Part II

 
CONTENT

[Federal Register: December 1, 2006 (Volume 71, Number 231)]

[Rules and Regulations]

[Page 69623-70251]

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

[DOCID:fr01de06-20]

[[Page 69623]]

Part II

Book 2 of 2 Books

Pages 69623-70274

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, et al.

Medicare Program; Revisions to Payment Policies, etc.; Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 411, 414, 415, and 424

[CMS-1321-FC and CMS-1317-F]

RINs 0938-AO24 and 0938-AO11

Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulance Services Under the Fee Schedule for Ambulance Services; and Ambulance Inflation Factor Update for CY 2007

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

ACTION: Final rule with comment period.

SUMMARY: This final rule with comment period addresses certain provisions of the Deficit Reduction Act of 2005, as well as making other changes to Medicare Part B payment policy. These changes are intended to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discusses geographic practice cost indices (GPCI) changes; requests for additions to the list of telehealth services; payment for covered outpatient drugs and biologicals; payment for renal dialysis services; policies related to private contracts and opt-out; policies related to bone mass measurement (BMM) services, independent diagnostic testing facilities (IDTFs), the physician self-referral prohibition; laboratory billing for the technical component (TC) of physician pathology services; the clinical laboratory fee schedule; certification of advanced practice nurses; health information technology, the health care information transparency initiative; updates the list of certain services subject to the physician self-referral prohibitions, finalizes ASP reporting requirements, and codifies Medicare's longstanding policy that payment of bad debts associated with services paid under a fee schedule/charge- based system are not allowable.

We are also finalizing the calendar year (CY) 2006 interim RVUs and are issuing interim RVUs for new and revised procedure codes for CY 2007.

In addition, this rule includes revisions to payment policies under the fee schedule for ambulance services and the ambulance inflation factor update for CY 2007.

As required by the statute, we are announcing that the physician fee schedule update for CY 2007 is -5.0 percent, the initial estimate for the sustainable growth rate for CY 2007 is 2.0 percent and the CF for CY 2007 is $35.9848.

DATES: Effective Date: These regulations are effective on January 1, 2007.

Comment Date: Comments will be considered if we receive them at one of the addresses provided below, no later than 5 p.m. on January 2, 2007.

ADDRESSES: In commenting, please refer to file code CMS-1321-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of three 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 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-1321- FC, P.O. Box 8014, Baltimore, MD 21244-8014.

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-1321-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. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7197 in advance to schedule your arrival with one of our staff members.

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the ``Collection of Information Requirements'' section in this document.

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

FOR FURTHER INFORMATION CONTACT: Pam West, (410) 786-2302 (for issues related to practice expense).

Stephanie Monroe, (410) 786-6864 (for issues related to the geographic practice cost index).

Craig Dobyski, (410) 786-4584 (for issues related to list of telehealth services).

Roberta Epps, (410) 786-4503 (for issues related to diagnostic imaging services).

Bill Larson, (410) 786-4639 (for issues related to coverage of bone mass measurement and addition of ultrasound screening for abdominal aortic aneurysm to the ``Welcome to Medicare'' benefit).

Dorothy Shannon, (410) 786-3396 (for issues related to the outpatient therapy cap).

Catherine Jansto, (410) 786-7762 (for issues related to payment for covered outpatient drugs and biologicals).

Henry Richter, (410) 786-4562 (for issues related to payments for end-stage renal disease facilities).

Fred Grabau, (410) 786-0206 (for issues related to private contracts and opt-out provision).

David Walczak, (410) 786-4475 (for issues related to reassignment provisions).

August Nemec, (410) 786-0612 (for issues related to independent diagnostic testing facilities).

Anita Greenberg, (410) 786-4601 (for issues related to the clinical laboratory fee schedule).

James Menas, (410) 786-4507 (for issues related to payment for physician pathology services).

Anne Tayloe, (410) 786-4546; or

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Glenn McGuirk, (410) 786-5723 (for issues related to the ambulance fee schedule.

Diane Milstead, (410) 786-3355 or Gaysha Brooks, (410) 786-9649 (for all other issues).

SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on the following issues: interim Relative Value Units (RVUs) for selected procedure codes identified in Addendum C and the physician self-referral designated health services (DHS) listed in Tables 18 and 19. You can assist us by referencing the file code CMS- 1321-FC and the specific ``issue identifier'' that precedes the section on which you choose to comment.

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

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

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

This Federal Register document is also available from the Federal Register online database through Government Printing Office Access, a service of the U.S. Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.

Information on the physician fee schedule can also be found on the CMS homepage. You can access this data by using the following directions:

1. Go to the following Web site: http://www.cms.hhs.gov/PhysicianFeeSched/ .

2. Select ``PFS Federal Regulation Notices.''

To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation's impact appears throughout the preamble and is not exclusively in section VI.

Table of Contents

I. Background

A. Development of the Relative Value System

B. Components of the Fee Schedule Payment Amounts

C. Most Recent Changes to the Fee Schedule II. Provisions of the Final Rule

A. Resource-Based Practice Expense Relative Value Units

1. Current Methodology

2. Proposals for Revising the PE Methodology

3. Specific Changes to the Indirect PE Methodology for Calendar Year 2007

4. Additional PE Issues for CY 2007

a. RUC Recommendations for Direct PE Inputs and Other PE Input Issues

b. Payment for Splint and Cast Supplies

c. Medical Nutrition Therapy Services

d. Surgical Pathology Codes

e. PE Issues from Rulemaking for CY 2006

f. Other PE Issues for CY 2007

g. Specific PE Concerns Raised by Commenters

h. Concerns About Decreases in PE RVUs

i. Equipment Utilization and Interest Rate Assumptions

j. Further Review of PE Direct Inputs

k. Supply and Equipment Items Needing Specialty Input

B. Geographic Practice Cost Indices (GPCIs)

C. Medicare Telehealth Services

D. Miscellaneous Coding Issues

1. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

2. Assignment of RVUS for Proton Beam Treatment Delivery Services

E. Deficit Reduction Act (DRA)

1. Section 5102--Adjustments for Payments to Imaging Services

a. Payment for Multiple Imaging Procedures for 2007

b. Reduction in TC for Imaging Services Under the PFS to OPD Payment Amount

c. Interaction of the Multiple Imaging Payment Reduction and the OPPS Cap

2. Section 5107--Revisions to Payments for Therapy Services

3. Section 5112--Addition of Ultrasound Screening for Abdominal Aortic Aneurysm (AAA)

a. Coverage

b. Payment

4. Section 5113--Non-Application of the Part B Deductible for Colorectal Cancer Screening Tests

5. Section 5114--Addition of Diabetes Outpatient Self-Management Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the FQHC Program

F. Payment for Covered Outpatient Drugs and Biologicals (ASP Issues)

1. ASP Issues

2. Intravenous Immune Globulin (IVIG)

3. Clotting Factor Furnishing Fee

4. Widely Available Market Prices (WAMP) and Average Manufacturer Price (AMP) Threshold

5. Payment for Drugs Furnished During CY 2006 and Subsequent Years in Connection With the Furnishing of Renal Dialysis Services if Separately Billed by Renal Dialysis Facilities

6. Other Issues

G. Revisions Related to Payment for Renal Dialysis Services Furnished by End Stage Renal Disease (ESRD) Facilities

1. Growth Update to the Drug Add-on Adjustment to the Composite Rate

2. Update to the Geographic Adjustments to the Composite Rates

H. Private Contracts and Opt-Out Provision--Practitioner Definition

I. Changes to Reassignment and Physician Self-Referral Rules Relating to Diagnostic Tests

J. Supplier Access to Claims Billed on Reassignment

K. Coverage of Bone Mass Measurement

1. Provisions of the June 24, 1998 IFC

2. Additional Scientific Evidence

3. Changes to the June 24, 1998 IFC

4. Analysis of and Response to Comments on the June 24, 1998 IFC and the CY 2007 PFS Proposed Rule

L. Independent Diagnostic Testing Facility (IDTF) Issues

1. IDTF Changes

2. Performance Standards for IDTFs

3. Supervision

4. Place of Service

5. Analysis of and Response to Public Comments

6. Provisions of the Final Rule

M. Independent Laboratory Billing for the TC of Physician Pathology Services to Hospital Patients

N. Public Consultation for Medicare Payment for New Outpatient Clinical Diagnostic Laboratory Tests

1. Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 (BIPA)

2. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

3. Other Laboratory Issues

a. Quality

b. Blood Glucose Monitoring in SNFs

c. Other Lab Issues--Clinical Diagnostic Laboratory Date of Service (DOS) for Stored Specimens

O. Criteria for National Certifying Bodies that Certify Advanced Practice Nurses

P. Chiropractic Services Demonstration

Q. Promoting Effective Use of Health Information Technology (HIT)

R. Health Care Information Transparency Initiative

S. Bad Debt Payment for Services Associated with Reasonable Charge/Fee Schedules III. Revisions to the Payment Policies of Ambulance Services Under the Fee Schedule for Ambulance Services and the Ambulance Inflation Factor Update for CY 2007

A. History of Medicare Ambulance Services

B. Provisions of the Final Regulation

C. Analysis of and Responses to Public Comments

D. Ambulance Inflation Factor (AIF) for 2007

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IV. Five-Year Refinement of Relative Value Units Under the Physician Fee Schedule: Responses to Public Comments on the Five-Year Review of Work Relative Value Units

A. Scope of Five-Year Review

B. Review of Comments (Includes Table entitled ``Work RVU Revisions in Response to the June 29, 2006 proposed notice'')

C. Discussion of Comments by Clinical Area

1. Dermatology and Plastic Surgery

2. Orthopedic Surgery

3. Gynecology, Urology, Pain Medicine, and Neurosurgery

4. Radiology, Pathology, and Other Miscellaneous Services

5. Evaluation and Management Services

6. Cardiothoracic Surgery

7. General, Colorectal and Vascular Surgery

8. Otolaryngology and Ophthalmology

9. HCPAC codes

D. Other Issues Under the 5-Year Review

1. Anesthesia Services

2. Discussion of Post-Operative Visits included in the Global Surgical Packages

3. Budget Neutrality

4. Review Process V. Refinement of Relative Value Units for Calendar Year 2007 and Response to Public Comments on Interim Relative Value Units for 2006

A. Summary of Issues Discussed Related to the Adjustment of Relative Value Units

B. Process for Establishing Work Relative Value Units for the 2006 Physician Fee Schedule

C. Work Relative Value Unit Refinements of Interim Relative Value Units

1. Methodology (Includes table entitled ``2006 Interim Work Relative Value Units for Codes Reviewed Under the Refinement Panel Process'')

2. Interim 2006 Codes

D. Establishment of Interim Work Relative Value Units for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System Codes (HCPCS) for 2007 (Includes Table titled ``American Medical Association Specialty Relative Value Update Committee and Health Care Professionals Advisory Committee Recommendations and CMS' Decisions for New and Revised 2007 CPT Codes'')

E. Discussion of Codes for Which There Were No RUC Recommendations or for Which the RUC Recommendations Were Not Accepted

F. Additional Pricing Issue

G. Establishment of Interim PE RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System (HCPCS) Codes for 2007 VI. Physician Self-Referral Prohibition: Annual Update to the List of CPT/HCPCS Codes

A. General

B. Nuclear Medicine

C. Annual Update to the Code List VII. Physician Fee Schedule Update for CY 2007

A. Physician Fee Schedule Update

B. The Percentage Change in the Medicare Economic Index (MEI)

C. The Update Adjustment Factor (UAF) VIII. Allowed Expenditures for Physicians' Services and the Sustainable Growth Rate

A. Medicare Sustainable Growth Rate

B. Physicians' Services

C. Preliminary Estimate of the SGR for 2007

D. Revised Sustainable Growth Rate for 2006

E. Final Sustainable Growth Rate for 2005

F. Calculation of 2007, 2006, and 2005 Sustainable Growth Rates IX. Anesthesia and Physician Fee Schedule Conversion Factors for CY 2007

A. Physician Fee Schedule Conversion Factor

B. Anesthesia Fee Schedule Conversion Factor X. Telehealth Originating Site Facility Fee Payment Amount Update

XI. Provisions of the Final Rule

XII. Waiver of Proposed Rulemaking and Delay in Effective Date

XIII. Collection of Information Requirements

XIV. Response to Comments

XV. Regulatory Impact Analysis

A. RVU Impacts

1. Resource-Based Work and PE RVUs

2. Section 5102 of the DRA Adjustments for Payments for Imaging Services

3. Combined Impacts

B. Geographic Practice Cost Indices (GPCI) Payment Localities

C. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

D. DRA 5112: Addition of Ultrasound Screening for Abdominal Aortic Aneurysm to ``Welcome to Medicare'' Benefit

E. DRA 5113: Colorectal Screening Exemption from Part B Deductible

F. Section 5114: Addition of Diabetes Outpatient Self-management Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the FQHC Program

G. Payment for Covered Outpatient Drugs and Biologicals (ASP Issues)

H. Provisions Related to Payment for Renal Dialysis Services Furnished by End State Renal Disease (ESRD) Facilities I. Private Contracts and Opt-out Provision

J. Supplier Access to Claims Billed on Reassignment

K. Coverage of Bone Mass Measurement

L. IDTF Changes

M. Independent Lab Billing for TC Component of Physician Pathology Services for Hospital Patients

N. Public Consultation for Medicare Payment for New Outpatient Clinical Diagnostic Laboratory Tests

O. Bad Debt Payment for Services Associated with Reasonable Charge/Fee Schedules

P. Revisions to Payment Policies under the Ambulance Fee Schedule and the Ambulance Inflation Factor Update for CY 2007

Q. Alternatives Considered

R. Impact on Beneficiaries

S. Accounting Statement Addendum A--Explanation and Use of Addendum B. Addendum B--2007 Relative Value Units and Related Information Used in Determining Medicare Payments for 2006. Addendum C--Codes with Interim RVUs Addendum D--2007 Geographic Practice Cost Indices by Medicare Carrier and Locality Addendum E--GAF Addenda Addendum F--Addendum F: CPT/HCPCS Imaging Codes Defined by DRA 5102(b) Addendum G--CY 2007 Wage Index For Urban Areas Based On CBSA Labor Market Areas Addendum H--CY 2007 ESRD Wage Index for Rural Areas Based on CBSA Labor Market Areas Addendum I--RUCA Rurality Level by State and Zip Code Addendum J--Updated List of CPT/HCPCS Codes Used to Describe Certain Designated Health Services Under the Physician Self-Referral Provision

In addition, because of the many organizations and terms to which we refer by acronym in this final rule with comment period, we are listing these acronyms and their corresponding terms in alphabetical order below:

AAA Abdominal aortic aneurysm AAD American Academy of Dermatology AAFP American Academy of Family Physicians AANS American Association of Neurological Surgeons AAO American Academy of Ophthalmology AAOS American Academy of Orthopaedic Surgeons AATS American Association for Thoracic Surgery ACC American College of Cardiology ACG American College of Gastroenterology ACHPN Advanced Certified Hospice and Palliative Nurse ACOG American College of Obstetrics and Gynecology ACR American College of Radiology ACS American College of Surgeons ADA American Dietetic Association AFROC Association of Freestanding Radiation Oncology Centers AGA American Gastroenterological Association AMA American Medical Association AMP Average manufacturer price APC Ambulatory payment classification ASA American Society of Anesthesiologists ASC Ambulatory surgical center ASCRS American Society of Colon and Rectal Surgeons ASGE American Society of Gastrointestinal Endoscopy ASP Average sales price ASSH American Society for Surgery of the Hand ASTRO American Society for Therapeutic Radiology and Oncology AUA American Urological Association BBA Balanced Budget Act of 1997 (Pub. L. 105-33) BBRA [Medicare, Medicaid and State Child Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113)

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BIPA Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 BLS Bureau of Labor Statistics BMD Bone mineral density BMM Bone mass measurement BN Budget neutrality BNF Budget neutrality factor BP Best price CAD Computer-aided detection CAH Critical access hospital CAP Competitive acquisition program CBSA Core-Based Statistical Area CCI Correct Coding Initiative CEO Chief executive officer CF Conversion factor CFO Chief financial officer CFR Code of Federal Regulations CMP Competitive medical plan CMS Centers for Medicare & Medicaid Services CNS Clinical nurse specialist CPI Consumer Price Index CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association) CT Computed tomography CTA Computed tomographic angiography CY Calendar year DHS Designated health services DME Durable medical equipment DMEPOS Durable medical equipment, prosthetics, orthotics, and supplies DRA Deficit Reduction Act DSMT Diabetes outpatient self-management training services DXA Dual energy x-ray absorptiometry E/M Evaluation and management EPO Erythopoeitin ESRD End stage renal disease FAX Facsimile FDA Food and Drug Administration (HHS) FQHC Federally qualified health center FR Federal Register GAF Geographic adjustment factor GAO Government Accountability Office GDP Gross domestic product GPO Group purchasing organization GPCI Geographic practice cost index HCPAC Health Care Professional Advisory Committee HCPCS Healthcare Common Procedure Coding System HCRIS Healthcare Cost Report Information System HSA Health Savings Account HHA Home health agency HHS [Department of] Health and Human Services HIT Health information technology HMO Health maintenance organization HOCM High osmolar contrast media HPSA Health Professional Shortage Area HRSA Health Resources Services Administration (HHS) HUD [Department of] Housing and Urban Development ICF Intermediate care facilities IDTF Independent diagnostic testing facility IFC Interim final rule with comment period IPPE Initial preventive physical examination IPPS Inpatient prospective payment system IVIG Intravenous immune globulin IWPUT Intra-service work per unit of time JCAAI Joint Council of Allergy, Asthma, and Immunology LCD Local coverage determination LOCM Low osmolar contrast media LOINC Logical Observation Identifiers Names and Codes MA Medicare Advantage MCP Monthly capitation payment MedPAC Medicare Payment Advisory Commission MEI Medicare Economic Index MLN Medicare Learning Network MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) MNT Medical nutrition therapy MRA Magnetic resonance angiography MRI Magnetic resonance imaging MSA Metropolitan statistical area MSVP Multi-specialty visit package NCD National coverage determination NCQDIS National Coalition of Quality Diagnostic Imaging Services NDC National drug code NEMA National Electrical Manufacturers Association NHE National health expenditures NOP National Osteoporosis Foundation NP Nurse practitioner NPP Nonphysician practitioners NPWP Nonphysician Work Pool NSQIP National Surgical Quality Improvement Program OBRA Omnibus Budget Reconciliation Act OIG Office of Inspector General OMB Office of Management and Budget OPD Outpatient Department OPPS Outpatient prospective payment system OSCAR Online Survey and Certification and Reporting PA Physician assistant PBM Pharmacy benefit managers PC Professional component PE Practice Expense PE/HR Practice expense per hour PEAC Practice Expense Advisory Committee PERC Practice Expense Review Committee PET Positron emission tomography PFS Physician Fee Schedule PLI Professional liability insurance PPI Producer price index PPO Preferred provider organization PPS Prospective payment system PRA Paperwork Reduction Act PRM Provider Reimbursement Manual PT Physical therapy QCT Quantitative computerized tomography RFA Regulatory Flexibility Act RHC Rural health clinic RIA Regulatory impact analysis RN Registered nurse RUC [AMA's Specialty Society] Relative (Value) Update Committee RVU Relative value unit SGR Sustainable growth rate SMS [AMA's] Socioeconomic Monitoring System SNF Skilled nursing facility SNM Society for Nuclear Medicine SPA Single photon absorptiometry STS Society of Thoracic Surgeons SVS Society for Vascular Surgery SXA Single energy x-ray absorptiometry TA Technology Assessment TC Technical Component UAF Update adjustment factor UPIN Unique Physician Identification Number USPSTF United States Preventive Services Task Force VA [Department of] Veteran Affairs WAC Wholesale acquisition cost WAMP Widely available market price WHO World Health Organization

I. Background

Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), ``Payment for Physicians' Services.'' The Act requires that payments under the physician fee schedule (PFS) be based on national uniform relative value units (RVUs) based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense (PE), and malpractice expense. Before the establishment of the resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges.

A. Development of the Relative Value System

1. Work RVUs

The concepts and methodology underlying the PFS were enacted as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989 (Pub. L. 101-239), and OBRA 1990 (Pub. L. 101-508). The final rule, published November 25, 1991 (56 FR 59502), set forth the fee schedule for payment for physicians' services beginning January 1, 1992. Initially, only the physician work RVUs were resource-based, and the PE and malpractice RVUs were based on average allowable charges.

The physician work RVUs established for the implementation of the fee schedule in January 1992 were developed with extensive input from the physician community. A research team at the Harvard School of Public Health developed the original physician work RVUs for most codes in a cooperative agreement with the Department of Health and Human Services (HHS). In constructing the code-specific vignettes for the original physician work RVUs, Harvard worked with panels of experts, both inside and outside the Federal government, and obtained input from numerous physician specialty groups.

Section 1848(b)(2)(A) of the Act specifies that the RVUs for radiology services are based on relative value scale we adopted under section

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1834(b)(1)(A) of the Act, (the American College of Radiology (ACR) relative value scale), which we integrated into the overall PFS. Section 1848(b)(2)(B) of the Act specifies that the RVUs for anesthesia services are based on RVUs from a uniform relative value guide. We established a separate conversion factor (CF) for anesthesia services, and we continue to utilize time units as a factor in determining payment for these services. As a result, there is a separate payment methodology for anesthesia services.

We establish physician work RVUs for new and revised codes based on recommendations received from the American Medical Association's (AMA) Specialty Society Relative Value Update Committee (RUC). 2. Practice Expense Relative Value Units (PE RVUs)

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-432), enacted on October 31, 1994, amended section 1848(c)(2)(C)(ii) of the Act and required us to develop resource-based PE RVUs for each physician's service beginning in 1998. We were to consider general categories of expenses (such as office rent and wages of personnel, but excluding malpractice expenses) comprising PEs.

Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), amended section 1848(c)(2)(C)(ii) of the Act to delay implementation of the resource-based PE RVU system until January 1, 1999. In addition, section 4505(b) of the BBA provided for a 4-year transition period from charge-based PE RVUs to resource-based RVUs.

We established the resource-based PE RVUs for each physician's service in a final rule, published November 2, 1998 (63 FR 58814), effective for services furnished in 1999. Based on the requirement to transition to a resource-based system for PE over a 4-year period, resource-based PE RVUs did not become fully effective until 2002.

This resource-based system was based on two significant sources of actual PE data: The Clinical Practice Expert Panel (CPEP) data and the AMA's Socioeconomic Monitoring System (SMS) data. The CPEP data were collected from panels of physicians, practice administrators, and nonphysicians (for example, registered nurses) nominated by physician specialty societies and other groups. The CPEP panels identified the direct inputs required for each physician's service in both the office setting and out-of-office setting. The AMA's SMS data provided aggregate specialty-specific information on hours worked and PEs.

Separate PE RVUs are established for procedures that can be performed in both a nonfacility setting, such as a physician's office, and a facility setting, such as a hospital outpatient department (OPD). The difference between the facility and nonfacility RVUs reflects the fact that a facility receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service.

Section 212 of the Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed the Secretary of Health and Human Services (the Secretary) to establish a process under which we accept and use, to the maximum extent practicable and consistent with sound data practices, data collected or developed by entities and organizations to supplement the data we normally collect in determining the PE component. On May 3, 2000, we published the interim final rule (65 FR 25664) that set forth the criteria for the submission of these supplemental PE survey data. The criteria were modified in response to comments received, and published in the Federal Register (65 FR 65376) as part of a November 1, 2000 final rule. The PFS final rules published in 2001 and 2003, respectively, (66 FR 55246 and 68 FR 63196) extended the period during which we would accept these supplemental data. 3. Resource-Based Malpractice RVUs

Section 4505(f) of the BBA amended section 1848(c) of the Act to require us to implement resource-based malpractice RVUs for services furnished on or after 2000. The resource-based malpractice RVUs were implemented in the PFS final rule published November 2, 1999 (64 FR 59380) (hereinafter referred to as the CY 2000 PFS final rule). The malpractice RVUs were based on malpractice insurance premium data collected from commercial and physician-owned insurers from all the States, the District of Columbia, and Puerto Rico. 4. Refinements to the RVUs

Section 1848(c)(2)(B)(i) of the Act requires that we review all RVUs no less often than every 5 years. The first 5-year review of the physician work RVUs went into effect in 1997, published on November 22, 1996 (61 FR 59489). The second 5-year review of work RVUs went into effect in 2002, published on November 1, 2001 (66 FR 55246). The third 5-year review is being finalized in this rule for CY 2007.

In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC) for the purpose of refining the direct PE inputs. Through March 2004, the PEAC provided recommendations to CMS for over 7,600 codes (all but a few hundred of the codes currently listed in the AMA's Current Procedural Terminology (CPT) codes).

In the November 15, 2004, PFS final rule (69 FR 66236) (hereinafter referred to as the CY 2005 PFS final rule), we implemented the first 5- year review of the malpractice RVUs (69 FR 66263). 5. Adjustments to RVUS Are Budget Neutral

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs for a year may not cause total PFS payments to differ by more than $20 million from what they would have been if the adjustments were not made. In accordance with section 1848(c)(2)(B)(ii)(II) of the Act, if adjustments to RVUs cause expenditures to change by more than $20 million, we make adjustments to ensure that expenditures do not increase or decrease by more than $20 million.

B. Components of the Fee Schedule Payment Amounts

To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and malpractice RVUs) are adjusted by a geographic practice cost index (GPCI). The GPCIs reflect the relative costs of physician work, PEs, and malpractice insurance in an area compared to the national average costs for each component.

Payments are converted to dollar amounts through the application of a CF, which is calculated by the Office of the Actuary and is updated annually for inflation.

The general formula for calculating the Medicare fee schedule amount for a given service and fee schedule area can be expressed as:

Payment = [(RVU work x GPCI work) + (RVU PE x GPCI PE) + (RVU malpractice x GPCI malpractice)] x CF.

However, as discussed in section IV.D of this final rule with comment period, due to the need to meet the budget neutrality (BN) provisions of 1848(c)(2)(B)(ii), we are applying a BN adjustor to the work RVUs in order to calculate payment for a service. Therefore, payment for services will now be calculated as follows:

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Payment = [(RVU work x BN adjustor x GPCI work) + (RVU PE x GPCI PE) + (RVU malpractice x GPCI malpractice)] x CF.)

C. Most Recent Changes to the Fee Schedule

The final rule with comment period that appeared in the Federal Register on November 21, 2005 (70 FR 70116) (hereinafter referred to as the CY 2006 PFS final rule with comment period) addressed Medicare Part B payment policy including the PFS that is applicable for CY 2006; and finalized certain provisions of the interim final rule to implement the Competitive Acquisition Program (CAP) for Part B Drugs.

It also revised Medicare Part B payment and related policies regarding: physician work, PE and malpractice RVUs; Medicare telehealth services; multiple diagnostic imaging procedures; covered outpatient drugs and biologicals; supplemental payments to Federally Qualified Health Centers (FQHCs); renal dialysis services; coverage for glaucoma screening services; National Coverage Determination (NCD) timeframes; and physician referrals for nuclear medicine services and supplies to health care entities with which physicians have financial relationships.

In addition, the rule finalized the interim RVUs for CY 2005 and issued interim RVUs for new and revised procedure codes for CY 2006. The rule also updated the codes subject to the physician self-referral prohibition and discussed payment policies relating to teaching anesthesia services, therapy caps, private contracts and opt-out, and chiropractic and oncology demonstrations.

In accordance with section 1848(d)(1)(E)(i) of the Act, we also announced that the PFS update for CY 2006 would be -4.4 percent; the initial estimate for the sustainable growth rate for CY 2006 would be 1.7 percent; and the CF for CY 2006 would be $36.1770. However, subsequent to publication of the CY 2006 PFS final rule with comment period, section 5104 of the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171, February 8, 2006), was enacted which amended section 1848(d) of the statute. As a result of this statutory change we maintained the CY 2005 CF of $37.8975 for CY 2006.

We also note that the Five-Year Review of Work Relative Value Units Under the Physician Fee Schedule and Proposed Changes to the Practice Expense Methodology proposed notice appeared in the Federal Register on June 29, 2006 (71 FR 37170). In that notice, we proposed revisions to work RVUs affecting payment for physicians' services. The revisions reflect changes in medical practice, coding changes, and new data on relative value components that affect the relative amount of physician work required to perform each service, as required by the statute. We also proposed revisions to our methodology for calculating PE RVUs, including changes based on supplemental survey data for PE. This revised methodology would be used to establish payment for services beginning January 1, 2007.

In this final rule with comment period, we are responding to the comments received on that notice. To the extent that comments received were outside the scope of the proposed notice, they are not addressed in this rule.

Work RVU revisions will be fully implemented for services furnished to Medicare beneficiaries on or after January 1, 2007. The changes in PE methodology will be phased-in over a 4-year period; although, as we gain experience with the new methodology, we will reexamine this policy beginning next year and propose necessary revisions through future rulemaking.

II. Provisions of the Proposed Rule

A. Resource-Based Practice Expense (PE) Relative Value Units (RVUs)

Practice expense (PE) is the portion of the resources used in furnishing the service that reflects the general categories of physician and practitioner expenses, such as office rent and personnel wages but excluding malpractice expenses, as specified in section 1848(c)(1)(B) of the Act.

Section 121 of the Social Security Amendments of 1994 (Pub. L. 103- 432), enacted on October 31, 1994, required CMS to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. Until that time, PEs were based on historical allowed charges. This legislation stated that the revised PE methodology must consider the staff, equipment, and supplies used in the provision of various medical and surgical services in various settings beginning in 1998. The Secretary has interpreted this to mean that Medicare payments for each service would be based on the relative PE resources typically involved with furnishing the service.

The initial implementation of resource-based PE RVUs was delayed from January 1, 1998, until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required that the new payment methodology be phased-in over 4 years, effective for services furnished in CY 1999, and fully effective in CY 2002. The first step toward implementation of the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of the BBA required that, in developing the resource-based PE RVUs, the Secretary must:

Use, to the maximum extent possible, generally accepted cost accounting principles that recognize all staff, equipment, supplies, and expenses, not solely those that can be linked to specific procedures.

Develop a refinement method to be used during the transition.

Consider, in the course of notice and comment rulemaking, impact projections that compare new proposed payment amounts to data on actual physician PE.

Beginning in CY 1999, we began the 4-year transition to resource- based PE RVUs. In CY 2002, the resource-based PE RVUs were fully transitioned. 1. Current Methodology

The following sections discuss the current PE methodology. a. Data Sources

There are two primary data sources used to calculate PE. The AMA's Socioeconomic Monitoring System (SMS) survey data are used to develop the PE per hour (PE/HR) for each specialty. The second source of data used to calculate PE was originally developed by the Clinical Practice Expert Panels (CPEP). The CPEP data include the supplies, equipment and staff times specific to each procedure.

The AMA developed the SMS survey in 1981 and discontinued it in 1999. Beginning in 2002, we incorporated the 1999 SMS survey data into our calculation of the PE RVUs, using a 5-year average of SMS survey data. (See Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002 final rule, published November 1, 2001 (66 FR 55246) (hereinafter referred to as CY 2002 PFS final rule).) The SMS PE survey data are adjusted to a common year, 1995. The SMS data provide the following six categories of PE costs:

Clinical payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel.

Administrative payroll expenses, which are payroll expenses (including fringe benefits) for nonphysician personnel involved in administrative, secretarial or clerical activities.

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Office expenses, which include expenses for rent, mortgage interest, depreciation on medical buildings, utilities and telephones.

Medical material and supply expenses, which include expenses for drugs, x-ray films, and disposable medical products.

Medical equipment expenses, which include expenses depreciation, leases, and rent of medical equipment used in the diagnosis or treatment of patients.

All other expenses, which include expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not previously mentioned in this section.

In accordance with section 212 of the BBRA, we established a process to supplement the SMS data for a specialty with data collected by entities and organizations other than the AMA (that is, the specialty itself). (See the Criteria for Submitting Supplemental Practice Expense Survey Data interim final rule with comment period, (May 3, 2000, 65 FR 25664).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. In the CY 2002 PFS final rule (66 FR 55246), the deadline was extended through August 1, 2003. To ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005 in the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2004 final rule, (November 7, 2003; 68 FR 63196) (hereinafter referred to as CY 2004 PFS final rule).

The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (registered nurses (RNs), for example) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting of 180 members from more than 61 specialties and subspecialties. Approximately 50 percent of the panelists were physicians.

The CPEPs identified specific inputs involved in each physician's service provided in an office or facility setting. The inputs identified were the quantity and type of nonphysician labor, medical supplies, and medical equipment.

In 1999, the AMA's RUC established the Practice Expense Advisory Committee (PEAC). From 1999 to March 2004, the PEAC, a multi-specialty committee, reviewed the original CPEP inputs and provided us with recommendations for refining these direct PE inputs for existing CPT codes. Through its last meeting in March 2004, the PEAC provided recommendations for over 7,600 codes which we have reviewed and accepted. As a result, the current PE inputs differ markedly from those originally recommended by the CPEPs. The PEAC has now been replaced by the Practice Expense Review Committee (PERC), which acts to assist the RUC in recommending PE inputs. b. Allocation of PE to Services

To establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service. Our current approach allocates aggregate specialty practice costs to specific procedures and, thus, is often referred to as a ``top-down'' approach. The specialty PEs are derived from the AMA's SMS survey and supplementary survey data. The PEs for a given specialty are allocated to the services furnished by that specialty on the basis of the direct input data and work RVUs assigned to each CPT code. The specific process is outlined in the June 29, 2006 proposed notice (71 FR 37242). c. Other Methodological Issues: Nonphysician Work Pool (NPWP)

As an interim measure, until we could further analyze the effect of the top-down methodology on the Medicare payment for services with no physician work (including the technical components (TCs) of radiation oncology, radiology and other diagnostic tests), we created a separate PE pool for these services. However, any specialty society could request that its services be removed from the nonphysician work pool (NPWP). The specific steps for the NPWP calculation are detailed in the June 29, 2006 proposed notice (71 FR 37243). d. Facility/Non-facility Costs

Procedures that can be furnished in a physician's office, as well as in a hospital, have two PE RVUs: facility and non-facility. The non- facility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgical centers (ASCs), and skilled nursing facilities (SNFs). The methodology for calculating the PE RVU is the same for both facility and non-facility RVUs, but is applied independently to yield two separate PE RVUs. Because the PEs for services provided in a facility setting are generally included in the payment to the facility (rather than the payment to the physician under the fee schedule), the PE RVUs are generally lower for services provided in the facility setting. 2. Proposals for Revising the PE Methodology

We have three major goals for our resource-based PE methodology:

To ensure that the PE portion of PFS payments reflect, to the greatest extent possible, the relative resources required for each of the services on the PFS. This could only be accomplished by using the best available data to calculate the PE RVUs.

To develop a payment system for PE that is understandable and at least somewhat intuitive, so that specialties could better predict the impacts of changes in the PE data.

To stabilize the PE portion of PFS payments so that changes in PE RVUs do not produce large fluctuations in the payment for given procedures from year-to-year.

In the CY 2006 PFS proposed rule (70 FR 45764), we proposed the following changes to the PE methodology that we believed would help in achieving these three major goals:

Using the PE/HR data from seven specialty-specific supplementary surveys.

Calculating the direct PE using a bottom-up methodology.

Eliminating the NPWP.

We also proposed an indirect PE methodology that was to assign to each service the higher of the current indirect PE RVUs or the indirect PE RVUs calculated using the supplementary survey data.

In the CY 2006 PFS final rule with comment period (70 FR 70116), we withdrew these proposals primarily because a programming error for the indirect PE RVU calculation had led to the publication of inaccurate proposed PE RVUs. On February 15, 2006, we sponsored a PE Town Hall Meeting and invited the public, including all specialty representatives to attend. At this meeting, we supplied a detailed description of the bottom-up approach to the calculation of resource-based PE RVUs. Three examples were examined in detail that illustrated the impact of the various assumptions that could be used under a bottom-up approach. We specifically requested input from all interested parties on possible changes to our PE methodology, including the move to a bottom-up approach and the various methods of calculating indirect PE.

We reviewed the approximately 35 comments that we received in response to our solicitation. Many of the comments were combined efforts from related specialty organizations. Additionally, the AMA RUC also supplied a letter that captured the

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comments of nearly 30 specialty organizations. The following is a summary of the comments received as a result of the February 15, 2006 PE Town Hall meeting.

Delaying Implementation of Changes to the Current PE Methodology: There were mixed opinions from commenters on whether we should proceed with a proposal to use a bottom-up approach. Some commenters emphasized that the CPEP data has been refined and is now the best available source of data, and asserted that it should be used for the calculation of resource-based PE RVUs. Other comments suggested a delay in changing to a bottom-up approach because of the other issues that are affecting PFS payments this year (such as, the effect of imaging payment provisions in the DRA, the impact of the negative update, and the uncertainty regarding the impact of the 5-Year Review of work RVUs).

Transition to a Bottom-Up Approach: The majority of commenters requested a minimum 1-year transition to a maximum 3-year transition period to fully implement any change to a bottom-up approach. All of the commenters supported a transition period whether or not they supported the implementation of a bottom-up approach.

Use of Supplemental Survey Data: Many commenters stated that, irrespective of what we proposed for CY 2007, the supplemental survey data that has already been accepted should be used. Other commenters believed that the supplemental survey data grossly overstated PEs and should not be utilized in the development of resource-based PE RVUs.

Multi-Specialty PE Survey: The majority of commenters supported the construction and use of a multi-specialty survey to collect PE data. Commenters believed that the supplemental survey data is inflated and that the SMS survey data are outdated.

Review Equipment Utilization Assumptions and Interest Rates: Many commenters supported the review and revision of both the current utilization assumptions and the interest rates associated with high cost equipment. Commenters had mixed reactions as to whether the utilization rates should be higher or lower, and some suggested that we review the possibility of equipment-specific utilization assumptions for the future. Most commenters believed that the current 11 percent interest rate is significantly higher then the actual interest rates and many commenters suggested a rate of approximately prime plus 2 percent.

Proxy Work RVUs for No Physician Work Services: Commenters were divided on the assignment of a proxy work RVU to services that contain no physician work. Some commenters believed that no physician work services are unfairly penalized under any bottom-up approach, while other comments stated that the inclusion of a proxy work RVU would double count the clinical labor associated with the no physician work services.

After considering these comments, we made the following proposals for direct PEs in the June 29, 2006 proposed notice (71 FR 37245). a. Use a Bottom-up Method to Calculate the Direct PEs

We believe that we have consistently made a good faith effort to ensure fairness in our PE RVU-setting system by using the best data available at any one time. The reason we did not adopt the bottom-up methodology originally proposed in 1997 and instead adopted the top- down methodology finalized in 1998 was because we recognized the concerns among the physician community that the resource input data developed in 1995 by the CPEP were less reliable than the aggregate specialty cost data derived from the SMS process.

However, the situation has now changed. The PEAC/PERC/RUC has completed the refinement of the original CPEP data and we believe that the refined PE inputs now, in general, accurately capture the relative direct costs of PFS services. Conversely, although we have now accepted supplementary survey data from 13 specialties, we have not received updated aggregate cost data from most specialties. Thus, we believe that, in the aggregate, the refined direct input data represent more reliably the relative direct cost PE inputs for physicians' services.

Therefore, instead of using the top-down approach to calculate the direct PE RVUs, where the aggregate CPEP/RUC costs for each specialty are scaled to match the aggregate SMS costs, we proposed to adopt a bottom-up method of determining the relative direct costs for each service. Under this method, the direct costs would be determined by adding the costs of the resources (that is, the clinical staff, equipment and supplies) typically required to provide the service. The costs of the resources, in turn, would be calculated from the refined direct PE inputs in our PE database.

We believe that this proposed change, which was welcomed by most commenters in the CY 2006 PFS proposed rule, will lead to greater stability and accuracy in the PE portion of our payment system. Currently, under the top-down methodology, the need to scale the CPEP costs to equal the SMS costs has meant that any changes in the direct PE inputs for one service often leads to unexpected results for other services where the inputs have not been altered. In addition, the current PE RVUs for a procedure do not necessarily change proportionately with changes in the direct inputs, creating possible anomalous values. We believe that our proposed bottom-up methodology would resolve these issues, so that changes in the PE RVUs would be more intuitive and would result in fewer surprises. b. Use the PE/HR Data from the 7 Surveys We Have Previously Accepted and, in addition, Use the PE/HR Data from the Survey Submitted by the National Coalition of Quality Diagnostic Imaging Services (NCQDIS)

As explained in the CY 2005 PFS final rule with comment period (69 FR 66242), we received surveys from the American College of Cardiology (ACC), the American College of Radiology (ACR), and the American Society for Therapeutic Radiology and Oncology (ASTRO) by March 1, 2004. The data submitted by the ACC and the ACR met our criteria. However, as requested by the ACC and the ACR, we deferred using their data until issues related to the NPWP could be addressed. (The survey data from ASTRO did not meet the precision criteria established for supplemental surveys; therefore, we did not accept or use it in the calculation of PE RVUs for 2005.)

In March 2005, we also received surveys from the Association of Freestanding Radiation Oncology Centers (AFROC), the American Urological Association (AUA), the American Academy of Dermatology (AAD), the Joint Council of Allergy, Asthma, and Immunology (JCAAI), the NCQDIS, and a joint survey from the American Gastroenterological Association (AGA), the American Society of Gastrointestinal Endoscopy (ASGE) and the American College of Gastroenterology (ACG).

All the surveys, with the exception of the survey from NCQDIS, met our criteria. Therefore, we proposed in the CY 2006 PFS proposed rule (70 FR 45775) to use the survey data from all the surveys meeting our criteria in the calculation of PE RVUs for 2006; but, as discussed in the CY 2006 PFS final rule with comment period (70 FR 70116) and

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above in this section, this proposal was not finalized.

We contracted with the Lewin Group (Lewin) to evaluate whether the supplemental survey data that were submitted met our criteria and to make recommendations to us regarding their suitability for use in calculating PE RVUs. As described in the CY 2006 PFS proposed rule (70 FR 45775), Lewin recommended blending the radiation oncology data from the AFROC survey data with the ASTRO survey data submitted in 2004 to calculate the PE/HR. According to Lewin, the goal of the AFROC survey was to represent the population of freestanding radiation oncology centers only. To develop an overall average for the radiation oncology PE pool, Lewin recommended we use the AFROC survey for freestanding radiation oncology centers, and the hospital-based subset of last year's ASTRO survey. We agreed that this blending of the AFROC and ASTRO data was a reasonable way to calculate an average PE/HR that fully reflects the practice of radiation oncology in all settings. Blending the survey data overcame the initial problem that the ASTRO data do not meet the precision criteria as discussed in the CY 2005 PFS final rule (69 FR 66242). In addition, as discussed in the CY 2006 PFS proposed rule (70 FR 45776), blending of the data allowed for a broader base of radiation oncology providers to be represented.

Also, as discussed in the CY 2006 PFS proposed rule (70 FR 45764), Lewin indicated that the survey data submitted by the NCQDIS on independent diagnostic testing facilities (IDTFs) did not meet our precision criterion. However, upon further analysis, Lewin agreed with NCQDIS' determination that the inclusion of one inaccurate record skewed the findings outside the acceptable precision range. Lewin recalculated the precision level at 8.1 percent of the mean PE/HR (weighted by the number of physicians in the practice). Lewin indicated that the level of precision for the total PE/HR satisfies the level of precision requirement, and recommended acceptance of the survey.

We proposed to use the PE/HR data from all of these surveys, including the NCQDIS survey, in the calculation of the PE RVUs for 2007. For radiation oncology, we proposed to use the new PE/HR derived from combining the AFROC and ASTRO survey data, as recommended by Lewin. The proposed figures for PE per physician hour were listed in Table 52 in the June 29, 2006 proposed notice (71 FR 37246).

Section 303(a)(1)(B) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) added section 1848(c)(2)(I) of the Act to require CMS to use survey data submitted by a specialty group where at least 40 percent of the specialty's payments for Part B services are attributable to the administration of drugs in 2002 to adjust PE RVUs for drug administration services. The statute applies to surveys that include expenses for the administration of drugs and biologicals, and were received by March 1, 2005 for determining the CY 2006 PE RVUs. Section 303(a)(1)(A)(ii) of the MMA also added section 1848(c)(2)(B)(iv)(II) of the Act to provide an exemption from budget neutrality (BN) in 2005 and 2006 for any additional expenditures resulting from the use of these surveys. In the Changes to Medicare Payment for Drugs and Physician Fee Schedule Payments for CY 2004 interim final rule published January 7, 2004 (69 FR 1084), we stated that the specialties of urology, gynecology, and rheumatology meet this criteria. As described in the CY 2006 PFS final rule with comment period (70 FR 70116), we accepted for the purposes of calculating the 2006 PE RVUs for drug administration services the new survey data from the AUA and exempted from the BN adjustment any impacts of accepting these data for purposes of calculating PE RVUs for drug administration services.

(Note: Rheumatology and gynecology did not submit supplemental survey data.) c. Eliminate the NPWP and Calculate the PE RVUs for all Services Using the Same Methodology

Primarily because of the lack of representative SMS data or accurate direct cost inputs for specialties such as radiology and radiation oncology, the adoption of the top-down approach necessitated the creation of the NPWP. This separate work pool was created to allocate PE RVUs for TC codes and codes that are not furnished by physicians and, thus, have no work RVUs. In the CY 2000 Physician Fee Schedule; Payment Policies and Relative Value Unit Adjustment final rule, we indicated that ``the purpose of this pool was only to protect the (TC) services from the substantial decreases'' caused by inaccurate CPEP data and the lack of physician work RVU in the allocation of the indirect costs (64 FR 59406). Unfortunately, the services priced by the NPWP methodology have proven to be especially vulnerable to any change in the work pool's composition. This has led to significant fluctuations from year-to-year in the PE RVUs calculated for these services.

The major specialties comprising the NPWP (radiology, radiation oncology and cardiology) have now submitted supplemental survey data that we have accepted and proposed to use in their PE calculations. (See the discussion on supplementary surveys above in this section.) Now that we have representative aggregate PE data for these specialties, and with the completion of the refinement of the direct cost inputs, the continued necessity and equity of treating these technical services outside the PE methodology applied to other services is questionable.

Therefore, we proposed to eliminate the NPWP and to calculate the PE RVUs for the services currently in the work pool by the same methodology used for all other services. This would also allow the use of the refined CPEP/RUC data to price the direct costs of individual services, rather than utilizing the pre-1998 charge-based PE RVUs. In addition, the revised methodology would lead to greater stability for the PE RVUs for these services and would lead to more intuitive results than have occurred with the NPWP methodology. d. Modify the Current Indirect PE RVUs Methodology

As described previously, the SMS and supplementary survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate the indirect costs to particular codes on the basis of the direct costs allocated to a code and the work RVUs. In the CY 2006 PFS proposed rule (70 FR 45764), we stated that we had no information that would indicate that the current indirect PE methodology is inaccurate. At that time, we also were not aware of any alternative approaches or data sources that we could use to calculate more appropriately the indirect PE, other than the new supplementary survey data, which we proposed to incorporate into our PE calculations. Therefore, in the CY 2006 PFS proposed rule, we proposed to use the current indirect PEs in our calculation, incorporating the new survey data into the codes furnished by the specialties submitting the surveys (71 FR 45764). We also indicated in that same proposed rule that we would welcome any suggestions that would assist us in further refinement of this indirect PE methodology. For example, we were considering whether we should continue to accept supplementary survey data or whether it would be preferable and feasible to have an SMS-type survey of only indirect costs for all specialties, or whether a more formula-

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based methodology independent of the SMS should be adopted, perhaps using the specialty-specific indirect-to-total cost percentage as a basis of the calculation. For a prior discussion of many of the issues associated with allocating indirect costs, please refer to the CY 2000 Physician Fee Schedule; Payment Policies and Relative Value Unit Adjustment proposed rule (63 FR 30823). 3. Specific Changes to the Indirect PE Methodology for CY 2007 a. Summary of the PE Proposals From the June 29, 2006 Proposed Notice

As a result of collaboration with the PFS community and public comments on this issue, in the June 29, 2006 proposed notice, we proposed the following modifications to the indirect PE methodology. (1) Indirect Percentage Factor: Use of the Specialty-Specific Percentage that Indirect PEs Represent of Total PEs Based on the Survey Data

We currently allocate indirect expenses on the sum of the direct expenses and the work RVUs (converted to dollars by multiplying by the CF). We proposed to allocate indirect expenses by applying a specialty- specific indirect percentage factor to the direct expenses to recognize the varying proportion that indirect costs represent of total costs by specialty. This will have the effect of relatively increasing the indirect expense allocation for services that are on average furnished by specialties with higher indirect PE percentages, and relatively decreasing the indirect expense allocation for services that are furnished by specialties with lower indirect PE percentages. For a given service, the specific indirect percentage factor to apply to the direct costs for the purpose of the indirect allocation will be calculated as the weighted average of the ratio of the indirect to direct costs (based on the survey data) for the specialties that furnish the service. For example, if a service is furnished by a single specialty with indirect PEs that were 75 percent of total PEs, the indirect percentage factor to apply to the direct costs for the purposes of the indirect allocation would be (0.75/0.25) = 3.0. (2) Continued Use of the Specialty-Specific Indirect Scaling Factors

As described earlier in this section, we incorporate the indirect PE/HR surveys into the methodology through the use of specialty- specific indirect scaling factors. We would continue to use the specialty-specific indirect scaling factors; however, to apply them in a simpler manner we proposed to create an index. This index would reflect the relationship between each specialty's indirect scaling factor and the overall indirect scaling factor for the entire PFS. For example, if a specialty had an indirect practice cost index of 2.00, this specialty would have an indirect scaling factor that was twice the overall average indirect scaling factor. If a specialty had an indirect practice cost index of 0.50, this specialty would have an indirect scaling factor that was half the overall average indirect scaling factor. The calculation and application of the indirect practice cost index is described in more detail below in this section. (3) Use of the Clinical Labor Costs in the Indirect Allocation for a Service When the Clinical Labor Costs are Greater than the Physician Work RVU

We have received numerous comments that services with little or no physician work RVUs are disadvantaged under our current indirect allocation methodology based on the direct costs and the work RVUs. In response to these comments, when the clinical labor portion of the direct PE RVU is greater than the physician work RVU for a particular service, we proposed to allocate on the direct costs and the clinical labor costs. For example, if a service has no physician work, if the direct PE RVU is 1.10 and if the clinical labor portion of the direct PE RVU is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 clinical labor portion of the direct PE RVUs for the indirect PE allocation for that service. As another example, if the physician work RVUs for a service are 0.25, if the direct PE RVU is 1.10 and if the clinical labor portion of the direct PE RVU is 0.65 RVUs, we would use the 1.10 direct PE RVUs and the 0.65 clinical labor RVUs for the indirect allocation for that service. We would not use the 0.25 physician work RVUs for the indirect PE allocation since the 0.65 clinical labor RVUs are greater than the 0.25 physician work RVUs. (4) Use of 2005 Utilization Data in the Indirect PE RVU Calculation

Under the current PE methodology, we predominately use the 1997- 2000 utilization data in the calculation of the indirect PE RVUs when the service existed during 1997-2000 or the first year of utilization data if the service did not exist during that time period. We used those years of utilization data primarily to increase the year-to-year stability of the PE RVUs. With the changes we proposed to PE RVUs, in particular the elimination of the NPWP, we will increase the year-to- year stability of the PE RVUs. We believe it is now appropriate to use updated utilization data in the calculation of the indirect PEs. We believe the other proposed changes in the PE methodology would help obtain the year-to-year stability we were attempting to achieve by continuing to use the older utilization data. Additionally, the use of more current utilization data would reflect the more current practice patterns. We proposed to use the 2005 utilization data in the calculation of the 2007 indirect PE RVUs. We also sought comments on whether the utilization data should be updated yearly, which would increase the accuracy of the PE calculations, or less often, which would increase the stability of the PE RVUs. (5) Elimination of the Special Methodologies for Services with Technical Components (TCs) and Professional Components (PCs)

Under the PFS, when services have TC, PC, and global components that can be billed separately, the payment for the global component equals the sum of the payment for the TC and PCs. Under the current PE methodology, the different mix of specialties that furnish the global, TC and PCs can cause the PE RVUs, otherwise created by the methodology, to fail to add together properly; that is, the global component does not equal the sum of the PC and TCs. The global component might exceed the sum of the TC and PCs or it might be less than the sum of the TC and PCs. We ensure that the TC and PCs add to the global component in one of two ways. For services in the NPWP, we set the PE RVUs for the global component equal to the sum of the PC PE RVU and the TC PE RVU. For services outside the NPWP, we set the PE RVUs for the TC equal to the difference between the global PE RVUs and the PC RVUs.

With our proposed change to a bottom-up methodology for the direct PEs, there will be no weighted averaging of the direct cost inputs necessary to create the direct PE RVUs and, therefore, the direct PE RVUs for the PC and TCs would sum to the global component. Under the current methodology, as a result of the process used to ensure the PC and TCs sum to the global, RVUs for a service with a global component can be either more or less than the RVUs that would have been calculated for the service if the PC and TCs did not have to sum to the global.

Given the proposed change to bottom-up methodology and the elimination of the NPWP, we believe it is

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inappropriate to have codes for which the global, and the TC and PCs are assigned RVUs that are either less than or greater than the methodology would otherwise produce, and thus, are paid at a rate that is either less than or greater than the methodology would otherwise specify. (See section II.A.1. of this final rule with comment period for the discussion of the current methodology.) Therefore, we proposed that in the calculation of the indirect percentage factor described earlier in section II.A.3.a.(1), we would use a weighted average of the ratio of indirect to direct costs across all the specialties that furnish the global components, TCs, and PCs; that is, we would apply the same weighted average indirect percentage factor to allocate indirect expenses to the global components, PC, and TCs for a service. We also proposed to utilize a similar weighted averaging approach across all the specialties that furnish the components when calculating the indirect PE scaling factor. Because the direct PE RVUs for the TC and PCs sum to the global under the bottom-up methodology, and we proposed to calculate the indirect percentage factor and the indirect scaling factor so that they do not vary between the TCs, PCs, and global components, our proposed methodology would create TCs and PCs that sum to the global, and no other special methodology would need to be employed. (a) PE RVU Methodology

The following is a description of the proposed PE RVU methodology. (i) Setup File

First, we create a setup file for the PE methodology. The setup file contains the direct cost inputs, the utilization for each procedure code at the specialty and facility/nonfacility place of service level, and the specialty-specific survey PE per physician hour data. (ii) Calculate the Direct Cost PE RVUs

Sum the costs of each direct input.

Step 1: Sum the direct costs of the inputs for each service. The direct costs consist of the costs of the direct inputs for clinical labor, medical supplies, and medical equipment. The clinical labor cost is the sum of the cost of all the staff types associated with the service; it is the product of the time for each staff type and the wage rate for that staff type. The medical supplies cost is the sum of the supplies associated with the service; it is the product of the quantity of each supply and the cost of the supply. The medical equipment cost is the sum of the cost of the equipment associated with the service; it is the product of the number of minutes each piece of equipment is used in the service and the equipment cost per minute. The equipment cost per minute is calculated as described at the end of this section.

Apply a BN adjustment to the direct inputs.

Step 2: Calculate the current aggregate pool of direct PE costs. To do this, multiply the current aggregate pool of total direct and indirect PE costs (that is, the current aggregate PE RVUs multiplied by the CF) by the average direct PE percentage from the SMS and supplementary specialty survey data.

Step 3: Calculate the aggregate pool of direct costs. To do this, for all PFS services, sum the product of the direct costs for each service from Step 1 and the utilization data for that service.

Step 4: Using the results of Step 2 and Step 3 calculate a direct PE BN adjustment so that the proposed aggregate direct cost pool does not exceed the current aggregate direct cost pool and apply it to the direct costs from Step 1 for each service.

Step 5: Convert the results of Step 4 to an RVU scale for each service. To do this, divide the results of Step 4 by the Medicare PFS CF. (iii) Create the Indirect PE RVUs

Create indirect allocators.

Step 6: Based on the SMS and supplementary specialty survey data, calculate direct and indirect PE percentages for each physician specialty.

Step 7: Calculate direct and indirect PE percentages at the service level by taking a weighted average of the results of Step 6 for the specialties that furnish the service. Note that for services with TC and PCs we are calculating the direct and indirect percentages across the global components, PCs and TCs. That is, the direct and indirect percentages for a given service (for example, echocardiogram) do not vary by the PC, TC and global components.

Step 8: Calculate the service level allocators for the indirect PEs based on the percentages calculated in Step 7. The indirect PEs are allocated based on the three components: The direct PE RVU, the clinical PE RVU and the work RVU. (Note that the work RVU used in the calculation included the separate work BN adjustment from the 5-Year Review of the work RVUs discussed in the June 29, 2006 proposed notice. In this final rule, unadjusted work RVUs are used.)

For most services the indirect allocator is:

indirect percentage * (direct PE RVU/direct percentage) + work RVU.

There are two situations where this formula is modified:

If the service is a global service (that is, a service with global, professional and technical components), then the indirect allocator is:

indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU + work RVU.

If the clinical labor PE RVU exceeds the work RVU (and the service is not a global service), then the indirect allocator is:

indirect percentage * (direct PERVU/direct percentage) + clinical PE RVU.

(Note that for global services the indirect allocator is based on both the work RVU and the clinical labor PE RVU. We do this to recognize that, for the professional service, indirect PEs will be allocated using the work RVUs, and for the TC service, indirect PEs will be allocated using the direct PE RVU and the clinical labor PE RVU. This also allows the global component RVUs to equal the sum of the PC and TC RVUs.)

For presentation purposes in the examples in the Table 1, the formulas were divided into two parts for each service. The first part does not vary by service and is

the indirect percentage * (direct PE RVU/direct percentage).

The second part is either the work RVU, clinical PE RVU, or both depending on whether the service is a global service and whether the clinical PE RVU exceeds the work RVU (as described earlier in this step.)

Apply a BN adjustment to the indirect allocators.

Step 9: Calculate the current aggregate pool of indirect PE RVUs by multiplying the current aggregate pool of PE RVUs by the average indirect PE percentage from the physician specialty survey data. This is similar to the Step 2 calculation for the direct PE RVUs.

Step 10: Calculate an aggregate pool of proposed indirect PE RVUs for all PFS services by adding the product of the indirect PE allocators for a service from Step 8 and the utilization data for that service. This is similar to the Step 3 calculation for the direct PE RVUs.

Step 11: Using the results of Step 9 and Step 10, calculate an indirect PE adjustment so that the aggregate indirect allocation does not exceed the available aggregate indirect PE RVUs and apply it to indirect allocators calculated in Step 8. This is similar to the Step 4 calculation for the direct PE RVUs.

Calculate the Indirect Practice Cost Index.

Step 12: Using the results of Step 11, calculate aggregate pools of specialty-specific adjusted indirect PE allocators

[[Page 69635]]

for all PFS services for a specialty by adding the product of the adjusted indirect PE allocator for each service and the utilization data for that service.

Step 13: Using the specialty-specific indirect PE/HR data, calculate specialty-specific aggregate pools of indirect PE for all PFS services for that specialty by adding the product of the indirect PE/HR for the specialty, the physician time for the service, and the specialty's utilization for the service.

Step 14: Using the results of Step 12 and Step 13, calculate the specialty-specific indirect PE scaling factors as under the current methodology.

Step 15: Using the results of Step 14, calculate an indirect practice cost index at the specialty level by dividing each specialty- specific indirect scaling factor by the average indirect scaling factor for the entire PFS.

Step 16: Calculate the indirect practice cost index at the service level to ensure the capture of all indirect costs. Calculate a weighted average of the practice cost index values for the specialties that furnish the service. Note that for services with TC and PCs, we calculate the indirect practice cost index across the global components, PCs and TCs. Under this method, the indirect practice cost index for a given service (for example, echocardiogram) does not vary by the PC, TC and global components.

Step 17: Apply the service level indirect practice cost index calculated in Step 16 to the service level adjusted indirect allocators calculated in Step 11 to get the indirect PE RVU. (iv) Calculate the Final PE RVUs.

Step 18: Add the direct PE RVUs from Step 6 to the indirect PE RVUs from Step 17.

Step 19: Calculate and apply the final PE BN adjustment by comparing the results of Step 18 to the current pool of PE RVUs. This final BN adjustment is primarily required because certain specialties are excluded from the PE RVU calculation for rate-setting purposes, but all specialties are included for purposes of calculating the final BN adjustment. (See ``Specialties excluded from rate-setting calculation'' below in this section.) (v) Setup File Information

Specialties excluded from rate-setting calculation: For the purposes of calculating the PE RVUs, we exclude certain specialties such as midlevel practitioners paid at a percentage of the PFS, audiology, and low volume specialties from the calculation. This is the same approach used under the current methodology. These specialties are included for the purposes of calculating the BN adjustment.

Crosswalk certain low volume physician specialties: Crosswalk the utilization of certain specialties with relatively low PFS utilization to the associated specialties. This is the same approach used under the current methodology.

Physical therapy utilization: Crosswalk physical therapy utilization to the specialty of physical therapy. This is the same approach used under the current methodology.

Identify professional and technical services not identified under the usual TC and 26 modifier: Flag the services that are PC and TC services, but do not use TC and 26 modifiers (for example, electrocardiograms). This flag associates the PC and TC with the associated global code for use in creating the indirect PE RVU. For example, the professional service code 93010 is associated with the global code 93000.

Payment modifiers: Payment modifiers are accounted for in the creation of the file. For example, services billed with the assistant at surgery modifier are paid 16 percent of the PFS amount for that service; therefore, the utilization file is modified to only account for 16 percent of any service that contains the assistant at surgery modifier.

Work RVUs from the 5-Year Review: The setup file contains the proposed work RVUs from the 5-Year Review published in the June 29, 2006 proposed notice (71 FR 37174). (vi) Equipment Cost Per Minute =

The equipment cost per minute is calculated as:

(1/(minutes per year * usage)) * price * ((interest rate/(1-(1/((1 + interest rate) * life of equipment)))) + maintenance)

Where:

minutes per year = maximum minutes per year if usage were continuous (that is, usage = 1); 150,000 minutes. usage = equipment utilization assumption; 0.5. price = price of the particular piece of equipment. interest rate = 0.11. life of equipment = useful life of the particular piece of equipment. maintenance = factor for maintenance; 0.05.

BILLING CODE 4120-01-P

[[Page 69636]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.002

[[Page 69637]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.003

BILLING CODE 4120-01-C

[[Page 69638]]

(b) Transition the Resulting Revised PE RVUs Over a 4-Year Period

As explained in the June 29, 2006 proposed notice, we had concerns that, when combined with a negative update factor for CY 2007 and the changes to the work RVUs under the 5-Year Review, the shifts in some of the PE RVUs resulting from the immediate implementation of our proposals could potentially cause some disruption for medical practices (71 FR 37252). Therefore, we proposed to transition the PE changes over a 4-year period. This would also give ample opportunity for us, as well as the medical specialties and the RUC, to identify any anomalies in the PE data, to make any further appropriate revisions, and to collect additional data as needed prior to the full implementation of the PE changes.

During the transition period, the PE RVUs would be calculated on the basis of a blend of RVUs calculated using our methodology described above in this section (weighted by 25 percent during CY 2007, 50 percent during CY 2008, 75 percent during CY 2009, and 100 percent thereinafter), and the current CY 2006 PE RVUs for each existing code. PE RVUs for codes that are new during this period would be calculated using only the methodology, and paid at the fully transitioned rate.

We also believe the methodology is less confusing and more intuitive than the current approach. First, the NPWP would be eliminated and all services would be priced using one methodology, eliminating the complicated calculations needed to price NPWP services. Second, any revisions made to the direct inputs for one or more services would now have predictable results. Changes in the direct practice inputs for a service would proportionately change the PE RVUs for that service without significantly affecting the PE RVUs for unrelated services (except, of course, to the extent that a BN adjustment is required to be applied by the statute).

The methodology will also create a system that would be significantly more stable from year-to-year than the current approach. Specialties should no longer experience the wide fluctuations in payment for a given service due to an aberrant direct cost scaling factor. Direct PEs should only change for a service if the service is further refined or when prices are updated, while indirect PEs should change only when there are changes in the mix of specialties furnishing the service or if any future new survey data for indirect costs are utilized. b. Comments and Responses From the June 29, 2006 Proposed Notice

The following is a summary of the comments we received on the June 29, 2006 proposed notice (71 FR 37170). (1) Bottom-Up Methodology

Comment: The majority of commenters expressed support for the proposed bottom-up approach to calculating resource-based PE RVUs. Many of these commenters stated that the bottom-up approach, which bases the direct portion of the PE RVUs on the actual direct cost inputs, produces more accurate, intuitive, and stable PE RVUs.

A few commenters expressed concern about the proposed bottom-up approach. These commenters were not critical of the merits of the proposed bottom-up methodology itself, but were instead critical of the data sources used in the calculation of resource-based PE RVUs. The commenters suggested that the proposal should be delayed until the direct cost data, aggregate specialty cost data, and indirect specialty cost data derived from the aggregate specialty cost data could be verified.

Response: We are appreciative of the support for the proposed bottom-up approach to calculating resource-based PE. We also appreciate the comments that expressed concern about our data sources, since we also believe that it is important that we use the best available data to develop the PE RVUs. As discussed in greater detail in subsequent responses, we do believe that the data sources used to calculate the proposed PE RVUs are the best available at this time. This is particularly true of the direct cost input data that forms the basis of the bottom-up methodology, and that has been thoroughly analyzed and discussed by the RUC, PEAC, HCPAC and the PERC and then has been reviewed by us. Therefore, we will implement the bottom-up methodology as proposed. (2) Supplemental Survey Data

Comment: Several commenters expressed concern about the significant increase in PE values for specialty groups that submitted supplemental survey data. They stated their belief that the data has created serious inequities in the relativity of PE RVUs across the PFS. The commenters recommended that the supplemental survey data not be used; but, rather, that we wait until a new multi-specialty survey can be completed before using this revised data. One commenter questioned the validity of supplemental survey data, noting that the response rates were fairly low. The commenter also indicated that it was inequitable to accept more recent data from only a few specialties. Another commenter did not agree that individual specialty groups should be allowed to provide survey data. Conversely, several commenters strongly supported our acceptance and use of the supplementary survey data.

Response: The BBRA requires us to establish a process for specialty groups to submit supplemental survey data. The statute mandated that we establish criteria for surveys, but required that we accept such data for only two years. However, to give all specialty groups an opportunity to submit data, we twice extended the period for submitting data. Therefore, we accepted data over a 6-year period, instead of the 2-year period mandated by the Congress. In addition, our contractor, Lewin, was available to provide assistance to any group interested in submitting a survey by helping to ensure that the proper protocols were met in order to maximize the survey's chance of meeting our survey criteria.

We recognize the limitations of the supplemental survey process. However, we were obligated by statute to establish and use such a process, all specialty groups had an equal opportunity to submit data, and groups that conducted surveys did so at great expense. If the submitted survey data met the criteria we established by notice and comment rulemaking, we were obligated to accept and use the supplemental survey data to the maximum extent practicable and consistent with sound data practices. Additionally, we previously accepted most of the surveys we proposed to use in the CY 2007 PFS proposed rule in either the CY 2005 or the CY 2006 PFS final rules with comment. Although we delayed the use of these surveys for various reasons, as explained fully in the CY 2005 and CY 2006 rules, there is no reason to continue to delay implementation of these surveys.

We note that we support the AMA's efforts to field a multi- specialty survey. However, the earliest this data would be available to incorporate into the PFS would be for CY 2009. We will consider any such data as soon as it becomes available.

Comment: The majority of commenters expressed support for the design and use of a multi-specialty practice cost survey. Several commenters further recommended that any multi-specialty practice cost survey adhere to the same standards as the supplemental surveys accepted by CMS. Two commenters were concerned that a multi-specialty practice costs survey would not capture the practice costs

[[Page 69639]]

associated with specialties whose practices focus on technical services.

Response: We support the design of an AMA-sponsored multi-specialty survey and we understand that over 40 physician and nonphysician specialties have agreed to participate. The AMA has designed this survey tool and the process has been open for comment to all interested parties. We have also offered comments on the survey design to ensure that both the appropriate practice cost data is collected and the highest standards are met in the collection of this data.

Comment: A few commenters recommended that we commit to including the costs associated with uncompensated care in the PE RVUs. One commenter suggested that the costs of uncompensated care should be included in the AMA-sponsored multi-specialty practice cost survey.

Response: Many specialties must deal with the issue of uncompensated care, though we believe that the number of patient care hours spent on uncompensated care is significantly higher for emergency medicine. We currently make an adjustment to the patient care hours for emergency medicine to account for the hours of uncompensated care included in the SMS survey because the calculated PE/hour should only reflect reimbursable hours. We agree that it would be beneficial if the AMA-sponsored multi-specialty survey includes a question on this issue.

Comment: ACR expressed concern that we did not fully utilize its supplementary survey data by excluding data on part-time physicians.

Response: The precedent for applying average full-time practice hours to all doctors in the practice when analyzing practice hours was set by the AMA's Socioeconomic Monitoring System (SMS) and was also discussed in the September 23, 2003 Lewin report, ``Recommendations Regarding Supplemental Practice Expense Data Submitted for 2004.'' As described in this report, independent laboratory organizations were surveyed at the practice level because most independent labs are owned by an organization, not physicians; this is also the case with many free-standing radiology practices.

Lewin applied a comparable methodology to the radiology practice level supplemental survey data for its May 26, 2004 recommendation to CMS. The radiology supplemental survey reported that less than 10 percent of radiologists in the practice were part-time doctors. The average of the practice hours for the 2,250 full-time doctors was 38.9 hours and for the 237 part-time doctors 22.2 hours. Using the supplemental survey data results in less than a 5 percent increase in the total practice hours over the number of hours derived from using the SMS methodology.

We have determined that the original Lewin calculation is consistent with historical practice hour calculations used in the SMS, and with subsequent recommendations submitted by Lewin to CMS.

Comment: Lewin recommended accepting supplemental survey data from ASTRO and AFROC by blending the data in the proportion of 75 percent hospital-based radiation oncology and 25 percent freestanding radiation oncology, resulting in a PE/HR of $161.08. AFROC engaged the services of an independent claims analyst who found that a 62/38 proportion is more appropriate, resulting in a PE/HR of $213. AFROC supplied this information as part of its comments on the proposed notice.

Response: Lewin calculated a PE/HR for radiation oncology of $161.08, which is the weighted average based on the percentage of Medicare claims for hospital-based (75 percent) versus freestanding (25 percent) radiation oncologists. In our standard outpatient claims data file for 2003, a radiation oncologist was deemed to be hospital-based if 50 percent or more of his claims, based on the Unique Physician Identification Number (UPIN), were for services furnished at a hospital-based radiation oncology center. The rationale for weighting the PE/HR by Medicare claims was discussed by Lewin in its ``2005 Recommendations to CMS'' regarding the American Society for Therapeutic Radiation and Oncology (ASTRO) supplemental survey data.

In its comments, AFROC offered two alternative calculations. The first proposed to recount the Medicare claims after removing TC only claims. This method results in a reweighting of hospital-based versus freestanding radiation oncologists of 64 percent hospital based and 36 percent freestanding. The second method used time-weighting to determine the mix of hospital based versus freestanding practitioners. AFROC used physician time data for FY 2004 by radiation oncology CPT code and removed the TCs, resulting in a reweighting of hospital-based versus freestanding proportion of physician time of 62 percent to 38 percent, yielding a combined average PE/HR of $213.07.

Lewin reviewed AFROC's analysis and believes that AFROC presented two reasonable alternatives to weighting hospital-based and freestanding radiation oncologists, with both methods resulting in essentially the same answer. However, Lewin has determined that the time-weighting method is more consistent with the SMS and Lewin analysis of practice hours per physician. Lewin conducted the physician time-weighting analysis using our time and utilization data for FY 2005, resulting in a hospital-based to freestanding weight of 63 percent to 37 percent, respectively. The combined average using this weighting results in a PE/HR for radiation oncologist of $209.19, as shown in Table 2.

Table 2

ASTRO survey

AFROC survey

Combined average

ASTRO's

ASTRO's hospital-based hospital-based and AFROC's and AFROC's Hospital-based Freestanding Weighted average Freestanding freestanding freestanding physicians practices

practices (by share of (by share of Medicare

physician claims)

time)

Number in Sample

67

23 ................. .............. .............. .............. Percent of Medicare Claims...........................

75.2%

24.8% .................

24.8% .............. .............. Percent of Physician Time (Facility vs. Non-Facility)

63.0%

37.0% .................

37.0% .............. ..............

[[Page 69640]]

Direct PE per hour:

Clinical Payroll.................................

$9.93

$104.80

$33.46

$153.24

$45.47

$62.98

Medical Equipment................................

3.64

80.92

22.81

91.04

25.32

35.99

Medical Supplies.................................

1.56

31.56

9.00

13.11

4.42

5.84 Indirect PE per hour:

Office Expense...................................

19.31

69.40

31.73

87.88

36.32

44.69

Clerical Payroll.................................

12.04

39.42

18.83

59.56

23.82

29.63

Other Expense....................................

16.92

20.17

17.73

52.43

25.73

30.06

Total PE per hour............................

63.40

346.27

133.55

457.26

161.08

209.19

Lewin agrees with AFROC that weighting by hours of patient care is most consistent with our underlying methodology for calculating physician practice hours. Lewin has recommended that the time-weighting methodology for determining the percentage of hospital-based to freestanding radiation oncologist PE be adopted, which would result in a PE/HR of $213/HR based on 2004 data or $209/HR based on 2005 data. We accept Lewin's recommendation and will implement a PE/HR of $209 for radiation oncology. (3) Nonphysician Workpool

Comment: With the exception of those comments that requested that we delay the entire revision to the PE methodology, the majority of commenters expressed support for the elimination of the NPWP.

Response: The development of the NPWP was necessitated by our lack of accurate aggregate cost data for specialties such as radiology and radiation oncology necessitated the development of the NPWP. The major specialties comprising the NPWP have now submitted supplemental survey data that we have accepted. Now that we have reliable aggregate PE data for these specialties, as well as and refined direct input data at the code level, we will finalize our proposal to eliminate the NPWP. (4) Indirect PE RVUs Methodology

Comment: Many commenters recommended that we not use the budget- neutralized work RVUs in the indirect PE allocation, but rather use the unadjusted work RVUs.

Response: As discussed in section III.D.3. of this final rule with comment period , the BN adjustment necessitated by the 5-Year Review of work RVUs will be accomplished through the use of a separate, BN adjustor applied to the work RVUs. However, as recommended by the commenters, we will not use the budget-neutralized work RVUs to calculate indirect PE.

Comment: Many commenters disagreed with the use of the physician work RVUs in allocating indirect PE. Some commenters further contended that the intensity portion of physician work has no correlation to indirect PEs. A few commenters contended that physician time would be a more appropriate allocation tool than physician work RVUs.

Response: There is no perfect method of allocating indirect expenses down to individual services. We believe the work RVUs are the most constant of the available allocation tools, and this characteristic coincides best with our goal of stability for the PE RVUs. In this final rule with comment, we will continue to use the work RVUs as one of the indirect PE allocators.

Comment: Many commenters supported the proposal to use clinical labor costs as an indirect allocator when either the clinical labor RVU exceeds the work RVU or when the service does not contain physician work. Two commenters disagreed with the use of clinical labor costs in allocating indirect PE and stated that this is a ``fudge factor'' that inappropriately allocates costs to services with very low or no physician work.

Response: Because work RVUs reflect the time required to perform the service in addition to the intensity of the physician work involved, services with low or no work RVUs could be valued inappropriately unless we use a proxy for the work RVUs in allocating indirect PE to them. To bring these services onto the same scale as services that do contain physician work, we believe it is appropriate to utilize clinical labor costs as a proxy for physician work in the indirect allocation. We agree with the majority of commenters and will finalize our proposal to use clinical labor costs in allocating indirect PE where the physician work RVU is zero or less than the clinical labor RVU.

Comment: Several commenters recommended that the methodology be modified to include clinical labor time in the calculation of specialty-specific aggregate indirect PE pools.

Response: We do not agree with the commenters because the PE/HR for each specialty is calculated using physician time as the denominator; clinical staff time is not included in that calculation. It would be inconsistent to then use clinical labor time in the creation of the specialty-specific indirect PE pools.

Comment: Many commenters recommend the use of unscaled direct inputs in the allocation of the indirect PE.

Response: It would be inconsistent to base the direct PE RVUs on budget neutral scaled direct inputs, and then use unscaled direct inputs that are not budget neutral in creation of the indirect PE RVUs. We also disagree with the commenters' suggestion that we should use unscaled inputs for the direct PE RVUs. Direct costs represent, on average, approximately one-third of PEs based on the SMS survey data.

[[Page 69641]]

Therefore, we believe it is appropriate to scale the direct inputs so that approximately one-third of the aggregate PE RVUs are for direct PEs.

Comment: Several commenters contended that the approach of basing PE calculations on the weighted average of all specialties performing a service is flawed and should be replaced with an approach that bases the specialty-weighted factors upon specialties that represent 95 percent of the utilization for a CPT code and modifier. A commenter stated that utilizing the service counts associated with lower cost specialties, such as optometry, that would perform only the postoperative portion of a service, as opposed to the full service, inappropriately deflates the total PEs of a service when the practice costs of these specialties are weight averaged.

Response: With regards to the general question of including all specialties performing a service in the weight-averaging of the practice costs of the service, this is an issue that has been raised since we first proposed a resource-based PE methodology. We still believe, as we have previously stated, that the inclusion of specialties that perform a very small proportion of a service has no discernible impact on the PE calculation.

We agree that it would be inappropriate to assign full service counts to a specialty that only performs the postoperative work of a given surgical procedure. For this reason, we have always adjusted the per specialty utilization for a service using the appropriate payment modifier (modifier -55) before the service is used to weight the practice costs of the various specialties performing a given service. For example, if a specialty performs 100,000 postoperative-only services for a specific procedure (that is, uses modifier -55), those services would be counted based upon the code-specific postoperative percentage multiplied by the 100,000 services. If the postoperative percentage was 10 percent, the specialty performing 100,000 postoperative-only services will be weighted with only 10,000 services. Therefore, we do not believe that any further adjustments are needed.

Comment: One commenter recommended that the indirect PE allocation be distributed from the global services to the professional and technical services based upon the share of billings for each service.

Response: Although we are unsure of what, exactly, the commenter is suggesting, it is not clear to us how this recommendation could result in an appropriate resource-based PE RVU (for example, if the majority of services furnished were for the PC of a procedure, we believe the commenter is suggesting that it would then be necessary for the PC to have a higher PE RVU then the TC). Therefore, we will retain our current methodology for the allocation of indirect PE for services with TC and PCs, but we welcome further clarification regarding this suggestion. (5) Transition Period

Comment: The majority of commenters expressed support for the proposal to transition the PE methodology changes over a 4-year period. One commenter recommended that if the work RVU changes associated with the 5-Year Review are not transitioned, then the PE RVUs should also not be transitioned.

Response: We are concerned that, when combined with the negative update adjustment factor (UAF) for CY 2007 and the impact of changes to the work RVUs under the 5-Year Review, the shifts associated with the PE methodology changes could potentially cause some disruption for medical practices. For this reason, we will finalize the proposed 4- year transition to the PE methodology.

Comment: One comment supported the use of supplemental survey data, but requested that this supplemental survey data be implemented with no transition, since this data was originally accepted 1-2 years ago.

Response: The supplemental survey data is not independently transitioned in the proposed PE methodology. Rather, the RVUs resulting from all the changes to the methodology, which are to some degree interdependent, would be transitioned over 4 years. It would be very difficult to isolate one aspect of our proposed methodology and exempt it from the transition. In addition, we are concerned that such an approach could lead to inequities whereby, for a given specialty, a PE methodology change that has a positive impact would be transitioned over 4 years, while a change with a negative impact would not. For these reasons, we will finalize the 4-year transition as proposed. (6) Other Comments on the PE Methodology

Comment: Several commenters requested that one budget neutrality factor (BNF) be applied for PE as opposed to applying a direct adjuster, an indirect adjuster, and a final BN adjustment.

Response: The separate adjusters for the direct and indirect pools of RVUs are not pure BN adjustments but are more appropriately viewed as scaling factors. The purpose of the separate direct and indirect adjustments is to scale the pool of direct input RVUs and the pool of indirect RVUs to the direct and indirect RVUs that are available, as determined by the total direct and indirect dollars from the SMS and supplemental surveys. For this reason, the adjustments should be viewed as direct and indirect scaling factors, as opposed to BN adjustments. If we only applied one BN/scaling factor to the final PE RVUs, there would not be the appropriate balance between the direct and indirect PE RVUs and services with more direct RVUs would be paying for those services with less direct RVUs, since the indirect scaler is greater then the direct scaler.

Since the direct and indirect RVU pools are scaled and made ``budget neutral'' in these initial steps, the final BN adjustment is very small. The only reason the final adjustment is needed is because the RVUs associated with specialties that are not used in the rate setting process need to be incorporated back into the system. This introduction of additional RVUs causes a very small adjustment in the final step. For these reasons, we will finalize the proposal to utilize three separate adjustments in the calculation of resource-based PE RVUs.

Comment: Several commenters applauded our proposals relating to the PE methodology for being more intuitive and transparent, but requested that we go one step further toward pure transparency by publishing the PE/HR figures and the specialty indirect practice cost indices.

Response: We appreciate the support for the intuitive and transparent nature of the revised methodology. Following our original intention of making this methodology resource-based, intuitive, and transparent, we will publish both the PE/HR figures and the indirect practice cost indices on the homepage of the CMS Web site.

Comment: A few commenters requested that either their services be ``frozen'' at the current 2006 PE RVUs or that a floor be placed on the percent reduction associated with any given service due to the revised methodology.

Response: We do not believe it would be equitable to maintain current values for certain codes or to place a floor on the percentage reduction associated with a given service in a resource-based system. However, in order to minimize any potential disruptive effects that could be caused by sudden shifts in RVUs, we will be finalizing our proposal to transition to the bottom-up methodology over a 4-year period. This transition period will allow interested

[[Page 69642]]

parties an opportunity to review the data elements associated with their services. For these reasons, we will not institute a floor on the reduction in PE RVUs for a service, nor will we freeze any services at their CY 2006 PE RVUs.

Comment: Several commenters have requested that, for purposes of calculating resource-based PE RVUs, certain services should be assigned to specialties with higher PEs then those that are reported in the Medicare claims data.

Response: Unless there is evidence that the Medicare claims data is incorrect, or that there is something unique about the services in question, we do not believe it would be appropriate to override our existing utilization data. The Medicare claims data identifies what specialties are furnishing what services and this is an essential component in the development of our resource-based system. If interested specialties contend that persons within their specialty are reporting their specialty designation incorrectly, we urge those specialties to work with their respective organizations to educate their membership about the importance of correct reporting of their specialty designation when billing Medicare.

Comment: Several commenters contended that the independent diagnostic testing facility (IDTF) survey data does not reflect the costs of cardiac event monitoring services, because issues such as hours of operation, intense staffing needs and equipment usage are not taken into account.

Response: We agree with the commenters that cardiac event monitoring services are unique and are not appropriately represented by the IDTF survey data. For this reason, we will use the PE data associated with cardiology to value these services. Additionally, as discussed in more detail in the section on direct cost inputs (section II.A.4.f. of this final rule with comment period), we are revising the direct inputs for these services to reflect that the PEs are not limited to direct patient encounters.

Comment: Some commenters recommended that we review the crosswalk used for both interventional pain management and pain medicine in the CY 2007 PFS proposed rule. The commenters suggested that the appropriate crosswalk for these specialties is the ``all physician'' PE/HR.

Response: We agree with this comment and will crosswalk both interventional pain management and pain medicine to the ``all physician'' PE/HR.

Comment: Several commenters supported the use of revised 2005 utilization data. A few commenters expressed concerns that the use of this revised single year data might cause problems with the stability of the PE RVUs and requested that we delay using this data until the impact on the stability of PE RVUs can be determined.

Response: We will finalize our proposal to incorporate the most current Medicare utilization data into the calculation of resource- based PE RVUs. We have always attempted to use the most current data available in rate-setting. Although we understand the concerns conveyed by the few comments that requested a delay in the use of the 2005 utilization data, we do not believe that the use of this data will destabilize the PE RVUs to the extent that a delay would be warranted.

Comment: Some commenters contended that we are in violation of the MMA when reducing the PE RVUs of drug administration services by adopting a new methodology. The commenters stated that, because the oncology supplemental survey is not being used for the same purpose as it was when MMA directed us to use the survey, all drug administration services must be exempt from any impact associated with the revised PE methodology.

Response: We disagree with this comment. Although the MMA was enacted prior to these changes in our PE methodology, the MMA did not prescribe the use of any particular resource-based PE RVU methodology or constrain our rulemaking authority. The MMA directed us to use the oncology survey data in determining PE RVUs. We have, in fact, used the survey data (in exactly the way the Congress envisioned when it passed MMA) to establish PE RVUs for services furnished during CYs 2004, 2005 and 2006. In addition, under the revised PE methodology, we are utilizing the survey data in the calculation of the indirect PE RVUs. Thus, we do not believe that the use of the survey data within our revised methodology violates the provisions of MMA.

Comment: Several commenters contended that the proposed indirect practice costs may not be appropriate for cardiology practices that operate free-standing cardiac catheterization labs. The commenters further stated that the nonfacility technical billings for cardiac catheterization are dominated by IDTFs, but the IDTF supplemental survey data was primarily based on imaging centers. The commenters recommended that the cardiac catheterization services be based solely upon the PE data for cardiology.

Response: We agree with these comments. We currently do not have direct cost input data for the nonfacility setting for these services. Until we are able to obtain such data, we will carrier-price the cardiac catheterization codes. We urge interested parties to continue to work with the RUC to develop direct cost inputs for these services in the future.

Comment: One commenter recommended that we reinstate the clinical labor costs associated with physicians bringing their own staff to the hospital and contended that not counting these costs is in violation of the statute.

Response: We have indicated that we will not pay for clinical staff brought by physicians to the hospital for the following reasons: (1) These costs are already paid to the hospital and would thus be a double payment; (2) we already pay for physician extender staff through the physician work RVUs; and (3) we pay physician assistants (PAs) directly when they serve as assistants at surgery. In response to this decision, the thoracic surgeons contended that hospitals are no longer providing the staff to furnish adequate care. We asked the Office of Inspector General (OIG) to conduct an independent assessment of the staffing arrangements between hospitals and thoracic surgeons. In response to our request, in an April 2002 report, the OIG clearly supported our position to exclude the costs of clinical staff brought to the hospital from the PE calculations. For these reasons we will continue to exclude the clinical labor costs associated with physicians bringing their own staff to the hospital from the calculation of resource-based PE RVUs.

Comment: One commenter recommended that the practice costs associated with the handling of pharmaceuticals should be incorporated into the cost categories associated with the calculation of resource- based PE RVUs.

Response: The commenter did not offer any recommended inputs or strategies on how to incorporate these costs into the methodology. For this reason we will not incorporate any additional costs related to the handling of pharmaceuticals into the methodology at this time.

Comment: One commenter recommended that administrative staff time should be counted as a direct cost.

Response: Administrative staff time was included in the original CPEP data as direct PE. However, because of the difficulty in accurately assigning the

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administrative time to individual procedures, we then converted this expense to an indirect cost. We agree that, in principle, it could be helpful to treat as many of the practice costs as possible as direct, rather than indirect PE, and we would be willing to consider such recommendations if the PERC or RUC would agree to undertake the task of assigning administrative staff times to each code.

Comment: One commenter recommended that special resource considerations for screening services should be factored into the calculation of the PE RVUs.

Response: We have attempted to account for all resource cost in the calculation of the PE RVUS for all services. Unfortunately, the commenter did not supply any documentation regarding additional resources that the commenter believes should be included for screening services. Therefore, we will not add additional resources as requested at this time.

Comment: Many specialty societies expressed concern that the Medicare database currently does not permit the collection of nurse practitioner (NP) specialty-specific data. The commenters contended that this limitation unfairly excludes NPs from participating in certain demonstration projects and other programs. The commenters also state that they are ready to work with us on this and any related issues.

Response: It is not clear from the comment exactly what specialty- specific data is at issue. However, we would certainly be willing to work with the commenters to address their concerns. 4. Additional PE Issues for CY 2007 a. RUC Recommendations for Direct PE Inputs and Other PE Input Issues

In the CY 2007 PFS proposed rule (71 FR 48982), we proposed the following concerning direct PE inputs. (i) RUC PE Recommendations

The AMA's Relative Value Update Committee (RUC) established a new subcommittee, the Practice Expense Review Committee (PERC), to assist the RUC in recommending direct PE inputs (clinical staff, supplies, and equipment) for new and existing CPT codes. The RUC reviews and gives final approval for all PERC recommendations.

The PERC reviewed the PE inputs for over 2000 existing codes, some of which were unresolved PE issues from the CY 2006 PFS final rule with comment period, at their meetings held in September 2005, February 2006 and April 2006.

We reviewed the PERC recommendations that were forwarded by the RUC and proposed to adopt all of them. We have worked with the AMA staff to correct any typographical errors and to ensure that previously PEAC- accepted standards are incorporated in the recommendations.

The complete PERC recommendations and the revised PE database can be found on our Web site. (See the SUPPLEMENTARY INFORMATION section of this final rule with comment period for directions on accessing our Web site.)

Comment: We received comments from many of the specialty societies thanking us for our acceptance of the PERC recommendations.

Response: We thank the specialty societies for their positive remarks and we look forward to our continuing relationship with the PERC and the societies. (ii) Standard Supplies and Equipment for 90-Day Global Codes

In our proposed rule of August 22, 2006, we proposed to revise the CPEP supply and equipment inputs for those 90-day global procedures for which the RUC had only refined the clinical labor direct PE inputs. We proposed to apply the standard supply and equipment inputs for the facility setting for 90-day global services to these remaining unrefined 90-day global procedure codes. As recommended by the PERC at its April 2006 meeting, for supplies, we proposed to include one minimum supply visit package for each postoperative visit assigned to each code and a postsurgical incision care kit (suture, staple, or both) where appropriate, along with additional items reviewed and recommended by the PERC for certain procedures. For equipment, we proposed to include an exam table and light as the standard equipment, as well as other equipment items recommended by the PERC that were identified by the specialty societies as necessary during the postoperative visit period. However, there are several issues on which we requested input from the PERC or the specialty before we finalized the recommended standards. For example, for many of the 90-day codes in question, the current supply input data contain supplies in far larger quantities than are contained in either the visit package or incision care kit. For other codes, the current data include items that are not contained in the package or kit. In other cases, the PERC recommendations contain additional items in quantities that appear excessive. We plan to work with all the concerned specialties to ensure that the finalized inputs do represent the typical supplies needed to perform each procedure.

Because the application of the 90-day global standard supplies and equipment would result in the deletion of some original CPEP inputs, we requested that all the medical specialties examine the direct PE inputs on our Web site and inform us if there are additional items from the original CPEP data that are a necessary part of the postoperative care and if the PERC-recommended PE inputs were listed correctly.

Comment: Several commenters expressed concern regarding the accuracy of our PE database for the specialty-specific PERC recommendations and the application of the standard supplies and equipment that we proposed to include in the 90-day global codes. One commenter representing urologists noted that several supply items approved by the PERC were missing in the PE database and provided us with specific supply inputs for CPT codes 57310, 57311, 57320, and 57330. Another commenter representing prosthetic urologists recommended that the standard supplies used for infection control or patient comfort be included for each postoperative visit, such as gloves for the physician and clinical staff, table paper, patient drapes and gowns, and also questioned the accuracy of the number of ``multi- specialty visit package'' (MSVP) associated with their services. They believe that their services entail more postoperative visits than the current number of MSVPs reflected in the PE database. A society representing gynecologic oncologists also recommended that the standard supplies for their procedures should be modified to include additional supplies that are associated with their procedures, such as a pelvic exam kit and a patient drape. Lastly, a medical society representing ophthalmologists urged us to incorporate the PERC-recommended supply and equipment direct inputs for the 90-day global ophthalmologic codes.

Response: We thank the urology specialty for reviewing the PE database and providing us with the specific supply items missing from their four CPT codes. These PERC-approved supplies have been added as requested. We have addressed the prosthetic urologists' concerns regarding the inclusion of supplies for infection control and patient comfort by ensuring that one MSVP was included in the PE database for each postoperative visit for these services. The MSVP contains, among other things, 2 pairs of gloves, table paper, and a patient gown. We also note that the inclusion of a patient

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drape is a standard for the codes identified by the specialty for gynecology and obstetrics. To the extent that prosthetic urologists believe a patient drape is needed in their 90-day global codes, we encourage them to work through the RUC process to correct possible discrepancies. In regard to the request for additional MSVPs for each procedure performed by the urologic prosthetists, we believe the commenter is mistaken, as there is one MSVP for each of the RUC- recommended postoperative visits entered in the PE database. With respect to the comments about the absence of specific supplies in gynecologic oncology procedures, we would note that the 90-day CPT codes identified by the specialty for gynecology and obstetrics all contain these specific items as part of the standard packages, as approved by the RUC and accepted by CMS. We would again suggest that the commenter work through the RUC process to assure that the necessary inputs are included in these services. In response to the request from the society representing ophthalmologists to implement the PERC- recommended supply and equipment changes for ophthalmology services, we have already incorporated these changes into the PE database and they are reflected in the PE RVUs. However, we would note that further equipment adjustments were not made for the ophthalmology CPT codes, as the PERC recommendations did not include any changes to the current equipment or ophthalmology lane assignments. b. Payment for Splint and Cast Supplies

In the CY 2000 and CY 2001 PFS final rules (64 FR 59380 and 65 FR 65376, respectively), we removed splint and cast supplies from the PE database for the CPT codes for fracture management and cast/strapping application procedures. Because splint and cast supplies could be separately billed using Healthcare Common Procedure Coding System (HCPCS) codes (Q4001 through Q4051) that were established for payment of these supplies under section 1861(s)(5) of the Act, we did not want to make duplicate payment under the PFS for these items.

In the CY 2006 PFS proposed rule (70 FR 45764), we proposed to reinstate payment for all splints and cast supplies through the PE component of the PFS because we believed we may have unintentionally prohibited remuneration for these supplies when they are not used for reduction of a fracture or dislocation (covered under section 1861(s)(5) of the Act), but rather are provided (and covered) as ``incident to'' a physician's service under section 1861(s)(2)(A) of the Act. This proposal was not finalized; however, in our CY 2006 final rule with comment period (70 FR 70116) we asked the medical specialties and the PERC to determine the typical supplies for splints and casts necessary for each of the fracture management codes and the cast/ strapping application codes because we wanted to make certain that the supply inputs were correct before we proceeded with rulemaking for the CY 2007 PFS. At its February 2006 meeting, the PERC reviewed and approved the supply inputs submitted by the American Academy of Orthopaedic Surgeons (AAOS) for each CPT code for fracture management and cast/strapping application and these were forwarded to us as PERC recommendations. During this interim period we also reassessed the options for payment of materials for splints and casts.

We believe that the majority of the splint and cast supplies that are currently paid through the Q-codes are furnished in relationship to cast/strapping procedures for the management of fractures and dislocations. However, we did not intend for the medically necessary splint and cast supplies used for other reasons (for example, serial casting, wound care, or protection) not to be paid. Because it may be difficult for the contractors to identify the purpose for the cast/ strapping application procedure on a claim form, we believe that contractors may have been paying for the splint and cast supply Q-codes when the service is performed for other purposes than treatment of fractures and dislocations.

Since these splint and cast supplies can be covered under both sections 1861(s)(5) and 1861(s)(2)(A) of the Act, we proposed to include payment for both statutory benefits using the separate HCPCS Q- codes. This would allow for payment for these medically necessary supplies whether based on sections 1861(s)(5) or 1861(s)(2)(A) of the Act, while ensuring that no duplicate payments are made. Physicians will continue to bill the HCPCS Q-codes, in addition to the cast/ strapping application procedure codes, to be paid for these materials.

The following supplies will continue to be paid separately using the HCPCS Q-codes and would not be included in the PE database:

Fiberglass roll.

Cast padding.

Cast shoe.

Stockingnet/stockinette.

Plaster bandage.

Denver splint.

Dome paste bandage.

Cast sole.

Elastoplast roll.

Fiberglass splint.

Ace wrap.

Kerlix.

Webril.

Malleable arch bars and elastics.

The splint and cast supplies will not be included in the PEs for the following CPT codes:

24500 through 24685.

25500 through 25695.

26600 through 26785.

27500 through 27566.

27750 through 27848.

28400 through 28675.

29000 through 29750.

We specifically requested input, from medical specialties and contractors on our proposal.

Comment: Commenters offered their appreciation and support of our proposal to pay for medically necessary splint and cast supplies using HCPCS Q-codes for both statutory benefits, that is, sections 1861(s)(5) and 1861(s)(2)(A) of the Act. However, one commenter requested that we clarify ``whether this separation applied to the rehabilitation non- physician service codes.'' In addition, a few commenters noted that the supplies for the Unna-boot have been excluded from payment under the Q- codes, because they are assigned HCPCS A-codes, and asked that we clarify if the Unna-boot supplies will now be included in the Q-codes. One commenter suggested that we omit the cast shoe from the list of supplies that are covered under either benefit. Another commenter asked us to temporarily include the A-HCPCS codes, A-6441 though A-6457, as billable HCPCS codes in conjunction with the strapping and casting CPT procedures codes.

Response: We will proceed with our proposal to pay for the splint and cast supplies using the existing HCPCS Q-codes for all medically necessary splints and casts, as appropriate. While we appreciate the comments received, we have questions about and do not understand the request concerning whether this applied to the ``rehabilitation nonphysician service codes.'' We apologize that our listing of the applicable CPT code ranges in the proposal caused confusion about whether the Unna-boot supplies that currently are identified with HCPCS A-codes would change and be paid using the Q-codes. For clarification purposes, we would like to note that our proposal does not change the existing Q-code descriptors or their pairing with certain CPT codes for payment purposes. For CPT code 29580, (Strapping; Unna boot) physicians and other qualified providers

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will continue to use the A-codes designed for the Unna-boot supplies. We appreciate the comments from the commenter asking us to remove the cast shoe from the PE database since shoes are statutorily noncovered items, except for certain diabetic shoes and those that are attached to braces. The cast shoe was erroneously identified as a supply item separately paid using the Q-codes in the listing in our proposed rule. We now realize that the listing in the proposed rule, in reality, merely identifies the supply inputs to be removed from the PE database rather than those that are separately billable. We agree with the commenter, and will remove the cast shoe item from our PE database (27 codes). While we appreciate a commenter's request to include certain A- codes as separately billable under our proposal, these items were never included in the PE database and it would not be appropriate to include them in the existing Q-codes. c. Medical Nutrition Therapy Services

In 2000, the Health Care Professional Advisory Committee (HCPAC) recommended that we assign work RVUs to three new medical nutrition therapy (MNT) CPT codes: 97802, Medical nutrition therapy; initial assessment and intervention, individual, face-to-face with the patient, each 15 minutes at 0.45 RVUs; 97803, Medical nutrition therapy; re- assessment and intervention, individual, face-to-face with the patient, each 15 minutes at 0.37 RVUs; and 97804, Medical nutrition therapy; group (two or more individuals), each 30 minutes at 0.25 RVUs. However, during rulemaking for the CY 2001 PFS final rule, we indicated that MNT was not covered because there was no statutory benefit category that would allow medical nutritionists to bill these services. We also did not accept the HCPAC recommendations for work RVUs for these MNT services because the codes were designed for use only by nonphysicians. The following year, section 105(c) of the Medicare, Medicaid, and State Child Health Insurance Program Benefits Improvement Protection Act of 2000 (BIPA) (Pub. L. 106-554) provided for the coverage of MNT services when furnished by registered dietitians or nutritional professionals at 85 percent of the amount that a physician would be paid for the same services. As a result, we established values for these MNT services for the CY 2002 PFS. In keeping with our earlier decision, we did not assign the HCPAC-recommended work values. However, the associated work value for each code was utilized in the conversion of work to clinical labor time for MNTs as part of the PE component. At that time we received several comments, including one from the American Dietetic Association (ADA), urging us to adopt the work values recommended by the HCPAC.

More recently, the ADA has requested us to reconsider our decision not to accept the HCPAC recommended work RVUs. The ADA contends that the payment rate established by section 105(c) of BIPA, 85 percent of the PFS amount that would be paid for the same service if furnished by a physician, is based on the premise that work values are inherent to these MNT services. The ADA believes that without work RVUs, the payment for these services does not reflect 85 percent of what a physician would be paid for performing the same service. Because these MNT codes were created specifically for MNT professionals, the ADA compared the work associated with their services to physician E/M services of CPT codes 99203 and 99213, which have respective work RVUs of 1.34 and 0.67.

After reviewing the issues and relevant arguments raised by the ADA, we are persuaded that it would be appropriate to include work RVUs for the MNT services. Consequently, we proposed to establish work RVUs for each code at the level previously recommended by the HCPAC, as follows:

CPT code 97802 = 0.45 RVUs.

CPT code 97803 = 0.37 RVUs.

CPT code 97804 = 0.25 RVUs.

Because we proposed to add the work RVUs to these services, the MNT clinical labor time in the direct input database will be removed. Additionally, two HCPCS codes, G0270, MNT subs tx for change dx and G0271, Group MNT 2 or more 30 mins were created to track MNT services following the second referral in the same year and these HCPCS codes correspond to CPT codes 97803 and 97804, respectively. Therefore, we also proposed to add the same work RVUs to these HCPCS codes and to delete the MNT clinical labor inputs from the PE database upon adoption of this policy. We encouraged specialty societies and other professional groups to comment on this proposal.

Comment: We received comments from the ADA, several MNT providers, one drug company, the National Kidney Foundation and one Congressional member all supporting our decision to establish work RVUs for the MNT services. Further, several commenters joined the ADA in requesting an increase in the proposed work RVUs. In justification of their request, the ADA and other commenters compared these services to CPT codes 99213 (mid-level E/M service) and 90804 (individual psychotherapy service). These commenters also requested that the total work RVUs for 97802, 97803, and G0270 be equal and the total work RVUs for CPT code 97804 and HCPCS code G0271 also be equal. In addition, the ADA provided specific supplies and equipment to be added to the PE database in order to facilitate correct PE calculations for these codes.

Response: We appreciate that the commenters acknowledge and support our decision to establish work RVUs for the 5 MNT services. However, we do not believe it would be appropriate to accommodate the request to increase these work RVUs. We believe that the HCPAC work recommendations best represent the MNT services and encourage the ADA to utilize the established RUC or HCPAC processes to further assess valuation of their services. For this reason, we will maintain the proposed work values for all MNT CPT/HCPCS codes. However, we have added the supplies and equipment to the PE database as requested. d. Surgical Pathology Codes

The College of American Pathologists commented on the equipment times assigned to CPT codes 88304 and 88305 in the basic surgical pathology family of codes. While all six codes in this family have been refined by the PEAC, this refinement occurred at four separate PEAC meetings. CPT codes 88304 and 88305 were refined at the first PEAC meeting in April 1999 before time standards were established for the equipment at subsequent PEAC meetings when the other four CPT codes 88300, 88302, 88307, and 88309 were reviewed. Using our proposed bottom-up PE methodology to value these codes, the lack of the equipment time standards for CPT codes 88304 and 88305 create a rank- order anomaly in this family. Consequently, the College of American Pathologists, after reviewing and applying current standards for the equipment times, submitted suggested revised equipment times to us. We proposed to accept these times and the times will be reflected in the PE database on our Web site (See the SUPPLEMENTARY INFORMATION section of this final rule with comment period for directions on accessing our Web site.)

Comment: The College of American Pathologists expressed appreciation for these revisions to the equipment time to the surgical pathology CPT codes.

Response: We appreciate the College of American Pathologists's review of the PE direct inputs, which led to our

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proposal. We are finalizing our proposal for these changes in the equipment times in the PE database. e. PE Issues from Rulemaking for CY 2006

In the CY 2006 PFS final rule with comment period (70 FR 70116), we explained that we were not implementing the PERC or other proposed PE changes for CY 2006 due to issues with the PE methodology. In the CY 2007 PFS proposed rule, we proposed that the PERC and other PE changes originally proposed for CY 2006 would be implemented and effective with the CY 2007 PFS (71 FR 48987). The following subsections, (i) through (x), summarize the PE proposals from the CY 2006 PFS final rule with comment period.

(i) PE Recommendations on CPEP Inputs for CY 2006

We proposed to use a clinical labor time of 167 minutes for the service period for CPT code 36522, Extracorporeal Photopheresis; maintain the nonfacility setting PE RVUs for CPT code 78350, single photon bone densitometry; and remove the PE inputs for the nonfacility setting for CPT codes 76975, GI endoscopic ultrasound, and 15852, Dressing change not for burn. (70 FR 70136 through 70137) (ii) Supply Items for CPT Code 95015 (Which is Used for Intradermal Allergy Tests with Drugs, Biologicals, or Venoms)

We proposed to implement the allergy and immunology specialty's recommendation to change the test substance in CPT code 95015 to venom, at $10.70 (from single antigen, at $5.18) and the quantity to 0.3 ml (from 0.1 ml) (70 FR 70138). (iii) Flow Cytometry Services

Based on information from the society representing independent laboratories, we proposed to implement the following direct PE inputs:

Clinical Labor: We proposed to change the staff type in the service (intra) period in both CPT codes 88184 and 88185 to cytotechnologist, at $0.45 per minute (currently lab technician, at $0.33 per minute).

Supplies: We proposed to change the antibody cost for both CPT codes 88184 and 88185 to $8.50 (from $3.544).

Equipment: We proposed to add the following equipment to CPT code 88184:

Computer.

Printer.

Slide strainer.

Biohazard hood.

Wash assistant.

FAC loader.

We proposed to add a computer and printer to the equipment for CPT code 88185 (70 FR 70138). (iv) Low Osmolar Contrast Media (LOCM) and High Osmolar Contrast Media (HOCM)

Because separate payment is available for both types of contrast media, we proposed to delete LOCM and HOCM from the PE database in this final rule with comment period (70 FR 70138).

Comment: Several specialty organizations expressed their appreciation for implementing the recommendations for the PE changes in section (i) of this section to CPT codes 36522, 78350, 76975 and 15852; in section (ii) of this section for changing the amount and test substance inputs in CPT 95015; in section (iii) of this section for implementing the PE changes to the flow cytometry CPT codes 88184 and 88185; and in section (iv) of this section for removing the LOCM and HOCM from the PE database because they are separately reimbursed.

Response: We will implement these changes for CY 2007. (v) Imaging Rooms

We proposed to implement the updates for the contents and prices of 5 ``rooms'' used in imaging procedures including--

Basic radiology room;

Radiographic-fluoroscopic room;

Mammography room;

Computed tomography (CT) room; and

Magnetic resonance imaging (MRI) room (70 FR 70139).

Comment: Two commenters questioned why the contents and prices for ultrasound ``rooms'' were not being updated in CY 2007 proposed rule.

Response: The imaging rooms proposals that appeared in this year's proposed rule were deferred from the previous year. These imaging rooms all contained equipment without updated pricing information. The two ultrasound rooms, general and vascular, were valued during the repricing of the equipment for the PE database that occurred during rulemaking for CY 2005. (vi) Equipment Pricing for Select Services and Procedures

We proposed to accept the following equipment pricing information provided by various specialty societies for select services and procedures as discussed in the CY 2006 PFS final rule with comment period (70 FR 70139).

Equipment pricing for certain radiology services received from the ACR as presented in Table 15 of the CY 2006 PFS proposed rule.

Equipment pricing on the ultrasound color doppler transducers and vaginal probe received from the American College of Obstetrics and Gynecology (ACOG).

Equipment pricing for CPT code 36522, extracorporeal photopheresis.

Pricing of the EMG botox machine used in CPT code 92265 as presented by the American Academy of Ophthalmology (AAO). (vii) Supply Item for In Situ Hybridization Codes (CPT Codes 88365, 88367, and 88368)

We proposed to implement the Society for Clinical Pathologists' request to change the probe quantity to 1.5 for CPT code 88367, In situ hybridization, auto, which is equal to the quantity in the other two codes in the family. (viii) Supply Item for Percutaneous Vertebroplasty Procedures (CPT codes 22520 and 22525)

Based on documentation provided by the Society for Interventional Radiology, we proposed to implement a new price of $696.00 for the vertebroplasty kit, to replace a temporary price of $660.50 that was a placeholder price from the CY 2006 PFS final rule with comment period (70 FR 70139). (ix) Clinical Labor for G-Codes Related to Home Health and Hospice Physician Supervision, Certification and Recertification

We proposed to apply the refinements made to the PE inputs to CPT codes 99375 and 99378 for home health and hospice supervision to four G-codes that are related to home health and hospice physician supervision, certification and recertification, G0179, GO180, GO181, and GO182. These G-codes are incorrectly valued for clinical labor. These G-codes are crosswalked from CPT codes 99375 and 99378, which underwent PEAC refinement in January 2003 for the CY 2004 PFS. However, at that time we inadvertently did not apply the new refinements to these specific G-codes (70 FR 70139 through 70140). (x) Programmers for Implantable Neurostimulators and Intrathecal Drug Infusion Pumps

Although we had initially proposed in the CY 2006 PFS proposed rule to remove two programmers from the PE database (EQ208 for medication pump from two codes (CPT codes 62367 and 62368) and EQ209 for the neurostimulator from 8 codes (CPT codes 95970 through 97979)), based on comments received as discussed in the

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CY 2006 PFS final rule with comment period (70 FR 70140), we determined that we will retain these programmers in the database. In addition, we added ``with printer'' to the description of EQ208, based on comments received. We proposed to implement these decisions for CY 2007.

Comment: Commenters expressed appreciation for the implementation of these changes that had been deferred from the previous year.

Response: We will implement the PE changes noted in sections (vi) through (x) of this section for CY 2007. f. Other PE Issues for CY 2007 (i) Clarification With Respect to Non-Facility PE RVUs

In the CY 2006 PFS final rule with comment period (70 FR 70335), we provided a clarification in Addendum A concerning use of ``NA'' in the PE RVU columns for Addendum B. Commenters requested that further clarification be made concerning the payment amount for procedures performed in the non-facility setting if there is an ``NA'' in the non- facility PE RVU column. In the CY 2007 PFS proposed rule, we clarified that our policy is that the service will be paid at the facility PE RVU rate if the Medicare carrier pays for the service in the non-facility setting. In the CY 2007 PFS proposed rule (71 FR 48982), we proposed revisions to Addendum A to include this clarification.

Comment: Commenters expressed appreciation for this clarification.

Response: We have modified Addendum A to include this clarification. (ii) Supply for CPT Code 50384, Removal (Via Snare/Capture) of Internally Dwelling Ureteral Stent Via Percutaneous Approach, Including Radiological Supervision and Interpretation

Upon review of the RUC-recommended direct PE inputs for CPT code 50384, a new procedure for the 2006 CPT codes, we identified the inappropriate inclusion of a ureteral stent that we proposed to delete for CY 2007. We believe that the addition of the ureteral stent, valued by the specialty at $162, to CPT code 50384, which is the procedure for the removal of a stent, was an inadvertent error by the specialty during the April 2005 RUC meeting.

Comment: The commenters agreed with the deletion of the ureteral stent from this service.

Response: This stent will be removed from CPT code 50384 in the PE database. (iii) Cardiac Monitoring Services

We requested more specific PE information on remote cardiac event monitoring services in the CY 2007 PFS proposed rule as a result of a comment and response discussion in last year's final rule related to these services and an inappropriate fit with the direct PE model used for typical physicians' services. These services are overwhelmingly performed by specialized IDTFs that are paid under the PFS, but frequently maintain more extensive operating hours than the typical physician office due to the characteristics of cardiac monitoring services. Specifically, we requested data to indicate the typical number and type of transmissions or other encounters per day between the beneficiary and the IDTF for each of the remote monitoring services. We also requested the number and type of clinical staff, as well as the corresponding times, that are necessary to ensure that appropriate services are available for each patient. Additionally, we requested assistance in identifying any other direct PE inputs for typical supplies and equipment relating to these services, and any data that would reflect indirect PE, such as overhead and non-clinical payroll expenses. Because we believe that the following codes, predominately performed by specialized IDTFs, represent atypical PE scenarios, we requested PE information for these services:

Cardiac event monitoring (CPT codes 93271, 93012 and 93270).

Pacemaker monitoring (CPT codes 93733 and 93736).

Holter monitoring (CPT codes 93232, 93226, 93231 and 93225).

INR monitoring (HCPCS codes G0248 and G0249).

Comment: Several commenters voiced concern about the dramatic decrease in the PE RVUs for these services and most agreed that the remote cardiac monitoring services do not fit the PE model for physicians' services and believed that the information that we requested could be useful to value these technical services. One commenter submitted the requested information after conducting a survey of 7 large IDTFs specializing in these remote cardiac monitoring services. For each of the 11 CPT/HCPCS codes referenced above in this section, the commenter provided recommendations for the direct PE inputs, including the type of clinical labor and the related minutes for their service, the needed disposable supplies and the equipment costs, the number of minutes in use, and the respective life of each piece of equipment. In addition, two commenters suggested that CPT code 92326 (remote, real-time, wireless cardiac monitoring) be added to the above list of services:

Response: We appreciate that the provider group conducted such a detailed survey to capture the costs of these services. We have reviewed the direct inputs that were forwarded by the commenter and have accepted many of their recommendations, some with modifications, for all these codes. For example, we used the ``discounted'' purchase prices for the equipment which is our standard policy rather than the additional list prices that were also included. The specific direct inputs for the following CPT/HCPCS codes: 93012, 93271, 93270, 93733, 93736, 93232, 93226, 93231, 93225, G0248 and G0249 are included in the PE database that is posted with this rule on the CMS Web site. We will consider these inputs interim, for CY 2007, and will continue to work with the provider group to appropriately value these services. For the request to include CPT code 93236 in this list of codes, we would note that this procedure is not valued in the nonfacility setting and has no direct inputs. CPT code 93236 is discussed in the following comment and response. g. Specific PE Concerns Raised by Commenters (i) Wireless Cardiac Monitoring

Comment: One commenter expressed concern about the impact of the PE methodology proposal and stated that there is not a CPT code that accurately represents ``remote, real-time cardiac monitoring through wireless communications and computerized arrhythmia detection technology'' service. The commenter requested that a HCPCS code be created specifically for this service and provided direct input recommendations that could be used to price this new code. In the event that we could not create a HCPCS code, the commenter requested that the direct inputs be applied to the CPT code 93236 which is currently being used to bill for this service.

Response: We are reluctant to create a HCPCS code at this time because the commenter has not demonstrated a compelling need for a distinct code for this service. Because this code is currently not valued in the nonfacility setting, we proposed to carrier price this service for CY 2007. We suggest that if the commenter believes a distinct code is necessary to describe this service, the provider should work with the specialty and contact the CPT Editorial Panel to pursue this matter. We will maintain

[[Page 69648]]

our proposal to carrier price this service for CY 2007. (ii) Endovenous Ablation Services, CPT Codes 36475, 36476, 36478, and 36479

Comment: We received numerous comments with concerns about the decrease in PE RVUs proposed for CY 2007. In addition, a few commenters noted a disparity between the cost of supplies for the RF and the laser ablation procedures, CPT codes 36475 and 36478, respectively. One commenter supplied documentation to support that the price of the endovascular laser kit, at $677, in the PE database is not typical. This commenter presented a range of prices from $275 to $315 as typical. The commenter also demonstrated that 3 other supplies listed for CPT code 36478 were duplicated as they are part of the kit. Another commenter noted a price of $360 for the laser kit.

Response: We reviewed the supplies in the laser kit and the other supplies for this endovenous service and believe that the hydrophilic guide wire, the vascular sheath and the vessel dilator are duplicated. These items were removed from the database for CPT code 36478. In addition, based on the information and documentation supplied, we used the $360 laser kit to average with the existing price of $677 to obtain the new price of $519. We have also made this change to the PE database. While we realize that the PE RVUs were negatively impacted by the change in the PE methodology, it is also important to ensure that the direct inputs accurately reflect the typical resources used to provide each service. (iii) Development of Nonfacility PE for Arthroscopic Procedures

Comment: We received comments requesting that we establish direct PE inputs for five arthroscopy codes for the nonfacility setting, including CPT codes 29870, 29805, 29830, 29840 and 29900.

Response: The RUC discussed this request at its October 2006 meeting and determined that the procedures are not safe to perform in the physician's office. We support the RUC's decision not to value these arthroscopy procedures in the nonfacility setting and will continue to use the ``NA'' indicator in the PE RVU column for the nonfacility setting in Addendum B. (iv) Audiologist Wage Rate

Comment: One commenter requested that we add 25 percent to the professional audiologists wage rate per minute which is now $0.52. The commenter contended that the fringe benefits factor was not applied at the time we established the clinical labor rates for CY 2002.

Response: We used data from the Bureau of Labor Statistics (BLS) to establish the base wage rate for audiologists when we repriced the clinical staff wage rates for CY 2002. We also applied a 33.6 percent fringe benefit factor to all wage rates, including the wage rate for audiology. Therefore, we will maintain the wage rate for audiologists until the time that all clinical labor wages are updated in future rulemaking. (v) Medical Physicists Wage Rate

Comment: Several commenters recommended that we accept the 2005 survey data on hourly wages, inflated to 2006, that was presented by the association representing medical physicists. They contend that we inappropriately used the wage rate for health physicists, instead of medical physicists, when we updated the clinical labor wage rates for CY 2002.

Response: In the PFS final rule for CY 2002, we finalized our proposal to price the physicist staff type on the average salary data for all certified health physicists from the 1999 survey conducted by the American Academy of Health Physics and the American Board of Health Physics. At the time we were revising the wage rates, this was the best information available. Further, the source of the majority of wage rates in the CY 2002 PFS final rule was the BLS. In the case of medical physicists, we were unable to obtain salary data from BLS. We agree with the commenters that this revised 2005 salary data is more appropriate than our current salary data. We will utilize this revised data, deflated to 2002, to keep all salary data on the same scale. As a result of this information, we will change the wage rate per minute for the two following clinical staff types: (a) Medical physicists from $1.21 to $1.523; and (b) medical dosimetrists/medical physicists from $0.92 to $1.075. (vi) Home Visit E/M Services

Comment: We received a comment that stated that the home care clinical labor times are incorrectly reported in our PE database with each lacking 6 minutes in the pre-service period. In addition, the commenter stated that a supply item, specula tips, is missing in one service. Another commenter voiced support for the efforts of the home care physician group.

Response: We have verified that our PE database is correct. For the CPT codes 99341, 99342, and 99343, there is a total 12 minutes labor for each code, with 6 minutes assigned to the pre-service period and 6 minutes assigned to the postservice period. Also, the supply item the commenters reported as missing is included in the PE database. (vii) Supply Inputs for CPT 31730

Comment: Prior to the publication of the CY 2007 PFS proposed rule, we received documentation from the association representing pulmonary physicians that specified the contents of the fast track supply tray for CPT code 31730. The specialty was complying with our request for information on supply items needing specialty input in last year's final rule.

Response: We thank the specialty group for its submission of the fast track supply tray contents and note that we accepted this documentation and the $750 price in our proposed rule. However, we regret that we did not remove the duplicated supply items from the PE database at that time. The following supplies will be removed from the inputs for CPT 31730 because they are already contained in the fast track tray: alcohol pads, 6 cc syringe with needle, 27G needle and 4x4 gauze pads. The PE RVUs that appear in this rule reflect the removal of these supply items. (viii) Supply Costs for CPT Code 58565

Comment: One commenter noted that the cost of the kit used for hysteroscopic tubal implant for sterilization (supply code SA076) has increased in price from $980 to $1245. The specialty society representing gynecology and obstetrics services did not supply supporting documentation.

Response: We appreciate that this commenter has reviewed the direct inputs for accuracy. However, lacking any documentation to substantiate this request for a higher price, we will maintain the $980 price for the kit in the PE database for CY 2007. We will add this supply to the table requiring specialty input and will review any documentation provided by the specialty as part of a future rulemaking. (ix) Bone Density Testing Services

Comment: Many commenters requested that we review the costs related to bone density testing (DXA) services, particularly related to CPT codes 76075 and 76076 used for detection and quantification of osteoporosis. These commenters state that the current direct inputs in the PE database identify the low cost pencil beam technology ($41,000) as the equipment utilized in performing these DXA services in place of the higher cost fan beam technology ($85,000). Commenters contended that the

[[Page 69649]]

majority of densitometers sold are of the higher cost fan beam variety. Another commenter noted that the DXA services using the fan beam technology should also contain ``phantom'' equipment to be used to perform the daily quality check on this equipment.

Response: We have changed the PE database to reflect the fan beam DXA technology for CPT codes 76075 and 76076. In addition, we have added, on an interim basis, the ``solid water calibration check phantom'' to the equipment file in the PE database for the family of codes using the fan beam technology for 15 minutes each, based on the survey information presented by one commenter noting that these DXA services are performed, on average, twice daily. We ask the medical specialty to provide us with the correct information on the specific ``phantom'' used for the fan beam DXA technology, including pricing verification. While reviewing the PE database for these services, we discovered a rank order anomaly between CPT code 76075 and 76076 that apparently is due to a change in the clinical labor from the April 2006 PERC meeting where CPT code 76075 was used as a reference code. We have added back the 5 minutes of labor time in the PE database to CPT code 76075 to correct this rank order anomaly. (x) PE Missing for CPT Code 28890

Comment: One commenter stated that the non-facility inputs for CPT code 28890, Extracorporeal shock wave, high energy, performed by a physician, requiring anesthesia other than local, including ultrasound guidance, involving the plantar fascia, lacked enough clinical staff to assist the physician with applying the regional (anesthetic) block and that the ultrasound equipment was not included in the PE database for this ``shock-wave'' service.

Response: In the CY 2006 PFS final rule with comment, we assigned nonfacility PE inputs for CPT code 28890, because we believed these services were being performed in the office. (This assignment of PE for CPT 28890 is discussed in a subsequent section of this rule.) Since the ``shock-wave'' machine was the only equipment listed in the PE database, we added the ultrasound equipment for 36 minutes, to the PE database, but we question whether additional staff is needed to assist the physician during the procedure since one nurse ``blend'' (RN/LPN/ MTA) staff type is currently assigned for this procedure. We would entertain future discussions on this issue with interested parties, including the specialty organization involved in performing this procedure in the office. For CY 2007, we have maintained the current clinical labor assignment in the PE database. h. Concerns About Decreases in PE RVUs for Women's Health and Other Services

Many commenters raised concerns regarding payment for services that affect women's health:

Comment: We received many comments regarding the proposed decrease in PE RVUs for either specific services or for given specialties. Many commenters raised concerns regarding payment for services that affect women's health.

Commenters opposed the proposed decrease in payment for the axial bone density testing (DXA) service, CPT code 76075, which is used for detection and quantification of osteoporosis, and CPT code 76077, which is used for vertebral fracture assessment. The commenters raised the concern that the proposed decrease in payment for these services would severely restrict patient access to bone density testing, thereby undermining our effort to effectively screen Medicare beneficiaries for osteoporosis and vertebral fractures. These commenters identified what they believed to be flaws in the direct input data and with the utilization rate applied to the DXA machine. The commenters also requested that we keep the payment for these services at the current level.

We received several comments that expressed concern about the decrease in payment for computer-aided detection (CAD) services, CPT codes 76082 and 76083, both add-on procedures that are billed in combination with an appropriate mammography service. The commenters stressed that CAD systems for mammography are diagnostic tools that can increase breast cancer detection rates, especially in the early stages. One commenter contended that the decrease in payment for this service could cripple the ability of physicians to offer this highest quality screening service to the broadest patient population.

Several commenters expressed concern about the proposed RVUs for the various radiation therapy codes involved in breast brachytherapy, as well as brachytherapy for ovarian and cervical cancer. A society representing brachytherapy stated that the proposed reductions may force providers to resort to other less beneficial cancer treatments. One commenter contended that the proposals could deny a greater number of African American women access to an important, patient friendly and proven breast cancer treatment. The above concerns were echoed in comments from a society representing NPs and a society concerned with research on women's health.

We also received several comments regarding a related service, CPT code 19296, Placement of a radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application. Commenters expressed concern regarding the proposed decrease in payment for this service and predicted that this decrease from 129.74 RVUs in 2006 to 89.31 RVUs in 2010 would cause the service not to be offered in a physician's office to Medicare patients.

We received comments that expressed concern regarding the proposed decrease in payments for a number of other services. These include: The surgical hysteroscopy service, CPT code 58565; the chemodenervation procedures, CPT codes 64612, 64613 and 64614; the EMG-guided Botox therapy, CPT 92265; and endovenous ablation procedures, CPT codes 36475, 36476, 36478 and 36479.

We also received comments regarding the effect on certain specialties of our proposed payments. One commenter stated that the proposed cuts could diminish Medicare patients' access to cardiac care. Many commenters requested that we reconsider the cuts for interventional radiology, and others requested that we reverse any decrease for anesthesiology. Another commenter expressed concern regarding the decreases for this specialty. Commenters opposed the changes to the RVUs that would cause a total 14 percent decrease in payment for clinical social workers. In addition, other commenters expressed concern regarding our proposed payments for gastroenterology, neonatology, pain management, radiosurgery and phlebology.

Response: We understand the concern expressed by all of these commenters. However, payments made for services on the PFS can only reflect, in a budget neutral manner, the relative resources required to perform each service. With the exception of the requested changes to the equipment direct inputs for the DXA service, the commenters have not provided specific information regarding the relative resources required for the services in question that would support the requested changes in payment. We also do not believe it would be equitable to keep the payment for any specific service at the current rate when there are many other services that will see decreases in payment. We would note that one of the main reasons for the proposed 4-year transition of our new PE methodology was to give specialties

[[Page 69650]]

and practitioners the opportunity to work with us to determine whether any changes in our payment calculation for such services is warranted and we are open to further discussion on this issue.

We also applaud the commenters who have stressed the importance of women's health issues. We certainly share their commitment to ensuring that those services that meet the health care needs of women remain accessible to our beneficiaries. In addition, we appreciate the important role that all of the preventive screening services play in helping to maintain the health of these beneficiaries. In response to comments, we have revised our equipment database to reflect the correct DXA equipment. It should also be noted that, although payment for the CAD service itself is decreasing, payment for most mammography services is increasing, which could potentially offset any reductions to the providers of CAD. However, we will request that the RUC review again the PE inputs for the DXA and CAD services to ensure that the direct inputs associated with these services are accurately reflected in our PE database. i. Equipment Utilization and Interest Rate Assumptions

Comment: Many specialty societies, MedPAC, and the RUC all offered comments about the 11 percent interest rate and the 50 percent utilization rate used to calculate the price per minute for each piece of equipment. MedPAC stressed the importance of obtaining a reliable source for updating the yearly interest rate that physicians would pay when borrowing money to buy equipment. They believe that we should select the Federal Reserve Board because of the frequent updating, issued quarterly. MedPAC notes that interest rates, of more than one year, ranged from 5.3 percent to 6.0 percent over the past 5 years. Other commenters suggested that we adopt the prime interest rate plus 2 percent, while the RUC and several specialty societies noted that we should select a competitive market rate. One commenter suggested using caution in our selection process and requested that the interest rate be examined before future changes are made.

For updating the current 50 percent utilization rate, many commenters, including the MedPAC and the RUC, suggested that this rate should be higher. These comments stressed that by using the assumption that equipment is in use 50 percent of the time when the utilization is actually higher, our price per minute would be too high. The RUC recommended we use a rate higher than 50 percent and permit individual specialty societies to present support for lower rates for specific equipment items. While the overall comments contained a broad array of suggested revisions to the utilization rate, a few specialty organizations believed that the utilization rate should be lower than 50 percent. Several comments, specific to equipment for bone density testing (DXA), believe the utilization rate to be closer to 20 percent for these services performed in primary care physicians' offices and requested that we review this utilization to more appropriately measure the actual utilization of this equipment. MedPAC suggested that we begin our updating process by looking at the higher-priced equipment, and noted a study it conducted of imaging providers in six markets that indicated 70 percent and 90 percent utilization rates for CT and MRI, respectively. A few commenters noted that they would like for us to assign code-specific equipment utilization rates, although they did not forward possible avenues for us to follow in making the determinations of these assignments.

Response: We agree with commenters that the proposed interest rate of 11 percent and the proposed 50 percent utilization rate should be examined for accuracy. We are committed to working with all interested parties to define the most accurate utilization and interest rate information for equipment used in the performance of physicians' services. We do not believe that we have sufficient empirical evidence to justify a change in this final rule, but we will continue to work with the physician community to examine, and potentially revise, these estimates in future rulemaking. We have used the 11 percent interest rate and the 50 percent utilization rate to determine the valuation for equipment reflected in the PE RVUs in Addendum B. j. Further Review of PE Direct Inputs

Comment: Several commenters, including the RUC and MedPAC, recommended that we establish an update process to ensure that the direct PE inputs--wage rates of clinical staff, purchase price of supplies, and purchase price of equipment--are updated for completeness and accuracy. MedPAC requested that we establish a timeline, recurring at least every 5 years, for the comprehensive review of the PE database direct inputs. Both MedPAC and the RUC made suggestions that the new, higher-priced supplies and equipment may need to be updated more frequently because their prices may decrease over time as other companies manufacture them.

Response: We appreciate the commenters' remarks regarding the establishment of a regular update process for the direct inputs utilized in the calculation of resource-based PE RVUs. We plan to examine this issue with both the RUC and interested specialty organizations, as well as with the medical community to determine the most useful approach to updating our direct PE inputs. Additionally, we encourage interested parties to continue working with the RUC to develop direct inputs for those services absent inputs and to correct any errors contained in our direct input database. k. Supply and Equipment Items Needing Specialty Input

We have identified certain supply and equipment items for which we were unable to verify the pricing information in Table 3: Supply Items Needing Specialty Input for Pricing and Table 4: Equipment Items Needing Specialty Input for Pricing. In our CY 2007 PFS proposed rule, we listed both supply and equipment items for which pricing documentation was needed from the medical specialty societies and, for many of these items, we received sufficient documentation in the form of catalog listings, vendor Web sites, invoices, and manufacturer quotes. We have accepted the documented prices for many of these items and these prices are reflected in the PE RVUs in Addendum B of this final rule with comment period. For the items listed in Tables 3 and 4, we are requesting that commenters provide pricing information on items in these tables along with acceptable documentation, as noted in the footnote to each table, to support recommended prices.

In Tables 5 and 6, we have listed new supplies and equipment from the new CPT codes for CY 2007 that are discussed elsewhere in this final rule with comment period. These items have been added to the PE database and, where priced, are reflected in the PE RVUs in Addendum B.

BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR01DE06.004

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[GRAPHIC] [TIFF OMITTED] TR01DE06.005

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[GRAPHIC] [TIFF OMITTED] TR01DE06.006

BILLING CODE 4120-01-C

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Table 5.--Practice Expense Supply Item Additions for CY 2007

*CPT code(s)

Equip code

Supply description

Unit

Unit price associated Supply category with item

NA............... Agent, embolic \1\....... Vial............. ............

37210 Accessory, Procedure. NA............... Bolster covers,

Item.............

0.06

96904 Gown, drape. disposable. NA............... Filter, mouthpiece...... Unit.............

4.6

95012 Infection control. NA............... Gas, argon.............. Cu ft............

0.25

19105 Accessory, Procedure. NA............... Kit, capsule, ESO,

Kit..............

450

91111 Kit, Pack, Tray. endoscopy w-application. NA............... Kit, gold markers,

Kit..............

119

55876 Kit, Pack, Tray. fiducial, 3 per kit. NA............... Probe, cryoablation, Item............. 1589

19105 Accessory, (Viscia ICE 30 or 40).

Procedure.

*CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS77373y. 1. Price verification needed. Item(s) added to table of equipment requiring specialty input.

Table 6.--Practice Expense Equipment Item Additions for CY 2007

*CPT code(s) Equip code

Equipment description

Life Unit price associated Equipment category with item

NA.................. AV projection system

5

3800

70554 IMAGING EQUIP. (integrated headphone, video goggles, transducer, control unit w-remote- Cinema Vision). NA.................. camera mount-floor \2\.....

15 \1\ 2300

96904 OTHER EQUIPMENT. NA.................. cross slide attachment \2\.

10 \1\ 500

96904 OTHER EQUIPMENT . NA.................. cryoablation system,

3

24950

19105 OTHER EQUIPMENT. fibroadenoma. NA.................. dermal imaging software \2\

5 \1\ 4500

96904 OTHER EQUIPMENT. NA.................. dermoscopy attachments \2\.

5 \1\ 650

96904 OTHER EQUIPMENT. NA.................. Gammaknife.................

7 3870000

77371 IMAGING EQUIP. NA.................. generator, spine, IDET, w-

5

28299

22526 OTHER EQUIPMENT. extension.

22527 NA.................. genetic counseling,

5 ...........

96040 DOCUMENTATION. pedigree, software \2\. NA.................. image-acquisition software

3 108807

70554 IMAGING EQUIP. and hardware (Brainwave RealTime, PA, Hardware). NA.................. lens, macro, 35-70 mm \2\..

5 ...........

96904 OTHER EQUIPMENT. NA.................. monitoring system, nitric

5

39200

95012 OTHER EQUIPMENT. oxide w-computer (Acerine, NIOX). NA.................. radioactive source \3\..... ........... ...........

77371 IMAGING EQUIP. NA.................. speakers, sound field

5

1775

92640 OTHER EQUIPMENT. (brainstem implant). NA.................. SRS system, Lincac.........

7 4350000

77372 IMAGING EQUIP. NA.................. SRS system, SBRT, six-

7 4000000

77373 IMAGING EQUIP. systems, average. NA.................. strobe, 400 watts

10 \1\ 1500

96904 OTHER EQUIPMENT. (Studio)(2) \2\.

*CPT codes and descriptions only are copyright 2007 American Medical Association. All Rights Reserved. Applicable FARS/DFARS77373y. 1. Prices interim for CY 2007--Acceptable documentation required for price verification. 2. Price verification needed. Item(s) added to table of equipment requiring specialty input. 3. Discussion with CMS necessary to establish appropriate value.

B. Geographic Practice Cost Indices (GPCIs)

Section 1848(e)(1)(A) of the Act requires us to develop separate GPCIs to measure resource cost differences among localities compared to the national average for each of the three fee schedule components. While requiring that the PE and malpractice GPCIs reflect the full relative cost differences, section 1848(e)(1)(A)(iii) of the Act requires that the physician work GPCIs reflect only one-quarter of the relative cost differences compared to the national average.

Section 1848(e)(1)(C) of the Act requires us, in consultation with appropriate physician representatives, to review the GPCIs at least every 3 years and allows us to make adjustments based on our review. This section of the Act also requires us to phase-in the adjustment over 2 years, implementing only one-half of any adjustment in the first year if more than 1 year has elapsed since the last GPCI revision. CMS is currently working with Acumen, LLC to review and revise the GPCIs in accordance with the requirement that GPCIs be revised at least every 3 years. We expect to implement any revisions based on our review in January 2008.

In addition, section 412 of the MMA amended section 1848(e)(1) of the Act to establish a floor of 1.0 for the work GPCI for any locality where the GPCI would otherwise fall below 1.0 for purposes of payment for services furnished on or after January 1, 2004 and before January 1, 2007. Beginning on January 1, 2007, the 1.00 floor will be removed and the work GPCI will revert to the fully implemented value. The values for the work GPCI and subsequent changes to the geographic adjustment factor (GAF) published in the CY 2007 PFS proposed rule reflect the removal of the 1.0 floor. For many payment localities, this change had no impact on the GAF; however, the GAFs for a number of payment localities were reduced due to this change. The impact of this change on the GAFs for those payment localities was shown in Table 3 of the CY 2007 PFS proposed rule (71 FR 48993).

In the CY 2007 PFS proposed rule, we also published the proposed GPCIs for

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2007 in Addendum D and the proposed GAFs for 2007 in Addendum E (71 FR 49246 through 49249). The GPCIs shown in Addendum D represent the fully implemented value and reflect 2007 BN scaling coefficients provided by our Office of the Actuary.

In the CY 2005 PFS proposed rule, we discussed issues relating to changes to the GPCI payment localities (69 FR 47504). In that proposed rule, we noted that we look for the support of a State medical society as the impetus for changes to existing payment localities. Because the GPCIs for each locality are calculated using the average of the county- specific data from all of the counties in the locality, removing high cost counties from a locality will result in lower GPCIs for the remaining counties. Therefore, because of this redistributive impact, we have refrained, in the past, from making changes to payment localities unless the State medical association provides evidence that any proposed change has statewide support.

We requested suggestions on alternative ways that we could administratively reconfigure payment localities that could be developed and proposed in future rulemaking. In addition, MEDPAC and the General Accounting Office (GAO) have both expressed interest in studying the physician payment localities. We intend to work with both groups to study our current methodology and develop alternative options.

We received the following comments in response to our GPCI proposals.

Comment: During the comment period, commenters advised us of two errors in Table 3 (there were two entries for Kansas and there was a mistake in the equation for calculating the GAF). We were also advised of typographical errors in Addendum D.

Response: We appreciate that these were brought to our attention. Table 7 contains the corrected information and we have corrected Addendum D in this final rule.

TABLE 7.--Payment Localities With Negative Percent Change in GAF \1\ Between 2006 and 2007 Due to Removal of the 1.000 Work Floor

Percent Locality name

2006 GAF 2007 GAF change

Fort Worth, TX...................

0.998

0.996

-0.17 Rest of Michigan.................

0.986

0.984

-0.20 Rest of New York.................

0.952

0.950

-0.21 Rest of Maryland.................

0.982

0.978

-0.36 Metropolitan St. Louis, MO.......

0.978

0.974

-0.41 Rest of Pennsylvania.............

0.950

0.946

-0.44 Ohio.............................

0.970

0.966

-0.44 Austin, TX.......................

1.020

1.015

-0.47 New Hampshire....................

1.010

1.005

-0.50 Minnesota........................

0.980

0.975

-0.53 Galveston, TX....................

0.991

0.986

-0.54 Metropolitan Kansas City, MO.....

0.987

0.981

-0.56 Fort Lauderdale, FL..............

1.022

1.016

-0.59 Arizona..........................

0.999

0.993

-0.65 Wisconsin........................

0.956

0.950

-0.65 Colorado.........................

0.998

0.991

-0.67 East St. Louis, IL...............

1.003

0.996

-0.68 New Orleans, LA..................

0.984

0.977

-0.73 Rest of Washington...............

0.984

0.976

-0.77 Indiana..........................

0.937

0.930

-0.79 Beaumont, TX.....................

0.951

0.942

-0.96 Alabama..........................

0.923

0.914

-0.99 Virginia.........................

0.958

0.948

-1.06 Southern Maine...................

0.992

0.981

-1.09 Rest of Georgia..................

0.943

0.932

-1.14 Tennessee........................

0.933

0.921

-1.27 Utah.............................

0.960

0.948

-1.30 South Carolina...................

0.930

0.917

-1.41 Rest of Illinois.................

0.952

0.938

-1.43 Rest of Florida..................

0.982

0.968

-1.45 West Virginia....................

0.942

0.928

-1.47 North Carolina...................

0.951

0.936

-1.55 New Mexico.......................

0.947

0.932

-1.57 Rest of Louisiana................

0.936

0.919

-1.78 Kentucky.........................

0.932

0.915

-1.80 Kansas*..........................

0.936

0.919

-1.81 Rest of Oregon...................

0.946

0.929

-1.81 Vermont..........................

0.968

0.950

-1.82 Virgin Islands...................

1.007

0.989

-1.83 Rest of Texas....................

0.947

0.929

-1.87 Idaho............................

0.922

0.904

-1.91 Iowa.............................

0.927

0.909

-1.97 Rest of Maine....................

0.936

0.916

-2.14 Oklahoma.........................

0.913

0.893

-2.14 Mississippi......................

0.919

0.898

-2.31 Arkansas.........................

0.905

0.884

-2.34 Puerto Rico......................

0.905

0.883

-2.44 Nebraska.........................

0.925

0.902

-2.44 Wyoming..........................

0.934

0.910

-2.55

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Montana..........................

0.928

0.902

-2.83 Rest of Missouri*................

0.910

0.883

-2.97 North Dakota.....................

0.924

0.895

-3.16 South Dakota.....................

0.922

0.891

-3.35

\1\ Calculation for the GAF: (0.52466*work gpci) + (0.03865*mp gpci) + (0.43669*pe gpci)

Comment: We received several comments indicating that the GPCIs for Puerto Rico are inadequate because they do not take into consideration the higher costs of living in Puerto Rico. Commenters are concerned that physicians in Puerto Rico will relocate to areas with higher GPCIs. Their comments focused on suggested revisions to the data used in calculating the GPCIs for Puerto Rico with the intent of raising the GPCI for Puerto Rico.

Response: We want to ensure that beneficiaries have access to high quality care in all parts of the United States; however, we do not use relative costs of living in the calculation of the GPCIs as the commenters are requesting. Relative costs of living among payment localities are already accounted for within other measures of relative resource cost that we use in calculating GPCIs, and we do not believe it would be appropriate to use different measures of resource cost for some localities than are used for others.

Comment: We received numerous comments reflecting concerns about the negative impact on physician payments resulting from removal of the MMA-mandated floor of 1.0 on the physician work GPCI. Comments also stated that GPCIs should not be applied to physician work as a general policy.

Response: The 1.000 floor is being removed for services furnished after December 31, 2006, because the MMA provision established the floor only for services furnished on or after January 1, 2004, and before January 1, 2007. We do not have the legal authority to extend application of the floor beyond the statutory timeframe. In addition, application of GPCIs to the work RVUs is required by the statute.

Comment: We received numerous comments requesting that we administratively change the relative values for codes that have a TC and a PC. The focus of the comments was that for many codes the TC has a higher malpractice relative value than the PC. A suggestion was made that we administratively change the TC RVU to equal the PC RVU.

Response: The commenters are suggesting a change in methodology for calculating the malpractice RVUs. We did not make any proposals relating to this methodology; therefore, comments relating to malpractice RVU policy are outside the scope of this rule. We appreciate the commenters' suggestions, and if we were to propose changes to malpractice RVU policy, we would consider the commenters' suggestions in future rulemaking.

Comment: Commenters indicated that they were troubled about the data used in developing the GPCIs. Specifically, the proxy categories used in the wage determination and the real estate data used in the rent portion of the PE GPCI are of the greatest concern. They stated that our data do not reflect true costs and, therefore, put many practitioners in rural areas at a disadvantage and create inequities between payment localities.

Response: We have previously addressed the issue of rental data in the CY 2005 PFS final rule (69 FR 66261). We stated that the Department of Housing and Urban Development (HUD) rental data may be the subject of concern, but we believe it remains the best data source to fulfill our requirements that the data be available for all areas, be updated annually, and retain consistency area-to-area and year-to-year. In that same rule, we discussed our belief that the wage proxies we use are the best tools available for the development of the GPCIs. However, we will consider the possibility of using different wage proxies or wage data sources for some future update of the GPCIs.

C. Medicare Telehealth Services

As discussed in the CY 2007 PFS proposed rule (71 FR 48994), section 1834(m)(4)(F) of the Act defines telehealth services as professional consultations, office visits, and office psychiatry services (identified as of July 1, 2000 by CPT codes 99241 through 99275, 99201 through 99215, 90804 through 90809, and 90862) and any additional service specified by the Secretary. In addition, the statute requires us to establish a process for adding services to or deleting services from the list of telehealth services on an annual basis.

In the December 31, 2002 Federal Register (67 FR 79988), we established a process for adding services to or deleting services from the list of Medicare telehealth services. This process provides the public an ongoing opportunity to submit requests for adding services. We assign any request to make additions to the list of Medicare telehealth services to one of the following categories:

Category #1: Services that are similar to office and other outpatient visits, consultation, and office psychiatry services. In reviewing these requests, we look for similarities between the proposed and existing telehealth services for the roles of, and interactions among, the beneficiary, the physician (or other practitioner) at the distant site and, if necessary, the telepresenter. We also look for similarities in the telecommunications system used to deliver the proposed service, for example, the use of interactive audio and video equipment.

Category #2: Services that are not similar to the current list of telehealth services. Our review of these requests includes an assessment of whether the use of a telecommunications system to deliver the service produces similar diagnostic findings or therapeutic interventions as compared with the face-to-face ``hands on'' delivery of the same service. Requestors should submit evidence showing that the use of a telecommunications system does not affect the diagnosis or treatment plan as compared to a face-to-face delivery of the requested service.

Since establishing the process, we have added the following to the list of Medicare telehealth services: Psychiatric diagnostic interview examination; ESRD services with two to three visits per month and four or more visits per month (although we require at least one visit a month by a physician, CNS, NP, or PA to examine the vascular access site); and individual medical nutritional therapy.

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Requests to add services to the list of Medicare telehealth services must be submitted and received no later than December 31 of each CY to be considered for the next proposed rule. For example, requests submitted before the end of CY 2005 are considered for the CY 2007 proposed rule. For more information on submitting a request for an addition to the list of Medicare telehealth services, visit our Web site at http://www.cms.hhs.gov/telehealth.

We received the following requests for additional approved services in CY 2005: Nursing facility care; speech language pathology; audiology; and physical therapy services.

After reviewing the public requests, we explained that section 1834(m)(4)(C)(ii) of the Act defines a telehealth originating site as a physician's or practitioner's office; or a hospital, critical access hospital (CAH), rural health clinic, or Federally qualified health center (FQHC). SNFs are not defined in the statute as originating sites. The authority to allow SNFs to serve as telehealth originating sites is dependent upon HHS submitting the Report to Congress on permitting a SNF to be an originating site (as required by the section 418 of the MMA) and the Secretary concluding in the Report that it is advisable to include a SNF as a Medicare telehealth originating site and that mechanisms could be established to ensure that use of a telecommunications system does not serve as a substitute for the required in-person physician or practitioner visits to SNF residents.

As discussed in the CY 2007 PFS proposed rule, given that SNFs are not defined in the statute as a telehealth originating site and HHS is currently reviewing the Report to Congress, it would not be appropriate to approve nursing facility care for telehealth at this time.

In addition, we explained that the statute permits only a physician, as defined by section 1861(r) of the Act or a practitioner as described in section 1842(b)(18)(C) of the Act (CNS, NP, PA, nurse midwife, clinical psychologist, clinical social worker, registered dietitian or other nutrition professional), to furnish Medicare telehealth services. Since speech language pathologists, audiologists and physical therapists are not permitted under the statute to provide and receive payment for Medicare telehealth services at the distant site, we could not fully consider the request to add speech therapy, audiology services and physical therapy to the list of Medicare telehealth services (71 FR 48994).

We received the following comments on the Medicare telehealth services.

Comment: Some commenters stated that the process for adding services to the list of Medicare telehealth services does not require an originating site to be approved prior to the approval of a service for telehealth (and mentioned that we previously approved ESRD-related visits furnished under the monthly capitation payment (MCP) for telehealth without the approval of a dialysis center as an originating site). The commenters believe that approving nursing facility services for telehealth is mutually exclusive from the Report to Congress on permitting a SNF to be a Medicare telehealth originating site and that the findings of the report are not necessary to approve services for telehealth. Moreover, the commenters requested that we approve nursing facility care for telehealth (initial nursing facility care, subsequent nursing facility care, nursing facility discharge services and other nursing facility services) prior to the completion of the Report to Congress on permitting a SNF to be an originating site.

Response: As previously discussed in this section, the MMA specifically requires an evaluation of SNFs as potential originating sites for the furnishing of telehealth services, and a Report to Congress on such evaluation. The law provides the authority to add SNFs as an originating site if the Secretary concludes in the report that it is advisable to do so, and that mechanisms could be established to ensure that the use of telehealth does not substitute for the required in-person physician or practitioner visits to SNF residents (which could have significant implications for the type of services we would approve for telehealth). As such, we believe that a decision to add (or not add) nursing facility care to the list of Medicare telehealth services is related to the conclusions reached in the Report to Congress on permitting a SNF to serve as an originating site. Given that the conclusions of the Report to Congress are not final, we do not believe that it would be appropriate to consider the request to add nursing facility care to the list of Medicare telehealth services at this time. We intend to review and consider the recommendations of the Report to Congress once it is issued and would address the request to approve nursing facility care for telehealth in future rulemaking.

Comment: One commenter expressed support for expanding telehealth services and for allowing SNFs to serve as a telehealth originating site.

Response: We appreciate the comment on the use of SNFs as telehealth originating sites. As discussed earlier in this section, the Report to Congress that could permit an SNF to serve as an originating site is currently under review within HHS. We expect to address this issue in future rulemaking after the Report to Congress is issued.

Comment: Two commenters requested clarification on whether the public would need to resubmit a request to approve nursing facility care for telehealth if it is determined that SNFs could be added as an originating site.

Response: After the Report to Congress is issued regarding SNFs as a telehealth originating site, we will address the requests to approve nursing facility care for telehealth and discuss our review through future rulemaking. It would not be necessary to resubmit a request to approve nursing facility care for telehealth.

Comment: Commenters stated that we added medical nutritional therapy (MNT) to the list of telehealth services in the CY 2006 PFS rule without nutrition professionals being authorized to furnish telehealth services. The commenters note that physical therapists, audiologists, and speech language pathologists currently cannot furnish Medicare telehealth services and requested an explanation as to why we cannot also consider approving audiology, speech language pathology, and physical therapy services for telehealth.

Response: The statute permits a physician, as defined by section 1861(r) of the Act or a practitioner as described in section 1842(b)(18)(C) of the Act (that is, CNS, NP, PA, nurse midwife, clinical psychologist, clinical social worker, registered dietitian or other nutrition professional), to furnish Medicare telehealth services. Registered dietitians or nutrition professionals are included in the statutory definition of practitioner under section 1842(c)(18)(C)(vi), and thus, are permitted under the statute to furnish telehealth services (and are the only practitioners permitted by the statute to furnish MNT). As such, when approving individual MNT for telehealth, registered dietitians and nutrition professionals as defined in Sec. 410.134 were added to the list of practitioners that may furnish and receive payment for a telehealth service in the CY 2006 PFS final rule with comment period (70 FR 70160).

In contrast, speech language pathologists, audiologists and physical therapists are not permitted under the statute to provide and receive payment for Medicare telehealth services at the

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distant site. Therefore, we do not believe it would be appropriate to consider adding audiology, speech language pathology, and physical therapy services for telehealth.

Comment: Two commenters requested that we provide clarification on when the telehealth Report to Congress, as required by section 223(d) of the BIPA, would be completed and submitted to Congress. Another commenter urged us to expedite the completion of the telehealth report (as required by the BIPA).

Response: The Report to Congress on additional sites and settings, practitioners, and geographic areas that may be appropriate for Medicare telehealth payment, as required by section 223(d) of the BIPA, is under development. We will work to expedite the completion of this report.

D. Miscellaneous Coding Issues

The following sections address specific coding issues related to payment for services under the PFS. 1. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

CPT code 77783, Remote afterloading high intensity brachytherapy; 9-12 source positions or catheters, resides in a family of codes with varying numbers of source positions. All of the codes in the family, CPT codes 77781 through 77784, are currently designated as 90-day global services. CPT codes 77781 through 77784 are used to treat many clinical conditions, but primarily patients with prostate cancer, breast cancer and sarcoma. Patients with any of these conditions usually receive several treatments (2 through 10) over a 2 to 10-day period of time. Due to the increasing variability in treatment regimens, it is difficult to assign RVUs for a ``typical'' patient based on a global period of 90 days.

Therefore, we proposed that this family of codes (CPT codes 77781, 77782, 77783 and 77784) be assigned a global period of ``XXX'', which will permit separate payment each time the services are provided and allow payment to be based on the actual service(s) provided. We will request that the RUC revalue the work RVUs and the PE inputs for these services if a change in the global period is finalized. However we proposed, on an interim basis, to revise the work RVUs and PE inputs to reflect the removal of the postoperative visit, CPT code 99212 that is currently assigned to these services. The interim work RVUs for these services are as follows:

CPT code 77781 = 1.21

CPT code 77782 = 2.04

CPT code 77783 = 3.27

CPT code 77784 = 5.15

We proposed to delete the registered nurse (RN) time in the postservice period, as well as the patient gowns for the postservice visit. We also noted that, to the extent that these services are performed as staged procedures, providers may make use of applicable modifiers.

We received the following comments on these coding issues.

Comment: Many commenters concurred with our proposal. However, some commenters wanted either a reconsideration of the proposed work RVU reduction, or if needed, a reduction in the CF. One commenter agreed with the global period revision but recommended establishment of a threshold for brachytherapy codes at a maximum of 10 percent per year. Another commenter concurred with the change in the global period; however, the commenter recommended no change in the work RVUs or a reduction to the 1992 levels, and prior to any work RVU changes it was recommended that such changes be reviewed by the RUC. In addition, the RUC, in its comments, agreed to include a review of the brachytherapy codes on its April 2007 meeting agenda and several commenters expressed an interest in working with the RUC on the work RVUs and PE inputs.

Response: We believe that the commenters misunderstood the intent of the proposed work RVU reductions. They are designed to allow the billing of the brachytherapy physician service codes on a more frequent basis than is currently permitted, and are reflective of the present course of treatment regimens. The current codes have a 90-day global period and are to be billed only once for the entirety of physician services provided during the specified time period.

Comment: Some commenters expressed concern that the PE inputs for the brachytherapy codes should not be reduced to reflect the removal of a post-operative visit because there is no visit.

Response: A post-operative visit is included within the current PE inputs for the current 90-day global period brachytherapy codes. The change to a global period of ``XXX'' necessitates the removal of this visit from the PE inputs because the codes could be billed several times during a course of treatment, and each occurrence would not include a post-operative visit.

The brachytherapy family of codes (CPT codes 77781, 77782, 77783 and 77784) will be assigned a global period of ``XXX'', which will permit separate payment each time the services are provided and allow payment to be based on the actual service(s) provided. Because of the change in the global period a request will be made to the RUC for a revaluation of the work RVUs and the PE inputs for these services. On an interim basis the work RVUs and the PE inputs will be revised as delineated in the proposed rule. In addition, the RN time in the postservice period, as well as the patient gowns for the postservice visit will be deleted from the PE database as proposed.

Separate payment will be made for medically necessary post-therapy visits based on the documented level of E/M service for the post procedure encounter(s).

We also note that appropriate modifiers are to be used when these services are performed as staged procedures. 2. Assignment of RVUs for Proton Beam Treatment Delivery Services

As discussed in the CY 2006 PFS proposed rule, we have received a request to assign PE inputs for the non-facility setting to Proton Beam treatment delivery services represented by CPT codes 77520 through 77525. These services are currently carrier-priced; therefore, payment in the facility or non-facility setting is established by each carrier. To the extent that physicians and suppliers wish to have national RVUs assigned for these services, we encourage them to use the established process at the AMA-RUC.

Comment: We received several comments in response to this discussion. Two commenters stated that due to the relatively limited availability of these services in freestanding environments given the small number of proton therapy centers at this point in time, these services should remain carrier priced. However, one commenter indicated that allowances established by carriers do not appear to account for capital and operating costs. This commenter referenced payment amounts proposed for hospital OPDs under the Outpatient Prospective Payment System (OPPS), and urged us to provide guidance to carriers in establishing appropriate payment for these services under the PFS.

Other commenters suggested that RVUs should be established for these services. Many of these commenters expressed agreement with the payment rate for these services under OPPS. These commenters were concerned that since each State has its own CMS-contracted carrier, variations exist in proton therapy coverage and reimbursement under the PFS. These

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commenters requested that we provide payment rates for carriers to use when these services are furnished in freestanding centers so that payments are consistent with payment rates under OPPS.

We also received comments from the AMA-RUC and ASTRO regarding this discussion. The RUC reiterated the process that is used to develop RVUs and ASTRO indicated it would be willing to participate in the development of RVUs for these services.

Response: As discussed in the CY 2006 PFS proposed rule, at the present time payment for these services is established at the carrier level. The carriers have discretion to establish payment using available information about these services. Should providers wish to have RVUs established for these services, we would request that they use the AMA-RUC process that has been established for recommending RVUs and direct PE inputs used to compute national RVUs for PFS services to CMS.

E. Deficit Reduction Act (DRA)

The Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171), was enacted February 8, 2006 and included provisions that affect the Medicare program. The following section addresses the specific DRA provisions that were addressed in the CY 2007 PFS proposed rule (71 FR 48996). 1. Section 5102--Adjustments for Payments to Imaging Services

Section 5102 of the DRA includes two provisions that affect payments of imaging services under the Medicare PFS. The first provision addresses payment for certain multiple imaging procedures for CY 2007 and application of BN while the second provision addresses limiting the payment amount under PFS to the OPD payment amount for the TC of certain imaging services. a. Payment for Multiple Imaging Procedures for 2007

In general, Medicare prices diagnostic imaging procedures in the following three ways:

The PC represents the physician's interpretation (PC-only services are billed with the 26 modifier).

The TC represents PE and includes clinical staff, supplies, and equipment (TC-only services are billed with the TC modifier).

The global service represents both PC and TC.

As discussed in the CY 2006 PFS final rule with comment period (70 FR 70261), in the CY 2006 PFS proposed rule (70 FR 45764 through 46064), we had proposed to reduce payment for the TC of selected diagnostic imaging procedures belonging to one of eleven imaging families when the procedures are performed on contiguous body areas by 50 percent for CY 2006. However, in the final rule with comment period, we stated that we would phase-in the 50 percent reduction over 2 years beginning with a 25 percent reduction in 2006. We also sought additional data and comments on the appropriateness of 50 percent as the final level of reduction. The reduction applies to the TC and the technical portion of the global service, but does not apply to the PC of the service. Currently, we make full payment for the highest priced procedure and reduce payment for each additional procedure by 25 percent, when more than one procedure from the same imaging family is performed during the same session on the same day.

As described in the CY 2006 PFS final rule with comment period, at the time, the statute required us to make changes such as this in a budget neutral manner, meaning that the estimated savings generated by the application of the multiple imaging procedure payment reduction were used to increase payment for other physician fee schedule services. We increased the CY 2006 PE RVUs by 0.3 percent to offset the estimated savings generated by the multiple imaging payment reduction policy.

Subsequent to the publication of the CY 2006 PFS final rule with comment period, section 5102(a) of the DRA (Multiple Procedure Payment Reduction for Imaging Exempted From Budget Neutrality), required that ``effective for fee schedules established beginning with 2007, reduced expenditures attributable to the multiple procedure payment reduction for imaging under the CY 2006 PFS final rule with comment period (42 CFR 405, et al.) insofar as it relates to the PFSs for 2006 and 2007'' are exempted from the BN provision. As a result, we proposed to remove the 0.3 percent increase to the CY 2006 PE RVUs from the CY 2007 PE RVUs in accordance with the statute.

In addition, in response to our request for data on the appropriateness of the 50 percent reduction in the CY 2006 PFS final rule with comment period (70 FR 70261), the ACR provided information for 25 code combinations supporting a reduction of between 21 and 44 percent. Given the expected interaction between the multiple procedure imaging policy and the further imaging payment reductions mandated by section 5102(b) of the DRA, along with the new information we have received from the ACR on the multiple imaging procedure policy as it applies to common combinations of imaging services, we believe it would be prudent to maintain the multiple imaging payment reduction at its current 25 percent level while we continue to examine the appropriate payment levels. Therefore, we proposed to continue the multiple imaging payment reduction for CY 2007 at the 25 percent level. We would proceed through future rulemaking in the event we determine that revisions to the policy are warranted. b. Reduction in TC for Imaging Services Under the PFS to OPD Payment Amount

Section 5102(b)(1) of the DRA amended section 1848 of the Act and requires that, for imaging services, if--

``(i) The technical component (including the technical component portion of a global fee) of the service established for a year under the fee schedule * * * without application of the geographic adjustment factor * * *, exceeds

(ii) The Medicare OPD fee schedule amount established under the prospective payment system for hospital outpatient department services * * * for such service for such year, determined without regard to geographic adjustment * * *, the Secretary shall substitute the amount described in clause (ii), adjusted by the geographic adjustment factor

[under the PFS] * * *, for the fee schedule amount for such technical component for such year.''

As required by the statute, for imaging services (described below in this section) furnished on or after January 1, 2007, we will cap the TC of the PFS payment amount for the year (prior to geographic adjustment) by the CY 2007 OPPS payment amount (prior to geographic adjustment). We will then apply the PFS geographic adjustment to the capped payment amount.

Section 5102(b)(2) of the DRA exempts the estimated savings from this provision from the PFS BN requirement. Section 5102(b)(1) of the DRA defines imaging services as ``* * * imaging and computer-assisted imaging services, including X-ray, ultrasound (including echocardiography), nuclear medicine (including positron emission tomography), MRI, CT, and fluoroscopy, but excluding diagnostic and screening mammography.''

To apply section 5102(b) of the DRA, we needed to determine the CPT and alpha-numeric HCPCS codes that fall within the scope of ``imaging services'' defined by the DRA provision. In general, we believe that imaging services provide visual information regarding areas of the body that are not

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normally visible, thereby assisting in the diagnosis or treatment of illness or injury. We began by considering the CPT 7XXXX series codes for radiology services and then adding in other CPT codes and alpha- numeric HCPCS codes that describe imaging services. We then excluded nuclear medicine services that were either non-imaging diagnostic or treatment services. We also excluded all codes for unlisted procedures, since we would not know in advance of any specific clinical scenario whether or not the unlisted procedure was an imaging service. We excluded all mammography services, consistent with the statute. We excluded radiation oncology services that were not imaging or computer- assisted imaging services. We also excluded all HCPCS codes for imaging services that are not separately paid under the OPPS since there would be no corresponding OPPS payment to serve as a TC cap. We excluded any service where the CPT code describes a procedure for which fluoroscopy, ultrasound, or another imaging modality is either included in the code whether or not it is used or is employed peripherally in the performance of the main procedure, for example, CPT code 31622 for bronchoscopy with or without fluoroscopic guidance and CPT code 43242 for upper gastrointestinal endoscopy with transendoscopic ultrasound- guided intramural or transmural fine needle aspiration/biopsy(s). In these cases, we are unable to clearly distinguish imaging from non- imaging services because, for example, a specific procedure may or may not utilize an imaging modality, or the use of an imaging technology cannot be segregated from the performance of the main procedure. Note that we included carrier priced services since these services are within the statutory definition of imaging services and are also within the statutory definition of PFS services (that is, carrier-priced TCs of PET scans).

A list of proposed codes that identify imaging services defined by the DRA OPPS cap provision was found in Addendum F of the proposed rule.

To the extent changes are made to codes for services already on the list, we proposed to update the list through program instructions to our contractors. To the extent that the same imaging service is coded differently under the PFS and the OPPS, we proposed to crosswalk the code under the PFS to the appropriate code under the OPPS that could be reported for the same service provided in the hospital outpatient setting. These crosswalks are listed in Table 8.

Table 8.--Crosswalks

MFS Code

Descriptor

OPPS Code

Desc

74185............ Mri angio, abdom C8900............ MRA w/cont, abd. w or w/o dye. 76093 *.......... Magnetic image, C8905............ MRI w/o fol w/ breast.

cont, brst, un. 76094 *.......... Magnetic image, C8908............ MRI w/o fol w/ both breasts.

cont, breast. 71555............ Mri angio chest C8909............ MRA w/cont, w or w/o dye.

chest. 73725............ Mr ang lwr ext w C8912............ MRA w/cont, lwr or w/o dye.

ext. 72198............ Mr angio pelvis C8918............ MRA w/cont, w/o & w/dye.

pelvis.

* Note: These codes have been renumbered for CY 2007. New code number is reflected in Addendum F.

c. Interaction of the Multiple Imaging Payment Reduction and the OPPS Cap

For CY 2007 imaging services potentially subject to both the multiple imaging reduction and the OPPS cap, we proposed to first apply the multiple imaging payment reduction and then apply the OPPS cap to the reduced amount as illustrated in Table 9.

Table 9

25% Multiple HCPCS

Pre-OPPS cap imaging OPPS cap rate Final MPFS MPFS rate reduction

payment

7XXX1...........................................

$341.89

$256.42

$316.55

$256.42 7XXX2...........................................

552.86

414.65

391.83

391.83

We considered first applying the OPPS cap and then applying the multiple procedure reduction. However, as indicated in the CY 2006 OPPS final rule, we received public comments suggesting that the OPPS payment rates may implicitly include at least some multiple imaging discount. While we continue to examine this issue, we believe the most appropriate policy is to apply the multiple imaging payment reduction prior to the application of the OPPS cap. i. OPPS Cap

Comment: Many commenters criticized the OPPS cap, maintaining that OPPS rate was never intended to reflect the cost of providing individual physicians' services. They indicated that it is methodologically unjustifiable, and that it undermines the resource- based system.

One commenter noted that physician costs are determined on a per procedure basis, whereas hospital costs are not determined on a per procedure basis because expensive capital equipment is allocated over other procedures within a revenue center. Given this methodological difference, the commenter indicated that it is not surprising that the cost of a procedure under the PFS is greater than under OPPS. Another commenter noted that we need to recognize that the delivery of care has shifted from the hospital to physicians' offices; that there is an increased complexity of care; and the need to practice defensive medicine due to the threat of malpractice lawsuits. One commenter noted that hospital and IDTF payments should not be the same.

Various commenters indicated that the cap will have a devastating impact and threatens the future viability of outpatient imaging. Commenters predicted that the consequences will include:

Reduced patient access to diagnostic technologies capable of

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preventing the onset of more serious conditions, requiring more complex and expensive treatment later.

Shifting of procedures back to hospitals.

Increased volume to offset the affects of the payment cuts.

Conversion of IDTFs ownership and legal structure to allow billing under OPPS, negating any savings from the cap.

A few commenters requested a delay in implementing the cap and requested that we consider co-sponsoring H.R.5704 that calls for a 2- year moratorium on imaging cuts.

Response: We acknowledge the commenters concerns and appreciate their comments. However, we are obligated to implement the statutory provision. We will continue to work with the Congress and specialty societies to ensure equitable payments and proper access to care.

Comment: Several commenters requested that the following procedure codes be excluded from the OPPS cap:

Non-invasive vascular diagnostic study codes (CPT codes 93875-93990 and G0365) because they either contain no imaging or are predominately non-imaging in nature. Particularly noted were transcranial Doppler procedures and duplex scans.

Imaging guidance procedures that are integral to the performance of interventional treatment or diagnostic procedures. CPT codes cited were: 75894, 75896, 75901-75945, 75952, 75954, 75962, 75966, 75970, 75989-75996, 76940-76948 and 76965.

Nuclear medicine codes 78020, 78135, 78140, 78190, and 78282, based on the fact that other nuclear medicine codes, such as radioisotope lab codes were excluded.

Codes performed in conjunction with radiation therapy (CPT codes 76370, 76950, 76965, 77417, and 77421) because they are never performed for diagnostic purposes. The commenters were pleased that we excluded radiation oncology codes.

Positron Emission Tomography (PET), PET/ CT, and CT/ Computed Tomographic Angiography (CTA) and Category III codes used to report emerging technologies because they are carrier-priced codes and, therefore, not paid under the PFS.

Codes for imaging service that are not separately paid under OPPS since there is no corresponding OPPS payment to serve as a TC cap. Codes cited were cardiac catheterization codes 93555 and 93556 and code 0152T.

Additionally, several commenters proposed the following definition of medical imaging procedures for the purpose of the DRA provision: ``Medical imaging uses noninvasive techniques to view all parts of the body and thereby diagnose an array of medical conditions. These techniques include the use of ionizing radiation (X-rays and CT scans), MRI, ultrasound and scans obtained after the injection of radio nucleotides (such as bone scans and PET).''

Response: The DRA defines imaging service subject to the OPPS cap as ``imaging and computer-assisted imaging services, including x-ray, ultrasound (including echocardiography), nuclear medicine, (including positron emission tomography [PET], magnetic resonance imaging [MRI], computed tomography [CT], and fluoroscopy, but excluding diagnostic and screening mammography.'' The DRA does not distinguish between diagnostic and therapeutic imaging. We have no authority to modify the statutory definition of imaging services. Therefore, we cannot exclude certain non-invasive diagnostic study procedures, imaging guidance procedures, nuclear medicine procedures, and radiation oncology imaging procedures. However, in our review of the codes in response to comments, we determined that there are certain non-invasive vascular diagnostic study codes that do not involve the generation of an image, (that is, codes 93875, 93922, 93923, 93924 and 93965.) Therefore, we are removing these codes from the list of codes subject to the OPPS cap.

Additionally, we note that imaging guidance procedures that are separately billed, are appropriately included on the list of codes subject to the cap. However, codes 75952, 75954, and 75993-75996 were inadvertently included on the list. These codes do not have a TC and we are removing them from the list.

Regarding carrier-priced services, all physicians' services (as defined by the statute under section 1848(j)(3) of the Act) are paid under the PFS, regardless of how they are priced. Carrier-priced services are services for which an alternative methodology is used to arrive at TC payment under the PFS, and, therefore, they are subject to the DRA provision. The same is true of Category III codes to the extent that they are carrier-priced (and to the extent they are not carrier- priced, there is no basis to exempt these codes from application of the cap).

Regarding codes that are not separately paid under the OPPS, we agree that there is no corresponding OPPS payment to serve as a TC cap. Because these codes meet the statutory definition of procedures subject to the OPPS cap, we will retain these codes on the list of procedures subject to the cap, but payments for the procedures will not be affected by the cap.

Comment: One commenter noted that the Ambulatory Payment Classification (APC) groups are intended to set an average payment, where some lower cost procedures are paid at a higher average rate, and some higher cost procedures are paid at a lower average rate. In crosswalking from the PFS to the OPPS payment, the commenter noted that it would be more equitable to crosswalk to the median cost by CPT code, rather than using the median cost per the APC grouping payment.

One commenter requested exclusion of codes bundled under OPPS having no additional APC payment, but having a TC amount under PFS. The commenter noted that the list of bundled services under the APC payments will vary from year-to-year and it is inappropriate to not make a payment under PFS as there is no packaging of the service into another procedure. Another commenter noted that drugs and radiopharmaceuticals are bundled into some OPPS procedures. They indicated that these should be unbundled to achieve more parity in the payment systems.

Response: The DRA is specific in its requirements to compare the TC of a service for a year to the Medicare OPD fee schedule amount. Therefore, we will crosswalk the TC to the corresponding OPD fee schedule service and use that rate as a cap. For the same reason, we must use the OPD payment amount even if there are drugs or radiopharmaceuticals bundled into a particular OPD payment amount.

In regard to the concern that bundled services vary year to year, we intend to review the relevant OPD and PFS codes to determine the appropriate crosswalk for a given year. We recognize that there will be changes and we believe our process will help to ensure that TC codes are being crosswalked to the most appropriate OPD codes. ii. Multiple Procedure Payment Reduction

Comment: Many commenters expressed appreciation for our decision to apply the multiple procedure payment reduction prior to application of the OPPS cap, and for maintaining the reduction at 25 percent. However, the commenters also indicated that the multiple procedure payment reduction is duplicative, inappropriate and excessive in light of the OPPS cap, and requested its elimination. Other

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commenters requested continued evaluation, indicating a 25 percent reduction is greater than what is justified by any efficiencies achieved in, performing multiple procedures. One commenter noted we had previously stated that our multiple procedure analysis does not disprove earlier assertions by physician and industry representatives that some portion of multiple procedure efficiencies may be already reflected in OPPS payment rates. Conversely, MedPAC indicated that it is unclear why the DRA OPPS cap justifies maintaining the 25 percent reduction since the DRA policy applies only to those services where the TC exceeds the OPPS rate. In addition, MedPAC requested more information on the ACR data cited in the CY 2007 PFS proposed rule (71 FR 48996).

Response: When we proposed the multiple procedure payment reduction last year, as recommended by MedPAC, our data supported a 50 percent payment reduction. However, we agreed to phase-in the reduction over two years to allow for a transition of the changes in payment for these services attributable to the reduction policy and to provide further opportunity for public comment. Subsequently, the Congress passed the DRA provision capping imaging procedures at the OPPS payment rate. In view of the DRA provision, and additional data received from ACR, we determined that it is more appropriate to retain the multiple procedure payment reduction at 25 percent, rather than to increase it to 50 percent as previously proposed. We share the concerns of the providers of imaging services that excessive reductions could be harmful to both physicians and patients. Therefore, we believe it is more appropriate to maintain the 25 percent reduction level while we continue to examine this issue.

The list of codes that identify imaging services defined by the DRA OPPS cap provision can be found in Addendum F to this final rule with comment period. Note that the list in the proposed rule was affected by the renumbering of CPT codes that is effective January 1, 2007. Addendum F in this final rule with comment period reflects the renumbering of CPT codes that is effective January 1, 2007, and also reflects the removal of certain codes in response to comments, as discussed previously in this section. Payment for an individual service on this list will only be capped if the PFS TC payment amount exceeds the OPPS payment amount. 2. Section 5107--Revisions to Payments for Therapy Services

Section 1833(g) of the Act applies an annual per beneficiary combined cap beginning January 1, 1999 on outpatient physical therapy and speech-language pathology services and a similar separate cap on outpatient occupational therapy services. These caps apply to expenses incurred for the respective therapy services under Medicare Part B, with the exception of outpatient hospital services. The caps were in effect from January 1, 1999 through December 31, 1999, from September 1, 2003 through December 7, 2003, and beginning January 1, 2006. In 2000 through 2002, and from December 8, 2003 through December 31, 2005, the Congress placed moratoria on implementation of the caps. Section 1833(g)(2) of the Act provides that, for 1999 through 2001, the caps were $1500, and for years after 2001, the caps are equal to the preceding year's cap increased by the percentage increase in the Medicare Economic Index (MEI) (except that if an increase for a year is not a multiple of $10, it is rounded to the nearest multiple of $10).

As discussed in the CY 2006 PFS proposed rule, we implemented the separate statutory limits of $1740 for outpatient physical therapy and speech-language pathology services and $1740 for occupational therapy on January 1, 2006. The DRA was enacted on February 8, 2006. Section 5107(a) of the DRA required the Secretary to develop an exceptions process for the therapy caps effective January 1, 2006. The exceptions process applies only to expenses incurred in 2006. Details of the exceptions process were published in a manual change on February 13, 2006 (CR 4364). The change request consists of three transmittals with current numbers of--

Transmittal 855, CR 4364, Pub. L. 100-04;

Transmittal 47, CR 4365, Pub. L. 100-02; and

Transmittal 140, CR 4364, Pub. L. 100-08.

The transmittals are available on the CMS Web site at http://www.cms.hhs.gov/Transmittals/ .

In accordance with the statute, the therapy caps will remain in effect, but without the exceptions process, for expenses incurred beginning on January 1, 2007. The dollar amount of each therapy cap in CY 2007