Separate Parts In This Issue Part II Health and Human Services Department, Centers for Medicare & Medicaid Services,

 
CONTENT

[Federal Register: November 21, 2005 (Volume 70, Number 223)]

[Rules and Regulations]

[Page 70115-70476]

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

[DOCID:fr21no05-10]

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Part II

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Part 405, et al.

Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2006 and Certain Provisions Related to the Competitive Acquisition Program of Outpatient Drugs and Biologicals Under Part B; Final Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 405, 410, 411, 413, 414, 424, and 426

[CMS-1502-FC and CMS-1325-F]

RINs 0938-AN84 and 0938-AN58

Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2006 and Certain Provisions Related to the Competitive Acquisition Program of Outpatient Drugs and Biologicals Under Part B

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

ACTION: Final rule with comment.

SUMMARY: This rule addresses Medicare Part B payment policy, including the physician fee schedule that are applicable for calendar year (CY) 2006; and finalizes certain provisions of the interim final rule to implement the Competitive Acquisition Program (CAP) for Part B Drugs. It also revises Medicare Part B payment and related policies regarding: Physician work; practice expense (PE) and malpractice relative value units (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 Decision (NCD) timeframes; and physician referrals for nuclear medicine services and supplies to health care entities with which they have financial relationships. In addition, the rule finalizes the interim RVUs for CY 2005 and issues interim RVUs for new and revised procedure codes for CY 2006. This rule also updates the codes subject to the physician self-referral prohibition and discusses payment policies relating to teaching anesthesia services, therapy caps, private contracts and opt-out, and chiropractic and oncology demonstrations.

As required by the statute, it also announces that the physician fee schedule update for CY 2006 is -4.4 percent, the initial estimate for the sustainable growth rate for CY 2006 is 1.7 percent and the conversion factor for CY 2006 is $36.1770.

DATES: Effective Date: These regulations are effective on January 1, 2006.

Comment Date: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on January 3, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1502-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

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

1. Electronically. You may submit electronic comments on specific issues in this regulation to http://www.cms.hhs.gov/regulations/ecomments. (Attachments should be in Microsoft Word, WordPerfect, or

Excel; however, we prefer Microsoft Word.)

2. By regular mail. You may mail written comments (one original and two copies) to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1502-FC, P.O. Box 8017, Baltimore, MD 21244-8017.

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-1502-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).

Rick Ensor (410) 786-5617 (for issues related to the nonphysician workpool and supplemental survey data). Stephanie Monroe (410) 786-6864 (for issues related to the geographic practice cost index and malpractice RVUs). Craig Dobyski (410) 786-4584 (for issues related to list of telehealth services). Ken Marsalek (410) 786-4502 (for issues related to multiple procedure reduction for diagnostic imaging services and payment for teaching anesthesiologists). Henry Richter (410) 786-4562 (for issues related to payments for end stage renal disease facilities). Angela Mason (410) 786-7452 or Catherine Jansto (410) 786-7762 (for issues related to payment for covered outpatient drugs and biologicals). Fred Grabau (410) 786-0206 (for issues related to private contracts and opt out provision). David Worgo (410) 786-5919 (for issues related to Federally Qualified Health Centers). Dorothy Shannon (410) 786-3396 (for issues related to the outpatient therapy cap). Vadim Lubarsky (410) 786-0840 (for issues related to National Coverage Decision timeframes). Bill Larson (410) 786-7176 (for issues related to coverage of screening for glaucoma). Lia Prela (410) 786-0548 (for issues related to the competitive acquisition program (CAP) for part B drugs). 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 RVUs for selected procedure codes identified in Addendum C; and the physician self referral designated health services listed in tables 32 and 33. You can assist us by referencing the file code CMS-1502-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

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the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. CMS posts all comments received before the close of the comment period on its public web site as soon as possible after they are received. Hard copy comments received timely will 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 GPO 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 be found on the CMS homepage. You can access this data by using the following directions:

1. Go to the CMS homepage (http://www.cms.hhs.gov).

2. Place your cursor over the word ``Professionals'' in the blue areas near the top of the page. Select ``physicians'' from the drop- down menu.

3. Under ``Billing/Payment'' select ``Physician Fee Schedule''.

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. Introduction

B. Development of the Relative Value System

C. Components of the Fee Schedule Payment Amounts

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

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

1. Current Methodology

2. PE Proposals for CY 2006

3. PE Recommendations on CPEP Inputs for CY 2006

4. Payment for Splint and Cast Supplies

5. Miscellaneous PE Issues

B. Geographic Practice Cost Indices (GPCIs)

C. Malpractice RVUs

1. Five Percent Specialty Threshold

2. Specialty Crosswalk Issues

3. Cardiac Catheterization and Angioplasty Exception

4. Dominant Specialty for Low-Volume Codes

5. Collection of Premium Data

D. Medicare Telehealth Services

1. Requests for Adding Services to the List of Medicare Telehealth Services

2. Definition of an Originating Site

3. Other Issues

E. Contractor Pricing of Unlisted Therapy Modalities and Procedures

F. Payment for Teaching Anesthesiologists

G. End Stage Renal Disease (ESRD) Related Provisions

1. Revised Pricing Methodology for Separately Billable Drugs and Biologicals Furnished by ESRD Facilities.

2. Adjustment to Account for Changes in the Pricing of Separately Billable Drugs and Biologicals, and the Estimated Increase in Expenditures for Drugs and Biologicals

3. Revisions to Geographic Designations and Wage Indexes Applied to the ESRD Composite Payment Rate

4. Miscellaneous Comments on ESRD Issues

5. Revisions to the Composite Payment Rate Exceptions Process

H. Payment for Covered Outpatient Drugs and Biologicals

1. ASP issues

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

3. Clotting Factor Furnishing Fee

4. Payment for Inhalation Drugs and Dispensing Fee

5. Supplying Fee

6. Competitive Acquisition of Outpatient Drugs And Biologicals Under Part B

I. Private Contracts and Opt-out Provision

J. Multiple Procedure Payment Reduction for Diagnostic Imaging

K. Therapy Cap

L. Chiropractic Demonstration Discussion

M. Supplemental Payments to FQHCs Subcontracting with Medicare Advantage Plans

N. National Coverage Decisions Timeframes

O. Coverage of Screening for Glaucoma

P. Additional Issues

1. Corrections to Conditions for Medicare Payment (Sec. 424.22)

2. Chemotherapy Demonstration Project III. Refinement of RVUs for CY 2006 and Response to Public Comments on Interim RVUs for 2005

A. Summary of Issues Discussed Related to the Adjustment of RVUs

B. Process for Establishing Work RVUs for the 2005 PFS

C. Work RVU Refinements of Interim RVUs

1. Methodology (Includes Table titled ``Work Relative Value Unit Refinements of the 2004 Interim and Related Relative Value Units'')

2. Interim 2005 Codes

D. Establishment of Interim Work RVUs for New and Revised Physician's Current Procedural Terminology (CPT) Codes and New Healthcare Common Procedure Coding System Codes (HCPCS) for 2006 (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 2006 CPT Codes'')

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

F. 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 2006 IV. Five-Year Refinement of RVUs -Status update V. Physician Self-Referral Prohibition: Nuclear Medicine and Annual Update to the List of CPT/HCPCS Codes

A. General

B. Nuclear Medicine

1. Response to Comments

2. Revisions to the List of Codes Identifying Nuclear Medicine Services

C. Annual Update to the Code List

1. Response to Comments

2. Revisions Effective for 2006 VI. Physician Fee Schedule Update for CY 2006

A. Physician Fee Schedule Update

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

C. The Update Adjustment Factor VII. 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 2006

D. Revised Sustainable Growth Rate for 2005

E. Final Sustainable Growth Rate for 2004

F. Calculation of 2006, 2005, and 2004 Sustainable Growth Rates VIII. Anesthesia and Physician Fee Schedule Conversion Factors for CY 2006

A. Physician Fee Schedule Conversion Factor

B. Anesthesia Fee Schedule Conversion Factor IX. Telehealth Originating Site Facility Fee Payment Amount Update X. Provisions of the Final Rule XI. Waiver of Proposed Rulemaking XII. Collection of Information Requirements XIII. Response to Comments XIV. Regulatory Impact Analysis Addendum A--Explanation and Use of Addendum B. Addendum B--Relative Value Units and Related Information Addendum C--Codes with Interim RVUs Addendum D--2006 Geographic Practice Cost Indices by Medicare Carrier and Locality Addendum E-2006 GAFs Addendum F--CAP: Revised Single Drug Category List Addendum G--CAP: Revised New Drugs for CAP Bidding for 2006 Addendum H--List of CPT/HCPCS Codes Used to Describe Certain Designated Health Services Under Section 1877 of the Social Security Act

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In addition, because of the many organizations and terms to which we refer by acronym in this proposed final rule with comment, we are listing these acronyms and their corresponding terms in alphabetical order below: AADA American Academy of Dermatology Association AAH American Association for Homecare ABN Advanced Beneficiary Notice ACC American College of Cardiology ACG American College of Gastroenterology ACR American College of Radiology AFROC Association of Freestanding Radiation Oncology Centers AGA American Gastroenterological Association AMA American Medical Association AMP Average manufacturer price AOAO American Osteopathic Academy of Orthopedics ASA American Society of Anesthesiologists ASGE American Society of Gastrointestinal Endoscopy ASP Average sales price ASTRO American Society for Therapeutic Radiation Oncology AUA American Urological Association AWP Average wholesale price BBA Balanced Budget Act of 1997 BBRA Balanced Budget Refinement Act of 1999 BIPA Benefits Improvement and Protection Act of 2000 BLS Bureau of Labor Statistics BMI Body mass index BNF Budget neutrality factor BSA Body surface area CAP Competitive Acquisition Program CBSA Core-Based Statistical Area CF Conversion factor CFR Code of Federal Regulations CMA California Medical Association CMS Centers for Medicare & Medicaid Services CNS Clinical nurse specialist COBC Coordination of Benefits Contractor CPEP Clinical Practice Expert Panel CPI Consumer Price Index CPO Care Plan Oversight CPT (Physicians') Current Procedural Terminology (4th Edition, 2002, copyrighted by the American Medical Association) CRNA Certified Registered Nurse Anesthetist CT Computed tomography CTA Computed tomographic angiography CY Calendar year DAW Dispense as written DHS Designated health services DME Durable medical equipment DMERC Durable Medical Equipment Regional Carrier DSMT Diabetes outpatient self-management training services EAC Estimated acquisition cost ECP External counterpulsation E/M Evaluation and management EPO Erythopoeitin ESRD End stage renal disease FAX Facsimile FDA Food and Drug Administration FI Fiscal intermediary FQHC Federally qualified health center FR Federal Register GAF Geographic adjustment factor GAO Government Accountability Office GPCI Geographic practice cost index GPOs Group Purchasing Organizations HCPAC Health Care Professional Advisory Committee HCPCS Healthcare Common Procedure Coding System HHA Home health agency HHS (Department of) Health and Human Services HIC Health Insurance Number HIPAA Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 HOCM High Osmolar Contrast Media HPSA Health professional shortage area HRSA Health Resources and Services Administration (HHS) IDTFs Independent diagnostic testing facilities IPF Inpatient psychiatric facility IPPS Inpatient prospective payment system IRF Inpatient rehabilitation facility ISO Insurance Services Office IVIG Intravenous immune globulin JCAAI Joint Council of Allergy, Asthma, and Immunology JUA Joint underwriting association LCD Local coverage determination LTCH Long-term care hospital LOCM Low Osmolar Contrast Media MA Medicare Advantage MCAC Medicare Coverage Advisory Committee MCG Medical College of Georgia MedPAC Medicare Payment Advisory Commission MEI Medicare Economic Index MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 MNT Medical nutrition therapy MRA Magnetic resonance angiography MRI Magnetic resonance imaging MSA Metropolitan statistical area MSN Medicare summary notice NCD National coverage determination NCQDIS National Coalition of Quality Diagnostic Imaging Services NDC National drug code NECMA New England County Metropolitan Area NECTA New England City and Town Area NP Nurse practitioner NPP Nonphysician practitioners NPWP Nonphysician work pool OBRA Omnibus Budget Reconciliation Act OIG Office of Inspector General OMB Office of Management and Budget OPPS Outpatient prospective payment system OT Occupational therapy PA Physician assistant PC Professional component PE Practice Expense PEAC Practice Expense Advisory Committee PERC Practice Expense Review Committee PET Positron emission tomography PFS Physician Fee Schedule PLI Professional liability insurance PPAC Practicing Physicians Advisory Council PIN Provider identification number PPI Producer price index PPO Preferred provider organization PPS Prospective payment system PRA Paperwork Reduction Act PT Physical therapy RFA Regulatory Flexibility Act 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 TA Technology assessment TC Technical component TEB Thoracic electrical bioimpedance tPA Tissue-type plasminogen activator UAF Update adjustment factor UPIN Unique provider identification number WAC Wholesale acquisition cost WAMP Widely available market price

I. Background

A. Introduction

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. Prior to the establishment of the

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resource-based relative value system, Medicare payment for physicians' services was based on reasonable charges.

Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs may not cause total physician fee schedule payments to differ by more than $20 million from what they would have been had the adjustments not been made. If adjustments to RVUs cause expenditures to change by more than $20 million, we must make adjustments to ensure that they do not increase or decrease by more than $20 million.

B. 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, Public Law 101-239, and OBRA 1990, (Public Law 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 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 a relative value scale we adopted under section 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 basis for 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 the staff, equipment, and supplies used in the provision of various medical and surgical services. The legislation specifically required that, in implementing the new system of PE RVUs, we apply the same budget-neutrality provisions that are applicable to other adjustments under the physician fee schedule.

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. 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 outside a facility setting.

Section 212 of the Medicare, Medicaid and State Child Health Insurance Program Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) directed 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 the 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.

As discussed in the January 7, 2004 physician fee schedule final rule (69 FR 1092), section 303(a)(1)(B) of MMA amended section 1848(c)(2) of the Act by adding new subparagraph (H), ``Adjustments in Practice Expense Relative Value Units for Certain Drug Administration Services beginning in 2004''. Subparagraph (H)(i) requires the Secretary to determine the practice expense RVUs for 2004 using practice expense surveys submitted to the Secretary as of January 1, 2003 by a physician specialty organization in accordance with section 212 of the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 if the survey: (1) Covers practice expenses for oncology drug administration services; and (2) meets criteria established by the Secretary for acceptance of such surveys. Consistent with section 1848(c)(2)(H)(i) of the Act, in January 7, 2005 final rule, we announced we would use the ASCO survey to determine the practice expense RVUs for physician fee schedule services furnished on or after January 1, 2004 because it: (1) Was submitted prior to January 1, 2003; (2) includes expenses for drug administration services; and (3) meets criteria we have established for use of surveys.

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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). The malpractice RVUs are 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 five 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 went into effect in 2002, published on November 1, 2001 (66 FR 55246). The next 5-year review is scheduled to go into effect in 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 of 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 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.

C. Components of the Fee Schedule Payment Amounts

Under the formula set forth in section 1848(b)(1) of the Act, the payment amount for each service paid under the physician fee schedule is the product of three factors: (1) A nationally uniform relative value unit (RVU) for the service; (2) a geographic adjustment factor (GAF) for each physician fee schedule area; and (3) a nationally uniform conversion factor (CF) for the service. The CF converts the relative values into payment amounts.

For each physician fee schedule service, there are 3 relative values: (1) An RVU for physician work; (2) an RVU for practice expense; and (3) an RVU for malpractice expense. For each of these components of the fee schedule, there is a geographic practice cost index (GPCI) for each fee schedule area.

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.

The CF for calendar year (CY) 2005 appears in section VI, Physician Fee Schedule Update for CY 2006. The RVUs for CY 2006 are in Addendum B. The GPCIs for CY 2006 can be found in Addendum D.

Section 1848(e) of the Act requires us to develop GAFs for all physician fee schedule areas. The total GAF for a fee schedule area is equal to a weighted average of the individual GPCIs for each of the three components of the service. However, in accordance with the statute, the GAF for the physician's work reflects one-quarter of the relative cost of physician's work compared to the national average.

D. Most Recent Changes to the Fee Schedule

In the CY 2005 final rule (69 FR 66236), we refined the resource- based PE RVUs and made other changes and clarifications to Medicare Part B payment policy. These included:

Supplemental survey data for PE;

Updated GPCIs for physician work and PE;

Updated malpractice RVUs;

Revised requirements for supervision of therapy assistants;

Revised payment rules for low osmolar contrast media (LOCM);

Payment policies for physicians and practitioners managing dialysis patients;

Clarification of care plan oversight (CPO) requirements;

Requirements for supervision of diagnostic psychological testing services;

Clarifications to the policies affecting therapy services provided incident to a physician's service;

Requirements for assignment of Medicare claims;

Additions to the list of telehealth services;

Changes to payments for drug administration services; and

Several coding issues.

The CY 2005 final rule (69 FR 66236) also addressed the following provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173):

Coverage of an initial preventive physical examination.

Coverage of cardiovascular screening blood tests.

Coverage of diabetes screening tests.

Incentive payment improvements for physicians in physician shortage areas.

Changes to payment for covered outpatient drugs and biologicals and drug administration services.

Changes to payment for renal dialysis services.

Coverage of routine costs associated with certain clinical trials of category A devices as defined by the Food and Drug Administration.

Coverage of hospice consultation service.

Indexing the Part B deductible to inflation.

Extension of coverage of intravenous immune globulin (IVIG) for the treatment in the home of primary immune deficiency diseases.

Revisions to reassignment provisions.

Payment for diagnostic mammograms.

Coverage of religious nonmedical health care institution items and services to the beneficiary's home.

In addition, the CY 2005 PFS final rule finalized the calendar year (CY) 2004 interim RVUs for new and revised codes in effect during CY 2004 and issued interim RVUs for new and revised procedure codes for CY 2005; updated the codes subject to the physician self-referral prohibition; discussed payment for set up of portable x-ray equipment; discussed the third 5-year refinement of work RVUs; and solicited comments on potentially misvalued work RVUs.

In accordance with section 1848(d)(1)(E) of the Act, we also announced that the PFS update for CY 2005 would be 1.5 percent; the initial

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estimate for the sustainable growth rate for CY 2005 was 4.3; and the CF for CY 2005 would be $37.8975.

II. Provisions of the Final Rule

In response to the August 8, 2005 proposed rule (70 FR 45764), we received approximately 15,000 comments. We received comments from individual physicians, health care workers, professional associations and societies, and beneficiaries. The majority of the comments addressed the proposals related to PE and the negative update to the PFS, GPCIs, and Teaching Anesthesiology.

The proposed rule discussed policies that affected the RVUs on which payment for certain services would be based and other changes to Medicare Part B payment policy. We also discussed changes related to payment for covered outpatient drugs and biologicals; supplemental payments to federally qualified health centers (FQHCs); payment for renal dialysis services; the national coverage decision (NCD) process; coverage of screening for glaucoma; private contracts; and physician referrals for nuclear medicine services and supplies to health care entities with which they have financial relationships. RVU changes implemented through this final rule with comment are subject to the $20 million limitation on annual adjustments contained in section 1848(c)(2)(B)(ii)(II) of the Act.

After reviewing the comments and determining the policies we would implement, we have estimated the costs and savings of these policies and discuss in detail the effects of these changes in the Regulatory Impact Analysis in section XIV.

For the convenience of the reader, the headings for the policy issues correspond to the headings used in the August 8, 2005 proposed rule. More detailed background information for each issue can be found in the August 8, 2005 proposed rule.

A. Resource Based Practice Expense (PE) RVUs

Based on section 1848(c)(1)(B) of the Act, PEs are 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 wages of personnel, but excluding malpractice expenses).

Section 121 of the Social Security Amendments of 1994 (Pub. L. 103- 432), enacted on October 31, 1994, required us to develop a methodology for a resource-based system for determining PE RVUs for each physician's service. Up until that point, physicians' 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 performing the service.

The initial implementation of resource-based PE RVUs was delayed until January 1, 1999, by section 4505(a) of the BBA. In addition, section 4505(b) of the BBA required 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 called for by the statute was to adjust the PE values for certain services for CY 1998. Section 4505(d) of 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 PEs.

Beginning in CY 1999, Medicare 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 PEs. The AMA's SMS survey data are used to develop the PEs per hour for each specialty. The second source of data used to calculate PEs was originally developed by the 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).) 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 clinical nonphysician personnel.

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

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

All other expenses, including expenses for legal services, accounting, office management, professional association memberships, and any professional expenses not mentioned above.

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, published on May 3, 2000 (65 FR 25664).) Originally, the deadline to submit supplementary survey data was through August 1, 2001. This deadline was extended in the November 1, 2001 final rule through August 1, 2003. (See the 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 on November 1, 2001 (66 FR 55246).) Then, to ensure maximum opportunity for specialties to submit supplementary survey data, we extended the deadline to submit surveys until March 1, 2005. (See the Revisions to Payment Policies Under the Physician Fee Schedule for CY 2002 final rule, published on November 7, 2003 (68 FR 63196).)

The CPEPs consisted of panels of physicians, practice administrators, and nonphysicians (registered nurses, for example) who were nominated by physician specialty societies and other groups. There were 15 CPEPs consisting

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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 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 Multi-specialty Relative Value Update Committee (RUC) established the PEAC. Since 1999, and until 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 which we have reviewed and accepted for over 7,600 codes. As a result of this scrutiny by the PEAC, the current CPEP/RUC 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 Practice Expenses to Services

In order to establish PE RVUs for specific services, it is necessary to establish the direct and indirect PE associated with each service. Our current approach is to allocate aggregate specialty practice costs to specific procedures and, thus, it 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 performed by that specialty on the basis of the CPEP/RUC data and work RVUs assigned to each CPT code. The specific process is detailed as follows:

Step 1--Calculation of the SMS Cost Pool for Each Specialty

The six SMS cost categories can be described as either direct or indirect expenses. The three direct expense categories include clinical labor, medical supplies and medical equipment. Indirect expenses include administrative labor, office expense, and all other expenses. We combine these indirect expenses into a single category. The SMS cost pool for each specialty is calculated as follows:

The specialty PE per hour (PE/HR) for each of the three direct and one indirect cost categories from the SMS is calculated by dividing the aggregate PE per specialty by the specialty's total hours spent in patient care activities (also determined by the SMS survey). The PE/HR is divided by 60 to obtain the PE per minute (PE/MIN).

Each specialty's PE pools (for each of the three direct and one indirect cost categories) are created by multiplying the PE/MIN for the specialty by the total time the specialty spent treating Medicare patients for all procedures (determined using Medicare utilization data). Physician time on a procedure-specific level is available through RUC surveys of new or revised codes and through surveys conducted as part of the 5-year review process. For codes that the RUC has not yet reviewed, the original data from the Harvard resource-based RVU system survey is used. Physician time includes time spent on the case before, during, and after the procedure. The physician procedure time is multiplied by the frequency that each procedure is performed on Medicare patients by the specialty.

The total specialty-specific SMS PE for each cost category is the sum, for each direct and indirect cost category, of all of the procedure-specific total PEs.

Table 1 illustrates an example of the calculation of the total SMS cost pools for the three direct and one indirect cost categories discussed in step 1. For this specialty, PE/HR for clinical payroll expenses is $9.30 per hour. The hourly rate is divided by 60 minutes to obtain the clinical payroll per minute for the specialty.

The total clinical payroll for providing hypothetical procedure 00001 for this specialty of $3,633,465 is the result of taking the clinical payroll per minute of $0.16; multiplying this by the physician time for procedure 00001 (56 minutes); and multiplying the result by the number of times this procedure was provided to Medicare patients by this specialty (418,602). The total amount spent on clinical payroll in this specialty is $667,457,018. This amount is calculated by summing the clinical payroll expenses of procedure 00001 and all of the other services provided by this specialty.

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Step 2--Calculation of CPEP Cost Pool

CPEP data provide expenditure amounts for the direct expense categories (clinical labor, supplies, and equipment cost) at the procedure level. Multiplying the CPEP procedure-level PEs for each of these three categories by the number of times the specialty provided the procedure, produces a total category cost, per procedure, for that specialty. The sum of the total expenses from each procedure results in the total CPEP category cost for the specialty.

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For example, in Table 2, using CPEP data, the clinical labor cost of procedure 00001 is $65.23. Under the methodology described above in this step, this is multiplied by the number of services for the specialty (418,602), to yield the total CPEP data clinical labor cost of the procedure: $27,305,408. In this example, the clinical labor cost for all other services performed by this specialty is $831,618,600. Therefore, the entire clinical labor CPEP expense pool for the specialty is $858,924,008. Step 2 is repeated to calculate the CPEP supply and equipment costs.

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Step 3--Calculation and Application of Scaling Factors

This step ensures that the total of the CPEP costs across all procedures performed by the specialty equates with the total direct costs for the specialty as reflected by the SMS data. To accomplish this, the CPEP data are scaled to SMS data by means of a scaling factor so that the total CPEP costs for each specialty equals the total SMS cost for the specialty. (The scaling factor is calculated by dividing the specialty's SMS pool by the specialty's CPEP pool.)

The unscaled CPEP cost per procedure value, at the direct cost level, is then multiplied by the respective specialty scalar to yield the scaled CPEP procedure value. The sum of the scaled CPEP direct cost pool expenditures equals the total scaled direct expense for the specific procedure at the specialty level.

In the Step 3 example shown in Table 3, the SMS total clinical labor costs for the specialty is $667,457,018. This amount divided by the CPEP total clinical labor amount of $858,924,008 yields a scaling factor of 0.78. The CPEP clinical labor cost for hypothetical procedure 00001 is $65.23. Multiplying the 0.78 scaling factor for clinical labor costs by $65.23 yields the scaled clinical labor cost amount of $50.69. Individual scaling factors must also be calculated for supply and equipment expenses. The sum of the scaled direct cost values, $50.69, $43.90, and $139.45, respectively, equals the total scaled direct expense of $234.04.

Table 3.--Calculation and Application of Scaling Factors

Total Scaled direct expense Standard methodology

Clinical/Labor

Supplies

Equipment (Sum of A, B, and C) (A)

(B)

(C)

(D)

(a) Total--SMS Pool.............. $667,457,018

$344,493,945

$531,094,831 (b) Total--CPEP Pool............. 858,924,008

411,894,617 5,929,275,023 (c) Scaling Factor...............

0.78

52.49

1,556.86 Unscaled Value (e) CPT 00001--Scaled Value......

50.69

43.90

139.45

$234.04 (c) = (a)/(b) (e) = (c)*(d)

Step 4--Calculation of Indirect Expenses

Indirect PEs cannot be directly attributed to a specific service because they are incurred by the practice as a whole. Indirect costs include rent, utilities, office equipment and supplies, and accounting and legal fees. There is not a single, universally accepted approach for allocating indirect practice costs to individual procedure codes. Rather allocation involves judgment in identifying the base or bases that are the best measures of a practice's indirect costs.

To allocate the indirect PEs to a specific service, we use the following methodology:

The total scaled direct expenses and the converted work RVU (the work RVU for the service is multiplied by $34.5030, the 1995 CF) are added together, and then multiplied by the number of services provided by the specialty to Medicare patients.

The total indirect PEs per specialty are calculated by summing the indirect expenses for all other procedures provided by that specialty.

For example, in Table 4, the physician work RVU for procedure 00001 is 2.36. Multiplying the work RVU by the 1995 CF of $34.5030 equals $81.43. The physician work value is added to the scaled total direct expense from Step 3

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($234.04). The total of $314.47 is a proxy for the indirect PE for the specialty attributed to this procedure. The total indirect expenses are then multiplied by the number of times procedure 00001 is provided by the specialty (418,602), to calculate total indirect expenses for this procedure of $132,055,728. The process is repeated across all procedures performed by the specialty, and the indirect expenses for each service are summed to arrive at the total specialty indirect PE pool of $6,745,545,434.

Table 4.--Calculation of Indirect Expense

Total direct Standard Methodology

Physician Work*

expense

Total (A)

(B)

(C)

(a) CPT 00001.........................................

$81.43

$234.04

$315.47 (b) Allowed Services.................................. ................. .................

418,602

(c) Subtotal.......................................... ................. ................. 132,055,728 (d) All Other Services................................ ................. ................. 6,613,489,706

(e) Total Indirect Expense............................ ................. ................. 6,745,545,434

* Calculated by multiplying work RVU of 2.36 by 1995 CF of $34.5030.

Step 5--Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to ensure that the total across all procedures performed by the specialty equates with the total indirect costs for the specialty as reflected by the SMS data. To accomplish this, the indirect costs calculated in Step 4 (Table 4) are scaled to SMS data. The calculation of the indirect scaling factors is as follows:

The specialty's total SMS indirect expense pool is divided by the specialty's total indirect expense pool calculated in Step 4 (Table 4), to yield the indirect expense scaling factor.

The unscaled indirect expense amount, at the procedure level, is multiplied by the specialty's scaling factor to calculate the procedure's scaled indirect expenses.

The sum of the scaled indirect expense amount and the procedure's direct expenses yields the total PEs for the specialty for this procedure.

In table 5, to calculate the indirect scaling factor for hypothetical procedure 00001, divide the total SMS indirect pool, $3,337,285,089 (calculated in Step 1-Table 1)), by the total indirect expense for the specialty across all procedures of $6,745,545,434. This results in a scaling factor of 0.49. Next, the unscaled indirect cost of $315.47 is multiplied by the 0.49 scaling factor, resulting in scaled indirect cost of $156.07. To calculate the total PEs for the specialty for procedure 00001, the scaled direct and indirect expenses are added, totaling $390.12.

Table 5.--Calculation of Indirect Scaling Factors and Total Practice Expenses

Specialty specific practice Standard methodology

Indirect costs Direct cost expenses (Sum of A, B) (A)

(B)

(C)

(a) Total--SMS Indirect Expense....................... $3,337,285,089 (b) Total Indirect Expense for all Procedures (from 6,745,545,434 Step 4).............................................. (c) Scaling Factor....................................

0.49 (d) CPT 00001--Unscaled Value.........................

315.47 (e) CPT 00001--Scaled Value...........................

156.07

$234.04

$390.12

Step 6--Weighted Average of RVUs for Procedures Performed by More Than One Specialty

For codes that are performed by more than one specialty, a weighted-average PE is calculated based on Medicare frequency data of all specialties performing the procedure as shown in Table 6.

Table 6.--Weight Averaging for All Specialties

Practice expense Percent of total Standard methodology

value

allowed services (A)

(B)

(a) Specialty Total Practice

$390.12

83 Expense.......................... (b) Weighted Avg.--All Other

929.87

17 Specialties...................... (c) Weighted Avg.--All Specialties

481.70

100

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Step 7--Budget Neutrality and Final RVU Calculation

The total scaled direct and indirect inputs are then adjusted by a budget neutrality factor (BNF) to calculate RVUs. Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments in RVUs 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. Budget neutrality for the upcoming year is determined relative to the sum of PE RVUs for the current year. Although the PE RVUs for any particular code may vary from year-to-year, the sum of PE RVUs across all codes is set equal to the current year. The BNF is equal to the sum of the current year's PE RVUs, divided by the sum of the direct and indirect inputs across all codes for the upcoming year. The BNF is applied to (multiplied by) the scaled direct and indirect expenses for each code to set the PE RVU for the upcoming year.

In Table 7, the sum of the scaled direct and indirect expenses for hypothetical code 00001 ($481.70) is multiplied by the BNF (0.02 in this example) to yield a PE RVU of 10.60.

Table 7.--Calculate PE RVU

Total scaled direct and Budget neutrality Final PE RVU indirect inputs

factor (A)

(B)

(C)

(a) Code 00001.........................................

$481.70

0.02

10.60

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). We have removed some services from the NPWP if we find that the requesting specialty provides the service the majority of the time.

NPWP Step 1--Calculation of the SMS Cost Pool for Each Code

This step parallels the calculations described above for the standard ``top-down'' PE allocation methodology. For codes in the NPWP, the direct and indirect SMS costs are set equal to the weighted average of the PE/HR for the specialties that provide the services in the pool. Clinical staff time is substituted for physician time in the calculation. The clinical staff time for the code is from CPEP data. Otherwise, the calculation is similar to the method described previously for codes with physician time.

The following example in Table 8 illustrates this calculation for hypothetical code 00002. In this example, the average clinical payroll PE/HR for all specialties in the NPWP is $12.30 and the clinical staff time for code 00002 is 116 minutes.

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NPWP Step 2--Calculation of Charge-Based PE RVU Cost Pool

The NPWP calculation uses the 1998 (charge-based) PE RVU value for the code, multiplied by the 1995 CF (25.74 x $34.503 = $888.11). The percentage of clinical labor, supplies and equipment are the percentage that each PE category represents for all physicians relative to the total PE for all physicians (calculated from the SMS data) as shown in Table 9.

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NPWP Step 3--Calculation and Application of Scaling Factors

After the total cost pools for each code in the NPWP are calculated, the steps to ensure the total charge-based PEs for the procedure do not exceed the total SMS PEs for the procedure (scaling) are the same as those described previously for codes with physician work.

In Table 10, the SMS total clinical labor costs are $2,499,159. This amount divided by the charge-based total clinical labor amount of $16,613,742 yields a scaling factor of 0.15. The charge-based clinical labor cost for hypothetical procedure 00002 is $158.08 (from NPWP Step 2--Table 9). Multiplying the 0.15 scaling factor for clinical labor costs by $158.08 yields the scaled clinical labor cost amount of $23.78. Individual scaling factors must be calculated for both supply and equipment expenses. The sum of the scaled direct cost values, $23.78, $32.57 and $2.72, respectively, equals the total scaled direct expense of $59.07.

Table 10.--Calculation and Application of Direct Cost Scaling Factors

Total scaled direct expense NPWP methodology

Clinical

Supplies

Equipment

(Sum of A, B, and C) (A)

(B)

(C)

(D)

(a) Total--NPWP Specialty Pool....... $2,499,159

$1,503,559

$650,188 (b) Total NPWP Charge-based Pool..... 16,613,742

4,386,775

9,986,912 (c) Scaling Factor...................

0.15

0.34

0.06 (d) CPT 00002--Unscaled Value........

158.08

95.03

41.74 (e) CPT 00002--Scaled Value..........

23.78

32.57

2.72

$59.07

NPWP Step 4--Calculation of Indirect Expenses

Because codes in the NPWP do not have work RVUs, indirect expenses are set equal to direct expenses (for codes with physician work, indirect expenses equal the sum of the scaled direct expenses and the converted work RVU). This amount is then multiplied by the number of times the procedure is performed.

In Table 11, the scaled total direct expense from NPWP Step 3 (Table 10) ($59.07) is also the proxy for the total indirect expense attributed to the procedure. The total indirect expense is multiplied by the number of services (105,095), to calculate total indirect cost for this procedure of $6,207,961.

Table 11.--Calculation of Indirect Expenses

Total direct NPWP methodology

Physician work * expense

Total (A)

(B)

(C)

(a) CPT 00002............................................ ................

$59.07

$59.07 (b) Allowed Services--NPWP............................... ................ ................

105,095 (c) Total NPWP Indirect Expense.......................... ................ ................ $6,207,961

NPWP Step 5--Calculation and Application of Indirect Scaling Factors

Similar to the direct costs, the indirect costs are scaled to ensure that the total of the charge-based PE costs across all procedures equates with the total indirect costs as reflected by the SMS data for the code. To accomplish this, the charge-based indirect PEs are scaled to the SMS indirect PEs.

In Table 12, to calculate the indirect scaling factor for hypothetical procedure 00002, the total SMS indirect PE, $9,407,404 (from NPWP Step 1--Table 8), is divided by the total charge-based indirect expense of $6,207,961 (from NPWP Step 4--Table 11). This results in a scaling factor of 1.51. Next, the

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unscaled indirect charge-based cost for procedure 00002 of $59.07 (from NPWP Step 4--Table 11) is multiplied by the 1.51 scaling factor, resulting in scaled indirect costs for this procedure of $89.19.

Table 12.--Calculation and Application of Indirect Cost Scaling Factors

Specialty Standard methodology

Indirect costs Direct cost specific PE RVU (Sum of A and B) (A)

(B)

(C)

(a) Total--NPWP ``SMS'' Pool.......................... $9,407,404 (b) Total NPWP Indirect Expense.......................

6,207,961 (c) Scaling Factor....................................

1.51 (d) CPT 00002--Unscaled Value.........................

59.07 (e) CPT 00002--Scaled Value...........................

89.19

$59.07

$148.26

NPWP Step 6--Budget Neutrality and Final RVU Calculation

Similar to the calculation for codes with physician work, the BNF is applied to (multiplied by) the scaled direct and indirect expenses for each code to set the PE RVU for the upcoming year.

In Table 13, the sum of the scaled direct and indirect expenses for hypothetical code 00002 ($148.26) is multiplied by the BNF (0.022 in this example) to yield a PE RVU of 3.26.

Table 13.--Budget Neutrality and Final RVU Calculation

Total scaled direct and Budget neutrality Final PE RVU indirect inputs

factor

Code 00002.............................................

$148.26

0.022

2.96

d. Facility/Nonfacility Costs

Procedures that can be performed in a physician's office as well as in a hospital have two PE RVUs; facility and nonfacility. The nonfacility setting includes physicians' offices, patients' homes, freestanding imaging centers, and independent pathology labs. Facility settings include hospitals, ambulatory surgery centers, and skilled nursing facilities (SNFs). The methodology for calculating the PE RVU is the same for both facility and nonfacility RVUs, but each is calculated 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. PE Proposals for CY 2006

The following discussions outline the specific PE related proposals for CY 2006. a. Supplemental PE Surveys

The following discussions outline the criteria for supplemental survey submission as well as information we have received for approval. (1) Survey Criteria and Submission Dates

In accordance with section 212 of the BBRA, we established criteria to evaluate survey data collected by organizations to supplement the SMS survey data normally used in the calculation of the PE component of the PFS. In the final rule published November 7, 2003 (68 FR 63196), we provided that, beginning in 2004, supplemental survey data had to be submitted by March 1 to be considered for use in computing PE RVUs for the following year. This allows us to publish our decisions regarding survey data in the proposed rule and provides the opportunity for public comment on these results before implementation.

To continue to ensure the maximum opportunity for specialties to submit supplemental PE data, we extended until 2005 the period that we would accept survey data that meet the criteria set forth in the November 2000 PFS final rule. The deadline for submission of supplemental data to be considered in CY 2006 was March 1, 2005. (2) Submission of Supplemental Survey Data

The following discussion outlines the survey data submitted for CY 2004 and CY 2005. (a) Surveys Submitted in 2004

As discussed in the August 8, 2005 PFS proposed rule (70 FR 45774), we had received surveys by March 1, 2004 from the American College of Cardiology (ACC), the ACR, and the American Society for Therapeutic Radiation Oncology (ASTRO). 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. In the August 8, 2005 proposed rule, we proposed to use the ACC and ACR survey data in the calculation of PE RVUs for CY 2006, but only as specified in the proposals relating to a revised methodology for establishing direct PE RVUs.

The survey data from ASTRO did not meet the precision criteria established for supplemental surveys, therefore, we indicated we would not use it in the calculation of PE RVUs for CY 2005. However, we proposed to use these data to blend with data submitted by the Association of Freestanding Radiation Oncology Centers (AFROC) for CY 2006, as described below. (b) Surveys Submitted in 2005

In 2005 we received surveys from the AFROC, the American Urological Association (AUA), the American Academy of Dermatology Association (AADA), the Joint Council of Allergy, Asthma, and Immunology (JCAAI), the National Coalition of Quality Diagnostic Imaging Services (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).

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As explained in the August 8, 2005 proposed rule, we contract with the Lewin Group to evaluate whether the supplemental survey data that are submitted meet our criteria and to make recommendations to us regarding their suitability for use in calculating PE RVUs. (The Lewin Group report on the 2005 submissions is available on the CMS Web site at http://www.cms.hhs.gov/physicians/pfs/.) The report indicated that,

except for the survey from NCQDIS, all met our criteria and we are proposing to accept these surveys. The survey data submitted by the NCQDIS on independent diagnostic testing facilities (IDTFs) did not meet the precision criterion of a 90 percent confidence interval with a range of plus or minus 15 percent of the mean (that is, 1.645 times the standard error of the mean, divided by the mean, is equal to or less than 15 percent of the mean). For the NCQDIS survey, the precision level was calculated at 16.3 percent of the mean PE/HR (weighted by the number of physicians in the practice). However, the Lewin Group has recommended that we accept the data from NCQDIS. The Lewin Group points out that PE data for IDTFs do not currently exist, and suggests that the need for data for the specialty should be weighed against the precision requirement.

We proposed not to accept the NCQDIS data to calculate the PE RVUs for services provided by IDTFs. As just noted, the NCQDIS data did not meet our precision requirements. We established the minimum precision standards because we believe it is necessary to ensure that the data used are valid and reliable, and the consistent application of the precision criteria is the best way to accomplish that objective.

Section 303(a)(1) of the MMA added section 1848(c)(2)(I) of the Act to require us to use survey data that include expenses for the administration of drugs and biologicals submitted by a specialty group for which at least 40 percent of the Part B payments are attributable to the administration of drugs in 2002 to adjust PE RVUs for drug administration services. The provision applies to surveys received by March 1, 2005 for determining the CY 2006 PE RVUs. Section 303(a)(1) of the MMA also amended section 1848(c)(2)(B)(iv)(II) of the Act to provide an exemption from budget neutrality for any additional expenditures resulting from the use of this survey data to adjust PE RVUs for drug administration services. 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 specialty of urology meets the above criteria, along with gynecology and rheumatology (69 FR 1094). Because we proposed to accept the new survey data from the AUA, we are required to exempt from the budget neutrality adjustment any impacts of accepting these data for purposes of calculating PE RVUs for drug administration services.

In addition, Lewin recommended blending the radiation oncology data from this year's AFROC survey data with last year's ASTRO survey data to calculate the PE/HR. According to the Lewin Group, the goal of the AFROC survey was to represent the population of freestanding radiation oncology centers only. In order to develop an overall average for the radiation oncology PE pool, the Lewin Group recommended we use the AFROC survey for freestanding radiation oncology centers, and the hospital-based subset of last year's ASTRO survey. Consistent with that recommendation, we proposed to use the new PE/HR calculated in this manner for radiation oncology.

As discussed in the August 8, 2005 PFS proposed rule and also in the preamble of this final rule with comment, we proposed to revise our methodology to calculate direct PE RVUs from the current top-down cost allocation methodology to a bottom-up methodology. Although we would continue to use the SMS data and the incorporated supplemental survey data for indirect PEs, we did not extend the deadline for submitting supplemental survey data but rather requested comments on the most appropriate way to proceed to ensure the indirect PEs per hour are accurate and consistent across specialties. b. Revisions to the PE Methodology

As discussed in the August 8, 2005 proposed rule, since 1997, when we first proposed a resource-based PE methodology, we have had several major goals for this payment system and have encouraged the maximum input from the medical community regarding our PE data and methodology.

We also have had the following three specific goals for the resource-based PE methodology itself, which have also been supported in numerous comments we have received from the medical community:

To ensure that the PE payments reflect, to the greatest extent possible, the actual 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 generally predict the impacts of changes in the PE data.

To stabilize the PE payments so that there are not large fluctuations in the payment for given procedures from year-to-year.

As we explained in the August 8, 2005 proposed rule, we believe that we have consistently made a good faith effort to ensure fairness in our PE payment system by using the best data available at any one time. The change from the originally proposed ``bottom-up'' to the ``top-down'' methodology came about because of a concern 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. The adoption of the top-down approach necessitated the creation of the NPWP. The NPWP is a separate pool created to allocate PEs for codes that have only a technical (rather than professional) component, or codes that are not performed by physicians.

However, the situation has now changed. As we explained in the August 8, 2005 proposed rule, refinement of the original CPEP data is complete and the refined PE inputs now, in general, accurately capture the relative direct costs of performing PFS services. Also, the major specialties comprising the NPWP (radiology, radiation oncology, and cardiology) submitted supplemental survey data that we proposed to accept, which would eliminate the need to treat these technical services outside the PE methodology applied to other services.

Due to the ongoing refinement by the RUC of the direct PE inputs, we had expected that the PE RVUs would necessarily fluctuate from year- to-year. However, it became apparent that certain aspects of our methodology exacerbated the yearly fluctuations. The services priced by the NPWP methodology have proven to be especially vulnerable to any change in the pool's composition. With the CPEP/RUC refinement of existing services virtually complete, we indicated this was an opportunity for us to propose a way to provide stability to the PE RVUs.

Therefore, consistent with our goals of using the most appropriate data, simplifying our methodology, and increasing the stability of the payment system, we proposed the following changes to our PE methodology and also requested suggestions that would assist us in further refinement of the indirect PE methodology.

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(1) Use a Bottom-up Methodology To Calculate Direct PE Costs

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 summing the costs of the resources--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 CPEP/RUC inputs in our PE database. (2) Eliminate the Nonphysician Work Pool (NPWP)

Since we proposed to incorporate new survey data for the major specialties that comprise the NPWP, we proposed to eliminate the pool and calculate the PE RVUs for the services currently in the pool by the same methodology used for all other services. This would 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. (3) Utilize the Current Indirect PE RVUs, Except for Those Services Affected by the Accepted Supplemental Survey Data

As described previously, the SMS and supplemental survey data are the source for the specialty-specific aggregate indirect costs used in our PE calculations. We then allocate to particular codes on the basis of the direct costs allocated to a code and the work RVUs. Although we now believe the CPEP/RUC data are preferable to the SMS data for determining direct costs, we have no information that would indicate that the current indirect PE methodology is inaccurate. We also are not aware of any alternative approaches or data sources that we could use to calculate more appropriately the indirect PE, other than the new supplemental survey data, which we proposed to incorporate into our PE calculations. Therefore, we proposed to use the current indirect PEs in our calculation incorporating the new survey data into the codes performed by the specialities submitting the surveys.

We specifically requested suggestions that would assist us in further refinement of the indirect PE methodology. For example, we noted in the proposed rule that we are 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-based methodology independent of the SMS data should be adopted, perhaps using the specialty-specific indirect-to-total cost percentage as a basis of the calculation. (4) Transition the Resulting Revised PE RVUs Over a 4-Year Period

We are concerned that, when combined with an expected negative update factor for CY 2006, the shifts in some of the PE RVUs resulting from our proposals could cause some measure of financial stress on medical practices. Therefore, we proposed to transition the proposed 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 proposed PE changes.

During this transition period, the PE RVUs would be calculated on the basis of a blend of RVUs calculated using our proposed methodology described above (weighted by 25 percent during CY 2006, 50 percent during CY 2007, 75 percent during CY 2008, and 100 percent thereafter), and the current CY 2005 PE RVUs for each existing code.

Now that the direct PE inputs have been refined, we believe that the CPEP/RUC direct input data are generally superior to the specialty- specific SMS PE/HR data for the purposes of determining the typical direct PE resources required to perform each service on the PFS. First, we have received recommendations on the procedure-specific inputs from the multi-specialty PEAC that were based on presentations from the relevant specialties after being closely scrutinized by the PEAC using standards and packages agreed to by all involved specialties. Second, the refined CPEP/RUC data are more current than the SMS data for the majority of specialties. Third, for direct costs, it appears more accurate to assume that the costs of the clinical staff, supplies and equipment are the same for a given service, regardless of the specialty that is performing it. This assumption does not hold true under the top-down direct cost methodology, where the specialty-specific scaling factors create widely differing costs for the same service.

We also would argue that the proposed methodology is less confusing and more intuitive than the current approach. For instance, the NPWP would be eliminated and all services would be priced using one methodology, eliminating the complicated calculations needed to price NPWP services. Also, any revisions made to the direct inputs 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.

In addition, the proposed methodology would create a system that would be significantly more stable from year-to-year than the current approach. We recognized that there are still some outstanding issues that need further consideration, as well as input from the medical community. For example, although we believe that the elimination of the NPWP would be, on the whole, a positive step, some practitioner services, such as audiology and medical nutrition therapy (MNT), would be significantly impacted by the proposed change. In addition, there are still services, such as the end stage renal disease (ESRD) visit codes, for which we have no direct input information. Also, as mentioned above, we do not have current SMS or supplementary survey data to calculate the indirect costs for most specialties. Further, we do not yet have accurate utilization for the new drug administration codes that were created in response to the MMA provision on drug administration. Therefore, we did not propose to change the RVUs for these services at this time, but to include them under our proposed methodology in next year's rule when we have appropriate data. The proposed transition period would give us the opportunity to work with the affected specialties to collect the needed survey or other data or to determine whether further revisions to our PE methodology are needed.

We requested comments on these proposed changes, particularly those concerning additional modifications to the indirect PE methodology that might help us further our intended goals.

Comment: There were 3 main concerns raised in comments we received on our overall proposed PE methodology which included: (1) Many of the proposed decreases appeared anomalous and were not explained; (2) there was insufficient information given to allow specialties to review and analyze the proposal and its impact; and (3) the use of the new PE data from the seven accepted supplementary surveys caused an inequitable redistribution of PE RVUs. As a result of these concerns, many commenters also requested a

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delay in the implementation of our proposed methodology.

The following are examples of the comments detailing the above concerns.

The AMA and the RUC agreed with the goals that we have set for an accurate, intuitive and stable methodology to use for the calculation of PE RVUs. The RUC added that it looks forward to helping us meet these goals. However, the AMA urged us to provide more information, such as examples of how the new values were calculated, the PE/HR and source of the data for each specialty and the budget neutrality adjuster applied at the end of the process, so that the medical community would have the opportunity to review the values and impact of the proposal.

Medicare Payment Advisory Commission (MedPAC) stated its agreement with the concerns regarding the current PE methodology that motivated us to propose a change, but did request that we assess the impact of proposed changes by groups of services--evaluation and management services, major procedures, other procedures, laboratory tests and imaging services, as well as by physician specialty group.

A specialty society representing obstetrics and gynecology commended the goal of the new methodology, but suggested we offer two or more examples of how PE is calculated, starting with the inputs that are used and moving through the process of developing the final PE RVUs for those codes.

An optometric association expressed regret that the proposed rule does not provide service-specific examples of how PE RVUs would be calculated using the current and proposed methodologies because this made it difficult to provide detailed comments on the proposal. Therefore, the commenter concluded that we should issue a final with a comment period. Two emergency medicine societies also requested the same service-specific examples.

An ophthalmology society was troubled by our failure to make the indirect cost data used in determining the rates of change in PE values available to all specialties for review and by the lack of analysis explaining the significant impacts caused by the acceptance of the supplemental survey data.

A specialty society representing cardiology urged us to provide more data and a more detailed explanation of the methodology, along with examples of how RVUs for specific codes were determined, so that stakeholders can gain a thorough understanding of our proposal.

A dermatology association commented that it is pleased that we want to transition to a bottom-up approach. The association believes that this will result in a more easily understood and stable payment system, but it would be helpful to have more information in the final rule on the calculation of PE values under the new methodology. For example, the association asks for clarification of why the PE RVUs for several dermatology procedures decreased.

A specialty society representing physical medicine expressed concern regarding a number of the results with respect to several physical medicine and rehabilitation codes and requested that we provide a more detailed description of the new methodology and address anomalies in the final rule. The commenter suggested that we establish a percentage decrease threshold that would trigger an opportunity for expedited review to determine whether the direct cost inputs are accurate.

Four organizations representing radiation oncology submitted comments stating their concern that several radiation therapy codes, including those for intensity modulated radiation therapy, continuing medical physics consultation and brachytherapy, have inappropriate proposed reductions. Two of the commenters recommended that we examine the impact of the methodology on a code-specific basis and, if necessary, implement an adjustment factor that limits the reduction to no more than 15 percent of the 2005 global RVUs at the end of the 4- year transition period. Comments from societies representing nuclear cardiology and echocardiography also supported a cap on the maximum reduction applied to any procedure that resulted from the decision to adopt the new methodology.

A geriatrics society expressed concern that geriatrics will experience a 1 percent reduction under the new methodology and stated that the transition period is critical, as it will lessen the impact of the proposed reduction. The society suggested that, during the transition period, we should work with stakeholders to explain the new methodology, to identify non-intuitive decreases in payment and to identify better ways to pay for indirect expenses.

An association representing nursing facility medical directors expressed concern that the new methodology will reduce the PE RVUs for nearly all codes for nursing facility services. If we proceed with the changes, the association suggested that we provide a more detailed explanation of the new methodology in the final rule, with examples of the PE RVU calculations for specific services under the old and new methods.

A consulting company expressed concern that we failed to make needed data available, such as the time file, utilization file and scaling factors and pools file. The commenter also requested that, in the future, we consider making available the same files we use to produce the PE RVUs, the assumptions used, such as crosswalks or projected utilization for new services and the data needed to evaluate the methodology used to go from the survey data to a PE/HR.

The American Cancer Society expressed concern regarding the specific reductions in payment for screening mammography, pap smears, pelvic/breast exams and flexible sigmoidoscopies which could potentially reduce access to cancer screenings.

An oncology nursing society strongly urged us to include drug administration services in the phase-in of the new methodology and exempt them from budget neutrality requirements. A cancer and blood disorders center expressed the same concern and stated that this omission would skirt the MMA mandate to exempt from budget neutrality limits any 2006 fee schedule changes to drug administration codes.

An association representing medical colleges noted that, together with the negative update, the decrease in revenue across faculty practice groups will exceed -6 percent. The association recommended that this warrants further review by the medical community and CMS should make public examples of how the new values were calculated, the actual new PE values for each code, the PE per hour and source of the data for each specialty and the budget neutrality adjuster applied as a final step.

A medical technology company requested that we explain how we intend to scale PE when CPT codes, such as endogenous radiofrequency ablation procedures, include a vascular as well as a radiology imaging procedure. The commenter recommended we should calculate the costs according to the primary group furnishing the procedure. In addition, the commenter contended that a deflation factor should not be applied to new procedures that have been valued by the RUC and CMS in late 2004 for establishment of 2005 payment.

Following are examples of the comments explicitly requesting delay.

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A comment from specialty societies representing general surgeons, anesthesiology, ophthalmology, hematology, emergency medicine, neurosurgery, cataract surgery, thoracic surgery, orthopaedic surgery, otolaryngology and hand surgery, supported by a letter from a member of the Congress, stated agreement with our goals for a PE methodology. However, the commenters requested that the implementation of the new methodology and data be delayed for 1 year, citing several concerns: First, commenters claimed that CMS did not provide sufficient data and information or time to allow adequate review of the validity of the new methodology, the supplementary survey data or the proposed impact. As a result, the comment argued that physicians have not had a reasonable opportunity to participate in the rule making process, in compliance with the Administrative Procedure Act. In addition, the comment cited the Practicing Physician Advisory Committee recommendation that we delay implementation of the new data and methodology for 1 year.

An oncology society commented that a final decision on the proposed revision to the PE methodology should be deferred 1 year until information is available on how the proposal will affect drug administration services. A large provider of oncology services was also troubled by the decision to exclude drug administration services from revisions to the PE methodology.

A psychological association stated that its primary concern is ``the proposed rule's lack of clarity regarding the impacts that the change in methodology will have on each health care specialty.'' Because of the lack of this data, the Association requested a 1 year delay for our proposal.

A specialty society representing surgeons stated that the proposed methodology apparently created many aberrant PE RVUs and gave examples: Closely related procedures with proposed RVUs that are inconsistent with their actual costs; services that contribute significantly to the increases in volume and intensity noted by MedPAC all receive significant increases; within specialties that should benefit from the higher PE/HR in their surveys, there are increases and decreases that cannot be explained; E/M services will be increased in the office setting, but decreased in the hospital setting. The college recommends that we withdraw the current proposal and republish it in a future PFS rule that includes a detailed description of the methodology.

Two specialty societies representing thoracic and chest physicians expressed concern with the significant shifts in the PE that would necessitate a 4-year transition and suggested that there should be no change in PE until all specialties can complete supplemental PE surveys.

A specialty society representing spine surgeons requested that we suspend the proposed PE changes until 2007, not because the methodology is flawed, but in order to allow all physicians an equal opportunity to submit data relevant to their specialties.

A specialty society representing anesthesiologists contended that lack of information on data and methodology behind the PE changes requires a delay in implementation. The Society requested that we provide information that clearly breaks out the impact of the proposed changes by specialty on the indirect and direct PE payments.

A medical group practice association fully supported the 4-year transition of the new PE values achieved under the new bottom-up calculation. However, because it believed that insufficient information has been made available, the association recommended that we delay implementation until the provider community has time to evaluate the methodology used to recalculate the PE RVUs.

The following commenters requested a delay in calculating the PE RVUs for their own specific services under the new methodology.

Several comments from a specialty society representing heart rhythm services, two manufacturers and a manufacturers association, as well as a provider of remote cardiac monitoring services expressed concern about the proposed cuts for remote cardiac monitoring services and requested that we not implement these proposed reductions, pending further study.

Two societies representing audiology and speech language pathology, supported by a comment from two senators, expressed concern about the large reductions in payment for audiology services and urged us to impose a 1 year moratorium on the proposed reductions for these services so that an equitable methodology for their services can be developed. One commenter suggested that if we do not implement a moratorium on payment decreases for audiology services, we should consider an alternative, such as assigning proxy work RVUs for indirect PE using the otolaryngology PE/HR.

The following commenters opposed any delay in implementing our proposed methodology.

A gastroenterology association commented that, since all medical specialties had equal opportunity to conduct supplemental PE studies, there should not be a delay in the implementation of our proposed changes.

A specialty society representing radiation oncology agreed that more information on the new methodology should be provided, but is opposed to any delay in the implementation of the proposed methodology as the transition provides sufficient opportunity for CMS to provide this information and resolve identified problems.

A sonography society commented that we should not delay the implementation of the revised TC component services with a 4-year transition. An alternative to the zero-work pool has been many years in the making and we should fully implement the new values this year.

An association representing urology disagrees with a 4-year phase in of the revised PE RVUs and strongly urged us to consider other options that will allow specialties with supplemental survey data to realize the full advantages of applying that data in 2006. The commenter claimed that a transition will allow specialties that did not conduct surveys to unfairly take a portion of the 4-year increases from specialties that did.

A specialty society representing allergists expressed concern that the RVUs based on the new accepted data will be phased in over 4 years. The commenter contended that we have not provided any rationale for why we are breaking with past policy or why we have decided to phase-in the specialty survey data. The commenter is concerned in particular about the continued applicability of the old and incorrect scaling factors which result in the discounting of the specialty's costs.

A pharmaceuticals company requested that we consider an immediate 100 percent transition to the 2009 proposed PE values for procedures like photodynamic therapy where access has been constrained due to the use of scaling factors.

A society representing family physicians commented that the original legislation mandating resource-based PE was enacted in 1994 and that we delayed the initial implementation by a year before entering a 4-year transition under our current methodology. The commenter therefore encouraged us to shorten or eliminate the transition and finally complete the process of implementing resource- based PE. However a society representing internists supported our proposal to transition PE RVU changes resulting

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from methodological changes in this proposed rule over a 4-year period.

Response: We very much appreciate all the thoughtful and helpful comments we received on our proposal to revise our PE methodology. In addition, we are pleased that so many commenters stated their agreement with the goals that we outlined for our PE methodology in order to implement a payment system for physician and practitioner practice costs that is accurate, understandable, and stable. We also still believe, despite all the concerns pointed out by commenters, that the implementation of a methodology that bases the PE calculations on the latest available data, that uses the PEAC-refined CPEP data to create a bottom-up approach for direct costs and that values all services using the same method will help us achieve those goals.

However, based on the comments we received, it appears that our PE proposal was not as clear and intuitive as we had intended. We continue to believe that the proposal for direct costs was straightforward; this proposal would do away with costs pools and scaling factors and merely add up the costs of the PEAC-refined input data assigned to each code to arrive at the direct PE RVUs (pre-PE budget neutrality). We had not anticipated that our indirect PE calculation would create difficulties since we intended that, except for those services for which the acceptance of the new supplementary survey data produced direct increases, to utilize the current indirect PE RVUs to develop the pre- PE budget neutrality indirect PE RVUs for 2006. However, due to an error in our indirect PE program, the indirect costs were not calculated as intended. As a result, almost all of the PE RVUs published in the August 8, 2005 proposed rule were incorrect.

Therefore, we are concerned that interested parties were not provided notice of the actual effect of the proposed changes in the PE RVU methodology and were not given the sufficient opportunity to submit meaningful comments on the proposal.

As a result, we are withdrawing our entire PE methodology proposal and instead, with only three exceptions, we will use the current 2005 PE RVUs to value all services for CY 2006. First, as we usually do each year, we will value the work and PE on an interim basis for all codes that are new in 2006. Second, as required by section 1848(c)(2)(I) of the Act, we will apply the PE/HR data from the urology supplementary survey to the calculation of the PE RVUs for all the drug administration codes performed by urology. Third, we will apply the savings from the implementation of the multiple procedure payment reduction for certain imaging services across all the PE RVUs that are discussed later in the preamble of this rule.

We understand that the withdrawal of this proposal will be welcomed by some and will be a disappointment to others, especially those specialties that undertook PE surveys that are not being used for 2006. We want to work with the medical community beginning now through the next proposed rule to exchange thoughts on all of the issues raised, to answer any questions and to provide additional data and corrected information. We hope to hold meetings on these topics early next year so that we can obtain maximum input from all interested parties to ensure that our next proposal does meet the goals we have set for our PE methodology.

Acceptance of Supplementary Surveys for 2006

Comment: Many commenters indicated their strong support for our proposal to accept the PE data from 7 supplementary surveys. Several specialty societies representing radiation therapy expressed approval for the proposal to blend the survey data submitted by ASTRO and AFROC to calculate a revised PE/HR for radiation oncology services. A specialty society representing interventional radiology stated support for the proposed use of the ACR's supplemental PE data for purposes of PE RVU determination. The ACC is pleased that we proposed to incorporate their supplemental PE survey data submitted for cardiology and other specialties that submitted data consistent with the acceptance criteria. The ACC commented that, given the rigorous and detailed analysis conducted by our contractor, these data are very likely superior to the SMS data that were used to calculate PE RVUs and that our acceptance of the supplemental PE data has been an important component of efforts to refine the resource-based PE RVUs. An echocardiography society and a commenter representing cardiovascular angiography also stated its support for use of the cardiology data. Two societies representing gastroenterology commented that they are pleased with our acceptance of the supplemental PE survey data for gastroenterology. The AUA strongly urged us to finalize our proposal to accept the AUA's supplemental survey data, as they believe language in the section 303(a)(1)(I) of the MMA requires us to accept supplemental data submitted by urology. In addition, the AUA stated that we are required by the MMA to update the 2006 PE RVUs for urology drug administration, applying the exemption from budget neutrality. A commenter representing prosthetic urology also agreed that we should use the urology supplemental data to allocate the indirect PE costs to each urology procedure.

However, other commenters had concerns with the proposal. An otolaryngology specialty society questioned the validity of the dramatic increases in the PE/HR for the specialties that have submitted surveys because this could create a two-tiered system between those specialties that have submitted surveys and those which have not. Therefore, the society recommended that use of this new PE data be delayed until such time as a multispecialty PE survey can be conducted. A comment from an occupational therapy association recognized the need to use SMS aggregate data in the indirect calculations, but questioned the impact on specialties who did not participate in the survey and suggested that the transition period be used to examine the atypical impact of this change. Two thoracic surgery groups commented that the PE fluctuations and disparities caused by the acceptance of these surveys are counter-intuitive and advantage those for whom we have accepted data at the expense of those from whom we have not. The specialty society representing surgeons stated that the dramatic increase in the proposed PE/HR figures could cause significant distortions in the relativity of PE payments across specialties and urged that we delay implementation of the new data until a multi- specialty PE survey, similar to the AMA's SMS survey can be conducted. However, the society also recommended that we use the urology PE/HR data because it would be required by the MMA. A provider group representing remote cardiac services recommended that we should refrain from incorporating any additional survey data until all supplemental data is submitted.

Conversely, a society representing echocardiographers stated that it is crucial for us to use the submitted survey meeting our criteria in order to retain the type of trust necessary for physician specialty groups to conduct this type of survey in the future. The commenters from the gastroenterology groups stated that use of these data should not be transitioned, but should be treated consistently with the manner in which all other supplemental data have been treated. Further, the commenter contended that, even if we agree to a delay in the implementation

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of our proposed methodology, the accepted supplemental PE/HR data should be implemented immediately for both direct and indirect expenses.

Response: We understand the considerable effort, time and money expended by the specialty societies that submitted surveys that met our criteria and are aware that there will be considerable disappointment that the new data will not be used for 2006. We also understand the concern of those specialties that have not undertaken a supplementary survey that now fear that they could be relatively disadvantaged if the accepted surveys are used. We would point out that for the last five years there has been an equal opportunity for all specialties to submit supplementary data and it could be presumed that those specialties that did not avail themselves of the opportunity believed the effort was not worth the probable result. In addition, all specialties had the opportunity to comment on our proposed criteria for acceptance of survey data and the medical community at large did not comment that the criteria needed to be more stringent. However, we will not be using the accepted supplementary data in our indirect PE calculations for 2006, with the exception of the urology PE/HR data that we are applying to the drug administration codes performed by urology as required by section 1848(c)(2)(I) of the Act. We are not using the other accepted supplementary PE data because, as explained above, we are not adopting the proposed changes to our PE methodology, we did not propose to use the survey data for calculating the direct PE RVUs and the use of the survey data would have caused significant changes in the PE RVUs for which there would have been no opportunity for comment.

Comment: We also received several comments with specific concerns regarding our handling of the submitted PE survey data. A specialty society representing radiation oncology asserted that the approach to blending survey data has inadvertently lowered the values for certain radiation oncology services by under-weighting the PE expenses for freestanding facilities from the AFROC survey and by overestimating the hours in the denominator of the PE/HR calculation. In addition, three commenters questioned an apparent discrepancy with the PE/HR for radiology, radiation oncology and cardiology recommended by the Lewin Group and the PE/HR in the proposed rule and the subsequent correction notice. The commenters requested a clarification on how we applied the deflators in order to ensure that all specialties submitting surveys were evaluated in the same way. A comment from specialty societies representing most major surgical groups, as well as emergency medicine and anesthesia, contended that over the years we have treated supplemental survey data with different standards and have blended some while not blending others. A medical technology company requested that we explain how the data were evaluated, especially because we did not accept some recommendations presented by the Lewin Group.

Response: Because we are not utilizing the new supplementary data for indirect PE calculations for 2006, we plan to discuss all of these issues with the relevant specialties in order to determine if adjustments are needed to our calculations of the PE/HR data. However, we do not believe that we have treated supplemental data with different standards, but would request specific information from the commenters. Currently, we are not using any blended data for any supplementary survey that we have accepted and used. Although we rely heavily on the analysis and evaluation of the survey data done by the Lewin Group, we are responsible for the final decision on whether or not to accept the data from a given survey. The Lewin Group did recommend that we accept the data from the NCQDIS survey, which did not meet our precision criteria, because we currently have no survey data for them. However, we believe that it is more equitable to apply the same standards to all who submit surveys and we proposed not to accept the survey data at this time.

Comment: The NCQDIS expressed concern that we did not accept their PE survey data for diagnostic imaging services in IDTFs because the precision criteria was not met. NCQDIS pointed out that the Lewin Group recommended that we accept the data in spite of the precision level because PE data for IDTFs do not currently exist. The commenter stated that, after further analysis of the data, NCQDIS determined that inclusion of one inaccurate record skewed the findings outside the acceptable precision range. Therefore, NCQDIS recommended that we accept the revised analysis from the Lewin Group that includes updated PE information for the record in question and that we allow the updated data to be used in development of PE RVUs for 2006. The NCQDIS recommendation was supported by a comment from a society representing diagnostic medical sonography that contended that no alternative data is available for these entities and the current PE data used understates their PE.

Response: There have been further discussions between NCQDIS and our contractor. We will be discussing this with the specialty in order to resolve the issue for a future proposal.

Comment: A nuclear medicine society stated that it cannot respond to our use of the radiology and cardiology surveys because it has not seen the data as it relates to nuclear medicine. The commenter requested that we make the nuclear medicine supplementary survey information and impact available. A specialty society representing radiation oncology expressed the belief that the new survey data do not reflect the costs of brachytherapy because providers of this service were not adequately represented in the sample.

Response: We would be willing to discuss the societies' concerns to determine an appropriate resolution.

Comment: A long term care association urged us to use the data from the ACR supplementary survey as the PE/HR proxy for the portable x-ray set-up code (Q0092) to prevent inconsistencies in the application of the new payment methodology.

Response: We do not believe it would be appropriate to use the same indirect costs associated with a free-standing radiology center, which incurs costs for such requirements as lead shielding and structural reinforcements for heavy equipment, as the costs for setting up a portable x-ray machine. Therefore, we will not apply the data from the radiology supplementary survey to the calculations of the PE RVUs for Q0092.

Comment: Because we had proposed to accept the supplementary survey data for radiology, radiation oncology and cardiology, the specialties that make up the bulk of the NPWP, we also proposed eliminating the pool and pricing all of the services in the NPWP under the new proposed PE methodology. We received comments from several organizations including those representing diagnostic sonography, urology, medical physicists, allergy geriatrics and a blood disorder center supporting this proposal. However, the specialty society representing audiology urged that, before we dismantle the protection provided by the NPWP, a reasonable formula should be developed to fairly and adequately reimburse audiologists for their services. The societies representing audiology, speech language pathology and medical nutrition all commented that we should assign work RVUs to their services, rather than treating their professional work as PE.

Response: We are pleased that most commenters approved of our proposal to

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eliminate the NPWP. However, because we will not be using the accepted new supplementary survey data in the calculation of PE RVUs for 2006, we believe it would be more equitable to defer the elimination of the pool as well. Therefore, we will not be implementing this proposal for 2006. This will also give us the additional time to work with audiology and other specialties to ensure that our future proposal will be equitable to all. Because we are maintaining the NPWP for 2006, we are deferring our decision regarding work RVUs for audiology, speech language pathology and medical nutrition pending further discussions with the specialties.

Bottom-up for Direct PE

Comment: We received many comments on our proposal to value the direct PE for all services by the bottom-up method, using the PEAC refined staff, supply and equipment costs associated with each procedure as the basis for calculating the direct PE RVUs. Almost all of these comments favored our proposal to modify our PE methodology. This support was expressed whether the commenter also requested a delay in the implementation of our proposed methodology or recommended immediate implementation with no transitioning of the new PE RVUs. Commenters who were pleased with the resulting PE RVUs and those concerned with specific reductions also showed support. Below are some specific examples of the supporting comments.

Two comments from specialty societies representing family physicians and internists agreed that the bottom-up approach will produce a more accurate, intuitive and stable PE methodology. One of the commenters contended that the proposed methodology would be more accurate because the bottom-up methodology assumes that the costs of the clinical labor, supplies and equipment are the same for a given service, regardless of the specialty performing it.

A urological association supported switching to a bottom-up methodology for calculating PE RVUs and believed it meets our stated goals of using the most appropriate data, simplifying the PE methodology and increasing the stability of the PE payments.

A major oncology center applauded our decision to implement a bottom-up approach because of the inequities that result when PE RVUs are set using a top-down approach which allows the frequent ``leakage'' of a specialty's costs to other specialties. This rationale was also stated by a society representing anesthesiologists and by a patient advocate foundation.

An oncology nursing society commented it has long advocated a bottom-up modification to help ensure that PE payments reflect the actual relative resources required for each service provided by oncology nurses.

An organization representing allergy supported our proposal to change to a bottom-up methodology for determining PE values because this is a more rational approach. This view was shared in a comment from a physical medicine and rehabilitation society, which added that a bottom-up approach would result in a more direct relationship between PE RVUs and direct costs.

A spine society commented that it welcomed the change to a ``bottom-up methodology because any movement in the direction of stability and uniformity will have positive effects across providers.''

A specialty society representing neurology supported the proposed change to a bottom-up methodology for calculating direct costs. The society asserted that the top-down method is flawed as it unfairly raises the expenses for high-end procedures. The commenter also stated that the excellent work of the PEAC, and now the PERC, has produced reliable data for all the codes, making CPEP complete for all the codes and must be given primacy in any method we would chose to implement.

Two radiation therapy societies stated their strong support of the proposed bottom-up methodology and the proposed implementation for January 1, 2006. One society commented that eliminating the scaling factors, at least for direct costs, is a step in the right direction toward a simpler and more transparent PE methodology.

A respiratory care association stated support for our proposed bottom-up approach because this methodology would minimize aberrations that might inadvertently appear in the calculations, providing a more accurate representation of direct PE incurred by pulmonary physicians.

A psychological association commented that the refinements approved by the PEAC may allow CMS to utilize a more simplified PE methodology which will make PE more understandable.

An organization representing radiology contended that using the bottom-up methodology seems to be a simpler and easier way to make the transition with minimal impact. A medical sonography society stated that our efforts to help ensure a more accurate payment for healthcare services and create more year-to-year stability are to be commended.

An occupational therapy association and a physical therapy association both agreed that the bottom-up method would be a preferable methodology. First, because it would rely on actual inputs from the specialties providing each service and second because it would create a more stable and predictable system and would reflect the actual relative resources required for each service.

A specialty society representing hematology agreed that the top- down method for calculating the direct PE is extremely complex and not at all intuitive and stated that the bottom-up method will simplify the system and reduce the complexity of the calculations.

Other organizations that supported the adoption of the bottom-up approach to valuing direct costs included specialty societies representing podiatry, prosthetic urology, geriatrics, infectious diseases, chest physicians, a pharmaceutical company, and medical group practices.

Response: We are very pleased that so many in the medical community approve of the concept of using a bottom-up methodology to value the direct PE RVUs. We believe, along with these commenters, that the use of the bottom-up approach in the future would allow us to calculate more accurately the relative direct costs for each service in the PFS. The bottom-up approach would be simple to understand--we merely sum the costs of the PEAC-refined clinical staff, supply and equipment inputs that are assigned to each service. The bottom-up approach would be intuitive--any change in direct inputs would lead to a commensurate change in the direct PE RVUs. The bottom-up methodology should also be more stable--with no cost pools or scaling factors to complicate the computation, direct PE RVUs for a service would only change if there was a revision to the inputs assigned. It was the hard work put forth by the AMA, the PEAC, the RUC and specialty societies in refining the CPEP inputs that made it possible to propose using a bottom-up methodology. However, for reasons discussed in this section, we are not implementing the bottom-up methodology for direct costs for 2006. However, we will be working with the RUC and the medical community to ensure that the inputs assigned to each service are correct and that the overall methodology works as intended so that we can propose this improvement in the future.

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Comment: Several commenters expressed concern regarding the future refinement of the direct PE inputs that would ensure that a bottom-up methodology continues to lead to appropriate PE RVUs. A radiation oncology specialty society recommended that the bottom-up methodology be reviewed to ensure that the full input amounts are recognized accurately. A specialty society representing podiatry commented that the codes refined in the early stages of the PEAC may have inputs not consistent with codes refined later and that they should be looked at again by PEAC or PERC. The specialty society representing allergy suggested that there needs to be a continuing mechanism, such as the PEAC and PERC, for addressing changes in PE. A physical medicine society asserted that it is essential that we establish a system for updating or revising direct cost inputs based on new data or changes in technology. A thoracic medicine society supported the bottom-up methodology for creating direct PE inputs with continued refinement by the PEAC or the PERC. A pharmaceutical company supported the bottom-up method of determining the relative direct costs of each service, but requested that we establish a system to accept and review external data during the notice and comment period to update the direct cost inputs as needed. A specialty society representing prosthetic urology recommended that we adopt the bottom-up method and establish a method to review external data to ensure that the inputs are updated appropriately.

Response: We agree with the commenters that there needs to be a continuing review process for the direct PE inputs to reflect changes in practice or new technology. In addition, it will be necessary to ensure that the clinical staff time standards and supply and equipment packages that have been developed through the refinement process are applied appropriately to all services. We are hopeful that the RUC will continue to play a role in this further review and will be discussing this with RUC staff. In addition, we will continue to encourage input from the medical community in general regarding the accuracy of the direct inputs and their pricing.

Comment: There were a few specific concerns raised by commenters regarding the bottom-up methodology. A specialty society representing radiation oncology stated that the bottom-up methodology may be unintentionally compressing higher-cost technology. A health care provider supported the bottom-up approach conceptually, but expressed concerns that aggregate budget neutrality would be more difficult to control using a bottom-up approach than using the top-down. A medical group practice association, as well as a large multi-specialty clinic, had concerns that the RUC recommendations we have accepted for new technical procedures have, because of budget neutrality, eroded the value attributed to cognitive services. MedPAC had concerns about dealing with overvalued services and with the assumptions we use to allocate the cost of equipment to a specific service. For example, MedPAC questioned whether our assumption of 50 percent utilization for all equipment is valid.

Response: We are not sure how the bottom-up methodology would compress higher cost technology, but would be willing to discuss this with the commenter as we develop our next proposal. For budget neutrality, we are not certain that it is harder to control under a bottom-up approach; it would depend on which data source--the aggregate SMS-type data or the PEAC-refined input data--produces the most accurate estimate of direct costs. We understand, in a budget neutral system, the concern about the effect that adding inputs for expensive technology has on cognitive services, but under a bottom-up methodology there would not be the issue of scaling factors exaggerating this effect. We would like very much to discuss the issue raised by MedPAC as we endeavor to improve our PE methodology.

Future Indirect PE Refinement

Comment: Although we did not propose any major change to the indirect PE methodology, other than incorporating the new PE survey data, we did indicate our interest in receiving suggestions on ways to continue to refine the indirect PE calculations. Most commenters focused on the need for us to acquire up-to-date survey information for all specialties so that the PE data for all specialties is as current as possible. Specialty societies representing infectious disease physicians, orthopaedists, remote cardiac services, chest physicians and physical medicine commented that we should extend the deadline to allow specialty societies to conduct supplemental PE surveys. A commenter representing otolaryngologists stated this would not be a preferred option since the high cost involved with conducting surveys would disadvantage smaller specialties.

Other specialty societies representing cataract surgeons, anesthesiologists, emergency medicine and otolaryngology recommended that an unbiased SMS-type survey that cuts across all specialties would be most appropriate for use in the future, instead of having data from different time periods. In arguing for this multi-specialty approach, an emergency medicine association commented that, as MedPAC reports have indicated, only specialty societies who are likely to gain ground have incentive to produce new surveys. The specialty society representing otolaryngology cited the discussion in the Lewin Group report, ``Recommendations Regarding Supplemental Practice Expense Data Submitted for 2006,'' that suggests that the increase in the surveyed PE/HR could indicate a ``secular trend in rising physician PEs,'' and the need for a multi-specialty PE survey. The commenter also suggested that a universal survey could be paid for by using funds reallocated from the oncology demonstration. A specialty society representing spine surgeons commented that all physicians should have the opportunity to submit data relevant to their specialties because it would be unfair to reduce PE reimbursement for providers such as neurosurgeons and orthopedic surgeons without allowing those providers that opportunity to submit accurate data. The society suggested that, as we have established a model for survey data, we could allow societies to survey their membership and submit the results, either directly to CMS or through the RUC. An association representing medical group practices recommended that a comprehensive study be initiated to accurately balance the relativity of overhead costs of practice for each service on a nationwide basis and that this include the costs of information technology (IT) implementation. An emergency medicine commenter recommended including survey questions on uncompensated care.

Response: We agree with all the commenters that, for the PE RVUs to reflect accurately the relative indirect costs for all services, it would be most preferable to have current data for all specialties. However, section 212 of the BBRA required that we establish a process to use data developed by entities and organizations to supplement the data we normally collect in determining the PE component. We established this process and set criteria and a timeline for submission of this data. Although we twice extended the period during which we would accept these supplemental data, we are not proposing to extend this period beyond this year. We believe

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that there has been sufficient time for individual specialties that had sufficient member support to do a survey, and that had reason to believe that the results of a survey would be helpful, to submit supplementary PE data to us. Therefore, we agree with the commenters who suggest that a multi-specialty survey done for a uniform time period would be most helpful. We are now planning to work with the AMA and the medical community to develop a strategy for funding and fielding a multi-specialty indirect PE survey that will help ensure that our PE methodology treats all specialties equitably.

Comment: Several commenters offered the following suggestions for revisions to the indirect methodology.

Comments from two associations representing speech language pathologists and audiologists argued that the current method of assigning indirect costs to their services results in a gross underestimation of these costs for both audiology and speech-language pathology services. One association suggested an alternative method of basing indirect costs on the ratio of the refined direct costs to the total costs for all physicians or for otolaryngologists.

A specialty society representing allergy expressed concern that the indirect costs of an allergy practice are not properly accounted for in the current methodology because most either are not assigned work RVUs or have very low work RVUs, but may have high actual indirect costs. The society recommended that we should either establish a mechanism for adjusting the indirect PE when the existing formula yields an inequitable result, or revise the direct costs to include administrative staff time.

A comment from a manufacturer stated that we should not use the ``All Physician'' indirect cost data for IDTFs and recommended using the radiology PE/HR figure for IDTF radiological services and the cardiology PE/HR for IDTF cardiology services, with the exception of the cardiac remote monitoring services which should be paid at current levels, pending the collection of additional data.

A comment from a clinical oncology society recommended that any revision in the methodology for direct costs should be accompanied by a revision in the methodology for allocating indirect costs. The society stated that both the Lewin Group and the Government Accountability Office have found that the current methodology for indirect costs is biased against services that lack a physician work component.

A family physician association questioned why we use physician work, rather than physician time, in our formula for allocating indirect expenses. The commenter stated that there is no evidence that PE would vary with physician intensity and recommended that we use physician time rather than work in the allocation of indirect expenses.

A group representing cardiac services providers recommended that if and when the new methodology is applied to remote cardiac monitoring, indirect costs for these services should be based on a survey of their group and not on the ``All Physician'' average PE/HR, which fails to reflect the actual practice costs incurred. The group also recommended that we allocated indirect costs solely on the basis of direct costs, without regard to physician work.

Response: We thank all the above commenters for their suggestions on improvements to our indirect PE methodology. We will certainly consider all of the above recommendations, as we work with the medical community to develop our next proposal for indirect PE.

Comment: The American College of Surgeons recommends that we convene a multi-stakeholder process to address indirect PE methodological issues so that we can make further changes before final implementation of our new methodology.

Response: As we have mentioned previously, we agree wholeheartedly with the above recommendation. We plan to initiate an open process with the medical community to exchange ideas, answer questions and provide information regarding changes to all aspects of our PE methodology before publication of the next PFS proposed rule. We recognize that in any payment system based on costs, indirect costs are always the most difficult to allocate fairly and accurately. Therefore, we will welcome all suggestions, including those recommended, to improve our indirect PE methodology.

Other Issues

Comment: A group representing community cancer centers requested that we review the PE RVUs for drug administration services as soon as the needed data are available to ensure that they accurately reflect all the costs associated with these services. The National Patient Advocate Foundation agreed because of concern that use of the current indirect PE RVUs will not be sufficient to reimburse oncologists for drug administration costs.

Response: We should have the utilization data needed for the 2006 proposed rule and plan to include the drug administration services in whatever PE methodology is proposed.

Comment: Several commenters recommended that we maintain budget neutrality for PE RVU changes by adjusting the CF proportionately, rather than decreasing only PE RVUs.

Response: Though there could be operational difficulties with adjusting the CF to account for PE budget neutrality, we would like to solicit comments on how best to reflect the budget neutrality for PE. 3. PE Recommendations on CPEP Inputs for CY 2006

Since 1999, the PEAC, an advisory committee of the AMA's RUC, provided us with recommendations for refining the direct PE inputs (clinical staff, supplies, and equipment) for existing CPT codes. The PEAC held its last meeting in March 2004 and the AMA established a new committee, the PERC, to assist the RUC in recommending PE inputs.

With the PERC's assistance, the RUC completed refinement of approximately 200 remaining codes at its meetings held in September 2004 and February 2005. A list of these codes appeared in Addendum C of proposed rule.

We reviewed the RUC-submitted PE recommendations and proposed to adopt nearly all of them. We worked with the AMA staff to correct any typographical errors and to make certain that the recommendations are in line with previously accepted standards.

As stated in the proposed rule, we revised the PE database to reflect these RUC recommendations which can be found on our web site. (See the ``Supplementary Information'' section of this rule for directions on accessing our web site.)

We disagreed with the RUC's recommendation for clinical labor time for CPT code 36522, Extracorporeal Photopheresis. In the CY 2005 final rule (69 FR 66236), we assigned, on an interim basis, 223 minutes of total clinical labor for the service period based on the typical treatment time of approximately 4 hours. The RUC, however, recommended 122 minutes total clinical labor time for the service period, which allowed for 90 minutes of nurse ``intra service'' time for the performance of the procedure (the society originally proposed 180 minutes). We believe that 135 minutes is a more appropriate estimation of the clinical staff time actually needed for the intra time, as it more closely approximates the time assigned to the other procedures in this family of codes, including CPT codes 36514, 36515, and 36516. Therefore, we proposed a total

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clinical labor time of 167 minutes for the service period. We did not receive specific comments for this revision and are finalizing this change to the clinical labor time. While we have made the change in the PE database, the PE RVUs for 2006 will not reflect the adjustment due to the decision concerning the PE methodology to maintain all PE RVUs at the 2005 level as discussed previously.

The RUC also recommended that no inputs be assigned to several codes because the services were not performed in the office setting. However, our utilization data shows that 4 of these codes (CPT codes 15852, 76975, 78350, and 86585) are currently priced in the office and are performed with sufficient frequency in the office to warrant this. Therefore, we proposed not to accept the RUC recommendations for these services at this time, but requested comments from the relevant specialties as to whether the recommendations should be accepted.

Comment: We received comments from one specialty society disagreeing with the RUC's recommendation for CPT 78350, single photon bone densitometry, as they believe this procedure is being performed in the office. They expressed their intentions to work with CMS as they develop appropriate PE inputs for this procedure in the nonfacility setting. The specialty society also expressed their agreement with the RUC's recommendation to eliminate the nonfacility PE RVUs for 76975 because virtually all of these exams are performed in the facility setting. In addition, a national organization representing medical directors of respiratory care, supported the retention of nonfacility PE RVUs for CPT 86585, TB tine test, because they believe it to be a legitimate office-based procedure. We did not receive comments on the appropriateness of nonfacility RVUs for CPT 15852.

Response: We will maintain the nonfacility setting PE RVUs for 78350 and look forward to working with the specialty society in their initiative to develop inputs for this procedure. We will remove the PE inputs for the nonfacility setting for CPT codes 76976 and 15852, although for the 2006 PFS these codes will reflect the 2005 PE RVU amounts. CPT 86585 has been deleted from CPT 2006 and will not appear on Addendum B. 4. Payment for Splint and Cast Supplies

In the Physician Fee Schedule (CY 2000); Payment Policies and Relative Value Unit Adjustment final rule, published November 2, 1999 (64 FR 59379) and the Physician Fee Schedule (CY 2002); Payment Policies and Relative Value Units Five-Year Review and Adjustments final rule, published November 1, 2000 (66 FR 55245), we removed cast and splint supplies from the PE database for the CPT codes for fracture management and cast/strapping application procedures. Because casting supplies could be separately billed using Healthcare Common Procedure Coding System (HCPCS) codes 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.

However, in limiting payment of these supplies to the HCPCS codes Q4001 through Q4051, we unintentionally prohibited remuneration for these supplies when they are not used for reduction of a fracture or dislocation, but rather, are provided (and covered) as incident to a physician's service under section 1861(s)(2)(A) of the Act.

Because these casting supplies are covered in sections 1861(s)(5) or 1861(s)(2)(A) of the Act, we proposed to eliminate the separate HCPCS codes for these casting supplies and to again include these supplies in the PE database. This would allow for payment for these supplies whether based on section 1861(s)(5) or 1861(s)(2)(A) of the Act, while ensuring that no duplicate payments are made. In addition, by bundling the cost of the cast and splint supplies into the PE component of the applicable procedure codes under the PFS, physicians would no longer need to bill Q-codes in addition to the procedure codes to be paid for these materials.

Because these supplies were removed from the PE database prior to the refinement of these services by the PEAC, we proposed to add back the original CPEP supply data for casts and splints to each applicable CPT code and we requested that the relevant medical societies review the ``Direct Practice Expense Inputs'' on our web site and provide us with feedback regarding the appropriateness of the type and amount of casting and splinting supplies. We also requested specific information about the amount of casting supplies needed for the 10-day and 90-day global procedures, because these supplies may not be required at each follow-up visit; therefore, the number of follow-up visits may not reflect the typical number of cast changes required for each service.

We reincorporated the following cast and splint supplies as direct inputs: fiberglass roll, 3 inch and 4 inch; cast padding, 4 inch; webril (now designated as cast padding, 3 inch); cast shoe; stockingnet/stockinette, 4 inch and 6 inch; dome paste bandage; cast sole; elastoplast roll; fiberglass splint; ace wrap, 6 inch; and kerlix (now designated as bandage, kerlix, sterile, 4.5 inch) and malleable arch bars. The cast and splint supplies were added, where applicable, to the following CPT codes: 23500 through 23680, 24500 through 24685, 25500 through 25695, 26600 through 26785, 27500 through 27566, 27750 through 27848, 28400 through 28675, and 29000 through 29750.

Because we proposed to pay for splint and cast through the PE component of the PFS, we would no longer make separate payment for these items using the HCPCS Q-codes.

Comment: We received a comment on behalf of the American Osteopathic Academy of Orthopedics (AOAO) that provided specific information for the type and number of casts needed for the 10 or 90- day global period for each code in the relevant fracture management series. The AOAO also noted the type and amount of casting supplies, including stockinette, cast padding, fiberglass and post-op cast shoe, as appropriate.

We also received a comment from the RUC expressing their appreciation for the proposal to make coding and billing for fracture management and casting/strapping supplies easier by reducing the number of codes for physicians to submit. In addition, the RUC expressed interest in reviewing the data submitted in response to our proposal so that the resulting casts and strapping PE inputs can ``enjoy the same level of scrutiny and cross-specialty refinement that all of the other PE inputs have''.

Other specialty societies supported our proposal to include casting material in the fracture care codes and the elimination of the Q codes. However, some of these societies expressed concerns about bundling all of the necessary casting/strapping supplies for the global period into the fracture management codes. These commenters related that only the initial cast/strapping supplies should be bundled into the relevant fracture care code series and that physicians should be able to continue to submit separate claims for the CPT codes for the application of casts and strapping procedures during the global period.

Many commenters, primarily from orthopedic practices, expressed concern about the proposal, but misunderstood that this proposal was separate from the anticipated negative update for 2006 based on the SGR methodology.

Response: We thank AOAO for submitting the information we requested in the proposed rule. The society submitted a clear,

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comprehensive and beautifully prepared spreadsheet detailing each CPT code in the various fracture management series. We commend them on their efforts to submit such a thorough and meticulous document in response to our proposed rule request.

For the 2006 fee schedule, based on the decision concerning PE methodology to maintain all PE RVUs at the 2005 level previously discussed, we have removed the CPEP inputs for casts and splints from the PE database and CMS will retain use of the Q-code fee schedule as done in the past. In addition, we will use the interim time period before the notice of proposed rulemaking for the 2007 fee schedule to work with the affected specialties and the RUC to clarify issues related to Medicare payment policy and establish more appropriate amounts of casting/strapping materials for the relevant series of fracture management codes and the casts and strapping application codes. Due to the temporary status and intended limited use of the Q- code fee schedule, it is our intention to resolve these important payment issues in the near future. A detailed discussion of the SGR and the update for 2006 is found later in this final rule with comment. 5. Miscellaneous PE Issues

In this section, we discuss our specific proposals related to PE inputs. a. Supply Items for CPT Code 95015

We proposed to change the supply inputs for CPT code 95015, intracutaneous (intradermal) tests, sequential and incremental, with drugs, biologicals or venoms, immediate type reaction, specify number of tests, based on comments received from the JCAAI. JCAAI reported that ``venom'' is the most typical test substance used when performing this service and that ``antigen'', currently listed in the PE database, is never used. They also suggested that the appropriate venom quantity should be 0.3 ml (instead of the 0.1 ml listed for CY 2005) because of the necessity to use all 5 venoms (honey bee, yellow jacket, yellow hornet, white face hornet and wasp) to perform this sensitivity testing; that is, 1 ml of each venom type for a total of 5 ml of venom. The diluted venoms are sequentially administered until sensitivity is shown, beginning with the lowest concentration of venom and subsequently administering increasing concentrations of each venom. We accepted the specialty's argument and proposed 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).

Comment: JCAAI expressed their appreciation for our proposal to change the supply item input for CPT 95015 from 0.1 ml antigen to .3 ml of venom.

Response: The appropriate changes have been made to our PE database. However, as discussed above, because we are making only limited, necessary changes to PE RVUs for the 2006 PFS, the PE RVUs for this code will continue to reflect the 2005 PE RVU amounts. b. Flow Cytometry Services

In the CY 2005 final rule (69 FR 66236), we solicited comments on the interim RVUs and PE inputs for new and revised codes, including flow cytometry services. Based on comments received and additional discussions with representatives from the society representing independent laboratories, we proposed to revise the PE inputs for the flow cytometry CPT codes 88184 and 88185.

Based on information from the specialty society, we proposed to change the direct inputs used for PE as follows:

Clinical Labor: 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: Change the antibody cost for both CPT codes 88184 and 88185 to $8.50 (from $3.544).

Equipment: Add a computer, printer, slide strainer, biohazard hood, and FACS wash assistant to CPT code 88184. Add a computer and printer to the equipment for CPT code 88185.

Comment: We received comments from several organizations including those representing professional services in clinical laboratories, manufacturers, clinical laboratories, and clinical pathologists. These commenters all supported our proposal to revise the PE inputs outlined above for the flow cytometry CPT codes 88184 and 88185.

Response: We appreciate the support extended to us by these national organizations in regards to the revision of direct inputs for the CPT codes for flow cytometry. The PE changes have been made, as indicated above, to the database. However, because we are making only limited, necessary changes to PE RVUs for the 2006 PFS, the PE RVUs for these codes will continue to reflect the 2005 PE RVU amounts. c. Low Osmolar Contrast Media (LOCM) and High Osmolar Contrast Media (HOCM)

HOCM and LOCM are used to enhance images produced by various types of diagnostic radiological procedures. In the CY 2005 final rule (69 FR 66356), we eliminated the criteria for the payment of LOCM that had been included at Sec. 414.38. Effective April 1, 2005, providers can receive separate payment for LOCM when used with procedures requiring contrast media through the use of separate Q-codes. Payment for HOCM is currently included as part of the PE component under the PFS. We proposed, effective January 1, 2006, to no longer include payment for HOCM under the PFS and to establish Q-codes for the separate payment of HOCM.

As noted in the proposed rule we reviewed the PE database and proposed to remove the following two supply items which we have identified as HOCM from the PE database:

Conray inj. iothalamate 43 percent(supply item SH026, deleted from 64 procedures).

Diatrizoate sodium 50 percent (supply item SH0238, deleted from 74 procedures).

We also identified 5 CPT codes (specifically CPT codes 42550, 70370, 93508, 93510 and 93526) that included omnipaque as a supply item, and proposed to remove this supply item from these 5 CPT codes since omnipaque is actually a type of LOCM.

Comment: We received several comments from organizations representing radiology physicians and manufacturers on our proposal to delete HOCM from the PE database. The commenters supported our proposal for separate payment for both HOCM and LOCM to ensure beneficiaries access to all the various types of medical imagining contrast media. The commenter representing the manufacturers requested that we notify carriers that separate payment for LOCM and HOCM is available.

Response: We thank the organizations for their comments in support of our proposal which would permit separate payment for HOCM in 2006. We have removed HOCM from the direct inputs in the PE database and also deleted LOCM from the 5 procedures as noted above. However, because we are not implementing the bottom-up methodology which utilizes the direct inputs to determine the PE RVUs, these imaging codes will again be valued in the NPWP where the PE RVUs are established using an appropriate crosswalked charge-based RVU containing HOCM as an inherent supply cost. We will delay separate payment for HOCM until such time the direct inputs are used to determine PE RVUs. For 2006, the PE RVUs will be retained at the 2005 level. We remind the commenters that the average sales price

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(ASP) quarterly values are published on our Web site at the following address: http://www.cms.hhs.gov/providers/drugs/asp.asp.

d. Imaging Rooms

We include standardized ``rooms'' for certain services in our PE equipment database, rather than listing each item separately. We received pricing information from the ACR for the following rooms that are included in the database. We accepted most of the proposed items that met the $500 threshold for equipment and proposed to include the items in each specific room, as follows: because most codes assigned this room have also been assigned an alternator (automated film viewer) or a 4-panel viewbox.

Radiographic-Flouroscopic Room: $367,664 viewbox was not included because most codes assigned this room have also been assigned an alternator (automated film viewer) or a 4-panel viewbox.

(densitometer, mammography reporting system, sensitometer, mammography phantom, desktop computer, and the film processor) that duplicated items included in the mammography room were removed from the codes assigned the room, eliminating the reporting system, sensitometer and phantom from the PE database.

Computed tomography (CT) Room: $1,284,000 (16- slice CT scanner with power injector and monitoring system)

Magnetic Resonance Imaging (MRI) Room: $1,605,000 (1.5T MR scanner with power injector and monitoring system)

Comment: We received comments from one specialty society requesting that we add 4 cassettes to the composition and cost of the mammography room although each cassette does not meet the $500 equipment threshold. Another commenter representing a large radiology group practice agreed that our cost allowance for the mammography room was appropriate for the standard analog mammography room. However, this commenter asked us to develop a separately identified cost for a digital mammography room, costing approximately 3 to 4 times as much as the analog room, citing this digital system provides better diagnostic services.

Response: We appreciate the comments regarding the cost and composition of the mammography room. We are sympathetic to the commenter's request for the creation of a separate digital mammography room. However, the direct PE inputs for labor, supplies and equipment that are included in physicians' services reflect the costs involved in the typical procedure or service provided in the nonfacility setting. We believe that the mammography room we proposed represents the equipment used to provide the typical mammography service and was based on information provided by the specialty society.

We disagree with the specialty society in regards to adding the cost of the 4 cassettes to the room's price. The threshold for the inclusion of equipment for PE purposes remains at $500. For this reason, we will finalize the value of the mammography room as proposed, at $168,214.

In addition we will finalize the proposed values for all of the above imaging rooms in this final rule with comment. However, because we are adopting only limited, necessary changes to PE RVUs for CY 2006, and will continue to utilize the NPWP to value these services, the RVUs will remain the same as those for 2005. e. Equipment Pricing for Select Services and Procedures From the CY 2005 Final Rule (69 FR 66236)

In the August 8, 2005 proposed rule, we presented information on pricing of equipment for select services and procedures based on specialty information and stated we would be accepting the prices. The specific equipment was as follows:

Equipment pricing for certain radiology services received from the ACR were presented in table 15 of the proposed rule.

Equipment pricing on the Ultrasound color Doppler transducers and vaginal probe received from the American College of Obstetrics and Gynecology was presented.

For CPT 36522, extracorporeal photopheresis, we discussed equipment pricing information specific to this procedure.

Pricing of EMG botox machine used in CPT code 92265 as presented by the American Academy of Ophthalmology.

No comments were received on these items, therefore, the prices discussed in the proposed rule will be used in the PE database. However, we will continue to use the 2005 PE RVUs for each of these codes for CY 2006. f. Supply Item for In Situ Hybridization Codes (CPT 88365, 88367, and 88368)

As discussed in the August 8, 2005 proposed rule, we received comments in response to the CY 2005 final rule from the College of American Pathologists regarding the number of DNA probes assigned to the in situ hybridization codes, CPT codes 88365, 88367, and 88368. Currently, CPT codes 88365 and 88368 have 1.5 probes assigned, while CPT code 88367 has only 0.75 of a probe assigned. The College of American Pathologists requested that we assign 1.5 probes to CPT code 88367, and provided justification for this request. We accepted the College of American Pathologists' rationale and proposed to change the probe quantity for CPT code 88367 to 1.5.

Comment: A society representing clinical pathologists supports the proposed change to the probe quantity for CPT 88367.

Response: We have entered the number of probes, at 1.5, to our PE database. This change will not be expressed in the 2006 PE RVUs because as discussed above, we will retain the 2005 PE RVUs. g. Supply Item for Percutaneous Vertebroplasty Procedures (CPT Codes 22520 and 22525)

The Society for Interventional Radiology (SIR) provided us with documentation for the price of the vertebroplasty kit used in CPT codes 22520 and 22525. We proposed to accept a new price of $696 for this supply, currently listed as $660.50, a placeholder price from the CY 2005 final rule.

Comment: Commenters supported the proposed $696 cost estimate for the vertebroplasty kit.

Response: We are finalizing our proposal to value the vertebroplasty kit price at $696 in the supply database, although, as discussed previously, this will not be reflected in the 2006 PE RVUs because we will retain the 2005 PE RVUs. h. Clinical Labor for G-codes Related to Home Health and Hospice Physician Supervision, Certification and Recertification

As discussed in the August 8, 2005 PFS proposed rule, 4 G-codes related to home health and hospice physician supervision, certification and

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recertification, G0179, 180, 181, and 182, are incorrectly valued for clinical labor. These codes are cross-walked from CPT codes 99375 and 99378, which underwent PEAC refinement in January 2003 for the 2004 fee schedule. However, we did not apply the new refinements to these specific G-codes. This was an oversight on our part and we proposed to revise the PE database to reflect the new values in the 2006 physician fee schedule.

Comment: Commenters, including those representing the specialty societies for home care physicians and internists, expressed concern about the decrease in PE RVUs for the G-codes for hospice and home health supervision and care plan oversight services. One commenter requested that we elaborate on the sequence of events that lead to this decrease.

Response: We appreciate the concern expressed by the commenters and are providing additional information outlining the reason for this change. For the 2001 PFS, these G-codes were created in order to provide payment for these specific services. Changes made to the CPT codes (CPT codes 99375 and 99378) for 2001 did not enable us to recognize the CPT codes for Medicare payment purposes. Therefore, the PE inputs that had been applied to these CPT codes were cross-walked and used to establish the PE RVUS for the G codes that we established for these services. Subsequent to this, the CPT codes underwent refinement by the PEAC at its January 2003 meeting where a majority of the other E/M services were refined. CMS accepted these PE recommendations from the PEAC that included only a total of 36 minutes for clinical labor. The PEAC recommendations did not include supplies and equipment because they did not believe these were utilized in the typical services represented by these codes. These PE inputs were intended to be crosswalked to the G-codes for 2004, however, due to an oversight, this did not occur. We apologize to the specialties that this refinement was not done in a timely manner. Thus, we are finalizing the direct inputs for these G-codes in this rule and have changed the PE database accordingly. However in 2006, the PE RVUs for these 4 G-codes will remain at the 2005 level, as explained above. i. Programmers for Implantable Neurostimulators and Intrathecal Drug Infusion Pumps

Subsequent to the CY 2005 final rule, we received comments from a manufacturer of programmers for implantable neurostimulators and intrathecal drug infusion pumps. The commenter indicated that the equipment costs for these programmers are not a direct expense for the physicians performing the programming of these devices and that the manufacturer furnishes these devices without cost because the programming device is considered a ``necessary, ancillary item to the neurostimulator and drug pump and can only be used to program these devices.'' Therefore, we proposed to remove the 2 programmers from the PE database: EQ208 for medication pump from 2 codes (CPT 62367 and 62368) and EQ209 for the neurostimulator from 8 codes (CPT 95970- 97979). We also requested comments from the specialty societies performing these services as to whether this reflects typical practice.

Comment: Several commenters disagreed with this proposal indicating that not all programmers are provided without cost. Specifically, for the one manufacturer, the practice of providing physicians with these programmers free of charge is just a recent occurrence. In addition, one commenter informed us that there are other PE items that are not accounted for, including a printer, for 62367 and 62368. The RUC commented that several specialty societies conducted an email-based survey finding that the majority of the respondents reported paying for these programmers. The RUC asked us to reconsider our decision to delete the programmers from the PE direct inputs because it was based solely on the recommendation of one manufacturer.

Response: We are sympathetic to the commenters' concerns about the programmers used by pain medicine physicians. We have carefully reviewed our decision to delete the programmers from the PE database in light of the comments we received. Therefore, based on the uncertainty as to which brand product is typical, the survey results presented to us by the RUC, and the life, 7 years, of each programmer, we have determined that we will retain these programmers in the database. In addition, we have added ``with printer'' to the description of EQ208 to match that of EQ209 in order to assuage the commenter's concern that the price listed in the database, $1975, correctly reflects the cost of both the programmer and the printer. Because the PE RVUs for 2005 contained the price for these programmers, the PE RVUs for 2006 will continue to reflect their costs. j. Pricing of New Supply and Equipment Items

As part of the CY 2005 final rule process, we reviewed and updated the prices for equipment items in our PE database and assigned a unique identifier to each equipment item with the first 2 elements corresponding to one of 7 categories. It was brought to our attention that we assigned the same category identifier (ELXXX) for both ``lanes/ rooms'' as well as ``laboratory equipment''. To correct this, we proposed assigning laboratory equipment items the new category identifier ``EPXXX'', but the specific numbers associated with each item would remain the same. In addition, supply items were reviewed and updated in the rulemaking process for the 2004 PFS. During subsequent meetings of both the PEAC (now referred to as the PERC) and the RUC, supply and equipment items were added that were not included in the pricing updates. In the proposed rule we included 2 tables (Table 16: Proposed Practice Expense Supply Items and Table 17: Proposed Practice Expense Equipment Items) that listed the additional supply and equipment items for 2006 and the proposed associated prices that we would use in the PE calculation. The listing of new supplies and equipment in the proposed rule does not guarantee that the price listed for each item has been accepted. Rather, the new supply and equipment tables are to make specialties aware of the descriptors and assigned supply or equipment codes that can be used in future proposals to the RUC and HCPAC. As discussed below, the addition of an item to the tables for new supplies or equipment does not preclude the inclusion of the same item on the tables that require more detailed information and documentation from the specialty organization. k. Supply and Equipment Items Needing Specialty Input

We also identified certain supply and equipment items for which we were unable to verify the pricing information, reflected in Table 18: Supply Items Needing Specialty Input for Pricing and Table 19: Equipment Items Needing Specialty Input for Pricing of the proposed rule. We stated that the items listed in these tables represent the outstanding items from last year and new items added from the RUC recommendations. Therefore, we requested that commenters, particularly specialty organizations, provide pricing information on items in these tables along with documentation to support the recommended price.

Tables 14 and 15 reflect the comments and documentation we received for each item. Specialty societies are asked to review these supplies and equipment, as

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appropriate, to assure that the item status is accurate and forward any necessary documentation. We would also like to reinforce the types of documents that meet the acceptable category. The following list includes examples of acceptable documentation:

Photocopy or actual vendor catalog listing, indicating price, accessories or components (if applicable), available quantity, company name, brand name, and catalog date. Scanned versions, if readable, can also be emailed.

Photocopy of web page with specific supply or equipment including the necessary information listed in above bullet.

Photocopy of invoice indicating the price paid for specific supply or equipment, as well as the specific contents of kit, pack or tray for supplies and component or accessory parts for the equipment item.

Letter, FAX or e-mail from manufacturer, vendor or distributor noting the ASP of the supply or equipment. The description of the item must list all contents, accessories or component parts that are included in the price.

The following information is not considered acceptable documentation, including:

Web site addresses.

Vendor, manufacturer, or distributor phone number and address.

Approximated values. BILLING CODE 4121-01-U

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[GRAPHIC] [TIFF OMITTED] TR21NO05.009

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[GRAPHIC] [TIFF OMITTED] TR21NO05.011

BILLING CODE 4120-01-C

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l. Additional PE Issues Raised by Commenters

Comment: We received a comment from an equipment distributor and multiple comments from physicians asking us to add more clinical labor, supplies and equipment to CPT codes 78481 and 78483 for cardiac blood pool imaging using the first pass technique. The commenters emphasized that the labor costs are understated, and that additional supplies and equipment are necessary to perform these services. In particular, the commenters requested we add a nuclear medicine gamma camera to the equipment inputs or cross-walk the equipment listed for CPT 78465. The distributor presented supply and equipment tables for both codes, using direct PE inputs currently listed in the PE database, most of these are found in the PE for CPT 78465.

Response: The direct inputs for these ``First Pass'' services were presented by the specialty society to the PEAC at its January 2004 meeting. The RUC forwarded the PEAC's recommendations to CMS for consideration during the rulemaking process for the 2004 fee schedule at which time these recommendations were accepted. We do not believe that we are in a position to make the type of changes to the PE inputs for these 2 codes that the commenters have requested. We recommend that the commenters and the specialty society whose members perform these procedures, work together so that necessary changes can be considered through the usual RUC process.

Comment: We received comments from a specialty society and a manufacturer asking us to replace a supply item, a Tesio type dual catheter, with the Lifesite system in CPT 36566--a procedure described as the insertion of tunneled catheter with subcutaneous port(s). The specialty society explained that when the RUC valued this service in 2003, the incorrect catheter was included with their PE recommendations. The manufacturer asks for our assistance in correcting a ``clerical error'' in our database. The commenters explain that CPT codes 36565 and CPT 36566 are nearly identical in procedure, although CPT 36566 requires the insertion of ``subcutaneous port(s)'' and that the Tesio-type catheter, priced at $355, is currently listed for both of these procedures. The Lifesite system, containing a subcutaneous port, is priced at $1750. Both commenters noted that 2 Lifesite systems are necessary to perform this procedure instead of one for a total supply cost of $3500.

Response: We appreciate the commenters concerns about the specific supplies they believe are needed to perform this service. The work and PE values for CPT 36566 were forwarded by the RUC and accepted in our final rule, for the 2004 fee schedule. We believe that the RUC is the appropriate avenue to address correction of inputs to the PE database, particularly due to the expensive nature of this replacement, and are not revising the PE database to reflect this price change.

Comment: A specialty society commented that it believes the nonfacility PE RVUs were mistakenly deleted from CPT codes 59812, 59840, and 59841. The specialty also requested that nonfacility PE RVUs be added for CPT 58558.

Response: We have reviewed the specialty's request regarding nonfacility PE RVUs for the 4 codes noted above. The ``NA'' indicator for PE RVUs in the nonfacility setting is listed incorrectly for CPT codes 59840 and 59841 in Addendum B of our proposed rule. Both of these CPT codes should have PE RVUs listed in the nonfacility setting. The specialty society is mistaken, however, regarding the appropriateness of nonfacility PE RVUs for CPT 59812 and 58558. These codes have both undergone refinement by the PEAC at least once and the recommendations forwarded by the RUC clearly indicated that these procedures were not valued in the nonfacilty setting. We have changed our database, as appropriate, to reflect the changes for CPT 59840 and 59812.

Comment: We received comments from a specialty organization citing that the total RVUs for CPT 19298 are too low in comparison to those for CPT 19296--both new CPT codes for CY 2005. The specialty believes this difference is likely due to the supply PE inputs necessary to perform each procedure. The specialty states that the catheter supply expenses should be similar between the 2 services, yet the nonfacility PE RVUs for CPT 19298 (39.56) are significantly lower than those listed for CPT 19296 (117.96). The specialty stated that while the average number of catheters used for CPT 19298 is 25, ranging from 15-30, this cost should be comparable to the catheter required for CPT 19296. Finally, the specialty requests that we crosswalk the total RVUs for the nonfacility setting from CPT 19296 to CPT 19298 for 2006 while they gather detailed information to present to us.

Response: We have researched the specialty's concern about the supply cost differences between the 2 new CPT codes for 2005. Whereas the specialty contends that the catheter expenses are similar, or only somewhat greater for CPT 19296, we found that the differences between these 2 supply costs is significant. The mammosite tray, containing the catheter used for CPT 19296, is priced at $2,550 while the button-end implant catheters used for CPT 19298 are priced at $18.50 each. The PE database indicates that the RUC-recommended typical procedure would require 30 such catheters, opposed to 25 noted by the specialty, for a total cost of $555. Consequently, we will not change the PE RVUs for either procedure, although we remain puzzled as to the commenters' specific concerns. We look forward to the specialty's clarification regarding this issue and would urge them to address their concerns through the usual RUC process. We would also like to remind commenters that interim RVUs are published, for new and revised CPT codes, in our final rule each year and are subject to a 60-day comment period at that time. We encourage commenters to observe and utilize the respective comment periods during our annual rulemaking process in order that we may respond timely to issues and concerns.

Comment: We received many comments regarding the use of ``NA'' in Addendum B when used for the ``Nonfacility PE RVUs'' column, the ``Facility PE RVUs'' column, and the occasional code with NA noted in both PE RVU columns. These commenters asked us to provide a clear definition of how the service is paid when the NA is affixed to either PE RVU column in Addendum B which our rule for 2005 fee schedule had PE RVUs listed for the nonfacility. One commenter stated that private payors believe that payment is not made when the NA indicator is listed in Addendum B.

Response: We appreciate the commenters remarks regarding the uncertainty involved with interpreting Addendum B, particular regarding the use of the ``NA'' indicator for the PE RVUs nonfacility and facility columns. Due to the confusion expressed by the commenters surrounding the NA designations, we have added explanations to Addendum A in order to assist the readers of Addendum B. We are also including these definitions here because of this issue's importance. The following 2 explanations also appear in Addendum A of this rule:

An ``NA'' in the ``Non-facility PE RVUs'' column of Addendum B means that CMS has not developed a PE RVU in the nonfacility setting for the service because it is typically performed in the hospital (that is, for example, an open heart surgery is generally performed in

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the hospital setting and not a physician's office).

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 a diagnostic tests) are generally paid under either the outpatient hospital prospective payment system or bundled into the hospital inpatient prospective payment system payment.

Comment: Other commenters, including specialty organizations, device manufacturers and physicians, noted that CMS had either mistakenly removed PE RVUs in the nonfacility setting or that we had made a decision to stop paying for services where, in Addendum B, an ``NA'' appeared in the proposed rule in the PE RVUs nonfacility column. Another commenter believes that a series of codes for E/M services were incorrectly marked as ``NA'' in the facility setting. These commenters requested that the PE RVUs be restored to these codes.

Response: We apologize to those commenters who found that where, due to the use of a new PE methodology, some of the codes listed in Addendum B of the proposed rule were mistakenly marked with an ``NA'' in either the nonfacility or facility PE RVU column when the service is actually valued in this setting and PE RVUs were listed previously. These mistakes were corrected for Addendum B in this final rule with comment. Most of the commenters requesting the restoration of ``missing'' PE RVUs in the nonfacility setting, though, were mistaken because, in fact, we have not developed nonfacility PE RVUs for these services and Addendum B continues to properly reflect the ``NA'' for the nonfacility PE RVU column.

Comment: Several commenters asked us to create PE RVUs for their services by cross-walking the direct inputs from other services.

Response: All of the requests we received to establish PE RVUs in the nonfacility setting were for services that the PEAC/RUC had either refined or developed without recommendations for PE nonfacility inputs. We would like to remind the specialty organizations that the RUC has a long standing process for the establishment and refinement of PE inputs and encourage all organizations to follow this process.

Comment: A manufacturer requested that we add 15 minutes of clinical labor and a tilt table to the PE database for CPT codes 36475 and 36476--both new codes for CPT 2005.

Response: We agree that the tilt table, for Trendelenberg, is needed for these procedures and are adding this equipment, for the respective service period minutes for each code. However, the commenter's request for additional clinical labor is not timely because the RVUs for these new codes were published as interim in the CY 2005 PFS final rule with comment at that time. As stated in the response above, we remind commenters to observe and utilize the comment period for new and revised codes at the time they are issued in our final rule or utilize the established RUC process, as appropriate.

Comment: We received a comment from an organization representing radiation oncology informing us that equipment for CPT codes 77333 and 77470 was missing.

Response: For CPT 77470, we disagree with the commenter that this service should be assigned equipment. At the January 2004 PEAC meeting, this code was valued specifically to compensate for the clinical labor costs involved with certain high-intensity radiation procedures, such as combined chemotherapy and radiation treatment. CPT 77470 was valued to be billed once throughout the course of treatment, that is typically comprised of 25 fractions. On the other hand, we agree with the commenter that the lack of equipment for CPT codes 77333 and CPT 77332 appears to be an oversight. We believe that the PEAC, at their September 2002 meeting, when considering equipment inputs for CPT code 77334, intended to cross-walk this equipment to the other 2 codes in the family, CPT code 77332 and 77333. Therefore, we are adding this equipment to 77332 and 77333, on an interim basis, and have changed the PE database to reflect this addition for the correlating service period time for each service. However, as explained above, because these codes will be valued in the NPWP and the 2005 PE RVUs will be retained in 2006, this addition will be transparent until such time as the direct inputs are used to establish the PE RVUs for the NPWP services.

Comment: We received comments from several organizations, a specialty society, device manufacturers, IDTFs and physicians regarding concerns about the remote cardiac event monitoring services, including CPT codes 93012, 93226, 93232, 93271, 93733 and 93736, based on the significant reduction in PE RVUs for these services published in our proposed rule using the bottom-up methodology and the elimination of the NPWP. Two of these services, CPT codes 93012 and 90271, were reviewed by the RUC in April 2005 and forwarded as part of the PERC/RUC recommendations in the proposed rule. The commenters noted that these services are typically provided by IDTFs that are equipped for continuous monitoring capabilities 24 hours a day, 7 days a week and require highly trained staff to perform the monitoring of transmissions. The commenters all agreed that the uniqueness of these services makes a poor fit with the usual accounting for direct practice expenses in the physician office. A specialty society requested CMS to work with the involved provider community, that is, the specialty IDTFs, to ensure that the direct and indirect costs of providing these services are adequately reflected in the nonfacility PE RVUs.

Response: We are pleased that the commenters are in agreement that these cardiac event monitoring services may not fit the usual PE model. We are also happy that the specialty society has requested our assistance to work with the specialized provider community in order to ensure more appropriate PE inputs for these services. We look forward to working with the provider organizations before the issuance of our next proposed rule.

Comment: A manufacturer requested that we increase the work and PE values for G0166, external counterpulsation (ECP), because of the significant decrease in PE RVUs for the nonfacility setting in the proposed rule. Specifically, the commenter asked that the labor time be increased to include pre and post service time in addition to the 60 minutes allotted for actual ECP treatment time.

Response: We agree with the commenter that the 60 minutes is inadequate to account for the other activities that the RN performs in relationship to each ECP service. We have assigned some of the standardized times for the activities previously identified by the PEAC as appropriate to this service, as follows: 3 minutes for meet and greet; 2 minutes to prepare the room; 2 minutes to position the patient; 3 minutes for vitals; and 3 minutes for cleaning the room. This extra 13 minutes has been added to the service period in the PE database yielding a total of 73 minutes for the ECP service--although, as discussed previously, this increase will not take effect in 2006 because, with limited exceptions, we will retain the 2005 PE RVU values for existing codes.

Comment: Many commenters, including physicians and a device manufacturer, requested that we increase labor, supplies, and equipment PE values for CPT code 93701, thoracic

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electrical bioimpedance (TEB). Their concerns arose from the proposed reduction in PE RVUs in the proposed rule for this service. Some of the commenters told us that the average cost of the equipment from one manufacturer is $38,000, the electrodes are 10.95 ($8.95 with discount) and that the labor time for the TEB procedure ranges from 15-20 minutes. The commenters requested that we adjust the PE values accordingly.

Response: We are sympathetic to the commenters concerns regarding the decrease in PE RVUs reflected in the proposed rule that reflected both the elimination of the NPWP and the bottom-up methodology. For the labor time request, the PE database does contain 20 minutes, although this time was incorrectly cross-walked to the equipment time. We apologize to the commenters regarding this error, and have changed the equipment time to 20 minutes, from 10, in the database. We disagree with the commenters about the inaccuracy of the equipment cost. During the rulemaking process for the CY 2005 fee schedule, at which time we revalued all equipment in the PE database, we identified 2 different brands of equipment used for the TEB service. When the 2 prices are averaged (using $38,000 as noted above by the commenters), the cost of the TEB equipment is $28,625 which is the price listed in the database. We also repriced our supply database during rulemaking for the 2004 fee schedule. The TEB electrodes or sensors are listed at $9.95 in the database and that amount is based solely on a phone quote from the commenting manufacturer. TEB sensors from the other equipment manufacturer range from $4.43 to $6.00 for each patient application. Based on current valuation of the supplies and equipment in the PE database, we are not changing the price of equipment or supplies for the TEB service. m. Additional PE Issues Raised by Commenters

Comment: We received 2 comments from specialty organizations requesting CMS to re-evaluate the lack of physician work value for the 3 G-codes (G0237, G0238, and G0239) CMS created to describe services to improve respiratory function to reflect the physician's work in overseeing these incident to services. The commenters contend that the addition of CPT 99755, assistive technology assessment, in 2004 created a rank-order anomaly for the respiratory function G-codes. The commenters requested that CMS ask the RUC to evaluate the work for these G-codes.

Response: We disagree with the commenter's contention that a rank order anomaly exists between the respiratory function G-codes and CPT 97755. We were clear when we created these codes during rulemaking for the 2002 fee schedule that the G-codes would make billing of CPT codes 97000-97799 inappropriate for professionals involved in treating respiratory conditions, unless these services are delivered by physical therapists (PTs) and occupational therapists (OTs) and meet other requirements for physical and occupational therapy services. We also disagree that these services are always provided incident to a physician's service because in the CORF setting, where respiratory therapy services are statutorily delineated as a CORF service, the physician's direct supervision is not a requirement and the incident to provisions do not apply. The G-codes enable us to distinguish CORF respiratory therapy and incident to services from the services provided by PTs and OTs under the therapy benefit. Consequently, these G-codes cannot be used to bill for services provided under the physical and occupational benefit category at section 1861(P) of the Act and, as such, cannot create a rank order anomaly with the 97000 series of CPT codes. Although we have not assigned any work values for this final rule with comment, we are still considering the merits of this request and are happy to meet with the commenters prior to the issuance of our next proposed rule to discuss this issue in greater detail. We remind the specialty societies that they can make requests to the RUC to review the G-codes with respect to work values. However, we believe the appropriate review entity would be the HCPAC.

Comment: Several commenters expressed their concern regarding the high-priced supply items in our practice expense database. In their comments, the RUC requested that we consider a different approach for payment of high-priced disposable medical supplies, particularly with respect to new technology supply items--where prices commonly decrease within 6-12 months after being distributed into a wider market--as these services move into the physician's office. As an alternative, the RUC strongly encourages CMS to review and re-price medical supplies, priced at or above $200, on an annual basis. Another commenter noted that our listed price of $677 for the endovenous laser kit used for CPT 36478 is apparently in error because it is readily available at $250- $350 and listed four suppliers who distribute this supply in the noted price range.

Response: We appreciate comments and remarks. The RUC's comments regarding high cost medical supplies and the need to review these prices on a more frequent basis than every 5 years. Because we are committed to ensuring that the prices for supplies and equipment in the PE database are accurate, we also want to account in some way for the volatile nature of prices for new technology. We will consider options for revaluing these high cost ``new tech'' supply items and include a discussion of this issue in the next proposed rule

Comment: We received a comment from an organization representing services of audiologists noting that the salary for audiologists and the equipment for their services are too low or out of date.

Response: During the rulemaking process for the 2005 fee schedule, we revalued all equipment in the PE database, and requested specialty input at that time. To the extent that there have been changes since last year, we recommend that the organization utilize the establish RUC process. We would also encourage the commenter to supply us with updated salary information so that we may better address their other concern.

Revisions to CPT Code Series 21076 Through 21087

We also want to note that, at the request of the RUC, we have been working directly with representatives of maxillofacial prosthetics to refine the PE inputs for the CPT code series 21076 through 21087. They have submitted spreadsheets to us for labor, supplies and equipment, and much of this information has been entered in the PE database although, as discussed above, the 2005 PE RVUs will be retained for 2006. We will continue to work with the specialty to refine these inputs, verifying prices and quantities, prior to the issuance of our next proposed rule.

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.

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As discussed in the August 8, 2005 proposed rule (70 FR 45783), section 1848(e)(1)(E) of the Act, as amended by section 412 of the MMA, established a floor of 1.0 for the work GPCI for any locality where the GPCI would otherwise fall below 1.0. This 1.0 work GPCI floor was used for purposes of payment for services furnished on or after January 1, 2004 and before January 1, 2007. This 1.0 floor will remain in effect in 2006.

Section 602 of the MMA added section 1848(e)(1)(G) of the Act, which sets a floor of 1.67 for the work, PE, and malpractice GPCIs for services furnished in Alaska between January 1, 2004 and December 31, 2005 for any locality where the GPCI would otherwise fall below 1.67. Effective January 1, 2006, this provision will end. In the proposed rule, we indicated the 2006 GPCIs for Alaska will be 1.017 for physician work, 1.103 for PE, and 1.029 for malpractice.

Payment Localities

In the August 8, 2005 proposed rule (70 FR 45783), we stated 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. 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.

After the publication of the CY 2005 final rule, the California Medical Association (CMA) submitted a proposal for a demonstration project that was the same as its proposal submitted in response to the August 5, 2004 PFS proposed rule. The CMS proposed removing ten counties from the existing ``Rest of California'' payment locality and creating ten new payment localities. Additionally, reductions to the payments to the Rest of California locality, would be balanced by payment contributions from the other payment localities in the State.

There were several aspects of the proposal that made implementation problematic for us under our demonstration authority. For example, physicians whose payments would decrease under the demonstration could challenge the validity of a new locality configuration established without providing them the opportunity to comment through the regulatory process (as is our normal process for making locality changes). In particular, physicians who are not members of county medical societies or the CMA, or did not agree to participate in the proposed demonstration may have challenged its implementation.

Also, the Medicare PFS currently uses identical GPCIs to pay for services provided in an area by both physicians and nonphysician providers (such as podiatrists, optometrists, physical therapists, and nurse practitioner). Changing the locality configuration for medical doctors and doctors of osteopathic medicine, but not for other professionals, would have some peculiar results that were not addressed in the CMA proposal. For example, in areas where the GPCIs would be reduced under the demonstration, some practitioners not participating under the demonstration (such as physical therapists) could be paid more than physicians in the same locality. Conversely, where the GPCIs would be increased under the demonstration, there would likely be complaints from the nonphysician practitioners not included in the demonstration.

Nonetheless, we do recognize the potential impact of wide variations in the practice costs within a single payment locality. In the CY 2005 final rule, we noted that we received many comments from physicians and individuals in Santa Cruz County expressing the opinion that Santa Cruz County should be removed from the Rest of California payment locality and placed in its own payment locality. The county- specific GAF of Santa Cruz County is 10 percent higher than the Rest of California locality GAF. Santa Cruz County is adjacent to Santa Clara County and San Mateo County. Santa Clara and San Mateo Counties have two of the highest GAFs in the nation. The published 2006 GAF for the Rest of California payment locality is 24 percent less than the GAFs of Santa Clara and San Mateo.

Sonoma County is also part of the Rest of California payment locality. The county-specific GAF of Sonoma County is 8 percent higher than the Rest of California locality GAF. Sonoma County is bordered by Marin County and Napa County. Using published 2006 values, the payment locality that includes Marin and Napa counties has the fourth highest GAF in the nation, and is 13 percent higher than the GAF of the Rest of California payment locality.

We recognize that changing demographics over time may lead to significant payment disparities in particular circumstances. We rely upon State medical societies to identify and propose consensus approaches to resolving these disparities, because there are redistributive impacts in the ``budget neutral'' process within a State when new localities are created (or existing ones reconfigured). Yet we also recognize our responsibility for establishing fee schedule areas. In the proposed rule, to assure the maximum opportunity for public discussion and comment to identify a consensus approach, we listed alternative locality configurations that we had examined, including:

The CMA demonstration approach comparing county-specific GAFs to the payment locality GAF, and designating any county with a county-specific GAF at least 5 percent higher than its locality GAF as a new locality;

An approach that sorts counties by descending GAFs and compares the highest county to the second highest county. If the difference between these two counties is 5 percent or less, they are included in the same locality. The third highest county GAF is then compared to the highest county GAF and so on, until the next county GAF is not within 5 percent of the highest county GAF. At that point, the county GAF that is more than 5 percent lower than the highest county GAF becomes the comparison for the next lowest county GAF, to create a second locality. This process is repeated down throughout all of the counties;

An approach that compares the county with the highest GAF to the Statewide average, removing counties that are 5 percent or more than the Statewide average; and

An approach that bases GPCI payment localities on Metropolitan Statistical Areas as defined by the Office of Management and Budget.

However, because these reconfigurations would result in significant redistributions across most California counties, we simply proposed the approach that would have the least impact on other counties. We proposed that Santa Cruz and Sonoma Counties (the two counties with the most significant disparity between the assigned Rest of California GAF and the county-specific GAF) be removed from the Rest of California payment locality and that each would be its own payment locality. We invited and received comments regarding this proposal and possible alternative approaches to address this issue. We were particularly interested in whether the CMA supported this approach. Those comments and our responses are discussed below.

The issue of payment locality designation in light of changing economic and population trends will be

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of importance to us for the foreseeable future. We also indicated in the proposed rule that we are interested in other solutions to the problem, and with any ideas or suggestions that will help resolve the problems associated with the designation and revision of payment localities. We would use those ideas and suggestions in developing any future proposal that would be subject to comment through the rulemaking process.

Comment: Numerous comments from the beneficiaries and health care providers in Santa Cruz and Sonoma Counties, and from several members of the Congress, including a U.S. Senator from California, supported our proposed change. These comments focused on the high costs of practicing in Santa Cruz and Sonoma Counties and were appreciative of the proposal. Most supporters referred to studies that have shown the high costs of working in Santa Cruz and Sonoma Counties have resulted in physicians restricting their practices or withdrawing from practice altogether. According to the commenters, this has made it more difficult for Medicare beneficiaries to find doctors in those counties. These commenters feel that our proposed change will encourage physicians to continue to treat Medicare patients in their Santa Cruz and Sonoma County practices.

Response: These two counties currently have the most significant disparities between their present GAFs and their county-specific GAFs. They are also bordered by counties with significantly higher GAFs. As we stated earlier in this section and in the proposed rule, we have received many comments in the past expressing concern that these disparities have led some practitioners to relocate their practices out of these counties, creating potential access problems.

The proposal was an attempt to balance the interests of physicians and nonphysician practitioners and their patients in Santa Cruz and Sonoma Counties with the interests of providers and patients in the other counties in the Rest of California. We noted in the proposed rule that the 2006 Rest of California GAF would be 1.011, compared to the 2005 GAF of 1.012. Absent this proposal, the 2006 Rest of California GAF would be 1.017 (2006 is the second year of the transition to the new GPCIs and GAFs incorporating updated data).

Comment: We also received comments opposing the proposal from numerous providers and medical associations in the current Rest of California payment locality. In addition, several members of the Congress wrote letters opposing the proposed change.

The CMA pointed to the fact, which is the result of the budget neutrality requirement for administrative actions to modify GPCIs, that the Rest of California locality would be negatively impacted. The CMA also notes that the proposal does not address the other localities it identified in its demonstration proposal. These views were echoed by the other commenters objecting to the proposal.

Response: It is indicative of the difficult nature of this issue that many of the same commenters who expressed disappointment that our proposal did not address all of the other counties that CMA identified in its demonstration proposal were also concerned that the proposal would simultaneously result in a reduction of the GPCIs for the Rest of California payment locality. Under our current statutory authority, it is well known that changes to the payment localities must be implemented in a budget neutral manner. Therefore, it is not possible to fully meet both objectives without legislation to provide additional funding for physician payments in California.

While we appreciate the situation of practitioners in Santa Cruz and Sonoma Counties as described above, we also acknowledge the concerns of those in the Rest of California payment locality about the negative payment impact of removing the GPCI data for Santa Cruz and Sonoma Counties, and the lack of support from the CMA for an administrative solution to these payment concerns. As we mentioned earlier in this section, our proposal was designed to balance these two interests.

As we have stated repeatedly in the past, we believe payment locality reconfigurations should be supported broadly across the State. It was our belief that the proposal we presented, which actually would have had the smallest possible negative impact on the Rest of California's GAF, might meet that criterion. However, based on the comments we received opposing the proposal, particularly those from the CMA, it is apparent that this proposed change is not acceptable to the majority of commenters at this time.

Comment: The CMA indicated that it supports a nationwide legislative solution that would provide additional funding for physicians in counties adversely affected by locality reconfigurations. The CMA states ``this is the only GPCI solution that we are supporting at this time.''

The Medicare Payment Advisory Commission (MedPAC) comments that the locality boundaries have not had a complete review since 1997 and that economic and population trends are likely to have changed since that time. MedPAC is studying these issues, and encourages CMS to do so as well, with the goal of revisiting the boundaries of all payment localities nationwide.

We also received a comment from a member of the Congress urging us to conduct a national examination of the definitions of payment localities. The commenter recommended that we propose a method to reconfigure payment localities to be effective January 1, 2008. The commenter also recommended that we develop a process for periodically reviewing payment localities.

Response: As we stated earlier in this section and in the proposed rule, we are interested in all ideas that will help resolve the problems associated with the designation and revision of payment localities. Clearly, as illustrated by the situation discussed earlier in this section, one of the most significant issues to be addressed is the redistributive nature of changes to the payment localities in a budget neutral context.

There are currently 89 separate payment localities. Of these, 34 are Statewide localities. Our last comprehensive evaluation of the definition and composition of the payment localities was discussed in the July 2, 1996 proposed rule (61 FR 34615) and the November 22, 1996 final rule (61 FR 59494). The localities existing at that time, which were developed by the local Medicare contractors, served as building blocks for the current localities (at the time, there were 210 separate localities, 22 of them were Statewide localities).

We stated at the time that our major goals were to simplify payment areas and payment differences among adjacent geographic areas while maintaining accuracy in tracking input price differences among areas. There is an inherent trade-off between these two goals. Thus, at one extreme is a set of Statewide localities with no intra-state geographic adjustments; very simple, but less descriptive of input price differences. At the other extreme is a separate locality for each county; maximum input price adjustment for geographic variation, but operationally very cumbersome, expensive to develop and maintain, and potentially very confusing for providers.

We do not disagree with the view that a comprehensive evaluation of the current payment localities is due, and we look forward to working cooperatively with MedPAC in that regard. We are examining all viable

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options that will meet the general objectives discussed above. We would note, however, that our goals for this analysis are very similar to those we expressed in 1996.

Comment: A private insurer is opposed to our proposal because it increases the number of payment localities which increases commercial payer administrative costs. The insurer suggests we reduce the number of California payment localities from 10 to 3.

Response: While we appreciate and, as a matter of general policy, agree that it would be preferable to minimize the number of separate payment localities wherever possible, we do not believe that reducing the number of payment localities would resolve the issues discussed above.

Comment: We received comments from a medical clinic in Wisconsin and a research and management organization in Colorado. These commenters stated that CMS is using improper data to create the GPCIs. The commenters suggest we change the wage proxy categories to include physicians and remove physician work from the GPCI calculation. They further state that ``Medicare payments are a primary stimulus in attracting greater numbers of physicians to high payment localities''. The commenters also suggest we look for alternative data sources for rent data.

Response: The CY 2005 final rule contained responses to commenters raising the same issues related to the data used to calculate the GPCIs as those noted above (69 FR 66260). Because the data used to calculate the GPCIs was not part of the proposed rule, we refer the commenter to that document rather than repeat that discussion here. We also note that we continue to evaluate other potential sources of data to use to calculate the GPCIs.

We are disappointed that there was limited support for the proposal to create new, separate payment localities for Santa Cruz and Sonoma Counties. As we noted above, the proposal was designed to balance concerns of practitioners in higher-cost Santa Cruz and Sonoma Counties with the concerns of those in the Rest of California payment locality about the negative payment impact resulting from removal of the GPCI data for Santa Cruz and Sonoma counties from the Rest of California GPCI calculation. Because of the nearly complete lack of support for this proposal outside the two positively impacted counties, we have decided to withdraw this proposal at this time. As noted above, we intend to work with MedPAC and other interested parties toward a more comprehensive evaluation of potential refinements of the payment localities.

Under section 1848(e)(1)(E) of the Act, the floor of 1.67 for the work, PE, and malpractice GPCIs for services furnished in Alaska ends as of January 1, 2006. Therefore, as of that date, the GPCIs for Alaska will be 1.017 for physician work, 1.103 for PE, and 1.029 for malpractice costs.

C. Malpractice Relative Value Units (RVUs)

We discussed several proposed technical changes and other issues related to the calculation of the malpractice RVUs in the proposed rule. These are summarized below, along with discussions of the comments we received and our responses. 1. Five Percent Specialty Threshold

We are concerned that the malpractice RVUs could be inappropriately inflated or deflated due to irregular data based upon incorrectly reported specialty classifications and have examined the impact of establishing a minimum percentage threshold for any procedure performed by any specialty before the risk factor of that specialty is included in the malpractice RVU calculation of a particular code. We proposed excluding data for any specialty that performs less than 5 percent of a particular service or procedure from the malpractice RVU calculation for that service or procedure and discussed the code-specific impact of implementing this proposed threshold. Our assumption was that the infrequent instances of these specialties in our data represent aberrant occurrences and removing the associated risk factor from the malpractice RVU calculation would improve the accuracy and stability of the RVUs. This was based on our belief that removing data attributable to specialties that occur in our data less than 5 percent of the time would most appropriately balance the objective to identify irregular data (claims with a specialty identified that is highly unlikely to have performed a particular procedure) while including specialties that perform a procedure a small percentage (but at least 5 percent)of the time.

We excluded evaluation and management (E&M) services from the analysis. Medicare claims data show that E&M services are performed by virtually all physician specialties. Therefore, in the case of E&M codes, it is likely that even the low relative percentages of performance by some specialties would accurately represent the provision of the service by those specialties.

For all services other than E&M services, we stated our belief that removing data attributable to specialties that occur in our data less than 5 percent of the time would most appropriately balance the objective to identify irregular data (claims with a specialty identified that is highly unlikely to have performed a particular procedure) while including specialties that perform a procedure a small percentage of the time. The higher the threshold, the more likely it would result in the removal of data for specialties actually performing the procedure, while a lower threshold would be more likely to fail to remove some irregular data, particularly for low-volume codes (fewer than 100 occurrences, where each claim represents 1 or more percentage points).

The overall impact of removing the risk factor for specialties that occur less than 5 percent of the time in our data for a procedure is minimal. There is no impact on the malpractice RVUs for over 5,280 codes, and there is an impact of less than 1 percent on the malpractice RVUs for over 1,300 additional codes. Only 16 codes decrease by at least 0.1 RVUs, with the biggest decrease being a negative 0.28 impact on the malpractice RVU for CPT code 17108, Destruction of skin lesions, from a current RVU of 0.82 to a proposed RVU of 0.54.

Conversely, there are 219 codes for which RVUs increase by at least 0.1, the largest increase being a positive 0.81 RVU increase for CPT code 61583, Craniofacial approach, skull, from a current RVU of 8.32 to a proposed RVU of 9.13. Among codes whose malpractice RVUs would increase under our proposal, 646 have increases of less than 1 percent. The impact analysis section of this proposed rule examines the effects of this proposed change by specialty.

Comment: Numerous commenters supported the 5 percent specialty threshold. Several commenters suggested that we apply the threshold to the E&M codes.

Response: We appreciate the commenters' support of this change to our methodology. Regarding the exclusion of E&M codes from our analysis, we note our rationale as stated above in this section. The comments we received did not address our concern that all specialties use these codes. Therefore, we still believe it is appropriate not to apply the 5 percent specialty threshold to the E&M codes.

Comment: We received a comment recommending the threshold be lowered to 1 percent. The commenter is concerned that a 5 percent threshold inappropriately removes some

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specialties actually performing interventional radiology services. The example of CPT code 35476 (percutaneous venous angioplasty) was provided. The commenter noted that CMS's proposed 5 percent threshold removed the risk factors for general surgeons and vascular surgeons, resulting in a decrease in the malpractice RVUs for this code. The commenter states this was contrary to our objective to remove irregular data because both of these specialties actually perform this procedure, and that a 1 percent threshold would better retain those specialties actually providing the service while still removing irregular data.

Response: In the case of CPT code 35476, the risk factors for the two specialties that were removed resulted in a decrease in the RVUs for this code; however, we review these data on a regular basis and if, in the future, the data support it, we will change the RVUs accordingly. We note that the majority of commenters supported a 5 percent threshold as reasonable. We do not believe a 1 percent threshold, as suggested by the commenter, is reasonable as this threshold would not be an effective screen for claims with a specialty identified that is highly unlikely to have performed a particular procedure. However, we will continue to assess whether a different threshold may ensure irregular data are removed without also removing data for specialties that actually perform the service. 2. Specialty Crosswalk Issues

Malpractice insurers generally use five-digit codes developed by the Insurance Services Office (ISO), an advisory body serving property and casualty insurers, to classify physician specialties into different risk classes for premium rating purposes. ISO codes classify physicians not only by specialty, but in many cases also by whether or not the specialty performs surgical procedures. A given specialty could thus have two ISO codes, one for use in rating a member of that specialty who performs surgical procedures and another for rating a member who does not perform surgery.

Medicare uses its own system of specialty classification for payment and data purposes. Therefore, to calculate the malpractice RVUs, it was necessary to map Medicare specialties to ISO codes and insurer risk classes, and in some instances to crosswalk unassigned specialties to the most approximate existing ISO codes and risk classes.

We stated in the CY 2005 final rule that we would continue to work with the AMA RUC's Professional Liability Insurance (PLI) Workgroup to address any potential inconsistencies that may still exist in our methodology. Based upon this commitment, the RUC PLI Workgroup forwarded various recommendations for our consideration. The RUC developed its recommendations based upon comments submitted to them by physician specialty organizations.

As discussed in the August 8, 2005 proposed rule, the Workgroup believes the risk factors assigned to certain professions overestimate the insurance premiums for these professions and, based on its recommendations, we proposed revising the risk factor for the following specialties to a risk factor of 1.00: clinical psychology; licensed clinical social work; psychology; occupational therapy; opticians and optometrists; chiropractic and physical therapy. We invited comment from representatives of the affected specialties and others regarding the appropriateness of this proposal, as well as other specialty crosswalks and suggestions for reliable sources of actual malpractice premium data for nonphysician groups.

The RUC PLI Workgroup also believed that a number of professions that were assigned to the average for all physicians risk factor should be removed from the calculation of malpractice RVUs altogether and recommended excluding data from the following professions: Certified clinical nurse specialist; clinical laboratory; multispecialty clinic or group practice; nurse practitioner; physician assistant; and physiological laboratory (independent). We agreed with this recommendation and proposed to establish malpractice RVUs based upon the mix of specialties exclusive of the above specialties and professions.

The PLI Workgroup also made recommendations for changing the crosswalks for risk factors for the following specialties which we did not accept: Certified registered nurse anesthetists; colorectal surgeons; gynecologists; and oncologists. We did not propose changes to the current crosswalks for these specialties and professions because we believe the current crosswalks we are using for these specialties appropriately reflect the types of services they provide.

Comment: One commenter objected to our proposed change in the crosswalk to the lowest current risk factor of 1.00 for opticians and optometrists. The commenter stated that the recommendation from the RUC was not based on examination of the premium data or any other objective evidence. However, another commenter supported the proposal to crosswalk optometrists and opticians to the lowest current risk factor of 1.00, arguing this more appropriately reflects the actual level of risk assumed during the performance of procedures.

A commenter objected to the proposed crosswalk change to 1.00 for clinical psychologists, licensed clinical social workers, and psychologists because the commenter believes that the malpractice insurance costs for these nonphysician practitioners are well below those paid by psychiatrists.

Response: The proposed changes to the risk adjustment factor crosswalks were based on our agreement with the RUC PLI Workgroup's assertion that these nonphysician professionals incur costs most similar to the lowest cost physician specialty. Because we do not have actual premium data for these professional groups, it is necessary to select an appropriate crosswalk category. We proposed to change the crosswalks for these specialties because, absent actual premium data, we agree with the RUC that these groups very likely do not incur malpractice costs on par with the average physician specialty.

In its comments, the RUC points out that each of the professions for which we proposed to change the malpractice crosswalk is represented on the RUC's Health Care Professional Advisory Committee (HCPAC). The HCPAC agreed that these professions should review their premium data and report back to the HCPAC at its September 29, 2005 meeting. Subsequently, on October 6, 2005 (after the close of the public comment period), the RUC submitted the results of these reviews.

The RUC submitted to us after the close of the public comment period malpractice insurance premium data from many of these nonphysician professional groups. Because these data were received after the close of the comment period, and we believe it is important to allow the affected specialties the opportunity to comment on changes to the crosswalks, we are not incorporating these data in this final rule with comment. However, we would note that the data suggest that the annual premiums paid by these groups are below the average amounts paid by allergists and immunologists, the lowest premium cost physician specialties.

We plan to continue to examine this issue in conjunction with the RUC's PLI Workgroup before the 2007 proposed rule. Based on the fact that commenters did not provide any alternative data to suggest the crosswalks we proposed

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were inappropriate, we will adopt our proposals for 2006 without change.

Comment: One commenter supported our proposal to change the crosswalk for services of occupational therapists to 1.00, but suggests that the crosswalk should not be to allergy and immunology. Instead, the commenter recommended a crosswalk to physical medicine and rehabilitation.

Response: We appreciate the commenter's support of our proposal. With regard to the commenter's recommendation to crosswalk to the specialty of physical medicine and rehabilitation, we would note that the risk factor for this specialty is 1.26 rather than 1.00. As noted above, because the comments we received did not contain any alternative data to suggest the crosswalks we proposed were inappropriate, we are adopting our proposals for 2006.

Comment: Several commenters urged us to reconsider our proposal to not accept the RUC PLI's recommendations to crosswalk: the specialty of gynecologist/oncologist to surgical oncology; certified registered nurse anesthetists (CRNAs) to anesthesiology; and, colorectal surgery to general surgery.

Commenters also suggested separate surgical and nonsurgical risk factors for urology, and that hand surgery be crosswalked to orthopedic surgery (without spine).

Response: With respect to the commenters' recommendation to crosswalk gynecologist/oncologist to surgical oncology, the commenters did not substantially justify the argument that the professional liability premiums of the specialty are similar to those of surgical oncologists; however, we will analyze the data for this suggestion for possible future consideration. Commenters noted that CRNAs are currently crosswalked to general surgery, which means that CRNAs have a higher risk factor than anesthesiologists. These commenters recommended that CRNAs be crosswalked to anesthesiology and we accept this recommendation.

For the request to crosswalk colorectal surgery to general surgery, the specialty of colorectal surgery was not crosswalked. Instead, we used actual premium liability insurance data collected for this specialty. Consequently, we disagree that this specialty should be crosswalked to another specialty. As stated previously and in the proposed rule, we only crosswalked specialties for which no premium data were collected.

With regard to the comments regarding separate surgical and nonsurgical risk factors for urology, we would be interested in further information regarding the appropriateness of this change.

For the request to crosswalk hand surgery to orthopedic surgery, we note that, similar to colorectal surgery above, we used actual premium liability insurance data collected for this specialty. Consequently, we disagree that this specialty should be crosswalked to another specialty.

Comment: The RUC supported our proposal to remove the risk adjustment data for the following professions and providers: certified clinical nurse specialist; clinical laboratory; multispecialty clinic or group practice; nurse practitioners, physician assistants; and physiological laboratory (independent).

Response: We appreciate these supportive comments for this proposed change. 3. Cardiac Catheterization and Angioplasty Exception

In the November 2, 1999 final PFS rule (64 FR 59384), we applied surgical risk factors to the following cardiology catheterization and angioplasty codes: 92980 to 92998 and 93501 to 93536. This exception was established because these procedures are quite invasive and more akin to surgical than nonsurgical procedures.

In the CY 2005 (69 FR 66275), we discussed changes to the list of codes that would fall under the exception. In response to a request from the RUC's PLI Workgroup, we proposed to add the following CPT codes to the existing list of codes under the exception: 92975; 92980 to 92998; and 93617 to 93641.

Comment: Several commenters supported the changes made for the cardiac catheterization and angioplasty exception.

Response: We appreciate the supportive comments for this proposed change. 4. Dominant Specialty for Low-Volume Codes

The final recommendation from the PLI Workgroup was to use the dominant specialty approach for services or procedures with fewer than 100 occurrences, and to apply this approach to the list of 1,844 services supplied by the workgroup. The PLI Workgroup worked in conjunction with various specialty organizations to identify the dominant specialty that performs each service.

We did not propose to adopt this methodology and noted that low volume procedures or services are not necessarily performed by only one specialty. As noted previously, we would distinguish between excluding data presumed to be erroneous from data reflecting utilization by specialties that perform a service but are not the dominant specialty. However, we acknowledge that there may be instances where irregular data exist that would not be identified and removed by our proposed 5 percent threshold discussed previously. We will continue to work with the RUC PLI Workgroup examine this issue in the future.

Comment: Numerous commenters opposed our policy to use actual specialty data rather than dominant specialties and suggested that we adopt the RUC recommendations.

Response: As we stated in the PFS proposed rule (70 FR 45786), we believe that basing payment on all specialties that perform a particular service ensures that the actual professional liability insurance costs of all specialties are included in the calculation of the malpractice RVUs. Therefore, we do not believe it would be appropriate, even for these low-volume services, to include only the dominant specialty if other specialties regularly provide the service. 5. Collection of Premium Data

Although this issue was not part of the proposed rule, many commenters suggested that we use alternative sources for our premium data.

Comment: Some commenters suggested we used data supplied by the Physicians Insurers Association of America (PIAA) or directly from physician providers.

Response: We are currently investigating the usefulness of the PIAA data and once our evaluation of the data is complete we will make a decision. We are not considering using physician provider self-reported premium costs.

Final Decision

We are implementing the proposed 5 percent threshold and specialty crosswalk changes discussed in the proposed rule. After considering all of the other comments received, we are not making other changes to the calculation of the malpractice RVUs.

D. Medicare Telehealth Services

1. Requests for Adding Services to the List of Medicare Telehealth Services

As discussed in the August 8, 2005 PFS proposed rule (70 FR 45786), section 1834(m) of the Act defines telehealth services as professional consultations, office and other outpatient visits, and office psychiatry services identified as of July 1, 2000 by CPT codes 99241 through 99275, 99201

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through 99215, 90804 through 90809, and 90862. 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 or deleting services to 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, consultations, 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 psychiatric diagnostic interview examination and ESRD services with 2 to 3 visits per month and 4 or more visits per month to the list of Medicare telehealth services (although we require at least one in-person visit a month by a physician, clinical nurse specialist, nurse practitioner, or physician assistant to examine the vascular access site).

Requests for adding services to the list of Medicare telehealth services must be submitted and received no later than December 31st of each year to be considered for the next proposed rule. For example, requests submitted before the end of CY 2004 are considered for the CY 2006 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/physicians/telehealth.

We received the following public requests for additional approved services in CY 2004: (1) Individual medical nutritional therapy (MNT) as described by HCPCS codes G0270, 97802 and 97803; (2) group MNT (HCPCS codes G0271 and 97804); (3) individual diabetes outpatient self- management training (DSMT) services (HCPCS code G0108); (4) Group DSMT (HCPCS code G0109); and (5) modification of the definition of an interactive telecommunications system for purposes of furnishing a telehealth service.

After reviewing the public requests, we proposed to add individual MNT as represented by HCPCS codes G0270, 97802 and 97803 to the list of Medicare telehealth services. We also proposed to add individual MNT to the list of Medicare telehealth services at Sec. 410.78 and Sec. 414.65. Moreover, because a certified registered dietitian or other nutrition professional are the only practitioners permitted by law to furnish MNT, we proposed to revise Sec. 410.78 to add a registered dietitian and nutrition professional as defined in Sec. 410.134 to the list of practitioners who may furnish and receive payment for a telehealth service.

We did not propose to add any additional services to the list of Medicare telehealth services or to make any changes to the definition of an interactive telecommunications system for CY 2006.

For further information on our proposals, see the Federal Register dated August 8, 2005 (70 FR 45786).

Individual MNT

Comment: Many commenters supported our proposal to approve individual MNT for telehealth and to add a registered dietitian and nutrition professional to the list of practitioners authorized to furnish and receive payment for Medicare telehealth services. Commenters stated that adding MNT to the list of Medicare telehealth services would improve access and services for patients in remote areas where traditional MNT services may not be readily available. For example, a State dietetic association mentioned that in many cases, patients need to drive for more than an hour to receive MNT services and that the ability to furnish individual MNT as a telehealth service will provide great benefit to rural Medicare beneficiaries. Furthermore, a renal association stated that limited access to nutritional therapists is problematic for patients with stage 3 and 4 kidney disease who are located in rural or isolated areas. The commenter explained that nutritional counseling is an important tool for helping beneficiaries improve their nutritional status and in controlling levels of key electrolytes such as potassium and phosphorous. Several MNT practices also urged us to adopt our proposal to approve individual MNT for telehealth. Another commenter supported the addition of individual MNT, however stated that more conclusive data regarding efficacy is needed before further expansion.

Response: We agree with the commenters that approving individual MNT for telehealth would help provide greater access to registered dietitians and other nutritional professionals for beneficiaries in rural and or isolated areas.

Comment: A few commenters believe that MNT should not be approved as a Medicare telehealth service. For instance, a certified diabetes educator (CDE) stated that it would be very difficult to accurately assess cognitive and literacy levels, emotional state and motivation without seeing the patient. The commenter also believes that face-to- face interaction for assessment, establishment of goals, and reviewing written materials is essential. The commenter expressed support for using telehealth to furnish MNT in very limited circumstances, for example if there was no access to an educator within 50 miles or if the patient was homebound. One commenter contends that it would be difficult to assess a patient's understanding of the dietary prescription, nutrient content of each food group, portion control and information provided by food labels, especially for beneficiaries who cannot read and or have a vision impairment that prevents them from reading fine print. Moreover, another commenter believes that individual MNT includes skill-based training beyond an individual assessment, not unlike teaching insulin administration or blood glucose monitoring. The commenter stated that the skills taught in MNT cannot be verbally assessed through distance education.

Response: As discussed in the proposed rule, we believe that individual MNT is similar in nature to an office or other outpatient visit (which is defined in the law as a Medicare telehealth service). We believe that the components of an E/M office visit involve a similar level of patient counseling for following a treatment plan as compared to individual MNT. We also believe that a registered dietitian at the distant site, along with an appropriate medical professional

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with the beneficiary at the originating site, could adequately assess and adjust to the beneficiary's ability to understand and follow his or her nutritional plan.

We do not agree with the commenter that the same level of physical, skill-based training that is required in an individual DSMT session, (for example, teaching a Medicare beneficiary the skills necessary for the self-injection of insulin), is a requirement for individual MNT.

Comment: One commenter requested that we clarify whether we would pay a physician practice for individual MNT furnished as a telehealth service when a registered dietitian or other nutrition professional reassigns his or her right to bill for payment to the physician practice as an employer.

Response: As discussed in the CMS claims processing manual (Pub. 100-04, chapter 1, section 30.2.6), if the employer/employee reassignment exception is met, and the person furnishing the service and the entity wishing to bill are both enrolled in Medicare and each have their own billing number, then we could make payment to the physician practice for the MNT service.

Group Medical Nutritional Therapy (MNT) and Diabetes Self-Management Training Services (DSMT)

Comment: Some commenters agreed with our proposal not to add DSMT to the list of Medicare telehealth services. For instance, one commenter wrote that DSMT can not be done as a telehealth service because in-person interaction with the client is crucial for assessing the skill development necessary for managing diabetes. Additionally, two certified diabetic educators (CDE) stated that DSMT can not be adequately furnished as a telehealth service and agreed with our proposal not to add DSMT to the list of Medicare telehealth services. Furthermore, another commenter stated that face-to-face interaction for assessment, establishment of goals, and reviewing written materials is essential for DSMT.

Response: As discussed in the proposed rule, we believe that DSMT is not similar to the current list of Medicare telehealth services and requires conclusive evidence showing that the use of a telecommunications system is an adequate substitute for the in-person delivery of DSMT.

Comment: A few commenters believe group MNT and group DSMT are similar in nature to the current list of Medicare telehealth services and therefore should be approved for telehealth under category 1 criteria. The commenters contend that the same presentation material, text books, manuals, DVD's and on site support staff are used whether group DSMT or group MNT is furnished in-person or through an interactive audio and video telecommunications system. The commenters stated that the practitioner would conduct the same training session for a telehealth service as they would in-person, and they believe that the interactive differences between group MNT and group DSMT and the current Medicare telehealth services should not be used as a basis for denying these services. The commenters believe that the criteria for approving group MNT and group DSMT should be based on whether the use of a telecommunications system is equivalent to the in-person delivery of the requested service. Moreover, commenters argue that no group services would ever be approved if we base approval upon whether the interactive dynamic of the requested service is similar