nuclear medicine imaging procedures, we had never designated those APCs as specific to

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nuclear medicine procedures. Therefore, for CY 2007, we continued with the CY 2006 APC assignments for CPT codes 0144T through 0151T. We did not agree with the commenters that use of CT and CTA for cardiac studies was a new technology for which we had no relevant OPPS cost information that could be used to estimate hospital resources for these procedures. We also believed these services could be potentially covered hospital outpatient services, so that it would not be appropriate for us to depart from our standard OPPS policy and not assign them to APCs. As we indicated in our CY 2007 OPPS/ASC proposed rule (71 FR 49549), some Category III CPT codes describe services that we have determined to be similar in clinical characteristics and resource use to HCPCS codes assigned to existing clinical APCs. In these instances, we may assign the Category III CPT code to the appropriate clinical APC. Other Category III CPT codes describe services that we have determined are not compatible with an existing clinical APC, yet are appropriately provided in the hospital outpatient setting. In these cases, we may assign the Category III CPT code to what we estimate is an appropriately priced New Technology APC. In other cases, we may assign a Category III CPT code to one of several nonseparately payable status indicators, including ``N,'' ``C,'' ``B,''' or ``E,''' which we believe is appropriate for the specific code. As we noted in the CY 2007 OPPS/ASC final rule with comment period, we believed that CCT and CCTA procedures were appropriate for separate payment under the OPPS should local contractors provide coverage for these procedures, and, therefore, they warranted status indicator and APC assignments that would provide separate payment under the OPPS (71 FR 68038).

At its March 2007 meeting, the APC Panel recommended that CMS work with stakeholders to determine more appropriate APC placements for CCT and CCTA procedures. The APC Panel made no specific recommendations regarding the appropriate APC assignments for these services, although several different clinical APC configurations were discussed, along with the alternative of assigning these procedures to New Technology APCs.

We note that we generally meet with interested organizations concerning their views about OPPS payment policy issues with respect to specific technologies or services. Following the publication of the CY 2007 OPPS/ASC final rule with comment period, we received such information from interested individuals and organizations regarding the clinical and facility resource characteristics of CCT and CCTA procedures. We will consider the input of any individual or organization to the extent allowed by Federal law, including the Administrative Procedure Act (APA) and the FACA. We establish the OPPS payment rates for services through regulations, during our annual rulemaking cycle. We are required to consider the timely comments of interested organizations, establish the payment policies for the forthcoming year, and respond to the timely comments of all public commenters in the final rule in which we establish the payments for the forthcoming year.

Analysis of our hospital data for claims submitted for CY 2006 indicate that CCT and CCTA procedures are performed relatively frequently on Medicare patients. Our claims data show a total of over 16,000 procedures performed, with about 11,000 single claims available for ratesetting. Based on our analysis of the robust hospital outpatient claims data, we believe we have adequate claims data from CY 2006 upon which to determine the median costs of performing these procedures and to assign them to appropriate clinical APCs. We see no rationale for reassigning these procedures to New Technology APCs in CY 2008, when we have claims-based cost information regarding these procedures, and they are clinically similar to other procedures paid under the OPPS.

We acknowledge the concerns that have been expressed to us regarding the clinical homogeneity of APCs 0376, 0377, and 0398, where some of the CCT and CCTA are assigned for CY 2007 along with nuclear medicine cardiac imaging procedures. Because we are proposing to package payment for diagnostic radiopharmaceuticals into payment for diagnostic nuclear medicine procedures in CY 2008 as discussed in detail in section II.A.4. of this proposed rule, we believe that to ensure the clinical and resource homogeneity of APCs 0376, 0377, and 0398 in CY 2008, it would be most appropriate to reassign the CCT and CCTA services currently residing in those APCs to other clinical APCs for CY 2008.

Therefore, for CY 2008, we are proposing to assign the CCT and CCTA procedures to two clinical APCs, specifically new clinical APC 0383 (Cardiac Computed Tomographic Imaging) and APC 0282, as shown in Table 31. The proposed median cost of $313.81 for APC 0383 is based entirely on claims data for CPT codes 0145T, 0146T, 0147T, 0148T, 0149T, and 0150T that describe CCT and CCTA services, a clinically homogeneous grouping of services. In addition, the individual median costs of these services range from a low of $276.50 to a high of $436.79, reflecting their hospital resource similarity as well. We are proposing to reassign the two other CCT CPT codes, specifically CPT codes 0144T and 0151T, to APC 0282. The inclusion of these two codes in APC 0282 results in a CY 2008 proposed APC median cost of $105.48.

Table 31.--Proposed CY 2008 APC Assignments of CCT and CCTA Procedures

Proposed CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Proposed CY Proposed CY 2008 APC APC median cost 2008 SI 2008 APC median cost

0144T.......... CT heart wo dye; S.......... 0398 $252.17 S.............

0282 $105.48 qual calc. 0145T.......... CT heart w/wo S.......... 0376 304.52 S.............

0383 313.81 dye funct. 0146T.......... CCTA w/wo dye... S.......... 0376 304.52 S.............

0383 313.81 0147T.......... CCTA w/wo, quan S.......... 0376 304.52 S.............

0383 313.81 calcium. 0148T.......... CCTA w/wo, strxr S.......... 0377 397.29 S.............

0383 313.81 0149T.......... CCTA w/wo, strxr S.......... 0377 397.29 S.............

0383 313.81 quan calc. 0150T.......... CCTA w/wo,

S.......... 0398 252.17 S.............

0383 313.81 disease strxr. 0151T.......... CT heart funct S.......... 0282

93.98 S.............

0282 105.48 add-on.

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4. Ultrasound Ablation of Uterine Fibroids With Magnetic Resonance Guidance (MRgFUS) (APCs 0195 and 0202)

(If you choose to comment on issues in this section, please include the caption ``Ultrasound Ablation of Uterine Fibroids with Magnetic Resonance Guidance (MRgFUS)'' at the beginning of your comment.)

Magnetic resonance guided focused ultrasound (MRgFUS) is a noninvasive surgical procedure that uses high intensity focused ultrasound waves to destroy tissue in combination with magnetic resonance imaging (MRI). Currently, the two Category III CPT codes for this procedure are 0071T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume less than 200 cc of tissue) and 0072T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume greater or equal to 200 cc of tissue), which were implemented on January 1, 2005.

In the CY 2006 OPPS proposed rule, we proposed to continue to assign both codes to APC 0193 (Level V Female Reproductive Proc). However, at the August 2005 APC Panel meeting, the APC Panel recommended that CMS work with stakeholders to assign CPT codes 0071T and 0072T to appropriate New Technology APCs. Based on our review of several factors, which included information presented at the August 2005 APC Panel meeting, the comments received on the CY 2006 OPPS proposed rule, and our analysis of OPPS claims data for different procedures, we reassigned CPT code 0071T from APC 0193 to APC 0195 (Level IX Female Reproductive Proc) and CPT code 0072T from APC 0193 to APC 0202 (Level X Female Reproductive Proc) effective January 1, 2006, to reflect the higher level of resources we estimated were required when performing the MRgFUS procedures.

In the CY 2007 OPPS/ASC proposed rule, we proposed to continue to assign CPT code 0071T to APC 0195 and CPT code 0072T to APC 0202. We received comments on the CY 2007 proposed APC assignments recommending that we revise the APC assignments for CPT codes 0071T and 0072T. The commenters indicated that, while MRgFUS treats anatomical sites that are similar to other procedures assigned to APCs 0195 and 0202, the resources utilized differ dramatically. Several commenters recommended that the most appropriate APC assignment for the MRgFUS procedures would be APC 0127 (Level IV Stereotactic Radiosurgery), based on their analyses of the procedures' resource use and clinical characteristics.

As we stated in both the CY 2006 OPPS final rule with comment period and the CY 2007 OPPS/ASC final rule with comment period, we believe that MRgFUS treatment bears a significant relationship to technologies already in use in hospital outpatient departments (70 FR 68600 and 71 FR 68050, respectively). The use of focused ultrasound for thermal tissue ablation has been in development for decades, and the recent application of MRI to focused ultrasound therapy provides monitoring capabilities that may make the therapy more clinically useful. We continue to believe that, although MRgFUS therapy is relatively new, it is an integrated application of existing technologies (MRI and ultrasound), and its technology resembles other OPPS services that are assigned to clinical APCs for which we have significant OPPS claims data. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68050), we explained our belief that retaining MRgFUS procedures in clinical APCs with other female reproductive procedures would enable us both to set accurate payment rates and to maintain appropriate clinical homogeneity of the APCs. Furthermore, we did not agree with commenters that MRgFUS procedures shared sufficient clinical and resource characteristics with cobalt-based stereotactic radiosurgery (SRS) to reassign them to that particular clinical APC 0127, where only the single specific SRS procedure was assigned for CY 2007 and which had a CY 2007 APC median cost of $8,460.53. Consequently, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68051), we finalized payment for these procedures in APCs 0195 and 0202 as proposed.

Analysis of our hospital outpatient data for claims submitted for CY 2006 indicates that MRgFUS procedures are rarely performed on Medicare patients. As we stated in the CY 2006 OPPS final rule with comment period and CY 2007 OPPS/ASC final rule with comment period, because treatment of uterine fibroids is most common among women younger than 65 years of age, we do not expect that there ever will be many Medicare claims for the MRgFUS procedures (70 FR 68600 and 71 FR 68050, respectively). For OPPS claims submitted from CY 2005 through CY 2006, our claims data show that there were only two claims submitted for CPT code 0071T in CY 2005 and one in CY 2006. We have no hospital claims for CPT code 0072T from either of those years.

At its March 2007 meeting, the APC Panel recommended that, for CY 2008, CMS reassign CPT codes 0071T and 0072T from APCs 0195 and 0202 to APC 0067 (Level III Stereotactic Radiosurgery, MRgFUS, and MEG), which has a proposed APC median cost of $3,869.96 for CY 2008. The APC Panel discussed its general belief that while the MRgFUS procedures may not be performed frequently on Medicare patients, CMS should pay appropriately for the procedures to ensure access for Medicare beneficiaries. In addition, following discussion of the potential for reassignment of the CPT codes to New Technology APCs, the APC Panel specifically recommended that the procedures be assigned to a clinical APC at this point in their adoption into clinical practice, instead of a New Technology APC. Furthermore, since publication of the CY 2007 OPPS/ASC final rule with comment period, we have received input from interested individuals and organizations regarding the clinical and resource characteristics of MRgFUS procedures. Based on our consideration of all information available to us regarding the necessary hospital resources for the MRgFUS procedures in comparison with other procedures for which we have historical hospital claims data, for CY 2008 we are proposing to accept the APC Panel's recommendation to reassign these services to clinical APC 0067, an APC that currently contains two linear accelerator-based stereotactic radiosurgery (SRS) procedures that are conducted in a single or first session, rather than procedures for subsequent SRS treatment fractions. We agree with the APC Panel that these SRS procedures share sufficient clinical and resource similarity with the MRgFUS services, including reliance on image guidance in a single treatment session to ablate abnormal tissue, to justify their assignment to the same clinical APC. Unlike the cobalt-based SRS service that we concluded in the CY 2007 OPPS/ASC final rule with comment period was not similar to MRgFUS procedures based on clinical and resource considerations, these linear accelerator-based SRS procedures are not performed solely on intracranial lesions and generally do not require immobilization of the patient's head in a frame that is screwed into the skull, thereby exhibiting characteristics more consistent with MRgFUS treatments. In addition, based on our understanding of the MRgFUS procedures described by the two CPT codes which differ only in the volume of uterine leiomyomata treated, we believe it would be most

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appropriate to assign both of these procedures to the same clinical APC, as recommended by the APC Panel. Therefore, for CY 2008 we are proposing to reassign CPT codes 0071T and 0072T to APC 0067, with a proposed APC median cost of $3,869.96, as reflected in Table 32.

Table 32.--Proposed CY 2008 APC Assignments of MRgFUS Procedures

Proposed CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Proposed CY Proposed CY 2008 APC APC median cost 2008 SI 2008 APC median cost

0071T.......... U/s leiomyomata T......... 0195 $1,742.20 S.............

0067 $3,869.96 ablate 200.

5. Single Allergy Tests (APC 0381)

(If you choose to comment on issues in this section, please include the caption ``Single Allergy Tests'' at the beginning of your comment.)

For CY 2008, we are proposing to continue with our methodology of differentiating single allergy tests (``per test'') from multiple allergy tests (``per visit'') by assigning these services to two different APCs to provide accurate payments for these tests in CY 2008. Multiple allergy tests are currently assigned to APC 0370 (Allergy Tests) with a median cost calculated based on the standard OPPS methodology. We provided billing guidance in CY 2006 in Transmittal 804 (issued on January 3, 2006) specifically clarifying that hospitals should report charges for the CPT codes that describe single allergy tests to reflect charges ``per test'' rather than ``per visit'' and should bill the appropriate number of units of these CPT codes to describe all of the tests provided. However, our CY 2006 claims data available for this CY 2008 proposed rule for APC 0381 (Single Allergy Tests) do not reflect improved and more consistent hospital billing practices of ``per test'' for single allergy tests. Using the CY 2006 claims data, the median cost of APC 0381 calculated according to the standard single claims OPPS methodology is $66.17, significantly higher than the CY 2007 median cost of $16.43 for APC 0381 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 appeared to include charges that represent a ``per visit'' charge, rather than a ``per test'' charge. Therefore, consistent with our payment policy for CYs 2006 and 2007, we are proposing to calculate a ``per unit'' median cost for APC 0381, based upon 276 CY 2006 claims containing multiple units or multiple occurrences of a single CPT code, where packaging on the claims is allocated equally to each unit of the CPT code. Using this methodology, we calculated a proposed median cost of $18.96 for APC 0381 for CY 2008. We will consider whether further instructions to hospitals for reporting these procedures would be beneficial, because we are concerned that our claims data for CY 2006 reflect no apparent change in hospitals' billing practices following our January 2006 clarification. We remain hopeful that better and more accurate hospital reporting and charging practices for these single allergy test CPT codes in future years may allow us to calculate the median cost of APC 0381 using the standard OPPS process for future OPPS updates. 6. Myocardial Positron Emission Tomography (PET) Scans (APC 0307)

(If you choose to comment on issues in this section, please include the caption ``Myocardial PET Scans'' at the beginning of your comment.)

From August 2000 to December 31, 2005, under the OPPS, we assigned one clinical APC to all myocardial positron emission tomography (PET) scan procedures, which were reported with multiple G-codes through March 31, 2005. Under the OPPS, effective April 1, 2005, myocardial PET scans were reported with three CPT codes, specifically 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). From April 1, 2005 through December 31, 2005, these three CPT codes were assigned to one APC, specifically APC 0285 (Myocardial Positron Emission Tomography (PET), with a payment rate of $735.77. In CY 2006, in response to the public comments received on the CY 2006 OPPS proposed rule, and based on our claims information, myocardial PET services were assigned to two clinical APCs for the CY 2006 OPPS. The CPT codes for the single scans, specifically 78459 and 78491, were assigned to APC 0306 (Myocardial Positron Emission Tomography (PET) Imaging, Single Study, Metabolic Evaluation) with a payment rate of $800.55, and the multiple scan CPT code 78492 was assigned to APC 0307 (Myocardial Positron Emission Tomography (PET) Imaging, Multiple Studies) with a payment rate of $2,484.88, effective January 1, 2006. However, analysis of the CY 2005 claims data that were used to set the payment rates for CY 2007 revealed that when all the myocardial PET scan procedure codes were combined into a single clinical APC, as they were prior to CY 2006, the APC median cost for myocardial PET services was very similar to the median cost of their single CY 2005 clinical APC. Further, our analysis revealed that the updated differential median costs of the single and multiple study procedures no longer supported the two-level APC payment structure. Therefore, for CY 2007, CPT codes 78459, 78491, and 78492, were assigned to a single clinical APC, specifically APC 0307, which was renamed ``Myocardial Positron Emission Tomography (PET) Imaging,'' with a median cost of $726.98.

At its March 2007 meeting, the APC Panel recommended that CMS reassign CPT code 78492 to its own clinical APC, to distinguish this multiple study procedure that the APC Panel believed would require greater hospital resources from less resource intensive single study procedures. However, we are not accepting the APC Panel's recommendation because, consistent with our observations from the CY 2005 claims data, our updated CY 2006 claims data do not support the creation of a clinical APC for CPT code 78492 alone. Analysis of the latest CY 2006 claims data continues to support a single level APC payment structure for the myocardial PET scan procedures because very few single scan studies are performed and we believe single and multiple scan procedures are clinically

[[Page 42714]]

similar. Our claims data available for this proposed rule show a total of 2,547 procedures reported with the multiple scan CPT code 78492. Alternatively, our claims data show only a combined total of 249 procedures reported with the single scan CPT codes 78459 and 78491, less than 10 percent of all studies reported. A similar distribution is observed in the single bills available for ratesetting.

Similar to last year's findings, our claims data reveal that more hospitals are not only providing multiple myocardial PET scan services, but most myocardial PET scans are multiple studies. We believe that the assignment of CPT codes 78459, 78491, and 78492 to a single clinical APC for CY 2008 remains appropriate because the CY 2006 claims data do not support a resource differential among significant myocardial PET services that would necessitate the placement of single and multiple PET scan procedures into two separate clinical APCs. Therefore, we are proposing to continue to assign both the single and multiple myocardial PET scan procedure codes to APC 0307, with a proposed APC median cost of $2,677.71 for CY 2008. We note that the proposed CY 2008 median cost of APC 0307 is significantly higher than its CY 2007 median cost, in part because of our proposed CY 2008 packaging approach discussed in detail in section II.A.4. of this proposed rule that would package payment for diagnostic radiopharmaceuticals into the payment for their related diagnostic nuclear medicine studies, such as myocardial PET scans. We believe that the proposed median cost appropriately reflects the hospital resources associated with providing myocardial PET scans to Medicare beneficiaries in cost-efficient settings. Furthermore, we believe that the proposed CY 2008 OPPS payment rates are adequate to ensure appropriate access to these services for Medicare beneficiaries. The myocardial PET scan CPT codes and their proposed CY 2008 APC assignments are displayed in Table 33.

Table 33.--Proposed CY 2008 APC Assignments for Myocardial PET Scans

Proposed CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Proposed CY Proposed CY 2008 APC APC median cost 2008 SI 2008 APC median cost

78459......... Heart muscle S............ 0307 $726.98 S............

0307 $2,677.71 imaging (PET). 78491......... Heart image S............ 0307 726.98 S............

0307 2,677.71 (pet), single. 78492......... Heart image S............ 0307 726.98 S............

0307 2,677.71 (pet), multiple.

7. Implantation of Cardioverter-Defibrillators (APCs 0107 and 0108)

(If you choose to comment on issues in this section, please include the caption ``Implantation of Cardioverter-Defibrillators'' at the beginning of your comment.)

In CY 2003, we created four Level II HCPCS codes for implantation of single and dual chamber cardioverter-defibrillators (ICDs) with and without leads because, for the CY 2004 OPPS, we deleted the device HCPCS codes and there was no other way of determining whether the device being implanted was a single chamber or dual chamber device. We were concerned that the costs of inserting single versus dual chamber ICDs could be sufficiently different due to the two types of devices implanted such that separate APC assignments for the insertion procedures could be appropriate in the future. The HCPCS codes are G0297 (Insertion of single chamber pacing cardioverter defibrillator pulse generator); G0298 (Insertion of dual chamber pacing cardioverter defibrillator pulse generator); G0299 (Insertion or repositioning of electrode lead for single chamber pacing cardioverter defibrillator and insertion of pulse generator); and G0300 (Insertion or repositioning of electrode lead for dual chamber pacing cardioverter defibrillator and insertion of pulse generator). The pairs of codes were assigned to two different clinical APCs, depending on whether or not they included the possibility of electrode insertion, specifically APC 0107 (Insertion of Cardioverter-Defibrillator) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads).

In the same year, the OPPS ceased to recognize for payment the two CPT codes for insertion of ICDs with or without ICD leads. These CPT codes are 33240 (Insertion of single or dual chamber pacing cardioverter-defibrillator pulse generator) and 33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generator).

We reinstated the device category HCPCS codes on January 1, 2005. Moreover, since January 1, 2005, hospitals have been required to report devices they use or implant when there is a device code that describes the device. We began to edit to ensure that hospitals are correctly billing devices required for certain procedures in April 2005 and implemented the second phase of device edits on October 1, 2005. Therefore, we no longer need different procedural Level II HCPCS codes to identify whether hospitals inserted a single or dual chamber ICD device.

At its March 2007 meeting, the APC Panel recommended that CMS delete the Level II HCPCS codes for implantation of cardioverter- defibrillator pulse generators with or without repositioning or implantation of electrode lead(s) and authorize hospitals to report the CPT codes. The APC Panel indicated that the requirement for reporting device codes would enable CMS to continue to identify costs when different types of devices are implanted if that were to be necessary.

We analyzed the median cost data associated with APCs 0107 and 0108 as part of our preparation for the APC Panel discussion. While there is a difference in the median cost when a single chamber versus a dual chamber device is implanted, the difference has never been great enough to justify differential APC assignments for the procedures. See Table 34 below for a historical summary of all single claim median costs. (For purposes of this analysis, we display the median costs for all single claims without regard to adjustment or to whether the claims meet various selection criteria; these are not the median costs on which payments were based.)

Hospitals have consistently indicated that they would prefer to report the services furnished using the CPT codes that describe them, rather than the alphanumeric G-codes, because many private payers require that they bill the CPT codes. We also prefer to recognize CPT codes for procedures under the OPPS, when possible, to minimize the administrative coding burden on hospitals.

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We believe that the differences between the median costs for the two Level II HCPCS codes assigned to each APC (that is, G0297 and G0298 for APC 0107 and G0299 and G0300 for APC 0108) do not currently support differential APC assignments for single and dual chamber ICD insertion procedures. The required device coding would allow us to continue to follow the different costs over time by examining subsets of ICD implantation procedure claims based on the type of device reported on the claims. Moreover, we are sensitive to the benefits of minimizing the reporting burden on hospitals. Therefore, for CY 2008 we are proposing to delete the Level II HCPCS codes for ICD insertion procedures and require hospitals to bill the appropriate CPT codes, along with the applicable device C-codes, for payment under the OPPS.

Table 34.--Historical Unadjusted Median Cost Data from All Single Claims for APCs 0107 and 0108

CY 2002 claims (includes 75% of device Unadjusted CY Unadjusted CY Unadjusted CY Unadjusted CY HCPCS code

cost per 2003 claims 2004 claims 2005 claims 2006 claims manufacturer (CY 2005 OPPS) (CY 2006 OPPS) (CY 2007 OPPS) (CY 2008 OPPS) data) (CY 2004 OPPS)

APC 0107:

33240....................... $17,025.21 $12,102.28 .............. .............. ..............

G0297....................... .............. 11,886.42 $13,392.82 $10,821.06 $18,470.82

G0298....................... .............. 17,168.67 14,316.54 13,935.35 21,571.88 APC 0108:

33249....................... $28,685.29 17,330.96 .............. .............. ..............

G0299....................... .............. 18,561.51 18,425.79 21,367.99 23,060.55

G0300....................... .............. 21,006.03 19,306.96 23,680.34 26,204.89

8. Implantation of Spinal Neurostimulators (APC 0222)

(If you choose to comment on issues in this section, please include the caption ``Implantation of Spinal Neurostimulators'' at the beginning of your comment.)

The CPT code for insertion of a spinal neurostimulator (63685, Insertion or replacement of spinal neurostimulator pulse generation or receiver, direct or inductive coupling), which is assigned to APC 0222 (Implantation of Neurological Device), is reported for both the insertion of a nonrechargeable neurostimulator and a rechargeable neurostimulator. The costs of a nonrechargeable neurostimulator from CY 2005 claims are packaged into the payment for APC 0222 in CY 2007. We believe rechargeable neurostimulators are currently most commonly implanted for spinal neurostimulation, consistent with the information provided during our consideration of the device for pass through designation. However, in response to hospital requests we have recently expanded our procedure-to-device edits to allow device category code C1820 (Generator, neurostimulator (implantable), with rechargeable battery and charging system) to be reported with two other procedures. These procedures are CPT code 64590 (Insertion or replacement of peripheral neurostimulator pulse generator or receiver, direct or inductive coupling), assigned to APC 0222, 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), assigned to APC 0039 (Level I Implantation of Neurostimulator).

The rechargeable neurostimulator reported as device category code C1820 has received pass-through payment since January 1, 2006, and its pass-through status will expire on January 1, 2008, as discussed further in section IV.B. of this proposed rule. During the 2 years of pass-through payment when device category code C1820 has been paid at a hospital's charges reduced to cost using the overall hospital CCR, we have applied a device offset when device category code C1820 is reported with a CPT code assigned to APCs 0039 or 0222 in order to remove the costs of the predecessor nonrechargeable device from the cost-based payment of C1820. This device offset ensures that no duplicate device payment is made. As a general policy, under the OPPS we package payment for the costs of devices into the payment for the procedure in which they are used, unless those devices have OPPS pass- through status, such as the case here.

Review of our CY 2007 claims data for APC 0222 shows that the costs of the associated neurostimulator implantation procedures are higher when the rechargeable neurostimulator is implanted rather than the traditional nonrechargeable neurostimulator. We refer readers to Table 35 below for the median costs of APC 0222 under different device packaging scenarios. However, the difference in costs is not so great that retaining the implantation of both types of devices for spinal or peripheral neurostimulation in APC 0222 would cause a 2 times violation, and thereby, justify creating a new clinical APC. In addition, to pay differentially would require us to establish one or more Level II HCPCS codes for reporting under the OPPS, because the three CPT codes for which device category code C1820 is currently an allowed device do not differentiate among the device implantation procedures based on the specific device used. The creation of special Level II HCPCS codes for OPPS reporting is generally undesirable, unless absolutely essential, because it increases hospital administrative burden as the codes may not be accepted by other payers. Establishing separate coding and payment would reduce the size of the APC payment groups in a year where we are proposing to increase packaging under the OPPS through expanded payment groups.

We believe that the principles of a prospective payment system are best served by following our standard practice of retaining a single CPT code for neurostimulator implantation procedures that does not distinguish between rechargeable and nonrechargeable neurostimulators, into which the costs of both types of devices are packaged in relationship to their OPPS utilization. To the extent that the rechargeable neurostimulator may become the dominant device implanted over time for neurostimulation, the median costs of APCs 0222 and 0039 would reflect the change in surgical practice in future years. In the meantime, with the rechargeable neurostimulator coming off pass-through status for CY 2008, by following our standard practice we would be increasing the size of the APC 0222 and

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APC 0039 payment bundles for CY 2008, thereby encouraging hospitals to use resources most efficiently.

Therefore, for CY 2008 we are proposing to package the costs of rechargeable neurostimulators into the payment for the CPT codes that describe the services furnished. Our proposed median cost for APC 0222 is $12,161.64, upon which the CY 2008 payment rate for APC 0222 would be based. We believe this approach is the most administratively simple, consistent with OPPS packaging principles, and supportive of encouraging hospital efficiency, yet it also provides appropriate packaged payment for implantable neurostimulators. While we welcome public comment on this issue, we request that commenters address how this specific device implantation situation differs from many other scenarios under the OPPS, where relatively general HCPCS codes describe procedures that may utilize a variety of devices with different costs, and payment for those devices is packaged into the payment for the associated procedures.

Table 35.--APC 0222 CY 2006 Data Based on Claims Reporting Different Neurostimulator Devices

CY 2006 pass CY 2006 count edit, CY 2006 pass APC 0222 configurations

of hospitals nontoken, no

edit, billing

FB single nontoken, no bills FB median cost

APC 0222, including claims with both rechargeable and

868

2,830 $12,161.64 nonrechargeable neurostimulators............................... APC 0222A, including only claims with nonrechargeable

781

2,412 11,607.75 neurostimulators............................................... APC 0222B, including only claims with rechargeable

238

422 18,088.71 neurostimulators...............................................

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

(If you choose to comment on issues in this section, please include the caption ``SRS Treatment Delivery Services'' at the beginning of your comment.)

For CY 2007, the CPT Editorial Panel created four new SRS Category I CPT codes in the Radiation Oncology section of the 2007 CPT manual. Specifically, the CPT Editorial Panel created CPT codes 77371 (Radiation treatment delivery, stereotactic radiosurgery (SRS) (complete course of treatment of cerebral lesion(s) consisting of 1 session); multi-source Cobalt 60 based)); 77372 (Radiation treatment delivery, stereotactic radiosurgery (SRS) (complete course of treatment of cerebral lesion(s) consisting of 1 session); linear accelerator based)), 77373 (Stereotactic body radiation therapy, treatment delivery, per fraction to 1 or more lesions, including image guidance, entire course not to exceed 5 fractions); and 77435 (Stereotactic body radiation therapy, treatment management, per treatment course, to one or more lesions, including image guidance, entire course not to exceed 5 fractions).

Of the four CPT codes, CPT codes 77371 and 77435 were recognized under the OPPS effective January 1, 2007, while CPT codes 77372 and 77373 were not. CPT code 77371 was assigned to the same APC and status indicator as its predecessor code, HCPCS code G0243 (Multi-source photon stereotactic radiosurgery, delivery including collimator changes and custom plugging, complete course of treatment, all lesions). For CY 2007, CPT code 77371 was assigned to APC 0127 with a status indicator of ``S.'' Prior to CY 2007, CPT code 77435 was described under CPT code 0083T (Stereotactic body radiation therapy, treatment management, per day), which was assigned to status indicator ``N'' in the OPPS. The CPT Editorial Panel decided to delete CPT code 0083T on December 31, 2006, and replaced it with CPT code 77435. Because the costs of SRS treatment management were already packaged into the OPPS payment rates for SRS treatment delivery, we assigned CPT code 77435 to status indicator ``N'' which was the same status indicator that was assigned to its predecessor Category III CPT code (0083T), under the OPPS, effective January 1, 2007. We note that the OPPS treatment of these new CPT codes was open to comment in the CY 2007 OPPS/ASC final rule with comment period, and we will specifically respond to those comments, according to our usual practice, in the CY 2008 OPPS/ASC final rule with comment period.

As we explained in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68025), we did not recognize CPT codes 77372 and 77373 because they do not accurately and specifically describe the HPCPCS G- codes that we currently use for linear accelerator (LINAC)-based SRS treatment delivery services under the OPPS. During CY 2006, CPT code 77372 was reported under one of two HCPCS codes, depending on the technology used, specifically, G0173 (Linear accelerator based stereotactic radiosurgery, complete course of therapy in one session) and G0339 (Image-guided robotic linear accelerator-based stereotactic radiosurgery, complete course of therapy in one session or first session of fractionated treatment). Because HCPCS codes G0173 and G0339 are more specific in their descriptors than CPT code 77372, we decided to continue using HCPCS codes G0173 and G0339 under the OPPS for CY 2007. For CY 2007, we assigned CPT code 77372 to status indicator ``B'' under the OPPS. In addition, during CY 2006, CPT code 77373 was reported under one of three HCPCS codes depending on the circumstances and technology used, specifically, 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); G0339 (Image-guided robotic linear accelerator-based stereotactic radiosurgery, complete course of therapy in one session or first session of fractionated treatment); and 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). Because HCPCS codes G0251, G0339, and G0340 are more specific in their descriptors than CPT code 77373 and are also assigned to different clinical APCs for CY 2007, we decided to continue recognizing HCPCS codes G0251, G0339, and G0340 under the OPPS for CY 2007. Therefore, for CY 2007 we assigned CPT code 77373 to status indicator ``B'' under the OPPS.

While we have had requests from certain specialty societies and other stakeholders that we recognize CPT codes 77372 and 77373 under the OPPS rather than continuing to use the current Level II HCPCS codes for hospital

[[Page 42717]]

outpatient facility reporting of these procedures, we have also heard from others that continued use of the G-codes under the OPPS is the most appropriate way to recognize the facility resource differences between different types of LINAC-based procedures. For the past several years, we have collected information through our claims data regarding the hospital costs associated with the planning and delivery of SRS services. As new technology emerged in the field of SRS several years ago, public commenters urged CMS to recognize cost differences associated with the various methods of SRS planning and delivery. Beginning in CY 2001, we established G-codes to capture any such cost variations associated with the various methods of planning and delivery of SRS. Based on comments received on the CY 2004 OPPS proposed rule regarding the G-codes used for SRS, we made some modifications to the coding for CY 2004 (68 FR 63431 and 63432). First, we received comments regarding the descriptors for HCPCS codes G0173 and G0251, indicating that these codes did not accurately distinguish image-guided robotic SRS systems from other forms of linear accelerator-based SRS systems to account for the cost variation in delivering these services. In response, for CY 2004 we modified the descriptor for G0173 and also created two HCPCS G-codes, G0339 and G0340, to describe complete and fractionated image-guided robotic linear accelerator-based SRS treatment. While all of these LINAC-based SRS procedures were originally assigned to New Technology APCs under the OPPS, we reassigned them to new clinical APCs for CY 2007 based on 2 full years of hospital claims data reflecting stable median costs based on significant volumes of single claims.

HCPCS codes G0173, G0251, G0339, and G0340 are more specific in their descriptors than either CPT code 77372 or 77373. In addition, their hospital claims data continue to reflect significantly different hospital resources that would lead to violations of the 2 times rule were we to reassign certain procedures to the same clinical APCs in order to crosswalk the CY 2006 historical claims data for the 4 G-codes to develop the median costs of the APCs to which the 2 CPT codes would be assigned if we were to recognize them. Therefore, we believe that we should continue to use the G-codes for reporting LINAC-based SRS treatment delivery services for CY 2008 under the OPPS to ensure appropriate payment to hospitals for the different facility resources associated with providing these complex services. That is, we are proposing to continue to assign HCPCS codes G0173 and G0339 to APC 0067 (Level III Stereotactic Radiosurgery, MRgFUS, and MEG), HCPCS code G0251 to APC 0065 (Level I Stereotactic Radiosurgery, MRgFUS, and MEG), and HCPCS code G0340 to APC 0066 (Level II Stereotactic Radiosurgery, MRgFUS, and MEG) for CY 2008.

Since we first established the full group of SRS treatment delivery codes in CY 2004, we now have 3 years of hospital claims data reflecting the costs of each of these services. Based on our latest claims data from CY 2006, the proposed APC median cost for the complete course of therapy in one session or first fraction of image-guided, robotic LINAC-based SRS, as described by HCPCS codes G0173 and G0339 respectively in APC 0067, is $3,869.96 based on 1,946 single claims available for ratesetting. The proposed CY 2008 APC median cost for each fractionated session of LINAC-based SRS, as described by HCPCS code G0251 in APC 0065, is $1,081.92 based on 1,938 single claims. The proposed CY 2008 APC median cost for the second through fifth sessions of image-guided, robotic LINAC-based fractionated SRS treatment, reported by HCPCS code G0340 in APC 0066, is $2,980.24 based on 5,209 single claims.

Therefore, for CY 2008, we are proposing to continue with the CY 2007 HCPCS coding for LINAC-based SRS treatment delivery services under the OPPS. The LINAC based SRS codes and their CY 2008 proposed APC assignments are displayed in Table 36.

Table 36.--Proposed CY 2008 APC Assignments for LINAC-Based SRS Treatment Delivery Services

Proposed CY HCPCS code

Short descriptor

CY 2007 SI CY 2007 APC CY 2007 APC Proposed CY 2008 SI Proposed CY 2008 APC median cost

2008 APC median cost

G0173..................... Linear acc stereo radsur S....................

0067 $3,872.87 S.....................

0067 $ 3,869.96 com. G0251..................... Linear acc based stero S....................

0065 1,241.89 S.....................

0065 1,081.92 radio. G0339..................... Robot lin-radsurg com, S....................

0067 3,872.87 S.....................

0067 3,869.96 first. G0340..................... Robt lin-radsurg fractx 2- S....................

0066 2,629.53 S.....................

0066 2,980.24 5.

10. Blood Transfusion (APC 0110)

(If you choose to comment on issues in this section, please include the caption ``Blood Transfusions'' at the beginning of your comment.)

We have a longstanding policy under the OPPS that transfusion services are billed and paid on a per encounter basis and not by the number of units of blood products transfused (Internet Only Manual 100- 4, Chapter 4, Section 231.8). Under this policy, a transfusion APC payment is made to the OPPS provider for transfusing blood products once per day, regardless of the number of units or different types of blood products transfused. The OCE ensures only one payment for APC 0110 (Transfusion), regardless of the number of units of CPT code 36430 (Transfusion, blood or blood components) reported by the hospital on a single date of service. The CPT code 36430 descriptor does not include ``per unit.'' Hence, the median cost for CPT code 36430, which is assigned to APC 0110, represents the costs of transfusion of blood or blood products on the same date of service, regardless of how many units of products are transfused. In addition, for payment of the transfusion service, the OCE also requires the claim to contain a Level II HCPCS P-code for a blood product on the same date of service as the transfusion procedure.

At its March 2007 meeting, the APC Panel recommended that CMS investigate whether CPT code 36430 should identify when multiple units are transfused and trigger a discounted payment for the second and subsequent administration of additional units of blood or blood components. The APC Panel indicated that the current payment for transfusion services does not adequately pay hospitals for the costs of these complex services, and that payment on a per unit basis rather than on a per encounter basis would result in more accurate and appropriate payment.

We do not agree with the APC Panel's recommendation, and we are proposing to not accept this recommendation for

[[Page 42718]]

the CY 2008 OPPS. We believe that our current policy of providing a single payment for blood transfusion, regardless of the number of units transfused, is most consistent with the goals of a prospective payment system to encourage and create incentives for efficiency in providing services. Payment for transfusion services on a per encounter basis encourages the transfusion of only those blood products that are necessary for the beneficiary's treatment during the hospital outpatient encounter. Moreover, the current median cost for the transfusion service, associated with the transfusion of all blood products furnished on a date of service, has been set based on the historical reporting of all charges for transfusion on the same date of service and, therefore, represents the full cost of an episode of transfusion, rather than the cost of transfusion of a single unit of blood or blood product. Given our proposed packaging approach for the CY 2008 OPPS, it would be inconsistent for us to revise our current transfusion payment policy to provide separate payment for each unit of blood product transfused, thereby reducing the size of the current transfusion payment bundle.

Therefore, for CY 2008 we are proposing to maintain our current payment policy, which bases payment for transfusion on the costs of all transfusion services furnished on a single date of service and which examines hospital claims to ensure that payment is provided for only one unit of CPT code 36430 on a date of service. However, we remind hospitals that a claim for a single unit of CPT code 36430 should include charges for all of the hospital resource costs associated with the totality of transfusion services furnished on the date of service, so that the payment for one unit of APC 0110 is based on the costs of all transfusion services provided in a hospital outpatient encounter. 11. Screening Colonoscopies and Screening Flexible Sigmoidoscopies (APCs 0158 and 0159)

(If you choose to comment on issues in this section, please include the caption ``Screening Colonoscopies and Screening Flexible Sigmoidoscopies'' at the beginning of your comment.)

Since the implementation of the OPPS in August 2000, screening colonoscopies and screening flexible sigmoidoscopies have been paid separately. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68013), we implemented certain changes associated with colorectal cancer screening services provided in HOPDs. First, section 5113 of Pub. L. 109-171 amended section 1833(b) of the Act to add colorectal cancer screening to the list of services for which the beneficiary deductible no longer applies. This provision applies to services furnished on or after January 1, 2007. Second, sections 1834(d)(2) and (d)(3) of the Act require Medicare to pay the lesser of the ASC or OPPS payment amount for screening flexible sigmoidoscopies and screening colonoscopies. For CY 2007, the OPPS payment for screening colonoscopies, HCPCS codes G0105 (Colorectal cancer screening; colonoscopy on individual at risk) and G0121 (Colorectal cancer screening; colonoscopy on individual not meeting criteria for high risk), developed in accordance with our standard OPPS ratesetting methodology, would have slightly exceeded the CY 2007 ASC payment of $446 for these procedures. Consistent with the requirements set forth in sections 1834(d)(2) and (d)(3) of the Act, the OPPS payment rates for HCPCS codes G0105 and G0121 were set equal to the CY 2007 ASC rate of $446 effective January 1, 2007. This requirement did not impact the OPPS payment rate for screening flexible sigmoidoscopies (G0104, Colorectal cancer screening; flexible sigmoidoscopy) because Medicare did not make payment to ASCs for screening flexible sigmoidoscopies in CY 2007, so there was no payment comparison to be made for those services.

According to the final policy for the revised ASC payment system as described in the final rule for the revised ASC payment system published elsewhere in this issue of the Federal Register, ASCs will be paid for screening colonoscopies based on their ASC payment weights derived from the related OPPS APC payment weights and multiplied by the final ASC conversion factor (the product of the OPPS conversion factor and the ASC budget neutrality adjustment). As an office-based procedure added to the ASC list of covered surgical procedures for CY 2008, ASC payment for screening flexible sigmoidoscopies will be capped at the CY 2008 MPFS nonfacility practice expense amount. Sections 1834(d)(2) and (d)(3) of the Act would then require that the CY 2008 OPPS payment rates for these procedures be set equal to their significantly lower ASC payment rates.

However, we are proposing to use the equitable adjustment authority of section 1833(t)(2)(E) of the Act to adjust the OPPS payment rates for screening colonoscopies and screening flexible sigmoidoscopies. Section 1833(t)(2)E) of the Act provides that the Secretary shall establish adjustments, in a budget neutral manner, as determined to be necessary to ensure equitable payments under the OPPS. Sections 1834(d)(2) and (d)(3) of the Act regarding payment for screening flexible sigmoidoscopies and screening colonoscopies under the OPPS and ASC payment systems were established by Congress in 1997, many years prior to the CY 2008 initial implementation of the revised ASC payment system. The payment policies of the revised ASC payment system, as summarized in section XVI. of this proposed rule, make fundamental changes to the methodology for developing ASC payment rates based on certain principles, specifically that the OPPS payment weight relativity is applicable to ASC procedures and that ASC costs are lower than HOPD costs for providing the same procedures, that contradict the original assumptions underlying these provisions. According to the findings of the GAO in its report, released on November 30, 2006, and entitled ``Medicare: Payment for Ambulatory Surgical Centers Should Be Based on the Hospital Outpatient Payment System'' (GAO-07-86), the payment groups of the OPPS accurately reflect the relative costs of procedures performed in ASCs just as well as they reflect the relative costs of the same procedures provided in HOPDs. Screening colonoscopies were among the top 20 ASC procedures in terms of volume whose costs were specifically studied by the GAO in its work that led to this conclusion. We see no clinical or hospital resource explanation for why the OPPS relative costs from CY 2006 OPPS claims data for screening flexible sigmoidoscopies and screening colonoscopies would not provide an appropriate basis for establishing their payment rates under both the OPPS and the revised ASC payment system, according to the standard ratesetting methodologies of each payment system for CY 2008. If we were to pay for these screening procedures under the OPPS according to their ASC rates in CY 2008, we would significantly distort their payment relativity in comparison with other OPPS services. We believe it would be inequitable to pay these screening services in HOPDs at their ASC rates for CY 2008, thereby ignoring the relativity of their costs in comparison with other OPPS services which have similar or different clinical and resource characteristics. Therefore, for CY 2008 when we will be paying for screening colonoscopies and screening flexible sigmoidoscopies performed in ASCs based upon their standard revised ASC payment rates, we are proposing to

[[Page 42719]]

adjust the payment rates under the OPPS to pay for the procedures according to the standard OPPS payment rates. We believe that the application of sections 1834(d)(2) and (d)(3) of the Act produces inequitable results because of the revised ASC payment system to be implemented in CY 2008. We believe this proposal would provide the most appropriate payment for these procedures in the context of the contemporary payment policies of the OPPS and the revised ASC payment system.

IV. Proposed OPPS Payment for Devices

A. Proposed Treatment of Device-Dependent APCs

(If you choose to comment on issues in this section, please include the caption ``OPPS: Device-Dependent APCs'' at the beginning of your comment.) 1. Background

Device-dependent APCs are populated by HCPCS codes that usually, but not always, require that a device be implanted or used to perform the procedure. For the CY 2002 OPPS, we used external data, in part, to establish the device-dependent APC medians used for weight setting. At that time, many devices were eligible for pass through payment. For the CY 2002 OPPS, we estimated that the total amount of pass-through payments would far exceed the limit imposed by statute. To reduce the amount of a pro rata adjustment to all pass-through items, we packaged 75 percent of the cost of the devices, using external data furnished by commenters on the August 24, 2001 proposed rule and information furnished on applications for pass-through payment, into the median costs for the device-dependent APCs associated with these pass-through devices. The remaining 25 percent of the cost was considered to be pass through payment.

In the CY 2003 OPPS, we determined APC medians for device-dependent APCs using a three-pronged approach. First, we used only claims with device codes on the claim to set the medians for these APCs. Second, we used external data, in part, to set the medians for selected device- dependent APCs by blending that external data with claims data to establish the APC medians. Finally, we also adjusted the median for any APC (whether device-dependent or not) that declined more than 15 percent. In addition, in the CY 2003 OPPS we deleted the device codes (``C'' codes) from the HCPCS file because we believed that hospitals would include the charges for the devices on their claims, notwithstanding the absence of specific codes for devices used.

In the CY 2004 OPPS, we used only claims containing device codes to set the medians for device-dependent APCs and again used external data in a 50/50 blend with claims data to adjust medians for a few device- dependent codes when it appeared that the adjustments were important to ensure access to care. However, hospital device code reporting was optional.

In the CY 2005 OPPS, which was based on CY 2003 claims data, there were no device codes on the claims and, therefore, we could not use device-coded claims in median calculations as a proxy for completeness of the coding and charges on the claims. For the CY 2005 OPPS, we adjusted device-dependent APC medians for those device-dependent APCs for which the CY 2005 OPPS payment median was less than 95 percent of the CY 2004 OPPS payment median. In these cases, the CY 2005 OPPS payment median was adjusted to 95 percent of the CY 2004 OPPS payment median. We also reinstated the device codes and made the use of the device codes mandatory where an appropriate code exists to describe a device utilized in a procedure. In addition, we implemented HCPCS code edits to facilitate complete reporting of the charges for the devices used in the procedures assigned to the device-dependent APCs.

In the CY 2006 OPPS, which was based on CY 2004 claims data, we set the median costs for device-dependent APCs for CY 2006 at the highest of: (1) The median cost of all single bills; (2) the median cost calculated using only claims that contained pertinent device codes and for which the device cost was greater than $1; or (3) 90 percent of the payment median that was used to set the CY 2005 payment rates. We set 90 percent of the CY 2005 payment median as a floor rather than 85 percent as proposed, in consideration of public comments that stated that a 15-percent reduction from the CY 2005 payment median was too large of a transitional step. We noted in our CY 2006 proposed rule that we viewed our proposed 85 percent payment adjustment as a transitional step from the adjusted medians of past years to the use of unadjusted medians based solely on hospital claims data with device codes in future years (70 FR 42714). We also incorporated, as part of our CY 2006 methodology, the recommendation of commenters to base payment on medians that were calculated using only claims that passed the device edits. As stated in the CY 2006 OPPS final rule with comment period (70 FR 68620), we believed that this policy provided a reasonable transition to full use of claims data in CY 2007, which would include device coding and device editing, while better moderating the amount of decline from the CY 2005 OPPS payment rates.

For CY 2007, we based the device-dependent APC medians on CY 2005 claims, the most current data available at that time. In CY 2005 we reinstated hospital reporting of device codes and made the reporting of device codes mandatory where an appropriate code exists to describe a device utilized. In CY 2005, we also implemented HCPCS code procedure- to-device edits to facilitate complete reporting of the charges for the devices used in the procedures assigned to the device-dependent APCs. For CY 2007 ratesetting, we excluded claims for which the charge for a device was less than $1.01, in part to recognize hospital charging practices due to a recall of cardioverter-defibrillator and pacemaker pulse generators in CY 2005 for which the manufacturers provided replacement devices without cost to the beneficiary or hospital. We also found that there were other devices for which the token charge was less than $1.01, and we removed those claims from the set used to calculate the median costs of device-dependent APCs. In summary, for the CY 2007 OPPS we set the median costs for device-dependent APCs using only claims that passed the device edits and did not contain token charges for the devices. Therefore, the median costs for these APCs for CY 2007 were determined from claims data that generally represented the full cost of the required device. 2. Proposed Payment

For this proposed rule, we calculated the median costs for device- dependent APCs using three different sets of claims. We first calculated a median cost using all single procedure claims that contained appropriate device codes (where there are edits) for the procedure codes in those APCs. We then calculated a second median cost using only claims that contain allowed device HCPCS codes with charges for all device codes that were in excess of $1.00 (nontoken charge device claims). Third, we calculated the APC median cost based only upon nontoken charge device claims with correct devices that did not also contain the HCPCS modifier ``FB,'' reported in CY 2005 to identify that a procedure was performed using an item provided without cost to the provider, supplier, or practitioner, or where a credit was received for a

[[Page 42720]]

replaced device (examples include, but are not limited to, devices covered under warranty, devices replaced due to defects, and free samples).

As expected, the median costs calculated based upon single procedure bills that met all three criteria, that is, correct devices, no token charges, and no ``FB'' modifier, were generally higher than the median costs calculated using all single bills. We believe that the claims that meet these three criteria (appropriate device codes, nontoken device charges, and no ``FB'' modifier) reflect the best estimated costs for these device-dependent APCs when the hospital pays the full cost of the device, and we are proposing to base our CY 2008 median costs on the medians calculated based upon these claims.

As a result of the effects of the proposed CY 2008 packaging approach discussed in detail in section II.A.4. of this proposed rule on median costs, we are proposing to make some changes to CY 2007 device-dependent APCs for CY 2008. Specifically, we are proposing to delete APC 0081 (Noncoronary Angioplasty or Atherectomy); APC 0087 (Cardiac Electrophysiologic Recording/Mapping); and APC 0670 (Level II Intravascular and Intracardiac Ultrasound and Flow Reserve) due to the migration of HCPCS codes to other APCs. Some of the HCPCS codes assigned to these APCs in CY 2007 would be unconditionally packaged for CY 2008. The median costs of the remaining HCPCS codes proposed for separate payment in CY 2008 were significantly different than CY 2007 due to the proposed packaging of additional services. We believe that reconfiguration of the APCs is necessary to ensure that the HCPCS codes that would be separately paid in CY 2008 and that are assigned to these APCs in CY 2007 would be assigned to APCs that are homogeneous with regard to clinical characteristics and resource use in CY 2008. The APCs we are proposing for deletion ceased to be appropriate as a result of the reassignment of the HCPCS codes that we are proposing for continued separate payment in CY 2008.

The following seven APCs remain device-dependent APCs for CY 2008, but we are proposing to reassign certain HCPCS codes mapped to these APCs for CY 2007 either to other APCs or among these APCs for CY 2008 to ensure that, in view of the median costs that result from the proposed CY 2008 packaging approach, the HCPCS codes would be assigned to APCs that are homogeneous with regard to clinical characteristics and resource use for CY 2008: APC 0082 (Coronary Atherectomy); APC 0083 (Coronary Angioplasty and Percutaneous Valvuloplasty); APC 0085 (Level II Electrophysiologic Evaluation); APC 0086 (Ablate Heart Dysrhythm Focus); APC 0115 (Cannula/Access Device Procedures); APC 0427 (Level III Tube Changes and Repositioning); and APC 0623 (Level III Vascular Access Procedures). We also are proposing to consider APC 0084 (Level I Electrophysiologic Procedures) to be a device-dependent APC for CY 2008 because we are proposing to reassign many of the HCPCS codes that were previously in APCs 0086 and 0087 to APC 0084.

As a result of the proposed APC reconfigurations resulting from HCPCS code migration, it is not appropriate to compare the proposed CY 2008 OPPS median costs for these eight APCs to the CY 2007 final rule median costs that are the basis for the CY 2007 OPPS payment rates. When we compare the median costs for the other device-dependent APCs with stable proposed CY 2008 configurations in comparison with CY 2007, the median costs for 26 APCs increase, some of them by significant amounts, and the median costs for 5 APCs decrease. We believe that these median costs represent valid estimates of the relative costs of the services in these APCs, both with regard to the increases and the decreases that appear when the proposed CY 2008 median costs are compared to the CY 2007 median costs on which the payment rates for these APCs are based.

The only decline of more than 10 percent is found in APC 0418 (Insertion of Left Ventricular Pacing Electrode). In the case of APC 0418, we have been told that the very large increases in costs that have occurred in the past several years for this APC were the result of claims where hospitals inserted an ICD at the time of insertion of the left ventricular lead but failed to bill for the ICD implantation procedure. This incorrect reporting led to our attributing the costs of the expensive ICD device to the median cost for the insertion of the left ventricular lead, instead of attributing the cost of the ICD to a HCPCS code for the implantation of the device. We believe that the decline in the median cost for APC 0418 is the result of improvements in provider billing and that the median cost we calculated from the CY 2006 data is a reasonable estimate of the cost of the insertion of the left ventricular lead. Moreover, the relatively small number of single bills and the small number of providers furnishing the service (158 hospitals) are likely to cause the median costs to vary more than for services furnished in greater volume by more hospitals. We note that we have put into place reverse device edits for CY 2007, where we require hospitals reporting certain implantable device HCPCS codes to also report an appropriate procedure for the device's use. We believe that these reverse device edits should improve our packaging of device costs into the appropriate procedures for future OPPS updates.

We note that 12 of the APCs for which it is appropriate to compare the proposed CY 2008 APC medians to the CY 2007 final rule medians show increases that are greater than 10 percent. We have examined the data for these APCs and we believe that the increases are attributable to a combination of factors. In some of these cases, the single claims that were usable for establishing the median costs are a small percent of the total bills for the services assigned to the APC and, as we have stated previously, when small percentages of single bills are used, the APC median cost is likely to show greater fluctuation from year to year. In addition, CY 2006 claims, which are the basis for the CY 2008 proposed rule data, were the first set of claims subject to procedure- to-device edits for the entire calendar year. These edits were implemented to ensure that the charges for the necessary devices were reported on the claims. While this editing was phased in during CY 2005, beginning in April and concluding in October, CY 2006 was the first full year of procedure-to-device edits and thus hospitals that had not previously routinely reported separate device codes and charges were required by the edits to do so for all claims submitted in CY 2006. The reporting of device codes and charges for devices has historically resulted in increases in median costs for device-dependent APCs. Thus, we believe that the more complete claims data available for CY 2008 ratesetting likely contribute to the increased proposed median costs observed for some device dependent APCs.

Furthermore, we believe that the proposed increases are also attributable, in part, to our proposal to package the costs of guidance services, intraoperative services, and imaging supervision and interpretation services into the payment for major independent procedures, as described in section II.A.4. of this proposed rule. For example, CPT code 36870 (Thrombectomy, percutaneous, arteriovenous fistula, autogenous or nonautogenous graft (includes mechanical thrombus extraction and intra-graft thrombolysis)) is the most commonly reported code in device-dependent APC 0653 (Vascular Reconstruction/ Fistula Repair with

[[Page 42721]]

Device), representing 25,805 bills of 26,138 total bills in the APC. CPT code 36870 appears with CPT code 75978 (Transluminal balloon angioplasty, venous (e.g. subclavian stenosis), radiological supervision and interpretation) 14,679 times and with CPT code 75790 (Angiography, arteriovenous shunt (e.g. dialysis patient), radiological supervision and interpretation) 15,623 times in the CY 2006 claims data. We are proposing to package payment for both CPT codes 75978 and 75790 for CY 2008. Moreover, 9 other CPT codes that we are proposing to package for CY 2008 appear with the independent CPT code 36870 more than 100 times each. Therefore, many of the claims for CPT code 36870 proposed to be used for CY 2008 ratesetting include charges for both CPT codes 75790 and 75978 and also contain charges for other CPT codes we are proposing to package, as well as uncoded revenue code charges that are packaged. Therefore, it is not surprising that our proposed median cost for APC 0653 is about 30 percent higher than the CY 2007 median cost for the same APC. Based on our review of patterns of services observed in our claims data for the device-dependent APCs and our clinical review of the procedures assigned to APCs that receive significant increases for CY 2008, we believe that the increases in the proposed median costs for certain device-dependent APCs for CY 2008 are consistent with our general expectations in the context of the comprehensive proposal for the CY 2008 OPPS.

As we have stated in the past, some variation in relative costs from year to year is to be expected in a prospective payment system. We believe that this is particularly true for low volume device-dependent APCs because relatively small numbers of providers furnish the services; the total frequencies of services furnished are low (compared to commonly furnished services like visits); the number of single bills that are available for use in calculating the full median cost of a single unit of a service is also relatively small; and the selection of claims that contain appropriate devices, lack token charges for devices, and lack the ``FB'' modifier further reduces the pool of single bills that can be used to calculate the median cost. However, even in the case of these low volume device-dependent APCs, we continue to believe that the median costs calculated from the single bills that meet the three 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.

Therefore, we are proposing to base the payment rates for CY 2008 for all device dependent APCs on their median costs calculated using only single bills that meet the three selection criteria discussed in detail above. Table 37 below contains the proposed CY 2008 median costs for these APCs. We do not believe that any special payment policies are needed, as we believe that the claims data we are proposing to use for ratesetting will ensure that the costs of the implantable devices are adequately and appropriately reflected in the median costs for these device-dependent APCs.

Table 37.--Proposed CY 2008 Median Costs for Device-Dependent APCs [Note that N/A indicates APCs for which the CY 2007 OPPS medians are not comparable to the CY 2008 medians, due to proposed HCPCS code migration for CY 2008.]

Difference Proposed CY Proposed CY between CY Count of CY 2007 CY 2007 Proposed CY 2008 pass 2008 pass 2007 final providers final rule final rule 2008 post edit,

edit, rule median billing in APC

SI

APC title

pass edit, pass edit, cost total nontoken, nontoken, and

the nontoken nontoken frequency no FB

no FB proposed CY proposed CY frequency median cost

frequency median cost 2008 median 2008 data cost

0039.............. S................ Level I Implantation

680 $11,450.84

2893

1035 $12,421.82

8.48

262 of Neurostimulator. 0040.............. S................ Percutaneous

1402 3,457.00

12769

4663 4,010.44

16.01

994 Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve. 0061.............. S................ Laminectomy or

265 5,145.22

2938

1268 5,115.78

-0.57

440 Incision for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve. 0082.............. T................ Coronary or Non

N/A

N/A

16464

4374 5,584.20

N/A

925 Coronary Atherectomy. 0083.............. T................ Coronary or Non

N/A

N/A 140944

37879 2,897.95

N/A

1706 Coronary Angioplasty and Percutaneous Valvuloplasty. 0084.............. S................ Level I

N/A

N/A

9703

6973 647.41

N/A

600 Electrophysiologic Procedures. 0085.............. T................ Level II

N/A

N/A

15791

3957 3,059.06

N/A

711 Electrophysiologic Evaluation.

[[Page 42722]]

0086.............. T................ Level III

N/A

N/A

8370

384 5,709.52

N/A

157 Electrophysiologic Procedures. 0089.............. T................ Insertion/Replacement

388 7,557.38

3722

570 7,710.05

N/A

765 of Permanent Pacemaker and Electrodes. 0090.............. T................ Insertion/Replacement

505 6,007.21

7426

524 6,279.63

4.53

314 of Pacemaker Pulse Generator. 0104.............. T................ Transcatheter

396 5,360.43

4638

565 5,599.90

4.47

200 Placement of Intracoronary Stents. 0106.............. T................ Insertion/Replacement

427 3,138.16

3489

367 4,718.32

50.35

269 of Pacemaker Leads and/or Electrodes. 0107.............. T................ Insertion of

584 18,607.21

9772

448 22,213.36

19.38

230 Cardioverter- Defibrillator. 0108.............. T................ Insertion/Replacement/

3045 23,205.37

8732

3267 25,352.27

9.25

585 Repair of Cardioverter- Defibrillator Leads. 0115.............. T................ Cannula/Access Device

N/A

N/A

2489

1259 1,920.99

N/A

669 Procedures. 0202.............. T................ Level VII Female

4451 2,627.08

17800

10043 2,719.11

3.50

1863 Reproductive Proc. 0222.............. T................ Implantation of

2007 11,099.02

7957

2830 12,161.64

9.57

868 Neurological Device. 0225.............. S................ Implantation of

83 13,514.45

1544

239 13,928.36

3.06

159 Neurostimulator Electrodes, Cranial Nerve. 0227.............. T................ Implantation of Drug

319 10,657.85

3350

1001 11,242.60

5.49

460 Infusion Device. 0229.............. T................ Transcatherter

882 4,184.15

53470

7225 5,642.77

34.86

1226 Placement of Intravascular Shunts. 0259.............. T................ Level VI ENT

472 25,351.03

1311

783 25,434.97

0.33

166 Procedures. 0315.............. T................ Level II Implantation

516 14,845.73

807

648 16,532.22

11.36

195 of Neurostimulator. 0384.............. T................ GI Procedures with

6574 1,402.31

21958

6895 1,587.03

13.17

1428 Stents. 0385.............. S................ Level I Prosthetic

267 4,840.44

881

581 5,368.16

10.90

319 Urological Procedures. 0386.............. S................ Level II Prosthetic

1788 8,395.82

4990

3346 9,045.78

7.74

862 Urological Procedures.

[[Page 42723]]

0418.............. T................ Insertion of Left

169 18,777.92

4436

185 15,760.17 -16.07

158 Ventricular Pacing Elect. 0425.............. T................ Level II Arthroplasty

410 6,550.59

1104

489 7,150.52

9.16

330 with Prosthesis. 0427.............. T................ Level III Tube Changes

N/A

N/A

21092

11368 936.73

N/A

1255 and Repositioning. 0622.............. T................ Level II Vascular

25264 1,385.14

55118

33637 1,542.90

11.39

2380 Access Procedures. 0623.............. T................ Level III Vascular

N/A

N/A

66747

49861 1844.44

N/A

2701 Access Procedures. 0625.............. T................ Level IV Vascular

20 5,100.26

479

8 5,492.89

7.70

154 Access Procedures. 0648.............. T................ Level IV Breast

286 3,130.45

2895

382 3,330.44

6.39

388 Surgery. 0652.............. T................ Insertion of

3676 1,805.28

5407

3138 1,997.86

10.67

996 Intraperitoneal and Pleural Catheters. 0653.............. T................ Vascular

702 1,978.84

26138

1573 2,584.62

30.61

682 Reconstruction/ Fistula Repair with Device. 0654.............. T................ Insertion/Replacement

1179 6,891.44

29645

1735 6,724.90

-2.42

625 of a permanent dual chamber pacemaker. 0655.............. T................ Insertion/Replacement/

876 9,327.71

12769

1896 9,075.74

-2.70

1247 Conversion of a permanent dual chamber pacemaker. 0656.............. T................ Transcatheter

2700 6,618.18

24346

3148 7,478.29

13.00

378 Placement of Intracoronary Drug- Eluting Stents. 0674.............. T................ Prostate Cryoablation.

1737 6,646.07

3182

1997 7,782.75

17.10

366 0680.............. S................ Insertion of Patient

972 4,436.69

2234

1465 4,506.93

1.58

689 Activated Event Recorders. 0681.............. T................ Knee Arthroplasty.....

301 12,569.11

391

286 12,029.91

-4.29

57

3. Proposed Payment When Devices Are Replaced with Partial Credit to the Hospital

As we discuss above in the context of the calculation of median costs for device dependent APCs, in recent years there have been several field actions and recalls with regard to failure of implantable devices. In many of these cases, the manufacturers have offered replacement devices without cost to the hospital or credit for the device being replaced if the patient required a more expensive device. In order to ensure that the payment we are proposing for CY 2008 pays hospitals appropriately when they incur the full cost of the device, we have calculated the proposed median costs for device dependent APCs using only claims that contain the correct device code for the procedure. We are not using claims that contain token charges for these expensive devices or that contain the ``FB'' modifier, which would signify that the device was replaced without cost or with a full credit for the cost of the device being replaced. Similarly, to ensure equitable payment when the hospital receives a device without cost or receives a full credit for the cost of the device being replaced, for CY 2007 we implemented a payment policy that reduces the

[[Page 42724]]

payment for selected device-dependent APCs when the hospital receives certain replacement devices without cost or receives a full credit for the device being replaced (71 FR 68077).

Subsequent to the issuance of the CY 2007 OPPS/ASC final rule with comment period, we had many inquiries from hospitals that asked whether the reduction would also apply in cases in which there was a partial credit for the cost of a device that failed or was otherwise covered under a manufacturer warranty. Those inquiring explained that cases of partial credit are the vast majority of cases involving devices that have failed or otherwise must be replaced under warranty. They indicated that in some cases the devices failed, and in other situations the patient's energy needs exceeded the capacity of the device and thus the device ceased to be useful before the end of the warranty period. They told us that a typical industry practice for some types of devices was to provide a 50 percent credit in cases of device failure (including battery depletion) under warranty if a device failed at 3 years of use (failure during the first 3 years would result in a full device credit) and to prorate the credit further over time between 3 and 5 years after the initial device implantation, as the useful life of the device declined. As promulgated in the CY 2007 OPPS/ASC final rule with comment period and codified at Sec. 419.45, the CY 2007 reduction policy does not apply to cases in which there is a partial credit toward the replacement of the device.

In addition to our concern over the replacement of implantable devices at no cost to hospitals due to device recalls, device failure, or other clinical situations, we believe that it is equally as important that timely information be reported and analyzed regarding the performance and longevity of devices replaced in partial credit situations. This issue is particularly timely due to the recent recall of 73,000 ICDs and cardiac resynchronization therapy defibrillators (CRT-Ds) because of a faulty capacitor that can cause the batteries to deplete sooner than expected. In some cases, patients will require more frequent monitoring of their device function and early device replacement. (We refer readers to the Web site: http://www.fda.gov/cdrh/news for Questions and Answers posted April 20, 2007 on this

recall.) Therefore, we believe that hospitals should report occurrences of devices being replaced under warranty or otherwise with a partial credit granted to the hospital so that we may be able to identify systematic failures of devices or device problems through claims analysis and so that we can make appropriate payment adjustments in these cases. Collecting data on a wider set of device replacements under full and partial credit situations would assist in developing comprehensive summary data, not just a subset of data related to devices replaced without cost or with a full credit to the hospital. We are mindful of the need to use our claims history where possible to promote early awareness of problems with implantable medical devices and to promote high quality medical care with regard to the devices and the services in which they are used.

We also are concerned with the issue of the increased Medicare and beneficiary liability for the monitoring costs that are required as a result of the recall of these 73,000 devices (worldwide, with an unknown portion being applicable to Medicare beneficiaries). Specifically, the manufacturer of the devices that have been most recently recalled recommends that patients with the recalled device consult with their physician in each case and, in some cases, begin a routine of monthly evaluations. We would expect that not only could extra visits to physicians' offices or HOPDs be necessary, but additional diagnostic tests may also be needed to care for the beneficiaries who have the recalled devices. Thus, even when the device does not immediately require replacement, we are concerned that the potential greater costs to Medicare and to the beneficiary or his or her secondary payor for these unforeseen extra services may be substantial and burdensome. We will be actively assessing how we can identify additional health care costs and Medicare expenditures associated with device recall actions and exploring what actions could be appropriate in the case of these additional monitoring and related expenses. We welcome public comment on this issue to inform our future review and analyses.

Moreover, the payment rates for the APCs into which the costs of the most expensive devices are packaged are set based on the assumption that the hospital incurs the full cost of the device. To continue to pay the full APC rate when the hospital receives a partial credit toward the cost of a very expensive device would result in excessive and inappropriate payment for the procedure and its packaged costs. Some hospitals have told us that they do not reduce their charges for the device being implanted or used in the procedure in cases in which they receive a partial credit for the device, even in cases in which the credit is for as much as 50 percent of the cost of an expensive device.

Under the OPPS, we calculate the estimated costs on which the APC payment weights are based by applying a CCR to the charges for the device. When hospitals charge the full amount for the device, although they may have received a substantial credit towards its cost, our methodology may result in median costs that reflect the full costs of these devices in all cases, including those cases in which the hospital incurs much less than the full cost of the device. It is likely that the reduced hospital costs associated with steady, low volume warranty replacements of implantable devices may never be reflected in the CCRs used to adjust charges to costs for devices, because those CCRs are overwhelmed by the volume of other items attributed to the cost centers. Therefore, our median costs for device-dependent APCs would not reflect the reduced hospital costs associated with partial credit replacement procedures and would result in overpayment for the implantation procedures under the OPPS. Moreover, in these cases either the beneficiary or a secondary insurer also would pay a copayment that reflects the full cost of the device, although the hospital may have received a substantial credit under the warranty. We believe that both Medicare and the beneficiary should share in the savings that result from the partial credit that the hospital receives.

We have considered how we might ensure that these cases of device failure or premature replacement are reported and appropriately taken into account in setting OPPS payment rates and beneficiary copayments. We are proposing to create a HCPCS modifier for CY 2008 that would be reported in all cases in which the hospital receives a partial credit toward the replacement of a medical device listed in Table 39 of this proposed rule. These devices are the same devices to which our policy governing payment when the device is furnished to the provider without cost or with full credit applies for CY 2008. As we discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68071), we selected these devices because they have substantial device costs and because the device is implanted in the beneficiary at least temporarily and, therefore, can be associated with an individual beneficiary. This proposed policy would enhance our ability to track the replacement of these implantable medical devices and may permit us to identify trends in device failure or

[[Page 42725]]

limited longevity. Moreover, it would enable us to reduce the APC payment in cases in which the hospital receives a partial credit toward the cost of the replacement device being implanted. We believe that this is a logical extension of our policy regarding reduction of the APC payment in cases in which the provider furnishes the device without cost or with a full credit to the hospital.

Specifically, as discussed in more detail below, we are proposing to reduce the payment for the APC into which the device cost is packaged by one half of the amount of the offset amount that would apply if the device were being replaced without cost or with full credit, but only where the amount of the device credit is greater than or equal to 20 percent of the cost of the new replacement device being implanted. We also are proposing to base the beneficiary's copayment on the reduced APC payment rate so that the beneficiary shares in the hospital's reduced costs. We believe that it is inequitable to set the payment rates for the procedures into which payment for these devices is packaged on the assumption that the hospital always incurs the full cost for these expensive devices but to not adjust the payment when the hospital receives a partial credit for a failed or otherwise replaced device. Accordingly, we believe that it is appropriate to make an equitable adjustment to the APC payment to ensure that the Medicare program payment made for the service and the beneficiary's liability are appropriate in these cases in which the hospital's device costs are significantly reduced. We are proposing changes to Sec. Sec. 419.45(a) and (b) to reflect our proposed policy of reducing the OPPS payment when partial credit for the device cost is received by the hospital for a failed or otherwise replaced device.

Due to the absence of current reporting of the cases in which hospitals receive a partial credit for replaced devices and to our belief, based on conversations with hospital staff, that hospitals do not reduce their device charges to reflect the credits, we have no data for use to empirically determine by how much we should reduce the payment for the procedural APC into which the costs of these devices are packaged. However, device manufacturers and hospitals have told us that a common scenario is that, if a device fails 3 years after implantation, the hospital would receive a 50 percent credit towards a replacement device. Therefore, we are proposing to reduce the payment for these device-dependent APCs by half of the reduction that applies when the hospital receives a device without cost or receives a full credit for a device being replaced. That is, we are proposing to reduce the payment for the APC by half of the offset amount that represents the cost of the device packaged into the APC payment. In the absence of claims data on which to base a reduction factor, but taking into consideration what we have been told is common industry practice, we believe that reducing the amount of payment for the device-dependent APC by half of the estimated cost of the device packaging represents a reasonable and equitable reduction in these cases.

We considered whether to propose to require hospitals to reduce their charges in proportion to the partial credit they receive for the device so that, in future years, we would have cost data reported consistently on which we could consider basing the amount of reduction to the payment for the procedure in cases of a partial device credit. However, we are concerned that such a requirement could impose an administrative burden on hospitals that would outweigh the potential benefit of a more accurate reduction to payment in these cases. We are requesting comments on the extent to which any administrative burden would be balanced or compensated for by the potential payment accuracy benefit of an empirically based reduction to payment in these cases.

In addition, we are proposing to take this reduction only when the credit is for 20 percent or more of the cost of the new replacement device, so that the reduction is not taken in cases in which more than 80 percent of the cost of the replacement device has been incurred by the hospital. We believe that the burden to hospitals of requiring that they report cases in which the partial credit for the device being replaced is less than 20 percent of the cost of the new replacement device is greater than the benefit to the Medicare program and the beneficiary. In addition, if the partial credit is less than 20 percent of the cost of the new replacement device, then we believe that reducing the APC payment for the device implantation procedure by 50 percent of the packaged device cost would provide too low a payment to hospitals providing the necessary device replacement procedures. Therefore, we are proposing that the new HCPCS partial credit modifier would be reported and the partial credit reduction would be taken only in cases in which the credit is equal to or greater than 20 percent of the cost of the new replacement device.

For example, using the proposed CY 2008 offset percents in Table 38 below for illustration only, if a cochlear implant fails under warranty and must be replaced and the manufacturer provides the hospital a 45- percent credit of the cost of the new device used in the implantation procedure, the hospital would bill CPT code 69930 (Cochlear device implantation, with or without mastoidectomy) with the new modifier for partial credit devices, and Medicare would reduce the payment to the hospital by 41.52 percent of the APC payment rate (50 percent of the proposed full offset rate of 83.03 percent that would apply if the device were replaced with no cost to the provider or at full credit for the device being replaced).

Even in the absence of specific instructions from us to reduce the device charges in partial credit cases, we could monitor the charges that are submitted for devices reported with the proposed partial credit modifier to see if hospitals appear to be reflecting partial device credits in their charges for these implantable devices. We believe that we could use pattern analysis to determine if a hospital that is reporting the device with the partial credit modifier is charging at a lower rate for the same device when the modifier appears with the procedure in which the device is used than in cases without reporting of the modifier. If we find that hospitals are adjusting their charges to reflect the reduced costs of these devices, we will explore whether revising the amount of the reduction could be appropriate.

In the course of exploring whether the current regulations apply to partial credit situations, inquirers have told us that they are concerned that hospitals may refrain from returning devices that fail under the warranty period to manufacturers if hospitals would then be required to report the partial credit to Medicare and would receive a reduced Medicare payment as a result. They told us that this hospital practice could delay manufacturers' learning vital information about device failures, longevity, and overall performance. Currently, many device manufacturers encourage the return to them of all implantable devices, once they are taken out of a patient's body for any reason, for evaluation of device performance and survival analysis, which estimates the probability that a device will not malfunction during a specified period of time. We do not believe that hospitals would refrain from returning a device removed from a patient to a manufacturer in order to justify not reporting the partial credit modifier to

[[Page 42726]]

Medicare. We believe that hospitals have a strong interest in ensuring that manufacturers know as soon as possible when there are problems with the devices provided to their patients, whether the result would be a full or partial credit for the failed device. In addition, we believe that hospitals, key participants in the broader health care system, are concerned with device performance, patient health, and health care quality from the broader public health perspective and are committed to appropriate reporting to improve the quality of future health care that leads to better health outcomes for patients. Moreover, we do not believe that hospitals would intentionally fail to report to Medicare the service furnished correctly and completely with the partial credit modifier when the modifier applies, because the hospital would then knowingly submit incorrect information on the claim.

In summary, we are proposing to create a HCPCS modifier to be reported on a procedure code in Table 38 below if a device listed in Table 39 below is replaced with partial credit from the manufacturer that is greater than or equal to 20 percent of the cost of the replacement device and to reduce the payment for the procedure by 50 percent of the amount of the estimated packaged cost of the device being replaced when the modifier is reported with a procedure code that is assigned to an APC in Table 38. We believe that this policy is necessary to pay equitably for these services when the hospital receives a partial credit for the cost of the device being implanted.

We note that, of the proposed CY 2008 offset amounts shown in Table 38 that were in effect for CY 2007, 13 decline slightly compared to the CY 2007 final rule offset amounts. Similarly, the proposed CY 2008 offset amounts for eight of these APCs increase somewhat. As with changes in median costs, there may be several different factors that are responsible for the observed changes. With regard to the declines, we believe that it is possible that the increased packaging we are proposing for CY 2008 may cause the nondevice portion of an APC's median cost to increase and, therefore, could result in a decline in the device portion as a percent of total cost. Increases in the offset amounts may be caused by the increases observed in the CCRs, changes in the population of hospitals whose claims were used due to additional packaging, increased packaging of services that have significant device costs, higher costs of new devices, or greater efficiency in the implantation of devices, any of which could result in the device portion of the APC's median cost increasing as a percent of the total cost for the APC as compared to CY 2007. As with APC median costs, the offset amounts are expected to vary from year to year, and we do not see undue variation in the proposed CY 2008 offset amounts compared with the final CY 2007 offset amounts.

The CY 2007 final payment policy when devices are replaced without cost or when a full credit for a replaced device is furnished to the hospital applies to those APCs that met three criteria as described in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68072 through 68077). Specifically, all procedures assigned to the selected APCs must require implantable devices that would be reported if device replacement procedures were performed, the required devices must be surgically inserted or implanted devices that remain in the patient's body after the conclusion of the procedures (at least temporarily), and the device offset amount must be significant, defined as exceeding 40 percent of the APC cost. We also restricted 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 replacement of an inexpensive device whose cost would not constitute a significant proportion of the total payment rate for an APC.

We examined the offset amounts calculated from the CY 2008 proposed rule data and the clinical characteristics of APCs to determine whether the APCs to which the no cost or full credit replacement policy applies in CY 2007 continue to meet the criteria for CY 2008 and to determine whether other APCs to which the policy does not apply in CY 2007 would meet the criteria for CY 2008. We concluded that one additional APC meets the criteria for inclusion under this policy and that one APC currently on the list ceases to meet the criteria. Specifically, we are proposing to add APC 0625 (Level IV Vascular Access Procedures) to the list of APCs to be adjusted in cases of full or partial credit for replaced devices and to add the device described by device code C1881 (Dialysis access system (implantable)) that is implanted in a procedure assigned to APC 0625 to the list of devices to which this policy applies. We are proposing to add APC 0625 and device code C1881 for CY 2008 because they meet the criteria for inclusion in this policy. In particular, the single surgical procedure (CPT code 36566 (Insertion of tunneled centrally inserted central venous access device, requiring two catheters via two separate venous access sites; with subcutaneous port(s)) assigned to APC 0625 always requires an implantable device that is reported, the proposed CY 2008 APC device offset percent is greater than 40 percent, and the device is of a type that is surgically implanted in the patient, where it remains at least temporarily. Furthermore, costly devices described by device code C1881 are implanted in the procedure assigned to APC 0625. We also found that APC 0229 (Transcatheter Placement of Intravascular Shunts) ceases to meet the criteria because the device offset percent for this APC, when calculated from proposed rule data, is less than 40 percent. Moreover, we believe that the devices that would be implanted in the procedures assigned to this APC are not of a type that would be amenable to removal and replacement in a device recall or warranty situation. Therefore, we are proposing to remove APC 0229 from the list of APCs to which the no cost or full credit and proposed partial credit reduction policies are applicable for CY 2008.

Table 38 presents the device offset amounts that we are proposing to apply to the specified APCs in cases of no cost or full or partial credit for replaced devices for the CY 2008 OPPS.

Table 38.--Proposed Adjustments to APCs in Cases of No Cost or Full or Partial Credit for Replaced Devices

CY 2007 Proposed CY Proposed CY reduction for 2008 reduction 2008 reduction APC

SI

APC title

full credit for full for partial case

credit case credit case (percent) (percent) (percent)

0039............. S................ Level I Implantation of

78.85

82.15

41.07 Neurostimulator.

[[Continued on page 42727]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov] ]

[[pp. 42727-42776]] Medicare Program: Proposed Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates; Proposed Changes to the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates; Medicare and Medicaid Programs: Proposed Changes to [[Page 42727]]

[[Continued from page 42726]]

[[Page 42727]]

0040............. S................ Percutaneous Implantation

54.06

55.93

27.97 of Neurostimulator Electrodes, Excluding Cranial Nerve. 0061............. S................ Laminectomy or Incision

60.06

59.32

29.66 for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve. 0089............. T................ Insertion/Replacement of

77.11

74.02

37.01 Permanent Pacemaker and Electrodes. 0090............. T................ Insertion/Replacement of

74.74

75.54

37.77 Pacemaker Pulse Generator. 0106............. T................ Insertion/Replacement/

41.88

57.20

28.60 Repair of Pacemaker and/ or Electrodes. 0107............. T................ Insertion of Cardioverter-

90.44

89.43

44.72 Defibrillator. 0108............. T................ Insertion/Replacement/

89.40

89.26

44.63 Repair of Cardioverter- Defibrillator Leads. 0222............. T................ Implantation of

77.65

83.29

41.64 Neurological Device. 0225............. S................ Implantation of

79.04

80.84

40.42 Neurostimulator Electrodes, Cranial Nerve. 0227............. T................ Implantation of Drug

80.27

79.69

39.85 Infusion Device. 0259............. T................ Level VI ENT Procedures...

84.61

83.03

41.52 0315............. T................ Level II Implantation of

76.03

86.23

43.12 Neurostimulator. 0385............. S................ Level I Prosthetic

83.19

51.67

25.83 Urological Procedures. 0386............. S................ Level II Prosthetic

61.16

61.98

30.99 Urological Procedures. 0418............. T................ Insertion of Left

87.32

81.38

40.69 Ventricular Pacing Elect. 0625............. T................ Level IV Vascular Access

N/A

62.63

32.32 Procedures. 0654............. T................ Insertion/Replacement of a

77.35

75.86

37.93 permanent dual chamber pacemaker. 0655............. T................ Insertion/Replacement/

76.59

74.59

37.30 Conversion of a permanent dual chamber pacemaker. 0680............. S................ Insertion of Patient

76.40

72.14

36.07 Activated Event Recorders. 0681............. T................ Knee Arthroplasty.........

73.37

73.27

36.64

Table 39.--Proposed Devices for Which the ``FB Modifier'' or New Partial Credit Modifier Must Be Reported With the Procedure Code When Furnished

Without Cost/Full Credit or Partial Credit for a Replaced Device

Device HCPCS code

Short descriptor

C1721............................. AICD, dual chamber. C1722............................. AICD, single chamber. C1764............................. Event recorder, cardiac. C1767............................. Generator, neurostim, imp. C1771............................. Rep dev, urinary, w/sling. C1772............................. Infusion pump, programmable. C1776............................. Joint device (implantable). C1777............................. Lead, AICD, endo single coil. C1778............................. Lead, neurostimulator. C1779............................. Lead, pmkr, transvenous VDD. C1785............................. Pmkr, dual, rate-resp. C1786............................. Pmkr, single, rate-resp. C1813............................. Prosthesis, penile, inflatab. C1815............................. Pros, urinary sph, imp. C1820............................. Generator, neuro rechg bat sys. C1881............................. Dialysis access system. C1882............................. AICD, other than sing/dual. C1891............................. Infusion pump, non-prog, perm. C1895............................. Lead, AICD, endo dual coil. C1896............................. Lead, AICD, non sing/dual. C1897............................. Lead, neurostim, test kit. C1898............................. Lead, pmkr, other than trans. C1899............................. Lead, pmkr/AICD combination. C1900............................. Lead coronary venous. C2619............................. Pmkr, dual, non rate-resp. C2620............................. Pmkr, single, non rate-resp. C2621............................. Pmkr, other than sing/dual. C2622............................. Prosthesis, penile, non-inf. C2626............................. Infusion pump, non-prog, temp. C2631............................. Rep dev, urinary, w/o sling. L8614............................. Cochlear device/system.

B. Pass-Through Payments for Devices

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

(If you choose to comment on issues in this section, please include the caption ``OPPS: Expiring Device Pass-Through Payments'' at the beginning of your comment.) a. Background

Section 1833(t)(6)(B)(iii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through payments for at least 2, but not more than 3, years. This period begins with the first date on which a transitional pass-through payment is made for any medical device that is described by the category. The device category codes became effective April 1, 2001, under the provisions of the BIPA. Prior to pass-through device categories, Medicare payments for pass-through devices under the OPPS were made on a brand-specific basis. All of the initial 97 category codes that were established as of April 1, 2001, have expired; 95 categories expired after CY 2002, and 2 categories expired after CY 2003. In addition, nine new categories have expired since their creation. The three categories listed in Table 40, along with their expected expiration dates, were established for pass-through payment in CY 2006 or CY 2007, as noted. Under our established policy, we base the expiration dates for the category codes on the date on which a category was first eligible for pass-through payment.

Of these 3 device categories, there is 1 that would be eligible for pass-through payment for at least 2 years as of December 31, 2007; that is, device category code C1820 (Generator, neurostimulator (implantable), with rechargeable battery and charging system). In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68078), we finalized our proposal to expire device category C1820 from pass- through device payment after December 31, 2007.

In the November 1, 2002 OPPS final rule, we established a policy for payment of devices included in pass-through categories that are due to expire (67 FR 66763). For CY 2003 through CY 2007, we packaged the costs of the

[[Page 42728]]

devices no longer eligible for pass-through payments into the costs of the procedures with which the devices were billed in the claims data used to set the payment rates for those years. Brachytherapy sources, which are now separately paid in accordance with section 1833(t)(2)(H) of the Act, are an exception to this established policy (with the exception of brachytherapy sources for prostate brachytherapy, which were packaged in the CY 2003 OPPS only). b. Proposed Policy

For CY 2008, we are implementing the final decision we discussed in the CY 2007 OPPS/ASC final rule with comment period that finalizes the expiration date for pass-through status for device category C1820. Therefore, as of January 1, 2008, we will discontinue pass-through payment for device category code C1820. In accordance with our established policy, we will package the costs of the device assigned to this device category into the costs of the procedures with which the device was billed in CY 2006, the year of hospital claims data used for this proposed OPPS update.

In addition, the 2 device categories that were established for pass-through payment as of January 1, 2007, C1821 (Interspinous process distraction device (implantable)) and L8690 (Auditory osseointegrated device, includes all internal and external components), would be active categories for pass-through payment for 2 years as of December 31, 2008. Therefore, we are proposing that these categories expire from pass-through device payment as of December 31, 2008.

Table 40.--Current Pass-Through Device Categories by Expiration Date

Date(s) Expiration HCPCS code

Category long descriptor

populated

date

C1820.................................. Generator, neurostimulator

1/1/06

12/31/07 (implantable). C1821.................................. Interspinous process distraction device

1/1/07

12/31/08 (implantable). L8690.................................. Auditory osseointegrated device,

1/1/07

12/31/08 includes all internal and external components.

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

(If you choose to comment on issues in this section, please include the caption ``OPPS: Offset Costs'' at the beginning of your comment.) a. Background

In the November 30, 2001 OPPS final rule, we explained the methodology we used to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of the associated devices that are eligible for pass-through payments (66 FR 59904). Beginning with the implementation of the CY 2002 OPPS quarterly update (April 1, 2002), we deducted from the pass-through payments for the identified devices an amount that reflected the portion of the APC payment amount that we determined was associated with the cost of the device, as required by section 1833(t)(6)(D)(ii) of the Act. In the November 1, 2002 interim final rule with comment period, we published the applicable offset amounts for CY 2003 (67 FR 66801).

For the CY 2002 and CY 2003 OPPS updates, to estimate the portion of each APC payment rate that could reasonably be attributed to the cost of an associated device eligible for pass-through payment, we used claims data from the period used for recalibration of the APC rates. That is, for CY 2002 OPPS updating, we used CY 2000 claims data, and for CY 2003 OPPS updating, we used CY 2001 claims data. For CY 2002, we used median cost claims data based on specific revenue centers used for device related costs because device C-code cost data were not available until CY 2003. For CY 2003, we calculated a median cost for every APC based on single claims with device codes but without packaging the costs of associated C-codes for device categories that were billed with the APC. We then calculated a median cost for every APC based on single claims with the costs of the associated device category C-codes that were billed with the APC packaged into the median. Comparing the median APC cost without device packaging to the median APC cost including device packaging that was developed from the claims with device codes also reported enabled us to determine the percentage of the median APC cost that was attributable to the associated pass-through devices. By applying those percentages to the APC payment rates, we determined the applicable amount to be deducted from the pass-through payment, the ''offset'' amount. We created an offset list comprised of any APC for which the device cost was at least 1 percent of the APC's cost.

The offset list that we published for CY 2002 through CY 2004 was a list of offset amounts associated with those APCs with identified offset amounts developed using the methodology described above. As a rule, we do not know in advance which procedures residing in certain APCs may be billed with new device categories. Therefore, an offset amount was applied only when a new device category was billed with a HCPCS procedure code that was assigned to an APC appearing on the offset list.

For CY 2004, we modified our policy for applying offsets to device pass-through payments. Specifically, we indicated that we would apply an offset to a new device category only when we could determine that an APC contains costs associated with the device. We continued our existing methodology for determining the offset amount, described earlier. We were able to use this methodology to establish the device offset amounts for CY 2004 because providers reported device codes (generally C-codes) on the CY 2002 claims used for the CY 2004 OPPS update. For the CY 2005 update to the OPPS, our data consisted of CY 2003 claims that did not contain device codes and, therefore, for CY 2005, we utilized the device percentages as developed for CY 2004. In the CY 2004 OPPS update, we reviewed the device categories eligible for continuing pass-through payment in CY 2004 to determine whether the costs associated with the device categories were packaged into the existing APCs. Based on our review of the data for the device categories existing in CY 2004, we determined that there were no close or identifiable costs associated with the devices relating to the respective APCs that were normally billed with them. Therefore, for those device categories, we set the offset amount to $0 for CY 2004. We continued this policy of setting the offset amount to $0 for the device categories that continued to receive pass-through payment in CY 2005.

For the CY 2006 OPPS update, CY 2004 hospital claims were available for analysis. Hospitals billed device C-codes in CY 2004 on a voluntary basis.

[[Page 42729]]

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

For CY 2006, we reviewed the single new device category established, C1820, to determine whether device costs associated with the new category were packaged into the existing APC structure based on partial CY 2005 claims data. Under our established policy, if we determine that the device costs associated with the new category are closely identifiable to device costs packaged into existing APCs, we set the offset amount for the new category to an amount greater than $0. Our review of the service indicated that the median cost for the applicable APC 0222 (Implantation of Neurological Device) contained costs for neurostimulators that were similar to neurostimulators described by the new device category C1820. Therefore, we determined that a device offset would be appropriate. We announced a CY 2006 offset amount for that category in Program Transmittal No. 804, dated January 3, 2006. (We subsequently were informed that some rechargeable neurostimulators described by device category C1820 may also be used and billed with a CPT code that maps to APC 0039 (Level I Implantation of Neurostimulator). We announced an offset amount for device category C1820 when billed with a procedure code that maps to APC 0039, in Program Transmittal No. 1209, dated March 21, 2007.)

For CY 2006, we used available partial year CY 2005 hospital claims data to calculate device percentages and potential offsets for CY 2006 applications for new device categories. Effective January 1, 2005, we require hospitals to report device HCPCS codes and their charges when hospitals bill for services that utilize devices described by the existing device category codes. In addition, during CY 2005 we implemented device edits for many services that require devices and for which appropriate device category HCPCS codes exist. Therefore, we expected that the number of claims that included device codes and their respective costs to be much more robust and representative for CY 2005 than for CY 2004.

For CY 2007, we reviewed the two new device categories, C1821 and L8690, to determine whether device costs associated with the new categories were packaged into the existing APC structure based on CY 2005 claims data. As indicated earlier, under our established policy, if we determine that the device costs associated with a new category are closely identifiable to device costs packaged into existing APCs, we set the offset amount for the new category to an amount greater than $0. Our review of the related services indicated that the median costs for the applicable APC 0256 (Level V ENT Procedures (for L8690)) and APC 0050 (Level II Musculoskeletal Procedures Except Hand and Foot (for C1821)) did not contain costs for devices that were similar to those described by the new device categories. Therefore, we set the respective offsets to $0.

We believe that use of the most current claims data to establish offset amounts when they are needed to ensure appropriate payment is consistent with our stated policy; therefore, we are proposing to continue to do so for the CY 2008 OPPS. Specifically, if we create a new device category for payment in CY 2008, to calculate potential offsets we are proposing to examine the most current available claims data, including device costs, to determine whether device costs associated with the new category are already packaged into the existing APC structure, as indicated earlier. If we conclude that some related device costs are packaged into existing APCs, we are proposing to use the methodology described earlier and first used for the CY 2003 OPPS to determine an appropriate device offset percent for those APCs with which the new category would be reported. b. Proposed Policy

For CY 2008, we are proposing to continue to review each new device category on a case-by-case basis as we have done since CY 2004, to determine whether device costs associated with the new category are packaged into the existing APC structure. If we determine that, for any new device category, no device costs associated with the new category are packaged into existing APCs, we are proposing to continue our current policy of setting the offset amount for the new category to $0 for CY 2008. There are currently two new device categories that will continue for pass through payment in CY 2008. These categories, described by HCPCS codes L8690 and C1821, currently have an offset amount equal to $0 because we could not identify device related costs in the procedural APCs we expect would be billed with either of the two categories L8690 or C1821, that is, in APC 0256 or APC 0050, respectively. We are proposing that the offsets for CY 2008 for L8690 and C1821 remain set to $0, because we cannot identify device costs packaged in the related procedural APCs that are closely identifiable with these device categories, based on the claims data for CY 2006, the claims data year for our CY 2008 OPPS update.

We are proposing to continue our existing policy of establishing new categories in any quarter when we determine that the criteria for granting pass through status for a device category are met. If we create a new device category and determine that our CY 2006 claims data contain a sufficient number of claims with identifiable costs associated with the new category of devices in any APC with which it is billed, we are proposing to establish an offset amount greater than $0 and to reduce the transitional pass through payment for the device by the related procedural APC offset amount. If we determine that a device offset amount greater than $0 is appropriate for any new category that we create, we are proposing to announce the offset amount in the program transmittal that announces the new category.

In summary, for CY 2008, we are proposing to use CY 2006 hospital claims data to calculate device percentages and potential offsets for new device categories established in CY 2008. We are proposing to publish through program transmittals any new or updated offsets that we calculate for CY 2008, corresponding to newly

[[Page 42730]]

created categories or existing categories eligible for pass-through payment, respectively.

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

A. Proposed Transitional Pass-Through Payment for Additional Costs of Drugs and Biologicals

(If you choose to comment on issues in this section, please include the caption ``OPPS: Pass-Through Drugs'' at the beginning of your comment.) 1. Background

Section 1833(t)(6) of the Act provides for temporary additional payments or ``transitional pass-through payments'' for certain drugs and biological agents. As originally enacted by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106- 113), this provision requires the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current drugs and biological agents and brachytherapy sources used for the treatment of cancer; and current radiopharmaceutical drugs and biological products. For those drugs and biological agents referred to as ``current,'' the transitional pass-through payment began on the first date the hospital OPPS was implemented (before enactment of the Medicare, Medicaid, and SCHIP BenefitsImprovement and Protection Act (BIPA) of 2000 (Pub. L. 106-554), on December 21, 2000).

Transitional pass-through payments are also provided for certain ``new'' drugs and biological agents 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. Under the statute, transitional pass-through payments can be made for at least 2 years but not more than 3 years. Proposed CY 2008 pass-through drugs and biologicals are assigned status indicator ``G'' in Addenda A and B to this proposed rule.

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) (or, if the drug or biological is covered under a competitive acquisition contract under section 1847B, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and year established under such section as calculated and adjusted by the Secretary) 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. This methodology for determining the pass-through payment amount is set forth in Sec. 419.64 of the regulations, which specifies 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, as added by section 303(c) of Pub. L. 108-173, establishes the use of the average sales price (ASP) methodology as the basis for payment for drugs and biologicals described in section 1842(o)(1)(C) of the Act that are furnished on or after January 1, 2005. The ASP methodology uses several sources of data as a basis for payment, including ASP, wholesale acquisition cost (WAC), and average wholesale price (AWP). In this proposed rule, 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.hhs.gov/McrPartBDrugAvgSalesPrice/01_overview.asp#TopOfPage .

As noted above, section 1833(t)(6)(D)(i) of the Act also states that if a drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the payment rate is equal to the average price for the drug or biological for all competitive acquisition areas and the year established as calculated and adjusted by the Secretary. Section 1847B of the Act, as added by section 303(d) of Pub. L. 108-173, establishes the payment methodology for Medicare Part B drugs and biologicals under the competitive acquisition program (CAP). The Part B drug CAP was implemented July 1, 2006, and includes approximately 180 of the most commonPart B drugs provided in the physician's office setting. The list of drugs and biologicals covered under the Part B drug CAP, their associated payment rates and the Part B drug CAP pricing methodology can be found on the CMS Web site at http://www.cms.hhs.gov/CompetitiveAcquisforBios.

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.

The pass-through application and review process is explained on the CMS Web site at: http://www.cms.hhs.gov /HospitalOutpatientPPS/04--

passthrough--payment.asp. 2. Drugs and Biologicals With Expiring Pass-Through Status in CY 2007

Section 1833(t)(6)(C)(i) of the Act specifies that the duration of transitional pass through payments for drugs and biologicals must be no less than 2 years and no longer than 3 years. In Table 41, we list the seven drugs and biologicals whose pass through status will expire on December 31, 2007, that meet that criterion.

Table 41.--Proposed Drugs and Biologicals for Which Pass-Through Status Expires December 31, 2007

CY 2007 and HCPCS code

Short descriptor

proposed CY CY 2007 SI Proposed CY 2008 APC

2008 SI

J2278............................ Ziconotide injection.......

1694

G

K J2503*........................... Pegaptanib sodium injection

1697

G

K J7311............................ Fluocinolone acetonide.....

9225

G

K J8501............................ Oral aprepitant............

0868

G

K J9027............................ Clofarabine injection......

1710

G

K J9264*........................... Paclitaxel protein bound...

1712

G

K Q4079............................ Natalizumab injection......

9126

G

K

* Indicates that the drug was paid at a rate determined by the Part B drug CAP methodology while identified as pass-through under the OPPS.

[[Page 42731]]

3. Drugs and Biologicals with Proposed Pass-Through Status in CY 2008

We are proposing to continue pass-through status in CY 2008 for 13 drugs and biologicals. These items, which were approved for pass- through status between April 1, 2006 and July 1, 2007, are listed in Table 42. The APCs and HCPCS codes for these drugs and biologicals listed in Table 42 are assigned status indicator ``G'' in Addenda A and B to this proposed rule.

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). The pass-through payment amount is the difference between the amount authorized under section 1842(o) of the Act (or, if the drug or biological is covered under a competitive acquisition contract under section 1847B, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and year established under such section as calculated and adjusted by the Secretary) and the portion of the otherwise applicable fee schedule amount that the Secretary determines is associated with the drug or biological. Given our CY 2008 proposal to provide payment for nonpass-through separately payable drugs and biologicals at ASP+5 percent as described further in section V.B.3 of this proposed rule, we believe it would be most consistent with the statute to provide payment for drugs and biologicals with pass through status that are not part of the Part B drug CAP at a rate of ASP+6 percent, compared to ASP+5 percent as the otherwise applicable fee schedule portion associated with the drug or biological. The difference between ASP+6 percent and ASP+5 percent, therefore, would be the CY 2008 pass-through payment amount for these drugs and biologicals. Thus, we are proposing for CY 2008 to pay for pass-through drugs and biologicals that are not part of the Part B drug CAP at ASP+6 percent, equivalent to the rate these drugs and biologicals would receive in the physician's office setting in CY 2008.

Section 1842(o) of the Act also states that if a drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the payment rate is equal to the average price for the drug or biological for all competitive acquisition areas and year established as calculated and adjusted by the Secretary. For CY 2008, we are proposing to provide payment for drugs and biologicals with pass-through status that are offered under the Part B drug CAP at a rate equal to the Part B drug CAP rate. Therefore, considering ASP+5 percent to be the otherwise applicable fee schedule portion associated with these drugs or biologicals, the difference between the Part B drug CAP rate and ASP+5 percent would be the pass-through payment amount for these drugs and biologicals. HCPCS codes that are offered under the CAP program as of April 1, 2007 are identified in Table 42 with an asterisk.

In section V.B.3.b. of this proposed rule, we discuss our proposal to make separate payment in CY 2008 for new drugs and biologicals with a HCPCS code, consistent with the provisions of section 1842(o) of the Act, at a rate that is equivalent to the payment they would receive in a physician's office setting (or under section 1847B of the Act, if the drug or biological is covered under a competitive acquisition contract) only if we have received a pass-through application for the item and pass-through status has been subsequently granted. Otherwise, we are proposing to pay ASP+5 percent for these products in CY 2008.

We are proposing to use payment rates based on the ASP data from the fourth quarter of CY 2006 for budget neutrality estimates, impact analyses, and completion of Addenda A and B to this proposed rule because these are the most recent data available to us at this time. These payment rates are also the basis for drug payments in the physician's office setting, effective April 1, 2007. As updated data will be available during the development of our final rule, we are proposing to use ASP data from the second quarter of 2007 (which are the basis for drug payments in the physician's office setting, effective October 1, 2007) in budget neutrality estimates, impact analyses, and completion of Addenda A and B to the CY 2008 OPPS/ASC final rule with comment period. In addition, we are proposing to update these pass-through payment rates on a quarterly basis on our Web site during CY 2008 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 and biologicals are necessary. Although there are no pass-through radiopharmaceuticals at this time for CY 2008, the payment rate for a radiopharmaceutical with pass-through status would also be adjusted accordingly.

If a drug that has been granted pass-through status for CY 2008 becomes covered under the Part B drug CAP, we are proposing to make the appropriate adjustments to the payment rates for these drugs and biologicals on a quarterly basis. For drugs and biologicals that are currently covered under the CAP, we are proposing to use the payment rates calculated under that program that are in effect as of April 1, 2007. We are proposing to update these payment rates if the rates change in the future.

Table 42.--Proposed Drugs and Biologicals With Pass-Through Status in CY 2008

CY 2007 and CY 2007 and

HCPCS code Short descriptor proposed CY proposed CY 2008 2008 APC

SI

C9232............. Injection,

9232 G idursulfase. C9233............. Injection,

9233 G ranibizumab. C9235............. Injection,

9235 G panitumumab. C9350............. Porous collagen

9350 G tube per cm. C9351............. Acellular derm

9351 G tissue percm2. J0129............. Injection,

9230 G abatacept. J0348............. Anadulafungin

0760 G injection. J0894*............ Injection,

9231 G decitabine. J1740............. Injection

9229 G ibandronate sodium. J2248............. Injection,

9227 G micafungin sodium. J3243............. Injection,

9228 G tigecycline. J3473............. Hyaluronidase

0806 G recombinant. J9261............. Nelarabine

0825 G injection.

* Indicates that the drug is paid at a rate determined by the Part B drug CAP methodology while identified as pass-through under the OPPS.

[[Page 42732]]

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

1. Background

Under the CY 2007 OPPS, we currently pay for drugs, biologicals, and radiopharmaceuticals that do not have pass-through status in one of two ways: packaged payment within the payment for the associated service or separate payment (individual APCs). We explained in the April 7, 2000 OPPS final rule with comment period (65 FR 18450) that we generally package the cost of drugs and radiopharmaceuticals into the APC payment rate for the procedure or treatment with which the products are usually furnished. Hospitals do not receive separate payment from Medicare for packaged items and supplies, and hospitals may not bill beneficiaries separately for any packaged items and supplies whose costs are recognized and paid within the national OPPS payment rate for the associated procedure or service. (Program Memorandum Transmittal A 01 133, issued on November 20, 2001, explains in greater detail the rules regarding separate payment for packaged services.)

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, as added by section 621(a)(2) of Pub. L. 108-173, sets 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 are not new and do not have pass through status was established to be $55. The methodology used to establish the $55 threshold for CY 2007 and our proposed approach for future years are discussed in more detail in section V.B.2. of this proposed rule.

In addition, for CY 2005 to CY 2007, we have provided an exemption to this packaging determination for oral and injectable 5HT3 forms of anti emetic products. We discuss in section V.B.2. of this proposed rule our proposed CY 2008 payment policy for anti emetic products.

2. Proposed Criteria for Packaging Payment for Drugs and Biologicals

(If you choose to comment on issues in this section, please include the caption ``OPPS: Packaging Drugs and Biologicals'' at the beginning of your comment.)

As indicated above, in accordance with section 1833(t)(16)(B) of the Act, the threshold for establishing separate APCs for drugs and biologicals was set to $50 per administration during CYs 2005 and 2006. In CY 2007, we used the fourth quarter moving average Producer Price Index (PPI) levels for prescription preparations to trend the $50 threshold forward from the third quarter of CY 2005 (when the Pub. L. 108-173 mandated threshold became effective) to the third quarter of CY 2007. We then rounded the resulting dollar amount to the nearest $5 increment in order to determine the CY 2007 threshold adjustment amount of $55.

Following the CY 2007 methodology (which is discussed in more detail in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 68086)), we used updated fourth quarter moving average PPI levels to trend the $50 threshold forward from the third quarter of CY 2005 to the third quarter of CY 2008 and again rounded the resulting dollar amount ($57.78) to the nearest $5 increment, which yielded a figure of $60. In performing this calculation, we used the most up-to- date forecasted, quarterly PPI estimates from CMS' Office of the Actuary (OACT). 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 proposed rule) and have been incorporated into our calculation for this CY 2008 proposed rule. Based on the calculations described above, we are proposing a packaging threshold for CY 2008 of $60. 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 is an appropriate mechanism to gauge Part B drug inflation. While we are not proposing for CY 2008 to change this established approach to establishing the general packaging threshold for drugs, biologicals, and radiopharmaceuticals, in view of our proposed packaging approach for the CY 2008 OPPS as outlined in section II.A.4. of this proposed rule and our desire to move the OPPS toward a more encounter-based and episode-based payment in the future, we will consider expanded packaging of payment for drugs, biologicals, and radiopharmaceuticals for a future OPPS update. We believe that consideration of expanded packaging for drugs and biologicals is particularly important given the substantial increase that has occurred in recent years in the proportion of HCPCS codes for drugs, biologicals, and radiopharmaceuticals that are paid separately, from 30 percent in CY 2003 to 50 percent in CY 2007. We are proposing for CY 2008 to expand the packaging of certain drugs and radiopharmaceuticals, specifically contrast agents and diagnostic radiopharmaceuticals as discussed in detail in section II.A.4. of this proposed rule. However, we believe that increased packaging of payment for drugs, biologicals, and radiopharmaceuticals more generally under the OPPS could provide significant incentives for hospital efficiency in adopting the most cost-effective approaches to patient care, while providing hospitals with maximum flexibility in managing their resources. Therefore, we are interested in public comments regarding recommended approaches to increase packaging of these products under the OPPS and issues we should consider as we evaluate alternative methodologies for the future.

To determine their CY 2008 proposed packaging status, we calculated the per day cost of all drugs, biologicals, and radiopharmaceuticals that had a HCPCS code in CY 2006 and were paid (via packaged or separate payment) under the OPPS using claims data from January 1, 2006, to December 31, 2006. In order to calculate the per day costs for drugs, biologicals, and radiopharmaceuticals to determine their packaging status in CY 2008, we are proposing to use the methodology that was described in detail in the CY 2006 OPPS proposed rule (70 FR 42723 through 42724) and finalized in the CY 2006 OPPS final rule with comment period (70 FR 68636 through 70 FR 68638). To calculate the proposed CY

[[Page 42733]]

2008 per day costs, we used an estimated payment rate for each drug and biological of ASP+5 percent (which is the payment rate we are proposing for separately payable drugs and biologicals in CY 2008, as discussed in more detail subsequently). As noted in section V.A.3. of this proposed rule, we used the manufacturer submitted ASP data from the fourth quarter of CY 2006 (rates that were used for payment purposes in the physician's office setting, effective April 1, 2007). For items that did not have an ASP based payment rate, we used their mean unit cost derived from the CY 2006 hospital claims data to determine their per day cost. We packaged items with per day cost less than or equal to $60 and identified items with per day cost greater than $60 as separately payable. Consistent with our past practice, we crosswalked historical OPPS claims data from the CY 2006 HCPCS codes that were reported to the CY 2007 HCPCS codes that we display in Addendum B to this proposed rule for payment in CY 2008. We note that HCPCS code A9568 (Technetium Tc-99 arcitumomab, diagnostic, per study dose, up to 45 millicuries), replaced HCPCS code A9549 (Technetium Tc-99 arcitumomab, diagnostic, per study dose, up to 25 millicuries) beginning January 1, 2007. Our CY 2006 claims data indicate that HCPCS code A9549 was billed an average of one time per day. As we do not have claims data available for ratesetting purposes for HCPCS code A9568, we estimated the number of units per day to also be one.

Our policy during previous cycles of the OPPS has been to use updated data to establish final determinations of the packaging status of drugs, biologicals, and radiopharmaceuticals. We note it is also our policy to make an annual packaging determination only when we develop the OPPS final rules. Only items that are identified as separately payable in the final rule will be subject to quarterly updates as discussed in section V.B.3. of this proposed rule. For our calculation of per day costs of drugs, biologicals, and radiopharmaceuticals in the CY 2008 OPPS/ASC final rule with comment period, we are proposing to use ASP data from the first quarter of CY 2007, which would be the basis for calculating payment rates for drugs and biologicals in the physician's office setting using the ASP methodology, effective July 1, 2007, along with the updated hospital claims data from CY 2006.

Consequently, the packaging status for drugs, biologicals, and radiopharmaceuticals for the final rule using the updated data may be different from their packaged status determined based on the data we are using for this proposed rule. Under such circumstances, we are proposing to apply the following policies to these drugs, biologicals, and radiopharmaceuticals whose relationship to the $60 threshold changes based on the final updated data:

Drugs, biologicals, and radiopharmaceuticals that were paid separately in CY 2007 and that are proposed for separate payment in CY 2008, and then have per day costs equal to or less than $60 based on the updated ASPs and hospital claims data used for the CY 2008 final rule with comment period, would continue to receive separate payment in CY 2008.

Drugs, biologicals, and radiopharmaceuticals that are packaged in CY 2007 and that are proposed for separate payment in CY 2008, and then have per day costs equal to or less than $60 based on the updated ASPs and hospital claims data used for the CY 2008 final rule with comment period, would remain packaged in CY 2008.

Drugs, biologicals, and radiopharmaceuticals for which we are proposing packaged payment in CY 2008 but then had per day costs greater than $60 based on the updated ASPs and hospital claims data used for the CY 2008 final rule with comment period, would receive separate payment in CY 2008.

We note that in sections II.A.4.c.(5) and (6) of this proposed rule that we are proposing to package payment for all diagnostic radiopharmaceuticals and contrast agents that would not otherwise be packaged according to the proposed CY 2008 packaging threshold for drugs, biologicals and radiopharmaceuticals. Tables 17 and 19 in sections II.A.4.c.(5) and (6) of this proposed rule list the diagnostic radiopharmaceuticals and contrast agents, respectively, that we are proposing to package in CY 2008. We discuss our reasons for treating diagnostic radiopharmaceuticals and contrast agents differently from other drugs, biologicals, and therapeutic radiopharmaceuticals below.

For CY 2008, we also are proposing to continue exempting the oral and injectable forms of 5HT3 anti-emetic products from packaging, thereby making separate payment for all of the 5HT3 anti-emetic products. As we stated in the CY 2005 OPPS final rule with comment period (69 FR 65779 through 65780), it is our understanding that chemotherapy is very difficult for many patients to tolerate, as the side effects are often debilitating. In order for Medicare beneficiaries to achieve the maximum therapeutic benefit from chemotherapy and other therapies with side effects of nausea and vomiting, anti-emetic use is often an integral part of the treatment regimen. We believe that we should continue to ensure that Medicare payment rules do not impede a beneficiary's access to the particular anti-emetic that is most effective for him or her as determined by the beneficiary and his or her physician.

Table 43.--Proposed Anti-Emetics to Exempt from Proposed CY 2008 $60 Packaging Threshold

HCPCS Code

Short descriptor

J1260............................... Dolasetron mesylate J1626............................... Granisetron HCl injection J2405............................... Ondansetron HCl injection J2469............................... Palonosetron HCl Q0166............................... Granisetron HCl 1 mg oral Q0179............................... Ondansetron HCl 8 mg oral Q0180............................... Dolasetron mesylate oral

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

a. Payment for Specified Covered Outpatient Drugs

(If you choose to comment on issues in this section, please include the caption OPPS: Specified Covered Outpatient Drugs'' at the beginning of your comment.)

(1) Background

Section 1833(t)(14) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, requires special classification of certain separately paid radiopharmaceuticals, drugs, and biologicals and mandates specific payments for these items. Under section 1833(t)(14)(B)(i) of the Act, a ``specified covered outpatient drug'' is a covered outpatient drug, as defined in section 1927(k)(2) of the Act, for which a separate APC exists and that either is a radiopharmaceutical agent or is a drug or biological for which payment was made on a pass through basis on or before December 31, 2002.

Under section 1833(t)(14)(B)(ii) of the Act, certain drugs and biologicals are designated as exceptions and are not included in the definition of ``specified covered outpatient drugs.'' (SCODs) 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.

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During CYs 2004 and 2005, an orphan drug (as designated by the Secretary).

Section 1833(t)(14)(A)(iii) of the Act, as added by section 621(a)(1) of Pub. L. 108 173, requires that payment for 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. 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.

In establishing the CY 2006 payment rates, we evaluated the three data sources that were available to us for setting the CY 2006 payment rates for drugs and biologicals. As described in the CY 2006 OPPS final rule with comment period (70 FR 68639 through 68644), these data sources were the GAO reported average purchase prices for 55 specified covered outpatient drug categories for the period July 1, 2003, to June 30, 2004, collected via a survey of 1,400 acute care Medicare-certified hospitals; ASP data; and mean costs derived from CY 2004 hospital claims data. For the CY 2006 OPPS final rule with comment period, we used ASP data from the second quarter of CY 2005, which were used to set payment rates for drugs and biologicals in the physician's office setting effective October 1, 2005, and updated claims data.

In our data analysis for the CY 2006 OPPS final rule with comment period, we compared the payment rates for drugs and biologicals using data from all three sources described above. We estimated aggregate expenditures for all drugs and biologicals that would be separately payable in CY 2006 and for the 55 drugs and biologicals reported by the GAO using mean costs from the claims data, the GAO mean purchase prices, and the ASP-based payment amounts (ASP+6 percent in most cases), and then calculated the equivalent average ASP-based payment rate under each of the three payment methodologies. We excluded radiopharmaceuticals in our analysis because they were paid at hospital charges reduced to cost during CY 2006. The results based on updated ASP and claims data were published in Table 24 of the CY 2006 OPPS final rule with comment period. For a full discussion of our reasons for using these data, we refer readers to section V.B.3.a. of the CY 2006 OPPS final rule with comment period (70 FR 68639 through 68644).

As we noted in the CY 2006 OPPS final rule with comment period, findings from a MedPAC survey of hospital charging practices indicated that hospitals set charges for drugs, biologicals, and radiopharmaceuticals high enough to reflect their pharmacy handling costs as well as their acquisition costs. In consideration of this information, we stated in the CY 2006 OPPS final rule with comment period that payment rates derived from hospital claims data also included acquisition and pharmacy handling costs because they are derived directly from hospital charges (70 FR 68642). In CYs 2006 and 2007, we finalized a policy of providing payment to HOPDs for drugs, biologicals, and associated pharmacy handling costs at a rate of ASP+6 percent. In addition, in CY 2006 we had proposed to collect pharmacy overhead charge data via special pharmacy overhead HCPCS codes that hospitals would report. We did not finalize this proposal for CY 2006 because of hospital concerns regarding the administrative burden associated with reporting pharmacy overhead with these special HCPCS codes (70 FR 68657 through 68665). (2) Proposed Payment Policy

The provision in section 1833(t)(14)(A)(iii) of the Act, as described above, continues to be applicable to determining payments for SCODs for CY 2008. This provision requires that in CY 2008 payment for SCODs 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 GAO in CYs 2004 and 2005. If hospital acquisition cost data are not available, the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847A, or section 1847B of the Act as calculated and adjusted by the Secretary as necessary. In addition, section 1833(t)(14)(E)(ii) authorizes the Secretary to adjust APC weights for SCODs to take into account the MedPAC report relating to overhead and related expenses, such as pharmacy services and handling costs.

During the March 2007 APC Panel meeting, the APC Panel recommended that CMS implement a three-phase plan to address OPPS payment for pharmacy overhead costs. The first phase of the recommended plan involves CMS working with interested stakeholders to develop a system of defining pharmacy overhead categories for outpatient drugs that require different levels of pharmacy resources. In addition, this phase includes a provision recommending that CMS provide payment for pharmacy overhead costs by setting payment rates for the developed categories through New Technology APCs, presumably while collecting hospital cost data on these services. The second phase of the recommended plan calls for CMS to review estimates of pharmacy overhead costs as identified by the GAO and MedPAC, and to consider external survey data from stakeholders. The third and final phase of the recommended plan calls for specific billing of pharmacy overhead costs using HCPCS codes (corresponding to the categories developed in phase one, with payment rates resulting from submitted hospital claims data) on the same claim as a drug administration service. The APC Panel recommended that the overhead payments be made in addition to the current ASP+6 percent payment rates for separately payable drugs and biologicals that do not have pass-through status. We also have met with interested stakeholders who have presented proposals similar to the APC Panel's recommended plan with various modifications to that recommendation, including suggestions for the assignment of specific drugs and biologicals to various overhead categories and potential overhead payment rates for such categories in the first phase of the APC Panel's recommended plan. In addition, some stakeholders have recommended that CMS conduct a survey of pharmacy overhead costs in the second phase of the APC Panel's recommended plan.

While we appreciate the APC Panel's recommendation, as well as similar suggestions from other stakeholders, we are not proposing to adopt the APC Panel's recommendation for CY 2008. As discussed in section II.A.4. of this proposed rule, for CY 2008, we are proposing to expand packaging for a number of different groups of services. Given our belief that packaging can be helpful in promoting hospital efficiency and long-term cost containment, we do not believe it would be desirable to take steps that would ultimately lead to payment for pharmacy overhead costs being unpackaged under the OPPS. In addition, we note that the APC Panel recommended that CMS establish separate payment amounts for pharmacy overhead in addition to the current combined payment for drug acquisition

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costs and pharmacy overhead of ASP+6 percent. As we discussed in the CY 2006 OPPS final rule with comment period (70 FR 68657) and in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68089 through 68092), findings from a MedPAC survey of hospital charging practices indicated that hospitals set charges for drugs, biologicals, and radiopharmaceuticals high enough to reflect their pharmacy handling costs as well as their acquisition costs. We believe that our payment rates for drug acquisition costs and pharmacy overhead should be determined based on the costs reflected in our claims data, as these costs reflect both acquisition costs and overhead costs. We also believe that establishing additional payment for pharmacy overhead beyond our proposed payment rates based on claims data would distort the relative relationship of costs across HOPD services, which is the basis of the OPPS.

While we are not proposing to adopt the APC Panel's recommendation for CY 2008, we considered several other options for payment for drug acquisition costs and pharmacy overhead for CY 2008. First, we considered proposing again the methodology we had proposed for CY 2006, which involved the establishment of three drug overhead categories that hospitals would use to report pharmacy overhead charges associated with a drug provided in the HOPD. Until such data were available for ratesetting purposes, we considered continuing our CY 2007 methodology of bundling average hospital acquisition and pharmacy overhead payments. While this approach has the advantage of not paying separately for pharmacy overhead until we would have claims data on which to establish separate payment rates for drug acquisition costs and pharmacy overhead, its goal would still be to ultimately unpackage OPPS payment for pharmacy overhead. We have decided not to propose this option because we believe it is undesirable to take steps that would ultimately lead to pharmacy overhead being unpackaged at the same time that we are proposing measures to expand packaging under the OPPS and are considering moving toward more episode-based and encounter-based payment. Furthermore, we note that, as we considered this approach, we were mindful of the comments we received in response to our CY 2006 proposed rule expressing concern about the additional administrative burden on staff and coders that this methodology might cause.

Second, we considered continuing our CY 2007 methodology of providing a single bundled payment representing average hospital acquisition costs and associated pharmacy overhead costs. As stated previously, we believe that hospitals are including pharmacy overhead costs in their charges for drugs, consistent with MedPAC's findings. While we continue to believe that a combined payment amount for drug acquisition costs and pharmacy overhead based on our claims data is a reasonable methodology, adequately accounts for acquisition costs and overhead, and is consistent with our broader packaging efforts, we have decided to propose a slight variant of this approach for CY 2008 instead.

For CY 2008, we are proposing to continue our methodology of providing a combined payment rate for drug and biological acquisition costs and pharmacy overhead. However, in addition, we are proposing to instruct hospitals to remove the pharmacy overhead charge from the charge for the drug or biological and instead report the pharmacy overhead charge on an uncoded revenue code line on the claim beginning in CY 2008. This proposed change, from a CY 2007 policy where hospitals include pharmacy overhead in their charges for the drug or biological to a CY 2008 policy of including the pharmacy overhead charges on an uncoded revenue code line, would allow us to package pharmacy overhead costs for drugs and biologicals into payment for the associated procedure, likely a drug administration procedure, in future years when the CY 2008 claims data become available for ratesetting. We are proposing to apply this policy to the reporting of charges for all drugs and biologicals, including contrast agents, irrespective of the item's packaged or separately payable status for the CY 2008 OPPS. We are not proposing to apply this policy to the reporting of overhead charges for radiopharmaceuticals given the explicit instructions we gave hospitals beginning in CY 2006 to include the charges for radiopharmaceutical overhead and handling in the charges for the radiopharmaceutical product.

This proposal would not change our current policy of packaging payment for pharmacy overhead with payment for another item or service. Rather, in future years it would only change the types of items or services with which pharmacy overhead is packaged. Once CY 2008 claims data become available for ratesetting, this proposal would lead to pharmacy overhead for separately payable drugs being packaged with payment for the associated procedure, likely a drug administration procedure, rather than the current policy where pharmacy overhead for separately payable drugs is packaged with the payment for the drug.

We note that, in the case of current OPPS payment for packaged drugs, payment for both the drugs and their associated pharmacy overhead costs is already packaged into payment for the associated separately payable procedures, including drug administration services as discussed in detail in section II.A.1.b.(2) of this proposed rule. Packaging pharmacy overhead for separately payable drugs and biologicals into the payments for drug administration would enhance the accuracy of payments by packaging overhead for similar drugs into the commonly associated separately payable services, for example, by packaging the pharmacy overhead for a chemotherapy drug with the chemotherapy drug administration code also included on the claim. In addition, this methodology is consistent with the increased packaging efforts discussed earlier in this proposed rule. Because we would not expect to have claims data reflecting these reporting changes until CY 2010, we are proposing to continue to provide a combined payment rate for acquisition costs and pharmacy overhead for separately payable drugs and biologicals in CY 2008 similar to the combined payment rate provided in CYs 2006 and 2007 that represents the average hospital acquisition cost and pharmacy overhead cost.

Under our proposal, hospitals would be asked to report pharmacy overhead charges on an uncoded revenue code line. By having hospitals report pharmacy overhead on an uncoded revenue code line, they would have the flexibility to decide whether they reported a pharmacy overhead charge per drug or per episode of drug administration services. The pharmacy overhead charges reported through an uncoded revenue code line would be like any other charge for an uncoded revenue code line on the claim. For example, hospitals may already report charges for some drugs or pharmacy-related services through an uncoded revenue code charge. Our proposal would mean that hospitals would be reporting pharmacy overhead on an uncoded revenue code line, in addition to any drugs or pharmacy-related services that they may already be reporting in that manner. According to our standard OPPS ratesetting methodology, we would package all such uncoded revenue code lines on the claim to develop the median cost for the separately payable service with which the pharmacy charges are reported.

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We note that when we proposed establishing specific HCPCS codes for hospitals to report pharmacy overhead for CY 2006, commenters expressed a number of concerns about how this reporting and charging methodology would be different from the approach for other private payers. Some commenters voiced concern that while the proposal would have required hospitals to modify their billing systems to separate the pharmacy overhead charge from the drug charge for Medicare claims, hospitals would need to bill them as a single line item for other payers. Some commenters were concerned that this might require hospitals to charge Medicare differently from all other payers for the same services. With regard to our current proposal for CY 2008 to have hospitals report a charge for the drug and a charge for pharmacy overhead via an uncoded revenue code line, we believe our current approach is consistent with Medicare regulations. So long as hospitals provide the same total charge to all payers, it would be acceptable to report that charge as a line item for one payer and two (or more) line items for another payer.

For this proposed rule, we evaluated two data sources that we have available to us for setting the CY 2008 payment rates for drugs and biologicals. The first source of drug pricing information that we have is the ASP data from the fourth quarter of CY 2006, which were used to set payment rates for drugs and biologicals in the physician's office setting, effective April 1, 2007. We have ASP-based prices for approximately 500 drugs and biologicals (including contrast agents) payable under the OPPS. However, we currently do not have any ASP data on radiopharmaceuticals.

The second source of cost data that we have for drugs, biologicals, and radiopharmaceuticals is the mean and median costs derived from the CY 2006 hospital claims data. As section 1833(t)(14)(A)(iii) of the Act clearly specifies that payment for SCODs in CY 2008 be equal to the ``average'' acquisition cost for the drug, we limited our analysis to the mean costs of drugs determined using the hospital claims data, instead of using median costs.

In our data analysis, we compared the payment rates for drugs and biologicals using data from both sources described above. After determining the proposed CY 2008 packaging status of drugs and biologicals, we estimated aggregate expenditures for all drugs and biologicals (excluding radiopharmaceuticals) that would be separately payable in CY 2008 using mean costs from the hospital claims data and the ASP-based payment amounts, and calculated the equivalent average ASP-based payment rate under both payment methodologies.

The results of our data analysis indicate that using mean unit cost to set the payment rates for the drugs and biologicals that would be separately payable in CY 2008 would be equivalent to basing their payment rates, on average, at ASP+5 percent. Therefore, we are proposing to continue to provide a bundled payment for CY 2008 at ASP+5 percent while hospitals change their charge practices to bill pharmacy overhead charges on an uncoded revenue center line as discussed above. As stated previously, we believe that this methodology would continue to provide accurate payments for average acquisition costs of Part B drugs and pharmacy overhead costs during this transition. In addition, as described in section II.A.4. of this proposed rule, for contrast agents we are proposing a supplemental approach which would package payment for all contrast media under the CY 2008 OPPS, and our specific rationale for this modified approach is described in our discussion of payment for diagnostic radiopharmaceuticals included in section V.A.3.a.(4)(b) of this proposed rule. (3) Proposed Payment for Blood Clotting Factors

(If you choose to comment on issues in this section, please include the caption ``OPPS: Blood Clotting Factors'' at the beginning of your comment.)

For CY 2007, we are providing payment for blood clotting factors under the OPPS at ASP+6 percent plus an additional payment for the furnishing fee that is also a part of the payment for blood clotting factors furnished in physicians' offices under Medicare Part B. The CY 2007 updated furnishing fee is $0.152 per unit.

For the CY 2008 OPPS, we are proposing to pay for blood clotting factors at ASP+5 percent and to continue our policy for payment of the furnishing fee using the updated amount for CY 2008 as presented in the CY 2008 MPFS final rule.

We have consistently noted that we would update the payment amount for the furnishing fee each year (based on the consumer price index) so that the payment amount for the furnishing fee is equal to the furnishing fee payment amount noted in the MPFS final rule. As discussed in greater detail in the CY 2008 MPFS proposed rule, the CPI data for the 12 month period ending in June 2007 is not yet available. In the CY 2008 MPFS final rule, we will include the actual figure for the percent change in the CPI for medical care for the 12-month period ending June 2007, and the updated furnishing fee for CY 2008 we have calculated based on that figure.

Because the furnishing fee update is based on the percentage increase in the CPI for medical care for the 12 month period ending with June of the previous year and the Bureau of Labor Statistics releases the applicable CPI data after the OPPS and MPFS proposed rules are published, we have not been able to include the actual updated furnishing fee in the CY 2006 through CY 2008 OPPS and MPFS proposed rules. Rather, we announced in these proposed rules that we intended to include the actual figure for the percent change in the applicable CPI, and the updated furnishing fee calculated based on that figure in the associated final rule. Given the timing of the availability of the applicable data and our timeframe for preparing proposed rules, this process is unavoidable and likely to remain unchanged in the future. We believe that including a discussion of the furnishing fee update in annual rulemaking does not provide an advantage over other means of announcing this information, so long as the current statutory update methodology continues in effect. We believe that the public's need for information and adequate notice regarding the updated furnishing fee can be better met by issuing program instructions which will eliminate the discussion of the furnishing fee update annually in rulemaking. In addition, by communicating the updated furnishing fee in program instruction, the actual figure for the percent change in the applicable CPI and the updated furnishing fee calculated based on that figure can be announced more timely than when included as part of the annual rulemaking process. Because the furnishing fee update process is statutorily determined and is based on an index that is not affected by administrative discretion or public comment, we do not believe our proposed means of communicating the update will adversely affect stakeholders or the public. Therefore, for CY 2009 and thereafter, until such time as the update methodology may be modified, we are proposing to announce the blood clotting furnishing fee using applicable program instructions and posting on the CMS Web site. For additional information and instructions on how to submit comments on this proposal, we refer readers to the CY 2008 MPFS proposed rule.

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(4) Proposed Payment for Radiopharmaceuticals (a) Background

Section 303(h) of Pub. L. 108-173 exempted radiopharmaceuticals from ASP pricing in the physician's office setting. Beginning in the CY 2005 OPPS final rule with comment period, we have exempted radiopharmaceutical manufacturers from reporting ASP data for payment purposes under the OPPS (for more information, we refer readers to the CY 2005 OPPS final rule with comment period and the CY 2006 OPPS final rule with comment period, 69 FR 65811 and 70 FR 68655, respectively). Consequently, we do not have ASP data for radiopharmaceuticals for consideration for CY 2008 OPPS ratesetting. In accordance with section 1833(t)(14)(B)(i)(I) of the Act, radiopharmaceuticals are classified under the OPPS as SCODs. Accordingly, payments for radiopharmaceuticals are to be made at average acquisition cost as determined by the Secretary and subject to any adjustment for overhead costs. Radiopharmaceuticals are also subject to the policies affecting all similarly classified OPPS drugs and biologicals, such as pass-through payments and packaging determinations, discussed earlier in this proposed rule.

For CYs 2006 and 2007, we used mean unit cost data from hospital claims to determine each radiopharmaceutical's packaging status, and implemented a temporary policy to pay for separately payable radiopharmaceuticals based on the hospital's charge for each radiopharmaceutical adjusted to cost using the hospital's overall CCR. This methodology was finalized as an interim proxy for average acquisition cost because of the unique circumstances associated with providing radiopharmaceutical products to Medicare beneficiaries. The single OPPS payment represented Medicare payment for both the acquisition cost of the radiopharmaceutical and its associated pharmacy overhead costs. We clearly stated in both the CY 2006 and CY 2007 OPPS final rules with comment period that we did not intend to maintain this methodology permanently (70 FR 68656 and 71 FR 68096, respectively), and that we would continue to actively seek other methodologies for setting payments for radiopharmaceuticals in future years.

During the CY 2006 and CY 2007 rulemaking processes, we encouraged hospitals and the radiopharmaceutical stakeholders to assist us in developing a viable long-term prospective payment methodology for these products under the OPPS. We are pleased to note that we have had many discussions over this past year with interested parties regarding the availability and limitations of radiopharmaceutical cost data. In addition, we have received several suggestions from interested parties on how to structure future payment methodologies. Many of the proposals we have received have suggested that we consider differentiating radiopharmaceutical products into two different categories by cost, at least in part because stakeholders have speculated that charge compression leads to inappropriately low calculated costs for expensive radiopharmaceuticals. For CY 2008, we are making separate payment proposals for diagnostic radiopharmaceuticals and therapeutic radiopharmaceuticals. While we have not grouped radiopharmaceuticals based on cost, we note that the therapeutic radiopharmaceuticals typically are more expensive than the diagnostic radiopharmaceuticals. We identified all diagnostic radiopharmaceuticals specifically as those Level II HCPCS codes that include the term ``diagnostic'' along with a radiopharmaceutical in their long code descriptors. Therefore, we were able to distinguish therapeutic radiopharmaceuticals from diagnostic radiopharmaceuticals as those Level II HCPCS codes that have the term ``therapeutic'' along with a radiopharmaceutical in their long code descriptors. We note that all radiopharmaceutical products fall into one category or the other; their use as a diagnostic radiopharmaceutical or therapeutic radiopharmaceutical is mutually exclusive. (b) Proposed Payment for Diagnostic Radiopharmaceuticals

(If you choose to comment on issues in this section, please include the caption ``OPPS: Payment for Diagnostic Radiopharmaceuticals'' at the beginning of your comment.)

As discussed in section II.A.4. of this proposed rule, we are proposing to package payment for diagnostic radiopharmaceuticals and contrast agents with per day costs over $60 as part of our packaging proposal for CY 2008. Radiopharmaceuticals and contrast agents currently are defined as SCODs in section 1833(t)(14)(B) of the Act, and we currently package payment for diagnostic radiopharmaceuticals and contrast agents with per day costs of $55 or less. However, our proposal for CY 2008 also includes packaging payment for all diagnostic radiopharmaceuticals and contrast agents, regardless of their per day cost. 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. The proportion of drugs, biologicals, and radiopharmaceuticals that are separately paid has increased in recent years, from 30 percent of HCPCS codes for these products in CY 2003 to 50 percent in CY 2007, a pattern that has been noted previously for procedural services as well. Our proposal to package payment for diagnostic radiopharmaceuticals and contrast agents regardless of per day cost furthers the fundamental principles of a prospective payment system.

We believe our proposal to treat diagnostic radiopharmaceuticals and contrast agents differently from other SCODs is appropriate for several reasons. First, the statutory requirement that we must pay separately for drugs and biologicals for which the per day cost exceeds $50 under section 1833(t)(16)(B) of the Act has expired. Therefore, we are not restricted to the extent to which we can package payment for SCODs and other drugs, nor are we required to treat all classes of drugs in the same manner with regard to whether they are packaged or separately paid. We have used this flexibility to make different packaging determinations for several years with regard to specific anti-emetic drugs. While we are proposing to continue to establish an updated cost threshold for packaging drugs, biologicals, and radiopharmaceuticals, we are also proposing an approach specific to diagnostic radiopharmaceuticals and contrast agents that would otherwise be separately paid.

Second, we see diagnostic radiopharmaceuticals and contrast agents as functioning effectively as supplies that enable the provision of an independent service. More specifically, contrast agents are always provided in support of a diagnostic or therapeutic procedure that involves imaging and diagnostic radiopharmaceuticals are always provided in support of a diagnostic nuclear medicine scan. This is different from many other SCODs, for example, therapeutic radiopharmaceuticals, where the therapeutic radiopharmaceutical itself is the primary therapeutic modality. Given the inherent function of contrast agents and diagnostic radiopharmaceuticals as

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supportive to the performance of an independent procedure, we view the packaging of payment for contrast agents and diagnostic radiopharmaceuticals as a logical initial step to expand packaging for SCODs. As we consider moving to additional encounter-based and episode- based payment in future years, we may consider additional options for packaging more SCODs in the future.

Third, section 1833(t)(14)(A)(iii) of the Act requires that payment for SCODs be set prospectively based on a measure of average hospital acquisition cost. While we have ASP data for contrast agents, the lack of ASP data as a source of average acquisition cost for radiopharmaceuticals and the varying inclusion of overhead and handling costs in the charge for a radiopharmaceutical resulted in payment for radiopharmaceuticals at charges reduced to cost on a temporary basis for CYs 2006 and 2007.

We now believe our claims data offer an acceptable proxy for average hospital acquisition cost and associated handling and preparation costs for radiopharmaceuticals. 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. This issue is discussed in greater detail under section V.B.3.a.(4)(c) of this proposed rule regarding our proposed CY 2008 payment methodology for therapeutic radiopharmaceuticals. We have relied on mean unit costs derived from our claims data as one proxy for average acquisition cost and pharmacy overhead, and we use these data to determine the packaging status for SCODs. However, in light of improved data for radiopharmaceuticals in the CY 2006 claims, we believe that the line item estimated cost for a diagnostic radiopharmaceutical in our claims data is a reasonable approximation of average acquisition and preparation and handling costs for diagnostic radiopharmaceuticals. Further, because the standard OPPS packaging methodology packages the total estimated cost for each radiopharmaceutical on each claim (including the full range costs observed on the claims) with the cost of associated nuclear medicine procedures for ratesetting, this packaging approach is consistent with considering the average cost for radiopharmaceuticals, rather than the median. We also note that we believe our improved claims data could support the establishment of separate, prospective payment rates for diagnostic radiopharmaceuticals with per day costs exceeding our general packaging threshold (analogous to our proposal for therapeutic radiopharmaceuticals). However, we are proposing to package all diagnostic radiopharmaceuticals because we believe additional packaging of payment for supportive and ancillary services, including diagnostic radiopharmaceuticals, would provide additional incentives for efficiency and greater flexibility for hospitals to manage their resources.

In the case of contrast agents, while we have ASP data that can be a proxy for average hospital acquisition cost and associated handling and preparation costs, payment for almost all contrast agents would be packaged under the OPPS for CY 2008 based on the $60 per day packaging threshold. Therefore, as discussed in more detail in section V.B.3.a.(4) of this proposed rule, we believe it would be most appropriate to package payment for all contrast agents for CY 2008, to better provide for accurate payment for the associated tests and procedures that promotes hospital efficiency.

In summary, we view diagnostic radiopharmaceuticals and contrast agents as ancillary and supportive of the diagnostic tests and therapeutic procedures in which they are used. In light of our authority to make different packaging determinations, and the improved reporting of hospital charges for radiopharmaceutical handling in the CY 2006 claims data, we propose to package payment for contrast agents and diagnostic radiopharmaceuticals for CY 2008. (c) Proposed Payment for Therapeutic Radiopharmaceuticals

(If you choose to comment on issues in this section, please include the caption ``OPPS: Payment for Therapeutic Radiopharmaceuticals'' at the beginning of your comment.)

For CY 2008, we are proposing to continue separate payment for therapeutic radiopharmaceuticals that have a mean per day cost of more than $60, consistent with the packaging methodology applied to other nonpass-through drugs and biologicals. We believe that therapeutic radiopharmaceuticals are distinct from diagnostic radiopharmaceuticals because the primary purpose of providing a therapeutic radiopharmaceutical is the radiopharmaceutical treatment itself, whereas a diagnostic radiopharmaceutical is administered in support of the performance of a diagnostic nuclear medicine study that is the primary service. For separately payable therapeutic radiopharmaceuticals, we are proposing to establish CY 2008 payment rates based on their mean unit costs from our CY 2006 OPPS claims data.

In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68095), we again reiterated our intent to develop a suitable prospective payment methodology for radiopharmaceutical products paid under the OPPS in future years, beginning in CY 2008. Since the start of the temporary cost-based payment methodology for radiopharmaceuticals in CY 2006, we have met with several interested parties on this topic and have received several suggestions from these stakeholders regarding payment methodologies that we could employ for future use under the OPPS.

In considering payment options for therapeutic radiopharmaceuticals for CY 2008, we examined several alternatives. First, we considered retaining the CY 2007 methodology of providing payment for therapeutic radiopharmaceuticals at a hospital's charges reduced to cost using the hospital's overall CCR. While this option would provide consistency in the payment methodology from year to year, we have noted on several occasions, including in the CY 2007 OPPS/ASC final rule with comment period and in various public forums such as the APC Panel meetings, that this methodology was not intended to be the basis of providing payment to hospitals for these products beyond CY 2007. Payment on a claim-specific cost basis is not consistent with the payment of items and services on a prospective basis under the OPPS and may lead to extremely high or low payments to hospitals for radiopharmaceuticals, even when those products would be expected to have relatively predictable and consistent acquisition and handling costs across individual clinical cases and hospitals. In addition, we have stated that we believe that using hospitals' overall CCRs to determine payments could result in an overstatement of radiopharmaceutical costs, which are likely reported in several cost centers, such as diagnostic radiology, that have lower CCRs than hospitals' overall CCRs (71 FR 68095). For these reasons, we are not proposing to use this methodology to set their payment rates for CY 2008.

The second option we considered, and are proposing, as a methodology for providing payment for therapeutic radiopharmaceuticals in CY 2008, is to establish prospective payment rates for

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separately payable therapeutic radiopharmaceuticals using mean costs derived from the CY 2006 claims data, where the costs are determined using our standard methodology of applying hospital-specific departmental CCRs to radiopharmaceutical charges, defaulting to hospital-specific overall CCRs only if appropriate departmental CCRs are unavailable. As we stated in the CY 2007 OPPS/ASC proposed rule, we believe this methodology provides us with the most consistent, accurate, and efficient methodology for prospectively establishing payment rates for separately payable therapeutic radiopharmaceuticals (71 FR 49587). We believe that adopting prospective payment based on historical hospital claims data is appropriate because it serves as our most accurate available proxy for the average hospital acquisition cost of separately payable therapeutic radiopharmaceutical products. In addition, we have found that our general prospective payment methodology based on historical hospital claims data results in more consistent, predictable, and equitable payment amounts across hospitals and likely provides incentives to hospitals for efficiently and economically providing these outpatient services. Therefore, we expect that the hospital-specific payment variability found under a charge- reduced-to-cost methodology would no longer affect these products under our CY 2008 proposal.

Although we received comments to our CY 2007 proposed rule indicating that CY 2005 claims data used for that update did not incorporate associated overhead charges into the radiopharmaceutical charge, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68095) we stated that we expected that hospitals would have adapted to the CY 2006 HCPCS coding changes for some radiopharmaceuticals and responded to our instructions to include their charges for radiopharmaceutical handling in their charges for the radiopharmaceutical products so these costs would be reflected in the CY 2008 ratesetting process. This continues to be our expectation, and we believe that the CY 2006 claims data that we are using to set the CY 2008 OPPS payment rates reflect both the radiopharmaceutical charge and associated overhead charges. As discussed at the March 2007 APC Panel meeting, our CY 2006 claims data show that a greater proportion of radiopharmaceuticals experienced an increase in their median costs from CY 2005 to CY 2006 than experienced a decrease. We indicated that this trend is consistent with the agency's expectations that hospitals would comply with our instructions to include charges for radiopharmaceutical handling in their charges for the radiopharmaceutical products for CY 2006. Therefore, we believe that setting CY 2008 prospective payment rates based on CY 2006 hospital claims data as described above serves as an acceptable combined proxy for average hospital acquisition costs and radiopharmaceutical handling.

During meetings with external stakeholders over the past year, we have been presented with several other suggestions regarding OPPS payment for therapeutic radiopharmaceuticals in CY 2008. One of these options included a suggestion that we employ alternative trimming methodologies in order to produce a claims-based mean cost that would more accurately reflect hospital purchase prices for these products. However, no specific trimming approaches for radiopharmaceuticals were offered for our consideration for CY 2008. We have chosen not to propose a methodology based on special OPPS data trimming for the CY 2008 proposed payment of therapeutic radiopharmaceuticals for the following reasons. First, the OPPS has a standard data trimming methodology to calculate drug, biological, and radiopharmaceutical per day costs from hospital claims data. This includes both a specific trim on units for drugs, biologicals, and radiopharmaceuticals that is 3 standard deviations from the geometric mean, and a standard trim of any line-item with a cost per unit that is 3 standard deviations from the geometric mean that is applied across all items and services. Both trims are conducted on the transformed variable, taking the natural log of both units and cost per unit, in order to trim evenly relative to the center of the distribution. Both units and costs per unit are never negative, and there are some therapeutic radiopharmaceuticals with very high units and costs per unit in our hospital claims data. These trims are conservative and typically eliminate only the most egregious observations, ones that could be due to erroneous reporting. For therapeutic radiopharmaceuticals, the unit trim alone removed all items that would have been eliminated under the cost trim, and with the exception of HCPCS code A9563 (Sodium phosphate P-32, therapeutic, per millicurie), this trim removed observations with unit costs below the mean unit cost listed in Table 44 below. That is, overall, the result of applying our trimming methodology increased the mean unit cost reported in Table 44.

As a payment system based on relative payment weights, altering the trimming methodology for a particular set of services could unduly influence the relativity of the resulting payment weights for those particular services and could inappropriately redistribute payments in a budget neutral OPPS. We have no reason to believe that hospitals report costs differently for radiopharmaceuticals than they do for other items. As we discuss further in section II.A.1. of this proposed rule, what is important for setting appropriate payment rates under a prospective payment system is accuracy in estimating the relative costliness of services, and not the nominal value of the observed cost. Second, we are not convinced that employing an alternative trimming methodology would result in the most appropriate cost estimates for therapeutic radiopharmaceuticals. We believe that because hospitals were paid in CY 2006 for each therapeutic radiopharmaceutical they reported according to a claim-specific charge that was reduced to cost for payment, hospitals had an incentive to accurately account for the full costs of these products in establishing their charges. In addition, we have no way of knowing the specific clinical scenario that resulted in any given claim with certain reported units and charges for a therapeutic radiopharmaceutical. Therefore, we do not believe it would be appropriate to utilize a ratesetting methodology that could disregard correctly coded claims. While we appreciate this recommendation, we are not proposing a payment methodology that includes additional trimming of hospital claims data for therapeutic radiopharmaceutical products for CY 2008.

Recommendations other than trimming have centered around providing CMS with external data on radiopharmaceutical costs. One specific recommendation that we received from interested stakeholders requested that we allow hospitals to submit their invoices to CMS. With the invoice information, CMS could establish a prospective payment rate for radiopharmaceuticals that would be calculated taking into consideration the total amount invoiced for the radiopharmaceutical, transportation costs, and applicable rebates. While this payment rate would not include payment for certain radiopharmaceutical overhead and handling costs, stakeholders suggested that these costs could be packaged into

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the associated procedure payment rather than the payment for the radiopharmaceutical. Stakeholders also generally have recommended that we could collect external data from various sources (such as manufacturers, nuclear pharmacies, and others) to use for therapeutic radiopharmaceutical ratesetting purposes in CY 2008.

We are not proposing a methodology using external data for CY 2008 for the following reasons. First, any approach relying on external data has the same disadvantage previously discussed of differentially influencing the relativity of payment weights for radiopharmaceuticals in the budget neutral OPPS payment system, where we utilize a standard ratesetting methodology for other services. In addition, it is not clear that invoice information from hospitals or cost information from nuclear pharmacies would be more accurate than hospitals' costs for radiopharmaceuticals that we currently calculate based on hospitals' charges reduced to cost by application of a CCR, and such information would generally exclude the costs of the hospital's handling of the radiopharmaceuticals. However, we note that we do not currently identify separate costs for this radiopharmaceutical handling that we could then package into the costs of the associated diagnostic nuclear medicine studies and treatment procedures. Moreover, hospitals currently have the flexibility to set their charges for therapeutic radiopharmaceuticals, taking into account a variety of factors, including acquisition costs and transportation costs, so we believe it is likely that hospitals are already taking this information into consideration when establishing their charges. Further, we have already instructed hospitals to include overhead charges for radiopharmaceuticals in the charge for the radiopharmaceutical product. We have received several reports that hospitals have made these changes, when necessary, and that other changes are in process to conform to our instructions. A ratesetting approach based on external data would likely present a burden to those hospitals that have been working over the past 2 years to align their charging practices with our stated instructions. Adoption of any methodology systematically relying on external data also would be administratively burdensome for CMS because we would need to collect, process, and review external information to ensure that it was valid, reliable, and representative of a diverse group of hospitals so that it could be used to establish rates for all hospitals. For these reasons, we are not proposing to collect hospital invoices or otherwise rely on external data in order to establish prospective payment rates for therapeutic radiopharmaceuticals for CY 2008.

The eight therapeutic radiopharmaceuticals that we are proposing to pay separately in CY 2008 under our proposed methodology of mean units costs calculated from CY 2006 hospitals claims are listed in Table 44 below.

Table 44.--Therapeutic Radiopharmaceuticals Proposed for Prospective Payment in CY 2008

Proposed CY HCPCS code Short descriptor Proposed CY Proposed CY 2008 mean 2008 APC 2008 SI

cost

A9517.......... I131 iodide cap, 1064....... K..........

$6.22 rx. A9530.......... I131 iodide sol, 1150....... K..........

11.74 rx. A9543.......... Y90 ibritumomab, 1643....... K.......... 12,030.02 rx. A9545.......... I131

1645....... K.......... 8,283.41 tositumomab, rx. A9563.......... P32 Na phosphate 1675....... K.......... 118.02 A9564.......... P32 chromic 1676....... K.......... 122.17 phosphate. A9600.......... Sr89 strontium.. 0701....... K.......... 610.07 A9605.......... Sm 153 lexidronm 0702....... K.......... 1,446.05

We note that we have received anecdotal reports from some industry stakeholders asserting that the mean costs for the most expensive radiopharmaceuticals are understated in our claims data. We specifically invite comment on how the CY 2008 OPPS payment rates that we are proposing for therapeutic radiopharmaceuticals compare with the acquisition and associated handling costs of an efficient provider. We also are soliciting suggestions on approaches that could be adopted by Medicare or industry groups to promote improvements in hospital reporting of charges and costs for therapeutic radiopharmaceuticals to the extent that they are warranted and feasible. Some stakeholders have stated that charge compression may be adversely affecting our estimates of the mean cost for expensive radiopharmaceuticals. As discussed in more detail in section II.A.1 of this proposed rule, while we are not proposing to implement adjustments for charge compression for CY 2008 based on the RTI Report, which focused only on inpatient charges, we are proposing steps to explore this issue further for the future. We are proposing to develop an all-charges model that would compare variation in CCRs with variation in charges to establish disaggregated CCRs that could be applied to both inpatient and outpatient charges. We are also proposing to evaluate the results of that methodology for purposes of determining whether the resulting disaggregated CCRs should be proposed for to adjust for charge compressions in developing the CY 2009 OPPS payment rates.

During its March 2007 meeting, the APC Panel made two recommendations regarding radiopharmaceuticals. First, the APC Panel recommended that CMS work with stakeholders on issues related to payment for radiopharmaceuticals, including evaluating claims data for different classes of radiopharmaceuticals and ensuring that a nuclear medicine procedure claim always includes at least one reported radiopharmaceutical agent. As discussed in section II.A.4. of this proposed rule, we are proposing to accept the APC Panel's recommendation, and we welcome public comment on the burden hospitals would experience should we require such precise reporting. We also are seeking comment specifically on the importance of such a requirement in light of our discussion in section II.A.4. of this proposed rule on the representation of radiopharmaceuticals in the single claims for diagnostic nuclear medicine procedures, the presence of uncoded revenue code charges specific to diagnostic radiopharmaceuticals on claims without

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a coded radiopharmaceutical, and our proposal to package payment for all diagnostic radiopharmaceuticals for CY 2008.

Second, the APC Panel recommended that we consider the use of external data and work with stakeholders to determine the correct code descriptor units for each radiopharmaceutical, including HCPCS code A9524 (Iodine I-131 iodinated serum albumin, diagnostic, per 5 microcuries). We appreciate the APC Panel's recommendation. We are always open to meeting with interested stakeholders and examining any data they may provide to us. However, we are unable to accept the APC Panel's recommendation concerning the development of specific code descriptors because decisions regarding the creation of permanent HCPCS codes, including code descriptors, are coordinated by the National HCPCS Panel and are outside the scope of the OPPS. For further information on the HCPCS coding process, we refer readers to the CMS Web site at: http://www.cms.hhs.gov/MedHCPCSGenInfo/01_Overview.asp#TopOfPage. We encourage interested parties to submit

requests for revisions of code descriptors to the National HCPCS Panel for its consideration. b. Proposed Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes, but without OPPS Hospital Claims Data

(If you choose to comment on issues in this section, please include the caption OPPS: Nonpass-Through Coded Drugs, Biologicals, and Radiopharmaceuticals without Claims Data.)

Pub. L. 108-173 does not address the OPPS payment in CY 2005 and after for drugs, biologicals, and radiopharmaceuticals that have assigned HCPCS codes, but that do not have a reference AWP or approval for payment as pass-through drugs or biologicals. Because there is no statutory provision that dictated payment for such drugs and biologicals in CY 2005, and because we had no hospital claims data to use in establishing a payment rate for them, we investigated several payment options for CY 2005 and discussed them in detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 through 65799).

For CYs 2005, 2006, and 2007, we finalized our policy to provide separate payment for new drugs, biologicals, and radiopharmaceuticals with HCPCS codes, but which did not have pass through status at a rate that was equivalent to the payment they received in the physician's office setting, established in accordance with the ASP methodology.

As discussed in the CY 2005 OPPS final rule with comment period (69 FR 65797), and the CY 2006 OPPS final rule with comment period (70 FR 68666), new drugs, biologicals, and radiopharmaceuticals may be expensive, and we are concerned that packaging these new items might jeopardize beneficiary access to them. In addition, we do not want to delay separate payment for these items solely because a pass-through application was not submitted. However, we note that for CY 2008 we are proposing to explicitly account for the pass-through payment amount associated with pass-through drugs and biologicals, in the context of our CY 2008 proposal for the payment of separately payable nonpass- through drugs and biologicals at ASP+5 percent. Therefore, for CY 2008, we are proposing to provide payment for these new drugs and biologicals with HCPCS codes as of January 1, 2008, but which do not have pass- through status and are without OPPS hospital claims data, at ASP+5 percent, consistent with our proposed payment methodology for other nonpass-through drugs and biologicals. This proposal would ensure that we are treating new nonpass-through drugs and biologicals like other drugs and biologicals under the OPPS, unless they are granted pass- through status. Only if they were pass-through drugs and biologicals would they receive a different payment for CY 2008, generally equivalent to the payment these drugs and biologicals would receive in the physician's office setting, consistent with the requirements of the statute.

In accordance with the ASP methodology, in the absence of ASP data, we are proposing to continue the policy we implemented during CYs 2005, 2006, and 2007 of using the WAC for the product to establish the initial payment rate. However, we note that if the WAC is also unavailable, we would make payment at 95 percent of the product's most recent AWP. We are also proposing to assign status indicator ``K'' to HCPCS codes for new drugs and biologicals for which we have not received a pass-through application. We further note that with respect to new items for which we do not have ASP data, once their ASP data become available in later quarter submissions, their payment rates under the OPPS will be adjusted so that the rates are based on the ASP methodology and set to ASP+5 percent. We are also proposing to base payment for new therapeutic radiopharmaceuticals with HCPCS codes as of January 1, 2008, but which do not have pass-through status, on the WACs for these products as ASP data for radiopharmaceuticals are not available. In addition, we note that if the WACs are also unavailable, we would make payment for the therapeutic radiopharmaceuticals at 95 percent of their most recent AWPs. Analogous to new drugs and biologicals, we are proposing to assign status indicator ``K'' to HCPCS codes for new therapeutic radiopharmaceuticals for which we have not received a pass-through application. Consistent with other ASP-based payments, we are proposing to make any appropriate adjustments to the payment amounts for drugs and biologicals in the CY 2008 OPPS/ASC final rule with comment period and also on a quarterly basis on our Web site during CY 2008 if later quarter ASP submissions (or more recent WACs or AWPs) indicate that adjustments to the payment rates for these drugs and biologicals are necessary. The payment rates for new therapeutic radiopharmaceuticals would also be adjusted accordingly. We also are proposing to make appropriate adjustments to the payment rates for new drugs and biologicals in the event that they become covered under the CAP in the future. We note that the new CY 2008 HCPCS codes for drugs, biologicals, and therapeutic radiopharmaceuticals are not available at the time of the development of this proposed rule; however, they will be included in the CY 2008 OPPS/ASC final rule with comment period.

There are several nonpass-through drugs and biologicals that were payable in CY 2006 and/or CY 2007 for which we do not have any CY 2006 hospital claims data. In order to determine the packaging status of these items for CY 2008, we calculated an estimate of the per day cost of each of these items by multiplying the payment rate for each product based on ASP+5 percent, similar to other nonpass-through drugs and biologicals paid under the OPPS, by an estimated average number of units of each product that would typically be furnished to a patient during one administration in the hospital outpatient setting. We are proposing to package items for which we estimate the per administration cost to be less than or equal to $60, which is the general packaging threshold that we are proposing for drugs, biologicals, and radiopharmaceuticals in CY 2008. We are proposing to pay separately for items with an estimated per administration cost greater than $60 (with the

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exception of diagnostic radiopharmaceuticals and contrast agents which we are proposing to package regardless of cost, as discussed in more detail above). We are proposing that the CY 2008 payment for separately payable items without CY 2006 claims data would be based on ASP+5 percent, similar to other separately payable nonnpass-through drugs and biologcals under the OPPS. In accordance with the ASP methodology used in the physician office setting, in the absence of ASP data, we would use the WAC for the product to establish the initial payment rate. However, we note that if the WAC is also unavailable, we would make payment at 95 percent of the most recent AWP available.

Table 45A below lists all of the nonpass-through drugs and biologicals without available CY 2006 claims data to which these policies would apply in CY 2008.

Table 45A.--Drugs and Biologicals Without CY 2006 Claims Data

Estimated ASP-Based average number HCPCS code

Short descriptor

payment of units per Proposed CY 2008 SI rate administration

C9234..................... Inj, alglucosidase alfa..... $126.00

130 K J0288..................... Ampho b cholesteryl sulfate.

11.89

35 K J0364..................... Apomorphine hydrochloride...

2.96

6 N J1324..................... Enfuvirtide injection.......

22.69

180 K J1562..................... Immune globulin subcutaneous

12.60

130 K J2170..................... Mecasermin injection........

11.81

15.6 K J2315..................... Naltrexone, depot form......

1.88

380 K J3355..................... Urofollitropin, 75 iu.......

50.22

2 K J7345..................... Non-human, non-metab tissue.

35.76

16 K J8650..................... Nabilone oral...............

16.80

6 K J9261..................... Nelarabine injection........

82.54

52.5 K Q4085..................... Euflexxa, inj............... 115.19

1 K

During the March 2007 APC Panel meeting, the APC Panel reiterated its August 2006 recommendation to allow hospitals to report all HCPCS codes for drugs. In general, OPPS recognizes the lowest available administrative dose of a drug if multiple HCPCS codes exist for the drug; for the remainder of the doses, we assign a status indicator ``B'' indicating that another code exists for OPPS purposes. For example, if drug X has 2 HCPCS codes, 1 for a 1 ml dose and a second for a 5 ml dose, the OPPS would assign a payable status indicator to the 1 ml dose and status indicator ``B'' to the 5 ml dose. Hospitals would then need to bill the appropriate number of units for the 1 ml dose in order to receive payment under the OPPS. While we were not prepared to accept this recommendation when we developed the CY 2007 OPP/ASC final rule with comment period, we indicated in that rule that we would continue to consider the APC Panel's recommendation for future OPPS updates (71 FR 68083 through 68084). After further consideration of this issue, we are now accepting the APC Panel's recommendation because we have concluded that recognizing all of these HCPCS codes for payment under the OPPS should not have a significant effect on our payment methodology for drugs. We are proposing to allow hospitals to submit claims by reporting any HCPCS code for a Part B drug that is covered under the OPPS, regardless of the unit determination in the HCPCS code descriptor, beginning in CY 2008. Stakeholders have told us that this policy would reduce the administrative burden associated with our current requirement that hospitals report drugs using only the HCPCS codes with the lowest increments in their code descriptors. Whenever possible, we seek to reduce hospitals' administrative burden in submitting claims for payment under the OPPS, and we appreciate the APC Panel's recommendation in this area.

As these HCPCS codes were previously unrecognized in the OPPS, we do not have claims data to determine the appropriate packaging status. Therefore, we are proposing to assign these HCPCS codes the same status indicator as the associated recognized HCPCS code (that is, the lowest dose), as shown in Table 45B. We believe that this approach is the most appropriate and reasonable way to implement this proposed change without impacting payment. However, once claims data are 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 code-specific methodology for determining a code's packaging status for a given update year. We plan to closely follow our claims data to ensure that our annual packaging determinations for the different HCPCS codes describing the same drug do not create inappropriate payment incentives for hospitals to report certain HCPCS codes instead of others. In our analysis for this proposed rule, we also estimated the packaging status of these currently unrecognized HCPCS codes by adjusting the calculated average number of units per day for the associated recognized HCPCS code with claims data to account for the different dosage descriptors. We then multiplied this adjusted average number of units per day value by the most recent ASP data available for the unrecognized HCPCS code (listed in Table 45B). We note this methodology yielded the same packaging determinations and resulting status indicators for the currently unrecognized HCPCS codes for CY 2008 as for the recognized HCPCS code for the same drug.

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Table 45B.--Previously Unrecognized HCPCS Codes and Proposed Status Indicators for CY 2008

HCPCS codes not

Fourth Associated HCPCS recognized in CY CY 2007 SI Short descriptor quarter CY code recognized in Proposed CY 2008 2007

2006 ASP

CY 2007

SI

J1470............... B.............. Gamma globulin 2 CC

$23.66 J1460.............. K inj. J1480............... B.............. Gamma globulin 3 CC

35.47 ................... K inj. J1490............... B.............. Gamma globulin 4 CC

47.31 ................... K inj. J1500............... B.............. Gamma globulin 5 CC

59.14 ................... K inj. J1510............... B.............. Gamma globulin 6 CC

71.02 ................... K inj. J1520............... B.............. Gamma globulin 7 CC

82.72 ................... K inj. J1530............... B.............. Gamma globulin 8 CC

94.62 ................... K inj. J1540............... B.............. Gamma globulin 9 CC

106.54 ................... K inj. J1550............... B.............. Gamma globulin 10 CC

118.27 ................... K inj. J1560............... B.............. Gamma globulin > 10

118.24 ................... K CC inj. J8521............... B.............. Capecitabine, oral,

13.18 J8520.............. K 500 mg. J9094............... B.............. Cyclophosphamide

3.97 J9093.............. N lyophilized, 200 mg. J9095............... B.............. Cyclophosphamide

9.93 ................... N lyophilized, 500 mg. J9096............... B.............. Cyclophosphamide

17.09 ................... N lyophilized, 1g. J9097............... B.............. Cyclophosphamide

39.71 ................... N lyophilized, 2g. J9140............... B.............. Dacarbazine 200 MG

9.34 J9130.............. N inj. J9290............... B.............. Mitomycin 20 MG inj..

68.52 J9280.............. K J9291............... B.............. Mitomycin 40 MG inj.. 137.03 ................... K J9062............... B.............. Cisplatin 50 MG

12.26 J9060.............. N injection. J9080............... B.............. Cyclophosphamide 200

3.83 J9070.............. N MG inj. J9090............... B.............. Cyclophosphamide 500

15.75 ................... N MG inj. J9091............... B.............. Cyclophosphamide 1.0

19.17 ................... N grm inj. J9092............... B.............. Cyclophosphamide 2.0

38.34 ................... N grm inj. J9110............... B.............. Cytarabine hcl 500 MG

8.22 J9100.............. N inj. J9182............... B.............. Etoposide 100 MG inj.

5.13 J9181.............. N J9260............... B.............. Methotrexate sodium

2.59 J9250.............. N inj, 50 mg. J9375............... B.............. Vincristine sulfate 2

15.41 J9370.............. N MG inj. J9380............... B.............. Vincristine sulfate 5

38.52 ................... N MG inj.

There are seven drugs and biologicals, shown in Table 45C below, that were payable in CY 2006 for which we lack CY 2006 claims data and for which we are not able to determine the per day cost based on the ASP methodology. As we are unable to determine the packaging status and subsequent payment rates, if applicable, for these drugs and biologicals for CY 2008 based on the ASP methodology or claims data, we are proposing to package payment for these drugs and biologicals in CY 2008.

Table 45C.--Drugs and Biologicals Without Information on Per Day Cost That Are Proposed for Packaging in CY 2008

HCPCS code

Short descriptor Proposed CY 2008 SI

90393.................. Vaccina ig, im........... N 90477.................. Adenovirus vaccine, type N 7. 90581.................. Anthrax vaccine, sc...... N 90727.................. Plague vaccine, im....... N J0200.................. Alatrofloxacin mesylate.. N J0395.................. Arbutamine HCl injection. N J1452.................. Intraocular Fomivirsen na N

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

(If you choose to comment on issues in this section, please include the caption ``OPPS: Estimated Transitional Pass-Through Spending'' at the beginning of your comment.)

A. Total Allowed Pass-Through Spending

Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of devices for a given year to an ``applicable percentage'' of projected total Medicare and beneficiary payments under the hospital OPPS. For a year before CY 2004, the applicable percentage was 2.5 percent; for CY 2004 and subsequent years, we specify the applicable percentage up to 2.0 percent.

If we estimate before the beginning of the calendar year that the total amount of pass-through payments in that year would exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act requires a uniform reduction in the amount of each of the transitional pass- through payments made in that year to ensure that the limit is not exceeded. We make an estimate of pass-through spending to determine not only whether payments exceed the applicable percentage, but also to determine the appropriate reduction to the conversion factor for the projected level of pass-through spending in the following year.

For devices, developing an estimate of pass-through spending in CY 2008 entails estimating spending for two groups of items. The first group of items consists of those device categories that were eligible for pass-through payment in CY 2006 or CY 2007, or both years, and that would continue to be eligible for pass-through payment in CY 2008. The second group contains items that we know are newly eligible, or project would be newly eligible, for device

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pass-through payment in the remainder of CY 2007 or beginning in CY 2008.

For drugs and biologicals, section 1833(t)(6)(D)(i) of the Act establishes the pass-through payment amount for drugs and biologicals eligible for pass-through payment as the amount by which the amount authorized under section 1842(o) of the Act (or, if the drug or biological is covered under a competitive acquisition contract under section 1847B, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and year established under such section as calculated and adjusted by the Secretary) exceeds the portion of the otherwise applicable fee schedule amount that the Secretary determines is associated with the drug or biological. Because we are proposing to pay for nonpass-through separately payable drugs and biologicals under the CY 2008 OPPS at the ASP+5 percent, which represents the otherwise applicable fee schedule amount associated with a pass-through drug or biological, while we would pay for pass-through drugs and biologicals at the ASP+6 percent or the Part B drug CAP rate, if applicable, our estimate of drug and biological pass-through payment for CY 2008 is not zero. Similar to estimates for devices, the first group of drugs and biologicals requiring a pass-through payment estimate consists of those products that were eligible for pass-through payment in CY 2006 or CY 2007, or both years, and that would continue to be eligible for pass- through payment in CY 2008. The second group contains products that we know are newly eligible, or project would be newly eligible, for drug or biological pass-through payment in the remainder of CY 2007 or beginning in CY 2008. The sum of the CY 2008 pass-through estimates for these two groups of drugs and biologicals would equal the total CY 2008 pass-through spending estimate for drugs and biologicals with pass- through status.

B. Proposed Estimate of Pass-Through Spending

We are proposing to set the applicable percentage limit at 2.0 percent of the total OPPS projected payments for CY 2008, consistent with our OPPS policy from CY 2004 through CY 2007.

As we discuss in section IV.B. of this proposed rule there are two device categories receiving pass-through payment in CY 2007 that would continue for payment during CY 2008. In accordance with the methodology we have used to make estimates in previous years, in cases where we have relevant claims data for the procedures associated with a device category, we are proposing to project these data forward using inflation and utilization factors based on total growth in OPPS services as projected by CMS' Office of the Actuary (OACT) to estimate the upcoming year's pass-through spending for this first group of device categories. As we stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68101), we may use an alternate growth factor for any specific device category based on our claims data or the device's clinical characteristics, or both. We developed estimated OPPS utilization of the procedures and costs associated with the two device categories continuing for pass-through payment into CY 2008, based upon examination of our historical claims data, information provided in the pass-through device category applications, and the devices' clinical characteristics. Based on these estimates, we estimate pass-through spending attributable to the first group (that is, the two device categories continuing in CY 2008) described above to be $18.1 million for CY 2008. The two device categories continuing in CY 2008, which are reflected in this $18.1 million estimate for CY 2008 pass-through spending, are listed in Table 46A.

Table 46A.--Proposed CY 2008 Devices With Current Pass-Through Categories Continuing Into CY 2008

Current pass-through device HCPCS code

APC

category

C1821................ 1821................ Interspinous process distraction device (implantable). L8690................ 1032................ Auditory osseointegrated device, includes all internal and external components.

To estimate CY 2008 pass-through spending for device categories in the second group (that is, device categories that we know at the time of the development of this proposed rule would be newly eligible for pass-through payment in CY 2007 continuing into CY 2008 (of which there are none); additional device categories that we estimate could be approved for pass-through status subsequent to the development of this proposed rule and before January 1, 2008; and projections for new categories that could be established in the second through fourth quarters of CY 2008), we are proposing to use the following approach. In general, as described for the first group of device categories above, if we have relevant claims data, we may project these data forward using OACT inflation and utilization factors based on total growth in OPPS services, or we may use an alternate growth factor for any specific new device category based on our claims data or the device's clinical characteristics, or both. At this time, we anticipate that any new categories for January 1, 2008, would be determined after the publication of this proposed rule, but before publication of the CY 2008 final rule with comment period. If we do not have any relevant CY 2006 claims data upon which to base a spending estimate for CY 2008, we are proposing to use price information and utilization estimates from applicants. To account for the contingency of new device categories that we project could become eligible for pass-through status in the second, third, or fourth quarter of CY 2008, we are proposing to use the general methodology as described above, while also considering the most recent OPPS experience in approving new pass-through device categories.

Therefore, we are proposing that the estimate of pass-through device spending in CY 2008 incorporate both CY 2008 estimates of pass- through spending for device categories made effective January 1, 2007, and estimates for those device categories projected to be approved during subsequent quarters of CY 2007 and CY 2008.

To estimate CY 2008 pass-through spending for drugs and biologicals in the first group, specifically those drugs and biologicals initially eligible for pass-through status in CY 2006 or CY 2007 and proposed for continuation of pass-through payment in CY 2008, we are proposing to utilize the most recent Medicare physician's office data regarding their utilization, information provided in the pass-through applications, historical hospital claims data, pharmaceutical industry information, and clinical information regarding the products, in order to project the CY 2008 OPPS utilization of the products. For the 13 known drugs

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and biologicals that are proposed for continuation of pass-through payment in CY 2008, we then estimated the total pass-through payment amount as the difference between ASP+6 percent or the Part B drug CAP rate, as applicable, and ASP+5 percent, aggregated across the projected CY 2008 OPPS utilization of these products. Based on these estimates, we estimate pass-through spending attributable to the first group (that is, the drugs and biological continuing with pass-through eligibility in CY 2008) described above to be about $1.3 million for CY 2008. This $1.3 million estimate of CY 2008 pass-through spending for the first group of pass-through drugs reflects the 13 current pass-through drugs that are continuing on pass-through status into CY 2008, which are listed in Table 46B.

Table 46B.--Proposed CY 2008 Pass-Through Drugs With Current Pass- Through Status Continuing Into CY 2008

CY 2007 and HCPCS code

Short descriptor

proposed CY 2008 APC

C9232................... Injection, idursulfase........

9232 C9233................... Injection, ranibizumab........

9233 C9235................... Injection, panitumumab........

9235 C9350................... Porous collagen tube per cm...

9350 C9351................... Acellular derm tissue per cm2.

9351 J0129................... Injection, abatacept..........

9230 J0348................... Anadulafungin injection.......

0760 J0894*.................. Injection, decitabine.........

9231 J1740................... Injection ibandronate sodium..

9229 J2248................... Injection, micafungin sodium..

9227 J3243................... Injection, tigecycline........

9228 J3473................... Hyaluronidase recombinant.....

0806 J9261................... Nelarabine injection..........

0825

To estimate CY 2008 pass-through spending for drugs and biologicals in the second group (that is, drugs and biologicals that we know at the time of the development of this proposed rule would be newly eligible for pass-through payment in CY 2007 continuing into CY 2008 (of which there are none); additional drugs and biologicals that we estimate could be approved for pass-through status subsequent to the development of this proposed rule and before January 1, 2008; and projections for new drugs and biologicals that could be initially eligible for pass- through payment in the second through fourth quarters of CY 2008), we are proposing to use the following approach. At this time, we anticipate that any new drugs and biologicals for January 1, 2008, would be determined after the publication of this proposed rule, but before publication of the CY 2008 final rule with comment period. We are proposing to use utilization estimates from applicants, pharmaceutical industry data, and clinical information to base pass through spending estimates for these drugs and biologicals for CY 2008. To account for the contingency of new drugs and biologicals that we project could become eligible for pass through status in the second, third, or fourth quarter of CY 2008, we are proposing to use the general methodology as described above, while also considering the most recent OPPS experience in approving new pass-through drugs and biologicals. Based on these estimates, we estimate pass-through spending attributable to this second group of drugs and biologicals to be about $0.6 million for CY 2008.

Therefore, we are proposing that the estimate of pass through drug and biological spending in CY 2008 incorporate both CY 2008 estimates of pass-through spending for drugs and biologicals with pass-through status in CY 2007 that would continue for CY 2008 and estimates for those drugs and biologicals projected to be approved during subsequent quarters of CY 2007 and CY 2008. The total estimate of pass-through spending for drugs and biologicals under the CY 2008 OPPS is nearly $2 million.

In the CY 2005 OPPS final rule with comment period (69 FR 65810), we indicated that we are accepting pass-through applications for new radiopharmaceuticals that are assigned a HCPCS code on or after January 1, 2005. (Prior to this date, radiopharmaceuticals were not included in the category of drugs paid under the OPPS, and, therefore, were not eligible for pass-through status.) There are no radiopharmaceuticals that were eligible for pass-through payment in CY 2005 or at the time of publication of this proposed rule in CY 2007. In addition, we have no information identifying new radiopharmaceuticals to which a HCPCS code might be assigned on or after January 1, 2008, for which pass through payment status would be sought. We also have no data regarding payment for new radiopharmaceuticals with pass-through status under the methodology that we specified in the CY 2005 OPPS final rule with comment period. However, we do not believe that pass through spending for new radiopharmaceuticals in CY 2008 will be significant enough to materially affect our estimate of total pass-through spending in CY 2008. Therefore, we are not including radiopharmaceuticals in our proposed estimate of pass through spending for CY 2008. We discuss the methodology for determining the CY 2008 payment amount for new radiopharmaceuticals without pass through status in section V.B.3.b. of this proposed rule.

In accordance with the methodology described above, we estimate that total pass-through spending for the 2 device categories and 13 drugs and biologicals that are continuing for pass-through payment into CY 2008 and those that first become eligible for pass-through status subsequent to this proposed rule in CY 2007 or during CY 2008 would equal approximately $54 million, which represents 0.15 percent of total OPPS projected payments for CY 2008.

Because we estimate that pass-through spending in CY 2008 would not amount to 2.0 percent of total projected OPPS CY 2008 spending, we are proposing to return 1.85 percent of the pass-through pool to adjust the conversion factor, as we discuss in section II.C. of this proposed rule.

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VII. Proposed Payment for Brachytherapy Sources

(If you choose to comment on issues in this section, please include the caption ``OPPS: Brachytherapy'' at the beginning of your comment.)

A. Background

Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) of Pub. L. 108-173, mandated the creation of separate groups of covered OPD services that classify brachytherapy devices separately from other services or groups of services. The additional groups must reflect the number, isotope, and radioactive intensity of the devices of brachytherapy furnished, including separate groups for palladium-103 and iodine-125 devices.

Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, established payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) based on a hospital's charges for the service, adjusted to cost. The period of payment under this provision is for brachytherapy sources furnished from January 1, 2004, through December 31, 2006. Under section 1833(t)(16)(C) of the Act, charges for the brachytherapy devices may not be used in determining any outlier payments under the OPPS for that period of payment. Consistent with our practice under 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.

In the OPPS interim final rule with comment period published on January 6, 2004 (69 FR 827), we implemented sections 621(b)(1) and (b)(2)(C) of Pub. L. 108-173. In that rule, we stated that we would pay for the brachytherapy sources (that is, brachytherapy devices) listed in Table 4 of the interim final rule with comment period (69 FR 828) on a cost basis, as required by the statute. Since January 1, 2004, we have used status indicator ``H'' to denote nonpass through brachytherapy sources paid on a cost basis, a policy that we finalized in the CY 2005 final rule with comment period (69 FR 65838).

Furthermore, we adopted a standard policy for brachytherapy code descriptors, beginning January 1, 2005. We included ``per source'' in the HCPCS code descriptors for all those brachytherapy source descriptors for which units of payment were not already delineated.

Section 621(b)(3) of Pub. L. 108-173 required the GAO to conduct a study to determine appropriate payment amounts for devices of brachytherapy, and to submit a report on its study to the Congress and the Secretary, including recommendations on the appropriate payments for such devices. This report was due to Congress and to the Secretary no later than January 1, 2005. The GAO's final report, ``Medicare Outpatient Payments: Rates for Certain Radioactive Sources Used in Brachytherapy Could Be Set Prospectively'' (GAO-06-635), was published on July 24, 2006. We summarized and discussed the report's findings and recommendations in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68103 through 68105). The GAO report principally recommended that we use OPPS historical claims data to determine prospective payment rates for two of the most frequently used brachytherapy sources, iodine-125 and palladium-103, and also recommended that we consider using claims data for the third source studied, high dose rate (HDR) iridium-192.

The GAO report concluded that CMS could set prospective payment rates based on claims data for iodine and palladium sources, because the sources' unit costs are generally stable, both sources have identifiable unit costs that do not vary substantially and unpredictably over time, and reasonably accurate claims data are available. On the other hand, the GAO report explained that it was not able to determine a suitable methodology for paying separately for HDR iridium. The report noted that iridium is reused across multiple patients, making its unit cost more difficult to determine. However, the report also indicated that CMS has outpatient claims data from all hospitals that have used iridium and that in order to identify a suitable methodology for separate payment, CMS would be able to use these data to establish an average cost and evaluate whether that cost varies substantially and unpredictably.

In our CY 2007 annual OPPS rulemaking, we proposed and finalized a policy of prospective payment based on median costs for the 11 brachytherapy sources for which we had claims data. We based the prospective rates on median costs for each source from our CY 2005 claims data (71 FR 68102 through 71 FR 68114). We also indicated that we would assign future 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 (71 FR 68112). We changed the definition of status indicator ``K'' to ensure that ``K'' appropriately describes brachytherapy sources to accommodate the use of ``K'' for prospective payment for brachytherapy sources (71 FR 68110).

Subsequent to publication of the CY 2007 OPPS/ASC final rule with comment period, section 107(a) of the MIEA-TRHCA amended section 1833(t)(16)(C) of the Act by extending the payment period for brachytherapy sources based on a hospital's charges adjusted to cost for one additional year. This requirement for cost-based payment ends after December 31, 2007. Therefore, we have continued payment for sources based on charges reduced to cost through CY 2007. We also have continued using status indicator ``H'' to denote nonpass through brachytherapy sources paid on a cost basis as a result of enactment of this provision rather than using status indicator ``K'' to denote prospective payment for nonpass-through brachytherapy sources, as finalized in the CY 2007 OPPS/ASC final rule with comment period.

Section 107(b)(1) of the MIEA-TRHCA amended section 1833(t)(2)(H) of the Act by adding a requirement for the establishment of separate payment groups for ``stranded and non-stranded'' brachytherapy devices beginning July 1, 2007. Section 107(b)(2) of the MIEA TRHCA authorized the Secretary to implement this new requirement by ``program instruction or otherwise.'' This new requirement is in addition to the requirement for separate payment groups based on the number, isotope, and radioactive intensity of brachytherapy devices previously established by section 1833(t)(2)(H) of the Act. We note that commenters on the CY 2007 proposed rule asserted that stranded sources, which they described as embedded into the stranded suture material and separated within the strand by material of an absorbable nature at specified intervals, had greater production costs than non-stranded sources (71 FR 68113 through 68114).

As a result of the statutory requirement to create separate groups for stranded and non-stranded sources as of July 1, 2007, we established several coding changes via program transmittal, effective July 1, 2007 (Program Transmittal No. 1259, dated June 1, 2007). From comments to our CY 2007 proposed rule and industry input, we are currently aware of three sources that are currently available in stranded and non-stranded forms: iodine-125; palladium-103; and cesium- 131.

Therefore, in Program Transmittal No. 1259, we created six new HCPCS codes to differentiate the stranded and non-stranded versions of these three sources.

[[Page 42747]]

These six new HCPCS codes replace the three prior brachytherapy source HCPCS codes for iodine, palladium and cesium (C1718, C1720, and C2633, all of which are deleted as of July 1, 2007), respectively, effective July 1, 2007. In this program transmittal, we also provided specific billing instructions to hospitals on how to report stranded sources. We instructed providers, when billing for stranded sources, to bill the number of units of the appropriate source HCPCS C-code according to the number of brachytherapy sources in the strands and specifically not to bill as one unit per strand. If a hospital applies both stranded and non-stranded sources to a patient in a single treatment, the hospital should bill the stranded and non-stranded sources separately, according to the differentiated HCPCS codes listed in the table found in that program transmittal and included in Table 48 below. We expect that these instructions will clearly indicate how hospitals are to bill for stranded and non-stranded brachytherapy sources, and that hospital reporting of sources according to these instructions will promote accurate claims data for the various source codes in the future. In Program Transmittal No. 1259, we also added the term ``non-stranded'' to the descriptors for all sources that currently have only non- stranded versions of a source.

In Program Transmittal No. 1259, we indicated that if we receive information that any of the other sources now designated as non- stranded are marketed as a stranded source, we will create coding information for the stranded source. We also established two ``Not Otherwise Specified'' (NOS) codes for billing stranded and non-stranded sources that are not yet known to us and for which we do not have source-specific codes. If a hospital purchases an FDA-approved and marketed radioactive source consisting of a radioactive isotope (consistent with our definition of a brachytherapy source eligible for separate payment as discussed below), for which we do not yet have a separate source code established, it should bill such sources using the appropriate NOS code listed in Program Transmittal No. 1259, that is, C2698 (Brachytherapy source, stranded, not otherwise specified, per source) for stranded NOS sources, or C2699 (Brachytherapy source, non stranded, not otherwise specified, per source) for non-stranded NOS sources, which are also listed in Table 48 below. For example, if a new FDA-approved stranded source comes onto the market and there is currently only a billing code for the non stranded source, the hospital should bill the stranded source under C2698 (stranded NOS source) until a specific stranded billing code for the source is established.

In Program Transmittal No. 1259, we reiterated our longstanding policy that hospitals and other parties are invited to submit recommendations to us for new HCPCS codes to describe new sources consisting of a radioactive isotope, including a detailed rationale to support recommended new sources. We will continue to endeavor to add new brachytherapy source codes and descriptors to our systems for payment on a quarterly basis. Such recommendations should be directed to the Division of Outpatient care, Mail Stop C4-05-17, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244.

Finally, we note that in the CY 2007 OPPS/ASC final rule with comment period, we established a definition for brachytherapy source for which separate payment under section 1833(t)(2)(H) of the Act is required (71 FR 68113). We considered the definition of ``brachytherapy source'' in the context of current medical practice and in regard to the language in section 1833(t)(2)(H) of the Act, which refers to brachytherapy sources as ``a seed or seeds (or radioactive source).'' We believed that this provision of the Act mandating separate payment refers to sources that are themselves radioactive, meaning that the source contains a radioactive isotope. Furthermore, we indicated that the statutory language is likewise clear that devices of brachytherapy paid separately must reflect the number, isotope, and radioactive intensity of such devices furnished. Accordingly, we further believed that section 1833(t)(2)(H) of the Act applies only to radioactive devices of brachytherapy. In the CY 2007 OPPS/ASC final rule with comment period, we also stated that we would not consider specific devices, beams of radiation, or equipment that do not constitute separate sources that utilize radioactive isotopes to deliver radiation to be brachytherapy sources for separate payment, as such items do not meet the statutory requirements provided in section 1833(t)(2)(H) of the Act (71 FR 68113).

B. Proposed Payments for Brachytherapy Sources

As indicated above, the provision to pay for brachytherapy sources at charges reduced to cost expires after December 31, 2007, in accordance with section 1833(t) (16)(C) of the Act, as amended by section 107(a) of the MIEA-TRHCA. However, under section 1833(t)(2)(H) of the Act, we are still required to create APC groupings that classify devices of brachytherapy separately from other services or groups of services in a manner reflecting the number, isotope, and radioactive intensity of the devices of brachytherapy furnished. In addition, section 1833(t)(2)(H) of the Act, as amended by section 107(b)(1) of the MIEA-TRHCA, requires separate payment groups based on stranded and non-stranded brachytherapy devices on or after July 1, 2007.

We are proposing to pay separately for each of the sources listed in Table 48 below on a prospective basis for CY 2008, with payment rates to be determined using the CY 2006 claims-based median cost per source for each brachytherapy device. Consistent with our policy regarding APC payments made on a prospective basis, we are proposing that the cost of brachytherapy sources be subject to the outlier provision of section 1833(t)(5) of the Act. As indicated in section II.A.2. of this proposed rule, for CY 2008 we are proposing specific prospective payment rates for brachytherapy sources, which will be subject to scaling for budget neutrality.

We believe that adopting prospective payment for brachytherapy sources is appropriate for a number of reasons. The general OPPS payment methodology is a prospective payment system using median costs based on claims data. This prospective payment methodology results in more consistent, predictable and equitable payment amounts per source across hospitals, and it prevents some of the extremely high and low payment amounts found under a charges reduced to cost methodology. The proposed prospective payment would also provide hospitals with incentives for efficiency in the provision of brachytherapy services to Medicare beneficiaries. Moreover, the proposed approach is consistent with our payment methodology for the vast majority of items and services paid under the OPPS. Indeed, section 1833(t)(2)(C) of the Act requires us to establish prospective payment rates for the OPPS system based on median costs (or mean costs if elected by the Secretary). As of CY 2007, only pass-through devices, radiopharmaceuticals, and brachytherapy sources were paid at charges reduced to cost. Based on the proposals in this CY 2008 proposed rule, only pass-through devices would continue to be paid at charges reduced to cost for CY 2008. We note that section 107(a) of the MIEA-TRHCA specifically extended the payment period for brachytherapy sources based on a

[[Page 42748]]

hospital's charges adjusted to cost for only one additional year, CY 2007.

Analysis of the CY 2006 claims data suggests that the estimated median cost under the proposed prospective payment approach is higher than the estimated median payment amount under a charges reduced to cost methodology for most brachytherapy sources. We note that estimated median cost under the proposed approach is calculated based on the relevant department CCR whereas payments under a charge reduced to cost methodology are calculated based on each hospital's overall CCR. As shown in Table 47, for 9 of the 11 brachytherapy HCPCS codes that were in existence in CY 2006 and had claims data, the estimated median cost based on the departmental CCR is higher than the median estimated payment under the charges reduced to cost methodology.

Table 47.--Comparison of CY 2006 Estimated Median Payments under Charges Reduced to Costs and Estimated Median Costs

CY 2006 median estimated CY 2006 median CY 2006 HCPCS CY 2006 short payment charges cost (based on code

descriptor reduced to cost departmental (based on

CCR) overall CCR)

C1716........... Brachytx source,

$29.30

$31.56 Gold 198. C1717........... Brachytx source,

143.20

171.26 HDR Ir-192. C1718........... Brachytx source,

31.41

37.71 Iodine 125. C1719........... Brachytx

18.75

56.69 source,Non-HDR Ir- 192. C1720........... Brachytx source,

46.90

55.05 Palladium 103. C2616........... Brachytx source,

10,811.30

11,796.07 Yttrium-90. C2632........... Brachytx sol, I-

21.80

28.27 125, per mCi. C2633........... Brachytx source,

63.67

63.61 Cesium-131. C2634........... Brachytx source,

26.03

29.56 HA, I-125. C2635........... Brachytx source,

40.85

46.48 HA, P-103. C2636........... Brachytx linear

56.39

36.64 source, P-103.

Note: The short descriptions for some of the HCPCS codes in this table were revised after CY 2006. See Table 48 for the current long descriptions.

With the proposed adoption of prospective payment for brachytherapy sources, there would be opportunities for hospitals to receive additional payments under certain circumstances through the outlier provisions and the 7.1 percent rural adjustment. As noted previously, consistent with our policy regarding APC payments made on a prospective basis, we are proposing that the cost of brachytherapy sources be subject to the outlier provision of section 1833(t)(5) of the Act. Therefore, the source could receive an outlier payment, if the costs of furnishing brachytherapy sources exceed the outlier threshold. Also, as noted in section II.F. of this proposed rule, as a result of our CY 2008 proposal to pay prospectively for brachytherapy sources, we also are proposing to include brachytherapy payments in the group of services eligible for the 7.1 percent payment increase for rural SCHs, including EACHs.

We are proposing a payment methodology for separately paid brachytherapy sources for CY 2008 based upon their median unit costs calculated using CY 2006 claims data. Because we are required to create separate APC groups for stranded and non stranded sources and because our CY 2006 billing codes do not differentiate stranded and non- stranded sources, we are proposing to make certain assumptions when we estimate the median costs for stranded and non-stranded (low activity) iodine-125, palladium-103, and cesium-131 based on our CY 2006 aggregate claims data. As stated above, commenters to our CY 2007 proposed rule stated that the cost of stranded iodine, palladium and cesium sources are higher than non-stranded versions of these sources but provided no data. Given the reported cost differences between stranded and non-stranded sources and the statutory requirement that we establish separate payment groups for stranded and non-stranded sources, we believe it is appropriate to establish different stranded and non-stranded payment rates for iodine-125, palladium-103, and cesium-131 sources. However, in order to establish separate stranded and non-stranded payment rates for these three sources, we are proposing to make the following assumptions in our calculation of their median costs. Assuming that the reportedly lower cost non-stranded sources would be unlikely to be in the top 20 percent of the cost distribution in our aggregate (stranded and non-stranded) CY 2006 claims data, we are proposing to calculate the median cost for these 3 non-stranded sources based on the bottom 80 percent of the cost distribution in our aggregate claims data for each source. Likewise, assuming that the reportedly higher cost stranded sources would be unlikely to be in the bottom 20 percent of the cost distribution in our aggregate CY 2006 claims data, we are proposing to calculate the median cost for these 3 stranded sources based on the top 80 percent of the cost distribution for our aggregate data. This approach to calculating median costs for stranded and non-stranded iodine-125, palladium-103, and cesium-131 sources results in proposed Medicare payment rates based on the 60th percentile of our aggregate data for stranded sources and the 40th percentile of our aggregate data for non-stranded sources, which, after examining the range of our cost data for these sources, appear to provide a reasonable cost differential between stranded and non-stranded sources, until we have claims data reported separately for stranded and non-stranded sources.

We are proposing this approach for stranded and non-stranded iodine-125, palladium-103, and cesium-131 sources as a transitional measure, until we have sufficient claims data for separately coded stranded and non-stranded sources upon which to calculate the median costs for these sources specifically. (The first partial year claims data for separately coded stranded and non-stranded sources will be available in CY 2007 claims data for ratesetting in CY 2009.) This methodology has the benefits of a prospective payment methodology discussed above and complies with the

[[Page 42749]]

requirements of the MIEA-TRHCA to recognize separate payment for stranded and non-stranded sources.

Furthermore, we are proposing to pay the two NOS codes, C2698 and C2699, based on a rate equal to the lowest stranded or non-stranded prospective payment rate for such sources, respectively, paid on a per source basis (as opposed, for example, to per mci). This payment methodology for NOS sources provides payment to a hospital for new sources, while encouraging interested parties to quickly bring new sources to our attention, so specific coding and payment can be established. As noted earlier, we may establish new brachytherapy source codes on a quarterly basis.

Because brachytherapy sources will no longer be paid on the basis of their charges reduced to cost after December 31, 2007, we are proposing to discontinue our use of payment status indicator ``H'' for APCs assigned to brachytherapy sources. For CY 2008, we are proposing to use status indicator ``K'' for all brachytherapy source APCs. As indicated earlier, the definition of status indicator ``K'' was changed for CY 2007 to accommodate prospective payment for brachytherapy sources.

For CY 2008, we also are proposing to implement the policy we established in the CY 2007 OPPS/ASC final rule with comment period (which was superseded by section 107 of the MIEA-TRHCA) regarding payment for new brachytherapy sources for which we have no claims data. As discussed above, we are proposing to assign future 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. Because we are proposing to pay prospectively for brachytherapy sources beginning in CY 2008, we are proposing to implement this policy beginning in CY 2008.

There is currently one brachytherapy source, Ytterbium-169 (HCPCS C2637, Brachytherapy Source, Ytterbium-169, per source), which has its own HCPCS code, but for which we believe we lack claims data on its costs. In the CY 2007 OPPS/ASC proposed rule (71 FR 49598 through 49599), we indicated that it was our understanding that Ytterbium-169 had not yet been marketed, and furthermore that we had no CY 2005 claims data, external data, or other information on its pricing on which to base its payment rate for CY 2007. In response to the CY 2007 proposed rule, we received no cost data or other information that we could use to establish an informed prospective payment rate for Ytterbium-169. Therefore, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68112), we finalized a policy of assigning HCPCS code C2637, Ytterbium-169, with the nonpayable status indicator ''B'' and indicated that if we later receive relevant information, we could establish a payable status indicator and appropriate payment rate for the Ytterbium source in a future OPPS quarterly update. This policy was superceded by section 107(a) of the MIEA-TRHCA, which required payment for brachytherapy sources in CY 2007 based on charges reduced to costs. For this CY 2008 proposed rule, we believe that we continue to lack claims data or other information on the costs of Ytterbium-169 on which to base an informed prospective payment rate. Our CY 2006 claims data show three claims for HCPCS code C2637, Ytterbium-169, with a median cost of $718.08. We believe these three claims may be incorrectly coded claims that do not represent claims for Ytterbium-169, as the manufacturer of Ytterbium-commented on the CY 2007 OPPS proposed rule that Ytterbium-169 would first become available for market in 2007. Consequently, at this time, we are proposing to not recognize HCPCS code C2637, and again we are assigning it to status indicator ``B'' under the OPPS for CY 2008. However, if in public comments to this proposed rule or later in CY 2007 or CY 2008, we receive relevant and reliable information on the hospital cost for Ytterbium-169 and information that this source is being marketed, we would propose to establish a prospective payment rate for Ytterbium-169 in the CY 2008 final rule or in a quarterly OPPS update, respectively.

Table 48 includes a complete listing of the HCPCS codes, long descriptors, and APC assignments that we currently use for brachytherapy sources paid under the OPPS as of July 1, 2007, and the status indicators, estimated median costs, and payment rates that we are proposing for CY 2008. We note that some of the HCPCS codes for which we are proposing payment rates for CY 2008 are not shown in Addendum B of this proposed rule because that addendum is based on HCPCS codes effective as of April 2007. As indicated earlier, there are some brachytherapy source HCPCS codes that were added as of July 1, 2007. While these HCPCS codes are not shown in Addendum B, the proposed payment rates for all brachytherapy sources are shown in Table 48.

While we are inviting public comment on all aspects of this CY 2008 proposal, we particularly encourage comment on our proposed median costs estimates for stranded and non-stranded iodine-125, palladium- 103, and cesium-131, including the submission of any available information or data on cost differences between stranded and non stranded sources. We also are interested in receiving information regarding the historical and current relative market share for stranded versus non-stranded sources, particularly as used in the care of Medicare beneficiaries and with respect to brachytherapy treatments for different clinical conditions.

Table 48.--Proposed Separately Payable Brachytherapy Sources for CY 2008

Proposed CY Proposed CY 2008 Proposed CY 2008 HCPCS code

Long descriptor

APC 2008 median payment status indicator cost

rate

A9527................. Iodine I-125, sodium iodide

2632 $28.27 $28.62 K solution, therapeutic, per millicurie. C1716................. Brachytherapy source, non-

1716

31.56

31.95 K stranded, Gold-198, per source. C1717................. Brachytherapy source, non-

1717 171.26 173.40 K stranded, High Dose Rate Iridium-192, per source. C1719................. Brachytherapy source, non-

1719

56.69

57.40 K stranded, Non-High Dose Rate Iridium-192, per source. C2616................. Brachytherapy source, non-

2616 11,796.07 11,943.79 K stranded, Yttrium-90, per source. C2634................. Brachytherapy source, non-

2634

29.56

29.93 K stranded, High Activity, Iodine-125, greater than 1.01 mCi (NIST), per source.

[[Page 42750]]

C2635................. Brachytherapy source, non-

2635

46.48

47.06 K stranded, High Activity, Palladium-103, greater than 2.2 mCi (NIST), per source. C2636................. Brachytherapy linear source,

2636

36.64

37.09 K non-stranded, Palladium-103, per 1MM. C2637................. Brachytherapy source, non-

2637

N/A

N/A B stranded, Ytterbium-169, per source. C2638................. Brachytherapy source,

2638 *42.33

42.86 K stranded, Iodine-125, per source. C2639................. Brachytherapy source, non-

2639 **31.51

31.91 K stranded, Iodine-125, per source. C2640................. Brachytherapy source,

2640 *61.47

62.24 K stranded, Palladium-103, per source. C2641................. Brachytherapy source, non-

2641 **44.73

45.29 K stranded, Palladium-103, per source. C2642................. Brachytherapy source,

2642 *96.52

97.72 K stranded, Cesium-131, per source. C2643................. Brachytherapy source, non-

2643 **50.72

51.35 K stranded, Cesium-131, per source. C2698................. Brachytherapy source,

2698

42.33

42.86 K stranded, not otherwise specified, per source. C2699................. Brachytherapy source, non-

2699

29.56

29.93 K stranded, not otherwise specified, per source.

* Estimated median cost for stranded version is based on the 60th percentile of the aggregate (stranded and non stranded) claims data for this source. ** Estimated median cost for non-stranded version is based on the 40th percentile of the aggregate (stranded and non stranded) claims data for this source.

VIII. Proposed OPPS Drug Administration Coding and Payment

(If you choose to comment on issues in this section, please include the caption ``OPPS: Drug Administration'' at the beginning of your comment.)

A. Background

In CY 2005, in response to the recommendations made by commenters and the hospital industry, OPPS transitioned to the use of CPT codes for drug administration services. (For information on coding for drug administration services prior to CY 2005, see 71 FR 68115.) These CPT codes allowed for more specific reporting of services, especially regarding the number of hours for an infusion, and provided consistency in coding between Medicare and other payers. However, at that time, we did not have any data to revise the CY 2005 per-visit APC payment structure for infusion services. In order to collect data for future ratesetting purposes, we implemented claims processing logic that collapsed payments for drug administration services and paid a single APC amount for those services for each visit, unless a modifier was used to identify drug administration services provided in a separate encounter on the same day. Hospitals were instructed to bill all applicable CPT codes for drug administration services provided in a HOPD, without regard to whether or not the CPT code would receive a separate APC payment during OPPS claims processing.

While hospitals just began adopting CPT codes for outpatient drug administration services in CY 2005, physicians paid under the MPFS were using HCPCS G-codes in CY 2005 to report office-based drug administration services. These G-codes were developed in anticipation of substantial revisions to the drug administration CPT codes by the CPT Editorial Panel that were expected for CY 2006.

In CY 2006, as anticipated, the CPT Editorial Panel revised its coding structure for drug administration services, incorporating new concepts such as initial, sequential, and concurrent services into a structure that previously distinguished services based on type of administration (chemotherapy/nonchemotherapy), method of administration (injection/infusion/push), and for infusion services, first hour and additional hours. For CY 2006, we implemented 20 of the 33 CY 2006 drug administration CPT codes that did not reflect the concepts of initial, sequential, and concurrent services, and we created 6 new HCPCS C-codes that generally paralleled the CY 2005 CPT codes for the same services. We chose not to implement the full set of CY 2006 CPT codes because of our concerns regarding the interface between the complex claims processing logic required for correct payments and hospitals' challenges in correctly coding their claims to receive accurate payments for these services.

For CY 2007, as a result of comments to our proposed rule and feedback from the hospital community and the APC Panel, we implemented the full set of CPT codes, including the concepts of initial, sequential and concurrent. In addition, the CY 2007 update process offered us the first opportunity to consider data gathered from the use of CY 2005 CPT codes for purposes of ratesetting. For CY 2007, we used CY 2005 claims data to implement a six-level APC structure for drug administration services. We assigned all CY 2007 HCPCS codes for drug administration services to six new drug administration APCs (as listed in Table 34 of the CY 2007 OPPS/ASC final rule with comment period), with payment rates based on median costs for the APCs as calculated from CY 2005 claims data. In that final rule, we provided a crosswalk that illustrated how we performed our annual payment rate update methodology for these services using CY 2005 data.

As indicated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68122), because the newly recognized CPT codes discriminate among services more specifically than the CY 2006 C-codes, as was the case when the OPPS transitioned from more general Q-codes to more specific CPT codes for the reporting of drug administration services in CY 2005, for a period of 2 years drug administration services will be paid based on the costs of their predecessor HCPCS codes until updated data are available for review.

B. Proposed Coding and Payment for Drug Administration Services

During the March 2007 APC Panel meeting, the APC Panel recommended that CMS pay separately for CPT code 90768 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); concurrent infusion (list separately in addition to code for primary procedure)) at the same rate as CPT code 90767 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); additional sequential infusion, up to 1 hour (list

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separately in addition to code for primary procedure)).

As discussed in section II.A.4. of this proposed rule, in deciding whether to package a service or pay for it separately, we consider a variety of factors, including whether the service is normally provided separately or in conjunction with other services; how likely it is for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed; and whether the expected cost of the service is relatively low. As we discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68122), CPT code 90768 was first introduced in CY 2007 and consistent with our established ratesetting methodology, we do not anticipate OPPS hospital claims data from CY 2007 to be available for ratesetting purposes until CY 2009. In addition, as the services identified with CPT code 90768 were provided in previous years, it is our determination that these costs are already represented in our currently available hospital claims data. Payment for these services was provided in previous years through the billing of more general drug administration codes. Although more exhaustive codes for drug administration services are now available, this does not indicate that these services did not receive OPPS payments in previous years.

As data are not available for drug administration services for purposes of CY 2008 ratesetting, and as we believe that the costs for the drug administration services identified by CPT code 90768 are included in our hospital claims data used for ratesetting purposes, we are not accepting the APC Panel's recommendation to provide a separate APC payment for this service. Furthermore, we note that in section II.A.4. of this proposed rule, we have proposed to expand packaging of certain (nondrug administration) services. We believe that continuing to package CPT code 90786 is consistent with these broader efforts.

For CY 2008, we examined CY 2006 claims data available for this proposed rule and continue to believe the CY 2007 drug administration APC configuration reflects clinically and resource homogeneous groupings of procedures. We note that there is a violation of the 2 times rule in APC 0438 (Level III Drug Administration) as proposed for CY 2008. The violation is related to the comparatively low median cost of CPT code 90773 (Therapeutic, prophylactic or diagnostic injection (specify substance or drug); intra-arterial) for which we have a significantly greater number of CY 2006 single claims available for ratesetting than previous years. The CY 2005 predecessor code for this service, CPT code 90783 (Therapeutic, prophylactic or diagnostic injection (specify material injected); intra-arterial), had a higher median cost that was more similar to the costs of other services also assigned to APC 0438. We continue to believe that this intra-arterial injection procedure is similar from both clinical and hospital resource perspectives to the related intravenous push injection procedures that are assigned to the same clinical APC and, therefore, we are proposing to except APC 0438 from the 2 times rule for CY 2008. We continue to ask hospitals to report all CPT drug administration codes, and we expect hospitals to report CPT codes consistently with CPT coding guidelines and applicable instructions.

We note that in this section of the CY 2007 proposed rule we discussed IVIG preadministration-related services; for CY 2008, this topic is discussed in section III.C.2.b. of this proposed rule.

IX. Proposed Hospital Coding and Payments for Visits

A. Background

Currently, CMS instructs hospitals to use the CY 2007 CPT codes, as well as six HCPCS codes that became effective January 1, 2007, to report clinic and emergency department visits and critical care services on claims paid under the OPPS. The codes are listed below in Table 49.

Table 49.--CY 2007 CPT Evaluation and Management (E/M) and Level II HCPCS Codes Used To Report Clinic and Emergency Department Visits and Critical Care Services

HCPCS code

Descriptor

Clinic Visit HCPCS Codes

99201................. Office or other outpatient visit for the evaluation and management of a new patient (Level 1). 99202................. Office or other outpatient visit for the evaluation and management of a new patient (Level 2). 99203................. Office or other outpatient visit for the evaluation and management of a new patient (Level 3). 99204................. Office or other outpatient visit for the evaluation and management of a new patient (Level 4). 99205................. Office or other outpatient visit for the evaluation and management of a new patient (Level 5). 99211................. Office or other outpatient visit for the evaluation and management of an established patient (Level 1). 99212................. Office or other outpatient visit for the evaluation and management of an established patient (Level 2). 99213................. Office or other outpatient visit for the evaluation and management of an established patient (Level 3). 99214................. Office or other outpatient visit for the evaluation and management of an established patient (Level 4). 99215................. Office or other outpatient visit for the evaluation and management of an established patient (Level 5). 99241................. Office consultation for a new or established patient (Level 1). 99242................. Office consultation for a new or established patient (Level 2). 99243................. Office consultation for a new or established patient (Level 3). 99244................. Office consultation for a new or established patient (Level 4). 99245................. Office consultation for a new or established patient (Level 5).

Emergency Department Visit HCPCS Codes

99281................. Emergency department visit for the evaluation and management of a patient (Level 1). 99282................. Emergency department visit for the evaluation and management of a patient (Level 2). 99283................. Emergency department visit for the evaluation and management of a patient (Level 3). 99284................. Emergency department visit for the evaluation and management of a patient (Level 4). 99285................. Emergency department visit for the evaluation and management of a patient (Level 5). G0380................. Type B emergency department visit (Level 1). G0381................. Type B emergency department visit (Level 2). G0382................. Type B emergency department visit (Level 3).

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G0383................. Type B emergency department visit (Level 4). G0384................. Type B emergency department visit (Level 5).

Critical Care Services HCPCS Codes

99291................. Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes. 99292................. Each additional 30 minutes. G0390................. Trauma response associated with hospital critical care services.

Presently, there are three types of visit codes to describe three types of services: Clinic visits, emergency department visits, and critical care services. CPT indicates that office or other outpatient visit codes are used to report E/M services provided in the physician's office or in an outpatient or other ambulatory facility. For OPPS purposes, we refer to these as clinic visit codes. CPT also indicates that emergency department visit codes are used to report E/M services provided in the emergency department, defined as an ``organized hospital-based facility for the provision of unscheduled episodic services to patients who present for immediate medical attention. The facility must be available 24 hours a day.'' For OPPS purposes, we refer to these as emergency department visit codes that specifically apply to the reporting of visits to Type A emergency departments on or after January 1, 2007, as discussed in further detail later in this section. We established five new Level II HCPCS codes to report visits to Type B emergency departments beginning in CY 2007 because there are currently no CPT codes that fully describe services provided in this type of facility. CPT defines critical care services as the ``direct delivery by a physician(s) of medical care for a critically ill or critically injured patient.'' It also states that ``critical care is usually, but not always, given in a critical care area, such as * * * the emergency care facility.'' In addition to reporting critical care services, hospitals may utilize the new HCPCS code G0390 for the reporting of a trauma response in association with critical care services for the CY 2007 OPPS.

The majority of CPT code descriptors are applicable to both physician and facility resources associated with specific services. However, we have acknowledged from the beginning of the OPPS that we believe that CPT E/M codes were defined to reflect the activities of physicians and do not necessarily describe well the range and mix of services provided by hospitals during visits of clinic and emergency department patients and critical care encounters. In the April 7, 2000 OPPS final rule with comment period (65 FR 18434), we instructed hospitals to report facility resources for clinic and emergency department visits using CPT E/M codes and to develop internal hospital guidelines to determine what level of visit to report for each patient. While awaiting the development of a national set of facility-specific codes and guidelines, we have advised hospitals that each hospital's internal guidelines should follow the intent of the CPT code descriptors, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the codes.

Critical care services are considered to be outpatient visits, and our current payment policy for trauma activation ties separate payment to the reporting of hospital critical care services. We are not proposing to change our OPPS payment policy for critical care services for CY 2008, and our CY 2008 proposal for payment of trauma activation is described in section II.A.4. of this proposed rule. Therefore, we will no longer include references to critical care services in the sections below that describe hospital outpatient visits.

B. Proposed Policies for Hospital Outpatient Visits

1. Clinic Visits: New and Established Patient Visits and Consultations

As discussed earlier, the majority of all CPT code descriptors are applicable to both physician and facility resources associated with specific services. However, we believe that CPT E/M codes were defined to reflect the activities of physicians and do not describe well the range and mix of services provided by hospitals during visits of clinic and emergency department patients. While awaiting the development of a national set of guidelines, we have advised hospitals that each hospital's internal guidelines should follow the intent of the CPT code descriptors, in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the codes. In the CY 2007 OPPS/ASC proposed rule (71 FR 49607), we proposed to establish five new codes to replace hospitals' reporting of the CPT clinic visit E/M codes for new and established patients listed in Table 49 above. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68127 through 68128), we specified that we would not create new codes to replace existing CPT E/ M codes for reporting hospital visits until national guidelines are developed, in response to commenters who were concerned about implementing hospital-specific Level II HCPCS codes without national guidelines. We also discussed our intention to reconsider whether G- codes would be appropriate for the OPPS once national guidelines are established.

In that same rule (71 FR 68138), we finalized our proposal to pay clinic visits at five payment rates, rather than three payment rates. Prior to CY 2007, under the OPPS, outpatient visits provided by hospitals were paid at three payment levels for clinic visits, even though hospitals reported five resource-based coding levels of clinic visits using CPT E/M codes. Because the three payment rates for clinic visits were based on five levels of CPT codes, in general the two lowest levels of CPT codes (Levels 1 and 2) were assigned to the low level visit APC and the two highest levels of CPT codes (Levels 4 and 5) were assigned to the high level visit APC, while the single middle level CPT code (Level 3) was assigned to the mid-level visit APC. Historical hospital claims data have generally reflected significantly different median costs for the two levels of services assigned to the low and high level visit APCs. We noted that payment at only three levels may not be the most accurate method of payment for those very common

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hospital levels of visits that clearly demonstrated differential hospital resources. Consequently, for the CY 2007 OPPS, we mapped the data from the CY 2005 CPT E/M codes and other HCPCS codes assigned previously to the three clinic visit APCs to five new clinic visit APCs to develop median costs for these APCs. We mapped the CPT E/M codes and other HCPCS codes to the clinic visit APCs based on their median costs and clinical homogeneity considerations. Table 50, which includes the median costs based on CY 2006 claims data processed through December 31, 2006, displays the HCPCS code and APC median costs at the five payment levels that we are proposing for the CY 2008 OPPS.

Table 50.--Proposed Assignment of Claims Data From CY 2006 CPT E/M and Level II HCPCS Codes To Visit APCs for CY 2008

Proposed CY APC service CY 2008 APC title

CY 2008 APC 2008 APC

frequency HCPCS code Short descriptor median

(million)

Level 1 Hospital Clinic Visits...

0604

$52.72

3.8

92012 Eye exam established pat. 99201 Office/outpatient visit, new (Level 1). 99211 Office/outpatient visit, est (Level 1). 99241 Office consultation (Level 1). G0101 CA screen; pelvic/ breast exam. G0245 Initial foot exam pt lops. G0379 Direct admit hospital observ. Level 2 Hospital Clinic Visits...

0605

$63.01

7.3

90862 Medication management. 92002 Eye exam, new patient. 92014 Eye exam and treatment. 99202 Office/outpatient visit, new (Level 2). 99212 Office/outpatient visit, est (Level 2). 99213 Office/outpatient visit, est (Level 3). 99242 Office Consultation (Level 2). 99243 Office Consultation (Level 3). 99431 Initial care, normal newborn. G0246 Followup eval of foot pt lop. G0344 Initial preventive exam. M0064 Visit for drug monitoring. Level 3 Hospital Clinic Visits...

0606

$85.96

2.9

92004 Eye exam, new patient. 99203 Office/outpatient visit, new (Level 3). 99214 Office/outpatient visit, est (Level 4). 99244 Office consultation (Level 4). Level 4 Hospital Clinic Visits...

0607

$108.08

.8

99204 Office/outpatient visit, new (Level 4). 99215 Office/outpatient visit, est (Level 5). 99245 Office consultation (Level 5). Level 5 Hospital Clinic Visits...

0608

$138.88

.08

99205 Office/outpatient visit, new (Level 5). G0175 OPPS service, sched team conf.

In the CY 2007 OPPS/ASC proposed rule (71 FR 49617), we solicited comment as to whether a distinction between new and established visits was necessary because we were planning to transition to G-codes and did not want to unnecessarily create codes for both new and established patients. The AMA defines an established patient as ``one who has received professional services from the physician or another physician of the same specialty who belongs to the same group practice, within the past 3 years.'' To apply this definition to hospital visits, we stated in the April 7, 2000 final rule with comment period (65 FR 18451) that the meanings of ``new'' and ``established'' pertain to whether or not the patient already has a hospital medical record number. If the patient has a hospital medical record that was created within the past 3 years, that patient is considered an established patient to the hospital. The same patient could be ``new'' to the physician but an ``established'' patient to the hospital. The opposite could be true if the physician has a longstanding relationship with the patient, in which case the patient would be an ``established'' patient with respect to the physician and a ``new'' patient to the hospital.

Some commenters who responded to prior OPPS rules have stated that the hospital resources used for new and established patients to provide a specific level of service are very similar, and that it is unnecessary and burdensome from a coding perspective to distinguish between the two types of visits. On the other hand, other commenters have noted, and CY 2005 and CY 2006 claims data have shown, that it may be appropriate to continue using different codes for new and established patients because of the observed median cost differences in the claims data. In addition, during the March 2007 APC Panel meeting, the Observation and Visit Subcommittee of the APC Panel discussed whether the coding distinction between new and established patient visits is necessary. Ultimately, the APC Panel recommended that CMS eliminate the ``new'' and ``established'' patient distinctions in the reporting of hospital clinic visits. During its discussion, the APC Panel suggested that hospitals bill the appropriate level clinic visit code according to the resources expended while treating the beneficiary, based on each hospital's internal guidelines. The APC Panel also suggested that each hospital's internal guidelines reflect resource cost differences (if a difference exists) between new and established patients. For example, a visit that involves certain interventions may be coded as Level 3 for a new patient and Level 2 for an established patient. The APC Panel also made another recommendation which is contingent upon CMS adopting its recommendation

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to eliminate the new and established patient distinction reporting requirement. That is, the APC Panel further recommended that CMS map each of the five levels of outpatient clinic visit codes (which do not distinguish between new and established patients) to five separate APCs, thereby paying at five payment rates. For example, the APC Panel recommended mapping the Level 1 patient visit to the Level 1 Clinic Visit APC, mapping the Level 2 patient visit to the Level 2 Clinic Visit APC, and mapping the Level 3 patient visit to the Level 3 Clinic Visit APC. In the current and proposed clinic visit APC configuration, as indicated in Table 50, the APC level assignment does not always correspond to the visit level described by each code. For example, CPT 99213 is a Level 3 clinic visit code for an established patient, which would seem to logically map to the Level 3 Clinic Visit APC. However, because CPT 99213 has a proposed median cost of $64.73, we mapped this code to the Level 2 Clinic Visit APC, which has a proposed median cost of $63.01. The APC Panel indicated that its recommendation would ensure that each visit level would receive its own payment rate, rather than both the Level 2 and 3 patient visit codes receiving the same payment rate.

During CY 2006 and earlier, there was no payment difference between new and established patient visits of the same level, as both were always mapped to the same clinical APC. However, hospital claims data regarding the median costs of the specific CPT clinic visit E/M codes consistently indicate that new patients are more resource-intensive than established patients across all visit levels. The CY 2006 claims data confirm that the cost difference between new and established patient visits increases as the visit level increases.

In both the CY 2007 OPPS/ASC proposed and final rules (71 FR 49617 and 71 FR 68128), respectively, we encouraged public comment that discussed the potential differences in hospital clinic resource consumption between new and established patient visits. We received only a few comments related to this distinction in response to the CY 2007 OPPS/ASC proposed rule and even fewer comments in response to the CY 2007 OPPS/ASC final rule with comment period. For CY 2008, because hospitals will be reporting CPT E/M codes for clinic visits, which distinguish between new and established patients, and because we see meaningful and consistent cost differences between visits for new and established patients, we are proposing to continue to recognize the CPT codes for new and established patient clinic visits under the OPPS, consistent with their CPT code descriptors. Further, we are not adopting the recommendation of the APC Panel to eliminate this differentiation for the reasons noted. We are proposing to reexamine whether the coding distinction between new and established patient visits is necessary as we consider national guidelines. We continue to encourage public comment about hospitals' experiences with assigning visit levels to new and established patients according to their own internal guidelines.

Table 51 lists the CY 2008 proposed median costs of new and established patient clinic visit codes which are based on CY 2006 claims data processed through December 31, 2006.

Table 51.--Proposed CY 2008 Median Costs of New and Established Patient Visit CPT Codes

Proposed CY 2008 Proposed CY 2008 new patient established Clinic visit level

visit median patient visit cost

median cost

Level 1.............................

$56.08

$50.70 Level 2.............................

63.18

58.84 Level 3.............................

74.99

64.73 Level 4.............................

109.12

84.17 Level 5.............................

138.06

102.89

As noted above, the APC Panel also recommended that CMS map each level of patient visits to its corresponding APC, thereby paying at five payment levels. The APC Panel members noted that this mapping system would eliminate any payment incentive to distinguish between new and established patients but would ensure five payment levels.

For CY 2008, we are proposing to map the clinic visit codes for new patients to the five Clinic Visit APCs, one code to each level, based on the hospital resources observed in historical claims data as they are mapped for CY 2007 and in accordance with the APC Panel's recommendation. However, for CY 2008, we are proposing to maintain the CY 2007 mapping for the clinic visit codes for established patients. As indicated in Table 51 above, we are proposing to map the Level 1 established patient visit to the Level 1 Clinic Visit APC, which results in the Level 1 Clinic Visit APC containing both the Level 1 new and established patient visit codes, in accordance with the APC Panel recommendation. Similarly, we are proposing to map both the Level 2 new and established patient visit codes to the Level 2 Clinic Visit APC. However, we also are proposing to map the Level 3 established patient visit code to the Level 2 Clinic Visit APC because our cost data indicate that the costs associated with a Level 3 established patient visit most closely resemble the costs associated with the Level 2 Clinic Visit APC and the Level 2 new and established patient visits. If CPT code 99213 for an established Level 3 clinic visit was mapped to the Level 3 Clinic Visit APC, which has a proposed median cost of $85.96, we would significantly overpay CPT 99213 every time it was billed. We are proposing to map the Level 3 new patient visit to the Level 3 Clinic Visit APC, consistent with the APC Panel recommendation. We are proposing to map the Level 4 established patient visit to the Level 3 Clinic Visit APC and the Level 5 established patient visit to the Level 4 Clinic Visit APC. The only CPT E/M code that we are proposing to map to the Level 5 Clinic Visit APC for CY 2008 payment is the Level 5 new patient visit. These APC assignments that we are proposing for CY 2008, consistent with the CY 2007 APC assignments, were determined for each HCPCS code based on CY 2008 proposed rule median cost data and clinical considerations. We are not persuaded by the APC Panel recommendation, which would require us to ignore significant cost differences based on resource data that are clinically consistent and instead map each code to its corresponding level APC.

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Historical cost data for these frequently provided services are extremely consistent. In addition, from a clinical perspective, we believe that in some cases, in the context of a five level structure for visit reporting, the hospital resources required for a given visit level may only be slightly different from those used for a visit that is one level higher or lower. For example, it is not surprising that particularly among visits for established patients in the middle of the range, such as a Level 2 established patient visit and a Level 3 established patient visit, the hospital resource costs calculated from claims data are similar because these patients would often utilize reasonably comparable hospital resources.

We performed data analyses to determine how the median costs of the clinic visit APCs would change if we fully adopted the APC Panel's recommendation and mapped all of the new and established patient visit codes to the corresponding level of clinic visit APC. Our results are shown in Table 52.

Table 52.--CY 2008 Median Cost Comparison of Clinic Visit APCs in Two Different Configurations

APC median cost APC median cost in the APC

in the proposed recommended APC CY 2008

panel configuration configuration

Level 1 Clinic Visit................

$53

$53 Level 2 Clinic Visit................

63

60 Level 3 Clinic Visit................

86

66 Level 4 Clinic Visit................

108

88 Level 5 Clinic Visit................

139

110

The APC median cost distribution does not improve when mapping each new and established patient visit code to its corresponding level of APC. In fact, the APC Panel's recommended configuration results in lower payment rates for the Levels 2 through 5 Clinic Visit APCs, and an identical payment rate for the Level 1 Clinic Visit APC because our proposed mapping and the APC Panel's recommendation for this APC are the same. In general, under the OPPS, we rely on resource cost data calculated from hospital claims data to determine appropriate APC mapping of HCPCS codes and to set payment rates. While we acknowledge that it might be more predictable for hospitals to receive the same payment rate for new and established patients of the same visit level, robust cost data clearly indicate that this would not be the most accurate payment method. Historical hospital cost data indicate that new patient visits are costlier than established patient visits of the same level, a finding that is consistent with the perspective of our medical advisors. Because we are proposing that hospitals continue to use CPT E/M codes to report clinic visits for CY 2008, including separate codes for new and established patients, we see no reason to adjust the clinic visit APC configurations. Therefore, for CY 2008, we are proposing to map the CPT E/M codes and other Level II HCPCS codes to the Clinic Visit APCs as configured in Table 50 and not fully adopt the APC Panel's recommendation to map each code to its corresponding APC level. We will reexamine using the claims data for CY 2009 OPPS ratesetting and will also reconsider whether this mapping is appropriate in the future as we continue to work on developing national guidelines.

The APC Panel also recommended that CMS not recognize the CPT consultation codes: CPT 99241 (Office consultation for a new or established patient (Level 1)), CPT 99242 (Office consultation for a new or established patient (Level 2)), CPT 99243 (Office consultation for a new or established patient (Level 3)), CPT 99244 (Office consultation for a new or established patient (Level 4)), and CPT 99245 (Office consultation for a new or established patient (Level 5)). The APC Panel recommended that CMS instruct hospitals to build consultation services into their internal hospital guidelines related to reporting outpatient clinic visit levels based on the complexity and resources used for these outpatient visits.

CPT defines a consultation as ``a type of service provided by a physician whose opinion or advice regarding evaluation and/or management of a specific problem is requested by another physician or other appropriate source.'' CPT recognizes two subcategories of consultations, specifically office or other outpatient and inpatient consultations, although only the office consultations would be applicable under the OPPS. Nevertheless, the differentiation of consultations from new and established patient clinic visits would appear to be clinically unnecessary under the OPPS in order to provide proper OPPS payment for hospital outpatient visits.

In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68128), we noted our belief that it may be unnecessary for hospitals to report consultation CPT codes if either a new or established patient visit code accurately describes the service provided. We stated that we were particularly interested in hearing whether consultation codes are a useful measure of hospital resource use under the OPPS, and how consultation visits are different, from a hospital resource perspective, from new patient visits and established patient visits. We observed that we did not want to create an incentive for hospitals to bill a consultation code instead of a new or established patient code because we did not believe that consultation codes necessarily reflected different resource utilization than either new or established patient codes (71 FR 68138). Therefore, for CY 2007, we finalized a payment policy that assigned the consultation code to the same clinical APC as the established patient visit code for each level of service. For example, CPT code 99242, the Level 2 consultation code is mapped to APC 0605 (Level 2 Clinic Visits), which is where CPT code 99212, the Level 2 established patient code, is mapped for CY 2007. Moving the consultation codes to the same APC as the corresponding established patient visit code eliminated any incentive for hospitals to bill a consultation code instead of a new or established patient code.

Table 53.--CY 2008 Median Costs and Frequencies of CPT Consultation Visit Codes

Code descriptor

Median cost Frequency

Level 1 Consultation.......................... $66.48 62,000

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Level 2 Consultation..........................

65.78 73,000 Level 3 Consultation..........................

81.95 155,000 Level 4 Consultation.......................... 109.96 176,000 Level 5 Consultation.......................... 139.61 94,000

Consultation services are provided with much less frequency than all levels of established patient visits and low level new patient visits but are provided more frequently than high level new patient visits. The median costs for consultation codes are generally similar to or slightly higher than the corresponding median costs of the same level of new patient visits.

Aside from the APC Panel recommendation, we have received few comments from the public related to this issue. We continue to believe that consultation codes are unnecessary and superfluous in the hospital outpatient setting because hospitals could appropriately bill either a new or established patient visit code, instead of a consultation, as appropriate in these cases. In the interest of simplifying billing, for CY 2008, we are proposing to assign status indicator ``B'' to the consultation codes (that is, not paid under the OPPS) and instruct hospitals to bill a new or established visit code instead of an office consultation code, thereby adopting the APC Panel's recommendation not to recognize these consultation codes. As appropriate, hospitals may build consultation services into their internal hospital guidelines related to reporting clinic visit levels based on the complexity and resources used for these visits.

In summary, for CY 2008, we are proposing that hospitals continue to use the CPT codes to bill for clinic visits and to distinguish between new and established patient visits. For CY 2008, the CPT codes for new and established visits would continue to be payable under the OPPS, but we would reconsider in the future whether there should be a distinction between new and established patient visits as we continue to work on developing national guidelines. For CY 2008, we are proposing to change the status of the consultation codes so that these codes are no longer recognized for payment under the OPPS. 2. Emergency Department Visits

As described above, CPT defines an emergency department as ``an organized hospital based facility for the provision of unscheduled episodic services to patients who present for immediate medical attention. The facility must be available 24 hours a day.'' Prior to CY 2007, under the OPPS, we restricted the billing of emergency department CPT codes to services furnished at facilities that met this CPT definition. Facilities open less than 24 hours a day should not report the emergency department CPT codes.

Sections 1866(a)(1)(I), 1866(a)(1)(N), and 1867 of the Act impose specific obligations on Medicare-participating hospitals and CAHs that offer emergency services. These obligations concern individuals who come to a hospital's dedicated emergency department and request examination or treatment for medical conditions, and apply to all of these individuals, regardless of whether or not they are beneficiaries of any program under the Act. Section 1867(h) of the Act specifically prohibits a delay in providing required screening or stabilization services in order to inquire about the individual's payment method or insurance status. Section 1867(d) of the Act provides for the imposition of civil monetary penalties on hospitals and physicians responsible for failing to meet the provisions listed above. These provisions, taken together, are frequently referred to as the Emergency Medical Treatment and Labor Act (EMTALA). EMTALA was passed in 1986 as part of the Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. 99-272 (COBRA).

Section 489.24 of the EMTALA regulations defines ``dedicated emergency department'' as any department or facility of the hospital, regardless of whether it is located on or off the main hospital campus, that meets at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under the regulations is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one-third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment.

We believe that every emergency department that meets the CPT definition of emergency department also qualifies as a dedicated emergency department under EMTALA. However, we are aware that there are some departments or facilities of hospitals that meet the definition of a dedicated emergency department under the EMTALA regulations but that do not meet the more restrictive CPT definition of an emergency department. For example, a hospital department or facility that meets the definition of a dedicated emergency department may not be available 24 hours a day, 7 days a week. Nevertheless, hospitals with such departments or facilities incur EMTALA obligations with respect to an individual who presents to the department and requests, or has requested on his or her behalf, examination or treatment for an emergency medical condition. However, because they did not meet the CPT requirements for reporting emergency visit E/M codes, prior to CY 2007, these facilities were required to bill clinic visit codes for the services they furnished under the OPPS. We had no way to distinguish in our hospital claims data the costs of visits provided in dedicated emergency departments that did not meet the CPT definition of emergency department from the costs of clinic visits.

Some hospitals requested that they be permitted to bill emergency department visit codes under the OPPS for services furnished in a facility that met the CPT definition for reporting emergency department visit E/M codes, except that they were not available 24 hours a day. These hospitals believed that their resource costs were more similar to those of emergency departments that met the CPT definition than they were to the resource costs of clinics. Representatives of such facilities argued that emergency department visit payments would be more appropriate, on the grounds that their facilities treated patients with emergency conditions whose costs exceeded the resources reflected in the clinic visit APC payments, even though these emergency departments were not available 24 hours per day. In addition, these hospital representatives indicated that their facilities had EMTALA obligations and should, therefore, be able to receive emergency department visit payments. While these emergency departments may have provided a broader range and intensity of hospital

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services and required significant resources to assure their availability and capabilities in comparison with typical hospital outpatient clinics, the fact that they did not operate with all capabilities full-time suggested that hospital resources associated with visits to emergency departments or facilities available less than 24 hours a day might not be as great as the resources associated with emergency departments or facilities that were available 24 hours a day and that fully met the CPT definition.

To determine whether visits to emergency departments or facilities (referred to as Type B emergency departments) that incur EMTALA obligations but do not meet more prescriptive expectations that are consistent with the CPT definition of an emergency department (referred to as Type A emergency departments) have different resource costs than visits to either clinics or Type A emergency departments, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68132), we finalized a set of five G-codes for use by hospitals to report visits to all entities that meet the definition of a dedicated emergency department under the EMTALA regulations in Sec. 489.24 but that are not Type A emergency departments, as described in Table 54 below. These codes are called ``Type B emergency department visit codes.'' We believed the creation of G-codes for Type B emergency departments was necessary because there were no CPT codes that fully described this type of facility. If we were to continue instructing Type B emergency departments to bill clinic visit codes, we would have no way to track resource costs for Type B emergency department visits as distinct from clinic visits. In that rule we explained that these new G-codes would serve as a vehicle to capture median cost and resource differences among visits provided by Type A emergency departments, Type B emergency departments, and clinics (71 FR 68132).

Table 54.--CY 2007 Final Level II HCPCS Codes to be Used To Report Emergency Department Visits Provided in Type B Emergency Departments

HCPCS code

Short descriptor

Long descriptor

G0380................. Lev 1 hosp type B ED Level 1 hospital visit.

emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one- third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment). G0381................. Lev 2 hosp type B ED Level 2 hospital visit.

emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one- third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment). G0382................. Lev 3 hosp type B ED Level 3 hospital visit.

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

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G0383................. Lev 4 hosp type B ED Level 4 hospital visit.

emergency department visit provided in a Type B emergency department. (The ED must meet at least one of the following requirements: (1) It is licensed by the State in which it is located under applicable State law as an emergency room or emergency department; (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment; or (3) During the calendar year immediately preceding the calendar year in which a determination under this section is being made, based on a representative sample of patient visits that occurred during that calendar year, it provides at least one- third of all of its outpatient visits for the treatment of emergency medical conditions on an urgent basis without requiring a previously scheduled appointment). G0384................. Lev 5 hosp type B ED Level 5 hospital visit.

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

For CY 2007, we assigned the five new Type B emergency department visit codes for services provided in a Type B emergency department to the five newly-established Clinic Visit APCs, 0604, 0605, 0606, 0607, and 0608 (71 FR 68140). This payment policy for Type B emergency department visits is similar to our previous policy which required services furnished in emergency departments that had an EMTALA obligation but did not meet the CPT definition of emergency department to be reported using CPT clinic visit E/M codes, resulting in payments based upon clinic visit APCs. As mentioned above, CPT and CMS required an emergency department to be open 24 hours per day in order for it to be eligible to bill emergency department E/M codes. While maintaining the same payment policy for Type B emergency department visits in CY 2007, we believe the reporting of specific G-codes for emergency department visits provided in Type B emergency departments would permit us to specifically collect and analyze the hospital resource costs of visits to these facilities in order to determine in the future whether a proposal of an alternative payment policy might be warranted. We expected hospitals to adjust their charges appropriately to reflect differences in Type A and Type B emergency departments. The OPPS rulemaking cycle for CY 2009 will be the first year that we will have cost data for these new Type B emergency department HCPCS codes available for analysis.

In the CY 2007 OPPS/ASC proposed rule (71 FR 49609), we proposed to create five G-codes to be reported by the subset of provider-based emergency departments or facilities of the hospital, called Type A emergency departments, that are available to provide services 24 hours a day, 7 days per week and meet one or both of the following requirements related to the EMTALA definition of a dedicated emergency department, specifically: (1) It is licensed by the State in which it is located under the applicable State law as an emergency room or emergency department; or (2) It is held out to the public (by name, posted signs, advertising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment. These codes were called ``Type A emergency visit codes'' and were proposed to replace hospitals' reporting of the CPT emergency department visit E/M codes listed in Table 49 above. Our intention was to allow hospital-based emergency departments or facilities that were historically appropriately reporting CPT emergency department visit E/M codes to bill these new Type A emergency department visit codes. In the CY 2007 OPP/ASC, final rule with comment period (71 FR 68132), we postponed finalizing G-codes to replace CPT codes for Type A emergency department visits until national guidelines are established, and stated that we would again consider their possible utility once the national guidelines are adopted. However, for CY 2007, we finalized the definition of Type A emergency departments to distinguish them from Type B emergency departments. For CY 2007 (71 FR 68140), we assigned the five CPT E/M emergency department visit codes for services provided in a Type A emergency departments to the five newly-created Emergency Department Visit APCs, 0609, 0613, 0614, 0615, and 0616.

We believe that our distinction between Type A and Type B emergency departments refined and clarified the CPT definition of ``emergency department'' for use in the hospital

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context. As we have previously noted, the CPT codes were defined to reflect the activities of physicians and do not always describe well the range and mix of services provided by hospitals during visits of emergency department patients. For example, one feature that distinguishes Type A hospital emergency departments from other departments of the hospital is that Type A emergency departments do not generally provide scheduled care, but rather regularly operate to provide immediately available unscheduled services.

We were pleased that the majority of commenters to the CY 2007 OPPS/ASC proposed rule agreed with our general distinction between Type A and Type B emergency departments. We note that after the publication of the CY 2007 OPP/ASC final rule with comment period, numerous readers requested clarification about one paragraph that appeared in that final rule. The paragraph is reprinted below (71 FR 68132).

``We are aware that hospitals operate many types of facilities which they view in aggregate as an integrated healthcare system. For purposes of determining EMTALA obligations, under Sec. 489.24(b) of the regulations, each hospital is evaluated individually to determine its own particular obligations. As we have discussed previously, hospital facilities or departments of the hospital that meet the definition of a dedicated emergency department consistent with the EMTALA regulations may bill Type A emergency department codes (CPT emergency department visit codes) or Type B emergency department codes (HCPCS G-codes), depending on whether or not the dedicated emergency department meets the definition of a Type A emergency department, which includes operating 24 hours per day, 7 days a week. For purposes of determining whether to bill Type A or Type B emergency department codes, each hospital must be evaluated individually and should make a decision specific to each area of the hospital to determine which codes would be appropriate. Where a hospital maintains a separately identifiable area or part of a facility which does not operate on the same schedule (that is, 24 hours per day, 7 days a week) as its emergency department, that area or facility would not be considered an integral part of the emergency department that operates 24 hours per day, 7 days a week for purposes of determining its emergency department type for reporting emergency visit services. Instead, the facility or area would be evaluated separately to determine whether it is a Type A emergency department, Type B emergency department, or clinic. We would expect the hospital providing services in such facilities or areas to evaluate the status of those areas and bill accordingly. In general, it is not appropriate to consider a satellite emergency department or an area of the emergency department as if it were available 24 hours a day simply because the main emergency department is available 24 hours a day. It may be appropriate for a Type A emergency department to `carve out' portions of the emergency department that are not available 24 hours a day, where visits would be more appropriately billed with Type B emergency department codes.''

In response to the questions we received, we posted on the CMS Web site a ``Frequently Asked Questions'' list that described various examples of treating an emergency department as either a Type A emergency department or a Type B emergency department. In each case, the posted answer stated that hospitals should contact their fiscal intermediary to ensure that the fiscal intermediary and the hospital are in agreement regarding the emergency room status as either Type A or Type B. The response to the posted examples has been positive and the number of inquiries we are receiving has subsided.

Notwithstanding our subsequent clarification, we are not proposing to modify the definitions of Type A or Type B emergency departments for CY 2008 because we believe that our current definition accurately distinguishes between these two types of emergency departments. While we will not know definitively until CY 2009 how the costs of services provided in Type A emergency departments differ from the costs of services provided in Type B emergency departments, we believe that our current distinction between Type A and B emergency departments is appropriate and is most likely to capture any resource cost differences between the two types of emergency departments. However, we are specifically soliciting public comment regarding any additional operational clarifications that we could provide to assist hospitals in determining whether an emergency department is considered to be Type A or Type B.

We specifically indicated for CY 2007 that hospitals should individually consider separately identifiable areas or parts of facilities that did not operate on the same schedule as the main emergency department that was open 24 hours a day, 7 days per week to determine the appropriate codes for reporting services provided in those separately identifiable areas. Because we consider the main distinguishing feature between Type A and Type B emergency departments to be the full-time versus part-time availability of staffed areas for emergency medical care, not the process of care or the site of care (on the hospital's main campus or offsite), our final CY 2007 policy explained that hospitals needed to assess separately identifiable areas individually for their status as Type A or Type B emergency departments. We are interested specifically in comments that describe how this policy could be further clarified in light of hospitals' operational responsibility to efficiently provide emergency services, holding constant the definitions that were developed for CY 2007 and described above. We do not believe a policy change in the reporting of these Type A and Type B emergency department codes would be appropriate for CY 2008, in light of our desire to capture consistent and accurate hospital cost data by HCPCS code for consideration for the CY 2009 OPPS. For CY 2008, we are proposing that Type A emergency department visits would continue to be paid based on the five Emergency Department Visit APCs, while Type B emergency department visits would continue to be paid based on the five Clinic Visit APCs.

C. Proposed Visit Reporting Guidelines

1. Background

As described in section IX.A. of this proposed rule, since April 7, 2000, we have instructed hospitals to report facility resources for clinic and emergency department outpatient hospital visits using the CPT E/M codes and to develop internal hospital guidelines for reporting the appropriate visit level.

During the January 2002 APC Panel meeting, the APC Panel recommended that CMS adopt the American College of Emergency Physicians (ACEP) intervention-based guidelines for facility coding of emergency department visits and develop guidelines for clinic visits that are modeled on the ACEP guidelines.

In the August 9, 2002 OPPS proposed rule (67 FR 52133), we proposed 10 new G-codes (Levels 1-5 Facility Emergency Services and Levels 1-5 Facility Clinic Services) for use in the OPPS to report hospital visits, with the goal of ultimately applying national guidelines to these codes and discontinuing the use of CPT E/M codes under the OPPS. We also solicited public comments regarding national guidelines for hospital coding of emergency department and clinic visits. We discussed different types of models, reflecting on the advantages and disadvantages of each. We reviewed in detail the considerations around various discrete types of specific guidelines, including guidelines based on staff interventions, based upon staff time spent with the patient, based on resource intensity point scoring, and

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based on severity acuity point scoring related to patient complexity. In that proposed rule, we also stated that we were concerned about counting separately paid services (for example, intravenous infusions, x-rays, electrocardiograms, and laboratory tests) as ``interventions'' or including their associated ``staff time'' in determining the level of service. We believed that the level of service should be determined by resource consumption that is not otherwise captured in payments for other separately payable services.

In response to comments, in the November 1, 2002 OPPS final rule (67 FR 66793), we stated that we would not create new codes to replace existing CPT E/M codes for reporting hospital visits until national guidelines are developed. We noted that an independent panel of experts would be an appropriate forum to develop codes and guidelines that are simple to understand and implement. We explained that organizations such as the American Hospital Association (AHA) and the American Health Information Management Association (AHIMA) had such expertise and would be capable of creating hospital visit guidelines and providing ongoing provider education. We also articulated a set of principles that any national guidelines for facility visit coding should satisfy, including that coding guidelines should be based on facility resources, should be clear to facilitate accurate payments and be usable for compliance purposes and audits, should meet HIPAA requirements, should only require documentation that is clinically necessary for patient care, and should not facilitate upcoding or gaming. We stated that the distribution of codes reported for each type of hospital outpatient visit (clinic or emergency department) should result in a normal curve. We concluded that we believed the most appropriate forum for development of code definitions and guidelines was an independent expert panel that would make recommendations to CMS.

The AHA and AHIMA originally supported the ACEP model for emergency department visit coding. However, we expressed concern that the ACEP guidelines allowed counting of separately payable services in determining a service level, which could result in the double counting of hospital resources in establishing visit payment rates and payment rates for those separately payable services. Subsequently, on their own initiative, the AHA and AHIMA formed an independent expert panel, the Hospital Evaluation and Management Coding Panel, comprised of members with coding, health information management, documentation, billing, nursing, finance, auditing, and medical experience. This panel included representatives from the AHA, AHIMA, ACEP, Emergency Nurses Association, and American Organization of Nurse Executives. CMS and AMA representatives observed the meetings. On June 24, 2003, the AHA and AHIMA submitted their recommended guidelines, hereafter referred to as the AHA/AHIMA guidelines, for reporting three levels of hospital clinic and emergency department visits and a single level of critical care services to CMS, with the hope that CMS would publish the guidelines in the CY 2004 OPPS proposed rule. The AHA and AHIMA acknowledged that ``continued refinement will be required as in all coding systems. The Panel * * * looks forward to working with CMS to incorporate any recommendations raised during the public comment period'' (AHA/AHIMA guidelines report, page 9). The AHA and AHIMA indicated that the guidelines were field-tested several times by panel members at different stages of their development. The guidelines are based on an intervention model, where the levels are determined by the numbers and types of interventions performed by nursing or ancillary hospital staff. Higher levels of services are reported as the number and/or complexity of staff interventions increase.

Although we did not publish the guidelines, the AHA and AHIMA released the guidelines through their Web sites. Consequently, we received numerous comments from providers and associations, some in favor and some opposed to the guidelines. We undertook a critical review of the recommendations from the AHA and AHIMA and made some modifications to the guidelines based on comments we received from other hospitals and associations on the AHA/AHIMA guidelines, clinical review, and changing payment policies under the OPPS regarding some separately payable services.

In an attempt to validate the modified AHA/AHIMA guidelines and examine the distribution of services that would result from their application to hospital clinic and emergency department visits paid under the OPPS, we contracted for a study that began in September 2004 and concluded in September 2005 to retrospectively code, under the modified AHA/AHIMA guidelines, hospital visits by reviewing hospital visit medical chart documentation gathered through the Comprehensive Error Rate Testing (CERT) work. While a review of documentation and assignment of visit levels based on the modified AHA/AHIMA guidelines to 12,500 clinic and emergency department visits was initially planned, the study was terminated after a pilot review of only 750 visits. The contractor identified a number of elements in the guidelines that were difficult for coders to interpret, poorly defined, nonspecific, or regularly unavailable in the medical records. The contractor's coders were unable to determine any level for about 25 percent of the clinic cases and about 20 percent of the emergency cases reviewed. The only agreement observed between the levels reported on the claims and levels according to the modified AHA/AHIMA guidelines was the classification of Level 1 services, where the review supported the level on the claims 54 to 70 percent of the time. In addition, the vast majority of the clinic and emergency department visits reviewed were assigned to Level 1 during the review. Based on these findings, we believed that it was not necessary to review additional records after the initial sample. The contractor advised that multiple terms in the guidelines required clearer definition and believed that more examples would be helpful. Although we believe that all of the visit documentation for each case was available for the contractor's review, we were unable to determine definitively that this was the case. Thus, there is some possibility that the contractor's assignments would have differed if additional documentation from the medical records were available for the visits. In summary, while testing of the modified AHA/AHIMA guidelines was helpful in illuminating areas of the guidelines that would benefit from refinement, we were unable to draw conclusions about the relationship between the distribution of current hospital reporting of visits using CPT E/M codes that are assigned according to each hospital's internal guidelines and the distribution of codes under the AHA/AHIMA guidelines, nor were we able to demonstrate a normal distribution of visit levels under the modified AHA/AHIMA guidelines. In CY 2007, we posted to the CMS Web site a summary of the contractor's report.

Despite the inconclusive findings from the validation study, after reviewing the AHA/AHIMA guidelines, as well as approximately a dozen other guidelines for outpatient visits submitted by various hospitals and hospital associations, we stated in the CY 2007 OPPS/ASC final rule with

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comment period (71 FR 68141) that we believed that the AHA/AHIMA guidelines are the most appropriate and well-developed guidelines for use in the OPPS of which we are aware. Our particular interest in these guidelines is based upon the broad-based input into their development, the desire for CMS to move to promulgate national outpatient hospital visit coding guidelines in the near future, and full consideration of the characteristics of alternative types of guidelines. We also believe that hospitals would react favorably to guidelines developed and supported by the AHA and AHIMA, national organizations that have great interest in hospital coding and payment issues, and possess significant medical, technical and practical expertise due to their broad membership, which includes hospitals and health information management professionals. Anecdotally, we have been told that a number of hospitals are successfully utilizing the AHA/AHIMA guidelines to report levels of hospital visits. However, other organizations have expressed concern that the AHA/AHIMA guidelines may result in a significant redistribution of hospital visits to higher levels, reducing the ability of the OPPS to discriminate among the hospital resources required for various different levels of visits. We, too, remain concerned about the potential redistributive effect on OPPS payments for other services or among levels of hospital visits when national guidelines for outpatient visit coding are adopted. We recognize that there may be difficulty crosswalking historical hospital claims data from current CPT E/M codes reported based on individual internal hospital guidelines to payments for any new coding system developed, in order to provide appropriate payment levels for hospital visits reported based on national guidelines in the future.

There are several types of concerns with the AHA/AHIMA guidelines that have been identified based upon extensive staff review and contractor use of the guidelines during the validation study. We believe the AHA/AHIMA guidelines would require refinement prior to their adoption by the OPPS, as well as continued refinement over time after their implementation. Our modified version of the AHA/AHIMA guidelines provides some possibilities for addressing certain issues. Our eight general areas of concern regarding the AHA/AHIMA model are reviewed below. In addition, we have posted to the CMS Web site both the original AHA/AHIMA guidelines and our modified draft version.

We continue to commit that we would provide a minimum of 6 to 12 months notice to hospitals prior to implementation of national guidelines to provide sufficient time for providers to make the necessary systems changes and educate their staff. 2. CY 2007 Work on Visit Guidelines

There are several areas of the AHA/AHIMA guidelines that we identified in the CY 2007 OPPS/ASC final rule with comment period that would require refinement and further input from the public prior to implementation as national guidelines. These areas include the need for five rather than three levels of codes for clinic and emergency department visits to accommodate the current five levels of OPPS payment; clarification of documentation that would support certain interventions; reconsideration of the inclusion of separately payable services as proxies for hospital resources used in visits; examination of the valuing of certain interventions; assessment of the need for modifications to address the different clinical characteristics of specialty clinic visits; consistency with the Americans with Disabilities Act; reevaluation of the way in which additional hospital resources required for the treatment of new patients are captured; and recommendations for guidelines for the reporting of visits to Type B emergency departments.

We have had a number of meetings and discussions with interested stakeholders over the past several months regarding the AHA/AHIMA guidelines, the CMS modified draft version, the contractor pilot work to test the guidelines, the concerns we identified in the CY 2007 OPPS/ ASC final rule, and alternative guidelines. We are aware that the AHA and AHIMA are having an ongoing dialogue with members of their Hospital Evaluation and Management Coding Panel and reviewing their previously recommended model guidelines as well as other models currently in use. We have not received any additional suggestions or modifications from the AHA and AHIMA to date. We have received a number of new suggestions for guidelines from other stakeholders, including individual hospitals and associations, that have engaged in a variety of data collection and pilot application activities in preparing their recommendations. For example, one wound care organization created and presented an independent model that could apply to certain specialty clinics. The organization claimed that several hospital outpatient specialty clinics had already successfully implemented these as their internal guidelines, but requested that CMS designate them as the national wound care clinic guidelines. One provider group tested several sets of guidelines that resembled the ACEP model and compared the results across a set of hospitals. This provider group believes that an ACEP- type model would be the most successful type of national guidelines, assuming that the guidelines were flexible in serving as a guide to visit level reporting. While using several varieties of ACEP-type guidelines in different hospitals, the group noted that across hospitals a specific intervention was almost always assigned to the same clinic visit level. The group concluded that this indicated that the ACEP model and its variations could likely be successfully implemented as national guidelines. Another association reviewed and tested the CMS modified AHA/AHIMA guidelines that were posted to the CMS Web site. This association found it cumbersome to assign the Level 2 and Level 4 Clinic Visit codes because those levels could only be assigned when a certain number of interventions and/or contributory factors were performed. The association suggested changes to the CMS modified AHA/AHIMA guidelines for ease of use and application to specialty clinics, particularly oncology clinics. One developer of national clinic and emergency department visit guidelines noted that many hospitals had successfully used the presenting problem-based guidelines that it had created. The developer noted that its system was easy to use, produced consistent coding decisions resulting in a normal distribution of visits, and even served as a tool to track effectiveness and efficiency.

We appreciate the thoughtful information that has been provided to us so far regarding hospitals' experiences and the insightful responses by the public to our concerns about the AHA/AHIMA model. We are currently actively engaged in evaluating and comparing various guideline models and suggestions that have been provided to us, and we continue to welcome additional public input on this important and complex area of the OPPS. The public input we have received continues to reflect a wide variety of perspectives on the types and content of the guidelines different commenters recommend that we should implement nationally for the OPPS, and no single approach appears to be broadly endorsed by the stakeholder

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community. In addition, commenters have described the successful application of many types of internal hospital guidelines with diverse characteristics for the reporting of hospital clinic and emergency department visit levels that they believe accurately capture the required hospital resources. 3. Proposed Visit Guidelines

We performed data analyses with the goal of studying the current distribution of each level of clinic and emergency department visit codes billed nationally, as well as the distribution among various classes of hospitals. We analyzed frequency data from claims with dates of service from March 1, 2002, through December 31, 2006, including those claims that were processed through December 31, 2006. To determine the national clinic visit distribution, we reviewed frequency data for each level of new patient visits, established patient visits, and consultation codes. To determine the national emergency department visit distribution, we reviewed frequency data for the five CPT emergency department visit codes. We did not include the five G-codes that describe Type B emergency departments because they became effective January 1, 2007, and we do not yet have a full year of frequency data for those codes.

The clinic visit data, displayed below in Figure 1, revealed a fairly normal national distribution of clinic visits, with the curve somewhat skewed to the left, consistent with our previous analysis of these data in CY 2002 (67 FR 66791). In addition, the visit distributions have been quite stable over the past 5 years.

BILLING CODE 4120-01-P

[GRAPHIC] [TIFF OMITTED] TP02AU07.000

The graph shown in Figure 1 indicates that hospitals, on average, are billing all five levels of visit codes with varying frequency, in a consistent pattern over time. It is striking to note how similar the annual distributions appear from CY 2002 through CY 2006. We are not surprised that hospitals report a relatively high proportion of low level visits, given the typical clinical care provided in HOPDs during these visits. Many Medicare patients are evaluated regularly in clinics by hospitals' clinical staff to determine the status of their chronic medical

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conditions and determine adjustments to treatment plans, and those visits may frequently be reported as a low level visit if that is consistent with the hospital's internal guidelines and fiscal intermediary instructions. Some patients may receive minor services during low level visits that are not described by more specific HCPCS codes. We note that, in general, billing a visit in addition to another service merely because the patient interacted with hospital staff or spent time in a room for that service is inappropriate. If a visit and another service are both billed, such as chemotherapy, a diagnostic test, or a surgical procedure, the visit must be separately identifiable from the other service because the resources used to provide nonvisit services, including staff time, equipment, supplies, among others, are captured in the line item for that service. We believe that hospitals by and large are abiding by this guidance because more than 90 percent of the CY 2006 claims for Level 1 established patient visits available for this proposed rule are single claims.

We also examined the billing patterns for various classes of hospitals, grouped by the hospital categories shown in the impact table (Table 67) in section XXII.B. of this proposed rule, to see how the clinic visit distributions of levels billed for these various categories compared to the national distribution of clinic visit levels. For these subcategories, we specifically focused on the number of established patient visits billed at each level. Generally, the distribution for major teaching hospitals, minor teaching hospitals, and nonteaching hospitals looked remarkably similar to the national distribution of established patient visits. Nonteaching hospitals tended to bill a greater proportion of Level 1 and 2 patient visits as compared to major teaching hospitals, as would be expected if their general patient acuity was slightly lower. Nonteaching hospitals include many community hospitals that treat a wide variety of patients, likely including a larger proportion of patients with minor ailments. Major teaching hospitals reported a slightly higher proportion of Level 4 and 5 visits. This too correlates well with our knowledge of the patient case-mix of large teaching hospitals, which tend to treat a higher proportion of very sick patients than nonteaching hospitals. The distributions for urban and rural hospitals also closely resembled the national distribution, including the rural SCH visit level distribution. The smallest rural hospitals predictably reported a higher proportion of Level 1 and 2 visit codes and a lower proportion of higher level visit codes, as compared to the national average, consistent with their generally lower case-mix severity.

The national emergency department visit data, displayed below in Figure 2, similarly revealed a normal national distribution of emergency department visit levels that was even more symmetrical than the national clinic visit distribution. The national distributions have been stable over the past 5 years as well. BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP02AU07.001

BILLING CODE 4120-01-C

We also looked at various classes of hospitals, grouped by the hospital categories that we show in the impact table (Table 67) in section XXII. of this proposed rule to see how the emergency department visit distributions of levels billed by hospitals in each of these various categories compared to the national distribution of emergency department visit levels. The emergency department visit distributions for major teaching hospitals, minor teaching hospitals, and nonteaching hospitals were almost identical to the national distribution of emergency department visits. No significant differences were noted. The emergency department visit distributions for urban and rural hospitals also closely resembled the national distribution of emergency department visits. Rural hospitals in the aggregate reported slightly higher proportions of Level 2 and 3 emergency department visits than the national average and slightly fewer Level 4 and 5 visits. When subdividing rural hospitals into groupings based on size, the distribution for small, medium, and large rural hospitals closely mirrored the national average distribution. Large rural hospitals tended to report higher level emergency department visits than smaller rural hospitals. All of these observations regarding the patterns of reporting for rural hospitals are consistent with our expectations for care delivery of those hospitals.

Overall, both the clinic and emergency department visit distributions indicate that hospitals are billing consistently over time and in a manner that distinguishes between visit levels, resulting in relatively normal distributions nationally for the OPPS, as well as for smaller classes of hospitals. These analyses are generally consistent with our understanding of the clinical and resource characteristics of different levels of hospital outpatient clinic and emergency department visits.

We specifically are inviting public comment as to whether a pressing need for national guidelines continues at this point in the maturation of the OPPS or if the current system where hospitals create and apply their own internal guidelines to report visits is currently more practical and appropriately flexible for hospitals. Although we have reiterated our goal since CY 2000 of creating national guidelines, this complex undertaking for these important and common hospital services is proving more challenging than we initially thought as we receive new and expanded information from the public on current hospital reporting practices that lead to appropriate

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payment for the hospital resources associated with clinic and emergency department visits. Many hospitals have worked diligently and carefully to develop and implement their own internal guidelines that reflect the scope and types of services they provide throughout the hospital outpatient system. Based on public comments, as well as our own knowledge of how clinics operate, it seems unlikely that one set of straightforward national guidelines could apply to the reporting of visits in all hospitals and specialty clinics. In addition, the stable distribution of clinic and emergency department visits reported under the OPPS over the past several years indicates that hospitals, both nationally in the aggregate and grouped by specific hospital classes, are generally billing in an appropriate and consistent manner as we would expect in a system that accurately distinguishes among different levels of service based on the associated hospital resources.

Therefore, while we continue to evaluate the information and input we have received from the public during CY 2007, as well as invite comments on this proposed rule regarding the necessity and feasibility of implementing different types of national guidelines, we are not proposing to implement national visit guidelines for clinic or emergency department visits for CY 2008. Instead, hospitals will continue to report visits during CY 2008 according to their own internal hospital guidelines.

In the absence of national guidelines, we would continue to regularly reevaluate patterns of hospital outpatient visit reporting at varying levels of disaggregation below the national level to ensure that hospitals continue to bill appropriately and differentially for these services. In addition, we expect that hospitals' internal guidelines will comport with the principles listed below.

The coding guidelines should follow the intent of the CPT code descriptor in that the guidelines should be designed to reasonably relate the intensity of hospital resources to the different levels of effort represented by the code (65 FR 18451).

The coding guidelines should be based on hospital facility resources. The guidelines should not be based on physician resources (67 FR 66792).

The coding guidelines should be clear to facilitate accurate payments and be usable for compliance purposes and audits (67 FR 66792).

The coding guidelines should meet the HIPAA requirements (67 FR 66792).

The coding guidelines should only require documentation that is clinically necessary for patient care (67 FR 66792).

The coding guidelines should not facilitate upcoding or gaming (67 FR 66792)

We also are proposing the following five additional principles that should apply to hospital specific guidelines, based on our evolving understanding of the important issues addressed by many hospitals in developing their internal guidelines that now have been used for a number of years. We believe it is reasonable at this time to elaborate upon the standards for hospitals' internal guidelines that we are proposing to apply in CY 2008, based on our knowledge of hospitals' experiences to date with guidelines for visits.

The coding guidelines should be written or recorded, well- documented and provide the basis for selection of a specific code.

The coding guidelines should be applied consistently across patients in the clinic or emergency department to which they apply.

The coding guidelines should not change with great frequency.

The coding guidelines should be readily available for fiscal intermediary (or, if applicable, MAC) review.

The coding guidelines should result in coding decisions that could be verified by other hospital staff, as well as outside sources.

We are inviting comment on these principles, specifically, whether hospitals' guidelines currently meet these principles, how difficult it would be for hospitals' guidelines to meet these principles if they do not meet them already, and whether hospitals believe that certain standards should be added or removed. We considered stating that a hospital must use one set of emergency department visit guidelines for all emergency departments in the hospital, but thought that some departments that might be considered emergency departments, such as the obstetrics department, may find it more practical and appropriate to use a different set of guidelines than the general emergency department. Similarly, we find it possible that various specialty clinics in a hospital could have their own set of guidelines, specific to the services offered in those specialty clinics. However, if different guidelines are implemented for different clinics, hospitals should ensure that these guidelines reflect comparable resource use at each level to the other clinic guidelines that the hospital may apply.

We appreciate all the comments we have received in the past from the public on visit guidelines, and we encourage continued submission of comments at any time that will assist us and other stakeholders interested in the development of national guidelines. Until national guidelines are established, hospitals should continue using their own internal guidelines. We would not expect individual hospitals to necessarily experience a normal distribution of visit levels across their claims, although we would expect a normal distribution across all hospitals as observed currently and as we would expect if national guidelines were implemented. We understand that, based on different patterns of care, we could expect that a small community hospital might provide more low level services than high level services, while an academic medical center or trauma center might provide more high level services than low level services. We would also expect national guidelines to provide for five levels of coding, to parallel the five payment levels that currently exist.

We hope to receive additional input from stakeholders over the upcoming months to address whether there is a definite contemporary need for national guidelines, given their potential to redistribute payment under the OPPS and the currently reassuring observed patterns of OPPS visit services. While we understand the interest of some hospitals in our moving quickly to promulgate national guidelines that will ensure standardized reporting of outpatient hospital visit levels, we believe that the issues identified both by us and others that may arise are important and require serious consideration prior to the implementation of national guidelines. Because of our commitment to provide hospitals with 6-12 months notice prior to implementation of national guidelines, we would not implement national guidelines prior to CY 2009. Our goal is to ensure that OPPS national or hospital- specific visit guidelines continue to facilitate consistent and accurate reporting of hospital outpatient visits, in a manner that is resource-based and supportive of appropriate OPPS payments for the efficient and effective provision of visits in hospital outpatient settings.

X. Proposed OPPS Payment for Blood and Blood Products

(If you choose to comment on issues in this section, please include the caption ``OPPS: Blood and Blood Products'' at the beginning of your comment.)

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A. Background

Since the implementation of the OPPS in August 2000, separate payments have been made for blood and blood products through APCs rather than packaging them into payments for the procedures with which they were administered. Hospital payments for the costs of blood and blood products, as well as the costs of collecting, processing, and storing blood and blood products, are made through the OPPS payments for specific blood product APCs. On April 12, 2001, CMS issued the original billing guidance for blood products to hospitals (Program Transmittal A-01-50). In response to requests for clarification of these instructions, CMS issued Program Transmittal 496 on March 4, 2005. The comprehensive billing guidelines in Program Transmittal 496 also addressed specific concerns and issues related to billing for blood-related services, which the public had brought to our attention.

In the CY 2000 OPPS, payments for blood and blood products were established based on external data provided by commenters due to limited Medicare claims data. From the CY 2000 OPPS to the CY 2002 OPPS, payment rates for blood and blood products were updated for inflation. For the CY 2003 OPPS, as described in the November 1, 2002 final rule with comment period (67 FR 66773), we applied a special adjustment methodology to blood and blood products that had significant reductions in payment rates from the CY 2002 OPPS to the CY 2003 OPPS, when median costs were first calculated from hospital claims. Using the adjustment methodology, we limited the decrease in payment rates for blood and blood products to approximately 15 percent. For the CY 2004 OPPS, as recommended by the APC Panel, we froze payment rates for blood and blood products at CY 2003 levels as we studied concerns raised by commenters and presenters at the August 2003 and February 2004 APC Panel meetings.

For the CY 2005 OPPS, we established new APCs that allowed each blood product to be assigned to its own separate APC, as several of the previous blood product APCs contained multiple blood products with no clinical homogeneity or whose product specific median costs may not have been similar. Some of the blood product HCPCS codes were reassigned to the new APCs (Table 34 of the November 15, 2004 final rule with comment period (69 FR 65819)).

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

For the CY 2005 OPPS, we also identified a subset of blood products that had less than 1,000 units billed in CY 2003. For these low-volume blood products, we based the CY 2005 OPPS payment rate on a 50/50 blend of the CY 2004 OPPS product-specific OPPS median costs and the CY 2005 OPPS simulated medians based on the application of blood-specific CCRs to all claims. We were concerned that, given the low frequency in which these products were billed, a few occurrences of coding or billing errors may have led to significant variability in the median calculation. The claims data may not have captured the complete costs of these products to hospitals as fully as possible. This low-volume adjustment methodology also allowed us to further study the issues raised by commenters and by presenters at the September 2004 APC Panel meeting, without putting beneficiary access to these low volume blood products at risk. We have adopted the use of this modified CCR process for calculating unadjusted median costs for blood and blood products each year since the CY 2005 OPPS.

Overall, median costs from CY 2003 (used for the CY 2005 OPPS) to CY 2004 (used for the CY 2006 OPPS) were relatively stable, with a few significant increases and decreases from the CY 2005 adjusted median costs for some specific blood products. For the CY 2006 OPPS, we adopted a payment adjustment policy that limited significant decreases in APC payment rates for blood and blood products from the CY 2005 OPPS to the CY 2006 OPPS to not more than 5 percent. We applied this adjustment to 11 blood and blood product APCs for the CY 2006 OPPS, which we identified in Table 33 of the CY 2006 OPPS final rule with comment period (70 FR 68687). For the CY 2006 OPPS, we set the final median costs for blood and blood products at the greater of: (1) The simulated median costs calculated from the CY 2004 claims data; or (2) 95 percent of the CY 2005 OPPS adjusted median costs for these products, as reflected in Table 33 published in the CY 2006 OPPS final rule with comment period.

In the CY 2007 OPPS, we established payment rates for blood and blood products by using the same simulation methodology described in the November 15, 2004 final rule with comment period (69 FR 65816), which utilizes hospital-specific actual or simulated CCRs for blood cost centers to convert hospital charges for blood and blood products to costs. However, we provided a payment transition for those blood products for which the difference between their CY 2006 adjusted median cost and their CY 2007 simulated median cost was greater than 25 percent. Specifically, we set the CY 2007 median costs upon which payments for blood and blood products are based at the higher of the CY 2007 unadjusted simulated median cost or 75 percent of the CY 2006 adjusted median cost on which the CY 2006 payment is based.

B. Proposed Payment for Blood and Blood Products

We are proposing to set the payment rates for blood and blood products for CY 2008 at the unadjusted median cost for these products, calculated using the hospital specific simulated blood CCR for each hospital that does not have a blood cost center. For this proposed rule, we calculated median costs for blood and blood products using claims for services furnished on or after January 1, 2006, and before January 1, 2007, and using the actual or simulated CCRs from the most recently available hospital cost reports. The median costs derived from this data process are relatively stable compared to the median costs on which payment is based for CY 2007. (See Table 55 below.) Of the 34 blood and blood products, median costs increase for 24

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products and decline for 10 products compared to the adjusted medians on which payment is based in CY 2007. Products with the largest declines are, like the products with the greatest increases, mostly those products with low volume use in the hospital outpatient setting. The products whose costs decline more than 5 percent account for less than 1 percent of the total volume of blood and blood products in the claims used to calculate the proposed rates. No product's median cost declines by more than 18 percent in the proposed rule data, and thus no product shows a decline that would have resulted in an adjustment under the final policy in place for CY 2007. The products whose median costs increase account for 79 percent of the total volume of blood and blood products in the claims used to calculate the proposed rates. We note that CY 2006 claims are the first OPPS claims that represent a full year of hospitals' reporting consistent with our detailed blood billing guidelines issued in CY 2005. We are reassured by the relatively stable or slightly increasing median costs from CY 2005 to CY 2006 claims data for most blood products, a pattern that we believe may reflect more accurate and complete hospital reporting and charging practices for these products. Consistent with our billing guidelines, hospitals may now be taking into consideration all appropriate costs associated with providing blood and blood products in charging for those products under the OPPS.

As we indicated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68147), we believe that the simulated CCR methodology results in accurate reflections of the relative estimated costs of these products for hospitals without blood cost centers and, therefore, for these products in general. Our 1-year adjustment to the median costs for CY 2007, where the median costs for blood and blood products decreased by more than 25 percent from the CY 2006 adjusted median costs, was intended to provide a reasonable transition to use of the simulated median costs for payment of blood and blood products under the OPPS without further adjustment. The medians that result from the use of the simulated CCR process and the CY 2006 claims generally result in median costs that we believe provide an appropriate basis for the relative weights on which the CY 2008 payments for blood and blood products would be based. Therefore, we are proposing to use the median costs derived from the application of blood cost center CCRs for those hospitals that have blood cost centers or simulated blood cost center CCRs for those hospitals that do not have blood cost centers as the basis for the CY 2008 payments for blood and blood products without further adjustment.

Table 55.--Proposed CY 2008 Median Costs for Blood and Blood Products

CY 2007 payment Difference between median: higher of proposed CY 2008 Proposed CY CY 2007 OPPS

simulated CCR Proposed CY 2008

simulated CCR median unit cost HCPCS code*

Short descriptor 2008 units simulated median unit cost and CY 2007 CCR median or 75% of CY 2006 adjusted simulated unit cost adjusted median CCR median unit unit cost

cost (percent)

P9010.................. Whole blood for

2,467 $279.14

$131.21

112.74% transfusion. P9011.................. Blood split unit.....

288 133.59

136.42

-2.07 P9012.................. Cryoprecipitate each

4,941

43.05

48.31

-10.89 unit. P9016.................. RBC leukocytes

558,488 186.14

174.71

6.54 reduced. P9017.................. Plasma 1 donor frz w/ 40,750

68.58

69.80

-1.75 in 8 hr. P9019.................. Platelets, each unit. 18,466

68.15

58.61

16.28 P9020*................. Plaelet rich plasma

708 338.08

208.07

62.49 unit. P9021.................. Red blood cells unit. 139,030 127.97

128.78

-0.63 P9022.................. Washed red blood

2,220 264.78

209.79

26.21 cells unit. P9023*................. Frozen plasma,

343

75.37

57.11

31.97 pooled, sd. P9031.................. Platelets leukocytes

16,471 108.24

94.53

14.50 reduced. P9032.................. Platelets, irradiated

8,889 130.48

128.81

1.30 P9033.................. Platelets

4,401 127.57

124.60

2.38 leukoreduced irrad. P9034.................. Platelets, pheresis..

8,844 442.89

450.29

-1.64 P9035.................. Platelet pheres

44,607 502.95

485.89

3.51 leukoreduced. P9036.................. Platelet pheresis

1,263 440.81

416.08

5.94 irradiated. P9037.................. Plate pheres

22,378 631.62

613.39

2.97 leukoredu irrad. P9038.................. RBC irradiated.......

4,967 209.22

195.85

6.83 P9039.................. RBC deglycerolized...

831 364.46

356.22

2.31 P9040.................. RBC leukoreduced

69,722 240.24

216.29

11.07 irradiated. P9043*................. Plasma protein fract,

21

90.53

50.96

77.67 5%, 50ml. P9044.................. Cryoprecipitate

4,352

82.60

81.91

0.84 reduced plasma. P9048*................. Plasmaprotein fract,

508 245.39

236.78

3.64 5%, 250ml. P9050*................. Granulocytes,

12 978.29

745.98

31.14 pheresis unit. P9051*................. Blood, l/r, cmv-neg..

3,377 150.12

155.79

-3.64 P9052.................. Platelets, hla-m, l/

1,618 608.71

667.70

-8.83 r, unit. P9053.................. Plt, pher, l/r cmv-

1,437 678.13

701.26

-3.30 neg, irr. P9054.................. Blood, l/r, froz/

584 210.86

209.82

0.50 degly/wash. P9055*................. Plt, aph/pher, l/r,

789 490.13

394.50

24.24 cmv-neg. P9056.................. Blood, l/r,

3,634 153.31

143.44

6.88 irradiated. P9057.................. RBC, frz/deg/wsh, l/

112 406.96

493.32

-17.51 r, irrad. P9058.................. RBC, l/r, cmv-neg,

3,151 291.16

260.65

11.71 irrad. P9059.................. Plasma, frz between 8- 2,820

78.35

76.32

2.66 24hour. P9060.................. Fr frz plasma donor

192

73.17

74.06

-1.20 retested.

*Indicates payment median for CY 2007 at 75 percent of the CY 2006 adjusted median.

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XI. Proposed OPPS Payment for Observation Services

(If you choose to comment on issues in this section, please include the caption ``OPPS: Observation Services'' at the beginning of your comment.)

Observation care is a well-defined set of specific, clinically appropriate services that include ongoing short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients with unexpectedly prolonged recovery after surgery and to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their next placement.

Payment for all observation care under the OPPS was packaged prior to CY 2002. Since CY 2002, separate payment of a single unit of an observation APC for an episode of observation care has been provided in limited circumstances. Effective for services furnished on or after April 1, 2002, separate payment for observation was made if the beneficiary had chest pain, asthma, or congestive heart failure and met additional criteria for diagnostic testing, minimum and maximum limits to observation care time, physician care, and documentation in the medical record (66 FR 59879). Payment for observation care that did not meet these specified criteria was packaged. Between CY 2003 and CY 2006, several more changes were made to the OPPS policy regarding separate payment for observation care, such as: clarification that observation is not separately payable when billed with ``T'' status procedures on the day of or day before observation care; development of specific Level II HCPCS codes for hospital observation care and direct admission to observation care; and removal of the initially established diagnostic testing requirements for separately payable observation (67 FR 66794, 69 FR 65828, and 70 FR 68688). Throughout this time period, we maintained separate payment for observation care only for the three specified medical conditions, and OPPS payment for observation for all other clinical conditions remained packaged.

Since January 1, 2006, hospitals have reported observation services based on an hourly unit of care using HCPCS code G0378 (Hospital observation services, per hour). This code has a status indicator of ``Q'' under the CY 2007 OPPS, meaning that the OPPS claims processing logic determines whether the observation is packaged or separately payable. The OCE's current logic determines whether observation services billed under HCPCS code G0378 is separately payable through APC 0339 (Observation), or whether payment for observation services will be packaged into the payment for other separately payable services provided by the hospital in the same encounter based on criteria discussed below. Also since January 1, 2006, hospitals have reported HCPCS code G0379 (Direct admission of patient for hospital observation care) for a direct admission of a patient to observation care. The OPPS pays separately for that direct admission reported under HCPCS code G0379 in situations where payment for the actual observation services reported under HCPCS G0378 are packaged and where the direct admission meets certain other criteria. The OCE logic determines when HCPCS code G0379 is separately payable under the OPPS.

For CY 2007, we continued to apply the criteria for separate payment for observation care and the coding and payment methodology for observation care that were implemented in CY 2006. Observation care is reported using HCPCS code G0378 and observation that meets the criteria for separate payment maps to APC 0339 (Observation). The current criteria for separate payment for observation (APC 0339) are:

A. Diagnosis Requirements

1. The beneficiary must have one of three medical conditions: congestive heart failure (CHF), chest pain, or asthma.

2. Qualifying ICD-9-CM diagnosis codes must be reported in Form Locator (FL) 76, Patient Reason for Visit, or FL 67, principal diagnosis, or both in order for the hospital to receive separate payment for APC 0339. If a qualifying ICD-9-CM diagnosis code(s) is reported in the secondary diagnosis field, but is not reported in either the Patient Reason for Visit field (FL 76) or in the principal diagnosis field (FL 67), separate payment for APC 0339 is not allowed.

B. Observation Time

1. Observation time must be documented in the medical record.

2. A beneficiary's time in observation (and hospital billing) begins with the beneficiary's admission to an observation bed.

3. A beneficiary's time in observation (and hospital billing) ends when all clinical or medical interventions have been completed, including followup care furnished by hospital staff and physicians that may take place after a physician has ordered the patient be released or admitted as an inpatient.

4. The number of units reported with HCPCS code G0378 must equal or exceed 8 hours.

C. Additional Hospital Services

1. The claim for observation services must include one of the following services in addition to the reported observation services. The additional services listed below must have a line item date of service on the same day or the day before the date reported for observation:

An emergency department visit (APC 0609, 0613, 0614, 0615, or 0616); or

A clinic visit (APC 0604, 0605, 0606, 0607, or 0608); or

Critical care (APC 0617); or

Direct admission to observation reported with HCPCS code G0379 (APC 0604).

2. No procedure with a ``T'' status indicator can be reported on the same day or day before observation care is provided.

D. Physician Evaluation

1. The beneficiary must be in the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician.

2. The medical record must include documentation that the physician explicitly assessed patient risk to determine that the beneficiary would benefit from observation care.

The CY 2007 list of diagnoses eligible as a criterion for separate payment for observation services may be found in Table 44 of the CY 2007 OPPS/ASC final rule with comment period (71 FR 68152).

For CY 2007, we made one minor change in payment for direct admission to observation. As part of the changes in APC assignments and payments for clinic and emergency department visits, low level clinic visits were moved from APC 0600 (Low Level Clinic Visits) to APC 0604 (Level 1 Clinic Visits), with a CY 2007 payment rate of $50.66. Under the circumstances where direct admission to observation is separately payable, we finalized our CY 2007 assignment of HCPCS code G0379 to APC 0604, consistent with its CY 2006 placement in the APC for Low Level Clinic Visits.

During the APC Panel's August 2006 meeting, the Observation Subcommittee made several recommendations regarding observation services. The first

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of these was that CMS should consider adding syncope and dehydration as diagnoses for which observation services would qualify for separate payment. Second, the Observation Subcommittee recommended that CMS perform claims analyses and present data that would allow CMS to consider revising criteria for separately payable observation care when certain procedures that are assigned status indicator ``T,'' for example, insertion of a bladder catheter or laceration repair, are reported on the same claim with an emergency department visit and observation care, and all other criteria for separate observation payment (for example, qualifying diagnosis code, number of hours) are met. The Panel also voted to change the name of the Observation Subcommittee to the Observation and Visit Subcommittee, based on the Panel's interest in expanding the scope of that subcommittee's work.

In response to August 2006 APC Panel recommendations and public comments to the CY 2007 proposed rule, we stated in the CY 2007 OPPS/ ASC final rule with comment period that we intended to perform a series of analyses over the upcoming year to explore the potential effects of adding syncope and dehydration as qualifying diagnoses for separately payable observation care, as well as the possibility of allowing separate observation payment for claims for observation care that also include specific minor or routine procedures that have ``T'' status indicators (71 FR 68150).

At the March 2007 meeting of the APC Panel, we discussed with the Observation and Visit Subcommittee and the full Panel the results of the requested data analyses regarding syncope and dehydration, as well as the occurrences of claims for observation care that also include specific minor or routine procedures that have ``T'' status indicators. With respect to the diagnosis analyses, the data presented to the Subcommittee and Panel (consisting of partial year 2006 claims data that are less complete than the claims data available for this proposed rule) showed that there were 136,977 claims for separately payable observation services for the currently eligible conditions of chest pain, asthma, and congestive heart failure, with a median cost of $453. The frequency of claims for observation services for the diagnoses of syncope and dehydration, when all other criteria for separate payment of observation services (other than diagnosis) were met, was 46,961 claims, with a somewhat lower median cost of $416. The effect of adding both syncope and dehydration to the current diagnoses eligible for separate payment would be to lower the median for APC 0339 slightly to $443, using the early partial 2006 data presented to the Subcommittee and Panel. For the study of ``T'' status procedures in relation to observation, we identified relatively few instances (5,162) where observation met all of the criteria for separate payment, including the current three conditions of CHF, asthma, chest pain, except for the presence of a ``T'' status procedure. Of these claims, very few had any significant frequency. The most common procedures are those relating to heart catheterization, angioplasty procedures, and endoscopies. As we have stated in the past, we believe that the observation services in these cases may be related to these procedures and we have no way of discerning from our data whether the procedure happened before or after the observation services.

The APC Panel made three recommendations related to these topics. First, the Panel recommended that CMS add syncope and dehydration to the list of clinical conditions eligible for separate observation payment. Second, the Panel recommended that CMS continue to evaluate the types of diagnostic conditions that might qualify for separate observation payment in the future. Third, the Panel recommended that CMS make no changes to the criteria for separate observation payment related to the performance of ``T'' status procedures. However, the Panel added that if CMS added syncope and dehydration to the list of conditions eligible for separate observation payment, the Panel requested that CMS reexamine the claims data once CMS collects a year of observation claims data, including the additional conditions, so the Panel could reconsider this recommendation at a future meeting.

We have also taken into consideration the June 2006 IOM Report entitled, ``Hospital-Based Emergency Care: At the Breaking Point.'' This report encourages hospitals to apply tools to improve the flow of patients through emergency departments, especially through the use of observation units (clinical decision units). The IOM report also recommends that separate OPPS payment should be made for all conditions for which observation is indicated.

We appreciate the continued work and dedication of the Observation and Visit Subcommittee and the APC Panel, along with the findings and recommendations of the IOM. However, in light of the broader CY 2008 OPPS proposal to move toward expanded packaging of payment for supportive, dependent HOPD services, we are not accepting the Panel's recommendation related to adding syncope and dehydration to the list of diagnoses eligible for separate payment or to consider other clinical conditions for separate payment for observation care. We are proposing to package all observation services (reported with HCPCS code G0378) as part of the proposed changes to packaged services discussed previously in section II.A.4. of this proposed rule. Because we are proposing to package payment for all observation services, we are not proposing to adopt the Panel's recommendation to study claims data for separately payable observation care (including claims for observation for syncope and dehydration) that also include specific minor or routine procedures that have ``T'' status indicators. We agree with the APC Panel and the IOM that there is currently no compelling rationale for a different OPPS payment approach for observation care for only three specific clinical conditions. We recognize that observation care may play an important role in the treatment of many Medicare beneficiaries in the HOPD, decreasing the need for short inpatient admissions and ensuring safe discharges of patients to their homes. Therefore, we believe that our proposed CY 2008 payment policy that would package payment for all observation services consistently for Medicare beneficiaries regardless of their diagnoses is the most appropriate approach in every case of observation care. This proposed methodology encourages hospital efficiency and provides a consistent payment policy that allows hospitals to thoughtfully plan for the role of observation services in the emergency and postsurgical care of patients with many different clinical conditions.

As discussed in section II.A.4. of this proposed rule, observation care is one of seven categories of services for which we are proposing to make packaged payment in CY 2008. In view of the recent rapid growth in HOPD services, we are proposing to move toward larger payment packages and bundles under the OPPS because we believe that packaging creates incentives for providers to furnish services in the most efficient way by maximizing their flexibility to manage their resources, thereby encouraging cost containment. A detailed discussion of this proposal and our rationale for packaging observation care may be found in the section referenced above.

We are proposing to package observation care reported with HCPCS code G0378 for CY 2008 because the

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facility portion of observation care is supportive and ancillary to other primary services being furnished in the HOPD. Payment for observation will be made as part of the payment for the separately payable independent services with which it is billed. As part of this proposal, we would change the status indicator for HCPCS code G0378 from ``Q'' to ``N.'' Although we would discontinue recognizing the criteria for separate payment related to hospital visits and qualifying conditions, we would retain as general reporting requirements the criteria related to physician evaluation, documentation and observation beginning and ending time because those are more general requirements that help to ensure proper reporting of observation on hospital claims. The criteria for reporting of observation services under HCPCS code G0378 that we are proposing to retain are:

A. Observation Time

1. Observation time must be documented in the medical record.

2. A beneficiary's time in observation (and hospital billing) begins with the beneficiary's admission to an observation bed.

3. A beneficiary's time in observation (and hospital billing) ends when all clinical or medical interventions have been completed, including followup care furnished by hospital staff and physicians that may take place after a physician has ordered the patient be released or admitted as an inpatient.

B. Physician Evaluation

1. The beneficiary must be in the care of a physician during the period of observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician.

2. The medical record must include documentation that the physician explicitly assessed patient risk to determine that the beneficiary would benefit from observation care.

We refer readers to section II.A.4. of this proposed rule for further detailed background on our proposal to package these seven categories of services and for a specific discussion of observation services.

Direct admission to observation (HCPCS code G0379, Direct admission of patient for hospital observation care) is assigned to APC 0604 (Level 1 Hospital Clinic Visits) when the criteria are met for separate payment. For CY 2008, the proposed median cost of APC 0604 is $52.58. We are proposing to continue the current coding and payment methodology for direct admission to observation, with the exception of the prior requirement that HCPCS code G0379 is only eligible for separate payment if observation care reported with HCPCS code G0378 does not qualify for separate payment. That requirement would no longer be applicable, given our CY 2008 proposal to provide packaged payment for all observation care. Hospitals report HCPCS code G0379 when a patient is admitted directly to observation care after being seen by a physician in the community. Thus, for CY 2008, we are proposing that in order to receive separate payment for a direct admission into observation (APC 00604), the claim must show:

1. Both HCPCS codes G0378 (Hospital observation services, per hr) and G0379 (Direct admission of patient for hospital observation care) with the same date of service.

2. That no services with a status indicator ``T'' or ``V'' or Critical Care (APC 0617) were provided on the same day of service as HCPCS code G0379.

Even though we are proposing to package payment for all observation services reported by HCPCS code G0378, we believe it is necessary to continue the OCE claims processing logic in order to make appropriate payment for direct admission.

In summary, we are proposing to package payment for observation care reported with HCPCS code G0378 for CY 2008. Payment for observation would be made as part of the payment for the separately payable independent services with which it is billed. As part of this proposal, we would change the status indicator for HCPCS Code G0378 from ``Q'' to ``N.'' In addition, we would discontinue recognizing the criteria for separate payment related to hospital visits and ``T'' status procedures, minimum number of hours, and qualifying diagnoses. However, we would retain as general requirements the criteria related to physician evaluation, documentation, and observation beginning and ending time. Those are more general requirements that ensure the proper reporting of observation care on correctly coded hospital claims that reflect the charges associated with all hospital resources utilized to provide the reported services. We are proposing to continue the coding and payment methodology for direct admission to observation status, as reported using HCPCS code G0379, with the exception of the prior requirement that HCPCS code G0379 is only eligible for separate payment if observation care reported under HCPCS code G0378 does not qualify for separate payment (since this requirement would no longer be applicable).

XII. Proposed Procedures That Will Be Paid Only as Inpatient Procedures

(If you choose to comment on issues in this section, please include the caption ``OPPS: Inpatient Procedures'' at the beginning of your comment.)

A. Background

Section 1833(t)(1)(B)(i) of the Act gives the Secretary broad authority to determine the services to be covered and paid for under the OPPS. Before implementation of the OPPS in August 2000, Medicare paid reasonable costs for services provided in the outpatient department. The claims submitted were subject to medical review by the fiscal intermediaries to determine the appropriateness of providing certain services in the outpatient setting. We did not specify in regulations those services that were appropriate to provide only in the inpatient setting and that, therefore, should be payable only when provided in that setting.

In the April 7, 2000 final rule with comment period, we identified procedures that are typically provided only in an inpatient setting and, therefore, would not be paid by Medicare under the OPPS (65 FR 18455). These procedures comprise what is referred to as the ``inpatient list.'' The inpatient list specifies those services that are only paid when provided in an inpatient setting because of the nature of the procedure, the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. As we discussed in the April 7, 2000 final rule with comment period (65 FR 18455) and the November 30, 2001 final rule (66 FR 59856), we use the following criteria when reviewing procedures to determine whether or not they should be moved from the inpatient list and assigned to an APC group for payment under the OPPS:

Most outpatient departments are equipped to provide the services to the Medicare population.

The simplest procedure described by the code may be performed in most outpatient departments.

The procedure is related to codes that we have already removed from the inpatient list.

In the November 1, 2002 final rule with comment period (67 FR 66741), we added the following criteria for use in reviewing procedures to determine whether they should be removed from the inpatient list and assigned to an

[[Page 42771]]

APC group for payment under the OPPS:

We have determined that the procedure is being performed in numerous hospitals on an outpatient basis; or

We have determined that the procedure can be appropriately and safely performed in an ASC and is on the list of approved ASC procedures or proposed by us for addition to the ASC list.

We believe that these additional criteria help us to identify procedures that are appropriate for removal from the inpatient list.

B. Proposed Changes to the Inpatient List

For the CY 2008 OPPS, we used the same methodology as described in the November 15, 2004 final rule with comment period (69 FR 65835) to identify a subset of procedures currently on the inpatient list that are being widely performed on an outpatient basis. These procedures were then clinically reviewed for possible removal from the inpatient list. We solicited input from the APC Panel on the appropriateness of removing 14 procedures from the OPPS inpatient list at its March 2007 meeting. Prior to publishing this OPPS proposed rule, we received one other candidate HCPCS code for removal from the OPPS inpatient list based on a recommendation from the public that was presented to the APC Panel during its meeting on March 8, 2007. The APC Panel recommended that 13 of the 14 procedures that CMS identified for possible removal be removed from the OPPS inpatient list. It also recommended that CMS obtain additional utilization data about 1 of the 14 procedures identified for possible removal from the OPPS inpatient list, specifically CPT code 64818 (Sympathectomy, lumbar); and for another procedure presented for possible removal from the OPPS inpatient list by the public, specifically, CPT code 20660 (Application of cranial tongs caliper, or stereotactic frame, including removal (separate procedure)). The APC Panel requested that CMS provide that additional information to the APC Panel at its next meeting.

Therefore, we are proposing to accept the APC Panel's recommendation to remove the 13 procedures from the OPPS inpatient list for CY 2008 and to assign them to clinically appropriate APCs as shown in Table 56. We also are accepting the recommendation from the APC Panel to gather additional utilization information for CPT codes 20660 and 64818, which we will provide to the APC Panel at its next meeting.

Table 56.--Proposed HCPCS Codes for Removal From Inpatient List and Their Proposed APC Assignments for CY 2008

Proposed CY Proposed CY HCPCS code

Long descriptor 2008 APC 2008 SI

21360.................. Open treatment of

0254

T depressed malar fracture, including zygomatic arch and malar tripod. 21365.................. Open treatment of

0256

T complicated (eg, comminuted or involving cranial nerve foramina) fracture(s) of malar area, including zygomatic arch and malar tripod; with internal fixation and multiple surgical approaches. 21385.................. Open treatment of

0256

T orbital floor blowout fracture; transantral approach (Caldwell-Luc type operation). 25931.................. Transmetacarpal

0049

T amputation; re- amputation. 27006.................. Tenotomy, abductors

0050

T and/or extensor(s) of hip, open (separate procedure). 27720.................. Repair of nonunion or

0063

T malunion, tibia; without graft, (eg, compression technique). 27722.................. Repair of nonunion or

0064

T malunion, tibia; with sliding graft. 50580.................. Renal endoscopy

0161

T through nephrotomy or pyelotomy, with or without irrigation, instillation or ureteropyelography, exclusive of radiologic service; with removal of foreign body or calculus. 51535.................. Cystotomy for

0162

T excision, incision, or repair of ureterocele. 58805.................. Drainage of ovarian

0195

T cyst(s), unilateral or bilateral, (separate procedure); abdominal approach. 60271.................. Thyroidectomy,

0256

T including substernal thyroid; cervical approach. 61770.................. Stereotactic

0221

T localization, including burr hole(s), with insertion of catheter(s) or probe(s) for placement of radiation source. 69970.................. Removal of tumor,

0256

T temporal bone.

XIII. Proposed Nonrecurring Technical and Policy Changes

A. Outpatient Hospital Services and Supplies Incident to a Physician Service

(If you choose to comment on issues in this section, please include the caption ``Hospital Services Incident to a Physician Service'' at the beginning of your comment.)

We are proposing to make a technical change to Sec. Sec. 410.27(a)(1)(iii) and (f) of the regulations relating to outpatient hospital services and supplies incident to a physician service to remove an outdated reference to ``designation of a department of a provider'' by CMS and replace it with language that conforms to current policy under the provider based rules as stated in Sec. 413.65 of the regulations. We are proposing to remove from both paragraphs (a)(1)(iii) and (f) the phrase ``at a location (other than an RHC or an FQHC) that CMS designates as a department of a provider under Sec. 413.65 of this chapter'' and replace it with ``at a department of a provider, as defined in Sec. 413.65(a)(2) of this subchapter, that has provider-based status in relation to a hospital under Sec. 413.65 of this subchapter.''

Section 410.27 was codified in the April 7, 2000 OPPS final rule with comment period. The provider based rules at Sec. 413.65 were also codified in the April 7, 2000 rule, but were subsequently amended in the August 1, 2002 IPPS final rule (67 FR 50078 through 50096 and 50114 through 50118). This proposed deletion of the reference in Sec. Sec. 410.27(a)(1)(iii) and (f) to CMS ``designating'' a department of a provider under Sec. 413.65 would make those sections consistent with the 2002 amendments to the provider-based rules, in that under the amended provider-based rules, a main provider is no longer required to ask CMS to make a determination that a facility or organization is provider-based before the main provider can bill for services of the facility as if the facility were provider-based, or before the main provider can include the costs of those services in its cost report.

We also remind hospitals of the requirements of Sec. 410.27 concerning

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services and supplies furnished incident to a physician's service to hospital outpatients. Section 410.27 applies to all ``incident to'' services covered under section 1861(s)(2)(B) of the Act. This provision does not apply to services covered under other benefit categories, such as clinical diagnostic laboratory services covered under section 1833(h)(1) of the Act or diagnostic services covered under section 1861(s)(2)(C) of the Act. Section 410.27(a)(1) currently states that Medicare Part B pays for hospital services and supplies furnished incident to a physician service to outpatients, including drugs and biologicals that cannot be self-administered, if they are furnished by or under arrangements made by a participating hospital, except in the case of a resident of a skilled nursing facility as provided in Sec. 411.15(p); as an integral though incidental part of a physician's services; and in the hospital or at a location (other than a rural health clinic or a Federally qualified health center) that CMS designates as a department of a provider under Sec. 413.65.

We recognize that hospitals consider a variety of business models in their efforts to supply efficient and high quality health care services to Medicare beneficiaries and the general public, and we support such efforts to the extent that they comply with all applicable laws and regulations, including, but not limited to, the Stark law and other anti-kickback laws. Recently, we have received an increasing number of questions about a number of hypothetical business arrangements between hospitals and other entities, including ASCs. We remind hospitals contemplating various business models that involve ``incident to'' services provided to hospital outpatients to consider the requirements of Sec. 410.27. Under Sec. 410.27, ``incident to'' services that are provided to hospital outpatients must be furnished in the hospital or at a department of a provider as described in more detail earlier in our proposed technical update to Sec. Sec. 410.27(a)(1)(iii) and (f).

With regard to potential for ASCs to provide ``incident to'' services under arrangements with HOPDs, we note that the provider-based rules set forth at Sec. 413.65 do not apply to ASCs. In addition, our longstanding policy codified at Sec. 416.30(f) for ASCs operated by hospitals requires that ``the ASC participates and is paid only as an ASC, without the option of converting to or being paid as a hospital outpatient department, unless CMS determines there is good cause to do otherwise.'' We do not believe good cause exists such that a Medicare- certified ASC would be able to provide ``incident to'' services under arrangement to hospital outpatients under Sec. 410.27. Section 410.27 contains longstanding policy codified in the CY 2000 OPPS final rule with comment period and applies to all ``incident to'' services covered under section1861(s)(2)(B) of the Act. While the hypothetical example we discussed above involves ASCs providing services under arrangement to an HOPD, the provision of Sec. 410.27 applies more broadly to all ``incident to'' services provided either directly or under arrangements made by the hospital with another entity.

B. Interrupted Procedures

(If you choose to comment on issues in this section, please include the caption ``Interrupted Procedures'' at the beginning of your comment.)

Currently, when a procedure is interrupted after its initiation or the administration of anesthesia, hospitals append modifier 74 (Discontinued outpatient procedure after anesthesia administration) to the interrupted procedure, and the full OPPS payment for the procedure is made. In addition, when a procedure requiring anesthesia is discontinued after the beneficiary is prepared for the procedure and taken to the room where the procedure is to be performed, but before the administration of anesthesia, hospitals currently append modifier 73 (Discontinued outpatient procedure prior to anesthesia administration) to the discontinued procedure and receive 50 percent of the OPPS payment for the planned procedure. Hospitals also report modifier 52 to signify that a service that did not require anesthesia was partially reduced or discontinued at the physician's discretion. Modifier 52 is reported under the OPPS for a variety of types of interrupted services, such as radiology services. Under the OPPS, we apply a 50-percent reduction to the facility payment for interrupted procedures and services reported with modifier 52.

We are proposing to amend Sec. 419.44 (Payment reductions for surgical procedures) to more accurately reflect the current OPPS payment policy for interrupted procedures. First, we are proposing to make a technical conforming change to the title of Sec. 419.44 by removing the word ``surgical,'' in order to encompass all the procedures performed in HOPDs. Second, we are proposing to change the heading of Sec. 419.44(b) from ``Terminated procedures'' to ``Interrupted procedures.'' We are proposing to make further technical conforming changes to paragraphs (b)(1) and (b)(2) by removing the words ``surgical'' to encompass all the procedures performed in HOPDs. Finally, we are proposing to add a new paragraph (b)(3) to reflect the current policy of the application of a 50-percent reduction to the OPPS payment when a hospital reports modifier 52 for interrupted or discontinued services that do not require anesthesia.

C. Transitional Adjustments--Hold Harmless Provisions

(If you choose to comment on issues in this section, please include the caption ``Transitional Adjustments--Hold Harmless:'' at the beginning of your comment.)

Section 419.70(d) of the regulations relating to transitional adjustments to payments for covered outpatient services furnished by small rural hospitals and SCHs located in rural areas contains two outdated cross-references to Sec. 412.63(b) (the definition of a hospital located in a ``rural area''). Several years ago, we made Sec. 412.63 applicable from FY 1984 through FY 2004 and established a new Sec. 412.64, effective for FY 2005 and subsequent fiscal years, to incorporate provisions to reflect our adoption of OMB's revised CBSAs as geographic area applicable under Medicare. We are proposing to make a technical correction to the regulations by replacing the cross- reference to Sec. 412.63(b) in Sec. Sec. 419.70(d)(1)(i), (d)(2)(i), and (d)(4)(ii) with the more current applicable cross-reference to Sec. 412.64(b).

D. Reporting of Wound Care Services

(If you choose to comment on issues in this section, please include the caption ``Wound Care Services'' at the beginning of your comment.)

Section 1834(k) of the Act, as added by section 4541 of the BBA, requires payment under a prospective payment system for all outpatient therapy services, that is, physical therapy services, speech-language pathology services, and occupational therapy services. As provided under section 1834(k)(5) of the Act, we created a therapy code list based on a uniform coding system (that is, the HCPCS) to identify and track these outpatient therapy services paid under the MPFS. We provide this list of therapy codes along with their respective designation in the Medicare Claims Processing Manual Pub. 100-04, Chapter 5, section 20. Two of the designations that we use in that manual denote whether the listed therapy code is an ``always therapy'' service or a ``sometimes therapy'' service. We define an ``always

[[Page 42773]]

therapy'' service as a service that must be performed by a qualified therapist under a certified therapy plan of care, and a ``sometimes therapy'' service as a service that may be performed by an individual outside of a certified therapy plan of care.

In the CY 2006 OPPS final rule with comment period (70 FR 68617), we stated that the following CPT codes were classified as ``sometimes therapy'' services that may be appropriately provided under either a certified therapy plan of care or without a certified therapy plan of care: 97597 (Removal of devitalized tissue from wound(s), selective debridement, without anesthesia (eg, high pressure waterjet with/ without suction, sharp selective debridement with scissors, scalpel and forceps) with or without topical application(s) for ongoing care, may include use of a whirlpool, per session; total wound(s) surface area less than or equal to 20 square centimeters); 97598 (Removal of devitalized tissue from wound(s), selective debridement, without anesthesia (eg, high pressure waterjet with/without suction, sharp selective debridement with scissors, scalpel and forceps) with or without topical application(s) for ongoing care, may include use of a whirlpool, per session; total wound(s) surface area greater than 20 square centimeters); 97602 (Removal of revitalized tissue from wound(s), non-selective debridement, without anesthesia (eg, wet-to- moist dressings, enzymatic, abrasion) including topical application(s), wound assessment, and instruction(s) for ongoing care, per session), 97605 (Negative pressure wound therapy (eg, vacuum assisted drainage collection), including topical application(s), wound assessment, and instruction(s) for ongoing care, per session; total wound(s) surface area less than or equal to 50 square centimeters); and 97606 (Negative pressure wound therapy (eg, vacuum assisted drainage collection), including topical application(s), wound assessment, and instruction(s) for ongoing care, per session; total wound(s) surface area greater than 50 square centimeters). We further stated that hospitals would receive separate payment under the OPPS when they bill for wound care services described by CPT codes 97597, 97598, 97602, 97605, and 97606 that are furnished to hospital outpatients by individuals independent of a therapy plan of care. In contrast, when such services are performed by a qualified therapist under a certified therapy plan of care, providers should attach an appropriate therapy modifier (that is, GP for physical therapy, GO for occupational therapy, and GN for speech language pathology) or report their charges under a therapy revenue code (that is, 0420, 0430, or 0440), or both, to receive payment under the MPFS. The OCE logic assigns these services to the appropriate APC for payment under the OPPS if the services are not provided under a certified therapy plan of care, or will direct contractors to the MPFS established payment rates if the services are identified on hospital claims with a therapy modifier or therapy revenue code as therapy services.

For CY 2008, we are proposing to revise the list of therapy revenue codes that may be reported with CPT codes 97597, 97598, 97602, 97605, and 97606 to designate them as services that are performed by a qualified therapist under a certified therapy plan of care, and thus payable under the MPFS, to be consistent with the current billing practices of hospitals and to ensure that we are making separate payment under the OPPS only in appropriate situations. We are proposing to revise the list of therapy revenue codes for reporting these five CPT wound care codes as therapy services to include all revenue codes in the 042X series, which incorporates all revenue codes that begin with 042, such as 0420, 0421, 0422, 0423, 0424, and 0429; the 043X series, which includes all revenue codes that begin with 043, such as 0430, 0431, 0432, 0434, and 0439; and the 044X series, which includes all revenue codes that begin with 044, such as 0440, 0441, 0442, 0443, 0444, and 0449. Therefore, for CY 2008 we are proposing that when services reported with CPT codes 97597, 97598, 97602, 97605, and 97606 are performed by a qualified therapist under a certified therapy plan of care, providers should attach an appropriate therapy modifier (that is, GP for physical therapy, GO for occupational therapy, and GN for speech-language pathology) or report their charge under a therapy revenue code (that is, 042X, 043X, or 044X), or both, to receive payment under the MPFS. Under other circumstances, hospitals would receive separate payment under the OPPS when they bill for wound care services described by CPT codes 97597, 97598, 97602, 97605, and 97606 that are furnished to hospital outpatients by individuals independent of a certified therapy plan of care.

E. Reporting of Cardiac Rehabilitation Services

(If you choose to comment on issues in this section, please include the caption ``Cardiac Rehabilitation Services'' at the beginning of your comment.)

Since the initiation of the OPPS, Medicare has paid for cardiac rehabilitation services in HOPDs using CPT code 93797 (Physician services for outpatient cardiac rehabilitation, without continuous ECG monitoring (per session)) and CPT code 93798 (Physician services for outpatient cardiac rehabilitation, with continuous ECG monitoring (per session)). Both codes are assigned to status indicator ``S'' and are currently mapped to APC 0095 (Cardiac Rehabilitation) for payment.

For CY 2008, we are proposing to discontinue recognizing the current CPT codes for cardiac rehabilitation services and to establish two new Level II HCPCS codes that we believe are more appropriate for specifically reporting cardiac rehabilitation services under the OPPS. The proposed HCPCS codes are: GXXX1 (Physician services for outpatient cardiac rehabilitation; without continuous ECG monitoring (per hour)) and GXXX2 (Physician services for outpatient cardiac rehabilitation; with continuous ECG monitoring (per hour)). In contrast with the current CPT codes, we believe the descriptors of these proposed G-codes more specifically reflect the way cardiac rehabilitation services are provided in HOPDs so that reporting would be more straightforward for hospitals and would result in more accurate data for OPPS ratesetting in 2 years. Consistent with the current APC assignments of the cardiac rehabilitation CPT codes, we are proposing to assign these new HCPCS codes to APC 0095 for CY 2008, with a status indicator of ``S.'' Accordingly, we are proposing to change the status indicators for CPT codes 93797 and 93798 from ``S'' to ``B'' to indicate that alternative codes (GXXX1 and GXXX2) for cardiac rehabilitation services are recognized for payment under the OPPS.

F. Reporting of Bone Marrow and Stem Cell Processing Services

(If you choose to comment on issues in this section, please include the caption ``Bone Marrow and Stem Cell Processing Services'' at the beginning of your comment.)

The OPPS currently recognizes HCPCS code G0267 (Bone marrow or peripheral stem cell harvest, modification or treatment to eliminate cell type(s)) for depletion services for hematopoietic progenitor cells, instead of the more specific CPT codes that describe these services, including CPT codes 38210 (Transplant preparation of hematopoietic progenitor cells; specific

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cell depletion within harvest, T-cell depletion); 38211 (Transplant preparation of hematopoietic progenitor cells; tumor cell depletion); 38212 (Transplant preparation of hematopoietic progenitor cells; red blood cell removal); 38213 (Transplant preparation of hematopoietic progenitor cells; platelet depletion); 38214 (Transplant preparation of hematopoietic progenitor cells; plasma (volume) depletion); and 38215 (Transplant preparation of hematopoietic progenitor cells; cell concentration in plasma, mononuclear, of buffy coat layer). These six CPT codes are currently assigned to status indicator ``B,'' while HCPCS code G0267 is assigned to APC 0110 (Transfusion) for payment, with a status indicator of ``S.''

For CY 2008, we are proposing to continue to assign the historical claims data for HCPCS code G0267 to APC 0110. In addition, we are proposing to discontinue recognizing HCPCS code G0267 for CY 2008, assigning it to status indicator ``B,'' and to recognize the six more specific CPT codes, which we are proposing to also assign to APC 0110 with a status indicator of ``S.'' Historically, under the OPPS we recognized the single G-code rather than the CPT codes for the individual transplant cell preparation services because we believed that the services would be uncommonly provided to Medicare beneficiaries in the outpatient setting and would likely require similar resources, so that distinguishing among the services would not be necessary to ensure appropriate OPPS payment. Stakeholders have brought to our attention that the current hospital resources associated with the six different bone marrow and stem cell processing procedures described by these CPT codes may vary widely. While we recognize that the services currently reported with G0267 under the OPPS are not common HOPD procedures, the total volume of these procedures has been increasing over the past several years. Therefore, we believe that recognizing these six CPT codes for bone marrow and stem cell processing services would yield more specific claims data and enable us to pay more appropriately for these services in the future. Consistent with our general OPPS practice, we are proposing to assign the newly recognized CPT codes to the clinical APC that is most appropriate based on historical claims data for the predecessor HCPCS code until we have more specific hospital resource data available to assess the specific CPT codes for possible reassignment.

In addition, we are proposing to discontinue recognition of HCPCS code G0265 (Cyropreservation, freezing and storage of cells for therapeutic use) and G0266 (Thawing and expansion of frozen cells for therapeutic use), currently assigned to status indicator ``A'' under the OPPS and paid according to the Medicare Clinical Laboratory Fee Schedule (CLFS), by assigning them to status indicator ``B'' for CY 2008. We are proposing to recognize, instead, CPT codes 38207 (Transplant preparation of hematopoietic progenitor cells; cryopreservation and storage); 38208 (Transplant preparation of hematopoietic progenitor cells; thawing of previously frozen harvest, without washing); and 38209 (Transplant preparation of hematopoietic progenitor cells; thawing of previously frozen harvest, with washing) for payment under the OPPS because we believe they are similar to blood processing services that are currently paid under the OPPS, not under the CLFS. We are proposing to assign the single cryopreservation and two thawing CPT codes to APC 0344 (Level IV Pathology) based on their clinical characteristics and resource costs from historical hospital claims data for HCPCS codes G0265 and G0266, which would have been assigned to the same clinical APC if they were paid under the OPPS. Although HCPCS code G0265 and G0266 have not historically been paid under the OPPS, we have a small number of HOPD single claims from CY 2006 for these two predecessor HCPCS codes (when they were paid off the CLFS), respectively, and similar laboratory tissue cryopreservation and thawing services also are proposed for assignment to APC 0344 under the CY 2008 OPPS. We believe this proposal would allow us to pay appropriately for all of these bone marrow and stem cell processing services and to collect more specific hospital resource data.

XIV. Proposed OPPS Payment Status and Comment Indicators

A. Proposed Payment Status Indicator Definitions

(If you choose to comment on issues in this section, please include the caption ``OPPS: Status Indicators'' at the beginning of your comment.)

The OPPS payment status indicators (SIs) that we assign to HCPCS codes and APCs play an important role in determining payment for services under the OPPS. They indicate whether a service represented by a HCPCS code is payable under the OPPS or another payment system and also whether particular OPPS policies apply to the code. Our proposed CY 2008 status indicator assignments for APCs and HCPCS codes are shown in Addendum A and Addendum B, respectively, to this proposed rule. We are proposing to use the status indicators and definitions that are listed in Addendum D1, which we discuss below in greater detail. 1. Proposed Payment Status Indicators to Designate Services That Are Paid under the OPPS

OPPS payment Indicator

Item/code/service

status

G............................... Pass-Through Drugs Paid under OPPS; and Biologicals. Separate APC payment includes pass through amount. H............................... Pass-Through

Separate cost- Device Categories. based pass- through payment; Not subject to coinsurance. K............................... (1) Non-Pass- (1) Paid under Through Drugs and OPPS; Separate Biologicals.

APC payment. (2) Therapeutic (2) Paid under Radiopharmaceutic OPPS; Separate als.

APC payment. (3) Brachytherapy (3) Paid under Sources.

OPPS; Separate APC payment. (4) Blood and (4) Paid under Blood Products. OPPS; Separate APC payment. N............................... Items and Services Paid under OPPS; Packaged into APC Payment is Rates.

packaged into payment for other services, including outliers. Therefore, there is no separate APC payment. P............................... Partial

Paid under OPPS; Hospitalization. Per diem APC payment.

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Q............................... Packaged Services Paid under OPPS; Subject to

Addendum B Separate Payment displays APC Under OPPS

assignments when Payment Criteria.. services are separately payable. (1) Separate APC payment based on OPPS payment criteria. (2) If criteria are not met, payment is packaged into payment for other services, including outliers. Therefore, there is no separate APC payment. S............................... Significant

Paid under OPPS; Procedure, Not Separate APC Discounted when payment. Multiple. T............................... Significant

Paid under OPPS; Procedure,

Separate APC Multiple

payment. Reduction Applies. V............................... Clinic or

Paid under OPPS; Emergency

Separate APC Department Visit. payment. X............................... Ancillary Services Paid under OPPS; Separate APC payment.

As stated in section VII.A. of this proposed rule, subsequent to the publication of the CY 2007 OPPS/ASC final rule with comment period, section 107(a) of the MIEA TRHCA extended the payment period for brachytherapy sources paid under the OPPS based on a hospital's charges adjusted to cost under section 1833(t)(16)(C) of the Act for one additional year. This requirement for cost-based payment ends after December 31, 2007. Therefore, we have continued the OPPS cost-based payment for brachytherapy sources through CY 2007, and have continued using status indicator ``H'' to designate nonpass-through brachytherapy sources paid on a cost basis.

As discussed in section VII.B. of this proposed rule, we are proposing to implement prospective payment for brachytherapy sources paid under the OPPS in CY 2008. In accordance with this proposal, we also are proposing to discontinue our use of payment status indicator ``H'' for APCs assigned to brachytherapy sources. As indicated in section VII.B. of this proposed rule for CY 2008, we are proposing to use payment status indicator ``K'' to designate all brachytherapy source APCs that will be paid under the OPPS.

As discussed in section V.B.3.a.(4) of this proposed rule, we are proposing to implement prospective payment for separately payable therapeutic radiopharmaceuticals under the OPPS in CY 2008. In accordance with this proposal, we also are proposing to discontinue our use of payment status indicator ``H'' for APCs assigned to separately payable therapeutic radiopharmaceuticals. For CY 2008, we are proposing to use payment status indicator ``K'' to designate separately payable therapeutic radiopharmaceuticals that will be paid under the OPPS. 2. Proposed Payment Status Indicators to Designate Services That Are Paid Under a Payment System Other Than the OPPS

Indicator

Item/code/service

OPPS Payment Status

A........................ Services furnished to a hospital

Not paid under OPPS. Paid by fiscal outpatient that are paid under a fee

intermediaries under a fee schedule or schedule or payment system other than payment system other than OPPS. OPPS, for example: Ambulance Services

......................................... Clinical Diagnostic Laboratory ......................................... Services Non-Implantable Prosthetic and ......................................... Orthotic Devices EPO for ESRD Patients

......................................... Physical, Occupational, and

......................................... Speech Therapy Routine Dialysis Services for ......................................... ESRD Patients Provided in a Certified Dialysis Unit of a Hospital Diagnostic Mammography

......................................... Screening Mammography

......................................... C........................ Inpatient Procedures...................... Not paid under OPPS. Admit patient. Bill as inpatient. F........................ Corneal Tissue Acquisition; Certain CRNA Not paid under OPPS. Paid at reasonable Services; and Hepatitis B Vaccines.

cost. L........................ Influenza Vaccine; Pneumococcal Pneumonia Not paid under OPPS. Paid at reasonable Vaccine.

cost; Not subject to deductible or coinsurance. M........................ Items and Services Not Billable to the Not paid under OPPS. Fiscal Intermediary. Y........................ Non-Implantable Durable Medical Equipment. Not paid under OPPS. All institutional providers other than home health agencies bill to DMERC.

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

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Indicator

Item/code/service

OPPS Payment Status

B........................ Codes that are not recognized by OPPS when Not paid under OPPS. submitted on an outpatient hospital Part May be paid by intermediaries B bill type (12x and13x).

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

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

Indicator

Item/code/service

OPPS Payment Status

D........................ Discontinued Codes........................ Not paid under OPPS or any other Medicare payment system. E........................ Items, Codes, and Services:............... Not paid under OPPS or any other Medicare payment system. That are not covered by Medicare based on statutory exclusion That are not covered by Medicare for reasons other than statutory exclusion That are not recognized by Medicare but for which an alternate code for the same item or service may be available For which separate payment is not provided by Medicare

To address providers' broader interests and to make the published Addendum B more convenient for public use, we are displaying in Addendum B to this proposed rule all active HCPCS codes that describe items or services that are: (1) Payable under the OPPS; (2) paid under a payment system other than the OPPS; (3) not recognized under the OPPS but that may be recognized by other institutional providers; and (4) not payable by Medicare. The status indicators that we are proposing for CY 2008 for these items and services are listed in the tables above.

A complete listing of HCPCS codes with proposed payment status indicators and APC assignments for CY 2008 is also available electronically on the CMS Web site at http://www.cms.hhs.gov/HospitalOutpatientPPS/HORD/list.asp#TopOfPage .

B. Proposed Comment Indicator Definitions

(If you choose to comment on issues in this section, please include the caption ``OPPS: Comment Indicators'' at the beginning of your comment.)

In the November 15, 2004 final rule with comment period (69 FR 65827 and 65828), we made final our policy to use two comment indicators to identify in an OPPS final rule the assignment status of a specific HCPCS code to an APC and the timeframe when comments on the HCPCS APC assignment would be accepted. These two comment indicators are listed below.

``NF''--New code, final APC assignment; Comments were accepted on a proposed APC assignment in the Proposed Rule; APC assignment is no longer open to comment.

``NI''--New code, interim APC assignment; Comments will be accepted on the interim APC assignment for the new code.

In the November 10, 2005 final rule with comment period (70 FR 68702 and 68703), we adopted a new comment indicator:

``CH''--Active HCPCS codes in current and next calendar year; status indicator and/or APC assignment have changed.

We implemented comment indicator ``CH'' to designate a change in payment status indicator and/or APC assignment for HCPCS codes in Addendum B of the CY 2006 final rule with comment period. We also stated that codes flagged with the ``CH'' indicator in that final rule would not be open to comment because the changes generally were previously subject to comment during the proposed rule comment period. For CY 2008, we are proposing to continue that policy in the CY 2008 OPPS/ASC final rule with comment period. When used in an OPPS final rule, the ``CH'' indicator is only intended to facilitate the public's review of changes made from one calendar year to another. We are proposing to use the ``CH'' indicator in the CY 2008 OPPS/ASC final rule with comment period to indicate HCPCS codes for which the status indicator or APC assignment, or both, would change in CY 2008 compared to their assignment as of December 31, 2007.

However, only HCPCS codes with comment indicator ``NI'' in the CY 2008 OPPS/ASC final rule with comment period would be subject to comment during the comment period for the final rule with comment period.

We are using the ``CH'' indicator in this proposed rule to call attention to proposed changes in the payment status indicator and/or APC assignment for HCPCS codes for CY 2008. The use of the comment indicator ``CH'' in association with a composite APC indicates that the configuration of the composite APC is proposed for change in this proposed rule.

In this proposed rule, the ``CH'' indicator is appended to HCPCS codes for which we have proposed changes in the payment status indicator and/or APC assignment for CY 2008 compared to their assignment as of June 30, 2007. We believe that using the ``CH'' indicator in this proposed rule will facilitate the public's review of the changes that we are proposing to make final in CY 2008. Use of the ``CH'' indicator in this proposed rule is significant because it highlights changes that are subject to comment during the proposed rule comment period.

We are proposing to terminate comment indicator ``NF'' because its use is no longer relevant in the final rule(s). The two comment indicators, ``NI'' and ``CH,'' that we are proposing to continue using in CY 2008 and their definitions are listed in Addendum D2 to this proposed rule.

[[Continued on page 42777]]

From the Federal Register Online via GPO Access [wais.access.gpo.gov] ]

[[pp. 42777-42826]] Medicare Program: Proposed Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates; Proposed Changes to the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates; Medicare and Medicaid Programs: Proposed Changes to [[Page 42777]]

[[Continued from page 42776]]

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XV. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

The MedPAC submits reports to Congress in March and June that summarize payment policy recommendations. The March 2007 MedPAC report included the following recommendation relating specifically to the hospital OPPS:

Recommendation 2A-1: The Congress should increase payment rates for the outpatient prospective payment system in 2008 by the projected rate-of-increase in the hospital market basket index, concurrent with the implementation of a quality incentive payment program.

CMS Response: We are proposing to increase the payment rates for the CY 2008 OPPS by the projected rate-of-increase in the hospital market basket index (as discussed in section II.C. of this proposed rule) and to implement, effective for CY 2009, the reduction in the annual update factor by 2.0 percentage points for subsection (d) hospitals that do not meet the outpatient hospital quality reporting required by section 1833(t)(17) of the Act, as added by section 109(b) of the MIEA-TRHCA. Our proposal for implementing the hospital quality reporting measures for the CY 2008 OPPS is discussed in detail in section XVII. of this proposed rule.

B. APC Panel Recommendations

Recommendations made by the APC Panel at its March 2007 meeting are discussed in sections of this proposed rule that correspond to topics addressed by the APC Panel. Minutes of the APC Panel's March 7-9, 2007 meeting are available on the CMS Web site at: http: //http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassification Groups.asp.

XVI. Proposed Update of the Revised Ambulatory Surgical Center Payment System

A. Legislative and Regulatory Authority for the ASC Payment System

Section 1832(a)(2)(F)(i) of the Act provides that benefits under the Medicare Part B include payment for facility services furnished in connection with surgical procedures specified by the Secretary that are performed in an ASC. To participate in the Medicare program as an ASC, a facility must meet the standards specified in section 1832(a)(2)(F)(i) of the Act, which are implemented in 42 CFR Part 416, Subpart B and Subpart C of our regulations. The regulations at 42 CFR 416, Subpart B set forth general conditions and requirements for ASCs, and the regulations at Subpart C provide specific conditions for coverage for ASCs.

To establish the reasonable estimated allowances for ASC facility services, section 1833(i)(2)(A)(i) of the Act required us to take into account the audited costs incurred by ASCs to perform a procedure, in accordance with a survey. The ASC services benefit was enacted by Congress through the Omnibus Reconciliation Act of 1980 (Pub. L. 96 499). For a detailed discussion of the legislative history related to ASCs, we refer readers to the June 12, 1998 proposed rule (63 FR 32291).

Section 141(b) of the Social Security Act Amendments of 1994, Pub. L. 103-432, requires us to establish a process for reviewing the appropriateness of the payment amount provided under section 1833(i)(2)(A)(iii) of the Act for intraocular lenses (IOLs) that belong to a class of new technology intraocular lenses (NTIOLs). That process was the subject of a separate final rule entitled ``Adjustment in Payment Amounts for New Technology Intraocular Lenses Furnished by Ambulatory Surgical Centers,'' published on June 16, 1999, in the Federal Register (64 FR 32198).

Section 626(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, repealed the requirement formerly found in section 1833(i)(2)(A) of the Act that the Secretary conduct a survey of ASC costs for purposes of updating ASC payment rates and required the Secretary to implement a revised ASC payment system, to be effective not later than January 1, 2008.

Section 5103 of the DRA, Pub. L. 109-171, amended section 1833(i)(2) of the Act by adding a new subparagraph (E) to place a limitation on payments for surgical procedures in ASCs. The amended language provides that if the standard overhead amount under section 1833(i)(2)(A) of the Act for an ASC facility service for such surgical procedures, without application of any geographic adjustment, exceeds the Medicare payment amount under the hospital OPPS for the service for that year, without application of any geographic adjustment, the Secretary shall substitute the OPPS payment amount for the ASC standard overhead amount. This provision applies to surgical procedures furnished in ASCs on or after January 1, 2007, and before the effective date of the revised ASC payment system (see the final rule for the revised ASC payment system published elsewhere in this issue of the Federal Register).

Section 109(b) of the MIEA-TRHCA, Pub. L.109-432, amended section 1833(i) of the Act, in part, by adding new clause (iv) to paragraph (2)(D) and by also adding new paragraph (7)(A), which provides that the Secretary may reduce the annual ASC update by 2 percentage points if an ASC fails to submit data as required by the Secretary on selected measures of quality of care, including medication errors. Section 109(b) of MIEA-TRCHA requires that certain quality of care reporting requirements mandated for hospitals paid under the OPPS by section 109(a) of the MIEA-TRCHA be applied in a similar manner to ASCs unless otherwise specified by the Secretary. We refer readers to sections XVII.A. and H. of this proposed rule for further discussion of this provision and our plans for future ASC implementation

B. Rulemaking for the Revised ASC Payment System

On August 23, 2006, we proposed in the Federal Register (71 FR 49635) a revised payment system for ASCs to be implemented effective January 1, 2008, in accordance with section 626(b) of Pub. L. 108-173. The proposal included, among other things, revisions to the ASC list of covered surgical procedures for CY 2008 and the payment methodology for the items and services furnished by the ASC.

We are publishing elsewhere in this issue of the Federal Register the final rule for the revised ASC payment system, effective January 1, 2008, hereinafter referred to as the July 2007 final rule for the revised ASC payment system. In that final rule, we established that we would address two components of the ASC payment system annually as part of the OPPS rulemaking cycle. Section 1833(i)(1) of the Act requires us to specify, in consultation with appropriate medical organizations, surgical procedures that are appropriately performed on an inpatient basis in a hospital but that can be safely performed in an ASC, CAH, or an HOPD and to review and update the list of ASC procedures at least every 2 years.

In the July 2007 final rule for the revised ASC payment system, we also adopted the method we will use to set payment rates for ASC services furnished in association with covered surgical procedures. Updating covered surgical procedures and covered ancillary services, as well as their payment rates, in association with the annual OPPS rulemaking cycle is particularly important because the OPPS relative payment weights and rates will be used as the basis for the payment of most covered surgical

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procedures and covered ancillary services under the revised ASC payment system. This joint update process will ensure that the ASC updates occur in a regular, predictable, and timely manner. The final rule included applicable regulatory changes to 42 CFR Parts 410 and 416.

In this CY 2008 OPPS/ASC proposed rule, we are proposing to update the revised ASC payment system for CY 2008, along with the OPPS. We are also proposing to revise the regulations to make practice expense payment to physicians who perform noncovered ASC procedures in ASCs based on the facility practice expense (PE) relative value units (RVUs) and to exclude covered ancillary radiology services and covered ancillary drugs and biologicals from the categories of designated health services (DHS) that are subject to the physician self-referral prohibition.

C. Revisions to the ASC Payment System Effective January 1, 2008

1. Covered Surgical Procedures Under the Revised ASC Payment System a. Definition of Surgical Procedure

In order to delineate the scope of procedures that constitute ``outpatient surgical procedures'' for payment under the revised ASC payment system, in the July 2007 final rule for the revised ASC payment system, we clarified what we consider to be a ``surgical'' procedure. Under the ASC payment system existing through CY 2007, we define a surgical procedure as any procedure described within the range of Category I CPT codes that the CPT Editorial Panel of the AMA defines as ``surgery'' (CPT codes 10000 through 69999). Under the revised payment system, we continue to define surgery using that standard. We also include within the scope of surgical procedures payable in an ASC those procedures that are described by Level II HCPCS codes or by Category III CPT codes that directly crosswalk or are clinically similar to procedures in the CPT surgical range that we have determined do not pose a significant safety risk and that we would not expect to require an overnight stay when performed in ASCs. Having established what we consider to be a ``surgical procedure,'' we defined criteria that enable us to identify procedures that could pose a significant safety risk when performed in an ASC or that we expect would require an overnight stay within the bounds of prevailing medical practice. b. Identification of Surgical Procedures Eligible for Payment Under the Revised ASC Payment System

ASC ``covered surgical procedures'' are those surgical procedures for which payment is made under the revised ASC payment system. Our final policy for identifying surgical procedures eligible for ASC payment excludes those surgical procedures that are on the OPPS inpatient list, procedures that are packaged under the OPPS, CPT unlisted surgical procedure codes, and surgical procedures that are not recognized for payment under the OPPS. Further, we exclude from ASC payment any procedure for which standard medical practice dictates that the beneficiary would typically be expected to require active medical monitoring and care at midnight following the procedure (overnight stay), and all surgical procedures that could pose a significant safety risk to Medicare beneficiaries. The criteria used under the revised ASC payment system to identify procedures that could pose a significant safety risk when performed in an ASC include those procedures that: generally result in extensive blood loss; require major or prolonged invasion of body cavities; directly involve major blood vessels; are emergent or life-threatening in nature; or commonly require systemic thrombolytic therapy. These criteria for evaluating surgical procedures are set forth in Sec. 416.166(c). c. Payment for Covered Surgical Procedures Under the Revised ASC Payment System (1) General Policies

To make payment for most covered surgical procedures, we utilize the OPPS APCs as a ``grouper'' and the APC relative payment weights as the basis for ASC relative payment weights and for calculating ASC payment rates under the revised payment system, by applying a uniform ASC conversion factor to the ASC payment weights. For the first year of the revised ASC payment system, we adopted the OPPS relative payment weights as the ASC relative payment weights for most covered surgical procedures.

For future years, we will update the ASC relative payment weights annually using the OPPS relative payment weights for that calendar year, as well as the practice expense payment amounts under the MPFS schedule for that calendar year, because some covered office-based surgical procedures and covered ancillary services will be paid according to MPFS amounts if those amounts are less than the rates calculated under the standard methodology of the revised ASC payment system.

Just as we scale the OPPS relative payment weights each year to ensure that the OPPS is budget neutral from one year to the next, we will rescale relative weights each year for the revised ASC payment system. The purpose of scaling the relative weights is to ensure that the estimated aggregate payments under the ASC payment system for an upcoming year would be neither greater than nor less than the aggregate payments that would be made in the prior year, taking into consideration any changes or recalibrations for the upcoming year. Rescaling enables us to compensate for the effects of changes in the OPPS relative payment weights from year to year for services that are not performed in ASCs (for example, due to sudden increases or decreases in the costs of hospital outpatient emergency department visits) that could inappropriately cause the estimated ASC expenditures to increase or decrease as a function of those changes.

To establish the budget neutrality adjustment for the revised ASC payment system, we used a model that accounts for the migration of surgical procedures between ASCs, physicians' offices, and HOPDs as discussed in the July 2007 final rule for the revised ASC payment system. The budget neutrality adjustment for CY 2008 is based on updated proposed CY 2008 OPPS and MPFS rates, along with updated utilization data. The estimated ASC CY 2008 budget neutrality adjustment factor is multiplied by the proposed OPPS conversion factor to establish the proposed ASC conversion factor. The standard ASC payment for most of the covered surgical procedures displayed in Addendum AA of this proposed rule is calculated as the product of that proposed ASC conversion factor multiplied by the proposed OPPS relative payment weight for each separately payable procedure. A more detailed discussion of the methodology is provided in section XVI.L. of this proposed rule.

Beginning in CY 2010, we will update the ASC conversion factor for the revised ASC payment system by the percentage increase in the CPI-U (U.S. city average), as estimated for the 12-month period ending with the midpoint of the year involved. At the same time, we recognize that we continue to have flexibility under the statute to employ a different update mechanism under the revised ASC payment system. As one example, we do not intend for the revised ASC payment system to result in additional Medicare expenditures over

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time. We will be monitoring this issue closely in the coming years. Consequently, we will reconsider the ASC update if expenditures increase inappropriately in future years. (2) Office-Based Procedures

Among the procedures newly identified as covered surgical procedures for payment in ASCs beginning in CY 2008 are many procedures that are performed most of the time in physicians' offices. These procedures neither pose a significant safety risk nor are they expected to require an overnight stay when performed in ASCs, and they generally require a lower level of resource intensity than do most other ASC covered surgical procedures. For those reasons, in the July 2007 final rule for the revised ASC payment system, we adopted a policy to include them as covered surgical procedures but to ensure that payment for the facility resources associated with the procedures identified as ``office-based'' would not be greater when provided in ASCs than when furnished in physicians' offices.

Under the revised ASC payment system, we cap payment for office- based surgical procedures for which ASC payment would first be allowed beginning in CY 2008 or later years at the lesser of the MPFS nonfacility practice PE RVU amount or the ASC rate developed according to the standard methodology of the revised ASC payment system. For those office-based procedures for which there is no available MPFS nonfacility PE RVU amount, we will implement the cap, as appropriate, once a MPFS nonfacility PE RVU amount is available. Once procedures are finalized as being office-based procedures, they remain designated as office-based. We may propose that additional HCPCS codes be classified as office-based in a proposed rule for an annual ASC update after review of the most recent available utilization data. We consider for additional designation as office-based those procedures newly paid in ASCs in CY 2008 or later years that our review concludes are performed predominantly (more than 50 percent of the time) in physicians' offices, based on our consideration of volume and site of service utilization data for the procedures, as well as clinical information and comparable data for related procedures, if appropriate.

Procedures designated as office-based for CY 2008 are identified in Addendum AA to this proposed rule and assigned payment indicators ``P2'' (Office-based surgical procedures added to ASC list in CY 2008 or later with MPFS nonfacility PE RVUs; payment based on OPPS relative payment weight); ``P3'' (Office-based surgical procedure added to ASC list in CY 2008 or later with MPFS nonfacility PE RVUs; payment based on MPFS nonfacility PE RVUs); and ``R2'' (Office-based surgical procedure added to ASC list in CY 2008 or later without MPFS nonfacility PE RVUs; payment based on OPPS relative payment weight). Those procedures for which the designation as office-based is newly proposed for CY 2008 are identified in Addendum AA with comment indicator ``CH'' and those for which the payment indicator is a temporary designation are marked by an asterisk. The temporary designation means that the office-based payment indicator (``P2,'' `` P3,'' or ``R2'') assigned to the procedure is