Medicare: Physician fee schedule (CY 2007); payment policies and relative value units,

 
CONTENT

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

[Rules and Regulations]

[Page 69623-70251]

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

[DOCID:fr01de06-20]

[[Page 69623]]

Part II

Book 2 of 2 Books

Pages 69623-70274

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, et al.

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

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

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

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

RINs 0938-AO24 and 0938-AO11

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

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

ACTION: Final rule with comment period.

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

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

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

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

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

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

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

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

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

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

2. By mail. You may mail written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1321- FC, P.O. Box 8014, Baltimore, MD 21244-8014.

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

3. By express or overnight mail. You may send written comments (one original and two copies) to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1321-FC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7197 in advance to schedule your arrival with one of our staff members.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Anne Tayloe, (410) 786-4546; or

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

I. Background

A. Development of the Relative Value System

B. Components of the Fee Schedule Payment Amounts

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

A. Resource-Based Practice Expense Relative Value Units

1. Current Methodology

2. Proposals for Revising the PE Methodology

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

4. Additional PE Issues for CY 2007

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

b. Payment for Splint and Cast Supplies

c. Medical Nutrition Therapy Services

d. Surgical Pathology Codes

e. PE Issues from Rulemaking for CY 2006

f. Other PE Issues for CY 2007

g. Specific PE Concerns Raised by Commenters

h. Concerns About Decreases in PE RVUs

i. Equipment Utilization and Interest Rate Assumptions

j. Further Review of PE Direct Inputs

k. Supply and Equipment Items Needing Specialty Input

B. Geographic Practice Cost Indices (GPCIs)

C. Medicare Telehealth Services

D. Miscellaneous Coding Issues

1. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

2. Assignment of RVUS for Proton Beam Treatment Delivery Services

E. Deficit Reduction Act (DRA)

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

a. Payment for Multiple Imaging Procedures for 2007

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

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

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

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

a. Coverage

b. Payment

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

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

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

1. ASP Issues

2. Intravenous Immune Globulin (IVIG)

3. Clotting Factor Furnishing Fee

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

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

6. Other Issues

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

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

2. Update to the Geographic Adjustments to the Composite Rates

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

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

J. Supplier Access to Claims Billed on Reassignment

K. Coverage of Bone Mass Measurement

1. Provisions of the June 24, 1998 IFC

2. Additional Scientific Evidence

3. Changes to the June 24, 1998 IFC

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

L. Independent Diagnostic Testing Facility (IDTF) Issues

1. IDTF Changes

2. Performance Standards for IDTFs

3. Supervision

4. Place of Service

5. Analysis of and Response to Public Comments

6. Provisions of the Final Rule

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

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

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

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

3. Other Laboratory Issues

a. Quality

b. Blood Glucose Monitoring in SNFs

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

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

P. Chiropractic Services Demonstration

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

R. Health Care Information Transparency Initiative

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

A. History of Medicare Ambulance Services

B. Provisions of the Final Regulation

C. Analysis of and Responses to Public Comments

D. Ambulance Inflation Factor (AIF) for 2007

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

A. Scope of Five-Year Review

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

C. Discussion of Comments by Clinical Area

1. Dermatology and Plastic Surgery

2. Orthopedic Surgery

3. Gynecology, Urology, Pain Medicine, and Neurosurgery

4. Radiology, Pathology, and Other Miscellaneous Services

5. Evaluation and Management Services

6. Cardiothoracic Surgery

7. General, Colorectal and Vascular Surgery

8. Otolaryngology and Ophthalmology

9. HCPAC codes

D. Other Issues Under the 5-Year Review

1. Anesthesia Services

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

3. Budget Neutrality

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

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

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

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

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

2. Interim 2006 Codes

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

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

F. Additional Pricing Issue

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

A. General

B. Nuclear Medicine

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

A. Physician Fee Schedule Update

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

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

A. Medicare Sustainable Growth Rate

B. Physicians' Services

C. Preliminary Estimate of the SGR for 2007

D. Revised Sustainable Growth Rate for 2006

E. Final Sustainable Growth Rate for 2005

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

A. Physician Fee Schedule Conversion Factor

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

XI. Provisions of the Final Rule

XII. Waiver of Proposed Rulemaking and Delay in Effective Date

XIII. Collection of Information Requirements

XIV. Response to Comments

XV. Regulatory Impact Analysis

A. RVU Impacts

1. Resource-Based Work and PE RVUs

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

3. Combined Impacts

B. Geographic Practice Cost Indices (GPCI) Payment Localities

C. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

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

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

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

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

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

J. Supplier Access to Claims Billed on Reassignment

K. Coverage of Bone Mass Measurement

L. IDTF Changes

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

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

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

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

Q. Alternatives Considered

R. Impact on Beneficiaries

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

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

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

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

I. Background

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

A. Development of the Relative Value System

1. Work RVUs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Components of the Fee Schedule Payment Amounts

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

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

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

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

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

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

C. Most Recent Changes to the Fee Schedule

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

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

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

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

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

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

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

II. Provisions of the Proposed Rule

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

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

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

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

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

Develop a refinement method to be used during the transition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Calculating the direct PE using a bottom-up methodology.

Eliminating the NPWP.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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above in this section, this proposal was not finalized.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sum the costs of each direct input.

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

Apply a BN adjustment to the direct inputs.

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

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

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

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

Create indirect allocators.

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

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

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

For most services the indirect allocator is:

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

There are two situations where this formula is modified:

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

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

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

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

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

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

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

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

Apply a BN adjustment to the indirect allocators.

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

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

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

Calculate the Indirect Practice Cost Index.

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

[[Page 69635]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The equipment cost per minute is calculated as:

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

Where:

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

BILLING CODE 4120-01-P

[[Page 69636]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.002

[[Page 69637]]

[GRAPHIC] [TIFF OMITTED] TR01DE06.003

BILLING CODE 4120-01-C

[[Page 69638]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 69639]]

associated with specialties whose practices focus on technical services.

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

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

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

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

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

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

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

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

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

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

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

Table 2

ASTRO survey

AFROC survey

Combined average

ASTRO's

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

practices (by share of (by share of Medicare

physician claims)

time)

Number in Sample

67

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

75.2%

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

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

63.0%

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

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

[[Page 69640]]

Direct PE per hour:

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

$9.93

$104.80

$33.46

$153.24

$45.47

$62.98

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

3.64

80.92

22.81

91.04

25.32

35.99

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

1.56

31.56

9.00

13.11

4.42

5.84 Indirect PE per hour:

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

19.31

69.40

31.73

87.88

36.32

44.69

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

12.04

39.42

18.83

59.56

23.82

29.63

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

16.92

20.17

17.73

52.43

25.73

30.06

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

63.40

346.27

133.55

457.26

161.08

209.19

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 69641]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 69642]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fiberglass roll.

Cast padding.

Cast shoe.

Stockingnet/stockinette.

Plaster bandage.

Denver splint.

Dome paste bandage.

Cast sole.

Elastoplast roll.

Fiberglass splint.

Ace wrap.

Kerlix.

Webril.

Malleable arch bars and elastics.

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

24500 through 24685.

25500 through 25695.

26600 through 26785.

27500 through 27566.

27750 through 27848.

28400 through 28675.

29000 through 29750.

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

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

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

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

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

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

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

CPT code 97802 = 0.45 RVUs.

CPT code 97803 = 0.37 RVUs.

CPT code 97804 = 0.25 RVUs.

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

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

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

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

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

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

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

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

(i) PE Recommendations on CPEP Inputs for CY 2006

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

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

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

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

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

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

Computer.

Printer.

Slide strainer.

Biohazard hood.

Wash assistant.

FAC loader.

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

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

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

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

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

Basic radiology room;

Radiographic-fluoroscopic room;

Mammography room;

Computed tomography (CT) room; and

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

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

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

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

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

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

Equipment pricing for CPT code 36522, extracorporeal photopheresis.

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

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

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

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

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

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

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

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

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

Comment: Commenters expressed appreciation for this clarification.

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

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

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

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

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

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

Pacemaker monitoring (CPT codes 93733 and 93736).

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

INR monitoring (HCPCS codes G0248 and G0249).

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

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

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

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

[[Page 69648]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 69649]]

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 69650]]

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

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

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

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

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

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

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

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

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

BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR01DE06.004

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[GRAPHIC] [TIFF OMITTED] TR01DE06.005

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[GRAPHIC] [TIFF OMITTED] TR01DE06.006

BILLING CODE 4120-01-C

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

*CPT code(s)

Equip code

Supply description

Unit

Unit price associated Supply category with item

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

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

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

0.06

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

4.6

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

0.25

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

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

450

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

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

119

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

19105 Accessory, (Viscia ICE 30 or 40).

Procedure.

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

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

*CPT code(s) Equip code

Equipment description

Life Unit price associated Equipment category with item

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

5

3800

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

15 \1\ 2300

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

10 \1\ 500

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

3

24950

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

5 \1\ 4500

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

5 \1\ 650

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

7 3870000

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

5

28299

22526 OTHER EQUIPMENT. extension.

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

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

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

3 108807

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

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

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

5

39200

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

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

5

1775

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

7 4350000

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

7 4000000

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

10 \1\ 1500

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

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

B. Geographic Practice Cost Indices (GPCIs)

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

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

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

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

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

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

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

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

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

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

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

Percent Locality name

2006 GAF 2007 GAF change

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

0.998

0.996

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

0.986

0.984

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

0.952

0.950

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

0.982

0.978

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

0.978

0.974

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

0.950

0.946

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

0.970

0.966

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

1.020

1.015

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

1.010

1.005

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

0.980

0.975

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

0.991

0.986

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

0.987

0.981

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

1.022

1.016

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

0.999

0.993

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

0.956

0.950

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

0.998

0.991

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

1.003

0.996

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

0.984

0.977

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

0.984

0.976

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

0.937

0.930

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

0.951

0.942

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

0.923

0.914

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

0.958

0.948

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

0.992

0.981

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

0.943

0.932

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

0.933

0.921

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

0.960

0.948

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

0.930

0.917

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

0.952

0.938

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

0.982

0.968

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

0.942

0.928

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

0.951

0.936

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

0.947

0.932

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

0.936

0.919

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

0.932

0.915

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

0.936

0.919

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

0.946

0.929

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

0.968

0.950

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

1.007

0.989

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

0.947

0.929

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

0.922

0.904

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

0.927

0.909

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

0.936

0.916

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

0.913

0.893

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

0.919

0.898

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

0.905

0.884

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

0.905

0.883

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

0.925

0.902

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

0.934

0.910

-2.55

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

0.928

0.902

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

0.910

0.883

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

0.924

0.895

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

0.922

0.891

-3.35

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

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

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

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

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

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

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

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

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

C. Medicare Telehealth Services

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

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

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

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

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

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

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

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

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

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

We received the following comments on the Medicare telehealth services.

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

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

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

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

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

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

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

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

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

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

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

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

D. Miscellaneous Coding Issues

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

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

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

CPT code 77781 = 1.21

CPT code 77782 = 2.04

CPT code 77783 = 3.27

CPT code 77784 = 5.15

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

We received the following comments on these coding issues.

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

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

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

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

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

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

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

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

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

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

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

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

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

E. Deficit Reduction Act (DRA)

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

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

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

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

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

The global service represents both PC and TC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table 8.--Crosswalks

MFS Code

Descriptor

OPPS Code

Desc

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

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

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

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

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

pelvis.

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

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

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

Table 9

25% Multiple HCPCS

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

payment

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

$341.89

$256.42

$316.55

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

552.86

414.65

391.83

391.83

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

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

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

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

Reduced patient access to diagnostic technologies capable of

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

Shifting of procedures back to hospitals.

Increased volume to offset the affects of the payment cuts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In accordance with the statute, the therapy caps will remain in effect, but without the exceptions process, for expenses incurred beginning on January 1, 2007. The dollar amount of each therapy cap in CY 2007 will be $1780 (which is the CY 2006 rate ($1740) increased by the percentage increase in the MEI), rounded to the nearest multiple of $10. As noted previously in this section, under the statute, the exceptions process will not apply to therapy services after December 31, 2006, but the therapy caps will remain inapplicable to therapy services provided in the outpatient hospital setting as provided under section 1833(g) of the Act.

Comment: We received six comments about therapy caps. All indicated that the cap exception process was working well to assure provision of needed therapy services. Some commenters acknowledged that we do not have the authority to extend therapy cap exceptions, but they requested that we be aggressive in urging the Congress to intervene to extend the exceptions or remove the caps.

Several commenters urged us to place a high priority in resources and funding on continuing to conduct research that could be used to identify alternatives to the cap that would ensure that patients receive medically necessary therapy services. Some commenters cited the Medicare Payment Advisory Commission (MedPAC) recommendations of June 2006 regarding continued research into measuring patient condition and treatment outcomes as a basis for reforming the payment system. Commenters also mentioned the Government Accountability Office publication issued in November 2005 (GAO-06-59) recommending that DHHS ``expedite development of a process for ensuring that these services were considered in its efforts to standardize existing patient assessment instruments.'' Specifically, the one commenter, while recognizing important priorities in allocating limited funds, strongly urged us to conduct research and pilot studies leading to alternatives to therapy caps that ensure the needs of patients are met through high quality care. Another commenter agreed and also noted strong support for development of a condition-based payment as a viable alternative to caps. We received no negative comments concerning the exception process or our efforts to develop alternative payment systems based on the patient's need for services.

Response: As commenters noted, we do not have the authority to extend the exceptions process beyond the December 31, 2006, statutory expiration date. We will continue, to the extent that resources allow, pursuing a payment policy that encourages provision of high quality, covered services to all beneficiaries who need them.

Section 5107(b) of the DRA requires the Secretary to implement edits for clinically illogical combinations of

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procedure codes and other edits to limit inappropriate payment for therapy services by July 1, 2006. As explained in the CY 2006 PFS proposed rule, in January 2006, we implemented Correct Coding Initiative (CCI) edits for the therapy providers that bill the fiscal intermediaries, thus, addressing the section 5107 of the DRA requirement for edits for clinically illogical combinations of procedure codes. Adoption of these code edits ensures that these providers of outpatient Part B therapy services, including SNFs, comprehensive outpatient rehabilitation facilities, certain outpatient physical therapy and speech-language therapy providers (rehabilitation agencies) and home health agencies (HHAs) (where beneficiary is not under a Part A plan of care) meet the same CCI edit requirements as those that have been in place for physicians, private practice therapists, and OPPS hospitals. We also noted that we are considering the implementation of other edits in the future to further address concerns about inappropriate payment for therapy services.

Comment: MedPAC indicated that the CCI code-pair edits we have implemented are a good start in controlling inappropriate billing, but encouraged further work and consultation with experts to develop other clinically appropriate edits for therapy services.

Response: We appreciate the MedPAC's remarks and will consider its suggestions in the implementation of future edits. 3. Section 5112--Addition of Ultrasound Screening for Abdominal Aortic Aneurysm (AAA) a. Coverage

Section 5112 of the DRA amended section 1861 of the Act to provide for coverage under Part B of ultrasound screening for AAAs, effective for services furnished on or after January 1, 2007, subject to certain eligibility and other limitations. This screening test will be available even if the qualifying patient does not present signs or symptoms of disease or illness.

To conform the regulations to the statutory requirements of section 5112 of the DRA, we proposed to include an exception in Sec. 411.15(a)(1) to permit coverage for ultrasound screening for AAAs that meet the conditions for coverage that we proposed to specify under new Sec. 410.19(b) (Conditions for coverage of an ultrasound screening for abdominal aortic aneurysms). We also proposed to add a new Sec. 411.15(k)(12).

As provided in the DRA, this new coverage allows payment for a one- time only screening examination. We proposed new Sec. 410.19(b) to provide for the coverage of the screening examinations for AAAs as specified in section 5112 of the DRA. We also proposed to add new Sec. 410.19(c) (Limitation on coverage of ultrasound screening for abdominal aortic aneurysms.) to provide the limitation on coverage for an individual who is not an eligible beneficiary as defined in new Sec. 410.19(a).

We proposed the definitions set forth in new Sec. 410.19(a) to implement the statutory provisions and to help the reader in understanding the provisions of this regulation. The definitions include the following terms:

Eligible beneficiary.

Ultrasound screening for abdominal aortic aneurysms.

Specifically, section 5112(a)(1) of the DRA amended section 1861 of the Act to provide that coverage of ultrasound screening for AAAs will be available for an individual: (1) Who receives a referral for such as ultrasound screening as a result of an initial preventive physical examination (IPPE) (as defined in section 1861(ww)(1) of the Act); (2) who has not been previously furnished such as ultrasound screening under this title; and (3) who has a family history of AAA or manifests risk factors included in a beneficiary category recommended for screening by the United States Preventive Services Task Force (USPSTF) regarding AAAs.

Section 5112(a)(2) of the DRA also adds a definition of the term ``ultrasound screening for an Abdominal Aortic Aneurysm'' to mean, ``(1) a procedure using sound waves (or other procedures using alternative technologies, of commensurate accuracy and cost, that the Secretary may specify) provided for the early detection of abdominal aortic aneurysm; and (2) includes a physician's interpretation of the results of the procedure.''

Based on this provision, we reviewed the 2005 USPSTF recommendations and related material on ultrasound screening for AAAs which includes--

A recommendation for a one-time ultrasound screening for men aged 65 to 75 who have smoked at least 100 cigarettes in their lifetime;

No recommendation for, or against, ultrasound screening for AAAs for men who have not smoked at least 100 cigarettes in their lifetime; and

A recommendation against routine screening for AAAs in women.

Based on the statutory language and the USPSTF recommendations outlined in this section, we proposed to define the term ``eligible beneficiary'' for coverage of ultrasound screening examinations for AAA to mean an individual who--

Has received a referral for an ultrasound screening as a result of an IPPE (as defined in section 1861(ww)(1) of the Act);

Has not been previously furnished such a covered ultrasound screening examination under the Medicare program; and

Is included in at least one of the following risk categories:

+ Has a family history of an AAA.

+ Is a man age 65 to 75 years who smoked at least 100 cigarettes in his lifetime.

+ Is an individual who manifests other risk factors that are described in a benefit category recommended by the USPSTF regarding an AAA that has been determined by the Secretary through the NCD process.

To facilitate our consideration of possible expansions of coverage in the future for identifying other risk factors in a benefit category recommended for screening for the early detection of AAAs by the USPSTF, and alternative screening technologies to ultrasound screening for AAAs of commensurate accuracy and cost, we proposed to add language to our regulations that would allow us to make determinations through the NCD process. The NCD process would allow the Secretary to expand coverage more quickly following an assessment of those subjects than is possible under the standard rulemaking process. We intend to use the NCD process, which includes an opportunity for public comments, for evaluating the medical and scientific issues relating to the coverage of alternative screening technologies and the identification of other risk factors for AAAs recommended by the USPSTF that may be brought to our attention in the future. Use of an NCD to establish a change in the scope of benefits is authorized by section 1871(a)(2) of the Act. An aggrieved party can challenge an NCD under the procedures established by section 1869(f) of the Act. We proposed to add these coverage provisions in new Sec. 410.19 (a)(1)(i) and Sec. 410.19(a)(2)(iii)(C).

Section 5112(b) of DRA also amended section 1861(ww)(2) of the Act (the IPPE benefit) by adding the new ultrasound screening benefit to the list of preventive services for which physicians and other qualified nonphysician practitioners (NPPs) must provide ``education, counseling and referral'' to new beneficiaries who take advantage of the IPPE benefit within the first 6 months after the effective date of

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their first Part B coverage period. Therefore, we also proposed to amend Sec. 410.16(a)(7) of the regulations so that it reflects the additional responsibilities that physicians and qualified NPPs will have under the IPPE benefit for the new ultrasound screening benefit.

We received 14 comments that generally supported the proposal to implement section 5112 of the DRA that provides for Medicare coverage of ultrasound screening for AAAs. Several commenters had suggestions for revising certain specific coverage provisions of the proposal.

Comment: Several commenters addressed the issue of the need for certification of qualification requirements for the Medicare providers or suppliers who furnish beneficiaries with the new ultrasound screening for AAAs. A commenter referenced the USPSTF recommendations that state, ``There is good evidence that abdominal ultrasonography, performed in a setting with adequate quality assurance (that is, in an accredited facility with credentialed technologists), is an accurate screening test for AAA.'' The commenter noted that the proposed rule did not mention the qualifications of the people performing the screening and strongly recommended that quality standards be applied to any laboratories performing this testing.

Response: Section 5112 of the DRA provides for coverage of a one- time ultrasound screening for AAAs for beneficiaries, subject to certain eligibility and other limitations. However, section 5112 does not expressly address the subject of quality standards for the providers or suppliers of these services and, therefore, in the absence of a clearly demonstrated need for quality or qualification standards that are specifically targeted to ultrasound screenings for AAAs, we do not believe it is appropriate to establish at this time such detailed standards for these services. We believe that any Medicare provider or supplier that is authorized to provide covered diagnostic ultrasound services is qualified to provide covered ultrasound screening services for AAAs. The ultrasound test is conducted in a similar manner whether the test is for a screening or diagnostic purpose. We are adding language at Sec. 410.19(b) to reflect this condition.

Comment: Two commenters expressed concern that many beneficiaries who became entitled to Medicare Part B coverage for the first time before the IPPE benefit became effective (January 2005) will not be able to qualify for coverage of the ultrasound screenings for AAAs because of the IPPE referral requirement for the exam.

Response: The commenters are correct that the IPPE referral requirement for coverage of the ultrasound screening for AAAs will preclude many older beneficiaries from qualifying for coverage of the exam, but that requirement is specified in section 5112 of the DRA. It would require a change in the statute to permit us to expand the scope of the benefit to older beneficiaries who do not satisfy this requirement.

Comment: Several commenters suggested that we should implement safeguards against providers billing for duplicative testing for the AAA screening and an abdominal or retroperitoneal ultrasound exam (with a diagnosis such as abdominal pain) later the same or the next day.

Response: We agree that the potential for duplicative billing for the screening and the diagnostic ultrasound test of the same type does exist. Therefore, we will work with our contractors to implement the necessary safeguards to insure that this type of billing does not occur.

Comment: Several commenters are concerned that the proposed rule does not provide any guidance on the meaning of the statutory IPPE referral requirement for coverage of the AAA screening service. The commenter suggests that the term ``referral'' should be interpreted to include a practitioner's ``direction to receive care from a qualified provider'' that may be provided orally or in written form during or after the eligible beneficiary receives his or her IPPE service.

Response: Section 410.16(a)(7) (as modified in this final rule) provides that each eligible beneficiary who takes advantage of that benefit is entitled (among other things) to education, counseling, and referral, including a brief written plan such as a checklist provided to the beneficiary for obtaining appropriate screening and other preventive services that are covered as separate Medicare benefits, such as the ultrasound screening for AAAs. Based on this referral provision for the IPPE benefit, we believe there is considerable flexibility that is allowed the IPPE provider in making referrals to qualified Medicare providers of screening and other preventive services, such as the AAA screening service. However, at a minimum, we believe Sec. 410.16(a)(7)of the IPPE regulation requires that the referral include a brief written plan provided the beneficiary for obtaining, if appropriate, the AAA screening service from a qualified Medicare provider.

Comment: Several commenters recommended that we monitor the utilization of the new AAA screening benefit over the next couple of years to determine if beneficiary access to this service is a concern that requires our efforts to ensure appropriate beneficiary awareness and utilization of the benefit.

Response: We agree that we should monitor use of this benefit to ensure that there is appropriate beneficiary awareness and use of the service.

Comment: A commenter urged us to implement a targeted campaign to educate beneficiaries and physicians about the new screening benefit and to encourage their use of it.

Response: We will release the appropriate manual and transmittal instructions and other information, including a ``Medicare Learning Network (MLN) Matters'' provider education article, an updated new ``Medicare Preventive Services Guide,'' and other information. We would encourage the medical community to contribute to this effort by distributing their own communications, bulletins, or other publications to physicians, qualified NPPs, and beneficiaries.

Except for the additional language added at Sec. 410.19(b) relating to the ability of a provider or supplier to furnish ultrasound diagnostic services, we are finalizing this section as proposed to provide for coverage of the AAA screening service for beneficiaries under the statute, subject to the statutory eligibility and other limitations. b. Payment

Beginning January 1, 2007, we proposed to pay for ultrasound screening for AAAs through the use of a new HCPCS code G0389, Ultrasound, B-scan and/or real time with image documentation; for abdominal aortic aneurysm (AAA) screening. We proposed that payment for this service be made at the same level as CPT code 76775, Ultrasound, retroperitoneal (eg, renal, aorta, nodes), B-scan and/or real time with image documentation; limited. CPT code 76775 is used to bill for the service when it is provided as a diagnostic test, and we believe the service associated with the HCPCS codereflects equivalent resources and work intensity to those contained in CPT code 76775.

In addition, since the DRA provides that the Medicare Part B deductible will not apply for ultrasound screening for AAA (as defined in section 1861(bbb) of the Act), we proposed to revise Sec. 410.160 to include an exception from the Medicare Part B deductible for the ultrasound screening for AAA as described in Sec. 410.19 (Conditions for

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coverage of an ultrasound screening for abdominal aortic aneurysms).

Comment: Commenters were in agreement with the proposed payment amount for this service.

Response: We will adopt the proposed values for this new HCPCS code (that is, make it equivalent to CPT code 76775). This service will be identified by the following code number and descriptor G0389, Ultrasound, B-scan and/or real time with image documentation; for abdominal aortic aneurysm (AAA) screening.

We will also finalize the proposed revisions to Sec. 410.160 to include an exception from the Medicare Part B deductible for the ultrasound screening for AAA as described in Sec. 410.19. 4. Section 5113--Non-Application of the Part B Deductible for Colorectal Cancer Screening Tests

Current Medicare policy requires that, with limited exceptions, incurred expenses for covered part B services are subject to, and count toward meeting the Part B annual deductible. Section 5113 of the DRA amended section 1833(b) of the Act to provide for an exception to the application of the Part B deductible for colorectal cancer screening tests. Beginning January 1, 2007, colorectal cancer screening services, as described in section 1861(pp)(1) of the Act, are no longer subject to the Part B deductible. The conditions for and limitations on coverage for colorectal cancer screening tests under Medicare Part B are described in Sec. 410.37.

To conform our regulations to this statutory change, we proposed to revise Sec. 410.160 to include an exception from the Part B annual deductible for the colorectal cancer screening services described in Sec. 410.37.

Comment: Commenters were supportive of this conforming change. However, it was pointed out that we had failed to address the situation where a colorectal cancer screening service actually results in a beneficiary having a biopsy or a growth removed, requiring the service to be coded as a diagnostic procedure. Clarification was requested as to whether in such situations, the deductible would still be waived.

Response: Section 1834(d)(3)(D) of the Act states ``if during the course of such screening colonoscopy, a lesion or growth is detected which results in a biopsy or removal of the lesion or growth, payment under this part shall not be made for the screening colonoscopy but shall be made for the procedure classified as a colonoscopy with such biopsy or removal.'' Based on this statutory language, in such instances the test or procedure is no longer classified as a ``screening test.'' Thus, the deductible would not be waived in such situations.

After reviewing the public comments, we are finalizing Sec. 410.160 as proposed. 5. Section 5114--Addition of Diabetes Outpatient Self-Management Training Services (DSMT) and Medical Nutrition Therapy (MNT) for the FQHC Program

Section 5114 of the DRA amended section 1861(aa)(3) the Act to add DSMT and MNT services to the list of Medicare covered and reimbursed services under the Medicare FQHC benefit, effective for services provided on or after January 1, 2006. Although this statutory change has already been implemented in administrative instructions, we proposed to conform the regulations to the new statutory requirement.

FQHCs certified as DSMT and MNT providers have been allowed to bundle the cost of those services into their FQHC payment rates. But before the enactment of the DRA, the provision of these services would not generate a separate FQHC visit payment. Effective for services furnished on or after January 1, 2006, FQHCs that are certified providers of DSMT and MNT services can receive per visit payments for covered services furnished by registered dietitians or nutrition professionals. That is, if all relevant program requirements are met, these services are included under the Medicare FQHC benefit as billable visits.

In public response to the proposed rule, we received a small number of comments expressing support for our proposal. Therefore, we will finalize the changes as proposed.

To conform the regulations, we are amending Sec. 405.2446(b) to expand the scope of FQHC services to include certified providers of DSMT and MNT services by adding a new paragraph (b)(10). We are also revising Sec. 405.2463 by--

Revising paragraph (a) to expand the definition of an FQHC visit to include certified providers of DSMT and MNT services under new paragraph (a)(1)(ii)(B). We are also revising the definition of an rural health clinic (RHC) visit in new paragraph (a)(1)(i) to include a face-to-face encounter between a patient and a clinical psychologist or clinical social worker to conform to statutory language at section 1861(aa)(1)(B) of the Act. We also proposed to redesignate and revise paragraphs (b) and (c) as new paragraphs (a)(2) and (a)(3), respectively.

We are incorporating paragraph (a)(2) into (a)(1), and redesignating and revising current paragraph (a)(3) as new paragraph (b). We also clarify that it is generally permissible for both FQHCs and RHCs to furnish, when necessary, most types of medical and other health visits on the same day to the same patient. We also amend this paragraph to permit a separate additional FQHC visit for DSMT and MNT services (which may occur on the same date of service when the beneficiary receives care from their FQHC physician or NPP) when reasonable and necessary, consistent with the Congressional mandate under section 5114 of the DRA to provide coverage and adequate access to these services in the FQHC setting.

Finally, we are redesignating and revising current paragraph (a)(4) as new paragraph (c).

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

Medicare Part B covers a limited number of prescription drugs and biologicals. For the purposes of this final rule with comment period, the term ``drugs'' will hereinafter refer to both drugs and biologicals. Medicare Part B covered drugs not paid on a cost or prospective payment basis generally fall into the following three categories:

Drugs furnished incident to a physician's service.

Durable medical equipment (DME) drugs.

Drugs specifically covered by statute (for example, certain immunosuppressive drugs).

Beginning in CY 2005, the vast majority of Medicare Part B drugs not paid on a cost or prospective payment basis are paid under the average sales price (ASP) methodology. The ASP methodology is based on data submitted to us quarterly by manufacturers. In addition to the payment for the drug, Medicare currently pays a furnishing fee for blood clotting factors, a dispensing fee for inhalation drugs, and a supplying fee to pharmacies for certain Part B drugs.

In January 2006, the drug coverage available to Medicare beneficiaries expanded with the implementation of the Medicare Part D benefit. The Medicare Part D benefit does not change Medicare Part B drug coverage.

This section of the preamble discusses changes and issues related to the determination of the payment amounts for covered Part B drugs and furnishing blood clotting factor. This section also discusses changes to how manufacturers calculate and report ASP data to us.

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1. ASP Issues

Section 303(c) of the MMA amended title XVIII of the Act by adding new section 1847A. This new section revised the payment methodology for the vast majority of drugs and biologicals not paid on a cost or prospective payment basis furnished on or after January 1, 2005. The ASP reporting requirements are set forth in section 1927(b) of the Act. Manufacturers must submit ASP data for each 11-digit NDC to us quarterly. The manufacturers' submissions are due to CMS no later than 30 days after the last day of each calendar quarter. The methodology for developing Medicare drug payment allowances based on the manufacturers' submitted ASP data is described in the regulations in part 414, subpart K. We update the Part B drug payment amounts quarterly based on the data we receive.

On April 6, 2004, we published the Manufacturer's Submission of Average Sales Price Data for Medicare Part B Drugs and Biologicals (ASP) interim final rule with comment period (IFC) (69 FR 17935) to implement the ASP calculation and reporting requirements. Manufacturers were required to submit their initial quarterly ASP data to us shortly thereafter, by April 30, 2004. We received comments on the April 6, 2004 IFC from drug manufacturers, pharmacies, physicians, national associations of the pharmaceutical industry, national associations of physicians, and consultants. These comments addressed a variety of aspects of calculating and reporting ASPs. On September 16, 2004, we published the Manufacturer's Submission of Average Sales Price Data for Medicare Part B Drugs and Biologicals (ASP) final rule (69 FR 55763) addressing only the comments pertaining to the methodology for estimating lagged price concessions. We have also addressed ASP calculation and reporting requirements in other proposed and final rules and information collection notices, including rulemaking to implement the Competitive Acquisition Program for Part B Drugs and Biologicals (CAP) (70 FR 39069, 70 FR 45842, 70 FR 70215, 70 FR 70477, and 71 FR 48130). In addition, we have posted official agency guidance, including responses to frequently asked questions, on our Web site to implement the ASP provisions in accordance with section 1847A(c)(5)(C) of the Act.

In the CY 2007 PFS proposed rule, we stated that we intended to finalize the April 6, 2004 IFC in the near future and that we may publish the final rule as part of this rulemaking, or as a separate final rule. We also stated that because the comments received during the comment period in response to the April 6, 2004 IFC were made during the initial months of manufacturers' experience with calculating and reporting ASPs and prior to publication of payment amounts based on the ASP methodology, we believed there was good reason to give the public an opportunity to provide additional comments. Therefore, we sought comments on the ASP reporting provisions in the April 6, 2004 IFC, as well as several topics specifically discussed in the CY 2007 PFS proposed rule. These topics included: Fees not considered price concessions, excluded sales known on a lagged basis, nominal sales, and other price concession issues. In this final rule with comment period, we are responding to comments received on the April 6, 2004 IFC and the CY 2007 PFS proposed rule and revising provisions related to the estimation methodology for price concessions known on a lagged basis, which were finalized in the September 16, 2004 final rule. Except as otherwise specified in this final rule with comment, we are finalizing the provisions of part 414, subpart J as presented in the April 6, 2004 IFC. a. Comments Not Related to ASP Reporting

As stated in the CY 2007 PFS proposed rule, we received numerous comments on the use and potential impacts of the ASP payment methodology. The April 6, 2004 IFC implemented provisions of the MMA related to how manufacturers calculate ASP and report their ASP data. Thus, comments about the appropriateness and use of 106 percent of the ASP as a basis for Medicare Part B drug payment rates are outside the scope of the final ASP reporting rule. Implementation of the ASP payment methodology as the basis for establishing payment amounts for the vast majority of Part B drugs was discussed in notice and comment rulemaking in the CY 2005 PFS proposed and final rules (69 FR 47520 and 69 FR 66299). Comments about the ASP payment methodology that address issues other than how manufacturers calculate and report their ASPs are outside the scope of this rulemaking. Other topics for which we received comments that are not within the scope of this rulemaking and are not otherwise addressed are as follows:

How the ASP-based payment rates are calculated;

How NDCs are assigned to billing codes;

Requests for billing codes for specific products;

Whether alternative payment methodologies or exceptions to the ASP-based payment should be considered;

Billing and claims processing and adjudication issues;

Variation in local coverage policies:

Whether Part B policies apply to Medicaid and/or Part D;

Issues related to Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B (CAP); and

Issues pertaining to the content and format of the quarterly Part B drug pricing files. b. Fees Not Considered Price Concessions

Section 1847A(c)(5)(A) of the Act states that the ASP is to be calculated by the manufacturer on a quarterly basis. As a part of that calculation, manufacturers must take into account price concessions such as--

Volume discounts;

Prompt pay discounts;

Cash discounts;

Free goods that are contingent on any purchase requirement;

Chargebacks; and

Rebates (other than rebates under the Medicaid drug rebate programs).

If the data on these price concessions are lagged, then the manufacturer is required to estimate costs attributable to these price concessions using the required ratio methodology as specified in Sec. 414.804(a)(3). This methodology was finalized in the September 16, 2004 final rule based on comments submitted in response to the April 6, 2004 IFC. In the CY 2007 PFS proposed rule, we proposed modifications to the requirements for estimating lagged price concessions specified Sec. 414.804(a)(3) to conform with other proposals put forth in the proposed rule. Comments received in response to the proposed rule related to potential impacts on the estimation of lagged price concessions are discussed in the appropriate subsections in this section.

In response to the April 6, 2004 IFC, commenters representing drug manufacturers, national associations of wholesalers and distributors, and physicians and other health care providers requested clarification and detailed guidance on the treatment of administrative fees, service fees and fees paid to pharmacy benefit managers (PBMs) in the ASP calculation. We posted guidance on our Web site (http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg ) to clarify that in the

absence of specific guidance in the Act or Federal regulations, the manufacturer may make reasonable assumptions in its

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calculations of ASP, consistent with the general requirements and intent of the Act, Federal regulations, and its customary business practices. These assumptions should be submitted along with the ASP data. In December 2004, we posted further guidance on our Web site addressing service fees and administrative fees paid to buyers (http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg ).

On July 6, 2005, we restated our guidance on service fees in the preamble of the Competitive Acquisition of Outpatient Drugs and Biologicals Under Part B (CAP) interim final rule with comment (70 FR 39069). Subsequently, we received requests for clarification on how fees paid to entities such as group purchasing organizations (GPOs) or PBMs must be treated for purposes of the ASP calculation.

Therefore, we proposed to further clarify in the final ASP reporting rule that, beginning with the ASP reporting for sales during the first quarter of CY 2007, bona fide service fees that are paid by a manufacturer to an entity, whether or not the entity takes title to the drug, are not considered price concessions under Sec. 414.804(a)(2) insofar as, and to the extent that, they satisfy the definition of a bona fide service fee that we proposed at Sec. 414.802. In Sec. 414.802, we proposed to define bona fide service fees as fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on, in whole or in part, to a client or customer of an entity, whether or not the entity takes title to the drug. We further proposed that our current guidance, which provides that bona fide service fees means expenses that would have generally been paid for by the manufacturer at the same rate had these services been performed by other entities, would remain in effect unless we adopted an alternative approach. Further, we proposed to clarify in the final ASP reporting rule that fees, including service fees, administrative fees and other fees, paid to GPOs or PBMs are not considered price concessions under Sec. 414.804(a)(2) insofar as, and to the extent that, they satisfy the definition of a bona fide service fee that we proposed at Sec. 414.802.

In the CY 2007 PFS proposed rule, we discussed comments to the April 6, 2004 IFC that provided some insight into the types of activities that are performed in the distribution of drugs. We noted that these comments did not provide detailed information about whether and how one would determine the extent to which these activities are bona fide services actually performed on behalf of the manufacturer. To better understand the scope of appropriate bona fide services and how they may vary across categories of drugs, we sought comment on the specific types of services entities performed on behalf of the manufacturer and the necessity of those services in the efficient distribution of drugs. We also stated that we were considering providing further guidance on the types of services that may qualify as bona fide services for purposes of the ASP calculation. We also indicated that we were considering providing further guidance on or revising the approach or methodology manufacturers must use to determine the fair market value of bona fide services performed on their behalf and whether the service fee paid was passed on in whole or in part, as well as activities that should not be considered bona fide services performed on behalf of manufacturers, and bona fide services that may be appropriate for all or specific types of products or circumstances. We also sought comments on the costs and relative costs of services performed on behalf of manufacturers. Specifically related to the determination of whether or not a fee represents fair market value for ASP purposes, we solicited comments on the potential appropriateness of fees tied to performance of a service, fixed fee, revenue generated by product sales, or other basis. In addition, we requested comments on the appropriate methods for determining whether a fee is passed on in whole or in part and on how Medicare's guidance on the treatment of service fees for ASP calculation purposes may differ with the treatment of service fees for financial accounting or other purposes, and any implications that this may have for manufacturers.

Comment: We received numerous comments on the topic of service fees. Among the commenters there was general agreement with our clarification that the treatment of bona fide service fees in the ASP calculation should not be conditioned on whether or not the entity takes title to the drug. However, many commenters objected to a definition of bona fide service fee that would limit in any way the services or amount of fee that a manufacturer would establish in a contract with any partner in the distribution of drugs or that otherwise would limit flexibility and evolution in the industry. Many of the commenters on this issue were opposed to establishing a list of bona fide services; while a few commenters requested that certain services such as ``pick, pack and ship,'' chargeback administration, data services, and patient care programs be specifically included in a list of bona fide services. A few commenters stated that such a list, even if the list were illustrative, would be helpful in standardizing the treatment of service fees across manufacturers' ASP calculations. Other commenters cautioned that establishing a list of bona fide services would require ongoing refinement in order for manufacturers to accurately calculate ASPs as service fee arrangements evolved.

Several commenters recommended that we adopt a more general standard for evaluating whether an arrangement represents a bona fide service fee arrangement. However, very few suggestions for modifying the wording of the proposed definition of bona fide service fee were offered. One commenter recommended changing ``itemized'' to ``supply chain'' to address concerns regarding how fair market value may be determined, and several commenters recommended that we delete the requirement that the fees not be passed on; these comments are discussed in more detail below in this section.

In discussing how a more general standard might be applied, several commenters suggested allowing the marketplace to decide the appropriate scope of services and fair market value. These commenters stated that this approach would result in a satisfactory means of determining fees that are not price concessions (that is, are bona fide and not passed on) by virtue of the competitiveness of the market for drug distribution service. Under this approach, any service and price agreed to in an arm's-length contract with the manufacturer would be sufficient for determining that the services were bona fide and at fair market value for ASP purposes.

Other commenters, who support a general standard, suggest that so long as a service is ``reasonably necessary'' or ``necessary and useful'' in meeting a manufacturer's business needs, it should be considered to be both bona fide and a service performed on behalf of the manufacturer. These commenters emphasize that the purpose of the service should determine whether it was performed on behalf of the manufacturer. As a result, in the opinion of these commenters, all activities related to distributing drugs are services a manufacturer would either have to perform or contract for if it did not have the capacity to perform

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the activity or chose not to perform the activity.

Some of the comments in support of a general standard pointed to the personal services safe harbor from anti-kickback penalties as specified in 42 CFR 1001.952(d)(7) as a potential benchmark for purposes of identifying services and fees that would be excluded from the ASP calculation. Other commenters recommended that any reasonable method of determining fair market value should be acceptable. However, several commenters requested that we specify the acceptable methods for determining fair market value. A small number of commenters requested that we specifically address whether the income method, market method or cost method could be used to estimate the range for fair market value of the bona fide service fee arrangement for ASP purposes. These commenters did not provide details on the applicability of these three methods for estimating fair market value for commonly performed drug distribution services. Many commenters stated that, regardless of the method used to determine fair market value, manufacturers should be permitted to calculate fair market value across a set of services (in lieu of determining fair market value for each itemized service specified in an arrangement), and that it would be impossible to calculate fair market value adequately for certain low-volume or value- added services or certain services that can only be performed by the purchaser (for example, in the case of wholesalers, compiling, and sharing retail customer data). Some commenters noted that service fee contracts may be broadly constructed for a set of services across a number of drugs without itemizing each service or activity. To reflect market practices and trends, as noted above in this section, one commenter recommended that we revise the proposed definition of bona fide service fees to remove the word ``itemized'' and, in its place, insert ``supply chain.''

Several commenters supported our proposed definition of bona fide service fees in general, while also suggesting that we refine or eliminate the ``not passed on'' requirement because it is not needed if the services included in an arrangement are bona fide and the fee represents fair market value. A number of commenters offered that including ``itemized'' in the definition was unnecessary for the same reason. While a few commenters stated that specific requirements not to pass on fees and terms requiring disclosure of any fees passed on could be written in the bona fide service fee contracts. In contrast, several commenters stated that for a variety of reasons, manufacturers may not know or be able to accurately certify that a fee is not passed on in whole or in part. These commenters identified anti-trust constraints as one such reason.

Commenters asked that: (1) We clarify that services that can only be performed by the party that takes possession of the drug from the manufacturer may be considered to be bona fide services; and (2) we remove the limitation in our current guidance that bona fide service fees must be at the same rate had these services been performed by other entities.

We did not receive comments on services that should not be considered bona fide services, or on the costs or relative costs of services performed on behalf of manufacturers.

Response: After consideration of the comments received, we are finalizing our proposed definition of bona fide service fees at Sec. 414.802 which specifies that in order for a fee to be determined not to be a price concession, and thus to be excluded from the calculation of the ASP, the following conditions must be met:

The fee paid must be for a bona fide, itemized service that is actually performed on behalf of the manufacturer;

The manufacturer would otherwise perform or contract for the service in the absence of the service arrangement;

The fee represents fair market value; and

The fee is not passed on in whole or in part to a client or customer of any entity.

We believe that if a fee satisfies the definition of bona fide services fees it can be excluded from the calculation of the ASP. We believe the specificity and scope of this definition provides an appropriate safeguard against the potential risk for inappropriately higher ASPs, while adopting a more general standard, a more limited definition or relying solely on market forces, as some commenters suggested, would not. This is because, taken together, this four elements describe those situations in which we believe a fee paid is compensation for services rather than a price concession for drugs. We disagree with the comments that recommended alternative standards because a definition with greater breadth or less specificity or both would not as clearly distinguish bona fide services fees from price concessions and could result in inappropriately high ASPs and insconsistent treatment of services fees (for example, if we were to permit a fee for any services at any price to be excluded from the calculation of ASP or to eliminate the ``not passed on'' or ``itemized'' requirements.) However, we found many of the comments informative with respect to how our definition of a bona fide service fee is met and we discuss below in this section how these comments have been incorporated into our guidance. In codifying the definition of bona fide service fees, we seek to clarify a framework for differentiating between those price concessions that must be included in the calculation of ASP and bona fide service fees,which are not included in the calculation of ASP. Beginning with the effective date of this final rule with comment, the definition of bona fide service fees will apply to the ASP reporting for sales during the first calendar quarter of 2007. Additional guidance is discussed below. (1) Bona fide, Itemized, Actually Performed on Behalf of the Manufacturer and ``Otherwise Performed''

The first and second elements of the definition of bona fide service fees relate to the scope of bona fide services for which a fee paid does not represent a price concession for ASP purposes. To be considered a bona fide service fee, the fee must be for services that are: Bona fide, itemized, actually performed on behalf of the manufacturer, and those the manufacturer would otherwise perform or contract for in the absence of the service arrangement. Some commenters requested further guidance on these elements. We were persuaded by comments that referenced the necessity or usefulness of services. Therefore, we interpret these elements of the definition to encompass any reasonably necessary or useful services of value to the manufacturer that are associated with the efficient distribution of drugs. In response to commenters' concerns, we are clarifying that services ``on behalf of'' the manufacturer include both those the manufacturer has the capacity to perform, and those that can only be performed by another entity.

Although some commenters provided us with general information on what they would view to be bona fide services, to avoid inadverently limiting the scope of what could constitute a bona fide service, we will not establish a list of ``bona fide services'' at this time. (2) Fair Market Value

The third element of the definition of bona fide service fees specifies that the fees must represent fair market value. In response to comments, we are refining our current guidance to address

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concerns that it may not permit exclusion from ASP of fees for services that can only be performed by the entity to which the fee is paid. Therefore, our guidance is that bona fide service fees means expenses that generally would have been paid for by the manufacturer at the same rate had these services been performed by other or similarly situated entities.

In addition, we tend to agree with the commenters that, in certain circumstances, it may be appropriate to calculate fair market value for a set of itemized bona fide services, rather than fair market value for each individual itemized service, when the nature of the itemized services warrants such treatment. We also tend to agree that the appropriate method or methods for determining whether a fee represents fair market value may depend upon the specifics of the contracting terms, such as the activities the entity will perform and the agreed- upon mechanism for establishing the payment (for example, percentage of goods purchased). We believe manufacturers are well-equipped to determine the most appropriate, industry-accepted method for determining fair market value of drug distribution services for which they contract. Therefore, we are not mandating the specific method manufacturers must use to determine whether a fee represents fair market value for purposes of excluding bona fide service fees from the calculation of ASP. (3) ``Not Passed On''

We appreciate the commenter views on the fourth element of the definition of bona fide service fees, which specifies that the bona fide service fee must not be passed on, in whole or in part, to a client or customer of an entity. At this time, we understand that there may be significant barriers that limit a manufacturer's ability to determine whether a fee that otherwise meets the definition of ``bona fide service fee'' described in this rule is passed on, in whole or in part, to a client or customer of any entity. Nevertheless, we believe that it is essential to retain the ``not passed on'' element in the definition of bona fide service fees. The ``not passed on'' element is, in our view, a key factor in distinguishing a price concession from a bona fide service fee because, if a fee that is passed on is excluded from the ASP calculation, then there is a greater risk of the ASP being inappropriately higher.

However, we recognize that, in some instances, manufacturers may have no effective way of knowing whether a fee paid that meets the other elements of the definition of ``bona fide service fee'' is passed on. Although we decided to retain the ``not passed on'' requirement in the definition of bona fide service fees because of its importance in distinguishing bona fide service fees from price concessions, we believe it is appropriate to seek to balance our goal of ensuring appropriate Medicare payments are made with the level of burden a manufacturer would have to undertake to validate that a fee was not passed on. Therefore, with respect to certifying to the accuracy of their ASP calculations when it is unknown to the manufacturer whether the fee paid was passed on in whole or in part to a client or customer of any entity, we are clarifying, in this preamble, how manufacturers may address this concern. If a manufacturer has determined that a fee paid meets the other elements of the definition of ``bona fide service fee,'' then the manufacturer may presume, in the absence of any evidence or notice to the contrary, that the fee paid is not passed on to a client or customer of any entity.

Comment: Several commenters indicated that some of the fees that they believe would meet our definition of bona fide services fees for ASP purposes would be treated as a reduction to revenues for financial accounting purposes. Commenters asked us to clarify that the treatment of service fees for ASP purposes and financial accounting purposes may be different, and that if a fee meets our definition of a bona fide service fee it can be excluded from the ASP regardless of its treatment for financial accounting purposes.

Response: Fees that meet our definition of bona fide service fees are not considered price concessions for purposes of the ASP calculation, regardless of how they are treated for financial accounting purposes.

Comment: Many commenters asserted that all fees and other payments to GPOs and PBMs should be excluded from ASP because the statute requires only that sales to purchasers be included in ASP, and, they argue, GPOs and PBMs are not purchasers, do not take title to and possession of products, and the fees paid to GPOs and PBMs are not passed on to physicians (or other providers) in a manner that can be attributable to a particular purchase or drug. Commenters asked that, if we consider fees paid to GPOs and PBMs to be price concessions (except to the extent that the fees are bona fide service fees for purposes of the ASP calculation), we allow fees paid to the GPOs and PBMs under arrangements that meet the anti-kickback safe harbor for purchasing arrangements to be excluded from the ASP calculation without having to meet our definition of bona fide service fees. Other commenters expressed concern that considering GPO and PBM fees to be price concessions could artificially deflate ASP such that it would not accurately reflect the costs incurred by physicians and other providers. Another commenter suggested that we provide additional guidance on payments to managed care organizations.

Response: We note that we did not make a specific proposal with respect to how PBM and GPO fees must be treated for ASP purposes other than to say that to the extent that such fees meet the definition of ``bona fide service fee,'' they are excluded from the calculation of ASP. We are continuing to develop our understanding of the variety of agreements made with entities such as PBMs and GPOs and the possible effects of these arrangements on the calculation of ASP and provider acquisition costs. For this reason, at this time we believe it is premature for us to provide specific guidance with respect to treatment of fees paid by manufacturers to PBMs and GPOs in the ASP calculation (other than to specify, as we proposed, that PBM and GPO fees that meet the definition of ``bona fide service fees'' are excluded from the calculation of ASP). Instead, we will continue to consider the comments received and to study the matter further. In addition, we may take into consideration how fees paid to these entities are addressed in the context of the Medicaid drug rebate program. We also note that the MedPAC commented that in the upcoming year it would be continuing to examine the issue of the average prices physicians pay and the effect of price concessions that might not be passed on to physicians.

In the absence of specific guidance, the manufacturer may make reasonable assumptions in its calculations of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and its customary business practices. These assumptions should be submitted along with the ASP data.

Recognizing that the treatment of fees to PBMs and GPOs in the ASP calculation may have implications for the integrity of the ASP payment methodology, we will be paying close attention to this issue and may provide more specific guidance in the future through rulemaking or through program instruction or other guidance (consistent with our authority under section 1847A(c)(5)(C) of the Act).

Comment: Many commenters noted that the Congress excluded wholesaler

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prompt pay discounts from the calculation of average manufacturer price (AMP) under the DRA. Commenters asserted that we have the authority to extend this provision to ASP reporting and thus could exclude wholesaler prompt pay discounts from ASP reporting.

Response: We do not agree that extending the DRA provision to ASP reporting would be consistent with Congressional intent. Section 1847A(c)(3) does not specify a carve-out for prompt pay discounts extended to wholesalers. Therefore, along with all other prompt pay discounts, prompt payment discounts extended to wholesalers must be included in the calculation of ASP. c. Estimation Methodology for Lagged Exempted Sales

Section 1847A(c)(2) of the Act requires manufacturers to exclude from the calculation of ASP those sales that are exempt from inclusion in the determination of Medicaid best price (BP). In the comments on the April 6, 2004 IFC, commenters requested more guidance on the method manufacturers should use to exclude exempted sales that are known on a lagged basis. Manufacturers identify exempted sales based on direct sales and through chargeback and rebate data that may not be sufficiently available at the time the ASP is calculated. In the absence of specific guidance on how to account for lagged exempted sales (that is, exempted sales identified through chargeback or rebate processes), manufacturers have relied upon assumptions in accordance with their customary business practices to develop their approach for excluding these sales from the ASP calculation. In our work with manufacturers that submit ASP data, we understand that some manufacturers have used a ratio methodology for estimating exempted sales known on a lagged basis that is similar to the ratio methodology manufacturers must use to estimate price concessions known on a lagged basis.

To establish a uniform approach, we proposed to require, in the final ASP reporting rule, that all manufacturers use a 12-month (or less, if applicable) rolling average ratio methodology to estimate exempted sales known on a lagged basis (through chargebacks or rebates) to more accurately exclude these sales from the ASP calculation. Specifically, for exempted sales known on a lagged basis, the manufacturer would sum the lagged exempted sales for the most recent 12-month period available (or the number of months the NDC has been sold for NDCs with less than 12 months of sales, except for redesignated NDCs as described in section II.F.1.e.). The manufacturer then calculates a percentage using this summed amount as the numerator and the sales (the number of units after non-lagged exempted sales have been subtracted from total sales) for the same period (12 months or less, if applicable) as the denominator. The result would be a rolling average percentage estimate for lagged exempted sales that is applied to the sales (the number of units after non-lagged exempted sales have been subtracted from total sales) for the quarter being reported. The product that results from multiplying the rolling average percentage estimate of lagged exempted sales and sales (the number of units after non-lagged exempted sales have been subtracted from total sales) would determine the number of lagged exempted sales (in units) to be excluded from the denominator of the ASP calculation. Manufacturers would be required to make a corresponding adjustment to the numerator of the ASP calculation to ensure that the total in dollars for the reporting quarter does not include revenue related to lagged, exempted sales excluded from the denominator using the proposed estimation methodology. Further, manufacturers would be required to remove the dollar value of lagged exempted sales from their estimates of lagged price concessions by subtracting the dollar value of estimated lagged exempted sales from the denominator as specified in Sec. 414.804(a)(3)(i).

Our proposed methodology for excluding lagged, exempted sales is similar to the methodology manufacturers are required to use to estimate price concessions known on a lagged basis, and was recommended by manufacturers. We believe requiring similar methods to estimate both lagged exempted sales and lagged price concessions would be reasonable and reduces potential errors in the manufacturers' ASP calculations, while ensuring that exempted sales are appropriately removed from the ASP calculation. In addition, using an estimation methodology to remove lagged exempted sales would reduce the likelihood of quarter-to-quarter variations in the ASP.

We sought comments on the proposed methodology for excluding exempted sales known on a lagged basis from the ASP calculation and estimate of lagged price concessions. We also solicited suggestions on appropriate alternative methodologies that may be less complex.

Comment: We received comments that were supportive of our approach. However, some commenters stated that the proposed methodology would be overly complex and inappropriate for certain types of exempted sales known on a lagged basis. Several commenters stated that the proposed methodology would be helpful and useful for accurately excluding from the ASP calculation sales excluded based on the type of entity to which the sale is made and known on a lagged basis (for example, sales relating to subclauses (I), (II), and (IV) of section 1927(c)(1)(C)(i) of the Act). However, most of these commenters cautioned that use of the proposed methodology to estimate and exclude from the ASP calculation sales which are excluded on the basis of rebates paid to State pharmacy assistance programs and Part D plans or qualified retiree prescription drug plans (for example, prices under clauses (III) and (VI) of section 1927(c)(1)(C)(i) of the Act) and known on a lagged basis would be: (1) Inadequate to fully and accurately account and adjust for other price concessions applicable to these sales; and (2) may lead to an inappropriately low ASP if a manufacturer is unable to identify and remove all price concessions associated with an exempted sale. Some commenters supported an alternative, two-pronged approach. Lagged sales excluded based on the type of entity to which the sale is made would be removed from the ASP using the proposed methodology if the manufacturer determined that a 12-month rolling average estimation methodology was necessary to accurately exclude these lagged exempted sales from the ASP calculation. On the other hand, the manufacturer would either not make any adjustment for or use reasonable assumptions to determine the best method for excluding any prices under a State pharmaceutical assistance program, and any prices charged which are negotiated by a prescription drug plan under Part D of title XVIII, by an MA-PD plan under Part C of title XVIII or by a qualified retiree prescription drug plan as defined in section 1860D- 22(a)(2) of the Act. Several commenters suggested we adopt an approach that would permit manufacturers not to exclude certain exempted sales because: (1) Current information sources may not distinguish all exempted sales; (2) certain sales may satisfy more than one of the exemptions from the determination of BP so there would be a potential for over counting excluded sales (for example, a sale to a 340B

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hospital that is also reimbursed by Medicare Part D); and (3) in some instances the manufacturer may be unable to fully identify and adjust for the price concessions granted along the distribution chain associated with certain exempted sales (for example, the portion of volume discounts granted to distributors and pharmacies that were based on excluded sales). In addition, a few commenters noted that we did not specify a standard method for making the necessary corresponding adjustment to the numerator of the ASP calculation to ensure that the total in dollars for the reporting quarter does not include revenue related to lagged, exempted sales excluded from the denominator using the proposed estimation methodology. These commenters suggested that the excluded sales be valued at the manufacturer's wholesale acquisition cost (less customary prompt pay discounts) for purposes of making the necessary adjustment.

A few manufacturers supported our proposal for calculating excluded sales known on a lagged basis; however, one manufacturer requested that we consider requiring use of a revenue-based ratio instead of or as an alternative to the proposed units-based ratio. This commenter recommended that manufacturers be given a choice between a revenue- based or a units-based method to fit their data systems. Another manufacturer noted that a revenue-based ratio would result in unintended results if the price of the drug changed during the 12-month period used to establish the estimation ratio; therefore, a ratio methodology based on units such as the one we proposed should be required.

Response: Section 1847A(c)(2) of the Act requires that manufacturers exclude certain sales from their ASP calculations. The statute does not make the exclusion of these sales from the ASP calculation optional. Therefore, we do not have the discretion to permit manufacturers not to exclude sales from ASP that are exempt from the determination of BP. Manufacturers must comply with the requirements in Sec. 414.804(a)(4)(i). In this final rule with comment period we are revising Sec. 414.804(a)(4)(i) by adding a reference to nominal prices, as well as sales exempt from inclusion in the determination of BP. We believe that this revision conforms the regulatory text to the language of the statute.

To establish a uniform approach for excluding exempted sales known on a lagged basis, we proposed to amend Sec. 414.804(a)(4) to require that all manufacturers use a 12-month (or less, if applicable) rolling average ratio methodology to more accurately estimate and exclude these sales from the ASP calculation. Our proposal was based on comments we received in response to the April 6, 2004 IFC and subsequent feedback from a few manufacturers. The comments received in response to the proposed rule reflect a broader set of manufacturers' perspectives. Some commenters indicated that for certain types of exempted sales the proposed methodology for excluding lagged exempted sales from the ASP calculation might lead to inaccuracies in the ASP calculation in their particular circumstances. At the same time, a number of commenters supported the proposed methodology. We recognize these commenters' concerns regarding the difficulties in tracking both the exempted sale and its associated price concessions. Given the range of comments, we do not believe it is not advisable to mandate the use of the methodology, which we proposed at Sec. 414.804(a)(4)(iii), for excluding lagged exempted sales. We recognize the proposed ratio methodology may not be the most accurate method for identifying and excluding certain types of exempted sales known on a lagged basis. However we also believe that our proposed ratio methodology may be appropriate for identifying and excluding lagged exempted sales in some instances. For this reason, we are not including the methodology in our regulations, but are allowing the manufacturers to use the methodology where applicable. We did not receive specific comments on our proposed modifications to Sec. 414.804(a)(1) and (3) clarifying further that exempted sales are excluded from the ASP calculation. We are finalizing those clarifications as proposed. d. Nominal Sales

Section 1847A(c)(2)(B) of the Act requires manufacturers to exclude from the ASP calculation sales that are merely nominal in amount, as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, except as the Secretary may otherwise provide. In the preamble to the April 6, 2004 IFC, we stated that, for ASP purposes, sales to an entity that are nominal in amount are defined in the Medicaid drug rebate agreement (see sample agreement at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/downloads/rebateagreement.pdf ). That is, for

ASP purposes, a sale at a nominal price is a sale at a price less than 10 percent of the AMP in the same quarter for which the AMP is computed.

Effective January 1, 2007, the DRA revises the AMP calculation (to omit customary prompt pay discounts extended to wholesalers), adds a monthly AMP reporting requirement, and establishes limitations on nominal sales (only sales to certain entities may qualify as nominal sales). Section 1927(c)(1)(D) of the Act limits the nominal sales exclusion to sales at a nominal price made to the following entities:

Covered entities as described in section 340B(a)(4) of the Public Health Services Act.

Intermediate care facilities for the mentally retarded (ICFs/MR).

State-owned or operated nursing facilities.

Any other facility or entity that the Secretary determines is a safety net provider to which sales of such drugs at a nominal price would be appropriate based on the factors described in section 1927(c)(1)(D)(ii) of the Act.

In light of the DRA changes affecting which sales may be considered sales at a nominal price or merely nominal in amount, for purposes of section 1927(c)(1)(C)(ii)(III), the CY 2007 PFS proposed rule sought to clarify the method manufacturers must follow in 2007 to identify such sales for ASP reporting purposes and to exclude sales at a nominal price from the calculation of ASP. For 2007 and beyond, we proposed to continue to rely on the Medicaid threshold (less than 10 percent of AMP) to determine whether a sale is at a nominal price and to apply the limitations in section 1927(c)(1)(D) of the Act for determining the types of sales that can be considered to be sales at a nominal price for purposes of the ASP calculation. We made this proposal for several reasons.

As we indicated in the CY 2007 PFS proposed rule, we believe this approach helps maintain continuity in the ASP calculation and minimizes manufacturers' reporting burden, as Medicare continues to follow the Medicaid approach for identifying sales at a nominal price and manufacturers can use a single method for identifying nominal sales for both ASP and AMP purposes.

In addition, we believe the DRA modifications to section 1927 of the Act will have minimal effect on reported ASPs. We expect that the exclusion of customary prompt pay discounts extended to wholesalers from AMP would lead to a modest increase in AMP, and as a result a modest increase in the nominal price threshold for purposes of ASP reporting. At the same time, we anticipate that the limitation on the types of entities to which the

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nominal sales exclusion may apply, as specified in section 1927(c)(1)(D) of the Act, will result in a modest reduction in the number of sales that qualify for the nominal sales exclusion for purposes of ASP reporting because we believe that the entities outlined in section 1927(c)(1)(D) of the Act generally represent the types of entities to which manufacturers sell at a nominal price. Consequently, we expect these two countervailing changes would have a minimal overall impact on nominal sales that would be excluded from the ASP calculation. For these reasons, we proposed to continue to rely on the application of section 1927(c)(1)(C)(ii)(III) of the Act (as limited by section 1927(c)(1)(D) of the Act) for identifying sales to an entity at a nominal price for purposes of excluding such sales from the manufacturer's calculation of the ASP.

We solicited comments on our proposal to continue use of the AMP as the basis for identifying the threshold for sales at a nominal price for purposes of the exclusion from the ASP calculation and on whether an alternative threshold is necessary or desirable to ensure the accuracy of the ASP payment methodology. Specifically, we sought comments on whether sales at less than 10 percent of the ASP (instead of the AMP) should be used as the threshold for determining whether a sale to an entity identified in section 1927(c)(1)(D) of the Act is at a nominal price. We also sought comments on our belief that the new limitations in section 1927(c)(1)(D) of the Act, if applied for ASP purposes, will have minimal impact on reported ASPs.

Comment: We received comments supporting our proposals to continue to rely on the application of section 1927(c)(1)(C)(ii)(III) of the Act, as modified by section 1927(c)(1)(D) of the Act, to identify and exclude sales at a nominal price from the ASP calculation. These commenters agreed that using the same standard for Medicare and Medicaid purposes would reduce reporting burden.

Response: We appreciate the comments in support of our proposal. We are adopting our proposal to continue to rely on the Medicaid threshold (less than 10 percent of AMP) to determine whether a sale is at a nominal price, and to apply the limitations in section 1927(c)(1)(D) of the Act for purposes of identifying sales at a nominal price in determining the ASP.

Comment: We received a few comments suggesting that the Secretary provide a list of additional types of safety net providers that would qualify for the nominal sales exclusion.

Response: The issue of whether the Secretary should designate additional types of entities that would qualify as safety net providers for purposes of section 1927(c)(1)(D) of the Act is outside of the scope of this rulemaking.

Comment: We received a comment suggesting that because of the short timeframe for performing the ASP calculation, manufacturers should be allowed to identify sales at a nominal price for ASP purposes using the AMP for the previous quarter provided that the manufacturer does this consistently across all of its products.

Response: We are concerned that the commenter's suggestion that we allow use of last quarter's AMP to identify sales at a nominal price in the current quarter could have an adverse impact on the accuracy of the ASP calculation. It is possible for the AMP to change substantially from one quarter to the next (for example, when generic products first become available). In such situations, using the current quarter's AMP, as opposed to last quarter's AMP, would generally result in a more accurate identification of sales at a nominal price. Consequently, we are continuing to require that for ASP calculation purposes nominal sales in a reporting quarter be identified based on the AMP for the same quarter.

In the CY 2007 PFS proposed rule, we also responded to requests for clarification on a technical aspect related to the identification of nominal sales. Specifically, some manufacturers have asked whether sales at a nominal price are identified by performing a series of calculations once or whether the manufacturer repeats the series of calculations until no remaining ASP eligible sales are below the nominal threshold. Manufacturers must identify sales at a nominal price by performing the following steps once--

The manufacturer calculates the AMP for the reporting quarter to identify the dollar amount that represents 10 percent of the AMP for that reporting period.

The manufacturer then identifies sales at prices below this amount and excludes these sales from the ASP calculation.

Beginning in 2007, only those sales that meet the criteria discussed previously and are to an entity identified in section 1927(c)(1)(D) of the Act shall be excluded from the calculation of ASP.

We received no comments concerning this clarification; therefore we are finalizing the clarification as proposed. e. Other Price Concession Issues

In our ongoing work with manufacturers that submit ASP data, some manufacturers have posed questions or raised concerns about how the estimate of lagged price concessions is done prior to having 12 months of data for a NDC and, when a product is redesignated with a new NDC, whether price concessions from the prior NDC must be included in calculating the ASP for the new NDC. Manufacturers and other stakeholders have also asked us about how Medicare's ASP guidance concerning price concessions is to be applied when drugs are sold under bundling arrangements.

In response, we proposed clarifications and solicited comment on these issues. (1) Price Concessions for NDCs With Less Than 12 Months of Sales

To address situations when a NDC with price concessions known on a lagged basis has not been sold for a full 12 months, we proposed to revise Sec. 414.804(a)(3) to specify that the period used to estimate lagged price concessions is the total number of months the NDC has been sold. We proposed to require that manufacturers use less than 12 months of data in the estimation methodology for lagged price concessions for NDCs with less than 12 months of sales (except when the manufacturer has redesignated the product's NDC, as discussed in this section). We also clarified in the preamble of the proposed rule that manufacturers may include the current ASP reporting quarter in the most recent 12- month period (or less for NDCs with less than 12 months of sales) so long as the manufacturer follows this approach in calculating the ASP for all of its reported NDCs.

Comment: We received a number of comments supporting our proposal.

Response: We are finalizing our proposal. We will require that manufacturers use less than 12 months of data in the estimation methodology for lagged price concessions for NDCs with less than 12 months of sales (except when the manufacturer has redesignated the product's NDC, as discussed in this section). (2) Redesignated NDCs

From time to time, a manufacturer may change the NDC assigned to a specific product and package size while continuing or offering price concessions that span across sales of the product under its prior and redesignated NDCs. For example, an NDC may be changed to reflect a change in the labeler code

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

[[pp. 69673-69722]] Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulan[[Page 69673]]

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while lagged price concessions in place under the prior NDC remain in effect and carry over to the redesignated NDC. Another example would be a manufacturer that modifies its package design or other non-drug feature of the NDC and assigns a new NDC to reflect the revised packaging.

We proposed to clarify in the final ASP reporting rule that, when an NDC is changed (except when a product is repackaged or relabeled by a different manufacturer or relabeler or is privately labeled) and lagged price concessions offered for the prior NDC remain in effect, the manufacturer must use 12 months (or the total number of months of sales of the prior and redesignated NDCs if the total number of months of sales is less than 12 months) of sales and price concession data from the prior and redesignated NDCs to estimate lagged price concessions applicable to the redesignated NDC. In establishing this methodology, we are relying on our authority under section 1847A(c)(5)(A) of the Act.

We sought comments on our proposed refinements to the estimation of lagged price concessions for NDCs with less than 12 months of sales and when a manufacturer redesignates the NDC assigned to a product. We also solicited suggestions for potentially clarifying these policies further.

Comment: We received a number of comments supporting our proposal. In addition, some commenters asked for more guidance concerning what circumstances the policy regarding redesignated NDCs would or would not apply to. In particular, some commenters suggested the policy should not apply when there is a change in the 9-digit NDC (that is, a change in the product code). We also received comments asking for clarification on how manufacturers should combine price concessions in situations where the NDC is redesignated and both products are sold for a time concurrently. Some commenters asked whether the lagged price concessions for the prior and redesignated NDCs should be combined to create a single lagged price concession ratio to be used to estimate lagged price concessions for the prior and redesignated NDC, and if so, how long this practice should occur. In addition, some commenters noted that the Food and Drug Administration (FDA) has issued a proposed rule concerning the assignment of NDC codes, and that the issue of redesignated NDCs and the ASP calculation may need to be revisited when the FDA finalizes its regulation.

Response: In making our proposal, we intended our proposal to apply in instances when a manufacturer redesignates an NDC meaning the manufacturer establishes a new NDC as a replacement for a prior NDC for the same product and package size. After reviewing the comments, we are finalizing our proposal. When a manufacturer redesignates an NDC (except when a product is repackaged or relabeled by a different manufacturer or relabeler or is privately labeled) for a specific drug product and package size and lagged price concessions offered for the prior NDC remain in effect, the manufacturer must use 12 months (or the total number of months of sales of the prior and redesignated NDCs if the total number of months of sales is less than 12 months) of sales and price concession data from the prior and redesignated NDCs to estimate lagged price concessions applicable to the redesignated NDC. Several commenters recommended that we clarify that this policy would never apply to a change in the product code for an NDC. We disagree and believe the policy could apply to a change in the product code depending on the circumstances. When an NDC is redesignated as a replacement for a prior NDC for a specific drug product and package size and lagged price concessions for the prior NDC remain in effect, we believe the policy described previously should apply regardless of which segment of the NDC code is changed.

Several commenters asked for guidance concerning how to handle situations where the redesignated NDC and prior NDC are for a time sold concurrently. If the redesignated NDC is a replacement for the prior NDC and if the two NDCs are sold for only a limited time concurrently, then we agree with commenters' suggestion that lagged price concessions that are based on sales of the prior NDC and redesignated NDC should be combined to calculate a single lagged price concessions ratio (for the applicable price concessions) that would be applied to the ASP calculation for the prior NDC and for the redesignated NDC. In this situation, the manufacturer should combine the lagged price concession data that are based on sales of the prior NDC and redesignated NDC as described previously until the last lot sold of the prior NDC expires. Finally, we agree that the FDA's proposed regulations concerning the assignment of NDC codes, once they are finalized, may have implications for our policy concerning redesignated NDCs, and we may revisit this issue in the future, if we believe it is warranted. (3) Bundled Price Concessions

The statute requires that the ASP include volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than rebates under section 1927 of the Act). Thus far, we have not provided specific guidance in the ASP context on the issue of how to allocate price concessions across drugs that are sold under bundling arrangements. In the absence of specific guidance, the manufacturer may make reasonable assumptions in its calculations of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and its customary business practices. Manufacturers should include these assumptions in their ASP submissions.

As we indicated in the CY 2007 PFS proposed rule, we expect manufacturers of drugs reimbursed by Medicare Part B to comply with all applicable laws, regulations, and legal decisions including, but not limited to the Stark law, other relevant anti-kickback laws, antitrust laws, and laws governing fair trade practices (71 FR 49003). Our discussion of this issue in the proposed rule or in this final rule with comment period should not be construed as an endorsement or authorization of any pricing practices that contravene any laws, legal decisions, or regulations.

In the CY 2007 PFS proposed rule, we indicated that we would like to better understand how bundling affects sales of Part B drugs and the ASP calculation, and any concerns stakeholders may have on this issue (71 FR 49003). Furthermore, we indicated that we are considering providing guidance, through rulemaking or through program instruction or other guidance (consistent with our authority under section 1847A(c)(5)(C) of the Act) on the methodology manufacturers must use for apportioning price concessions across Part B drugs sold under bundling arrangements for purposes of the calculation of ASP. We also noted that in considering this issue our goal is to ensure that the ASP is an accurate reflection of market prices for Part B drugs and that the treatment of bundled price concessions in the ASP calculation does not create inappropriate financial incentives.

In the CY 2007 PFS proposed rule, we solicited comments on a number of issues related to bundled price concessions, including how frequently Part B drugs are sold under bundling arrangements, the different structures of bundling arrangements that may exist (for example, the number of products

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included in a bundling arrangement; whether the price concessions are contingent on the purchase of only one product, the purchase of multiple products, or the inclusion of one or more products on a formulary; and the timing of the price concessions), and the extent to which sales of Part B drugs are bundled with sales of non-Part B drugs or non-drug products. We also sought comments on what effect bundling arrangements may have on the ASP calculation, on beneficiary access to high quality, appropriate care (including access to drugs that may not have clinical alternatives), and on costs to the Medicare program and beneficiaries. In addition, we solicited comments on whether additional guidance on apportioning bundled price concessions for purposes of the calculation of ASP is needed and potential methodologies that Medicare could consider requiring. Furthermore, we solicited comments on how variation in the structure of bundling arrangements may affect the impact of potential apportionment methodologies on the ASP calculation.

Comment: Some commenters recommended that we provide guidance on the treatment of bundled price concessions in the ASP calculation. A number of these commenters stated that having specific guidance on this issue would promote consistency in ASP reporting across manufacturers. In addition, many commenters believed that we should issue another proposed rule with a specific proposal and offer an opportunity for public comment before finalizing any policy. Many of these commenters were also concerned about how the treatment of bundled price concessions in the ASP calculation would affect providers who do not purchase the drug as part of a bundling arrangement.

Some commenters did not take a position on whether specific guidance was needed on the treatment of bundled price concessions in the ASP calculation, citing both the general desirability of having guidance on various ASP reporting issues and concerns that a specific methodology with regard to bundled price concessions and ASP might be inflexible and hinder beneficial arrangements.

While most commenters did not offer a specific suggestion on a potential methodology for the treatment of bundled price concessions in the ASP calculation, a few commenters did. One commenter suggested that Medicare adopt for ASP purposes the apportionment methodology that the Medicaid rebate program requires manufacturers to use in the calculation of AMP and BP. The current Medicaid National Drug Rebate Agreement states that ``for Bundled Sales, the allocation of the discount is made proportionately to the dollar value of the units of each drug sold under the bundled arrangement.''

Another commenter suggested that we adopt the current Medicaid rebate program methodology for apportioning bundled price concessions described above, but create an exception for dominant drugs without significant clinical alternatives. This commenter stated that drug manufacturers do not have an incentive to provide discounts on dominant drugs that do not have significant clinical alternatives. As a result, the commenter believes that in situations where a ``dominant'' drug is bundled with non-dominant drugs, none of the bundled price concessions should be apportioned to the ``dominant'' drug. Furthermore, the commenter stated that if the Medicaid methodology were employed without an exception for dominant drugs, there would be the potential to lower the ASP for a dominant drug in a bundle while increasing the ASP for the other, non-dominant drugs in that bundle. The commenter believes such a policy would result in an unfair competitive advantage and would impose additional costs on the public health system and the Medicare program. The commenter stated that determining whether a bundling arrangement contained a dominant drug would be relatively easy for manufacturers, and suggested a number of criteria such as a drug's indication and risk profile, whether it is a single source product, its patent-protected status, the drug's market share, the relative magnitude of incentives provided on the drug both before and after it is inclusion in the bundle, the effect of the introduction of the drug into the bundle on the sales volume of other products in the bundle, and Medicare expenditures on the drug relative to potential alternatives.

In contrast, another commenter urged us not to adopt a methodology where price concessions offered on drugs sold under bundling arrangements are allocated across those drugs based on specified criteria. The commenter stated that the ASP is intended to reflect the prices available in the market for each product, and they believe reallocating discounts across drugs is unnecessary and could result in inaccurate ASPs, impaired beneficiary access, and inappropriate financial incentives. Another commenter stated that manufacturers should be allowed to make reasonable assumptions concerning the treatment of bundled price concessions in the ASP calculation, and that any bundled price concessions that meet a safe harbor to the OIG anti- kickback statute should be handled like nonbundled price concessions for ASP calculation purposes.

We also received some comments expressing satisfaction with current contracts with drug manufacturers, and raising concerns that the establishment of guidelines concerning the treatment of bundled price concessions in the ASP calculation may require them to renegotiate those contracts. In addition, we received some comments expressing concern about the affect of bundling arrangements on physician and health care provider's choice of products.

A number of commenters also raised the issue of Part B drugs being bundled with non-Part B drugs or other products. Some stated that when Part B drugs are bundled with other products, the bundled price concessions should not be apportioned from other products to Part B drugs, citing concerns that the Part B drug payment rates would be inappropriately low. However, another commenter believes that bundled price concessions should be allocated from non-Part B drug products to Part B drugs, stating that it otherwise results in government overpayments. A number of other commenters offered suggestions on how a bundle should be defined, with several commenters suggesting that discounts contingent on the placement of one or more products on a formulary should not constitute a bundle. We also received comments recommending that for the purposes of the ASP calculation we only consider bundling arrangements to exist in situations where several different products are sold for a single price, and the individual products do not have separately identifiable prices.

Finally, we note that the MedPAC commented that it would be examining the issue of bundled price concessions and the ASP in the upcoming year.

Response: In considering the issue of bundled price concessions, our goal is to ensure the accuracy of the ASP calculation and to prevent the treatment of bundled price concessions in the ASP calculation from creating inappropriate financial incentives. A number of comments suggested, that potential bundling arrangements may be complex and vary widely in terms of the structure and types of performance requirements upon which a bundled discount may be conditioned, the magnitude of price concessions, and the characteristics of the drugs or other products included in the bundle (for example, whether the bundle includes

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Part B drugs only or other products, the market position of products in the bundle, the relative sales volume of products in the bundle, and how commonly a particular product is sold under a bundling arrangement). Given the potentially wide range of bundling arrangements that might exist, based on the information we currently have about such arrangements, we are not in a position to determine, at this time, whether there is a universal approach for treating bundled price concessions in the ASP calculation that would address all potential structures of bundling arrangements in a manner that would achieve our goal of ensuring the accuracy of the ASP payment methodology and preventing inappropriate financial incentives.

Furthermore, we note that we received a comment suggesting that Medicare adopt a special policy concerning the treatment of bundled price concessions in the ASP calculation for bundling arrangements that include dominant drugs without significant clinical alternatives. We do not believe it would be feasible for the Medicare program to establish a definition of a dominant drug without significant clinical alternatives that would be precise enough to clearly delineate when a product was or was not dominant, especially given the potential for great variation in the structure of bundling arrangements and the characteristics of drugs included in those arrangements.

Since we do not yet fully understand the variety of bundling arrangements that exist in the marketplace and how they are likely to evolve over time, we believe it is important to be cautious in establishing a specific methodology that all manufacturers must follow for ASP purposes. Consequently, we are not establishing a specific methodology that manufacturers must use for the treatment of bundled price concessions for purposes of the ASP calculation at this time. In the absence of specific guidance, the manufacturer may make reasonable assumptions in its calculations of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and its customary business practices. Our intent in not being prescriptive in this area at this time is to allow manufacturers the flexibility to adopt a methodology with regard to the treatment of bundled price concessions in the ASP calculation that, based on their particular circumstances, will best ensure the accuracy of the ASP calculation and not create inappropriate financial incentives.

Recognizing that the treatment of bundled price concessions in the ASP calculation has implications for the integrity of the ASP payment methodology, we will be paying close attention to this issue and may provide more specific guidance in the future through rulemaking or through program instruction or other guidance (consistent with our authority under section 1847(c)(5)(C) of the Act) if we determine it is warranted. Furthermore, as we continue to monitor this issue, we want to be sure we are aware of concerns from all stakeholders, and thus we encourage the public to relay additional information or concerns to us on this issue as they may arise. In addition, we note that MedPAC has indicated it will be studying this issue in the upcoming year, and we look forward to its work in this area.

Finally, we emphasize that we expect manufacturers of drugs reimbursed by Medicare Part B to comply with all applicable laws, regulations, and legal decisions including, but not limited to the Stark law, other relevant anti-kickback laws, antitrust laws, and laws governing fair trade practices. Our discussion of this issue should not be construed as an endorsement or authorization of any pricing practices that contravene any laws, legal decisions, or regulations. f. Other ASP Reporting Issues

Comment: Several commenters stated that it can be difficult for manufacturers to determine which drugs are subject to the ASP reporting requirements, considering that section 1927(b)(3)(A)(iii) of the statute states that ASP data must be reported for drugs that are described in subparagraph (C), (D), (E), or (G) of section 1842(o)(1), or 1881(b)(13)(A)(ii) of the Act.

Response: In general, these subparagraphs refer to broad categories of drugs covered by Medicare Part B such as drugs that are administered incident to a physician's service in physician offices; certain immunosuppressive, oral anticancer, and oral anti-emetic drugs supplied by pharmacies; infusion drugs furnished through an item of DME; intravenous immune globulin (IVIG), inhalation drugs furnished through an item of DME, and separately payable drugs furnished by ESRD providers. Because Medicare Part B drugs are subject to local coverage determinations (LCDs) by the local claims processing contractors and the scope of Part B drug coverage varies among contractors, we do not maintain a list of all drugs covered under Part B at any given time in all contractor jurisdictions. However, the following resources may be helpful and can be retrieved at http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/02_aspfiles.asp#TopOfPage .

The NDC to HCPCS crosswalk is posted quarterly on our Web site and lists a majority of billing codes used by providers to submit claims for drugs. We welcome ongoing feedback on the accuracy of the crosswalk. We also publish a list of many of the frequently administered drugs that are billed using the not otherwise classified billing codes.

Comment: Several commenters suggested that we develop a formal process for requesting a determination of whether for a particular NDC the ASP reporting requirements apply. These commenters contend such a process is necessary particularly for drugs that may be typically self- administered, may be used for prevention or cosmetic purposes, are available in potentially noncovered forms, and new drugs for which LCDs have not yet been made.

Response: Medicare Part B drug coverage under title XVIII is generally limited to certain drugs within specific benefit categories as described at the beginning of this section. For the most part, we believe manufacturers have identified the drugs for which they have an ASP reporting obligation. Medicare has established processes for issuing national, as well as local, coverage determinations for Part B drugs and other services. Therefore, we are not persuaded by the commenters that an entirely separate process is necessary for assisting manufacturers in determining whether a drug qualifies for coverage under Part B as a means of determining whether it is subject to the ASP reporting requirements. We encourage manufacturers to contact us directly to discuss the specifics of their ASP reporting concerns.

Comment: One commenter asked us to clarify whether manufacturers have to include in their calculation of the ASP for a given NDC sales of that NDC that are used for purposes not covered by Medicare Part B. The commenter also wanted to know if NDCs that are labeled for Medicare noncovered indications are subject to the ASP reporting provisions.

Response: With respect to whether a manufacturer may exclude sales for noncovered uses from its calculation of the ASP for an NDC and whether NDCs that are labeled for cosmetic or other typically noncovered use (for example, contraception) are exempt from the ASP reporting requirements, we believe the statute provides no such exclusion.

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Comment: Another commenter suggested that we clarify whether manufacturers are required to report ASP data for infusion drugs administered via DME and for a drug that is usually self-administered and not covered by Medicare Part B (even if Medicare utilization data suggests that there are small levels of utilization which a manufacturer believes are contractor mistakes).

Response: Section 1927(b)(3)(A)(iii) of the Act specifies the drugs for which manufacturers have to report ASP data, and it includes infusion drugs furnished through an item of DME (by reference to section 1842(o)(1)(D) of the Act). Manufacturers must report ASP data for these drugs quarterly.

With respect to drugs that a manufacturer believes are noncovered by Medicare despite a local claims processing contractor's payments for the drug, we are aware of one such situation and have been working closely with the manufacturer to resolve the matter. We encourage manufacturers to contact us directly so that we can consider these issues on a case-by-case basis.

Comment: One manufacturer expressed concern that submitting ASP data for a noncovered drug may be viewed as a claim for coverage.

Response: We do not believe that reporting ASP data for a drug, in the absence of other actions, would be a claim of coverage for the drug.

Comment: A few commenters requested clarification regarding when a manufacturer's reporting obligation for an NDC ends. One commenter noted that ASP will not be a positive number unless there is product sold in a quarter, and suggest there is no need to report the ASP after the last lot is sold.

Response: In the March 3, 2006 Federal Register (71 FR 10975), we clarified that manufacturers would no longer report ASP data for an NDC beginning the reporting period after they report the ASP data for the quarter during which the expiration date of the last lot sold occurs. We are aware that a manufacturer's ASP will not be a positive value unless a reportable sale occurs in the reporting period. However, for single source drugs, manufacturers not only have a requirement to report ASP but also wholesale acquisition cost (WAC).

Comment: Several commenters requested that we clarify whether the manufacturer that holds title to the NDC is always responsible for reporting the ASP data, and whether certain exceptions are permissible such as when manufacturers establish licensing agreements or a manufacturer divests a product but the NDC's labeler code is not changed. Some commenters stated that the title-holding manufacturer should determine which entity has the ASP reporting obligation. In addition, a commenter requested that manufacturers not be required to certify ASP data that they did not have access to or did not generate. One commenter suggested that a manufacturer's ASP reporting obligation would cease upon the transfer of the product to another manufacturer with control over its pricing.

Response: For ASP purposes, the definition of manufacturer has the same definition set forth in section 1927(k)(5) of the Act, which is the definition included in the Medicaid drug rebate statute. We believe that likewise the ASP reporting obligation should follow the process established under the Medicaid drug rebate program, and we see no reason to establish separate guidance at this time. Further, we believe that manufacturers have means of dealing with these issues within their business arrangements.

Comment: One commenter recommended that we provide guidance that sales between wholly-owned subsidiaries of a common parent company would not constitute a sale for ASP reporting and calculation purposes.

Response: We will consider the issue and any broader implications it may have for the ASP calculation, and may issue additional guidance if we determine it is appropriate.

Comment: Some manufacturers supported maintaining the same definition of manufacturer for ASP purposes and for Medicaid AMP and BP purposes. Several commenters requested that we formally state that wholesalers and distributors do not have to report ASP data. A retail pharmacy chain requested that retail pharmacies be excluded from the definition of manufacturer in so far as they repackage drugs for purposes of dispensing drugs to customers under state law. Similarly, a mail order pharmacy requested that we clarify that mail order pharmacies are not considered manufacturers. One commenter suggested that only the holders of the product's New Drug Approval, Abbreviated New Drug Approval, or Biologic License Application should be considered manufacturers or repackagers for the purposes of reporting ASP.

Response: Under section 1847A of the Act, entities that fall under the definition of manufacturers in section 1927(k)(5) of the Act must report ASP data. This definition is separate from the FDA process for drug applications. We interpret manufacturer for ASP purposes to have the same meaning as under the Medicaid Rebate Agreement. Therefore, wholesalers that relabel or repackage NDCs and pharmacies must report ASP data to the extent that they qualify as manufacturers for Medicaid drug rebate purposes.

Comment: A few commenters requested that we formalize our guidance on whether sales in the United States include sales to purchasers in the territories.

Response: We are not addressing this issue in the regulations text.

Comment: A few commenters requested that we incorporate into the regulation our current guidance on the treatment of returned units.

Response: We issued guidance on our Web site in September 2004 instructing manufacturers not to make adjustments to the ASP calculation to account for returns. We stated in that guidance beginning with the data submission for sales during the third quarter of 2004 and thereafter, manufacturers should not subtract the value of the returns from the numerator of the ASP calculation and should not subtract the number of units returned from the denominator. In other words, the value of returns should not be included in the numerator and the number of returned units should not be included in the denominator when calculating the ASP for a reporting quarter. This continues be our guidance as we study the issue further, but we have decided not to place this guidance into the regulation text at this time.

Comment: Some of the commenters noted that, at this time, manufacturers' reasonable assumptions continue to be an important principle in ensuring that the calculation of ASP is appropriate. Several commenters suggested we include in the final rule guidance we have previously provided through Q&A that in the absence of guidance manufacturers may make reasonable assumptions and should provide those assumptions in their ASP submission.

Response: We agree with these commenters; manufacturers' reasonable assumptions remain an important aspect of ASP reporting. The complexities of each calculation can differ across manufacturers. Therefore, it is essential that each manufacturer examine the facts and complexities of its business practices and products to determine how it will comply with the ASP reporting requirements. We posted a frequently asked question on our Web site to inform manufacturers of the importance of reasonable assumptions. In that guidance we state, ``In the absence of specific guidance in the Act or Federal regulations, the manufacturer

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may make reasonable assumptions in its calculations of ASP, consistent with the general requirements and the intent of the Act, Federal regulations, and its customary business practices. These assumptions should be submitted along with the ASP data and the signed certification form.''

Comment: Some commenters wanted to know whether data on nominal sales must be reported at this time as required under section 1927(b)(3)(A)(iii)(III) of the Act.

Response: We currently consider the requirements of section 1927(b)(3)(A)(iii)(III) of the Act for the reporting of nominal prices for purposes of ASP to be met when the manufacturer reports its ASPs, to the extent that the ASPs accurately account for nominal prices that are excluded from the ASP calculation. Thus, we are not currently requiring this information to be separately reported from the ASP. As we gain more experience with the ASP system, we may require this information to be separately reported in the future. We note that our interpretation of the reporting requirement for nominal prices for purposes of ASP has no effect on any Medicaid reporting requirement.

Comment: Several commenters stated that the statute does not require certification of the ASP by the manufacturer's chief financial officer (CFO), chief executive officer (CEO) or individual who has delegated authority to sign for and reports directly to either the CFO or CEO. A large international manufacturer commented that it was impractical to have ASP reports certified by international executives. Another manufacturer commented that its organizational structure did not have executives matching the specified titles, and therefore, it was impossible to comply with this requirement. Further, many commenters stated that it was inappropriate to require certification of the ASP data until sufficient guidance on how to calculate the ASP has been established. A few commenters suggested that the certification language should be revised to acknowledge that reasonable assumptions had been made and to reflect the limited ability of manufacturers to accurately estimate lagged price concessions and determine whether fees were passed on in whole or in part. Another commenter stated that the penalties for failing to report accurate ASP data are a sufficient deterrent to abuse, and the certification is unnecessary and should be eliminated.

Response: Because of the consequences for failing to submit accurate and timely ASP data, we continue to believe there is good reason to require that each ASP report be certified by the manufacturer at this time. With the ASP data being the basis of Medicare payment rates for the vast majority of Part B covered drugs and biologicals, we believe that certification requirement is an important program safeguard. We acknowledge the operational constraints some manufacturers may experience in obtaining certain senior executive level signatures to coincide with the quarterly ASP reporting deadlines, although our experience is that nearly all manufacturers are able to do so without causing a delay in reporting their ASP data timely.

Comment: Several commenters noted that the Medicaid AMP and BP can be restated within the specified time period. These commenters requested that we establish procedures to identify potentially errant ASP data and to allow for corrections of ASP data.

Response: If a manufacturer has good cause for resubmitting its quarterly ASP data, it may do so following the submission instructions available at http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg.

Resubmission of ASP data does not constitute a release from liability for failure to submit timely and accurate ASP data.

Comment: Several manufacturers suggested that the reasonable assumptions submitted along with the ASP data be afforded the same confidential protections as specified for the ASP data.

Response: We provided guidance on our Web site addressing this issue. That guidance states, ``As indicated in section 1927(b)(3)(D) of the Act, as amended by MMA section 303(i)(4)(D), information disclosed by the manufacturer in connection with the requirement for ASP data submission is confidential and, not withstanding other laws, shall not be disclosed by the Secretary (or contractor therewith) in a form which discloses the identity of a specific manufacturer or wholesaler, prices charged for drugs by such manufacturer or wholesaler, except as necessary by the Secretary to carry out the provisions of section 1847A or 1847B of the Act, and to permit the OIG, the Comptroller General, and the Director of the Congressional Budget Office to review the information provided. http://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg.

As is good practice with any sensitive material, manufacturers should clearly mark their reported ASP data, if applicable, to indicate that the information contained therein is confidential, proprietary, or contains trade secrets, for example, as appropriate.

Comment: One commenter asked that we clarify that the number units to be reported are the number of units sold excluding exempted sales.

Response: The commenter is correct. Effective with the publication of the FY 2007 IPPS final rule (August 18, 2006, 71 FR 47870), we revised the definition of unit in Sec. 414.802. ``Unit'' means the product represented by the 11-digit NDC. During the first 3 years of the CAP (as defined in Sec. 414.902), the method of counting units excludes units of CAP drugs (as defined in Sec. 414.902) for use under the CAP (as defined in Sec. 414.902). The CAP is the Competitive Acquisition for Outpatient Part B Drug and Biologicals which began in July 2006. Units of drugs sold to an approved CAP vendor for use under the CAP are excluded from the ASP calculation. Manufacturers must report the number of units sold after adjusting for exempted sales, including exempted sales known on a lagged basis.

Comment: In response to the April 6, 2006 IFC, a commenter stated that some manufacturers submit AMP and then restate it in subsequent periods to take into account rebates. The commenter requested that we provide assurance that they will not be liable for misrepresentation of nominal sales, if the manufacturer bases its nominal sales on AMP for the reporting quarter and then the manufacturer modifies AMP subsequently to take into account rebates.

Response: Nominal sales for ASP purposes are calculated based on the AMP for the reporting quarter. We have not provided guidance on how a manufacturer should handle identification of nominal sales if current reporting quarter AMP is subsequently restated for Medicaid purposes. We did not receive comments on this issue in response to our request in the proposed rule regarding the method manufacturers must use to identify nominal sales. We believe that maunfacturers may have considered this issue in making their comments in support of continued use of the AMP as the basis for determining nominal sales excluded from the calculation of ASP. We will continue to work with manufacturers to determine if further guidance on this issue is warranted. With regard to the comment concerning liability, if the Secretary determines that a manufacturer has made a misrepresentation in the reporting of its ASP for a drug, the Secretary may apply a civil money penalty as specified in section 1847A(d)(4) of the Act.

Comment: One commenter suggests we explore methods of receiving ASP data by e-mail. This commenter also

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recommends we include information in the final rule on where and how to submit ASP data.

Response: At this time, we do not permit electronic mail submission of ASP data because the confidentiality of the ASP data would not be assured. However, we continue to explore opportunities for enhancing the efficiency of the ASP submission process. Procedural information on how and where to submit ASP data is provided in a Q&A on our Web site. We believe it is best to provide information on the logistics of how and where to submit the ASP data through our Web site, which can be updated more quickly than a regulation.

Comment: We received comments recommending we provide guidance in the final regulation on requirements related to the reporting of WAC and urged Addendum A to be revised to include this information.

Response: In the CY 2006 PFS final rule, we clarified that manufacturers must report WAC for all single source drugs (including new drugs) each reporting period in addition to reporting ASP. Manufacturers must report the WAC in effect on the last day of the reporting period. Effective July 2006, we revised the reporting template, Addendum A, to include a specific column for reporting WAC. Addendum A can be found on our Web site at-- http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/ .

Comment: We received comments suggesting that we publicize the NDC- HCPCS crosswalk and have a process for informing manufacturers of where changes have occurred, and a process for soliciting and responding to input on the crosswalk. Also, they suggest establishing procedures so manufacturers can determine whether we are defining package codes correctly.

Response: Every quarter, we publish on the CMS Web site a crosswalk of NDCs to HCPCS codes. Included in the crosswalk is information on the package size and package quantity that we believe is reflected by each NDC. The crosswalk file provides an e-mail address sec303aspdata@cms.hhs.gov) to which individuals can send comments. Furthermore, as of July 2006, manufacturers are now required to report with their ASP submission specific information on the package size of each NDC as specified in more detail in the Appendix A data elements guide on our Web site.

Comment: We received comments requesting clarification of how and when civil monetary penalties would apply in certain situations where ASP was misreported.

Response: If the Secretary determines that manufacturer has made a misrepresentation in the reporting of its ASP for a drug, the Secretary may apply a civil money penalty in section 1847A(d)(4) of the Act.

Comment: One commenter suggested that we consider requiring manufacturers to report ASP data monthly.

Response: Section 1927(b)(3) of the Act sets forth the quarterly reporting requirement. We believe changes to the frequency of ASP reporting would require a statutory change.

Comment: One commenter noted that for Medicaid BP determinations manufacturers may not exempt prices given to State pharmacy assistance programs that we have not identified as a State Pharmaceutical Assistance Program excluded from the Medicaid BP and may not exclude Medicaid supplemental rebates that are not under an approved supplemental rebate agreement. This commenter asked whether the same rule applies to excluding exempt sales from the ASP calculation.

Response: To be excluded from the ASP calculation, the Medicaid supplemental rebates must be under an approved supplemental rebate agreement authorized by us through a Medicaid State plan, and the State pharmacy assistance programs must be identified by us as State Pharmaceutical Assistance Program excluded from the Medicaid BP.

Comment: We received a comment in response to the April 6, 2004 IFC, asking us to provide more clarification on a methodology that we indicated manufacturers should use in situations where a manufacturer is unable to associate price concessions with individual 11-digit NDCs. The commenter requested information on several technical aspects of the formula, including one scenario involving bundled price concessions.

Response: In the April 6, 2004 IFC with comment, we indicated that if a manufacturer is unable to associate price concessions to the individual NDC level, the manufacturer should associate those price concessions within the group of NDCs for which it can associate the price concessions based on the percentage of sales (in dollars) for the group of NDCs that is attributable to each individual NDC. This guidance was issued in the early stages of ASP implementation, and was intended to address situations where manufacturers are unable to associate price concessions to the 11-digit NDC level such as when a manufacturer reporting maintains data on rebates at the drug level rather than at the 11-digit NDC level.

In response to the commenter's request for clarification on a technical aspect of the methodology described above in a situation involving bundled price concessions, we are clarifying in this final rule with comment that this policy was not intended to be guidance on the treatment of bundled price concessions (for example, when price concessions on one drug are contingent on the purchase of one or more other drugs) in the ASP calculation. As discussed in more detail elsewhere in this preamble, we have not provided specific guidance on the methodology manufacturers should use for the treatment of bundled price concessions in the ASP calculation. In terms of the commenter's request for additional clarification on other technical aspects of the calculation described above, we believe the level of detail prescribed on the technical aspects of the calculation is sufficient, given the variation in price concession offerings across manufacturers.

After consideration of the public comments, we are finalizing subpart J (Sec. Sec. 414.800 through 414.806) by--(1) revising Sec. 414.802 and Sec. 414.804 as specified in this section of the preamble to this final rule with comment; and (2) incorporating the provisions of Sec. 414.800 and Sec. 414.806 as specified in the April 6, 2004 IFC without change. 2. Intravenous Immune Globulin (IVIG)

Comment: We received several comments urging the continuation of the 1-year temporary preadministration-related services fee for IVIG that we established for 2006. Commenters stated that there continue to be concerns with IVIG access and availability and that eliminating the fee will have an adverse impact on beneficiary access to care. Furthermore, some indicated that we did not provide any rationale in the proposed rule for why the fee was no longer needed.

A number of commenters expressed concerns about the adequacy of Medicare's drug and drug administration payment rates for IVIG, and made some suggestions for changes to these payment rates that they have previously expressed to us. For example, some urged us to take actions such as establishing separate HCPCS codes for each IVIG product, increasing payment for IVIG administration in physicians' offices, and instituting a payment adjustment to the ASP-based payment rates for IVIG.

One commenter provided information from a survey conducted of 800 patients with primary immune deficiency

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syndrome. The commenter stated that since the beginning of 2005, Medicare patients receiving IVIG have been more likely than patients with other types of insurance to report a shift in site of care, increased intervals between infusions, reduced IVIG dosages, and adverse health effects, and they believe that this is the result of Medicare reimbursement issues.

Response: We recognize the importance of IVIG to patients who need it and we are concerned about reports of problems with IVIG access and availability. Since 2005, we have taken several specific actions that are within our statutory authority in response to the IVIG concerns that have been raised, including creating separate billing codes for lyophilized and non-lyophilized IVIG in April 2005, having discussions with manufacturers about their ASP data to confirm that their ASPs have been developed in accordance with applicable guidance, and for 2006 establishing a temporary additional payment for IVIG preadministration- related services to compensate physicians and hospital OPDs for extra resources expended on locating and obtaining appropriate IVIG products and on scheduling patients infusions during a period where there may be temporary market instability. In addition, we continue to work with manufacturers, patient groups, and stakeholders to understand the present situation and to assess potential actions that could help ensure an adequate supply of IVIG and patients receiving appropriate, high quality care.

Furthermore, there are currently two studies underway in HHS concerning IVIG. The HHS Assistant Secretary for Planning and Evaluation has commissioned a study to better understand the market for IVIG and evaluate the demand, supply, and access to IVIG. The HHS OIG is also conducting a study on availability and pricing of IVIG. We anticipate that these studies will provide more information on IVIG supply, demand, and pricing.

With several studies on IVIG not yet completed and with comments from stakeholders suggesting that some beneficiaries are experiencing IVIG access issues such as delayed treatments and site of service shifts, we believe it is appropriate to continue the temporary IVIG preadministration-related services payment into CY 2007 to help ensure continued patient access to IVIG. We will continue to review IVIG access during CY 2007 as additional information becomes available, and we will discontinue this temporary preadministration-related service payment during CY 2007 through rulemaking if we determine it is no longer warranted. Consequently, in 2007, we will temporarily allow a separate payment for each day of IVIG administration to physicians and hospital OPDs that administer IVIG to Medicare beneficiaries. This payment is for the extra resources expended on locating and obtaining appropriate IVIG products and on scheduling patients' infusions during this time when there may continue to be transient disruptions in the marketplace. In 2007, the preadministration-related service payment will continue to be billed under the same HCPCS code as 2006: G0332, preadministration-related services for intravenous infusion of immunoglobulin, per infusion encounter (This service is to be billed in conjunction with administration of immunoglobulin). This payment will on average be about $71 per day of IVIG administration in physicians' offices. The payment for preadministration-related services is in addition to the separate payments Medicare makes for the IVIG product itself and its administration.

We note that for 2007 we reviewed and revised the resource based relative value units crosswalk for G0332. We continue to believe the administrative resources associated with IVIG preadministration-related services are similar to the clinical staff resources associated with ESRD management services, where both types of services are typically conducted over the course of a month, without requiring face-to-face visits with clinical staff for this ongoing preparation for treatment of these patients. Considering the expected staff resources required to prepare for IVIG infusions for patients who require them, we believe those resources are greater than the lowest level ESRD-related service described by HCPCS code G0319, End stage renal disease (ESRD) related services during the course of treatment, for patients 20 years of age and over; with one face-to-face physician visit per month, but we do not believe they are as great as those required by the mid-level ESRD- related code G0318, End stage renal disease (ESRD) related services during the course of treatment, for patients 20 years of age and over; with 2 or 3 face-to-face physician visits per month. Therefore, for 2007, we have crosswalked G0332 to a 50 percent blend of the 2007 transitional PE RVUs for G0318 and G0319. As we did for 2006, we have not allocated physician work RVUs to G0332 since we do not believe there is physician work associated with G0332.

We believe that continuation of this temporary separate payment provided through G0332 in CY 2007 for the physician office and hospital outpatient resources associated with additional IVIG preadministration- related services will help facilitate beneficiary access to care in this current period where there may be continuing market fluctuations for IVIG products. At the same time, we will continue to work with the IVIG community, manufacturers, providers, and other stakeholders, and will be monitoring IVIG market developments and access to care closely.

Commenters made several suggestions for changes to Medicare IVIG- related payments. Regarding comments requesting the establishment of brand-specific HCPCS codes for IVIG products, while HCPCS coding is outside the scope of this rulemaking, we note that HCPCS coding procedures do not provide for brand-specific coding. For further discussion of HCPCS coding procedures, see http://www.cms.hhs.gov/medicare/hcpcs/codpayproc.asp .

Commenters also expressed concern regarding Medicare ASP+6 percent payment rates for IVIG, suggesting we make an adjustment to the payment rate. Section 1847(o)(1)(E) of the Act specifies that the payment amount for IVIG furnished in physicians' offices and the home will be the amount provided under section 1847A of the Act. With limited exceptions not applicable here, section 1847A of the Act specifies that the payment amount is 106 percent of a drug's ASP. We do not have the discretion to adjust the payment rate upward by adjusting the percentage that is added on to the ASP to arrive at the payment rate. While some commenters suggested we use inherent reasonableness authority to increase the IVIG payment rate, we do not believe that we have the data to support a determination concerning inherent reasonableness. Finally, we received several comments requesting that we classify IVIG therapy as a biological response modifier. We note that the term ``biological response modifier'' is used in the text preceding CY 2006 CPT codes, and as such, we refer commenters to the AMA CPT Editorial Panel, as they are the creators and maintainers of CPT codes and CPT code instructions. 3. Clotting Factor Furnishing Fee

Section 303(e)(1) of the MMA added section 1842(o)(5) of the Act which requires the Secretary, beginning in CY 2005, to pay a furnishing fee, in an amount the Secretary determines to be appropriate, to hemophilia treatment

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centers and homecare companies for the items and services associated with the furnishing of blood clotting factor. Section 1842(o)(5)(C) of the Act specifies that the furnishing fee for clotting factor for years after CY 2006 and subsequent years will be equal to the fee for the previous year increased by the percentage increase in the consumer price index (CPI) for medical care for the 12-month period ending with June of the previous year.

The 2006 furnishing fee for clotting factor is $0.146. The percent increase in the CPI for medical care for the 12-month period ending with June 2006 is 4.1 percent. Consequently, the furnishing fee will be $0.152 per unit clotting factor for CY 2007. While the furnishing fee payment rate is calculated at 3 digits, the actual amount paid to providers and suppliers is rounded to 2 digits. 4. Widely Available Market Prices (WAMP) and Average Manufacturer Price (AMP) Threshold

Section 1847A(d)(1) of the Act states that ``the Inspector General of HHS shall conduct studies, which may include surveys to determine the widely available market prices (WAMP) of drugs and biologicals to which this section applies, as the Inspector General, in consultation with the Secretary, determines to be appropriate.'' Section 1847A(d)(2) of the Act states that, ``based upon such studies and other data for drugs and biologicals, the Inspector General shall compare the ASP under this section for drugs and biologicals with--

The WAMP for these drugs and biologicals (if any); and

The AMP (as determined under section 1927(k)(1) of the Act) for such drugs and biologicals.''

Section 1847A(d)(3)(A) of the Act states that, ``the Secretary may disregard the ASP for a drug or biological that exceeds the WAMP or the AMP for such drug or biological by the applicable threshold percentage (as defined in paragraph 1847A(d)(3)(B)).'' The applicable threshold is specified as 5 percent for CY 2005. For CY 2006 and subsequent years, section 1847A(d)(3)(B) of the Act establishes that the applicable threshold is the percentage applied thereafter, subject to such adjustment as the Secretary may specify for the WAMP or the AMP, or both. In CY 2006, we specified an applicable threshold percentage of 5 percent for both the WAMP and AMP. We based this decision on the limited data available to support a change in the current threshold percentage.

For CY 2007, we proposed to specify an applicable threshold percentage of 5 percent for the WAMP and the AMP. At present, the OIG is continuing its comparison of both the WAMP and the AMP. Currently, we do not have data that suggests that another level is more appropriate. Therefore, we believe that continuing the 5 percent applicable threshold percentage for both the WAMP and AMP is appropriate.

We received numerous comments regarding our decision to maintain the WAMP and AMP threshold at 5 percent, as well as our request for comments regarding operational issues surrounding implementation of the 5 percent threshold.

Comment: Several comments supported our decision to continue using 5 percent as the threshold and commended us for requesting comments on the important operational issues associated with price comparisons. Other commenters acknowledged that that there are many operational issues involved with implementation of the 5 percent threshold and advised us to proceed cautiously before adjusting payment amounts. These commenters stated that the AMP and the ASP use different methodologies when accounting for price concessions and such differences could result in varied ASP and AMP values. They also indicated that we have never issued a final rule describing how the AMP is calculated. The commenters indicated that such differences must be accounted for prior to substituting the WAMP or the AMP for the ASP. Commenters also encouraged us to provide stakeholders with an opportunity to comment through rulemaking prior to proceeding with the substitutions of payment allowances. Commenters were particularly interested in the methodology utilized by the OIG in conducting its surveys.

Response: We understand that there are complicated operational issues associated with potential payment rate substitutions. Therefore we will proceed cautiously and provide stakeholders, particularly manufacturers of drugs impacted by potential price substitutions, with adequate notice of our intentions regarding such, including the opportunity to provide input with regard to the processes for substituting the WAMP or the AMP for the ASP. As required by statute, we are finalizing our proposal to establish the WAMP and AMP threshold at 5 percent for CY 2007. 5. Payment for Drugs Furnished During CY 2006 and Subsequent Years in Connection With the Furnishing of Renal Dialysis Services if Separately Billed by Renal Dialysis Facilities

In the CY 2006 PFS final rule (70 FR 70116), we stated that payment for a drug furnished during CY 2006 in connection with renal dialysis services and separately billed by freestanding renal dialysis facilities and hospital-based facilities would be based on section 1847A of the Act. For CY 2007, we clarified that the policy would extend for CY 2006 and subsequent years until otherwise specified. We received comments regarding our policy clarification of the policy, as well as our intention to extend the policy beyond CY 2006 until otherwise specified.

Comment: Several commenters supported our decision to clarify that the payment policy for separately-billed ESRD drugs applied to CY 2006 and subsequent years until otherwise specified. These commenters viewed the current payment policy as the best option available under the statute, citing consistency with the methodology used to pay for other Part B drugs. Commenters indicated that the current methodology was more accurate and easier to administer than attempting to update a prior year's acquisition cost data. Other commenters, while applauding our decision to clarify the policy, explicitly encouraged us to be more direct and expressly state that the payment for drugs furnished in connection with renal dialysis services and separately billed by freestanding renal dialysis facilities and hospital-based facilities will be based on ASP+6 percent. They indicated that stating that payment would be based on ASP+6 percent rather than stating that payment will be based on section 1847A of the Act would avoid confusion, provide clarity for the provider community, and ensure consistency with current regulatory language.

Response: We appreciate the commenters who acknowledge that the current payment methodology is the most appropriate option available. We also thank the commenters who noted the discrepancy between the preamble language and regulatory text. We acknowledge that we inadvertently made reference to ASP+6 percent in our regulatory text instead of referring to section 1847A of the Act. In accordance with section 1881(b)(13)(A)(iii), payment for drugs furnished in 2006 and subsequent years will be based on the acquisition costs or the amount determined under section 1847A of the Act, as the Secretary may specify. The

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amount determined under section 1847A of the Act, except in limited circumstances, is ASP+6 percent. Therefore, we are revising the regulatory text to state that payment for a drug furnished during CY 2006 and subsequent years, until otherwise specified, in connection with renal dialysis services and separately billed by freestanding renal dialysis facilities and hospital-based facilities is based on section 1847A of the Act.

Comment: MedPAC expressed concern that there is no recent evidence that ASP+6 percent reflects the variation in the acquisition of costs of physicians and dialysis providers and thus, the current payment rate should not be set indefinitely. They also recommended that in the future we periodically collect acquisition cost data from providers to gauge the appropriate percentage of ASP for the payment amount, acknowledging that an analysis of this data could lead to a different percentage amount for the payment rate.

Response: We acknowledge MedPAC's recommendations. We will continue to monitor the payment methodology in relation to the acquisition costs of physician and dialysis providers for future analysis. 6. Other Issues

Comment: We have received several comments requesting the creation or revision of billing codes for certain drug products.

Response: Requests for the creation of new or revised billing codes for drug products is outside the scope of this rulemaking. There is a separate, well-established, process for the public to make requests for new or revised billing codes for drug products through the HCPCS panel. More information on the HCPCS coding process can be obtained at the following Web site: http://www.cms.hhs.gov/MedHCPCSGenInfo/.

Comment: We received a few comments recommending that Medicare increase the pharmacy supplying fee it pays for immunosuppressive, oral anti-cancer, and oral-antiemetic drugs for 2007. We also received a comment suggesting that we have a process in place to increase the supplying fee over time so that it remains adequate. In addition, we received a comment asking that we make clear in the final rule that we will continue to reimburse the supplying fee in 2007 at the 2006 rates.

Response: We pay a supplying fee for Medicare Part B drugs and biologicals eligible for a supplying fee are immunosuppressive drugs described in section 1861(s)(2)(J) of the Act, oral anticancer chemotherapeutic drugs described in section 1861(s)(2)(Q) of the Act, and oral anti-emetic drugs used as part of an anticancer chemotherapeutic regimen described in section 1861(s)(2)(T) of the Act. For 2006, we pay a supplying fee of $24 per prescription for the first prescription in a 30-day period, and $16 per prescription for all subsequent prescriptions in a 30-day period. Medicare also pays a special supplying fee rate of $50 for the first immunosuppressive prescription after a Medicare covered transplant. Since we did not propose a change to these rates for 2007, they will continue to be in effect in 2007.

Comment: We received a comment asking that we clarify how infusion drugs administered through DME will be paid in 2007, in light of the competitive bidding program that is authorized to be phased-in beginning in 2007.

Response: Beginning in 2004, infusion drugs furnished through an item of DME covered under section 1861(n) of the Act are paid at 95 percent of the AWP in effect as of October 1, 2003. These payment rates continue until such time as the Secretary establishes a competitive acquisition program for these drugs in specific competitive acquisition areas, in which case the payment rates in the competitive acquisition areas will be determined under the CAP. Beginning in 2007, the Secretary has the authority, under section 1847 of the Act, to phase-in implementation of the competitive acquisition program, which will be the subject of separate rulemaking.

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

In the CY 2007 PFS proposed rule (71 FR 48982), we outlined the proposed updates to the case-mix adjusted composite rate payment system established under section 1881(b)(12) of the Act, added by section 623 of the MMA. These included updates to the drug add-on component of the composite rate system, as well as the wage index values used to adjust the labor component of the composite payment rate.

Specifically, we proposed the following provisions which are described in more detail below in this section.

A method to annually calculate the growth update to the drug add-on adjustment required by section 1881(b)(12) of the Act, as well as an estimated growth update adjustment to the add-on amount for CY 2007.

An update to the wage index adjustments to reflect the latest hospital wage data, including a BN adjustment to the wage index for CY 2007.

We received a total of 10 comments from the ESRD community that represented major organizations and concerned individuals. The comments and responses are summarized in the following sections.

Comment: Several comments focused on the need to specify that payment for separately billable ESRD drugs in CY 2007 will continue at ASP +6 percent. The comments cross referenced a section in the CY 2007 PFS proposed rule (71 FR 49004) that discussed proposals for establishing the ASP rate for WAMPs and AMP. This proposal preceded the section outlining the proposed payment changes for ESRD facilities, and thus led to some confusion regarding the use of the ASP-based payment methodology for separately billable ESRD drug payments in CY 2007.

Response: As noted in section II.E.5., entitled, ``Payment for Drugs Furnished during CY 2006 and Subsequent Years in Connection with the Furnishing of Renal Dialysis Services if Separately Billed by Renal Dialysis Facilities,'' we proposed no policy changes to the approach that we currently use to pay for separately billed ESRD drugs. Therefore, for CY 2007, payment for separately billable drugs furnished by ESRD facilities will continue at ASP+6 percent in accordance with section 1847A of the Act.

Comment: We received a comment recommending that we implement the MedPAC's recommendation that the composite rate be equalized between hospital-based and independent dialysis facilities. The commenter stated that, notwithstanding the language under 1881(b)(7) of the Act, we had the statutory authority to administratively revise the current hospital-based/independent facility rate structure to provide the same rate to both facility types.

Response: While section 1881(b)(7) of the Act provided some discretion in establishing the initial composite payment rates, it did specify the need to differentiate between hospital-based and other renal dialysis facilities. Therefore, based on our analysis of cost differences, we established separate composite rates for hospital-based facilities and independent facilities. Section 1881(b)(12) of the Act, added by section 623(d) of MMA, established a new basic case-mix adjusted payment system. The statute instructed us to use, as one of the elements of the new system, the services comprising the

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composite rate established under section 1881(b)(7) of the Act. We believe that the statute requires that we carry forward the composite rate structure established in accordance with section 1881(b)(7) of the Act prior to enactment of MMA. The statute directed us to substitute, in place of a payment system based solely on the composite rate established under section 1881(b)(7) of the Act, a payment system comprised of the original composite rate, incorporating the services included under that composite rate, plus a drug add-on component. Moreover, the 1.6 percent update established under section 623(a) of MMA clearly contemplated that the update would be applied to ``such composite rate payment amounts * * *'' in effect in the prior year. Therefore, in accordance with section 1881(b)(12) of the Act, we will continue to maintain the separate composite rates for hospital-based and freestanding facilities that were established under section 1881(b)(7) of the Act. 1. Growth Update to the Drug Add-On Adjustment to the Composite Rates

Section 623(d) of the MMA added section 1881(b)(12)(B)(ii) of the Act which required the establishment of an add-on to the composite rate to account for changes in the drug payment methodology stemming from enactment of the MMA. Section 1881(b)(12)(C) of the Act provides that the drug add-on must reflect the difference in aggregate payments between the revised drug payment methodology for separately billable ESRD drugs (acquisition costs in CY 2005; ASP+6 percent in CY 2006) and the AWP payment methodology in effect in CY 2004.

In addition, section 1881(b)(12)(F) of the Act requires that, beginning in CY 2006, we establish an annual update to the drug add-on to reflect the estimated growth in expenditures for separately billable drugs and biologicals furnished by ESRD facilities. This growth update applies only to the drug add-on portion of the case-mix adjusted payment system.

The CY 2006 drug add-on adjustment to the composite rate is 14.5 percent. The drug add-on adjustment for CY 2006 incorporates an inflation adjustment of 1.4 percent. This computation is explained in detail in the CY 2006 PFS final rule with comment period (70 FR 70162). We note that the drug add-on adjustment of 14.7 percent that was published in the CY 2006 PFS final rule with comment period did not account for the 1.6 percent update to the composite rate portion of the basic case-mix adjusted payment system that was subsequently enacted by the DRA, effective January 1, 2006. Since we compute the drug add-on adjustment as a percentage of the weighted average base composite rate, the drug add-on percentage was decreased to account for the higher composite payment rate resulting in a 14.5 percent add-on adjustment for CY 2006. This adjustment was necessary to ensure that the total drug add-on dollars remained constant. a. Estimating Growth in Expenditures for Drugs and Biologicals for CY 2007

In developing the growth update to the drug add-on for CY 2006, we conducted a trend analysis of prior years' ESRD drug expenditure data (2001 through 2004). All 4 years of data used for the trend analysis reflected expenditures associated with payment for separately billed drugs and biologicals under the AWP methodology. Therefore, we could develop growth estimates for CY 2006 using comparable historical expenditure data. To extend the trend analysis for CY 2007, we would need to include drug expenditure data from CY 2005. However, in CY 2005, section 1881(b)(13)(A)(ii) of the Act required that we use a different drug payment methodology, based on average acquisition costs, rather than the AWP methodology used in prior years. Therefore, ESRD drug expenditure data for CY 2005 are not comparable to expenditure data for CY 2001 through CY 2004 for trend analysis purposes. This data issue will extend to subsequent years' data as well since we are now paying for separately billable drugs using ASP+6 percent. Because we do not have comparable data on which to base continuing trend analysis, we decided to re-evaluate our methodology for updating the drug add-on adjustment.

Section 1881(b)(12)(F) of the Act specifies that the drug update must reflect ``the estimated growth in expenditures for drugs and biologicals that are separately billable * * *'' By referring to ``expenditures'', we believe the statute contemplates that the update would account for both increases in drug prices, as well as increases in utilization of those drugs.

In order to meet this requirement, we proposed an update methodology that uses the producer price index (PPI) for prescription drugs as a proxy measure of drug pricing growth, in conjunction with an estimate of per patient growth in drug utilization. We proposed to estimate growth in per patient utilization of drugs by using historical data from 2004 and 2005.

In addition, we indicated that we would reconsider our methodology for updating the drug add-on component of the payment system when we have sufficient historical data reflecting the revised drug payment methodology using ASP pricing.

Comment: Commenters were generally favorable toward using a standard index to update the drug add-on adjustment, but were concerned about the calculation of the utilization factor. They suggested that we use our National Health Expenditures (NHE) projection that uses only the Medicare Part B component of the projection to estimate prescription drug expenditures.

Response: We do not believe that the Part B drug projections included in the NHE projections would be the best proxy for the growth in ESRD drug expenditures. The NHE projections are based on the economic, demographic and Medicare spending projections contained in the Medicare Trustees Report, as opposed to an independent forecast of economic assumptions, such as the Global Insights projections of the PPI for prescription drugs that are used in our Medicare market basket forecasts to update many of our payment systems. The NHE projection modeling approach is at an aggregate level. It does not capture the nuances of both labor and economic markets as accurately as does the specific PPI forecast from Global Insights, Inc. We believe that using the PPI is a more accurate predictor of ESRD drug pricing growth. In addition, we believe that estimating utilization from reported ESRD claims data, as discussed below in this section, is superior to using NHE's Part B projections. b. Estimating Growth in Per Patient Drug Utilization

To isolate and project the growth in per patient utilization of ESRD drugs for CY 2007, we needed to remove the enrollment and price growth components from the latest historical drug expenditure data and consider the residual utilization growth. We proposed to use total drug expenditure data from CYs 2004 and 2005 to estimate per patient utilization growth for CY 2007.

We first estimated total drug expenditures. For the CY 2007 PFS proposed rule (71 FR 49007), we used the final CY 2004 ESRD facility claims data and the latest available CY 2005 ESRD facility claims data, updated through December 31, 2005. That is, for CY 2005 we used claims that were received, processed, paid, and passed to the National Claims History File as of December 31, 2005. For this final rule with comment period, we are using

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more updated CY 2005 claims with dates of service for the same time period. This updated CY 2005 data file includes claims that were received, processed, paid, and passed to the National Claims History File as of June 30, 2006.

For the proposed rule, we adjusted the December 2005 file to reflect our estimate of what the total drug expenditures would be using the final June 30, 2006 bill file for CY 2005. The net adjustment we applied to the CY 2005 claims data was an increase of 13 percent to the December 2005 expenditure data. For this final rule, we are using the CY 2005 claims file as of June 30, 2006, which represents the final claims file for that year. Next, we removed the enrollment and price growth components from total estimated drug expenditures for CYs 2004 and 2005.

To calculate the per patient utilization growth, we removed the enrollment component by using the growth in enrollment data between 2004 and 2005. This was approximately 3 percent. To remove the price effect, we used a two-step process. For the proposed rule, we first calculated a weighted average between erythopoeitin (EPO) and non-EPO price growth factors to account for the growth in pre-MMA pricing between 2004 and 2005. Since EPO was priced at $10 per thousand units prior to the implementation of the MMA, there was no growth for EPO between 2004 and 2005. For the non-EPO drugs, we used the PPI as a proxy for the growth between the 2 years to maintain consistency with the established methodology for calculating the drug add-on adjustment for CY 2005 which used the PPI to estimate the price growth in separately billable drugs (69 FR 66321). For the proposed rule, we next incorporated the estimated negative 13 percent weighted price difference between 2005 AWP and 2005 AAP pricing as was published in the CY 2005 PFS final rule with comment period (69 FR 66319 through 66334). This two-step process accounts for the price effect from 2004 to 2005, that is, an overall 12 percent reduction in price between 2004 and 2005.

For the proposed rule, following the removal of the enrollment and price effects from the expenditure data, we expected the residual growth to reflect the per patient utilization growth. To remove the enrollment and price effects, we divided the product of the enrollment growth of 3 percent (1.03) and the price reduction of 12 percent (1.00 - 0.12 = 0.88) into the total drug expenditure decrease between 2004 and 2005 of 9 percent (1.00 - 0.09 = 0.91). The result was a proposed utilization factor equal to 1.00 ((0.91/1.03)/0.88) = 1.0).

We observed no growth in per patient utilization of drugs between 2004 and 2005. Therefore, we projected no growth in per patient utilization for CY 2007.

Comment: On commenter suggested that we should use the drug expenditure weights we developed in computing the drug add-on adjustment related to ASP pricing for 2006, rather than the weights developed by the OIG with respect to acquisition costs for 2005. This would have resulted in an overall price reduction of 13.2 percent rather than the overall reduction of 12 percent we used in our calculation.

Response: We believe it would be more appropriate to use the published OIG weights as they represent the weights that were used to develop the 2005 drug add-on adjustment. If we were to use updated weights, it would be more appropriate to use actual 2005 weights. Preliminary analysis suggests that if we were to develop weights based on the most recent 2005 expenditure data, the resulting price reduction factor would be well under 13.2 percent. However, as discussed above in this section, we believe the price reduction calculation should be consistent with the calculation used to develop the 2005 drug add-on adjustment. Therefore, for this final rule with comment we are using the same 12 percent price reduction factor calculated in the proposed rule.

Comment: One commenter indicated that their analysis resulted in a slightly different value for the reduction in total drug expenditures than we calculated between 2004 and 2005. Rather than the 9 percent reduction we calculated for the proposed rule, this commenter computed a 9.198 percent reduction using the 2004 5 percent sample file compared to the 2005 ESRD file.

Response: Although the 2004 5 percent file may have contained a significant number of ESRD claims, our analysis uses 100 percent of the 2004 ESRD facility claims. As such, we believe the results calculated by the commenter are consistent with our results, but that slight differences would be expected when an incomplete file is used. For the final rule, using the latest, complete ESRD claims file for CY 2005 (June 30, 2006), we computed a 9.5 percent reduction in total ESRD facility drug expenditures between CY 2004 and CY 2005.

Comment: We received one comment that the source of the 3 percent enrollment growth we projected for CY 2007 was unclear, and did not match the Part B enrollment growth included in the 2006 Trustees Report.

Response: The 3 percent enrollment growth projection represents the estimated growth factor specific to dialysis patients between CY 2004 and CY 2005.

Comment: One comment expressed concern that we were basing payment policy on the assumption that the new EPO monitoring policy would decrease utilization of drugs.

Response: The determination of the CY 2007 update was not based on an assumption that the new EPO monitoring policy would decrease utilization. The discussion of the EPO monitoring policy was only intended to illustrate the need to use the latest data available to determine utilization, especially since new policies such as the EPO monitoring could affect utilization growth in the future. The potential effect of the monitoring policy was not incorporated into the computation of the CY 2007 adjustment factor. i. Applying the Growth Update to the Drug Add-On Adjustment

For CY 2006, we estimated the growth update by trending drug expenditures forward based on four years of AWP payment data (CY 2001 through CY 2004). We then applied the estimated growth update percentage to the total amount of drug add-on dollars established for CY 2005 to come up with a dollar amount for the CY 2006 growth update. In addition, we projected the growth in dialysis treatments for CY 2006 based on the projected growth in ESRD enrollment. We divided the projected total dialysis treatments for CY 2006 into the projected dollar amount of the CY 2006 growth to develop the per treatment growth update amount. This growth update amount, combined with the CY 2005 per treatment drug add-on amount, resulted in an average drug add-on amount per treatment of $18.88 (or a 14.5 percent adjustment to the composite rate) for CY 2006.

Beginning in CY 2007, we proposed to annually update the per treatment drug add-on amount of $18.88 established in CY 2006 and convert the update to an adjustment factor as stipulated in section 1881(b)(12)(F) of the Act. By proposing to apply the update to the CY 2006 per treatment add-on amount, the need to estimate growth in dialysis treatments is eliminated for CY 2007 and future years.

We received no comments on this proposed change and are therefore adopting this provision in this final rule.

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ii. Update to the Drug Add-On Adjustment

In the proposed rule, we estimated no growth in per patient utilization of ESRD drugs for CY 2007. Using the projected growth of the CY 2007 PPI for prescription drugs of 4.9 percent, we projected that the combined growth in per patient utilization and pricing for CY 2007 would result in an update equal to the PPI growth or 4.9 percent (1.0 x 1.049 = 1.049). This proposed update factor was applied to the CY 2006 average per treatment drug add-on amount of $18.88 (reflecting a 14.5 percent adjustment in CY 2006), resulting in a proposed weighted average increase to the composite rate of $0.93 for CY 2007 or a 0.6 percent increase in the CY 2006 drug add-on percentage. Thus, the total proposed drug add-on adjustment to the composite rate for CY 2007, including the growth update, was 15.2 percent (1.145 x 1.006 = 1.152).

In addition, we proposed to continue to use this method to estimate the growth update to the drug add-on component of the case-mix adjusted payment system until we have at least 3 years worth of ASP-based historical drug expenditure data that could be used to conduct a trend analysis to estimate the growth in drug expenditures. Given the time lag in the availability of ASP drug expenditure data, we expect that the earliest we could consider using trend analysis to update the drug add-on adjustment would be 2010. We proposed to reevaluate our methodology for estimating the growth update at that time.

Comment: We received comments requesting clarification concerning the PPI projections we use in calculating the growth update to the drug add-on adjustment.

Response: We use the PPI for prescription drugs developed by Global Insight for the fourth quarter of 2007, which represents a four quarter average percent change projection between 2006 and 2007. For the final rule we are using the latest projection for 2007 which is 4.03 percent.

Comment: A number of comments recommended that a mechanism be established to provide for forecasting error adjustment of prior estimates. This adjustment would be applied only for the years covered by the proposed interim methodology for updating the drug add-on adjustment. The comments suggest that once stable expenditure data is available to use historical trend analysis for updating the drug add-on adjustment, the forecast error adjustment would no longer be necessary.

Response: We have not accepted this recommendation. While we appreciate the concern related to accuracy of an update based on proxy measures for price and the proposed utilization computations, the very nature of estimating future expenditures under a prospective payment system requires that those estimates are based on the best historical data available. As such, we believe we have met our obligation under the statue in estimating the growth in ESRD drug expenditures for CY 2007. Moreover forecast error adjustments are rarely made in any of CMS' prospective payment systems.

We also note that even after ASP expenditure data become available for purposes of using trend analysis to estimate future expenditures, those estimates may not be the same as actual expenditures. That could also be the case for the 2006 update currently in effect. While the commenters are not suggesting that we revisit the 2006 update, we believe that once we set the policy of adjusting any year's estimated update, we would need to do so for all years, not just those covered by the proposed interim update methodology.

Comment: One commenter wanted an update on the steps we were taking to obtain drug utilization data from hospital-based ESRD facilities for purposes of refining the drug add-on adjustment related to those providers. In last year's final rule we indicated that we would pursue options for obtaining that data (70 FR 70163).

Response: We have determined that a separate data collection of historical drug dosing data for hospital based facilities would be both burdensome and costly. Therefore, we decided not to pursue that avenue for estimating the drug add-on amount related to those facilities. However, once we have 2006 ASP data, we will evaluate the difference in payments to hospital-based ESRD facilities under cost reimbursement compared to ASP-based payments to determine if our drug add-on estimate was reasonable. iii. Final Growth Update to the Drug Add-On Adjustment for 2007

Similar to the proposed rule, we estimated no growth in per patient utilization of ESRD drugs for CY 2007. We removed the enrollment and price effects from the expenditure data to determine the per patient utilization growth. To do this, we divided the product of the enrollment growth of 3 percent (1.03) and the price reduction of 12 percent (1.00-0.12 = 0.88) into the total drug expenditure decrease between 2004 and 2005 of 9.5 percent (1.0-0.095 = 0.0905). The result is a utilization factor equal to 1.0 ((0.905/1.03)/0.88) = 1.0).

Using the projected growth of the CY 2007 PPI for prescription drugs of 4.03 percent, we projected that the combined growth in per patient utilization and pricing for CY 2007 would result in an update equal to the PPI growth or 4.03 percent (1.0 x 1.0403 = 1.0403). This update factor was applied to the CY 2006 average per treatment drug add-on amount of $18.88 (reflecting a 14.5 percent adjustment in CY 2006), resulting in a weighted average increase to the composite rate of $0.76 for CY 2007 or a 0.5 percent increase in the CY 2006 drug add- on percentage. Thus, the total drug add-on adjustment to the composite rate for CY 2007, including the growth update, is 15.1 percent (1.145 x 1.005 = 1.151). c. OIG Report on New Drug Codes

Section 623(c)(1) of the MMA mandated that the OIG conduct two studies to determine the difference between the Medicare payment amount for separately billable ESRD drugs and the facilities' acquisition costs for these drugs, as well as estimating the growth rate of expenditures for these drugs. The initial study, ``Medicare Reimbursement for Existing End Stage Renal Disease Drugs'' (OEI-03-04- 00120), was completed in May 2004, and reported on existing ESRD drugs. This report was used to set the CY 2005 payment rates for ESRD drugs billed by independent dialysis facilities (69 FR 66322). The second study (``Medicare Reimbursement for New ESRD Drugs'' (OEI-03-06-00200)) focused on new drugs. New drugs for the purpose of this study were defined as an ESRD drug that did not have a billing code prior to January 1, 2004.

One drug, darbepoetin alfa (Aranesp) accounted for the majority of all payments for new drugs. Therefore, this was the only new ESRD drug studied. The OIG report found that use of this drug was limited to a small number of facilities (only 157 facilities reported using this drug with concentrated use in approximately 55 of these facilities). Because of the recent changes we made to the drug payment methodology and the lack of comparable historical data, the OIG report made no estimate of an expenditure growth rate for this drug.

Darbepoetin alfa (Aranesp) is currently paid as a separately billable drug at ASP+6 percent. Because of the recent (CY 2006) implementation of the ASP+6 percent drug payment methodology, the small number of facilities using this drug for ESRD

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patients, and the lack of historical data for trending purposes, we have no data to indicate that any difference in payment methods for Aranesp (between CY 2004 and CY 2006) would affect our calculation of the drug add-on or of the growth update. Moreover, since Aranesp was approved in 2001 for use in ESRD patients, we believe that expenditures for Aranesp were reflected in the historical data used to establish the CY 2005 drug add-on under a generic drug code. Therefore, we proposed to make no additional changes to the drug add-on adjustment for CY 2007. We received no comments on this issue. 2. Update to the Geographic Adjustments to the Composite Rates

Section 1881(b)(12)(D) of the Act, added by section 623(d) of the MMA, gave the Secretary the authority to revise the wage indexes previously applied to the ESRD composite rates. The wage indexes are calculated for each urban and rural area. The purpose of the wage index is to adjust the composite rates for differing wage levels covering the areas in which ESRD facilities are located. a. Updates to the CBSA Definitions

In the CY 2007 proposed rule (71 FR 49008), we published revised CBSA-based geographic areas which reflected all of the changes announced by OMB in Bulletins 05-02 and 06-01 issued February 22, 2005 and December 5, 2005, respectively. Those bulletins changed the titles of several of the MSAs and Metropolitan Divisions used in connection with the urban wage index. b. Updated Wage Index Values

In the CY 2006 PFS final rule with comment period, we stated that we intended to update the wage index values annually (70 FR 70167). Current ESRD wage index values for CY 2006 were developed from FY 2002 wage and employment data obtained from the Medicare hospital cost reports. The values are calculated without regard to geographic reclassifications authorized under sections 1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data that is unadjusted for occupational mix.

The methodology for calculating the CY 2006 wage index values was described in the CY 2006 PFS final rule with comment period (70 FR 70168). We proposed to use the same methodology for CY 2007, with the exception that FY 2003 hospital data will be used to develop the CY 2007 ESRD wage index values. For a detailed description of the development of the CY 2007 ESRD wage index values based on FY 2003 hospital data see the FY 2007 IPPS final rule entitled, ``Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2007 Rates,'' (71 FR 48016). Section F of the preamble to that final rule describes the cost report schedules, line items, data elements, adjustments, and wage index computations. The wage index data affecting ESRD composite rates for each urban and rural locale may also be accessed on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The wage data are located in the

section entitled, ``FY 2007 Final Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre-Reclassified Wage Index by CBSA''.

Comment: One commenter criticized our use of hospital wage and employment data to develop the ESRD wage index. The commenter maintained that the use of hospital data presumed that wage levels in hospitals and freestanding ESRD facilities are similar, a conclusion which has not been substantiated. The commenter urged us to locate an alternative data source that reflects information directly tied to ESRD facilities.

Response: Although the mix of occupations in hospitals is broader and more diverse, ESRD facilities compete with hospitals for labor. While the use of wage and employment data from freestanding ESRD facility cost reports would result in the development of a wage index which reflected ESRD wage levels among independent facilities, the administrative burden posed by the need for the Medicare fiscal intermediaries to engage in a separate data collection to compile, edit, and validate ESRD wage and employment data would be considerable. Given the similarity of the labor market for professional, technical, and nursing staff between hospitals and ESRD facilities, we believe our use of hospital wage and employment data obtained from the Medicare cost reports to develop the ESRD wage index is appropriate. (i) Wage Index Values for Areas With No Hospital Data

In CY 2006, while adopting the CBSA designations, we identified a small number of ESRD facilities in both urban and rural geographic areas where there is no hospital wage data on which to base the calculations of the CY 2006 ESRD wage index values.

The first situation was rural Massachusetts. Because there were no reasonable proxies for rural data within Massachusetts, we used the prior year's acute care hospital wage index value for rural Massachusetts. For CY 2007, we proposed to continue to use this value and requested public input on an alternative methodology.

Since there may be additional rural areas in the future similarly impacted by a lack of hospital wage data on which to derive a hospital wage index, we stated that we were considering alternative methodologies for imputing a rural wage index for areas in States where no hospital wage data are available. We also described an alternative methodology whereby we would impute a rural wage index value by using a simple average CBSA-based rural wage index value at the Census Division level. For CY 2007, hospital wage data are not available to compute a rural wage index for ESRD facilities in rural Massachusetts, and this proposed alternative methodology could be applied in this case. Massachusetts is located in Census Division I (New England).

Under this proposed alternative methodology, the States in Census Division I for which rural wage index values are available would be used; this would result in a simple average proposed rural wage index value of 1.0227 (1.0770 after applying BNF).

Rural Puerto Rico is similar to rural Massachusetts in that there are ESRD facilities where there are no acute care hospitals and, therefore, no hospital data. However, the situation for facilities in rural Puerto Rico is different in that the floor would be applied to rural Puerto Rico ESRD facilities. All areas in Puerto Rico that have an index are eligible for the floor because they have wage-index values that are less than 0.8000. For CY 2007, we proposed to apply the floor to rural Puerto Rico.

The third situation involves an urban area in Hinesville, GA (CBSA 25980). For CY 2006, we used a wage index value based on the average of the wage index values in all of the other urban areas within the same State to serve as a reasonable proxy for the urban areas without hospital wage index data. Specifically, we used the average wage index value for all urban areas within the State of Georgia as the urban wage index for purposes of calculating the value for Hinesville for CY 2006. For CY 2007, we proposed to continue using this method for Hinesville, GA (CBSA 25980).

We solicited comments on maintaining our current policy for establishing wage index values for rural and urban areas without hospitals or adopting an alternative approach. We also indicated that we would continue to evaluate existing hospital wage data and, possibly, wage data from other

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sources, such as the Bureau of Labor Statistics, to determine if other methodologies of imputing a wage index value where hospital wage data are not available may be feasible.

We received no comments on maintaining our current policy for establishing wage index values for rural and urban areas without hospitals, or an alternative approach for developing wage index values for rural areas without hospitals for CY 2007 and subsequent years. Therefore, for CY 2007, we will maintain our current policies for establishing wage index values for rural and urban areas:

For rural Massachusetts, we will continue to use the prior year's acute care hospital wage index value for rural Massachusetts.

For rural Puerto Rico, we will apply the CY 2007 ESRD wage index floor.

For Hinesville, GA (CBSA 25980), we will use the average wage index value for all urban areas within the State of Georgia as the urban wage index for purposes of calculating the value for Hinesville for CY 2007. (ii) Second Year of the Transition

For each transition year, the share of the blended wage-adjusted base payment rate that is derived from the MSA-based and CBSA-based wage index values is shown in Table 10. In the CY 2007 PFS proposed rule, we proposed no changes to the transition. CY 2007 is the second year of the 4-year transition period. Consistent with the transition blends, we are implementing a 50/50 blend between an ESRD facility's MSA-based composite rate, and its CY 2007 CBSA-based rate reflecting its revised wage index values.

For CY 2007, we are reducing the wage index floor to 0.80. As we stated in the CY 2006 PFS final rule with comment period, we intend to reassess the continuing need for a wage index floor in CY 2008 and CY 2009 (70 FR 70169 through 70170). The wage index floors, caps, and blended shares of the composite rates applicable to all ESRD facilities during CYs 2007 through 2009 are shown in Table 10. They are identical to the values shown in Table 20 of the CY 2006 PFS final rule with comment period (70 FR 70170) for the applicable years.

Table 10.--Wage Index Transition Blend

Old MSA New CBSA CY payment

Floor

Ceiling

(percent) (percent)

2007................................ 0.80*.................. None...................

50

50 2008................................ Reassess............... None...................

25

75 2009................................ Reassess............... None...................

0

100

*Each wage index floor is multiplied by a BN adjustment factor. For CY 2007 the BN adjustment is 1.052818 resulting in an actual wage index floor of 0.8423.

The following is an example of how the wage-adjusted composite rates would be blended during CY 2007 and the 2 subsequent transition years.

Example: An ESRD facility has a wage-adjusted composite rate (without regard to any case-mix adjustments) of $135.00 per treatment in CY 2006. Using CBSA-based geographic area designations, the facility's CY 2007 wage-adjusted composite rate, reflecting its wage index value as shown in Addendum H, would be $145.00. During the remaining 3 years of the 4-year transition period to the new CBSA-based wage index values, this facility's blended rate through CY 2009 would be calculated as follows:

CY 2007 = (0.50 $135.00) + (0.50 x $145.00) = $140.00 CY 2008 = (0.25 x $135.00) + (0.75 x $145.00) = $142.50 CY 2009 = (0.00 x $135.00) + (1.00 x $145.00) = $145.00

We note that this hypothetical example assumes that the calculated wage-adjusted composite rate of $145.00 for CY 2007 does not change in CYs 2008 and 2009. In actuality, the wage-adjusted composite rate would change because of annual revisions to the wage index. However, the example serves only to demonstrate the effect on the composite rate of the CBSA-based wage index values which will be phased-in during the remaining 3 years of the transition period.

Comment: One commenter representing a number of dialysis facilities in Puerto Rico disagreed with our proposal to reduce the wage index floor to 0.80, pointing out that wage index values have not been realistically updated in quite some time. The commenter was concerned with further reductions in composite payments and recommended that the reduction in the wage index floor for CY 2007 be suspended. Another commenter also recommended that the impact of any further planned proposed reductions in the wage index floor be thoroughly considered before implementation because of potential impact on the ability of dialysis facilities to recruit and retain qualified personnel.

Response: We believe that the ESRD wage index should not be artificially constrained by the application of floors and ceilings. We eliminated the cap of 1.30 because of the effect it had on restricting payments in high wage areas. While we would like to eliminate the floor as well, we recognized that its immediate elimination could substantially reduce composite payments in locales where prevailing labor costs are lower. Accordingly, in CY 2006 we implemented a reduction in the wage index floor to 0.85, and proposed a further reduction to 0.80 in CY 2007. We plan to reassess the continuing application of the wage index floor in connection with the CY 2008 and CY 2009 updates to the composite payment rates.

The actual wage index values for urban locales in Puerto Rico, without application of any floor and prior to the application of the CY 2007 the BN adjustment, are shown in Table 11.

Table 11.--Wage Index Values for Urban Locales in Puerto Rico

CBSA code

Urban area

Wage index

10380...................... Aguadilla-Isabela-San

0.3922 Sebastian. 21940...................... Fajardo....................

0.4044 25020...................... Guayama....................

0.3241 32420...................... Mayaguez...................

0.3857 38660...................... Ponce......................

0.4851

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41900...................... San German-Cabo Rojo.......

0.4893 41980...................... San Juan-Caguas-Guaynabo...

0.4397 49500...................... Yauco......................

0.3861

The proposed CY 2007 wage index floor of 0.80 is substantially higher than each of the above wage index values. After application of the BN adjustment to the wage index floor of 0.80, each area in Puerto Rico has a wage index of 0.8423 reflected in its composite rate. Therefore, we believe that the CY 2007 wage index floor of 0.80 compared to actual wage levels will not adversely affect access to care for dialysis patients in Puerto Rico.

With respect to the commenter's concern that the wage index values have not been updated in quite some time, we point out that the CY 2007 wage index values were developed from the latest available FY 2003 hospital wage and employment data obtained from the Medicare cost reports. While we will not suspend application of the proposed 0.80 wage index floor in CY 2007, we intend to carefully assess the potential impact of any further proposed reductions in the wage index floor for CY 2008 and following years. c. Budget Neutrality (BN) Adjustment

Section 1881 (b)(12)(E)(i) of the Act, as added by section 623(d) of the MMA, requires that any revisions to the ESRD composite rate payment system as a result of the MMA provision (including the geographic adjustment) be made in a budget neutral manner. This means that aggregate payments to ESRD facilities in CY 2007 should be the same as aggregate payments that would have been made if we had not made any changes to the geographic adjusters. We note that the BN adjustment discussed in this final rule only addresses the impact of changes in the geographic adjustments. A separate BN adjustment was developed for the case-mix adjustments, currently in effect. Since we did not propose any changes to the case-mix measures for CY 2007, the current case-mix BN will remain in effect for CY 2007. For CY 2007, we again proposed to apply a BNF directly to the ESRD wage index values, as we did in CY 2006. As we explained in the CY 2006 PFS final rule with comment period (70 FR 70170 through 70171), we believe this is the simplest approach because it allows us to maintain our base composite rates during the transition from the current wage adjustments to the revised wage adjustments described earlier in this section. Because the ESRD wage index is only applied to the labor-related portion of the composite rate, we computed the proposed BNF adjustment based on that proportion (53.711 percent).

To compute the proposed CY 2007 wage index BNF, we used the proposed wage index values, 2005 outpatient claims (paid and processed as of December 31, 2005), and geographic location information for each facility.

Using treatment counts from the 2005 claims and facility-specific CY 2006 composite rates, we computed the estimated total dollar amount each ESRD provider would have received in CY 2006 (the first year of the 4-year transition). The total of these payments became the target amount of expenditures for all ESRD facilities for CY 2007. Next, we computed the estimated dollar amount that would have been paid to the same ESRD facilities using the ESRD wage index for CY 2007 (the second year of the 4-year transition). The total of these payments became the second year new amount of wage-adjusted composite rate expenditures for all ESRD facilities.

After comparing these dollar amounts (target amount divided by second year new amount), we calculated an adjustment factor that, when multiplied by the applicable CY 2007 ESRD wage index, would result in aggregate payments within the target amount of composite rate expenditures. The proposed BN adjustment factor for the CY 2007 wage index was 1.053069.

To ensure BN we also must apply the BNF to the wage index floor of 0.8000 which resulted in a proposed adjusted wage index floor of 0.8425 for CY 2007.

Comment: We received comments asking that we clarify the calculation of the wage index BNF so that commenters could understand that the BNF is being calculated correctly. One commenter asked that we provide both the data and the methodology so that they could assess the accuracy of our computations.

Response: During the comment period on the CY 2007 PFS proposed rule, we made available an ESRD Composite Payment System File. This file contained select claim level data from the 2005 ESRD facility outpatient claims, updated through December 31, 2005. For more information on this file, see the following link: http://www.cms.hhs.gov/IdentifiableDataFiles/05.asp#TopOfPage .

After the publication of this final rule with comment period, we intend to make available the updated version of the CY 2005 outpatient claims (paid and processed as of June 30, 2006) that were used to compute the BNF.

To compute the final CY 2007 ESRD wage index BNF, we used FY 2003 pre-floor, pre-reclassified, non-occupational mix-adjusted hospital wage data to compute the wage index values, 2005 outpatient claims (paid and processed as of June 30, 2006), and geographic location information for each ESRD facility which may be found through Dialysis Facility Compare. The FY 2003 hospital wage index data for each urban and rural locale by CBSA may also be accessed on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The wage index

data are located in the section entitled, ``FY 2007 Final Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre- Reclassified Wage Indexes by CBSA''.

Dialysis Facility Compare can be found by going to the following CMS Web site: http://www.cms.hhs.gov/DialysisFacilityCompare/.

Using treatment counts from the latest 2005 claims file and facility-specific CY 2006 composite rates, we computed the estimated total dollar amount each ESRD provider would have received in CY 2006 (the first year of the 4-year transition). The total of these payments became the target amount of expenditures for all ESRD facilities for CY 2007. Next, we computed the estimated dollar amount that would have been paid to the same ESRD facilities using the ESRD wage index for CY 2007 (the second year of the 4-year transition). The total of these payments became the second year new amount of wage-adjusted composite rate expenditures for all ESRD facilities.

After comparing these dollar amounts (target amount divided by second year new amount), we calculated an adjustment factor that, when multiplied by the applicable FY 2007 wage index value, will result in aggregate payments to ESRD facilities that will remain

[[Page 69688]]

within the target amount of composite rate expenditures. When making this calculation, the ESRD wage index floor value of 0.8000 is used whenever appropriate.

The final BN adjustment factor for the CY 2007 wage index is 1.052818.

To ensure BN we also must apply the BNF to all index values, including the wage index floor of 0.8000, which results in an adjusted wage index floor of 0.8423 for CY 2007. d. ESRD Wage Index Tables

Addenda F and G show the CY 2007 ESRD wage index, including the BNF adjustment, for urban areas (Addendum F) and rural areas (Addendum G).

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

Section 4507 of the BBA amended section 1802 of the Act to permit certain physicians and practitioners to opt-out of Medicare if certain conditions were met, and to provide through private contracts services that would otherwise be covered by Medicare. Before enactment of the BIPA (Pub. L. 106-554), section 1802(b)(5)(C) of the Act, which refers to the definition of ``practitioner'' at section 1842(b)(18)(C) of the Act, did not include registered dietitians or nutrition professionals among the practitioners who may choose to opt-out of Medicare. Section 105(d) of the BIPA amended the definition of practitioner located at section 1842(b)(18)(c) of the Act to include registered dietitians or nutrition professionals. Because section 1802(b)(5)(C) of the Act references section 1842(b)(18)(c) of the Act in order to define the term practitioner for purposes of opting out of Medicare, current law permits registered dietitians or nutrition professionals to opt-out of Medicare. Because the definition of practitioner located at Sec. 405.400 does not include registered dietitians or nutrition professionals, we proposed to amend that section so that it is consistent with section 1802(b)(5)(C) of the Act.

Commenters were very supportive of our proposals. Therefore, we are finalizing the changes to Sec. 405.400 as proposed.

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

In the CY 2007 PFS proposed rule, we stated that recent changes to our rules on reassignment of the right to receive Medicare payment may have led to some confusion as to whether the anti-markup and purchased interpretation requirements apply to certain situations where a reassignment has occurred under a contractual arrangement. We also stated that we were concerned about the existence of certain arrangements that are not within the intended purpose of our physician self-referral rules, which allow physician group practices to bill for services furnished by a contractor physician in a ``centralized building'' as defined at Sec. 411.351. We are concerned that allowing physician group practices or other suppliers to purchase or otherwise contract for the provision of diagnostic tests and then to realize a profit when billing Medicare may lead to patient and program abuse in the form of over utilization of services and result in higher costs to the Medicare program.

We proposed to amend our reassignment regulations to clarify how the purchased test and purchased interpretation rules apply in the case of a reassignment made under the contractual arrangement exception set forth at Sec. 424.80(d)(2). In addition, we proposed to change the definition of ``centralized building'' at Sec. 411.351 of the physician self-referral regulations to place certain restrictions on what types of space ownership or leasing arrangements will qualify for purposes of the physician self-referral in-office ancillary services exception and physician services exception. We received numerous comments on our proposals. Instead of issuing final regulations at this time, we are studying the issues further and plan to issue final regulations in the near future. We remain committed to addressing revenue-driven arrangements that may be facilitating over utilization of diagnostic services, but do not wish to unduly impact legitimate group practice arrangements that enable Medicare beneficiaries to have the convenience of receiving medical services at one location.

J. Supplier Access to Claims Billed on Reassignment

Section 1842(b)(6) of the Act generally provides that Medicare may pay Part B benefits only to the physician or other supplier who performed the service, or to the beneficiary. This provision, known as the prohibition on reassignment, contains several exceptions. Section 952 of the MMA amended section 1842(b)(6)(A)(ii) of the Act to allow a physician or other person who was in a contractual arrangement rather than in an employee-employer relationship to reassign his or her right to bill and receive payment, irrespective of whether the services were performed on the premises of the entity. In implementing section 952 of the MMA, we amended Sec. 424.80(d) to provide that a supplier, who reassigns his or her right to bill Medicare to an entity with which he or she is employed as an independent contractor, has the right to access the entity's billing information concerning the services the supplier is alleged to have performed and for which the entity billed Medicare. We extended such a right in order to give added assurance that the services for which such an entity billed Medicare were in fact performed and were performed as billed. In the CY 2007 PFS proposed rule, we stated that we believe that employees, in addition to independent contractors, should have access to records on billings for services furnished by them (71 FR 49057 through 49058). We proposed changing the title of Sec. 424.80(d) and amending Sec. 424.80(d)(2) of our regulations to state that the individual supplier who reassigns his or her right to bill and receive Medicare payment to an entity has unrestricted access to claims information submitted by that entity for services furnished by the individual supplier, irrespective of whether the supplier is an employee or an independent contractor of the entity receiving payment. Under our proposal, if an entity receiving the reassigned benefits were to refuse to provide the billing information to the employee supplier requesting the information, the entity's right to receive reassigned benefits could be revoked under Sec. 424.82(c)(3) (which is currently the case with respect to an entity's refusal to provide billing information to an independent contractor supplier).

We are adopting the proposal without modification.

Comment: Two commenters who support the proposal stated they are unsure how having unrestricted access to submitted claims data will correspond to improved program integrity. They believe that a more practical approach to ensure Medicare program integrity would be to incorporate physician involvement in compliance programs that are structured to address risk areas particular to their operations. These commenters are also concerned that providing unrestricted access to submitted claims data is not a clear requirement for a billing entity to meet.

Response: We believe that by allowing a physician or other supplier access to billing information concerning services allegedly performed by that physician or other supplier, we gain more assurance that entities that are billing on reassignment are billing for services actually performed and are otherwise billing accurately for such services.

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With respect to the commenters' suggestion that physician involvement in compliance programs offers a more practical approach to ensure Medicare program integrity, we believe that physicians should be engaged already in compliance programs, and that such involvement should include the physician regularly requesting access to billing records for services that he or she allegedly performed and that are being billed to Medicare, through a reassignment, by the entity that employs the physician as an independent contractor or employee. We disagree that our proposal would pose an unclear requirement for entities to meet. An entity that bills Medicare for services that were allegedly performed by a physician or other supplier in the entity's employ may not unreasonably refuse to provide access (or unreasonably delay in providing access) to the physician or other supplier with respect to the relevant billing information. We do not believe it is practical or necessary to attempt to define by regulation just how soon after a request an entity has to provide access, or whether, in a given case, an entity would be justified in refusing to provide access if the physician or supplier has already gained access to the records. Rather, we believe that entities should be guided by common sense and when in doubt may wish to err on the side of providing access, because an entity that unreasonably refuses to provide billing information or does not provide it in a timely manner may have its right to receive reassigned benefits revoked under Sec. 424.82(c)(3).

Comment: We received one comment opposing the proposal. According to this commenter, in section 952 of the MMA, the Congress authorized us to make changes to the reassignment rules with respect to contractor arrangements only. The Congress evidenced no intent to change the reassignment rules with respect to employees, and nor is there any evidence of which the commenter is aware that right of access by employee suppliers is a current program integrity issue. The commenter also believes that access to billing information is a matter that should be left to the terms of a provider's employment contract.

Response: For the reasons stated in the CY 2007 PFS proposed rule (71 FR 49057), we believe we are permitted, but not required, to make payment under the reassignment provisions. Moreover, we are under a statutory command, through section 1833(e) of the Act, to not make payment unless we are satisfied that payment is correct. Our rulemaking authority for our proposal is not based on section 952 of the MMA, but rather on our general rulemaking authority found at sections 1102(a) and 1871(a) of the Act. We also believe for the reasons stated in the proposed rule that the same program integrity concerns with respect to contractor access to billing records also apply to employee access to billing records. And, we reiterate that we are aware of allegations of employee suppliers being denied access to their billing records. Moreover, we do not believe it is sufficient to leave it to physicians and other suppliers to negotiate access to billing records as a condition of their employment, as the parties may have unequal bargaining power.

Comment: A commenter stated that if the supplier has claims liability, he or she should have access to the billing records, but that if the supplier does not have claims liability he or she should not have access to the billing records.

Response: Irrespective of whether the supplier has claims liability, we have an interest in knowing whether we are paying correctly for services that were furnished or furnished as billed. Therefore, we wish to provide a right of access to billing information to all suppliers who are furnishing services and reassigning payment to their employers, and we encourage them to avail themselves of this right in order to ensure that we are paying properly.

K. Coverage of Bone Mass Measurement

In an IFC entitled ``Medicare Coverage of and Payment for Bone Mass Measurements'' published in the Federal Register on June 24, 1998 (63 FR 34320), we implemented section 4106 of the BBA by establishing a new section, Sec. 410.31, Bone Mass Measurement: Conditions for Coverage and Frequency Standards. Section 4106 of the BBA statutorily defined BMM and individuals that are qualified to receive a BMM. The June 24, 1998 IFC, under the ``reasonable and necessary'' provisions of section 1862(a)(1)(A) of the Act, also established conditions for coverage of the tests that must be ordered by physicians or NPPs. Lastly, as directed by section 4106 of the BBA, we established frequency standards governing the time period when qualified individuals would be eligible to receive covered BMMs. 1. Provisions of the June 24, 1998 IFC

The June 24, 1998 IFC implemented section 4106 of the BBA by establishing conditions for coverage and frequency standards for BMMs to ensure that they are paid for uniformly throughout the Medicare program and that they are reasonable and necessary for Medicare beneficiaries who are eligible to receive these measurements. This section summarizes the provisions discussed in the June 24, 1998 IFC. a. Coverage Conditions and Frequency Standards

We established conditions for coverage and frequency standards for medically necessary BMMs for five categories of Medicare beneficiaries in Sec. 410.31.

In Sec. 410.31(a), we defined ``bone mass measurement'' based on the statutory definition in section 4106 of the BBA. In accordance with the ``reasonable and necessary'' provisions of section 1862(a)(1)(A) of the Act, we established the conditions for coverage of BMMs in Sec. 410.31(b) of the regulations. Consistent with Sec. 410.32 (Diagnostic x-ray tests, diagnostic laboratory tests, and diagnostic tests: Conditions), we provided that coverage be available for the BMM only if it is ordered by the physician or a qualified NPP (as defined in Sec. 410.32(a)) treating the beneficiary following an evaluation of the beneficiary's need for the test, including a determination as to the medically appropriate procedure to be used for the beneficiary. We believed that BMMs were not demonstrably reasonable and necessary unless (among other things) they are ordered by the physician treating the beneficiary following a careful evaluation of the beneficiary's medical need, and they are employed to manage the beneficiary's care.

To ensure that the BMM is performed as accurately and consistently in accordance with appropriate quality assurance guidelines as possible, we required that it be performed under the appropriate supervision of a physician as defined in Sec. 410.32(b)(3). To ensure that the BMM is medically appropriate for the five categories specified in the law, we provided that it be reasonable and necessary for diagnosing, treating, or monitoring the condition of the beneficiary who meets the coverage requirements specified in Sec. 410.31(d).

Furthermore, in Sec. 410.31(c), we set forth limitations on the frequency for covering a BMM. Generally, we cover a BMM for a beneficiary if at least 23 months have passed since the month the last BMM was performed. However, we allow for coverage of follow-up BMMs performed more frequently than once every 23 months when medically necessary. We listed the following examples of situations where more frequent BMMs procedures may be medically necessary to include:

Monitoring beneficiaries on long-term glucocorticoid (steroid) therapy of more than 3 months.

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Allowing for a confirmatory baseline BMM (either central or peripheral) to permit monitoring of beneficiaries in the future if the initial test was performed with a technique that is different from the proposed monitoring method. b. Beneficiaries Who May Be Covered

In Sec. 410.31(d), we amended our regulations to conform to the statutory requirement that the following categories of beneficiaries may receive Medicare coverage for a medically necessary BMM:

A woman who has been determined by the physician or a qualified NPP treating her to be estrogen-deficient and at clinical risk for osteoporosis, based on her medical history and other findings.

An individual with vertebral abnormalities as demonstrated by an x-ray to be indicative of osteoporosis, osteopenia, or vertebral fracture.

An individual receiving (or expecting to receive) glucocorticoid (steroid) therapy equivalent to 7.5 mg of prednisone, or greater, per day, for more than 3 months.

An individual with primary hyperparathyroidism.

An individual being monitored to assess the response to or efficacy of an FDA-approved osteoporosis drug therapy. c. Waiver of Liability

Section 410.31(e) provides that Medicare payment would be denied for a BMM in accordance with section 1862(a)(1)(A) of the Act if the regulatory standards are not satisfied. Existing regulations concerning limitation on liability are set forth in Sec. 411.400 through Sec. 411.406 and are applicable to denial of BMMs under Sec. 410.31. d. Payments for BMMs

Medicare payments for covered BMMs are paid for under the PFS (42 CFR part 414) as required by statute. In the June 24, 1998 IFC, we revised the definition of ``physician services'' in Sec. 414.2 to include bone mass measurements. When BMM procedures are furnished to hospital inpatients and outpatients, the TCs of these procedures are payable under existing payment methods for hospital services. These methods include payments under the prospective payment system, on a reasonable cost basis, or under a special provision for determining payment rates for hospital outpatient radiology services.

In the June 24, 1998 IFC, we revised Sec. 414.50(a), regarding physician billing for purchased diagnostic tests, to clarify that the section does not apply to payment for BMMs. e. Conforming Changes

In the June 24, 1998 IFC, to allow for appropriate placement in the CFR of the BMM coverage requirements, we redesignated Sec. 410.31 (Prescription drugs used in immunosuppressive therapy) as Sec. 410.30. 2. Additional Scientific Evidence

In 2004, the Surgeon General issued a report, Bone Health and Osteoporosis (U.S. Department of Health and Human Services, Bone Health and Osteoporosis: A Report of the Surgeon General. Rockville, MD: U.S. Department of Health and Human Services, Office of the Surgeon General, 2004). This report provides scientific evidence related to the prevention, assessment, diagnosis, and treatment of bone disease. The report states that identification of those at risk of bone disease and fracture is important so that appropriate interventions can be implemented. However, as the report states, ``Assessing the risk of bone disease and fracture remains a challenge. Not all of the risk factors have been identified, and the relative importance of those that are known remains unclear.''

As bone strength is not measured directly, bone mineral density (BMD) remains the single best predictor of fracture risk, with the most widely accepted method for measuring BMD being the dual energy x-ray absorptiometry (DXA) for a bone density study at the axial skeleton (for example, hips and spine). As there are many sources of variability in the measurement of BMD, a quality control system related to both the methodology and reporting of test results is important to ensure the validity of DXA analysis.

In addition to DXA of the axial skeleton, bone mass can also be measured using other techniques. These other techniques include DXA bone density study for the appendicular skeleton (for example, radius, wrist, heel); quantitative computerized tomography (QCT), BMD study for the axial skeleton or appendicular skeleton; radiographic absorptiometry (photodensitometry, radiogrammetry); single-photon absorptiometry (SPA); single energy x-ray absorptiometry (SXA) for the appendicular skeleton; and ultrasound BMD study for the appendicular skeleton. For these techniques (except for SPA which was not discussed), the 2004 Surgeon General report states, ``While these methods do assess bone density and may provide an indication of fracture risk, it is important to note that the WHO [World Health Organization] recommendations and other guidelines for using BMD and interpreting BMD results for diagnosis are based on DXA measurements of the hip or spine.'' The report further states, ``Incorporating these techniques for bone assessment into future clinical trials and observational studies will help in better understanding their appropriate use as a means of predicting the risk of bone disease and fracture.'' 3. Changes to the June 24, 1998 IFC

We received 18 public comments on the June 24, 1998 IFC. The majority of the comments had specific recommendations for changes to the IFC. Based on the comments received on the IFC, the Surgeon General's report, and other evidence, we proposed changes to Sec. 410.31. We solicited comments on these proposals. 4. Analysis of and Response to Comments on the June 24, 1998 IFC and the CY 2007 PFS Proposed Rule

In this final rule, we are responding to the public comments that we received on our proposed revisions to Sec. 410.31. In addition, as we stated in CY 2007 proposed rule, we are responding to the public comments received on the June 24, 1998 IFC. We received approximately 35 timely public comments on our proposed revisions to the regulations regarding coverage for bone mass measurements (Sec. 410.31). Most commenters supported the proposed coverage revisions and noted their specific concerns and provided suggested revisions to several of the coverage provisions. However, most of the commenters expressed significant concerns regarding proposed payment reductions for these tests that would result from initiatives described in other sections of the proposed rule relative to PE and other payment calculations. Comments and our responses regarding the proposed payment reductions are detailed in section II.A.4. of the preamble to this final rule. The following is a summary of our proposals and the comments received and our responses on the coverage for bone mass measurement: a. ``BMM'' Definition (Sec. 410.31(a))

At Sec. 410.31(a)(2), we proposed to revise the definition of ``bone mass measurement'' to remove coverage for the use of SPA, which uses isotope sources to measure BMD. Many medical experts indicate that SPA has largely been replaced by the newer techniques of DXA, which are believed to be superior in accuracy and precision. Medicare claims data in recent years

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continue to show a steady decline in the use of the SPA procedure by the beneficiary population. Further, there is a lack of evidence to support continued use of SPA, an older procedure where the metrics have not been correlated with fracture rate.

We proposed to revise the definition of a ``bone mass measurement'' to read, ``Is performed with either a bone densitometer (other than a single-photon or dual-photon absorptiometry) or with a bone sonometer system that has been cleared for marketing for this use by the FDA under 21 CFR part 807, or approved for marketing by the FDA for this use under 21 CFR part 814.''

Comment: We requested comments on our proposal to noncover SPA, including any evidence of benefit for this technique, particularly in comparison with other alternatives. Most of the commenters supported the position that SPA has largely been replaced by the newer, more accurate, and precise techniques such as SEXA and DXA, and we should not continue to cover them. However, a commenter from the June 24, 1998 IFC suggested that while use of SPA devices (at the wrist) is declining as newer and faster equipment is becoming available, we should continue to cover their use indefinitely based on the view that their accuracy and precision are close to that of x-ray based techniques at the wrist and heel and that their radiation exposure is low.

Response: We agree with the more recent comments concerning SPA and note that we proposed to noncover SPA tests beginning in CY 2007. In response to the June 24, 1998 IFC comment regarding continuing coverage indefinitely, we note that Medicare claims data in recent years continue to show a steady decline in the use of the SPA procedure by the beneficiary population as the more accurate and precise procedures have become much more widely available. We agree that there is a lack of evidence to support continued use of the older SPA procedure where the metrics have not been correlated with fracture risk. Therefore, we are revising the definition of ``bone mass measurement'' in Sec. 410.31(a) to remove coverage for the use of SPA. As a result, the status indicator for CPT code 78350 will change from active (A) to noncovered (N) effective January 1, 2007.

Comment: A June 24, 1998 IFC commenter expressed the view that available research and their experience had demonstrated that the use of peripheral DXA at the heel is superior to any other BMD test taken at any other peripheral site. The commenter believes that the heel DXA is a superior approach for the initial osteoporosis screening because of its--(1) strong correlation to fracture probability; (2) the reactive nature of the heel to bone mass changes; (3) patient preference for a less threatening exam; (4) the elimination of radiation exposure to the abdomen that results from a central bone mass measurement; and (5) the ability of the peripheral heel DXA to deliver a service at a lower cost than most other BMM technologies.

Response: Based on our review of the available medical literature, we have determined that there is insufficient evidence to conclude that peripheral DXA at the heel is a superior method of BMD measurement when compared to other peripheral sites. Thus, we are not making any changes to our proposal based on this comment.

Comment: A commenter expressed concern about our statement in the June 24, 1998 IFC indicating that QCT can measure bone density at the spine and hip. The commenter indicated that only central (axial) DXA can measure BMD at the spine or hip and QCT is limited to the spine or the wrist. The commenter also stated that spine QCT exposes the patient to a significantly higher dose of radiation and that the technique is significantly less precise than central DXA or peripheral DXA or ultrasound. The commenter recommended that we drop coverage of this technique once there is sufficient geographic overlap between QCT and the alternative techniques, which are believed to be less costly, safer, and a more precise means of measuring bone mass than the QCT technique.

Response: On the basis of our review of the existing medical literature, we have determined that QCT can provide both central (spine and hip) and peripheral BMD measurements but does expose the patient to significantly higher doses of radiation. Though the appropriate use of QCT has yet to be defined, it may be used as an alternative to spine and hip DXA measurements as a method for measuring BMD (Surgeon General's Report, 2004). Therefore, we are not making any changes to our proposal as a result of this comment.

Comment: Another commenter from the June 24, 1998 IFC stated that there is insufficient evidence to support the clinical utility of BMD measurements of an individual's finger, tibia, or patella, which are performed by the use of either a peripheral x-ray or an ultrasound device, and suggested that measurement of those peripheral sites not be covered under Medicare.

Response: Measurement of peripheral bone density for screening and initial diagnosis can be accomplished by various techniques, though the appropriate use of these technologies in the prediction of bone disease and the risk of fracture has yet to be clearly defined. Therefore, we are not revising our proposal based on this comment. b. Conditions for Coverage (Sec. 410.31(b))

In Sec. 410.31(b), we proposed to revise the conditions for coverage for BMMs by requiring that for a medically necessary BMM to be covered for an individual being monitored to assess the response to or efficacy of an FDA-approved osteoporosis drug therapy (Sec. 410.31(d)(5)) the individual would be required to meet the present conditions for coverage under Sec. 410.31(b), and the monitoring would have to be performed by the use of an DXA system (axial system).

We recognized that in the June 24, 1998 IFC, we allowed the physician or qualified NPP treating the beneficiary more flexibility in ordering those diagnostic measurements, but we proposed to limit that flexibility for the type of BMM that is used for monitoring individuals receiving osteoporosis drug therapy and other purposes (as discussed later in this section) because of new evidence and other information received since publication of the June 24, 1998 IFC that supports the need for requiring the use of the DXA measurement (axial skeleton) in those circumstances. In addition to the 2004 Surgeon General's Report that recognized the superiority of the DXA (axial skeleton) for measuring bone mass over time, the International Society for Clinical Densitometry currently recommends that if an individual has a low bone mass using a peripheral measurement (appendicular skeleton) he or she should have a DXA (axial skeleton) performed for monitoring or confirmatory diagnostic purposes.

Therefore, we also proposed to revise Sec. 410.31(b) by adding a requirement that in the case of any individual who qualifies for a BMM as provided for in Sec. 410.31(d) and who receives a confirmatory baseline BMM to permit monitoring in the future, Medicare may cover a medically necessary BMM for that individual, if the present conditions for coverage under Sec. 410.31(b) are met, and the BMM is performed by a DXA system (axial skeleton) (if the initial measurement was not performed by this system).

As indicated previously in this section, the most widely accepted method for measuring BMD is the use of DXA (Surgeons General's Report 2004) at axial skeletal sites. DXA (axial skeleton) measures BMD at the hip and

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spine (sites likely to fracture in patients who have osteoporosis). DXA is precise, safe, and low in radiation exposure, and permits more accurate and reliable monitoring of individuals over time. DXA of the femoral neck is the best validated test to predict hip fracture and is comparable to forearm measurements for predicting fractures at other sites (Evidence Report/Technology Assessment No 28, Agency for Healthcare Research and Quality (AHRQ), January 2001).

Comment: Several June 24, 1998 IFC commenters expressed concern regarding the following statement from the June 24, 1998 IFC that ``there is a consensus that measurements of the central skeletal sites is the preferred method of assessment'' as compared with measurements of peripheral skeletal sites. These commenters stated that peripheral devices provide basically the same measurement benefits as central devices and have the added advantages of being easier to use, allowing greater patient accessibility, and reducing patient radiation exposure. However, the majority of the commenters on both the IFC and the proposed rule, strongly supported the aforementioned statement from the IFC and expressed specific concern that the IFC allowed for coverage of peripheral BMMs that have not been demonstrated to be useful in monitoring patients who are receiving osteoporosis drug therapies. These commenters agreed that only central devices (especially the DXA device) were useful in monitoring patients receiving pharmacologic therapy and they specifically recommended that peripheral tests be limited to screening for osteoporosis, and not be used for monitoring patients receiving FDA-approved osteoporosis drug therapy.

Response: As we indicated in the proposed rule, we agree that the most widely accepted method for measuring BMD is the use of dual x-ray absorptiometry (DXA) (Surgeon General's report 2004) at central skeletal sites. DXA measures BMD at the hip and spine (sites likely to fracture in patients who have osteoporosis), is precise, safe, and low in radiation exposure, and permits monitoring over time. DXA of the femoral neck is the best validated test to predict hip fracture and is comparable to forearm measurements for predicting fracture at other sites (AHRQ report 2001). The World Health Organization (WHO) classification of BMD for the diagnosis of osteoporosis is based primarily on reference data obtained by DXA of the axial skeleton. When monitoring the effectiveness of therapy, these central skeletal sites are more likely than peripheral sites to show an increase in BMD over time. For these reasons, we believe that the use of DXA at central sites is the best method for measuring BMD for both monitoring patients receiving FDA-approved osteoporosis drug therapy, and confirming BMD measurements performed on peripheral devices for patients who may be monitored in the future. In view of the comments received and our review of the medical literature, and other information, we are adopting our revision of Sec. 410.31(b) without change.

Comment: While most of the commenters supported our proposal to limit coverage of monitoring patients receiving osteoporosis drug therapy and for performing confirmatory baseline tests to the DXA of the central (axial) skeleton, several commenters urged us not to preclude coverage of QCT of the central (axial) skeleton for these purposes for individuals who have had an initial screening with a peripheral test. These commenters stated that the QCT technology has been relied upon for some time now by certain hospitals and imaging centers, and it would be unfair to them and their patients to preclude coverage for their tests in the final rule.

Response: We agree with the commenters who supported our proposal to limit coverage of monitoring patients receiving osteoporosis drug therapy, for performing confirmatory baseline test to the DXA of the central (axial) skeleton, and to not allow coverage of the QCT for these purposes. (Surgeon General's Report, 2004). The radiation exposure is significantly higher, for example, with the use of the lumbar spine QCT than is the case with the use of the DXA at central skeletal sites (Surgeon General's Report, 2004). Therefore, we are not making any change to our proposal based on these comments.

Comment: A commenter supported our proposal to change the conditions of coverage and standards on frequency of bone mass measurements to encourage the use of DXA of the axial skeleton for confirmatory baseline tests and for monitoring a patient's response to therapy, but cautioned that the medical literature does not support the use of DXA or other BMMs to assess efficacy of osteoporosis therapies. The commenter recommended that CMS clarify that BMM is not appropriate for monitoring the efficacy of osteoporosis therapies in preventing bone fractures.

Response: We recognize that the goals of monitoring patients are to increase adherence to treatment regimens and determine treatment response even though monitoring by densitometry has not been demonstrated to be effective in improving compliance (NIH Consensus Panel, 2001). Importantly, BMD changes are not correlated with the fracture risk reduction resulting from antiresorptive treatment (Roux, Garnero 2005). Therefore, while the efficacy of antiresorptive treatments has been verified in large trial powered to show reductions in fracture risk, it does not appear that fracture risk can be measured in individual patients being treated for osteoporosis. We are not making any changes to the final rule based on this comment. c. Bone Mass Measurement: Standards on Frequency of Coverage (Sec. 410.31(c))

To conform the examples of a BMM exception to the standards on frequency of coverage in Sec. 410.31(c)(2) to the regulation change we proposed in Sec. 410.31(b)(3), we proposed to revise the confirmatory baseline test example in Sec. 410.31(c)(2)(ii) to read, ``Allowing for a confirmatory baseline measurement to permit monitoring of beneficiaries in the future if the requirements of paragraph (b)(3) of this section are met.''

Comment: A number of commenters offered recommendations on the exceptions in paragraph (c)(2) to the general rule in paragraph (c)(1) that provided that ``Except as allowed under paragraph (c) (2) of this section, Medicare may cover a bone mass measurement (BMM) for a beneficiary if at least 23 months have passed since the month the last BMM was performed.'' The exceptions specified were-- (1) monitoring beneficiaries on long-term glucocorticoid (steroid) therapy of more than 3 months; and (2) allowing for a confirmatory baseline BMM to permit monitoring of beneficiaries in the future. These commenters indicated that in addition to the exceptions specified in paragraph (c)(2), there were certain individuals who were at higher risk of bone loss due to a disease, drug therapy, or other reasons who should be measured more frequently than once every 2 years. Most of these commenters recommended that these individuals should have a follow-up measurement at least once every 12 or every 12 to 18 months. Another commenter asked us to make an exception under paragraph (c) (2) for individuals with hyperparathyroidism who due to their diagnosis require both a DXA of the axial and the appendicular skeleton upon initial testing.

Response: In establishing the frequency of coverage general rule in Sec. 410.31(c)(1) of the IFC, we relied upon the guidance of the American Association of Clinical

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Endocrinologists, the ACR, and the National Osteoporosis Foundation, which appeared to be generally in agreement for the need to follow certain clinical guidelines for performing follow-up BMMs to the initial BMM that is performed. Based on that information, we specified in the June 24, 1998 IFC a general frequency of coverage interval of one follow-up examination every 2 years, identifying examples of situations where more frequent BMMs may be covered when medically necessary. We have decided to basically retain that general frequency of coverage standard and continue to allow Medicare contractors to cover additional exceptions to the specified exception examples based on medical necessity, even though there is a lack of evidence that adjusting therapy based on serial densitometry at any level improves outcomes (AHRQ Report 2001). Follow-up testing should be done when the expected change in BMD is at least equal to or exceeds the least significant change, which is the smallest change in BMD that is beyond the range of error, as changes in BMD are usually small in proportion to the error inherent in the test itself (Baim, Wilson et al., 2005). Each DXA facility should determine its precision error and then calculate the least significant change (Baim, Wilson et al., 2005). Regarding the comment on individuals with hyperparathyroidism, we recognize that the mechanics of bone loss may be different for these patients than they are for estrogen-deficient post-menopausal women, resulting in fracture risks that may be different and more difficult to determine (Miller, Bilezikian, 2002). Thus, it may be medically necessary for a treating provider to perform both a DXA of the axial and the appendicular skeleton in the initial screening of patients with this diagnosis. However, we believe the evidence is insufficient to establish a national policy exception to the 2-year frequency standard for these individuals as specified in Sec. 410.31(c). Nonetheless, we have decided to allow the treating provider to determine what is medically necessary in any particular case, subject to the review of the local Medicare contractor.

Comment: A June 24, 1998 IFC commenter questioned whether we would cover bone mass measurements for individuals on steroid therapy every 6 months after the initial treatment, as well as a baseline exam at the start of therapy as was suggested in the reference to the recommendations of others in the June 24, 1998 IFC (63 FR 34234).

Response: For those individuals on steroid therapy who are at high risk for osteoporosis, as well as for other medical circumstances where it might be appropriate to cover more than one BMM every 2 years, the treating provider currently has considerable flexibility in accordance with our regulations to determine the frequency of testing in any particular case, subject to the review of the local Medicare contractor. However, in the absence of sufficient evidence in the medical literature to support any specific frequency interval for individuals receiving steroid therapy, we are not establishing any specific frequency interval for coverage of these individuals in this regulatory example of possible exceptions to the general standard in section Sec. 410.31(c) of the final rule. Rather, we are leaving this to our local Medicare contractors, based on the best evidence that is available to them and their medical consultants.

Comment: A June 24, 1998 IFC commenter expressed concern regarding our policy in Sec. 410.31(c)(2)(ii) that allows coverage of a confirmatory baseline BMM (either central or peripheral) to permit monitoring of beneficiaries in the future if the initial test was performed with a technique that is different from the proposed monitoring method. That is, a qualified individual may be tested initially with DXA at the hip and spine and then have a confirmatory test with a peripheral device on which the patient is to be monitored every 2 years. The commenter suggested that this policy be revised to preclude coverage of the confirmatory test by the use of a peripheral device because its precision is significantly poorer than the stationary table DXA. The commenter believes that peripheral devices are best suited for screening and initial diagnosis and not for monitoring a patient's response to drug therapy.

Response: We agree that confirmatory testing with a peripheral device should be precluded from coverage. As stated in the Surgeon General's report, as well as recommendations by the International Society of Clinical Densitometry (Journal of Clinical Densitomery 2004; 7:1-5), central skeletal sites are most appropriate for monitoring the effectiveness of therapy, as they are more likely than peripheral sites to show an increase in BMD in response to treatment. Therefore, we included a provision in the proposed rule revising Sec. 410.31(c)(2)(ii) to preclude coverage of a confirmatory test that is performed with the use of a peripheral device and to limit such coverage to a central (axial) DXA. For the reasons described above, as well as the general support of the public commenters on the proposed rule, we are adopting this revision as final without change. d. Bone Mass Measurement: Beneficiaries Who May Be Covered (Sec. 410.31(d))

The Congress has recognized that individuals receiving long-term glucocorticoid steroid therapy are qualified individuals for purposes of section 1861(rr)(1) of the Act. Therapy to prevent bone loss in most patients beginning long-term therapy has been recommended at a prednisone equivalent of greater than 5 mg/day for at least 3 months (McIlwain, 2003). Based on our review of the current evidence, we proposed to reduce the dosage equivalent in Sec. 410.31(d)(3) from an average of 7.5 mg/day of prednisone for at least 3 months to an average of 5.0 mg/day of prednisone for the same period.

Comment: A number of commenters expressed concern that certain categories of individuals that warranted inclusion under the BMM benefit were not covered and they recommended that the IFC be revised to include them in the final rule. However, a commenter noted that the Medicare law needed to be amended so that the legal definition of ``qualified'' individuals for BMM coverage keeps pace with additional current scientific and clinical evidence on who is at risk for osteoporosis. Overall, more than 27 additional categories of ``qualified'' individuals were recommended for coverage of bone mass measurements under the benefit. These included patients diagnosed with male hypogonadism, Parkinson's disease, multiple sclerosis, myasthenia gravis, Gaucher's disease, mastocytosis, malabsorption syndromes, history of bulimia, chronic lung disease, renal disease, diabetes mellitus, rheumatoid arthritis, secondary hyperparathyroidism and nonvertebral fractures, tobacco dependence, as well as patients on heparin therapy, anticonvulsant therapy, methotrexate therapy, thyroid replacement therapy, and antiepileptic drug therapy, etc.

Response: We have carefully reviewed the above additional categories of individuals who have been recommended for Medicare coverage under the final rule, and have concluded that they do not qualify for coverage under the specific statutory language mentioned above. Section 1861(rr) of the Act provides that the term ``qualified individual'' for purposes of this benefit means ``an individual who is (in accordance with regulations prescribed by the Secretary)--(A) an estrogen-deficient

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woman at clinical risk for osteoporosis; (B) an individual with vertebral abnormalities; (C) an individual receiving long-term glucocorticoid steroid therapy; (D) an individual with primary hyperparathyroidism; or (E) an individual being monitored to assess the responsive to or efficacy of an approved osteoporosis drug therapy.'' Therefore, we believe a change in the Medicare statute would be required in order for us to cover these additional categories of individuals under the BMM benefit.

Comment: Most of the commenters supported our broad interpretation of the statutory category of ``An estrogen-deficient woman and at clinical risk for osteoporosis'' that was specified in the interim final regulation provision Sec. 410.31(d)(1). A June 24, 1998 IFC commenter noted that because the risk factors associated with osteoporosis are so numerous and complex, it is appropriate to allow a woman's treating physician or other treating practitioner to determine whether she is estrogen-deficient or a clinical risk of osteoporosis. However, several June 24, 1998 IFC commenters were concerned about how the definition would be implemented by Medicare contractors. A commenter expressed concern that because there is not an existing ICD- 9-CM diagnosis code to describe the condition of estrogen-deficient, this could result in the need for practitioners to use several other ICD-9-CM codes that describe conditions likely to result from estrogen deficient, and in variations in Medicare coverage from carrier to carrier.

Response: We allowed the treating physician or other treating practitioner the discretion and flexibility to determine whether a female beneficiary is estrogen-deficient and at clinical risk for osteoporosis. Creating a code specifically for reimbursement when the condition is described by other codes is not required. Therefore, we are not making any changes to our proposals based on these comments.

Comment: Several IFC commenters indicated that the beneficiary category in Sec. 410.31(d)(5) of ``An individual being monitored to assess the response to or efficacy of an FDA-approved osteoporosis drug therapy'' is too limited and should be expanded to include coverage of individuals receiving other treatments, including certain medications that do not have FDA approval for osteoporosis treatment, and certain rehabilitation treatments such as therapy-weight lifting and similar interventions. A commenter noted, for example, that didronel, which has been approved by the FDA for the treatment of Paget's disease, is not FDA-approved for osteoporosis treatment but, its safety and efficacy in reducing or reversing steroid-induced osteoarthritis is supported by a large body medical literature.

Response: We recognize that not all Medicare beneficiaries who are treated for osteoporosis are prescribed FDA-approved osteoporosis drug therapy. However, in implementing the statutory mandate in section 1861(rr)(2) of the Act to include as a ``qualified individual'' for Medicare-covered bone mass measurements ``an individual being monitored to assess the response to, or efficacy of an approved osteoporosis drug therapy,'' we do not believe it is appropriate for us to extend such coverage to beneficiaries who are receiving non-FDA approved osteoporosis drug therapies. Thus, we are not adopting the changes recommended by the commenters.

Comment: A number of commenters addressed our proposal to revise Sec. 410.31(d)(3) which stated that one of the categories of beneficiaries who was entitled to receive Medicare coverage for a medically necessary BMM was ``An individual receiving (or expecting to receive) glucocorticoid (steroid) therapy equivalent to 7.5 mg of prednisone, or greater, per day for more than 3 months.'' The majority of these commenters suggested that the minimum requirement of 7.5 mg of prednisone, or greater, per day provision was too strict, and that a dose requirement of 5.0 mg per day was more appropriate. However, several commenters stated that even lower dosage amounts than 5.0 mg have been shown to cause significant bone loss over prolonged periods of time, usually because of comorbidities such as rheumatoid arthritis. A commenter recommended that this beneficiary category be expanded to allow coverage for any patient taking steroids for longer than 3 months regardless of the dose that is taken by the patient. Another commenter was also concerned about the 7.5 mg of prednisone, or greater, per day provision, but suggested a minor change that would allow an individual receiving (or expecting to receive) glucocorticoid (steroid) therapy equivalent to an average of 7.5 mg of prednisone, or greater, per day for more than 3 months to be covered under the benefit. This commenter stated that use of the average measurement is more in line with the realities of modern medicine and would clarify that those individuals who are receiving the same dosage at different intervals (every other day) are eligible for coverage.

Response: We agree that the minimum 7.5 mg of prednisone dose provision needs to be lowered and that use of an average dose measurement in specifying this standard is appropriate. Patients with glucocorticoid-induced osteoporosis appear to be at high risk for fractures. Researchers have reported that reductions in bone mass have been seen as early as 3 months after starting therapy (McIlwain, 2003). Therapy to prevent bone loss in most patients beginning long-term therapy has been recommended at a prednisone equivalent of >=5 mg/day for at least 3 months (McIlwain, 2003). Based on the comments that we have received and our review of the current evidence, we are adopting our proposal to revise Sec. 410.31(d)(3) to reduce the minimum dosage requirement from 7.5 mg to an average of 5.0 mg/day of prednisone for at least 3 months.

Comment: Several IFC commenters expressed concern that Medicare beneficiaries at risk for osteoporosis due to their use of antiepileptic drugs are not eligible for an initial bone mass screening because they are not included in any of the five categories of patients defined as ``qualified individuals.'' The commenter indicates that if it is not possible to change this under current law is it possible for us to confirm that follow-up monitoring tests would be covered every 2 years for a patient on anti-epileptic drugs who shows signs of osteoporosis and who is then placed on osteoporosis FDA-approved drug therapy.

Response: We agree that patients on antiepileptic drugs may be at increased risk for fractures. Still, the current law does not generally address this group of patients as ``qualified'' individuals under section 1861(rr) of the Act. Monitoring of individuals on anti- epileptic drugs who may also be FDA-approved drug therapy for osteoporosis, of course, may be covered as provided under the BMM benefit. e. Use of the NCD Process (Sec. 410.31(f))

To facilitate future consideration of coverage of additional BMM systems for purposes of proposed paragraphs Sec. 410.31(b)(2) and (b)(3), which will limit coverage of BMMs for monitoring individuals receiving osteoporosis drug therapy and for performing confirmatory baseline measurements, we proposed to identify additional BMM systems for those purposes through the NCD process. By using the NCD process, we could conduct a timely assessment of FDA-approved BMMs. Use of an NCD to add coverage of effective BMM systems for these purposes is authorized by the reasonable and necessary provision of

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sections 1862(a)(1)(A) and 1871(a)(2) of the Act.

Comment: One commenter requests that we give Medicare carriers discretion to cover new and advanced technologies that become available to screen for risk of fracture rather than requiring that such technologies be evaluated through the NCD as specified in the proposed rule. The commenter stated that the NCD process can be long and cumbersome, and that requiring that new technologies be added through this process could prevent beneficiaries from having access to these new and better technologies for some length of time.

Response: The IFC implemented section 4106 of the BBA by establishing conditions for coverage and frequency standards for BMMs to ensure that (among other things) they are paid for uniformly throughout the Medicare program. To ensure that important new and advanced BMM technologies as defined under the statute and regulations are paid for uniformly under the program, we believe they should be identified and evaluated through the NCD process. By relying on the NCD process for this purpose, we believe we will able to conduct a timely assessment of FDA-approved BMMs for possible uniform coverage under the program that is not possible if we left this to local contractor discretion. In most circumstances, the NCD process is required to be completed within 9 to 12 months of the time that we accept a formal request for an NCD on a particular procedure.

Comment: Several commenters noted that the WHO is currently in the process of developing a standardized methodology for determining fracture risk. A commenter indicated that although DXA is one important tool for measuring fracture risk, there are other clinical risk factors that are also important to evaluation, specifically to determine which patients are likely to best respond to treatment. The commenters suggested that employing the new risk assessment methodology may lead to better patient outcomes by helping providers better identify those patients who should be on therapy and they ask CMS to recognize this new assessment methodology for coverage under Medicare Part B when WHO completes its work on it.

Response: We do not know enough about the parameters of the standardized methodology for determining fracture risk that the WHO is developing to respond very specifically to this comment. However, if this standardized methodology for measuring fracture risk relies on the use of a device or technique that meets our definition of a BMM as defined in Sec. 410.31(a), we believe it would be appropriate to consider evaluating any formal request for an NCD for such a device or technique, if it were submitted to us for evaluation. f. Other Issues

Comment: A commenter questioned why there was no discussion in the IFC about the importance of ethnicity as a risk factor for low bone mass and osteoporosis. The commenter suggests that ethnicity is one of the most important risk factors for low bone mass and osteoporosis.

Response: We agree that ethnicity as well as many other risk factors may result in certain individuals being considered to be more likely to develop osteoporosis than other individuals. For example, the National Osteoporosis Foundation (NOF) and other medical professional organizations have reported that Caucasians and Asians appear to be more at risk for developing osteoporosis than other ethnic groups. However, the NOF has also indicated that significant risk has been reported in people of all ethnic backgrounds, including African- Americans and Hispanic-Americans. The reason that this subject was not discussed in the IFC was that ethnicity was not specifically identified in the BMM Amendment that was enacted in 1997 as a risk factor or medical indication that warranted Medicare coverage of bone mass measurements. Therefore, a careful examination of this subject is beyond the scope of this final rule. However, we expect that in completing an evaluation of the beneficiary's need for the bone mass measurement, as provided in Sec. 410.31(b)(1), the physician or other qualified practitioner (as these terms are defined in the regulation) will take ethnicity and other significant risk factors into account in ordering medically necessary tests for individual patients to the extent that it is possible to do so under the statutory beneficiary categories specified in Sec. 410.31(d).

Comment: Several commenters indicated that the IFC offered insufficient guidance on how to document the medical necessity of bone mass measurements performed on ``qualified individuals'' (Sec. 410.31(d)) by the use of ICD-9-CM diagnosis codes. The commenter suggested that we develop national guidelines that would help providers in documenting the medical necessity of bone mass measurements.

Response: The IFC did not provide guidance on the ICD-9-CM diagnosis codes that could be used by physicians or other providers in documenting Medicare claims for bone mass measurements. However, our original intent was that local Medicare contractors were to be responsible for developing those appropriate specific diagnostic coding guidelines for the physicians and other providers in their respective localities and for communicating those guidelines to them and to the general medical community, and they have been doing that successfully since 1998. We expect our contractors will continue to do this as necessary in the future.

Comment: A commenter suggests the need for a unique CPT code or modifier to help distinguish a ``confirmatory baseline bone mass measurement'' from a BMM that may be in violation of the frequency of coverage standard of one follow-up monitoring test every 2 years.

Response: We do not believe there is a need to establish a unique CPT code or modifier to distinguish a ``confirmatory baseline bone mass measurement'' for a BMM that may be in violation of the frequency of coverage standard of one follow-up monitoring test every 2 years because local Medicare contractors rely on the use of frequency screens (or edits) in determining whether follow-up tests are medically necessary for individual patients. These frequency screens (or edits) do not require the use of a unique CPT code or modifier by providers in billing for these follow-up tests in order for local contractors to be effective in making their medical necessity determinations.

In view of the comments and our review of the medical literature, and other information, we are adopting our proposed revisions to Sec. 410.31 as final without change.

L. Independent Diagnostic Testing Facility (IDTF) Issues

1. IDTF Changes

During the course of a national review in 2003-2004, the OIG found a potential $71 million in improper payments made to IDTFs (Review of Claims Billed by Independent Diagnostic Testing Facilities for Services Provided to Medicare Beneficiaries During Calendar Year 2001 (A-03-03- 00002)). The OIG found that erroneous payments were made as the result of poor or missing documentation or lack of medical necessity. Moreover, in recent years, we have determined with the help of our contractors that a number of IDTFs in California and other States are perpetrating schemes to defraud the Medicare program.

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Since 2000, the number of IDTFs in California has increased by 40 percent, which is a far greater percentage increase than the Medicare population in that State. The number of IDTFs billing Medicare in California alone increased more than 400 percent from 2000 to 2005. The increased use of IDTF services has not lowered the use of diagnostic testing within other settings. The increased rates of utilization within IDTFs are likely to be unrealistic due to an increase in the need for diagnostic testing within California's Medicare population. Also, these IDTFs are growing at a rate faster than we can survey these facilities. The actual growth of IDTFs is not a problem. However, the results of the OIG audit make it clear that we need to closely monitor IDTFs and establish standards to ensure quality care for Medicare beneficiaries. To address the erroneous payments identified by the OIG, we proposed to establish IDTF performance standards similar to those in Sec. 424.57 which we adopted for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Suppliers in the Additional Supplier Standards final rule published in the October 11, 2000 Federal Register (65 FR 60366).

In the CY 2007 PFS proposed rule, we proposed that each IDTF be required to be in compliance with the proposed fourteen suppler standards discussed in section II.L.2. of this final rule with comment period to obtain or retain enrollment in the Medicare program (71 FR 49061). Accordingly, at Sec. 410.33(h), we proposed that if an IDTF fails to meet one or more of the standards at the time of enrollment or at the time of re-enrollment, then its enrollment application would be denied. Also, if at any time we determine that an enrolled IDTF no longer meets the performance standards, its billing privileges would be revoked.

We believe that these performance standards are needed to ensure that minimum quality standards are met to protect beneficiaries, as well as the Medicare Trust Fund. These standards are merely good business practices that will help to ensure that suppliers are providing a quality care to Medicare beneficiaries. Examples of the kind of standards are a primary business phone number and address. Another example is a posting of standards for review by patients and the public.

For IDTFs, we proposed to adopt a number of standards that we adopted for DMEPOS suppliers, including supplier standard number 6 which requires a supplier to maintain a comprehensive liability insurance policy of $300,000 or 20 percent of its average annual Medicare billings, whichever amount is greater, that covers both the place of business and all customers and employees of the IDTF.

Furthermore, we proposed in the new performance standard number 7 that an IDTF agrees not to directly solicit patients. This provision does not preclude the IDTF from public advertisement or marketing its services to physicians and other suppliers, however it does prohibit recruitment of beneficiaries through direct solicitation.

Additionally, the IDTF will be required to grant us, or our designated fee-for-service contractors, including our agents, to have access to the IDTF physical location, all equipment, and beneficiary medical records during normal business hours. For portable equipment, an IDTF will be required to maintain a catalog of portable equipment and be able to produce the cataloged equipment within 2 business days. If the IDTF denies this access, the IDTF's Medicare enrollment will be immediately revoked.

To ensure that equipment used by an IDTF is maintained and operates properly, we sought public comments regarding IDTF supplier standard number 11, which requires that an IDTF must have its testing equipment calibrated per equipment instructions or in compliance with applicable industry standards. Specifically, we sought public comments regarding the organizations or entities that may currently establish testing specifications for diagnostics equipment. Further, if these organizations or entities do not exist, we invited public comments on the establishment of a supplier standard that relies on the manufacturer's maintenance and calibration standards. 2. Performance Standards for IDTFs

The IDTF would be required to meet the following standards as of January 1, 2007 and any newly or reenrolling IDTF would be required to certify in its enrollment application that it meets and will continue to meet the standards. At Sec. 410.33, we proposed to specify that the IDTF is required to--

Operate its business in compliance with all applicable Federal, State, and local licensure and regulatory requirements for the health and safety of patients;

Provide complete and accurate information on its enrollment application as stated in the ``Requirements for Providers and Suppliers to Establish and Maintain Enrollment final rule'' (April 21, 2006, 71 FR 20754). Any change in enrollment information must be reported to the designated fee-for-service contractor on the Medicare enrollment application within 30 calendar days;

Maintain a physical facility on an appropriate site. For the purposes of this standard, a post office box or commercial mailbox is not considered a physical facility. The physical facility must contain space for equipment appropriate to the services designated on the enrollment application, facilities for hand washing, adequate patient privacy accommodations, and the storage of both business records and current medical records;

Have all applicable testing equipment available at the physical site, excluding portable equipment. A catalog of portable equipment, including equipment serial numbers, must be maintained at the physical site. In addition, portable equipment must be made available for inspection within 2 business days of our inspection request. The IDTF will be required to maintain a current inventory of the equipment (including serial/registration numbers), provide this information to the designated fee-for-service contractor and notify the contractor of any changes in equipment;

Maintain a primary business phone under the name of the business. The business phone must be located at the designated site of the business. The telephone number or toll free numbers must be available in a local directory and through directory assistance;

Have a comprehensive liability insurance policy of at least $300,000 or 20 percent of its average annual Medicare billings, whichever amount is greater, that covers both the place of business and all customers and employees of the IDTF. The insurance policy must be carried by a non-relative owned company. The policy must list the serial numbers of any and all equipment used by the IDTF;

Agree not to directly solicit patients, which includes, but is not limited to, a prohibition on telephone, computer, or in- person contacts. The IDTF will accept only those patients referred for diagnostic testing by an attending physician, who is furnishing a consultation or treating a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary's specific medical problem. NPPs may order tests as set forth in Sec. 410.32(a)(3);

Answer beneficiaries' questions and respond to their complaints. Documentation of those contacts must be maintained at the physical site;

Openly post these standards for review by patients and the public;

Disclose to the government, any person having ownership, financial or

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control interest, or any other legal interest in the supplier at the time of enrollment or within 30 days of a change;

Have its testing equipment calibrated per equipment instructions and in compliance with applicable national standards;

Have technical staff on duty with the appropriate credentials to perform tests. The IDTF must produce the applicable Federal or State licenses and/or certifications of the individuals performing these services;

Have proper medical record storage and be able to retrieve medical records upon request from CMS or its designated fee-for-service contractor within 2 business days; and

Permit CMS, including its agents or its designated fee- for-service contractors, to conduct unannounced, on-site inspections to confirm the IDTF's compliance with these standards. The IDTF is required to provide access, during regular business hours, to CMS and beneficiaries, as well as maintain a visible sign posting the normal business hours of the IDTF. 3. Supervision

To ensure quality care is provided to Medicare beneficiaries, we proposed to revise Sec. 410.33(b)(1) to read that physicians will be limited to providing supervision to ``no more than three IDTF sites.'' 4. Place of Service

In addition to establishing specific performance standards for IDTFs, at Sec. 410.33(i), we proposed to define the ``point of the actual delivery of service'' as the correct ``Place of Service'' for the claim form in the case of diagnostic testing performed outside the IDTF's physical location. For example, when an IDTF performs a diagnostic test at a beneficiary's residence, we believe that it is reasonable to establish the beneficiary's residence as the ``Place of Service.'' Previously, there has been no set procedure, so therefore, we believe that the information is gathered at the collection point from the beneficiary, and this is the point service. While most diagnostic tests are performed in an office setting, we solicited public comments regarding the types of services that can be safely and appropriately used in a residential setting. 5. Analysis of and Responses to Public Comments

Comment: Several commenters agreed with our proposal to limit the number of IDTFs that a physician can oversee to three. Conversely, some commenters expressed concern about our proposal to limit the number of IDTFs that a physician can oversee.

Response: While we understand the concerns associated with limiting the number of IDTFs that a physician can oversee to three, we believe that limiting the number of IDTFs that a physician can oversee will promote quality of care. We are defining the supervising physician to be the person who is listed in Attachment 2, Section E on the CMS-855B enrollment application.

Comment: Several commenters suggested that the proposed standards be revised to reflect that mobile IDTFs will have different needs and requirements from those IDTFs which are stationary.

Response: We appreciate this comment and have revised our policy in this final rule with comment period to address IDTF performance standards for both fixed and mobile IDTFs.

Comment: Several commenters recommended that we expand the proposed IDTF performance standards to all imaging services.

Response: While we appreciate this comment, we will consider this change in a future rulemaking document.

Comment: One commenter expressed concern regarding our proposal that an IDTF maintain a physical facility on an appropriate site and that IDTFs would be required to maintain a specified number of square feet per facility.

Response: While we understand the commenter's concern, it was never our intent to establish a minimum square foot requirement. We believe that the size of an IDTF can vary depending on the services performed. Accordingly, we believe that the size of a fixed-based IDTF should be of sufficient size to provide the services offered by the IDTF, such as maintaining records, and performing administrative tasks.

Comment: Several commenters recommended that physicians can be proficient in analyzing test results without being considered a specialist in the field relating to that specific type of diagnostic testing.

Response: This issue is outside of the scope of the provisions of the proposed rule, and therefore, we are not providing a response at this time.

Comment: In lieu of the specific performance standards proposed, several commenters recommended that we use accreditation as a method for improving compliance and limiting fraud and abuse with IDTFs.

Response: While we appreciate this comment, we are not able to adopt this recommendation. We believe that it is essential that we obtain additional information from the public before adopting IDTF accreditation standards.

Comment: Several commenters recommended establishing a grace period before carriers begin the revocation process for those IDTFs that fail to meet the new performance standards.

Response: While we understand the concerns of the commenters, we do not believe that it is practical to delay implementation of these standards. With the publication of this final rule with comment period, all IDTFs are being notified of the new performance standards. Moreover, we believe that most IDTFs meet the performance standards that we are adopting, or that they can do so within the time period between the publication of this final rule with comment period and its effective date. In addition, as we put this policy into operation, we will consider phasing-in our implementation approach. In the event that an IDTF's billing privileges are revoked, the supplier can appeal the revocation.

Comment: Several commenters expressed the concern that an unannounced site visit by CMS or our representatives could be potentially disruptive to an IDTF's operations.

Response: We believe that unannounced site visits are a useful tool to ensure that IDTFs are meeting their enrollment requirements and performance standards. We will work closely with our contractors to limit any disruptions during a site visit.

Comment: One commenter recommended that we eliminate the IDTF benefit.

Response: We believe that establishing performance standards and the other changes in this regulation will improve quality and assist us in our efforts to reduce fraud and abuse in the Medicare program. Accordingly, we are finalizing this proposal.

Comment: One commenter recommended eliminating the requirement to maintain a primary business phone located at the designated site for business, especially with regards to mobile IDTFs.

Response: We believe that it is essential that fixed and mobile IDTFs maintain a primary business telephone number. Moreover, we believe the primary business telephone number for fixed-based IDTFs is located at the practice location for the IDTF. For mobile IDTFs, we believe that the primary business telephone number is the home location for the mobile facility.

Comment: Several commenters recommended that we clarify where

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mobile IDTFs would store patient records.

Response: We believe that it is appropriate for a mobile IDTF to store patient records at their home location.

Comment: In lieu of the proposed performance standards, several commenters recommended that we implement modality specific standards to address the diverse nature of the services provided by IDTFs.

Response: We are not able to adopt this recommendation because we believe that it is essential that we obtain additional information from the public before adopting modality-specific standards.

Comment: Several commenters stated that our proposal for a physician to be responsible for overall operations and administration of an IDTF has no basis, and that a physician should solely play a clinical or technical role.

Response: We believe that a supervising physician, as identified in Attachment 2 of the CMS-855B Medicare enrollment application, is fundamentally responsible for the proper administration of an IDTF's services.

Comment: Several commenters questioned our interpretation for the point-of-service for services provided outside the IDTF, specifically at the beneficiary's residence.

Response: The beneficiary's location will be considered the place of service for pure, home-based testing. Those diagnostic tests which have another element outside of the testing location will continue to have the IDTF as the place of service of that diagnostic procedure.

Comment: Several commenters recommended that there is a need for a supervising physician within an IDTF and that the language in the proposed rule stating that, ``a physician could oversee no more than three IDTFs,'' could be interpreted to mean that a physician does not have to oversee an IDTF.

Response: We concur with this recommendation and believe that this standard should be interpreted as a physician will oversee one to no more than three IDTFs, not that an IDTF does not need a supervising physician.

Comment: We received numerous comments concerning one aspect of performance standard 6. We proposed that the IDTF would have to maintain a comprehensive liability insurance policy of $300,000 or 20 percent of the IDTF's Medicare billings, whichever amount is greater. We received comments suggesting the removal of the 20 percent condition as this would be an undue burden to the IDTF. Additionally, we received comments suggesting that we establish a flat rate such as the $300,000 proposed, having a $300,000 policy for each facility, an increase to a $500,000 flat coverage, a comprehensive insurance policy of $1 million, or an aggregate rate of $3 million.

Response: In order to reduce administrative burden associated with calculating comprehensive liability insurance for suppliers and to ensure compliance of this new standard, we will establish a comprehensive liability insurance amount of $300,000 per location for IDTFs. We agree with the recommendation that comprehensive liability insurance coverage of $300,000 per facility location is more appropriate, given that the likelihood of an incident occurring would increase as the number of facilities increases. We believe that the $300,000 per location represents the reasonable level of coverage for a facility's comprehensive liability insurance and we will change performance standard 6 to reflect this change.

Comment: One commenter suggested that we eliminate the provision that insurance policy must be carried by a non-relative-owned company.

Response: Consistent with our DMEPOS supplier standards, we believe the comprehensive liability insurance must be obtained from a verified third party to ensure that the coverage exists.

Comment: Several commenters recommended our performance standards address State requirements, and that we should develop a Federal set of standards that would not vary from State to State.

Response: While we understand this concern, we believe that each State should continue to establish its own licensing requirements. Further, we believe that all IDTFs must maintain compliance with applicable Federal, State, and local licensure and regulatory requirements.

Comment: Several commenters expressed concern with our proposed supplier standard 7 which states that an IDTF agrees not to directly solicit patients, and these commenters recommended that we remove or clarify standard seven.

Response: We understand the concerns of the commenters, but we are not attempting to prohibit public advertising. Supplier standard 7 is designed to prohibit an IDTF or its representative from direct, person- to-person solicitation of beneficiaries by means of phone, computer, or in-person. Clearly, an IDTF can use public advertisement, including advertising on television, radio, internet, direct mailing, billboards, or newspapers.

Comment: One commenter recommended that complaints by beneficiaries should be documented on paper and kept at a home office location.

Response: At this time, we are not requiring that an IDTF collect and maintain a log of beneficiaries' questions and complaints because we did not propose this requirement in the CY 2007 PFS proposed rule. In a future rulemaking document, we will address a formal collection process for this documentation.

Comment: Several commenters expressed concern regarding the storage and specifications of medical records (namely the comprehensive medical records of the beneficiaries they are currently treating or have treated), as well as how we would be defining current medical records, largely due to the additional burden of HIPAA requirements associated with a patient's comprehensive medical treatments.

Response: We view current medical records as consisting of the services provided by the IDTF to its current and prior patients. Upon request, CMS or its contractors may request comprehensive medical records for an IDTF.

Comment: Several commenters expressed support for IDTF supplier standard 11 which mandates the calibration of all IDTF testing equipment. These commenters recommended that we work with the National Electrical Manufacturers Association (NEMA) prior to establishing any calibration and maintenance requirements.

Response: We appreciate these comments and intend to work with NEMA and other organizations in the development of calibration and maintenance requirements.

Comment: We received a comment stating that IDTFs should not be required to post performance standards.

Response: We believe that posting performance standards educates patients of an IDTF regarding their rights within the IDTF setting. Therefore, we will adopt this standard as proposed.

Comment: Several commenters recommended that we postpone implementing the proposed IDTF performance standards in 2007 and work with industry to develop standards for the CY 2008 PFS.

Response: Given the widespread support of IDTF performance standards, we believe it is appropriate to implement our proposed changes as soon as possible. Therefore, we will

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implement the IDTF standards in this final rule with comment period.

Comment: Several commenters recommended that our proposed 30-day timeframe for reporting changes in enrollment data was insufficient and that IDTFs should be allowed to continue to report changes within 90 days.

Response: Consistent with the reporting requirements for DMEPOS suppliers, and given the fraud and abuse concerns in this area, we believe that it is appropriate to adopt the 30-day timeframe for IDTFs to report changes in enrollment information. 6. Provisions of the Final Rule. a. Performance Standards for IDTFs

We received numerous valuable comments concerning the proposed supplier standards and have revised them to reflect the issues brought forth during the comment period. Therefore, we have amended these new standards to reflect the differences in an IDTF's setting and the services which they provide. We are adopting the provisions contained in the proposed rule as final with the following changes.

We are revising supplier standard number 3 to address concerns regarding how performance standards affect mobile IDTFs, rather than fixed location IDTFs. Specifically, we are adopting a position that IDTF performance standards apply to the home location of the mobile IDTF, not the mobile vehicle. Accordingly, the home location of the mobile IDTF, not the mobile IDTF vehicle, is required to maintain patient records, a primary business phone, and meet all other performance standards met by fix location IDTFs.

We are revising supplier standard number 6 to establish a set amount for comprehensive liability insurance in the amount of $300,000 per location (an amount similar to the amount of insurance coverage for DMEPOS suppliers). We are adopting, for IDTFs, supplier standard number 6 which requires a supplier to maintain a comprehensive liability insurance policy of $300,000 for each IDTF location, which covers both the place of business and all customers and employees of the IDTF. We believe that the second part of the proposed provision of 20 percent of its average annual Medicare billings, if greater than the $300,000 would be a burdensome task for supplier to calculate on annual basis and lead to compliance concerns.

We are clarifying supplier standard number 7 that an IDTF agrees not to directly solicit patients. While this provision does not preclude an IDTF from public advertisement or marketing of its services to beneficiaries, physicians and other suppliers, it does prohibit recruitment of beneficiaries through direct solicitation, namely through person-to-person contact, whether it be in-person, by computer, or telephone.

Since we did not include the requirement in the CY 2007 PFS proposed rule, we are revising performance standard 8 and removing the sentence concerning the documentation of contacts concerning beneficiaries' questions and complaints because we believe it would be unfair and confusing to the public, and would present an undue paperwork burden.

We are revising supplier standard number 11 to state that each piece of diagnostic testing equipment be maintained and calibrated to its manufacturer's standards. To ensure that equipment used by an IDTF is maintained and operates properly, we sought public comments regarding IDTF supplier standard number 11, which requires that an IDTF must have its testing equipment calibrated per equipment instructions or in compliance with applicable industry standards. Specifically, we sought public comments regarding the organizations or entities that may currently establish testing specifications for diagnostics equipment. We received a number of comments supporting this proposal with minor changes suggested by leaders within this industry. We are adopting a recommendation that we use each manufacturer's maintenance and calibration standards which they have determined are appropriate for the diagnostic testing equipment they manufacture for use within these IDTFs. We will continue to consult with industry leaders regarding the best approaches to ensure that all IDTF testing equipment is maintained and calibrated in accordance with manufacturer's specifications.

We are clarifying supplier standard number 14 that fixed and mobile IDTFs are required to grant CMS, or our designated fee-for-service contractors, access to the IDTF physical location, all equipment, and beneficiary medical records during normal business hours. We also adopted the position that for portable equipment, an IDTF will be required to maintain a catalog of portable equipment and be able to produce the cataloged equipment within 2 business days. If the IDTF denies CMS or our designated fee-for-service contractor access to its fixed located or the home location for a mobile vehicle, the IDTF's Medicare enrollment will be denied if initially enrolling or revoked if currently enrolled in the Medicare program.

Accordingly, at Sec. 410.33(h), we are stating that if an IDTF fails to meet one or more of the standards at the time of enrollment, then the enrollment application would be denied. Also, we are adopting the position that if at any time we determine that an enrolled IDTF no longer meets one or more of the IDTF performance standards, the IDTF's billing privileges would be revoked.

As specified in Sec. 410.33, the IDTF will be required to meet the following standards as of January 1, 2007 and any newly or reenrolling IDTF will be required to certify in its enrollment application that it meets and will continue to meet the standards.

Operate its business in compliance with all applicable Federal, State, and local licensure and regulatory requirements for the health and safety of patients;

Provide complete and accurate information on its enrollment application as stated in the ``Requirements for Providers and Suppliers to Establish and Maintain Enrollment final rule'' published in the April 21, 2006 Federal Register (71 FR 20754). Any change in enrollment information must be reported to the designated fee-for-service contractor on the Medicare enrollment application within 30 calendar days;

Maintain a physical facility on an appropriate site. For the purposes of this standard, a post office box or commercial mailbox is not considered a physical facility. The physical facility, including mobile units, must contain space for equipment appropriate to the services designated on the enrollment application, facilities for hand washing, adequate patient privacy accommodations, and the storage of both business records and current medical records within the office setting of the IDTF, or IDTF home office, not within the actual mobile unit;

Have all applicable diagnostic testing equipment available at the physical site, excluding portable diagnostic testing equipment. A catalog of portable diagnostic testing equipment, including diagnostic testing equipment serial numbers, must be maintained at the physical site. In addition, portable diagnostic testing equipment must be made available for inspection within 2 business days of our inspection request. The IDTF will be required to maintain a current inventory of the diagnostic testing equipment (including serial/ registration numbers), provide this information to the designated fee- for-service contractor and

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notify the contractor of any changes in equipment;

Maintain a primary business phone under the name of the business. The primary business phone must be located at the designated site of the business, or within the home office of mobile IDTF units. The telephone number or toll free numbers must be available in a local directory and through directory assistance;

Have a comprehensive liability insurance policy of at least $300,000 per location that covers both the place of business and all customers and employees of the IDTF. The insurance policy must be carried by a non-relative owned company. The policy must list the serial numbers of any and all diagnostic equipment used by the IDTF, whether the equipment is stationary, in a mobile unit, or at the beneficiary's residence;

Agree not to directly solicit patients, which includes, but is not limited to, a prohibition on telephone, computer, or in- person contracts. The IDTF will accept only those patients referred for diagnostic testing by an attending physician, who is furnishing a consultation or treating a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary's specific medical problem. NPPs may order tests as set forth in Sec. 410.32(a)(3);

Answer beneficiaries' questions and respond to their complaints;

Openly post these standards for review by patients and the public;

Disclose to the government, any person having ownership, financial or control interest, or any other legal interest in the supplier at the time of enrollment or within 30 days of a change;

Have its testing equipment calibrated and maintained per equipment instructions and in compliance with applicable manufacturers suggested maintenance and calibration standards;

Have technical staff on duty with the appropriate credentials to perform tests. The IDTF must produce the applicable Federal or State licenses and certifications of the individuals performing these services;

Have proper medical record storage and be able to retrieve medical records upon request from CMS or our designated fee-for-service contractor within 2 business days; and

Permit CMS, including our agents or our designated fee- for-service contractors, to conduct unannounced, on-site inspections to confirm the IDTF's compliance with these standards. The IDTF is required to provide access, during regular business hours, to CMS and beneficiaries, as well as maintain a visible sign posting the normal business hours of the IDTF.

While we understand that these additional standards could lead certain IDTFs to withdraw from the Medicare program rather than comply with the new standards, we believe that legitimate businesses would not oppose these changes. Moreover, we emphasize that services provided by an IDTF are also readily available to beneficiaries through other avenues such as physicians' offices, outpatient laboratories, outpatient radiology facilities, and outpatient clinics. We believe that the implementation of these standards would improve the quality of services provided to Medicare beneficiaries by IDTFs without any associated access concerns. b. Supervision

To ensure quality care is provided to Medicare beneficiaries, we are adopting the position to revise Sec. 410.33(b)(1) to read that physicians will be limited to providing supervision to ``no more than three (3) IDTF sites.'' This reference to the supervising physician applies to the individual listed as the supervising physician in the Medicare enrollment application (that is, CMS-855 B, Attachment 2, Section E), not the physician supervising the interpretation of a diagnostic test. c. Place of Service

In addition to establishing specific performance standards for IDTFs, we are defining the ``point of the actual delivery of service'' as the correct ``Place of Service'' on the claim form. In the case of diagnostic testing that is performed completely outside of a fixed facility location, we believe that the point of actual delivery of service is the beneficiary's' residence, or location where the test is being administered. As such, these services should be billed to the designated Medicare contractor. For example, when a diagnostic test is performed at a beneficiary's residence, we believe that it is reasonable to establish the beneficiary's residence as the ``Place of Service'' and that these services be billed to the designated Medicare contractor where the beneficiary resides. Previously, there has been no set policy regarding diagnostic testing performed by beneficiary. Accordingly, mobile IDTF and portable x-ray supplier services performed in beneficiary's residence would be billed to the designated Medicare contractor where the beneficiary resides, rather than the home location of the mobile IDTF or portable x-ray supplier.

However, when a diagnostic test contains a home-based element (that is, the beneficiary performs a portion of the testing in his or her residence) and a facility-based element (that is, an IDTF reads or monitors the test results), the place of service is not clearly established and the fixed location of the IDTF will remain as the place of service for these tests. Accordingly, diagnostic tests containing both home-based and facility-based elements are billed to the designated Medicare contractor associated with the practice location of the fixed IDTF.

In a future rulemaking effort, we will seek public input regarding the appropriate place of service for diagnostic testing when services are rendered in multiple parts in different locations.

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

The TC of physician pathology services refers to the preparation of the slide involving tissue or cells that a pathologist will interpret. (In contrast, the pathologist's interpretation of the slide is the PC service. If this service is furnished by the hospital pathologist for a hospital patient, it is separately billable. If the independent laboratory's pathologist furnishes the PC service, it is usually billed with the TC service as a combined service.)

In the CY 2000 PFS final rule (64 FR 59380 and 59408 through 59409), we stated that we would implement a policy to pay only the hospital for the TC of physician pathology services furnished to hospital patients. Before that proposal, any independent laboratory could bill the carrier under the PFS for the TC of physician pathology services for hospital patients. As stated in the CY 2000 PFS final rule, this policy has contributed to the Medicare program paying twice for the TC service, first through the inpatient prospective payment rate to the hospital where the patient is an inpatient and again to the independent laboratory that bills the carrier, instead of the hospital, for the TC service.

Therefore, in the CY 2000 PFS final rule at Sec. 415.130, we provided that, for services furnished on or after January 1, 2001, the carriers would no longer pay claims to the independent laboratory under the PFS for the TC of physician pathology services for hospital patients.

Ordinarily, the provisions in the final PFS are implemented in the following year. However, in this case, the change to Sec. 415.130 was delayed one year (until

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January 1, 2001), at the request of the industry, to allow independent laboratories and hospitals sufficient time to negotiate arrangements. Moreover, our full implementation of Sec. 415.130 was further delayed through CY 2006. Most recently, under section 732 of the MMA, we were required to pay separately under Medicare Part B for the TC of physician pathology services for services furnished during 2005 and 2006.

However, we continue to believe that hospital prospective payment amounts already compensate hospitals for the TC of physician pathology tests and that additional payment under the PFS is inappropriate. Therefore, we are amending Sec. 415.130 to provide that, for services furnished after December 31, 2006, an independent laboratory may not bill the carrier for the TC of physician pathology services furnished to a hospital inpatient or outpatient. Under Sec. 415.130(d), we will pay under the PFS for the TC of a physician pathology service furnished by an independent laboratory for services provided to an inpatient or outpatient of a ``covered hospital'' (as defined in Sec. 415.130(a)(1)) on or before December 31, 2006.

We received comments from individuals and groups.

Comment: Several commenters stated that the policy, in the CY 2000 PFS final rule, was based on flawed assumptions and facts, and that the hospital's inpatient payment rate does not include payment for this service.

Response: We addressed specific comments regarding the establishment of the inpatient prospective payment system (IPPS) and the inclusion of the TC physician pathology costs in this payment system in the final rule published in the CY 2000 PFS final rule (64 FR 59408 through 59409). We believe that our discussion in that final rule is still valid.

Comment: Several commenters indicated that hospitals and independent laboratories will have to set up costly and administratively complex billing systems and procedures. These commenters and others asked us to allow hospitals and independent laboratories that have these grandfathered arrangements to continue bill in the same manner.

Response: We are not requiring the hospitals to establish new billing procedures or systems. The billing of TC physician pathology services involves the same billing procedures and processes that the hospital may have established for any outsourced diagnostic tests for hospital inpatients, such as MRI, CT scan, and ultrasound scans. Only hospitals that have outsourced no other diagnostic services other than physician pathology services may have to establish new billing systems or procedures.

Similarly, we are not requiring independent laboratories to establish new billing procedures and systems. Independent laboratories have similar billing systems in operation for clinical laboratory services that are provided to hospital inpatients. Also, neither individual laboratories nor any industry laboratory specialty group for independent laboratories has commented on this increased complexity, cost, and burden.

Comment: One individual commented on a draft instruction that has been sent to the Medicare carriers for comment. The instruction implements the payment policy for physician pathology TC services beginning in 2007.

Response: This item is not a subject of the proposed rule and we are not addressing this comment as part of this rule. The draft Internet Only Manual instructions are reviewed by carriers during their development. There is a formal review process for evaluation of these comments apart from the regulation process.

Comment: Several commenters identified an issue involving proposed Sec. 415.130. The commenters expressed concern that the effect of the proposed regulation would not be limited to the TC of physician services. Proposed Sec. 415.130 reads, ``For services furnished after December 31, 2006, an independent laboratory may not bill the carrier for physician pathology services furnished to a hospital inpatient or outpatient.''

Response: We appreciate the issue that the commenters have identified through their careful reading of the proposed rule. The quoted sentence omitted the reference to the ``technical component'' of physician pathology services. We are revising the regulation text accordingly as this was clearly our intent.

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

Section 1833(h) of the Act requires the Secretary to establish fee schedules for clinical laboratory tests under Medicare Part B. We proposed to implement section 942(b) of the MMA which specifies annual procedures for consulting the public on how to establish payment for new clinical laboratory test codes to be included in the annual update of the clinical laboratory fee schedule. 1. Medicare, Medicaid, and SCHIP Benefits Improvement Protection Act of 2000 (BIPA)

Section 531(b) of BIPA mandated that we establish, no later than 1 year after the date of enactment, procedures that permit public consultation for payment determinations for new clinical diagnostic laboratory tests under Medicare Part B in a manner consistent with the procedures established for implementing ICD-9-CM coding modifications. In the CY 2002 PFS final rule (66 FR 58743), we specified the procedures to implement section 531(b) of BIPA.

These procedures were most recently used to determine the payments for new 2006 clinical laboratory fee schedule codes. First, we convened a public meeting to solicit expert input on the nature of the new tests before rate determinations were made. We have held these meetings each year since 2002 to receive this expert input on the next year's codes. Our most recent meeting was announced in the Federal Register on May 27, 2005 (70 FR 30734) and occurred on July 18, 2005. In that meeting, we requested that presenters address the new test codes, each test's purpose, method, cost, and a recommendation for one of two methods (crosswalking or gapfilling) for determining payment for the new clinical laboratory codes. Crosswalking and gapfilling are discussed in section II.N.2.d of this final rule with comment period.

Following the public meeting, we posted a summary of the new codes and the payment recommendations that were presented during the public meeting on our Web site. The summary also displayed our tentative payment determinations and indicated a comment period for interested parties to submit written comments. After reviewing the comments received, we issued Medicare Transmittal 750, 2006 Annual Update for Clinical Laboratory Fee Schedule, which provided all instructions and final rate determinations for the 2006 clinical laboratory fee schedule including the new codes and fees, on November 18, 2005. 2. Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)

In the CY 2007 PFS proposed rule (71 FR 49064), we proposed to implement section 942(b) of the MMA which requires that we establish procedures for consulting the public on how to establish payment for new clinical laboratory test codes to be included in

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the annual update of the clinical laboratory fee schedule. Similar procedures were already mandated by legislation in section 531(b) of the BIPA which requires payment determinations for new clinical diagnostic laboratory tests under Medicare Part B be made in a manner consistent with the procedures established for implementing ICD-9-CM coding modifications.

Specifically, the MMA requires the Secretary to establish by regulation procedures for determining the basis for and amount of payment for a clinical diagnostic laboratory test that is assigned a new or substantially revised HCPCS code on or after January 1, 2005. We refer to these tests as ``new tests.'' a. Basis and Scope (Sec. 414.500)

We proposed to add a new subpart implementing provisions of section 1833(h)(8) of the Act--procedures for determining the basis for, and amount of, payment for a new clinical diagnostic laboratory test with respect to which a new or substantially revised HCPCS code is assigned on or after January 1, 2005.

We received no comments on this subpart. Therefore, we are finalizing Sec. 414.500 as proposed. b. Definition (Sec. 414.502)

As specified in section 942(b) of the MMA, we are defining the term ``Substantially Revised Healthcare Common Procedure Coding System Code'' to mean a code for which there has been a substantive change to the definition of the test or procedure to which the code applies (such as a new analyte or a new methodology for measuring an existing analyte specific test).

We did not receive comments on this subpart. Therefore, we are finalizing Sec. 414.502 as proposed. c. Procedures for Public Consultation for Payment for a New Clinical Diagnostic Laboratory Test (Sec. 414.506)

For a clinical laboratory test that is assigned a new or substantially revised code on or after January 1, 2005, section 1833(h)(8)(B) of the Act provides that determinations of payment amounts for new tests shall be made only after the Secretary:

Makes available to the public (through an Internet Web site and other appropriate mechanisms) a list that includes codes for which establishment of a payment amount is being considered for the next calendar year;

Publishes a Federal Register notice of a meeting to receive public comments and recommendations (and data on which recommendations are based) on the appropriate basis for establishing payment amounts for the list of codes made available to the public on the same day the list of codes is made available;

Convenes a meeting that includes representatives of CMS officials involved in determining payment amounts, to receive public comments and recommendations (and data on which the recommendations are based) not less than 30 days after publication of the notice in the Federal Register; and

Considers the comments and recommendations (and accompanying data) received at the public meeting, develops and makes available to the public (through an Internet Web site and other appropriate mechanisms)--

+ A list of determinations for the appropriate basis for establishing a payment amount for each code, together with an explanation of the reasons for each determination, the data on which the determinations are based, and a request for public written comments on the proposed determination; and

+ A list of final determinations of the payment amounts for tests, together with the rationale for each determination, the data on which the determinations are based, and responses to comments and suggestions from the public.

In the CY 2007 PFS proposed rule, we indicated these procedures have been most recently used to finalize the payments for new 2006 clinical laboratory fee schedule codes and we believe that our current process for providing for public consultation on the establishment of payment amounts for new clinical laboratory tests is consistent with the requirements of section 1833(h)(8)(B) of the Act. We currently make available to the public through a posting on the CMS Web site a list of new laboratory test codes for the next calendar year. We publish a Federal Register notice of a meeting to receive public comments and recommendations and convene the meeting with appropriate CMS officials in attendance. We consider the input received at the public meeting and we make available to the public on the CMS Web site a list of the proposed determinations and seek comment. We then make available to the public our final determinations in the instructions that we provide to our claims processing contractors to implement the Medicare Part B clinical laboratory fee schedule each year.

The most significant change required by section 1833(h)(8)(A) of the Act with respect to our procedures for public consultation is that we codify this process in regulations. Therefore, we proposed to codify our current process for public consultation for new clinical diagnostic laboratory tests paid under the Medicare Part B clinical laboratory fee schedule at new Subpart G--Payment for New Clinical Diagnostic Laboratory Tests (Sec. 414.502 through Sec. 414.506).

Comment: Several comments supported the consultation process for new clinical diagnostic laboratory tests paid under the Medicare Part B clinical laboratory fee schedule. Commenters suggested changes to the meeting and posting of data presented in the meeting. For example, a commenter suggested we should require a 60-day time period from the Federal Register notice of the public meeting and the date of the public meeting. Commenters also requested that we post on the Internet additional detail regarding data and rationale used for public recommendations and final payment decisions.

Response: We want to take this opportunity to explain the timeframes for the annual update to the clinical laboratory fee schedule. The Medicare Part B clinical laboratory fee schedule utilizes the codes developed by the AMA's Current Procedural Terminology (CPT) Editorial Panel. The CPT codes are developed as the result of quarterly meetings throughout the year and the codes to be included in the upcoming year's fee schedule (effective January 1st) are available as early as May. We then list the new clinical laboratory tests codes on our Web site in June along with registration information for the public meeting. We schedule the date of the public meeting not fewer than 30 days after announcing the meeting in the Federal Register. This timeframe results in a July date for the public meeting, followed by a posting of our tentative payment determinations and a comment period in September. The updated clinical laboratory fee schedule is prepared in October for release to our contractors during the first week in November. Our contractors have many information system steps to complete during the months of November and December so that the updated clinical laboratory fee schedule is ready to pay claims effective January 1st of the calendar year.

With the constraints of the this process, we will strive to provide as much time as is feasible between the announcement of the meeting and the meeting itself. As required under both the statute and Sec. 414.506, the public meeting will take place ``not fewer'' than 30 days after we publish notice of

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the meeting in the Federal Register. Our proposed regulatory language allows us flexibility to provide additional time when feasible. However, extending the notification period announcing the date of the public meeting to 60 days from the Federal Register notice of the public meeting could cause delays to the rate-setting process and to the timely release of the updated clinical laboratory fee schedule.

Commenters also requested that when we announce public recommendations or our determinations, we should include data and the rationale on which the recommendation or determination is based. However, we note that recommendations from the public meeting have sometimes lacked the detail requested by commenters. We have considered all payment recommendations received from the public, even those that have sometimes lacked the supporting detail requested by commenters. In some cases, companies have expressed concern about revealing data to laboratory competitors during the public meeting. When soliciting public input for the meeting, we will recommend that all participants in the public consultation process strive for transparency and try to provide as much supporting information as possible to assist us and others in evaluating the recommendation. As required by the statute, we will provide the rationale for our payment determinations.

Comment: Two commenters stated that a whole new generation of diagnostic tests will contribute to treatment that is more tailored to the individual so that maintaining the current system for setting payment will not be sufficient because the new generation tests are more complex than the individual test codes currently paid under the clinical laboratory fee schedule. Also, the commenters indicated that some of the new generation tests may be performed by only one laboratory in the country so that establishing a payment amount for the new test becomes a de facto national price which may be insufficient for other laboratories in the future.

Response: We appreciate the commenters' recognition that establishing payment for new technology testing is complex and subject to many professional perspectives. In this rulemaking, we are complying with the MMA mandate to codify a public consultation process for payment of new clinical laboratory test codes. The statute requires that we host a public meeting to receive recommendations on individual test codes added to the Medicare Part B clinical laboratory fee schedule. We state in the public meeting notice that presentations should address the new test code(s) and descriptor(s), the test purpose and method, costs and charges, and other background information. We certainly encourage presenters to include in their presentations market availability of the test and other information on the new technology. Also, a question and answer period is scheduled during the meeting to permit a robust discussion of each new test code. As noted, when we have hosted the public meetings in the past, the laboratory industry has sometimes submitted payment recommendations that are sparse of information and data supporting the payment recommendations. Thus, we do not believe opportunities for information gathering on new technology tests have been fully utilized within the public meeting process. While we can work with laboratories to explore other payment options for new technology tests, we must implement the statutorily required public meeting process. We encourage the laboratory industry to fully participate in this process and to include in its public recommendations data detailed background information on market availability and other concerns that laboratories have for the new technology test codes.

Comment: We received a comment requesting that we establish a reconsideration process that would allow interested parties to request a formal review of payment rate determinations. The commenter suggested that interested parties be given an opportunity to request and receive a reconsideration of a CMS decision to crosswalk or gapfill a new or revised test code, CMS crosswalk determination, a contractor determination of a gapfill price, or a CMS calculation of the NLA for a new test.

Response: We understand the concerns of the commenter, but we are not establishing a formal reconsideration process in this final rule. However, we are revising Sec. 414.508 to provide that, if we gapfill a test, but determine after the first year of gapfilling that carrier- specific gapfilled amounts will not pay for the test appropriately, we may crosswalk the test. Furthermore, we expect to solicit comments on a potential reconsideration process in a future rulemaking.

After careful review of the public comments, we are finalizing Sec. 414.506 as proposed. d. Payment for a New Clinical Diagnostic Laboratory Test--Crosswalking and Gapfilling (Sec. 414.508)

We proposed to add new Sec. 414.508 to indicate when, in establishing the payment amount for a new clinical laboratory test, one of two payment methods can be utilized. The first payment method, called ``crosswalking,'' is used if a new test is determined to be comparable to an existing test, multiple existing test codes, or a portion of an existing test code. We proposed that a new test code would be assigned the related existing local fee schedule amounts and national limitation amount (NLA).

In new Sec. 414.508, we proposed to use the second method, called ``gapfilling,'' when no comparable, existing test is available. Currently when using this method, manual instructions are provided to each Medicare carrier to determine a payment amount for its geographic area(s) for use in the first year, and the carrier-specific amounts are used to establish an NLA for following years. Consistent with our current process, the sources of information carriers examine in determining gapfill amounts, if available, include--

Charges for the test and routine discounts to charges;

Resources required to perform the test;

Payment amounts determined by other payers; and

Charges, payment amounts, and resources required for other tests that may be comparable or otherwise relevant.

Currently, our manual instructions allow carriers to consider other sources of information as appropriate, including clinical studies and information provided by clinicians practicing in the area, manufacturers, or other interested parties. Carriers are also instructed to establish carrier specific amounts on or before March 31 of the year and to revise their carrier specific amount, if necessary, on or before September 1 of the year. In this manner, a carrier may revise its carrier specific amount based on additional information, but there is also a specific time frame to perform this revision so that we have adequate time to receive and use the carrier specific amounts for the calculation of the next year's clinical laboratory fee schedule.

In light of MMA provisions, we proposed to prospectively eliminate payment of new gapfilled tests at a carrier specific amount after the first year in new Sec. 414.508. Section 1833(h)(8)(A) of the Act gives the

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Secretary authority to establish procedures for determining the payment amount for laboratory tests for which new or substantially revised HCPCS codes were established on or after January 1, 2005. Under this authority, in new Sec. 414.508(b), we proposed to pay for a new gapfilled laboratory test under our existing methodology for the first year (the carrier would establish a gapfill amount.) Beginning in the second year, the test would be paid at the national limitation amount. This would result in consistent payment in geographic areas for a new test using the median of the carriers' gapfilled amounts.

Comment: Commenters were supportive of our proposal to set the price for gapfilled tests at the NLA. Other commenters suggested that the method used by contractors to determine their price for gapfilled tests should be more specific.

Response: We appreciate the support for our proposal to establish the payment rate for a gapfilled test at the NLA. However, we do not agree specific changes to the gapfilling methodology should be made in the final rule, without a chance to receive multi-stakeholder input on the commenter's suggestions. We do believe that we must engage the clinical laboratory community and our contractors in additional discussions regarding the procedures and data used to determine the payment amounts for gapfilled tests. We will plan to discuss with our contractors their experience establishing the gapfill amounts and also to host a forum or meeting during the upcoming year to listen to additional suggestions from the public. After participating in these additional information gathering steps, we will consider possible changes to the regulations for the 2008 proposed rule and/or additional subregulatory guidance if appropriate.

As discussed above, in response to a comment suggesting that we establish a reconsideration process, we are revising Sec. 414.508 to provide that we may crosswalk a test if we determine that carrier- specific gapfilled amounts will not pay for the test appropriately.

We are finalizing Sec. 414.508 with the exceptions noted above in this section. 3. Other Laboratory Issues a. Quality

In the CY 2007 PFS proposed rule (71 FR 49064), we discussed that we are exploring the development of measures related to the quality and efficiency of care, including those involving clinical laboratory fee schedule services. We stated our interest to work with physicians, providers and the clinical laboratory community to identify ways to promote utilization decisions such as using a laboratory claims attachment standard involving the Logical Observation Identifiers Names and Codes (LOINC[supreg]) database as a means for reporting test result data. This could be one possible component of a comprehensive system of collecting clinical laboratory test data. Detailed information on the LOINC[supreg] reporting system is available at the Web site at http://www.loinc.org .

Comment: Several commenters endorsed our interest in working with the laboratory community on laboratory quality of care initiatives. However, two commenters objected to LOINC[supreg] reporting system as operationally burdensome for laboratory information systems because it would require merging a data quality field from the laboratory information system to the laboratory billing system, training information systems staff, and sending reference laboratory result data to the referral laboratory who prepares the claim. One of these commenters also stated that regulations on privacy of medical information should be considered. One commenter indicated that the LOINC[supreg] reporting system requires narrative reporting for some microbiology tests which is not in a data quality field format.

Response: We are pleased the commenters supported the development of measures related to the quality of clinical laboratory services. We agree that it is imperative to work with physicians, providers and the clinical laboratory community to identify quality measures that can efficiently be incorporated into the laboratory billing system. We understand the reporting of laboratory quality measures must reach compatibility with privacy rules. Furthermore, the important role of quality measures in the evolution of healthcare reporting will remain strong. While changes to information technology may be required, laboratories should be anticipating further interest to include a laboratory quality measure field in laboratory billing systems. b. Blood Glucose Monitoring in SNFs

In the CY 2007 PFS proposed rule (71 FR 49064), we included a discussion of our longstanding policy on blood glucose monitoring in SNFs submitted for payment under the Medicare Part B clinical laboratory fee schedule. We explained that section 1862(a)(1)(A) of the Act requires that a service be reasonable and necessary for diagnosis and treatment to be eligible for coverage by Medicare. Our regulations at Sec. 410.32(a) already require that, for any diagnostic test, including a clinical diagnostic laboratory test, to be considered reasonable and necessary, it must be both ordered by the physician and the ordering physician must use the result in the management of the beneficiary's specific medical problem. Tests not ordered by the physician who is treating the beneficiary are not reasonable and necessary.

In the context of blood glucose monitoring, we most recently explained this policy in Transmittal AB-00-108, which is available on our Web site at http://www.cms.gov/transmittals/downloads/ab00108.pdf.

This interpretation of Sec. 410.32 also is the basis for our policy in section 90.1 of Chapter 7 of the Medicare Claims Processing Manual (``Skilled Nursing Facility Part B Billing,'' which is available on our Web site at http://www.cms.hhs.gov/manuals/downloads/clm104c07.pdf.)

In addition, separate authority under section 1835(a)(2)(B) of the Act provides that, in the case of certain ``medical and other health services'' (including clinical diagnostic laboratory services), payment may be made for Part B services that are furnished by a provider of services only if a physician certifies--and recertifies where those services are furnished over a period of time, with such frequency, and accompanied by such supporting material, as may be provided by regulation--that those services were medically necessary. In the CY 2007 PFS proposed rule (71 FR 49065), we proposed to use our authority under section 1835(a)(2)(B) of the Act to amend Sec. 424.24 to provide that, for each blood glucose test furnished to a resident of a SNF, the physician must certify that the test is medically necessary. We also proposed to clarify that a physician's standing order is not sufficient to order a series of blood glucose tests.

Comment: Many commenters explained that it is common medical practice in the nursing home for the physician to certify a standing order for a 1-month time period for the nurse to perform daily glucose monitoring fingerstick tests throughout the month and based on the results, the nursing staff dispense insulin, as needed by the patient. Thus, the commenters objected that the proposal will impose a burden on SNFs who perform tests under these situations.

Response: This amendment to Sec. 424.24 establishes a certification requirement that affects only services that are furnished by a provider of services for which the provider of

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services seeks payment under Medicare Part B. To the extent payment is available under Medicare Part A or the services are not furnished by a provider of services (as defined under section 1861(u)of the Act), this certification requirement does not apply.

Payment for glucose monitoring is encompassed under other payment systems that are available to the nursing homes. Medicare pays as part of the bundled payment to the facility for beneficiaries in a Part A- covered stay in a hospital or in a SNF. It is when the provider requests Medicare to separately pay for a blood glucose test under the outpatient Part B clinical laboratory fee schedule that the service must meet the certification requirement under Sec. 424.24(f).

We also note that the revisions to Sec. 424.24 does not alter existing policies issued under section 1862(a)(1)(A) of the Act. As discussed above in this section, under Sec. 410.32(a), the test must be ordered by the physician who is treating the beneficiary and the physician must use the results promptly in the management of the beneficiary's specific medical condition.

Comment: Some commenters raised concerns that coverage policies are not consistently describing diabetes care categories, glucose monitoring protocols, and an individual glucose test service. The commenters suggested more specific coverage policies would benefit providers.

Response: We understand the suggestion that refinements to coverage policies could benefit providers. The 2002 NCD for blood glucose tests specifies coverage and frequency limitations for reimbursement under the Part B. The NCD is not specific to nursing home common practices and applies to all providers submitting claims for payment under the clinical laboratory fee schedule. During the years since the release of the NCD, laboratories along with other providers who seek payment from the clinical laboratory fee schedule have had opportunity to carefully review the NCD and request further refinements and examples to enhance the NCD's interrelationship with payment under the clinical laboratory fee schedule. Interested parties can find more information on the coverage policy process on our Web site at http://www.cms.hhs.gov/center/coverage.asp .

With respect to the burden of this certification requirement, we believe that, by enacting section 1835(a)(2)(B) of the Act, the Congress recognized that it may be appropriate for the Secretary to impose conditions of payment for services furnished by providers of services for which providers bill separately under Medicare Part B. We recognize the value of blood glucose testing and strongly support this testing when it is medically necessary. However, we must also ensure that blood glucose testing is medically necessary when furnished by a provider of services for which the provider bills Medicare Part B. We believe that this revision to Sec. 424.24 strikes the appropriate balance between our commitment to beneficiary access to blood glucose testing and our obligation to ensure that each test is medically necessary.

We do not believe that our amendment to Sec. 424.24 imposes a new obligation. As discussed above in this section, Sec. 410.32(a) and our program instructions already require that a laboratory test must be ordered by a physician and the ordering physician must use the result in the management of the beneficiary's specific medical problem. However, as discussed in the proposed rule, we have received inquiries regarding the application of Sec. 410.32(a) in the context of blood glucose testing provided by SNFs. In addition, we received a specific inquiry asking for clarification of section 90.1 of Chapter 7 of the Medicare Claims Processing Manual. Furthermore, we have become aware that some providers have filed claims before Administrative Law Judges challenging our policy regarding blood glucose testing in SNFs.

To the extent there has been confusion regarding our policies, our amendment to Sec. 424.24 provides a clear rule that, for payment to be made for blood glucose tests under Medicare part B to a provider of services, a physician must certify that each test is medically necessary. We also have clarified that a physician's standing order is not sufficient to order a series of blood glucose tests.

Comment: One commenter alerted that some home health providers are engaging in inappropriate physician ordering of clinical diagnostic blood glucose tests, for payment under the Part B benefit, so that the clarification to the regulation should apply not just to SNFs but also to home health agencies.

Response: We agree with the commenter that the regulation should apply to providers of services who bill to the Medicare Part B clinical laboratory fee schedule, including home health agencies. We are revising Sec. 424.24(f) to provide that the certification requirement applies to all providers of services.

Comment: One commenter disagreed with our proposal stating that it would impose an unfair burden on clinical laboratories that provide services to SNFs because the independent laboratory is not informed or responsible for the documentation requirements in the SNF.

Response: Independent clinical laboratories are not providers of services, so our amendment to Sec. 424.24 does not affect these entities. We disagree that an independent clinical laboratory that is providing services to SNF customers should not be informed or ensure the medical necessity documentation is sufficient. Independent clinical laboratories must comply with Sec. 410.32(a). Furthermore, independent clinical laboratories must be certified under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) (Pub. L. 100-578). Under the standard for test requests at Sec. 493.1241, the laboratory must have a written or electronic request for patient testing from an authorized person. An independent clinical laboratory, whether it is providing services to SNF customers or other provider types, must remain informed and involved to ensure the laboratory service is rendered in accordance with the regulation and instructions applicable for receiving payment under the clinical laboratory fee schedule.

Comment: One commenter asserted that we are obligated to perform a Regulatory Impact Analysis for our proposal to clarify Sec. 424.24 requiring the physician to certify each test is medically necessary and stating that a physician's standing order is not sufficient to order blood glucose tests for payment under the Medicare Part B clinical laboratory fee schedule. Another commenter stated our amendment to Sec. 424.24 does not comport with the Paperwork Reduction Act of 1995 to publish a notice in the Federal Register on collection of information.

Response: We do not believe our amendment to Sec. 424.24 requires a regulatory impact analysis or a Paperwork Reduction Act notice. We believe that Sec. 424.24(f) does not impose any new obligations, but merely codifies as a condition of payment what has long been required under Sec. 410.32(a) and our program instructions.

After careful review of public comments, we are finalizing Sec. 424.24(f) as proposed. c. Other Lab Issues--Proposed Clinical Diagnostic Laboratory Date of Service (DOS) for Stored Specimens

In the CY 2007 PFS proposed rule (71 FR 49064), we proposed to add new Sec. 414.510 to address concerns regarding

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the date of service of a clinical diagnostic laboratory test that use a stored (or ``archived'') specimen. In the final rule of coverage and administrative policies for clinical diagnostic laboratory services (66 FR 58792) that we published in the November 23, 2001 Federal Register, we adopted a policy under which the date of service for clinical diagnostic laboratory services generally is the date the specimen is collected. However, for laboratory tests that use an archived specimen, the date of service is the date the specimen was obtained from the storage. We defined an ``archived'' specimen as a specimen that is stored for more than 30 calendar days before testing. The date of service for these archived specimens is the date the specimen was obtained from storage. Specimens stored 30 days or less have a date of service of the date the specimen was collected. In situations in which a specimen is taken while the patient is treated in a hospital setting, but then later used for a test after the patient has been discharged from the hospital setting, date of service of a test may affect payment because, if the date of service falls during an inpatient stay or outpatient procedure, payment for the laboratory test usually is bundled with the hospital service. To address concerns raised for tests related to cancer recurrence and therapeutic interventions, we proposed to modify our policy so that the date of service would be the date the specimen is obtained from storage, even if the specimen is obtained less than 31 days from the date it was collected, without violating the unbundling rules as long as the following conditions are met:

The test is ordered by the patient's physician at least 14 days following the date of the patient's discharge from the hospital.

The test could not reasonably have been ordered while the patient was hospitalized.

The procedure performed while the beneficiary is a patient of the hospital is for purposes other than collection of the specimen needed for the test.

The test is reasonable and medically necessary.

Comment: One commenter suggested adding a condition stating the test cannot be performed by the hospital laboratory.

Response: We disagree that the regulations should limit the type of laboratory performing the test on the specimen. The purpose of the regulatory change is directed to date of service for specimens.

Comment: Two commenters supported our proposal. However, one commenter expressed concern that on a rare occasion a test that otherwise meets the conditions of the regulation may be ordered by the patient's physician less than 14 days following the date of the discharge from the hospital. The commenter requested the regulation be revised to reflect these rare situations.

Response: At this time, we do not believe it is appropriate to create an exception to the 14-day requirement. We remain very concerned that only tests that can legitimately be distinguished from the care a beneficiary receives in the hospital be subject to this provision regarding the date of service of the test, which results in separate payment for the test. We believe it is more difficult to determine that a test ordered less than 14 days before discharge is appropriately separable from the hospital stay that preceded the test. We would like more information about the circumstances and tests cited by the commenters before taking any additional action in this area. We are very concerned about the possibilities for unbundling care that appropriately should be associated with the hospital stay in these circumstances and will continue to review this policy in the future to ensure that our goal of appropriately recognizing hospital and post- hospital care is achieved.

Comment: Two commenters suggested rewording the second condition which states the test could not reasonably have been ordered while the patient was hospitalized. The commenters suggested the necessity of the test they are concerned with is unrelated to the procedure performed in the hospital but is necessary to determine cancer recurrence and therapeutic interventions after the patient is discharged from the hospital.

Response: We agree that the second criterion could be clarified, to state that it would be inappropriate to have collected the specimen other than during the procedure, and have done so in this final rule. Our intent in establishing this criterion was to ensure that tests that meet the definitions in this provision are not directly related to the care provided in the hospital, and we believe the modification we are finalizing meets that intent more clearly than our original proposal.

Comment: Three commenters discussed several high complexity clinical laboratory tests that are performed on specimens collected as a part of an inpatient procedure. The tests determine the sensitivity of the patient's cancer to particular types of chemotherapy. The specimen is prepared so that the live cancer cells, collected at the time of the procedure, are cultured at the laboratory and ultimately tested. The commenters believe the result of this type of laboratory test does not relate to the procedure performed in the hospital, nor would the result typically affect treatment during the hospital stay if it were available immediately. The commenters requested the regulation specify the date of service for these types of fresh tissue sample tests to be different than the date of service for fixed tissue samples to permit separate payment under Medicare Part B.

Response: We agree with the commenters that these tests, which are almost always used to determine post-hospital chemotherapy care for patients who also require hospital treatment for tumor removal or resection, appear to be unrelated to the hospital treatment in cases where it would be medically inappropriate to collect a test specimen other than at the time of surgery, especially when the specific drugs to be tested are ordered at least 14 days following hospital discharge, as discussed above for tests on stored tissue samples. We are very concerned about unbundling services that are appropriately associated with hospital treatment, and therefore, believe it is critical to move cautiously in the area of determining different dates of service for tests for which the specimen collection occurs during a hospital service. As a result, we are adding Sec. 414.510(b)(4), specifically for chemotherapy sensitivity tests, because we understand that the results of these tests, even if they were available immediately and not several weeks following the collection of the specimen, would almost never affect the treatment regimen at the hospital. Therefore, we see a valid distinction between these tests and other tests of cultured specimens that give results after hospital discharge, but that are directly related to not only the condition for which the patient is hospitalized, but would typically be used for the specific care during the hospital stay as well, if available during the hospital stay. This section will allow separate payment for chemotherapy sensitivity tests, as identified by the Secretary in subregulatory guidance, from the inpatient procedure as long as certain criteria are met.

We are finalizing Sec. 414.510 as proposed with the exceptions noted above in this section.

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

Federal regulatory qualifications for NPs at Sec. 410.75 require that an

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individual be certified as an NP by a recognized national certifying body that has established standards for NPs. Similarly, Federal regulatory qualifications for clinical nurse specialists (CNSs) at Sec. 410.76 require that an individual be certified as a CNS by a national certifying body that has established standards for CNSs and that is approved by the Secretary.

Currently, there is not a list of recognized or approved national certifying bodies for NPs and CNSs in regulations. However, Chapter 15, section 200 of the Benefit Policy Manual, Pub. 100-02 contains a list of national certifying bodies that are recognized by Medicare as being appropriate for certification of NPs. Although the manual provision regarding CNS services at Chapter 15, section 210 of the Benefit Policy Manual lists only the American Nurses Credentialing Center as an approved national certifying body for CNSs, we indicated that the list of recognized certifying bodies in the manual provision for NP services would also apply for CNSs in the ``Revisions to Payment Policies Under the CY 2003 Physician Fee Schedule and Inclusion of Registered Nurses in the Personnel Provision of the Critical Access Hospital Emergency Services Requirement for Frontier Areas and Remote Locations; Payment Policies final rule (December 31, 2002, 67 FR 79987). The national certifying bodies that are listed under the manual instruction at section 200, and that currently apply for both NPs and CNSs (collectively, advanced practice nurses) are as follows:

American Academy of Nurse Practitioners;

American Nurses Credentialing Center;

National Certification Corporation for Obstetric, Gynecologic and Neonatal Nursing Specialties;

National Certification Board of Pediatric Nurse Practitioners and Nurses;

Oncology Nurses Certification Corporation;

Critical Care Certification Corporation.

In the December 31, 2002 final rule, in response to a public comment, we stated, ``it is not the agency's intention to be overly restrictive in our program requirements and consequently prevent qualified CNSs who specialize in areas of medicine other than those certified by the American Nurses Credentialing Center (ANCC) from participating under the CNS benefit and from rendering care to patients in need of specialized services. Furthermore, the intent of the revision to the certification requirement for CNSs is to recognize all appropriate national certifying bodies for CNSs as the program does for NPs.'' Accordingly, in an effort to recognize all appropriate national certifying bodies for CNSs and NPs, we added, at that time, the Oncology Nurses Certification Corporation (ONCC) and the Critical Care Certification Corporation (CCCC) to the list of recognized national certifying bodies for advanced practice nurses.

The National Board on Certification of Hospice and Palliative Care Nurses (NBCHPN) has requested that we now follow the same course of action as we did for the ONCC and the CCCC by adding its name to the list of recognized national certifying bodies. That is, NBCHPN believes that it is an appropriate national certifying body based on its certification experience, principles, services, and the certification exam that it administers to advanced practice nurses who specialize in palliative care for hospice patients.

The NBCHPN stated in information it sent to the agency that its organization is a well-established certification body with more than a 12-year history of certification and that it has been certifying advanced practice hospice and palliative nurses since 2003 in partnership with the ANCC. Starting in 2005, the NBCHPN became sole proprietor of the Advanced Certified Hospice and Palliative Nurse (ACHPN) examination. Master's level NPs and CNSs sit for this ACHPN examination that is based on a role delineation study for the advanced practice level of hospice and palliative nursing. Additionally, the NBCHPN stated that it has met the requirements of the American Board of Nursing Specialties and is an active member of the Board of Specialties, as is the ANCC. The Executive Director of the NBCHPN stated that she believes that the absence of the NBCHPN from the current list of recognized national certifying bodies presents a barrier for advanced practice nurses in the hospice palliative care specialty because they are denied enrollment on the basis that they do not meet the certification qualification requirement. The Web site for the NBCHPN can be found at http://www.nbchpn.com.

We solicited public comments on whether it would be appropriate to include the NBCHPN under the list of recognized and approved national certifying bodies for NPs and CNSs under manual instructions for both NPs and CNSs. We also solicited public comments on criteria or standards that we could use to determine whether an organization is an appropriate national certifying body for advanced practice nurses. We realize that the agency may receive other requests in the future from organizations that wish to be added to the list of recognized or approved national certifying bodies. In anticipation of those requests, we are interested in developing certification standards that would facilitate the process for making these decisions.

We appreciate the comments that we received on these two issues related to the NP and CNS benefits. However, we are delaying our decision about whether to include the NBCHPN under the manual instruction listing of recognized national certifying bodies for NPs and CNSs until we have had more time to examine and investigate the comments that we received about this issue.

In regards to the issue concerning our establishment of certification criteria or standards to determine whether an organization should be listed as a recognized national certifying body for NPs and CNSs (that is, advanced practice nurses), we will consider the information that we received in comments on this issue for future rulemaking, and would consider proposing specific certification standards that an organization must meet in order to be included under the manual instruction listing of recognized national certifying bodies for NPs and CNSs.

P. Chiropractic Services Demonstration

In the CY 2006 PFS final rule with comment period (70 FR 70266), we included a discussion of the 2-year demonstration authorized by section 651 of the MMA to evaluate the feasibility and advisability of covering chiropractic services under Medicare. These services extend beyond the current coverage for manipulation to care for neuromusculoskeletal conditions typical among eligible beneficiaries, and cover diagnostic and other services that a chiropractor is legally authorized to perform by the State or jurisdiction in which the treatment is provided. The demonstration is being conducted in four sites, two rural and two urban. The demonstration must be budget neutral as the statute requires the Secretary to ensure that the aggregate payment made under the Medicare program does not exceed the amount which would be paid in the absence of the demonstration.

Ensuring BN requires that the Secretary develop a strategy for recouping funds should the demonstration result in costs higher than those that would occur in the absence of the demonstration. As we

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stated in the CY 2006 PFS final rule with comment period (70 FR 70266), we would make adjustments in the national chiropractor fee schedule to recover the costs of the demonstration in excess of the amount estimated to yield BN. We will assess BN by determining the change in costs based on a pre- and post-comparison of costs and the rate of change for specific diagnoses that are treated by chiropractors and physicians in the demonstration sites and control sites. We will not limit our analysis to reviewing only chiropractor claims, because the costs of the expanded chiropractor services may have an impact on other Medicare costs.

Any needed reduction would be made in the 2010 and 2011 physician fee schedules as it will take approximately 2 years to complete the claims analysis. If we determine that the adjustment for BN is greater than 2 percent of spending for the chiropractor fee schedule codes (comprised of the 3 currently covered CPT codes 98940, 98941, and 98942), we would implement the adjustment over a 2-year period. However, if the adjustment is less than 2 percent of spending under the chiropractor fee schedule codes, we would implement the adjustment over a 1-year period. We will include the detailed analysis of BN and the proposed offset during the CY 2009 rulemaking process. Physical therapy (PT) services performed by chiropractors under the demonstration are subject to the PT therapy cap. These services are included under the cap because chiropractors are subject to the same rules as medical doctors for therapy services under the demonstration.

Comment: One commenter indicated that it continues to oppose our methodology for assuring BN under the demonstration. Instead of the application of an adjustment to the national chiropractor fee schedule, the commenter recommends that we make an adjustment to the totality of services payable under the Part B Trust Fund and that this would be consistent with the requirements in section 651(f)(A) of the MMA.

Response: Section 651(f)(1)(B) of the MMA requires that ``* * * the Secretary shall ensure that the aggregate payments made by the Secretary under the Medicare program do not exceed the amount which the Secretary would have paid under the Medicare program if the demonstration projects under this section were not implemented.'' The statute does not specify a specific methodology for ensuring BN. We believe our intended methodology meets the statutory requirements.

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

We recognize the potential for health information technology (HIT) to facilitate improvements in the quality and efficiency of health care services. One recent RAND study found that broad adoption of electronic health records (EHRs) could save more than $81 billion annually and, at the same time, improve quality of care.\1\ The largest potential savings that the study identified was in the hospital setting because of shorter hospital stays promoted by better coordinated care; less nursing time spent on administrative tasks; better use of medications in hospitals; and better utilization of drugs, laboratory services, and radiology services in hospital outpatient settings. The study also identified potential quality gains through enhanced patient safety, decision support tools for evidence-based medicine, and reminder mechanisms for screening and preventive care. Despite these large potential benefits, the study found that only about 20 to 25 percent of hospitals have adopted HIT systems.

\1\ RAND News Release: Rand Study Says Computerizing Medical Records Could Save $81 Billion Annually and Improve the Quality of Medical Care, September 14, 2005, available at: http://rand.org/news/press.05/09.14.html .

It is important to note the caveats to the RAND study. The projected savings are across the health care sector, and any Federal savings would be a reduced portion of the total savings. In addition, there are significant assumptions made in the RAND study. National savings are projected in some cases based on one or two small studies. Also, the study assumes patient compliance, in the form of participation in disease management programs and following medical advice. For these reasons, extreme caution should be used in interpreting these results.

In his 2004 State of the Union Address, the President announced a plan to ensure that most Americans have EHRs within 10 years.\2\ One part of this plan involves developing voluntary standards and promoting the adoption of interoperable HIT systems that use these standards. The 2007 Budget states that ``The Administration supports the adoption of HIT as a normal cost of doing business to ensure patients receive high quality care.''

\2\ Transforming Health Care: The President's Health Information Technology Plan, available at: http://www.whhitehouse.gov/infocus/technology/economic_policy200404/chap3.html .

Over the past several years, we have undertaken several activities to promote the adoption and effective use of HIT in coordination with other Federal agencies and with the Office of the National Coordinator for HIT. One of those activities is promotion of data standards for clinical information, as well as for claims and administrative data.

As noted above in this section, the Administration supports the adoption of HIT as a normal cost of doing business. The adoption and use of HIT may contribute to improved processes and outcomes of care, including shortened illnesses and the avoidance of adverse drug reactions.

Nine commenters responded to our HIT proposals. The following is a summary of the comments addressing the use of HIT to enhance quality of care, the costs associated with HIT adoption, the importance of interoperability standards, and the impact of new rules related to Medicare fraud and abuse statutes.

Comment: Several commenters stated that adoption of HIT could lead to improved quality, enhanced patient safety, and increased efficiency. Some commenters noted that HIT can reduce administrative costs; however, more commenters focused on the potential financial barriers to the adoption of HIT.

We received several comments addressing the high costs associated with HIT implementation. Most commenters stated that adoption of HIT is not a normal cost of doing business in health care. Several commenters emphasized that any reduction in physician payment related to the sustainable growth rate (SGR) would make it difficult for physicians to invest in HIT. Some commenters noted that incentives, such as loans, grants, and tax credits, could aid physicians by reducing the burden of cost for implementing HIT. A few commenters stated that implementation of HIT should be a shared expense between providers, purchasers, and payers.

Most commenters highlighted lack of interoperability standards as a current barrier to HIT implementation. Several commenters noted that interoperability standards are a critical component of any HIT system and must include a standard set of policies, procedures, and standards for data collection and documentation. One commenter stated that progress has been slow in disseminating standards and this discourages physician practices from making large investments in HIT that quickly may become obsolete.

One commenter applauded new regulatory provisions related to HIT for physician self-referral and anti-kickback statutes. However, the commenter further stated that Medicare fraud and

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abuse statutes continue to hinder the adoption of HIT because the rules are still unclear on some issues.

We received a few comments noting that specific issues related to HIT use in health care, such as the protection of patient privacy and data stewardship, still need to be resolved.

Response: We thank all commenters for their thoughtful and valuable discussion of the issues. In the HIT section of the preamble to the proposed rule, we recognized the potential for effective HIT to facilitate improvements in the quality and efficiency of health care services. We also pointed out our promotion of the adoption and effective use of HIT in coordination with other Federal agencies and the Office of the National Coordinator for HIT. Here, we will discuss three areas that we are emphasizing to promote the effective use of HIT, in light of the comments we received: (1) Value-based purchasing, (2) the recent CMS and OIG final rules regarding donation of certain HIT, and (3) infrastructure and interoperability standards.

We continue our work toward the implementation of value-based purchasing payment system reforms because we believe that, among other advantages, value-based purchasing can encourage physicians to invest in activities, such as effective HIT, that have the potential to improve quality and decrease unnecessary costs. However, linking a portion of Medicare payments to valid measures of quality and effective use of resources could give physicians more direct incentives to implement innovative ideas and approaches that may result in improved value of care. We agree with the commenters that noted that the use of effective HIT could increase quality, efficiency, and patient safety. We also agree with the commenters that noted that effective use of HIT can be used to decrease the burden of reporting to value-based purchasing programs. However, we disagree with the commenters that recommended direct government funding of HIT. As stated in the President's 2007 Budget, ``the Administration supports the adoption of

[HIT] as a normal cost of doing business to ensure patients receive high quality care.''

Commenters noted that multiple stakeholders in the health care system, including purchasers and payers, benefit from provider adoption and use of effective HIT and should share in the cost. CMS and OIG have recently issued final rules to allow hospitals and other health care providers under some circumstances to donate electronic prescribing and EHRs technology to physicians and others without running afoul of the Stark (physician self-referral) and anti-kickback statutes. We believe that these rules facilitate the adoption of HIT by physicians and other health care providers who might otherwise have been unable or unwilling to invest in the technology.

We also believe that these regulatory changes help to stimulate the adoption of effective HIT, and that, as HIT use spreads, the benefits relative to the costs of implementation may increase for all stakeholders.

The majority of commenters pointed out that the current lack of HIT infrastructure, including lack of interoperability standards, is a major obstacle to adoption and effective use of HIT. To address the lack of infrastructure, the Secretary has undertaken a national strategy that calls for Federal agencies to collaborate with private stakeholders in the development of architecture, standards, certification processes, and methods of governance to facilitate the adoption of effective HIT. In September 2005, the Secretary selected 16 commissioners to serve on the American Health Information Community (AHIC), which is a federally chartered collaborative forum of private and public interests charged with advising the Secretary on how to make health information digital and interoperable. The goals of the Community include immediate access to vital medical information at the point of care, privacy protection, better data for research, and overall cost savings. The work of the Community has been divided among four workgroups: (1) The EHRs Workgroup, (2) the Chronic Care Workgroup, (3) the Consumer Empowerment Workgroup, and (4) the Biosurveillance Workgroup, (5) the Confidentiality, Privacy, and Security Workgroup, and (6) the Quality Workgroup. The AHIC Workgroups have made recommendations, as their initial ``breakthroughs,'' pertaining to: An electronic medication summary and registration history; secure messaging capabilities for individuals with chronic disease; biosurveillance monitoring; and, through secure means, broadening the availability and access to current and historical laboratory results and interpretations. More information about the Community is available at: http://www.hhs.gov/healthit/ahic.html.

R. Health Care Information Transparency Initiative

The United States (U.S.) faces a dilemma in health care. Although the rate of increase in health care spending slowed last year, costs are still growing at an unsustainable rate. The U.S. spends $1.9 trillion on health care, or 16 percent of the gross domestic product (GDP). By 2015, projections are that health care will consume 20 percent of GDP. As indicated in the 2006 Annual Report of the Boards of Trustees, the Medicare program alone consumes 3.2 percent of the GDP and by 2040 it will consume 8.0 percent of the GDP.

Part of the reason health care costs are rising so quickly is that most consumers of health care, that is, patients, are frequently not aware of the actual cost of their health care. Health insurance coverage shields them from the full cost of services, and they have only limited information about the quality and costs of their care. Consequently, consumers do not have incentives or means to carefully shop for providers offering the best value. Thus, providers of health care are not subject to the competitive pressures that exist in other markets for offering quality services at the best possible price. Reducing the rate of increase in health care prices and avoiding health services that are of little value could help to stem the growth in health care spending, and potentially reduce the number of individuals who are unable to afford health insurance. Part of the President's health care agenda is to expand Health Savings Accounts (HSAs), which would provide consumers with greater financial incentives to compare providers in terms of price and quality, and choose those physicians and services that offer the best value.

In order to exercise those choices, consumers must have accessible and useful information on the price and quality of health care items and services. Typically, health care providers do not publicly quote or publish their prices. Moreover, list prices, or charges, generally differ from the actual prices negotiated and paid by different health plans. Thus, even if consumers were financially motivated to shop for the BP, it would be very difficult at the current time for them to access usable information.

For these reasons, HHS has launched a major health care information transparency initiative. This effort builds on steps taken by CMS to make quality and price information available. For example, Medicare has provided unprecedented information about drug prices in the Medicare prescription drug benefit, and is now adding to these efforts in other areas. Medicare payment information for common elective procedures and other common admissions for all hospitals by county has been posted on our Web site at http://www.cms.hhs.gov/HealthCareConInit/.

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On our Web site, we will be posting geographically-based Medicare payment information for common procedures for ambulatory surgery centers, hospitals, OPDs, and physician offices. In addition, a number of tools providing usable healthcare information are already available to Medicare beneficiaries. Supported by the public and private quality alliances, consumers can access ``Compare'' Web sites through http://www.medicare.gov where they can evaluate important aspects of their

health care options for care at a hospital, nursing home, home health agency (HHA), and dialysis facility, as well as compare their costs and coverage when choosing a prescription drug plan.

We are developing a new project with the goals of providing Medicare beneficiaries with more comprehensive information on quality and costs, including more complete measures of health outcomes, satisfaction, and volume of services that matter to consumers, and more comprehensive measures of costs for entire episodes of care, not just payments for particular services and admissions. We intend for this Medicare project to incorporate private health care data, Medicaid data, and Medicare data to measure cost and quality of care information at the physician and hospital levels. Under this project, quality, cost, pricing, and patient information will be reported to Medicare beneficiaries in a meaningful and transparent way.

In response to the CY 2007 PFS proposed rule (71 FR 49064), we received the following comments on the transparency issue.

Comment: Most commenters supported our efforts to release quality information to create a more transparent health care system so that patients and consumers will be able to make more informed decisions about their health care. Several commenters questioned the usefulness of price information and many suggested criteria for determining what information would be most credible, accessible and meaningful both to consumers and to providers and other stakeholders. The commenters stated that the information must be valid, reliable, and sensitive to the care being delivered in order for the information to be useable. Several commenters also noted the importance of relying on the AQA (a multi-stakeholder group identifying ambulatory quality measures) and the joint steering committee formed by AQA, the Hospital Quality Alliance (HQA), and the Quality Alliance Steering Committee, to be the forum where all stakeholders come together to identify useful measures. One commenter also noted the important work of the AMA Consortium for Performance Improvement in bringing together multiple physician medical specialties.

Response: We agree that physician price and quality information must be credible, accessible, and meaningful to consumers and other stakeholders. To ensure this is the case for our transparency efforts, we rely heavily on physician groups and broad stakeholder coalitions to help advise as to the measures we are using, particularly for quality and in considering episodes of care. We are actively working with the AMA Consortium for Performance Improvement, the AQA, the National Quality Forum (NQF), and various medical specialty groups to identify useful quality measures. We are conducting research and working directly with the AQA to identify potential episode of care measures. We are building on the model we used for inpatient and ambulatory surgery centers to provide the most accurate information possible when releasing Medicare payment data. By December 2006, we plan to release Medicare data, including the number of services, charges and payment rates for a group of common physicians' services by locality.

Comment: Many comments focused on the usefulness of price information. One commenter questioned the premise that consumers should use price information in health care decisions. Several other commenters noted the limitations of price information and the need for consumers and patients to understand the context for it. They added that providing price information on health care services should not be placed in the same class as shopping for airline tickets or hotel accommodations. They further questioned whether price plays a significant role in choosing a physician or hospital, particularly when a patient is facing a life threatening illness. Other commenters have advised that the price is subject to individual health plan benefit packages and could change depending on the course of beneficiary illness. Further, in an emergency, additional services may be required which will therefore raise the costs of services for beneficiaries.

Response: We agree that making health care decisions, including the selection of providers, is a serious undertaking. For this reason, it is critical that consumers, patients, and their families have information which will help them make important health care decisions. For those patients in the early stages of illness, or those who may need preventive care, choosing a provider based on the knowledge of the potential overall costs of care, and taking into account whether the physician is effective at helping the patient prevent life threatening illnesses, could help the patient avoid unnecessary costs later on.

For patients with life threatening illnesses, cost is also at issue. However, most insurance, including Medicare, does require cost sharing, and if information on price and quality is available it may be possible for beneficiaries to choose high quality providers at a reduced cost, which would therefore minimize the patient's out-of- pocket costs. We also agree that it is important to recognize that beneficiary out-of-pocket costs are in part driven by the type of coverage the beneficiary has and whether the beneficiary has any supplemental coverage. Combining information on multiple services related to the same clinical condition into a broader episode of care could provide a prospective patient and his or her family even more useful cost and quality information. For example, if a patient has a serious illness, he or she (or his or her family) would be better able to choose a physician or other health care provider that more closely suits the patient's preferences by comparing, before treatment: (1) The cost of treatment; (2) the various types of services and treatments associated with that particular illness; and (3) the outcome for patients with similar health conditions.

Comment: One commenter questioned whether releasing price information could increase health care costs because the pricing information could encourage patients to delay necessary care and which presumably may result in more advanced disease. The commenter stated that price information should not be released for E/M, and preventive services.

Response: We believe that the release of price information will not inhibit a patient's use of appropriate health care services, in particular, preventive or evaluative services. It is our expectation that the transparency of price and quality information will encourage patients to obtain health care services that are proven in quality of care and outcomes for patients and the provision of these chosen services should result in a decrease in the overall costs of health care.

Comment: One commenter thought that payment information should be broken into the work component, PE and malpractice. They further suggested arraying information to reflect the relative costliness of different settings of

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care for the same services, such as ambulatory surgery centers, OPDs, or physicians' offices.

Response: We agree that those separate service components could be of some interest, but we do not understand how they would be of benefit to the patient or consumer when he or she is making health care decisions. Such service component break outs provide no information on out-of-pocket or overall costs as to the specific service or as to a broader episode of care that takes into consideration care delivered across settings and time.

We believe that providing comparative information on the costs of care in different settings when the services and patient needs are similar is an interesting concept. We will consider suggestions as to how this type of data may be provided.

Comment: One commenter stated that it is inappropriate to make public efficiency information, cost and utilization ratings without commensurate quality data, and that efficiency measurement should be restricted to areas where this type of data are available, and risk adjusted. Further, the commenter added that payers should make their methodology and data sources easily available to physicians.

Response: We agree that both cost and quality data are important for consumers to make informed decisions about providers and treatment options. We are exploring a range of options for how to measure efficiency, including risk adjustment options. We also agree that it is important for physicians to understand how cost and quality data are being measured.

Comment: One commenter questioned whether all the resources going into the transparency efforts might be better spent supporting physician adoption of EHRs, patient registries, and group medical visits.

Response: Our transparency efforts are aimed at helping consumers make better informed health care decisions. We have many other initiatives aimed at supporting these other important physician tools, for example, Quality Improvement Organizations (QIOs) are working across the country to provide technical assistance to physicians to help these physicians redesign work practices to adopt EHRs. Several significant initiatives, including the Physician Group Practice demonstration and the Medicare Health Support program are identifying effective care management strategies, including the physician adoption of EHRs, patient registries, and group medical visits as recommended by the commenter. Further, we are working with the Department to lessen the barriers to IT adoption by identifying and endorsing standards for seamless movement of information across settings.

Comment: One commenter said the primary driver of health care costs was the lack of productivity increases in health care and questioned whether providing more information to consumers would have any impact on the efficiency of the system. The commenter stated that the reason for this lack of productivity improvement was due to the labor intensive nature of our health care system since the United States government did not purchase HIT directly for providers.

Response: We agree that health care is labor intensive and that increased adoption of effective HIT has the potential to improve productivity. For these reasons, increasing adoption of effective HIT, including EHRs is one the most important initiatives for this administration. As we have stated previously in our other responses in this section, we have in place a number of initiatives aimed at lessening the barriers to adoption and initiatives supporting both hospitals and physicians. However, we strongly support the notion that market forces, including consumers empowered to make more informed health care decisions, are also critical for improving the value of the health system.

Comment: One commenter stated that health plans should be required to release their fee schedules showing total charges and methods of calculating fees for physicians and hospitals.

Response: The purpose of our transparency initiative is to make it easier for consumers and patients to make better informed health care decisions based on their own unique health circumstances. We have partnered with the Agency for Healthcare Research and Quality, and we are exploring, in the context of the AQA and the Quality Alliance Steering Committee, a variety of options for releasing pricing, payment and episode of care costs.

Comment: One commenter questioned whether physicians could report directly to us or to carriers on the clinical quality measures currently reflected in the Physician Voluntary Reporting Program (PVRP) initiative instead of through the established mechanism of G-codes or CPT category II codes (if available).

Response: Currently, the PVRP data are not reported publicly, as would be the case in a transparency initiative, but are provided confidentially to physicians. These measures are based on the work of a multi-stakeholder consensus process through the National Quality Forum and the AQA. We are also relying on this process to identify physician quality measures for transparency. The PVRP can be a building-block for future efforts to measure physician quality.

Further, we are seeking to benefit the Medicare program by applying quality measures developed by the private sector to comprehensive data on physicians' services to improve the quality of Medicare services, and to provide Medicare beneficiaries with useful quality information. Specifically, under a new Medicare project that will begin in six areas, data from Medicare and private purchasers are being combined to create quality measures that will be reported to Medicare beneficiaries. Information on physician performance on quality will be used for feedback to physicians on services provided to Medicare beneficiaries, and information on physician performance will be made available to beneficiaries. The purpose of this important project is to encourage improvements in the quality of Medicare services, and provide information to Medicare beneficiaries that will permit them to make more informed choices about how and where they will receive their care. Over time, using the experience of these initiatives, we will identify which measures and what data collection mechanisms are best used to release physician specific information to Medicare beneficiaries.

Regarding the earlier comment about G-code reporting, we chose the path of reporting quality measures on claims through G-codes because those claims could be built on existing data systems, creating fewer burdens for physician offices and CMS. Physicians, predominantly, already use claims supported data systems so, therefore, we believe at this time it is the most practical system. In the future, we hope to be able to accept, and for physicians to be able to report, using the electronic means outlined by the commenter. We ask the commenter to work with us to ensure that EHRs and other information systems are designed to collect the clinical data components necessary to measure a broad range of quality indicators.

Comment: A commenter also suggested that group practices should be allowed to create scores for their whole group and report at the aggregate level. The commenter stated that group practices have internal mechanisms, including incentive structures, for improving quality that should be used.

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Response: We recognize that comparing groups of physicians by price and quality measures could be useful both for consumers and patients in regions where these groups are widely available. We also appreciate the usefulness of the data for internal quality improvement for physician groups. However, for purposes of consumer choice, it may be important to have physician-specific information. Even with a group, beneficiaries would want to know the physician's treatment patterns, including quality information, to best suit the beneficiary's needs or preferences. We agree that information on both price and quality on individual physicians would be useful for consumers and patients.

S. Bad Debt Payment for Services Associated With Reasonable Charge/Fee Schedules

Under the Medicare program, payment may be made for unrecovered costs (bad debt) attributable to uncollectible deductible and coinsurance of Medicare beneficiaries as specified in Sec. 413.89 and the Provider Reimbursement Manual (PRM) (CMS Pub. 15 Part 1, Chapter 3). Entities currently eligible to receive Medicare bad debt payments, with some limitations, include hospitals, skilled nursing facilities (SNFs), CAHs, RHCs, ESRD facilities, FQHCs, community mental health clinics, health maintenance organizations (HMOs) reimbursed on a cost basis, competitive medical plans (CMPs), and health care pre-payment plans. The bad debt policy for ESRD facilities is set forth in Sec. 413.178.

The current bad debt regulation at Sec. 413.89(i) excludes payment of bad debts specifically for those services furnished by anesthetists paid under a fee schedule. In the February 10, 2003 Federal Register, we published the Provider Bad Debt Payment proposed rule where we proposed to amend the language in the existing bad debt regulations to clarify that bad debts are not recognized or reimbursed for all covered services paid for under a reasonable charge-based methodology or a fee schedule (68 FR 6682). As stated in that proposed rule, the proposed amendment was intended to clarify our longstanding policy and is not a change in policy.

In this final rule with comment period, we are finalizing the amendment to the regulations, as proposed in the February 10, 2003 proposed rule, to clarify that payment of bad debts for covered services paid for under a reasonable charge-based methodology or a fee schedule is not allowable. In the February 10, 2006 Federal Register (71 FR 6991), we issued a notice extending the timeline for publication of a final rule associated with provisions of the February 10, 2003 proposed rule by one year to February 10, 2007. At this time, we are not finalizing other proposed provisions of the February 10, 2003 proposed rule.

We received the following comment regarding this provision from the February 10, 2003 proposed rule.

Comment: A commenter stated that the clarification of policy that bad debt reimbursement is not available for services paid under a fee schedule is a change in policy for outpatient therapy.

Response: During the initial stages of developing the Medicare program in 1966, the issue of ``bad debt'' arose but was not mentioned explicitly in the statute. However, at that time, based on the intent of the anti-cross-subsidization principle found in the definition of ``reasonable cost'' at section 1861(v)(1)(A) of the Act, Medicare adopted the policy to pay for the unrecovered costs attributable to uncollectible deductible and coinsurance of Medicare beneficiaries. Accordingly, we believe that this statutory prohibition on cross- subsidization does not apply where services are reimbursed on anything other than the basis of ``reasonable costs''.

The Medicare program has never allowed payment of bad debts for services paid for on the basis of a fee schedule or reasonable charge methodology, such as but not limited to, services of physicians, suppliers, certified registered nurse anesthetists, or NPs. Under a fee schedule or reasonable charge methodology, Medicare does not share proportionately in an entity's incurred costs but rather makes payment for a specific service. The payment is not related to the cost of a service and thus, does not embody the concept of unrecovered costs due to uncollected amounts of deductibles and coinsurance. Thus, payment of bad debt applies only to services reimbursed on the basis of reasonable cost or to services paid under one of Medicare's prospective payment systems that have a basis in reasonable costs that do not reflect Medicare payment of bad debts during a specified provider base period. Accordingly, when outpatient therapy services began to be paid for on a fee schedule methodology, payment of bad debts associated with these services was no longer available.

Therefore, we do not agree with the commenter and we are revising Sec. 413.89(i) and adding new Sec. 413.178(d) as proposed.

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

Under the ambulance fee schedule, the Medicare program pays for transportation services for Medicare beneficiaries when other means of transportation are contraindicated. Ambulance services are classified into different levels of ground (including water) and air ambulance services based on the medically necessary treatment provided during transport. These services include the following levels of service:

For Ground--

+ Basic Life Support (BLS)

+ Advanced Life Support, Level 1 (ALS1)

+ Advanced Life Support, Level 2 (ALS2)

+ Specialty Care Transport (SCT)

+ Paramedic ALS Intercept (PI)

For Air--

+ Fixed Wing Air Ambulance (FW)

+ Rotary Wing Air Ambulance (RW)

A. History of Medicare Ambulance Services

1. Statutory Coverage of Ambulance Services

Under sections 1834(l) and 1861(s)(7) of the Social Security Act (the Act), Medicare Part B (Supplemental Medical Insurance) covers and pays for ambulance services, to the extent prescribed in regulations, when the use of other methods of transportation would be contraindicated by the beneficiary's medical condition.

The House Ways and Means Committee and Senate Finance Committee Reports that accompanied the 1965 Social Security Amendments suggest that the Congress intended that--

The ambulance benefit cover transportation services only if other means of transportation are contraindicated by the beneficiary's medical condition; and

Only ambulance service to local facilities be covered unless necessary services are not available locally, in which case, transportation to the nearest facility furnishing those services is covered (H.R. Rep. No. 213, 89th Cong., 1st Sess. 37 and Rep. No. 404, 89th Cong., 1st Sess. Pt 1, 43 (1965)).

The reports indicate that transportation may also be provided from one hospital to another, to the beneficiary's home, or to an extended care facility.

2. Medicare Regulations for Ambulance Services

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Our regulations relating to ambulance services are set forth at 42 CFR part 410, subpart B and 42 CFR part 414, subpart H. Section 410.10(i) lists ambulance services as one of the covered medical and other health services under Medicare Part B. Therefore, ambulance services are subject to basic conditions and limitations set forth at Sec. 410.12 and to specific conditions and limitations included at Sec. 410.40. Part 414, subpart H, describes how payment is made for ambulance services covered by Medicare.

The national fee schedule for ambulance services is being phased in over a 5-year transition period beginning April 1, 2002 as specified in Sec. 414.615. As of January 1, 2006, the total payment amount for air ambulance providers and suppliers is based on 100 percent of the national ambulance fee schedule. In accordance with section 414 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173), we added Sec. 414.617 which specifies that for ambulance services furnished during the period July 1, 2004 through December 31, 2009, the ground ambulance base rate is subject to a floor amount, which is determined by establishing nine fee schedules based on each of the nine census divisions, and using the same methodology as was used to establish the national fee schedule. If the regional fee schedule methodology for a given census division results in an amount that is lower than or equal to the national ground base rate, then it is not used, and the national fee schedule amount applies for all providers and suppliers in the census division. If the regional fee schedule methodology for a given census division results in an amount that is greater than the national ground base rate, then the fee schedule portion of the base rate for that census division is equal to a blend of the national rate and the regional rate. For CY 2006, this blend is 40 percent regional ground base rate and 60 percent national ground base rate. As of January 1, 2007, the total payment amount for ground ambulance providers and suppliers will be based on either 100 percent of the national ambulance fee schedule or 80 percent of the national ambulance fee schedule and 20 percent of the regional ambulance fee schedule.

B. Provisions of the Final Regulation

In this rule, we are finalizing changes to the fee schedule for payment of ambulance services by adopting revised geographic designations for urban and rural areas as set forth in OMB's Core-Based Statistical Areas (CBSAs) standard. We are adding the definition of ``urban area'' as defined by the Executive Office of Management and Budget (OMB). In addition, we are removing the definition of ``Goldsmith modification'' and amending our definition of ``rural area'' to include areas determined to be rural under the most recent version of the Goldsmith modification.

We are withdrawing our proposal to change the language of our regulation defining ``specialty care transport (SCT)'' to conform to our existing payment policies. In response to public comments, we are broadening and clarifying our interpretation of the existing language and responding to other issues associated with the definition of SCT.

In addition, we are discontinuing our annual review of the original CF assumptions and of the original air ambulance rates from the initial implementation of the fee schedule in 2002 because we have not identified any significant differences from those assumptions in the 4 years since the implementation of the fee schedule. We will continue to monitor payment and billing data on an ongoing basis and make adjustments to the CF and to air ambulance rates as appropriate to reflect any significant changes in these data.

Finally, in response to public comment, we are withdrawing our proposal to revise our current definition of ``Emergency response'' to further specify the conditions that warrant a higher payment for immediate response. Our reasons for withdrawing our proposal are explained in section III.B.4. of this preamble. 1. Adoption of New Geographic Standards for the Ambulance Fee Schedule

Historically, the Medicare ambulance fee schedule has used the same geographic area designations as the acute care hospital IPPS and other Medicare payment systems to take into account appropriate urban and rural differences. This provides a consistent and objective national definition for ambulance payment purposes within the ambulance fee schedule and generally across Medicare payment systems. It also utilizes geographic area designations that more realistically reflect rural and urban populations, resulting in more accurate payments for ambulance services. Accordingly, we are adopting OMB's CBSA-based geographic area designations, which have been adopted for the IPPS, to more accurately identify urban and rural areas for ambulance fee schedule payment purposes. We are also adopting the most recent modification of the Goldsmith Modification, consistent with the provisions of section 1834(l), to more accurately determine rural census tracts within metropolitan areas.

These changes will affect whether certain areas are recognized as rural or urban. The distinction between urban and rural is important for ambulance payment purposes because ambulance payments are based on the point of pick-up for the transport, and the point of pick-up for urban and rural transport is paid differently. Of particular significance to the ambulance fee schedule, the changes would affect whether or not certain areas are eligible for certain rural bonus payments under the ambulance fee schedule. For example, the changes would affect whether or not certain areas are recognized as what we refer to as ``Super Rural Bonus'' areas established by section 414(c) of the MMA and set forth in section 1834(l)(12) of the Act. That section specifies that, for services furnished during the period July 1, 2004 through December 31, 2009, the payment amount for the ground ambulance base rate is increased by a ``percent increase'' (Super Rural Bonus) where the ambulance transport originates in a rural area (which includes Goldsmith areas) that we determine to be in the lowest 25th percentile of all rural populations arrayed by population density. a. Core-Based Statistical Areas (CBSAs): Revised Office of Management and Budget (OMB) Metropolitan Area Definitions

In the February 27, 2002 final rule (67 FR 9100), we stated that we could not easily adopt and implement, within the timeframe necessary to implement the fee schedule, a methodology for recognizing geographic population density disparities other than MSA/nonMSA. We also stated that we would consider alternative methodologies that may more appropriately address payment to isolated, low-volume rural ambulance providers and suppliers at a later date. The application of any rural adjustment is determined by the geographic location of the beneficiary at the time he or she is placed on board the ambulance. We are now finalizing the adoption of OMB's revised geographic area designations for urban and rural areas and the most recent modification of the Goldsmith Modification to address payment to those isolated, low-volume rural providers and suppliers.

Prior to the 2000 decennial census, geographic areas were consistently defined by OMB as Metropolitan Statistical Areas (MSAs) with an MSA being defined as an urban area and

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anything outside an MSA being defined as a rural area. In addition, for purposes of ambulance policy, we recognized the 1990 update of Goldsmith areas (generally, rural census tracts within counties that covered large tracts of land with one predominant urban area only) as rural areas (65 FR 55077 through 55100). In Fall 1998, OMB chartered the Metropolitan Area Standards Review Committee to examine the Metropolitan Area (MA) standards and develop recommendations for possible changes to those standards. Three notices related to the review of the standards were published on the following dates in the Federal Register, providing an opportunity for public comment on the recommendations of the Committee: December 21, 1998 (63 FR 70525 through 70561); October 20, 1999 (64 FR 56627 through 56644); and August 22, 2000 (65 FR 51059 through 51077).

In the December 27, 2000, Federal Register (65 FR 82227 through 82238), OMB announced its new standards. In that notice, OMB defined a CBSA, beginning in 2003, as ``a geographic entity associated with at least one core of 10,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.'' CBSAs are conceptually areas that contain a recognized population nucleus and adjacent communities that have a high degree of integration with that nucleus. The purpose of the new OMB standards is to provide nationally consistent definitions for collecting, tabulating, and publishing Federal statistics for a set of geographic areas.

The OMB standards designate and define two categories of CBSAs: Metropolitan Statistical Areas (MSAs); and Micropolitan Statistical Areas (65 FR 82227 through 82238). According to OMB, MSAs are based on urbanized areas of 50,000 or more population and Micropolitan Statistical Areas (referred to in this discussion as Micropolitan Areas) are based on urban clusters of at least 10,000 population but less than 50,000 population. Counties that do not fall within CBSAs are deemed ``Outside CBSAs.''

Under the ambulance fee schedule, MSAs would continue to be recognized as urban areas and all other areas outside MSAs (including Micropolitan Areas, areas ``Outside CBSAs'', and areas that are determined to be rural under the most recent modification of the Goldsmith Modification) would be recognized as rural areas. As noted previously, these designations are important because under the ambulance fee schedule, Medicare transports are designated either urban or rural based on the pick-up point of the transport.

As of June 6, 2003, the new OMB definitions recognized 49 new MSAs and 565 new Micropolitan Areas, and extensively revised the composition of many of the existing MSAs. There are 1,090 counties in MSAs under the new definitions (previously, there were 848 counties in MSAs). Of these 1,090 counties, 737 are in the same MSA as they were prior to the changes, 65 are in a different MSA, and 288 were not previously designated to any MSA (69 FR 49027).

There are 674 counties in Micropolitan Areas. Of these, 41 were previously in an MSA, while 633 were not previously designated to an MSA. There are five counties that previously were designated to an MSA, but are no longer designated to either an MSA or a new Micropolitan Area (Carter County, Kentucky; St. James Parish, Louisiana; Kane County, Utah; Culpepper County, Virginia; and King George County, Virginia) (69 FR 49027).

Our adoption of CBSA-based geographic area designations means that ambulance providers and suppliers that pick up Medicare beneficiaries in areas that are now outside of MSAs (but had been within MSA areas) may experience increases in payment, while those ambulance providers and suppliers that pick up Medicare beneficiaries in areas that are now within MSA areas (but had been outside of MSAs) may experience decreases in payment.

The use of updated geographical areas means the recognition of new urban and rural boundaries based on the population migration that occurred over a 10-year period, between 1990 and 2000.

We believe that updating the MSA definition to conform with OMB's CBSA-based geographic area designations, coupled with updating the Goldsmith Modification (that is, using the current Rural Urban Commuting Areas (RUCAs) version, as discussed in section III.B.1.b of this final rule), will more accurately reflect the contemporary urban and rural nature of areas across the country for ambulance payment purposes and cause ambulance fee schedule payments to become more accurate.

As of October 1, 2004, the IPPS adopted OMB's revised metropolitan area definitions to identify ``urban areas'' for payment purposes. Under the IPPS, MSAs are considered urban areas and Micropolitan Areas and areas ``Outside CBSAs'' are considered rural areas as specified in Sec. 412.64(b). We are adopting similar CBSA-based designations of ``urban area'' and ``rural area'' under the ambulance fee schedule for the reasons discussed. Therefore, we are revising Sec. 414.605 to include a definition of urban area and to reflect OMB's revised CBSA- based geographic area designations in our definition of rural area.

Comment: Some commenters suggested that we should mitigate any financial impact of the CBSA-based geographic changes by holding negatively-affected ambulance companies harmless or by adopting a phase-in of the CBSA-based geographic changes.

Response: While we understand the concern of some ambulance companies about the CBSA-based geographic changes, we think most negative impacts will be mitigated when we incorporate the updated Goldsmith Modification using RUCAs, as we discuss in section III.B.1.b. of this final rule. The RUCAs allow us to continue to recognize sub- county rural areas in CBSA-based MSAs. Further, we believe that accurate payments to rural areas should not be further delayed. Ambulance payments will not reflect the population changes documented by the CY 2000 decennial census and reflected in CBSA-based geographic designations until CY 2007. Finally, ambulance providers and suppliers who benefit from the floor amount based on Regional fee schedules will continue to receive transition payments through CY 2009, mitigating the overall financial impacts of the ambulance fee schedule.

Comment: Several commenters suggested delaying the implementation of the CBSA-based geographic changes until the findings of the GAO report on costs and access as they relate to ambulance services is published. The final report is currently due to be published by December 2007.

Response: We contacted the GAO concerning this report. At this time, the draft findings are not available and GAO is not permitted to discuss the report until its release. In view of the mitigating effects of our use of RUCAs, and in light of the fact that no ``super rural bonus'' areas are affected by the CBSA-based geographic designations, we think that the better course of action is to finalize our adoption of CBSA-based urban and rural designations. However, we will maintain contact with the GAO and, when their findings are available, we will consider whether any further adjustments are necessary. b. Updated Goldsmith Modification: Rural Urban Commuting Areas (RUCAs)

The Goldsmith Modification evolved from an outreach grant program sponsored by the Office of Rural Health

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Policy of the Health Resources and Services Administration (HRSA). This program was created to establish an operational definition of rural populations lacking easy access to health services in Large Area Metropolitan Counties (LAMCs). Dr. Harold F. Goldsmith and his associates created a methodology for identifying rural census tracts located within a large metropolitan county of at least 1,225 square miles. Using a combination of data on population density and commuting patterns, census tracts were identified as being so isolated by distance or physical features that they were more rural than urban in character. The original Goldsmith Modification was developed using data from the 1980 census. To more accurately reflect current demographic and geographic characteristics of the nation, HRSA's Office of Rural Health Policy, in partnership with the Department of Agriculture's Economic Research Service and the University of Washington, developed an update to the Goldsmith modification designated as Rural-Urban Commuting Area Codes (RUCAs) (69 FR 47518 through 47519).

Rather than being limited to LAMCs, RUCAs use urbanization, population density, and daily commuting data to categorize every census tract in the country. Thus, RUCAs are used to identify rural census tracts in all metropolitan counties. Section 1834(l) of the Act requires that we use the most recent modification of the Goldsmith Modification to determine rural census tracts within MSAs. Therefore, we are removing the definition of ``Goldsmith modification'' at Sec. 414.605 and incorporating a reference to the most current version of the Goldsmith modification, which are the Rural Urban Commuting Areas (RUCAs), in the definition of ``rural area.''

Comment: We received numerous comments from members of the ambulance industry that were concerned about the geographic status of their pick-up areas. Ambulance companies located in areas that have been traditionally recognized as rural areas were concerned that population shifts based on whole county designations might not accurately reflect pockets of rurality within those counties.

Response: The most recent modification of the Goldsmith Modification, which we are adopting in this final rule, uses RUCAs to recognize levels of rurality in census tracts located in every county across the nation. As a result, many counties that are designated urban at the county level based on population do, indeed, have rural census tracts within them that will be recognized as rural areas through our use of RUCAs. While this may not mean that every commenter will be ultimately satisfied, we believe that using RUCAs to identify sub- county rural areas within urban counties will resolve many of the commenters' concerns.

Comment: Although a number of commenters were supportive of our use of RUCAs, they requested that we clarify how we intend to define rurality using RUCA categories.

Response: The RUCA system is an updated version of the Goldsmith Modification that uses a 10-point scale of rurality. RUCA levels are assigned to a census tract based on the association of a given area's population to the nearest urban commuting area as follows:

(1) Metropolitan-area core: Primary flow within an urbanized area (UA).

(2) Metropolitan-area high commuting: Primary flow 30% or more to a UA.

(3) Metropolitan-area low commuting: Primary flow 5 percent to 30 percent to a UA.

(4) Large town core: Primary flow within a place of 10,000 to 49,999.

(5) Large town high commuting: Primary flow 30 percent or more to a place of 10,000 to 49,999.

(6) Large town low commuting: Primary flow 5 percent to 30 percent to a place of 10,000 to 49,999.

(7) Small town core: Primary flow within a place of 2,500 to 9,999.

(8) Small town high commuting: Primary flow 30 percent or more to a place of 2,500 to 9,999.

(9) Small town low commuting: Primary flow 5 percent to 30 percent to a place of 2,500 to 9,999.

(10) Rural areas: Primary flow to a tract without a place of 2,500 or more.

Furthermore, census tracts under RUCAs can be broken down by zip code for every county, allowing us to modify rural and urban areas within a given county. In the May 26, 2006 proposed rule (71 FR 30358), we did not specify where we would draw the line on the RUCA scale for urban/rural purposes. According to HRSA, the generally accepted breakpoint is to define a level less than 4.0 on the scale as urban and levels equal to or greater than 4.0 on the scale as rural. Under section 330A of the Public Health Service Act, the Office of Rural Health Policy within HRSA determines eligibility for its rural grant programs through the use of the RUCA code methodology. Under this methodology, any rural census tract that is in a RUCA code 4.0 or higher is determined to be a rural census tract. We agree with the majority of the commenters who suggested that we follow HRSA's guidelines and consider areas to be rural if they fall within RUCA levels 4 through 10. One commenter suggested that a rurality level of 2.0 might be a better breakpoint for EMS purposes. However, we believe that HRSA's guidelines accurately identify rural areas for ambulance payment purposes and are generally consistent with Medicare payment policies. We will, therefore, consider any census tract falling at or above RUCA level 4.0 to be a rural area for purposes of payment for ambulance services. We are finalizing our proposal to use the most recent modification of the Goldsmith Modification incorporating RUCAs, as directed by section 1834(l) of the Act. We will use 4.0 on the RUCA scale as the delineation between rural and urban (4.0 and greater is rural and less than 4.0 is urban).

Comment: One commenter discussed zip code areas that ``bleed'' from one type of geographic area to another, such as from rural to urban. This commenter was concerned that zip codes that were predominantly, but not totally, located within a rural area would not receive rural payments for ambulance pick-ups in those areas due to the urban influence of part of the zip code area.

Response: When we review a claim for ambulance services, we specifically examine the zip code for the pick-up point to determine whether that zip code contains both urban and rural areas. Census tracts under RUCAs can be broken down by zip code for every county, which allows us to identify rural and urban areas within a given county. Generally, we would categorize a zip code as urban or rural, and make payment accordingly, based on where the bulk of the population in that zip code resides.

Comment: Several commenters were concerned about the impact of the proposed CBSA-based geographic changes on the provisions of the Medicare Modernization Act (MMA) for rural service areas, specifically concerning the ``Super Rural Bonus'' areas.

Response: The ``Super Rural Bonus'' areas are areas that we determine to be in the lowest 25th percentile of all rural populations arrayed by population density in accordance with section 1834(l)(12) of the Act. Ambulance pick-ups in these areas currently receive a 22.6 percent add-on to their Medicare payments. None of the Super Rural Bonus areas should be adversely affected by the proposed CBSA-based changes, as our use of RUCA levels will preserve the rural status of an area

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whether or not it is located in a county which is designated as urban under the OMB definitions. Areas that do lose their rural status to become urban have become urban because of a significant increase in the surrounding population.

Comment: One commenter stated that the ambulance is dispatched to the patient to provide care at his or her pick-up point and, therefore, the ambulance payment system should reflect this procedure. Another commenter suggested that we should retain the Goldsmith Modification in its current form and not update payments under the ambulance fee schedule to reflect the use of RUCAs.

Response: We agree that the ambulance pick-up point is the determining factor in establishing payment under the ambulance fee schedule, and we intend to retain this procedure in the payment process. In addition, we agree that we need to recognize levels of rurality, and are doing so by adopting the updated Goldsmith Modification which uses RUCAs to identify rural areas within urban counties. We are directed by section 1834(l) of the Act to use the most recent update of the Goldsmith Modification in the payment process.

Comment: Another commenter suggested that we allow ambulance companies to present data to justify rurality, similar to the IPPS hospital reclassification process.

Response: Once again, we understand the concern of some ambulance companies to retain the rural status of their pick-up areas. However, as discussed in this section, we believe that, where applicable, the use of the RUCAs, and our ability to identify rural zip codes within census tracts, will address this concern in a consistent manner. Therefore, we do not believe it is necessary to complicate the payment process by developing an additional data submission and evaluation methodology. While the commenter directly referred to the hospital reclassification process that is administered under the IPPS, wherein hospitals can apply for geographic reclassification for purposes of determining the wage index adjustment to their inpatient payments, the hospital reclassification process was established by statute specifically for inpatient hospitals. Therefore, this IPPS reclassification methodology does not apply to ambulance services. 2. Specialty Care Transport (SCT)

In the February 27, 2002 Federal Register (67 FR 9100), we published a final rule with comment period entitled ``Fee Schedule for Payment of Ambulance Services and Revisions to the Physician Certification Requirements for Coverage of Nonemergency Ambulance Services'' that implemented the ambulance fee schedule. In that final rule, we defined SCT in Sec. 414.605 as the ``interfacility transportation of a critically injured or ill beneficiary by a ground ambulance vehicle, including medically necessary supplies and services, at a level of service beyond the scope of the EMT [(Emergency Medical Technician)]--Paramedic. SCT is necessary when a beneficiary's condition requires ongoing care that must be furnished by one or more health professionals in an appropriate specialty area, for example, nursing, emergency medicine, respiratory care, cardiovascular care, or a paramedic with additional training.''

Additionally, ambulance vehicle staff must be certified as emergency medical technicians and legally authorized to operate all lifesaving and life-sustaining equipment that are on board the vehicle as specified in Sec. 410.41(b)(1). Typically, a SCT level of care occurs when the patient, who is already receiving a high level of care in the transferring facility, requires a further level of care that the transferring facility is not able to provide.

We implemented the SCT level of payment for hospital-to-hospital ground ambulance transports upon implementation of the ambulance fee schedule on April 1, 2002 and we defined SCT at Sec. 414.605. The definition of SCT in Sec. 414.605 refers to ``interfacility transportation.'' As we stated in the preamble to the February 27, 2002 final rule with comment period (67 FR 9100), the SCT level of care includes the situation where a beneficiary is taken by ground ambulance from the hospital to an air ambulance and then from the air ambulance to the final destination hospital. Also, we stated in the preamble for both the September 12, 2000 proposed rule (65 FR 55077) and the February 27, 2002 final rule (67 FR 9108), that SCT was proposed as a level of interhospital service. As stated in our May 26, 2006 proposed rule, we based our payment for SCT-level ground ambulance transports on hospital-to-hospital ambulance transportation data.

Subsequent to the implementation of the ambulance fee schedule, we clarified our definition of SCT as hospital-to-hospital transport in a Program Memorandum to Medicare contractors, which was issued on September 27, 2002. (Program Memorandum Intermediaries/Carriers, Transmittal AB-02-130--Change Request 2295, September 27, 2002). That document and subsequent questions and answers related to the definition of SCT were made available to the public on the Ambulance policy Web page on the CMS Web site.

In addition, we clarified our definition of SCT in the Medicare Benefit Policy Manual, Chapter 10--Ambulance Services, in which we stated that SCT is regarded as a highly-skilled level of care of a critically injured or ill patient during transfer from one hospital to another. We have also clarified our policy in Ambulance Open Door Forums, conference calls, and oral and paper communication written in response to questions posed by individuals and groups representing the ambulance industry.

Despite our previous attempts to clarify the scope of SCT transport, we continued to receive questions from ambulance suppliers and providers and there was confusion on this point among the Medicare contractors. For this reason, we had proposed to change the definition of ``specialty care transport'' at Sec. 414.605 to read ``hospital-to- hospital'' transport as opposed to ``interfacility'' transportation to conform our regulation text to our existing policy.

Comment: Many commenters suggested that we expand the SCT level of ambulance service to include transportation for neonates and adults transported from the scene of an accident to a hospital, as well as transport between hospitals and between hospitals and skilled nursing facilities (SNFs). In addition, commenters requested a clearer definition of the terms ``hospital'' and ``critical care.'' Some commenters suggested that we reconvene the Negotiated Rulemaking Committee to develop a definition of ``critical care.''

Response: We carefully considered the commenters'' recommendations to expand our interpretation of the term ``interfacility'' to include other origin and destination points in addition to hospitals. The SCT level of transport is intended to be used only for transfer of the most critically ill beneficiaries, who require ongoing specialized care beyond the scope of the EMT-paramedic. Typically, SCT level transport occurs when a beneficiary who is already receiving a high level of specialized care in one facility is moved to another facility to receive more specialized services. Although such specialized care is usually provided in a hospital, we recognize that some beneficiaries receive specialized care in a skilled nursing facility (SNF) and may require the SCT level of transport from the SNF to a hospital or from a hospital to a SNF.

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Therefore, we are withdrawing our proposal to revise Sec. 414.605 to read ``hospital-to-hospital'' instead of ``interfacility'' and expanding our interpretation of ``interfacility'' to include both hospitals and SNFs. In addition, in response to comments, we are further clarifying the kinds of facilities that we include as origin or destination points for ``interfacility'' transport for SCT purposes.

Many of our Medicare contractors indicate that they have been administering the ``interfacility'' requirement in the SCT definition broadly, paying claims at the SCT level of service beyond the scope of ``hospital-to-hospital.'' An examination of the latest available claims data shows that SCT-level payments are made predominantly for hospital- to-hospital transportation, as expected, with a small percentage of SCT-level ambulance transports involving other origin and destination points, primarily SNFs.

Therefore, for purposes of SCT payment, we consider a ``facility'' to include a SNF or a hospital that participates in the Medicare program. In addition, we consider the term ``facility'' to include a hospital-based facility that meets our requirements for provider-based status, as specified at Sec. 413.65. Facilities that meet our requirements for provider-based status, like the main provider with which they are affiliated, are held to high standards of safety and patient care. Therefore, we believe that such facilities, due to their close association with a Medicare hospital and their adherence to high standards of care under our regulations, are also among the facilities equipped to provide the SCT level of care to patients and to provide the additional specialized care that is required under the SCT level of ambulance transport. We will continue to enforce our medical necessity requirements concerning all interfacility transports so that we can remain assured that they are occurring for only the most critical patients.

We appreciate the request by commenters that we clarify the kinds of facilities we consider to be included for SCT payment purposes. As explained above, our claims data indicate that SCT level care is needed primarily during inter-hospital transfers and, in some cases, during transfers between a hospital and a SNF. Therefore, for purposes of SCT payment, we consider a ``facility'' to include only a SNF or a hospital that participates in the Medicare program, or a hospital-based facility that meets our requirements for provider-based status.

Medicare hospitals include, but are not limited to, rehabilitation hospitals, cancer hospitals, children's hospitals, psychiatric hospitals, Critical Access Hopitals (CAHs), inpatient acute-care hospitals, and Sole Community Hospitals (SCHs).

However, we do not agree with commenters who recommended that a more comprehensive definition of ``critical care'' is warranted at this time. The Negotiated Rulemaking Committee was unable to precisely define ``critical care'' at the time it originally convened and recognized that a definition provided at the State or local level would be expected to fit, since there are no national standards available (Summary Minutes, Medicare Ambulance Fee Schedule Negotiated Rulemaking, October 4 and 5, 1999). We have no additional data that would permit us to develop a more precise definition at this time. In addition, we believe that a more precise definition might conflict with State or local parameters already in place, as well as possibly limiting the scope of SCT payments in localities where a broader State or local definition would otherwise apply.

``Critical care'' will continue to be interpreted by our Medicare contractors in conjunction with directives provided at the State or local level.

Comment: Many commenters also suggested that we consider including the ongoing monitoring of a patient by a specially-trained health care professional, beyond the scope of the EMT-Paramedic, to be within the realm of the SCT level of service.

Response: We carefully considered these commenters' concerns, and we agree that in cases where a critically injured or ill patient requires the SCT-level of transport from one facility to another, the ongoing care that must be furnished by a health professional in an appropriate specialty area, beyond the scope of the EMT-Paramedic, may include ongoing determinations as to whether the patient requires specialized care during the transport. We do not require that specialized treatment actually be furnished during the transport to satisfy the standard for SCT-level transport. However, we do require that the need for specialized treatment can only be ascertained by a health professional with specialized training beyond the scope of the EMT-Paramedic. We agree with commenters who indicated that an ambulance service should not be expected to bear the cost of an additional health professional to accompany a patient ``just in case'' the need for specialized treatment arises during transport. When such ``specialized monitoring'' is medically necessary, we agree that it is part of the ongoing care that falls within the definition of SCT.

Comment: One commenter stated that certain modifiers, such as the ``D'' modifier representing a stand-alone emergency room or the ``I'' modifier used when transferring a patient from the airport or helipad to the ambulance, exclude these types of ambulance transports from the SCT level of service.

Response: The commenter is correct that we generally do not recognize either ``D'' or ``I'' modifier-type ambulance transports to be SCT level ambulance services. The ``D'' modifier would be used to describe a non-hospital-based, non-hospital-owned, or non-hospital- operated diagnostic facility or clinic. We have defined the SCT level of ambulance service as interfacility ground transportation, involving transport between hospitals, hospital-based facilities and SNFs. Therefore, a stand-alone emergency room that is not provider-based or a freestanding clinic that is not provider-based would not meet the requirements for an origin or destination point for SCT level transport. The ``I'' modifier indicates an origin or destination that is a transfer point between ambulances, such as transfer from air to ground ambulance service at a helicopter pad. Unless the origin of the first leg of the transport is a facility and unless the SCT level of care is medically necessary after the transfer occurs, we would not consider the transport from the transfer point to the final destination to be SCT level transport. 3. Recalibration of the Ambulance Fee Schedule Conversion Factor

In the February 27, 2002 final rule with comment period (67 FR 9102 and 9103), we indicated that we would adjust the CF if actual experience under the fee schedule was significantly different from the assumptions used to determine the initial CF and air ambulance rates. We specifically stated that we would monitor payment data and evaluate whether the assumptions used were accurate.

We have continued to review our assumptions annually to determine whether or not a CF adjustment is warranted. We examined the effects of the relative volumes of the different levels of ambulance services (service mix) and the extent of low billing charges to determine whether we should adjust the CF to reflect actual practices. In the 4 years since the implementation of the ambulance fee schedule, no significant differences from our original assumptions have emerged. We have observed only insignificant differences, and, to date, no adjustments in any 1

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year have been warranted. It is for this reason that we believe it is appropriate to discontinue our annual review of the original CF assumptions. We also believe that the formal annual review of air ambulance rates should be discontinued as we will monitor all ambulance rates and make adjustments on an ``as needed'' basis. The ambulance industry has available multiple venues for notifying us of potential issues. These include the ambulance fee schedule open door forums and telephone calls to designated CMS personnel. As an additional safeguard, we generally conduct a review of ambulance data each year in preparation for issuing the Ambulance Inflation Factor (AIF).

Therefore, we are revising Sec. 414.610 (g) to indicate that we will monitor payment and billing data on an ongoing basis and adjust the CF and air ambulance rates as appropriate to reflect annual practices under the fee schedule.

Comment: Commenters were supportive of our proposal to discontinue the annual practice of examining the low biller data and the CF via the rulemaking process.

Response: We appreciate the support of the commenters on these points.

We are finalizing our proposal to discontinue the annual practice of examining the low biller data and the CF, as well as air ambulance rates, and to change the language at Sec. 414.610(g) to reflect this. 4. Hospital-to-Hospital Ambulance Service: Emergency Response

In Sec. 414.605, we define ``emergency response'' for purposes of ambulance service to mean ``responding immediately at the BLS (Basic Life Support) or ALS1 (Advanced Life Support Level 1) level of service to a 911 call or the equivalent in areas without a 911 call system. An immediate response is one in which the ambulance entity begins as quickly as possible to take the steps necessary to respond to the call.'' In our February 27, 2002 final rule with comment period (67 FR 9100), in our definition of ``emergency response'' we stated that the additional payment for emergency response is for the additional overhead cost of maintaining the resources required to respond immediately to a call and not for the cost of furnishing a certain level of service to the beneficiary.

The current emergency response definition has created confusion for those transports that originate at a hospital emergency department and the ambulance is transporting the beneficiary to an emergency department at another hospital for either admittance or treatment. For example, in most of these cases, the beneficiary must be stabilized prior to the transport. Therefore, the need to maintain a state of readiness to respond immediately to an urgent call, warranting a higher emergency response payment, does not appear to be applicable to these situations.

Another example occurs when the ambulance is owned by the originating hospital. We stated in a Program Memorandum to the Medicare contractors (Transmittal AB-02-130, Change Request 2295, September 27, 2002) that upon receipt of a call for ambulance services, the dispatcher makes the determination of whether the call constitutes an Emergency response. When the ambulance service is already readily available at the originating hospital, an emergency call may not be necessary, much less through a dispatcher for a 911 service.

While we recognize that there may be instances when an emergency response payment is warranted for a transport between two hospital emergency departments, we believe that payment based on readiness to respond immediately is not justified 100 percent of the time. For this reason, we believed our current definition of Emergency response needed to be clarified to reflect only circumstances where payment for immediate response is truly warranted. We proposed to revise the definition of Emergency response to mean that an ambulance entity--

Maintains readiness to respond to urgent calls at the BLS or ALS1 level of service; and

Responds immediately at the BLS or ALS1 level of service to 911 calls, the equivalent in areas without a 911 call system or radio calls within a hospital system when the ambulance entity is owned and operated by the hospital.

Comment: We received many comments on revising the definition of ``emergency response''. Most commenters expressed concern that this revised definition would put private ambulance services at a disadvantage. They interpreted our proposed definition to include only ambulance services owned and operated by hospitals that respond to radio calls within a hospital system. Essentially, their interpretation of our proposed definition was that only ambulance services owned and operated by hospitals would be able to transport patients at the ``emergency response'' level of service and, therefore, be able to receive the higher ``emergency response'' payment as a result.

Response: Certainly, this was not our intent. Our view of the problem we were attempting to address was the issue of ``readiness'' when responding to a 911 call. We expect ``emergency response'' payment to be made only in circumstances where readiness to respond immediately is truly required. Therefore, we proposed to clarify the circumstances under which we expected this to occur. However, we agree with comments stating that ambulance service calls generally do not originate through a 911 service but through the hospital's radio dispatch at the location where the ambulance is stationed. Private ambulance services stationed at inpatient hospitals would, therefore, be at a disadvantage if we specify that responding to hospital radio calls only qualifies as ``emergency response'' when the ambulance entity is owned or operated by the hospital. This would not affect off-site ambulance services whose calls originate through a 911 or equivalent service. We agree that the proposed change in the definition of ``emergency response'' could have an unintended adverse effect on private ambulance services in these circumstances.

Comment: Several commenters stated that our existing definition of emergency response more clearly reflects the intent of the Negotiated Rulemaking Committee in that all ambulance services should have equal access to the use of the emergency level of service by accessing it through established State protocols, such as 911 or an equivalent service.

Response: We also agree that the current definition of emergency response is consistent with the Negotiated Rulemaking Committee's intent and does not present other problems raised by commenters. For the BLS and ALS1 levels of service, an ambulance service that qualifies for an emergency response is assigned a higher relative value to recognize the additional costs incurred in responding immediately. We think that requiring an ambulance service to respond to a 911 call, or the equivalent in areas without a 911 call system, satisfies this requirement.

Therefore, we are withdrawing our proposal to revise the ``emergency response'' definition and will retain the current definition at 414.605. We expect that the State protocol (a 911 call or the equivalent in areas without a 911 call system) for requesting emergency ambulance services will be followed in all instances.

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C. Analysis of and Responses to Public Comments

We received a total of 102 timely public comments in response to the May 26, 2006 proposed rule (71 FR 30358). Commenters included national trade associations, health care providers, hospitals, CMS contractors, and private citizens.

All public comments were reviewed and grouped by like or related topics. Comments are addressed in the individual sections of discussion to which they apply.

D. Ambulance Inflation Factor (AIF) for 2007

Section 1834(l)(3)(B) of the Act provides the basis for updating payment amounts for ambulance services. Our regulations at Sec. 414.610(f) provide that the ambulance fee schedule must be updated by the AIF annually, based on the CPI for all urban consumers (CPI-U) (U.S. city average) for the 12-month period ending with June of the previous year. For CY 2007, that percentage is 4.3 percent.

Section 414.620 specifies that changes in payment rates resulting from incorporation of the AIF will be announced by notice in the Federal Register without opportunity for prior comment. We find it unnecessary to undertake notice and comment rulemaking because the statute and regulations specify the methods of computation of annual updates. This notice does not change policy, but merely applies the update methods specified in the statute and regulations.

The national fee schedule for ambulance services has been phased in over a 5-year transition period beginning April 1, 2002 as specified in Sec. 414.615.

Prior to January 1, 2006, during the transition period, the AIF was applied separately to both the fee schedule portion of the blended payment amount (regardless of whether a national or regional fee schedule applied) and to the reasonable cost or charge portion of the blended payment amount, respectively, for each ambulance provider or supplier. Then, these two amounts were added together to determine the total payment amount for each provider or supplier. Beginning January 1, 2006, the total payment for air ambulance providers and suppliers is based on 100 percent of the national ambulance fee schedule, while the total payment amount for ground ambulance providers and suppliers is based on either 100 percent of the national ambulance fee schedule or a combination of the national ambulance fee schedule and the regional ambulance fee schedule. As of January 1, 2007, the combination rate will be 80 percent of the national ambulance fee schedule and 20 percent of the regional ambulance fee schedule.

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

A. Scope of the Five-Year Review

This final rule includes the culmination of the third 5-Year Review of work RVUs required by the statute. The work RVUs affected by this review will be effective for services furnished beginning January 1, 2007.

In the June 29, 2006 proposed notice, ``Five-Year Review of Work Relative Value Units Under the Physician Fee Schedule and Proposed Changes to the Practice Expense Methodology'', we explained the process used to conduct the 5-Year Review of work RVUs. In response to our solicitation of public comments that appeared in the November 15, 2004 Federal Register (69 FR 66370), we received comments from approximately 35 specialty groups, organizations, and individuals involving over 500 Current Procedural Terminology (CPT) codes. After review by our medical staff, we shared these comments with the AMA's Relative Value Update Committee (RUC) along with additional services we had identified as potentially misvalued.

After a comprehensive review process, the RUC submitted work RVU recommendations for all of these codes except for the codes that were withdrawn or referred to the CPT Editorial Panel for further review or action, and CPT code 32020 for which no specialty society expressed an interest in conducting a survey. We analyzed all of the RUC recommendations by evaluating the methodology used by each workgroup to develop the recommendations, the recommended work RVUs, and the rationale for the RUC recommendations. When appropriate and feasible, if we had concerns about the application of a particular methodology, we assessed whether the recommended work RVUs were appropriate by using alternative methodologies.

In conducting our review of the RUC recommendations we considered whether: (1) The code was part of a completed survey process; (2) the methodology used by the specialty society followed the standard RUC process; (3) the survey respondents stated the work had or had not changed in the past 5 years; (4) databases (for example, Society of Thoracic Surgeons (STS), National Surgical Quality Improvement Program (NSQIP), and Medicare diagnosis-related group (DRG)) were used in lieu of the standard RUC methodology or as a supplement to the standard methodology; and (5) the intra-service work per unit of time (IWPUT) calculation was used to determine work RVUs in lieu of the standard RUC process. Although we recognize that the work values of codes may change over time, it is the responsibility of the specialty society to present compelling evidence that a code is misvalued. (For additional information on the review process, please see the June 29, 2006 proposed notice (71 FR 37172).)

B. Review of Comments

Many commenters expressed support for our proposed valuations of many of the services. However, other commenters expressed specific concern or disagreement with the proposed valuation of approximately 106 codes, with the major concern being that the codes would be undervalued.

We convened a multi-specialty panel of physicians to assist us in the review of comments. The comments we did not submit for panel review are discussed at the end of this section. The panels were moderated by our medical staff and consisted of:

Clinicians representing the commenting specialty(s), based on our determination of those specialties which are most identified with the services in question. Although commenting specialties were welcomed to observe the entire refinement process, they were only involved in the discussion of those services for which they were invited to participate.

Primary care clinicians nominated by the American Academy of Family Physicians (AAFP) and the American College of Physicians.

Four carrier medical directors.

One to two clinicians who practice in related specialties and have knowledge of the services under review.

We submitted 30 codes for evaluation by the panel. The panel discussed the work involved in each procedure under review in comparison to the work associated with other services on the fee schedule. We assembled a set of reference services and asked the panel members to compare the clinical aspects of the work for services they believed were incorrectly valued to one or more of the reference services. In compiling the reference set, we attempted to include: (1) Services that are commonly furnished for which work RVUs are not

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controversial; (2) services that span the entire spectrum of work intensity from the easiest to the most difficult; and (3) at least three services performed by each of the major specialties so that each specialty would be represented. Group members were encouraged to make comparisons to these reference services. The intent of the panel process was to capture each participant's independent judgment based on the discussion and his or her clinical experience. Following the discussion for each service, each participant rated the work for that procedure. Ratings were individual and confidential; there was no attempt to achieve consensus among the panel members.

We then analyzed the ratings based on a presumption that the RVUs published in the proposed notice were correct. To overcome that presumption, the inaccuracy of the proposed RVUs had to be apparent to the broad range of physicians participating in the panel. Ratings of work were analyzed for consistency among the groups represented on the panel. In general terms, we used statistical tests to determine whether there was enough agreement among the groups on the panel, and if so, whether the agreed-upon RVUs were significantly different from the proposed RVUs that appeared in the June 29, 2006 proposed notice to demonstrate that the proposed RVUs should be modified. We did not modify the RVUs unless there was a clear indication for a change. If there was agreement across groups for change, but the groups did not agree on what the new RVUs should be, we eliminated the outlier group, and looked for agreement among the remaining groups as to the basis for new RVUs. We used the same methodology in analyzing the ratings that we first used in the refinement process for the CY 1993 physician fee schedule final rule published in the November 25, 1992 Federal Register which described the statistical tests in detail (57 FR 55938).

Our decision to convene a multi-specialty panel of physicians and to apply the statistical tests described above in this section was based on our need to balance the interests of those who commented on the work RVUs against the redistributive effects that would occur in other specialties. Of the 30 codes reviewed by the multi-specialty panel, all were the subject of requests for increased values.

Of the proposed codes that were reviewed, 11 increased, and 19 were not changed.

Table 12 lists the codes reviewed during the 5-Year Review on which we received comments. This table includes the following information:

CPT/HCPCS Code. This is the CPT or alphanumeric HCPCS code for a service.

Modifier. A modifier -26 is shown if the work RVUs represent the professional component (PC) of the service.

Description. This is an abbreviated version of the narrative description of the code.

Proposed Work RVUs. This column includes the work RVUs proposed in the June 29, 2006 proposed notice for each reviewed code.

Requested Work RVUs. This column identifies the work RVUs requested by the commenters. If the commenters requested different RVUs, the table lists the highest requested RVUs.

RUC Recommendation. This column identifies the work RVUs recommended by the RUC that appeared in the June 29, 2006 proposed notice.

HCPAC Recommendation. This column identifies the work RVUs recommended by the HCPAC that appeared in the June 29, 2006 proposed notice.

2007 Work RVUs. This column contains the work RVUs for the CY 2007 physician fee schedule.

Basis for Decision. This column indicates whether the CY 2007 work RVUs resulted from comments received or the refinement panel process. BILLING CODE 4120-01-P

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

[[pp. 69723-69772]] Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulan[[Page 69723]]

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[GRAPHIC] [TIFF OMITTED] TR01DE06.009

BILLING CODE 4120-01-C

C. Discussion of Comments by Clinical Area

1. Dermatology and Plastic Surgery

In addition to comments received in support of our proposed work RVUs for services reviewed by the RUC's Workgroup 1, we received the following comments.

For CPT code 17004, Destruction (e.g., laser surgery, electrosurgery, cryosurgery, chemosurgery, surgical curettement), all benign or pre-malignant lesions (e.g., actinic keratoses) other than skin tags or cutaneous vascular proliferative lesions; 15 or more lesions, the RUC considered a change to the work RVUs for this CPT code based on the understanding that when rank order anomalies arising from the 5-Year Review were identified, the specialty could bring these additional codes forward for re-evaluation at the February 2006 RUC meeting. A standard RUC survey was conducted for this code. During the discussion, the RUC agreed that the descriptor of the code needed to be changed, as well as the intra-service descriptor and time to reflect only the destruction of pre-malignant lesions. The RUC agreed that, due to these changes, a work value halfway between the 25th and median survey percentile was appropriate and recommended work RVUs of 1.80 for CPT code 17004.

CMS Proposed Valuation

For CPT code 17004, we believed that the work associated with benign and pre-malignant lesions does not really differ; therefore, the recommended work RVUs for CPT code 17004 were too high. We used a ``building block'' methodology to develop our proposed RVUs for this service. That is, based on our proposed valuation of CPT code 17003 (the code used for 2-14 lesions), of 0.07 work RVUs for each additional lesion, the 14th lesion would equal 0.91 work RVUs (0.07 x 13 lesions) plus the 0.6 work RVUs for the initial lesion, base code CPT code 17000, which is billed once in conjunction with 17003, for a total of 1.51 work RVUs for the service. We proposed to value CPT code 17004, at the level determined for the 15th lesion, at 1.58 work RVUs by adding the 0.07 work RVU increment of CPT code 17003 and the 0.6 work RVUs for the base code, CPT code 17000, which is not billed in conjunction with CPT code 17004.

Comment: While the American Academy of Dermatology (AAD) was pleased that the RUC-recommended work RVUs were accepted for the 36 CPT codes for the excision of benign and malignant lesions, both the AADA and the RUC disagreed with our proposed valuation of 1.58 work RVUs for CPT code 17004 and requested that we accept the RUC-recommended 1.8 work RVUs. They continue to support the premise that benign and pre- malignant lesions are not comparable and believe that recent changes to the code descriptors made by the CPT editorial panel to CPT codes 17000-17004 and CPT codes 17110-17111 for CPT 2007 also support this position. These descriptor changes specifically differentiate between destruction of pre-

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malignant and benign lesions, respectively. The RUC and AADA maintain that the destruction of pre-malignant lesions in CPT 17004 requires a greater mental effort and judgment, technical skill, intensity and time than that for the destruction of benign lesions in CPT code 17111. In addition, the commenters presented data collected during the survey process to show that the median number of lesions destroyed in the typical service of CPT code 17004 was 22 lesions, and the average number was 23.439.

Response: We have reviewed the information supplied by the RUC and the AADA, especially for the median number of lesions destroyed in the typical service of CPT code 17004. By applying the same calculations we used in the proposed rule to value the 15th lesion at 1.58 work RVUs, we determined that the RUC proposed work value of 1.8 work RVUs represents 18 lesions for a typical service for CPT code 17004.

Final Decision: Based on these comments and our calculations, we now believe that the RUC recommendation is reasonable and will accept the RUC-recommended work value of 1.80 work RVUs for CPT 17004.

Other Issues

Comment: The American Society of Plastic Surgeons (ASPS) was pleased that we agreed with the RUC recommendations for the codes performed by plastic surgeons. ASPS also clarified that the reason CPT code 19361 was withdrawn from the 5-Year Review process and sent to CPT was due to the ambiguity of the code descriptor, and not due to an invalid survey as was listed in Table 3 of the June 29, 2006 proposed notice (71 FR 37189).

Response: We thank the society for the clarification and regret the erroneous rationale that was noted for the withdrawal of CPT code 19361 from this 5-Year Review process. 2. Orthopedic Surgery

In addition to comments received in support of our proposed work RVUs for services reviewed by the RUC's Workgroup 2, we received comments on the following CPT codes.

For CPT code 27130, Arthroplasty, acetabular and proximal femoral prosthetic replacement (total hip arthroplasty), with or without autograft or allograft; CPT code 27236, Open treatment of femoral fracture, proximal end, neck, internal fixation or prosthetic replacement; and CPT code 27447, Arthroplasty, knee, condyle and plateau; medial AND lateral compartments with or without patella resurfacing (total knee arthroplasty), we originally presented these codes to the workgroup with data other than survey data supporting the work RVU requests. Because of concerns regarding the methodology used by the specialty society, the codes were temporarily withdrawn with the understanding that survey data could be presented at the October 2006 meeting. After reviewing the survey data in October 2006, the RUC did not find any compelling evidence to change the current work RVUs assigned to these services. Based on this review, the RUC recommended maintaining the current work RVUs of 20.09 work RVUs for CPT code 27130, 15.58 work RVUs for CPT code 27236, and 21.45 work RVUs for CPT code 27447, but also recommended using the new physician time survey data for each of these services.

CMS Proposed Valuation

We disagreed with the RUC-recommended values for CPT codes 27130, 27236 and 27447, based on the specialty's presentation to the workgroup in August. We instead proposed alternative work RVUs determined by comparing these codes to services with similar times and adjusting for any differences in hospital visits. As a result of this analysis, we proposed 15.96 work RVUs for CPT code 27130, 12.77 work RVUs for CPT code 27236, and 19.30 work RVUs for CPT code 27447.

Comment: Several commenters, including societies representing orthopedics and the RUC, expressed concern about the methodology we used to develop our proposed work RVUs for these services. Commenters questioned the comparisons we used to arrive at the proposed values (that is, high volume orthopedic procedures being compared to rarely furnished non-orthopedic procedures of lower risk and intensity), and also stated that our proposed work RVUs would create substantial rank order anomalies within the families. The American Academy of Orthopaedic Surgeons/American Association of Orthopaedic Surgeons (AAOS) and the American Society for Surgery of the Hand (ASSH) stated that we had misunderstood the method that was used to develop the RUC- recommended work RVUs for these procedures. They indicated that we were incorrect in stating that a RUC survey had not been conducted for these codes; the work RVU recommendations that were adopted by the RUC are based on surveys conducted by AAOS and are the result of extensive RUC review and discussion.

AAOS acknowledged that the initial recommendations presented by AAOS in August 2005 were based on NSQIP and DRG data due to flaws in the original surveys. However, based on reservations expressed by CMS at that time, subsequent surveys were conducted. The RUC-recommended work RVU recommendations were then based on this survey data and the NSQIP data was used only as an adjunctive methodology to credit or discredit the survey data.

In addition, these codes were compared with other RUC-reviewed codes to show that the recommended values and times placed the codes in proper rank order. The RUC-recommended values are further supported when compared to other procedures within the associated families. The commenters urged us to reconsider our position and accept the RUC recommendations.

Response: The commenters are correct that we based our rejection of the RUC-recommended work RVU for these services (CPT codes 27130, 27236, and 27447) on the August workgroup presentation and had inadvertently overlooked the surveys that were presented at the October meeting. After reviewing the more recent survey data, we now agree that the RUC recommendations appear reasonable. Therefore, based on a review of the information provided by the commenters, we have decided to accept the RUC recommendation to maintain the current work RVUs of 20.09 for CPT code 27130, 15.58 work RVUs for CPT code 27236 and 21.45 work RVUs for CPT code 27447. 3. Gynecology, Urology, Pain Medicine, and Neurosurgery

We received comments disagreeing with our proposed work RVUs on the following two services: CPT code 22612, Arthrodesis, posterior or posterolateral technique, single level; lumbar (with or without lateral transverse technique); and CPT code 63048, Laminectomy, facetectomy and foraminotomy (unilateral or bilateral with decompression of spinal cord, cauda equina and/or nerve root(s), (e.g., spinal or lateral recess stenosis)), single vertebral segment; each additional segment, cervical, thoracic, or lumbar (List separately in addition to code for primary procedure.). The RUC had recommended increases in work RVUs for these two codes, but less than the increases requested by the specialty society. The RUC agreed that these procedures were undervalued due to increases in length of stay and the incorrect assumptions made in the

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previous valuation of the service. The specific RUC-recommended work RVUs were 22.00 work RVUs for CPT code 22612 and 3.55 work RVUs for CPT code 63048.

CMS Proposed Valuation

We had technical concerns with the recommendations for CPT codes 22612 and 63048. The workgroup had recommended the survey's 25th percentile for CPT code 22612 to keep the appropriate rank order with the reference service, CPT code 22595, that the RUC stated is a more complex procedure. However, there was a typographical error in the information presented by the specialty society that listed the work RVUs for the reference code as 23.36, rather than the correct value of 19.36 work RVUs. Therefore, the recommended work value of 22.00 RVUs appeared appropriate and we proposed to maintain the current work RVUs of 20.97 for this service.

There was what we believed to be an additional typographical error in the specialty society survey data for CPT code 63048. The summary information presented to the RUC lists the reference code as also being CPT code 63048. Therefore, there is no information submitted that compares the respondents' estimates of complexity and intensity between CPT code 63048 and a reference code. Because we do not have sufficient information to decide if the recommended work RVUs are appropriate, we proposed to maintain the current work RVUs of 3.26 for CPT code 63048.

Comment: We received comments from the North American Spine Society, the American Association of Orthopaedic Surgeons, the American Association of Neurological Surgeons (AANS), and the RUC requesting that we do not implement our proposed RVUs for these services (CPT codes 22612 and 63048), but rather accept the RUC-recommended work RVUs. The commenters stated that we had misunderstood the process used by the presenting societies to develop the suggested RVUs for both codes. The commenters stated that the survey respondents did not notice the values for a reference service, but rather were asked to compare the current work and intensity with the work and intensity of furnishing the procedure in 2000. Therefore, the societies contend, the misprint of the value for what was listed as a ``reference'' code had no effect on the valuation of CPT code 22595, nor did the absence of a separate reference code for CPT code 63048 negatively affect its valuation. According to the commenters, they believe that the workgroup based its recommendation on the validity of the survey data and the building block methodology presented as additional rationale. The specialty society representing spine surgeons also commented that when the respondents were asked to rate how the complexity and intensity of these services had changed in the past 5 years, the ratings showed that the survey respondents believed that the intensity and complexity for both codes had increased.

The AAFP questioned why we would propose a value for CPT code 22612 that, though equal to the current value, was still higher than a more complex reference code. According to the AAFP, the RUC appeared to be recommending that the ratio of work between CPT codes 22612 and 22595 was 0.942 work RVUs; therefore, we should have recommended a work value of 18.23 work RVUs for CPT code 22612.

Response: We thank the commenters for clarifying the process used in surveying for these services. However, we still have concerns regarding the RUC recommendations for these services. First, though the survey respondents did not see the erroneous work RVUs listed for CPT code 22595, the reference code used for CPT code 22612, the workgroup did account for these errors. As a result, the RUC recommendation for CPT code 22612 was higher than the current work RVUs for CPT code 22595, a procedure the workgroup considered more complex. Second, although the survey respondents may have indicated on the rating scale that CPT codes 22612 and 63048 were more complex procedures in 2005 than they were in 2000, when they were asked simply whether the work for these services had changed in the last 5 years, 80 percent disagreed for CPT code 22612 and 50 percent disagreed for CPT code 63048. Therefore, based on the comments received, we referred this code to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 21.79 work RVUs to CPT code 22612 and 3.47 work RVUs to CPT code 63048.

For CPT code 61697 Surgery of complex intracranial aneurysm, intracranial approach; carotid circulation; CPT code 61700 Surgery of simple intracranial aneurysm, intracranial approach; carotid circulation; and CPT code 61702 Surgery of simple intracranial aneurysm, intracranial approach; vertebrobasilar circulation), we received the following comments.

Comment: The AANS disagreed with the RUC recommendations that we proposed to accept for CPT codes 61697, 61700 and 61702 because of changes made by the workgroup to ``standardize the pre-service and post-service times.'' The commenter stated that the standard 60 minutes of pre-service time was not adequate for such complex neurological procedures and stated reasons for the need for extended times. AANS also objected to the adjustments made by the workgroup to the level and number of post-operative visits by changing each post-operative critical care visit to a single high level subsequent hospital care visit. The society stated its belief that this change ``significantly understates the post-operative time and intensity of the work that was described by survey respondents,'' and urged us to add the time and work RVUs of an additional critical care code, CPT code 99233, to all three services.

Response: We do not believe that, based on this comment, we have sufficient information to make the requested change. Therefore, we referred this code to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 57.31 work RVUs to CPT code 61697. 4. Radiology, Pathology, and Other Miscellaneous Services

In addition to comments received in support of our proposed work RVUs for services reviewed by the RUC's Workgroup 4, we received the following comments.

For CPT code 76075, Dual energy x-ray absorptiometry (DXA), bone density study, one or more sites; axial skeleton (e.g., hips, pelvis, spine), the RUC recommended a reduction from the current 0.30 work RVUs for the DXA service because the workgroup believed that the actual work is less intense and more mechanical than the specialty society's description of the work. The RUC-recommended work RVUs for this code were 0.20 and we agreed with this recommendation.

Comment: Many commenters, including individual providers, national and State organizations, specialty societies, manufacturers, and Congressional and State legislators, wrote expressing concern about the proposed reduction in payments for this service, some of which is attributable to the proposed work RVUs. These commenters expressed concern that the proposed reduction in payment would have a detrimental impact on beneficiary health and is contrary to a Surgeon General's Report that

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emphasized the importance of such testing.

The ACR commented that, while they participated in the survey process that resulted in the RUC-recommended work RVU for this service, other specialties that provide this service such as family medicine, internal medicine and rheumatology were not represented. ACR encouraged us to consider comments from other specialty societies and organizations furnishing this service, including those that do not participate in the RUC process (such as the International Society for Clinical Densitometry (ISCD)), so that their views may be considered. ACR indicated that it would like to participate should it be determined that this will be addressed through a refinement panel. Other commenters, including specialty organizations and the ISCD, provided additional information regarding this service. Many of the commenters also expressed concern about the payment for CPT code 76077, although this code was not included in the 5-Year Review of work. Changes in payment for this code are attributed to the changes in PE methodology discussed in section II.A. of this final rule with comment period.

Response: We proposed to accept the RUC-recommended work RVU of 0.20 for CPT code 76075, which was lower than the requested 0.30 work RVUs requested by the specialty. Therefore, based on the comments received, we referred this code to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 0.20 work RVUs to 76075. (Note: For 2007, CPT code 76075 has been renumbered to 77080.)

For CPT code 95872, Needle electromyography using single fiber electrode, with quantitative measurement of jitter, blocking and/or fiber density, any/all sites of each muscle studied, the RUC agreed that there was compelling evidence that CPT code 95872 was undervalued and recommended increasing the existing work RVUs from 1.50 to 3.00 work RVUs.

CMS Proposed Valuation

We had concerns that the work recommendation for 95872, which was based on the survey's 75th percentile for work, is inappropriate for this service. To determine our proposed valuation for CPT code 95872, we utilized a multi-tiered approach. First, we calculated the pre- service and post-service work RVUs using the surveyed physician time data. Then, to determine an intra-service work RVU, we subtracted the surveyed intra-service time from the current time and multiplied this difference in time by the calculated IWPUT using the specialty recommended total work RVUs. Adding these calculated work RVUs resulted in a work valuation of slightly less than 2.00 work RVUs, which is approximately the same value as the survey median work RVU. In accordance with this analysis and the survey median, we proposed a work RVU of 2.00.

Comment: The RUC believes, and specialty societies for neurology agree, that the RUC's justification to increase the work of CPT code 95872 to 3.00 work RVUs is reasonable and outweighs our proposed valuation of 2.00 work RVUs, which is solely based on IWPUT. Commenters provided additional information concerning the activities associated with this procedure and requested acceptance of the RUC-recommended work RVUs.

Response: Based on the comments received, we referred this code to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 2.88 work RVUs to CPT code 95872. 5. Evaluation and Management (E/M) Services

Comment: There was strong support for the proposal to increase work RVUs for E/M services from many commenters, including specialty societies, the RUC, MedPAC and individual physicians. For example, specialty societies or organizations representing internal medicine, family physicians, thoracic medicine, rheumatology, endocrinology, neurology, HIV medicine, clinical oncology, group practice, infectious disease, critical care, physical medicine, emergency medicine, geriatrics, geriatric psychiatry, osteopathy, urology, gastroenterology, pediatrics, renal medicine, as well as the RUC, all expressed their appreciation for our acceptance of the RUC recommendations for E/M services. The American College of Physicians stated that our proposed E/M work RVUs are supported by data from the annual National Ambulatory Medical Care Survey which show that patients now have more chronic conditions, are older, and have more diagnoses per encounter. In addition, the commenter contended that the proposed increased values for E/M services would provide an incentive for appropriate E/M service utilization and would also ensure a sufficient supply of primary care physicians. Another commenter applauded the E/M proposals because ``they correct the dramatic erosion of the relative weight accorded to E/M services over the past 14 years.''

However, an umbrella specialty society for surgery raised several objections to our proposal. First, the commenter contended that the compelling evidence standard was not met because any false assumptions involved in the original valuation of the codes were corrected in the first 5-Year Review and because any increase in work for E/M services has been compensated by the billing of higher-level office visits. Second, the commenter expressed concern that the proposal will lead to rank order anomalies because of the disproportionate distribution of values within the E/M family and suggested that we spread out the increases more proportionately by increasing the values of lower E/M codes and decreasing the proposed increases to CPT codes 99213 and 99214. These concerns were also echoed in the comments from the specialty societies representing colon and rectal surgery, vascular surgery, orthopaedic surgery, hand surgery, prosthetic urology and from other commenters.

The specialty society representing otolaryngology submitted a similar comment that also stated that the proposed increases are excessive and unsupported by a careful analysis of the data, including an analysis of the IWPUT. In addition, the commenter stated that the IWPUTs that result from our proposal are illogical within families of codes and exceed the levels of many complex surgical procedures. The society recommended that we either maintain the 2006 work RVUs or transition the new work RVUs over several years.

The society representing social workers, as well as individual social workers and other NPPs, commented that clinical social workers and other NPPs are unable to use the E/M codes and requested that we withdraw the proposed increase for E/M services until all Medicare providers can receive fair and adequate increases. The society representing psychologists recommended that we reduce the increase for E/M services because it is inequitable to reward some at the expense of others or that they be permitted to bill for E/M services.

Response: We appreciate the strong support shown for our proposed work RVUs for E/M services and are appreciative of the thoughtful concerns raised by other commenters. We certainly understand how contentious this issue has been, particularly in light

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of the large BN adjustment that our acceptance of the RUC recommendations for these services would require. The concerns surrounding the valuation of E/M services were discussed during at least three RUC meetings before consensus was finally reached. We believe the final RUC recommendations represented acceptable relative values for the E/M services in question. After reviewing the comments, we believe that the RUC recommendations for the E/M services should be implemented in full beginning January 1, 2007.

With regard to the question of compelling evidence of the need for a change to the work RVUs, we believe that the rationale for revision of these RVUs did not rest solely on previous false assumptions, but also on the claim that there has been a change in the complexity of the patient population resulting in more diagnoses per encounter and more ambitious management goals. In reviewing the RUC's recommendations for the 5-Year Review, we found the evidence in support of a change in the work for E/M services as compelling as the evidence presented for most of the codes that we proposed to revise in this 5-Year Review. As to the comments regarding the IWPUTs of the E/M services, we are not yet convinced about the validity of the IWPUT analysis when applied to such ``cognitive'' services, particularly if such an analysis were to be used to negate the findings of acceptable surveys. In addition, even if there might be merit to the contention that the RUC recommendations will cause some rank order anomalies, we do not have the information that would be needed to rectify this; this is an issue that might be better handled by the RUC and the specialties involved.

Though we are sympathetic to the concerns of those who would not benefit from an increase to E/M services, but would face potential reductions in payment as a result of the BN adjustment, we do not believe that the appropriate answer would be to deprive primary care physicians, and other practitioners who provide these services, of an increase that the commenters otherwise appeared to consider reasonable and commenters did not suggest other viable alternatives. We would be happy to work with any group or individual that believes they have been unfairly impacted by this change to determine if there is any other appropriate other measure that might address their concerns.

We also do not believe that it would be either equitable or appropriate to transition the E/M increases, as suggested by some commenters. The work RVUs for E/M services were accepted by a RUC consensus and we believe them to be reasonable. We have never before transitioned changes in work RVUs that we accept based on RUC recommendations, and we believe it would be unfair in this case to single out these increases for transition when other services that received even greater increases would benefit immediately.

We did not propose to make any changes in our policy regarding the types of suppliers that can bill for E/M services, and are not making any changes at this time. Our Internet Only Manual 100-02 Chapter 15 Section 160 continues to state that ``any therapeutic services that are billed by clinical psychologists (CPs) under CPT psychotherapy codes that include medical evaluation and management services are not covered.''

Comment: Several commenters representing renal physicians and patients, as well as the RUC, requested that we make an adjustment for the ESRD-related services, which have been valued using the E/M codes as building blocks, by adding the increase in the E/M RVUs to these services.

Response: Since the G-codes now used for these ESRD-related services have markedly different descriptors than the previously valued CPT codes, we are unable to determine at this time which levels of E/M visits are most appropriately associated with these G-codes. As explained in the CY 2004 PFS final rule (68 FR 63218), we established RVUs for these G-codes to equal the aggregate payments for the services provided under the CPT codes that had been previously recognized for these services. Because we based our payment of the G-codes on the aggregate payments for CPT codes 90918-90921, the specific CPT codes that are building-blocks of this payment system cannot be directly correlated. We suggest that the specialty could request that the CPT panel consider revising the CPT codes for these ESRD-related services to mirror our current G-codes; these could then be reviewed by the RUC to determine the level of E/M services that are typically associated with each code.

Comment: An organization representing long term care providers commented that we stated incorrectly at the end of the discussion concerning the RUC recommendations for the E/M services that nursing facility codes are not part of the 5-Year Review process. The commenter clarified that the RUC requested that these codes not be surveyed until after the 5-Year Review, when there could be appropriately valued codes to use as reference services. Though the surveys will be conducted after the RVUs for E/M services are published, the commenter requested that we review the recommendations and update the nursing facility E/M RVUs to become effective in January 2008.

Response: The commenter is correct. The RUC recommended delaying the survey of these services pending RUC recommendations on E/M codes that could be used as reference services. If we receive the RUC's recommendations in time, we will review the recommendations for the work RVUs for nursing facility E/M services and publish our proposals in next year's proposed rule and will consider this part of the third 5-Year Review.

Comment: The specialty society representing home care physicians stated that the home care visit and domiciliary care visit codes were not included in the 5-Year Review; the domiciliary codes so that they could be valued through the RUC and, the home visits so that they could be used as reference codes. The society recommended that we adjust the work RVUs for these codes to reflect the revalued comparable office E/M codes for new and established patients. The commenter contended that the home visit and domiciliary care codes have been ``referenced'' to the office visit codes in the past and the changes proposed through the 5-Year Review process should be reflected in these derivative code families.

Response: It is unfortunate that these services were not included in the recent 5-Year Review and that the specialty did not propose them for review. We believe that it would be inappropriate to apply increases to these codes without a multi-specialty review of the work involved in these services. However, we would be willing to consider any RUC recommendations that might be forthcoming for revised work RVUs for the home visit and domiciliary care codes. Such a RUC review could be completed at the same time that the RUC is reviewing the nursing facility E/M services previously discussed in this section. As we indicated for the nursing facility E/M codes in the prior response, we would consider forthcoming RUC recommendations for the home care and domiciliary care E/M codes as part of the third 5-Year Review because of the similarity to the other E/M services considered in this review.

We continue to believe acceptance of the RUC recommendations for E/ M services is appropriate and will implement the proposed work RVUs for E/M services beginning January 1, 2007.

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6. Cardiothoracic Surgery

We received a number of comments concerning the cardiothoracic surgery proposals.

Comment: Commenters were supportive of the proposed valuation of the congenital cardiac surgery services and CPT code 32020, Tube thoracostomy with or without water seal (e.g., for abscess, hemothorax, empyema) (separate procedure) . However, commenters did not agree with the proposed work RVUs for the general thoracic and adult cardiac surgery codes. One commenter questioned why the work RVUs had not been maintained at the current levels. Commenters representing surgical specialties, including thoracic and cardiac surgery, questioned the methodology we used to arrive at the proposed work RVUs. They believe the proposed work values create rank order anomalies and disturb the relativity within the cardiothoracic family. Additionally, the commenters stated that we failed to include pre- and post-service work in the add-on codes, contrary to a policy stated in the CY 2002 physician fee schedule final rule (67 FR 79966). The commenters provided additional detailed information concerning the STS database, as well as their use of mean values for the intra-service time and the intensity survey methods used to estimate IWPUT.

Response: As we discussed in the June 29, 2006 proposed notice, the general thoracic and adult cardiac surgery codes submitted to the RUC for review did not undergo the standard RUC survey methodology (71 FR 37218). Rather, the data pertaining to these codes were derived from the STS database, a voluntary registry developed by the STS that has reportedly captured data on approximately 70 percent of all cardiac surgical procedures in the United States.

We believe the STS database represents a significant advance in the effort to improve the quality of patient care and we hope that this kind of data collection will be emulated by other specialties. We also believe that the time and visit data contained in this database could be a useful adjunct to the RUC's validation of the standard RUC survey results.

We appreciate the detailed information provided by the commenters in response to the concerns we had outlined in the June 29, 2006 proposed notice. Based upon a review of the specific information provided by the commenters concerning the STS database, as well as the information provided specifically addressing the use of the mean values for the intra-service time and methodology used to estimate IWPUT, we will accept the RUC-recommended work RVUs for these services.

We note that it is our responsibility to assure all medical specialties that we will review and evaluate their services using an approach that is accepted by the RUC and CMS. We will continue to work with the RUC to better determine how to use the alternative data sources such as the STS data to compare the relativity of services. Unless an alternative approach can be found that can be applied to all services, we would not want to see the RUC abandon its survey methodology. We understand that the standard RUC survey process is not flawless, but it does provide an even playing field for all specialties and we would be concerned if each specialty was allowed to develop its own unique method for estimating work RVUs. Therefore, we will work with the RUC and continue to review this issue to determine the appropriate use of data sources other than the RUC survey.

Comment: The STS and the American Association for Thoracic Surgery (AATS) requested that we approve the RUC-recommended work RVUs of 49.41 for CPT code 33548, indicating that this was submitted as part of the 5-Year Review process since the valuation of this service was based on a reference code (CPT code 33542) that was in the refinement process. The commenter also stated that this was part of the RUC recommendations forwarded in September 2005.

Response: We did not receive CPT code 33548 as part of the 5-Year Review process, and therefore, we will maintain the current value for this service. 7. General, Colorectal and Vascular Surgery

For the following services, we received comments that disagreed with our proposed work RVUs. a. Vascular Surgery

For CPT code 33877, Repair of thoracoabdominal aortic aneurysm with graft, with or without cardiopulmonary bypass; CPT code 34201, Embolectomy or thrombectomy, with or without catheter; femoropopliteal, aortoiliac artery, by leg incision; CPT code 35081, Direct repair of aneurysm, pseudoaneurysm, or excision (partial or total) and graft insertion, with or without patch graft; for aneurysm, pseudoaneurysm, and associated occlusive disease, abdominal aorta; CPT code 35102 Direct repair of aneurysm, pseudoaneurysm, or excision (partial or total) and graft insertion, with or without patch graft; for aneurysm, pseudoaneurysm, and associated occlusive disease, abdominal aorta involving iliac vessels (common, hypogastric, external); CPT code 35556 Bypass graft, with vein; femoral-popliteal; CPT code 35566 Bypass graft, with vein; femoral-anterior tibial, posterior tibial; CPT code 35583 In-situ vein bypass; femoral-popliteal; and CPT code 35585, In- situ vein bypass; femoral-anterior tibial, posterior tibial, or peroneal artery, the RUC reviewed both the survey data and the NSQIP data for these services.

For these codes, the RUC believed that physicians responding to the survey underestimated the intra-service time and that the NSQIP data more accurately reflected the actual intra-service times for these procedures. For CPT code 33877, the RUC accepted a work value greater than the survey's 75th percentile that was derived from a building block approach using the NSQIP data for the service. For CPT codes 34201, 35102, 35556, 35566, and 35585, the RUC used the same methodology and accepted work values greater than the survey's median percentile. However, for CPT codes 35081 and 35583, the recommended increase was no greater than the surveyed median work RVUs.

The RUC-recommended work RVUs for these services were: 33877 = 64.04 work RVUs; 34201 = 18.31 work RVUs; 35081 = 31.00 work RVUs; 35102 = 36.28 work RVUs; 35556 = 27.25 work RVUs; 35566 = 32.00 work RVUs; 35583 = 26.00 work RVUs; and 35585 = 32.00 work RVUs.

CMS Proposed Valuation

We agreed with the RUC-recommended work RVUs for CPT codes 35081 and 35583. We disagreed with the RUC recommendations for CPT codes 33877, 34201, 35102, 35556, 35566, and 35585. For these services, the RUC used the NSQIP time data to increase the work values above the survey median, and for several codes above the 75th percentile. We rejected this use of the NSQIP data and proposed to use the survey median work RVUs for these CPT codes: 33877 = 53.00 work RVUs; 34201 = 17.00 work RVUs; 35102 = 34.00 work RVUs; 35556 = 25.00 work RVUs; 35566 = 30.00 work RVUs; and 35585 = 30.00 work RVUs. All of these proposed work RVUs are higher than the current values.

Comment: We received comments from the American College of Surgeons (ACS) and Society for Vascular Surgery (SVS) concerning these CPT codes. The ACS and the SVS, as well as the RUC,

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stated that our proposed work RVUs would undervalue several of the vascular surgery procedures. Both the ACS and the RUC maintained that we should accept the RUC recommendations for all these services.

For CPT code 33877, the commenters contended that the proposed value would create a rank order anomaly with the partial esophagectomy service, CPT code 43118, for which we proposed 61.08 work RVUs, even though it is a less intense procedure. The ACS also maintained that, under our proposal, the IWPUT of this service would be too low.

For CPT code 34201, the commenters disagreed with our proposal to reject the NSQIP-derived increase with one noting that we accepted the NSQIP-derived reduction in length of stay for CPT code 34201. The RUC commented that the presenting specialty assumed NSQIP time to be more accurate than RUC survey time and used NSQIP time when available, whether it increased or reduced the RUC survey times.

For CPT code 35102, the commenters asserted that we proposed work RVUs that would decrease the IWPUT to 0.075, which is inconsistent with other similar surgical procedures. Therefore, they urged us to accept the RUC recommendation of 36.28 work RVUs for this service.

For CPT codes 35556, 35566, 35583 and 35585, the commenters maintained that the NSQIP data demonstrated that survey respondents consistently underestimated their intra-service time. The ACS commented that our proposals would lead to low IWPUTs that are considerably less than similar surgical procedures. The RUC commented that we would be creating rank order anomalies between these codes and the total colectomy services, CPT codes 44150 and 44151.

The SVS also disagreed with our proposed work RVUs for seven of its specialty's services, and disagreed with the RUC recommendations for all but one of the codes. In the extensive and detailed comments we received, the society defended the use of the NSQIP data to deviate from the survey median, stating that NSQIP intra-service time and hospital length of stay were used even when it reduced the recommendation compared to the RUC survey.

The commenter also offered additional rationale to support their requested work RVUs for CPT codes 33877, 35101, 35081, 35556, 35566, 35583 and 35585. In each case, the SVS presented the building block components for each service, a comparison with other vascular codes by IWPUT analysis, and a detailed comparison to other selected procedures. The commenters also provided an additional discussion asserting that the number of hospital visits assigned by the RUC, and accepted by us, was underestimated for these services (with the exception of CPT code 33877.)

Response: We appreciate the comments that were submitted on our proposed work RVUs for these vascular surgery services. However, we note that there is disagreement among the commenters, with ACS and the RUC requesting that we accept the RUC recommendations for these codes and the SVS requesting acceptance of yet higher values for all the services (with the exception of CPT code 33877.) In addition, we have concerns that the SVS-recommended IWPUTs, for all but CPT code 33877, might be overstated. Therefore, based on the comments, we are accepting the RUC-recommended work RVUs of 64.04 for CPT code 33877, but referred the other seven codes to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 17.94 work RVUs to CPT code 34201, 31.00 work RVUs to CPT code 35081, 34.00 work RVUs to CPT code 35102, 25.00 work RVUs to CPT code 35556, 30.00 work RVUs to CPT code 35566, 26.00 work RVUs to CPT code 35583, and 30.00 work RVUs to CPT code 35585. b. Colorectal Surgery

For CPT code 44120, Enterectomy, resection of small intestine; single resection and anastomosis; CPT code 44130, Enteroenterostomy, anastomosis of intestine, with or without cutaneous enterostomy (separate procedure); and CPT code 47600, Cholecystectomy, the RUC believed the physicians responding to the survey underestimated their intra-service time. Therefore, the RUC applied what was believed to be an appropriate IWPUT to the additional NSQIP time and added the resulting work RVUs to the survey median. The RUC-recommended work values for these CPT codes were as follows: 44120 = 20.11 work RVUs; 44130 = 20.87 work RVUs; and 47600 = 15.88 work RVUs.

CMS Proposed Valuation

We had concerns with the RUC recommendation to use the NSQIP data to increase the work RVUs, for CPT codes 44120, 44130 and 47600, above the survey median, and, for 47600, above the 75th percentile. While we support the use of such a database as validation for survey results, we believe that the application of the NSQIP IWPUT to the difference in intra-time between the survey and NSQIP is questionable for the following reasons.

It is still not clear whether the NSQIP data is truly representative and the IWPUT applied to the additional time is higher than the IWPUT for the rest of the intra-time. In addition, this methodology assumes, without evidence, that there is a linear relationship between the survey respondents' estimate of time and estimate of work RVUs; however, even if the survey time estimates had matched the NSQIP data, it is not clear whether or by how much the respondents would have increased their work value estimate. Finally, until we have available valid and representative data such as the NSQIP for all procedures, there is the risk that applying the data randomly could distort the relativity between services. Therefore, we proposed to use the median survey values of 18.00, 20.00 and 14.00 as the work RVUs for CPT codes 44120, 44130 and 47600, respectively.

Comment: We received comments from the ACS and the American Society of Colon and Rectal Surgeons (ASCRS), as well as the RUC, urging us to accept the RUC recommendations for these 3 services. These commenters stated that the median work value that we proposed in the June 29, 2006 proposed notice for CPT code 44120 was incorrect; CPT code 44120 should be 19.00 work RVUs, not 18.00 work RVUs (71 FR 37228).

The ACS presented a lengthy defense of the NSQIP data that was echoed in the ASCRS comments. For example, ACS contended that the NSQIP data on intra-service skin-to-skin time is verified through operating room logs and is the ``absolute gold standard'' for estimating surgeon intra-service time. The commenters also disagreed that this data cannot be used until it is available for all services, since the best data should always be used rather than relying on ``the lowest common denominator.'' The ACS further stated that a variety of different methodologies have been used to evaluate physician services and we have not, until now, required that one methodology be used for all codes. Finally, the ACS disputed our concerns that the NSQIP might not be representative, though it did agree that the number of Veterans Administration hospitals currently reporting is greater than the number of community and academic hospitals.

For CPT codes 44120 and 44130, ASCRS and ACS, as well as the RUC, contended that two reference codes were considered by the workgroup that

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led the RUC to agree that the survey median work RVUs underestimated the total work of these procedures and would create rank order anomalies.

For CPT code 47600, the ACS maintained that the RUC's recommendation was based on a belief that the survey's median work RVU underestimated the total work for this procedure because the survey respondents were not considering the correct patient demographics. The commenters stated that, if we did not accept the recommendations where the use of NSQIP resulted in a value greater than the survey median, we should also do the same for those recommendations that were lower than the median. The commenters emphasized that the RUC also used a comparison with a reference code to develop the recommendation for this procedure.

Conversely, the American College of Physicians (ACP) expressed support for our decision to reject the RUC recommendations that were based on extraction of time information from the NSQIP database rather than the survey median. The ACP questioned the representative nature of the data in the database and stated that allowing work values to be adjusted from the survey median, based on dubious relationships between work and time, would hurt the integrity of the RBRVS and should not be allowed.

Response: We appreciate the comments regarding the use of NSQIP data in the valuation of physician work. However, we would consider this the beginning of the discussion, not the end. There are still many issues that need to be fully explored (for example: what the criteria should be for the acceptance of a given database; whether databases can take the place of surveys; whether IWPUT should be used to create work RVUs, rather than to validate them; and, whether there is a linear relationship between survey respondents' estimate of work and time.)

In the case of these three services, CPT codes 44120, 44130 and 47600, although the commenters offered some valid points regarding the use of NSQIP, not all the concerns discussed in the proposed notice and summarized in this section of this final rule with comment period have been thoroughly discussed. Therefore, based on the comments received, we referred this code to a multi-specialty refinement panel for review.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 18.00 work RVUs to CPT code 44120, 20.00 work RVUs to CPT code 44130, and 15.85 work RVUs to CPT code 47600.

For the proctoscopy-anoscopy family of codes in Table 13, the RUC agreed that the surveyed median work RVUs, and often even the 25th percentile, were inconsistent with the reference code. Therefore, the RUC did not reference the surveyed RVUs in arriving at the recommendations. Rather, the RUC used the surveyed times for each service and applied what the workgroup considered an appropriate IWPUT to these times to arrive at the recommended work RVUs for this family.

TABLE 13.--Proctoscopy-Anoscopy Family of Codes

CPT Code

Descriptor

45300........................ Proctosigmoidoscopy, rigid; diagnostic, with or without collection of specimen(s) by brushing or washing (separate procedure). 45303........................ Proctosigmoidoscopy, rigid; with dilation (e.g., balloon, guide wire, bougie). 45305........................ Proctosigmoidoscopy, rigid; with biopsy, single or multiple. 45307........................ Proctosigmoidoscopy, rigid; with removal of foreign body. 45308........................ Proctosigmoidoscopy, rigid; with removal of single tumor, polyp, or other lesion by hot biopsy forceps or bipolar cautery. 45309........................ Proctosigmoidoscopy, rigid; with removal of single tumor, polyp, or other lesion by snare technique. 45315........................ Proctosigmoidoscopy, rigid; with removal of multiple tumors, polyps, or other lesions by hot biopsy forceps, bipolar cautery or snare technique. 45317........................ Proctosigmoidoscopy, rigid; with control of bleeding (e.g., injection, bipolar cautery, unipolar cautery, laser, heater probe, stapler, plasma coagulator). 45320........................ Proctosigmoidoscopy, rigid; with ablation of tumor(s), polyp(s), or other lesion(s) not amenable to removal by hot biopsy forceps, bipolar cautery or snare technique (e.g., laser). 45321........................ Proctosigmoidoscopy, rigid; with decompression of volvulus. 45327........................ Proctosigmoidoscopy, rigid; with transendoscopic stent placement (includes predilation). 46600........................ Anoscopy; diagnostic, with or without collection of specimen(s) by brushing or washing (separate procedure). 46604........................ Anoscopy; with dilation (e.g., balloon, guide wire, bougie). 46606........................ Anoscopy; with biopsy, single or multiple. 46608........................ Anoscopy; with removal of foreign body. 46610........................ Anoscopy; with removal of single tumor, polyp, or other lesion by hot biopsy forceps or bipolar cautery. 46611........................ Anoscopy; with removal of single tumor, polyp, or other lesion by snare technique. 46612........................ Anoscopy; with removal of multiple tumors, polyps, or other lesions by hot biopsy forceps, bipolar cautery or snare technique. 46614........................ Anoscopy; with control of bleeding (e.g., injection, bipolar cautery, unipolar cautery, laser, heater probe, stapler, plasma coagulator). 46615........................ Anoscopy; with ablation of tumor(s), polyp(s), or other lesion(s) not amenable to removal by hot biopsy forceps, bipolar cautery or snare technique.

The specific RUC work RVU recommendations for these colon and rectal surgery CPT codes were as follows: 45300 = 0.91 work RVUs; 45303 = 2.22 work RVUs; 45305 = 2.01 work RVUs; 45307 = 2.22 work RVUs; 45308 = 2.01 work RVUs; 45309 = 2.22 work RVUs; 45315 = 2.22 work RVUs; 45317 = 1.08 work RVUs; 45320 = 2.43 work RVUs; 45321 = 2.76 work RVUs; 45327 = 3.63 work RVUs; 46600 = 0.49 work RVUs; 46604 = 1.08 work RVUs; 46606 = 1.76 work RVUs; 46608 = 1.95 work RVUs; 46610 = 1.95 work RVUs; 46611 = 1.08 work RVUs; 46612 = 2.14 work RVUs; 46614 = 1.08 work RVUs; and 46615 = 1.18 work RVUs.

CMS Proposed Valuation

We proposed not to accept the RUC recommendations for all the presented codes in the proctoscopy-anoscopy family. We proposed to maintain the

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current work RVUs for CPT codes 45300, 45303, 45305, 45307, 45308, 45309, 45315, 45317, 45320, 45321, 45327, 46600, 46604, 46606, 46608, 46610, 46611, 46612, 46614 and 46615.

As we stated in the June 29, 2006 proposed notice, we believe that the method used by the RUC to obtain work values for these services was flawed (71 FR 37229). The calculation of the recommended work RVUs depended solely on applying a workgroup-derived IWPUT to the surveyed physician time from surveys that were considered otherwise unusable. We also stated that we do not believe that the use of IWPUT, in the absence of other supporting data, has been previously accepted by the RUC. We believe the RUC has established rules that state that IWPUT cannot be the sole rationale for valuation and it appears that this workgroup might not have adhered to that standard. However, we stated that, if the specialty society wishes to resurvey these codes and the RUC submits work RVU recommendations to us, we would certainly be willing to consider them.

Comment: The ASCRS expressed their appreciation for the opportunity to again present survey data to the RUC for these services and the ACS stated that it will be working with ASCRS to facilitate this process. The RUC commented that the specialty society recommendations for these services were presented at the October 2006 RUC meeting.

Response: At the October 2006 RUC meeting, the Society presented the original surveys with additional rationales to support the requested work RVUs. After much discussion, the RUC decided that the original surveys were still not usable and that new surveys would be needed before a recommendation for revised work RVUs could be made. Therefore, we are maintaining the current work RVUs for this series of codes, as proposed.

Other Issues

Comment: A few commenters, while agreeing with the increase in work RVUs for CPT code 19180 (total mastectomy), expressed concern that the work RVUs for CPT code 19160 (partial mastectomy) were not reviewed. These commenters believed that the work RVUs for CPT code 19160 should be addressed in a similar fashion and the work RVUs should be adjusted to avoid a potentially adverse impact on patient treatment for breast cancer. One of these commenters suggested that this disparity in work RVUs needed to be addressed before the next 5-year review, as this disparity could impact on medical decision-making.

Response: As part of the 5-year review process, the specialtysocieties were asked to identify whether the RUC-recommended changes in the work RVUS created anomalies within a family of codes. Any such potential anomalies identified by the specialty societies were then reviewed at subsequent RUC meetings. Unfortunately, this potential anomaly was not identified or reviewed. However, we will ask the RUC to review this code (CPT code 19160) and will consider this RUC recommendation as part of the third 5-Year Review. 8. Otolaryngology and Ophthalmology

In addition to comments received in support of the proposed work RVUs for services reviewed by the RUC's workgroup 8, we received the following comments.

For CPT code 31360, Laryngectomy; total, without radical neck dissection; CPT code 31365, Laryngectomy; total, with radical neck dissection; CPT code 31390, Pharyngolaryngectomy, with radical neck dissection; without reconstruction; and CPT code 31395, Pharyngolaryngectomy, with radical neck dissection; with reconstruction, the specialty society presented survey data with the rationale that the current work RVUs create rank order anomalies, and that there also has been a change in the patient population. The RUC agreed that increasing the work RVUs of these procedures by accepting the 75th percentile of survey results corrected the specific rank order anomalies and also accounted for the change in the patient population. The RUC-recommended work RVUs for these CPT codes are as follows: 31360 = 28.00 work RVUs; 31365 = 37.00 work RVUs; 31390 = 40.00 work RVUs; and 31395 = 44.00 work RVUs.

For CPT code 31367, Laryngectomy; subtotal supraglottic, without radical neck dissection and CPT code 31368, Laryngectomy; subtotal supraglottic, with radical neck dissection, the specialty society presented survey data with the rationale that the current work values are based on a flawed methodology that creates rank order anomalies, and that there also has been a change in patient population. The RUC agreed with the specialty society and recommended increasing the work RVUs for these services to maintain rank order between the codes in the family and to establish the correct intensity of the procedure based on the change in patient population. The RUC-recommended work RVUs for these CPT codes are as follows: 31367 = 27.36 work RVUs; and 31368 = 36.00 work RVUs.

For CPT code 41155, Glossectomy; composite procedure with resection floor of mouth, mandibular resection, and radical neck dissection (Commando type), the specialty society presented survey data, noting that the current work RVUs create a rank order anomaly. The RUC agreed that increasing the work RVUs would correct these rank order anomalies and that these increases were justified by the survey results. The RUC- recommended 40.00 work RVUs for CPT code 41155.

For CPT code 42845, Radical resection of tonsil, tonsillar pillars, and/or retromolar trigone; closure with other flap, the specialty society's survey data demonstrated that the code was currently undervalued due to a previous flawed methodology. The RUC believed that the survey results reflected the appropriate physician work and time necessary in performing this procedure and recommended the 32.00 work RVUs for CPT code 42845.

CMS Proposed Valuation

For the laryngopharyngectomy procedures, including CPT codes 31360, 31365, 31367, 31368, 31390 and 31395, the number of hospital days decreased by at least 2 days and the post-operative outpatient visits increased by 1 day. However, in one instance the number of outpatient visits decreased (CPT code 31395). The median values for intra-service times were accepted by the RUC for these services, which is an indication that a lower value than the 75th percentile for work also may be appropriate. Therefore, we proposed using median values for these services resulting in the following work RVUs for these CPT codes: 31360 = 24.00 work RVUs; 31365 = 31.50 work RVUs; 31367 = 24.00 work RVUs; 31368 = 30.50 work RVUs; 31390 = 35.00 work RVUs; and 31395 = 39.50 work RVUs.

CPT code 41155 was valued by the RUC at the 75th percentile for work, but CPT code 41150 was valued based on the median work value. The median values for intra-service times were accepted by the RUC for these services, which is an indication that a value other than the 75th percentile for work also may be appropriate. Therefore, we proposed 36.00 work RVUs of for CPT code 41155.

CPT code 42845 was valued by the RUC at the 75th percentile for work rather than the median as the RUC recommended for the other procedures in this family (CPT codes 42842 and 42844). Therefore, we proposed 29.00 work RVUs for CPT code 42845.

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Comment: The RUC and several specialty societies, including the American Head and Neck Society (AHNS) and the American Academy of Otolaryngology-Head and Neck Surgery (AAO-HNS), disagree with the proposed work RVUs for CPT codes 31360, 31365, 31367, 31368, 31390, 31395, 41135, 42845. They provided information, data, and rationales concerning the valuation of these services and, recommended that we accept the RUC recommendations. The specialty societies objected to our proposed RVUs on the grounds that they created rank order anomalies; they believe the reference codes used were a poor choice that resulted in an underestimation of work by the survey respondents; and they believe the codes had been undervalued for years.

Response: Based on the comments received, we referred these codes to a multi-specialty refinement panel for review. Panel review is appropriate for reasons including the RUC acceptance of the median values for intra-service times, which is an indication that a value other than the 75th percentile for work may be appropriate, and the need for further discussion regarding the appropriateness of the reference codes chosen by the survey respondents as comparable services to the codes being valued.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 26.22 work RVUs to CPT code 31360, 35.00 work RVUs to CPT code 31365, 27.00 work RVUs to CPT code 31367, 30.50 work RVUs to CPT code 31368, 38.33 work RVUs to CPT code 31390, 39.50 work RVUs to CPT code 31395, 40.00 work RVUs to CPT code 41155, and 29.00 work RVUs to CPT code 42845.

Miscellaneous Issues

Comment: The American Academy of Ophthalmology (AAO) stated its belief that the 5-Year Review process was fair in its consideration of the ophthalmic codes. However, the AAO expressed disappointment in the decrease in value for cataract surgery (CPT code 66984) and its hope that this ``downward reimbursement reward'' does not lead to a decrease in research and innovation in medical care. The AAO also expressed disappointment in our decision to unlink the long-standing relationship of the Ophthalmology Examination codes (92002-92014) to the E/M codes. The AAO urged us to reaffirm this linkage and increase those values to reflect the proposed increases in E/M services. If this is not possible, AAO suggested that the work values prior to the linkage in 1996 be restored since they were lowered during the first 5-Year Review to facilitate the linkage process.

Response: We acknowledge that currently the work RVUs for ophthalmology examination services are linked to the work RVUs for certain E/M codes. However, the work RVUs for the E/M codes are being increased based on our acceptance of the rationale that the work required to furnish these services has itself changed. This increase in work RVUs also implies that the E/M services today are not exactly the same services to which we initially linked the eye examination services. Unfortunately, because the specialty did not bring the ophthalmology examination codes to the 5-Year review for evaluation of any change in the work of furnishing these services, it is not known to what extent, if at all, the work for the ophthalmology examination codes would have mirrored the change in the work of the E/M codes. We note that the E/M increases have been added to other services only when the E/M codes were clearly used as the building blocks for valuing the services, for example, for global surgical services with post-operative visits. Therefore, we will implement the work RVUs for CPT codes 92002- 92014 as proposed. However, if received in time for next year's proposed rule, we would be willing to consider any RUC recommendations for work RVUs for these services for implementation in FY 2008 and would consider this as part of the third 5-Year Review.

Comment: For CPT code 69210 Removal impacted cerumen (separate procedure), one or both ears, while we accepted the RUC-recommended work RVUs for this service, in the June 29, 2006 proposed notice we had expressed concern about the valuation of this service for the use of this code for routine removal of ear wax and indicated we would monitor the use of this code for the appropriate circumstances (71 FR 37233). The RUC and other specialty societies provided additional information to address our concern with this valuation for the use of this code for routine removal of ear wax during a physical examination of a patient. One commenter believes that there is the potential for misuse of this code due to a lack of understanding by other specialties of the physician work included in this procedure. The commenter recommends that we issue clarifying instructions or an educational article so that this code will be used in a manner consistent with the criteria outlined by AAO-HNS and contained in the July 2005 issue of the AMA's CPT Assistant.

Response: We appreciate these comments and will consider the suggestions made by the commenters. 9. HCPAC codes

In addition to comments received in support of the proposed work RVUs for services reviewed by the HCPAC, we received the following comments.

For CPT code 10060, Incision and drainage of abscess (e.g., carbuncle, suppurative hidradenitis, cutaneous or subcutaneous abscess, cyst, furuncle, or paronychia); simple or single; CPT code 11040, Debridement; skin, partial thickness; CPT code 11041 Debridement; skin, full thickness; CPT code 11042 Debridement; skin, and subcutaneous tissue; and CPT code 29580 Strapping; Unna boot, the HCPAC agreed with the specialty society that there was compelling evidence that the valuation of these services was incorrect due to a flawed methodology used in the previous Harvard valuation for the podiatric codes considered under the 5-Year Review.

For CPT codes 10060 and 29580, the HCPAC supported an increase in the existing work values for these codes and recommended work RVUs of 1.50 for CPT code 10060 and 0.60 work RVUs for CPT code 29580, both of which represent the median of the survey data for these services.

For CPT code 11040, the HCPAC did not support the work RVU increase recommended by the specialty society, but instead recommended 0.55 work RVUs, which represented the 25th percentile work RVU from the survey data.

For CPT code 11041, the HCPAC recommended a decrease in the work RVUs and, based on the median from the survey data, recommended 0.80 work RVUs.

For CPT code 11042, the HCPAC did not agree with the specialty society that the work RVUs should be increased to 1.20 work RVUs. The HCPAC recommended maintaining the current work RVUs of 1.12 for this CPT code, which was slightly higher than the survey's 25th percentile work value of 1.10 work RVUs.

The HCPAC-recommended work values for these services were as follows: 10060 = 1.50 work RVUs; 11040 = 0.55 work RVUs; 11041 = 0.80 work RVUs; 11042 = 1.12 work RVUs; and 29580 = 0.60 work RVUs.

CMS Proposed Valuation

For CPT code 10060, we compared the survey times with the current Harvard-based times used to value this service. These times are comparable

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and, therefore, we proposed maintaining the current work RVUs of 1.17 for this code.

For CPT codes 11040, 11041 and 11042, the survey times all reflect significant reductions from current Harvard-based times used to value these services. Based on this comparison, which shows decreases in time ranging from 47 percent to 68 percent, we believe that the low values from the surveys more accurately represent the valuation of these services. Therefore, we proposed to assign work RVUs as follows: 11040 = 0.48 work RVUs; 11041 = 0.60 work RVUs; and 11042 = 0.80 work RVUs. In addition, to ensure that the other codes in this family are properly valued, we recommended the RUC review the valuation of CPT codes 11043 and 11044.

For CPT code 29580, we compared the current Harvard-based times with the survey times. For this code, there was a small reduction in survey time as compared to the current Harvard-based time used to value this service, and, therefore, we do not believe the recommended increase in work RVUs is supported. We proposed to assign 0.55 work RVUs to this service, which represents the 25th percentile of the survey and more accurately reflects the time associated with this service.

Comment: The American Podiatric Medical Association (APMA) and the HCPAC disagreed with the rationale we provided to explain our disagreement with the HCPAC-recommended work RVUs for 5 CPT codes (11060, 11040, 11041, 11042, and 29580) that are predominantly provided by the podiatry specialty. The commenters noted that our proposed valuation of these services was based solely on a comparison of the RUC-surveyed times to the Harvard-based times, despite the HCPAC's concurrence with the specialty that the current Harvard work values were incorrect due to a flawed methodology. In addition, the commenters noted that our proposed valuation fails to address the intensity measures inherent to each service. The specialty presented recent literature abstracts to demonstrate that the treatment of diabetic ulcers has become more complicated in recent years and also supports that the diabetic ulcer is the primary cause of infections and, ultimately, leads to amputations in this population. The APMA and the HCPAC urged us to consider these inherent risks in treating this population and to accept the HCPAC-recommended work RVUs.

For CPT codes 11040, 11041 and 11042, the HCPAC recommended an increased work RVU for CPT 11040, a slight decrease in work RVUs for 11041, and the same work RVUs for 11042. Based on their belief that there is increased complexity and inherent risks in treating the diabetic patient, the APMA and the HCPAC in their comments urged us to accept the HCPAC-recommended work RVUs for this family of codes at 0.55 work RVUs, 0.80 work RVUs and 1.2 work RVUs, respectively. The commenters also strongly object to our reliance on a time-based comparison from the RUC surveys and the Harvard data (which the HCPAC and APMA agreed was based on a flawed methodology) to derive the work RVUs for these debridement codes.

For CPT code 11060, the APMA and the HCPAC requested that we accept the HCPAC recommendations for this 10-day global service based on the lack of intensity measures in our valuation that relied on a comparison of the RUC surveyed time to the Harvard-based time which, as mentioned previously, had been determined to be based on a flawed methodology. The APMA believes that by using this time-based comparison and maintaining the current RVUs at 1.17 work RVUs, we are proposing to distort the relativity of CPT 10060 with other comparable services (for example, CPT codes 10140 and 11421) and results in an unreasonably low IWPUT, at 0.009. The HCPAC and the APMA urged us to accept the recommended work value at 1.5 work RVUs that represents an IWPUT of 0.031.

For CPT code 29580, the specialty society indicated that the typical patient requiring the application of an Unna boot is a diabetic with lower extremity edema, often with the presence of an ulcer. The typical patient requires repetitive applications of this Unna boot strapping, so most applications will also require the removal of the Unna boot, a thorough cleansing of the area, physical examination, and a careful reapplication of the strapping material. The APMA believes that our valuation of 0.55 work RVUs--using just the surveyed time, without specifically addressing the intensity measures inherent to the care of the diabetic patient--undervalues this service. The HCPAC and the APMA urged us to adopt the recommended value (survey median) of 0.60 work RVUs.

Response: We appreciate the comments and information forwarded by the HCPAC and the APMA. However, based on our review of the data and literature contained in their comments, we are not convinced that the complexity and intensity measures inherent to the treatment of the diabetic patient have changed significantly over the past 5 years. In addition, we understand the specialty's concern that the Harvard time data was flawed. However, we believe that the lower times presented from the survey do not warrant the recommended work RVUs. Nonetheless, we believe that the HCPAC and the APMA should have the opportunity to present their evidence relative to the work RVUs for these five codes to a multi-specialty panel for review. As such, we have referred CPT codes 10060, 11040, 11041, 11042, and 29580 for refinement.

Final Decision: As a result of our analysis of the refinement panel ratings, we have assigned 1.17 work RVUs to CPT code 10060, 0.50 work RVUs to CPT code 11040, 0.60 work RVUs to CPT code 11041, 0.80 work RVUs to CPT code 11042, and 0.55 work RVUs to CPT code 29580.

Other Issues

Other commenters representing nutritionists and dietitians referenced the medical nutrition codes that were referred to the CPT Editorial Panel, indicating that these services should be assigned work RVUs. This issue is discussed in section II.B.4.c. of this final rule with comment period, as it was specifically addressed in the CY 2007 PFS proposed rule (71 FR 48982).

D. Other Issues Under the 5-Year Review

1. Anesthesia Services

Although anesthesia services are paid under the PFS, they are paid on the basis of an anesthesia code-specific base unit and time units that vary based on the anesthesia time of the case. Since anesthesia services do not have a work value per code as do other medical and surgical services, a work value must be imputed for each anesthesia code.

As a result of its relationship with the RUC and the past recommendations for valuing anesthesia services, which were discussed in detail in the June 29, 2006 proposed notice (71 FR 37237), the American Society of Anesthesiologists (ASA) requested that we address the valuation of anesthesia services reported under CPT codes 00100 through 01999. The ASA furnished an analysis that builds on the methodology used in the last 5-Year Review for the valuation of work for anesthesia services. We recommended that the valuation of anesthesia services, namely the proposed valuation of the post- induction time, be referred to the AMA RUC for review and consideration.

Comment: The RUC indicated that it will consider any specific CMS request and asked that we clarify the scope of review and elements of the anesthesia

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relativity that is supposed to be addressed. Many commenters, including individuals and a specialty group, expressed concern that the proposed reductions in payment for anesthesia services may lead to future manpower shortages and could affect the provision of surgical services. They asked us to work with the ASA and the RUC to appropriately value the work of anesthesia services.

Response: We understand that the ASA and the RUC will be reviewing this issue in an upcoming meeting and will make a recommendation to CMS in 2007.

A second issue concerning anesthesia services pertains to the impact of the revised work values for E/M services and their relationship to the valuation of pre- and post-anesthesia services, components of the building-block approach. The pre- and post-anesthesia services derive their work values from the lower level E/M codes for new patients, the subsequent hospital care codes, and the initial inpatient consultation codes.

In the June 29, 2006 proposed notice, we proposed to increase the work of the pre- and post-anesthesia components of the 19 anesthesia codes, previously reviewed by the AMA RUC in the last 5-Year Review of work. Specifically, we proposed to increase the anesthesia work to reflect the increased work values for the E/M codes where there were increases in the work of those E/M codes.

Comment: One specialty group noted that we should refer the valuation of pre- and post-anesthesia issues to the RUC for its review and consideration, and should not make any changes in the value of pre- and post-anesthesia services at this time. The ASA requested that we increase the work of all anesthesia services, not just the 19 anesthesia codes, to account for the increase in work values for E/M codes. They noted that all anesthesia services have E/M services included in the pre- and post-anesthesia components and the work of all anesthesia services should be increased.

Response: We disagree with the comment asking us to defer action on re-valuing the work of anesthesia services to account for the increased work of certain E/M codes. We are making the adjustment, but will ask the RUC and the ASA to review the E/M codes assigned to the pre- and post-anesthesia periods to ensure that they are still clinically relevant. While we understand the concerns of the ASA, we are unable to make that type of adjustment across all anesthesia services. The pre- and post-anesthesia components of the anesthesia service are not uniformly linked to the same E/M code. Rather, the E/M code can vary based on the complexity of the anesthesia service. For example, for cataract anesthesia, the pre-anesthesia service is linked to a blend of CPT codes 99201 and 99202 and the post-anesthesia service is linked to CPT code 99211. The work values for each of these E/M codes did not change in this 5-Year Review of work. Conversely, for anesthesia for coronary bypass surgery, the pre-anesthesia service is linked to CPT code 99232 and the post-anesthesia service is linked to a blend of CPT codes 99231 and 99232. The work value for each of these E/M services increased in this 5-Year Review of work. Thus, in the June 29, 2006 proposed notice, we proposed to increase the work for E/M services in anesthesia for coronary bypass surgery but made no adjustment in the work for cataract anesthesia (71 FR 37237).

It is not clear how the pre- and post-anesthesia services of the non-surveyed anesthesia codes would be tied to the 19 surveyed codes and whether the work of the proposed linked E/M services are increased. We will look at this issue in context of any proposed changes that may be made to anesthesia work next year. 2. Discussion of Post-Operative Visits included in the Global Surgical Packages

We have established a national definition for a global surgical package so that payment is made consistently for the same set of services across all contractor jurisdictions. In constructing the RVUs for a global surgery service, all services that are believed to be typically included in the defined global period are built into the final resource-based RVUs and are not separately billable within the defined global period as reflected in the proposed work RVUs in Addenda B and C. This includes pre-surgery work, the intra-service time of actually furnishing the surgical procedure, and the post-operative (follow-up) visits associated with the monitoring and recovery of the patient.

As stated above in this section, we proposed to apply the RUC- recommended new values for the E/M services to all surgical services with a 10-or 90-day global period. However, because of variations in the patient population and in practice patterns, there is some question whether the assumptions about the number and level of visits within the global period reflect the actual post-operative work furnished. Some surgeons have commented that they furnish more visits than are included in the global period for their services. It is also likely that some patients require fewer than the ``typical'' number of follow-up visits included in the global period.

Although we are not proposing any changes to our global policy at this time, we solicited comments concerning our current policy of including these post-operative visits in the global surgical packages and what advantages or disadvantages might be associated with proposing a change to this policy in the future.

We received several comments concerning incorporating the new E/M values into all surgical services with a 10- or 90-day global period. With respect to our request for comments concerning our current policy of including these post-operative visits in the global surgical packages, we also received many suggestions. These comments and suggestions are addressed in this section.

Comment: Many commenters, including specialties representing primary care physicians and surgeons, as well as the RUC, supported the incorporation of the revised E/M work RVUs into the surgical global periods for each CPT code with a global of 010 and 090 as recommended by the RUC. Commenters, including the RUC, noted that we may have incorrectly implemented the RUC recommendation. They indicated that in implementing this proposal, we used discounted work RVUs, developed for pricing post services under the first 5-Year Review, rather than the undiscounted work RVUs that reflect the actual RVUs accepted by us for the E/M services. This resulted in incorrect, and lower, work RVUs being added to all of the services with post-operative visits in the 010 and 090 global periods and was contrary to the RUC recommendation that the full increase of the E/M be incorporated. The RUC requested that we review the calculations and implement the correct work RVUs for all procedures that have a 010 and 090 global period to reflect their recommendation. Other commenters stated that we should verify the accuracy of the data to ensure that the values, as recommended by the RUC, are appropriately implemented.

A few commenters also suggested that, should changes be made to the valuation of the E/M services, these changes would need to be carried through to the global package revisions.

Response: We have discussed this issue with the RUC and will ensure that the correct undiscounted values are incorporated.

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Comment: MedPAC stated that in comparison to other payment systems, the unit of payment under the PFS is very narrow and consists of many discrete services. MedPAC reiterated its longstanding concern that such a unit of payment might give physicians a financial incentive to increase payments by increasing the volume of services, which could lead to unnecessary services being provided. Therefore, in the absence of information suggesting that access to appropriate care is being compromised, MedPAC supports the current concept of packaging/bundling these services to encourage efficient and appropriate care. Several commenters representing surgical specialties agreed with this position, and additionally one commenter stated that such a change might also increase the risk of ``fee splitting.'' The commenter also supports the expansion of the global concept into disease management.

Other commenters suggested that we drop the global surgical model and replace this concept with a system that measures the actual amount of post-service work included in these global surgical services. Commenters suggested that this would ``level'' the playing field for documentation requirements and be less detrimental to ``centers for excellence'' which usually provide more care than is currently included within the global period. Commenters also suggested there are additional advantages to eliminating the global surgical model including the valuation of services being straightforward, the reduction of errors in PE valuation, and the facilitation of research, quality improvement and utilization tracking. However, there would be an associated increase in the volume of claims to be processed.

One commenter suggested that we meet with stakeholders prior to implementing such a change, while another commenter urged us to conduct a study on impact of revising the global surgical concept.

Response: We appreciate these comments and suggestions and will consider these along with additional information as we continue to study this issue. 3. Budget Neutrality

As discussed in the June 29, 2006 proposed notice, section 1848(c)(2)(B)(ii) of the Act requires that increases or decreases in RVUs for a year may not cause the amount of expenditures for the year to differ by more than $20 million from what expenditures would have been in the absence of these changes. If this threshold is exceeded, we must make adjustments to preserve budget neutrality (BN). This year, we expected that BN adjustments would be required as a result of changes in RVUs resulting from the 5-Year Review. We considered making the statutorily required BN adjustments (under section 1848(c)(2)(B)(ii)(II) of the Act) to account for the 5-Year Review of physician work by reducing all work RVUs. We estimated that all work RVUs would have to have been reduced by 10 percent under this option. Alternatively, we considered making an adjustment to the PFS CF to meet the provisions of section 1848(c)(2)(B)(ii)(II) of the Act. This option would have required an estimated 5 percent reduction to the CF. We also noted that the application of the BN adjustments to the CF would negatively impact all PFS services; whereas the application of the BN adjustment to the work RVUs would impact only those services that have physician work RVUs. Because the need for BN adjustment would be largely due to changes proposed as a result of the 5-Year Review of work RVUs, we believed it was more equitable to apply the adjustment across services that have work RVUs. We proposed to establish a BN adjustor that would reduce all work RVUs by an estimated 10 percent to meet the BN provisions of section 1848(c)(2)(B)(ii)(II) of the Act.

Comment: We received numerous comments on this issue. Many of the commenters were opposed to our proposal and requested that the adjustment be made to the CF for the following reasons:

(1) Applying the BN adjustor to all work RVUs has been problematic in the past.

(2) By imposing the full burden of BN on the pool of work values, we would be significantly mitigating the improved accuracy of the values that have now been assigned to E/M services.

(3) This approach obfuscates the recommended changes of the RUC and could potentially have an inappropriate effect on relativity.

(4) The application of a separate work adjustor is not consistent with our goal of cost transparency and may adversely affect payments by non-Medicare payers.

These commenters, which include the AMA, the RUC, and the AMA- HCPAC, asserted that applying the BN adjustor to the work RVUs is contrary to our longstanding policy. In addition, they do not believe that we provided an adequate rationale for shifting to this new approach, which we have previously stated is neither appropriate, nor effective. These associations noted that when in the past we applied a BN adjustor to the work RVUs, it caused considerable confusion among many non-Medicare payers, as well as physician practices that use the Medicare relative values as efficiency measures, and that the constant fluctuations in the work RVUs due to BN adjustments impeded the process of establishing work RVUs for new and revised services.

In addition to these objections, numerous specialty societies, organizations, groups, and providers also indicated that an adjustment to the CF is preferable because it would recognize that BN is mandated for monetary reasons. Thus, the CF, as the monetary multiplier in the Medicare payment formula, is the most appropriate place to adjust for BN.

A number of commenters, including representatives of some radiology and oncology providers, were supportive of our proposal because it fairly applies the required BN adjustment to the portion of the fee schedule that was the subject of review.

A few commenters also stated that although the BN adjustment methodology set forth in the June 29, 2006 proposed notice is not ideal, they believe that it is the best of the available alternatives under the circumstances (71 FR 37241). These commenters also believe that making all BN and scaling adjustments on a fee-schedule-wide basis would apparently result in unacceptable fee-schedule-wide reductions and is clearly inequitable for TC services. Another commenter urged us to delay the implementation of the BN adjustor for 1 year to allow more time to explore ways to increase recognition of E/M services without imposing such a financial hardship on select physician and nonphysician providers and to allow physicians and nonphysicians the opportunity to work with us to suggest alternative approaches.

Other commenters also discussed the interaction of the application of the BN adjustment and the DRA OPD cap on imaging services. As required by the DRA, reductions in imaging payments because of the OPD cap result in actual savings to the Medicare program (that is, they are not done in a budget neutral manner). The commenters note that if the BN is applied to the CF and not to the work RVUs, then the impact of the DRA cap on total Medicare spending is lower. This is because applying BN to the CF will narrow the payment differential between imaging services furnished in physicians' offices and hospital OPDs, and thus reduce the effect of the DRA cap on payments for imaging services.

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Response: We appreciate the information presented by the commenters. We do not have the authority to delay implementing the BN adjustment and we must apply a BNF to offset the increases in work RVUs effective for 2007.

We are very appreciative of the work the RUC and the specialty societies have done in the past several years to prepare for this 5- Year Review. As a result of their dedication and analysis, the work RVUs are now more accurate and reflective of the time and resources associated with them. We do not believe that applying the BN on the work RVUs would undermine or diminish the RUC or specialty societies' contributions or the resulting improvements.

Section 1848(c)(2)(B)(ii)(II) of the Act requires a BN adjustment. Regardless of whether the BN is achieved by applying an adjustment factor to the work RVUs, as we proposed in the proposed rule, or the CF, which is the preferred option of many of the commenters, the values associated with the work ultimately will be decreased. Therefore, we do not agree with the commenters' suggestions that applying the BN to the work RVUs would do the system a great harm. Specifically, we disagree that it would significantly reverse the improved accuracy of the values that have now been assigned to E/M services. Further, we do not think that this approach would distort the relativity of the RVUs. Because such an adjustment is uniformly applied to all the work RVUs, it does not alter the relationship among them.

We also note that this rule finalizes a change in the PE methodology. Changes to the PE RVUs are being budget neutralized within those PE RVUs. Applying BN adjustments at this time, within each set of RVUs, maintains equity and helps to ensure that the weights between work, PE and malpractice are consistent with the weighting used in the MEI.

Therefore, for the reasons discussed above in this section, we will be applying the statutorily-required BN adjustment to the work RVUs as proposed in the proposed rule. We note that we previously applied a separate adjustor to the work RVUs following the first 5-Year Review of physician work in 1997. We understand that many commenters would find it preferable for us to make the required BN adjustment to the CF. However, we believe the best and most equitable approach to applying BN for this 5-Year Review of work is to adjust the work RVUs for 2007 using a separate adjustor for those RVUs. Achieving BN by adjusting the CF would have the effect of reducing payment for all services on the fee schedule. This would include reductions to RVUs for a number of services that have no physician work and were, therefore, outside the scope of the 5-Year Review. We believe it would be unfair, given the significant negative update to the CF this year, to impose additional reducations resulting from the BN adjustment on codes that have no work values associated with them.

We share the commenters' concerns about transparency and recognize the Medicare PFS is used by other payors and for other purposes than just Medicare payments. To maintain a high level of transparency in the fee schedule, the Addendum B published in this rule will show the RVUs without the BN adjustment applied. This will serve as a reference for any interested party and should help to minimize any confusion about the unadjusted codes. There also is a discussion of the BN work adjustor and the payment formula for 2007 included in the section IX. of this final rule with comment period, ``Anesthesia and Physician Fee Schedule Conversion Factors for 2007.'' Payment for services will be calculated as follows:

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

We appreciate the commenters pointing out to us that the approach used in applying BN has an interactive effect with the DRA imaging OPD cap and has an effect on the total Medicare spending on physicians' services. However, as previously described in this section, we continue to believe the most equitable way to adjust for changes in the work RVUs resulting from the 5-Year Review is to apply a BN adjuster to work RVU.

Comment: Some commenters suggested that applying the BN adjustment to the CF could also be applied to the PE BN application, but only after we have addressed all of the RUC's recommendations related to the methodology and the PE relativity is stable. Ultimately, however, PEs for individual services should be evaluated under a 5-Year Review, at which point a similar application for BN to the CF could be appropriate.

Response: We appreciate and will consider these suggestions as we proceed with the implementation of the revised PE methodology. 4. Review Process

Comment: MedPAC and several specialties, as well as the RUC, commented on the process used for the 5-Year Review, including the methodology and data sources used in the review process. MedPAC stated that it continues to have concerns that overvalued services are ignored and referenced the MedPAC March 2006 Report to Congress. In this report, it recommended the creation of a standing panel to--

Assist in identifying misvalued services;

Establish a process for analyzing data to ensure automatic review of new services after a certain period; and

Periodically review all services.

Several specialty societies expressed support for the existing RUC methodologies for estimating intensity, but also supported the use of objective data from large clinical databases and urged us not to discount the use of alternative data sources.

Response: As indicated earlier in this section, we believe that it will be necessary for the RUC and the specialty societies to join us in further dialog concerning the role of alternative databases. There are still many questions that need to be fully explored including: what should the criteria be for the acceptance of a given database; can databases take the place of surveys; can IWPUT be used to create work RVUs, rather than just to validate them; is there a linear relationship between survey respondents' estimate of work and time; and, can survey respondents accurately estimate IWPUTs. We are also continuing to examine how best to identify misvalued services. As part of this initiative, the RUC has indicated that it has established a subcommittee to suggest approaches to identifying overvalued services and the RUC's Research Subcommittee has initiated discussion regarding existing time data and indicated its willingness to consider issues related to any other concerns that we and the specialty societies wish to address regarding the use of databases in the valuation of physician work. We look forward to working with these groups and will carefully evaluate suggestions and recommendations that are provided.

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

[If you choose to comment on issues in this section, please include the caption ``Interim Relative Value Units'' at the beginning of your comments.]

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

Section V.B. and V.C. of this final rule with comment describes the methodology used to review the comments received on the RVUs for physician work and the process used to establish RVUs for new and revised CPT codes. Changes to codes on the PFS reflected in Addendum B are effective for services furnished beginning January 1, 2007

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

The CY 2006 PFS final rule with comment period (70 FR 70116) contained the work RVUs for Medicare payment for existing procedure codes under the PFS and interim RVUs for new and revised codes beginning January 1, 2006. We considered the RVUs for the interim codes to be subject to public comment under the annual refinement process. In this section, we summarize the refinements to the interim work RVUs published in the CY 2006 PFS final rule with comment period and our establishment of the work RVUs for new and revised codes for the CY 2007 PFS.

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

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

Although the RVUs in the CY 2006 PFS final rule with comment period were used to calculate 2006 payment amounts, we considered the RVUs for the new or revised codes to be interim. We accepted comments for a period of 60 days. We received substantive comments for 7 CPT codes with interim work RVUs.

To evaluate these comments, we used a process similar to the process used since 1997. (See the CY 1998 PFS final rule published in the October 31, 1997 Federal Register (62 FR 59084) for the discussion of refinement of CPT codes with interim work RVUs.) We convened a multi-specialty panel of physicians to assist us in the review of the comments. The comments that we did not submit to panel review are discussed at the end of this section, as well as those that were reviewed by the panel, which are contained in Table 14, 2006 Interim Work Relative Value Units for Codes Reviewed Under the Refinement Panel Process. We invited representatives from the organizations from which we received substantive comments to attend a panel for discussion of the code on which they had commented. The panel was moderated by our medical staff, and consisted of the following voting members:

Clinicians representing the commenting specialty(ies), based on our determination of those specialties which are most identified with the services in question. Although commenting specialties were welcomed to observe the entire refinement process, they were only involved in the discussion of those services for which they were invited to participate.

Primary care clinicians nominated by the AAFP and the American College of Physicians.

Four carrier medical directors.

One or two clinicians who practice in related specialties and have knowledge of the services under review.

The panel discussed the work involved in the procedure under review in comparison to the work associated with other services under the PFS. We assembled a set of reference services and asked the panel members to compare the clinical aspects of the work for the service a commenter believed was incorrectly valued to one or more of the reference services. In compiling the reference set, we attempted to include: (1) Services that are commonly furnished for which work RVUs are not controversial; (2) services that span the entire spectrum of work intensity from the easiest to the most difficult; and (3) at least three services furnished by each of the major specialties so that each specialty would be represented. The intent of the panel process was to capture each participant's independent judgment based on the discussion and his or her clinical experience. Following the discussion for each service, each participant rated the work for that procedure. Ratings were individual and confidential; there was no attempt to achieve consensus among the panel members.

We then analyzed the ratings based on a presumption that the interim RVUs were correct. To overcome that presumption, the inaccuracy of the interim RVUs had to be apparent to the broad range of physicians participating in each panel.

Ratings of work were analyzed for consistency among the groups represented on each panel. In general terms, we used statistical tests to determine whether there was enough agreement among the groups on the panel and, if so, whether the agreed-upon RVUs were significantly different from the interim RVUs published in Addendum C of the CY 2006 PFS final rule with comment to demonstrate that the interim RVUs should be modified. We did not modify the RVUs unless there was a clear indication for a change. If there was agreement across groups for change, but the groups did not agree on what the new RVUs should be, we eliminated the outlier group, and looked for agreement among the remaining groups as to the basis for new RVUs. We used the same methodology in analyzing the ratings that we first used in the refinement process for the CY 1993 PFS final rule published in the November 25, 1992 Federal Register which described the statistical tests in detail (57 FR 55938). Our decision to convene a multi- specialty panel of physicians and to apply the statistical tests described above in this section was based on our need to balance the interests of those who commented on the work RVUs against the redistributive effects that would occur in other specialties.

Table 14 lists those interim codes reviewed under the refinement panel process described in this section. This table includes the following information:

CPT Code. This is the CPT code for a service.

Description. This is an abbreviated version of the narrative description of the code.

2006 Work RVU. The work RVUs that appeared in the CY 2006 final rule are shown for each reviewed code.

Requested Work RVU. This column identifies the work RVUs requested by commenters.

2007 Work RVU. This column contains the final RVUs for physician work as a result of the multi-specialty panel (Note: Values for 10- and 90-day global period codes do not reflect E/M increases. Increases due to E/M changes are reflected in Addenda B.)

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Table 14.--2006 Interim Work Relative Value Units for Codes Reviewed Under the Refinement Panel Process

2006 CPT code \1\

Mod

Descriptor

Interim Requested 2007 work work RVU work RVU RVU \2\

22523............................... ..... PERCUT KYPHOPLASTY, THOR....

8.94

8.94

8.94 22524............................... ..... PERCUT KYPHOPLASTY, LUMBAR..

8.54

8.54

8.54 22525............................... ..... PERCUT KYPHOPLASTY, ADD-ON..

4.47

4.67

4.47 88334............................... ..... INTRAOP CYTO PATH CONSULT 2.

0.59

0.80

0.73 95251............................... ..... GLUC MONITOR, CONT, PHYS I&R

0.52

0.85

0.85

\1\ All CPT codes and descriptions copyright 2005 AMA. All rights reserved and applicable FARS/DFARS clauses apply. \2\ Values for 10- and 90-day global period codes do not reflect E/M increases. Increases due to E/M changes are reflected in Addendum B.

2. Interim 2006 Codes

For CPT code 22523, Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g., kyphoplasty); thoracic; CPT code 22524, Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g., kyphoplasty); lumbar; and CPT code 22525, Percutaneous vertebral augmentation, including cavity creation (fracture reduction and bone biopsy included when performed) using mechanical device, one vertebral body, unilateral or bilateral cannulation (e.g. kyphoplasty); each additional thoracic or lumbar vertebral body (List separately in addition to code for primary procedure), the RUC recommended 8.94 work RVUs for CPT code 22523, 8.54 work RVUs for CPT code 22524 and 4.47 work RVUs for CPT code 22525, which we accepted.

Comment: Commenters disagreed with the RUC-recommended work values for these services, which we had accepted. The commenters believed that the recommended values were primarily based on a comparison to vertobroplasty services and did not reflect important data that is associated with kyphoplasty procedures. Based on these comments, we referred these codes to the multi-specialty validation panel for review.

Response: As a result of the statistical analysis of the 2006 multi-specialty validation panel ratings, we have assigned 8.94 work RVUs to CPT code 22523, 8.54 work RVUs to CPT code 22524 and 4.47 work RVUs to CPT code 22525.

For CPT code 88334, Pathology consultation during surgery; cytologic examination (e.g., touch prep, squash prep), each additional site, the RUC recommended a work RVU of 0.80 for this service based on a comparison of this procedure to CPT code 88332, Pathology consultation during surgery; each additional tissue block, with frozen section(s). The RUC reviewed the specialty society's survey data and noted that the surveyed CPT code 88334, when compared to the reference CPT code 88332 has higher intensity/complexity measures (20 minutes) and an additional five minutes of intra-service time (15 minutes). Although CPT code 88334 has an additional 5 minutes of intra-service time, we believed that CPT code 88334 is very similar in work to CPT code 88332, and therefore, should be valued the same. We assigned 0.59 work RVUs to CPT code 88334.

Comment: Commenters did not agree with our comparison of CPT code 88334 to 88332, as there is increased work mainly vested on the necessity to examine every field under 10X magnification in CPT code 88334, which is not inherent in the frozen section process represented by CPT code 88332. Based on these comments, we referred this code to the multi-specialty validation panel for review.

Response: As a result of the statistical analysis of the 2006 multi-specialty validation panel ratings, we have assigned 0.73 work RVUs to CPT code 88334.

For CPT code 95251, Ambulatory continuous glucose monitoring of interstitial tissue fluid via a subcutaneous sensor for up to 72 hours; physician interpretation and report, the RUC recommended a work RVU of 0.85 for this service. We disagree with the RUC's recommendation because we believe the work for this service is similar to CPT code 93268, Patient demand single or multiple event recording with presymptom memory loop, 24-hour attended monitoring, per 30-day period of time; includes transmission, physician review and interpretation, which involves the review of data over a 30-day period. Therefore, we assigned 0.52 work RVUs to 95251.

Comment: Commenters disagreed with our comparison of CPT code 95251 to 93268, as they believe the amount and complexity of the data that needs to be reviewed for CPT code 95251 is considerable. Based on these comments, we referred this code to the multi-specialty validation panel for review.

Response: As a result of the statistical analysis of the 2006 multi-specialty validation panel ratings, we have assigned 0.85 work RVUs to CPT code 95251.

For CPT code 61630, Balloon angioplasty, intracranial (e.g., atherosclerotic stenosis), percutaneous; CPT code 61635, Transcatheter placement of intravascular stent(s), intracranial (e.g., athersosclerotic stenosis), including balloon angioplasty if performed; CPT code 61640, Balloon dilatation of intracranial vasospasm, percutaneous, initial vessel; CPT code 61641, Balloon dilatation of intracranial vasospasm, percutaneous, initial vessel; each additional vessel in same vascular family; and CPT code 61642, Balloon dilatation of intracranial vasospasm, percutaneous, initial vessel; each additional vessel in different vascular family, the RUC recommended 21.08 work RVUs for CPT code 61630, 23.08 work RVUs for CPT code 61635, 12.32 work RVUs for CPT code 61640, 4.33 work RVUs for CPT code 61641 and 8.66 work RVUs for CPT code 61642. We assigned a status indicator of N for these services because they are noncovered under Medicare due to a National Coverage Decision (NCD).

Comment: Commenters questioned the assignment of the status indicator of N for these services. Commenters also requested that the RVUS be published for these services. (Note: In the correction notice that appeared in the February 24, 2006 Federal Register (71 FR 9458), RVUs were published for CPT codes 61630 and 61635.)

Response: Based on an NCD regarding the non-coverage of performance of percutaneous transluminal angioplasty to treat obstructive lesions of the

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vertebral and cerebral arteries we will maintain the status indicator of N for these services. (Note: The RUC-recommended RVUs for these codes will be reflected in Addendum B.)

For CPT codes 98960, Education and training for patient self- management by a qualified, nonphysician health care professional using a standardized curriculum, face-to-face with the patient (could include caregiver/family) each 30 minutes; individual patient; CPT code 98961, Education and training for patient self-management by a qualified, nonphysician health care professional using a standardized curriculum, face-to-face with the patient (could include caregiver/family) each 30 minutes; 2-4 patients; and CPT code 98962, Education and training for patient self-management by a qualified, nonphysician health care professional using a standardized curriculum, face-to-face with the patient (could include caregiver/family) each 30 minutes; 5-8 patients, a status indicator of N was erroneously assigned for these services in the CY 2006 PFS final rule published in the November 21, 2005 Federal Register (70 FR 70282). The status indicator was corrected to B in the correction notice that appeared in the February 24, 2006 Federal Register (71 FR 9458).

Comment: Commenters questioned the assigned status indicator of N for these services and urged acceptance of the RVUs, as physician education is a service covered under Medicare Part B and, as one commenter indicated, included and reported in an E/M code. However, the commenter stated that the E/M service that we might believe is appropriate (CPT code 99211) is not sufficient for the amount of time and work described by these services. Other commenters requested that the RUC-assigned RVUs be published, even if they are not used for Medicare payment, as other payers use the PFS to establish payment.

Response: As stated above in this section, the status indicator for these codes was corrected to a status indicator of B in the correction notice that appeared in the February 24, 2006 Federal Register (71 FR 9458). We believe these services are bundled into E/M services. Other than the diabetic education services (CPT codes G0108 and G0109) specified by the Congress, we do not cover separate education services outside of demonstrations or the Medicare Health Support program. For diabetic education services, CPT codes G0108 and G0109 should be used to bill for these services. CPT codes 98960-98962 will not be recognized as separate services for diabetic education. Additional information on the DSMT benefit is available in Sec. 410.140 through Sec. 410.146, and on our Web site at http://www.cms.hhs.gov/DiabetesSelfManagement/. We are available to discuss certification

requirements with interested providers. As requested by the commenters, we have published the RUC-assigned RVUs for these codes.

For CPT code 99143, Moderate sedation services (other than those services described by codes 00100-01999) provided by the same physician performing the diagnostic or therapeutic service that the sedation supports, requiring the presence of an independent trained observer to assist in the monitoring of the patient's level of consciousness and physiological status, under 5 years of age; first 30 minutes intra- service time, CPT code 99144, Moderate sedation services (other than those services described by codes 00100-01999) provided by the same physician performing the diagnostic or therapeutic service that the sedation supports, requiring the presence of an independent trained observer to assist in the monitoring of the patient's level of consciousness and physiological status, age 5 years or older; first 30 minutes intra-service time, CPT code 99145, Moderate sedation services (other than those services described by codes 00100-01999) provided by the same physician performing the diagnostic or therapeutic service that the sedation supports, requiring the presence of an independent trained observer to assist in the monitoring of the patient's level of consciousness and physiological status, age 5 years or older; each additional 15 minutes intra-service time, CPT code 99148, Moderate sedation services (other than those services described by codes 00100- 01999) provided by a physician other than the health care professional performing the diagnostic or therapeutic service that the sedation supports, under 5 years of age; first 30 minutes intra-service time, CPT code 99149, Moderate sedation services (other than those services described by codes 00100-01999) provided by a physician other than the health care professional performing the diagnostic or therapeutic service that the sedation supports, age 5 years or older; first 30 minutes intra-service time, and CPT code 99150, Moderate sedation services (other than those services described by codes 00100-01999) provided by a physician other than the health care professional performing the diagnostic or therapeutic service that the sedation supports, each additional 15 minutes intra-service time, the CPT Editorial Panel created six new codes to accurately report 2 separate families of moderate sedation. One family describes the provision of moderate sedation services by the physician who is performing the diagnostic or therapeutic service and supervising an independent trained observer while the other family describes moderate sedation services performed by a physician (other than an anesthesiologist) other than the physician performing a diagnostic or therapeutic service. These new codes replace CPT code 99141, Sedation with or without analgesia (conscious sedation); intravenous, intra-muscular or inhalation, and CPT code 99142, Sedation with or without analgesia (conscious sedation); oral, rectal and/or intranasal, which were bundled under the PFS. The RUC recommended 0.70 work RVUs for CPT code 99143, 0.66 work RVUs for CPT code 99144, 0.23 work RVUs for CPT code 99145, 1.75 work RVUs for CPT code 99148, 1.65 work RVUs for CPT code 99149 and 0.47 work RVUs for CPT code 99150. We questioned whether the RUC-assigned values are appropriate and carrier priced these codes in order to gather information for utilization and proper pricing.

Comment: Commenters requested that the RUC-recommended value for these services be accepted as these values were based on valid surveys and vetted through the RUC process. The RUC also indicated it would be happy to provide any additional information that would address any concerns we might have.

Response: We will maintain carrier pricing of these codes and will continue to monitor utilization.

Comment: Commenters requested that we publish the RVUs for noncovered services for which we receive RUC recommendations.

Response: In response to comments, we have published the RVUs for noncovered services for which we received RUC recommendations (with the exception of carrier-priced codes).

In the CY 2006 PFS final rule with comment period (70 FR 66370), we also responded to the RUC recommendations on the PE inputs for the new and revised CPT codes for 2006. We received the following comments:

Comment: Although we assigned non-facility PE inputs based on information provided by the RUC for CPT code 28890, Extracorporeal shock wave, high energy, performed by a physician, requiring anesthesia other than local, including ultrasound guidance, involving the plantar fascia, one commenter expressed concern that the

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PE RVUs are not sufficient to cover the actual costs associated with the performance of this procedure in the office setting. The commenter acknowledged that a single payment scheme for the purchase or rental of the equipment associated with its service does not exist and believes the expense to be higher than what was represented in the PE database. The commenter indicated that a ``technical fee'' is frequently paid when the procedure is performed in the office setting. The costs associated with this ``technical fee'' can include: The shock wave equipment, a specialized transport truck, a service contract with the manufacturer, salary/benefits for technologist and the transport driver, medical director fee, anesthesia fee, supplies and training material, malpractice and liability insurance, and fuel cost.

Response: Under the PFS, the PE component is based on the resources used to furnish each service and, for CPT code 28890, consists of a total of 133 minutes of clinical labor, disposable supplies, including the necessary items to provide the regional anesthetic block, and equipment over $500, including the ``shock-wave'' machine. The PE methodology utilizes the price of equipment (as if the physician owned it) and considers the time used for performing the procedure (36 minutes). Costs of leasing arrangements or per use fees are not recognized in our PE methodology. Therefore, we are maintaining the direct PE inputs for this service (except as discussed previously in this rule) because they are consistent with the typical clinical labor, supplies, and equipment needed to provide this service in the physician's office.

Comment: We received three comments concerning the PE inputs for CPT codes 36475, Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, radiofrequency, first vein treated, and 36476, Endovenous ablation therapy of incompetent vein, extremity, inclusive of all imaging guidance and monitoring, percutaneous, radiofrequency, second and subsequent veins treated in a single extremity, each through separate access sites (List separately in addition to code for primary location). Two comenters supported our proposal to add the tilt table for these services and also suggested the tilt table be added to CPT codes 36478 and 36479--the entire endovenous family. One commenter requested that 15 minutes of clinical labor time be added to CPT codes 36475 and 36476. However, the commenters disagreed with the addition of 15 minutes of clinical labor time to CPT codes 36475 and 36476, indicating that the description of the physician work for these codes states that, when needed, the physician places the patient in the required position. One of these commenters indicated that this was also to be addressed at the February 2006 RUC meeting.

Response: At the February 2006 RUC meeting, the PERC recommended the addition of the tilt table to the family of CPT codes, 36475, 36476, 36478 and 36479. However, the PERC did not accept the additional clinical labor time. The tilt table was added to the PE database for these CPT codes, in concert with the PERC recommendations for CY 2007, and the PE RVUs in Addendum B reflect these changes.

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

One aspect of establishing RVUs for 2007 was to assign interim work RVUs for all new and revised CPT codes. As described in our November 25, 1992 notice on the 1993 PFS (57 FR 55951) and in section III.B. of the CY 1997 PFS final rule (61 FR 59505), we established a process, based on recommendations received from the AMA's RUC, for establishing interim work RVUs for new and revised codes.

This year we received work RVU recommendations for 230 new and revised CPT codes from the RUC. Of the 230 codes, 56 were modified by editorial changes, 57 were renumbered and the work RVUs associated with these services were assigned to the new codes (not included in Table 15), and 1 code was renumbered and assigned a new work RVU (included in Table 15). Our staff and medical officers reviewed the RUC recommendations by comparing them to our reference set or to other comparable services for which work RVUs had previously been established. We also considered the relationships among the new and revised codes for which we received RUC recommendations and agreed with the majority of the relative relationships reflected in the RUC values. In some instances, although we agreed with the relationships, we nonetheless revised the work RVUs to achieve work neutrality within families of codes. That is, the work RVUs were adjusted so that the sum of the new or revised work RVUs (weighted by projected frequency of use) for a family will be the same as the sum of the current work RVUs (weighted by projected frequency of use) for the family of codes. We reviewed all the RUC recommendations and accepted approximately 98 percent of the RUC-recommended values.

We received one recommendation from the Health Care Professional Advisory Committee (HCPAC), which we accepted.

Table 15, titled ``AMA RUC and HCPAC Recommendations and CMS Decisions for New and Revised 2007 CPT Codes,'' lists the new or revised CPT codes, and their associated work RVUs, that will be interim in 2007. This table includes the following information:

A ``'' identifies a new code for 2007.

CPT code. This is the CPT code for a service.

Modifier. A ``26'' in this column indicates that the work RVUs are for the PC of the code.

Description. This is an abbreviated version of the narrative description of the code.

RUC recommendations. This column identifies the work RVUs recommended by the RUC.

HCPAC recommendations. This column identifies the work RVUs recommended by the HCPAC.

CMS decision. This column indicates whether we agreed or we disagreed with the RUC recommendation. Codes for which we did not accept the RUC recommendation are discussed in greater detail following this table.

2007 Work RVUs. This column establishes the interim 2007 work RVUs for physician work. (Note: Values for 10- and 90-day global period codes reflect E/M increases from the 5-Year Review.)

BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR01DE06.010

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[GRAPHIC] [TIFF OMITTED] TR01DE06.011

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[GRAPHIC] [TIFF OMITTED] TR01DE06.012

BILLING CODE 4120-01-C

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Table 16, which is titled ``AMA RUC Anesthesia Recommendations and CMS Decisions for New and Revised 2007 CPT Codes,'' lists the new or revised CPT codes for anesthesia and their base units that will be interim in 2007. This table includes the following information:

CPT code. This is the CPT code for a service.

Description. This is an abbreviated version of the narrative description of the code.

RUC recommendations. This column identifies the base units recommended by the RUC.

CMS decision. This column indicates whether we agreed or we disagreed with the RUC recommendation. Codes for which we did not accept the RUC recommendation are discussed in greater detail following this table.

2007 Base Units. This column establishes the 2007 base units for these services.

Table 16.--AMA RUC Anesthesia Recommendations and CMS Decisions for New and Revised CPT Codes

RUC

2007 base *CPT code

Description

recommendation CMS decision units

00625................... ANES SPINE TRANTHOR W/O

13.00 Agree............... 13.00 VENT. 00626................... ANES, SPINE TRANSTHOR W/

13.00 Agree............... 15.00 VENT.

* All CPT codes copyright 2006 AMA. New CPT code.

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

The following is a summary of our rationale for not accepting particular RUC work RVUs. It is arranged by type of service in CPT order. This summary refers only to work RVUs.

For CPT code 22857, Total disc arthroplasty (artificial disc), anterior approach, including diskectomy to prepare interspace (other than for decompression), lumbar, single interspace; CPT code 22862, Revision including replacement of total disc arthroplasty (artificial disc) anterior approach, lumbar, single interspace (includes approach); and CPT code 22865, Removal of total disc arthroplasty (artificial disc), anterior approach, lumbar, single interspace, the RUC recommended 25.07 work RVUs for CPT code 22857, 30.57 work RVUs for CPT code 22862 and 29.57 work RVUs for CPT code 22865. We are assigning a status indicator of R (Restricted) to these services due to an NCD for non-coverage of Lumbar Artificial Disc Replacement with the ChariteTMlumbar artificial disc for patients over the age of 60.

For CPT code 94005, Home ventilator management care plan oversight of a patient (patient not present) in home, domiciliary or rest home (e.g., assisted living) requiring review of status, review of laboratories and other studies and revision of orders and respiratory care plan (as appropriate), within a calendar month, 30 minutes or more, the RUC-recommended 1.50 work RVUs for this code. We are assigning a status indicator of B (Bundled) to this service because: (1) The patient is not present when this service is rendered and (2) we believe this service is captured in E/M services. (Note: The RUC- recommended RVUs for this code will be reflected in Addendum B.)

For CPT code 96040, Medical genetics and genetic counseling services, each 30 minutes face-to-face with patient/family, this procedure does not have any physician work and to the extent that these services are covered, we consider them bundled into E/M services and have assigned as status indicator of B. (Note: The RUC-recommended RVUs for this code will be reflected in Addendum B.)

For CPT code 96904, Whole body integumentary photography, for monitoring of high risk patients with dysplastic nevus syndrome or a history of dysplastic nevi, or patients with a personal or familial history of melanoma, this procedure does not have any physician work. We have assigned a status indicator of R (Restricted) to this service, and will only recognize this code when services are performed on patients with melanoma and not when services are performed for screening based on family history (because we did not cover screenings). We will implement edits for situations involving patients with melanoma and/or dysplastic nevus syndrome.

For CPT code 99363, Anticoagulant management for an outpatient taking warfarin, physician review and interpretation of International Normalized Ratio (INR) testing, patient instructions, dosage adjustment (as needed), and ordering of additional tests; initial 90 days of therapy (must include a minimum of 8 INR measurements; and CPT code 99364, Anticoagulant management for a patient taking warfarin, physician review and interpretation of International Normalized Ratio (INR) testing, patient instructions, dosage adjustment (as needed), and ordering of additional tests; each subsequent 90 days of therapy (must include a minimum of three INR measurements), the RUC recommended 1.65 work RVUs for CPT code 99363 and 0.63 work RVUs for CPT code 99364. We believe these services are bundled into E/M services and have assigned a status indicator of B to these codes. (Note: The RUC-recommended RVUs for these codes will be reflected in Addendum B.)

F. Additional Pricing Issue

We are carrier-pricing the global and TC for the codes listed in Table 17. The TC is not paid in the facility setting under the PFS and the RUC did not forward recommendations in the non-facility setting because these services are performed infrequently, if at all in the non-facility setting. Work RVUs will continue to be used to establish payment for the PC.

Table 17.--Carrier Priced Codes

Short CPT code *

Mod

descriptor

Status indicator

70170......... .............. X-RAY EXAM OF Carrier Priced. TEAR DUCT. 70170......... TC............ X-RAY EXAM OF Carrier Priced. TEAR DUCT.

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70555......... .............. FMRI BRAIN BY Carrier Priced. PHYS/PSYCH. 70555......... TC............ FMRI BRAIN BY Carrier Priced. PHYS/PSYCH. 71090......... .............. X-RAY EXAM OF Carrier Priced. EYE SOCKETS. 71090......... TC............ X-RAY EXAM OF Carrier Priced. EYE SOCKETS. 73530......... .............. X-RAY EXAM OF Carrier Priced. HIP. 73530......... TC............ X-RAY EXAM OF Carrier Priced. HIP. 74190......... .............. X-RAY EXAM OF Carrier Priced. PERITONEUM. 74190......... TC............ X-RAY EXAM OF Carrier Priced. PERITONEUM. 74305......... .............. X-RAY BILE Carrier Priced. DUCTS/PANCREAS. 74305......... TC............ X-RAY BILE Carrier Priced. DUCTS/PANCREAS. 74328......... .............. X-RAY BILE DUCT Carrier Priced. ENDOSCOPY. 74328......... TC............ X-RAY BILE DUCT Carrier Priced. ENDOSCOPY. 74330......... .............. X-RAY BILE/PANC Carrier Priced. ENDOSCOPY. 74330......... TC............ X-RAY BILE/PANC Carrier Priced. ENDOSCOPY. 74340......... .............. X-RAY GUIDE FOR Carrier Priced. GI TUBE. 74340......... TC............ X-RAY GUIDE FOR Carrier Priced. GI TUBE. 74355......... .............. X-RAY GUIDE, Carrier Priced. INTESTINAL TUBE. 74355......... TC............ X-RAY GUIDE, Carrier Priced. INTESTINAL TUBE. 74360......... .............. X-RAY GUIDE, GI Carrier Priced. DILATION. 74360......... TC............ X-RAY GUIDE, GI Carrier Priced. DILATION. 74420......... .............. CONTRST X-RAY, Carrier Priced. URINARY TRACT. 74420......... TC............ CONTRST X-RAY, Carrier Priced. URINARY TRACT. 74425......... .............. CONTRST X-RAY, Carrier Priced. URINARY TRACT. 74425......... TC............ CONTRST X-RAY, Carrier Priced. URINARY TRACT. 74445......... .............. X-RAY EXAM OF Carrier Priced. PENIS. 74445......... TC............ X-RAY EXAM OF Carrier Priced. PENIS. 74450......... .............. X-RAY, URETHRA/ Carrier Priced. BLADDER. 74450......... TC............ X-RAY, URETHRA/ Carrier Priced. BLADDER. 74470......... .............. X-RAY EXAM OF Carrier Priced. KIDNEY LESION. 74470......... TC............ X-RAY EXAM OF Carrier Priced. KIDNEY LESION. 74775......... .............. X-RAY EXAM OF Carrier Priced. PERINEUM. 74775......... TC............ X-RAY EXAM OF Carrier Priced. PERINEUM. 75801......... .............. LYMPH VESSEL X- Carrier Priced. RAY, ARM/LEG. 75801......... TC............ LYMPH VESSEL X- Carrier Priced. RAY, ARM/LEG. 75803......... .............. LYMPH VESSEL X- Carrier Priced. RAY, ARMS/LEGS. 75803......... TC............ LYMPH VESSEL X- Carrier Priced. RAY, ARMS/LEGS. 75805......... .............. LYMPH VESSEL X- Carrier Priced. RAY, TRUNK. 75805......... TC............ LYMPH VESSEL X- Carrier Priced. RAY, TRUNK. 75810......... .............. VEIN X-RAY, Carrier Priced. SPLEEN/LIVER. 75810......... TC............ VEIN X-RAY, Carrier Priced. SPLEEN/LIVER. 75894......... .............. X-RAYS,

Carrier Priced. TRANSCATH THERAPY. 75894......... TC............ X-RAYS,

Carrier Priced. TRANSCATH THERAPY. 75896......... .............. X-RAYS,

Carrier Priced. TRANSCATH THERAPY. 75896......... TC............ X-RAYS,

Carrier Priced. TRANSCATH THERAPY. 75898......... .............. FOLLOW-UP

Carrier Priced. ANGIOGRAPHY. 75898......... TC............ FOLLOW-UP

Carrier Priced. ANGIOGRAPHY. 75940......... .............. X-RAY

Carrier Priced. PLACEMENT, VEIN FILTER. 75940......... TC............ X-RAY

Carrier Priced. PLACEMENT, VEIN FILTER. 75945......... .............. INTRAVASCULAR Carrier Priced. US. 75945......... TC............ INTRAVASCULAR Carrier Priced. US. 75960......... .............. TRANSCATH IV Carrier Priced. STENT RS & I. 75960......... TC............ TRANSCATH IV Carrier Priced. STENT RS & I. 75970......... .............. VASCULAR BIOPSY Carrier Priced. 75970......... TC............ VASCULAR BIOPSY Carrier Priced. 75980......... .............. CONTRAST X-RAY Carrier Priced. EXAM BILE DUCT. 75980......... TC............ CONTRAST X-RAY Carrier Priced. EXAM BILE DUCT. 75992......... .............. ATHERECTOMY, X- Carrier Priced. RAY EXAM. 75992......... TC............ ATHERECTOMY, X- Carrier Priced. RAY EXAM. 76001......... .............. FLUOROSCOPE Carrier Priced. EXAM, EXTENSIVE. 76001......... TC............ FLUOROSCOPE Carrier Priced. EXAM, EXTENSIVE. 76125......... .............. CINE/VIDEO X- Carrier Priced. RAYS ADD-ON. 76125......... TC............ CINE/VIDEO X- Carrier Priced. RAYS ADD-ON. 76932......... .............. ECHO GUIDE FOR Carrier Priced. HEART BIOPSY. 76932......... TC............ ECHO GUIDE FOR Carrier Priced. HEART BIOPSY. 76940......... .............. US GUIDE,

Carrier Priced. TISSUE ABLATION. 76940......... TC............ US GUIDE,

Carrier Priced. TISSUE ABLATION. 76941......... .............. ECHO GUIDE FOR Carrier Priced. TRANSFUSION. 76941......... TC............ ECHO GUIDE FOR Carrier Priced. TRANSFUSION. 76945......... .............. ECHO GUIDE, Carrier Priced. VILLUS SAMPLING. 76945......... TC............ ECHO GUIDE, Carrier Priced. VILLUS SAMPLING. 76975......... .............. GI ENDOSCOPIC Carrier Priced. ULTRASOUND. 76975......... TC............ GI ENDOSCOPIC Carrier Priced. ULTRASOUND.

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76998......... .............. US GUIDE,

Carrier Priced. INTRAOP. 76998......... TC............ US GUIDE,

Carrier Priced. INTRAOP. 77013......... .............. CT GUIDE FOR Carrier Priced. TISSUE ABLATION. 77013......... TC............ CT GUIDE FOR Carrier Priced. TISSUE ABLATION. 77022......... .............. MRI FOR TISSUE Carrier Priced. ABLATION. 77022......... TC............ MRI FOR TISSUE Carrier Priced. ABLATION. 92978......... .............. INTRAVASC US, Carrier Priced. HEART ADD-ON. 92978......... TC............ INTRAVASC US, Carrier Priced. HEART ADD-ON. 92979......... .............. INTRAVASC US, Carrier Priced. HEART ADD-ON. 92979......... TC............ INTRAVASC US, Carrier Priced. HEART ADD-ON. 93501......... .............. RIGHT HEART Carrier Priced. CATHETERIZATIO N. 93501......... TC............ RIGHT HEART Carrier Priced. CATHETERIZATIO N. 93503......... .............. INSERT/PLACE Carrier Priced. HEART CATHETER. 93505......... .............. BIOPSY OF HEART Carrier Priced. LINING. 93505......... TC............ BIOPSY OF HEART Carrier Priced. LINING. 93508......... .............. CATH PLACEMENT, Carrier Priced. ANGIOGRAPHY. 93508......... TC............ CATH PLACEMENT, Carrier Priced. ANGIOGRAPHY. 93510......... .............. LEFT HEART Carrier Priced. CATHETERIZATIO N. 93510......... TC............ LEFT HEART Carrier Priced. CATHETERIZATIO N. 93511......... .............. LEFT HEART Carrier Priced. CATHETERIZATIO N. 93511......... TC............ LEFT HEART Carrier Priced. CATHETERIZATIO N. 93524......... .............. LEFT HEART Carrier Priced. CATHETERIZATIO N. 93524......... TC............ LEFT HEART Carrier Priced. CATHETERIZATIO N. 93526......... .............. RT & LT HEART Carrier Priced. CATHETERS. 93526......... TC............ RT & LT HEART Carrier Priced. CATHETERS. 93527......... .............. RT & LT HEART Carrier Priced. CATHETERS. 93527......... TC............ RT & LT HEART Carrier Priced. CATHETERS. 93528......... .............. RT & LT HEART Carrier Priced. CATHETERS. 93528......... TC............ RT & LT HEART Carrier Priced. CATHETERS. 93529......... .............. RT, LT HEART Carrier Priced. CATHETERIZATIO N. 93529......... TC............ RT, LT HEART Carrier Priced. CATHETERIZATIO N. 93530......... .............. RT HEART CATH, Carrier Priced. CONGENITAL. 93530......... TC............ RT HEART CATH, Carrier Priced. CONGENITAL. 93531......... .............. R & L HEART Carrier Priced. CATH, CONGENITAL. 93531......... TC............ R & L HEART Carrier Priced. CATH, CONGENITAL. 93539......... .............. INJECTION, Carrier Priced. CARDIAC CATH. 93540......... .............. INJECTION, Carrier Priced. CARDIAC CATH. 93541......... .............. INJECTION FOR Carrier Priced. LUNG ANGIOGRAM. 93542......... .............. INJECTION FOR Carrier Priced. HEART X-RAYS. 93543......... .............. INJECTION FOR Carrier Priced. HEART X-RAYS. 93544......... .............. INJECTION FOR Carrier Priced. AORTOGRAPHY. 93545......... .............. INJECT FOR Carrier Priced. CORONARY X- RAYS. 93555......... .............. IMAGING,

Carrier Priced. CARDIAC CATH. 93555......... TC............ IMAGING,

Carrier Priced. CARDIAC CATH. 93556......... .............. IMAGING,

Carrier Priced. CARDIAC CATH. 93556......... TC............ IMAGING,

Carrier Priced. CARDIAC CATH. 93561......... .............. CARDIAC OUTPUT Carrier Priced. MEASUREMENT. 93561......... TC............ CARDIAC OUTPUT Carrier Priced. MEASUREMENT. 93562......... .............. CARDIAC OUTPUT Carrier Priced. MEASUREMENT. 93562......... TC............ CARDIAC OUTPUT Carrier Priced. MEASUREMENT. 93571......... .............. HEART FLOW Carrier Priced. RESERVE MEASURE. 93571......... TC............ HEART FLOW Carrier Priced. RESERVE MEASURE. 93600......... .............. BUNDLE OF HIS Carrier Priced. RECORDING. 93600......... TC............ BUNDLE OF HIS Carrier Priced. RECORDING. 93602......... .............. INTRA-ATRIAL Carrier Priced. RECORDING. 93602......... TC............ INTRA-ATRIAL Carrier Priced. RECORDING. 93603......... .............. RIGHT

Carrier Priced. VENTRICULAR RECORDING. 93603......... TC............ RIGHT

Carrier Priced. VENTRICULAR RECORDING. 93609......... .............. MAP

Carrier Priced. TACHYCARDIA, ADD-ON. 93609......... TC............ MAP

Carrier Priced. TACHYCARDIA, ADD-ON. 93610......... .............. INTRA-ATRIAL Carrier Priced. PACING. 93610......... TC............ INTRA-ATRIAL Carrier Priced. PACING. 93612......... .............. INTRAVENTRICULA Carrier Priced. R PACING. 93612......... TC............ INTRAVENTRICULA Carrier Priced. R PACING. 93615......... .............. ESOPHAGEAL Carrier Priced. RECORDING. 93615......... TC............ ESOPHAGEAL Carrier Priced. RECORDING. 93618......... .............. HEART RHYTHM Carrier Priced. PACING. 93618......... TC............ HEART RHYTHM Carrier Priced. PACING. 93619......... .............. ELECTROPHYSIOLO Carrier Priced. GY EVALUATION. 93619......... TC............ ELECTROPHYSIOLO Carrier Priced. GY EVALUATION. 93640......... .............. EVALUATION Carrier Priced. HEART DEVICE. 93640......... TC............ EVALUATION Carrier Priced. HEART DEVICE.

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93641......... .............. ELECTROPHYSIOLO Carrier Priced. GY EVALUATION. 93641......... TC............ ELECTROPHYSIOLO Carrier Priced. GY EVALUATION. 96020......... .............. FUNCTIONAL Carrier Priced. BRAIN MAPPING. 96020......... TC............ FUNCTIONAL Carrier Priced. BRAIN MAPPING.

* All CPT codes copyright 2006 AMA.

G. Establishment of Interim PE RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System (HCPCS) Codes for 2007

We have developed a process for establishing interim PE RVUs for new and revised codes that is similar to that used for work RVUs. Under this process, the RUC recommends the PE direct inputs (the staff time, supplies and equipment) associated with each new code. We then review the recommendations in a manner similar to our evaluation of the recommended work RVUs. The RUC recommendations on the PE inputs for the new and revised 2007 codes were submitted to us as interim recommendations.

We have accepted, in the interim, the PE recommendations submitted by the RUC for the codes listed in the table titled ``AMA RUC and HCPAC RVU Recommendations and CMS Decisions for New and Revised 2007 CPT Codes'' except as noted below in this section.

For CPT code 15731, Forehead flap with preservation of vascular pedicle (e.g., axial pattern flap, parmedian forehead flap); and CPT code 15830, Excision, excessive skin and subcutaneous tissue (includes lipectomy); abdomen, infraumbilical panniculectomy, we assigned 5 minutes for each post-operative visit for the digital camera used in the post-operative visits, rather than the entire clinical labor time for each post-operative period.

For CPT code 22527, Percutaneous intradiscal electrothermal annuloplasty, unilateral or bilateral including fluoroscopic guidance; one or more additional levels (List separately in addition to code for primary procedure, we deleted the ambulatory blood pressure monitor because it duplicates the function of the 3-channel ECG machine.

For CPT code 55876, Placement of interstitial device(s) for radiation guidance (e.g., fiducial markers, dosimeter), prostate (via needle, any approach), single or multiple, we deleted one package of gold markers (contains 3 markers each) because we believe that the typical number of gold markers used in this procedure is 2 or 3 and we entered an interim price of $119 per 3-pack. We are asking the specialty to provide us with: (a) Verification of the typical number of gold markers used in this procedure; and (b) documentation as to the typical price of these markers.

For CPT code 76776, Ultrasound, transplanted kidney, real time and duplex Doppler with image documentation, we deleted the color laser printer because it is contained in the ultrasound room that is also used for the procedure.

For CPT code 77371, Radiation treatment delivery, stereotactic radiosurgery (SRS) (complete course of treatment of cerebral lesion[s] consisting of 1 session); multi-source Cobalt 60 based, we designated, as an interim measure, the $15,000 radiation source with a specific 1- month life (that was included in the list of direct-expense equipment items for this service), as an indirect expense because we believe it does not meet the criteria for inclusion as a direct expense. To the extent that the specialty disagrees with our decision to assign the radiation source cost as an indirect expense, the interim nature of this designation gives the specialty the opportunity to provide us with documentation to support their belief that the radiation source should be considered a direct expense.

For CPT code 94644, Continuous inhalation with aerosol medication for acute airway obstruction; first hour, we did not include the peak flow meter as a supply item for this service because this item is reusable and was previously removed from the PE database at the time the supplies were re-priced.

For CPT code 96040, Medical genetics and genetics counseling services, each 30 minutes face-to-face with patient/family, the payment rate, at $0.567, for ``genetic counselor'' was created from a non-BLS source that listed a 2003 national annual average salary of $53,377. This salary was inflated to include fringe benefits ($53,377 multiplied by 1.366), then deflated by the MEI to the year 2002 (the same year as the other labor costs in the PE database), then divided by 2080 (the number of hours in a work year), and finally divided by 60 (the number minutes in an hour). We were not able to include a price for the pedigree software equipment as it was not provided with the PE inputs.

For CPT code 96904, Whole body integumentary photography, for monitoring of high risk patients with dysplastic nevus syndrome or a history of dysplastic nevi, or patients with a personal or familial history of melanoma, the payment rate, at $0.383, for ``medical photographers'', was created from a non-BLS source that gave a 2003 national annual average salary of $36,000. This salary was inflated by a factor of 1.366 to include fringe benefits, then deflated by the MEI to 2002 (the labor base year), then divided by 2080 (the number of annual work hours), and lastly, divided by number 60 (the number of minutes in an hour). We are asking the specialty to submit acceptable documentation for all of the cameras and related equipment that are listed for this service. The prices submitted by the specialty have been entered on an interim basis for CY 2007.

For CPT code 58240, Pelvic exenteration for gynecologic malignancy, with total abdominal hysterectomy or cervicectomy, with or without removal of tube(s), with or without removal of ovary(s), with removal of bladder and ureteral transplantations, and/or abdominoperineal resection of rectum and colon and colostomy, or any combination thereof, the supplies for this service were correctly entered as a quantity of 6--the number of post-operative visits (POVs)--rather than 4, as listed on the PE spreadsheet in the RUC recommendations. The correct labor and equipment times were entered as reflected by the level and number of POVs.

For CPT code 92025, Computerized corneal topography, unilateral or bilateral with interpretation and report, the specific topography equipment (at $44,000) requested for this procedure was not included because we do not believe it is the typical unit used in physician offices. Instead, we used the existing topography unit (at $13,495) and added a printer and computer with

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monitor to the PE database for this service.

VI. Physician Self-Referral Prohibition: Annual Update to the List of CPT/HCPCS Codes

A. General

Section 1877 of the Act prohibits a physician from referring a Medicare beneficiary for certain designated health services (DHS) to a health care entity with which the physician (or a member of the physician's immediate family) has a financial relationship, unless an exception applies. Section 1877 of the Act also prohibits the DHS entity from submitting claims to Medicare or billing the beneficiary or any other entity for Medicare DHS that are furnished as a result of a prohibited referral.

As specified in our regulations at Sec. 411.351, the following services are DHS:

Clinical laboratory services.

Physical therapy, occupational therapy, and speech- language pathology services.

Radiology and certain other imaging services.

Radiation therapy services and supplies.

Durable medical equipment and supplies.

Parenteral and enteral nutrients, equipment, and supplies.

Prosthetics, orthotics, and prosthetic devices and supplies.

Home health services.

Outpatient prescription drugs.

Inpatient and outpatient hospital services.

B. Nuclear Medicine

In the CY 2006 PFS proposed rule (70 FR 45764), we sought public comments on a proposal to amend the definitions of ``radiation and certain other imaging services'' and ``radiation therapy services and supplies'' at Sec. 411.351 to include nuclear medicine services and supplies. In the CY 2006 PFS final rule with comment (70 FR 70116), we finalized the proposal and provided a delayed effective date of January 1, 2007 for the new provisions. We included a list of the nuclear medicine CPT and HCPCS codes in Table 31 and Addendum H of the CY 2006 PFS final rule with comment (70 FR 70290 through 70295 and 70472 through 70476).

In response to the CY 2006 PFS final rule with comment period, we received public comments from three organizations regarding the nuclear medicine issue. Because we had previously provided an opportunity for comment on the proposal in accordance with the provisions of the Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.), we are not required to respond further. Nevertheless, we are responding to the only comment that provided significant new information. Specifically, we are responding to the following comment from the AMA.

Comment: The AMA stated that it does not recognize diagnostic and therapeutic nuclear medicine services as a subspecialty of radiology, contrary to our statement in the CY 2006 PFS final rule (70 FR 70285). In that rule and in the proposed rule, we had explained that radiology and other imaging services should include diagnostic nuclear medicine procedures, because, among a number of other reasons, the AMA recognizes nuclear medicine as a subspecialty of radiology. We also noted in the CY 2006 PFS final rule (70 FR 70285) that the AMA had not objected to this statement in the proposed rule. In its comment, the AMA has now stated that its CPT coding categories are not intended to be a determination of subspecialties. The AMA added that nuclear medicine should be recognized as its own specialty, separate from radiology, because it has its own board certification and residency program.

Response: We accept the explanation by the AMA that it does not recognize diagnostic nuclear medicine services as a subspecialty of radiology. However, we continue to believe that we should include all forms of radiological imaging in the DHS category ``radiology and other imaging services.'' As we noted in both the CY 2006 PFS proposed (70 FR 45855) and final rules (70 FR 70285), although there may be differences of opinion as to whether diagnostic nuclear medicine is a subset of radiology, it is an imaging service covered by 1861(s)(3) of the Act, and of the type for which the Congress intended to prohibit referrals.

C. Annual Update to the Code List

1. Background

In Sec. 411.351, we specify that the entire scope of four DHS categories is defined in a list of CPT/HCPCS codes (the Code List), which is updated annually to account for changes in the most recent CPT and HCPCS publications. The DHS categories defined and updated in this manner are:

Clinical laboratory services.

Physical therapy, occupational therapy, and speech- language pathology services.

Radiology and certain other imaging services.

Radiation therapy services and supplies.

The Code List also identifies those items and services that may qualify for either of the following two exceptions to the physician self-referral prohibition:

EPO and other dialysis-related drugs furnished in or by an ESRD facility (Sec. 411.355(g)).

Preventive screening tests, immunizations or vaccines (Sec. 411.355(h)).

The Code List was last updated in the CY 2006 PFS final rule with comment period (70 FR 70116). 2. Response to Comments

We did not receive any comments relating to the Code List that became effective January 1, 2006. 3. Revisions Effective for 2007

The updated, comprehensive Code List effective January 1, 2007 appears as Addendum J in this final rule with comment and is available on our Web site at http://www.cms.hhs.gov/PhysicianSelfReferral.

Addendum J reflects the addition of CPT code 86960 to the list of CPT codes in the 80000 series that are excluded from the definition of ``clinical laboratory services.'' This code was a new CPT code last year and should have been added to the list of excluded 80000 series codes at that time. In addition, Addendum J reflects the changes indicated in Tables 18 and 19.

Tables 18 and 19 identify the additions and deletions, respectively, to the comprehensive Code List that was published in Addendum H of the CY 2006 PFS final rule (70 FR 70472 through 70476). Tables 18 and 19 also identify the additions and deletions to the lists of codes used to identify the items and services that may qualify for the exceptions in Sec. 411.355(g) (regarding EPO and other dialysis- related outpatient prescription drugs furnished in or by an ESRD facility) and in Sec. 411.355(h) (regarding preventive screening tests, immunizations and vaccines).

The additions specified in Table 18 generally reflect new CPT and HCPCS codes that become effective January 1, 2007, or that became effective since our last update. Although we included nuclear medicine codes in Addendum H of the CY 2006 PFS final rule, we are including them as additions in Table 18 since they will become effective January 1, 2007. In addition, Table 18 also reflects our decision to move several nuclear medicine procedures that had been added last year to the DHS category of ``radiology and certain other imaging services'' (but not effective until January 1, 2007) to the category of ``clinical laboratory services.'' We

[[Page 69749]]

determined that the following CPT codes do not involve imaging services and are categorized more appropriately as clinical laboratory services: 78110, 78111, 78120, 78121, 78122, 78130, 78191, 78270, 78271, 78272 and 78725. We are also adding CPT code 86960 to the excluded portion of the ``clinical laboratory services'' category.

Additionally, we are adding several HCPCS codes for radiopharmaceuticals and high osmolar contrast materials to the category of ``radiology of and certain other imaging services. We inadvertently omitted these codes in Addendum H of the CY 2006 PFS final rule with comment.

Table 19 reflects the deletions necessary to conform the Code List to the most recent publications of CPT and HCPCS. It also reflects our decision to delete certain nuclear medicine services (CPT codes 78110, 78111, 78120, 78121, 78122, 78130, 78191, 78270, 78271, 78272 and 78725) from the category of ``radiology and certain other imaging services'' and to move them to the more appropriate category of ``clinical laboratory services.''

We will consider comments regarding the codes listed in Tables 18 and 19 and the addition on Addendum J of CPT code 86960 to the list of CPT codes in the 80000 series that are excluded from the definition of ``clinical laboratory services.'' Comments will be considered if we receive them by the date specified in the DATES section of this final rule with comment. We will not consider any comment that advocates a substantive change to any of the DHS defined in Sec. 411.351.

Table 18.--Additions to the Physician Self-Referral List of CPT \1\/ HCPCS Codes

CLINICAL LABORATORY SERVICES

78110................................. Plasma volume, single. 78111................................. Plasma volume, multiple. 78120................................. Red cell mass, single. 78121................................. Red cell mass, multiple. 78122................................. Blood volume. 78130................................. Red cell survival study. 78191................................. Pylatelet survival. 78270................................. Vit B-12 absorption exam. 78271................................. Vit B-12 absrp exam, int fac. 78272................................. Vit B-12 absorp, combined. 78725................................. Kidney function study. G0394................................. Blood occult test colorectal.

PHYSICAL THERAPY, OCCUPATIONAL THERAPY, AND SPEECH-LANGUAGE PATHOLOGY SERVICES

[No additions] .

RADIOLOGY AND CERTAIN OTHER IMAGING SERVICES

0144T................................. Ct heart wo dye; qual calc. 0145T................................. Ct heart w/wo dye funct. 0146T................................. Ccta w/wo dye. 0147T................................. Ccta w/wo, quan calcium. 0148T................................. Ccta w/wo, strxr. 0149T................................. Ccta w/wo, strxr quan calc. 0150T................................. Ccta w/wo, disease strxr. 0151T................................. Ct heart funct add-on. 0159T................................. Cad breast mri. 0174T................................. Cad crx with interp. 0175T................................. Cad crx remote. 70554................................. Fmri brain by tech. 70555................................. Fmri brain by phys/psych. 76776................................. Us exam k transpl w/Doppler. 77014................................. Ct scan for therapy guide. 77051................................. Computer dx mammogram add-on. 77052................................. Comp screen mammogram add-on. 77055................................. Mammogram, one breast. 77056................................. Mammogram, both breasts. 77057................................. Mammogram, screening. 77058................................. Mri, one breast. 77059................................. Mri, both breasts. 77071................................. X-ray stress view. 77072................................. X-rays for bone age. 77073................................. X-rays, bone length studies. 77074................................. X-rays, bone survey, limited. 77075................................. X-rays, bone survey complete. 77076................................. X-rays, bone survey, infant. 77077................................. Joint survey, single view. 77078................................. Ct bone density, axial. 77079................................. Ct bone density, peripheral. 77080................................. Dxa bone density, axial. 77081................................. Dxa bone density/peripheral. 77082................................. Dxa bone density, vert fx. 77083................................. Radiographic absorptiometry. 77084................................. Magnetic image, bone marrow. 78000................................. Thyroid, single uptake. 78001................................. Thyroid, multiple uptakes. 78003................................. Thyroid suppress/stimul. 78006................................. Thyroid imaging with uptake. 78007................................. Thyroid image, mult uptakes. 78010................................. Thyroid imaging. 78011................................. Thyroid imaging with flow. 78015................................. Thyroid met imaging. 78016................................. Thyroid met imaging/studies. 78018................................. Thyroid met imaging, body. 78020................................. Thyroid met uptake. 78070................................. Parathyroid nuclear imaging. 78075................................. Adrenal nuclear imaging. 78099................................. Endocrine nuclear procedure. 78102................................. Bone marrow imaging, ltd. 78103................................. Bone marrow imaging, mult. 78104................................. Bone marrow imaging, body. 78135................................. Red cell survival kinetics. 78140................................. Red cell sequestration. 78185................................. Spleen imaging. 78190................................. Platelet survival, kinetics. 78195................................. Lymph system imaging. 78199................................. Blood/lymph nuclear exam. 78201................................. Liver imaging. 78202................................. Liver imaging with flow. 78205................................. Liver imaging (3D). 78206................................. Liver image (3D) with flow. 78215................................. Liver and spleen imaging. 78216................................. Liver & spleen image/flow. 78220................................. Liver function study. 78223................................. Hepatobiliary imaging. 78230................................. Salivary gland imaging. 78231................................. Serial salivary imaging. 78232................................. Salivary gland function exam. 78258................................. Esophageal motility study. 78261................................. Gastric mucosa imaging. 78262................................. Gastroesophageal reflux exam. 78264................................. Gastric emptying study. 78278................................. Acute GI blood loss imaging. 78282................................. GI protein loss exam. 78290................................. Meckel's divert exam. 78291................................. Leveen/shunt patency exam. 78299................................. GI nuclear procedure. 78300................................. Bone imaging, limited area. 78305................................. Bone imaging, multiple areas. 78306................................. Bone imaging, whole body. 78315................................. Bone imaging, 3 phase. 78320................................. Bone imaging (3D). 78399................................. Musculosketal nuclear exam. 78414................................. Non-imaging heart function. 78428................................. Cardiac shunt imaging. 78445................................. Vascular flow imaging. 78456................................. Acute venous thrombus image. 78457................................. Venous thrombosis imaging. 78458................................. Ven thrombosis images, bilat. 78459................................. Heart muscle imaging (PET). 78460................................. Heart muscle blood, single. 78461................................. Heart muscle blood, multiple. 78464................................. Heart image (3d), single. 78465................................. Heart image (3d), multiple. 78466................................. Heart infarct image. 78468................................. Heart infarct image (ef). 78469................................. Heart infarct image (3D). 78472................................. Gated heart, planar, single. 78473................................. Gated heart, multiple. 78478................................. Heart wall motion add-on. 78480................................. Heart function add-on. 78481................................. Heart first pass, single. 78483................................. Heart first pass, multiple. 78491................................. Heart image (pet), single. 78492................................. Heart image (pet), multiple. 78494................................. Heart image, spect. 78496................................. Heart first pass add-on. 78499................................. Cardiovascular nuclear exam. 78580................................. Lung perfusion imaging. 78584................................. Lung V/Q image single breath. 78585................................. Lung V/Q imaging. 78586................................. Aerosol lung image, single. 78587................................. Aerosol lung image, multiple. 78588................................. Perfusion lung image. 78591................................. Vent image, 1 breath, 1 proj. 78593................................. Vent image, 1 proj, gas. 78594................................. Vent image, mult proj, gas. 78596................................. Lung differential function. 78599................................. Respiratory nuclear exam. 78600................................. Brain imaging, ltd static. 78601................................. Brain imaging, ltd w/flow. 78605................................. Brain imaging, complete. 78606................................. Brain imaging, compl w/flow. 78607................................. Brain imaging (3D). 78608................................. Brain imaging (PET). 78609................................. Brain imaging (PET). 78610................................. Brain flow imaging only. 78615................................. Cerebral vascular flow image. 78630................................. Cerebrospinal fluid scan. 78635................................. CSF ventriculography. 78645................................. CSF shunt evaluation. 78647................................. Cerebrospinal fluid scan. 78650................................. CSF leakage imaging. 78660................................. Nuclear exam of tear flow. 78699................................. Nervous system nuclear exam. 78700................................. Kidney imaging, morphol. 78701................................. Kidney imaging with flow. 78707................................. K flow/funct image w/o drug. 78708................................. K flow/funct image w/drug. 78709................................. K flow/funct image, multiple. 78710................................. Kidney imaging (3D). 78730................................. Urinary bladder retention. 78740................................. Ureteral reflux study. 78761................................. Testicular imaging w/flow. 78799................................. Genitourinary nuclear exam. 78800................................. Tumor imaging, limited area. 78801................................. Tumor imaging, mult area. 78802................................. Tumor imaging, whole body. 78803................................. Tumor imaging (3D). 78804................................. Tumor imaging, whole body. 78805................................. Abscess imaging, ltd area. 78806................................. Abscess imaging, whole body. 78807................................. Nuclear localization/abscess. 78811................................. Tumor imaging (pet), limited. 78812................................. Tumor image (pet)/skull-thigh. 78813................................. Tumor image (pet) full body. 78814................................. Tumor image pet/ct, limited. 78815................................. Tumorimage pet/ct skull-thigh. 78816................................. Tumor image pet/ct full body. 78890................................. Nuclear medicine data proc. 78891................................. Nuclear med data proc. 78999................................. Nuclear diagnostic exam. 91111................................. Esophageal capsule endoscopy.

[[Page 69750]]

A4641................................. Radiopharm dx agent. A4642................................. In111 satumomab. A9500................................. Tc99m sestamibi. A9502................................. Tc99m tetrofosmin. A9503................................. Tc99m medronate. A9504................................. Tc99m apcitide. A9505................................. TL201 thallium. A9507................................. In111 capromab. A9508................................. I131 iodobenguate, dx. A9510................................. Tc99m disofenin. A9512................................. Tc99m pertechnetate. A9516................................. I123 iodide cap, dx. A9521................................. Tc99m exametazime. A9524................................. I131 serum albumin, dx. A9526................................. Nitrogen N-13 ammonia. A9528................................. Iodine I131 iodide cap, dx. A9529................................. I131 iodide sol, dx. A9531................................. I131 max 100uCi. A9532................................. I125 serum albumin, dx. A9536................................. Tc99m depreotide. A9537................................. Tc99m mebrofenin. A9538................................. Tc99m pyrophosphate. A9539................................. Tc99m pentetate. A9540................................. Tc99m MAA. A9541................................. Tc99m sulfur colloid. A9542................................. In111 ibritumomab, dx. A9544................................. I131 tositumomab, dx. A9546................................. CO57/58. A9547................................. In111 oxyquinoline. A9548................................. In111 pentetate. A9550................................. Tc99m gluceptate. A9551................................. Tc99m succimer. A9552................................. F18 fdg. A9553................................. Cr51 chromate. A9554................................. I125 iothalamate, dx. A9555................................. Rb82 rubidium. A9556................................. Ga67 gallium. A9557................................. Tc99m bicisate. A9558................................. Xe133 xenon 10mci. A9559................................. Co57 cyano. A9560................................. Tc99m labeled rbc. A9561................................. Tc99m oxidronate. A9562................................. Tc99m mertiatide. A9565................................. In111 pentetreotide. A9566................................. Tc99m fanolesomab. A9567................................. Technetium TC-99m. A9568................................. Tc99m arcitumomab. A9700................................. Echocardiography contrast. G0389................................. Ultrasound exam AAA screen. Q9945................................. LOCM=400 mg/ml iodine, 1ml. Q9952................................. Inj Gad-base MR contrast, ml. Q9953................................. Inj Fe-base MR contrast, ml. Q9954................................. Oral MR contrast, 100 ml. Q9955................................. Inj perflexane lip micros, ml. Q9956................................. Inj octafluoropropane mic, ml. Q9957................................. Inj perflutren lip micros, ml. Q9958................................. HOCM = 400mg/ml iodine, 1ml.

RADIATION THERAPY SERVICES AND SUPPLIES

55875................................. Transperi needle place, pros. 55876................................. Place rt device/marker, pros. 77371................................. Srs, multisource. 77372................................. Srs, linear based. 77373................................. Sbrt delivery. 77435................................. Sbrt management. 79005................................. Nuclear rx, oral admin. 79101................................. Nuclear rx, iv admin. 79200................................. Nuclear rx, intracav admin. 79300................................. Nuclr rx, interstit colloid. 79403................................. Hematopoietic nuclear tx. 79440................................. Nuclear rx, intra-articular. 79445................................. Nuclear rx, intra-arterial. 79999................................. Nuclear medicine therapy. 92974................................. Cath place, cardio brachytx. A9517................................. I131 iodide cap, rx. A9527................................. Iodine I-125 sodium iodide. A9530................................. I131 iodide sol, rx. A9543................................. Y90 ibritumomab, rx. A9545................................. I131 tositumomab, rx. A9563................................. P32 Na phosphate. A9564................................. P32 chromic phosphate. A9600................................. Sr89 strontium. A9605................................. Sm 153 lexidronm. A9699................................. Radiopharm rx agent noc. Q3001................................. Brachytherapy Radioelements.

DRUGS USED BY PATIENTS UNDERGOING DIALYSIS

Q4081................................. Epoetin alfa, 100 units ESRD.

PREVENTIVE SCREENING TESTS, IMMUNIZATIONS AND VACCINES

77052................................. Comp screen mammogram add-on. 77057................................. Mammogram, screening. 82270................................. Occult blood, feces. 90660................................. Flu vaccine, nasal. G0389................................. Ultrasound exam AAA screen.

\1\ CPT codes and descriptions only are copyright 2006 AMA. All rights are reserved and applicable FARS/DFARS clauses apply.

Table 19.--Deletions to the Physician Self-Referral List of CPT \1\/ HCPCS Codes

CLINICAL LABORATORY SERVICES

G0107................................. CA screen; fecal blood test.

PHYSICAL THERAPY, OCCUPATIONAL THERAPY, AND SPEECH-LANGUAGE PATHOLOGY SERVICES

[No deletions] .

RADIOLOGY AND CERTAIN OTHER IMAGING SERVICES

76006................................. X-ray stress view. 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. 76082................................. Computer mammogram add-on. 76083................................. Computer mammogram add-on. 76090................................. Mammogram, one breast. 76091................................. Mammogram, both breasts. 76092................................. Mammogram, screening. 76093................................. Magnetic image, breast. 76094................................. Magnetic image, both breasts. 76370................................. Ct scan for therapy guide. 76400................................. Magnetic image, bone marrow. 76778................................. Us exam kidney transplant. 78110................................. Plasma volume, single. 78111................................. Plasma volume, multiple. 78120................................. Red cell mass, single. 78121................................. Red cell mass, multiple. 78122................................. Blood volume. 78130................................. Red cell survival study. 78191................................. Platelet survival. 78270................................. Vit B-12 absorption exam. 78271................................. Vit B-12 absrp exam, int fac. 78272................................. Vit B-12 absorp, combined. 78704................................. Imaging renogram. 78715................................. Renal vascular flow exam. 78725................................. Kidney function study. 78760................................. Testicular imaging. A9511................................. Technetium TC 99m depreotide. A9513................................. Technetium tc-99m mebrofenin. A9514................................. Technetium tc-99m pyrophosphate. A9515................................. Technetium tc-99m pentetate. A9519................................. Technetiumtc-99m macroag albu. A9520................................. Technetiumtc-99m sulfur clld. A9522................................. Indium111ibritumomabtiuxetan. A9533................................. I131 tositumomab diagnostic. Q3000................................. Rubidium RB-82. Q3002................................. Gallium ga 67. Q3003................................. Technetium tc99m bicisate. Q3004................................. Xenon xe 133. Q3005................................. Technetium tc99m mertiatide. Q3006................................. Technetium tc99m glucepatate. Q3007................................. Sodium phosphate p32. Q3008................................. Indium 111-in pentetreotide. Q3009................................. Technetium tc99m oxidronate. Q3010................................. Technetium tc99mlabeledrbcs. Q3011................................. Chromic phosphate p32. Q3012................................. Cyanocobalamin cobalt co57.

RADIATION THERAPY SERVICES AND SUPPLIES

0082T................................. Stereotactic rad delivery. 0083T................................. Stereotactic rad tx mngmt. 55859................................. Percut/needle insert, pros. A9523................................. Yttrium90ibritumomabtiuxetan. A9532................................. I125 serum albumin, dx. A9534................................. I131 tositumomab therapeut. Q3007................................. Sodium phosphate p32. Q3011................................. Chromic phosphate p32.

DRUGS USED BY PATIENTS UNDERGOING DIALYSIS

J0886................................. Epoetin alfa, esrd.

PREVENTIVE SCREENING TESTS, IMMUNIZATIONS AND VACCINES

76083................................. Computer mammogram add-on. 76092................................. Mammogram, screening. G0107................................. CA screen; fecal blood test.

\1\ CPT codes and descriptions only are copyright 2006 AMA. All rights are reserved and applicable FARS/DFARS clauses apply.

VII. Physician Fee Schedule Update for CY 2007

A. Physician Fee Schedule Update

The PFS update is determined using a formula specified by statute. Under section 1848(d)(4) of the Act, the update is equal to the product of 1 plus the percentage increase in the MEI (divided by 100) and 1 plus the UAF. For CY 2007, the MEI is equal to 2.1 percent

[[Page 69751]]

(1.021). The UAF is -7.0 percent (0.930). The product of the MEI (1.021) and the UAF (0.930) equals the CY 2007 update of -5.0 percent (0.94953).

Our calculations of these figures are explained in this section.

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

The MEI measures the weighted-average annual price change for various inputs needed to produce physicians' services. The MEI is a fixed-weight input price index, with an adjustment for the change in economy-wide multifactor productivity. This index, which has CY 2000 base year weights, is comprised of two broad categories: (1) Physician's own time; and (2) physician's PE.

The physician's own time component represents the net income portion of business receipts and primarily reflects the input of the physician's own time into the production of physicians' services in physicians' offices. This category consists of two subcomponents: (1) Wages and salaries; and (2) fringe benefits.

The physician's PE category represents nonphysician inputs used in the production of services in physicians' offices. This category consists of wages and salaries and fringe benefits for nonphysician staff and other nonlabor inputs. The physician's PE component also includes the following categories of nonlabor inputs: Office expense; medical materials and supplies; professional liability insurance; medical equipment; prescription drugs; and other expenses. The components are adjusted to reflect productivity growth in physicians' offices by the 10-year moving average of productivity in the private nonfarm business sector. Table 20 presents a listing of the MEI cost categories with associated weights and percent changes for price proxies for the 2007 update. For CY 2007, the increase in the MEI is 2.1 percent, which includes a 1.3 percent productivity offset based on the 10-year moving average of multifactor productivity. This is the result of a 3.3 percent increase in physician's own time and a 3.6 percent increase in physician's PE. Within the physician's PE, the largest increase occurred in professional liability insurance, which increased 6.9 percent, and prescription drugs, which increased 7.7 percent.

TABLE 20.--Increase in the Medicare Economic Index Update for CY 2007 \1\

CY 2007 Cost categories and price measures

CY 2000 percent weights \2\ changes

Medicare Economic Index Total, productivity

N/A

2.1 adjusted \3\................................. Productivity: 10-year moving average

N/A

1.3 of multifactor productivity, private nonfarm business sector \3, 4\....... Medicare Economic Index Total, without

100.000

3.5 productivity adjustment \4\..................

1. Physician's Own Time \5\............... 52.466

3.3

a. Wages and Salaries: Average Hourly

42.730

3.3 Earnings, private nonfarm................ Fringe Benefits: Employment Cost

9.735

3.5 Index, benefits, private nonfarm.....

2. Physician's Practice Expense \5\....... 47.534

3.6

a. Nonphysician Employee Compensation..... 18.653

2.9 (1) Wages and Salaries: Employment

13.808

2.6 Cost Index, wages and salaries, weighted by occupation............... (2) Fringe Benefits: Employment Cost

4.845

4.0 Index, fringe benefits, white collar.

b. Office Expense: Consumer Price Index

12.209

3.7 for Urban Areas (CPI-U), housing.........

c. Drugs and Medical Materials and

4.319

4.8 Supplies................................. (1) Medical Materials and Supplies:

2.011

1.1 Producer Price Index (PPI), surgical appliances and supplies/CPI-U, medical equipment and supplies (equally weighted)................... (2) Pharmaceuticals: Producer Price

2.308

7.7 Index (PPI ethical prescription drugs)...............................

d. Professional Liability Insurance:

3.865

6.9 Professional liability insurance Premiums \6\......................................

e. Medical Equipment: PPI, medical

2.055

-0.1 instruments and equipment................

f. Other Expenses.........................

6.433

2.2

1. The rates of historical change are estimated for the 12-month period ending June 30, 2006, which is the period used for computing the CY 2007 update. The price proxy values are based upon the latest available Bureau of Labor Statistics data as of August 31, 2006. 2. The weights shown for the MEI components are the 2000 base-year weights, which may not sum to subtotals or totals because of rounding. The MEI is a fixed-weight, Laspeyres-type input price index whose category weights indicate the distribution of expenditures among the inputs to physicians' services for CY 2000. To determine the MEI level for a given year, the price proxy level for each component is multiplied by its 2000 weight. The sum of these products (weights multiplied by the price index levels) over all cost categories yields the composite MEI level for a given year. The annual percent change in the MEI levels is an estimate of price change over time for a fixed market basket of inputs to physicians' services. 3. These numbers may not sum due to rounding and the multiplicative nature of their relationship. 4. On March 23, 2006, Bureau of Labor Statistics introduced a new Multi Factor Productivity (MFP) series based on the 1997 NAICS classification system to replace its SIC based series published until 2005 (the last historical value was for 2002). The new series differs historically from the old MFP series and adds two new historical values through 2004. Therefore, we used the most recently available information (thru CY 2004) to develop the productivity adjustment for the CY 2007 update. 5. The measures of productivity, average hourly earnings, Employment Cost Indexes, as well as the various Producer and CPIs can be found on the BLS Web site at http://stats.bls.gov.

6. Derived from data collected from several major insurers (the latest available historical percent change data are for the period ending second quarter of 2006).

Comment: Several commenters believe we are in violation of the Administrative Procedures Act (APA) for not proposing and soliciting comments on the incorporation of new Bureau of Labor Statistics Multifactor Productivity data in the MEI.

Response: We disagree with the commenters' claim that we are in violation of the APA. The APA requires us to propose and solicit comments on substantive changes to our payment methodology. The PFS update published in this year's proposed rule is based on the same MEI methodology proposed and adopted in the CY 2003 and CY 2004 PFS proposed and final rules. The CY 2003 final rule adopted the use of BLS' private nonfarm business multifactor productivity (MFP) as the official data used to adjust the MEI for productivity. Specifically, consistent with the proposal made in the CY 2003 proposed rule (67 FR 43860), the CY 2003 final rule (67 FR

[[Page 69752]]

80023) states ``Thus, the productivity adjustment will be based on the latest available actual historical economy-wide multifactor productivity data, as measured by the BLS.'' For the CY 2007 proposed rule, we followed this methodology and incorporated the latest available BLS private nonfarm business multifactor productivity.

Comment: Several commenters believe the multifactor productivity estimate of 1.3 percent is high in light of the new Medicare initiatives such as the new Welcome to Medicare benefits, the new comprehensive Part D benefit, and compliance related to the Physician Voluntary Reporting Program (PVRP), which impose numerous time and paperwork burdens on physicians.

Response: Our proposed and adopted methodology for calculating the MEI utilizes BLS's private nonfarm business MFP as the proxy for productivity changes. We recognize that productivity in physicians' offices for a given year may not equate to that of the economy-wide measure. For that reason, as well as to remove the effect of normal business cycles, we employ a 10-year moving average as the official measure. Also, CMS, in conjunction with the Assistant Secretary for Planning and Evaluation, is in the process of conducting a study on productivity in the physicians' offices. This work is being done to determine if the presently-used economy-wide measure for multi-factor productivity provides a reasonable target for physicians. We will analyze the results from this study and carefully evaluate its findings and their applicability to future MEI updates.

Comment: Several commenters believe it is not warranted that we assume and calculate increased productivity levels for physicians while the payment update process for other providers does not include assumed or automatic productivity adjustments.

Response: Since its inception in the mid-1970's, the MEI has included a productivity adjustment. The payment system for physicians' services requires that factors affecting the payment update be reflected in the update formula itself. The statutory provision relating to the MEI contemplates that the Secretary would not increase payments except to the extent that the extent that the Secretary finds, on the basis of appropriate economic index data, that such higher level is justified by year-to-year economic changes. We have long maintained that an MEI framework that focuses solely on the inputs portion of the equation effectively ignores the efficiencies that are employed to produce the outputs associated with the provision of care. It is necessary to account for these efficiencies to accurately reflect the net inflationary pressures encountered by physicians.

The intent of the MEI is to represent industry-wide output prices for physicians' services. We note that this index structure is similar to the CPI, which is an economy-wide output price index. The CPI implicitly incorporates a productivity adjustment. Except when the statute directs otherwise, the Medicare update for a number of types of services (for example, clinical diagnostic laboratory services, durable medical equipment, prosthetics and supplies) is based the CPI with its implicit productivity adjustment.

With respect to updates for other types of Medicare providers, such as institutional providers, we note that the underlying payment methodology is completely different from the payment system for physicians' services. Under the Medicare PFS, payments are made for unbundled services such as lab tests, follow-up visits, and x-rays. For institutions compensated by a PPS, a single payment is made for a bundle of services linked to treating a particular category of case (for instance, the services within one diagnosis-related group under the IPPS). Adjustments to payments associated with productivity and other payment framework-related considerations, when paying for bundled services, are addressed in other portions of the update process, such as via MedPAC recommendations and/or in the update itself when approved by the Congress.

Comment: Several commenters requested that we examine and address the broader problem that the MEI only measures changes in specific types of practice costs that existed in 1973. They further stated that inputs to the MEI are vastly different now than when the MEI was first developed in the early 1970s and that an array of government-imposed regulatory requirements now exist that did not in 1973. They claim that physician practice costs for these types of inputs are not currently taken into account for purposes of measuring the MEI, and therefore, the MEI undervalues actual medical cost increases. One commenter added that employee wages used in the MEI formula do not accurately reflect the skill mix of the industry and the MEI needs to be updated to account for the highly skilled staff necessary to deliver today's level of medical care service.

Response: We disagree with the commenter's claim that the MEI only measures changes in specific types of practice costs that existed in 1973. The current MEI is based on costs reported by physicians for 2000, which would reflect changes in the distributions of the cost weights associated with the government-imposed regulatory requirements that applied in 2000. The 2000-based cost weights are derived from the 2003 AMA Physician Socioeconomic Characteristics publication (2003 Patient Care Physician Survey data), which measures physicians' earnings and overall PEs for 2000. This is the latest available AMA data on physician expenses. We are currently researching alternative data sources for rebasing the MEI.

Regarding skill mix, the current MEI uses the occupation mix for nonphysician wages from the 2000 Current Population Survey published by BLS. This reflected the latest occupation mix at the time of our most recent rebasing. We recognize that skill mix can change, thus, we will continue to use the most recently published data available to us for all future rebasings to ensure the MEI reflects the occupational blend at that time.

Comment: Many commenters objected to the 0.5 percentage point reduction of the 2007 PFS update relative to the forecasted update in the President's Budget and urged us to delay or withdraw any changes in the MEI until the proposed changes and the solicitation of public comments appear in a published Federal Register.

Response: As stated previously, we did not make any methodological changes to the calculation of the MEI, and therefore, it is not necessary to delay use of the MFP-adjusted MEI in order to solicit and respond to public comments. As we indicated in the 2003 and 2004 physician fee schedule proposed and final rules, we are using the latest-available historical data in the calculation of the MEI applicable to a year. As such, we are not required to propose or solicit public comments on changes in the MEI that result from use of latest available data. The inclusion of more recent, historical MFP data in the MEI reflects our adopted methodology as finalized in the CY 2003 PFS final rule which states the MEI ``productivity adjustment will be based on the latest available actual historical economy-wide multifactor productivity data, as measured by the BLS.''

Comment: One commenter believes that there are alternative measures of multifactor productivity available from BLS and the Census Bureau. The commenter states that we should identify and consider these alternatives and seek public comment before changing the data used to calculate the MEI.

[[Page 69753]]

Response: In the CY 2003 PFS final rule, we presented the research we had completed on evaluating the most appropriate productivity adjustment for the MEI. This research included an evaluation of all currently available productivity estimates produced by BLS to develop a better understanding of the strengths and weaknesses of these measures. It also included a review of the theoretical foundation of the MEI to develop a better understanding of how labor and multifactor productivity relate to the current physician payment system. Additionally, we studied the sparse and fragmented publicly-available data to begin to develop preliminary estimates of trends in physician specific productivity to better understand the current market conditions facing physicians. For a list of the experts that participated in this analysis, as well as a full description of the options that were identified and evaluated (67 FR 80019).

As stated earlier, CMS and ASPE are jointly sponsoring a study of physicians' office productivity. We will be evaluating the results of that study to determine if the use of BLS's private nonfarm business MFP is a reasonable target for physicians to achieve.

Comment: Several commenters claim that in previous years, there have been extensive discussions in the proposed rule of the upcoming year's update and the MEI. They further state that based on the impact table in the CY 2007 proposed rule, a -0.5 percent percentage point reduction in the update will result in a $375 million cut in physician payments in 2007. One commenter claimed that our actions this year, in contrast to previous years, suggest we are attempting to hide the revision in the MEI for CY 2007.

Response: We disagree with the commenters' claim that in previous years there has been extensive discussion of the upcoming year's MEI update in the proposed rule. With the exception of those updates that include a rebased and revised MEI, a detailed discussion, as well as the percent changes in the MEI cost categories, has been provided only in the final rule. When we rebase and revise the MEI, we do include extensive discussion on the MEI and solicit comments on proposed methodological changes. Given the historical precedent, we disagree with the commenter's suggestion that we were hiding any revision in the MEI.

C. The Update Adjustment Factor (UAF)

Section 1848(d) of the Act provides that the PFS update is equal to the product of the MEI and the UAF. The UAF is applied to make actual and target expenditures (referred to in the statute as ``allowed expenditures'') equal. Allowed expenditures are equal to actual expenditures in a base period updated each year by the SGR. The SGR sets the annual rate of growth in allowed expenditures and is determined by a formula specified in section 1848(f) of the Act. 1. Calculation Under Current Law

Under section 1848(d)(4)(B) of the Act, the UAF for a year beginning with 2001 is equal to the sum of the following--

Prior Year Adjustment Component. An amount determined by--

+ Computing the difference (which may be positive or negative) between the amount of the allowed expenditures for physicians' services for the prior year (the year prior to the year for which the update is being determined) and the amount of the actual expenditures for those services for that year;

+ Dividing that difference by the amount of the actual expenditures for those services for that year; and

+ Multiplying that quotient by 0.75.

Cumulative Adjustment Component. An amount determined by--

+ Computing the difference (which may be positive or negative) between the amount of the allowed expenditures for physicians' services from April 1, 1996, through the end of the prior year and the amount of the actual expenditures for those services during that period;

+ Dividing that difference by actual expenditures for those services for the prior year as increased by the SGR for the year for which the UAF is to be determined; and

+ Multiplying that quotient by 0.33.

Section 1848(d)(4)(E) of the Act requires the Secretary to recalculate allowed expenditures consistent with section 1848(f)(3) of the Act. Section 1848(f)(3) specifies that the SGR (and, in turn, allowed expenditures) for the upcoming CY (2007 in this case), the current CY (2006) and the preceding CY (2005) are to be determined on the basis of the best data available as of September 1 of the current year. Allowed expenditures are initially estimated and subsequently revised twice. The second revision occurs after the CY has ended (that is, we are making the final revision to 2005 allowed expenditures in this final rule with comment). Once the SGR and allowed expenditures for a year have been revised twice, they are final.

Table 21 shows annual and cumulative allowed expenditures for physicians' services from April 1, 1996 through the end of the current CY, including the transition period to a CY system that occurred in 1999. Also shown is the SGR corresponding with each period. The calculation of the SGR is discussed in detail below in this section.

Table 21.--Annual and Cumulative Allowed and Actual Expenditures for Physicians' Services from April 1, 1996 through the End of the Current Calendar Year

Annual

Cumulative Cumulative allowed Annual actual allowed

actual Period

expenditures expenditures expenditures expenditures FY/CY SGR ($ in

($ in

($ in

($ in billions) billions) billions) billions)

4/1/96-3/31/97................

$48.9

$48.9

$48.9

$48.9 N/A 4/1/97-3/31/98................

50.5

49.4

99.4

98.4 FY 1998=3.2% 4/1/98-3/31/99................

52.6

50.5

152.0

148.9 FY 1999=4.2% 1/1/99-3/31/99................

13.3

13.1

\(1)\

148.9 FY 1999=4.2% 4/1/99-12/31/99...............

42.1

39.5

\(2)\

188.4 FY 2000=6.9% 1/1/99-12/31/99...............

55.3

52.6

194.0

188.4 FY 1999/2000 \(3)\ 1/1/00-12/31/00...............

59.4

58.1

253.4

246.5 CY 2000=7.3% 1/1/01-12/31/01...............

62.0

66.3

315.4

312.8 CY 2001=4.5% 1/1/02-12/31/02...............

67.2

71.0

382.6

383.7 CY 2002=8.3% 1/1/03-12/31/03...............

72.1

78.2

454.6

461.9 CY 2003=7.3% 1/1/04-12/31/04...............

76.8

87.1

531.5

549.0 CY 2004=6.6% 1/1/05-12/31/05...............

80.0

92.0

611.5

641.0 CY 2005=4.2% 1/1/06-12/31/06...............

81.7

94.9

693.3

735.9 CY 2006=2.1%

[[Page 69754]]

1/1/07-12/31/07...............

83.2

NA

776.5

NA CY 2007=1.8%

\(1)\ Allowed expenditures for the first quarter of 1999 are based on the FY 1999 SGR. \(2)\ Allowed expenditures for the last three quarters of 1999 are based on the FY 2000 SGR. \(3)\ Allowed expenditures in the first year (April 1, 1996-March 31, 1997) are equal to actual expenditures. All subsequent figures are equal to quarterly allowed expenditure figures increased by the applicable SGR. Cumulative allowed expenditures are equal to the sum of annual allowed expenditures. We provide more detailed quarterly allowed and actual expenditure data on our web site at the following address: http://www.

[fxsp0] cms.hhs.[fxsp0]gov/SustainableGRatesConFact/. We expect to update the web site with the most

current information later this month.

Consistent with section 1848(d)(4)(E) of the Act, Table 21 includes our final revision of allowed expenditures for 2005, a recalculation of allowed expenditures for 2006, and our initial estimate of allowed expenditures for 2007. To determine the UAF for 2007, the statute requires that we use allowed and actual expenditures from April 1, 1996 through December 31, 2006 and the 2007 SGR. Consistent with section 1848(d)(4)(E) of the Act, we will be making revisions to the 2006 and 2007 SGRs and 2006 and 2007 allowed expenditures. Because we have incomplete actual expenditure data for 2006, we are using an estimate for this period. Any difference between current estimates and final figures will be taken into account in determining the UAF for future years.

We are using figures from Table 21 in the following statutory formula:

[GRAPHIC] [TIFF OMITTED] TR01DE06.000

UAF = Update Adjustment Factor Target06= Allowed Expenditures for 2006 = $81.7 billion Actual06= Estimated Actual Expenditures for 2006 = $94.9 billion Target 4/96-12/06= Allowed Expenditures from 4/1/1996-- 12/31/2006 = $693.3 billion Actual 4/96-12/06= Estimated Actual Expenditures from 4/ 1/1996--12/31/2006 = $735.9 billion SGR 07= 1.8 percent (1.018)

[GRAPHIC] [TIFF OMITTED] TR01DE06.001

Section 1848(d)(4)(D) of the Act indicates that the UAF determined under section 1848(d)(4)(B) of the Act for a year may not be less than -0.070 or greater than 0.03. Since -0.250 is less than -0.070, the UAF for 2006 will be -0.070.

Section 1848(d)(4)(A)(ii) of the Act indicates that 1.0 should be added to the UAF determined under section 1848(d)(4)(B) of the Act. Thus, adding 1.0 to -0.070 makes the UAF equal to 0.930.

VIII. Allowed Expenditures for Physicians' Services and the Sustainable Growth Rate

A. Medicare Sustainable Growth Rate

The SGR is an annual growth rate that applies to physicians' services paid by Medicare. The use of the SGR is intended to control growth in aggregate Medicare expenditures for physicians' services. Payments for services are not withheld if the percentage increase in actual expenditures exceeds the SGR. Rather, the PFS update, as specified in section 1848(d)(4) of the Act, is adjusted based on a comparison of allowed expenditures (determined using the SGR) and actual expenditures. If actual expenditures exceed allowed expenditures, the update is reduced. If actual expenditures are less than allowed expenditures, the update is increased.

Section 1848(f)(2) of the Act specifies that the SGR for a year (beginning with 2001) is equal to the product of the following four factors:

(1) The estimated change in fees for physicians' services;

(2) The estimated change in the average number of Medicare fee-for- service beneficiaries;.

(3) The estimated projected growth in real GDP per capita; and

(4) The estimated change in expenditures due to changes in statute or regulations.

In general, section 1848(f)(3) of the Act requires us to publish SGRs for 3 different time periods, no later than November 1 of each year, using the best data available as of September 1 of each year. Under section 1848(f)(3)(C)(i) of the Act, the SGR is estimated and subsequently revised twice (beginning with the FY and CY 2000 SGRs) based on later data. (The Act also provides for adjustments to be made to the SGRs for FY 1998 and FY 1999. See the February 28, 2003 Federal Register (68 FR 9567) for a discussion of these SGRs). Under section 1848(f)(3)(C)(ii) of the Act, there are no further revisions to the SGR once it has been estimated and subsequently revised in each of the 2 years following the preliminary estimate. In this final rule with comment, we are making our preliminary estimate of the 2007 SGR, a revision to the 2006 SGR, and our final revision to the 2005 SGR.

B. Physicians' Services

Section 1848(f)(4)(A) of the Act defines the scope of physicians' services covered by the SGR. The statute indicates that ``the term physicians'' services includes other items and services (such as clinical diagnostic laboratory tests and radiology services), specified by the Secretary, that are commonly performed or furnished by a

[[Page 69755]]

physician or in a physician's office, but does not include services furnished to a Medicare+Choice plan enrollee.'' We published a definition of physicians' services for use in the SGR in the Federal Register (66 FR 55316) on November 1, 2001. We defined physicians' services to include many of the medical and other health services listed in section 1861(s) of the Act. For purposes of determining allowed expenditures, actual expenditures, and SGRs, we have specified that physicians' services include the following medical and other health services if bills for the items and services are processed and paid by Medicare carriers (and those paid through intermediaries where specified):

Physicians' services.

Services and supplies furnished incident to physicians' services.

Outpatient physical therapy services and outpatient occupational therapy services.

Antigens prepared by, or under the direct supervision of, a physician.

Services of PAs, certified registered nurse anesthetists, certified nurse midwives, clinical psychologists, clinical social workers, NPs, and certified nurse specialists.

Screening tests for prostate cancer, colorectal cancer, and glaucoma.

Screening mammography, screening pap smears, and screening pelvic exams.

Diabetes outpatient self-management training (DSMT) services.

MNT services.

Diagnostic x-ray tests, diagnostic laboratory tests, and other diagnostic tests (including outpatient diagnostic laboratory tests paid through intermediaries).

X-ray, radium, and radioactive isotope therapy.

Surgical dressings, splints, casts, and other devices used for the reduction of fractures and dislocations.

Bone mass measurements.

An initial preventive physical exam.

Cardiovascular screening blood tests.

Diabetes screening tests.

Telehealth services.

Physician work and resources to establish and document the need for a power mobility device (70 FR 50940).

Telehealth services and the power mobility device related services were added because they meet the statutory criteria for services to be included in the SGR (that is, these services are commonly performed or furnished by a physician or in a physician's office) (70 FR 70305).

Summary of Comments on the Physician Update and the SGR

We appreciate the comments we received expressing concern about the negative update for 2007 and the SGR formula. Those comments are summarized below, along with our responses.

Comment: Commenters noted that physicians' costs are rising, while fees are being cut. Under current law, the 2006 Medicare Trustees Report projected negative updates of about -5 percent for at least nine consecutive years. The cumulative impact of the projected reductions from 2007 to 2015 was estimated to be about -37 percent. Because commercial insurance carriers and Medicaid base their payment updates upon Medicare's PFS, the overall negative impact is compounded and affects the entire health care industry. In contrast, the MEI increase over this same period is projected to be about 22 percent.

Commenters noted that increases in their practice costs are outpacing most inflationary measures, and they predicted that costs to provide care will soon exceed reimbursement. Many physician practices are small businesses that operate on slim margins. With ever increasing costs, they will not have the resources to absorb payment cuts resulting from the SGR formula. The result will be that patient quality of care will be compromised, with doctors taking drastic measures to cut costs of health care delivery to remain solvent. Eventually, physicians will be unable to absorb the sustained losses, and they will refuse or limit Medicare patients, resulting in reduced access to care. A survey conducted by the AMA found that 45 percent of physicians will either stop accepting or decrease the number of new Medicare patients they accept if payments are cut for 2007. Inadequate access to care will lead to a deterioration in the health status of Medicare beneficiaries. Beneficiaries will be forced to seek care in inpatient settings, which will be more costly for Medicare, less efficient in delivering care, and yield worse health outcomes for beneficiaries.

Commenters recommended that the SGR be replaced with an appropriate inflation rate linked to changes in the actual costs of medical practice. Commenters cited MedPAC's recommendation to replace the SGR with a system that reflects the increases in practice costs and other medical inflation variables, which would be 2.8 percent for 2007. Other commenters suggested using the MEI, which is estimated at 2.1 percent for 2007, to update the CF.

Commenters suggested that we assume the leadership in pushing the Congress to enact legislation preventing a negative update for 2007, and to replace the SGR with a more sustainable system.

Response: We are fully cognizant of the potential implications of more than 9 years of negative physician updates. We remain concerned regarding those trends, and are closely monitoring physicians' participation in the Medicare program, as well as beneficiaries' access to care.

The formula for the SGR and the physician update are dictated by statute. We are required to follow this methodology when calculating the payment rates under the PFS.

We are working closely and collaboratively with medical professionals and the Congress on the most effective Medicare payment methodologies to compensate physicians for providing services to Medicare beneficiaries. We are engaging physicians on issues of quality and performance with the goal of encouraging the most effective approaches to achieve better health outcomes for Medicare beneficiaries. We are committed to developing systems that enable us to encourage quality, and to improve care without increasing overall Medicare costs.

Comment: Commenters requested that we implement administrative changes to the SGR calculation that would prevent a negative physician update for 2007. Specifically, many commenters requested that we remove the cost of Medicare-covered physician-administered drugs from the SGR on a retrospective basis. Commenters noted that expenditures on these drugs increased from $1.8 billion in 1996, to $8.6 billion in 2004, and was estimated at $8.2 billion in 2005. The commenters opined that if we make the administrative changes now, worth about $100 billion, then the cost of legislation revising the payment methodology for physicians' services will drop, and the likelihood of Congressional action to fix the SGR permanently will increase. Commenters expressed frustration that this recalculation has been requested numerous times, yet we have never implemented the change.

Some commenters requested that we remove all nonphysician services from the SGR calculation. Commenters stated that the annual spending growth of many nonphysician services, including drugs and physical therapy, far outstrip the growth of physician services.

[[Page 69756]]

Commenters requested separate funding pools for physician and nonphysician services, each with its own respective targets, to calculate separate update factors for physician and nonphysician services.

Response: We carefully reviewed our authority to make administrative changes, most notably the feasibility of removing Part B drugs from the SGR baseline. We indicated in the past (most recently in 70 FR 70307) that administrative changes, such as retrospective removal of drugs from the SGR, are statutorily difficult. For example, the statute requires estimates of the SGR to be refined twice based on actual data. We see no legal basis to re-estimate the SGR and recompute allowed expenditures for a year after the SGR has been estimated and revised twice. Further, our current estimates are that these administrative changes, including removing drugs retroactively from the SGR, would not provide relief to the negative updates projected for 2007 and the succeeding several years. As indicated above in this section, we are working with the Congress and health professional organizations on potential reforms that would improve the effectiveness of the payment methodology for physicians without increasing overall Medicare costs.

In reference to removing all ``nonphysician services'' from the SGR, the statute provides the Secretary with clear authority to specify the services that are included in the SGR. Section 1848(f)(4)(A) of the Act indicates that the term ``physicians'' services'' includes other items and services specified by the Secretary that are commonly performed or furnished by a physician or in a physician's office. We published a definition of physicians' services for use in the SGR in the Federal Register (66 FR 55316) on November 1, 2001. For purposes of determining allowed expenditures, actual expenditures, and SGRs, we defined physicians' services to include many of the medical and other health services listed in section 1861(s) of the Act that meet the criterion of being commonly performed by a physician or are services and supplies furnished incident to physicians' services. We disagree with the comments suggesting that the Secretary should not include drugs and physical therapy services in the definition of physicians' services for purposes of determining allowed expenditures, actual expenditures, and the SGR. Further, we have no authority to create separate targets and update factors for what commenters are identifying as ``physician'' and ``nonphysician'' services.

Comment: Commenters noted that payment updates under the SGR are tied to GDP, which bears little relationship to Medicare beneficiaries' health care needs or physician practice costs. Commenters noted that medical needs of individual patients are not related to the growth of the overall economy, and beneficiaries' medical needs do not decline during economic downturns. Commenters stated that MEI is a better reflection than GDP of the growth in health care costs.

Response: Under section 1848(d)(4) of the Act, the PFS update is equal to the product of the percentage increase in the MEI and the UAF. The UAF is determined by comparing allowed and actual expenditures from prior years and the current year, and adjusting the update to account for the difference. The SGR is used to calculate allowed expenditures, and the GDP is one of the components used to calculate the SGR as specified in section 1848(f)(2)(C) of the Act.

The percentage change in the MEI is one of the key components used to update the PFS CF. In accounting for the weighted-average price change for various inputs involved with producing physicians' services, the MEI measures inflation in physician practice costs and general wage levels. Elements of the MEI include measures of physicians' PEs, including nonphysician employee compensation, office expenses, medical material and supplies, professional liability insurance, and medical equipment.

The GDP is a general measure of economic growth. It is not intended to reflect factors specific to operating a medical practice because these are captured in the MEI. Currently, the statute requires that we use the GDP as a component of the SGR, which is then used to calculate the target level of expenditures. Although both MEI and GDP are included in the calculation of the conversion factor, the MEI has a more direct and greater impact on the physician update than GDP.

Comment: Commenters believe that we continue to underestimate the impact of National and Local Coverage Decisions on physician spending. Through these coverage decisions, we are directly responsible for volume increases, and must adjust the SGR target accordingly.

Response: We do not have the authority to pay for a service lacking a defined statutory benefit listed in section 1861(s) of the Act. However, we do have the authority to establish national coverage decisions (NCDs) for items and services that are included in a benefit category listed in section 1861(s) of the Act. Further, we contract with Medicare carriers who may establish local coverage decisions (LCDs) for items and services that have a statutory benefit category.

Factor 4 of the SGR (1848(f)(2)(D)) requires us to estimate expenditures ``which will result from changes in law and regulations.'' NCDs are not required to be issued by regulation, and we are not aware of any NCDs that have been issued via regulation. Although coverage decisions that reduce the coverage available for certain items and services must be published in the Federal Register, they are published as notices. Furthermore, as indicated above, LCDs are issued by contractors and are not binding on CMS or other contractors. As a result, it is unclear that we have the authority to consider NCDs or LCDs in our estimate of factor 4 of the SGR. Furthermore, while we may establish a national coveragae decision (NCD) for a new item of service with a defined statutory benefit category, the NCD does not necessarily increase Medicare spending to the extent that the service has or would have been covered at local carrier dicretion in the absence of a NCD. Because Medicare might cover these services without an NCD, it is unclear whether there are any additional costs associated with the NCDs.

At this time, we do not intend to make any adjustment to the SGR to account for new NCDs. We continue to examine the issue, but we expect that NCDs have, at most, limited impact on Medicare spending for physicians' services. (For a more detailed discussion see 70 FR 70308).

Comment: Commenters stated that additional funds need to be added to the SGR allowed expenditures for all the ancillary costs associated with new benefits. New benefits adjust the target, but they generate other services whose costs are not added to the targeted allowed expenditures. For example, the new AAA ultrasound benefit may reveal health problems that will generate additional visits, tests, and other services that are not reflected in the SGR's legislative factor.

Response: Section 1848(f)(2) of the Act specifies that the SGR for a year (beginning with 2001) is equal to the product of four factors. One of these factors is the estimated change in expenditures due to changes in statute or regulations. For 2007, this factor includes the AAA ultrasound referenced by commenters. Our estimate of changes in expenditures arising from changes in law and regulations include induced spending impacts, when applicable and material. Our estimate of the additional

[[Page 69757]]

expenditures associated with this new benefit, like all of the figures used to determine the 2007 SGR, is an estimate that will be revised based on subsequent data. A 2-year look back window allows adjustments to the estimates to reflect actual impacts. Any differences between these estimates and the actual measurement of these figures will be included in future revisions of the SGR and allowed expenditures and incorporated into subsequent PFS updates. (See further discussion below for all the new benefits that adjusted the legislative factor in 2005, 2006, and 2007.)

Comment: Commenters suggested that CMS compliance programs, such as HIPAA, increased overhead expenses by 15 to 20 percent, but their costs are not included in SGR allowed expenditures.

Response: The statute provides the Secretary with clear authority to specify the services that are included in the SGR. Section 1848(f)(4)(A) of the Act indicates that the term ``physicians'' services'' includes other items and services specified by the Secretary that are commonly performed or furnished by a physician or in a physician's office. Overhead costs attributable to compliance programs do not meet the definition of physicians' services for determining SGR allowed expenditures.

C. Preliminary Estimate of the SGR for 2007

Our preliminary estimate of the 2007 SGR is 1.8 percent. We first estimated the 2007 SGR in March and made the estimate available to the MedPAC and on our Web site. Table 22 shows that March 2006 estimate and our current estimates of the factors included in the 2007 SGR.

Table 22.--2007 SGR Calculation

Statutory factors

March estimate Current estimate

Fees........................ 2.6 percent (1.026). 2.2 percent (1.022). Enrollment.................. -2.9 percent (0.971) -0.9 percent (0.991). Real Per Capita GDP......... 2.2 percent (1.022). 2.0 percent (1.020). Law and Regulation.......... -1.0 percent (0.990) -1.5 percent (0.985).

Total................... 0.7 percent (1.007). 1.80 percent (1.018).

Note: Consistent with section 1848(f)(2) of the Act, the statutory factors are multiplied, not added, to produce the total (that is, 1.022 x 0.991 x 1.020 x 0.985 = 1.018). A more detailed explanation of each figure is provided in section VII.F.1 of this preamble.

D. Revised Sustainable Growth Rate for 2006

Our current estimate of the 2006 SGR is 2.1 percent. Table 23 shows our preliminary estimate of the 2006 SGR that was published in the CY 2006 Final Rule (70 FR 70309) and our current estimate.

Table 23.--2006 SGR Calculation

Estimate from CY Statutory factors

2006 final rule Current estimate

Fees........................ 2.7 percent (1.027). 2.2 percent (1.022). Enrollment.................. -3.1 percent (0.969) -2.2 percent (0.978). Real Per Capita GDP......... 2.2 percent (1.022). 2.1 percent (1.021). Law and Regulation.......... 0.0 percent (1.000). 0.0 percent (1.000).

Total................... 1.7 percent (1.017). 2.1 percent (1.021).

A more detailed explanation of each figure is provided in section VII.F.2 of this preamble.

E. Final Sustainable Growth Rate for 2005

The SGR for 2005 is 4.2 percent. Table 24 shows our preliminary estimate of the 2005 SGR from the CY 2005 PFS final rule with comment period (69 FR 66386), our revised estimate from the CY 2006 PFS final rule with comment period (70 FR 70309) and the final figures determined using the best available data as of September 1, 2006.

Table 24.--2005 SGR Calculation

Estimate from CY 2005 Estimate from CY 2006 Statutory factors

final rule

final rule

Final

Fees................................. 1.3 percent (1.013).... 0.8 percent (1.008).... 0.8 percent (1.008). Enrollment........................... -0.3 percent (0.997)... 0.3 percent (1.003).... 0.3 percent (1.003). Real Per Capita GDP.................. 2.2 percent (1.022).... 2.2 percent (1.022).... 2.1 percent (1.021). Law and Reg.......................... 1.0 percent (1.010).... 1.2 percent (1.010).... 0.9 percent (1.009).

Total............................ 4.3 percent (1.043).... 4.6 percent (1.046).... 4.2 percent (1.042).

[[Page 69758]]

A more detailed explanation of each figure is provided in section VII.F.3.

F. Calculation of 2007, 2006, and 2005 Sustainable Growth Rates

1. Detail on the 2007 SGR

All of the figures used to determine the 2007 SGR are estimates that will be revised based on subsequent data. Any differences between these estimates and the actual measurement of these figures will be included in future revisions of the SGR and allowed expenditures and incorporated into subsequent PFS updates.

Factor 1--Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for 2007

This factor is calculated as a weighted-average of the 2007 fee increases for the different types of services included in the definition of physicians' services for the SGR. Medical and other health services paid using the PFS are estimated to account for approximately 81.4 percent of total allowed charges included in the SGR in 2007 and are updated using the MEI. The MEI for 2007 is 2.1 percent. Diagnostic laboratory tests are estimated to represent approximately 7.5 percent of Medicare allowed charges included in the SGR for 2007. Medicare payments for these tests are updated by the Consumer Price Index for Urban Areas (CPI-U). However, section 629 of the MMA specifies that diagnostic laboratory services will receive an update of 0.0 percent from 2004 through 2008.

Drugs are estimated to represent 11.1 percent of Medicare allowed charges included in the SGR in 2007. We estimated a weighted-average change in fees for drugs included in the SGR (using the ASP+6 percent pricing methodology) of 4.0 percent for 2007.

Table 25 shows the weighted-average of the MEI, laboratory and drug price changes for 2007.

Table 25

Weight Update

Physician.....................................

0.814

2.1 Laboratory....................................

0.075

0.0 Drugs.........................................

0.111

4.0 Weighted-average..............................

1.000

2.2

We estimate that the weighted-average increase in fees for physicians' services in 2007 under the SGR (before applying any legislative adjustments) will be 2.2 percent.

Factor 2--The Percentage Change in the Average Number of Part B Enrollees from 2006 to 2007

This factor is our estimate of the percent change in the average number of fee-for-service enrollees from 2006 to 2007. Services provided to Medicare Advantage (MA) plan enrollees are outside the scope of the SGR and are excluded from this estimate. OACT estimates that the average number of Medicare Part B fee-for-service enrollees will decrease by 0.9 percent from 2006 to 2007. Table 26 illustrates how this figure was determined.

Table 26

2006

2007

Overall......................... 40.136 million.... 40.735 million Medicare Advantage (MA)......... 6.369 million..... 7.265 million Net............................. 33.768 million.... 33.470 million Percent Increase................ .................. -0.9 percent

An important factor affecting fee-for-service enrollment is beneficiary enrollment in MA plans. Because it is difficult to estimate the size of the MA enrollee population before the start of a CY, at this time we do not know how actual enrollment in MA plans will compare to current estimates. For this reason, the estimate may change substantially as actual Medicare fee-for-service enrollment for 2007 becomes known.

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 2007

We estimate that the growth in real GDP per capita from 2006 to 2007 will be 2.0 percent (based on the 10-year average GDP over the 10 years of 1998-2007). Our past experience indicates that there have also been changes in estimates of real per capita GDP growth made before the year begins and the actual change in GDP computed after the year is complete. Thus, it is possible that this figure will change as actual information on economic performance becomes available to us in 2007.

Factor 4--Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in 2007 Compared With 2006

The statutory and regulatory provisions that will affect expenditures in CY 2007 relative to CY 2006 are estimated to have an impact on expenditures of -1.5 percent. These provisions include the expiration of the work GPCI floor and DRA provisions adding the AAA ultrasound test to the Welcome to Medicare visit as a preventive benefit, and reducing payments for imaging services, which are discussed elsewhere in this final rule with comment. 2. Detail on the 2006 SGR

A more detailed discussion of our revised estimates of the four elements of the 2006 SGR follows.

Factor 1--Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for 2006

This factor was calculated as a weighted-average of the 2006 fee increases that apply for the different types of services included in the definition of physicians' services for the SGR.

We estimate that services paid using the PFS account for approximately 83.2 percent of total allowed charges included in the SGR in 2006. These services were updated using the 2006 MEI of 2.8 percent. We estimate that diagnostic laboratory tests represent approximately 7.1 percent of total allowed charges included in the SGR in 2006. Medicare payments for these tests are updated by the CPI-U. However, section 629 of the MMA specifies that diagnostic laboratory services will receive an update of 0.0 percent from 2004 through 2008.

We estimate that drugs represent 9.7 percent of Medicare-allowed charges included in the SGR in 2006. Sections 303 and 304 of the MMA require Medicare to pay for most drugs at 106 percent of ASP beginning January 1, 2005. We now estimate a weighted-average change in fees for drugs included in the SGR of -1.7 percent for 2006. The estimated weighted-average

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change in the CY 2006 PFS final rule was 4.1 percent. The decline in the estimate is due to the availability of some actual data.

Table 27 shows the weighted-average of the MEI, laboratory and drug price changes for 2006.

Table 27

Weight Update

Physician.....................................

0.832

2.8 Laboratory....................................

0.071

0.0 Drugs.........................................

0.097

-1.7 Weighted-average..............................

1.000

2.2

After taking into account the elements described in Table 27, we estimate that the weighted-average increase in fees for physicians' services in 2006 under the SGR (before applying any legislative adjustments) will be 2.2 percent. Our estimate of this factor in the CY 2005 PFS final rule was 2.7 percent.

Factor 2--The Percentage Change in the Average Number of Part B Enrollees from 2005 to 2006

OACT estimates that the average number of Medicare Part B fee-for- service enrollees (excluding beneficiaries enrolled in M+C plans) decreased by 2.2 percent in 2006. Table 28 illustrates how we determined this figure.

Table 28

2005

2006

Overall............................... 39.601 million..................... 40.136 million. Medicare+Choice....................... 5.084 million...................... 6.369 million. Net................................... 34.518 million..................... 33.768 million. Percent Increase...................... ................................... -2.2 percent.

OACT's estimate of the -2.2 percent change in the number of fee- for-service enrollees, net of M+C enrollment for 2006 compared to 2005, is greater than our original estimate of -3.1 percent in the CY 2006 PFS final rule (70 FR 70310). While our current projection based on data from 8 months of 2006 is greater than our original estimate of - 3.1 percent when we had no actual data, it is still possible that our final estimate of this figure will be different once we have complete information on 2006 fee-for-service enrollment.

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 2006

We estimate that the growth in real GDP per capita will be 2.1 percent for 2006 (based on the 10-year average GDP over the 10 years of 1997-2006). Our past experience indicates that there have also been differences between our estimates of real per capita GDP growth made prior to the year's end and the actual change in this factor. Thus, it is possible that this figure will change further as complete actual information on 2006 economic performance becomes available to us in 2007.

Factor 4--Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in 2006 Compared With 2005

The statutory and regulatory provisions that affect expenditures in CY 2006 relative to CY 2005 are estimated to have a net impact on expenditures of less than 0.05. These provisions include the expiration of the temporary higher payments to physicians in Alaska, the new power wheelchair code for physicians, and the impact of the new IVIG service. 3. Detail On the 2005 SGR

A more detailed discussion of our final revised estimates of the four elements of the 2005 SGR follows.

Factor 1--Changes in Fees for Physicians' Services (Before Applying Legislative Adjustments) for 2005

This factor was calculated as a weighted-average of the 2005 fee increases that apply for the different types of services included in the definition of physicians' services for the SGR.

Services paid using the PFS accounted for approximately 84.2 percent of total Medicare-allowed charges included in the SGR for 2005 and are updated using the MEI. The MEI for 2005 was 3.1 percent. Diagnostic laboratory tests represented approximately 7.0 percent of total 2005 Medicare-allowed charges included in the SGR and are updated by the CPI-U. However, section 629 of the MMA specifies that diagnostic laboratory services will receive an update of 0.0 percent from 2004 through 2008. Drugs represented approximately 8.8 percent of total Medicare-allowed charges included in the SGR for 2005. Historically, Medicare paid for drugs under section 1842(o) of the Act at 95 percent of the AWP. However, with some exceptions, in 2004 sections 303 and 304 of the MMA generally required Medicare to pay for drugs at 85 percent of the AWP determined as of April 1, 2003, or a specified percentage of AWP based on studies by the Government Accountability Office and the OIG. We implemented section 303 and 304 of the MMA in an interim final rule making changes to the PFS for 2004, which appeared in the Federal Register on January 7, 2004 (69 FR 1086). Beginning on January 1, 2005, sections 303 and 304 of the MMA require Medicare to pay for most drugs at 106 percent of the ASP. Taking into account sections 303 and 304 of the MMA, we estimate a weighted-average change in fees for drugs included in the SGR of -21.0 percent for 2005. Table 29 shows the weighted-average of the MEI, laboratory, and drug price increases for 2005.

Table 29

Weight Update

Physician.....................................

0.842

3.1 Laboratory....................................

0.070

0.0 Drugs.........................................

0.088

-21.0 Weighted-average..............................

1.000

0.8

After taking into account the elements described in Table 29, we estimate that the weighted-average increase in fees for physicians' services in 2005 under the SGR (before applying any legislative adjustments) was 0.8 percent. This figure is a final one based on complete data for 2005.

Factor 2--The Percentage Change in the Average Number of Part B Enrollees from 2004 to 2005

We estimate the increase in the number of fee-for-service enrollees (excluding beneficiaries enrolled in M+C plans) from 2004 to 2005 was 0.3 percent. Our calculation of this factor is based on complete data from 2005. Table 30 illustrates the calculation of this factor.

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Table 30

2004

2005

Overall....................................... 39.099 39.601 million million Medicare

4.683

5.084 +Choice....................................... million million Net........................................... 34.416 34.518 million million Percent Increase.............................. ........... 0.3 percent

Factor 3--Estimated Real Gross Domestic Product Per Capita Growth in 2005

We estimate that the growth in real per capita GDP was 2.1 percent in 2005 (based on the 10-year average GDP over the 10 years of 1996- 2005). This figure is a final one based on complete data for 2005.

Factor 4--Percentage Change in Expenditures for Physicians' Services Resulting From Changes in Statute or Regulations in 2005 Compared With 2004

There are a number of statutory provisions that affected the 2005 SGR. Sections 303 and 304 of the MMA changed Medicare payment for drugs. These provisions also changed Medicare payments for the administration of drugs. Section 303(a)(1) of the MMA amended section 1848(c)(2) of the Act to require the Secretary to make a number of changes that increased Medicare payment for drug administration beginning January 1, 2004. Section 303(a)(4) of the MMA required an additional transitional adjustment (temporary increase) to Medicare's payment for drug administration of 32 percent for 2004 and 3 percent for 2005. We also adopted changes to the codes and payment amounts for drug administration based on recommendations from the AMA's CPT Editorial Panel and Relative Value Update Committee (RUC), under the authority of section 1848(c)(2)(J) of the Act. We further increased PFS payments by paying separately for injections provided on the same day as another PFS service.

Section 413(a) of the MMA established a 5 percent increase in the PFS payment for services provided in physician scarcity areas. Section 413(b) of the MMA improved the procedures for paying the 10 percent PFS bonus payment for services provided in health professional shortage areas (HPSAs). Taken together, all of the statutory provisions for 2005, increased Medicare spending for physicians' services by 0.9 percent.

IX. Anesthesia and Physician Fee Schedule Conversion Factors for CY 2007

The 2007 PFS CF will be $35.9848. The 2007 national average anesthesia CF is $15.3328. Both CFs will be subject to a separate, independent BN adjustor, as described below.

A. Physician Fee Schedule Conversion Factor

Under section 1848(d)(1)(A) of the Act, the PFS CF is equal to the CF for the previous year multiplied by the update determined under section 1848(d)(4) of the Act.

We illustrate the calculation for the 2007 PFS CF in Table 31.

Table 31

2006 Conversion Factor.................... $37.8975 2007 Update............................... -5.0 percent (0.94953) 2007 Conversion Factor.................... $35.9848

Section 1848(c)(2)(B)(ii)(II) of the Act requires that increases or decreases in RVUs for a year may not cause the amount of expenditures for the year to differ by more than $20 million from what expenditures would have been in the absence of these changes. If this threshold is exceeded, we must make adjustments to preserve BN. The 5-Year Review of work RVUs would result in a change in expenditures that would exceed $20 million if we made no offsetting adjustments to either the CF or RVUs. As discussed in section IV.D of this final rule with comment period, we are applying the following BN adjustor to the work RVUs in order to calculate payment for a service: 2007 Work Adjustor: 10.1 percent (0.8994)

Payment for services under the PFS will now be calculated as follows:

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

B. Anesthesia Fee Schedule Conversion Factor

Anesthesia services do not have RVUs like other PFS services. Therefore, we account for any necessary RVU adjustments through an adjustment to the anesthesia fee schedule CF to simulate changes to RVUs. We modeled the resource-based PE methodology using imputed anesthesia RVUs that were made comparable to other PFS services. The adjustment factor in Table 32 includes the combined effect of the PE adjustment and the BN adjustment. We used the following figures to determine the anesthesia fee schedule CF as shown in Table 32.

Table 32

2006 Anesthesia Conversion Factor......... $17.7663 2007 Update............................... -5.0 percent (0.94953) 2007 Combined Adjustment PE and BN........ 0.9089 2007 Anesthesia Conversion Factor......... $15.3328

X. Telehealth Originating Site Facility Fee Payment Amount Update

Section 1834(m) of the Act establishes the payment amount for the Medicare telehealth originating site facility fee for telehealth services provided from October 1, 2001 through December 31 2002, at $20. For telehealth services provided on or after January 1 of each subsequent calendar year, the telehealth originating site facility fee is increased by the percentage increase in the MEI as defined in section 1842(i)(3) of the Act. The MEI increase for 2007 is 2.1 percent.

Therefore, for CY 2007, the payment amount for HCPCS code ``Q3014, telehealth originating site facility fee'' is 80 percent of the lesser of the actual charge or $22.94. The Medicare telehealth originating site facility fee and MEI increase by the applicable time period are shown in Table 33.

Table 33

MEI Facility Fee

increase

Period (percent)

$20.00........................................

N/A 10/01/2001-12/31/2002. 20.60.........................................

3.0 01/01/2003-12/31/2003. 21.20.........................................

2.9 01/01/2004-12/31/2004.

[[Page 69761]]

21.86.........................................

3.1 01/01/2005-12/31/2005. 22.47.........................................

2.8 01/01/2006-12/31/2006. 22.94.........................................

2.1 01/01/2007-12/31/2007.

XI. Provisions of the Final Rule

The provisions of this final rule with comment restate the provisions of the CY 2007 PFS proposed rule, except as noted elsewhere in the preamble.

XII. Waiver of Proposed Rulemaking and Delay in Effective Date

We ordinarily publish a notice of proposed rulemaking in the Federal Register and invite public comment on the proposed rule. The notice of proposed rulemaking includes a reference to the legal authority under which the rule is proposed, and the terms and substances of the proposed rule or a description of the subjects and issues involved. This procedure can be waived, however, if an agency finds good cause that a notice-and-comment procedure is impracticable, unnecessary, or contrary to the public interest and incorporates a statement of the finding and its reasons in the rule issued.

As discussed in sections IV. and V. of this final rule, we utilize HCPCS codes for Medicare payment purposes. The HCPCS is a national drug coding system comprised of Level I (CPT) codes and Level II (HCPCS National Codes) that are intended to provide uniformity to coding procedures, services, and supplies across all types of medical providers and suppliers. Level I (CPT) codes are copyrighted by the AMA and consist of several categories, including Category I codes which are 5-digit numeric codes, and Category III codes which are temporary codes to track emerging technology, services and procedures.

The AMA issues an annual update of the CPT code set each Fall, with January 1 as the effective date for implementing the updated CPT codes. The HCPCS, including both Level I and Level II codes, is similarly updated annually on a CY basis. Annual coding changes are not available to the public until the Fall immediately preceding the annual January update of the PFS. Because of the timing of the release of these new codes, it is impracticable for CMS to provide prior notice and solicit comment on these codes and the RVUs assigned to them in advance of publication of the final rule that implements the PFS. Yet, it is imperative that these coding changes be accounted for and recognized timely under the PFS for payment because services represented by these codes will be provided to Medicare beneficiaries by physicians during the CY in which they become effective. Moreover, regulations implementing HIPAA (42 CFR parts 160 and 162) require that the HCPCS be used to report health care services, including services paid under the PFS. We also assign interim RVUs to any new codes based on a review of the RUC recommendations for valuing these services. By reviewing these RUC recommendations for the new codes, we are able to assign RVUs to services based on input from the medical community and to establish payment for them, on an interim basis, that corresponds to the relative resources associated with providing the services. If we did not assign RVUs to new codes on an interim basis, the alternative would be to either not pay for these services during the initial CY or have each carrier establish a payment rate for these new codes. We believe both of these alternatives are contrary to the public interest, particularly since the RUC process allows for an assessment of the valuation of these services by the medical community prior to our establishing payment for these codes on an interim basis. Therefore, we believe it would be contrary to the public interest to delay establishment of fee schedule payment amounts for these codes.

For the reasons outlined above in this section, we find good cause to waive the notice of proposed rulemaking for the interim RVUs for selected procedure codes identified in Addendum C and to establish RVUs for these codes on an interim final basis. We are providing a 60-day public comment period.

In addition, we ordinarily publish a notice of proposed rulemaking in the Federal Register and provide a period for public comment before we make final the provisions of the notice. We can waive this procedure, however, if we find good cause that notice-and-comment procedure is impracticable, unnecessary, or contrary to the public interest and we incorporate a statement of finding and its reasons in the notice issued. We find it unnecessary to undertake notice and comment rulemaking in this instance for the ambulance inflation factor because the law specifies the method of computation of annual updates, and we have no discretion in this matter. Further, we are merely applying the update method specified in statute and regulation. Therefore, under 5 U.S.C. 553(b)(B), for good cause, we waive notice and comment procedures for this ambulance inflation factor update.

XIII. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to provide 30-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the OMB for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

The need for the information collection and its usefulness in carrying out the proper functions of our agency.

The accuracy of our estimate of the information collection burden.

The quality, utility, and clarity of the information to be collected.

Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

We solicited public comment on each of these issues for the following sections of this document that contain information collection requirements: Section 410.33 Independent Diagnostic Testing Facility

Section 410.33(e)(1) imposes a recordkeeping requirement on multi- State entities. Specifically, an independent diagnostic testing facility (IDTF) that operates across State boundaries must maintain documentation that its supervising physicians and technicians are licensed and certified in each of the States in which it operates. The burden associated with this requirement is the

[[Page 69762]]

time and effort it takes the IDTF to collect and maintain the aforementioned information.

While subject to the PRA, we believe this information collection requirement is exempt as defined in 5 CFR 1320.3(b)(2), because the time, effort, and financial resources necessary to comply with the requirement would be incurred by persons in the normal course of their activities (for example, in compiling and maintaining business records) and is considered to be usual and customary.

Section 410.33(g) discusses the application certification standards that an IDTF must meet. An IDTF must complete an enrollment application and certify the information contained in the application. The certification is part of an application that is subject to the PRA. The burden associated with this requirement is the time and effort necessary to complete the application. This requirement is currently approved in OMB No. 0938-0685, with a current expiration date of April 30, 2009. Payment for Covered Outpatient Drugs and Biologicals (ASP Issues)

Section II.F.1 of the preamble provides background information pertaining to the use of average sales price (ASP) as the basis for our drug payment methodology. In accordance with section 1857 of the Act, Medicare Part B covered drugs and biologicals not paid on a cost of prospective payment basis are paid based on the ASP. The ASP data reporting requirements are outlined in section 1927(b) of the Act, and were implemented in the interim final rule with comment period that published on April 6, 2004 (69 FR 17935).

The collection of ASP data imposes a reporting requirement on the public. The burden associated with this requirement is the time and effort required by manufacturers of Medicare Part B drugs and biologicals to calculate, record, and submit the required data to CMS. While this requirement is subject to the PRA, it is currently approved under OMB control number 0938-0921, with an expiration date of May 31, 2009.

As required by section 3504(h) of the Paperwork Reduction Act of 1995, we have submitted a copy of this document to the OMB for its review of these information collection requirements.

XIV. Response to Comments

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the ``DATES'' section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

XV. Regulatory Impact Analysis

We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980 Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibilities of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis must be prepared for final rules with economically significant effects (that is, a final rule that would have an annual effect on the economy of $100 million or more in any one year, or would adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities). As indicated in more detail below in this section, we estimate that the PFS provisions included in this final rule with comment period will redistribute more than $100 million in 1 year. We are considering this final rule with comment period to be economically significant because its provisions are estimated to result in an increase, decrease or aggregate redistribution of Medicare spending that will exceed $100 million. Therefore, this final rule with comment period is a major rule and we have prepared a regulatory impact analysis.

The RFA requires that we analyze regulatory options for small businesses and other entities. We prepare a regulatory flexibility analysis unless we certify that a rule would not have a significant economic impact on a substantial number of small entities. The analysis must include a justification concerning the reason action is being taken, the kinds and number of small entities the rule affects, and an explanation of any meaningful options that achieve the objectives with less significant adverse economic impact on the small entities.

Section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any final rule that may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside a Metropolitan Statistical Area and has fewer than 100 beds. We have determined that this final rule with comment period would have minimal impact on small hospitals located in rural areas. Of the 201 hospital-based ESRD facilities located in rural areas, only 40 are affiliated with hospitals with fewer than 100 beds.

For purposes of the RFA, physicians, NPPs, and suppliers are considered small businesses if they generate revenues of $6 million or less. Approximately 95 percent of physicians are considered to be small entities. There are about 980,000 physicians, other practitioners and medical suppliers that receive Medicare payment under the PFS.

For purposes of the RFA, approximately 80 percent of clinical diagnostic laboratories are considered small businesses according to the Small Business Administration's size standards.

In addition, most ESRD facilities are considered small entities, either based on nonprofit status or by having revenues of $29 million or less in any year. We consider a substantial number of entities to be affected if the final rule is estimated to impact more than 5 percent of the total number of small entities. Based on our analysis of the 932 nonprofit ESRD facilities considered small entities in accordance with the above definitions, we estimate that the combined impact of the changes to payment for renal dialysis services included in this final rule with comment period would have a 0.8 percent increase in overall payments relative to current overall payments.

IDTFs are suppliers under the Medicare program. For purposes of the RFA, suppliers with annual sales of $6 million or less are considered to be small entities. (Individuals and States are not included in the definition of a small entity.) We believe that our standards for IDTFs will help bar fraudulent suppliers from participating in the Medicare program and provide an added level of protection to Medicare beneficiaries. Therefore, we expect to have an impact on an unknown number of persons and entities who will effectively be prevented from practicing their aberrant billing activities. The vast

[[Page 69763]]

majority of suppliers would not be significantly affected by this final rule with comment period. The reduction in program overpayments and the added level of protection to beneficiaries that we expect to achieve as a result of this final rule with comment period justifies the relatively small burden this final rule with comment period would impose on all small entities.

Ambulance providers and suppliers for purposes of the RFA are also considered to be small entities. While we expect the initial change in geographic designations to have little, if any, overall effect on ambulance payments, application of the ambulance inflation factor (AIF) will result in an increase in payment rates for all ambulance services furnished by all types of ambulance providers.

The analysis and discussion provided in this section, as well as elsewhere in this final rule with comment period, complies with the RFA requirements.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditures in any year by State, local, or tribal governments, in the aggregate, or by the private sector, of $120 million. Medicare beneficiaries are considered to be part of the private sector for this purpose.

We have examined this final rule with comment period in accordance with Executive Order 13132 and have determined that this regulation would not have any significant impact on the rights, roles, or responsibilities of State, local, or tribal governments. A discussion concerning the impact of this rule on beneficiaries is found later in this section.

We have prepared the following analysis, which, together with the information provided in the rest of this preamble, meets all assessment requirements. The analysis explains the rationale for and purposes of this final rule with comment period; details the costs and benefits of the rule; analyzes alternatives; and presents the measures we proposed to use to minimize the burden on small entities. As indicated elsewhere in this final rule with comment period, we proposed to change our methodology for calculating resource-based PE RVUs and make a variety of other changes to our regulations, payments, or payment policies to ensure that our payment systems reflect changes in medical practice and the relative value of services. We provide information for each of the policy changes in the relevant sections of this final rule with comment period. We are unaware of any relevant Federal rules that duplicate, overlap or conflict with this final rule with comment period. The relevant sections of this final rule with comment period contain a description of significant alternatives if applicable.

A. RVU Impacts

1. Resource-Based Work and PE RVUs

Section 1848(c)(2)(B)(ii) of the Act requires that increases or decreases in RVUs may not cause the amount of expenditures for the year to differ by more than $20 million from what expenditures would have been in the absence of these changes. If this threshold is exceeded, we make adjustments to preserve BN. This year, the estimated $4 billion impact of changes in work RVUs resulting from the 5-Year Review require that a budget-neutrality adjustment be made.

As discussed in the June 29, 2006 proposed notice, we proposed making the statutorily required BN adjustment to account for the 5-Year Review of physician work by reducing all work RVUs. We estimated that all work RVUs would have to be reduced by 10 percent under this option. As discussed in section IV.D.1 of this final rule with comment period, we carefully reviewed the comments received concerning this issue, and to meet the BN provisions of section 1848(c)(2)(B)(ii)(II) of the Act, we are applying a BN adjustor of 0.8994 or -10.1 percent to the work RVUs.

Table 34 shows the specialty-level impact of the work and PE RVU changes.

Our estimates of changes in Medicare revenues for PFS services compare payment rates for CY 2006 with proposed payment rates for CY 2007 using CY 2005 Medicare utilization for all years. We are using CY 2005 Medicare claims processed and paid through March 30, 2005, that we estimate are 98 percent complete. To the extent that there are year-to- year changes in the volume and mix of services provided by physicians, the actual impact on total Medicare revenues will be different than those shown in Table 34. The payment impacts reflect averages for each specialty based on Medicare utilization. The payment impact for an individual physician would be different from the average, based on the mix of services the physician provides. The average change in total revenues would be less than the impact displayed here because physicians furnish services to both Medicare and non-Medicare patients and specialties may receive substantial Medicare revenues for services that are not paid under the PFS. For instance, independent laboratories receive approximately 80 percent of their Medicare revenues from clinical laboratory services that are not paid under the PFS.

Table 34 shows only the payment impact on PFS services. The following is an explanation of the information represented in Table 34. Note that this table does include the impact of the CY 2007 update.

Specialty: The physician specialty or type of practitioner/supplier.

Allowed Charges: Allowed charges are the Medicare Fee Schedule amounts for covered services and include copayments and deductibles (which are the financial responsibility of the beneficiary). These amounts have been summed across all services provided by physicians, practitioners, or suppliers with a specialty to arrive at the total allowed charges for the specialty.

Impact of Work RVU Changes from the five year review of work

Impact of PE RVU changes. The impact is shown for both 2007, which is the first year of the four year transition using the new methodology, and 2010, which is the year in which the methodology is fully implemented.

Combined impact of the finalized work and PE RVUs for both 2007 and 2010.

BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TR01DE06.013

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[GRAPHIC] [TIFF OMITTED] TR01DE06.014

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[GRAPHIC] [TIFF OMITTED] TR01DE06.015

BILLING CODE 4120-01-C 2. Section 5102 of the DRA Adjustments for Payments for Imaging Services

As required by section 5102(a) of the DRA and described in section II.E.1. of this final rule with comment period, we are removing, from the PE RVUs under the PFS the 0.3 percent increase made to the PE RVUs in the CY 2006 PFS final rule with comment period to ensure the BN of the impact of the multiple imaging policy adopted for CY 2006. Section 5102(a) of the DRA exempts the CY 2006 and 2007 impact of the multiple imaging policy from BN. Because we proposed to maintain the current 25 percent payment reduction for multiple imaging procedures in CY 2007, there is no additional impact resulting from our policies for CY 2007. Section 5102 of the DRA also exempts the estimated savings from the application of the OPPS-based payment limitation on PFS imaging services from the PFS BN requirement. We estimate that the combined impact of the BN exemptions in section 5102 of the DRA would reduce PFS expenditures by approximately 0.9 percent in CY 2007. 3. Combined Impacts

Table 35 shows the specialty-level impact of: The work and PE RVU changes, section 5102 of the DRA, and our most recent estimate (-5.0 percent) of the CY 2007 Medicare PFS update. Additionally, the impacts in this final rule with comment period reflect the use of updated physician time data from the AMA-RUC.

Our estimates of changes in Medicare revenues for PFS services compare payment rates for CY 2006 with proposed payment rates for CY 2007 using CY 2005 Medicare utilization for all years. We are using CY 2005 Medicare claims processed and paid through March 30, 2005, that we estimate are 98 percent complete. To the extent that there are year-to- year changes in the volume and mix of services provided by physicians, the actual impact on total Medicare revenues will be different than those shown in Table 35. The payment impacts reflect averages for each specialty based on Medicare utilization. The payment impact for an individual physician would be different from the average, based on the mix of services the physician provides. The average change in total revenues would be less than the impact displayed here because physicians furnish services to both Medicare and non-Medicare patients and specialties may receive substantial Medicare revenues for services that are not paid under the PFS. For instance, independent laboratories receive approximately 80 percent of their Medicare revenues from clinical laboratory services that are not paid under the PFS.

Table 35 shows only the payment impact on PFS services. The following is an explanation of the information represented in Table 35.

Specialty: The physician specialty or type of practitioner/supplier.

Allowed Charges: Allowed charges are the Medicare Fee Schedule amounts for covered services and include copayments and deductibles (which are the financial responsibility of the beneficiary.) These amounts have been summed across all services provided by physicians, practitioners, or suppliers with a specialty to arrive at the total allowed charges for the specialty.

Impact of Work and PE RVU Changes using the methodology finalized in this rule.

Impact of section 5102 of the DRA: The CY 2007 percentage decrease in allowed charges attributed to section 5102 of the DRA.

Combined impact of the finalized work and PE RVUs and section 5102 of the DRA.

CY 2007 Update: The percentage decrease in allowed charges attributed to the CY 2007 PFS conversion factor update (-5.0 percent).

Combined impact with CY 2007 update: The CY 2007 percentage decrease in allowed charges attributed to the impact of the work and PE RVU changes, section 5102 of the DRA, and the CY 2007 update.

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Table 36 shows the impact on total payments for selected high- volume procedures of all of the changes previously discussed. We selected these procedures because they are the most commonly provided by a broad spectrum of physician specialties. There are separate columns that show the change in the facility rates and the nonfacility rates. For an explanation of facility and nonfacility PE refer to Addendum A of this final rule with comment period.

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B. Geographic Practice Cost Indices (GPCI)--Payment Localities

As discussed in section II.B. of the preamble to this final rule with comment period, we proposed new GPCIs for 2007. In the CY 2005 PFS final rule with comment period, we published 2005 and 2006 GPCI and GAF values reflecting the 2-year phase-in of updated GPCI data. In 2007, the proposed GPCI and GAF values will reflect the removal of the 1.000 MMA floor from the physician work GPCI. The negative impact of these changes on a number of payment localities is shown in section II.B. in Table 7.

C. Global Period for Remote Afterloading High Intensity Brachytherapy Procedures

As discussed in section II.D.1. of this final rule with comment period, we are revising the global period for these services. We do not anticipate this change will have a significant impact on Medicare expenditures. Current brachytherapy coding allows for billing only one time for the entire physician services provided during a 90-day period. Any expected increase in the billing of brachytherapy physician services is offset by the reduction in the work RVUs.

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

As discussed in section II.E.3. of this final rule with comment period, section 5112 of the DRA authorizes coverage of an ultrasound screening for abdominal aortic aneurysms effective January 1, 2007, subject to certain eligibility and other limitations. We estimate that this new benefit would result in an increase in Medicare expenditures to physicians and other practitioners and suppliers of ultrasound services and related follow-up tests and treatment that may be required as a result of the coverage of these screening examinations. However, this is not expected to have a significant cost impact on the Medicare program because of the limited scope of the benefit.

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

As discussed in section II.E.4. of this final rule with comment period, beginning January 1, 2007, colorectal cancer screening services as described in section 1861(pp)(1) of the Act are no longer subject to the Part B deductible. While waiver of this deductible will be beneficial to Medicare beneficiaries, we do not anticipate that this change will have a significant cost impact on the Medicare program.

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

As discussed in section II.E.5. of this final rule with comment period, section 5114 of the DRA amended section 1861(aa)(3) the Act to add DSMT and MNT to the list of Medicare covered and reimbursed services under the Medicare FQHC benefit, effective for services provided on or after January 1, 2006. Although this statutory change has already been implemented in administrative instructions, we proposed to conform the regulations to meet the new statutory requirement. FQHCs certified as DSMT and MNT providers have been allowed to bundle the cost of those services into their FQHC payment rates. But before the enactment of the DRA, the provision of these services would not generate a separate FQHC visit payment. Effective for services furnished on or after January 1, 2006, FQHCs that are certified providers of DSMT and MNT services can receive per visit payments for covered services furnished by registered dietitians or nutrition professionals. Because there are a limited number of qualified centers for DSMT and MNT services, the increase in Medicare expenditures should be negligible.

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

While it is difficult to quantify the impact of clarifications in ASP reporting guidelines on Medicare expenditures, we expect that the changes discussed in section II.F. of this final rule with comment period, for payment for covered outpatient drugs and biologicals, will have a minimal impact on Medicare expenditures.

H. Provisions Related to Payment for Renal Dialysis Services Furnished by End State Renal Disease (ESRD) Facilities

In section II.G. of this final rule with comment period, we discuss the ESRD-related provisions. To understand the impact of the changes affecting payments to different categories of ESRD facilities, it is necessary to compare estimated payments under the current year (2006 payments) to estimated payments under the revisions to the composite rate payment system as discussed in II.G. of this final rule with comment period (2007 payments). To estimate the impact among various classes of ESRD facilities, it is imperative that the estimates of current payments and projected payments contain similar inputs. Therefore, we simulated payments only for those ESRD facilities that we are able to calculate both current 2006 payments and 2007 payments.

ESRD providers were grouped into the categories based on characteristics provided in the Online Survey and Certification and Reporting (OSCAR) file and the most recent cost report data from the Healthcare Cost Report Information System (HCRIS). We also used the June 2006 update of CY 2005 National Claims History file as a basis for Medicare dialysis treatments and separately billable drugs and biologicals. Due to data limitations, we are unable to estimate current and proposed payments for 130 of the 4,669 ESRD facilities that bill for ESRD dialysis treatments.

Table 37.--Impact of CY 2007 Changes in Payments to Hospital Based and Independent ESRD Facilities [Percent change in composite rate payments to ESRD facilities (both program and beneficiaries)]

Number of Number of dialysis

Effect of Overall effect facilities treatments changes in

\2\ (in millions) wage index \1\

All Providers...................................

4,539

34.4

0.0

0.5

Independent.................................

3,958

30.7

-0.1

0.5

Hospital Based..............................

581

3.7

0.4

1.0 By Facility Size:

Less than 5000 treatments...................

1,628

4.6

-0.3

0.2

5000 to 9999 treatments.....................

1,756

12.9

0.0

0.5

Greater than 9999 treatments................

1,155

16.9

0.1

0.6

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By Type of Ownership:

Profit......................................

3,607

27.8

-0.1

0.4

Nonprofit...................................

932

6.6

0.3

0.8 By Geographic Location:

Rural.......................................

1,217

7.0

-0.6

0.0

Urban.......................................

3,322

27.4

0.1

0.7 By Region:

New England.................................

152

1.2

1.1

1.6

Middle Atlantic.............................

549

4.4

0.6

1.1

East North Central..........................

716

5.4

-0.5

0.1

West North Central..........................

341

1.9

-0.4

0.1

South Atlantic..............................

1,014

7.9

0.0

0.5

East South Central..........................

358

2.6

-1.1

-0.6

West South Central..........................

633

4.7

-0.7

-0.1

Mountain....................................

245

1.6

0.1

0.7

Pacific.....................................

500

4.2

1.1

1.7

Puerto Rico.................................

31

0.4

-1.6

-1.1

\1\ This column shows the effect of wage index changes on ESRD providers. Composite rate payments computed using the current wage index are compared to composite rate payments using the CY 2007 wage index changes. \2\ This column shows the percent change between CY 2007 and CY 2006 composite rate payments to ESRD facilities. The CY 2007 payments include the CY 2007 wage adjusted composite rate, and the 15.1 percent drug add-on times treatments. The CY 2006 payments to ESRD facilities includes the CY 2006 wage adjusted composite rate and the 14.5 percent drug add-on times treatments.

Table 37 shows the impact of this year's changes to CY 2007 payments to hospital-based and independent ESRD facilities. The first column of Table 37 identifies the type of ESRD provider, the second column indicates the number of ESRD facilities for each type, and the third column indicates the number of dialysis treatments.

The fourth column shows the effect of CY 2007 changes to the ESRD wage index as it affects the composite rate payments to ESRD facilities. The fourth column compares aggregate ESRD wage adjusted composite rate payments in the second year of the transition (CY 2007) to aggregate ESRD wage adjusted composite rate payments in first year of the transition (CY 2006). In the second year of the transition (CY 2007), ESRD facilities receive 50 percent of the CBSA wage adjusted composite rate and 50 percent of the MSA wage adjusted composite rate. In the first year of the transition, ESRD facilities receive 25 percent of the CBSA wage adjusted composite rate and 75 percent of the MSA wage adjusted composite rate. The overall effect to all ESRD providers in aggregate is zero because the CY 2007 ESRD wage index has been multiplied by a BNF to comply with the statutory requirement that any wage index revisions be done in a manner that results in the same aggregate amount of expenditures as would have been made without any changes in the wage index. The decreases shown among census regions is primarily due to reducing the wage index floor, as there were areas in these areas with wage index values below the floor.

The fifth column shows the overall effect of the changes in composite rate payments to ESRD providers. The overall effect is measured as the difference between the projected CY 2007 payment with all changes in this final rule and CY 2006 payment. This payment amount is computed by multiplying the wage adjusted composite rate with the drug add-on for each provider times the number of dialysis treatments from 2005 claims. The projected CY 2007 payment is the transition year 2 wage-adjusted composite rate for each provider (with the 15.1 percent drug add-on) times dialysis treatments from CY 2005 claims. The CY 2006 current payment is the transition year 1 wage-adjusted composite rate for each provider (with the current 14.5 percent drug add-on) times dialysis treatments from CY 2005 claims.

The overall impact to ESRD providers in aggregate is 0.5 percent. This increase corresponds to the 0.5 percent increase to the drug add- on. The variation seen in column 5 is due to variation in changes in the wage index (column 4). All provider types receive the same 0.5 percent increase to the drug add-on.

Comment: We received a comment requesting that we update the impact table to reflect the current Puerto Rico ESRD provider count and treatment count.

Response: The impact table shows the same provider count the commenter suggested. However, our tabulation of the 2005 claims data indicates that there are 0.4 million treatments rather than the 0.55 million treatment count furnished by the commenter.

I. Private Contracts and Opt-out Provision

The changes discussed in this final rule with comment period, for private contracts and the opt-out provision, are currently estimated to have no significant impact on Medicare expenditures as the number of physicians and practitioners who opt-out of Medicare is very small.

J. Supplier Access to Claims Billed on Reassignment

The reassignment provisions discussed in section II.J.2. of this final rule with comment period are amending the reassignment regulations so that employees will have the same ``unrestricted access to billing records,'' that has been afforded to independent contractors since January 1, 2005. We are simply extending this right to access one's billing records to employees. This change should have no impact on Medicare expenditures.

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

[[pp. 69773-69822]] Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulan[[Page 69773]]

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K. Coverage of Bone Mass Measurement

As discussed in section II.K. of this final rule with comment period, we discuss several revisions to Sec. 410.31 relative to the definition of the term ``Bone Mass Measurement'' (Sec. 410.31(a)(2)), the conditions for coverage (Sec. 410.31(b)), the examples of exceptions to the standards on frequency of coverage (Sec. 410.31(c)(2)), and the category of individuals receiving glucocorticoid (steroid) therapy (Sec. 410.31(d)(3)). We also discuss the addition of a new paragraph (f) that would allow CMS, through the NCD process, to identify additional BMM systems for monitoring individuals receiving osteoporosis drug therapy and for performing confirmatory baseline measurements. We do not expect that this addition would have a significant cost impact on the Medicare program in the next several years.

Based on the projected impact of the first three changes that would place greater reliance on the use of the more expensive DXA (axial skeleton) devices, we estimate that this revised benefit would result in an increase in Medicare payments for providers who use the DXA (axial skeleton) devices and a somewhat smaller decrease in payments to providers who use QCT (axial skeleton) and peripheral devices. However, we do not expect that these changes would have a significant cost impact on the Medicare program because, at present, a very small percentage of our total Medicare payments for bone mass measurements are being made to providers who use QCT or peripheral devices. In addition, we estimate that lowering the eligibility standard for coverage of individuals on steroid therapy from 7.5 mg/day to 5.0 mg/ day of prednisone (the fourth change) would result in an increase in Medicare payment for testing of additional patients, but this modest lowering of the steroid standard is not expected to have a significant cost impact on the program.

L. IDTF Changes

The costs associated with these changes are as follows. 1. Liability Insurance Requirement (Sec. 424.57(c)(10))

We estimate that only 10 percent of IDTFs do not already have liability insurance that meets this requirement. Based on Medicare data as of June 2005, 10 percent of the total number of IDTF's is approximately 559 suppliers. Using the previously highest estimate received ($1,800 annually), results in an approximate additional liability insurance cost of $1 million annually (559 times $1,800) to the IDTF industry due to this final rule with comment period. 2. Primary Business Telephone Listed Under the Name of the Business Locally or Toll-free for Beneficiaries Requirement (Sec. 424.57(c)(9))

We estimate that only 1 percent of IDTFs do not already meet this requirement. Based on Medicare data as of June 2005, we determined that 1 percent of IDTFs is approximately 56 suppliers. Therefore, 56 times the approximate $600 annual cost of telephone service results in an additional cost of $33,600 annually. Total Cost = $1 million + $33,600 = approximately $1.04 million annually.

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

The most current information on the number of affected hospitals and the impact on laboratories and hospitals comes from a report issued by GAO in September 2003.

The GAO estimated that approximately 95 percent of the total of all Medicare hospitals on the prospective payment system, as well as CAHs sent the TC of physician pathology services to independent laboratories and the independent laboratories billed the carrier under the PFS.

The GAO estimated that the median number of services sent by each hospital to outside independent laboratories was small, approximately 81 services. The GAO was unable to identify the number of laboratories billing for the TC service because a single laboratory may submit claims under multiple provider numbers. In general, the impact on the individual hospital is small; however, we do not know the impact on the individual independent laboratory.

If the independent laboratories had not received payments from the carriers for these TC services for hospital patients, the GAO estimates that Medicare spending would have been $42 million less in 2001 and beneficiary cost sharing obligations for inpatient and outpatient services would have been reduced by $2 million.

Based on what they learned from the hospital industry, the GAO thought that Medicare beneficiaries' access to pathology services would not likely be affected if independent laboratories could no longer bill the carrier for these services. Hospital representatives indicated that they would likely continue to use independent laboratories to provide TC pathology services.

It is unclear if the hospitals contracting with independent laboratories would pay the laboratories at the same rates that the laboratories received by billing the Medicare carriers under the PFS.

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

This codification of our process for public consultation for new clinical diagnostic laboratory tests paid under the Medicare Part B clinical laboratory fee schedule does not increase or decrease payment amounts for existing clinical diagnostic laboratory tests because it does not alter our current methodology for calculating payment amounts for existing clinical diagnostic laboratory tests. For new tests, this change primarily codifies an existing process for the determination of payment amounts. Because any new laboratory tests to be gapfilled are unknown to us at the current time, we do not have any data to estimate the impact of our policy to pay for new gapfilled lab tests at the median of the local carrier amounts for all carriers rather than the lower of that amount and the local carrier amount.

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

This is a clarification of a longstanding policy and, therefore, has no associated dollar impact.

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

We believe that the overall effect of adopting the CBSA-based geographic definitions, as well as the RUCAs will result in a redistribution of payments from urban to rural areas in some States and from rural to urban areas in other States; however, the RUCAs will enable rural areas with a rurality level of 4.0 or greater in all counties in all States to remain rural rather than only recognizing those rural areas in large counties per the Goldsmith Modification. We have included three tables to reflect the impact of the geographic changes. These three tables reflect the CBSA-based definitions, as well as the RUCAs. Table 38 is a State-by-State analysis of urban and rural areas after all geographic changes have been implemented. As can be seen in this table, there is not a great deal of difference between the number of zip codes that move from rural to urban

[[Page 69774]]

(2,328--5.56 percent) and the number of zip codes that move from urban to rural (1,870--4.46 percent). There are a total of 41,888 zip codes-- an average of 89.98 percent of all zip codes do not change their geographic designation. Table 39 is an analysis of all the areas to which commenters referred as specific concerns for them in response to the proposed rule. The table is arranged by State, and, within each State, by zip code area based on the information provided by the commenters (some commenters mentioned counties or townships). We translated those concerns into the appropriate zip code areas within each State. This table shows the actual RUCA rurality level of each of these zip code areas. If the area is, indeed, designated urban (a rurality level of less than 4.0), a ``yes'' is indicated in the ``Urban Zip?'' column, and the associated town or city is named in the following column as a reference point. Approximately half of the areas about which commenters were specifically concerned remained rural once the RUCA rurality level was applied. The third and final table is Addendum I which shows all zip codes nationally by State and the rurality level associated with each zip code.

In addition, we contend that with the use of updated geographical areas where rural areas are redesignated as urban areas, it will be more likely than not, that some level of population growth has occurred resulting in more ambulance trips overall than had occurred prior to the use of the updated geographical areas, even though these trips are paid at a lower rate per trip (areas designated as rural generally receive a higher payment per trip than areas designated as urban).

In contrast, where urban areas are redesignated as rural, there will be fewer trips than were reported prior to the use of the updated geographical areas, but at higher rates. Thus, although ambulance suppliers and providers may bill fewer rural trips at the higher rate or more urban trips at the lower rate, we anticipate that the overall payments will remain the same. For these reasons, we estimate that this proposed rule will have no fiscal impact on the Medicare program because payments will, in effect, be redistributed.

We estimate that the total program expenditure for CY 2007 for ambulance services covered by the Medicare program is approximately $4.8 billion. Application of an AIF of 4.3 percent will result in an additional total program expenditure for CY 2007 of approximately $206 million over CY 2006 expenditures.

With respect to our SCT policies, while we believe ambulance suppliers and providers may now better understand the interfacility requirements and the personnel requirements for payment of SCT services, we do not expect any significant net impact on Medicare expenditures. BILLING CODE 4120-01-P

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Q. Alternatives Considered

This final rule with comment period contains a range of policies, including some provisions related to specific MMA provisions. The preamble provides descriptions of the statutory provisions that are addressed, identifies those policies when discretion has been exercised, presents rationale for our decisions and, where relevant, alternatives that were considered.

R. Impact on Beneficiaries

There are a number of changes made in this final rule with comment period that would have an effect on beneficiaries. In general, we believe these changes, particularly the DRA provisions that provide for an exception to the application of the Part B deductible with respect to colorectal cancer screening tests and coverage of an ultrasound screening for the early detection of AAAs as part of the IPPE benefit (referred to as the Welcome to Medicare benefit) will improve beneficiary access to services that are currently covered or expand the Medicare benefit package to include new services. As explained in more detail below in this section, the regulatory provisions may affect beneficiary liability in some cases. Any changes in aggregate beneficiary liability from a particular provision would be a function of the coinsurance (20 percent

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if applicable for the particular provision after the beneficiary has met the deductible) and the effect of the aggregate cost (savings) of the provision on the calculation of the Medicare Part B premium rate (generally 25 percent of the provision's cost or savings).

To illustrate this point, as shown in Table 36, the 2006 national payment amount in the nonfacility setting for CPT code 99203 (Office/ outpatient visit, new), is $97.02 which means that currently a beneficiary is responsible for 20 percent of this amount, or $19.40. Based on this final rule with comment period, the 2007 national payment amount in the nonfacility setting for CPT code 99203, as shown in Table 36, is $87.44 which means that, in 2007, the beneficiary coinsurance for this service would be $17.49.

Policies discussed above in this section that do affect overall spending, such as DRA 5102 imaging provisions, would similarly impact beneficiaries' coinsurance.

S. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf ), in Table 40, we have

prepared an accounting statement showing the classification of the expenditures associated with this final rule with comment period. This table provides our best estimate of the decrease in Medicare payments under the physician fee schedule as a result of the provisions presented in this final rule with comment period for CY 2007. All expenditures are classified as transfers.

Table 40.--Accounting Statement: Classification of Estimated CY 2007 Expenditures Associated With CY 2007 Final Rule Provisions

Category

Transfers

Annualized Monetized Transfers......... Estimated decrease in expenditures of $3.7 billion. From Whom To Whom?..................... Federal Government to physicians, other practitioners and suppliers who receive payment under the Medicare Physician Fee Schedule; ESRD Medicare Providers; ambulance suppliers, and Medicare suppliers billing for Part B drugs.

In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 405

Administrative practice and procedure, Health facilities, Health professions, Kidney diseases, Medical devices, Medicare, Reporting and recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 410

Health facilities, Health professions, Kidney diseases, Laboratories, Medicare, Reporting and recordkeeping requirements, Rural areas, X-rays.

42 CFR Part 411.

Kidney diseases, Medicare, Physician Referral, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Reporting and recordkeeping requirements.

42 CFR part 414

Administrative practice and procedure, Health facilities, Health professions, Kidney diseases, Medicare, Reporting and recordkeeping.

42 CFR Part 415

Health facilities, Health professions, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 424

Emergency medical services, Health facilities, Health professions, Medicare, Reporting and recordkeeping requirements.

0 For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services amends 42 CFR chapter IV as follows:

PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED

0 1. The authority citation for part 405 continues to read as follows:

Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and 1886(k) of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a), 1395hh, 1395kk, 1395rr, and 1395ww(k)), and sec. 353 of the Public Health Service Act (42 U.S.C. 263a).

Subpart D--Private Contracts

0 2. Section 405.400 is amended by revising the definition of ``Practitioner'' to read as follows:

Sec. 405.400 Definitions.

* * * * *

Practitioner means a physician assistant, nurse practitioner, clinical nurse specialist, certified registered nurse anesthetist, certified nurse midwife, clinical psychologist, clinical social worker, registered dietitian or nutrition professional, who is currently legally authorized to practice in that capacity by each State in which he or she furnishes services to patients or clients. * * * * *

Subpart X--Rural Health Clinic and Federally Qualified Health Center Services Payment for Rural Health Clinic and Federally Qualified Health Center Services

0 3. Section 405.2446 is amended by adding paragraph (b)(10) to read as follows:

Sec. 405.2446 Scope of services.

* * * * *

(b) * * *

(10) Medical nutrition therapy services as specified in part 410, subpart G of this chapter, and diabetes outpatient self-management training services as specified in part 410, subpart H of this chapter. * * * * *

0 4. Section 405.2463 is revised to read as follows:

Sec. 405.2463 What constitutes a visit.

(a) Visit--(1) General. (i) For rural health clinics, a visit is a face-to-face encounter between a clinic or center patient and a physician, physician assistant, nurse practitioner, nurse midwife, visiting nurse, clinical psychologist, or clinical social worker.

(ii) For FQHCs, a visit is--

(A) A face-to-face encounter, as described in paragraph (a)(1)(i) of this section; or

(B) A face-to-face encounter between a patient and a qualified provider of medical nutrition therapy services as

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defined in part 410, subpart G of this chapter; or a qualified provider of outpatient diabetes self-management training services as defined in part 410, subpart H of this chapter.

(2) Medical visit. A medical visit is a face-to-face encounter between a clinic or center patient and a physician, physician assistant, nurse practitioner, nurse midwife, or a visiting nurse; and for FQHCs only, a medical visit also includes a separately billable medical nutrition therapy visit or a diabetes outpatient self- management training visit.

(3) Other health visit. An other health visit is a face-to-face encounter between a clinic or center patient and a clinical psychologist, clinical social worker, or other health professional for mental health services.

(b) Encounters. Encounters with more than one health professional and multiple encounters with the same health professional that take place on the same day and at a single location constitute a single visit, except when one of the following conditions exist:

(1) After the first encounter, the patient suffers illness or injury requiring additional diagnosis or treatment.

(2) The patient has a medical visit and other health visit(s), as defined in paragraph (a) of this section.

(c) Payment. Medicare pays for more than one visit per day when the conditions in paragraph (b) of this section are met or a separate visit under paragraph (a)(1)(ii)(B) of this section is made.

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

0 5. The authority citation for part 410 continues to read as follows:

Authority: Secs. 1102, 1834, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395m, and 1395hh).

Subpart B--Medical and Other Health Services

0 6. In Sec. 410.16 paragraph (a) is amended by revising paragraph (7) of the definition of ``initial preventive physical examination'' to read as follows:

Sec. 410.16 Initial preventive physical examination: Conditions for and limitations on coverage.

(a) * * * * * * * *

Initial preventive physical examination * * *.

(7) Education, counseling, and referral, including a written plan such as a checklist provided to the beneficiary for obtaining the appropriate screening and other preventive services that are covered as separate Medicare Part B benefits as described in section 1861(s)(10), section 1861(jj), section 1861(nn), section 1861(oo), section 1861(pp), section 1861(qq)(1), section 1861(rr), section 1861(uu), section 1861(vv), section 1861(xx)(1), section 1861(yy), and section 1861(bbb) of the Act. * * * * *

0 7. A new Sec. 410.19 is added to read as follows:

Sec. 410.19 Ultrasound screening for abdominal aortic aneurysms: Condition for and limitation on coverage.

(a) Definitions: As used in this section, the following definitions apply:

Eligible beneficiary means an individual who--

(1) Has received a referral for an ultrasound screening for an abdominal aortic aneurysm as a result of an initial preventive physical examination (as defined in section 1861(ww)(1) of the Act);

(2) Has not been previously furnished an ultrasound screening for an abdominal aortic aneurysm under Medicare program; and

(3) Is included in at least one of the following risk categories:

(i) Has a family history of an abdominal aortic aneurysm.

(ii) Is a man age 65 to 75 who has smoked at least 100 cigarettes in his lifetime.

(iii) Is an individual who manifests other risk factors in a beneficiary category recommended for screening by the United States Preventive Services Task Force regarding abdominal aortic aneurysms, as specified by the Secretary through a national coverage determination process.

Ultrasound screening for abdominal aortic aneurysms means the following services furnished to an asymptomatic individual for the early detection of an abdominal aortic aneurysm:

(1) A procedure using soundwaves (or other procedures using alternative technologies of commensurate accuracy and cost, as specified by the Secretary through a national coverage determination process) provided for the early detection of abdominal aortic aneurysms.

(2) Includes a physician's interpretation of the results of the procedure.

(b) Conditions for coverage of an ultrasound screening for abdominal aortic aneurysms. Medicare Part B pays for one ultrasound screening for an abdominal aortic aneurysm provided to eligible beneficiaries, as described in this section, after a referral from a physician or a qualified nonphysician practitioner as defined in Sec. 410.16(a), when the test is performed by a provider or supplier that is authorized to provide covered ultrasound diagnostic services.

(c) Limitation on coverage of ultrasound screening for abdominal aortic aneurysms. Payment may not be made for an ultrasound screening for an abdominal aortic aneurysm that is performed for an individual that does not meet the definition of ``eligible beneficiary'' specified in this section.

0 8. Section 410.31 is revised to read as follows:

Sec. 410.31 Bone mass measurement: Conditions for coverage and frequency standards.

(a) Definition. As used in this section unless specified otherwise, the following definition applies:

Bone mass measurement means a radiologic, radioisotopic, or other procedure that meets the following conditions:

(1) Is performed for the purpose of identifying bone mass, detecting bone loss, or determining bone quality.

(2) Is performed with either a bone densitometer (other than single-photon or dual-photon absorptiometry) or with a bone sonometer system that has been cleared for marketing for this use by the FDA under 21 CFR part 807, or approved for marketing by the FDA for this use under 21 CFR part 814.

(3) Includes a physician's interpretation of the results of the procedure.

(b) Conditions for coverage. (1) Medicare covers a medically necessary bone mass measurement if the following conditions are met:

(i) Following an evaluation of the beneficiary's need for the measurement, including a determination as to the medically appropriate procedure to be used for the beneficiary, it is ordered by the physician or a qualified nonphysician practitioner (as these terms are defined in Sec. 410.32(a)) treating the beneficiary.

(ii) It is performed under the appropriate level of supervision of a physician (as set forth in Sec. 410.32(b)).

(iii) It is reasonable and necessary for diagnosing and treating the condition of a beneficiary who meets the conditions described in paragraph (d) of this section.

(2) Medicare covers a medically necessary bone mass measurement for an individual defined under paragraph (d)(5) of this section if the conditions under paragraph (b)(1) of this section are met and the monitoring is performed

[[Page 69784]]

by the use of a dual energy x-ray absorptiometry system (axial skeleton).

(3) Medicare covers a medically necessary confirmatory baseline bone mass measurement for an individual defined under paragraph (d) of this section, if the conditions under paragraph (b)(1) of this section are met and the confirmatory baseline bone mass measurement is performed by a dual energy x-ray absorptiometry system (axial skeleton) and the initial measurement was not performed by a dual energy x-ray absorptiometry system (axial skeleton).

(c) Standards on frequency of coverage--(1) General rule. Except as allowed under paragraph (c)(2) of this section, Medicare may cover a bone mass measurement for a beneficiary if at least 23 months have passed since the month the last bone mass measurement was performed.

(2) Exception. If medically necessary, Medicare may cover a bone mass measurement for a beneficiary more frequently than allowed under paragraph (c)(1) of this section. Examples of situations where more frequent bone mass measurement procedures may be medically necessary include, but are not limited to the following medical circumstances:

(i) Monitoring beneficiaries on long-term glucocorticoid (steroid) therapy of more than 3 months.

(ii) Allowing for a confirmatory baseline measurement to permit monitoring of beneficiaries in the future if the requirements of paragraph (b)(3) of this section are met.

(d) Beneficiaries who may be covered. The following categories of beneficiaries may receive Medicare coverage for a medically necessary bone mass measurement:

(1) A woman who has been determined by the physician (or a qualified nonphysician practitioner) treating her to be estrogen- deficient and at clinical risk for osteoporosis, based on her medical history and other findings.

(2) An individual with vertebral abnormalities as demonstrated by an x-ray to be indicative of osteoporosis, osteopenia, or vertebral fracture.

(3) An individual receiving (or expecting to receive) glucocorticoid (steroid) therapy equivalent to an average of 5.0 mg of prednisone, or greater, per day for more than 3 months.

(4) An individual with primary hyperparathyroidism.

(5) An individual being monitored to assess the response to or efficacy of an FDA-approved osteoporosis drug therapy.

(e) Denial as not reasonable and necessary. If CMS determines that a bone mass measurement does not meet the conditions for coverage in paragraphs (b) or (d) of this section, or the standards on frequency of coverage in paragraph (c) of this section, it is excluded from Medicare coverage as not ``reasonable'' and ``necessary'' under section 1862(a)(1)(A) of the Act and Sec. 411.15(k) of this chapter.

(f) Use of the National Coverage Determination Process. For the purposes of paragraphs (b)(2) and (b)(3) of this section, CMS may determine through the National Coverage Determination process that additional bone mass measurement systems are reasonable and necessary under section 1862(a)(1) of the Act for monitoring and confirming baseline bone mass measurements. * * * * *

0 9. Section 410.33 is amended by-- 0 A. Revising paragraph (b)(1). 0 B. Revising paragraph (e). 0 C. Adding paragraphs (g) and (h).

The revision and additions read as follows:

Sec. 410.33 Independent diagnostic testing facility.

* * * * *

(b) Supervising physician. (1) Each supervising physician must be limited to providing supervision to no more than three IDTF sites. The IDTF supervising physician is responsible for the overall operation and administration of the IDTFs, including the employment of personnel who are competent to perform test procedures, record and report test results promptly, accurately and proficiently, and for assuring compliance with the applicable regulations. * * * * *

(e) Multi-State entities. (1) An IDTF that operates across State boundaries must--

(i) Maintain documentation that its supervising physicians and technicians are licensed and certified in each of the States in which it operates; and

(ii) Operate in compliance with all applicable Federal, State, and local licensure and regulatory requirements with regard to the health and safety of patients.

(2) The point of the actual delivery of service means the place of service on the claim form. When the IDTF performs or administers an entire diagnostic test at the beneficiary's location, the beneficiary's location is the place of service. When one or more aspects of the diagnostic testing are performed at the IDTF, the IDTF is the place of service. * * * * *

(g) Application certification standards. The IDTF must certify in its enrollment application that it meets the following standards and related requirements:

(1) Operates its business in compliance with all applicable Federal and State licensure and regulatory requirements for the health and safety of patients.

(2) Provides complete and accurate information on its enrollment application. Any change in enrollment information must be reported to the designated fee-for-service contractor on the Medicare enrollment application within 30 calendar days of the change.

(3) Maintains a physical facility on an appropriate site. For the purposes of this standard, a post office box or commercial mail box is not considered a physical facility. The physical facility, including mobile units, must contain space for equipment appropriate to the services designated on the enrollment application, facilities for hand washing, adequate patient privacy accommodations, and the storage of both business records and current medical records within the office setting of the IDTF, or IDTF home office, not within the actual mobile unit.

(4) Has all applicable diagnostic testing equipment available at the physical site excluding portable diagnostic testing equipment. The IDTF must--

(i) Maintain a catalog of portable diagnostic equipment, including diagnostic testing equipment serial numbers at the physical site;

(ii) Make portable diagnostic testing equipment available for inspection within 2 business days of a CMS inspection request.

(iii) Maintain a current inventory of the diagnostic testing equipment, including serial and registration numbers and provide this information to the designated fee-for-service contractor upon request, and notify the contractor of any changes in equipment within 90 days.

(5) Maintain a primary business phone under the name of the designated business. The IDTF must have its--

(i) Primary business phone located at the designated site of the business or within the home office of the mobile IDTF units.

(ii) Telephone or toll free telephone numbers available in a local directory and through directory assistance.

(6) Have a comprehensive liability insurance policy of at least $300,000 per

[[Page 69785]]

location that covers both the place of business and all customers and employees of the IDTF. The policy must be carried by a nonrelative- owned company and list the serial numbers of any and all diagnostic equipment used by the IDTF, whether the equipment is stationary, in a mobile unit, or at the beneficiary's residence.

(7) Agree not to directly solicit patients, which include, but is not limited to, a prohibition on telephone, computer, or in-person contacts. The IDTF must accept only those patients referred for diagnostic testing by an attending physician, who is furnishing a consultation or treating a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary's specific medical problem. Nonphysician practitioners may order tests as set forth in Sec. 410.32(a)(3).

(8) Answer beneficiaries' questions and respond to their complaints.

(9) Openly post these standards for review by patients and the public.

(10) Disclose to the government any person having ownership, financial, or control interest or any other legal interest in the supplier at the time of enrollment or within 30 days of a change.

(11) Have its testing equipment calibrated and maintained per equipment instructions and in compliance with applicable manufacturers suggested maintenance and calibration standards.

(12) Have technical staff on duty with the appropriate credentials to perform tests. The IDTF must be able to produce the applicable Federal or State licenses or certifications of the individuals performing these services.

(13) Have proper medical record storage and be able to retrieve medical records upon request from CMS or its fee-for-service contractor within 2 business days.

(14) Permit CMS, including its agents, or its designated fee-for- service contractors, to conduct unannounced, on-site inspections to confirm the IDTF's compliance with these standards. The IDTF must--

(i) Be accessible during regular business hours to CMS and beneficiaries; and

(ii) Maintain a visible sign posting its normal business hours.

(h) Failure to meet standards. If an IDTF fails to meet one or more of the standards in paragraph (g) of this section at the time of enrollment, its enrollment will be denied. CMS will revoke a supplier's billing privileges if and IDTF is found not to meet the standards in paragraph (g) or (b)(1) of this section.

Subpart I--Payment of SMI Benefits

0 10. Section 410.160 is amended by adding paragraphs (b)(7) and (b)(8) to read as follows:

Sec. 410.160 Part B annual deductible.

* * * * *

(b) * * *

(7) Beginning January 1, 2007, colorectal cancer screening tests as described in Sec. 410.37.

(8) Beginning January 1, 2007, ultrasound screening for abdominal aortic aneurysms described in Sec. 410.19. * * * * *

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT

0 11. The authority citation for part 411 is amended to read as follows:

Authority: Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w- 152, 1395hh, and 1395nn).

Subpart A--General Exclusions and Exclusion of Particular Services

0 12. Section 411.15 is amended by-- 0 A. Revising paragraph (a)(1). 0 B. Adding a new paragraph (k)(12). 0 C. Revising paragraph (o).

The revisions and addition read as follows:

Sec. 411.15 Particular services excluded from coverage.

* * * * *

(a) * * *

(1) Examinations performed for a purpose other than treatment or diagnosis of a specific illness, symptoms, complaint, or injury, except for screening mammography, colorectal cancer screening tests, screening pelvic exams, prostate cancer screening tests, glaucoma screening exams, initial preventive physical examinations, or ultrasound screening for abdominal aortic aneurysms that meet the criteria specified in paragraphs (k)(6) through (k)(12) of this section. * * * * *

(k) * * *

(12) In the case of ultrasound screening for abdominal aortic aneurysms, with the goal of early detection of abdominal aortic aneurysms, subject to the conditions and limitation specified in Sec. 410.19 of this chapter. * * * * *

(o) Experimental or investigational devices. Experimental or investigational devices, except for certain devices--

(1) Categorized by the FDA as a Category A or B device defined in Sec. 405.201(b) of this chapter; and

(2) Furnished in accordance with the CMS clinical research policy. * * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVICES; PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES

0 13. The authority citation for part 413 continues to read as follows:

Authority: Secs. 1102, 1138(b), 1812(d), 1814(b), 1815, 1833(a), (i), and (n), 1871, 1881, 1883, and 1886 of the Social Security Act (42 U.S.C. 1302, 1320b-8(b), 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 1395hh, 1395rr, 1395tt, and 1395ww).

Subpart F--Specific Categories of Costs

0 14. Section 413.89 is amended by revising paragraphs (a) and (i) to read as follows:

Sec. 413.89 Bad debts, charity, and courtesy allowances.

(a) Principle. Bad debts, charity, and courtesy allowances are deductions from revenue and are not to be included in allowable cost. However, subject to the limitations described under paragraph (h) of this section and the exception for services described under paragraph (i) of this section, bad debts attributable to the deductibles and coinsurance amounts are reimbursable under the program. * * * * *

(i) Exception. Bad debts arising from covered services paid under a reasonable charge-based methodology or a fee schedule are not reimbursable under the program.

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and Organ Procurement Costs

0 15. Section 413.178 is amended by adding paragraph (d) to read as follows:

Sec. 413.178 Bad debts.

* * * * *

(d) Bad debts arising from covered ESRD services paid under a reasonable charge-based methodology or a fee schedule are not reimbursable under the program.

[[Page 69786]]

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0 16. The authority citation for Part 414 continues to read as follows: * * * * *

Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

0 17. A new subpart G is added as follows:

Subpart G--Payment for New Clinical Diagnostic Laboratory Tests

Sec. 414.500 Basis and scope. 414.502 Definitions. 414.504 [Reserved] 414.506 Procedures for public consultation for payment for a new clinical diagnostic laboratory test. 414.508 Payment for a new clinical diagnostic laboratory test. 414.510 Laboratory date of service for specimens.

Subpart G--Payment for New Clinical Diagnostic Laboratory Tests

Sec. 414.500 Basis and scope.

This subpart implements provisions of 1833(h)(8) of the Act-- procedures for determining the basis for, and amount of, payment for a new clinical diagnostic laboratory test with respect to which a new or substantially revised Healthcare Common Procedure Coding System code is assigned on or after January 1, 2005.

Sec. 414.502 Definitions.

For purposes of this subpart--

Substantially Revised Healthcare Common Procedure Coding System Code means a code for which there has been a substantive change to the definition of the test or procedure to which the code applies (such as a new analyte or a new methodology for measuring an existing analyte specific test).

Sec. 414.504 [Reserved]

Sec. 414.506 Procedures for public consultation for payment for a new clinical diagnostic laboratory test.

For a new clinical diagnostic laboratory test that is assigned a new or substantially revised code on or after January 1, 2005, CMS determines the payment after the performance of the following:

(a) CMS makes available to the public (through CMS's Internet Web site) a list that includes codes for which establishment of a payment amount is being considered for the next calendar year.

(b) CMS publishes a Federal Register notice of a meeting to receive public comments and recommendations (and data on which recommendations are based) on the appropriate basis, as specified in Sec. 414.508, for establishing payment amounts for the list of codes made available to the public.

(c) Not fewer than 30 days after publication of the notice in the Federal Register, CMS convenes a meeting that includes representatives of CMS officials involved in determining payment amounts, to receive public comments and recommendations (and data on which the recommendations are based).

(d) Considering the comments and recommendations (and accompanying data) received at the public meeting, CMS develops and makes available to the public (through an Internet Web site and other appropriate mechanisms) a list of--

(1) Proposed determinations with respect to the appropriate basis for establishing a payment amount for each code, with an explanation of the reasons for each determination, the data on which the determinations are based, and a request for public written comments within a specified time period on the proposed determination; and

(2) Final determinations of the payment amounts for tests, with the rationale for each determination, the data on which the determinations are based, and responses to comments and suggestions from the public.

Sec. 414.508 Payment for a new clinical diagnostic laboratory test.

For a new clinical diagnostic laboratory test that is assigned a new or substantially revised code on or after January 1, 2005, CMS determines the payment amount based on either of the following:

(a) Crosswalking. Crosswalking is used if it is determined that a new test is comparable to an existing test, multiple existing test codes, or a portion of an existing test code.

(1) CMS assigns to the new test code, the local fee schedule amounts and national limitation amount of the existing test.

(2) Payment for the new test code is made at the lesser of the local fee schedule amount or the national limitation amount.

(b) Gapfilling. Gapfilling is used when no comparable existing test is available.

(1) In the first year, carrier-specific amounts are established for the new test code using the following sources of information to determine gapfill amounts, if available:

(i) Charges for the test and routine discounts to charges;

(ii) Resources required to perform the test;

(iii) Payment amounts determined by other payers; and

(iv) Charges, payment amounts, and resources required for other tests that may be comparable or otherwise relevant.

(2) In the second year, the test code is paid at the national limitation amount, which is the median of the carrier-specific amounts.

(3) After the first year of gapfilling, CMS determines whether the carrier-specific amounts will pay for the test appropriately. If CMS determines that the carrier-specific amounts will not pay for the test appropriately, CMS may crosswalk the test.

Sec. 414.510 Laboratory date of service for specimens.

The date of service for a laboratory test is as follows:

(a) Except as provided under paragraph (b) of this section, the date of service of the test must be the date the specimen was collected.

(b)(1) If a specimen was collected over a period that spans 2 calendar days, then the date of service must be the date the collection ended.

(2) In the case of a test performed on a stored specimen, if a specimen was stored for--

(i) Less than or equal to 30 calendar days from the date it was collected, the date of service of the test must be the date the test was performed only if--

(A) The test is ordered by the patient's physician at least 14 days following the date of the patient's discharge from the hospital;

(B) The specimen was collected while the patient was undergoing a hospital surgical procedure;

(C) It would be medically inappropriate to have collected the sample other than during the hospital procedure for which the patient was admitted;

(D) The results of the test do not guide treatment provided during the hospital stay; and

(E) The test was reasonable and medically necessary for the treatment of an illness.

(ii) More than 30 calendar days before testing, the specimen is considered to have been archived and the date of service of the test must be the date the specimen was obtained from storage.

(3) In the case of a chemotherapy sensitivity test performed on live tissue, the date of service of the test must be the date the test was performed only if--

[[Page 69787]]

(i) The decision regarding the specific chemotherapeutic agents to test is made at least 14 days after discharge;

(ii) The specimen was collected while the patient was undergoing a hospital surgical procedure;

(iii) It would be medically inappropriate to have collected the sample other than during the hospital procedure for which the patient was admitted;

(iv) The results of the test do not guide treatment provided during the hospital stay; and,

(v) The test was reasonable and medically necessary for the treatment of an illness.

(4) For purposes of this section, ``chemotherapy sensitivity test'' means a test identified by the Secretary as a test that requires a fresh tissue sample to test the sensitivity of tumor cells to various chemotherapeutic agents. The Secretary identifies such tests through program instructions.

Subpart H--Fee Schedule for Ambulance Services

0 18. Section 414.605 is amended by-- 0 A. Removing the definition of ``Goldsmith modification.'' 0 B. Revising the definition of ``rural area.'' 0 C. Adding the definition of ``urban area'' in alphabetical order.

The revisions and addition read as follows:

Sec. 414.605 Definitions.

* * * * *

Rural area means an area located outside an urban area, or a rural census tract within a Metropolitan Statistical Area as determined under the most recent version of the Goldsmith modification as determined by the Office of Rural Health Policy of the Health Resources and Services Administration. * * * * *

Urban area means a Metropolitan Statistical Area, as defined by the Executive Office of Management and Budget.

0 19. Section 414.610 is amended by revising paragraph (g) to read as follows:

Sec. 414.610 Basis of payment.

* * * * *

(g) Adjustments. The Secretary monitors payment and billing data on an ongoing basis and adjusts the CF and air ambulance rates as appropriate to reflect actual practices under the fee schedule. These rates are not adjusted solely because of changes in the total number of ambulance transports.

Subpart J--Submission of Manufacturer's Average Sales Price Data

0 20. Section 414.802 is amended by adding the definition of ``Bona fide service fees'' in alphabetical order to read as follows:

Sec. 414.802 Definitions.

* * * * *

Bona fide service fees means fees paid by a manufacturer to an entity, that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. * * * * *

0 21. Section 414.804 is amended by revising paragraphs (a)(1) through (a)(4) to read as follows:

Sec. 414.804 Basis of payment.

(a) * * *

(1) The manufacturer's average sales price for a quarter for a drug represented by a particular 11-digit National Drug Code must be calculated as the manufacturer's sales to all purchasers in the United States for that particular 11-digit National Drug Code (after excluding sales as specified in paragraph (a)(4) of this section and then deducting price concessions as specified in paragraphs (a)(2) and (a)(3) of this section) divided by the total number of units sold by the manufacturer in that quarter (after excluding units associated with sales as specified in paragraph (a)(4) of this section).

(2) Price concessions. (i) In calculating the manufacturer's average sales price, a manufacturer must deduct price concessions. Price concessions include the following types of transactions and items:

(A) Volume discounts.

(B) Prompt pay discounts.

(C) Cash discounts.

(D) Free goods that are contingent on any purchase requirement.

(E) Chargebacks and rebates (other than rebates under the Medicaid program).

(ii) For the purposes of paragraph (a)(2)(i), bona fide services fees are not considered price concessions.

(3) To the extent that data on price concessions, as described in paragraph (a)(2) of this section, are available on a lagged basis, the manufacturer must estimate this amount in accordance with the methodology described in this paragraph.

(i)(A) For each National Drug Code with at least 12 months of sales (including products for which the manufacturer has redesignated the National Drug Code for the specific product and package size and has 12 months of sales across the prior and current National Drug Codes), after adjusting for exempted sales, the manufacturer calculates a percentage equal to the sum of the price concessions for the most recent 12-month period available associated with sales subject to the average sales price reporting requirement divided by the total in dollars for the sales subject to the average sales price reporting requirement for the same 12-month period.

(B) For each National Drug Code with less than 12 months of sales, the calculation described in paragraph (i)(A) of this section is performed for the time period equaling the total number of months of sales.

(ii) The manufacturer multiplies the applicable percentage described in paragraph (a)(3)(i)(A) or (a)(3)(i)(B) of this section by the total in dollars for the sales subject to the average sales price reporting requirement (after adjusting for exempted sales) for the quarter being submitted. (The manufacturer must carry a sufficient number of decimal places in the calculation of the price concessions percentage in order to round accurately the net total sales amount for the quarter to the nearest whole dollar.) The result of this multiplication is then subtracted from the total in dollars for the sales subject to the average sales price reporting requirement (after adjusting for exempted sales) for the quarter being submitted.

(iii) The manufacturer uses the result of the calculation described in paragraph (a)(3)(ii) of this section as the numerator and the number of units sold in the quarter (after adjusting for exempted sales) as the denominator to calculate the manufacturer's average sales price for the National Drug Code for the quarter being submitted.

(iv) Example. After adjusting for exempted sales, the total lagged price concessions (discounts, rebates, etc.) over the most recent 12- month period available associated with sales for National Drug Code 12345-6789-01 subject to the ASP reporting requirement equal $200,000, and the total in dollars for the sales subject to the average sales price reporting requirement for the same period equals $600,000. The lagged price concessions percentage for this period equals 200,000/ 600,000 = 0.33333. The total in dollars for the sales subject to the

[[Page 69788]]

average sales price reporting requirement for the quarter being reported, after accounting for non-lagged price concessions, equals $50,000 for 10,000 units sold. The manufacturer's average sales price calculation for this National Drug Code for this quarter is: $50,000- (0.33333 x $50,000) = $33,334 (net total sales amount); $33,334/10,000 = $3.33 (average sales price).

(4) Exempted sales. (i) In calculating the manufacturer's average sales price, a manufacturer must exclude sales that are exempt from inclusion in the determination of the best price under section 1927(c)(1)(C)(i) of the Act and sales that are merely nominal in amount as applied for purposes of section 1927(c)(1)(C)(ii)(III) of the Act, as limited by section 1927(c)(1)(D) of the Act.

(ii) In determining nominal sales exempted under section 1927(c)(1)(C)(ii)(III) of the Act, the manufacturer calculates the average manufacturer price as defined in section 1927(k) of the Act and then identifies sales that are eligible to be considered a nominal sale under section 1927(c)(1)(D) of the Act and are at less than 10 percent of the average manufacturer price. To identify nominal sales, the manufacturer must use the average manufacturer price for the calendar quarter that is the same calendar quarter as the average sales price reporting period. * * * * *

Subpart K--Payment for Drugs and Biologicals Under Part B

0 22. Section 414.904 is amended by revising paragraphs (d)(2)(iii) and (d)(3) to read as follows:

Sec. 414.904 Average sales price as the basis for payment.

* * * * *

(d) * * *

(2) * * *

(iii) Effective for drugs and biologicals furnished in CY 2006 and subsequent calendar years, the payment for such drugs and biologicals furnished in connection with renal dialysis services and separately billed by freestanding and hospital-based renal dialysis facilities not paid on a cost basis is the amount determined under section 1847A of the Act.

(3) Widely available market price and average manufacturer price. If the Inspector General finds that the average sales price exceeds the widely available market price or the average manufacturer price by 5 percent or more in CYs 2005, 2006, and 2007, the payment limit in the quarter following the transmittal of this information to the Secretary is the lesser of the widely available market price or 103 percent of the average manufacturer price. * * * * *

PART 415--SERVICES FURNISHED BY PHYSICIANS IN PROVIDERS, SUPERVISING PHYSICIANS IN TEACHING SETTINGS, AND RESIDENTS IN CERTAIN SETTINGS

0 23. The authority citation for part 415 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).

Subpart C--Part B Carrier Payments for Physician Services to Beneficiaries in Providers

0 24. Section 415.130 is amended by revising paragraph (d) to read as follows:

Sec. 415.130 Conditions for payment: Physician pathology services.

* * * * *

(d) Physician pathology services furnished by an independent laboratory. The technical component of physician pathology services furnished by an independent laboratory to a hospital inpatient or outpatient on or before December 31, 2006 may be paid to the laboratory by the carrier under the physician fee schedule if the Medicare beneficiary is a patient of a covered hospital as defined in paragraph (a)(1) of this section. For services furnished after December 31, 2006, an independent laboratory may not bill the carrier for the technical component of physician pathology services furnished to a hospital inpatient or outpatient.

PART 424--CONDITIONS FOR MEDICARE PAYMENT

0 25. The authority citation for part 424 continues to read as follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh).

Subpart B--Certification and Plan of Treatment Requirements

0 26. Section 424.24 is amended by-- 0 A. Redesignating paragraph (f) as paragraph (g). 0 B. Adding a new paragraph (f).

The addition reads as follows:

Sec. 424.24 Requirements for medical and other health services furnished by providers under Medicare Part B.

* * * * *

(f) Blood glucose testing. For each blood glucose test, the physician must certify that the test is medically necessary. A physician's standing order is not sufficient to order a series of blood glucose tests payable under the clinical laboratory fee schedule. * * * * *

Subpart F--Limitations on Assignment and Reassignment of Claims

0 27. Section 424.80 is amended by-- 0 A. Revising the heading of paragraph (d). 0 B. Revising paragraph (d)(2)

The revisions read as follows:

Sec. 424.80 Prohibition of reassignment of claims by suppliers.

* * * * *

(d) Reassignment to an entity under an employer-employee relationship or under a contractual arrangement: Conditions and limitations. (1) * * *

(2) Access to records. The supplier who furnishes the service has unrestricted access to claims submitted by an entity for services provided by that supplier. This paragraph applies irrespective of whether the supplier is an employee or whether the service is provided under a contractual arrangement. If an entity refuses to provide, upon request, the billing information to the supplier performing the service, the entity's right to receive reassigned benefits may be revoked under Sec. 424.82(c)(3).

(Catalog of Federal Domestic Assistance Program No. 93.774, Medicare--Supplementary Medical Insurance Program)

Dated: October 31, 2006. Leslie V. Norwalk, Acting Adminstrator, Centers for Medicare & Medicaid Services.

Approved: November 1, 2006. Michael O. Leavitt, Secretary.

Note: These addenda will not appear in the Code of Federal Regulations.

Addendum A: Explanation and Use of Addenda B

The addenda on the following pages provide various data pertaining to the Medicare fee schedule for physicians' services furnished in 2007. Addendum B contains the RVUs for work, non- facility PE, facility PE, and malpractice expense, and other information for all services included in the PFS.

In previous years, we have listed many services in Addendum B that are not paid under the PFS. To avoid publishing as many pages of codes for these services, we are not including clinical laboratory codes or the alphanumeric codes (Healthcare Common Procedure Coding System (HCPCS) codes not

[[Page 69789]]

included in CPT) not paid under the PFS in Addendum B.

Addendum B--2007 Relative Value Units and Related Information Used in Determining Medicare Payments for 2007

This addendum contains the following information for each CPT code and alphanumeric HCPCS code, except for: Alphanumeric codes beginning with B (enteral and parenteral therapy), E (durable medical equipment), K (temporary codes for nonphysicians' services or items), or L (orthotics); and codes for anesthesiology. Please also note the following:

An ``NA'' in the ``Non-facility PE RVUs'' column of Addendum B means that CMS has not developed a PE RVU in the non- facility setting for the service because it is typically performed in the hospital (for example, an open heart surgery is generally performed in the hospital setting and not a physician's office). If there is an ``NA'' in the non-facility PE RVU column, and the contractor determines that this service can be performed in the non- facility setting, the service will be paid at the facility PE RVU rate.

Services that have an ``NA'' in the ``Facility PE RVUs'' column of Addendum B are typically not paid using the PFS when provided in a facility setting. These services (which include ``incident to'' services and the technical portion of diagnostic tests) are generally paid under either the outpatient hospital prospective payment system or bundled into the hospital inpatient prospective payment system payment.

1. CPT/HCPCS code. This is the CPT or alphanumeric HCPCS number for the service. Alphanumeric HCPCS codes are included at the end of this addendum.

2. Modifier. A modifier is shown if there is a technical component (modifier TC) and a professional component (PC) (modifier -26) for the service. If there is a PC and a TC for the service, Addendum B contains three entries for the code. A code for: The global values (both professional and technical); modifier -26 (PC); and, modifier TC. The global service is not designated by a modifier, and physicians must bill using the code without a modifier if the physician furnishes both the PC and the TC of the service.

Modifier-53 is shown for a discontinued procedure, for example, a colonoscopy that is not completed. There will be RVUs for a code with this modifier.

3. Status indicator. This indicator shows whether the CPT/HCPCS code is in the PFS and whether it is separately payable if the service is covered.

A = Active code. These codes are separately payable under the PFS if covered. There will be RVUs for codes with this status. The presence of an ``A'' indicator does not mean that Medicare has made a national coverage determination regarding the service. Carriers remain responsible for coverage decisions in the absence of a national Medicare policy.

B = Bundled code. Payments for covered services are always bundled into payment for other services not specified. If RVUs are shown, they are not used for Medicare payment. If these services are covered, payment for them is subsumed by the payment for the services to which they are incident (an example is a telephone call from a hospital nurse regarding care of a patient).

C = Carriers price the code. Carriers will establish RVUs and payment amounts for these services, generally on an individual case basis following review of documentation, such as an operative report.

D* = Deleted/discontinued code.

E = Excluded from the PFS by regulation. These codes are for items and services that CMS chose to exclude from the fee schedule payment by regulation. No RVUs are shown, and no payment may be made under the PFS for these codes. Payment for them, when covered, continues under reasonable charge procedures.

F = Deleted/discontinued codes. (Code not subject to a 90-day grace period.) These codes are deleted effective with the beginning of the year and are never subject to a grace period. This indicator is no longer effective beginning with the 2005 fee schedule as of January 1, 2005.

G = Code not valid for Medicare purposes. Medicare uses another code for reporting of, and payment for, these services. (Codes subject to a 90-day grace period.) This indicator is no longer effective with the 2005 PFS as of January 1, 2005.

H* = Deleted modifier. For 2000 and later years, either the TC or PC component shown for the code has been deleted and the deleted component is shown in the database with the H status indicator.

I = Not valid for Medicare purposes. Medicare uses another code for the reporting of, and the payment for these services. (Codes not subject to a 90-day grace period.)

L = Local codes. Carriers will apply this status to all local codes in effect on January 1, 1998 or subsequently approved by central office for use. Carriers will complete the RVUs and payment amounts for these codes.

M = Measurement codes, used for reporting purposes only. There are no RVUs and no payment amounts for these codes. Medicare uses them to aid with performance measurement. No separate payment is made. These codes should be billed with a zero (($0.00) charge and are denied) on the MPFSDB.

N = Non-covered service. These codes are noncovered services. Medicare payment may not be made for these codes. If RVUs are shown, they are not used for Medicare payment.

R = Restricted coverage. Special coverage instructions apply. If the service is covered and no RVUs are shown, it is carrier-priced.

T = There are RVUs for these services, but they are only paid if there are no other services payable under the PFS billed on the same date by the same provider. If any other services payable under the PFS are billed on the same date by the same provider, these services are bundled into the service(s) for which payment is made.

X = Statutory exclusion. These codes represent an item or service that is not within the statutory definition of ``physicians'' services'' for PFS payment purposes. No RVUs are shown for these codes, and no payment may be made under the PFS. (Examples are ambulance services and clinical diagnostic laboratory services.)

4. Description of code. This is an abbreviated version of the narrative description of the code.

5. Physician work RVUs. These are the RVUs for the physician work for this service in 2007. As stated in the June 29, 2006 proposed notice, the RVUs for codes with a 10-or 90-day global period reflect the application of the RUC-recommended values for the E/ M services that are included as part of the global period for the service.

Note: The separate budget neutrality adjustor is not reflected in these physician work RVUs.

6. Fully implemented non-facility practice expense RVUs. These are the fully implemented resource-based PE RVUs for non-facility settings.

7. Transitional Non-facility practice expense RVUs. These are the 2007 resource-based PE RVUs for non-facility settings.

8. Fully implemented facility practice expense RVUs. These are the fully implemented resource-based PE RVUs for facility settings.

9. Transitional facility practice expense RVUs. These are the 2007 resource-based PE RVUs for facility settings.

10. Malpractice expense RVUs. These are the RVUs for the malpractice expense for the service for 2006.

11. Non-facility total. This is the sum of the work, fully implemented non-facility PE, and malpractice expense RVUs.

12. Transitional non-facility total. This is the sum of the work, 2007 transitional non-facility PE, and malpractice expense RVUs.

13. Facility total. This is the sum of the work, fully implemented facility PE, and malpractice expense RVUs.

14. Transitional facility total. This is the sum of the work, 2007 transitional facility PE, and malpractice expense RVUs.

15. Global period. This indicator shows the number of days in the global period for the code (0, 10, or 90 days). An explanation of the alpha codes follows:

MMM = Code describes a service furnished in uncomplicated maternity cases including antepartum care, delivery, and postpartum care. The usual global surgical concept does not apply. See the 1999 Physicians' Current Procedural Terminology for specific definitions.

XXX = The global concept does not apply.

YYY = The global period is to be set by the carrier (for example, unlisted surgery codes).

ZZZ = Code related to another service that is always included in the global period of the other service. (Note: Physician work and PE are associated with intra service time and in some instances in the post service time. *Codes with these indicators had a 90-day grace period before January 1, 2005.

[[Page 69790]]

ADDENDUM B.--2007 Relative Value Units and Related Information Used in Determining Medicare Payments for 2007

Fully

Fully Physician Implemented Year 2007 Fully Year 2007 Mal- Implemented Year 2007 Fully Year 2007 CPT \1\/ Mod Status Description Work RVUs Non- Transitional Implemented Transitional Practice Non- Transitional Implemented Transitional Global HCPCS \2\

\3\ Facility PE Non-Facility Facility PE Facility PE RVUs Facility Non-Facility Facility Facility RVUs

PE RVUs

RVUs

RVUs

Total

Total

Total

Total

0016T....... ........ C

Thermotx choroid 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vasc lesion. 0017T....... ........ C

Photocoagulat

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX macular drusen. 0019T....... ........ C

Extracorp shock

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX wv tx,ms nos. 0024T....... ........ C

Transcath

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX cardiac reduction. 0026T....... ........ C

Measure remnant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX lipoproteins. 0027T....... ........ C

Endoscopic

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX epidural lysis. 0028T....... ........ C

Dexa body

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX composition study. 0029T....... ........ C

Magnetic tx for

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX incontinence. 0030T....... ........ C

Antiprothrombin

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX antibody. 0031T....... ........ C

Speculoscopy.... 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX 0032T....... ........ C

Speculoscopy w/

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX direct sample. 0041T....... ........ C

Detect ur infect 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX agnt w/cpas. 0042T....... ........ C

Ct perfusion w/

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX contrast, cbf. 0043T....... ........ C

Co expired gas

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX analysis. 0046T....... ........ C

Cath lavage,

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX mammary duct(s). 0047T....... ........ C

Cath lavage,

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX mammary duct(s). 0048T....... ........ C

Implant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX ventricular device. 0049T....... ........ C

External

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX circulation assist. 0050T....... ........ C

Removal

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX circulation assist. 0051T....... ........ C

Implant total

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX heart system. 0052T....... ........ C

Replace

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX component heart syst. 0053T....... ........ C

Replace

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX component heart syst. 0054T....... ........ C

Bone surgery

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX using computer. 0055T....... ........ C

Bone surgery

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX using computer. 0056T....... ........ C

Bone surgery

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX using computer. 0058T....... ........ C

Cryopreservation 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX , ovary tiss. 0059T....... ........ C

Cryopreservation 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX , oocyte. 0060T....... ........ C

Electrical

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX impedance scan. 0061T....... ........ C

Destruction of

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX tumor, breast. 0062T....... ........ C

Rep intradisc

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX annulus;1 lev. 0063T....... ........ C

Rep intradisc

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX annulus;>1lev. 0064T....... ........ C

Spectroscop eval 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX expired gas. 0065T....... ........ C

Ocular

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX photoscreen bilat. 0066T....... ........ N

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;sc reen. 0066T....... TC...... N

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;sc reen. 0066T....... 26...... N

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;sc reen. 0067T....... ........ C

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;dx. 0067T....... TC...... C

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;dx. 0067T....... 26...... C

Ct

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX colonography;dx.

\1\ CPT codes and descriptions only are copyright 2006 American Medical Association. All Rights Reserved. Applicable FARS/DFARS Apply. \2\ Copyright 2006 American Dental Association. All rights reserved. \3\ + Indicates RVUs are not used for Medicare payment.

[[Page 69791]]

ADDENDUM B.--2007 Relative Value Units and Related Information Used in Determining Medicare Payments for 2007--Continued

Fully

Fully Physician Implemented Year 2007 Fully Year 2007 Mal- Implemented Year 2007 Fully Year 2007 CPT \1\/ Mod Status Description Work RVUs Non- Transitional Implemented Transitional Practice Non- Transitional Implemented Transitional Global HCPCS \2\

\3\ Facility PE Non-Facility Facility PE Facility PE RVUs Facility Non-Facility Facility Facility RVUs

PE RVUs

RVUs

RVUs

Total

Total

Total

Total

0068T....... ........ C

Interp/rept

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX heart sound. 0069T....... ........ C

Analysis only

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX heart sound. 0070T....... ........ C

Interp only

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX heart sound. 0071T....... ........ C

U/s leiomyomata

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX ablate 200. 0073T....... ........ A

Delivery, comp

0.00 13.15

16.80

NA

NA

0.13 13.28

16.93

NA

NA

XXX imrt. 0074T....... ........ N

Online physician 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX e/m. 0075T....... ........ C

Perq stent/chest 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0075T....... TC...... C

Perq stent/chest 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0075T....... 26...... C

Perq stent/chest 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0076T....... ........ C

S&i stent/chest

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0076T....... TC...... C

S&i stent/chest

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0076T....... 26...... C

S&i stent/chest

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vert art. 0077T....... ........ C

Cereb therm

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX perfusion probe. 0078T....... ........ C

Endovasc aort

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX repr w/device. 0079T....... ........ C

Endovasc visc

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX extnsn repr. 0080T....... ........ C

Endovasc aort

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX repr rad s&i. 0081T....... ........ C

Endovasc visc

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX extnsn s&i. 0084T....... ........ C

Temp prostate

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX urethral stent. 0085T....... ........ C

Breath test

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX heart reject. 0086T....... ........ C

L ventricle fill 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX pressure. 0087T....... ........ C

Sperm eval

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX hyaluronan. 0088T....... ........ C

Rf tongue base

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX vol reduxn. 0089T....... ........ C

Actigraphy

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX testing, 3-day. 0090T....... ........ C

Cervical artific 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX disc. 0092T....... ........ C

Artific disc

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX addl. 0093T....... ........ C

Cervical artific 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX diskectomy. 0095T....... ........ C

Artific

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX diskectomy addl. 0096T....... ........ C

Rev cervical

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX artific disc. 0098T....... ........ C

Rev artific disc 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX addl. 0099T....... ........ C

Implant corneal

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX ring. 0100T....... ........ C

Prosth retina

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX receive&gen. 0101T....... ........ C

Extracorp

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX shockwv tx,hi enrg. 0102T....... ........ C

Extracorp

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX shockwv tx,anesth. 0103T....... ........ C

Holotranscobalam 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX in. 0104T....... ........ C

At rest cardio

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX gas rebreathe. 0105T....... ........ C

Exerc cardio gas 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX rebreathe. 0106T....... ........ C

Touch quant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX sensory test. 0107T....... ........ C

Vibrate quant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX sensory test. 0108T....... ........ C

Cool quant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX sensory test. 0109T....... ........ C

Heat quant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX sensory test. 0110T....... ........ C

Nos quant

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX sensory test. 0111T....... ........ C

Rbc membranes

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

XXX fatty acids.

\1\ CPT codes and descriptions only are copyright 2006 American Medical Association. All Rights Reserved. Applicable FARS/DFARS Apply. \2\ Copyright 2006 American Dental Association. All rights reserved. \3\ + Indicates RVUs are not used for Medicare payment.

[[Page 69792]]

ADDENDUM B.--2007 Relative Value Units and Related Information Used in Determining Medicare Payments for 2007--Continued

Fully

Fully Physician Implemented Year 2007 Fully Year 2007 Mal- Implemented Year 2007 Fully Year 2007 CPT \1\/ Mod Status Description Work RVUs Non- Transitional Implemented Transitional Practice Non- Transitional Implemented Transitional Global HCPCS \2\

\3\ Facility PE Non-Facility Facility PE Facility PE RVUs Facility Non-Facility Facility Facility RVUs

PE RVUs

RVUs

RVUs

Total

Total

Total

Total

0115T....... ........ C

Med tx mngmt 15

0.00

0.00