Medicare: Hospital outpatient prospective payment system and 2007 CY payment rates,

 
CONTENT

[Federal Register: November 24, 2006 (Volume 71, Number 226)]

[Rules and Regulations]

[Page 67959-68401]

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

[DOCID:fr24no06-9]

[[Page 67959]]

Part II

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 416 et al.

Medicare Program--Revisions to Hospital Outpatient Prospective Payment System and Calendar Year 2007 Payment Rates; Final Rule

[[Page 67960]]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 416, 419, 421, 485, and 488

[CMS-1506-FC; CMS-4125-F]

RIN 0938-AO15

Medicare Program; Hospital Outpatient Prospective Payment System and CY 2007 Payment Rates; CY 2007 Update to the Ambulatory Surgical Center Covered Procedures List; Medicare Administrative Contractors; and Reporting Hospital Quality Data for FY 2008 Inpatient Prospective Payment System Annual Payment Update Program--HCAHPS Survey, SCIP, and Mortality

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

ACTION: Final rule with comment period and final rule.

SUMMARY: This final rule with comment period revises the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system, and to implement certain related provisions of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 and the Deficit Reduction Act (DRA) of 2005. In this final rule with comment period, we describe 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 are applicable to services furnished on or after January 1, 2007. In addition, this final rule with comment period implements future CY 2009 required reporting on quality measures for hospital outpatient services paid under the prospective payment system.

This final rule with comment period revises the current list of procedures that are covered when furnished in a Medicare-approved ambulatory surgical center (ASC), which are applicable to services furnished on or after January 1, 2007.

This final rule with comment period revises the emergency medical screening requirements for critical access hospitals (CAHs).

This final rule with comment period supports implementation of a restructuring of the contracting entities responsibilities and functions that support the adjudication of Medicare fee-for-service (FFS) claims. This restructuring is directed by section 1874A of the Act, as added by section 911 of the MMA. The prior separate Medicare intermediary and Medicare carrier contracting authorities under Title XVIII of the Act have been replaced with the Medicare Administrative Contractor (MAC) authority.

This final rule continues to implement the requirements of the DRA that require that we expand the ``starter set'' of 10 quality measures that we used in FY 2005 and FY 2006 for the hospital inpatient prospective payment system (IPPS) Reporting Hospital Quality Data for the Annual Payment Update (RHQDAPU) program. We began to adopt expanded measures effective for payments beginning in FY 2007. In this rule, we are finalizing additional quality measures for the expanded set of measures for FY 2008 payment purposes. These measures include the HCAHPS survey, as well as Surgical Care Improvement Project (SCIP, formerly Surgical Infection Prevention (SIP)), and Mortality quality measures.

DATES: Effective Date: The provisions of these final rules are effective on January 1, 2007.

Comment Period: We will consider comments on the payment classification assigned to HCPCS codes identified in Addendum B with the NI comment code, and other areas specified throughout the preamble, at the appropriate address, as provided below, no later than 5 p.m. January 23, 2007.

Application Deadline--New Class of New Technology Intraocular Lens: Requests for review of applications for a new class of new technology intraocular lenses must be received by close of business April 1, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1506-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may 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-1506-FC, P.O. Box 8011, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1506-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (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) 786-7195 in advance to schedule your arrival with one of our staff members.

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

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

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

Applications for a new class of new technology intraocular lenses: Requests for review of applications for a new class of new technology intraocular lenses must be sent by regular mail to: ASC/NTIOL, Division of Outpatient Care, Mailstop C4-05-17, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT: Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective payment issues. Dana Burley, (410) 786-0378, Ambulatory surgery center issues. Suzanne Asplen, (410) 786-4558, Partial hospitalization and community mental health centers issues.

[[Page 67961]]

Mary Collins, (410) 786-3189, Critical access hospital emergency medical planning issues. Sandra M. Clarke, (410) 786-6975, Medicare Administrative Contractors issues. Mark Zobel, (410) 786-6905, Medicare Administrative Contractors issues. Liz Goldstein, (410) 786-6665, FY 2008 IPPS RHQDAPU HCAHPS issues. Bill Lehrman, (410) 786-1037, FY 2008 IPPS RHQDAPU HCAHPS issues. Sheila Blackstock, (410) 786-3506, FY 2008 IPPS RHQDAPU SCIP and mortality issues.

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on the payment classification and status indicator assigned to HCPCS codes identified in Addendum B of this final rule with comment period with comment indicator NI and on the ambulatory surgical center procedures that were not proposed for addition to the ambulatory surgical center list in the CY 2007 OPPS proposed rule to assist us in fully considering issues and developing policies. You can assist us by referencing filed code CMS-1506-FC.

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 of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

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

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

Alphabetical List of Acronyms Appearing in the Final 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 CBSA Core-Based Statistical Area CCR Cost-to-charge ratio CMHC Community mental health center CMS Centers for Medicare & Medicaid Services CNS Clinical nurse specialist CORF Comprehensive outpatient rehabilitation facility CPT [Physicians'] Current Procedural Terminology, Fourth Edition, 2006, copyrighted by the American Medical Association CRNA Certified registered nurse anesthetist CY Calendar year DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DMERC Durable medical equipment regional carrier DRA Deficit Reduction Act of 2005, Pub. L. 109-171 DSH Disproportionate share hospital EACH Essential Access Community Hospital E/M Evaluation and management EPO Erythropoietin ESRD End-stage renal disease FACA Federal Advisory Committee Act, Pub. L. 92-463 FAR Federal Acquisition Regulations FDA Food and Drug Administration FFS Fee-for-service FSS Federal Supply Schedule FY Federal fiscal year GAO Government Accountability Office HCPCS Healthcare Common Procedure Coding System HCRIS Hospital Cost Report Information System HHA Home health agency HIPAA Health Insurance Portability and Accountability Act of 1996, Pub. L. 104-191 ICD-9-CM International Classification of Diseases, Ninth Edition, Clinical Modification 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 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 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

[[Page 67962]]

In this document, we address three payment systems under the Medicare program: the hospital outpatient prospective payment system (OPPS), the hospital inpatient prospective payment system (IPPS), and the ambulatory surgical center (ASC) payment system. The provisions relating to the OPPS are included in sections I. through XIII., XV., XVI., XIX., XXIII., XXIV., XXV., and XXVI. of the preamble and in Addenda A, B, C (Addendum C is available on the Internet only; see section XXIII. of the preamble of this final rule with comment period), D1, D2, and E of this final rule with comment period. The provisions related to the IPPS are included in sections XXII. and XXVI.E. of the preamble. The provisions related to ASCs are included in sections XVII. and XXV., and XXVI.C. of the preamble and in Addenda AA of this final rule with comment period.

In addition, in this document, we address our implementation of the Medicare contracting reform provisions of the MMA that replace the prior Medicare intermediary and carrier authorities formerly found in sections 1816 and 1842 of the Act with Medicare administrative contractor (MAC) authority under a new section 1874A of the Act. The provisions relating to MACs are included in sections XVIII. and XXV.D. of this preamble. To assist readers in referencing sections contained in this document, we are providing the following table of contents:

Table of Contents

I. Background for the OPPS

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

B. Excluded OPPS Services and Hospitals

C. Prior Rulemaking

D. APC Advisory Panel

1. Authority of the APC Panel

2. Establishment of the APC Panel

3. APC Panel Meetings and Organizational Structure

E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

1. Reduction in Threshold for Separate APCs for Drugs

2. Special Payment for Brachytherapy

F. Provisions of the Deficit Reduction Act (DRA) of 2005

1. 3-Year Transition of Hold Harmless Payments

2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic Aneurysms

3. Colorectal Cancer Screening

G. Summary of the Provisions of the CY 2007 OPPS Proposed Rule

1. Updates to the OPPS Payments for CY 2007

2. Ambulatory Payment Classification (APC) Group Policies

3. Payment Changes for Devices

4. Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, and Devices

6. Brachytherapy Payment Changes

7. Coding and Payment for Drugs Administration

8. Hospital Coding and Payments for Visits

9. Payment for Blood and Blood Products

10. Payment for Observation Services

11. Procedures That Will Be Paid Only as Inpatient Services

12. Nonrecurring Policy Changes

13. Emergency Medical Screening in Critical Access Hospitals (CAHs)

14. Payment Status and Comment Indicator Assignments

15. OPPS Policy and Payment Recommendations

16. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007

17. Revised ASC Payment System for Implementation January 1, 2008

18. Medicare Contracting Reform Mandate

19. Reporting Quality Data for Improved Quality and Costs Under the OPPS

20. Promoting Effective Use of Health Information Technology

21. Health Care Information Transparency Initiative

22. Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for FY 2008 IPPS Annual Payment Update

23. Impact Analysis

H. Public Comments Received in Response to the CY 2007 OPPS and Reporting Hospital Quality Data for FY 2008 IPPS Annual Payment Update Program--HCAHPS Survey, SCIP, and Mortality Proposed Rules

I. Public Comments Received on the November 10, 2005 OPPS Final Rule with Comment Period II. Updates Affecting OPPS Payments for CY 2007

A. Recalibration of APC Relative Weights for CY 2007

1. Database Construction

a. Database Source and Methodology

b. Use of Single and Multiple Procedure Claims

c. Revised Overall Cost-to-Charge Ratio (CCR) Calculation

2. Calculation of Median Costs for CY 2007

3. Calculation of Scaled OPPS Payment Weights

4. Changes to Packaged Services

B. Payment for Partial Hospitalization

1. Background

2. PHP APC Update for CY 2007

3. Separate Threshold for Outlier Payments to CMHCs

C. Conversion Factor Update for CY 2007

D. Wage Index Changes for CY 2007

E. Statewide Average Default CCRs

F. OPPS Payments to Certain Rural Hospitals

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

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

G. CY 2007 Hospital Outpatient Outlier Payments

1. CY 2007 Proposal

2. CY 2007 Final Rule Outlier Calculation

H. Calculation of the OPPS National Unadjusted Medicare Payment

I. Beneficiary Copayments for CY 2007

1. Background

2. Copayment for CY 2007

3. Calculation of an Adjusted Copayment Amount for an APC Group for CY 2007 III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. Treatment of New HCPCS and CPT Codes

1. Treatment of New HCPCS Codes Included in the Second and Third Quarterly OPPS Updates for CY 2006

2. Treatment of New CY 2007 Category I and III CPT Codes and Level II HCPCS Codes

3. Treatment of New Mid-Year CPT Codes

B. Variations Within APCs

1. Background

2. Application of the 2 Times Rule

3. Exceptions to the 2 Times Rule

C. New Technology APCs

1. Introduction

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

a. Nonmyocardial Positron Emission Tomography (PET) Scans (APC 0308)

b. PET/Computed Tomography (CT) Scans (APC 0308)

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

d. Magnetoencephalography (MEG) Services (APCs 0038 and 0209)

e. Other Services in New Technology APCs

(1) Breast Brachytherapy (APCs 0029 and 0030)

(2) Radiofrequency Ablation (APCs 0050 and 0423)

(3) Extracorporeal Shock Wave Treatment (APC 0050)

(4) Insertion of Venuous Access Device with Two Ports (APC 0623)

(5) Stereoscopic X-Ray Guidance (APC 0257)

(6) Whole Body Tumor Imaging (APC 0408)

(7) Gastroesophageal Reflux Test With pH Electrode (APC 0361)

(8) Home International Normalized Ratio (INR) Monitoring (APC 0604)

(9) Tositumomab Administration and Supply (APC 0442)

(10) Summary of Other New Technology Procedures Assigned to Clinical APCs for CY 2007

D. APC-Specific Policies

1. Radiology Procedures

a. Radiology Procedures (APCs 0333, 0662, and Other Imaging APCs)

b. Computerized Reconstruction (APC 0417)

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

d. Radiologic Evaluation of Central Venous Access Device (APC 0340)

2. Nuclear Medicine and Radiation Oncology Procedures

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

b. Complex Interstitial Radiation Source Application (APC 0651)

c. Proton Beam Therapy (APCs 0664 and 0667)

[[Page 67963]]

d. Urinary Bladder Residual Study (APC 0340)

e. Hyperthermia Treatment (APC 0314)

f. Unlisted Procedure for Clinical Brachytherpy (APC 0312)

3. Cardiac and Vascular Procedures

a. Electrophysiologic Recording/Mapping (APC 0087)

b. Endovenous Laser Ablation Procedures (APC 0092)

c. Repair/Repositioning of Defibrillator Leads (APC 0106)

d. Thrombectomy Procedures (APCs 0103 and 0653)

4. Gastrointestinal and Genitourinary Procedures

a. Insertion of Mesh or Other Prosthesis (APC 0195)

b. Percutaneous Renal Cryoablation (APC 0423)

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

d. Laser Vaporization of Prostate (APC 0429)

e. Gastrointestinal Procedures with Stents (APC 0384)

f. Endoscopy with Thermal Energy to Sphincter (APC 0422)

5. Ocular Procedures

a. Keratoprosthesis (APC 0293)

b. Eye Procedures (APCs 0232, 0235, and 0241)

c. Amniotic Membrane for Ocular Surface Reconstruction

6. Other Procedures

a. Skin Replacement Surgery and Skin Substitutes (APC 0025)

b. Treatment of Fracture/Dislocation (APCs 0062, 0063, and 0064)

c. Complex Skin Repair (APC 0024)

d. Insertion of Posterior Spinous Process Distraction Device

7. Medical Services

a. Medication Therapy Management Services

b. Single Allergy Tests (APC 0381)

c. Hyperbaric Oxygen Therapy (APC 0659)

d. Guidance for Chemodenervation (APC 0215)

e. Pathology Services (APC 0344) IV. OPPS Payment Changes for Devices

A. Treatment of Device-Dependent APCs

1. Background

2. CY 2007 Payment Policy

3. Devices Billed in the Absence of an Appropriate Procedure Code

4. Payment Policy When Devices are Replaced Without Cost or Where Credit for a Replaced Device is Furnished to the Hospital

B. Pass-Through Payments for Devices

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

a. Background

b. Policy for CY 2007

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

a. Background

b. Policies for CY 2007 V. OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

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

1. Background

2. Drugs and Biologicals With Expiring Pass-Through Status in CY 2006

3. Drugs and Biologicals With Pass-Through Status in CY 2007

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

1. Background

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

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

a. Payment for Specified Covered Outpatient Drugs

(1) Background

(2) Payment Policy for CY 2007

(3) CY 2007 Payment Policy for Radiopharmaceuticals

(a) Background and Proposed CY 2007 Radiopharmaceutical Payment Policy

(b) CY 2007 Final Radiopharmaceutical Payment Policy

b. CY 2007 Payment for Nonpass-Through Drugs, Biologicals, Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data

(1) Background

(2) CY 2007 Proposed and Final Payment Policy for Radiopharmaceuticals With HCPCS Codes, But Without Hospital Claims Data

(3) CY 2007 Proposed and Final Payment Policy for Drugs and Biologicals With HCPCS Codes, But Without OPPS Hospital Claims Data

(4) CY 2007 Proposed and Final Payment Policy for Drugs, Biologicals, and Radiopharmaceuticals With HCPCS Codes, But Without OPPS Hospital Claims Data and Without ASP-Related Data VI. Estimate of OPPS Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, Radiopharmaceuticals, and Devices

A. Total Allowed Pass-Through Spending

B. Estimate of Pass-Through Spending for CY 2007 VII. Brachytherapy Source Payment Changes

A. Background

B. Government Accountability Office's Final Report on Devices of Brachytherapy

C. Payments for Brachytherapy Sources in CY 2007 VIII. Changes to OPPS Drug Administration Coding and Payment for CY 2007

A. Background

B. CY 2007 Drug Administration Coding Changes

C. CY 2007 Drug Administration Payment Changes IX. Hospital Coding and Payment for Visits

A. Background

1. Guidelines Based on the Number or Type of Staff Interventions

2. Guidelines Based on the Time Staff Spent with the Patient

3. Guidelines Based on a Point System Where a Certain Number of Points Are Assigned to Each Staff Intervention Based on the Time, Intensity, and Staff Type Required for the Intervention

4. Guidelines Based on Patient Complexity

B. CY 2007 Proposed and Final Coding Policies

1. Clinic Visits

2. Emergency Department Visits

3. Critical Care Services

C. CY 2007 Payment Policy

D. CY 2007 Treatment of Guidelines

1. Background

2. Outstanding Concerns with the AHA/AHIMA Guidelines

a. Three Versus Five Levels of Codes

b. Lack of Clarity for Some Interventions

c. Treatment of Separately Payable Services

d. Some Interventions Appear Overvalued

e. Concerns of Specialty Clinics

f. American with Disabilities Act

g. Differentiation Between New and Established Patients and Between Standard Visits and Consultations

h. Distinction Between Type A and Type B Emergency Departments X. Payment for Blood and Blood Products

A. Background

B. Policy Changes for CY 2007 XI. OPPS Payment for Observation Services XII. Procedures That Will be Paid Only as Inpatient Procedures

A. Background

B. Changes to the Inpatient List

C. CY 2007 Payment for Ancillary Outpatient Services When Patient Expires (-CA Modifier)

1. Background

2. Policy for CY 2007 XIII. Nonrecurring Policy Changes

A. Removal of Comprehensive Outpatient Rehabilitation Facility (CORF) Services from the List of Services Paid under the OPPS

B. Addition of Ultrasound Screening for Abdominal Aortic Aneurysms (AAAs) (Section 5112 of Pub. L. 109-171 (DRA))

1. Background

2. Assignment of New HCPCS Code and Payment for Ultrasound Screening for Abdominal Aortic Aneurysm (AAA) XIV. Emergency Medical Screening in Critical Access Hospitals (CAHs)

A. Background

B. Proposed Policy Change

C. Public Comments Received on the Proposal

D. Final Policy XV. OPPS Payment Status and Comment Indicators

A. CY 2007 Status Indicator Definitions

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

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

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

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

B. CY 2007 Comment Indicator Definitions XVI. OPPS Policy and Payment Recommendations

A. MedPAC Recommendations

B. APC Panel Recommendations

C. GAO Recommendations XVII. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007

[[Page 67964]]

A. ASC Background

1. Legislative History

2. Current Payment Method

3. Published Changes to the ASC List

B. ASC List Update Effective for Services Furnished On or After January 1, 2007

1. Criteria for Additions To or Deletions From the ASC List

2. Rationale for Payment Assignment

3. Response to Comments to the May 4, 2005 Interim Final Rule for the ASC Update

4. Procedures Proposed for Additions to the ASC List

5. Specific Requests for Payment Group Changes

6. Requests for Additions to the ASC List from Comments to the August 23, 2006 Proposed Rule

a. Requests Accepted for Additions to the ASC List for CY 2007

b. Requests Not Accepted for Additions to the ASC List for CY 2007

7. Requests for Payment Increases for Procedures on the Current ASC List

8. Other Comments on the May 4, 2005 Interim Final Rule

C. Regulatory Changes for CY 2007

D. Implementation of Section 1834(d) of the Act

E. Implementation of Section 5103 of Pub. L. 109-171 (DRA)

F. Modification of the Current ASC Process for Adjusting Payment for New Technology Intraocular Lenses (NTIOLs)

1. Background

a. Current ASC Payment for Insertion of IOLs

b. Classes of NTIOLs Approved for Payment Adjustment

2. Proposed and Final Changes

a. Process for Recognizing IOLs as Belonging to an Active IOL Class

b. Public Notice and Comment Regarding Adjustments of NTIOL Payment Amounts

c. Factors CMS Considers in Determining Whether an Adjustment of Payment for Insertion of a New Class of NTIOL is Appropriate

d. Revision of the Content of a Request to Review

e. Notice of CMS Determination

f. Payment Adjustment

G. Announcement of CY 2007 Deadline for Submitting Requests for CMS Review of Appropriateness of ASC Payment for Insertion Following Cataract Surgery of an NTIOL XVIII. Medicare Contracting Reform Mandate

A. Background

B. CMS's Vision for Medicare Fee-for-Service and Medicare Administrative Contractors (MAC)

C. Provider Nomination and the Former Medicare Acquisition Authorities

D. Summary of Changes Made to Section 1816 of the Act

E. Provisions of the Proposed and Final Regulations

1. Definitions

2. Assignments of Providers and Suppliers to MACs

3. Other Technical and Conforming Changes

a. Definition of ``Intermediary''

b. Intermediary Functions

c. Options Available to Providers and CMS

d. Nomination for Intermediary

e. Notification of Actions on Nominations, Changes to Another Intermediary or to Direct Payment, and Requirements for Approval of an Agreement

f. Considerations Relating to the Effective and Efficient Administration of the Medicare Program

g. Assignment and Reassignment of Providers by CMS

h. Designation of National or Regional Intermediaries and Designation of Regional and Alternative Designated Regional Intermediaries for Home Health Agencies and Hospices

i. Awarding of Experimental Contracts XIX. Reporting Quality Data for Improved Quality and Costs under the OPPS XX. Promoting Effective Use of Health Information Technology XXI. Health Care Information Transparency Initiative XXII. Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for the FY 2008 IPPS Annual Payment Update

A. Background

B. Additional Quality Measures for FY 2008

1. Introduction

2. HCAHPS Survey and the Hospital Quality Initiative

3. Surgical Care Improvement Project (SCIP) Quality Measures

4. Mortality Outcome Measures

C. General Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program

D. HCAHPS Procedures and Participation Requirements for the FY 2008 IPPS RHQDAPU Program

1. Introduction

2. HCAHPS Hospital Pledge and Beginning Date for Data Collection

3. HCAHPS Dry Run

4. HCAHPS Data Collection Requirements

5. HCAHPS Registration Requirements

6. Additional Steps for HCAHPS Participation

7. HCAHPS Survey Completion Requirements

8. HCAHPS Public Reporting

9. Reporting HCAHPS Results for Multi-Campus Hospitals

E. SCIP & Mortality Measure Requirements for the FY 2008 RHQDAPU Program

F. Conclusion XXIII. Files Available to the Public Via the Internet XXIV. Collection of Information Requirements XXV. Response to Comments XXVI. Regulatory Impact Analysis

A. Overall Impact

1. Executive Order 12866

2. Regulatory Flexibility Act (RFA)

3. Small Rural Hospitals

4. Unfunded Mandates

5. Federalism

B. Effects of OPPS Changes in This Final Rule with Comment Period

1. Alternatives Considered

a. Alternatives Considered for Coding and Payment Policy for Visits

b. Alternatives Considered for Brachytherapy Source Payments

c. Alternatives Considered for Payment of Radiopharmaceuticals

2. Limitation of Our Analysis

3. Estimated Impact of This Final Rule with Comment Period on Hospitals

4. Estimated Effect of This Final Rule with Comment Period on Beneficiaries

5. Conclusion

6. Accounting Statement

C. Effects of Changes to the ASC Payment System for CY 2007

1. Alternatives Considered

2. Limitations on Our Analysis

3. Estimated Effects of This Final Rule with Comment Period on ASCs

4. Estimated Effects of This Final Rule with Comment Period on Beneficiaries

5. Conclusion

6. Accounting Statement

D. Effects of the Medicare Contracting Reform Mandate

E. Effects of Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for IPPS FY 2008

1. Alternatives Considered

2. Estimated Effects of This Final Rule with Comment Period

a. Effects on Hospitals

b. Effects on Other Providers

c. Effects on the Medicare and Medicaid Program

F. Executive Order 12866

Regulation Text

Addenda

Addendum A--OPPS List of Ambulatory Payment Classification (APCs) with Status Indicators (SI), Relative Weights, Payment Rates, and Copayment Amounts--CY 2007 Addendum AA--List of Medicare Approved ASC Procedures for CY 2007 With Additions and Payment Rates; Including Rates That Result From Implementation of Section 5103 of the DRA Addendum B--OPPS Payment Status By HCPCS Code and Related Information CY 2007 Addendum D1--Payment Status Indicators Addendum D2--Comment Indicators Addendum E--CPT Codes That Are Paid Only As Inpatient Procedures Addendum L--Out-Migration Adjustment

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)

[[Page 67965]]

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. A discussion of the provisions contained in Pub. L. 109-171 that are specific to the calendar year (CY) 2007 OPPS is included in section II.F. of this preamble.

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

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

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

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

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

B. Excluded OPPS Services and Hospitals

Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to exclude OPPS payment for screening and diagnostic mammography services. The Secretary exercised the authority granted under the statute to exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the clinical diagnostic laboratory fee schedule; services for beneficiaries with end-stage renal disease (ESRD) that are paid under the ESRD composite rate; and, services and procedures that require an inpatient stay that are paid under the hospital inpatient 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 not less often than annually and to revise the groups, relative payment weights, and other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors.

Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our experience with this system. We last published such a document on November 10, 2005 (70 FR 68516). In that final rule with comment period, we revised the OPPS to update the payment weights and conversion factor for services payable under the CY 2006 OPPS on the basis of claims data from January 1, 2004, through December 31, 2004, and to implement certain provisions of Pub. L. 108-173. In addition, we responded to public comments received on the provisions of November 15, 2004 final rule with comment period pertaining to

[[Page 67966]]

the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicators; and public comments received on the July 25, 2005 OPPS proposed rule for CY 2006 (70 FR 42674).

We published a correction of the November 10, 2005 final rule with comment period on December 23, 2005 (70 FR 76176). This correction document corrected a number of technical errors that appeared in the November 10, 2005 final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel

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

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

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

PaymentClassification Groups.as#TopOFPage. 3. APC Panel Meetings and Organizational Structure

The APC Panel first met on February 27, February 28, and March 1, 2001. Since that initial meeting, the APC Panel has held 10 subsequent meetings, with the last meeting taking place on August 23 and 24, 2006. (The APC Panel did not meet on August 25, 2006, as announced in the meeting notice published on June 23, 2006 (71 FR 36118).) 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 APC Panel membership.

The APC Panel has established an operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Observation Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel and for recommending options for resolving them. The Observation Subcommittee reviews and makes recommendations to the APC Panel on all issues pertaining to observation services paid under the OPPS, such as coding and operational issues. The Packaging Subcommittee studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but are bundled or packaged APC payments. Each of these subcommittees was established by a majority vote of the APC Panel during a scheduled APC Panel meeting and their continuation as subcommittees was approved at the August 2006 APC Panel meeting. All subcommittee recommendations are discussed and voted upon by the full APC Panel.

Discussions of the recommendations resulting from the APC Panel's March 2006 and August 2006 meetings are included in the sections of this preamble that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we reference previous hospital OPPS final rules or the Web site mentioned earlier in this section.

E. Provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003, Pub. L. 108-173, made changes to the Act relating to the Medicare OPPS. In the January 6, 2004 interim final rule with comment period and the November 15, 2004 final rule with comment period, we implemented provisions of Pub. L. 108-173 relating to the OPPS that were effective for services provided in CY 2004 and CY 2005, respectively. In the November 10, 2005 final rule with comment period, we implemented provisions of Pub. L. 108-173 relating to the OPPS that went into effect for services provided in CY 2006 (70 FR 68521). We note below those provision of Pub. L. 108-173 that will expire at the end of CY 2006. 1. Reduction in Threshold for Separate APCs for Drugs

Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of the Act to set a threshold of $50 per administration for the establishment of separate APCs for drugs and biologicals furnished from January 1, 2005, through December 31, 2006. Because this statutory provision will no longer be in effect for CY 2007, we have included in section V. of this preamble a discussion of the methodology that we will use to determine a threshold for establishing separate APCs for drugs and biologicals for CY 2007. 2. Special Payment for Brachytherapy

Section 621(b)(1) of Pub. L. 108-173 amended section 1833(t)(16) of the Act to require that payment for brachytherapy devices consisting of a seed or seeds (or radioactive source) furnished on or after January 1, 2004, and before January 1, 2007, be paid based on the hospital's charge for each device furnished, adjusted to cost. Because this statutory provision will no longer be in effect for CY 2007, we discuss our methodology for payment for brachytherapy devices for CY 2007 in section VII.B. of this preamble.

F. Provisions of the Deficit Reduction Act (DRA) of 2005

The Deficit Reduction Act (DRA) of 2005, Pub. L. 109-171, enacted on February 8, 2006, included three provisions affecting the OPPS, as discussed below. 1. 3-Year Transition of Hold Harmless Payments

Section 5105 of Pub. L. 109-171 provides a 3-year transition of hold harmless OPPS payments for hospitals

[[Page 67967]]

located in a rural area with not more than 100 beds that are not defined as sole community hospitals (SCHs). This provision provides an increased payment for such hospitals for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, if the OPPS payment they receive is less than the pre-BBA payment amount that they would have received for the same covered OPD services. This provision specifies that, in such cases, the amount of payment to the specified hospitals shall be increased by the applicable percentage of such difference. Section 5105 specifies the applicable percentage as 95 percent for CY 2006, 90 percent for CY 2007, and 85 percent for CY 2008. This provision is discussed in section II.F.1. of the preamble. 2. Medicare Coverage of Ultrasound Screening for Abdominal Aortic Aneurysms (AAAs)

Section 5112 of Pub. L. 109-171 amended section 1861 of the Act to include coverage of ultrasound screening for abdominal aortic aneurysms for certain individuals on or after January 1, 2007. The provision will apply to individuals (a) who receive a referral for such an ultrasound screening as a result of an initial preventive physical examination; (b) who have not been previously furnished with an ultrasound screening under Medicare; and (c) who have a family history of abdominal aortic aneurysm or manifest risk factors included in a beneficiary category recommended for screening (as determined by the United States Preventive Services Task Force). Ultrasound screening for abdominal aortic aneurysm will be included in the initial preventive physical examination. Section 5112 also added ultrasound screening for abdominal aortic aneurysm to the list of services for which the beneficiary deductible does not apply. These amendments apply to services furnished on or after January 1, 2007. See section XIII.B. of this preamble for a detailed discussion of this provision. 3. Colorectal Cancer Screening

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 does not apply. This provision applies to services furnished on or after January 1, 2007. See the Medicare Physician Fee Schedule (MPFS) CY 2007 final rule for a detailed discussion of this provision.

G. Summary of the Provisions of the CY 2007 OPPS Proposed Rule

On August 23, 2006, we published a proposed rule in the Federal Register (71 FR 49506) that set forth proposed changes to the Medicare hospital OPPS for CY 2007 to implement statutory requirements and changes arising from our continuing experience with the system and to implement certain provisions of Pub. L. 109-171 specified in sections II.F.1. and XIII.B. of this preamble. We also proposed to revise the standard for critical access hospital personnel that are allowed to perform emergency medical screenings. In addition, we proposed changes to the Medicare ASC payment system for CY 2007 and CY 2008 and to the way we process fee-for-service (FFS) claims under Medicare Part A and Part B.

Finally, we set forth a proposed rule seeking comments on the RHQDAPU program under the Medicare hospital IPPS for FY 2008. These changes will be effective for payments beginning with FY 2008. The following is a summary of the major changes included in the CY 2007 OPPS proposed rule: 1. Updates to the OPPS' Payments for CY 2007

In the proposed rule, we set forth--

The methodology used to recalibrate the proposed APC relative payment weights and the proposed median costs for CY 2007.

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

The proposed update to the conversion factor used to determine payment rates under the OPPS for CY 2007.

The proposed retention of our current policy to apply the IPPS wage indices to wage adjust the APC median costs in determining the OPPS payment rate and the copayment standardized amount for CY 2007.

The proposed update of statewide average default cost-to- charge ratios.

Proposed changes relating to the hold harmless payment provision and Sec. 419.70(d).

Proposed changes relating to payment for rural SCHs, including Essential Access Community Hospitals (EACHs) for CY 2007.

The proposed retention of our current policy for calculating hospital outpatient outlier payments for CY 2007.

Calculation of the proposed national unadjusted Medicare OPPS payment.

The proposed beneficiary copayment for OPPS services for CY 2007. 2. Ambulatory Payment Classification (APC) Group Policies

In the proposed rule, we discussed establishing a number of new APCs and making changes to the assignment of HCPCS codes under a number of existing APCs based on our analyses of Medicare claims data and recommendations of the APC Panel. We also discussed the application of the 2 times rule and proposed exceptions to it; proposed changes for specific APCs; proposed movement of procedures from the New Technology APCs; and the proposed additions of new procedure codes to the APC groups. 3. Payment Changes for Devices

In the proposed rule, we discussed proposed changes to the device- dependent APCs and to payment for pass-through devices. We also discussed the proposed payment policy for devices that are replaced without cost or credit to the hospital for a replaced device and the proposed related regulation under Sec. 419.45. 4. Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals

In the proposed rule, we discussed proposed payment changes for drugs, biologicals, and radiopharmaceuticals. 5. Estimate of Transitional Pass-Through Spending in CY 2007 for Drugs, Biologicals, and Devices

In the proposed rule, we discussed the proposed methodology for estimating total pass-through spending and whether there should be a pro rata reduction for transitional pass-through drugs, biologicals, radiopharmaceuticals, and categories of devices for CY 2007. 6. Brachytherapy Payment Changes

In the proposed rule, we included a discussion of our proposal concerning coding and payment for the sources of brachytherapy. 7. Coding and Payment for Drugs Administration

In the proposed rule, we discussed our proposed coding and payment changes for drug administration services. 8. Hospital Coding and Payments for Visits

In the proposed rule, we discussed our analyses of various guidelines for coding hospital visits and the proposed HCPCS codes and payment policy for those visits.

[[Page 67968]]

9. Payment for Blood and Blood Products

In the proposed rule, we discussed our proposed criteria and coding changes for the blood and blood products. 10. Payment for Observation Services

In the proposed rule, we discussed our proposed continuation of applying the criteria for separate payment for observation services and the coding methodology for observation services implemented in CY 2006. 11. Procedures That Will Be Paid Only as Inpatient Services

In the proposed rule, we discussed the procedures that we proposed to remove from the inpatient list and assign to APCs. 12. Nonrecurring Policy Changes

In the proposed rule, we discussed a proposed technical change to Sec. 419.21(d) of the regulations related to Comprehensive Outpatient Rehabilitation Facility (CORF) services and proposed coding and payment for ultrasound screening for abdominal aortic aneurysms (AAAs) as a new service paid under the OPPS in CY 2007. 13. Emergency Medical Screening in Critical Access Hospitals (CAHs)

In the proposed rule, we discussed our proposal to revise Sec. 485.618(d) of the regulations pertaining to the standards for critical access hospital personnel available to perform emergency medical screening services. 14. Payment Status and Comment Indicator Assignments

In the proposed rule, we discussed our list of status indicators assigned to APCs and presented our comment indicators that we proposed to use in this final rule with comment period. 15. OPPS Policy and Payment Recommendations

In the proposed rule, we addressed recommendations made by MedPAC, the APC Panel, and the GAO regarding the OPPS for CY 2007. 16. Policies Affecting Ambulatory Surgical Centers (ASCs) for CY 2007

In the proposed rule, we discussed changes to the ASC list of covered procedures for CY 2007; implementation of section 5103 of Pub. L. 108-173; our proposal for modifying the current ASC process for adjusting payment for new technology intraocular lenses; and related regulatory changes. 17. Revised ASC Payment System for Implementation January 1, 2008

In the proposed rule, we set forth our proposal to revise the current ASC payment system in accordance with Pub. L. 108-173, effective January 1, 2008. We note that we are not finalizing this proposal in this final rule with comment period. Rather, we will issue a separate document in the Federal Register that will address public comments received and finalize the ASC payment system effective January 1, 2008. 18. Medicare Contracting Reform Mandate

In the proposed rule, we set forth changes to the way we process FFS claims under Medicare Part A and Part B. 19. Reporting Quality Data for Improved Quality and Costs Under the OPPS

In the proposed rule, we proposed to adapt the quality improvement mechanism provided by the IPPS RHQDAPU program for use under the OPPS. 20. Promoting Effective Use of Health Information Technology

In the proposed rule, we discussed our plans to promote and adopt effective use of health information technology to improve the quality of care for Medicare beneficiaries. 21. Health Care Information Transparency Initiative

In the proposed rule, we announced our plans to launch a major health care transparency initiative in 2006. 22. Additional Quality Measures and Procedures for Hospital Reporting of Quality Data for FY 2008 IPPS Annual Payment Update

In the proposed rule, we discussed our proposal to expand the IPPS Reporting Hospital Quality Data for Annual Payment program measurement set for FY 2008 beyond the measures adopted for the FY 2007 IPPS update. 23. Impact Analysis

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

H. Public Comments Received in Response to the CY 2007 OPPS Proposal Rule and on the Reporting Hospital Quality Data for FY 2008 IPPS Annual Payment Update Program--HCAHPS Survey, SCIP, and Mortality Proposed Rule

We received approximately 1,100 timely items of correspondence containing multiple comments on the CY 2007 OPPS proposed rule. We note that we received some comments that were outside of the scope of the CY 2007 OPPS proposed rule. These comments are not addressed in the CY 2007 final rule. We also received approximately 20 timely items of correspondence on Reporting Hospital Quality Data for FY 2008 Inpatient Prospective Payment System Annual Payment Update Program--HCAHPS Survey, SCIP, and Mortality proposed rule. Summaries of the public comments and our responses to those comments are set forth under the appropriate headings.

I. Public Comments Received on the November 10, 2005 OPPS Final Rule with Comment Period

We received approximately 41 timely items of correspondence on the November 10, 2005 OPPS final rule with comment period, some of which contained multiple comments on the APC assignment of HCPCS codes identified with the NI comment indicator in Addendum B of that final rule with comment period. Summaries of those public comments and our responses to those comments are set forth in the various sections under the appropriate headings.

II. Updates Affecting OPPS Payments for CY 2007

A. Recalibration of APC Relative Weights for CY 2007

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).

[[Page 67969]]

In the CY 2007 OPPS proposed rule, we proposed to use the same basic methodology that we described in the April 7, 2000 final rule with comment period to recalibrate the APC relative payment weights for services furnished on or after January 1, 2007, and before January 1, 2008. That is, we would recalibrate the relative payment weights for each APC based on claims and cost report data for outpatient services. We proposed to use the most recent available data to construct the database for calculating APC group weights. For the purpose of recalibrating the APC relative payment weights for CY 2007, we used approximately 142.5 million final action claims for hospital OPD services furnished on or after January 1, 2005, and before January 1, 2006. Of the 142.5 million final action claims for services provided in hospital outpatient settings, 110.2 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 110.2 million claims, approximately 51.7 million were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost-to-charge ratios or no HCPCS codes reported on the claim). We were able to use 54.1 million whole claims of the remaining 58.5 million claims to set the OPPS APC relative weights for CY 2007 OPPS. From the 54.1 million whole claims, we created 98.5 million single records, of which 68.5 million were ``pseudo'' single claims (created from multiple procedure claims using the process we discuss in this section).

As proposed, the final APC relative weights and payments for CY 2007 in Addenda A and B to this final rule with comment period were calculated using claims from this period that had been processed before June 30, 2006, 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.

Comment: Several commenters supported the use of the most recent claims and cost report data to calculate the median costs for use in the CY 2007 OPPS.

Response: We appreciate the commenters' support and have used the claims for services paid under the CY 2005 OPPS as processed through the common working file as of June 30, 2006, in the calculation of the median costs on which the CY 2007 OPPS rates are based. In addition, we have used the most recently submitted cost report data as reported to the HCRIS system as of June 30, 2006, to calculate the cost-to-charge ratios (CCRs) used to reduce the billed charges to costs for purposes of calculating the median costs on which the CY 2007 OPPS rates are based.

After carefully considering all comments received, we are finalizing our data source and methodology for the recalibration of CY 2007 APC relative payment weights as proposed without modification, as described in this section. b. Use of Single and Multiple Procedure Claims

For CY 2007, we proposed to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based. We have received many requests asking that we ensure that the data from claims that contain charges for multiple procedures are included in the data from which we calculate the relative payment weights. Requesters believe that relying solely on single procedure claims to recalibrate APC relative payment weights fails to take into account data for many frequently performed procedures, particularly those commonly performed in combination with other procedures. They believe that, by depending upon single procedure claims, we base relative payment weights on the least costly services, thereby introducing downward bias to the medians on which the weights are based.

We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those with multiple procedures. We generally use single procedure claims to set the median costs for APCs because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. However, by bypassing specified codes that we believe do not have significant packaged costs, we are able to use more data from multiple procedure claims. In many cases, this enables us to create multiple ``pseudo'' single claims from claims that, as submitted, contained multiple separately paid procedures on the same claim. For the CY 2007 OPPS, we proposed to use the date of service on the claims and a list of codes to be bypassed to create ``pseudo'' single claims from multiple procedure claims, as we did in recalibrating the CY 2006 APC relative payment weights. We refer to these newly created single procedure claims as ``pseudo'' single claims because they were submitted by providers as multiple procedure claims.

For CY 2003, we created ``pseudo'' single claims by bypassing HCPCS codes 93005 (Electrocardiogram, tracing), 71010 (Chest x-ray), and 71020 (Chest x-ray) on a submitted claim. However, we did not use claims data for the bypassed codes in the creation of the median costs for the APCs to which these three codes were assigned because the level of packaging that would have remained on the claim after we selected the bypass code was not apparent and, therefore, it was difficult to determine if the medians for these codes would be correct.

For CY 2004, we created ``pseudo'' single claims by bypassing these three codes and also by bypassing an additional 269 HCPCS codes in APCs. We selected these codes based on a clinical review of the services and because it was presumed that these codes had only very limited packaging and could appropriately be bypassed for the purpose of creating ``pseudo'' single claims. The APCs to which these codes were assigned were varied and included mammography, cardiac rehabilitation, and Level I plain film x-rays. To derive more ``pseudo'' single claims, we also split the claims where there were dates of service for revenue code charges on that claim that could be matched to a single procedure code on the claim on the same date.

For the CY 2004 OPPS, as in CY 2003, we did not include the claims data for the bypassed codes in the creation of the APCs to which the 269 codes were assigned because, again, we had not established that such an approach was appropriate and would aid in accurately estimating the median costs for those APCs. For CY 2004, from approximately 16.3 million otherwise unusable claims, we used approximately 9.5 million multiple procedure claims to create approximately 27 million ``pseudo'' single claims. For CY 2005, we identified 383 bypass codes and from approximately 24 million otherwise unusable claims, we used approximately 18 million multiple procedure claims to create approximately 52 million ``pseudo'' single claims. For CY 2005, we used the claims data for the bypass codes combined with the single procedure claims to set the median costs for the bypass codes.

For CY 2006, we continued using the codes on the CY 2005 OPPS bypass list and expanded it to include 404 bypass codes, including 3 bladder catheterization codes (CPT codes 51701, 51702, and 51703), which did not meet the empirical criteria discussed below for the selection of bypass codes. We added these three codes to the CY 2006

[[Page 67970]]

bypass list because a decision to change their payment status from packaged to separately paid would have resulted in a reduction of the number of single bills on which we could base median costs for other major separately paid procedures that were billed on the same claim with these three procedure codes. That is, single bills which contained other procedures would have become multiple procedure claims when these bladder catheterization codes were converted to separately paid status. We believed and continue to believe that bypassing these three codes does not adversely affect the medians for other procedures because we believe that when these services are performed on the same day as another separately paid service, any packaging that appears on the claim would be appropriately associated with the other procedure and not with these codes.

Consequently, for CY 2006, we identified 404 bypass codes for use in creating ``pseudo'' single claims and used some part of 90 percent of the total claims that were eligible for use in OPPS ratesetting and modeling in developing the final rule with comment period. This process enabled us to use, for the CY 2006 OPPS, 88 million single bills for ratesetting: 55 million ``pseudo'' singles and 34 million ``natural'' single bills (bills that were submitted containing only one separately payable major HCPCS code). (These numbers do not sum to 88 million because more than 800,000 single bills were removed when we trimmed at the HCPCS level at +/-3 standard deviations from the geometric mean.)

For CY 2007, we proposed to continue using date-of-service matching as a tool for creation of ``pseudo'' single claims and to continue the use of a bypass list to create ``pseudo'' single claims. The process we proposed for the CY 2007 OPPS resulted in our being able to use some part of 92.6 percent of the total claims that are eligible for use in the OPPS ratesetting and modeling in developing this final rule with comment period. This process enabled us to use, for CY 2007, 68.5 million ``pseudo'' singles and 31.6 million ``natural'' single bills.

We proposed to bypass the 454 codes identified in Table 1 of the proposed rule (71 FR 49517) to create new single claims and to use the line-item costs associated with the bypass codes on these claims, together with the single procedure claims, in the creation of the median costs for the APCs into which they are assigned. Of the codes on this list, 404 codes were used for bypass in CY 2006. We proposed to continue the use of the codes on the CY 2006 OPPS bypass list and to expand it by adding codes that, using data presented to the APC Panel at its March 2006 meeting, meet the same empirical criteria as those used in CY 2006 to create the bypass list, or which our clinicians believe would contain minimal packaging if the services were correctly coded (for example, ultrasound guidance). (Bypass codes shown in Table 1 with an asterisk indicated the HCPCS codes we proposed to add to the CY 2006 OPPS listed codes for bypass in CY 2007.) Our examination of the data against the criteria for inclusion on the bypass list, as discussed below for the addition of new codes, shows that the empirically selected codes used for bypass for the CY 2006 OPPS generally continue to meet the criteria or come very close to meeting the criteria, and we have received no comments against bypassing them.

As proposed, the following empirical criteria that we used to determine the additional codes to add to the CY 2006 OPPS bypass list to create the bypass list for the CY 2007 OPPS were developed by reviewing the frequency and magnitude of packaging in the single claims for payable codes other than drugs and biologicals. We assumed that the representation of packaging on the single claims for any given code is comparable to packaging for that code in the multiple claims:

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

Five percent or fewer of the single claims for the code had packaged costs on that single claim for the code. This criterion results in limiting the amount of packaging being redistributed to the payable procedure remaining on the claim after the bypass code 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 was equal to or less than $50. This limits the amount of error in redistributed costs.

The code is not a code for an unlisted service.

In addition, we proposed to add to the bypass list codes that our clinicians believe contain minimal packaging and codes for specified drug administration services for which hospitals have requested separate payment but for which it is not possible to acquire median costs unless we add these codes to the bypass list. A more complete discussion of the effects of adding these drug administration codes to the bypass list is contained in the discussion of drug administration payment changes in section VIII.C. of this preamble.

In the CY 2007 OPPS proposed rule, we specifically invited public comment on the ``pseudo'' single process, including the bypass list and the criteria.

Comment: The commenters urged CMS to continue to find ways to use all data from multiple procedure claims to set the median costs on which the payment rates are based. Many commenters supported the bypass list as a vehicle to enable use of all claims data. However, some commenters were concerned that placing HCPCS codes on the bypass list would lead to those codes being undervalued because no packaging from the multiple procedure bill is attributed to them. These commenters urged CMS to validate that these services were not being systematically undervalued by being bypassed and thus having many units of the service used for median setting with no attribution of packaging to the code. In many cases, the commenters did not offer specific discussion of what packaging they believe would be appropriately attached to the codes on the bypass list. One commenter suggested that CMS add CPT code 77421 (Steroscopic X-ray guidance for localization of target volume for the delivery of radiation therapy) to secure more single procedure claims data for median setting. Another commenter asked that CMS add CPT code 88307 (Level V-Surgical pathology, gross and microscopic examination) to the bypass list because it would be consistent with the inclusion of CPT codes 88304 (Level III-Surgical pathology, gross and microscopic examination) and 88305 (Level IV-Surgical pathology, gross and microscopic examination) on the bypass list.

Response: We agree that the bypass list has been very useful in enabling us to use data from multiple procedure claims to set median costs for many services. The use of date of service stratification and the bypass list enabled us to create 68.5 million ``pseudo'' single claims that would not otherwise have been used to set median costs for the CY 2007 OPPS. However, we recognize that it is necessary to be cautious in this approach to minimize the possibility that we could mistakenly apply packaging on the claim to the wrong service. For that reason, each year we investigate the amount of packaging on natural single bills and consider whether changes should be made to the bypass list. However, in some cases, we know that the natural single bills are incorrect, and it is not

[[Page 67971]]

reasonable to base a decision on their level of packaging from what we believe are incorrectly coded claims. In these cases, we use clinical judgment to determine whether, on a correctly coded claim, the packaging would be associated with the code as defined or whether the packaging would more appropriately be associated with other procedures. For example, a single procedure bill for an ultrasound guidance service which is used only for guidance during an associated surgical procedure would not be correctly coded and therefore, clinically, we would not expect the packaged costs observed on these single claims to be correctly attributed to the guidance procedure. We believe that the ultrasound guidance procedure itself could not be the service that required the drugs, devices, or operating room use that would usually also be billed on a correctly coded claim. In these cases, we would place the ultrasound guidance procedure on the bypass list and attribute the packaged costs that appear on the same claim to the surgical procedure on the claim.

We have been actively investigating options for using all claims data in the establishment of median costs, and we intend to be ready to discuss our findings in the CY 2008 OPPS proposed rule. With respect to the suggestions for additions to the bypass list, we will evaluate the potential for adding CPT codes 77421 and 88307 to the bypass list for purposes of the CY 2008 OPPS ratesetting.

Comment: One commenter asked that CMS use all claims data on multiple procedure claims by allocating the packaging on a claim with multiple surgical procedures based on the currently existing relative weights to create ``pseudo'' single claims from all multiple procedure claims. The commenter suggested that if CMS is concerned about that process causing the weights being calculated to not reflect changes in cost, CMS might use this process only in cases in which the number of units for HCPCS codes on natural single bills are below some tolerance so that these claims would be used only on low volume procedures.

Response: We are concerned that use of the current relative weights to allocate the packaging on multiple procedure claims may cause packaging to be allocated inappropriately in some cases. As we indicate above, we are continuing to explore ways that packaging could be allocated on multiple procedure claims in such a way that we would have confidence in the allocation.

Comment: One commenter requested that CMS remove CPT code 76942 (Ultrasonic guidance for needle placement (eg biopsy, aspiration, injection, localization device), imaging supervision and interpretation) from the bypass list, because the commenter believed it would raise the median cost for APC 0268, the APC where CPT code 76942 is assigned for CY 2007. According to the commenter, the natural single claims for CPT code 76942 have a higher median cost than the ``pseudo'' single claims. The commenter indicated that when all packaged costs are removed from the natural singles, their median is close to the median for the ``pseudo'' single claims. If removing this code from the bypass list altogether results in too few ``pseudo'' single claims, the commenter requested that CMS calculate the median cost for APC 0268 using only natural single claims.

Response: We agree with the commenter that the median of APC 0268 is higher with the exclusion of ``pseudo'' singles that are created from claims that include CPT code 76942 than it would be if we only used true single claims that include CPT code 76942. However, we believe that the single bills for CPT code 76942 are miscoded and, therefore, inappropriately attribute the procedural costs (for example, the needle placement for biopsy and injection) to ultrasound guidance rather than the biopsy or aspiration procedures. We note that CPT code 76942 is the code with the highest frequency in APC 0268 and, therefore, contributes greatly to the median cost of the APC. The commenter provided no information regarding the specific packaging associated with CPT code 76942; therefore, we continue to believe that its inclusion on the bypass list, and the resulting calculation of the APC median cost for APC 0268, is appropriate.

After carefully considering all public comments received on our proposal, we are adopting as final the proposed ``pseudo'' single process and the bypass codes listed in Table 1. BILLING CODE 4120-01-P

[[Page 67972]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.000

[[Page 67973]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.001

[[Page 67974]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.002

[[Page 67975]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.003

[[Page 67976]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.004

[[Page 67977]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.005

[[Page 67978]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.006

[[Page 67979]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.007

[[Page 67980]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.008

[[Page 67981]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.009

[[Page 67982]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.010

[[Page 67983]]

[GRAPHIC] [TIFF OMITTED] TR24NO06.011

BILLING CODE 4120-01-C

c. Revised Overall Cost-to-Charge Ratio (CCR) Calculation

We calculate both an overall CCR and cost center-specific cost-to- charge ratios (CCRs) for each hospital. For the CY 2007 OPPS, we proposed to change the methodology for calculating the overall CCR. The overall CCR is used in many components of the OPPS. We use the overall CCR to estimate costs from charges on a claim when we do not have an accurate cost center CCR. This does not happen very often. For the vast majority of services, we are able to use a cost center CCR to estimate costs from charges. However, we also use the overall CCR to identify the outlier threshold, to model payments for services that are paid at charges reduced to cost, and, during implementation, to determine outlier payments and payments for other services.

As stated in the CY 2007 OPPS proposed rule (71 FR 49528), we have discovered that the calculation of the overall CCR that the fiscal intermediaries are using to determine outlier payments and payments for services paid at charges reduced to cost differs from the overall CCR that we use to model the OPPS. In Program Transmittal A-03-04 on ``Calculating Provider-Specific Outpatient Cost-to-Charge Ratios (CCRs) and Instructions on Cost Report Treatment of Hospital Outpatient Services Paid on a Reasonable Cost Basis'' (January 17, 2003), we revised the overall CCR calculation that the fiscal intermediaries use in determining outlier and other cost payments. Until this point, each fiscal intermediary had used an overall CCR provided by CMS, or calculated an updated CCR at the provider's request using the same calculation. The calculation in Program Transmittal A-03-04, that is, the fiscal intermediary calculation, diverged from the ``traditional'' overall CCR that we used for modeling. It should be noted that the fiscal intermediary overall CCR calculation noted in Program Transmittal A-03-04 was created with feedback and input from the fiscal intermediaries.

CMS' ``traditional'' calculation consists of summing the total costs from Worksheet B, Part I (Column 27), after removing the costs for nursing and paramedical education (Columns 21 and 24), for those ancillary cost centers that we believe contain most OPPS services, summing the total charges from Worksheet C, Part I (Columns 6 and 7) for the same set of ancillary cost centers, and dividing the former by the latter. We exclude selected ancillary cost centers from our overall CCR calculation, such as 5700 Renal Dialysis, because we believe that the costs and

[[Page 67984]]

charges in these cost centers are largely paid for under other payment systems. The specific list of ancillary cost centers, both standard and nonstandard, included in our overall CCR calculation is available on our Web site in the revenue center-to-cost center crosswalk workbook: http://www.cms.hhs.gov/HospitalOutpatientPPS.

The overall CCR calculation provided in Program Transmittal A-03- 04, on the other hand, takes the CCRs from Worksheet C, Part I, Column 9, for each specified ancillary cost center; multiplies them by the Medicare Part B outpatient specific charges in each corresponding ancillary cost center from Worksheet D, Part V (Columns 2, 3, 4, and 5 and subscripts thereof); and then divides the sum of these costs by the sum of charges for the specified ancillary cost centers from Worksheet D, Part V (Columns 2, 3, 4, and 5 and subscripts thereof). The elimination of the reference to Part VI in this final rule with comment period is not a change from the proposed methodology. We used only data from Worksheet D, Part V of the HCRIS electronic cost report to calculate the overall CCRs for both the proposed rule and final rule with comment period. We previously referenced both Part V and Part VI in the proposed rule and in prior rules because both Part V and Part VI appear on the same page in Worksheet D on the paper cost report, although no data from Part VI on the electronic cost report were used in the calculation.

Compared with our ``traditional'' overall CCR calculation that has been used for modeling OPPS and to calculate the median costs, this fiscal intermediary calculation of overall CCR fails to remove allied health costs and adds weighting by Medicare Part B charges.

In comparing these two calculations, we discovered that, on average, the overall CCR calculation being used by the fiscal intermediaries resulted in higher overall CCRs than under our ``traditional'' calculation. Using the most recent cost report data available for every provider with valid claims for CY 2004 as of November 2005, we estimated the median overall CCR using the traditional calculation to be 0.3040 (mean 0.3223) and the median overall CCR using the fiscal intermediary calculation to be 0.3309 (mean 0.3742). There also was much greater variability in the fiscal intermediary calculation of the overall CCR. The standard deviation under the ``traditional'' calculation was 0.1318, while the standard deviation using the fiscal intermediary's calculation was 0.2143. In part, the higher median estimate for the fiscal intermediary calculation is attributable to the inclusion of allied health costs for the over 700 hospitals with allied health programs. It is inappropriate to include these costs in the overall CCR calculation, because CMS already reimburses hospitals for the costs of these programs through cost report settlement. The higher median estimate and greater variability also is a function of the weighting by Medicare Part B charges. Because the fiscal intermediary overall CCR calculation is higher, on average, CMS has underestimated the outlier payment thresholds and, therefore, overpaid outlier payments. We also have underestimated spending for services paid at charges reduced to cost in our budget neutrality estimates.

In examining the two different calculations, we decided that elements of each methodology had merit. Clearly, as noted above, allied health costs should not be included in an overall CCR calculation. However, weighting by Medicare Part B charges from Worksheet D, Part V, makes the overall CCR calculation more specific to OPPS. Therefore, we proposed to adopt a single overall CCR calculation that incorporates weighting by Medicare Part B charges but excludes allied health costs for modeling and payment. Specifically, the proposed calculation removes allied health costs from cost center CCR calculations for specified ancillary cost centers, as discussed above, multiplies them by the Medicare Part B charges on Worksheet D, Part V, and sums these estimated Medicare costs. This sum is then divided by the sum of the same Medicare Part B charges for the same specified set of ancillary cost centers.

As we indicated in the proposed rule (71 FR 49528), using the same cost report data in this study, we estimated a median overall CCR for the proposed calculation of 0.3081 (mean 0.3389) with a standard deviation of 0.1583. The similarity to the median and standard deviation of the ``traditional'' overall CCR calculation noted above (median 0.3040 and standard deviation of 0.1318) masks some sizeable changes in overall CCR calculations for specific hospitals due largely to the inclusion of Medicare Part B weighting.

In order to isolate the overall impact of adopting this methodology on APC medians, we used the first 9 months of CY 2005 claims data to estimate APC median costs varying only the two methods of determining overall CCR. As stated in the CY 2007 OPPS proposed rule (71 FR 49528), we expected the impact to be limited because the majority of costs are estimated using a cost center-specific CCR and not the overall. As predicted, we observed minor changes in APC median costs from the adoption of the proposed overall CCR calculation. We largely observed differences of no more than 5 percent in either direction. The median overall percent change in APC cost estimates was -0.3 percent. We typically observe comparable changes in APC medians when we update our cost report data. Using updated cost report data for the calculations in this final rule with comment period, we estimate a median overall CCR across all hospitals of 0.3015 using the new overall CCR calculation.

We believe that a single overall CCR calculation should be used for all components of the OPPS for both modeling and payment. Therefore, we proposed to use the modified overall CCR calculation as discussed above when the hospital-specific overall CCR is used for any of the following calculations: in the CMS calculation of median costs for OPPS ratesetting, in the CMS calculation of the outlier threshold, in the fiscal intermediary calculation of outlier payments, in the CMS calculation of statewide CCRs, in the fiscal intermediary calculation of pass-through payments for devices, and for any other fiscal intermediary payment calculation in which the current hospital-specific overall CCR may be used now or in the future.

Comment: Several commenters supported the proposed change to the calculation of the overall CCR to be weighted by Part B charges and to exclude the costs of nursing and allied health professional education programs. One commenter asked that CMS provide examples at the line level of how the revenue code to cost center crosswalk is applied to sample claims to illustrate to hospitals how selection of the revenue code for any particular item or service controls the resulting cost that is used in median calculation. The commenter also asked that CMS instruct fiscal intermediaries to allow hospitals to reclassify expense and revenue whenever the hospital believes it is appropriate, to ensure that the charges on the claim result in appropriate costs for median setting and order the fiscal intermediaries not to reverse reclassification of costs in audit adjustments. The commenter also suggested that CMS should have fiscal intermediaries conduct a survey of their audit staff with regard to the validity of the revenue code to cost center crosswalk.

Response: We continue to believe that the proposed change to the CCR calculation is appropriate, and we have used the revised formula to calculate the

[[Page 67985]]

overall CCRs used to set the medians on which the CY 2007 payment rates are based.

With respect to the request for detailed examples to illustrate how selection of a revenue code will control the cost that is used in the median calculation, we believe that hospitals, like any business, are responsible for performing their own analysis regarding issues that affect their revenue stream. We have gone to great lengths in the preamble of our proposed and final rules to discuss how we derive costs from charges and how we crosswalk the charge from the revenue code reported for the charge to the cost center on the cost report. Moreover, the revenue code to cost center crosswalk has been on the CMS Web site for several years, open continuously to public comment. We do not believe it is necessary to create and publish examples at the claim-line level to further elaborate on how we convert charges to costs for purposes of establishing median costs. Hospitals that are interested should have sufficient information available already on this topic. Moreover, Medicare auditing rules have been well-established and standardized over many years, and we rely on our contractors to enforce them appropriately.

Comment: One commenter suggested that CMS study the crosswalk that is used in the completion of the Provider Statistical and Reimbursement Report (PS&R) to determine whether changes to the CMS crosswalk of revenue codes to cost centers might be appropriate. Specifically, the commenter suggested the following revisions: Revenue code 0413 (hyperbaric oxygen therapy) should be crosswalked to the hospital overall CCR; Revenue code 026X (IV therapy) could have cost center 5600 (Drugs charges to patients) as the secondary default CCR before defaulting to the overall CCR; Revenue code 046X (Pulmondary therapy) should have cost center 4600 (respiratory therapy) as secondary and cost center 3160 as tertiary; and Revenue code 074X (EEG) should have cost center 5400 (EEG) as primary and cost center 3280 (EKG and EEG) as secondary.

Response: We have not made any changes in response to the commenter's suggestions for CY 2007. However, we will carefully examine the commenter's suggestions with regard to the calculation of CCRs for the CY 2008 OPPS.

After carefully considering all the public comments received, we are adopting our proposal for CY 2007 without modification. As stated in the CY 2007 proposed rule (71 FR 49529), we will issue a Medicare program instruction to fiscal intermediaries that will instruct them to recalculate and use the hospital-specific overall CCR as we have finalized for the above stated purposes. 2. Calculation of Median Costs for CY 2007

In this section of the preamble, we discuss the use of claims to calculate the proposed OPPS payment rates for CY 2007. The hospital outpatient prospective payment page on the CMS Web site on which this final rule with comment period is posted provides an accounting of claims used in the development of the final rates: http://www.cms.hhs.gov/HospitalOutpatientPPS. The accounting of claims used in

the development of this final rule with comment period is included on the Web site under supplemental materials for the CY 2007 final rule with comment period. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, below 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.''

As proposed, we used the following methodology to establish the relative weights to be used in calculating the OPPS payment rates for CY 2007 shown in Addenda A and B to this final rule with comment period. This methodology is as follows:

We used outpatient claims for the full CY 2005, processed before June 30, 2006, to set the relative weights for CY 2007. To begin the calculation of the relative weights for CY 2007, we pulled all claims for outpatient services furnished in CY 2005 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, CAH claims, and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital).

We then excluded claims with condition codes 04, 20, 21, and 77. These are claims that providers submitted to Medicare knowing that no payment will be made. For example, providers submit claims with a condition code 21 to elicit an official denial notice from Medicare and document that a service is not covered. We then excluded claims for services furnished in Maryland, Guam, and the U.S. Virgin Islands, American Samoa, and the Northern Marianas 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 110 million claims that contain hospital bill types paid under the OPPS.

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

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

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

For the CCR calculation process, we used the same general approach as we used in developing the final APC rates for CY 2006 (70 FR 68537), with a change to the development of the overall CCR as discussed above. That is, we first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2005 before determining whether the CCRs for such hospitals were valid.

We then calculated the CCRs at a cost center level and overall for each hospital for which we had claims data. We did this using hospital- specific data from the Healthcare Cost Report Information System (HCRIS). We used the most recent available cost report data, in most cases, cost reports for CY 2004. As proposed, for this final rule with comment period, we used the most recently submitted cost report to calculate the CCRs to be used to calculate median costs for the CY 2007 OPPS. 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 final overall CCR calculation discussed in II.A.1.c. of this preamble 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

[[Page 67986]]

hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center level by removing the CCRs for each cost center as outliers if they exceeded 3 standard deviations from the geometric mean. This is the same methodology that we used in developing the final CY 2006 CCRs. For CY 2007, we proposed to trim at the departmental CCR level to eliminate aberrant CCRs that, if found in high volume hospitals, could skew the medians. We used a four-tiered hierarchy of cost center CCRs to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's cost center CCR was deleted by trimming, we set the CCR for that cost center to ``missing,'' so that another cost center CCR in the revenue center hierarchy could apply. If no other departmental CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question. For example, 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 at the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS .

We then converted the charges to costs on each claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. Table 2 of the proposed rule (71 FR 49532) contained a list of the allowed revenue codes. Revenue codes not included in Table 2 are those not allowed under the OPPS because their services cannot be paid under the OPPS (for example, inpatient room and board charges) and thus, charges with those revenue codes were not packaged for creation of the OPPS median costs. One exception is the calculation of median blood costs, as discussed in section X. of this preamble.

Thus, we applied CCRs as described above to claims with bill types 12X, 13X, or 14X, excluding all claims from CAHs and hospitals in Maryland, Guam, and the U.S. Virgin Islands, American Samoa, and the Northern Marianas 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 also moved claims for observation services to another file. We moved to another file claims that contained nothing but influenza and pneumococcal pneumonia (``PPV'') vaccine. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We note that the two above mentioned separate files containing partial hospitalization claims and observation services claims are included in the files that are available for purchase as discussed above.

We next copied line-item costs for drugs, blood, and devices (the lines stay on the claim, but are copied off onto another file) to a separate file. No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median and a per 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, including a unit to day ratio for drugs.

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

1. Single Major Claims: Claims with a single separately payable procedure (that is, status indicator S, T, V, or X), all of which would be used in median setting.

2. Multiple Major Claims: Claims with more than one separately payable procedure (that is, status indicator S, T, V, or X), or multiple units for one payable procedure. As discussed below, some of these can be used in median setting.

3. Single Minor Claims: Claims with a single HCPCS code that is packaged (that is, status indicator N) and not separately payable.

4. Multiple Minor Claims: Claims with multiple HCPCS codes that are packaged (that is, status indicator N) and not separately payable.

5. Non-OPPS Claims: Claims that contain no services payable under the OPPS (that is, all status indicators other than S, T, V, X, or N). These claims are excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory, and do not contain either a code for a separately paid service or a code for a packaged service.

In previous years, we made a determination of whether each HCPCS code was a major code, or a minor code, or a code other than a major or minor code. We used those code-specific determinations to sort claims into these five identified groups. For the CY 2007 OPPS, we proposed to use status indicators, as described above, to sort the claims into these groups. We believed that using status indicators was an appropriate way to sort the claims into these groups and also to make our process more transparent to the public. We further believed that this proposed method of sorting claims would enhance the public's ability to derive useful information and become a more informed commenter on the proposed rule.

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

We set aside the single minor, multiple minor claims and the non- OPPS claims (numbers 3, 4, and 5 above) because we did not use these claims in calculating median costs. We then examined the multiple major claims for date of service to determine if we could break them into single procedure claims using the dates of service on all lines on 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 the proposed rule (71 FR 49517) and discussed in section II.A.1.b. of this preamble to remove separately payable procedures that we determined contain limited costs or no packaged costs, or were otherwise suitable for inclusion on the bypass list, from a multiple procedure bill. When one of the two separately payable procedures on a multiple procedure claim was on the bypass code list, we split the claim into two single procedure claims records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS charges.

We also removed lines that contained multiple units of codes on the bypass list and treated them as ``pseudo'' single claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single separately paid procedure code remained on the claim after removal of the multiple units of the bypass code, we created a ``pseudo'' single claim

[[Page 67987]]

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 convert to singles even after applying all of the techniques for creation of ``pseudo'' singles.

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 was shown in Table 2 of the CY 2007 OPPS proposed rule (71 FR 49532) and below.

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, 58.4 million claims were left. Of these 58.4 million claims, we were able to use some portion of 54.1 million whole claims (92.6 percent of the 58.4 million potentially usable claims) to create the 98.5 million single and ``pseudo'' single claims for use in the CY 2007 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 3. Effective for services furnished on or after July 1, 2004, the Outpatient Code Editor (OCE) assigns packaging flag number 3 to claims on which hospitals submitted token charges for a service with status indicator ``S'' or ``T'' (a major separately paid service under OPPS) for which the fiscal intermediary is required to allocate the sum of charges for services with a status indicator equaling ``S'' or ``T'' based on the weight for the APC to which each code is assigned. We do not believe that these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resources. Therefore, we deleted these claims. In the proposed rule, we deleted claims with payment flag 3 (not packaging flag 3) because we believed that payment flag 3 identified claims for which the charges were not as submitted by the provider as described above. As we were processing claims for this final rule with comment period, we realized that this was not the case and corrected the process to eliminate claims which, as described above, have charges that are not as submitted by the provider. See the CY 2007 final rule claims accounting under supporting documentation posted on our Web site, http://www.cms.hhs.gov/HospitalOutpatientPPS , for this final rule with comment period for

further explanation. We note that in this final rule with comment period, as stated in both the proposed rule and here, we have excluded those claims that we believed were not valid reflections of hospital resources.

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 proposed to use the pre-reclassified wage indices for standardization because we believed that they better reflect the true costs of items and services in the area in which the hospital is located than the post-reclassification wage indices, and would result in the most accurate adjusted median costs.

We also excluded claims that were outside 3 standard deviations from the geometric mean of units for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes). We then deleted 438,440 single bills reported with modifier 50 that were assigned to APCs that contained HCPCS codes that are considered to be conditional or independent bilateral procedures under the OPPS and that are subject to special payment provisions implemented through the OCE. Modifier 50 signifies that the procedure was performed bilaterally. Although these are apparently single claims for a separately payable service and although there is only one unit of the code reported on the claim, the presence of modifier 50 signifies that two services were furnished. Therefore, costs reported on these claims are for two procedures and not for a single procedure. Hence, we deleted these multiple procedure records, which we would have treated as single procedure claims in prior OPPS updates.

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

A detailed discussion of the medians for blood and blood products is included in section X. of this preamble. 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 preamble. A discussion of the median for observation services is included in section XI. of this preamble, and a discussion of the median for partial hospitalization is included below in section II.B. of this preamble.

We specifically invited public comment on the relative benefits of deleting claims reported with modifier 50 signifying two procedures were performed versus dividing the costs for the two procedures by two to create two ``pseudo'' single claims. We received one comment on this issue.

Comment: One commenter supported deletion of the conditional or independent bilateral service claims because the commenter believes that the total cost of a bilateral procedure (including packaged costs) is generally less than 2 times the total cost of a unilateral procedure, and such cost savings are already reflected in each hospital's CCR. The commenter stated that to divide the cost of the bilateral procedure by two would result in ``pseudo'' singles that would underrepresent the full cost of a single procedure.

Response: We have excluded claims for conditional and independent bilateral procedures from the claims we used to calculate the median costs for the CY 2007 OPPS. We will carefully consider how to treat these claims for future years.

[[Page 67988]]

For the final CY 2007 OPPS ratesetting process, we deleted these claims, as we did for the proposed rule.

We received many comments on our proposed CY OPPS data process. A summary of the comments and our responses follows:

Comment: The commenters objected to what they view as wide fluctuations in the APC payment rates from CY 2006 to CY 2007, because such variability makes it difficult to plan and budget for the services that the hospital will provide in the upcoming year. The commenters objected to changes in proposed OPPS rates that are greater than 5 percent from the prior year's rates and urged CMS to adjust rates so that no payment rate in CY 2007 declined by more than 5 percent compared to its payment in CY 2006. The commenters stated that more than 250 APC rates declined compared to their CY 2006 rates, some by 10 to 20 percent or more. In contrast, they noted that over 300 APC rates increased, many substantially and by up to 30 percent compared to their CY 2006 rates. The commenters stated that they did not believe that the changes in the median costs were reflective of changes in hospital costs, because hospital costs do not vary so widely from year to year. The commenters indicated that they expected that after more than 5 years of experience, the rates would no longer show such significant volatility and urged CMS to use more multiple claims data to set the median costs.

Response: There are a number of factors pertinent to the OPPS that cause median costs to change from one year to the next. These include reassignment of HCPCS codes to APCs to rectify 2 times violations and to respond to public comments; the need to split costs derived from claims data among the many different HCPCS codes, which results in very few usable claims for some services; and annual changes in reported hospital charges and costs that provide the source of the cost data on which the system is based.

Although the APC number and title may remain the same from year to year, we routinely reassign HCPCS codes to different APCs to resolve violations of the 2 times rule as required by law or reconfigure APCs to create more levels in a series. We also reassign codes in response to public comments when we believe that the requested reassignment will result in improved clinical homogeneity and more similar resource use for a particular service or group of services. To the extent that there has been a reassignment either into or out of an APC or a reconfiguration of an APC into multiple levels, a comparison of the APC median from 1 year to the next is often not a valid comparison of the costs for the same services. In addition, every year new HCPCS codes that were initially assigned to clinical APCs for payment purposes may begin to contribute claims data to those APC median costs, also leading to ill-founded comparisons across years.

Moreover, many of the claims we receive for OPPS services are multiple procedure claims that must be fragmented for use in establishing the median costs for single procedures. Unlike other prospective payment systems in which the costs of multiple services are aggregated into a single payment for a defined encounter (for example, inpatient stay and home health episode of care), under the OPPS the costs that reflect the charges on Medicare claims that contain more than a single service on the same date must be fragmented into pieces to provide costs at a unit level, rather than being aggregated to provide the total cost for a set of services furnished in a single encounter. The more the costs on claims are split to accommodate payment for individual items and services described by HCPCS codes, and the fewer single bills that are available for ratesetting because the costs cannot be fragmented into unique services, the more variability is introduced into the cost. Because of the difficulty in assigning the revenue code charge data that hospitals submit on multiple procedure claims to the separately payable HCPCS codes that form the basis of payment in the OPPS, we must often use small numbers of claims to set the median costs for some services. We believe that the small numbers of single claims are the source of much of the volatility in the payment system. When we examine claims data for APCs like the Visit APCs, for which we have large and stable numbers of services, we do not see the median cost fluctuations that typically occur in those APCs for which we regularly have small numbers of single bills.

However, we are rarely asked for larger APCs that contain more codes or for more packaging of payment for HCPCS codes into the APC rates, both of which would enable us to use more claims and, we believe, provide more stable payment rates. Indeed, payment in the OPPS has become more specific each year, largely in response to our willingness to accommodate the requests of stakeholders when we believe they are justified and supported by the data. Each year, we are asked for increasingly more APCs that contain fewer HCPCS codes, as well as more precise costing of particular services. Generally, the comments received in response to our proposed rule asked for more separate payment, less packaging, and greater service-specific precision in the calculation of median costs for specifically identified services in the OPPS. We are also often asked to specifically recalculate median costs by using subsets of claims that meet specific criteria or by applying alternative methodologies for identified services. While these special approaches are generally intended to increase payments for their particular services of interest, they likely contribute to less stability in the system in general. Inevitably, such specificity would lead to more, not less, volatility as it would reduce the number of claims that can be used to set median costs.

Lastly, hospital charges and costs are the foundation of the payment weights, but hospitals change the mix of services they furnish and thereby also change their cost structure to some extent each year. Moreover, hospitals increase, sometimes decrease, or hold steady their charges each year based on a variety of business reasons, but these changes to charges often vary across the different services they furnish. Thus, hospital decisions to change their mix of services or to change their charges for some services differentially also contribute to the volatility in payment rates.

We recognize that it could be desirable for a payment system's rates to not vary by a certain percentage from the prior year's payment rates, but there is no reason to believe that limiting the changes in payment rates to prevent a decline by any percentage each year would be accurately reflective of changes in relative costs. Although the commenters asked that no payment for any service decline by more than 5 percent, none addressed a limitation for a payment increase. We do not believe that it is appropriate to artificially impose limits on a payment rate's increase or decrease from one year to the next, because, as noted above, comparisons between APC payment rates from year to year have little meaning for the many APCs that have experienced HCPCS migration. Moreover, to limit the increases or decreases in payment to a set amount for all services would conflict with the statutory requirement that at least annually we revise APCs and other components of the OPPS using new cost data and other relevant information. Therefore, we are not adjusting the rates as requested to account for a decline of more than 5 percent from CY 2006 in the final CY 2007 OPPS payment rates. We will continue to explore ways to use the data from multiple procedure claims because we agree that a high level of

[[Page 67989]]

volatility is not desirable in the OPPS, and we also believe that the most viable long term solution to instability is the use of all the claims data. However, we also believe that changes in median costs from one year to the next are unavoidable in a relative weight payment system which also depends on hospital charges and costs and in which reassignment of HCPCS codes from one APC to another is required by law in cases of 2 times violations. As the commenters noted, some CY 2007 APC payment rates decrease but others increase in comparison with the CY 2006 rates, consistent with expectations for a budget neutral payment system like the OPPS.

Comment: One commenter objected to the inclusion of charges from the following revenue codes as packaged services under the OPPS: (1) Revenue code 274 (Prosthetic/orthotic devices) on the basis that the revenue code is for nonimplanted devices that require a HCPCS code, are paid under the MPFS, and have a status indicator of ``A'' under the OPPS; (2) Revenue code 280 (Oncology) on the basis that there is no oncology service that would not be coded by a HCPCS code, and, therefore, any charge without a HCPCS code should not be packaged; (3) Revenue code 290 (Durable Medical Equipment (DME)) on the basis that DME is for use in the home and not in the outpatient setting; (4) Revenue codes 343 and 344 (Diagnostic radiopharmaceuticals and therapeutic radiopharmaceuticals) on the basis that they are required to be billed with a HCPCS code, and, therefore, charges without a HCPCS code should not be packaged; and (5) Revenue code 560 (Medical Social Services) on the basis that they are separately billable only by home health agencies and are, therefore, suspect and should not be packaged.

Response: With a few limited exceptions, CMS does not specify the revenue codes hospitals must use to report their charges. Therefore, we selected a generous set of revenue codes to maximize the likelihood that we would capture all of the costs of a particular service for purposes of calculating the median costs on which the OPPS payment rates are based. To cease packaging costs under these revenue codes where there is no HCPCS code reported on the line may result in erroneous reductions in median costs and, therefore, in the related OPPS payment rates. With regard to the specific concerns of the commenter, our responses regarding the rationale for packaging the revenue code charges for each revenue code of interest follow: (1) Revenue code 274 is one of the revenue codes we previously instructed hospitals to use to report devices that had been paid as pass-through devices; (2) Revenue code 280 is packaged because we believe that it is possible that a hospital could have costs related to packaged OPPS services for which it would choose not to bill a HCPCS code, and we want to ensure that those costs are not lost in median calculation; (3) Revenue code 290 (DME) is governed by the statute which explicitly states that implantable DME provided in hospitals is paid under the OPPS, and we believe that it is possible that hospitals may charge for implantable DME but not bill a HCPCS code for the items; (4) Revenue codes 343 and 344 (diagnostic and therapeutic radiopharmaceuticals) are included as hospitals may charge for these items without placing a HCPCS code on the line; (5) Revenue code 560 (Medical Social Services) is included because hospitals may charge without billing a HCPCS code for the services of a medical social worker that are related to a visit service and thus would otherwise not be packaged into the median cost for the visit. We note that National Uniform Billing Committee guidelines on use of revenue code 560 recognize that it may be reported by hospitals in some circumstances.

Comment: One commenter asked that CMS implement an indirect medical education adjustment under the CY 2007 OPPS to address what the commenter states is a 23-percent shortfall to the market basket for OPPS services. The commenter indicated that this adjustment was needed to reimburse hospitals for the higher costs incurred by major teaching hospitals to provide outpatient care to Medicare beneficiaries.

Response: We do not believe an indirect medical education add-on payment is appropriate in a budget neutral payment system where such changes would result in reduced payments to all other hospitals. Moreover, in this final rule with comment period, we have developed payment weights that we believe resolve many of the public concerns regarding appropriate payments for new technology services and device- dependent procedures that we believe are furnished largely by teaching hospitals. We believe this and other payment changes should help ensure adequate and appropriate payment for teaching hospitals.

Comment: One commenter supported CMS' proposal to discard claims that contain token charges for packaged devices but opposed discarding claims when there is only one separately paid procedure on the claim, although there are other packaged services billed with token charges on other lines of the claim.

Response: We have not discarded claims that contain token charges where there is only one separately paid procedure on the claim if there are other packaged services billed with token charges on other lines of the claim. We discarded claims with token charges only when such claims included token charges for devices with procedure codes that are assigned to device-dependent APCs, because we instructed hospitals to bill token charges for devices that were replaced without cost to the provider due for example, to warranty, field action or recall. We also discarded claims that, as submitted, contained token charges for separately paid (not packaged) procedure codes, which during claims processing were converted to imputed charges for purposes of applying the outlier policy and which came to us through the national claims history with the imputed charges. These claims are identified with a packaging flag 3 and are excluded because the charges shown on the claim we receive were not the charges submitted by the provider. We discuss this in more detail in the CY 2007 final rule claims accounting on the CMS OPPS Web page at http://www.cms.hhs.gov/HospitalOutpatientPPS/ .

After carefully considering all public comments received, we are finalizing the list of packaged services by revenue code shown in Table 2 and our data process for calculating the median costs for OPPS services furnished on or after January 1, 2007, without modification. Table 2 below contains the list of packaged services by revenue code that we used in developing the APC relative weights listed in Addenda A and B of this final rule with comment period.

Table 2.--CY 2007 Packaged Services by Revenue Code

Revenue code

Description

250............................... PHARMACY.

[[Page 67990]]

251............................... GENERIC. 252............................... NONGENERIC. 254............................... PHARMACY INCIDENT TO OTHER DIAGNOSTIC. 255............................... PHARMACY INCIDENT TO RADIOLOGY. 257............................... NONPRESCRIPTION DRUGS. 258............................... IV SOLUTIONS. 259............................... OTHER PHARMACY. 260............................... IV THERAPY, GENERAL CLASS. 262............................... IV THERAPY/PHARMACY SERVICES. 263............................... SUPPLY/DELIVERY. 264............................... IV THERAPY/SUPPLIES. 269............................... OTHER IV THERAPY. 270............................... M&S SUPPLIES. 271............................... NONSTERILE SUPPLIES. 272............................... STERILE SUPPLIES. 274............................... PROSTHETIC/ORTHOTIC DEVICES. 275............................... PACEMAKER DRUG. 276............................... INTRAOCULAR LENS SOURCE DRUG. 278............................... OTHER IMPLANTS. 279............................... OTHER M&S SUPPLIES. 280............................... ONCOLOGY. 289............................... OTHER ONCOLOGY. 290............................... DURABLE MEDICAL EQUIPMENT. 343............................... DIAGNOSTIC RADIOPHARMS. 344............................... THERAPEUTIC RADIOPHARMS. 370............................... ANESTHESIA. 371............................... ANESTHESIA INCIDENT TO RADIOLOGY. 372............................... ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC. 379............................... OTHER ANESTHESIA. 390............................... BLOOD STORAGE AND PROCESSING. 399............................... OTHER BLOOD STORAGE AND PROCESSING. 560............................... MEDICAL SOCIAL SERVICES. 569............................... OTHER MEDICAL SOCIAL SERVICES. 621............................... SUPPLIES INCIDENT TO RADIOLOGY. 622............................... SUPPLIES INCIDENT TO OTHER DIAGNOSTIC. 624............................... INVESTIGATIONAL DEVICE (IDE). 630............................... DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS. 631............................... SINGLE SOURCE. 632............................... MULTIPLE. 633............................... RESTRICTIVE PRESCRIPTION. 681............................... TRAUMA RESPONSE, LEVEL I. 682............................... TRAUMA RESPONSE, LEVEL II. 683............................... TRAUMA RESPONSE, LEVEL III. 684............................... TRAUMA RESPONSE, LEVEL IV. 689............................... TRAUMA RESPONSE, OTHER. 700............................... CAST ROOM. 709............................... OTHER CAST ROOM. 710............................... RECOVERY ROOM. 719............................... OTHER RECOVERY ROOM. 720............................... LABOR ROOM. 721............................... LABOR. 762............................... OBSERVATION ROOM. 810............................... ORGAN ACQUISITION. 819............................... OTHER ORGAN ACQUISITION. 942............................... EDUCATION/TRAINING.

3. Calculation of Scaled OPPS Payment Weights

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

As proposed, for the CY 2007 OPPS, we scaled 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 scaling 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

[[Page 67991]]

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 middle level clinic APC, proposed APC 0606, to calculate unscaled weights. Following our standard methodology, but using the CY 2007 median for APC 0606, we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the median cost for 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.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2007 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2006 relative weights to aggregate payments using the CY 2007 final relative payment weights. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The unscaled relative payment weights were adjusted by 1.364598352 for budget neutrality. We recognize the scaler, or weight scaling factor, for budget neutrality that we proposed for CY 2007 is higher than any previous OPPS weight scaler as a result of our proposal to use APC 0606 as the base for calculation of relative weights. Our use of the median cost for APC 0606 of $83.39 based on final rule with comment period data causes the unscaled weights to be lower than they would have been if we had chosen APC 0605 (Level 2 Clinic Visits; median $60.13 as the scaling base. The CY 2007 median cost of APC 0606 is significantly higher than the CY 2006 median cost of APC 0601 for mid-level clinic visits, which was used in CY 2006 and earlier years to calculate unscaled weights. Historically, the median cost for APC 0601 has been similar to the CY 2007 proposed median cost for APC 0605. In order to appropriately scale the total weight estimated for OPPS in CY 2007 to be similar to the total weight in OPPS for CY 2006, we calculated a scaler of 1.364598352 for this final rule with comment period, which is higher using APC 0606 as the base than it would be if we used APC 0605 as the base. In addition to adjusting for increases and decreases in weight due the recalibration of APC medians, the scaler also accounts for any change in the base.

The final relative payment weights listed in Addenda A and B of this final rule with comment period incorporate the recalibration adjustments discussed in sections II.A.1. and 2. of this preamble.

Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that ``Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.'' Section 1833(t)(14) of the Act provides the payment rates for certain ``specified covered outpatient drugs.'' Therefore, the cost of those specified covered outpatient drugs (as discussed in section V. of this preamble) is now included in the budget neutrality calculations for CY 2007 OPPS.

Under section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy consisting of a seed or seeds (or radioactive source) is to be made at charges adjusted to cost for services furnished on or after January 1, 2004, and before January 1, 2007. As we stated in our January 6, 2004 interim final rule, charges for the brachytherapy sources were not used in determining outlier payments, and payments for these items were excluded from budget neutrality calculations for the CY 2006 OPPS. We excluded these payments from budget neutrality calculations, in part, because of the challenge posed by estimating hospital-specific cost payment. As proposed, for CY 2007, we calculated specific payment rates for brachytherapy sources, which were subjected to scaling for budget neutrality. (We provide a discussion of brachytherapy payment issues, including their CY 2007 treatment with respect to outlier payments, under section VII. of this preamble.) Therefore, the costs of brachytherapy sources are accounted for in the scaler of 1.364598352. 4. Changes to Packaged Services

Payments for packaged services under the OPPS are bundled into the payments providers receive for separately payable services provided on the same day. Packaged services are identified by the status indicator ``N.'' Hospitals include charges for packaged services on their claims, and the costs associated with these packaged services are then bundled into the costs for separately payable procedures on those same claims in establishing payment rates for the separately payable services. This is consistent with the principles of a prospective payment system based upon groupings of services and in contrast to a fee schedule that provides individual payment for each service billed. Hospitals may use CPT codes to report any packaged services that were performed, consistent with CPT coding guidelines.

As a result of requests from the public, a Packaging Subcommittee to the APC Panel was established to review all the procedural CPT codes with a status indicator of ``N.'' Providers have often suggested that many packaged services could be provided alone, without any other separately payable services on the claim, and requested that these codes not be assigned status indicator ``N.'' In deciding whether to package a service or pay for a code separately, we consider a variety of factors, including whether the service is normally provided separately or in conjunction with other services; how likely it is for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed; and whether the expected cost of the service is relatively low.

The Packaging Subcommittee identified areas for change for some packaged CPT codes that it believed could frequently be provided to patients as the sole service on a given date and that required significant hospital resources as determined from hospital claims data.

Based on the comments received, additional issues, and new data that we shared with the Packaging Subcommittee concerning the packaging status of codes for CY 2007, the Packaging Subcommittee reviewed the packaging status of numerous HCPCS codes and reported its findings to the APC Panel at its March 2006 meeting. The APC Panel accepted the report of the Packaging Subcommittee, heard several presentations on certain packaged services, discussed the deliberations of the Packaging Subcommittee, and recommended that--

CMS pay separately for HCPCS code 0069T (Acoustic heart sound recording and computer analysis; acoustic heart sound and computer analysis only).

CMS maintain the packaged status of HCPCS code 0152T (Computer aided detection with further physician review for interpretation, with or without digitization of films radiographic images; chest radiograph(s)).

[[Page 67992]]

CMS maintain the packaged status of CPT code 36500 (Venous catheterization for selective blood organ sampling).

CMS pay separately for CPT code 36540 (Collection of blood specimen from a completely implantable venous access device) if there are no separately payable OPPS services on the claim.

CMS pay separately for CPT code 36600 (Arterial puncture; withdrawal of blood for diagnosis) if there are no separately payable OPPS services on the claim.

CMS pay separately for CPT code 38792 (Injection procedure for identification of sentinel node) if there are no separately payable OPPS services on the claim.

CMS maintain the packaged status of CPT codes 74328 (Endoscopic catheterization of the biliary ductal system, radiological supervision and interpretation), 74329 (Endoscopic catheterization of the pancreatic ductal system, radiological supervision and interpretation), and 74330 (Combined endoscopic catheterization of the biliary and pancreatic ductal systems, radiological supervision and interpretation).

CMS pay separately for CPT code 75893 (Venous sampling through catheter, with or without angiography (eg, for parathyroid hormone, rennin), radiological supervision and interpretation) if there are no separately payable OPPS services on the claim.

CMS continue to separately pay for CPT code 76000 (Fluoroscopy (separate procedures), up to one hour physician time, other than 71023 or 71024 (eg, cardiac fluoroscopy)).

CMS maintain the packaged status of CPT codes 76001 (Fluoroscopy, physician time more than one hour, assisting a non- radiologic physician (eg, nephrostolithotomy, ERCP, bronchoscopy, transbronchial biopsy)), 76003 (Fluoroscopic guidance for needle placement (eg, biopsy, aspiration, injection, localization device)), and 76005 (Fluoroscopic guidance and localization of needle or catheter tip for spine or paraspinous diagnostic or therapeutic injection procedures (epidural, transforaminal epidural, subarachnoid, paravertebral fact joint, paravertebral facet joint nerve or sacroiliac joint), including neurolytic agent destruction).

CMS maintain the packaged status of CPT codes 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) and 75998 (Fluoroscopic guidance for central venous access device placement, replacement (catheter only or complete), or removal (includes fluoroscopic guidance for vascular access and catheter manipulation, any necessary contrast injections through access site or catheter with related venography radiologic supervision and interpretation, and radiographic documentation of final catheter position)).

CMS provide separate payment for CPT codes 94760 (Noninvasive ear or pulse oximetry for oxygen saturation; single determination), 94761 (Noninvasive ear or pulse oximetry for oxygen saturation; multiple determinations), and 94762 (Noninvasive ear or pulse oximetry for oxygen saturation by continuous overnight monitoring) if there are no separately payable OPPS services on the claim.

CMS pay separately for CPT code 96523 (Irrigation of implanted venous access device for drug delivery systems) if there are no separately payable OPPS services on the claim.

CMS maintain the packaged status of HCPCS code G0269 (Placement of occlusive device into either a venous or arterial access site).

CMS pay separately for HCPCS code P9612 (Catheterization for collection of specimen, single patient) if there are no separately payable OPPS services on the claim.

CMS bring data to the next APC Panel meeting that show the following: (a) how the costs of packaged items and services are incorporated into the median costs of APCs and (b) how the costs of these packaged items and services influence payments for associated procedures.

The Packaging Subcommittee continue until the next APC Panel meeting.

At its August 2006 meeting, the Packaging Subcommittee further discussed the packaging status of several of the HCPCS codes described above and reported its findings to the APC Panel. The APC Panel accepted the report of the Packaging Subcommittee, heard one presentation, reviewed one written comment, and discussed the deliberations of the Packaging Subcommittee. The APC Panel made the following recommendations for CY 2007:

+ That CMS package new 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 (List separately in addition to code for primary procedure), and 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).

+ That CMS continue to package revised CPT code 0069T (Acoustic heart sound recording and computer analysis; acoustic heart sound recording and computer analysis only).

+ That CMS assign CPT code 96523 (Irrigation of implanted venous access device for drug delivery systems) status indicator ``Q'' as a ``special'' packaged code.

For CY 2007, we proposed to maintain CPT code 0069T as a packaged service and not adopt the APC Panel's March 2006 recommendation to pay separately for this code. The service uses signal processing technology to detect, interpret, and document acoustical activities of the heart through special sensors applied to a patient's chest. This code was a new Category III CPT code implemented in the CY 2005 OPPS and assigned a new interim status indicator of ``N'' in the CY 2005 OPPS final rule with comment period. The APC Panel recommended packaging CPT code 0069T for CY 2006, and we accepted that recommendation when we finalized the status indicator ``N'' assignment to 0069T for CY 2006. CPT code 0069T is an add-on code to an electrocardiography (ECG) service for CYs 2005 and 2006. However on July 1, 2006, the AMA released to the public a code descriptor change to remove the add-on code designation for CPT code 0069T. The effective date of this change is January 1, 2007, at which point the descriptor will be ``Acoustic heart sound recording and computer analysis; acoustic heart sound recording and computer analysis only.'' We do not include Category III CPT codes that are released in July of a given year in the OPPS proposed rule for the following calendar year because of timing restraints. We include these codes in the OPPS final rule where they are assigned interim comment indicator ``NI'' to denote that they are open for public comment.

In its March 2006 presentation to the APC Panel, a manufacturer requested that we pay separately for CPT code 0069T and assign it to APC 0099 (Electrocardiograms), based on its estimated cost and clinical characteristics. The manufacturer stated

[[Page 67993]]

that 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.

During the August 2006 meeting, the Packaging Subcommittee further discussed CMS's proposal to package CPT 0069T for CY 2007 and the CY 2007 code descriptor change, and ultimately recommended to the APC Panel that CMS continue to package this code for CY 2007. The APC Panel accepted this recommendation.

Comment: One commenter requested that CMS pay separately for CPT code 0069T for CY 2007, mapping the code to an APC paying between $63 and $97. The commenter clarified that this service is sometimes provided with an ECG and sometimes provided without an ECG, according to its revised descriptor for CY 2007. The commenter could not explain the low median cost that was calculated from the claims data, but suggested that the nine claims used to calculate the median were miscoded. The commenter estimated the cost of the service to be approximately $80 per procedure, significantly higher than the median cost for APC 0099 (Electrocardiograms), which was $23.60 based on the CY 2005 data that were used to calculate the CY 2007 proposed median costs. Though the commenter agreed that it would be rare for the acoustic heart sound procedure to be performed alone without any other OPPS services, the commenter disagreed that the procedure would be ``associated'' with other services. Instead, the commenter clarified that it could be provided with a broad range of services, such as an emergency department visit, clinic visit, chest x-ray, or ECG. In addition, the commenter did not expect this service to have a meaningful impact on the median costs of those services because acoustic heart services are expected to be provided infrequently, compared to the total number of emergency department and clinic visits, chest x-rays, and ECGs.

Response: Despite the change in add-on status for CPT code 0069T for CY 2007, based on the clinical uses that were described during the March 2006 APC Panel meeting and in the public comments, we believe that it is highly unlikely that CPT code 0069T would be performed in the hospital outpatient department as a sole service without other separately payable OPPS services. Payment for CPT code 0069T could always be packaged into payments for those other services. Therefore, we believe that CPT code 0069T is appropriately packaged because it would usually be closely linked to the performance of an ECG, and would rarely, if ever, be the only OPPS service provided to a patient. We understand that the commenter is clarifying that this service is not required to be provided in conjunction with an ECG. However, we continue to believe that it is likely that an ECG or other separately payable service would be performed on the patient in conjunction with the acoustic heart sound service. Therefore, we believe that it is appropriate to continue packaging CPT code 0069T for CY 2007. In addition, this service is estimated to require only minimal hospital resources. Using CY 2005 claims that have been updated with more recent CCRs, we had only nine single claims for CPT code 0069T, with a median line-item cost of $2.45, consistent with its low expected cost. Packaging payment for CPT code 0069T is consistent with the principles of a prospective payment system that provides payments for groups of services. To the extent that the acoustic heart sounding recording service may be more frequently provided in the future in association with ECGs or other OPPS services as its clinical indications evolve, we expect that its cost would also be increasingly reflected in the median costs for those other services, particularly ECG procedures.

After carefully considering all comments received, we are adopting the APC Panel's August 2006 recommendation to continue to package this code for CY 2007. Therefore we are finalizing our proposal without modification to maintain CPT code 0069T as a packaged service for CY 2007.

For CY 2007, we proposed to accept the APC Panel's recommendation to maintain the packaged status of CPT code 0152T. The service involves the application of computer algorithms and classification technologies to chest x-ray images to acquire and display information regarding chest x-ray regions that may contain indications of cancer. This code was a new Category III CPT code implemented in the CY 2006 OPPS and assigned a new interim status indicator of ``NI'' in the CY 2006 OPPS final rule with comment period. For CY 2006, the code is indicated as an add-on code to chest x-ray CPT codes, according to the AMA's CY 2006 CPT book. However, on July 1, 2006, the AMA released to the public an update that deletes code 0152T for CY 2007 and replaces it with two new Category III CPT codes, 0174T and 0175T. Effective January 1, 2007, the descriptor for CPT code 0174T will be ``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 (List separately in addition to code for primary procedure) and the descriptor for 0175T will be ``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.''

As indicated above, we do not include Category III CPT codes that are released in July of a given year in the OPPS proposed rule for the following calendar year because of timing restraints. We include these codes in the OPPS final rule, where they are assigned new interim comment indicator ``NI'' to denote that they are open to comment.

In its March 2006 presentation to the APC Panel, before the AMA had released the CY 2007 changes to this code, the manufacturer requested that we pay separately for this service and assign it to a New Technology APC with a payment rate of $15, based on its estimated cost, clinical considerations, and similarity to other image post-processing services that are paid separately. 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 manufacturer requested that we assign both of these 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 is was unclear as to whether ``remote'' referred to time, geography, or a specific provider. They thought 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

[[Page 67994]]

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 deliberation, the Panel recommended that we package both of the new CPT codes, 0174T and 0175T, for CY 2007.

Comment: One commenter requested that CMS pay separately for CPT codes 0174T and 0175T, mapping them to New Technology APC 1492, with a payment rate of $15. The commenter indicated that there is no basis for believing that chest x-ray computer-aided detection (CAD) will increase the number of chest x-rays performed in the outpatient setting, because chest x-ray CAD is not a screening tool and should only be applied to chest x-rays that are suspicious for lung cancer. The commenter also indicated that separate resources are required for chest x-ray CAD that are not required for a standard chest x-ray. In addition, the commenter stated that chest x-ray CAD can be performed at a different time or location or by a different provider than the chest x-ray. In these cases, the commenter believed that separate payment would be appropriate. The commenter was concerned that if hospitals are not paid separately for this technology, they will not be able to provide it, thereby limiting beneficiary access to chest x-ray CAD.

Response: We agree with the APC Panel that packaged payment for chest x-ray CAD under a prospective payment methodology for outpatient hospital services is appropriate because of the close relationship of chest x-ray CAD to chest x-ray services and its projected modest cost. We do not believe that CPT code 0174T would ever be performed as a sole service without other separately payable OPPS services, based on the code definition as an add-on service performed concurrent with the primary interpretation of a chest x-ray. We believe that payment for CPT code 0174T is appropriately packaged into payment for the chest x- ray services it accompanies. Payment for chest x-rays is provided through APC 0260 (Level I Plain Film Except Teeth), with a CY 2007 median cost of $43.35. The median costs for the individual x-ray services that can be reported with the CAD technology range from $36.00 to $56.11, easily overlapping the modest additional costs of providing chest x-ray CAD services. Although CPT code 0175T applies to chest x- ray CAD that is ``remote'' from the primary interpretation, the definition of ``remote'' as used in the code descriptor is vague, with respect to time, geography, or a specific provider, so the circumstances in which it would be the only service provided by a hospital are also unclear. As discussed by the APC Panel if an x-ray were sent to another hospital for performance of the CAD, the CAD service would likely be provided under arrangement, in which case the hospital that performed the x-ray would bill for both the x-ray and the CAD service. It is unnecessary to treat CPT code 0175T as a ``special'' packaged code because generally the payment for the x-ray CAD would be bundled into the payment for the chest x-ray. While we have no costs from claims data because 0152T was a new CPT code for CY 2006, and 0174T and 0175T are new codes for CY 2007, we estimate that the CAD service requires only modest resources. We expect that a hospital's cost per chest x-ray CAD service would largely depend on the volume of CAD services provided. To the extent that CAD may be more frequently provided in the future to aid in the review of diagnostic chest x-rays as its clinical indications evolve, we expect that its cost would also be increasingly reflected in the median costs for chest x-ray procedures.

After carefully considering all public comments received on this proposal, we are accepting the APC Panel's August 2006 recommendation to package new CPT codes 0174T and 0175T for CY 2007 on an interim final basis.

For CY 2007, we proposed to accept the recommendation of the APC Panel and maintain the packaged status of CPT code 36500. As noted in the CY 2007 OPPS proposed rule (71 FR 49535) we have heard that CPT code 36500 is sometimes billed only with its corresponding radiological supervision and interpretation code, 75893, but with no other separately payable OPPS services. In those cases, the provider would not receive any payment. For CY 2006, we accepted the APC Panel's recommendation to package both CPT codes 36500 and 75893 and to examine claims data. Our initial review of several clinical scenarios submitted by the public seemed to suggest that other separately payable procedures, such as venography, would likely be billed on the same claim. Our claims data indicate that there are usually separately payable codes that are billed on claims with CPT codes 36500 and 75893. However, we acknowledge that these two codes may occasionally be provided without any separately payable procedures. In these uncommon instances, the provider historically has not received any payment under the OPPS. We also understand that there is a cost associated with registering a patient and providing these services. Using CY 2005 claims, we have approximately 200 single claims for CPT code 75893, with a median cost of $269.13. As proposed for CY 2007 and described below for ``special'' packaged codes, when CPT codes 36500 and 75893 are billed on a claim with no separately payable OPPS services, CPT code 75893 would become separately payable and would receive payment for APC 0668. In this circumstance, payment for CPT code 36500 would be packaged into the separate payment for CPT code 75893.

We received no public comments on our proposal. Therefore, we are finalizing our proposal to accept the APC Panel's recommendation to maintain the packaged status of CPT code 36500 without modification.

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

During the August 2006 APC Panel meeting, the APC Panel reviewed a request from the public to assign payment to CPT code 96523 when it appears on a claim with no separately payable OPPS services also reported for the same date of service. The Panel

[[Page 67995]]

recommended that we treat CPT code 96523 as a ``special'' packaged code for CY 2007.

We have heard concerns from the public stating that they are unable to submit claims to CMS that report only packaged codes. We note that although these claims are processed by the OCE and are ultimately rejected for payment, they are received by CMS, and we have cost data for packaged services based upon these claims. However, we recognize that the data used in our analyses to assess the frequencies with which packaged services are provided alone and their median costs are somewhat limited. It is possible that an unknown number of hospitals chose not to submit claims to CMS when a packaged code(s) was provided without other separately payable services on their claims, realizing that they would not receive payment for those claims. While we have been told that some hospitals may bill for a low-level visit if a packaged service only is provided so that they receive some payment for the encounter, we note that providers should bill a low-level visit code in such circumstances only if the hospital provides a significant, separately identifiable low-level visit in association with the packaged service.

Through OCE logic, the PRICER would automatically assign payment for a ``special'' packaged service reported on a claim if there are no other services separately payable under the OPPS on the claim for the same date of service. In all other circumstances, the ``special'' packaged codes would be treated as packaged services. We assign status indicator ``Q'' to these ``special'' packaged codes to indicate that they are usually packaged, except for special circumstances when they are separately payable. Through OCE logic, the status indicator of a ``special'' packaged code would be changed either to ``N'' or to the status indicator of the APC to which the code is assigned for separate payment, depending upon the presence or absence of other OPPS services also reported on the claim for the same date. Table 3 included in the CY 2007 OPPS proposed rule (71 FR 49536) and shown below listed the proposed status indicators and APC assignments for these ``special'' packaged codes when they are separately payable. We note that the payment for these ``special'' packaged codes is intended to make payment for all of the hospital costs, which may include patient registration and establishment of a medical record, in an outpatient hospital setting even when no separately payable services are provided to the patient on that day.

In the case of a claim with two or more ``special'' packaged codes only reported on a single date of service, the PRICER would assign separate payment only to the ``special'' packaged code that would receive the highest payment. The other ``special'' codes would remain packaged and would not receive separate payment.

Comment: Many commenters complimented the Packaging Subcommittee for their efforts to improve payment under the OPPS. In addition, the commenters further commended the Packaging Subcommittee and CMS for proposing to provide payment for ``special'' packaged codes under certain circumstances. One commenter stated that ``special'' packaged codes further complicate an already complicated system and requested that CMS consistently either package a code or pay separately for a code, but not both.

Response: We appreciate the commenters' support and plan to continue working with the Packaging Subcommittee to review other packaged codes that are brought to our attention by the public. While we acknowledge that ``special'' packaged codes add a layer of complexity to a complicated payment system, we continue to believe that it is appropriate to assign payment to ``special'' codes under certain circumstances. We note the ``special'' packaged code policy should impose no additional reporting burden on hospital billing staff because the OCE is automatically programmed to assign payment when appropriate.

Comment: One commenter appreciated that CMS clarified that a hospital cannot bill a CPT E/M code simply because the hospital would like to receive payment for the packaged service that was provided. The commenter asked that CMS also clarify whether this applies only to packaged services, or if it also applies to a service for which there is no applicable HCPCS code. Another commenter noted that CMS is now contradicting Transmittal A-02-129, which states that hospitals can bill a low level clinic visit with CPT code 97602 (Removal of devitalized 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) to receive payment.

Response: Providers should bill a low-level visit code only if the hospital provides a significant, separately identifiable visit from any other service provided. This general rule applies to any service provided by a hospital. As discussed below in section IX.A, we would expect that the hospital resources associated with a visit would be reflected in the hospital's internal guidelines used to select the level of reporting for the visit. The hospital should bill the clinic visit code that most appropriately describes the service provided. We acknowledge that Transmittal A-02-129 is based upon our past policy that a hospital could bill a low level visit code in addition to CPT code 97602, which was then packaged in CY 2003, at the time of the instruction. However, beginning in CY 2006 we have provided separate payment for CPT 97602 when it is performed as a nontherapy service in the hospital outpatient setting. Therefore, the instruction is no longer relevant and will be revised, because hospitals are now able to report and be paid for this wound care service with the most specific CPT code available. This OPPS payment policy for nontherapy, nonselective wound care services will continue for CY 2007. In circumstances where there is no applicable HCPCS code to describe a distinct service, hospitals should continue to report the most appropriate unlisted procedure or unlisted services CPT code. In summary, with respect to the billing of low level visit CPT codes, as described above, our current policy dictates that hospitals may only bill a low-level visit code if the hospital provides a significant, separately identifiable visit from any other service provided.

Comment: One commenter thanked CMS for clarifying that CMS receives claims with only packaged codes that may be used for data analysis. The commenter also stated that it hoped that the ``special'' packaged codes policy would convince its hospital billing department to submit claims with only packaged services on them, so that CMS would have cost data for these codes. Other commenters asked that CMS clarify that it receives claims with only packaged codes and no separately payable codes.

Response: We will clarify again that claims with only packaged codes are received and processed by the OCE. We can access cost data for all of the packaged codes on the claim. We encourage hospitals to continue to submit claims to CMS with only packaged codes because these submissions will allow us to continue to gather cost data for these codes, and help us determine whether it would be appropriate to add additional packaged codes to the ``special'' packaged codes list.

[[Page 67996]]

After carefully considering the public comments received, we are adopting without modification, our proposal to accept the APC Panel's March 2006 recommendation to treat CPT codes 36540, 36600, 38792, 75893, 94762, and 96523 as ``special'' packaged codes. We note that we also are adopting the APC Panel's August 2006 recommendation to treat CPT code 96523 as a ``special'' packaged code. The APC assignments for these codes are shown in Table 3 below. These codes are assigned status indicator ``Q'' in Addendum B to this final rule with comment period.

Table 3.--Status Indicators and APC Assignments for ``Special'' Packaged CPT Codes

CY 2007 APC CPT code

Descriptor

CY 2007 APC Status indicator

median

36540..................... Collect blood, venous

0624 S........................

$31.44 access device. 36600..................... Arterial puncture;

0035 T........................

12.22 withdrawal of blood for diagnosis. 38792..................... Sentinel node

0389 S........................

84.05 identification. 75893..................... Venous sampling through

0668 S........................

381.71 catheter, with or without angiography, radiological supervision and interpretation. 94762..................... Noninvasive ear or pulse

0443 X........................

63.61 oximetry for oxygen saturation by continuous overnight monitoring. 96523..................... Irrigation of implanted

0624 S........................

31.44 venous access device.

We will monitor and analyze the claims frequency and claims detail for situations in which these codes are billed alone and then separately paid. This will allow us to determine both which providers are billing these codes most often and under what circumstances these codes are billed and separately paid. We expect that hospitals scheduling and providing services efficiently to Medicare beneficiaries will continue to generally provide these minor services in conjunction with other medically necessary services.

For CY 2007, we proposed to accept the APC Panel's recommendation and maintain the packaged status of CPT codes 74328, 74329, and 74330. The AMA notes that these radiological supervision and interpretation codes should be reported with procedure CPT codes 43260-43272. In fact, our data indicate that these supervision and interpretation codes are billed with 43260-43272 more than 90 percent of the time, indicating their routine use. We believe that some providers may be concerned that although the payment for the endoscopic procedure includes the bundled payment for the supervision and interpretation performed by the radiology department, the payment for the comprehensive service may be directed to the hospital department that performed the endoscopic procedure, rather than to the radiology department. While we understand this concern, the OPPS pays hospital for services provided, and we believe that hospitals are responsible for attributing payments to hospital departments as they believe appropriate. We do not believe that packaging these radiological supervision and interpretation codes leads to inaccurate payments for the full hospital resources associated with endoscopic retrograde cholangiopancreatography procedures.

We received no public comments on our proposal. Therefore, we are adopting our proposal to accept the APC Panel's recommendation and maintain the packaged status of CPT codes 74328, 74329, and 74330 for CY 2007.

For CY 2007, we proposed to accept the APC Panel's recommendation to continue to package CPT codes 76001, 76003, and 76005 and to continue to pay separately for CPT code 76000. As noted in the CY 2007 proposed rule (71 FR 49536), we received a comment which stated that it was inconsistent to pay separately for CPT code 76000 but to package CPT code 76001, when CPT code 76001 appears to be a similar code, except that it is for a longer period of physician time. The Packaging Subcommittee believed that many of the claims that listed CPT code 76001 were erroneously billed, as many of the procedure codes that were billed with CPT code 76001 included fluoroscopy as an integral part of the procedure. In other cases, the Packaging Subcommittee noted that a procedure-specific fluoroscopy code should probably have been billed, instead of CPT code 76001. The Packaging Subcommittee believed that CPT code 76000 could often be provided as a sole service, with no other separately payable procedures. The Packaging Subcommittee recommended that CMS continue to pay separately for CPT code 76000, consistent with the AMA's definition of this code, which specifies that it is a separate procedure, and to continue to package CPT codes 76001, 76003, and 76005.

We received no public comments that objected to our proposal. Therefore, we are adopting our proposal, without modification, to accept the APC Panel's recommendation to continue to package CPT codes 76001, 76003, and 76005 and to continue to pay separately for CPT code 76000 for OPPS services furnished on or after January 1, 2007.

For CY 2007, we proposed to accept the APC Panel's recommendation to continue to package CPT codes 76937 and 75998. In the CY 2006 OPPS final rule with comment period (70 FR 68544 and 68545), we reviewed in detail the data related to these two codes and promised to share CY 2004 and early CY 2005 data with the Packaging Subcommittee. We reviewed current data with the Packaging Subcommittee, and it recommended that we continue to package these codes. In summary, we believe that these services would always be provided with another separately payable procedure, so their costs would be appropriately bundled with the definitive vascular access device procedures. We found that the costs for these guidance procedures are relatively low compared to the CY 2007 proposed payment rates for the separately payable services they most frequently accompany. If we were to unpackage CPT codes 76937 and 75998, the single bills available to develop median costs for vascular access device insertion services would be significantly reduced. Therefore, we proposed to continue to package both CPT codes 76937 and 75998 for CY 2007.

CPT code 75998 will be replaced with CPT code 77001, effective January 1, 2007. The code descriptor will remain the same.

Comment: Several commenters requested that CMS pay separately for CPT code 76937 because they believe that packaged payment creates a disincentive for use of this technology. Three commenters cited a June 2001 report published by the Agency for Healthcare Research and Quality that claims that use of ultrasound guidance reduced the relative risk for complications during a central venous

[[Page 67997]]

catheter insertion. In addition, two commenters submitted claims data analyses that suggested that for those vascular access procedures that CPT code 76937 could be reported with, CPT code 76937 was reported, on average, only 14 percent of the time, with the greatest utilization rate no more than 25 percent. The commenters stated that these analyses confirmed that ultrasound guidance is not standard practice while performing vascular access procedures.

Response: We appreciate the data analyses submitted by the commenters. In fact, we published the results of our similar analysis in the CY 2006 final rule with comment period (70 FR 68544). To summarize our previous analysis, using CY 2004 single claims data, we determined that for the four most commonly billed venous access device insertion codes (CPT codes 36556, 36558, 36561, and 36569), one or more forms of guidance (fluoroscopic and/or ultrasound) were reported on 41 to 64 percent of the single claims utilized for ratesetting. Specifically, ultrasound guidance was reported from 16 to 34 percent of the time and fluoroscopic guidance was billed from 29 to 52 percent of the time. Thus, overall for these vascular access device insertion services, guidance was used in at least 41 percent of the single claim cases, a very significant portion of the time. We note that all of the commenters are specifically concerned about unpackaging CPT code 76937 and do not appear to be concerned with the packaged status of CPT 75998. In fact, the commenters' analyses only included ultrasound guidance and did not specify the number of venous access device insertions that involved fluoroscopic guidance. We believe that hospital staff choose 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. We also note that the two commenters studied the frequency of CPT code 76937 when billed with CPT codes 36555-36585, which includes central venous access device insertions, repairs, and replacements. In fact, the study that the commenters reference indicates that ultrasound guidance is appropriate for central venous access device insertions. Interestingly, the data now show that 16 percent of all central venous access device insertions are billed with ultrasound guidance while only 2 percent of repairs and replacements are billed with ultrasound guidance. We believe that this indicates that it may be less useful to use ultrasound guidance in conjunction with central venous access device repairs and replacements. Our hospital claims data demonstrate that in CY 2004 guidance services were used frequently for the insertion of vascular access devices, and we have no evidence that patients lacked appropriate access to guidance services necessary for the safe insertion of vascular access devices in the hospital outpatient setting. To the extent that ultrasound guidance may be more frequently provided in the future in association with the insertions of venous access devices or other OPPS services, we expect that its cost would also be increasingly reflected in the median costs for those services.

Also in the CY 2006 final rule (FR 70 68544), we reported our analysis of claims data related to ultrasound guidance for vascular access device insertion procedures from another perspective. Rather than determining how often central venous access device insertions were billed with ultrasound guidance, we determined how often ultrasound guidance was billed with central venous access device insertions. The OPPS hospital claims data reviewed at that time revealed that out of the total instances of CPT code 76937 appearing on the claims used for setting payment rates for CY 2006, CPT code 76937 was billed with four separately payable codes for insertion of central venous access devices 84 percent of the time. This indicated, as might have been expected, that the costs for CPT code 76937 were typically packaged into payment for four CPT codes, 36566, 36558, 36561, and 36569, the most commonly billed codes under the OPPS for vascular access device insertion. Because we believe that ultrasound guidance would always be provided with another separately payable procedure, its costs would be appropriately bundled with the handful of vascular access device insertion procedures with which it is most commonly performed. In addition, packaging is also appropriate because the cost of ultrasound guidance is relatively low compared to the CY 2007 payment rates for the separately payable services it most frequently accompanies.

After carefully considering the public comments received, we are adopting our proposal without modification to accept the APC Panel's March 2006 recommendation to continue to package CPT codes 76937 and 77001, which replaces CPT code 75998.

For CY 2007, we proposed to accept the APC Panel's recommendation to continue to package HCPCS code G0269. This code should never be billed without another separately payable procedure. Recent data indicate that 94 percent of the time HCPCS code G0269 was billed with either CPT code 93510 (Left heart catheterization, retrograde, from the brachial artery, axillary artery or femoral artery; percutaneous) or 93526 (Combined right heart catheterization and retrograde left heart catheterization). In addition, the median cost of G0269 is low compared to the costs of the procedures with which it is typically associated.

We received no public comments on our proposal. Therefore, we are finalizing our proposal, without modification, to package HCPCS code G0269 for CY 2007.

For CY 2007, we proposed to continue packaging CPT codes 94760 and 94761 and not adopt the APC Panel's recommendation to provide separate payment for these services if there are no other separately payable OPPS services on the claim for the same date of service. Our data review revealed that these services are very frequently provided in the OPPS, with over 1.18 million claims in CY 2005 for the single pulse oximetry determination service and over 485,000 claims for the multiple determinations service. These high frequencies may actually be understated as both of these services are packaged codes, and we have been told that some hospitals may not report the HCPCS codes for services for which they receive no separate payments. Single and multiple pulse oximetry determinations are almost always provided in association with other services that are separately payable under the OPPS, into which their costs may be appropriately packaged. Specifically, OPPS hospital claims data revealed that out of the total instances of CPT code 94760 appearing on claims used for setting payment rates for this CY 2007 OPPS final rule with comment period, CPT code 94760 was billed only 4 percent of the time in association with no other separately payable OPPS services, with a median cost of $14. Using the same data, CPT code 94761 was billed only 7 percent of the time in association with no other separately payable OPPS services, with a median cost of $36. These pulse oximetry services have a relatively low cost compared with the OPPS services they frequently accompany. If we were to provide separate payment for these pulse oximetry determinations when performed as stand alone procedures by hospitals, we are concerned that hospitals would lose their incentive to provide these basic, low cost, and brief services as efficiently as possible, generally during the same encounters where they are providing other services to the same patients. We believe their

[[Page 67998]]

appropriate provision as single services should be very rare. Therefore, for CY 2007 we proposed not to include these codes on the list of ``special'' packaged codes, so their payment would remain packaged in all circumstances.

We received no public comments on our proposal. Therefore, we are adopting our proposal to continue packaging CPT codes 94760 and 94761 and are not adopting the APC Panel's March 2006 recommendation to provide separate payment for these services if there are no other separately payable OPPS services on the claim for the same date of service.

For CY 2007, we proposed to assign status indicator ``A'' to HCPCS code P9612 and reject the APC Panel's recommendation to pay separately under the OPPS for this code when it is billed without any separately payable OPPS services. This code is currently payable on the clinical lab fee schedule. Its status indicator of ``A'' would provide payment for the service whenever it is billed, regardless of the presence or absence of other reported services. In addition, for consistency we are proposing to assign status indicator ``A'' to HCPCS code P9615 as it is also payable on the clinical lab fee schedule. In general, when a code is payable on the clinical lab fee schedule, we defer to that fee schedule and do not assign payment under the OPPS.

We received no public comments on our proposal. Therefore, we are adopting our proposal without modification to assign status indicator ``A'' to HCPCS code P9612 and reject the APC Panel's recommendation to pay separately under the OPPS for this code when it is billed without any separately payable OPPS services.

For CY 2007, we proposed to assign status indicator ``N'' to CPT code 0126T (Common carotid intima-media thickness (IMT) study for evaluation of atherosclerotic burden or coronary heart disease risk factor). We received one public comment on this proposal.

Comment: One commenter disagreed with our status indicator assignment of ``N'' for CPT code 0126T and stated that CMS should pay separately for the common carotid IMT procedure because this is often the sole service that is performed in the hospital outpatient setting. As clarified by the commenter, common carotid IMT is a standardized ultrasound procedure that enables physicians to safely and accurately measure and monitor atherosclerosis, which is the underlying cause of heart attacks and stroke. The commenter reported that this code became effective on January 1, 2006. According to the commenter, unlike certain other ultrasound procedures that must be provided with other services, common carotid IMT is a stand-alone diagnostic test because it requires special imaging of the arterial wall and quantitative analysis. The commenter further added that based on the CPT code book instruction for other carotid procedures (that is, CPT codes 93880 and 93882), CPT coding does not permit bundling of 0126T with other procedure codes. The commenter urged CMS to pay separately for common carotid IMT and assign this code to New Technology APC 1504--Level IV ($200-$300), with a payment rate of $250.

Response: We continue to believe that it would be unlikely for this code to be provided without any other separately payable services on the same day. However, we also think that the commenter's suggestion bears closer examination. Therefore, we will review this code with the Packaging Subcommittee of the APC Panel, as is our standard procedure for codes that we are asked to review during the comment period, and as we have previously done for the other services discussed above. We will discuss with the Packaging Subcommittee, on an ongoing basis, packaged procedures for which status indicator changes have been suggested by the public.

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. Additional detailed suggestions for the Packaging Subcommittee should be submitted to APCPanel@cms.hhs.gov, with ``Packaging Subcommittee'' in the subject

line.

B. Payment for Partial Hospitalization

1. Background

Partial hospitalization is an intensive outpatient program of psychiatric services provided to patients as an alternative to inpatient psychiatric care for beneficiaries who have an acute mental illness. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified community mental health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. The Medicare regulations at 42 CFR 419.21(c) that implement this provision specify that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs. Section 1883(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC, effective for services furnished on or after August 1, 2000. For a detailed discussion, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18452).

Historically, the median per diem cost for CMHCs has greatly exceeded the median per diem cost for hospital-based PHPs and has fluctuated significantly from year to year while the median per diem cost for hospital-based PHPs has remained relatively constant ($200- $225). We believe that CMHCs may have increased and decreased their charges in response to Medicare payment policies. As discussed in more detail in section II.B.2. of the preamble of this final rule with comment period and in the CY 2004 OPPS final rule with comment period (68 FR 63470), we believe that some CMHCs manipulated their charges in order to inappropriately receive outlier payments.

In the CY 2003 OPPS update, the difference in median per diem cost for CMHCs and hospital-based PHPs was so great, $685 for CMHCs and $225 for hospital-based PHPs, that we applied an adjustment factor of .583 to CMHC costs to account for the difference between ``as submitted'' and ``final settled'' cost reports. By doing so, the CMHC median per diem cost was reduced to $384, resulting in a combined hospital-based and CMHC PHP median per diem cost of $273. As with all APCs in the OPPS, the median cost for each APC was scaled relative to the cost of a mid-level office visit and the conversion factor was applied. The resulting per diem rate for PHP for CY 2003 was $240.03.

In the CY 2004 OPPS update, the median per diem cost for CMHCs grew to $1,038, while the median per diem cost for hospital-based PHPs was again $225. After applying the .583 adjustment factor in the CY 2004 proposed rule to the median CMHC per diem cost, the median CMHC per diem cost was $605. Because the CMHC median per diem cost exceeded the

[[Page 67999]]

average per diem cost of inpatient psychiatric care, we proposed a per diem rate for CY 2004 based solely on hospital-based PHP data. The proposed PHP per diem for CY 2004, after scaling, was $208.95. However, by the time we published the OPPS final rule with comment period for CY 2004, we had received updated CCRs for CMHCs. Using the updated CCRs significantly lowered the CMHC median per diem cost to $440. As a result, we determined that the higher per diem cost for CMHCs was not due to the difference between ``as submitted'' and ``final settled'' cost reports, but was the result of excessive increases in charges which may have been done in order to receive higher outlier payments. Therefore, in calculating the PHP median per diem cost for CY 2004, we did not apply the .583 adjustment factor to CMHC costs to compute the PHP APC. Using the updated CCRs for CMHCs, the combined hospital-based and CMHC median per diem cost for PHP was $303. After scaling, we established the CY 2004 PHP APC of $286.82.

For CY 2005, the PHP per diem amount was based on 12 months of hospital and CMHC PHP claims data (for services furnished from January 1, 2003, through December 31, 2003). We used data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs because CMHCs are Medicare providers only for the purpose of providing partial hospitalization services. We used CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills, to estimate the provider's cost for a day of PHP services. Per diem costs were then computed by summing the line- item costs on each bill and dividing by the number of days on the bill.

In a Program Memorandum issued on January 17, 2003 (Transmittal A- 03-004), we directed fiscal intermediaries to recalculate hospital and CMHC CCRs by April 30, 2003, using the most recently settled cost reports. Following the initial update of CCRs, fiscal intermediaries were further instructed to continue to update a provider's CCR and enter revised CCRs into the outpatient provider-specific file. Therefore, for CMHCs, we used CCRs from the outpatient provider- specific file.

In the CY 2005 OPPS update, the CMHC median per diem cost was $310 and the hospital-based PHP median per diem cost was $215. No adjustments were determined to be necessary and, after scaling, the combined median per diem cost of $289 was reduced to $281.33. We believed that the reduction in the CMHC median per diem cost indicated that the use of updated CCRs had accounted for the previous increase in CMHC charges, and represented a more accurate estimate of CMHC per diem costs for PHP.

For the CY 2006 OPPS final rule with comment period, we analyzed 12 months of the most current claims data available for hospital and CMHC PHP services furnished between January 1, 2004, and December 31, 2004. We also used the most currently available CCRs to estimate costs. The median per diem cost for CMHCs was $154, while the median per diem cost for hospital-based PHPs was $201. Based on the CY 2004 claims data, the average charge per day for CMHCs was $760, considerably greater than hospital-based per day costs but significantly lower than what it was in CY 2003 ($1,184). We believed that a combination of reduced charges and slightly lower CCRs for CMHCs resulted in a significant decline in the CMHC median per diem cost between CY 2003 and CY 2004.

Following the methodology used for the CY 2005 OPPS update, the CY 2006 OPPS update combined hospital-based and CMHC median per diem cost was $161, a decrease of 44 percent compared to the CY 2005 combined median per diem amount. We believed that this amount was too low to cover the cost for all PHPs.

Therefore, as stated in the CY 2006 OPPS final rule with comment period (70 FR 68548 and 68549), we considered the following three alternatives to our update methodology for the PHP APC for CY 2006 to mitigate this drastic reduction in payment for PHP services: (1) base the PHP APC on hospital-based PHP data alone; (2) apply a different trimming methodology to CMHC costs in an effort to eliminate the effect of data for those CMHCs that appeared to have excessively increased their charges in order to receive outlier payments; and (3) apply a 15- percent reduction to the combined hospital-based and CMHC median per diem cost that was used to establish the CY 2005 PHP APC. (We refer readers to the CY 2006 OPPS final rule with comment period for a full discussion of the three alternatives (70 FR 68548).) After carefully considering these three alternatives and all comments received on them, we adopted the third alternative for CY 2006. We adopted this alternative because we believed and continue to believe that a reduction in the CY 2005 median per diem cost would strike an appropriate balance between using the best available data and providing adequate payment for a program that often spans 5-6 hours a day. We believe that 15 percent is an appropriate reduction because it recognizes decreases in median per diem costs in both the hospital data and the CMHC data, and also reduces the risk of any adverse impact on access to these services that might result from a large single-year rate reduction. However, we adopted this policy as a transitional measure, and stated in the CY 2006 OPPS final rule with comment period that we would continue to monitor CMHC costs and charges for these services and work with CMHCs to improve their reporting so that payments can be calculated based on better empirical data, consistent with the approach we have used to calculate payments in other areas of the OPPS (70 FR 68548).

To apply this methodology for CY 2006, we reduced $289 (the CY 2005 combined unscaled hospital-based and CMHC median per diem cost) by 15 percent, resulting in a combined median per diem cost of $245.65 for CY 2006. 2. PHP APC Update for CY 2007

For CY 2007, we proposed to calculate the CY 2007 PHP per diem payment rate using the same update methodology that we adopted in CY 2006. That is, we proposed to apply an additional 15-percent reduction to the combined hospital-based and CMHC median per diem cost that was used to establish the CY 2006 per diem PHP payment.

As discussed in the CY 2007 OPPS proposed rule (71 FR 49538), we analyzed 12 months of data for hospital and CMHC PHP claims for services furnished between January 1, 2005, and December 31, 2005. We used the most currently available CCRs to estimate costs. Using these CY 2005 claims data, the median per diem cost for CMHCs was $165 and the median per diem cost for hospital-based PHPs was $209. Following the methodology used for the CY 2005 update, the CY 2007 combined hospital-based and CMHC median per diem cost is $172.

While the combined hospital-based and CMHC median per diem cost is about $10 higher using the CY 2005 data compared to the CY 2004 data ($172 compared to $161), we believe this amount is still too low to cover the cost for PHPs. As a result, we proposed the same policy we adopted for CY 2006--a 15-percent reduction applied to the current median cost. Therefore, to calculate the proposed PHP per diem rate for CY 2007, we applied an additional 15-percent reduction to the

[[Page 68000]]

combined hospital-based and CMHC median per diem cost.

To calculate the proposed CY 2007 APC PHP per diem cost, we reduced $245.65 (the CY 2005 combined hospital-based and CMHC median per diem cost of $289 reduced by 15 percent) by 15 percent, which resulted in a proposed combined median per diem cost of $208.80.

We received numerous public comments in response to our proposal. A summary of the comments received and responses follow:

Comment: A number of commenters expressed concern about the magnitude of the reduction, particularly in light of last year's 15 percent reduction. The majority of commenters requested that CMS freeze the PHP rate at the CY 2006 level. Representatives of CMHCs argued that their costs are higher than those of hospitals, with most in the $300 to $400 range. Another commenter indicated that a per-day rate of $325 to $375 was more appropriate than the proposed amount. The commenters also suggested alternatives to calculating the PHP rate, such as including prior years' CMHC data trended forward based on medical inflation or market basket update. In addition, several patients were concerned that a 15-percent reduction in payment would negatively impact their ability to continue therapy.

Response: For this 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. These claims data are more current because the data include claims paid through June 30, 2006. 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 is noted for CY 2003 ($1,184).

Following the 15-percent reduction methodology used for the CY 2005 update, the combined hospital-based and CMHC median per diem cost would be $175, only slightly more than the figure noted in the CY 2007 proposed rule ($172). We continue to believe this amount is too low to cover the cost of PHPs. However, we believe that freezing the current rate would not reflect the downward trend in data. Although the data continue to show a low per diem cost for PHP, we believe that a transition to the reduced amount may be more appropriate to ensure access for the vulnerable population served in PHPs. We recognize that many CMHCs are located in areas affected by Hurricanes Katrina and Rita where access to intensive mental health treatment is now limited. We note that the median per diem cost for hospital-based PHPs, which has been in the $200 to $225 range since the OPPS was implemented, went from $201 in CY 2004 to $190 in CY 2005, a decrease of 5 percent. We believe this percentage decrease provides a valid transitional percentage measure reflecting the downward trend in PHP cost.

Therefore, for CY 2007, we are making a 5-percent reduction to the CY 2006 median per diem rate. This amount accounts for the downward direction of the data and addresses concerns about the magnitude of a 15-percent reduction in 1 year. 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. If the PHP per diem cost continues to be low in CY 2008, we expect to continue the transition of decreasing the PHP median per diem cost to an amount that is reflective of the PHP data.

Comment: The commenters requested that CMS better define how it is monitoring and working with CMHCs to improve their reporting.

Response: CMS has provided guidance to all providers, through transmittals and manuals. In addition, when necessary, CMS has worked closely with fiscal intermediaries to provide guidance to targeted PHP providers to improve reporting.

Comment: Several commenters stated that CMS has applied its own assumptions and methodology on a different basis to compute the PHP rate each year from CY 2003 to CY 2006. The commenters also stated that the only years CMS used the same method was CY 2006 and CY 2007, when CMS made a simple 15-percent reduction from the previous year's rate.

Response: We do not agree with the commenters' assessment of our methodology for computing the PHP median per diem cost. Although a 0.583 adjustment factor was applied to CMHC costs in the CY 2003 update, all other aspects of the methodology that the commenter referenced have been the same each year until CY 2006. We have consistently calculated the PHP median per diem cost by using combined hospital-based and CMHC median cost data and scaled the figure relative to the cost of a mid-level office visit and then applied the conversion factor. However, in CY 2006, the combined hospital-based and CMHC median cost data produced an amount we believed was so low that it would result in too large of a single year rate reduction that we modified our methodology by limiting this decrease to 15 percent.

Comment: One commenter replicated the CMS methodology and computed rates very close to the CY 2007 proposed per diem rate, as well as the separate median per diem costs for CMHCs and hospital-based PHPs. The commenter also created a 3-year rolling median cost that also resulted in a rate similar to the proposed PHP rate. However, the commenter recommended that CMS use the hospital-specific cost center CCR for partial hospitalization instead of the overall outpatient CCR to calculate PHP median costs. The commenter believed that CMS has understated the PHP median costs by not using the hospital-specific CCRs for partial hospitalization.

Response: We note that most hospitals do not have a cost center for partial hospitalization; therefore, we have used the CCR as specific to PHP as possible. The following link contains the Revenue Cost to Cost Center Crosswalk: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage .

This crosswalk indicates how (and if) 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 every revenue code that is used in the OPPS median calculations, starting with most specific, and ending with most general. CMS maps the revenue code to the most specific cost center with a provider-specific CCR. If the hospital does not have a CCR for any of the listed cost centers, the overall hospital CCR is the default. The PHP revenue centers are mapped to a Primary Cost Center 3550 ``Psychiatric/Psychological Services.'' If that cost center is not available, then the Secondary Cost Center is 6000 ``Clinic.'' We use the overall facility CCR for CMHCs because PHP is the CMHCs' only Medicare cost and CMHCs do not have the same cost centers as hospitals. Therefore, for CMHCs, we use the CCR from the outpatient provider- specific file.

Comment: One commenter stated that its internal computations reflect PHP per diem costs of $262.82 for its facility. The commenter urged CMS to increase the CY 2006 PHP rate of $245.65 by 6.8 percent so that the commenter's

[[Page 68001]]

program would break even. Another commenter questioned why CMS did not use actual cost report data to obtain true costs instead of estimating cost using CCRs applied to charges. A third commenter stated that CMS is required to include average costs for all providers and that CMS claims to utilize data representative of the mean of actual operating costs.

Response: We appreciate the commenter sharing its facility's per diem costs for its facility. However, PHP providers are paid under the OPPS. Under the OPPS, we generally determine rates based on median cost using charges from bill data and then estimate costs using CCRs. The OPPS is a PPS and will reflect generally the cost of providing services. A PPS may pay more or less than a provider's costs and is not a reasonable cost reimbursement system.

Comment: One commenter observed a decline of 19 percent in the number of hospital-based PHPs from CY 2003 to CY 2005 and a decline of 21 percent in the number of hospital-based PHP claims. The commenter expected further reductions in the number of hospital-based PHPs if CMS implements the proposed 15-percent rate cut in CY 2007.

Response: We do not believe this is an appropriate comparison because the commenter did not use the complete year of CY 2005 claims data. Rather, the commenter used CY 2005 claims processed through December 31, 2005. Using comparable CYs 2003 and 2005 data, (both CY 2003 and CY 2005 claims processed through June 30, 2004 and June 30, 2006, respectively), the declines are 11 percent and 5 percent, respectively. During the same time period, the number of CMHCs increased 13 percent and the number of CMHC PHP claims increased 36 percent. While there may have been fewer hospital-based PHPs, the number of CMHCs increased from 136 in CY 2003 to 179 in CY 2005. In CY 2005, CMHC and hospital-based PHPs combined provided 1.2 million days of PHP care, compared to approximately 0.8 million days of PHP care in CY 2003. We believe our payment rates continue to ensure adequate access to PHP care.

Comment: Several commenters suggested establishing a task force to develop a new rate methodology that captures all relevant data and reflects the actual costs to providers to deliver PHP services. The commenters recommended that the new ratesetting task force be composed of CMS staff and a diverse group of stakeholders that include front- line providers of PHP services and representatives from national industry organizations.

Response: We agree that the payment rate for PHP needs to be accurate and appropriate to sustain access to care. As we consider changes to the current methodology, we believe input from the industry is an important part of that process. Therefore, we welcome any input and information that the industry can provide about the costs of their programs and encourage providers to submit information on their costs. We note that any significant change in payment methodology would require a statutory change.

Comment: A few commenters stated that wage index adjustment does not accurately reflect the cost of labor in areas affected by Hurricanes Katrina and Rita.

Response: The hospital wage data used to compute the FY 2007 hospital wage index is from the FY 2003 hospital cost reports for all hospitals. This is the standard lag timeframe in determining the hospital wage index. It will be another 2 years before the FY 2005 data will be reflected in the FY 2009 hospital wage index. The wage index is a relative measure of differences in area hourly wage levels. It compares a labor market's average hourly wage to the national average hourly wage. To the extent that post-hurricane hospital labor costs are higher relative to the national average, the wage index will reflect the higher relative labor cost beginning when the FY 2005 data will be used in the FY 2009 IPPS hospital wage index (which will be applied to the CY 2009 OPPS rate year). In addition, the statutory authority for the OPPS wage index policy in section 1833(t)(2)(D) of the Act requires that wage adjustments be made in a budget neutral manner. Therefore, we cannot raise one wage area and still maintain budget neutrality.

Comment: A few commenters disagreed with the CMS approach to establishing the median per diem cost by summarizing the line-item costs on each bill and dividing by the number of days on the bills. The commenters indicated that this calculation can severely dilute the rate and penalize providers. The commenters stated that all programs are strongly encouraged by the fiscal intermediaries to submit all PHP service days on claims, even when the patient receives less than three services. They further stated that programs must report these days to be able to meet the 57 percent attendance threshold and avoid potential delays in the claim payment. The commenters were concerned that programs are only paid their per diem when three or more qualified services are presented for a day of service. The commenters stated that if only one or two services are assigned a cost and the day is divided into the aggregate data, the cost per day is significantly compromised and diluted. They claimed that even days that are paid but only have three services dilute the cost factors on the calculations.

Response: If a provider has charges on a bill for which they do not receive payment, this will be reflected in that provider's CCRs. This lower CCR will be applied to the larger charges and will result in the appropriate cost per diem. To gauge the effect that days with one or two services had on the per diem cost, we trimmed all days with less than three services, and the recalculated median per diem cost only increased by $4.00. As such, we do not believe the calculations are adversely affected by the inclusion of these days.

Comment: A few commenters expressed concern that their financial status is affected where States limit payment of beneficiary coinsurance if the amount of Medicare payment made to a provider exceeds the State's payment rate for PHP.

Response: This is a Medicaid issue and beyond the scope of this final rule.

Comment: With respect to the methodology used to establish the PHP APC amount, commenters were concerned that data from settled cost reports fails to include costs reversed on appeal. The commenters stated that there are inherent problems in using claims data from a different time period than the CCRs from settled cost reports. The commenters indicated this would artificially lower the computed median costs, even though when cost reports are settled, generally 2 years or more after the actual year of services, as the providers have operated on actual revenues of 80 percent of the per diem.

Response: We use the best available data in computing the APCs. We issued a Program Memorandum on January 17, 2003 directing fiscal intermediaries to update the CCRs on an on-going basis whenever a more recent full year cost report is available. In this way, we minimize the time lag between the CCRs and claims data and continue to use the best available data.

Comment: One commenter stated that administrative costs for CMHCs continue to be a major impediment to operating PHPs for Medicare beneficiaries. The commenter was concerned that Medicare does not cover transportation to and from programs and does not cover meals. The commenter stated that almost all programs offer transportation because in most cases

[[Page 68002]]

Medicare beneficiaries with serious mental illnesses would not be able to access these programs without the transportation.

Response: The services that are covered as part of a PHP are specified in section 1861(ff) of the Act. Meals and transportation are specifically excluded under section 1861(ff)(2)(I) of the Act.

Comment: Several commenters summed the payment rate for four Group Therapy sessions (APC 0325) and requested that amount as the minimum for a day of PHP (that is, 4 x $66.40=$265.60). Another commenter presented two different typical days using proposed CY 2007 rates. Typical Day 1 had three Group Therapy sessions (CPT code 90853, APC 0325, 3 x $66.40) and one Individual Psychotherapy session (CPT code 90818, APC 0325, $105.68). The commenter priced Typical Day 1 at $304.88. Typical Day 2 had one Group Therapy session (CPT code 90853, APC 0325, $66.40), one Individual Psychotherapy session (CPT code 90818, APC 0323, $105.68), and one Family Therapy session (CPT code 90847, APC 0324, $135.95). The commenter priced Typical Day 2 at $308.03. Based on the commenter's presented material, the commenter stated that the typical days yield an average componentized rate of $306. The commenters questioned how CMS can set rates for APCs 0322 through 0325, yet are unable to determine a payment rate for a day that is comprised of a minimum of three to four of those services. Another commenter stated that CMS requires a minimum of four treatments per day to qualify for a day of PHP and the proposed per diem rate of $208.27 for PHP that is less than what CMS would pay for four Group Therapy sessions (4 x $66.40=$265.60).

Response: We do not believe this is an appropriate comparison. The commenter does not use the PHP APC, APC 0033. The payment rates for APC services cited by the commenter (APC 0323, APC 0324 and APC 0325) are not computed from PHP bills. As stated earlier, we used data from PHP programs (both hospitals and CMHCs) to determine the median cost of a day of PHP. PHP is a program of services where savings can be realized by hospitals and CMHCs over delivering individual psychotherapy services.

We structured the PHP APC (0033) as a per diem methodology in which the day of care is the unit that reflects the structure and scheduling of PHPs and the composition of the PHP APC consists of the cost of all services provided each day. Although we require that each PHP day include a psychotherapy service, we do not specify the specific mix of other services provided and our payment methodology reflects the cost per day rather than the cost of each service furnished within the day. We note that CMS does not require a minimum of four services.

Comment: One commenter requested that the same provisions given to rural hospital outpatient departments also be given to rural CMHCs.

Response: We believe the commenter may be referring to the statutory hold harmless provisions. Section 1833(t)(7)(D) of the Act authorizes such payments, on a permanent basis, for children's hospitals and cancer hospitals and, through CY 2005, for rural hospitals having 100 or fewer beds and SCHs in rural areas. Section 1866(t)(7)(D) of the Act does not authorize hold harmless payments to CMHC providers. Section 411 of Pub. L. 108-173 required CMS to determine the appropriateness of additional payments for certain rural hospitals. That authority also does not extend to CMHCs.

Comment: Representatives of several CMHCs claimed that their costs are higher because ``hospitals can share and spread their costs to other departments.'' The commenters believed that the CMHC patient acuity level is more intense than that for hospital patients because hospital outpatient departments need only provide one or two therapies, yet still receive the full PHP per diem.

Response: CMHCs are required to furnish an array of outpatient services including specialized outpatient services for children, the elderly, individuals with a serious mental illness, and residents of its service area who have been discharged from inpatient treatment. Accordingly, CMHCs have the same ability to share costs among its programs as needed. Further, we believe hospital costs in some areas, for example, capital and 24-hour maintenance costs, likely exceed CMHC costs.

Comment: A few commenters stated that hospitals that offer partial hospitalization services should not be penalized for the instability in data reporting of CMHCs. Another commenter requested that CMS require that CMHCs improve their reporting or have that provider group face economic consequences.

Response: We believe that hospital-based programs may have benefited from the inclusion of CMHC data, as generally the median calculated from hospital outpatient department PHPs was consistently far less then the median amount that is computed for CMHCs. We have also taken steps to better educate the CMHCs in the cost reporting requirements.

Comment: One commenter asked why there are no CMHCs shown in the impact statement. The commenter asked if this is required by regulation.

Response: CMHCs do not share the same characteristics as hospitals and do not fit into the traditional impact categories (like bed size). Therefore, we have not included them in the impact chart. As PHP is the only Medicare service CMHCs provide, the impact is the percentage change in the APC amount from year to year. Assuming that the number days of PHP provided by CMHCs stays the same as it was in CY 2005, the estimated impact on CMHCs as a result of the CY 2007 PHP payment rate compared to the CY 2006 PHP payment rate is a 5-percent decrease. 3. Separate Threshold for Outlier Payments to CMHCs

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

The separate outlier threshold for CMHCs became effective January 1, 2004, and has resulted in more commensurate outlier payments. In CY 2004, the separate outlier threshold for

[[Page 68003]]

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 discussed in section II.B.2. of this preamble, we believe the CY 2005 CMHC data produce median per diem cost too low to use for the CY 2007 partial hospitalization payment rate. Due to the continued volatility of the CMHC charge data, we proposed to maintain the existing outlier threshold for CMHCs for CY 2007 at 3.40 times the APC payment amount and the CY 2007 outlier payment percentage applicable to costs in excess of the threshold at 50 percent.

As noted in section II.G. of this preamble, for CY 2007, we proposed to continue our policy of setting aside 1.0 percent of the aggregate total payments under the OPPS for outlier payments. We proposed that a portion of that 1.0 percent, an amount equal to 0.25 percent of outlier payments and 0.0025 percent of total OPPS payments would be allocated to CMHCs for PHP service outliers. As discussed in section II.G. of this preamble, we again proposed 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 did not propose to set a dollar threshold for CMHC outliers. As noted above, we proposed to set the outlier threshold for CMHCs for CY 2007 at 3.40 percent times the APC payment amount and the CY 2007 outlier payment percentage applicable to costs in excess of the threshold at 50 percent.

We received no public comments on our proposal. As discussed in section II.G. of this preamble, using more recent data for this final rule with comment period, we set the target for hospital outpatient outlier payments at 1.0 of total OPPS payments. We allocate 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. For CY 2007, we set the outlier threshold for CMHCs for CY 2007 at 3.40 percent times the APC payment amount and the CY 2007 outlier percentage applicable to costs in excess of the threshold at 50 percent.

C. Conversion Factor Update for CY 2007

Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for CY 2007, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act.

The hospital market basket increase for FY 2007 published in the IPPS final rule on August 18, 2006 is 3.4 percent (71 FR 48146), the same as the forecast published in the FY 2007 IPPS proposed rule on April 25, 2006 (71 FR 24148). To set the OPPS proposed conversion factor for CY 2007, we increased the CY 2006 conversion factor of $59.511, as specified in the November 10, 2005 final rule with comment period (70 FR 68551), by 3.4 percent.

In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2006 to ensure that the revisions we are making to our updates for a revised wage index and expanded rural adjustment are made on a budget neutral basis. We calculated a budget neutrality factor of 0.999331979 for wage index changes by comparing total payments from our simulation model using the FY 2007 IPPS final wage index values as finalized to those payments using the current (FY 2006) IPPS wage index values. To reflect the inclusion of essential access community hospitals (EACHs) as rural SCHs (discussed in section II.F. of this preamble), we calculated an additional budget neutrality factor of 0.999975941 for the rural adjustment, including EACHs. For CY 2007, we estimate that allowed pass-through spending would equal approximately $65.6 million, which represents 0.21 percent of total OPPS projected spending for CY 2007. The final conversion factor also is adjusted by the difference between the 0.17 percent pass-through dollars set-aside in CY 2006 and the 0.21 percent estimate for CY 2007 pass-through spending. Finally, payments for outliers remain at 1.0 percent of total payments for CY 2007.

The market basket increase update factor of 3.4 percent for CY 2007, the required wage index budget neutrality adjustment of approximately 0.999331979, the adjustment of 0.04 percent for the difference in the pass-through set-aside, and the adjustment for the rural payment adjustment for rural SCHs, including rural EACHs, of 0.999975941 result in a standard conversion factor for CY 2007 of $61.468.

We received many public comments on the calculation of the proposed conversion factor updates for CY 2007 with regard to the proposal to reduce the CY 2007 conversion factor for failure to report the IPPS RHQDAPU data. These comments are addressed in section XIX. of this preamble. We received no other comments on the proposed conversion factor update for CY 2007.

D. Wage Index Changes for CY 2007

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 OPPS were attributable to wage costs. We did not propose to revise this policy for CY 2007 OPPS. See section II.H. of this final rule with comment period for a description and example of how the wage index for a particular hospital is used to determine the payment for the hospital.

This adjustment must be made in a budget neutral manner. As we have done in prior years, we proposed to adopt the IPPS wage indices and extend these wage indices to hospitals that participate in the OPPS but not the IPPS (referred to in this section as ``non-IPPS'' hospitals).

As discussed in section II.A. of this preamble, we standardize 60 percent of estimated costs (labor-related costs) for geographic area wage variation using the IPPS wage indices that are calculated prior to adjustments for reclassification to remove the effects of differences in area wage levels in determining the OPPS payment rate and the copayment standardized amount.

As published in the original OPPS April 7, 2000 final rule with comment period (65 FR 18545), OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. Thus, the wage index that applies to a particular hospital under the IPPS will also apply to that hospital under the OPPS. As initially explained in the September 8, 1998 OPPS proposed rule, we believed and continue to believe that

[[Page 68004]]

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 the CY 2007 OPPS proposed rule, in accordance with our established policy, we proposed to use the FY 2007 final version of these wage indices to determine the wage adjustments for the OPPS payment rate and copayment standardized amount that would be published in our final rule with comment period for CY 2007 which will include the finalized wage indices in effect through March 31, 2007, and those in effect on or after April 1, 2007, to accommodate the expiring reclassification provisions under section 508 of Pub. L. 108- 173 to determine the wage adjustments for the OPPS payment rate and copayment standardized amount.

On May 17, 2006 (71 FR 28644), in response to a court order in Bellevue Hosp. Ctr. v. Leavitt, we published a second IPPS proposed rule that would revise the methodology for calculating the occupational mix adjustment for FY 2007. We proposed to replace in full the descriptions of the data and methodology that would be used in calculating the occupational mix adjustment discussed in the first FY 2007 IPPS proposed rule. The second proposed rule also states that, because of the collection of new occupational mix data, we would publish the FY 2007 occupational mix adjusted wage index tables and related impacts on the CMS Web site shortly after we published the FY 2007 IPPS final rule, and in advance of October 1, 2006. The weights and factors would also be published on the CMS Web site after the FY 2007 IPPS final rule, but in advance of October 1, 2006 (71 FR 28650). On October 11, 2006 (71 FR 59886), we published an IPPS notice in the Federal Register that, in part, finalized the adjusted occupational mix wage indices published in the FY 2007 IPPS final rule. Readers are directed to refer to the wage index tables that were published on the CMS Web site before October 1, 2006.

We note that the FY 2007 IPPS wage indices continue to reflect a number of changes implemented in FY 2005 as a result of the revised Office of Management and Budget (OMB) standards for defining geographic statistical areas, the implementation of an occupational mix adjustment as part of the wage index, and new wage adjustments provided for under Pub. L. 108-173. The following is a brief summary of the changes in the FY 2005 IPPS wage indices, continued for FY 2007, and any adjustments that we are applying to the OPPS for CY 2007. We refer the reader to the FY 2007 IPPS final rule (71 FR 48005 through 48028) for a detailed discussion of the changes to the wage indices. Readers should refer also to our IPPS notice published in the Federal Register on October 11, 2006, for finalized changes to the adjusted occupational mix wage indices and related issues (71 FR 59886). In this final rule with comment period, we are not reprinting the FY 2007 IPPS wage indices referenced in the discussion below, with the exception of the out- migration wage adjustment table (Addendum L of this final rule with comment period). 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 finalized FY 2007 IPPS wage indices tables.

1. The continued use of the Core Based Statistical Areas (CBSAs) issued by the OMB as revised standards for designating geographical statistical areas based on the 2000 Census data, to define labor market areas for hospitals for purposes of the IPPS wage index. The OMB revised standards were published in the Federal Register on December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 IPPS final rule, CMS adopted the new OMB definitions for wage index purposes. In the FY 2007 IPPS final rule, we again stated that hospitals located in MSAs will be urban and hospitals that are located in Micropolitan Areas or outside CBSAs will be rural. To help alleviate the decreased payments for previously urban hospitals that became rural under the new geographical definitions, we allowed these hospitals to maintain for the 3-year period from FY 2005 through FY 2007, the wage index of the MSA where they previously had been located. To be consistent with the IPPS, we will continue the policy we began in CY 2005 of applying the same urban-to-rural transition to non-IPPS hospitals paid under the OPPS. That is, we would maintain the wage index of the MSA where the hospital was previously located for purposes of determining a wage index for CY 2007. Beginning in FY 2008, the 3-year transition will end and these hospitals will receive their statewide rural wage index. However, hospitals paid under the IPPS will be eligible to apply for reclassification.

For the occupational mix adjustment, we refer readers to the FY 2007 IPPS final rule and the October 11, 2006 IPPS notice discussed above. Under that final rule, the wage indices are adjusted 100 percent for occupational mix. In addition, as stated above, the finalized version of the FY 2007 IPPS wage index tables and other adjustment factors were published in the October 11, 2006 IPPS notice and are applicable to discharges occurring on or after October 1, 2006.

As noted above, for purposes of estimating an adjustment for the OPPS payment rates to accommodate geographic differences in labor costs in this final rule with comment period, we have used the finalized FY 2007 IPPS wage indices identified in the October 11, 2006 IPPS notice that are fully adjusted for differences in occupational mix using the new survey data, effective October 1, 2006. As proposed, in all cases, we are using the finalized FY 2007 IPPS wage indices, which include the wage indices to be in effect through March 31, 2007, and those to be in effect on or after April 1, 2007, with any subsequent corrections, for calculating OPPS payment in CY 2007.

2. The reclassifications of hospitals to geographic areas for purposes of the wage index. For purposes of the OPPS wage index, we proposed to adopt all of the IPPS reclassifications for FY 2007, including reclassifications that the Medicare Geographic Classification Review Board (MGCRB) approved under the one-time appeal process for hospitals under section 508 of Pub. L. 108-173. We note that section 508 reclassifications will terminate March 31, 2007, and that this expiration, along with the calendar year operating period of OPPS, impacts the calculation of the OPPS payment and the budget neutrality adjustment for the wage index. In the FY 2007 IPPS final rule (71 FR 48024 and 48025), we finalized the procedural rules for hospitals that wished to reclassify for the second half of FY 2007 (April 1, 2007, through September 30, 2007) under section 1886(d)(10) of the Act. These rules essentially provided procedures for some hospitals to retain section 508 reclassifications for the first half of FY 2007 and also be eligible to maintain an approved reclassification under section 1886(d)(10) for the second half of FY 2007. Rather than calculating one wage index that reflected all final reclassification adjustments, we will calculate two separate wage indices for FY 2007, one to be in effect October 1 through March 31, 2007, and one to be in effect April 1 through September 30, 2007.

These procedural rules also impact a hospital's eligibility to receive the out-migration wage adjustment, discussed

[[Page 68005]]

in greater detail in section III.I. of the FY 2007 IPPS final rule (71 FR 48026) and under section II.D.4. of this preamble. A hospital cannot receive an out-migration wage adjustment if it is reclassified under section 1886(d)(10) of the Act. Hospitals declining reclassification status for any part of the year become eligible to receive the out- migration wage adjustment if they are located in an adjustment county. We note that because the OPPS operates on a calendar year (January 1 through December 31) and not a fiscal year, the expiring reclassification status under section 508 of Pub. L. 108-173 results in different wage indices for OPPS for the first quarter of CY 2007 (January 1, 2007, through March 31, 2007) and the last three quarters of CY 2007 (April 1, 2007, through December 31, 2007).

3. The out-migration wage adjustment to the wage index. In FY 2007 IPPS final rule (71 FR 48026), we discussed the out-migration adjustment under section 505 of Pub. L. 109-173 for counties under this adjustment. Hospitals paid under the IPPS located in the qualifying section 505 ``out-migration'' counties receive a wage index increase unless they have already been otherwise reclassified. (See the IPPS FY 2007 final rule for further information on out-migration.) For OPPS purposes, we proposed to continue our policy from CY 2006 to allow non- IPPS hospitals paid under the OPPS to qualify for out-migration adjustment if they are located in a section 505 out-migration county. Because non-IPPS hospitals cannot reclassify, they are eligible for the out-migration wage adjustment. Tables identifying counties eligible for the out-migration adjustment were published after the FY 2007 IPPS final rule on October 11, 2006 (71 FR 59886). These tables reflect updated county listing to reflect changes to the occupation mix adjustment made in response to Bellevue court case discussed above. Because we proposed to adopt the final FY 2007 IPPS wage index, we are adopting any changes in a hospital's classification status that will make them either eligible or ineligible for the out-migration wage adjustment both through March 31, 2007, and on or after April 1, 2007.

With the exception of reclassifications resulting from the implementation of the one-time appeal process under section 508 of Pub. L. 108-173, all changes to the wage index resulting from geographic labor market area reclassifications or other adjustments must be incorporated in a budget neutral manner. Accordingly, in calculating the OPPS budget neutrality estimates for CY 2007, in this final rule with comment period, we have included the wage index changes that would result from MGCRB reclassifications, implementation of section 505 of Pub. L. 108-173, and other refinements made in the FY 2007 IPPS final rule, such as the hold harmless provision for hospitals changing status from urban to rural under the new CBSA geographic statistical area definitions. However, section 508 sets aside $900 million to implement the section 508 reclassifications. We considered the increased Medicare payments that the section 508 reclassifications would create in both the IPPS and OPPS when we determined the impact of the one-time appeal process. Because the increased OPPS payments already count against the $900 million limit, we did not consider these reclassifications when we calculated the OPPS budget neutrality adjustment.

Under the procedural rules described under section II.D.3. of this final rule with comment period and in section III.H.6. of the FY 2007 IPPS final rule (71 FR 48024) regarding expiring section 508 reclassifications, different wage indices may be in effect for the first quarter of the calendar year and the last three quarters of the calendar year. These rules have implications for budget neutrality adjustments. Any additional payment attributable to reclassifications due to section 508 between January 1 and April 1, 2007, must be excluded from a budget neutrality adjustment, and all other adjustments to the wage index are subject to budget neutrality. Rather than calculating two different conversion factors, with different budget neutrality adjustments, we proposed to calculate one budget neutrality adjustment that reflects the combined adjustments required for the first quarter and last three quarters of the calendar year, respectively. We followed the same approach in the FY 2007 IPPS final rule (71 FR 48026).

We received several comments on the proposed wage index policy for the CY 2007 OPPS.

Comment: One commenter urged CMS to use the IPPS labor-related adjustment to determine reimbursements for outpatient services. Specifically, the commenter requested that the labor-related percentage for the OPPS be revised from the 60 percent currently proposed to 69.7 percent, consistent with what is stated in the FY 2007 IPPS rule. The commenter further requested that, at a minimum, CMS update the OPPS labor-related share in effect for CY 2007 from 60 percent to 63 percent, the labor-related percentage referenced by CMS in the CY 2006 OPPS final rule.

Response: We did not propose a change to the labor share, but we do not believe that such a change is appropriate. The determination to wage adjust 60 percent of the payment of each APC was made based on a regression analysis at the beginning of the OPPS. We repeated this analysis as part of the rural adjustment study we performed for the CY 2006 OPPS based on CY 2004 claims data. This study examined the extent to which the body of costs for services furnished in the outpatient department was split between wage and nonwage costs and, based on our most recent findings, we believe that it remains appropriate to wage adjust 60 percent of the APC payment (70 FR 68533).

Comment: One commenter urged CMS to postpone the implementation of 100 percent of the occupational mix survey adjustment until the DRG severity refinements can be fully implemented and their possible unrecognized adverse effects on quality of care and outcomes can be resolved. Another commenter expressed concern about the application of the 100-percent occupational mix adjustment for CY 2007. The commenter encouraged CMS to approach Congress for authority to transition the occupational mix and to repeal the mandate that CMS apply an occupational mix adjustment to wage indices.

Response: We appreciate the comments concerning this issue and refer readers to the CMS final rule for the CY 2007 IPPS ( 71 FR 48006) for a discussion of the reasons that CMS adopted a 100 percent occupational mix adjusted wage index for hospitals receiving payments under the IPPS. As first published in the original OPPS final rule on April 7, 2000 (65 FR 18545), the OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. We continue to believe that using the IPPS wage index as the source of an adjustment factor for the OPPS is reasonable and logical given the inseparable, subordinate status of the hospital outpatient department within the hospital overall. Therefore, given that a 100 percent occupational mix adjusted wage index was adopted in the IPPS, we will also adopt the same index for the OPPS.

After carefully considering all public comments received, we are finalizing our wage index adjustment policy for the CY 2007 OPPS as proposed without modification.

[[Page 68006]]

E. Statewide Average Default CCRs

CMS uses CCRs to determine outlier payments, payments for pass- through devices, and monthly interim transitional corridor payments under the OPPS. Some hospitals do not have a valid CCR. These hospitals include, but are not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, or hospitals that have recently given up their all-inclusive rate status. Last year, we updated the default urban and rural CCRs for CY 2006 in our final rule with comment period published on November 10, 2005 (70 FR 68553 through 68555). As we proposed, in this final rule with comment period, we have updated the default ratios for CY 2007 using the most recent cost report data.

We calculated the statewide default CCRs using the same overall CCRs that we use to adjust charges to costs on claims data. Refer to section II.A.1.c. of this preamble for a discussion of our revision to the overall CCR calculation. Table 4 published in the CY 2007 OPPS proposed rule listed the proposed CY 2007 default urban and rural CCRs by State and compared them to last year's default CCRs (71 FR 49542 through 49545). 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 the proposed rule, 81.79 percent of the submitted cost reports represented data for CY 2004. We have since updated the cost report data we use to calculate CCRs with additional submitted cost reports for CY 2005. For this final rule with comment period, 66.41 percent of the submitted cost reports utilized in the default ratio calculation were for CY 2004, whereas 34.95 percent were for CY 2005. We only used valid CCRs to calculate these default ratios. That is, we remove