Part III

 
CONTENT

[Federal Register: November 27, 2007 (Volume 72, Number 227)]

[Rules and Regulations]

[Page 66579-67225]

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

[DOCID:fr27no07-23]

[[Page 66579]]

Part III

Book 2 of 2 Books

Pages 66579-67226

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 412, et al.

Medicare and Medicaid Programs; Interim and Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 411, 412, 413, 414, 416, 419, 482, and 485

[CMS-1392-FC] , [CMS-1533-F2], and [CMS-1531-IFC2] RIN 0938-AO71, RIN 0938-AO70, and RIN 0938-AO35

Medicare Program: Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates, the Hospital Inpatient Prospective Payment System and FY 2008 Payment Rates; and Payments for Graduate Medical Education for Affiliated Teaching Hospitals in Certain Emergency Situations Medicare and Medicaid Programs: Hospital Conditions of Participation; Necessary Provider Designations of Critical Access Hospitals

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

ACTION: Interim and final rule with comment period.

SUMMARY: This final rule with comment period revises the Medicare hospital outpatient prospective payment system to implement applicable statutory requirements and changes arising from our continuing experience with this system. We describe the changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatient services paid under the prospective payment system. These changes are applicable to services furnished on or after January 1, 2008. In addition, the rule sets forth the applicable relative payment weights and amounts for services furnished in ASCs, specific HCPCS codes to which the final policies of the ASC payment system apply, and other pertinent rate setting information for the CY 2008 ASC payment system. Furthermore, this final rule with comment period will make changes to the policies relating to the necessary provider designations of critical access hospitals and changes to several of the current conditions of participation requirements.

The attached document also incorporates the changes to the FY 2008 hospital inpatient prospective payment system (IPPS) payment rates made as a result of the enactment of the TMA, Abstinence Education, and QI Programs Extension Act of 2007, Public Law 110-90. In addition, we are changing the provisions in our previously issued FY 2008 IPPS final rule and are establishing a new policy, retroactive to October 1, 2007, of not applying the documentation and coding adjustment to the FY 2008 hospital-specific rates for Medicare-dependent, small rural hospitals (MDHs) and sole community hospitals (SCHs). In the interim final rule with comment period in this document, we are modifying our regulations relating to graduate medical education (GME) payments made to teaching hospitals that have Medicare affiliation agreements for certain emergency situations.

DATES: Effective Date: The provisions of this rule are effective on January 1, 2008.

IPPS Payment Rates: The FY 2008 IPPS payment rates, provided in section XIX of the preamble of this document, became effective October 1, 2007.

Comment Period: We will consider comments on the payment classifications assigned to HCPCS codes identified in Addenda B, AA, and BB to this final rule with the ``NI'' comment indicator, and other areas specified throughout this rule, at the appropriate address, as provided below, no later than 5 p.m. EST on January 28, 2008. We will also consider comments relating to the Medicare GME teaching hospital affiliated agreement provisions, as provided below, no later than 5 p.m. EST on January 28, 2008.

Application Deadline--New Class of New Technology Intraocular Lens: Requests for review of applications for a new class of new technology intraocular lenses must be received by 5 p.m. EST on April 1, 2008.

Deadline for Submission of Written Medicare GME Affiliation Agreements: Written Medicare GME affiliation agreements must be received by 5 p.m. EST on January 1, 2008.

ADDRESSES: In commenting, please refer to file codes CMS-1392-FC (for OPPS and ASC matters) or CMS-1531-IFC (for Medicare GME matters), as appropriate. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

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

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

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1392-FC (for OPPS and ASC matters), Attention: CMS-1531-IFC (for Medicare GME matters), P.O. Box 8013, Baltimore, MD 21244-1850.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1392-FC (for OPPS and ASC matters), Attention: CMS-1531- IFC (for Medicare GME matters), Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

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

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

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

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

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

Submissions of written Medicare GME affiliation agreements: Written

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Medicare GME affiliation agreements must be sent by regular mail to:Centers for Medicare and Medicaid Services, Division of Acute Care, Attention: Elizabeth Troung or Renate Rockwell,Mailstop C4-08-06,7500 Security Boulevard, Baltimore, MD 21244-1850.

FOR FURTHER INFORMATION CONTACT:

Alberta Dwivedi, (410) 786-0378, Hospital outpatient prospective payment issues.

Dana Burley, (410) 786-0378, Ambulatory surgical center issues.

Suzanne Asplen, (410) 786-4558, Partial hospitalization and community mental health center issues.

Sheila Blackstock, (410) 786-3502, Reporting of quality data issues.

Mary Collins, (410) 786-3189, and Jeannie Miller, (410) 786-3164, Necessary provider designations for CAHs issues.

Scott Cooper, (410) 786-9465, and Jeannie Miller, (410) 786-3164, Hospital conditions of participation issues.

Miechal Lefkowitz, (410) 786-5316, Hospital inpatient prospective payment system issues.

Tzvi Hefter, (410) 786-4487, Graduate medical education program issues.

SUPPLEMENTARY INFORMATION:

Submitting Comments: We welcome comments from the public on the OPPS APC assignments and/or status indicators assigned to HCPCS codes identified in Addendum B to this final rule with comment period with comment indicator ``NI'' and on the ASC payment indicators assigned to HCPCS codes identified in Addenda AA and BB to this final rule with comment period with comment indicator ``NI'' in order to assist us in fully considering issues and developing OPPS and ASC payment policies for those services. You can assist us by referencing file code CMS- 1392-FC.

We also welcome comments from the public on all issues set forth regarding the revised regulations regarding the Medicare GME affiliation agreements to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-1531-IFC2 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, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

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

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

Alphabetical List of Acronyms Appearing in This Final Rule With Comment Period

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

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PM Program memorandum PPI Producer Price Index PPS Prospective payment system PPV Pneumococcal pneumonia vaccine PRA Paperwork Reduction Act QIO Quality Improvement Organization RFA Regulatory Flexibility Act RHQDAPU Reporting Hospital Quality Data for Annual Payment Update

[Program]

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

In this document, we address several payment systems under the Medicare program: The hospital outpatient prospective payment system (OPPS); the revised ambulatory surgical center (ASC) payment system; the hospital inpatient prospective payment system (IPPS); and payments for direct and indirect graduate medical education (GME). The provisions relating to the OPPS are included in sections I. through XV., XVII., XXI. through XXIV. of this final rule with comment period and in Addenda A, B, C (Addendum C is available on the Internet only; see section XXI. of this final rule with comment period), D1, D2, E, L, and M to this final rule with comment period. The provisions related to the revised ASC payment system are included in sections XVI., XVII., and XXI. through XXIV. of this final rule with comment period and in Addenda AA, BB, DD1, DD2, and EE (Addendum EE is available on the Internet only; see section XXI. of this final rule with comment period) to this final rule with comment period.

The provisions relating to the IPPS payment rates are included in section XIX., XXIV., and XXV. of this document. The provisions relating to policy changes to the Medicare GME affiliation provisions for teaching hospitals in certain emergency situations are included in sections XX., XXIV., and XXV. of this document.

Table of Contents

I. Background for the OPPS

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

B. Excluded OPPS Services and Hospitals

C. Prior Rulemaking

D. APC Advisory Panel

1. Authority of the APC Panel

2. Establishment of the APC Panel

3. APC Panel Meetings and Organizational Structure

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

F. Summary of the Major Contents of the CY 2008 OPPS/ASC Proposed Rule

1. Updates Affecting OPPS Payments

2. OPPS Ambulatory Payment Classification (APC) Group Policies

3. OPPS Payment for Devices

4. OPPS Payment for Drugs, Biologicals, and Radiopharmaceuticals

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

6. OPPS Payment for Brachytherapy Sources

7. OPPS Coding and Payment for Drug Administration Services

8. OPPS Hospital Coding and Payment for Visits

9. OPPS Payment for Blood and Blood Products

10. OPPS Payment for Observation Services

11. Procedures That Will Be Paid Only as Inpatient Services

12. Nonrecurring Technical and Policy Changes

13. OPPS Payment Status and Comment Indicators

14. OPPS Policy and Payment Recommendations

15. Update of the Revised ASC Payment System

16. Quality Data for Annual Payment Updates

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

18. Regulatory Impact Analysis

G. Public Comments Received in Response to the CY 2008 OPPS/ASC Proposed Rule

H. Public Comments Received on the November 24, 2006 OPPS/ASC Final Rule with Comment Period II. Updates Affecting OPPS Payments

A. Recalibration of APC Relative Weights

1. Database Construction

a. Database Source and Methodology

b. Use of Single and Multiple Procedure Claims

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

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

c. Calculation of CCRs

2. Calculation of Median Costs

3. Calculation of OPPS Scaled Payment Weights

4. Changes to Packaged Services

a. Background

b. Addressing Growth in OPPS Volume and Spending

c. Packaging Approach

(1) Guidance Services

(2) Image Processing Services

(3) Intraoperative Services

(4) Imaging Supervision and Interpretation Services

(5) Diagnostic Radiopharmaceuticals

(6) Contrast Agents

(7) Observation Services

d. Development of Composite APCs

(1) Background

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

(a) Background

(b) Payment for LDR Prostate Brachytherapy

(3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC

(a) Background

(b) Payment for Cardiac Electrophysiologic Evaluation and Ablation

e. Service-Specific Packaging Issues

B. Payment for Partial Hospitalization

1. Background

2. PHP APC Update

3. Separate Threshold for Outlier Payments to CMHCs

C. Conversion Factor Update

D. Wage Index Changes

E. Statewide Average Default CCRs

F. OPPS Payments to Certain Rural Hospitals

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

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

G. Hospital Outpatient Outlier Payments

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

I. Beneficiary Copayments

1. Background

2. Copayment

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

A. Treatment of New HCPCS and CPT Codes

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

a. Background

b. Implantation of Interstitial Devices (APC 0156)

c. Other New HCPCS Codes Implemented in April or July 2007

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

a. Establishment and Assignment of New Codes

b. Electronic Brachytherapy (New Technology APC 1519)

c. Other Mid-Year CPT Codes

B. Variations within APCs

1. Background

2. Application of the 2 Times Rule

3. Exceptions to the 2 Times Rule

C. New Technology APCs

1. Introduction

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

a. Positron Emission Tomography (PET)/Computed Tomography (CT) Scans (APC 0308)

b. IVIG Preadministration-Related Services (APC 0430)

c. Other Services in New Technology APCs

(1) Breast Brachytherapy Catheter Implantation (APC 0648)

(2) Preoperative Services for Lung Volume Reduction Surgery (LVRS) (APCs 0209 and 0213)

D. APC Specific Policies

1. Cardiac Procedures

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a. Cardiac Computed Tomography and Computed Tomographic Angiography (APCs 0282 and 0383)

b. Coronary and Non-Coronary Angioplasty (PTCA/PTA)(APCs 0082, 0083, and 0103)

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

d. Removal of Patient-Activated Cardiac Event Recorder (APC 0109)

e. Stress Echocardiography (APC 0697)

2. Gastrointestinal Procedures

a. Computed Tomographic Colonography (APC 0332)

b. Laparoscopic Neurostimulator Electrode Implantation (APC 0130)

c. Screening Colonoscopies and Screening Flexible Sigmoidoscopies (APCs 0158 and 0159)

3. Genitourinary Procedures

a. Cystoscopy with Stent (APC 0163)

b. Percutaneous Renal Cryoablation (APC 0423)

c. Prostatic Thermotherapy (APC 0163)

d. Radiofrequency Ablation of Prostate (APC 0163)

e. Ultrasound Ablation of Uterine Fibroids with Magnetic Resonance Guidance (MRgFUS) (APC 0067)

f. Uterine Fibroid Embolization (APC 0202)

4. Nervous System Procedures

a. Chemodenervation (APC 0206)

b. Implantation of Intrathecal or Epidural Catheter (APC 0224)

c. Implantation of Spinal Neurostimulators (APC 0222)

5. Nuclear Medicine and Radiation Oncology Procedures

a. Adrenal Imaging (APC 0391)

b. Injection for Sentinel Node Identification (APC 0389)

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

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

e. Proton Beam Therapy (APCs 0664 and 0667)

6. Ocular and Ear, Nose and Throat Procedures

a. Amniotic Membrane for Ocular Surface Reconstruction (APC 0244)

b. Keratoprosthesis (APC 0293)

c. Palatal Implant (New Technology APC 1510)

7. Orthopedic Procedures

a. Arthroscopic Procedures (APCs 0041 and 0042)

b. Closed Fracture Treatment (APC 0043)

c. Insertion of Posterior Spinous Process Distraction Device (APC 0050)

d. Intradiscal Annuloplasty (APC 0050)

e. Kyphoplasty Procedures (APC 0052)

8. Vascular Procedures

a. Blood Transfusion (APC 0110)

b. Endovenous Ablation (APC 0092)

c. Insertion of Central Venous Access Device (APC 0625)

d. Noninvasive Vascular Studies (APC 0267)

9. Other Procedures

a. Hyperbaric Oxygen Therapy (APC 0659)

b. Skin Repair Procedures (APCs 0133, 0134, 0135, 0136, and 0137)

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

10. Medical Services

a. Single Allergy Tests (APC 0381)

b. Continuous Glucose Monitoring (APC 0097)

c. Home International Normalized Ratio (INR) Monitoring (APC 0097)

d. Mental Health Services (APC 0322, 0323, 0324, 0325) IV. OPPS Payment for Devices

A. Treatment of Device Dependent APCs

1. Background

2. Payment under the OPPS

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

B. Pass-Through Payments for Devices

1. Expiration of Transitional Pass Through Payments for Certain Devices

a. Background

b. Final Policy

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

a. Background

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

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

1. Background

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

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

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

1. Background

2. Criteria for Packaging Payment for Drugs and Biologicals

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

a. Payment for Specified Covered Outpatient Drugs

(1) Background

(2) Payment Policy

(3) Payment for Blood Clotting Factors

(a) Background

(b) Payment for Diagnostic Radiopharmaceuticals

(c) Payment for Therapeutic Radiopharmaceuticals

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

A. Total Allowed Pass Through Spending

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

A. Background

B. Payment for Brachytherapy Sources VIII. OPPS Drug Administration Coding and Payment

A. Background

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

A. Background

B. Policies for Hospital Outpatient Visits

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

2. Emergency Department Visits

C. Visit Reporting Guidelines

1. Background

2. CY 2007 Work on Visit Guidelines

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

A. Background

B. Payment for Blood and Blood Products XI. OPPS Payment for Observation Services

A. Observation Services (HCPCS Code G0378)

B. Direct Admission to Observation (HCPCS Code G0379) XII. Procedures That Will Be Paid Only as Inpatient Procedures

A. Background

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

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

B. Interrupted Procedures

C. Transitional Adjustments--Hold Harmless Provisions

D. Reporting of Wound Care Services

E. Reporting of Cardiac Rehabilitation Services

F. Reporting of Bone Marrow and Stem Cell Processing Services

G. Reporting of Alcohol and/or Substance Abuse Assessment and Intervention Services XIV. OPPS Payment Status and Comment Indicators

A. Payment Status Indicator Definitions

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

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

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

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

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

A. MedPAC Recommendations

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

A. Legislative and Regulatory Authority for the ASC Payment System

B. Rulemaking for the Revised ASC Payment System

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

1. Covered Surgical Procedures under the Revised ASC Payment System

a. Definition of Surgical Procedure

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

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

(1) General Policies

(2) Office-Based Procedures

(3) Device-Intensive Procedures

(4) Multiple and Interrupted Procedure Discounting

(5) Transition to Revised ASC Payment Rates

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2. Covered Ancillary Services under the Revised ASC Payment System

a. General Policies

b. Payment Policies for Specific Items and Services

(1) Radiology Services

(2) Brachytherapy Sources

3. General Payment Policies

a. Adjustment for Geographic Wage Differences

b. Beneficiary Coinsurance

D. Treatment of New HCPCS Codes

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

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

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

E. Updates to Covered Surgical Procedures and Covered Ancillary Services

1. Identification of Covered Surgical Procedures

a. General Policies

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

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

2. Changes in Identification of Covered Ancillary Services

F. Payment for Covered Surgical Procedures and Covered Ancillary Services

1. Payment for Covered Surgical Procedures

a. Update to Payment Rates

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

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

(2) Policy When Implantable Devices Are Replaced with Partial Credit

2. Payment for Covered Ancillary Services

G. Physician Payment for Procedures and Services Provided in ASC

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

I. New Technology Intraocular Lenses (NTIOLs)

1. Background

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

3. NTIOL Application Process for CY 2008 Payment Adjustment

4. Classes of NTIOLS Approved for Payment Adjustment

5. Payment Adjustment

6. CY 2008 ASC Payment for Insertion of IOLs

J. ASC Payment and Comment Indicators

K. ASC Policy and Payment Recommendations

L. Calculation of the ASC Conversion Factor and ASC Payment Rates XVII. Reporting Quality Data for Annual Payment Rate Updates

A. Background

1. Reporting Hospital Outpatient Quality Data for Annual Payment Update

2. Reporting ASC Quality Data for Annual Payment Increase

3. Reporting Hospital Inpatient Quality Data for Annual Payment Update

B. Hospital Outpatient Measures

C. Other Hospital Outpatient Measures

D. Implementation of the HOP QDRP and Request for Additional Suggested Measures

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

1. Administrative Requirements

2. Data Collection and Submission Requirements

3. HOP QDRP Validation Requirements

F. Publication of HOP QDRP Data Collected

G. Attestation Requirement for Future Payment Years

H. HOP QDRP Reconsiderations

I. Reporting of ASC Quality Data

J. FY 2009 IPPS Quality Measures under the RHQDAPU Program XVIII. Changes Affecting Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs)

A. Changes Affecting CAHs

1. Background

2. Co-Location of Necessary Provider CAHs

3. Provider-Based Facilities of CAHs

4. Termination of Provider Agreement

5. Regulation Changes

B. Revisions to Hospital CoPs

1. Background

2. Provisions of the Final Regulation

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

b. Requirements for Preanesthesia and Postanesthesia Evaluations

c. Technical Amendment to Nursing Services CoP XIX. Changes to the FY 2008 Hospital Inpatient Prospective Payment System (IPPS) Payment Rates

A. Background

B. Revised IPPS Payment Rates

1. MS-DRG Documentation and Coding Adjustment

2. Application of the Documentation and Coding Adjustment to the Hospital Specific Rates XX. Medicare Graduate Medical Education Affiliation Provisions for Teaching Hospitals in Certain Emergency Situations

A. Background

1. Legislative Authority

2. Existing Medicare Direct GME and Indirect GME Policies

3. Regulatory Changes Issued in 2006 to Address Certain Emergency Situations

B. Additional Changes in This Interim Final Rule with Comment Period

1. Summary of Regulatory Changes

2. Discussion of Training in Nonhospital Settings

C. Responses to Comments on the April 12, 2006 Interim Final Rule with Comment Period and This Interim Final Rule with Comment Period XXI. Files Available to the Public Via the Internet

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

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

A. Overall Impact of Changes to the OPPS and ASC Payment Systems

1. Executive Order 12866

2. Regulatory Flexibility Act (RFA)

3. Small Rural Hospitals

4. Unfunded Mandates

5. Federalism

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

1. Alternatives Considered

2. Limitation of Our Analysis

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

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

5. Conclusion

6. Accounting Statement

C. Effects of ASC Payment System Changes in This Final Rule with Comment Period

1. Alternatives Considered

2. Limitations on Our Analysis

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

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

5. Conclusion

6. Accounting Statement

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

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

F. Effects of the Policy Revisions to the Hospital CoPs

G. Effects of the Changes to the Hospital Inpatient Prospective Payment System (IPPS) Payment Rates

1. Overall Impact

2. Objectives

3. Limitations of Our Analysis

4. Quantitative Effects of the IPPS Policy Changes on Operating Costs

5. Analysis of Table I

a. Effects of All Changes with CMI Adjustment Prior to Estimated Growth (Columns 2a and 2b)

b. Effects of All Changes with CMI Adjustment and Estimated Growth (Column 3)

6. Overall Conclusion

7. Accounting Statement

8. Executive order 12866

H. Impact of the Policy Revisions to the Emergency Medicare GME Affiliated Groups for Hospitals in Certain Declared Emergency Areas

1. Overall Impact

2. RFA

3. Small Rural Hospitals

4. Unfunded Mandates

5. Federalism

6. Anticipated Effects

7. Alternatives Considered

8. Conclusion

9. Executive Order 12866 XXV. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date

A. Requirements for Waivers and Retroactive Rulemaking

B. IPPS Payment Rate Policies

C. Medicare GME Affiliation Agreement Provisions

Regulation Text

Addenda

Addendum A-OPPS APCs for CY 2008

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

I. Background for the OPPS

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

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

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

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

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

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

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

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

B. Excluded OPPS Services and Hospitals

Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the hospital outpatient services that are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of the Act to exclude payment for screening and diagnostic mammography services from the OPPS. The Secretary exercised the authority granted under the statute to also exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for example, the professional services of physicians and nonphysician practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory services paid under the clinical diagnostic laboratory fee schedule (CLFS); services for beneficiaries with end stage renal disease (ESRD) that are paid under the ESRD composite rate; and services and procedures that require an inpatient stay that are paid under the hospital inpatient prospective payment system (IPPS). We set forth the services that are excluded from payment under the OPPS in Sec. 419.22 of the regulations.

Under Sec. 419.20(b) of the regulations, we specify the types of hospitals and entities that are excluded from payment under the OPPS. These excluded

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entities include Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; critical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service hospitals.

C. Prior Rulemaking

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

Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory requirements and changes arising from our continuing experience with this system. We published in the Federal Register on November 24, 2006 the CY 2007 OPPS/ASC final rule with comment period (71 FR 67960). In that final rule with comment period, we revised the OPPS to update the payment weights and conversion factor for services payable under the CY 2007 OPPS on the basis of claims data from January 1, 2005, through December 31, 2005, and to implement certain provisions of Pub. L. 108- 173 and Pub. L. 109-171. In addition, we responded to public comments received on the provisions of the November 10, 2005 final rule with comment period (70 FR 86516) pertaining to the APC assignment of HCPCS codes identified in Addendum B of that rule with the new interim (NI) comment indicator; and public comments received on the August 23, 2006 OPPS/ASC proposed rule for CY 2007 (71 FR 49506).

On August 2, 2007, we issued in the Federal Register (72 FR 42628) a proposed rule for the CY 2008 OPPS/ASC to implement statutory requirements and changes arising from our continuing experience with both systems. We received approximately 2,180 pieces of timely correspondence in response to the proposed rule. A summary of the public comments we received and our responses to those comments are included in the specific sections of this final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel

Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA, and redesignated by section 202(a)(2) of the BBRA, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and their weights under the OPPS. The Act further specifies that the panel will act in an advisory capacity.

The Advisory Panel on Ambulatory Payment Classification (APC) Groups (the APC Panel), discussed under section I.D.2. of this final rule with comment period, fulfills these requirements. The APC Panel is not restricted to using data compiled by CMS, and may use data collected or developed by organizations outside the Department in conducting its review. 2. Establishment of the APC Panel

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

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

3. APC Panel Meetings and Organizational Structure

The APC Panel first met on February 27, February 28, and March 1, 2001. Since the initial meeting, the APC Panel has held 12 subsequent meetings, with the last meeting taking place on September 5 and 6, 2007. Prior to each meeting, we publish a notice in the Federal Register to announce the meeting, and when necessary, to solicit nominations for APC Panel membership, and to announce new members.

The APC Panel has established an operational structure that, in part, includes the use of three subcommittees to facilitate its required APC review process. The three current subcommittees are the Data Subcommittee, the Observation and Visit Subcommittee, and the Packaging Subcommittee. The Data Subcommittee is responsible for studying the data issues confronting the APC Panel, and for recommending options for resolving them. The Observation and Visit Subcommittee reviews and makes recommendations to the APC Panel on all technical issues pertaining to observation services and hospital outpatient visits paid under the OPPS (for example, APC configurations and APC payment weights). The Packaging Subcommittee studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but whose payments are bundled or packaged into APC payments. Each of these subcommittees was established by a majority vote from the full APC Panel during a scheduled APC Panel meeting, and their continuation as subcommittees was last approved at the September 2007 APC Panel meetings. All subcommittee recommendations are discussed and voted upon by the full APC Panel.

Discussions of the recommendations resulting from the APC Panel's March 2007 and September 2007 meetings are included in the sections of this final rule with comment period that are specific to each recommendation. For discussions of earlier APC Panel meetings and recommendations, we refer readers to previously published hospital OPPS final rules or the Web site mentioned earlier in this section.

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

The Medicare Improvements and Extension Act under Division B of Title I of the Tax Relief and Health Care Act

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(MIEA-TRHCA) of 2006, Pub. L. 109-432, enacted on December 20, 2006, included the following provisions affecting the OPPS:

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

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

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

F. Summary of the Major Contents of the CY 2008 OPPS/ASC Proposed Rule

On August 2, 2007, we published a proposed rule in the Federal Register (72 FR 42628) that set forth proposed changes to the Medicare hospital OPPS for CY 2008 to implement statutory requirements and changes arising from our continuing experience with the system and to implement certain statutory provisions. In addition, we proposed changes to the revised Medicare ASC payment system for CY 2008 such as adding procedures to the list of covered surgical procedures and adjusting the ASC rates so that the revised ASC payment system is budget neutral. We also proposed to make changes to the policies relating to the necessary provider designations of CAHs that are being recertified when a CAH enters into a new co-location arrangement with another hospital or CAH or when the CAH creates or acquires an off- campus location. Further, we proposed changes to several of the current conditions of participation that hospitals must meet to participate in the Medicare and Medicaid programs to require the completion and documentation in the medical record of medical histories and physical examinations of patients conducted after admission and prior to surgery or a procedure requiring anesthesia services and for postanesthesia evaluations of patients before discharge or transfer from the postanesthesia recovery area. Finally, we set forth proposed quality measures for a Hospital Outpatient Quality Data Reporting (HOP QDRP) program for reporting quality data for annual payment rate updates for CY 2009 and subsequent calendar years. We also briefly discussed the legislative provisions of the MIEA-TRHCA that give the Secretary authority to develop quality measures for reporting data by ASCs. The following is a summary of the major changes included in the CY 2008 OPPS/ASC proposed rule: 1. Updates Affecting OPPS Payments

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

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

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

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

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

The proposed update of statewide average default CCRs.

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

The proposed payment adjustment for rural SCHs.

The proposed calculation of the hospital outpatient outlier payment.

The calculation of the proposed national unadjusted Medicare OPPS payment.

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

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

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

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

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

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

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

In section IX. of the proposed rule, we set forth our proposed policies for the coding and reporting of clinic and emergency department visits and

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critical care services on claims paid under the OPPS. 9. OPPS Payment for Blood and Blood Products

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

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

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

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

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

In section XV. of the proposed rule, we addressed recommendations made by the Medicare Payment Advisory Commission (MedPAC) in its March and June 2007 Reports to Congress and by the APC Panel regarding the OPPS for CY 2008. 15. Update of the Revised ASC Payment System

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

In section XVII. of the proposed rule, we discussed the proposed quality measures for reporting hospital outpatient quality data for CY 2009 and subsequent years and set forth the requirements for data collection and submission for the annual payment update. We also briefly discussed the legislative provisions of the MIEA-TRHCA that give the Secretary authority to develop quality measures for reporting by ASCs. (We note that, as discussed in section XVII.J. of this final rule with comment period, we are also finalizing a proposal from the FY 2008 IPPS proposed rule relating to the FY 2009 RHQDAPU quality measures. Specifically, we are finalizing the inclusion of SCIP Infection 4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose and SCIP Infection 6: Surgery Patients with Appropriate Hair Removal in the FY 2009 RHQDAPU measure set, bringing the total number of measures in that measure set to 30.) 17. Changes Affecting Necessary Provider Critical Access Hospitals (CAHs) and Hospital Conditions of Participation (CoPs)

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

In section XXII. of the proposed rule, we set forth an analysis of the impact the proposed changes would have on affected entities and beneficiaries. (We note that this regulatory impact analysis section is redesignated as section XXIV. of this final rule with comment period.)

G. Public Comments Received in Response to the CY 2008 OPPS/ASC Proposed Rule

We received approximately 2,180 timely pieces of correspondence containing multiple comments on the CY 2008 OPPS/ASC proposed rule. We note that we received some comments that were outside the scope of the CY 2008 OPS/ASC proposed rule. These comments are not addressed in this CY 2008 OPPS/ASC final rule with comment period. Summaries of the public comments that are within the scope of the proposals and our responses to those comments are set forth in the various sections of this final rule with comment period under the appropriate headings.

H. Public Comments Received on the November 24, 2006 OPPS/ASC Final Rule with Comment Period

We received approximately 21 timely items of correspondence on the CY 2007 OPPS/ASC final rule with comment period, some of which contained multiple comments on the interim final APC assignments and/or status indicators of HCPCS codes identified with comment indicator ``NI'' in Addendum B to that final rule with comment period. Summaries of those public comments and our responses to them are set forth in the various sections of this final rule with comment period under the appropriate headings.

II. Updates Affecting OPPS Payments

A. Recalibration of APC Relative Weights

1. Database Construction a. Database Source and Methodology

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

In the CY 2008 OPPS/ASC proposed rule, we proposed to use the same basic methodology that we described in the

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

Of the 141 million final action claims for services provided in hospital outpatient settings used to calculate the CY 2008 OPPS payment rates for this final rule with comment period, approximately 103 million claims were of the type of bill potentially appropriate for use in setting rates for OPPS services (but did not necessarily contain services payable under the OPPS). Of the 103 million claims, approximately 45 million were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost- to-charge ratios (CCRs) or no HCPCS codes reported on the claim). We were able to use approximately 54 million whole claims of the approximately 58 million claims that remained to set the OPPS APC relative weights for the CY 2008 OPPS. From the 54 million whole claims, we created approximately 97 million single records, of which approximately 65 million were ``pseudo'' single claims (created from multiple procedure claims using the process we discuss in this section). Approximately 926,000 claims trimmed out on cost or units in excess of +/-3 standard deviations from the geometric mean, yielding approximately 96 million single bills used for median setting. Ultimately, we were able to use for CY 2008 ratesetting some portion of 93 ercent of the CY 2006 claims containing services payable under the OPPS. This is approximately the same percentage of CY 2005 claims where some portion could be used for CY 2007 ratesetting as described in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67970).

As proposed, the final APC relative weights and payments for CY 2008 in Addenda A and B to this final rule with comment period were calculated using claims from this period that were processed before June 30, 2007, and continue to be based on the median hospital costs for services in the APC groups. We selected claims for services paid under the OPPS and matched these claims to the most recent cost report filed by the individual hospitals represented in our claims data. We continue to believe that it is appropriate to use the most current full calendar year claims data and the most recently submitted cost reports to calculate the median costs which we proposed to convert to relative payment weights for purposes of calculating the CY 2008 payment rates.

We did not receive any comments on our proposal to base the CY 2008 APC relative weights on the most currently available cost reports and on claims for services furnished in CY 2006. Therefore, we are finalizing our data source for the recalibration of the CY 2008 APC relative payment weights as proposed, without modification, as described in this section of this final rule with comment period. b. Use of Single and Multiple Procedure Claims

For CY 2008, in general, we proposed to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based, with some exceptions as discussed below. We generally use single procedure claims to set the median costs for APCs because we believe that it is important that the OPPS relative weights on which payment rates are based be appropriate when one and only one procedure is furnished and because we are, so far, unable to ensure that packaged costs can be appropriately allocated across multiple procedures performed on the same date of service. We agree that, optimally, it is desirable to use the data from as many claims as possible to recalibrate the APC relative payment weights, including those claims for multiple procedures. We engaged in several efforts this year to improve our use of multiple procedure claims for ratesetting. As we have for several years, we continued to use date of service stratification and a list of codes to be bypassed to convert multiple procedure claims to ``pseudo'' single procedure claims. We also continued our internal efforts to better understand the patterns of services and costs from multiple bills toward the goal of using more multiple bill information by assessing the amount of packaging in the multiple bills and, specifically, by exploring the amount of packaging for drug administration services in the single and multiple bill claims. Moreover, in many cases, the packaging approach that we proposed for the CY 2008 OPPS also allows the use of more claims data by enabling us to treat claims with multiple procedure codes as single claims. We refer readers to section II.A.4. of the proposed rule for a full discussion of the packaging approach for CY 2008.

We received several public comments on our proposed use of single bills to calculate the APC median costs for ratesetting under the CY 2008 OPPS. A summary of the public comments and our responses follow.

Comment: Some commenters supported the ``natural'' and ``pseudo'' single methodology but asked that CMS continue to refine the approach in order to improve the accuracy of the estimates because the medians are used to develop payment rates for services on both single and multiple procedure claims. Other commenters asserted that continued reliance on single procedure bills to establish the medians from which the rates were calculated failed to produce a statistically valid sample of services for ratesetting, in particular for brachytherapy services that are often provided in combination with one another in a single encounter. Other commenters requested that CMS explore additional revisions to the current methodology to ensure that OPPS payment would be based on a substantial number of accurate hospital claims.

Response: We generally base median costs for services on single procedure claims to ensure that the median cost captures the full cost of a service when it is the only service furnished. We recognize that this approach has limitations and, in some cases, prevents us from using many of the claims for services that are most commonly furnished at the same time as other services. For this reason, we have developed a number of different strategies, such as date of service stratification and the use of the bypass list, that enable us to break multiple procedure claims into ``pseudo'' single procedure claims where we have confidence that the ``pseudo'' single claim contains the full cost of the service, including related packaged costs. In recent years, however, we have increasingly used multiple procedure claims to develop median costs for individual services or groups of services. We have developed these methodologies so that we can use more naturally occurring claims data in cases in which care is most commonly reported with multiple major procedure

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codes on the same date, such as observation services, hyperbaric oxygen therapy (HBOT), and single allergy tests.

Similarly, for CY 2008, we developed and proposed composite APCs for low dose rate prostate brachytherapy (APC 8001 (LDR Prostate Brachytherapy Composite)) and cardiac electrophysiology services (APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite)). These APCs are designed to use multiple procedure claims to establish a median cost and APC payment for multiple major procedures when they are furnished together. As we discuss in section II.A.4.d. of this final rule with comment period, we intend to explore the creation of additional composite APCs for services that frequently are provided in the same HOPD encounter. We also plan to continue to develop and refine methods to increase the amount of claims data that we can use for setting OPPS payment rates in a manner that gives us the most confidence that the costs derived from these approaches are valid reflections of the costs of the services described by HCPCS codes or, in the case of composite APCs, described by the APCs. We anticipate that the Data Subcommittee of the APC Panel will continue to provide us with valuable advice regarding possible methodologies for increasing the OPPS use of multiple procedure claims for ratesetting.

After consideration of the public comments received, we are finalizing our proposal, without modification, to calculate median costs for APCs using single and ``pseudo'' single procedure claims, except where otherwise specified. (1) Use of Date of Service Stratification and a Bypass List To Increase the Amount of Data Used To Determine Medians

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

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

For CY 2008, we proposed to bypass 425 HCPCS codes that are identified in Table 1 of the proposed rule. We proposed to continue the use of the codes on the CY 2007 OPPS bypass list but to remove codes we proposed to package for CY 2008. We also proposed to remove codes that were on the CY 2007 bypass list that ceased to meet the empirical criteria under the proposed packaging changes when clinical review confirmed that their removal would be appropriate in the context of the full proposal for the CY 2008 OPPS. Since the inception of the bypass list, we have calculated the percent of ``natural'' single bills that contained packaging for each code and the amount of packaging in each ``natural'' single bill for each code. We retained the codes on the previous year's bypass list and used the update year's data to determine whether it would be appropriate to add additional codes to the previous year's bypass list. The entire list (including the codes that remained on the bypass list from prior years) was open to public comment. For the CY 2008 proposed rule, we explicitly reviewed all ``natural'' single bills against the empirical criteria for all codes on the CY 2007 bypass list because of the proposal for greater packaging discussed in section II.A.4. of the proposed rule, as this effort increased the packaging associated with some codes. We removed 106 HCPCS codes from the CY 2007 bypass list for the CY 2008 proposal. In addition, we note that many of the codes we proposed to newly package for CY 2008 were on the bypass list used for setting the OPPS payment rates for CY 2007 and were not proposed for bypass because we also proposed to package them. We proposed to add to the bypass list HCPCS codes that, using the proposed rule data, met the same previously established empirical criteria for the bypass list that are reviewed below or which our clinicians believed would have little associated packaging if the services were coded correctly.

The CY 2008 packaging proposal minimally reduced the percentage of total claims that we were able to use, in whole or in part, from 93 percent for CY 2007 to 92 percent for the proposed rule. The proposed packaging approach increased the number of ``natural'' single bills, in spite of reducing the universe of codes requiring single bills for ratesetting, but reduced the number of ``pseudo'' single bills. More ``natural'' single procedure bills can be created by the packaging of codes that always appear with another procedure because these dependent services are supportive of and ancillary to the primary independent procedures for which payment is being made. A claim containing two independent procedure codes on the same date of service and not on the bypass list previously could not be used for ratesetting, but packaging the cost of one of the codes on the claim frees the claim to be used to calculate the median cost of the procedure that is not packaged. On the other hand, our proposed packaging approach reduced the number of codes eligible for the bypass list because of the limitation on packaging set by our previously established empirical criteria. A smaller bypass list and the presence of greater packaging on claims reduced the final number of ``pseudo'' single claims. In prior years, roughly 68 percent of single bills were ``pseudo'' single bills, but based on the CY 2008 proposed rule data, 66 percent of single bills were ``pseudo'' singles. Similarly, for this final rule with comment period,

[[Page 66591]]

66 percent of single bills were ``pseudo'' singles. Moreover, the numbers of ``natural'' single bills and ``pseudo'' single bills were reduced by the volume of services that we proposed to package. Hence, our CY 2008 proposal to package payment for some HCPCS codes with relatively high frequencies would eliminate for ratesetting the number of available ``natural'' and ``pseudo'' single bills attributable to the codes that we proposed to package.

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

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

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

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

The code is not a code for an unlisted service.

In addition, we proposed to add to the bypass list codes that our clinicians believe have minimal associated packaging based on their clinical assessment of the complete CY 2008 OPPS proposal. As proposed, this list contained bypass codes that were appropriate to claims for services in CY 2006 and, therefore, included codes that were deleted for CY 2007. Moreover, there were codes on the proposed bypass list that were new for CY 2007 and which were appropriate additions to the bypass list in preparation for use of the CY 2007 claims for creation of the CY 2009 OPPS.

We received a number of public comments on the use of the bypass list for creation of ``pseudo'' single procedure claims. A summary of the comments and our responses follow.

Comment: Some commenters objected to the removal of HCPCS codes from the bypass list because the codes ceased to meet the criteria for the bypass list as a result of increased packaging in the ``natural'' single claims due to the proposed packaging approach. The commenters objected to the removal of codes from the bypass list for this reason because they asserted that it caused claims that would otherwise have become ``pseudo'' single claims to not be used and, thereby, reduced the number of single bills that were available for ratesetting for certain services.

Response: We agree with the commenters, so we have reevaluated the bypass list for this final rule with comment period and restored a number of codes on the bypass list prior to the CY 2008 proposal to maximize the creation of single and ``pseudo'' single procedure bills. As we discuss later in this section and in section II.A.4. of this final rule with comment period, we have made changes to the data process to ensure that we capture as much data as possible for services assigned status indicator ``Q.'' Although we revised the process to apply the specific ``Q'' status indicator policies before assessment of the bypass list so that additional HCPCS codes could be considered for the bypass list without risk of losing their data regarding packaging, we determined that no codes with status indicator ``Q'' were appropriate for addition to the final CY 2008 bypass list because of their significant associated packaging.

Comment: Several commenters asked that CMS add certain HCPCS codes to the bypass list so that more single bills would be available for median setting. Some commenters specifically objected to the removal of the following radiation oncology services that they indicated should seldom have any associated packaging: CPT codes 77280 (Therapeutic radiology simulation-aided field setting; simple); 77285 (Therapeutic radiology simulation-aided field setting; intermediate); 77290 (Therapeutic radiology simulation-aided field setting; complex); 77295 (Therapeutic radiology simulation-aided field setting; 3-dimensional); 77332 (Treatment devices, design and construction; simple (simple block, simple bolus)); 77333 (Treatment devices, design and construction; intermediate (multiple blocks, stents, bite blocks, special bolus)); 77334 (Treatment devices, design and construction; complex (irregular blocks, special shields, compensators, wedges, molds or casts)); and 77417 (Therapeutic radiology port film(s)). One commenter explained that there was an interaction with the packaging of image guided radiation therapy codes that reduced the percentage of single bills for high dose rate (HDR) brachytherapy from 62 percent to 48 percent of the total frequency. The commenter believed that the payment for APC 0313 (Brachytherapy) dropped from $789.70 in CY 2007 to $739.46 in the CY 2008 proposed rule because there were packaged costs on claims that could no longer be used because the multiple procedure claims included codes that were removed from the bypass list. The commenter asked that these codes be restored to the bypass list so that these claims could be used. Other commenters asked that CMS place CPT code 93017 (Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; tracing only, without interpretation and report) on the bypass list because it is typically performed with single photon emission computed tomography (SPECT) procedures (CPT code 78465 (Myocardial perfusion imaging; tomographic (SPECT), multiple studies (including attenuation correction when performed), at rest and/or stress (exercise and/or pharmacologic) and redistribution and/or rest injection, without or without quantification)). These commenters believed that significant data from multiple procedure claims were lost because CPT code 93017 was not bypassed. Other commenters asked that CMS add the following drug administration CPT codes to the bypass list because doing so would enable use of more multiple procedure claims data to establish median costs for drug administration services: CPT codes 90767 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); additional sequential infusion, up to 1 hour (List separately in addition to code for primary procedure)); 90768 (Intravenous infusion, for therapy, prophylaxis, or diagnosis (specify substance or drug); concurrent infusion (List separately in addition to code for primary procedure); 90775 (Therapeutic, prophylactic or diagnostic injection (specify substance or drug); each additional sequential intravenous push of a new substance/drug (List separately in addition to code for primary procedure)); 96411 (Chemotherapy administration; intravenous, push technique, each additional substance/drug (List separately in addition to code for primary procedure)); and 96417 (Chemotherapy administration, intravenous infusion technique; each additional sequential infusion (different substance/drug), up to 1 hour (List

[[Page 66592]]

separately in addition to code for primary procedure)). A commenter asked that we add HCPCS code 88307 (Level V Surgical pathology, gross and microscopic examination) because it is so similar to HCPCS codes 88305 (Level III Surgical pathology, gross and microscopic examination) and 88306 (Level IV Surgical pathology, gross and microscopic examination) that were already included on the bypass list.

Response: We have reviewed the requests to add these codes to the bypass list and we have made the following decisions for CY 2008 for the reasons stated below:

We have added the radiation oncology services listed above, with the exception of CPT code 77417, to the bypass list because we agree that they are of the type that should not have packaging associated with them. We recognize that including them on the bypass list may yield significantly more single procedure bills and may also increase the number of claims that we can use for calculation of the low dose rate prostate brachytherapy composite APC (APC8001). We have not added CPT code 77417 to the CY 2008 bypass list because, based on its final CY 2008 unconditionally packaged status, the code would not be a candidate for the bypass list. Unconditionally packaged codes are not included on the bypass list because their presence on a claim does not make that claim a multiple procedure bill.

We have added CPT code 93017 to the bypass list because we agree that it should not have significant associated packaging, and we recognize that including it on the bypass list may yield significantly more single procedure bills for median setting.

We have not added the drug administration services listed above to the bypass list. Four of these five codes are for sequential drug infusion services or injections of additional drugs and, therefore, by definition, new drugs and medical supplies that are associated with these codes should be reported in all cases in which the services are furnished. We note that, beginning in CY 2007, we placed the CPT codes for additional hours of infusion on the bypass list, recognizing that all packaging related to these hours would be associated with the initial services on the claim. We proposed and finalized this approach for CY 2007, because we were unable to accurately assign representative portions of packaged costs to multiple different drug administration services. We expected that the packaging related to additional hours of infusion of drugs that spanned several hours would be appropriately assigned to the code for the first hour of infusion on the same claim. If we had not placed the codes for additional hours of infusion on the bypass list, we would have had a substantial set of drug administration multiple procedure claims that were unusable for ratesetting purposes. However, adding the sequential drug administration services to the bypass list too would force all of the costs of the associated additional drugs and supplies to be packaged into the payment for the initial drug administration service for another drug, which we do not believe is an appropriate allocation of packaging. While we understand the concerns of the commenters regarding the challenges associated with setting appropriate payment rates for these sequential services reported on multiple procedure claims, we have very little CY 2006 claims data for the four codes because they were not recognized for payment under the CY 2006 OPPS. We will reconsider the treatment of these CPT codes for the CY 2009 OPPS update when CY 2007 data, where these codes were separately paid under the OPPS, are available. We have not added CPT code 90768 to the bypass list because our final CY 2008 policy unconditionally packages payment for this service and, therefore, it is not a candidate for the bypass list.

We agree that HCPCS code 88307 (which was on the proposed bypass list for the CY 2008 OPPS) is appropriate and we have added it to the final CY 2008 bypass list.

In addition to these responses to comments, we have added six other HCPCS codes to the final CY 2008 bypass list that met the empirical criteria for inclusion using the final rule data, and we have also added three HCPCS codes for clinical consistency with codes that are already on the bypass list. New bypass codes for this final rule with comment period are identified in Table 1 with an asterisk.

Comment: One commenter objected to the use of the bypass list to create ``pseudo'' single claims for median setting on the basis that it artificially lowers the median cost of the services on the bypass list by sending all packaging on the claim to the other major separately paid service on the claim. Specifically, the commenter believed that inclusion of CPT code 93880 (Duplex scan of extracranial arteries; complete bilateral study) on the bypass list resulted in the use of the cost data for the lowest cost services and, thereby, lowered the cost of this service. The commenter stated that CMS should work with stakeholders on use of the bypass list, its impact on median costs, and ways that CMS could use data that were more reflective of the real costs for these procedures. The commenter believed that the median cost of CPT code 93880 should be based on the cost of the typical patient and not the least expensive patient because the OPPS payment caps payment in the physician's office for the service. The commenter explained that using the bypass list to generate more ``pseudo'' single claims without any packaging resulted in stagnation in payment that encouraged hospitals to pressure physicians to order more expensive tests and threatened access to care for beneficiaries who would be served well by simpler tests that were being underpaid as a result of inclusion of CPT code 93880 on the bypass list.

One commenter asked that CMS provide a code-specific analysis of the impact of bypassing each code on the bypass list because the commenter believed that removing and using the line item costs for the bypass codes to set the median costs for the APCs to which the bypass codes are assigned results in understatement of the median costs for those APCs.

Response: The bypass list has been very effective in enabling us to use claims data that would not otherwise be available for median calculation. Since its origin for the CY 2004 OPPS, we have been very careful in determining the codes to be placed on the bypass list. As described above, we use a standard set of criteria to select claims that seldom have packaging (that is, fewer than 5 percent of ``natural'' single bills); that have little packaging (that is, less than $50); for which we have at least 100 ``natural'' single bills; and that are not unlisted codes (for which there is no specified service). In addition to codes that pass these criteria, we also have added HCPCS codes to the bypass list that have been recommended to us by members of the public, including the specialty societies that are most familiar with them, as services with which packaging should be seldom, if ever, associated. Therefore, we believe that we have been very prudent with regard to our selection of the codes to be added to the bypass list and with our use of the list. Moreover, we open the criteria and the list to public comment each year and we respond to comments in the final rule for the update year.

We also make available the claims data used to calculate the median costs on which the relative weights are based, and we provide an extensive narrative description of our data process. Hence, we provide commenters with the tools to conduct any further analyses they chose with regard to the codes on the

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bypass list or otherwise. In the case of CPT code 93880, the median packaged cost on ``natural'' single procedure claims (of which there were 403,106) was $0 and the percent of natural single procedure claims on which there was any packaging was 0.47 percent (1,899 claims out of 403,106 ). Therefore, the code meets the criteria for inclusion on the bypass list and will remain on it for CY 2008. We have no evidence that physicians or hospitals are billing more expensive tests as a result of the OPPS payment rate for CPT code 93880, and our data show there is very little packaging associated with the service in the typical case.

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

We received one public comment on the appropriateness of updating the $50 packaging cost criteria for inclusion of a code on the bypass list to account for annual inflation. A summary of the comment and our response follow.

Comment: One commenter stated that CMS should update the $50 maximum ``natural'' single bill median packaging cost criterion for including HCPCS codes on the bypass list on the basis of empirical criteria. The commenter did not suggest a methodology we might use for the update.

Response: We have not changed the $50 maximum ``natural'' bill median packaging cost criterion for this final rule with comment period. However, we will consider whether to update the criterion and, if so, what methodology would be used, as part of the development of the proposals for the CY 2009 OPPS.

After consideration of the public comments received, we are adopting, as final, the proposed ``pseudo'' single claims process and the CY 2008 bypass codes listed in Table 1 below. This list has been modified from the CY 2008 proposed list, with the addition of HCPCS codes that meet the empirical criteria based on updated claims data and certain HCPCS codes recommended by commenters, as discussed above. As stated earlier, the new bypass codes for this final rule with comment period are identified in Table 1 with an asterisk.

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

Added for HCPCS code

Short description

this final rule

11056...................... Trim skin lesions, 2 to 4.... 11057...................... Trim skin lesions, over 4.... 11300...................... Shave skin lesion............ 11301...................... Shave skin lesion............ 11719...................... Trim nail(s)................. 11720...................... Debride nail, 1-5............ 11721...................... Debride nail, 6 or more...... 11954...................... Therapy for contour defects.. 17003...................... Destruct premalg les, 2-14... 31231...................... Nasal endoscopy, dx.......... 31579...................... Diagnostic laryngoscopy...... 51798...................... Us urine capacity measure.... 53661...................... Dilation of urethra..........

* 54240...................... Penis study.................. 56820...................... Exam of vulva w/scope........ 57150...................... Treat vagina infection.......

* 67820...................... Revise eyelashes............. 69210...................... Remove impacted ear wax...... 69220...................... Clean out mastoid cavity..... 70030...................... X-ray eye for foreign body... 70100...................... X-ray exam of jaw............ 70110...................... X-ray exam of jaw............ 70120...................... X-ray exam of mastoids....... 70130...................... X-ray exam of mastoids....... 70140...................... X-ray exam of facial bones... 70150...................... X-ray exam of facial bones... 70160...................... X-ray exam of nasal bones.... 70200...................... X-ray exam of eye sockets.... 70210...................... X-ray exam of sinuses........ 70220...................... X-ray exam of sinuses........ 70250...................... X-ray exam of skull.......... 70260...................... X-ray exam of skull.......... 70328...................... X-ray exam of jaw joint...... 70330...................... X-ray exam of jaw joints..... 70336...................... Magnetic image, jaw joint.... 70355...................... Panoramic x-ray of jaws...... 70360...................... X-ray exam of neck........... 70370...................... Throat x-ray & fluoroscopy... 70371...................... Speech evaluation, complex... 70450...................... Ct head/brain w/o dye........ 70480...................... Ct orbit/ear/fossa w/o dye... 70486...................... Ct maxillofacial w/o dye..... 70490...................... Ct soft tissue neck w/o dye.. 70544...................... Mr angiography head w/o dye.. 70551...................... Mri brain w/o dye............ 71010...................... Chest x-ray.................. 71015...................... Chest x-ray.................. 71020...................... Chest x-ray.................. 71021...................... Chest x-ray.................. 71022...................... Chest x-ray.................. 71023...................... Chest x-ray and fluoroscopy.. 71030...................... Chest x-ray.................. 71034...................... Chest x-ray and fluoroscopy.. 71035...................... Chest x-ray.................. 71100...................... X-ray exam of ribs........... 71101...................... X-ray exam of ribs/chest..... 71110...................... X-ray exam of ribs........... 71111...................... X-ray exam of ribs/chest..... 71120...................... X-ray exam of breastbone..... 71130...................... X-ray exam of breastbone..... 71250...................... Ct thorax w/o dye............ 72010...................... X-ray exam of spine.......... 72020...................... X-ray exam of spine.......... 72040...................... X-ray exam of neck spine..... 72050...................... X-ray exam of neck spine..... 72052...................... X-ray exam of neck spine..... 72069...................... X-ray exam of trunk spine.... 72070...................... X-ray exam of thoracic spine. 72072...................... X-ray exam of thoracic spine. 72074...................... X-ray exam of thoracic spine. 72080...................... X-ray exam of trunk spine.... 72090...................... X-ray exam of trunk spine.... 72100...................... X-ray exam of lower spine.... 72110...................... X-ray exam of lower spine.... 72114...................... X-ray exam of lower spine.... 72120...................... X-ray exam of lower spine....

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72125...................... Ct neck spine w/o dye........ 72128...................... Ct chest spine w/o dye....... 72131...................... Ct lumbar spine w/o dye...... 72141...................... Mri neck spine w/o dye....... 72146...................... Mri chest spine w/o dye...... 72148...................... Mri lumbar spine w/o dye..... 72170...................... X-ray exam of pelvis......... 72190...................... X-ray exam of pelvis......... 72192...................... Ct pelvis w/o dye............ 72202...................... X-ray exam sacroiliac joints. 72220...................... X-ray exam of tailbone....... 73000...................... X-ray exam of collar bone.... 73010...................... X-ray exam of shoulder blade. 73020...................... X-ray exam of shoulder....... 73030...................... X-ray exam of shoulder....... 73050...................... X-ray exam of shoulders...... 73060...................... X-ray exam of humerus........ 73070...................... X-ray exam of elbow.......... 73080...................... X-ray exam of elbow.......... 73090...................... X-ray exam of forearm........ 73100...................... X-ray exam of wrist.......... 73110...................... X-ray exam of wrist.......... 73120...................... X-ray exam of hand........... 73130...................... X-ray exam of hand........... 73140...................... X-ray exam of finger(s)...... 73200...................... Ct upper extremity w/o dye... 73218...................... Mri upper extremity w/o dye.. 73221...................... Mri joint upr extrem w/o dye. 73510...................... X-ray exam of hip............ 73520...................... X-ray exam of hips........... 73540...................... X-ray exam of pelvis & hips.. 73550...................... X-ray exam of thigh.......... 73560...................... X-ray exam of knee, 1 or 2... 73562...................... X-ray exam of knee, 3........ 73564...................... X-ray exam, knee, 4 or more.. 73565...................... X-ray exam of knees.......... 73590...................... X-ray exam of lower leg...... 73600...................... X-ray exam of ankle.......... 73610...................... X-ray exam of ankle.......... 73620...................... X-ray exam of foot........... 73630...................... X-ray exam of foot........... 73650...................... X-ray exam of heel........... 73660...................... X-ray exam of toe(s)......... 73700...................... Ct lower extremity w/o dye... 73718...................... Mri lower extremity w/o dye.. 73721...................... Mri jnt of lwr extre w/o dye. 74000...................... X-ray exam of abdomen........ 74010...................... X-ray exam of abdomen........ 74020...................... X-ray exam of abdomen........ 74022...................... X-ray exam series, abdomen... 74150...................... Ct abdomen w/o dye........... 74210...................... Contrast x-ray exam of throat 74220...................... Contrast x-ray, esophagus.... 74230...................... Cine/vid x-ray, throat/esoph. 74246...................... Contrast x-ray uppr gi tract. 74247...................... Contrst x-ray uppr gi tract.. 74249...................... Contrst x-ray uppr gi tract.. 76020...................... X-rays for bone age.......... 76040...................... X-rays, bone evaluation...... 76061...................... X-rays, bone survey.......... 76062...................... X-rays, bone survey.......... 76065...................... X-rays, bone evaluation...... 76066...................... Joint survey, single view.... 76070...................... Ct bone density, axial....... 76071...................... Ct bone density, peripheral.. 76075...................... Dxa bone density, axial...... 76076...................... Dxa bone density/peripheral.. 76077...................... Dxa bone density/v-fracture.. 76078...................... Radiographic absorptiometry.. 76100...................... X-ray exam of body section... 76400...................... Magnetic image, bone marrow.. 76510...................... Ophth us, b & quant a........ 76511...................... Ophth us, quant a only....... 76512...................... Ophth us, b w/non-quant a.... 76513...................... Echo exam of eye, water bath. 76514...................... Echo exam of eye, thickness.. 76516...................... Echo exam of eye............. 76519...................... Echo exam of eye............. 76536...................... Us exam of head and neck..... 76645...................... Us exam, breast(s)........... 76700...................... Us exam, abdom, complete..... 76705...................... Echo exam of abdomen......... 76770...................... Us exam abdo back wall, comp. 76775...................... Us exam abdo back wall, lim.. 76778...................... Us exam kidney transplant.... 76801...................... Ob us /= 14 wks, sngl fetus. 76811...................... Ob us, detailed, sngl fetus.. 76816...................... Ob us, follow-up, per fetus.. 76817...................... Transvaginal us, obstetric... 76830...................... Transvaginal us, non-ob...... 76856...................... Us exam, pelvic, complete.... 76857...................... Us exam, pelvic, limited..... 76870...................... Us exam, scrotum............. 76880...................... Us exam, extremity........... 76970...................... Ultrasound exam follow-up.... 76977...................... Us bone density measure...... 76999...................... Echo examination procedure... 77280...................... Set radiation therapy field..

* 77285...................... Set radiation therapy field..

* 77290...................... Set radiation therapy field..

* 77295...................... Set radiation therapy field..

* 77300...................... Radiation therapy dose plan..

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77301...................... Radiotherapy dose plan, imrt. 77315...................... Teletx isodose plan complex.. 77326...................... Brachytx isodose calc simp... 77327...................... Brachytx isodose calc interm. 77328...................... Brachytx isodose plan compl.. 77331...................... Special radiation dosimetry.. 77332...................... Radiation treatment aid(s)...

* 77333...................... Radiation treatment aid(s)...

* 77334...................... Radiation treatment aid(s)...

* 77336...................... Radiation physics consult.... 77370...................... Radiation physics consult.... 77401...................... Radiation treatment delivery. 77402...................... Radiation treatment delivery. 77403...................... Radiation treatment delivery. 77404...................... Radiation treatment delivery. 77407...................... Radiation treatment delivery. 77408...................... Radiation treatment delivery. 77409...................... Radiation treatment delivery. 77411...................... Radiation treatment delivery. 77412...................... Radiation treatment delivery. 77413...................... Radiation treatment delivery. 77414...................... Radiation treatment delivery. 77416...................... Radiation treatment delivery. 77418...................... Radiation tx delivery, imrt.. 77470...................... Special radiation treatment.. 77520...................... Proton trmt, simple w/o comp. 77523...................... Proton trmt, intermediate.... 80500...................... Lab pathology consultation... 80502...................... Lab pathology consultation... 85097...................... Bone marrow interpretation... 86510...................... Histoplasmosis skin test..... 86850...................... RBC antibody screen.......... 86870...................... RBC antibody identification.. 86880...................... Coombs test, direct.......... 86885...................... Coombs test, indirect, qual.. 86886...................... Coombs test, indirect, titer. 86890...................... Autologous blood process..... 86900...................... Blood typing, ABO............ 86901...................... Blood typing, Rh (D)......... 86903...................... Blood typing, antigen screen. 86904...................... Blood typing, patient serum.. 86905...................... Blood typing, RBC antigens... 86906...................... Blood typing, Rh phenotype... 86930...................... Frozen blood prep............ 86970...................... RBC pretreatment............. 88104...................... Cytopath fl nongyn, smears... 88106...................... Cytopath fl nongyn, filter... 88107...................... Cytopath fl nongyn, sm/fltr.. 88108...................... Cytopath, concentrate tech... 88112...................... Cytopath, cell enhance tech.. 88160...................... Cytopath smear, other source. 88161...................... Cytopath smear, other source. 88162...................... Cytopath smear, other source. 88172...................... Cytopathology eval of fna.... 88173...................... Cytopath eval, fna, report... 88182...................... Cell marker study............ 88184...................... Flowcytometry/ tc, 1 marker.. 88185...................... Flowcytometry/tc, add-on..... 88300...................... Surgical path, gross......... 88302...................... Tissue exam by pathologist... 88304...................... Tissue exam by pathologist... 88305...................... Tissue exam by pathologist... 88307...................... Tissue exam by pathologist... 88311...................... Decalcify tissue............. 88312...................... Special stains............... 88313...................... Special stains............... 88321...................... Microslide consultation...... 88323...................... Microslide consultation...... 88325...................... Comprehensive review of data. 88331...................... Path consult intraop, 1 bloc. 88342...................... Immunohistochemistry......... 88346...................... Immunofluorescent study...... 88347...................... Immunofluorescent study...... 88348...................... Electron microscopy.......... 88358...................... Analysis, tumor.............. 88360...................... Tumor immunohistochem/manual. 88361...................... Tumor immunohistochem/comput.

* 88365...................... Insitu hybridization (fish).. 88368...................... Insitu hybridization, manual. 88399...................... Surgical pathology procedure. 89049...................... Chct for mal hyperthermia.... 89230...................... Collect sweat for test....... 89240...................... Pathology lab procedure...... 90761...................... Hydrate iv infusion, add-on.. 90761...................... Hydrate iv infusion, add-on..

* 90766...................... Ther/proph/dg iv inf, add-on.

* 90801...................... Psy dx interview............. 90802...................... Intac psy dx interview....... 90804...................... Psytx, office, 20-30 min..... 90805...................... Psytx, off, 20-30 min w/e&m.. 90806...................... Psytx, off, 45-50 min........ 90807...................... Psytx, off, 45-50 min w/e&m.. 90808...................... Psytx, office, 75-80 min..... 90809...................... Psytx, off, 75-80, w/e&m..... 90810...................... Intac psytx, off, 20-30 min.. 90812...................... Intac psytx, off, 45-50 min.. 90816...................... Psytx, hosp, 20-30 min....... 90818...................... Psytx, hosp, 45-50 min....... 90826...................... Intac psytx, hosp, 45-50 min.

* 90845...................... Psychoanalysis............... 90846...................... Family psytx w/o patient..... 90847...................... Family psytx w/patient.......

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90853...................... Group psychotherapy.......... 90857...................... Intac group psytx............ 90862...................... Medication management........ 92002...................... Eye exam, new patient........ 92004...................... Eye exam, new patient........ 92012...................... Eye exam established pat..... 92014...................... Eye exam & treatment......... 92020...................... Special eye evaluation....... 92081...................... Visual field examination(s).. 92082...................... Visual field examination(s).. 92083...................... Visual field examination(s).. 92135...................... Ophth dx imaging post seg.... 92136...................... Ophthalmic biometry.......... 92225...................... Special eye exam, initial.... 92226...................... Special eye exam, subsequent. 92230...................... Eye exam with photos......... 92240...................... Icg angiography.............. 92250...................... Eye exam with photos......... 92275...................... Electroretinography.......... 92285...................... Eye photography.............. 92286...................... Internal eye photography..... 92520...................... Laryngeal function studies... 92541...................... Spontaneous nystagmus test... 92546...................... Sinusoidal rotational test... 92548...................... Posturography................ 92552...................... Pure tone audiometry, air.... 92553...................... Audiometry, air & bone....... 92555...................... Speech threshold audiometry.. 92556...................... Speech audiometry, complete.. 92557...................... Comprehensive hearing test... 92567...................... Tympanometry................. 92582...................... Conditioning play audiometry. 92585...................... Auditor evoke potent, compre. 92603...................... Cochlear implt f/up exam 7 >. 92604...................... Reprogram cochlear implt 7 >. 92626...................... Eval aud rehab status........ 93005...................... Electrocardiogram, tracing... 93017...................... Cardiovascular stress test...

* 93225...................... ECG monitor/record, 24 hrs... 93226...................... ECG monitor/report, 24 hrs... 93231...................... Ecg monitor/record, 24 hrs... 93232...................... ECG monitor/report, 24 hrs... 93236...................... ECG monitor/report, 24 hrs... 93270...................... ECG recording................ 93271...................... Ecg/monitoring and analysis.. 93278...................... ECG/signal-averaged.......... 93727...................... Analyze ilr system........... 93731...................... Analyze pacemaker system..... 93732...................... Analyze pacemaker system..... 93733...................... Telephone analy, pacemaker... 93734...................... Analyze pacemaker system..... 93735...................... Analyze pacemaker system..... 93736...................... Telephonic analy, pacemaker.. 93741...................... Analyze ht pace device sngl.. 93742...................... Analyze ht pace device sngl.. 93743...................... Analyze ht pace device dual.. 93744...................... Analyze ht pace device dual.. 93786...................... Ambulatory BP recording...... 93788...................... Ambulatory BP analysis....... 93797...................... Cardiac rehab................ 93798...................... Cardiac rehab/monitor........ 93875...................... Extracranial study........... 93880...................... Extracranial study........... 93882...................... Extracranial study........... 93886...................... Intracranial study........... 93888...................... Intracranial study........... 93922...................... Extremity study.............. 93923...................... Extremity study.............. 93924...................... Extremity study.............. 93925...................... Lower extremity study........ 93926...................... Lower extremity study........ 93930...................... Upper extremity study........ 93931...................... Upper extremity study........ 93965...................... Extremity study.............. 93970...................... Extremity study.............. 93971...................... Extremity study.............. 93975...................... Vascular study............... 93976...................... Vascular study............... 93978...................... Vascular study............... 93979...................... Vascular study............... 93990...................... Doppler flow testing......... 94015...................... Patient recorded spirometry.. 94690...................... Exhaled air analysis......... 95115...................... Immunotherapy, one injection. 95117...................... Immunotherapy injections..... 95165...................... Antigen therapy services..... 95250...................... Glucose monitoring, cont.....

* 95805...................... Multiple sleep latency test.. 95806...................... Sleep study, unattended...... 95807...................... Sleep study, attended........ 95808...................... Polysomnography, 1-3......... 95812...................... Eeg, 41-60 minutes........... 95813...................... Eeg, over 1 hour............. 95816...................... Eeg, awake and drowsy........ 95819...................... Eeg, awake and asleep........ 95822...................... Eeg, coma or sleep only...... 95869...................... Muscle test, thor paraspinal. 95872...................... Muscle test, one fiber.......

* 95900...................... Motor nerve conduction test.. 95921...................... Autonomic nerv function test. 95925...................... Somatosensory testing........ 95926...................... Somatosensory testing........

* 95930...................... Visual evoked potential test. 95950...................... Ambulatory eeg monitoring.... 95953...................... EEG monitoring/computer...... 95970...................... Analyze neurostim, no prog... 95972...................... Analyze neurostim, complex... 95974...................... Cranial neurostim, complex... 95978...................... Analyze neurostim brain/1h... 96000...................... Motion analysis, video/3d.... 96101...................... Psycho testing by psych/phys.

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96111...................... Developmental test, extend... 96116...................... Neurobehavioral status exam.. 96118...................... Neuropsych tst by psych/phys. 96119...................... Neuropsych testing by tec.... 96150...................... Assess hlth/behave, init..... 96151...................... Assess hlth/behave, subseq... 96152...................... Intervene hlth/behave, indiv. 96153...................... Intervene hlth/behave, group. 96415...................... Chemo, iv infusion, addl hr.. 96423...................... Chemo ia infuse each addl hr. 96900...................... Ultraviolet light therapy.... 96910...................... Photochemotherapy with UV-B.. 96912...................... Photochemotherapy with UV-A.. 96913...................... Photochemotherapy, UV-A or B. 96920...................... Laser tx, skin 10. M0064...................... Visit for drug monitoring.... Q0091...................... Obtaining screen pap smear...

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

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

our continued effort to better understand the multiple claims in order to extract single bill information from them, we examined the extent to which the packaging in multiple procedure claims differs from the packaging in the single procedure claims on which we base the median costs both in general and more specifically for drug administration services. We performed this analysis using the claims data on which we based the CY 2007 OPPS/ASC final rule with comment period. We examined the amount of packaging in multiple procedure versus single procedure claims in general and in claims for drug administration services in particular. We conducted this analysis without taking into account the proposed packaging approach presented in the CY 2008 OPPS/ASC proposed rule. However, we did not expect the services newly proposed for packaged payment to commonly appear with a drug administration service. Therefore, we believed that the analysis conducted on the CY 2007 final rule with comment period data was sufficient to inform our development of the CY 2008 OPPS/ASC proposed rule.

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

However, the bypass methodology creates a ``pseudo'' single bill for all claims for services or items on the bypass list, and these ``pseudo'' single bills have no associated packaging, by definition of the application of the bypass list. Excluding the total cost associated with bypass codes, 28 percent of observed costs in the single bills were attributable to packaged services, and 29 percent of observed costs across all claims were attributable to packaged services. Therefore, we concluded that, in general, the extent of packaging in all bills was similar to the amount of packaging in the single procedure bills we used to set median costs for most APCs.

In the CY 2008 proposed rule (72 FR 42640), we recognized that aggregate numbers do not address the packaging associated with single and multiple procedure claims for specific services. In past years, we received comments stating that the amount of packaging in the single bills for drug administration services was not representative of the typical packaged costs of these drug administration services, which were usually performed in combination with one another, because the single bills represented less complex and less resource-intensive services than the usual cases.

We published a study in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68120 through 68121) that discussed the amount of packaging on

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the single bills for drug administration procedure codes, and we promised to replicate that study for the APC Panel. We discussed the results of this study with the APC Panel at its March 2007 meeting, in accordance with the APC Panel's August 2006 recommendation and also published the results in the CY 2008 OPPS/ASC proposed rule (72 FR 42640 through 42641).

As discussed in the proposed rule, we found that drug administration services demonstrated reasonable single bill representation in comparison with other OPPS services. Single bills for drug administration constituted, roughly, 30 percent of all observed occurrences of drug administration services, varying by code from 7 to 55 percent. The study also demonstrated that packaged costs substantially contributed to median cost estimates for the majority of drug administration HCPCS codes (72 FR 42640 through 42641).

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

By definition, we were unable to precisely assess the amount of packaging associated with drug administration codes in the multiple bills. As a proxy, we estimated packaging as a percent of total cost on each claim for two subsets of claims. Both analyses suggested the presence of moderate packaged costs, especially drug and pharmacy costs, associated with drug administration services in the multiple bills. We calculated measures of central tendency for packaging percentages in the multiple bills or portions of multiple bills remaining after ``pseudo'' singles were created. We referred to this group of the multiple bills as the ``hardcore'' multiple bills. For the first subset of ``hardcore'' multiple bills with only drug administration codes, that is, where multiple drug administration codes were the only separately paid procedure codes on the claim, we estimated that packaged costs were 22 percent of total costs (27 percent, on average), where total costs consisted of costs for all payable codes. Costs for packaged drug HCPCS codes and pharmacy revenue codes comprised 13 percent of total cost at the median (19 percent, on average). For the second subset of ``hardcore'' multiple bills with any drug administration code, that is, where a drug administration code appeared with other payable codes (largely radiology services and visits), we estimated packaged costs were 13 percent of total cost at the median (19 percent, on average). Costs for packaged drugs and pharmacy revenue codes comprised 6 percent of total cost at the median (10 percent, on average). The amount of packaging in both proxy measures, but especially the first subset, closely resembled the packaged costs as a percentage of drug administration costs observed in the single bills for drug administration services. While finding a way to accurately use data from the ``hardcore'' multiple bills to estimate drug administration median costs undoubtedly would impact medians, these comparisons suggested that the multiple bill data probably would support current median estimates.

In the CY 2008 OPPS/ASC proposed rule (72 FR 42641), we noted that we had received several comments over the past few years offering algorithms for packaging the costs associated with specific revenue codes or packaging drugs with certain drug administration codes. Because of the complexity of even routine OPPS claims, prior research suggested that such algorithms have limited power to generate additional single bill claims and do little to change median cost estimates. In the proposed rule (72 FR 42641), we explained that we continue to look for simple, but powerful, methodologies like the bypass list and packaging of HCPCS codes for additional ancillary and supportive services to assign packaged costs to all services within the ``hardcore'' multiple bills. Ideally, these methodologies should be intuitive to the provider community, easily integrated into the complexity of OPPS median cost estimation, and simple to maintain from year to year. We specifically solicited methodologies for creation of single bills that meet these criteria.

We received several public comments with regard to the use of data from single and multiple procedure claims for ratesetting. A summary of the public comments and our responses follow.

Comment: Several commenters expressed appreciation for CMS' analysis of packaged costs included on single and multiple procedure claims for drug administration services. One commenter encouraged CMS to further analyze the total amount and percentage of packaged costs associated with all packaged HCPCS codes, as well as other packaged services reported by hospitals, and examine this information on single versus multiple procedure claims in order to increase hospitals' understanding of the actual packaged costs used in the ratesetting process. Once again, several commenters encouraged CMS to consider specific packaging algorithms to allocate packaged costs on multiple procedures claims, in order to create additional ``pseudo'' single claims for ratesetting.

Response: The packaging of associated costs into payment for major procedures is a longstanding principle of the OPPS. The OPPS packages payment for the operating and capital-related costs that are directly related and integral to furnishing a service on an outpatient basis. These packaged costs have historically included costs related to use of an operating or treatment room, anesthesia, medical supplies, implantable devices, inexpensive drugs, etc. Our findings related to the packaged costs on single and multiple claims for drug administration services confirm that the packaging on the single bills used for ratesetting resembles the drug and pharmacy-related packaged costs on multiple procedure claims. The packaging associated with drug administration services on single and multiple claims has historically been of particular concern to the public, so we are reassured by this finding. We are not convinced that developing this information for all other HCPCS codes would provide further useful information to hospitals. Instead, we prefer to direct our analytic resources toward exploring additional approaches to using more cost data from multiple procedure claims for ratesetting. If we are eventually able to use all OPPS claims in developing median costs, then all packaged costs on claims would also be incorporated in ratesetting under the OPPS. We remind hospitals that they should continue to take into consideration all costs associated with providing HOPD services in establishing their charges for the services. In addition, hospitals should report packaged HCPCS codes and charges, consistent with all CPT, OPPS, and local

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contractor instructions, whenever those services are provided to ensure that the associated costs are included in ratesetting for the major services.

As we have stated previously regarding our exploration of specific packaging algorithms, we have found that these approaches, while resource-intensive on our part, have limited power to generate additional single bill claims and do little to change median cost estimates. We received no other specific suggestions for other approaches to allocating packaged costs on ``hardcore'' multiple bills that would be intuitive to the provider community, easily integrated into the complexity of OPPS median cost estimation, and simple to maintain from year to year. We will continue to explore these data challenges with the assistance of the Data Subcommittee of the APC Panel. We believe that further progression toward encounter-based or episode-based payment for commonly provided combinations of services could reduce the number of these multiple claims and incorporate additional claims data, as discussed in section II.A.4.d. of this final rule with comment period regarding low dose rate prostate brachytherapy and cardiac electrophysiologic evaluation and ablation procedures.

After consideration of the public comments received, we are finalizing our CY 2008 proposal for the use of single and multiple procedure claims for ratesetting. We will continue to pursue additional methodologies that would allow use of cost data from ``hardcore'' multiple claims for ratesetting. c. Calculation of CCRs

We calculated hospital-specific overall CCRs and hospital-specific departmental CCRs for each hospital for which we had claims data in the period of claims being used to calculate the median costs that we converted to scaled relative weights for purposes of setting the OPPS payment rates. We applied the hospital-specific CCR to the hospital's charges at the most detailed level possible, based on a revenue code to cost center crosswalk that contains a hierarchy of CCRs used to estimate costs from charges for each revenue code. That crosswalk is available for review and continuous comment on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage. We calculated CCRs for the standard and

nonstandard cost centers accepted by the electronic cost report database. In general, the most detailed level at which we calculated CCRs was the hospital-specific departmental level.

Following the expiration of most medical devices from pass-through status in CY 2003, prior to which devices were paid at charges reduced to cost using the hospital's overall CCR, we received comments that our OPPS cost estimates for device implantation procedures systematically underestimate the cost of the devices included in the packaged payment for the procedures because hospitals routinely mark up charges for low cost items to a much greater extent than they mark up high cost items, and that these items are often combined in a single cost center on their Medicare cost report. This is commonly known as ``charge compression.''

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

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

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

RTI made several short-term recommendations for improving the accuracy of DRG weight estimates from a cost-based methodology to address bias in combining cost centers and charge compression that could be considered in the context of OPPS policy. We discussed each recommendation within the context of the OPPS and provided our assessment of its application to the OPPS in the CY 2008 OPPS/ASC proposed rule (72 FR 42642). Of the four short term recommendations, we believe that only the recommendation to establish regression based estimates as a

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temporary or permanent method for disaggregating national average CCRs for medical supplies, drugs, and radiology services under the IPPS has specific application to the OPPS (RTI study, pages 11 and 86). Moreover, with regard to radiology services, the OPPS already has partially implemented RTI's recommendation to use lower CCRs to estimate costs for those OPPS services allocated to MRI or CT Scan cost centers through its use of hospital-specific CCRs for nonstandard cost centers.

For reasons discussed below and in more detail in the proposed rule (72 FR 42642 through 42643), we proposed to develop an all charges model that would compare variation in CCRs with variation in combined inpatient and outpatient charges for sets of similar services and establish disaggregated regression-based CCRs that could be applied to both inpatient and outpatient charges. We proposed to evaluate the results of that methodology for purposes of determining whether the resulting regression-based CCRs should be proposed for use in developing the CY 2009 OPPS payment rates. As noted in the proposed rule (72 FR 42642), the revised all charges model and resulting regression-based CCRs were not available in time for use in developing this final rule with comment period.

Since publication of the proposed rule, we have contracted with RTI to determine whether the statistical model that RTI recommended in its January 2007 report for adjusting CCRs in inpatient cost computations can be expanded to include cost computations for significant categories of outpatient services that are paid under the OPPS and to assess the impact of any such changes on payment under the OPPS (HHSM 500-2005- 00029I Task Order 0008, ``Refining Cost-to-Charge Ratios for Calculating APC and DRG Relative Payment Weights''). Under this task order, RTI will assess the validity of the revenue code-to-cost center crosswalk used under the OPPS by comparing revenue code and cost center charges, make recommendations for changes to the crosswalk, and assess the OPPS use of nonstandard cost centers. RTI will estimate regression- based CCRs using charge data from both inpatient and outpatient claims for hospital ancillary departments. RTI will extend its recommended models to estimate regression-based CCRs for cost centers that are particularly relevant to APCs, working with CMS staff to analyze the sensitivity of APC weights to proposed adjustments. RTI also will convene a technical expert panel to review analyses, as it did for its first study.

There are several reasons why we did not propose to use the intradepartmental regression-based CCRs that RTI estimated using IPPS charges for the CY 2008 OPPS estimation of median costs. We agree with RTI that the intradepartmental CCRs calculated for the IPPS would not always be appropriate for application to the OPPS (RTI study, pages 34 and 35). While RTI recommends that the model be recalibrated for outpatient charges before it is applied to the OPPS, we believed that the combined nature of the CCRs available from the cost report prevents an accurate outpatient recalibration that would be appropriate for the OPPS alone. Therefore, we believed that an all charges model examining an expanded subset of revenue codes would be the most appropriate, and that this model should be developed before we could apply the resulting regression based CCRs to the charges for supplies paid under the OPPS.

Moreover, we were concerned that implementing the regression-based IPPS related CCRs in the OPPS that RTI estimated for CY 2008 could result in greater instability in relative payment weights for CY 2008 than would otherwise occur, and that a subsequent change to application of the regression-based CCRs resulting from development of an all charges model might also result in significant fluctuations in median costs and increased instability in payments from CY 2008 to CY 2009. Therefore, these sequential changes could result in significant increases in median costs in one year and significant declines in median costs in the next year.

Therefore, we did not propose to adopt the RTI regression-based CCRs under the CY 2008 OPPS. As indicated in the proposed rule (72 FR 42643), we stated that we would consider whether it would be appropriate to adopt regression-based CCRs for the OPPS after we received RTI's comprehensive review of the OPPS cost estimation methodology and reviewed the results of the use of both inpatient and outpatient charges across all payers to reestimate regression-based CCRs.

We received many public comments on the issue of application of the disaggregated CCRs that RTI estimated using regression analysis to calculate payments for the CY 2008 OPPS. A summary of the public comments and our responses follow.

Comment: The commenters made a number of requests for the CY 2008 OPPS. Some commenters asked specifically that CMS use the RTI regression-based CCRs to calculate the costs of devices, implants, and drugs under the CY 2008 OPPS. Other commenters urged CMS not to apply this charge compression adjustment methodology to diagnostic radiology services because the application of the methodology to these capital intensive procedures has not been fully validated and would benefit from additional analysis. The commenters who supported the application of the adjustment methodology for CY 2008 asserted that CMS should disregard the fact that the estimated regression-based CCRs were calculated using only inpatient charge data because the commenters had found that using inpatient or outpatient charges yielded similar CCR estimates for implantable devices and all other supplies. These commenters believed that CMS should accept the RTI findings that were based on inpatient charges alone and apply them to the calculation of median costs for all OPPS weights. They explained that CMS could consider further refinements to the methodology in future years, such as estimating the regression-based CCRs using either outpatient or combined charges, but that CMS should not delay implementing this important change as it evaluates an all charges model.

Some commenters who supported the application of the adjustment for CY 2008 also stated that the most glaring cases of charge compression occur with high cost implantable devices that are reported by hospitals with low cost supplies in the same supply cost center. They asserted that the need for analysis of the extent of a problem in other cost centers should not stop CMS from applying the estimated regression- based CCRs for CY 2008 to charges for medical supplies, drugs, and radiology services. One commenter submitted a set of revised weights for all APCs reflecting regression-based CCRs for implantable devices and all other supplies, as well as its assumptions in developing the weights, and asked that CMS review the results. Some commenters stated that if CMS decides not to implement the RTI recommendations for regression-based CCRs for CY 2008, it should ensure that an all charges model is implemented in both the IPPS and the OPPS for CY 2009 through a joint IPPS/OPPS task force. Some commenters believed that CMS should either implement the regression-based adjustments in CY 2008 or begin a transition to them over a period of 2 to 3 years.

The MedPAC recommended that CMS use the RTI's estimated disaggregated, regression-based CCRs for medical supplies, drugs, and radiology as part of the OPPS ratesetting process for CY

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2008. It stated that, although the application of the regression based CCR estimates is not a perfect solution to the problem of charge compression, the possibility of payment inaccuracies is sufficiently serious that CMS should implement this imperfect solution. The MedPAC also recommended that if CMS prefers to await the results of the all charges model and chooses not to correct for the effects of charge compression under the CY 2008 OPPS, CMS must do so for the CY 2009 OPPS.

Response: While the RTI recommendations for regression-based CCRs may have the potential to address issues of charge compression raised in the public comments about OPPS cost-based weights, we are not sufficiently convinced that we should adopt the regression-based CCR estimates for the CY 2008 OPPS from the January 2007 RTI short-term recommendations for several reasons. First, the focus of the RTI study on inpatient charges did more than just restrict the regression model dependent variables to inpatient percentages. The study also limited the cost centers addressed to those where the inpatient charges comprised a significant portion of the cost center charges and substantially contributed to the DRGs. The RTI analysis did not examine cost centers that have a much greater proportion of outpatient charges, and as such, are particularly important to APC weights, while also potentially having a residual import for DRG weight calculations as well.

Second, adoption of regression-based CCRs in this final rule with comment period would produce significant changes to the proposed APC payment rates beyond those already introduced with our CY 2008 packaging approach. The lengthy discussion of public comments to our proposed packaging approach in section II.A.4. of this final rule with comment period reflects the public concern raised by a modest change in the methodology for estimating APC relative weights. Disaggregating drug and supply cost centers clearly would redistribute hospitals' resource costs among relative weights for different APCs. Estimated APC median costs calculated using regression-based CCRs for implantable devices and all other supplies, which were furnished by one commenter, showed increases for some services of as high as 28 percent, such as APC 0418 (Insertion of Left Ventricular Lead). Others would decline by as much as 11 percent, including APC 0674 (Prostate Cryoablation) and APC 0086 (Level III Electrophysiologic Procedures). An adjusted ``all other supply'' CCR would reduce the median cost of any service with significant supply packaging. Adoption of regression-based CCRs could interact with other potential changes to the APC payment groups under the OPPS. Budget neutrality adjustments could further increase the magnitude of these observed differences. We believe that these significant redistributional effects would have to be confirmed through CMS analysis, modeled, and made available for public comment should CMS decide to adopt regression-based CCRs.

Third, we anticipate overall changes to our cost estimation methodology in the future, including changes to the revenue code-to- cost center crosswalk and use of nonstandard cost centers. We believe that a comprehensive review of cost estimation is an appropriate time to explore the potential use of disaggregated CCRs for the OPPS. For example, if we implemented only select regression-based CCRs or crosswalk refinements, we could inappropriately redistribute weight within the system.

Finally, as noted in the FY 2008 IPPS final rule (72 FR 47192 through 47200), despite commenters' support for the disaggregated CCRs developed from regression analysis, we remain concerned about the accuracy of using regression-based estimates to determine relative weights rather than the Medicare cost report. This is especially true for the OPPS, given the potential redistribution of resource costs among services. One commenter noted that poor capital allocation to MRI and CT Scan revenue code charges could explain the observed differences in CCRs for these services, and a regression-based adjustment based on incorrect capital allocation would be equally inaccurate. As discussed in the FY 2008 IPPS final rule (72 FR 47196), we fully support voluntary educational initiatives to improve uniformity in reporting costs and charges on the cost report. Participation in these educational initiatives by hospitals is voluntary. Hospitals are not required to change how they report costs and charges if their current cost reporting practices are consistent with rules and regulations and applicable instructions. However, both the IPPS and OPPS relative weight estimates will benefit from any steps taken to improve cost reporting. To the extent allowed under current regulations and cost report instructions, we encourage hospitals to report costs and charges consistently with how the data are used to determine relative weights. We believe this goal is of mutual benefit to both Medicare and hospitals.

In conclusion, we believe that it is important that the initial RTI estimation of regression-based CCRs be replicated with the inclusion of hospital outpatient charges, that the study examine the current OPPS revenue code-to-cost center crosswalk and the use of nonstandard cost centers, and that the analysis focus on the cost centers that have significant hospital outpatient charges. Regression-based CCRs may have potential to address issues of charge compression under the OPPS and possible mismatches between how costs and charges are reported in the cost reports and on OPPS claims. However, given the potential resulting change in APC weights and redistributional impact, we believe we would need to apply regression-based CCRs in all areas eligible for an adjustment, as well as implement appropriate crosswalk refinements, in order to not under-or overvalue relative weights within the system. We continue to have concerns about premature adoption of regression-based CCRs without the benefit of knowing how they would interact with other APC changes. We further believe that such methodological changes would need to be proposed, including presentation of our assessment of the possible impact of the methodology and solicitation of public comment. Once we have received the results of RTI's evaluation, we will analyze the findings and then consider whether it could be appropriate to propose to use regression-based CCRs under the OPPS. Once we have completed our analysis, we will then examine whether the educational activities being undertaken by the hospital community to improve cost reporting accuracy under the IPPS would help to mitigate charge compression under the OPPS, either as an adjunct to the application of regression-based CCRs or in lieu of such an adjustment. After the conclusion of our analysis of the RTI evaluation and our review of hospital educational activities, we will then determine whether any refinements should be proposed.

Comment: One commenter indicated that the standard hospital accounting methodology for treatment of high capital costs, including the costs of expensive nonmovable radiology equipment, results in CCRs for radiology services that understate the true costs of radiology services because the high capital costs are spread over all departments of the hospital on a square footage basis. The commenter argued that this understatement of the costs in the CCR for radiology-related

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departments results in calculated costs for radiology services that are too low because flawed CCRs are applied to the charges for the services provided by the radiology department.

Response: We will consider the issue as part of our assessment of CCRs over the upcoming year, in the context of the RTI study as described earlier and the ongoing work that the hospital industry is undertaking with respect to cost reporting. 2. Calculation of Median Costs

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

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

following two OPPS data files: ``OPPS Limited Data Set'' and ``OPPS Identifiable Data Set.'' These files are available for both the claims that were used to calculate the proposed payment rates for the CY 2008 OPPS and also for the claims that were used to calculate the final payment rates for the CY 2008 OPPS.

As proposed, we used the following methodology to establish the relative weights used in calculating the OPPS payment rates for CY 2008 shown in Addenda A and B to this final rule with comment period. This methodology is as follows: a. Claims Preparation

We used hospital outpatient claims for the full CY 2006, processed before June 30, 2007, to set the final relative weights for CY 2008. To begin the calculation of the relative weights for CY 2008, we pulled all claims for outpatient services furnished in CY 2006 from the national claims history file. This is not the population of claims paid under the OPPS, but all outpatient claims (including, for example, CAH claims and hospital claims for clinical laboratory services for persons who are neither inpatients nor outpatients of the hospital).

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

We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 108 million claims that contain hospital bill types paid under the OPPS.

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

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

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

For the CCR calculation process, we used the same general approach as we used in developing the final APC rates for CY 2007, using the revised CCR calculation which excluded the costs of paramedical education programs and weighted the outpatient charges by the volume of outpatient services furnished by the hospital. We refer readers to the CY 2007 OPPS/ASC final rule with comment period for more information (71 FR 67983 through 67985). We first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2006 before determining whether the CCRs for such hospitals were valid.

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

We then flagged CAH claims, which are not paid under the OPPS, and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all- inclusive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less than .0001); and those from hospitals with overall CCRs that were identified as outliers (3 standard deviations from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center (that is, departmental) level by removing the CCRs for each cost center as outliers if they exceeded +/- 3 standard deviations from the geometric mean. We used a four tiered hierarchy of cost center CCRs to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the last tier being the default CCR. If a hospital's cost center CCR was deleted by trimming, we set the CCR for that cost center to ``missing'' so that another cost center CCR in the revenue center hierarchy could apply. If no other cost center CCR could apply to the revenue code on the claim, we used the hospital's overall CCR for the revenue code in question. For example, if a visit was reported under the clinic revenue code, but the hospital did not have a clinic cost center, we mapped the hospital-specific overall CCR to the clinic revenue code. The hierarchy of CCRs is available for inspection and comment on the CMS Web site: http://www.cms.hhs.gov/HospitalOutpatientPPS. We then converted the charges to

costs on each claim by applying the CCR that we believed was best suited to the revenue code indicated on the line with the charge. Table 4 of the proposed rule contained a list of the revenue codes we proposed to package. Revenue codes not included in Table 4 were those not allowed under the OPPS because their services could not be paid under the OPPS (for example, inpatient room and

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board charges), and thus charges with those revenue codes were not packaged for creation of the OPPS median costs. One exception is the calculation of median blood costs, as discussed in section X. of this final rule with comment period.

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

We identified claims with condition code 41 as partial hospitalization services of hospitals and moved them to another file. These claims were combined with the 76X claims identified previously to calculate the partial hospitalization per diem rate.

We then excluded claims without a HCPCS code. We moved to another file claims that contained nothing but influenza and pneumococcal pneumonia (``PPV'') vaccines. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We note that the separate file containing partial hospitalization claims is included in the files that are available for purchase as discussed above. Unlike years past, we did not create a separate file of claims containing observation services because we are packaging all observation care for the CY 2008 OPPS.

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

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

At its March 2007 meeting, the APC Panel recommended that CMS edit and return for correction claims that contain a HCPCS code for a separately paid drug or device but that also do not contain a HCPCS code assigned to a procedural APC (that is, those not assigned status indicator ``S,'' ``T,'' ``V,'' or ``X''). The APC Panel stated that this edit should improve the claims data and may increase the number of single bills available for ratesetting. We noted that such an edit would be broader than the device-to-procedure code edits we implemented for CY 2007 for selected devices, and we solicited comments on the impact of establishing such edits on hospital billing processes and related potential improvements to claims data. In the CY 2008 proposed rule (72 FR 42645), we explained that in view of the prior public comments and our desire to ensure that the public data files contained all appropriate data, for the CY 2008 OPPS, we proposed to define majors as HCPCS codes that have a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' We proposed to define minors as HCPCS codes that have a status indicator of ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N'' but, as discussed above, to make single bills out of any claims for single procedures with a minor code that also has an APC assignment. This ensured that the claims that contained only HCPCS codes for drugs and biologicals or devices but that did not contain codes for procedures were included in the limited data set and the identifiable data set. It also ensured that conditionally packaged services proposed to receive separate payment only when they were billed without any other separately payable OPPS services would be treated appropriately for purposes of median cost calculations. We proposed to define ``other'' services as HCPCS codes that had a status indicator other than those defined as majors or minors.

We received several public comments regarding our proposal to continue to process OPPS claims for a separately paid drug or device that did not also report a procedural HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' A summary of the public comments and our responses follow.

Comment: Several commenters requested that we adopt the recommendation of the APC Panel that CMS edit and return for correction claims that contained a HCPCS code for a separately paid drug or device but that did not also report a HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X.'' These commenters believed that this process would generally improve hospitals' coding and charging practices. One commenter indicated that, under some circumstances, a hospital may bill for a diagnostic radiopharmaceutical that is administered on one day but may not report the associated nuclear medicine procedure on the same claim because the procedure would be provided several days later. In this case, the bill for the diagnostic radiopharmaceutical would include no other services with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' because the administration of the radiopharmaceutical would be considered to be a part of the nuclear medicine study.

Response: We have accepted this recommendation in selective situations. We currently edit claims in the Outpatient Code Editor (OCE) for selected devices for which our data show that hospitals have a history of reporting the HCPCS device code but not reporting the HCPCS procedure code that is necessary for the device to have therapeutic benefit. See the device-to-procedure edits on the OPPS Web page at http://www.cms.hhs.gov/HospitalOutpatientPPS/. Moreover, as

discussed in more detail in section II.A.4.c.(5) of this final rule with comment period, effective for dates of service on or after January 1, 2008, we will implement OCE edits for diagnostic nuclear medicine services that will require that a HCPCS code for a diagnostic radiopharmaceutical must be on the claim for the claim to be processed to payment. Claims will be returned to the provider for correction if they contain a nuclear medicine service but the hospital does not also report a radiopharmaceutical on the same claim. We will continue to assess the need for OCE edits based upon the unique

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circumstances of individual services or categories of services.

In the CY 2008 proposed rule (72 FR 42645), we explained our continued belief that using status indicators, with the proposed changes, was an appropriate way to sort the claims into these groups and also to make our process more transparent to the public. We further believed that this proposed method of sorting claims would enhance the public's ability to derive useful information for analysis and public comment on the proposed rule.

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

In response to public comments as discussed in detail in section II.A.4. of this final rule with comment period, we refined the proposed methodology for paying claims that contain ``special'' packaged codes with status indicator ``Q'' when there is a major separately paid procedure on the claim for the same date and when there are multiple ``special'' packaged codes with status indicator ``Q'' but no major procedure on the claim. This last and largest subset of conditionally packaged services, referred to as ``special'' packaged codes in the proposed rule, had to be integrated into the identification of single and multiple bills for ratesetting to ensure that the costs for these services were appropriately packaged when they appeared with any other separately paid service or paid separately when appearing by themselves.

We handled these ``special'' packaged ``Q'' status codes in the data for this final rule with comment period by assigning the HCPCS code an APC and a data status indicator of ``N.'' This gives all special packaged codes an initial status of ``minor'' that is changed, when appropriate, through the split process. We identified two subsets of the ``special'' packaged codes for the purpose of payment and ratesetting. Imaging supervision and interpretation ``special'' packaged codes are now named ``T-packaged'' codes. All other ``special'' packaged codes are referred to as ``STVX-packaged'' codes. When an ``STVX-packaged'' code appeared with a HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' on the same date of service, it retained its minor status and was treated as a packaged code and received a status indicator of ``N.'' The costs that appeared on the lines with these codes were packaged into the cost of the HCPCS code with a status indicator of ``S,'' ``T,'' ``V,'' or ``X'' in the single bills and contributed to the median cost for the primary service with which they appeared. When the ``STVX packaged'' code appeared by itself, without other special packaged codes on the same claim, and had a unit of one, we changed the status indicator on the line to the status indicator of the APC to which the code was assigned, converting the service from a single minor to a single major. This created ``natural'' single bills for the ``STVX-packaged'' codes. In the case of multiple ``STVX-packaged'' codes reported on a claim on the same date of service but without a major separately paid procedure (that is, ``S,'' ``T,'' ``V,'' or ``X''), we first identified the ``STVX- packaged'' code with the highest CY 2007 OPPS payment weight. We then changed the status indicator on the line to the status indicator of the APC to which this particular code was assigned, converting the service from a single minor to a single major, and we forced the units to be one to conform with our policy of paying only one unit of a ``Q'' status service. We extracted these claims from the multiple minors to create ``pseudo'' single bills. We summed all costs on the claim and associated the resulting cost with the payable ``STVX-packaged'' code that had the highest CY 2007 OPPS payment weight. We used natural and ``pseudo'' single procedure claims for ``STVX-packaged'' codes to set the median costs for the APCs to which the codes were assigned when they would be separately paid.

We modified this methodology for the ``T-packaged'' codes (imaging supervision and interpretation services in CY 2008) because our final CY 2008 payment policy for these services differs from the policy for ``STVX-packaged'' codes. Although we treated all ``special'' packaged codes as ``STVX-packaged'' codes in the proposed rule, in this final rule with comment period, ``T-packaged'' services are packaged only when they appear with a service with a status indicator of ``T'' on the same date; otherwise, ``T packaged'' services are paid separately. We assessed all claims for the presence of ``T packaged'' services and determined their final payment disposition, packaged or separately paid, prior to splitting the claims into single and multiple majors and minors. When a ``T-packaged'' code appeared with a HCPCS code with a status indicator of ``T'' on the same date of service, the ``T- packaged'' code was treated as a packaged code and retained its minor status and a status indicator of ``N.'' Otherwise, we designated a ``T- packaged'' service that would be separately paid by identifying the ``T-packaged'' code on the date of service with the highest CY 2007 payment weight. We changed the status indicator on the line of the ``T- packaged'' code with the highest CY 2007 payment weight to the status indicator of the APC

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to which the code was assigned, converting it from a single minor to a single major. We forced the units to be one to conform with our policy of paying only one unit of a service with a status indicator of ``Q.'' Any remaining ``T-packaged'' codes appearing on the same date of service retained their minor status and a status indicator of ``N.'' In the single and ``pseudo'' single bills, the costs that appeared on the lines with these codes were packaged into the cost of the HCPCS code with a status indicator of ``T.'' The remaining claims, ``T-packaged'' services on claims with another service with a status indicator of ``S,'' ``V,'' or ``X'' on the same date, became multiple majors. The bypass process for breaking multiple major claims created additional ``pseudo'' single bills for the ``T-packaged'' codes that had been converted to major status. When the ``T-packaged'' code appeared by itself with packaged services and one unit, we changed the status indicator on the line to the status indicator of the APC to which the code was assigned, converting the service to a single major procedure. In the case of multiple ``T-packaged'' codes reported on a claim on the same date of service but without a major separately paid procedure (``S,'' ``T,'' ``V,'' or ``X''), we summed all costs on the claim, associated the resulting cost with the ``T-packaged'' or ``STVX- packaged'' code that had the highest 2007 OPPS payment weight, and forced the units to one. We extracted these claims from the multiple minors to created new single bills. These processes created ``natural'' and ``pseudo'' single bills for the ``T-packaged'' codes that were then used to set the median cost for each specific code and for the APCs to which the codes would be assigned when they were separately paid.

We added the logic necessary to deal with these codes as part of the split of the claims into the five groups defined below and in our review of the multiple minor claims. We evaluated the ``T-packaged'' codes that had been on the bypass list to see if they might be eligible for continuation on the list, as these codes would appear with their final payment disposition in the multiple majors. However, we determined that none of these codes should be returned to the bypass list because their associated packaging under their CY 2008 ``Q'' payment status exceeded the empirical criteria designed to limit error in the allocation of packaged costs through the bypass process.

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

1. Single Major Claims: Claims with a single separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X''). Claims with one unit of a status indicator ``Q'' code that was an ``STVX-packaged'' code or ``T-packaged'' code where there was no code on the claim with status indicator ``S,'' ``T,'' `` V,'' or ``X,'' or ``T,'' respectively.

2. Multiple Major Claims: Claims with more than one separately payable procedure (that is, status indicator ``S,'' ``T,'' ``V,'' or ``X''), or multiple units of one payable procedure. As discussed below, some of these were used in median setting. These claims included those with a status indicator ``Q'' code that was a ``T-packaged'' code and no procedure with a status indicator ``T'' on the same date of service. We also included in this set claims that contained one unit of one code when the bilateral modifier was appended to the code and the code was conditionally or independently bilateral. In these cases, the claims represented more than one unit of the service described by the code, notwithstanding that only one unit was billed.

3. Single Minor Claims: Claims with a single HCPCS code that was assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N'' and was not an ``STVX-packaged'' or ``T packaged code.''

4. Multiple Minor Claims: Claims with multiple HCPCS codes that were assigned status indicator ``F,'' ``G,'' ``H,'' ``K,'' ``L,'' or ``N.'' This set included ``STVX packaged'' and ``T-packaged'' codes with more than one unit of the code or more than one line of these codes on the same date of service. As noted above, we created ``pseudo'' singles from some of these claims when we broke the claim by date, packaged the costs into the code with the highest CY 2007 payment weight, and forced the units to one to match our payment policy of paying one unit.

5. Non-OPPS Claims: Claims that contained no services payable under the OPPS (that is, all status indicators other than those listed for major or minor status). These claims were excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory tests, and do not contain either a code for a separately paid service or a code for a packaged service.

The claims listed in numbers 1, 2, 3, and 4 above were included in the data files that can be purchased as described above. ``STVX- packaged'' and ``T-packaged'' codes appear in the single major file, the multiple major file, and the multiple minor file.

We set aside the single minor, multiple minor, and non-OPPS claims (numbers 3, 4, and 5 above) because we did not use these claims in calculating median costs of procedural APCs. We then used the bypass codes listed earlier in Table 1 and discussed in section II.A.1.b. of this final rule with comment period to remove separately payable procedures that we determined contained limited or no packaged costs or that were otherwise suitable for inclusion on the bypass list from a multiple procedure bill. When one of the two separately payable procedures on a multiple procedure claim was on the bypass list, we split the claim into two ``pseudo'' single procedure claim records. The single procedure claim record that contained the bypass code did not retain packaged services. The single procedure claim record that contained the other separately payable procedure (but no bypass code) retained the packaged revenue code charges and the packaged HCPCS code charges. We then examined the multiple major claims for dates of service to determine if we could break them into ``pseudo'' single procedure claims using the dates of service on all lines on the claim. If we could create claims with single major procedures by using dates of service, we created a single procedure claim record for each separately paid procedure on a different date of service (that is, a ``pseudo'' single).

We also removed lines that contained multiple units of codes on the bypass list and treated them as ``pseudo'' single claims by dividing the cost for the multiple units by the number of units on the line. Where one unit of a single, separately paid procedure code remained on the claim after removal of the multiple units of the bypass code, we created a ``pseudo'' single claim from that residual claim record, which retained the costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use claims that would otherwise be multiple procedure claims and could not be used. We excluded those claims that we were not able to convert to single claims even after applying all of the techniques for creation of ``pseudo'' singles. Among those excluded were claims that contained codes that were viewed as independently or conditionally bilateral and that contained the bilateral modifier (Modifier 50 (Bilateral procedure)) because the line-item cost for the code represented the cost of two units of the procedure, notwithstanding that the code appeared with a unit of one. Therefore, the charge on the line

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represented the charge for two services rather than a single service and using the line as reported would have overstated the cost of a single procedure. c. Completion of Claim Records and Median Cost Calculations

We then packaged the costs of packaged HCPCS codes (codes with status indicator ``N'' listed in Addendum B to the proposed rule and the costs of those lines for ``Q'' status services that retained status indicator ``N'' through the split process as described above) and packaged revenue codes into the cost of the single major procedure remaining on the claim.

The final list of packaged revenue codes is shown in Table 2 below. At its March 2007 meeting, the APC Panel recommended that CMS review the final list of packaged revenue codes for consistency with OPPS policy and ensure that future versions of the OCE edit accordingly. We compared the packaged revenue codes in the OCE to the final list of packaged revenue codes for the CY 2007 OPPS (71 FR 67989 through 67990) that we used for packaging costs in median calculation. As a result of that analysis, we stated in the CY 2008 OPPS/ASC proposed rule (72 RF 42646) that we accepted the APC Panel's recommendation and we proposed to change the list of packaged revenue codes for the CY 2008 OPPS in the following manner. First, we proposed to remove revenue codes 0274 (Prosthetic/Orthotic devices) and 0290 (Durable Medical Equipment) from the list of packaged revenue codes because we do not permit hospitals to report implantable devices in these revenue codes (Internet Only Manual 100-4, Chapter 4, section 20.5.1.1). We also specifically proposed to add revenue code 0273 (Take Home Supplies) to the list of packaged revenue codes because we believed that the charges under this revenue code were for the incidental supplies that hospitals sometimes provided for patients who were discharged at a time when it was not possible to secure the supplies needed for a brief time at home. We proposed to conform the list of packaged revenue codes in the OCE to the OPPS for CY 2008. We made these changes in the calculation of the CY 2008 OPPS payment rates. The final CY 2008 packaged revenue codes are displayed in Table 2 below.

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

We also excluded (1) claims that had zero costs after summing all costs on the claim and (2) claims containing packaging flag number 3. Effective for services furnished on or after July 1, 2004, the OCE assigned packaging flag number 3 to claims on which hospitals submitted token charges for a service with status indicator ``S'' or ``T'' (a major separately paid service under the OPPS) for which the fiscal intermediary was required to allocate the sum of charges for services with a status indicator equaling ``S'' or ``T'' based on the weight of the APC to which each code was assigned. We did not believe that these charges, which were token charges as submitted by the hospital, were valid reflections of hospital resources. Therefore, we deleted these claims. We also deleted claims for which the charges equaled the revenue center payment (that is, the Medicare payment) on the assumption that where the charge equaled the payment, to apply a CCR to the charge would not yield a valid estimate of relative provider cost.

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

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

After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, approximately 58 million claims were left for this final rule comment period. Of these 58 million claims, we were able to use some portion of approximately 54 million whole claims (93 percent of approximately 58 million potentially usable claims) to create approximately 97 million single and ``pseudo'' single claims, of which we used 96 million single bills (after trimming out just over 900,000 claims as discussed below) in the CY 2008 median development and ratesetting.

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

In the CY 2008 proposed rule (72 FR 42646), we explained that in our review of median costs for HCPCS codes and their assigned APCs, we had frequently noticed that some services were consistently rarely performed in the hospital outpatient setting for the Medicare population. In particular, there were a number of services, such as several procedures related to the care of pregnant women, that had annual Medicare claims volume of 100 or fewer occurrences. By definition, these services also had a small number of single bills from which to estimate median costs. In addition, in some cases, these codes had been historically assigned to clinical APCs where all the services were low volume. Therefore, the median costs for these services and APCs often fluctuated from year to year, in part due to the variability created by such a small number of claims. One of the benefits of basing payment on the median cost of many HCPCS codes with sufficient single bill representation in an APC is that such fluctuation would be moderated by the increased number of observations for similar services on

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which the APC median cost was also based. We considered proposing a distinct methodology for calculation of the median cost of low total volume APCs in order to provide more stability in payment from year to year for these low total volume services. However, after examination of the low total volume OPPS services and their assigned APCs, we concluded that there were other clinical APCs with higher volumes of total claims to which these low total volume services could be reassigned, while ensuring the continued clinical and resource homogeneity of the clinical APCs to which they would be newly reassigned. Therefore, we believed that it would be more appropriate to reconfigure clinical APCs to eliminate most of the low total volume APCs. We observed that these low volume services differed from other OPPS services only because they were not often furnished to the Medicare population. Therefore, we proposed to reconfigure certain clinical APCs for CY 2008 as a way to promote stability and appropriate payment for the services assigned to them, including low total volume services. We believed that these proposed reconfigurations maintained APC clinical and resource homogeneity. We proposed these changes as an alternative to developing specific quantitative approaches to treating low total volume APCs differently for purposes of median calculation. Specifically, we proposed that 3 APCs (all of which are New Technology APCs) would have a total volume of services less than 100, and only 17 APCs would have a total volume of less than 1,000, in comparison with CY 2007 where 9 APCs (including 3 New Technology APCs) had a total volume of less than 100 and 36 APCs had a total volume of less than 1,000. In this final rule with comment period, 3 APCs (all New Technology APCs) have a total volume of less than 100 and 15 APCs have a total volume of less than 1,000.

We received a number of public comments on our proposed process for calculating the median costs on which our payment rates are based. A summary of the pubic comments and our responses follow.

Comment: Some commenters objected to the volatility of the OPPS rates from year to year. The commenters asserted that the absence of stability in the OPPS rates creates budgeting, planning, and operating problems for hospitals, and that as more care is provided on an outpatient, rather than inpatient basis, the need for stable payment rates from one year to the next becomes more important to hospitals. Some commenters asked that CMS permit no payment rate to change by more than 5 percent from one year to the next.

Response: There are a number of factors pertinent to the OPPS that cause median costs to change from one year to the next. Some of these are a reflection of hospital behavior, and some of them are a reflection of fundamental characteristics of the OPPS as defined in statute. For example, the OPPS payment rates are based on hospital cost report and claims data. However, hospital costs and charges change each year and this results in both changes to the CCRs taken from the most currently available cost reports and also differences in the charges on the claims that are the basis of the calculation of the median costs on which OPPS rates are based. Similarly, hospitals adjust their mix of services from year to year by offering new services and ceasing to furnish services or changing the proportion of the various services they furnish, which has impact on the CCRs that we derive from their cost reports. CMS cannot stabilize these hospital-driven fundamental inputs to the calculation of OPPS payment rates. Moreover, there are other essential elements of the OPPS which contribute to the changes in relative weights each year. These include, but are not limited to, reassignments of HCPCS codes to APCs to rectify 2 times violations as required by the law, to address the costs of new services, and to respond to public comments. Moreover, for some services, we cannot avoid using small numbers of claims, either because the volume of services is naturally low or because the claims data do not facilitate the calculation of a median cost for a single service. Where there are small numbers of claims to be used in median calculation, there is more volatility in the median cost from one year to the next. Lastly, changes to OPPS payment policy (for example, changes to packaging) also contribute to some extent to the fluctuations in the OPPS payment rates for the same service from year to year.

We cannot avoid the naturally occurring volatility in the cost report and claims data that hospitals submit and on which the payment rates are based. Moreover (with limited exceptions), we are required by law to reassign HCPCS codes to APCs where it is necessary to avoid 2 times violations. However, we have made other changes to resolve some of the other potential reasons for instability from year to year. Specifically, we continue to seek ways to use more claims data so that we have fewer APCs for which there are small numbers of single bills used to set the APC median costs. Moreover, we have tried to eliminate APCs with very small numbers of single bills where we could do so. We received no public comments that objected to our proposal to eliminate a number of very low volume APCs; therefore, we are adopting these reconfigurations for CY 2008. We recognize that changes to payment policies, such as the packaging of payment for ancillary and supportive services and the implementation of composite APCs, may contribute to volatility in payment rates in the short term, but we believe that larger payment packages and bundles will help to stabilize payments in future years by enabling us to use more claims data and by establishing payments for larger groups of services.

Comment: A commenter stated that CMS should crosswalk revenue code 0278 (Other implants, under the Medical/Surgical Supplies category) to cost center 3540 (Prosthetic Devices), which generally represents higher cost technology, instead of crosswalking it to cost center 5500 (Medical Supplies Charge to Patient), which often represents lower cost items. The commenter indicated that this change to the revenue code-to- cost center crosswalk would result in improved estimates of the costs of the devices billed under revenue code 0278 and, therefore, would result in more accurate payments.

Response: We will carefully examine the implications of making this change in the future. However, for CY 2008 this change would have a negligible effect on the median costs for services with charges reported under revenue code 0278. Only 20 providers out of 4,201 in the file of the 2005-2006 cost reports used cost center 3540.

Comment: Some commenters asked that CMS provide an adjustment for medical education costs under the OPPS because so much of the costs of teaching services are being incurred in the HOPD as many of the services previously furnished only in the inpatient setting are now being furnished in the HOPD. The commenters stated that CMS indicated that it would study the costs and payment differential among different classes of providers in the April 7, 2000 OPPS final rule with comment period but has not done so. The commenters also asserted that section 4523 of the BBA requires the Secretary to establish adjustments ``as determined to be necessary to ensure equitable payments * * * for certain classes of hospitals'' and, therefore, CMS should study whether the hospital outpatient costs of teaching hospitals are higher than the costs of other hospitals for purposes of determining whether there should be a teaching

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hospital adjustment. The commenters explained that their internal analysis of 2004 Medicare cost reports showed that the average outpatient margins were -20.2 percent for major teaching hospitals, - 10.1 percent for other teaching hospitals, and -11.8 percent for non- teaching hospitals. They believed these findings demonstrated that the hospital outpatient costs of major teaching hospitals are significantly greater than the costs of other hospitals. The commenters requested that CMS conduct its own analysis, and added that if that analysis shows such a difference, CMS should add a teaching adjustment to the OPPS.

Response: Unlike payment under the IPPS, the law does not provide for payment for indirect medical education costs to be made through the OPPS. Section 1833(t)(2)(E) of the Act, as added by section 4523 of the BBA, states that the Secretary shall establish, in a budget neutral manner `` * * * other adjustments as determined to be necessary to ensure equitable payments, such as adjustments for certain classes of hospitals.'' We have not found such an adjustment to be necessary to ensure equitable payments to teaching hospitals and, therefore, have not developed such an adjustment. We do not believe an indirect medical education add-on payment is appropriate in a budget neutral payment system where such changes would result in reduced payments to all other hospitals. Furthermore, in this final rule with comment period, we have developed payment weights that we believe provide appropriate and adequate payment for the complex medical services, such as visits requiring prolonged observation, new technology services and device- dependent procedures, which we understand are furnished largely by teaching hospitals. Teaching hospitals benefit from the recalibration of the APCs and the changes to packaging that are implemented in this final rule with comment period. The final CY 2008 impacts by class of hospital are displayed in Table 61 in section XXIV.B. of this final rule with comment period. Therefore, we do not believe that there is sufficient reason to develop an adjustment to the OPPS payment to teaching hospitals for the CY 2008 OPPS.

Comment: The MedPAC commented that while CMS proposed to apply a multiple procedure reduction to imaging services for CY 2006, CMS did not adopt this proposal as final but stated that it would continue to study whether such a reduction was appropriate. The MedPAC asked that CMS continue to examine ways to improve payment accuracy for imaging services, including considering applying a multiple procedure reduction to these services.

Response: The question of whether it would be appropriate to apply a multiple procedure reduction pertains only to those imaging services for which we make separate payment. It is not an issue for packaged imaging services, including the numerous imaging services that we are packaging for CY 2008 as part of our expanded payment bundles under the OPPS. The concern, therefore, is partially mitigated by our final CY 2008 packaging policies. Commenters responding to the CY 2006 proposal OPPS indicated that, in contrast to the MPFS payment rates, the hospital cost data used by CMS to set payment rates for imaging services already reflects savings due to the efficiencies of performing multiple procedures during the same session and that the proposal to discount second and subsequent procedures would be tantamount to discounting those procedures twice (70 FR 68707). As we indicated in our response to that comment, we were unable to disprove commenters' contentions that there are already efficiencies included in hospitals' costs and, therefore, in their CCRs and in the median costs on which the OPPS payments are based (70 FR 68708). However, we believe it is possible that there may be a relationship between the extent to which efficiencies are incorporated into the median costs and the degree to which charge compression affects the median costs for imaging services. RTI's study of charge compression using inpatient charges found that use of regression adjusted CCRs would reduce the costs of magnetic resonance imaging and computed tomography services. This is one of the categories of hospital services that has high outpatient utilization. Over the coming year, as discussed earlier in this section of this final rule with comment period, we will explore through the RTI contract the results of including hospital outpatient charges to determine regression-adjusted CCRs for calculation of the median costs for imaging services. We believe that this information could be useful in the reassessment of whether it would be appropriate to apply a multiple procedure reduction to separately paid imaging services.

A detailed discussion of the development of median costs for blood and blood products is included in section X. of this final rule with comment period. A discussion of the calculation of medians for APCs that require one or more implantable devices when the service is performed is provided in section IV.A. of this final rule with comment period. The methodology for developing the median costs for composite APCs is included below in section II.A.4.d. of this final rule with comment period. A description of the methodology for calculating the median cost for partial hospitalization services is presented below in section II.B. of this final rule with comment period.

After consideration of the public comments received, we are finalizing our proposed CY 2008 methodology for calculating the median costs upon which the CY 2008 OPPS payment rates are based, with the modifications described earlier regarding the treatment of services which are assigned status indicator ``Q.''

Table 2.--CY 2008 Packaged Revenue Codes

Revenue code

Description

0250.............................. PHARMACY. 0251.............................. GENERIC. 0252.............................. NONGENERIC. 0254.............................. PHARMACY INCIDENT TO OTHER DIAGNOSTIC. 0255.............................. PHARMACY INCIDENT TO RADIOLOGY. 0257.............................. NONPRESCRIPTION DRUGS. 0258.............................. IV SOLUTIONS. 0259.............................. OTHER PHARMACY. 0260.............................. IV THERAPY, GENERAL CLASS. 0262.............................. IV THERAPY/PHARMACY SERVICES. 0263.............................. SUPPLY/DELIVERY.

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0264.............................. IV THERAPY/SUPPLIES. 0269.............................. OTHER IV THERAPY. 0270.............................. M&S SUPPLIES. 0271.............................. NONSTERILE SUPPLIES. 0272.............................. STERILE SUPPLIES. 0273.............................. TAKE HOME SUPPLIES. 0275.............................. PACEMAKER DRUG. 0276.............................. INTRAOCULAR LENS SOURCE DRUG. 0278.............................. OTHER IMPLANTS. 0279.............................. OTHER M&S SUPPLIES. 0280.............................. ONCOLOGY. 0289.............................. OTHER ONCOLOGY. 0343.............................. DIAGNOSTIC RADIOPHARMS. 0344.............................. THERAPEUTIC RADIOPHARMS. 0370.............................. ANESTHESIA. 0371.............................. ANESTHESIA INCIDENT TO RADIOLOGY. 0372.............................. ANESTHESIA INCIDENT TO OTHER DIAGNOSTIC. 0379.............................. OTHER ANESTHESIA. 0390.............................. BLOOD STORAGE AND PROCESSING. 0399.............................. OTHER BLOOD STORAGE AND PROCESSING. 0560.............................. MEDICAL SOCIAL SERVICES. 0569.............................. OTHER MEDICAL SOCIAL SERVICES. 0621.............................. SUPPLIES INCIDENT TO RADIOLOGY. 0622.............................. SUPPLIES INCIDENT TO OTHER DIAGNOSTIC. 0624.............................. INVESTIGATIONAL DEVICE (IDE). 0630.............................. DRUGS REQUIRING SPECIFIC IDENTIFICATION, GENERAL CLASS. 0631.............................. SINGLE SOURCE. 0632.............................. MULTIPLE. 0633.............................. RESTRICTIVE PRESCRIPTION. 0681.............................. TRAUMA RESPONSE, LEVEL I. 0682.............................. TRAUMA RESPONSE, LEVEL II. 0683.............................. TRAUMA RESPONSE, LEVEL III. 0684.............................. TRAUMA RESPONSE, LEVEL IV. 0689.............................. TRAUMA RESPONSE, OTHER. 0700.............................. CAST ROOM. 0709.............................. OTHER CAST ROOM. 0710.............................. RECOVERY ROOM. 0719.............................. OTHER RECOVERY ROOM. 0720.............................. LABOR ROOM. 0721.............................. LABOR. 0732.............................. TELEMETRY. 0762.............................. OBSERVATION ROOM. 0801.............................. HEMODIALYSIS. 0802.............................. PERITONEAL DIALYSIS. 0803.............................. CAPD. 0804.............................. CCPD. 0809.............................. OTHER INPATIENT DIALYSIS. 0810.............................. ORGAN ACQUISITION. 0819.............................. OTHER ORGAN ACQUISITION. 0821.............................. HEMODIALYSIS COMP OR OTHER RATE. 0824.............................. MAINTENANCE 100%. 0825.............................. SUPPORT SERVICES. 0829.............................. OTHER HEMO OUTPATIENT. 0942.............................. EDUCATION/TRAINING.

3. Calculation of OPPS Scaled Payment Weights

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

Beginning with the CY 2007 OPPS, we standardized all of the relative payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted APC 0601 as part of the reconfiguration of the visit APCs. We chose APC 0606 as the base because APC 0606 was the middle level clinic visit APC (that is, Level 3 of five levels). We had historically used the median cost of the middle level clinic visit APC (that is APC 0601 through CY 2006) to calculate unscaled weights because mid-level clinic visits were among the most frequently performed services in the hospital outpatient setting. As proposed for CY 2008, to maintain consistency in using a median for calculating unscaled weights representing the median cost of some of the most frequently provided services, we continued to use the

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median cost of the mid-level clinic APC, proposed APC 0606, to calculate unscaled weights. Following our standard methodology, but using the CY 2008 median for APC 0606, for CY 2008 we assigned APC 0606 a relative payment weight of 1.00 and divided the median cost of each APC by the median cost for APC 0606 to derive the unscaled relative payment weight for each APC. The choice of the APC on which to base the relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality.

Section 1833(t)(9)(B) of the Act requires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a manner that assures that aggregate payments under the OPPS for CY 2008 are neither greater than nor less than the aggregate payments that would have been made without the changes. To comply with this requirement concerning the APC changes, we compared aggregate payments using the CY 2007 relative weights to aggregate payments using the CY 2008 final relative weights. This year, we included payments to CMHCs in our comparison. Based on this comparison, we adjusted the relative weights for purposes of budget neutrality. The final unscaled relative payment weights were adjusted by a weight scaler of 1.3226 for budget neutrality. In addition to adjusting for increases and decreases in weight due to the recalibration of APC medians, the scaler also accounts for any change in the base, other than changes in volume which are not a factor in the weight scaler. The decline in the weight scaler compared to the proposed weight scaler of 1.3665 results largely from the refinement for this final rule with comment period of the proposed packaging policy to package imaging supervision and interpretation services only if they are reported on the same date of service as a HCPCS code that has a status indicator of ``T.'' This change both increased the median costs for these imaging supervision and interpretation services and added a significant number of units for these services that would be separately paid under the final CY 2008 policy. The other factors that contributed to the decline of the scaler from the proposed rule to this final rule with comment period include the creation of the observation composite APCs and the increase in the final CY 2008 payment rate for partial hospitalization services compared to the proposed payment rate.

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

Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of Pub. L. 108-173, states that ``Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.'' Section 1833(t)(14) of the Act provides the payment rates for certain ``specified covered outpatient drugs.'' Therefore, the cost of those specified covered outpatient drugs (as discussed in section V. of this final rule with comment period) is included in the budget neutrality calculations for the CY 2008 OPPS. We did not receive any public comments on the methodology for calculating scaled weights from the median costs for the CY 2008 OPPS. Therefore, we are finalizing our proposed methodology, without modification, including updating of the budget neutrality scaler for the final rule as proposed. 4. Changes to Packaged Services a. Background

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

The OPPS, like other prospective payment systems, relies on the concept of averaging, where the payment may be more or less than the estimated costs of providing a service or package of services for a particular patient, but with the exception of outlier cases, it is adequate to ensure access to appropriate care. Decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In many situations, the final payment rate for a package of services may do a better job of balancing variability in the relative costs of component services compared to individual rates covering a smaller unit of service without packaging or bundling. Packaging payments into larger payment bundles promotes the stability of payment for services over time, a characteristic that reportedly is very important to hospitals. Unlike packaged services, the costs of individual services typically show greater variation because the higher variability for some component items and services cannot be balanced with lower variability for others and because relative weights are typically estimated using a smaller set of claims.

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When compared to service-specific payment, packaging or bundling payment for component services may change payment at the hospital level to the extent that there are systematic differences across hospitals in their performance of the services included in that unit of payment. Hospitals spending more per case than payment received would be encouraged to review their service patterns to ensure that they furnish services as efficiently as possible. Similarly, we believe that unpackaging services heightens the hospital's focus on pricing individual services, rather than the efficient delivery of those services. Over the past several years of the OPPS, greater unpackaging of payment has occurred simultaneously with continued tremendous growth in OPPS expenditures as a result of increasing volumes of individual services, as discussed in further detail below. Also discussed in further detail below, most recently in its comments to the CY 2007 OPPS/ASC proposed rule and in the context of this rapid spending growth, MedPAC encouraged CMS to broaden the payment bundles under the OPPS to encourage providers to use resources efficiently.

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

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

Packaging and bundling payment for multiple interrelated services into a single payment create incentives for providers to furnish services in the most efficient way by enabling hospitals to manage their resources with maximum flexibility, thereby encouraging long-term cost containment. For example, where there are a variety of supplies that could be used to furnish a service, some of which are more expensive than others, packaging encourages hospitals to use the least expensive item that meets the patient's needs, rather than to routinely use a more expensive item. Packaging also encourages hospitals to negotiate carefully with manufacturers and suppliers to reduce the costs of purchased items and services or to explore alternative group purchasing arrangements, thereby encouraging the most economical health care. Similarly, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are important and to carefully scrutinize the services ordered by practitioners to maximize the efficient use of hospital resources. Finally, packaging payments into larger payment bundles promotes the stability of payment for services over time. Packaging and bundling also may reduce the importance of refining service-specific payment because there is more opportunity for hospitals to average payment across higher cost cases requiring many ancillary services and lower cost cases requiring fewer ancillary services. b. Addressing Growth in OPPS Volume and Spending

Creating additional incentives for providing only necessary services in the most efficient manner is of vital importance to Medicare today, in view of the recent explosion of growth in program expenditures for hospital outpatient services paid under the OPPS. As illustrated in Table 3 below, total spending has been growing at a rate of roughly 10 percent per year under the OPPS, and the Medicare Trustees project that total spending under the OPPS will increase by more than $3 billion from CY 2007 through CY 2008 to nearly $35 billion. Implementation of the OPPS has not slowed outpatient spending growth over the past few years; in fact, double-digit spending growth has generally been occurring. We are greatly concerned with this rate of increase in program expenditures under the OPPS.

Table 3.-Growth in Expenditures Under Opps From CY 2001-CY 2008 [Projected expenditures for CY 2006-CY 2008 in billions]

OPPS growth

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

Incurred Cost........................................... 17.702 19.561 21.156 23.866 26.572 29.741 32.714 36.072 Percent Increase........................................ ..........

10.5

8.2

12.8

11.3

11.9

10.1 10.26

Based on the Midsession Review of the President's FY 2008 Budget.

As with the other Medicare fee-for-service payment systems that are experiencing rapid spending growth, brisk growth in the intensity and utilization of services is the major reason for the current rates of growth in the OPPS, rather than general price or enrollment changes. Table 4 below illustrates the increases in the volume and intensity of hospital outpatient services over the past several years.

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Table 4.-Percentage Increase in Volume and Intensity of Hospital Outpatient Services

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

Percent Increase.............................................

3.5

2.5

7.6

7.4

10.1

9.4

5.8

Based on the Midsession Review of the President's FY 2008 Budget.

For hospital outpatient services, the volume and intensity of services are estimated to have continued to increase significantly in recent years, at a rate of 10.1 percent between CY 2005 and CY 2006, the last two completed calendar years. As we discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68189 through 68190), the rapid growth in utilization of services under the OPPS shows that Medicare is paying mainly for more services each year, regardless of their quality or impact on beneficiary health. In its March 2007 Report to Congress (pages 55 and 56), MedPAC confirmed that much of the growth in service volume from 2003 to 2005 resulted from increases in the number of services per beneficiary who received care, rather than from increases in the number of beneficiaries served. MedPAC found that while the rate of growth in service volume declined over that time period, the complexity of services, defined as the sum of the relative payment weights of all OPPS services divided by the volume of all services, increased, and that most of the growth was attributable to the insertion of devices and the provision of complex imaging services. MedPAC further found that regression analysis suggested that relatively complex hospital outpatient services may be more profitable for hospitals than less complex services. In addition, its analysis indicated that favorable payments for complex services give hospitals an incentive to provide more of those complex services rather than fewer basic services, which increases overall service complexity. MedPAC expressed concern about this relationship and concluded that the historically large increases in outpatient volume and service complexity suggest a need to recalibrate the OPPS. In the future, MedPAC plans to examine options for recalibrating the payment system to accurately match payments to the costs of individual services (Medicare Payment Advisory Commission Report to the Congress: Medicare Payment Policy, March 2007, pages 55 and 56).

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

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

In the CY 2007 OPPS/ASC final rule with comment period, as a first step in the OPPS toward value-based purchasing, we finalized a policy that would employ our equitable adjustment authority under section 1833(t)(2)(E) of the Act to establish an OPPS Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program based on measures specifically developed to characterize the quality of outpatient care (71 FR 68197). We finalized implementation of the program for CY 2009, when we would implement a 2.0 point reduction to the OPPS conversion factor update for those hospitals that do not meet the specific requirements of the CY 2009 program. We described the CY 2009 program, which would be based upon CY 2008 hospital reporting of appropriate measures of the quality of hospital outpatient care that have been carefully developed and evaluated, and endorsed as appropriate, with significant input from stakeholders. We reiterated our belief that ensuring that Medicare beneficiaries receive the care they need and that such services are of high quality are the necessary initial steps to incorporating value-based purchasing into the OPPS. We explained that we are specifically seeking to encourage care that is both efficient and of high quality in the HOPD.

Subsequent to the publication of the CY 2007 OPPS/ASC final rule with comment period, section 109(a) of the MIEA-TRHCA, which added section 1833(t)(19) to the Act, specifies that in the case of a subsection (d) hospital (defined under section 1886(d)(1)(B) of the Act as hospitals that are located in the 50 States or the District of Columbia other than those categories of hospitals or hospital units that are specifically excluded from the IPPS, including psychiatric, rehabilitation, long-term care, children's, and cancer hospitals or hospital units) that does not submit to the Secretary the quality reporting data required for CY 2009 and each subsequent year, the OPPS annual update factor shall be reduced by 2.0 percentage points. The quality reporting program proposed for CY 2008 according to this provision is referred to as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP) and is discussed in detail in section XVII. of this final rule with comment period.

As the next step in our movement toward value-based purchasing under the OPPS and to complement the HOP QDRP for CY 2009, with measure reporting beginning in CY 2008, we believe it is important to initiate specific payment approaches to explicitly encourage efficiency in the hospital outpatient setting that we believe will control future growth in the volume of OPPS services. While the HOP QDRP will encourage the provision of higher quality hospital outpatient services that lead to improved health outcomes for Medicare beneficiaries, we believe that more targeted approaches are also necessary to encourage increased

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hospital efficiency. Two alternatives we have considered that would be feasible under current law include establishing a methodology to measure the growth in volume and reduce OPPS payment rates to account for unnecessary increases in volume or developing payment incentives for hospitals to ensure that they provide necessary services as efficiently as possible.

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

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

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

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

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

Because we believe it is important that the OPPS create enhanced incentives for hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible, we have given considerable thought to how we could increase packaging under the OPPS in a manner that would not place hospitals at substantial financial risk but which would create incentives for efficiency and volume control, while providing hospitals with flexibility to provide care in the most appropriate way for each Medicare beneficiary. We are considering the possibility of greater bundling of payment for major hospital outpatient services, which could result in establishing OPPS payments for episodes of care, and for this reason we particularly welcome MedPAC's exploration of how such an approach might be incorporated into the OPPS payment methodology. We are particularly concerned about the potential for shifting higher cost bundled services to other ambulatory settings. We are currently considering the complex policy issues related to the possible development and implementation of a bundled payment policy for hospital outpatient services that involves significant services provided over a period of time which could be paid through an episode-based payment methodology, but we consider this possible approach to be a long-term policy objective.

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

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as we explore the possibility of moving toward basing OPPS payment on larger packages and bundles of services provided in a single hospital outpatient encounter.

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

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

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

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

Specifically, as our initial substantial step toward creating larger payment groups for hospital outpatient care, in the CY 2008 OPPS/ASC proposed rule (72 FR 42652), we proposed to package payment for items and services in the seven categories listed below into the payment for the primary diagnostic or therapeutic modality to which we believe these items and services are typically ancillary and supportive. We specifically chose these categories of HCPCS codes for packaging because we believe that the items and services described by the codes in these categories are the HCPCS codes that are typically ancillary and supportive to a primary diagnostic or therapeutic modality and, in those cases, are an integral part of the primary service they support. We proposed to assign status indicator ``N'' to those HCPCS codes that we believe are always integral to the performance of the primary modality and to package their costs into the costs of the separately paid primary services with which they are billed. We proposed to assign status indicator ``Q'' to those HCPCS codes that we believe are typically integral to the performance of the primary modality and to package payment for their costs into the costs of the separately paid primary services with which they are usually billed but to pay them separately in those uncommon cases in which no other separately paid primary service is furnished in the hospital outpatient encounter.

For ease of reference in our subsequent discussion in each of the seven areas, we refer to the HCPCS codes for which we proposed to package (or conditionally package) payment as dependent services. We use the term ``independent service'' to refer to the HCPCS codes that represent the primary therapeutic or diagnostic modality into which we are proposing to package payment for the dependent service. We note that, in future years as we consider the development of larger payment groups that more broadly reflect services provided in an encounter or episode of care, it is possible that we might propose to bundle payment for a service that we now refer to as ``independent'' in this final rule with comment period.

Specifically, we proposed to package the payment for HCPCS codes describing the dependent items and services in the following seven categories into the payment for the

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independent services with which they are furnished:

Guidance services

Image processing services

Intraoperative services

Imaging supervision and interpretation services

Diagnostic radiopharmaceuticals

Contrast media

Observation services

In the proposed rule, we identified the HCPCS codes we proposed to package for CY 2008, explained our rationale for proposing to package the codes in these categories, provided examples of how HCPCS and APC median costs and payments would change under these proposals, and discussed the impact of these changes under each category, as follows:

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

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

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

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

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

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

We received many, often widely diverging, public comments on the CY 2008 proposed packaging approach. In many cases the comments were generally applicable to the totality of the packaging proposal and, in other cases, the same general comments were made but only with regard to a specific category or set of services of interest to the commenter. We have addressed all similar public comments in the discussion of general comments, whether they were made in general or for specific categories of services, because the same response applies

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whether the comment was on packaging in general or on a specific service. We have limited the summary of public comments and our responses in the individual category discussions to issues that pertain only to the category or specific services within the category.

During the September 2007 APC Panel meeting, the APC Panel supported packaging for contrast agents, image processing services, guidance (except for radiation oncology guidance procedures), diagnostic radiopharmaceuticals with a median per day cost of less than $200, and intraoperative testing other than possibly for CPT code 96020 (Neurofunctional testing selection and administration during noninvasive imaging functional brain mapping, with test administered entirely by a physician or psychologist, with review of test results and report). The Panel recommended a delay in packaging for imaging supervision and interpretation services because of excessive payment reductions that the Panel believed would occur under the CMS proposal, particularly with regard to packaging payment for those supervision and interpretation services that already include packaged injection services. The Panel did not support packaging of observation services, although it suggested that if CMS were to package observation, it should instead create a composite APC (or a group of composite APCs) for observation and the related visit services, without restriction to specific clinical conditions. The APC Panel also recommended that CMS provide additional information in the CY 2008 final rule with comment period about packaging, including crosswalks and information clarifying how newly packaged services map back to primary procedures.

Comment: MedPAC generally supported the proposed packaging because the services proposed for packaging are typically furnished on the same day as a separately paid service and there is little potential for them to be furnished on another date to avoid the effects of packaging. MedPAC explained that packaging of observation services is logical because currently 70 percent of observation care is packaged. MedPAC's principal concern about the proposed packaging of observation was that this approach could result in hospitals' costs being higher than OPPS payments in some cases, and thereby create an incentive for inpatient admissions. It encouraged CMS to carefully monitoring whether hospitals change their behavior with regard to inpatient admissions.

Some commenters supported encounter-based or episode-based payment, but asked that this approach be based on single encounter only and not span a period of time, because they believed that it would be very difficult to set rates for periods of recurring services. The commenters supported use of multiple procedure claims and payment for combinations of services but encouraged CMS to carefully evaluate the overall impact of packaging on all hospitals. Other commenters suggested that CMS package only services that are low cost and furnished at a high frequency with the independent service. Several commenters stated that CMS should not finalize the proposed packaging approach because it would lead to inappropriate payment, including both overpayments and underpayments.

Several commenters asked that CMS delay the packaging approach for at least a year because they believed the proposed rule did not furnish sufficient data analysis in support of the proposal. They asserted that the aggregate impact analysis provided no information that commenters could use to evaluate the individual codes proposed to be packaged, making it impossible for the public to determine how payment for services would be affected. Some commenters requested that CMS furnish the same level of impact discussion for each of the services in each of the categories as it did for the composite APCs. Other commenters asked CMS to identify the percent of charges for dependent services that were packaged into each independent procedure, identify all independent procedures into which cost was packaged from each packaged procedure, and identify the cost of each procedure code with and without the proposed packaging. They recommended that, before implementing the proposed packaging, CMS publish all HCPCS and revenue codes and the costs for each that enter into the consideration of packaging for every code proposed to be packaged. The commenters believed that the lack of transparency, together with late availability of a correct OPPS proposed rule claims data set, made it difficult to determine whether packaged costs were retained or lost in the median setting process.

Other commenters suggested that CMS explicitly crosswalk packaged services to identified independent services, rather than packaging payment into the independent service with which the packaged services is billed on each claim. They asserted that no service should be packaged unless it is furnished the majority of the time with the specified independent service. The commenters stated that items and services should be packaged only where there are substitutable services that could be chosen by the hospital, and that no packaging should occur where there is only one dependent service that would be provided with the independent service.

Some commenters contended that CMS should not implement the proposed packaging changes until after it implements an adjustment for charge compression because errors in the proposed rates as a result of charge compression would result in too little payment being packaged into the independent service and would create disincentives for hospital to furnish the packaged services, thus harming beneficiary access to advanced technologies.

Some commenters requested that CMS develop and propose a set of criteria for packaging services that would be open to public comment and that would control whether and, if so, when CMS could package payment for a service. The commenters stated that the criteria in the proposed rule were too vague, undefined, and subjective to identify which codes should be packaged. The commenters provided criteria that they believe should govern whether a service should be packaged. The suggested criteria included, but were not limited to, requiring that packaging should only be adopted for high volume, low cost, minor and ancillary services that are very frequently performed with the specified independent service; no packaging of services that require specialized equipment or devices; no packaging of services that are only furnished in a small number of hospitals; no packaging of add-on services unless the service is furnished with its base code at least 50 percent or 75 percent of the time; packaging only when a service is being packaged into a specified service and, therefore, no general packaging of services into the service with which it is performed; no packaging unless CMS has provided the public with a full data assessment of the effects of packaging each service; and no packaging if the median cost for the code exceeds an established amount.

Other commenters suggested CMS not implement the proposed packaging because the 60-day comment period provided insufficient time for analysis and because the APC Panel recommendations and report were not posted on the Web site immediately after the meeting.

Response: We have reviewed all of the public comments we received on the

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proposed packaging approach, and we have decided to finalize our proposal with significant modifications and refinements to address some of the concerns raised by commenters on our proposal to package payment for diagnostic radiopharmaceuticals, imaging supervision and interpretation services, contrast agents, and observation services. We refer readers to sections II.A.4.c.(4), (5), (6), and (7) of this final rule with comment period for detailed discussion of these modifications and section II.A.2 of this final rule with comment period for discussion of the changes we made to the data process in this regard. We are finalizing our proposal for guidance, image processing, and intraoperative services without substantial modification. Table 10, which appears in section II.A.4., contains a comprehensive list of all codes in the final seven categories for which we will package payment either unconditionally (to which we assign status indicator ``N'') or conditionally, providing separate payment if certain criteria are met (to which we assign status indicator ``Q''). There is a category of conditionally packaged codes assigned status indicator ``Q,'' which we previously referred to as ``special'' packaged codes because their payment was packaged when provided on the same date as a service that was assigned status indicator ``S,'' ``T,'' ``V,'' or ``X.'' These ``special'' packaged codes will now be referred to as ``STVX-packaged codes.'' We have identified a new category of conditionally packaged codes that are called ``T-packaged codes,'' whose payment is packaged when provided on the same date as another service that is assigned status indicator ``T.'' The rationale for these changes are discussed in detail below in section II.A.4.c.(4) of this final rule with comment period.

We believe that it is appropriate and fully consistent with the principles of a prospective payment system to package payment for ancillary and supportive services into the payment for the independent service with which they are furnished as a means of making payment for a more comprehensive service package. Although separate payment will no longer be made for the packaged services, the payments for the independent services with which they are furnished will reflect the costs of the packaged services to the extent that the packaged services are provided with the independent service. We recognize that, in some cases, certain supportive and ancillary dependent services are furnished with only one independent service, and in other cases they are furnished with many independent services. Similarly, in some cases they are furnished frequently with independent services, and in some cases they are uncommonly furnished with independent services.

We believe that packaging should reflect the reality of how the services are furnished and reported on claims by hospitals. We believe that nonspecific packaging (as opposed to selected code packaging) based on combinations of services observed on hospital claims is fully appropriate because of the myriad combinations of services that can be appropriately provided together. This approach to packaging payment has long existed in prospective payment systems, including the OPPS. For example, in the IPPS, Medicare's oldest prospective payment system, payment for all services furnished is packaged into a single payment for an entire hospital inpatient stay that is based on the diagnosis- related group (DRG) into which the stay is categorized. The DRG payment packages together all payment for routine care, drugs, biologicals, medical supplies, diagnostic tests, and all other covered services that were provided to the patient, regardless of the extent to which different patients in the same DRG received somewhat different services during their stay. We believe that a similar approach to nonspecific packaging under the OPPS is likewise fully appropriate. We have used this packaging approach for ratesetting throughout the history of the OPPS, and note that payment for APC groups currently reflects significant nonspecific packaging in many cases. Similarly, we believe that it is appropriate to establish under the OPPS a single payment for multiple independent procedures that are frequently furnished together. For that reason, we are adopting five composite APCs for CY 2008 and intend to explore developing others.

We do not agree with the commenters that we should not package a service unless it is a low cost ancillary and supportive service that appears frequently with an independent service. To establish that policy would negate the concept of averaging that is an underlying premise of a prospective payment system by packaging only services that will increase the payment for the independent service. To do that would also create incentives for hospitals to provide ancillary and dependent services that are higher cost or historically were infrequently furnished with an independent service and would remain separately paid. Similarly, we do not agree that we should not finalize the proposed packaging approach because it will ``overpay'' some services and ``underpay'' others. Payment based on a measure of central tendency is also a principle of any prospective payment system. In some cases, payment in an individual case exceeds the average cost and in other cases payment is less than the average cost, but on balance, payment should approximate the relative cost of the average case, recognizing that the OPPS, as created in the statute, was not intended to pay the full cost of HOPD services.

We also do not agree that it would be beneficial to delay the implementation of the proposed packaging approach for a year because that would delay the implementation of incentives under the OPPS for hospitals to look carefully at ways that they could provide care more efficiently. We recognize that, as with any payment policy, there will be affected parties that will ask for changes to the policy, and we are always willing to hear their concerns and to make changes if the changes are appropriate. Moreover, both APC and status indicator assignments are open to public comment each year in the proposed rule, and hence affected parties may provide their arguments for separate payment as part of that process in the future.

We further disagree that we should delay or not finalize the proposed packaging approach pending provision of the extensive data that the commenters requested. We make available a considerable amount of data for public analysis each year and while we are not developing and providing the extensively detailed information that the commenters request, we provide the public use files of claims and a detailed narrative description of our data process that the public can use to perform any desired analyses. While we acknowledge that we needed to issue a second corrected file of claims data, the second file differed from the first only in that it deleted a relatively small number of duplicate claims for observation that would have been used to calculate an APC rate for separately payable observation, had we proposed to pay separately for observation, and hence we believe that the accidental inclusion of these duplicate claims for observation care should have had little or no effect on the majority of studies of the HCPCS codes we proposed to package.

With regard to the request for extensive data on all HCPCS codes we proposed to package, it would not be possible for us to anticipate the specific combinations of services of interest to the public. In addition, we believe that

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the commenters must examine the data themselves to develop the specific arguments to support their requests for changes to payments under the OPPS. We note that we pay hospitals under the OPPS, and we showed the impact of the CY 2008 packaging proposal on payment to different classes of hospitals in Table 67 of the proposed rule (72 FR 42822 through 42824). We believe our estimate of the impact of these changes provided valuable information to the hospitals that would receive packaged payment for services that had been previously paid separately under the OPPS.

With regard to the public comments that we should explicitly crosswalk packaged codes to the independent codes into which the costs would be packaged, we do not believe that this is feasible, given the myriad combinations of services that are furnished in the HOPD, nor is it consistent with the principles of a prospective payment system, which bases payment on real occurrences of services that are furnished by hospitals and reported on claims. Moreover, creation of such a crosswalk would undoubtedly result in omissions of appropriate packaging of services and would create a maintenance task that would not be sustainable, given the number of changes to HCPCS codes each year and the ever changing way in which services are furnished. Similarly, it is not consistent with the concept of packaging within a prospective payment system to package only those services for which there are substitutes that could be furnished. In contrast, it is fully consistent with the principles of a prospective payment system for groups of services to package items and services that are always furnished with an independent service and for which there are no substitutes.

We also do not agree that we should delay creation of larger payment bundles through packaging until after there is adjustment for charge compression under the OPPS. As we discuss in section II.A.1.c. of this final rule with comment period, we will consider whether to use regression-adjusted CCRs to adjust for charge compression under the OPPS after RTI reviews the OPPS cost estimation process, including an assessment of the revenue code-to-cost center crosswalk and estimating regression-adjusted CCRs from a model that includes outpatient charges. There is no reason to delay the creation of incentives for encouraging cost-effective utilization and efficiency in the provision of HOPD services until a decision is made regarding the appropriateness of using regression-adjusted CCRs to estimate OPPS costs.

We do not agree that we should develop and establish criteria with stakeholder input before we finalize the packaging proposal. Nor do we believe that the specific criteria the commenters recommended are appropriate for determining when services should be packaged. The criteria that the commenters provided are focused almost exclusively on preventing packaging, rather than on determining when packaging would be appropriate. We believe that packaging is appropriate when the nature of a service is such that it is supportive and ancillary to another service, whether the dependent service is frequently furnished with the independent service or not and regardless of the cost of the supportive ancillary service. This is largely a clinical decision based on the nature of the service being considered for packaging.

Lastly, we do not agree that we should not implement the proposed changes because the commenters believed that the 60 day comment period was insufficient or because the APC Panel recommendations and report were not posted to the Web site immediately after the public meeting. The 60 day comment period is generally the standard comment period for the proposed rule process. The availability of updated claims and cost report data necessary to develop the proposed rule and issue the final rule for the OPPS precludes a longer period for comment. Moreover, we do not believe that the Web site posting of the APC Panel recommendations and report is necessary for the public to provide meaningful comments, in light of the fact that the APC Panel meeting is open to the public.

We are not accepting the recommendation of the APC Panel to provide information in this final rule with comment period clarifying how newly packaged services map back to primary procedures because we would be unable to display in a meaningful way all of the many combinations of services that may be of interest to the public. Moreover, given the numerous new, refined, and interrelated payment policies finalized for CY 2008 involving APC reconfiguration, HCPCS migration, reduction in the numbers of low volume APCs, and others, to adopt the APC Panel's example of simulating median costs holding all other CY 2008 policies constant for HCPCS codes with and without the additional packaging of those services newly packaged for CY 2008 would not provide meaningful comparative information. Almost certainly, if we were not to adopt packaging of the additional services for CY 2008, the APC configurations, bypass list, single claims available for ratesetting, and other important features upon which the final median costs depend would differ in significant ways from those aspects under our final CY 2008 policies.

Comment: A number of commenters disagreed with the CMS estimate of the amount of payment that would be redistributed under the proposed rule. The commenters indicated that the services proposed to be newly packaged constitute 6 percent of the OPPS costs, although CMS estimated that the packaging proposal would redistribute 1.2 percent of the CY 2008 expenditures under the OPPS. They attributed the difference in cost estimates to the methodology for applying status indicator ``Q.'' The commenters believed that the resulting impact analysis would be quite different from CMS' estimated impact displayed in the proposed rule and, therefore, the implications of the policy are not fully understood. They objected to packaging of observation services in particular, but recommended that CMS reevaluate the entire packaging proposal in light of methodological and data concerns.

Response: In the proposed rule, we estimated that the proposed packaging approach would redistribute 1.2 percent of the CY 2007 base expenditures under the OPPS to other OPPS services as part of our budget neutrality adjustments for the proposed CY 2008 payment system. This 1.2 percent is the aggregate payment weight reduction from the packaging proposal, where the medians are marginally less than the costs for the individual services prior to packaging. This is not inconsistent with a finding that the total cost of services proposed to be packaged constitutes 6 percent of HOPD costs. These percentages measure different things. The first provides an estimate of money redistributed to other services and the second an estimate of the proportion of OPPS spending on services addressed by the policy. We understand, and intended, that the packaging proposal affect services responsible for significant OPPS spending, in order to provide hospitals with meaningful incentives to examine their patterns of care delivery and improve efficiency. The 1.2 percent reflects the difference in total weight with and without the packaging proposal relative to the CY 2007 total base weight. Whether or not the 1.2 percent of redistributed dollars was entirely attributable to the proposed policy for estimating the median cost for ``Q'' status indicator services cannot be

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determined. For this final rule with comment period, we made modifications to the policy governing the handling of many services assigned status indicator ``Q,'' as discussed in section II.A.4.c.(4) of this final rule with comment period, that resulted in use of more claims data and significant changes to the median costs for some services. We also accepted the public comments that recommended that we create a composite APC for observation services, as discussed in section II.A.4.c.(7) of this final rule with comment period.

Comment: Some commenters stated that CMS must undertake provider education and claims monitoring because providers will cease to bill HCPCS codes and charges for packaged services, which will result in lower payment rates than would otherwise be made if they reported all codes and charges and thus the costs of packaged services would be lost to the payment system in future years. They indicated that this presents huge operational challenges to hospitals to ensure that they bill and charge for the packaged codes. Other commenters believed that the implementation of increased packaging will be particularly difficult in CY 2008 because CMS is simultaneously implementing Medicare-Severity DRGs (MS-DRGs) for IPPS payment, which also poses operational challenges for hospitals.

Response: We do not believe that there will be a significant change in what hospitals charge and report for the services they furnish to Medicare beneficiaries and to others as a result of the increased packaging for the CY 2008 OPPS. Medicare cost reporting standards specify that hospitals must impose the same charges for Medicare patients as for other patients. We are often told by hospitals that many private payers pay based on a percentage of charges and that hospital chargemasters do not differentiate between the charges to Medicare patients and others. Therefore, we have no reason to believe that hospitals will cease to report charges and HCPCS codes for packaged services they provide to Medicare beneficiaries. We expect that hospitals, as other prudent businesses, will have a quality review process that ensures that they accurately and completely report the services they furnish, with the appropriate charges for those services to Medicare and all other payers. Therefore, we do not see either the need or the responsibility to undertake a special effort to educate providers to report and charge Medicare for the services they furnish, whether separately paid or packaged. According to our longstanding policy, we will continue to encourage hospitals to report the HCPCS codes and associated charges for all services they provide, taking into consideration all CPT, OPPS, and local contracture instructions, regardless of whether payment for those HCPCS codes is packaged or separately provided. Similarly, we do not believe that the implementation of MS-DRGs will create operational issues for hospitals that would be complicated by increased packaging under the OPPS.

Comment: Some commenters asserted that increased packaging will create disincentives to provide certain services and that providers may stop furnishing these services to Medicare beneficiaries. The commenters stated that increased packaging would reduce expenditures, but the ultimate result would be reduced access to necessary care as the payment incentives to provide care are reduced. Other commenters believed that increased packaging will result in services being furnished on multiple days in order to maximize payment, which will increase, rather than decrease, volumes of services and provide a significant inconvenience to beneficiaries.

Response: We also do not agree that beneficiary access to care will be harmed by increased packaging. We believe that packaging will create incentives for hospitals and their physician partners to work together to establish appropriate protocols that will eliminate unnecessary services where they exist and will institutionalize approaches to providing necessary services more efficiently. Where this review results in reductions in services that are only marginally beneficial, we believe that this could improve rather than harm the quality of care for beneficiaries because every service furnished in a hospital carries some level of risk to the patient. Similarly, where this review results in the concentration of some services in a reduced number of hospitals in the community, we believe that the quality of care and hospital efficiency may both be enhanced as a result. The medical literature shows that concentration of services in certain hospitals often results in both greater efficiency and higher quality of care for patients.

Moreover, we do not believe that packaging will result in Medicare beneficiaries being treated differently from other patients with regard to the care they receive in the hospital. A hospital may have its provider agreement terminated by Medicare under 42 CFR 489.53(a)(2) if it places restrictions on the persons it accepts for treatment and either fails to exempt Medicare beneficiaries from those restrictions or apply them to Medicare beneficiaries the same as to all other persons seeking care. We do not believe that a hospital would risk termination of its provider agreement by Medicare by refusing to furnish a medically necessary service to a Medicare beneficiary, although it provides the same service to other patients for the same clinical indications.

As we indicated in the proposed rule, we will examine our claims data for patterns of fragmented care and if we find a pattern in which a hospital appears to be fragmenting care across multiple days, we will refer it for investigation to the QIO or to the program safeguard contractor, as appropriate to the circumstances we find. However, we do not believe that, in general, hospitals would routinely, and for purposes of financial gain, require patients to return on multiple days to receive services that could have been furnished on the same day.

Comment: One commenter objected to the implication in the proposed rule that hospitals provide whatever services they wish at whatever cost, with their only concern being payment for the services, and that payment rates could motivate hospitals to report services on separate claims or split the service among different hospitals in order to be paid more. The commenter stated that 42 CFR 411.15(m) requires that hospitals must furnish and bill for services necessary to complete an outpatient encounter and that, therefore, it would be a violation of CMS regulations for a hospital to deliver part of the service at one hospital and the rest at another hospital.

Response: We believe that hospitals strive to provide the best care they can to the patients they serve. However, we are aware that there are financial pressures on hospitals that might motivate some of them to split services in such a way as to maximize payments. While we do not expect that hospitals would routinely change the way they furnish services or the way they bill in order to maximize payment, we do believe that it would be possible, and hence we offered the cautionary note in the proposed rule that we will consider that possibility as we review our claims data. Other commenters, as described in the preceding comment, stated that volumes of services and expenditures would increase because hospitals would provide services on multiple days to maximize payment.

We note that 42 CFR 411.15(m) specifies exclusions from Medicare coverage in cases in which the hospital does not furnish a service directly or

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under arrangements as defined in 42 CFR 409.3 and, therefore, would not prohibit a hospital from discharging a patient and sending that patient to another hospital for a service that would otherwise be packaged if furnished during the same encounter. However, as noted above, a hospital that does not make available the same services to Medicare beneficiaries as to its other hospital patients can be terminated from Medicare under 42 CFR 489.53(a)(2). Additionally, we remind hospitals that any business models or arrangements they make for the provision of services intended to be billed by that hospital must comply with all applicable laws and regulations, including, but not limited to, the Stark law and other anti-kickback laws, the provider-based rules at 42 CFR 413.65, the ``incident-to'' rules at 42 CFR 410.27, and the conditions for outpatient diagnostic services at 42 CFR 410.28. In regard to hospital services provided under arrangements, as defined in 42 CFR 409.3, we have specified in the Eligibility and Entitlement Manual that, ``In permitting providers to furnish services under arrangements, it was not intended that the provider merely serve as a billing mechanism for the other party. Accordingly, for services provided under arrangements to be covered, the provider must exercise professional responsibility over the arranged for services'' (Pub. 100- 1, Chapter 5, section 10.3). Therefore, we would not expect hospitals to send patients to a separate entity merely to avoid packaged payment, but, as stated above, we will consider that possibility as we review our claims data.

Comment: Some commenters suggested that CMS work with and through the AMA process in making any packaging decisions and not make any arbitrary and single-sided bundling decisions that have not been fully reviewed and analyzed for impact by the stakeholders. They suggested that CMS discuss with the AMA CPT Editorial Panel the potential for unintended consequences of proposed packaging or bundling on the establishment of CPT codes. For example, one commenter believed that packaging add-on codes, which the commenter viewed as integral to maintaining flexibility of CPT coding, would likely discourage future consideration of creating add-on codes as a means to describe code- specific procedures and resources. Other commenters objected to what they view as a ``codebook'' approach to determining what should be packaged. The commenters stated that CMS not rely on CPT and HCPCS code descriptors because the descriptors are complex and many do not accurately describe the services furnished. Some commenters argued that CMS should pay across settings in the same way and, therefore, should not package under the OPPS services that are paid separately under the MPFS.

Response: Our general process for developing the OPPS, including making major payment policy decisions, is prescribed by the Administrative Procedure Act (APA) and the Federal Advisory Committee Act (FACA). As such, proposed payment rates and the attendant policies are open to public comment both through the Federal Register notice and comment rulemaking process and through the public meetings of the APC Panel, which is a Federal Advisory Committee chartered by the Secretary of Health and Human Services. Therefore, our proposed packaging for the CY 2008 OPPS and the decisions we are announcing in this final rule with comment period are neither arbitrary nor single-sided, as all stakeholders have had the opportunity to comment. In this final rule with comment period, we are responding to their comments. We note that the AMA, as a member of the public, has the same opportunity to comment on the packaging proposal in the proposed rule as any other member of the public.

We believe that it is entirely appropriate to rely on the HCPCS descriptors, including the AMA's CPT descriptors, for the definition of the services furnished for purposes of the proposed packaging approach and other payment policies. The OPPS is based on the definitions of services reported with HCPCS codes, of which the CPT code set is a fundamental part. The HCPCS codes are the only means by which hospitals report the services they furnish and the charges for those services and, therefore, they are basis of the OPPS. For that reason, we look to the HCPCS definition of the service to determine whether a particular service is ancillary and supportive of another service. To the extent that there are changes to the HCPCS codes and, by extension, to the CPT code descriptors, we will reevaluate the decisions we make with regard to packaging payment. However, we do not believe that the AMA's CPT Editorial Board is influenced by OPPS payment policy in its deliberations, nor should it be influenced by OPPS payment policy in its creation of CPT codes.

Moreover, we disagree that we should not package payment for ancillary and supportive services because the MPFS pays separately for them. The OPPS is not a fee schedule, but a prospective payment system based on relative weights derived from costs and charges. Packaging of payments into appropriate groups is a fundamental principle that distinguishes a prospective payment system from a fee schedule and we do not believe that we should refrain from packaging payment for ancillary and supportive services into payment for the independent services with which they are furnished because they may be treated differently in the MPFS or because of the unlikely possibility that this policy may have some influence on the AMA CPT Editorial Panel's decisions regarding creation of codes.

Comment: One commenter stated that the concept of creating incentives for hospitals to negotiate better prices on goods and services through packaging is not applicable to small rural hospitals and, therefore, it should not apply to them. The commenter argued that smaller rural hospitals cannot negotiate for better prices on goods and services because they buy smaller amounts of products and lack the ability that large urban hospitals have to negotiate for better prices on goods and services.

Response: We believe that the creation of incentives for hospitals to seek more efficient ways of furnishing services is applicable to all hospitals, including small rural hospitals. Small rural hospitals and their physician partners have the same capacity and capability as other hospitals to evaluate the appropriateness and efficiency of the packaged services they furnish. Moreover, small rural hospitals can join in cooperatives and group purchasing organizations that can achieve purchasing efficiencies that they could not achieve by themselves. We recognize that some costs are higher for certain categories of rural hospitals, therefore we have provided the 7.1 percent rural adjustment for rural SCHs. Moreover, the law holds harmless rural hospitals with 100 or fewer beds. However, we also expect that small rural hospitals will be motivated by the packaging approach to seek ways of furnishing services as efficiently as possible and to eliminate services that are essential to the appropriate treatment of the patient in any clinical case.

Comment: Some commenters contended that the proposed packaging approach has the potential for systemwide net savings and redistribution of payments away from hospitals that invested in high- cost equipment and toward hospitals that do not have such costs. They believed that charge compression contributes to this

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problem because hospitals are limited in what they can charge, and the allocation of radiology equipment capital costs exacerbates the problem. The commenters suggested that CMS not finalize the packaging proposal because packaging creates incentives for hospitals to divest themselves of important but expensive technologies because those technologies have ceased to be profitable.

Response: We agree that there is the potential for systemwide redistribution of payments away from hospitals that invested in costly equipment for services for which payment will be packaged and toward hospitals that do not have such costs. However, to the extent that packaging payment for ancillary and supportive services reduces the amount of payment weight in the system for separately paid services, that amount will be redistributed to all hospitals across all services paid under the OPPS through the budget neutral weight scaler. Any reduction in the growth of OPPS expenditures will result from slower growth in hospital costs in future years as a result of hospitals reducing the volume of certain services or finding more efficient ways to provide care. That potential future savings is one of the purposes of this packaging initiative and the exploration of episode-based or encounter-based payments under the OPPS. Similarly, if increased packaging causes hospitals to be more cautious in their decision making regarding investing in new equipment or incurring other large capital expenditures, we view that as a positive result of the policy. Hospitals make decisions regarding the equipment they buy for general business reasons, of which payment under the OPPS is only one factor among many, including, but not limited to, utilization and payments from other payers and payments from Medicare for IPPS services, which is the dominant source of Medicare payment for hospital care.

Comment: One commenter asserted that linking growth in volume to reduced payments is premature, inappropriate, and not supported by statutory authority. The commenter was particularly concerned about any methodology that would establish different update factors for different OPPS service categories, where the update factor is determined in a manner that takes into account utilization trends. Many commenters stated that HOPD utilization of services is only marginally within the control of hospitals. They explained that hospitals provide services ordered by their medical staff and community physicians, and it would be inappropriate to penalize hospitals for performing services whose utilization is not within their control. The commenters believed that innovation and best practices have increased utilization, not the provision of excessive services.

Response: Section 1833(t)(2)(F) of the Act requires us to develop a method of controlling unnecessary increases in the volume of covered OPS services and section 1833(t)(9)(C) of the Act authorizes us to adjust the update to the conversion factor if under section 1833(t)(2)(F) of the Act, we determine that there is growth in volume that exceeds established tolerances. As we indicated in our proposed rule, we prefer not to take the approach of creating an SGR-type mechanism that could result in a reduced conversion factor under the OPPS and that could inadvertently result in actually increasing the volume of services. We prefer to establish larger packages of services on which to base OPPS payment in order to create incentives for hospitals and their physician partners to make thoughtful decisions regarding what services are medically necessary for their patients and to continuously reassess how they might be able to provide care more efficiently. We recognize that decisions regarding the care provided in HOPDs are not made unilaterally by the hospital, nor are they made unilaterally by the physician who is ordering the care. While physicians, rather than hospital staff, may order specific services for patients, hospitals decide what HOPD services they will and will not furnish, what drugs and supplies they will or will not buy and from whom they will buy them, what investments in equipment they will or will not make, and what programs they will open or close. Certainly, they make these decisions with significant input from their medical staff, but it is the hospital administration that makes the final decisions in this regard. Moreover, hospitals control, to some extent, the physicians on their medical staff and increasingly employ physicians to provide services to patients and to supervise the provision of hospital services. Hence, we do not agree with the argument that hospitals have no control over the services they furnish or that they have no influence over the physicians who order the specific services furnished to their patients.

Comment: Some commenters asked CMS to impose a payment floor to limit the amount of decline in any APC payment in at least the first year of implementation as a means of mitigating the effects of no longer paying separately for the packaged services.

Response: We do not agree that we should impose a payment floor to limit the amount of decline in any APC payment as a means of mitigating the effects of no longer paying separately for the packaged services. The purpose of creating larger payment packages is to create incentives for hospitals to assess the services they are furnishing to ensure that they are furnishing only medically necessary services as efficiently as possible. To establish a payment floor that would artificially inflate payments for APCs that are declining would reduce what would otherwise be appropriate increases in payments for other APCs. We believe that this would be contrary to the stated goal of paying appropriately for all services through larger payment bundles that are intended to create incentives for efficiency.

Comment: Several commenters objected to the proposed packaging approach because they believed that it would be more difficult for new services to be approved for payment under New Technology APCs. One commenter believed that it would be difficult for new guidance services, in particular, to be approved for assignment to a New Technology APC if CMS considers guidance to be a supportive and ancillary service rather than a separately paid complete service. Therefore, the commenter concluded that the proposed packaging not only packages existing services but creates the potential for new technologies to not be approved for New Technology APC payment.

Response: We assess applications for New Technology APC placement on a case-by-case basis. The commenter is correct that, to qualify for New Technology APC placement, the service must be a complete service, by which we mean a comprehensive service that stands alone as a meaningful diagnostic or therapeutic service. To the extent that a service for which New Technology APC status is being requested is ancillary and supportive of another service, for example, a new intraoperative service or a new guidance service, we might not consider it to be a complete service because its value is as part of an independent service. However, if the entire, complete service, including the guidance component of the service, for example, is ``truly new,'' as we explained that term at length in the November 30, 2001 final rule (66 FR 59898) which set forth the criteria for eligibility for assignment of services to New Technology APCs, we would consider the new complete procedure for New Technology APC assignment.

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As stated in the November 30, 2001 final rule, by way of examples provided, ``The use of a new expensive instrument for tissue debridement or a new, expensive wound dressing does not in and of itself warrant creation of a new HCPCS code to describe the instrument or dressing; rather, the existing wound repair code appropriately describes the service that is being furnished * * * '' (66 FR 59898). This example may hold for some new guidance technologies as well.

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

Each HCPCS code we discuss in this section has a status indicator of either ``N'' or ``Q.'' The payment for a HCPCS code with a status indicator of ``N'' is unconditionally packaged so that its payment is always incorporated into the payments for the separately paid services with which it is reported. Payment for a HCPCS code with a status indicator of ``Q'' is either packaged or separately paid, depending on the services with which it is reported. Payment for a HCPCS code with a status indicator of ``Q'' that is ``STVX-packaged'' is packaged unless the HCPCS code is not reported on the same day with a service that has a status indicator of ``S,'' ``T,'' ``V,'' or ``X,'' in which case it would be paid separately. Payment for a HCPCS code with a status indicator of ``Q'' that is ``T-packaged'' is packaged unless the HCPCS code is not reported on the same day with a service that has a status indicator of ``T,'' in which case it would be paid separately. Payment for a HCPCS code with a status indicator of ``Q'' that is assigned to a composite APC is packaged into the payment for the composite APC when the criteria for payment of the composite APC are met. (1) Guidance Services

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

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

Thus, we recognized that hospitals have several options regarding the performance and types of guidance services they use. However, we believed

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

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

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

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

The codes we proposed to identify as guidance codes for CY 2008 that would receive packaged payment were listed in Table 8 of the CY 2008 proposed rule (72 FR 42657). (Table 10 in this final rule with comment period contains a comprehensive list of all codes in the final seven categories for services that are packaged for CY 2008.)

Several of these codes, including CPT code 76937 (Ultrasound guidance for vascular access requiring ultrasound evaluation of potential access sites, documentation of selected vessel patency, concurrent real time ultrasound visualization of vascular needle entry, with permanent recording and reporting (List separately in addition to code for primary procedure)), were already unconditionally (that is, always) packaged under the CY 2007 OPPS, where they have been assigned status indicator ``N.'' Payment for these services is currently made as part of the payment for the separately payable, independent services with which they are billed. No separate payment is made for services that we have assigned to status indicator ``N.'' We did not propose status indicator changes for the five guidance procedures that were unconditionally packaged for CY 2007.

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

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

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procedure, in which case it would be treated as an independent service under these limited circumstances. On the other hand, when the fluoroscopy service is furnished as a guidance procedure on the same day and in the same hospital as independent, separately paid services that are assigned status indicator ``S,'' ``T,'' ``V,'' or ``X,'' we proposed to package payment for it as a dependent service. In all cases, we proposed that hospitals that furnish independent services on the same date as dependent guidance services must bill them all on the same claim. We believed that when dependent guidance services and independent services are furnished on the same date and in the same facility, they are part of a single complete hospital outpatient service that is reported with more than one HCPCS code, and no separate payment should be made for the guidance service that supports the independent service.

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

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

During the September 2007 APC Panel meeting, the Panel recommended that CMS finalize the proposal to package guidance services, with the exception of radiation oncology guidance procedures.

We received many public comments on our proposal to package guidance services for CY 2008. A summary of the public comments and our responses follow.

Comment: Many commenters requested that, if CMS elected to finalize the packaging status of the guidance codes proposed for packaging, CMS exclude radiation oncology guidance procedures, in accordance with the APC Panel recommendation. Specifically, many commenters requested that CMS pay separately for CPT codes 76950 (Ultrasonic guidance for placement of radiation therapy fields); 76965 (Ultrasonic guidance for interstitial radioelement application); 77014 (Computed tomography guidance for placement of radiation therapy fields); 77417 (Therapeutic radiology port film(s)); and 77421 (Stereoscopic X-ray guidance for localization of target volume for the delivery of radiation therapy). The commenters were concerned that packaging radiation oncology guidance procedures would encourage hospitals to decrease utilization of advanced technologies for localization used in radiation oncology treatment delivery. The commenters noted that packaging payment for radiation oncology guidance services offers a financial incentive to those hospitals that use little or no daily localization when providing radiation therapy. One commenter believed that packaging payment for these guidance services encourages hospitals to use older, less effective technologies, thereby discouraging development of new, more effective technologies. Another commenter noted that if hospitals are discouraged from using new technologies due to low payment rates, it will take many years to gather robust cost data that reflect these new technologies, likely even longer than New Technology APC and pass- through payments are available for new technologies.

Response: After reviewing these public comments, considering the recommendation of the APC Panel, and ensuring that CMS clinical staff analyzed the content of these comments, we have decided to finalize our proposal to package these guidance services, as proposed. These services are ancillary and dependent in relation to the radiation therapy services with which they are most commonly furnished. Moreover, there are no unique clinical aspects to these radiation oncology guidance services that would differentiate them from other guidance services. Consistent with the principles of a prospective payment system, in some cases, payment in an individual case exceeds the average costs, and in other cases payment is less than the average cost, but on balance, payment should approximate the relative cost of the average case. We do not believe that beneficiary access to care will be harmed by increased packaging. We believe that packaging will create incentives for hospitals and their physician partners to work together to establish appropriate protocols that will eliminate unnecessary services where they exist and institutionalize approaches to providing necessary services more efficiently. Therefore, we see no basis for treating radiation oncology services differently from other guidance services that are ancillary and dependent to the procedure that they facilitate.

Comment: Many commenters were concerned with the proposal to package payment for electrodiagnostic guidance for chemodenervation procedures, specifically, CPT codes 95873 (Electrical stimulation for guidance in conjunction with chemodenervation (List separately in addition to code for primary procedure)), and 95874 (Needle electromyography for guidance in conjunction with chemodenervation (List separately in addition to code for primary procedure)). The commenters indicated that chemodenervation involves the injection of chemodenervation agents, such as botulinum toxin, to control the symptoms associated with dystonia and other disorders. According to the commenters, physicians often, but not always, use electromyography or electrical stimulation guidance to guide the needle to the most appropriate location. The commenters were concerned that the proposal to package payment for these guidance services may discourage utilization of this particular form of guidance, even when medically appropriate. Several commenters noted that the CY 2008 proposed payment rate for the injection and the associated guidance is a 15 percent decrease from the CY 2007 payment rate. Most commenters requested that CMS pay separately for electrodiagnostic guidance, several of whom specified that CMS assign the

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three chemodenervation procedures to their own APC. The commenters noted that even if the median cost for the chemodenervation procedures increased, the payment rate would not increase because chemodenervation procedures are only a small proportion of all claims in their proposed APC 0204 (Level I Nervous System Injections). Several other commenters stated that the median costs for the chemodenervation procedures do not reflect the full cost of the guidance because the guidance is performed with the procedure infrequently.

Response: We note that the cost of the chemodenervation guidance services will be reflected in the median cost for the independent HCPCS code as a function of the frequency that chemodenervation services are reported with that particular HCPCS code. As noted above, we recognize that, in some cases, supportive and ancillary dependent services are furnished at high frequency with independent services, and in other cases, they are furnished with independent services at a low frequency. We believe that packaging should reflect the reality of how services are furnished. While the commenters are correct that the chemodenervation procedures reflect only approximately 10 percent of the services that comprise APC 0204, we note that they appropriately map to this APC both clinically and in terms of resource use. If the median costs for the individual chemodenervation procedures were to change dramatically, based on resource cost data, we would review these services as part of our annual review process to determine if a different APC were more appropriate. We also note that if these three chemodenervation procedures were mapped to their own APC, the estimated median cost of the APC would be in the same general cost range as the current median cost for APC 0204. Therefore, it is unnecessary to map these three services to their own APC for CY 2008.

Comment: Several commenters requested that CMS clarify how the DRA imaging cap for services paid under the MPFS would be applied to services that are packaged under the OPPS.

Response: If an imaging service is packaged under the OPPS, the DRA cap on the technical component payment for that service under the MPFS is not applicable.

Comment: Many commenters supported the proposal to package each of the guidance services that we identified in the proposed rule. The commenters also gave specific comments related to almost every guidance code that we proposed to package. In general, each commenter requested that we pay separately for several of the guidance codes that we proposed to package. The commenters expressed concern in several areas, specifically, that insufficient payment rates would discourage new technologies; that guidance services used infrequently with specific services contribute very little to the payment rates for those services; that the expected decrease in utilization for guidance services could ultimately lead to increased costs, as a result of worse patient outcomes; that packaged payment under the OPPS and separate payment under the MPFS leads to payment disparity; and, in general, that the lack of published crosswalks makes it difficult to analyze the specific effects of this policy.

Response: We note that we did not receive any unique arguments specific to any particular code. We received many similar public comments regarding all the categories of codes that we proposed for packaged payment. Therefore, we have responded to these general comments above in section II.A.4.c. of this final rule with comment period. In light of the public comments we received, our clinical advisors reassessed every guidance code on the list to ensure that it was still appropriate for packaged payment.

For CY 2008, we are finalizing the CY 2008 proposal, without modification, to package payment for all guidance services for CY 2008. We are partially accepting the APC Panel recommendation. Specifically, we are packaging all guidance services for CY 2008, including radiation oncology services. The guidance codes that are packaged for CY 2008 are identified and displayed in Table 10 of this final rule with comment period. These services are assigned status indicator ``N'' to indicate their unconditional packaging, with the exception of CPT code 76000, which is an ``STVX-packaged'' code assigned status indicator ``Q.'' (2) Image Processing Services

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

An image processing service processes and integrates diagnostic test data that were captured during another independent procedure, usually one that is separately payable under the OPPS. The image processing service is not necessarily provided on the same date of service as the independent procedure. In fact, several of the image processing services that we proposed to package for CY 2008 do not need to be provided face-to-face with the patient in the same encounter as the independent service. While this approach to service delivery may be administratively advantageous from a hospital's perspective, providing separate payment for each image processing service whenever it is performed is not consistent with encouraging value-based purchasing under the OPPS. We believed it was important to package payment for supportive dependent services that accompany independent services but that may not need to be provided face-to-face with the patient in the same encounter because the supportive services utilize data that were collected during the preceding independent services and packaging their payment encourages the most efficient use of hospital resources. We are particularly concerned with any continuance of current OPPS payment policies that could encourage certain inefficient and more costly service patterns. As stated above, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources. Our standard methodology to calculate median costs packages the costs of dependent services with the costs of independent services on ``natural'' single claims across different dates of service, so we are confident that we would capture the costs of the supportive image processing services for ratesetting when they are packaged according to our CY 2008 proposal, even if they were provided on a different date than the independent procedure.

We listed the image processing services that we proposed to be packaged for CY 2008 in Table 10 in the

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CY 2008 proposed rule (72 FR 42659). As these services support the performance of an independent service, we believe it would be appropriate to package their payment into the OPPS payment for the independent service provided.

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

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

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

We proposed to change the status indicator for seven image processing services from separately paid to unconditionally packaged (status indicator ``N'') for the CY 2008 OPPS. We believe that these services are always integral to and dependent upon the independent service that they support and, therefore, their payment would be appropriately packaged.

The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to when these dependent image processing services are performed on the same date and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and perform the image processing services more or less frequently, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments.

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

The APC Panel recommended that all image processing services be packaged as proposed in the proposed rule.

We received a number of public comments on our proposal to package image processing service for CY 2008. A summary of the public comments and our responses follow.

Comment: Many commenters were concerned with the proposal to package payment for CPT code 93325 (Doppler echocardiography color flow velocity mapping (List separately in addition to codes for echocardiography)). The commenters noted that this service is often critical to decisionmaking and consumes significantly greater resources than the general echocardiography study process. Several commenters noted that the AMA is planning to revise this CPT code for CY 2009, and that changing the payment status of this code may confuse hospital coding staff. Some commenters requested that CMS make no changes to the payment status of this code until this code's descriptor has been revised by the AMA, while others requested that CMS instruct hospitals not to use the new CPT code that will be created by the AMA.

Response: We acknowledge that this service may be an important clinical tool that is critical to decisionmaking. However, we continue to believe that packaged payment is appropriate for this dependent service that must, per the CY 2007 CPT book, be provided in conjunction with echocardiography. In fact, packaging the status of this code may make it easier to crosswalk the data from this code to the new CPT code that the AMA may create for CY 2009. We see no compelling reason to postpone packaging this service until CY 2009.

Comment: One commenter requested that CMS pay separately for HCPCS code G0288 (Reconstruction, computed tomographic angiography of aorta for surgical planning for vascular surgery) because it is different than the other image processing codes proposed for packaged payment. The commenter stated that the service is often an out-sourced service purchased by the hospital. The commenter was particularly concerned that hospitals would no longer continue to purchase this service if insufficient payment was provided. Another commenter requested separate payment for CPT code 95957 (Digital analysis of electroencephalogram (EEG) (eg, for epileptic spike analysis)). The commenter stated that this service is often performed on a different day than the EEG and by a technologist other than the one who performed the EEG.

Response: As noted above, we believe it is important to package payment for supportive dependent services that may not need to be provided face-to-face with the patient in the same encounter as the independent service. Packaging payment for supportive services that utilize data that were collected during the preceding independent services encourages the most efficient use of hospital resources. In fact, as part of our proposed CY 2008 packaging approach, we also proposed to unconditionally package payment in CY 2008 for several other image processing services that are not always performed face-to- face, including CPT codes 0174T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of

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film radiographic images, chest radiograph(s), performed concurrent with primary interpretation); 0175T ((Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed remote from primary interpretation); and CPT code 76377 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; requiring image postprocessing on an independent workstation).

We also believe it is likely that a hospital that performed the computed tomographic angiography diagnostic procedure but does not have the technology necessary to provide the preoperative image reconstruction would send the results to another hospital for performance of the reconstruction. In this situation, the second hospital would be providing the reconstruction under arrangement and, therefore, at least one service provided by the first hospital would be separately paid. We believe that packaged payment for image reconstruction under a prospective payment methodology for hospital outpatient services is most appropriate. The same situation occurs when hospitals provide the service described by CPT code 95957. We proposed to unconditionally package payment for HCPCS code G0288 and CPT code 95957 for CY 2008, fully consistent with the packaging approach for the CY 2008 OPPS. Because HCPCS code G0288 and CPT code 95957 are supportive ancillary services that fit into the image processing category, and we proposed to package payment for all image processing services for CY 2008, we believe it is appropriate to unconditionally package payment associated with these codes. Specifically, we determined that these services are dependent services that are integral to independent services, in this case, the computed tomographic angiography and the EEG that we would expect to be provided. Even if the imaging process services were provided on another day than the independent services, our packaging methodology packages costs across dates of service on ``natural'' single claims, so that the costs of image process services would be captured.

For CY 2008, we are finalizing the packaged status of HCPCS code G0288 and CPT code 95957, as listed in Table 10 of the proposed rule. We note an inadvertent error in Addendum B to the proposed rule. However, Table 10 of the proposed rule listed the accurate proposed payment status of HCPCS code G0288.

Comment: Many commenters supported the proposal to package each of the image processing services that was identified in the proposed rule. Numerous other commenters requested that CMS postpone packaging all the packaged codes included in all categories of the proposal until additional data were provided to the public. These commenters also submitted specific comments related to almost every image processing code that CMS proposed to package. The commenters expressed concern in several areas, specifically, that what they considered to be insufficient payment rates would discourage new technologies; that image processing services used infrequently with specific services contribute very little to the payment rates for those services; that the expected decrease in utilization for image processing services could ultimately lead to increased costs, as a result of worse patient outcomes; and in general, that the lack of published crosswalks makes it difficult to analyze the specific effects of this policy.

Several commenters requested a crosswalk that specified how the packaged costs were allocated from each dependent code to each independent code. Other commenters requested that CMS create edits to ensure that costs are appropriately mapped to independent codes. Several commenters requested that CMS consider resource cost when determining which codes to package. The commenters were concerned that what they considered to be insufficient payment would create a disincentive for hospitals to adopt new technology.

Response: We note that we did not receive any unique arguments specific to any particular code. These comments are similar to those received for all the categories of codes that we proposed for packaged payment. Therefore, we have responded to these general comments above in section II.A.4.c. of this final rule with comment period. In light of the public comments we received, our clinical advisors reassessed every image processing code on the list to ensure that it was still appropriate for packaged payment.

We received one comment related to CPT codes 0174T and 0175T. The comment summary and response related to those codes are located in section II.A.4.e. of this final rule with comment period.

For CY 2008, we are finalizing our proposal, without modification, to unconditionally package the payment for all imaging processing codes listed in Table 10 of this final rule with comment period. We are accepting the APC Panel recommendation to package all image processing services. These services are assigned status indicator ``N'' to indicate their unconditional packaging. (3) Intraoperative Services

We proposed to package payment for ``intraoperative'' HCPCS codes for CY 2008, specifically those codes that are reported for supportive dependent diagnostic testing or other minor procedures performed during independent procedures. We performed a broad search for possible intraoperative HCPCS codes, relying upon the AMA's CY 2007 book of CPT codes and the CY 2007 book of Level II HCPCS codes, to identify specific codes as ``intraoperative'' codes. Furthermore, we performed a clinical review of all HCPCS codes to capture additional supportive diagnostic testing or other minor intraoperative or intraprocedural codes that are not necessarily identified as ``intraoperative'' codes. For example, we proposed to package payment for CPT code 95955 (Electroencephalogram (EEG) during nonintracranial surgery (e.g., carotid surgery)) because it is a minor intraoperative diagnostic testing procedure even though the code descriptor does not indicate it as such. Although we use the term ``intraoperative'' to categorize these procedures, we also have included supportive dependent services in this group that are provided during an independent procedure, although that procedure may not necessarily be a surgical procedure. These dependent services clearly fit into this category because they are provided during, and are integral to, an independent procedure, like all the other intraoperative codes, but the independent procedure they accompany may not necessarily be a surgical procedure. For example, we proposed to package HCPCS code G0268 (Removal of impacted cerumen (one or both ears) by physician on same date of service as audiologic function testing). While specific audiologic function testing procedures are not surgical procedures performed in an operating room, they are independent procedures that are separately payable under the OPPS, and HCPCS code G0268 is a supportive dependent service always provided in association with one of these independent services. All references to ``intraoperative'' below refer to services that are usually or always provided during a surgical procedure or other independent procedure.

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

The codes we proposed to identify as intraoperative services for CY 2008 that would receive packaged payment under the OPPS were listed in Table 12 of the proposed rule (72 FR 42661 through 42662).

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

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

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

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

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

During the September 2007 APC Panel meeting, the Panel recommended that CMS finalize the proposal to package intraoperative services and that CMS consider assigning status indicator ``Q'' to CPT code 96020 (Neurofunctional testing selection and administration during noninvasive imaging functional brain mapping, with test administered entirely by a physician or psychologist, with review of test results and report).

We received many public comments on our proposal to package

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

[[pp. 66629-66678]] Medicare Program: Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates, the Hospital Inpatient Prospective Payment System and FY 2008 Payment Rates; and [[Page 66629]]

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intraoperative services for CY 2008. A summary of the public comments and our responses follow.

Comment: Several commenters requested that CMS change the status of CPT code 96020 to conditionally packaged or separately payable instead of finalizing the proposal to unconditionally package this code. According to the commenters, functional brain mapping is often performed prior to epilepsy surgery. The commenters noted that functional brain mapping is performed by staff other than the neurologist or neuropsychologist who performs the accompanying functional MRI, reported with CPT code 70555 (Magnetic resonance imaging, brain, functional MRI; requiring physician or psychologist administration of entire neurofunctional testing). One commenter clarified that functional MRI is more commonly performed without functional brain mapping. If CPT code 96020 were conditionally packaged, the commenter believed that separate payment should be made for CPT code 96020 when it was provided with the functional MRI. Another commenter stated that functional brain mapping is a separate service from the functional MRI, and therefore should not be packaged.

Response: The AMA 2007 CPT book specifically states that CPT code 70555 can only be reported if CPT code 96020 is also performed. CPT code 70555 is separately payable under the CY 2008 OPPS. Therefore, whenever CPT code 70555, the independent procedure, is billed with CPT code 96020, the dependent procedure, the payment associated with CPT code 96020 is appropriately packaged into the payment for CPT code 70555. Even if CPT code 96020 were conditionally packaged, separate payment would not be made when it was billed with CPT code 70555. In addition, we believe that functional brain mapping is never provided to a patient as a sole service. Instead, it is always provided in conjunction with a functional MRI. Therefore, we continue to believe that unconditional packaging is appropriate for CPT code 96020.

Comment: Many commenters requested that CMS continue to pay separately for intravascular ultrasound (IVUS), fractional flow reserve (FFR), and intracardiac echocardiography (ICE) reported with CPT codes 37250 (Intravascular ultrasound (non-coronary vessel) during diagnostic evaluation and/or therapeutic intervention; initial vessel (List separately in addition to code for primary procedure)); 37251 (Intravascular ultrasound (non-coronary vessel) during diagnostic evaluation and/or therapeutic intervention; each additional vessel (List separately in addition to code for primary procedure)); 75946 (Intravascular ultrasound (non coronary vessel), radiological supervision and interpretation; each additional non-coronary vessel (List separately in addition to code for primary procedure)); 92978 (Intravascular ultrasound (coronary vessel or graft) during diagnostic evaluation and/or therapeutic intervention including imaging supervision, interpretation and report; initial vessel (List separately in addition to code for primary procedure)); 92979 (Intravascular ultrasound (coronary vessel or graft) during diagnostic evaluation and/ or therapeutic intervention including imaging supervision, interpretation and report; each additional vessel (List separately in addition to code for primary procedure)); 93571 (Intravascular Doppler velocity and/or pressure derived coronary flow reserve measurement (coronary vessel or graft) during coronary angiography including pharmacologically induced stress; initial vessel (List separately in addition to code for primary procedure)); 93572 (Intravascular Doppler velocity and/or pressure derived coronary flow reserve measurement (coronary vessel or graft) during coronary angiography including pharmacologically induced stress; each additional vessel (List separately in addition to code for primary procedure)); and 93662 (Intracardiac echocardiography during therapeutic/diagnostic intervention, including imaging supervision and interpretation (List separately in addition to code for primary procedure)).

The commenters noted that, while use of these procedures often results in better patient outcomes and reduced need for subsequent procedures, they are only provided to a small proportion of patients who undergo stenting, angioplasty, and other related services. A number of commenters specified that IVUS is performed on 1 to 20 percent of patients who undergo a related diagnostic or therapeutic intervention, using Medicare claims and internal hospital assessments. Therefore, the commenters stated that the costs for IVUS, FFR, and ICE do not affect the payment rates for the independent procedures in a significant way, if at all. In addition, the commenters noted that IVUS, in particular, involves high resource costs because of expensive capital equipment, significant labor cost, and disposable supplies. Several commenters noted that the CY 2005 OPPS data included a median cost of $2,000 for IVUS, with approximately $800 of those costs related solely to the device component. One commenter stated that IVUS may be performed in conjunction with a diagnostic procedure that maps to an APC such as 0080 (Diagnostic Cardiac Catheterization); 0267 (Level III Diagnostic and Screening Ultrasound); or 0280 (Level III Angiography and Venography), rather than a major therapeutic procedure such as stenting or angioplasty, resulting in a total payment of $150 to $2,500, which would not cover the hospital's costs. Other commenters elaborated on the costs associated with ICE, which is reported with the corresponding independent services described by CPT codes 93621 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left atrial pacing and recording from coronary sinus or left atrium (List separately in addition to code for primary procedure)); 93622 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left ventricular pacing and recording (List separately in addition to code for primary procedure)); 93651 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of supraventricular tachycardia by ablation of fast or slow atrioventricular pathways, accessory atrioventricular connections or other atrial foci, singly or in combination); and 93652 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of ventricular tachycardia), in only 5 percent of the claims involving the above procedures. The commenters also noted that only 14 percent of hospitals billed ICE with the CPT codes listed above, indicating that the impact of packaged payment will affect a subset of hospitals who invested in this capital equipment. One commenter noted that IVUS and ICE are clearly not integral to any independent procedure because they are used infrequently. Other commenters noted that costs will be improperly allocated to hospitals that perform the independent procedure, regardless of whether they purchased the equipment for the dependent procedure. One commenter disputed describing FFR services as ``ancillary'' and stated that they are ``decisional'' and therefore should not be packaged. The commenters expressed concern that packaged payment will create a

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significant financial disincentive to provide these services. The commenters also noted that these procedures should not be described as ``intraoperative'' because they precede the independent procedure, and may even result in canceling the independent procedure. One commenter requested that CMS assign status indicator ``Q'' to CPT codes 93571 and 93572. On the other hand, several commenters specified that these services are not stand alone procedures. One commenter stated that it is illegal under section 1833(t)(2)(G) of the Act to package payment for IVUS and FFR, which do not use contrast agents, into payment for coronary or peripheral angiography, which require contrast agents. Specifically, the commenter summarized the Act which states that CMS must create payment groups under the OPPS that ``classify separately those procedures that utilize contrast agents from those that do not.''

Response: We appreciate the many thoughtful comments related to the packaged status of IVUS, FFR, and ICE services. We acknowledge that the costs associated with packaged services may contribute more or less to the median cost of the independent service, depending on how often the dependent service is billed with the independent service. It is our goal to adhere to the principles inherent in a prospective payment system and to encourage hospitals to utilize resources in a cost- effective manner. In this case, hospitals must choose whether to utilize IVUS, FFR, and ICE, balancing the needs of the patient with the costs associated with the services.

We continue to believe that IVUS, FFR, and ICE are dependent services that are always provided in association with independent services. This is different than stating that every angioplasty or other related independent procedure utilizes IVUS, FFR, or ICE. In fact, all of the codes about which we received comment are listed as add-on codes in the CY 2007 CPT book. While we agree that some of these services may contribute to decisionmaking, we still believe that these services are never provided without another independent service on the same day. Therefore, we do not believe it is appropriate to assign status indicator ``Q'' to CPT codes 93571 and 93572, or any of the other IVUS, FFR, or ICE services.

While the statute requires us to establish separate APCs for those services that require contrast and those that do not require contrast, the statute does not state a similar requirement for the packaged services that are ancillary and supportive to the main independent procedure. In this case, IVUS, FFR, and ICE are not the services themselves that must be mapped to contrast or noncontrast APCs for payment. Instead, independent services must map to contrast or noncontrast APCs, as we have done. IVUS, FFR, and ICE are similar to other supportive packaged services, including drugs and anesthesia. Packaged codes never map to an APC, and, therefore, it is unnecessary to distinguish whether they require contrast agents or not. Instead, the independent procedure must map to a contrast or noncontrast APC.

For the reasons stated above, we are finalizing our proposal to unconditionally package payment for IVUS, FFR, and ICE services for CY 2008.

Comment: One commenter requested that CMS conditionally package payment for CPT code 75898 (Angiography through existing catheter for follow-up study for transcatheter therapy, embolization or infusion), instead of finalizing the proposal to unconditionally package payment for this service. The commenter clarified that this is often the only service performed when a patient has lengthy thrombolytic therapy.

Response: We agree with the commenter that this code should be conditionally packaged rather than unconditionally packaged, so that separate payment is made when this service is provided without any other separately payable services on the same date of service. We are changing the status indicator for CPT code 75898 to ``Q'' for CY 2008 and including it as an ``STVX-packaged'' code. When provided on the same date of service as other separately payable services, payment for CPT code 75898 will be packaged into payment for the other services.

Comment: One commenter requested that CMS continue to pay separately for CPT codes 67299 (Unlisted procedure, posterior segment) and 95999 (Unlisted neurological or neuromuscular diagnostic procedure). These codes describe unlisted procedures, and the commenter explained that it would be impossible to know whether the services they describe should be appropriately packaged or separately paid.

Response: We agree with the commenter that CPT codes 67299 and 95999 should not be packaged under the OPPS for CY 2008 because they are unlisted procedures. Therefore, we are finalizing a separately payable status indicator and APC assignment for them in Addendum B to this final rule with comment period.

Comment: Many commenters supported the proposal to package payment for all intraoperative services and recommended that CMS finalize the proposal without modification. Several commenters requested that CMS pay separately for other intraoperative services that it proposed to package for CY 2008, but did not present unique arguments specific to any code.

Response: We agree with commenters that packaging payment for intraoperative services is consistent with the principles of the OPPS and will help contain costs while creating an incentive for hospitals to utilize resources in a cost efficient manner. We understand that hospitals would prefer if certain intraoperative services were paid separately. In light of the public comments we received, our clinical advisors reassessed each intraoperative code on the list to ensure that it was still appropriate for packaged payment. However, we did not see any compelling reason to pay separately for any of the intraoperative services that were not already discussed and revised above.

For CY 2008, we are finalizing our CY 2008 proposal, with modification, to package the payment for all intraoperative HCPCS codes with three exceptions. Specifically, we are finalizing all of the packaging changes we proposed, with the exception of conditionally packaging CPT code 75898 as an ``STVX-packaged'' code and paying separately for CPT codes 67299 and 95999. Except as otherwise specified above, we are fully adopting the APC Panel recommendation to package all intraoperative services and to review the status indicator of CPT code 96020. Table 10 of this final rule with comment period includes the final comprehensive list of all codes in the seven categories that are packaged for CY 2008. (4) Imaging Supervision and Interpretation Services

We proposed to change the packaging status of many imaging supervision and interpretation codes for CY 2008. We define ``imaging supervision and interpretation codes'' as HCPCS codes for services that are defined as ``radiological supervision and interpretation'' in the radiology series, 70000 through 79999, of the AMA CY 2007 book of CPT codes, with the addition of some services in other code ranges of CPT, Category III CPT tracking codes, or Level II HCPCS codes that are clinically similar or directly crosswalk to codes defined as radiological supervision and interpretation services in the CPT radiology range. We also

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included HCPCS codes that existed in CY 2006 but were deleted and were replaced in CY 2007. We included the CY 2006 HCPCS codes because we proposed to use the CY 2006 claims data to calculate the CY 2008 OPPS median costs on which the CY 2008 payment rates would be based.

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

In addition to radiological supervision and interpretation codes in the radiology range of CPT codes, there are CPT codes in other series that describe similar procedures that we proposed to include in the group of imaging supervision and interpretation codes proposed for packaging under the CY 2008 OPPS. For example, CPT code 93555 (Imaging supervision, interpretation and report for injection procedure(s) during cardiac catheterization; ventricular and/or atrial angiography) whose payment under the OPPS is currently packaged, is commonly reported with an injection procedure code, such as CPT code 93543 (Injection procedure during cardiac catheterization; for selective left ventricular or left atrial angiography), whose payment is also currently packaged under the OPPS, and a cardiac catheterization procedure code, such as CPT code 93526 (Combined right heart catheterization and retrograde left heart catheterization), that is separately paid. In the case of cardiac catheterization, CPT code 93555 describes an imaging supervision and interpretation service in support of the cardiac catheterization procedure, and this dependent service is clinically quite similar to radiological supervision and interpretation codes in the radiology range of CPT. Payment for the cardiac catheterization imaging supervision and interpretation services has been packaged since the beginning of the OPPS. Therefore, in developing the proposal for the CY 2008 proposed rule, we conducted a comprehensive clinical review of all Category I and Category III CPT codes and Level II HCPCS codes to identify all codes that describe imaging supervision and interpretation services. The codes we proposed to identify as imaging supervision and interpretation codes for CY 2008 that would receive packaged payment were listed in Table 14 of the proposed rule (72 FR 42665-42667).

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

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

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

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

The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that

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

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

During the September 2007 APC Panel meeting, the APC Panel recommended that CMS delay packaging the imaging supervision and interpretation services because of the reductions in payment that would occur for services that would only be paid separately if they occurred with other minor procedures that are already packaged. The Panel was concerned about the proposed reductions in payment for typical combinations of expensive imaging services. The Panel asked that CMS develop an alternative model for these services and present it at the next APC Panel meeting.

We received many public comments on our proposal to package imaging supervision and interpretation services for CY 2008. A summary of the public comments and our response follows.

Comment: Many commenters objected to the packaging of imaging supervision and interpretation services. They asserted that the proposal would, in many cases, excessively reduce payments because the proposal packaged the cost of the service into one or more services that are already packaged or would inappropriately package the cost of expensive imaging supervision and interpretation services into more minor services, like visits or minor diagnostic tests. The commenters believed that this would result in little or no payment being made for the more expensive services provided in an encounter. Other commenters suggested that CMS package only the 33 codes for which the associated surgical service is separately paid but not package the 93 codes proposed to be conditionally packaged because payments would be excessively reduced. As an alternative, one commenter suggested that CMS review claims data for the 93 imaging supervision and interpretation codes proposed to be assigned status indicator ``Q'' to identify high volume combinations of services and evaluate the combinations for creation of composite APCs. For example, the commenter suggested that CMS could create a composite APC for CPT codes 72265 (Myelography, lumbosacral, radiological supervision and interpretation) and 72132 (Computed tomography lumbar spine, with contrast material) that would ensure that the full payment for CPT code 72265 would always be made when furnished with CPT code 72132. The commenter was concerned that CMS could ``overpay'' lumbar CT when no myelography was furnished but could ``underpay'' when myelography is performed without lumbar computed tomography (CT) but in addition to another minor services such as an emergency department visit or other radiological service. Like others, the commenter was concerned that, as proposed, if an expensive imaging supervision and interpretation service is billed on the same date as a visit, the visit would be paid and the expensive service would not be paid.

Some commenters believed that the absence of consideration of how payment would be made when unrelated services or packaged services were the only other services on the claim demonstrated that the CMS proposal was not carefully or sufficiently analyzed prior to being proposed and should not be made final. The commenters cited several examples of packaging with minor services or packaged services that they view as common, which they believe illuminate the problems with packaging imaging supervision and interpretation services. The commenters asserted that CMS should ensure that no service is packaged into a service that is already packaged. Some commenters believed that the proposed policy would reduce payment for important interventional imaging services by 25 percent in the aggregate, would cause CMS to use fewer claims for ratesetting, and would result in access problems for patients. Some commenters stated that the methodology reduces the number of records that could be used to value these imaging codes for separate payment, thereby resulting in costs that would be much lower than would be the case if the medians were calculated with a higher number of claims.

The commenters explained that some of the most common scenarios for the services that are assigned to APC 0280 (Level III Angiography and Venography) and are proposed for packaging are comparable to cardiac catheterization (APC 0080 (Diagnostic Cardiac Catheterization)) in time, equipment, supply, and labor but under the CMS proposal, the payment made under APC 0280 would be significantly less than the payment for APC 0080. Therefore, the commenters asked that the proposal to package services in APCs 0279 (Level II Angiography and Venography), 280, and 668 (Level I Angiography and Venography) not be adopted in CY 2008 because the packaging would result in payments that are much less than the cost of furnishing the services. One commenter added that it is methodologically circular and unreasonable to package payment for services that already include other packaged services.

Response: We have carefully considered the comments of the APC Panel and the many thoughtful public comments we received on the proposal to package imaging supervision and interpretation services for the CY 2008 OPPS. We spent considerable time and effort in analysis of the data as we developed our proposed rule, and we appreciate the helpful comments we received on this issue. We have decided to finalize our proposal to package these services after refining our methodology for estimating the median cost of conditionally packaged codes assigned status indicator ``Q'' to address concerns that packaging significant services into services that either are already packaged

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or are minor services leads to underpayment and concerns that the proposal reduced the number of claims available for setting APC medians for these services. We agree that we should not pay for a more minor service, such as a visit or minor diagnostic procedure, when the conditionally packaged imaging supervision and interpretation services require more resources. We have modified the conditionally packaged status of these services to be specific to surgical procedures and called them ``T-packaged services.'' The payment for these imaging supervision and interpretation codes will be packaged into the payment for services with a status indicator ``T'' when they appear on the same date as the surgical procedure. When these imaging supervision and interpretation services appear with other codes that have any other payable status indicator (``S,'' ''V,'' or ''X'') or with other services that have a status indicator ``Q'' on the same date, we would pay one unit of the ``T-packaged'' service with the highest relative payment weight. We discuss how we split the claims to acquire ``T- packaged'' single bills that represent all of the resource costs associated with the conditionally packaged service in greater detail in section II.A.2. of this final rule with comment period. The ratesetting methodology specifically includes single bill claims for T-packed services that represent the costs of multiple services with status indicator ``Q'' and other packaged services. We believe that this resolves many of the payment concerns with regard to our proposal to treat the majority of supervision and interpretation codes as conditionally packaged codes. These refinements to our methodology significantly raised the median costs for a number of these services compared to the proposed rule median costs. Furthermore, the refinements, especially those creating single bills from multiple minor claims, allowed us to use many more claims to estimate a median cost for these conditionally packaged codes and, therefore, to develop an APC median cost estimate that better reflects the resources consumed by these services that are commonly performed in combination with one another.

We believe that our changes have resulted in resolution of many of the concerns raised by the commenters and the APC Panel. There were a number of specific examples cited by the commenters to illustrate their concerns on this issue. We include the commenters' examples below, expanded to add the CY 2008 final rule payment. In the examples below, ``pkg'' means payment is packaged; ``na'' means not applicable.

Example 1.--Myleography and Lumbosacral CT With Contrast

CY 2007

CY 2008 Proposed CY 2008

CY 2008 Final HCPCS Code

Descriptor

APC CY 2007 SI CY 2007 Payment payment

APC CY 2008 SI

payment

72265................... Contrast X-ray

0274 S............. $157.01......... pkg............. 0274 Q............ $481.46 lower spine. 72132................... CT lumbar spine w/

0283 S............. $250.94......... $751.09......... 0283 S............ $277.48 dye.

Sum................. ................... ......... .............. $407.95......... $751.09......... ......... ............. $758.94

Example 2.--Angiography, Carotid, Cervical, Vertebral and/or Intracranial

CY 2007

CY 2008 Proposed CY 2008

CY 2008 Final HCPCS Code

Descriptor

APC CY 2007 SI CY 2007 Payment payment

APC CY 2008 SI

payment

36216................... Place catheter in ......... N............. pkg............. pkg.............

na N............ pkg artery. 36215................... Place catheter in ......... N............. pkg............. pkg.............

na N............ pkg artery. 36217................... Place catheter in ......... N............. pkg............. pkg.............

na N............ pkg artery. 36216-59................ Place catheter in ......... N............. pkg............. pkg.............

na N............ pkg artery. 75671................... Artery Xrays head

0280 S............. $1,279.92....... pkg............. 0280 Q............ $2,847.85 and neck. 75680................... Artery Xrays, neck. 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg 75685X2................. Artery Xrays, spine 0280 S............. $2,559.84....... $1,442.28....... 0279 Q............ pkg

Sum................. ................... ......... .............. $5,119.68....... $1,442.28....... ......... ............. $2,847.85

Note: Several commenters submitted this example or this example with minor variation. The final payment for this service in its entirety is similar to the payment for cardiac catheterization (APC 0080), to which the commenters compared this service.

Example 3.--Evaluation and Percutaneous Revascularization of Graft

CY 2007

CY 2008 Proposed CY 2008

CY 2008 Final HCPCS Code

Descriptor

APC CY 2007 SI CY 2007 Payment payment

APC CY 2008 SI

payment

36145X2................. Place catheter in

na N............. pkg............. pkg.............

na N............ pkg artery. 75790................... Visualize A-V shunt 0279 S............. $584.32......... pkg............. 0668 Q............ pkg G0393................... A-V fistula or

0081 T............. $2,639.19....... $2,934.24....... 0083 T............ $2,890.72 graft venous. 75978X2................. Repair venous

0668 S............. $767.90......... pkg............. 0083 Q............ pkg blockage. 35476................... Repair venous

0081 T............. $1,319.60....... $1,467.37....... 0083 T............ $1,445.36 blockage.

Sum................. ................... ......... .............. $5,311.01....... $4,401.61....... ......... ............. $4,336.08

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Example 4.--Diagnostic Angiography With Balloon Angioplasty of Superficial Femoral Artery

CY 2007

CY 2008 Proposed CY 2008

CY 2008 Final HCPCS Code

Descriptor

APC CY 2007 SI CY 2007 Payment payment

APC CY 2008 SI

payment

75625................... Contrast Xray exam 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg of aorta. 75716................... Artery Xrays, arms/ 0280 S............. $1,279.92....... pkg............. 0279 Q............ pkg legs. 75774................... Artery Xray, each

0279 S............. $584.32......... pkg.............

na N............ pkg vessel. 75774................... Artery Xray, each

0279 S............. $584.32......... pkg.............

na N............ pkg vessel. 36247................... Place catheter in ......... N............. pkg............. pkg.............

na N............ pkg artery. 35474................... Repair arterial

0081 T............. $2,639.19....... $2,934.24....... 0083 T............ $2,890.72 blockage. 35474................... Repair arterial

0081 T............. $1,319.60....... $1,467.37....... 0083 T............ $1,445.36 blockage. 75962................... Repair atrial

0668 S............. $383.95......... pkg............. 0083 Q............ pkg blockage. 75964................... Repair artery

0668 S............. $383.95......... pkg.............

na N............ pkg blockage, each.

Sum................. ................... ......... .............. $8,455.17....... $4,401.61....... ......... ............. $4336.08

Comment: Some commenters believed that CMS should not package imaging supervision and interpretation services because CMS did not conduct a sufficiently thorough analysis of the many ways that CPT codes can be reported for services where there could be more than one surgical CPT code associated with a single imaging supervision and interpretation service. The commenters stated that these codes are created on a ``component'' basis to deal effectively with the huge variation in the combinations of services that could occur.

Response: We disagree with the commenters. We acknowledge that the APC Panel and the commenters raised concerns about the packaging of these services that we did not fully anticipate in development of the proposed rule. However, the purpose of the APC Panel and the exposure of the proposal to public comment are to raise issues for our consideration as we develop final policies for the final rule. We appreciate the assistance of the APC Panel and the many thoughtful public comments we received on the proposal to package these codes. We recognize that the codes are created as they exist, in order to describe many different treatment scenarios through the use of multiple and varied combinations of codes. As we discuss above, we have developed a methodology that addresses the concerns raised by the commenters and, as such, continue to believe that it is appropriate to package these services for CY 2008.

Comment: Some commenters believed that the revenue code to CCR mapping for these services is problematic because most are billed with revenue code 0361 and revenue code 0361 is mapped to the surgery cost center. However, as the commenters pointed out, most of these procedures are performed in the imaging department or the heart catheterization laboratory and, therefore, their median cost calculation is highly suspect.

Response: We do not view the unknown amount of error that occurs as a result of a theoretical conflict between the revenue code reported for a service and the CCR used to reduce that charge to an estimated cost as justification to not package these services. The costs we calculate for purposes of establishing median costs for ratesetting are estimated costs and as such, in general, there is error in them to the extent that the charges are reported under a revenue code that maps to a cost center in which the costs for the services are not found. Hospitals select the revenue codes with which they report services to Medicare and other payers for a wide range of reasons over which CMS generally exercises no control. The CMS crosswalk of revenue codes to cost centers is available for inspection and comment at the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/. Hospitals that

want to ensure that the correct CCR is applied to a service could, if they chose, use this crosswalk to select either the revenue codes to report or the cost center to use for costs reported with a particular revenue code.

Comment: Some commenters believed that implementation of the imaging and supervision packaging would present huge operational challenges for hospitals to ensure that codes and charges continue to be billed so that the data in future years will be acceptable as the basis for setting relative weights for the OPPS. The commenters stated that hospitals will cease to report the codes and charges for the services that are no longer separately paid and that the costs of the services will then be lost to the payment system and the median costs for the services that should carry the packaging will be inappropriately low.

Response: The commenters did not articulate how implementation of the imaging supervision and interpretation packaging proposal would present huge operational challenges for hospitals to ensure that the codes and charges continue to be billed so that future claims will contain the necessary costs for setting relative weights for the OPPS. Hospitals need only continue to report the codes and charges for all of the services they furnish. There are no new billing requirements associated with this change in payment policy. Moreover, hospitals are required to charge the same amount to all payers for the same services. We understand that many private payers continue to pay a percent of charges, creating incentives for hospitals to report and charge for all services furnished to all patients.

Comment: Some commenters suggested that CMS update the OPPS packaging policies to address newly added or deleted codes.

Response: We routinely review all new or revised HCPCS codes each year to determine what status indicator to assign and whether other changes to our files are needed. We also indicate new codes with a change indicator in Addendum B to this final rule with comment period, and we solicit public comments on the interim APC placement and status indicator we assign to them for those HCPCS codes designated with comment indicator ``NI'' in the final rule with comment period. We do not review deleted codes because they naturally fall out of the system, beginning in the claims for the period in which they are deleted, although we continue to assign their claims data for ratesetting purposes.

Comment: Some commenters expressed concerns with the treatment of the claims data for imaging supervision and interpretation codes with status indicator ``Q'' with regard to the impact on the number of multiple procedure claims. Some commenters stated that reporting packaged services

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will create more multiple procedure bills that will not be used to set rates.

Response: The reporting of packaged services will not result in more multiple procedure claims because the packaged service, which has a status indicator of ``N'' for data purposes, unless it is changed to be separately paid, will not by itself cause a claim to be viewed as a multiple major procedure claim. Moreover, if packaged services and their charges are not reported, the payment for the services into which their cost is packaged may be understated. Therefore, it is important that hospitals report all services furnished and the associated charges.

Comment: Some commenters indicated that where there are multiple codes with status indicator ``Q'' on a claim and no separately paid services, they are assigned status indicator ``N'' and sent to multiple minors because the assignment of the status indicator ``N'' happens before the split. They suggested that if the assignment happened after the split and after the ``pseudo'' single creation, they could be used in the median calculation for the APC.

Response: The commenter correctly describes how codes with status indicator ``Q'' were treated in this circumstance for the proposed rule data. We agree that claims with multiple occurrences of codes with status indicator ``Q'' should be used to estimate the APC median cost through which they will be separately paid. In response to the public comments we received, we have revised the data process in several places to address the estimation of costs for services with a status indicator of ``Q.'' (See section II.A.2.b. of this final rule with comment period for further discussion of the changes to the data process.) With regard to this particular comment, we continue to assign claims with multiple ``Q'' procedure or packaged services to the multiple minor file. We then create additional single bills from the multiple minor file by identifying which conditionally packaged code will be the prime code that will carry the packaging by selecting the conditionally packaged code with the highest payment for CY 2007 and packaging all costs of the other codes into the cost for that code. We also set the units to one for the prime code to reflect our policy of only paying one unit of a service for codes with a status indicator of ``Q.'' That claim then becomes a single procedure claim assigned to the APC to which the prime code is assigned. These modifications have resulted in the use of many more claims than were used for the proposed rule to set APC medians where conditionally packaged codes are assigned.

Comment: One commenter believed that the data for many single bills for the services with status indicator ``Q'' will be lost because CMS assesses the status of the status indicator ``Q'' code before applying the bypass list. The commenters stated that where there are three services on the claim, two of which are on the bypass list, the status indicator ``Q'' service will be changed to packaged before the bypass list is applied and the two bypass codes will leave the claim without packaging. The commenter added that there will then be no code to which to package the cost of the status indicator ``Q'' code and the data will neither be used nor packaged into anything (because nothing is left for it to be packaged with). The commenter believed that if CMS had made the assignment of the ``Q'' after the bypass codes were removed, the data could be used to set the APC median for the ``Q'' service and more claims could have been used.

Response: The commenter accurately described the treatment of a code with status indicator ``Q'' if it is on the same claim with two codes that are on the bypass list. However, we disagree with the commenter's recommendation. First, by definition, codes on the bypass list do not have significant packaging. We specifically reassessed the codes included on the bypass list in light of this packaging proposal to ensure removal of any services with significant packaging. The circumstances where ``Q'' service data would remain on a claim as ``packaging'' after removing the other two codes as bypass codes should be very limited. Second, we would not want to use that data to set the median cost for the ``Q'' status service because the final payment disposition of the code with status indicator ``Q'' on the claim would be packaged. Under this commenter's recommendation, we would be sending the data for the status indicator ``Q'' codes to the APC to which it is assigned even though, when the claim was processed, no separate payment would be made for the status indicator ``Q'' code.

Comment: One commenter found that its calculation of median costs using proposed rule data for the imaging supervision and interpretation services to which CMS proposed to assign status indicator ``Q'' resulted in median costs for these codes and the APCs to which they were assigned that were significantly higher than the median costs calculated by CMS for these codes and their APCs. The commenter was concerned that CMS may have inadvertently failed to include the packaged costs in the calculation of the medians for these costs codes.

Response: The commenter is correct in that we inadvertently erred and did not include the packaged costs of ``Q'' status procedures in the calculation of the medians for these codes and their related APCs in the proposed rule. We have packaged these costs with the ``Q'' procedures for this final rule with comment period, in addition to making the other modifications to the calculation of the median costs for these codes as discussed in detail above and in section II.A.2. of this final rule with comment period.

For CY 2008, we are finalizing our proposal, with modification as discussed above, to unconditionally or conditionally packaged imaging supervision and interpretation services. These codes, with their assigned status indicator ``N'' as unconditionally packaged or ``Q'' as ``T-packaged'' codes, are listed in Table 10 of this final rule with comment period. We are not accepting the APC Panel recommendation to delay packaging of these services and provide an alternative model at the next Panel meeting, because we are finalizing a modified model. We will review the final CY 2008 policy, including the ratesetting methodology, with the APC Panel at its 2008 winter meeting. (5) Diagnostic Radiopharmaceuticals

For CY 2008, we proposed to change the packaging status of diagnostic radiopharmaceuticals as part of our overall enhanced packaging approach for the CY 2008 OPPS. Packaging costs into a single aggregate payment for a service, encounter, or episode of care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of supportive items and services into the payment for the independent procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. As we stated in the CY 2007 OPPS/ASC final rule with comment period, we believe that a policy to package payment for additional radiopharmaceuticals (other than those already packaged when their per day costs are below the packaging threshold for OPPS drugs, biologicals, and radiopharmaceuticals based on data for the update year) is consistent with OPPS packaging principles and would provide greater administrative simplicity for hospitals (71 FR 68094).

All nuclear medicine procedures require the use of at least one radiopharmaceutical, and there are only

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a small number of radiopharmaceuticals that may be appropriately billed with each diagnostic nuclear medicine procedure. While examining the CY 2005 hospital claims data in preparation for the CY 2007 OPPS/ASC proposed rule, we identified a significant number of diagnostic nuclear medicine procedure claims that were missing HCPCS codes for the associated radiopharmaceutical. At that time, we believed that there could be two reasons for the presence of these claims in the data. One reason could be that the radiopharmaceutical used for the procedure was packaged under the OPPS and, therefore, some hospitals may have decided not to include the specific radiopharmaceutical HCPCS code and an associated charge on the claim. A second reason could be that the hospitals may have incorporated the cost of the radiopharmaceutical into the charges for the associated nuclear medicine procedures. A third possibility not offered in the CY 2007 OPPS/ASC proposed rule is that hospitals may have included the charges for radiopharmaceuticals on an uncoded revenue code line.

In the CY 2007 OPPS/ASC proposed rule, we did not propose packaging payment for radiopharmaceuticals with per day costs above the $55 CY 2007 packaging threshold because we indicated that we were concerned that payments for certain nuclear medicine procedures could potentially be less than the costs of some of the packaged radiopharmaceuticals, especially those that are relatively expensive. At the same time, we also noted the GAO's comment in reference to the CY 2006 OPPS proposed rule that stated a methodology that includes packaging all radiopharmaceutical costs into the payments for the nuclear medicine procedures may result in payments that exceed hospitals' acquisition costs for certain radiopharmaceuticals because there may be more than one radiopharmaceutical that may be used for a particular procedure. We also expressed concern that packaging payment for additional radiopharmaceuticals could provoke treatment decisions that may not reflect use of the most clinically appropriate radiopharmaceutical for a particular nuclear medicine procedure in any specific case (71 FR 68094).

After considering this issue further and examining our CY 2006 claims data for the CY 2008 OPPS update, as we indicated in the CY 2008 OPPS/ASC proposed rule, we believe that it is most appropriate to package payment for some radiopharmaceuticals, specifically diagnostic radiopharmaceuticals, into the payment for diagnostic nuclear medicine procedures for CY 2008. We expect that packaging would encourage hospitals to use the most cost efficient diagnostic radiopharmaceutical products that are clinically appropriate. We anticipate that hospitals would continue to provide care that is aligned with the best interests of the patient. Furthermore, we believe that it would be the intent of most hospitals to provide both the diagnostic radiopharmaceutical and the associated diagnostic nuclear medicine procedure at the time the diagnostic radiopharmaceutical is administered and not to send patients to a different provider for administration of the radiopharmaceutical. As we indicated in the proposed rule, we do not believe that our packaging proposal would limit beneficiaries' ability to receive clinically appropriate diagnostic procedures. Again, the OPPS is a system of averages, and payment in the aggregate is intended to be adequate, although payment for any one service may be higher or lower than a hospital's actual costs in that case.

For CY 2008, we have separated radiopharmaceuticals into two groupings. The first group includes diagnostic radiopharmaceuticals, while the second group includes therapeutic radiopharmaceuticals. We identified all diagnostic radiopharmaceuticals as those Level II HCPCS codes that include the term ``diagnostic'' along with a radiopharmaceutical in their long code descriptors. Therefore, we were able to distinguish therapeutic radiopharmaceuticals from diagnostic radiopharmaceuticals as those Level II HCPCS codes that have the term ``therapeutic'' along with a radiopharmaceutical in their long code descriptors. There currently are no HCPCS C-codes used to report radiopharmaceuticals under the OPPS. For CY 2008, we proposed to package payment for all diagnostic radiopharmaceuticals that are not otherwise packaged according to the CY 2008 packaging threshold for drugs, biologicals, and radiopharmaceuticals that we proposed. We proposed this packaging approach for diagnostic radiopharmaceuticals, while we proposed to continue to pay separately for therapeutic radiopharmaceuticals with an average per day cost of more than $60 as discussed in section V.B.3.a.(c) of this final rule with comment period. In that section, we review our reasons for treating diagnostic radiopharmaceuticals (as well as contrast media) differently from other types of specified covered outpatient drugs identified in section 1833(t)(B) of the Act.

Diagnostic radiopharmaceuticals are always intended to be used with a diagnostic nuclear medicine procedure. In examining our CY 2006 claims data, we were able to match most diagnostic radiopharmaceuticals to their associated diagnostic procedures and most diagnostic nuclear medicine procedures to their associated diagnostic radiopharmaceuticals in the vast majority of single bills used for ratesetting. We estimate that less than 5 percent of all claims with a diagnostic radiopharmaceutical had no corresponding diagnostic nuclear medicine procedure. In addition, we found that only about 13 percent of all single bills with a diagnostic nuclear medicine procedure code had no corresponding diagnostic radiopharmaceutical billed. These statistics indicate that, in a majority of our single bills for diagnostic nuclear medicine procedures, a diagnostic radiopharmaceutical HCPCS code is included on the single bill. Table 15 in the proposed rule (72 FR 42668) presented the top 20 diagnostic nuclear medicine procedures in terms of the overall frequency with which they are reported in the OPPS claims data. Among these high volume diagnostic nuclear medicine procedures, their single bills included a HCPCS code for a diagnostic radiopharmaceutical at least 84 percent of the time for 19 of the top 20 procedures. More specifically, 84 to 86 percent of the single bills for 4 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical, 87 to 89 percent of the single bills for 8 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical, and 90 percent or more of the single bills for 7 diagnostic nuclear medicine procedures included a diagnostic radiopharmaceutical.

Among the lower volume diagnostic nuclear medicine procedures (which were outside the top 20 in terms of volume), there was still good representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for most procedures. About 40 percent of the low volume diagnostic nuclear medicine procedures had at least 80 percent of the single bills for that diagnostic procedure that included a diagnostic radiopharmaceutical HCPCS code; about 37 percent of the low volume diagnostic procedures had between 50 to 79 percent of the single bills that included a diagnostic radiopharmaceutical HCPCS code; and about 23 percent of the low volume diagnostic procedures

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had less than 50 percent of the single bills that include a diagnostic radiopharmaceutical HCPCS code. For the few diagnostic nuclear medicine procedures where less than 50 percent of the single bills included a diagnostic radiopharmaceutical HCPCS code, we believed there could be several reasons why the percentage of single bills for the diagnostic nuclear medicine procedure with a diagnostic radiopharmaceutical HCPCS code was low.

As noted earlier, it is possible that hospitals may have included the charge for the radiopharmaceutical in the charge for the diagnostic nuclear medicine procedure itself or on an uncoded revenue code line instead of reporting charges for a specific diagnostic radiopharmaceutical HCPCS code. We found that 24 percent of all single bills for a diagnostic nuclear medicine procedure but without a coded diagnostic radiopharmaceutical had uncoded costs in a revenue code that might contain diagnostic radiopharmaceutical costs, specifically, revenue codes 0254 (Drugs Incident to Other Diagnostic Services), 0255 (Drugs Incident to Radiology), 0343 (Diagnostic Radiopharmaceuticals), 0621 (Supplies Incident to Radiology), and 0622 (Supplies Incident to Other Diagnostic Services). In comparison, we found that only 2 percent of diagnostic nuclear medicine single bills with a nuclear medicine procedure and a coded diagnostic radiopharmaceutical had uncoded costs in these revenue codes. It is also possible that some of these procedures typically used a diagnostic radiopharmaceutical subject to packaged payment under the CY 2006 OPPS, and hospitals may have chosen not to report a separate charge for the diagnostic radiopharmaceutical. Payment for diagnostic radiopharmaceuticals commonly used with some diagnostic nuclear medicine procedures would already be packaged because these diagnostic radiopharmaceuticals' average per day costs were less than $50 in CY 2006. We stated in the proposed rule that the CY 2008 proposal to package additional diagnostic radiopharmaceuticals would have little impact on the payment for those diagnostic procedures that typically use inexpensive diagnostic radiopharmaceuticals that would be packaged under our proposed CY 2008 packaging threshold of $60, except to the extent that the budget neutrality adjustment due to the broader packaging proposal leads to an increase in the scaler and an increase in the payment for procedures in general.

At its March 2007 meeting, the APC Panel recommended that CMS work with stakeholders on issues related to payment for radiopharmaceuticals, including evaluating claims data for different classes of radiopharmaceuticals and ensuring that a nuclear medicine procedure claim always includes at least one reported radiopharmaceutical agent. In the proposed rule, we noted that we planned to accept the APC Panel's recommendation, and we specifically welcomed public comment on the hospitals' burden involved should we require such precise reporting. We also sought public comment on the importance of such a requirement in light of our above discussion on the representation of diagnostic radiopharmaceuticals in the single bills for diagnostic nuclear medicine procedures, the presence of uncoded revenue code charges specific to diagnostic radiopharmaceuticals on claims without a coded diagnostic radiopharmaceutical, and our proposal to package payment for all diagnostic radiopharmaceuticals.

As we indicated in the proposed rule, we are aware that several diagnostic radiopharmaceuticals may be used for multiple day studies; that is, a particular diagnostic radiopharmaceutical may be administered on one day and a related diagnostic nuclear medicine procedure may be performed on a subsequent day. While we understand that multiple day episodes for diagnostic radiopharmaceuticals and the related diagnostic nuclear medicine procedures occur, we expect that this would be a small proportion of all diagnostic nuclear medicine imaging procedures. We estimate that, roughly, 15 diagnostic radiopharmaceuticals have a half-life longer than one day such that they could support diagnostic nuclear medicine scans on different days. We believe these diagnostic radiopharmaceuticals would be concentrated in a specific set of diagnostic procedures. Excluding the 5 percent of diagnostic radiopharmaceutical claims with no matching diagnostic nuclear medicine scan for the same beneficiary, we found that a diagnostic nuclear medicine scan was reported on the same day as a coded diagnostic radiopharmaceutical 90 percent or more of the time for 10 of these 15 diagnostic radiopharmaceuticals. Further, between 80 and 90 percent single bills for each of the remaining 5 diagnostic radiopharmaceuticals had a diagnostic nuclear medicine scan on the same day. In the ``natural'' single bills we use for ratesetting, we package payment across dates of service. In light of such high percentages of extended half-life diagnostic radiopharmaceuticals with same day diagnostic nuclear medicine scans and the ability of ``natural'' singles to package costs across days, we indicated in the proposed rule that we believe that our standard OPPS ratesetting methodology of using median costs calculated from claims data would adequately capture the costs of diagnostic radiopharmaceuticals associated with diagnostic nuclear medicine procedures that are not provided on the same date of service.

The packaging proposal we presented would have reduced the overall frequency of single bills for diagnostic nuclear medicine procedures, but the percent of single bills out of total claims remained robust for the majority of diagnostic nuclear medicine procedures. Typically, packaging more procedures should improve the number of single bill claims from which to derive median cost estimates because packaging reduces the number of separately paid procedures on a claim, thereby creating more single procedure bills. In the case of diagnostic nuclear medicine procedures, packaging diagnostic radiopharmaceuticals reduced the overall number of single bills available to calculate median costs by increasing packaged costs that previously were ignored in the bypass process. In prior years, we did not consider the costs of radiopharmaceuticals when we used our bypass methodology to extract ``pseudo'' single claims because we assumed that the cost of radiopharmaceutical overhead and handling would be included in the line-item charge for the radiopharmaceutical, and the diagnostic radiopharmaceuticals were subject to potential separate payment if their mean per day cost fell above the packaging threshold. The bypass process sets empirical and clinical criteria for minimal packaging for a specific list of procedures and services in order to assign packaged costs to other procedures on a claim and is discussed at length in section II.A.1. of the proposed rule, and this final rule with comment period. Generally, we found that changing the status of diagnostic radiopharmaceuticals to packaged increased the packaging on each claim. This would make it both harder for nuclear medicine procedures to qualify for the bypass list and more difficult to assign packaging to individual diagnostic nuclear medicine procedures, resulting in a possible reduction of the number of ``pseudo'' singles that are produced by the bypass process. Notwithstanding this potentiality, diagnostic nuclear medicine procedures

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continued to have good representation in the single bills. On average, single bills as a percent of total occurrences remained substantial at 55 percent for individual procedures. We discuss our process for ratesetting, including the construction and use of single and multiple bills, in greater detail in section II.A.1. of this final rule with comment period.

We indicated in the proposed rule that we believe our CY 2006 claims data supported our CY 2008 proposal to package payment for all diagnostic radiopharmaceuticals and would lead to payment rates for diagnostic nuclear medicine procedures that appropriately reflect payment for the costs of the diagnostic radiopharmaceuticals that are administered to carry out those diagnostic nuclear medicine procedures. Among the top 20 high volume diagnostic nuclear medicine procedures, at least 84 percent of the single bills for almost every diagnostic nuclear medicine procedure included a diagnostic radiopharmaceutical HCPCS code. While a diagnostic radiopharmaceutical, by definition, would be anticipated to accompany 100 percent of the diagnostic nuclear medicine procedures, it is not unexpected that, while percentages in our claims data are high, they are less than 100 percent. As noted previously, we have heard anecdotal reports that some hospitals may include the charges for diagnostic radiopharmaceuticals in their charge for the diagnostic nuclear medicine procedure or on an uncoded revenue code line, rather than reporting a HCPCS code for the diagnostic radiopharmaceutical. Thus, it is likely that the frequency of diagnostic radiopharmaceutical costs reflected in our claims data were even higher than the percentages indicated. Furthermore, we note that the OPPS ratesetting methodology is based on medians, which are less sensitive to extremes than means and typically do not reflect subtle changes in cost distributions. Therefore, to the extent that the vast majority of single bills for a particular diagnostic nuclear medicine procedure included a diagnostic radiopharmaceutical HCPCS code, the fact that the percentage was somewhat less than 100 percent was likely to have minimal impact on the median cost of the procedure in most cases. Even in those few instances where we had a low total number of single bills, largely because of low overall volume, we had ample representation of diagnostic radiopharmaceutical HCPCS codes on the single bills for the majority of lower volume nuclear medicine procedures. We also continued to have reasonable representation of single bills out of total claims in general. Finally, as noted previously, to the extent that the diagnostic radiopharmaceuticals commonly used with a particular diagnostic nuclear medicine procedure were already packaged, the proposal to package additional diagnostic radiopharmaceuticals would have had little impact on the payment for these procedures.

The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to whether the dependent diagnostic radiopharmaceuticals services are provided by the same hospital that performs the independent services. In order to provide diagnostic nuclear medicine procedures under this policy, hospitals would either need to administer the necessary diagnostic radiopharmaceuticals themselves or refer patients elsewhere for the administration of the diagnostic radiopharmaceuticals. In the latter case, claims data would show such a change in practice in future years and that change would be reflected in future ratesetting. However, with respect to diagnostic radiopharmaceuticals, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these items because diagnostic radiopharmaceuticals are typically provided on the same day as a diagnostic nuclear medicine procedure. It would be difficult for Hospital A to send patients to receive diagnostic radiopharmaceuticals from Hospital B and then have the patients return to Hospital A for the diagnostic nuclear medicine procedure in the appropriate timeframe (given the radiopharmaceutical's half-life) to perform a high quality study. We expect that hospitals would always bill the diagnostic radiopharmaceutical on the same claim as the other independent services for which the radiopharmaceutical was administered.

The APC Panel recommended that CMS package radiopharmaceuticals with a median per day cost of less than $200 but pay separately for radiopharmaceuticals with a per day cost of $200 or more. The APC Panel also recommended that CMS should identify nuclear medicine procedure claims with and without radiopharmaceuticals and should present its findings to the Panel at the next meeting for consideration of whether an edit is needed to ensure that the cost of the radiopharmaceutical is packaged into the payment for the nuclear medicine service.

We received many public comments on our proposal to package payment for diagnostic radiopharmaceuticals for CY 2008. A summary of the public comments and our responses follow.

Comment: Some commenters recommended that CMS package radiopharmaceuticals with a per day cost less than $200 but pay separately for radiopharmaceuticals with a per day cost of $200 or more. Other commenters objected to packaging diagnostic radiopharmaceuticals and asked that CMS continue to pay separately for radiopharmaceuticals with per day costs that exceed the packaging threshold for drugs. These commenters explained that FDA views radiopharmaceuticals to be drugs, they are defined as drugs for purposes of pass-through payment under OPPS in sections 1833(t)(6)(A)(iii) of the Act, and for purposes of payment as specified covered outpatient drugs (SCODs) and biologicals in section 1833(t)(14)(B)(i)(l) of the Act. The commenters argued that CMS should, therefore, pay separately for radiopharmaceuticals with a per day cost in excess of $60, as it does for other drugs.

The commenters believed that section 1833(t)(14)(B)(i)(l) of the Act requires CMS to treat radiopharmaceuticals no differently from other SCODs and, therefore, CMS must pay radiopharmaceuticals actual acquisition costs or, failing that, charges adjusted to costs. Some commenters believed that there is no authority for CMS to package drugs that are incidental or ancillary to a procedure and that by doing so, CMS is relying on a form of ``functional equivalence'' which is expressly limited by statute under section 1833(t)(6)(F) of the Act. The commenters argued that the proposal will create an incentive for hospitals to not use advanced technologies and will harm patient care. Some commenters believed that packaging diagnostic radiopharmaceuticals could discourage hospitals from using the most appropriate drug for each patient and encourage them to use less clinically effective radiopharmaceuticals when there is a choice of radiopharmaceutical. Some commenters added that the proposal ignores medical indications and focuses solely on cost reduction, which could result in constraints on medical decisionmaking and would compromise medical care.

Response: After review of the public comments we received on this issue, we have decided to finalize our proposal to package payment for diagnostic

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radiopharmaceuticals into the payment for the nuclear medicine services which cannot be performed without the administration of a radiopharmaceutical. We refer readers to section V.B.4.b. of this final rule with comment period for a discussion of the rationale to package payment for diagnostic radiopharmaceuticals as SCODs and our belief that the packaged payment provides payment at average acquisition cost for the products.

We find the argument that we are creating functional equivalence by packaging the payment for diagnostic radiopharmaceuticals into the payment for the nuclear medicine services without which they cannot be performed to be unconvincing. We are not establishing an equivalent payment for different products based on their function. We are instead packaging the cost of radiopharmaceuticals, however differential those costs may be, into the payment for nuclear medicine services to create an appropriate payment for the nuclear medicine services that use these products, whether there is one product or multiple products that could be used to furnish the service. This is analogous to our longstanding practice of packaging of medical devices into the payment for the procedure in which they are used, notwithstanding that there may be different devices that could be used to furnish the service.

Moreover, we do not agree with the argument that paying for radiopharmaceuticals as part of the payment for the nuclear medicine service to which they are essential will harm patient care. We believe that providing packaged payment for radiopharmaceuticals as part of the nuclear medicine service will cause hospitals and their physician partners to give even more careful consideration to the selection of the radiopharmaceutical that is the most appropriate for the patient whom they are treating.

We are not accepting the APC Panel recommendation to pay separately for radiopharmaceuticals with a per day cost in excess of $200 because we could not determine an empirical basis for paying separately for radiopharmaceuticals with a per day cost in excess of $200.

Comment: Many commenters stated that a diagnostic radiopharmaceutical is always needed to provide a nuclear medicine service and, therefore, CMS should use only claims in which both services were present to compute the median cost for the nuclear medicine procedure if CMS decides to package diagnostic radiopharmaceuticals. Some commenters suggested that CMS establish OCE edits that would require a charge be reported under the diagnostic radiopharmaceutical revenue code 0343 when there was a charge in revenue codes 0340 or 0341 for a nuclear medicine procedure. Other commenters recommended that CMS establish OCE edits that would require a HCPCS code for a diagnostic radiopharmaceutical be reported on a claim for a diagnostic nuclear medicine procedure. Some commenters were concerned that the actual cost of radiopharmaceuticals would be lost because hospitals would not report the charges on the claim unless CMS mandates and enforces their reporting.

Response: We agree that it is important that the costs of radiopharmaceuticals be reported on the same claim with the nuclear medicine service so that we can have confidence that the payment for the nuclear medicine procedure reflects the cost of the radiopharmaceutical as well as the nuclear medicine service. Therefore, we have used only claims that contain a HCPCS code and charge for a diagnostic radiopharmaceutical to calculate the median costs of the nuclear medicine procedures for CY 2008. Moreover, effective for services furnished on and after January 1, 2008, the OCE will return for correction any claim for a nuclear medicine procedure that does not contain a HCPCS code and charge for a diagnostic radiopharmaceutical. These edits are similar to the edits we have had in place in the OCE since CY 2005 for medical devices. The significant difference, however, is that we recognize that, for some nuclear medicine procedures, there is a choice of radiopharmaceuticals that could be used and, therefore, the edits will not specify which radiopharmaceutical must be billed with any given nuclear medicine procedure. We also recognize that, in some cases, the radiopharmaceutical is administered several days before the nuclear medicine service is furnished. In these cases, the hospital will need to hold the claim until after the service is furnished so that the radiopharmaceutical can appear on the bill with the nuclear medicine procedure or the bill for the procedure will be returned for correction. We did not accept the comment that we should establish the edits using combinations of revenue codes because to do so would not provide specific information on the particular radiopharmaceutical being furnished and we could not be certain that the charges were for radiopharmaceuticals.

Comment: Some commenters asserted that, based on survey data they gathered, claims data fail to capture hospital average acquisition costs for radiopharmaceuticals. The commenters, therefore, concluded that the costs of low volume, high cost radiopharmaceuticals are not captured in the claims data that is used to set the median costs on which the nuclear medicine services payment rates are based and the packaged payment for radiopharmaceuticals will be inadequate to pay for the cost of the drug. The commenters believed that these incorrectly priced products are unlikely to continue to be manufactured and thus will cease to be available. The commenters also stated that it is unlikely that the industry will develop new products for the market if they find that hospitals will not use them because of inadequate payment. The commenters believed that beneficiary care would suffer as hospitals ceased to furnish the service because payment would be inadequate to cover the cost. Some commenters explained that, while CMS implemented revenue codes for diagnostic and therapeutic radiopharmaceuticals in CY 2004, hospitals have not yet fully reflected these revenue codes in their billing practices and, therefore, the claims data are not correct or reliable and CMS should continue to pay separately for radiopharmaceuticals at charges adjusted to cost. Other commenters believed that the proposed changes would overestimate payments for some diagnostic radiopharmaceuticals, underestimate others, and create improper financial incentives for hospitals and physicians to select certain radiopharmaceuticals rather than others, potentially reducing the quality of care.

Response: We believe that we have appropriately calculated the radiopharmaceutical costs that we are packaging into the nuclear medicine services by using only claims for nuclear medicine services that contain a radiopharmaceutical, as noted above. This is analogous to our process for ensuring that the costs of devices are packaged into the payment for the APC in which they are used, and we believe that using only these claims will negate any existing problems with the use or lack of use of the radiopharmaceutical revenue codes.

With regard to the concern that packaging radiopharmaceuticals will result in overpayment in some cases and underpayment in others, we note that the most fundamental characteristic of a prospective payment system is that payment is to be set at an average for the service, which, by definition, means that some services are paid more or less than the average. However, the average

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should provide adequate payment for the service, while creating incentives for hospitals to control costs and utilization of high cost services where it is appropriate to do so. We do not believe that either beneficiary access to care or the quality of care will be adversely affected because we pay for diagnostic radiopharmaceuticals as part of the payment for the procedure to which they are an integral part. With regard to the influence this may have on the development and production of radiopharmaceuticals, there are many aspects of the health care economy that influence what is developed and produced, of which Medicare payment under the OPPS is merely one.

Comment: Some commenters stated that CMS has not provided adequate information for specialty societies and others to adequately review the matching of the drugs with the services to determine whether an appropriate radiopharmaceutical is packaged into the nuclear medicine services. The commenters indicated that CMS should provide data on the percent of nuclear medicine claims that were reported with and without a corresponding radiopharmaceutical so that the public can determine whether an edit is indicated for reporting these services either through OCE or backend rate setting and, if so, what edit would be appropriate.

Response: We provided considerable information and data in support of our proposal. Moreover, we make available our claims data both for the proposed rule and the final rule so that the public can perform any analysis they choose. There are limits to our ability to provide specialized studies of interest. Therefore, we provide a narrative claims accounting that is intended to illuminate our data process for those who would like to use the claims data to explore alternatives.

Comment: Some commenters believed that packaging diagnostic radiopharmaceuticals would undermine the clinical and resource homogeneity of the nuclear medicine APCs, especially the cardiac imaging APCs, resulting in 2 times violations. The commenters stated that the APC revision that is proposed as a result of the proposed packaging results in a lack of resource and clinical homogeneity within the APCs. Specifically, the commenters believed that, by packaging diagnostic radiopharmaceuticals, CMS created a 2 times violation in APC 0408 because the median costs for the services assigned to the APC vary widely for the procedure code based on the radiopharmaceutical used.

Response: We agree that packaging costs into the median for a service to which they are an integral part can change the median cost for that service and result in 2 times violations. As we noted in the proposed rule, there were a significant number of APC reassignments to eliminate 2 times violations that would otherwise have resulted from the proposed packaging approach. However, we disagree that we should refrain from packaging payment for necessary items into the payment for the service in which they are required in order to prevent 2 times violations from occurring. Instead, we believe that we should make the necessary reassignments to different APCs where necessary to resolve 2 times violations where they occur. For example, to resolve 2 times violations that would otherwise have occurred when we used only those claims for nuclear medicine procedures reporting HCPCS code for diagnostic radiopharmaceuticals, we made the following APC reassignments for this final rule with comment period. We reassigned CPT code 78730 (Urinary bladder residual study (List separately in addition to code for primary procedure)) from APC 0340 (Minor Ancillary Procedures) to APC 0389 (Level I Non-Imaging Nuclear Medicine). We reassigned CPT code 78725 (Kidney function study, non-imaging radioisotopic study) from APC 0389 to APC 0392 (Level II Non-Imaging Nuclear Medicine). We reassigned CPT code 78006 (Thyroid imaging, with uptake; single determination) from APC 0390 (Level I Endocrine Imaging) to APC 0391 (Level II Endocrine Imaging). With regard to APC 0408 (Level III Tumor/Infection Imaging), that APC contained only one code for the proposed rule, CPT code 78804 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(s); whole body, requiring two or more days imaging), and it had a proposed median of approximately $1,010. For this final rule with comment period, APC 0408 contains 3 CPT codes: 78804 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(s); whole body, requiring two or more days imaging); 78075 (Adrenal Imaging, cortex and/or medulla); and 78803 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(t); tomographic (SPECT)). For this final rule with comment period, APC 408 has a median cost of approximately $969.

Because we have traditionally paid for a service package under the OPPS as represented by a HCPCS code for the major procedure that is assigned to an APC group for payment, we assess the applicability of the 2 times rule to services at the HCPCS code level, not at a more specific level based on the individual diagnostic radiopharmaceuticals that may be utilized in a service reported with a single HCPCS code. If the use of a very expensive diagnostic radiopharmaceutical in a clinical scenario causes a specific procedure to be much more expensive for the hospital than the APC payment, we consider such a case to be the natural consequence of a prospective payment system that anticipates that some cases will be more costly and other less costly than the procedure payment. In addition, very high cost cases could be eligible for outlier payment. As we note elsewhere in this final rule with comment period, decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In the case of diagnostic radiopharmaceuticals, these products will be part of the OPPS payment package for the procedures in which they are used beginning in CY 2008.

Comment: One commenter objected to packaging of diagnostic radiopharmaceuticals because the commenter believed that including the payment for the item in the payment for the procedure would improperly subject the portion of the payment that is attributable to the diagnostic radiopharmaceutical to wage adjustment. The commenter indicated that there should be no wage adjustment applied to the cost of a diagnostic radiopharmaceutical.

Response: We disagree that we should not package the payment for a radiopharmaceutical into the payment for the procedure in which it is an integral part because part of the procedure payment will be wage adjusted. Since the inception of the OPPS, we have determined that, approximately 60 percent of the cost of an OPPS service is attributable to wage costs. That figure is an overall average percent that takes into account the extent to which there are costs in the OPPS payments that are not attributable to wages. We have a longstanding policy of wage adjusting 60 percent of the cost of the APC, regardless of whether it is an office visit (which is mostly wage costs) or an ICD replacement (in which most of the cost is a device), because our analysis shows that, overall, OPPS

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services approximately 60 percent of the cost is attributable to wages.

Comment: Some commenters stated that diagnostic radiopharmaceuticals are not interchangeable and carry high costs because, if the patient for whom the hospital secures a radiopharmaceutical cannot use the product, the hospital cannot bill for it and must absorb the loss. The commenters stated that hospitals have little or no flexibility in determining the diagnostic radiopharmaceutical that they purchase and have little ability to achieve efficiency.

Response: We recognize that radiopharmaceuticals are specialized products that have unique costs associated with them. However, we believe that the costs should be reflected in the charges that hospitals set for them and in the cost report where the full costs of the services are carried. Therefore, the costs will be calculated like any other OPPS cost and packaged into the total cost of the nuclear medicine service to which they are an integral part and will be the basis for the payment rate for the nuclear medicine service in the same way that other packaged costs contribute to the payment rate for the services to which they are an integral part.

Comment: Several commenters stated that HCPCS codes A9542 (Indium IN-111 ibritumomab tiuxetan, diagnostic, per study dose, up to 5 millicuires) and A9544 (Iodine I-131 tositumomab, diagnostic, per study dose) are not diagnostic radiopharmaceuticals and should not be packaged. The commenters reported that they are not used to diagnose the patient's disease but instead are used to assess the biodistribution of radioimmunotherapy agents or to calculate the therapeutic dose of those agents. The commenters contended that, although packaging is intended to create incentives for using the most cost-effective product, in these cases there are no other products that are available, and hence these products should always be paid separately. The commenters concluded that the proposed payments for these services are so low that hospitals will not offer the treatments to Medicare beneficiaries.

Response: We continue to believe that HCPCS codes A9542 and A9544 are diagnostic radiopharmaceuticals. While they are not used to diagnose disease, they are used to determine whether future therapeutic services would be beneficial to the patient and to determine how to proceed with therapy. This is analogous to the use of positron emission tomography (PET) scanning for staging purposes when there has already been a diagnosis of disease but the physician is seeking information to use in planning a course of therapy. The scan is a diagnostic service, notwithstanding that the disease has previously been diagnosed and the diagnostic service is essential to planning therapy. While we recognize that these radiopharmaceuticals are sole source products, we do not believe that is sufficient to justify treating them differently from other diagnostic radiopharmaceuticals. Moreover, given that the Medicare population is such a dominant portion of the population to which these services are targeted, we do not believe that hospitals will cease to provide the service because the payment is packaged into the payment for the service to which the radiopharmaceutical is an integral part. We also note that, under 42 CFR 489.53(a)(2), CMS may terminate the provider agreement of any hospital that furnishes this or any other service to its patients but fails to also furnish it to Medicare patients who need it.

Comment: Some commenters asked that CMS pay hospitals separately for diagnostic radiopharmaceuticals based on acquisition costs. The commenters had a variety of recommendations regarding how CMS should acquire acquisition cost data on which CMS could base separate payment for radiopharmaceuticals. Some commenters recommended that CMS conduct surveys of radiopharmaceutical costs or rely on the external data from surveys conducted by outside entities to obtain cost data. Some commenters recommended that CMS work with stakeholders to develop a standardized radiopharmaceutical reporting format and base separate payment for radiopharmaceuticals on a radiopharmaceutical average selling nuclear pharmacy price (ASNPP), average acquisition cost (ACC), or another voluntarily reported amount if furnished by manufacturers and nuclear pharmacies, instead of claims data charges adjusted to cost by departmental CCRs. Other commenters suggested that CMS require hospitals to report acquisition costs for radiopharmaceuticals, instruct contractors to collect periodic reports from hospitals of diagnostic radiopharmaceutical costs, and gather and summarize nuclear pharmacy invoice data through CY 2008 that would be used to set CY 2009 rates. The commenters stated that separate payment of diagnostic radiopharmaceuticals for CY 2008 is critical to enable hospitals to account for the complex combinations of radiopharmaceuticals used to provide nuclear medicine procedures. Some commenters indicated that continuation of the current payment at charges reduced to cost by the overall CCR, while not ideal, is a reasonable temporary solution until CMS can implement a long term solution to pay acquisition costs for radiopharmaceuticals as required by law. Some commenters supported CMS' use of its claims data alone to set the CY 2008 payment rates, but only if no external data source is available to pay actual acquisition costs for radiopharmaceuticals.

Response: As we previously stated, we have decided to package payment for diagnostic radiopharmaceuticals into the payment for nuclear medicine services. Therefore, proposals for gathering data on which separate payment could be based are not relevant. However, we note that when we proposed to acquire ASP data for radiopharmaceuticals for purposes of paying separately for them under the CY 2006 OPPS, commenters were virtually unanimous that the industry could not report valid sales price data on radiopharmaceuticals.

After consideration of the public comments received, we are finalizing our CY 2008 proposal to provide packaged payment for diagnostic radiopharmaceuticals, with modification to calculate the median costs for the APCs for nuclear medicine studies that require a diagnostic radiopharmaceutical using only claims on which at least one diagnostic radiopharmaceutical is present. We will implement edits in the OCE for services furnished on and after January 1, 2008, that will return to providers any claim for a nuclear medicine study that does not also report a HCPCS code and charge for a diagnostic radiopharmaceutical. We are not accepting the APC Panel's recommendation to set a packaging threshold for diagnostic radiopharmaceuticals at a median cost of $200 per day. We are accepting the APC Panel's recommendation to provide information regarding claims for diagnostic radiopharmaceuticals reported with nuclear medicine procedures, and we will discuss that information with the Panel at the 2008 winter meeting. Diagnostic radiopharmaceuticals assigned status indicator ``N'' that will be unconditionally packaged are listed in Table 10 of this final rule with comment period. (6) Contrast Agents

For CY 2008, we proposed to package payment for all contrast media into their

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associated independent diagnostic and therapeutic procedures as part of our proposed packaging approach for the CY 2008 OPPS (72 FR 42672 through 42674). As noted in section II.A.4.c. of the proposed rule and this final rule with comment period, packaging the costs of supportive items and services into the payment for the independent procedure or service with which they are associated encourages hospital efficiencies and also enables hospitals to manage their resources with maximum flexibility. As stated in the proposed rule (72 FR 42672), we believe that contrast agents are particularly well suited for packaging because they are always provided in support of an independent diagnostic or therapeutic procedure that involves imaging, and thus payment for contrast agents can be packaged into the payment for the associated separately payable procedures.

Contrast agents are generally considered to be those substances introduced into or around a structure that, because of the differential absorption of x-rays, alteration of magnetic fields, or other effects of the contrast medium in comparison with surrounding tissues, permit visualization of the structure through an imaging modality. The use of certain contrast agents is generally associated with specific imaging modalities, including x-ray, computed tomography (CT), ultrasound, and magnetic resonance imaging (MRI), for purposes of diagnostic testing or treatment. They are most commonly administered through an oral or intravascular route in association with the performance of the independent procedures involving imaging that are the basis for their administration. Even in the absence of this proposal to package payment for all contrast agents, we indicated that we would propose to package the majority of HCPCS codes for contrast agents recognized under the OPPS in CY 2008. We consider contrast agents to be drugs under the OPPS, and as a result they are packaged if their estimated mean per day cost is equal to or less than $60 for CY 2008. (For more discussion of our drug packaging criteria, we refer readers to section V.B.2 of this final rule with comment period.) Seventy-five percent of contrast agents HCPCS codes have an estimated mean per day cost equal to or less than $60 based on our CY 2006 proposed rule claims data.

At the time of the proposed rule, contrast agents were described by those Level II HCPCS codes in the range from Q9945 through Q9964. There were currently no HCPCS C-codes or other Level II HCPCS codes outside the range specified above used to report contrast agents under the OPPS. As shown in Table 19 of the proposed rule, in CY 2007 we packaged 7 out of 20 of these contrast agent HCPCS codes based on the $55 packaging threshold. For CY 2008, we proposed to package all drugs with a per day mean cost of $60 or less. For CY 2008, the vast majority of contrast agents would be packaged under the traditional OPPS packaging methodology using the $60 packaging threshold, based on the CY 2006 claims data available for the proposed rule. In fact, of the 20 contrast agent HCPCS codes we included in our proposed packaging approach, 15 would have been proposed to be packaged for CY 2008 under our drug packaging methodology. These 15 codes represent 94 percent of all occurrences of contrast agents billed under the OPPS, using proposed rule data. As stated in the proposed rule (72 FR 42672), we believe that this shift in the packaging status for several of these agents between CYs 2007 and 2008 may be because, in CY 2007, a number of the contrast agents exceeded the $55 threshold by only a small amount and, based on our latest claims data for CY 2008, a number of these products have now fallen below the proposed $60 threshold. Given that the vast majority of contrast agents billed would already be packaged under the OPPS in CY 2008, we stated in the proposed rule (72 FR 42672) that we believe it would be desirable to package payment for the remaining contrast agents as it promotes efficiency and results in a consistent payment policy across products that may be used in many of the same independent procedures. We also noted in the proposed rule (72 FR 42672) that the significant costs associated with these 15 contrast agents would already be reflected in the median costs for those independent procedures and, if we were to pay for the 5 remaining agents separately, we would be treating these 5 agents differently than the others. If the 5 agents remained separately payable, there would effectively be two payments for contrast agents when these 5 agents were billed--a separate payment and a payment for packaged contrast agents that was part of the procedure payment. This could potentially provide a payment incentive to administer certain contrast agents that might not be the most clinically appropriate or cost effective. Moreover, as noted previously, contrast agents are always provided with independent procedures and, under a consistent approach to packaging in keeping with our enhanced efforts to encourage hospital efficiency and promote value-based purchasing under the OPPS, their payment would be appropriately packaged for CY 2008.

The estimated overall impact of these changes presented in section XXII.B. of the proposed rule (and section XXIV.B. of this final rule with comment period) was based on the assumption that hospital behavior would not change with regard to when these contrast agents are provided by the same hospital that performs the imaging procedure. Under this policy, in order to provide imaging procedures requiring contrast agents, hospitals will either need to administer the necessary contrast agent themselves or refer patients elsewhere for the administration of the contrast agent. In the latter case, claims data would show such a change in practice in future years and that change would be reflected in future ratesetting. However, with respect to contrast agents, we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services because contrast agents are typically provided on the same day immediately prior to an imaging procedure being performed. We expected that hospitals would always bill the contrast agent on the same claim as the other independent services for which the contrast agent was administered.

As we indicated earlier, in all cases we are providing that hospitals that furnish the supportive contrast agent in association with independent procedures involving imaging must bill both services on the same claim so that the cost of the contrast agent can be appropriately packaged into payment for the significant independent procedure. As noted in the proposed rule (72 FR 42673), we expect to carefully monitor any changes in billing practices on a service- specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

During its September 2007 APC Panel meeting, the Panel recommended that contrast agents be packaged as proposed.

We received many public comments on the proposal to package payment for all contrast agents. A summary of the public comments and our responses follow.

Comment: Many commenters supported our proposal to package all contrast agents, while others requested that we pay separately for all contrast agents in accordance with the Average

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Sales Price (ASP) payment methodology. Many commenters requested that we treat contrast agents in the same manner as we treat other drugs under the OPPS, thereby continuing to apply the proposed $60 threshold to determine packaging status. One commenter expressed concern with the accuracy of CMS' cost data, and estimated that if contrast agents were packaged, hospitals would not receive any payment in addition to the payment for the procedure without contrast. Several commenters requested that CMS create edits to ensure that the costs for contrast agents are only packaged with appropriate procedures, rather than with any code that may appear on the claim. Other commenters requested that CMS implement edits to ensure that contrast agents are always billed with procedures that require contrast agents. Some commenters were concerned that CMS may not be accounting for the full cost of the contrast agent, because of the methodology used to determine the acquisition costs of the agents. One commenter noted that it is difficult for hospitals operationally to treat contrast agents as packaged, then separately payable the following year, and then packaged again. In addition, commenters were concerned that packaged status would encourage less coding accuracy, which would hinder the development of accurate future payment rates. One commenter expressed concern that patient access to more expensive contrast agents, such as gadolinium-based contrast agents, may be limited, if the proposal to package all contrast agents were finalized.

Response: We have considered all of the comments on this issue and have concluded that it is appropriate to package all contrast agents into payment for the procedure in which they are used. Many contrast agents are packaged currently under the OPPS and have been packaged since the inception of the OPPS. We have no reason to believe that the cost data that we developed for contrast agents are insufficient to result in an appropriate median cost for the services in which the contrast agent is used. Moreover, we are not convinced that there are benefits to making separate payment that would outweigh the incentives for appropriate utilization and efficiency that are created by packaging the payment for the contrast agent into the payment for the service in which it is used.

In addition, we do not believe it is necessary to create edits to ensure that contrast agents are billed in conjunction with services that require contrast agents. For example, we believe that the payment rates for CT with and without contrast are accurate, further bolstering our perspective that hospitals are correctly billing the charges for contrast agents for those services that require them. There is currently a significant cost differential that appears to be appropriate between CT scans with and without contrast, and we have no reason to believe that this cost differential is inaccurate. For example, the CY 2008 median cost for CPT code 72192 (Computer tomographic angiography, pelvis, without contrast material) is approximately $190. The CY 2008 median cost for CPT code 72193 (Computer tomographic angiography, pelvis, with contrast material) the same procedure, with contrast, is approximately $249. The CY 2008 median costs for the services in APC 0332 (Computed Tomography Without Contrast) range from approximately $164 to $227. The CY 2008 proposed median costs for the services in APC 0283 (Computed Tomography with Contrast) range from approximately $247 to $333, significantly higher than the median costs for the procedures that do not involve contrast media.

Providers have several ways to report contrast agents, including uncoded charges on revenue code lines, including the charge for the contrast agent in the charge for the procedure, or reporting the appropriate HCPCS code for the contrast agent that was used. Prior to proposing to package payment for all contrast agents, we note that there were no concerns or complaints about the payment rates for imaging studies with and without contrast, when a number of the commonly used contrast agents were packaged. In addition, if we were to subset claims for procedures that require a contrast agent to use only those claims that included a coded contrast agent, we would be able to use many fewer claims, which would cause our median costs to be less accurate and representative.

Most of the contrast media would have been packaged in the absence of this packaging proposal, because 75 percent of all contrast agents fall below the $60 threshold for CY 2008. However, we are interested to know whether the public thinks it would be beneficial from a ratesetting perspective to require hospitals to report contrast media by including HCPCS codes for contrast on all claims for procedures that use contrast. We are particularly concerned with unnecessarily burdening hospitals, and are seeking comments in this final rule with comment period related to how administratively burdensome this requirement would be for hospitals.

In response to the commenter who found it difficult operationally to manage changes in the packaged status of contrast media, we note that we do not anticipate regular changes to the packaged status of contrast media, now that we are finalizing our proposal to package payment for all contrast media.

In response to the commenter's concern about payment for expensive contrast agents like gadolinium-based contrast media, we note that the gadolinium-based contrast agents would be packaged under the $60 packaging threshold, regardless of whether this proposal to package payment for all contrast media was finalized. Packaging payment for these products provides hospitals with an incentive to choose the most cost-effective contrast agent that meets the needs of the patient.

Comment: Several commenters questioned whether we have the authority under the Social Security Act to package all contrast agents.

Response: See section V.B.4.b. of this final rule with comment period for a discussion of the rationale to package payment for contrast agents as SCODs and our belief that the packaged payment provides payment at average acquisition cost for the products.

Comment: Several commenters requested that contrast agents used for echocardiography imaging procedures remain separately paid in CY 2008. These commenters were concerned that echocardiography procedure codes do not distinguish between services provided with contrast and those provided without contrast, although section 1833(t)(2)(G) of the Act requires that contrast and noncontrast procedures be paid through separate APC groups. As echocardiography procedures are not usually performed with contrast, the commenters asserted that the packaged payment for contrast and echocardiography would be insufficient to cover both costs, and that physicians would therefore be limited in their ability to use contrast when necessary.

Response: The commenters are correct; section 1833(t)(2)(G) of the Act requires us to create additional groups of services for procedures that use contrast agents. As contrast agents were eligible for separate payment in CY 2007 but subject to the OPPS drug packaging threshold, a distinction was made in payment between those procedures performed with contrast from those without contrast. However, as noted above, we are finalizing our proposal to package all contrast agents in CY 2008 regardless of if they meet the OPPS drug packaging threshold.

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Because current CPT codes do not distinguish between echocardiography procedures performed without contrast from those performed with contrast, we calculated HCPCS-specific median costs for echocardiography procedures that were performed with contrast by isolating single and ``pseudo'' single claims with CPT codes 93303 through 93350 where there was also a contrast agent on the claim. Our analysis indicated that median costs for echocardiography procedures performed with contrast are similar both clinically and in terms of resource use, as evidenced by similar HCPCS median costs. Therefore, pursuant to the statute, we have created APC 0128 (Echocardiogram With Contrast) to provide payment for echocardiography procedures that are performed with a contrast agent in CY 2008.

In order for hospitals to report echocardiography procedures performed with contrast, as all contrast will be packaged in CY 2008, we have also created the eight new HCPCS codes shown in Table 3 below. We have assigned HCPCS codes C8921 through C8928 to the newly created APC 0128. Hospitals performing echocardiography procedures without contrast will continue to use the CPT codes indicated in Table 5, while echocardiography procedures performed with contrast will be reported with the newly developed C-codes also identified in Table 5. We will provide further instruction about reporting echocardiography procedures with and without contrast in the January 2007 OPPS update.

Table 5.--CY 2008 Echocardiography HCPCS Codes for Procedures With and Without Contrast

Echocardiography without contrast

Echocardiography with contrast

HCPCS

Descriptor

SI APC

HCPCS

Descriptor

SI APC

93303............................... Transthoracic

S 0269 C8921.................. Transthoracic

S 0128 echocardiography for

echocardiography with congenital cardiac

contrast for congenital anomalies; complete.

cardiac anomalies; complete. 93304............................... Transthoracic

S 0697 C8922.................. Transthoracic

S 0128 echocardiography for

echocardiography with congenital cardiac

contrast for congenital anomalies; follow-up or

cardiac anomalies; follow- limited study.

up or limited study. 93307............................... Echocardiography,

S 0269 C8923.................. Transthoracic

S 0128 transthoracic, real-time

echocardiography with with image documentation

contrast, real-time with (2D) with or without M-mode

image documentation (2D) recording; complete.

with or without M-mode recording; complete. 93308............................... Echocardiography,

S 0697 C8924.................. Transthoracic

S 0128 transthoracic, real-time

echocardiography with with image documentation

contrast, real-time with (2D) with or without M-mode

image documentation (2D) recording; follow-up or

with or without M-mode limited study.

recording; follow-up or limited study. 93312............................... Echocardiography,

S 0270 C8925.................. Transesophageal

S 0128 transesophageal, real time

echocardiography (TEE) with with image documentation

contrast, real time with (2D) (with or without M-

image documentation (2D) mode recording); including

(with or without M-mode probe placement, image

recording); including probe acquisition, interpretation

placement, image and report.

acquisition, interpretation and report. 93313............................... Echocardiography,

S 0270

...... ..... transesophageal, real time with image documentation (2D) (with or without M- mode recording); placement of transesophageal probe only. 93314............................... Echocardiography,

N ......

...... ..... transesophageal, real time with image documentation (2D) (with or without M- mode recording); image acquisition, interpretation and report only. 93315............................... Transesophageal

S 0270 C8926.................. Transesophageal

S 0128 echocardiography for

echocardiography (TEE) with congenital cardiac

contrast for congenital anomalies; including probe

cardiac anomalies; placement, image

including probe placement, acquisition, interpretation

image acquisition, and report.

interpretation and report. 93316............................... Transesophageal

S 0270

...... ..... echocardiography for congenital cardiac anomalies; placement of transesophageal probe only. 93317............................... Transesophageal

N ......

...... ..... echocardiography for congenital cardiac anomalies; image acquisition, interpretation and report only. 93318............................... Echocardiography,

S 0270 C8927.................. Transesophageal

S 0128 transesophageal (TEE) for

echocardiography (TEE) with monitoring purposes,

contrast for monitoring including probe placement,

purposes, including probe real time 2-dimensional

placement, real time 2- image acquisition and

dimensional image interpretation leading to

acquisition and ongoing (continuous)

interpretation leading to assessment of (dynamically

ongoing (continuous) changing) cardiac pumping

assessment of (dynamically function and to therapeutic

changing) cardiac pumping measures on an immediate

function and to therapeutic time basis.

measures on an immediate time basis.

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93320............................... Doppler echocardiography,

N ......

...... ..... pulsed wave and/or continuous wave with spectral display (List separately in addition to codes for echocardiographic imaging); complete. 93321............................... Doppler echocardiography,

N ......

...... ..... pulsed wave and/or continuous wave with spectral display (List separately in addition to codes for echocardiographic imaging); follow-up or limited study (List separately in addition to codes for echocardiographic imaging). 93325............................... Doppler echocardiography

N ......

...... ..... color flow velocity mapping (List separately in addition to codes for echocardiography). 93350............................... Echocardiography,

S 0697 C8928.................. Transthoracic

S 0128 transthoracic, real-time

echocardiography with with image documentation

contrast, real-time with (2D), with or without M-

image documentation (2D), mode recording, during rest

with or without M-mode and cardiovascular stress

recording, during rest and test using treadmill,

cardiovascular stress test bicycle exercise and/or

using treadmill, bicycle pharmacologically induced

exercise and/or stress, with interpretation

pharmacologically induced and report.

stress, with interpretation and report.

In order to determine a payment rate for APC 0128 for CY 2008, we isolated single and ``pseudo'' single claims in our database that included those CPT codes in the range of 93303 through 93350 that correspond to the contrast studies described by the new C-codes. We created new C-codes for contrast studies only to parallel those CPT codes for procedures where we expected that the procedures could be provided with or without contrast. For claims where an echocardiography procedure was billed with a contrast agent, we packaged the payment for the contrast agent into the echocardiography procedure and then calculated the median cost for this subset of claims. This became the median for APC 0128. In addition, we recalculated the medians for APCs 0269 (Level II Echocardiogram Without Contrast Except Transesophageal); 0270 (Transesophageal Echocardiogram Without Contrast); and 0697 (Level I Echocardiogram Without Contrast Except Transesophageal), as we needed to remove the claims from the ratesetting process that included contrast because they were used to set the median cost for APC 0128. The resulting CY 2008 APC medians are shown in Table 6.

Table 6.-CY 2008 Final Rule Echocardiogram APC Medians

HCPCS APC

Title

Codes Median

0269......................... Level II

93303 $401 Echocardiogram

93307 Without Contrast Except Transesophageal. 0270......................... Transesophageal

93312 $517 Without Contrast

93313 Echocardiogram.

93315 93316 93318 0697......................... Level I

93304 $210 Echocardiogram

93308 Without Contrast

93350 Except Transesophageal. 0128......................... Echocardiogram With C8921 $534 Contrast.

C8922 C8923 C8924 C8925 C8926 C8927 C8928

We believe that these medians accurately reflect hospital costs when performing echocardiography procedures, both with and without contrast. This final coding and payment methodology allows us to both adhere to the statutory requirement to create additional groups of services for procedures that use contrast agents and to package payment contrast agents in CY 2008. Therefore, we are finalizing our policy to assign HCPCS codes C8921

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through C8928 to APC 0128 and will instruct hospitals to use these contrast-specific HCPCS codes when submitting an OPPS claim for echocardiography procedures performed with contrast.

For CY 2008, we are finalizing our proposal to unconditionally packaged payment for all contrast agents, with modification as discussed above. We are fully adopting the APC Panel recommendation to package all contrast media for CY 2008. Consistent with the statute, we are also finalizing the creation of APC 0128, as well as eight Level II HCPCS codes that describe echocardiography procedures performed with contrast. Contrast agents that are packaged are assigned status indicator ``N'' and are listed in Table 10 of this final rule with comment period. (7) Observation Services

We proposed to package payment for all observation care, reported under HCPCS code G0378 (Hospital observation services, per hour) for CY 2008. We proposed that payment for observation care would be packaged as part of the payment for the separately payable services with which it is billed. We have defined observation care as a well defined set of specific, clinically appropriate services that include ongoing short- term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital. Observation status is commonly assigned to patients who present to the emergency department and who then require a significant period of treatment or monitoring before a decision is made concerning their next placement or to patients with unexpectedly prolonged recovery after surgery. Throughout the proposed rule and in this final rule with comment period, as well as in our manuals and guidance documents, we use both of the terms ``observation services'' and ``observation care'' in reference to the services defined above.

Payment for all observation care under the OPPS was packaged prior to CY 2002. Since CY 2002, separate payment of a single unit of an observation APC for an episode of observation care has been provided in limited circumstances. Effective for services furnished on or after April 1, 2002, separate payment for observation was made if the beneficiary had chest pain, asthma, or congestive heart failure and met additional criteria for diagnostic testing, minimum and maximum limits to observation care time, physician care, and documentation in the medical record (66 FR 59856, 59879). Payment for observation care that did not meet these specified criteria was packaged. Between CY 2003 and CY 2006, several more changes were made to the OPPS policy regarding separate payment for observation services, such as: clarification that observation is not separately payable when billed with ``T'' status procedures on the day of or day before observation care; development of specific Level II HCPCS codes for hospital observation services and direct admission to observation care; and removal of the initially established diagnostic testing requirements for separately payable observation (67 FR 66794, 69 FR 65828, and 70 FR 68688). Throughout this time period, we maintained separate payment for observation care only for the three specified medical conditions, and OPPS payment for observation for all other clinical conditions remained packaged.

Since January 1, 2006, hospitals have reported observation services based on an hourly unit of care using HCPCS code G0378. This code has a status indicator of ``Q'' under the CY 2007 OPPS, meaning that the OPPS claims processing logic determines whether the observation is packaged or separately payable. The OCE's current logic determines whether observation services billed under HCPCS code G0378 are separately payable through APC 0339 (Observation) or whether payment for observation services will be packaged into the payment for other separately payable services provided by the hospital in the same encounter based on criteria discussed subsequently. (We note that if an HOPD directly admits a patient to observation, Medicare currently pays separately for that direct admission reported under HCPCS code G0379 (Direct admission of patient for hospital observation care) in situations where payment for the actual observation care reported under HCPCS code G0378 is packaged.) For CY 2008, as discussed in more detail later in this final rule with comment period (section XI.), we proposed to continue the coding and payment methodology for direct admission to observation status, with the exception of the requirement that HCPCS code G0379 is only eligible for separate payment if observation care reported under HCPCS code G0378 does not qualify for separate payment. As noted in the proposed rule (72 FR 42674), this requirement would no longer be applicable under our proposal to package all observation services reported under HCPCS code G0378.

For CY 2007, separate OPPS payment may be made for observation services reported under HCPCS code G0378 provided to a patient when all of the following requirements are met. The hospital would receive a single separate payment for an episode of observation care (APC 0339) when: 1. Diagnosis Requirements

a. The beneficiary must have one of three medical conditions: congestive heart failure, chest pain, or asthma.

b. Qualifying ICD-9-CM diagnosis codes must be reported in Form Locator (FL) 76, Patient Reason for Visit, or FL 67, principal diagnosis, or both in order for the hospital to receive separate payment for APC 0339. If a qualifying ICD-9-CM diagnosis code(s) is reported in the secondary diagnosis field, but is not reported in either the Patient Reason for Visit field (FL 76) or in the principal diagnosis field (FL 67), separate payment for APC 0339 is not allowed. 2. Observation Time

a. Observation time must be documented in the medical record.

b. A beneficiary's time in observation (and hospital billing) begins with the beneficiary's admission to an observation bed.

c. A beneficiary's time in observation (and hospital billing) ends when all clinical or medical interventions have been completed, including follow-up care furnished by hospital staff and physicians that may take place after a physician has ordered the patient be released or admitted as an inpatient.

d. The number of units reported with HCPCS code G0378 must equal or exceed 8 hours. 3. Additional Hospital Services

a. The claim for observation services must include one of the following services in addition to the reported observation services. The additional services listed below must have a line-item date of service on the same day or the day before the date reported for observation:

An emergency department visit (APC 0609, 0613, 0614, 0615, or 0616); or

A clinic visit (APC 0604, 0605, 0606, 0607, or 0608); or

Critical care (APC 0617); or

Direct admission to observation reported with HCPCS code G0379 (APC 0604).

b. No procedure with a ``T'' status indicator can be reported on the same day or day before observation care is provided. 4. Physician Evaluation

a. The beneficiary must be in the care of a physician during the period of

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observation, as documented in the medical record by admission, discharge, and other appropriate progress notes that are timed, written, and signed by the physician.

b. The medical record must include documentation that the physician explicitly assessed patient risk to determine that the beneficiary would benefit from observation care.

In the context of our proposed CY 2008 packaging approach, we indicated that we believed that it was appropriate to package payment for all observation services reported with HCPCS code G0378 under the CY 2008 OPPS. Primarily, observation services are ideal for packaging because they are always provided as a supportive service in conjunction with other independent separately payable hospital outpatient services such as an emergency department (ED) visit, surgical procedure, or another separately payable service, and thus observation costs can logically be packaged into OPPS payment for independent services. As discussed extensively in this section, packaging payment into larger payment bundles creates incentives for providers to furnish services in the most efficient way that meets the needs of the patient, encouraging long-term cost containment.

As we discussed in the general overview of the CY 2008 packaging approach (section II.A.4.b. of this final rule with comment period), there has been substantial growth in program expenditures for hospital outpatient services under the OPPS in recent years. The primary reason for this upsurge is growth in the intensity and utilization of services rather than the general price of services or enrollment changes. This observed trend is notably reflected in the frequency and costs of separately payable observation care for the last few years. While median costs for an episode of observation care that would meet the criteria for separate payment have remained relatively stable between CYs 2003 and 2006, the frequency of claims for separately payable observation services has rapidly increased. Comparing claims data for separately payable observation care available for proposed rules spanning from CYs 2005 to 2008 (that is, claims data reflecting services furnished from CYs 2003 to 2006), we saw substantial growth in separately payable observation care billed under the OPPS over that time. In CY 2003, the first full year that observation care was separately payable, there were approximately 56,000 claims for separately payable observation care. In CY 2004, there were approximately 77,000 claims for separately payable observation care. By CY 2005, that number had increased to approximately 124,300 claims, representing an increase of approximately 61 percent over the previous calendar year. Based on the CY 2006 data available for issuance of the proposed rule, the frequency of claims for separately payable observation services increased to more than 271,200 claims which represents an increase of approximately 118 percent over CY 2005 and more than triple the number of claims for CY 2004. While it is not possible to discern the specific factors responsible for the growth in claims for separately payable observation services, as there have been minor changes in both the process and criteria for separate payment for these services over this time period, the substantial growth by itself is noteworthy.

In the proposed rule (72 FR 42675), we indicated that we were also concerned that the current criteria for separate payment for observation services may provide disincentives for efficiency. For CY 2007, in order for observation services to be separately payable, they must last at least 8 hours. While this criterion was put in place to ensure that separate payment is made only for observation services of a substantial duration, it may create a financial disincentive for an HOPD to make a timely determination regarding a patient's safe disposition after observation care ends. By packaging payment for all observation services, regardless of their duration, we would provide incentives for more efficient delivery of services and timely decision- making. The current criterion also prohibits separate payment for observation services when a ``T'' status procedure (generally a surgical procedure) is provided on the same day or the previous day by the HOPD to the same Medicare beneficiary. Again, this may create a financial disincentive for hospitals to provide minor surgical procedures during a patient's observation stay, unless those procedures are essential to the patient's care during that time period, even if the most efficient and effective performance of those procedures could be during the single HOPD encounter.

Currently, the OPPS pays separately for observation care for only the three original medical conditions designated in CY 2002, specifically chest pain, asthma, and congestive heart failure. As discussed in more detail in the observation section (section XI.) of this final rule with comment period, the APC Panel recommended at its March 2007 meeting that we consider expanding separate payment for observation services to include two additional diagnoses, syncope and dehydration. As mentioned previously, we have defined observation care as a well-defined set of specific, clinically appropriate services, which include ongoing, short term treatment, assessment, and reassessment, that are furnished while a decision is being made regarding whether a patient will require further treatment as a hospital inpatient or if the individual is able to be discharged from the hospital. Given the definition of observation services, it is clear that, in certain circumstances, observation care could be appropriate for patients with a range of diagnoses. Both the APC Panel and numerous commenters to prior OPPS proposed rules have confirmed their agreement with this perspective. In addition, the June 2006 Institute of Medicine (IOM) Report entitled, ``Hospital-Based Emergency Care: At the Breaking Point,'' encourages hospitals to apply tools to improve the flow of patients through emergency departments, including developing clinical decisions units where observation care is provided. The IOM's Committee on the Future of Emergency Care in the United States Health System recommended that CMS remove the current limitations on the medical conditions that are eligible for separate observation care payment in order to encourage the development of such observation units.

We indicated in the proposed rule (72 FR 42676) that, as packaging payment provides desirable incentives for greater efficiency in the delivery of health care and provides hospitals with significant flexibility to manage their resources, we believed it was most appropriate to treat observation care for all diagnoses similarly by packaging its costs into payment for the separately payable independent services with which the observation is associated. We noted in the proposed rule (72 FR 42676) that this consistent payment methodology would provide hospitals with the flexibility to assess their approaches to patient care and patient flow and provide observation care for patients with a variety of clinical conditions when hospitals conclude that observation services would improve their treatment of those patients. Approximately 70 percent of the occurrences of observation care billed under the OPPS are currently packaged, and this expansion would extend the incentives for efficiency already present for the vast majority of observation services that are already packaged under the OPPS to the remaining 30 percent of

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observation services for which we currently make separate payment.

The estimated overall impact of these changes, presented in section XXII.B. of the proposed rule (and in section XXIV.B. of this final rule with comment period), was based on the assumption that hospital behavior would not change with regard to when the dependent observation care is provided in the same encounter and by the same hospital that performs the independent services. To the extent that hospitals could change their behavior and cease providing observation services, refer patients elsewhere for that care, or increase the frequency of observation services, the data would show such a change in practice in future years and that change would be reflected in future budget neutrality adjustments. However, with respect to observation care, we indicated that we believe that hospitals are limited in the extent to which they could change their behavior with regard to how they furnish these services because observation care, by definition, is short-term treatment, assessment, and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients or if they are able to be discharged from the hospital after receiving the independent services. We indicated that we believe it is unlikely that hospitals will cease providing medically necessary observation care or refer patients elsewhere for that care if they were unable to reach a decision that the patient could be safely discharged from the outpatient department. We stated in the proposed rule (72 FR 42677) that we expect that hospitals would always bill the supportive observation services on the same claim as the other independent services provided in the single hospital encounter.

As we indicated earlier, in all cases we proposed that hospitals that furnish the observation care in association with independent services must bill those services on the same claim so that the costs of the observation services can be appropriately packaged into payment for the independent services. We stated in the proposed rule (72 FR 42677) that we expected to carefully monitor any changes in billing practices on a service-specific and hospital-specific basis to determine whether there is reason to request that QIOs review the quality of care furnished or to request that Program Safeguard Contractors review the claims against the medical record.

During its September 2007 APC Panel meeting, the APC Panel recommended that CMS not package observation services as proposed, thereby maintaining the CY 2007 payment policy. However, the APC Panel indicated that if CMS were to package observation, CMS should create a composite emergency department/clinic and observation APC (or group of composite APCs) that would be paid only when both services were furnished; if the composite APC were paid, neither the emergency department nor the clinic visit would be paid separately. The APC Panel recommended that coding and service requirements currently applicable to separately paid observation would remain the same, with the exception that there would be no clinical condition (that is, diagnosis) restrictions on payment for the composte APC. The APC Panel noted that payment rates for this (these) composite APC(s) would need to be adjusted based on readily available historical visit and observation data.

We received many public comments on our proposal to package payment for observation services into the payment for the services with which it is furnished. A summary of public comments and our responses follow.

Comment: Several commenters, including MedPAC, requested that CMS finalize its policy to package payment for all observation care. MedPAC specifically stated that packaging of observation care is logical because currently 70 percent of observation care is packaged. However, most commenters addressing observation packaging requested that CMS finalize its proposal to package all of the categories of codes that it identified in the proposed rule, with the exception of observation care. Many of these commenters stated that observation care is often a significant service and is not supportive and integral to an independent service. These commenters recommended that CMS implement various policies, such as paying separately for all observation care regardless of diagnosis, expanding the diagnoses that would enable separate payment, postponing packaging observation services, or creating a composite APC to allow separate payment for observation care in certain circumstances.

Response: Based on our review of the comments received, we continue to believe that observation services are usually ancillary and supportive to the other independent services that are provided to the patient on the same day. However, we accept the commenters' and the APC Panel's statements that observation care may sometimes rise to the level of a major component service, specifically, when it is provided for 8 hours or more in association with a high level clinic or ED visit, direct admission to observation, or critical care services and it is not provided in conjunction with a surgical procedure. In addition, based on our review of the clinical circumstances provided by many commenters, we recognize that observation care can be a major component service when provided to patients with clinical conditions other than congestive heart pain, chest pain, and asthma for which separate observation payment may currently by provided under the OPPS.

Consistent with our statutory flexibility to define what constitutes a service under the OPPS, we proposed to view a service, in some cases, as the totality of care provided in a hospital outpatient encounter that would be reported with two or more HCPCS codes for component services with the proposal of composite APCs for low dose rate prostate brachytherapy and cardiac electrophysiological evaluation and ablation services. In general, we intend to request public comment on possible composite APCs in the annual OPPS proposed rulemaking cycle. This also includes creating composite APCs, as appropriate, in response to those public comments received during rulemaking.

Therefore, we have decided to create two composite APCs that will provide payment to hospitals in certain circumstances when extended assessment and management of a patient occur. These composite APCs describe an extended encounter for care provided to a patient. Specifically, we are creating two new composite APCs for CY 2008, APCs 8002 (Level I Extended Assessment and Management Composite) and 8003 (Level II Extended Assessment and Management Composite). APC 8002 describes an encounter for care provided to a patient that includes a high level (Level 5) clinic visit or direct admission to observation in conjunction with observation services of substantial duration. APC 8003 describes an encounter for care provided to a patient that includes a high level (Level 4 or 5) emergency department visit or critical care services in conjunction with observation services of substantial duration. As with the other composite APCs that we proposed, we anticipate that assignment to and payment through one of these two new composite APCs will be transparent from a billing perspective. The OCE will evaluate every claim received to determine if payment through a composite APC is appropriate. If payment through a composite APC is inappropriate, the OCE in conjunction with the PRICER, will determine the appropriate status

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indicator, APC, and payment for every code on a claim. The specific logic associated with the two Extended Assessment and Management Composite APCs is detailed below.

APC 8002 will be assigned when 8 or more units of HCPCS code G0378 (Hospital observation service, per hour) are billed--

On the same day as HCPCS code G0379 (Direct admission of patient for hospital observation care); or

On the same day or the day after--

++ CPT code 99205 (Office or other outpatient visit for the evaluation and management of a new patient (Level 5)); or

++ CPT code 99215 (Office or other outpatient visit for the evaluation and management of an established patient (Level 5)).

If a hospital provides a service with status indicator ``T'' on the same date of service, or 1 day earlier than the date of service associated with HCPCS code G0378, the hospital will not be eligible for payment under APC 8002. There is no diagnosis requirement for purposes of this composite APC. Rather, patients with any diagnosis may trigger payment of APC 8002. If any of the criteria listed above are not met, payment would not be made through APC 8002. Instead, payment for any separately payable services, including the clinic visit, would be made through the usual associated APCs. Payment for a direct admission to observation would be made according to the usual HCPCS code G0379 payment criteria and payment for HCPCS code G0378 would remain packaged because we consider the observation care to be supportive and ancillary to whichever service(s) it accompanies.

APC 8003 will be assigned when eight or more units of HCPCS code G0378 (Hospital observation service, per hour) are billed on the same day or the day after CPT code 99284 (Emergency department visit for the evaluation and management of a patient (Level 4)), 99285 (Emergency department visit for the evaluation and management of a patient (Level 5)); or 99291 (Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes). The remaining criteria are identical to the criteria associated with composite APC 8002. If a hospital provides a service with status indicator ``T'' on the same date of service, or one day earlier than the date of service associated with HCPCS code G0378, the composite APC 8003 would not apply. Instead, payment for the ED visit or critical care and any other separately payable services will be made through the usual associated APCs, and payment for HCPCS code G0378 for observation services will remain packaged because we consider the observation care to be supportive and ancillary to whichever service(s) it accompanies. There is no diagnosis requirement for purposes of this composite APC either. Instead, patients with any diagnosis may trigger payment of APC 8003.

We note that HCPCS code G0378 will continue to be assigned status indicator ``N,'' signifying that its payment is always packaged. As stated above, in most circumstances, observation services are supportive and ancillary to the other services provided to a patient. In the circumstances when observation care is elevated to a major component service in conjunction with a high level visit or direct admission that is an integral part of a patient's extended encounter for care, payment is made for the entire care encounter through APC 8002 or 8003, as appropriate.

We are retaining as general reporting requirements for all observation services those criteria related to physician order and evaluation, documentation, and observation beginning and ending time as listed in section XI. of this final rule with comment period. Those are more general requirements that encourage hospitals to provide medically reasonable and necessary care and help to ensure the proper reporting of observation services on correctly coded hospital claims that reflect the full charges associated with all hospital resources utilized to provide the reported services.

The CY 2008 median cost for APC 8002 (Level I Extended Assessment and Management Composite) is approximately $347. The payment associated with APC 8002 is intended to pay the hospital for the costs associated with a single episode of extended assessment and management that includes a high level clinic visit or direct admission to the hospital for observation care, 8 hours or more of observation services, and any associated packaged services. We calculated this median cost using all CY 2006 single bill claims that met the criteria for APC 8002, as specified above. The CY 2008 median cost for APC 8003 (Level II Extended Assessment and Management Composite) is approximately $631. The payment associated with APC 8003 is intended to pay the hospital for the costs associated with a single episode of more intense extended assessment and management that includes a high level emergency department visit or critical care services, 8 hours or more of observation services, and any associated packaged services. We calculated this median cost using all CY 2006 single bill claims that met the criteria for APC 8003, as specified above.

While analyzing CY 2006 claims data, the most current full year claims data available, we observed that applying CY 2008 criteria for composite APCs resulted in payment for 55 percent more instances of observation care through a composite APC than if we had applied the CY 2007 criteria to those same claims. In addition, our CY 2006 claims data indicate that close to 30 percent of all observation care was paid separately. We estimate that roughly 90 percent of those instances of separately payable observation care reported in CY 2006 would be eligible for payment through composite APCs 8002 and 8003, using CY 2008 criteria. Those separately payable observation services that would not be eligible for payment through a composite APC involve observation services that were associated with low level clinic or emergency department visits. In addition, some of the packaged observation care that was provided in CY 2006 would be eligible for payment through composite APCs 8002 and 8003 because we are eliminating the diagnosis requirement for CY 2008.

As noted in detail in section IX.C of this final rule with comment period, we see a normal and stable distribution of clinic and ED visit levels. We do not expect this distribution to change due to the increase in claims for high level visits that may result from the new composite APCs. Depending on our CY 2008 claims data (which would be used for the CY 2010 OPPS), we may choose to modify the composite APCs that we are creating for CY 2008 or move to packaging observation care as we originally proposed to create further incentives for hospitals to operate in an efficient way.

In summary, for CY 2008, payment for observation services will remain packaged with status indicator ``N.'' We are creating two composite APCs for extended assessment and management, of which observation care is a component major service. When criteria for payment of the composite APCs are met, separate payment will be made to the hospital through the composite APC. This composite APC payment methodology will contribute to our goal of providing payment under the OPPS for a larger bundle of component services provided in a single hospital outpatient encounter, creating additional hospital incentives for efficiency and cost containment, while providing hospitals with the most flexibility to manage their resources.

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d. Development of Composite APCs (1) Background

As we discuss above in regard to our reasons for our packaging approach for the CY 2008 OPPS, we believe that it is crucial that the payment approach of the OPPS create incentives for hospitals to seek ways to provide services more efficiently than exist under the current OPPS structure and allow hospitals maximum flexibility to manage their resources. The current OPPS structure usually provides payment for individual services which are generally defined by individual HCPCS codes. We currently package the costs of some items and services (such as drugs and biologicals with an average per day cost of less than $55) into the payment for separately payable individual services. However, because the extent of packaging in the OPPS is currently modest, furnishing many individual separately payable services increases total payment to the hospital. We believe that this aspect of the current OPPS structure is a significant factor in the growth in volume and spending that we discuss in our general overview and provides a primary rationale for the packaging approach for services that we proposed for the CY 2008 OPPS. While packaging payment for supportive dependent services into the payment for the independent services which they accompany promotes greater efficiency and gives hospitals some flexibility to manage their resources, we believe that payment for larger bundles of major separately paid services that are commonly performed in the same hospital outpatient encounter or as part of a multi-day episode of care would create even more incentives for efficiency, as discussed earlier. Moreover, defining the ``service'' paid under the OPPS by combinations of HCPCS codes for component services that are commonly performed in the same encounter and that result in the provision of a complete service would enable us to use more claims data and to establish payment rates that we believe more appropriately capture the costs of services paid under the OPPS.

Section 1833(t)(1)(B) of the Act permits us to define what constitutes a ``service'' for purposes of payment under the OPPS and is not restricted to defining a ``service'' as a single HCPCS code. For example, the OPPS currently packages payment for certain items and services reported with HCPCS codes into the payment for other separately payable services on the claim. Consistent with our statutory flexibility to define what constitutes a service under the OPPS, we proposed to view a service, in some cases, as not just the diagnostic or treatment modality identified by one individual HCPCS code but as the totality of care provided in a hospital outpatient encounter that would be reported with two or more HCPCS codes for component services.

In view of this statutory flexibility to define what constitutes a ``service'' for purposes of OPPS payment, our desire to encourage efficiency in HOPD care, our focus on value-based purchasing, and our desire to use as much claims data as possible to set payment rates under the OPPS, we examined our claims data to determine how we could best use the multiple procedure claims (``hardcore'' multiples) that are otherwise not available for ratesetting because they include multiple separately payable procedures furnished on the same date of service. As discussed in more detail in our discussion of single and multiple procedure claims in section II.A.1.b. of this final rule with comment period, we have focused in recent years on ways to convert multiple procedure claims to single procedure claims to maximize our use of the claims data in setting median costs for separately payable procedures. We have been successful in using the bypass list to generate ``pseudo'' single procedure claims for use in median setting, but this approach generally does not enable us to use the hardcore multiple claims that contain multiple separately payable procedures, all with associated packaging that cannot be split among them. We believe that we could use the data from many more multiple procedure claims by creating APCs for payment of those services defined as frequently occurring common combinations of HCPCS codes for component services that we see in correctly coded multiple procedure claims.

Our examination of data for multiple procedure claims identified two specific sets of services that we believe are good candidates for payment based on the naturally occurring common combinations of component codes that we see on the multiple procedure claims. These are low dose rate (LDR) prostate brachytherapy and cardiac electrophysiologic evaluation and ablation services.

Specifically, we have been told (and our data support) that claims for LDR prostate brachytherapy, when correctly coded, report at least two major separately payable procedure codes the majority of the time. For reasons discussed below, in the CY2008 OPPS/ASC proposed rule (72 FR 42678 through 42679), we proposed to use these correctly coded claims that would otherwise be unusable hardcore multiples as the basis for an encounter-based composite APC that would make a single payment when both codes are reported with the same date of service. We also proposed to pay separately for these procedure codes in cases where only one of the two procedures is provided in a hospital encounter, through the APC associated with that component procedure code that is furnished.

Similarly, we have been told (and our data support) that multiple cardiac electrophysiologic evaluation, mapping, and ablation services are typically furnished on the same date of service and that the correctly coded claims are typically the multiple procedure claims that include several component services and that we are unable to use in our current claims process. The CY 2007 CPT book introductory discussion in the section entitled ``Intracardiac Electrophysiological Procedures/ Studies'' notes that, in many circumstances, patients with arrhythmias are evaluated and treated at the same encounter. Therefore, as discussed in detail below, we also proposed to establish an encounter based composite APC for these services that would provide a single payment for certain common combinations of component cardiac electrophysiologic services that are reported on the same date of service.

These composite APCs reflect an evolution in our approach to payment under the OPPS. Where the claims data show that combinations of services are commonly furnished together, in the future we will actively examine whether it would be more appropriate to establish a composite APC under which we would pay a single rate for the service reported with a combination of HCPCS codes on the same date of service (or different dates of service) than to continue to pay for these individual services under service-specific APCs. We proposed these specific encounter-based composite APCs for CY 2008 because we believe that this approach could move the OPPS toward possible payment based on an encounter or episode-of-care basis, enable us to use more valid and complete claims data, create hospital incentives for efficiency, and provide hospitals with significant flexibility to manage their resources that do not exist when we pay for services on a per service basis. As such, we indicated that these proposed composite APCs may serve as a prototype for future creation of more composite APCs, through which we could provide OPPS payment for other types of services in the future. We

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noted that while these proposed composite APCs for CY 2008 are based on observed combinations of component HCPCS codes reported on the same date of service for a single encounter, we also would be exploring in the future how we could potentially set payments based on episodes of care involving services that extend beyond the same date but which are all supportive of a single, related course of treatment. While we did not propose to implement multiday episode-of-care APCs in CY 2008, we welcomed comments on the concept of developing these APCs to provide payment for such episodes in order to inform our future analyses in this area.

While we have never previously used the term ``composite'' APC under the OPPS, we have one historical payment policy that resembles the CY 2008 proposed composite APC policy. Since the inception of the OPPS, CMS has limited the aggregate payment for specified less intensive mental health services furnished on the same date to the payment for a day of partial hospitalization, which we considered to be the most resource intensive of all outpatient mental health treatment (65 FR 18455). The costs associated with administering a partial hospitalization program represent the most resource intensive of all outpatient mental health treatment, and we do not believe that we should pay more for a day of individual mental health services under the OPPS. Through the OCE, when the payment for specified mental health services provided by one hospital to a single beneficiary on one date of service based on the payment rates associated with the APCs for the individual services would exceed the per diem partial hospitalization payment (listed as APC 0033 (Partial Hospitalization)), those specified mental health services are assigned to APC 0034, which has the same payment rate as APC 0033, and the hospital is paid one unit of APC 0034. This longstanding policy regarding payment of APC 0034 for combinations of independent services provided in a single hospital encounter resembles the payment policy for composite APCs that we proposed for LDR prostate brachytherapy and cardiac electrophysiologic evaluation and ablation services for CY 2008. Similar to the logic for the proposed composite APCs, the OCE determines whether to pay these specified mental health services individually or to make a single payment at the same rate as the per diem rate for partial hospitalization for all of the specified mental health services furnished on that date of service. However, we note this established policy for payment of APC 0034 differs from the proposed policies for the new CY 2008 composite APCs because APC 0034 is only paid if the sum of the individual payment rates for the specified mental health services provided on one date of service exceeds the APC 0034 payment rate, which equals the per diem rate of APC 0033 for partial hospitalization.

We did not propose to change this mental health services payment policy for CY 2008. However, we proposed to change the status indicator from ``S'' to ``Q'' for the HCPCS codes for the specified mental health services to which APC 0034 applies because those codes are conditionally packaged when the sum of the payment rates for the single code APCs to which they are assigned exceeds the per diem payment rate for partial hospitalization. While we have not published APC 0034 in Addendum A in the past, we are including it in Addendum A to this final rule with comment period entitled ``Mental Health Composite,'' consistent with our naming taxonomy and publication of the two other composite APCs. We are also including the mental health composite APC 0034 and its member HCPCS codes in Addendum M to this final rule with comment period in the same way that we show the HCPCS codes to which the LDR Prostate Brachytherapy Composite APC and Cardiac Electrophysiologic Evaluation and Ablation Composite APC apply.

We solicited public comments on the concept of composite APCs in general and, specifically, the two new proposed encounter-based composite APCs for CY 2008, and we expressed our hope of involving the public and the APC Panel in the creation of additional composite APCs. As stated in the proposed rule (72 FR 42679), our goal is to use the many naturally occurring multiple procedure claims that cannot currently be incorporated under the existing APC structure, regardless of whether the naturally occurring pattern of multiple procedure claims prevents the development of single bills for individual services.

We received many comments on the concept of composite APCs in general and on the proposal to create the LDR Prostate Brachytherapy Composite and the Electrophysiologic Evaluation and Ablation Composite APC in particular. A summary of the comments and our responses follow.

Comment: In general, most commenters supported the creation of the two composite APCs that were proposed for CY 2008: Cardiac Electrophysiologic Evaluation and Ablation Composite (APC 8000) and Low Dose Rate Prostate Brachytherapy Composite (APC 8001). Commenters, including MedPAC and the APC Panel, supported the implementation of the proposed composite APCs. Commenters stated that creation of these composites will enable use of more multiple claims data and enable the payment system to better reflect the reality of how services are commonly furnished. In particular, MedPAC indicated that it supports the proposed composite APCs because they will increase incentives for efficiency and can serve as a starting point for payment bundles that reflect encounters or episodes of care. MedPAC indicated that it will be exploring both packaging and bundling under the OPPS in its future work. Other commenters objected to the creation of composite APCs because they believed that they are dependent on proposed packaging changes that the commenters do not support. Other commenters supported the concept of composite APCS as long as a composite is limited to related services furnished on the same date of service. These commenters believed that the creation of composite APCs for discontinuous services that span multiple dates of service would present too many problems to be viable.

Response: We appreciate the commenters' support for the creation of the two proposed composite APCs and we will implement the proposed new composite APCs 8000 and 8001 for services furnished on and after January 1, 2008. We also acknowledge that the viability of the composite APCs is dependent on packaging of the supportive and ancillary services. However, as discussed above, we are finalizing the proposed packaging approach, with modifications, and therefore, we believe that it is appropriate to finalize the creation of these two composite APCs for the CY 2008 OPPS. We will take the commenters' concerns with regard to the possible creation of composite APCs for discontinuous services that span multiple dates of service into account in development of future proposals for composite APCs.

Comment: Some commenters asked that CMS provide a clear and transparent process for identifying and calculating payments for future composite APCs and asked that CMS evaluate closely the impact of the proposed composites on payment adequacy and access to care before expanding to other services. They asserted that any development of further composite APCs should include the views of all stakeholders.

Response: We expect that in the future, we would identify possible

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composite APCs using the same process that we used to identify the codes in composite APCs 8000 and 8001. As we described in the proposed rule, we examined the multiple procedure claims that we could not convert to single procedure claims to identify common combinations of services for which we had relatively few single procedure claims. We then performed a clinical assessment of the combinations that we identified to determine whether our findings were consistent with our understanding of the services furnished. After we defined the minimal combination of services for which we would pay under the composite APC, we then identified claims for which the only separately paid codes were members of the composite, and we calculated the median cost for the package of services, including the costs of the packaged services. We intend to proceed carefully in examining the potential for creation of more composite APCs. In general, we intend to follow this process for creation of composite APCs and to request public comment in the rulemaking cycle, which is our standard process for securing the views of stakeholders. See section II.A.4.c.(7). for our discussion of the composite APCs we created for this final rule with comment period, specifically APC 8002 (Level I Extended Assessment and Management Composite) and APC 8003 (Level II Extended Assessment and Management Composite).

Comment: Some commenters asked that CMS ensure that all packaged costs are captured in the payment rate for the composite APC. Other commenters stated that there are many intraoperative services that we proposed to package that may or may not be done at the same time and whose costs, when packaged may not be fully accommodated in the composite payment and should therefore be paid separately in addition to the payment for the composite APCs. Some commenters identified services that CMS proposed to package for which they believed separate payment should be made outside of the composite APC payment. For example, one commenter asked that CPT code 93662 (Intracardiac echocardiography during therapeutic/diagnostic intervention, including imaging supervision and interpretation (List separately in addition to code for primary procedure)) continue to be paid separately and not as part of composite APC 8000 because its cost is high but the frequency of its use with the main procedures in APC 8000 is low.

Response: We capture the packaged costs in the creation of the composite APC medians to the extent that the packaged services are reported on the claims that meet the criteria for composite payment. The effectiveness of the composite APCs is highly dependent upon the packaging of the ancillary and supportive services that are furnished at the same encounter with the services in the composite APC. By packaging guidance, imaging post processing, intraoperative, and imaging supervision and interpretation services we are able to identify many more services that contain only the separately paid procedures that are assigned to the composite APC that we can then use to calculate a median cost for the composite APC. Separate payment for guidance, imaging post processing, intraoperative, and imaging supervision and interpretation services would greatly reduce the number of claims that would be available for use in composite APCs because the HCPCS codes assigned to the composite APC would no longer be the only separately paid procedure codes on the claims and one of the benefits of using a composite APC (enabling use of more claims) would be lost. As with packaging of the costs of OPPS services in general, we package costs into the cost of the major separately paid service being furnished. In the case of the composite APCs, the costs of ancillary and dependent services are packaged into the payment for the composite APC to the extent that they are furnished with the services that are assigned to the composite APC. In general, the premise of the OPPS, like that of other claims-based prospective payment systems, is that hospitals report HCPCS codes and charges to reflect the reality of how they furnish services. In general, we believe we can rely on the claims data to be an accurate reflection of the services that were furnished to Medicare beneficiaries.

Comment: A commenter stated that the composite APCs differ significantly in concept from the conditionally packaged services to which CMS also proposed to assign status indicator ``Q'' and urged CMS to assign a status indicator other than ``Q'' to composites so that they would be more easily distinguishable from a conditionally packaged service. Other commenters stated that the definition of the status indicator Q was ill defined and confusing.

Response: For CY 2008, we will assign the status indicator ``Q'' to composite APCs, to codes that are packaged when billed on the same claim with a procedure that has status indicator ``S,'' ``T,'' ``V,'' or ``X,'' and to codes that are packaged only when billed on the same claim with a procedure that has a status indicator ``T.'' We will consider for CY 2009 whether it would be more appropriate to assign status indicators based on the particular packaging policy that applies to the code.

We appreciate the comments on composite APCs. With respect to our treatment of mental health services, we are not making a change to the longstanding payment policy under which the OPPS pays one unit of APC 0034 in cases in which the total payments for specified mental health services provided on the same date of service would otherwise exceed the payment rate for APC 0033. However, we are changing the status indicator to ``Q'' for the HCPCS codes for mental health services to which this policy applies and which comprise this existing composite APC, because payment for these services would be packaged unless the sum of the individual payments assigned to the codes would be less than the payment for APC 0034. (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (a) Background

LDR prostate brachytherapy is a treatment for prostate cancer in which needles or catheters are inserted into the prostate, and then radioactive sources are permanently implanted into the prostate through the hollow needles or catheters. The needles or catheters are then removed from the body, leaving the radioactive sources in the prostate forever, where they slowly give off radiation to destroy the cancer cells until the sources are no longer radioactive. At least two CPT codes are used to report the composite treatment service because there are separate codes that describe placement of the needles or catheters and application of the brachytherapy sources. LDR prostate brachytherapy cannot be furnished without the services described by both of these codes. Generally, the component services represented by both codes occur in the same operative session in the same hospital on the same date of service. However, we have been told of uncommon cases in which they are furnished in different locations, with the patient being transported from one location to another for application of the sources. In addition, other services, commonly CPT code 76965 (Ultrasonic guidance for interstitial radioelement application) and CPT code 77290 (Therapeutic radiology simulation-aided field setting; complex) are often provided in the same hospital encounter.

CPT code 55875 (Transperineal placement of needles or catheters into

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prostate for interstitial radioelement application, with or without cystoscopy) is used to report the placement of the needles or catheters for services furnished on or after January 1, 2007. Before this date, including in the claims for services furnished in CY 2006 that were used to develop the CY 2008 proposed rule, CPT code 55859 (Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy) reported this service. All of the claims for CPT code 55859 (as reported in the CY 2006 claims data) are for the placement of needles or catheters for prostate brachytherapy, although not all are related to permanent brachytherapy source application.

CPT code 77778 (Interstitial radiation source application; complex) is used to report the application of brachytherapy sources and, when billed with CPT code 55859 (or CPT code 55875 after January 1, 2007) for the same encounter, reports placement of the sources in the prostate. We have been told that application of brachytherapy sources to the prostate is estimated to be about 85 percent of all occurrences of CPT code 77778 under the OPPS, consistent with our CY 2006 claims data used for CY 2008 ratesetting. CPT code 77778 is also used to report the application of sources of brachytherapy to body sites other than the prostate.

Historical coding, APC assignments, and payment rates for CPT codes 55859 (CPT code 55875 beginning in CY 2007) and 77778 are shown below in Table 7.

Table 7.--Historical Payment Rates for Complex Interstitial Application of Brachytherapy Sources

Payment

Payment rate for APC for rate for APC for OPPS CY

Combination APC

CPT code HCPCS code CPT codes HCPCS code Brachytherapy source 77778

77778 55859/55875 55859

2000..................................... n/a......................... $198.31 APC 0312 $848.04 APC 0162 Pass-through 2001..................................... n/a......................... $205.49 APC 0312 $878.72 APC 0162 Pass-through 2002..................................... n/a......................... $6,344.67 APC 0312 $2,068.23 APC 0163 Pass-through with pro rata reduction 2003 (prostate brachytherapy with iodine G0261, APC 648, $5,154.34...

n/a

n/a

n/a

n/a Packaged sources). 2003 (prostate brachytherapy with

G0256, APC 649, $5,998.24...

n/a

n/a

n/a

n/a Packaged palladium sources). 2003 (not prostate brachytherapy, not N/A......................... $2,853.58 APC 0651 $1,479.60 APC 0163 Separate payment based on including sources).

scaled median cost per source 2004..................................... N/A......................... $558.24 APC 0651 $1,848.55 APC 0163 Cost 2005..................................... N/A......................... $1,248.93 APC 0651 $2,055.63 APC 0163 Cost 2006..................................... N/A......................... $666.21 APC 0651 $1,993.35 APC 0163 Cost 2007..................................... N/A......................... $1,035.50 APC 0651 $2,146.84 APC 0163 Cost

Payment rates for CPT code 77778, in particular, have fluctuated over the years. We have frequently been informed by the public that reliance on single procedure claims to set the median costs for these services results in use of only incorrectly coded claims for LDR prostate brachytherapy because, for application of brachytherapy sources to the prostate, a correctly coded claim is a multiple procedure claim. Specifically, we have been informed that a correctly coded claim for LDR prostate brachytherapy should include, for the same date of service, both CPT codes 55859 and 77778, brachytherapy sources reported with Level II HCPCS codes, and typically separately coded imaging and radiation therapy planning services, and that we should use correctly coded claims to set the median for APC 0651 (Complex Interstitial Radiation Source Application) in particular (where CPT code 77778 is assigned). In presentations to the APC Panel at its March 2006 meeting, and in response to the CY 2006 OPPS proposed rule and CY 2007 OPPS/ASC proposed rule, commenters urged us to set the payment rate for LDR prostate brachytherapy services using only multiple procedure claims. Specifically for CY 2007, they urged us to sum the costs on multiple procedure claims containing CPT codes 77778 and 55859 (and no other separately payable services not on the bypass list) and, excluding the costs of sources, split the resulting aggregate median cost on the multiple procedure claim according to a preestablished attribution ratio between CPT codes 77778 and 55859. They indicated that any claim for a brachytherapy service that did not also report a brachytherapy source should be considered to be incorrectly coded and thus not reflective of the hospital's resources required for the interstitial source application procedure. The presenters to the APC Panel believed that claims that did not contain both brachytherapy source and source application codes should be excluded from use in establishing the median cost for APC 0651. They believed that hospitals that reported the brachytherapy sources on their claims were more likely to report complete charges for the associated brachytherapy source application procedure than hospitals that did not report the separately payable brachytherapy sources.

As a result of those comments, for both CYs 2006 and 2007, we used multiple procedure claims containing both CPT codes 55859 and 77778 to determine a median cost for the totality of both services (with both packaging and bypassing of the other commonly furnished services). We compared the median calculated from this subset of claims reflecting the most common clinical scenario to the single bill median costs for CPT codes 55859 and 77778 as a method of determining whether the total payment to the hospital for both services furnished to provide LDR prostate brachytherapy would be reasonable. In both years, we found that the sum of the single bill medians was reasonably close to the median cost of both services from multiple claims when they were treated as a single procedure and the supporting services were either packaged or bypassed for purposes of calculating the

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median for the combined pair of codes. (We refer readers to the CY 2006 final rule with comment period (70 FR 68596) and the CY 2007 final rule with comment period (71 FR 68043) for specific discussion of these findings.) Hence, we concluded that the single bill median costs were reasonable and, for both the CYs 2006 and CY 2007 OPPS, we based payment for CPT codes 55859 and 77778 on single procedure claims. (b) Payment for LDR Prostate Brachytherapy

For the CY 2008 OPPS, we proposed to create a composite APC 8001, titled ``LDR Prostate Brachytherapy Composite,'' that would provide one bundled payment for LDR prostate brachytherapy when the hospital bills both CPT codes 55875 and 77778 as component services provided during the same hospital encounter. It is shown in Addendum A to this final rule with comment period as APC 8001 (LDR Prostate Brachytherapy Composite). As discussed in detail in section VII. of this final rule with comment period, as we proposed, we are continuing to pay sources of brachytherapy separately in accordance with the statute.

In the CY 2006 claims used to calculate the proposed CY 2008 median costs, CPT code 55859 was reported 14,083 times. The proposed rule median cost for CPT code 55859, calculated from 2,232 single and ``pseudo'' single bills, was approximately $2,329. The CY 2008 proposed rule median cost for APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures) to which CPT code 55859 was assigned for CY 2006 and to which CPT code 55875 is assigned for CY 2007 was approximately $2,322. In the set of claims used to calculate the median cost for APC 0651, to which CPT code 77778 is the only assigned service, CPT code 77778 was reported 11,850 times. The CY 2008 proposed rule median cost for APC 0651 (and, therefore, for CPT code 77778) based on 339 single and ``pseudo'' single procedure bills was approximately $970.

In examining the claims data used to calculate the median costs for the proposed rule, we found 9,807 claims on which both CPT code 55859 and CPT code 77778 were billed on the same date of service. These data suggest that LDR prostate brachytherapy constituted at least 70 percent of CY 2006 claims for CPT code 55859, with the remainder of claims representing the insertion of needles or catheters for high dose rate prostate brachytherapy or unusual clinical situations where the LDR sources were not applied in the same operative session as the insertion of the needles or catheters. These data are consistent with our understanding of current clinical practice for prostate brachytherapy, and we believe that those multiple claims are correctly coded claims for this common clinical scenario. Similarly, 83 percent of the claims for complex interstitial brachytherapy source application CPT code 77778 also included the CPT code for inserting needles or catheters into the prostate, consistent with our understanding that the vast majority of cases of complex interstitial brachytherapy source application procedures are specifically for the treatment of prostate cancer, rather than other types of cancer.

Using the proposed packaging approach for imaging supervision and interpretation services and guidance services for CY 2008, we were able to identify 1,343 claims, 14 percent of all OPPS claims that reported these two procedures on the same date, that contain both CPT codes 55859 and 77778 on the same date of service and no other separately paid procedure code. We were not able to use more claims to develop this composite APC median cost because there are several radiation therapy planning codes that are commonly reported with CPT codes 55859 and 77778 and that are both separately paid and not on the bypass list because the amount of their associated packaging exceeds the threshold for inclusion on the bypass list. A complete discussion of the bypass list under our CY 2008 packaging policy is provided in section II.A. of this final rule with comment period.

We packaged the costs of packaged revenue codes and packaged HCPCS codes into the sum of the costs for CPT codes 55859 and 77778 to derive a total proposed median cost of approximately $3,127 for the composite LDR prostate brachytherapy service based upon the 1,343 claims that contained both CPT codes and no other separately paid procedure codes. This is reasonably comparable to $3,298, the sum of the CPT median costs we calculated using the single procedure bills for CPT codes 55859 and 77778 (($2,329 plus $969). As stated in the proposed rule (72 FR 42680), we believe that the difference between the composite APC median cost based upon those claims that contain both codes and the sum of the median costs for the APCs to which the two individual CPT codes map is minimal and may be attributable to efficiencies in furnishing the services together during a single encounter.

In the proposed rule (72 FR 42681), we indicated our belief that creation of the composite APC for the payment of LDR prostate brachytherapy is consistent with the statute and with our desire to use more claims data for ratesetting, particularly data from correctly coded claims that reflect typical clinical practice, and to make payment for larger packages and bundles of services to provide enhanced incentives for efficiency and cost containment under the OPPS and to maximize hospital flexibility in managing resources.

Under our proposal, hospitals that furnish LDR prostate brachytherapy would report CPT codes 55875 and 77778 and the codes for the applicable brachytherapy sources in the same manner that they currently report these items and services (in addition to reporting any other services provided), using the same HCPCS codes and reporting the same charges. We would require that hospitals report both CPT codes resulting in the composite APC payment on the same claim when they are furnished to a single Medicare beneficiary in the same facility on the same date of service, and we would make any necessary conforming changes to the billing instructions to ensure that they do not present an obstacle to correct reporting. We may implement edits to ensure that hospitals do not submit two separate claims for these two procedures when furnished on the same date in the same facility. When this combination of codes is reported, the OCE would assign the composite APC 8001 and the PRICER would pay based on the payment rate for the composite APC. The OCE would assign APC 0163 or APC 0651 only when both codes are not reported on the same claim with the same date of service, and we would expect this to be the atypical case. The composite APC would have a status indicator of ``T'' so that payment for other procedures also assigned to status indicator ``T'' with lower payment rates would be reduced by 50 percent when furnished on the same date of service as the composite service, in order to reflect the efficiency that occurs when multiple procedures are furnished to a Medicare beneficiary in a single operative session. We would not expect that the composite APC payment would be frequently reduced under the multiple procedure reduction policy because we believe that it is unlikely that a higher paid procedure would be performed on the same date.

We proposed to continue to establish separate payment rates for APC 0651 (to which only CPT code 77778 is assigned) and for APC 0163 (to which we proposed to continue to assign CPT code 55875). In some cases, CPT 55875

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may be reported for the insertion of needles or catheters for high dose rate prostate brachytherapy, and the low dose rate brachytherapy source application procedure (CPT code 77778) would not be reported. In high dose rate prostate brachytherapy, the sources are applied temporarily several times over a few days while the needles or catheters remain in the prostate, and the needles or catheters are removed only after all the treatment fractions have been completed. We have also been told by hospitals that, even when LDR prostate brachytherapy is planned, there are occasions in which the needles or catheters are inserted in one facility and the patient is moved to another facility for the application of the sources. In those cases, we would need to be able to appropriately pay the hospital that inserted the needles or catheters before the patient was discharged prior to source application. Moreover, there are cases in which the needles or catheters are inserted but it is not possible to proceed to the application of the sources and, therefore, the hospital would correctly report only CPT code 55875. Similarly, more than 10 brachytherapy sources can be applied interstitially (as described by CPT code 77778) to sites other than the prostate and it is, therefore, necessary to have a separate payment rate for CPT code 77778. Hence, for CY 2008 we proposed to continue to pay for CPT code 55875 (the successor to CPT code 55859) through APC 0163 and to pay for CPT code 77778 through APC 0651 when the services are individually furnished other than on the same date of service in the same facility.

Comment: One commenter supported the creation of the composite APC for LDR Prostate Brachytherapy (APC 8001) but was concerned about the assignment of status indicator ``T'' to APC 8001. The commenter asked which codes would be reduced when furnished with the composite as a result of the assignment of the status indicator ``T.''

Response: We assigned status indicator ``T'' to APC 8001 because CPT code 55875 is a surgical service that has a status indicator ``T'' in APC 163. The multiple surgical reduction will apply only when other surgical procedures that have the status indicator of ``T'' are performed on the same date of service. Payment for the APC with the highest payment rate with status indicator ``T'' will not be reduced but payments for other codes on the same claim that also have a status indicator of ``T'' will be reduced by 50 percent under our standard multiple procedure reduction policy. Currently, when CPT code 55875 is reported with another procedure that has a status indicator of ``T,'' payment for the service with the lower payment rate would be reduced by 50 percent. Similarly, when CPT code 55875 is paid as part of composite APC 8001 and another procedure that has a status indicator of ``T'' is also reported on the claim, payment for the composite APC or the other procedure would be reduced by 50 percent, depending on which payment rate was lower. This is the standard OPPS multiple surgical procedure payment reduction policy.

As proposed, we are establishing a composite APC, shown in Addendum A as APC 8001, to provide payment for LDR prostate brachytherapy when the composite service, billed as CPT codes 55875 and 77778, is furnished in a single hospital encounter and to base the payment for the composite APC on the median cost derived from claims that contain both codes. These two CPT codes are assigned status indicator ``Q'' in Addendum B to this final rule with comment period to signify their conditionally packaged status, and their composite APC assignments are noted in Addendum M. This policy will permit us to base payment on claims for the most common clinical scenario for interstitial radiation source application to the prostate. We note that this payment bundle will also include payment for the commonly associated imaging guidance services, which will be newly packaged under our CY 2008 packaging approach. Most importantly, this composite APC payment methodology will contribute to our goal of providing payment under the OPPS for a larger bundle of component services provided in a single hospital outpatient encounter, creating additional hospital incentives for efficiency and cost containment, while providing hospitals with the most flexibility to manage their resources. In our final calculation of the median cost for this composite APC for CY 2008, we were able to use 7,870 claims that contained both CPT code 77778 and 55859 (the code in effect in 2006) and the median cost on which payment is based is approximately $3,391. This compares favorably to the proposed rule in which we were able to us only 1,343 claims containing both codes and calculated a proposed median cost of approximately $3,127. We believe that the number of usable claims increased so greatly as the result of the addition of related procedure codes to the bypass list as a result of public comments. The CY 2008 composite median is slightly less than $3,410, the sum of the medians for APCs 163 and 651 ($2,270 + $1,140), which commenters have told us are unreliable because they are calculated from single bills although there should never be single bills for this procedure. Hence, we believe that the median cost for the composite APC of approximately $3,391, which is calculated from bills we believe to be correctly coded will result in a reasonable and appropriate payment rate for this service. (3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC (a) Background

During its March 2007 meeting, members of the APC Panel indicated that the reason we found so few single bills for procedures assigned to APC 0087 (Cardiac Electrophysiologic Recording/Mapping), specifically 72 of 11,834 or 0.61 percent of all proposed rule CY 2006 claims, is that most of the services assigned to APCs 0085 (Level II Electrophysiologic Evaluation), 0086 (Ablate Heart Dysrhythm Focus), and 0087 are performed in varying combinations with one another. Therefore, correctly coded claims would most often include multiple codes for component services that are reported with different CPT codes and that are now paid separately through different APCs. There would never be many single bills and those that are reported as single bills would likely represent atypical cases or incorrectly coded claims.

We examined the combinations of services observed in our claims data across these three APCs to see whether there was the potential for handling the data differently so that we could use more claims data to set the payment rates for these procedures, particularly those services assigned to APC 0087 where we have had a persistent concern regarding the limited and reportedly unrepresentative single bills available for use in calculating the median cost according to our standard OPPS methodology. We initially developed and examined frequency distributions of unique combinations of codes on claims which contained at least one unit of any code assigned to APC 0085, 0086, or 0087 and then broadened these analysis to any combination of an electrophysiologic evaluation and ablation code.

Our initial frequency distributions supported the APC Panel members' description of their experiences. We identified and enumerated the most commonly appearing unique occurrences (either single procedures or combinations) of codes for services assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X'' that contained at least one

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code assigned to APC 0085, 0086, or 0087. There were 7,379 claims in the top 100 occurrence types. Table 8 shows the 10 most common unique occurrences from CY 2006 proposed rule claims data available at that time.

Table 8.--Ten Most Frequently Occurring Unique Occurrences of Cardiac Electrophysiologic Evaluations, Mapping, and Ablation Procedures and other Separately Payable Services

CY 2007 CY 2007 Combination No.

Frequency HCPCS code

Short descriptor

APC

SI

1...................................

763

93620 Electrophysiology

0085

T evaluation. 2...................................

509

93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus. 3...................................

398

93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 4...................................

381

93650 Ablate heart dysrhythm

0086

T focus. 5...................................

376

93620 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 6...................................

248

93005 Electrocardiogram, tracing. 0099

S 93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus. 7...................................

225

93005 Electrocardiogram, tracing. 0099

S 93609 Map tachycardia, add-on.... 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 8...................................

225

93613 Electrophys map 3d, add-on. 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93651 Ablate heart dysrhythm

0086

T focus. 9...................................

217

93005 Electrocardiogram, tracing. 0099

S 93620 Electrophysiology

0085

T evaluation. 10..................................

185

93613 Electrophys map 3d, add-on. 0087

T 93620 Electrophysiology

0085

T evaluation. 93621 Electrophysiology

0085

T evaluation. 93623 Stimulation, pacing heart.. 0087

T 93651 Ablate heart dysrhythm

0086

T focus.

Although the number of claims for each unique occurrence was modest, we were able to determine that there were certain combinations of codes that occurred most often together. Based on our review of the most frequently occurring combinations of codes on claims that also contained at least one code assigned to APC 0085, 0086 or 0087 and our clinical review of the codes, we proceeded to study combination claims that contained at least one code from group A for evaluation services and at least one code from group B for ablation services reported on the same date of service on an individual claim, as specified in Table 9 below.

Table 9.--Groups of Cardiac Electrophysiologic Evaluation and Ablation Procedures on Which We Base the Composite APC

CY Codes Used in Combinations: At Least One in HCPCS 2007 CY 2007 Group A and One in Group B

code APC SI

Group A Electrophysiology evaluation................ 93619 0085 T Electrophysiology evaluation................ 93620 0085 T Group B Ablate heart dysrhythm focus................ 93650 0086 T Ablate heart dysrhythm focus................ 93651 0086 T Ablate heart dysrhythm focus................ 93652 0086 T

When we studied proposed rule claims that contained a code in group A and also a code in group B, we found that there were 5,118 claims that met these criteria, and that of these 5,118 claims, 4,552 (89 percent) contained both CPT code 93620 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with right atrial pacing and recording, right ventricular pacing and recording, His bundle recording) from APC 0085 and CPT code 93651 (Intracardiac catheter ablation of arrhythmogenic focus; for treatment of supraventricular tachycardia by ablation of fast or slow atrioventricular pathways, accessory atrioventricular connections or other atrial foci, singly or in combination) from APC 0086 with the same date of service. Given that CPT code 93651 had a total frequency of 8,091, this means that more than 55 percent of the claims for CPT code 93651 also contained CPT

[[Page 66657]]

code 93620. CPT code 93620 had a total frequency of 12,624, approximately 50 percent higher than the total frequency for CPT code 93651, which is consistent with our expectations because CPT code 93620 describes a diagnostic service and CPT code 93651 is a treatment service that may be provided based upon the findings of the evaluation described by CPT code 93620. In addition to the codes for group A and group B services, the combination claims also contained costs for packaged services that were reported under revenue codes without HCPCS codes and under packaged HCPCS codes. As we discuss in considerable detail above, we lack a methodology that could be used to allocate these packaged costs to major separately paid procedures in a manner which gives us confidence that the costs would be attributed correctly. We have explored and will continue to explore an alternative strategy that would enable us to use these correctly coded multiple procedure claims for ratesetting.

In our review of these proposed rule claims, not only did we find a high number of claims on which there was one code from group A and one code from group B, but we also found that claims for procedures assigned to APC 0087 for CY 2007 usually appeared on claims that contained a code from APC 0085 or APC 0086, or both. The most frequently appearing CPT codes that were assigned to APC 0087 for CY 2007 were, as shown above, 93609 (Intraventricular and/or intra-atrial mapping of tachycardia site(s), with catheter manipulation to record from multiple sites to identify origin of tachycardia (List separately in addition to code for primary procedure)), 93613 (Intracardiac electrophysiologic 3-dimensional mapping (List separately in addition to code for primary procedure)), 93621 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left atrial pacing and recording from coronary sinus or left atrium (List separately in addition to code for primary procedure)), 93622 (Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or attempted induction of arrhythmia; with left ventricular pacing and recording (List separately in addition to code for primary procedure)), and 93623 (Programmed simulation and pacing after intravenous drug infusion (List separately in addition to code for primary procedure)). These codes are all CPT add-on codes that CPT indicates are to be reported in addition to the code for the primary procedure. Our clinical review of the services described by these five CPT codes determined that they are supportive dependent services that are provided most often as supplemental to procedures assigned to APCs 0085 and 0086. The procedures in APCs 0085 and 0086 can be performed without these supportive add-on procedures, but these dependent services cannot be done except as a supplement to another electrophysiologic procedure. Therefore, we proposed to unconditionally package all of these five CPT codes under the grouping of intraoperative services for the CY 2008 OPPS. We discuss the packaging of intraoperative services in general, including these services, in section II.A.4.c.(3) above.

However, packaging these supportive ancillary services that are so often reported with the cardiac electrophysiologic evaluation and ablation services did not, by itself, enable us to use many more claims because, as we noted previously, the claims on which these codes most commonly appeared typically also contained at least one separately paid code from APC 0085 and one code from APC 0086. Although the most common combination of codes from APCs 0085 and 0086 was the pair of CPT codes 93620 and 93651, there are numerous other combinations of services from APCs 0085 and 0086 that were performed and, while not as frequent, these combinations were also reflected in the multiple claims.

In order to use more claims and adequately reflect the varied, common combinations of electrophysiologic evaluation and ablation CPT codes, we calculated a composite median cost from all claims containing at least one code from group A and at least one code from group B as if they were a single service. We selected multiple procedure claims that contained at least one code in group A and one code in group B on the same date of service and calculated a median cost from the total costs on these claims. Some claims had more than one code from each group. Although the claim was required to contain at least one code from each group to be included, the claim could also contain any number of codes from either group and any number of units of those codes. In addition, the costs of the five supportive intraoperative services previously assigned to APC 0087 that we identify above were packaged, as well as the costs of the other items and services proposed to be packaged for the CY 2008 OPPS. This selection process yielded 5,118 claims to use for the calculation. The proposed composite median cost for these claims using the CY 2008 proposed rule data was approximately $8,529. We believe that this cost is attributable largely to the 4,552 claims that contain one unit each of CPT code 93620 and CPT code 93651 (and some unknown numbers and combinations of packaged services). In comparison, the sum of the CY 2008 proposed rule CPT code median costs for CPT code 93620 (which is $3,111) and CPT code 93651 (which is $5,644) is approximately $8,756. If the 50 percent multiple procedure discount is applied to the CPT code median cost for the lower cost procedure based on its assignment to an APC with a ``T'' status, the adjusted sum of the median costs is $7,200 ($5,644 + $1,556). These medians were calculated using only claims that contain correct devices and do not contain token charges or the ``FB'' modifier. We believe the significant positive difference between the composite and discounted costs still reflects efficiencies, as the sum of the discounted median costs does not take into account the cost of other procedures also provided that are assigned to APCs 0085 and 0086, while the composite median cost of $8,528.83 does, to some extent, reflect the cost of other multiple procedures in APCs 0085 and 0086 that were also reported on the claims used to develop the composite median cost. In addition, these two calculations are based upon two different sets of claims, single procedure claims in one case (which do not represent the way the service is typically furnished) and the specified subset of clinically common combination claims in the second case. Moreover, while the 50 percent multiple procedure reduction is our best aggregate estimate of the overall degree of efficiency applicable to multiple surgeries, it may or may not be specifically appropriate to this particular combination of procedures.

By selecting the multiple procedure claims that contained at least one code in each group, we were able to use many more claims than were available to establish the individual APC medians. The percents by CPT code for the composite configuration in Table 24 of the proposed rule (72 FR 42684) represented the sum of the frequency of single bills used to set the medians for APCs 0085 and 0086 with packaging of the five intraoperative services and the frequency of multiple bills used to set the medians for the composite claims containing at least one code from each group and with packaging of the costs

[[Page 66658]]

of the five intraoperative services, divided by the total frequency of each CPT code.

Moreover, by packaging CPT codes 93609, 93613, 93621, 93622, and 93623, we were able to use many more of the claims for these codes from the most common clinical scenarios than would otherwise be possible if the supportive intraoperative services were separately paid. Wherever any of these codes appears on a claim that could be used for median setting, the cost data for these codes are packaged in the calculation of the median cost for the separately paid services on the claim. (b) Payment for Cardiac Electrophysiologic Evaluation and Ablation

In view of our findings with regard to how often the codes in groups A and B appear together on the same claim, we proposed to establish one composite APC, shown in Addendum A of the proposed rule as APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite), for CY 2008 that would pay for a composite service made up of any number of services in groups A and B when at least one code from group A and at least one code from group B appear on the same claim with the same date of service. The five CPT codes involved in this composite APC are assigned to status indicator ``Q'' in Addendum B to the proposed rule to identify their conditionally packaged status, and their composite APC assignments were identified in Addendum M of the proposed rule. We proposed to use the composite median cost of approximately $8,529 as the basis for establishing the relative weight for this newly created APC for the composite electrophysiology evaluation and ablation service. Under this composite APC, unlike most other APCs, we proposed to make a single payment for all services reported in groups A and B. We proposed that hospitals would continue to code using CPT codes to report these services and that the OCE would recognize when the criteria for payment of the composite APC are met and would assign the composite APC instead of the single procedure APCs as currently occurs. The PRICER would make a single payment for the composite APC that would encompass the program payment for the code in group A, the code in group B, and any other codes reported in groups A or B, as well as the packaged services furnished on the same date of service. The proposed composite APC would have a status indicator of ``T'' so that payment for other procedures also assigned to status indicator ``T'' with lower payment rates would be reduced by 50 percent when furnished on the same date of service as the composite service, in order to reflect the efficiency that occurs when multiple procedures are furnished to a Medicare beneficiary in a single operative session. We would not expect that the proposed composite APC payment would be commonly reduced because we believe that it is unlikely that a higher paid procedure would be performed on the same date. We proposed to continue to pay separately for other separately paid services that are not reported under the codes in groups A and B (such as chest x-rays and electrocardiograms).

Moreover, where a service in group A is furnished on a date of service that is different from the date of service for a code in group B for the same beneficiary, we proposed that payments would be made under the single procedure APCs and the composite APC would not apply. Given our CY 2008 proposal to unconditionally package payment for five cardiac electrophysiologic CPT codes as members of the category of intraoperative services that were previously assigned to APCs 0085 and 0087, we also proposed to reconfigure APCs 0084 through 0087, where many of the cardiac electrophysiologic procedures that will be separately paid when they are not paid according to the composite APC are assigned. Specifically, we proposed to discontinue APC 0087, and reconfigure APCs 0084, 0085, and 0086, with proposed titles and median costs of Level I Electrophysiologic Procedures (APC 0084) at approximately $603; Level II Electrophysiologic Procedures (APC 0085) at approximately $2,976; and Level III Electrophysiologic Procedures (APC 0086) at approximately $5,842, respectively. We refer readers to section IV.A.2. of this his final rule with comment period rule for a discussion of calculation of median costs for device-dependent APCs. We believe this reconfiguration improved the clinical and resource homogeneity of these APCs which would provide payment for cardiac electrophysiologic procedures that would be individually paid when they do not meet the criteria for payment of the composite APC.

We believe that creation of the proposed composite APC for cardiac electrophysiology evaluation and ablation services is the most efficient and effective way to use the claims data for the majority of these services and best represents the hospital resources associated with performing the common combinations of these services that are clinically typical. We believe that the proposed ratesetting methodology results in an appropriate median cost for the composite service when at least one evaluation service in group A is furnished on the same date as at least one ablation service in group B. This approach creates incentives for efficiency by providing a single payment for a larger bundle of major procedures when they are performed together, in contrast to continued separate payment for each of the individual procedures. We expect to develop additional composite APCs in the future as we learn more about major currently separately paid services that are commonly furnished together during the same hospital outpatient encounter.

We did not receive any public comments specific to the creation of the composite APC for cardiac electrophysiology evaluation and ablation other than those included in the general discussion of composite APCs above. Therefore, we are finalizing the creation of this APC as proposed. For this final rule with comment period, we recalculated the median cost of the APC as proposed. We were able to use 5,596 claims that met the criteria of having at least one code in group A and one code in group B, which had correct device codes, no token charges for devices and no FB modifiers on the claims. Using these 5,596 correctly coded claims from the final rule data, we calculated a median cost from the final rule data of approximately $8,438. We note that while the number of usable claims for the final rule date increased to 5,596 from the 5,118 claims used in the proposed rule, the median cost declined slightly (approximately 1 percent) to approximately $8,438 from the $8,529 median cost calculated from proposed rule data. However, we believe that the median cost for this composite APC is a valid reflection of the estimated relative cost of these services when furnished in combination with one another.

After consideration of the public comments we received on the proposed composite APCs for LDR Prostate Brachytherapy and Cardiac Electrophysiology Evaluation and Ablation, we are finalizing our proposed policy regarding these composite APCs without modification.

In conclusion, we are finalizing our proposed packaging approach with the modifications discussed above for the CY 2008 OPPS. Table 10 in this final rule with comment period displays the list of packaged services in the categories of guidance, image processing, intraoperative services, radiopharmaceuticals, contrast media, imaging supervision and interpretation,

[[Page 66659]]

and observation services. Codes in composite APCs, including the two extended assessment and management APCs, are displayed in Addendum M. In Table 10, HCPCS codes with status indicator ``N'' are always packaged. HCPCS codes with status indicator ``Q'' are conditionally packaged. Codes with status indicator ``Q'' that are for imaging supervision and interpretation are packaged only when reported on the same claim on the same day as a procedure with status indicator ``T'' and are identified as ``T-packaged'' in the sixth column. Codes that are packaged when they are reported on the same claim with a code with status indicator ``S,'' ``T,'' ``V,'' or ``X'' on the same day are identified as ``STVX-packaged'' in the sixth column.

Table 10.--CY 2008 Packaged HCPCS Codes Included in Seven Packaging Categories

Final ``STVX- CY CY CY packaged'' Final CY 2008 HCPCS code

Short descriptor

2007 2007 2008 or ``T- 2008 APC

Category SI APC SI packaged'' (1)

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

(6)

(7) (8)

19295..................... Place breast clip, percut........ S 0657 N

n/a

n/a Guidance 20975..................... Electrical bone stimulation...... X 0340 N

n/a

n/a Intraoperative. 20985..................... Cptr-asst dir ms px.............. n/a n/a N

n/a

n/a Guidance. 20986..................... Cptr-asst dir ms px io img....... n/a n/a N

n/a

n/a Guidance. 20987..................... Cptr-asst dir ms px pre img...... n/a n/a N

n/a

n/a Guidance. 31620..................... Endobronchial us add-on.......... S 0670 N

n/a

n/a Intraoperative. 37250..................... Iv us first vessel add-on........ S 0416 N

n/a

n/a Intraoperative. 37251..................... Iv us each add vessel add-on..... S 0416 N

n/a

n/a Intraoperative. 58110..................... Bx done w/colposcopy add-on...... T 0188 N

n/a

n/a Intraoperative. 61795..................... Brain surgery using computer..... S 0302 N

n/a

n/a Guidance. 62160..................... Neuroendoscopy add-on............ T 0122 N

n/a

n/a Guidance. 70010..................... Contrast x-ray of brain.......... S 0274 Q

T

0274 Imaging S&I. 70015..................... Contrast x-ray of brain.......... S 0274 Q

T

0274 Imaging S&I. 70170..................... X-ray exam of tear duct.......... X 0264 Q

T

0317 Imaging S&I. 70332..................... X-ray exam of jaw joint.......... S 0275 Q

T

0275 Imaging S&I. 70373..................... Contrast x-ray of larynx......... X 0263 Q

T

0263 Imaging S&I. 70390..................... X-ray exam of salivary duct...... X 0263 Q

T

0263 Imaging S&I. 71040..................... Contrast x-ray of bronchi........ X 0263 Q

T

0263 Imaging S&I. 71060..................... Contrast x-ray of bronchi........ X 0263 Q

T

0317 Imaging S&I. 71090..................... X-ray & pacemaker insertion...... X 0272 N

n/a

n/a Imaging S&I. 72240..................... Contrast x-ray of neck spine..... S 0274 Q

T

0274 Imaging S&I. 72255..................... Contrast x-ray, thorax spine..... S 0274 Q

T

0274 Imaging S&I. 72265..................... Contrast x-ray, lower spine...... S 0274 Q

T

0274 Imaging S&I. 72270..................... Contrast x-ray, spine............ S 0274 Q

T

0274 Imaging S&I. 72275..................... Epidurography.................... S 0274 N

n/a

n/a Imaging S&I. 72285..................... X-ray c/t spine disk............. S 0388 Q

T

0388 Imaging S&I. 72291..................... Perq vertebroplasty, fluor....... S 0274 N

n/a

n/a Imaging S&I. 72292..................... Perq vertebroplasty, ct.......... S 0274 N

n/a

n/a Imaging S&I. 72295..................... X-ray of lower spine disk........ S 0388 Q

T

0388 Imaging S&I. 73040..................... Contrast x-ray of shoulder....... S 0275 Q

T

0275 Imaging S&I. 73085..................... Contrast x-ray of elbow.......... S 0275 Q

T

0275 Imaging S&I. 73115..................... Contrast x-ray of wrist.......... S 0275 Q

T

0275 Imaging S&I. 73525..................... Contrast x-ray of hip............ S 0275 Q

T

0275 Imaging S&I. 73530..................... X-ray exam of hip................ X 0261 N

n/a

n/a Intraoperative. 73542..................... X-ray exam, sacroiliac joint..... S 0275 Q

T

0275 Imaging S&I. 73580..................... Contrast x-ray of knee joint..... S 0275 Q

T

0275 Imaging S&I. 73615..................... Contrast x-ray of ankle.......... S 0275 Q

T

0275 Imaging S&I. 74190..................... X-ray exam of peritoneum......... S 0264 Q

T

0317 Imaging S&I. 74235..................... Remove esophagus obstruction..... S 0257 N

n/a

n/a Imaging S&I. 74300..................... X-ray bile ducts/pancreas........ X 0263 N

n/a

n/a Intraoperative. 74301..................... X-rays at surgery add-on......... X 0263 N

n/a

n/a Intraoperative. 74305..................... X-ray bile ducts/pancreas........ X 0263 N

n/a

n/a Imaging S&I. 74320..................... Contrast x-ray of bile ducts..... X 0264 Q

T

0317 Imaging S&I. 74327..................... X-ray bile stone removal......... S 0296 N

n/a

n/a Imaging S&I. 74328..................... X-ray bile duct endoscopy........ N n/a N

n/a

n/a Imaging S&I. 74329..................... X-ray for pancreas endoscopy..... N n/a N

n/a

n/a Imaging S&I. 74330..................... X-ray bile/panc endoscopy........ N n/a N

n/a

n/a Imaging S&I. 74340..................... X-ray guide for GI tube.......... X 0272 N

n/a

n/a Imaging S&I. 74355..................... X-ray guide, intestinal tube..... X 0263 N

n/a

n/a Imaging S&I. 74360..................... X-ray guide, GI dilation......... S 0257 N

n/a

n/a Imaging S&I. 74363..................... X-ray, bile duct dilation........ S 0297 N

n/a

n/a Imaging S&I. 74425..................... Contrst x-ray, urinary tract..... S 0278 Q

T

0278 Imaging S&I. 74430..................... Contrast x-ray, bladder.......... S 0278 Q

T

0278 Imaging S&I. 74440..................... X-ray, male genital tract........ S 0278 Q

T

0278 Imaging S&I. 74445..................... X-ray exam of penis.............. S 0278 Q

T

0278 Imaging S&I. 74450..................... X-ray, urethra/bladder........... S 0278 Q

T

0278 Imaging S&I. 74455..................... X-ray, urethra/bladder........... S 0278 Q

T

0278 Imaging S&I. 74470..................... X-ray exam of kidney lesion...... X 0263 Q

T

0263 Imaging S&I. 74475..................... X-ray control, cath insert....... S 0297 Q

T

0317 Imaging S&I.

[[Page 66660]]

74480..................... X-ray control, cath insert....... S 0296 Q

T

0317 Imaging S&I. 74485..................... X-ray guide, GU dilation......... S 0296 Q

T

0317 Imaging S&I. 74740..................... X-ray, female genital tract...... X 0264 Q

T

0263 Imaging S&I. 74742..................... X-ray, fallopian tube............ X 0264 N

n/a

n/a Imaging S&I. 75600..................... Contrast x-ray exam of aorta..... S 0280 Q

T

0279 Imaging S&I. 75605..................... Contrast x-ray exam of aorta..... S 0280 Q

T

0279 Imaging S&I. 75625..................... Contrast x-ray exam of aorta..... S 0280 Q

T

0279 Imaging S&I. 75630..................... X-ray aorta, leg arteries........ S 0280 Q

T

0279 Imaging S&I. 75635..................... Ct angio abdominal arteries...... S 0662 Q

T

0662 Imaging S&I. 75650..................... Artery x-rays, head & neck....... S 0280 Q

T

0280 Imaging S&I. 75658..................... Artery x-rays, arm............... S 0279 Q

T

0279 Imaging S&I. 75660..................... Artery x-rays, head & neck....... S 0668 Q

T

0280 Imaging S&I. 75662..................... Artery x-rays, head & neck....... S 0280 Q

T

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

T

0279 Imaging S&I. 75671..................... Artery x-rays, head & neck....... S 0280 Q

T

0280 Imaging S&I. 75676..................... Artery x-rays, neck.............. S 0280 Q

T

0279 Imaging S&I. 75680..................... Artery x-rays, neck.............. S 0280 Q

T

0279 Imaging S&I. 75685..................... Artery x-rays, spine............. S 0280 Q

T

0279 Imaging S&I. 75705..................... Artery x-rays, spine............. S 0668 Q

T

0279 Imaging S&I. 75710..................... Artery x-rays, arm/leg........... S 0280 Q

T

0279 Imaging S&I. 75716..................... Artery x-rays, arms/legs......... S 0280 Q

T

0279 Imaging S&I. 75722..................... Artery x-rays, kidney............ S 0280 Q

T

0279 Imaging S&I. 75724..................... Artery x-rays, kidneys........... S 0280 Q

T

0279 Imaging S&I. 75726..................... Artery x-rays, abdomen........... S 0280 Q

T

0279 Imaging S&I. 75731..................... Artery x-rays, adrenal gland..... S 0280 Q

T

0279 Imaging S&I. 75733..................... Artery x-rays, adrenals.......... S 0668 Q

T

0279 Imaging S&I. 75736..................... Artery x-rays, pelvis............ S 0280 Q

T

0279 Imaging S&I. 75741..................... Artery x-rays, lung.............. S 0279 Q

T

0279 Imaging S&I. 75743..................... Artery x-rays, lungs............. S 0280 Q

T

0279 Imaging S&I. 75746..................... Artery x-rays, lung.............. S 0279 Q

T

0668 Imaging S&I. 75756..................... Artery x-rays, chest............. S 0279 Q

T

0668 Imaging S&I. 75774..................... Artery x-ray, each vessel........ S 0279 N

n/a

n/a Imaging S&I. 75790..................... Visualize A-V shunt.............. S 0279 Q

T

0668 Imaging S&I. 75801..................... Lymph vessel x-ray, arm/leg...... X 0264 Q

T

0317 Imaging S&I. 75803..................... Lymph vessel x-ray, arms/legs.... X 0264 Q

T

0317 Imaging S&I. 75805..................... Lymph vessel x-ray, trunk........ X 0264 Q

T

0317 Imaging S&I. 75807..................... Lymph vessel x-ray, trunk........ X 0264 Q

T

0317 Imaging S&I. 75809..................... Nonvascular shunt, x-ray......... X 0263 Q

T

0263 Imaging S&I. 75810..................... Vein x-ray, spleen/liver......... S 0279 Q

T

0279 Imaging S&I. 75820..................... Vein x-ray, arm/leg.............. S 0668 Q

T

0668 Imaging S&I. 75822..................... Vein x-ray, arms/legs............ S 0668 Q

T

0668 Imaging S&I. 75825..................... Vein x-ray, trunk................ S 0279 Q

T

0279 Imaging S&I. 75827..................... Vein x-ray, chest................ S 0279 Q

T

0668 Imaging S&I. 75831..................... Vein x-ray, kidney............... S 0279 Q

T

0279 Imaging S&I. 75833..................... Vein x-ray, kidneys.............. S 0279 Q

T

0279 Imaging S&I. 75840..................... Vein x-ray, adrenal gland........ S 0280 Q

T

0279 Imaging S&I. 75842..................... Vein x-ray, adrenal glands....... S 0280 Q

T

0279 Imaging S&I. 75860..................... Vein x-ray, neck................. S 0668 Q

T

0668 Imaging S&I. 75870..................... Vein x-ray, skull................ S 0668 Q

T

0668 Imaging S&I. 75872..................... Vein x-ray, skull................ S 0279 Q

T

0668 Imaging S&I. 75880..................... Vein x-ray, eye socket........... S 0668 Q

T

0668 Imaging S&I. 75885..................... Vein x-ray, liver................ S 0280 Q

T

0279 Imaging S&I. 75887..................... Vein x-ray, liver................ S 0279 Q

T

0668 Imaging S&I. 75889..................... Vein x-ray, liver................ S 0280 Q

T

0279 Imaging S&I. 75891..................... Vein x-ray, liver................ S 0279 Q

T

0279 Imaging S&I. 75893..................... Venous sampling by catheter...... Q 0668 Q

T

0279 Imaging S&I. 75894..................... X-rays, transcath therapy........ S 0298 N

n/a

n/a Imaging S&I. 75896..................... X-rays, transcath therapy........ S 0263 N

n/a

n/a Imaging S&I. 75898..................... Follow-up angiography............ X 0263 Q

STVX

0263 Intraoperative. 75901..................... Remove cva device obstruct....... X 0263 N

n/a

n/a Imaging S&I. 75902..................... Remove cva lumen obstruct........ X 0263 N

n/a

n/a Imaging S&I. 75940..................... X-ray placement, vein filter..... S 0298 N

n/a

n/a Imaging S&I. 75945..................... Intravascular us................. S 0267 Q

T

0267 Imaging S&I. 75946..................... Intravascular us add-on.......... S 0266 N

n/a

n/a Imaging S&I. 75960..................... Transcath iv stent rs&i.......... S 0668 N

n/a

n/a Imaging S&I. 75961..................... Retrieval, broken catheter....... S 0668 N

n/a

n/a Imaging S&I. 75962..................... Repair arterial blockage......... S 0668 Q

T

0083 Imaging S&I.

[[Page 66661]]

75964..................... Repair artery blockage, each..... S 0668 N

n/a

n/a Imaging S&I. 75966..................... Repair arterial blockage......... S 0668 Q

T

0083 Imaging S&I. 75968..................... Repair artery blockage, each..... S 0668 N

n/a

n/a Imaging S&I. 75970..................... Vascular biopsy.................. S 0668 N

n/a

n/a Imaging S&I. 75978..................... Repair venous blockage........... S 0668 Q

T

0083 Imaging S&I. 75980..................... Contrast xray exam bile duct..... S 0297 N

n/a

n/a Imaging S&I. 75982..................... Contrast xray exam bile duct..... S 0297 N

n/a

n/a Imaging S&I. 75984..................... Xray control catheter change..... X 0263 N

n/a

n/a Imaging S&I. 75989..................... Abscess drainage under x-ray..... N ...... N

n/a

n/a Imaging S&I. 75992..................... Atherectomy, x-ray exam.......... S 0668 N

n/a

n/a Imaging S&I. 75993..................... Atherectomy, x-ray exam.......... S 0668 N

n/a

n/a Imaging S&I. 75994..................... Atherectomy, x-ray exam.......... S 0668 N

n/a

n/a Imaging S&I. 75995..................... Atherectomy, x-ray exam.......... S 0668 N

n/a

n/a Imaging S&I. 75996..................... Atherectomy, x-ray exam.......... S 0668 N

n/a

n/a Imaging S&I. 76000..................... Fluoroscope examination.......... X 0272 Q

STVX

0272 Guidance. 76001..................... Fluoroscope exam, extensive...... N n/a N

n/a

n/a Guidance. 76080..................... X-ray exam of fistula............ X 0263 Q

T

0263 Imaging S&I. 76125..................... Cine/video x-rays add-on......... X 0260 N

n/a

n/a Image Processing. 76350..................... Special x-ray contrast study..... N n/a N

n/a

n/a Image Processing. 76376..................... 3d render w/o postprocess........ X 0340 N

n/a

n/a Image Processing. 76377..................... 3d rendering w/postprocess....... S 0282 N

n/a

n/a Image Processing. 76930..................... Echo guide, cardiocentesis....... S 0268 N

n/a

n/a Guidance. 76932..................... Echo guide for heart biopsy...... S 0309 N

n/a

n/a Guidance. 76936..................... Echo guide for artery repair..... S 0309 N

n/a

n/a Guidance. 76937..................... Us guide, vascular access........ N n/a N

n/a

n/a Guidance. 76940..................... Us guide, tissue ablation........ S 0268 N

n/a

n/a Guidance. 76941..................... Echo guide for transfusion....... S 0268 N

n/a

n/a Guidance. 76942..................... Echo guide for biopsy............ S 0268 N

n/a

n/a Guidance. 76945..................... Echo guide, villus sampling...... S 0268 N

n/a

n/a Guidance. 76946..................... Echo guide for amniocentesis..... S 0268 N

n/a

n/a Guidance. 76948..................... Echo guide, ova aspiration....... S 0309 N

n/a

n/a Guidance. 76950..................... Echo guidance radiotherapy....... S 0268 N

n/a

n/a Guidance. 76965..................... Echo guidance radiotherapy....... S 0308 N

n/a

n/a Guidance. 76975..................... GI endoscopic ultrasound......... S 0266 Q

T

0267 Imaging S&I. 76998..................... Us guide, intraop................ S 0266 N

n/a

n/a Guidance. 77001..................... Fluoro guide for vein device..... N n/a N

n/a

n/a Guidance. 77002..................... Needle localization by xray...... N n/a N

n/a

n/a Guidance. 77003..................... Fluoroguide for spine inject..... N n/a N

n/a

n/a Guidance. 77011..................... Ct scan for localization......... S 0283 N

n/a

n/a Guidance. 77012..................... Ct scan for needle biopsy........ S 0283 N

n/a

n/a Guidance. 77013..................... Ct guide for tissue ablation..... S 0333 N

n/a

n/a Guidance. 77014..................... Ct scan for therapy guide........ S 0282 N

n/a

n/a Guidance. 77021..................... Mr guidance for needle place..... S 0335 N

n/a

n/a Guidance. 77022..................... Mri for tissue ablation.......... S 0335 N

n/a

n/a Guidance. 77031..................... Stereotact guide for brst bx..... X 0264 N

n/a

n/a Guidance. 77032..................... Guidance for needle, breast...... X 0283 N

n/a

n/a Guidance. 77053..................... X-ray of mammary duct............ X 0263 Q

T

0263 Imaging S&I. 77054..................... X-ray of mammary ducts........... X 0263 Q

T

0263 Imaging S&I. 77417..................... Radiology port film(s)........... X 0260 N

n/a

n/a Guidance. 77421..................... Stereoscopic x-ray guidance...... S 0257 N

n/a

n/a Guidance. 78020..................... Thyroid met uptake............... S 0399 N

n/a

n/a Intraoperative. 78478..................... Heart wall motion add-on......... S 0399 N

n/a

n/a Intraoperative. 78480..................... Heart function add-on............ S 0399 N

n/a

n/a Intraoperative. 78496..................... Heart first pass add-on1......... S 0399 N

n/a

n/a Intraoperative. 92547..................... Supplemental electrical test..... X 0363 N

n/a

n/a Intraoperative. 92978..................... Intravasc us, heart add-on....... S 0670 N

n/a

n/a Intraoperative. 92979..................... Intravasc us, heart add-on....... S 0416 N

n/a

n/a Intraoperative. 93320..................... Doppler echo exam, heart......... S 0697 N

n/a

n/a Intraoperative. 93321..................... Doppler echo exam, heart......... S 0697 N

n/a

n/a Intraoperative. 93325..................... Doppler color flow add-on........ S 0697 N ...........

n/a Image Processing. 93555..................... Imaging, cardiac cath............ N n/a N

n/a

n/a Imaging S&I. 93556..................... Imaging, cardiac cath............ N n/a N

n/a

n/a Imaging S&I. 93571..................... Heart flow reserve measure....... S 0670 N

n/a

n/a Intraoperative. 93572..................... Heart flow reserve measure....... S 0416 N

n/a

n/a Intraoperative. 93609..................... Map tachycardia, add-on.......... T 0087 N

n/a

n/a Intraoperative. 93613..................... Electrophys map 3d, add-on....... T 0087 N

n/a

n/a Image Processing. 93621..................... Electrophysiology evaluation..... T 0085 N

n/a

n/a Intraoperative.

[[Page 66662]]

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

n/a

n/a Intraoperative. 93623..................... Stimulation, pacing heart........ T 0087 N

n/a

n/a Intraoperative. 93631..................... Heart pacing, mapping............ T 0087 N

n/a

n/a Intraoperative. 93640..................... Evaluation heart device.......... N n/a N

n/a

n/a Intraoperative. 93641..................... Electrophysiology evaluation..... N n/a N

n/a

n/a Intraoperative. 93662..................... Intracardiac ecg (ice)........... S 0670 N

n/a

n/a Intraoperative. 95829..................... Surgery electrocorticogram....... S 0214 N

n/a

n/a Intraoperative. 95873..................... Guide nerv destr, elec stim...... S 0215 N

n/a

n/a Guidance. 95874..................... Guide nerv destr, needle emg..... S 0215 N

n/a

n/a Guidance. 95920..................... Intraop nerve test add-on........ S 0216 N

n/a

n/a Intraoperative. 95955..................... EEG during surgery............... S 0213 N

n/a

n/a Intraoperative. 95957..................... EEG digital analysis............. S 0214 N

n/a

n/a Image Processing. 95980..................... Io anal gast n-stim init......... n/a n/a N

n/a

n/a Intraoperative. 96020..................... Functional brain mapping......... X 0373 N

n/a

n/a Intraoperative. 0126T..................... Chd risk imt study............... N n/a Q

STVX

0340 Intraoperative. 0159T..................... Cad breast MRI................... N n/a N

n/a

n/a Image Processing. 0173T..................... Iop monit io pressure............ N n/a N

n/a

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

n/a

n/a Image Processing. 0175T..................... Cad cxr with interp.............. N n/a N

n/a

n/a Image Processing. A4641..................... Radiopharm dx agent noc.......... N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A4642..................... In111 satumomab.................. H 0704 N

n/a

n/a Diagnostic Radiopharmaceutical. A9500..................... Tc99m sestamibi.................. H 1600 N

n/a

n/a Diagnostic Radiopharmaceutical. A9501..................... Technetium TC-99m teboroxime..... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9502..................... Tc99m tetrofosmin................ H 0705 N

n/a

n/a Diagnostic Radiopharmaceutical. A9503..................... Tc99m medronate.................. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9504..................... Tc99m apcitide................... N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9505..................... TL201 thallium................... H 1603 N

n/a

n/a Diagnostic Radiopharmaceutical. A9507..................... In111 capromab................... H 1604 N

n/a

n/a Diagnostic Radiopharmaceutical. A9508..................... I131 iodobenguate, dx............ H 1045 N

n/a

n/a Diagnostic Radiopharmaceutical. A9509..................... Iodine I-123 sod iodide mil...... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9510..................... Tc99m disofenin.................. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9512..................... Tc99m pertechnetate.............. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9516..................... I123 iodide cap, dx.............. H 9148 N

n/a

n/a Diagnostic Radiopharmaceutical. A9521..................... Tc99m exametazime................ H 1096 N

n/a

n/a Diagnostic Radiopharmaceutical. A9524..................... I131 serum albumin, dx........... H 9100 N

n/a

n/a Diagnostic Radiopharmaceutical. A9526..................... Nitrogen N-13 ammonia............ H 0737 N

n/a

n/a Diagnostic Radiopharmaceutical. A9528..................... Iodine I-131 iodide cap, dx...... H 1088 N

n/a

n/a Diagnostic Radiopharmaceutical. A9529..................... I131 iodide sol, dx.............. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9531..................... I131 max 100uCi.................. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9532..................... I125 serum albumin, dx........... N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9536..................... Tc99m depreotide................. H 0739 N

n/a

n/a Diagnostic Radiopharmaceutical. A9537..................... Tc99m mebrofenin................. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9538..................... Tc99m pyrophosphate.............. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical.

[[Page 66663]]

A9539..................... Tc99m pentetate.................. H 0722 N

n/a

n/a Diagnostic Radiopharmaceutical. A9540..................... Tc99m MAA........................ N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9541..................... Tc99m sulfur colloid............. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9542..................... In111 ibritumomab, dx............ H 1642 N

n/a

n/a Diagnostic Radiopharmaceutical. A9544..................... I131 tositumomab, dx............. H 1644 N

n/a

n/a Diagnostic Radiopharmaceutical. A9546..................... Co57/58.......................... H 0723 N

n/a

n/a Diagnostic Radiopharmaceutical. A9547..................... In111 oxyquinoline............... H 1646 N

n/a

n/a Diagnostic Radiopharmaceutical. A9548..................... In111 pentetate.................. H 1647 N

n/a

n/a Diagnostic Radiopharmaceutical. A9550..................... Tc99m gluceptate................. H 0740 N

n/a

n/a Diagnostic Radiopharmaceutical. A9551..................... Tc99m succimer................... H 1650 N

n/a

n/a Diagnostic Radiopharmaceutical. A9552..................... F18 fdg.......................... H 1651 N

n/a

n/a Diagnostic Radiopharmaceutical. A9553..................... Cr51 chromate.................... H 0741 N

n/a

n/a Diagnostic Radiopharmaceutical. A9554..................... I125 iothalamate, dx............. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9555..................... Rb82 rubidium.................... H 1654 N

n/a

n/a Diagnostic Radiopharmaceutical. A9556..................... Ga67 gallium..................... H 1671 N

n/a

n/a Diagnostic Radiopharmaceutical. A9557..................... Tc99m bicisate................... H 1672 N

n/a

n/a Diagnostic Radiopharmaceutical. A9558..................... Xe133 xenon 10mci................ N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9559..................... Co57 cyano....................... H 0724 N

n/a

n/a Diagnostic Radiopharmaceutical. A9560..................... Tc99m labeled rbc................ H 0742 N

n/a

n/a Diagnostic Radiopharmaceutical. A9561..................... Tc99m oxidronate................. N n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9562..................... Tc99m mertiatide................. H 0743 N

n/a

n/a Diagnostic Radiopharmaceutical. A9566..................... Tc99m fanolesomab................ H 1678 N

n/a

n/a Diagnostic Radiopharmaceutical. A9567..................... Technetium TC-99m aerosol........ H 0829 N

n/a

n/a Diagnostic Radiopharmaceutical. A9568..................... Tc99m arcitumomab................ H 1648 N

n/a

n/a Diagnostic Radiopharmaceutical. A9569..................... Technetium TC-99m auto WBC....... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9570..................... Indium In-111 auto WBC........... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9571..................... Indium In-111 auto platelet...... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9572..................... Indium In-111 pentetreotide...... n/a n/a N

n/a

n/a Diagnostic Radiopharmaceutical. A9576..................... Inj prohance multipack........... n/a n/a N

n/a

n/a Contrast Agent. A9577..................... Inj multihance................... n/a n/a N

n/a

n/a Contrast Agent. A9578..................... Inj multihance multipack......... n/a n/a N

n/a

n/a Contrast Agent. A9579..................... Gad-base MR contrast NOS, 1ml.... n/a n/a N

n/a

n/a Contrast Agent. G0268..................... Removal of impacted wax md....... X 0340 N

n/a

n/a Intraoperative. G0275..................... Renal angio, cardiac cath........ N n/a N

n/a

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

n/a

n/a Intraoperative. G0288..................... Recon, CTA for surg plan......... S 0417 N

n/a

n/a Image Processing. G0378..................... Hospital observation per hr...... Q 339 N

n/a

n/a Observation. Q9951..................... LOCM >= 400 mg/ml iodine, 1ml.... K 9163 N

n/a

n/a Contrast Agent. Q9953..................... Inj Fe-based MR contrast, 1ml.... K 1713 N

n/a

n/a Contrast Agent.

[[Page 66664]]

Q9954..................... Oral MR contrast, 100 ml......... K 9165 N

n/a

n/a Contrast Agent. Q9955..................... Inj perflexane lip micros, ml.... K 9203 N

n/a

n/a Contrast Agent. Q9956..................... Inj octafluoropropane mic, ml.... K 9202 N

n/a

n/a Contrast Agent. Q9957..................... Inj perflutren lip micros, ml.... K 9112 N

n/a

n/a Contrast Agent. Q9958..................... HOCM = 400mg/ml iodine, 1ml..... N n/a N

n/a

n/a Contrast Agent. Q9965..................... LOCM 100-199mg/ml iodine, 1ml.... n/a n/a N

n/a

n/a Contrast Agent. Q9966..................... LOCM 200-299mg/ml iodine, 1ml.... n/a n/a N

n/a

n/a Contrast Agent. Q9967..................... LOCM 300-399mg/ml iodine, 1ml.... n/a n/a N

n/a

n/a Contrast Agent.

e. Service-Specific Packaging Issues

As a result of requests from the public, a Packaging Subcommittee to the APC Panel was established to review all the procedural CPT codes with a status indicator of ``N.'' Commenters to past rules have suggested that certain packaged services could be provided alone, without any other separately payable services on the claim, and requested that these codes not be assigned status indicator ``N.'' In deciding whether to package a service or pay for a code separately, we have historically considered a variety of factors, including whether the service is normally provided separately or in conjunction with other services; how likely it is for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed; and whether the expected cost of the service is relatively low. As discussed above regarding our packaging approach for CY 2008, we have modified the historical considerations outlined above in developing our policy for the CY 2008 OPPS. The Packaging Subcommittee discussed many HCPCS codes during the March 2007 APC Panel meeting, prior to development of the packaging approach discussed above, and we have summarized and responded to the APC Panel's packaging-related recommendations below. Three of the codes reviewed by the Packaging Subcommittee at the March 2007 APC Panel meeting are included in the seven categories of services identified for packaging under the CY 2008 OPPS. For those three codes, we specifically applied the proposed CY 2008 criteria for determining whether a code should be proposed as packaged or separately payable for CY 2008. Specifically, we determined whether the service is a dependent service falling into one of the seven specified categories that is always or almost always provided integral to an independent service. For those four codes that were reviewed during the March 2007 APC Panel meeting but that do not fit into any of the seven categories of codes that are part of our CY 2008 proposed packaging approach, we applied the packaging criteria described above that were historically used under the OPPS. Moreover, we took into consideration our interest in exploring the possibility of expanding the size of payment groups for component services to provide encounter-based and episode-of-care-based payment in the future in order to encourage hospital efficiency and provide hospitals with maximal flexibility to manage their resources.

In accordance with a recommendation of the APC Panel, for the CY 2007 OPPS, we implemented a new policy that designates certain codes as ``special'' packaged codes, assigned to status indicator ``Q'' under the OPPS, where separate payment is provided if the code is reported without any other services that are separately payable under the OPPS on the same date of service. Otherwise, payment for the ``special'' packaged code is packaged into payment for the separately payable services provided by the hospital on the same date. We note that these ``special'' packaged codes are a subset of those HCPCS codes that are assigned to status indicator ``Q,'' which means that their payment is conditionally packaged under the OPPS. We proposed to update our criteria to determine packaged versus separate payment for ``special'' packaged HCPCS codes assigned to status indicator ``Q'' for CY 2008. For CY 2008, payment for ``special'' packaged codes would be packaged when these HCPCS codes are billed on the same date of service as a code assigned to status indicator ``S,'' ``T,'' ``V,'' or ``X.'' When one of the ``special'' packaged codes assigned to status indicator ``Q'' is billed on a date of service without a code that is assigned to any of the four status indicators noted above, the ``special'' packaged code assigned to status indicator ``Q'' would be separately payable.

The Packaging Subcommittee identified areas for change for some currently packaged CPT codes that it believed could frequently be provided to patients as the sole service on a given date and that required significant hospital resources as determined from hospital claims data. Based on the comments received, additional issues, and new data that we shared with the Packaging Subcommittee concerning the packaging status of codes for CY 2008, the Packaging Subcommittee reviewed the packaging status of numerous HCPCS codes and reported its findings to the APC Panel at its March 2007 meeting. The APC Panel accepted the report of the Packaging Subcommittee, heard several presentations on certain packaged services, discussed the deliberations of the Packaging Subcommittee, and recommended that--

1. CMS place CPT code 76937 (Ultrasound guidance for vascular access requiring ultrasound evaluation of potential access sites, documentation of selected vessel patency, concurrent real-time ultrasound visualization of vascular needle entry, with permanent

[[Page 66665]]

recording and reporting (list separately in addition to code for primary procedure)) on the list of ``special'' packaged codes (status indicator ``Q''). (Recommendation 1)

2. CMS evaluate providing separate payment for trauma activation when it is reported on a claim for an ED visit, regardless of the level of the emergency department visit. (Recommendation 2)

3. CMS place CPT code 0175T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed remote from primary interpretation) on the list of ``special'' packaged codes (status indicator ``Q''). (Recommendation 3)

4. CMS place CPT code 0126T (Common carotid intima-media thickness (IMT) study for evaluation of atherosclerotic burden or coronary heart disease risk factor assessment) on the list of ``special'' packaged codes (status indicator ``Q'') and that CMS consider mapping the code to APC 340 (Minor Ancillary Procedures). (Recommendation 4)

5. CMS place CPT code 0069T (Acoustic heart sound recording and computer analysis only) on the list of ``special'' packaged codes (status indicator ``Q'') and that CMS exclude APC 0096 (Non-Invasive Vascular Studies) as a potential placement for this CPT code. (Recommendation 5)

6. CMS maintain the packaged status of HCPCS code A4306 (Disposable drug delivery system, flow rate of less than 50 ml per hour) and that CMS present additional data on this system to the APC Panel when available. (Recommendation 6)

7. CMS reevaluate the packaged OPPS payment for CPT code 99186 (Hypothermia; total body) based on current research and availability of new therapeutic modalities. (Recommendation 7)

8. The Packaging Subcommittee remains active until the next APC Panel meeting. (Recommendation 8)

In addition, the Packaging Subcommittee reported its findings to the APC Panel at its September 2007 meeting. The APC Panel accepted the report of the Packaging Subcommittee, heard presentations on certain packaged services, discussed the deliberations of the Packaging Subcommittee, and recommended that--

9. CMS provide more data at the next APC Panel meeting on HCPCS code A4306 (Disposable drug delivery system, flow rate of less than 50 mL per hour). (Recommendation 9)

10. The Packaging Subcommittee remains active until the next APC Panel meeting. (Recommendation 10)

We address each of these recommendations in turn in the discussion that follows. Recommendation 1

For CY 2008, we proposed to maintain CPT code 76937 as a packaged service. We are not adopting the APC Panel's recommendation to pay separately for this code in some circumstances as a ``special'' packaged code. In the CY 2006 OPPS final rule with comment period (70 FR 68544 through 68545), in response to several public comments, we reviewed in detail the claims data related to CPT code 76937. During its March 2006 APC Panel meeting, after reviewing data pertinent to CPT code 76937, the APC Panel recommended that CMS maintain the packaged status of this code for CY 2007, and we accepted that recommendation. During the March 2007 APC Panel meeting, after reviewing current data and listening to a public presentation, the Panel recommended that we treat this code as a ``special'' packaged code for CY 2008, noting that certain uncommon clinical scenarios could occur where it would be possible to bill this service alone on a claim, without any other separately payable OPPS services.

We proposed to maintain CPT code 76937 as an unconditionally packaged service for CY 2008, fully consistent with the proposed packaging approach for the CY 2008 OPPS, as discussed above. Because CPT code 76937 is a guidance procedure and we proposed to package payment for all guidance procedures for CY 2008, we believe it is still appropriate to maintain the unconditionally packaged status of this code, which is a CPT designated add-on procedure that we expected to be generally provided only in association with other independent services. We applied the updated criteria for determining whether this service should receive packaged or separately payment under the CY 2008 OPPS. Specifically, we determined that this service was a supportive ancillary service that was integral to an independent service, resulting in our CY 2008 proposal to packaged payment for the service.

We discussed this code extensively in both the CY 2006 and CY 2007 final rules with comment period (70 FR 68544 through 68545; 71 FR 67996 through 67997). Our hospital claims data demonstrated that guidance services were used frequently for the insertion of vascular access devices, and we had no evidence that patients lacked appropriate access to guidance services necessary for the safe insertion of vascular access devices in the hospital outpatient setting. Because we believe that ultrasound guidance would almost always be provided with one or more separately payable independent procedures, its costs would be appropriately bundled with the handful of vascular access device insertion procedures with which it was most commonly performed. We further believe that hospital staff chose whether to use no guidance or fluoroscopic guidance or ultrasound guidance on an individual basis, depending on the clinical circumstances of the vascular access device insertion procedure.

Therefore, we do not believe that CPT code 76937 is an appropriate candidate for designation as a ``special'' packaged code. The CY 2007 CPT book indicates that this code is an add-on code and should be reported in addition to the code reported for the primary procedure. According to our CY 2006 claims data available for the proposed rule, this code was billed over 60,000 times, yet less than one-tenth of 1 percent of all claims for the procedure were billed without any separately payable OPPS service on the claim. Because this code is provided alone only extremely rarely, we believe this code would not be appropriately treated as a ``special'' packaged code. Therefore, we proposed to continue to unconditionally package CPT code 76937 for CY 2008.

We received several comments that referenced CPT code 76937 in discussions related to the packaged status of guidance services in general. Those comments are summarized and responded to in section II.4.c.1 of this final rule with comment period. As noted in that section, we are finalizing our proposal, without modification, to unconditionally package CPT code 76937 for CY 2008. Recommendation 2

For CY 2008, we proposed to maintain the packaged status of revenue code 068x, trauma response, when the trauma response is provided without critical care services. During the August 2006 APC Panel meeting, the APC Panel encouraged CMS to pay differentially for critical care services provided with and without trauma activation. For CY 2007, as a result of the APC Panel's August 2006 discussion and our own data analysis, we finalized a policy to pay differentially for critical care provided with and without trauma activation. The CY 2007 payment rate

[[Page 66666]]

for critical care unassociated with trauma activation is $405.04 (APC 0617, Critical Care), while the payment rate for critical care associated with trauma activation is $899.58 (APC 0617 and APC 0618 (Trauma Response with Critical Care)). During the March 2007 APC Panel meeting, a presenter requested that CMS also pay differentially for emergency department visits provided with and without trauma activation. Two organizations that submitted comment letters for the APC Panel's review specifically requested separate payment for revenue code 068x every time it appears on a claim, regardless of the other services that were billed on that claim. The APC Panel recommended that CMS evaluate providing separate payment for trauma activation when it is reported on a claim for an emergency department visit, regardless of the level of the emergency department visit.

After accepting the APC Panel's recommendation and evaluating this issue, we continue to believe that, while it is currently appropriate to pay separately for trauma activation when billed in association with critical care services, it is also currently appropriate to maintain the packaged payment status of revenue code 068x when trauma response services are provided in association with both clinic and emergency department visits under the CY 2008 OPPS. As mentioned above, we are exploring the possibility of expanding the size of the payment groups under the OPPS to move toward encounter-based and episode-of-care-based payments in order to encourage maximum hospital efficiency with a focus on budget-neutral value-based purchasing. Because trauma activation in association with emergency department or clinic visits would always be provided in the same hospital outpatient encounter as the visit for care of the injured Medicare beneficiary, packaging payment for trauma activation when billed in association with both clinic and emergency department visits is most consistent with our proposed packaging approach. We are also concerned that unpackaging payment for trauma activation in those circumstances where the trauma response would be less likely to be essential to appropriately treating a Medicare beneficiary would reduce the incentive for hospitals to provide the most efficient and cost-effective care. We note that, while we proposed for CY 2008 to continue to provide separate payment for trauma activation in association with critical care services, we may reconsider this payment policy for future OPPS updates as we explore the possibility of developing encounter based and episode-of-care-based payment approaches.

Furthermore, continued packaged payment for trauma activation when unassociated with critical care is consistent with the principles of the OPPS, where hospitals receive payment based on the median cost related to all of the hospital resources associated with the main service provided. In various situations, each hospital's costs may be higher or lower than the median cost used to set payment rates. In light of our packaging approach for the CY 2008 OPPS, we believe it is particularly important not to make any changes in our payment policies for other services that are not fully aligned with promoting efficient, judicious, and deliberate care decisions by hospitals that allow them maximum flexibility to manage their resources through encouraging the most cost-effective use of hospital resources in providing the care necessary for the treatment of Medicare beneficiaries. Packaging payment encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources.

Therefore, we are adopting the APC Panel's recommendation that we evaluate providing separate payment for revenue code 068x when provided in association with emergency department visits. For CY 2008, after our thorough assessment, we proposed to maintain the packaged status of revenue code 068x, except when revenue code 068x is billed in association with critical care services.

We did not receive any comments on this proposal. Therefore, we are finalizing our proposal, without modification, to maintain the packaged status of revenue code 068x, trauma response, when the trauma response is provided without critical care services.

We note that we do not anticipate that the new composite Extended Assessment and Management APCs, 8002 and 8003, will affect this policy in any way. Recommendation 3

For CY 2008, we proposed to maintain the unconditionally packaged status of CPT codes 0174T (Computer aided detection (CAD) (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation and report, with or without digitization of film radiographic images, chest radiograph(s), performed concurrent with primary interpretation) and 0175T. These services involve the application of computer algorithms and classification technologies to chest x-ray images to acquire and display information regarding chest x-ray regions that may contain indications of cancer. CPT code 0152T (Computer aided detection (computer algorithm analysis of digital image data for lesion detection) with further physician review for interpretation, with or without digitization of film radiographic images; chest radiograph(s) (List separately in addition to code for primary procedure)), the predecessor code to CPT codes 0174T and 0175T, was indicated as an add- on code to chest x-ray CPT codes for CY 2006, according to the AMA's CY 2006 CPT book. However, on July 1, 2006, the AMA released to the public an update that deleted CPT codes 0152T and replaced it with the two new Category III CPT codes 0174T and 0175T.

In its March 2006 presentation to the APC Panel, before the AMA had released the CY 2007 changes to CPT code 0152T, a presenter requested that we pay separately for this service and assign it to a New Technology APC with a payment rate of $15, based on its estimated cost, clinical considerations, and similarity to other image post-processing services that are paid separately. We proposed to accept the APC Panel's recommendation to package CPT code 0152T for CY 2007.

In its August 2006 presentation to the APC Panel, after the AMA had released the CY 2007 code changes, the same presenter requested that we assign both of the two new codes to a New Technology APC with a payment rate of $15. The APC Panel members discussed these codes extensively. They considered the possibility of treating CPT code 0175T as a ``special'' packaged code, thereby assigning payment to the code only when it was performed by a hospital without any other separately payable OPPS service also provided on the same day. They questioned the meaning of the word ``remote'' in the code descriptor for CPT code 0175T, noting that was unclear as to whether remote referred to time, geography, or a specific provider. They believed it was likely that a hospital without a CAD system that performed a chest x-ray and sent the x-ray to another hospital for performance of the CAD would be providing the CAD service under arrangement and, therefore, would be providing at least one other service (chest x-ray) that would be separately paid. Thus, even in these cases, payment for the CAD service

[[Page 66667]]

could be appropriately packaged. After significant and lengthy deliberation, the APC Panel recommended that we package payment for both of the new CPT codes, 0174T and 0175T, for CY 2007.

In its March 2007 presentation to the APC Panel, the same presenter requested that we pay separately for CPT codes 0174T and 0175T, mapping them to New Technology APC 1492, with a payment rate of $15. The presenter indicated that chest x-ray CAD is not a screening tool and should only be billed to Medicare when applied to chest x-rays suspicious for lung cancer. The presenter also explained that additional and distinct hospital resources are required for chest x-ray CAD that are not required for a standard chest x-ray. In addition, remote chest x-ray CAD described by CPT code 0175T can be performed at a different time or location or by a different provider than the chest x-ray service. The presenter expressed concern that if hospitals were not paid separately for this technology, hospitals would not be able to provide it, thereby limiting beneficiary access to chest x-ray CAD. The APC Panel recommended conditional packaging as a ``special'' packaged code for CPT code 0175T, but did not recommend a change to the unconditionally packaged status of CPT code 0174T. We are not adopting the APC Panel's recommendation for designation of CPT code 0175T as a ``special'' packaged code under the CY 2008 OPPS.

We believed and continue to believe that packaged payment for diagnostic chest x-ray CAD under a prospective payment methodology for outpatient hospital services is most appropriate. We proposed to maintain CPT codes 0174T and 0175T as unconditionally packaged services for CY 2008, fully consistent with the packaging approach for the CY 2008 OPPS, as discussed above. Because CPT codes 0174T and 0175T are supportive ancillary services that fit into the ``image processing'' category, and we proposed to package payment for all image processing services for CY 2008, we believe it is appropriate to maintain the packaged status of these code. We applied the updated criteria for determining whether these two CAD services should receive packaged or separate payment. Specifically, we determined that this service is a dependent service that is integral to an independent service, in this case, the chest x-ray or other OPPS service that we would expect to be provided in addition to the CAD service.

After hearing many public presentations and discussions regarding the use of chest x-ray CAD, we continue to believe that even the remote service would almost always be provided by a hospital either in conjunction with other separately payable services or under arrangement. For example, if a physician orders a chest x-ray and CAD service to be performed at hospital A and hospital A, which does not have the CAD technology, sends the chest x-ray to hospital B for the performance of chest x-ray CAD, hospital B could only provide the CAD service if it were provided under arrangement, to avoid the OPPS unbundling prohibition. Assuming that the CAD service was provided under arrangement, hospital A would bill for the chest x-ray CAD that was performed by hospital B and would pay hospital B for the service provided. In that case, hospital A would also bill the chest x-ray service that it provided. In another scenario that has been described to us, if a physician were to send a patient to a hospital clinic with the patient's chest x-ray for consultation, we believe that the patient would likely receive a visit service, in addition to the chest x-ray CAD. Therefore, in both of these circumstances, payment for the chest x-ray CAD would be appropriately packaged into payment for the separately payable services with which it was provided.

We also do not believe that CPT code 0175T should be treated as a ``special'' packaged code. As discussed earlier in this section with regard to our packaging approach for image processing services for CY 2008, we are concerned with establishing payment policies that could encourage certain inefficient and more costly service patterns, particularly for those services that do not need to be provided as a face-to-face encounter with the patient. If we were to assign CPT code 0175T to ``special'' packaged status, we would likely create an incentive for hospitals to perform chest x-ray CAD remotely, for example, several days after performance of the initial chest x-ray, rather than immediately following the chest x-ray on the same day, to enable the hospital to receive separate payment for the service. In CY 2005, there were approximately 7.3 million claims for all chest x-ray services in the HOPD, so a payment policy that could induce such changes in service delivery would be problematic in light of our commitment to encouraging the most efficient and cost-effective care for Medicare beneficiaries. Creating such perverse payment incentives through conditional packaging is a particular problem for those services that do not need a face-to-face encounter with the patient. In fact, as part of our proposed CY 2008 packaging approach, we also proposed to unconditionally package payment in CY 2008 for several other image processing services that are not always performed face-to- face, including HCPCS code G0288 (Reconstruction, computer tomographic angiography of aorta for surgical planning for vascular surgery) and CPT code 76377 (3D rendering with interpretation and reporting of computed tomography, magnetic resource imaging, ultrasound, or other tomographic modality; requiring image postprocessing on an independent workstation). As noted in section II.A.4.c.(2) of this final rule with comment period, we are finalizing our proposal for those codes and they will be unconditionally packaged for CY 2008.

The proposed unconditionally packaged treatment of the two CPT codes for chest x-ray CAD is fully consistent with the packaging approach for the CY 2008 OPPS, as discussed above, and the principles and incentives for efficiency inherent in a prospective payment system based on groups of services. Packaging these services creates incentives for providers to furnish services in the most cost-effective way and provides them with the most flexibility to manage their resources. As stated above, packaging encourages hospitals to establish protocols that ensure that services are furnished only when they are medically necessary and to carefully scrutinize the services ordered by practitioners to minimize unnecessary use of hospital resources. Therefore, we proposed to continue to unconditionally package payment for CPT codes 0174T and 0175T for CY 2008.

Comment: One commenter requested that CPT codes 0174T and 0175T, which were provided interim assignments in CY 2007 be assigned to status indicator ``S'' and be paid separately with a payment rate of $15. That commenter then requested conditional payment for both of these CPT codes, status indicator ``Q'' assignment, and a payment rate of $15. The commenter indicated that this technology is an important diagnostic test for lung cancer patients, and that insufficient payment will limit access to this cost-effective diagnostic tool.

Response: As discussed extensively above, after thorough discussion with the APC Panel and repeated review by our clinical advisors, we continue to believe that these codes are appropriately unconditionally packaged.

For CY 2008, we are finalizing our proposal without modification to unconditionally package CPT codes

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0174T and 0175T for CY 2008. We note that these codes fall into the category of the image processing codes that are packaged for the CY 2008 OPPS. Recommendation 4

For CY 2008, we adopted the APC Panel's recommendation and proposed to add CPT code 0126T to the list of ``special'' packaged codes and assign this code to APC 0340 (Minor Ancillary Procedures).

This service describes an ultrasound procedure that measures common carotid intima-media thickness to evaluate a patient's degree of atherosclerosis. This code became effective January 1, 2006. We received a comment to the CY 2007 proposed rule requesting that this code become separately payable for CY 2007. At that point, we had no cost data for the service and, as discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 67998), we reviewed this code with the Packaging Subcommittee, as is our standard procedure for codes that we are asked to review during the comment period. The APC Panel noted that this service could sometimes be provided to a patient without any other separately payable services. Therefore, the APC Panel recommended that we add this code to the list of ``special'' packaged codes and pay for it separately when it is provided without any other separately payable services on the same day. For circumstances when this code is paid separately, the APC Panel recommended that we consider assigning this code to APC 0340.

While we continue to believe that this procedure would not commonly be provided alone, we adopted the APC Panel recommendation and proposed to treat this code as a ``special'' packaged code subject to conditional packaging, mapping to APC 0340 for CY 2008 when it would be separately paid. This is fully consistent with the packaging approach for the CY 2008 OPPS, as discussed above. Because CPT code 0126T is almost always performed during another procedure, and we proposed to package payment for all intraoperative procedures for CY 2008, we believe it is appropriate to designate this CPT code as a ``special'' packaged code. We applied the updated criteria for determining whether this service should receive packaged or separate payment. Specifically, we determined that this service is usually a dependent service that is integral to an independent service, but that it could sometimes be provided without an independent service.

As with all ``special'' packaged codes, we will closely monitor cost data and frequency of separate payment for this procedure as soon as we have more claims data available.

We did not receive any comments related to this proposal. Therefore, we are finalizing our proposal without modification to designate CPT code 0126T as a ``special'' packaged code for CY 2008. This code is an ``STVX-packaged'' code. Recommendation 5

For CY 2008, we proposed to maintain the packaged status of CPT code 0069T, and we are not adopting the APC Panel's recommendation to designate this service as a ``special'' packaged code. This service uses signal processing technology to detect, interpret, and document acoustical activities of the heart through special sensors applied to a patient's chest. This code was a new Category III CPT code implemented in the CY 2005 OPPS. CPT code 0069T was an add-on code to an electrocardiography (EKG) service for CYs 2005 and 2006. However, effective January 1, 2007, the AMA changed the code descriptor to remove the add-on code designation for CPT code 0069T. This code has been packaged under the OPPS since CY 2005.

During the August 2005 APC Panel meeting, the APC Panel recommended packaging CPT code 0069T for CY 2005. In its March 2006 presentation to the APC Panel, a presenter requested that we pay separately for CPT code 0069T and assign it to APC 0099 (Electrocardiograms) based on its estimated cost and clinical characteristics. The presenter stated that the acoustic heart sound recording and analysis service may be provided with or without a separately reportable electrocardiogram. Members of the APC Panel engaged in extensive discussion of clinical scenarios as they considered whether CPT code 0069T could or could not be appropriately reported alone or in conjunction with several different procedure codes. Ultimately, the APC Panel recommended assigning this service to a separately payable status indicator. However, during the August 2006 meeting, the APC Panel further discussed CMS' proposal to package payment for CPT code 0069T for CY 2007 and considered the CY 2007 code descriptor change, finally recommending that CMS continue to package this code for CY 2007.

During the March 2007 APC Panel meeting, the same presenter requested that we pay separately for this service and assign it to APC 0096 (Non-Invasive Vascular Studies) or to APC 0097 (Cardiac and Ambulatory Blood Pressure Monitoring), with CY 2007 payment rates of $94.06 and $62.85, respectively. The presenter stated that the estimated true cost of this service lies between $62 and $94. The presenter clarified that this service is usually provided with an EKG, but noted that the test is sometimes provided without an EKG, according to its revised code descriptor for CY 2007. The presenter agreed that it would be rare for the acoustic heart sound procedure to be performed alone without any other separately payable OPPS services. The APC Panel recommended that we place CPT code on the list of ``special'' packaged codes and that we exclude APC 0096 as a potential placement for this CPT code.

Because this service does not fit into one of the seven identified categories of packaged codes proposed for the CY 2008 OPPS, we followed our historical packaging guidelines to determine whether to maintain the packaged status of this code or to pay for it separately. Based on the clinical uses that were described during the March 2007 and earlier APC Panel meetings, APC Panel discussions, and our claims data review, we continue to believe that it is highly unlikely that CPT code 0069T would be performed in the HOPD as a sole service without other separately payable OPPS services. In addition, our data indicate that this service is estimated to require only minimal hospital resources. Based on CY 2006 claims, we had only 8 single claims for CPT code 0069T, with a median line-item cost of approximately $5, consistent with its low expected cost. Therefore, we believe that payment for CPT code 0069T is appropriately packaged because it would usually be closely linked to the performance of an EKG or other separately payable cardiac service, would rarely, if ever, be the only OPPS service provided to a patient in an encounter, and has a low estimated resource cost. The proposed packaged treatment of this code is consistent with the principles and incentives for efficiency inherent in a prospective payment system based on groups of services. Therefore, we proposed to continue to package payment for CPT code 0069T for CY 2008.

We did not receive any comments related to this proposal. Therefore, we are finalizing our proposal, without modification, to continue to package payment for CPT code 0069T for CY 2008. Recommendation 6

For CY 2008, we proposed to adopt the APC Panel's recommendation and maintain the packaged status of HCPCS code A4306. We note that at its

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September 2007 APC Panel meeting, the Panel recommended specifically that CMS provide more data at the next meeting on this code.

HCPCS code A4306 describes a disposable drug delivery system with a flow rate of less than 50 ml per hour. As discussed during the March 2007 APC Panel meeting, there is a particular disposable drug delivery system that is specifically used to treat postoperative pain. Since the implementation of the OPPS, this code was assigned to status indicator ``A,'' indicating that it was payable according to another fee schedule, in this case, the Durable Medical Equipment (DME) fee schedule. There were discussions during CYs 2005 and 2006 between CMS and a manufacturer, and it was determined that this code should be removed from the DME fee schedule as this code does not describe DME. For CY 2007, HCPCS code A4306 is payable under the OPPS, with status indicator ``N'' indicating that its payment is unconditionally packaged.

One presenter to the APC Panel requested that we pay separately for this supply under the OPPS. For CY 2007, we packaged payment for this code because it is considered to be a supply, and since the inception of the OPPS the established payment policy packages payment for supplies because they are directly related and integral to an independent service furnished under the OPPS.

Our CY 2006 claims data indicate that HCPCS code A4306 was billed on OPPS claims 1,773 times, yielding a line-item median cost of approximately $3. The APC Panel and a presenter believe that this code may not always be appropriately billed by hospitals as the data also show that this code was billed together with computed tomography (CT) scans of the thorax, abdomen, and pelvis approximately 40 percent of the time that this supply was reported. The APC Panel speculated that this code may be currently reported when other types of drug delivery devices are utilized for nonsurgical procedures or for purposes other than the treatment of postoperative pain. Therefore, the APC Panel requested that we share additional data when available.

In summary, because HCPCS code A4306 represents a supply and payment of supplies is packaged under the OPPS according to longstanding policy, we proposed to maintain the packaged status of HCPCS code A4306 for CY 2008.

Comment: A commenter supported CMS' proposal to maintain the packaged status of HCPCS code A4306 for CY 2008. The commenter suspected that this code is misreported by hospitals and estimated that the true cost of the supply is between $20 and $60. The commenter requested that CMS provide instructions to hospitals on the appropriate revenue center for this supply and contact the AHA coding clinic regarding the need for better HCPCS code instructions for this supply.

Response: In general, we give hospitals the flexibility to report charges under whichever revenue code the hospital believes is most appropriate. In addition, it is not our usual practice to refer codes to the AHA coding clinic for review. Instead, we encourage the commenter to submit any questions or requests for clarification to the AHA coding clinic, if appropriate.

We are finalizing without modification our proposal to continue to package payment for HCPCS code A4306 for CY 2008. In addition, with respect to APC Panel Recommendation 9, we will provide the APC Panel with more cost data related to this code at its next meeting. Recommendation 7

For CY 2008, we proposed to maintain the packaged status of CPT code 99186, consistent with the APC Panel's recommendation that we reevaluate the packaged OPPS payment for CPT code 99186 based on current research and the availability of new therapeutic modalities. This service describes induced total body hypothermia that is performed on some post-cardiac arrest patients to avoid or lessen brain damage. The service has been packaged since the implementation of the OPPS. One presenter to the APC Panel at the March 2007 meeting requested that this code be assigned a separately payable status indicator under the OPPS. The presenter expressed concern that hospitals that provide this service and subsequently transfer the patient to another hospital prior to admission are not adequately paid for their services.

Because this service does not fit into one of the seven identified categories of packaged codes proposed for the CY 2008 OPPS, we followed our historical packaging guidelines to determine whether to maintain the packaged status of this code or to pay for it separately. Claims data indicate that this code was billed 39 times under the OPPS in CY 2006 and was never billed without another separately payable service on the same date. The proposed CY 2008 median cost for this code was approximately $35, with individual costs ranging from approximately $17 to $69, likely reflecting the costs associated with traditional methods of inducing total body hypothermia, such as ice packs applied to the body. In fact, the presenter noted that a technologically advanced total body hypothermia system costs $30,000, with an additional cost of $1,600 per disposable body suit. As expected, our claims data showed that this service was provided most frequently with high level emergency department visits and critical care services.

As we noted in the CY 2008 proposed rule, we believed that the circumstances in which total body hypothermia would be provided to a Medicare beneficiary and billed under the OPPS were extremely rare, as patients requiring this therapy would almost always be admitted as inpatients if they survive. Moreover, in the uncommon situation where a patient presents to one hospital and then is cooled and transported to another hospital without admission to the first hospital, payment for the hypothermia service would be most appropriately packaged into payment for the many other separately payable services that it most likely accompanied and that would be paid to the first hospital under the OPPS.

In addition, consistent with the principles and incentives for efficiency inherent in a prospective payment system based on groups of services, packaging payment for this procedure that is highly integrated with other services provided in the hospital outpatient encounter creates incentives for providers to furnish services in the most cost-effective way. In situations where there are a variety of supplies that could be used to furnish a service, some of which are more expensive than others, packaging encourages hospitals to use the most cost-effective item that meets the patient's needs.

This code was discussed by the APC Panel members during the September 2007 APC Panel meeting, but they made no official recommendation.

We did not receive any comments related to our proposal. Therefore, we are finalizing our proposal to maintain the packaged status of CPT code 99186 for CY 2008. Recommendation 8

We note that the Packaging Subcommittee remains active. See Recommendation 10 below. Recommendation 9

As noted in Recommendation 6, in accordance with the APC Panel's recommendation, we will provide more cost data related to HCPCS code A4306 (Disposable drug delivery system, flow

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rate of less than 50 mL per hour) for the APC Panel's review at its next meeting. Recommendation 10

In response to the APC Panel's recommendation for the Packaging Subcommittee to remain active until the next APC Panel meeting, we note that the APC Panel Packaging Subcommittee remains active, and additional issues and new data concerning the packaging status of codes will be shared for its consideration as information becomes available. We continue to encourage submission of common clinical scenarios involving currently packaged HCPCS codes to the Packaging Subcommittee for its ongoing review, and we also encourage recommendations of specific services or procedures whose payment would be most appropriately packaged under the OPPS. Additional detailed suggestions for the Packaging Subcommittee should be submitted to APCPanel@cms.hhs.gov, with ``Packaging Subcommittee'' in the subject

line.

B. Payment for Partial Hospitalization

1. Background

Partial hospitalization is an intensive outpatient program of psychiatric services provided to patients as an alternative to inpatient psychiatric care for beneficiaries who have an acute mental illness. A partial hospitalization program (PHP) may be provided by a hospital to its outpatients or by a Medicare-certified community mental health center (CMHC). Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. The Medicare regulations at Sec. 419.21 that implement this provision specify that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs as well as those furnished to hospital outpatients. Section 1833(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. Payment to providers under the OPPS for PHPs represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC, effective for services furnished on or after August 1, 2000. For a detailed discussion, which includes a discussion of the decision to base relative payment rates on median cost, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18482).

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

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

In the CY 2005 OPPS update, the CMHC median per diem cost was $310, the hospital-based PHP median per diem cost was $215, and the combined CMHC and hospital-based median per diem cost was $289. We believed that the reduction in the CY 2005 CMHC median per diem cost compared to prior years indicated that the use of updated CCRs had accounted for the previous increase in CMHC charges and represented a more accurate estimate of CMHC per diem costs for PHP.

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

Following the methodology used for the CY 2005 OPPS update, the CY 2006 OPPS updated combined hospital-based and CMHC median per diem cost was $161, a decrease of 44 percent compared to the CY 2005 combined median per diem amount.

Due to concern that this amount may not cover the cost for PHPs, as stated in the CY 2006 OPPS final rule with comment period (70 FR 68548 and 68549), we applied a 15-percent reduction to the combined hospital- based and CMHC median per diem cost to establish the CY 2006 PHP APC. (We refer readers to the CY 2006 OPPS final rule with comment period for a full discussion of how we established the CY 2006 PHP rate (70 FR 68548).) We stated our belief that a reduction in the CY 2005 median per diem cost would strike an appropriate balance between using the best available data and providing adequate payment for a program that often spans 5-6 hours a day. We stated that 15 percent was an appropriate reduction because it recognized decreases in median per diem costs in both the hospital data and the CMHC data, and also reduced the risk of any adverse impact on access to these services that might result from a large single-year rate reduction. However, we adopted this policy as a transitional measure, and stated in the CY 2006 OPPS final rule with comment period that we would continue to monitor CMHC costs and charges for these services and work with CMHCs to improve their reporting so that payments could be calculated based on better empirical data (70 FR 68548). To apply this methodology for CY 2006, we reduced the CY 2005 combined unscaled hospital-based and CMHC median per diem cost of $289 by 15 percent, resulting in a combined median per diem cost of $245.65 for CY 2006.

For the CY 2007 final rule with comment period, we analyzed 12 months of more current data for hospital and CMHC PHP claims for services furnished between January 1, 2005, and December 31, 2005, and used the most currently available CCRs to estimate costs. Using these updated data, we recreated the analysis performed for the CY 2007 proposed rule to determine if the significant factors we used in determining the proposed PHP rate had changed. The median per diem cost for CMHCs increased $8 to $173, while the

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median per diem cost for hospital-based PHPs decreased $19 to $190. The CY 2005 average charge per day for CMHCs was $675, similar to the figure noted in the CY 2007 proposed rule ($673) but still significantly lower than what was noted as the average charge for CY 2003 ($1,184).

The combined hospital-based and CMHC median per diem cost would have been $175 for CY 2007. Rather than allowing the PHP median per diem cost to drop to this level, we proposed to reduce the PHP median cost by 15 percent, similar to the methodology used for the CY 2006 update. However, after considering all public comments received concerning the proposed CY 2007 PHP per diem rate and results obtained using the more current data, we modified our proposal. We made a 5- percent reduction to the CY 2006 median per diem rate to provide a transitional path to the per diem cost indicated by the data. This approach accounted for the downward direction of the data and addressed concerns raised by commenters about the magnitude of another 15-percent reduction in 1 year. Thus, to calculate the CY 2007 APC PHP per diem cost, we reduced $245.65 (the CY 2005 combined hospital-based and CMHC median per diem cost of $289 reduced by 15 percent) by 5 percent, which resulted in a combined per diem cost of $233.37. 2. PHP APC Update for CY 2008

As noted in the CY 2008 OPPS/ASC proposed rule (72 FR 42691), for the past 2 years, we were concerned that we did not have sufficient evidence to support using the median per diem cost produced by the most current year's PHP data. After extensive analysis, we now believe the data reflects the level of cost for the type of services that are being provided. This analysis included an examination of revenue-to-cost center mapping, refinements to the per diem methodology, and an in- depth analysis of the number of units of service per day.

As stated in the CY 2008 proposed rule (72 FR 42691), the CY 2006 and CY 2007 OPPS updates data have produced median costs that we believed were too low to cover the cost of a program that typically spans 5 to 6 hours per day. However, we continued to observe a clear downward trend in the data. We stated that if the data continued to reflect a low PHP per diem cost in CY 2008, we expected to continue the transition of decreasing the PHP median per diem cost to an amount that is more reflective of the data.

We received a comment on the CY 2007 proposed rates that CMS understated the PHP median cost by not using a hospital-specific CCR for partial hospitalization. In our response to this comment in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68000), we noted that, although most hospitals do not have a cost center for partial hospitalization, we used the CCR as specific to PHP as possible. The following CMS Web site contains the revenue-code-to-cost-center crosswalk: http://www.cms.hhs.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage .

As noted in the proposed rule (72 FR 42691), this crosswalk indicates how charges on a claim are mapped to a cost center for the purpose of converting charges to cost. One or more cost centers are listed for most revenue codes that are used in the OPPS median calculations, starting with the most specific, and ending with the most general. Typically, we map the revenue code to the most specific cost center with a provider-specific CCR. However, if the hospital does not have a CCR for any of the listed cost centers, we consider the overall hospital CCR as the default. For partial hospitalization, the revenue center codes billed by PHPs are mapped to Primary Cost Center 3550 ``Psychiatric/Psychological Services''. If that cost center is not available, they are mapped to the Secondary Cost Center 6000 ``Clinic.'' We use the overall facility CCR for CMHCs because PHPs are CMHCs' only Medicare cost, and CMHCs do not have the same cost structure as hospitals. Therefore, for CMHCs, we use the CCR from the outpatient provider-specific file.

As indicated in the proposed rule (72 FR 42691), closer examination of the revenue-code-to-cost-center crosswalk revealed that 10 of the revenue center codes (shown in the table below) that are common among hospital-based PHP claims did not map to a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center of 6000 ``Clinic.''

Revenue center code

Revenue center description

0430............................. Occupational Therapy. 0431............................. Occupational Therapy: Visit charge. 0432............................. Occupational Therapy: Hourly charge. 0433............................. Occupational Therapy: Group rate. 0434............................. Occupational Therapy: Evaluation/re- evaluation. 0439............................. Occupational Therapy: Other occupational therapy. 0904............................. Psychiatric/Psychological Treatment: Activity therapy. 0940............................. Other Therapeutic Services. 0941............................. Other Therapeutic Services: Recreation Rx. 0942............................. Other Therapeutic Services: Education/ training.

We believed these 10 revenue center codes did not map to either a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center 6000 ``Clinic'' because these codes may be used for services that are not PHP or psychiatric related. For example, the majority of Occupational Therapy services are not furnished to PHP patients and, therefore, these services should be appropriately mapped to a Primary Cost Center 5100 ``Occupation Therapy'' (the general Occupational Therapy Cost Center). Another example would be claims for Diabetes Education, which is also not furnished to PHP patients.

For this final rule with comment period, we have updated this analysis using updated claims and CCR data for PHP claims. Again, we remapped the 10 revenue center codes described earlier in this section to a Primary Cost Center 3550 ``Psychiatric/Psychological Services'' or a Secondary Cost Center 6000 ``Clinic''. Once we remapped the codes, we computed an alternate cost for each line item of the CY 2006 hospital- based PHP claims. There are a total of 723,749 line items in the CY 2006 hospital-based PHP claims. Prior to remapping, there were 320,504 line items where a default CCR was used to estimate costs. After the remapping, there were 160,351 line items left defaulting to the hospitals' overall CCR. While this remapping creates a more accurate estimate of PHP per diem costs for a significant number of claims, again there was not a large change in the resulting median per diem cost. The median per diem costs for hospital-based PHPs increased by $5 (from $172 to $177). We note that, unlike the proposed rule, this final rule analysis was done using the revised methodology for computing per diem costs described below. We received no public comments in opposition to the proposed change in remapping revenue codes to alternate cost centers. Therefore, we are adopting this proposed change beginning in CY 2008.

As part of our effort to produce the most accurate per diem cost estimate, we have reexamined our methodology for computing the PHP per diem cost. Section 1833(t)(2)(C) of the Act requires that we establish relative payment weights based on median (or mean, at

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the election of the Secretary) hospital costs determined by 1996 claims data and data from the most recent available cost reports. As explained in section II.B.1. of this final rule with comment period, payment to providers under OPPS for PHP services represents the provider's overhead costs associated with the program. Because a day of care is the unit that defines the structure and scheduling of partial hospitalization services, we established a per diem payment methodology for the PHP APC. Other than being a per diem payment, we use the general OPPS ratesetting methodology for determining median cost.

As we have described in prior Federal Register notices, our current method for computing per diem costs is as follows: We use data from all hospital bills reporting condition code 41, which identifies the claim as partial hospitalization, and all bills from CMHCs. We use CCRs from the most recently available hospital and CMHC cost reports to convert each provider's line-item charges as reported on bills to estimate the provider's cost for a day of PHP services. Per diem costs are then computed by summing the line-item costs on each bill and dividing by the number of days of PHP care provided on the bill. These computed per diem costs are arrayed from lowest to highest and the middle value of the array is the median per diem cost.

As indicated in the proposed rule (72 FR 42692), we have developed an alternate way to determine median cost by computing a separate per diem cost for each day rather than for each bill. Under this method, a cost is computed separately for each day of PHP care. When there are multiple days of care entered on a claim, a unique cost is computed for each day of care. All of these costs are then arrayed from lowest to highest and the middle value of the array would be the median per diem cost.

We proposed to adopt this alternative method of computing PHP per diem median cost because we believe it produces a more accurate estimate because each day gets an equal weight towards computing the median. In light of the stabilizing trend in the data, and the robustness of recent data analysis, we believe it is now appropriate to adopt this method. We believe this method for computing a PHP per diem median cost more accurately reflects the costs of a PHP and uses all available PHP data. We received no public comments in opposition to the revised method for computing per diem cost, although we did receive a few public comments critical of our current method of computing per diem costs. (These public comments and our response are addressed below.) Therefore, we are adopting this proposed change beginning in CY 2008.

As noted previously, for the past 2 years, the data have produced median costs that we believed were too low to cover the cost of a program that typically spans 5 to 6 hours per day. This length of day would include five or six services with a break for lunch. We looked at the number of units of service being provided in a day of care, as a possible explanation for the low per diem cost for PHP. Our analysis revealed that both hospital based and CMHC PHPs have a significant number of days where fewer than 4 units of service were provided.

Using updated data from the CY 2008 proposed rule, specifically, 64 percent of the days that CMHCs were paid were for days where 3 or less units of services were provided, and 31 percent of the days that hospital-based PHPs were paid were for days where 3 or less units of service were provided. We continue to believe these findings are significant because they may explain a lower per diem cost. Based on these updated findings, we computed median per diem costs in two categories:

(a) All days.

(b) Days with 4 units of service or more (removing days with 3 services or less).

These updated median per diem costs were computed separately for CMHCs and hospital based PHPs and are shown in the table below:

Hospital- CMHCs based PHPs Combined

All Days.........................

$172

$177

$172 Days with 4 units or more........

192

189

192

As expected, excluding the low unit days resulted in a higher median per diem cost estimate. However, if the programs have many ``low unit days,'' their cost and Medicare payment should reflect this level of service. It would not be appropriate to set the PHP rate to exclude the ``low unit days'' because these days are covered PHP days. We believe the analysis of the number of units of service per day supports a lower per diem cost. Therefore, including all days supports the data trend towards a lower per diem cost and we believe more accurately reflects the costs of providing PHP services.

Although the minimum number of PHP services required in a PHP day is three, it was never our intention that this represented the number of services to be provided in a typical PHP day. Our intention was to cover days that consisted of only three services, generally because a patient was transitioning towards discharge (or a patient who is transitioning at the beginning of their PHP stay). Rather than set separate rates for half-days and full-days, we believed it was appropriate to set one rate that would be paid for all PHP days, including those for patients transitioning towards discharge (or admission). We intended that the PHP benefit is for a full day, with shorter days only occurring while a patient transitions into or out of the PHP.

However, as indicated in the data, many programs have these ``low unit days,'' and we believe their cost and Medicare payment should reflect this level of service. It would not be appropriate to set the PHP rate excluding the low unit days because these days are covered. Again, we believe the data support the estimated per diem cost under $200 that we have observed.

We believed the most appropriate payment rate for PHPs is computed using both hospital-based and CMHC PHP data, including the remapped data for all days, resulting in a median per diem cost of $178. Therefore, we proposed a CY 2008 APC PHP per diem cost of $178.

We received a large number of public comments on our proposal. A summary of the public comments received and our responses follow.

Comment: A number of commenters expressed concern about the magnitude of the PHP per diem rate reduction, particularly in light of the reductions over the past few years. Many commenters believe that such a reduction would reduce the financial viability and possibly lead to the closure of many PHPs, thus affecting access to this crucial service that serves vulnerable populations. Many commenters stated that PHPs are an

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integral part of the continuum of care, and if programs were forced to close, there would be an increase in the length and number of more costly inpatient hospital stays. In addition, because hospital outpatient mental health services paid under the OPPS are capped at the PHP per diem rate, many commenters were concerned about overall access to outpatient mental health treatment. The majority of commenters requested that CMS freeze the PHP per diem rate at the CY 2007 level, and some suggested inflating this rate each year by the consumer price index or market basket update. In addition, several patients were concerned that the proposed 24-percent reduction in payment would negatively impact their ability to continue therapy. One commenter requested that CMS limit the annual reduction to 5 percent, phasing in the reduction over several years if necessary.

Response: For this CY 2008 final rule with comment period, we analyzed 12 months of more current data for hospital and CMHC PHP claims for PHP services furnished between January 1, 2006 and December 31, 2006. These claims data are more current than the CY 2008 proposed rule claims data because the data include claims paid through June 30, 2007. We also used the most currently available CCRs to estimate costs. Using these updated data, we recreated the analysis performed for the proposed rule to determine if the significant factors we used in determining the proposed PHP rate had changed. The median per diem cost for CMHCs decreased $6 to $172, while the median per diem cost for hospital based PHPs decreased $9 to $177. The combined median per diem cost, which is computed from both hospital-based and CMHC PHP data, decreased $6 to $172. The CY 2006 average charge per day for CMHCs was $615, similar to the figure noted in the CY 2007 proposed rule ($613) and slightly lower than the average charge per day for hospital-based PHPs ($631).

The data in this area have been volatile in the past and CMS must establish a payment amount that reflects the intensity of the PHP, and that also considers that costs for providing PHP services are declining. We proposed two refinements to the methodology for computing the PHP median, however, these refinements did not appreciably impact the median per diem cost. We received no public comments in opposition to these refinements and, therefore, we are adopting them in this final rule with comment period. Thus, for CY 2008, we remapped the revenue codes to the most appropriate cost centers and computed the median using a per day methodology (as described earlier in this section).

In addition, based on our data analysis, we have determined that CMHCs (and hospital-based PHPs to a lesser extent) are furnishing a substantial number of low unit days. Although these are all covered days in the context of existing Medicare guidelines, PHPs are furnished in lieu of psychiatric hospitalization and are intended to be more intensive than a half-day program. While the guidelines have allowed a minimum of three services per day, this was intended to be a floor, not the norm.

We conducted extensive data analysis, which included unit analysis, revenue code and HCPCS/CPT frequency analysis, and we have learned that PHPs often use the least costly staff and may not offer the full range of PHP services contemplated in section 1861(ff) of the Act. However, we believe the data accurately represent the level of service provided.

Because partial hospitalization is provided in lieu of inpatient care, it should be a highly structured and clinically-intensive program, usually lasting most of the day. Our goal is to improve the level of service furnished in a PHP day. We are concerned that the proposed decrease in PHP payment may not reflect the mix and quantity of services that should be provided under such an intensive program. In an effort to ensure access to this needed service to vulnerable populations, we are mitigating the reduction to 50 percent of the difference between the current APC amount ($233) and the computed amount based on the PHP data ($172), resulting in an APC median cost of $203. We believe this payment amount will give the providers an opportunity to increase the intensity of their programs and maintain partial hospitalization as part of the continuum of mental health care.

We reiterate our expectation that hospitals and CMHCs will provide a comprehensive program consistent with the statutory intent. We intend to explore the changes to our regulations and claims processing systems in order to deny payment for low intensity days and we specifically invite public comment on the most appropriate threshold.

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

Response: As discussed earlier in this section, we have refined our methodology for computing per diem costs. We have developed an alternate way to determine median cost by computing a separate per diem cost for each day rather than for each bill. Under this method, a cost is computed separately for each day of PHP care. When there are multiple days of care entered on a claim, a unique cost is computed for each day of care. We only assign costs for line items on days when a payment is made. All of these costs are then arrayed from lowest to highest and the middle value of the array would be the median per diem cost.

We adopted this alternative method of computing PHP per diem median cost because we believe it produces a more accurate estimate because each day gets an equal weight towards computing the median. This method for computing a PHP per diem median cost more accurately reflects the costs of a PHP and uses all available PHP data. Additionally, if a provider has charges on a bill for which the provider does not receive payment, this will be reflected in that provider's CCRs. This lower CCR will be applied to the larger charges and will result in the appropriate cost per diem.

To gauge the effect that days with one or two services had on the per diem cost, we trimmed all days with less than three services, and the recalculated median per diem cost only changed by $2.00. As such, we do not believe the calculations are adversely affected by the inclusion of these days.

Comment: One commenter suggested that CMS set the PHP median per diem cost based on days when four or more services are provided and then pay a low-utilization payment adjustment amount for days when three or fewer

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services are provided. The commenter also suggested that CMS establish frequency constraints for billing three or fewer services to prevent the bulk of days furnished by a provider from becoming low utilization days. The commenter urged CMS to further research this suggestion as a possible payment restructuring for CY 2009. Several commenters urged CMS to reevaluate the PHP payment methodology and to either refine the APC structure for PHP to reflect different service levels or to exclude the low-volume days from the calculation of the PHP rate and develop an alternate payment policy for low-volume days.

Response: The structure of partial hospitalization is a full day of treatment. We are concerned about providing an incentive for providers to structure their PHPs on a half-day basis. As discussed earlier in this section, in an effort to ensure access to this needed service to vulnerable populations, we are mitigating the reduction to the PHP rate for CY 2008. We think establishing a half-day rate is inconsistent with this policy. Therefore, we are not prepared to establish a half day rate at this time. However, we are willing to explore how we could utilize frequency controls to maintain the overall intensity of the partial hospitalization benefit.

Comment: One commenter noted that CMS did not respond to previous statements from commenters that the industry would welcome accreditation rules and/or stricter policies for PHPs.

Response: For the CY 2009 OPPS update, we are exploring proposing conditions of participation for CMHCs to establish minimum standards for patient rights, physical environment, staffing, and documentation requirements. In addition, we are considering changes that are necessary to our regulations and claims processing systems to deny payment for low intensity days. We specifically invite public comment on the most appropriate threshold.

Comment: Many commenters requested that the CMHC cost report data be included in the HCRIS so that the industry can review and analyze CMHC cost data.

Response: We understand the commenters' need to have CMHC data available through the HCRIS system and are working to accomplish this task.

Comment: With respect to the methodology used to establish the PHP APC amount, commenters were concerned that data from settled cost reports do not include costs reversed on appeal. The commenters stated that there are inherent problems in using claims data from a time period that is different from that for the CCRs from settled cost reports. The commenters indicated this methodology would artificially lower the computed median costs, and that the data used to calculate the PHP rate should be revised to include costs that were subsequently allowed. The commenters also stated that CMS uses costs that are at least 1 to 3 years old to project rates 2 years forward and that this approach does not accurately reflect the true costs of the providers.

Response: We use the best available data in computing the APCs. On January 17, 2003, we issued Program Memorandum No. A-03-004 that directed fiscal intermediaries to update the CCRs on an on going basis whenever a more recent full year settled or tentatively settled cost report is available. In this way, we minimize the time lag between the CCRs and claims data and continue to use the best available data for ratesetting purposes.

Comment: Several commenters summed the payment rate for four Group Therapy sessions (APC 0325) and requested that amount as the minimum for a day of PHP (that is, 4 x $64.45=$257.80). Another commenter presented two different typical days using proposed CY 2008 rates. Typical Day 1 included three Group Therapy sessions (CPT code 90853, APC 0325, 3 x $64.45) and one Individual Psychotherapy session (CPT code 90818, APC 0323, $106.49). The commenter priced Typical Day 1 at $299.84. Typical Day 2 included one Group Therapy session (CPT code 90853, APC 0325, $64.45), one Individual Psychotherapy session (CPT code 90818, APC 0323, $106.49), and one Family Therapy session (CPT code 90847, APC 0324, $141.61). The commenter priced Typical Day 2 at $312.55. Based on the commenter's presented material, the commenter stated that the typical days yield an average componentized rate of $306. The commenter questioned how CMS can set rates for APCs 0322 through 0325, but is unable to determine a payment rate for a day that is comprised of a minimum of three to four of those services. Other commenters stated that while CMS requires a minimum of four treatments per day to qualify for a day of PHP, the proposed per diem rate of $179.88 for PHP is less than what CMS would pay for four Group Therapy sessions.

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

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

CMS examined both CMHC and hospital-based PHP program data to determine what services these programs are providing to their patients. An important finding was that the days cited by the commenter are not typical days for most CMHCs. For CMHCs, 60 percent of services are Group Psychotherapy (CPTs 90853 and 90857), 26 percent of services are Training and Education (HCPCS G0177), 12 percent are Activity Therapy (HCPCS G0176), and only 1 percent of PHP days included Individual Therapy (Brief or Extended, CPTs 90816 or 90818)).

The days cited by the commenter are not typical days for hospital- based PHPs either. For hospital-based PHPs, 47 percent of services are Group Psychotherapy (CPT codes 90853 and 90857), 27 percent of services are Training and Education (HCPCS code G0177), 16 percent are Activity Therapy (HCPCS code G0176), 3 percent are Occupational Therapy (HCPCS code G0129), 2 percent of PHP days include Brief Individual Psychotherapy (CPT code 90816), and only 1 percent of PHP days include Extended Individual Therapy (CPT code 90818).

We note that the APCs for Training and Education (HCPCS code G0177), Activity Therapy (HCPCS code G0176), and Occupational Therapy (HCPCS code G0129) are not separately payable under the OPPS. They are packaged services and only payable as part of a PHP day of care. In CMHCs, Training and Education (HCPCS code G0177) and Activity Therapy (HCPCS code G0176), account for 38 percent of PHP services. In hospital-based PHPs, Training and Education and Activity Therapy account for 43 percent of PHP services. In addition to not being separately payable, these services may be provided to

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patients by less costly staff than staff that provide Psychotherapy and Occupational Therapy. Based on the mix of services provided on the majority of PHP days, we believe the data used for setting the PHP payment appropriately reflect the typical PHP day.

Comment: One commenter asked CMS to consider implementing a reimbursement level for intensive outpatient program (IOP) services because the commenter's State requires 3 hours of service for such programs.

Response: While some private insurers and some State Medicaid programs recognize IOP as a distinct benefit (like PHP), Medicare does not. However, hospitals that provide IOP services may bill Medicare under the OPPS for individual mental health services that are otherwise covered and billable under the OPPS.

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

Response: CMHCs are required to furnish an array of outpatient services including specialized outpatient services for children, the elderly, individuals with a serious mental illness, and residents of its service area who have been discharged from inpatient treatment. Accordingly, CMHCs have the same ability as hospitals to share costs among its programs as needed. Further, we believe hospital costs in some areas, for example, capital and 24-hour maintenance costs, greatly exceed comparable CMHC costs. Notably, we believe patient acuity across hospital-based and CMHC PHPs should be the same, that is, the patients would otherwise require inpatient psychiatric care regardless of setting (see sections 1861(ff) and 1835(a)(2)(F) of the Act).

Comment: A few commenters expressed concern that the current methodology used to calculate the daily rate does not capture all relevant data nor does it reflect the actual cost to providers to deliver these services. The commenters asked that CMS analyze the mapping of revenue-codes-to-cost centers for CMHCs similar to the analysis CMS completed for hospital-based programs and discussed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68000). The commenters indicated that CMHC PHP services have higher cost-to-charge ratios than the overall CMHC cost-to-charge ratios.

Response: We are unable to conduct a revenue code mapping analysis for CMHCs because PHP is the CMHCs' only Medicare cost and CMHCs do not have the same cost centers as hospitals. Therefore, for CMHCs, we use the overall facility CCR from the outpatient provider-specific file.

Comment: Several commenters expressed concern that cost report data frequently do not reflect bad debt expense for the entire year. The commenters are concerned that these costs are not being considered in the CMS data and severely short change the rate calculations.

Response: While, the bad debt policy is outside the scope of this rule, we refer the commenter to Sec. 413.89 and the Provider Reimbursement Manual Part I (PRM), Chapter 3, concerning our bad debt requirements.

Comment: One commenter stated that administrative costs for CMHCs continue to be a major impediment to operating PHPs for Medicare beneficiaries. The commenter was concerned that Medicare does not cover the cost of meals and transportation to and from programs. The commenter stated that almost all programs offer transportation because in most cases Medicare beneficiaries with serious mental illnesses would not be able to access these programs without the transportation.

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

Comment: One commenter requested that the same provisions given to rural HOPDs also be given to rural CMHCs. Several commenters urged CMS to reconsider the changes in funding for these programs, especially the programs in rural areas.

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

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

Response: As described earlier in this section, after extensive analysis, we now believe we have determined the appropriate level of cost for the type of services that are being provided by PHPs. This analysis included an examination of revenue-to-cost center mapping, refinements to the per diem methodology, and an in-depth analysis of the number of units of service per day. We note that for CY 2006, the hospital-based PHPs per diem median cost is $177 and for CMHCs, the per diem median cost is $172. We have observed a stabilizing trend in CMHC data and similar per diem costs between hospital-based and CMHC PHPs.

Comment: Two national behavioral health care organizations expressed concern that contrary to congressional intent, the most intensive provider settings are being penalized. The commenters pointed out that CMS data show that PHP programs providing four or more units of service per day (programs that are highly intensive) have a substantially higher median cost for those days than the overall median cost per day. The commenters pointed out that hospital-based programs (66 percent of their days have 4 or more units of service) have a median cost of $218 versus a median cost of $186 for all days regardless of the number of units of service. They noted that CMS' use of the overall median cost per day understates the degree to which hospital-based programs are structured around four or more units of services, but acknowledge that on some days a patient may only get three services (due to leaving early for illness, transitioning out of the program, or other reasons). Similarly, according to one commenter, CMHCs have a median cost of $191 for those days with 4 or more units of service provided versus a median cost of $178 for all days. The commenter stated that CMHCs have 36 percent of their days with 4 or more units of service provided. The commenter indicated that its State's Medicaid program requires a minimum of four hours to qualify for a day of PHP and believed the CMS payment methodology is in conflict with its State's laws.

Several commenters stated that the CMS data, when it combines those programs that offer 3 units with those that offer 4 or more units, clearly

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penalizes the programs that routinely offer 4 or more units.

Response: We refer the commenter to the table presented earlier in this section that provides updated figures to the ones cited by the commenter. We recognize that by definition, 50 percent of PHP days will have per diem costs higher than the median per diem cost, while 50 percent will have costs lower than the median per diem cost. It is likely that the programs providing 4 units of service are on the high side of the median per diem cost. In addition, we note that the final rate of $203 is well above the combined median per diem cost for days with 4 units of service of more ($192). Days where four services are provided are certainly within this amount.

Comment: One commenter asked that CMS change the Medicare lifetime maximum of 190 mental health days of stay in a psychiatric hospital, to unlimited. The commenter asserted that if a person is diagnosed with a mental health illness of various kinds the individual will need ``maintenance'' throughout his or her entire life.

Response: The 190-day lifetime limit on inpatient psychiatric care is statutory, and established in section 1812(b)(3) of the Act.

Comment: Many commenters, including a national behavioral health association, recommended that PHP be removed from the APC codes and created under an independent status using home health and hospice as examples. The commenters are concerned that the current methodology is not conducive to this APC code and asserted that there is precedent in other CMS OPPS service industries to exclude the service from the APC code listing and treat it independently.

Response: Section 1833(t)(1)(B)(i) of the Act provides the Secretary with the authority to designate the hospital outpatient services to be covered under the OPPS. The Medicare regulations at 42 CFR 419.21 that implement this provision specify that payments under the OPPS will be made for partial hospitalization services furnished by CMHCs as well as those furnished to hospital outpatients and thus, PHP is paid under the OPPS. However, it would require a statutory change to establish an independent payment system for partial hospitalization programs outside the OPPS. The statute provides specific separate and distinct payment systems for both home health and hospice services, which are also separate and distinct benefit categories.

Comment: One commenter asked why there are no CMHCs shown in the impact statements in the annual OPPS updating documents published in the Federal Register. The commenter asked if this is required by regulation.

Response: CMHCs do not share the same characteristics as hospitals and do not fit into the traditional impact categories (like bed size). Therefore, we have not included them in the impact chart. As PHP is the only Medicare service CMHCs provide, the impact is the percentage change in the APC amount from year to year. Assuming that the number of PHP days provided by CMHCs stays the same as it was in CY 2006, the estimated impact on CMHCs as a result of the CY 2008 PHP payment rate compared to the CY 2007 PHP payment rate is a 13-percent decrease. In this year's impact table we have included CMHCs in the total count of providers, but they are not shown separately. (For additional information, see section XXIV, ``Regulatory Impact Analysis'' of this final rule with comment period.)

Comment: Several commenters suggested establishing a PHP rate calculation task force to develop a new rate methodology that captures all relevant data and reflects the actual costs to providers to deliver PHP services. The commenter recommended that the ratesetting task force be composed of CMS staff and a diverse group of stakeholder that include front-line providers of PHP services and representatives from national industry organizations. Other commenters requested that CMS further study the possibility of differentiating payment based on the intensity of services provided during a day of PHP services for CY 2009. These commenters also recommended that CMS establish quality criteria to judge performance and that would influence future rate reimbursement.

Response: We agree that the payment rate for PHP needs to be accurate and appropriate to sustain access to care. While we believe we provide an accurate and appropriate approach to payment for PHP, as changes to the current methodology are considered, input from the industry is an important part of that process. Therefore, we welcome any input and information that the industry can provide about the costs of their programs and encourage providers to submit information on their costs. We would also find information about the status of quality criteria useful and would encourage providers to submit that information as well.

Comment: A few commenters stated that the wage index adjustment does not accurately reflect the cost of labor in areas affected by Hurricanes Katrina and Rita. The commenters also pointed out that the proposed wage index in Louisiana has decreased post-hurricane instead of increasing, which has resulted in a much lower payment rate in Louisiana. The commenters further stated that the time lag for wage indexing is a huge factor for Hurricane Zone providers and that the wage index decrease makes the assumption that the cost of labor has actually decreased since the hurricanes. Some commenters noted that the lack of facilities, trained professionals and inadequate reimbursement will make Louisiana worse off now than prior to Hurricanes Katrina and Rita. A few commenters asked that CMS freeze the 2005 level rates to maintain the Hurricane Zones at status quo until a realistic impact study can be commissioned.

Response: The hospital wage data used to compute the IPPS FY 2008 hospital wage index is from the FY 2004 hospital cost reports for all hospitals. This is the standard lag timeframe in determining the hospital wage index. It will be another year before FY 2005 data will be reflected in the IPPS FY 2009 hospital wage index. However, we note that the wage index is a relative measure of differences in area hourly wage levels. It compares a labor market's average hourly wage to the national average hourly wage. To the extent that post-hurricane hospital labor costs are higher relative to the national average, the wage index will reflect the higher relative labor cost beginning when the FY 2005 data will be used in the FY 2009 IPPS hospital wage index (which will be applied to the CY 2009 OPPS rate year). In addition, the statutory authority for the OPPS wage index policy in section 1833(t)(2)(D) of the Act requires that the wage adjustments be made in a budget neutral manner. Therefore, we cannot raise one wage area and still maintain budget neutrality. Finally, it should be noted that CMHCs located in Federal Emergency Management Agency (FEMA) designated disaster areas were provided with relief funds by the Department of Health and Human Services in 2007. 3. Separate Threshold for Outlier Payments to CMHCs

In the November 7, 2003 final rule with comment period (68 FR 63469), we indicated that, given the difference in PHP charges between hospitals and CMHCs, we did not believe it was appropriate to make outlier payments to CMHCs using the outlier percentage target amount and threshold established for hospitals. There was a significant difference in the amount of outlier payments made to hospitals and CMHCs

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for PHP. In addition, further analysis indicated that using the same OPPS outlier threshold for both hospitals and CMHCs did not limit outlier payments to high cost cases and resulted in excessive outlier payments to CMHCs. Therefore, beginning in CY 2004, we established a separate outlier threshold for CMHCs. For CYs 2004 and 2005, we designated a portion of the estimated 2.0 percent outlier target amount specifically for CMHCs, consistent with the percentage of projected payments to CMHCs under the OPPS in each of those years, excluding outlier payments. For CY 2006, we set the estimated outlier target at 1.0 percent and allocated a portion of that 1.0 percent, 0.6 percent (or 0.006 percent of total OPPS payments), to CMHCs for PHP services. For CY 2007, we set the estimated outlier target at 1.0 percent and allocated a portion of that 1.0 percent, an amount equal to 0.15 percent of outlier payments and 0.0015 percent of total OPPS payments to CMHCS for PHP service outliers. The CY 2007 CMHC outlier threshold is met when the cost of furnishing services by a CMHC exceeds 3.40 times the PHP APC payment amount. The CY 2007 OPPS outlier payment percentage is 50 percent of the amount of costs in excess of the threshold.

The separate outlier threshold for CMHCs became effective January 1, 2004, and has resulted in more commensurate outlier payments. In CY 2004, the separate outlier threshold for CMHCs resulted in $1.8 million in outlier payments to CMHCs. In CY 2005, the separate outlier threshold for CMHCs resulted in $0.5 million in outlier payments to CMHCs. In contrast, in CY 2003, more than $30 million was paid to CMHCs in outlier payments. We believe this difference in outlier payments indicates that the separate outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs in line with the percentage of OPPS payments made to CMHCs.

As noted in section II.G. of this final rule with comment period, for CY 2008, we proposed to continue our policy of setting aside 1.0 percent of the aggregate total payments under the OPPS for outlier payments. We proposed that a portion of that 1.0 percent, an amount equal to 0.03 percent of outlier payments and 0.0003 percent of total OPPS payments, would be allocated to CMHCs for PHP service outliers. As discussed in section II.G. of this final rule with comment period, we again proposed to set a dollar threshold in addition to an APC multiplier threshold for OPPS outlier payments. However, because the PHP is the only APC for which CMHCs may receive payment under the OPPS, we would not expect to redirect outlier payments by imposing a dollar threshold. Therefore, we did not propose to set a dollar threshold for CMHC outliers. As noted above, we proposed to set the outlier threshold for CMHCs for CY 2008 at 3.40 times the APC payment amount and the CY 2008 outlier payment percentage applicable to costs in excess of the threshold at 50 percent.

We received no public comments on our proposal. As discussed in section II.G. of this final rule with comment period, using more recent data for this final rule with comment period, we set the target for hospital outpatient outlier payments at 1.0 percent of total OPPS payments. We allocate a portion of that 1.0 percent, an amount equal to 0.02 percent of outlier payments and 0.0002 percent of total OPPS payments to CMHCs for PHP service outliers. For CY 2008, we set the outlier threshold for CMHCs for CY 2008 at 3.40 times the APC payment amount and the CY 2008 outlier percentage applicable to costs in excess of the threshold at 50 percent.

C. Conversion Factor Update

Section 1833(t)(3)(C)(ii) of the Act requires us to update the conversion factor used to determine payment rates under the OPPS on an annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for CY 2008, the update is equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act.

The final hospital market basket increase for FY 2008 published in the IPPS final rule with comment period on August 22, 2007 is 3.3 percent (72 FR 48173), the same as the forecast published in the FY 2008 IPPS proposed rule on May 3, 2007 (72 FR 24787). To set the OPPS conversion factor for CY 2008, we increased the CY 2007 conversion factor of $61.468, as specified in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68003), by 3.3 percent.

In accordance with section 1833(t)(9)(B) of the Act, we further adjusted the conversion factor for CY 2007 to ensure that the revisions we are making to our updates for a revised wage index and rural adjustment are made on a budget neutral basis. We calculated an overall budget neutrality factor of 1.0019 for wage index changes by comparing total payments from our simulation model using the FY 2008 IPPS final wage index values as finalized to those payments using the current (FY 2007) IPPS wage index values. This adjustment reflected an adjustment of 1.0001 for changes to the wage index and an additional 1.0018 to accommodate the IPPS budget neutrality adjustment for inclusion of the rural floor. As discussed further in section II.D. of this final rule with comment period, for the first time, the final FY 2008 IPPS wage indices included a blanket budget neutrality adjustment for including the rural floor provision, which previously had been applied to the IPPS standardized amount. For further discussion of this policy in its entirety, we refer readers to the FY 2008 IPPS proposed rule (72 FR 24787 through 24792) and the FY 2008 IPPS final rule with comment period (72 FR 47325 through 47330). This adjustment is specific to the IPPS. For the OPPS, we are increasing the conversion factor by the proportional amount of the rural floor budget neutrality adjustment to accommodate this change.

For this final rule with comment period, we estimated the rural adjustment for CY 2008 to reflect the extension of the adjustment to payment for brachytherapy sources as discussed in section II.F.2. of this final rule with comment period, but as the impact of the extension was negligible, we did not change the rural adjustment. Therefore, we calculated a budget neutrality factor of 1.000 for the rural adjustment. For CY 2008, in this final rule with comment period, we estimated that allowed pass through spending for both drugs and devices would equal approximately $32 million, which represents 0.09 percent of total OPPS projected spending for CY 2008. The conversion factor was also adjusted by the difference between the 0.21 percent pass through dollars set aside in CY 2007 and the 0.09 percent estimate for CY 2008 pass through spending. Finally, estimated payments for outliers remain at 1.0 percent of total payments for CY 2008.

The market basket increase update factor of 3.3 percent for CY 2008, the required wage index and rural budget neutrality adjustment of approximately 1.0019, and the adjustment of 0.12 percent for the difference in the pass-through set aside resulted in a final standard OPPS conversion factor for CY 2008 of $63.694.

We received one public comment on our proposed conversion factor update for CY 2008. A summary of the public comment and our response follow.

Comment: A commenter objected to the proposed market basket increase of 3.3 percent. The commenter stated that the average outpatient cost of service is projected to increase by at least 5 percent for CY 2008 due to increases in salaries and medical supply costs for services to Medicare beneficiaries. The

[[Page 66678]]

commenter recommended that the average payment to hospitals for outpatient services be increased by 5 percent, the actual amount by which the commenter believed costs would increase for CY 2008.

Response: Section 1833(t)(3)(C)(iv) of the Act requires that CMS update the conversion factor annually using an OPD fee schedule increase factor specific to the PPS year. However, the statute gives CMS the discretion to use the hospital inpatient update factor, the hospital inpatient operating market basket, as an appropriate substitute for the OPD fee schedule increase for purposes of the annual percentage increase specific to covered OPD services. The statute permits, and we continue to believe, that the hospital inpatient operating market basket is an appropriate measure of change in hospital input prices for goods and services required to provide hospital care, including that in the outpatient setting. Hospitals use similar resources in their hospital inpatient and outpatient departments. The hospital market basket is carefully estimated for each PPS year, and periodically rebased and revised. For these reasons, we have specified in the regulations governing the annual OPPS update at Sec. 419.32 (b)(iv) that, for years beginning after CY 2003, the update factor for the OPPS equals the update factor for the IPPS. We disagree that the update factor for the CY 2008 OPPS should be 5 percent. For FY 2008, the IPPS update factor is the hospital market basket of 3.3 percent and, therefore, we have used this update factor in the establishment of the conversion factor for the CY 2008 OPPS.

After consideration of the public comment received, we are finalizing our CY 2008 proposal, without modification, to update the conversion factor by the FY 2008 IPPS market basket increase update factor of 3.3 percent, resulting in a final conversion factor of $63.694.

D. Wage Index Changes

Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographic wage differences, the portion of the OPPS payment rate, which includes the copayment standardized amount, that is attributable to labor and labor related cost. Since the inception of the OPPS, CMS policy has been to wage adjust 60 percent of the OPPS payment, based on a regression analysis that determined that approximately 60 percent of the costs of services paid under the OPPS were attributable to wage costs. We confirmed that this labor-related share for outpatient services is still appropriate during our regression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule with comment period (70 FR 68553). Therefore, we did not propose to revise this policy for the CY 2008 OPPS. We refer readers to section II.H. of this final rule with comment period for a description and example of how the wage index for a particular hospital is used to determine the payment for the hospital. This adjustment must be made in a budget neutral manner. As we have done in prior years, we proposed to adopt the final IPPS wage indices for the OPPS and to extend these wage indices to hospitals that participate in the OPPS but not the IPPS (referred to in this section as ``non-IPPS'' hospitals).

As discussed in section II.A. of this final rule with comment period, we standardize 60 percent of estimated costs as labor-related costs for geographic area wage variation using the IPPS pre- reclassified wage indices in order to remove the effects of differences in area wage levels in determining the national unadjusted OPPS payment rate and the copayment amount.

As published in the original OPPS April 7, 2000 final rule with comment period (65 FR 18545), the OPPS has consistently adopted the final IPPS wage indices as the wage indices for adjusting the OPPS standard payment amounts for labor market differences. Thus, the wage index that applies to a particular hospital under the IPPS will also apply to that hospital under the OPPS. As initially explained in the September 8, 1998 OPPS proposed rule, we believed and continue to believe that using the IPPS wage index as the source of an adjustment factor for the OPPS is reasonable and logical, given the inseparable, subordinate status of the hospital outpatient department within the hospital overall. In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated annually. In accordance with our established policy, we proposed to use the final FY 2008 final version of these wage indices to determine the wage adjustments for the OPPS payment rate and copayment standardized amount that would be published in our final rule with comment period for CY 2008.

We note that the FY 2008 IPPS wage indices continue to reflect a number of changes implemented over the past few years as a result of the revised Office of Management and Budget (OMB) standards for defining geographic statistical areas, the implementation of an occupational mix adjustment as part of the wage index, wage adjustments provided for under Pub. L. 105-33 and Pub. L. 108-173, and clarification of our policy for multicampus hospitals. The following is a brief summary of the components of the FY 2008 IPPS wage indices and any adjustments that we are applying to the OPPS for CY 2008. We refer the reader to the FY 2008 IPPS final rule with comment period (72 FR 47308 through 47345) for a detailed discussion of the changes to the wage indices. In this final rule with comment period, we are not reprinting the final FY 2008 IPPS wage indices referenced in the discussion below, with the exception of the out migration wage adjustment table (Addendum L to this final rule with comment period), which includes non-IPPS providers paid under the OPPS. We also refer readers to the CMS Web site for the OPPS at: http://www.cms.hhs.gov/providers/hopps. At this link, the reader will find a link to the final

FY 2008 IPPS wage indices tables.

1. The continued use of the Core Based Statistical Areas (CBSAs) issued by the OMB as revised standards for designating geographical statistical areas based on the 2000 Census data, to define labor market areas for hospitals for purposes of the IPPS wage index. The OMB revised standards were published in the Federal Register on December 27, 2000 (65 FR 82235), and OMB announced the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 IPPS final rule, CMS adopted the new OMB definitions for wage index purposes. In the FY 2008 IPPS final rule with comment period, we again stated that hospitals located in Metropolitan Statistical Areas (MSAs) will be urban and hospitals that are located in Micropolitan Areas or outside CBSAs will be rural. We also reiterated our policy that when an MSA is divided into one or more Metropolitan Divisions, we use the Metropolitan Division for purposes of defining the boundaries of a particular labor market area. To help alleviate the decreased payments for previously urban hospitals that became rural under the new geographical definitions, we allowed these hospitals to maintain for the 3-year period from FY 2005 through FY 2007, the wage index of the MSA where they previously had been located. This hold harmless provision expired after FY 2007. We adopted the same policy for the OPPS, but because the OPPS operates on a calendar year, wage index policies are in effect through December 31, 2007. To be consistent with the IPPS, as finalized in the FY 2008 IPPS final rule with comment period, beginning in CY 2008 (January 1, 2008)

[[Continued on page 66679]]

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

[[pp. 66679-66728]] Medicare Program: Changes to the Hospital Outpatient Prospective Payment System and CY 2008 Payment Rates, the Ambulatory Surgical Center Payment System and CY 2008 Payment Rates, the Hospital Inpatient Prospective Payment System and FY 2008 Payment Rates; and [[Page 66679]]

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under the OPPS, these hospitals will receive their statewide rural wage index. Hospitals paid under the IPPS are eligible to apply for reclassification in FY 2008.

As noted above, for purposes of estimating an adjustment for the OPPS payment rates to accommodate geographic differences in labor costs in this final rule with comment period, we have used the wage indices identified in the FY 2008 IPPS final rule with comment period (and as corrected in the September 28, 2007 second FY 2008 IPPS correction notice that was printed in the October 10, 2007 Federal Register (72 FR 57634) that are fully adjusted for differences in occupational mix using the entire 6-month survey data collected in 2006.

2. The reclassifications of hospitals to geographic areas for purposes of the wage index. For purposes of the OPPS wage index, we proposed to adopt all of the IPPS reclassifications for FY 2008, including reclassifications that the Medicare Geographic Classification Review Board (MGCRB) approved. We note that reclassifications under section 508 of Pub. L. 108-173 were set to terminate March 31, 2007. However, section 106(a) of the MIEA-TRHCA extended any geographic reclassifications of hospitals that were made under section 508 and that would expire on March 31, 2007 until September 30, 2007. On March 23, 2007, we published a notice in the Federal Register (72 FR 13799) that indicated how we are implementing section 106 of the MIEA-TRHCA through September 30, 2007. Because the section 508 provision expired on September 30, 2007, the OPPS wage index will not include any reclassifications under section 508 for CY 2008.

3. The out-migration wage adjustment to the wage index. In the FY 2008 IPPS final rule with comment period (72 FR 473398 through 47341), we discussed the out migration adjustment under section 505 of Pub. L. 108-173 for counties under this adjustment. Hospitals paid under the IPPS located in the qualifying section 505 ``out migration'' counties receive a wage index increase unless they have already been otherwise reclassified. We note that in the FY 2008 IPPS final rule with comment period, we finalized our proposal to use the post-reclassified, rather than the pre-reclassified, wage indices in calculating the out- migration adjustment. (See the FY 2008 IPPS final rule with comment period and the second FY 2008 IPPS correction notice for further information on the out migration adjustment.) For OPPS purposes, we proposed to continue our policy in CY 2008 to allow-non IPPS hospitals paid under the OPPS to qualify for the out-migration adjustment if they are located in a section 505 out migration county. Because non-IPPS hospitals cannot reclassify, they are eligible for the out-migration wage adjustment. Table 4J published in the Addendum to the FY 2008 IPPS final rule with comment period (and corrected in the second FY 2008 IPPS correction notice) identifies counties eligible for the out- migration adjustment and providers receiving the adjustment. As stated earlier, we are reprinting the final version of Table 4J, as corrected, in this final rule with comment period as Addendum L.

4. Wage Index for Multicampus Hospitals. As indicated in the CY 2008 OPPS/ASC proposed rule (72 FR 42695), we also wish to clarify that the IPPS policy for multicampus wage index payments also applies to the OPPS. As a result of the new labor market areas introduced in FY 2005, there are hospitals with multiple campuses previously located in a single MSA that are now in more than one CBSA. A multicampus hospital is an integrated institution. For this reason, the multicampus hospital has one CMS certification number (CCN) and submits a single cost report that combines the total wages and hours of each of its campuses in the manner described in the FY 2008 IPPS final rule with comment period (72 FR 47317).

In the FY 2008 IPPS final rule with comment period, we finalized our proposal to apportion wages and hours across multiple campuses using full-time equivalent (FTE) staff data or Medicare discharge data in order to include wage data for the individual campuses of a multicampus hospital in its local wage index calculation. We indicated our intent to collect campus locations and numbers of FTE staff by location by adding lines to Worksheet S-2 of the Medicare cost report submitted by hospitals. We stated that we would continue to use either Medicare discharge data or self-reported FTE data to apportion wage data by campus until revisions are made to Worksheet S-2 of the Medicare cost report to require reporting of FTE data by campus and until such data in the cost report can be used to calculate the wage index, at which time the wage data of a multicampus hospital will be allocated among its campuses based only on FTE counts by campus reported in the Medicare cost report. We stated that the effective date of the revised cost report is not expected until FY 2009. Therefore the FTE data reported by multicampus hospitals in the revised Medicare cost report could not be used to allocate wages and hours to each labor market by FTEs until at least the FY 2013 wage index. As part of this policy, we would fully expect that an HOPD that is part of a multicampus hospital system would receive a wage index based on the geographic location of the inpatient campus with which it is associated. This would include cases where one inpatient campus reclassified. Affiliated outpatient facilities would receive the reclassified wage index of the inpatient campus. For further discussion of the FY 2008 IPPS final multicampus hospital policy in its entirety, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47317 through 47319).

5. Rural Floor Provision. Section 4410 of Pub. L. 105-33 provides that the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas of the State (``the rural floor''). Table 4A in the FY 2008 IPPS final rule with comment period (72 FR 47503) (and as corrected in the September 28, 2007 second correction notice for the FY 2008 IPPS final rule, which appeared in the October 10, 2007 issue of the Federal Register) identifies urban areas where hospitals located in those areas are assigned the rural floor (noted by a superscript ``2''). For CY 2008 under the OPPS, we proposed to continue our policy to allow non-IPPS hospitals paid under the OPPS to receive the rural floor wage index, when applicable under the IPPS for FY 2008. For the first time, the final FY 2008 IPPS wage indices include a blanket budget neutrality adjustment for including the rural floor provision, which previously had been applied to the IPPS standardized amount. For further discussion of this final policy in its entirety, we refer readers to the FY 2008 IPPS final rule with comment period (72 FR 47325 through 47330) and the second FY 2008 IPPS correction notice (72 FR 57634).

We note that all changes to the wage index resulting from geographic labor market area reclassifications or other adjustments must be incorporated in a budget neutral manner. Accordingly, in calculating the OPPS budget neutrality estimates for CY 2008 in this final rule with comment period, we have included the wage index changes that would result from the MGCRB reclassifications, implementation of sections 4410 of Pub. L. 105-33 and 505 of Pub. L. 108-173, and other refinements adopted in the FY 2008 IPPS final rule with comment period. For the CY 2008 OPPS, we proposed to use the final FY 2008 IPPS

[[Page 66680]]

wage indices, including the budget neutrality adjustment for the rural floor, for calculating OPPS payment in CY 2008. We discuss how the OPPS conversion factor would compensate for the inclusion of this budget neutrality adjustment in the wage indices in section II.C. of this final rule with comment period relating to the conversion factor update.

Comment: Commenters supported the CMS proposal for CY 2008 to extend the IPPS wage indices to the OPPS as we had done in previous years. One commenter agreed with the proposal to adopt the IPPS wage index but suggested that it would be logical to adopt the same labor component percentage as applied under the IPPS. The commenter argued that the labor component is derived from hospital cost report information that does not separate inpatient from outpatient services for labor-related and nonlabor-related costs, and thus the labor component utilized in the IPPS is based on a combination of inpatient and outpatient costs. The commenter also suggested that the 60 percent labor-related share used in the OPPS was derived nearly 10 years ago and has never been supported by analysis. The commenter recommended that CMS revise the labor-related share from 60 percent to 69.731 percent to be consistent with the IPPS.

Response: We appreciate the support expressed by commenters concerning our proposed wage index policies for CY 2008. In response to the comment concerning the OPPS labor-related share, we do not believe that such a change to adopt the IPPS labor related share is appropriate. The current IPPS labor-related share of 69.731 percent was calculated by summing the relative weights for labor components in the IPPS operating market basket (70 FR 2339). The IPPS estimates a labor- related share that is specific to inpatient services; the OPPS estimates a labor-related share that is specific to outpatient services. The OPPS labor-related share was determined through regression analyses conducted for the initial OPPS proposed rule (63 FR 47581). Those analyses examined the extent of variability in hospital outpatient cost per unit explained by variability in the wage index, holding outpatient service mix under the proposed system, geographic location, volume, and other variables constant. The unit cost dependent variable in these analyses was derived by applying the CCRs for ancillary cost centers to charges, and those ancillary CCRs should reflect the proportional labor costs for ancillary services. The wage index provides a measure of the wage level faced by a hospital relative to the national average, which should be roughly the same for the institution across inpatient and outpatient settings. Those initial analyses identified 60 percent as the appropriate labor-related share for outpatient services. We confirmed that this labor-related share is still appropriate during our regression analysis for the payment adjustment for rural hospitals, as discussed in the CY 2006 OPPS final rule with comment period (70 FR 68556). Further, we would expect services delivered in the HOPD to require proportionately less labor than more acute inpatient services that require greater nursing care and an extended stay. We believe that the 60 percent labor-related share for the OPPS compares favorably to the hospital inpatient labor- related share of 69.731 percent.

We are finalizing our proposal, without modification, to use the final IPPS FY 2008 wage indices to adjust the OPPS standard payment amounts for labor market differences under the CY 2008 OPPS.

E. Statewide Average Default CCRs

CMS uses CCRs to determine outlier payments, payments for pass- through devices, and monthly interim transitional corridor payments under the OPPS. Some hospitals do not have a valid CCR. These hospitals include, but are not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, or hospitals that have recently given up their all-inclusive rate status. Last year, we updated the default urban and rural CCRs for CY 2007 in our final rule with comment period (71 FR 68006 through 68009). As we proposed, in this final rule with comment period we have updated the default ratios for CY 2008 using the most recent cost report data.

We calculated the statewide default CCRs using the same overall CCRs that we use to adjust charges to costs on claims data. Table 25 published in the CY 2008 OPPS/ASC proposed rule listed the proposed CY 2008 default urban and rural CCRs by State and compared them to last year's default CCRs. These CCRs are the ratio of total costs to total charges from each provider's most recently submitted cost report, for those cost centers relevant to outpatient services weighted by Medicare Part B charges. We also adjusted ratios from submitted cost reports to reflect final settled status by applying the differential between settled to submitted costs and charges from the most recent pair of final settled and submitted cost reports.

For the proposed rule, approximately 78 percent of the submitted cost reports represented data for CY 2005. We have since updated the cost report data we use to calculate CCRs with additional submitted cost reports for CY 2006. For this final rule with comment period, 47 percent of the submitted cost reports utilized in the default ratio calculation were for CY 2005 and 49 percent were for CY 2006. We only used valid CCRs to calculate these default ratios. That is, we removed the CCRs for all-inclusive hospitals, CAHs, and hospitals in Guam, and the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands because these entities are not paid under the OPPS, or in the case of all inclusive hospitals, because their CCRs are suspect. We further identified and removed any obvious error CCRs and trimmed any outliers. We limited the hospitals used in the calculation of the default CCRs to those hospitals that billed for services under the OPPS during CY 2006.

Finally, we calculated an overall average CCR, weighted by a measure of volume for CY 2006, for each State except Maryland. This measure of volume is the total lines on claims and is the same one that we use in our impact tables. For Maryland, we used an overall weighted average CCR for all hospitals in the nation as a substitute for Maryland CCRs. Few providers in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The observed differences between last year's and this year's default statewide CCRs largely reflect a general decline in the ratio between costs and charges widely observed in the cost report data. However, observed increases in some areas suggest that the decline in CCRs is moderating. Further, the addition of weighting by Medicare Part B charges to the overall CCR in CY 2007 slightly increases the variability of the overall CCR calculation.

As stated above, CMS uses default statewide CCRs for several groups of hospitals, including, but not limited to, hospitals that are new and have not yet submitted a cost report, hospitals that have a CCR that falls outside predetermined floor and ceiling thresholds for a valid CCR, and hospitals that have recently given up their all-inclusive rate status.

Prior to CY 2007, OPPS policy required hospitals that experienced a change of ownership, but that did not accept assignment of the previous hospital's provider agreement, to use the

[[Page 66681]]

previous provider's CCR. However, in CY 2007 we revised this policy and finalized our proposal to use default statewide CCRs for entities that had not accepted assignment of an existing hospital's provider agreement in accordance with Sec. 489.18 and that had not yet submitted its first Medicare cost report. For CY 2008, we proposed to continue to apply this treatment of using the default statewide CCR, to include an entity that has not accepted assignment of an existing hospital's provider agreement in accordance with Sec. 489.18 and that has not yet submitted its first Medicare cost report. This policy is effective for hospitals experiencing a change of ownership on or after January 1, 2007. As stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68006), we believed that a hospital that has not accepted assignment of an existing hospital's provider agreement is similar to a new hospital that will establish its own costs and charges. We also believed that the hospital that has chosen not to accept assignment may have different costs and charges than the existing hospital. Furthermore, we believed that the hospital should be provided time to establish its own costs and charges. Therefore, we proposed to use the default statewide CCR to determine cost-based payments until the hospital has submitted its first Medicare cost report.

We did not receive any public comments concerning this issue. Therefore, we are finalizing the statewide average default CCRs as shown in Table 11 below for OPPS services furnished on or after January 1, 2008, without modification.

Table 11.--CY 2008 Statewide Average CCRs

Previous CY 2008 default CCR State

Rural/urban

default CCR (CY 2007 OPPS final rule)

ALASKA..................................... RURAL..............................

0.537

0.534 ALASKA..................................... URBAN..............................

0.351

0.383 ALABAMA.................................... RURAL..............................

0.228

0.232 ALABAMA.................................... URBAN..............................

0.213

0.223 ARKANSAS................................... RURAL..............................

0.266

0.264 ARKANSAS................................... URBAN..............................

0.270

0.275 ARIZONA.................................... RURAL..............................

0.264

0.282 ARIZONA.................................... URBAN..............................

0.232

0.232 CALIFORNIA................................. RURAL..............................

0.232

0.246 CALIFORNIA................................. URBAN..............................

0.218

0.232 COLORADO................................... RURAL..............................

0.355

0.370 COLORADO................................... URBAN..............................

0.254

0.267 CONNECTICUT................................ RURAL..............................

0.391

0.389 CONNECTICUT................................ URBAN..............................

0.339

0.349 DISTRICT OF COLUMBIA....................... URBAN..............................

0.346

0.339 DELAWARE................................... RURAL..............................

0.302

0.323 DELAWARE................................... URBAN..............................

0.400

0.395 FLORIDA.................................... RURAL..............................

0.219

0.219 FLORIDA.................................... URBAN..............................

0.198

0.199 GEORGIA.................................... RURAL..............................

0.279

0.285 GEORGIA.................................... URBAN..............................

0.269

0.289 HAWAII..................................... RURAL..............................

0.373

0.357 HAWAII..................................... URBAN..............................

0.317

0.320 IOWA....................................... RURAL..............................

0.349

0.349 IOWA....................................... URBAN..............................

0.325

0.343 IDAHO...................................... RURAL..............................

0.445

0.436 IDAHO...................................... URBAN..............................

0.414

0.416 ILLINOIS................................... RURAL..............................

0.286

0.308 ILLINOIS................................... URBAN..............................

0.271

0.288 INDIANA.................................... RURAL..............................

0.313

0.316 INDIANA.................................... URBAN..............................

0.301

0.320 KANSAS..................................... RURAL..............................

0.318

0.320 KANSAS..................................... URBAN..............................

0.240

0.252 KENTUCKY................................... RURAL..............................

0.244

0.251 KENTUCKY................................... URBAN..............................

0.262

0.270 LOUISIANA.................................. RURAL..............................

0.271

0.281 LOUISIANA.................................. URBAN..............................

0.277

0.273 MARYLAND................................... RURAL..............................

0.308

0.318 MARYLAND................................... URBAN..............................

0.284

0.298 MASSACHUSETTS.............................. URBAN..............................

0.338

0.349 MAINE...................................... RURAL..............................

0.433

0.457 MAINE...................................... URBAN..............................

0.424

0.429 MICHIGAN................................... RURAL..............................

0.331

0.346 MICHIGAN................................... URBAN..............................

0.318

0.329 MINNESOTA.................................. RURAL..............................

0.499

0.508 MINNESOTA.................................. URBAN..............................

0.342

0.338 MISSOURI................................... RURAL..............................

0.289

0.294 MISSOURI................................... URBAN..............................

0.292

0.303 MISSISSIPPI................................ RURAL..............................

0.267

0.284 MISSISSIPPI................................ URBAN..............................

0.217

0.231 MONTANA.................................... RURAL..............................

0.453

0.439

[[Page 66682]]

MONTANA.................................... URBAN..............................

0.450

0.463 NORTH CAROLINA............................. RURAL..............................

0.286

0.305 NORTH CAROLINA............................. URBAN..............................

0.321

0.370 NORTH DAKOTA............................... RURAL..............................

0.379

0.367 NORTH DAKOTA............................... URBAN..............................

0.378

0.395 NEBRASKA................................... RURAL..............................

0.347

0.376 NEBRASKA................................... URBAN..............................

0.290

0.290 NEW HAMPSHIRE.............................. RURAL..............................

0.375

0.370 NEW HAMPSHIRE.............................. URBAN..............................

0.337

0.325 NEW JERSEY................................. URBAN..............................

0.276

0.297 NEW MEXICO................................. RURAL..............................

0.275

0.274 NEW MEXICO................................. URBAN..............................

0.353

0.398 NEVADA..................................... RURAL..............................

0.329

0.335 NEVADA..................................... URBAN..............................

0.200

0.214 NEW YORK................................... RURAL..............................

0.417

0.445 NEW YORK................................... URBAN..............................

0.402

0.427 OHIO....................................... RURAL..............................

0.354

0.369 OHIO....................................... URBAN..............................

0.268

0.283 OKLAHOMA................................... RURAL..............................

0.288

0.295 OKLAHOMA................................... URBAN..............................

0.245

0.261 OREGON..................................... RURAL..............................

0.321

0.344 OREGON..................................... URBAN..............................

0.366

0.405 PENNSYLVANIA............................... RURAL..............................

0.298

0.305 PENNSYLVANIA............................... URBAN..............................

0.241

0.252 PUERTO RICO................................ URBAN..............................

0.474

0.469 RHODE ISLAND............................... URBAN..............................

0.308

0.309 SOUTH CAROLINA............................. RURAL..............................

0.258

0.255 SOUTH CAROLINA............................. URBAN..............................

0.244

0.248 SOUTH DAKOTA............................... RURAL..............................

0.334

0.348 SOUTH DAKOTA............................... URBAN..............................

0.289

0.304 TENNESSEE.................................. RURAL..............................

0.256

0.265 TENNESSEE.................................. URBAN..............................

0.241

0.249 TEXAS...................................... RURAL..............................

0.271

0.289 TEXAS...................................... URBAN..............................

0.242

0.258 UTAH....................................... RURAL..............................

0.416

0.441 UTAH....................................... URBAN..............................

0.406

0.416 VIRGINIA................................... RURAL..............................

0.268

0.282 VIRGINIA................................... URBAN..............................

0.275

0.280 VERMONT.................................... RURAL..............................

0.416

0.432 VERMONT.................................... URBAN..............................

0.340

0.338 WASHINGTON................................. RURAL..............................

0.358

0.374 WASHINGTON................................. URBAN..............................

0.368

0.372 WISCONSIN.................................. RURAL..............................

0.384

0.367 WISCONSIN.................................. URBAN..............................

0.362

0.364 WEST VIRGINIA.............................. RURAL..............................

0.298

0.316 WEST VIRGINIA.............................. URBAN..............................

0.360

0.369 WYOMING.................................... RURAL..............................

0.449

0.471 WYOMING.................................... URBAN..............................

0.351

0.352

F. OPPS Payments to Certain Rural Hospitals

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

When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (called either transitional corridor payment or transitional outpatient payment) if the payments it received for covered outpatient department (OPD) services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system. Section 1833(t)(7) of the Act provides that the transitional corridor payments are temporary payments for most providers to ease their transition from the prior reasonable cost-based payment system to the OPPS system. There are two exceptions, cancer hospitals and children's hospitals, to this provision and those hospitals receive the transitional corridor payments on a permanent basis. Section 1833(t)(7)(D)(i) of the Act originally provided for transitional corridor payments to rural hospitals with 100 or fewer beds for covered OPD services furnished before January 1, 2004. However, section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the transitional corridor payments to SCHs located in rural areas for services furnished during the period that begins with the provider's first cost reporting period beginning on or after January 1, 2004, and ended on December 31, 2005. Accordingly, the authority for making transitional corridor payments under

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section 1833(t)(7)(D)(i) of the Act, as amended by section 411 of Pub. L. 108-173, for rural hospitals having 100 or fewer beds and SCHs located in rural areas expired on December 31, 2005.

Section 5105 of Pub. L. 109-171 reinstituted the hold harmless transitional outpatient payments (TOPs) for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. When the OPPS payment is less than the payment the provider would have received under the previous reasonable cost-based system, the amount of payment is increased by 95 percent of the amount of the difference between the two payment systems for CY 2006, by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of that difference for CY 2008.

For CY 2006, we implemented section 5105 of Pub. L. 109-171 through Transmittal 877, issued on February 24, 2006. We did not specifically address whether TOPs apply to essential access community hospitals (EACHs), which are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, under the statute, EACHs are treated as SCHs. Therefore, we believed and continue to believe that EACHs are not currently eligible for TOPs under Pub. L. 109-171. However, they are eligible for the adjustment for rural SCHs. In the CY 2007 OPPS/ASC final rule with comment period, we updated Sec. 419.70(d) to reflect the requirements of Pub. L. 109-171 (71 FR 68010 and 68228). 2. Adjustment for Rural SCHs Implemented in CY 2006 Related to Pub. L. 108-173 (MMA)

In the CY 2006 OPPS final rule with comment period (70 FR 68556), we finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy seeds, and services paid under pass-through payment policy in accordance with section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary the authority to make an adjustment to OPPS payments for rural hospitals, effective January 1, 2006, if justified by a study of the difference in costs by APC between hospitals in rural and urban areas. Our analysis showed a difference in costs for rural SCHs. Therefore, we implemented a payment adjustment for only those hospitals beginning January 1, 2006.

Last year, we became aware that we did not specifically address whether the adjustment applies to EACHs, which are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute, EACHs are treated as SCHs. Therefore, in the CY 2007 OPPS/ASC final rule with comment period, for purposes of receiving this rural adjustment, we revised Sec. 419.43(g) to clarify that EACHs are also eligible to receive the rural SCH adjustment, assuming these entities otherwise meet the rural adjustment criteria (71 FR 68010 and 68227). Currently, fewer than 10 hospitals are classified as EACHs and as of CY 1998, under section 4201(c) of Pub. L. 105-33, a hospital can no longer become newly classified as an EACH.

This adjustment for rural SCHs is budget neutral and applied before calculating outliers and copayment. As stated in the CY 2006 OPPS final rule with comment period (70 FR 68560), we would not reestablish the adjustment amount on an annual basis, but we note that we may review the adjustment in the future and, if appropriate, would revise the adjustment.

For CY 2008, we proposed to continue our current policy of a budget neutral 7.1 percent payment increase for rural SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding drugs, biologicals, and services paid under the pass-through payment policy in accordance with section 1833(t)(13)(B) of the Act. This adjustment is in accordance with section 411 of the MMA, which gave the Secretary the authority to make an adjustment to OPPS payments for rural hospitals, if justified by a study of the difference in costs by APC between hospitals in rural and urban areas. Our analysis showed a difference in costs only for rural SCHs, and we implemented a payment adjustment for those hospitals beginning January 1, 2006. For CY 2008, we also proposed to include brachytherapy sources in the group of services eligible for the 7.1 percent payment increase because we proposed to pay them at prospective rates based on their median costs as calculated from historical claims data. Consequently, we proposed to revise Sec. 419.43 to reflect our proposal to make brachytherapy sources eligible for the 7.1 percent payment increase for rural SCHs. As indicated in our proposed rule (72 FR 42698), we intend to reassess the 7.1 percent adjustment in the near future by examining differences between urban and rural costs using updated claims, cost, and provider information. In that process, we will include brachytherapy sources in each hospital's mix of services.

Comment: Several commenters supported our proposals to continue our current policy of a budget neutral 7.1 percent payment increase for rural SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding drugs, biologicals, and services paid under the pass-through payment policy, and to make brachytherapy sources eligible for the 7.1 percent payment increase for rural SCHs.

Response: We appreciate the commenters' support of the policy.

After consideration of the public comments received, we are finalizing, without modification, our policy to continue a payment adjustment for rural SCHs, including EACHs, of 7.1 percent for CY 2008. We also are finalizing our proposed revision of Sec. 419.43 to make brachytherapy sources eligible for the 7.1 percent payment increase for rural SCHs, including EACHs, without modification.

G. Hospital Outpatient Outlier Payments

1. Background

Currently, the OPPS pays outlier payments on a service-by-service basis. For CY 2007, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $1,825 fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 2005 in addition to the traditional multiple threshold in order to better target outliers to those high cost and complex procedures where a very costly service could present a hospital with significant financial loss. If a provider meets both of these conditions, the multiple threshold and the fixed-dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment rate.

As explained in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68011 through 68012), we set our projected target for aggregate outlier payments at 1.0 percent of aggregate total payments under the OPPS for CY 2007. The outlier thresholds were set so that estimated CY 2007 aggregate outlier payments would equal 1.0 percent of aggregate total payments under the OPPS. In that final rule with comment period (71 FR 68010) we also published total outlier payments as a percent of total expenditures for CY 2005. In the past, we have received comments asking us to publish estimated outlier payments to provide a context for the proposed outlier thresholds for the update year. In the CY 2008 OPPS/ASC

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proposed rule (72 FR 42698), we estimated, using available CY 2006 claims, that the outlier payments for CY 2006 would be approximately 1.1 percent of total CY 2006 OPPS payment. In the final CY 2006 claims, aggregated outlier payments were 1.1 percent of aggregated total OPPS payments. For CY 2006, the estimated outlier payments were set at 1.0 percent of the total aggregated OPPS payments. Therefore, for CY 2006 we paid 0.1 percent in excess of the CY 2006 outlier target of 1.0 percent of total aggregated OPPS payments. Using the final CY 2006 claims and CY 2007 payment rates, we currently estimate that outlier payments for CY 2007 would be approximately 0.7 percent of total CY 2007 OPPS payments and the difference between 1.0 percent and 0.7 percent is reflected in the regulatory impact analysis in section XXIV.B. of this final rule with comment period. We will not know the final amount of outlier payments as a percent of total payments until we have final CY 2007 claims. We note that we provide estimated CY 2008 outlier payments by hospital for hospitals with claims included in the claims data that we used to model impacts on the CMS Web site in the Hospital--Specific Impacts--Provider-Specific Data file on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/.

2. Proposed Outlier Calculation

For CY 2008, we proposed to continue our policy of setting aside 1.0 percent of aggregate total payments under the OPPS for outlier payments. We proposed that a portion of that 1.0 percent, 0.03 percent, would be allocated to CMHCs for partial hospitalization program service outliers. This amount is the amount of estimated outlier payments resulting from the proposed CMHC outlier threshold of 3.4 times the APC payment rate, as a proportion of all payments dedicated to outlier payments. For this final rule, we estimate that 0.02 percent of total outlier payments would be allocated to CMHC's for partial hospitalization program service outliers. For further discussion of CMHC outliers, we refer readers to section II.B.3. of this final rule with comment period.

In order to ensure that estimated CY 2008 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS, we proposed that the outlier threshold be set so that outlier payments would be triggered when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $2,000 fixed-dollar threshold. This proposed threshold reflected minor changes to the methodology discussed below as well as APC recalibration, including changes due in part to the CY 2008 packaging approach discussed in section II.A.4.c. of this final rule with comment period.

We calculated the fixed-dollar threshold for the CY 2008 proposed rule using largely the same methodology as we did in CY 2007, except that we proposed to adjust the overall CCRs to reflect the anticipated annual decline in overall CCRs, discussed below, and to use CCRs from the most recent update to the Outpatient Provider-Specific File (OPSF), rather than CCRs we calculate internally for ratesetting. As noted in the CY 2008 OPPS/ASC proposed rule (72 FR 42699), in November 2006 we issued Transmittal 1030, ``Policy Changes to the Fiscal Intermediary (FI) Calculation of Hospital Outpatient Payment System (OPPS) and Community Mental Health Center (CMHC) Cost to Charge Ratios (CCRs),'' instructing fiscal intermediaries (or, if applicable, MACs) to update the overall CCR calculation for outlier and other cost-based payments using the CCR calculation methodology that we finalized for CY 2007. As discussed in the CY 2007 OPPS/ASC proposed rule and final rule with comment period, this methodology aligned the fiscal intermediary's CCR calculation and the CCR calculation we previously used to model outlier thresholds by removing allied and nursing health costs for those hospitals with paramedical education programs from the fiscal intermediary's CCR calculation and weighting our ``traditional'' CCR calculation by total Medicare Part B charges. We believe that the OPSF best estimates the CCRs that fiscal intermediaries (or, if applicable, MACs) would use to determine outlier payments in CY 2008. For the proposed rule, we used the April update to the OPSF. We supplemented a CCR calculated internally for the handful of providers with claims in our claims dataset that were not listed in the April update to the OPSF.

The claims that we use to model each OPPS update lag by 2 years. For the proposed rule, we used CY 2006 claims to model the CY 2008 OPPS. In order to estimate CY 2008 outlier payments for the proposed rule, we inflated the charges on the CY 2006 claims using the same inflation factor of 1.1504 that we used to estimate the IPPS fixed- dollar outlier threshold for the FY 2008 IPPS proposed rule. For 1 year, the inflation factor is 1.0726. The methodology for determining this charge inflation factor was discussed in the FY 2008 IPPS proposed rule (72 FR 24837) and in the FY 2008 IPPS final rule with comment period (72 FR 47417). As we stated in the CY 2005 OPPS final rule with comment period, we believe that the use of this charge inflation factor is appropriate for the OPPS because, with the exception of the routine service cost centers, hospitals use the same cost centers to capture costs and charges across inpatient and outpatient services (69 FR 65845).

In comments on the CY 2007 OPPS/ASC proposed rule, a commenter asked that CMS modify the charge methodology used to set the OPPS outlier threshold to account for the change in CCRs over time in a manner similar to that used for the FY 2007 IPPS. The commenter indicated that it would be appropriate to apply an inflation adjustment factor so that the CCRs that CMS uses to simulate OPPS outlier payments would more closely reflect the CCRs that would be used in CY 2007 to determine actual outlier payment. In the CY 2007 OPPS/ASC final rule with comment period, we expressed concern that cost increases between inpatient and outpatient departments could be different and indicated that we would study the issue and address any changes to the outlier methodology through future rulemaking (71 FR 68012).

In assessing the possibility of utilizing a cost inflation adjustment for the OPPS, we determined that we could not calculate an OPPS-specific reliable cost per unit, comparable to the cost per discharge component of the IPPS calculation, because of variability in definition of an OPPS unit of service across calendar years. However, we also believed that the costs and charges reported under the applicable cost centers largely are commingled inpatient and outpatient costs and charges. We did not want to systematically overestimate the OPPS outlier threshold as could occur if we did not apply a CCR inflation adjustment factor. Therefore, we proposed to apply the CCR adjustment factor that was proposed to be applied for IPPS outlier calculation to the CCRs used to simulate the CY 2008 OPPS outlier payments that determined the fixed-dollar threshold. Specifically, for CY 2008, we proposed to apply an adjustment of 0.9912 to the CCRs that are currently on the OPSF to trend them forward from CY 2007 to CY 2008. The methodology for calculating this adjustment is discussed in the FY 2008 IPPS proposed rule (72 FR 24837) and the FY 2008 IPPS final rule with comment period (72 FR 47417).

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Therefore, for the CY 2008 proposed rule, we applied the overall CCRs from the April 2007 OPSF file after adjustment to approximate CY 2008 CCRs (using the proposed CCR inflation adjustment factor of 0.9912) to charges on CY 2006 claims that were adjusted to approximate CY 2008 charges (using the proposed charge inflation factor of 1.1504). We simulated aggregated CY 2008 outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple constant and assuming that outlier payment would continue to be made at 50 percent of the amount by which the cost of furnishing the service would exceed 1.75 times the APC payment amount, until the total outlier payments equaled 1.0 percent of aggregated estimated total CY 2008 OPPS payments. We estimated that a proposed fixed-dollar threshold of $2,000, combined with the proposed multiple threshold of 1.75 times the APC payment rate, would allocate 1.0 percent of aggregated total OPPS payments to outlier payments. We proposed to continue to make an outlier payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the fixed-dollar $2,000 threshold are met. For CMHCs, if a CMHC provider's cost for partial hospitalization exceeds 3.4 times the payment rate for APC 0033, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.4 times the APC payment rate.

We received several public comments related to this proposal. A summary of the public comments and our responses follow.

Comment: Several commenters requested that CMS publish annual outlier payments as a percentage of total OPPS payment.

Response: We currently publish the total outlier payments as a percent of total payment for past years in the annual OPPS/ASC proposed and final rules. We have projected outlier payments to be 1.1 percent of total OPPS payments for CY 2006, the most complete set of full year claims data that currently exists. We plan to continue to publish these numbers for future years, after we have full year cost data. For CY 2008, we estimate that outlier payments will be 1.0 percent of total payment.

Comment: One commenter agreed with our proposal to raise the fixed dollar outlier threshold accordingly so that the 1.0 percent target for outlier payments is met. Other commenters requested that CMS lower the fixed dollar threshold so that a greater number of services would be eligible for outlier payments. One commenter noted that the proposed increased fixed dollar threshold significantly reduced the number of services that would be eligible for outlier payments. Another commenter expressed concern that increased OPPS packaging would cause CMS to pay less in outlier payments than in the past. Other commenters were concerned that the fixed dollar outlier threshold that CMS proposed was set too high and would result in CMS spending less money than allocated for the projected 1.0 percent outlier target. These commenters argued that the estimated outlier target amount has historically been greater than the actual need, and they asked that CMS either reduce the set- aside amount and retain that money in the base OPPS rates or reduce the threshold for qualification so that the outlier expenditures would be at a zero balance at the end of each year. Several commenters asked that CMS limit the increase in the outlier threshold to the amount of the market basket update each year, which would mean, for CY 2008, that the CY 2008 threshold would be increased by only 3.3 percent. Other commenters suggested that the outlier payment be increased from 50 percent to 80 percent of the difference between the APC payment and the cost of the service. They believed that this would more appropriately account for the additional cost of the service and make the outlier payment policy consistent with IPPS policy.

Response: Consistent with the views of most commenters, we are reducing the proposed fixed dollar outlier threshold based on our updated analysis for this final rule with comment period, where we use the most current claims and cost report data and final payment policies to estimate the threshold that would allow us to pay CY 2008 outlier payments of 1.0 percent of total CY 2008 OPPS payment.

In CY 2008, the OPPS outlier outlay is projected to be 1.0 percent of total payments. We note that our projections for CY 2008 outlier payments take into account the final packaging policies, as well as all other final payment policies, of the OPPS. We acknowledge that outlier payments are an integral component of the OPPS and could be particularly important as the APC payment bundles grow larger and hospitals potentially experience financially greater risk associated with individual patient encounters. In a movement toward encounter- based or episode-based payment, multiple service payments for a claim could become less common, and OPPS outlier payments could come to be increasingly targeted toward clinical cases rather than individual services, consistent with the customary role of outlier payment in a prospective payment system. We prospectively set the outlier thresholds so that we will pay 1.0 percent of projected payment based on our best inflation assumptions and model of final payment policies. The final policy to increase packaging for the CY 2008 OPPS should not result in less aggregate outlier payment in CY 2008 than other years, although the distribution of payment across APCs will change.

We believe that the estimated total CY 2008 outlier payments will meet the target of 1.0 percent of total OPPS payments. In CY 2006, aggregated outlier payments were 1.1 percent of aggregated total spending, while the target was set at 1.0. As we indicated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010), in the final set of CY 2005 OPPS claims, aggregated outlier payments were 2.39 percent of aggregated total OPPS payments, while the target was set at 2.0 percent. Similarly, using the final set of CY 2004 OPPS claims, aggregated outlier payments were 2.5 percent of total OPPS payments, while the target was set at 2 percent. Hence, our historic estimation of outlier payments has resulted in outlier payments that exceeded our target. As noted above, we currently estimate that we will pay 0.7 percent of total payments in outlier payments in CY 2007. We believe that our proposed methodology that applies charge and CCR inflation factors to updated CY 2006 claims and overall CCRs from the most recent OPSF file to approximate CY 2008 values yields an outlier threshold that will result in more accurate aggregate program outlier payments.

We did not increase the CY 2008 outlier threshold by the market basket update of 3.3 percent because our calculations are intended to best approximate the outlier target of 1.0 percent of CY 2008 OPPS expenditures. We continue to believe that an outlier target of 1.0 percent of total OPPS payment is appropriate for the OPPS. However, we will monitor outlier payments distributed during CY 2008 to determine whether a different outlier target would be more appropriate.

Similarly, we do not believe it is appropriate to increase the payment percentage to 80 percent of the difference between the APC payment and the cost of the service in order to align it with the IPPS outlier policy. In a budget neutral system with a specified payment target, the payment percentage

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and fixed-dollar threshold have an inverse relationship. Raising the payment percentage would require us to significantly increase the fixed dollar threshold to ensure that the outlier target is not exceeded. We agree with most commenters that a relatively lower fixed-dollar threshold is more desirable for the OPPS than a higher fixed-dollar threshold, given the current size of the OPPS payment bundles.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, for the outlier calculation as outlined below. 3. Final Outlier Calculation

For CY 2008, we are applying the overall CCRs from the July 2007 OPSF file with a CCR adjustment factor of 1.0027 to approximate CY 2008 CCRs to charges on the final CY 2006 claims that were adjusted to approximate CY 2008 charges (using the final charge inflation factor of 1.1278). These are the same CCR adjustment and charge inflation factors that we used to set the IPPS fixed-dollar threshold for FY 2008 (72 FR 47418). We simulated aggregated CY 2008 outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multiple constant and assuming that outlier payment would continue to be made at 50 percent of the amount by which the cost of furnishing the service would exceed 1.75 times the APC payment amount, until the total outlier payments equaled 1.0 percent of aggregated estimated total CY 2008 OPPS payments. We estimate that a fixed-dollar threshold of $1,575, combined with the multiple threshold of 1.75 times the APC payment rate, will allocate 1.0 percent of aggregated total OPPS payments to outlier payments.

In summary, for CY 2008 we will continue to make an outlier payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the fixed-dollar $1,575 threshold are met. As discussed in section VII.B. of this final rule with comment period, brachytherapy sources will be eligible for outlier payment beginning in CY 2008. In addition, the costs of diagnostic radiopharmaceuticals and contrast media for which CY 2008 payment is packaged into the APC payments for nuclear medicine and other imaging procedures under the final packaging approach will contribute to a claim's eligibility for outlier payment in CY 2008. For CMHCs, if a CMHC provider's cost for partial hospitalization exceeds 3.4 times the payment rate for APC 0033, the outlier payment is calculated as 50 percent of the amount by which the cost exceeds 3.4 times the APC payment rate.

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

(We note that the title of this section has been changed from that used in the CY 2008 OPPS/ASC proposed rule. In that rule this section was entitled, ``Proposed Calculation of the National Unadjusted Medicare Payment.'')

The basic methodology for determining prospective payment rates for HOPD services under the OPPS is set forth in existing regulations at Sec. 419.31 and Sec. 419.32, and Sec. 419.43 and Sec. 419.44. The payment rate for services and procedures for which payment is made under the OPPS is the product of the conversion factor calculated in accordance with section II.C. of this final rule with comment period and the relative weight determined under section II.A. of this final rule with comment period. Therefore, the national unadjusted payment rate for each APC contained in Addendum A to this final rule with comment period and for HCPCS codes to which separate payment under the OPPS has been assigned in Addendum B to this final rule with comment period (Addendum B is provided as a convenience for readers) was calculated by multiplying the final CY 2008 scaled weight for the APC by the final CY 2008 conversion factor.

However, to determine the payment that will be made in a calendar year under the OPPS to a specific hospital for an APC for a service that has any of the status indicator assignments ``S,'' ``T,'' ``V,'' or ``X,'' as defined in Addendum D1 of this final rule with comment period, in a circumstance in which the multiple procedure discount does not apply and the procedure is not bilateral or discontinued, we take the following steps:

Step 1. Calculate 60 percent (the labor-related portion) of the national unadjusted payment rate. Since the initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attributable, on average, to labor. (We refer readers to the April 7, 2000 final rule with comment period (65 FR 18496 through 18497) for a detailed discussion of how we derived this percentage.) We confirmed that this labor-related share for hospital outpatient services is still appropriate during our regression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule with comment period (70 FR 68553).

Individual providers interested in calculating the final payment amount that they will receive for a specific service from the national payment rates presented in Addenda A and B to this final rule with comment period should follow the formulas presented in the following steps. The formula below is a mathematical representation of step 1 discussed above and identifies the labor-related portion of a specific payment rate for the specific service.

x--Labor-related portion of the national unadjusted payment rate

x = .60 * (national unadjusted payment rate)

Step 2. Determine the wage index area in which the hospital is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the new geographic statistical areas as a result of revised OMB standards (urban and rural) to which hospitals are assigned for FY 2008 under the IPPS, reclassifications through the MCGRB, section 1886(d)(8)(B) ``Lugar'' hospitals, and section 401 of Pub. L. 108-173. We note that the reclassifications of hospitals under the one-time appeals process under section 508 of Pub. L. 108-173 expired on September 30, 2007, and is no longer applicable in this determination of appropriate wage values for the CY 2008 OPPS. The wage index values include the occupational mix adjustment described in section II.D. of this final rule with comment period that was developed for the final FY 2008 IPPS payment rates published in the Federal Register on August 22, 2007 (72 FR 47309 through 47315) and corrected in the correction notice to the FY 2008 IPPS final rule with comment period published in the Federal Register on October 10, 2007 (72 FR 57634 through 57738).

Step 3. Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hospital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173. Addendum L to this final rule with comment period contains the qualifying counties and the final wage index increase developed for the FY 2008 IPPS published in the FY 2008 IPPS final rule with comment period (72 FR 47339) and corrected in the correction notice to the FY 2008 IPPS final rule with comment period published in the Federal Register on October 10, 2007 (72 FR 57634 through 57738). This step is to be followed only

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if the hospital has chosen not to accept reclassification under Step 2 above.

Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by the amount determined under Step 1 that represents the labor- related portion of the national unadjusted payment rate.

The formula below is a mathematical representation of step 4 discussed above and adjusts the labor-related portion of the national payment rate for the specific service by the wage index.

xa--Labor-related portion of the national unadjusted payment rate (wage adjusted xa= 60 * (national unadjusted payment rate) * applicable wage index.

Step 5. Calculate 40 percent (the nonlabor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted payment rate for the relevant wage index area.The formula below is a mathematical representation of step 5 discussed above and calculates the remaining portion of the national payment rate, the amount not attributable to labor, and the adjusted payment for the specific service.

y--Nonlabor-related portion of the national unadjusted payment rate y = .40 * (national unadjusted payment rate) Adjusted Medicare Payment = y + xa

Step 6. If a provider is a SCH, as defined in Sec. 412.92, or an EACH, which is considered to be a SCH under section 1886(d)(5)(D)(iii)(III) of the Act, and located in a rural area, as defined in Sec. 412.64(b), or is treated as being located in a rural area under Sec. 412.103, multiply the wage index adjusted payment rate by 1.071 to calculate the total payment.

The formula below is a mathematical representation of step 6 discussed above and applies the rural adjustment for rural SCHs.

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 1.071

We did not receive any public comments on our proposed methodology for calculating an adjusted payment from the national unadjusted Medicare payment amount for CY 2008. Therefore, we are finalizing our methodology as proposed for CY 2008, without modification.

I. Beneficiary Copayments

1. Background

Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that the effective copayment rate (determined on a national unadjusted basis) for that service in the year does not exceed a specified percentage. For all services paid under the OPPS in CY 2008, and in calendar years thereafter, the specified percentage is 40 percent of the APC payment rate (section 1833(t)(8)(C)(ii)(V) of the Act). Section 1833(t)(3)(B)(ii) of the Act provides that, for a covered OPD service (or group of such services) furnished in a year, the national unadjusted copayment amount cannot be less than 20 percent of the OPD fee schedule amount. Sections 1834(d)(2)(C)(ii) and (d)(3)(C)(ii) of the Act further require that the copayment for screening flexible sigmoidoscopies and screening colonoscopies be equal to 25 percent of the payment amount. We have applied the 25-percent copayment to screening flexible sigmoidoscopies and screening colonoscopies since the beginning of the OPPS. 2. Copayment

For CY 2008, we proposed to determine copayment amounts for new and revised APCs using the same methodology that we implemented for CY 2004. (We refer readers to the November 7, 2003 OPPS final rule with comment period (68 FR 63458).) The unadjusted copayment amounts for services payable under the OPPS that will be effective January 1, 2008, are shown in Addendum A and Addendum B to this final rule with comment period.

We have historically used standard rounding principles to establish a 20 percent copayment for those few circumstances where the copayment rate was between 19.5 and 20 percent using our established copayment rules. For example, the CY 2008 proposed payment and copayment amounts for APC 9228 (Tigecycline injection) were $0.91 and $0.18, respectively. Twenty percent of $0.91 is $0.182. Because it would be impossible to set a copayment rate at exactly 20 percent in this case, that is, $0.182, we proposed to round the amount, using standard rounding principles, to $0.18. Also using standard rounding principles, 19.78 percent ($0.18 as a percentage of $0.91) rounds to 20 percent and meets the statutory requirement of a copayment amount of at least 20 percent. For CY 2008, APC 9046 (Iron Sucrose Injection) had a proposed payment amount and copayment amount of $0.37 and $0.08, respectively. Using our established copayment rules, 20 percent of $0.37 is $0.074. Normally, we would apply standard rounding principles to achieve an amount that is payable, here $0.07 rather than $0.074. However, if we were to set a copayment amount of $0.07, which is 18.9 percent of $0.37, we would not be setting a copayment rate that is at least 20 percent of the OPPS payment rate. As proposed, we continue to believe that section 1833(t)(3)(B) of the Act requires us to set a copayment amount that is at least 20 percent of the OPPS payment amount, not less than 20 percent. Therefore, we proposed to set the copayment rate for APC 9046 at $0.08. Eight cents represents the lowest amount that we could set that would bring the copayment rate to 20 percent or, in this case, just above 20 percent. We proposed to apply this same methodology in the future to instances where the application of our standard copayment methodology would result in a copayment amount that is under 20 percent and cannot be rounded, under standard rounding principles, to 20 percent.

We did not receive any public comments on this proposal, and, therefore, we are adopting it as final, without modification. 3. Calculation of an Adjusted Copayment Amount for an APC Group

To calculate the OPPS adjusted copayment amount for an APC group, take the following steps:

Step 1. Calculate the beneficiary payment percentage for the APC by dividing the APC's national unadjusted copayment by its payment rate. For example, using APC 0001, $7.00 is 23 percent of $30.61.

Individuals interested in calculating the their final copayment liability for a given service from the national copayment rates presented in Addenda A and B should follow the formulas presented in the following steps. The formula below is a mathematical representation of step 1 discussed above and calculates national copayment as a percentage of national payment for a given service.

b--Beneficiary payment percentage b = national unadjusted copayment for APC / national unadjusted payment rate for APC

Step 2. Calculate the wage adjusted payment rate for the APC, for the provider in question, as indicated in section II.H. of this final rule with comment period. Calculate the rural adjustment for eligible providers as indicated in section II.H. of this final rule with comment period.

Step 3. Multiply the percentage calculated in Step 1 by the payment rate calculated in Step 2. The result is the wage-adjusted copayment amount for the APC.

[[Page 66688]]

The formula below is a mathematical representation of step 3 discussed above and applies the beneficiary percentage to the adjusted payment rate for a service calculated under II.H. above, with and without the rural adjustment, to calculate the final adjusted beneficiary copayment for a given service.

Wage-adjusted copayment amount for the APC = Adjusted Medicare Payment * b Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted Medicare Payment * 1.071)* b

The unadjusted copayments for services payable under the OPPS that will be effective January 1, 2008, are shown in Addenda A and B to this final rule with comment period.

We did not receive any public comments concerning the proposed methodology for calculating the unadjusted copayment amount for CY 2008. Therefore, we are finalizing our proposal without modification.

III. OPPS Ambulatory Payment Classification (APC) Group Policies

A. Treatment of New HCPCS and CPT Codes

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

For the July quarter of CY 2007, we created a total of 16 new Level II HCPCS codes, specifically C2638, C2639, C2640, C2641, C2642, C2643, C2698, C2699, C9728, Q4087, Q4088, Q4089, Q4090, Q4091, Q4092, and Q4095 that were not addressed in the CY 2007 OPPS/ASC final rule with comment period that updated the CY 2007 OPPS. We designated the payment status of these codes and added them through the July 2007 update (Change Request 5623, Transmittal 1259, dated June 1, 2007). There were no new Level II HCPCS codes for the April 2007 update. In the CY 2008 OPPS/ASC proposed rule, we also solicited public comment on the status indicators, APC assignments, and payment rates of these codes, which were listed in Table 26A and Table 26B of that proposed rule, and now appear in Tables 10 and 11, respectively, of this final rule with comment period. Because of the timing of the proposed rule, the codes implemented through the July 2007 OPPS update were not included in Addendum B to that rule. In the CY 2008 OPPS/ASC proposed rule, we proposed to assign the new HCPCS codes for CY 2008 to APCs with the proposed rates as displayed in Tables 26A and 26B and incorporate them into Addendum B of this final rule with comment period for CY 2008, which is consistent with our annual APC updating policy. As noted in Table 13 of this final rule with comment period, HCPCS codes Q4087, Q4088, Q4089, Q4090, Q4091, Q4092, and Q4095 will be deleted on December 31, 2007 and replaced with HCPCS J-codes effective January 1, 2008. Readers should refer to Table 13 for their replacement codes. b. Implantation of Interstitial Devices (APC 0156)

Effective January 1, 2007, CPT code 55876 (Placement of interstitial device(s) for radiation therapy guidance (e.g., fiducial markers, dosimeter), prostate (via needle, any approach), single or multiple) was implemented. We assigned this code to APC 0156 (Level III Urinary and Anal Procedures) for CY 2007 on an interim final basis. We then created a new Level II HCPCS code for a similar interstitial device implantation service for non-prostate sites, C9728 (Placement of interstitial device(s) for radiation therapy/surgery guidance (e.g., fiducial markers, dosimeter), other than prostate (any approach), single or multiple). We implemented HCPCS code C9728 effective July 1, 2007 via Program Transmittal 1259 dated June 1, 2007, as a result of information we received during our evaluation of an application for assignment of the implantation of a radiation dose verification system to a New Technology APC. We assigned HCPCS code C9728 to APC 0156 because we believed it was similar to CPT code 55876 from both clinical and resource perspectives. We proposed to maintain both CPT code 55876 and HCPCS code C9728 in APC 0156 for CY 2008, with a proposed payment rate of approximately $195.

We received a number of comments on the APC assignments of these codes, both on the CY 2007 OPPS/ASC final rule with comment period and on the CY 2008 proposed rule. A summary of the comments and our response follow.

Comment: A few commenters expressed concern about CMS' interim final placement of CPT code 55876 in APC 0156 for CY 2007 as shown in Addendum B to the CY 2007 final rule with comment period. Several commenters expressed similar concern regarding the proposed CY 2008 APC assignment for this code. The commenters recommended that the payment rate for implanting the interstitial devices not incorporate the cost of the devices, because such items have a range of costs. Several commenters claimed that the costs of these devices range widely, from approximately $200 for gold markers, to $900 for implantable dosimeters, to $1200 for electromagnetic transponders, which they believed justified separate payment for the various types of interstitial devices.

Some commenters also expressed concern about the proposed CY 2008 APC placement of a new code that CMS created for non-prostate applications, specifically HCPCS code C9728 which was assigned to APC 0156, effective July 1, 2007, because it is similar to CPT code 55876. Several commenters asserted that the payment for HCPCS code C9728 should include the costs of dosimeter sensors, which they believed are currently excluded. These commenters also noted that payment for CPT code 55876 excludes the cost of dosimeter sensors. They recommended that CMS develop Level II HCPCS codes that permit hospitals to report the specific technologies associated with HCPCS code C9728 and CPT code 55876 in each clinical case and receive appropriate payment for the specific interstitial device implanted.

Several commenters pointed out that the CPT coding instructions for CPT code 55876 instruct coders to report the supply of devices for the implantation procedure separately from CPT code 55876. These commenters claimed that when the CPT Editorial Panel established the code, it did not include the implantable interstitial device and the imaging guidance for the implantation procedure in the code, and, therefore, both device costs and imaging guidance costs were excluded from the proposed CY 2008 APC payment for CPT code 55876. Because a dosimeter sensor could be implanted with CPT code 55876 for prostate applications, the commenters asserted that its costs are not reflected in that service. The commenters claimed that, unlike the instructions for CPT code 55876, the descriptor for HCPCS code C9728 does not direct coders to report the device separately. These commenters recommended that CMS assign the DVS[reg] Dosimeter device for any body site to New Technology APC 1514 (New Technology--Level XIV ($1200-$1300)), with a payment rate of $1250 for the device for CY 2008. Alternatively, they suggested that CMS package payment for all of the items and services needed to implant the dosimeter into payment for a single code which they recommended be assigned to New Technology APC 1522 (New Technology--Level XXII ($2000-$2500)). One commenter further claimed that CMS was required to set the APC assignment for the DVS[reg] device based on the cost estimate

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included in its New Technology APC application.

Response: Many procedures paid under the OPPS include payment for various implantable devices, where the procedure cost in an individual case would vary by the type of device. Our long-standing policy is to package the costs of implantable devices into payment for the procedures in which they are used, unless those devices are paid separately for a limited period of 2 to 3 years based on their transitional pass-through status. Payment for OPPS services includes payment for all costs that are directly related and integral to performing a procedure or furnishing a service on an outpatient basis, as set forth in Sec. 419.2.

According to our usual practice, when we originally evaluated CPT code 55876 for APC assignment for CY 2007, we took into consideration all information available to us about the particular service, as well as other OPPS services for which we have claims-based cost data. In particular, we considered the probable utilization of the various devices, including fiducial markers and dosimeters, whose implantation could be reported with the CPT code, as well as possible implantation approaches, recognizing that a prospective payment system is based on principles of averaging. For established services paid under the OPPS, payment is generally based on the median cost of the service from claims data. Although CPT instructions state that the supply of the implantable device is to be reported separately, we considered the device costs associated with CPT code 55876, which would be packaged into payment for the implantation procedure under the OPPS even if the device were separately reported, when we assigned the CPT code to APC 0156. A previous pass-through device category, C1879 (Tissue marker (implantable)) for a device that we believe could be reported with CPT code 55876, was active from August 2000 through December 2002. After its expiration, the cost of tissue markers has been packaged into the OPPS payment for the procedures in which they are used. We note that the line-item CY 2006 median cost for HCPCS code C1879 for an implantable tissue marker was $88 based on approximately 18,600 units of this device. Although there was no specific HCPCS device code for a dosimeter in CY 2007, we would consider payment for the dosimeter packaged under the OPPS into the implantation procedure and would have no need to establish a specific HCPCS code for the dosimeter for OPPS payment purposes. There may be other devices whose implantation would also be reported with CPT code 55876 and, similarly, we would package their payment under the OPPS. We note that the CMS HCPCS Workgroup has created two related supply codes for CY 2008, specifically A4648 (Tissue marker, implantable, any type, each) and A4650 (Implantable radiation dosimeter, each), which will be packaged under the OPPS for CY 2008 and which could also be reported in association with CPT code 55876. Therefore, any of these HCPCS codes for devices or supplies, A4648, A4650 or C1879, are reportable with service codes 55876 or C9728.

In response to public comments on the CY 2007 OPPS/ASC final rule with comment period and on the CY 2008 proposed rule on the proposed assignment of CPT code 55876 for CY 2008, we once again examined information available to us regarding procedures that could be reported with the CPT code, along with updated claims data for other OPPS services. We continue to believe that APC 0156 is the most appropriate APC assignment for CPT code 55876, based on the expected median cost and utilization of all of the services that would be reported with the code under the OPPS. We will first have claims data for CPT code 55876 for the CY 2009 OPPS update, which we will review in the context of our CY 2009 update proposals.

We note that during CY 2007, we evaluated a New Technology APC application submitted by the manufacturer of the DVS[reg] System for a service the applicant entitled ``Implantation of the DVS[reg] Dosimeter.'' We did not approve an item or service for payment specifically for the DVS[reg] Dosimeter. However, we approved creation of a new code for a service for non-prostate placement of interstitial device(s) for radiation therapy or surgical guidance, using such devices as fiducial markers or dosimeters. As explained by the commenters, and similar to CPT code 55876, this procedure could implant devices with a wide range of costs, including dosimeters that commenters claimed ranged from $900 to $1200. Our general policy in creating a new service code under the OPPS, whether we assign it to a clinical or New Technology APC, is to develop a general service code so that it may be reported for a range of technologies, rather than only for a single proprietary service. This reduces potential barriers to payment under the OPPS for related new services and is consistent with the general coding practices of the CPT Editorial Panel and the CMS HCPCS Workgroup. When we approve a new service for assignment to a New Technology APC, we are not required to set the payment rate based on the cost data presented in the New Technology APC application alone, as we have stated in our final rule published in the Federal Register on November 30, 2001. In that rule, we specifically explained that we do not limit our determination of the cost of a service to information submitted by the applicant. We obtain information on costs from other appropriate sources before making a determination of the cost of the procedure to hospitals (66 FR 59900). In addition, we note that only complete services are currently assigned to New Technology APCs, not items, such as drugs or devices.

In response to comments to the CY 2008 proposed rule on the proposed assignment of HCPCS code C9728, we examined all information available to us on procedures that could be reported with the code, as well as updated cost data from claims regarding other OPPS services. We continue to believe that the resources and utilization associated with HCPCS code C9728, including the cost of the various possible implantable devices that may be implanted in the service and the different approaches to the implantation, resemble those associated with CPT code 55876. Therefore, we will maintain HCPCS code C9728 in APC 0156 for CY 2008. We will first have data for HCPCS code C9728 for the CY 2009 OPPS update, which we will review in the context of our CY 2009 update proposals. We expect that these data will reflect the costs of the implantable devices utilized and, the extent that more costly devices, such as implantable dosimeters and electromagnetic transponders, are increasingly reported with this procedure, the cost of these devices will gradually be reflected in the median cost of HCPCS code C9728. c. Other New HCPCS Codes Implemented in April or July 2007

While we received public comments on the proposed CY 2008 OPPS treatment of HCPCS code C9728 as discussed above and HCPCS codes C2638, C2639, C2640, C2641, C2642, C2643, C2698, and C2699 as discussed in section VII. of this final rule with comment period, we did not receive any public comments on the proposed APC assignments and status indicators for HCPCS codes Q4087, Q4088, Q4089, Q4090, Q4091, Q4092, and Q4095 that were implemented in July 2007. However, for CY 2008, the CMS HCPCS Workgroup decided to delete the drug codes described by Q- codes on December 31, 2007 and replace them with permanent J-codes effective

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January 1, 2008. Consistent with our general policy of using permanent HCPCS codes for the reporting of drugs under the OPPS in order to streamline coding, we are displaying the J-codes in Table 13 that will replace the seven Q-codes, effective January 1, 2008. We note that Q codes are temporary national HCPCS codes. To avoid duplication, temporary national HCPCS codes, such as ``C-,'' ``G-,'' ``K-,'' and ``Q-codes,'' are generally deleted once permanent national HCPCS codes are created that describe the same item, service, or procedure. The J- codes describe the same drugs and the same dosages as the Q-codes that will be deleted December 31, 2007. Because we did not receive any public comments on the proposed CY 2008 APC and status indicator assignments for the new HCPCS codes, with the exception of HCPCS code C9728, that were implemented in July 2007, we are adopting our proposal as final, without modification, and are assigning the replacement HCPCS J codes to the same status indicators and APCs that were proposed for the predecessor Q-codes, as shown in Addendum B to this final rule with comment period.

Table 12.--New Non-Drug Hcpcs Codes Implemented in July 2007

Final CY HCPCS code

Long descriptor

Final CY 2008 status Final CY 2008 median indicator

2008 APC cost

C2638.................... Brachytherapy source, stranded, K........................

2638

$45 iodine-125, per source. C2639.................... Brachytherapy source, non-

K........................

2639

32 stranded, iodine-125, per source. C2640.................... Brachytherapy source, stranded, K........................

2640

65 palladium-103, per source. C2641.................... Brachytherapy source, non-

K........................

2641

51 stranded, palladium-103, per source. C2642.................... Brachytherapy source, stranded, K........................

2642

97 cesium-131, per source. C2643.................... Brachytherapy source, non

K........................

2643

63 stranded, cesium-131, per source. C2698.................... Brachytherapy source, stranded, K........................

2698

45 not otherwise specified, per source. C2699.................... Brachytherapy source, non-

K........................

2699

31 stranded, not otherwise specified, per source. C9728.................... Placement of interstitial

T........................

0156

192 device(s) for radiation therapy/ surgery guidance (eg, fiducial markers, dosimeter), other than prostate (any approach) single or multiple.

Table 13.--New Drug Hcpcs Codes Implemented in July 2007

Final CY New HCPCS J-code effective HCPCS Q-

Long descriptor

2008 status Final CY January 1, 2008

code

indicator 2008 APC

J1568..........................

Q4087 Injection, immune globulin, (Octogam),

K

0943 intravenous, non-lyophilized, (e.g. liquid), 500 mg. J1569..........................

Q4088 Injection, immune globulin,

K

0944 (Gammagard), intravenous, non- lyophilized, (e.g. liquid), 500 mg. J2791..........................

Q4089 Injection, rho(d) immune globulin

K

0945 (human), (Rhophylac), intravenous, 100 iu. J1571..........................

Q4090 Injection, hepatitis b immune globulin

K

0946 (Hepagam B), intramuscular, 0.5 ml. J1572..........................

Q4091 Injection, immune globulin,

K

0947 (Flebogamma), intravenous, non- lyophilized, (e.g. liquid), 500 mg. J1561..........................

Q4092 Injection, immune globulin, (Gamunex),

K

0948 intravenous, non-lyophilized, (e.g. liquid), 500 mg. J3488..........................

Q4095 Injection, zoledronic acid (Reclast),

K

0951 1 mg.

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

a. Establishment and Assignment of New Codes

As has been our practice in the past, we implement new Category I and III CPT codes and new Level II HCPCS codes through program transmittals, which are released in the summer through the fall of each year for annual updating, effective January 1, in the final rule updating the OPPS for the following calendar year. These codes are flagged with comment indicator ``NI'' in Addendum B to the OPPS/ASC final rule with comment period to indicate that we are assigning them an interim payment status which is subject to public comment following publication of the final rule that implements the annual OPPS update. (We refer readers to the discussion immediately below concerning our policy for implementing new Category I and III mid-year CPT codes.) In the CY 2008 OPPS/ASC proposed rule, we proposed to continue this recognition and process for CY 2008. Therefore, new Category I and III CPT codes and new Level II HCPCS codes, effective January 1, 2008, are listed in Addendum B to this final rule with comment period and designated using comment indicator ``NI.'' The status indicator, the APC assignment, or both, for all such codes flagged with comment indicator ``NI'' is open to public comment in this final rule with comment period. As indicated in the CY 2008 OPPS/ASC proposed rule, we will respond to all comments received concerning these codes in a subsequent final rule for the next calendar year's OPPS/ASC update.

We did not receive any public comments on our proposal to assign a comment indicator of ``NI'' in Addendum B of the OPPS final rule with comment period to the new codes that are open to public comment. Therefore, we are finalizing our proposed treatment of new CY 2008 Category I and III CPT codes, as well as the Level II HCPCS codes, without modification.

We received some comments to the CY 2008 proposed rule regarding individual new HCPCS codes that commenters expected to be implemented for the first time in the CY 2008 OPPS. We could not discuss the CY 2008 codes, including their APC

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and/or status indicator assignments, because the codes were not available when we developed and issued the proposed rule. For those new Category I CPT codes whose descriptors were not officially available during the comment period and development of the CY 2008 final rule with comment period, we do not specifically respond to those comments in this final rule with comment period. For those new Category III CPT codes that were released on July 1, 2007, for implementation January 1, 2008, we respond to those comments in this final rule with comment period because those codes were publicly available during the comment period to the proposed rule and the development of this final rule with comment period. Both of these groups of codes are flagged with comment indicator ``NI'' in this final rule with comment period, as discussed above, to signal that they are open to public comment.

Effective for January 1, 2008, we have created eight HCPCS C-codes that describe transthoracic echocardiography with contrast and transesophageal echocardiography with contrast to enable facilities to appropriately report contrast-enhanced echocardiography services. (See section II.A.4.c(6) of this final rule with comment period for further discussion of these codes). Effective January 1, 2008, these C-codes will be used by HOPDs to report contrast echocardiography services. These codes are assigned comment indicator ``NI'' in Addendum B to this final rule with comment period.

In the CY 2008 OPPS/ASC proposed rule, we also proposed to continue our policy of the last 2 years of recognizing new mid-year CPT codes, generally Category III CPT codes, that the AMA releases in January for implementation the following July through the OPPS quarterly update process. Therefore, for CY 2008, we proposed to include in Addendum B to the CY 2008 OPPS/ASC final rule with comment period the new Category III CPT codes released in January 2007 for implementation on July 1, 2007 (through the OPPS quarterly update process), and the new Category III codes released in July 2007 for implementation on January 1, 2008. However, as proposed, only those new Category III CPT codes implemented effective January 1, 2008, are flagged with comment indicator ``NI'' in Addendum B to this final rule with comment period, to indicate that we have assigned them an interim payment status which is subject to public comment. Category III CPT codes implemented in July 2007, which appeared in Table 27 of the proposed rule and are displayed in Table 14 of this final rule with comment period, were subject to comment in the proposed rule, and we proposed to finalize their status in this final rule with comment period. b. Electronic Brachytherapy Services (New Technology APC 1519)

The AMA's CPT Editorial Panel created a new Category III code, 0182T (High dose rate (HDR) electronic brachytherapy, per fraction), as of July 1, 2007. We assigned CPT code 0182T to New Technology APC 1519 (New Technology--Level IXX ($1700-$1800)), with a payment rate of $1750, as of July 1, 2007 (via Program Transmittal 1259, Change Request 5623).

We received a wide variety of comments regarding the proposed assignment of CPT code 0182T to New Technology APC 1519. A summary of the comments and our response follows.

Comment: Some commenters thought the proposed assignment provided a payment that was too high, some believed the proposed payment was too low, while others agreed with the proposed APC assignment. A number of commenters believed that placement of CPT code 0182T into APC 1519 resulted in a payment amount much higher relative to existing APCs for application of brachytherapy sources, specifically, APCs 0312 (Radioelement Applications), 0313 (Brachytherapy), and 0651 (Complex Interstitial Radiation Source Application), with proposed CY 2008 payment rates of $534.48, $739.46, and $981.88, respectively. One commenter indicated that only a very small number of patients would be treated using electronic brachytherapy. Another commenter expressed appreciation of CMS's prompt assignment of new technologies to APCs, while some commenters were concerned that the proposed payment for CPT code 0182T as a new technology service was between two and three times the payment rate for the other conventional brachytherapy service APCs cited above. These commenters believed that the proposed payment for electronic brachytherapy was excessive and, given that the risks of the treatment have yet to be clearly established, such conditions would encourage the early and possibly inappropriate adoption of this service. Some commenters recommended that CMS consult with specialty organizations regarding the pricing of new technology services prior to assigning them to APCs. Other commenters supported the proposed assignment of CPT code 0182T and recommended that the service reside in that New Technology APC for at least 2 years.

Another commenter expressed concern that the payment level was too low for a single fraction treatment of electronic brachytherapy. The commenter pointed out that two applications for New Technology APCs were submitted to CMS for electronic brachytherapy with the following descriptions: (a) HDR electronic brachytherapy, complete course as a single fraction, and (b) HDR electronic brachytherapy, per fraction. The commenter claimed that the two forms of HDR electronic brachytherapy are each unique and should not be classified into the same APC. The commenter requested that a new HCPCS code for HDR electronic brachytherapy, complete course as a single fraction, be developed and assigned to APC 1529 (New Technology--Level XXIX ($5,500- $6,000)) for CY 2008.

Response: The CY 2008 proposed APC assignment of CPT code 0182T maintained our initial placement of HDR electronic brachytherapy. Consistent with our recent OPPS practice for Category III CPT codes that are implemented mid-year by the AMA, we recognized CPT code 0182T under the OPPS in July 2007. This recognition ensures timely collection of data pertinent to the service described by the code, ensures patient access to the service, and eliminates potential redundancy between Category III CPT codes and Level II HCPCS codes that are created by us in response to applications for new technology services.

Commenters did not provide analyses regarding the costs of the service; however, we received cost estimates from two manufacturers in their respective New Technology APC applications over the course of an extensive evaluation period. As is our customary practice, we also used claims data for related services and other sources of information to supplement information included in the New Technology APC applications in order to provide an APC assignment we believed to be appropriate at this time. Regarding the comments on potential complications or risks of the new service that has a higher payment rate than conventional brachytherapy procedures, we note that the APC assignment of a service based on its estimated cost is our usual practice for new services under the OPPS, which generally pays for services based on estimated hospital resources. In the absence of cost data from hospital claims, we believe that comparisons of OPPS payment for electronic

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brachytherapy to payment for conventional brachytherapy services that are assigned to APCs 0312, 0313, and 0651 and that implant radioactive sources are not appropriate. The law specifically requires separate payment for the brachytherapy sources, and, therefore, these costs are not included in the procedure payment for conventional brachytherapy services that are reported for implanting the sources. We define brachytherapy sources as containing a radioactive isotope so, by definition, in the case of electronic brachytherapy treatment the New Technology APC payment for the procedure would include payment for the costs of the radiation actually delivered to the patient. Thus, it is not appropriate to compare the costs of conventional and electronic brachytherapy treatments based on a comparison of the treatment procedure costs alone.

In light of the commenters' concerns regarding safety of the new procedures, we reiterate that even though a service is assigned a HCPCS code and a payment rate under the OPPS, it does not imply coverage by the Medicare program but indicates only how the service may be paid if covered by the program. Unless CMS has issued a national coverage determination (NCD), local contractors determine whether a service meets all program requirements for coverage. While we do not specifically consult with specialty organizations during the New Technology APC application evaluation process that may result in an initial APC assignment for a service, the APC assignments of new technology services, like all other OPPS services, are open to comment in the annual OPPS update, and we welcome public comments.

We will not create a new Level II HCPCS code for HDR electronic brachytherapy, complete course as a single fraction, and assign it to a different New Technology APC. We evaluated both New Technology APC applications at length and received input from both applicants. We believe that the two forms of HDR electronic brachytherapy, whether provided in a single fraction or multiple fractions depending on the technology, are both described by CPT code 0182T that is appropriately assigned to a single APC. We note that the payment is per fraction, and that would include a single fraction treatment as well.

After reviewing the public comments received and all current information available to us regarding HDR electronic brachytherapy and other hospital outpatient services, we continue to believe that New Technology APC 1519, with a payment rate of $1750, is the most appropriate assignment for CPT code 0182T. Therefore, we are finalizing our proposal, without modification, to maintain the assignment of CPT code 0182T to New Technology APC 1519, with a payment rate of $1750 for CY 2008. c. Other Mid-Year CPT Codes

We did not receive any comments on the proposed CY 2008 APC and status indicator assignments of Category III CPT codes first implemented in July 2007 for services other than CPT code 0182T. After considering the public comments received on CPT code 0182T, we are finalizing our general proposal for the treatment of new mid-year CPT codes, including our proposed APC assignments for CPT code 0182T and other Category III CPT codes as displayed Table 14.

Table 14.--Category III CPT Codes Implemented in July 2007

Final CY 2008 status CPT code

Long descriptor

indicator

Final CY 2008 APC

0178T.................. Electrocardiogram, 64 leads or B...................... Not applicable. greater, with graphic presentation and analysis; with interpretation and report. 0179T.................. Electrocardiogram, 64 leads or X...................... 0100 greater, with graphic presentation and analysis; tracing and graphics only, without interpretation and report. 0180T.................. Electrocardiogram, 64 leads or B...................... Not applicable. greater, with graphic presentation and analysis; interpretation and report only. 0181T.................. Corneal hysteresis

S...................... 0230 determination, by air impulse stimulation, bilateral, with interpretation and report. 0182T.................. High dose rate electronic S...................... 1519 brachytherapy, per fraction.

B. Variations Within APCs

1. Background

Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient services. Section 1833(t)(2)(B) of the Act provides that this classification system may be composed of groups of services, so that services within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification system, referred to as APCs, as set forth in Sec. 419.31 of the regulations. We use Level I and Level II HCPCS codes and descriptors to identify and group the services within each APC. The APCs are organized such that each group is homogeneous both clinically and in terms of resource use. Using this classification system, we have established distinct groups of similar services, as well as medical visits. We also have developed separate APC groups for certain medical devices, drugs, biologicals, radiopharmaceuticals, and brachytherapy devices.

We have packaged into payment for each procedure or service within an APC group the costs associated with those items or services that are directly related to and supportive of performing the main procedures or furnishing services. Therefore, we do not make separate payment for packaged items or services. For example, packaged items and services include: (1) Use of an operating, treatment, or procedure room; (2) use of a recovery room; (3) most observation services; (4) anesthesia; (5) medical/surgical supplies; (6) pharmaceuticals (other than those for which separate payment may be allowed under the provisions discussed in section V. of this final rule with comment period); and (7) incidental services such as venipuncture. Our final packaging methodology for ancillary and supportive services is discussed in section II.A.4.c. of this final rule with comment period.

Under the OPPS, we pay for hospital outpatient services on a rate- per-service basis, where the service may be reported with one or more HCPCS codes. Payment varies according to the APC group to which the independent service

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or combination of services is assigned. Each APC weight represents the hospital median cost of the services included in that APC relative to the hospital median cost of the services included in APC 0606. The APC weights are scaled to APC 0606 because it is the middle level clinic visit APC (that is, where the Level 3 Clinic Visit HCPCS code of five levels of clinic visits is assigned), and because middle level clinic visits are among the most frequently furnished services in the hospital outpatient setting.

Section 1833(t)(9)(A) of the Act requires the Secretary to review the components of the OPPS not less than annually and to revise the groups and relative payment weights and make other adjustments to take into account changes in medical practice, changes in technology, and the addition of new services, new cost data, and other relevant information and factors. Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of the BBRA of 1999, also requires the Secretary, beginning in CY 2001, to consult with an outside panel of experts to review the APC groups and the relative payment weights (the APC Panel recommendations for specific services for the CY 2008 OPPS and our responses to them are discussed in the relevant specific sections throughout this final rule with comment period).

Finally, as discussed earlier, section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median for an item or service in the group is more than 2 times greater than the lowest median cost for an item or service within the same group (referred to as the ``2 times rule''). We use the median cost of the item or service in implementing this provision. The statute authorizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low-volume items and services. 2. Application of the 2 Times Rule

In accordance with section 1833(t)(2) of the Act and Sec. 419.31 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resources, if the median of the highest cost item or service within an APC group is more than 2 times greater than the median of the lowest cost item or service within that same group (``2 times rule''). We make exceptions to this limit on the variation of costs within each APC group in unusual cases such as low volume items and services.

During the APC Panel's March 2007 meeting, we presented median cost and utilization data for services furnished during the period of January 1, 2006, through September 30, 2006, about which we had concerns or about which the public had raised concerns regarding their APC assignments, status indicator assignments, or payment rates. The discussions of most service-specific issues, the APC Panel recommendations if any, and our proposals for CY 2008 are contained principally in sections III.C. and III.D. of this final rule with comment period.

In addition to the assignment of specific services to APCs that we discussed with the APC Panel, we also identified APCs with 2 times violations that were not specifically discussed with the APC Panel but for which we proposed changes to their HCPCS codes' APC assignments in Addendum B to the proposed rule. In these cases, to eliminate a 2 times violation or to improve clinical and resource homogeneity, we proposed to reassign the codes to APCs that contained services that were similar with regard to both their clinical and resource characteristics. We also proposed to rename existing APCs, discontinue existing APCs, or create new clinical APCs to complement proposed HCPCS code reassignments. In many cases, the proposed HCPCS code reassignments and associated APC reconfigurations for CY 2008 included in the proposed rule were related to changes in median costs of services and APCs resulting from our proposed bundling approach for CY 2008, as discussed in section II.A.4.c. of the proposed rule. We also proposed changes to the status indicators for some codes that were not specifically and separately discussed in the proposed rule. In these cases, we proposed to change the status indicators for some codes because we believed that another status indicator more accurately described their payment status from an OPPS perspective based on the policies that we proposed for CY 2008.

Addendum B to the proposed rule identified with a comment indicator ``CH'' those HCPCS codes for which we proposed a change to the APC assignment or status indicator as assigned in the April 2007 Addendum B update (via Change Request 5544, Transmittal 1209, dated March 21, 2007). Addendum B to this final rule with comment period identifies with the ``CH'' comment indicator the final CY 2008 changes compared to the codes' status as reflected in the October 2007 Addendum B update (via Change Request 5718, Transmittal 1336, dated September 14, 2007).

We received many public comments regarding the proposed APC and status indicator assignments for CY 2008 for specific HCPCS codes. These are discussed mainly in sections III.C. and III.D. of this final rule with comment period, and the final action for CY 2008 related to each HCPCS code is noted in those sections. We also received a number of specific comments about some of the procedures assigned to APCs that may have violated the 2 times rule. These comments are addressed elsewhere in the final rule with comment period, primarily in sections related to the types of procedures that were the subject of the comments. 3. Exceptions to the 2 Times Rule

As discussed earlier, we may make exceptions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low- volume items and services. Taking into account the APC changes that we proposed for CY 2008 based on the APC Panel recommendations discussed mainly in sections III.C. and III.D. of this final rule with comment period, the proposed changes to status indicators and APC assignments as identified in Addendum B to the proposed rule, and the use of CY 2006 claims data to calculate the median costs of procedures classified in the APCs, we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule. We used the following criteria to decide whether to propose exceptions to the 2 times rule for affected APCs:

Resource homogeneity

Clinical homogeneity

Hospital concentration

Frequency of service (volume)

Opportunity for upcoding and code fragments

For a detailed discussion of these criteria, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18457).

Table 28 of the proposed rule listed the APCs that we proposed to exempt from the 2 times rule for CY 2008 based on the criteria cited above. For cases in which a recommendation by the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel's recommendation because those recommendations were based on explicit consideration of resource use, clinical homogeneity, hospital specialization, and the quality of the data used to determine the APC payment rates that we proposed for CY 2008. The median costs for hospital outpatient services for these and all other APCs that were used in the development of the proposed rule can

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be found on the CMS Web site at: http://www.cms.hhs.gov.

We did not receive any general public comments related to the list of proposed exceptions to the 2 times rule, specifically those listed in Table 28 of the proposed rule. For the proposed rule, the list of APCs excepted from the 2 times rule were based on data from January 1, 2006, through September 30, 2006. For this final rule with comment period, we used data from January 1, 2006 through December 1, 2006. Thus, after responding to all of the comments on the proposed rule and making changes to APC assignments based on the comments received, we analyzed the full CY 2006 data to identify APCs with 2 times rule violations. In contrast to previous years, for CY 2008 we have calculated a significant number of APC medians through customized methodologies, such as device-dependent APC, APCs to which nuclear medicine procedures are assigned, and Visit APCs, that are impacted by the Extended Assessment and Management Composite APCs. Therefore, for this final rule with comment period we assessed the HCPCS code-specific median costs for HCPCS codes that are part of these customized APC median cost calculations to accurately identify 2 times violations. We also have some APCs where the concept of a 2 times violation is not relevant, typically those set based on multiple claims, such as APC 0381 for single allergy tests and APC 0375 for ancillary services when a hospital outpatient dies. Table 15 below has been revised relative to prior years to remove APCs where a 2 times violation is not a relevant concept and to identify final APCs, including those with customized median cost methodologies, with 2 times violations.

Based on our final data, we found that there were 21 APCs with 2 times rule violations. We applied the criteria as described earlier to finalize the APCs that are exceptions to the 2 times rule for CY 2008. After consideration of all public comments received on the proposed rule and the careful review of the CY 2006 claims data for the full year, we are finalizing the list of APCs exempted from the 2 times rule. The final list of APCs that are exceptions to the 2 times rule for CY 2008 is displayed in Table 15 below.

Table 15.--Final APC Exceptions to the 2 Times Rule for CY 2008

APC

APC title

0043............................ Closed Treatment Fracture Finger/Toe/ Trunk. 0058............................ Level I Strapping and Cast Application. 0060............................ Manipulation Therapy. 0080............................ Diagnostic Cardiac Catheterization. 0093............................ Vascular Reconstruction/Fistula Repair Without Device. 0105............................ Repair/Revision/Removal of Pacemakers, AICDs, or Vascular Devices. 0106............................ Insertion/Replacement of Pacemaker Leads and/or Electrodes. 0141............................ Level I Upper GI Procedures. 0235............................ Level I Posterior Segment Eye Procedures. 0251............................ Level I ENT Procedures. 0256............................ Level V ENT Procedures. 0260............................ Level I Plain Film Except Teeth. 0303............................ Treatment Device Construction. 0323............................ Extended Individual Psychotherapy. 0330............................ Dental Procedures. 0409............................ Red Blood Cell Tests. 0432............................ Health and Behavior Services. 0437............................ Level II Drug Administration. 0438............................ Level III Drug Administration. 0604............................ Level 1 Hospital Clinic Visits. 0688............................ Revision/Removal of Neurostimulator Pulse Generator Receiver.

C. New Technology APCs

1. Introduction

In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service to a clinically appropriate APC. This policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected.

We note that the cost bands for New Technology APCs range from $0 to $50 in increments of $10, from $50 to $100 in increments of $50, from $100 through $2,000 in increments of $100, and from $2,000 through $10,000 in increments of $500. These increments, which are in two parallel sets of New Technology APCs, one with status indicator ``S'' and the other with status indicator ``T,'' allow us to price new technology services more appropriately and consistently. 2. Movement of Procedures From New Technology APCs to Clinical APCs

As we explained in the November 30, 2001 final rule (66 FR 59897), we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected data sufficient to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information, or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC cost bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost.

At its March 2007 meeting, the APC Panel recommended that CMS keep services in New Technology APCs until sufficient data are available to assign them to clinical APCs, but for no longer than 2 years. We note that because of the potential for quarterly assignment of new services to New Technology APCs and the 2-year time lag in claims data for an OPPS update (that is, CY 2006 data are utilized for this CY 2008 OPPS rulemaking cycle), if we were to accept the APC Panel's recommendation, we would always reassign services from New Technology to clinical APCs based on 1 year or less of claims data. For example, if a new service was first assigned to a New Technology APC in July 2006, we would have 6 months of data for purposes of CY 2008 rulemaking but, in order to ensure that the service was in a New Technology APC for no longer than 2 years, we would need to move the service to a clinical APC for CY 2008. While we might have sufficient claims data from 6 months of CY 2006 to support a proposal for such a reassignment for CY 2008, we are not confident that this would always be the case for all new services, given our understanding of the dissemination of new technology procedures into medical practice and the diverse characteristics of new technology services that treat different clinical conditions. Therefore, we did not accept the APC Panel's recommendation for CY 2008 because we believed that accepting the recommendation would limit our ability to individually assess the OPPS treatment of each new technology service in the context of available hospital claims data. We are particularly concerned about continuing to provide appropriate payment for low volume new technology services that may be

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expected to continue to be low volume under the OPPS due to the prevalence of the target conditions in the Medicare population. We appreciate the APC Panel's thoughtful discussion of new technology services, and we agree with the APC Panel that it should be our priority to regularly reassign services from New Technology APCs to clinical APCs under the OPPS, so that they are treated like most other OPPS services for purposes of ratesetting once hospitals have had sufficient experience with providing and reporting the new services. Rather, consistent with our current policy, for CY 2008 we proposed to retain services within New Technology APC groups until we gather sufficient claims data to enable us to assign the service to a clinically appropriate APC. The flexibility associated with this policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient hospital claims data upon which to base a decision for reassignment have not been collected.

We received a number of public comments on our OPPS treatment of New Technology services. A summary of the public comments and our responses follow.

Comment: Several commenters requested that CMS reconsider maintaining a new service in a New Technology APC for a minimum of at least 2 years, to ensure sufficient claims data, before assigning it to a clinical APC. These commenters were concerned that reassigning a new service from a New Technology APC to a clinical APC in less than 2 years may result in the collection of inaccurate claims data because integration of new technologies can be slow and hospitals need time to update their chargemasters to appropriately include charges that are related to the actual costs of the new service. Other commenters reported that while a new technology service may increase hospital outpatient costs, it could ultimately replace more invasive inpatient procedures that are more costly for the Medicare program.

In addition, several commenters recommended that CMS place all new HCPCS codes for new services in New Technology APCs, rather than assigning them directly to clinical APCs, until claims data are available in order to ensure access to these services. Some commenters also recommended that CMS consider alternatives to moving procedures from New Technology APCs to clinical APCs that would prevent excessive reductions in payment, including moving procedures to different APCs, utilizing external data for ratesetting, or maintaining procedures in their current New Technology APCs.

Response: As we have stated previously, we generally keep a procedure in the New Technology APC to which it is initially assigned until we have collected sufficient claims data to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New Technology APC assignment was based on inaccurate or inadequate information, or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availability of refined New Technology APC bands, reassign the procedure or service to a different New Technology APC that most appropriately reflects its cost. This policy would allow us to retain a service in a New Technology APC for more than 3 years if sufficient data upon which to base a decision for reassignment have not been collected, and also allows us to move a service from a New Technology APC in less than 2 years if sufficient claims data are available. To retain a new service under a New Technology APC for a minimum of at least two years, especially for a service for which we have significant claims data, may result in inappropriate payment of the service. We want to ensure appropriate allocation of Medicare expenditures, and for a service that has been placed in a New Technology APC with significant claims data, we believe it is in the best interest of both the Medicare program and the beneficiary to reassign the service to an appropriate clinical APC based on clinical coherence and resource similarity.

In response to the different suggestions for transitioning new technology services from New Technology APCs to clinical APCs to prevent excessive reductions in payment, because we generally move new services from New Technology APCs to clinical APCs only when we have adequate data upon which to base a decision, we do not believe a transition would commonly be necessary in order to provide appropriate payment for the services based on their hospital costs. We have no need to utilize external data in these cases where we believe our claims data, developed according to the standard OPPS ratesetting methodology, are adequate to reassign the new services to clinical APCs. In a few past situations, we have moved services from one New Technology APC to another New Technology APC with a lower payment rate if we believed that our data were not fully developed to support a final clinical APC assignment, but we expect these cases to continue to be rare. In addition, all reassignments of services out of New Technology APCs are proposed during the annual rulemaking cycle, allowing the opportunity for public comment prior to their movement.

When evaluating new services for payment under the OPPS, we use all information available to us regarding the clinical characteristics of the procedures and the expected hospital resource costs. We reserve New Technology APC assignments for those services where we do not believe there is an appropriate clinical APC for the new service. In many cases, new HCPCS codes describe services that are similar to existing services that are paid under the OPPS and for which we have robust cost data from hospital claims. We continue to believe that it is appropriate to assign similar new and existing services to the same clinical APC in such cases. We follow the claims data closely and carefully review the New Technology and clinical APC assignments of relatively new OPPS services for each update year when new claims data become available. In addition, the OPPS treatment of all new services is open to public comment in the annual OPPS/ASC rule (either proposed or final with comment period) that follows the service's implementation under the OPPS.

After consideration of all public comments received, we are finalizing our CY 2008 proposal, without modification, to maintain a new service in a New Technology APC until we gather sufficient claims data to assign the service to a clinically appropriate APC. Thus, a service can be assigned to a New Technology APC for more than 3 years if we have insufficient claims data to reassign the service to a clinical APC, or it could be reassigned to a clinical APC in less than 2 years if we have adequate claims data. We will continue to assess new services for potential assignment to clinical APCs before assigning them to New Technology APCs.

The procedures presented below in sections III.C.2.a., III.C.2.b., and III.C.2.c. represent services assigned to New Technology APCs for CY 2007 for which we stated in the CY 2008 proposed rule that we believed we had sufficient data to propose their reassignment to clinically appropriate APCs for CY 2008.

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a. Positron Emission Tomography (PET)/Computed Tomography (CT) Scans (APC 0308)

From August 2000 through April 2005, we paid separately for PET and CT scans. In CY 2004, the payment rate for nonmyocardial PET scans was $1,450, while it was $193 for typical diagnostic CT scans. Prior to CY 2005, nonmyocardial PET and the PET portion of PET/CT scans were described by G-codes for billing to Medicare. Several commenters to the November 15, 2004 final rule with comment period (69 FR 65682) urged that we replace the G-codes for nonmyocardial PET and PET/CT scan procedures with the established CPT codes. These commenters stated that movement to the established CPT codes would greatly reduce the burden on hospitals of tracking and billing the G-codes which were not recognized by other payers and would allow for more uniform hospital billing of these scans. We agreed with the commenters that movement from the G-codes to the established CPT codes for nonmyocardial PET and PET/CT scans would allow for more uniform billing of these scans. As a result of a Medicare national coverage determination (Publication 100- 3, Medicare Claims Processing Manual section 220.6) that was made effective January 28, 2005, we discontinued numerous G-codes that described myocardial PET and nonmyocardial PET procedures and replaced them with the established CPT codes. The CY 2005 payment rate for concurrent PET/CT scans using the CPT codes 78814 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; limited area (eg, chest, head/neck)); 78815 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; skull base to mid-thigh); and 78816 (Tumor imaging, positron emission tomography (PET) with concurrently acquired computed tomography (CT) for attenuation correction and anatomical localization; whole body) was $1,250, which was $100 higher than the payment rate for PET scans alone. These PET/CT CPT codes were placed in New Technology APC 1514 (New Technology--Level XIV ($1,200-$1,300)) for CY 2005.

We continued with these coding and payment methodologies in CY 2006. For CY 2007, while we proposed to reassign both PET and PET/CT scans to the same new clinical APC, we finalized a policy that reassigned conventional PET procedures to APC 0308 (Non-Myocardial Positron Emission Tomography (PET) Imaging) with a final median cost of approximately $850. We also reassigned PET/CT services to a different New Technology APC for CY 2007, specifically New Technology APC 1511 (New Technology--Level XI ($900-$1000)), thereby maintaining the historical payment differential of about $100 between PET and PET/CT procedures. Furthermore, we stated in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68022) that we would wait for a full year of CPT-coded claims data prior to assigning the PET/CT services to a clinical APC and that maintaining a modest payment differential between PET and PET/CT procedures was warranted for CY 2007.

For CY 2008, we proposed the reassignment of concurrent PET/CT scans, specifically CPT codes 78814, 78815, and 78816, to a clinical APC because we believed we had adequate claims data from CY 2006 upon which to determine the median cost of performing these procedures. Based on our proposed rule analysis of approximately 117,000 CY 2006 single claims, the median cost of PET/CT scans was approximately $1,094. We then examined approximately 34,000 single claims from CY 2006 for nonmyocardial PET scans, as described by CPT codes 78608, 78811, 78812, and 78813, and found that the median cost was also approximately $1,094. In the proposed rule, we noted that a comparison of the median cost of PET/CT scans with the median cost of nonmyocardial PET scans, as derived from CY 2006 claims data, demonstrated that these costs were almost the same, thereby reflecting significant hospital resource equivalency between the two types of services. This result was not unexpected because many newer PET scanners also have the capability of rapidly acquiring CT images for attenuation correction and anatomical localization, sometimes with simultaneous image acquisition. The median costs for both PET and PET/ CT scans were significantly higher for CY 2008 than for CY 2007 due to our CY 2008 proposal to package payment for all diagnostic radiopharmaceuticals as described in section II.A.4.c.(5) of this final rule with comment period that would package payment for the costs of the radiopharmaceuticals utilized similarly into the payment for both PET and PET/CT scans. As stated in the proposed rule (72 FR 42705), we believe that our claims data accurately reflected the comparable hospital resources required to provide nonmyocardial PET and PET/CT procedures, and that the scans had obvious clinical similarity as well. Therefore, for CY 2008 we proposed to reassign the CPT codes for PET/CT scans to the clinical APC where nonmyocardial PET scans were also assigned, specifically APC 0308, with a proposed median cost of approximately $1,094.

We noted in the proposed rule (72 FR 42705) that we had been paying separately for fluorodeoxyglucose (FDG), the radiopharmaceutical described by HCPCS code A9552 (F18 fdg), that is commonly administered during nonmyocardial PET and PET/CT procedures. For CY 2008, consistent with the proposed packaging approach as discussed in section II.A.4.c.(5) of the proposed rule, we proposed to package payment for the diagnostic radiopharmaceutical FDG into payment for the associated PET and PET/CT procedures. Because FDG was the most commonly used radiopharmaceutical for both PET and PET/CT scans and our single claims for these procedures included FDG more than 80 percent of the time, the packaging of this radiopharmaceutical fully maintained the clinical and resource homogeneity of the reconfigured APC 0308 that we proposed.

We received a number of public comments concerning our proposed reassignment of concurrent PET/CT scans for CY 2008. A summary of the public comments and our response follow.

Comment: Several commenters thanked CMS for proposing to increase the payment rate for concurrent PET/CT scans from the CY 2007 payment of approximately $950 to approximately $1,107 for CY 2008 and ensuring that these scans are assigned to a clinical APC with other services with similar median costs. However, these commenters were concerned that the proposed payment rate for the PET/CT scans for CY 2008 would be inadequate if the payment for the diagnostic radiopharmaceutical used in these procedures, specifically FDG, was packaged into the payment for the scans. Other commenters questioned the validity of the claims used to set the proposed payment rate for the concurrent PET/CT scan procedures. They indicated that the proposal to assign concurrent PET/CT scans from a New Technology APC to clinical APC 0308 was inappropriate and unsupported by reliable data. They believed that CMS did not have sufficient or accurate claims data to justify movement of the concurrent PET/CT services from New Technology APC 1514 to clinical APC 0308. Several

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commenters suspected that the claims used to set the proposed payment rate were flawed because they believed that many hospitals had not yet updated their chargemasters to distinguish charges for the conventional nonmyocardial PET scans from charges for concurrent PET/CT scans. One commenter indicated that if CMS were to blend its own external data from the refined direct cost inputs used to establish the practice expense relative value units under the MPFS with OPPS claims data to establish a payment rate for PET/CT, the payment rate would be significantly higher than the proposed payment. Several commenters claimed that that proposed payment rate for the concurrent PET/CT procedures failed to recognize the differences in technology between the conventional nonmyocardial PET procedures and the concurrent PET/CT scans. They indicated that concurrent PET/CT scans used more advanced technology, resulting in greater capital equipment costs. Many commenters recommended that CMS continue to assign these PET/CT scans to a New Technology APC for one more year while CMS collects additional data on the cost of these procedures. Conversely, several commenters strongly urged CMS to assign the concurrent PET/CT scans to a separate clinical APC, distinct from the APC for conventional PET scans, to better reflect the incremental cost differences associated with this technology.

Response: As stated above, CPT codes 78814, 78815, and 78816 were new codes in CY 2005 and were assigned to New Technology APC 1514 with a payment rate of $1,250. We continued with this same APC assignment in CY 2006. In CY 2007, we assigned these services to a different New Technology APC, specifically New Technology APC 1511, with a payment rate of $950 in order to maintain the historical payment differential of about $100 between the conventional PET and concurrent PET/CT procedures. For CY 2007 ratesetting, we had only 9 months of claims data and public commenters were concerned that these data did not yet reflect updated and appropriate hospital charges specifically for PET/ CT scans. Therefore, concurrent PET/CT scan procedures have been assigned to a New Technology APC under the OPPS since CY 2005, a period of almost 3 years.

As we have stated in other sections of this final rule with comment period, such as in section III.D., comparisons between the MPFS and OPPS payments for services are not appropriate because the MPFS applies a very different methodology for establishing the payment for the physician's office practice expenses associated with a procedure, based on direct cost inputs. Consequently, the application of the different methodologies results in different payment amounts in the two settings.

As noted previously, under the OPPS, we retain services within New Technology APC groups where they are assigned according to our estimates of their costs until we gather sufficient claims data to enable us to assign the services to clinically appropriate APCs based on hospital resource costs as calculated from claims. We disagree with the commenters' argument that we have insufficient claims data to justify movement of concurrent PET/CT scans from New Technology APC 1511 to clinical APC 0308. For this final rule with comment period, our updated claims data for concurrent PET/CT scans showed a total of over 149,000 services performed, with about 126,000 single claims available for ratesetting. The median cost for PET/CT scans alone was approximately $1,076. Similarly, we had over 40,000 total claims for conventional PET scans, with approximately 35,000 single claims available for ratesetting. The median cost for conventional PET scans alone was approximately $1,029, very close to the median cost of PET/CT scans. Based on their common clinical characteristics and the hospital resource similarity observed in our claims data for conventional PET and concurrent PET/CT scans, we believe that our claims data are sufficiently robust to support reassignment of PET/CT scans to the same clinical APC as conventional PET scans. The final median cost of APC 0308 of approximately $1,044 appropriately reflects the similar costs of both conventional PET and concurrent PET/CT scans.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to assign concurrent PET/CT scan procedures described by CPT codes 78814, 78815, and 78816 to clinical APC 0308, with a CY 2008 median cost of approximately $1,044, which includes packaged costs for diagnostic radiopharmaceuticals used in the scans. For further discussion of our final CY 2008 payment policy for diagnostic radiopharmaceuticals, refer to section II.A.4.c.(5) of this final rule with comment period. b. IVIG Preadministration-Related Services (APC 0430)

In CY 2006, we created the temporary HCPCS code G0332 (Services for intravenous infusion of immunoglobulin prior to administration (this service is to be billed in conjunction with administration of immunoglobulin)). Based on our estimate of the costs of this service in comparison with other services, HCPCS code G0332 was assigned to New Technology APC 1502 (New Technology--Level II, $50-$100), with a payment rate of $75 effective January 1, 2006. In the CY 2007 OPPS/ASC final rule with comment period, we indicated our belief that it was appropriate to continue the temporary IVIG preadministration-related services payment through HCPCS code G0332 and its continued assignment to New Technology APC 1502 for CY 2007, in order to help ensure continued patient access to IVIG (71 FR 68092).

For CY 2008, we proposed to continue to provide separate payment for IVIG preadministration-related services through the assignment of HCPCS code G0332 to a clinical APC. This service has been assigned to a New Technology APC under the OPPS for 2-full years. As noted previously, under the OPPS, we retain services within New Technology APC groups where they are assigned according to our estimates of their costs until we gather sufficient claims data to enable us to assign the services to clinically appropriate APCs based on hospital resource costs as calculated from claims. According to our analysis of the hospital outpatient claims data, we noted we had adequate claims data from CY 2006 upon which to determine the median cost of performing IVIG preadministration related services and to reassign HCPCS code G0332 to an appropriate clinical APC for CY 2008. For the CY 2008 OPPS/ASC proposed rule, our claims data for this high volume service showed a total of over 49,000 services performed, with about 48,000 single claims available for ratesetting. Therefore, we proposed to reassign HCPCS code G0332 to new clinical APC 0430 (Drug Preadministration-- Related Services) for CY 2008, with a proposed median cost of approximately $39, where it would be the only service assigned to the APC at this time.

As noted in the proposed rule (72 FR 42705), IVIG preadministration-related services are always provided in conjunction with other separately payable services such as drug administration services, and thus are well suited for packaging into the payment for the separately payable services. While we did not make a determination about the appropriateness of continuing separate OPPS payment for HCPCS code G0332 after CY 2008, we stated in the proposed rule (72 FR

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42705) that we would consider packaging payment for HCPCS code G0332 in future years if we determined that separate payment was no longer warranted. We intend to reevaluate the appropriateness of separate payment for IVIG preadministration-related services for the CY 2009 OPPS rulemaking cycle, especially as we explore the potential for greater packaging and possible encounter-based or episode-based OPPS payment approaches.

We received a number of public comments on our CY 2008 proposed payment for IVIG preadministration-related services. A summary of the public comments and our response follow.

Comment: Many commenters questioned the accuracy and reliability of the CY 2006 hospital outpatient claims data that were used to set the proposed payment rate for HCPCS code G0332. Some commenters indicated that because HCPCS code G0332 was a new code for CY 2006, it was clearly not well understood by many hospitals, and as a result, it took some time for hospitals to appropriately determine the cost and the reported charge for the service. Many commenters stated that the proposed payment rate of $39 was likely based on flawed data, and as such, the data should not be used as a basis for reassigning HCPCS code G0332 from New Technology APC 1502 to APC 0430. These commenters believed that the low payment rate was due to underreporting of this service because their findings revealed that hospitals reported HCPCS code G0332 on only 49 percent of the claims for IVIG administration. One commenter believed that, based on an analysis of its hospital system's claims data for HCPCS code G0332, that claims data were distorted due to a number of factors, including revenue code selections by hospitals, differences in the CCRs mapped to those revenue codes, and the actual dollar charges reported by hospitals for this service. Several commenters explained that hospitals set widely varying charges for HCPCS code G0332, and some of these commenters believed that it would be appropriate to exclude from the ratesetting process claims where the reported charge is equal to or less than the $75 payment rate.

Many commenters believed that reducing this add-on payment would have a negative impact on patient access to care, considering the short supply and high costs of acquiring IVIG. Several commenters suggested that CMS should maintain the $75 add-on payment for HCPCS code G0332 to maintain parity with the proposed $71 MPFS payment rate for this service. These commenters asserted that establishing a difference in payment for HCPCS code G0332 across systems could drive patients from one site of service to another. They further believed that maintaining payment parity for the service at comparable levels across these sites of service would mitigate potential disruptions to the sites of service where patients are now receiving care and would also allow the choice of site of care to be dictated by particular patient circumstances. Several commenters commended CMS for continued support in extending the add-on payment for HCPCS code G0332; however, they recommended that the $75 separate payment under New Technology APC 1502 be continued for another year. Alternatively, several commenters requested that CMS reassign HCPCS code G0332 to a clinical APC whose payment rate is equivalent to $75 to ensure that hospitals would continue to be paid appropriately for the full range of costs incurred in furnishing IVIG to their patients and to help mitigate the possible adverse financial impact on hospitals acquiring IVIG that could result from a lower payment for preadministration-related services.

Response: Just as our payment rates are updated annually, so too are billing codes (that is, ICD-9-CM, Level II HCPCS, and CPT). Annual updates to the HCPCS coding system (whether through addition of a new code, revision of a code descriptor, or deletion of a code), are a well-established and predictable process that has been in place for some time. Hospitals are well aware of this practice because they have successfully implemented these changes each year.

The MPFS applies a distinct methodology for establishing the payment for the physician's office practice expenses associated with a procedure that differs significantly from the OPPS methodology which generally pays based on relative payment weights calculated from hospitals' costs as determined from claims data. The application of the different methodologies results in different payment amounts in the two settings. Therefore, comparisons between OPPS and MPFS payments are not appropriate.

In determining the CY 2008 final rule median cost of approximately $37 for HCPCS code G0332, we used the most recent claims data available under the OPPS, specifically CY 2006 claims. According to our standard OPPS methodology as described in section II.A.2. of this final rule with comment period, we excluded claims for HCPCS code G0332 where the line-item charge was exactly equal to the CY 2006 payment rate, a process we followed for all OPPS services. We did not remove claims whose charges were less than $75 because hospitals are free to set their own charges for individual services based on their own judgment.

Under the OPPS, the current payment methodology for IVIG treatments consists of three components, which include payment for the drug itself (described by a HCPCS J code), administration of the IVIG product (described by one or more CPT codes), and the preadministration-related services (HCPCS code G0332). As stated previously, this service has been assigned to New Technology APC 1502 under the OPPS for 2 full years. Under the OPPS, we retain services within New Technology APC groups where they are assigned according to our estimates of their costs until we gather sufficient claims data to enable us to assign the services to clinically appropriate APCs based on hospital resource costs as calculated from claims. We do not agree with the commenters' argument that underreporting of this service in CY 2006 is a compelling rationale for delaying reassignment to a clinical APC. Our CY 2006 claims data include approximately 59,000 total claims for HCPCPS code G0332, and we have no reason to believe those claims do not accurately represent the costs to hospitals of providing the service in CY 2006. We believe that the approximately 57,000 single claims used to set the CY 2008 median cost of IVIG preadministration-related services at approximately $37 accurately reflect hospitals' costs for the service and that the final CY 2008 payment rate for HCPCS code G0332 is adequate to ensure access to IVIG therapy.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to assign HCPCS code G0332 to APC 0430, with a median cost of approximately $37. As we stated previously, we will consider packaging payment for HCPCS code G0332 in future years if we determine separate payment is no longer warranted. We intend to reevaluate the appropriateness of separate payment for IVIG preadministration-related services for the CY 2009 OPPS rulemaking cycle, especially as we explore the potential for greater packaging and possible encounter-based or episode-based OPPS payment approaches.

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c. Other Services in New Technology APCs

Other than the concurrent PET/CT and IVIG preadministration-related new technology services discussed in sections III.C.2.a. and III.C.2.b. of this final rule with comment period, there are five procedures currently assigned to New Technology APCs for CY 2007 for which we believed we also had data that were adequate to support their reassignment to clinical APCs. For CY 2008, we proposed to reassign these procedures to clinically appropriate APCs, applying their CY 2006 claims data to develop their clinical APC median costs upon which payments would be based. These procedures and their proposed APC assignments were displayed in Table 29 of the proposed rule. This table has been reproduced as Table 16 at the end of this section and updated with the final status indicators, APC assignments, and median costs of these services. (1) Breast Brachytherapy Catheter Implantation (APC 0648)

For CY 2008, we proposed to reassign CPT code 19298 (Placement of radiotherapy afterloading brachytherapy catheters (multiple tube and button type) into the breast for interstitial radioelement application following (at the time of or subsequent to) partial mastectomy, includes imaging guidance) from New Technology APC 1524 (New Technology--Level XXIV ($3,000-$3,500)) to APC 0648 (Level IV Breast Surgery), with a proposed median cost of approximately $3,417.

We received several public comments concerning the proposed reassignment of CPT code 19298. A summary of the public comments and our response follow.

Comment: Several commenters agreed with CMS's proposal to reassign CPT code 19298 to APC 0648. They acknowledged that this proposed reassignment of CPT code 19298 would place the three surgical codes for the placement of catheters for breast brachytherapy in the same APC, that is, CPT codes 19296 (Placement of radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application following partial mastectomy, includes imaging guidance; on date separate from partial mastectomy); 19297 (Placement of radiotherapy afterloading balloon catheter into the breast for interstitial radioelement application following partial mastectomy, includes imaging guidance; concurrent with partial mastectomy (List separately in addition to code for primary procedure)); and 19298.

Response: We thank the commenters for their input and support. Because of its clinical and resource characteristics similar to those other procedures also assigned to APC 0648, we are finalizing our CY 2008 proposal, without modification, to reassign CPT code 19298 to APC 0648, with a median cost of approximately $3,560. (2) Preoperative Services for Lung Volume Reduction Surgery (LVRS) (APCs 0209 and 0213)

As illustrated in Table 16 below, CY 2008, we proposed to reassign HCPCS codes G0302 (Pre operative pulmonary surgery services for preparation for LVRS, complete course of services, to include a minimum of 16 days of services) and G0303 (Pre-operative pulmonary surgery services for preparation for LVRS, 10 to 15 days of services) to APC 0209 (Level II Extended EEG and Sleep Studies). For CY 2008, we also proposed to reassign HCPCS codes G0304 (Pre-operative pulmonary surgery services for preparation for LVRS, 1 to 9 days of services) and G0305 (Post-discharge pulmonary surgery services after LVRS, minimum of 6 days of services) to APC 0213 (Level I Extended EEG and Sleep Studies).

We did not receive any public comments on these two proposals and, therefore, we are finalizing our CY 2008 proposals for HCPCS codes G0302, G0303, G0304, and G0305 without modification. Specifically, HCPCS codes G0302 and G0303 are assigned to APC 0209, with a CY 2008 median cost of approximately $710. HCPCS codes G0304 and G0305 are assigned to APC 0213, with a CY 2008 median cost of approximately $145.

Table 16.--Final CY 2008 APC Reassignments of Other New Technology Procedures to Clinical APCs

CY 2007 APC

Final CY HCPCS code Short descriptor CY 2007 SI CY 2007 APC payment Final CY Final CY 2008 APC rate

2008 SI 2008 APC median cost

19298.......... Place breast rad S.........

1524 $3,250 T...........

0648 $3,560 tube/caths. G0302.......... Pre-op service S.........

1509

750 S...........

0209

710 LVRS complete. G0303.......... Pre-op service S.........

1507

550 S...........

0209

710 LVRS 10-15 dos. G0304.......... Pre-op service S.........

1504

250 S...........

0213

145 LVRS 1-9 dos. G0305.......... Post op service S.........

1504

250 S...........

0213

145 LVRS min 6.

D. APC-Specific Policies

1. Cardiac Procedures a. Cardiac Computed Tomography and Computed Tomographic Angiography(APCs 0282 and 0383)

Cardiac computed tomography (CCT) and cardiac computed tomography angiography (CCTA) are noninvasive diagnostic procedures that assist physicians in obtaining detailed images of coronary blood vessels. The data obtained from these procedures can be used for further diagnostic evaluations and/or appropriate therapy for coronary patients.

Currently, there are eight Category III CPT codes that describe CCT and CCTA procedures. The CPT codes, which were shown in Table 31 of the proposed rule, are 0144T through 0151T. These codes were new for CY 2006. In the CY 2006 OPPS final rule with comment period, we assigned the CCT and CCTA procedure codes to interim APCs, which were subject to public comment. In CY 2006, the CCT and CCTA procedure codes were assigned to four APCs, specifically, APC 0282 (Miscellaneous Computerized Axial Tomography), APC 0376 (Level II Cardiac Imaging), APC 0377 (Level III Cardiac Imaging), and APC 0398 (Level I Cardiac Imaging). We did not receive any public comments on the interim APC assignments.

In the CY 2007 OPPS/ASC proposed rule, we proposed to retain the existing APC assignments for the CCT and CCTA procedure codes. We received several public comments on the proposed APCs assignments, which we addressed in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68038 and 68039). Several of the commenters requested that we either not assign the CCT and CCTA procedures to any APCs or assign them to appropriate New Technology APCs. In addition, some commenters were also concerned that CCT and CCTA procedures were not

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clinically homogeneous with other procedures assigned to APCs 0282, 0376, 0377, and 0398, noting that the last three APCs previously contained only nuclear medicine cardiac imaging procedures.

In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68038), we indicated our belief that the clinical characteristics and expected resource use associated with the CCT and CCTA procedures were sufficiently similar to the other procedures assigned to APCs 0282, 0376, 0377, and 0398 that we believed those APC assignments were appropriate. While several of those APCs also contained nuclear medicine imaging procedures, we had never designated those APCs as specific to nuclear medicine procedures. Therefore, for CY 2007, we continued with the CY 2006 APC assignments for CPT codes 0144T through 0151T. We did not agree with the commenters that use of CT and CTA for cardiac studies was a new technology for which we had no relevant OPPS cost information that could be used to estimate hospital resources for these procedures. We also believed these services could be potentially covered hospital outpatient services, so that it would not be appropriate for us to depart from our standard OPPS policy and not assign them to APCs. As we indicated in our CY 2007 OPPS/ASC proposed rule (71 FR 49549), some Category III CPT codes describe services that we have determined to be similar in clinical characteristics and resource use to HCPCS codes assigned to existing clinical APCs. In these instances, we may assign the Category III CPT code to the appropriate clinical APC. Other Category III CPT codes describe services that we have determined are not compatible with an existing clinical APC, yet are appropriately provided in the hospital outpatient setting. In these cases, we may assign the Category III CPT code to what we estimate is an appropriately priced New Technology APC. In other cases, we may assign a Category III CPT code to one of several nonseparately payable status indicators, including ``N,'' ``C,'' ``B,'' or ``E,'' which we believe is appropriate for the specific code. As we noted in the CY 2007 OPPS/ASC final rule with comment period, we believed that CCT and CCTA procedures were appropriate for separate payment under the OPPS should local contractors provide coverage for these procedures and, therefore, they warranted status indicator and APC assignments that would provide separate payment under the OPPS (71 FR 68038).

At its March 2007 meeting, the APC Panel recommended that CMS work with stakeholders to determine more appropriate APC placements for CCT and CCTA procedures. The APC Panel made no specific recommendations regarding the appropriate APC assignments for these services, although several different clinical APC configurations were discussed, along with the alternative of assigning these procedures to New Technology APCs.

We note that we generally meet with interested organizations concerning their views about OPPS payment policy issues with respect to specific technologies or services. Following the publication of the CY 2007 OPPS/ASC final rule with comment period, we received such information from interested individuals and organizations regarding the clinical and facility resource characteristics of CCT and CCTA procedures. In the CY 2008 OPPS/ASC proposed rule (72 FR 42711), we reiterated that we would consider the input of any individual or organization to the extent allowed by Federal law, including the Administrative Procedure Act (APA) and the FACA. We explained that we establish the OPPS payment rates for services through regulations, during our annual rulemaking cycle. We are required to consider the timely comments of interested organizations, establish the payment policies for the forthcoming year, and respond to the timely comments of all public commenters in the final rule in which we establish the payments for the forthcoming year.

During the development of the CY 2008 proposed rule, we noted that analysis of our hospital data for claims submitted for CY 2006 indicated that CCT and CCTA procedures were performed relatively frequently on Medicare patients. Our claims data showed a total of over 16,000 procedures performed, with about 11,000 single claims available for ratesetting. Based on our analysis of the robust hospital outpatient claims data at that time, we believed we had adequate claims data from CY 2006 upon which to determine the median costs of performing these procedures and to assign them to appropriate clinical APCs. We saw no rationale for reassigning these procedures to New Technology APCs in CY 2008, when we had claims-based cost information regarding these procedures, and they were clinically similar to other procedures paid under the OPPS.

We acknowledged the concerns that had been expressed to us regarding the clinical homogeneity of APCs 0376, 0377, and 0398, where some of the CCT and CCTA were assigned for CY 2007 along with nuclear medicine cardiac imaging procedures. Because we proposed to package payment for diagnostic radiopharmaceuticals into payment for diagnostic nuclear medicine procedures in CY 2008 as discussed in detail in section II.A.4.c.(5) of this final rule with comment period, we believed that to ensure the clinical and resource homogeneity of APCs 0376, 0377, and 0398 in CY 2008, it would be most appropriate to reassign the CCT and CCTA services currently residing in those APCs to other clinical APCs for CY 2008.

Therefore, for CY 2008, we proposed to assign the CCT and CCTA procedures to two clinical APCs, specifically new clinical APC 0383 (Cardiac Computed Tomographic Imaging) and APC 0282, as shown in Table 17 below. The proposed median cost of approximately $314 for APC 0383 was based entirely on claims data for CPT codes 0145T, 0146T, 0147T, 0148T, 0149T, and 0150T that described CCT and CCTA services, a clinically homogeneous grouping of services. In addition, the individual median costs of these services ranged from a low of approximately $277 to a high of $437, reflecting their hospital resource similarity as well. We proposed to reassign the two other CCT CPT codes, specifically CPT codes 0144T and 0151T, to APC 0282. The inclusion of these two codes in APC 0282 resulted in a CY 2008 proposed APC median cost of about $105.

We received a number of public comments concerning our CY 2008 proposals for CCT and CCTA procedures. A summary of the public comments and our responses follow.

Comment: While several commenters expressed appreciation for the proposed reassignment of CCT and CCTA procedures into their own clinically homogenous APC groups, many commenters disagreed with the proposal to reassign these services from APCs 0282, 0376, 0377, and 0398 to APCs 0282 and 0383 for CY 2008. These commenters were especially concerned with the proposed payment rates for these procedures and asserted that the proposed median costs of $105 for APC 0282 and $314 for APC 0383 were inadequate because they were based on limited data, thereby undervaluing these new technology services. The commenters further believed that the CY 2008 proposed payment rates of $107 for APC 0282 and $318 for APC 0383 were unreasonably low based on only 16,000 total procedures, with about 11,000 single claims used for ratesetting. Some commenters pointed out that the

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first year in which the new procedures were specifically reported by hospitals was CY 2006. They argued that because it takes time for hospitals to completely capture and report the full costs associated with new procedures in their charges, hospitals could not have reported these services accurately in CY 2006. One commenter believed that because most hospitals do not specifically allocate capital costs to the cost centers involved, the CCRs used to convert charges to costs for CCT and CCTA procedures were likely understated.

Many commenters expressed concern that there had not been sufficient time to develop accurate and reliable claims data for these new procedures and that additional measures were necessary to ensure appropriate payments. Some commenters recommended that CMS delay the implementation of the CY 2008 median costs until a full year of claims data were available from both multiple and single claims and suggested that CMS continue with the CY 2007 APC assignments for CCT and CCTA procedures. They argued that inadequate payment rates would unintentionally encourage the use of more expensive and invasive diagnostic procedures for Medicare beneficiaries. Some commenters further requested that CMS consult with stakeholders and utilize external data to determine the degree to which OPPS claims data accurately reflected the relative resource costs of these procedures and to make appropriate adjustments to the payment rates, especially for APC 0383. Other commenters requested that CMS reassign the CCT and CCTA procedures to appropriate New Technology APCs for CY 2008.

Some commenters requested that CMS reconsider the reassignment of CPT codes 0144T and 0151T whose median costs varied significantly, from $86 and $144, respectively, because these services did not appear to be clinically appropriate when compared to the other procedures assigned to APC 0282.

Response: While we acknowledge that the CPT codes for CCT and CCTA procedures were new for January 2006, we disagree with the commenters' argument that our claims data are inadequate to support the reassignment of CCT and CCTA procedures to clinical APCs for CY 2008 based on hospital costs derived from claims. We used the approximately 12,000 single bills available for this final rule with comment period in determining the median costs for the CCT and CCTA procedures because the single bills provide us with the most accurate costs that are the foundation of our standard OPPS ratesetting methodology. As we discuss in section II.A.1.b. of this final rule with comment period, we are unable to appropriately allocate packaged costs on multiple procedure claims so we generally are not able to use them in setting payment rates. As we also discuss in that section, we are continuing to work on additional methodologies that would allow us to use claims data from more OPPS claims. While we recognize that reliance on single procedure claims may result in the use of fewer claims for some services than for others, in the case of CCT and CCTA procedures, in particular, we were able to use about two-thirds of all approximately 18,000 claims for ratesetting. These services were reported by many hospitals in CY 2006, and we have no reason to believe that costs based upon this large percentage of all claims do not accurately reflect the resource costs of these services to hospitals. Our standard OPPS methodology determines the relative costs of services from claims, with a specific focus on relative costs and not absolute costs, and we do not believe there is any need for us to utilize external data to determine the costs of these services. Additionally, we do not agree with the commenters' suggestion to place the CCT and CCTA procedures in New Technology APCs. We believe that, based on the clinical characteristics and resource use calculated from CY 2006 claims for CCT and CCTA procedures, our proposal would assign them to appropriate clinical APCs for CY 2008. In fact, several commenters acknowledged that the proposed APC assignments of these procedures were appropriate based on explicit consideration of clinical homogeneity.

Further, in the case of CPT codes 0144T and 0151T, the commenters mistakenly believed that the CY 2008 OPPS median costs for these procedures were $86 and $144, respectively. The CY 2008 proposed rule median cost for CPT code 0144T was approximately $68 and approximately $43 for CPT code 0151T, and their final rule median costs are approximately $68 and $54, respectively. The $86 and $144 figures reported by some commenters were based on the procedures' mean costs, not the median costs which are used for ratesetting under the OPPS. We believe that CPT codes 0144T and 0151T are appropriately assigned to APC 0282 as their median costs fall within the range of costs of other procedures also assigned to the APC, which has a final median cost of approximately $100.

Comment: Some commenters were uncertain as to whether the costs of the contrast agents used in conjunction with CCT and CCTA procedures were included in the proposed payment rate calculations for APCs 0282 and 0383. They requested that CMS address this issue in this final rule with comment period. The commenters requested that CMS increase the payment rates for APCs 0282 and 0383 if the costs of the contrast agents were not included in the proposed payment rates.

Response: The proposed payment rates for APCs 0282 and 0383 included the costs of the contrast agents, because, as discussed further in section II.A.4.c.(6) of this final rule with comment period, we proposed to package payment for all contrast agents for CY 2008. Our final CY 2008 policy packages payment for all contrast agents and, therefore, the final payment rates for CCT and CCTA procedures include these costs.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to assign CCT and CCTA procedures to APCs 0282 and 0383, with CY 2008 median costs of approximately $100 and approximately $296, respectively. The final CY 2008 APC assignments and APC median costs for the specific CCT and CCTA procedures are displayed in Table 17.

Table 17.--Final CY 2008 APC Assignments of CCT and CCTA Procedures

Final CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Final CY 2008 Final CY 2008 APC APC median cost

SI

2008 APC median cost

0144T.......... CT heart wo dye; S.......... 0398

$252 S.............

0282

$100 qual calc. 0145T.......... CT heart w/wo S.......... 0376

305 S.............

0383

296 dye funct. 0146T.......... CCTA w/wo dye... S.......... 0376

305 S.............

0383

296 0147T.......... CCTA w/wo, quan S.......... 0376

305 S.............

0383

296 calcium. 0148T.......... CCTA w/wo, strxr S.......... 0377

397 S.............

0383

296

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0149T.......... CCTA w/wo, strxr S.......... 0377

397 S.............

0383

296 quan calc. 0150T.......... CCTA w/wo,

S.......... 0398

252 S.............

0383

296 disease strxr. 0151T.......... CT heart funct S.......... 0282

94 S.............

0282

100 add-on.

b. Coronary and Non-Coronary Angioplasty (PTCA/PTA) (APCs 0082, 0083, and 0103)

For CY 2008, we proposed to delete APC 0081 (Noncoronary Angioplasty or Atherectomy) as a result of the effects of the proposed CY 2008 packaging approach on median costs (see section II.A.4.c. of this final rule with comment period for more discussion of our packaging approach). We proposed to reassign the procedures that mapped to this APC in CY 2007 to APCs that would be homogeneous with respect to clinical characteristics and resource use in CY 2008, specifically APCs 0082 (Coronary or Non-Coronary Atherectomy), 0083 (Coronary or Non-Coronary Angioplasty and Percutaneous Valvuloplasty), and 0103 (Miscellaneous Vascular Procedures). The CY 2008 proposed payment rates for these APCs were approximately $5,654, $2,934, and $972, respectively. The CY 2007 payment rate for APC 0081 was approximately $2,639.

We received one public comment on our CY 2008 proposal to delete APC 0081 and reassign the procedures that mapped to this APC to APCs 0082 and 0083. A summary of the public comment and our response follow.

Comment: One commenter stated that the proposed reassignment of some of the angioplasty procedures assigned to APC 0081 in CY 2007 to APC 0083 in CY 2008 fails to recognize the differences in median costs associated with the use of specialty balloons in certain coronary and non-coronary angioplasty (PTCA/PTA) procedures. According to the commenter, specialty balloons are defined as balloons that can be used for purposes other than inflation and deflation (eg, cutting balloons and cold therapy balloons). The commenter estimated from an analysis of the CY 2006 Medicare claims data that the median costs for PTCA/PTA procedures involving specialty balloons are approximately 55 percent higher than the median costs of all PTCA/PTA procedures in APC 0083, and represent approximately 4 percent of the cases. The commenter expressed concern that inadequate payment for PTCA/PTA procedures involving specialty balloons could reduce beneficiary access to this technology.

The commenter urged CMS to reconsider its proposal to reassign all PTCA/PTA procedures to APC 0083. Specifically, the commenter requested that CMS establish a HCPCS Level II G-code to differentiate coronary and noncoronary PTCA/PTA procedures using specialty balloons from those PTCA/PTA procedures using standard, nonspecialty balloons, defining specialty balloons as those which have a median reported cost of more than $800 based on CY 2006 hospital claims containing the Level II HCPCS C-code for PTCA/PTA balloons, C1725 (Catheter, transluminal angioplasty, non-laser). The commenter stated that nonspecialty balloons cost approximately $200 to $400. According to the commenter's suggestion, the new G-code would map to a new APC for coronary and noncoronary angioplasty procedures using specialty balloons, the payment for which would be based upon the median cost of procedures performed using specialty balloons, as indicated on CY 2006 claims by the reporting of C1725 where the reported catheter cost is more than $800.

Response: We believe that the proposed reassignment of the procedures assigned to APC 0081 in CY 2007 to APC 0083 in CY 2008 is appropriate, both in terms of the clinical similarities and resource costs of the procedures involved. The HCPCS-specific median costs of significant procedures assigned to APC 0083 range from approximately $2,621 to $4,339. Even considering the information provided by the commenter about the expected differential cost between specialty and non-specialty balloons of $400 to $600, we would not expect Medicare beneficiaries to have problems with access to procedures with specialty balloons, when the APC 0083 CY 2008 median cost is approximately $2,855. Packaging payment for the variety of implantable devices that are used in specific procedures is a well-established principle of the OPPS, and we expect that hospitals will carefully consider the clinical benefits and costs of all technologies when performing procedures on patients. Therefore, we also believe that a policy to provide different payments for PTCA/PTA procedures involving specialty balloons would not be consistent with our overall strategy to encourage hospitals to use resources more efficiently by increasing the size of the payment bundles. If the use of a very expensive device in a clinical scenario, such as a specialty balloon, caused a specific procedure to be much more expensive for the hospital than the APC payment, we consider such a case to be the natural consequence of a prospective payment system that anticipates that some cases will be more costly and others less costly than the procedure payment. We will continue to monitor the costs of PTCA/PTA procedures over time based on the evolution of clinical practice and will consider proposing future modifications to the configuration of APC 0083 as necessary.

After consideration of the public comment received, we are finalizing our CY 2008 proposal, without modification, to reassign angioplasty procedures assigned to APC 0081 in CY 2007 to APC 0083 in CY 2008. The median cost of APC 0083 is approximately $2,855. c. Implantation of Cardioverter-Defibrillators (APCs 0107 and 0108)

In CY 2003, we created four Level II HCPCS codes for implantation of single and dual chamber cardioverter-defibrillators (ICDs) with and without leads because, for the CY 2004 OPPS, we deleted the device HCPCS codes and there was no other way of determining whether the device being implanted was a single chamber or dual chamber device. We were concerned that the costs of inserting single versus dual chamber ICDs could be sufficiently different due to the two types of devices implanted such that separate APC assignments for the insertion procedures could be appropriate in the future. The HCPCS codes are G0297 (Insertion of single chamber pacing cardioverter defibrillator pulse generator); G0298 (Insertion of dual chamber pacing cardioverter defibrillator pulse generator); G0299 (Insertion or repositioning of electrode lead for single chamber pacing cardioverter

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defibrillator and insertion of pulse generator); and G0300 (Insertion or repositioning of electrode lead for dual chamber pacing cardioverter defibrillator and insertion of pulse generator). The pairs of codes were assigned to two different clinical APCs, depending on whether or not they included the possibility of electrode insertion, specifically APC 0107 (Insertion of Cardioverter-Defibrillator) and APC 0108 (Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads).

In the same year, the OPPS ceased to recognize for payment the two CPT codes for insertion of ICDs with or without ICD leads. These CPT codes are 33240 (Insertion of single or dual chamber pacing cardioverter-defibrillator pulse generator) and 33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generator).

We reinstated the device category HCPCS codes on January 1, 2005. Moreover, since January 1, 2005, hospitals have been required to report devices they use or implant when there is a device code that describes the device. We began to edit to ensure that hospitals are correctly billing devices required for certain procedures in April 2005 and implemented the second phase of device edits on October 1, 2005. Therefore, we no longer need different procedural Level II HCPCS codes to identify whether hospitals inserted a single or dual chamber ICD device.

At its March 2007 meeting, the APC Panel recommended that CMS delete the Level II HCPCS codes for implantation of cardioverter- defibrillator pulse generators with or without repositioning or implantation of electrode lead(s) for CY 2008 and authorize hospitals to report the CPT codes. The APC Panel indicated that the requirement for reporting device codes would enable CMS to continue to identify costs when different types of devices are implanted if that were to be necessary.

We analyzed the median cost data associated with APCs 0107 and 0108 as part of our preparation for the APC Panel discussion. While there was a difference in the median cost when a single chamber versus a dual chamber device is implanted, the difference has never been great enough to justify differential APC assignments for the procedures. Table 34 included in the CY 2008 OPPS/ASC proposed rule presented a historical summary of all single claim median costs. (For purposes of this analysis, we displayed the median costs for all single claims without regard to adjustment or to whether the claims met various selection criteria; these were not the median costs on which proposed payments were based.)

Hospitals have consistently indicated that they would prefer to report services furnished using the CPT codes that describe them, rather than the Level II HCPCS G-codes, because many private payers require that they bill the CPT codes. We also prefer to recognize CPT codes for procedures under the OPPS, when possible, to minimize the administrative coding burden on hospitals.

In the CY 2008 OPPS/ASC proposed rule (72 FR 42715), we stated our belief that the differences between the median costs for the two Level II HCPCS codes assigned to each APC (that is, G0297 and G0298 for APC 0107 and G0299 and G0300 for APC 0108) do not currently support differential APC assignments for single and dual chamber ICD insertion procedures. The required device coding would allow us to continue to follow the different costs over time by examining subsets of ICD implantation procedure claims based on the type of device reported on the claims. Moreover, we are sensitive to the benefits of minimizing the reporting burden on hospitals. Therefore, for CY 2008, we proposed to delete the Level II HCPCS codes for ICD insertion procedures and require hospitals to bill the appropriate CPT codes, along with the applicable device C-codes, for payment under the OPPS.

We received a number of public comments on our CY 2008 proposal for reporting ICD implantation procedures under the OPPS. A summary of the public comments and our responses follow.

Comment: Several commenters supported implementing the policy as proposed. One commenter favored the elimination of the Level II HCPCS codes for ICD implantation, citing the administrative burden these pose for hospitals, but remained concerned about the potential negative impact to hospitals when the more expensive dual chamber device is used for Medicare beneficiaries. The commenter suggested that CMS should consider creation of composite APCs for device-dependent procedures, such as ICD implantation, where the device costs can vary significantly based on the type of device used. The commenter suggested that payment for these composite APCs would be based on the combination of the device implantation CPT code and the existing Level II HCPCS code for the particular device. According to the commenter, this would minimize the administrative burden for providers, allow coding to remain consistent across payers, and enable more appropriate payment for procedures with varying device costs.

Response: Composite APCs provide a single payment for two or more major procedures that are commonly performed together, in order to promote efficiency by increasing the size of the payment bundle. We do not agree that the payment methodology outlined by one commenter, to base payment for ICDs on the combination of the ICD implantation CPT code and the existing device code, is consistent with the concept of composite APCs as described in the proposed rule and as finalized in section II.A.4.d. of this final rule with comment period. The scenario described by the commenter largely describes the current packaging of device payment into the payment for the procedure, except that we generally base payment on all of the devices associated with a procedure as a mechanism to promote the efficient utilization of resources. The recommended approach could actually reduce packaging under the OPPS by creating small and more specific payment bundles, rather than increasing the size of the payment bundles to provide hospitals with the flexibility to manage their resources as they control costs. To establish a separate APC for each combination of a procedure and a particular device used, as described by the commenter, would create incentives for the use of the most expensive device rather than creating incentives for efficiency and therefore is contrary to the principles of a prospective payment system. As described above, we believe that the payment for the procedures and associated devices included in APCs 0107 and 0108 is appropriate, as the differences between the median costs for the two Level II HCPCS codes currently assigned to each APC do not currently support differential APC assignments for single and dual chamber ICD insertion procedures.

After consideration of the public comments received, we are adopting the March 2007 APC Panel recommendation and finalizing our CY 2008 proposal, without modification, to delete the Level II HCPCS codes (G0297, G0298, G0299, and G0300) for ICD insertion procedures and require hospitals to bill the appropriate CPT codes for ICD insertion, specifically CPT code 33240 or CPT code 33249, as appropriate, along with the applicable device C-codes, for payment under the OPPS in CY 2008.

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d. Removal of Patient-Activated Cardiac Event Recorder (APC 0109)

In the CY 2008 OPPS/ASC proposed rule, we proposed to continue our CY 2007 assignment of CPT code 33284 (Removal of an implantable, patient-activated cardiac event recorder) to APC 0109 (Removal/Repair of Implanted Devices), with a proposed CY 2008 payment rate of approximately $389. The CY 2007 payment rate for this service is approximately $676.

We received one public comment on the CY 2008 proposed reconfiguration of APC 0109. A summary of the public comment and our response follow.

Comment: One commenter requested that CMS reexamine its proposed assignment of CPT code 33284 to APC 0109 in light of the proposed reassignment of CPT codes 36575 (Repair of tunneled or non-tunneled central venous access catheter, without subcutaneous port or pump, central or peripheral insertion site) and 36589 (Removal of tunneled central venous catheter, without subcutaneous port or pump) from APC 0621 (Level I Vascular Access Procedures) to APC 0109 for CY 2008. The commenter asserted that the proposed inclusion of CPT codes 36575 and 36589 in APC 0109 significantly altered the proposed median cost of APC 0109, to the extent that it was no longer representative of the resource requirements of CPT code 33284. The commenter requested that CMS create a separate APC for CPT code 33284 if CMS finalizes its proposal to reassign CPT codes 36575 and 36589 to APC 0109.

Response: We agree with the commenter that the change in composition of APC 0109 may no longer most accurately reflect the resource characteristics of CPT code 33284. CPT codes 36575 and 36589 have median costs of approximately $319 and $357, respectively, while CPT code 33284 has a median cost of approximately $682. While we appreciate the commenter's suggestion for a new APC for CPT code 33284, we believe that an existing clinical APC may sufficiently account for the clinical and resource characteristics of the procedure described by CPT code 33284. The clinical characteristics of CPT code 33284 are similar to those procedures in APC 0020 (Level II Excision/Biopsy). CPT code 33284 and the other procedures assigned to APC 0020 generally require surgical incisions, local anesthesia, and suturing. In addition, we believe that APC 0020, with an APC median cost of approximately $546, more closely aligns with the resources of CPT code 33284, rather than its proposed assignment to APC 0109, with an APC median cost of approximately $356.

After consideration of the public comment received, we are not finalizing our CY 2008 proposal to assign CPT code 33284 to APC 0109. Instead, we are reassigning CPT code 33284 to APC 0020 for CY 2008, with a median cost of approximately $546. e. Stress Echocardiography (APC 0697)

In the CY 2008 OPPS/ASC proposed rule, we proposed to assign CPT code 93350 (Echocardiography, transthoracic, real-time with image documentation (2D), with or without M-mode recording, during rest and cardiovascular stress test using treadmill, bicycle exercise and/or pharmacologically induced stress, with interpretation and report) to APC 0697 (Level I Echocardiogram, Except Transesophageal), with a proposed payment rate of approximately $306. Currently, this service is assigned to APC 0269 (Level II Echocardiogram Except Transesophageal), with a payment rate of approximately $198 for CY 2007. The proposed packaging approach for CY 2008, as described further in section II.A.4.c. of this final rule with comment period, proposed to package significant additional costs for ancillary and supportive services into the CY 2008 payment for CPT code 93350.

We received a few public comments concerning our CY 2008 proposed reassignment of CPT code 93350 to APC 0697. A summary of the public comments and our response follow.

Comment: A few commenters requested that we continue to assign CPT code 93350 to APC 0269, instead of reassigning this procedure to APC 0697 as proposed. The commenters stated that the Level II APC is a more appropriate placement, as the procedure is comparable in clinical and resource characteristics to CPT code 93307 (Echocardiography, transthoracic, real-time with image documentation (2D) with or without M-mode recoding; complete) that CMS proposed to retain in APC 0269.

Response: We have a significantly greater number of single and ``pseudo'' single claims available for CPT code 93350 for this final rule with comment period than we had for the proposed rule because, in response to the request of commenters, we added CPT code 93017 (Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; tracing only, without interpretation or report) to the final CY 2008 bypass list, as described in section II.A.1.b. of this final rule with comment period. By adding CPT code 93017 to the CY 2008 bypass list, we did not attribute any packaged services that may be on the claim to this procedure, and we were therefore able to create single and ``pseudo'' single claims from claims that would have otherwise been considered multiple procedure claims. The availability of additional claims for ratesetting and our final policy for paying for contrast and nonconstrast echocardiography through different APCs also contribute to the differences between the final rule median costs and the proposed rule median costs for echocardiography CPT codes.

For CY 2008, we are establishing a new APC for echocardiograms with contrast as described in section II.A.4.c.(6) of this final rule with comment period, specifically APC 0128 (Echocardiogram with Contrast). The median cost of CPT code 93350 for contrast studies is approximately $527, while the median cost of CPT code 93307 for contrast studies is approximately $545. When these studies are performed with contrast in CY 2008, they will be reported with HCPCS codes C8928 (Transthoracic echocardiography with contrast, real-time with image documentation (2D), with or without M-mode recording, during rest and cardiovascular stress test using treadmill, bicycle exercise and/or pharmacologically induced stress, with interpretation and report); and C8923 (Transthoracic echocardiography with contrast, real-time with image documentation (2D) with or without M-mode recording; complete), respectively. Both of these C-codes are assigned to new APC 0128 based on their clinical and resource comparability, with a CY 2008 median cost of approximately $534.

For this final rule with comment period, we have over 88,000 single bills for noncontrast studies reported with CPT code 93350 that have an updated median cost of approximately $374. This median cost is quite close to the final rule median cost of CPT code 93307 for noncontrast studies of approximately $404. We agree with the commenters that CPT code 93350 for noncontrast studies is more appropriately placed in the Level II noncontrast APC that has a median cost of approximately $401, and where CPT code 93307 is also assigned. The two procedures are clinically similar, both representing comprehensive transthoracic echocardiography services.

Therefore, after consideration of the public comments received, we are not

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finalizing our proposal to assign noncontrast studies reported with CPT code 93350 to APC 0697, which has the new APC title of ``Level I Echocardiogram Without Contrast Except Esophageal''. Instead, we are retaining the assignment of CPT code 93350 for noncontrast studies to APC 0269, which has the new APC title of ``Level II Echocardiogram Without Contrast Except Transesophageal,'' because we believe this procedure is clinically similar to other procedures in the Level II APC and the median costs indicate that the noncontrast studies in this APC require similar hospital resources as well. Contrast studies reported with the corresponding C-code to CPT code 93350, specifically C8928, are assigned to APC 0128, with a CY 2008 median cost of approximately $534. f. Coronary or Non-Coronary Atherectomy (APC 0082)

Currently, APC 0082 is titled ``Coronary Atherectomy'' and contains only two CPT codes: 92995 (Percutaneous transluminal coronary atherectomy, by mechanical or other method, with or without balloon angioplasty; single vessel) and 92996 (Percutaneous transluminal coronary atherectomy, by mechanical or other method, with or without balloon angioplasty; each additional vessel (List separately in addition to code for primary procedure)). We proposed to reconfigure APC 0082 for the CY 2008 OPPS by adding 11 CPT codes, most of which were for percutaneous atherectomy procedures, and to change its title to ``Coronary or Non-Coronary Atherectomy'', as shown in Addendum A to the proposed rule (72 FR 42838), to better reflect the composition of procedures that we proposed to assign to this APC. The CY 2008 proposed payment rate for APC 0082 was approximately $5,654, while its CY 2007 payment rate is approximately $4,438.

We received one public comment on the CY 2008 proposed reconfiguration of APC 0082. A summary of the public comment and our response follow.

Comment: A commenter objected to the proposed composition of APC 0082 on the basis that it includes both coronary and noncoronary atherectomy procedures, as a result of the proposed packaging of imaging supervision and interpretation CPT codes. The commenter stated that, as proposed, APC 0082 no longer contains services that are comparable clinically and with respect to resource use and, therefore, believed that the coronary and noncoronary services should not be assigned to the same APC. The commenter indicated that treatment of peripheral vascular disease is more diffuse, requires a different approach, and utilizes different resources than treatment of coronary disease. The commenter noted that it could not determine if the proposed payment rate for APC 0082 is appropriate, due to the proposed packaging of imaging supervision and interpretation codes for the noncoronary atherectomy procedures, and questioned whether the claims data could accurately reflect the costs associated with these different procedures.

Response: We believe that there is sufficient clinical homogeneity among all the services that we proposed to assign to APC 0082 for the CY 2008 OPPS and that the resources that those services require are sufficiently similar to justify assigning coronary and noncoronary atherectomy procedures to the same clinical APC. The CY 2006 claims data show that CPT codes 92995 and 92996 are very uncommon services in the HOPD, as they have a total combined frequency of 159 services for CY 2006. Moreover, the median costs for these codes (approximately $5,696 for CPT code 92995 and $3,924 for CPT code 92996) are very comparable to the median costs for the two highest volume noncoronary atherectomy codes in APC 0082: CPT code 35493 (Transluminal peripheral atherectomy, percutaneous; femoral-popliteal), which has a total frequency of 8,473 and a median cost of approximately $5,956; and CPT code 37204 (Transcatheter occlusion or embolization (e.g., for tumor destruction, to achieve hemostasis, to occlude a vascular malformation), percutaneous, any method, non-central nervous system, non-head or neck), which has a total frequency of 5,789 and a median cost of approximately $4,867. The CY 2008 OPPS median cost for APC 0082 (with correct devices, no token claims, and no claims with the ``FB'' modifier) is approximately $5,506 and the total frequency of services in the APC is 18,357.

There are no HCPCS codes in APC 0082, as proposed, that would cause the APC to violate the 2 times rule. We believe that it is appropriate to reassign the noncoronary atherectomy procedures to APC 0082 because we believe that the clinical characteristics and resource costs are sufficiently similar to warrant their placement in the same APC with coronary atherectomy procedures. We recognize that the similar resource costs may result, to some extent, from the packaging of guidance and imaging supervision and interpretation services under the CY 2008 OPPS. However, even absent our proposal to increase packaging for the CY 2008 OPPS, the median cost of virtually all codes for procedural services contains some costs for packaged services. Moreover, the movement of codes from one APC to another occurs for a variety of reasons, including changes in packaging from one year to another. In addition, as discussed further in section II.A.2. of this final rule with comment period, we proposed to reconfigure certain clinical APCs for CY 2008 as a way to promote stability and appropriate payment for the services assigned to them, including low total volume APCs, with a particular focus on APCs with total frequencies of less than 1,000. APC 0082, as configured for CY 2007, includes only 232 services. Therefore, the reconfiguration of APC 0082 for CY 2008, as a result of increased costs that occur with more packaging and our effort to minimize the number of low volume APCs, among other reasons, is a normal occurrence in the course of updating the OPPS from one year to another.

After consideration of the public comment received, we are finalizing our CY 2008 proposal, without modification, to reconfigure APC 0082 as proposed, with a median cost of approximately $5,506. 2. Gastrointestinal Procedures a. Computed Tomographic Colonography (APC 0332)

For CY 2008, we proposed to reassign diagnostic computed tomographic colonography, specifically described by CPT code 0067T (Computed tomographic (CT) colonography (i.e., virtual colonoscopy); diagnostic), from APC 0333 (Computed Tomography without Contrast followed by Contrast) to APC 0332 (Computed Tomography without Contrast), with a proposed payment rate of approximately $201.

We received several public comments concerning this proposal. A summary of the public comments and our response follow.

Comment: Several commenters requested that CMS continue the CY 2007 APC assignment for CPT code 0067T, specifically APC 0333, rather than reassign it to APC 0332 for CY 2008 as proposed.

Response: CPT code 0067T was implemented on January 1, 2005, and initially assigned to APC 0332. As part of our annual APC review process, we subsequently reassigned CPT code 0067T to APC 0333 in CY 2006 and continued this APC assignment in CY 2007. Based on analysis of the CY 2006

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hospital outpatient claims data, we proposed to reassign CPT code 0067T to APC 0332 for CY 2008 based on clinical homogeneity and resource considerations. Specifically, our hospital outpatient claims data from CY 2006 showed a median cost of approximately $164 for CPT code 0067T based on 1,421 single claims (of 1,904 total claims). Based on the median costs of the significant procedures assigned to APC 0332 for CY 2008, which range from $164 to $227, we believe that CPT code 0067T most closely resembles other noncontrast CT procedures also assigned to APC 0332. We do not agree with the commenters' recommendation that APC 0333 is the most appropriate APC assignment for CPT code 0067T because the median cost of approximately $322 for APC 0333, which contains significant procedures with HCPCS-specific median costs ranging from about $272 to $359, is much higher than the median cost of CPT code 0067T. In addition, as discussed in section II.A.4.c. of this final rule with comment period, we are finalizing our proposal to package payment for all contrasts agents in CY 2008. Because the CT scans assigned to APC 0333 for CY 2008 all include the administration of contrast and CT colonography is a noncontrast study, we believe 0067T is most appropriately assigned to APC 0332, where other noncontrast CT scans reside.

After consideration of the public comments received, we are finalizing, without modification, the proposed assignment of CPT code 0067T to APC 0332, with a median cost of about $189 for CY 2008. b. Laparoscopic Neurostimulator Electrode Implantation (APC 0130)

In the CY 2008 OPPS/ASC proposed rule, we proposed to continue our CY 2007 assignment of CPT code 43647 (Laparoscopy, surgical; implantation or replacement of gastric neurostimulators electrodes, antrum) to APC 0130 (Level I Laparoscopy), with a proposed payment rate of approximately $2,217. CPT code 43647 was a new code for CY 2007, so it received an interim final CY 2007 assignment to APC 0130, with a payment rate of approximately $1,975. In addition, during the September 2007 meeting of the APC Panel, the Panel recommended that CMS reevaluate its decision to assign the device-dependent procedure described by CPT code 43647 to APC 0130 because the procedure requires a device and APC 0130 is not a device-dependent APC. We accepted the APC Panel recommendation and reassessed the proposed CY 2008 APC assignment of CPT code 43647 for this final rule with comment period. We respond to this recommendation below.

We received a number of public comments on our interim final CY 2007 and proposed CY 2008 assignments of CPT code 43647 to APC 0130, both on the CY 2007 OPPS/ASC final rule with comment period and on the CY 2008 OPPS/ASC proposed rule. A summary of the public comments and our response follow.

Comment: A few commenters objected to our assignment of CPT code 43647 to APC 0130, stating that APC 0130 does not accurately reflect the clinical and cost characteristics of CPT code 43647. The commenters noted that APC 0130 includes procedures for implanting minor devices that have modest costs, while the laparoscopic implantation of gastric neurostimulator electrodes is an invasive procedure that is comparable to the surgical implantation of neurostimulator electrodes via incision or laminectomy procedures that are assigned to APC 0061 (Laminectomy or Incision for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve). The commenters requested that we assign CPT code 43647 to APC 0061, which they believed more accurately reflects the clinical and resource aspects of this procedure. In addition, the commenters noted that if CPT code 43647 is reassigned to APC 0061, then all peripheral neurostimulator lead implantations would be assigned to the same APC.

Response: We have no hospital claims data for CPT code 43647 because the code was new for CY 2007. However, we agree with the commenters that CPT code 43647 would be expected to have device costs that are similar to other procedures assigned to APC 0061 for CY 2007 because all of these procedures implant neurostimulator electrodes. In particular, the device percentage of device-dependent APC 0061 is about 60 percent, so that assignment of CPT code 43647 to an APC in the laparoscopic APC series as proposed may not provide the most appropriate payment for the procedure. While CPT code 43647 involves a different surgical approach to neurostimulator electrode implantation, in comparison with the potentially more invasive procedures currently assigned to APC 0061, we still believe the procedure's clinical characteristics more closely resemble the other procedures assigned to APC 0061 than the minimally invasive percutaneous neurostimulator electrode implantation procedures assigned to APC 0040 (Percutaneous Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve). Therefore, we agree with commenters that APC 0061 would be an appropriate APC assignment for CPT code 43647 for CY 2008, taking into account the procedure's clinical characteristics and expected hospital resource costs. We will reassign CPT code 43647 to APC 0061 for CY 2008, while we await the opportunity to review its CY 2007 claims data in preparation for the CY 2009 rulemaking cycle.

After consideration of the public comments received, we are not finalizing our CY 2008 proposal to assign CPT code 43647 to APC 0130. Instead, we will reassign CPT code 43647 to APC 0061, with a median cost of approximately $5,213. In addition, we are changing the title of APC 0061 to ``Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes, Excluding Cranial Nerve'' to better reflect all of the procedures assigned to the APC for CY 2008. c. Screening Colonoscopies and Screening Flexible Sigmoidoscopies (APCs 0158 and 0159)

Since the implementation of the OPPS in August 2000, screening colonoscopies and screening flexible sigmoidoscopies have been paid separately. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68013), we implemented certain changes associated with colorectal cancer screening services provided in HOPDs. First, section 5113 of Pub. L. 109-171 amended section 1833(b) of the Act to add colorectal cancer screening to the list of services for which the beneficiary deductible no longer applies. This provision applies to services furnished on or after January 1, 2007. Second, sections 1834(d)(2) and (d)(3) of the Act require Medicare to pay the lesser of the ASC or OPPS payment amount for screening flexible sigmoidoscopies and screening colonoscopies. For CY 2007, the OPPS payment for screening colonoscopies, HCPCS codes G0105 (Colorectal cancer screening; colonoscopy on individual at risk) and G0121 (Colorectal cancer screening; colonoscopy on individual not meeting criteria for high risk), developed in accordance with our standard OPPS ratesetting methodology, would have slightly exceeded the CY 2007 ASC payment of $446 for these procedures. Consistent with the requirements set forth in sections 1834(d)(2) and (d)(3) of the Act, the OPPS payment rates for HCPCS codes G0105 and G0121 were set equal to the CY 2007 ASC rate of $446 effective January 1, 2007. This requirement did not impact the OPPS payment rate for

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screening flexible sigmoidoscopies (G0104, Colorectal cancer screening; flexible sigmoidoscopy) because Medicare did not make payment to ASCs for screening flexible sigmoidoscopies in CY 2007, so there was no payment comparison to be made for those services.

According to the policy for the revised ASC payment system as described in the August 2007 final rule for the revised ASC payment system (72 FR 42493), ASCs will be paid for screening colonoscopies based on their ASC payment weights derived from the related OPPS APC payment weights and multiplied by the final ASC conversion factor (the product of the OPPS conversion factor and the ASC budget neutrality adjustment). As an office-based procedure added to the ASC list of covered surgical procedures for CY 2008, ASC payment for screening flexible sigmoidoscopies will be capped at the CY 2008 MPFS nonfacility practice expense amount (72 FR 42511). Sections 1834(d)(2) and (d)(3) of the Act would then require that the CY 2008 OPPS payment rates for these procedures be set equal to their significantly lower ASC payment rates.

However, for CY 2008, we proposed to use the equitable adjustment authority of section 1833(t)(2)(E) of the Act to adjust the OPPS payment rates for screening colonoscopies and screening flexible sigmoidoscopies. Section 1833(t)(2)E) of the Act provides that the Secretary shall establish adjustments, in a budget neutral manner, as determined to be necessary to ensure equitable payments under the OPPS. Sections 1834(d)(2) and (d)(3) of the Act regarding payment for screening flexible sigmoidoscopies and screening colonoscopies under the OPPS and ASC payment systems were established by Congress in 1997, many years prior to the CY 2008 initial implementation of the revised ASC payment system. The payment policies of the revised ASC payment system, as summarized in section XVI.C. of this final rule with comment period, make fundamental changes to the methodology for developing ASC payment rates based on certain principles, specifically that the OPPS payment weight relativity is applicable to ASC procedures and that ASC costs are lower than HOPD costs for providing the same procedures, that contradict the original assumptions underlying these provisions. According to the findings of the GAO in its report, released on November 30, 2006 and entitled ``Medicare: Payment for Ambulatory Surgical Centers Should Be Based on the Hospital Outpatient Payment System'' (GAO-07-86), the payment groups of the OPPS accurately reflect the relative costs of procedures performed in ASCs just as well as they reflect the relative costs of the same procedures provided in HOPDs. Screening colonoscopies were among the top 20 ASC procedures in terms of volume whose costs were specifically studied by the GAO in its work that led to this conclusion. We see no clinical or hospital resource explanation why the OPPS relative costs from CY 2006 OPPS claims data for screening flexible sigmoidoscopies and screening colonoscopies would not provide an appropriate basis for establishing their payment rates under both the OPPS and the revised ASC payment system, according to the standard ratesetting methodologies of each payment system for CY 2008. If we were to pay for these screening procedures under the OPPS according to their ASC rates in CY 2008, we would significantly distort their payment relativity in comparison with other OPPS services. We believed and continue to believe it would be inequitable to pay these screening services in HOPDs at their ASC rates for CY 2008, thereby ignoring the relativity of their costs in comparison with other OPPS services which have similar or different clinical and resource characteristics. Therefore, for CY 2008 when we will be paying for screening colonoscopies and screening flexible sigmoidoscopies performed in ASCs based upon their standard revised ASC payment rates, we proposed to adjust the payment rates under the OPPS to pay for the procedures according to the standard OPPS payment rates. We believed that the application of sections 1834(d)(2) and (d)(3) of the Act produces inequitable results because of the revised ASC payment system to be implemented in CY 2008. We believed this proposal would provide the most appropriate payment for these procedures in the context of the contemporary payment policies of the OPPS and the revised ASC payment system.

We received several public commenters concerning this proposal. A summary of the public comments and our response follow.

Comment: Several commenters agreed that it would be inequitable to pay for screening colonoscopies and screening flexible sigmoidoscopies services in the HOPD at their lower ASC payment rate. They supported CMS's use of the equitable adjustment authority to adjust the OPPS payment rates for these services.

Response: We appreciate commenters' support of our proposal. We acknowledge that sections 1834(d)(2) and (d)(3) of the Act would otherwise require that the CY 2008 OPPS payment rates for screening colonoscopies and screening flexible sigmoidoscopies be set equal to their significantly lower ASC payment rates. However, we continue to believe it is necessary to invoke the equitable adjustment authority provided by section 1833(t)(2)(E) of the Act to adjust the OPPS payment rates for these procedures in order to establish the most appropriate payment for these procedures in the context of the contemporary payment policies of the OPPS and the revised ASC payment system.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to pay for screening colonoscopies and screening flexible sigmoidoscopies under the OPPS at payment rates developed according to the standard OPPS ratesetting methodology. 3. Genitourinary Procedures a. Cystoscopy With Stent (APC 0163)

For CY 2008, we proposed to continue assignment of CPT code 52282 (Cystourethroscopy, with insertion of urethral stent) to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures), with a proposed payment rate of approximately $2,351. Payment for APC 0163 in CY 2007 is approximately $2,147.

We received one public comment on our CY 2008 proposed assignment of CPT code 52282 to APC 0163. A summary of the public comment and our response follow.

Comment: One commenter indicated that the procedure described by CPT code 52282 is inappropriately assigned to APC 0163, and that it should be reassigned to a new device-dependent APC for CY 2008. According to the commenter, the procedure described by CPT code 52282 is dissimilar to the other procedures that map to APC 0163, both clinically and in terms of cost. The commenter stated that this procedure is the only procedure in APC 0163 that involves an implant. In addition, the commenter asserted that the APC's CY 2008 proposed payment of approximately $2,351 is inadequate to cover hospitals' costs for performing this procedure, and that as a result, hospitals may limit beneficiary access to this treatment. According to the commenter, the urethral stent that is placed during these procedures is approximately $4,200. The commenter also noted that other stent placement procedures have device-dependent

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status so that adequate costs can be tracked. The commenter recommended that CMS create a new device-dependent APC for CPT code 52282 with a payment rate of at least $4,000.

Response: In response to the concerns raised by the commenter, we reviewed the clinical characteristics and hospital costs from CY 2006 claims data for all procedures proposed for CY 2008 assignment to APC 0163. The APC median cost is approximately $2,270, while CPT code 52282 has a median cost of approximately $2,016, based on 291 single claims out of a total of 900 claims for the procedure. Because of the commenter's concern about whether the stent costs were appropriately reflected in the procedure's median cost, we compared the median costs of CY 2006 claims that include both CPT code 52282 for cystoscopy with implant of a stent and a Level II HCPCS C code for a stent, to CY 2006 claims that include CPT code 52282 but do not include a device C-code for a stent. While a stent is always necessary for the procedure and we require that hospitals report device HCPCS codes whenever they implant a device that is described by an available device code, we found that hospitals did not always report a stent HCPCS code with CPT code 52282. This is similar to our findings in other cases of device-related procedures. We believe, however, that hospitals are usually otherwise accounting for the device cost in their charges on claims for CPT code 52282, either by incorporating the charge into the charge for the procedure or reporting a charge on an uncoded revenue code line. We found only a small difference in median costs of approximately $500 for procedures reported with and without a device C-code. This difference in costs is well within an appropriate range for the APC group. Furthermore, the median cost for the claims billed with CPT code 52282 and a stent C-code was approximately $2,369, very close to the CY 2008 median cost of APC 0163 of approximately $2,270. We also believe that CPT code 52282 clinically resembles the other cystourethroscopic procedures also assigned to APC 0163. Therefore, we do not believe that there are sufficient differences in clinical characteristics or resources required to perform the procedure described by CPT code 52282 relative to the other procedures assigned to APC 0163 to warrant reassignment of CPT code 52282 to a new, device-dependent APC as the commenter suggested.

After consideration of the public comment received, we are finalizing our proposal, without modification, to assign CPT code 52282 to APC 0163, with a CY 2008 median cost of approximately $2,270. b. Percutaneous Renal Cryoablation (APC 0423)

For CY 2008, we proposed to assign CPT code 0135T (Ablation renal tumor(s), unilateral, percutaneous, cryotherapy) to APC 0423 (Level II Percutaneous Abdominal and Biliary Procedures), with a proposed payment rate of approximately $2,810. This code was new in CY 2006, when it was assigned to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures) on an interim final basis, with a payment rate of $1,999. In CY 2007, based on the APC Panel's recommendation made at the March 2006 APC Panel meeting, we reassigned CPT code 0135T from APC 0163 to APC 0423 with a payment rate of approximately $2,297. We expected hospitals, when billing CPT code 0135T, to also report the device HCPCS code, C2618 (Probe, cryoablation), associated with the procedure.

We received several public comments concerning this proposal. A summary of the public comments and our responses follow.

Comment: Several commenters disagreed with our proposed APC assignment for CPT code 0135T. They indicated that the proposed payment rate for APC 0423 does not cover the cost hospitals incur for the cryoprobes used in the procedure. One commenter reported that the average cost of one probe is about $1,000, while several commenters indicated that a single procedure, on the average, uses about 2.5 probes but may involve up to 4 probes depending on the size of the tumor and the probe needle selected. Other commenters argued that CPT code 0135T requires more resources than the other procedures currently assigned to APC 0423, specifically CPT codes 47382 (Ablation, one or more liver tumor(s), percutaneous, radiofrequency) and 50592 (Ablation, one or more renal tumor(s), percutaneous, unilateral, radiofrequency). Several commenters highlighted the variance in the use of probes used for the procedures assigned to APC 0423. Specifically, these commenters asserted that CPT code 0135T requires the use of multiple probes while the radiofrequency ablation procedures require only a single probe in a procedure. Further, the commenters highlighted the various median costs associated with the procedures assigned to APC 0423. That is, they pointed out that the proposed median cost of about $3,520 for CPT code 0135T was 30 to 32 percent more than the median cost for CPT code 47382, which had a proposed median cost of about $2,706, or CPT code 50592, which had a proposed median cost of about $2,658. The commenters urged CMS to reevaluate the proposed payment rate for APC 0423 and use acquisition cost data provided by manufacturers, as many of the claims used to set the payment rate do not contain the required device. Alternatively, some commenters requested that CMS consider creating a unique clinical APC for renal cryoablation that would be designated as device-dependent to appropriately distinguish the resource costs associated with renal cryoablation from radiofrequency ablation procedures.

Response: Based on our comprehensive review of the procedures assigned to APC 0423, public comments, and the CY 2006 recommendation of the APC Panel regarding renal cryoablation, we believe that we have appropriately assigned CPT code 0135T to APC 0423 for CY 2008 based on clinical and resource considerations. We disagree with the commenters' argument regarding the clinical dissimilarity of the renal cryoablation procedure from the radiofrequency ablation procedures in APC 0423. The commenters to the CY 2007 OPPS proposed rule (71 FR 68049) acknowledged that cryoablation and radiofrequency percutaneous ablation procedures for renal tumors are clinically similar. We continue to believe that CPT code 0135T is appropriately assigned to APC 0423 because it is placed with other procedures that share its clinical and resource characteristics. If hospitals use more than one probe in performing the renal cryoablation procedure, we expect hospitals to report this information on the claim and adjust their charges accordingly. Hospitals should report the number of cryoablation probes used to perform CPT code 0135T as the units of HCPCS code C2618 which describes these devices, with their charges for the probes. Since CY 2005, we have required hospitals to report device HCPCS codes for all devices used in procedures if there are appropriate HCPCS codes available. In this way, we can be confident that hospitals have included charges on their claims for costly devices used in procedures when they submit claims for those procedures.

Comment: Several commenters informed us that the hospital claims data that we used to set the proposed payment rate for CPT code 0135T do not accurately capture the full costs related to this procedure. They believed that the omission on the claims for the device C-code, specifically HCPCS code C2618,

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for the cryoprobes leads to omission of cryoprobe cost information and undervaluation of the cost of the procedure. Some commenters reported the results of their study of our hospital outpatient claims data which revealed that of the 110 Medicare claims submitted for CPT code 0135T, only 44 single claims included the device HCPCS C-code (C2618) on the claims. Because the procedure cannot be performed without the cryoprobe device, these commenters strongly urged CMS to designate the renal cryoablation procedure as a ``device-dependent'' procedure and require hospitals to submit claims with the appropriate HCPCS C-code. One commenter who acknowledged its experience with hospital billing reported that hospitals are not motivated to report the cost of the devices on the claim form unless a HCPCS C-code is required by a code edit for claim submission. Several commenters requested that CMS designate CPT code 0135T as a ``device-dependent'' procedure to ensure that future claims data more accurately reflect the total cost of the procedure.

Response: We acknowledge the concerns raised by the commenters regarding the hospitals' failure to report the device HCPCS code C2618 with the procedure. We further examined our CY 2006 hospital outpatient claims data to determine the frequency of billing CPT code 0135T with and without HCPCS code C2618. Our analysis revealed that the final rule median cost of approximately $3,446 based on 48 single bills used for ratesetting falls within the range for those procedures billed with and without the device HCPCS code C2618. Specifically, our data showed a median cost of about $4,402 based on 17 single bills for procedures billed with the device HCPCS code C2618 and a median cost of about $2,834 based on 31 single bills for those procedures billed without the device C-code. Even considering only those claims for CPT code 0135T with the device HCPCS code and higher median cost, CPT code 0135T would be appropriately assigned to APC 0423 based on that cost.

Further, we do not believe that we should create a claims processing edit in this instance. We create device edits, when appropriate, for procedures assigned to device-dependent APCs, where those APCs have been historically identified under the OPPS as having very high device costs. Because APC 0423 is not a device-dependent APC and the costs of the procedure with and without HCPCS code C2618 are reasonably similar, we will not create edits. We remind hospitals that they must report all of the HCPCS codes that appropriately describe the items used to provide services, regardless of whether the HCPCS codes are packaged or paid separately.

After further analysis of our CY 2006 hospital outpatient claims data, the APC Panel recommendation from the March 2006 meeting, and consideration of the public comments received, we are finalizing our proposal, without modification, to assign CPT code 0135T to APC 0423 for CY 2008 with a median cost of approximately $2,705.

For CY 2008, the CPT Editorial Panel decided to delete CPT code 0135T on December 31, 2007, and replace it with CPT code 50593 (Ablation, renal tumor(s), unilateral, percutaneous, cryotherapy). The replacement CPT code 50593 will be assigned to APC 0423 effective January 1, 2008. Similar to its predecessor code, we expect hospitals to report both the device HCPCS code C2618 and CPT code 50593 to appropriately report the renal cryoablation procedure. c. Prostatic Thermotherapy (APC 0163)

For CY 2008, we proposed to reconfigure certain clinical APCs to eliminate most of the low total volume APCs as an alternative to developing specific quantitative approaches to treating low total volume APCs differently for purposes of median calculation. We further concluded that there were other clinical APCs with higher volumes of total claims to which these low total volume services could be reassigned, while maintaining the continued clinical and resource homogeneity of the clinical APCs to which they would be newly reassigned. As a result, we eliminated certain APCs and reassigned the procedures associated with these APCs to other clinical APCs with higher volumes of claims. Prostatic thermotherapy procedures were assigned to APC 0675 (Prostatic Thermotherapy) for CY 2007, with a payment rate of approximately $2,529. For CY 2008, we proposed to reassign CPT codes 53850 (Transurethral destruction of prostate tissue; by microwave thermotherapy) and 53852 (Transurethral destruction of prostate tissue; by radiofrequency thermotherapy) from APC 0675 to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures), with a proposed payment rate of approximately $2,351. We proposed to eliminate APC 0675, which would otherwise have included only approximately 550 total services based on CY 2006 claims.

We received some public comments on the proposed deletion of APC 0675 and the reassignment of the prostatic thermotherapy procedures in APC 0675 to APC 0163. A summary of the public comments and our response follow.

Comment: Specifically, some commenters requested clarification from CMS on the reassignment of CPT codes 53850 and 53852 from APC 0675 to APC 0163, as reflected in Addendum B of the CY 2008 OPPS proposed rule. One commenter urged CMS to investigate whether these procedures were correctly assigned to APC 0163 as the procedures described by CPT codes 53850 and 53852 seemed more appropriate, in terms of clinical characteristics and resource costs, for assignment to APC 0429 (Level V Cystourethroscopy and other Genitourinary Procedures). The commenter recommended that the APC Panel discuss this issue at its next meeting to further review the data before the proposed change is finalized.

Response: As part of our annual review, we examine the APC assignments for all items and services under the OPPS for appropriate placements in the context of our proposed policies for the update year. This review involves careful and extensive analysis of our hospital outpatient claims data, as well as input from our medical advisors and the APC Panel and recommendations from the public. Based on our analysis of the hospital outpatient claims from CY 2006, the final median cost for CPT code 53850 is approximately $2,482 based on 199 single claims (223 total), and the final median cost for CPT code 53852 is approximately $2,894 based on 195 single claims (315 total). We agree with the commenter who recommended reassignment of these CPT codes to APC 0429, which has a median cost of approximately $2,844 for CY 2008 and includes several other procedures to destroy prostate tissue. We believe that APC 0429 is the most appropriate assignment for both CPT codes based on clinical and resource considerations.

After consideration of the public comments received, we are modifying our proposal and finalizing the CY 2008 assignments of CPT codes 53850 and 53852 to APC 0429, with a median cost of approximately $2,844. d. Radiofrequency Ablation of Prostate (APC 0163)

For CY 2008, we proposed to delete APC 0675 (Prostatic Thermotherapy) and reassign the two CPT codes that mapped to this APC in CY 2007, CPT code 53850 (Transurethral destruction of prostate tissue; by microwave thermotherapy) and CPT code 53852

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(Transurethral destruction of prostate tissue; by radiofrequency thermotherapy) to APC 0163 (Level IV Cystourethroscopy and other Genitourinary Procedures). The CY 2007 payment rate for APC 0675 is approximately $2,529, and the CY 2008 proposed payment rate for APC 0163 was approximately $2,351.

Comment: One commenter asserted that the proposed reassignment of CPT code 53852 to APC 0163 is not clinically appropriate or consistent with the resource costs of other procedures assigned to APC 0163. The commenter suggested that CMS reassign CPT code 53852 to APC 0429 (Level V Cystourethroscopy and other Genitourinary Procedures), with a CY 2008 proposed payment rate of approximately $2,924. According to the commenter, CMS cost data showed that the median cost of CPT code 53852 is 26 percent higher than the median cost of the APC 0163 to which CMS proposed to reassign the procedure. The commenter stated that the clinical characteristics of the procedure described by CPT code 53852 are more similar to the procedure described by CPT code 52647 (Laser coagulation of the prostate, including control of postoperative bleeding, complete (vasectomy, meatotomy, cystourethroscopy, urethral calibration and/or dilation, and internal urethrotomy are included if performed)), which maps to APC 0429, than the procedures that are included in APC 0163. Specifically, the commenter stated that both procedures can be done under direct visualization, placement of the energies are customized, and there is no incision or cutting of the tissues involved. The commenter also argued that CMS data on intraservice procedure times and the direct costs of clinical labor, supplies, and equipment indicate that CPT code 53852 should be reassigned to APC 0429 rather than to APC 0163.

Response: We examined the clinical characteristics and claims-based resource costs of all procedures proposed for assignment to APC 0163 and APC 0429 for CY 2008. We agree with the commenter that APC 0429 would be an appropriate assignment for CPT code 53852 for CY 2008. CPT code 53852 appears to be more closely related, both in terms of clinical characteristics and resource costs, to the laser surgery procedures assigned to APC 0429 than to many of the cystourethroscopy and transurethral resection procedures assigned to APC 0163. CPT code 53852, like some other procedures assigned to APC 0429, is a minimally invasive procedure for the destruction of prostate tissue, and we believe the procedure room time and recovery period for the services would be relatively comparable.

After consideration of the public comments received, we are modifying our CY 2008 proposal and will reassign CPT code 53852 to APC 0429, with a median cost of approximately $2,844. e. Ultrasound Ablation of Uterine Fibroids With Magnetic Resonance Guidance (MRgFUS) (APC 0067)

Magnetic resonance guided focused ultrasound (MRgFUS) is a noninvasive surgical procedure that uses high intensity focused ultrasound waves to destroy tissue in combination with magnetic resonance imaging (MRI) guidance. Currently, the two Category III CPT codes for this procedure are 0071T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume less than 200 cc of tissue) and 0072T (Focused ultrasound ablation of uterine leiomyomata, including MR guidance; total leiomyomata volume greater or equal to 200 cc of tissue), which were implemented on January 1, 2005.

In the CY 2006 OPPS proposed rule, we proposed to continue to assign both codes to APC 0193 (Level V Female Reproductive Proc). However, at the August 2005 APC Panel meeting, the APC Panel recommended that CMS work with stakeholders to assign CPT codes 0071T and 0072T to appropriate New Technology APCs. Based on our review of several factors, which included information presented at the August 2005 APC Panel meeting, the public comments received on the CY 2006 OPPS proposed rule, and our analysis of OPPS claims data for different procedures, we reassigned CPT code 0071T from APC 0193 to APC 0195 (Level IX Female Reproductive Proc) and CPT code 0072T from APC 0193 to APC 0202 (Level X Female Reproductive Proc) effective January 1, 2006, to reflect the higher level of resources we estimated were required when performing the MRgFUS procedures.

In the CY 2007 OPPS/ASC proposed rule, we proposed to continue to assign CPT code 0071T to APC 0195 and CPT code 0072T to APC 0202. We received comments on the CY 2007 proposed APC assignments recommending that we revise the APC assignments for CPT codes 0071T and 0072T. The commenters indicated that, while MRgFUS treats anatomical sites that are similar to other procedures assigned to APCs 0195 and 0202, the resources utilized differed dramatically. Several commenters recommended that the most appropriate APC assignment for the MRgFUS procedures would be APC 0127 (Level IV Stereotactic Radiosurgery), based on their analyses of the procedures' resource use and clinical characteristics.

As we stated in both the CY 2006 OPPS final rule with comment period and the CY 2007 OPPS/ASC final rule with comment period, we believe that MRgFUS treatment bears a significant relationship to technologies already in use in HOPDs (70 FR 68600 and 71 FR 68050, respectively). The use of focused ultrasound for thermal tissue ablation has been in development for decades, and the recent application of MRI to focused ultrasound therapy provides monitoring capabilities that may make the therapy more clinically useful. We continue to believe that, although MRgFUS therapy is relatively new, it is an integrated application of existing technologies (MRI and ultrasound), and its technology resembles other OPPS services that are assigned to clinical APCs for which we have significant OPPS claims data. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68050), we explained our belief that retaining MRgFUS procedures in clinical APCs with other female reproductive procedures would enable us both to set accurate payment rates and to maintain appropriate clinical homogeneity of the APCs. Furthermore, we did not agree with commenters that MRgFUS procedures shared sufficient clinical and resource characteristics with cobalt-based stereotactic radiosurgery (SRS) to reassign them to that particular clinical APC 0127, where only the single specific SRS procedure was assigned for CY 2007 and which had a CY 2007 APC median cost of approximately $8,461. Consequently, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68051), we finalized payment for these procedures in APCs 0195 and 0202 as proposed.

Analysis of our hospital outpatient data for claims submitted for CY 2006 during the development of the proposed rule indicated that MRgFUS procedures were rarely performed on Medicare patients. As we stated in the CY 2006 OPPS final rule with comment period and the CY 2007 OPPS/ASC final rule with comment period, because treatment of uterine fibroids is most common among women younger than 65 years of age, we did not expect that there ever would be many Medicare claims for the MRgFUS procedures (70 FR 68600 and 71 FR 68050, respectively). For OPPS claims submitted from CY 2005 through CY 2006, our claims data showed that there

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were only two claims submitted for CPT code 0071T in CY 2005 and one in CY 2006. We had no hospital claims for CPT code 0072T from either of those years.

At its March 2007 meeting, the APC Panel recommended that, for CY 2008, CMS reassign CPT codes 0071T and 0072T from APCs 0195 and 0202 to APC 0067 (Level III Stereotactic Radiosurgery, MRgFUS, and MEG), which had a proposed APC median cost of approximately $3,870 for CY 2008. The APC Panel discussed its general belief that while the MRgFUS procedures might not be performed frequently on Medicare patients, CMS should pay appropriately for the procedures to ensure access for Medicare beneficiaries. In addition, following discussion of the potential for reassignment of the CPT codes to New Technology APCs, the APC Panel specifically recommended that the procedures be assigned to a clinical APC at this point in their adoption into clinical practice, instead of a New Technology APC. Furthermore, following publication of the CY 2007 OPPS/ASC final rule with comment period, we received input from interested individuals and organizations regarding the clinical and resource characteristics of MRgFUS procedures. Based on our consideration of all information available to us regarding the necessary hospital resources for the MRgFUS procedures in comparison with other procedures for which we have historical hospital claims data, for CY 2008 we proposed to accept the APC Panel's recommendation to reassign these services to clinical APC 0067, an APC that currently contains two linear accelerator-based stereotactic radiosurgery (SRS) procedures. We agreed with the APC Panel that these SRS procedures share sufficient clinical and resource similarity with the MRgFUS services, including reliance on image guidance in a single treatment session to ablate abnormal tissue, to justify their assignment to the same clinical APC. Unlike the cobalt-based SRS service that we concluded in the CY 2007 OPPS/ASC final rule with comment period was not similar to MRgFUS procedures based on clinical and resource considerations, these linear accelerator-based SRS procedures are not performed solely on intracranial lesions and generally do not require immobilization of the patient's head in a frame that is screwed into the skull, thereby exhibiting characteristics more consistent with MRgFUS treatments. In addition, based on our understanding of the MRgFUS procedures described by the two CPT codes which differ only in the volume of uterine leiomyomata treated, we believed it would be most appropriate to assign both of these procedures to the same clinical APC, as recommended by the APC Panel. Therefore, for CY 2008 we proposed to reassign CPT codes 0071T and 0072T to APC 0067, with a proposed APC median cost of approximately $3,870, which was reflected in Table 32 of the proposed rule (72 FR 42713).

We received several public comments on our CY 2008 proposal concerning MRgFUS procedures. A summary of the public comments and our responses follow.

Comment: Several commenters agreed with CMS's proposal to assign the MRgFUS procedures, specifically CPT codes 0071T and 0072T, to APC 0067 because the services share similarities, both clinically and with regard to resource costs, with other procedures also assigned to APC 0067. However, many commenters disagreed with the proposed payment rate of approximately $3,918 for APC 0067. They recommended that MRgFUS be placed in APC 0127 (Level IV Stereotactic Radiosurgery, MRgFUS, and MEG), which had a proposed payment rate of approximately $7,864, as they believed that this APC accurately reflected the hospital charges and costs for this procedure. The commenters believed that the proposed payment rate for APC 0067 was far below the costs incurred to provide MRgFUS procedures and did not accurately reflect the treatment planning component that is part of the MRgFUS procedure. Other commenters disagreed with the placement of MRgFUS services in an APC that historically had contained only SRS procedures. These same commenters argued that the MRgFUS procedure is not similar to SRS treatment delivery services based on clinical coherence and resource utilization. Some commenters suggested that CMS reassign these procedures, as previously done in CY 2007, to a female reproductive procedure APC.

Response: As we stated in the CY 2006 OPPS final rule with comment period and the CY 2007 OPPS/ASC final rule with comment period, because treatment of uterine fibroids is most common among women younger than 65 years of age, we did not expect that there ever would be many Medicare claims for the MRgFUS procedures (70 FR 68600 and 71 FR 68050, respectively). Analysis of hospital outpatient data for claims submitted for CY 2006 indicates that MRgFUS procedures were rarely performed on Medicare patients. For OPPS claims submitted from CY 2005 through CY 2006, our claims data showed that there were only two claims submitted for CPT code 0071T in CY 2005 and one in CY 2006. We had no hospital claims for CPT code 0072T from either of those years. While we have no information from hospital claims regarding the costs of MRgFUS procedures, we continue to believe that the clinical and expected resource characteristics of MRgFUS procedures resemble the first or complete session LINAC-based SRS treatment delivery services that are also assigned to APC 0067. The APC Panel also recommended that MRgFUS procedures be assigned to that clinical APC, instead of a New Technology APC. While commenters pointed to specific differences in the technologies utilized for MRgFUS and SRS procedures, both services are noninvasive and utilize specialized equipment and image guidance in the targeted ablation of abnormal tissue during a lengthy treatment session. Therefore, we believe that the services are sufficiently similar to reside in the same clinical APC.

After consideration of the public comments received and the APC Panel recommendation at its March 2007 meeting, we are finalizing our proposal, without modification, to assign CPT codes 0071T and 0072T to APC 0067, with a CY 2008 median cost of approximately $3,882. Table 18 lists the final APC median costs for the MRgFUS CPT codes.

Table 18.--Final CY 2008 APC Assignments of MRgFUS Procedures

Final CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Final CY 2008 Final CY 2008 APC APC median cost

SI

2008 APC median cost

0071T.......... U/s leiomyomata T......... 0195 $1,742 S.............

0067 $3,882 ablate 200.

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f. Uterine Fibroid Embolization (APC 0202)

Prior to January 1, 2007, a specific CPT code did not exist to describe uterine fibroid embolization. CPT guidance suggests that hospitals previously reported this procedure using CPT codes 37204 (Transcatheter occlusion or embolization (eg, for tumor destruction, to achieve hemostasis, to occlude a vascular malformation), percutaneous, any method, non-central nervous system, non-head or neck) and 75894 (Transcatheter therapy, embolization, any method, radiological supervision and interpretation). In CY 2006, the combined APC payment for these two procedures was approximately $2,504. Effective January 1, 2007, the CPT Editorial Panel created CPT code 37210 (Uterine fibroid embolization (UFE, embolization of the uterine arteries to treat uterine fibroids, leiomyomata), percutaneous approach inclusive of vascular access, vessel selection, embolization, and all radiological supervision and interpretation, intraprocedural roadmapping, and image guidance necessary to complete the procedure) to describe this procedure. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68317), we provided an interim final assignment of CPT code 37210 to APC 0202 (Level VII Female Reproductive Procedures), with a CY 2007 payment rate of approximately $2,642. For CY 2008, we proposed continued assignment of CPT code 37210 to APC 202 (72 FR 42936), with a proposed payment rate of approximately $2,753. Because this is a new code for CY 2007, the CY 2006 claims data, upon which we set CY 2008 payment rates, do not reflect use of this code.

At the September 2007 meeting of the APC Panel, the Panel recommended that CMS consider moving CPT code 37210 to another APC, such as APC 0067 (Level III Stereotactic Radiosurgery), with a CY 2008 proposed payment rate of approximately $3,918, or APC 0229 (Transcatheter Placement of Intravascular Shunts), with a CY 2008 proposed payment rate of approximately $5,713, to improve the clinical and resource homogeneity of the procedure within its assigned APC.

We received several public comments on the CY 2007 OPPS/ASC final rule with comment period and the CY 2008 OPPS/ASC proposed rule regarding the placement of CPT code 37210 in APC 0202. A summary of the public comments and our response follow.

Comment: Several commenters requested that CMS consider the APC Panel's recommendation to reassign CPT code 37210 to a different APC. The commenters argued that the uterine fibroid embolization procedure is clinically dissimilar to the other procedures assigned to APC 0202, which do not require the implantation of a device and do not utilize imaging resources. The commenters suggested that CMS create a new APC for CPT code 37210 or reassign it to APC 0229. The commenters stated that the uterine fibroid embolization procedure is similar to the other vascular procedures included in APC 0229, both clinically and in terms of resource utilization. Specifically, the commenters noted that the uterine fibroid embolization procedure is similar to the revision of transvenous intrahepatic portosystemic shunts, described by CPT code 37183 (Revision of transvenous intrahepatic portosystemic shunt(s) (TIPS) (includes venous access, hepatic and portal vein catheterization, portography with hemodynamic evaluation, intrahepatic tract recanulization/dilatation, stent placement and all associated imaging guidance and documentation)), which maps to APC 0229. According to the commenters, both uterine fibroid embolization and the revision of transvenous intrahepatic portosystemic shunts involve device implantation, selective catheterization, and radiological supervision and interpretation. The commenters stated that the hospital resource consumption related to the devices used in uterine fibroid embolization are also similar to other procedures in APC 0229, including those described by CPT code 37205 (Transcatheter placement of an intravascular stent(s) (except coronary, carotid, and vertebral vessel), percutaneous; initial vessel) and CPT code 37206 (Transcatheter placement of an intravascular stent(s) (except coronary, carotid, and vertebral vessel), percutaneous; each additional vessel).

Response: We reviewed the clinical characteristics and claims-based costs of all procedures also proposed for assignment to APC 0202 for CY 2008, as well as the recommendation of the APC Panel from its September 2007 meeting. We do not believe that the procedure described by CPT code 37210 sufficiently resembles the services assigned to APC 0067, one of the possibilities recommended by the APC Panel, for that clinical APC to be an appropriate assignment. The stereotactic radiosurgery, magnetic resonance-guided focused ultrasound ablation, and magnetoencephalography services assigned to APC 0067 all are noninvasive procedures that do not require vascular catheterization or the use of implantable devices. We examined the clinical characteristics and resource costs of procedures assigned to APC 0229 and agree with some of the commenters that this APC would be an appropriate assignment for CPT code 37210 for CY 2008 while we await claims data that will be available for the CY 2009 OPPS update. CPT code 37210, like other procedures assigned to APC 0229, requires the targeted use of intravascular catheters, imaging guidance, and implantable devices, and we believe the procedure room time and recovery period for the services would be relatively comparable. CPT code 37210 appears to be more closely related, both in terms of clinical characteristics and resource costs, to the minimally invasive interventional procedures assigned to APC 0229 than to many of the open surgical repair procedures of the female reproductive system assigned to APC 0202. We are unable to assign CPT code 37210 to a new clinical APC for CY 2008 because we would have no claims data for the procedure upon which to base the payment rate for that APC. Therefore, we have adopted the recommendation of the APC Panel to consider moving CPT code 37210 to APC 0229 and will reassign the procedure to that APC for CY 2008.

After consideration of the public comments received, we are modifying our CY 2008 proposal and will reassign CPT code 37210 for uterine fibroid embolization to APC 0229, with a median cost of approximately $5,570. 4. Nervous System Procedures a. Chemodenervation (APC 0206)

For CY 2008, we proposed to reassign two chemodenervation procedures, specifically those described by CPT codes 64650 (Chemodenervation of eccrine glands; both axillae) and 64653 (Chemodenervation of eccrine glands; other area(s) (eg, scalp, face, neck), per day) to APC 0206 (Level II Nerve Injections), with a proposed payment rate of approximately $265. These services are currently assigned to APC 0204 (Level I Nerve Injections) for CY 2007, with a payment rate of approximately $139.

We received one public comment on our CY 2008 proposed assignment of chemodenervation procedures to APC 0206. A summary of the public comment and our response follow.

Comment: One commenter was concerned that CMS proposed to reassign CPT codes 64650 and 64653 to APC 0206 for CY 2008, but retained other chemodenervation procedures in

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APC 0204, specifically CPT codes 64612 (Chemodenervation of muscle(s); muscle(s) innervated by facial nerve (eg, for blepharospasm, hemifacial spasm); 64613 (Chemodenervation of muscle(s); cervical spinal muscle(s) (eg, for spasmodic torticollis); and 64614 (Chemodenervation of muscle(s); extremity(s) and/or trunk muscle(s) (eg, for dystonia, cerebral palsy, multiple sclerosis). The commenter believed that CPT codes 64650 and 64653 for chemodenervation of eccrine glands should be grouped with the other three cited chemodenervation codes based on clinical and resource considerations. Of note, many commenters stated that if CMS proceeded with the packaging of electrodiagnostic guidance for chemodenervation procedures, a new distinct APC should be established for CPT codes 64612, 64613, and 64614, but CPT codes 64650 and 64653 were not included in that request.

Response: CPT codes 64650 and 64653 were new codes in CY 2006, which were initially assigned to APC 0204 on an interim final basis, and subsequently retained in that APC for CY 2007. For CY 2008, we proposed to reassign them to APC 0206 based on analysis of our first limited claims data from CY 2006. The final rule median cost for APC 0204 is approximately $146 and for APC 0206 is approximately $258. Our claims data showed a median cost of approximately $221 for CPT code 64650 and a median cost of approximately $235 for CPT code 64653 based on only 7 claims (of 11 total claims) and 15 claims (of 22 total claims), respectively. We agree with the commenter that these two chemodenervation procedures are clinically similar to the three procedures reported for chemodenervation of the muscles. Given the final CY 2008 packaging policy as discussed section II.A.4.c.(1) of this final rule with comment period that will package payment for the electrodiagnostic guidance for chemodenervation services, we would expect that the hospital resources required for CPT codes 64612 through 64614, where this guidance is sometimes used, would be at least as great as those required for chemodenervation of eccrine glands. In view of the limited claims for CY 2006 for CPT codes 64650 and 64653, we agree with the commenters that these two CPT codes should be assigned to the same APC as the other three chemodenervation procedures, specifically CPT codes 64612 through 64614, whose median costs of approximately $125 through $187 are within the range of costs for other significant services also assigned to APC 0204, where these muscle chemodenervation procedures were proposed for assignment in CY 2008. We do not see any need to establish a new APC for CPT codes 64612 through 64614 for CY 2008 based on clinical and resource considerations. Therefore, we believe that CPT codes 64650 and 65653 should remain in APC 0204 for CY 2008. As we accumulate additional claims data for these procedures we will reassess their resource utilization and APC placement.

After consideration of the public comment received, we are modifying the CY 2008 proposed assignments of CPT codes 64650 and 64653 and retaining these two CPT codes in APC 0204, with a median cost of approximately $146, rather than reassigning them to APC 0206 as proposed. b. Implantation of Intrathecal or Epidural Catheter (APC 0224)

For CY 2008, we proposed to delete APC 0223 (Implantation or Revision of Pain Management Catheter) and reassign CPT code 62350 (Implantation, revision, or repositioning of tunneled intrathecal or epidural catheter, for long-term medication administration via an external pump or implantable reservoir/infusion pump; without laminectomy) to APC 0224 (Implantation of catheter/reservoir/shunt). The procedure described by CPT code 62350 is the only procedure assigned to APC 0223 in CY 2007, with a payment rate of approximately $1,896. The CY 2008 proposed payment for APC 0224 was approximately $2,364.

We received one public comment on our CY 2008 proposal to reassign CPT code 62350 to APC 0224. A summary of the public comment and our response follow.

Comment: One commenter supported the proposal to delete APC 0223 and reassign CPT code 62350 to APC 0224. According to the commenter, this policy would increase resource homogeneity and clinical coherence.

Response: We appreciate the commenter's support and agree that the deletion of APC 0223 and the reassignment of CPT code 62350 to APC 0224 would increase resource homogeneity and clinical coherence of the resulting APC configuration by assigning multiple similar procedures for the implantation of nervous system shunts and catheters to the same clinical APC. We also believe this proposal is consistent with our overall strategy to encourage hospitals to use resources more efficiently by increasing the size of the payment bundles, and by eliminating, whenever possible, APCs comprised of few procedures.

Therefore, we are finalizing our proposal, without modification, to delete APC 0223 and reassign CPT code 62350 to APC 0224, with a median cost of approximately $2,282. c. Implantation of Spinal Neurostimulators (APC 0222)

The CPT code for insertion of a spinal neurostimulator (63685, Insertion or replacement of spinal neurostimulator pulse generator or receiver, direct or inductive coupling), which is currently assigned to APC 0222 (Implantation of Neurological Device), is reported for both the insertion of a nonrechargeable neurostimulator and a rechargeable neurostimulator. The costs of a nonrechargeable neurostimulator from the CY 2005 claims are packaged into the payment for APC 0222 in CY 2007. We believe rechargeable neurostimulators are currently most commonly implanted for spinal neurostimulation, consistent with the information provided during our consideration of the device for pass- through designation. However, in response to hospital requests, in CY 2007 we expanded our procedure-to-device edits to allow device category code C1820 (Generator, neurostimulator (implantable), with rechargeable battery and charging system) to be reported with two other procedures. These procedures are CPT code 64590 (Insertion or replacement of peripheral or gastric neurostimulator pulse generator or receiver, direct or inductive coupling), assigned to APC 0222, and CPT code 61885 (Insertion or replacement of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to a single electrode array), assigned to APC 0039 (Level I Implantation of Neurostimulator).

The rechargeable neurostimulator reported as device category code C1820 has received pass-through payment since January 1, 2006, and its pass-through status will expire on January 1, 2008, as discussed further in section IV.B. of this final rule with comment period. During the 2 years of pass-through payment when device category code C1820 has been paid at a hospital's charges reduced to cost using the overall hospital CCR, we have applied a device offset when device category code C1820 is reported with a CPT code assigned to APCs 0039 or 0222 in order to remove the costs of the predecessor nonrechargeable device from the payment for APCs 0039 and 0222. This device offset ensures that no duplicate

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device payment is made. As a general policy, under the OPPS we package payment for the costs of devices into the payment for the procedure in which they are used.

Because we traditionally have paid for a service package under the OPPS as represented by a HCPCS code for the major procedure that is assigned to an APC group for payment, we assess the applicability of the 2 times rule to services at the HCPCS code level, not at a more specific level based on the individual devices that may be utilized in a service reported with a single HCPCS code. If the use of a very expensive device in a clinical scenario causes a specific procedure to be much more expensive for the hospital than the APC payment, we consider such a case to be the natural consequence of a prospective payment system that anticipates that some cases will be more costly and others less costly than the procedure payment. In addition, very high cost cases could be eligible for outlier payment. As we note in section II.A.4. of this final rule with comment period, decisions about packaging and bundling payment involve a balance between ensuring some separate payment for individual services and establishing incentives for efficiency through larger units of payment. In the case of implantable nonpass-through devices, these devices are part of the OPPS payment package for the procedures in which they are used.

Stakeholders encouraged us to deem as two distinct procedures neurostimulator implantation involving rechargeable and nonrechargeable devices, so in the CY 2008 proposed rule we conducted a review of our CY 2006 claims data for APC 0222. This examination showed that the median costs of the associated neurostimulator implantation procedures are higher for rechargeable neurostimulator implantation than for nonrechargeable neurostimulator implantation, as shown in Table 35 of the proposed rule (72 FR 42716). However, the difference in costs (approximately $6,500 based on proposed rule data) was not so great that retaining the procedures for the implantation of both types of devices for spinal or peripheral neurostimulation in APC 0222 would cause a 2 times violation, even if we were to consider them to be distinct procedures. The data did not justify creating a new clinical APC. In addition, to pay differentially would require us to establish one or more Level II HCPCS codes for reporting under the OPPS, because the three CPT codes for which device category code C1820 is currently an allowed device do not differentiate among the device implantation procedures based on the specific device used. The creation of special Level II HCPCS codes for OPPS reporting is generally undesirable, unless absolutely essential, because it increases hospital administrative burden as the codes may not be accepted by other payers. Establishing separate coding and payment would reduce the size of the APC payment groups in a year in which we proposed to increase packaging under the OPPS through expanded payment groups.

Therefore, for CY 2008 we proposed to package the costs of rechargeable neurostimulators into the payment for the CPT codes that describe the services furnished. Our proposed median cost for APC 0222 was approximately $12,162. We thought this approach to be the most administratively simple, consistent with the OPPS packaging principles, and supportive of encouraging hospital efficiency, while also providing appropriate packaged payment for implantable neurostimulators. In the proposed rule (72 FR 42716), we specifically requested that commenters submit comments that address how this specific device implantation situation differed from many other scenarios under the OPPS, where relatively general HCPCS codes describe procedures that may utilize a variety of devices with different costs, and payment for those devices is packaged into the payment for the associated procedures.

We received many public comments in response to this proposal. A summary of the public comments and our response follow.

Comment: The commenters urged CMS to pay differentially for rechargeable and nonrechargeable neurostimulators by creating separate APCs for the implantation procedures. They argued that the 2 times rule is a sufficient but not necessary condition for splitting APCs, and they identified other factors apart from the 2 times rule that should be taken into consideration in determining APC assignments. The commenters argued that the resources required to implant rechargeable versus nonrechargeable neurostimulators vary substantially, and that a combined APC for these procedures would result in a payment that is inequitable for both technologies and may lead to incentives for facilities to furnish only the less costly technology, even when the more expensive technology is clinically indicated for a particular patient. The commenters stated that the prospect of hospitals limiting patient access to rechargeable neurostimulators is particularly troubling because this technology represents a substantial clinical improvement for select patients and is more cost-effective compared to nonrechargeable neurostimulators. The commenters argued that paying more initially for rechargeable neurostimulators would save the Medicare program and beneficiaries money in the long term, and improve overall patient care and satisfaction. The commenters also pointed to provider concentration as an additional factor that should be considered in APC assignments. In the case of neurostimulators, commenters provided data that showed only 27 percent of the total number of hospitals that implant nonrechargeable neurostimulators also implant rechargeable neurostimulators, and stated that an APC payment that combines payment for rechargeable and nonrechargeable neurostimulator implantation procedures may bias the payment system against those hospitals.

The commenters disagreed with the assertion in the proposed rule that creating a new APC dedicated solely to rechargeable neurostimulator implantation procedures would be inconsistent with OPPS packaging principles. According to the commenters, distinct treatment of rechargeable and nonrechargeable neurostimulators is not an issue of packaging, because the technologies are not ancillary services or products. Instead, the commenters characterized them as alternative treatments depending on patient needs, and indicated that neither rechargeable nor nonrechargeable neurostimulators represent subordinate, supportive, or optional services relative to the other. The commenters also disagreed that as rechargeable neurostimulators become the dominant device implanted for neurostimulation, the median costs of APC 0222 would increase to reflect the costs of the technology. According to their analysis of claims data, approximately 60 percent of the CY 2006 single procedure claims for APC 0222 were for implantation of gastric, sacral, or other types of peripheral nerve neurostimulator devices, all of which utilize and are indicated for nonrechargeable technologies only. Therefore, the commenters claimed that the median costs for APC 0222 would continue to be dominated by nonrechargeable neurostimulator implantation procedures, even as the utilization of rechargeable neurostimulators grows.

The commenters responded to the proposed rule request to describe how this specific device implantation situation differed from many other scenarios under the OPPS, where relatively general HCPCS codes describe

[[Page 66715]]

procedures that may utilize a variety of devices with different costs, and payment for those devices is packaged into the payment for the associated procedures. The commenters stated that they were unaware of other APCs that include devices where the magnitude of the cost difference among packaged services is as substantial as proposed for neurostimulators. They also asserted that, unlike other OPPS services, rechargeable neurostimulators can reduce long-term costs. Rather than promoting efficiency, they argued, the CMS proposal to group payment for rechargeable neurostimulator implantation procedures with procedures involving nonrechargeable neurostimulators would discourage efficient resource utilization. They submitted economic models presented at special society meetings that concluded rechargeable spinal neurostimulators should reduce the number of reimplantation procedures due to battery depletion as well as reduce the number of complications associated with reimplantation procedures, and ultimately result in cost savings to payers and the health system.

The commenters offered various coding mechanisms that would enable the creation of unique APCs for rechargeable and nonrechargeable neurostimulator implantation procedures. Some commenters urged CMS to create new Level II HCPCS codes to differentiate between neurostimulator implantation procedures involving nonrechargeable and rechargeable devices, assign those HCPCS codes to separate APCs, and discontinue the use of CPT codes describing these procedures for OPPS payment purposes. These commenters stated that any administrative burden posed by new Level II HCPCS codes would be outweighed by the higher payment the hospital would receive for rechargeable neurostimulators, and that this methodology is consistent with previous CMS actions to identify and allow specific payment for services of importance to Medicare. Other commenters, however, supported the CMS proposal not to implement new Level II HCPCS codes, arguing that it is too much of an administrative burden for hospitals to follow coding rules for Medicare patients that are inconsistent with CPT coding guidelines. They suggested that neurostimulator implantation procedures that contain the existing C-code for the rechargeable device (C1820) map to a new APC with a higher payment rate, while claims for neurostimulator implantation procedures with the existing C-code for the nonrechargeable device (C1767) continue to map to APC 0222. Other commenters requested that CMS pursue new CPT codes through the AMA rather than create new Level II HCPCS codes.

Response: After consideration of the comments received on this issue, we have decided to reconfigure the APC assignments of procedures involving implantation of neurostimulators in order to improve the resource homogeneity of these APCs and ensure appropriate payment for both rechargeable and nonrechargeable neurostimulators. Effective January 1, 2008, CMS will implement a revised APC configuration for neurostimulator implantation procedures that groups payment for certain procedures mainly involving nonrechargeable neurostimulator technology (that is, cranial, sacral, gastric, or other peripheral neurostimulators) into two clinical APCs (APCs 0039 and 0315), while establishing a single APC for spinal neurostimulator implantation, which may commonly utilize either rechargeable or nonrechargeable technologies (APC 0222). Specifically, CMS will reassign CPT code 64590 for implantation of peripheral neurostimulators from APC 0222 to APC 0039, which already includes CPT code 61885 for implantation of single array cranial neurostimulators. CPT code 63685 for the implantation of spinal neurostimulators will be the only code remaining in APC 0222. By moving CPT code 64590 to APC 0039, all procedures that generally use nonrechargeable technologies only will be removed from ratesetting for spinal neurostimulator implantation, for which both rechargeable and nonrechargeable neurostimulators are indicated and commonly utilized. This APC reconfiguration will not affect CPT code assignment to APC 0315 (Level II Implantation of Neurostimulators), which will continue to include only CPT code 61886 (Insertion or replacement of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to two or more electrode arrays), although we will rename all three APCs to accommodate this new configuration. The revised APC configuration and naming convention for neurostimulator implantation APCs are summarized in Table 19 below. We note that this approach does not require hospitals to alter their coding practices in any way to conform to the new payment policy.

We agree with commenters that there are other important factors we consider when deciding on APC assignments besides the 2 times rule. In our CY 2001 final rule, we recognized that resource homogeneity is a fundamental criterion for evaluating changes to APC assignments. We wrote in the CY 2001 final rule that ``if the procedures within an APC require widely varying resources, it would be difficult to develop equitable payment rates. Aggregated payments to a facility that performed a disproportionate share of either the expensive or inexpensive procedures within an APC would be distorted. Further, the facility might be encouraged to furnish only the less costly procedures within the APC, resulting in a potential access problem for the more costly services'' (65 FR 18457). In the case of the neurostimulator implantation APC configuration that we are adopting for CY 2008, two of the APCs contain only one procedure and one APC contains only two CPT codes, with very close CPT code-specific median costs, so these three APCs reflect great resource homogeneity. We do not consider the implantation of rechargeable and nonrechargeable neurostimulators to be different procedures, so we see no need to adopt differential coding and/or payment for procedures that depend on the device implanted. We believe our final APC configuration will provide appropriate payment for neurostimulator implantation procedures that ensures access to the appropriate neurostimulator technologies under the OPPS for Medicare beneficiaries.

Just as we do not want to provide incentives for the underutilization of rechargeable neurostimulators, we also do not want to provide incentives for the overutilization of this expensive technology. According to information provided by the manufacturers of rechargeable neurostimulators, these devices are clinically indicated in only a subset of patients for whom spinal neurostimulation is a treatment option. They estimate that approximately 35 percent of these patients are candidates for rechargeable spinal neurostimulators, although this proportion may be higher. Our claims data from CY 2006, the first year of device pass-through for the rechargeable devices, already indicate that rechargeable neurostimulators are being implanted in about one-third of the spinal neurostimulator implantation cases. We received comments from many providers, however, who stated that they use or wish to use the rechargeable technology in all of their patients. We believe that creating a separate APC for rechargeable neurostimulator implantation, as was recommended by commenters, could

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create incentives for hospitals to use the more expensive rechargeable technology, even when the more expensive technology is not clinically indicated. In contrast to the commenters' perspective, we believe that packaging payment for implantable devices into the related procedures is an important packaging principle that contributes to the size of the OPPS payment bundles. Although our CY 2008 proposal was to newly package payment for certain ancillary and supportive services, many other items and types of services that are fundamental to a procedure's therapeutic effect have been historically packaged under the payment system and will remain packaged for CY 2008. A policy to provide different payments for procedures according to the devices implanted would not be consistent with our overall strategy to encourage hospitals to use resources more efficiently by increasing the size of the payment bundles. However, we believe that the revised neurostimulator APC configuration that we are adopting for CY 2008 will allow us to calculate payment rates for procedures involving spinal neurostimulators that reflect changes in surgical practice based on clinical, rather than financial, considerations. To the extent that rechargeable neurostimulators may become the dominant device implanted for spinal neurostimulation over time based on the evolution of clinical practice, the median costs for the spinal neurostimulator implantation APC may increase to reflect contemporary utilization patterns.

In summary, for CY 2008, we are finalizing our proposal, with modification, for payment of neurostimulator implantation procedures. We will implement a revised APC configuration for neurostimulator implantation procedures that packages payment for procedures involving mainly nonrechargeable neurostimulator technology (i.e., cranial, sacral, gastric, or other peripheral neurostimulators) into two APCs (APCs 0039 and 0315), while establishing a single APC for spinal neurostimulator implantation, which commonly utilizes either rechargeable or nonrechargeable technologies (APC 0222). We believe that this revised APC configuration best serves the principles of a prospective payment system by following our standard practice of retaining a single CPT code for neurostimulator implantation procedures that does not distinguish between the implantation of rechargeable and nonrechargeable neurostimulators, into which the costs of both types of devices are packaged in relationship to their OPPS utilization. We also believe the revised APC configuration is both consistent with our standard ratesetting practice for technologies coming off pass-through status, and reflective of the clinical and resource considerations presented by commenters. Because no new codes or coding practices will be required, hospitals will not experience any change in the administrative burden associated with reporting neurostimulator implantation procedures.

Table 19.--CY 2008 APC Configuration for Payment of Rechargeable and Nonrechargeable Neurostimulator Implantation Procedures

HCPCS codes

CY 2008 CY 2008 included in

CPT code APC APC

Revised title for CY 2008

Previous title

CY 2008

HCPCS descriptor

median median median cost

cost cost

0039.............................. Level I Implantation of Level I Implantation of

61885 Insertion or replacement $12,799 $11,732 Neurostimulator.

Neurostimulator.

of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to a single electrode array. 64590 Insertion or replacement $10,954 $11,732 of peripheral neurostimulator pulse generator or receiver, direct or inductive coupling. 0222.............................. Level II Implantation of Implantation of

63685 Insertion or replacement $15,150 $15,150 Neurostimulator.

Neurological Device.

of spinal neurostimulator pulse generation or receiver, direct or inductive coupling. 0315.............................. Level III Implantation of Level II Implantation of

61886 Insertion or replacement $16,988 $16,988 Neurostimulator.

Neurostimulator.

of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to two or more electrode arrays.

5. Nuclear Medicine and Radiation Oncology Procedures a. Adrenal Imaging (APC 0391)

For CY 2008, we proposed to assign CPT code 78075 (Adrenal imaging, cortex and/or medulla) to APC 0391 (Level II Endocrine Imaging), with a proposed payment rate of about $233. Currently, this procedure is assigned to the same clinical APC for CY 2007.

We received several public comments concerning this proposal. A summary of the public comments and our response follow.

Comment: Some commenters requested that CMS recognize this code as a high intensity multiday imaging procedure and reassign CPT code 78075 to APC 0408 (Level III Tumor/Infection Imaging), along with another multiday tumor imaging procedure code CPT code 78804 (Radiopharmaceutical localization of tumor or distribution of radiopharmaceutical agent(s); whole body, requiring two or more days imaging).

Response: Based on our review of the costs and clinical characteristics of CPT code 78075, we agree with the commenters that this procedure is similar to CPT code 78804, in terms of clinical homogeneity and resource costs. Both procedures require nuclear medicine imaging several days following the injection of a diagnostic radiopharmaceutical. We note that these services are nuclear medicine procedures and, therefore, their final rule median costs are calculated according to the temporary special methodology that relies on the subset of claims reporting coded diagnostic radiopharmaceuticals, as described in section II.A.4.c. of this final rule with comment period. Our claims data from CY 2006 showed that the median cost for CPT code 78075 is approximately $954 based on 124 single claims for

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ratesetting, which is relatively similar to the median cost of approximately $1,194 for the sole procedure code 78804 proposed for assignment to APC 0408. In contrast, the HCPCS-specific median costs for the individual significant procedures in APC 0391 range from approximately $201 to $243, resulting in an APC median cost of approximately $217. The median cost of APC 0391 is significantly lower than the APC 0408 median cost of approximately $969 and the CPT code 78075 median cost of approximately $954.

After considering the public comments received, we are modifying our proposal and are reassigning CPT code 78075 to APC 0408, with a CY 2008 median cost of approximately $969, rather than to APC 0391 as proposed. b. Injection for Sentinel Node Identification (APC 0389)

For CY 2008, we proposed to assign the sentinel node identification procedure, specifically described by CPT code 38792 (Injection procedure; for identification of sentinel node), to APC 0389 (Level I Non-imaging Nuclear Medicine), with a proposed payment rate of approximately $101. Currently, this procedure is assigned to the same clinical APC for CY 2007.

We received several public comments on our CY 2008 proposed assignment of CPT code 38792 to APC 0389. A summary of the public comments and our responses follow.

Comment: Some commenters recommended that CPT code 38792 be reassigned from APC 0389 to APC 0392 (Level II Non-imaging Nuclear Medicine), which had a proposed payment rate of approximately $209. The commenters indicated that an injection for sentinel node identification is more resource intensive, as corroborated by the CMS hospital outpatient claims data, than other procedures also assigned to APC 0389. These commenters requested that CMS reassign CPT code 38792 to APC 0392 for CY 2008.

Response: Based on our review of the costs and clinical characteristics of CPT code 38792, we agree with the commenters that this procedure is most similar to those procedures assigned to APC 0392 for CY 2008. Our claims data from CY 2006 showed that the median cost for CPT code 38792 is approximately $174 based on 390 single claims available for ratesetting, which is significantly higher than the median cost of approximately $114 for APC 0389. The median cost of APC 0392 of $183, which contains nuclear medicine procedures and, therefore, is calculated according to the special methodology described in section II.A.4.c. of this final rule with comment period, is more consistent with the hospital resources required to perform CPT code 38792.

After consideration of the public comments received, we are modifying our proposal and reassigning CPT code 38792 to APC 0392, with a CY 2008 median cost of approximately $183, rather than to APC 0389 as proposed. c. Myocardial Positron Emission Tomography (PET) Scans (APC 0307)

From August 2000 to December 31, 2005, under the OPPS, we assigned one clinical APC to all myocardial positron emission tomography (PET) scan procedures, which were reported with multiple G-codes through March 31, 2005. Under the OPPS, effective April 1, 2005, myocardial PET scans were reported with three CPT codes, specifically CPT codes 78459 (Myocardial imaging, positron emission tomography (PET), metabolic evaluation), 78491 (Myocardial imaging, positron emission tomography (PET), perfusion; single study at rest or stress), and 78492 (Myocardial imaging, positron emission tomography (PET), perfusion; multiple studies at rest and/or stress). From April 1, 2005 through December 31, 2005, these three CPT codes were assigned to one APC, specifically APC 0285 (Myocardial Positron Emission Tomography (PET), with a payment rate of approximately $736. In CY 2006, in response to the public comments received on the CY 2006 OPPS proposed rule, and based on our claims information, myocardial PET services were assigned to two clinical APCs for the CY 2006 OPPS. The CPT codes for the single scans, specifically 78459 and 78491, were assigned to APC 0306 (Myocardial Positron Emission Tomography (PET) Imaging, Single Study, Metabolic Evaluation) with a payment rate of approximately $801, and the multiple scan CPT code 78492 was assigned to APC 0307 (Myocardial Positron Emission Tomography (PET) Imaging, Multiple Studies) with a payment rate of approximately $2,485, effective January 1, 2006. However, analysis of the CY 2005 claims data that were used to set the payment rates for CY 2007 revealed that when all the myocardial PET scan procedure codes were combined into a single clinical APC, as they were prior to CY 2006, the APC median cost for myocardial PET services was very similar to the median cost of their single CY 2005 clinical APC. Further, our analysis revealed that the updated differential median costs of the single and multiple study procedures no longer supported the two-level APC payment structure. Therefore, for CY 2007, CPT codes 78459, 78491, and 78492, were assigned to a single clinical APC, specifically APC 0307, which was renamed ``Myocardial Positron Emission Tomography (PET) Imaging,'' with a median cost of approximately $727.

At its March 2007 meeting, the APC Panel recommended that CMS reassign CPT code 78492 to its own clinical APC, to distinguish this multiple study procedure that the APC Panel believed would require greater hospital resources from less resource intensive single study procedures. However, as indicated in the CY 2008 proposed rule (72 FR 42713), we did not accept the APC Panel's recommendation because, consistent with our observations from the CY 2005 claims data, our CY 2006 claims data available for the proposed rule did not support the creation of a clinical APC for CPT code 78492 alone. Analysis of the latest CY 2006 claims data continued to support a single level APC payment structure for the myocardial PET scan procedures because very few single scan studies were performed and we believed single and multiple scan procedures were clinically similar. Our claims data available for the proposed rule showed a total of 2,547 procedures reported with the multiple scan CPT code 78492. Alternatively, our claims data showed only a combined total of 249 procedures reported with the single scan CPT codes 78459 and 78491, less than 10 percent of all studies reported. A similar distribution was observed in the single bills available for ratesetting.

Similar to findings from the CY 2005 data, as we discussed in the proposed rule, our CY 2006 claims data revealed that more hospitals were not only providing multiple myocardial PET scan services, but most myocardial PET scans were multiple studies. Further, our most recent data analysis for this final rule with comment period revealed that multiple myocardial PET scan services were commonly performed in the same hospital encounter with a cardiovascular stress test, specifically CPT code 93017 (Cardiovascular stress test using maximal or submaximal treadmill or bicycle exercise, continuous electrocardiographic monitoring, and/or pharmacological stress; tracing only, without interpretation and report).

In the CY 2008 OPPS/ASC proposed rule, we indicated our belief that the assignment of CPT codes 78459, 78491, and 78492 to a single clinical APC for CY 2008 was still appropriate because the CY 2006 claims data did not support a resource differential among significant

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myocardial PET services that would necessitate the placement of single and multiple PET scan procedures into two separate clinical APCs. Therefore, we proposed to continue to assign both the single and multiple myocardial PET scan procedure codes to APC 0307, with a proposed APC median cost of approximately $2,678 for CY 2008. We noted that the proposed CY 2008 median cost of APC 0307 was significantly higher than its CY 2007 median cost, in part because of our proposed CY 2008 packaging approach discussed in detail in section II.A.4.c.(5) of this final rule with comment period that would package payment for diagnostic radiopharmaceuticals into the payment for their related diagnostic nuclear medicine studies, such as myocardial PET scans. The myocardial PET scan CPT codes and their proposed CY 2008 APC assignments were displayed in Table 33 of the proposed rule, which has been reproduced as Table 20 below, and updated to show the final status indicators, APC assignments, and median costs for these services.

We received a number of public comments concerning our proposed payment for myocardial PET scans. A summary of the public comments and our response follow.

Comments: Some commenters disagreed with our proposal to assign CPT codes 78459, 78491, and 78492 to a single clinical APC even though the CY 2006 claims data did not support a resource differential. They requested that CMS separate single (rest or stress) from multiple (rest and stress) PET myocardial perfusion imaging studies. Specifically, these commenters requested that CMS assign the single myocardial PET codes, CPT codes 78459 and 78491, to APC 0307, and create a new clinical APC for CPT code 78492, which describes the multiple myocardial PET scan procedure. The commenters believed that maintaining the multiple myocardial PET scan in the same APC as the single myocardial PET scans significantly underpaid hospitals for providing multiple myocardial PET scan procedures. They reported that multiple myocardial PET procedures require greater hospital resources than single myocardial PET scans.

Response: Based on our review of the hospital outpatient claims data from CY 2005 and CY 2006, as well as the clinical characteristics of CPT code 78492, we do not agree that we should establish a new clinical APC solely for the multiple myocardial PET scans. Our claims data for this final rule with comment period showed a total of 2,808 procedures reported with the multiple scan CPT code 78492. Conversely, our claims data showed only a combined total of 286 procedures reported with the single scan CPT codes 78459 and 78491.

We note that our final median cost for this APC is approximately $1,384, which is significantly lower than the proposed rule median cost for the APC. According to our final ratesetting policies in which we included CPT code 93017 on the bypass list as discussed in section II.1.b of this final rule with comment period, we based APC 0307's final median cost on 1,832 single claims out of 3,094 CY 2006 claims for myocardial PET procedures. Due to our bypassing of CPT code 93017 for the cardiovascular stress test commonly reported with myocardial PET scans, we were able to use almost twice the number of claims to develop the final median cost based on claims from a large number of hospitals in comparison with the proposed rule, and almost all of those additional single claims were for multiple myocardial PET scan services. As discussed in section II.A.4.c.(5) of this final rule comment period, the final median cost for APC 0307 was also calculated only from those claims for myocardial PET scan procedures that also contained a HCPCS code for a diagnostic radiopharmaceutical. The median cost of approximately $1,384 compares favorably to our CY 2007 estimated average total payment of $1191 for these services, consisting of approximately $731 for the scan (APC 0307) and approximately $460 (average estimate of charges reduced to cost) for the commonly used diagnostic radiopharmaceutical A9555 (Rubidium Rb-82-diagnostic, per study dose, up to 60 millicuries). Therefore, we believe that the final median cost of APC 0307 for the scans and associated diagnostic radiopharmaceuticals appropriately reflects the hospital resources associated with providing myocardial PET scans to Medicare beneficiaries in cost-efficient settings and is adequate to ensure appropriate access to these services for Medicare beneficiaries.

The CY 2008 median cost for APC 0307 of approximately $1,384 is very similar to the median cost of CPT code 78492 of $1,467, so we do not believe that the assignment of the relatively small number of generally lesser cost single scan claims to APC 0307 significantly reduces the payment rate for multiple scan studies. In addition, as discussed in section II.A.2. of this final rule with comment period, we are attempting to reduce the number of low volume APCs under the OPPS to promote the stability of payment rates. If we were to create a new clinical APC for multiple myocardial PET scans, APC 0307 for single scan studies would become a very low volume APC. We continue to believe that the assignment of CPT codes 78459, 78491, and 78492 to a single clinical APC for CY 2008 remains appropriate because the CY 2006 claims data do not support a resource differential among significant myocardial PET services that would necessitate the placement of single and multiple PET scan procedures into two separate clinical APCs.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to provide payment for all myocardial PET scans through APC 0307, with a CY 2008 median cost of approximately $1,384, as shown in Table 20.

Table 20.--Final CY 2008 APC Assignments for Myocardial Pet Scans

Final CY HCPCS code Short descriptor CY 2007 SI CY 2007 CY 2007 APC Final CY 2008 Final CY 2008 APC APC median cost

SI

2008 APC median cost

78459.......... Heart muscle S......... 0307

$727 S.............

0307 $ 1,384 imaging (PET). 78491.......... Heart image

S......... 0307

$727 S.............

0307 $ 1,384 (pet), single. 78492.......... Heart image

S......... 0307

$727 S.............

0307 $ 1,384 (pet), multiple.

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

For CY 2008, we proposed to continue to assign the nonmyocardial PET scans to APC to 0308 (Non-Myocardial Positron Emission Tomography (PET) Imaging), with a proposed payment rate of approximately $1,107, specifically CPT codes 78811 (Tumor imaging, positron emission tomography (PET); limited area (eg, chest, head/neck)), 78812 (Tumor imaging, positron emission tomography (PET); skull base to mid-thigh)), 78813 (Tumor imaging, positron emission tomography (PET); whole body)), and 78608 (Brain imaging, positron emission tomography (PET); metabolic evaluation). We note that this proposed payment will include payment for the diagnostic radiopharmaceuticals used in the PET scans. APC 0308 will also include concurrent PET/CT procedures. Refer to section III.C.2.a. of this final rule with comment period for further discussion of the CY 2008 OPPS assignment of concurrent PET/CT procedures.

We received several public comments concerning this proposal. A summary of the public comments and our responses follow.

Comment: Several commenters agreed with the placement of CPT codes 78811, 78812, and 78813 in APC 0308; however, some commenters requested that CMS reassign CPT code 78608 to a new clinical APC for PET brain imaging.

Response: We disagree with the commenters' suggestion that we should create a separate clinical APC for CPT code 78608. Brain PET scan services have historically been assigned to the same APCs as other nonmyocardial PET services for a number of years, initially to the same New Technology APCs and for CY 2007 to the same clinical APC. Analysis of our hospital outpatient claims data from CY 2006 reveals that the median cost of approximately $1,046 for CPT code 78608 falls within the range of the HCPCS-specific median costs, approximately $1,004 to $1,240, for the other PET procedures also assigned to APC 0308. We are not convinced that separating nonmyocardial PET scans according to the body site being examined is necessary for clinical homogeneity, and the result of such a distinction would be a single CPT code in one APC. The OPPS is a prospective payment system that provides payment for groups of services that share clinical and resource characteristics. We believe that PET scans for tumor imaging and brain imaging are similar in both respects and are appropriately assigned to the same clinical APC.

After considering the public comments received, we are finalizing our proposal, without modification, including assignment of CPT code 78608 to APC 0308, with a CY 2008 median cost of approximately $1,044. e. Proton Beam Therapy (APCs 0664 and 0667)

For CY 2008, we proposed to pay for the following four CPT codes for proton beam therapy: 77520 (Proton treatment delivery; simple, without compensation); 77522 (Proton treatment delivery; simple, with compensation); 77523 (Proton treatment delivery; intermediate); and CPT 77525 (Proton treatment delivery; complex). We proposed to continue to assign the simple proton beam therapy procedures to APC 0664 (Level I Proton Beam Radiation Therapy), with a proposed median cost of approximately $845, and the intermediate and complex proton beam therapy procedures to APC 0667 (Level II Proton Beam Radiation Therapy), with a proposed median cost of approximately $1,012. The CY 2007 payment rates for these APCs are approximately $1,161 and $1,389, respectively. We also proposed to make an exception to the 2 times rule for APC 0664, as we did in CYs 2006 and 2007.

We received several public comments concerning this proposal. A summary of the public comments and our responses follow.

Comment: One commenter expressed concern that the CY 2008 proposed payment rates for APCs 0664 and 0667 are approximately 27 percent lower than the CY 2007 payment rates for these same APCs. The commenter characterized proton beam therapy as an extremely complex and expensive technology that is currently offered in only two hospitals. The commenter asked CMS to reevaluate the claims data and its analysis of the median costs contained in those claims data for errors. The commenter asserted that if the data and rate calculations were verified as valid, CMS should take into consideration that for any service provided by only two hospitals, the payment rates for the service will be highly dependent on the idiosyncrasies of the billing and charging practices of those two facilities. The commenter stated that a 27 percent reduction in payment would discourage, if not eliminate, the adoption of this technology by other providers. In addition, the commenter offered support for the proposal to designate APC 0664 as an exception to the 2 times rule for CY 2008.

Another commenter reviewed its proton beam therapy claims, charges, and cost data, and determined that the CY 2008 proposed median costs for APCs 0664 and 0667 appropriately reflect the cost of this technology.

Response: In response to one commenter's concern about the validity of our data and our ratesetting analyses, we examined the claims and cost reports for proton beam therapy and verified our calculations. Consistent with the other commenter's examination of its own claims, charges, and costs, we found both the data and our calculation of the median costs to be accurate for APCs 0664 and 0667. We note that the median costs for relatively low volume APCs, such as APCs 0664 and 0667, often fluctuate from year to year, in part due to the variability created by a small number of claims. We agree with the commenter that because our standard ratesetting methodology is based on OPPS claims, the payment rates for those services provided by only a few hospitals to Medicare beneficiaries are dependent on the particular costs and charging practices of that small subset of hospitals paid for the services under the OPPS. Therefore, the small number of hospitals providing proton beam therapy also may contribute to additional variation in payment rates as those hospitals' charging and cost reporting practices evolve over time. As more hospitals adopt this technology, we expect that the fluctuation in payment for APCs 0664 and 0667 will be moderated by the increased number of observations for similar services and the incorporation of claims from a larger number of hospitals in the ratesetting process.

We note that neither of these APCs violate the 2 times rule based on the CY 2008 final rule data because the volume of CPT code 77520 is such a small percentage of claims for APC 0664. The law permits exceptions to the 2 times rule for services that are low volume, which we generally have considered as having a single bill frequency that is less than or equal to 1,000, or less than or equal to 99 if the service constitutes less than 2 percent of the single bill frequency for an APC. CPT code 77520 has a single bill frequency of 188 in the CY 2008 OPPS data and constitutes only 1 percent of the single claims in the APC. Therefore, there is no 2 times violation in APC 0664.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, without modification, to assign CPT codes 77520 and 77522 to APC 0664, with a median cost of approximately $807, and to assign CPT codes 77523 and 77525 to APC 0667, with a median cost of approximately $965.

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6. Ocular and Ear, Nose, and Throat Procedures a. Amniotic Membrane for Ocular Surface Reconstruction (APC 0244)

We proposed to assign HCPCS code V2790 (Amniotic membrane for surgical reconstruction, per procedure) status indicator ``N'' (packaged) for CY 2008 and to assign its related CPT procedure codes to APC 0244 (Corneal Transplant). The proposed status indicators for the item and procedures and the proposed APC assignments for the procedures were the same as their CY 2007 OPPS treatment.

We received several comments on the proposed OPPS treatment of HCPCS code V2790 for CY 2008. A summary of the public comments and our response follow.

Comment: Several commenters requested that CMS consider assigning a status indicator of ``F'' (paid at reasonable cost) to HCPCS code V2790 and creating a separate APC for amniotic membrane transplantation procedures that includes the costs of amniotic membrane tissue. They compared V2785 (Processing, preserving and transporting corneal tissue) and V2790, noting a difference in payment policy and status indicator assignments for the two types of tissues used for ocular surface transplant. That is, HCPCS code V2785, which is assigned status indicator ``F'' and HCPCS code V2790, which is assigned status indicator ``N,'' are not treated similarly with regard to status indicator assignments and OPPS payment policy. Payment for items and services assigned status indicator ``N'' is packaged into payment for the associated procedures, while payment for items and services with status indicator ``F'' is made at reasonable cost, not under the OPPS. Another commenter requested that CMS reassign the CPT procedure codes associated with the amniotic tissue transplant from APC 0244 to a separate APC. This commenter indicated that the source tissue is not bundled into the payment for every CPT code in APC 0244, only the amniotic membrane tissue.

In addition, several commenters were concerned that paying separately for corneal tissue and not for amniotic membrane tissue could create a competitive disadvantage and a financial disincentive for hospitals to treat ocular surface diseases using amniotic membrane tissue and ultimately would impede beneficiary access to this ocular reconstructive procedure. Some commenters indicated that HCPCS code V2790 and its related procedure code, specifically CPT code 65780 (Ocular surface reconstruction; amniotic membrane transplantation), are not adequately represented in hospital claims data. Despite instructions from CMS that packaged items and services should be reported on claims, some commenters believed that hospitals often fail to report HCPCS code V2790 because payment for HCPCS code V2790 is packaged with its related procedure code. They argued that the underreporting of the use of amniotic membrane tissue, which includes the costs of procuring, processing, storing, and distributing the product, leads to inadequate payment for CPT code 65780. Some commenters recommended that CMS establish claims processing edits to ensure the presence of the tissue HCPCS code and a charge for the item on claims for the ocular reconstruction procedure. One commenter indicated that the costs for amniotic membrane tissue can vary widely, similar to corneal tissue, and that the procurement of the tissue adds to the highly variable costs because hospitals require different sized tissues to accommodate various treatment and patient requirements. These commenters requested that CMS reassign HCPCS code V2790 from status indicator ``N'' to ``F'' and also create a separate APC specifically for amniotic membrane transplantation procedures for CY 2008.

Response: The OPPS has provided separate payment for corneal tissue acquisition at reasonable cost since the beginning of the OPPS, due to the highly variable corneal tissue processing fees required for eye banks to provide safe corneal tissue from donors as needed for transplant, through special distribution channels. These costs may vary substantially and unpredictably, depending on philanthropic and in-kind service contributions to eye banks that vary from community-to- community and from year-to-year. Our understanding is that amniotic membrane retrieved from donated placental tissues is a processed, cryopreserved, and commercially marketed product used for ocular reconstruction that may be stocked and stored by hospitals. Unlike corneal tissue, we believe that amniotic tissue is a supply with stable and predictable costs. We do not consider the circumstances of amniotic tissue to be like those of corneal tissue, and consider it appropriate to continue to package the payment for amniotic tissue into payment for its related procedure code.

We examined CY 2008 proposed rule claims, derived from CY 2006, for CPT code 65780, with and without HCPCS code V2790. While most claims did not specifically include HCPCS code V2790, the median costs for claims with and without HCPCS code V2790 were reasonably close and consistent with the costs of other services assigned to APC 0244. Specifically, claims with HCPCS code V2790 had a median cost of approximately $2,553, while claims without HCPCS code V2790 had a median cost of approximately $2,063. The median line-item cost of HCPCS code V2790 was $506, relatively consistent with the difference in cost between the claims with and without HCPCS code V2790. Based on our analysis, the proposed rule median cost of approximately $2,409 for all procedures in APC 0244, which would not include the costs of corneal tissue but would incorporate the costs of amniotic membrane tissue, is very close to the median cost of the amniotic tissue transplant procedure claims that include the HCPCS code for amniotic membrane tissue. The CY 2008 APC 0244 final rule median cost of approximately $2,359 is consistent with the APC's proposed rule cost.

Based on our claims data from CY 2006, we believe that the current and proposed packaged status of HCPCS code V2790 is appropriate based on resource and clinical considerations. We also believe that the proposed composition of APC 0244, dominated by claims for corneal transplant procedures, reflects appropriate clinical and resource homogeneity. While some commenters were concerned with hospitals not reporting HCPCS code V2790 when reporting CPT code 65780, we do not believe that we should create a claims processing edit in this instance. We create device edits, when appropriate, for procedures assigned to device-dependent APCs, where those APCs have been historically identified under the OPPS as having very high device costs. Because APC 0244 is not a device-dependent APC and the costs of the procedure with and without HCPCS code V2790 are relatively close, we will not create edits. We remind hospitals that they must report all of the HCPCS codes that appropriately describe the items used to provide services, regardless of whether the HCPCS codes are packaged or paid separately.

After consideration of the public comments received, we are finalizing our proposed CY 2008 payment policies, without modification, for HCPCS codes V2785 and V2790 as reflected in their status indicators, as well as the proposed configuration of APC 0244. We are also changing the APC title for APC 0244 from ``Corneal

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Transplant'' to ``Corneal and Amniotic Membrane Transplant,'' effective January 1, 2008, to ensure that the title better describes all procedures assigned to that APC. b. Keratoprosthesis (APC 0293)

CPT code 65570 (Keratoprosthesis) describes the surgical procedure for implantation of an artificial cornea, also known as a keratoprosthesis. In the CY 2007 OPPS/ASC final rule with comment period, we indicated that we were implementing device edits in CY 2007 for CPT code 65770 to ensure that all claims for CPT code 65570 in CY 2007 and after include charges for a required device (71 FR 68053). For CY 2008, we proposed continued assignment of CPT code 65570 to APC 0293 (Level V Anterior Segment Eye Procedures), with a proposed payment rate of approximately $5,290. The CY 2007 payment rate for APC 0293 is approximately $3,196.

We received one public comment on our CY 2008 proposal for CPT code 65770. A summary of the public comment and our response follow.

Comment: One commenter expressed concern that the procedure described by CPT code 65570 required significant implantation of a costly device, but it was not assigned to a device-dependent APC. The commenter stated that assignment to a nondevice-dependent APC may result in inadequate payment rates in the ASC setting. The commenter noted that the revised ASC payment methodology, which will be implemented in CY 2008, includes an exception to the standard ratesetting methodology for device-intensive procedures that allows only the service portion of the procedure to be reduced by the ASC budget neutrality adjustment to reflect the relatively constant price of medical devices across hospital outpatient and ASC settings of care. Device-intensive procedures are defined as those procedures assigned to device-dependent APCs under the OPPS for payment purposes, where the APC device cost is greater than 50 percent of the APC median cost. The commenter pointed out that by assigning CPT code 65570 to a non-device- dependent APC under the OPPS, the procedure did not qualify as device intensive for ASC payment purposes. The commenter concluded that the entire payment rate for the procedure would be reduced by the ASC budget neutrality adjustment, rather than just the service portion, in contrast to other procedures assigned to APCs for which the device costs constitute a significant portion of the total procedure costs.

Response: We agree with the commenter that the procedure described by CPT code 65770 requires the implantation of a device, and that a significant portion of the total cost of keratoprosthesis implantation procedures is likely to be attributable to device costs. Currently CPT code 65570 is assigned to APC 0293 under the OPPS, where it is the only procedure in the APC. There also are two device codes for reporting keratoprostheses, HCPCS code C1818 (Integrated Keratoprosthesis) that describes the expired pass-through device category that was created in CY 2003 and HCPCS code L8609 (Artificial cornea) that was first available for reporting in CY 2007. It is not possible to calculate a device percentage for APC 0293 for CY 2008 that reflects the full costs of the devices implanted in CY 2006 because there was no device code that described all possible devices that could be implanted in the procedure at that time.

As we stated in the CY 2007 OPPS/ASC final rule with comment period, when there are device HCPCS codes for all possible devices that could be used to perform a procedure that always requires a device and the APC is designated a device-dependent APC, we commonly institute device edits that prevent payment of claims that do not include both the procedure and an acceptable device code (71 FR 68053). We implemented device edits in CY 2007 for APC 0293, the first year that device HCPCS codes that describe all possible devices that could be used to perform the procedure were available, and we agree with the commenter that it would be most consistent with our established device editing policy to designate APC 0293 as device-dependent. However, we are unable to consider only CY 2006 claims for CPT code 65570 that contain a device HCPCS code for CY 2008 ratesetting for the APC. If we were to follow our usual ratesetting methodology for device-dependent APCs, we could be systematically and incorrectly excluding claims for CPT code 65570 that may have been correctly coded at the time by hospitals implanting a two-part keratoprosthesis not described by the only available HCPCS code, specifically C1818.

After consideration of the public comments received, we are finalizing our CY 2008 proposal, with modification. We are assigning CPT code 65570 to APC 0293 as proposed. In addition, we are designating APC 0293 as a device-dependent APC, with a median cost of approximately $5,335. c. Palatal Implant (APC 1510)

In Addendum B to the CY 2008 proposed rule (72 FR 43018), we proposed to pay $850 for HCPCS code C9727 (Insertion of implants into the soft palate; minimum of three implants) through its assignment to New Technology APC 1510 (New Technology--Level X ($800-$900)). This is the same APC assignment for the service as its CY 2007 placement.

We received one comment on our CY 2008 payment proposal for HCPCS code C9727. A summary of the comment and our response follow.

Comment: One commenter considered the proposed CY 2008 payment rate for HCPCS code C9727 to be inappropriate based on the costs of the clinical staff, supplies, equipment, and overhead required to perform the procedure. The commenter reported that, based on its estimate that used the MPFS Practice Expense Database as a reference, the appropriate median cost for this procedure should be between $1,100 and $1,200. The commenter submitted a categorized list of items involved in performing the procedure to CMS, along with approximate costs for each category. In addition, the commenter asked CMS to reassign HCPCS code C9727 to New Technology APC 1514 (New Technology--Level XV ($1200-$1300)) for CY 2008 because the commenter believed that the payment for this APC would appropriately reflect the complexity and resource costs associated with performing this procedure.

Response: We assign a new procedure to a New Technology APC when we do not have adequate claims data upon which to determine the median cost of performing a procedure and there is no appropriate clinical APC for its assignment based on clinical and resource homogeneity considerations. We perform our own cost analysis and cost estimate, in addition to taking the project costs that may be submitted in a New Technology APC application into consideration. As we stated in our November 30, 2001 final rule (66 FR 59900), concerning the placement of new services into New Technology APCs in response to an application, ``We will not limit our determination of the cost of the procedure to information submitted by the application. Our staff will obtain information on cost from other appropriate sources before making a determination of the cost of the procedure to hospitals.'' We received a New Technology APC application from the manufacturer of palatal implants required for the Pillar[supreg] Procedure. Consistent with our customary practice,

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we compared the estimated hospital resources, including procedure room time, personnel, device costs, and other resources of the new procedure to various other OPPS procedures for which we have historical claims data. We believed that, based on this analysis, a payment rate of $850 was appropriate based on all cost and utilization information available to us regarding the palatal implant procedure and other services provided in the hospital outpatient setting. Consequently, we assigned HCPCS code C9727 to New Technology APC 1510, effective October 1, 2006.

Analysis of our hospital data for claims submitted for CY 2006 indicates that the palatal implant procedure was rarely performed on Medicare beneficiaries in the last quarter of that year when specific OPPS payment was first available. OPPS claims for services between October 1, 2006, and December 1, 2006, show that there were only two claims submitted for HCPCS code C9727. We reexamined the service's proposed CY 2008 assignment in light of all current information available to us for this final rule with comment period, and we conclude that its proposed assignment to New Technology APC 1510 remains appropriate. We will reexamine the claims data for this procedure next year when we review its APC placement in preparation for the annual CY 2009 OPPS update.

Furthermore, the MPFS applies a very different methodology for establishing the payment for the physician's office practice expenses associated with a procedure, specifically considering the individual costs of the inputs, whereas the OPPS generally pays based on relative payment weights calculated from hospitals' costs as determined from claims data. Thus, comparisons between the MPFS and OPPS payments for services are not appropriate. While the palatal implant procedure is a relatively new service under the OPPS, the procedure resembles other OPPS services for which cost data are currently available.

Therefore, after consideration of all the public comments received, we are finalizing our CY 2008 proposal, without modification, to assign HCPCS code C9727 to New Technology APC 1510 with a payment rate of $850. 7. Orthopedic Procedures a. Arthroscopic Procedures (APCs 0041 and 0042)

For CY 2008, we proposed two primary APCs for arthroscopic procedures, APC 0041 (Level I Arthroscopy), comprised of 49 procedures with a CY 2008 proposed payment rate of approximately $1,876, and APC 0042 (Level II Arthroscopy), comprised of 17 procedures with a proposed payment rate of approximately $3,043. The CY 2007 payment rates for these APCs 0041 and 0042 are approximately $1,759 and $2,797, respectively. While we proposed to assign the majority of arthroscopic procedures to these APCs for CY 2008, we also proposed to continue the assignment of several arthroscopic procedures to APC 0053 (Level I Hand Musculoskeletal Procedures), with a proposed CY 2008 payment rate of approximately $1,071. The CY 2007 payment rate for APC 0053 is approximately $993.

We received one public comment on our CY 2008 proposed configuration of arthroscopy APCs. A summary of the public comment and our response follow.

Comment: A commenter stated that the current configuration of arthroscopic procedures assigned to APCs 0041, 0042, and 0053 fails to appropriately recognize the distinct clinical and resource features of the wide range of arthroscopic procedures now being provided to Medicare beneficiaries. The commenter requested that CMS create new arthroscopy APCs and reconfigure the current assignment of arthroscopic procedures to ensure that the arthroscopy APCs are clinically homogenous and contain only those procedure that are similar in resource utilization. Specifically, the commenter requested that CMS restructure the arthroscopy APCs to reflect the following clinical categories: diagnostic arthroscopies, lower extremity versus upper extremity arthroscopies, and arthroscopies with implants. The commenter suggested that each clinical distinction be divid