DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services 42 CFR Parts 410, 411, 416, 419, 489, and 495 [CMS-1525-P] RIN 0938-AQ26 Medicare and Medicaid Programs: Hospit al Outpatient Prospective Payment; Ambulatory Surgical Center Payment; Hospit al Value-Based Purchasing Program; Physician Self-Referral; and Provider Agreement Regulations on Patient Notification Requirements
AGENCY: Centers for Medicare & Me dicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: This proposed rule would revise the Medicare hospital outpatient prospective payment system (OPPS) to implem ent applicable statutory requirements and changes arising from our continuing experience with this system. In this proposed rule, we describe the proposed changes to the amounts and factors used to determine the payment rates for Medicare hospital outpatien t services paid under the OPPS. These proposed changes would be applicable to serv ices furnished on or after January 1, 2012. In addition, this proposed rule woul d update the revised Medicare ambulatory surgical center (ASC) payment system to im plement applicable statutory requirements and changes arising from our continuing experi ence with this system . In this proposed rule, we set forth the proposed relativ e payment weights and payment amounts for services furnished in ASCs, specific HCPCS codes to which these proposed changes would apply, and other proposed ratesetti ng information for the CY 2012 ASC paymentCMS-1525-P 2 system. These proposed changes would be app licable to services furnished on or after January 1, 2012. We are proposing to revise the require ments for the Hospital Outpatient Quality Reporting (IQR) Program, add new requirement s for ASC Quality Reporting System, and make additional changes to provisions of th e Hospital Inpatient Value-Based Purchasing (VBP) Program. We also are proposing to allow eligible hospitals and CAHs participating in the Medicare Electronic Health Reco rd (EHR) Incentive Program to meet the clinical quality measure reporting requirement of the EHR Incentive Program for payment year 2012 by participating in the 2012 Medicare EHR In centive Program Electronic Reporting Pilot. In addition, we are proposing to make changes to the rules governing the whole hospital and rural provider exceptions to th e physician self-refe rral prohibition for expansion of facility capacity and changes to provider agreement regulations on patient notification requirements.

DATES : Comment Period : To be assured considerati on, comments on all sections of this proposed rule must be received at one of the addresses provided in the ADDRESSES section no later than 5 p.m. EST on [inser t 60 days from date of display at the Federal Register .]
ADDRESSES: In commenting, please refer to file code CMS-1525-P. Because of staff and resource lim itations, we cannot accept co mments by facsimile (FAX) transmission. You may submit comments in one of four ways (no duplicates, please):CMS-1525-P 3 1. Electronically . You may (and we encour age you to) submit electronic comments on this regulation to http://www.regulations.gov

. Follow the instructions under the “submit a comment” tab. 2. By regular mail . You may mail written comments to the following address

ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1525-P, P.O. Box 8013, Baltimore, MD 21244-1850. Please allow sufficient time for mailed co mments to be received before the close of the comment period. 3. By express or overnight mail . You may send written comments via express or overnight mail to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1525-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.CMS-1525-P 4 4. By hand or courier . If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC— Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, S.W., Washington, DC 20201. (Because access to the interior of the Hube rt H. Humphrey Building is not readily available to persons without Federal G overnment 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 fo r persons wishing to re tain a proof of filing by stamping in and retaining an extra copy of the comments being filed.) b. For delivery in Baltimore, MD— Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, please call the telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.CMS-1525-P 5 Comments mailed to the addresses indicat ed as appropriate for hand or courier delivery may be delayed and rece ived after the comment period. Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by fo llowing the instructions at the end of the “Collection of Information Requireme nts” section in this document. For information on viewing public comments, we refer readers to the beginning of the “ SUPPLEMENTARY INFORMATION ” section. FOR FURTHER INFORMATION, CONTACT: Paula Smith, (410) 786-0378, Hospital out patient prospective payment issues. Char Thompson, (410) 786-0378, Ambul atory surgical center issues. Michele Franklin, (410) 786-4533, and Jana Lindquist, (410) 786-4533, Partial hospitalization and community me ntal health center issues. James Poyer, (410) 786-2261, Reporting of Hospital Outpatient Quality Reporting (OQR) and ASC Quality Reporting Program issues. Teresa Schell, (410) 786-8651, Physician Ownership and Investment in Hospitals issues. Georganne Kuberski, (410) 786-0799, Patie nt Notification Requirements issues. James Poyer, (410) 786-2261, and Ernessa Brawley (410) 786-2075, Hospital Value-Based Purchasing (VBP) Program issues.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments : All comments received before the close of the comment period are available for viewi ng by the public, including any personallyCMS-1525-P 6 identifiable or confidential business informa tion that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after th ey have been received: http://www.regulations.gov. Follow the search instructions on that We b site to view public comments. Comments received timely will also be av ailable for public inspection, generally beginning approximately 3 weeks after publicati on of the rule, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, on Monday through Friday of each week from 8:30 a.m. to 4:00 p.m. EST. To schedule an appoint ment to view public comments, phone

1-800-743-3951.

Electronic Access This Federal Register document is also available from the Federal Register online database through Federal Digital System (FDsys) , a service of the U.S. Government Printing Office. This databa se can be accessed via the internet at http://www.gpo.gov/fdsys/

. Addenda Available Only Through th e Internet on the CMS Web Site In the past, a majority of the Addendareferred to throughout the preamble of our OPPS/ASC proposed and final rules were published in the Federal Register as part of the annual rulemakings. However, beginning with this CY 2012 rule, all of the Addenda will no longer appear in the Federal Register as part of the annual OPPS/ASC proposed and final rules to decrease administrative burden and reduce costs associated with publishing lengthy tables. Instead, these Addenda will be published and available onlyCMS-1525-P 7 on the CMS Web site. The Addenda rela ting to the OPPS ar e available at: http://www.cms.hhs.gov/HospitalOutpatientPPS . The Addenda relating to the ASC payment system are available at: http://www/cms.hhs.gov/ASC Payment/ . For complete details on the availability of the Addenda re ferenced in this proposed rule, we refer readers to section XVII. Readers who e xperience any problems accessing any of the Addenda that are posted on the CMS Web site identified above should contact Charles Braver at (410) 786-0378. Alphabetical List of Acronyms Appearin g in This Federal Register Document ACEP American College of Emergency Physicians AHA American Hospital Association AHIMA American Health Inform ation Management Association AHRQ Agency for Healthcare Research and Quality AMA American Medical Association AMP Average Manufacturer Price AOA American Osteopathic Association APC Ambulatory Payment Classification ARRA American Recovery and Re investment Act of 2009, Pub. L. 111-5 ASC Ambulatory Surgical Center ASP Average Sales Price AWP Average Wholesale Price BBA Balanced Budget Act of 1997, Pub. L. 105-33CMS-1525-P 8 BBRA Medicare, Medicaid, and SCHIP [S tate Children's Health Insurance Program] Balanced Budget Refi nement Act of 1999, Pub. L. 106-113 BIPA Medicare, Medicai d, and SCHIP Benefits Improvement and Protection Act of 2000, Pub. L. 106-554 BLS Bureau of Labor Statistics CAH Critical Access Hospital CAP Competitive Acquisition Program CBSA Core-Based Statistical Area CCN CMS Certification Number CCR Cost-to-Charge Ratio CDC Centers for Disease Control CERT Comprehensive Error Rate Testing CLFS Clinical Laboratory Fee Schedule CMHC Community Mental Health Center CMS Centers for Medicare & Medicaid Services CPT [Physicians’] Current Procedur al Terminology, Fourth Edition, 2009, copyrighted by the American Medical Association CQM Clinical Quality Measure CR Cardiac Rehabilitation CY Calendar Year DFO Designated Federal official DHS Designated Health ServiceCMS-1525-P 9 DRA Deficit Reduction Act of 2005, Pub. L. 109-171 DSH Disproportionate Share Hospital EACH Essential Access Community Hospital E/M Evaluation and Management EHR Electronic Health Record ESRD End-Stage Renal Disease FACA Federal Advisory Committee Act, Pub. L. 92-463 FAR Federal Acquisition Regulations FDA Food and Drug Administration FFS Fee-for-Service FSS Federal Supply Schedule FY Fiscal Year GAO Government Accountability Office HAC Hospital-Acquired Condition HAI Healthcare-Associated Infection HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems HCERA Health Care and Education R econciliation Act of 2010, Pub. L. 111-152 HCP Healthcare Personnel HCPCS Healthcare Common Procedure Coding System HCRIS Hospital Cost Report Information System HHA Home Health AgencyCMS-1525-P 10 HIPAA Health Insurance Portabi lity and Accountability Act of 1996, Pub. L. 104-191 HOPD Hospital OutPatient Department Hospital OQR Hospital Outpatient Quality Reporting ICR Intensive Cardiac Rehabilitation IDE Investigational Device Exemption IHS Indian Health Service I/OCE Integrated Outpatient Code Editor IOL Intraocular Lens IPPS [Hospital] Inpatient Prospective Payment System MAC Medicare Administrative Contractor MedPAC Medicare Payment Advisory Commission MIEA-TRHCA Medicare Improvements and Ex tension Act under Division B, Title I of the Tax Relief Health Care Act of 2006, Pub. L. 109-432 MIPPA Medicare Improvements for Patients and Providers Act of 2008, Pub. L. 110-275 MMA Medicare Prescription Drug, Impr ovement, and Modernization Act of 2003, Pub. L. 108-173 MMEA Medicare and Medicaid Ex tenders Act of 2010, Pub. L. 111-309 MMSEA Medicare, Medicaid, and SCHI P Extension Act of 2007, Pub. L. 110-173 MPFS Medicare Physician Fee Schedule MSA Metropolitan Statistical AreaCMS-1525-P 11 NCCI National Correct Coding Initiative NHSN National Healthcare Safety Network NCD National Coverage Determination NQF National Quality Forum NTIOL New Technology Intraocular Lens OIG [HHS] Office of the Inspector General OMB Office of Management and Budget OPD [Hospital] Outpatient Department OPPS [Hospital] Outpatient Prospective Payment System OQR Outpatient Quality Reporting PBD Provider-Based Department PHP Partial Hospitalization Program PPI Producer Price Index PPS Prospective Payment System PR Pulmonary Rehabilitation PRA Paperwork Reduction Act QAPI Quality Assessment and Performance Improvement QIO Quality Improvement Organization RAC Recovery Audit Contractor RFA Regulatory Flexibility Act Hospital IQR Hospital Inpatient Quality Reporting Hospital OQR Hospital Outpatient Quality ReportingCMS-1525-P 12 RHHI Regional Home Health Intermediary SBA Small Business Administration SCH Sole Community Hospital SDP Single Drug Pricer SI Status Indicator TEP Technical Expert Panel TOPs Transitional Outpatient Payments VBP Value-Based Purchasing WAC Wholesale Acquisition Cost In this document, we address two paym ent systems under the Medicare program: the Hospital Outpatient Prospective Pa yment System (OPPS) and the Ambulatory Surgical Center (ASC) payment system. Inaddition, we are proposing to make changes to the rules governing limitations on certainphysician referrals to hospitals in which physicians have an ownership or investment interest, the pr ovider agreement regulations on patient notification requirements, and th e rules governing the Hospital Inpatient Value-Based Purchasing (VBP) Program. The provisions relati ng to the OPPS are included in sections I. thr ough XII. and section XIV. and sections XVII. through XXI. of this proposed rule. Addenda A, B, C, D1, D2, E, L, M, and N, which relate to the OPPS, are referenced in section XVII. of this propos ed rule and are available via the Internet on the CMS Web site at the URL indicated in s ection XVII. The provi sions related to the ASC payment system are included in sect ions XIII., XIV., and XVII. through XXI. of this proposed rule. Addenda AA, BB, DD 1, DD2, and EE, which relate to the ASCCMS-1525-P 13 payment system, are referenced in section XV II. of this proposed ru le and are available via the Internet on the CMS Web site at the URL indicated in section XVII. The provisions relating to physicia n referrals to hospitals in which physicians have an ownership or investment inte rest and to the provider agr eement regulations on patient notification requirements are in cluded in section XV., and th e provisions relating to the Hospital Inpatient VBP Program are included in section XVI. of this proposed rule.

Table of Contents I. Background and Summary of the CY 2012 OPPS/ASC Proposed Rule A. Legislative and Regulatory Authority for the Hospital Outpatient Perspective Payment System B. Excluded OPPS Services and Hospitals C. Prior Rulemaking D. Advisory Panel on Ambulatory Payment Classification (APC) Groups 1. Authority of the APC Panel 2. Establishment of the APC Panel 3. APC Panel Meetings a nd Organizational Structure E. Summary of the Major Contents of this Proposed Rule 1. Proposed Updates Affecting OPPS Payments 2. Proposed OPPS Ambulatory Paymen t Classification (APC) Group Policies 3. Proposed OPPS Payment for Devices 4. Proposed OPPS Payment Changes for Drugs, Biologicals, and RadiopharmaceuticalsCMS-1525-P 14 5. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices 6. Proposed OPPS Payment for Hospital Outpatient Visits 7. Proposed Payment for Part ial Hospitalization Services 8. Proposed Procedures That Would Be Paid Only as Inpatient Procedures 9. Proposed OPPS Policy Changes Relating to Supervision of Hospital Outpatient Services 10. Proposed OPPS Payment Status and Comment Indicators 11. OPPS Policy and Payment Recommendations 12. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment System 13. Reporting Quality Data for Annual Payment Rate Updates 14. Proposed Changes to EHR Incentive Program for Eligible Hospitals and CAHs Regarding Electronic Submission of Clinical Quality Measures (CQMs) 15. Proposed Changes to Provisions Re lating to Physician Self-Referral Prohibition and Provider Agreement Regulatio ns on Patient Notifi cation Requirements 16. Proposed Changes to the Hospital IQR Program Hospital Inpatient VBP Program 17. Economic and Federalism Analyses F. Public Comments Received on the CY 2011 OPPS/ASC Final Rule with Comment Period II. Proposed Updates Affecting OPPS Payments A. Proposed Recalibration of APC Relative WeightsCMS-1525-P 15 1. Database Construction a. Database Source and Methodology b. Proposed Use of Single and Multiple Procedure Claims c. Proposed Calculation and Us e of Cost-to-Charge Ratios (CCRs) 2. Proposed Data Development Proce ss and Calculation of Median Costs a. Claims Preparation b. Splitting Claims and Creation of “Pseudo” Single Procedure Claims (1) Splitting Claims (2) Creation of “Pseudo” Single Procedure Claims c. Completion of Claim Record s and Median Cost Calculations d. Proposed Calculation of Single Pro cedure APC Criteria-Based Median Costs (1) Device-Dependent APCs (2) Blood and Blood Products (3) Allergy Tests (APCs 0370 and 0381) (4) Hyperbaric Oxygen Therapy (APC 0659) (5) Payment for Ancillary Outpatient Services When Patient Expires (APC 0375) (6) Endovascular Revascularizati on of the Lower Extremity (APCs 0083, 0229, and 0319) (7) Non-Congenital Cardiac Catheterization (APC 0080) (8) Cranial Neurostimulator and Electrodes (APC 0318) (9) Brachytherapy Sources e. Proposed Calculation of Compos ite APC Criteria-Based Median CostsCMS-1525-P 16 (1) Extended Assessment and Manage ment Composite APCs (APCs 8002 and 8003) (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001) (3) Cardiac Electrophysiologic Ev aluation and Ablation Composite APC (APC 8000) (4) Mental Health Services Composite APC (APC 0034) (5) Multiple Imaging Compos ite APCs (APCs 8004, 8005, 8006, 8007, and 8008) (6) Cardiac Resynchronization Therapy Composite APC (APCs 0108, 0418, 0655, and 8009) 3. Proposed Changes to Packaged Services a. Background b. Packaging Issues (1) CMS Presentation of Findings Regarding Expanded Packaging at the February 28-March 1, 2011 APC Panel (2) Packaging Recommendatio ns of the APC Panel at Its February 28-March 1, 2011 Meeting (3) Other Packaging Proposals for CY 2012 4. Proposed Calculation of OPPS Scaled Payment Weights B. Proposed Conversion Factor Update C. Proposed Wage Index Changes D. Proposed Statewide Average Default CCRsCMS-1525-P 17 E. Proposed OPPS Payment to Certain Rural and Other Hospitals 1. Hold Harmless Transitional Payment Changes Made by Pub. L. 110-275 (MIPPA) 2. Proposed Adjustment for Rural SCHs and EACHs under Section 1833(t)(13)(B) of the Act F. Proposed OPPS Payments to Certai n Cancer Hospitals Described by Section 1886(d)(1)(B)(v) of the Act 1. Background 2. Study of Cancer Hospital Co sts Relative to Other Hospitals 3. CY 2011 Proposed Payment Adjustment for Certain Cancer Hospitals 4. Proposed CY 2011 Cancer Hospital Payment Adjustment That Was Not Finalized 5. Proposed Payment Adjustment for Certain Cancer Hospitals for CY 2012 G. Proposed Hospital Outpatient Outlier Payments 1. Background 2. Proposed Outlier Calculation 3. Proposed Outlier Reconciliation H. Proposed Calculation of an Adju sted Medicare Payment from the National Unadjusted Medicare Payment I. Proposed Beneficiary Copayments 1. Background 2. Proposed OPPS Copayment PolicyCMS-1525-P 18 3. Proposed Calculation of an Adju sted Copayment Amount for an APC Group III. Proposed OPPS Ambulatory Paymen t Classification (APC) Group Policies A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes 1. Proposed Treatment of New Leve l II HCPCS Codes and Category I CPT Vaccine Codes and Category III CPT Code s for Which We Are Soliciting Public Comment in this CY 2012 Proposed Rule 2. Proposed Process for New Level II HCPCS Codes and Category I and Category III CPT Codes for Which We W ill Be Soliciting Public Comments on the CY 2012 OPPS/ASC Final Rule with Comment Period B. Proposed OPPS Changes--Variations within APCs 1. Background 2. Application of the 2 Times Rule 3. Proposed Exceptions to the 2 Times Rule C. Proposed New Technology APCs 1. Background 2. Proposed Movement of Procedures from New Technology APCs to Clinical

APCs D. Proposed OPPS APC-Specific Policies 1. Revision/Removal of Neuros timulator Electrodes (APC 0687) 2. Computed Tomography of Abdo men and Pelvis (APCs 0331 and 0334) 3. Placement of Amniotic Membrane (APCs 0233 and 0244) 4. Upper Gastrointestinal Services (APCs 0141, 0419, and 0422)CMS-1525-P 19 5. Pulmonary Rehabilitation (APC 0102) 6. Insertion/Replacement/Repair of AI CD Leads, Generator, and Pacing Electrodes (APC 0108) IV. Proposed OPPS Payment for Devices A. Proposed Pass-Through Payments for Devices 1. Expiration of Transitional Pass- Through Payments for Certain Devices a. Background b. Proposed CY 2012 Policy 2. Proposed Provisions for Reducing Transitional Pass-Through Payments to Offset Costs Packaged into APC Groups a. Background b. Proposed CY 2012 Policy B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit and Partial Credit Devices 1. Background 2. Proposed APCs and Devices Subject to the Adjustment Policy V. Proposed OPPS Payment Changes for Dr ugs, Biologicals, and Radiopharmaceuticals A. Proposed OPPS Transitional Pass-T hrough Payment for Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals 1. Background 2. Proposed Drugs and Biologicals w ith Expiring Pass-Through Status in

CY 2012CMS-1525-P 20 3. Proposed Drugs, Biologicals, a nd Radiopharmaceuticals with New or Continuing Pass-Throug h Status in CY 2012 4. Proposed Provisions for Reducing Transitional Pass-Through Payments for Diagnostic Radiopharmaceuticals a nd Contrast Agents to Offset Costs Packaged into APC Groups a. Background b. Proposed Payment Offset Policy for Diagnostic Radiopharmaceuticals c. Proposed Payment Offset Policy for Contrast Agents B. Proposed OPPS Payment for Drugs , Biologicals, and Radiopharmaceuticals without Pass-Through Status 1. Background 2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals a. Background b. Proposed Cost Threshold for Packag ing of Payment for HCPCS Codes that Describe Certain Drugs, Nonimplantab le Biologicals, and Therapeutic Radiopharmaceuticals (“Threshold-Packaged Drugs”) c. Proposed Packaging Determination fo r HCPCS Codes That Describe the Same Drug or Biological But Different Dosages d. Proposed Packaging of Payment for Diagnostic Radiopharmaceuticals, Contrast Agents, and Implantable Biologica ls (“Policy-Packaged” Drugs and Devices)CMS-1525-P 21 3. Proposed Payment for Drugs and Bi ologicals without Pass-Through Status That Are Not Packaged a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and Other Separately Payable and P ackaged Drugs and Biologicals b. Proposed Payment Policy c. Proposed Payment Policy for Therapeutic Radiopharmaceuticals 4. Proposed Payment for Blood Clotting Factors 5. Proposed Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes, Bu t without OPPS Hospital Claims Data VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices A. Background B. Proposed Estimate of Pass-Through Spending VII. Proposed OPPS Payment fo r Hospital Outpatient Visits A. Background B. Proposed Policies for Hospital Outpatient Visits 1. Clinic Visits: New and Established Patient Visits 2. Emergency Department Visits 3. Visit Reporting Guidelines VIII. Proposed Payment for Partial Hospitalization Services A. Background B. Proposed PHP APC Update for CY 2012CMS-1525-P 22 C. Proposed Separate Threshold for Outlier Payments to CMHCs IX. Proposed Procedures That Would Be Paid Only as Inpatient Procedures A. Background B. Proposed Changes to the Inpatient List X. Proposed Policies on the Supervision Stan dards for Outpatient Services in Hospitals and CAHs A. Background B. Issues Regarding the Supervision of Hospital Outpatient Therapeutic Services Raised by Hospitals and Other Stakeholders 1. Independent Review Process 2. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories C. Proposed Policies on Supervision Standards for Outpatient Therapeutic Services in Hospitals and CAHs 1. Selection of Review Entity 2. Review Process 3. Evaluation Criteria 4. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories 5. Technical Corrections to the Supervision Standards for Hospital Outpatient Therapeutic Services Furnished in Hospitals or CAHs 6. SummaryCMS-1525-P 23 XI. Proposed OPPS Payment St atus and Comment Indicators A. Proposed OPPS Payment Status Indicator Definitions 1. Proposed Payment Status Indicators to Designate Services That Are Paid under the OPPS 2. Proposed Payment Status Indicators to Designate Services That Are Paid under a Payment System Other Than the OPPS 3. Proposed Payment Status Indicators to Designate Services That Are Not Recognized under the OPPS But That May Be Recognized by Other Institutional Providers 4. Proposed Payment Status Indicators to Designate Services That Are Not Payable by Medicare on Outpatient Claims B. Proposed Comment Indicator Definitions XII. OPPS Policy and Payment Recommendations A. MedPAC Recommendations B. APC Panel Recommendations C. OIG Recommendations XIII. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment System A. Background 1. Legislative Authority for the ASC Payment System 2. Prior Rulemaking 3. Policies Governing Changes to the Li sts of Codes and Payment Rates for ASC Covered Surgical Procedures a nd Covered Ancillary ServicesCMS-1525-P 24 B. Proposed Treatment of New Codes 1. Proposed Process for Recognizing New Category I and Category III CPT Codes and Level II HCPCS Codes 2. Proposed Treatment of New Leve l II HCPCS Codes and Category III CPT Codes Implemented in April and July 2011 3. Proposed Process for New Level II HCPCS codes and Category I and Category III CPT Codes for Which We Will Be Soliciting Public Comments in the CY 2012 OPPS/ASC Final Rule with Comment Period C. Proposed Update to the List of ASC Covered Surgical Procedures and Covered Ancillary Services 1. Covered Surgical Procedures a. Proposed Additions to the List of ASC Covered Surgical Procedures b. Proposed Covered Surgical Proc edures Designated as Office-Based (1) Background (2) Proposed Changes for CY 2012 to C overed Surgical Procedures Designated as Office-Based c. Proposed ASC Covered Surgical Pr ocedures Designated as Device-Intensive (1) Background (2) Proposed Changes to List of Cove red Surgical Procedures Designated as Device-Intensive for CY 2012 d. ASC Treatment of Surgical Procedur es Proposed for Removal from the OPPS Inpatient List for CY 2012CMS-1525-P 25 2. Covered Ancillary Services D. Proposed ASC Payment for Covered Surgical Procedures and Covered Ancillary Services 1. Proposed Payment for Covered Surgical Procedures a. Background b. Proposed Update to ASC-Covered Surgical Procedure Payment Rates for

CY 2012 c. Proposed Adjustment to ASC Paymen ts for No Cost/Full Credit and Partial Credit Devices d. Proposed Payment for the Cardiac Resynchronization Therapy Composite 2. Proposed Payment for Covered Ancillary Services a. Background b. Proposed Payment for Covered Ancillary Services for CY 2012 E. New Technology Intraocular Lenses (NTIOLs) 1. NTIOL Cycle and Evaluation Criteria 2. NTIOL Application Proce ss for Payment Adjustment 3. Requests to Establish New NTIO L Classes for CY 2012 and Deadline for Public Comments 4. Proposed Payment Adjustment F. Proposed ASC Payment and Comment Indicators 1. Background 2. Proposed ASC Payment and Comment IndicatorsCMS-1525-P 26 G. ASC Policy and Payment Recommendations H. Calculation of the Proposed ASC Conversion Factor and the Proposed ASC Payment Rates 1. Background 2. Proposed Calculation of the ASC Payment Rates a. Updating the ASC Relative Paymen t Weights for CY 2012 and Future Years b. Updating the ASC Conversion Factor with Application of a Productivity Adjustment to the Update Factor 3. Display of Proposed CY 2012 ASC Payment Rates XIV. Hospital Outpatient Quality Reporting Program Updates and ASC Quality Reporting A. Background 1. Overview 2. Statutory History of Hospital Outpatient Quality Reporting (Hospital OQR) Program 3. Technical Specification U pdates and Data Publication a. Maintenance of Technical Specifications for Quality Measures b. Publication of Hospital OQR Program Data B. Proposed Revision to Measures Pr eviously Adopted for the Hospital OQR Program for the CY 2012, CY 2013, and CY 2014 Payment Determinations 1. BackgroundCMS-1525-P 27 2. Proposed Revision to Hospital OQR Program Measures Previously Adopted for the CY 2013 Payment Determination C. Proposed New Quality Measures for the CY 2014 and CY 2015 Payment Determinations 1. Considerations in Expanding and Updating Quality Measures under Hospital OQR Program 2. Proposed New Hospital OQR Program Quality Measures for the CY 2014 Payment Determination a. Proposed New National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) Measure for th e CY 2014 Payment Determination: Surgical Site Infection (NQF #0299) b. Proposed New Chart-Abstract ed Measures for CY 2014 Payment Determination (1) Diabetes: Hemoglobin A1c Management (NQF #0059) (2) Diabetes Measure Pair: A. Lipid Management: Low Density Lipoprotein Cholesterol (LDL-C) <130, B. Lipid Management: LDL-C <100 (NQF #0064) (3) Diabetes: Blood Pressure Management (NQF #0061) (4) Diabetes: Eye Exam (NQF #0055) (5) Diabetes: Urine Pr otein Screening (NQF #0062) (6) Cardiac Rehabilitation: Patien t Referral from an Outpatient Setting (NQF #0643)

c. Proposed New Structural MeasuresCMS-1525-P 28 (1) Safe Surgery Checklist Use (2) Submission of Hospital Outpatient Department Volume for Selected Outpatient Surgical Procedures 3. Proposed Hospital OQR Program Measures for the CY 2015 Payment Determination a. Proposed Retention of CY 2014 Hospital OQR Measures for the CY 2015 Payment Determination b. Proposed New NHSN HAI Measure for the CY 2015 Payment Determination D. Possible Quality Measures under Cons ideration for Future Inclusion in the Hospital OQR Program E. Proposed Payment Reduction for Hospitals That Fail to Meet the Hospital OQR Requirements for the CY 2012 Payment Update 1. Background 2. Proposed Reporting Ratio Application and Associated Adjustment Policy for

CY 2012 F. Extraordinary Circumstances Extension or Waiver for CY 2012 and Subsequent Years G. Proposed Requirements for Reporti ng of Hospital OQR Data for CY 2013 and Subsequent Years 1. Administrative Requirements for CY 2013 and Subsequent YearsCMS-1525-P 29 2. Form, Manner, and Timing of Data Submission for CY 2013 and Subsequent

Years a. Proposed CY 2013 and CY 2014 DataSubmission Requirements for ChartAbstracted Data Submission b. Proposed Encounter Threshold for Allowance of Sampling for CY 2013 and Subsequent Years c. Proposed Population and Sampling Data Requirements Beginning with the CY 2013 Payment Determination d. Proposed Claims-Based Measure Da ta Requirements for the CY 2013 Payment Determination e. Proposed Structural Measure Data Requirements for the CY 2013 and CY 2014 Payment Determinations f. Proposed Data Submission Deadlines for the Proposed NHSN HAI Surgical Site Infection Measure for th e CY 2014 Payment Determination g. Proposed Data Submission Requirement s for ED-Patient Left Before Being Seen Measure Data for the CY 2013 and CY 2014 Payment Determinations 3. Hospital OQR Validation Requirements for Chart-Abstracted Data Submitted Directly to CMS: Proposed Data Valid ation Approach for the CY 2013 Payment Determination a. Randomly Selected Hospitals b. Proposed Use of Targeting Criteria for Data Validation Selection for CY 2013 (1) BackgroundCMS-1525-P 30 (2) Proposed Targeting Criteria for Data Validation Selection for CY 2013 c. Encounter Selection d. Validation Score Calculation 4. Additional Data Validation Conditions under Consideration for CY 2014 and Subsequent Years H. Proposed Hospital OQR Reconsideration and Appeals Procedures for CY 2013 and Subsequent Years I. Electronic Health Records (EHRs) J. 2012 Medicare EHR Incentive Pr ogram Electronic Reporting Pilot for Hospitals and CAHs 1. Background 2. Proposed Medicare EHR Incentive Program Electronic Reporting Pilot for Eligible Hospitals and CAHs 3. CQM Reporting under the Electronic Reporting Pilot K. Proposed ASC Quality Reporting Program 1. Background 2. ASC Quality Reporting Program Measure Selection a. Proposed Timetable for Selecting ASC Quality Measures b. Considerations in the Selection of Measures for the ASC Quality Reporting Program 3. Proposed Quality Measures for ASCs for CY 2014 Payment DeterminationCMS-1525-P 31 a. Proposed Claims-Based Measures Requiring Submission of Quality Data Codes (QDCs) Beginning January 1, 2012 (1) Patient Burns (NQF #0263) (2) Patient Falls (NQF #0266) (3) Wrong Site, Wrong Side, Wrong Pa tient, Wrong Procedure, Wrong Implant (NQF #0267) (4) Hospital Transfer/Admission (NQF #0265) (5) Prophylactic IV Anti biotic Timing (NQF #0264) (6) Ambulatory Patient with Appropria te Method of Surgical Hair Removal (NQF #0515) (7) Prophylactic Antibiotic Selectio n for Surgical Patients (NQF #0528) b. Surgical Site Infection Rate (NQF #0299) 4. Proposed ASC Quality Measures for the CY 2015 Payment Determination a. Retention of Measures Adopted fo r the CY 2014 Payment Determination in the CY 2015 Payment Determination b. Proposed Structural Measures for the CY 2015 Payment Determination (1) Safe Surgery Checklist Use (2) ASC Facility Volume Data on Selected ASC Surgical Procedures 5. Proposed ASC Quality Measures for the CY 2016 Payment Determination a. Retention of Measures Adopted fo r the CY 2015 Payment Determination in the CY 2016 Payment DeterminationCMS-1525-P 32 b. Proposed HAI Measure: Influenz a Vaccination Coverage among Healthcare Personnel (HCP) (NQF #0431) 6. ASC Measure Topics fo r Future Considerations 7. Technical Specification Updates and Data Publication for the CY 2014 Payment Determination a. Maintenance of Technical Specifications for Quality Measures b. Publication of ASC Qua lity Reporting Program Data 8. Proposed Requirements for Reporting of ASC Quality Data for the CY 2014 Payment Determination a. Proposed Data Collection and Submission Requirements for the Proposed Claims-Based Measures b. Proposed Data Submission Deadlines fo r the Proposed Surgical Site Infection

Rate Measure XV. Proposed Changes to Whole Hospital and Rural Provider Exceptions to the Physician Self-Referral Prohibition: Exception for Expansion of Facility Capacity; and Proposed Changes to Provider Agreemen t Regulations on Patient Notification Requirements A. Background B. Changes Made by the Affordable Care Act 1. Changes Relating to Exception to Ownership and Investment Prohibition (Section 6001(a) of the Affordable Care Act) 2. Provisions of Section 6001(a)(3 ) of the Affordable Care ActCMS-1525-P 33 C. Proposed Changes Relating to the Pr ocess for an Exception to the Prohibition on Expansion of Facility Capacity 1. Applicable Hospital a. Percentage Increase in Population b. Inpatient Admissions c. Nondiscrimination d. Bed Capacity e. Bed Occupancy 2. High Medicaid Facility a. Number of Hospitals in County b. Inpatient Admissions c. Nondiscrimination 3. Procedures for Submitting a Request 4. Community Input 5. Permitted Increase a. Amount of Permitted Increase b. Location of Permitted Increase 6. Decisions 7. Limitation on Review 8. Frequency of Request D. Proposed Changes Related to Prov ider Agreement Regulations on Patient Notification RequirementsCMS-1525-P 34 XVI. Additional Proposals for the Hospital I npatient Value-Based Purchasing (Hospital VBP) Program A. Hospital VBP Program 1. Legislative Background 2. Overview of the Hospital I npatient VBP Program Final Rule 3. Proposed Additional FY 2014 Hospital VBP Program Measures 4. Proposed Minimum Numb er of Cases and Measures for the Outcome Domain for the FY 2014 Hospital VBP Program a. Background b. Proposed Minimum Number of Cases for Mortality Measures, AHRQ Composite Measures, and HAC Measures c. Proposed Minimum Number of Measures for Outcome Domain 5. Proposed Performance Periods and Baseline Periods for FY 2014 Measures a. Proposed Clinical Process of Care Domain and Patient Experience of Care Domain Performance Periods and Baseline Periods b. Proposed Outcome Domain Performance Periods and Baseline Periods 6. Proposed Performance Standards for the FY 2014 Hospital VBP Program a. Background (1) Mortality Measures (2) Proposed Medicare Spending Per Beneficiary b. Proposed Clinical Process of Care and Patient Experien ce of Care FY 2014 Performance StandardsCMS-1525-P 35 c. AHRQ Measures d. HAC Measures 7. Proposed FY 2014 Hospital VB P Program Scoring Methodology a. Proposed FY 2014 Domain Scoring Methodology b. Proposed HAC Meas ure Scoring Methodology 8. Ensuring HAC Reporting Accuracy 9. Proposed Domain Weighting for FY 2014 Hospital VBP Program B. Proposed Review and Correction Pr ocess under the Hospital VBP Program 1. Background 2. Proposed Review and Correction of Data Submitted to the QIO Clinical Warehouse on Chart-Abstracted Process of Care Measures and Measure Rates 3. Proposed Review and Correction Pr ocess for Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) a. Phase One: Review and Correction of HCAHPS Data Submitted to the QIO Clinical Warehouse b. Phase Two: Review and Correction of the HCAHPS Scores for the Hospital VBP Program XVII. Files Available to th e Public Via the Internet A. Information in Addenda Relate d to the Proposed CY 2012 Hospital OPPS B. Information in Addenda Relate d to the Proposed CY 2012 ASC Payment System XVIII. Collection of Information RequirementsCMS-1525-P 36 A. Legislative Requirement s for Solicitation of Comments B. Requirements in Regulation Text 1. ICRs Regarding Basic Comm itments of Providers (§489.20) 2. ICRs Regarding Exceptions Process Re lated to the Prohibition of Expansion of Facility Capacity (§411.362) C. Proposed Associated Information Collections Not Specified in Regulatory

Text 1. Hospital Outpatient Quality Reporting (Hospital OQR) Program 2. Hospital OQR Program Measures for the CY 2012, CY 2013, CY 2014, and CY 2015 Payment Determinations a. Previously Adopted Hospital OQR Program Measures for the CY 2012, CY 2013, and CY 2014 Payment Determinations b. Additional Proposed Hospital OQR Program Measures for CY 2014 c. Proposed Hospital OQR Program Measures for CY 2015 3. Proposed Hospital OQR Program Validation Requirements for CY 2013 4. Proposed Hospital OQR Program Reconsideration and Appeals Procedures 5. ASC Quality Reporting Program 6. Proposed 2012 Medicare EHR Incentiv e Program Electronic Reporting Pilot for Hospitals and CAHs 7. Additional Topics XIX. Response to Comments XX. Economic AnalysisCMS-1525-P 37 A. Regulatory Impact Analysis 1. Introduction 2. Statement of Need 3. Overall Impacts for Proposed OPPS and ASC Provisions 4. Detailed Economic Analysis a. Effects of Proposed OPPS Changes in This Proposed Rule (1) Limitations of Our Analysis (2) Estimated Effects of This Proposed Rule on Hospitals (3) Estimated Effects of This Proposed Rule on CMHCs (4) Estimated Effect of This Proposed Rule on Beneficiaries (5) Estimated Effects on Other Providers (6) Estimated Effects on the Medicare and Medicaid Programs (7) Alternative Considered b. Effects of Proposed ASC Payment System Changes in This Proposed Rule (1) Limitations of Our Analysis (2) Estimated Effects of This Proposed Rule on Payments to ASCs (3) Estimated Effect of This Proposed Rule on Beneficiaries (4) Alternatives Considered c. Accounting Statements and Tables d. Effect of Proposed Requirements for the Hospital Outpatient Quality Reporting (OQR) Program e. Effects of Proposed Changes to Physician Self-Referral RegulationsCMS-1525-P 38 f. Effects of Proposed Changes to Provider Agreement Regulations on Patient Notification Requirements g. Effect of Additional Proposed Changes to the Hospital VBP Program Requirements h. Effects of Proposed Medicare EHR Incentive Program Reporting Pilot B. Regulatory Flexibility Act (RFA) Analysis C. Unfunded Mandates Reform Act Analysis D. Conclusion XXI. Federalism Analysis Regulation Text I. Background and Summary of th e CY 2012 OPPS/ASC Proposed Rule A. Legislative and Regulatory Authority for the Hospital Outpatient Prospective Payment System When Title XVIII of the Social Security Act (the Act) was enacted, Medicare payment for hospital outpatient se rvices was based on hospital-spec ific costs. In an effort to ensure that Medicare and its beneficiar ies pay appropriately for services and to encourage more efficient delivery of care, the Congress mandated replacement of the reasonable cost-based payment methodology with a prospective payment system (PPS). The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) added sect ion 1833(t) to the Act authorizing implementation of a PPS for hos pital outpatient servic es. The OPPS was first implemented for services furnishe d on or after August 1, 2000. Implementing regulations for the OPPS are located at 42 CFR Part 419.CMS-1525-P 39 The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) made major changes in the hospital OPPS. The following Acts made additional changes to the O PPS: the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554); the Medicare Prescription Drug, Improvement , and Modernization Act of 2003 (MMA) (Pub. L. 108-173); the Deficit Reduction Act of 2005 (DRA) (Pub. L. 109-171), enacted on February 8, 2006; the Medicare Improvement s and Extension Act under Division B of Title I of the Tax Relief and Health Ca re Act of 2006 (MIEA-TRHCA) (Pub. L. 109- 432), enacted on December 20, 2006; the Medica re, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173), enacte d on December 29, 2007; the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), enacted on July 15, 2008; and most recently th e Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (P ub. L. 111-152), enacted on March 30, 2010. (These two public laws are co llectively known as the Affordable Care Act, and most recently the Medicare and Medicaid Exte nders Act of 2010 (MMEA, Pub. L. 111-309).) Under the OPPS, we pay for hospital out patient services on a rate-per-service basis that varies accordi ng to the ambulatory payment classification (APC) group to which the service is assigned. We us e the Healthcare Common Procedure Coding System (HCPCS) (which include certain Cu rrent Procedural Terminology (CPT) codes) to identify and group the services within each APC group. The OPPS includes payment for most hospital outpatient services, except t hose identified in section I.B. of thisCMS-1525-P 40 proposed rule. Section 1833(t)(1)(B) of th e Act provides for payment under the OPPS for hospital outpatient services designated by the Secretary (which includes partial hospitalization services furn ished by community mental health centers (CMHCs)) and hospital outpatient services that are furnished to inpatients who have exhausted their Part A benefits, or who are otherwise not in a covered Part A stay. The OPPS rate is an unadjusted national payment amount that includes the Medicare payment and the beneficiary copayment. This rate is divided into a labor-related amount and a nonlabor-relat ed amount. The labor-related amount is adjusted for area wage differences using the hospital inpatient wage index value for the locality in which the hospital or CMHC is located. All services and items within an APC group are comparable clinically and with respect to resource use (section 1833(t)(2 )(B) of the Act). In accordance with section 1833(t)(2) of the Act, subject to certain exceptions, it ems and services within an APC group cannot be considered comparable with respect to the use of resources if the highest median cost (or mean cost, if elected by the Secretary) for an item or service in the APC group is more than 2 times greater than the lowest median cost for an item or service within the same APC group (referred to as the “2 tim es rule”). In implementing this provision, we generally us e the median cost of the ite m or service assigned to an APC group. For new technology items and services, sp ecial payments under the OPPS may be made in one of two ways. Section 1833( t)(6) of the Act provides for temporary additional payments, which we refer to as “transitional pass-thr ough payments,” for atCMS-1525-P 41 least 2 but not more than 3 years for certa in drugs, biological agents, brachytherapy devices used for the treatment of cancer, and categories of other medical devices. For new technology services that ar e not eligible for transiti onal pass-through payments, and for which we lack sufficient data to appropr iately assign them to a clinical APC group, we have established special APC groups based on costs, which we refer to as New Technology APCs. These New Technology APCs are designated by cost bands which allow us to provide appropriate and consistent payment for designated new procedures that are not yet reflected in our claims data. Similar to pass-through payments, an assignment to a New Technology AP C is temporary; that is, we retain a service within a New Technology APC until we ac quire sufficient data to assign it to a clinically appropriate APC group. B. Excluded OPPS Services and Hospitals Section 1833(t)(1)(B)(i) of the Act aut horizes the Secretary to designate the hospital outpatient services th at are paid under the OPPS. While most hospital outpatient services are payable under the OPPS, sect ion 1833(t)(1)(B)(iv) of the Act excludes payment for ambulance, physical and occupational therapy, and speech-language pathology services, for which payment is made under a fee schedule. It also excludes screening mammography, dia gnostic mammography, and effective January 1, 2011, an annual wellness visit providing personalized pr evention plan services. The Secretary exercised the authority granted under the stat ute to also exclude from the OPPS those services that are paid under fee schedules or other payment systems. Such excluded services include, for exampl e, the professional services of physicians and nonphysicianCMS-1525-P 42 practitioners paid under the Medicare P hysician Fee Schedule (MPFS); laboratory services paid under the Clinical Labora tory Fee Schedule (CLFS); services for beneficiaries with end-stage renal diseas e (ESRD) that are paid under the ESRD composite rate; and services and procedures th at require an inpatient stay that are paid under the hospital inpatient pr ospective payment system (IPPS). We set forth the services that are excluded from paym ent under the OPPS in 42 CFR 419.22 of the regulations. Under §419.20(b) of the regulations, we speci fy the types of hospitals and entities that are excluded from payment under th e OPPS. These excluded entities include: Maryland hospitals, but only for services that are paid under a cost containment waiver in accordance with section 1814(b)(3) of the Act; cr itical access hospitals (CAHs); hospitals located outside of the 50 States, the District of Columbia, and Puerto Rico; and Indian Health Service (IHS) hospitals. C. Prior Rulemaking On April 7, 2000, we published in the Federal Register a final rule with comment period (65 FR 18434) to implement a prospective payment system for hospital outpatient services. The hospital OPPS was fi rst implemented for services furnished on or after August 1, 2000. Secti on 1833(t)(9) of the Act requires the Secretary to review certain components of the OPPS, not less ofte n than annually, and to revise the groups, relative payment weights, and other adjust ments that take into account changes in medical practices, changes in technologies, and the addition of new services, new cost data, and other relevant information and factors.CMS-1525-P 43 Since initially implementing the OPPS, we have published final rules in the Federal Register annually to implement statutory re quirements and changes arising from our continuing experience with this system. These rules can be viewed on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/ . The CY 2011 OPPS/ASC final rule with comment period a ppears in the November 24, 2010 Federal Register (75 FR 71800). In that final rule with co mment period, we revised the OPPS to update the payment weights and conversion factor for services payable under the CY 2011 OPPS on the basis of claims data from Janu ary 1, 2009, through December 31, 2009, and to implement certain provisions of the Affordable Care Act. In addition, we responded to public comments received on the provisions of the CY 2010 final rule with comment period (74 FR 60316) pertaining to the APC a ssignment of HCPCS codes identified in Addendum B to that rule with the new in terim (“NI”) comment indicator, and public comments received on the August 3, 2010 O PPS/ASC proposed rule for CY 2011 (75 FR 46170).CMS-1525-P 44 D. Advisory Panel on Ambulatory Payment Classification (APC) Groups 1. Authority of the Advisory Panel on Ambulatory Payment Classification (APC) Groups (the APC Panel) Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of Pub. L. 106-113, and redesignated by section 202(a)(2) of Pub. L. 106-113, requires that we consult with an outside panel of experts to review the clinical integrity of the payment groups and their weights under the OPPS. The Act further specifies that the panel will act in an advisory capacity. The APC Pane l, discussed under section I.D.2. of this proposed rule, fulfills these requirements. The APC Panel is not restricted to using data compiled by CMS, and it may use data collect ed or developed by or ganizations outside the Department in conducting its review. 2. Establishment of the APC Panel On November 21, 2000, the Secretary signed the initial charter establishing the APC Panel. This expert panel, which may be composed of up to 15 representatives of providers (currently employed full-time, not as consultants, in their respective areas of expertise) subject to the OPPS, reviews clinical data and advises CMS about the clinical integrity of the APC groups and their payment weights. The APC Panel is technical in nature, and it is governed by the provisi ons of the Federal Advisory Committee Act (FACA). Since its initial ch artering, the Secretary has rene wed the APC Panel’s charter five times: on November 1, 2002; on November 1, 2004; on November 21, 2006; on November 2, 2008 and November 12, 2010. The current charter spec ifies, among other requirements, that: the APC Panel continues to be technical in nature ; is governed by theCMS-1525-P 45 provisions of the FACA; may convene up to three meetings per year; has a Designated Federal Official (DFO); and is chaired by a Federal Official designated by the Secretary. The current APC Panel membership a nd other information pertaining to the APC Panel, including its charter, Federal Register notices, membership, meeting dates, agenda topics, and meeting reports, can be viewed on the CMS Web site at: http://www.cms.hhs.gov/FACA/05_AdvisoryPa nelonAmbulatoryPaymentClassification Groups.asp#TopOfPage

. 3. APC Panel Meetings a nd Organizational Structure The APC Panel first met on February 27 through March 1, 2001. Since the initial meeting, the APC Panel has held multiple mee tings, with the last meeting taking place on February 28-March 1, 2011. Prior to each meeting, we publish a notice in the Federal Register to announce the meeting and, when nece ssary, to solicit nominations for APC Panel membership and to announce new members. The APC Panel has establishe d an operational structure th at, in part, includes the use of three subcommittees to facilitate it s required APC review process. The three current subcommittees are the Data Subc ommittee, the Visits and Observation Subcommittee, and the Subcommittee for APC Groups and Status Indicator (SI) Assignments (previously known as the Packaging Subcommittee). The Data Subcommittee is responsible for studying the data issues confronting the APC Panel and for recommending options for resolving them. The Visits and Observation Subcommittee reviews and makes recommendations to the APC Panel on all technical issues pertaining to observation services and hospi tal outpatient visits paidCMS-1525-P 46 under the OPPS (for example, APC configur ations and APC payment weights). The Subcommittee for APC Groups and SI Assignmen ts advises the Panel on the following issues: the appropriate SIs to be assigned to HCPCS code s, including but not limited to whether a HCPCS code or a category of code s should be packaged or separately paid; and the appropriate APCs to be assigned to HCPCS codes regarding services for which separate payment is made. Each of these subcommittees was established by a majority vote from the full APC Panel during a scheduled APC Panel meeting, and the APC Panel recommended that the subcommittees con tinue at the February/March 2011 APC Panel meeting. We accept those recommendations of the APC Panel. All subcommittee recommendations are discussed and voted upon by the full APC Panel. Discussions of the other recommenda tions made by the APC Panel at the February/March 2011 APC Panel meeting are in cluded in the sections of this proposed rule that are specific to each recommendati on. For discussions of earlier APC Panel meetings and recommendations, we refer readers to previously published hospital OPPS/ASC proposed and final rule s, the CMS Web site mentione d earlier in this section, and the FACA database at: http://fido.gov/facad atabase/public.asp

. E. Summary of the Major Contents of this CY 2012 OPPS/ASC Proposed Rule In this proposed rule, we set forth pr oposed changes to the Medicare hospital OPPS for CY 2012 to implement statutory requ irements and changes arising from our continuing experience with the system. In addition, we set forth proposed changes to the revised Medicare ASC payment system for CY 2012, including proposed updatedCMS-1525-P 47 payment weights, covered surgical procedures , and covered ancillary items and services based on the proposed OPPS update. In additi on, we are proposing to make changes to the rules governing limitations on certain phys ician referrals to hospitals in which physicians have an ownership or investment interest, provid er agreement regulations on patient notification requirements, and the ru les governing the Hospital Inpatient ValueBased Purchasing (VBP) Program. The following is a summary of the major changes that we are proposing to make for CY 2012: 1. Proposed Updates Affecting OPPS Payments In section II. of this proposed rule, we set forth—

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

● The proposed changes to packaged services.

● The proposed update to the conversion factor used to determine payment rates under the OPPS. In this section, we are pr oposing changes in the amounts and factors for calculating the full annual update in crease to the conversion factor.

● The proposed retention of our current policy to use the IPPS wage indices to adjust, for geographic wage differences, the portion of the OPPS pa yment rate and the copayment standardized amount attr ibutable to labor-related cost.

● The proposed update of st atewide average default CCRs.CMS-1525-P 48

● The proposed application of hold harmless transitional outpatient payments (TOPs) for certain small rural hospitals, ex tended by section 3121 of the Affordable Care

Act.

● The proposed payment adjustment for rural SCHs.

● The proposed calculation of the hospital outpatient outlier payment.

● The calculation of the proposed national unadjusted Medicare OPPS payment.

● The proposed beneficiary copayments for OPPS services. 2. Proposed OPPS Ambulatory Paymen t Classification (APC) Group Policies In section III. of this proposed rule, we discuss--

● The proposed additions of new HCPCS codes to APCs.

● The proposed establishment of a number of new APCs.

● Our analyses of Medicare claims data and certain recommendations of the APC Panel.

● The application of the 2 times rule and proposed exceptions to it.

● The proposed changes to specific APCs.

● The proposed movement of procedures from New Technology APCs to clinical

APCs. 3. Proposed OPPS Payment for Devices In section IV. of this proposed rule , we discuss the proposed pass-through payment for specific categories of devices and the proposed adjustment for devices furnished at no cost or with partial or full credit.CMS-1525-P 49 4. Proposed OPPS Payment Changes for Dr ugs, Biologicals, and Radiopharmaceuticals In section V. of this proposed ru le, we discuss the proposed CY 2012 OPPS payment for drugs, biologicals, and ra diopharmaceuticals, including the proposed payment for drugs, biologicals, and radi opharmaceuticals with and without pass-through

status. 5. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices In section VI. of this proposed rule, we discuss the estimate of CY 2012 OPPS transitional pass-through spending fo r drugs, biologicals, and devices. 6. Proposed OPPS Payment for Hospital Outpatient Visits In section VII. of this proposed rule, we set forth our proposed policies for the payment of clinic and emergency department visits and critical care services based on claims data. 7. Proposed Payment for Part ial Hospitalization Services In section VIII. of this proposed rule, we set forth our proposed payment for partial hospitalization services, including the proposed separate threshold for outlier payments for CMHCs. 8. Proposed Procedures That Would Be Paid Only as Inpatient Procedures In section IX. of this proposed rule, we discuss the procedures that we are proposing to remove from the inpatient listand assign to APCs for payment under the

OPPS.CMS-1525-P 50 9. Proposed Policies on Supervision Standards fo r Outpatient Services in Hospitals and

CAHs In section X. of this proposed rule, we discuss proposed policy changes relating to the supervision of outpati ent services furnished in hospitals and CAHs. 10. Proposed OPPS Payment Status and Comment Indicators In section XI. of this proposed rule , we discuss our proposed changes to the definitions of status indicators assigned to APCs and present our proposed comment indicators. 11. OPPS Policy and Payment Recommendations In section XII. of this proposed rule, we address recommendations made by the Medicare Payment Advisory Commission (MedPAC) in its March 2011 report to Congress, by the Office of Inspector Genera l (OIG), and by the APC Panel regarding the OPPS for CY 2012. 12. Proposed Updates to the Ambulatory Su rgical Center (ASC) Payment System In section XIII. of this proposed rule , we discuss the proposed updates of the revised ASC payment system and payment rates for CY 2012. 13. Reporting Quality Data for Annual Payment Rate Updates In section XIV. of this proposed rule , we discuss the proposed measures for reporting hospital outpatient quali ty data for the OPD fee sc hedule increase factor for CY 2013 and subsequent calendar years; set fo rth the requirements for data collection and submission; and discuss the reduction to the OPPS OPD fee sche dule increase factor for hospitals that fail to meet the Hospital OQR Program requirements. We also discussCMS-1525-P 51 proposed measures for reporting ASC quality da ta for the annual payment update factor for CYs 2014, 2015, and 2016; and set forth th e requirements for data collection and submission for the annual payment update. 14. Proposed Changes to EHR Incentive Prog ram for Eligible Hospitals and CAHs Regarding Electronic Submission of Clinical Quality Measures (CQMs) In section XIV.J. of this proposed ru le, we are proposing to allow eligible hospitals and CAHs participating in the Me dicare EHR Incentive Program to meet the CQM reporting requirement of the EHR Incen tive Program for payment year 2012 by participating in the 2012 Medicare EHR In centive Program Electronic Reporting Pilot. 15. Proposed Changes to Provisions Relating to Physician Self-Referral Prohibition and Provider Agreement Regulations on Pa tient Notification Requirements In section XV. of this proposed rule, we present our proposed exception process for expansion of facility capacity under the whole hospital and rural provider exceptions to the physician self -referral law, and proposed cha nges to the provider agreement regulations on patient no tification requirements. 16. Additional Proposed Changes Relating to the Hospital Inpatient VBP Program In section XVI. of this proposed rule, we present our proposed requirements for the FY 2014 Hospital Inpatient VBP Program.CMS-1525-P 52 17. Economic and Federalism Analyses In sections XX. and XXI. of this propos ed rule, we set forth an analysis of the regulatory and federalism impacts that the proposed changes would have on affected entities and beneficiaries. F. Public Comments Received on the CY 2011 OPPS/ASC Final Ru le with Comment Period We received approximately 43 timely pieces of correspondence on the CY 2011 OPPS/ASC final rule with commen t period that appeared in the Federal Register on November 24, 2010 (75 FR 71800), some of which contained multiple comments on the interim APC assignments and/or status indi cators of HCPCS codes identified with comment indicator “NI” in Addendum B to that final rule with comment period. We will present summaries of those public comments on topics open to comment in the CY 2012 OPPS/ASC final rule with co mment period and our responses to them under appropriate headings. II. Proposed Updates Affecting OPPS Payments A. Proposed Recalibration of APC Relative Weights 1. Database Construction a. Database Source and Methodology Section 1833(t)(9)(A) of the Act requires that the Secretary review and revise the relative payment weights for APCs at least annually. In the April 7, 2000 OPPS final rule with comment period (65 FR 18482), we expl ained in detail how we calculated the relative payment weights that were imple mented on August 1, 2000 for each APC group.CMS-1525-P 53 For the CY 2012 OPPS, we are proposing to recalibrate the APC relative payment weights for services furnished on or afte r January 1, 2012, and before January 1, 2013 (CY 2012), using the same basic methodol ogy that we described in the CY 2011 OPPS/ASC final rule with comm ent period. That is, we are proposing to recalibrate the relative payment weights for each APC based on claims and cost report data for hospital outpatient department (HOPD) services, using the most recent available data to construct a database for calculating APC group weight s. For the purpose of recalibrating the proposed APC relative payment weight s for CY 2012, we used approximately 138 million final action claims (claims for whic h all disputes and adjustments have been resolved and payment has been made) for hospital outpatient department services furnished on or after January 1, 2010, and befo re January 1, 2011. (F or exact counts of claims used, we refer readers to the claims accounting narrative under supporting documentation for this proposed rule on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/ .) Of the 138 million final action claims for services provided in hospital outpatient settings used to calculate the proposed CY 2012 OPPS payment rate s for this proposed rule, approximately 105 million claims were th e type of bill potenti ally appropriate for use in setting rates for OPPS services (but did not necessarily cont ain services payable under the OPPS). Of the 105 million claims, approximately 3 million claims were not for services paid under the OPPS or were excluded as not appropriate for use (for example, erroneous cost-to-charge rati os (CCRs) or no HCPCS codes reported on the claim). From the remaining approximately 102 million cl aims, we created approximately 100 millionCMS-1525-P 54 single records, of which approximately 67 million were “pseudo” single or “single session” claims (created from approximately 23 million multiple procedure claims using the process we discuss later in this s ection). Approximately 888,000 claims were trimmed out on cost or units in excess of +/ - 3 standard deviations from the geometric mean, yielding approximately 99 million single bi lls for median setting. As described in section II.A.2. of this proposed rule, our data development process is designed with the goal of using appropriate cost information in setting the APC relative weights. The bypass process is described in section II.A .1.b. of this proposed rule. This section discusses how we develop “pseudo” single pro cedure claims (as defined below), with the intention of using more appropriate data fromthe available claims. In some cases, the bypass process allows us to use some portion of the submitted claim for cost estimation purposes, while the remaining information on the claim continues to be unusable. Consistent with the goal of using appropriate informati on in our data development process, we are proposing to only use claims (or portions of each claim) that are appropriate for ratesetting purposes. Ultim ately, we were able to use for CY 2012 ratesetting some portion of approximately 94 percent of the CY 2010 claims containing services payable under the OPPS. The proposed APC relative weights and payments for CY 2012 in Addenda A and B to this proposed rule (w hich are referenced in secti on XVII. of this proposed rule and available via the Internet on the CMS Web site) were calculated using claims from CY 2010 that were processed before January 1, 2011, and continue to be based on the median hospital costs for services in th e APC groups. Under the proposed methodology,CMS-1525-P 55 we select claims for services paid under the OPPS and match these claims to the most recent cost report filed by the individual hospi tals represented in our claims data. We continue to believe that it is appropriate to use the most current full calendar year claims data and the most recently submitted cost reports to calculate the median costs underpinning the APC relative payment weights and the CY 2012 payment rates. b. Proposed Use of Single and Multiple Procedure Claims For CY 2012, in general, we are propos ing to continue to use single procedure claims to set the medians on which the APC relative payment weights would be based, with some exceptions as discussed below in this section. We generally use single procedure claims to set the median costs for APCs because we believe that the OPPS relative weights on which payment rates are ba sed should be derived from the costs of furnishing one unit of one procedure and because, in many circumstances, we are unable to ensure that packaged costs can be appr opriately allocated across multiple procedures performed on the same date of service. It is generally desirable to use the da ta from as many claims as possible to recalibrate the APC relative payment wei ghts, including those claims for multiple procedures. As we have for several years, we are proposing to continue to use date of service stratification and a list of codes to be bypassed to convert multiple procedure claims to “pseudo” single procedure claims . Through bypassing specified codes that we believe do not have significant packaged cost s, we are able to use more data from multiple procedure claims. In many cases, th is enabled us to create multiple “pseudo” single procedure claims from claims that were submitted as multiple procedure claimsCMS-1525-P 56 spanning multiple dates of service, or claims that contained numerous separately paid procedures reported on the same date on one claim. We refer to these newly created single procedure claims as “pse udo” single procedure claims. The history of our use of a bypass list to generate “pseudo” single pr ocedure claims is well documented, most recently in the CY 2011 O PPS/ASC final rule with comment period (75 FR 71811 through 71822). In addition, for CY 2008, we increased packaging and created the first composite APCs. We have continued our packaging policies and the creation of composite APCs for CY 2009, 2010, and 2011, and we are proposing to continue them for CY 2012. Increased packaging and creati on of composite APCs also increased the number of bills that we were able to use for median calculation by enabling us to use claims that contained multiple major procedures that previously would not have been usable. Further, for CY 2009, we expanded th e composite APC model to one additional clinical area, multiple imaging servic es (73 FR 68559 through 68569), which also increased the number of bills we were able to use to calculate APC median costs. We have continued the composite APCs for multiple imaging services for CYs 2010 and 2011, and we are proposing to continue to creat e them for CY 2012. We refer readers to section II.A.2.e. of this proposed rule for di scussion of the use of claims to establish median costs for composite APCs. We are proposing to continue to apply thes e processes to enable us to use as much claims data as possible for ratesetting fo r the CY 2012 OPPS. This methodology enabled us to create, for this proposed rule, appr oximately 67 million “pseudo” single procedure claims, including multiple imaging composite “s ingle session” bills (we refer readers toCMS-1525-P 57 section II.A.2.e.(5) of the proposed rule for further discussion), to add to the approximately 33 million “natural” single procedure claims. For this proposed rule, “pseudo” single procedure a nd “single session” pro cedure bills represented approximately 67 percent of all single procedur e bills used to calculate median costs. For CY 2012, we are proposing to bypa ss 460 HCPCS codes for CY 2012 that are identified in Addendum N to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site). Since the inception of the bypass list, which is the list of codes to be bypassed to convert multiple procedure claims to “pseudo” single procedure claims, we have calculated the percent of “natural” single bills that contained pack aging for each HCPCS code and the amount of packaging on each “natural” single bill for each code. Each year, we generally retain the codes on the previous year’s bypass list a nd use the updated year’s data (for CY 2012, data available for the February 28-Ma rch 1, 2011 APC Panel meeting from CY 2010 claims processed through September 30, 2010, and CY 2009 claims data processed through June 30, 2010, used to model the payment rates for CY 2011) to determine whether it would be appropriate to propose to add additional codes to the previous year’s bypass list. For CY 2012, we are proposing to continue to bypa ss all of the HCPCS codes on the CY 2011 OPPS bypass list because th ey continue to meet the established empirical criteria for the bypass list. We updated HCPCS codes on the CY 2011 bypass list that were mapped to new HCPCS codes for CY 2012 ratesetting by evaluating data for the replacement codes under the empirical criteria described below and also removing the HCPCS codes that we are proposing to be deleted for CY 2012, which are listed inCMS-1525-P 58 Table 1 of this proposed rule. We also ar e proposing to remove HCPCS codes that are not separately paid under the OPPS because th e purpose of the bypass list is to obtain more data for those codes relevant to rate setting. None of thes e deleted codes were “overlap bypass codes” (those HCPCS codes that are both on the bypass list and are members of the multiple imaging composite APCs ). We also are proposing to add to the bypass list for CY 2012 all HCPCS codes not on the CY 2011 bypass list that, using either the CY 2011 final rule data (CY 2009 claims) or the February 28-March 1, 2011 APC Panel data (first 9 months of CY 2010 claims), met the empi rical criteria for the bypass list that are summarized below. The entire list proposed for CY 2012 (including the codes that remain on the bypass list from prior years) is open to public comment. Because we must make some assumptions about packaging in the multiple procedure claims in order to assess a HCPCS code for addition to the bypass list, we assumed that the representation of packaging on “natural” si ngle procedure claims for any given code is comparable to packaging for that code inthe multiple procedure claims. The proposed criteria for the bypass list are:

● There are 100 or more “n atural” single procedure clai ms for the code. This number of single procedure claims ensure s that observed outcomes are sufficiently representative of packaging that might occur in the multiple claims.

● Five percent or fewer of the “natur al” single procedure claims for the code have packaged costs on that single procedure cl aim for the code. This criterion results in limiting the amount of packaging being redistribu ted to the separately payable proceduresCMS-1525-P 59 remaining on the claim after the bypass code is removed and ensures that the costs associated with the bypass code repres ent the cost of th e bypassed service.

● The median cost of packaging obser ved in the “natural” single procedure claims is equal to or less than $55. This criterion also limits the amount of error in redistributed costs. During the assessment of claims against the bypass criteria, we do not know the dollar value of the packaged cost that should be appropriately attributed to the other procedures on the claim. Therefore, ensuring that redistributed costs associated with a bypass code are small in amount and vol ume protects the validity of cost estimates for low cost services billed with the bypassed service. In response to comments to the CY 2010 OPPS/ASC proposed rule requesting that the packaged cost threshold be up dated, we considered whether it would be appropriate to update the $50 packaged cost threshold for inflation when examining potential bypass list additions. As discu ssed in the CY 2010 OPPS/ ASC final rule with comment period (74 FR 60328), the real value of this packaged cost threshold criterion has declined due to inflation, making the pack aged cost threshold more restrictive over time when considering additions to the bypass li st. Therefore, adjusting the threshold by the market basket would prevent continuing de cline in the threshold’s real value. For CY 2011, based on CY 2009 claims data, we propos ed to apply the final market basket of 3.6 percent published in th e CY 2009 OPPS/ASC final rule with comment period (73 FR 26584) to the $50 packaged cost th reshold used in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60325). This calculation led us to a proposed packaged cost threshold for bypass list additions fo r CY 2011 of $50 ($51.80 rounded to $50). WeCMS-1525-P 60 stated that we believe that applying the market basket from the year of claims data to the packaged cost threshold, rounded to the n earest $5 increment, would appropriately account for the effects of inflation when cons idering additions to the bypass list because the market basket increase percentage reflects the extent to which the price of inputs for hospital services has increased co mpared to the price of inputs for hospital services in the prior year. We are proposing for CY 2012, ba sed on the same rationale described for the CY 2011 OPPS/ASC final rule with comment period (75 CFR 71812), to continue to update the packaged cost threshold by the ma rket basket. By a pplying the final CY 2011 market basket increase of 1.85 percent to the prior non-rounded dollar threshold of $51.80 (75 FR 71812), we determined that th e threshold increases for CY 2012 to $55 ($52.76 rounded to $55, the nearest $5 increment) . Therefore, we are proposing to set the median packaged cost threshold on the CY 2010 claims at $55 for a code to be considered for addition to the CY 2012 OPPS bypass list.

● The code is not a code for an unlisted service. In addition, we are proposing to con tinue to include, on the bypass list, HCPCS codes that CMS medical adviso rs believe have minimal associated packaging based on their clinical assessment of the complete CY 2012 OPPS proposal. Some of these codes were identified by CMS medical advisors a nd some were identified in prior years by commenters with specialized knowledge of the packaging associated with specific services. We also are proposing to continue to include on the bypa ss list certain HCPCS codes in order to purposefully direct the as signment of packaged costs to a companion code where services always appear togeth er and where there w ould otherwise be fewCMS-1525-P 61 single procedure claims available for ratese tting. For example, we have previously discussed our reasoning for adding HC PCS code G0390 (Trauma response team associated with hospital critic al care service) and the CP T codes for additional hours of drug administration to the bypass list (73 FR 68513 and 71 FR 68117 through 68118). As a result of the multiple imaging composite APCs that we established in CY 2009, the program logic for creating “pse udo” single procedure claims from bypassed codes that are also members of multiple imaging composite APCs changed. When creating the set of “pse udo” single procedure claims, clai ms that contain “overlap bypass codes” (those HCPCS codes th at are both on the bypass list and are members of the multiple imaging composite APCs) were identif ied first. These HCPCS codes were then processed to create multiple imaging composite “single session” bills, that is, claims containing HCPCS codes from only one imagi ng family, thus suppressing the initial use of these codes as bypass codes. However, th ese “overlap bypass codes” were retained on the bypass list because, at the end of the “pse udo” single processing logic, we reassessed the claims without suppression of the “ overlap bypass codes” under our longstanding “pseudo” single process to determine whethe r we could convert additional claims to “pseudo” single procedure claims. (We refer r eaders to section II.A.2.b. of this proposed rule for further discussion of the treatment of “overlap bypass codes.”) This process also created multiple imaging composite “single session” bills that could be used for calculating composite APC median costs. “O verlap bypass codes” that are members of the proposed multiple imaging composite AP Cs are identified by asterisks (*) inCMS-1525-P 62 Addendum N to this proposed rule (which is re ferenced in section XV II. of this proposed rule and available via the Inte rnet on the CMS Web site). Addendum N to this proposed rule incl udes the proposed list of bypass codes for CY 2012. The list of bypass codes contains codes that were reported on claims for services in CY 2010 and, therefor e, includes codes that were in effect in 2010 and used for billing but were deleted for CY 2011. We retained these deleted bypass codes on the proposed CY 2012 bypass list because these co des existed in CY 2010 and were covered OPD services in that period, and CY 2010 clai ms data are used to calculate 2012 payment rates. Keeping these deleted bypass codes on the bypass list potentially allowed us to create more “pseudo” single procedure claims for ratesetting purposes. “Overlap bypass codes” that were members of the propos ed multiple imaging composite APCs are identified by asterisks (*) in the third co lumn of Addendum N to this proposed rule. HCPCS codes that we are proposing to add fo r CY 2012 are identified by asterisks (*) in the fourth column of Addendum N. Table 1 below contains the list of codes that we are proposing to remove from the CY 2012 bypass list because these codes were either deleted from the HCPCS before CY 2010 (and therefore were not covered OPD services in CY2010) or were not separately payable codes under the proposed CY 2012 OPPS because these codes are not used for ratesetting (and ther efore would not need to be bypassed). None of these proposed deleted codes were “overlap bypass” codes.CMS-1525-P 63

TABLE 1.—HCPCS CODES PROPOSED TO BE REMOVED FROM THE CY 2012 BYPASS LIST

HCPCS

Code HCPCS Short Descriptor 29220 Strapping of low back 78350 Bone mineral, single photon 90816 Psytx, hosp, 20-30 min 90818 Psytx, hosp, 45-50 min 90826 Intac psytx, hosp, 45-50 min 99241 Office consultation 99242 Office consultation 99243 Office consultation 99244 Office consultation 99245 Office consultation 0144T CT heart wo dye; qual calc

c. Proposed Calculation and Use of Cost-to-Charge Ratios (CCRs) For CY 2012, we are proposing to continue to use the hospital-specific overall ancillary and departmental CCRs to convert charges to estimated costs through application of a revenue code-to-cost cente r crosswalk. To calculate the APC median costs on which the proposed CY 2012 APC payment rates are based, we calculated hospital-specific overall anci llary CCRs and hospital-spec ific departmental CCRs for each hospital for which we had CY 2010 claims data from the most recent available hospital cost reports, in most cases, cost reports beginning in CY 2009. For the CY 2012 OPPS proposed rates, we used the set of cl aims processed during CY 2010. We applied the hospital-specific CCR to the hospital’s char ges at the most detailed level possible, based on a revenue code-to-cost center crosswal k that contains a hierarchy of CCRs used to estimate costs from charges for each reve nue code. That crosswalk is available forCMS-1525-P 64 review and continuous comment on the CMS Web site at: http://www.cms.gov/HospitalOutpati entPPS/03_crosswalk.asp#TopOfPage

. To ensure the completeness of the reve nue code-to-cost center crosswalk, we reviewed changes to the list of revenue codes for CY 2010 (the year of the claims data we used to calculate the pr oposed CY 2012 OPPS payment rates). For CY 2010, the National Uniform Billing Committee added revenue codes 860 (Magnetoencephalography (MEG); general classification) and 861 (Magnetoencephalography (MEG)). For purposes of applying a CCR to charges reported under revenue codes 860 and 861, we are prop osing to use nonstandard Medicare cost report cost center 3280 (Electrocardiogram (EKG) and Electroencephalography (EEG)) as the primary cost center and to use sta ndard cost center 5400 (Electroencephalography (EEG)) as the secondary cost center. We believe that MEG, which evaluates brain activity, is similar to EEG, which also evalua tes brain activity, and that the few hospitals that furnish MEG are likely to furnish it in th e same department of the hospital in which they furnish EEG services. Therefore, we believe that the CCRs that we apply to the EEG revenue codes are more likely to result in a more accurate estimated cost for MEG than would the application of the hospital- specific overall ancillary CCR. For hospitals that report charges under reve nue code 860 or 861 but do not report costs on their cost report under cost center 3280 or 5400, we are proposing to apply the hospital-specific overall CCR to the charges reported under revenue code 860 or 861 for purposes of estimating the cost of these services. We not e that revenue codes with effective dates inCMS-1525-P 65 CY 2011 are not relevant to this process because these new revenue codes were not applicable to claims for se rvices furnished during CY 2010. In accordance with our longstanding policy, we calculated CCRs for the standard and nonstandard cost centers accepted by the elec tronic cost report database. In general, the most detailed level at which we calculated CCRs was the hospital-specific departmental level. For a discussion of the hospital-specific overall ancillary CCR calculation, we refer readers to the CY 2007 OP PS/ASC final rule with comment period (71 FR 67983 through 67985). One longstanding exception to this general methodology for calculation of CCRs used for converti ng charges to costs on each claim is the calculation of median blood costs, as discu ssed in section II.A.2.d.( 2) of this proposed rule and which has been our sta ndard policy since the CY 2005 OPPS. For the CCR calculation process, we used th e same general approach that we used in developing the final APC rates for CY 2007 and thereafter, using the revised CCR calculation that excluded the costs of parame dical education programs and weighted the outpatient charges by the volume of outpatient services furnished by the hospital. We refer readers to the CY 2007 OPPS/ASC fina l rule with comment period for more information (71 FR 67983 through 67985). We first limited the population of cost reports to only those for hospitals that filed outpatient claims in CY 2010 before determining whether the CCRs fo r such hospitals were valid. We then calculated the CCRs for each co st center and the overall ancillary CCR for each hospital for which we had claims data. We did this using hospital-specific data from the Hospital Cost Report Information Sy stem (HCRIS). We used the most recentCMS-1525-P 66 available cost report data, in most cases , cost reports with cost reporting periods beginning in CY 2009. For this proposed rule , we are using the most recently submitted cost reports to calculate the CCRs to be used to calculate median costs for the proposed CY 2012 OPPS payment rates. If the most r ecent available cost report was submitted but not settled, we looked at the last settled cost report to determine the ratio of submitted to settled cost using the overall ancillary CCR, and we then adjusted the most recent available submitted, but not settled, cost report using that ratio. We then calculated both an overall ancillary CCR and cost center-speci fic CCRs for each hospital. We used the overall ancillary CCR referenced in this section II.A.1.c. of this proposed rule for all purposes that require use of an overall ancilla ry CCR. We are proposing to continue this longstanding methodology fo r the calculation of median costs for CY 2012. Since the implementation of the OPPS, some commenters have raised concerns about potential bias in the OPPS cost-basedweights due to “charge compression,” which is the practice of applying a lower charge markup to higher cost services and a higher charge markup to lower cost services. As a result, the cost-based weights may reflect some aggregation bias, undervaluing high-co st items and overvaluing low-cost items when an estimate of average markup, embodied in a single CCR, is applied to items of widely varying costs in the same cost center. To explore this issue, in August 2006, we awarded a contract to RTI International (RTI) to study the effects of charge co mpression in calculating the IPPS cost-based relative weights, particularly with regard to the impact on inpatient diagnosis-related group (DRG) payments, and to consider methods to better capture the variation in costCMS-1525-P 67 and charges for individual se rvices when calculating costs for the IPPS relative weights across services in the same cost center. RTI issued a report in March 2007 with its findings on charge compression, which is available on the CMS Web site at: http://www.cms.gov/reports/downloads/Dalton.pdf . Although this report was focused largely on charge compression in the context of the IPPS cost-based relative weights, because several of the findings were relevant to the OPPS, we discusse d that report in the CY 2008 OPPS/ASC proposed rule (72 FR 42641 through 42643) and discussed those findings again in the CY 2008 OPPS/ASC fina l rule with comment period (72 FR 66599 through 66602). In August 2007, we contracted with RTI to evaluate the cost estimation process for the OPPS relative weights because its 2007 report had concentrated on IPPS DRG cost-based relative weights. The results of RTI’s analyses had implications for both the OPPS APC cost-based relati ve weights and the IPPS MS -DRG (Medicare severity) cost-based relative weights. The RTI fina l report can be found on RTI’s Web site at: http://www.rti.org/reports/cms/HHSM-500-2005- 0029I/PDF/Refining_Cost_to_C harge_Ratios_200807_Final.pdf . For a complete discussion of the RTI recommendations, public comments, and our responses, we refer readers to the CY 2009 OPPS/ ASC final rule with comm ent period (73 FR 68519 through 68527). We addressed the RTI finding that there was aggregation bias in both the IPPS and the OPPS cost estimation of expensive and inexpensive medical supplies in the FY 2009 IPPS final rule. Specifically, we fi nalized our proposal for both the OPPS andCMS-1525-P 68 IPPS to create one cost center for “Medical Supplies Charged to Patients” and one cost center for “Implantable Devices Charged to Patients,” essentially splitting the then current CCR for “Medical Supplies and Equipm ent” into one CCR for low-cost medical supplies and another CCR for high-cost implantable devices in order to mitigate some of the effects of charge compression. Accord ingly, in Transmittal 20 of the Provider Reimbursement Manual, Part II (PRM-II ), Chapter 36, Form CMS-2552-96, which was issued in July 2009, we created a new subs cripted Line 55.01 on Worksheet A for the “Implantable Devices Charged to Patients” cost center. This new subscripted cost center, placed under the standard line for “Medical Su pplies Charged to Patients,” is available for use for cost reporting periods beginning on or after May 1, 2009. A subscripted cost center is the addition of a se parate new cost center line and description which bears a logical relationship to the sta ndard cost center line and is located immediately following a standard cost center line. Subscripting a cost center line adds flexibility and cost center expansion capability to the cost report. Fo r example, Line 55 of Worksheet A on Form CMS 2552-96 (the Medicare hospital cost repor t) is “Medical Supplies Charged to Patients.” The additional cost center, which isolates the costs of “Implantable Medical Supplies Charged to Patients”, was creat ed by adding subscripted Line 55.01 to Worksheet A and is defined as capturing the costs and charges billed with the following UB-04 revenue codes: 0275 (Pacemaker); 0276 (In traocular lens); 0278 (other implants); and 0624 (FDA investigations devices) (73 FR 48458). In preparation for the FY 2012 IPPS proposed rule and this CY 2012 OPPS proposed rule, we have assessed the availabil ity of data in the “Implantable DevicesCMS-1525-P 69 Charged to Patients” cost cente r. In order to develop a r obust analysis regarding the use of cost data from the “Implantable Devices Charged to Patients” co st center, we believe that it is necessary to have a critical mass of cost reports filed with data in this cost center. The cost center for “Implantable De vices Charged to Patients” is effective for cost reporting periods beginning on or after May 1, 2009. We have checked the availability of CY 2009 cost reports in the December 31, 2010 quarter ending update of HCRIS, which is the latest upl oad of CY 2009 cost report data that we could use for this proposed rule. We have determined that th ere are only 437 hospitals that have completed the “Implantable Devices Charged to Patient s” cost center (out of approximately 3,500 IPPS hospitals). We do not believe this is a sufficient amount of data from which to generate a meaningful analysis . Therefore, we are not pr oposing to use data from the “Implantable Devices Charged to Patients” cost center to crea te a distinct CCR for Implantable Devices Charged to Patients for use in calculating the OPPS relative weights for CY 2012. We will reassess the availabil ity of data for the “Implantable Devices Charged to Patients” cost center for the CY 2013 OPPS rulemaking cycle. Because there is approximately a 3-year lag in the availability of cost report data for IPPS and OPPS ratesetting purposes in a given calendar year, we believe we may be able to use data from the revised Medicare hospita l cost report form to estimate costs from charges for implantable devices for the CY 2013 OPPS relati ve weights. For a complete discussion of the rationale for the creation of the new co st center for “Implantable Devices Charged to Patients,” public comments, and our res ponses, we refer reader s to the FY 2009 IPPS final rule (73 FR 48458 through 45467).CMS-1525-P 70 In the CY 2009 OPPS/ASC final rule with comment period, we indicated that we would be making some other OPPS-specific changes in response to the RTI report recommendations. Specifically, these cha nges included modifications to the cost reporting software and the additi on of three new nonstandard cost centers. With regard to modifying the cost reporting preparation software in order to offer additional descriptions for nonstandard cost centers to improve the accuracy of reporting for nonstandard cost centers, we indicated that the change would be made for th e next release of the cost report software. These changes have been ma de to the cost reporting software with the implementation of CMS Transmittal 21, under Chapter 36 of the PRM-II, available on the CMS Web site at: http://www.cms.hhs.gov/Manuals/PBM/ , which is effective for cost reporting periods ending on or after October 1, 2009. We also indicated that we intended to add new nonstandard cost centers for “Cardiac Rehabilitati on,” “Hyperbaric Oxygen Therapy,” and “Lithotripsy.” We note that, in January 2010, CMS issued Transmittal 21 which updated the PRM-II, Chapter 36, Form CMS-2552-96. One of the updates in this transmittal established nonstandard cost centers for “Cardiac Rehabilitation,” “Hyperb aric Oxygen Therapy,” and “Lithotripsy” for use on Worksheet A. These three new nonst andard cost centers became available for cost reporting periods ending on or after October 1, 2009, and are included in the revenue code to cost center crosswal k we are proposing to use for calculating payment rates for CY 2012 OPPS. Specifically, the nonstanda rd cost centers are: 3120 (Cardiac Catheterization Laboratory); 3230 (CAT S can); 3430 (Magnetic Resonance Imaging (MRI)). The revenue code to cost center crosswalk that we are proposing to use forCMS-1525-P 71 purposes of estimating the median costs of items and services for the CY 2012 OPPS is available for review and con tinuous comment (outside of co mment on this proposed rule) on the CMS Web site at: http://www.cms.gov/HospitalOutpati entPPS/03_crosswalk.asp#TopOfPage Furthermore, in the FY 2011 IPPS/LTC H PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create new standard cost centers for “Computed Tomography (CT),” “Magnetic Resona nce Imaging (MRI),” and “Cardiac Catheterization,” and to require that hospita ls report the costs and charges for these services under new cost cente rs on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS/ LTCH PPS and CY 2009 OPPS/ASC proposed and final rules, RTI found that the costs a nd charges of CT scans, MRI, and cardiac catheterization differ significantly from the cost s and charges of other services included in the standard associated cost center. RT I also concluded that both the IPPS and OPPS relative weights would better estimate the cost s of those services if CMS were to add standard costs centers for CT scans, MRI, and cardiac catheteri zation in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data. (We refer readers to the FY 2011 IPPS/LTCH PP S final rule (75 FR 50075 through 50080) for a more detailed discussion on the reasons for th e creation of standard cost centers for CT scans, MRI, and cardiac cathete rization.) The new standard cost centers for MRI, CT scans, and cardiac catheterization are effec tive for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10. CMS issued the newCMS-1525-P 72 hospital cost report Form CMS-2552-10 on December 30, 2010. The new cost report form can be accessed at the CMS Web site at: https://www.cms.gov/Manuals/PBM/itemdeta il.asp?filterType= none&filterByDID=- 99&sortByDID=1&sortOrder=ascendi ng&itemID=CMS021935&intNumPerPage=10

. Once at this Web site, users s hould double click on “Chapter 40.” We believe that improved cost report soft ware, the incorporation of new standard and nonstandard cost centers, and the elimin ation of outdated requirements will improve the accuracy of the cost data contained in the electronic cost report data files and, therefore, the accuracy of our cost estimation processes for the OPPS relative weights. We will continue our standard practice of examining ways in which we can improve the accuracy of our cost estimation processes. 2. Proposed Data Development Proce ss and Calculation of Median Costs In this section of this pr oposed rule, we discuss the use of claims to calculate proposed OPPS payment rates for CY 2012. The hospital OPPS page on the CMS Web site on which this proposed rule is poste d provides an accounting of claims used in the development of the pr oposed payment rates at: http://www.cms.gov/HospitalOutpatientPPS . The accounting of claims used in the development of this proposed rule is in cluded on the CMS Web site under supplemental materials for this CY 2012 OPPS/ASC propos ed rule. That accounting provides additional detail regarding the number of claims derived at each stage of the process. In addition, below in this section we discuss the file of claims that comprises the data set that is available for purchase under a CMS data use agreement. Our CMS Web site,CMS-1525-P 73 http://www.cms.gov/HospitalOutpatientPPS , includes information about purchasing the “OPPS Limited Data Set,” which now include s the additional variables previously available only in the OPPS Id entifiable Data Set, includi ng ICD-9-CM diagnosis codes and revenue code payment amounts. This file is derived from the CY 2010 claims that were used to calculate the proposed payment rates for the CY 2012 OPPS. We used the methodology described in s ections II.A.2.a. throu gh II.A.2.e. of this proposed rule to calculate the median costs we use to establish the relative weights used in calculating the proposed OPPS payment rate s for CY 2012 shown in Addenda A and B to this proposed rule (which are referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site ). We refer readers to section II.A.4. of this proposed rule for a discussion of the conversion of APC median costs to scaled payment weights. a. Claims Preparation For this proposed rule, we used the CY 2010 hospital outpatient claims processed before January 1, 2011, to calculate the median costs of APCs that underpin the proposed relative weights for CY 2012. To begin the calculation of the relative weights for CY 2012, we pulled all claims for outpatient services furnished in CY 2010 from the national claims history file. This is not th e population of claims paid under the OPPS, but all outpatient claims (including, for exampl e, critical access hospital (CAH) claims and hospital claims for clinical laboratory servic es for persons who are neither inpatients nor outpatients of the hospital).CMS-1525-P 74 We then excluded claims with condition codes 04, 20, 21, and 77 because these are claims that providers submitted to Me dicare knowing that no payment would be made. For example, providers submit claims w ith a condition code 21 to elicit an official denial notice from Medicare and document th at a service is not covered. We then excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mari ana Islands because hospitals in those geographic areas are not paid under the OPPS, and, therefore, we do not use claims for services furnished in these areas in ratesetting. We divided the remaining claims into the three groups shown below. Groups 2 and 3 comprise the 105 million claims that contain hosp ital bill types paid under the OPPS. 1. Claims that were not bill types 12X, 13X (hospital bill types), 14x (laboratory specimen bill types), or 76X (CMHC bill type s). Other bill types are not paid under the OPPS and, therefore, these claims we re not used to set OPPS payment. 2. Claims that were bill types 12X, 13X or 14X. Claims with bill types 12X and 13X are hospital outpatient claims. Claims w ith bill type 14X are laboratory specimen claims, of which we use a subset for the limite d number of services in these claims that are paid under the OPPS. 3. Claims that were bill type 76X (CMHC). To convert charges on the claims to estimated cost, we multiplied the charges on each claim by the appropriate hos pital-specific CCR associated with the revenue code for the charge as discussed in section II.A.1.c. of this proposed rule. We then flagged andCMS-1525-P 75 excluded CAH claims (which are not paid under the OPPS) and claims from hospitals with invalid CCRs. The latter included claims from hospitals without a CCR; those from hospitals paid an all-inclus ive rate; those from hospitals with obviously erroneous CCRs (greater than 90 or less th an 0.0001); and those from hospita ls with overall ancillary CCRs that were identified as outliers (3 standard deviati ons from the geometric mean after removing error CCRs). In addition, we trimmed the CCRs at the cost center (that is, departmental) level by removing the CCRs for each cost center as outliers if they exceeded +/- 3 standard deviations from the geometric mean. We used a four-tiered hierarchy of cost center CCRs, which is the revenue code-to-cost center crosswalk, to match a cost center to every possible revenue co de appearing in the outpatient claims that is relevant to OPPS services, with the top ti er being the most common cost center and the last tier being the default CCR. If a hosp ital’s cost center CCR was deleted by trimming, we set the CCR for that cost center to “mi ssing” so that another cost center CCR in the revenue center hierarchy coul d apply. If no other cost center CCR could apply to the revenue code on the claim, we used the hos pital’s overall ancillary CCR for the revenue code in question as the default CCR. For exam ple, if a visit was re ported under the clinic revenue code but the hospital did not have a clinic cost center, we mapped the hospital-specific overall ancillary CCR to the clinic revenue code. The revenue code-to-cost center crosswalk is availabl e for inspection and comment on the CMS Web site: http://www.cms.gov/HospitalOutpatientPPS

. Revenue codes that we do not use to set medians or to model impacts are identifie d with an “N” in the revenue code-to-cost center crosswalk.CMS-1525-P 76 We applied the CCRs as described above to claims with bill type 12X, 13X, or 14X, excluding all claims from CAHs and hospi tals in Maryland, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Ma riana Islands and claims from all hospitals for which CCRs were flagged as invalid. We identified claims with condition code 41 as partial hospitalization services of hospitals and moved them to another file. We note that the separate file containing partial hospitalization claims is included in the files that are available for purchase as discussed above. We then excluded claims without a HC PCS code. We moved to another file claims that contained nothing but influenza and pneumococcal pneumonia (PPV) vaccines. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these claims are not used to set OPPS rates. We next copied line-item costs for drugs, blood, and brachytherapy sources to a separate file (the lines stay on the claim, but are copied ont o another file). No claims were deleted when we copied these lines onto another file. These line-items are used to calculate a per unit mean and median cost a nd a per day mean and median cost for drugs and nonimplantable biologicals, therap eutic radiopharmaceutical agents, and brachytherapy sources, as well as other informa tion used to set payment rates, such as a unit-to-day ratio for drugs. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60517), we first adopted a policy to redistribute some portion of total cost of packaged drugs and biologicals to the separately payable drugs and biologicals as ac quisition and pharmacyCMS-1525-P 77 overhead and handling costs. As discussed further in section V.B.3. of this proposed rule, we are proposing to continue this po licy for CY 2012. Therefore, we used the line-item cost data for drugs and biological s for which we had a HCPCS code with ASP pricing information to calculate the ASP+X va lues, first for all drugs and biologicals with HCPCS codes, whether separately paid or packaged, and then for separately payable drugs and biologicals and for packaged drugs and biologicals, respectively, by taking the ratio of total claim cost for each group relative to total ASP dollars (p er unit of each drug or biological HCPCS code’s April 2011 ASP amount multiplied by total units for each drug or biological in the CY 2010 claims data). These values are ASP+11 percent (for all drugs and biologicals with HCPCS codes, whet her separately paid or packaged), ASP-2 percent (for drugs and biologi cals that are separately pa id), and ASP+188 percent (for drugs and biologicals that have HCPCS codes and that are packaged), respectively. As we discuss in section V.B.3. of this proposed rule, we are proposing to redistribute $161 million of the total cost in our claims data for coded packaged drugs and biologicals with an ASP to payment for separately payable dr ugs and biologicals. We also are proposing to redistribute an additional $54 million from the cost of uncoded packaged drugs billed under pharmacy revenue code series 025X (P harmacy (also see 063X, an extension of 025X)), 026X (IV Therapy), and 063X (Pharmac y – Extension of 025X). This total excludes the cost of diagnostic and therapeutic radiopharmaceu ticals because they are not reported under pharmacy revenue codes or unde r the pharmacy cost center on the hospital cost report. Our CY 2012 proposal to redi stribute $215 million in estimated costs from coded and uncoded packaged drugs to se parately payable drugs represents theCMS-1525-P 78 $200 million in total packaged drug costs redistributed from the CY 2011 OPPS/ASC final rule with comment period (75 FR 71967), updated by the PPI for Pharmaceuticals for Human Use. Redistributing a total of $161 million in pharmacy overhead cost from packaged drugs and biologicals reduces the $705 million cost of packaged drugs and biologicals with HCPCS codes and ASPs to $544 milli on, approximately a 23-percent reduction. Redistributing $54 million from the cost of uncoded packaged drugs and biologicals reduces the $502 million cost of uncoded drugs and biologicals to $448 million, approximately an 11-percent reduction. To implement our proposed CY 2012 policy to redistribute $161 million from the pharmacy overh ead cost of coded packaged drugs and biologicals to separately payable drugs and biologicals and $54 million from the cost of uncoded packaged drugs, we multiplied the cost of each packaged drug or biological with a HCPCS code and ASP pricing information in our CY 2010 claims data by 0.77, and we multiplied all uncoded packaged pharmacy drug costs in our CY 2010 claims data, excluding those for diagnostic radiopharm aceuticals, by 0.89. We also added the redistributed $215 million to the total cost of separately payable drugs and biologicals in our CY 2010 claims data, which increased th e relationship between the total cost for separately payable drugs and biologicals and ASP dollars for the same drugs and biologicals from ASP-2 percent to ASP+4 percen t. We refer readers to section V.B.3. of this proposed rule for a complete discussion of our proposed policy to pay for separately paid drugs and biologicals and pharmacy overhead for CY 2012.CMS-1525-P 79 We then removed line-items that we re not paid during claim processing, presumably for a line-item rejection or de nial. The number of edits for valid OPPS payment in the Integrated Outpatient C ode Editor (I/OCE) and elsewhere has grown significantly in the past few years, especially with the implementation of the full spectrum of National Correct Codi ng Initiative (NCCI) edits. To ensure that we are using valid claims that represent the cost of payabl e services to set payment rates, we removed line-items with an OPPS status indicator that were not paid during claims processing in the claim year, but have a status indicator of “S,” “T,” “V,” or “X” in the proposed year’s payment system. This logic preserves charges for services that woul d not have been paid in the claim year but for which some estimate of cost is needed for the proposed year, such as services newly proposed to come of f the inpatient list fo r CY 2011 that were assigned status indicator “C” in the claim year . It also preserves charges for packaged services so that the costs can be included in the cost of the services with which they are reported, even if the CPT codes for the pack aged services were not paid because the service is part of another service that was reported on the same claim or the code otherwise violates claims processing edits. For CY 2012, we are proposing to con tinue the policy we implemented for CY 2011 to exclude line-item data for pa ss-through drugs and biologicals (status indicator “G” for CY 2010) and nonpass-thr ough drugs and biological s (status indicator “K” for CY 2010) where the charges reported on th e claim for the line were either denied or rejected during claims processing. Removi ng lines that were eligible for payment but were not paid ensures that we are using appropr iate data. The trim a voids using cost dataCMS-1525-P 80 on lines that we believe were defective or i nvalid because those rej ected or denied lines did not meet the Medicare requirements for pa yment. For example, edits may reject a line for a separately paid drug because the num ber of units billed exceeded the number of units that would be reasonable and, therefore, is likely a bil ling error (for example, a line reporting 55 units of a drug for which 5 units is known to be a fatal dose). As with our trimming in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71828) of line items with a status indicator of “S,” “T,” “V,” or “X,” we believe that unpaid line-items represent services that are invalidly reported and, th erefore, should not be used for ratesetting. We believe th at removing lines with valid st atus indicators that were edited and not paid during claims processing increases the accuracy of the single bills used to determine the mean unit costs for use in the ASP+X calcu lation described in section V.B.3. of this proposed rule with comment period. b. Splitting Claims and Creation of “Pseudo” Single Procedure Claims (1) Splitting Claims We then split the remaining claims into five groups: single majors; multiple majors; single minors; multiple minors; and other claims. (Specific definitions of these groups follow below.) For CY 2012, we are prop osing to continue our current policy of defining major procedures as any HCPCS code having a status indicator of “S,” “T,” “V,” or “X;” defining minor procedures as any code having a status i ndicator of “F,” “G,” “H,” “K,” “L,” “R,” “U,” or “N,” and clas sifying “other” procedures as any code having a status indicator other than one that we ha ve classified as major or minor. For CY 2012, we are proposing to continue assigning status indicator “R” to blood and blood products;CMS-1525-P 81 status indicator “U” to br achytherapy sources; status indicator “Q1” to all “STVX-packaged codes;” status indicator “Q 2” to all “T-packaged codes;” and status indicator “Q3” to all codes that may be paid through a composite APC based on composite-specific criteria or paid separatelythrough single code APCs when the criteria are not met. As discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68709), we established status indicato rs “Q1,” “Q2,” and “Q3” to facilitate identification of the different categories of codes. We are proposing to treat these codes in the same manner for data purposes for CY 2012 as we have treated them since CY 2008. Specifically, we are proposing to con tinue to evaluate whether the criteria for separate payment of codes with status indi cator “Q1” or “Q2” are met in determining whether they are treated as major or minor c odes. Codes with status indicator “Q1” or “Q2” are carried through the data either with status indicator “N” as packaged or, if they meet the criteria for separate payment, they are given the status indicator of the APC to which they are assigned and are considered as “pseudo” single procedure claims for major codes. Codes assigned status indi cator “Q3” are paid under individual APCs unless they occur in the combinations that qualify for payment as composite APCs and, therefore, they carry the stat us indicator of the individual APC to which they are assigned through the data process and are treated as major codes during both the split and “pseudo” single creation process. The calculation of the median costs for composite APCs from multiple procedure major claims is discussed in section II.A.2.e. of this proposed rule. Specifically, we divided the remaining claims into the following five groups:CMS-1525-P 82 1. Single Procedure Major Claims : Claims with a single separately payable procedure (that is, status indicator “S,” “T,” “V,” or “X,” which includes codes with status indicator “Q3”); claims with one unit of a status i ndicator “Q1” code (“STVX-packaged”) where there was no code with status indicator “S,” “T,” “V,” or “X” on the same claim on the same date; or claims with one unit of a status indicator “Q2” code (“T-packaged”) where there was no code with a status indicator “T” on the same claim on the same date. 2. Multiple Procedure Major Claims : Claims with more than one separately payable procedure (that is, stat us indicator “S,” “T,” “V,” or “X,” which includes codes with status indicator “Q3”), or multiple units of one payable procedure. These claims include those codes with a stat us indicator “Q2” code (“T- packaged”) where there was no procedure with a status indicator “T” on the same claim on the same date of service but where there was another separately paid proc edure on the same claim with the same date of service (that is, another code with status indicator “S,” “V ,” or “X”). We also include, in this set, claims that co ntained one unit of one code wh en the bilateral modifier was appended to the code and the code was conditiona lly or independently b ilateral. In these cases, the claims represented more than one unit of the service described by the code, notwithstanding that only one unit was billed. 3. Single Procedure Minor Claims : Claims with a single HCPCS code that was assigned status indicator “F,” “G,” “H,” “K ,” “L,” “R,” “U,” or “N” and not status indicator “Q1” (“STVX-packaged”) or status indicator “Q2” (“T-packaged”) code.CMS-1525-P 83 4. Multiple Procedure Minor Claims : Claims with multiple HCPCS codes that are assigned status indicator “F,” “G,” “H,” “K,” “L,” “R,” “U,” or “N;” claims that contain more than one code with status indi cator “Q1” (“STVX-packaged”) or more than one unit of a code with status indicator “Q1” but no codes with status indicator “S,” “T,” “V,” or “X” on the same date of service; or claims that contain more than one code with status indicator “Q2” (T-packaged), or “Q2” and “Q1,” or more than one unit of a code with status indicator “Q2” but no code with status indicator “T” on the same date of service. 5. Non-OPPS Claims : Claims that contain no se rvices payable under the OPPS (that is, all status indicators other than thos e listed for major or minor status). These claims were excluded from the files used for the OPPS. Non-OPPS claims have codes paid under other fee schedules, for example, durable medical equipment or clinical laboratory tests, and do not c ontain a code for a separately payable or packaged OPPS service. Non-OPPS claims include claims fo r therapy services paid sometimes under the OPPS but billed, in these non-OPPS cases, with revenue codes indicating that the therapy services would be paid under the Medi care Physician Fee Schedule (MPFS). The claims listed in numbers 1, 2, 3, and 4 above are included in the data file that can be purchased as described above. Clai ms that contain codes to which we have assigned status indicators “Q1” (“STVX-packag ed”) and “Q2” (“T-packaged”) appear in the data for the single major file, the multiple major file, and the multiple minor file used in this proposed rule. Claims that contai n codes to which we have assigned status indicator “Q3” (composite APC members) appe ar in both the data of the single andCMS-1525-P 84 multiple major files used in this proposed rule, depending on the specific composite calculation. (2) Creation of “Pseudo” Single Procedure Claims To develop “pseudo” single procedure claims for this proposed rule, we examined both the multiple procedure major claims and the multiple procedure minor claims. We first examined the multiple major procedure clai ms for dates of service to determine if we could break them into “pseudo” single procedur e claims using the dates of service for all lines on the claim. If we c ould create claims with single major procedures by using dates of service, we created a single procedure claim record for each separately payable procedure on a different date of service (that is, a “pseudo” single). We also used the bypass codes listed in Addendum N to this proposed rule (which is referenced in section XVII. of this propos ed rule and available via the Internet on the CMS Web site) and discussed in section II.A .1.b. of this proposed rule to remove separately payable procedures which we de termined contained limited or no packaged costs or that were otherwise suitable fo r inclusion on the bypass list from a multiple procedure bill. As discussed above, we ignor e the “overlap bypass c odes,” that is, those HCPCS codes that are both on the bypass list and are members of the multiple imaging composite APCs, in this initial assessment for “pseudo” single procedure claims. The proposed CY 2012 “overlap bypass codes” ar e listed in Addendum N to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site). When one of the two separately payable procedures on a multiple procedure claim was on the bypass li st, we split the claim into two “pseudo”CMS-1525-P 85 single procedure claim records. The single procedure claim record that contained the bypass code did not retain packaged services . The single procedure claim record that contained the other separately payable pr ocedure (but no bypass code) retained the packaged revenue code charges and the p ackaged HCPCS code charges. We also removed lines that contained multiple units of codes on the bypass list and treated them as “pseudo” single procedure claims by divi ding the cost for the multiple units by the number of units on the line. Where one unit of a single, separately payable procedure code remained on the claim after removal of the multiple units of the bypass code, we created a “pseudo” single proced ure claim from that residual claim record, which retained the costs of packaged revenue codes and packag ed HCPCS codes. This enabled us to use claims that would otherwise be multiple procedure claims and could not be used. We then assessed the claims to determine if the criteria for the multiple imaging composite APCs, discussed in section II.A.2.e.(5) of this proposed rule, were met. Where the criteria for the imaging composite APCs were met, we created a “single session” claim for the applicable imaging composite se rvice and determined whether we could use the claim in ratesetting. For HCPCS codes that are both conditionally packaged and are members of a multiple imaging composite APC, we first assessed whether the code would be packaged and, if so, the code ceased to be available for further assessment as part of the composite APC. Because the packaged code would not be a separately payable procedure, we considered it to be unavailable for use in setting the composite APC median cost. Having identified “single session” claims for the imaging composite APCs, we reassessed the claim to determine if , after removal of all lines for bypass codes,CMS-1525-P 86 including the “overlap bypass c odes,” a single unit of a sing le separately payable code remained on the claim. If so, we attributed the packaged costs on the claim to the single unit of the single remaining separately payable code other than the bypass code to create a “pseudo” single procedure claim. We also identified line-items of overlap bypass codes as a “pseudo” single procedure claim. This allowed us to use more claims data for ratesetting purposes. We also examined the multiple procedure minor claims to determine whether we could create “pseudo” single pr ocedure claims. Specifically , where the claim contained multiple codes with status indicator “Q1” (“STVX-packaged”) on the same date of service or contained multiple units of a single code with status indicator “Q1,” we selected the status indicato r “Q1” HCPCS code that ha d the highest CY 2011 relative weight, set the units to one on that HCPCS c ode to reflect our policy of paying only one unit of a code with a status indicator of “Q1.” We then packaged all costs for the following into a single cost for the “Q1” HCPCS code that had the highest CY 2011 relative weight to create a “pseudo” single proc edure claim for that code: additional units of the status indicator “Q1” HCPCS code w ith the highest CY 2011 relative weight; other codes with status indicator “Q1”; and all other packaged HCPCS codes and packaged revenue code costs. We changed the status i ndicator for the selected code from the data status indicator of “N” to the status indicator of the APC to which the sele cted procedure was assigned for further data processing and co nsidered this claim as a major procedure claim. We used this claim in the calcula tion of the APC median cost for the status indicator “Q1” HCPCS code.CMS-1525-P 87 Similarly, where a multiple procedure minor claim contained multiple codes with status indicator “Q2” (“T-packaged”) or mu ltiple units of a single code with status indicator “Q2,” we selected the status indi cator “Q2” HCPCS code that had the highest CY 2011 relative weight, set the units to one on that HCPCS code to reflect our policy of paying only one unit of a code with a status indicator of “Q2.” We then packaged all costs for the following into a single cost fo r the “Q2” HCPCS code that had the highest CY 2011 relative weight to create a “pseudo” single procedure claim for that code: additional units of the status indicator “Q2” HCPCS code with the highest CY 2011 relative weight; other codes with status indicator “Q2”; and other packaged HCPCS codes and packaged revenue code costs. We changed the status indicator for the selected code from a data status indicat or of “N” to the status indicator of the APC to which the selected code was assigned, and we consider ed this claim as a major procedure claim. Where a multiple procedure minor claim contained multiple codes with status indicator “Q2” (“T-packaged”) and status indicator “Q1” (“STVX-packaged”), we selected the T-packaged status indicator “Q 2” HCPCS code that ha d the highest relative weight for CY 2011 and set the units to one on that HCPCS code to reflect our policy of paying only one unit of a code with a status indicator of “Q2.” We then packaged all costs for the following into a single cost for the selected (“T packaged”) HCPCS code to create a “pseudo” single proce dure claim for that code: ad ditional units of the status indicator “Q2” HCPCS code with the highestCY 2011 relative weight; other codes with status indicator “Q2”; codes with status indicator “Q1” (“STVX-packaged”); and other packaged HCPCS codes and packaged revenue code costs. We fa vor status indicatorCMS-1525-P 88 “Q2” over “Q1” HCPCS codes because “Q2” HCPCS codes have higher CY 2011 relative weights. If a stat us indicator “Q1” HCPCS code had a higher CY 2011 relative weight, it would become the primary code fo r the simulated single bill process. We changed the status indicator fo r the selected status indicator “Q2” (“T-packaged”) code from a data status indicator of “N” to the status indicat or of the APC to which the selected code was assigned and we consider ed this claim as a major procedure claim. We then applied our process for creati ng “pseudo” single procedure claims to the conditionally packaged codes that do not meet the criteria for packaging, which enabled us to create single procedure claims from them, where they meet the criteria for single procedure claims. Conditionally packaged c odes are identified using status indicators “Q1” and “Q2,” and are described in section XI.A.1. of this proposed rule. Lastly, we excluded those claims that we were not able to convert to single procedure claims even after applying all of the techniques for creation of “pseudo” single procedure claims to multiple procedure majo r claims and to multiple procedure minor claims. As has been our practice in recent ye ars, we also excluded claims that contained codes that were viewed as independently or conditionally bilateral a nd that contained the bilateral modifier (Modifier 50 (Bilateral pr ocedure)) because the line-item cost for the code represented the cost of two units of the procedure, notwithstanding that hospitals billed the code w ith a unit of one. We are proposing to continue to apply this methodology for the purpose of creating pseudo single procedur e claims for CY 2012 OPPS.CMS-1525-P 89 c. Completion of Claim Records and Median Cost Calculations We then packaged the costs of pack aged HCPCS codes (codes with status indicator “N” listed in Addendum B to this propo sed rule (which is re ferenced in section XVII. of this proposed rule and available vi a the Internet on the CMS Web site) and the costs of those lines for codes with status indicator “Q1” or “Q2” when they are not separately paid), and the costs of the servic es reported under packaged revenue codes in Table 2 below that appeared on the claim w ithout a HCPCS code into the cost of the single major procedure remaining on the claim. As noted in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66606), for the CY 2008 OPPS, we adopt ed an APC Panel recommendation that CMS should review the final lis t of packaged revenue codes for consistency with OPPS policy and ensure that future versions of th e I/OCE edit accordingly. As we have in the past, we will continue to comp are the final list of packaged revenue codes that we adopt for CY 2012 to the revenue codes that the I/OCE will package for CY 2012 to ensure consistency. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68531), we replaced the NUBC standard abbreviations for the revenue codes liste d in Table 2 of the CY 2009 OPPS/ASC proposed rule with the mo st current NUBC descriptions of the revenue code categories and subcategories to better articulate the meanings of the revenue codes without changing the proposed list of revenue codes. In the CY 2010 OPPS/ASC final rule with comment peri od (74 FR 60362 through 60363), we finalized changes to the packaged revenue code lis t based on our examination of the updatedCMS-1525-P 90 NUBC codes and public comment to the CY 2010 proposed list of packaged revenue codes. For CY 2012, as we did for CY 2011, we reviewed the changes to revenue codes that were effective during CY 2010 for purposes of determining the charges reported with revenue codes but without HCPCS codes that we would propose to package for the CY 2012 OPPS. We believe that the charges reported under the revenue codes listed in Table 2 below continue to reflect ancillary and supportive services for which hospitals report charges without HCPCS codes. Ther efore, for CY 2012, we are proposing to continue to package the cost s that we derive from the charges reported without HCPCS code under the revenue codes displayed in Ta ble 2 below for purposes of calculating the median costs on which the CY 2012 OPPS are based.

TABLE 2.—PROPOSED CY 2012 PACKAGED REVENUE CODES

Revenue

Code Description 0250 Pharmacy; General Classification 0251 Pharmacy; Generic Drugs 0252 Pharmacy; Non-Generic Drugs 0254 Pharmacy; Drugs Incident to Other Diagnostic Services 0255 Pharmacy; Drugs Incident to Radiology 0257 Pharmacy; Non-Prescription 0258 Pharmacy; IV Solutions 0259 Pharmacy; Other Pharmacy 0260 IV Therapy; General Classification 0261 IV Therapy; Infusion Pump 0262 IV Therapy; IV Therapy/Pharmacy Svcs 0263 IV Therapy; IV Therapy/Drug/Supply Delivery 0264 IV Therapy; IV Therapy/Supplies 0269 IV Therapy; Other IV Therapy 0270 Medical/Surgical Supplies and Devices; General Classification 0271 Medical/Surgical Supplies a nd Devices; Non-sterile Supply 0272 Medical/Surgical Supplies and Devices; Sterile Supply 0275 Medical/Surgical Supplies and Devices; Pacemaker 0276 Medical/Surgical Supplies a nd Devices; Intraocular Lens 0278 Medical/Surgical Supplies and Devices; Other ImplantsCMS-1525-P 91

Revenue

Code Description 0279 Medical/Surgical Supplies and Devices; Other Supplies/Devices 0280 Oncology; General Classification 0289 Oncology; Other Oncology 0343 Nuclear Medicine; Diagnostic Radiopharmaceuticals 0344 Nuclear Medicine; Therapeutic Radiopharmaceuticals 0370 Anesthesia; General Classification 0371 Anesthesia; Anesthesia Incident to Radiology 0372 Anesthesia; Anesthesia Inci dent to Other DX Services 0379 Anesthesia; Other Anesthesia

0390 Administration, Processing and Stor age for Blood and Blood Components; General Classification

0392 Administration, Processing and Stor age for Blood and Blood Components; Processing and Storage

0399 Administration, Processing and Stor age for Blood and Blood Components; Other Blood Handling

0621 Medical Surgical Supplies – Extens ion of 027X; Supplies Incident to Radiology

0622 Medical Surgical Supplies – Extensi on of 027X; Supplies Incident to Other DX Services 0623 Medical Supplies – Extension of 027X, Surgical Dressings 0624 Medical Surgical Supplies – Extensi on of 027X; FDA Investigational Devices 0630 Pharmacy – Extension of 025X; Reserved 0631 Pharmacy – Extension of 025X; Single Source Drug 0632 Pharmacy – Extension of 025X; Multiple Source Drug 0633 Pharmacy – Extension of 025X; Restrictive Prescription 0681 Trauma Response; Level I Trauma 0682 Trauma Response; Level II Trauma 0683 Trauma Response; Level III Trauma 0684 Trauma Response; Level IV Trauma 0689 Trauma Response; Other 0700 Cast Room; General Classification 0710 Recovery Room; General Classification 0720 Labor Room/Delivery; General Classification 0721 Labor Room/Delivery; Labor 0732 EKG/ECG (Electrocardiogram); Telemetry 0762 Specialty services ; Observation Hours 0801 Inpatient Renal Dialysis; Inpatient Hemodialysis 0802 Inpatient Renal Dialysis; Inpatien t Peritoneal Dialysis (Non-CAPD)

0803 Inpatient Renal Dialysis; Inpatien t Continuous Ambulatory Peritoneal Dialysis (CAPD)CMS-1525-P 92

Revenue

Code Description

0804 Inpatient Renal Dialysis; Inpatient C ontinuous Cycling Peritoneal Dialysis (CCPD) 0809 Inpatient Renal Dialysis; Other Inpatient Dialysis 0810 Acquisition of Body Component s; General Classification 0819 Inpatient Renal Dialysis; Other Donor 0821 Hemodialysis-Outpatient or Home; He modialysis Composite or Other Rate 0824 Hemodialysis-Outpatient orHome; Maintenance – 100% 0825 Hemodialysis-Outpatient or Home; Support Services 0829 Hemodialysis-Outpatient or Home; Other OP Hemodialysis

0942 Other Therapeutic Services (also see 095X, an extension of 094x); Education/Training

0943 Other Therapeutic Services (also see 095X, an extension of 094X), Cardiac Rehabilitation

0948 Other Therapeutic Services (also see 095X, an extension of 094X), Pulmonary Rehabilitation

In accordance with our longstanding po licy, we are proposing to continue to exclude: (1) claims that had zero costs after summing all costs on the claim; and (2) claims containing packaging flag number 3. Effective for services furnished on or after July 1, 2004, the I/OCE assigned packag ing flag number 3 to claims on which hospitals submitted token charges less than $1.0 1 for a service with status indicator “S” or “T” (a major separately payable serv ice under the OPPS) for which the fiscal intermediary or MAC was required to allocate the sum of charges for services with a status indicator equaling “S” or “T” based on the relative weight of the APC to which each code was assigned. We do not believe th at these charges, which were token charges as submitted by the hospital, are valid reflections of hospital resources. Therefore, we deleted these claims. We also deleted claims for which the charges equaled the revenue center payment (that is, the Medicare paymen t) on the assumption that, where the charge equaled the payment, to apply a CCR to the charge would not yield a valid estimate ofCMS-1525-P 93 relative provider cost. We are proposing to continue these processes for the CY 2012

OPPS. For the remaining claims, we then standa rdized 60 percent of the costs of the claim (which we have previously determin ed to be the labor-related portion) for geographic differences in labor input costs. We made this adjustment by determining the wage index that applied to the hospital that furnished the service and dividing the cost for the separately paid HCPCS code furnished by the hospital by that wage index. The claims accounting that we provide for the propo sed and final rule contains the formula we use to standardize the total cost for the effect s of the wage index. As has been our policy since the inception of the OPPS, we are pr oposing to use the pre-reclassified wage indices for standardization because we believe that they better reflect the true costs of items and services in the area in wh ich the hospital is located than the post-reclassification wage indices and, ther efore, would result in the most accurate unadjusted median costs. In accordance with our longstanding practi ce, we also excluded single and pseudo single procedure claims for which the total cost on the claim was outside 3 standard deviations from the geometric mean of un its for each HCPCS code on the bypass list (because, as discussed above, we used claims that contain multiple units of the bypass codes). After removing claims for hospitals with error CCRs, claims without HCPCS codes, claims for immunizations not covered under the OPPS, and claims for services not paid under the OPPS, approximately 102 milli on claims were left. Using these 102CMS-1525-P 94 million claims, we created approximately 100 million single and “pseudo” single procedure claims, of which we used slightly more than 99.5 million single bills (after trimming out approximately 888,000 claims as di scussed above in this section) in the proposed CY 2012 median development and ratesetting. We used these claims to calculate the proposed CY 2012 median costs for each separately payable HCPCS code and each APC. The comparison of HCPCS code-specific and APC medians determines the applicability of the 2 times rule. Section 1833(t)(2) of the Act provides that, subject to certain exceptions, the items and services within an APC group cannot be consider ed comparable with respect to the use of resources if the highest median (or mean cost, if elected by the Secret ary) for an item or service in the group is more than 2 times greater than the lowe st median cost for an item or service within the same group (the 2 times rule). We note that, for purposes of identifying significant HCPCS for examination in the 2 times rule, we consider codes that have more than 1,000 single major claims or c odes that have both greater than 99 single major claims and contribute at least 2 percent of the single major claims used to establish the APC median cost to be significant (75 FR 71832). This longstanding definition of when a HCPCS code is significant for purposes of the 2 times rule was selected because we believe that a subset of 1,000 claims is negligible with in the set of approximately 100 million single procedure or single session claims we use for establishing median costs. Similarly, a HCPCS code for which th ere are fewer than 99 single bills and which comprises less than 2 percent of the single major claims within an APC will have a negligible impact on the APC median. Unliste d codes are not used in establishing theCMS-1525-P 95 percent of claims contributing to the APC, nor are their cost s used in the calculation of the APC median. Finally, we reviewed the me dian costs for the services for which we are proposing to pay separately under this proposed rule, and we reassigned HCPCS codes to different APCs where it was necessary to ensure clinical and resource homogeneity within the APCs. Section III. of this proposed rule includes a discussion of many of the HCPCS code assignment changes that resulted from examination of the median costs and for other reasons. The APC medians were recalculated after we reassigned the affected HCPCS codes. Both the HCPCS code-speci fic medians and the APC medians were weighted to account for th e inclusion of multiple units of the bypass codes in the creation of “pse udo” single procedure claims. As we discuss in sections II.A.2.d. and II.A.2.e. and in section VIII.B. of this proposed rule, in some cases, APC median cost s are calculated using variations of the process outlined above. Speci fically, section II.A.2.d. of this proposed rule addresses the proposed calculation of single APC criteria-based median costs. Sec tion II.A.2.e. of this proposed rule discusses the proposed calculati on of composite APC criteria-based median costs. Section VIII.B. of this proposed ru le addresses the methodology for calculating the proposed median costs for part ial hospitaliza tion services. APC Panel Recommendations Re garding Data Development : At the February 28-March 1, 2011 APC Panel Mee ting, we provided the APC Panel Data Subcommittee with a list of all APCs fluc tuating by greater th an 10 percent when comparing the CY 2011 OPPS final rule me dian costs based on CY 2009 claims processed through June 30, 2010, to those base d on CY 2010 OPPS/ASC final rule dataCMS-1525-P 96 (CY 2008 claims processed through June 30, 2009) . We included explanatory data where possible to allow the Data Subcommittee to focus on APC median changes that required more investigation, based on its reques t (75 FR 71834). The APC Panel Data Subcommittee reviewed the fluctuations in the APC median costs but did not express particular concerns with the median cost changes. We also provided the APC Panel Data S ubcommittee with a summary of cost and CCR data related to the Myocardial Positr on Emission Tomography (PET) imaging APC, APC 0307, as well as the associated dia gnostic radiopharmaceutical, Rb82 rubidium, based on a request for data related to the decline in the APC median cost from the CY 2010 OPPS final rule to the CY 2011 OPPS proposed rule. The Data Subcommittee noted a decline in the CCRs associated with the HCPCS codes in APC 0307, as well as declines in the line-item costs of the associated diagnostic radiopharmaceutical. At the February 28-March 1, 2011 APC Pa nel Meeting, the APC Panel made a number of recommendations related to the data process. The Panel’s recommendations and our responses follow. Recommendation 1 : The Panel commends the CMS staff for responding to the data requests of the Data Subcommittee. CMS Response to Recommendation 1 : We appreciate this recommendation. Recommendation 2 : The Panel recommends that the work of the Data Subcommittee continue. CMS Response to Recommendation 2 : We are accepting this recommendation.CMS-1525-P 97 Recommendation 3 : The Panel recommends that Agatha Nolen, D.Ph., M.S., F.A.S.H.P., serve as acting chairperson for the winter 2011 meeting of the Data Subcommittee. CMS Response to Recommendation 3 : We are accepting this recommendation. d. Proposed Calculation of Single Pro cedure APC Criteria-Based Median Costs (1) Device-Dependent APCs Device-dependent APCs are populated by HCPCS codes that usually, but not always, require that a device be implanted or used to perform the procedure. For a full history of how we have calculated payment ra tes for device-dependent APCs in previous years and a detailed discussi on of how we developed the standard device-dependent APC ratesetting methodology, we refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66739 through 66742). Overviews of the pr ocedure-to-device edits and device-to-procedure ed its used in ratesetting for device-dependent APCs are available in the CY 2005 OPPS final rule with comment period (69 FR 65761 through 65763) and the CY 2007 OPPS/ASC final ru le with comment period (71 FR 68070 through 68071). For CY 2012, we are proposing to use the standard methodology for calculating median costs for device-dependent APCs th at was finalized in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71834 through 71837). (We refer readers to sections II.D.6. and II.A.e.6. of this proposed rule for detailed explanations of the proposed nonstandard methodology regarding cardiac resynchronizati on therapy.) This methodology utilizes claims data that genera lly represent the full cost of the requiredCMS-1525-P 98 device. Specifically, we are proposing to calculate the median costs for device-dependent APCs for CY 2012 using only the subset of single procedure claims from CY 2010 claims data that pass the procedure-to-dev ice and device-to-pro cedure edits; do not contain token charges (less th an $1.01) for devices; do not contain the “FB” modifier signifying that the device was furnished w ithout cost to the provider, supplier, or practitioner, or where a full credit was rece ived; and do not contai n the “FC” modifier signifying that the hospital received partial credit for the device. The procedure-to-device edits require that when a particular procedural HCPCS code is billed, the claim must also contain an appropriat e device code, while the device-to-procedure edits require that a claim that contains one of a specified set of device codes also contain an appropriate procedure code. We conti nue to believe the standard methodology for calculating median costs for device-depende nt APCs gives us the most appropriate median costs for device-dependent APCs in wh ich the hospital incurs the full cost of the device. Table 3 below lists the APCs for which we are proposing to use our standard device-dependent APC ratesetting methodol ogy (as explained in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71834 through 71837)) for CY 2012. We note that there are five proposed device-dep endent APC title changes and one proposed deletion for CY 2012. As discussed in detail in section II.A.2.d.(6) of this proposed rule, we are proposing to change the title of APC 0083 from “Coronary or Non-Coronary Angioplasty and Percutaneous Valvul oplasty” to “Level I Endovascular Revascularization of the Lower Extremity”; the title of APC 0229 from “TranscatheterCMS-1525-P 99 Placement of Intravascular Shunt and Stents” to “Level II Endovascular Revascularization of the Lower Extrem ity”; and the title of APC 0319 from “Endovascular Revascularization of the Lowe r Extremity” to “Level III Endovascular Revascularization of the Lower Extremity.” We also are proposing to change the title of APC 0040 from “Percutaneous Implantation of Neurostimulator Electrodes” to “Level I Implantation/Revision/Replacement of Neurost imulator Electrodes,” and the title of APC 0061 from “Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes” to “Level II Implantation/Re vision/Replacement of Neurostimulator Electrodes,” as discussed in section III.D.1. of this proposed rule. In addition, as discussed in section II.A.2.e.(6) of this pr oposed rule, we are proposing to delete APC 0418 (Insertion of Left Ventricu lar Pacing Electrode) for CY 2012. As we discuss in detail in section III. D.6. of this proposed rule, we are proposing to limit the payment for servic es that are assigned to APC 0108 to the proposed IPPS standardized payment amount for MS-DRG 227 (Cardiac Defibrilla tor Implant without Cardiac Catheterization and w ithout Medical Complications and Comorbidities) because we do not believe that it would be equitabl e to pay more under the OPPS for services assigned to APC 0108 than under the IPPS. In other words, we are proposing to pay APC 0108 at the lesser of the APC 0108 mediancost or the IPPS standardized payment rate for MS-DRG 227. We are proposing to co ntinue to apply the device edits and other standard features of the device-dependent APCs to APC 0108, but we are proposing to limit the payment amount under the OPPS to the amount of payment established for MS-DRG 227 under the IPPS.CMS-1525-P 100 We refer readers to Addendum A to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site) for the proposed payment rates for these APCs for CY 2012.

TABLE 3.--PROPOSED CY 2012 DE VICE-DEPENDENT APCs

Proposed CY 2012

APC Proposed CY 2012

Status Indicator Proposed CY 2012 APC Title 0039 S Level I Implantation of Neurostimulator Generator

0040 S Level I Implantation/Revision/Replacement of Neurostimulator Electrodes

0061 S Level II Implantation/Revision/Replacement of Neurostimulator Electrodes 0082 T Coronary or Non- Coronary Atherectomy

0083 T Level I Endovascular Revascularization of the Lower Extremity 0084 S Level I Electrophysiologic Procedures 0085 T Level II Electrophysiologic Procedures 0086 T Level III Electrophysiologic Procedures

0089 T Insertion/Replacement of Permanent Pacemaker and Electrodes 0090 T Insertion/Replacement of Pacemaker Pulse Generator 0104 T Transcatheter Placement of Intracoronary Stents

0106 T Insertion/Replacement of Pacemaker Leads and/or Electrodes 0107 T Insertion of Cardioverter-Defibrillator
*0108 T Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes 0115 T Cannula/Access Device Procedures 0202 T Level VII Female Reproductive Procedures 0227 T Implantation of Drug Infusion Device

0229 T Level II Endovascular Revascularization of the Lower Extremity 0259 T Level VII ENT Procedures 0293 T Level V Anterior Segment Eye Procedures 0315 S Level II Implantation of Neurostimulator Generator

0318 S Implantation of Cranial Neurostimulator Pulse Generator and ElectrodeCMS-1525-P 101

Proposed CY 2012

APC Proposed CY 2012

Status Indicator Proposed CY 2012 APC Title

0319 T Level III Endovascular Revasc ularization of the Lower Extremity 0384 T GI Procedures with Stents 0385 S Level I Prosthetic Urological Procedures 0386 S Level II Prosthetic Urological Procedures 0425 T Level II Arthroplasty or Implantation with Prosthesis 0427 T Level II Tube or Catheter Changes or Repositioning 0622 T Level II Vascular Access Procedures 0623 T Level III Vascular Access Procedures 0648 T Level IV Breast Surgery 0652 T Insertion of Intraperito neal and Pleural Catheters 0653 T Vascular Reconstruction/ Fistula Repair with Device

0654 T Insertion/Replacement of a Permanent Dual Chamber Pacemaker

0655 T Insertion/Replacement/Conversion of a Permanent Dual Chamber Pacemaker

0656 T Transcatheter Placement of Intracoronary Drug-Eluting Stents 0674 T Prostate Cryoablation 0680 S Insertion of Patient Activated Event Recorders *OPPS CY 2012 payment for APC 0108 is proposed to be paid at the lesser of the APC 0108 median cost or the standardized payment rate for MS-DRG 227 under the IPPS. We refer readers to section III.D.6. of this proposed rule for more information.

(2) Blood and Blood Products Since the implementation of the OPPS in August 2000, we have made separate payments for blood and blood pr oducts through APCs rather th an packaging payment for them into payments for the procedures with which they are administered. Hospital payments for the costs of blood and blood product s, as well as for the costs of collecting, processing, and storing blood and blood products, are made through the OPPS payments for specific blood product APCs.CMS-1525-P 102 For CY 2012, we are proposing to continue to establish payment rates for blood and blood products using our blood-specific CCR methodology, which ut ilizes actual or simulated CCRs from the most recently availabl e hospital cost reports to convert hospital charges for blood and blood products to costs. This methodology has been our standard ratesetting methodology for blood and blood pr oducts since CY 2005. It was developed in response to data analysis indicating that there was a significant difference in CCRs for those hospitals with and without blood-speci fic cost centers, and past public comments indicating that the former OPPS policy of defaulting to the overall hospital CCR for hospitals not reporting a blood-specific cost cen ter often resulted in an underestimation of the true hospital costs for blood and blood products. Specifica lly, in order to address the differences in CCRs and to bett er reflect hospitals’ costs, we are proposing to continue to simulate blood CCRs for each hospital thatdoes not report a bl ood cost center by calculating the ratio of the blood-specific CCRs to hospitals’ overall CCRs for those hospitals that do report costs and charges for blood cost centers. We would then apply this mean ratio to the overall CCRs of hosp itals not reporting costs and charges for blood cost centers on their cost reports in orde r to simulate blood-specific CCRs for those hospitals. We calculated the median co sts upon which the proposed CY 2012 payment rates for blood and blood products are base d using the actual blood-specific CCR for hospitals that reported costs and charges for a blood cost center and a hospital-specific simulated blood-specific CCR for hospitals that did not report costs and charges for a blood cost center.CMS-1525-P 103 We continue to believe the hospital- specific, blood-specific CCR methodology best responds to the absen ce of a blood-specific CCR for a hospital than alternative methodologies, such as defaulting to the overall hospital CCR or applying an average blood-specific CCR across hospitals. Because this methodology takes into account the unique charging and cost accounting structure of each hospital, we be lieve that it yields more accurate estimated costs for these products . We believe that continuing with this methodology in CY 2012 would result in median costs for blood and blood products that appropriately reflect the relative estimated co sts of these products for hospitals without blood cost centers and, th erefore, for these blood products in general. We refer readers to Addendum B to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site) for the proposed CY 2012 payment rates fo r blood and blood products (which are identified with status indicator “R”). For a more detailed discussion of the blood-specific CCR methodology, we refer readers to the CY 2005 OPPS proposed rule (69 FR 50524 through 50525). For a full history of OPPS payment for blood and blood products, we refer readers to the CY 2008 OPPS/ASC fina l rule with comment period (72 FR 66807 through 66810). (3) Allergy Tests (APCs 0370 and 0381) We are proposing to continue with our methodology of differentiating single allergy tests (“per test”) from multiple allergy tests (“per visit”) by assigning these services to two different APCs to provide accurate payments for these tests in CY 2012. Multiple allergy tests are currently assigned to APC 0370 (Allergy Tests), with a medianCMS-1525-P 104 cost calculated based on the standa rd OPPS methodology. For CY 2012, we are proposing to continue to use the standa rd OPPS methodology to set the APC payment rate for APC 0370, which has a proposed APC median cost of approximately $97 based on 283 claims. We provided billing guidance in CY 2006 in Transmittal 804 (issued on January 3, 2006) specifically clarifying that hospitals should report charges for the CPT codes that describe single aller gy tests to reflect charges “per test” rather than “per visit” and should bill the appropriate number of units (as defined in the CPT code descriptor) of these CPT codes to describe a ll of the tests provided. Se rvices assigned to APC 0381 (Single Allergy Tests) reflect the CPT codes th at describe single allergy tests in which CPT instructions direct providers to specify the number of tests performed, whereas the procedures in APC 0370 describe multiple alle rgy tests per encounter; therefore, for these procedures, only one unit of the service is b illed even if multiple tests are performed. Our CY 2010 claims data available for this proposed rule for APC 0381 do not reflect improved and more consistent hospital billing practices of “per test” for single allergy tests. The median cost of APC 0381 calcula ted for this proposed rule according to the standard single claims O PPS methodology, is approximate ly $51, significantly higher than the CY 2011 OPPS/ASC final rule medi an cost of approximately $33 that was calculated according to the “p er unit” methodology, and greater than we would expect for these procedures that are to be reported “per test” with the appropria te number of units. Some claims for single allergy tests still a ppear to provide char ges that represent a “per visit” charge, rather than a “per test ” charge. Therefore, consistent with ourCMS-1525-P 105 payment policy for single allergy tests si nce CY 2006, we calculated a proposed “per unit” median cost for APC 0381, based upon 601 claims containing multiple units or multiple occurrences of a single CPT code. The proposed CY 2012 median cost for APC 0381 using the “per unit” methodology is approximately $34. For a full discussion of the “per unit” methodology for APC 0381, we refe r readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66737). (4) Hyperbaric Oxygen Therapy (APC 0659) Since the implementation of OPPS in August 2000, the OPPS has recognized HCPCS code C1300 (Hyperbaric oxygen unde r pressure, full body chamber, per 30 minute interval) for hyperbaric oxygen ther apy (HBOT) provided in the hospital outpatient setting. In the CY 2005 final rule with comment period (69 FR 65758 through 65759), we finalized a “per unit” median cost calculation for APC 0659 (Hyperbaric Oxygen) using only claims with multiple units or multiple occurrences of HCPCS code C1300 because delivery of a typical HBOT service requires more than 30 minutes. We observed that claims with only a single occu rrence of the code were anomalies, either because they reflected terminated sessions or because they were incorrectly coded with a single unit. In the same rule, we also es tablished that HBOT w ould not generally be furnished with additional services that might be packaged under the standard OPPS APC median cost methodology. This enabled us to use claims with multiple units or multiple occurrences. Finally, we also used each hospital’s overall CCR to estimate costs for HCPCS code C1300 from billed charges rather than the CCR for the respiratory therapy or other departmental cost centers. Our ra tionale for using the hospital’s overall CCR canCMS-1525-P 106 be found in the CY 2005 OPPS final rule with comment period (69 FR 65758 through 65759). The public comments on the CY 2005 OPPS proposed rule effectively demonstrated that hospitals report the costs and charges for HBOT in a wide variety of cost centers. Since CY 2005, we have used th is methodology to estimate the median cost for HBOT. The median costs of HBOT us ing this methodology have been relatively stable for several years. For CY 2012, we are proposing to con tinue using the same methodology to estimate a “per unit” median cost for HCPC S code C1300. This methodology results in a proposed APC median cost of approximat ely $107 using 370,519 claims with multiple units or multiple occurrences for HCPCS code C1300 for CY 2012. (5) Payment for Ancillary Outpatient Se rvices When Patient Expires (APC 0375) In the November 1, 2002 final rule with comment period (67 FR 66798), we discussed the creation of the new HCPCS modi fier “–CA” to address situations where a procedure on the OPPS inpatient list must be performed to resuscitate or stabilize a patient (whose status is that of an out patient) with an emer gent, life-threatening condition, and the patient dies before being admitted as an inpatient. HCPCS modifier “-CA” is defined as a procedure payable onl y in the inpatient setting when performed emergently on an outpatient who expires prior to admission. In Transmittal A-02-129, issued on January 3, 2003, we instructed hosp itals on the use of this modifier. For a complete description of the history of th e policy and the development of the payment methodology for these services, we refer read ers to the CY 2007 O PPS final rule with comment period (71 FR 68157 through 68158).CMS-1525-P 107 For CY 2012, we are proposing to continue to use our established ratesetting methodology for calculating the median cost of APC 0375 (Ancillary Outpatient Services When Patient Expires) and to continue to make one payment under APC 0375 for the services that meet the specific conditions fo r using HCPCS modifier “–CA.” That is, we are proposing to calculate th e relative payment weight for APC 0375 by using all claims reporting a status indicator “C ” (inpatient procedures) appe nded with HCPCS modifier “-CA.” For the history and detailed explan ation of the methodology, we refer readers to the CY 2004 OPPS final rule (68 FR 63467 throu gh 63468), We continue to believe that this established ratesetting methodology results in the most appropriate aggregate median cost for the ancillary services provided in these unusual clinical situations. We believe that hospitals are reporting the HCPCS modifier “–CA” according to the policy initially establishe d in CY 2003. We note that the claims frequency for APC 0375 has been relatively stable over the past few years. We note that the median cost for APC 0375 has decreased based on the CY 2010 OPPS claims data used for the development of the proposed rates for CY 2012 compared to that for CY 2011. Variation in the median cost for APC 0375 is expected because of the small number of claims and because the specific cases are grouped by th e presence of the HCPCS modifier “-CA” appended to an inpatient only procedure and not according to the standard APC criteria of clinical and resource homoge neity. Cost variation for AP C 0375 from year to year is anticipated and acceptable as long as hospitals continue judicious reporting of the HCPCS modifier “-CA.” Ta ble 4 below shows the number of claims, and the median costs for APC 0375 for CYs 2007, 2008, 2009, 2010, and 2011, and the proposed medianCMS-1525-P 108 cost for APC 0375 for CY 2012. For CY 2012, we are proposing a median cost of approximately $5,711 for APC 0375 based on 155 claims.

TABLE 4.--CLAIMS FOR ANCILLARY OUTPATIENT SERVICES WHEN PATIENT EXPIRES (–CA MODIFIER) FOR CYs 2007 THROUGH 2012 Prospective Payment Year Number of Claims APC Median Cost CY 2007 260 $3,549 CY 2008 183 $4,945 CY 2009 168 $5,545 CY 2010 182 $5,911 CY 2011 168 $6,304 CY 2012 155 $5,711* *Proposed median cost. (6) Endovascular Revascularization of the Lower Extremity (APCs 0083, 0229, and 0319) For the CY 2011 update, the AMA’s CPT Editorial Panel created 16 new CPT codes in the Endovascular Revascularizat ion section of the 2011 CPT code book to describe endovascular revascul arization procedures of the lower extremity performed for occlusive disease. In the CY 2011 O PPS/ASC final rule with comment period (75 FR 71841 through 71845), we discussed the process and methodology by which we assigned the new CY 2011 endova scular revascularization CP T codes to APCs that we believe are comparable with re spect to clinical characterist ics and resources required to furnish the services. Specifically, we we re able to use the existing CY 2009 hospital outpatient claims data and most recent cost re port data to create simulated medians for 12 of the 16 new separately payable codes for CY 2011. Because the endovascular revascularization CPT codes are new for CY 2011, we used our CY 2009 single andCMS-1525-P 109 “pseudo” single claims data to simulate the new CY 2011 CPT code definitions. As shown in Table 7 of the CY 2011 OPPS/ ASC final rule with comment period (75 FR 71844), many of the new endovascul ar revascularization CPT codes were previously reported using a combination of CY 2009 CPT codes. In order to simulate median costs, we selected claims that we be lieve meet the definition for each of the new endovascular revascularization CPT codes. Table 7 showed the criteria we applied to select a claim to be used in the calculati on of the median cost for the new codes (shown in Column A). As we stated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71842), we developed these criteria based on our clinicians’ understanding of services that were reported by CY 2009 CPT co des that, in various combinations, reflect the services provided that are described by the new CPT codes for CY 2011. After determining the simulated median costs for the procedures, we assigned each CPT code to appropriate APCs based on their clinical homogeneity and resourceuse. Of the 16 new codes, we assigned 9 CPT codes to APC 0083 (Coronary or NonCoronary Angioplasty and Percutaneous Valvuloplasty) and 5 CPT codes to APC 0229 (Transcatheter Placement of Intravas cular Shunts), and created new APC 0319 (Endovascular Revascularization of the Lower Extremity) for 2 CPT codes. Table 8 of the CY 2011 OPPS/ASC final rule with comm ent period displayed their final CY 2011 APC assignments and CPT median costs (75 FR 71845). We noted that because these CPT codes are new for CY 2011, they are iden tified with comment indicator “NI” in Addendum B to the CY 2011 OPPS/ASC final rule with comment period to identify them as a new interim APC assignment for the new year and subject to public comment. WeCMS-1525-P 110 specifically requested public comment on our methodology for simulating the median costs for these new CY 2011 CPT codes in addition to public comments on the payment rates themselves (75 FR 71845). At its February 28-March 1, 2011 meeti ng, the APC Panel recommended that CMS provide data to allow the Panel to inve stigate and monitor the APC weights for the lower extremity revascularization procedur es in light of CPT coding changes for CY 2011. We are accepting the APC Pa nel’s recommendation and will provide additional data to the Pane l at an upcoming meeting. For CY 2012, we are proposing to conti nue with the CY 2011 methodology that was described previously in this section in determining the APC assignments for the CPT codes that describe endovascular revasc ularization of the lower extremity. The predecessor endovascular revascularization CP T codes were in existence prior to CY 2011 and were assigned to APCs based on claims data and cost report data. Given that these data are available for the services described by the predecessor endovascular revascularization CPT codes, we are propos ing to continue for CY 2012 to use the existing hospital outpatient clai ms and cost report data fr om the previous endovascular revascularization CPT codes to simulate an estimated median cost for the new endovascular revascularization CPT code s in determining the appropriate APC assignments. As has been our practice sin ce the implementation of the OPPS in 2000, we review our latest claims data for ratesetting and, if necessary, revise the APC assignments for the upcoming year. In this case, review of the procedures with si gnificant claims data in APC 0083 showed a 2 times rule violati on. Specifically, APC 0083, as it was initiallyCMS-1525-P 111 configured, showed that the range of the CPT median costs for the procedures with significant claims data was approxima tely between $3,252 (for CPT code 35476 (Transluminal balloon angioplasty, percut aneous; venous)) and $7,174 (for CPT code 37221 (Revascularization, endovascular, open or percutaneous, iliac artery, unilateral, initial vessel; with transluminal stent placem ent(s), includes angioplasty within the same vessel, when performed)), resulting in a 2 tim es rule violation. Because of its median cost, we believe that CPT code 37221 would be more appropriately placed in APC 0229, which had an initial estimated median cost of approximately $8,606, based on the clinical and resource characteristics of other procedures also assi gned to APC 0229. Therefore, for CY 2012, we are proposing to revise the APC assignment for CPT code 37221, from APC 0083 to APC 0229, to accurately reflect the cost and clinical feature of the procedure. This proposed reassignment of CPT code 37221 from APC 0083 to APC 0029 eliminates the 2 times rule violati on for APC 0083 noted above. Based on this reconfiguration, the CY 2010 claims data availa ble for this proposed rule were used to calculate a median cost of approximate ly $4,683 for APC 0083, approximately $8,218 for APC 0229, and approximately $14,556 for APC 0319. All three proposed median costs for CY 2012 are significantlygreater than the CY 2011 OPPS/ASC final rule median costs of approximately $3,740 for APC 0083, approximately $7,940 for APC 0229, and approximately $13,751 for APC 0319. In addition, we are proposing to revise the APC titles for APCs 0083, 0229, and 0319 to better describe the procedures assign ed to these APCs. Specifically, we are proposing to revise the APC title for AP C 0083 from “Coronary or Non-CoronaryCMS-1525-P 112 Angioplasty and Percutaneous Valvul oplasty” to “Level I Endovascular Revascularization of the Lower Extrem ity”; for APC 0229, from “Transcatheter Placement of Intravascular Shunt and Stents” to “Level II Endovascular Revascularization of the Lower Extremity ”; and for APC 0319, from “Endovascular Revascularization of the Lower Extremity” to “Level III Endovascular Revascularization of the Lower Extremity.” We are soliciting public comments on th e proposed status indicators and APC assignments for the endovascular revasculariz ation of the lower extremity CPT codes. Table 5 below lists the endovasc ular revascularization of th e lower extremity CPT codes along with their proposed status indi cator and APC assignments for CY 2012.

TABLE 5.—PROPOSED APCs TO WHICH ENDOVASCULAR REVASCULARIZATION OF THE LOWE R EXTREMITY CPT CODES WOULD BE ASSIGNED FOR CY 2012

CY 2011 HCPCS

Code CY 2011 Short Descriptor CY 2011

SI CY 2011 APC Proposed CY 2012 SI Proposed CY 2012

APC 37220 Iliac revasc T 0083 T 0083 37221 Iliac revasc w/stent T 0083 T 0229 37222 Iliac revasc add-on T 0083 T 0083 37223 Iliac revasc w/stent add-on T 0083 T 0083 37224 Fem/popl revas w/tla T 0083 T 0083 37225 Fem/popl revas w/ather T 0229 T 0229 37226 Fem/popl revasc w/stent T 0229 T 0229 37227 Fem/popl revasc stnt & ather T 0319 T 0319 37228 Tib/per revasc w/tla T 0083 T 0083 37229 Tib/per revasc w/ather T 0229 T 0229 37230 Tib/per revasc w/stent T 0229 T 0229 37231 Tib/per revasc stent & ather T 0319 T 0319 37232 Tib/per revasc add-on T 0083 T 0083 37233 Tibper revasc w/ather add-on T 0229 T 0229 37234 Revsc opn/prq tib/pero stent T 0083 T 0083 37235 Tib/per revasc stnt & ather T 0083 T 0083CMS-1525-P 113

(7) Non-Congenital Cardiac Catheterization (APC 0080) For CY 2011, the AMA CPT Editorial Pa nel deleted 19 non-congenital cardiac catheterization-related CPT codes and repla ced them with 20 new CPT codes in the Cardiac Catheterization and Injection-Related section of the 2011 CPT Code Book to describe more precisely the specific services provided during cardiac catheterization procedures. In particular, the CPT Edito rial Panel deleted 19 non-congenital cardiac catheterization-related CPT codes from th e 93500 series and created 14 new CPT codes in the 93400 series and 6 in the 93500 series . We discussed these coding changes in detail in the CY 2011 OPPS/AS C final rule with comment period, along with the process by which we assigned the new CPT codes to AP Cs that we believe are comparable with respect to clinical characteristics and resources required to furnish the cardiac catheterization services de scribed by the new CPT codes (75 FR 71846 through 71849). As discussed in the final rule with comment period, we were able to use the existing CY 2009 hospital outpatient claims data and the most recent cost report data to create simulated medians for the new separately pa yable CPT codes for CY 2011. Specifically, to estimate the hospital costs associat ed with the 20 new non-congenital cardiac catheterization-related CPT codes based on th eir CY 2011 descriptors, we used claims and cost report data from CY 2009. B ecause of the substantive coding changes associated with the new non-congenital cardi ac catheterization-related CPT codes for CY 2011, we used our CY 2009 single and “pseudo” si ngle claims data to simulate the new CY 2011 CPT code definitions. We stated that many of the new CPT codes wereCMS-1525-P 114 previously reported using multiple CY 2009 CP T codes, and we provided a crosswalk of the new CY 2011 cardiac catheterization CPT codes mapped to the CY 2009 cardiac catheterization CPT codes inTable 11 of the CY 2011 OP PS/ASC final rule with comment period (75 FR 71849). Table 11 showedthe criteria we applied to select a claim to be used in the calculation of the median cost for the new codes (shown in column A). As we stated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71847 through 71848), we developed th ese criteria based on our clinicians’ understanding of services that were repor ted by CY 2009 CPT codes that, in various combinations, reflect the services provided th at are described in the new CPT codes. We used approximately 175,000 claims for the ne w non-congenital catheterization-related CPT codes, together with the single a nd “pseudo” single procedure claims for the remaining congenital catheter ization-related CPT codes in APC 0080, to calculate CPT level median costs and the median cost for APC 0080 of approximately $2,698. We noted that, because the CPT codes listed inTable 11 are new for CY 2011, they were identified with comment indicator “NI” in A ddendum B of that final rule with comment period to identify them as subject to public comment. We specifically requested public comment on our methodology for simulating th e median costs for these new CY 2011 CPT codes, in addition to public comments on the payment rates themselves (75 FR 71848). For CY 2012, we are proposing to con tinue with the CY 2011 methodology in determining the APC assignments for the cardiac catheterizati on CPT codes. The predecessor cardiac ca theterization CPT codes were inexistence prior to CY 2011 andCMS-1525-P 115 were assigned to APC 0080 based on claims da ta and cost report data. Given that these data are available for the services describe d by the predecessor cardiac catheterization CPT codes, for CY 2012, we are proposing to continue to use the existing hospital outpatient claims and cost report data fr om the predecessor cardiac catheterization CPT codes to simulate an estimated median cost for the new cardiac catheterization CPT codes in determining the appropriate APC assignmen ts. As has been our practice since the implementation of the OPPS in 2000, we review our latest claims data for ratesetting and, if necessary, revise the APC assignments fo r the upcoming year. Based on analysis of the CY 2010 claims data available for this proposed rule, the proposed median cost for APC 0080 is approximately $2,822 for CY 2012, which is slightly greater than the median cost of approximately $2,698 fo r the CY 2011 OPPS/ASC final rule with comment period. For CY 2012, we are not pr oposing any changes to the CY 2011 APC assignments of any of the codes assigned to APC 0080 because the claims data available for this proposed rule support con tinuation of these APC assignments. We are soliciting public comments on the proposed status indicators and the APC assignments for the CY 2012 cardiac catheteriza tion CPT codes. Table 6 below lists the CY 2011 cardiac catheterization CPT codes along with their proposed status indicators, APC assignments, and payment rates for CY 2012.CMS-1525-P 116

TABLE 6.—PROPOSED APCs TO WHICH NON-CONGENITAL CARDIAC CATHETERIZATION CPT CODES WO ULD BE ASSIGNED FOR CY 2012

CY 2011 HCPCS

Code CY 2011 Short Descriptor CY 2011

SI CY 2011 APC Proposed CY 2012 SI Proposed CY 2012

APC 93451 Right heart cath T 0080 T 0080 93452 Left hrt cath w/ventrclgrphy T 0080 T 0080 93453 R&l hrt cath w/ventriclgrphy T 0080 T 0080 93454 Coronary artery angio s&i T 0080 T 0080 93455 Coronary art/grft angio s&i T 0080 T 0080 93456 R hrt coronary artery angio T 0080 T 0080 93457 R hrt art/grft angio T 0080 T 0080 93458 L hrt artery/ventricle angio T 0080 T 0080 93459 L hrt art/grft angio T 0080 T 0080 93460 R&l hrt art/ventricle angio T 0080 T 0080 93461 R&l hrt art/ventricle angio T 0080 T 0080 93462 L hrt cath trnsptl puncture T 0080 T 0080

93463 Drug admin & hemodynmic meas N NA N NA

93464 Exercise w/hemodynamic meas N NA N NA 93563 Inject congenital card cath N NA N NA 93564 Inject hrt congntl art/grft N NA N NA 93565 Inject l ventr/at rial angio N NA N NA 93566 Inject r ventr/atrial angio N NA N NA 93567 Inject suprvlv aortography N NA N NA 93568 Inject pulm art hrt cath N NA N NA

(8) Cranial Neurostimulator and Electrodes (APC 0318) For CY 2011, the AMA CPT Editorial Panel created a new CPT code 64568 (Incision for implantation of cranial nerve (e g, vagus nerve) neurostimulator electrode array and pulse generator) and in dicates that it describes the services formerly included in the combinations of (1) CPT code 64573 (Inci sion for implantation of neurostimulator electrodes; cranial nerve) and CPT code 61885 (Insertion or replacement of cranialCMS-1525-P 117 neurostimulator pulse generator or receiver, direct or induc tive coupling; with connection to a single electrode array); or (2) CP T code 64573 and CPT code 61886 (Insertion or replacement of cranial neurostimulator pulse generator or receiver , direct or inductive coupling; with connection to two or more el ectrode arrays). As we discussed in the CY 2011 OPPS/ASC final rule with comme nt period (75 FR 71850), our standard process for assigning new CPT codes to APCs is to assign the code to the APC that we believe contains services that are comparable with respect to clinical characteristics and resources required to furnish the service. A new CPT code is given a comment indicator of “NI” to identify it as a new interim APC assignment for the first year and the APC assignment for the new code is then open to pub lic comment. In some, but not all, cases, we are able to use the existing data from es tablished codes to simulate an estimated median cost for the new code to guide us in the assignment of the new code to an APC. For CY 2011, in the case of the new neur ostimulator electrode and pulse generator implantation CPT code, we were able to use the existing CY 2009 claims and most current cost report data to create a simulated median cost. Specifically, to estimate the hospita l costs of CPT code 64568 based on its CY 2011 descriptor, we used CY 2009 claims a nd the most recent cost report data, using the single and “pseudo” single claims within this data set to simulate the definition of this service. We selected claims with CPT code 64573 on which CPT code 61885 or 61886 was also present and consistent with the description of the new CPT code 64568. We treated the summed costs on these claims as if they were a single procedure claim for CPT code 64568. We created an estimated median cost of approximately $22,562 forCMS-1525-P 118 CPT code 64568 from 298 single claims to se t a final payment rate for CY 2011 for the new code. We created APC 0318 (Implanta tion of Cranial Neurostimulator Pulse Generator and Electrode) for CY 2011, to which CPT code 64568 is the only procedure assigned. APC 0225 (Implantation of Neurostimulator Electrode s, Cranial Nerve), which contained only the predecessor CPT code 64573, was deleted effective January 1, 2011. We noted that, because CPT code 64568 is new for CY 2011, it was identified with comment indicator “NI” in Addendum B of the CY 2011 OPPS/ASC final rule with comment period to identify it as subject to public comment. We specifically requested public comment on our methodology for simulating the median costs for this new CY 2011 CPT code, in addition to public comments on the payment rate itself (75 FR 71850). For CY 2012, we are proposing to use the same methodology we used in CY 2011 to estimate the hospital costs of CPT code 64568. We created an estimated median cost of approximately $24,267 for CPT code 64568 from 332 single claims to set a proposed payment rate for APC 0318 for CY 2012. We are proposing to maintain CPT code 64568 as the only code assigned to APC 0318 for CY 2012. We continue to request public comment on our proposed methodology for simula ting the median cost for this CPT code introduced in CY 2011, in addition to public comments on the proposed payment rate itself. (9) Brachytherapy Sources (A) Background Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) of Pub. L. 108-173 (MMA), mandated the creati on of additional groups of covered OPDCMS-1525-P 119 services that classify devi ces of brachytherapy consisti ng of a seed or seeds (or radioactive source) (“ brachytherapy sources”) separately from other services or groups of services. The additional groups must refl ect the number, isotope, and radioactive intensity of the brachytherapy sources furn ished and include separate groups for palladium-103 and iodine-125 sources. Section 1833(t)(16)(C) of the Act, as added by section 621(b)(1) of Pub. L. 108-173, established payment for brachytherapy sources furnished from January 1, 2004 through December 31, 2006, based on a hospital’s charges for each brachytherapy source furnished adjusted to cost. Under section 1833(t)(16)(C) of the Act, charges for the brachytherapy sources ma y not be used in determining any outlier payments under the OPPS for that period in wh ich payment is based on charges adjusted to cost. Consistent with our practice under th e OPPS to exclude items paid at cost from budget neutrality consideration, these items we re excluded from budget neutrality for that time period as well. Subsequent to the MMA, various amendments to the Act were made that resulted in the extension of the payment period fo r brachytherapy sources based on a hospital’s charges adjusted to cost through December 31, 2009. The CY 2011 OPPS/ASC final rule with comment period summarizes these amendm ents to the Act and our proposals to pay for brachytherapy sources at prospective paym ent rates based on their source specific median costs from CY 2007 thr ough CY 2009 (75 FR 71977 through 71981). In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60533 through 60537), we adopted for CY 2010 the general OPPS prospective payment methodologyCMS-1525-P 120 for brachytherapy sources, consistent with se ction 1833(t)(2)(C) of the Act, with payment rates based on source-specific median costs. For CY 2011, we continued to use the general OPPS prospective payment methodol ogy for brachytherapy sources, consistent with section 1833(t)(2)(C) of th e Act (75 FR 71980). We also finalized our proposals to continue the policy we first implemented in the CY 2010 OPPS/AS C final rule with comment period (74 FR 60537 and 75 FR 71980) regarding payment for new brachytherapy sources for which we have no cl aims data, based on the same reasons we discussed in the 2008 OPPS/ASC final rule with comment period (72 FR 66786; which was superseded by section 142 of Pub. L. 110-275) . That policy is intended to enable us to assign future new HCPCS codes for new brachytherapy sources to their own APCs, with prospective payment rates set based on our consideration of exte rnal data and other relevant information regard ing the expected costs of the sources to hospitals. Consistent with our policy regarding APC payments made on a prospective basis, for CYs 2010 and 2011, we finalized proposal s to subject brachyt herapy sources to outlier payments under section 1833(t)(5) of the Act, and al so to subject brachytherapy source payment weights to scaling for purposes of budget neutrality (75 FR 71980 through 71981 and 75 FR 60537). Hospitals could receive outlier payments for brachytherapy sources if the costs of furnis hing brachytherapy sources meet the criteria for outlier payment. In addition, as noted in the CY 2010 and CY 2011 OPPS/ASC final rules with comment period (74 FR 60534 and 75 FR 71978 and 71979, respectively), implementation of prospective payments for brachytherapy sources provided opportunities for eligible hosp itals to receive additiona l payments in CY 2010 andCMS-1525-P 121 CY 2011 under certain circumstances thr ough the 7.1 percent rura l adjustment, as described in section II.E. of this final rule with comment period. (B) Proposed OPPS Payment Policy As we have stated previously (72 FR 66780, 73 FR 41502, 74 FR 60533 through 60534, and 75 FR 71978), we believe that adopting the general OPPS prospective payment methodology for brachytherapy sources is appropriate for a number of reasons. The general OPPS payment methodology uses medi an costs based on claims data to set the relative payment weights for hospital out patient services. This payment methodology results in more consistent, predictable, and equitable payment amounts per source across hospitals by eliminating some of the extr emely high and low payment amounts resulting from payment based on hospitals ’ charges adjusted to cost. We believe that the OPPS prospective payment methodology, as opposed to payment based on hospitals’ charges adjusted to cost, would also provide hospita ls with incentives for efficiency in the provision of brachytherapy services to Medicare beneficiaries. Moreover, this approach is consistent with our payment methodology for the vast majority of items and services paid under the OPPS. For CY 2012, we are proposing to use the median costs from CY 2010 claims data for setting the proposed CY 2012 payment rates for brachytherapy sources, as we are proposing for most other items and services that will be paid under the CY 2012 OPPS. We are proposing to continue the other pa yment policies for brachytherapy sources we finalized and first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60537). We are proposing to pay for the stranded and non-stranded NOSCMS-1525-P 122 codes, HCPCS codes C2698 and C2699, at a ra te equal to the lowest stranded or non-stranded prospective payment rate for su ch sources, respectively, on a per source basis (as opposed, for example, to a per mCi), which is based on the policy we established in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66785). The proposed payment methodology for NOS sources would provide payment to a hospital for new sources and, at the same time , encourage interested parties to quickly bring new sources to our attention so th at specific coding and payment could be established. We also are proposing to continue th e policy we first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60537) regarding payment for new brachytherapy sources for which we have no claims data, based on the same reasons we discussed in the CY 2008 O PPS/ASC final rule with comment period (72 FR 66786; which was superseded for a period of time by section 142 of Pub. L. 110-275). That policy is intended to enable us to assign new HCPCS codes for new brachytherapy sources to their own APCs, w ith prospective payment rates set based on our consideration of external data and other relevant inform ation regarding the expected costs of the sources to hospitals. Consistent with our policy regarding AP C payments made on a prospective basis, as we did for CY 2011, we are proposing to subject brachytherapy sources to outlier payments under section 1833(t)(5) of the Act, and also to subject brachytherapy source payment weights to scaling for purposes of budget neutrality. Ho spitals can receive outlier payments for brachytherapy sources if the costs of furnishing brachytherapyCMS-1525-P 123 sources meet the criteria for outlier payment. In addition, as not ed in the CY 2010 and CY 2011 OPPS/ASC final rules with comme nt period (74 FR 60534 and 75 FR 71978 through 71979, respectively), implementation of prospective payments for brachytherapy sources would provide opportuni ties for eligible hospitals to receive additional payments in CY 2012 under certain circumstances thr ough the 7.1 percent ru ral adjustment, as described in section II.E. of this proposed rule. Therefore, we are proposing to pay fo r brachytherapy sources at prospective payment rates based on their source-specific median costs for CY 2012. We refer readers to Addendum B to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Intern et on the CMS Web site) for the proposed CY 2012 payment rates for brachytherapy sources, identified with stat us indicator “U.” For more detailed discussion of the legisla tive history surrounding brachytherapy sources and our proposed and final policies for CY 2004 through CY 2011, we refer readers to the CY 2011 OPPS/ASC final rule with comment period (75 FR 71977 through 71981). We continue to invite hospitals and othe r parties to submit recommendations to us for new HCPCS codes to describe new brachyt herapy sources consisti ng of a radioactive isotope, including a detailed rationale to support recommended new sources. Such recommendations should be directed to th e Division of Outpatient Care, Mail Stop C4-05-17, Centers for Medicare and Medica id Services, 7500 Security Boulevard, Baltimore, MD 21244. We will continue to add new brachytherapy source codes and descriptors to our systems for payment on a quarterly basis.CMS-1525-P 124 e. Proposed Calculation of Compos ite APC Criteria-Based Median Costs As discussed in the CY 2008 OPPS/AS C final rule with comment period (72 FR 66613), we believe it is important that the OPPS enhance incentives for hospitals to provide only necessary, high quality care and to provide that care as efficiently as possible. For CY 2008, we developed compos ite APCs to provide a single payment for groups of services that are ty pically performed together duri ng a single clini cal encounter and that result in the provision of a complete service. Combining payment for multiple independent services into a single OPPS paymen t in this way enables hospitals to manage their resources with maximum flexibility by monitoring and adjusting the volume and efficiency of services themselves. An a dditional advantage to the composite APC model is that we can use data from correctly coded multiple procedure claims to calculate payment rates for the specified combinations of services, rather than relying upon single procedure claims which may be low in vol ume and/or incorrectly coded. Under the OPPS, we currently have composite AP C policies for extended assessment and management services, low dose rate (LDR) prostate brachytherapy, cardiac electrophysiologic evaluation and ablation servic es, mental health services, and multiple imaging services. We refer readers to th e CY 2008 OPPS/ASC final rule with comment period for a full discussion of the development of the composite APC methodology (72 FR 66611 through 66614 and 66650 through 66652). For CY 2012, we are proposing to con tinue, with some modifications, our established composite APC policies for extended assessment and management, LDR prostate brachytherapy, cardiac electrophysiologi c evaluation and ablatio n, mental healthCMS-1525-P 125 services, and multiple imaging services, as di scussed in sections II.A.2.e.(1), II.A.2.e.(2), II.A.2.e.(3), II.A.2.e.(4), and II.A .2.e.(5), respectively, of this proposed rule. We also are proposing to create a new co mposite APC for cardiac resync hronization therapy services, as discussed in section II.A.2.e .(6) of this proposed rule. (1) Extended Assessment and Manageme nt Composite APCs (APCs 8002 and 8003) For CY 2012, we are proposing to c ontinue to include composite APC 8002 (Level I Extended Assessment and Mana gement Composite) and composite APC 8003 (Level II Extended Assessment and Manage ment Composite) in the OPPS. For CY 2008, we created these two composite APCs to provide payment to hospitals in certain circumstances when extended assessmen t and management of a patient occur (an extended visit). In most circumstances, obs ervation services are s upportive and ancillary to the other services provided to a patient. In the circumstances when observation care is provided in conjunction with a high level visit or direct referral a nd is an integral part of a patient’s extended encounter of care, paymen t is made for the entire care encounter through one of two composite APCs as appropriate. As defined for the CY 2008 OPPS, com posite APC 8002 describes an encounter for care provided to a patient that includes a high level (Level 5) clinic visit or direct referral for observation services in conjuncti on with observation serv ices of substantial duration (72 FR 66648 through 66649). Composite APC 8003 describes an encounter for care provided to a patient that includes a hi gh level (Level 4 or 5) Type A emergency department visit, a high level (Level 5) Type B emergency de partment visit, or critical care services in conjunction with observati on services of substantial duration. HCPCSCMS-1525-P 126 code G0378 (Observation services, per hour) is assigned status indi cator “N,” signifying that its payment is always packaged. As noted in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66648 through 66649), th e Integrated Outpatient Code Editor (I/OCE) evaluates every claim received to determine if payment through a composite APC is appropriate. If payment through a comp osite APC is inappropr iate, the I/OCE, in conjunction with the OPPS Pricer, determines the appropriate status indicator, APC, and payment for every code on a claim. The speci fic criteria that must be met for the two extended assessment and management composite APCs to be paid are provided below in the description of the claims that were se lected for the calculation of the proposed CY 2012 median costs for these composite APCs . We are not proposing to change these criteria for the CY 2012 OPPS. When we created composite APCs 8002 and 8003 for CY 2008, we retained as general reporting requirements for all observation services those criteria related to physician order and evaluation, documentati on, and observation beginning and ending time as listed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66812). These are more general requirements that encourage hospitals to provide medically reasonable and necessary care and help to ensure the proper reporting of observation services on correctly coded hospi tal claims that reflect the full charges associated with all hospital resources utilized to provide the reported services . We also issued guidance clarifying the correct method for reporting the starting time for observation services (sections 290.2.2 through 290.5 in the Medicare Claims Processing Manual (Pub. 100-4), Chapter 4, through Transmittal 1745, Cha nge Request 6492, issued May 22, 2009 andCMS-1525-P 127 implemented July 6, 2009). We are not propos ing to change these reporting requirements for the CY 2012 OPPS. For CY 2012, we are proposing to c ontinue the extended assessment and management composite APC payment methodology for APCs 8002 and 8003. We continue to believe that the composite APCs 8002 and 8003 and related policies provide the most appropriate means of paying for thes e services. We are proposing to calculate the median costs for APCs 8002 and 8003 usi ng all single and “pse udo” single procedure claims for CY 2010 that meet the criteria for payment of each composite APC. Specifically, to calculate the proposed me dian costs for composite APCs 8002 and 8003, we selected single and “pseudo” single procedure claims that met each of the following criteria: 1. Did not contain a HCPCS code to whic h we have assigned status indicator “T” that is reported with a date of service 1 day earlier than the da te of service associated with HCPCS code G0378. (By selecting these claims from single and “pseudo” single claims, we had already assured that they would not contain a code for a service with status indicator “T” on the same date of service.); 2. Contained eight or more units of HCPCS code G0378; and 3. Contained one of the following codes:

● In the case of composite APC 8002, HC PCS code G0379 (Direct referral of patient for hospital observation care) on the sa me date of service as HCPCS code G0378; or CPT code 99205 (Office or other outpatient visit for the evaluation and management of a new patient (Level 5)); orCPT code 99215 (Office or other outpatient visit for theCMS-1525-P 128 evaluation and management of an establishe d patient (Level 5)) provided on the same date of service or one day before th e date of service for HCPCS code G0378.

● In the case of composite APC 8003, CPT code 99284 (Emergency department visit for the evaluation and management of a patient (Level 4)); CPT code 99285 (Emergency department visit for the evaluati on and management of a patient (Level 5)); CPT code 99291 (Critical care, evaluation a nd management of the critically ill or critically injured patient; first 30-74 minutes ); or HCPCS code G0384 (Level 5 hospital emergency department visit provided in a Type B emergency department) provided on the same date of service or one day before the date of service for HCPCS code G0378. (As discussed in detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68684), we added HCPCS code G0384 to the eligibility criteria for composite APC 8003 for CY 2009.) As discussed further in section VII. of this proposed rule, and consistent with our CY 2008, CY 2009, CY 2010, and CY 2011 final polic ies, when calculating the median costs for the clinic, Type A emergency depart ment visit, Type B emergency department visit, and critical care APCs (0604 th rough 0617 and 0626 through 0630), we utilize our methodology that excludes those claims for vi sits that are eligible for payment through the two extended assessment and manageme nt composite APCs, that is APC 8002 or APC 8003. We believe that this approach results in the most accurate cost estimates for APCs 0604 through 0617 and 0626 through 0630 for CY 2012.CMS-1525-P 129 At its February 28-March 1, 2011 meeting, the APC Panel recommended that CMS consider expanding the extended asse ssment and management composite APCs for CY 2012. We are accepting this recommendation. Consistent with our acceptance of the APC Panel’s recommendation, we have examined various ways of potentially e xpanding the current extended assessment and management composite APCs to further limit the possibility that total beneficiary copayments would exceed the inpatient deductible during extended observation encounters. At this time, we have de cided not to pursue for CY 2012 the expanded extended assessment and management composite APCs that we analyzed because, while the composites that we modele d would serve to further lim it the number of beneficiaries with copayments that exceeded the inpatient deductible, the modeled composites also had the effect of possibly increasing copayments by a small amount for the majority of beneficiaries undergoing extended observati on. In addition, expanded assessment and management composite APCs do not addr ess certain concerns about extended observation services raised by stakeholders at CMS’ observation listening session last year (that is, observation time not counti ng towards the 3-day prior hospitalization requirement for the skilled nursing facility benefit). We will continue our efforts to model other composite structures for a possible new extended assessment and management composite structure for CY 2013. In summary, for CY 2012, we are propos ing to continue to include composite APCs 8002 and 8003 in the OPPS. We are proposing to continue the extended assessment and management composite APC payment methodology and criteria that weCMS-1525-P 130 finalized for CYs 2009, 2010, and 2011. We also are proposing to calculate the median costs for APCs 8002 and 8003 using the same me thodology that we used to calculate the medians for composite APCs 8002 and 8003 for the CY 2008 OPPS (72 FR 66649). That is, we used all single and “pseudo” single procedure claims from CY 2010 that met the criteria for payment of each composite AP C and applied the standard packaging and trimming rules to the claims before calcula ting the proposed CY 2012 median costs. The proposed CY 2012 median cost resulting from this methodology for composite APC 8002 is approximately $395, which was calculate d from 16,770 single and “pseudo” single bills that met the required cr iteria. The proposed CY 2012 median cost for composite APC 8003 is approximately $735, which was calculated from 225,874 single and “pseudo” single bills that met the required criteria. (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001) LDR prostate brachytherapy is a treatmen t for prostate cancer in which hollow needles or catheters are inserted into the prostate, followed by permanent implantation of radioactive sources into the prostate through the needles/ca theters. At least two CPT codes are used to report the composite treatme nt service because ther e are separate codes that describe placement of the needles/cathete rs and the application of the brachytherapy sources: CPT code 55875 (Transperineal placemen t of needles or catheters into prostate for interstitial radioelement application, w ith or without cystos copy) and CPT code 77778 (Interstitial radiation source application; co mplex). Generally, the component services represented by both codes are provided in the same operative session in the same hospital on the same date of servi ce to the Medicare beneficiar y being treated with LDRCMS-1525-P 131 brachytherapy for prostate cancer. As disc ussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66653), OPPS payment rates for CPT code 77778, in particular, had fluctuated over the years. We were frequently informed by the public that reliance on single procedure claims to set the me dian costs for these services resulted in use of mainly incorrectly coded claims for LDR prostate brachytherapy because a correctly coded claim should include, for the same date of service, CPT codes for both needle/catheter placement and application of radiation sources, as well as separately coded imaging and radiation therapy planning services (that is, a multiple procedure claim). In order to base payment on claims for th e most common clinical scenario, and to further our goal of providing payment under the OPPS for a larger bundle of component services provided in a single hospital encounter, beginning in CY 2008, we began providing a single payment for LDR prostate brachytherapy when the composite service, reported as CPT codes 55875 and 77778, is furnishe d in a single hospital encounter. We based the payment for composite APC 8001 (LDR Prostate Brachytherapy Composite) on the median cost derived from claims for th e same date of servic e that contain both CPT codes 55875 and 77778 and that do not contain other separately paid codes that are not on the bypass list. In uncommon occurr ences in which the services are billed individually, hospitals have continued to re ceive separate payments for the individual services. We refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66652 through 66655) for a full histor y of OPPS payment for LDR prostateCMS-1525-P 132 brachytherapy and a detailed description of how we developed the LDR prostate brachytherapy composite APC. For CY 2012, we are proposing to c ontinue paying for LDR prostate brachytherapy services using the co mposite APC methodology proposed and implemented for CY 2008 through CY 2011. Th at is, we are proposing to use CY 2010 claims on which both CPT codes 55875 and 77778 were billed on the same date of service with no other separately paid procedur e codes (other than those on the bypass list) to calculate the payment rate for composite APC 8001. Consistent with our CY 2008 through CY 2011 practice, we are proposing not to use the claims that meet these criteria in the calculation of the median costs fo r APCs 0163 (Level IV Cystourethroscopy and Other Genitourinary Procedures) and 0651 (C omplex Interstitial Radiation Source Application), the APCs to which CPT c odes 55875 and 77778 are assigned, respectively. The median costs for APCs 0163 and 0651 would continue to be calcu lated using single and “pseudo” single procedure claims. We be lieve that this composite APC contributes to our goal of creating hospital incentives fo r efficiency and cost containment, while providing hospitals with the most flexibility to manage their resources . We also continue to believe that data from claims reporti ng both services required for LDR prostate brachytherapy provide the most accurate medi an cost upon which to base the composite APC payment rate. Using partial year CY 2010 claims data available for this CY 2012 proposed rule, we were able to use 556 claims that contained both CPT codes 55875 and 77778 to calculate the median cost upon which th e proposed CY 2012 payment for compositeCMS-1525-P 133 APC 8001 is based. The proposed median cost for composite APC 8001 for CY 2012 is approximately $3,364. This is an increase co mpared to the CY 2011 final median cost for this composite APC of approximately $3,195 based on 849 single bill claims from a full year of CY 2009 claims data. The propos ed CY 2012 median cost for this composite APC is slightly less than $3,555, the sum of the proposed median costs for APCs 0163 and 0651 ($2,658 + $897), the APCs to which CPT codes 55875 and 77778 map if one service is billed on a claim without the othe r. We believe the proposed CY 2012 median cost for composite APC 8001 of approximately $3,364, calculated from claims we believe to be correctly code d, would result in a reasonable and appropriate payment rate for this service in CY 2012. (3) Cardiac Electrophysiologic Evaluati on and Ablation Composite APC (APC 8000) Cardiac electrophysiologic evaluation and ablation services frequently are performed in varying combinations with one another during a single episode of care in the hospital outpatient setting. Therefore, corre ctly coded claims for these services often include multiple codes for component services that are reported withdifferent CPT codes and that, prior to CY 2008, were always paid separately through different APCs (specifically, APC 0085 (Level II Electrophys iologic Evaluation), APC 0086 (Ablate Heart Dysrhythm Focus), and APC 0087 (Cardiac Electrophysiologic Recording/Mapping)). As a result, there w ould never be many single bills for cardiac electrophysiologic evaluation and ablation services, and those th at are reported as single bills would often represent atypical cases or incorrectly coded claims. As described in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66655 through 66659),CMS-1525-P 134 the APC Panel and the public expressed pers istent concerns rega rding the limited and reportedly unrepresentative sing le bills available for use in calculating the median costs for these services according to our standard OPPS methodology. Effective January 1, 2008, we establishe d APC 8000 (Cardiac Electrophysiologic Evaluation and Ablation Composite) to pay for a composite service made up of at least one specified electrophysiologic evaluation se rvice and one specified electrophysiologic ablation service. Calculating a composite AP C for these services allowed us to utilize many more claims than were available to es tablish the individual APC median costs for these services, and we also saw this com posite APC as an opportunity to advance our stated goal of promoting hospital efficiency through larger payment bundles. In order to calculate the median cost upon which the pa yment rate for composite APC 8000 is based, we used multiple procedure claims that cont ained at least one CPT code from group A for evaluation services and at leas t one CPT code from group B fo r ablation services reported on the same date of service on an individua l claim. Table 9 in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66656) identified the CPT codes that are assigned to groups A and B. For a full discussion of how we identified the group A and group B procedures and established the payment rate for the cardiac electrophysiologic evaluation and ablation composite APC, we refer reader s to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66655 through 66659). Wh ere a service in group A is furnished on a date of service that is di fferent from the date of servi ce for a code in group B for the same beneficiary, payments are made under the appropriate single procedure APCs and the composite APC does not apply.CMS-1525-P 135 For CY 2012, we are proposing to continue to pay for cardiac electrophysiologic evaluation and ablation services using the composite APC methodology proposed and implemented for CY 2008 through CY 2011. Consistent with our CY 2008 through CY 2011 practice, we are proposing not to us e the claims that meet the composite payment criteria in the calculation of the median costs for APC 0085 and APC 0086, to which the CPT codes in both groups A a nd B for composite APC 8000 are otherwise assigned. Median costs for APCs 0085 and 0086 would continue to be calculated using single procedure claims. We continue to believe that the composite APC methodology for cardiac electrophysiologic evaluation and ab lation services is the most efficient and effective way to use the claims data for the ma jority of these services and best represents the hospital resources associated with perf orming the common combinations of these services that are clinically t ypical. Furthermore, this approach creates incentives for efficiency by providing a single payment for a larger bundle of major procedures when they are performed together, in contrast to continued separate payment for each of the individual procedures. For CY 2012, using a partial year of CY 2010 claims data available for this proposed rule, we were able to use 11,156 claims containing a combination of group A and group B codes and calculate a proposed median cost of approximately $11,598 for composite APC 8000. This is an increase compared to the CY 2011 final median cost for this composite APC of approximately $10,673 based on a full year of CY 2009 claims data. We believe the proposed median co st of $11,598 calculated from a high volume of correctly coded multiple procedure claims w ould result in an accurate and appropriateCMS-1525-P 136 proposed payment for cardiac elec trophysiologic evaluation and ablation services when at least one evaluation service is furnished during the same clinical encounter as at least one ablation service. Table 7 below list the groups of pro cedures upon which we based proposed composite APC 8000 for CY 2012.

TABLE 7.—PROPOSED GROUPS OF CARDIAC ELECTROPHYSIOLOGIC EVALUATION AND ABLATION PROCEDURES UPON WHICH COMPOSITE APC 8000 IS BASED

Codes Used in Combinations: At Least One in Group A and One in Group B CY 2011 CPT Code Proposed Single Code

CY 2012

APC Proposed CY 2012 SI (Composite) Group A Comprehensive electrophysiologic evaluation with righ t atrial pacing and recording, right ventricular pacing and recording, His bundle recording, including insertion and repositioning of multiple electrode catheters, without induction or attempted induction of arrhythmia 93619 0085 Q3 Comprehensive electrophysiologic evaluation including insertion and repositioning of multiple electrode catheters with induction or at tempted induction of arrhythmia; with righ t atrial pacing and recording, right ventricular pacing and recording, His bundle recording 93620 0085 Q3 Group B Intracardiac cathe ter ablation of atrioventricular node function, atrioventricular conduct ion for creation of complete heart block, with or without temporary pacemaker placement 93650 0085 Q3CMS-1525-P 137

Codes Used in Combinations: At Least One in Group A and One in Group B CY 2011 CPT Code Proposed Single Code

CY 2012

APC Proposed CY 2012 SI (Composite) Intracardiac cathe ter ablation of arrhythmogenic focus; for treatment of supraventricular tac hycardia by ablation of fast or slow atriove ntricular pathways, accessory atrioventricular connections or other atrial foci, singly or in combination 93651 0086 Q3 Intracardiac cathe ter ablation of arrhythmogenic focus; for treatment of ventricular tachycardia 93652 0086 Q3

(4) Mental Health Services Composite APC (APC 0034) For CY 2012, we are proposing to conti nue our longstanding policy of limiting the aggregate payment for specified less res ource-intensive mental health services furnished on the same date to the payment for a day of partial hos pitalization, which we consider to be the most res ource-intensive of all outpatien t mental health treatment for CY 2012. We refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18452 through 18455) for the initial disc ussion of this longstanding policy. We continue to believe that the costs associated with administering a partial hospitalization program represent the most resource-intensive of all outpatient mental health treatment. Therefore, we do not believe that we shoul d pay more for a day of individual mental health services under the O PPS than the partial hospitalization per diem payment. As discussed in detail in s ection VIII. of this propos ed rule, for CY 2012, we are proposing to continue using a provider-specifi c two tiered payment approach for partial hospitalization services that distinguishes payment made for services furnished in a CMHC from payment made for services furn ished in a hospital. Specifically, we areCMS-1525-P 138 proposing one APC for partial hospitalization pr ogram days with thr ee services furnished in a CMHC (APC 0172, (Level I Partial Hospit alization (3 services) for CMHCs) and one APC for days with four or more services furnished in a CMHC (APC 0173, Level II Partial Hospitalization (4 or more services) for CMHCs). We are proposing that the payment rates for these two APCs be based upon the median per diem costs calculated using data only from CMHCs. Simila rly, we are proposing one APC for partial hospitalization program days with three services furnis hed in a hospital (APC 0175, Level I Partial Hospitalization (3 services) for Hospital-Based PHPs), and one APC for days with four or more services furnis hed in a hospital (APC 0176, Level II Partial Hospitalization (4 or more services) for Ho spital-Based PHPs). We are proposing that the payment rates for these two APCs be base d on the median per diem costs calculated using data only from hospitals. Because our longstanding policy of limiti ng the aggregate payment for specified less resource-intensive mental health services furnished on the same date to the payment rate for the most resource-intensive of all outpatient mental health treatment, we are proposing to continue to set the CY 2012 payment rate for APC 0034 (Mental Health Services Composite) at the same rate as we are proposing for APC 0176, which is the maximum partial hospitalization per diem payment. We believe this APC payment rate would provide the most appropriate pa yment for composite APC 0034, taking into consideration the intensity of the mental health services and the differences in the HCPCS codes for mental health services thatcould be paid thr ough this composite APC compared with the HCPCS codes that coul d be paid through pa rtial hospitalizationCMS-1525-P 139 APC 0176. When the aggregate payment for spec ified mental health services provided by one hospital to a single beneficiary on one date of service based on the payment rates associated with the APCs for the individua l services exceeds the maximum per diem partial hospitalization payment, we are propos ing that those specified mental health services would be assigned to APC 0034. We are proposing that APC 0034 would have the same payment rate as APC 0176 and that th e hospital would continue to be paid one unit of APC 0034. The I/OCE cu rrently determines, and we are proposing for CY 2012 that it would continue to determine, whether to pay these specified me ntal health services individually or to make a single payment at the same rate as the APC 0176 per diem rate for partial hospitalization for all of the specifi ed mental health services furnished by the hospital on that single date of service. (5) Multiple Imaging Composite APCs (APCs 8004, 8005, 8006, 8007, and 8008) Prior to CY 2009, hospitals received a full APC payment for each imaging service on a claim, regardless of how many procedur es were performed dur ing a single session using the same imaging modality. Based on exte nsive data analysis, we determined that this practice neither reflected nor promoted the efficiencies hospitals can achieve when performing multiple imaging procedures dur ing a single session (73 FR 41448 through 41450). As a result of our data analysis , and in response to ongoing recommendations from MedPAC to improve payment accuracy for imaging services under the OPPS, we expanded the composite APC model developed in CY 2008 to multiple imaging services. Effective January 1, 2009, we provide a single payment each time a hospital bills more than one imaging procedure within an imaging family on the same date of service. WeCMS-1525-P 140 utilize three imaging families based on imaging modality for purposes of this methodology: (1) ultrasound; (2) computed tomography (CT) and computed tomographic angiography (CTA); and (3) magnetic resonance imaging (MRI) and magnetic resonance angiography (MRA). The HCPCS codes subject to the multiple imaging composite policy and their respective families are listed in Table 13 of the CY 2011 OPPS/ASC final rule with co mment period (75 FR 71859 through 71860). While there are three imaging families, th ere are five multiple imaging composite APCs due to the statutory requirement at section 1833(t)(2)(G) of the Act that we differentiate payment for OPPS imaging servi ces provided with and without contrast. While the ultrasound procedures included in the policy do not involve contrast, both CT/CTA and MRI/MRA scans can be provided either with or without contrast. The five multiple imaging composite APCs established in CY 2009 are:

● APC 8004 (Ultrasound Composite);

● APC 8005 (CT and CTA without Contrast Composite);

● APC 8006 (CT and CTA with Contrast Composite);

● APC 8007 (MRI and MRA without Contrast Composite); and

● APC 8008 (MRI and MRA with Contrast Composite). We define the single imaging session for the “with contrast” composite APCs as having at least one or more imaging procedures from the same family performed with contrast on the same date of service. Fo r example, if the hosp ital performs an MRI without contrast during the same session as at least one other MRI with contrast, the hospital will receive payment for APC 8008, the “with contrast” composite APC.CMS-1525-P 141 Hospitals continue to use the same HC PCS codes to report imaging procedures, and the I/OCE determines when combinati ons of imaging procedures qualify for composite APC payment or map to standard (sole service) APCs for payment. We make a single payment for those imaging procedures that qualify for composite APC payment, as well as any packaged services furnished on the same date of service. The standard (noncomposite) APC assignments continue to apply for single imaging procedures and multiple imaging procedures performed across families. For a full discussion of the development of the multiple imaging compos ite APC methodology, we refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68559 through 68569). At its February 2010 meeting, the APC Panel recommended that CMS continue providing analysis on an ongoing basis of the impact on beneficiaries of the multiple imaging composite APCs as data become available. In the CY 2011 OPPS/ASC proposed rule, we indicated that we were accepting this recommendation and would provide the requested analysis to the APC Panel at a futu re meeting (75 FR 46212). At the February 28-March 1, 2011 APC Panel meeting, CMS staff provided an updated analysis of the multiple imaging composite APCs to the Panel, comparing partial year CY 2010 imaging composite cost and utiliza tion data to comparable CY 2009 data in order to meet the APC Panel request that we provide analysis of the impact on beneficiaries of the multiple imaging composite APCs. For CY 2012, we are proposing to continue paying for all multiple imaging procedures within an imaging family perfor med on the same date of service using the multiple imaging composite payment methodology. The proposed CY 2012 paymentCMS-1525-P 142 rates for the five multiple imaging com posite APCs (APC 8004, APC 8005, APC 8006, APC 8007, and APC 8008) are base d on median costs calculated from the partial year CY 2010 claims available for this proposed rule that qualified for composite payment under the current policy (that is, those claims with more than one procedure within the same family on a single date of service). To calculate the proposed median costs, we used the same methodology that we used to calculate the final CY 2011 median costs for these composite APCs. That is, we rem oved any HCPCS codes in the OPPS imaging families that overlapped with codes on our bypass list (“overlap bypass codes”) to avoid splitting claims with multiple units or multiple occurrences of codes in an OPPS imaging family into new “pseudo” single claims. The imaging HCPCS codes that we removed from the bypass list for purposes of calcula ting the proposed multiple imaging composite APC median costs appear in Table 9 of this pr oposed rule. (We note that, consistent with our proposal in section II.A.1.b. of this proposed rule to add CPT code 71550 (Magnetic resonance (eg, proton) imaging, chest (eg, for evaluation of hilar and mediastinal lymphadenopathy); without contrast material (s)) to the list of bypa ss codes for CY 2012, we also are proposing to add CPT code 71550 to the list of proposed OPPS imaging family services overlapping with HCPCS codes on the proposed CY 2012 bypass list.) We integrated the identification of imaging composite “single session” claims, that is, claims with multiple imaging procedures within the same family on the same date of service, into the creat ion of “pseudo” single procedure clai ms to ensure that claims were split in the “pseudo” single process into accurate reflections of either a composite “single session” imaging service or a standard sole im aging service resource cost. Like all singleCMS-1525-P 143 bills, the new composite “single session” clai ms were for the same date of service and contained no other separately paid services inorder to isolate the session imaging costs. Our last step after proces sing all claims through the “pseudo” single process was to reassess the remaining multiple procedure cl aims using the full bypass list and bypass process in order to determine if we could ma ke other “pseudo” single bills. That is, we assessed whether a single sepa rately paid service remained on the claim after removing line-items for the “overlap bypass codes.” As discussed in detail in s ection III.D.2. of this proposed rule, we are proposing to establish two APCs to which we would propos e to assign the codes created for CY 2011 by the AMA’s CPT Editorial Board for combined abdominal and pelvis CT services. Specifically, we are proposing to crea te new APC 0331 (Combined Abdominal and Pelvis CT Without Contrast ), to which we are propos ing to assign CPT code 74176 (Computed tomography, abdomen and pelvis; wi thout contrast material); and we are proposing to create new APC 0334 (Combined A bdominal and Pelvis CT With Contrast), to which we are proposing to assign CPT codes 74177 (Computed tomography, abdomen and pelvis; with contrast material(s)) and 74178 (Computed tomography, abdomen and pelvis; without contrast material in on e or both body regions, followed by contrast material(s) and further secti ons in one or both body regions ) for the CY 2012 OPPS. As noted and listed in section III.D.2. of this proposed rule, we selected claims of predecessor codes of new CPT codes 74176, 74177, and 74178 to calculate the costs of proposed new APCs 0331 and 0334, respectively. Therefore, we are pr oposing not to useCMS-1525-P 144 those claims listed in Table 21 in section III. D.2. of this proposed ru le in calculating the costs of APCs 8005 and 8006. We were able to identify 1 million “single session” claims out of an estimated 2 million potential composite cases from our ratesetting claims data, or approximately half of all eligible claims, to calculat e the proposed CY 2012 median costs for the multiple imaging composite APCs. We list in Table 8 below the HCPCS codes that would be subject to the proposed multiple imaging composite policy, the approximate proposed median costs for the imaging compos ite APCs, and their respective families for CY 2012. The HCPCS codes listed in Table 8 are assigned status indicated “Q3”' in Addendum B to this proposed rule (which is re ferenced in section XV II. of this proposed rule and available via the In ternet on the CMS Web site) to identify their status as potentially payable through a composite APC. Their proposed composite APC assignment is identified in Addendum M to th is proposed rule (which is referenced in section XVII. of this proposed rule and available via the In ternet on the CMS Web site). Table 9 below lists the OPPS imaging family services that overlap with HCPCS codes on the proposed CY 2012 bypass list.

TABLE 8.—PROPOSED OPPS IMAGING FAMILIES AND MULTIPLE IMAGING PROCEDURE COMPOSITE APCs Family 1 – Ultrasound Proposed CY 2012 APC 8004 (Ultrasound Composite) Proposed CY 2012 Approximate APC Median Cost = $197 76604 Us exam, chest 76700 Us exam, abdom, complete 76705 Echo exam of abdomen 76770 Us exam abdo back wall, compCMS-1525-P 145 76775 Us exam abdo back wall, lim 76776 Us exam k transpl w/Doppler 76831 Echo exam, uterus 76856 Us exam, pelvic, complete 76870 Us exam, scrotum 76857 Us exam, pelvic, limited Family 2 - CT and CTA wi th and without Contrast Proposed CY 2012 APC 8005 (CT and CTA without Contrast Composite)* Proposed CY 2012 Approximate APC Median Cost = $445 70450 Ct head/brain w/o dye 70480 Ct orbit/ear/fossa w/o dye 70486 Ct maxillofacial w/o dye 70490 Ct soft tissue neck w/o dye 71250 Ct thorax w/o dye 72125 Ct neck spine w/o dye 72128 Ct chest spine w/o dye 72131 Ct lumbar spine w/o dye 72192 Ct pelvis w/o dye 73200 Ct upper extremity w/o dye 73700 Ct lower extremity w/o dye 74150 Ct abdomen w/o dye 74261 Ct colonography, w/o dye 74176 Ct angio abd & pelvis Proposed CY 2012 APC 8006 (CT and CTA with Contrast Composite) Proposed CY 2012 Approximate APC Median Cost = $744 70487 Ct maxillofacial w/dye 70460 Ct head/brain w/dye 70470 Ct head/brain w/o & w/dye 70481 Ct orbit/ear/fossa w/dye 70482 Ct orbit/ear/fossa w/o&w/dye 70488 Ct maxillofacial w/o & w/dye 70491 Ct soft tissue neck w/dye 70492 Ct sft tsue nck w/o & w/dye 70496 Ct angiography, head 70498 Ct angiography, neck 71260 Ct thorax w/dye 71270 Ct thorax w/o & w/dyeCMS-1525-P 146 71275 Ct angiography, chest 72126 Ct neck spine w/dye 72127 Ct neck spine w/o & w/dye 72129 Ct chest spine w/dye 72130 Ct chest spine w/o & w/dye 72132 Ct lumbar spine w/dye 72133 Ct lumbar spine w/o & w/dye 72191 Ct angiograph pelv w/o&w/dye 72193 Ct pelvis w/dye 72194 Ct pelvis w/o & w/dye 73201 Ct upper extremity w/dye 73202 Ct uppr extremity w/o&w/dye 73206 Ct angio upr extrm w/o&w/dye 73701 Ct lower extremity w/dye 73702 Ct lwr extremity w/o&w/dye 73706 Ct angio lwr extr w/o&w/dye 74160 Ct abdomen w/dye 74170 Ct abdomen w/o & w/dye 74175 Ct angio abdom w/o & w/dye 74262 Ct colonography, w/dye 75635 Ct angio abdominal arteries 74177 Ct angio abd&pelv w/contrast 74178 Ct angio abd & pelv 1+ regns * If a “without contrast” CT or CTA procedur e is performed during the same session as a “with contrast” CT or CTA procedure, th e I/OCE will assign APC 8006 rather than APC 8005. Family 3 - MRI and MRA with and without Contrast Proposed CY 2012 APC 8007 (MRI and

MRA without Contrast Composite)* Proposed CY 2012 Approximate APC Median Cost = $718 70336 Magnetic image, jaw joint 70540 Mri orbit/face/neck w/o dye 70544 Mr angiography head w/o dye 70547 Mr angiography neck w/o dye 70551 Mri brain w/o dye 70554 Fmri brain by tech 71550 Mri chest w/o dye 72141 Mri neck spine w/o dyeCMS-1525-P 147 72146 Mri chest spine w/o dye 72148 Mri lumbar spine w/o dye 72195 Mri pelvis w/o dye 73218 Mri upper extremity w/o dye 73221 Mri joint upr extrem w/o dye 73718 Mri lower extremity w/o dye 73721 Mri jnt of lwr extre w/o dye 74181 Mri abdomen w/o dye 75557 Cardiac mri for morph 75559 Cardiac mri w/stress img C8901 MRA w/o cont, abd C8904 MRI w/o cont, breast, uni C8907 MRI w/o cont, breast, bi C8910 MRA w/o cont, chest C8913 MRA w/o cont, lwr ext C8919 MRA w/o cont, pelvis C8932 MRA, w/o dye, spinal canal C8935 MRA, w/o dye, upper extr Proposed CY 2012 APC 8008 (MRI and MRA with Contrast Composite) Proposed CY 2012 Approximate APC Median Cost = $1,032 70549 Mr angiograph neck w/o&w/dye 70542 Mri orbit/face/neck w/dye 70543 Mri orbt/fac/nck w/o & w/dye 70545 Mr angiography head w/dye 70546 Mr angiograph head w/o&w/dye 70548 Mr angiography neck w/dye 70552 Mri brain w/dye 70553 Mri brain w/o & w/dye 71551 Mri chest w/dye 71552 Mri chest w/o & w/dye 72142 Mri neck spine w/dye 72147 Mri chest spine w/dye 72149 Mri lumbar spine w/dye 72156 Mri neck spine w/o & w/dye 72157 Mri chest spine w/o & w/dye 72158 Mri lumbar spine w/o & w/dye 72196 Mri pelvis w/dye 72197 Mri pelvis w/o & w/dyeCMS-1525-P 148 73219 Mri upper extremity w/dye 73220 Mri uppr extremity w/o&w/dye 73222 Mri joint upr extrem w/dye 73223 Mri joint upr extr w/o&w/dye 73719 Mri lower extremity w/dye 73720 Mri lwr extremity w/o&w/dye 73722 Mri joint of lwr extr w/dye 73723 Mri joint lwr extr w/o&w/dye 74182 Mri abdomen w/dye 74183 Mri abdomen w/o & w/dye 75561 Cardiac mri for morph w/dye 75563 Card mri w/stress img & dye C8900 MRA w/cont, abd C8902 MRA w/o fol w/cont, abd C8903 MRI w/cont, breast, uni C8905 MRI w/o fol w/cont, brst, un C8906 MRI w/cont, breast, bi C8908 MRI w/o fol w/cont, breast, C8909 MRA w/cont, chest C8911 MRA w/o fol w/cont, chest C8912 MRA w/cont, lwr ext C8914 MRA w/o fol w/cont, lwr ext C8918 MRA w/cont, pelvis C8920 MRA w/o fol w/cont, pelvis C8931 MRA, w/dye, spinal canal C8933 MRA, w/o&w/dye, spinal canal C8934 MRA, w/dye, upper extremity C8936 MRA, w/o&w/dye, upper extr * If a “without contrast” MRI or MRA procedure is performe d during the same session as a “with contrast” MRI or MRA procedure, the I/OCE will assign APC 8008 rather than 8007.CMS-1525-P 149

TABLE 9.--PROPOSED OPPS IMAGING FAMILY SERVICES OVERLAPPING WITH HCPCS CODES ON THE PROPOSED CY 2012 BYPASS LIST Family 1 – Ultrasound 76700 Us exam, abdom, complete 76705 Echo exam of abdomen 76770 Us exam abdo back wall, comp 76775 Us exam abdo back wall, lim 76776 Us exam k transpl w/Doppler 76856 Us exam, pelvic, complete 76870 Us exam, scrotum 76857 Us exam, pelvic, limited Family 2 - CT and CTA wi th and without Contrast

70450 Ct head/brain w/o dye 70480 Ct orbit/ear/fossa w/o dye 70486 Ct maxillofacial w/o dye 70490 Ct soft tissue neck w/o dye 71250 Ct thorax w/o dye 72125 Ct neck spine w/o dye 72128 Ct chest spine w/o dye 72131 Ct lumbar spine w/o dye 72192 Ct pelvis w/o dye 73200 Ct upper extremity w/o dye 73700 Ct lower extremity w/o dye 74150 Ct abdomen w/o dye Family 3 - MRI and MRA with and without Contrast 70336 Magnetic image, jaw joint 70544 Mr angiography head w/o dye 70551 Mri brain w/o dye 71550 Mri chest w/o dye 72141 Mri neck spine w/o dye 72146 Mri chest spine w/o dye 72148 Mri lumbar spine w/o dye 73218 Mri upper extremity w/o dye 73221 Mri joint upr extrem w/o dye 73718 Mri lower extremity w/o dye 73721 Mri jnt of lwr extre w/o dyeCMS-1525-P 150 (6) Cardiac Resynchronization Ther apy Composite APC (APCs 0108, 0418, 0655, and 8009) Cardiac resynchronization therapy (CRT) us es electronic devices to sequentially pace both sides of the heart to improve its output. CRT utilizes a pacing electrode implanted in combination with either a p acemaker or an implantable cardioverter defibrillator (ICD). CRT perf ormed by the implantation of an ICD along with a pacing electrode is referred to as “CRT–D.” CRT performed by the implantation of a pacemaker along with a pacing electrode is referred to as “CRT–P.” CRT-D procedures are described by combin ations of CPT codes for the insertion of pulse generators and the in sertion of the leads associat ed with ICDs, along with the insertion of the pacing electrode. For the impl antation of a pulse gene rator, hospitals may use CPT code 33240 (Insertion of single or dual chamber pacing cardioverterdefibrillator pulse genera tor), which is the only CPT code assigned to APC 0107 (Insertion of Cardioverter-D efibrillator) for CY 2011. For the implantation of a pulse generator and leads, hospitals may use CPT code 33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing cardioverte r-defibrillator and insertion of pulse generator), which is the only CPT code assigned to APC 0108 (Insertion/Replacement /Repair of Cardiove rter-Defibrillator Leads) for CY 2011. For CRT-P, hospitals may use CPT c odes 33206 (Insertion or replacement of permanent pacemaker with transvenous el ectrode(s); atrial) and 33207 (Insertion or replacement of permanent pacemaker with tr ansvenous electrode(s); ventricular), which are assigned to APC 0089 (Insertion/Replacement of Permanent Pacemaker andCMS-1525-P 151 Electrodes) for CY 2011. Hospitals al so may use CPT code 33208 (Insertion or replacement of permanent pacemaker with transvenous electrode(s); atrial and ventricular), for the implantation of a pacemak er with leads, which is assigned to APC 0655 (Insertion/Replacement/Conversion of a Permanent Dual Chamber Pacemaker). When CRT-P is provided, hospitals would report CPT code 33206, 33207, or 33208 codes for ICD or pacemaker insertion, along with CPT code 33225 (Insertion of pacing electrode, cardiac venous system, for left ventricular pacing, at time of insertion of pacing cardioverter-defibrillator or pacemaker pulse generator (including upgrade to dual chamber system)), for implantation of the p acing electrode, which is assigned to APC 0418 (Insertion of Left Ventricu lar Pacing Electrode) for CY 2011. A number of commenters who responded to prior OPPS proposed rules, as well as public presenters to the APC Panel, ha ve recommended that CMS establish new composite APCs for CRT-D, citing significant fluctuations in the median cost for CPT code 33225 and the payment rate for APC 0418. The commenters and presenters have pointed out that, because the definition of CPT code 33225 specifies that the pacing electrode is inserted at the same time as an ICD or pacemaker, CMS would not have many valid single or pseudo single claims upon which to calculate an accurate median cost. These commenters and presenters also a sserted that claims data for these services demonstrate that the percentage of single clai ms available for use in CRT ratesetting is very low compared to the total number of claims submitted for CRT–D or CRT–P services. The APC Panel at its February and August 2009 meetings recommended that CMS evaluate the implications of the crea tion of a new composite APC for CRT-D andCMS-1525-P 152 recommended that CMS reconsider creati ng a composite APC or group of composite APCs for CRT-D and CRT-P. While we di d not propose any new composite APCs for CY 2010 or CY 2011, we accepted both of these APC Panel recommendations (75 FR 71852). In response to the APC Panel recommendations and the comments we have received, we have evaluated the implications of creating four composite APCs for CRT, which would include the ICD and pacemaker in sertion procedures listed previously in this section (described by CPT codes 33240, 33249, 33206, 33207, and 33208) performed in combination with the insertion of a p acing electrode (described by CPT code 33225). Table 10 below outlines the four potential composite APCs that we modeled. Specifically, we provide a description of eachpotential composite APC, the combination of CPT codes that we used to define th e potential composite APC, the frequency of claims that met the definition of the potenti al composite APC that could be used to calculate a median cost for the potential com posite APC, and the median cost calculated for the potential composite APC. Table 10 below contains th e results from our calculations for the four poten tial composite APCs using CY 2010 claims data available for this proposed rule, that is, those claims processed between January 1 and December 31, 2010.CMS-1525-P 153

TABLE 10.—POTENTIAL COMPOSITE APCs

Potential Composite APC Description Component APCs CPT Codes CY 2010 Frequency CY 2012 Payment Estimate A Cardiac Resynchronization Therapy - ICD Pulse Generator and Leads 0418 0107 33225 33240 21 $35,623

B Cardiac Resynchronization Therapy - ICD Pulse Generator 0418 0108 33225 33249 2,358 $38,854

C Cardiac Resynchronization Therapy - Pacemaker Pulse Generator, and Leads (Atrial or Ventricular) 0418 0089 33225 33206 33207 84 $17,306

D Cardiac Resynchronization Therapy - Pacemaker Pulse Generator, and Leads (Atrial and Ventricular) 0418 0655 33225 33208 314 $18,705

For CY 2012, under the authority of sect ion 1833(t)(1)(B) of the Act, we are proposing to create a new composite AP C 8009 (Cardiac Resynchronization Therapy with Defibrillator Composite), listed as pot ential composite APC “B ” in Table 10 above, for CRT-D services. This proposed composite APC is the only modeled composite in the study as shown above in Table 10, with signif icant claims volume, and would combine a procedure currently in APC 0418 with a procedure currently in APC 0108 (Insertion/Replacement/Repair of Cardioverte r-Defibrillator Leads) when performed on the same date of service. Specifically, we are proposing to create composite APC 8009,CMS-1525-P 154 which would be used when CPT 33249 and CPT 33225 are performed on the same day, in order to recognize the inhere nt challenges in calculating accurate median costs for CPT code 33225 based on single procedure claims utilized in standard OPPS ratesetting methodology, and to address commenters’ concerns regarding the fluctuations in median costs for APC 0418. We believe a composite payment methodology is appropriate for these services and would result in more accura te payment for these services because such a methodology is specifically designed to pr ovide payment for two or more procedures when they are provided in the same encounter, thus enabling us to use more claims data and to use claims data that more accurately re presents the full cost of the services when they are furnished in the same encounter. We also believe that ther e is sufficient claims volume for CPT 33249 and CPT 33225 provided in the same encounter to warrant creation of the composite APC. In addition, we believe that the claims volume for CPT 33249 and CPT 33225 is sufficient to demonstr ate that these services are commonly performed together. While the other combina tions of CRT procedures listed in Table 10 may also be performed together, we are not proposing to implement composite APCs for these services because of the low frequency with which CPT code 33225 is reported with other CPT codes for ICD and pacemaker insertion in the claims data. As we have stated previously (74 FR 60392), because of the complex claims processing and ratesetting logic involved, in the past, we have explored composite AP Cs only for combinations of services that are commonly performed togeth er. Because of the low frequency of the other combinations of CRT procedures listed in Table 10, we do not consider them to be commonly performed together.CMS-1525-P 155 Under the authority of section 1833(t)(2)(E) of the Act, we also are proposing to cap the payment rate for composite APC 8009 atthe most comparable Medicare-severity diagnosis-related group (MS-DRG) payment ra te established under the IPPS that would be provided to acute care hospitals for providi ng CRT-D services to hospital inpatients. Specifically, we are proposing to pay APC 8009 at the lesser of the APC 8009 median cost or the IPPS payment rate for MS-DRG 227 (Cardiac Defibrilla tor Implant without Cardiac Catheterization without Major Complication or Comorb idity), as adopted in the FY 2012 IPPS/LTCH PPS final rule. We woul d establish the OPPS payment amount at the FY 2012 IPPS standardized payment amount for MS-DRG 227. In the FY 2012 IPPS/LTCH proposed rule, this amount is $26,364.93. We calculated the standardized payment rate for MS-DRG 227 ($26,364.93) by multiplying the normalized weight from Table 5 of the FY 2012 IPPS/LTCH PPS proposed rule (5.1370) by the sum of the nonlablor and labor-related sh ares of the proposed FY 2012 IPPS operating standardized amount (nonwage-adjusted) ($5,132.36) which were obtained from Table 1B. For further detail on the calculation of the IPPS proposed FY 2012 payments rates, we refer readers to the FY 2012 IPPS / LTCH PPS proposed rule (76 FR 26028 through 26029). We consider the standardized paymen t rate for MS-DRG 227 to represent appropriate payment for a comparable package of services furnished to outpatients. We believe that, because this MS-DRG includes de fibrillator implantation for those inpatients without major complications or comorbidi ties, it represents th e payment made for hospital inpatients who are most similar to patients who would receive CRT-D on an outpatient basis, because hospital outpatient s are generally less sick than hospitalCMS-1525-P 156 inpatients and because patients who had comp lications or comorbitities would be most likely to be admitted to inpatient status to receive CRT-D therapy. Similar to the proposed payment rate for composite APC 8009 , the proposed payment rate for MS-DRG 227 includes the device costs associated w ith CRT-D along with the service costs associated with CPT codes 33249 and 33225, which are the procedures that are reported for implanting those devices. We believe that we should not pay more for these services under the proposed OPPS composite APC pa yment than under the IPPS because the OPPS payment would, by definition, include fewer items and services than the corresponding IPPS MS-DRG payment. Fo r example, the IPPS MS-DRG payment includes payment for drugs and diagnostic te sts that would be separately payable under the OPPS. A payment cap is necessary, therefore, to ensure that we do not create an inappropriate payment incentive to provide CRT -D services in one setting of care over another by paying more for CRT-D in the outpa tient setting compared to the inpatient setting. We also believe th at limiting payment for CRT-D services under the OPPS to the IPPS MS-DRG payment will ensure appropria te and equitable payment to hospitals because patients who receive these services in the hospital outpatient setting are not as sick as patients who have been admitted to receive this same service in the hospital inpatient setting. Therefore, we expect it w ould be less costly to provide care for these patients, who would also spend less time in th e facility. For more detail and how this payment rate was calculated, we refer readers to section III. D. 6 of this proposed rule. In order to ensure that hospitals correctly code for CRT services in the future, we are proposing to create claim processing edit s that would return claims to providersCMS-1525-P 157 unless CPT code 33225 is billed in conjunction with one of the following CPT codes, as specified by AMA in the CPT code book:

● 33206 (Insertion or replacement of pe rmanent pacemaker with transvenous electrode(s); atrial);

● 33207 (Insertion or replacement of pe rmanent pacemaker with transvenous electrode(s); ventricular);

● 33208 (Insertion or replacement of pe rmanent pacemaker with transvenous electrode(s); atrial and ventricular);

● 33212 (Insertion or replacement of p acemaker pulse generator only; single chamber, atrial or ventricular);

● 33213 (Insertion or replacement of p acemaker pulse generator only; dual chamber, atrial or ventricular);

● 33214 (Upgrade of implante d pacemaker system, conve rsion of single chamber system to dual chamber system (includes removal of previously placed pulse generator, testing of existing lead, insertion of new lead, insertion of new pulse generator));

● 33216 (Insertion of a single transvenous electrode, permanent pacemaker or cardioverter-defibrillator);

● 33217 (Insertion of 2 transvenous el ectrodes, permanent pacemaker or cardioverter-defibrillator);

● 33222 (Revision or relocation of sk in pocket for pacemaker), 33233 (Removal of permanent pacemaker pulse generator);CMS-1525-P 158

● 33234 (Removal of transvenous pacemaker electrode(s); single lead system, atrial or ventricular);

● 33235 (Removal of transvenous pacemaker electrode(s); dual lead system, atrial or ventricular);

● 33240 (Insertion of singl e or dual chamber pacing cardioverter-defibrillator pulse generator); or

● 33249 (Insertion or repositioning of el ectrode lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generator). Finally, in order to reduce the extent to which payment rates for the two services currently assigned to APC 0418, described by CPT codes 33224 and 33225, might continue to fluctuate, we also are pr oposing to move CPT 33225 from APC 0418 to APC 0108. We believe that moving these code s to APCs that have higher volumes of services to which they are more similar in clinical characteristics and median costs will increase the stability of the payments for these services from year to year. In general, a higher volume of services across multiple procedures within an APC results in more stable APC median costs and, therefore, in th e payment rate from one year to the next. We also are proposing to cha nge the name of APC 0108 from “Insertion/Replacement/Repair of Card ioverter-Defibrillator Leads” to “Insertion/Replacement/Repair of AICD Lead s, Generator, and Pacing Electrodes.” Similarly, we are proposing to move CP T 33224 from APC 0418 to APC 0655 and to change the name of APC 0655 from “Inser tion/Replacement/Conversion of a Permanent Dual Chamber Pacemaker” to “Insertion/Re placement/Conversion of a Permanent DualCMS-1525-P 159 Chamber Pacemaker or Pacing Electrode.” We believe that moving CPT code 33224 into APC 0655 will promote stability in payment for CPT code 33224 because CPT code 33224 would then be in an APC with similar median costs but with a higher volume of services and, therefore, will benefit from th e stability in APC median cost and payment rate that generally results as the volume of services within an APC increases. Because these proposed actions would result in AP C 0418 containing no CPT codes, we are proposing to delete APC 0418. In summary, for CY 2012, we are proposing to create a composite for CRT-D services billed with CPT code 33225 and CPT code 33249 on the same date of service (Composite APC 8009 (Cardiac Resynchronizati on Therapy - ICD Pulse Generator and Leads)), for which we are proposing that pa yment would be capped at the IPPS payment rate for MS-DRG 227. In other words, we w ould pay APC 8009 at the lesser of the APC 8009 median cost or the IPPS standardized payment for MS-DRG 227. We also are proposing to implement claims processing edits that would return to providers incorrectly coded claims on which a pacing electrode in sertion (CPT code 33225) is billed without an ICD or pacemaker insertion. Finally, we are proposing to delete APC 0418, and to redistribute its component CPT codes (33225 and 33224) to APCs 0108 and 0655. The proposed changes would all be made in a budge t neutral manner, in the same way that payment for other composite APCs and the reassignment of codes to APCs are budget neutral within the OPPS. We refer readers to section II.A.4 of this proposed rule for a discussion of the scaling of paym ent weights for budget neutrality. 3. Proposed Changes to Packaged ServicesCMS-1525-P 160 a. Background The OPPS, like other prospective paymen t systems, relies on the concept of averaging, where the payment may be more or less than the estimatedcost of providing a service or bundle of services for a particul ar patient, but with the exception of outlier cases, the payment is adequate to ensure acc ess to appropriate care. Packaging payment for multiple interrelated services into a singl e payment creates incentives for providers to furnish services in the most efficient way by enabling hospitals to manage their resources with maximum flexibility, thereby encourag ing long-term cost containment. For example, where there are a variety of supplies that could be used to furnish a service, some of which are more expensive than others , packaging encourages hospitals to use the least expensive item that meets the patient’s needs, rather than to routinely use a more expensive item. Packaging al so encourages hospitals to negotiate carefully with manufacturers and suppliers to reduce the pur chase price of items and services or to explore alternative group purchasing arra ngements, thereby encouraging the most economical health care. Similarly, packaging encourages hospitals to establish protocols that ensure that necessary services are furn ished, while carefully sc rutinizing the services ordered by practitioners to ma ximize the efficient use of hospital resources. Packaging payments into larger payment bundles promotes the stability of paymen t for services over time. Finally, packaging also may reduce th e importance of refini ng service-specific payment because there is more opportunity for hospitals to average payment across higher cost cases requiring ma ny ancillary services and lowe r cost cases requiring fewer ancillary services. For these reasons, packag ing payment for services that are typicallyCMS-1525-P 161 ancillary and supportive to a pr imary service has been a fundamental part of the OPPS since its implementation in August 2000. We assign status indicator “N” to those HCPCS codes that we believe are always integral to the performance of the primary modality; therefore, we always package their costs into the costs of the separately paid pr imary services with which they are billed. Services assigned status indicator “N” are unconditionally packaged. We assign status indicator “Q1” (“STVX- Packaged Codes”), “Q2” (“T-Packaged Codes”), or “Q3” (Codes that may be paid through a composite APC) to each conditionally packaged HCPCS code. An “STVX-packaged code” describes a HCPCS code whose payment is packaged when one or more separately paid primary services with the status indicator of “S,” “T,” “V,” or “X” are furnished in the hospital outpatient encounter. A “T-packaged code” describes a code whose payment is packaged when one or more separately paid surgical procedures with the status indicator of “T” are provided during the hospital outpatient encounter. “STVX-packaged codes” and “T-packaged codes” are paid separately in those un common cases when they do not meet their respective criteria for packag ed payment. “STVX-packaged codes” and “T-packaged codes” are conditionally packaged. We refer readers to section XI.A.1. of this proposed rule and Addenda D1 (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site) with other Addenda, for a complete listing of proposed status indicators and the meaning of each. We use the term “dependent service” to refer to the HCPCS codes that represent services that are typically an cillary and supportive to a prim ary diagnostic or therapeuticCMS-1525-P 162 modality. We use the term “independent se rvice” to refer to the HCPCS codes that represent the primary therapeutic or diagnos tic modality into which we package payment for the dependent service. In future years, as we consider the development of larger payment groups that more broadly reflect serv ices provided in an encounter or episodeof-care, it is possible that we might propose to bundle paymen t for a service that we now refer to as “independent.” Hospitals include HCPCS codes and char ges for packaged services on their claims, and the estimated costs associated withthose packaged services are then added to the costs of separately payable procedures on the same claims in establishing payment rates for the separately payable services. We encourage hospitals to report all HCPCS codes that describe packaged services that were provided, unless the CPT Editorial Panel or CMS provide other guidance. The a ppropriateness of the OPPS payment rates depends on the quality and completeness of the claims data that hospitals submit for the services they furnish to our Medicare beneficiaries. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66610 through 66659), we adopted the packaging of payment fo r items and services in seven categories into the payment for the primary diagnostic or therapeutic modality to which we believe these items and services are typically ancillary and supportive. The seven categories are: (1) guidance services; (2) image processing services; (3) intraoperative services; (4) imaging supervision and interpretation se rvices; (5) diagnostic radiopharmaceuticals; (6) contrast media; and (7) observation servic es. We specifically chose these categories of HCPCS codes for packaging because we beli eve that the items and services describedCMS-1525-P 163 by the codes in these categories are typical ly ancillary and supportive to a primary diagnostic or therapeutic modality and, in those cases, are an integral part of the primary service they support. In addition, in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66650 through 66659), we finalized a dditional packaging for the CY 2008 OPPS, which included the establishment of ne w composite APCs for CY 2008, specifically APC 8000 (Cardiac Electrophysiologic Evalua tion and Ablation Composite), APC 8001 (LDR Prostate Brachytherapy Composite), APC 8002 (Level I Extended Assessment & Management Composite), and APC 8003 (Level II Extended Assessment & Management Composite). In the CY 2009 OPPS/ASC fina l rule with comment period (73 FR 68559 through 68569), we expanded the composite APC model to one new clinical area— multiple imaging services. We created five multiple imaging composite APCs for payment in CY 2009 that incorporate statut ory requirements to differentiate between imaging services provided with contrast a nd without contrast as required by section 1833(t)(2)(G) of the Act. The multiple imaging composite APCs are: (1) APC 8004 (Ultrasound Composite); (2) APC 8005 (CT a nd CTA without Contrast Composite); (3) APC 8006 (CT and CTA with Contrast Composite); (4) APC 8007 (MRI and MRA without Contrast Composite); and (5) APC 8008 (MRI and MRA with Contrast Composite). We discuss composite APCs in more detail in section II.A.2.e. of this proposed rule. We recognize that decisions about pa ckaging and bundling payment involve a balance between ensuring that payment is ad equate to enable the hospital to provideCMS-1525-P 164 quality care and establis hing incentives for efficiency thr ough larger units of payment. Therefore, we invite public comments regarding our packaging proposals for the

CY 2012 OPPS. b. Packaging Issues (1) CMS Presentation of Findings Re garding Expanded Packaging at the February 28-March 1, 2011 APC Panel Meeting In deciding whether to package a service or pay for a code separately, we have historically considered a variety of factor s, including whether the service is normally provided separately or in conj unction with other services; ho w likely it is for the costs of the packaged code to be appropriately ma pped to the separately payable codes with which it was performed; and whether the expectedcost of the service is relatively low. As discussed in section I.D. of this proposed rule, the APC Panel advises CMS on the clinical integrity of payment groups and their weights, and the APC Panel has had a Packaging Subcommittee that is now renamed the Subcommittee for APC Groups and Status Indicator (SI) Assignments to reflect that its function ha s expanded to include assisting CMS with assignment of HCPCS code s to APCs. As part of its function, the APC Panel studies and makes recommendations on issues pertaining to services that are not separately payable under the OPPS, but whose payments are bundled or packaged into APC payments. The APC Panel has consid ered packaging issues at several earlier meetings. For discussions of earlier APC Pa nel meetings and recommendations, we refer readers to previously published hospital OPPS/ASC proposed and final rules on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/list.asp

.CMS-1525-P 165 (2) Packaging Recommendations of the AP C Panel at its February 28-March 1, 2011 Meeting During the February 28-March 1, 2011 APC Panel meeting, the APC Panel accepted the report of the Subcommittee for APC Groups and Status Indicator (SI) Assignment, heard several public presentations related to packaged services, discussed the deliberations of the subcommittee, a nd made five recommendations related to packaging and to the function of th e subcommittee. The Report of the February 28-March 1, 2011 meeting of the AP C Panel may be found at the website at: http://www.cms.gov/FACA/05_AdvisoryPanel onAmbulatoryPaymentClassificationGrou

ps.asp

. To summarize, the APC Panel made five recommendations regarding the packaging of payment under the CY 2012 OPPS. Below we present each of these five packaging recommendations and our res ponses to those recommendations. One recommendation that evolved from the di scussions of the APC Groups and Status Indicator Subcommittee that is specific to HC PCS codes is discussed in section III.D. of this proposed rule. APC Panel Recommendation 4 : That HCPCS code 31627 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with computer-assisted, image-guided navigation (List separately in addition to code for primary procedure[s])) continue to be assigned a stat us indicator of “N.” The Panel further recommended that CMS continue to collect claims data for HCPCS code 31627.CMS-1525-P 166 CMS Response to Recommendation 4 : HCPCS code 31627 was new for CY 2010, and we assigned a new interim st atus indicator of “N” in our CY 2010 OPPS/ASC final rule with comment period based on our policy of packaging guidance and intraoperative services that are an cillary and dependent upon an independent separately paid procedure. At the APC Pa nel’s February 2010 meeting, the manufacturer of the electromagnetic navigation bronc hoscopy (ENB) technology, one of several technologies that can be used to perfor m the service described by HCPCS code 31627, asserted that use of the ENB technology dur ing a bronchoscopy procedure enables access to distal lesions that are otherwise not accessible without use of the ENB technology. The manufacturer also stated that wit hout separate payment for the ENB technology, hospitals would likely not adopt the technology and the population that would likely benefit from the ENB technology would not have access to this technology. In response to the manufacturer’s presentation at the February 2010 Panel meeting, t he APC Panel asked CMS to consider whether HCPCS code 31627 should be packaged or paid separately; and if it should be paid separately, the APC Panel asked CMS to investigate the appropriate APC assignment. The report of the February 2010 APC Panel meeting is available at http://www.cms.gov/FACA/05_AdvisoryPanel onAmbulatoryPaymentClassificationGrou

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. We stated in the CY 2011 OPPS/ASC pr oposed rule (75 FR 46223) that we considered and analyzed the information available to us for HCPCS code 31627 and believed that the code described a procedure that is supportive of and ancillary to theCMS-1525-P 167 primary diagnostic or therapeutic modality. Therefore, we proposed to package payment for HCPCS code 31627. We stated that, by proposing to package payment for this procedure, we would be treating it in the same manner as similar computer-assisted, navigational diagnostic procedures that are supportive of and anci llary to a primary diagnostic or therapeutic modality. At its August 23-24, 2010 meeting, the AP C Panel listened to discussions regarding whether HCPCS code 31627 should remain packaged for CY 2011. After hearing presentations from the public, the APC Panel recommended that CMS continue to package payment for HCPCS code 31627 into payment for the major separately paid procedure with which it is performed and asked that CMS bring claims data on the cost of HCPCS code 31627 to the APC Panel’s wint er 2011 meeting for review. After consideration of all of the information provi ded by commenters on this issue, and hearing the discussion of the issue by the APC Panel at its August 23-24, 2010 meeting, we accepted the APC Panel’s recommendation to continue to package payment for HCPCS code 31627 into the payment for the major sepa rately paid procedure with which it is reported for CY 2011. In addition, we also accepted the APC Panel’s recommendation that CMS bring claims data [for HCPCS code 31627 to the winter 2011 APC Panel meeting. The report of the August 2010 APC Panel meeting is available at http://www.cms.gov/FACA/05_AdvisoryPanel onAmbulatoryPaymentClassificationGrou

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. At its meeting on February 28-March 1, 2011, the APC Panel listened to a public presentation in which the manufacturer of the ENB technology requested that HCPCSCMS-1525-P 168 code 31627 be paid separately on the basis thatthe cost of the tec hnology is substantially higher than the OPPS payment for APC 0076 (Level I Endoscopy Lower Airway), the APC to which most bronchoscopy codes are assigned and into which payment for HCPCS code 31627 is packaged. The manufacturer stated that if CMS does not pay HCPCS code 31627 separately, hospitals will not furnish the pr ocedure to hospital outpatients. In response to the request of the AP C Panel at its August 2010 meeting, we presented the available data on HCPCS c ode 31627 that could be derived from the hospital outpatient claims that were paid under the OPPS for services on and after January 1, 2010 through and including Se ptember 30, 2010, as processed through the CMS common working file by December 31, 2010. Specifically, using the limited set of APC Panel data, CMS found that 119 hospita ls billed for 573 units of HCPCS code 31627, and that HCPCS code 31627 had a median cost of approximately $329 per unit. We also found that HCPCS code 31627 is report ed on 0 to 4 percent of the claims for bronchoscopy codes with which CPT guidance st ates that it is permissible to report HCPCS code 31627, with the exception of HCPCS code 31626 (Bronchoscopy, rigid or flexible, including fluoroscopic guidance, wh en performed; with placement of fiducial markers, single or multiple). HCPCS code 31627 was reported on approximately 52% of claims for HCPCS code 31626 in the APC Pane l data. The APC Panel considered this information in its formulation of Recomm endation 4 that CMS continue to package payment for HCPCS code 31627 into the paymen t for the bronchoscopy code with which HCPCS code 31627 is reported. Subsequent to the APC Panel meeting, examination andCMS-1525-P 169 analysis of the CY 2012 proposed rule data found that 149 hospitals reported 867 units of HCPCS code 31627, and that HCPCS code 31627 has a proposed rule median cost of approximately $344 per unit. After considering the public presentati on and the information presented by CMS staff, the APC Panel recommended that HC PCS code 31627 continue to be assigned a status indicator of “N.” The Panel furthe r recommended that CMS continue to collect claims data for HCPCS code 31627. We are pr oposing to accept both of the APC Panel’s recommendations for the CY 2012 OPPS. Sp ecifically, we are proposing to assign HCPCS code 31627 to status indicator “N” for the CY 2012 OPPS and, therefore, are proposing to package payment for the proced ure into payment for the bronchoscopy to which we believe that it is ancillary and supportive. As with all packaged items and services, the cost we calculate for CPT code 31627 will be added to the costs on the single bill for the bronchoscopy code with which the service reported by CPT code 31627 is furnished, and therefore, the cost of CPT code 31627 will be incorporated into the payment for the APC to which that bronchosc opy code is assigned. We continue to believe that HCPCS code 31627, for which th ere are several different technologies, describes a service that is supportive a nd ancillary to the primary bronchoscopy procedure with which it must be reporte d, as defined by CPT. HCPCS code 31627 describes a computer assisted image guided navigation service that is not furnished without a bronchoscopy. As defined by CP T, HCPCS code 31627 may only be furnished in addition to a bronchocsopy service and ther efore we believe that it is ancillary and supportive to the bronchsocopy service with wh ich it must be reported. We agree toCMS-1525-P 170 provide further claims information on HCPCS code 31627 to the APC Panel when it becomes available. APC Panel Recommendation 5 : That CMS consider a more appropriate APC assignment for HCPCS code 31626 (Bronc hoscopy, rigid or flexible, including fluoroscopic guidance, when performed; with placement of fiducial markers), the most common code with which HCPCS code 31627 was billed in 2010. CMS Response to Recommendation 5 : We are accepting this recommendation, and therefore are proposing to reassign HCPCS code 31626 (which has a proposed CY 2012 APC median cost of approxim ately $2,708) from APC 0076 (which has a proposed CY 2012 APC median cost of approximately $751) to APC 0415 (Level II Endoscopy Lower Airway), which has a proposed CY 2012 APC median cost of approximately $2,007. We agree with the APC Panel that it appears that the proposed APC median cost of HCPCS code 31626 of $2,7 08 justifies placement in an APC that has a median cost that is more similar to the APC median cost for this code. We believe that APC 0415 is the most appropriate clinically similar APC because the proposed CY 2012 median cost for APC 0415 of $2,007 is more sim ilar in clinical resource for HCPCS code 31626 than the proposed CY 2012 median cost for APC 0076 of $715. APC Panel Recommendation 6 : That Judith Kelly, R.H.I.T., R.H.I.A., C.C.S., continue to chair the APC Groups and Status Indicator (SI) Assignments Subcommittee for 2011.CMS-1525-P 171 CMS Response to Recommendation 6 : We are accepting the APC Panel’s recommendation that Judith Kelly, R.H.I.T., R. H.I.A., C.C.S. continue to chair the APC Groups and Status Indicator Assignments Subcommittee for 2011. APC Panel Recommendation 7 : That CMS furnish the results of its investigation of claims that contain the following unconditi onally packaged codes without separately paid procedures:

● HCPCS code G0177 (Training and educati onal services related to the care and treatment of patient's disabling mental hea lth problems per session (45 minutes or more));

● HCPCS code G0378 (Hospital obs ervation service, per hour);

● HCPCS code 75940 (Percutaneous pl acement of IVC filter, radiological supervision and interpretation);

● HCPCS code 76937 (Ultrasound guidan ce for vascular access requiring ultrasound evaluation of potential access sites, documentation of selected vessel patency, concurrent realtime ultrasound visualization of vascular needle entry, with permanent recording and reporting (List separately in addition to code for primary procedure)). CMS Response to Recommendation 7 : We are accepting the APC Panel’s recommendation that CMS furnish the results of its investigation of claims that contain the unconditionally packaged codes: HC PCS code G0177, HCPCS code G0378, HCPCS code 75940, and HCPCS code 76937 at a future APC Panel meeting. APC Panel Recommendation 8 : That the work of the APC Groups and Status Indicator (SI) Assignments Subcommittee continue.CMS-1525-P 172 CMS Response to Recommendation 8 : We are accepting the APC Panel’s recommendation that the work of the APC Groups and Status Indicator Assignments Subcommittee continue. (3) Other Packaging Proposals for CY 2012 The HCPCS codes for which we are propos ing that payment be packaged into payment for the separately paid procedures with which the codes are reported either unconditionally (for which we are proposing to continue to assign st atus indicator “N”), or conditionally (for which we are proposing to continue to assign st atus indicators “Q1”, “Q2”, or “Q3”) are displayed in Addendum B of this proposed rule (w hich is referenced in section XVIII. of this proposed rule a nd available via the Internet on the CMS Web site). The supporting documents for this CY 2012 OPPS/ASC proposed rule, including but not limited to Addendum B, are available at www.cms.hhs.gov/HospitalOutpatientPPS/HORD . To view the proposed status indicators by HCPCS code in Addendum B, se lect CMS 1525-P and then select the folder labeled “2012 OPPS Proposed Rule Addenda” fr om the list of supporting files. Open the zipped file and select Addendum B, which is av ailable as both an Excel file and a text file. The proposed continuation of our standa rd policy regarding packaging of drugs and biologicals, implantable biologica ls, contrast agents and diagnostic radiopharmaceuticals is discussed in section V.B. of this proposed rule. We note that an implantable biological that is surgically inserted or implan ted through a surgical incisionCMS-1525-P 173 or a natural orifice is co mmonly referred to throughout th is proposed rule as an “implantable biological.” The proposed creation of a new composite APC for CY 2012 for payment of the insertion of cardiac resynchroniza tion devices is discussed in section II.A.2.e.(6) of this proposed rule. 4. Proposed Calculation of OPPS Scaled Payment Weights Using the APC median costs discussed in sections II.A.1. and II.A.2. of this proposed rule, we calculated the proposed relative payment weights for each APC for CY 2012 shown in Addenda A and B to this pr oposed rule (which are referenced in section XVIII. of this proposed rule and availa ble via the Internet on the CMS Web site). In years prior to CY 2007, we standardized all the relative paymen t weights to APC 0601 (Mid Level Clinic Visit) because mid-level cl inic visits were among the most frequently performed services in the hos pital outpatient setting. We assigned APC 0601 a relative payment weight of 1.00 and divided the median cost for each APC by the median cost for APC 0601 to derive the relative payment weight for each APC. Beginning with the CY 2007 OPPS (71 FR 67990), we standard ized all of the relative payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted APC 0601 as part of the reconfiguration of th e clinic visit APCs. We selected APC 0606 as the base because APC 0606 was the mid-level clinic visit APC (that is, Level 3 of five levels). Therefore, for CY 2012, to maintain consistency in using a median for calculating unscaled weights repres enting the median cost of some of the most frequently provided services, we are proposing to continue to use the median cost of the mid-levelCMS-1525-P 174 clinic visit APC (APC 0606) to calculate unscaled wei ghts. Following our standard methodology, but using the proposed CY 2012 me dian cost for APC 0606, for CY 2012 we assigned APC 0606 a relative payment weightof 1.00 and divided the median cost of each APC by the proposed median cost for APC 0606 to derive the proposed unscaled relative payment weight for each APC. The choice of the APC on which to base the proposed relative weights for all other APCs does not affect the payments made under the OPPS because we scale the weights for budget neutrality. Section 1833(t)(9)(B) of the Act requ ires that APC reclassification and recalibration changes, wage index changes, and other adjustments be made in a budget neutral manner. Budget neutrality ensures th at the estimated aggregate weight under the OPPS for CY 2012 is neither greater than nor less than the estimated aggregate weight that would have been made without the cha nges. To comply with this requirement concerning the APC changes, we are propos ing to compare the estimated aggregate weight using the CY 2011 scaled relative weight s to the estimated aggregate weight using the proposed CY 2012 unscaled relative wei ghts. For CY 2011, we multiplied the CY 2011 scaled APC relative weight applicab le to a service paid under the OPPS by the volume of that service from CY 201 0 claims to calculate the total weight for each service. We then added together the total weight for each of these services in order to calculate an estimated aggregate weight for the year. For CY 2012, we performed the same process using the proposed CY 2012 unscaled weights ra ther than scaled weights. We then calculated the weight scaler by dividing the CY 2011 estimat ed aggregate weight by the proposed CY 2012 estimated aggregate weight. The service-mix is the same in theCMS-1525-P 175 current and prospective years because we use the same set of claims for service volume in calculating the aggregate weight for each year . For a detailed discussion of the weight scaler calculation, we refer readers to the OPPS claims accounting document available on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/ . We included payments to CMHCs in our comparison of estimated unscaled weight in CY 2012 to estimated total weight in CY 2011 usi ng CY 2010 claims data, holding all other components of the payment system constant to isolate changes in to tal weight. Based on this comparison, we adjusted the unscaled relative weights for purposes of budget neutrality. The proposed CY 2012 unscaled re lative payment weights were adjusted by multiplying them by a proposed weight scal er of 1.4647 to ensure that the proposed CY 2012 relative weight s are budget neutral. Section 1833(t)(14) of the Act provides th e payment rates for certain “specified covered outpatient drugs.” That section st ates that “Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion factor, weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall be taken into account for subsequent years.” Therefore, the cost of those specified covered outpatient drugs (as discussed in section V.B.3. of this proposed rule) was included in the proposed budget neutrali ty calculations for the CY 2012 OPPS. The proposed scaled relative payment wei ghts listed in Addenda A and B to this proposed rule (which are referenced in secti on XVII. of this proposedrule and available via the Internet on the CMS Web site) incor porate the proposed recalibration adjustments discussed in sections II.A.1. and II.A.2. of this proposed rule.CMS-1525-P 176 B. Proposed Conversion Factor Update Section 1833(t)(3)(C)(ii) of the Act requi res us to update the conversion factor used to determine payment rates under the OPPS on an annual basis by applying the OPD fee schedule increase factor. For purposes of section 1833(t)(3)(C)(iv) of the Act, subject to sections 1833(t)(17) and 1833( t)(3)(F) of the Act, the OPD fee schedule increase factor is equal to the hospital inpatient market bask et percentage increase applicable to hospital discharges under section 1886(b )(3)(B)(iii) of the Act. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25949), consistent with current law, based on IHS Global Insight, Inc.’s first quarter 2011 forecast of the FY 2012 market basket increase, we proposed that the FY 2012 IPPS market basket update woul d be 2.8 percent. However, sections 1833(t)(3)(F) and 1833(t)(3)(G)(ii) of the Act, as added by section 3401 (i) of the Pub. L. 111-148 and as amended by section 10319(g) of such law and further amended by section 1105(e) of Pub. L. 111-152, provide adjustment s to the OPD fee schedule update for

CY 2012. Specifically, section 1833(t)(3)(F) require s that the OPD fee schedule increase factor under subparagraph (C)(i v) be reduced by the adjust ments described in section 1833(t)(3)(F) of the Act. Speci fically, section 1833( t)(3)(F)(i) of the Ac t requires that the OPD fee schedule increase f actor under subparagraph (C )(iv) be reduced by the productivity adjustment described in s ection 1886(b)(3)(B )(xi)(II) of the Act for 2012 and subsequent years. Section 1886(b)(3)(B )(xi)(II) of the Act defines the productivity adjustment as equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (MFP) (as projected by the SecretaryCMS-1525-P 177 for the 10-year period ending w ith the applicable fiscal ye ar, year, cost reporting period, or other annual period) (t he “MFP adjustment”). We refer readers to the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25949 through 25951) for a discussion of the calculation of the MFP adjustment. The proposed MFP adjustment for FY 2012 is estimated to be 1.2 percentage points. We are proposing to reduce the OPD f ee schedule increase factor for CY 2012 by the proposed MFP adjustment of 1.2 percenta ge points for FY 2012. Since the OPD fee schedule increase factor is ba sed on the IPPS hospital inpatient market basket percentage increase, we believe that it is appropriate to apply the same MFP adjustment that is used to reduce the IPPS market basket increase to the OPD fee schedule increase factor. Consistent with the FY 2012 IPPS/LTCH PPS pr oposed rule, we are also proposing that if more recent data are subse quently available (for example, a more recent estimate of the market basket and MFP adjustment), we would use such data, if appropriate, to determine the FY 2012 market basket update and MFP ad justment in the CY 2012 final rule. We believe that it is appropriate to apply the M FP adjustment, which is calculated on a fiscal year basis, to the OPD fee schedule increa se factor, which is used to update the OPPS payment rates on a calendar year basis, because we believe that it is appropriate for the numbers associated with both components of the calculation (the underlying OPD fee schedule increase factor and the productivity adjustment ) to be aligned so that changes in market conditions are aligned. In addition, section 1833(t)(3 )(F)(ii) of the Act requires that the OPD fee schedule increase factor under subparagraph (C)(iv) be reduced by the adjustment described inCMS-1525-P 178 subparagraph (G) for each of 2010 through 2019. For CY 2012, section 1833(t)(3)(G)(ii) of the Act provides a 0.1 percentage point re duction to the OPD fee schedule increase factor under subparagraph (C)(iv) . Therefore, we are proposi ng to apply a 0.1 percentage point reduction to the OPD f ee schedule increase factor. We note that section 1833(t) (F) of the Act provides that application of this subparagraph may result in the increase factor under subpara graph (C)(iv) being less than 0.0 for a year, and may result in payment ra tes under the payment system under this subsection for a year being less than such payment rates for the preceding year. As described in further detail below, we are proposing an OPD fee sc hedule increase factor of 1.5 percent for the CY 2012 OPPS (2.8 percent, which is the proposed estimate of the hospital market basket increase, less the proposed 1.2 percentage points MFP adjustment, less the 0.1 percentage point additional adjustment). We are proposing to revise 42 CFR 419.32 to reflect the requirement in section 1833(t)(3)(F)(i) of the Act that, for CY 2012, we reduce the OPD fee schedule increase factor by the multifactor productivity adjustme nt as determined by CMS, and to reflect the requirement in section 1833(t)(3)(G)(ii) of the Act, as required by section 1833(t)(3)(F)(ii) of the Act, that we redu ce the OPD fee schedule increase factor by 0.1 percentage point for CY 2012. We also are proposing to amend §419.32 (iv)(A) to indicate that the hospital inpatient market basket percentage in crease applicable under section 1886(b)(3)(B)(iii) of the Act is further reduced by the adjustments necessary to satisfy the requirements in sections 1 833(t)(3)(F) and (t)(3) (G) of the Act.CMS-1525-P 179 Hospitals that fail to meet the repor ting requirements of the Hospital OQR Program would continue to be subject to a further reduction of addi tional 2.0 percentage points from the OPD fee schedule increase factor adjustment to the conversion factor that would be used to calculate the OPPS payment ra tes made for their serv ices as required by section 1833(t)(17) of the Act. For a complete discussion of the Hospital OQR requirements and the payment reduction for hospita ls that fail to meet those requirements, we refer readers to section XIV. of this proposed rule. To set the OPPS conversion factor for CY 2012, we are proposing to increase the CY 2011 conversion factor of $68.876 by 1.5 per cent. In accordance with section 1833(t)(9)(B) of the Act, we are proposing to further adjust the conversion factor for CY 2012 to ensure that any revisions we ma ke to the updates for a revised wage index and rural adjustment are made on a budget neutral basis. We calculated a proposed overall budget neutrality f actor of 1.0003 for wage index changes by comparing total estimated payments from our simulation model using the FY 2012 IPPS proposed wage indices to those payments using the current (FY 2011) IPPS wage indices, as adopted on a calendar year basis for the OPPS. For CY 2012, we are not proposing to make a change to our rural adjustment policy. Therefore, the proposed budget neutrality factor for the rural adjustment would be 1.0000. For CY 2012, we are proposing a cancer hospital payment adjustment policy, as discussed in section II.F. of this proposed rule, and, therefore, we applied a proposed budget neut rality adjustment of 0.9927 to adjust the conversion factor for that proposed policy. We calculated the proposed cancer hospital budget neutrality factor of 0.9927 by compari ng total estimated payments from ourCMS-1525-P 180 simulation model for CY 2012 including the proposed payment adjustment for cancer hospitals to total estimated payments from our simulation model for CY 2012 without the proposed payment adjustment for cancer hospitals. For this proposed rule, we estimate th at pass-through spending for both drugs and biologicals and devices for CY 2012 woul d equal approximately $64.5 million, which represents 0.15 percent of total projec ted CY 2012 OPPS spending. Therefore, the conversion factor would also be adjusted by the difference between the 0.15 percent estimate of pass-through spending for CY 2011 and the 0.15 percen t estimate of CY 2012 pass-through spending. Finally, estimated payments for outliers remain at 1.0 percent of total OPPS payments for CY 2012. The proposed OPD fee schedule increase f actor of 1.5 percent for CY 2012 (that is, the estimate of the hospital market basket increase of 2.8 percent less the 1.2 percentage points MFP adjustment and less the 0.1 percentage point adjustment which are necessary in order to comply with the re quirements of the Affordable Care Act), the required proposed wage index budget neutral ity adjustment of approximately 1.0003, the proposed cancer hospital payment adjustment of 0.9927, and the proposed adjustment of 0.00 percent of projected OPPS spending for the difference in th e pass-through spending result in a proposed conversion factor for CY 2012 of $69.420, which reflects the full OPD fee schedule increase, afte r including the adjustments necessary to comply with the requirements of the Affordable Care Act. To calculate the proposed CY 2012 reduced market basket conversion factor for those hospitals that fail to meet the requi rements of the Hospital OQR Program for theCMS-1525-P 181 full CY 2012 payment update, we are proposing to make all other adjustments discussed above, but would use a proposed reduced OPD fee schedule update factor of -0.5 percent (that is, the proposed OPD fee schedule increas e factor further reduced by 2.0 percentage points as required by section 1833( t)(17)(A)(i) of the Act for failure to comply with the Hospital OQR requirements). This resulted in a proposed reduced conversion factor for CY 2012 of $68.052 for those hospitals that fa il to meet the Hospital OQR requirements (a difference of -$1.368 in the proposed conversio n factor relative to those hospitals that met the Hospital OQR requirements). In summary, for CY 2012, we are propos ing to use a conversion factor of $69.420 in the calculation of the national unadjusted payment rates for those items and services for which payment rates are calculated using median costs. We are proposing to amend §419.32(b)(1)(iv)(B) by adding a new paragraph (3 ) to reflect the reductions to the OPD fee schedule increase factor th at are required for CY 2012 in or der to satisfy the statutory requirements of sections 1833(t)(3)(F) and (t)(3)( G)(ii) of the Act. We also are proposing to amend §419.32(b)(1)(iv)(A) to indicate that the hospital inpatient market basket percentage increase is reduced by the adjust ments described in §419.32( b)(1)(iv)(B). We are proposing to use a reduced conversion factor of $68.052 in th e calculation of payments for hospitals that fail to comply with the Hospital OQR requirements to reflect the reduction to the OPD fee schedule incr ease factor that is required by section 1833(t)(17) of the Act for these hospitals.CMS-1525-P 182 C. Proposed Wage Index Changes Section 1833(t)(2)(D) of the Act requires the Secretary to determine a wage adjustment factor to adjust, for geographi c wage differences, the portion of the OPPS payment rate, which includes the copayment sta ndardized amount, that is attributable to labor and labor-related cost. This portion of the OPPS payment ra te is called the OPPS labor-related share. This adjustment mu st be made in a budget neutral manner and budget neutrality is discussed in se ction II.B. of this proposed rule. The OPPS labor-related share is 60 percent of the national OPPS payment. This labor-related share is based on a regression anal ysis that determined that, for all hospitals, approximately 60 percent of the costs of serv ices paid under the OPPS were attributable to wage costs. We confirmed that this labor-related share for outpatient services is appropriate during our re gression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule with comment period (70 FR 68553). Therefore, we are not proposing to revise this policy for the CY 2012 OPPS. We refer readers to section II.H. of this proposed rule for a description and example of how the proposed wage index for a particular hospital is used to determine the proposed payment for the hospital. As discussed in section II.A.2.c. of th is proposed rule, for estimating national median APC costs, we standardize 60 percen t of estimated claims costs for geographic area wage variation using the same proposed FY 2012 pre-reclassified wage index that the IPPS uses to standardize costs. This st andardization process removes the effects ofCMS-1525-P 183 differences in area wage levels from the determination of a na tional unadjusted OPPS payment rate and the copayment amount. As published in the original OPPS Apr il 7, 2000 final rule with comment period (65 FR 18545), the OPPS has consistently adopted the final fiscal year IPPS wage index as the calendar year wage index for adju sting the OPPS standard payment amounts for labor market differences. Thus, the wage inde x that applies to a particular acute care short-stay hospital under the IPPS would also apply to that hospital under the OPPS. As initially explained in the September 8, 1998 OP PS proposed rule, we believed that using the IPPS wage index as the source of an adju stment factor for the OPPS is reasonable and logical, given the inseparable, subordinate status of the HOPD within the hospital overall. In accordance with section 1886(d)(3)(E) of th e Act, the IPPS wage index is updated annually. The Affordable Care Act contains provi sions that affect the proposed FY 2012 IPPS wage index values, including revisions to the reclassification wage comparability criteria that were finalized in the FY 2009 IPPS final rule (73 FR 48568 through 48570), and the application of rural floor budget neutrality on a natio nal, rather than State-specific, basis through a uniform, national adjustment to the area wage index (76 FR 26021). In addition, section 10324 of th e Affordable Care Act requires CMS to establish an adjustment to create a wage inde x floor of 1.00 for hospitals located in States determined to be frontier States. Section 10324 specifies that, for servi ces furnished beginning CY 2011, the wage adjustment factor applicable to any hospital outpatient department that is located in aCMS-1525-P 184 frontier State (as defined in section 1886(d)(3)(E )(iii)(II) of the Act) may not be less than 1.00. Further, section 10324 stat es that this adjustment to the wage index for these outpatient departments should not be made in a budget neutral manner. As such, for the CY 2012 OPPS, we are proposing to continue to adjust the FY 2012 IPPS wage index, as adopted on a calendar year basis for the O PPS, for all hospitals paid under the OPPS, including non-IPPS hospitals (providers that are not paid under the IPPS) located in a frontier State, to 1.00 in instances where the proposed FY 2012 wage index (that reflects Medicare Geographic Classification Review Board (MGCRB) reclassifications, the application of the rural floor , and the rural floor budget neutrality adjustment) for these hospitals is less than 1.00. Similar to our current policy for HOPDs that are affiliated with multicampus hospital systems, we fully expect that the HOPD would receive a wage index based on the geographic location of the sp ecific inpatient hospital with which it is associated. Therefore, if the associated hospi tal is located in a frontier State, the wage index adjustment applicable for the hospital would also apply for the affiliated HOPD. We refer readers to the FY 2011 IPPS/LTCH PP S final rule (75 FR 50160) for a detailed discussion regarding this provision, including our met hodology for identifying which areas meet the definition of frontier States as provided for in section 1886(d)(3)(E)(iii)(II)) of the Act. In addition to the changes required by the Affordable Care Act, we note that the proposed FY 2012 IPPS wage indices continue to reflect a number of adjustments implemented over the past few years, includi ng, but not limited t o, reclassification of hospitals to different geographic areas, th e rural floor provisions , an adjustment forCMS-1525-P 185 occupational mix, and an adjustment to th e wage index based on commuting patterns of employees (out-migration adjustment). We refer readers to the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25880 through 25888) for a detailed discussion of all proposed changes to the FY 2012 IPPS wage indices. Inaddition, we refer readers to the CY 2005 OPPS final rule with comment period (69 FR 65842 through 65844) and subsequent OPPS rules for a detailed discussion of the history of these wage index adjustments as applied under the OPPS. Section 3137 of the Affordable Care Act extended, through FY 2010, section 508 reclassifications as well as certain special exceptions. The most rece nt extension of the provision was included in section 102 of the Medicare and Medicaid Extender Act, which extends, through FY 2011, secti on 508 reclassifications as well as certain special exceptions. The latest exte nsion of these provisions expires on September 30, 2011, and will no longer be applicable effective with FY 2012. As we did for CY 2010, we revised wage index values for certain special ex ception hospitals from January 1, 2011 through December 31, 2011, under the OPPS, in order to give these hospitals the special exception wage indices under the OPPS for the sa me time period as under the IPPS. In addition, because the OPPS pays on a calendar y ear basis, the effective date under OPPS for all other non-section 508 and non-special ex ception providers is July 1, 2011, instead of April 1, 2011, so that these providers ma y also receive a full 6 months of payment under the revised wage index comparable to IPPS. For purposes of the OPPS, we are proposi ng to continue our policy in CY 2012 to allow non-IPPS hospitals paid under the OPPS to qualify for the out-migrationCMS-1525-P 186 adjustment if they are located in a sec tion 505 out-migration county (section 505 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)). We note that, because non-IPPS hospitals canno t reclassify, they ar e eligible for the out-migration wage adjustment. Table 4J listed in the FY 2012 IPPS/LTCH PPS proposed rule (and made available via the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp ) identifies counties eligible for the proposed out-migration adjustment and providers proposed to receive the adjustment for FY 2012. We note that, be ginning with FY 2012, we proposed under the IPPS that an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waiv ed its deemed urban status and, thus, is rural for all purposes under the IPPS, in cluding being considered rural for the disproportionate share hospital (D SH) payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. We refer readers to the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25885) for more detailed discussion on the proposed Lugar redesignation waiver for th e out-migration adjustment). As we have done in prior years, we are reprinting Table 4J as Addendum L to this proposed rule with the addition of non-IPPS hosp itals that would receive the section 505 out-migration adjustment under the CY 2012 OPPS. Addendum L is referenced in section XVII. of this proposed rule and available via th e Internet on the CMS Web site. As stated earlier in this section, our longstanding policy for OPPS has been to adopt the final wage index used in IPPS. Therefore, for calculating proposed OPPS payments in CY 2012, we use the proposed FY 2012 IPPS wage indices. However,CMS-1525-P 187 section 1833(t)(2)(D) of the Act confers broa d discretionary author ity upon the Secretary in determining the wage adjustment factor used under the OPPS. Specifically, this provision provides that “subject to paragraph (19), the Secretary shall determine a wage adjustment factor to adjust the portion of payment and coinsurance attributable to laborrelated costs for relative differences in la bor and labor-related costs across geographic regions . . . .” In other prospective paym ent systems, we do not adopt the adjustments applied to the IPPS wage index, such as th e outmigration adjustment, reclassifications, and the rural floor. For the OPPS, using the hospital IPPS wage index as the source of an adjustment factor for geographic wage differenc es has in the past b een both reasonable and logical, given the inseparabl e, subordinate status of the outpatient department within the hospital overall. However, in recent years, we have become concerned that hospitals converting status significantly inflates wage indexe s across a State, in a manner that was not intended by the Congress. In the FY 2008 IPPS final rule (72 FR 47324 and 47325), we discussed a situation where a CAH may have co nverted back to IPPS status in order to increase the rural floor. The FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26060) shows the impact of the CAH conversion. Hospitals in one Stat e can expect an approximate 8-percent increase in IPPS payments due to the conversion and resulting increase of the rural floor. Our concern is that the manipulation of the ru ral floor is of sufficient magnitude that it requires all hospital wage indexes to be redu ced approximately 0.62 percent as a result ofCMS-1525-P 188 nationwide budget neutrality for the rural floo r (or more than a 0.4 percent total payment reduction to all IPPS hospitals). In addition to the CAH conversion, we r ecently received two requests from urban hospitals to convert to rural hospital status under section 1886 (d)(8)(E) of the Act, which would inflate other States’ rural floors, th rough the conversion of what would otherwise be urban hospitals to rural status. While we recognize that conversions from urban-torural status are permitted under section 1886(d )(8)(E) of the Act, we do not believe Congress anticipated indi vidual urban to rural co nversion allowing payment redistributions of this magnitude. We believe the above discussions demonstrat e that, as a result of hospital actions not envisioned by Congress, the rural floor is resulting in significant disparities in wage index and, in some cases, resulting in situati ons where all hospitals in a State receive a wage index higher than that of the single highe st wage index urban hos pital in the State. As stated above, the statute does not requi re the Secretary to use the IPPS wage adjustment factor to wage adjust OPPS paym ents and copayments, nor to apply to OPPS payment and copayment calculation the same adju stment that the law requires be applied to the IPPS wage adjustment factor. We are considering adopting a policy thatwould address situations where IPPS wage index adjustments, such as the rural floo r, are resulting in significant fluctuations in the wage index. One option would be to not ap ply the rural floor wage index at all in the OPPS where the rural floor is set by a snall number of hospitals and results in a rural floor that benefits all hospitals in the State. Alternatively, we could apply within StateCMS-1525-P 189 rural budget neutrality to the OPPS wage index as we did for both the IPPS and OPPS wage index beginning in FY 2009. We are seeking public comment on whether to: (1) adopt the IPPS wage index for the OPPS in its entirety includ ing the rural floor, geographic reclassifications and all other wa ge index adjustments; (2) adopt the IPPS wage index for the OPPS in its entirety excep t when a small number of hospitals set the rural floor for the benefit of all other hospitals in the State; (3) adopt the IPPS wage index for the OPPS in its entirety except apply rural floor budget ne utrality within each State instead of nationally; or (4) adopt another de cision rule for when the rural floor should not be applied in the OPPS when we have concerns about disproportionate impact. We also are requesting public comments on an option that we are considering adopting for both the IPPS and the OPPS, where we would determine the applicable rural wage index floor using only data from those hospitals geographically rural under OMB and the Census Bureau’s MSA designations, an d without including wage data associated with hospital reclassified from urban to rural status under section 1886(d)(8)(E) of the Act. Such a policy would eliminate the incentiv e to reclassify from urban to rural status primarily to increase rural floors across a Stat e, and would ensure th at the rural floor is based upon hospitals loca ted in rural areas. With the exception of the proposed out-migration wage adjustment table (Addendum L to this proposed rule, which is available via the Inte rnet on the CMS Web site), which includes non-IPPS hos pitals paid under the OPPS, we are not reprinting the proposed FY 2012 IPPS wage indices referenced in this discussion of the wage index. We refer readers to the CMS Web site for the OPPS at:CMS-1525-P 190 http://www.cms.gov/HospitalOutpatientPPS/ . At this link, readers will find a link to the proposed FY 2012 IPPS wage index tables. D. Proposed Statewide Average Default CCRs In addition to using CCRs to estimate costs from charges on claims for ratesetting, CMS uses overall hospital-specific CCRs calcu lated from the hospital’s most recent cost report to determine outlier payments, paym ents for pass-through devices, and monthly interim transitional corridor payments unde r the OPPS during the PPS year. Medicare contractors cannot calculate a CCR for some hos pitals because there is no cost report available. For these hospitals, CMS uses the statewide average default CCRs to determine the payments mentioned above until a hospital’s Medicare contractor is able to calculate the hospital’s actual CCR from its most recently submitted Medicare cost report. These hospitals include , but are not limited to, hospita ls that are new, have not accepted assignment of an existing hospital’s provider agreement, and have not yet submitted a cost report. CMS also uses the statewide average default CCRs to determine payments for hospitals that appear to have a biased CCR (that is, the CCR falls outside the predetermined ceiling threshold for a valid CCR) or for hospitals in which the most recent cost report reflects an all-inclusive rate status (Medicare Claims Processing Manual (Pub. 100-04), Chapter 4, Section 10.11). In this proposed rule, we are proposing to update the default ratios for CY 2012 us ing the most recent cost report data. We discuss our policy for using default CCRs, in cluding setting the ceiling threshold for a valid CCR, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68594CMS-1525-P 191 through 68599) in the context of our adoption of an outlier reconciliation policy for cost reports beginning on or after January 1, 2009. For CY 2012, we are proposing to conti nue to use our standard methodology of calculating the statewide average default CCRs using the same hospital overall CCRs that we use to adjust charges to costs on clai ms data for setting the proposed CY 2012 OPPS relative weights. Table 11 below lists the proposed CY 2012 default urban and rural CCRs by State and compares them to last year’s default CCRs. These proposed CCRs represent the ratio of total costs to total charges for those cost centers relevant to outpatient services from each hospital’s most recently submitted cost report, weighted by Medicare Part B charges. We also are pr oposing to adjust ratios from submitted cost reports to reflect final settled status by applying the differential between settled to submitted overall CCRs for the cost centers releva nt to outpatient services from the most recent pair of final settled and submitted cost reports. We then weight each hospital’s CCR by the volume of separately paid line-it ems on hospital claims corresponding to the year of the majority of cost reports used to calc ulate the overall CCRs. We refer readers to the CY 2008 OPPS/ASC final rule with comment period (72 FR 66680 through 66682) and prior OPPS rules for a more detailed discussion of our established methodology for calculating the statewide average default CCRs, including the hospitals used in our calculations and our trimming criteria. For this CY 2012 OPPS/ASC proposed ru le, approximately 87 percent of the submitted cost reports utilized in the default ratio calculations represented data for cost reporting periods ending in CY 2009 and 13 pe rcent were for cost reporting periodsCMS-1525-P 192 ending in CY 2008. For Maryland, we used an overall weighted average CCR for all hospitals in the Nation as a substitute for Maryland CCRs. Few hospitals in Maryland are eligible to receive payment under the OPPS, which limits the data available to calculate an accurate and representative CCR. The we ighted CCR is used for Maryland because it takes into account each hospital’s volume, rath er than treating each hospital equally. We refer readers to the CY 2005 OPPS fina l rule with comment period (69 FR 65822 ) for further discussion and the rationale for our longstanding policy of using the national average CCR for Maryland. In general, observed cha nges in the statewide average default CCRs between CY 2011 and CY 2012 are modest and the few significant changes are associated with areas that ha ve a small number of hospitals. Table 11 below lists the proposed statew ide average default CCRs for OPPS services furnished on or after January 1, 2012.

TABLE 11.–-PROPOSED CY 201 2 STATEWIDE AVERAGE CCRs

State Urban/Rural Proposed CY 2012 Default CCR Previous Default CCR (CY 2011 OPPS Final rule) ALASKA RURAL 0.487 0.479 ALASKA URBAN 0.321 0.315 ALABAMA RURAL 0.213 0.212 ALABAMA URBAN 0.191 0.193 ARKANSAS RURAL 0.225 0.223 ARKANSAS URBAN 0.274 0.282 ARIZONA RURAL 0.236 0.231 ARIZONA URBAN 0.193 0.202 CALIFORNIA RURAL 0.189 0.195 CALIFORNIA URBAN 0.202 0.205 COLORADO RURAL 0.345 0.350 COLORADO URBAN 0.225 0.233 CONNECTICUT RURAL 0.356 0.356 CONNECTICUT URBAN 0.292 0.291CMS-1525-P 193

State Urban/Rural Proposed CY 2012 Default CCR Previous Default CCR (CY 2011 OPPS Final rule) DISTRICT OF COLUMBIA URBAN 0.301 0.313 DELAWARE RURAL 0.280 0.279 DELAWARE URBAN 0.347 0.362 FLORIDA RURAL 0.183 0.185 FLORIDA URBAN 0.170 0.172 GEORGIA RURAL 0.241 0.246 GEORGIA URBAN 0.214 0.220 HAWAII RURAL 0.320 0.356 HAWAII URBAN 0.306 0.308 IOWA RURAL 0.297 0.252 IOWA URBAN 0.272 0.288 IDAHO RURAL 0.416 0.419 IDAHO URBAN 0.378 0.384 ILLINOIS RURAL 0.245 0.251 ILLINOIS URBAN 0.240 0.239 INDIANA RURAL 0.298 0.302 INDIANA URBAN 0.268 0.270 KANSAS RURAL 0.282 0.286 KANSAS URBAN 0.209 0.215 KENTUCKY RURAL 0.223 0.220 KENTUCKY URBAN 0.245 0.244 LOUISIANA RURAL 0.256 0.256 LOUISIANA URBAN 0.226 0.235 MARYLAND RURAL 0.280 0.284 MARYLAND URBAN 0.251 0.256 MASSACHUSETTS URBAN 0.320 0.314 MAINE RURAL 0.440 0.460 MAINE URBAN 0.460 0.450 MICHIGAN RURAL 0.313 0.312 MICHIGAN URBAN 0.314 0.320 MINNESOTA RURAL 0.482 0.483 MINNESOTA URBAN 0.326 0.311 MISSOURI RURAL 0.248 0.258 MISSOURI URBAN 0.267 0.264 MISSISSIPPI RURAL 0.226 0.229 MISSISSIPPI URBAN 0.186 0.182CMS-1525-P 194

State Urban/Rural Proposed CY 2012 Default CCR Previous Default CCR (CY 2011 OPPS Final rule) MONTANA RURAL 0.434 0.444 MONTANA URBAN 0.398 0.399 NORTH CAROLINA RURAL 0.256 0.254 NORTH CAROLINA URBAN 0.264 0.264 NORTH DAKOTA RURAL 0.322 0.351 NORTH DAKOTA URBAN 0.429 0.360 NEBRASKA RURAL 0.323 0.328 NEBRASKA URBAN 0.252 0.259 NEW HAMPSHIRE RURAL 0.323 0.323 NEW HAMPSHIRE URBAN 0.292 0.290 NEW JERSEY URBAN 0.221 0.221 NEW MEXICO RURAL 0.266 0.277 NEW MEXICO URBAN 0.286 0.307 NEVADA RURAL 0.242 0.269 NEVADA URBAN 0.169 0.178 NEW YORK RURAL 0.410 0.415 NEW YORK URBAN 0.350 0.375 OHIO RURAL 0.324 0.327 OHIO URBAN 0.241 0.241 OKLAHOMA RURAL 0.248 0.260 OKLAHOMA URBAN 0.220 0.208 OREGON RURAL 0.302 0.306 OREGON URBAN 0.327 0.340 PENNSYLVANIA RURAL 0.270 0.275 PENNSYLVANIA URBAN 0.200 0.210 PUERTO RICO URBAN 0.490 0.505 RHODE ISLAND URBAN 0.287 0.284 SOUTH CAROLINA RURAL 0.222 0.222 SOUTH CAROLINA URBAN 0.217 0.227 SOUTH DAKOTA RURAL 0.309 0.316 SOUTH DAKOTA URBAN 0.253 0.251 TENNESSEE RURAL 0.212 0.221 TENNESSEE URBAN 0.201 0.204 TEXAS RURAL 0.239 0.245CMS-1525-P 195

State Urban/Rural Proposed CY 2012 Default CCR Previous Default CCR (CY 2011 OPPS Final rule) TEXAS URBAN 0.210 0.216 UTAH RURAL 0.385 0.386 UTAH URBAN 0.359 0.362 VIRGINIA RURAL 0.238 0.241 VIRGINIA URBAN 0.257 0.263 VERMONT RURAL 0.415 0.411 VERMONT URBAN 0.365 0.365 WASHINGTON RURAL 0.366 0.367 WASHINGTON URBAN 0.317 0.327 WISCONSIN RURAL 0.407 0.412 WISCONSIN URBAN 0.327 0.334 WEST VIRGINIA RURAL 0.283 0.291 WEST VIRGINIA URBAN 0.335 0.337 WYOMING RURAL 0.385 0.393 WYOMING URBAN 0.302 0.296

E. Proposed OPPS Payments to Certain Rural and Other Hospitals 1. Hold Harmless Transitional Payment Changes Made by Pub. L. 110-275 (MIPPA) When the OPPS was implemented, every provider was eligible to receive an additional payment adjustment (called either transitional corridor payments or transitional outpatient payments (TOPs)) if the payments it received for covered OPD services under the OPPS were less than the payments it would have received for the same services under the prior reasonable cost-based system (refe rred to as the pre-BBA amount). Section 1833(t)(7) of the Act provides that the tran sitional corridor payments are temporary payments for most providers and were intend ed to ease their transition from the prior reasonable cost-based payment system to the OPPS system. There are two exceptions to this provision, cancer hospitals and children’s hospitals, and those hospitals receive the transitional corridor payments on a permanent basis. Section 1833(t) (7)(D)(i) of the ActCMS-1525-P 196 originally provided for transiti onal corridor payments to rural hospitals with 100 or fewer beds for covered OPD services furnished be fore January 1, 2004. However, section 411 of Pub. L. 108-173 amended section 1833(t)(7)(D )(i) of the Act to extend these payments through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also extended the transitional corridor payments to sole community hospitals (SCHs) located in rural areas for services furnished during th e period that began with the provider’s first cost reporting period beginning on or after January 1, 2004, and ending on December 31, 2005. Accordingly, the authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of th e Act, as amended by section 411 of Pub. L. 108-173, for rural hospitals having 100 or fewe r beds and SCHs located in rural areas expired on December 31, 2005. Section 5105 of Pub. L. 109-171 reinstituted the TOPs for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. When the OPPS payment was less than the provider’s pre-BBA amount, the amount of paym ent was increased by 95 percent of the amount of the difference between the two amounts for CY 2006, by 90 percent of the amount of that difference for CY 2007, a nd by 85 percent of the amount of that difference for CY 2008. For CY 2006, we implemented section 5105 of Pub. L. 109-171 through Transmittal 877, issued on February 24, 2006. In the Transmittal, we di d not specifically address whether TOPs apply to essential access community hospitals (EACHs), which are considered to be SCHs under section 1886 (d)(5)(D)(iii)(III) of th e Act. Accordingly,CMS-1525-P 197 under the statute, EACHs are treated as SC Hs. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010), we stated that EACHs were not eligible for TOPs under Pub. L. 109-171. However, we stated they were eligible for the adjustment for rural SCHs. In the CY 2007 OPPS/ASC fina l rule with comment period (71 FR 68010 and 68228), we updated §419.70(d) of our regulations to refl ect the requirements of Pub. L. 109-171. In the CY 2009 OPPS/ASC proposed rule ( 73 FR 41461), we stated that, effective for services provided on or after January 1, 2009, rural hospitals having 100 or fewer beds that are not SCHs would no longer be e ligible for TOPs, in accordance with section 5105 of Pub. L. 109-171. However, subsequent to issuance of the CY 2009 OPPS/ASC proposed rule, section 147 of Pub. L. 110-275 amended sec tion 1833(t)(7)(D)(i) of the Act by extending the period of TO Ps to rural hospitals with 10 0 beds or fewer for 1 year, for services provided before January 1, 2010. Section 147 of Pub. L. 110-275 also extended TOPs to SCHs (including EACHs) with 100 or fewer beds for covered OPD services provided on or after January 1, 2009, and before January 1, 2010. In accordance with section 147 of Pub. L. 110-275, when the OPPS payment is less th an the provider’s pre-BBA amount, the amount of payment is incr eased by 85 percent of the amount of the difference between the two payment amounts for CY 2009. For CY 2009, we revised our regulations at §§419.70(d)(2) and (d)(4) and added a new paragraph (d)(5) to incor porate the provisions of sec tion 147 of Pub. L. 110-275. In addition, we made other technical changes to §419.70(d)(2) to more precisely capture ourCMS-1525-P 198 existing policy and to correct an inaccurate cross-reference. We also made technical corrections to the cross-references in paragraphs (e), (g), and (i) of §419.70. For CY 2010, we made a technical corre ction to the headi ng of §419.70(d)(5) to correctly identify the policy as described in the subsequent regulation text. The paragraph heading now indicates that the adjustment applies to small SCHs, rather than to rural SCHs. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60425), we stated that, effective for serv ices provided on or after Ja nuary 1, 2010, rural hospitals and SCHs (including EACHs) having 100 or fewe r beds would no longer be eligible for TOPs, in accordance with section 147 of Pub. L. 110-275. However, subsequent to issuance of the CY 2010 OPPS/ASC final rule with comment period, section 3121(a) of the Affordable Care Act amended section 1833(t)(7)(D)(i)( III) of the Act by extending the period of TOPs to rural hospitals that are not SCHs with 100 beds or fewer for 1 year, for services provided before January 1, 2011. Section 3121(a) of the Affordable Care Act amended section 1833(t)(7)(D)(i )(III) of the Act and extende d the period of TOPs to SCHs (including EACHs) for 1 year, for se rvices provided before January 1, 2011, with section 3121(b) of the Affordable Care Act re moving the 100-bed limitation applicable to such SCHs for covered OPD services furnis hed on and after January 1, 2010, and before January 1, 2011. In accordance with section 31 21 of the Affordable Care Act, when the OPPS payment is less than th e provider’s pre-BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payment amounts for CY 2010. Accordingly, in the CY 2011 OPPS/ASC final rule with commentCMS-1525-P 199 period (75 FR 71882), we updated §419.70(d) of the regulations to reflect the TOPs extensions and amendments described in section 3121 of the Affordable Care Act. Section 108 of the Medicare and Me dicaid Extenders Act of 2010 (MMEA) (Pub. L. 111-309) extended for one year the hold harmless provision for a rural hospital with 100 or fewer beds that is not an SC H (as defined in section 1886(d)(5)(D)(iii). Therefore, for such a hospital, for services furnished before January 1, 2012, when the PPS amount is less than the provider’s pre-BBA amount, the amount of payment is increased by 85 percent of th e amount of the difference between the two payments. In addition, section 108 of the MMEA also extended for one year the hold harmless provision for an SCH (as defined in secti on 1886(d)(5)(D)(iii) of the Act (including EACHs) removing the 100-bed lim it applicable to such SCHs for covered OPD services furnished on or after January 1, 2010 and be fore January 1, 2012. Therefore, for such hospitals, for services furnished before Ja nuary 1, 2012, when the PPS amount is less than the provider’s pre-BBA amount, the amount of payment is increased by 85 percent of the amount of the difference between the two payments. We are proposing to revise our regulations at §419.70(d) to conform the regulation text to the self-implementing provisions of section 108 of the MMEA described above. 2. Proposed Adjustment for Rural SCHs a nd EACHs under Section 1833(t)(13)(B) of the

Act In the CY 2006 OPPS final rule with comment period (70 FR 68556), we finalized a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologi cals, brachytherapy sources, and devicesCMS-1525-P 200 paid under the pass-through payment policy in a ccordance with section 1833(t)(13)(B) of the Act, as added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary the authority to make an adjustment to O PPS payments for rural hospitals, effective January 1, 2006, if justified by a study of the difference in costs by APC between hospitals in rural areas and hosp itals in urban areas. Our an alysis showed a difference in costs for rural SCHs. Therefore, for the CY 2006 OPPS, we finalized a payment adjustment for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding separately payable drugs a nd biologicals, brachyt herapy sources, and devices paid under the pass-through paymen t policy, in accordance with section 1833(t)(13)(B) of the Act. In CY 2007, we became aware that we did not specifically address whether the adjustment applies to EACHs, which ar e considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Ac t. Thus, under the statute, EACHs are treated as SCHs. Therefore, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010 and 68227), for purposes of receiving this rural ad justment, we revised §419.43(g) to clarify that EACHs are also eligible to receive the rural SCH adjust ment, assuming these entities otherwise meet the rural adjustment criteria. Currently, three hospitals are classified as EACHs, and as of CY 1998, under section 4201(c) of Pub. L. 105- 33, a hospital can no longer become newly classified as an EACH. This adjustment for rural SCHs is budge t neutral and applied before calculating outliers and copayment. As stated in the CY 2006 OPPS final rule with comment period (70 FR 68560), we would not reestablish the ad justment amount on an annual basis, butCMS-1525-P 201 we may review the adjustment in the futu re and, if appropriate, would revise the adjustment. We provided the same 7.1 per cent adjustment to rural SCHs, including EACHs, again in CYs 2008 through 2011. Furt her, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68590), we upda ted the regulations at §419.43(g)(4) to specify, in general terms, that items paid at charges adjusted to co sts by application of a hospital-specific CCR are excluded from the 7.1 percent payment adjustment. For the CY 2012 OPPS, we are proposi ng to continue our policy of a budget neutral 7.1 percent payment adjustment for ru ral SCHs, including EACHs, for all services and procedures paid under the OPPS, excluding separately payable dr ugs and biologicals, devices paid under the pass-through payment polic y, and items paid at charges reduced to costs (75 FR 46232). We intend to reassess the 7.1 percent adjustment in the near future by examining differences between urban and ru ral hospitals’ costs using updated claims, cost reports, and provider information. F. Proposed OPPS Payments to Certain Cancer Hospitals Described by Section 1886(d)(1)(B)(v) of the Act 1. Background Since the inception of the OPPS, which was authorized by the Balanced Budget Act of 1997 (BBA), Medicare has paid can cer hospitals iden tified in section 1886(d)(1)(B)(v) of the Act ( cancer hospitals) under the OPPS for covered outpatient hospital services. There are 11 cancer hospitals that meet the classification criteria in section 1886(d)(1)(B)(v ) of the Act. These 11 cancer hospitals are exempted from payment under the IPPS. With the Medicare, Medicaid and SCHI P Balanced BudgetCMS-1525-P 202 Refinement Act of 1999, Congress created sect ion 1833(t)(7) of the Act, “Transitional Adjustment to Limit Decline in Payment,” to serve as a permanent payment floor by limiting cancer hospitals’ potential losses under the OPPS. Through section 1833(t)(7)(D)(ii) of the Act, a cancer hospital receives the full amount of the difference between payments for covered outpatient services under the OPPS and a “pre-BBA” amount. That is, cancer hospitals are perm anently held harmless to their “pre-BBA” amount, and they receive Transitional OutpatientPayments (TOPs) to ensure that they do not receive a payment that is lower under the OPPS than the payment they would have received before implementation of the OPPS, as set forth in secti on 1833(t)(7)(F) of the Act. The “pre-BBA” payment amount is an amount equal to the product of the reasonable cost of the hospital for covered outpatient services for the portions of the hospital’s cost report ing period (or periods) occurring in the current year and the base payment-to-cost ratio (PCR) for the hosp ital. The “pre-BBA” amount, including the determination of the base PCR, are define d at 42 CFR 419.70(f). TOPs are calculated on Worksheet E, Part B, of the Hospital a nd Hospital Health Care Complex Cost Report (Form CMS-2552-96 or Form CMS-2552-10, as applicable) each year. Section 1833(t)(7)(I) of the Act exempts TOPs from budg et neutrality calculati ons. Almost all of the 11 cancer hospitals receive TOPs each year. The volume weighted average payment-to-cost ratio (PCR) for the cancer ho spitals is 0.83, or outpatient payment with TOPs to cancer hospitals is 83 percent of reasonable cost. Section 3138 of the Affordable Care Act instructs the Secretary to conduct a study to determine if, under the OPPS, outpatient co sts incurred by cancer hospitals describedCMS-1525-P 203 in section 1886(d)(1)(B)( v) of the Act with respect to ambulatory payment classification (APC) groups exceed the costs incurred by other hospitals furn ishing services under section 1833(t) of the Act as determined appropriate by the Secretary. In addition, section 3138 of the Affordable Care Act require s the Secretary to take into consideration the cost of drugs and biologicals incurre d by such hospitals when studying cancer hospital costliness. Further, section 3138 of the Affordable Ca re Act provides that if the Secretary determines that cancer hospitals’ co sts with respect to APC groups are determined to be greater than the costs of other hospitals fu rnishing services under section 1833(t) of the Act, the Secretary shall provide an appr opriate adjustment to reflect these higher costs. Cancer hospitals desc ribed in section 1886(d )(1)(B)(v) of the Act remain eligible for TOPs (which are not budge t neutral) and outlier payments (which are budget neutral). 2. Study of Cancer Hospitals’ Co sts Relative to Other Hospitals It has been our standard analytical appr oach to use a combination of explanatory and payment regression models to assess the costliness of a class of hospitals while controlling for other legitimate influences of costliness, such as ability to achieve economies of scale, to ensure that costliness is due to the type of hos pital and to identify appropriate payment adjustments. We used this approach in our CY 2006 OPPS final rule with comment period to establish the 7.1 percent payment adjustment for rural SCHs (70 FR 68556 through 68561). In our discus sion for the CY 2006 OPPS proposed rule, we stated that a simple comparison of unit costs would not be sufficient to assess the costliness of a class of hospitals because th e costs faced by indivi dual hospitals, whetherCMS-1525-P 204 urban or rural, are a function of many vary ing factors, including local labor supply and the complexity and volume of services provided (70 FR 42699). In constructing our analysis of cancer hos pitals’ costs with respect to APC groups relative to other hospitals, we considered whether our standard analyt ical approach to use a combination of explanatory and payment regr ession models would lead to valid results for this particular study, or wh ether we should develop a diff erent or modified analytic approach. We note that the analyses pres ented in the CY 2006 OPPS proposed and final rules were designed to establish an adjustment for a large class of rural hospitals. In contrast, section 3138 of the Affordable Care Ac t is specifically limited to identifying an adjustment for 11 cancer hospitals to the exte nt their costs with respect to APC groups exceeded those costs incurred by other hospitals furnishing services under section 1833(t) of the Act. With such a small sample si ze (11 out of approximate ly 4,000 hospitals paid under the OPPS), we were concerned that the standard explanatory and payment regression models used to esta blish the rural hospital adjustme nt would lead to imprecise estimates of payment adjustments for this sm all group of hospitals. Further, section 3138 of the Affordable Care Act specifies explicit ly that cost comparisons between classes of hospitals must include the cost of drugs and bi ologicals. In our CY 2006 analysis of rural hospitals, we excluded the cost of drugs and biologicals in our model because the extreme units associated with proper billing for some drugs and biologicals can bias the calculation of a service mix index, or volume weighted average APC relative weight, for each hospital (70 FR 42698). Therefore, we chose not to pursue our standardCMS-1525-P 205 combination of explanatory and payment regression modeling to determine a proposed cancer hospital adjustment. As discussed in the CY 2011 OPPS/ASC proposed rule (75 FR 46235), while we chose not to use our standard models to calculate a proposed cancer hospital adjustment, we determined it still would be appropriate to construct our usual provider-level anal ytical dataset consisting of variables related to assessing costliness with respect to APC groups, in cluding average cost per unit for a hospital and the hospital’s average APC relative weight as an indicator of the hospital’s resource intensity, as measured by the APC relative weights. We used these variables to calculate univariate statistics that describe the costliness with respect to APC groups and related aspects of cancer hospitals and other hospitals paid under the OPPS. While descriptive statistics cannot control fo r the myriad factors that contribute to observed costs, we believed that stark differences in cost betw een cancer hospitals and other hospitals paid under the OPPS that would be observable by examining descriptive univariate statistics would provide some indication of relative costliness. We began our analysis of the cancer hospitals by creating an analytical dataset of hospitals billing under the OPPS for CY 2009 (a total of 3,933) that were included in our claims dataset for establishing the CY 2011 OPPS proposed APC relative weights. This analytical dataset included the 3,933 OPPS hospitals’ total estimated cost (including packaged cost), total lines, total discounted units as modeled for CY 2011 OPPS paymen t, and the average weight of their separately payable services (total APC weight divided by total units) as modeled for the CY 2011 OPPS. We then summarized estimated utilization and payment for each ho spital (“hospital-level”). These files consist of hospital-level aggregate costs (including the cost of packaged items and services), total estimated discounted units under the modeled proposed CY 2011 OPPS, total estimated volume of number of occurrences of separately payable HCPCS codes under the modeled proposed CY 2011 OPPS, and total relative weight of separately payable services under the modeled proposed CY 2011 OPPS. After summarizing modeled payment to the hospital-level, we removed 48 hospitals in Puerto Rico from our dataset because we did not believe that their cost structure reflected the costs of most hospitals paid under the OPPS and because they c ould bias the calculation of hospital-weig hted statistics. We then removed an additional 66 hospitals with a cost per unit of more than 3 standard deviations from the geometric meanCMS-1525-P 206 (mean of the natural log) because including outliers in hospital-weighted descriptive statistics also could bias those statistics. This resulted in a dataset with 11 cancer hospitals and 3,808 other hospitals. We included the following standard hospital-level variables that describe hospital costliness in our analysis file: outpatient cost per discounted unit u nder the modeled CY 2011 OPPS (substituting a cost per administration, rather than a cost per unit, for drugs and biologicals); each hospital’s proposed CY 2011 wage index as a measure of relative labor cost; th e service mix index, or volume-weighted average proposed CY 2011 APC relative weight (including a simulated weight for drugs and biologicals created by dividing the CY 2010 April ASP-based payment amount at ASP+6 percent appearing in Addendum A and B of the proposed rule by the proposed conversion factor of $68.267); outpatient volume based on number of occurrences of HCPCS codes in the CY 2009 claims data; and number of beds. We used these variables because they are key indicators of costliness with re spect to APC groups under the modeled OPPS system, and they allowed us to assess the relative costline ss of classes of hospitals under the proposed CY 2011 OPPS. A hospital’s service mix index is a measure of resource intensity of the services provided by the hospital as measured by the proposed CY 2011 OPPS relative weights, and standardizing the cost per discounted unit by the service mix index creates an adjusted cost per unit estimate that reflects the remaining relative costliness of a hospital remaini ng after receiving the estimated payments that we proposed to make under the CY 2011 OPPS. In short, if a class of hospitals demonstrates higher cost per unit after standardization by service mix, it is an early indication that the class of hospitals may be significantly more costly in the regression models. We used these data to calculate the descriptive univariate statistics for cancer hospitals appearing in Table 12 below. We note that because drugs and biologicals are such a significant por tion of the services that the cancer hospitals provide, and because section 3138 of the Affordable Care Act explicitly requires us to consider the cost of drugs and biologicals, we included the cost of these items in our total co st calculation for each hospital, counting each occurrence of a drug in the modeled proposed CY 2011 data (based on units in CY 2009 claims data). That is, we sought to treat each administration of a drug or biological as one unit. In reviewing these descriptive statistics, we observ ed that cancer hospitals had a standardized cost per discounted unit of $150.12 compared to a standardized cost per discounted unit of $94.14 for all otherCMS-1525-P 207 hospitals. That is, cancer hospitals’ average cost pe r discounted unit remained high even after accounting for payment under the modeled proposed CY 2011 payment system, which is not true for all other hospitals. Observing such differences in standardized cost per discounted unit led us to conclude that cancer hospitals are more costly with respect to APC groups than other hospitals furnishing services under the OPPS, even without the inferential statistical models that we typically employ.

TABLE 12.—MEANS AND STANDARD DE VIATIONS FOR KEY VARIABLES BY CANCER AND NON-CANC ER OPPS HOSPITALS

Cancer Hospitals Non-Cancer Hospitals Variable

Mean Standard Deviation Mean Standard Deviation Outpatient Cost per Unit* $344.20 (64.68) $264.11 (165.86) Unit Cost Standardized by Service Mix Wage Indices $150.12 (31.64) $94.14 (81.19) Wage Index 1.10 (0.13) 0.98 (0.16) Service Mix Index * 2.19 (0.26) 3.18 (2.25) Outpatient Volume 192,197 (186,063) 34,578 (43,094) Beds 173 (162.33) 173 (171.46) Number of Hospitals 11 3,808

* Includes drugs and biologicals based on per administration rather than per unit. 3. CY 2011 Proposed Payment Adjustment for Certain Cancer Hospitals Having reviewed the cost data from the st andard analytic database and determined that cancer hospitals are more costly with respect to APC groups than other hospitals furnishing services under the OPPS system, we decided to examine hos pital cost report data from Worksheet E, Part B (where TOPs are calculated on the Hospital and Hospital Health Care Complex Cost Re port each year) in order to determine whether our findings were further supported by cost report dataand to determine an appropriate proposed payment adjustment methodology for CY 2011 ba sed on cost report data. Analyses on our standard analytic database and descriptive statistics pr esented in Table 12 above didCMS-1525-P 208 not consider TOPs in assessing costliness of cancer hospitals relativ e to other hospitals furnishing services under section 1833(t) of the Act. There we re several reasons for this. One, TOPs have no associated relative weight that could be included in an assessment of APC-based payment. TOPs are paid at cost report settlement on an aggregate basis, not on a per service basis, and we would have no way to break these payments down into a relative weight to incorporate these retrospe ctive aggregate payments in the form of a relative weight. In addition, section 3138 of the Affordable Care Act requires that any cancer adjustment be made within the budget ne utral system, and TOPs are not part of the budget neutral payment system. The cost report data we selected for the analysis were limited to the OPPS-specific payment and cost data available on Worksheet E, Part B. These data include aggregate OPPS payments, including outlier payments and the cost of medical and other health services. These a ggregate measures of cost and payment also include the cost and payment for drugs and biologicals and other adjustments that we typically include in our regression modeling, including wage index adjustment and rural adjustment, if applicable. While these cost report data cannot provide an estimate of cost per unit after controlling for ot her potential factors that coul d influence cost per unit, we used this aggregate cost and payment data to examine the cancer hospitals’ OPPS PCR and OPPS PCR with TOPs, and compare thes e to the OPPS PCR for other hospitals. PCRs calculated from the most recent cost report data available at the time of the CY 2011 OPPS/ASC proposed rule also indicate d that costs relative to payments at cancer hospitals were higher than those at other hospitals paid under the OPPS (that is, cancer hospitals have lower PCRs). In order to calculate PCRs for hospitals paid underCMS-1525-P 209 the OPPS (including cancer hospitals), we used the same extract of cost report data from the Hospital Cost Report Information System (HCRIS) that we us ed to calculate the CCRs that were used to estimate median costs for the CY 2011 OPPS. We limited the dataset to the hospitals with CY 2009 claims data that we used to model the CY 2011 proposed APC relative weights. We estimated that, on average, the OPPS pa yments to the 11 cancer hospitals, not including TOPs, were approximately 62 percent of reasonable cost (that is, we calculated a PCR of 0.615 for the cancer hospitals), wh ereas we estimated that, on average, the OPPS payments to other hospitals furnishing services under the OPPS were approximately 87 percent of reasonable cost (resulting in a PCR of 0.868). When TOPS were included in the calculation of the PCR, cancer hospitals, as a group, received payments that were approximately 83 percen t of reasonable cost, which was still lower than the average PCR of other OPPS hospitals of approximately 87 percent of reasonable

cost. Based on our findings that cancer hospitals, as a class, have a significantly lower volume weighted average PCR than the volume weighted PCR of other hospitals furnishing services under the OPPS and our fi ndings that the cancer hospitals cost per discounted unit standardized fo r service mix remains much hi gher than the standardized cost per discounted unit of a ll other hospitals, we proposed an adjustment for cancer hospitals to reflect these higher costs, effective January 1, 2011. For purposes of calculating a proposed adjustment, we chose to rely on this straightforward assessment of payments and costs from the cost report data because of the concer ns outlined above withCMS-1525-P 210 respect to the small number of hospitals, and because of the challenges associated with accurately including drug and biological cost s in our standard regression models. We believed that an appropriate adjustment w ould redistribute enough payments from other hospitals furnishing services under the OPPS to the cancer hospitals to give cancer hospitals a PCR that was comparable to the average PCR for other hospitals furnishing services under the OPPS. Therefore, we proposed a hospital-specific payment adjustment determined as the percentage of additional payment needed to raise each cancer hospital’s PCR to the weighted average PCR for other hospitals furnishing services under the OPPS (0.868) in the CY 2011 dataset. This would be accomplished by adjusting each cancer hospita l’s OPPS payment by the percen tage difference between the hospital’s individual P CR (without TOPs) and the weight ed average PCR of the other hospitals furnishing services under the OPPS. This cancer hospital payment adjustment proposed for CY 2011 would have resulted in an estimated aggregate increase in OPPS payments to cancer hospitals of 41.2 percen t and a net increase in total payments, including TOPs, of 5 percent for CY 2011. 4. Proposed CY 2011 Cancer Hospital Payment Adjustment That Was Not Finalized The public comments associated with th e cancer hospital adjustment that we proposed for CY 2011 are detailed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71886 through 71887). Many commenters urged CMS to consider TOPs when calculating the cancer hos pital payment adjustment stating that the proposed methodology results, largely, in a change in the form of outpatient payments to cancer hospitals by shifting payment from hold harm less payment under the TOPs provision toCMS-1525-P 211 APC payments. Noting that the majority of cancer care provided in the country is provided by the non-cancer hospi tals that would experien ce a payment reduction under the CY 2011 proposal, commenters also suggest ed that the associated budget neutral payment reduction of 0.7 percent was not appropriate or equitable to other OPPS hospitals. Commenters also expressed con cern that the proposed payment adjustment would increase beneficiary copayments. That is, they believed th at the proposed cancer hospital adjustment would increase APC paym ents and, because beneficiary copayment is a percentage of the APC payment, Medica re beneficiaries seeking services at the 11 designated cancer hospitals would experience higher copayments due to the proposed methodology. These commenters strongly encour aged CMS to implement the adjustment in a way that does not increase beneficiar y copayments. These commenters also indicated that CMS should have taken into account the concentr ation of outpatient services at the designated can cer hospitals, as compared to other OPPS hospitals, and adjust the PCR benchmark higher. The comme nters argued that other PPS hospitals have the ability to improve their Medicare marg ins through other payment systems, but that cancer hospitals receive the ma jority of their Medicare payments through the OPPS. One commenter suggested that the CMS analysis was inadequate to conclude that costs are higher in cancer hospitals and that an adjustment is warranted. As indicated in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71887), because the many public comments we received identified a br oad range of very important issues and concerns associated with the proposed cancer hospital payment adjustment, weCMS-1525-P 212 determined that further study and deliberati on was necessary and, therefore, we did not finalize the CY 2011 proposed payment adju stment for certain cancer hospitals. 5. Proposed Payment Adjustment for Certain Cancer Hospitals for CY 2012 During our deliberations that occurred subsequent to the CY 2011 OPPS/ASC final rule, we reconfirmed that TOPs coul d not be included when establishing the PCR target given the current statut ory language in section 1833(t)(1 8) of the Act that was to capture costliness with respect to APC gr oups. Specifically, sec tion 1833(t)(18)(A) of the Act requires the Secretary to determine if, under the OPPS, costs incurred by cancer hospitals with respect to APC groups exceed those costs incurred by other hospitals furnishing services under the OPPS. As discussed in the CY 2011 OPPS/ASC proposed rule and final rule with comment period, TOPs payments are not paid on a service specific basis, and we have no way to break these payments down in to a relative weight that could be included in an assessment of an APC-based payment. Because section 1833(t)(18)(A) of the Act ties the assessm ent of the costs incurred by the 11 cancer hospitals to APC groups, we cannot include TO Ps, which are not tied to APC groups, in such assessment. In addition, section 1833(t) (7)(D)(ii) of the Act (the hold harmless provision for cancer hospitals) pr ovides that this adjustment is applied for covered OPD services for which the “PPS amount” is le ss than the “pre-BBA” amount. The “PPS amount” means, with respect to covered OP D services, “the amount payable under this title [Title 18] for such services (determined w ithout regard to this pa ragraph) . . .” (See section 1833(t)(7)(E) of the Act) . Under this provision, the cancer adjustment must be included in the calculation of the “PPS amount ” because it is an integral component ofCMS-1525-P 213 “the amount payable under this title.” Furt her, we note that the Affordable Care Act requires that any cancer hospita l payment adjustment be made within the budget neutral system. We note that TOPs are not part of the budget neutral payment system. In addition, we have revisited the issue of whether payments associated with the cancer hospital payment adjustment can be excluded from the amount of payment on which the copayment amount is determined. We continue to believe that the statute requires such payment to be included in the amount of payment upon which the copayment amount is determined. Specificall y, section 1833(t)(8) of the Act sets forth the methodology for calculating the copaymen t amount under section 1833(t). Section 1833(t)(8)(A) of the Act states the following: “Except as provided in subparagraphs (B) and (C), the copayment amount under this s ubsection is the amount by which the amount described in paragraph (4)(B) exceeds the amount of payment determined under paragraph (4)(C).” We note that the amount in paragraph (4)(B) incorporates the amount calculated under subparagraph (A) of section 1833(t)(4) of the Act which provides that the “medicare OPD fee schedule amount (c omputed under paragraph (3)(D)) for the service or group and year is adju sted for relative differences in the cost of labor and other factors determined by the Secretary, as com puted under paragraphs (2)(D) and (2)(E).” The reference to “factors computed under paragraphs. . . (2)(E)” includes a cancer hospital payment adjustment because it is requir ed to be provided under paragraph (2)(E). Therefore, the statute is clear that the cance r hospital payment adjustment is a component of the payment amount upon which the beneficiary copayment is determined.CMS-1525-P 214 Finally, though commenters suggested that CMS take into account the cancer hospitals’ significant Medicare outpatient conc entration relative to that of other OPPS hospitals when establishing an appropriate P CR benchmark, we believe it is inappropriate to incorporate the payments associated w ith other Medicare payment systems when determining a payment adjustment under the OPPS. After a thorough review and deliberation of the issues associat ed with the cancer hospital payment adjustment proposed fo r CY 2011, we continue to believe a straightforward and appropriate method to adju st payments of cancer hospitals described in section 1886(d)(1)(B)(v) of the Act in order to reflect their higher costs with respect to APC groups is to propose to redistribu te enough payments from other hospitals furnishing services under the OPPS to the cancer hospitals to give ea ch cancer hospital a PCR that is comparable to the weighted average PCR for other hospitals furnishing services under section 1833(t) of the Act. Therefore, as explained in more detail below, for services furnished on a nd after January 1, 2012, we ar e proposing that, for a cancer hospital with an individual PCR (as determ ined by the Secretary) below the weighted average PCR for other hospitals furnishing se rvices under section 1833 (t) of the Act (as determined by the Secretary) (Target PCR), we would make a hospital-specific payment adjustment by adjusting the wage-adjusted OPPS payment for covered OPD services (except for devices receivi ng pass-through status as defi ned in 42 CFR 419.66) by the percent difference between the hospital’s indi vidual PCR and the weighted average PCR of other hospitals furnishing services under section 1833(t) of the Act in the CY 2012 dataset. With respect to such hospitals, for devices receiving pa ss-through status asCMS-1525-P 215 defined in 42 CFR 419.66 which are furnis hed on and after January 1, 2012, , we are proposing a zero percent adjustment. For a can cer hospital with an individual PCR (as determine by the Secretary) above the we ighted average PCR for other hospitals furnishing services under section 1833(t) of th e Act (as determined by the Secretary), we are proposing a zero percen t adjustment for covered hospital outpatient services furnished on and after January 1, 2012. In order to calculate PCRs for hosp itals furnishing services under the OPPS (including cancer hospitals) for the proposed CY 2012 cancer hospital payment adjustment, we used the same extract of costreport data from HCRIS, as discussed in section II.A of this proposed rule, used to estimate median costs for the proposed CY 2012 OPPS. Using these cost report data, we included data from Worksheet E, Part B, for each hospital, using data from each hospi tal’s most recent cost report, whether as submitted or settled. We then limited the data set to the hospitals with CY 2010 claims data that we use to model the impact of the CY 2012 proposed APC relative weights (4,009 hospitals) because it is appropriate to us e the same set of hospitals that we are using to calibrate the modeled proposed CY 2012 OPPS. The cancer hospitals in this dataset largely had cost report data from co st reporting periods ending in FY 2009 and FY 2010. The cost report data for the other hos pitals were from cost report periods with fiscal year ends ranging from 2008 to 2010. We then removed the cost report data for 47 hospitals from Puerto Rico from our data se t because we do not believe that their cost structure reflects the costs of most hospita ls paid under the OPPS and therefore their inclusion may bias the calculation of hospital- weighted statistics. We also removed 206CMS-1525-P 216 hospitals with cost report data that were not complete (missing OPPS payments, including outliers, missing aggr egate cost data, or both), so that all cost reports in the study would have both the payment and cost da ta necessary to calculate a PCR for each hospital, leading to a final analytic file of 3,756 hospitals with cost report data. We believe that the costs and PPS payments re ported on Worksheet E, Part B, for the hospitals included in our CY 2012 modeling shou ld be sufficiently accurate for assessing hospital’s relative costliness b ecause all of the key elements that we believe are necessary for the analysis (payment and cost ) are contained on this worksheet. Using this smaller dataset of cost report data, we estimate that, on average, the OPPS payments to the 11 cancer hospitals , not including TOPs, are approximately 65 percent of reasonable cost (that is, we calculated a PCR of 0.647 for the cancer hospitals), whereas, we estimate that, on aver age, the OPPS payments to other hospitals furnishing services under the OPPS are appr oximately 90 percent of reasonable cost (resulting in a PCR of 0.901). Individua l cancer hospitals’ OPPS PCRs range from approximately 0.56 to approximately 0.82. As indicated above, we are proposing that, for a cancer hospital with an individual PCR below the weighted average PCR for ot her hospitals furnishi ng services under the OPPS in the CY 2012 dataset, we would make a hospital-specific payment adjustment by adjusting the wage-adjusted OPPS payment fo r covered OPD services (except devices receiving pass-through status because these ite ms and services are always paid at the estimated full cost and, therefore, no paymen t adjustment is necessary) furnished on and after January 1, 2012, by the percent differen ce between the hospita l’s individual PCRCMS-1525-P 217 and the weighted average PCR of other hospi tals furnishing services under the OPPS in the CY 2012 dataset. This proposed methodology would result in the proposed percentage payment adjustments for the 11 cance r hospitals appearing in Table 13 below. In addition, we note that we are prop osing to amend 42 CFR 419.43 by adding a new paragraph (i). Proposed new paragraph(i)(1 ) would specify that CMS provides for a payment adjustment for covered hospital outpati ent services furnished on or after January 1, 2012, by cancer hospitals described in secti on 1886(d)(1)(B)(v) of the Act. Proposed new paragraph (i)(2) would specify how the am ount of the payment adjustment to cancer hospitals is established. Proposed new paragr aph (i)(3) would specify that this payment adjustment would be budget neutral, consistent with section 1833(t)( 18)(B) of the Act. Proposed new paragraph (i)(4) would specify the services or groups that are excluded from qualifying for the cancer hospital paymen t adjustment. In the event that a cancer hospital has a PCR that is higher than the weighted average PCR for other OPPS hospitals furnishing services under the OPPS, we ar e proposing that the specific hospital would receive a zero percent adjustment. We believe that this would indicate that the cancer hospital’s costs do not exceed the costs incurred by other hospitals furnishing services under the OPPS and, therefore, a pa yment adjustment above zero percent would not be necessary. We note that the proposed payment adju stment for all cance r hospitals would result in an estimated aggregate increase in OPPS payments to cancer hospitals of 39 percent for CY 2012 and an estimated net increase in total payments, including TOPs, of 9 percent, based on cost repo rt data. The dataset of hosp ital cost report data that weCMS-1525-P 218 used to model this proposed payment adjustme nt for cancer hospitals is available under supporting documentation for this proposed rule on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/HORD/

. TABLE 13.--PROPOSED CY 2012 HOSPITAL-SPECIFIC PAYMENT ADJUSTMENT FOR CANCER HOSPITALS WITHOUT REGARD TO TOPs AND OUTLIER PAYMENTS

Provider Number Hospital Name Percent Increase Without TOPs or Outlier Payment 050146 City of Hope Helford Clinical Research Hospital 10.1% 050660 USC Kenneth Norris Jr. Cancer Hospital 15.7% 100079 University of Miami Hospital & Clinic 27.6% 100271 H. Lee Moffitt Cancer Center & Research Institute 21.6% 220162 Dana-Farber Cancer Institute 54.4% 330154 Memorial Hospital for Cancer and Allied Diseases 39.4% 330354 Roswell Park Cancer Institute 24.3% 360242 James Cancer Hospital & Solove Research Institute 30.1% 390196 Hospital of the Fox Chase Cancer Center 15.3% 450076 University of Texas M. D. Anderson Cancer Center 61.8% 500138 Seattle Cancer Care Alliance 43.7% Proposed Aggregate Payment Adjustment 39.3%

Because section 7101 of the Affordable Care Act expanded the 340B drug program to include certain cancer hospitals, we believe that the PCRs and any cancer hospital payment adjustment should be reca lculated annually. The 340B drug program allows certain hospitals to purchase certai n outpatient drugs at reduced prices. The Affordable Care Act provision was effective for drugs purchased on or after January 1,CMS-1525-P 219 2010. Inclusion of cancer hospitals in the 340B drug program should lower drug costs at these cancer hospitals going forward and, th erefore, may cause significant changes in each cancer hospital’s PCR compared to the prev ious year’s calculation. Therefore, we are proposing to recalculate the PCR of eachcancer hospital and the weighted average PCR of the other hospitals furnishing servic es under 1833(t) on an annual basis in order to determine an appropriate hos pital specific payment adjustme nt to cancer hospitals each

year. We note that the changes made by section 3138 of the Affordable Care Act do not affect the existing statutory provisions that provide for outlier pa yment for all hospitals paid under the OPPS, including cancer hospitals a nd TOPs for cancer hospitals. Because outlier payments are made within budget neut rality, outlier paymen ts are assessed after all budget neutral payments for an individua l service have been made, including the cancer hospital payment adjustment. The TOPs are assessed after all payments have been made for a cost reporting period. Further, both outlier payments and TOPs serve as a safety net for hospitals, although outliers are budget neutral and TOPs are not, and TOPs are limited to certain hospitals. Outliers a nd TOPs are assessed after final payments have been made. If this proposed payment adjust ment is finalized, we estimate that there would be no cancer hospitals th at would continue to receive TOPs. We are proposing to update the hospital-specific can cer hospital payment adjustments in Table 13 using the more recent cost reports that will become av ailable for the CY 2012 OPPS/ASC final rule with comment period.CMS-1525-P 220 G. Proposed Hospital Outpatient Outlier Payments 1. Background Currently, the OPPS pays outlier payments on a service-by-service basis. For CY 2011, the outlier threshold is met when the cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $2,025 fixed-dollar threshold. We introduced a fixed-dollar threshold in CY 2005, in addition to the tradit ional multiple threshold, in order to better target outliers to those high cost and comple x procedures where a very costly service could present a hospital w ith significant financial loss. If the cost of a service meets both of these conditions, the multiple threshold and the fixed-dollar threshold, the outlier payment is calculated as 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment ra te. Before CY 2009, this outlier payment had historically been considered a fina l payment by longstanding OPPS policy. We implemented a reconciliation process similar to the IPPS outlier rec onciliation process for cost reports with cost reporting peri ods beginning on or after January 1, 2009 (73 FR 68594 through 68599). It has been our policy for the past seve ral years to report the actual amount of outlier payments as a percent of total spe nding in the claims being used to model the proposed OPPS. Our current estimate of tota l outlier payments as a percent of total CY 2010 OPPS payment, using available CY 2010 claims and the revised OPPS expenditure estimate for th e Presidential Budget for FY 2012, is approximately 1.11 percent of the total aggregated OPPS payments. Therefore, for CY 2010, weCMS-1525-P 221 estimate that we paid at 0.11 percent above the CY 2010 outlier targ et of 1.0 percent of total aggregated OPPS payments. As explained in the CY 2011 OPPS/AS C final rule with comment period (75 FR 71887 through 71889), we set our projecte d target for aggregate outlier payments at 1.0 percent of the estimated aggregate total payments under the OPPS for CY 2011. The outlier thresholds were set so that estimated CY 2011 aggregate outlier payments would equal 1.0 percent of th e total estimated aggregate payments under the OPPS. Using CY 2010 claims data and CY 2011 paymen t rates, we currently estimate that the aggregate outlier payments for CY 2011 would be approximately 1.06 percent of the total CY 2011 OPPS payments. The difference between 1.0 percent and 1.06 percent is reflected in the regulatory impact analysis in section XX. of this proposed rule. We note that we provide estimated CY 2012 outlier payments for hospitals and CMHCs with claims included in the claims data that we used to model impacts in the Hospital–Specific Impacts - Provider-Specific Data file on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS/

. 2. Proposed Outlier Calculation We are proposing for CY 2012 to conti nue our policy of estimating outlier payments to be 1.0 percent of the estimated aggregate total paymen ts under the OPPS for outlier payments. We are proposing that a po rtion of that 1.0 percen t, specifically 0.14 percent, would be allocated to CMHCs for PH P outlier payments. This is the amount of estimated outlier payments that would result from the proposed CM HC outlier threshold as a proportion of total estimated outlier paymen ts. As discussed in section VIII.C. ofCMS-1525-P 222 this proposed rule, for CMHCs, we are pr oposing to continue our longstanding policy that if a CMHC’s cost for partial hospita lization services, paid under either APC 0172 (Level I Partial Hospitalization (3 servi ces) for CMHCs) or APC 0173 (Level II Partial Hospitalization (4 or more services) for CMHCs), exceeds 3.40 times the payment for APC 0173, the outlier payment would be calcula ted as 50 percent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate. For further discussion of CMHC outlier payments, we refer readers to section VIII.C. of this propose rule. To ensure that the estimated CY 2012 a ggregate outlier payments would equal 1.0 percent of estimated aggregate total paym ents under the OPPS, we are proposing that the hospital outlier thre shold be set so that outlier payments would be triggered when the cost of furnishing a service or proced ure by a hospital exceeds 1.75 times the APC payment amount and exceeds the APC payment rate plus a $2,100 fixed-dollar threshold. This proposed threshold reflects the methodology discussed below in this section, as well as the proposed APC recalibration for CY 2012. We calculated the proposed fixed-dollar th reshold for this proposed rule using largely the same methodol ogy as we did in CY 2011 (75 FR 71887 through 71889). For purposes of estimating outlier payments for the proposed rule, we used the hospital-specific overall ancillary CCRs available in the April 2011 update to the Outpatient Provider-Specific File (OPSF). The OPSF contains provider-specific data, such as the most current CCR, which are ma intained by the Medica re contractors and used by the OPPS Pricer to pay claims. Th e claims that we use to model each OPPS update lag by 2 years. For this proposed rule, we used CY 2010 claims to model theCMS-1525-P 223 CY 2012 OPPS. In order to estimate the pr oposed CY 2012 hospital outlier payments for this proposed rule, we infl ated the charges on the CY 2010 claims using the same inflation factor of 1.0908 that we used to es timate the IPPS fixed-dol lar outlier threshold for the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26024). We used an inflation factor of 1.0444 to estimate CY 2011 charge s from the CY 2010 charges reported on CY 2010 claims. The methodology for determin ing this charge inflation factor is discussed in the FY 2012 IPPS/ LTCH PPS proposed rule (76 FR 26024). As we stated in the CY 2005 OPPS final rule with comment period (69 FR 65845), we believe that the use of these charge inflation factors are appropriate for the OPPS because, with the exception of the inpatient routine service cost centers, hospitals use the same ancillary and outpatient cost centers to capture cost s and charges for inpatient and outpatient services. As noted in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68011), we are concerned that we c ould systematically overestimate the OPPS hospital outlier threshold if we did not a pply a CCR inflation adjustment factor. Therefore, we are proposing to apply the sa me CCR inflation adjustment factor that we are proposing to apply for the FY 2012 IPPS ou tlier calculation to the CCRs used to simulate the proposed CY 2012 OPPS outlier pa yments that determine the fixed-dollar threshold. Specifically, for CY 2012, we are pr oposing to apply an adjustment of 0.9850 to the CCRs that were in the April 2011 O PSF to trend them forward from CY 2011 to CY 2012. The methodology for calculating this pr oposed adjustment is discussed in the FY 2012 IPPS/LTCH PPS proposed ru le (76 FR 26024 through 26025).CMS-1525-P 224 Therefore, to model hospital outlier payments for this CY 2012 OPPS/ASC proposed rule, we applied the overall CCRs from the April 20 11 OPSF file after adjustment (using the proposed CCR inflation adjustment factor of 0.9850 to approximate CY 2012 CCRs) to charges on CY 2010 claims that were adjusted (using the proposed charge inflation factor of 1.0908 to appr oximate CY 2012 charges). We simulated aggregated CY 2012 hospital outlier payments using these costs for several different fixed-dollar thresholds, holding the 1.75 multip le threshold constant and assuming that outlier payments would continue to be made at 50 percent of the amount by which the cost of furnishing the service would exceed 1.75 times the APC payment amount, until the total outlier payments e qualed 1.0 percent of aggregated estimated total CY 2012 OPPS payments. We estimate that a proposed fixed-dollar threshold of $2,100, combined with the proposed multiple threshold of 1.75 times the APC payment rate, would allocate 1.0 percent of aggregated total OPPS payments to outlier payments. We are proposing to continue to make an outli er payment that equals 50 percent of the amount by which the cost of furnishing the service exceeds 1.75 times the APC payment amount when both the 1.75 multiple threshold and the proposed fixed-dollar threshold of $2,100 are met. For CMHCs, we are proposin g that, if a CMHC’s cost for partial hospitalization services, pa id under either APC 0172 or APC 0173, exceeds 3.40 times the payment for APC 0173, the outlier payment would be calculated as 50 percent of the amount by which the cost exceeds 3. 40 times the APC 0173 payment rate. Section 1833(t)(17)(A) of the Act, which applies to hospitals as defined under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to report data requiredCMS-1525-P 225 for the quality measures selected by the Secretary, in the form and manner required by the Secretary under 1833(t)(17)(B ) of the Act, incur a 2.0 per centage point reduction to their OPD fee schedule increase factor, that is, the annual payment update factor. The application of a reduced OPD fee schedule increase factor results in reduced national unadjusted payment rates that will apply to certain outpatient items and services furnished by hospitals that are required to report outpatient qu ality data and that fail to meet the Hospital OQR requirements. For hos pitals that fail to meet the Hospital OQR requirements, we are proposing to continue our policy that we implemented in CY 2010 that the hospitals' costs would be compared to the reduced payments for purposes of outlier eligibility and paym ent calculation. For more in formation on the Hospital OQR Program, we refer readers to sec tion XIV. of this proposed rule. 3. Outlier Reconciliation In the CY 2009 OPPS/ASC final rule w ith comment period (73 CFR 68599), we adopted as final policy a process to reconcil e hospital or CMHC outlier payments at cost report settlement for services furnished during cost reporting periods beginning in CY 2009. OPPS outlier reconciliation more fullyensures accurate outlier payments for those facilities that have CCRs that fluctuate significantly re lative to the CCRs of other facilities, and that r eceive a significant amount of outli er payments (73 FR 68598). As under the IPPS, we do not adjust the fixed-dol lar threshold or the amount of total OPPS payments set aside for outlier payments for reconciliation activity because such action would be contrary to the prospective natu re of the system. Our proposed outlier threshold calculation assumes that overall ancillary CCRs accurately estimate hospitalCMS-1525-P 226 costs based on the information available to us at the time we set the prospective fixeddollar outlier threshold. For th ese reasons, as we have prev iously discussed in the CY 2009 OPPS/ASC final rule with comment peri od (73 FR 68596), we are not proposing to incorporate any assumptions about the effects of reconciliation into our calculation of the OPPS fixed-dollar outlier threshold. H. Proposed Calculation of an Adjust ed Medicare Payment from the National Unadjusted Medicare Payment The basic methodology for determining prospective payment rates for HOPD services under the OPPS is set forth in ex isting regulations at 42 CFR Part 419, subparts C and D. For this proposed rule, the payment rate for most services and procedures for which payment is made under the OPPS is the product of the proposed conversion factor calculated in accordance with sec tion II.B. of this proposed rule and the proposed relative weight determined under section II.A. of this proposed rule. Therefore, the proposed national unadjusted payment rate for most APCs contained in Addendum A to this proposed rule (which is referenced in secti on XVII. of this proposed rule and available via the Internet on the CMS Web site) and for most HCPCS codes to which separate payment under the OPPS has been assigned in Addendum B to this proposed rule (which is referenced in section XVII. of this propos ed rule and available via the Internet on the CMS Web site) was calculated by multiplying the proposed CY 2012 scaled weight for the APC by the proposed CY 2012 conversion factor. We note that section 1833(t)(17) of the Ac t, which applies to hospitals as defined under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to submit dataCMS-1525-P 227 required to be submitted on quality measures selected by the Secretary, in the form and manner and at a time specified by the Secretary, incur a reduction of 2.0 percentage points to their OPD fee schedule increase f actor, that is, the annual payment update factor. The application of a reduced OPD fee schedule increase factor results in reduced national unadjusted payment rates that apply to certain outpatient items and services provided by hospitals that are re quired to report outpatient qual ity data and that fail to meet the Hospital Outpatient Quality Reporti ng (OQR) Program (formerly referred to as the Hospital Outpatient Quality Data Re porting Program (HOP QDRP)) requirements. For further discussion of the payment reduc tion for hospitals that fail to meet the requirements of the Hospital OQR Program, we refer readers to section XVI.D. of this proposed rule. We demonstrate in the steps below how to determine the APC payments that will be made in a calendar year under the OPPS to a hospital th at fulfills the Hospital OQR Program requirements and to a hospital that fails to meet the Hospital OQR Program requirements for a service that has any of the following status indicator assignments: “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “U,” “V,” or “X” (as defined in Addendum D1 to this proposed rule), in a circumstance in which the multiple procedure discount does not apply, the procedure is not bilateral, and condi tionally packaged serv ices (status indicator of “Q1” and “Q2”) qualify for separate paym ent. We note that, although blood and blood products with status indicator “R” and brachytherapy sources with status indicator “U” are not subject to wage adjustment, they are subject to reduced payments when a hospital fails to meet the Hospital OQR Program requirements.CMS-1525-P 228 Individual providers interest ed in calculating the payment amount that they would receive for a specific service from the natio nal unadjusted payment rates presented in Addenda A and B to this proposed rule (which are referenced in se ction XVII. of this proposed rule and available via the Intern et on the CMS Web site) should follow the formulas presented in the following steps. For purposes of the payment calculations below, we refer to the proposed national unadjusted payment rate for hospitals that meet the requirements of the Hospital OQR Program as the “full” national unadjusted payment rate. We refer to the national unadjusted paym ent rate for hospitals that fail to meet the requirements of the Hospital OQR Program as the “reduced” national unadjusted payment rate. The reduced national unadjusted payment rate is calculated by multiplying the reporting ratio of 0.980 tim es the “full” national unadjusted payment rate. The national unadjusted payment rate used in the calculations below is either the full national unadjusted payment rate or the reduced na tional unadjusted payment rate, depending on whether the hospital met its Hospital OQR Pr ogram requirements in order to receive the full CY 2012 OPPS fee schedule in crease factor of 1.50 percent. Step 1 . Calculate 60 percent (the labor-rela ted portion) of the proposed national unadjusted payment rate. Since the initial implementation of the OPPS, we have used 60 percent to represent our estimate of that portion of costs attribut able, on average, to labor. We refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18496 through 18497) for a detailed discussion of how we derived this percentage. We confirmed that this labor-related share for ho spital outpatient services isCMS-1525-P 229 appropriate during our re gression analysis for the payment adjustment for rural hospitals in the CY 2006 OPPS final rule w ith comment period (70 FR 68553). The formula below is a mathematical representation of Step 1 and identifies the labor-related portion of a specific pa yment rate for a specific service. X is the labor-related portion of the national unadjusted payment rate.

X

= .60 * (national unadjusted payment rate) Step 2 . Determine the wage index area inwhich the hospita l is located and identify the wage index level that applies to the specific hospital. The wage index values assigned to each area reflect the geographic statistical areas (which are based upon OMB standards) to which hospitals are assigned for FY 2012 under the IPPS, reclassifications through the MGCRB, section 1886 (d)(8)(B) “Lugar” hospitals, reclassifications under section 1886(d)(8)(E) of the Act, as defined in §412.103 of the regulations, and hospitals designated as urban under section 601(g) of Pub. L. 98-21. We note that the reclassifications of hospitals under se ction 508 of Pub. L. 108-173, as extended by sections 3137 and 10317 of the Affordable Care Act, expired on September 30, 2010. Section 102 of the Medicare and Medicaid Extenders Act of 2010 extends Section 508 and certain additional special exception hospital reclassifications from October 1, 2010 through September 30, 2011. Therefore, these reclassifications will not apply to the CY 2012 OPPS. (For further discussion of the changes to the FY 2012 IPPS wage indices, as applied to the CY 2012 OPPS, we refer readers to s ection II.C. of this proposed rule.) We are proposing to conti nue applying a wage index floor of 1.00 to frontier states, in accordance with section 10324 of the Affordable Care Act.CMS-1525-P 230 Step 3 . Adjust the wage index of hospitals located in certain qualifying counties that have a relatively high percentage of hos pital employees who reside in the county, but who work in a different county with a higher wage index, in accordance with section 505 of Pub. L. 108-173. Addendum L to this propose d rule (which is referenced in section XVII. of this proposed rule and available vi a the Internet on the CM S Web site) contains the qualifying counties and the associated proposed wage index increase developed for the FY 2012 IPPS and listed as Table 4J in the FY 2012 IPPS/LTCH PPS proposed rule and available via the Intern et on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. This step is to be followed only if the hospital is not reclassified or redesi gnated under se ction 1886(d)(8) or section 1886(d)(10) of the Act. Step 4 . Multiply the applicab le wage index determined under Steps 2 and 3 by the amount determined under Step 1 that re presents the labor-related portion of the national unadjusted payment rate. The formula below is a mathematical re presentation of Step 4 and adjusts the labor-related portion of the national payment rate for the specific service by the wage index.

X

a is the labor-related portion of the national unadjusted payment rate (wage adjusted).

X

a = .60 * (national unadjusted paymen t rate) * applicab le wage index. Step 5 . Calculate 40 percent (the nonla bor-related portion) of the national unadjusted payment rate and add that amount to the resulting product of Step 4. The result is the wage index adjusted paymen t rate for the relevant wage index area.CMS-1525-P 231 The formula below is a mathematical re presentation of Step 5 and calculates the remaining portion of the national payment rate , the amount not attrib utable to labor, and the adjusted payment for the specific service. Y is the nonlabor-related portion of the national unadjusted payment rate.

Y

= .40 * (national unadjusted payment rate) Adjusted Medicare Payment = Y + X a Step 6 . If a provider is a SCH, set fort h in the regulations at §412.92, or an EACH, which is considered to be a SCH unde r section 1886(d)(5)(D)(i ii)(III) of the Act, and located in a rural area, as defined in §412.64(b), or is treated as being located in a rural area under §412.103, multiply the wage index adjusted payment rate by 1.071 to calculate the proposed total payment. The formula below is a mathematical re presentation of Step 6 and applies the rural adjustment for rural SCHs. Adjusted Medicare Payment (SCH or EA CH) = Adjusted Medicare Payment * 1.071 We have provided examples below of the calculation of both the proposed full and reduced national unadjusted payment rate s that would apply to certain outpatient items and services performed by hospitals that meet and that fail to meet the Hospital OQR Program requirements, using the steps outlined above. For purposes of this example, we use a provider that is located in Brooklyn, New York that is assigned to CBSA 35644. This provider bills one servi ce that is assigned to APC 0019 (Level I Excision/Biopsy). The proposed CY 2012 full national unadjusted payment rate for APC 0019 is $338.51. The proposed reduced national unadjusted payment rate for a hospitalCMS-1525-P 232 that fails to meet the Hospital OQR Program requirements is $331.74. This reduced rate is calculated by multiplying the reporting ratio of 0.980 by the full unadjusted payment rate for APC 0019. The proposed FY 2012 wage index for a provider located in CBSA 35644 in New York is 1.3190. The proposed labor-related portion of the full national unadjusted payment is $267.90 (.60 * $338.51 *1.3190). The proposed labor-related portion of the reduced national unadjusted payment is $262.54 (.60 * $331.74 * 1.3190). The proposed nonlabor-related portion of the full nati onal unadjusted payment is $135.40 (.40 * $338.51). The proposed nonlabor-related porti on of the reduced national unadjusted payment is $132.70 (.40 * $331.74). The sum of the labor-related and nonlabor-related portions of the full national adjusted payment is $403.30 ($267.90 + $135.40). The sum of the reduced national adjusted payment is $395.24 ($262.54 + $132.70). I. Proposed Beneficiary Copayments 1. Background Section 1833(t)(3)(B) of the Act requires the Secretary to set rules for determining the unadjusted copayment amounts to be paid by beneficiaries for covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies that the Secretary must reduce the national unadjusted copayment amount for a covered OPD service (or group of such services) furnished in a year in a manner so that th e effective copayment rate (determined on a national unadjusted basis) fo r that service in the year does not exceed a specified percentage. As specified in section 1833(t)(8)(C)(ii )(V) of the Act, for all services paidCMS-1525-P 233 under the OPPS in CY 2010, and in calendar years thereafter, the percentage is 40 percent of the APC payment rate. Section 1833(t)(3)(B)(ii) of the Act provi des that, for a covered OPD service (or group of such services) furnished in a y ear, the national unadjusted copayment amount cannot be less than 20 percent of the OP D fee schedule amount. However, section 1833(t)(8)(C)(i) of the Act limits the amount of beneficiary copayment that may be collected to the amount of the inpatient deduc tible. Section 4104 of the Affordable Care Act eliminated the Part B coinsurance for preventive services furnished on and after January 1, 2011 that meet certain requirement s, including flexible sigmoidoscopies and screening colonscopies, and waived the Part B deductible for scr eening colonoscopies that become diagnostic during the procedure. Our discussion of the changes made by the Affordable Care Act with regard to copaym ents for preventive serv ices furnished on and after January 1, 2011 may be found in section X II.B. of the CY 2011 OPPS final rule (75 FR 72013). 2. Proposed OPPS Copayment Policy For CY 2012, we are proposing to determine copayment amounts for new and revised APCs using the same methodology th at we implemented beginning in CY 2004. (We refer readers to the November 7, 2003 OPPS final rule with comment period (68 FR 63458).) In addition, we are propos ing to use the same standard rounding principles that we have hist orically used in instances where the appli cation of our standard copayment methodology would result in a copayment amount that is less than 20 percent and cannot be rounded, under standa rd rounding principles, to 20 percent.CMS-1525-P 234 (We refer readers to the CY 2008 OPPS/ ASC final rule with comment period (72 FR 66687) in which we discuss our rationale for applying these r ounding principles.) The proposed national unadjusted copaymen t amounts for services payable under the OPPS that would be effective January 1, 2012, are shown in Addenda A and B to this proposed rule (which are referenced in secti on XVII. of this proposedrule and available via the Internet on the CMS Web site). As di scussed in section XIV.E. of this proposed rule, for CY 2012, the proposed Medicare bene ficiary’s minimum unadjusted copayment and national unadjusted copayment for a servi ce to which a reduced national unadjusted payment rate applies would equal the produc t of the reporting ra tio and the national unadjusted copayment, or the product of th e reporting ratio and the minimum unadjusted copayment, respectively, for the service. 3. Proposed Calculation of an Adjust ed Copayment Amount for an APC Group Individuals interested in calculating the national copayment liability for a Medicare beneficiary for a give n service provided by a hospital that met or failed to meet its Hospital OQR Program requirements shoul d follow the formulas presented in the following steps. Step 1 . Calculate the beneficiary payment percentage for the APC by dividing the APC’s national unadjusted copayment by its payment rate. For example, using APC 0019, $67.71 is 20 percent of the full nati onal unadjusted payment rate of $338.51. For APCs with only a minimum unadjusted copayment in Addenda A and B of this proposed rule (which are referenced in secti on XVII. of this proposedrule and available via the Internet on the CMS Web site), the be neficiary payment percentage is 20 percent.CMS-1525-P 235 The formula below is a mathematical representation of Step 1 and calculates national copayment as a percentage of national payment for a given service. B is the beneficiary payment percentage.

B = National unadjusted copayment for APC/national unadjusted payment rate for APC Step 2 . Calculate the appropriate wage-adjusted payment rate for the APC for the provider in question, as indicated in Step s 2 through 4 under sect ion II.H. of this proposed rule. Calculate the rural adjustment fo r eligible providers as indicated in Step 6 under section II.H. of this proposed rule. Step 3 . Multiply the percentage calcula ted in Step 1 by the payment rate calculated in Step 2. The result is the wage-adjusted copayment amount for the APC. The formula below is a mathematical re presentation of Step 3 and applies the beneficiary percentage to the adjusted pa yment rate for a service calculated under section II.H. of this proposed rule, with and without the rural adjust ment, to calculate the adjusted beneficiary copayment for a given service. Wage-adjusted copayment amount for the APC = Adjusted Medicare Payment * B Wage-adjusted copayment amount for the APC (SCH or EACH) = (Adjusted Medicare Payment * 1.071) * B Step 4 . For a hospital that failed to meet its Hospital OQR Program requirements, multiply the copayment calculated in Step 3 by the reporting ratio of 0.980. The proposed unadjusted copayments for services payable under the OPPS that would be effective January 1, 2012, are shown in Addenda A and B to this proposed ruleCMS-1525-P 236 (which are referenced in secti on XVII. of this proposed rule and available via the Internet on the CMS Web site). We note that the pr oposed national unadjust ed payment rates and copayment rates shown in Addenda A and B to this proposed rule reflect the proposed full CY 2012 OPD fee schedule increase factor discussed in section XIV.E. of this proposed rule. Also as noted above, section 1833(t)(8)(C )(i) of the Act limits the amount of beneficiary copayment that may be collected to the amount of the inpatient deductible. III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes CPT and Level II HCPCS codes are used to report procedures, services, items, and supplies under the hospital OPPS. Speci fically, CMS recognizes the following codes on OPPS claims: (1) Category I CPT codes, which describe medical services and procedures; (2) Category III CPT codes, whic h describe new and emerging technologies, services, and procedures; and (3) Level II HCPCS codes, wh ich are used primarily to identify products, supplies, temporary pr ocedures, and services not described by CPT codes. CPT codes are established by th e American Medical A ssociation (AMA) and the Level II HCPCS codes are established by the CMS HCPCS Workgroup. These codes are updated and changed throughout the year. CPT and HCPCS code changes that affect the OPPS are published both through the annua l rulemaking cycle and through the OPPS quarterly update Change Requests (CRs). CMS releases new Level II HCPCS codes to the public or recognizes the release of new CPT codes by the AMA and makes these codes effective (that is, the codes can be reported on Medicare claims) outside of theCMS-1525-P 237 formal rulemaking process via OPPS quarterly update CRs. This quarterly process offers hospitals access to codes that may more accura tely describe items or services furnished and/or provides payment or more accurate payment for these items or services in a timelier manner than if CMS waited for the annual rulemaking process. We solicit comments on these new codes and finalize our proposals related to these codes through our annual rulemaking process. In Table 14 below, we summarize our proposed process for updating codes through our OPPS quarter ly update CRs, seeking public comments, and finalizing their treatment under the OPPS. We note that because of the timing of the publication of this proposed rule, the c odes that will be implemented through the July 2011 OPPS quarterly update are not included in Addendum B of this proposed rule (which is referenced in secti on XVII. of this proposed rule and available via the Internet on the CMS Web site), while those code s based upon the April 2011 OPPS quarterly update are included in Addendum B.

TABLE 14.—COMMENT TIMEFRAME FOR NEW OR REVISED HCPCS CODES OPPS Quarterly Update CR Type of Code Effective Date Comments Sought When Finalized

April l, 2011 Level II HCPCS Codes April 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period
Level II HCPCS Codes July 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period July 1, 2011 Category I (certain vaccine codes) and III CPT codes July 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period October 1, 2011 Level II HCPCS October 1, 2011 CY 2012 CY 2013CMS-1525-P 238

OPPS Quarterly Update CR Type of Code Effective Date Comments Sought When Finalized Codes OPPS/ASC final rule with comment period OPPS/ASC final rule with comment period
Level II HCPCS Codes January 1, 2012 CY 2012 OPPS/ASC final rule with comment period CY 2013 OPPS/ASC final rule with comment period January 1, 2012 Category I and III CPT Codes January 1, 2012 CY 2012 OPPS/ASC final rule with comment period CY 2013 OPPS/ASC final rule with comment period

This process is discussed in detail below. We have separated our discussion into two sections based on whether we are proposi ng to solicit public comments in this CY 2012 OPPS/ASC proposed rule or whether we will be soliciting public comments in the CY 2012 OPPS/ASC final rule with commen t period. We note that we sought public comment in the CY 2011 OPPS/ASC final ru le with comment period on the new CPT and Level II HCPCS codes that were effective January 1, 2011. We also sought public comments in the CY 2011 OPPS/ASC final rule with comment period on the new Level II HCPCS codes effective October 1, 2010 . These new codes, with an effective date of October 1, 2010, or January 1, 2011, we re flagged with comment indicator “NI” (New code, interim APC assignment; comme nts will be accepted on the interim APC assignment for the new code) in Addendum B to the CY 2011 OPPS/ASC final rule with comment period to indicate that we were assigning them an interim payment status and an APC and payment rate, if applicable, wh ich were subject to public comment following publication of the CY 2011 OPPS/ASC final ru le with comment period. We will respondCMS-1525-P 239 to public comments and finalize our proposed OPPS treatment of these codes in the CY 2012 OPPS/ASC final rule with comment period. 1. Proposed Treatment of New Level II HCPCS Codes and Category I CPT Vaccine Codes and Category III CPT Codes for Which We Are Soliciting Public Comments in this CY 2012 Proposed Rule Through the April 2011 OPPS quarterly update CR (Transmittal 2174, Change Request 7342, dated March 18, 2011) and th e July 2011 OPPS quarterly update CR (Transmittal 2234, Change Request 7443, date d May 27, 2011), we recognized several new HCPCS codes for separate payment under th e OPPS. Effective Ap ril 1 and July 1 of CY 2011, we made effective a total of 22 new Level II HCPCS codes and 14 Category III CPT codes. Specifically, 5 new Level II HCPC S codes were effective for the April 2011 update and another 17 new Level II HCPCS codes were effective for the July 2011 update for a total of 22. Fourteen new Categor y III CPT codes were effective for the July 2011 update. Of the 22 new Level II HCPCS codes, we recognized for separate payment 16 of these codes, and of the 14 new Category III CPT codes, we recognized for separate payment 12 of these codes, for a total of 28 new HCPCS codes that are recognized for separate payment for CY 2012. Through the April 2011 OPPS quarterly update CR, we allowed separate payment for each of the five new Level II HCPCS code s. Specifically, as displayed in Table 15 below, we provided separate paymen t for the following HCPCS codes:

● HCPCS code C9280 (Injection, eribulin mesylate, 1 mg)

● HCPCS code C9281 (Injec tion, pegloticase, 1 mg)CMS-1525-P 240

● HCPCS code C9282 (Injecti on, ceftaroline fosamil, 10 mg)

● HCPCS code Q2040 (Injection, incobotulinumtoxin A, 1 unit)

● HCPCS code C9729 (Percutaneous la minotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with ligamentous resection, discectomy, facetectomy and/or foraminot omy, when performed) any method under indirect image guidance, with the use of an endoscope when performed, single or multiple levels, unilateral or bilateral; lumbar) We note that HCPCS code Q2040 replaced HCPCS code C9278 (Injection, incobotulinumtoxin A, 1 unit) beginn ing April 1, 2010. HCPCS code C9278 was effective January 1, 2011, and deleted March 30, 2011, because it was replaced with HCPCS code Q2040. HCPCS code C9278 was a ssigned to pass-throug h status beginning January 1, 2011, when the code was implemented. Because HCPCS code Q2040 describes the same drug as HCPCS code C 9278, we are continuing its pass-through status and assigning the HCPCS Q-code to the same APC and status indicato r as its predecessor HCPCS C-code, as shown in Table 15 belo w. Specifically, HCPCS code Q2040 is assigned to APC 9278 and st atus indicator “G.” We are proposing to assign the Level II HCPCS codes listed in Table 15 to the specific proposed APCs and status indi cators set forth in this proposed rule.

TABLE 15.—LEVEL II HCPCS CODE S WITH A CHANGE IN OPPS STATUS INDICATOR OR NEWLY IMPLEMENTED IN APRIL 2011

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012

Status Indicator Proposed CY 2012

APC C9280 Injection, eribulin mesylate, 1 mg G 9280CMS-1525-P 241

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012

Status Indicator Proposed CY 2012

APC C9281 Injection, pegloticase, 1 mg G 9281 C9282 Injection, ceftaroline fosamil, 10 mg G 9282

C9729 Percutaneous laminotomy/la minectomy (intralaminar approach) for decompression of neural elements, (with ligamentous resecti on, discectomy, facetectomy and/or foraminotomy, when performed) any method under indirect image guidan ce, with the use of an endoscope when performed, single or multiple levels, unilateral or bilateral; lumbar T 0208

Q2040* Injection, incobotul inumtoxin A, 1 unit G 9278 *Level II HCPCS code C9278 was delete d March 31, 2011, and replaced with HCPCS code Q2040 effective April 1, 2011.

Through the July 2011 OPPS quarterly upda te CR, which included HCPCS codes that were made effective July 1, 2011, we a llowed separate payment for 11 of the 17 new Level II HCPCS codes. Specifically, as displa yed in Table 16 of this proposed rule, we provided separate payment for the following HCPCS codes:

● HCPCS code C9283 (Injection, acetaminophen, 10 mg)

● HCPCS code C9284 (Injec tion, ipilimumab, 10 mg)

● HCPCS code C9285 (Lidocaine 70 mg/tetracaine 70 mg, per patch)

● HCPCS code C9365 (Oasis Ultra Tri- Layer matrix, per sq uare centimeter)

● HCPCS code C9406 (Iodine I-123 iofl upane, diagnostic, per study dose, up to 5 millicuries)

● HCPCS code C9730 (Bronchoscopic br onchial thermoplasty with imaging guidance (if performed), radiofrequency ab lation of airway sm ooth muscle, 1 lobe)CMS-1525-P 242

● HCPCS code C9731 (Bronchoscopic br onchial thermoplasty with imaging guidance (if performed), radiofrequency abla tion of airway smooth muscle, 2 or more lobes)

● HCPCS code Q2041 (Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco)

● HCPCS code Q2042 (Injection, hy droxyprogesterone caproate, 1 mg)

● HCPCS code Q2043 (Sipuleucel-t, minimum of 50 million autologous cd54+ cells activated with pap-gm-csf, includi ng leukapheresis and all other preparatory procedures, per infusion)

● HCPCS code Q2044 (Inje ction, belimumab, 10 mg) We note that two of the Level II HCPC S Q-codes that were made effective July 1, 2011, were previously described by a HCPCS J-code and a C-code that were assigned to pass-through stat us under the hospital OPPS. Specifically, HCPCS code Q2041 replaced HCPCS code J7184 (Injection, von willebrand factor complex (human), Wilate, per 100 iu vwf:rco) beginning July1, 2011. HCPCS code J7184 was assigned to pass-through status when it was made effec tive January 1, 2011; however, the code is “Not Payable by Medicare” because HCPCS c ode J7184 is replaced with HCPCS code Q2041 effective July 1, 2011. Therefore, HC PCS code J7184 was reassigned to status indicator “E” effective July 1, 2011. Becau se HCPCS code J7184 describes the same drug as HCPCS code Q2041, we continued its pass-through status and assigned HCPCS code Q2041 to status indicator “G” effectiv e July 1, 2011. However, because the dosage descriptor for HCPCS code Q2041 is not the same as HCPCS code J7184, we reassignedCMS-1525-P 243 HCPCS code Q2041 to a new APC to maintain data consistency for future rulemaking. Specifically, HCPCS code Q2041 was assigne d to APC 1352 effective July 1, 2011. In addition, HCPCS code Q2043 replaced HCPC S code C9273 (Sipuleucel-t, minimum of 50 million autologous cd54+ cells activated wi th pap-gm-csf, including leukapheresis and all other preparatory procedures, per in fusion) beginning July 1, 2011. HCPCS code C9273 was assigned to pass-thr ough status when it was made effective October 1, 2010. Because HCPCS code Q2043 describes the same product as HCPCS code C9273, we continued its pass-through st atus and assigned HCPCS code Q2043 to status indicator “G” as well as assigned it to the same APC, specifically APC 9273, effective July 1,

2011. Of the 17 HCPCS codes that were made effective July 1, 2011, we did not recognize for separate payment 6 HCPCS codes that describe durable medical equipment (DME) because DME is paid under the Dura ble Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Fee Sche dule and not the OPPS. These codes are listed in Table 16 below, and are assigned to ei ther status indicator “Y” or “A” effective July 1, 2011. Table 16 below includes a complete list of the Level II HCPCS codes that were made effective July 1, 2011, with their propos ed status indicators, APC assignments, and payment rates for CY 2012.

TABLE 16.—NEW LEVEL II HCPCS CODES IMPLEMENTED IN JULY 2011CMS-1525-P 244

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012

Status Indicator Proposed CY 2012

APC Proposed CY 2012 Payment Rate C9283 Injection, acetaminophen, 10 mg G 9283 $0.11 C9284 Injection, ipilimumab, 1 mg G 9284 $127.20 C9285 Lidocaine 70 mg/tetracaine 70 mg, per patch G 9285 $13.57 C9365 Oasis Ultra Tri-Layer matrix, per square centimeter G 9365 $10.60

C9406 Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries G 9406 $1,908.00

C9730 Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 1 lobe T 0415 $1,971.77

C9731 Bronchoscopic bronchial thermoplasty with imaging guidance (if performed), radiofrequency ablation of airway smooth muscle, 2 or more lobes T 0415 $1,971.77

K0741 Portable gaseous oxygen system, rental, includes portable cont ainer, regulator, flowmeter, humidifier, cannula or mask, and tubing, for cluster headaches Y NA NA

K0742 Portable oxygen contents, gaseous, 1 month's supply = 1 unit, for cluster headaches, for initial months supply or to replace used contents Y NA NA

K0743 Suction pump, home model, portable, for use on wounds Y NA NA

K0744 Absorptive wound dressing for use with suction pump, home model, portable, pad size 16 square inches or less A NA NA

K0745 Absorptive wound dressing for use with suction pump, home model, portable, pad size more than 16 square inches but less than or equal to 48 square inches A NA NA

K0746 Absorptive wound dressing for use with suction pump, home model, portable, pad size greater than 48 square inches A NA NA

Q2041 Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco G 1352 $0.88 Q2042 Injection, hydroxyprogesterone caproate, 1 mg K 1354 $2.90CMS-1525-P 245

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012

Status Indicator Proposed CY 2012

APC Proposed CY 2012 Payment Rate
Q2043 Sipuleucel-t, minimum of 50 millionautologous cd54+ cells activated with papgm-csf, including leukapheresis and all other preparatory pro cedures, per infusion G 9273 $32,860.00 Q2044 Injection, belimumab, 10 mg G 1353 $39.15

For CY 2012, we are proposing to continue our established po licy of recognizing Category I CPT vaccine codes for which F DA approval is imminent and Category III CPT codes that the AMA releases in January of each year for implementation in July through the OPPS quarterly update process. Under the OPPS, Cate gory I vaccine codes and Category III CPT codes that are released on the AMA Web site in January are made effective in July of the same year through th e July quarterly update CR, consistent with the AMA’s implementation date for the codes. Through the July 2011 OPPS quarterly update CR, we allow separate payment for 12 of the 14 new Category III CPT codes effective July 1, 2011. Specifically, as displa yed in Table 17 of this proposed rule, we allow separate payment for the following CPT codes:

● CPT code 0263T (Intramuscular autol ogous bone marrow ce ll therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedur e including unilateral or bilateral bone marrow harvest)

● CPT code 0264T (Intramuscular autol ogous bone marrow ce ll therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete pr ocedure excluding bone marrow harvest)CMS-1525-P 246

● CPT code 0265T (Intramuscular autol ogous bone marrow ce ll therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; unilate ral or bilateral bone marrow harvest only for intramuscular autologous bone marrow cell therapy)

● CPT code 0267T (Implantation or repl acement of carotid sinus baroreflex activation device; lead only, unilatera l (includes intra-ope rative interrogation, programming, and repositioning, when performed))

● CPT code 0268T (Implantation or repl acement of carotid sinus baroreflex activation device; pulse ge nerator only (includes in tra-operative interrogation, programming, and repositioning, when performed))

● CPT code 0269T (Revision or removal of carotid sinus ba roreflex activation device; total system (includes generator placem ent, unilateral or bila teral lead placement, intra-operative interrogation, programming, and repositioning, when performed))

● CPT code 0270T (Revision or removal of carotid sinus ba roreflex activation device; lead only, unilateral (includes in tra-operative interr ogation, programming, and repositioning, when performed))

● CPT code 0271T (Revision or removal of carotid sinus ba roreflex activation device; pulse generator only (includes intr a-operative interroga tion, programming, and repositioning, when performed))

● CPT code 0272T (Interrogation device ev aluation (in person), carotid sinus baroreflex activation system, including tele metric iterative communication with the implantable device to monitor device dia gnostics and programmed therapy values, withCMS-1525-P 247 interpretation and report (eg, battery stat us, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day))

● CPT code 0273T (Interrogation device ev aluation (in person), carotid sinus baroreflex activation system, including tele metric iterative communication with the implantable device to monitor device dia gnostics and programmed therapy values, with interpretation and report (eg, battery stat us, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day); with programming)

● CPT 0274T (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (w ith or without ligamentous resection, discectomy, facetectomy and/or foraminot omy) any method under indirect image guidance (eg, fluoroscopic, CT), with or w ithout the use of an endoscope, single or multiple levels, unilateral or bilateral; cervical or thoracic)

● CPT 0275T (Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (w ith or without ligamentous resection, discectomy, facetectomy and/or foraminot omy) any method under indirect image guidance (eg, fluoroscopic, CT), with or w ithout the use of an endoscope, single or multiple levels, unilateral or bilateral; lu mbar) (As published in the July 2011 OPPS quarterly update CR, CPT code 0275T replac ed Level II HCPCS code C9729 effective July 1, 2011.) We note that Category III CPT codes 0262T (Implantation of catheter-delivered prosthetic pulmonary valve, endovascular approach) and 0266T (Implantation orCMS-1525-P 248 replacement of carotid sinus baroreflex activat ion device; total system (includes generator placement, unilateral or b ilateral lead placement, in tra-operative interrogation, programming, and repositioning, when performed )) are assigned to status indicator "C" (Inpatient Procedures) under the hospital OPPS beginning July 1, 2011. We believe these procedures should only be paid when provide d in the inpatient setting because of the clinical circumstances under which these pr ocedures are performed. There are no new Category I Vaccine CPT codes for the July 2011 update. Table 17 below lists the Category III CP T codes that were implemented in July 2011 for which we are proposing to al low separate payment, along with their proposed status indicators, proposed APC a ssignments, and proposed payment rates for

CY 2012.
TABLE 17.—CATEGORY III CP T CODES IMPLEMENTED IN JULY 2011

CY 2011 CPT Code CY 2011 Long Descriptor Proposed CY 2012

Status Indicator Proposed CY 2012

APC Proposed CY 2012 Payment Rate 0262T Implantation of catheter-delivered prosthetic pulmonary valve, endovascular approach C NA NA

0263T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure including unilat eral or bilateral bone marrow harvest S 0112 $2,166.33

0264T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure excluding bone marrow harvest S 0112 $2,166.33CMS-1525-P 249

0265T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if pe rformed; unilateral or bilateral bone marrow harvest only for intramuscular autologous bone marrow cell therapy S 0112 $2,166.33

0266T Implantation or replacement of carotid sinus baroreflex activation device; total system (includes generator placement, unilateral or bilateral lead placement, intra-operative interrogation, programming, and repositioning, when performed) C NA NA

0267T Implantation or replacement of carotid sinus baroreflex activation device; lead only, unilateral (includes intra-operative interrogation, programming, and repositioning, when performed) T 0687 $1,496.15

0268T Implantation or replacement of carotid sinus baroreflex activation de vice; pulse generator only (includes intra-op erative interrogation, programming, and repositioning, when performed) S 0039 $14,743.58

0269T Revision or removal of ca rotid sinus baroreflex activation device; total system (includes generator placement, unilateral or bilateral lead placement, intra-operative interrogation, programming, and repositioning, when performed) T 0221 $2,567.33

0270T Revision or removal of ca rotid sinus baroreflex activation device; lead only, unilateral (includes intra-opera tive interrogation, programming, and repositioning, when performed) T 0687 $1,496.15

0271T Revision or removal of ca rotid sinus baroreflex activation device; pul se generator only (includes intra-opera tive interrogation, programming, and repositioning, when performed) T 0688 $2,003.33

0272T Interrogation device evaluation (in person), carotid sinus baroreflex activation system, including telemetric iterative communication with the implantable device to monitor device diagnostics and programmed therapy values, S 0218 $80.78CMS-1525-P 250

We are soliciting public comments on the CY 2012 proposed status indicators and the proposed APC assignments and payment rate s, if applicable, for the Level II HCPCS codes and the Category III CPT codes that ar e newly recognized in April or July 2011 through the respective OPPS quarterly update CRs . These codes are listed in Tables 15, 16, and 17 of this proposed rule. We are proposi ng to finalize their st atus indicators and their APC assignments and payment rates, if applicable, in the CY 2012 OPPS/ASC final with interpretation and report (eg, battery status, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day)

0273T Interrogation device evaluation (in person), carotid sinus baroreflex activation system, including telemetric iterative communication with the implantable device to monitor device diagnostics and programmed therapy values, with interpretation and report (eg, battery status, lead impedance, pulse amplitude, pulse width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day); with programming S 0218 $80.78

0274T Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with or without ligamentous resection, discectomy, facetectomy and/or foraminotomy) any method under indirect image guidance (eg, fluoroscopic, CT), with or without the use of an endoscope, single or multiple levels, unilateral or bilateral; cervical or thoracic T 0208 $3,535.92

0275T Percutaneous laminotomy/laminectomy (intralaminar approach) for decompression of neural elements, (with or without ligamentous resection, discectomy, facetectomy and/or foraminotomy) any method under indirect image guidance (eg, fluoroscopic, CT), with or without the use of an endoscope, single or multiple levels, unilateral or bilateral; lumbar T 0208 $3,535.92CMS-1525-P 251 rule with comment period. Because the Ju ly 2011 OPPS quarterly update CR is issued close to the publication of this proposed rule, the Level II HCPCS codes and the Category III CPT codes implemented through the July 2011 OPPS quarterly update CR could not be included in Addendum B to this proposed ru le, but these codes are listed in Tables 16 and 17, respectively. We are proposing to in corporate these codes into Addendum B to the CY 2012 OPPS/ASC final rule with commen t period, which is consistent with our annual OPPS update policy. The Level II HCPCS codes implemented or modified through the April 2011 OPPS update CR and di splayed in Table 15 are included in Addendum B to this proposed rule (which is re ferenced in section XV II. of this proposed rule and available via the In ternet on the CMS website), where their proposed CY 2012 payment rates also are shown. 2. Proposed Process for New Level II HC PCS Codes and Categor y I and Category III CPT Codes for Which We Will Be Solic iting Public Comments on the CY 2012 OPPS/ASC Final Rule with Comment Period As has been our practice in the past, we incorporate those new Category I and III CPT codes and new Level II HCPCS codes that are effective January 1 in the final rule with comment period updating the OPPS for the following calendar year. These codes are released to the public via the CMS HCPCS (for Level II HCPCS codes) and AMA Web sites (for CPT codes), and also through the January OPPS quarterly update CRs. In the past, we also have released new Level II HCPCS codes that are effective October 1 through the October OPPS quarterly update CRs and incorporated these new codes in the final rule with comment period updating the O PPS for the following calendar year. AllCMS-1525-P 252 of these codes are flagged with commen t indicator “NI” in Addendum B to the OPPS/ASC final rule with comm ent period to indicate that we are assigning them an interim payment status which is subject to public comment. Specifically, the status indicator and the APC assignment and payment rate, if applicable, for all such codes flagged with comment indicator “NI” are open to public comment in the final rule with comment period, and we respond to these comm ents in the OPPS/AS C final rule with comment period for the next calendar year ’s OPPS/ASC update. We are proposing to continue this process for CY 2012. Speci fically, for CY 2012, we are proposing to include in Addendum B (which is available vi a the Internet on the CMS Web site) to the CY 2012 OPPS/ASC final rule with comment period the new Category I and III CPT codes effective January 1, 2012 (including the Category III CPT codes that were released by the AMA in July 2011) that would be incorporated in the January 2012 OPPS quarterly update CR and the new Level II HCPCS codes, effective October 1, 2011, or January 1, 2012, that would be released by CMS in its October 2011 and January 2012 OPPS quarterly update CRs. These codes would be flagged with comment indicator “NI” in Addendum B to the CY 2012 OPPS/ASC fina l rule with comment period to indicate that we have assigned them an interim OPPS payment status for CY 2012. Their status indicators and their APC assignments and paym ent rates, if applicable, would be open to public comment in the CY 2012 OPPS/ASC fina l rule with comment period and would be finalized in the CY 2013 OPPS/ASC final ru le with comment period. We note that the Category III CPT codes that were released by the AMA in July 2011 that are subject to comment in this CY 2012 OPPS/ASC proposed ru le, and are listed in Table 17, will notCMS-1525-P 253 be assigned to comment indicator “NI” in Addendum B because comments about these codes will be addressed in the CY 2012 OPPS/ASC final rule with comment period. B. Proposed OPPS Changes – Variations within APCs 1. Background Section 1833(t)(2)(A) of the Act requires the Secretary to develop a classification system for covered hospital outpatient departme nt services. Secti on 1833(t)(2)(B) of the Act provides that the Secretar y may establish groups of covered OPD services within this classification system, so that services classified within each group are comparable clinically and with respect to the use of resources. In accordance with these provisions, we developed a grouping classification sy stem, referred to as Ambulatory Payment Classifications (APCs), as se t forth in §419.31 of the regula tions. We use Level I and Level II HCPCS codes to identify and group the services within each APC. The APCs are organized such that each group is hom ogeneous both clinically and in terms of resource use. Using this classification syst em, we have establishe d distinct groups of similar services. We also have develope d separate APC groups for certain medical devices, drugs, biologicals, therapeutic ra diopharmaceuticals, and brachytherapy devices. We have packaged into payment for eachprocedure or service within an APC group the costs associated with those items or services that are dire ctly related to, and supportive of, performing the main independent procedures or furnishing the services. Therefore, we do not make separate payment for these packaged items or services. For example, packaged items and services include : (1) use of an operating, treatment, or procedure room; (2) use of a recovery room ; (3) observation services; (4) anesthesia;CMS-1525-P 254 (5) medical/surgical supplies; (6) pharmaceuticals (other than those for which separate payment may be allowed under the provisions di scussed in section V. of this proposed rule); (7) incidental serv ices such as venipuncture; a nd (8) guidance services, image processing services, intraope rative services, imaging supe rvision and interpretation services, diagnostic radiopharmaceuticals, and contrast media. Further discussion of packaged services is included in se ction II.A.3. of this proposed rule. In CY 2008, we implemented composite APCs to provide a single payment for groups of services that are ty pically performed together duri ng a single clini cal encounter and that result in the provision of a co mplete service (72 FR 66650 through 66652). Under CY 2011 OPPS policy, we provide composite APC payment for certain extended assessment and management services, low dose rate (LDR) prostate brachytherapy, cardiac electrophysiologic evalua tion and ablation, mental he alth services , and multiple imaging services. Further discussion of com posite APCs is included in section II.A.2.e. of this proposed rule. Under the OPPS, we generally pay for hospital outpatient services on a rate-per-service basis, where the service may be reported with one or more HCPCS codes. Payment varies according to the APC group to which the independent service or combination of services is assigned. Each APC weight represents the hospital median cost of the services included in that APC, relative to the hospital median cost of the services included in APC 0606 (Level 3 Hospit al Clinic Visits). The APC weights are scaled to APC 0606 because it is the middle le vel hospital clinic visit APC (the Level 3CMS-1525-P 255 hospital clinic visit CPT code out of five le vels), and because middle level hospital clinic visits are among the most frequently furnishe d services in the hos pital outpatient setting. Section 1833(t)(9)(A) of the Act requires the Secretary to review, on a recurring basis occurring no less than a nnually and revise the groups, th e relative payment weights, and the wage and other adjustments to take into account changes in medical practice, changes in technology, the addition of new serv ices, new cost data, and other relevant information and factors; the Act further requires us to repeat this proc ess on a basis that is not less often than annually. Section 1833(t)(9)(A) of the Ac t also requires the Secretary, beginning in CY 2001, to consult with an expert outside advisory panel composed of an appropriate selection of repres entatives of providers to revi ew (and advise the Secretary concerning) the clinical integrity of the APC groups and the relative payment weights (the APC Panel recommendations for speci fic services for the CY 2012 OPPS and our responses to them are discussed in the releva nt specific sections th roughout this proposed rule). Finally, section 1833(t)(2) of the Act provi des that, subject to certain exceptions, the items and services within an APC gr oup cannot be considered comparable with respect to the use of resources if the highest median cost (o r mean cost as elected by the Secretary) for an item or service in the group is more than 2 times greater than the lowest median cost (or mean cost, if so elected) for an item or service within the same group (referred to as the “2 times rule”). We use the median cost of the item or service in implementing this provision. The statute aut horizes the Secretary to make exceptions to the 2 times rule in unusual cases, such as low-volume items and services (but theCMS-1525-P 256 Secretary may not make such an exception in the case of a drug or biological that has been designated as an orphan drug unde r section 526 of the Federal Food, Drug, and Cosmetic Act). 2. Application of the 2 Times Rule In accordance with section 1833(t)(2) of the Act and §419.31 of the regulations, we annually review the items and services within an APC group to determine, with respect to comparability of the use of resource s, if the median costof the highest cost item or service within an APC group is more th an 2 times greater than the median of the lowest cost item or service within that same group. In making this determination, we consider only those HCPCS codes that are si gnificant based on the number of claims. We note that, for purposes of identifying si gnificant HCPCS for examination in the 2 times rule, we consider codes that have more than 1,000 single major claims or codes that have both greater than 99 single major claims and contri bute at least 2 percent of the single major claims used to establish the APC median cost to be significant (75 FR 71832). This longstanding definition of when a HCPCS code is significant for purposes of the 2 times rule was selected beca use we believe that a subset of 1,000 claims is negligible within the set of approxi mately 100 million single procedure or single session claims we use for establishing median costs. Similarly, a HCPCS code for which there are fewer than 99 single bills and which comprises less than 2 percent of the single major claims within an APC will have a negl igible impact on the APC median. In this proposed rule, we are proposing to make excepti ons to this limit on the variation of costsCMS-1525-P 257 within each APC group in unusual cases, su ch as low volume items and services for

CY 2012. During the APC Panel’s February 2011 mee ting, we presented median cost and utilization data for services furnished during the period of January 1, 2010, through September 30, 2010, about which we had concerns or about which the public had raised concerns regarding their APC assignments, status indicator assignments, or payment rates. The discussions of most service-sp ecific issues, the APC Panel recommendations, if any, and our proposals for CY 2012 are contained mainly in sections III.C. and III.D. of this proposed rule. In addition to the assignment of specific services to APCs that we discussed with the APC Panel, we also identified APCs with 2 times violations that were not specifically discussed with the APC Panel but for whic h we are proposing changes to their HCPCS codes’ APC assignments in Addendum B (ava ilable via the Internet) to this proposed rule. In these cases, to eliminate a 2 times vi olation or to improve clinical and resource homogeneity, we are proposing to reassign the c odes to APCs that contain services that are similar with regard to both their clinical and resource character istics. We also are proposing to rename existing APCs or create new clinical APCs to complement proposed HCPCS code reassignments. In many cases , the proposed HCPCS code reassignments and associated APC reconfigurations for CY 2012 included in this proposed rule are related to changes in median costs of serv ices that are observed in the CY 2010 claims data newly available for CY 2012 ratesetti ng. We also are proposing changes to the status indicators for some code s that are not specifically and separately discussed in thisCMS-1525-P 258 proposed rule. In these cases, we are proposi ng to change the status indicators for some codes because we believe that another status indicator would more accurately describe their payment status from an OPPS perspe ctive based on the po licies that we are proposing for CY 2012. Addendum B to this proposed rule (which is referenced in s ection XVII. of this proposed rule and available via the Intern et on the CMS Web s ite) identifies with comment indicator “CH” those HCPCS codes fo r which we are proposing a change to the APC assignment or status indicator that were initially assign ed in the April 2011 Addendum B update (via Transmittal 2174, Change Request 7342, dated March 18, 2011). 3. Proposed Exceptions to the 2 Times Rule As discussed earlier, we may make excep tions to the 2 times limit on the variation of costs within each APC group in unusual cases such as low-volume items and services. Taking into account the APC changes that we are proposing for CY 2012 based on the APC Panel recommendations that are discussed ma inly in sections III.C. and III.D. of this proposed rule, the other proposed changes to status indicators and APC assignments as identified in Addendum B to this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet on the CM S Web site), and the use of CY 2010 claims data to calculate the median co sts of procedures classified in the APCs, we reviewed all the APCs to determine whic h APCs would not satisfy the 2 times rule. We used the following criteria to decide whet her to propose exceptions to the 2 times rule for affected APCs:CMS-1525-P 259

● Resource homogeneity;

● Clinical homogeneity;

● Hospital outpatient setting;

● Frequency of service (volume); and

● Opportunity for upcoding and code fragments. For a detailed discussion of these criteria, we refer readers to the April 7, 2000 OPPS final rule with comment period (65 FR 18457 and 18458). Table 18 of this proposed ru le lists 17 APCs that we are proposing to exempt from the 2 times rule for CY 2012 based on th e criteria cited above and based on claims data processed from January 1, 2010, thr ough September 30, 2010. For the final rule with comment period, we plan to use claims data for dates of service between January 1, 2010, and December 31, 2010, that were processed on or before June 30, 2011, and updated CCRs, if available. Based on our analysis of CY 2010 claims data in preparation for this proposed rule, we found 17 APCs with 2 tim es rule violations. We applied the criteria as described earlier to identify the APCs that we are proposing as exceptions to the 2 times rule for CY 2012, and identified 17 APCs that meet the criteria for exception to the 2 times rule for this proposed rule. These proposed APC exceptions are listed in Table 18 below. For cases in which a recommendation by the APC Panel appeared to result in or allow a violation of the 2 times rule, we generally accepted the APC Panel’s recommendation because those recommendations were based on explicit consideration of resource use, clinical homogeneity, hos pital specialization, and the quality of the CY 2010 claims data used to determine the APC payment rates that we areCMS-1525-P 260 proposing for CY 2012. The proposed median co sts for hospital outpat ient services for these and all other APCs that were used in the development of this proposed rule can be found on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp

. TABLE 18.—PROPOSED APC EXCEPTIONS TO THE 2 TIMES RULE FOR CY 2012 Proposed CY 2012

APC Proposed CY 2012 APC Title
0016 Level IV Debridement & Destruction 0057 Bunion Procedures 0058 Level I Strapping and Cast Application 0060 Manipulation Therapy 0080 Diagnostic Cardiac Catheterization 0105 Repair/Revision/Removal of Pacemak ers, AICDs, or Vascular Devices 0235 Level I Posterior Segment Eye Procedures 0245 Level I Cataract Procedures without IOL Insert 0263 Level I Miscellaneous Radiology Procedures 0340 Minor Ancillary Procedures 0347 Level III Transfusion Laboratory Procedures 0367 Level I Pulmonary Test 0369 Level III Pulmonary Tests 0432 Health and Behavior Services 0604 Level 1 Hospital Clinic Visits 0660 Level II Otorhinolar yngologic Function Tests 0667 Level II Proton Beam Radiation Therapy

C. Proposed New Technology APCs 1. Background In the November 30, 2001 final rule (66 FR 59903), we finalized changes to the time period a service was eligible for payment under a New Technology APC. Beginning in CY 2002, we retain services within New Technology APC groups until weCMS-1525-P 261 gather sufficient claims data to enable us to assign the service to an appropriate clinical APC. This policy allows us to move a service from a New Technology APC in less than 2 years if sufficient data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient data upon which to base a decision for reassignment have not been collected. We note that the cost bands for New Technology APCs range from $0 to $50 in increments of $10, from $50 to $100 in increments of $50, from $100 to $2,000 in increments of $100, and from $2,000 to $10,000 in increments of $500. These cost bands identify the APCs to which new technology procedures and services with estimated service costs that fall within those cost ba nds are assigned under the OPPS. Payment for each APC is made at the mid-point of th e APC’s assigned cost band. For example, payment for New Technology APC 1507 (New Technology – Level VII ($500 - $600)) is made at $550. Currently, there are 82 Ne w Technology APCs, ranging from the lowest cost band assigned to APC 1491 (New Tec hnology – Level IA ( $0 - $10)) through the highest cost band assigned to APC 1574 (New Technology – Level XXXVII ($9,500 - $10,000). In CY 2004 (68 FR 63416), we last restructured the New Technology APCs to make the cost intervals more consistent acro ss payment levels and refined the cost bands for these APCs to retain two parallel sets of New Technology APCs, one set with a status indicator of “S”' (Significan t Procedures, Not Discounted when Multiple. Paid under OPPS; separate APC payment) and the othe r set with a status indicator of “T” (Significant Procedure, Multiple Reduction Ap plies. Paid under OPPS; separate APCCMS-1525-P 262 payment). These current New Technology APC configurations allow us to price new technology services more appr opriately and consistently. Every year we receive many requests for higher payment amounts under our New Technology APCs for specific pr ocedures under the OPPS becau se they require the use of expensive equipment. We are taking th is opportunity to reiterate our response in general to the issue of hosp itals’ capital expenditu res as they relate to the OPPS and Medicare. Under the OPPS, one of our goals is to ma ke payments that are appropriate for the services that are necessary fo r the treatment of Medicare be neficiaries. The OPPS, like other Medicare payment systems, is budget neut ral and increases are limited to the annual hospital inpatient market basket increase. We believe that our payment rates generally reflect the costs that are associated with pr oviding care to Medicare beneficiaries in costefficient settings, and we believe that our rate s are adequate to ensure access to services. For many emerging technologies, there is a transitional period during which utilization may be low, often because providers are first learning about the techniques and their clinical utility. Quite often, partie s request that Medicare make higher payment amounts under our New Technology APCs for new procedures in that transitional phase. These requests, and their accompanying estimates for expected total patient utilization, often reflect very low rates of patient use of expensive equipment, resulting in high per use costs for which requesters believe Medi care should make full payment. Medicare does not, and we believe should not, assume res ponsibility for more than its share of the costs of procedures based on Medicare benefi ciary projected utiliz ation and does not setCMS-1525-P 263 its payment rates based on initial projections of low utilization for services that require expensive capital equipment. For the OPPS, we rely on hospitals to make informed business decisions regarding the acquisition of high cost capital equipment, taking into consideration their knowledge a bout their entire patient ba se (Medicare beneficiaries included) and an understanding of Medicare ’s and other payers’ payment policies. We note that, in a budget neutral environment, payments may not fully cover hospitals’ costs in a particular circumst ance, including those for the purchase and maintenance of capital equipment. We re ly on hospitals to make their decisions regarding the acquisition of high cost equipment with the understanding that the Medicare program must be caref ul to establish its initial payment rates, including those made through New Technology APCs, for new serv ices that lack hospital claims data based on realistic utilization pr ojections for all such services delivered in cost-efficient hospital outpatient settings. As the OPPS acquires claims dataregarding hospital costs associated with new procedures, we regularly examine the claims data and any available new information regarding the clinical aspect s of new procedures to confirm that our OPPS payments remain appropriate for proce dures as they transi tion into mainstream medical practice. 2. Proposed Movement of Procedures from New Technology APCs to Clinical APCs As we explained in the November 30, 2001 final rule (66 FR 59902), we generally keep a procedure in the New Tec hnology APC to which it is initially assigned until we have collected sufficient data to enable us to move the procedure to a clinically appropriate APC. However, in cases where we find that our original New TechnologyCMS-1525-P 264 APC assignment was based on inaccurate or inadequate information (although it was the best information available at the time) , or where the New Technology APCs are restructured, we may, based on more recent resource utilization information (including claims data) or the availab ility of refined New Technology APC cost bands, reassign the procedure or service to a different New T echnology APC that most appropriately reflects its cost. Consistent with our current policy, we are proposing for CY 2012 to retain services within New Technology APC groups un til we gather sufficient claims data to enable us to assign the service to a clinically appropriate APC. The flexibility associated with this policy allows us to move a se rvice from a New Technology APC in less than 2 years if sufficient claims data are available. It also allows us to retain a service in a New Technology APC for more than 2 years if sufficient claims data upon which to base a decision for reassignment have not been co llected. Table 19 below lists the HCPCS codes and associated status indicators th at we are proposing to reassign from a New Technology APC to a clinically appropriate APC or to a different New Technology APC for CY 2012. Currently, in CY 2011, there are three pro cedures described by a HCPCS G-code receiving payment through a New Technol ogy APC. Specifically, HCPCS code G0417 (Surgical pathology, gross and microscopic ex amination for prostate needle saturation biopsy sampling, 21-40 specimens) is a ssigned to New Technology APC 1506 (New Technology - Level VI ($400 - $500)); HCPC S code G0418 (Surgical pathology, gross and microscopic examination for prostate needle saturation biopsy sampling, 41-60CMS-1525-P 265 specimens) is assigned to New Technol ogy APC 1511 (New Technology - Level XI ($900 - $1,000)); and HCPCS code G0419 (Sur gical pathology, gross and microscopic examination for prostate needle saturation bi opsy sampling, greater than 60 specimens) is assigned to New Technology APC 1513 (New Technology - Level XIII ($1,100-$1,200)). Analysis of our hospital outpatient da ta for claims submitted for CY 2010 indicates that prostate satu ration biopsy procedures are rarely performed on Medicare patients. For OPPS claims submitted from CY 2009 through CY 2010, our claims data show that there were only five claims submitted for HCPCS code G0417 in CY 2009 and only one in CY 2010 with a proposed median cost of approximately $532. Our claims data did not show any hos pital outpatient claims for HCPCS codes G0418 and G0419 from either CY 2009 or CY 2010. While we believe that these procedures will always be low volume, given the number of specimens being collected, we be lieve that we should continue their New Technology payments for another year for HCPCS codes G0417, G0418, and G0419 to see if more claims data become available. For CY 2012, we are pr oposing to revise the APC assignments for these procedures and continue the New Technology APC payments for HCPCS G-codes G0417, G0418, and G0419. Specifically, we are proposing to reassign HCPCS code G0417 from APC 1506 to APC 1505 (New Technology - Level V ($300 - $400)), HCPCS code G0418 from APC 1511 to APC 1506 (New Technology - Level VI ($400 - $500)), and HCPCS G0419 code from APC 1513 to APC 1508 (New Technology - Level VIII ($600 - $700)). We believe that the proposed revised APC assignments would more appropriately reflect the procedures described by these threeCMS-1525-P 266 HCPCS G-codes, based on clini cal and resource consideratio ns. These procedures and their proposed APC assignment s are displayed in Table 19.

TABLE 19.—PROPOSED REASSIGNMENT OF PROCEDURES ASSIGNED TO NEW TECHNOLOGY APCs FOR CY 2012

CY 2011 HCPCS

Code CY 2011 Short Descriptor CY 2011

SI CY 2011 APC Proposed CY 2012 SI Proposed CY 2012

APC G0417 Sat biopsy prostate 21-40 S 1506 S 1505 G0418 Sat biopsy prostate 41-60 S 1511 S 1506 G0419 Sat biopsy prostate: >60 S 1513 S 1508CMS-1525-P 267 D. Proposed OPPS APC-Specific Policies 1. Revision/Removal of Neuros timulator Electrodes (APC 0687) For CY 2011, we continued to assign CPT codes 63661 (Removal of spinal neurostimulator electrode percutaneous array(s), including fluoroscopy, when performed), 63662 (Removal of sp inal neurostimulator electr ode plate/paddle(s) placed via laminotomy or laminectomy, incl uding fluoroscopy, when performed), 63663 (Revision, including replacement, when performed, of spinal neurostimulator electrode percutaneous array(s), including fluorosc opy, when performed), and 63664 (Revision, including replacement, when performed, of spinal neurostimulator electrode plate/paddle(s) placed via laminotomy or laminectomy, including fluoroscopy, when performed) to APC 0687 (Revision/Removal of Neurostimulator El ectrodes), which had a CY 2011 final rule median cost of appr oximately $1,480. These codes were created effective for services performed on or after January 1, 2010, when the AMA CPT Editorial Board deleted CPT code 63660 (Revisi on or removal of spinal neurostimulator electrode percutaneous array( s) or plate/ paddle(s)) a nd created new CPT codes 63661, 63662, 63663, and 63664 to differentiate between revision and removal procedures, and to also differentiate between percutan eous leads (arrays) and surgical leads (plates/paddles). As discussed in the CY 2011 OPPS/AS C final rule with comment period (75 FR 71913), we have received several co mments objecting to the placement of CPT codes 63663 and 63664 in APC 0687 because, the commenter stated, these codes are used to report both revisi on and replacement of neurostimulator electrodes. TheCMS-1525-P 268 commenters believed that the use of hospital resources is substantially greater when neurostimulator electrodes are being replaced rather than revised. We responded to these comments by stating that we di d not have CY 2009 claims data on the cost of these codes upon which to make an assessment of whether there is a meaningful difference between the cost of revising the electr odes or replacing them, and th at we were not convinced by the commenters stating that the use of the CPT codes for these services and the assignment of the codes for revision/replacem ent of neurostimulator electrodes to APC 0687 was inappropriate. We further stated that the OPPS is a payment system of averages in which the payment for a service is based on the estimated relative cost of the service, including a range of s upply and other input costs, as well as other services in the same APC that are comparable in resource cost and clinical homogene ity. We noted that we expect that hospital charges for a service, which are derived from the cost of a service, can vary across individual patien ts. Therefore, we expect vari ability in the estimated cost of a service, across cases in a hospital and am ong hospitals, to be reflected at some level in the final APC relative payment weight. We indicated that we would examine estimated costs for these CPT codes in the CY 2010 claims data that we would use to model the CY 2012 proposed rule when these data became available. At its February 28-March 1, 2011 meeti ng, the APC Panel recommended that CMS provide more data on CPT codes 63663, 63664, and 64569 (Revision or replacement of cranial nerve (e.g., vagus nerve) neurostimulator electrode array, including connection to existing pulse genera tor) to determine whether they represent primarily device replacements or devi ce revisions. We are accepting thisCMS-1525-P 269 recommendation and have examined the CY 2010 claims data available for this proposed rule to compare the frequency of claims containing CPT codes 63663 or 63664 that were billed with HCPCS C1778 (Lead, neuros timulator (implantable)) or C1897 (Lead, neurostimulator test kit (implantable)) to the frequency of claims with CPT codes 63663 or 63664 billed without HCPCS codes C1778 a nd C1897, in order to determine whether they represent primarily device replacements or device revisions. We found that 61 percent of claims containing CPT code s 63663 or 63664 did not contain HCPCS code C1778 or C1897, while 39 percent of claims with CPT codes 63663 or 63664 did contain HCPCS code C1778 or C1897. Because the ma jority of the claims did not contain HCPCS code C1778 or C1897, these findings sugge st that these CPT codes are used to describe mainly device revision procedures , although there are a significant number of cases of device replacement procedures in the claims data. We will present the requested data for CPT code 64569 at a future meeting of the APC Panel. We also have completed an examination of the estimated costs for CPT codes 63661, 63662, 63663, and 63664 now that claims data for these CPT codes are available for the first time since they became effective on January 1, 2010. Based on the partial year claims data available for this propos ed rule, the proposed median costs for CPT codes 63661 and 63662 are approximately $1,167 and $2,190, respectively. The claims data show a median cost of approximately $4,316 for CPT code 63663 and a median cost of approximately $4,883 for CPT code 63664, wh ich constitute a 2 times rule violation within APC 0687.CMS-1525-P 270 In order to resolve the 2 times rule violation in APC 0687, we are proposing to move CPT codes 63663 and 63664 from AP C 0687 to APC 0040 (Percutaneous Implantation of Neurostimulator Electrodes) , which has a CY 2012 proposed median cost of approximately $4,516 that is more consis tent with the median costs for CPT codes 63663 and 63664. We also are proposing to chan ge the title of APC 0040 to “Level I Implantation/Revision/Replacement of Neurost imulator Electrodes” to reflect that the APC would include revision and replacement procedures beginning in CY 2012, and to change the title of APC 0061 from “Lam inectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electrodes” to “Level II Implantation/Revision/Replacement of Neurostimu lator Electrodes” to be consistent with the APC 0040 title change. We believe that CPT codes 63661 and 63662 continue to be placed appropriately in APC 0687 because th eir CY 2012 proposed CPT median costs of approximately $1,167 and $2,190, respectively, are consistent with the overall proposed APC 0687 median cost of approximately $1,492 and because they describe only device removal procedures. 2. Computed Tomography of Abdo men and Pelvis (APCs 0331 and 0334) The AMA CPT Editorial Panel created three new codes for computed tomography (CT) of abdominal and pelvis that were effective January 1, 2011: CPT code 74176 (Computed tomography, abdomen and pelvis; without contrast material); CPT code 74177 (Computed tomography, abdomen and pelvis ; with contrast ma terial(s)); and CPT code 74178 (Computed tomography, abdomen and pelvis; without contrast material in one or both body regions, followe d by contrast material(s) and further sections in one orCMS-1525-P 271 both body regions). As with all new CPT codes for CY 2011, these new codes were announced through the publication of the CY 2011 CPT in November 2010, effective on January 1, 2011. In accordance with our longstanding policy, we made an interim APC assignment for each new code for CY 2011 based on our understanding of the resources required to furnish the service as the service was defined in the new code (75 FR 71898). Specifically, for CY 2011, we assigned new CPT code 74176 to APC 0332 (Computed Tomography Without Contrast), which has a CY 2011 payment rate of approximately $194; we assigned CPT code 74177 to AP C 0283 (Computed Tomography With Contrast), which has a CY 2011 payment rate of $300; and we assigned CPT code 74178 to CPT code 0333 (Computed Tomography Without Contrast Followed by With Contrast), which has a CY 2011 payment rate of $334. For CY 2011, we also made these codes eligible for composite payment under the multiple imaging composite APC methodology when they are furnished with othe r CT procedures to the same patient on the same day. As is our standard practice each year, our clinicians review each of the many CPT code changes that will be effective in the fo rthcoming year and make a decision regarding status indicator and/or APC assignment based on their understanding of the nature of the services furnished. We are unable to incl ude a proposed status indicator and/or APC assignment in the proposed rule for codes that are not announced by the AMA CPT Editorial Board prior to the proposed rule . Therefore, in accordance with our longstanding policy, we include, in the final rule with comm ent period, an interim statusCMS-1525-P 272 indicator and/or APC assignment for all ne w CPT codes that are announced by the AMA CPT Editorial Board subsequent to the OPPS/AS C proposed rule to enable payment to be made for new services as soon as the code is effective. In accordance with our longstanding practice, we id entified the new codes for a bdominal/pelvis CT for CY 2011 in Addendum B of the CY 2011 OPPS/ASC fina l rule with comment period as having new interim APC assignments by showing a co mment indicator of “NI,” and we provided a public comment period. As we do with all new CPT codes, we will respond to the public comments in the OPPS/ASC final rule with comment period for CY 2012. This longstanding process enables us to pay for new services as soon as the new CPT codes for them go into effect, despite the fact that they first become publicly available at the same time the final rule with comment period for the upcoming year is made public. At its February 28-March 1, 2011 m eeting, the APC Panel heard public presentations on this issue and recommended that CMS provide more data on the new CPT codes for combined abdomen and pelvis CT as soon as these data are available. We are accepting this recommendation, and we will provide claims data as soon as the data are available. We note that because these codes were effective January 1, 2011, the first available claims data for these codes will be the APC Panel claims data for the CY 2013 OPPS rulemaking. These data will be for dates of service January 1, 2011 through and including September 30, 2011, as processed through the Common Working File on or before September 30, 2011. In general, stakeholders who provide d comments on the interim assignment of these codes for CY 2011 stated that the mo st appropriate approach to establishingCMS-1525-P 273 payment for these new codes is to assign thes e procedures to APCs that recognize that each of the new codes reflects the reporting under a single code of two services that were previously reported under two separate code s and that, therefore, payments would be more accurate and better reflectiv e of the relative cost of th e services under the OPPS if we were to establish payment rates for th e codes for CY 2012 using claim data that reflect the combined cost of the two predece ssor codes. They noted that when these services were reported in CY 2010 using two CP T codes, rather than a single code, the services that are being reported under CPT code 74176 were assigned to imaging composite APC 8005 (CT and CTA without Co ntrast) for which the CY 2010 payment was $419.45. Similarly, the services being re ported under CPT code 74177 or CPT code 74178 were assigned to composite APC 8006 (CT and CTA with Contrast) for which the CY 2010 payment was $628.49. They indicated that they believed that simulating the median cost for CPT codes 74176, 74177, and 74178 using historic claims data from the predecessor codes in a manner si milar to that used to create the composite APC medians would result in the best estimates of costs for these codes and, therefore, the most accurate payment rate for these codes. After considering the presentations at the APC Panel meeting, the views of stakeholders who met with us to discuss this issue, and th e comments in response to the CY 2011 final rule with public comment period, and after examining our claims data for the predecessor codes, we believe that establ ishment of payment rate s for these services based on historic claims data for the comb inations of predecessor codes that are now reported by CPT codes 74176, 74177, and 74178 would result in a more accurate andCMS-1525-P 274 appropriate payment for these services for CY 2012 because it would take into account the full cost of both services that are now reported by a single CPT code. We believe that the best way to secure the most appropriate payments for CY 2012 is to use the claims data from the predecessor codes under whic h the new codes were reported for CY 2010 to simulate median costs for the new codes and to create APCs that are appropriate to the services. To do so should reflect both the fu ll cost of the service as reported by the new code and should also reflect the efficiencies of reporting the service represented by the single new code. Therefore, we are proposing to establish two APCs to which we would propose to assign the combined abdominal and pelvis CT services. Specifically, we are proposing to create new APC 0331 (Combine d Abdominal and Pelvis CT Without Contrast), to which we are proposing to assign CPT code 74176 and for which we are proposing to base the CY 2012 OPPS payment rate on a median cost of approximately $417. We also are proposing to create ne w APC 0334 (Combined Abdominal and Pelvis CT With Contrast), to which we are pr oposing to assign CPT codes 74177 and 74178 for the CY 2012 OPPS and for which we are pr oposing to base the CY 2012 OPPS payment rate on a median cost of approximately $592. We are proposing to create two new APCs to which to assign these code s, rather than one, because CPT code 74176 is furnished without contrast, while CPT codes 74177 and 74178 are furnished with contrast. Section 1833(t)(2)(G) of the Act requires that services with contrast may not be assigned to APCs that contain services without contrast, a nd therefore, we could not assign CPT code 74176, which does not require contrast, to the same APC as CPT codes 74177 and 74178, which require contrast.CMS-1525-P 275 We are proposing to create new APC 0331 to which we would assign CPT code 74176 and to create new APC 0334 to which we would assign CPT codes 74177 and 74178 because the proposed methodology for simu lating the median costs for CPT codes 74176, 74177, and 74178, which uses claims data for the predecessor codes is unique to these CPT codes. Therefore, we believe thatit is appropriate to create APCs comprised only of services for which we calculated me dians using claims data for the predecessor codes. To the extent this policy is finalized, we would reassess whethe r it continues to be appropriate to pay these codes under APCs 0331 and 0334 once the median costs for the proposed CY 2013 OPPS are calculated using our standard methodology, based on hospitals’ CY 2011 charges for CPT codes 74176, 74177, and 74178. To calculate the median costs for proposed APCs 0331 and 0334 for CY 2012, we selected claims that contained one unit of both of the predecessor CPT codes that appear in the CY 2011 CPT for CPT codes 74676, 74677, and 74678. The predecessor codes are limited to the codes in Table 20 below.

TABLE 20.--CPT CODES THAT WE RE COMBINED TO CREATE NEW ABDOMINAL AND PELVIS CPT CODES FOR CY 2011

CPT Code Descriptor 72192 Computed tomography, pelvis; without contrast material 72193 Computed tomography, pelvis; with contrast material(s)

72194 Computed tomography, pelvis; without contrast material, followed by contrast material(s) and further sections 74150 Computed tomography, abdomen; without contrast material 74160 Computed tomography, abdomen; with contrast material(s)

74170 Computed tomography, abdomen; wit hout contrast material, followed by contrast material(s) and further sectionsCMS-1525-P 276 For purposes of selecting claims to be us ed to calculate simulated median costs, we selected only claims that contained one (and only one) unit of each of the predecessor codes in the allowed combinations identified in Table 21 below. We used only claims that contained one and only one unit of each of the code combinations because we believe that it represents the best simulation of the definition of the new codes. Where more than one unit of either or both codes were reported, the claim would be paid under an imaging composite APC, not under APC 0331 or 0334. For median calculation, claims that contained more than one unit of either or both codes were assigned to the applicable imaging composite APC. We re fer readers to section II.A.2.e.5 of this proposed rule for discussion of the imaging composite APCs.

TABLE 21.--COMBINATIONS OF PRED ECESSOR CPT CODES USED TO SIMULATE MEDIAN COSTS FOR TH E COMBINED ABDOMINAL AND PELVIS CT CODES THAT ARE NEW FOR CY 2011

Combined Abdominal and pelvis CT code Predecessor CT Abdomen

without contrast Predecessor CT Pelvis

without contrast Predecessor CT Abdomen with contrast Predecessor CT Pelvis with contrast 74176 74150 72192 -- -- 74177 -- -- 74160 72193 74178 74150 -- -- 72193 74178 74150 -- -- 72194 74178 -- 72192 74160 -- 74178 -- -- 74160 72194 74178 -- 72192 74170 -- 74178 -- -- 74170 72193 74178 -- -- 74170 72194CMS-1525-P 277 After we selected the claims that contai ned one and only one unit of each code in each combination, we deleted claims that co ntained other separately paid HCPCS codes if those codes did not appear on the bypass list (we refer re aders to section II.A.1.b. of this proposed rule and to A ddendum N, which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site). We bypassed the costs for codes that appeared on the bypass li st to create simula ted single procedure claims for CPT codes 74178, 74177, and 74178. Using the remaining simulated single procedure claims for the combined abdomina l and pelvis CT serv ices, we applied our standard trimming, packaging, and wage sta ndardization methodology to calculate the median cost for each combined abdominal and pelvis CT code for the two proposed APCs. We refer readers to section II.A.2.c. of this proposed rule for discussion of our standard trimming, packaging, and wage standardization methodology. We found that using this proposed met hodology resulted in a simulated median cost for CPT code 74176 of approximately $417, and that, because we are proposing that CPT code 74176 would be the only HCPCS c ode assigned to APC 0331, the simulated median cost for APC 0331 also would be a pproximately $417. We f ound that using this proposed methodology, the simulated me dian cost for CPT code 74177 was approximately $570 and the simulated median cost for CPT code 74178 was approximately $638, and that the simulate d median cost for proposed APC 0334 was approximately $592. We are proposing to use this simulation methodology to establish proposed median costs for proposed APCs 0331 and 0334 for the CY 2012 OPPS.CMS-1525-P 278 We also are proposing that, in cases wh ere CPT code 74176 is reported with CT codes that describe CT services for other regions of the body other than the abdomen and pelvis in which contrast is not used, it would be assi gned to imaging composite APC 8005 (CT and CTA Without Contrast), for whic h we are proposing a median cost of approximately $445 for the CY 2012 OPPS. In cases where CPT code 74177 or 74178 is reported with CT codes that describe CT services for regions of the body other than abdomen and pelvis in which c ontrast is used, we are propos ing that the code would be assigned to APC 8006 (CT and CTA With Co ntrast), for which we are proposing a median cost of approximately $744 for the CY 2012 OPPS. We are proposing to assign CPT codes 74176 to imaging composite APC 8005 and to assign CPT codes 74177 and 74178 to imaging composite APC 8006 because the predecessor codes for CPT codes 74176, 74177 and 74178 (identified in Table 20), c ontinue to be reported when either abdominal CT or pelvis CT (but not both) is furnished, and we are proposing to continue to assign them to imaging composite APCs 8005 and 8006. We believe that it would be inconsistent with our proposed imaging compos ite policy if we did not propose to assign CPT codes 74176, 74177, and 74178 to the applicable imaging composite APC for CY 2012. We refer readers to section II.A.2.e.( 5) of this proposed rule for the discussion of the calculation of our proposed median costs for APCs 8005 and 8006 for CY 2012. In summary, we are proposing to esta blish new APCs 0331 and 0334 to which we would assign the abdominal and pelvis CT codes that were created by the AMA CPT Editorial Panel for CY 2011 and to use the simulation methodology we describe above to establish simulated median costs on whic h we would base the CY 2012 payment ratesCMS-1525-P 279 because we believe that to do so would resu lt in relative payment weights for these new services that will more accurately reflect the resources required to furnish these services as defined by CPT than would be true of c ontinued assignment of the codes to the single service APCs to which we made interim assi gnments for CY 2011. We note that claims and cost data for these services will be available for the CY 2013 OPPS rulemaking, and we will reassess the payment policy for these codes based on the cost data that are used to establish the CY 2013 OPPS median cost and payment rates. 3. Placement of Amniotic Membrane (APCs 0233 and 0244) For the CY 2011 update, the AMA CPT Editorial Panel revised the long descriptor for CPT code 65780 (Ocular surf ace reconstruction; amniotic membrane transplantation, multiple layers) to include th e words "multiple layers" to further clarify the code descriptor. In addition, the AM A CPT Editorial Panel created two new CPT codes that describe the placement of amniotic membrane on the ocular surface without reconstruction; one describing the placement of a self-retaining (non-sutured/non-glued) device on the surface of the eye, and the othe r describing a single layer of amniotic membrane sutured to the surface of the eye. Specifically, the AMA CPT Editorial Panel created CPT codes 65778 (Placement of amni otic membrane on the ocular surface for wound healing; self-retaining) and 65779 (P lacement of amniotic membrane on the ocular surface for wound healing; single layer, sutured), effective January 1, 2011. As has been our practice since the implementation of the OPPS in 2000, we carefully review all new procedures before assi gning them to an APC. In determining the APC assignments for CPT codes 65778 and 65779, we took into consideration theCMS-1525-P 280 clinical and resource characteristics invol ved with placement of amniotic membrane products on the eye for wound healing via a self-retaining device and a sutured, singlelayer technique. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72402), we assigned CPT code 65780 to APC 02 44 (Corneal and Amniotic Membrane Transplant) with a CY 2011 payment rate of approximately $2,681. We assigned CPT code 65778 to APC 0239 (Level II Repair and Plastic Eye Procedur es) with a payment rate of approximately $559, and CPT code 65779 to APC 0255 (Level II Anterior Segment Eye Procedures) with a payment ra te of approximately $519. In addition, we assigned both CPT codes 65778 and 65779 to comme nt indicator “NI” in Addendum B of the CY 2011 OPPS/ASC final rule with comment period to indicate that both codes were new codes for CY 2011 with an interim APC a ssignment subject to public comment. We will address any public comments on issues regarding these new codes in the CY 2012 OPPS/ASC final rule with comment period. At the APC Panel at the February 28 -March 1, 2011 meeting, a presenter requested the reassignment of both new CPT codes 65778 and 65779 to APC 0244, which is the same APC to which CPT code 65780 is assigned. The presenter indicated that prior to CY 2011, the procedures described by CPT codes 65578 and 65779 were previously reported under the original version of CPT c ode 65780, which did not specify “multiple layers,” and as such these new c odes should continue to be assigned to APC 0244. Further, the presenter stated that the co sts of the new procedur es described by CPT codes 65778 and 65779 are very similar to th e procedure described by CPT code 65780.CMS-1525-P 281 The APC Panel recommended that CM S reassign both CPT codes 65778 and 65779 to APC 0233 (Level III Anterior Segm ent Eye Procedures), citing clinical similarity to procedures al ready in APC 0233. Based on clin ical as well as resource similarity to the other pro cedures currently assigned to APC 0233, we are proposing to accept the APC Panel's recommendations to reassign CPT code 65778 from APC 0239 to APC 0233 and to reassign CPT code 65779 from APC 0255 to APC 0233. However, based upon our further review and analysis of th e clinical characterist ics of the procedure described by CPT code 65778, we also are pr oposing to conditionally package CPT code 65778. The service described by CPT code 65778 would rarely be provided as a separate, stand-alone service in the HOPD; it would almost exclusively be provided in addition to another procedure or service. Our medical advisors indicate that the procedure described by CPT code 65778 is not significantly differe nt than placing a bandage contact lens on the surface of the eye to cover a corneal ep ithelial defect. CPT code 65778 describes the simple placement of a special type of banda ge (a self-retaining amniotic membrane device) on the surface of the eye, which would most commonly be used in the HOPD to cover th e surface of the eye after a procedure that results in a corneal epithelial defect. Given the characteristics of this pr ocedure and its likely use in the HOPD, we are proposing to conditionally package CPT code 65778 for CY 2012 and reassign its status indi cator from “T” to “Q2” to indicat e that the procedure is packaged when it is billed on the same date with anothe r procedure or service that is also assigned to status indicator “T.” Ot herwise, separate payment woul d be made for the procedure.CMS-1525-P 282 In summary, for CY 2012, we are pr oposing to reassign CPT code 65778 from APC 0239 to APC 0233 with a conditionally packaged status, to reassign CPT code 65779 from APC 0255 to APC 0233, which has a pr oposed median cost of approximately $1,214, and to continue to assign CPT code 65780 to APC 0244, which has a proposed median cost of approximately $2,767. As has been our practice since the im plementation of the OPPS, we annually review all the items and services within an APC group to determine, with respect to comparability of the use of resources, for any 2 times violations. In making this determination, we review our claims data and determine whether we need to make changes to the current APC assignments fo r the following year. Because CPT codes 65778 and 65779 are new for CY 2011, and we have no claims data for the CY 2012 update, we will again reevaluate the status indicator and AP C assignments for CPT codes 65778, 65779, and 65780 in CY 2012 for the CY 2013 OPPS rulemaking cycle. The amniotic membrane procedures and th eir CY 2012 proposed APC assignments are displayed in Table 22 below.

TABLE 22.--PROPOSED APC ASSIGNMENT FOR THE AMNIOTIC MEMBRANE PROCEDURES FOR CY 2012

CY 2011 HCPCS

Code CY 2011 Short Descriptor CY 2011

SI CY 2011 APC Proposed CY 2012 SI Proposed CY 2012

APC 65778 Cover eye w/membrane T 0239 Q2 0233 65779 Cover eye w/membrane suture T 0255 T 0233 65780 Ocular reconst transplant T 0244 T 0244CMS-1525-P 283 4. Upper Gastrointestinal Services (APCs 0141, 0419, and 0422) For CY 2011, there are two upper gast rointestinal (GI) procedure APCs, APC 0141 (Level I Upper GI Procedures), which has a CY 2011 national unadjusted payment rate of $611.73, and APC 0422 (Level II Upper GI Procedures), which has a CY 2011 national unadjusted payment ra te of $1,148.75. In the CY 2011 OPPS/ASC proposed rule, we proposed to reconfigure AP Cs 0141 (Level I Upper GI Procedures) and APC 0442 (Level II Upper GI Procedures) by moving several CPT codes from APC 0141 to APC 0422. We received public comments on the proposed rule objecting to our proposal on the basis that the reconfigur ation would reduce the median cost and, therefore, the payment for services to which APC 0422 was assigned and would not maintain the clinical homogeneity of these services. Instead commenters, including the applicable medical specialty societies, as ked that we reconfigure APCs 0141 and 0422 to create three APCs by adding a new APC for upper GI procedures. They also recommended a HCPCS configuration that th ey believed would provide payment rates that would more accurately reflect the medi an costs of the services in APCs 0141 and 0422. We finalized our proposed changes to APCs 0141 and 0422 for CY 2011 without establishing a third APC for upper GI proce dures for the reasons discussed in the CY 2011 OPPS/ASC final rule with public comment period (75 FR 71907). However, when we developed the median costs for APCs 0141 and 0422 using CY 2010 claims data for discussion at the APC Panel meeting of February 28- March 1, 2011, we observed that there was a 2 times violation for APC 0141 that had not existed for CY 2010 OPPS. For the APC Panel meeting, we simulated the HCPCS andCMS-1525-P 284 APC median costs that would result from the reconfiguration that was recommended by the stakeholders in their comments on the CY 2011 OPPS/ASC final rule with comment period, and we discussed the re sults with the APC Panel. The APC Panel recommended that CMS create an intermediate leve l upper GI procedures APC (APC Panel Recommendation 13). The APC Panel recomm endations and report may be found at the APC Panel Web site, located at: http://www.cms.gov/FACA/05_AdvisoryPanel onAmbulatoryPaymentClassificationGrou

ps.asp

. For the reasons we discuss below, we are accepting the APC Panel recommendation to propose to establish three levels of uppe r GI procedure APCs and to propose to adopt the reconfiguration recomm ended by stakeholders because we believe that the proposed reconfigurat ion will provide payments th at are more closely aligned with the median costs of the services. Creating an intermediate APC for upper GI procedures provides APC median costs that are more closely aligned with the median costs for the many CPT codes for upper GI pr ocedures, and therefore, the APC median costs better reflect the resources required to provide these services as defined by the CPT codes for them. Moreover, the proposed r econfiguration resolves the 2 times rule violation that would result in APC 0141 if we were to apply the CY 2011 APC configuration to the CY 2012 proposed rule data . Therefore, we be lieve that we would need to propose to reassign HCPCS code s regardless of whether we created the intermediate APC for CY 2012. We believe that the proposed reconfiguration to create the intermediate APC is the most appropriate means of avoiding a 2 times violation thatCMS-1525-P 285 would otherwise exist for CY 2012 and that the resulting median costs will provide payments that are more reflective of the rela tive costs of the servic es being furnished. Therefore, for CY 2012, we are propos ing to create new APC 0419 (Level II Upper GI Procedures), as recommended by the stakeholders, and we are proposing to reassign HCPCS codes previously assigne d to APCs 0141 and 0422 to the three APC configuration. Table 23 below contains th e proposed HCPCS reassignments for CY 2012 using the proposed three APC reconfigura tion. We believe that this proposed reconfiguration classifies upper GI CPT codes in groups that de monstrate the best clinical and resource homogeneity. For APC 0141, we cal culated a proposed rule median cost for CY 2012 of approximately $603. For proposed new APC 0419, we calculated a proposed rule median cost of approximately $904. For APC 0422, we calculated a proposed rule median cost of approximately $1,833.

TABLE 23.--PROPOSED RECONFIGURATION OF UPPER GI PROCEDURE CODES FOR CY 2012

APC HCPCS SI Description Median Single Bill Frequency Percent Single Bills Total Frequency

0141 Level I Upper GI Procedures $602.59

43831 T Place gastrostomy tube $0.00 0 0

43510 T Surgical opening of stomach $186.33 1 1

43999 T Stomach surgery procedure $238.68 1,732 2,128

43204 T Esoph scope w/sclerosis inj $361.50 2 6

43761 T Reposition gastrostomy tube $496.12 361 602

43235 T Uppr gi endoscopy diagnosis $538.38 70,885 20 124,837CMS-1525-P 286

APC HCPCS SI Description Median Single Bill Frequency Percent Single Bills Total Frequency

43200 T Esophagus endoscopy $592.17 1,016 5,513

43239 T Upper gi endoscopy biopsy $618.39 260,422 73 516,015

43202 T Esophagus endoscopy biopsy $619.63 461 1,244

43248 T Uppr gi endoscopy/guide wire $621.09 16,548 5 37,741

43234 T Upper gi endoscopy exam $644.39 510 872

43247 T Operative upper GI endoscopy $656.88 5,028 1 16,489

43236 T Uppr gi scope w/submuc inj $660.41 3,369 1 8,141 43600 T Biopsy of stomach $666.46 5 14

43243 T Upper gi endoscopy & inject $748.56 161 326

43241 T Upper GI endoscopy with tube $782.08 164 462

43499 T Esophagus surgery procedure $2,158.45 528 1,375

0419 Level II Upper GI Procedures $903.97

91111 T Esophageal capsule endoscopy $730.21 69 79

43250 T Upper GI endoscopy/tumor $730.67 949 1 3,083

43201 T Esoph scope w/submucous inj $760.79 99 256

43251 T Operative upper GI endoscopy $793.29 2,976 3 10,936

43237 T Endoscopic us exam esoph $796.01 369 696

43259 T Endoscopic ultrasound exam $811.70 13,234 15 21,312

43246 T Place gastrostomy tube $814.37 15,205 17 20,923

43231 T Esoph endoscopy w/us exam $822.22 346 455CMS-1525-P 287

APC HCPCS SI Description Median Single Bill Frequency Percent Single Bills Total Frequency

43244 T Upper GI endoscopy/ligation $875.56 5,100 6 6,916

43215 T Esophagus endoscopy $881.45 220 858

43255 T Operative upper GI endoscopy $882.09 3,810 4 7,517 43458 T Dilate esophagus $890.28 145 1,305

43217 T Esophagus endoscopy $890.36 24 104

49446 T Change g-tube to g-j perc $891.78 389 681

43205 T Esophagus endoscopy/ligation $894.22 121 142

43249 T Esoph endoscopy dilation $897.83 19,351 22 50,173

49440 T Place gastrostomy tube perc $899.69 1,770 2 2,823

43245 T Uppr gi scope dilate strictr $919.77 2,489 3 5,401

43226 T Esoph endoscopy dilation $925.45 741 1 1,138

43240 T Esoph endoscope w/drain cyst $953.86 32 85

49441 T Place duod/jej tube perc $976.70 136 232

43220 T Esoph endoscopy dilation $1,011.56 593 1 908

43232 T Esoph endoscopy w/us fn bx $1,017.09 351 425 44100 T Biopsy of bowel $1,028.66 5 22

43238 T Uppr gi endoscopy w/us fn bx $1,115.06 383 539

43242 T Uppr gi endoscopy w/us fn bx $1,125.47 12,260 14 16,443

43258 T Operative upper GI endoscopy $1,138.38 5,654 6 10,278

43227 T Esoph endoscopy repair $1,405.46 25 39

43830 T Place gastrostomy tube $1,721.16 150 288CMS-1525-P 288

APC HCPCS SI Description Median Single Bill Frequency Percent Single Bills Total Frequency

0422 Level III Upper GI Procedures $1,833.15

43216 T Esophagus endoscopy/lesion $1,416.11 12 31

43870 T Repair stomach opening $1,651.04 95 4 153

43257 T Uppr gi scope w/thrml txmnt $1,724.95 46 2 62

43228 T Esoph endoscopy ablation $1,829.56 2,518 93 3,022 C9724 T EPS gast cardia plic $5,957.92 38 1 69

5. Pulmonary Rehabilitation (APC 0102) Section 144(a)(1) of Pub. L. 110–275 (MI PPA) added section 1861(fff) to the Act to provide Medicare Part B coverage and payment for a comprehensive program of pulmonary rehabilitation services furnished to beneficiaries with chronic obstructive pulmonary disease, effective January 1, 2010. Accordingly, in the CY 2010 OPPS/ASC final rule with comment period, we esta blished a policy to pay for pulmonary rehabilitation services furnished as a part of the comprehensive pulmonary rehabilitation program benefit (74 FR 60567). There was and continues to be no single CPT code that fully and accurately describes the compre hensive pulmonary rehabilitation benefit provided in section 1861(fff) of the Act. Moreover, there were no alphanumeric HCPCS codes that described the comprehensive pulmona ry rehabilitation benef it in effect for CY 2008 (on which the CY 2010 OPPS was base d) or CY 2009 (on which the CY 2011 OPPS was based). Therefore, for CY 2010, we created new HCPCS code G0424 (Pulmonary rehabilitation, including exercise (include s monitoring), one hour, perCMS-1525-P 289 session, up to two sessions per day) and a ssigned the code to APC 0102 (Level II Pulmonary Treatment), which we also crea ted for CY 2010 OPPS. Because none of the pulmonary treatment codes for which th ere were charges for CY 2008 or CY 2009 accurately described the comprehensive pul monary rehabilitation service for which MIPPA provided coverage, we did not assume that the charge reported on any one of the previously existing HCPCS codes under which pulmonary treatments were reported would represent the full charge for the comp rehensive pulmonary rehabilitation service. Instead, for the CY 2010 OPPS, which wa s based on claims for services in CY 2008, we calculated a median “per session” cost that we simulated from historical hospital claims data for pulmona ry therapy services that were billed in combination with one another, much like we create composite APC median costs by summing the costs of multiple procedures that are typically provi ded on the same date. Our methodology for calculating the “per session” median cost that we used as the basis for the CY 2010 OPPS payment rate for HCPCS code G0424 and APC 0102 is discussed in detail in the CY 2010 OPPS final rule with comment period (74 FR 60567 through 60570). Specifically, to simulate the “per sess ion” median cost of new HCPCS code G0424 from claims data for existing services, we used only claims that contained at least one unit of HCPCS code G0239 (Therapeutic pr ocedures to improve respiratory function or increase strength or endur ance of respiratory muscles, two or more individuals (includes monitoring), the group code that is without lim itation on time duration, and one unit of HCPCS code G0237 (Therapeutic procedur es to increase stre ngth or endurance of respiratory muscles, one on one, face to face, per 15 minutes (includes monitoring) orCMS-1525-P 290 HCPCS code G0238 (Therapeutic procedures to improve respiratory function or increase strength or endurance of respiratory muscle s, one on one, face to face, per 15 minutes (includes monitoring), the indivi dual, face-to-face codes that report 15 minutes of service, on the same date of service. We reasoned that patients in a pulmonary rehabilitation program would typically receive individual and group services in each session of approximately 1 hour in duration. This wa s consistent with public comments that suggested that pulmonary rehabilitation is of ten provided in group sessions in the HOPD, although patients commonly re quire additional one-on-one care in order to fully participate in the program. We note that ou r use of “per session” claims reporting one unit of HCPCS code G0237 or G0238 and one unit of HCPCS code G0239 in this simulation methodology was also consistent wi th our overall finding of approximately 2.4 service units of the HCPCS G-codes per day on a single date of service, usually consisting of both individual and group se rvices, for patients receiving pulmonary therapy services in the HOPD based upon CY 2008 claims. We concluded that the typical session of pulmonary rehabilitati on would be 1 hour based on public comments that indicated that a session of pulmonary rehabilitation is typically 1 hour and based on our findings that the most commonly reported HCPCS code for pulmonary treatment is HCPCS code G0239, which has no time definition for this group service. We included all costs of the related test s and assessment services (CPT codes 94620 (Pulmonary stress testing; simple (e.g., 6- minute walk test, prolonged exercise test for bronchospasm with pre- and post-spirometry and oxi metry)); 94664 (Demonstration and/or evaluation of patient utilization of an aerosol gene rator, nebulizer, metered doseCMS-1525-P 291 inhaler or IPPB device); and 94667 (Mani pulation chest wall, such as cupping, percussion and vibration to facilitate lung function; in itial demonstration and/or evaluation), and all CPT codes for established patient clinic visits, on the same date of service as the HCPCS G-codes in the claims we used to simulate the median cost for HCPCS code G0424. After identif ying these “per session” claims, which we believe to represent 1 hour of care, we su mmed the costs on them and ca lculated the median cost for the set of selected claims. In light of the cost and clinical sim ilarities of pulmonary rehabilitation and the ex isting services described by HCPCS codes G0237, G0238, and G0239 and the CPT codes for related assessments and tests, and the significant number of “per session” hospital claims we found, we believed that th e simulated median cost for HCPCS code G0424, constructed to include the costs of these services where furnished, was our best estimate of the expected hospita l cost of a pulmonary rehabilitation session, given that we did not have hospital charges for the comprehensive pulmonary rehabilitation service provided by MIPPA for which we created HCPCS code G0424. We used the resulting simulated median “per session” cost of approximately $50 as the basis for the payment for pulmonary rehabilitation service for CY 2010, the first year in which the comprehensive pulmonaryrehabilitation benefit was covered. For CY 2011, which was based on claims for servic es furnished in CY 2009, we continued to assign HCPCS code G0424 to APC 0102 and to apply the simulation methodology that we used in CY 2010 to claims for services in CY 2009 to calculate a median “per session” cost simulated from hi storical hospital claims data for similar pulmonary therapy services for the CY 2011 OPPS. The CY 2011 OPPS final rule median cost ofCMS-1525-P 292 approximately $62 resulted in a national unadjusted payment rate for CY 2011 of approximately $63. For the CY 2012 OPPS, however, we have a very robust set of claims for HCPCS code G0424 on which hospitals reported the charges for the comprehensive pulmonary rehabilitation service for which MIPPA pr ovided the pulmonary rehabilitation benefit beginning on January 1, 2010. Specificall y, the CY 2012 OPPS proposed rule data, based on CY 2010 claims, contained a total frequency of 393,056 lines of HCPCS code G0424, of which we were able to use 391,901 single procedure bills or almost 100 percent of the claims submitted for HCPCS code G0424. This is an extremely robust volume of single procedure bills containing charges for HCPCS code G0424 on which to base a median cost. In general, we have f ound that higher volumes of single bills both in absolute numbers and as a percentage of tota l frequency provide very stable estimates of hospital costs. Therefore, we are proposing that the payment rate for HCPCS code G0424 and, therefore, for APC 102, would be based on the median cost for the service as derived from claims for services furnished in CY 2010 and the most current available cost report information, using our longstanding process for estimating the median cost of a service described by a HCPCS code. We refer readers to section II. of this proposed rule for a description of our longstanding standard pr ocess for calculating the median costs on which the OPPS payment rates are based. Usi ng our standard median calculation process for HCPCS code G0424 results in a proposed median cost of approximately $38 for HCPCS code G0424 and, therefore, for APC 0102. Given that the volume of claims inCMS-1525-P 293 the CY 2012 OPPS proposed rule data is so robust for HCPCS code G0424, we believe that the proposed median cost we calculat ed for HCPCS code G0424 is a valid reflection of the relative cost of the comprehensive pulmonary rehabilitation service described by HCPCS code G0424 and that the proposed me dian cost for HCPCS code G0424 is an appropriate basis on which to establish the proposed national unadjusted payment rate for

APC 0102. We recognize that there is a significant difference between our simulated median cost for CY 2011 and the CY 2012 proposed rule median cost of approximately $38 that is derived from application of our standard me dian calculation proce ss to hospital claims data for CY 2010. We believe that this diffe rence arises because the median simulation methodology we used for CY 2010 and CY 2011 se lected claims that contained multiple procedures and packaged the costs of numerous services into the “per session” cost for the simulated code where numerous services ap peared on the same date of service. Our simulation methodology assumed that hospitals would include the charges for these additional services in their CY 2010 ch arges for HCPCS code G0424 because the services are included in the definition of comprehensive pulmonary rehabilitation. In response to the CY 2012 OPPS proposed median of approximately $38 for HCPCS code G0424, we looked at our claims data in more depth. We found that 1,048 hospitals, approximately 25 pe rcent of hospitals paid unde r the OPPS, reported HCPCS code G0424 and that the median line item medi an cost (exclusive of packaging) was approximately $38, virtually no different from the median cost per unit that we derived from the single bills. We also examined the charges that were submitted for HCPCSCMS-1525-P 294 code G0424 in CY 2010 and the CCRs that were applied to the charges for HCPCS code G0424 to calculate the estimated median cost for the code for this CY 2012 proposed rule. We also looked at the revenue c odes under which charges for HCPCS code G0424 were reported and the percentage of cost that was associated w ith packaged costs, such as oxygen, drugs, and medical supplies. We f ound that the median line item charge for HCPCS code G0424 in the CY 2012 proposed ru le data was approximately $150 and that the median CCR was 0.29. We also found that th e most frequently reported revenue code for HCPCS code G0424 was revenue code 410 (Respiratory therapy), approximately 108,000 single bills, and with revenue c ode 948 (Pulmonary Rehabilitation), approximately 81,000 single bills, being the second most commonly reported revenue code for HCPCS code G0424. We found that only 0.02 percent of the cost of HCPCS code G0424 was packaged cost (for example, oxygen, drugs, and supplies). In general, our detailed examination of to tal and line item charges for pulmonary rehabilitation, the CCRs used to reduce the charges to estimated costs on the single bills, the revenue codes reported, and the absence of packaging on th e single bills supports the proposed median cost of $38 per unit as a valid estimate of th e relative cost of one unit of HCPCS code

G0424. In summary, our examination of the cl aims and cost data for HCPCS code G0424 causes us to believe that the pr oposed median cost that we calc ulated from claims data for HCPCS code G0424 was calculated correctly according to our longstanding standard median cost calculation methodology. Therefor e, we are proposing to base the CY 2012 OPPS payment rate for HCPCS code G0424 a nd APC 0102 on the median cost that weCMS-1525-P 295 derive from applying our standard medi an calculation methodology to the CY 2010 charges and cost datafor HCPCS code G0424. 6. Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes (APC 0108) For CY 2011, only HCPCS code 33249 (Inser tion or repositioning of electrode lead(s) for single or dual chamber pacing cardi overter-defibrillator a nd insertion of pulse generator) is assigned to APC 0108 (Insert ion/Replacement/Repair of Cardioverter Defibrillator Leads). HCPCS code 33249, and therefore APC 0108, has a CY 2011 OPPS median cost of $26,543.91 on which the CY 2011 national unadjusted payment rate is based. For CY 2011, there are two HCPCS code s assigned to APC 0418: CPT code 33225 (Insertion of pacing electrode, card iac venous system, for left ventricular pacing, at time of insertion of pacing cardi overter-defibrillator or pacemaker pulse generator (including upgrade to dual chamber sy stem) (List separately in addition to code for primary procedure)), and CPT code 33224 (Insertion of pacing electrode, cardiac venous system, for left ventricular pacing, with attachment to previously placed pacemaker or pacing cardioverter-defibrillat or pulse generator (including revision of pocket, removal, insertion, and/or replacemen t of generator)). APC 0418 is titled “Insertion of left ventricular pacing el ectrode” for CY 2011. APC 0418 has a CY 2011 median cost of $10,516.97 on which the CY 2011 payment rate for HCPCS codes 33225 and 33224 are based. Both APCs 0108 and 0418 are device-dependent APCs for which the criteria and process used for calculating the median costs are discussed in section II.A.2.d.1. of this proposed rule.CMS-1525-P 296 In the CY 2010 claims data used for this CY 2012 proposed rule, HCPCS code 33249 has a median cost of approximately$27,020 based on 6,139 single bills; HCPCS code 33225 has a median cost of approximately $34,018 based on 458 single bills, and HCPCS code 33224 has a median cost of approximately $12,418 based on 201 single bills. We are proposing to retain HCPCS code 33249 in APC 0108 but to reassign HCPCS code 33225 to APC 0108 on the basis that these codes are similar in clinical characteristics and median cost. We are propos ing to revise the title of APC 0108 to read “Insertion/Replacement/Repair of AICD Lead s, Generator, and Pacing Electrodes” for CY 2012. Under our standard methodology, usin g CY 2010 claims data, we calculated a median cost of approximately $27,361 for APC 0108. We also are proposing to assign HCPC S code 33224 to APC 0655 because it is similar in clinical characteri stics and median costs to the other services in APC 0655, and to revise the title of APC 0655 to re ad “Insertion/Replacement/Conversion of a Permanent Dual Chamber Pacemaker or P acing Electrode.” We are proposing a CY 2012 OPPS median cost for APC 0655 of approximately $9,785 upon which we are proposing to base the CY 2012 OPPS payment ra te. We are proposing the changes to the titles of APCs 0108 and 0655 to better descri be the proposed content of the APCs. Because the reassignment of HCPCS c ode 33225 to APC 0108 and HCPCS 33244 to APC 0655 would result in APC 0418 containing no HCPCS c odes, we are proposing to delete APC 0418. As we discuss in detail in section III.D. of this proposed rule, we are proposing that HCPCS codes 33249 and 33225 would be paid under APC 0108 only if they are notCMS-1525-P 297 reported on the same date of service. We are proposing that, when HCPCS codes 33249 and 33225 are reported on the same date of se rvice, they would be paid through proposed new composite APC 8009 (Cardiac Resynchr onization Therapy with Defibrillator Composite) and that the payment rate fo r proposed composite APC 8009 would be limited to the proposed IPPS standardized payment amount for MS-DRG 227 (Cardiac Defibrillator Implant without Cardiac Cathet erization and without Medical Complications and Comorbidities), which is currently esti mated to be $26,364.93. In other words, we are proposing to pay APC 8009 at the lesser of the APC 8009 median cost or the IPPS standardized payment rate for MS-DRG 227. We calculated the st andardized payment rate for MS-DRG 227 ($26,364.93) by multiplying the normalized weight from Table 5 of the FY 2012 IPPS/LTCH PPS proposed rule (5.1370) by the sum of the nonlabor and labor-related shares of the proposed FY 2012 IPPS operating standardized amount (nonwage-adjusted) labor-related shar e $3,182.06 + nonlabor-related share $1,950.30 = $5,132.36) which were obtained from Table1B. For further de tail on the calculation of the IPPS proposed FY 2012 payment rates, we refer readers to the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 26028 through 26029). In addition, under the authorit y of section 1833(t)(2)(E) of the Act, which gives the Secretary the authority to make adjustments to ensure equitable payments, we are proposing to limit the payment for services that are assigned to APC 0108, to the proposed IPPS standardized payment amount fo r MS-DRG 227. In other words, we are proposing to pay APC 0108 at the lesser of the APC 0108 median cost or the IPPS standardized payment rate for MS-DRG 227. We believe that MS-DRG 227 is the mostCMS-1525-P 298 comparable DRG to APC 0108 because, like APC 0108, MS-DRG 227 includes implantation of a defibrillator in patient s who do not have medical complication or comorbidities. If we were to base paym ent for APC 0108 on our calculated median cost of approximately $27,361, it would result in a payment under the CY 2012 OPPS that would exceed our proposed standardized pa yment under the IPPS for MS-DRG 227 of $26,364.93. We do not believe that it would be equitable to pay more for the implantation of a cardioverter defibrillator or implantation of a left ventricular pacing electrode for an outpatient encounter, wh ich, by definition, includes fewer items and services than an inpatient stay during whic h the patient has the same procedure. In contrast, the amount Medicare would pay for aninpatient stay includes continuous skilled nursing care, room and board, all medications, an d all diagnostic tests for an average of 3 days. We believe that limiting OPPS payment for the services described by HCPCS codes 33249 and 33225 to the IPPS MS-DRG payment will ensure sufficient, appropriate, and equitable payment to hosp itals because patient s who receive these services in the hospital outpatient setting are not as sick as patients who have been admitted to receive this same service in th e hospital inpatient setting. Therefore, we expect it would be less costly to care for th ese patients as outpatie nts, who would also spend less time in the facility and receive fe wer services. In addition, we believe that a payment cap is necessary to ensure that we do not create an inappropriate payment incentive to implant ICDs and left ventricula r leads in one setting of care over another by paying more in the outpatient setti ng compared to the inpatient setting.CMS-1525-P 299 We are proposing to continue all ot her standard policies that apply to device-dependent procedures, including th e procedure-to-device edits that were established beginning in the CY 2005 O PPS for claims processing and median calculation; and calculation ofand application of device offset amounts when passthrough devices are used and when an “FB” or “FC” modifier is attached to the line for either CPT code 33249 or 33225. However, fo r CY 2012, we are propos ing that if the APC 0108 median cost that we will calcu late for the CY 2012 OPPS/ASC final rule exceeds the FY 2012 IPPS standardized payment rate for MS-DRG 227, as adopted in the FY 2012 IPPS/LTCH PPS final rule, we woul d establish the OPPS payment amount at the IPPS standardized payment rate fo r MS-DRG 227 for FY 2012. In the FY 2012 IPPS/LTCH PPS proposed rule, this amount is $26,364.93. If the median cost for APC 0108 as calculated using the CY 2012 OPPS/ASC fi nal rule data is less than the FY 2012 IPPS standardized payment rate for MS-DRG 227, we would base the payment for APC 0108 on the CY 2012 OPPS/ASC final rule medi an cost ofr APC 0108. These proposed changes would be made in a budget neutral ma nner, in the same way that payment for other APCs is budget neutral within the OPPS. IV. Proposed OPPS Payment for Devices A. Proposed Pass-Through Payments for Devices 1. Expiration of Transitional Pass- Through Payments for Certain Devices a. Background Section 1833(t)(6)(B)(iii) of the Act requires that, unde r the OPPS, a category of devices be eligible for transi tional pass-through payments for at least 2, but not more thanCMS-1525-P 300 3, years. This pass-through pa yment eligibility period begins with the first date on which transitional pass-through payments may be made for any medical device that is described by the category. We may establish a new device category for pass-through payment in any quarter. Under our established policy, we base the pass-through status expiration date for a device category on the date on whic h pass-through payment is effective for the category. The date on which a pass-through categor y is in effect is the first date on which pass-through payment may be made for any medical device that is described by such category. We propose and fina lize the dates for expiration of pass-through status for device categories as part of the OPPS annual update. We also have an established policy to p ackage the costs of the devices that are no longer eligible for pass-through payments into the costs of the procedures with which the devices are reported in the cl aims data used to set the payment rates (67 FR 66763). Brachytherapy sources, which are now se parately paid in accordance with section 1833(t)(2)(H) of the Act, are anexception to this established policy. There currently is one new device cate gory eligible for pass-through payment, described by HCPCS code C1749 (Endosc ope, retrograde imaging/illumination colonoscope device (implantable), which we announced in the October 2010 OPPS Update (Transmittal 2050, Change Request 7117, dated September 17, 2010). There are no categories for which we proposed expiration of pass-through status in CY 2011. If we create new device categories for pass-thr ough payment status during the remainder of CY 2011, we will propose future expiration dates in accordance with the statutory requirement that they be eligible for pass-th rough payments for at least 2, but not moreCMS-1525-P 301 than 3, years from the date on which pa ss-through payment for any medical device described by the category may first be made.CMS-1525-P 302 b. Proposed CY 2012 Policy As stated above, section 1833(t)(6)(B)(i ii) of the Act requires that, under the OPPS, a category of devices be eligible for transitional pass-through pa yments for at least 2, but not more than 3 years. Device pa ss-through category C1749 was established for pass-through payments on October 1, 2010, and will have been eligible for pass-through payments for more than 2 years but less than 3 years as of the end of CY 2012. Therefore, we are proposing an expirati on date for pass-through payment for device category C1749 of December 31, 2012. Therefore, under our proposal, beginning January 1, 2013, device category C1749 will no longer be eligible for pass-through payments. 2. Proposed Provisions for Reducing Transi tional Pass-Through Payments to Offset Costs Packaged into APC Groups a. Background We have an established policy to estima te the portion of each APC payment rate that could reasonably be attribut ed to the cost of the associat ed devices that are eligible for pass-through payments (66 FR 59904). We deduct from the pass-through payments for identified device categories eligible for pa ss-through payments an amount that reflects the portion of the APC payment amount that we determine is associated with the cost of the device, defined as the device AP C offset amount, as required by section 1833(t)(6)(D)(ii) of the Act. We have consistently employed an established methodology to estimate the portion of each AP C payment rate that could reasonably be attributed to the cost of an associated device eligible for pass-through payment, usingCMS-1525-P 303 claims data from the period used for the most recent recalibration of the APC rates (72 FR 66751 through 66752). We establish and update the ap plicable device APC offset amounts for eligible pass-through device categories thr ough the transmittals that implement the quarterly OPPS updates. We currently have published a list of all procedural APCs with the CY 2011 portions (both percentages and dollar amounts) of the APC payment amounts that we determine are associated with the cost of devices, on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp . The dollar amounts are used as the device APC offset amounts. In addition, in accordance with our established practice, the device APC offset amounts in a related APC are used in order to evaluate whether the cost of a device in an applica tion for a new device category for pass-through payment is not insignifican t in relation to the APC pa yment amount for the service related to the category of devices, as specified in our regulations at §419.66(d). As of CY 2009, the costs of implantable biologicals without pass-through status are packaged into the payment for the procedur es in which they are inserted or implanted because implantable biologicals without pass- through status are not separately paid (73 FR 68633 through 68636). For CY 2010, we fi nalized a new policy to specify that the pass-through evaluation pro cess and pass-through payment methodology for implantable biologicals that ar e surgically inserted or implanted (through a surgical incision or a natural orifice; also referred to as “implantable biol ogicals”) and that are newly approved for pass-through status begi nning on or after January 1, 2010, be the device pass-through process and payment meth odology only. As a result, for CY 2010,CMS-1525-P 304 we included implantable biologicals in our calculation of the device APC offset amounts (74 FR 60476). We calculated and set the device APC offset amount for a newly established device pass-thr ough category, which could include a newly eligible implantable biological, beginning in CY 2010 using the same methodology we have historically used to calcul ate and set device APC offset amounts for device categories eligible for pass-through pa yment (72 FR 66751 through 66752), with one modification. Because implantable biologicals are considered devices rather than drugs for purposes of pass-through evaluation and payment under our established policy, the device APC offset amounts include the costs of implantable biol ogicals. For CY 2010, we also finalized a policy to utilize the revised device APC offset amounts to evaluate whether the cost of an implantable biological in an applicati on for a new device category for pass-through payment is not insignifican t in relation to the APC pa yment amount for the service related to the category of devices. Fu rther, for CY 2010, we no longer used the “policy-packaged” drug APC offset amounts for evaluating the cost significance of implantable biological pass-through applica tions under review and for setting the APC offset amounts that woul d apply to pass-through paym ent for those implantable biologicals, effective for new pass-through status determinations beginning in CY 2010 (74 FR 60463). For CY 2011, we continued our policy th at the pass-through evaluation process and pass-through payment methodology for implantable biol ogicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) and that are newlyCMS-1525-P 305 approved for pass-through status beginning on or after January 1, 2010, be the device pass-through process an d payment methodology only. b. Proposed CY 2012 Policy We are proposing to continue our pol icy, for CY 2012, that the pass-through evaluation process and pass-through payment methodology for implantable biologicals that are surgically inserted or implanted (thr ough a surgical incision or a natural orifice) and that are newly approved for pass -through status beginning on or after January 1, 2010, be the device pass-through process and payment methodology only. The rationale for this policy is provided in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60471 through 60477). We also are proposing to continue our established policies for calcu lating and setting the device APC offset amounts for each device category eligible for pass-through payment. In addition, we are proposing to continue to review each new device categ ory on a case-by-case basis to determine whether device costs associated with the ne w category are already packaged into the existing APC structure. If device costs p ackaged into the existing APC structure are associated with the new category, we would deduct the device APC offset amount from the pass-through payment for the device categor y. As stated earlier, these device APC offset amounts also would be us ed in order to evaluate whethe r the cost of a device in an application for a new device category for pa ss-through payment is not insignificant in relation to the APC payment am ount for the service related to the category of devices (§419.66(d)).CMS-1525-P 306 For CY 2012, we also are proposing to continue our policy established in CY 2010 to include implantable biologicals in our calculation of the device APC offset amounts. In addition, we are proposing to co ntinue to calculate and set any device APC offset amount for a new device pass-through category that includes a newly eligible implantable biological beginning in CY 2012 using the same methodology we have historically used to calcul ate and set device APC offset amounts for device categories eligible for pass-through paymen t, and to include the costs of implantable biologicals in the calculation of the device APC offset amount s, as we first finalized and implemented for CY 2010. In addition, we are proposing to update, on the CMS Web site at http://www.cms. gov/HospitalOutpatientPPS , the list of all procedural APCs with the final CY 2012 portions of the APC payment amounts that we determine are associated with the cost of devices so that this information is availabl e for use by the public in developing potential CY 2012 device pass-through payment applicat ions and by CMS in reviewing those applications. In summary, for CY 2012, consistent with the policy established for CY 2010, we are proposing to continue the following po licies related to pass-through payment for devices: (1) treating implantabl e biologicals, that are surgic ally inserted or implanted (through a surgical incision or a natural orifice) and that are newly approved for passthrough status on or after January 1, 2010, as devices for purposes of the OPPS pass-through evaluation process and paymen t methodology; (2) including implantable biologicals in calculating the device APC offset amounts; (3) using the device APC offsetCMS-1525-P 307 amounts to evaluate whether the cost of a device (defined to include implantable biologicals) in an application for a new de vice category for pass-through payment is not insignificant in relation to the APC payment amount for the service related to the category of devices; and (4) reducing de vice pass-through payments based on device costs already included in the associated proc edural APCs, when we determine that device costs associated with the new category ar e already packaged into the existing APC

structure. B. Proposed Adjustment to OPPS Payment for No Cost/Full Credit and Partial Credit Devices 1. Background In recent years, there have been severa l field actions on and recalls of medical devices as a result of implantable device failures. In many of these cases, the manufacturers have offered devi ces without cost to the hospi tal or with credit for the device being replaced if the patient required a more expensive device. In order to ensure that payment rates for procedures involving devices reflect only th e full costs of those devices, our standard ratesetting methodol ogy for device-dependent APCs uses only claims that contain the correct device c ode for the procedure, do not contain token charges, do not contain the “FB” modifier signifying that the device was furnished without cost or with a full credit, and do not contain the “FC” modifi er signifying that the device was furnished with partial credit. As discussed in secti on II.A.2.d.(1) of this proposed rule, we are proposing to continue to use our standard ratesetting methodology for device-dependent APCs for CY 2012.CMS-1525-P 308 To ensure equitable payment when the hos pital receives a device without cost or with full credit, in CY 2007, we implemen ted a policy to reduce the payment for specified device-dependent APCs by the estimated portion of the APC payment attributable to device costs (that is, the device offset) when the hospital receives a specified device at no cost or with full credit (71 FR 68071 through 68077). Hospitals are instructed to report no cost/full credit ca ses using the “FB” modifier on the line with the procedure code in which the no cost/full credit device is used. In cases in which the device is furnished without cost or with full credit, the hospital is instructed to report a token device charge of less than $1.01. In cas es in which the device being inserted is an upgrade (either of the same type of device or to a different type of device) with a full credit for the device being replaced, the hospi tal is instructed to report as the device charge the difference between its usual char ge for the device being implanted and its usual charge for the device for which it r eceived full credit. In CY 2008, we expanded this payment adjustment policy to include ca ses in which hospitals receive partial credit of 50 percent or more of the co st of a specified device. Hosp itals are instructed to append the “FC” modifier to the procedure code thatreports the service provided to furnish the device when they receive a part ial credit of 50 percent or mo re of the cost of the new device. We reduce the OPPS payment for the implantation procedure by 100 percent of the device offset for no cost/full credit cases when both a specified device code is present on the claim and the procedure code maps to a specified APC. Payment for the implantation procedure is reduced by 50 percen t of the device offset for partial creditCMS-1525-P 309 cases when both a specified device code is present on the claim and the procedure code maps to a specified APC. Beneficiary c opayment is based on the reduced payment amount when either the “FB” or the “FC” modi fier is billed and the procedure and device codes appear on the lists of procedures and devi ces to which this policy applies. We refer readers to the CY 2008 OPPS/AS C final rule with comment period for more background information on the “FB” and “FC” payment adjustment policies (72 FR 66743 through 66749). 2. Proposed APCs and Devices Subject to the Adjustment Policy For CY 2012, we are proposing to continue the existing policy of reducing OPPS payment for specified APCs by 100 percent of the device offset amount when a hospital furnishes a specified device without cost or with a full credit a nd by 50 percent of the device offset amount when the hospital receives partial credit in the amount of 50 percent or more of the cost for the specified device. Because the APC payments for the related services are specifically constr ucted to ensure that the full cost of the device is included in the payment, we continue to believe it is appropriate to reduce the APC payment in cases in which the hospital receives a device with out cost, with full credit, or with partial credit, in order to provide equitable payment in these cases. (We refer readers to section II.A.2.d.(1) of this proposed rule for a de scription of our st andard ratesetting methodology for device-dependent APCs.) Moreover, the payment for these devices comprises a large part of the APC payment on which the beneficiary copayment is based, and we continue to believe it is equitable th at the beneficiary costsharing reflects the reduced costs in these cases.CMS-1525-P 310 For CY 2012, we also are proposing to continue using the three criteria established in the CY 2007 OPPS/ASC final ru le with comment period for determining the APCs to which this policy applies (71 FR 68072 through 68077). Sp ecifically : (1) all procedures assigned to the sele cted APCs must involve implan table devices that would be reported if device insertion procedures were performed; (2) the required devices must be surgically inserted or implanted devices that remain in the patient’s body after the conclusion of the procedure (a t least temporarily); and (3) the device offset amount must be significant, which, for purposes of this pol icy, is defined as exceeding 40 percent of the APC cost. We also are proposing to conti nue to restrict the de vices to which the APC payment adjustment would apply to a specific set of costly devices to ensure that the adjustment would not be triggered by the implantation of an inexpensive device whose cost would not constitute a significant proporti on of the total payment rate for an APC. As we stated in the CY 2011 OPPS/ASC fina l rule with comment period (75 FR 71925), we continue to believe these criteria are appropriate because free devices and device credits are likely to be associated with pa rticular cases only when the device must be reported on the claim and is of a type that is implanted and remains in the body when the beneficiary leaves the hospital. We believe that the reduction in payment is appropriate only when the cost of the device is a significan t part of the total cost of the APC into which the device cost is packaged, and that the 40-percent threshold is a reasonable definition of a significant cost. We examined the offset amounts calculated from the CY 2012 proposed rule data and the clinical characteristics of APCs to determine whether the APCs to which the noCMS-1525-P 311 cost/full credit and partial cr edit device adjustment policy ap plied in CY 2011 continue to meet the criteria for CY 2012, and to determine whether other APCs to which the policy did not apply in CY 2011 would meet the cr iteria for CY 2012. Based on the CY 2010 claims data available for this proposed ru le, we are not proposing any changes to the APCs and devices to which this policy appl ies. However, as discussed in section II.A.2.e.(6) of this proposed rule, we are pr oposing to delete APC 0418 (Insertion of Left Ventricular Pacing Electrode) for CY 2012 and, therefore, are proposing to remove this APC from the list of APCs to which the no cost/full credit and partial credit device adjustment policy would apply in CY 2012. Table 24 below lists the proposed APCs to which the payment adjustment policy for no cost/full credit and partial credit devi ces would apply in CY 2012 and displays the proposed payment adjustment percentages for both no cost/full credit and partial credit circumstances. We are proposing that the no cost/full credit adjustment for each APC to which this policy would continue to apply woul d be the device offset percentage for the APC (the estimated percentage of the APC cost that is attributable to the device costs that are packaged into the APC). We also are proposing that the partial credit device adjustment for each APC would continue to be 50 percent of the no cost/full credit adjustment for the APC. Table 25 below lists the proposed devices to which the payment adjustment policy for no cost/full credit and partial credit de vices would apply in CY 2012. In the CY 2012 OPPS/ASC final rule with comm ent period, we will update the lists of APCs and devices to which the no cost/full credit and partial credit device adjustme nt policy would applyCMS-1525-P 312 for CY 2012, consistent with th e three selection criteria disc ussed earlier in this section, based on the final CY 2010 claims data availabl e for the final rule with comment period. We are proposing, for CY 2012, that OPPS payments for implantation procedures to which the “FB” modifier is appended be reduced by 100 percent of the device offset for no cost/full credit cases when both a devi ce code listed in Table 25 below, is present on the claim and the procedure code maps to an APC listed in Table 24 below. We are also proposing that OPPS payments for implantation procedures to which the “FC” modifier is appended are reduced by 50 percen t of the device offset when both a device code listed in Table 25 is present on the cl aim and the procedure code maps to an APC listed in Table 24. Beneficiary copayment is based on the reduced amount when either the “FB” modifier or the “FC” modifier is billed and the procedure and device codes appear on the lists of pro cedures and devices to wh ich this policy applies.

TABLE 24.—PROPOSED AP Cs TO WHICH THE NO COST/FULL CREDIT AND PARTIAL CREDIT DEVICE ADJUSTMENT POLICY WOULD APPLY IN CY 2012

Proposed CY 2012

APC Proposed CY 2012 APC Title Proposed CY 2012 Device Offset Percentage for No Cost/ Full Credit Case Proposed CY 2012 Device Offset

Percentage for Partial Credit Case

0039 Level I Implantation of Neurostimulator Generator 85% 43%

0040 Level I Implantation/Revision/Replac ement of Neurostimulator Electrodes 54% 27%CMS-1525-P 313

Proposed CY 2012

APC Proposed CY 2012 APC Title Proposed CY 2012 Device Offset Percentage for No Cost/ Full Credit Case Proposed CY 2012 Device Offset

Percentage for Partial Credit Case

0061 Level II Implantation/Revision/Replac ement of Neurostimulator Electrodes 64% 32%

0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 71% 35%

0090 Insertion/Replacement of Pacemaker Pulse Generator 73% 37%

0106 Insertion/Replacement of Pacemaker Leads and/or Electrodes 43% 21%

0107 Insertion of CardioverterDefibrillator 88% 44%

0108 Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads 87% 43%

0227 Implantation of Drug Infusion Device 81% 40% 0259 Level VII ENT Procedures 83% 41%

0315 Level II Implantation of Neurostimulator Generator 88% 44%

0318 Implantation of Cranial Neurostimulator Pulse Generator and Electrode 86% 43%

0385 Level I Prosthetic Urological Procedures 61% 30%

0386 Level II Prosthetic Urological Procedures 70% 35%

0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30% 0648 Level IV Breast Surgery 44% 22%

0654 Insertion/Replacement of a permanent dual chamber pacemaker 74% 37%CMS-1525-P 314

Proposed CY 2012

APC Proposed CY 2012 APC Title Proposed CY 2012 Device Offset Percentage for No Cost/ Full Credit Case Proposed CY 2012 Device Offset

Percentage for Partial Credit Case

0655 Insertion/Replacement/Conve rsion of a permanent dual chamber pacemaker 73% 37%

0680 Insertion of Patient Activated Event Recorders 72% 36%

TABLE 25.—PROPOSED DEVICES TO WH ICH THE NO COST/FULL CREDIT AND PARTIAL CREDIT DEVICE ADJUSTMENT POLICY WOULD APPLY IN CY 2012

CY 2012 Device

HCPCS Code CY 2012 Short Descriptor C1721 AICD, dual chamber C1722 AICD, single chamber C1728 Cath, brachytx seed adm C1764 Event recorder, cardiac C1767 Generator, neurostim, imp C1771 Rep dev, urinary, w/sling C1772 Infusion pump, programmable C1776 Joint device (implantable) C1777 Lead, AICD, endo single coil C1778 Lead, neurostimulator C1779 Lead, pmkr, transvenous VDD C1785 Pmkr, dual, rate-resp C1786 Pmkr, single, rate-resp C1789 Prosthesis, breast, imp C1813 Prosthesis, penile, inflatab C1815 Pros, urinary sph, imp C1820 Generator, neuro rechg bat sys C1881 Dialysis access system C1882 AICD, other than sing/dual C1891 Infusion pump, non-prog, perm C1895 Lead, AICD, endo dual coil C1896 Lead, AICD, non sing/dual C1897 Lead, neurostim, test kitCMS-1525-P 315

CY 2012 Device

HCPCS Code CY 2012 Short Descriptor C1898 Lead, pmkr, other than trans C1899 Lead, pmkr/AICD combination C1900 Lead coronary venous C2619 Pmkr, dual, non rate-resp C2620 Pmkr, single, non rate-resp C2621 Pmkr, other than sing/dual C2622 Prosthesis, penile, non-inf C2626 Infusion pump, non-prog, temp C2631 Rep dev, urinary, w/o sling L8600 Implant breast silicone/eq L8614 Cochlear device/system L8680 Implt neurostim elctr each L8685 Implt nrostm pls gen sng rec L8686 Implt nrostm pls gen sng non L8687 Implt nrostm pls gen dua rec L8688 Implt nrostm pls gen dua non L8690 Aud osseo dev, int/ext comp

V. Proposed OPPS Payment Changes for Drugs, Biologicals, and Radiopharmaceuticals A. Proposed OPPS Transitional Pass-Through Payment for Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals 1. Background Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through paymen ts” for certain drugs and biol ogicals (also referred to as biologics). As enacted by the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act (BBRA) of 1999 (Pub. L. 106-113) , this provision requires the Secretary to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug, and Cosmetic Act (Pub. L. 107-186); current drugs and biologicals and brachytherapy sour ces used for the trea tment of cancer; andCMS-1525-P 316 current radiopharmaceutical drugs and biologi cals. For those drugs and biologicals referred to as “current,” the transitional pass-through payment began on the first date the hospital OPPS was implemented. Transitional pass-through pa yments also are provided for certain “new” drugs and biologicals that were not being paid for as an HOPD service as of December 31, 1996, and whose cost is “not insigni ficant” in relation to the OPPS payments for the procedures or services associated with the new dr ug or biological. For pass-through payment purposes, radiopharmaceuticals are included as “d rugs.” Under the statute, transitional pass-through payments for a drug or biologi cal described in sec tion 1833(t)(6 )(C)(i)(II) of the Act can be made for a period of at least 2 years, but not more than 3 years, after the product’s first payment as a hospital outpatient service under Medicare Part B. Proposed CY 2012 pass-through drugs and biologicals a nd their designated APCs are assigned status indicator “G” in Addenda A and B to this proposed rule, which are referenced in section XVII. of this proposed ru le and available via the Internet. Section 1833(t)(6)(D)(i) of the Act specifies that the pass-through payment amount, in the case of a drug or biologi cal, is the amount by which the amount determined under section 1842(o) of the Act for the drug or biological exceeds the portion of the otherwise app licable Medicare OPD fee sc hedule that the Secretary determines is associated with the drug or biol ogical. If the drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the pass-through payment amount is determined by the Secretary to be equal to the average price for the drug or biological for all competitive acquis ition areas and the year established underCMS-1525-P 317 such section as calculated and adjusted by the Secretary. As we noted in the CY 2009 OPPS/ASC final rule with co mment period (73 FR 68633), the Part B drug CAP program was postponed beginning in CY 2009 (Med icare Learning Netw ork (MLN) Matters Special Edition 0833, availa ble via the Web site: http://www.cms.gov ). As of publication of this proposed rule, the postponement of th e Part B drug CAP program remains in effect, and there is no effectiv e CAP program rate for pass-through drugs and biologicals as of January 1, 2009. Consistent with what we indicated in the CY 2011 OPPS/ASC final rule with co mment period (75 FR 71928), if the program is reinstituted during CY 2012 and Part B drug CAP rates beco me available, we would again use the Part B drug CAP rate for pass-th rough drugs and biologicals if th ey are a part of the Part B drug CAP program. Otherwise, we would cont inue to use the rate that would be paid in the physician’s office sett ing for all drugs and biologi cals with pass-through status. This methodology for determining the pa ss-through payment amount is set forth in regulations at 42 CFR 419.64, which specify that the pass-through payment equals the amount determined under section 1842(o) of the Act minus the portion of the APC payment that CMS determines is associated with the drug or biol ogical. Section 1847A of the Act establishes the average sales price (ASP) methodology, which is used for payment for drugs and biologicals descri bed in section 1842(o )(1)(C) of the Act furnished on or after January 1, 2005. The ASP methodology, as applied under the OPPS, uses several sources of data as a basis for payment, including the ASP, the wholesale acquisition cost (WAC), and the av erage wholesale price (AWP). In this proposed rule, the term “ASP methodology” a nd “ASP-based” are inclusive of all dataCMS-1525-P 318 sources and methodologies described ther ein. Additional information on the ASP methodology can be found on the CMS Web site at: http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice

. For CYs 2005, 2006, and 2007, we estimated the OPPS pass-through payment amount for drugs and biologicals to be zero based on our interpretation that the “otherwise applicable Medicare OPD fee sc hedule” amount was equivalent to the amount to be paid for pass-through drugs and bi ologicals under section 1842( o) of the Act (or section 1847B of the Act, if the drug or bi ological is covered under a competitive acquisition contract). We conc luded for those years that th e resulting difference between these two rates would be zero. For CYs 2008 and 2009, we estimated the OPPS pass-through payment amount for drugs and biologicals to be $6.6 million and $23.3 million, respectively. For CY 2010, we estimated the OPPS pass-through payment estimate for drugs and biologicals to be $35.5 million. For CY 2011, we estimated the OPPS pass-through payment for drugs and biologicals to be $15.5 million. Our proposed OPPS pass-through payment estimate for dr ugs and biologicals in CY 2012 is $19 million, which is discussed in section VI.B. of this proposed rule. The pass-through application and review process for dr ugs and biologicals is explained on the CMS Web site at: http://www.cms.hhs.gov/HospitalOut patientPPS/04_passthrough_payment.asp

. 2. Proposed Drugs and Biologicals with Expiring Pass-Through Status in CY 2012 We are proposing that the pass-through status of 19 drugs and biologicals would expire on December 31, 2011, as listed in Tabl e 26 below. All of these drugs andCMS-1525-P 319 biologicals will have received OPPS pass-throu gh payment for at least 2 years and no more than 3 years by December 31, 2011. Thes e drugs and biologicals were approved for pass-through status on or before January 1, 2010. With the excep tion of those groups of drugs and biologicals that are always p ackaged when they do not have pass-through status, specifically diagnostic radiopharm aceuticals, contrast agents, and implantable biologicals, our standard me thodology for providing payment for drugs and biologicals with expiring pass-through st atus in an upcoming calendar year is to determine the product’s estimated per day cost and compar e it with the OPPS drug packaging threshold for that calendar year (which is proposed at $80 for CY 2012), as discussed further in section V.B.2. of this proposed rule. If the drug’s or biolog ical’s estimated per day cost is less than or equal to the applicable OPPS drug packaging threshold, we would package payment for the drug or biological into the pa yment for the associated procedure in the upcoming calendar year. If the estimated per day cost of the drug or biological is greater than the OPPS drug packaging threshold, we would provide separate payment at the applicable relative ASP-based payment amount (which is proposed at ASP+4 percent for CY 2012, as discussed further in section V.B.3. of this proposed rule). Section V.B.2.d. of this proposed rule discusses the pack aging of all nonpass-thr ough contrast agents, diagnostic radiopharmaceuticals, and implantable biologicals.CMS-1525-P 320
TABLE 26.—PROPOSED DRUGS AND BIOLOGICALS FOR WHICH PASS-THROUGH STATUS WILL EXPIRE DECEMBER 31, 2011

Proposed CY 2012 HCPCS

Code CY 2012 Long Descriptor Proposed CY 2012 SI Proposed CY 2012

APC

A9582 Iodine I-123 iobengua ne, diagnostic, per study dose, up to 15 millicuries N N/A A9583 Injection, gadofosveset trisodium, 1 ml N N/A C9250 Human plasma fibrin sealant, vaporheated, solvent-detergent (Artiss), 2ml K 9250

C9360 Dermal substitute, native, non-denatured collagen, neonatal bovine origin (SurgiMend Collagen Matrix), per 0.5 square centimeters K 9360

C9361 Collagen matrix nerve wrap (NeuroMend Collagen Nerve Wrap), per 0.5 centimeter length N N/A

C9362 Porous purified collagen matrix bone void filler (Integra Mozaik Osteoconductive Scaffold Strip), per 0.5 cc N N/A

C9363 Skin substitute, Integra Meshed Bilayer Wound Matrix, per square centimeter K 9363

C9364 Porcine implant, Permacol, per square centimeter N N/A

J0598 Injection, C-1 este rase inhibitor (human), Cinryze, 10 units K 9251

J0641 Injection, levoleucovorin calcium, 0.5 mg K 1236 J0718 Injection, certolizumab pegol, 1 mg K 9249 J1680 Injection, human fibrinogen concentrate, 100 mg K 1290 J2426 Injection, paliperidone palmitate, 1 mg K 9255 J2562 Injection, plerixafor, 1 mg K 9252 J7312 Injection, dexamethasone intravitreal implant, 0.1 mg K 9256 J8705 Topotecan, oral, 0.25 mg K 1238 J9155 Injection, degarelix, 1 mg K 1296 J9328 Injection, temozolomide, 1 mg K 9253CMS-1525-P 321

Proposed CY 2012 HCPCS

Code CY 2012 Long Descriptor Proposed CY 2012 SI Proposed CY 2012

APC Q0138 Injection, Ferumoxytol, for treatment of iron deficiency anemia, 1 mg K 1297

3. Proposed Drugs, Biologicals, and Radi opharmaceuticals with New or Continuing Pass-Through Status in CY 2012 We are proposing to continue pass-through status in CY 2012 for 33 drugs and biologicals. None of these drugs and bi ologicals will have received OPPS pass-through payment for at least 2 years and no more than 3 years by December 31, 2011. These drugs and biologicals, which were ap proved for pass-through status between April 1, 2010 and July 1, 2011, are listed in Table 27 below. The APCs and HCPCS codes for these drugs and biologicals approved for pass-through status through April 1, 2011, are assigned status indicat or “G” in Addenda A and B, which are referenced in section XVIII of this propos ed rule and available via the Internet. Section 1833(t)(6)(D)(i) of the Act sets the amount of pass-through payment for pass-through drugs and biologi cals (the pass-through payment amount) as the difference between the amount authorized under section 1842(o) of th e Act (or, if the drug or biological is covered under a CAP under section 1847B of the Act, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and the year established under such section as calculated and adjusted by the Secretary) and the portion of the othe rwise applicable OPD fee schedule that the Secretary determines is associated with th e drug or biological. Payment for drugs andCMS-1525-P 322 biologicals with pass-through st atus under the OPPS is currently made at the physician’s office payment rate of ASP+6 percent. We be lieve it is consistent with the statute to propose to continue to provide payment fo r drugs and biologi cals with pass-through status at a rate of ASP+6 percent in CY 2012, the amount that drugs and biologicals receive under section 1842(o) of the Act. Thus, for CY 2012, we are proposing to pay for pass-through drugs and biological s at ASP+6 percent, equivale nt to the rate these drugs and biologicals would receive in the physic ian’s office setting in CY 2012. Therefore, the difference between ASP+4 percent that we are proposing to pay for nonpass-through separately payable drugs under the CY 2012 OPPS and ASP+6 percent would be the CY 2012 pass-through payment amount for these drugs and biologicals. In the case of pass-through contrast agents and diagnos tic radiopharmaceuticals, their pass-through payment amount would be equal to ASP+6 pe rcent because, if not on pass-through status, payment for these products would be packaged into the associated procedures. We note that we are proposing to expire pass-through status for the remain ing three implantable biologicals approved on or before January 1, 2010, under pass-through status as a drug or biological. Therefore, as described in th e CY 2010 OPPS/ASC final rule with comment period (74 FR 60476) and as proposed in this pr oposed rule, implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orifice) would be evaluated under the device pass-through process and paid according to the device payment methodology. Payment fo r nonpass-through implantable biologicals would continue to be packaged into the payment for the associated procedure as described in section V.B .2.d. of this proposed rule.CMS-1525-P 323 In addition, we are proposing to conti nue to update pass-thr ough payment rates on a quarterly basis on the CMS Web site duri ng CY 2012 if later quarter ASP submissions (or more recent WAC or AWP information, as applicable) indicate that adjustments to the payment rates for these pass-through drugs or biologicals are necessary. For a full description of this policy, we refer readers to the CY 2006 OPPS/ASC final rule with comment period (70 FR 42722 and 42723). If the Part B drug CAP is reinstated during CY 2012, and a drug or biological that has been granted pa ss-through status for CY 2012 becomes covered under the Part B drug CAP, we are proposing to provide pass-though payment at the Part B drug CAP rate and to make the adjustments to the payment rates for these drugs and biologicals on a quarterly ba sis, as appropriate. As is our standard methodology, we annually review new perman ent HCPCS codes and delete temporary HCPCS C-codes if an alternate permanent HC PCS code is available for purposes of OPPS billing and payment. In CY 2012, as is consistent with our CY 2011 policy for diagnostic and therapeutic radiopharmaceuticals, we are proposing to provide payment for both diagnostic and therapeutic radiopharmaceutical s that are granted pass-through status based on the ASP methodology. As stated a bove, for purposes of pass-through payment, we consider radiopharmaceuticals to be drugs un der the OPPS. Therefore, if a diagnostic or therapeutic radiopharmaceutical receive s pass-through status during CY 2012, we are proposing to follow the standard ASP me thodology to determine the pass-through payment rate that drugs receive under sect ion 1842(o) of the Act, which is ASP+6 percent. If ASP data are not available for a radiopharmaceutical, we are proposing toCMS-1525-P 324 provide pass-through payment at WAC+6 percen t, the equivalent payment provided to pass-through drugs and biologi cals without ASP information. If WAC information is also not available, we are proposing to provide payment for the pass-through radiopharmaceutical at 95 percen t of its most recent AWP. As discussed in more detail in section V. B.2.d. of this proposed rule, over the last 4 years, we implemented a policy where by payment for all n onpass-through diagnostic radiopharmaceuticals, contrast agents, and implantable biol ogicals is packaged into payment for the associated procedure. We are proposing to conti nue the packaging of these items, regardless of their per day cost, in CY 2012. As stated earlier, pass-through payment is the difference between the amount authorized under sec tion 1842(o) of the Act (or, if the drug or biol ogical is covered under a CAP unde r section 1847B of the Act, an amount determined by the Secretary equa l to the average price for the drug or biological for all competitive acquisition areas and the year established under such section as calculated and adjusted by the S ecretary) and the portion of the otherwise applicable OPD fee schedule that the Secretary determines is associated with the drug or biological. Because payment for a drug that is either a diagnostic radiopharmaceutical or a contrast agent (identified as a “policy- packaged” drug, first de scribed in the CY 2009 OPPS/ASC final rule with co mment period (73 FR 68639)) would otherwise be packaged if the product did not have pass-through status , we believe the otherwise applicable OPPS payment amount would be equal to the “pol icy-packaged” drug APC offset amount for the associated clinical APC in which the drug or biological is utilize d. The calculation of the “policy-packaged” drug APC offset amounts are described in more detail in sectionCMS-1525-P 325 IV.A.2. of this proposed rule. It follow s that the copaymen t for the nonpass-through payment portion (the otherwise applicable fee schedule amount that we would also offset from payment for the drug or biological if a payment offset applies) of the total OPPS payment for those drugs and biologicals w ould, therefore, be accounted for in the copayment for the associated clinical APC in which the drug or biological is used. According to section 1833(t)(8)(E) of the Act, the amount of copayment associated with pass-through items is equal to the amount of copayment that would be applicable if the pass-through adjustment was not applied. Therefore, as we did in CY 2011, we are proposing to continue to set the associated copayment amount for pass-through diagnostic radiopharmaceuticals and contrast ag ents that would otherwise be packaged if the item did not have pa ss-through status to zero for CY 2012. The separate OPPS payment to a hospital for th e pass-through diagnostic radiopharmaceutical or contrast agent, after taki ng into account any applicable payment offset for the item due to the device or “policy-packaged” APC offset policy, is the item’s pass-through payment, which is not subject to a copayment according to the statute. Therefore, we are proposing to not publish a copayment amount fo r these items in Addenda A and B to the proposed rule (which are referenced in secti on XVII. of this proposedrule and available via the Internet on the CMS Web site). The 33 drugs and biologicals that we are proposing to continue on pass-through status for CY 2012 or that have been gran ted pass-through status as of July 2011 are displayed in Table 27. We note that, for CY 2010 and the first two quarters of CY 2011, HCPCS code J1572 (Injection, immune globulin, (flebogamma/flebogamma dif),CMS-1525-P 326 intravenous, non-lyophilized (e.g. liquid), 500 mg ) was assigned a status indicator of “K,” meaning that this product was paid se parately as a nonpass-through separate payable drug. Beginning on July 1, 2011, HCPCS code J1572 is assigned a status indicator of “G” and will be given pass-through status for atleast 2, but not more than 3, years. The payment rate reflecting a pass-through paymen t amount of ASP+6 percent is not included in Addenda A and B of this proposed rule be cause these Addenda solely reflect codes and prices effective as of the sec ond quarter of CY 2011, or April 2011.

TABLE 27.—PROPOSED DRUG S AND BIOLOGICALS WITH PASS-THROUGH STATUS IN CY 2012 Proposed CY 2012 HCPCS

Code CY 2012 Long Descriptor Proposed CY 2012 SI Proposed CY 2012

APC

C9270 Injection, immune globulin(Gammaplex), intravenous, nonlyophilized (e.g. liquid), 500 mg G 9270 C9272 Injection, denosumab, 1 mg G 9272 C9274 Crotalidae polyvalent immune fab (ovine), 1 vial G 9274

C9275 Injection, hexaminolevulinate hydrochloride, 100 mg, per study dose G 9275 C9276 Injection, cabazitaxel, 1 mg G 9276 C9277 Injection, alglucosidase alfa (Lumizyme), 1 mg G 9277 C9279 Injection, ibuprofen, 100 mg G 9279 C9280 Injection, eribulin mesylate, 1 mg G 9280 C9281 Injection, pegloticase, 1 mg G 9281 C9282 Injection, ceftaroline fosamil, 10 mg G 9282 C9283** Injection, acetaminophen, 10 mg G 9283 C9284** Injection, ipilimumab, 1 mg G 9284 C9285** Lidocaine 70 mg/tetracaine 70 mg, per patch G 9285
C9365** Oasis Ultra Tri-Layer Matrix, per square centimeter G 9365CMS-1525-P 327 Proposed CY 2012 HCPCS

Code CY 2012 Long Descriptor Proposed CY 2012 SI Proposed CY 2012

APC

C9367 Skin substitute, Endoform Dermal Template, per square centimeter G 9367
C9406** Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries G 9406

J0597 Injection, C-1 Esterase inhibitor (human), Berinert, 10 units G 9269

J0775 Injection, collagenase clostridium histolyticum, 0.01 mg G 1340 J1290 Injection, ecallantide, 1 mg G 9263

J1572*** Injection, immune globulin, (flebogamma/flebogamma dif), intravenous, non-lyophilized (e.g. liquid), 500 mg G 0947 J3095 Injection, telavancin, 10 mg G 9258 J3262 Injection, tocilizumab, 1 mg G 9624 J3357 Injection, ustekinumab, 1 mg G 9261 J3385 Injection, velaglucerase alfa, 100 units G 9271

J7335 Capsaicin 8% patch, per 10 square centimeters G 9268 J8562 Fludarabine phosphate , oral, 10 mg G 1339 J9302 Injection, ofatumumab, 10 mg G 9260 J9307 Injection, pralatrexate, 1 mg G 9259 J9315 Injection, romidepsin, 1 mg G 9625 Q2040 Injection, incobotulinumtoxin A, 1 unit G 9278 Q2041** Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco G 1352

Q2043* Sipuleucel-T, minimum of 50 million autologous CD54+ cells activated with PAP-GM-CSF, including leukapheresis and all other preparatory procedures, per infusion G 9273

Q2044** Injection, belimumab, 10 mg G 1353 *HCPCS code C9273 was deleted June 30, 2011, and replaced with HCPCS code Q2043 effective July 1, 2011. **These HCPCS codes are effective July1, 2011, and are not included in the Addenda to this proposed rule.CMS-1525-P 328 ***HCPCS code J1572 has a status indicat or of “G,” effective July 1, 2011. 4. Proposed Provisions for Reducing Transiti onal Pass-Through Payments for Diagnostic Radiopharmaceuticals and Contrast Agents to Offset Costs Packaged into APC Groups a. Background Prior to CY 2008, diagnostic radiopharmaceu ticals and contrast agents were paid separately under the OPPS if their mean per day costs were greater than the applicable year’s drug packaging threshold. In CY 2008 (72 FR 66768), we began a policy of packaging payment for all nonpass-through diag nostic radiopharmaceuticals and contrast agents as ancillary and suppor tive items and services into their associated nuclear medicine procedures. Therefore, be ginning in CY 2008, nonpass-through diagnostic radiopharmaceuticals and contra st agents were not subject to the annual OPPS drug packaging threshold to determine their packag ed or separately payable payment status, and instead all nonpass-through diagnostic radio pharmaceuticals and contrast agents were packaged as a matter of policy. For CY 2012, we are proposing to c ontinue to package payment for all nonpass-through diagnostic radio pharmaceuticals and contrast agents, as discussed in section V.B .2.d. of this proposed rule. b. Proposed Payment Offset Policy for Diagnostic Radiopharmaceuticals As previously noted, radiopharmaceuticals are considered to be drugs for OPPS pass-through payment purposes. As describe d above, section 1833(t)(6 )(D)(i) of the Act specifies that the transiti onal pass-through payment amount for pass-through drugs and biologicals is the difference between the amount paid under section 1842(o) of the Act (or the Part B drug CAP rate ) and the otherwise applicable OPD fee schedule amount. There is currently one radiopharmaceutical w ith pass-through stat us under the OPPS,CMS-1525-P 329 HCPCS code C9406 (Iodine I-123 ioflupane , diagnostic, per study dose, up to 5 millicuries). HCPCS code C9406 was gr anted pass-through status beginning July 1, 2011, and is proposed to continue r eceiving pass-through st atus in CY 2012. We currently apply the established radiopharmaceutical payment offset policy to pass-through payment for this product. As de scribed earlier in section V.A.3. of this proposed rule, we are proposing that new pass-through diagnostic radiopharmaceuticals would be paid at ASP+6 percent, while thos e without ASP information would be paid at WAC+6 percent or, if WAC is not available, payment would be based on 95 percent of the product’s most recently published AWP. Because a payment offset is necessary in order to provide an appropriate transitional pass-through payment, we deduct from the pass-through payment for radiopharmaceuticals an amount reflecting th e portion of the APC payment associated with predecessor radiopharmaceuticals in order to ensure no duplicate radiopharmaceutical payment is made. In CY 2009, we established a policy to estimate the portion of each APC payment rate that coul d reasonably be attributed to the cost of predecessor diagnostic radiopharmaceuticals when considering a new diagnostic radiopharmaceutical for pa ss-through payment (73 FR 68638 through 68641). Specifically, we utilize the “policy-packaged ” drug offset fraction for APCs containing nuclear medicine procedures, calculated as 1 minus (the cost from single procedure claims in the APC after removing the cost for “policy-packaged” drugs divided by the cost from single procedure claims in the APC). In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60480 through 60484) , we finalized a policy to redefineCMS-1525-P 330 “policy-packaged” drugs as only nonpass-th rough diagnostic radiopharmaceuticals and contrast agents, as a result of the policy di scussed in sections V.A.4. and V.B.2.d. of the CY 2010 OPPS/ASC final rule with comme nt period (74 FR 60471 through 60477 and 60495 through 60499, respectively) that treats nonpass-through implantable biologicals that are surgically inserted or implanted (thr ough a surgical incision or a natural orifice) and implantable biologicals that are surgicallyinserted or implanted (through a surgical incision or a natural orifice) with newl y approved pass-through status beginning in CY 2010 or later as devices, rather than dr ugs. To determine the actual APC offset amount for pass-through diagnosti c radiopharmaceuticals that ta kes into consideration the otherwise applicable OPPS payment amount, we multiply the “policy-packaged” drug offset fraction by the APC payment amount fo r the nuclear medicine procedure with which the pass-through diagnostic radiopharm aceutical is used and, accordingly, reduce the separate OPPS payment for the pass-th rough diagnostic radiopharmaceutical by this

amount. Beginning in CY 2011 and as discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71934 through 719 36), we finalized a policy to require hospitals to append modifier “FB” to specifi ed nuclear medicine procedures when the diagnostic radiopharmaceutical is received at no cost/full credit. These instructions are contained within the I/OCE CMS speci fications on the CMS Web site at http://www.cms.gov/OutpatientCodeEdit/ 02_OCEQtrReleaseSpecs.asp#TopOfPage . For CY 2012 and future years, we are proposing to continue to require hospitals to append modifier “FB” to specified nuclear medi cine procedures when the diagnosticCMS-1525-P 331 radiopharmaceutical is received at no cost/full credit. In addition, we are proposing to continue to require that when a hospital bills with an “FB” modifier with the nuclear medicine scan, the payment amount for procedur es in the APCs listed in Table 28 of this proposed rule would be reduced by the full “ policy-packaged” offset amount appropriate for diagnostic radiopharmaceuticals. Finally, we also are proposing to continue to require hospitals to report a token ch arge of less than $1.01 in cases in which the diagnostic radiopharmaceutical is furnished wi thout cost or with full credit. For CY 2011, we finalized a policy to apply the diagnostic radiopharmaceutical offset policy to payment for pass-through di agnostic radiopharmaceuticals, as described above. For CY 2012, we are proposing to continue to a pply the diagnostic radiopharmaceutical offset policy to payment for pass-through diagnostic radiopharmaceuticals. Table 28 displays the proposed APCs to which nuclear medicine procedures would be assigned in CY 2012 and for which we expect that an APC offset could be applicable in the case of di agnostic radiopharmaceuticals with pass-through

status. TABLE 28.—PROPOSED APCs TO WHICH NUCLEAR MEDICINE PROCEDURES WOULD BE ASSIGNED FOR CY 2012 Proposed CY 2012 APC CY 2012 APC Title 0307 Myocardial Positron Emission Tomography (PET) imaging. 0308 Non-Myocardial Positron Em ission Tomography (PET) imaging. 0377 Level II Cardiac Imaging. 0378 Level II Pulmonary Imaging. 0389 Level I Non-imaging Nuclear Medicine. 0390 Level I Endocrine Imaging. 0391 Level II Endocrine Imaging. 0392 Level II Non-imaging Nuclear Medicine.CMS-1525-P 332 Proposed CY 2012 APC CY 2012 APC Title 0393 Hematologic Processing & Studies. 0394 Hepatobiliary Imaging. 0395 GI Tract Imaging. 0396 Bone Imaging. 0397 Vascular Imaging. 0398 Level I Cardiac Imaging. 0400 Hematopoietic Imaging. 0401 Level I Pulmonary Imaging. 0402 Level II Nervous System Imaging. 0403 Level I Nervous System Imaging. 0404 Renal and Genitourinary Studies. 0406 Level I Tumor/Infection Imaging. 0408 Level II Tumor/Infection Imaging. 0414 Level II Tumor/Infection Imaging.

c. Proposed Payment Offset Policy for Contrast Agents Section 1833(t)(6)(D)(i) of the Act speci fies that the tran sitional pass-through payment amount for pass-through drugs and bi ologicals is the diffe rence between the amount paid under section 1842(o) of the Ac t (or the Part B drug CAP rate) and the otherwise applicable OPD fee schedule amount. There is currently one contrast agent with pass-through status under the O PPS: HCPCS code C9275 (Injection, hexaminolevulinate hydrochloride, 100 m g, per study dose). HCPCS code C9275 was granted pass-through status beginning January 1, 2011, and is proposed to continue with pass-through status in CY 2012. As described earlier in section V. A.3. of this proposed rule, new pass-through contrast agents would be paid at ASP+6 percent, while those without ASP information would be paid at WA C+6 percent or, if WAC is not available, payment would be based on 95 percent of the product’s most recently published AWP.CMS-1525-P 333 We believe that a payment offset is nece ssary in order to provide an appropriate transitional pass-through payment for contrast agents, because all of these items are packaged when they do not have pass-through status. In accordance with our standard offset methodology, we are proposing for CY 2012 to deduct from the payment for pass-through contrast agents an amount that reflects the portion of the APC payment associated with predecessor contrast agents, in order to ensure no duplicate contrast agent payment is made. In CY 2010, we established a policy to es timate the portion of each APC payment rate that could reasonably be attributed to the cost of predecessor contrast agents when considering new contrast agents for pa ss-through payment (74 FR 60482 through 60484). For CY 2012, as we did in CY 2011, we are pr oposing to continue to apply this same policy to contrast agents. Sp ecifically, we are proposing to utilize the “policy-packaged” drug offset fraction for clinical APCs calcu lated as 1 minus (the cost from single procedure claims in the APC after removing th e cost for “policy-packaged” drugs divided by the cost from single procedure claims in the APC). In CY 2010, we finalized a policy to redefine “policy-packaged” dr ugs as only nonpass-through diagnostic radiopharmaceuticals and cont rast agents (74 FR 60495 through 60499). To determine the actual APC offset amount for pass-th rough contrast agents that takes into consideration the otherwise applicable OPPS payment amount, we are proposing to multiply the “policy-packaged” drug offset fraction by the APC payment amount for the procedure with which the pass- through contrast agent is used and, accordingly, reduce the separate OPPS payment for the pass-through co ntrast agent by this amount. We areCMS-1525-P 334 proposing to continue to a pply this methodology for CY 2012 to recognize that when a contrast agent with pass-through status is billed with any procedural APC listed in Table 29, a specific offset based on the procedur al APC would be applied to payments for the contrast agent to ensure that duplicate pa yment is not made for the contrast agent. We are proposing to continue to pos t annually on the CMS Web site at http://www.cms.gov/HospitalOutpatientPPS a file that contains the APC offset amounts that will be used for that year for purpos es of both evaluating cost significance for candidate pass-through device categories and dr ugs and biologicals, including contrast agents, and establishing any appropriate APC offset amounts. Specifically, the file will continue to provide, for ever y OPPS clinical APC, the amou nts and percentages of APC payment associated with packaged implant able devices, “policy-packaged” drugs, and “threshold-packaged” drugs and biologicals. Proposed procedural APCs for which we expect a contrast offset could be applicable in the case of a pass-through contrast agent have been identified as any procedural APC with a “policy-packaged” dr ug amount greater than $20 that is not a nuclear medicine APC identified in Table 28 above and these APCs are displayed in Table 29 below. The methodology used to determine a proposed threshold cost for application of a contrast agent offset po licy is described in detail in the CY 2010 OPPS/ASC final rule with comment peri od (70 FR 60483 through 60484). For CY 2012, we are proposing to continue to recognize that when a contrast agent with pass-through status is billed with any pr ocedural APC listed in Table 29, a specific offset based on theCMS-1525-P 335 procedural APC would be appl ied to payment for the contrast agent to ensure that duplicate payment is not made for the contrast agent.

TABLE 29.--PROPOSED APCs TO WH ICH A CONTRAST AGENT OFFSET MAY BE APPLICABLE FOR CY 2012 Proposed CY 2012

APC Proposed CY 2012 APC Title 0080 Diagnostic Cardiac Catheterization. 0082 Coronary or Non-Coronary Atherectomy.

0083 Coronary or Non-Coronary A ngioplasty and Percutaneous Valvulopasty. 0093 Vascular Reconstruction/Fistula Repair without Device. 0104 Transcathether Placement of Intracoronary Stents. 0128 Echocardiogram with Contrast. 0152 Level I Percutaneous Abdomi nal and Biliary Procedures. 0229 Transcathether Placement of Intravascular Shunts. 0278 Diagnostic Urography. 0279 Level II Angiography and Venography. 0280 Level III Angiography and Venography. 0283 Computed Tomography with Contrast.

0284 Magnetic Resonance Imaging and Magnetic Resonance Angiography with Contrast. 0333 Computed Tomography without Contrast followed by Contrast. 0334 Combined Abdomen and Pelvis CT with Contrast

0337 Magnetic Resonance Imaging and Magnetic Resonance Angiography without Contrast followed by Contrast. 0375 Ancillary Outpatient Services When Patient Expires. 0383 Cardiac Computed Tomographic Imaging. 0388 Discography. 0418 Insertion of Left Ve ntricular Pacing Elect. 0442 Dosimetric Drug Administration. 0653 Vascular Reconstruction/Fi stula Repair with Device. 0656 Transcatheter Placement of Intracoronary Drug-Eluting Stents. 0662 CT Angiography. 0668 Level I Angiography and Venography. 8006 CT and CTA with Contrast Composite. 8008 MRI and MRA with Contrast Composite.CMS-1525-P 336 B. Proposed OPPS Payment for Drugs, Bi ologicals, and Radiopha rmaceuticals without Pass-Through Status 1. Background Under the CY 2011 OPPS, we currentlypay for drugs, biologicals, and radiopharmaceuticals that do not have pass-thro ugh status in one of two ways: as a packaged payment included in the payment for the associated service; or as a separate payment (individual APCs). We explained in the April 7, 2000 OPPS final rule with comment period (65 FR 18450) that we generally package the cost of drugs and radiopharmaceuticals into the APC payment ra te for the procedure or treatment with which the products are usually furnished. Ho spitals do not receive separate payment for packaged items and supplies, and hospitals ma y not bill beneficiaries separately for any packaged items and supplies whose costs ar e recognized and paid within the national OPPS payment rate for the associated pro cedure or service. (Transmittal A-01-133, issued on November 20, 2001, explains in gr eater detail the rules regarding separate payment for packaged services.) Packaging costs into a single aggregate payment for a service, procedure, or episode-of-care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, pack aging the costs of items and services into the payment for the primary procedur e or service with which they are associated encourages hospital efficiencies and also enables hospita ls to manage their resources with maximum flexibility.CMS-1525-P 337 Section 1833(t)(16)(B) of th e Act set the threshold for establishing separate APCs for drugs and biologicals at $50 per admini stration for CYs 2005 and 2006. Therefore, for CYs 2005 and 2006, we paid separa tely for drugs, biologicals, and radiopharmaceuticals whose per da y cost exceeded $50 and pack aged the costs of drugs, biologicals, and radiopharmaceuticals whose per day cost was equal to or less than $50 into the procedures with which they were billed. For CY 2007, the packaging threshold for drugs, biologicals, and radiopharmaceutical s that were not new and did not have pass-through status was es tablished at $55. For CYs 2008 and 2009, the packaging threshold for drugs, biologicals, and radiopharm aceuticals that were not new and did not have pass-through status was established at$60. For CY 2010, the packaging threshold for drugs, biologicals, and radiopharmaceuticals that were not new and did not have passthrough status was established at $65. For CY 2011, the pack aging threshold for drugs, biologicals, and radiopharmaceuticals that we re not new and did not have pass-through status was established at $70. The methodology used to establish the $55 threshold for CY 2007, the $60 threshold for CYs 2008 and 2009, the $65 threshold for CY 2010, the $70 threshold for CY 2011, and our proposed approach for CY 2012 are discussed in more detail in section V.B.2.b. of this proposed rule. 2. Proposed Criteria for Packaging Payment for Drugs, Biologicals, and Radiopharmaceuticals a. Background As indicated in section V.B.1. of this proposed rule, in accordance with section 1833(t)(16)(B) of the Act, the threshold for establishing separate APCs for payment ofCMS-1525-P 338 drugs and biologicals was set to $50 per administration during CYs 2005 and 2006. In CY 2007, we used the four quarter moving aver age Producer Price Inde x (PPI) levels for Pharmaceutical Preparations (Prescription) to trend the $50 threshold forward from the third quarter of CY 2005 (when the Pub. L. 108-173 mandated threshold became effective) to the third quart er of CY 2007. We then rounde d the resulting dollar amount to the nearest $5 increment in order to de termine the CY 2007 threshold amount of $55. Using the same methodology as that used in CY 2007 (which is discussed in more detail in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 68086)), we set the packaging threshold for establishing se parate APCs for drugs and biologicals at $60 for CYs 2008 and 2009. For CY 2010, we set the packaging threshold at $65; and for CY 2011, we set the packaging threshold at $70. Following the CY 2007 methodology, for CY 2012, we used updated four quarter moving average PPI levels to trend the $50 threshold forward from the third quarter of CY 2005 to the third quarter of CY 2012 a nd again rounded the resulting dollar amount ($77.63) to the nearest $5 increment, which yielded a figure of $80. In performing this calculation, we used the most recent forecast of the quarterly index levels for the PPI for Pharmaceuticals for Human Use (Prescription) (Bureau of Labor Statistics (BLS) series code WPUSI07003) from CMS’ Office of the Ac tuary (OACT). We note that we are not proposing a change to the PPI that is used to calculat e the threshold for CY 2012; however, this change in terminology reflects a change to the BLS naming convention for this series. We refer to this series generall y as the PPI for Prescription Drugs below. We chose this PPI as it reflects price changes associated w ith the average mix of allCMS-1525-P 339 pharmaceuticals in the overall economy. In addi tion, we chose this price series because it is publicly available and regularly publis hed, improving public access and transparency. Forecasts of the PPI for Prescription Drugs are developed by IHS Global Insight, Inc., a nationally recognized economic a nd financial forecasting firm. As actual inflation for past quarters replaced forecasted amounts, th e PPI estimates for prior quarters have been revised (compared with those used in th e CY 2007 OPPS/ASC final rule with comment period) and have been incorporated into our calculation. Based on the calculations described above, we are proposing a packag ing threshold for CY 2012 of $80. (For a more detailed discussion of the OPPS drug p ackaging threshold and th e use of the PPI for Prescription Drugs, we refer readers to th e CY 2007 OPPS/ASC final rule with comment period (71 FR 68085 through 68086).) b. Proposed Cost Threshold for Packaging of Payment for HCPCS Codes That Describe Certain Drugs, Nonimplantable Biologi cals, and Therapeutic Radiopharmaceuticals (“Threshold-Packaged Drugs”) To determine their proposed CY 2012 packag ing status for this proposed rule, we calculated on a HCPCS code-specific basi s (with the exception of those drugs and biologicals with multiple HCPCS codes that in clude different dosages as described in section V.B.2.c. of this proposed rule and excluding diagnostic ra diopharmaceuticals, contrast agents, and implantable biologicals that we are proposing to continue to package in CY 2012, as discussed in sec tion V.B.2.d. of this proposed ru le) the per day cost of all drugs, nonimplantable biologicals, and ther apeutic radiopharmaceuticals (collectively called “threshold-packaged” drugs) that had a HCPCS code in CY 2010 and were paidCMS-1525-P 340 (via packaged or separate payment) under the OPPS, using CY 2010 claims data processed before January 1, 2011. In order to calculate the per day costs for drugs, nonimplantable biologicals, and therapeuti c radiopharmaceuticals to determine their proposed packaging status in CY 2012, we us ed the methodology that was described in detail in the CY 2006 OPPS proposed rule (70 FR 42723 through 42724) and finalized in the CY 2006 OPPS final rule with comment period (70 FR 68636 through 70 FR 68638). To calculate the CY 2012 proposed rule per day costs, we used an estimated payment rate for each drug and nonimplant able biological HCPCS code of ASP+4 percent (which is the payment rate we ar e proposing for separately payable drugs and nonimplantable biologicals for CY 2012, as di scussed in more detail in section V.B.3.b. of this proposed rule). We used the manufacturer submitted ASP data from the fourth quarter of CY 2010 (data that were used for payment purposes in the physician’s office setting, effective April 1, 2011) to dete rmine the proposed rule per day cost. As is our standard methodology, for CY 2012, we are proposing to use payment rates based on the ASP data from the fourth quarter of CY 2010 for budget neutrality estimates, packaging determinations, impact analyses, and completion of Addenda A and B to this proposed rule (which are referenced in section XVII. of th is proposed rule and available via the Internet) because these are th e most recent data available for use at the time of development of this proposed rule. These data were also the basis for drug payments in the physician’s office setting, eff ective April 1, 2011. For items that did not have an ASP-based payment rate, such as some therapeutic radi opharmaceuticals, we used their mean unit cost derived from the CY 2010 hospital claims data to determineCMS-1525-P 341 their per day cost. We are proposing to pack age items with a per day cost less than or equal to $80 and identified items with a pe r day cost greater than $80 as separately payable. Consistent with our past practice, we crosswalked historical OPPS claims data from the CY 2010 HCPCS codes that were reported to the CY 2011 HCPCS codes that we display in Addendum B of this proposed rule (which is referenced in section XVII. of this proposed rule and available via the Internet) for payment in CY 2012. Our policy during previous cycles of th e OPPS has been to use updated ASP and claims data to make final determinations of the packaging status of HCPCS codes for drugs, nonimplantable biologicals, and therapeu tic radiopharmaceuticals for the final rule with comment period. We note that it is also our policy to make an annual packaging determination for a HCPCS code only when we develop the OPPS/ASC final rule for the update year. Only HCPCS codes that are identif ied as separately payable in the final rule with comment period will be s ubject to quarterly updates. For our calculation of per day costs of HCPCS codes for drugs and noni mplantable biologicals in the CY 2012 OPPS/ASC final rule with co mment period, we are proposing to use ASP data from the first quarter of CY 2011, whic h is the basis for calculating payment rates for drugs and biologicals in the physician’s office sett ing using the ASP methodology, effective July 1, 2011, along with updated hospital claims data from CY 2010. We note that we also are proposing to use these data for budge t neutrality estimates and impact analyses for the CY 2012 OPPS/ASC final rule with comment period. Payment rates for HCPCS codes for separately payable drugs and nonimp lantable biologicals included in Addenda A and B to the final rule with comment peri od will be based on ASP data from the secondCMS-1525-P 342 quarter of CY 2011, which will be the basis for calculating payment rates for drugs and biologicals in the physician’s office sett ing using the ASP methodology, effective October 1, 2011. These rates would then be updated in the January 2012 OPPS update, based on the most recent ASP data to be us ed for physician’s office and OPPS payment as of January 1, 2012. For items that do not cu rrently have an ASP-based payment rate, we are proposing to recalculat e their mean unit cost from a ll of the CY 2010 claims data and updated cost report information availabl e for the CY 2012 final rule with comment period to determine their final per day cost. Consequently, the packaging status of some HCPCS codes for drugs, nonimplantable biologicals, and therapeu tic radiopharmaceuticals in this CY 2012 OPPS/ASC proposed rule may be different fr om the same drug HCPCS code’s packaging status determined based on the data used fo r the final rule with comment period. Under such circumstances, we are proposing to c ontinue to follow the established policies initially adopted for the CY 2005 OPPS (69 FR 65780) in order to more equitably pay for those drugs whose median cost fluctuates relative to the proposed CY 2012 OPPS drug packaging threshold and the drug’s payment stat us (packaged or separately payable) in CY 2011. Specifically, for CY 2012, we are prop osing to apply the following policies to these HCPCS codes for drugs, nonimplant able biologicals, and therapeutic radiopharmaceuticals whose relationship to the proposed $80 drug packaging threshold changes:

● HCPCS codes for drugs and nonimpla ntable biologicals that were paid separately in CY 2011 and that are proposed for separate payment in CY 2012, and thatCMS-1525-P 343 then have per day costs equal to or less th an $80, based on the ASPs and hospital claims data used for this CY 2012 proposed rule, woul d continue to receive separate payment in

CY 2012.

● HCPCS codes for drugs and nonimplantab le biologicals that were packaged in CY 2011 and that are proposed for separate pa yment in CY 2012, and that then have per day costs equal to or less than $80, based on th e ASPs and hospital claims data used for this CY 2012 proposed rule, would remain packaged in CY 2012.

● HCPCS codes for drugs and nonimpla ntable biologicals for which we are proposing packaged payment in CY 2012 but th en have per day costs greater than $80, based on the ASPs and hospital claims data used for this CY 2012 proposed rule, would receive separate payment in CY 2012. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60485 through 60489), we implemented a policy to treat oral and injectable forms of 5-HT3 antiemetics comparably to all other threshold packag ed drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals under our standard packaging methodology of packaging drugs with a per day cost less than $65. We are proposing for CY 2012 to continue our policy of not exempting these 5-HT3 antiemetic products from our standard packaging methodology. For CY 2012, we are proposing to package payment for all of the 5-HT3 antiemetics except palonosetron hydrochloride, which for CY 2012 has a estimated per day cost, from the CY 2010 cl aims data, above the proposed CY 2012 drug packaging threshold. Our rationale for this policy is outlined in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60487 through 60488).CMS-1525-P 344 c. Proposed Packaging Determination for HCPCS Codes That Describe the Same Drug or Biological But Different Dosages In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66776), we began recognizing, for OPPS payment pur poses, multiple HCPCS codes reporting different dosages for the same covered Part B drugs or biologicals in order to reduce hospitals’ administrative burden by permitting them to report all HCPCS codes for drugs and biologicals. In general, prior to CY 2008, the OPPS recognized for payment only the HCPCS code that described the lowest dosage of a drug or biological. We extended this recognition to multiple HCPCS codes for se veral other drugs under the CY 2009 OPPS (73 FR 68665). During CYs 2008 and 2009, we app lied a policy that as signed the status indicator of the previ ously recognized HCPCS code to the associated newly recognized code(s), reflecting the packaged or separately payable status of the new code(s). In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66775), we explained that once claims data were available for these previously unrecognized HCPCS codes, we would determine the packaging status and resu lting status indicator for each HCPCS code according to the general, established HCPC S code-specific methodology for determining a code’s packaging status for a given update year. However, we also stated that we planned to closely follow our claims data to ensure that our annual packaging determinations for the different HCPCS codes describing the same dr ug or biological did not create inappropriate payment incentives for hospitals to repor t certain HCPCS codes instead of others.CMS-1525-P 345 In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60490 through 60491), we finalized a policy to make a single packaging determination for a drug, rather than an individual HCPCS code, when a drug has multiple HCPCS codes describing different dosages. We analyzed CY 2008 cl aims data for the HCPCS codes describing different dosages of the same drug or biol ogical that were newl y recognized in CY 2008 and found that our claims data would result in several different packaging determinations for different codes describing the same drug or biological. Furthermore, we found that our claims data would include few units and days for a number of newly recognized HCPCS codes, resulting in our concern that th ese data reflected claims from only a small number of hospitals, even though the drug or biological itself may be reported by many other hospitals under the most common HCPCS code. Based on these findings from our first available claims data for the newly recognized HCPCS codes, we believed that adopting our standard HCPCS code-specific packaging determinations for these codes could lead to payment incentives for hospitals to report certain HC PCS codes instead of others, particularly because we do not curren tly require hospitals to report all drug and biological HCPCS codes under the OPPS in cons ideration of our previous policy that generally recognized only th e lowest dosage HCPCS code for a drug or biological for OPPS payment. For CY 2012, we continue to believe that adopting the standard HCPCS code-specific packaging determin ations for these codes could lead to payment incentives for hospitals to report certain HCPCS code s for drugs instead of others. Making packaging determinations on a drug-specific ba sis eliminates these incentives and allows hospitals flexibility in choosing to report a ll HCPCS codes for different dosages of theCMS-1525-P 346 same drug or only the lowest dosage HCPC S code. Therefore, we are proposing to continue our policy to make packaging determ inations on a drug-specific basis, rather than a HCPCS code-specific basis, for those HCPCS codes that describe the same drug or biological but different dosages in CY 2012. For CY 2012, in order to propose a packag ing determination that is consistent across all HCPCS codes that describe different dosages of the same drug or biological, we aggregated both our CY 2010 claims data and our pricing information at ASP+4 percent across all of the HCPCS codes that de scribe each distinct drug or biological in order to determine the mean units per day of the drug or biological in terms of the HCPCS code with the lowest dosage descri ptor. All HCPCS codes listed in Table 30 below had ASP pricing information availabl e for this CY 2012 OPPS/ASC proposed rule. Therefore, we multiplied the weighted av erage ASP+4 percent per unit payment amount across all dosage levels of a specific drug or biological by the estima ted units per day for all HCPCS codes that describe each drug or bi ological from our claims data to determine the estimated per day cost of each drug or biological at less than or equal to $80 (whereupon all HCPCS codes for the same drug or biological would be packaged) or greater than $80 (whereupon all HCPCS codes for the same dr ug or biological would be separately payable). The proposed packagi ng status of each drug and biological HCPCS code to which this methodology would apply is displayed in Table 30 below.CMS-1525-P 347

TABLE 30.--PROPOSED HCPCS CO DES TO WHICH THE CY 2012 DRUG-SPECIFIC PACKAGING DE TERMINATION METHODOLOGY WOULD APPLY Proposed CY 2012 HCPCS

Code Proposed CY 2012 Long Descriptor Proposed CY 2012 SI C9257 Injection, bevacizumab, 0.25 mg K J9035 Injection, bevacizumab, 10 mg K J1020 Injection, methylprednisolone acetate, 20 mg N J1030 Injection, methylprednisolone acetate, 40 mg N J1040 Injection, methylprednisolone acetate, 80 mg N J1070 Injection, testosterone cypionate, up to 100 mg N J1080 Injection, testosterone cypionate, 1 cc, 200 mg N J1440 Injection, filgrastim (g-csf), 300 mcg K J1441 Injection, filgrastim (g-csf), 480 mcg K J1460 Injection, gamma globulin, intramuscular, 1 cc K J1560 Injection, gamma globuli n, intramuscular over 10 cc K

J1642 Injection, heparin sodium, (h eparin lock flush), per 10 units N J1644 Injection, heparin sodium, per 1000 units N J1850 Injection, kanamycin sulfate, up to 75 mg N J1840 Injection, kanamycin su lfate, up to 500 mg N J2270 Injection, morphine su lfate, up to 10 mg N J2271 Injection, morphine sulfate, 100mg N

J2788 Injection, rho d immune gl obulin, human, minidose, 50 micrograms (250 i.u.) K

J2790 Injection, rho d immune gl obulin, human, full dose, 300 micrograms (1500 i.u.) K

J2920 Injection, methylprednisolone sodium succinate, up to 40 mg N

J2930 Injection, methylprednisolone sodium succinate, up to 125 mg N J3120 Injection, testosterone enanthate, up to 100 mg N J3130 Injection, testosterone enanthate, up to 200 mg N

J3471 Injection, hyaluronidase, ovine , preservative free, per 1 usp unit (up to 999 usp units) N

J3472 Injection, hyaluronidase, ovi ne, preservative free, per 1000 usp units N J7050 Infusion, normal saline solution , 250 cc N J7040 Infusion, normal saline solution, sterile (500 ml=1 unit) N J7030 Infusion, normal saline solution , 1000 cc NCMS-1525-P 348 Proposed CY 2012 HCPCS

Code Proposed CY 2012 Long Descriptor Proposed CY 2012 SI J7515 Cyclosporine, oral, 25 mg N J7502 Cyclosporine, oral, 100 mg N J8520 Capecitabine, oral, 150 mg K J8521 Capecitabine, oral, 500 mg K J9250 Methotrexate sodium, 5 mg N J9260 Methotrexate sodium, 50 mg N

Q0164 Prochlorperazine maleate, 5 mg, oral, FDA approved prescription anti-emetic, for us e as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour doseage regimen N

Q0165 Prochlorperazine maleate, 10 mg, oral, FDA approved prescription anti-emetic, for us e as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour doseage regimen N

Q0167 Dronabinol, 2.5 mg, oral, F DA approved prescription anti-emetic, for use as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0168 Dronabinol, 5 mg, oral, FDA approved prescription antiemetic, for use as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0169 Promethazine hydrochloride, 12.5 mg, oral, FDA approved prescription anti-eme tic, for use as a complete therapeutic substitute for an IV antiemetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0170 Promethazine hydrochloride, 25 mg, oral, FDA approved prescription anti-emetic, for us e as a complete therapeutic substitute for an IV antiemetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0171 Chlorpromazine hydrochloride, 10 mg, oral, FDA approved prescription antiemetic , for use as a complete therapeutic substitute for an IV antiemetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen NCMS-1525-P 349 Proposed CY 2012 HCPCS

Code Proposed CY 2012 Long Descriptor Proposed CY 2012 SI

Q0172 Chlorpromazine hydrochloride, 25 mg, oral, FDA approved prescription anti-eme tic, for use as a complete therapeutic substitute for an IV anti-emetic at the time of chemotheapy treatment, not to exceed a 48-hour dosage regimen N

Q0175 Perphenazine, 4 mg, oral, FDA approved prescription anti-emetic, for use as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0176 Perphenazine, 8 mg, oral, FDA approved prescription anti-emetic, for use as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0177 Hydroxyzine pamoate, 25 mg, oral, FDA approved prescription anti-emetic, for us e as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

Q0178 Hydroxyzine pamoate, 50 mg, oral, FDA approved prescription anti-emetic, for us e as a complete therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed a 48-hour dosage regimen N

d. Proposed Packaging of Payment for Diagnostic Radiopharmaceuticals, Contrast Agents, and Implantable Biologicals (“ Policy-Packaged” Drugs and Devices) Prior to CY 2008, the methodology of calcu lating a product’s estimated per day cost and comparing it to the annual OPPS drug packaging threshold was used to determine the packaging status of drugs, biologicals, and radiopharmaceuticals under the OPPS (except for our CYs 2005 through 2009 exemption for 5-HT3 antiemetics). However, as established in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66766 through 66768), we began packaging payment for all diagnosticCMS-1525-P 350 radiopharmaceuticals and contrast agents into the payment for the associated procedure, regardless of their per day co sts. In addition, in CY 2009 we adopted a policy that packaged the payment for nonpass-through impl antable biologicals into payment for the associated surgical procedure on the cl aim (73 FR 68633 through 68636). We refer to diagnostic radiopharmaceuticals and contrast ag ents collectively as “policy-packaged” drugs and implantable biologi cals as devices because, in CY 2010, we began to treat implantable biologicals as devices for all OPPS payment purposes. According to our regulations at §419.2(b) , as a prospective payment system, the OPPS establishes a national payment rate thatincludes operating and capital-related costs that are directly related and integral to pe rforming a procedure or furnishing a service on an outpatient basis including, but not limited to, implantable prosthetics, implantable durable medical equipment, a nd medical and surgical supplie s. Packaging costs into a single aggregate payment for a service, enc ounter, or episode-of-care is a fundamental principle that distinguishes a prospective payment system from a fee schedule. In general, packaging the costs of items and services into the payment for the primary procedure or service with whic h they are associated encourages hospital efficiencies and also enables hospitals to manage thei r resources with maximum flexibility. Prior to CY 2008, we noted that the proportion of drugs, biologicals, and radiopharmaceuticals that were separately pa id under the OPPS had increased in recent years, a pattern that we also observed for procedural services unde r the OPPS. Our final CY 2008 policy that packaged paymen t for all nonpass- through diagnostic radiopharmaceuticals and contrast agents, regardless of their per day costs, contributedCMS-1525-P 351 significantly to expanding the size of the O PPS payment bundles and is consistent with the principles of a prospective payment system. As discussed in more detail in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68645 through 68649), we presented several reasons suppo rting our initial policy to package payment of diagnostic radiopharmaceuticals and contrast agents into their associated procedures on a claim. Specifically, we stated that we believed packaging was appropriate because: (1) th e statutorily required OPPS drug packaging threshold has expired; (2) we believe thatdiagnostic radiopharmaceuticals and contrast agents function effectively as supplies that enable the provisio n of an independent service; and (3) section 1833(t) (14)(A)(iii) of the Act requires that payment for specified covered outpatient drugs (SCODs) be set pr ospectively based on a measure of average hospital acquisition cost. For these reasons, we believe it is appropria te to continue to treat diagnostic radiopharmaceuticals and cont rast agents differently from other SCODs for CY 2012. Therefore, we are proposing to continue packaging payment for all contrast agents and diagnostic radiopharmaceuticals, coll ectively referred to as “policy-packaged” drugs, regardless of their per day costs, for CY 2012. We al so are proposing to continue to package the payment for diagnostic radi opharmaceuticals into the payment for the associated nuclear medicine procedure and to package the payment for contrast agents into the payment of the associated echocar diography imaging procedure, regardless of whether the agent met the OPPS drug packagi ng threshold. We refer readers to the CY 2010 OPPS/ASC final rule with comment pe riod for a detailed discussion of nuclear medicine and echocardiography services (74 FR 35269 through 35277).CMS-1525-P 352In CY 2009, we adopted a final policy to package payment for all nonpassthrough implantable biologicals that are surg ically inserted or implanted (through a surgical incision or a natural orifice) like ou r longstanding policy that packaged payment for all implantable nonbiological devices wit hout pass-through status . We finalized a policy in CY 2010 to package payment for no npass-through implantable biologicals that are surgically inserted or implanted (through a su rgical incision or a natural orif ice) into the body, considering them to be devices. Fo r CY 2012, we are proposing to continue to package payment for nonpass-through implantable biologicals that are surgically inserted or implanted (through a surgical incision or a natural orific e) into the body, considering them to be devices. Three of the products with expiring pass-thr ough status for CY 2012 are biologicals that, accordi ng to their FDA-approved indica tions, are only surgically implanted. These products are describe d by HCPCS codes C9361 (Collagen matrix nerve wrap (NeuroMend Collagen Nerve Wrap), per 0.5 centimeter length), C9362 (Porous purified collagen matrix bone voi d filler (Integra Mozaik Osteoconductive Scaffold Strip), per 0.5 cc), and C9364 (P orcine implant, Permacol, per square centimeter). Like the two implantable biolog icals with expiring pa ss-through status in CY 2011 that were discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71948 through 71950), we believe that th e three biologicals specified above with expiring pass-through status for CY 2012 differ from other biologicals paid under the OPPS in that they specifically function as surg ically implanted devices. As a result of our proposed packaged payment methodology for nonpass-through implantable biologicals, we are proposing to packag e payment for HCPCS codes C9361, C9362, andCMS-1525-P 353 C9364 and assign them status indicator “N” for CY 2012. In addition, any new biologicals without pass-through st atus that are surgically in serted or implanted (through a surgical incision or a natu ral orifice) would be packaged in CY 2012. Moreover, for nonpass-through biologicals that may sometimes be used as implantable devices, we continue to instruct hospitals to not bill separately for the HCPCS codes for the products when used as implantable devices. This repo rting ensures that the costs of these products that may be, but are not always, used as im planted biologicals are appropriately packaged into payment for the associated implantation procedures. 3. Proposed Payment for Drugs and Biologica ls without Pass-Through Status That Are Not Packaged a. Proposed Payment for Specified Cove red Outpatient Drugs (SCODs) and Other Separately Payable and Packaged Drugs and Biologicals Section 1833(t)(14) of the Act de fines certain separately payable radiopharmaceuticals, drugs, and biologicals and mandates specific payments for these items. Under section 1833(t)(14 )(B)(i) of the Act, a “specified covered outpatient drug” is a covered outpatient drug, as defined in section 1927(k)(2) of the Act, for which a separate APC has been established and that e ither is a radiopharmac eutical agent or is a drug or biological for which payment was made on a pass-through basis on or before December 31, 2002. Under section 1833(t)(14)(B )(ii) of the Act, certain drugs and biologicals are designated as exceptions and are not included in the definition of “specified covered outpatient drugs,” known as SCODs. These exceptions are--CMS-1525-P 354

● A drug or biological for which payment is first made on or after January 1, 2003, under the transitional pass-through payment provision in section 1833(t)(6) of the Act.

● A drug or biological for which a temporary HCPCS code has not been assigned.

● During CYs 2004 and 2005, an orphan drug (as designated by the Secretary). Section 1833(t)(14)(A)(iii) of the Ac t requires that payment for SCODs in CY 2006 and subsequent years be equal to th e average acquisition cost for the drug for that year as determined by the Secretary, su bject to any adjustment for overhead costs and taking into account the hospital acquis ition cost survey data collected by the Government Accountability Office (GAO) in CYs 2004 and 2005, and later periodic surveys conducted by the Secretary as set forth in the statute. If hos pital acquisition cost data are not available, the law requires that payment be equal to payment rates established under the methodology described in section 1842(o), section 1847A, or section 1847B of the Act, as calculated and adjusted by the Secretary as necessary. Most physician Part B drugs are paid at ASP+6 pe rcent pursuant to sec tion 1842(o) and section 1847A of the Act. Section 1833(t)(14)(E ) of the Act provides for an adjustment in OPPS payment rates for overhead and related expenses, such as pharmacy services and handling costs. Section 1833(t)(14)(E)(i) of the Act required MedPAC to study pharmacy overhead and related expenses and to make recommendations to the Secretary regarding whether, and if so how, a payment adjustment should be made to compensate hospitals for overhead andCMS-1525-P 355 related expenses. Section 1833(t) (14)(E)(ii) of the Ac t authorizes the Se cretary to adjust the weights for ambulatory procedure classifica tions for SCODs to take into account the findings of the MedPAC study. In the CY 2006 OPPS proposed rule ( 70 FR 42728 through 42731), we discussed the June 2005 report by MedPAC regardi ng pharmacy overhead costs in HOPDs and summarized the findings of that study:

● Handling costs for drugs, biological s, and radiopharmaceuticals administered in the HOPD are not insignificant;

● Little information is available ab out the magnitude of pharmacy overhead costs;

● Hospitals set charges for drugs, biol ogicals, and radiopharmaceuticals at levels that reflect their respec tive handling costs; and

● Hospitals vary considerably in their li kelihood of providing se rvices that utilize drugs, biologicals, or radiopharmaceutic als with different handling costs. As a result of these findings, MedPAC developed seven drug categories for pharmacy and nuclear medicine handling cost s based on the estimated level of hospital resources used to prepare the products (70 FR 42729). Associated with these categories were two recommendations for accurate paym ent of pharmacy overhead under the OPPS. 1. CMS should establish separate, budge t neutral payments to cover the costs hospitals incur for handling separate ly payable drugs, biologicals, and radiopharmaceuticals.CMS-1525-P 356 2. CMS should define a set of handling fee APCs that group drugs, biologicals, and radiopharmaceuticals based on attributes of the products that affect handling costs; CMS should instruct hospitals to submit char ges for these APCs and base payment rates for the handling fee APCs on submitted charges reduced to costs. In response to the MedPAC findings, in the CY 2006 OPPS proposed rule (70 FR 42729), we discussed our belief that, because of the varied handling resources required to prepare different forms of drugs , it would be impossible to exclusively and appropriately assign a drug to a certain overhea d category that would apply to all hospital outpatient uses of the drug. Therefore, our CY 2006 OPPS proposal included a proposal to establish three distinct Level II HCPC S C-codes and three corresponding APCs for drug handling categories to differentiate overhead costs for drugs and biologicals (70 FR 42730). We also proposed: (1) to combine several overhead categories recommended by MedPAC; (2) to establish three drug handling categories, as we believed that larger groups would minimize th e number of drugs that may fit into more than one category and would lessen any undesi rable payment policy in centives to utilize particular forms of drugs or specific prepar ation methods; (3) to collect hospital charges for these HCPCS C-codes for 2 years; and (4) to ultimately base payment for the corresponding drug handling APCs on CY 2006 claims data available for the CY 2008

OPPS. In the CY 2006 OPPS final rule with comment period (70 FR 68659 through 68665), we discussed the public comments we received on our proposal regarding pharmacy overhead. The overwhelming majo rity of commenters did not support ourCMS-1525-P 357 proposal regarding pharmacy overhead and urge d us not to finalize this policy, as it would be administratively burdensome for hos pitals to establish charges for HCPCS codes for pharmacy overhead and to report them . Therefore, we did not finalize this proposal for CY 2006. Instead, we established payment for separately payable drugs and biologicals at ASP+6 percent, which we calcu lated by comparing the estimated aggregate cost of separately payable drugs and biologi cals in our claims data to the estimated aggregate ASP dollars for separately payabl e drugs and biologicals, using the ASP as a proxy for average acquisition cost (70 FR 68642). Hereinafter, we refer to this methodology as our standard drug payment methodology. We concluded that payment for drugs and biologicals and pharmacy overh ead at a combined ASP+6 percent rate would serve as an acceptable proxy for the combined acquisition and overhead costs of each of these products. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68091), we finalized our proposed policy to provide a single payment of ASP+6 percent for the hospital’s acquisition cost for the drug or biological and all associated pharmacy overhead and handling costs. The ASP+6 percen t rate that we finalized was higher than the equivalent average ASP-based amount cal culated from claims of ASP+4 percent according to our standard drug payment methodology, but we adopted payment at ASP+6 percent for stability while we continued to examine the issue of the costs of pharmacy overhead in the HOPD and awaited the accumulati on of CY 2006 data as discussed in the prior year’s rule.CMS-1525-P 358 In the CY 2008 OPPS/ASC proposed rule (72 FR 42735), in response to ongoing discussions with interested parties, we proposed to continue our methodology of providing a combined payment rate for drug and biological acquisition and pharmacy overhead costs while continuing our efforts to improve the available data. We also proposed to instruct hospitals to remove the pharmacy overhead charge for both packaged and separately payable drugs and biologicals fr om the charge for the drug or biological and report the pharmacy overhead charge on an uncoded revenue code line on the claim. We believed that this would provide us with an avenue for collecting pharmacy handling cost data specific to drugs in order to package the overhead costs of these items into the associated procedures, most likely drug administration servi ces. Similar to the public response to our CY 2006 pharmacy overhead proposal, the overwhelming majority of commenters did not support our CY 2008 proposal and urged us to not finalize this policy (72 FR 66761). At its September 2007 mee ting, the APC Panel recommended that hospitals not be required to separately report charges for pharmacy overhead and handling and that payment for overhead be in cluded as part of drug payment. The APC Panel also recommended that CMS continue to evaluate alternative methods to standardize the capture of pharmacy overhead costs in a manner that is simple to implement at the organizational level (72 FR 66761). Because of concerns expressed by the APC Panel and public commenters, we di d not finalize the proposal to instruct hospitals to separately re port pharmacy overhead charges for CY 2008. Instead, in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66763), we finalized a policy of providing payment for separately payable drugs and biologicals and theirCMS-1525-P 359 pharmacy overhead at ASP+5 percent as a transition from their CY 2007 payment of ASP+6 percent to payment based on the e quivalent average ASP-based payment rate calculated from hospital claims according to our standard drug payment methodology, which was ASP+3 percent for the CY 2008 OPPS /ASC final rule with comment period. Hospitals continued to include charges fo r pharmacy overhead costs in the line-item charges for the associated drugs reported on claims. For CY 2009, we proposed to pay separa tely payable drugs and biologicals at ASP+4 percent, including both SCODs and other drugs without CY 2009 OPPS pass-through status, based on our standa rd drug payment methodology. We also continued to explore mechanisms to improve th e available data. We proposed to split the “Drugs Charged to Patients” cost center into two cost centers: one for drugs with high pharmacy overhead costs and one for dr ugs with low pharmacy overhead costs (73 FR 41492). We noted that we expected that CCRs from th e proposed new cost centers would be available in 2 to 3 y ears to refine OPPS drug cost estimates by accounting for differential hospital markup pr actices for drugs with high and low overhead costs. After consideration of th e public comments received and the APC Panel recommendations, we finalized a CY 2009 policy (73 FR 68659) to provide payment for separately payable nonpass-through drugs and biologicals based on costs calculated from hospital claims at a 1-year transitional rate of ASP+4 percent, in the context of an equivalent average ASP-based payment rate of ASP+2 percent calculated according to our standard drug payment methodology from the final rule claims data and cost report data. We did not finalize our proposal to split the single standard “Drugs Charged toCMS-1525-P 360 Patients” cost center into two cost centers largely due to concerns raised by hospitals about the associated admini strative burden. Instead, we indicated in the CY 2009 OPPS/ASC final rule with co mment period (73 FR 68659) that we would continue to explore other potential appr oaches to improve our dr ug cost estimation methodology, thereby increasing payment accuracy for se parately payable drugs and biologicals. In response to the CMS proposals for the CY 2008 and CY 2009 OPPS, a group of pharmacy stakeholders (hereinafter refe rred to as the pharmacy stakeholders), including some cancer hospita ls, some pharmaceutical manuf acturers, and some hospital and professional associations, commented th at CMS should pay an acquisition cost of ASP+6 percent for separately payable drugs, should substitute ASP+6 percent for the packaged cost of all packaged drugs and biologicals on procedure claims, and should redistribute the difference between the aggregate estimated packaged drug cost in claims and payment for all drugs, including packag ed drugs at ASP+6 percent, as separate pharmacy overhead payments for separately pa yable drugs. They i ndicated that this approach would preserve the aggregate drug cost observed in the claims data, while significantly increasing payment accuracy for individual drugs and procedures by redistributing drug cost from packaged drugs. Their suggested approach would provide a separate overhead payment for each separately payable drug or biological at one of three different levels, depending on the pharmacy stakeholders’ assessment of the complexity of pharmacy handling associated with each specific drug or biological (73 FR 68651 through 68652). Each separately payable dr ug or biological HC PCS code would be assigned to one of the thr ee overhead categories, and the separate pharmacy overheadCMS-1525-P 361 payment applicable to the category would be made when each of the separately payable drugs or biologicals was paid. In the CY 2010 OPPS/ASC proposed rule (74 FR 35332), we acknowledged the limitations of our data and our av ailability to find a method to improve that data in a way that did not impose unacceptable administra tive burdens on providers. Accepting that charge compression was a reasonable but unverifiable supposition, we proposed to redistribute between one-third and one-half of the estimated overhead cost associated with coded packaged drugs a nd biologicals with an ASP, wh ich resulted in our proposal to pay for the acquisition and pharmacy overh ead costs of separately payable drugs and biologicals that did not have pass-through pa yment status at ASP+4 percent. We calculated estimated overhead cost for c oded packaged drugs and biologicals by determining the difference between the aggreg ate claims cost for coded packaged drugs and biologicals with an ASP and the A SP dollars (ASP multiplied by the drug’s or biological’s units in the claims data) for t hose same coded drugs and biologicals; this difference was our estimated overhead cost for coded packaged drugs and biologicals. In our rationale described in the CY 2010 O PPS/ASC proposed rule (74 FR 35326 through 35333), we stated that we believed that approximately $150 million of the estimated $395 million total in pharmacy overhead co st, specifically between one-third and one-half of that cost, included in our cl aims data for coded packaged drugs and biologicals with reported ASP data should be at tributed to separately payable drugs and biologicals and that the $150 million serves as the adjustment for the pharmacy overhead costs of separately payable drugs and biologicals. As a result, we also proposed to reduceCMS-1525-P 362 the costs of coded drugs and bi ologicals that are packaged into payment for procedural APCs to offset the $150 million adjustment to payment for separately payable drugs and biologicals. In addition, we proposed that a ny redistribution of pharmacy overhead cost that may arise from the CY 2010 final rule data would occur only from some drugs and biologicals to other drugs and bi ologicals, thereby maintaining the estimated total cost of drugs and biologicals that we calculate based on the charges and costs reported by hospitals on claims and cost reports. As a result of this approach, no redistribution of cost would occur from other services to drugs and biologicals or vice versa. Using our CY 2010 proposed rule da ta, and applying our longstanding methodology for calculating the total cost of se parately payable drugs and biologicals in our claims compared to the ASP dollars fo r the same drugs and biologicals, without applying the proposed overhead cost redistribution, we determined that the estimated aggregate cost of separatelypayable drugs and biologicals (status indicators “K” and “G”), including acquisition and pharmacy ove rhead costs, was equivalent to ASP-2 percent. Therefore, under the standa rd methodology for establishing payment for separately payable drugs and biologicals, we would have paid for those drugs and biologicals at ASP-2 percent for CY 2010, thei r equivalent average ASP-based payment rate. We also determined that the estimate d aggregate cost of coded packaged drugs and biologicals with an ASP (status indicato r “N”), including acquisition and pharmacy overhead costs, was equivalent to ASP+247 percent. While we had no way of assessing whethe r this current distribution of overhead cost to coded packaged drugs and biologi cals with an ASP was appropriate, weCMS-1525-P 363 acknowledged that the established method of converting billed char ges to costs had the potential to “compress” the calculated costs to some degree. Furthe r, we recognized that the attribution of pharmacy overhead costs to packaged or separate ly payable drugs and biologicals through our standard drug payment methodology of a combined payment for acquisition and pharmacy overhead costs depends , in part, on the treatment of all drugs and biologicals each year under our annual drug packaging threshold. Changes to the packaging threshold may result in changes to payment for the overhead cost of drugs and biologicals that do not reflect actual changes in hospital pharmacy overhead cost for those products. For these reasons, we stated that we believed some portion, but not all, of the total overhead cost that is associated w ith coded packaged drugs and biologicals (the difference between aggregate cost for those drugs and biologicals on the claims and ASP dollars for the same drugs and biologi cals), based on our standard drug payment methodology, should, at least for CY 2010, be attr ibuted to separately payable drugs and biologicals. We acknowledged that the observed combined payment for acquisition and pharmacy overhead costs of ASP- 2 percent for separately pa yable drugs and biologicals may be too low and ASP+247 percent for coded packaged drugs and biologicals with reported ASP data in the CY 2010 claims data may be too high (74 FR 35327 and 35328). In addition, we stated that we be lieved that the pharmacy stakeholders’ recommendation to set packaged drug and bi ological dollars to ASP+6 percent was inappropriate, given our understanding that an equal allocation of indirect overhead costs among packaged and separately payable drugs and biologicals would lead to a higherCMS-1525-P 364 observed ASP+X percent than ASP+6 percen t for packaged drugs and biologicals. Further, we indicated that indirect overhead costs that are common to all drugs and biologicals have no relationship to the cost of an individual drug or biologi cal or to the complexity of the handling, preparation, or stor age of that individual drug or biological. Therefore, we indicated that we believed that indirect overhead cost alone for an inexpensive drug or biological which would be packaged could be far in excess of the ASP for that inexpensive product. We also ex plained that layered on these indirect costs are direct costs of staff, supp lies, and equipment that are dire ctly attributable only to the storage, handling, preparation, and distribu tion of drugs and biologicals and which do vary, sometimes considerably, depending upon the drug being furnished. Therefore, we stated that a middle ground would represent the most accurate redistribution of pharmacy overhead cost. Our assumption was that approximately one-third to one-half of the total pharmacy ove rhead cost currently a ssociated with coded packaged drugs and biologicals in the CY 2008 claims data offered a more appropriate allocation of drug and biological cost to separately payable drugs and biologicals. One third of the $395 million of pharmacy overhead co st associated with packaged drugs and biologicals was $132 million, wher eas one-half was $198 million. Within the one-third to one-half parameters, we proposed that reallocating $150 million in drug and biological cost obser ved in the claims data from coded packaged drugs and biologicals with an ASP to separately payable drugs and biologicals for CY 2010 would more appropriately distribute pharmacy overhead cost among packaged and separately payable drugs and bi ologicals. Based on th is redistribution, weCMS-1525-P 365 proposed a CY 2010 payment rate for separate ly payable drugs and biologicals of ASP+4 percent. Redistributing $150 million represente d a reduction in cost of coded packaged drugs and biologicals with reported ASP data in the CY 2010 proposed rule claims data of 27 percent. We also proposed that any redistribu tion of pharmacy overhead cost that may arise from CY 2010 final rule data would occu r only from some drugs and biologicals to other drugs and biologicals, thereby maintaining the estimated total cost of drugs and biologicals in our claims data (no redistribution of cost woul d occur from other services to drugs and biologicals or vice versa). We further proposed that the claims data for 340B hospitals be included in the calculation of payment for drugs and biologicals under the CY 2010 OPPS, and that hospitals that part icipate in the 340B pr ogram would be paid the same amounts for separately payable drugs and biologicals as hospitals that do not participate in the 340B program (74 FR 35332 through 35333). Finally, we proposed that, in accordance with our standard drug payment methodology, the estimated payments for separately payable drugs and biologi cals would be taken into account in the calculation of the weight scaler that would apply to the relati ve weights for all procedural services (but would not apply to separately payable drugs and biologicals) paid under the OPPS, as required by section 1833(t )(14)(H) of the Act (74 FR 35333). In the CY 2010 OPPS final rule with comment period, we adopted a transitional payment rate of ASP+4 percent based on a pharmacy overhead adjustment methodology for CY 2010 that redistributed $200 million from packaged drug and biological cost to separately payable drug cost. This $ 200 million included the proposed $150 millionCMS-1525-P 366 redistribution from the pharmacy overhead cost of coded packaged drugs and biologicals for which an ASP is reported and an additional $50 million dollars from the total uncoded drug and biological cost to separately payabl e drugs and biologicals as a conservative estimate of the pharmacy overhead cost of uncoded packaged drugs and biologicals that should be appropriately associ ated with the cost of se parately payable drugs and biologicals (74 FR 60517). We believed that our proposal to reallocate $150 million of costs from coded packaged drugs and biologi cals, or one-third of the pharmacy overhead costs of these products, based upon the claims data available for the CY 2010 final rule, to separately payable drugs and biological s was appropriate (74 FR 60511). We also acknowledged that, to some unknown extent , there are pharmacy overhead costs being attributed to the items and services repor ted under the pharmacy revenue code without HCPCS codes that are likely pharmacy ove rhead for separately payable drugs. Therefore, we reallocated $50 million or 8 perc ent of the total cost of uncoded packaged drug and biological cost in order to repres ent the pharmacy overhead cost of uncoded packaged drugs and biologicals that should be appropriately associated with the cost of separately payable drugs and biologicals. This was an intentionally conservative estimate as we could not identify definitive evidence that uncoded packaged drug and biological cost included a pharmacy overhead amount compar able to that of coded packaged drugs and biologicals with an ASP. We stated that we could notknow the amount of overhead associated with these drugs without making significant assumptions about the amount of pharmacy overhead cost associated with th e drug and biologicals captured by these uncoded packaged drug costs (74 FR 60511 through 60513).CMS-1525-P 367 We noted that our final CY 2010 payment policy for separately payable drugs and biologicals at ASP+4 percent fell within the range of ASP-3 percen t (that would have resulted from no pharmacy overhead cost redi stribution from packaged to separately payable drugs and biologicals), to ASP+7 percent (that would have resulted from redistribution of pharmacy overhead cost ba sed on expansive assumptions about the nature of uncoded packaged drug and biol ogical cost). We finalized a policy of redistributing pharmacy overhead cost from some drugs and biologi cals to other drugs and biologicals, thereby mainta ining the estimated total cost of drugs and biologicals in our claims data (no redistribu tion of cost would occur from other services to drugs and biologicals or vice versa). We also reiterated our commitment to continue in our efforts to refine our analyses. For CY 2011, we continued the CY 2010 pharmacy overhead adjustment methodology (74 FR 60500 through 60512). We determ ined the total cost of separately payable drugs using CY 2009 claims data and compared these costs to the ASP dollars (April 2010 ASP quarterly payment rates multip lied by units for the separately payable drugs and biologicals in the claims data) for the same drugs and biologicals. We determined that the total estimated payment for separately payable drugs and biologicals (status indicators “K” and “G”), including ac quisition and pharmacy overhead costs, was ASP-1 percent, which also would be the A SP-based payment rate under the standard methodology that we established in CY 2006 (75 FR 46275). Additionally, we determined that the total estimated aggregat e cost for packaged drugs and biologicals with a HCPCS code for which manufacturers report ASP data (status indicator “N”),CMS-1525-P 368 including acquisition and pharmacyoverhead costs, was equivalent to ASP+296 percent. Finally, we determined that the total es timated cost for both packaged drugs and biologicals with a HCPCS code and separate ly payable drugs and biologicals (status indicators “N,” “K,” and “G”) for which we also have ASP data, including acquisition and pharmacy overhead costs, was ASP+13 percent. Consistent with our supposition that the combined payment for average acquisition and pharmacy overhead costs under our standard methodology may understate the co st of separately payable drugs and biologicals and related pharmacy overhead for those drugs and biologicals, we redistributed $150 million from the pharmacy ove rhead cost of coded packaged drugs and biologicals with an ASP and redistributed $50 million from the cost of uncoded packaged drugs and biologicals, for a total redistribu tion of $200 million from costs for coded and uncoded packaged drugs to separately payable drugs and biologicals, with the result that we pay separately paid drugs and biologi cals at ASP+5 percent for CY 2011. The redistribution amount of $150 million in overhead cost from coded packaged drugs and biologicals with an ASP and $50 million in costs from uncoded packaged drugs and biologicals without an ASP we re within the parameters established in the CY 2010 OPPS/ASC final rule. In additi on, as in prior years, we described some of our work to improve our analyses during the preceding year, and reiterated our commitment to continue to refine our drug pricing methodology. b. Proposed Payment Policy Section 1833(t)(14)(A)(iii) of the Act, as describe d above, continues to be applicable to determining payments for SCODs for CY 2012. This provision requiresCMS-1525-P 369 that payment for SCODs be equal to the averag e acquisition cost for th e drug for that year as determined by the Secretary, subject to any adjustment for overhead costs and taking into account the hospital acqui sition cost survey data co llected by the GAO in CYs 2004 and 2005 and later periodic surveys conducted by th e Secretary as set forth in the statute. If hospital acquisition cost data are not avai lable, section 1833(t)( 14)(A)(iii)(II) of the Act requires that payment be equal to pa yment rates establis hed under the methodology described in section 1842(o) of the Act, section 1847A of the Act (ASP+6 percent as paid for physician Part B drugs), or section 1847B of the Act (CAP), as the case may be, as calculated and adjusted by the Secretary as necessary. In accordance with sections 1842(o) and 1847A of the Act, payments fo r most Medicare non-OPPS Part B drugs furnished on or after January 1, 2005, are paid based on the ASP methodology. Medicare Part B drugs generally fall in to three categories: physicia n-administered drugs (drugs furnished incident to a physician's serv ice), drugs delivered through DME (drugs furnished under the durable medical equipmen t benefit), and drugs specifically covered by a statutory provision (certainoral anti-cancer and immuno suppressive drugs). Section 1833(t)(14)(E)(ii) of the Act authorizes, but does not require, the Secretary to adjust APC weights to take into account the 2005 MedPAC report relating to overhead and related expenses, such as pharmacy services and handlin g costs. As discussed in V.B.3.a. of this proposed rule, since CY 2006, we have used A SP data and costs estimated from charges on hospital claims data as a proxy for the sum of the average hospital acquisition cost that the statute requires for payment of SCODs and the associated pharmacy overhead cost in order to establish a combined payment rate for acquisition cost and pharmacy overhead.CMS-1525-P 370 Prior to CY 2010, we applied this methodology to payment for all separately payable drugs and biologicals without pass-through st atus, including both SC ODs and other drugs and biologicals that do not meet the statutory definition of SCODs. For the CY 2010 OPPS, as part of our ongoing efforts to improve the validity of our payments, we revised the standard me thodology to include an adjustment for pharmacy overhead. As explained previousl y, we have acknowledged, and continue to believe, that the established me thod of converting billed char ges to costs had the potential to “compress” the calculated costs to some degree. We recognized that the attribution of pharmacy overhead costs to packaged or se parately payable drugs and biologicals through our standard drug payment methodol ogy of a combined payment for acquisition and pharmacy overhead costs depends, in pa rt, on the treatment of all drugs and biologicals each year under our annual drug packaging threshold. To some unknown extent, we believe that some pharmacy overhead costs attributed to packaged drugs and biologicals may include pharmacy overhead co sts for separately payable drugs. For this CY 2012 OPPS/ASC proposed rule, we are proposing to continue to use our standard methodology for de termining the total cost of separately payable drugs and biologicals in our CY 2010 claims data and comparing these costs to the ASP dollars (April 2011 ASP quarterly payment rates multip lied by units for the separately payable drugs and biologicals in the claims data) for the same drugs and biologicals. We determined that the total estimated payment for separately payable drugs and biologicals (status indicators “K” and “G”), including ac quisition and pharmacy overhead costs, is ASP-2 percent, which also would be the A SP-based payment rate under the standardCMS-1525-P 371 methodology that we established in CY 2006 (75 FR 46275). Additionally, we determined that the total estimated aggreg ate cost for packaged drugs and biologicals with a HCPCS code for which manufacturers report ASP data (status indicator “N”), including acquisition and pharmacyoverhead costs, is equiva lent to ASP+188 percent. Finally, we determined that the total es timated cost for both packaged drugs and biologicals with a HCPCS code and separate ly payable drugs and biologicals (status indicators “N,” “K,” and “G”) for which we also have ASP data, including acquisition and pharmacy overhead costs, is ASP+11 percen t. Table 31 below displays our findings with regard to the percentage of ASP in comparison to the cost for packaged coded drugs and biologicals and for separately payable c oded drugs and biologicals before application of the proposed overhead adjustment methodology.

TABLE 31.—CY 2012 PROPOSED RU LE DATA: ASP+X CALCULATION UNDER STANDARD METHODOLOGY

Total ASP Dollars for Drugs and Biologicals in Claims Data (in millions)* Total Cost of Drugs and Biologicals in Claims Data (in millions)** Ratio of Cost to ASP (column 3/column 2) ASP+X Percent

Uncoded Packaged Pharmaceutical Revenue Code Costs Unknown $502*** Unknown Unknown

Coded Packaged Drugs and Biologicals with a reported ASP $244 $705 2.88 ASP+188CMS-1525-P 372 Separately Payable Drugs and Biologicals with a reported ASP $3,536 $3,476 0.98 ASP-2

All Coded Drugs and Biologicals with a reported ASP $3,780 $4,181 1.11 ASP+11

*Total April 2011 ASP dollars (ASP multiplied by drug or biologicals units in CY 2010 claims) for drugs and biologicals with a HCPCS code and ASP information. **Total cost in the CY 2010 claims data for drugs and biologicals ***Pharmacy revenue code costs without HCPCS codes.

We acknowledge that the combined payment for average acquisition and pharmacy overhead costs under our standard methodology may understate the cost of separately payable drugs and biologicals a nd related pharmacy overhead for those drugs and biologicals. Specificall y, we recognize that payment at ASP-2 percent for such costs may not be sufficient. We also acknowle dge that ASP +188 per cent may overstate the combined acquisition and pharmacy overhead co st of packaged drugs and biologicals. Therefore, given this issue, for CY 2012, we are proposing to c ontinue the CY 2010 and CY 2011 overhead adjustment methodology, wh ich redistributes $200 million in cost from packaged drugs with an ASP and uncoded packaged drugs, as first implemented in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60501 through 60517). For CY 2012, because we are proposing to continue to make an overhead adjustment for another year, we believe it is appropriate to account for inflation that has occurred since the overhead redistribu tion amount of $200 million was applied in CY 2011. Therefore, we are proposing to appl y an inflation allowance to account for inflation and changes in the prices of pha rmaceuticals in the overall economy. We areCMS-1525-P 373 proposing to adjust the overhead redistribu tion amount of $200 million using the PPI for Pharmaceuticals for Human Use. The PPI for Pharmaceuticals for Human Use (Prescription) (Bureau of Labor Statistic s (BLS) series code WPUSI07003), provided through CMS’ Office of the Actuary (OACT) is a price series that reflects price changes associated with the average mix of all pharm aceuticals in the overall economy. We refer to this series generally as the PPI for Prescrip tion Drugs. We believe th at this price series is appropriate to use to update the overh ead redistribution amount because the PPI for Prescription Drugs is publicly available a nd regularly published and because we have successfully utilized the PPI fo r Prescription Drugs for the pa st 5 years to update the drug packaging threshold as described in s ection V.B.2.a. of this proposed rule. In order to apply the infla tion allowance to the overh ead redistribution amount for CY 2012, we used the most recent forecast of yearly index levels provided in the PPI for Prescription Drugs to calculate an upda ted overhead redistribution amount. After adjusting the $200 million overhead redistributi on amount for inflation using the PPI for Prescription Drugs, we determined that $161 m illion would need to be redistributed from coded packaged drugs and biologicals with reported ASP data and $54 million would need to be redistributed from the cost of uncoded packaged drugs and biologicals without an ASP to separately payable drugs and biol ogicals. The proposed redistribution amount of $161 million in overhead cost from coded pack aged drugs and biologicals is within the redistribution parameters established in th e CY 2010 OPPS/ASC final rule with comment period of roughly one-third to one-half of overhead cost incoded packaged drugs and biologicals. The total proposed redistri bution amount from both coded and uncodedCMS-1525-P 374 packaged drugs and biologicals to separatelypaid drugs and biologicals would therefore be $215 million. Having determined to redistribute overhead, we also continue to believe that the methodology to redi stribute a portion of drug overhead cost from packaged coded and uncoded drugs and biologicals to separate ly payable drugs and biologicals while keeping the total cost of drugs and biologicals in the claims da ta constant continues to be appropriate for the reasons set forth in th e CY 2010 OPPS/ASC final rule with comment period (74 FR 60501 through 60517). Therefor e, for CY 2012, we are proposing to redistribute a total overhead redistribution amount, adjusted for inflation, of $215 million from coded and uncoded packaged drugs and bi ologicals to separately payable drugs and biologicals. In the CY 2010 OPPS/ASC final rule w ith comment period, we reallocated $150 million in overhead cost from coded packag ed drugs and biologicals with an ASP to separately payable drugs and biologicals wi th an ASP, or one-third of the pharmacy overhead cost of these products based upon th e claims data available for the CY 2010 final rule. In addition, we noted that some of the cost associated with uncoded packaged drugs and biologicals was appropriate to redi stribute to separately payable drugs and biologicals. Therefore, we ma de a conservative estimate, as compared with the case of coded packaged drugs and biologicals with anASP for which we had a specific pharmacy overhead cost estimate in relationship to their known ASPs, and reallocated $50 million, or 8 percent of the total co st of uncoded packaged drugs and biologicals with no ASP. We made the assumption that whatever pharmacy overhead cost inappropriatelyCMS-1525-P 375 associated with uncoded packaged drugs and bi ologicals would not be less than 8 percent of total uncoded drugs and biologicals cost. For this CY 2012 OPPS/ASC proposed ru le, we note that continuing to redistribute $200 million (or $215 million with the adjustment for inflation) falls within the parameters originally established in the CY 2010 OPPS/ASC final rule with comment period. A redistribution amountof $161 million in overhead cost from coded packaged drugs and biologicals with an ASP or approxi mately 35 percent falls within one-third to one-half of the estimated pharmacy overhead cost. In addition, we note that a redistribution amount of $54 million in overhea d cost from uncoded packaged drugs and biologicals, or approximately 11 percent, is not less than 8 percent of the total cost of uncoded packaged drugs and biologicals. Therefore, our propos al to redistribute $215 million is consistent with the overhead adjustment methodology first implemented in CY 2010. We continue to believe that a middle ground of approximately one-third to one-half of the total pharmacy overhead cost currently associated with coded packaged drugs and biologicals in the CY 2010 claims data represents the most accurate redistribution of pharmacy overhead cost. We estimate the overhead cost for coded packaged drugs to be $544 million ($705 million in total cost for coded packaged drugs and biologicals with a reported ASP, less $161 million in total ASP dollars for coded packaged drugs and biologicals with a reported ASP). As we did in CY 2010 and CY 2011, we are proposing for CY 2012 that any redistribution of pharmacy overhead cost would occur only among drugs and biologicals in our claims data, that no redi stribution of cost would occur from otherCMS-1525-P 376 services to drugs and biologicals or vice versa. We believe that redistributing $215 million from packaged to separately payable drugs and biologicals, which includes an adjustment for inflation, is an appropriate redistribution of pharm acy overhead costs to address any charge compression in the sta ndard methodology. This would result in a proposed CY 2012 payment rate for separatelypayable drugs and bi ologicals of ASP+4 percent. We note that, in past years, th e proposed ASP+X amount decreased by at least 1 percentage point when we updated the ASP data, claims data, and cost report data between the proposed rule and the final rule with comment period. Therefore, it is possible that the proposed methodology woul d result in an ASP+X amount that is different from ASP+4. As indicated in Table 31 above, if we we re to propose to establish payment for separately payable drugs and biologicals under the standard methodology established in CY 2006 without applying a pharmacy overhead adjustment, we would have to propose to pay for separately payable drugs and biologi cals at ASP-2 percent. However, because we are concerned about the possibility of unde rpaying for separately payable drugs and biologicals, we believe that a pharmacy ove rhead adjustment using a redistribution methodology for determining the amount of paymen t for drugs and biologicals, as we did for CY 2011, is appropriate for CY 2012. We acknowledge that the observed ASP-2 percent may reflect some amount of charge co mpression and variability attributable to the choice of a packaging threshold.CMS-1525-P 377

TABLE 32.—CY 2012 PROPOSED PHARMACY OVERHEAD ADJUSTMENT PAYMENT METHODOLOGY: ASP+X CALCULATION

Total ASP Dollars for Drugs and Biologicals in Claims Data (in millions)* Total Cost of Drugs and Biologicals in Claims Data after adjustment

(in millions)** Ratio of Cost to

ASP (column 3/column 2) ASP+X Percent

Uncoded Packaged Pharmaceutical Revenue Code Costs Unknown $448*** Unknown Unknown Coded Packaged Drugs and Biologicals with a reported ASP $244 $544 2.23 ASP+123 Separately Payable Drugs and Biologicals with a reported ASP $3,536 $3,691 1.04 ASP+4 All Coded Drugs and Biologicals with a reported ASP $3,780 $4,181 1.11 ASP+11 *Total April 2011 ASP dollars (ASP multiplied by drug or biological units in CY 2010 claims) for drugs and biologicals with a HCPCS code and ASP information. **Total cost in the CY 2010 claims data for drugs and biologicals ***Pharmacy revenue code costs without HCPCS codes. We note that although it is CMS’ longsta nding policy under the OPPS to refrain from instructing hospitals on th e appropriate revenue code to use to charge for specific services, we continue to encourage hospitals to bill all drugs and bi ologicals with HCPCS codes, regardless of whether they are separate ly payable or packaged, and to ensure that drug costs are completely reported, using appr opriate revenue codes. We note that we make packaging determinations for drugs and biologicals annually based on cost information reported under HCPCS codes, and the OPPS ratesetting is best served when hospitals report charges for all items and services with HCPCS codes when they are available, whether or not Medicare makes se parate payment for the items and services.CMS-1525-P 378 In summary, for the reasons set forth a bove and considering the data limitations we have previously discussed, we are pr oposing to continue our prior CY 2010 and CY 2011 acquisition cost proxy methodology and pharmacy overhead redistribution methodology. In addition, we are proposing to adjust the $200 million redistribution amount finalized in CY 2011 for inflation. Therefore, we are pr oposing to redistribute $161 million in overhead costs from coded packaged drugs and biologicals and $54 million in overhead costs from uncoded packag ed drugs and biologicals to result in $215 million in costs redistributed from packaged coded and uncoded drugs and biologicals to separately payable drugs and biologicals for CY 2012. The proposed redistribution amount of $161 million in overhead cost from coded packaged drugs and biologicals is within the redistribution para meters established in the CY 2010 OPPS/ASC final rule with comment period of roughly one-thi rd to one-half of overhead cost in coded packaged drugs and biologicals. Approxima tely 11 percent of drug cost in uncoded packaged drugs and biologicals would be redi stributed to separately payable drugs for CY 2012, and therefore, this amount continues to be no less than 8 percent of the total uncoded drug and biological cost. The result of this proposed methodology when applied using April 2011 ASPs, data for claims fo r services furnished during CY 2010 and processed through the Common Working File before January 1, 2010, and the most current submitted cost reports as of January 1, 2011, is a proposed ASP+4 percent amount for CY 2012. Further, we are proposing to continue to include the claims data for 340B hospitals in the calculation of payment for drugs and biologi cals under the CY 2012CMS-1525-P 379 OPPS because we believe excluding data from hospitals that part icipate in the 340B program from our ASP+X calculation, but paying those hospitals at that derived payment amount, would effectively redistribute payment to drugs or biologicals from payment for other services under the OPPS. Furthermore, we do not believe it would be appropriate to exclude claims from this subset of hosp itals in the context of a proposed CY 2012 drug and biological payment policy that pays all hos pitals the same rate for separately payable drugs and biologicals (74 FR 60517). In addi tion, we are proposing that 340B hospitals continue to be paid the same amounts for se parately payable drugs and biologicals as hospitals that do not participate in the 340B program for CY 2012 because commenters have generally opposed differential paym ent for hospitals based on their 340B participation status. In addition, we are pr oposing to include claims from 340B hospitals in our assessment of average acquisition cost under section 1833(t)(14)(A )(iii) of the Act. We are proposing that the estimated paym ents for separately payable drugs and biologicals be taken into account in the calculation of the wei ght scaler that would apply to the relative weights for all procedural se rvices (but would not apply to separately payable drugs and biologicals) paid under the OPPS, as required by section 1833(t)(14)(H) of the Act. We note that we continue to pursu e the most appropriate methodology for establishing payment for drugs and biologicals under the OPPS. Because we are always trying to improve the integrity of our da ta, we have previously proposed multiple mechanisms to improve the cost data availa ble to us, but have not implemented those proposals due to hospital concerns about the ad ministrative burden. We continue to beCMS-1525-P 380 interested in developing mechan isms that improve the cost data available to us while minimizing to the extent possible the admini strative burden on hospitals. For the past 3 years, we have proposed an internal ad justment to redistribute an amount from packaged coded and uncoded drugs and biologi cals to separately payable drugs and biologicals, because the results of our st andard drug payment methodology are unlikely to accurately reflect the full cost of acqui sition and pharmacy overhead for separately payable and packaged drugs and biologicals due to hospital charging practices and our use of an annual drug packaging threshold. As we continue to work to refine our payment systems, a goal to which we have been consistently committed over the past several years, we encourage public input on determining alternative cost-based methodologies to aid in our ongoing evaluation of alternative cost-based methodologies that could improve upon the current methodology. c. Proposed Payment Policy for Therapeutic Radiopharmaceuticals Beginning in the CY 2005 OPPS final rule with comment period, we exempted radiopharmaceutical manufacturers from repor ting ASP data for all radiopharmaceuticals for payment purposes under the OPPS. (For more information, we refer readers to the CY 2005 OPPS final rule with comment period (69 FR 65811) and the CY 2006 OPPS final rule with comment period (70 FR 68655) .) Consequently, we did not have ASP data for radiopharmaceuticals for consideration for OPPS ratesetting until we began collecting ASP for nonpass-through separately paid therapeutic radiopharmaceuticals for CY 2010. In accordance with section 1833(t)(14)(B )(i)(I) of the Act, we have classified radiopharmaceuticals under the OPPS as SCODs. As such, we have paid forCMS-1525-P 381 radiopharmaceuticals at average acquisition co st as determined by the Secretary and subject to any adjustment for overhead costs. For CYs 2006 and 2007, we used mean unit cost data from hospital claims to determine each radiopharmaceutical’s packaging status and implemented a temporary po licy to pay for separately payable radiopharmaceuticals based on the hospital’ s charge for each radiopharmaceutical adjusted to cost using the hospital’s overall CCR. The methodology of providing separate radiopharmaceutical payment base d on charges adjusted to cost through application of an individual hospital’s overall CCR for CYs 2006 and 2007 was finalized as an interim proxy for average acquisition cost. In CY 2008, we packaged payment for all diagnostic radiopharmaceuticals and we proposed and finalized a methodology to pr ovide prospective paym ent for therapeutic radiopharmaceuticals (defined as those Level II HCPCS c odes that include the term “therapeutic” along with a radiopharmaceutical in their long code descriptors) using mean costs derived from the CY 2006 claims data, where the costs were determined using our standard methodology of applying hospital-specific departmental CCRs to radiopharmaceutical charges, defaulting to hospital-specific overall CCRs only if appropriate departmental CCRs were unavailable (72 FR 66772). Following issuance of the CY 2009 OPPS/ASC proposed rule, secti on 142 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275) amended section 1833(t)(16)(C) of the Act, as amended by section 106(a) of th e Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110–173), to further exte nd the payment period for therapeutic radiopharmaceuticals based on hospitals’ charges adjusted to cost throughCMS-1525-P 382 December 31, 2009. Therefore, for CY 2009, we finalized a policy to continue to pay hospitals for therapeutic radi opharmaceuticals at charges adju sted to cost through the end of CY 2009. For CY 2010, we proposed and finalized a policy to pay for separately paid therapeutic radiopharmaceuticals under the ASP methodology adopted for separately payable drugs and biologicals. We allowe d manufacturers to submit the ASP data in a patient-specific dose or patient-ready form in order to properly calcu late the ASP amount for a given HCPCS code. This resulted inpayment for nonpass-through separately paid therapeutic radiopharmaceuticals at ASP+4 pe rcent for CY 2010 for products for which the manufacturer submitted ASP. We also finalized a policy to base therapeutic radiopharmaceutical payment on CY 2008 mean unit cost data derived from hospital claims if ASP information was unavailable. For CY 2011, we continued to pay for nonpass-through separately paid therap eutic radiopharmaceuticals under the ASP methodology adopted for separately payable drugs and biological s, resulting in a payment rate for nonpass-through separately paid therapeutic radiopharmaceuticals of ASP+5 percent. We also continued to base therapeutic radiopharmaceutical payment on CY 2009 mean unit cost data derived from hospital claims if ASP information was unavailable. We believe that the rationale outlined in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60524 through 60525) for applying the principles of separately payable drug pricing to therapeutic radiopha rmaceuticals continues to be appropriate for nonpass-through separately payable therap eutic radiopharmaceuticals in CY 2012.CMS-1525-P 383 Therefore, we are proposing to continue to pay all nonpass-through, separately payable therapeutic radiopharmaceuticals under the ASP+X payment level established using the proposed pharmacy overhead adjustment based on a redistribution methodology to set payment for separately payable drugs and bi ologicals (proposed at ASP+4 percent, as discussed in section V.B.3.b. of this pr oposed rule) based on ASP information, if available, for a “patient ready” dose and updated on a quarterly basis for products for which manufacturers report ASP data. For a full discussion of how a “patient ready” dose is defined, we refer readers to the CY 2010 OPPS/ASC final rule with comment period (74 FR 60520 through 60521). We also are proposing to rely on CY 2010 mean unit cost data derived from hospital claims data for payment rates for therapeutic radiopharmaceuticals for which ASP data are unavailable and to update the payment rates for separately payable therapeutic radiopharm aceuticals, according to our usual process for updating the payment rates for separate ly payable drugs and biologicals, on a quarterly basis if updated ASP information is available. The proposed CY 2012 payment rates fo r nonpass-through separately payable therapeutic radiopharmaceuticals are included in Addenda A and B to this proposed rule (which is referenced in secti on XVII. of this proposed rule and available via the Internet). 4. Proposed Payment for Blood Clotting Factors For CY 2011, we provided payment for blood clotting factors under the same methodology as other nonpass-th rough separately payable dr ugs and biologicals under the OPPS and continued paying an updated fu rnishing fee. That is, for CY 2011, we provided payment for blood clotting factors unde r the OPPS at ASP+5 percent, plus anCMS-1525-P 384 additional payment for the furnishing fee. We note that when blood clotting factors are provided in physicians’ offices under Medicare Part B and in other Medicare settings, a furnishing fee is also applied to the paym ent. The CY 2011 updated furnishing fee is $0.176 per unit. For CY 2012, we are proposing to pay for blood clotting factors at ASP+4 percent, consistent with our propos ed payment policy fo r other nonpass-through separately payable drugs and biologicals, a nd to continue our policy for payment of the furnishing fee using an updated amount. Our ra tionale for this proposed policy was first articulated in the CY 2006 OPPS final rule with comment period ( 70 FR 68661) and then later discussed in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66765). The proposed furnishing fee upda te is based on the percentage increase in the Consumer Price Index (CPI) for medi cal care for the 12-month period ending with June of the previous year. Because the Bureau of Labor Statistics releases the applicable CPI data after the MPFS and OPPS/ASC proposed rules are published, we are not able to include the actual updated furnishing fee in th e proposed rules. Ther efore, in accordance with our policy, as finalized in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66765), we would announce the actual figure for the percent change in the applicable CPI and the updated furnishing fee calculated based on that figure through applicable program instructions and posting on the CMS Web site at: http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/

.CMS-1525-P 385 5. Proposed Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals with HCPCS Codes, but without OPPS Hospital Claims Data The Medicare Prescription Drug, Impr ovement, and Modernization Act of 2003 (Pub. L. 108-173) does not address the OPPS payment in CY 2005 and after for drugs, biologicals, and radiopharmaceuticals that ha ve assigned HCPCS codes, but that do not have a reference AWP or approval for paym ent as pass-through drugs or biologicals. Because there is no statutory provision that dictated payment for such drugs, biologicals, and radiopharmaceuticals in CY 2005, and because we had no hospital claims data to use in establishing a payment rate for them, we investigated several payment options for CY 2005 and discussed them in detail in the CY 2005 OPPS final rule with comment period (69 FR 65797 through 65799). For CYs 2005 to 2007, we implemented a policy to provide separate payment for new drugs, biologicals, and radiopharmaceutical s with HCPCS codes (specifically those new drug, biological, and radiopharmaceutical HC PCS codes in each of those calendar years that did not crosswalk to predece ssor HCPCS codes) but which did not have pass-through status, at a rate that was equivalent to the payment they received in the physician’s office setting, established in accordance with the ASP methodology for drugs and biologicals, and based on charges adjust ed to cost for radiopharmaceuticals. For CYs 2008 and 2009, we finalized a policy to pr ovide payment for new drugs (excluding contrast agents and diagnostic radiopha rmaceuticals) and biologicals (excluding implantable biologicals for CY 2009) with HC PCS codes, but which did not have passthrough status and were without OPPS hosp ital claims data, at ASP+5 percent andCMS-1525-P 386 ASP+4 percent, respectively, consistent with the final OPPS payment methodology for other separately payable drugs and biologi cals. New therapeutic radiopharmaceuticals were paid at charges adjusted to cost ba sed on the statutory requirement for CY 2008 and CY 2009 and payment for new diagnostic radi opharmaceuticals was packaged in both years. For CY 2010, we continued to provide payment for new drugs (excluding contrast agents), and nonimplantable biologicals with HCPCS codes that do not have pass-through status and are without OPPS hospital claims da ta, at ASP+4 percent, consistent with the CY 2010 payment methodology for other sepa rately payable nonpass-through drugs, and nonimplantable biologicals. We also fina lized a policy to extend the CY 2009 payment methodology to new therapeutic radiopharmaceutic al HCPCS codes, consistent with our final policy in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60581 through 60526), providing separate payment fo r therapeutic radiopharmaceuticals that do not crosswalk to CY 2009 HCPCS codes, do not have pass-through status, and are without OPPS hospital claims data, at ASP+4 pe rcent. This policy was continued in the CY 2011 OPPS/ASC final rule with co mment period (75 FR 71970 through 71973), paying for new drugs, nonimplantable biologicals and radiopharmaceuticals that do not crosswalk to CY 2010 HCPCS codes, do not ha ve pass-through status, and are without OPPS hospital claims data at ASP+5 percent. For CY 2012, we are proposing to conti nue our payment policies for new drugs (excluding contrast agents and diagnos tic radiopharmaceuticals), nonimplantable biologicals, and therapeutic radiopharmaceutic als that have HCPCS codes that do not crosswalk to CY 2011 HCPCS codes, do not ha ve pass-through status, and are withoutCMS-1525-P 387 OPPS hospital claims data. We are propos ing to provide payment for new CY 2012 drugs (excluding contrast agents and dia gnostic radiopharmaceuticals), nonimplantable biologicals, and therapeutic radiopharmaceuticals, at ASP+4 percent, consistent with the proposed CY 2012 payment methodology for ot her separately pa yable nonpass-through drugs, nonimplantable biologicals, and therapeu tic radiopharmaceuticals. We believe this proposed policy would ensure that ne w nonpass-through drugs, nonimplantable biologicals and therapeutic radiopharmaceutical s would be treated like other drugs, nonimplantable biologicals, and therapeuti c radiopharmaceuticals under the OPPS, unless they are granted pass-through status. Only if they are pass-through drugs, nonimplantable biologicals, or therapeutic radiopharmaceuticals would they receive a different payment for CY 2012, generally equi valent to the payment these drugs and biologicals would receive in the physicia n’s office setting, consistent with the requirements of the statute. We also are proposing to continue our CY 2011 policy of packaging payment for all new nonpass-through diagnostic radiopha rmaceuticals, cont rast agents, and implantable biologicals with HCPCS codes but without claims data (those new CY 2012 diagnostic radiopharmaceuticals, contrast ag ents, and implantable biological HCPCS codes that do not crosswalk to predecessor HCPCS codes), consistent with the proposed packaging of all existing nonpass-through dia gnostic radiopharmaceuticals, contrast agents and implantable biologicals, as disc ussed in more detail in section V.B.2.d. and IV.A.2. of this proposed rule.CMS-1525-P 388 In accordance with the OPPS ASP methodology, in the absence of ASP data, for CY 2012, we are proposing to continue th e policy we implemented beginning in

CY 2005 of using the WAC for the product to esta blish the initial pa yment rate for new nonpass-through drugs and biologic als with HCPCS codes, but which are without OPPS claims data. However, we note that if th e WAC is also unavailable, we would make payment at 95 percent of the product’s most recent AWP. We also are proposing to assign status indicator “K” (separately pa id nonpass-through drugs and nonimplantable biologicals, including therapeutic radiopharm aceuticals) to HCPCS codes for new drugs and nonimplantable biologicals without OPPS cl aims data and for which we have not granted pass-through status. With respect to new, nonpass-through drugs, nonimplantable biologicals, and therapeuti c radiopharmaceuticals, for which we do not have ASP data, we are proposing that once th eir ASP data become available in later quarterly submissions, their payment rates unde r the OPPS would be adjusted so that the rates would be based on the ASP methodology an d set to the finalized ASP-based amount (proposed for CY 2012 at ASP+4 percent) for items that have not been granted pass-through status. This propos ed policy, which is consistent with prior years’ policies for these items, would ensure that new nonpass-through drugs, nonimplantable biologicals, and therapeutic radiopharmaceutic als would be treated like other drugs, nonimplantable biologicals, and therapeuti c radiopharmaceuticals under the OPPS, unless they are granted pass-through status. Only if they are pass- through drugs, nonimplantable biologicals, or therapeutic radiopharmaceuticals would they receive a different payment for CY 2012, generally equi valent to the payment these drugs andCMS-1525-P 389 biologicals would receive in the physician’ s office setting, consistent with the requirements of the statute. Similarly, we are proposing to continue our CY 2011 policy to base the initial payment for new therapeutic radiopharmaceutic als with HCPCS codes, but which do not have pass-through status and ar e without claims data, on the WACs for these products if ASP data for these therapeutic radiopharmaceuti cals are not available. If the WACs are also unavailable, we are proposing to make payment for new therapeutic radiopharmaceutical at 95 percent of the products’ most recent AWP because we would not have mean costs from hospital claims data upon which to base payment. As we are proposing with new drugs and biologicals, we are proposing to continue our policy of assigning status indicator “K” to HCPCS codes for new therap eutic radiopharmaceuticals without OPPS claims data for which we have not granted pass-through status. Consistent with other ASP-based paym ent, for CY 2012 we are proposing to announce any changes to the payment amounts for new drugs and bi ologicals in the CY 2012 OPPS/ASC final rule with comment pe riod and also on a quarterly basis on the CMS Web site during CY 2012 if later quarter ASP submissions (or more recent WACs or AWPs) indicate that changes to the paymen t rates for these drugs and biologicals are necessary. The payment rates for new ther apeutic radiopharmaceuticals would also be changed accordingly, based on later quarter ASP submissions. We note that the new CY 2012 HCPCS codes for drugs, biologicals and therapeutic radiopharmaceuticals are not available at the time of de velopment of this proposed rule. However, these agents will be included in Addendum B to the CY 2012 OPPS/ASC final rule with commentCMS-1525-P 390 period where they will be a ssigned comment indicator “NI” (which is referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site) to reflect that their interim final OPPS treatment is open to public comment on the CY 2012 OPPS/ASC final rule with comment period. There are several nonpass-through drugs a nd biologicals that were payable in CY 2010 and/or CY 2011 for which we do not have CY 2010 hospital claims data available for this proposed rule and for which there are no other HCPCS codes that describe different doses of the same drug, butwhich have pricing information available for the ASP methodology. We note that there are currently no therapeutic radiopharmaceuticals in this cate gory. In order to determine the packaging status of these products for CY 2012, we calculated an estimate of the per day cost of each of these items by multiplying the payment rate of each product based on ASP+4 percent, similar to other nonpass-through drugs and biologicals paid separa tely under the OPPS, by an estimated average number of units of each product that would typically be furnished to a patient during one day in the hospital outpatien t setting. This rationale was first adopted in the CY 2006 OPPS/ASC final rule with comment period (70 FR 68666 and 68667). We are proposing to package items for whic h we estimated the per day administration cost to be less than or equal to $80, which is the general packaging threshold that we are proposing for drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals in CY 2012. We are proposing to pay separately for items with an estimated per day cost greater than $80 (with the exception of diagnos tic radiopharmaceuticals, contrast agents, and implantable biologicals, which we are prop osing to continue to package regardless ofCMS-1525-P 391 cost as discussed in more detail in secti on V.B.2.d. of this propos ed rule) in CY 2012. We are proposing that the CY 2012 paymen t for separately payable items without CY 2010 claims data would be ASP+4 percent, similar to payment for other separately payable nonpass-through drugs and biologicals under the OPPS. In accordance with the ASP methodology paid in the phys ician’s office setting, in th e absence of ASP data we are proposing to use the WAC for the product to establish the initial payment rate. However, we note that if the WAC is also unavailable, we would make payment at 95 percent of the most recent AWP available. The proposed estimated units per day and status indicators for these items are displayed in Table 33 below.

TABLE 33.— DRUGS AND BIOLOGICALS WITHOUT CY 2010 CLAIMS DATA

CY 2012 HCPCS

Code CY 2012 Long Descriptor Estimated Average Number of Units Per Day Proposed CY 2012 SI Proposed CY 2012

APC J0205 Injection, alglucerase, per 10 units 420 K 0900 J0364 Injection, apomorphine h ydrochloride, 1 mg 12 N N/A

J0630 Injection, calcitonin salmon, up to 400 units 1.5 N N/A

J1680 Injection, human fibrinogen concentrate, 100 mg 49 K 1290 J2513 Injection, pentastarch, 10% solution, 100 ml 4 K 1222

J2724 Injection, protein c conc entrate, intravenous, human, 10 iu 1540 K 1139 J3355 Injection, urofollitropin, 75 IU 2 K 1741 J9216 Injection, interferon, gamma 1-b, 3 million units 1 K 0838 Q0515 Injection, sermorelin acetate, 1 microgram 70 K 3050 Finally, there were five drugs and biologicals , shown in Tab le 34 below, that were payable in CY 2010, but for which we lacked CY 2010 claims data and any otherCMS-1525-P 392 pricing information for the ASP methodology for the CY 2012 OPPS/ASC proposed rule. In CY 2009, for similar items without CY 2007 claims data and without pricing information for the ASP methodology, we previo usly stated that we were unable to determine their per day cost and we packag ed these items for the year, assigning these items status indicator “N.” For CY 2010, we finalized a policy to cha nge the status indicator for drugs and biologicals previously assigned a payable status indicator to status indicator “E” (Not paid by Medicare when submitted on outpatient claims (any outpatient bill type)) whenever we lacked claims data and prici ng information and were unable to determine the per day cost. In addition, we noted that we would provide separate payment for these drugs and biologicals if pricing informati on reflecting recent sales becomes available mid-year in CY 2010 for the ASP methodology. If pricing information became available, we would assign the products status indicato r “K” and pay for them separately for the remainder of CY 2010. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71973), for CY 2011, we continued our CY 2010 policy to assign status indicator “E” to drugs and biologicals th at lacked CY 2009 claims data and pricing information for the ASP methodology. We also continued our po licy to change the status indicator for these products to “K” if pricing information became available and pay for them separately for the remainder of CY 2011. For CY 2012, we are proposing to continue our CY 2011 policy to assign status indicator “E” to drugs and biologicals th at lack CY 2010 claims data and pricing information for the ASP methodology. All drugs and biologicals without CY 2010CMS-1525-P 393 hospital claims data and data based on th e ASP methodology that ar e assigned status indicator “E” on this basis at the time of th is proposed rule for CY 2012 are displayed in Table 34 below. If pricing information become s available, we are proposing to assign the products status indicator “K” and pay for them separately for the remainder of CY 2012.

TABLE 34.— DRUGS AND BIOLOGICALS WITHOUT CY 2010 CLAIMS DATA AND WITHOUT PRICING INFORMATION FOR THE ASP METHODOLOGY

CY 2012 HCPCS Code CY 2012 Long Descriptor Proposed CY 2012 SI J2940 Injection, somatrem, 1 mg E J3305 Injection, trimetrexate glucuronate, per 25 mg E J8650 Nabilone, oral, 1 mg E J9165 Injection, diethylstilbestrol diphosphate, 250 mg E

J9213 Injection, interferon, alfa-2 a, recombinant, 3 million units E VI. Proposed Estimate of OPPS Transi tional Pass-Through Spending for Drugs, Biologicals, Radiopharmaceuticals, and Devices A. Background Section 1833(t)(6)(E) of the Act limits th e total projected amount of transitional pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of devices for a given year to an “applicable pe rcentage” (currently 2.0 percent, as stated below) of total program payments estimated to be made for all covered services under the hospital OPPS furnished for that year. For a y ear (or portion of a year) before CY 2004, the applicable percentage was 2.5 percent; for CY 2004 and subsequent years, the applicable percentage is a percentage specified by the Secretary up to (but not to exceed) 2.0 percent.CMS-1525-P 394 If we estimate before the beginning of th e calendar year that the total amount of pass-through payments in that year w ould exceed the applicable percentage, section 1833(t)(6)(E)(iii) of the Act require s a uniform prospective reduction in the amount of each of the transitional pass-through pa yments made in that year to ensure that the limit is not exceeded. We make an es timate of pass-through spending to determine not only whether payments exceed the applicab le percentage, but al so to determine the appropriate pro rata reducti on to the conversion factor for the projected level of pass-through spending in the following year inorder to ensure that total estimated pass-through spending for the pr ospective payment year is b udget neutral, as required by section 1883(t)(6)(E) of the Act. For devices, developing an estimate of pass-through spending in CY 2012 entails estimating spending for two groups of items. Th e first group of items consists of device categories that were recently made elig ible for pass-through payment and that will continue to be eligible for pass-through payment in CY 2012. The CY 2008 OPPS/ASC final rule with comment period (72 FR 66778) describes the methodology we have used in previous years to develop the pass -through spending estimate for known device categories continuing into the applicable update year. Th e second group contains items that we know are newly elig ible, or project may be newly eligible, for device pass-through payment in the remaining quart ers of CY 2011 or beginning in CY 2012. Beginning in CY 2010, the pass-through eval uation process and pass-through payment for implantable biologicals newly approve d for pass-through payment beginning on or after January 1, 2010, that are surgically inserted or im planted (through a surgicalCMS-1525-P 395 incision or a natural orifice; also referred to herein as “implantable biologicals”) is the device pass-through process and paymen t methodology only (74 FR 60476). For CY 2012, we are proposing that the estimate of pass-through spending for implantable biologicals newly eligible fo r pass-through payment beginning in CY 2012 be included in the pass-through spending estimate for this s econd group of device categories. The sum of the CY 2012 pass-through estimates for th ese two groups of device categories would equal the total CY 2012 pass-through spendi ng estimate for device categories with pass-through status. For devices eligible for pa ss-through payment, section 1833(t)(6)(D)(ii) of the Act establishes the pass-through payment amount as the amount by which the hospital’s charges for the device, adjusted to cost, ex ceeds the portion of the otherwise applicable OPPS fee schedule payment that the Secretary de termines is associated with the device. As discussed in section IV.A.2. of this pr oposed rule, we deduct from the pass-through payment for an identified device category eligible for pass-through payment an amount that reflects the portion of the APC payment amount that we determine is associated with the cost of the device, defined as the device APC offset amount, when we believe that the predecessor device costs for the device category newly approved for pass-through payment are already packaged into the existi ng APC structure. For each device category that becomes newly eligible for device pa ss-through payment, including implantable biologicals from CY 2010 forward, we es timate pass-through spending to be the difference between payment for the device cate gory and the device APC offset amount, if applicable, for the procedures that would us e the device. If we determine that theCMS-1525-P 396 predecessor device costs for the new device ca tegory are not already included in the existing APC structure, the pass-through spendi ng estimate for the device category is the full payment at charges adjusted to cost. For drugs and biologicals eligible for pass-through payment, section 1833(t)(6)(D)(i) of the Act es tablishes the pass-through payment amount as the amount by which the amount authorized under section 1842(o) of the Act (o r, if the drug or biological is covered under a competitive acquisition contra ct under section 1847B of the Act, an amount determined by the Secretary equal to the average price for the drug or biological for all competitive acquisition areas and year established under such section as calculated and adjusted by the Secretary) exceeds the portion of the otherwise applicable fee schedule amount that the Secretary dete rmines is associated with the drug or biological. Because we are proposing to pay for most nonpass-through separately payable drugs and nonimplantable biol ogicals under the CY 2012 OPPS at ASP+4 percent, which represents the otherwise app licable fee schedule amount associated with most pass-through drugs and bi ologicals, and because we are proposing to pay for CY 2012 pass-through drugs and nonimplantable biologicals at ASP+6 percent or the Part B drug CAP rate, if applicable, our es timate of drug and nonimplantable biological pass-through payment for CY 2012 would not be zero, as discussed below. Furthermore, payment for certain drugs, specifically dia gnostic radiopharmaceutical s, contrast agents, and implantable biologicals without pass-through status, will always be packaged into payment for the associated procedures becau se these products will never be separately paid. However, all pass-through diagnostic radiopharmaceuticals and contrast agentsCMS-1525-P 397 with pass-through status approved prior to CY 2012 would be paid at ASP+6 percent or the Part B drug CAP rate, if applicable, lik e other pass-through dr ugs and biologicals. Therefore, our estimate of pass-through pa yment for all diagnostic radiopharmaceuticals and contrast agents with pass- through status approved prior to CY 2012 is also not zero. We note that there are no implantable biol ogicals proposed to continue on pass-through status for CY 2012 and, therefore, we ar e not proposing to include implantable biologicals in our estimate of pass-th rough payment. Payment for nonpass-through implantable biologicals will continue to be p ackaged into the payment for the associated procedure as described in secti on V.B.2.d of this proposed rule. In section V.A.4. of this proposed ru le, we discuss our proposed policy to determine if the cost of certain “polic y-packaged” drugs, including diagnostic radiopharmaceuticals and contra st agents, are already pack aged into the existing APC structure. If we determine that a “p olicy-packaged” drug approved for pass-through payment resembles predecessor diagnostic radiopharmaceuticals or contrast agents already included in the costs of the APCs that would be associated with the drug receiving pass-through payment, we are propos ing to offset the am ount of pass-through payment for diagnostic radiopharmaceuticals an d contrast agents. For these drugs, the APC offset amount would be the portion of the APC payment for the specific procedure performed with the pass-through diagnostic radi opharmaceutical or contrast agent that is attributable to diagnostic radiopharmaceuticals or contrast agents, wh ich we refer to as the “policy-packaged” drug APC offset amount. If we determine that an offset is appropriate for a specific di agnostic radiopharmaceutical orcontrast agent receivingCMS-1525-P 398 pass-through payment, we would reduce our estimate of pass-through payment for these drugs by this amount. We note that the Part B drug CAP program has been postponed beginning January 1, 2009. We refer re aders to the Medicare Lear ning Network (M LN) Matters Special Edition article SE0833 fo r more information, availabl e via the CMS Web site at: http://www.cms.gov/MLNMatters Articles/downloads/SE0833.pdf . As of the publication of this proposed rule, the post ponement of the Part B drug CAP program is still in effect. As in past years, for this proposed rule, we do not have an effective Part B drug CAP rate for pass-through drugs and biologicals. Similar to pass-through estimates for de vices, the first group of drugs and nonimplantable biologicals requiring a pass-th rough payment estimate consists of those products that were recently made eligible fo r pass-through payment and that will continue to be eligible for pass-through payment in CY 2012. The second group contains drugs and nonimplantable biologicals that we know are newly eligible, or project will be newly eligible, in the remaining quarters of CY 2011 or beginning in CY 2012. The sum of the CY 2012 pass-through estimates for these two groups of drugs and biologicals would equal the total CY 2012 pass-through spending estimate for drugs and biologicals with pass-through status. B. Proposed Estimate of Pass-Through Spending We are proposing to set the applicable pass-through payment percentage limit at 2.0 percent of the total projec ted OPPS payments for CY 2012, consistent with our OPPS policy from CY 2004 through CY 2011 (75 FR 71975).CMS-1525-P 399 For the first group of devices for pass -through payment estimate purposes, there currently is one device category, C1749 (E ndoscope, retrograde imaging/illumination colonoscope device (implantable)) that b ecame effective October 1, 2010, has been paid as a pass-through device for CY 2011, and will continue to be eligible for CY 2012. We estimate that CY 2012 pass-through expenditure s related to C1749 will be approximately $35 million. In estimating our proposed CY 2012 pass-th rough spending for device categories in the second group, which also includes any estimate for implantable biologicals that are eligible for pass-through paymen t, we include: device categori es that we know at the time of the development of this proposed rule would be newly eligible for pass-through payment in CY 2012 (of which there are none); additional device categories (including categories that describe implant able biologicals) that we es timate could be approved for pass-through status subsequent to the development of this proposed rule and before January 1, 2012; and contingent projecti ons for new device categories (including categories that describe implant able biologicals) established in the second through fourth quarters of CY 2012. We are proposing to use the general methodology described in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66778), while also taking into account recent OPPS experience in a pproving new pass-through device categories. For this proposed rule, the estimate of CY 2012 pass-through spending for this second group of device categories is $10 million. Using our established methodology, the total estimated pass-through spending for device cate gories for CY 2012 (spending for the firstCMS-1525-P 400 group of device categories ($35 million) plus spending for the second group of device categories ($10 million)) equals $45 million. To estimate CY 2012 proposed pass-through spending for drugs and nonimplantable biologicals in the first group, specifically those drugs (including radiopharmaceuticals and contrast agents) and nonimplantable biologicals recently made eligible for pass-through paym ent and continuing on pass-th rough status for CY 2012, we are proposing to utilize the most recent Medi care physician’s office data regarding their utilization, information provided in the resp ective pass-through app lications, historical hospital claims data, pharmaceutical industr y information, and clinical information regarding those drugs or nonimplantable biologicals, to project the CY 2012 OPPS utilization of the products. For the known drugs and nonimplantable biologicals (excluding diagnostic radiopharmaceuticals and cont rast agents) that would be continuing on pass-through status in CY 2012, we estimate the propos ed pass-through payment amount as the difference between ASP+6 percent or the Part B drug CAP rate, as applicable, and the proposed payment rate for nonpass-through drug s and nonimplantable biologicals that would be separately paid at ASP+4 percen t, aggregated across the projected CY 2012 OPPS utilization of these products. Because payment for a diagnostic radiopharmaceutical or contrast agent would be packaged if the product were not paid separately due to its pass-through status, we are proposing to include in the proposed CY 2012 pass-through estimate the difference between payment for the drug or nonimplantable biological at ASP+6 percent (o r WAC+6 percent, or 95 percent of AWP,CMS-1525-P 401 if ASP or WAC information is not available) and the “policy-packaged” drug APC offset amount, if we have determined that the dia gnostic radiopharmaceutical or contrast agent approved for pass-through payment resembles predecessor diagnostic radiopharmaceuticals or contrast agents alrea dy included in the costs of the APCs that would be associated with the drug receivi ng pass-through payment. For this proposed rule, we are proposing to con tinue to use the methodology used in CY 2011 to calculate a proposed spending estimate for this firs t group of drugs and biologicals to be approximately $5.7 million. To estimate CY 2012 pass-through spending for drugs and nonimplantable biologicals in the second gr oup (that is, drugs and nonimpla ntable biologicals that we know at the time of development of this pr oposed rule would be newly eligible for pass-through payment in CY 2012, additional drugs and nonimplantab le biologicals that we estimate could be approved for pass-through status subsequent to the development of this proposed rule and before January 1, 2012, and projections for new drugs and nonimplantable biologicals that could be initia lly eligible for pass-th rough payment in the second through fourth quarters of CY 2012), we are proposing to use utilization estimates from pass-through applicants, pharmaceutical indu stry data, clinical information, recent trends in the per unit ASPs of hospital outpa tient drugs, and projec ted annual changes in service volume and intensity as our basi s for making the CY 2012 proposed pass-through payment estimate. We are also consider ing the most recent OPPS experience in approving new pass-through drugs and nonimplant able biologicals. Using our proposed methodology for estimating CY 2012 pass-throu gh payments for this second group ofCMS-1525-P 402 drugs, we calculated a proposed spending es timate for this second group of drugs and nonimplantable biologicals to be approximately $13.8 million. As discussed in section V.A. of th is proposed rule, radiopharmaceuticals are considered drugs for pass-through purposes. Therefore, we include radiopharmaceuticals in our proposed CY 2012 pass-through spendi ng estimate for drugs and biologicals. Our proposed CY 2012 estimate for total pass-th rough spending for dr ugs and biologicals (spending for the first group of drugs and noni mplantable biologicals ($5.7 million) plus spending for the second group of drugs a nd nonimplantable biologicals ($13.8 million)) equals $19.5 million. In summary, in accordance with the met hodology described above in this section, for this proposed rule, we estimate th at total pass-through sp ending for the device categories and the drugs and nonimplantable biologicals that are co ntinuing to receive pass-through payment in CY 2012 and those device categories, drugs, and nonimplantable biologicals that first beco me eligible for pass-through payment during CY 2012 would be approximately $64.5 milli on (approximately $45 million for device categories and approximately $19.5 million for drugs and non-implantable biologicals), which represents 0.15 percent of total OPPS projected total payments for CY 2012. We estimate that pass-through spending in CY 2012 would not amount to 2.0 percent of total projected OPPS CY 2012 program spending.CMS-1525-P 403 VII. Proposed OPPS Payment for Hospital Outpatient Visits A. Background Currently, hospitals report visit HCPCS codes to describe three types of OPPS services: clinic visits; emergency department visits; and critical care services. For OPPS purposes, we recognize clinic visit codes as those codes defined in the CPT code book to report evaluation and management (E/M) servic es provided in the physician’s office or in an outpatient or other ambulatory facility. We recognize emergency department visit codes as those codes used to report E/M serv ices provided in the emergency department. Emergency department visit codes consist of five CPT codes that apply to Type A emergency departments and five Level II HCPC S codes that apply to Type B emergency departments. For OPPS purposes, we recogni ze critical care codes as those CPT codes used by hospitals to report critical care se rvices that involve th e “direct delivery by a physician(s) of medical care for a critically ill or critically injured patient,” as defined by the CPT code book. In Transmittal 1139, Change Request 5438, dated December 22, 2006, we stated that, under the OPPS, the time that can be reported as critical care is the time spent by a physic ian and/or hospital staff engaged in active face-to-face critical care of a critically ill or critically injured pa tient. Under the OPPS, we also recognize HCPCS code G0390 (Trauma response team associated with hospital critical care service) for th e reporting of a trauma response in association with critical care services. We are proposing to continue to recognize these CPT and HCPCS codes describing clinic visits, Type A and Type B emergency department visits, critical careCMS-1525-P 404 services, and trauma team activ ation provided in association w ith critical care services for CY 2012. These codes are li sted below in Table 35.

TABLE 35.—PROPOSED HCPCS CODES USED TO REPORT CLINIC AND EMERGENCY DEPARTMENT VISITS AND CRITICAL CARE SERVICES

CY 2012 HCPCS

Code CY 2012 Descriptor

Clinic Visit HCPCS Codes

99201 Office or other outpatient visit for the evaluation and management of a new patient (Level 1)

99202 Office or other outpatient visit for the evaluation and management of a new patient (Level 2)

99203 Office or other outpatient visit for the evaluation and management of a new patient (Level 3)

99204 Office or other outpatient visit for the evaluation and management of a new patient (Level 4)

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

99211 Office or other outpatient visit for the evaluation and management of an established patient (Level 1)

99212 Office or other outpatient visit for the evaluation and management of an established patient (Level 2)

99213 Office or other outpatient visit for the evaluation and management of an established patient (Level 3)

99214 Office or other outpatient visit for the evaluation and management of an established patient (Level 4)

99215 Office or other outpatient visit for the evaluation and management of an established patient (Level 5) Emergency Department Visit HCPCS Codes

99281 Emergency department visit for the ev aluation and management of a patient (Level 1)

99282 Emergency department visit for the ev aluation and management of a patient (Level 2)

99283 Emergency department visit for the ev aluation and management of a patient (Level 3)

99284 Emergency department visit for the ev aluation and management of a patient (Level 4)

99285 Emergency department visit for the ev aluation and management of a patient (Level 5) G0380 Type B emergency department visit (Level 1) G0381 Type B emergency department visit (Level 2) G0382 Type B emergency department visit (Level 3) G0383 Type B emergency department visit (Level 4) G0384 Type B emergency department visit (Level 5)CMS-1525-P 405

Critical Care Services HCPCS Codes

99291 Critical care, evaluation and management of the critically ill or critically injured patient; first 30-74 minutes

99292 Critical care, evaluation and management of the critically ill or critically injured patient; each additional 30 minutes G0390 Trauma response associated with hospital critical care service

During the February 28-March 1 2011 APC Panel meeting, the APC Panel recommended that CMS continue to report claims data for clinic and emergency department visits and observation, and, if CMS identifies chan ges in patterns of utilization or cost, it bring those issues be fore the Visits and Observation Subcommittee for future consideration. The APC Panel also recommended that the work of the Visits and Observation Subcommittee continue. We are accepting these recommendations and will present the available requested data at an upcoming meeting of the APC Panel. B. Proposed Policies for Hospital Outpatient Visits 1. Clinic Visits: New and Established Patient Visits As reflected in Table 35 hospitals use diffe rent CPT codes for clinic visits based on whether the patient being treated is a new pa tient or an established patient. Beginning in CY 2009, we refined the definitions of a new patient and an established patient to reflect whether or not the patien t has been registered as an inpatient or outpatient of the hospital within the past 3 years. A patient who has been registered as an inpatient or outpatient of the hospital within the 3 years prio r to a visit would be considered to be an established patient for that visit, while a patient who has not been registered as an inpatient or outpatient of the hospital with in the 3 years prior to a visit would be considered to be a new patient for that visi t. We refer readers to the CY 2009 OPPS/ASCCMS-1525-P 406 final rule with comment period (73 FR 68677 through 68680) for a full discussion of the refined definitions. We continue to believe that defining ne w or established patient status based on whether the patient has been registered as an inpatient or outpatient of the hospital within the 3 years prior to a visit will reduce hospitals’ administrative burden associated with reporting appropriate clinic visit CPT code s, as we stated in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68677 through 68680). For CY 2012, we are proposing to continue to r ecognize the refined definitions of a new patient and an established patient, and applying our policy of calculating median costs for clinic visits under the OPPS using historical hospital claims data. As discussed in section II.A.2.e.(1) of the this proposed rule and consistent with our CY 2011 policy, when calculating the median costs for the clinic visit APCs ( 0604 through 0608), we are proposing to continue to utilize our methodolog y that excludes those claims fo r visits that are eligible for payment through the extended assessment a nd management composite APC 8002 (Level I Extended Assessment and Management Composite ). We continue to believe that this approach results in the most accurate co st estimates for APCs 0604 through 0608 for

CY 2012. 2. Emergency Department Visits Since CY 2007, we have recognized two different types of emergency departments for payment purposes under th e OPPS—Type A emergency departments and Type B emergency departments. As descri bed in greater detail below, by providing payment for two types of emergency depart ments, we recognize, for OPPS paymentCMS-1525-P 407 purposes, both the CPT definition of an em ergency department, which requires the facility to be available 24 hours, and the requirements for emergency departments specified in the provisions of the Em ergency Medical Treatment and Labor Act (EMTALA) (Pub. L. 99-272), which do not sti pulate 24-hour availabi lity but do specify other obligations for hospitals that offer emergency services. For more detailed information on the EMTALA provisions, we refer readers to the CY 2009 OPPS/ASC final rule with comment period (73 FR 68680). In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68132), we finalized the definition of a Type A emerge ncy department to distinguish it from a Type B emergency department. A Type A em ergency department must be available to provide services 24 hours a day, 7 days a wee k, and meet one or both of the following requirements related to the EMTALA defin ition of a dedicated emergency department specified at 42 CFR 489.24(b), spec ifically: (1) it is licensed by the State in which it is located under the applicable State law as an emergency room or emergency department; or (2) it is held out to the public (by name, posted signs, adve rtising, or other means) as a place that provides care for emergency medical conditions on an urgent basis without requiring a previously scheduled appointment. For CY 2007 (71 FR 68140), we assigned the five CPT E/M emergency department vis it codes for services provided in Type A emergency departments to five Emergency Visit APCs, specifically APC 0609 (Level 1 Emergency Visits), APC 0613 (Level 2 Emergency Visits), APC 0614 (Level 3 Emergency Visits), APC 0615 (Level 4 Emer gency Visits), and APC 0616 (Level 5 Emergency Visits). We defined a Type B emergency department as any dedicatedCMS-1525-P 408 emergency department that incurred EMTALA obligations but did not meet the CPT definition of an emergency department. For example, a hospital department that may be characterized as a Type B emergency depa rtment would meet the definition of a dedicated emergency department but may not be available 24 hours a day, 7 days a week. Hospitals with such dedicated emergency de partments incur EMTALA obligations with respect to an individu al who presents to the department and requests, or has a request made on his or her behalf, examination or treatment for a medical condition. To determine whether visits to Type B emergency departments have different resource costs than visits to either clinic s or Type A emergency departments, in the CY 2007 OPPS/ASC final rule with comment pe riod (71 FR 68132), we finalized a set of five HCPCS G-codes for use by hospitals to re port visits to all en tities that meet the definition of a dedicated emergency departme nt under the EMTALA regulations but that are not Type A emergency departments. These codes are called “Type B emergency department visit codes.” In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68132), we explained that these new HC PCS G-codes would serve as a vehicle to capture median cost and resource differe nces among visits provided by Type A emergency departments, Type B emergency depart ments, and clinics. We stated that the reporting of specific HCPCS G-codes for em ergency department visits provided in Type B emergency departments would permit us to specifically co llect and analyze the hospital resource costs of visits to these facilities in order to determine if, in the future, a proposal for an alternative payment policy might be warranted. We expected hospitals toCMS-1525-P 409 adjust their charges appropriately to reflect differences in Type A and Type B emergency department visit costs. As we noted in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68681), the CY 2007 claims data used for that rulemaking were from the first year of claims data available for analysis th at included hospitals’ cost data for these new Type B emergency department HCPCS visit codes. Based on our analysis of the CY 2007 claims data, we confirmed that the median costs of Type B emergency department visits were less th an the median costs of Type A emergency department visits for all but the level 5 visit. In other words, the median costs from the CY 2007 hospital claims represented real differences in the hos pital resource costs for the same level of visits in a Type A or Type B emergenc y department. Therefore, for CY 2009, we adopted the August 2008 APC Panel recomm endation to assign Levels 1 through 4 Type B emergency department visits to thei r own APCs and to assign the Level 5 Type B emergency department visit to the same APC as the Level 5 Type A emergency department visit. As discussed in the CY 2010 OPPS/AS C final rule with comment period (74 FR 60548 through 60551), analyses of CY 20 08 hospitals’ cost data from claims data used for CY 2010 ratesetting for the emergency department HCPCS G-codes demonstrated that the pattern of relative cost differences between Type A and Type B emergency department visits was largely consis tent with the distribut ions we observed in the CY 2007 data, with the exception that, in the CY 2008 data, we observed a relatively lower HCPCS code-specific median cost a ssociated with Level 5 Type B emergencyCMS-1525-P 410 department visits compared to the HCPCS c ode-specific median cost of Level 5 Type A emergency department visits. As a result, for CY 2010, we finalized a policy to continue to pay Levels 1 through 4 Type B emergency department visits through four levels of APCs, and to pay for Level 5 Type B emer gency department visits through new APC 0630 (Level 5 Type B Emergency Department Visit), to which the Level 5 Type B emergency department visit HCPCS code is the only service assigned. As we noted in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71987), the pattern of relative cost differen ces between Type A and Type B emergency department visits is consistent with the di stributions we observed in the CY 2008 claims data. Therefore, we finalized our proposal to continue to pay for Type B emergency department visits in CY 2011 based on their me dian costs through five levels of APCs: APC 0626 (Level 1 Type B Emergency Department Visit), APC 0627 (Level 2 Type B Emergency Department Visit), APC 0628 (L evel 3 Type B Emergency Department Visit), APC 0629 (Level 4 Type B Emer gency Department Visit), and APC 0630. For CY 2012, we continue to believe thatthis configuration pays appropriately for each level of Type B emergency department visits based on estimated resource costs from the most recent CY 2010 claims data. Therefore, we are propos ing to continue to pay for Type B emergency department visi ts in CY 2012 based on their median costs through the five levels of Type B emer gency department APCs (APCs 0626 through 0630). We also note that, as discussed in se ction II.A.2.e.(1) of th is proposed rule and consistent with our CY 2011 policy, when calcu lating the proposed median costs for the emergency department visit and criti cal care APCs (0609 through 0617 and 0626 throughCMS-1525-P 411 0630), we are proposing to uti lize our methodology that excludes those claims for visits that are eligible for payment through the extended assessment and management composite APC 8002. We believe that this a pproach would result in the most accurate cost estimates for APCs 0604 through 0608 for CY 2012. Table 36 below displays the proposed me dian costs for each level of Type B emergency department visit APCs under th e proposed CY 2012 configuration, compared to the proposed CY 2012 median costs for each level of clinic visit APCs and each level of Type A emergency department visit APCs.

TABLE 36.—COMPARISON OF PROPOSED MEDIAN COSTS FOR CLINIC VISIT APCs, TYPE B EMERGENCY DEP ARTMENT VISIT APCs, AND TYPE A EMERGENCY DEPARTMENT VISIT APCs

Visit Level Proposed CY 2012 Clinic Visit Approximate APC Median Cost Proposed CY 2012 Type B Emergency Department Approximate APC Median Cost Proposed CY 2012 Type A Emergency Visit Approximate APC Median Cost Level 1 $50 $41 $52 Level 2 $75 $59 $89 Level 3 $105 $94 $142 Level 4 $138 $141 $229 Level 5 $178 $271 $340

For CY 2010 and in prior years, the AM A CPT Editorial Panel defined critical care CPT codes 99291 (Critical care , evaluation and management of the critically ill or critically injured patient; first 30-74 minut es) and 99292 (Critical care, evaluation and management of the critically ill or critica lly injured patient; each additional 30 minutes (List separately in addition to code for pr imary service)) to include a wide range of ancillary services such as electrocardiogram s, chest X-rays and pulse oximetry. As weCMS-1525-P 412 have stated in manual instruction, we expect hospitals to report in accordance with CPT guidance unless we instruct otherwise. For cr itical care in particular, we instructed hospitals that a ny services that the CPT Editorial Panel indicates are included in the reporting of CPT code 99291 (including those services that would otherwise be reported by and paid to hospitals using any of the CPT codes specified by the CPT Editorial Panel) should not be billed separately. Instead, hospitals were instructed to report charges for any services provided as part of the critical care services. In establishing payment rates for critical care services, and other services, CMS packages the costs of certain items and services separately reported by HCPCS codes into payment for critical care services and other services, according to the standard OPPS methodology for packaging costs (Medicare Claims Processing Manual, Pub. 100-04, Chapter 4, Section 160.1). For CY 2011, the AMA CPT Editorial Panel revised its guidance for the critical care codes to specifically state that, for hosp ital reporting purposes, cr itical care codes do not include the specified anci llary services. Beginning in CY 2011, hospitals that report in accordance with the CPT guidelines should re port all of the ancillary services and their associated charges separately when they are provided in conjunction with critical care. Because the CY 2011 payment rate for critical care services is based on hospital claims data from CY 2009, during which time hospitals would have reported charges for any ancillary services provided as part of the critical care services , we stated in the CY 2011 OPPS/ASC final rule with comm ent period that we believe it is inappropriate to pay separately in CY 2011 for the an cillary services that hospita ls may now report in addition to critical care services ( 75 FR 71988). Therefore, for CY 2011, we continued to recognize the existing CPT codes for critical ca re services and estab lished a payment rateCMS-1525-P 413 based on our historical data, into which the costof the ancillary services is intrinsically packaged, and implemented claims processing edits that conditionally package payment for the ancillary services that are reported on the same date of service as critical care services in order to avoid overpayment. We noted in the CY 2011 OPPS/ASC final rule with comment period that the payment status of the ancillary services will not change when they are not provided in conjunction with critical care servic es. We assigned status indicator “Q3” (Codes That May Be Paid Th rough a Composite APC) to the ancillary services to indicate that paym ent for them is packaged into a single payment for specific combinations of services and made through a separate APC payment or packaged in all other circumstances, in accordance with th e OPPS payment status indicated for status indicator “Q3” in Addendum D1 to the CY 2011 OPPS/ASC final rule with comment period. The ancillary services th at were included in the definiti on of critical care prior to CY 2011 and that will be conditionally pack aged into the payment for critical care services when provided on the same date of se rvice as critical care services for CY 2011 were listed in Addendum M to that final rule with comment period. Because the proposed CY 2012 median costs for critical care services are based upon CY 2010 claims data, which reflect the CPT billing guidan ce that was in effect prior to CY 2011, we are proposing to continue the methodology established in the CY 2011 OPPS/ASC final rule with comm ent period of calculating a payment rate for critical care services based on our historical data, into wh ich the cost of the an cillary services is intrinsically packaged. We ar e proposing to continue to implement claims processingCMS-1525-P 414 edits that conditionally package payment for th e ancillary services that are reported on the same date of service as critical car e services in order to avoid overpayment. 3. Visit Reporting Guidelines Since April 7, 2000, we have instructed hos pitals to report facility resources for clinic and emergency department hospital outpatient visits using the CPT E/M codes and to develop internal hospital gui delines for reporting the appropria te visit level. Because a national set of hospital-specifi c codes and guidelines do not currently exist, we have advised hospitals that each hospital’s internal guidelines that determine the levels of clinic and emergency department visits to be reported should follow the intent of the CPT code descriptors, in that the guidelines should be designe d to reasonably relate the intensity of hospital resources to the differentlevels of effort represented by the codes. As noted in detail in the CY 2008 O PPS/ASC final rule with comment period (72 FR 66802 through 66805), we observed a normal and stable distribution of clinic and emergency department visit levels in hospita l claims over the past several years. The data indicated that hospitals, on average, were billing all five levels of visit codes with varying frequency, in a consistent pattern over time. Overall, both the clinic and emergency department visit distributions indica ted that hospitals were billing consistently over time and in a manner that distinguished between visit levels, re sulting in relatively normal distributions nationally for the OPPS, as well as for specific classes of hospitals. The results of these analyses were generall y consistent with our understanding of the clinical and resource characteristics of differe nt levels of hospital outpatient clinic and emergency department visits. In the CY 2008 OPPS/ASC proposed rule (72 FR 42764CMS-1525-P 415 through 42765), we specifically invited public comment as to whether a pressing need for national guidelines continued at this point in the maturation of the OPPS, or if the current system where hospitals create and apply their ow n internal guidelines to report visits was currently more practical and appropriately fl exible for hospitals. We explained that, although we have reiterated our goal since CY 2000 of creatin g national guidelines, this complex undertaking for these important and common hospital services was proving more challenging than we initially anticip ated as we received new and expanded information from the public on current hospital reporting practices that led to appropriate payment for the hospital resources associated with clinic and emergency department visits. We stated our belief that many hosp itals had worked diligently and carefully to develop and implement their own internal guidelines that refl ected the scope and types of services they provided throughout the hospi tal outpatient system. Based on public comments, as well as our own knowledge of how clinics operate, it seemed unlikely that one set of straightforward national guidelines co uld apply to the report ing of visits in all hospitals and specialty clinic s. In addition, the stable distribution of clinic and emergency department visits reported unde r the OPPS over the past several years indicated that hospitals, both nationally in the aggregate and groupe d by specific hospital classes, were generally billing in an appr opriate and consistent manner as we would expect in a system that accurately distingui shed among different levels of service based on the associated hospital resources. Therefore, we did not propose to implement national visit guidelin es for clinic or emergency department visits for CY 2008. As we have done since publication of theCMS-1525-P 416 CY 2008 OPPS/ASC final rule with comment pe riod, we again examined the distribution of clinic and Type A emergency depart ment visit levels based upon updated CY 2010 claims data available for the CY 2012 proposed ru le. Analysis of this data confirmed that we continue to observe a normal and relati vely stable distribut ion of clinic and emergency department visit levels in hosp ital claims compared to CY 2009 data. We note that we have observed a slight shift over time toward higher numbers of level 4 and level 5 visits relative to the lower level vis its, when comparing the distributions of Type A emergency department visit levels from CY 2005 claims data to those from CY 2010. We also note that, in aggreg ate, hospitals’ charges for these higher level emergency department visits seem to be trending upw ard year over year. We welcome comment on whether this is consistent with indivi dual hospitals’ experi ences in developing, implementing, and refining their own guidelines ov er the last several y ears. We continue to believe that generally, hosp itals are billing in an appropria te and consistent manner that distinguishes among different leve ls of visits based on their required hospital resources. We are encouraging hospitals to continue to report visits during CY 2012 according to their own internal hospital guidelines. As originally noted in detail in the CY 2008 OPPS/ASC final rule with co mment period (72 FR 66648), we continue to expect that hospitals will not purposely ch ange their visit guidelines or otherwise upcode clinic and emergency department visits for purposes of extended assessment and management composite APC payment. In addition, we note our con tinued expectation that hospi tals’ internal guidelines will comport with the principles listed in the CY 2008 OPPS/ASC final rule withCMS-1525-P 417 comment period (72 FR 66805). We encourage hospitals with more specific questions related to the creation of internal guidelines to contact their servicing fiscal intermediary

or MAC. VIII. Proposed Payment for Partial Hospitalization Services A. Background Partial hospitalization is an intensive out patient program of psychiatric services provided to patients as an alternative to i npatient psychiatric care for individuals who have an acute mental illness. Sections 1861(ff )(1) and (ff)(2) of the Act specify the items and services that are defined as partial hospi talization services and some conditions under which Medicare payment for the items and serv ices will be made. Section 1861(ff)(3) of the Act specifies that a partial hospitalization program (PHP) is one that is furnished by a hospital or community mental health cen ter (CMHC) that meets the requirements specified under that subsection of the Act. In CY 2011, in accordance with section 1301(b) of the Health Care and Education Reconciliation Act of 2010 (HCERA 2010), we am ended the description of a PHP in our regulations to specify that the program mu st be a distinct a nd organized intensive ambulatory treatment program offering less than24-hour daily care “other than in an individual’s home or in an inpatient or re sidential setting.” In addition, in accordance with section 1301(a) of HCERA 2010, we re vised the definition of a CMHC in the regulations to conform to the definition set fo rth at section 1861(ff)(3 )(B) of the Act. We discussed our finalized policies for these two provisions of HCERA 2010 under section X.C. of the CY 2011 OPPS/ASC final rule w ith comment period (75 FR 71990). SectionCMS-1525-P 418 1833(t)(1)(B)(i) of the Act provides the Secretar y with the authority to designate the OPD services to be covered under the OPPS. The existing Medicare regulations that implement this provision specify, at 42 CFR 419.21, that payments under the OPPS will be made for partial hospitalization servi ces furnished by CMHCs as well as those services furnished by hospitals to their outpati ents. Section 1833(t)(2)(C) of the Act, in pertinent part, requires the Secretary to “es tablish relative payment weights for covered OPD services (and any groups of such servic es described in subparagraph (B)) based on median (or, at the election of the Secretary, mean) hospital costs” using data on claims from 1996 and data from the most recent available cost reports. In pertinent part, subparagraph (B) provides that the Secret ary may establish groups of covered OPD services, within a classification system developed by the Secretary for covered OPD services, so that services cl assified within each group are co mparable clinically and with respect to the use of resources . In accordance with these provisions, CMS developed the APCs. Section 1833(t)(9)(A) of the Act requires the Secretar y to “review not less often than annually and revise the groups, the relativ e payment weights, and the wage and other adjustments described in paragraph (2) to ta ke into account changes in medical practice, changes in technology, the addition of new serv ices, new cost data, and other relevant information and factors.” Because a day of car e is the unit that defines the structure and scheduling of partial hospita lization services, we estab lished a per diem payment methodology for the PHP APCs, effective for services furnished on or after August 1, 2000 (65 FR 18452 through 18455). Under this methodology, the median per diem costs are used to calculate the relative payment weights for PHP APCs.CMS-1525-P 419 From CY 2003 through CY 2006, the median per diem cost for CMHCs fluctuated significantly from year to y ear, while the median per diem cost for hospital-based PHPs remained relatively cons tant. We were concerned that CMHCs may have increased and decreased their charges in response to Medicare payment policies. Therefore, we began efforts to strengthen th e PHP benefit through extensive data analysis and policy and payment changes in th e CY 2008 update (72 FR 66670 through 66676). We made two refinements to the methodology for computing the PHP median: the first remapped 10 revenue codes that are common among hospital-based PHP claims to the most appropriate cost centers; and the s econd refined our methodology for computing the PHP median per diem costs by computing a se parate per diem cost for each day rather than for each bill. A complete discussion of these refinements can be found in the CY 2008 OPPS/ASC final rule with co mment period (72 FR 66671 through 66676). In CY 2009, we implemented several regu latory, policy, and payment changes, including a two-tiered payment approach fo r PHP services under which we pay one amount for days with 3 services (APC 0172 (Level I Partial Hospitalization)) and a higher amount for days with 4 or more services (APC 0173 (Level II Partial Hospitalization)). We refer readers to s ection X.C.2. of the CY 2009 OPPS/ASC final rule with comment period (73 FR 68688 through 68693) for a full discussion of the two-tiered payment system. In addition, fo r CY 2009, we finalized our policy to deny payment for any PHP claims for days when fewe r than 3 units of therapeutic services are provided.CMS-1525-P 420 Furthermore, for CY 2009, we revised th e regulations at 42 CFR 410.43 to codify existing basic PHP patient eligibility criteriaand to add a reference to current physician certification requirements at 42 CFR 424.24 to conform our regulations to our longstanding policy (73 FR 68694 through 68695) . We believe these changes have helped to strengthen the PHP be nefit. We also revised the partial hospitalization benefit to include several coding updates. We re fer readers to secti on X.C.2. of the CY 2009 OPPS/ASC final rule with comment pe riod (73 FR 68695 through 68697) for a full discussion of these requirements. For CY 2010, we retained th e two-tiered payment approa ch for PHP services and used only hospital-based PHP da ta in computing the per diem payment rates. We used only hospital-based PHP data because we we re concerned about further reducing both PHP APC per diem payment rates without know ing the impact of the policy and payment changes we made in CY 2009. Because of th e 2-year lag between data collection and rulemaking, the changes we made in CY 2009 were reflected for the first time in the claims data that we used to determin e payment rates for the CY 2011 rulemaking. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71994), we established four separate PHP APC per diem payment rates, two for CMHC PHPs (for Level I and Level II services for CMHCs) a nd two for hospital-based PHPs (Level I and Level II services for hospital-based PHPs). We proposed that CMHC PHP APC rates would be based only on CMHC data and hospi tal-based PHP APC rates would be based only on hospital-based PHP data (75 FR 46300) . As stated in the CY 2011 OPPS/ASC proposed rule (75 FR 46300) and final rule with comment period (75 FR 71991), forCMS-1525-P 421 CY 2011, using CY 2009 cost data, CMHC cost s had significantly decreased again. We attributed the decrease to the lower cost st ructure of CMHCs compared to hospitals, and not the impact of CY 2009 policies. CMHC s had a lower cost structure than hospitalbased PHP providers, in part because the da ta showed that CMHCs provide fewer PHP services in a day and use less costly staff th an hospital-based PHPs. Therefore, it would be inappropriate to continue to treat CMHCs and hospital- based providers in the same manner regarding payment, particularly in light of such disparate differences in costs. We were concerned that paying hospital-base d PHP programs at a lo wer rate than their cost structure reflects could lead to clos ures and possible acce ss problems for hospitalbased programs for Medicare beneficiaries. Creating the four payment rates (two for CMHC PHPs and two for hospital-based PH Ps) supported continued access to the PHP benefit, including a more intensive level of care, while also providing appropriate payment based on the unique cost structures of CMHC PHPs and hospital-based PHPs. In addition, separation of cost data by pr ovider type was supported by several hospitalbased PHP commenters who responded to th e CY 2011 OPPS/ASC proposed rule (75 FR 71992). For CY 2011, we instituted a 2-year tr ansition period for CMHC providers to CMHC rates based solely on CMHC datafor the two CMHC PHP APC per diem payments. For the transition period, we calculated the CMHC PHP APC Level I and Level II rates by taking 50 pe rcent of the difference betw een the CY 2010 final hospitalbased medians and the CY 2011 final CMHC me dians and then adding that number to the CY 2011 final CMHC medians. A 2-year transition under this methodology would moveCMS-1525-P 422 us in the direction of our goal, which is to pay appropriately for PHP services based on each provider type’s cost data, while at the sa me time allow providers time to adjust their business operations and protect access to care for beneficiaries. We refer readers to section X.B. of the CY 2011 OPPS/ASC fi nal rule with comment period (75 FR 71991 through 71994) for a full discussion of these four payment rates. After publication of the CY 2011 OPPS/AS C final rule with comment period, in the case of Paladin Community Mental Health Center v. Sebelius (No. 1:10-CV-00949- LY (W.D. Tex.)), a CMHC and one of its out patients challenged the OPPS rates for PHP services provided by CMHCs in CY 2011 as adopted in the CY 2011 OPPS/ASC final rule with comment period (75 FR 71995). Specifically, the plaintiffs in the case challenged the use of cost data derived fr om both hospitals and CMHCs in determining the relative payment weights for the OPPS ra tes for PHP services furnished by CMHCs. The plaintiffs alleged that section 1833(t)(2 )(C) of the Act requires that such relative payment weights be based on cost data derive d solely from hospitals. The Secretary has filed a motion to dismiss in this case, whic h is pending before the district court. In addition to raising various jurisdictional defenses in the Paladin case, the Secretary argued that the agency had permissi bly interpreted the statute in determining the relative payment weights for the O PPS rates for PHP services for CMHCs in CY 2011 on the basis of cost data derived from both hospitals and CMHCs. As discussed above, section 1833(t)(2)(C) of the Act requires the Secret ary to “establish relative payment weights for covered OPD services (and any groups of such services . . .) . . . based on . . . hospital costs.” Numerous cour ts have held that “based on” does not meanCMS-1525-P 423 “based exclusively on.” Thus, it was reasonabl e to interpret the statute to permit the use of cost data from CMHCs as well as from hospitals. For CY 2012, as discussed in section VII.B. of this proposed rule, we are proposing to determine the relative payment weights for PHP services by CMHCs based on cost data derived solely from CMHCs a nd the relative payment weights for hospitalbased PHP services based exclusively on hos pital cost data. We believe that, for purposes of this proposed rule for CY 2012, the statute is reasonably interpreted to allow the relative payment weights for the OPPS ra tes for PHP services provided by CMHCs to be based solely on CMHC cost data, whereas the corresponding rela tive payment weights for hospital-provided PHP services would be based exclusively on hospital cost data. Section 1833(t)(2)(C) of the Act requires th e Secretary to “establish relative payment weights for covered OPD services (and any groups of such services described in subparagraph (B)) based on . . . hospital cost s.” In pertinent part, subparagraph (B) provides that “the Secretary may establish gr oups of covered OPD services . . . so that services classified within each group are compar able clinically and with respect to the use of resources.” In accordance with subparagr aph (B), CMS developed the APCs, as set forth in §419.31 of the regulations (65 FR 18446 and 18447; 63 FR 47559 and 47560). As discussed in section X.B. of this proposed rule, PHP services are grouped into APCs. Based on section 1833(t)(2)(C) of the Act, we believe that the word “establish” can be interpreted as applying to APCs at the inception of the OPPS in 2000 or whenever a new APC is added to the OPPS. In creati ng the original APC fo r PHP services (APC 0033), we did “establish” the in itial relative payment weight for PHP services, providedCMS-1525-P 424 in hospital-based and CMHC-based setti ngs, on the basis of only hospital data. Subsequently, from CY 2003 through CY 2008, the relative payment weights for PHP services were based on a combination of hospital and CMHC data. Similarly, we subsequently established new APCs for PHP se rvices based exclusively on hospital costs. For CY 2009, we adopted a two-tiered AP C methodology (in lieu of the original APC 0033) under which CMS paid one rate for da ys with 3 services (APC 0172) and a different payment rate for days with 4 or more services (APC 0173). These two new APCs were established using only hospital da ta. For CY 2011, we added two new APCs (APCs 0175 and 0176) for PHP services provi ded by hospitals and based the relative payment weights for these APCs solely on hospital data. APCs 0172 and 0173 were designated for PHP services provided by CMHCs and were based on a mixture of hospital and CMHC data. As the Secretary argued in the Paladin case, the courts have consistently held that the phrase “based on” does not mean “based solely on.” Thus, the relative payment weights for the two APCs for CMHC-provided PHP services in CY 2011 were “based on” hospital data, no less than the relative payment weights for the two APCs for hospital-provided PHP services. Although we used only hospital data to establish the original relative payment weights for APC 0033 and later used hospital data to establish four new relative payment weights for PHP services, we believe that we have the authority to discontinue the use of hospital data after the original establishment of the relative payment weights for a given APC. Other parts of section 1833(t)(2)(C) of th e Act make plain that the data source for the relative payment weights is subject to ch ange from one period to another. SectionCMS-1525-P 425 1833(t)(2)(C) of the Act provides that, in establishing the rela tive payment weights, “the Secretary shall [ ] us[e] data on claims from 1996 and us[e] data from the most recent available cost reports.” However, we us ed 1996 data (plus 1997 data) in determining only the original relative payment weights for 2000; in the ensuing calendar year updates, we continually used more recent cost report data. Moreover, section 1833(t)(9)(A ) of the Act requires the Secretary to “review not less often than annually and revise the groups, the relativ e payment weights, and the wage and other adjustments described in para graph (2) to take into account changes in medical practice, changes in technology, the ad dition of new services, new cost data, and other relevant information and factors.” For purposes of the CY 2012 update, we exercised our authority under se ction 1833(t)(9)(A) of the Act to change the data source for the relative payment weights for PHP se rvices by CMHCs based on “new cost data, and other relevant information and factors.” B. Proposed PHP APC Update for CY 2012 To develop the proposed payment rates for the PHP APCs for CY 2012, we used CY 2010 claims data and computed median pe r diem costs in the following categories: (1) days with 3 services; and (2) days with 4 or more services. These proposed median per diem costs were computed separately for CMHC PHPs and hospital-based PHPs, as shown in Table 37 below.CMS-1525-P 426

TABLE 37.—PROPOSED PHP MEDIAN PER DIEM COSTS FOR CMHC AND HOSPITAL-BASED PHPs, BY CATEGO RY, BASED ON CY 2010 CLAIMS DATA Category CMHC PHPs Hospital-Based PHPs Days with 3 services $97.78 $162.34 Days with 4 or more services $113.62 $189.87

Using CY 2010 claims data and the re fined methodology for computing PHP per diem costs adopted in the CY 2008 OPPS/ ASC final rule with comment period (72 FR 66671 through 66676), we computed proposed median per diem costs for CY 2012 for each provider type using its own cl aims data. The data results indicate that, although both CMHCs and hospital-based PHPs have decreased costs for Level I and Level II services from CY 2011 to CY 2012, the median per diem costs for CMHC PHPs continue to be substantially lower than th e median per diem costs for hospital-based PHPs, given the same units of service. Th e approximate median per diem costs for 3 services are $98 for CMHC PHPs compar ed to $162 for hospital-based PHPs. Furthermore, the approximate median per diem costs for 4 or more services are $114 for CMHC PHPs compared to $190 for hospital- based PHPs. The difference in costs between CMHC PHPs and hospital-based PHPs underscores the need to pay each provider type based on use of its own data. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71991), we noted that CMHCs’ costs decreased from $139 in CY 2009 (using CY 2007 data) to $118 for CY 2011 (using CY 2009 claims data) for Le vel I services (3 services); and from $172 for CY 2009 to $123 for CY 2011 for Level II services (4 or more services). ForCMS-1525-P 427 this CY 2012 proposed rule, our analysis of claims data (using CY 2010 claims data) shows that CMHCs’ approximate median per diem costs continue to decrease from $118 for CY 2011 (using CY 2009 claims data) to $98 for CY 2012 for Level I services (3 services), and from $123 for CY 2011 (usi ng CY 2009 claims data) to $114 for CY 2012 for Level II services (4 or more services). We can reasonably attribute some of the decrease in costs to target ed fraud and abuse efforts implemented by the Department’s Center for Program Integrity and the Offi ce of Inspector General, and by the U.S. Department of Justice, collectively. We note that hospital-based PHPs also show a decrease in costs for CY 2012 (using CY 2010 claims data). Although hosp ital-based PHPs have historically been consistent in their median costs since the in ception of the OPPS, the CY 2010 claims data indicated a decrease in their median per diem costs since last year. Hospital-based PHPs’ approximate median per diem costs d ecreased from $184 for CY 2011 (using CY 2009 claims data) to $162 for CY 2012 (using CY 2010 claims data) for Level I services (3 services), and from $236 for CY 2011 (usi ng CY 2009 claims data) to $190 for CY 2012 (using CY 2010 claims data) for Level II services (4 or more services). We can attribute this decrease in costs to one provider w hose costs inflated th e CY 2011 hospital-based cost data and increased the CY 2011 hospital- based PHP median for Level II services by approximately $30. We included this provide r in the CY 2011 ratesetting because this provider had paid claims in CY 2009. Subsequently, this provider did not bill for PHP services during CY 2010 and, therefore, was not included in the proposed CY 2012 ratesetting.CMS-1525-P 428 Based on the results of our analysis of the CY 2010 claims data, for CY 2012, we are proposing to calculate the proposed CM HC PHP APC per diem payment rates for Level I and Level II services using only CMHC data and calculating the proposed hospital-based PHPs APC per diem payment ra tes for Level I and Level II services using only hospital-based PHP data. Basing payment rates specific to each type of provider’s own data would continue to s upport access to the PHP benefit, including a more intensive level of care, while also pr oviding appropriate payment co mmensurate with the cost structures of CMHC PHPs and hospital-base d PHPs. We invite public comments on our proposal to calculate the CM HC PHP APC per diem payment rates using only CMHC claims data and the hospital-based PHP AP C per diem rates using only hospital data. We are proposing the following APC median per diem costs for PHP services for

CY 2012:
TABLE 38.--PROPOSED CY 2012 ME DIAN PER DIEM COSTS FOR CMHC PHP SERVICES Proposed APC Group Title Proposed Median Per Diem Costs 0172 Level I Partial Hospital ization (3 services) for CMHCs $97.78 0173 Level II Partial Hospit alization (4 or more services) for CMHCs $113.62

TABLE 39.--PROPOSED CY 2012 ME DIAN PER DIEM COSTS FOR HOSPITAL-BASED PHP SERVICES Proposed APC Group Title Proposed Median Per Diem Costs 0175 Level I Partial Hospital ization (3 services) for hospital-based PHPs $162.34 0176 Level II Partial Hospit alization (4 or more services) for hospital-based PHPs $189.87CMS-1525-P 429 C. Proposed Separate Threshold for Outlier Payments to CMHCs In the CY 2004 OPPS final rule with comment period (68 FR 63469 through 63470), we indicated that, give n the difference in PHP char ges between hospitals and CMHCs, we did not believe it was appropria te to make outlier payments to CMHCs using the outlier percentage target amount a nd threshold established for hospitals. Prior to that time, there was a significant differen ce in the amount of outlier payments made to hospitals and CMHCs for PHP services. In ad dition, further analysis indicated that using the same OPPS outlier threshold for both hospitals and CMHCs did not limit outlier payments to high-cost cases and resulted in excessive outlier payments to CMHCs. Therefore, beginning in CY 2004, we estab lished a separate ou tlier threshold for CMHCs. The separate outlier threshold fo r CMHCs has resulted in more commensurate outlier payments. The separate outlier threshold for CMHCs resulted in $1.8 million in outlier payments to CMHCs in CY 2004 and $0.5 million in outlier payments to CMHCs in CY 2005. In contrast, in CY 2003, more than $30 million was paid to CMHCs in outlier payments. We believe this difference in out lier payments indicates that the separate outlier threshold for CMHCs has been successf ul in keeping outlier payments to CMHCs in line with the percentage of OPPS payments made to CMHCs. We are proposing to continue our policy of identifying 1.0 percent of the aggregate total payments under the OPPS for outlier payments for CY 2012. We are proposing that a portion of that1.0 percent, an amount equal to 0.14 percent of outlier payments (or 0.0014 percent of total OPPS paym ents), would be allocated to CMHCs forCMS-1525-P 430 PHP outlier payments. In section II.G. of th is proposed rule, we are proposing to set a dollar threshold in addition to an APC multip lier threshold for OPPS outlier payments. However, because the PHP APCs are the only APCs for which CMHCs may receive payment under the OPPS, we would not expect to redirect outlier payments by imposing a dollar threshold. Therefore, we are not proposing to set a dollar threshold for CMHC outlier payments. We are proposing to set the outlier threshold for CMHCs for CY 2012 at 3.40 times the APC payment amount and the CY 2012 outlier payment percentage applicable to costs in excess of the thre shold at 50 percent. Specifically, we are proposing to establish that if a CMHC's cost for partial hospitalization services, paid under either APC 0172 or APC 0173, exceeds 3.40 times the payment for APC 0173, the outlier payment would be calculated as 50 percent of the amount by which the cost exceeds 3.40 times the APC 0173 payment rate. IX. Proposed Procedures That Would Be Paid Only as Inpatient Procedures A. Background Section 1833(t)(1)(B)(i) of the Act gi ves the Secretary broad authority to determine the services to be covered and paid for under the OPPS. Before implementation of the OPPS in August 2000, Medi care paid reasonable costs for services provided in the HOPD. The claims submitte d were subject to medical review by the fiscal intermediaries to determine the appropr iateness of providing cert ain services in the outpatient setting. We did not specify in our regulations those services that were appropriate to provide only in the inpatient setting and that, therefore, should be payable only when provided in that setting.CMS-1525-P 431 In the April 7, 2000 final rule with co mment period (65 FR 18455), we identified procedures that are typically provided only in an inpatient setting and, therefore, would not be paid by Medicare under the OPPS. These procedures comprise what is referred to as the “inpatient list.” The inpatient list sp ecifies those services for which the hospital will be paid only when provided in the inpati ent setting because of the nature of the procedure, the underlying physical condition of the patient, or the need for at least 24 hours of postoperative recoverytime or monitoring before the patient can be safely discharged. As we discussed in that rule and in the N ovember 30, 2001 final rule with comment period (66 FR 59884), we may use an y of a number of criteria we have specified when reviewing procedures to determine whether or not they should be removed from the inpatient list and assi gned to an APC group for payment under the OPPS when provided in the hospital outpatie nt setting. Those criteria include the following:

● Most outpatient departments are equi pped to provide the services to the Medicare population.

● The simplest procedure described by the code may be performed in most outpatient departments.

● The procedure is related to codes th at we have already removed from the inpatient list. In the November 1, 2002 final rule with comment period (67 FR 66741), we added the following criteria for use in review ing procedures to determine whether theyCMS-1525-P 432 should be removed from the inpatient list and assigned to an APC group for payment under the OPPS:

● A determination is made that the pr ocedure is being performed in numerous hospitals on an outpatient basis; or

● A determination is made that the pr ocedure can be appropriately and safely performed in an ASC, and is on the list of approved ASC procedures or has been proposed by us for addition to the ASC list. The list of codes that we are proposing to be paid by Medicare in CY 2012 only as inpatient procedures is included as A ddendum E to this proposed rule (which is referenced in section XVII. of this proposed rule and available vi a the Internet on the CMS Web site). B. Proposed Changes to the Inpatient List For the CY 2012 OPPS, we are proposing to use the same methodology described in the November 15, 2004 final rule with comment period (69 FR 65835) to identify a subset of procedures currentl y on the inpatient list that are being performed a significant amount of the time on an outpatient basis. Using this methodology, we identified two procedures that met the criteria for potentia l removal from the inpa tient list for CY 2012. We then clinically reviewed these two poten tial procedures for possible removal from the inpatient list and found them to be appropriate candidates for removal from the inpatient list. During the February 28-March 1, 2011 m eeting of the APC Panel, we solicited the APC Panel’s input on the appropriateness of re moving these two procedures from the CY 2012 inpatient list: CPT codes 21346 (Open treatm ent of nasomaxillary complex fractureCMS-1525-P 433 (Lefort II type); with wiring and/or local fixation) and 54411 (Removal and replacement of all components of a multi-component inflatab le penile prosthesis through an infected field at the same operative session, including irrigation a nd debridement of infected tissue). As we indicated in the CY 2011 final ru le with comment period (75 FR 71996),we solicited the APC Panel’s i nput on the appropriateness of removing the procedures described by CPT codes 35045 (Direct repair of aneurysm, pseudoaneurysm, or excision (partial or total) and graft insertion, w ith or without patch graft; for aneurysm, pseudoaneurysm, and associated occlusive disease, radial or ulnar artery) and 54650 (Orchiopexy, abdominal approach, for intra- abdominal testis (eg, Fowler-Stephens)), from the CY 2012 inpatient list. We also solicited the APC Panel’s input on the appropriateness of removing the following pr ocedures identified in a comment letter addressed to the APC Panel: CPT codes 61154 (Burr hole(s) with evacuation and/or drainage of hematoma, extra dural or subdural); 61156 (Burr hole(s); with aspiration of hematoma or cyst, intracerebral); and 61210 (Burr hole(s); for implanting ventricular catheter, reservoir, eeg elect rode(s), pressure recording device, or other cerebral monitoring device (separate procedure)). Fo llowing the discussion at its February 28- March 1, 2011 meeting, the APC Panel recomm ended that CMS remove from the CY 2012 inpatient list CPT codes 21346, 54411, 35045, 54650, and 61210. The APC Panel made no recommendation rega rding CPT codes 61154 and 61156. Additionally, during th e February 28-March 1, 2011 m eeting of the APC Panel, an APC Panel member requested removal of the following CPT codes from the CY 2012CMS-1525-P 434 inpatient list: 22551 (Arthrodesi s, anterior interbody, includ ing disc space preparation, discectomy, osteophytectomy and decompression of spinal cord and/or nerve roots; cervical below C2); 22552 (Arthrodesis, anterior interbody, including disc space preparation, discectomy, oste ophytectomy and decompression of spinal cord and/or nerve roots; cervical below C2, each additional inters pace (List separately in addition to code for separate procedure)); 22554 (Arthrodesis, anterior interbody technique, including minimal discectomy to prepare interspace (oth er than for decompression); cervical below C2); 22585 (Arthrodesis, anteri or interbody technique, includ ing minimal discectomy to prepare interspace (other than for decomp ression); cervical below C2, each additional interspace (List separately in addition to code for primary procedure)); 61107 (Twist drill hole(s) for subdural, intracerebral, or vent ricular puncture; for im planting ventricular catheter, pressure recording device, or ot her intracerebral monitoring device); and 63267 (Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, extradural; lumbar). Following the discus sion at its February 28-March 1, 2011 meeting, the APC Panel recommended that CMS rem ove from the CY 2012 inpatient list CPT codes 22551, 22552, 22554, 22585, 61107, and 63267. For CY 2012, we are proposing to accep t the APC Panel’s recommendations to remove the procedures described by CPT codes 21346, 35045, and 54650 from the inpatient list because we agree with the APC Panel that the procedures may be appropriately provided as hospital outpatient pr ocedures for some Medicare beneficiaries, based upon the evaluation criteria mentioned abov e. We also are pr oposing to not accept the APC Panel’s recommendations to remove the procedures described by CPT codesCMS-1525-P 435 22551, 22552, 22554, 22585, 54411, 61107, 61210, and 63267, because upon further clinical review subsequent to the February 28-March 1, 2011 APC Panel meeting, we do not believe that these procedures may be appropriately provided as hospital outpatient procedures for some Medicare beneficiar ies, based upon the evaluation criteria mentioned above, due to the clinical intens ity of services provided. Furthermore, according to our utilization data, the pr ocedures described by CPT codes 22551, 22552, 22554, 22585, 54411, 61107, 61210, and 63267 have very low volume in the outpatient hospital setting. We note th at despite its low overall volume, CPT code 54411 is performed a significant percentage of the time in the outpati ent hospital setting; however, we do not believe that the outpatient procedur es being performed are truly reflective of the intensity of services requisite when performing the procedure as described by the CPT code’s long descriptor. We inv ite public comment on the inclusion of CPT code 54411 on the CY 2012 inpatient list. The three procedures we are proposing to remove from the inpatient list for CY 2012 and their CPT codes, long descriptors, proposed APC assignments, and proposed stat us indictors are di splayed in Table 40 below.

TABLE 40.—PROCEDURES PROPOSED FOR REMOVAL FROM THE INPATIENT LIST AND THEIR PROPOS ED APC ASSIGNMENTS FOR CY 2012

HCPCS

Code Long Descriptor Proposed CY 2012 APC Assignment Proposed CY 2012

Status Indicator

21346 Open treatment of nasomaxillary complex fracture (Lefort II type); with wiring and/or local fixation 0254 TCMS-1525-P 436

HCPCS

Code Long Descriptor Proposed CY 2012 APC Assignment Proposed CY 2012

Status Indicator

35045 Direct repair of aneurysm, pseudoaneurysm, or excision (partial or total) and graft insertion, with or without patch graft; for aneurysm, pseudoaneurysm, and associated occlusive disease, radial or ulnar artery 0093 T

54650 Orchiopexy, abdominal approach, forintra-abdominal testis (eg, FowlerStephens) 0154 T

X. Proposed Policies for the Supervision of Outpatient Services in Hospitals and
CAHs A. Background In the CY 2000 OPPS final rule with comment peri od, CMS established the hospital OPPS and indicated that direct supe rvision is the standard for all hospital outpatient therapeutic services covered and paid by Medicare in hospitals and in provider-based department s (PBDs) of hospitals (65 FR 18524 through 18526). Currently, as discussed in the CY 2011 O PPS/ASC final rule with comment period (75 FR 72008), this standard requires the supervisory practitioner to be immediately available to furnish assistance and direct ion throughout the performance of a hospital outpatient therapeutic service or procedur e. In the CY 2000 OPPS final rule with comment period, we established in regulati on at §410.28(e) that outpatient diagnostic services furnished in PBDs of hospitals must be supervised at the level indicated in the Medicare Physician Fee Schedule (MPFS) for eachservice, that is, general, direct or personal supervision. Since that time, we have clarified and refined these rules in severalCMS-1525-P 437 ways. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71998 through 72001), we provided a comprehensive review of the history of the supervision policies for both outpatient therapeutic and diagnostic services from the inception of the OPPS through CY 2010. In this section, we provi de a more condensed overview of our supervision policy during that time period, and present background on issues that have arisen during the CY 2011 payment year. By way of overview, we have defined supervision in the hospital outpatient setting by drawing on the three levels of supervision that CMS defined for the physician office setting at §410.32(b) prior to establishm ent of the OPPS: general, direct, and personal supervision. Over time, we have ta ilored these definitions as needed to apply them in the hospital outpatient setting, so the definitions or applications in the OPPS may differ slightly from those in the physician o ffice setting. This is the case in defining direct supervision, where the MPFS requires presence “in the office suite,” and the OPPS currently does not require pr esence within any specific physi cal boundary (in the past, the OPPS rules for direct supervision required presence on the hospital campus or in the PBD) (75 FR 72008, 72012). To date, for purposes of the hospital outpatient setting, we have only defined direct and general supervision, and we have only defined general supervision insofar as it applies to the provision of nonsurgical extende d duration therapeutic services (extended duration services) for which we require dire ct supervision during an initiation period, followed by a minimum standard of general s upervision for the durat ion of the service (75 FR 72012). Under the OPPS, general superv ision means that the service is furnishedCMS-1525-P 438 under the overall dir ection and control of the physician or appropriate nonphysician practitioner, but his or her physical presence is not required during the performance of the service. Direct supervis ion means that the physician or appropriate nonphysician practitioner is immediately available to fu rnish assistance and di rection throughout the performance of a therapeutic service or proced ure; however, he or sh e does not have to be present in the room where the servi ce or procedure is being performed. In the CY 2000 OPPS final rule with comment period (65 FR 18524 through 18526), we adopted physician supervision polic ies as a condition of payment under the OPPS to ensure that Medicare pays for high qua lity hospital outpatient services that are furnished in a safe and effective manner and c onsistent with Medicare requirements. The agency has long divided hospital outpatientservices into th e two categories of “diagnostic” services and other “therapeuti c” services that aid the physician in the treatment of patients (Section 3112 of the Medicare Part A Intermediary Manual (July 1987)). Thus, we considered all nondiagnos tic services to be “t herapeutic services” which would include, but not be limited to, the services listed under section 1861(s)(2)(B) of the Act as inci dent to the services of physicians. As early as 1985, the agency defined therapeutic services as thos e services and supplies (including the use of hospital facilities) which are in cident to the services of phys icians in the treatment of patients (Section 3112.4 of the Medicare Part A Intermediary Manual (May 1985)). In recognition of this historic cl assification of services, we es tablished a direct supervision standard for outpatient therapeutic serv ices under our regulation at §410.27, which establishes the conditions for payment for outpa tient hospital services provided “incidentCMS-1525-P 439 to” physicians’ services. In the text of §410.27, we also establishe d standards requiring that these services be furnished either by or under arrangements made by the participating hospital (§410.27(a)(1)(i )), either in the hospital or in a location that the agency designates as a department of a pr ovider under §413.65 of the regulations (§410.27(a)(1)(iii)). Since 2000, we have mainta ined the classificati on of services as either diagnostic or therapeutic in our manua l guidance that establis hes the conditions of payment for hospital outpatient services under the OPPS (Sections 20.4 and 20.5, Chapter 6 of the Medicare Benefit Policy Manual (Pub. 100-02)). In the requirements for therapeutic services, in addition to the di rect supervision stan dard, we applied the requirements of §§410.27(a)(1)(i) and (a)(1)(iii) regardi ng under arrangement and provider-based site of service to all outpatient therapeutic se rvices that are paid under the OPPS (Section 20.5, Chapter 6 of the Medicare Benefit Policy Ma nual (Pub. 100-02)). In the CY 2000 OPPS final ru le with comment period, we amended our regulation at §410.27 to specify that direct supervision is required for outpatie nt hospital services and supplies furnished incident to a physician's service in a location we designate as a department of a provider under §413.65 of our re gulations. We specifi ed further in the regulation that direct supervis ion means the physician must be present on the premises of the location and immediately available to fu rnish assistance and direction throughout the performance of the service or procedure. The requirement to be “immediately available” was included in the regulati on, although at that time we did not define the term. Although the regulation required the physician to be present on the premises of the location where services were being furnished, it specified that the physician did not haveCMS-1525-P 440 to be present in the room when the proce dure was performed. In the CY 2000 OPPS final rule with comment period (65 FR 18525), we emphasized the importance of establishing a supervision standard for services furnished in departments of the hospital that are not located on campus, indicating that our amendm ent applies to services furnished at an entity that is located off the campus of a hospital that we designate as having provider-based status in accordance with th e provisions of §413.65. In response to a commenter, we stated that, in accordance with Section 3112.4(A) of the Intermediary Manual, we assume the direct supervision st andard is met when outpatient therapeutic services are provided incident to a physician’s service in an on-campus department of a hospital. In the CY 2000 OPPS final rule with comment period, we also defined the supervision standards for outpa tient hospital diagnostic servic es furnished in PBDs of hospitals in §410.28(e) of our regulations. The regulation at §410.28(e) provided that diagnostic services furnished at facilities ha ving provider-based status must be performed under the level of supervision indicated for the diagnostic test under the MPFS in accordance with the definitions in §§410.32(b)(3)( i), (b)(3)(ii), and (b )(3)(iii). In the CY 2010 OPPS/ASC final rule with comme nt period (74 FR 60588 through 60591, and 60680), we revised §410.28(e) to extend the supe rvision standards we had established for outpatient diagnostic tests furnished in PBDs to also apply to services furnished in the hospital setting or any other location where diagnostic services may be provided under arrangement. The supervision rules for di agnostic services under the regulation at §410.28(e) explicitly apply to hospitals that ar e paid in accordance with section 1833(t)CMS-1525-P 441 of the Act, which is the st atutory authority for the OPPS . As noted in the CY 2010 OPPS/ASC final rule with comment period, Medicare makes payments to CAHs in accordance with section 1834(g) of the Act. Accordingly, CAHs are not subject to the supervision requirements for outpa tient diagnostic services at this time. The supervision requirements for outpatient diagnostic serv ices were also set forth in Section 20.4, Chapter 6, of the Medicare Benefit Policy Manual. In the years following establ ishment of the initial OPPS regulations, we began to receive inquiries from providers about the supervision requirements. Many of these inquiries led us to believe th at some hospitals may have misunderstood our statement to the effect that we assume physician supe rvision requirements are met for services furnished on the hospital premises, and were providing either general supervision or no supervision for therapeutic services furnishe d incident to physician s’ services in the outpatient setting and for which we had establis hed a requirement of direct supervision. Therefore, in the CY 2009 OPPS/ASC proposed rule and final rule with comment period (73 FR 41518 through 41519 and 73 FR 68702 through 68704, respectively), we clarified and restated the various supervision require ments for outpatient hospital therapeutic and diagnostic services. We clarified that therapeu tic services furnished in the hospital and in all PBDs of the hospital, specifically both on-campus and off-campus PBDs, must be provided under the direct supervision of physicians . We also reiterated that all diagnostic services furnished in PBDs, whether on or off the hospital’s main campus, should be supervised according to the levels assigned for the individual tests under the MPFS. WeCMS-1525-P 442 received very few public comments regarding this clarification and restatement during the comment period. In response to concerns about our policy restatement articulated by stakeholders after publication of the CY 2009 OPPS/ASC final rule with comment period, we further refined our supervision policies in the CY 2010 OPPS/ASC proposed rule and final rule with comment period (74 FR 35365 and 74 FR 60679 through 60680, respectively). We established rules for diagnostic services furnishe d in locations other than PBDs (that is, in the hospital and under arrangement in nonhospita l facilities). Accordingly, we expanded and refined the regulatory language regarding direct supervisi on of diagnostic services in those locations to refe r to presence of the supervisory practitioner in the hospital or PBD (for services furnished in t hose locations) or in the office suite (for services furnished under arrangement in nonhospital space). Fo r therapeutic services, we increased hospitals’ flexibility regarding the direct supervision requirement by allowing all nonphysician practitioners whose services are th ose the practitioner is legally authorized to perform under State law that “would othe rwise be covered if furnished by a physician or as an incident to a physician’s service” (“would be physicians’ services”) to supervise outpatient therapeutic services that are within their scope of practice under State law and their hospital-granted or CAH- granted privileges (sections 1861(s)(2)(K) through (N) of the Act; §§ 410.71 through 410.77 of the regulations). However, in implementing the new benefits for pulmonary rehabilitation (PR) , cardiac rehabilitation (CR) and intensive cardiac rehabilitation (ICR) services, we required that direct supervision of those services furnished in the hospital outpatient setting must be provided by a doctor of medicine or aCMS-1525-P 443 doctor of osteopathy because, as we disc ussed in the CY 2010 and CY 2011 OPPS/ASC final rules with comment period (74 FR 60573 and 60582 and 75 FR 72009, respectively), the statute specifies that thes e services are physician-supervised (section 144(a)of the Medicare Improvements for Pa tients and Providers Act of 2008, Pub. L. 110-275). In addition, in the CY 2011 OPPS/AS C final rule with comment period, we revised our regulations at §410.27 to remove the physical boundary requirements for direct supervision, and instead to allow the supervisory practitioner simply to be “immediately available,” meaning physically pr esent, interruptible, and able to furnish assistance and direction throughout the perf ormance of the procedure, but without reference to any partic ular physical boundary. In the CY 2010 OPPS/ASC final rule with comment period, we finalized a technical correction to the re gulation at §410.27 to clarify th at the direct supervision requirement under that section applies to servi ces furnished in CAHs as well as hospitals. Specifically, we added the phrase “or CAH” in the title and throughout the regulation text wherever the text referred onl y to “hospital,” to clarify th at the requirements for payment of hospital outpatient therapeutic services in that section apply to CAHs as well as other types of hospitals. As we discussed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72000), we viewed this as a te chnical correction becau se the Act applies the same regulations to hospitals and CAHs when appropriate (CAHs are included if “the context otherwise requires” unde r section 1861(e) of the Act). In response to our clarification that CAHs are subject to the direct supervision standard for payment of outpatient ther apeutic services, CAHs and the hospitalCMS-1525-P 444 community at large suggested that CAHs should be exempt from this requirement because the requirement is at odds with l ongstanding and prevailing practices of many CAHs. For example, commenters noted th at, due to low volume of services, a practitioner retained on the cam pus of a small rural hospital or CAH to meet supervision requirements may not have other concurrent re sponsibilities or pati ent care, which could lead to inefficiencies. In their corresp ondence and discussion in public forums, CAHs and small rural hospitals exp licitly raised concerns about services that extend after regular operating hours, especially observati on services. They asserted that direct supervision is not clinically necessary for some services that have a significant monitoring component that is typically perf ormed by nursing or ot her auxiliary staff, including IV hydration, blood transfusions, a nd chemotherapy. They stated that their facilities have protocols to safely deliver all of these services, relying on nursing or other hospital staff to provide th e service and having a physicia n or nonphysician practitioner available by phone to furnish assistance and direction throughout the duration of the therapeutic service. We provided guidance regarding the flexibil ity that we believe exists within our requirement for direct supervision fo r an emergency physician or nonphysician practitioner, who would be the most likely pr actitioners staffing a small rural hospital or CAH, to provide the supervis ion, on the CMS Web site at: http://www.cms.gov/HospitalOutpatien tPPS/05_OPPSGuidance.asp#TopOfPage

. However, these hospitals continued to expre ss difficulty in meeting the standard. Small rural hospitals and CAHs indicated that, re gulations notwithstanding, many of them didCMS-1525-P 445 not have appropriate staff arrangements to provide the required s upervision of some services, particularly servi ces being provided after hours or consisting of a significant monitoring component that last for an extende d period of time. In addition, the broader hospital community began requesting that we modify our policy to permit a lower level of supervision for therapeutic services for all hospitals. After consideration of these requ ests, on March 15, 2010, we issued a Federal Register notice of nonenforcement of the requirement for direct supervision of outpatient therapeutic services in CAHs (which is available on the CMS Web site at: http://www.cms.gov/HospitalOutpatien tPPS/Downloads/CMS_1504FC_OPPS_2011_FR _Physician_Supervision_Nonenf_Notice.pdf ). While CAHs remained subject to the direct supervision standard, we instructed our contractors not to evaluate or enforce the standard in CY 2010 until the agency could revisit the supervision policy during the CY 2011 rulemaking cycle. As indicated above, in the CY 2011 OPPS/ ASC final rule with comment period (75 FR 71998 through 72013), we further adjusted the direct supervision standard to increase flexibility for hospitals while main taining an appropriate level of quality and safety and consistent with the incident to statutory provision. Speci fically, we redefined direct supervision to remove all requiremen ts that the supervisor y practitioner remain present within a particular physical b oundary, although we continued to require immediate availability. We also establis hed a new category of services, “nonsurgical extended duration therapeutic services” (ext ended duration services), which have a substantial monitoring component. We specified that direct supervision is required forCMS-1525-P 446 these services during an in itiation period, but once the supervising physician or nonphysician practitioner has determined the pati ent is stable, the se rvice can continue under general supervision. In addition, in response to concerns e xpressed by the industr y about appropriate levels of supervision for certain services fu rnished in various settings (for example, chemotherapy administration, and post-operative recovery services), we stated our intent to create through the CY 2012 rulemaking cycle an independent advisory review process for consideration of stakeholde r requests for assignment of supervision levels other than direct supervision for specific outpatient hospita l therapeutic services. We stated that the review entity would evaluate se rvices for assignment of bot h higher (persona l) and lower (general) levels of supervisi on because, in the course of ev aluating a given service, the review entity may find that personal supervision is th e most appropriate level (75 FR 72006). We also indicated that, as an interim measure while we are in the process of establishing an advisory review body, we would extend the nonenforcement policy for direct supervision of outpatient therapeutic services provided in CAHs for a second year through CY 2011 (which is availa ble at the CMS Website at: http://www.cms.gov/HospitalOutpatien tPPS/Downloads/CMS_1504FC_OPPS_2011_FR _Physician_Supervision_Nonenf_Notice.pdf ). In addition, we expanded the nonenforcement notice to include small and rura l hospitals that have 100 or fewer beds, as defined by TOPs criteria, because we be lieve that these hospitals experience resource constraints that are similar to CAHs.CMS-1525-P 447 We indicated that we would consider the Federal Advisory Ambulatory Payment Classification (APC) Panel as a potential candidate to serve as the independent review entity to consider requests for alternative se rvice-specific supervision standards, and we requested public comment both on that idea a nd on other aspects of the review process, such as evaluation criteria and the potential structure of the process. We suggested the APC Panel could serve as the review entity because it is already funded and established by law under the Federal Advisory Committ ee Act (FACA, Pub. L. 92-463) to make independent recommendations to CMS. Th e APC Panel membership is geographically diverse, and it includes members with clinical as well as administrative, hospital billing, and coding expertise. In response to our di scussion in the CY 2011 OPPS/ASC final rule with comment period, we received public comments and other considerable input on these topics from the hospital and CAH commun ity and from rural stakeholders. In this proposed rule, we discuss these comments a nd our proposals for the independent review process in CY 2012, taking into account th e comments received in response to the CY 2011 OPPS/ASC final rule with comment period. With respect to outpatient hospital diagnos tic services, following our revisions to the regulation at §410.28(e) in the CY 2010 OP PS/ASC final rule with comment period described above, we have received very few comments from stakeholders regarding our revised policy. Therefore, we are not proposin g any changes to those requirements in this proposed rule.CMS-1525-P 448 B. Issues Regarding the Supervision of Hosp ital Outpatient Therapeutic Services Raised by Hospitals and Other Stakeholders 1. Independent Review Process In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72012), we stated our intent to develop an independe nt technical review process through our CY 2012 rulemaking. Public comments that we received on this statement of intent focused on three primary topics: the potential nature of the review entity; the potential nature and structure of the re view process; and potential means of evaluating services. Commenters were generally favorable towards the establishment of an independent review entity, incl uding use of the APC Panel as that entity, provided that CMS expand the APC Panel charter and its me mbership to include representatives of CAHs. They also were concerned that CM S ensure an adequate representation of clinicians on the Panel to provi de the appropriate clinical re view of supervision levels. Some commenters supported cr eation by law of a new committee comprised solely of clinicians (at least 15 multi-specialty physicia ns and mid-levels). Citing the potentially significant impact of the supervision rules on rural and CAH providers, these commenters also recommended that at least 50 percen t of committee members be comprised of representatives of CAHs and ot her providers from rural Stat es, with recommendations for supervision levels decided by majority vote. Other commenters preferred use of an existing body (for example, the APC Pane l or the Relative Value Scale Update Committee (RUC)) and emphasized inclusion of nonclinical professionals with expertise in hospital/facility resource consumption in or der to balance the panel’s expertise. SomeCMS-1525-P 449 commenters sought to assure that if the AP C Panel were selected, it would remain appropriately balanced and qua lified to carry out its current role in APC deliberations under section 1833(t)(9)(A) of the Act. Comme nters also were supportive of CMS using its authority to convene a Technical Expert Panel (TEP) as the re view entity, but noted potential lack of available funding. In considering these issues, we believe that the best course of action is to obtain independent advice with the transparency, formality and process associated with a Federal advisory committee. Stakeholders may view the recommendations of a FACA Committee as having greater legitimacy and, thus, its recommendations could be more useful to CMS than the recommendations that would be offered by other types of groups such as the American Medical Association’ s Relative Value Update Committee or a TEP. A TEP might be more conducive to in-depth research and data analysis, but unless the TEP complies with the Federal Advisory Committee Act, the TEP as a group cannot provide advice to CMS. At this time, funding is not available to CMS to convene a new entity; therefore, we believe the most realistic and appropria te option is to use an existing body for reviewing supervision levels. We agree w ith commenters that th e review body should be representative of all types of facilities th at are subject to the supervision rules for payment, but we disagree that it should be 50 percent representative of a specific class of hospitals, particularly if those hospitals repr esent a minority of hosp ital outpatient service volume and payments. In addition, while we agree with comment ers that clinical expertise is critical to this review process, we believe that additiona l perspectives shouldCMS-1525-P 450 be represented, including thos e of hospital administrators and coding representatives. Under the FACA, committees and their subco mmittees must have balanced membership with respect to points of view represen ted and the topics that are under their consideration; therefore, a Federal advisory review entity would be required to have a balanced representation of geographic inte rests, including those of CAHs and rural hospitals. It also would be required to have a balanced representation of clinical as well as any other relevant expertise. With respect to structure of the actual re view process, most commenters requested that we subject the recommendations of the re view entity and CMS’ decisions to notice and comment rulemaking. However, most co mmenters also requested a “real-time” process that would be more flexible than annual rulemaking and allow for continuous evaluation of services. Commenters furthe r requested that there be a mechanism for reconsideration of CMS’ decisions. In addi tion, they requested that CMS not allow any information presented to the review entity in th e course of the review process to be used for enforcement purposes. We believe that employing a subregulat ory process to establish CMS’ final decisions may best serve the in terests of beneficiaries and al so meet the needs of other stakeholders. While rulemaking would argua bly provide some additional procedural protections to stakeholders in terms of an opportunity for notice and comment, due to the time involved in rulemaking, stakeholders w ould only be able to request changes in supervision levels once a year. Similarly, if confined to annual rulemaking, CMS would not be able to make swift changes to addr ess any problems associated with supervisionCMS-1525-P 451 levels, for example access to care. Histori cally, CMS has used subregulatory processes rather than rulemaking to issue changes in certain administrative specifications at the level of individual CPT codes due to a need for agility in making such changes. For example, CMS has used a subregulatory proces s to set supervision levels for individual diagnostic services under the MPFS, which are adopted for provision of those services in the hospital outpatient setting. Given the strong stakeholder interest in policy changes in supervision levels for outpatient hospital th erapeutic services, we believe we should provide an opportunity for public comment on our proposed decisions (which would be based upon the review entity’s recomme ndations) prior to finalizing them. We agree with commenters that th ere should be a means of requesting reevaluation of CMS’ decisions. However, because there is a potential for significant administrative burden in reconsidering re quests for reevaluation, we believe that stakeholders should be required to provide significant justif ication to support consideration of a request for a change in supervision levels that has previously been considered, such as new clin ical evidence, new technology, or new techniques in how patient care is furnished. In addition, we believe that ne w consideration of previously considered requests should receive the same i ndependent evaluation as the initial request. Therefore, once we decide to consider a de cision, we would request a new review by the independent review entity and follow the same process as a new request. The review entity would then deliberate and make a new recommendation to CMS, and CMS would then make another determination based on the new recommendation.CMS-1525-P 452 We received substantial comment on how we might structure the evaluation process. First, stakeholders continued to re quest that we establish a default supervision standard of general supervisi on for all therapeutic services, and assign direct supervision only as indicated through the review process. Commenters believed it was important that the review entity and CMS not consider servi ces for assignment of personal supervision because many services that might qualify for personal supervision are already personally performed by a physician or nonphysician practi tioner. Commenters also noted that certain services are not furnished persona lly by these practitioners and instead are furnished personally by auxiliary personnel su ch as technicians or registered nurses (RNs). However, commenters maintained that hospitals currently furnish adequate supervision of those services by higher-level practitioners. Further, they requested that any evaluation for personal supervision be based on clinical evidence and evidence of a current deficiency in the quality of care. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72006), we expressed our belief that direct supervision is the most appropriate level of supervision for most hospital outpatient therapeutic services due to the “incident to” nature of most hospital outpatient therapeutic services. We discussed how our historic requirements for physician (or nonphysician practitioner) orders and direct physician involvement in patient care stem from our interpretation of the nature of incident to services under the law. We reviewed our regulations and othe r guidance over the years which reflect these beliefs and interpretations (75 FR 71999 and 72005).CMS-1525-P 453 We continue to believe that, while the st atute does not explicitly mandate direct supervision, direct supervisi on is the most appropriate le vel of supervision for most hospital outpatient services th at are authorized for paymen t as “incident to” physicians’ services unless personal supervis ion is appropriate. We also believe that the “incident to” nature of hospital outpatient therapeutic services under the law permits us to recognize specific circumstances in which general supe rvision is appropriate, as we have for extended duration services, and that CMS ha s authority to accept a recommendation by the review entity of general supervision for a given service. However, we continue to believe that direct supervisi on is the most appropriate leve l of supervision for the great majority of hospital outpatient therapeutic serv ices and, as such, it is the proper choice for a default supervision standard. In the course of evaluating a stakeholde r request for review of the supervision level required for a given se rvice, the independent revi ew entity may recommend that personal supervision is the most appropriate le vel of supervision for the service. It may also be appropriate to assign personal superv ision to certain services to ensure that auxiliary personnel or personnel in training (s uch as medical students) are adequately supervised. As we indicate d in last year’s final rule with comment period, our supervision policy is designed to preserve both the quality and safety of purchased hospital outpatient services for Medicare benefi ciaries. Accordingly, we believe that the review entity should have authority to recomm end personal supervision for a service if, in the course of its evaluation, it believes that pe rsonal supervision is most appropriate and safe.CMS-1525-P 454 We believe that the review entity should base its recommendations on any clinical evidence that is available. It should also take into cons ideration any known impacts of supervision on the quality of care. As we have previously noted (75 FR 72005), while literature or clinical opinions may exist on th e risk of adverse outcomes and susceptibility to medical error associated with the provision of specific hospital outpatien t procedures when a physician is not present, we do not know of any analyses that have directly examined levels of supervision and patient outcomes in the hospital outpatient setting. This may be an area for future study. With respect to an initial agenda of services for the review entity, commenters recommended that CMS begin evaluating services with work Relative Value Units (RVUs) < 1.0 (approximately 160 services), which they believe would include many extended duration services. They also request ed that CMS evaluate surgical procedures (especially minor surgical procedures) and por tions of the surgical recovery period for general supervision. We continue to support di rect supervision as th e default supervision level for all hospital outpatient therapeutic se rvices. We believe it would be appropriate to solicit services for evaluation from stakehol ders, in a process similar to that currently used to solicit agenda items for the APC Pane l meetings. Also, it will be important for CMS to be able to place services on the Panel agenda as issues arise, similar to the way the agency brings inpatient only procedures before the APC Panel for consideration of removal from the inpatient only list. If we received an unmanageable number of requests during a particular period, we propose to pr ioritize requests according to service volume, total expenditures for the service, frequency of requests, and the repetition of requestsCMS-1525-P 455 from prior public comments. In addition, we pr opose to require the s ubmitter of a request to furnish a justification for the request, s upported to the extent possible with clinical evidence. We would use the justifications to assist in prioritizing agenda items. Commenters suggested that evaluation criteria include the general categories of risk, complexity, the type of professional and scope of practice of the professional furnishing the service, and whether the servi ce is furnished in a CAH or rural facility, taking into consideration the workforce typical ly available to those hospitals. We agree with the suggested general parameters of risk and complexity, and we offer several similar potential measures below for the public ’s consideration. In recommending a level of supervision that would apply for a particul ar service described by a CPT code, we also believe that the review entity could take into consideration the varied environments in which the service described by that code may be delivered. We anticipate that representatives of different t ypes of facilities on the Panel will facilitate an understanding of any potential variation in conditions at different types of facilities. Under the conditions of participation fo r hospitals at §482.11(a), hospitals must comply with applicable Federal law related to the health and safety of patients. Under §482.11(c), hospitals must also assure that personnel are licensed or meet other applicable standards of State or local law. Registered nurses (RNs) are not authorized to independently furnish services that would be physicians’ services if furnished by a physician as described in secti on 1861(s)(2)(K) of the Act. In addition, under their State scope of practice, RNs are not licensed to i ndependently furnish these services. Under the condition of partic ipation regulation at §482.11, hospita ls must comply with theseCMS-1525-P 456 Federal and State rules. Because under the law RNs are not permitted to furnish “would be” physicians’ services, we do not believe RNs should be permitted to supervise those services. Therefore, under the regulations at §§410.27 and 482.11, RNs cannot supervise “would be” physicians’ services that they may not independently furnish (though they may furnish some of them under the superv ision of an appropr iately higher level practitioner), even in a CAH or rural fac ility that may be experiencing difficulty obtaining a higher level practitione r to supervise or furnish thos e services. In this case, the statute and the regulations determin e at the service level which nonphysician professionals can and cannot supervise therapeutic services. Furthermore, we note that we anticipa te extending the notice of nonenforcement for direct supervision of out patient therapeutic services in both CAHs and small rural hospitals another year thr ough CY 2012, which we discuss in section X.C.2. of this proposed rule. 2. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories Another issue that has been raised to us is the applicability of the payment conditions for hospital outpatient therapeutic services in §410.27 to se rvices described in paragraphs or subparagraphs of secti on 1861(s) of the Act other than section 1861(s)(2)(B) of the Act, which describes outpatient hospital se rvices incident to physicians’ services. Over the years, and partic ularly in recent months, we have received inquiries asking that we expl ain or clarify our application of the payment conditions under our regulation at §410.27, which explicit ly applies to “hos pital services andCMS-1525-P 457 supplies furnished incident to a physician service to outpatients,” to outpatient therapeutic services other than those specified under sec tion 1861(s)(2)(B) of the Act. For example, we have received inquiries as to whether it is permissible for hospitals to furnish radiation therapy (described under sect ion 1861(s)(4) of the Act) or ambulatory surgical center services (described under s ection 1832(a)(2)(F)(i) of th e Act) under arrangement in locations that are not provider-based. Some have suggested that the language in §410.27 is not applicable to services described by benefit categories in section 1861(s) of the Act other than section 1861(s)(2)(B) of the Ac t because §410.27 only refers to “incident to” services. Although we acknowledge the language of §410.27 could be read as limited to services and supplies described under section 1861(s)(2)(B) of the Ac t, hospital services incident to physicians’ services furnished to outpatients, we have not interpreted the regulation so narrowly. For instance, in the CY 2010 OPPS/ASC final rule with comment period, we noted that, long before th e OPPS, we required th at hospital services and supplies furnished to outpati ents incident to a physician’ s service must be furnished “on a physician’s order by hospital pers onnel and under a physician’s supervision” (section 3112.4 of the Medicare Intermediary Manual). We also clearly treated all nondiagnostic services that are furnished to hos pital outpatients as “i ncident to services” (sections 3112 and 3112.4 of the Medicare In termediary Manual; Section 20.5, Chapter 6, of the Medicare Benefit Policy Manual (Pub. 100-02)). While we have not delineated this position as clearly in the regulations, and while th e regulation text of §410.27 only explicitly refers to “inciden t to” services, we note that ou r policy is longstanding and, inCMS-1525-P 458 fact, predates the OPPS. In longstanding ma nual guidance, we have expressed our view that direct supervision is required for hos pital outpatient therapeutic services, and suggested that this re quirement stems from the “incident to” nature of those services. In the CY 2010 OPPS/ASC final rule with co mment period, we stated, “Therapeutic services and supplies which hospitals provide on an outpatient basi s are those services and supplies (including the use of hospital facili ties) which are incident to the services of physicians and practitioners in the treatm ent of patients” (74 FR 60584 through 60585). We indicated that outpatient therapeutic services and suppl ies must be furnished under the order of a physician or other appropriate nonphysician practitioner, and by hospital personnel under the direct supervision of a physician or appropriate nonphysician practitioner. Thus, we have long maintained that all hospital outpatient th erapeutic services are, in some sense, furnished “incident to” a physician’s service even when described by benefit categories other than the specific “incident to” pr ovision in section 1861(s)(2)(B) of the Act. Because hospital outpatient therap eutic services are furnished “incident to” a physician’s professional service, we believe the conditions for payment, including the direct supervision standard, s hould apply to all of these serv ices. As discussed above, because the statute includes specific require ments for physician supervision of PR, CR, and ICR, we believe that those statutory sp ecifications take precedence over the agency’s general requirements.CMS-1525-P 459 C. Proposed Policies on Supervision Standard s for Outpatient Ther apeutic Services in Hospitals and CAHs In this proposed rule, we are proposin g policies for the independent review process, grouped under three key topics: se lection of a review body; structure of the review process; and evaluation criteria. 1. Selection of Review Entity We are proposing that the existing APC Panel serve as the independent review entity. However, we would make some modifications to the APC Panel scope and composition in order to create a body that is prepared to address supervision standards and reflects the full range of parties subject to the standard s. Specifically, we would use the discretionary authority in the Panel charte r to expand its scope to include the topic of supervision standards. We are proposing to add several (2 to 4) representatives of CAHs as Panel members so that all hospitals subjec t to the supervision rules for payment would be represented. However, CAHs would not participate in deli berations about APC assignments under the OPPS, as these assignments do not affect CAHs. According to customary practice for the APC Panel, we are proposing to create a supervision subcommittee on the Panel, with balanced re presentation, that is charged to evaluate appropriate supervision standard s for individual services and present its deliberations to the full Panel. Each member of the full Pane l would then vote to decide on the Panel’s recommendation to CMS. We are proposing to use the APC Pane l for many reasons. As we discussed above, funding is not available to CMS at this time to convene a new entity. Also, it isCMS-1525-P 460 not clear that the entire resources of a new body are necessary to accomplish the consideration of service-specific supervis ion standards, especially once initial determinations are made regarding key servic es. We are also proposing to use the APC Panel because we believe it is important to obtain advice that carries the weight of a Federal advisory recommendation, which ma y have greater legitimacy both with stakeholders and with CMS compared to the opinions of other types of groups. In addition to being already estab lished and funded, the APC Panel would necessarily be inclusive and well-balanced b ecause it is subject to the FACA rules. Consistent with stakeholders’ requests that th e review entity have balanced representation from all hospitals that are subject to the supervision rules, the Federal Advisory APC Panel would be required by the FACA to have balanced membership on committees and their subcommittees with respect to the topics – in this case, superv ision – that are under their consideration. In additi on, the Panel incorporates clin ical as well as facility, administrative, and coding perspectives. Commenters have been generally favorable towards selection of the APC Panel, provided we make the changes to the APC Panel that we are proposing in this proposed rule. 2. Review Process We are proposing to issue agen cy decisions based on APC Panel recommendations through sub-re gulatory guidance. We woul d use a process similar to the one currently used to set supervision levels for diagnos tic services under the MPFS, which are adopted for provision of those services in the hospi tal outpatient setting. CMS’ decisions (which would be based upon the Panel’s recommendations) would be posted onCMS-1525-P 461 the OPPS Web site for public review and commen t, and would be effec tive either in July or January following the most recent APC Pa nel meeting, or only in January of the upcoming payment year. In setting the dia gnostic supervision levels under the MPFS, there is no provision for public comment. Howe ver, given the strong stakeholder interest in this topic and the extent of prior dialogue with the various stakeholders, we believe it is important to provide some means of no tice and comment on our proposed decisions prior to finalizing them. The flexibility of a subregulatory pro cess in comparison to rulemaking would allow stakeholders to submit requests for evalua tions of services on a more frequent basis (at least twice a year at AP C Panel meetings) rather than only annually, which most commenters requested. It also would give CMS the ability to respond more rapidly to any issues that may arise in access to care or patterns of care. S ubjecting CMS’ decisions to notice and comment rulemaking would provide a more structured, formal review of decisions, but changes could only be requested or made once a year due to the annual OPPS/ASC rulemaking cycle. 3. Evaluation Criteria To begin evaluating services in CY 2012, we are proposing to use the same APC Panel process that is used to solicit services or categories of services from stakeholders to construct the agenda to solicit potential services for consideration of a change in supervision level. In addition, as discussed in section X.C.2. of this proposed rule, we are proposing that CMS would have the ability inde pendently to ask the Panel to review the supervision level for one or more services as necessary. If we r eceive an unmanageableCMS-1525-P 462 number of requests, we are proposing to pr ioritize requests by se rvice volume, total expenditures and/or frequency of requests. We also are proposing to prioritize services requested for review through public comme nt on the CY 2010 and CY 2011 OPPS/ASC proposed rules. We are proposing to require requests to include justification for the change in supervision level th at is sought, supported to the ex tent possible with clinical evidence. We also would consider these ju stifications in deciding which services to forward to the APC Panel for evaluation. We are proposing to charge the Panel with recommending a supervision level (general, direct, or personal) to ensure an appropriate level of quality and safety for delivery of a given service, as defined by a CPT code. The Panel should take into consideration the context in wh ich the service is delivered, that is, the clinical, payment, and quality context of a patient encounter. In recommending a supervision level to CMS, we are proposing that the Panel assess whethe r there is a signifi cant likelihood that the supervisory practitioner would need to reas sess the patient and m odify treatment during or immediately following the therapeutic in tervention, or provide guidance or advice to the individual who provides the service. In answering that question, the Panel would consider--

● Complexity of the service;

● Acuity of the patients receiving the service;

● Probability of unexpected or adverse patient event; and

● Expectation of rapid clinical changes during the therapeutic service or procedure.CMS-1525-P 463 These criteria include, but extend we ll beyond, the likelihood of the need to manage medical emergencies during or after th e provision of the serv ice. As we have stated in previous rules (74 FR 6058 0 and 75 FR 72007 and 72010), the supervisory responsibility is more than the mere capaci ty to respond to an emergency. It also includes being available to reassess the pati ent and potentially modify treatment as needed on a nonemergency basis. It include s the ability to redirect or take over performance of the service and to is sue any additional necessary orders. We are proposing that, in the event ther e has been a previous consideration and decision on the supervision standard for a serv ice, we would consider the request and, as warranted, forward the request to the APC Pane l for its review. For requests for review of a service that has already been considered, we are proposi ng to require the requestor to submit new evidence to support a change in polic y, for example, evidence of a change in clinical practice patterns due to new tec hniques or new technology. If sufficient new information was provided with the request , CMS would send the request to the APC Panel, and the Panel would reconsider the service and make another recommendation to CMS, which could be the same or a different level of supervision than the current level for the service. Finally, in the interim period while we wo rk toward establishing the independent review process, we anticipate that we w ill extend the notice of nonenforcement of the requirement for direct superv ision in CAHs and small rural hospitals as defined by the notice (available on the CMS Web site at: http://www.cms.gov/HospitalOutpatientPPS/01_overview.asp ) another year, throughCMS-1525-P 464 CY 2012. The purpose of this proposed policy would continue to be to allow these facilities time to meet the direct supervision standard while we con tinue to deliberate on any policy alternatives. U nder our current timeline, we would not complete policy decisions on many key servic es until sometime in 2012. We note that we have not yet defined the terms “personal supervision” or “general supervision” for the hospital outpatient setting, except, as explained above, for general supervision in relation to extended duration services in §410.27(a)(1)(v)(A). Because we are proposing to allow the independent revi ew entity to recommend that CMS assign either personal or general supervision to other hospital outpa tient therapeutic services, we are proposing to define these terms in the re gulations at proposed new §410.27(b)(1)(vi). We are proposing to use the definitions esta blished for purposes of the MPFS as specified at §410.32(b)(3). Specifically, “personal supervision” would have the same meaning as the definition specified at §410.32(b)(3)(iii) a nd “general supervision” would have the same meaning as the definition specified in §410.32(b)(3)(i), which is the same definition that we established for the ge neral supervision portion of an extended duration service. 4. Conditions of Payment and Hospital Outpatient Therapeutic Services Described by Different Benefit Categories With respect to the issue of applicat ion of the payment conditions in §410.27 to services described by benefit categories other than section 1861(s)(2 )(B) of the Act, we are proposing to amend our regul ations to clarify our policy. Therapeutic services and supplies described by benefit categories other than the hospital outpatient “incident to” services under section 1861(s )(2)(B) of the Act are neverthe less subject to the conditionsCMS-1525-P 465 of payment in §410.27 when they are furnishe d to hospital outpatient s and paid under the OPPS or to CAHs under section 1834(g) of the Act. We believe that this clarification co uld most readily be accomplished by more specifically defining the services and supplies described in the regul ation text to which the requirements at §410.27 apply. Accord ingly, we are proposing to revise the description of the services and supplies addressed in §410.27(a) by adding the term “therapeutic” so that paragraph (a) would r ead, “Medicare Part B pays for therapeutic hospital or CAH services and supplies furnis hed incident to a physician’s or nonphysician practitioner’s service” to outpatients. We are proposing to define these services, similar to the way they are currently defined in S ection 20.5, Chapter 6, of the Medicare Benefit Policy Manual, to mean “all services a nd supplies furnished to hospital or CAH outpatients that are not diagnosti c services and that aid the ph ysician or practitioner in the treatment of the patient.” We would also add the term “t herapeutic” to the title of §410.27 so that it would read, “Therapeutic outpatient hospital or CAH services and supplies incident to a physician’s or nonphys ician practitioner’s se rvice: Conditions.” We believe it is important that we continue to apply th e requirements in §410.27 to all hospital outpatient ther apeutic services and supplies that are paid under the OPPS and to services furnished in CAHs that are paid under section 1834( g) of the Act. In addition to the supervision rules, the payment conditions in §410.27 include rules regarding services furnished under arrangements and in PBDs. The goals of the “under arrangements” and PBD rules are different from the safety and quality goals of the supervision rules. They ensure clinical and financial integration between the mainCMS-1525-P 466 hospital and any on-campus or off-campus depa rtments of hospitals. In particular, §410.27(a)(1)(iii) subjects hospital outpatient se rvices to the requirements in §413.65 for PBDs of hospitals. The provider-based re gulations in §413.65 govern numerous aspects of PBD operations including quality assura nce, accountability to hospital medical director staff, licensure, personnel manageme nt, how far the departments can be located from the main hospital, and assurance th at the departments are serving the same population as the main provider. Section 410.27(e) subjects services to the “under arrangement” regulations at §410.42(a) which go vern the liabilities of the beneficiary and other parties when hospitals cont ract services out. It is im portant to reiterate that §410.27 is applicable to all hospital outpatient therapeutic services. We note, for example, that ASCs are not permitted to enter into arrang ements with hospitals to furnish hospital outpatient services. We believe we should cl arify and reinforce our longstanding policy that hospitals are not permitted to furnish therapeutic services or surgery under arrangement with ASCs because under §413.65(a)(1)(ii)(A), CMS does not make provider-based determinations regarding ASCs and under §410.27(a)(1)(iii) therapeutic services must be furnished in provider-based space. Moreover, a hos pital is not permitted to furnish services to hosp ital outpatients under arrangements with an ASC because ASCs are paid under section 1833( i)(2)(D) of the Act (the AS C payment system), not under section 1833(t) of the Act (the OPPS payment system). As a result, an ASC could not be a provider-based department of a hospital for purposes of §410.27. If §410.27 did not apply, an ASC could furnish hospital outpati ent therapeutic services under arrangements and obtain payment at the OPPS rate rather than the ASC rate. This practice wouldCMS-1525-P 467 distort the financial incentives within those payment systems, and would be contrary to the advice and determinations that have historically been made by CMS and other enforcement bodies such as the O ffice of the Inspector General. In addition, §410.27(a)(1)(ii) subjects hospital outpatient services to the incident to rules that CMS has historically applied to all therapeutic services. As we discussed above, these rules ensure that services are ordered by a physician (or appropriate nonphysician practitioner) and that he or she is di rectly involved in the delivery of care. Sections 410.27(b) and (c) subj ect services to other signif icant rules governing drugs and biologicals and emergency services. Additionally, we believe that there is a similar level of clinical risk in the therapeutic hospital outpatient services covered unde r other benefit cate gories that are not explicitly defined as “incident to” services. For example, stereotactic radiosurgery (a radiation therapy service unde r section 1861(s)(4) of the Act) is a high risk and technically demanding surgical procedure. We do not believe that the current requirements under §410.27 regarding superv ision, under arrangement, provider-based, and other aspects of service, were intended to apply only to a subset of hospital outpatient therapeutic services and supplies, or that the agency ever in tended to omit la rge classes of services that are routinely furnished to hos pital outpatients from being governed by this regulation.CMS-1525-P 468 5. Technical Corrections to the Supervision Standards for Hospital Outpatient Therapeutic Services Furnished in Hospitals or CAHs We recently noted that the text of §§410.27( b) and (c) includes cross-references to section §410.168 of the regulations, which is obs olete. We believe that §410.27(b) refers to §410.168 in error and should instead re ference §410.29 (Limitations on drugs and biologicals). We are proposi ng to correct §410.27(b) so thatit cross-references §410.29. It would then read, “Drugs and biological are also subject to the limitations specified in §410.29.” In addition, we are proposing to update §410.27(c) to cross-reference the sections of the regulation that have re placed §410.168, that is, Part 424, Subparts G and H. For this update, we are proposing to revise paragraph (c) to read, “Rules on emergency services furnished to outpatients by nonparticipating hospitals are specified in subpart G of Part 424 of this chapter” and to add a new paragraph (d) to read, “Rules on emergency services furnished to outpatients ina foreign country are specified in subpart H of Part 424 of this chapter”. Accordingl y, we are proposing to re designate the existing paragraphs (d) through (f) of §410.27 as para graphs (e) through (g), respectively. In addition, we noted that CAHs are not specifically named in the definition of nonsurgical extended duration therapeutic se rvices at §410.27(a)(1)( iv)(E). We are making a technical correction to insert the words “or CAH” after “hospital” in this paragraph. This is the same technical co rrection that we made throughout §410.27 in the CY 2010 OPPS/ASC final rule with comment period, discussed above. This technical correction clarifies that CAHs are subject to all of the requirements of §410.27 in the same manner as all other types of hospitals.CMS-1525-P 469 6. Summary In summary, we are proposing to estab lish the Federal Advisory APC Panel as an independent review body that would evaluate individual outpatient therapeutic services for potential assignment by CMS of general (low er) or personal (highe r) supervision. We are proposing to amend the APC Panel charter to render the Panel more appropriate for this task by expanding its scope to include the topic of supervision. We also are proposing to add two to four members to the Panel who would be representative of CAHs, so that there is broad representation of the types of hospitals th at are subject to the supervision rules for payment. We are proposing to use the standard APC Panel protocols with respect to frequency of mee tings and receiving requests for evaluation and reconsideration of services. However, CMS’ decisions based on the Panel’s recommendations would not be subject to not ice and comment rulemaking, in contrast to recommendations by the Panel on issues ot her than supervision. We are proposing several means of prioritizing requests for ev aluations, particularly if the Panel agenda could not accommodate all timely requests at a particular meeting. We also are proposing clinical and other evaluation criteria that the Panel would use in recommending a supervision level that would apply at the individual CPT code level. As we have not yet defined personal supervision or genera l supervision for all hospital outpatient therapeutic services, we are proposing definitio ns for these terms in this proposed rule. We anticipate extending the notice of none nforcement for direct supervision in CAHs and small rural hospitals as defined by the notice through CY 2012, because, even if the new APC Panel review process is adopted, we likely will not have finalized ourCMS-1525-P 470 policy decisions on many key services that are reviewed during that year. In addition, we are proposing to clarify our policy th at the requirements under §410.27 apply to outpatient therapeutic services and supplies furnished in hospitals and in CAHs, which includes services and supplies described by Medicare benefit categories other than section 1861(s)(2)(B) of the Act. To that end, we are proposing to redefi ne the services described in that section to clarify the nature and scope of the included services. XI. Proposed OPPS Payment St atus and Comment Indicators A. Proposed OPPS Payment Status Indicator Definitions Payment status indicators (SIs) that we assign to HCPCS codes and APCs play an important role in determining payment for services under the OPPS. They indicate whether a service represented by a HCPCS code is payable under the OPPS or another payment system and also whether particul ar OPPS policies apply to the code. The proposed CY 2012 status indicator assignmen ts for APCs and HCPCS codes are shown in Addendum A and Addendum B, resp ectively on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS . We note that, in the past, a majority of the Addenda referred to throughout the pream ble of our OPPS/ASC proposed and final rules appeared in the printed version of the Federal Register as part of the annual rulemakings. However, beginning with this CY 2012 proposed rule, the Addenda will no longer appear in the printed version of the OPPS/ASC rules that are found in the Federal Register . Instead, these Addenda will be published and available only via the Internet on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

.CMS-1525-P 471 For CY 2012, we are not proposing to make any changes to the definitions of status indicators that were listed in Addendum D1 of th e CY 2011 OPPS/ASC final rule with comment period. The proposed CY 2012 st atus indicators and their definitions are listed in the tables under sections XI .A.1., 2., 3., and 4. of this proposed rule. 1. Proposed Payment Status Indicators to Designate Services That Are Paid under the

OPPS Indicator Item/Code/Service OPPS Payment Status G Pass-Through Drugs and Biologicals Paid under OPPS; separate APC payment. H Pass-Through Device Categories Separate cost-based pass-through payment; not subject to copayment. K Nonpass-Through Drugs and Nonimplantable Biologicals, including Therapeutic Radiopharmaceuticals Paid under OPPS; separate APC payment.

N Items and Services Packaged into APC Rates Paid under OPPS; payment is packaged into payment for other services. Therefore, there is no separate APC payment. P Partial Hospitalization Paid under OPPS; per diem APC payment. Q1 STVX-Packaged Codes Paid under OPPS; Addendum B displays APC assignments when services are separately payable. (1) Packaged APC payment if billed on the same date of service as a HCPCS code assigned status indicator “S,” “T,” “V,” or “X.” (2) In all other circumstances, payment is made through a separate APC payment.CMS-1525-P 472 Indicator Item/Code/Service OPPS Payment Status Q2 T-Packaged Codes Paid under OPPS; Addendum B displays APC assignments when services are separately payable. (1) Packaged APC payment if billed on the same date of service as a HCPCS code assigned status indicator “T.” (2) In all other circumstances, payment is made through a separate APC payment. Q3 Codes that may be paid through a composite APC Paid under OPPS; Addendum B displays APC assignments when services are separately payable. Addendum M displays composite APC assignments when codes are paid through a composite APC. (1) Composite APC payment based on OPPS composite-specific payment criteria. Payment is packaged into a single payment for specific combinations of services. (2) In all other circumstances, payment is made through a separate APC payment or packaged into payment for other services. R Blood and Blood Products Pa id under OPPS; separate APC payment. S Significant Procedure, Not Discounted When Multiple Paid under OPPS; separate APC payment. T Significant Procedure, Multiple Reduction Applies Paid under OPPS; separate APC payment. U Brachytherapy Sources Pa id under OPPS; separate APC payment. V Clinic or Emergency Department Visit Paid under OPPS; separate APC payment. X Ancillary Services Paid under OPPS; separate APC payment.

We are not proposing any changes to the de finitions of status indicators listed above for the CY 2012 OPPS. The proposed CY 2012 status indicators and theirCMS-1525-P 473 definitions are displayed in both the tabl e above and in Addendum D1 on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

. 2. Proposed Payment Status Indicators to Designate Services That Are Paid under a Payment System Other Than the OPPS We are not proposing to make any changes to the definitions of status indicators listed below for the CY 2012 OPPS. Indicator Item/Code/Service OPPS Payment Status Services furnished to a hospital outpatient that are paid under a fee schedule or payment system other than OPPS, for example: Not paid under OPPS. Paid by fiscal intermediaries/MACs under a fee schedule or payment system other than OPPS. Services are subject to the deductible and coinsurance unless indicated otherwise. ● Ambulance Services

● Clinical Diagnos tic Laboratory Services Not subject to deductible or coinsurance. ● Non-Implantable Prosthetic and Orthotic Devices ● EPO for ESRD Patients ● Physical, Occupational, and Speech Therapy ● Routine Dialysis Services for ESRD Patients Provided in a Certified Dialysis Unit of a Hospital ● Diagnostic Mammography A

● Screening Mammography Not subject to deductible or coinsurance. C Inpatient Procedures Not paid under OPPS. Admit patient. Bill as inpatient. F Corneal Tissue Acquisition; Certain CRNA Services; and Hepatitis B Vaccines Not paid under OPPS. Paid at reasonable cost. L Influenza Vaccine; Pneumococcal Pneumonia Vaccine Not paid under OPPS. Paid at reasonable cost; not subject to deductible or coinsurance.CMS-1525-P 474 Indicator Item/Code/Service OPPS Payment Status M Items and Services Not Billable to the Fiscal Intermediary/MAC Not paid under OPPS. Y Non-Implantable Durable Medical Equipment Not paid under OPPS. All institutional providers other than home health agencies bill to DMERC.

The proposed CY 2012 status indicators and their definitions displayed in the table above are also displayed in Ad dendum D1 on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

. 3. Proposed Payment Status Indicators to Designate Services That Are Not Recognized under the OPPS But That May Be Recognized by Other Institutional Providers We are not proposing changes to the definitions of status indicators listed below for the CY 2012 OPPS. Indicator Item/Code/Service OPPS Payment Status Not paid under OPPS.

● May be paid by fiscal intermediaries/MACs when submitted on a different bill type, for example, 75x (CORF), but not paid under OPPS. B Codes that are not recognized by OPPS when submitted on an outpatient hospital Part B bill type (12x and13x)

● An alternate code that is recognized by OPPS when submitted on an outpatient hospital Part B bill type (12x and 13x) may be available.

The proposed status indicators and their de finitions listed in the table above are also displayed in Addendum D1 on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

.CMS-1525-P 475 4. Proposed Payment Status Indicators to Designate Services Th at Are Not Payable by Medicare on Outpatient Claims We are not proposing change s to the definitions of pa yment status indicators listed below for the CY 2012 OPPS.

Indicator Item/Code/Service OPPS Payment Status D Discontinued Codes Not paid under OPPS or any other Medicare payment system. Items, Codes, and Services: ● That are not covered by any Medicare outpatient benefit based on statutory exclusion ● That are not covered by any Medicare outpatient benefit for reasons other than statutory exclusion. ● That are not recognized by Medicare for outpatient claims; alternate code for the same item or service may be available E

● For which separate payment is not provided on outpatient claims Not paid by Medicare when submitted on outpatient claims (any outpatient bill type).

The proposed CY 2012 payment status indica tors and their definitions listed in the table above are also displayed in AddendumD1 on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

. B. Proposed Comment Indicator Definitions For the CY 2012 OPPS, we are proposing to use the same two comment indicators that are in e ffect for the CY 2011 OPPS.CMS-1525-P 476

● “CH”—Active HCPCS codes in current a nd next calendar year; status indicator and/or APC assignment have changed or activ e HCPCS code that will be discontinued at the end of the current calendar year.

● “NI”—New code for the next calendar year or existing code with substantial revision to its code descriptor in the next calendar year as compared to current calendar year, interim APC assignment; comments will be accepted on the interim APC assignment for the new code. We are using the “CH” indicator in this proposed rule to call attention to proposed changes in the payment status indicator and/or APC assignment for HCPCS codes for CY 2012 compared to their assignment as of June 30, 2011. We believe that using the “CH” indicator in this proposed rule will help facilitate the pu blic’s review of the changes that we are proposing for CY 2012. We are proposing to use the “CH” comme nt indicator in the CY 2012 OPPS/ASC final rule with comment period to indicate HC PCS codes for which the status indicator or APC assignment, or both, would change in CY 2012 compared to their assignment as of December 31, 2011. We believe that usi ng the “CH” indicator in the CY 2012 OPPS/ASC final rule with co mment period will facilitate the public’s review of the changes that we will make for CY 2012. The use of the comment indicator “CH” in association with a composite APC indicates th at the configuration of the composite APC has changed from the CY 2012 OPPS/ASC final rule with comment period.CMS-1525-P 477 We are proposing to continue our curr ent policy regarding the use of comment indicator “NI.” Any existing HCPCS code numbers with substantial revisions to the code descriptors for CY 2012 compared to the CY 2011 descriptors will be labeled with comment indicator “NI” in Addendum B to the CY 2012 OPPS/ASC final rule with comment period. However, in order to rece ive the comment indicator “NI,” the CY 2012 revision to the code descriptor (compared to the CY 2011 descriptor) must be significant such that the new code descriptor describe s a new service or procedure for which the OPPS treatment may change. We use comment indicator “NI” to indicate that these HCPCS codes are open to comment on the CY 2012 OPPS/ASC final rule with comment period. Like all codes labeled with comment indicator “NI,” we will respond to public comments and finalize their OPPS treatment in the CY 2013 OPPS/ASC final rule with comment period. In accordance with our usual practice, CPT and Level II HCPCS code numbers that are new for CY 2012 will also be labele d with comment indicator “NI” in Addendum B to the CY 2012 OPPS/ASC final rule with comment period. Only HCPCS codes with comment indi cator “NI” in the CY 2012 OPPS/ASC final rule with comment period will be subj ect to comment. HCPCS codes that do not appear with comment indicator “NI” in th e CY 2012 OPPS/ASC final rule with comment period will not be open to public comment, unless we specifically request additional comments elsewhere in the final rule with comment period. The CY 2012 treatment of HCPCS codes that appear in the CY 2012 OPPS /ASC final rule with comment period toCMS-1525-P 478 which comment indicator “NI” is not appe nded will be open to public comment during the comment period for this proposed rule, and we will respond to those comments in the CY 2012 OPPS/ASC final rule with comment period. For the CY 2012 OPPS, we are not proposi ng any changes to the definitions of the OPPS comment indicators for CY 2012. Their proposed definitions are listed in Addendum D2 on the CMS Web site at: http://www.cms.hhs.gov/HospitalOutpatientPPS

. XII. OPPS Policy and Payment Recommendations A. MedPAC Recommendations MedPAC was established under sect ion 1805 of the Act to advise the U.S. Congress on issues affecting the Medicare program. As required under the statute, MedPAC submits reports to Congress not late r than March and June of each year that contain its Medicare payment policy recommendations. This section describes recent recommendations relevant to the O PPS that have been made by MedPAC. The March 1, 2011 MedPAC “Report to Congress: Medicare Payment Policy” included the following recommendation relati ng to the Medicare hospital IPPS and, in part, to the Medica re hospital OPPS: Recommendation 3 : “The Congress should increase payment rates for the acute care hospital inpatient and outpa tient prospective payment systems in 2012 by 1 percent. The Congress should also require the Secretary of Health and Human Services to make adjustments to inpatient payment rates in fu ture years to fully recover all overpayments due to documentation and coding improvements.” (page 60)CMS-1525-P 479 MedPAC further stated that: “For outp atient hospital services, the Commission is concerned that significant payment disp arities among Medicare’s ambulatory care settings (hospital outpatien t departments, ambulatory surgical centers, and physician offices) for similar services are fostering undesirable financial incentives. Physician practices and ambulatory surgical centers ar e being reorganized as hospital outpatient entities in part to receive higher reimbur sements. The Commission believes that Medicare should seek to pay similar amounts for similar services, taking into account differences in quality of care and in the re lative risks of the patient populations. The Commission is concerned by the trend to re organize for higher reimbursement and will examine this issue. However, in the interim, the modest update of 1 percent is warranted in the hospital outpatient setting to slow the growing payment rate disparities among ambulatory care settings.” (page 61) CMS Response : We note that MedPAC’s recommendation is for the Congress to increase IPPS and OPPS payment rates by 1 percent in 2010. Absent action by Congress, we are proposing to follow the statutory requirements that govern the amount of the annual OPD fee schedule increase factor to the OPPS for CY 2012. We discuss the proposed CY 2012 OPD fee schedule increase fact or in section II.B. of this proposed rule. We look forward to reviewing the results of MedPAC’s examination of what it perceives as a trend towards reorganization of ambulatory surgical centers and physician offices as hospital outpatient departments to maximize program payment.CMS-1525-P 480 The full March 2011 MedPAC report can be downloaded from MedPAC’s Web site at: http://www.medpac.gov/docum ents/Mar11_EntireReport.pdf

. B. APC Panel Recommendations Recommendations made by the APC Pa nel meeting held on February 28 and March 1, 2011 are discussed in th e sections of this proposed ru le that correspond to topics addressed by the APC Panel. The reports and recommendations from the APC Panel’s February 28 and March 1, 2011 meeting regarding payment under the OPPS for CY 2012 are available on the CMS Web site at: http://www.cms.gov/FACA/05_AdvisoryPanel onAmbulatoryPaymentClassificationGrou

ps.asp

. C. OIG Recommendations The mission of the Office of the Insp ector General (OIG), as mandated by Pub. L. 95–452, as amended, is to protect the inte grity of the U.S. Department of Health and Human Services (HHS) progr ams, as well as the health and welfare of beneficiaries served by those programs. This statutory mission is carried ou t through a nationwide network of audits, inves tigations, and inspections. On October 22, 2010, the OIG published a memorandum report entitled “Payment for Drugs under the Hospital Outpatie nt Prospective Payment System” (OIG-03-09-00420). The report may be viewed on the Web site at: http://oig.hhs.gov/oei/ reports/oei-03-09-00420.pdf . The OIG did not make any recommendations to CMS regarding Medicare payment for drugs and biologicals under the OPPS.CMS-1525-P 481 CMS Response: We appreciate the work of th e OIG regarding the payment for drugs under the OPPS, and we will take the findi ngs in its report into consideration in the development of our proposed payment policy for CY 2012. XIII. Proposed Updates to the Ambulat ory Surgical Center (ASC) Payment System A. Background 1. Legislative Authority for the ASC Payment System Section 1832(a)(2)(F)(i) of the Act provi des that benefits und er Medicare Part B include payment for facility services furnis hed in connection with surgical procedures specified by the Secretary that are performed in an Ambulatory Surgical Center (ASC). To participate in the Medicare program as anASC, a facility must meet the standards specified in section 1832(a)(2)(F )(i) of the Act, which are set forth in 42 CFR Part 416, Subpart B and Subpart C of ourregulations. The regulations at 42 CFR Part 416, Subpart B describe the general conditions and requi rements for ASCs, and the regulations at Subpart C explain the specific cond itions for coverage for ASCs. Section 141(b) of the Social Security Act Amendments of 1994, Pub. L. 103-432, required establishment of a process for revi ewing the appropriateness of the payment amount provided under section 1833 (i)(2)(A)(iii) of the Act fo r intraocular lenses (IOLs) that belong to a class of new technology intrao cular lenses (NTIOLs) . That process was the subject of a final rule entitled “Adj ustment in Payment Amounts for New Technology Intraocular Lenses Furn ished by Ambulatory Surgical Centers,” published on June 16, 1999, in the Federal Register (64 FR 32198).CMS-1525-P 482 Section 626(b) of the Medicare Pr escription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. 108-173, added subparagraph (D) to section 1833(i)(2) of the Act, which required the S ecretary to implement a revised ASC payment system to be effective no t later than January 1, 2008. Section 626(c) of the MMA amended section 1833(a)(1) of the Act by addi ng new subparagraph (G), which requires that, beginning with implementation of the revised ASC payment system, payment for surgical procedures furnished in ASCs sha ll be 80 percent of the lesser of the actual charge for the services or the amount de termined by the Secretary under the revised payment system. Section 109(b) of the Medicare Improve ments and Extension Act of 2006 of the Tax Relief and Health Care Act of 2 006 (MIEA-TRHCA), Pub. L. 109-432, amended section 1833(i) of the Act by redesignating cl ause (iv) as clause (v) and adding a new clause (iv) to paragraph (2)(D) a nd by adding new paragraph (7). Section 1833(i)(2)(D)(iv ) of the Act authorizes, but doe s not require, the Secretary to implement the revised ASC payment system “ in a manner so as to provide for a reduction in any annual update for failure to report on quality measures in accordance with paragraph (7).” Section 1833(i)(7)(A) of the Act states that the Secretary may provide that any ASC that does not submit quality measures to the Secretary in accordance with paragraph (7) will incur a 2.0 percentage point reduction to any annual increase provided under the revised AS C payment system for such year. Section 1833(i)(7)(B) of the Act provides that , “[e]xcept as the Secretary may otherwise provide,” the hospital outpatient quality data provisions of subparagraphs (B) through (E)CMS-1525-P 483 of section 1833(t)(17) of the Act, added by section 109(a) of the MIEA-TRHCA, shall apply to ASCs in a similar manner to the manner in which they apply under these paragraphs to hospitals under the Hospital OQR Program. Sections 4104 and 10406 of the Affordable Care Act, Pub. L. 111-148, amended section 1833(a)(1) and (b)(1) of the Act to waive the coinsurance and the Part B deductible for those preventive services unde r section 1861(ddd)(3)( A) of the Act as described in section 1861(ww)(2) of the Ac t (excluding electrocardiograms) that are recommended by the United States Preventive Services Task Force (USPSTF) with a grade of A or B for any indication or popul ation and that are appropriate for the individual. Section 4104(c) of the Affordable Care Act amended section 1833(b)(1) of the Act to waive the Part B deductible for colo rectal cancer screening tests that become diagnostic. These provisions a pply to these items and services furnished in an ASC on or after January 1, 2011. Section 3401(k) of the Affordable Care Act amended section 1833(i)(2)(D) of the Act to require that, effective for CY 2011 and subsequent years, any annual update under the ASC payment system be reduced by a produc tivity adjustment, which is equal to the 10-year moving average of changes in a nnual economy-wide private nonfarm business multi-factor productivity (as projected by th e Secretary for the 10-year period ending with the applicable fiscal y ear, year, cost reporting peri od, or other annual period). Application of this pr oductivity adjustment to the ASC payment system may result in the update to the ASC payment syst em being less than zero for a year and may result inCMS-1525-P 484 payment rates under the ASC payment system for a year being less than such payment rates for the preceding year. For a detailed discussion of the legisl ative history related to ASCs, we refer readers to the June 12, 1998 proposed rule (63 FR 32291 through 32292). 2. Prior Rulemaking On August 2, 2007, we published in the Federal Register (72 FR 42470) the final rule for the revised ASC payment system , effective January 1, 2008 (the “August 2, 2007 final rule”). In that final rule, we revised our criteria for identifyi ng surgical procedures that are eligible for Medicare payment when furnished in ASCs and adopted the method we would use to set payment rates for ASC covered surgical procedures and covered ancillary services furnished in associati on with those covered surgical procedures beginning in CY 2008. We also establishe d a policy for treating new and revised Healthcare Common Procedure Coding Syst em (HCPCS) and Current Procedural Terminology (CPT) codes under the ASC payment sy stem. This policy is consistent with the OPPS to the extent possible (72 FR 42533). In addition, we established a standard ASC ratesetting methodology that bases payment for most services on the list of AS C covered surgical procedures on the OPPS relative payment weight multiplied by the AS C conversion factor. We also established modifications to this methodology for subsets of services, such as device-intensive services (where the estimated device portion of the ASC payment is the same as that paid under the OPPS) and services that are predom inantly performed in the office setting and covered ancillary radiology se rvices (where ASC payment may be based on the MPFSCMS-1525-P 485 non-facility practice expense (PE) Relative Value Units (RVUs)). Additionally, we established a policy for updating the conversion factor, the relative payment weights, and the ASC payment rates on an annual basis. We also annually update the list of procedures for which Medicare does not make an ASC payment. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66827), we updated and finalized the CY 2008 ASC rates an d lists of covered surgical procedures and covered ancillary services. We also made regulatory changes to 42 CFR Parts 411, 414, and 416 related to our final policies to pr ovide payments to physicians who perform non-covered ASC procedures in ASCs based on the facility PE RVUs, to exclude covered ancillary radiology services and covered ancillary drugs and biologicals from the categories of designated health services (DHS) that are subject to the physician self-referral prohibition, and to reduce ASC payments for surgical procedures when the ASC receives full or partial credit toward the cost of the implantable device. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68722), we updated and finalized the CY 2009 ASC rates an d lists of covered surgical procedures and covered ancillary services. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60596), we updated and finalized the CY 2010 ASC rates an d lists of covered surgical procedures and covered ancillary services. We also corrected some of those ASC rates in a correction notice published in the Federal Register on December 31, 2009 (74 FR 69502). In that correction notice, we revised the ASC rates to reflect changes in the MPFS conversion factor and PE RVUs lis ted for some CPT codes in Addendum B toCMS-1525-P 486 the CY 2010 MPFS final rule with comment pe riod (74 FR 62017), which were incorrect due to methodological errors and were subse quently corrected in a correction notice to that final rule with comment period ( 74 FR 65449). We also published a second correction notice in the Federal Register , to address changes to the ASC rates resulting from corrections to the PE RVUs iden tified subsequent to publication of the December 31, 2009 correction notice (75 FR 45700). Finally, we published a notice in the Federal Register , to reflect changes to CY 2010 AS C payment rates for certain ASC services due to changes to the OPPS and MPFS under the Affordable Care Act and to reflect technical changes to the ASC payment rates announced in prior corre ction notices (75 FR 45769). In the CY 2011 OPPS/ASC final rule with comment period (75 FR 71800), we updated and finalized the CY 2011 ASC rates an d lists of covered surgical procedures and covered ancillary services. We corrected some of the ASC rate s that were published in Addenda AA and BB, as well as errors in the preamble text, ina correction notice published in the Federal Register on March 11, 2011 (76 FR 13292). The corrections to the ASC Addenda were primarily due to cha nges to the MPFS conversion factor and PE RVUs listed for some CPT codes in Addendum B and Addendum C to the MPFS for CY 2011 which, in turn, affect ed office-based and ancillary radiology payment under the ASC payment system. Following legisl ative changes to the MPFS for CY 2011 associated with passage of s ection 101 of the Medicare a nd Medicaid Extenders Act of 2010 that occurred after public ation of the CY 2011 OPPS/ASC and MPFS final rules with comment periods, we posted revised ASC Addenda on our Web site to reflectCMS-1525-P 487 associated changes to office-based and ancillary radiology payment under the ASC payment system. 3. Policies Governing Changes to the Li sts of Codes and Payment Rates for ASC Covered Surgical Procedures a nd Covered Ancillary Services The August 2, 2007 final rule establishe d our policies for determining which procedures are ASC covered su rgical procedures and covere d ancillary services. Under §§416.2 and 416.166 of the regulations, subject to certain exclusions, covered surgical procedures are surgical procedures that are separately paid under the OPPS, that would not be expected to pose a significant risk to beneficiary safety when performed in an ASC, and that would not be expected to re quire active medical mon itoring and care at midnight following the procedure (“overnight stay”). We adopted this standard for defining which surgical procedures are c overed surgical proc edures under the ASC payment system as an indicator of th e complexity of the procedure and its appropriateness for Medicare payment in ASCs. We use this standard only for purposes of evaluating procedures to determine whethe r or not they are appropriate for Medicare beneficiaries in ASCs. We define surgical procedures as those de scribed by Category I CPT codes in the surgical range from 10000 through 69999, as well as those Category III CPT codes and Level II HCPCS codes that cr osswalk or are clinically similar to ASC covered surgical procedures (72 FR 42478). We note that we added over 800 surgical procedures to the list of covered surgical procedures for ASC payment in CY 2008, the first year of the revised ASC payment system , based on the criteria for payment that we adopted in the August 2, 2007 final rule as described above in this section.CMS-1525-P 488 In the August 2, 2007 final rule, we also established our policy to make separate ASC payments for the following ancillary items and services when they are provided integral to ASC covered surgical procedures : brachytherapy sources; certain implantable items that have pass-through status under the OPPS; certain items and services that we designate as contractor-price d, including, but not limited to, procurement of corneal tissue; certain drugs and biologicals for wh ich separate payment is allowed under the OPPS; and certain radiology services for wh ich separate payment is allowed under the OPPS. These covered ancillary services are specified in §416.164(b) and, as stated previously, are eligible for separate ASC payment (72 FR 42495). Payment for ancillary items and services that are not paid sepa rately under the ASC payment system is packaged into the ASC payment for the covered surgical procedure. We update the lists of, and payment rates for, covered surgic al procedures and covered ancillary services inconjunction with the annual proposed and final rulemaking process to update the OPPS and the ASC payment system (§416.173; 72 FR 42535). In addition, as discussed in detail in section XIII.B. of this proposed rule, because we base ASC payment policies for covered surgical pr ocedures, drugs, biologicals, and certain other covered ancillary services on the OPPS pa yment policies, we also provide quarterly updates for ASC services throughout the year (J anuary, April, July, and October). The updates are to implement newly created Leve l II HCPCS and Categor y III CPT codes for ASC payment and to update the payment rates for separately paid drugs and biologicals based on the most recently submitted ASP data. New Category I CPT codes, except vaccine codes, are released only once a year and, therefore, are implemented through theCMS-1525-P 489 January quarterly update. New Category I CPT vaccine codes are released twice a year and thus are implemented through the January and July quarterly updates. In our annual updates to the ASC list of, a nd payment rates for, covered surgical procedures and covered ancillary services, we undertake a review of excluded surgical procedures (including all procedures ne wly proposed for removal from the OPPS inpatient list), new procedures , and procedures for which there is revised coding, to identify any that we believe meet the crit eria for designation as ASC covered surgical procedures or covered ancill ary services. Updating the lists of covered surgical procedures and covered ancillary services, as well as their payment rates, in association with the annual OPPS rulemaking cycle is particularly important because the OPPS relative payment weights and, in some cases, pa yment rates, are used as the basis for the payment of covered surgical procedures and covered ancillary servic es under the revised ASC payment system. This joint update pro cess ensures that the ASC updates occur in a regular, predictable, and timely manner. B. Proposed Treatment of New Codes 1. Proposed Process for Recognizing New Category I and Category III CPT Codes and Level II HCPCS Codes CPT and Level II HCPCS codes are used to report procedures, services, items, and supplies under the ASC payment system. Specifically, we recognize the following codes on ASC claims: (1) Category I CPT code s, which describe medical services and procedures; (2) Category III CPT codes, whic h describe new and emerging technologies, services, and procedures; and (3) Level II HCPCS codes, wh ich are used primarily toCMS-1525-P 490 identify products, supplies, temporary pr ocedures, and services not described by CPT codes. CPT codes are established by th e American Medical A ssociation (AMA) and the Level II HCPCS codes are established by the CMS HCPCS Workgroup. These codes are updated and changed throughout the year. CPT and HCPCS code changes that affect ASCs are addressed both th rough the ASC quarterly update Change Requests (CRs) and through the annual rulemaking cycle. CMS re leases new Level II HCPCS codes to the public or recognizes the release of new CP T codes by the AMA and makes these codes effective (that is, the codes are recognized on Medicare claims) outside of the formal rulemaking process via ASC quarterly update CR s. This quarterly process offers ASCs access to codes that may more accurately describe items or services furnished and/or provides payment or more accurate payment for these items or services in a more timely manner than if we waited for the annual rule making process. We solicit comments on the new codes recognized for ASC payment and fina lize our proposals rela ted to these codes through our annual rulemaking process. We finalized a policy in the August 2, 2007 fi nal rule to evaluate each year all new Category I and Category III CPT codes a nd Level II HCPCS codes that describe surgical procedures, and to make prelimin ary determinations in the annual OPPS/ASC final rule with comment period regarding wh ether or not they meet the criteria for payment in the ASC setting as covered surgical procedures and, if so, whether they are office-based procedures (72 FR 42533 thr ough 42535). In addition, we identify new codes as ASC covered ancillary services ba sed upon the final payment policies of the revised ASC payment system.CMS-1525-P 491 In Table 41 below, we summarize our proposed process for updating the HCPCS codes recognized under the ASC payment system.

TABLE 41.—PROPOSED COMMENT TI MEFRAME FOR NEW HCPCS CODES

OPPS/ASC Quarterly Update CR Type of Code Effective Date Comments Sought When Finalized April l,

2011 Level II HCPCS Codes April 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period
Level II HCPCS Codes July 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period July 1,

2011 Category I (certain vaccine

codes) and III

CPT codes July 1, 2011 CY 2012 OPPS/ASC proposed rule CY 2012 OPPS/ASC final rule with comment period October 1, 2011 Level II HCPCS Codes October 1, 2011 CY 2012 OPPS/ASC final rule with comment period CY 2013 OPPS/ASC final rule with comment period
Level II HCPCS Codes January 1, 2012 CY 2012 OPPS/ASC final rule with comment period CY 2013 OPPS/ASC final rule with comment period January 1, 2012 Category I and III CPT Codes January 1, 2012 CY 2012 OPPS/ASC final rule with comment period CY 2013 OPPS/ASC final rule with comment period This process is discussed in detail below. We have separated our discussion into two sections based on whether we are proposi ng to solicit public comments in this CY 2012 OPPS/ASC proposed rule (and responding to those comments in the CY 2012 OPPS/ASC final rule with co mment period) or whether we will be soliciting public comments in the CY 2012 OPPS/ASC final rule with comment period (and responding toCMS-1525-P 492 those comments in the CY 2013 OPPS/ASC fina l rule with comment period). We note that we sought public comment in the CY 2011 OPPS/ASC final rule with comment period on the new CPT and Level II HCPCS code s that were effective January 1, 2011. We also sought public comments in the CY 2011 OPPS/ASC final rule with comment period on the new Level II HCPCS codes eff ective October 1, 2010. These new codes, with an effective date of October 1, 2010, or January 1, 2011, were flagged with comment indicator “N1” in Addendum AA a nd BB to the CY 2011 OPPS/ASC final rule with comment period to indicate that we we re assigning them an interim payment status and payment rate, if applicable, which were subject to public comment following publication of the CY 2011 OPPS/ASC final ru le with comment period. We will respond to public comments and finalize our proposed ASC treatment of these codes in the CY 2012 OPPS/ASC final rule with comment period. 2. Proposed Treatment of New Level II HCPCS Codes and Category III CPT Codes Implemented in April and July 2011 for Whic h We Are Soliciting Public Comments in this CY 2012 OPPS/ASC Proposed Rule In the April and July CRs, we made effec tive for April 1 or July 1, 2011, a total of 13 new Level II HCPCS codes and 6 new Ca tegory III CPT codes that were not addressed in the CY 2011 OPPS/ASC final rule with comment period. The 13 new Level II HCPCS codes describe c overed ancillary services. In the April 2011 ASC quarterly update (Transmittal 2185, CR 7343, dated March 25, 2011), we added four new drug and biological Level II HCPCS codes to the list of covered ancillary serv ices. Specifically, as displa yed in Table 42 below, theseCMS-1525-P 493 included HCPCS codes C9280 (Injection, eribul in mesylate, 1 mg), C9281 (Injection, pegloticase, 1 mg), C9282 (In jection, ceftaroline fosamil, 10 mg), and Q2040 (Injection, incobotulinumtoxin A, 1 unit). We note that HCPCS code Q2040 replaced HCPCS code C9278 (Injection, incobotulinumtoxin A, 1 unit) beginning April 1, 2011. HCPCS code C9278 was effective January 1, 2011, and de leted for dates of service April 1, 2011 and forward, because it was repl aced with HCPCS code Q2040. In the July 2011 quarterly update (Transmittal 2235, Change Request 7445, dated June 03, 2011), we added nine new drug and bi ological Level II HCPC S codes to the list of covered ancillary services. Specifical ly, as displayed in Table 43, we provided separate payment for HCPCS codes C9283 (Injection, acetaminophen, 10 mg), C9284 (Injection, ipilimumab, 1 mg), C9285 (Lidocaine 70 mg/te tracaine 70mg, per patch), C9365 (Oasis Ultra Tri-Layer matrix, per square centimeter), C9406 (Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries), Q2041 (Injection, von willebrand factor complex (human), W ilate, 1 i.u. vwf:rco), Q2042 (Injection, hydroxyprogesterone caproate, 1 mg), Q2043 (Sipuleucel-t, minimum of 50 million autologous cd54+ cells activated with pap- gm-csf, including leukapheresis and all other preparatory procedures, per infusion), a nd Q2044 (Injection, belim umab, 10 mg). We note that HCPCS code Q2041 is replacing HCPCS code J7184 and HCPCS code Q2043 is replacing HCPCS code C9273 beginning July 1, 2011. We assigned payment indicator “K2” (Drugs and biologicals paid separately when provided integral to a surgic al procedure on the ASC list; payment based on OPPS rate) to these 13 new Level II HCPCS codes to indica te that they are separately paid whenCMS-1525-P 494 provided in ASCs. We are soliciting public comment on the proposed CY 2012 ASC payment indicators and payment rates for the drug s and biologicals, as listed in Tables42 and 43 below. Those HCPCS codes became payable in ASCs, beginning in April or July 2011, respectively, and are paid at the AS C rates posted for th e appropriate calendar quarter on the CMS Web site at http://www.cms.gov/ASCPayment/

. The HCPCS codes listed in Table 42 are included in Addendum BB to this proposed rule. We note that all ASC addenda are referenced in section XVII. of this proposed rule and are only available via th e Internet on the CMS Web site. Because HCPCS codes that became effective for July (listed in Table 43) are not available to us in time for incorporation into the Addenda to th is OPPS/ASC proposed ru le, our policy is to include these HCPCS codes and their proposed payment indicators a nd payment rates in the preamble to the proposed rule but not in the Addenda to the proposed rule. These codes and their final payment indicators and rates will be included in the appropriate Addendum to the CY 2012 OPPS/ASC final rule with comment period. Thus, the codes implemented by the July 2011 ASC quarterly update CR and their proposed CY 2012 payment rates (based on July 2011 ASP data ) that are displayed in Table43 are not included in Addendum BB to this proposed rule. The final list of covered ancillary services and the associated payment weights a nd payment indicators wi ll be included in Addendum BB to the CY 2012 OPPS/ASC final rule with comment period, consistent with our annual update policy.CMS-1525-P 495

TABLE 42.—NEW LEVEL II HCPCS CO DES FOR COVERED ANCILLARY SERVICES IMPLEMENTED IN APRIL 2011

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012 Payment Indicator C9280 Injection, eribulin mesylate, 1 mg K2 C9281 Injection, pegloticase, 1 mg K2 C9282 Injection, ceftaroline fosamil, 10 mg K2 Q2040 Injection, incobotul inumtoxin A, 1 unit K2

TABLE 43.—NEW LEVEL II HCPCS CO DES FOR COVERED ANCILLARY SERVICES IMPLEMENTED IN JULY 2011

CY 2011 HCPCS

Code CY 2011 Descriptor Proposed CY 2012 Payment Indicator Proposed CY 2012

ASC Payment Rate C9283 Injection, acetaminophen, 10 mg K2 $0.11 C9284 Injection, ipilimumab, 1 mg K2 $127.20 C9285 Lidocaine 70 mg/tetracaine 70mg, per patch K2 $13.57 C9365 Oasis Ultra Tri-Layer matrix, per square centimeter K2 $10.60

C9406 Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries K2 $1,908.00 Q2041 Injection, von willebrand factor complex (human), Wilate, 1 i.u. vwf:rco K2 $0.88 Q2042 Injection, hydroxyprogesterone caproate, 1 mg K2 $2.90

Q2043 Sipuleucel-t, minimum of 50 millionautologous cd54+ cells activated with papgm-csf, including leukapheresis and all other preparatory pro cedures, per infusion K2 $32,860.00 Q2044 Injection, belimumab, 10 mg K2 $39.15

Through the July 2011 quarterly update CR, we also implemented ASC payment for six new Category III CPT codes as ASC covered surgical procedures, effectiveCMS-1525-P 496 July 1, 2011. These codes are listed in Table 44 below, along with their proposed payment indicators and proposed payment rates for CY 2011. Because new Category III CPT and Level II HCPCS codes that become effe ctive for July are not available to us in time for incorporation into the Addenda to the OPPS/ASC proposed ru le, our policy is to include the codes, their proposed payment indi cators, and proposed payment rates in the preamble to the proposed rule but not in the Addenda to the proposed rule. These codes and their final payment indicators and rate s will be included in Addendum AA to the CY 2012 OPPS/ASC final rule with comment period. We are proposing to assign payment indi cator “G2” (Non-office-based surgical procedure added in CY 2008 or later; paym ent based on OPPS relative payment weight) to all six of the new Category III CPT codes to be implemented in July 2011. We believe that these procedures would not pose a significant safety risk to Medicare beneficiaries or would not require an overnight stay if performed in AS Cs. We are soliciting public comment on these proposed payment indicato rs and the payment rates for the new Category III CPT codes that were newly rec ognized as ASC covered surgical procedures in July 2011 through the quarter ly update CR, as listed in Table 44 below. We are proposing to finalize their payment indicator s and their payment rates in the CY 2012 OPPS/ASC final rule with comment period.CMS-1525-P 497
TABLE 44.—NEW CATEGORY III CPT CODES IMPLEMENTED IN

JULY 2011 AS ASC COVERED SURGICAL PROCEDURES

CY 2011 HCPCS

Code CY 2011 Long Descriptor Proposed CY 2012 Payment Indicator Proposed CY 2012 ASC Payment Rate

0263T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure including unilat eral or bilateral bone marrow harvest G2 $1,218.58

0264T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; complete procedure excluding bone marrow harvest G2 $1,218.58

0265T Intramuscular autologous bone marrow cell therapy, with preparation of harvested cells, multiple injections, one leg, including ultrasound guidance, if performed; unilateral or bilateral bone ma rrow harvest only for intramuscular autologous bone marrow cell therapy G2 $1,218.58

0269T Revision or removal of ca rotid sinus baroreflex activation device; total system (includes generator placement, unilateral or bilateral lead placement, intra-operative interrogation, programming, and repositioning, when performed) G2 $1,444.14

0270T Revision or removal of ca rotid sinus baroreflex activation device; lead only, unilateral (includes intra-opera tive interrogation, programming, and repositioning, when performed) G2 $841.60

0271T Revision or removal of ca rotid sinus baroreflex activation device; pul se generator only (includes intra-opera tive interrogation, programming, and repositioning, when performed) G2 $1,126.88CMS-1525-P 498 In summary, for CY 2011, we are soli citing public comments on the proposed payment indicators and the payment rates, if applicable, for the new Level II HCPCS codes and Category III CPT codes that were newly recognized in April or July 2011 through the respective quarterl y update CRs. These codes are listed in Tables 42, 43 and 44 of this proposed rule. We are propos ing to finalize their payment indicators and their payment rates, if app licable, in the CY 2012 OPPS/AS C final rule with comment period. 3. Proposed Process for New Level II HC PCS Codes and Category I and III CPT Codes for Which We Will Be Soliciting Public Comments in the CY 2012 OPPS/ASC Final Rule With Comment Period As has been our practice in the past, we incorporate those new Category I and Category III CPT codes and new Level II HCPC S codes that are effective January 1 in the final rule with comment period updati ng the ASC payment system for the following calendar year. These codes are released to the public via the CM S HCPCS (for Level II HCPCS codes) and AMA Web sites (for CPT codes), and also through the January ASC quarterly update CRs. In the past, we also have released new Level II HCPCS codes that are effective October 1 through the October ASC quarterly update CRs and incorporated these new codes in the final rule with co mment period updating the ASC payment system for the following calendar year. All of thes e codes are flagged with comment indicator ‘‘NI’’ in Addenda AA and BB to the OPPS/AS C final rule with comment period to indicate that we are assigning them an interi m payment status which is subject to public comment. The payment indicator and payment rate, if applicable, for all such codesCMS-1525-P 499 flagged with comment indicat or ‘‘NI’’ are open to public comment in the OPPS/ASC final rule with comment period, and we respond to these comments in the final rule with comment period for the next calendar year’s OPPS/ASC update. We are proposing to continue this process for CY 2012. Specifically, for CY 2012, we are proposing to include in Addenda AA and BB to the CY 2012 OPPS/ASC final rule with comment peri od the new Category I and III CPT codes effective January 1, 2012 that would be inco rporated in the January 2012 ASC quarterly update CR and the new Level II HCPCS codes, effective October 1, 2011 or January 1, 2012, that would be released by CMS in its October 2011 and January 2012 ASC quarterly update CRs. These codes woul d be flagged with comment indicator ‘‘NI’’ in Addenda AA and BB to the CY 2012 OPPS/AS C final rule with comment period to indicate that we have assigned them an inte rim payment status. Their payment indicators and payment rates, if app licable, would be open to publ ic comment in the CY 2012 OPPS/ASC final rule with comment period and would be finalized in the CY 2013 OPPS/ASC final rule with comment period. C. Proposed Update to the Lists of ASC Covered Surgical Procedures and Covered Ancillary Services 1. Covered Surgical Procedures a. Proposed Additions to the List of ASC Covered Surgical Procedures We conducted a review of all HCPCS c odes that currently are paid under the OPPS, but not included on the ASC list of cove red surgical procedures, to determine if changes in technology and/or medical practice changed the clinical appropriateness ofCMS-1525-P 500 these procedures for the ASC setting. Upon review, we did not identify any procedures that are currently excluded from the ASC list of procedures that met the definition of a covered surgical procedure based on our expectation that they would not pose a significant safety risk to Medi care beneficiaries or would re quire an overnight stay if performed in ASCs. Therefore, we are not proposing additions to the list of ASC covered surgical procedures for CY 2012. b. Proposed Covered Surgical Proce dures Designated as Office-Based (1) Background In the August 2, 2007 ASC final rule, we finalized our policy to designate as “office-based” those procedures that are a dded to the ASC list of covered surgical procedures in CY 2008 or late r years that we determine are performed predominantly (more than 50 percent of the time) in physic ians’ offices based on consideration of the most recent available volume and utilization data for each individual procedure code and/or, if appropriate, th e clinical characteristic s, utilization, and volum e of related codes. In that rule, we also finalized our policy to exempt all procedures on the CY 2007 ASC list from application of the office-based cl assification (72 FR 42512) . The procedures that were added to the ASC list of covered surgical procedures be ginning in CY 2008 that we determined were office-based were id entified in Addendum AA to that rule by payment indicator “P2” (Office-based surgic al procedure added to ASC list in CY 2008 or later with MPFS non-facility PE RVUs ; payment based on OPPS relative payment weight); “P3” (Office-based su rgical procedures added to ASC list in CY 2008 or later with MPFS non-facility PE RVUs; payment based on MPFS non-facility PE RVUs); orCMS-1525-P 501 “R2” (Office-based surgical procedure adde d to ASC list in CY 2008 or later without MPFS non-facility PE RVUs; payment based on OPPS relative payment weight), depending on whether we estimated it would be paid according to the standard ASC payment methodology based on its OPPS relati ve payment weight or at the MPFS non-facility PE RVU-based amount. Consistent with our final policy to annually review and update the list of surgical procedures eligible for payment in ASCs, each year we identify surgical procedures as either temporarily office-based, permanently office-based, or non-office-based, after taking into account updated volume and utilization data. (2) Proposed Changes for CY 2012 to Cove red Surgical Procedures Designated as Office-Based In developing this proposed rule, we followed our policy to annually review and update the surgical procedures for which ASC payment is made and to identify new procedures that may be appropriate for ASC payment, including their potential designation as office-based. We reviewed CY 2010 volume and utilization data and the clinical characteristics for all surgical pro cedures that are assigned payment indicator “G2” in CY 2011, as well as for those pr ocedures assigned one of the temporary office-based payment indicators, specifical ly “P2*,” “P3*,” or “R2*” in the CY 2011 OPPS/ASC final rule with comm ent period (75 FR 72033 through 72038). Based on our review of the CY 2010 volume and utilization data, we identified ten surgical procedures that we believe meet the criteria for designation as office-based. The data indicate that the procedures are pe rformed more than 50 percent of the time inCMS-1525-P 502 physicians’ offices. Our medical advisors believe the services are of a level of complexity consistent with other procedures performed routinely in physicians’ offices. The 10 CPT codes we are proposing to permanen tly designate as office-based are listed in Table 45 below.

TABLE 45.—ASC COVERED SURGICAL PROCEDURES PROPOSED FOR PERMANENT OFFICE-BASED DESIGNATION FOR 2012

CY 2011 CPT Code CY 2011 Long Descriptor CY 2011 ASC Payment Indicator Proposed CY 2012

ASC Payment Indicator

0213T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, cervical or thoracic; single level G2 R2

0214T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, cervical or thoracic; second level (list separately in addition to code for primary procedure) G2 R2

0215T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, cervical or thoracic; third and any additional level(s) (list separately in addition to code for primary procedure) G2 R2

0216T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, lumbar or sacral; single level G2 R2CMS-1525-P 503

CY 2011 CPT Code CY 2011 Long Descriptor CY 2011 ASC Payment Indicator Proposed CY 2012

ASC Payment Indicator

0217T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, lumbar or sacral; second level (list separately in addition to code for primary procedure) G2 R2

0218T Injection(s), diagnostic or therapeutic agent, paravertebral facet (zygapophyseal) joint (or nerves innervating that joint) with ultrasound guidance, lumbar or sacral; third and any additional level(s) (list separately in addition to code for primary procedure) G2 R2

35475 Transluminal balloon angioplasty, percutaneous; brachiocephalic trunk or branches, each vessel G2 P3

35476 Transluminal balloon angioplasty, percutaneous; venous G2 P3

41530 Submucosal ablation of the tongue base, radiofrequency, one or more sites, per session G2 P2

69801 Labyrinthotomy, with or without cryosurgery includi ng other nonexcisional destructive procedures or perfusion of vestibuloactive drugs (single or multiple perfusions); transcanal G2 P3

We also reviewed CY 2010 volume and util ization data and other information for the 23 procedures finalized for temporary o ffice-based status in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72036 through 72038). Among these 23 procedures, there were very few claims da ta for eight procedures: CPT code 0099T (Implantation of intrastromal corneal ring segments); CPT code 0124T (ConjunctivalCMS-1525-P 504 incision with posterior extrascleral placemen t of pharmacological agent (does not include supply of medication)); CPT code 0226T (Anoscopy, high resolution (HRA) (with magnification and chemical agent enhancemen t); diagnostic, incl uding collection of specimen(s) by brushing or washing when performed); CPT code 0227T (Anoscopy, high resolution (HRA) (with magnification and chemical agent enhancement); with biopsy(ies)); CPT code 0232T (Injection(s), pl atelet rich plasma, any tissue, including image guidance, harvesting and preparation when performed); CPT code C9800 (Dermal injection procedure(s) for facial li podystrophy syndrome (LDS) and provision of Radiesse or Sculptra dermal filler, in cluding all items and supplies); CPT code 37761 (Ligation of perforator vein(s), subfas cial, open, including ultrasound guidance, when performed, 1 leg); and CPT code 67229 (Tre atment of extensive or progressive retinopathy, one or more sessions; preterm infant (less than 37 weeks gestation at birth), performed from birth up to 1 year of age (eg, retinopathy of prematurity), photocoagulation or cryotherapy). Consequent ly, we are proposing to maintain their temporary office-based de signations for CY 2012. As a result of our review of the remaini ng fifteen procedures that have temporary office-based designations for CY 2011 for which we do have claims data, we are proposing that none of the procedures be de signated as office-based in CY 2012. The 15 surgical procedure codes are:

● CPT code 21015 (Radical resection of tumor (eg, malignant neoplasm), soft tissue of face or scalp; less than 2 cm);CMS-1525-P 505

● CPT code 21555 (Excision, tumor, soft tissue of neck or anterior thorax, subcutaneous; less than 3 cm);

● CPT code 21930 (Excision, tumor, soft tissue of back or flank, subcutaneous; less than 3 cm);

● CPT code 23075 (Excision, tumor, soft tissue of shoulder area, subcutaneous; less than 3 cm);

● CPT code 24075 (Excision, tumor, soft tissue of upper arm or elbow area, subcutaneous; less than 3 cm);

● CPT code 25075 (Excision, tumor, soft tissue of forearm and/or wrist area, subcutaneous; less than 3 cm);

● CPT code 26115 (Excision, tumor or vasc ular malformation, soft tissue of hand or finger, subcutaneous ; less than 1.5 cm);

● CPT code 27047 (Excision, tumor, soft tissue of pelvis and hip area, subcutaneous; less than 3 cm);

● CPT code 27327 (Excision, tumor, soft tissue of thigh or knee area, subcutaneous; less than 3 cm);

● CPT code 27618 (Excision, tumor, soft tissue of leg or ankle area, subcutaneous; less than 3 cm);

● CPT code 28039 (Excision, tumor, soft tissue of foot or toe, subcutaneous; 1.5 cm or greater);

● CPT code 28041 (Excision, tumor, soft ti ssue of foot or toe, subfascial (eg, intramuscular); 1.5 cm or greater);CMS-1525-P 506

● CPT code 28043 (Excision, tumor, soft tissue of foot or toe, subcutaneous; less than 1.5 cm);

● CPT code 28045 (Excision, tumor, soft ti ssue of foot or toe, subfascial (eg, intramuscular); less than 1.5 cm); and

● CPT code 28046 (Radical resection of tumor (eg, malignant neoplasm), soft tissue of foot or toe; less than 3 cm). The volume and utilization data for these CP T codes are sufficient to indicate that these procedures are not perf ormed predominantly in physicia ns’ offices and, therefore, should not be assigned an office-ba sed payment indicator in CY 2012. The proposed CY 2012 payment indicator desi gnations for the 23 procedures that were temporarily designated as office-based in CY 2011 are displayed in Table 46 below. The procedures for which the proposed office-based designations for CY 2012 are temporary also are indicated by asterisks in Addendum AA to this proposed rule (which is referenced in section XVII. of this propos ed rule and available via the Internet on the CMS Web site).CMS-1525-P 507

TABLE 46.—PROPOSED CY 2012 PAYMENT INDICATORS FOR ASC COVERED SURGICAL PROCEDURES DESIGNATED AS TEMPORARILY OFFICE-BASED IN THE CY 2011 OPPS/ASC FINAL RULE WITH COMMENT PERIOD

CY 2011 CPT Code CY 2011 Long Descriptor CY 2011 ASC Payment Indicator Proposed CY 2012

ASC Payment Indicator**

21015 Radical resection of tumor (eg, malignant neoplasm), soft tissue of face or scalp; less than 2 cm) R2* G2

21555 Excision, tumor, soft tissue of neck or anterior thorax, subcutaneous; less than 3 cm P3* G2

21930 Excision, tumor, soft tissue of back or flank, subcutaneous; less than 3 cm P3* G2

23075 Excision, tumor, soft tis sue of shoulder area, subcutaneous; less than 3 cm P3* G2

24075 Excision, tumor, soft tissue of upper arm or elbow area, subcutaneous; less than 3 cm P3* G2

25075 Excision, tumor, soft tissue of forearm and/or wrist area, subcutaneous; less than 3 cm P3* G2

26115 Excision, tumor or vascular malformation, soft tissue of hand or finger, subcutaneous; less than 1.5 cm P3* G2

27047 Excision, tumor, soft tis sue of pelvis and hip area, subcutaneous; less than 3 cm P3* G2

27327 Excision, tumor, soft tissue of thigh or knee area, subcutaneous; less than 3 cm P3* G2

27618 Excision, tumor, soft tissue of leg or ankle area, subcutaneous; less than 3 cm P3* G2

28039 Excision, tumor, soft tis sue of foot or toe, subcutaneous; 1.5 cm or greater P3* G2

28041 Excision, tumor, soft tis sue of foot or toe, subfascial (eg, intramuscular); 1.5 cm or greater R2* G2

28043 Excision, tumor, soft tis sue of foot or toe, subcutaneous; less than 1.5 cm P3* G2

28045 Excision, tumor, soft tis sue of foot or toe, subfascial (eg, intramuscular); less than 1.5 cm P3* G2CMS-1525-P 508

CY 2011 CPT Code CY 2011 Long Descriptor CY 2011 ASC Payment Indicator Proposed CY 2012

ASC Payment Indicator**

28046 Radical resection of tumor (eg, malignant neoplasm), soft tissue of foot or toe; less than 3 cm R2* G2

37761 Ligation of perforator vein(s), subfascial, open, including ultrasound guidance, when performed, 1 leg R2* R2*

67229 Treatment of extensive or progressive retinopathy, one or more sessions; preterm infant (less than 37 weeks gestation at birth), performed from birth up to 1 year of age (eg, retinopathy of prematurity), photocoagulation or cryotherapy R2* R2*

0099T Implantation of intrastromal corneal ring segments R2* R2*

0124T Conjunctival incision with posterior extrascleral placement of pharmacological agent (does not include supply of medication) R2* R2*

0226T Anoscopy, high resolution (HRA) (with magnification and chemical agent enhancement); diagnostic, including collection of specimen(s) by brushing or washing when performed R2* R2*

0227T Anoscopy, high resolution (HRA) (with magnification and chemical agent enhancement); with biopsy(ies) R2* R2*

0232T Injection(s), platelet ri ch plasma, any tissue, including image guidance, harvesting and preparation when performed R2* R2*

C9800 Dermal injection procedure(s) for facial lipodystrophy syndrome (LDS) and provision of Radiesse or Sculptra dermal filler, including al l items and supplies R2* R2*

* If designation is temporary. **Payment indicators are based on a comparison of the proposed rates according to the ASC standard ratesetting methodology and the MPFS proposed rates. At the time this proposed rule is being finalized for publication, current law authorizes a negative update to the MPFS payment rates for CY 2012. For a discussion of those rates, we refer readers to the CY 2012 MPFS proposed rule.CMS-1525-P 509 We invite public comment on these proposals. c. ASC Covered Surgical Procedur es Designated as Device-Intensive (1) Background As discussed in the August 2, 2007 fi nal rule (72 FR 42503 through 42508), we adopted a modified payment methodology fo r calculating the ASC payment rates for covered surgical procedures that are assigned to the subs et of OPPS device-dependent APCs with a device offset percentage greater than 50 percent of the APC cost under the OPPS, in order to ensure that payment for th e procedure is adequate to provide packaged payment for the high-cost impl antable devices used in thos e procedures. We assigned payment indicators “H8” (Device-intensive procedure on ASC list in CY 2007; paid at adjusted rate) and “J8” (Dev ice-intensive procedure adde d to ASC list in CY 2008 or later; paid at adjusted rate) to identify the procedures that were el igible for ASC payment calculated according to the modified me thodology, depending on whether the procedure was included on the ASC list of covered su rgical procedures prior to CY 2008 and, therefore, subject to transitional payment as discussed in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68739 through 68742). As discussed in section XIII.F.2. of th is proposed rule, because the 4-year transition to the ASC payment rates under the standard methodology is complete and, therefore, identification of device-intensive procedures that are s ubject to transitional payment methodology is no longer necessary, we are proposing to delete payment indicator “H8” (Device-intensive procedure on ASC list in CY 2007; paid at adjusted rate). The device-intensive procedures for which the device-intensive paymentCMS-1525-P 510 methodology will apply in CY 2012 or later wi ll be assigned payment indicator “J8” (Device-intensive procedure; paid at adjusted rate). (2) Proposed Changes to List of Cove red Surgical Procedures Designated as Device-Intensive for CY 2012 We are proposing to update the ASC list of covered surgical procedures that are eligible for payment according to the devi ce-intensive procedure payment methodology for CY 2012, consistent with the propos ed OPPS device-dependent APC update, reflecting the proposed APC assignments of procedures, designation of APCs as devicedependent, and APC device offset percenta ges based on the CY 2010 OPPS claims and cost report data available for this proposed rule. The OPPS device-dependent APCs are discussed further in section II. A.2.d.(1) of this proposed rule. The ASC covered surgical procedures th at we are proposing to designate as device-intensive and that w ould be subject to the device -intensive procedure payment methodology for CY 2012 are listed in Tabl e 47 below. The CPT code, the CPT code short descriptor, the proposed CY 2012 ASC payment indicator, the proposed CY 2012 OPPS APC assignment and title, and the proposed CY 2012 OPPS APC device offset percentage are also listed inTable 47 below. All of thes e procedures are included in Addendum AA to this proposed rule (which is referenced in sec tion XVII. of this proposed rule and available via th e Internet on the CMS Web site).CMS-1525-P 511
TABLE 47.—ASC COVERED SURGICAL PROCEDURES PROPOSED FOR DEVICE-INTENSIVE DESIGNATION FOR CY 2012

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage

24361 Reconstruct elbow joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

24363 Replace elbow joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

24366 Reconstruct head of radius J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

25441 Reconstruct wrist joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

25442 Reconstruct wrist joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

25446 Wrist replacement J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

27446 Revision of knee joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

33206 Insertion of heart pacemaker J8 0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 71%

33207 Insertion of heart pacemaker J8 0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 71%

33208 Insertion of heart pacemaker J8 0655 Insertion/Replacement/Co nversion of a permanent dual chamber pacemaker 73%

33212 Insertion of pulse generator J8 0090 Insertion/Replacement of Pacemaker Pulse Generator 73%CMS-1525-P 512

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage

33213 Insertion of pulse generator J8 0654 Insertion/Replacement of a permanent dual chamber pacemaker 74%

33214 Upgrade of pacemaker system J8 0655 Insertion/Replacement/Co nversion of a permanent dual chamber pacemaker 73%

33224 Insert pacing lead & connect J8 0655 Insertion/Replacement/Co nversion of a permanent dual chamber pacemaker 73%

33225 Lventric pacing lead add-on J8 0108 Insertion/Replacement/Repair of CardioverterDefibrillator Leads 87%

33240 Insert pulse generator J8 0107 Insertion of CardioverterDefibrillator 88%

33249 Eltrd/insert pace-defib J8 0108 Insertion/Replacement/Repair of CardioverterDefibrillator Leads 87%

33282 Implant patactive ht record J8 0680 Insertion of Patient Activated Event Recorders 72%

53440 Male sling procedure J8 0385 Level I Prosthetic Urological Procedures 61%

53444 Insert tandem cuff J8 0385 Level I Prosthetic Urological Procedures 61%

53445 Insert uro/ves nck sphincter J8 0386 Level II Prosthetic Urological Procedures 70%

53447 Remove/rep lace ur sphincter J8 0386 Level II Prosthetic Urological Procedures 70%

54400 Insert semirigid prosthesis J8 0385 Level I Prosthetic Urological Procedures 61%

54401 Insert selfcontd prosthesis J8 0386 Level II Prosthetic Urological Procedures 70%CMS-1525-P 513

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage

54405 Insert multi-comp penis pros J8 0386 Level II Prosthetic Urological Procedures 70%

54410 Remove/rep lace penis prosth J8 0386 Level II Prosthetic Urological Procedures 70%

54416 Remv/repl penis contain pros J8 0386 Level II Prosthetic Urological Procedures 70%

55873 Cryoablate prostate J8 0674 Prostate Cryoablation 57%

61885 Insrt/redo neurostim 1 array J8 0039 Level I Implantation of Neurostimulator Generator 85%

61886 Implant neurostim arrays J8 0315 Level II Implantation of Neurostimulator Generator 88%

62361 Implant spine infusion pump J8 0227 Implantation of Drug Infusion Device 81%

62362 Implant spine infusion pump J8 0227 Implantation of Drug Infusion Device 81%

63650 Implant neuroelectr odes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

63655 Implantneuroelectrodes J8 0061 Level II Implantation/Revision/Re placement of Neurostimulator Electrodes 64%

63663 Revise spine eltrd J8 0040 Level I Implantation/Revision/Re 55%CMS-1525-P 514

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage perq aray placement of Neurostimulator Electrodes

63664 Revise spine eltrd plate J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

63685 Insrt/redo spine n generator J8 0039 Level I Implantation of Neurostimulator Generator 85%

64553 Implantneuroelectrodes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

64555 Implantneuroelectrodes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

64560 Implantneuroelectrodes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

64561 Implantneuroelectrodes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%

64565 Implantneuroelectrodes J8 0040 Level I Implantation/Revision/Re placement of Neurostimulator Electrodes 55%CMS-1525-P 515

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage

64568 Implantneuroelectrodes J8 0318 Implantation of Neurostimulator Electrodes, Cranial Nerve 86%

64575 Implantneuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64%

64577 Implantneuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64%

64580 Implantneuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64%

64581 Implantneuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64%

64590 Insrt/redo pn/gastr stimul J8 0039 Level I Implantation of Neurostimulator Generator 85%

65770 Revise cornea with implant J8 0293 Level VI Anterior Segment Eye Procedures 67%

69714 Implant temple bone w/stimul J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

69715 Temple bne implnt w/stimulat J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

69717 Temple bone implant revision J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60%

69718 Revise temple bone J8 0425 Level II Arthroplasty or Implantation with 60%CMS-1525-P 516

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC Proposed CY 2012 OPPS APC Title Proposed CY 2012DeviceDependent APC Offset Percentage implant Prosthesis

69930 Implant cochlear device J8 0259 Level VII ENT Procedures 83%

We invite public comment on these proposals. d. ASC Treatment of Surgical Procedures Proposed for Removal from the OPPS Inpatient List for CY 2012 As we discussed in the CY 2009 OPPS/ ASC final rule with comment period (73 FR 68724), we adopted a policy to include in our annual evaluation of the ASC list of covered surgical procedures, a review of the procedures that are being proposed for removal from the OPPS inpatient list for possi ble inclusion on the ASC list of covered surgical procedures. We evaluated each of the three procedures we are proposing to remove from the OPPS inpatient list for CY 2012 according to the criteria for exclusion from the list of covered ASC surgical procedur es. We believe that these three procedures should continue to be excluded from the AS C list of covered surgical procedures for CY 2012 because they would be e xpected to pose a si gnificant risk to beneficiary safety or to require an overnight stay in ASCs . A full discussion about the APC Panel’s recommendations regarding the procedures we are proposing to remove from the OPPS inpatient list for CY 2012 may be found in se ction IX.B. of this proposed rule. TheCMS-1525-P 517 HCPCS codes for these three procedures and th eir long descriptors are listed in Table 48 below.

TABLE 48.—PROCEDURES PROPOSED FOR EXCLUSION FROM THE

ASC LIST OF COVERED PROC EDURES FOR CY 2012 THAT ARE PROPOSED FOR REMOVAL FROM TH E CY 2012 OPPS INPATIENT LIST CPT Code Long Descriptor 21346 Open treatment of nasomaxillary complex fracture (Lefort II type); with wiring an d/or local fixation

35045 Direct repair of aneurysm, pseudoaneurysm, or excision (partial or total) and graft in sertion, with or without patch graft; for aneurysm, pseudoaneurysm, and associated occlusive disease, radial or ulnar artery 54650 Orchiopexy, abdominal approac h, for intra-abdominal testis (eg, Fowler-Stephens) We invite public comment on this proposal. 2. Covered Ancillary Services Consistent with the established ASC paym ent system policy, we are proposing to update the ASC list of covered ancillary servic es to reflect the proposed payment status for the services under the CY 2012 OPPS. Maintaining consistency with the OPPS may result in proposed changes to ASC payment indicators for some covered ancillary items and services because of ch anges that are being proposed under the OPPS for CY 2012. For example, a covered ancillary service that was separately paid under the revised ASC payment system in CY 2011 may be proposed for packaged status under the CY 2012 OPPS and, therefore, also under the ASC payment system for CY 2012. Comment indicator “CH,” discussed in se ction XIII.F. of this proposed rule, is used in Addendum BB to this proposed rule (which is referenced in section XVII. of th is proposed rule and available on via the Internet on the CMS Web s ite) to indicate covered ancillary servicesCMS-1525-P 518 for which we are proposing a change in the ASC payment indicator to reflect a proposed change in the OPPS treatment of the service for CY 2012. Except for the Level II HCPCS codes listed in Table 43 of this proposed rule, all ASC covered ancillary services and their proposed payment indicators for CY 2012 are included in Addendum BB to this proposed rule. D. Proposed ASC Payment for Covered Surg ical Procedures and Covered Ancillary Services 1. Proposed Payment for Covered Surgical Procedures a. Background Our ASC payment policies for covered su rgical procedures under the revised ASC payment system are fully described in the CY 2008 OPPS/AS C final rule with comment period (72 FR 66828 through 66831). Under our established policy for the revised ASC payment system, the ASC sta ndard ratesetting methodology of multiplying the ASC relative payment weight for the pro cedure by the ASC conversion factor for that same year is used to calcul ate the national unadjusted payment rates for procedures with payment indicator “G2.” For procedures assigned payment indicator “A2,” our final policy established blended rates to be used during the transitional period and, beginning in CY 2011, ASC rates calculated accordi ng to the ASC sta ndard ratesetting methodology. The rate calculation established fo r device-intensive procedures (payment indicator “J8”) is structured so that the p ackaged device payment amount is the same as under the OPPS, and only the service portion of the rate is subject to the ASC standard ratesetting methodology. In the CY 2011 OPPS /ASC final rule with comment periodCMS-1525-P 519 (75 FR 72024 through 72064), we updated the CY 2010 ASC payment rates for ASC covered surgical procedures with payment indicators of “A2,” “G2,” “H8,” and “J8” using CY 2009 data, consistent with th e CY 2011 OPPS update. Payment rates for device-intensive procedures also were updated to incorporate the CY 2011 OPPS device offset percentages. Because transitional payments were no longer required in CY 2011, we calculated CY 2011 payments for procedur es formerly subject to the transitional payment methodology (payment indicators “A2” and “H8”) using the standard rate setting methodology, incorporating the devi ce-intensive methodol ogy, as appropriate. Payment rates for office-based procedures (payment indicators “P2,” “P3,” and “R2”) are the lower of the MPFS non-facility PE RVU-ba sed amount (we refer readers to the CY 2012 MPFS proposed rule) or the amount calculated using the ASC standard ratesetting methodology for the procedure. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72024 through 72064), we updated the payment amounts for office-based procedures (payme nt indicators “P2,” “P3,” and “R2”) using the most recent available MPFS and OPPS data. We compared the estimated CY 2011 rate for each of the office-based procedures, calculated acco rding to the ASC standard ratesetting methodology, to the MPFS nonfacility PE RVU-based amount to determine which was lower and, therefore, would be the CY 2011 payment rate for the procedure according to the final policy of the revised ASC payment system (§416.171(d)). b. Proposed Update to ASC-Covered Surgic al Procedure Payment Rates for CY 2012 We are proposing to update ASC paymen t rates for CY 2012 using the established rate calculation methodologi es under §416.171. Under §416.171(c )(4), the transitionalCMS-1525-P 520 payment rates are no longer used for CY 2011 and subsequent calendar years for a covered surgical procedure designated in accordance with §416.166. Thus, we are proposing to calculate CY 2012 payments fo r procedures formerly subject to the transitional payment methodology (payment indicators “A2” and “H8”) using the proposed CY 2012 ASC rate calculated acco rding to the ASC standard ratesetting methodology, incorporating the device-intensiv e procedure methodology, as appropriate. We are proposing to continue to use th e amount calculated under the ASC standard ratesetting methodology for procedures assi gned payment indicator “G2.” We are proposing to modify or delete the payment indi cators for procedures that were subject to transitional payment prior to CY 2011 (we refe r readers to our discussion in section XIII.F.2. of this proposed rule). We are proposing that payment rates for office-based procedures (payment indicators “P2,” “P3,” and “R2” ) and device-intensive procedur es that were not subject to transitional payment (payment indicator “J8”) be calculated according to our established policies, incorporating the device-intensive procedure methodology as appropriate. Thus, we are proposing to update the payment am ounts for device-intensive procedures based on the CY 2012 OPPS proposal that reflects updat ed OPPS device offset percentages, and to make payment for office-based procedur es at the lesser of the CY 2012 proposed MPFS non-facility PE RVU-based amount or the proposed CY 2012 ASC payment amount calculated according to the standard ratesetting methodology.CMS-1525-P 521 c. Proposed Adjustment to ASC Payments for No Cost/Full Credit and Partial Credit Devices Our ASC policy with regard to payment fo r costly devices implanted in ASCs at no cost or with full or partial credit as se t forth in §416.179 is consis tent with the OPPS policy. The proposed CY 2012 OPPS APCs and devices subject to the adjustment policy are discussed in section IV .B.2. of this proposed rule. The established ASC policy includes adoption of the OPPS policy for reduced payment to providers when a specified device is furnished without cost or with full or partial credit for the cost of the device for those ASC covered surgical procedures th at are assigned to APCs under the OPPS to which this policy applies. We refer read ers to the CY 2009 OPPS/ASC final rule with comment period for a full discussion of the ASC payment adjustment policy for no cost/full credit and partial cred it devices (73 FR 68742 through 68745). Consistent with the OPPS, we are propos ing to update the list of ASC covered device-intensive procedures and devices that would be subject to the no cost/full credit and partial credit device adjustment polic y for CY 2012. Table 49 below displays the ASC covered device-intensive procedures that we are proposing would be subject to the no cost/full credit and partial credit device adjustment policy for CY 2012. Specifically, when a procedure that is listed in Table 49 is performed to implant a device that is listed in Table 50 below, where that device is furn ished at no cost or with full credit from the manufacturer, the ASC would append the HC PCS “FB” modifier on the line with the procedure to implant the device. The cont ractor would reduce payment to the ASC by the device offset amount that we estimate re presents the cost of the device when theCMS-1525-P 522 necessary device is furnished without cost to the ASC or with full credit. We would provide the same amount of payment reduc tion based on the device offset amount in ASCs that would apply under the OPPS under th e same circumstances. We continue to believe that the reduction of ASC payment in these circumstances is necessary to pay appropriately for the covered surgical procedure being furnished by the ASC. We also are proposing to reduce the paymen t for implantation procedures listed in Table 49 by one-half of the device offset amount that would be applied if a device was provided at no cost or with full credit, if the credit to the ASC is 50 percent or more of the cost of the new device. The ASC woul d append the HCPCS “FC” modifier to the HCPCS code for a surgical procedure listed in Table 49 when the facility receives a partial credit of 50 percent or more of the co st of a device listed in Table 50 below. In order to report that they received a partial cr edit of 50 percent or mo re of the cost of a new device, ASCs would have the option of either: (1) submitting the claim for the device replacement procedure to their Medi care contractor af ter the procedure’s performance but prior to manufacturer acknowledgment of credit for the device, and subsequently contacting the contractor regarding a claim adjustment once the credit determination is made; or (2) holding the claim for the device implantation procedure until a determination is made by the manufacturer on the partial credit and submitting the claim with the “FC” modifier appended to the implantation procedur e HCPCS code if the partial credit is 50 percent or more of the cost of the replacement device. Beneficiary coinsurance would continue to be based on the reduced payment amount.CMS-1525-P 523

TABLE 49.—PROPOSED CY 2012 PR OCEDURES TO WHICH THE NO COST/FULL CREDIT AND PARTIAL CREDIT DEVICE ADJUSTMENT POLICY WOULD APPLY

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC OPPS APC Title Proposed CY 2012 OPPS Full APC Offset Percentage Proposed CY 2012

OPPS Partial APC Offset Percentage

24361 Reconstruct elbow joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

24363 Replace elbow joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

24366 Reconstruct head of radius J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

25441 Reconstruct wrist joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

25442 Reconstruct wrist joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

25446 Wrist replacement J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

27446 Revision of knee joint J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

33206 Insertion of heart pacemaker J8 0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 71% 35%

33207 Insertion of heart pacemaker J8 0089 Insertion/Replacement of Permanent Pacemaker and Electrodes 71% 35%

33208 Insertion of heart pacemaker J8 0655 Insertion/Replacement /Conversion of a permanent dual chamber pacemaker 74% 37%CMS-1525-P 524

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC OPPS APC Title Proposed CY 2012 OPPS Full APC Offset Percentage Proposed CY 2012

OPPS Partial APC Offset Percentage

33212 Insertion of pulse generator J8 0090 Insertion/Replacement of Pacemaker Pulse Generator 73% 37%

33213 Insertion of pulse generator J8 0654 Insertion/Replacement of a permanent dual chamber pacemaker 74% 37%

33214 Upgrade of pacemaker system J8 0655 Insertion/Replacement /Conversion of a permanent dual chamber pacemaker 73% 37%

33224 Insert pacing lead & connect J8 0655 Insertion/Replacement /Conversion of a permanent dual chamber pacemaker 73% 37%

33225 Lventric pacing lead add-on J8 0108 Insertion/Replacement /Repair ofCardioverterDefibrillator Leads 87% 43%

33240 Insert pulse generator J8 0107 Insertion ofCardioverterDefibrillator 88% 44%

33249 Eltrd/insert pace-defib J8 0108 Insertion/Replacement /Repair ofCardioverterDefibrillator Leads 87% 43%

33282 Implant patactive ht record J8 0680 Insertion of Patient Activated Event Recorders 72% 36%

53440 Male sling procedure J8 0385 Level I Prosthetic Urological Procedures 61% 30%

53444 Insert tandem cuff J8 0385 Level I Prosthetic Urological Procedures 61% 30%

53445 Insert uro/ves nck sphincter J8 0386 Level II Prosthetic Urological Procedures 70% 35%

53447 Remove/replac e ur sphincter J8 0386 Level II Prosthetic Urological Procedures 70% 35%

54400 Insert semirigid prosthesis J8 0385 Level I Prosthetic Urological Procedures 61% 30%CMS-1525-P 525

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC OPPS APC Title Proposed CY 2012 OPPS Full APC Offset Percentage Proposed CY 2012

OPPS Partial APC Offset Percentage

54401 Insert selfcontd prosthesis J8 0386 Level II Prosthetic Urological Procedures 70% 35%

54405 Insert multicomp penis pros J8 0386 Level II Prosthetic Urological Procedures 70% 35%

54410 Remove/replac e penis prosth J8 0386 Level II Prosthetic Urological Procedures 70% 35%

54416 Remv/repl penis contain pros J8 0386 Level II Prosthetic Urological Procedures 70% 35%

61885 Insrt/redo neurostim 1 array J8 0039 Level I Implantation of Neurostimulator Generator 85% 43%

61886 Implant neurostim arrays J8 0315 Level II Implantation of Neurostimulator Generator 88% 44%

62361 Implant spine infusion pump J8 0227 Implantation of Drug Infusion Device 81% 40%

62362 Implant spine infusion pump J8 0227 Implantation of Drug Infusion Device 81% 40%

63650 Implant neuroelectrodes J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%

63655 Implant neuroelectrodes J8 0061 Level II Implantation/Revision/ Replacement of Neurostimulator Electrodes 64% 32%

63663 Revise spine eltrd perq aray J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%CMS-1525-P 526

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC OPPS APC Title Proposed CY 2012 OPPS Full APC Offset Percentage Proposed CY 2012

OPPS Partial APC Offset Percentage

63664 Revise spine eltrd plate J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%

63685 Insrt/redo spine n generator J8 0039 Level I Implantation of Neurostimulator Generator 85% 43%

64553 Implant neuroelectrodes J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%

64555 Implant neuroelectrodes J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%

64560 Implant neuroelectrodes J8 0040 Level I Implantation/Revision/ Replacement of Neurostimulator Electrodes 55% 27%

64561 Implant neuroelectrodes J8 0040 Percutaneous Implantation of Neurostimulator Electrodes 55% 27%

64565 Implant neuroelectrodes J8 0040 Percutaneous Implantation of Neurostimulator Electrodes 55% 27%

64568 Implant neuroelectrodes J8 0318 Implantation of Neurostimulator Electrodes, Cranial Nerve 86% 43%CMS-1525-P 527

CPT Code Short Descriptor Proposed CY 2012

ASC Payment Indicator Proposed CY 2012

OPPS APC OPPS APC Title Proposed CY 2012 OPPS Full APC Offset Percentage Proposed CY 2012

OPPS Partial APC Offset Percentage

64575 Implant neuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64% 32%

64577 Implant neuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64% 32%

64580 Implant neuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64% 32%

64581 Implant neuroelectrodes J8 0061 Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator Electr 64% 32%

64590 Insrt/redo pn/gastr stimul J8 0039 Level I Implantation of Neurostimulator Generator 85% 43%

69714 Implant temple bone w/stimul J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

69715 Temple bne implnt w/stimulat J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

69717 Temple bone implant revision J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

69718 Revise temple bone implant J8 0425 Level II Arthroplasty or Implantation with Prosthesis 60% 30%

69930 Implant cochlear device J8 0259 Level VII ENT Procedures 83% 41%CMS-1525-P 528

TABLE 50.—PROPOSED DEVICES FOR WHICH THE “FB” OR “FC” MODIFIER MUST BE REPORTED WITH THE PROCEDURE CODE IN CY 2012 WHEN FURNISHED AT NO CO ST OR WITH FULL OR PARTIAL CREDIT

CY 2011 Device HCPCS Code CY 2011 Short Descriptor C1721 AICD, dual chamber C1722 AICD, single chamber C1762 Conn tiss, human(inc fascia) C1763 Conn tiss, non-human C1764 Event recorder, cardiac C1767 Generator, neurostim, imp C1771 Rep dev, urinary, w/sling C1772 Infusion pump, programmable C1776 Joint device (implantable) C1778 Lead, neurostimulator C1779 Lead, pmkr, transvenous VDD C1781 Mesh (implantable) C1785 Pmkr, dual, rate-resp C1786 Pmkr, single, rate-resp C1813 Prosthesis, penile, inflatab C1815 Pros, urinary sph, imp C1820 Generator, neuro rechg bat sys C1881 Dialysis access system C1882 AICD, other than sing/dual C1891 Infusion pump, non-prog, perm C1897 Lead, neurostim, test kit C1898 Lead, pmkr, other than trans C1900 Lead coronary venous C2618 Probe, cryoablation C2619 Pmkr, dual, non rate-resp C2620 Pmkr, single, non rate-resp C2621 Pmkr, other than sing/dual C2622 Prosthesis, penile, non-inf C2626 Infusion pump, non-prog, temp C2631 Rep dev, urinary, w/o sling L8614 Cochlear device/system L8680 Implt neurostim elctr each L8685 Implt nrostm pls gen sng recCMS-1525-P 529

CY 2011 Device HCPCS Code CY 2011 Short Descriptor L8686 Implt nrostm pls gen sng non L8687 Implt nrostm pls gen dua rec L8688 Implt nrostm pls gen dua non L8690 Aud osseo dev, int/ext comp We invite public comment on these proposals. d. Waiver of Coinsurance and Deduc tible for Certain Preventive Services Section 1833(a)(1) and (b)(1 ) of the Act waives the coinsurance and the Part B deductible for those preventive services unde r section 1861(ddd)(3)( A) of the Act as described in section 1861(ww)(2) of the Ac t (excluding electrocardiograms) that are recommended by the United States Preventive Services Task Force (USPSTF) with a grade of A or B for any indication or popul ation and that are appropriate for the individual. Section 1833(b) of the Act also waives the Part B deductible for colorectal cancer screening tests that become diagnostic. In the CY 2011 OPPS/ASC final rule with comment period, we finalized our policies with respect to these provi sions and identified the ASC covered surgical and ancillary servi ces that are preventive services that are recommended by the USPSTF with a grade of A or B for which the coinsurance and the deductible are waived. For a complete discus sion of our policies and identified services, please see the CY 2011 OPPS/ ASC final rule with comment period (75 FR 72047 through 72049). We are proposing no changes to our policies or the list of services. We have identified these services with a doubl e asterisk in Addenda AA and BB to this proposed rule.CMS-1525-P 530 e. Proposed Payment for the Cardiac Resynchronization Therapy Composite Cardiac resynchronization therapy (CRT) us es electronic devices to sequentially pace both sides of the heart to improve its output. CRT utilizes a pacing electrode implanted in combination with either a pacemaker or an implantable cardioverter defibrillator (ICD). CRT perf ormed by the implantation of an ICD along with a pacing electrode is referred to as “CRT –D.” As detailed in secti on II.A.2.e.(6) of this proposed rule, we are proposing to create anOPPS composite APC (Composite APC 8009 (Cardiac Resynchronization Th erapy - ICD Pulse Generator and Leads)) which would be used when CPT code 33225 (Insertion of paci ng electrode, cardiac venous system, for left ventricular pacing, at time of insert ion of pacing cardioverter-defibrillator or pacemaker pulse generator (including upgrade to dual chamber system)) and CPT code 33249 (Insertion or repositioning of electrode le ad(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse generato r) are performed on the same date of service. We also are proposing to cap the OPPS payment rate for composite APC 8009 at the most comparable Medicare se verity diagnosis-related group (MS-DRG) payment rate established under the IPPS that w ould be provided to acute care hospitals for providing CRT-D services to hospital inpatients. In other words, we are proposing to pay APC 8009 at the lesser of the APC 8009 median cost or the IPPS standardized payment rate for MS-DRG 227 (Cardiac De fibrillator Implant without Cardiac Catheterization without Major Complication or Comorbidity). This would ensure appropriate and equitable payment to hospitals and that we do not cr eate an inappropriate payment incentive to provide CRT-D services in one setting of care over another byCMS-1525-P 531 paying more for CRT-D in the outpatient se tting compared to the inpatient setting. Specifically, for the CY 2012 OPPS, we are pr oposing that if the APC 8009 median cost that we will calculate for the CY 2012 OPPS/ASC final rule with comment period exceeds the FY 2012 IPPS standardized pa yment rate for MS-DRG 227, we would establish the OPPS payment amount at the FY 2012 IPPS standardized payment amount for MS-DRG 227 (currently estimated at $26,365). Because CPT code 33225 and CPT code 33249 are on the list of ASC covered surgical procedures, we are proposing to esta blish an ASC payment rate that is based on the OPPS payment rate applicable to APC 8009 when these procedures are performed on the same date of service in an ASC. Agai n, we do not want to create an inappropriate payment incentive to provide CRT-D services in one setting of care over another by paying more for CRT-D in ASCs compared to the hospital outpatient setting. Because CPT codes 33225 and 33249 are on the proposed list of device-intensive procedures for CY 2012, we are proposing to apply the usual device-intensive methodology based on the OPPS payment rate applicable to APC 8009 (w hich is the lesser of the APC 8009 median cost that we will calculate fo r the CY 2012 OPPS/ASC final rule with comment period or the FY 2012 IPPS standardized payment rate for MS-DRG 227). We also are proposing to create a HCPCS Level II G-code so that ASCs can properly report when the procedures described by CPT codes 33225 a nd 33249 are performed on the same date of service to receive the appropriate CRT-D composite payment. In a related issue, as deta iled in section III.D.6 of th is proposed rule, CPT codes 33225 and 33249 are the only procedures proposed for inclusion in APC 0108. We areCMS-1525-P 532 proposing that these codes would be paid under APC 0108 only if they are not reported on the same date of service. Further, we are proposing to pay the OPPS payment rate for services that are assigned to APC 0108 at th e lesser of the APC 0108 median cost or the IPPS standardized payment rate for MS-D RG 227. For ASC payment in CY 2012, we are proposing to apply the de vice-intensive methodology to calculate payment for CPT codes 33225 and 33249 based on the OPPS payment rate applicable to APC 0108 (which is the lesser of the APC 0108 median cost that we will calculate for the CY 2012 OPPS/ASC final rule with comment period or the FY 2012 IPPS standardized payment rate for MS-DRG 227). We invite public comment on these proposals. 2. Proposed Payment for Covered Ancillary Services a. Background Our final payment policies under the revised ASC payment system for covered ancillary services vary according to the part icular type of servi ce and its payment policy under the OPPS. Our overall policy provides se parate ASC payment for certain ancillary items and services integrally related to the provision of ASC covere d surgical procedures that are paid separately under the OPPS a nd provides packaged ASC payment for other ancillary items and services that are packag ed under the OPPS. Thus, we established a final policy to align ASC payment bundles with those under the OPPS (72 FR 42495). In all cases, in order for those an cillary services also to be pa id, ancillary items and services must be provided integral to the performa nce of ASC covered surgical procedures for which the ASC bills Medicare.CMS-1525-P 533 Our ASC payment policies provide separa te payment for drugs and biologicals that are separately paid under the OPPS at the OPPS rates, while we generally pay for separately payable radiology services at the lower of the MPFS non-facility PE RVU-based (or technical component) amount or the rate calculated according to the ASC standard ratesetting methodology (72 FR 42497). However, as finalized in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72050), payment indicators for all nuclear medicine procedures (defined as CPT codes in the range of 78000 through 78999) that are designated as ra diology services that are pa id separately when provided integral to a surgical procedure on the ASC lis t are set to “Z2” so that payment is made based on the OPPS relative payment weights rather than the MPFS non-facility RE RVU amount, regardless of which is lower. This modification to the ASC payment methodology for ancillary serv ices was finalized in response to a CY 2011 OPPS/ASC proposed rule comment that suggested it is inappropriate to use the MPFS-based payment methodology for nuclear medicine procedur es because the associated diagnostic radiopharmaceutical, though packaged under the ASC payment system, is separately paid under the MFPS. We set the payment indicator to “Z2” for nuclear medicine procedures in the ASC setting so that payment for thes e procedures would be based on the OPPS relative payment weight rather than the MPFS non-facility PE RVU-based amount to ensure that the ASC will be compensated fo r the cost associated with the diagnostic radiopharmaceuticals. ASC payment policy for brachytherapy sources generally mirrors the payment policy under the OPPS. We finalized our pol icy in the CY 2008 OPPS/ASC final ruleCMS-1525-P 534 with comment period (72 FR 42499) to pay for brachytherapy sources applied in ASCs at the same prospective rates that were adopt ed under the OPPS or, if OPPS rates were unavailable, at contractor-price d rates. After publication of that rule, section 106 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173) mandated that, for the period January 1, 2008 through J une 30, 2008, brachytherapy sources be paid under the OPPS at charges adjusted to cost. Th erefore, consistent wi th our final overall ASC payment policy, we paid ASCs at contra ctor-priced rates for brachytherapy sources provided in ASCs during that period of time. Begi nning July 1, 2008, brachytherapy sources applied in ASCs were to be paid at the same prospectively set rates that were finalized in the CY 2008 O PPS/ASC final rule with comment period (72 FR 67165 through 67188). Immediately prior to th e publication of th e CY 2009 OPPS/ASC proposed rule, section 142 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275) amended section 1833 (t)(16)(C) of the Act (as amended by section 106 of the Medicare, Medica id, and SCHIP Extension Act of 2007, Pub. L. 110-173) to extend the re quirement that brachytherapy sources be paid under the OPPS at charges adjusted to cost through D ecember 31, 2009. Therefor e, consistent with final ASC payment policy, ASCs continued to be paid at contractor-priced rates for brachytherapy sources provided in tegral to ASC covered surgi cal procedures during that period of time. Other separately paid covered ancillaryservices in ASCs, specifically corneal tissue acquisition and device categories with OPPS pass-through status, do not have prospectively established ASC payment rates a ccording to the final policies of the revisedCMS-1525-P 535 ASC payment system (72 FR 42502 and 42509; §416.164(b)). Under the revised ASC payment system, corneal tissue acquisition is paid based on the invoiced costs for acquiring the corneal tissue for transplantati on. Devices that are e ligible for pass-through payment under the OPPS are separately paid under the ASC payment system. Currently, the only device that is eligible for pass -through payment in the OPPS is described by HCPCS code C1749 (Endoscope, retrograde im aging/illumination colonoscope device (Implantable). Payment for HCPCS code C1749 under the ASC payment system is contractor priced. b. Proposed Payment for Covered Ancillary Services for CY 2012 For CY 2012, we are proposing to upda te the ASC payment rates and make changes to ASC payment indicators as necessa ry to maintain consistency between the OPPS and ASC payment system regarding the pa ckaged or separately payable status of services and the proposed CY 2012 OPPS and ASC payment rates. The proposed CY 2012 OPPS payment methodologies for separa tely payable drugs and biologicals and brachytherapy sources are discussed in secti on II.A. and section V.B. of this proposed rule, respectively, and we are proposing to set the CY 2012 ASC paym ent rates for those services equal to the proposed CY 2012 OPPS rates. Consistent with established ASC pa yment policy (72 FR 42497), the proposed CY 2012 payment for separately payable covered radiology services is based on a comparison of the CY 2012 proposed MPFS non-facility PE RVU-based amounts (we refer readers to the CY 2012 MPFS proposed rule) and the proposed CY 2012 ASC payment rates calculated according to the ASC standard ratesetting methodology andCMS-1525-P 536 then set at the lower of the two amounts. Alternatively, payment for a radiology service may be packaged into the payment for the ASC covered surgical procedure if the radiology service is packaged under the OPPS. The payment indicators in Addendum BB to this proposed rule indicate whether the proposed payment rates for radiology services are based on the MPFS nonfacility PE RVU-based amount or the ASC standard ratesetting methodology, or whether payment for a radiology service is packaged into the payment for the covered surgical procedur e (payment indicator “N1”). Radiology services that we are proposing to pay ba sed on the ASC standard ratesetting methodology are assigned payment indicator “Z2” (Radiol ogy service paid separately when provided integral to a surgical procedure on ASC list; payment based on OPPS relative payment weight) and those for which the proposed pa yment is based on the MPFS non-facility PE RVU-based amount are assigned payment i ndicator “Z3” (Radiology service paid separately when provided integral to a su rgical procedure on ASC list; payment based on MPFS non-facility PE RVUs). As finalized in the CY 2011 OPPS/AS C final rule with comment period (75 FR 72050), payment indicators for all nucle ar medicine procedures (defined as CPT codes in the range of 78000 through 78999) that are designated as radi ology services that are paid separately when provided integral to a surgical procedure on the ASC list are set to “Z2” so that payment is made based on the OPPS relative payment weights rather than the MPFS non-facility PE RVU-based amount, regardless of which is lower. We are proposing to continue this modification to the payment methodology and, therefore, set the payment indicator to “Z2” for these nuc lear medicine procedures in CY 2012. InCMS-1525-P 537 addition, because the same issue exists for ra diology procedures that use contrast agents (the contrast agent is packaged under the ASC payment system but is separately paid under the MFPS), we are proposing to set the payment indicator to “Z2” for radiology services that use contrast agents so that pa yment for these procedures will be based on the OPPS relative payment weight and will, therefore, include the cost for the contrast agent. We have made proposed changes to the regul ation text at §416.171(d) to reflect this proposal. Most covered ancillary services and thei r proposed payment i ndicators are listed in Addendum BB to this proposed rule (which is referenced in section XVII. of this proposed rule and available via th e Internet on the CMS Web site). E. New Technology Intraocular Lenses (NTIOLs) 1. NTIOL Cycle and Evaluation Criteria In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68176), we finalized our current process for reviewing a pplications to establish new classes of new technology intraocular lenses (NTIOLs) and for recognizing new ca ndidate intraocular lenses (IOLs) inserted during or subsequent to cataract ex traction as belonging to an NTIOL class that is qualified for a payment adjustment. Specifically, we established the following process:

● We announce annually in the proposed rule updating the ASC and OPPS payment rates for the following calendar year , a list of all requests to establish new NTIOL classes accepted for review during th e calendar year in wh ich the proposal is published and the deadline for submission of public comments regarding those requests.CMS-1525-P 538 In accordance with section 141(b)(3) of Pub. L. 103-432 and our regulations at §416.185(b), the deadline for rece ipt of public comments is 30 days following publication of the list of requests.

● In the final rule updating the ASC and OPPS payment rates for the following calendar year, we—

○ Provide a list of determinations made as a result of our review of all new NTIOL class requests and public comments; and

○ Announce the deadline for submitting requests for review of an application for a new NTIOL class for the following calendar year. In the CY 2007 OPPS/ASC final rule with comment period (71 FR 68227), we finalized our proposal to base our determinations on consid eration of the following three major criteria set out at 42 CFR 416.195:

● Criterion 1 (42 CFR 416.195( a)(1),(2)): The IOL must have been approved by the FDA and claims of specific clinical be nefits and/or lens characteristics with established clinical relevance in comparison with currently available IOLs must have been approved by the FDA for use in labeling and advertising;

● Criterion 2 (42 CFR 416.195(a)(3)): The IOL is not described by an active or expired NTIOL class; that is, it does not share the pr edominant, class-defining characteristic associated with the improved cl inical outcome with designated members of an active or expired NTIOL class; and

● Criterion 3 (42 CFR 416.195(a)(4)): Ev idence demonstrates that use of the IOL results in measurable, clinically mean ingful, improved outcomes in comparison withCMS-1525-P 539 use of currently available IOLs. The stat ute requires us to consider the following superior outcomes:

○ Reduced risk of intraoperative or postoperative complication or trauma;

○ Accelerated postoperative recovery;

○ Reduced induced astigmatism;

○ Improved postoperative visual acuity;

○ More stable postoperative vision; or

○ Other comparable clinical advantages. Since implementation of the process for adjustment of payment amounts for NTIOLs that was established in the June 16, 1999 Federal Register , we have approved three classes of NTIOLs, as shown in the table entitled CMS Approved NTIOLs , with the associated qualifying IOL models, posted on the CMS Web site at: http://www.cms.gov/ASCPayment/08_NTIOLs.asp#TopOfPage

. 2. NTIOL Application Proce ss for Payment Adjustment For a request to be considered complete, we require submission of the information that is found in the guidance document ent itled “Application Process and Information Requirements for Requests for a New Cla ss of New Technology Intraocular Lens (NTIOL)” posted on the CMS Web site at: http://www.cms.gov/ASCPayment/08_NTIOLs.asp#TopOfPage . For each completed request for a new class that is received by the established deadline, a determination is announced annually in the fina l rule updating the ASC and OPPS payment rates for the next calendar year.CMS-1525-P 540 We also summarize briefly in the final rule with comment period the evidence that we reviewed, the public comments we received timely, and the basis for our determinations in considerati on of applications for establis hment of a new NTIOL class. When a new NTIOL class is created, we id entify the predominant characteristic of NTIOLs in that class that sets them apart from other IOLs (incl uding those previously approved as members of other expired or activ e NTIOL classes) and that is associated with an improved clinical outcome. The date of implementation of a payment adjustment in the case of approval of an IOL as a member of a new NTIOL class would be set prospectively as of 30 days after publicat ion of the ASC payment update final rule, consistent with the statutory requirement. 3. Requests to Establish New NTIOL Cla sses for CY 2012 and Deadline for Public

Comments We received four requests for review to establish a new NTIOL class for CY 2012 by the March 5, 2011 due date. Summaries of these requests follow.

a. Requestor/Manufacturer: Alcon Laboratories, Inc. (Alcon)
Lens Model Numbers: Acrysof Natural IQ and Acrysof Natural IOLs, Models SN60WF (aspheric optic, single piece) , SN60AT (spherical op tic, single piece), MN60MA (spherical optic, multi-piece), MN60AC (spherical optic, multi-piece). Summary of the Request : Alcon submitted a request for CMS to determine that its Acrysof Natural IOLs meet the criteria for recognition as NTIOLs and to concurrently establish a new class of NTIOLs for “blue-light -filtering IOLs that im prove driving safety under glare conditions,” with thes e IOLs as members of the class. We reviewed a similarCMS-1525-P 541 request by Alcon during the CY 2011 NTIOL a pplication cycle (75 FR 72052). As part of its CY 2012 request, Alcon submitted desc riptive information about the candidate IOLs as outlined in the guidance document that is available on the CMS Web site for the establishment of a new class of NTIOLs, as we ll as information regarding approval of the candidate IOLs by the FDA. This inform ation included the approved labeling for the candidate IOLs, a summary of the IOLs’ safetyand effectiveness, a copy of the FDA’s approval notifications, and in structions for their use. In its CY 2012 request, Alcon asserts that its request is based on studies demonstrating that the Acrysof Natural IO Ls with a blue-light-filtering chromophore filter light in a manner that approximates the human crystalline lens in the 400-475 nm blue light wavelength range to reduce glar e that impairs the ability of the eye to differentiate objects from the background. Alco n further states that glare reduction can help beneficiaries avoid hazards that can be caused by glare. Alcon also states that at present there are no active or expired NTIOL classes that de scribe IOLs similar to the Acrysof Natural IOLs. We established in the CY 2007 OPPS/ASC final rule with comment period that when reviewing a request for recognition of an IOL as an NTIOL and a concurrent request to establish a new class of NTIO Ls, we would base our determination on consideration of the three ma jor criteria at 42 CFR 416.195(a) a nd listed above. We have begun our review of Alcon's request to rec ognize its Acrysof Natural IOLs as NTIOLs and concurrently establish a new class of NTIOLs. We are solic iting public comment on these candidate IOLs with respect to th e established three major NTIOL criteria.CMS-1525-P 542 First, for an IOL to be recognized as an NTIOL we require that the IOL must have been approved by the FDA and claims of specific clinical benefits and/or lens characteristics with established clinical rele vance in comparison with currently available IOLs must have been approved by the FDA fo r use in labeling and advertising. The approved labels for the Alcon IOLs all state the following: “Alcon's proprietary blue light filtering chromophore filters light in a manner that approximates the human crystalline lens in the 400-475 nm blue light wavelength range.” The FDA labels for these IOLs do not otherwise reference specific c linical benefits of blue light filtering. We are interested in public comments on the clinical relevance of blue light filtering in an IOL. Specifically, we are interested in public co mments regarding the assertion that the specific blue light filtering pr operties associated with the ca ndidate IOLs improve driving safety via the reduction of glare disability. Second, according to 42 CFR 416.195(a)(3), we also require th at the candidate IOL not be described by an active or expire d NTIOL class; that is, it does not share the predominant, class-defining characteristic associated with improved clinical outcomes with designated members of an active or expired NTIOL class. In the CY 2007 OPPS final rule, in response to a comment we explained our interpretation of 42 CFR 416.195(a)(3) as follows: “[R]evised §416.195(a)(3) does not preclude fr om consideration as a member of a new class of NTIOL a lens that includes as one of its characteris tics a class-defining characteristic associated with members of an active or expired class. Only if that shared characteristic were the predominant characteri stic of the lens would it be precluded fromCMS-1525-P 543 approval as a new class of NTIO L. However, if the lens f eatured other characteristics, one or more of which predominated, that were clearly tied with improved clinical outcomes, the lens would not be disqualifie d from consideration as an NTIOL just because it also shared a characteristic withmembers of an active or expired class.” (71 FR 68178). As noted above, since implementation of the process for adjustment of payment amounts for NTIOLs that was established in the June 16, 1999 Federal Register , we have approved three classes of NTIOLs: Multifocal and Reduc tion in Preexisting Astigmatism classes, both of which were cr eated in 2000 and expired in 2005, and the Reduced Spherical Aberration class, which wa s created in 2006 and expired on February 26, 2011. As mentioned above, a table entitled CMS Approved NTIOLs , with the associated qualifying IOL models, is posted on the CMS Web site at: http://www.cms.gov/ASCPayment/08_NTIOLs.asp#TopOfPage . The class-defining characteristic specific to IOLs that are members of these three expired classes is evident in the name assigned to the class. For ex ample, IOLs recognized as members of the reduced spherical aberration class are characte rized by their aspheric design that results in reduced spherical aberration. Based on the information in the table entitled CMS Approved NTIOLs , a candidate IOL’s predominant char acteristic may not be described by any of the three expired NTIOL classes. In the case of one of four of Alcon’ s candidate IOLs, the Acrysof Natural IQ Aspheric IOL model SN60WF, it is a member of the expired reduced spherical aberration NTIOL class (75 FR 72052). For the purpos es of satisfying §416.195(a)(3), CMS mustCMS-1525-P 544 be able to determine which lens charact eristic is predominant for Alcon’s model SN60WF, asphericity (resulting in reduced spherical aberration) or blue-light filtering. If the predominant characteristic is aspheric ity, then the model SN60WF IOL would be disqualified under §416.195(a)(3). This determination is partic ularly relevant given that the clinical benefit attributed to both of these lens char acteristics is improved night driving. To our knowledge, Alcon has not compared the IOL model SN60WF (a bluelight filtering aspheric IOL) to a non-blue-lig ht filtering aspheric IOL to determine if there are any night driving benefits attributable to the blue-light filtering characteristic in addition to the improved night driving attr ibutable to the aspheric optic. Such information would assist us in evaluating whet her blue-light filtering predominates or is subordinate to the IOL’s as phericity. We are soliciting public comments on whether blue-light filtering can be considered the predominant IOL characteristic for the model SN60WF IOL. We also welcome public co mments that address whether blue lightfiltering and the associated clinical benefits of the other three of Alcon’s candidate IOLs (that is, SN60AT, MN60MA, MN60AC) are described by any of the expired NTIOL classes. Third, our NTIOL evaluation criteria al so require that an applicant submit evidence demonstrating that use of the IOL re sults in measurable, clinically meaningful, improved outcomes in comparison to currently available IOLs. We note that in the CY 2007 OPPS/ASC final rule with comment period, we sought comments as to what constitutes currently availabl e IOLs for purposes of such comparisons, and we received several comments in response to our so licitation (71 FR 68178). We agreed withCMS-1525-P 545 commenters that we should remain flexible with respect to our view of “currently available lenses” for purposes of reviewi ng NTIOL requests, in order to allow for consideration of technological a dvances in lenses over time. This means that we do not expect that “currently available lenses” would remain static over time and always necessarily default to the classic spherica l monofocal IOL for every candidate NTIOL class. Therefore, we believe that “currentl y available lenses” for purposes of reviewing NTIOL requests should depend upon the class-de fining characteristic and the associated purported improved clinical outcome of the ca ndidate NTIOL. For example, for some candidate NTIOLs the most appropriate comp arison IOL would be a spherical monofocal IOL, while other candidate NTIOLs may be more appropriately compared to aspheric

IOLs. For purposes of reviewing Alcon’s request to establish a new NTIOL class for CY 2012, we are proposing that aspheric m onofocal IOLs represent the currently available IOLs against which the candidate NTIOLs should be compared in order to establish a new class. According to public ly available data from Market Scope, LLC, IOLs with aspheric optics acc ounted for over 86 percent of the IOLs implanted in the United States during 2010. In addition, da ta submitted by Alcon shows that the overwhelming majority of IOLs sold by Alc on have aspheric optics. Furthermore, the aspheric design that results in reduced s pherical aberration was the class defining characteristic for IOLs recognized as me mbers of the expired reduced spherical aberration NTIOL class. The primary clinical outcome associated with reduced spherical aberration (for purposes of establishing it as an NTIOL class) wa s safer night drivingCMS-1525-P 546 (71 FR 4588). Alcon asserts that what make s its candidate IOLs superior to other currently available IOLs is improved driv ing safety under glare conditions. Glare conditions during driving primarily occur at ni ght due to headlights from oncoming cars. The primary improved clinical outcome from reduced spherical aberration IOLs (an expired NTIOL class) was safer night dr iving and the purported primary improved clinical outcome from Alcon’s blue light-filtering IOLs is also safer night driving. Therefore, the most relevant type of curre ntly available IOLs against which the Alcon blue filtering IOLs should be compared is aspheric IOLs. In part icular, the relevant comparison would be the performance of an as pheric blue-light filtering IOL versus an aspheric non-blue light filtering IOL. This comparison would test the hypothesis of whether blue-light filtering improved night driving in comparison to aspheric optics, which has been shown to improve night driv ing. We seek public comment on our view of “currently available lenses” for the purpos es of evaluating Alc on’s candidate IOLs against currently available IOLs. We are reviewing the evidence submitted with Alcon’s CY 2012 request. Although Alcon submitted various types of literature in support of its application, it relies primarily on two studies in support of its hypothe sis that blue light fi ltering IOLs improve driving safety under glare conditi ons as compared to currentl y available IOLs. The first of these two submitted articles is: Hammond B, et al. Contra lateral comparison of bluefiltering intraocular lenses: glare disability, heterochromic contrast, and photostress

recovery, Clinical Ophthalmology . 2010;4:1465-1473 (Hammond 2010). This article compared visual performance (as measured by glare disability, heterochromic contrastCMS-1525-P 547 threshold, and photostress recovery time) in ey es with blue-light-f iltering IOLs versus contralateral eyes with IOLs that do not filter blue light. The second article, which Alcon describes as its “pivotal study,” is: Gray R, et al. Reduced ef fect of glare disability on driving performance in patients with blue light-filtering intraocular lenses, J Cataract Refract Surg. 2011;37:38-44. This study compared the effects of glare on driving performance using a driving simulator in patients who had implantation of a blue light-filtering acrylic IOL a nd those who had implantation of an acrylic IOL with no blue-light filter. Overall, the evidence submitted provides us with important information that is critical to our review of this re quest. However, in making our decision as to whether to establish a new class of NTIOL based on the primary characteristic of the candidate lenses, we are also interested in what othe r information the public can contribute related to the asserted benefits of the blue light filtering IOL. Specifically, we are seeking public comment and relevant data on the following:

● Are there other peer-reviewed studies or other information that would support or disprove the claims of clin ical benefit made by Alcon?

● How do you interpret the results of the Hammond 2010 study, given that the blue light-filtering group included patients with spherical blue light filtering IOLs and patients with aspheric blue light filtering IOLs?

● Does the Maxwellian optical system that was employed in the Hammond 2010 study mitigate the impact of the aspheric optic s of some of the study subjects in the blue light-filtering group?CMS-1525-P 548

● Is the sample size used in both studies sufficient to conclude that a blue light filtering IOL would reduce glare disability and improve driving safety in the Medicare population?

● What kind of study design would be appropriate to prove the claim of significant clinical benefit due to glare reduction on which th e new class would be based?

● Are the submitted data enough to prove that the blue filtering optic is responsible for reduction in glare di sability as assert ed by applicant?

● Did these studies use an appropriate comparator IOL? Furthermore, in accordance with our esta blished NTIOL review process, we are also seeking public comments on all of the re view criteria for establishing a new NTIOL class that would be based on the ability of th e Acrysof Natural IOLs to filter blue light and subsequently help beneficiaries avoid hazards that can be caused by glare while driving. We will give all comments full cons ideration regarding Alcon’s candidate IOLs. b. Requestor/Manufacturer: Bausch & Lomb, Inc. (B&L)
Lens Model Numbers: Xact Foldable Hydrophobi c Acrylic Ultraviolet Light-Absorbing Posterior Chamber Intraocu lar Lenses, Models X-60 and X-70 (Xact IOLs). Summary of the Request : B&L submitted a request for CMS to determine that its Xact IOLs meet the criteria for recognition as NTIOLs and to concurrently establish a new class of NTIOLs for “glistening-free” IOLs. Glistenings are fluid-filled microvacuoles that can form within an IO L optic when the IOL is in an aqueous environment. According to B&L, “glisteni ngs have been associated with decreasedCMS-1525-P 549 contrast sensitivity, increased glare, decr eased visual acuity, and impaired fundus visualization.” B&L further states that “in some cases, this has lead to IOL explantation and exchange, which carries significant ri sks that increase the longer the IOL is implanted.” As part of its request, B&L submitted descriptive information about the candidate IOLs as outlined in the guidance document that is available on the CMS Web site for the establishment of a new class of NTIOLs, as well as information regarding approval of the candidate IOL by the FDA. This information included draft FDA labeling for the Xact IOLs. Fina l FDA labeling is currently pending. In its CY 2012 request, B&L asserts that because the Xact IOLs are glistening-free, they eliminate the decrea sed contrast sensitiv ity, increased glare, decreased visual acuity, and im paired fundus visualization as sociated with glistenings, and may likewise decrease the need for explan tations associated with those conditions. B&L also concludes that use of a glistening-free IOL results in measurable, clinically meaningful, improved outcomes in comparison wi th currently available IOLs. B&L also states that the glistening-free characteristic is not described by a previously-approved NTIOL class. As with the other CY 2012 NTIOL applica tions discussed in this proposed rule, we will base our determination of the B&L application on consideration of the three major evaluation criteria that are discussed above. We have begun our review of B&L's request to recognize its Xact IO Ls as NTIOLs and concurren tly establish a new class of NTIOLs. We are soliciting public comment on these candidate IOLs with respect to the established NTIOL criteri a as discussed above.CMS-1525-P 550 First, for an IOL to be recognized as an NTIOL we require that the IOL must have been approved by the FDA and claims of specific clinical benefits and/or lens characteristics with established clinical rele vance in comparison with currently available IOLs must have been approved by the FDA fo r use in labeling and advertising. The submitted FDA label for the Xact IOLs states the following: “In the IDE [investigational device exemption] clinical trial, ‘glistenings’ were observed in some cases. Glistenings, known to sometimes occur in some other hydrophobic acrylic IOLs, are microscopic vacuoles within the optic of the IOL that are visible through the slit lamp as multiple small refractile specks. Analysis of the clinical data confirmed no effect of gl istenings on visual outcomes .” [Emphasis added.] “Testing established that glistenings we re eliminated by a change in the IOL hydration solution from 10.0% saline to 0.9% saline. This was confirmed in an additional clinical trial conducte d outside of the United States. In this study, 172 eyes of 142 patients were examined at least once be tween 1 and 6 months, and 123 eyes of 101 patients were examined at least once between 6 months and 2 years. No glistenings were observed at any time.” The FDA label for the XACT IOLs does not otherwise reference specific clinical benefits of the glis tening-free property. In fact, the italicized sentence in the above-quoted language on the IDE study from the FDA label states that an “[a]nalysis of the clinical data confirmed no effect of glistenings on visual outcomes.” We are interested in public comments on the clinical relevance of glisteni ngs in IOLs, and the incidence of glistenings severe enough to cau se measurable visual symptoms in recentlyCMS-1525-P 551 pseudophakic Medicare beneficiaries. In additio n, we are interested in public comments regarding the assertion by B&L that the gliste ning-free property associated with the Xact IOLs would eliminate the decreased contrast sensitivity, increased glare, decreased visual acuity, and impaired fundus visualization asso ciated with glistenings, and may likewise decrease the need for explantations associated with those conditions. Second, we also require that the candidate IOL not be described by an active or expired NTIOL class; that is, it does not share the pr edominant, class-defining characteristic associated with improved clinic al outcomes with designated members of an active or expired NTIOL class. We refer readers to the discussion above for more information on the three expired NTIOL classes. The propos ed class-defining characteristic and associated clinical be nefits of the Xact IOLs, specifically the glistening-free property, cannot be similar to the class-de fining characteristics and associated benefits of the three expired NT IOL classes. We welcome public comments that address whether the proposed class-defini ng characteristic and associated clinical benefits of the candidate B&L IOLs are described by the expired NTIOL classes. Third, our NTIOL evaluation criteria al so require that an applicant submit evidence demonstrating that use of the IOL re sults in measurable, clinically meaningful, improved outcomes in comparison to currently available IOLs. As discussed above, we remain flexible with respect to our view of “currently available lenses” for purposes of reviewing NTIOL requests, in order to allow for consideration of technological advances in lenses over time. We al so believe that “currently av ailable lenses” for purposes of reviewing NTIOL requests should depend upon th e class-defining characteristic and theCMS-1525-P 552 associated purported improved clinical outco me of the candidate NTIOL class. For purposes of reviewing B&L’s request to es tablish a new NTIOL class for CY 2012, we believe that the full spectrum of currently av ailable IOL materials should be represented in the comparator IOLs, but that the particul ar design of the optic (for example, aspheric versus spherical) is less critic al to evaluating the benefits of glistening-free IOLs as glistenings are related more to the IOL op tic material than to the optical surface characteristics of the IOL. We are seek ing public comment on our view of “currently available lenses” for the purposes of evalua ting B&L’s candidate IOLs against currently available IOLs. We are reviewing the evidence submitte d with B&L’s CY 2012 request. B&L submitted a variety of articles including studies and case reports focused on IOLs with glistenings. It is apparent from these articles that glis tenings are a real phenomenon and that glistenings are primarily associated with acrylic hydrophobic IOLs, but they can also occur to some degree in IOLs of other mate rial types. However, there are several significant questions with respect to gliste nings, and we solicit public comment on these questions as follows:

● Is there a particular IO L material type that is more likely to result in symptomatic glistenings relative to other material types?

● What is the clinical significance (from th e patient’s perspectiv e) of glistenings? More specifically, what evidence is available to demonstrate that glistenings cause any of the following:

○ Decreased contrast sensitivity;CMS-1525-P 553

○ Increased glare disability;

○ Decreased visual acuity;

○ Impaired fundus visualization;

○ Symptoms resulting in IOL explantations.

● What is the incidence of glistenings in IOLs currently available in the United

States?

● If a certain level of se verity of glistenings is required before they cause symptoms, what is the incidence of glistenings of this severity level in IOLs currently available in the United States?

c. Requestor/Manufacturer : Hoya Surgical Optics, Inc. (Hoya)
Lens Model Numbers : iSert IOL System, Model PY-60R Summary of the Request : Hoya submitted a request for CMS to determine that its iSert IOL System satisfies the criteria for recognition as an NTIOL and to concurrently establish a new class of NTIOLs for “aseptica lly integrated IOL and injector systems.” The iSert IOL System is an IOL preloaded in a plastic, sterile, disposable injection system. According to Hoya, the iSert System provides a lens injector with an integrated IOL inside it within a single, sterile p ackage for delivery to the operating field. According to Hoya, the iSert System has the fo llowing benefits, in th at compared to other IOLs it:

● Eliminates the risk of complications associated with improper processing of reusable forceps or injectors used for all other foldable IOLs;CMS-1525-P 554

● Accelerates postoperative recovery through decreased risk of ocular damage due to complications associated with improper processing of re usable forceps or injectors used for other foldable IOLs;

● Provides a clinical advantage compar ed to existing IOLs by allowing the IOL to be placed in the eye wit hout contacting external ocular tissues or reusable injection instruments; and

● Improves overall safety of catarac t/IOL surgery by reducing the number of reusable instruments that must be proper ly cleaned and sterilized between cases. As part of its request, Hoya submitted descriptive information about the iSert System as outlined in the guidance document described above that is available on the CMS Web site for the establis hment of a new class of NTIOLs, as well as information regarding approval of the candidate IOL by the FDA. This information included the FDA labeling, the FDA letter of approval, and the summary of safety and effectiveness for the iSert System. As with the other CY 2012 NTIOL requests, we will base our determination of the Hoya request on consideration of the three major criteria that ar e discussed above. We have begun our review of Hoya's request to recognize its iSert System as an NTIOL and concurrently establish a new class of NTIOLs. We are so liciting public comment on this candidate IOL with respect to the established NTIOL criteria. First, for an IOL to be recognized as an NTIOL we require that the IOL must have been approved by the FDA and claims of specific clinical benefits and/or lens characteristics with established clinical rele vance in comparison with currently availableCMS-1525-P 555 IOLs must have been approved by the FDA for use in labeling and advertising. The FDA label for the iSert System states th e following under the heading DEVICE

DESCRIPTION: “The Hoya iSert TM Model PY-60R Intraocular Lens (IOL) is an ultraviolet absorbing posterior chamber intraocular lens de signed to be implanted posterior to the iris where the lens will replace the optical function of the natural crystalline lens. However, accommodation will not be replaced. PY-60R is lo aded in a disposable injector consists [sic] of Case, Tip, Body, Slider, Rod, Plunger, and Screw.” The FDA label for the iSert System states the following under the heading

INDICATIONS: “The Hoya iSert TM Model PY-60R Intraocular Le ns is indicated for primary implantation in the capsular bag of the eye fo r the visual correction of aphakia in adult patients in whom a cataractous lens has been removed.” The FDA label for the iSert System does not otherwise reference claims of specific clinical benefits and/or lens characteristics with established clinical relevance in comparison with currently available IOLs. Section 416.195(a)(2) requir es that “[c]laims of specific clinical benefits an d/or lens characteristics with established clinical relevance in comparison with currently available IOLs are approved by the FDA for use in labeling and advertising.” The FDA label for the iSer t System lacks any such claims. The only statement in the above-quoted la nguage from the FDA label that is any different from the typical device description and indications for a standard s pherical monofocal IOL is the statement that the “PY-60R is loaded in a dis posable injector consis ts [sic] of Case, Tip,CMS-1525-P 556 Body, Slider, Rod, Plunger, and Screw.” Howeve r, this statement merely describes the IOL as loaded in a disposable injector. It does not appear to describe a benefit or characteristic of the IOL itself. Theref ore, it would appear that the Hoya iSert System PY-60R IOL would not satisfy the requireme nts of 42 CFR 416.195(a)(2 ). However, we are soliciting public comments on this ma tter and will give all comments full consideration regarding Hoya’s candidate IOL. d. Requestor/Manufacturer : Lenstec, Inc. (Lenstec)
Lens Model Numbers : Softec HD PS Summary of the Request : Lenstec submitted a request for CMS to determine that its Softec HD PS meets the criteria for recogn ition as an NTIOL and to concurrently establish a new class of NTIOLs that resu lt in a “reduction of postoperative residual refractive error.” According to Lenstec, the Softec HD PS IOL achieves a “reduction of postoperative residual re fractive error” by its av ailability in 0.25 di opter (D) increments with a tolerance of ±0.11 D, while all other cu rrent monofocal IOLs are available in only 0.50 D increments with tolerances allowed up to ±0.40 D. According to Lenstec, patients implanted with the Softec HD PS are much more likely to be closer to the intended refractive outcome than those implanted withIOLs available only in 0.50 D increments. This greater refractive accur acy of the Softec HD PS is due to the chosen IOL power likely being closer to the calculated (des ired) IOL power and because the tighter tolerance of the 0.25 D increment IOL results in the actual power of the implanted IOL to be closer to the power that the surgeon expect s to implant into the patient. Lenstec also asserts that because the 0.25 D increment IOL provides greater IOL power accuracy,CMS-1525-P 557 patients have less postoperative residual refr active error and hence reduced postoperative blur. As part of its request, Lenstec submitted descriptive information about the candidate IOLs as outlined in the guidance document that is available on the CMS Web site for the establishment of a new class of NTIOLs, as well as information regarding approval of the candidate IOL by the FDA. This information included the FDA labeling, FDA approval letter, and summary of safety and effectiveness for the Softec HD PS IOL. As with the other three CY 2012 NTIOL applications discussed above, we will base our determination of the Lenstec appl ication on consideration of the three major evaluation criteria that are discussed above. We have be gun our review of Lenstec's request to recognize its Softec HD PS IOL as an NTIOL and c oncurrently establish a new class of NTIOLs. We are soliciting public comment on this candidate IOL with respect to the established NTIOL criteria as discussed above. First, for an IOL to be recognized as an NTIOL we require that the IOL must have been approved by the FDA and claims of specific clinical benefits and/or lens characteristics with established clinical rele vance in comparison with currently available IOLs must have been approved by the FDA fo r use in labeling and advertising. The submitted FDA label for the Softec HD PS IOL states under the heading DEVICE DESCRIPTION that “[t]he [LENSTEC Softec HD PS] IOL is offered in quarter diopter increments from 15.0 to 25.0.” The FDA label for the Softec HD PS IOL does not otherwise reference clai ms of specific clinical benefits and/or lens characteristics with established clinical relevance in comparis on with currently available IOLs. We are interested in public comments on whether anIOL being offered in quarter diopterCMS-1525-P 558 increments can be considered a “lens characteri stic with established clinical relevance in comparison with currently available IOLs,” as required by 42 CFR 416.195(a)(2), or whether IOL availability quarter diopter increm ents is more appropria tely considered not a lens characteristic per se, but instead just a manufacturer specific ation. We are also interested in public comments on the clinical relevance of an IOL being available in quarter diopter increments. Second, as required by 42 CFR 416.195(a)(3 ), the candidate IOL must not be described by an active or expired NTIOL class; that is, it does not share the predominant, class-defining characteristic associated withimproved clinical outcomes with designated members of an active or expired NTIOL class. Refer to the discussion above for more information on the three expired NTIOL classe s. Lenstec states the following in its application: “The Softec HD IOL, the parent to th e Softec HD PS, was first approved for marketing in the United States on April 17, 2010 and on March 15, 2006 in the “Outside the US” (OUS) environment. This IOL is incl uded in the just-close d “Reduced Spherical Aberration” NTIOL category. The Softec HD PS was approved for marketing by the FDA on February 2, 2011. It is currently pending approval for OUS marketing. Both IOLs are single piece, hydrophilic acrylic, aspheric, monofocal IOLs. The difference between the two is that the Softec HD has pr eviously been available in whole, 0.50 and 0.25 diopter increments, based on dioptric power. The Softec HD PS is offered only in the dioptric range of 15.0 D to 25.0 D, in 0.25 diopter increments (each of which is manufactured to a tolerance of ±0.11D).”CMS-1525-P 559 Based on this statement by Lenstec, the Softec HD PS is the same lens as the Softec HD, but the Softec HD PS is available only in 0.25 D increments for a specific power range instead of being available (as is the Softec HD) in 1.0, 0.5, and 0.25 D increments. The Softec HD was included in the expired Reduced Spherical Aberration NTIOL class, and both of these IOLs share the asphericity characterist ic that defines the expired Reduced Spherical Aberration NTIOL class. It appears to us that the predominant characteristic of the Softec HD PS is asphericity, as it affects the optical characteristics of the lens. Although the availability of the Softec HD PS in 0.25 D increments allows more IOL power choices fo r the surgeon, it does not appear to affect the functionality of the IOL. We request co mments regarding what characteristic of the Softec HD PS is predominant, asphericity or availability of the IOL in 0.25 D increments. Third, our NTIOL evaluation criteria al so require that an applicant submit evidence demonstrating that use of the IOL re sults in measurable, clinically meaningful, improved outcomes in comparison to currently available IOLs. As discussed above, we remain flexible with respect to our view of “currently available lenses” for purposes of reviewing NTIOL requests, in order to allow for consideration of technological advances in lenses over time. We al so believe that “currently av ailable lenses” for purposes of reviewing NTIOL requests should depend upon th e class-defining characteristic and the associated purported improved clinical outco me of the candidate NTIOL class. For purposes of reviewing Lenstec’s request to establish a new NTIOL class for CY 2012, we believe that the full spectrum of currently available monofocal IOLs should be represented in the comparator IOLs. Lenst ec asserts that what makes its candidate IOLCMS-1525-P 560 superior to other currently available IOLs is improved IOL power accuracy as compared to IOLs available in 0.50 D increments, and because the Softec HD PS provides greater IOL power accuracy patients implanted with it have less postoperative residual refractive error and hence reduced post-operative blur. We are reviewing the evidence submitted with Lenstec’s CY 2012 request. Lenstec submitted information and reviewed the literature on IOL optics related to the Softec HD PS. Lenstec relies primarily on one st udy that is the subject of an article that is currently in press and another unpublishe d study to support its hypothesis that the Softec HD PS IOL results in less postoperative refractive error than other IOLs. The first study submitted by Lenstec was the study that it conducted under an IDE for FDA approval of the Softec HD PS IOL. This study is being published in the journal, Contact Lens and Anterior Eye ( Brown DC , Gills JP 3rd , et al. Prospective multicenter trial assessing effectiveness, refractive predictabil ity and safety of a new aberration free, biaspheric intraocular lens

. Cont Lens Anterior Eye. 2011 May 24. [Epub ahead of print]), and is available on the Internet at http://www.sciencedirect.co m/science/article/pii/S1367048411000634 . Refractive accuracy was not a planned outcome variable in this study. There was no control group in this study that would have allowed the inve stigators to control for all of the variables that impact post-cataract su rgery refractive outcome and/or isolate the effect of the availability of the Softec HD PS IOL in quart er diopter increments. Lenstec compared the postoperative refractive erro rs of these study subjects to th e results from an unrelated study performed outside of the United States (u sing IOLs that were available only in 0.50CMS-1525-P 561 D increments) and concluded based on this comparison that implantation of the Softec HD PS IOL, which is available in quarter diopter increments, results in superior refractive outcomes as compared to other IOLs. The second study is a retrospective st udy of cataract cases with aspheric monofocal IOL implantation between 2009 and 2011. Of the 118 eligible eyes, 67 were implanted with IOLs available in 0.25 D in crements and labeled with a manufacturing tolerance of ±0.11D (the labe led group) and 51 were implan ted with IOLs available in 0.50 D increments without a labeled manufact uring tolerance (the unlabeled group). Postoperative outcomes were assessed, and pr ediction error was calculated and compared between groups. Mean erro r of prediction was -0.03 (±0.35) D for the labeled group and -0.05 (±0.46) D for the unlabeled group (p=0.64) post optimization. Mean absolute error of prediction was statistical ly significantly smaller in the labeled group (0.26±0.23 D) than the unlabeled group (0.37±0.28 D, p=0.04). It was observed th at within ±0.25 D prediction error was achieved in 63 percent of the patients in the labeled group compared to 43 percent in the unlabel ed group (p=0.03), and for with in ±0.50 D, 84 percent and 69 percent (p=0.06), respectively. We requestcomments from the public regarding the Lenstec NTIOL request and the evidence submitt ed by Lenstec, and in particular would like the public to comment on the following:

● What is the clinical significance (fro m the patient’s perspective) of a small amount of residual spherical refract ive error after cat aract surgery?CMS-1525-P 562

● What is the likelihood that a Medicar e beneficiary receiving a monofocal IOL will require some form of postoperative re fractive correction (that is, post-cataract surgery glasses), which is a Medicare benefit?

● If the overwhelming majority of Medi care beneficiaries r eceiving a monofocal IOL will require some form of postoperative refractive correction (that is, post-cataract surgery glasses), does that lessen the clini cal significance of reduced postoperative residual refractive error?

● Are the studies described above properl y designed to test Le nstec’s hypothesis?

● Do the studies described above ad equately prove Lenstec’s hypothesis? All comments on these requests must be re ceived by [Insert 30 days from date of display at the Federal Register ]. The announcement of CMS' s determinations regarding these requests will appear in the CY 2012 OPPS/ ASC final rule with comment period. If a determination of membership of the candidate IOLs in a new NTIOL class is made, this determination will be effective 30 days following the date that the final rule with comment period is published in the Federal Register

. 4. Proposed Payment Adjustment The current payment adjustment for a fi ve year period from the implementation date of a new NTIOL class is $50 per lens. Since implementation of the process for adjustment of payment amounts for NTIOLs in 1999, we have not revised the payment adjustment amount, and we are not proposing to revise the payment adjustment amount for CY 2012.CMS-1525-P 563 F. Proposed ASC Payment and Comment Indicators 1. Background In addition to the payment indicators that we introduced in the August 2, 2007 final rule, we also created final comment indicators for the ASC payment system in the CY 2008 OPPS/ASC final rule with comme nt period (72 FR 66855). We created Addendum DD1 to define ASC payment indi cators that we use in Addenda AA and BB to provide payment information regarding covered surgical procedures and covered ancillary services, respectively, under the revised ASC payment system. The ASC payment indicators in Addendum DD1 are intended to capture policy relevant characteristics of HCPCS codes that may recei ve packaged or separate payment in ASCs, such as whether they were on the ASC list of covered services prior to CY 2008; payment designation, such as device- intensive or office-based, and the corresponding ASC payment methodology; and their classification as separately payable ancillary services including radiology services , brachytherapy sources, OPPS pass-through devices, corneal tissue acquisition services, drugs or biologicals, or NTIOLs. We also created Addendum DD2 that lis ts the ASC comment indicators. The ASC comment indicators used in Addenda AA and BB to the proposed rules and final rules with comment period serve to identif y, for the revised ASC payment system, the status of a specific HCPCS code and its paym ent indicator with respect to the timeframe when comments will be accepted. The comment indicator “NI” is used in the OPPS/ASC final rule with comment period to indicate new HCPCS codes for the next calendar year for which the interim payment indicator assi gned is subject to comment. The commentCMS-1525-P 564 indicator “NI” is also assigned to existing codes with substantial revisions to their descriptors such that we consid er them to be describing new services, as discussed in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60622). In the CY 2012 OPPS/ASC final rule with comment period, we will respond to public comments and finalize the ASC treatment of all codes that are labeled with comment indicator “NI” in ASC Addendum AA and BB for CY 2011. These addenda can be found in a file labeled ”January 2011 ASC Approved HCPCS Code and Payment Rates to Reflect the Medicare and Medicaid Extenders Act of 2010” in th e ASC Addenda Update section of the CMS Web site. The “CH” comment indicator is used in Addenda AA and BB to this CY 2012 proposed rule (which are referenced in secti on XVII. of this proposedrule and available via the Internet on the CMS Web site) to i ndicate that a new payment indicator is proposed for assignment to an active HCPCS c ode for the next calendar year; an active HCPCS code is proposed for addition to the lis t of procedures or services payable in ASCs; or an active HCPCS code is proposed for deletion at the end of the current calendar year. The “CH” comment indicators that are published in the final rule with comment period are provided to alert reader s that a change has been made from one calendar year to the next, but do not indicate th at the change is subj ect to comment. The full definitions of the proposed payment in dicators and comment indicators are provided in Addenda DD1 and DD2 to this proposed rule (which are referenced in section XVII. of this proposed rule and available via the Internet on the CMS Web site).CMS-1525-P 565 2. Proposed ASC Payment and Comment Indicators The revised ASC payment system included a four-year transition to payment rates under the standard methodology for the procedures on the ASC list in CY 2007. CY 2011 was the first year of full paymen t under the standard methodology for the revised ASC payment system. Payment indi cators “A2” (Surgical procedure on ASC list in CY 2007, payment based on OPPS relative payment weight) and “H8” (Device-intensive procedure on ASC list in CY 2007; paid at adjusted rate) were developed to identify procedur es that were included on the list of ASC covered surgical procedures in CY 2007 and were, therefore, subject to transitional payment prior to

CY 2011. Because the four-year tran sitional payment period has ended and it is no longer necessary to identify device-intensive pro cedures that are subject to transitional payments, we are proposing to delete th e ASC payment indicator “H8.” We are proposing that all device-inten sive procedures, for which th e modified rate calculation methodology will apply, be assigned payment indicator “J8” in CY 2012 and later. In addition, we are proposing to modify the definition for payment indicator “J8” by removing “added to ASC list in CY 2008 or la ter” as this distinction is no longer

necessary. Although payment indicator “A2” is no longer required to identify surgical procedures subject to transitional payment, we are proposing to retain payment indicator “A2” because it is used to identify procedures that are exempted from application of the office-based designation.CMS-1525-P 566 As detailed in section XIV.K. of this proposed rule, we are proposing to establish an ASC Quality Reporting Program with the collection of seven claims-based quality measures beginning in CY 2012. We are pr oposing to require ASCs to report on ASC claims a quality data code (QDC) to be used for reporting quality data. We are proposing that an ASC would need to add a QDC to any claim involving a proposed claims-based quality measure. CMS is in the process of developing QDCs for each proposed claimsbased quality measure. The QDC will be a CPT Category II code or a HCPCS Level II G-code if an appropriate CPT code is not available. More information on the QDCs that will be associated with the proposed quality measures will be provided in the CY 2012 OPPS/ASC final rule with co mment period. Additionally, CMS is proposing to create a new ASC payment indicator “M5” (Quality measurement code used for reporting purposes only; no payment made) for assignment to the QDC to clarify that no payment is associated with the QDC for that claim. We are proposing that this proposed payment indicator be effective January 1, 2012. We are not proposing any changes to the definitions of the ASC comment indicators for CY 2012. We refer readers to Addenda DD1 and DD2 to this proposed rule (which are referenced in section XVII. of this proposed rule and available via the Internet at the CMS Web site) for the complete list of ASC payment and comment indicators proposed for the CY 2012 update. We invite public comment on these proposals.CMS-1525-P 567 G. ASC Policy and Payment Recommendations MedPAC was established under section 1805 of the Act to advise Congress on issues affecting the Medicare program. Subpa ragraphs (B) and (D) of section 1805(b)(1) of the Act require MedPAC to submit reports to Congress not late r than March 1 and June 15 of each year that present it s Medicare payment policy reviews and recommendations and its examination of issues affecting the Medicare program, respectively. The March 2011 MedPAC “Re port to the Congress: Medicare Payment Policy” included the following recommendation relating specifically to the ASC payment system for CY 2012: Recommendation 5 : The Congress should implemen t a 0.5 percent increase in payment rates for ambulatory surgical center services in calendar year 2012 concurrent with requiring ambulatory surgical cent ers to submit cost and quality data. CMS Response : In the August 2, 2007 final rule (72 FR 42518 through 42519), we adopted a policy to update the ASC conversion factor for consistency with section 1833(i)(2)(C) of the Act, which require s that, if the Secretary has not updated the ASC payment amounts in a calendar year, the payment amounts shall be increased by the percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) as estimated by the Secretary for the 12-month pe riod ending with the midpoint of the year involved. The statute set the update at ze ro for CY 2008 and CY 2009. We indicated that we planned to implement the annual upda tes through an adjustment to the conversion factor under the ASC payment system be ginning in CY 2010 when the statutory requirement for a zero update no longer applies. Further, we noted that that we wouldCMS-1525-P 568 update the conversion factor for the CY 2010 ASC payment system by the percentage increase in the CPI-U, consistent with our policy as codified under §416.171(a)(2). As we indicated in the CY 2010 OPPS/A SC final rule with comment period (74 FR 60622), we did not require ASCs to submit cost data to the Secretary for CY 2010. We explained that the 2006 GAO repo rt, “Medicare: Payment for Ambulatory Surgical Centers Should Be Based on the Hospital Outpatient Payment System” (GAO-07-86), concluded that the APC groups in the OPPS reflect the relative costs of surgical procedures performed in ASCs in the same way they reflect the relative costs of the same procedures when they are performed in HOPDs. Consistent with the GAO findings, CMS is using the OPPS as the basis for the ASC payment system, which provides for an annual revision of the AS C payment rates under the budget neutral ASC payment system. In addition, we noted that, under the methodology of the revised ASC payment system, we do not utilize ASC cost informati on to set and revise the payment rates for ASCs, but instead rely on the relativity of hospital outpatient co sts developed for the OPPS, consistent with the recommendation of the GAO. Furthermore, we explained that we have never required ASCs to routinely submit cost data and expressed our concern that a new Medicare requirement for AS Cs to do so could be administratively burdensome for ASCs. In 2009, MedPAC made a similar r ecommendation to that made in Recommendation 5 above. In light of that MedPAC recommendation, in the CY 2010 OPPS/ASC proposed rule (74 FR 35391), we so licited public comment on the feasibilityCMS-1525-P 569 of ASCs submitting cost information to CMS, including whether costs should be collected from a sample or the universe of ASCs, the administrative burden associated with such an activity, the form that such a submission could take considering existing Medicare requirements for other types of facilities and the scope of ASC services, the expected accuracy of such cost information, and any other issu es or concerns of interest to the public on this topic. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60623), we summarized and responded to these comments. As noted in that final rule with comment period, commenters expressed varied opinions re garding the feasibility of requiring ASCs to submit cost data to the Secretary. Some commenters believed that requiring ASC to submit such data would not be an insurmount able obstacle and pointed out that other small facilities submit cost reports to CMS. They argued that ASC cost reports are necessary to assess the adequacy of Medica re payments and evaluate the ASC update. Other commenters, however, opposed the requir ement that ASCs submit cost data to CMS because they believed such a requirement would be unnecessary and administratively burdensome. Commenters ge nerally supported a requirement that ASCs report quality data. We refer readers to the CY 2010 OPPS/ASC final rule with comment period for a full discussion of the comments we received on the feas ibility of requiring ASCs to report cost and quality data ( 74 FR 60623). Consistent with our CY 2010 policy, we proposed not to require ASCs to s ubmit cost data to the Secretary for CY 2011 (75 FR 46356 through 463557). We stated that we continue to believe that our established methodology results in appropriate payment rates for ASCs. For CY 2012,CMS-1525-P 570 consistent with this policy and for the same reasons, we are not proposing to require ASCs to submit cost data. Section 109(b) of the MIEA-TRHCA (P ub. L. 109-432) gives the Secretary the authority to implement ASC quality measure re porting and to reduce the payment update for ASCs that fail to report those required measures. We are proposing to require ASCs to report seven quality measures in CY 2012. Details associated with ASC quality reporting proposed for CY 2012 are discussed in section XIV.K. of this proposed rule. Finally, we are not proposing to implement MedPAC’s recommended CY 2012 ASC update of 0.5 percent. The annual update to the ASC payment system is the CPI-U. Section 3401(k) of the Affordable Care Act required that the annual ASC payment update be reduced by a productivity adjustment. As discussed in section XIII.H.2.b. of this proposed rule, the Secretary estimates th at the CPI-U is 2.3 percent and the MFP adjustment is 1.4 percent. Therefore, we are proposing a 0.9 percent update for CY 2012. H. Calculation of the Proposed ASC Conve rsion Factor and the Proposed ASC Payment

Rates 1. Background In the August 2, 2007 final rule (72 FR 42493), we established our policy to base ASC relative payment weights and payment ra tes under the revised ASC payment system on APC groups and relative payment weights. Consistent with that policy and the requirement at section 1833(i)(2)(D)(ii) of th e Act that the revised payment system be implemented so that it would be budget neutral, the initial ASC conversion factor (CY 2008) was calculated so that estimated total Medicare payments under the revisedCMS-1525-P 571 ASC payment system in the first year w ould be budget neutral to estimated total Medicare payments under the prior (CY 2007) ASC payment system (the ASC conversion factor is multiplied by the rela tive payment weights calculated for many ASC services in order to establish payment rates) . That is, application of the ASC conversion factor was designed to result in aggregate Medicare expenditures under the revised ASC payment system in CY 2008 equal to aggreg ate Medicare expenditu res that would have occurred in CY 2008 in the ab sence of the revised system, taking into consideration the cap on ASC payments in CY 2007 as require d under section 1833( i)(2)(E) of the Act (72 FR 42522). We note that we consider the term “e xpenditures” in the context of the budget neutrality requirement under se ction 1833(i)(2)(D)(ii) of the Act to mean expenditures from the Medicare Part B Trust Fund. We do not consider expe nditures to include beneficiary coinsurance and copayments. Th is distinction was important for the CY 2008 ASC budget neutrality model that considered payments across hospital outpatient, ASC, and MPFS payment systems. However, because coinsurance is almost always 20 percent for ASC services, this interpretation of expe nditures has minimal impact for subsequent budget neutrality adjustments calculated w ithin the revised ASC payment system. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66857 through 66858), we set out a step-by-step illustration of the final budget neutrality adjustment calculation based on the methodology fina lized in the August 2, 2007 final rule (72 FR 42521 through 42531) and as applied to updated data available for the CY 2008 OPPS/ASC final rule with co mment period. The application of that methodology to theCMS-1525-P 572 data available for the CY 2008 OPPS/ASC final rule with comment period resulted in a budget neutrality adjustment of 0.65. For CY 2008, we adopted the OPPS relative payment weights as the ASC relative payment weights for most services and, consiste nt with the final polic y, we calculated the CY 2008 ASC payment rates by multiplying th e ASC relative payment weights by the final CY 2008 ASC conversion factor of $41.401. For covered office-based surgical procedures and covered ancillary radiol ogy services, excluding nuclear medicine procedures, the established policy is to se t the relative payment weights so that the national unadjusted ASC payment rate does not exceed the MPFS unadjusted non-facility PE RVU-based amount. Further, as discusse d in the CY 2008 OPPS/A SC final rule with comment period (72 FR 66841 through 66843), we also adopted altern ative ratesetting methodologies for specific types of services (f or example, device-intensive procedures). As discussed in the August 2, 2007 final rule (72 FR 42518) and as codified at §416.172(c) of the regulations, the revised AS C payment system accounts for geographic wage variation when calculating individual ASC payments by applying the pre-floor and pre-reclassified hospital wage indices to th e labor-related share, which is 50 percent of the ASC payment amount. Beginning in CY 2008, CMS accounted for geographic wage variation in labor cost wh en calculating individual ASC payments by applying the pre-floor and pre-reclassifi ed hospital wage index valu es that CMS calculates for payment, using updated Core Based Statis tical Areas (CBSAs) issued by OMB in June 2003. The reclassification provision prov ided at section 1886(d)(10) of the Act is specific to hospitals. We believe that using the most recently available raw pre-floor andCMS-1525-P 573 pre-reclassified hospital wage indices results in the most appropriate adjustment to the labor portion of ASC costs. In addition, use of the unadjusted hospital wage data avoids further reductions in certai n rural statewide wage inde x values that result from reclassification. We continue to believe that the unadjusted hospita l wage indices, which are updated yearly and are used by many other Medicare payment systems, appropriately account for geographic variati on in labor costs for ASCs. We note that in certain instances there might be urban or rural areas for which there is no IPPS hospital whose wage index data would be used to set the wage index for that area. For these areas, our policy has beento use the average of the wage indices for CBSAs (or metropolitan divisions as applicable ) that are contiguous to the area that has no wage index (where “contiguous” is defined as sharing a border). We have applied a proxy wage index based on this met hodology to ASCs located in CBSA 25980 Hinesville-Fort Stewart, GA, and CBSA 22 Rural Massachusetts. In CY 2011, we identified another area, sp ecifically, CBSA 11340 Anderson, SC for which there is no IPPS hospital whose wage index data would be us ed to set the wage index for that area. Generally, we would use the methodology describe d above; however in this situation all of the areas contiguous to CBSA 11340 Anderson, SC are rural. Therefore, in the CY 2011 OPPS/ASC final rule with co mment (75 FR 72058 through 72059), we finalized our proposal to set the ASC wage index by calculati ng the average of all wage indices for urban areas in the State when all contiguous areas to a CBSA are rural and there is no IPPS hospital whose wage index data could be used to se t the wage index for that area. In other situations, where there ar e no IPPS hospitals located in a relevant laborCMS-1525-P 574 market area, we will continue our current policy of calculating an urban or rural area’s wage index by calculating the average of th e wage indices for CBSAs (or metropolitan divisions where applicable) that are contiguous to the area with no wage index. 2. Proposed Calculation of the ASC Payment Rates a. Updating the ASC Relative Payment Weights for CY 2012 and Future Years We update the ASC relative payment weight s each year using the national OPPS relative payment weights (and MPFS non-facil ity PE RVU-based amounts, as applicable) for that same calendar year and uniformly scale the ASC relative payment weights for each update year to make them budget neutral (72 FR 42531 through 42532). Consistent with our established policy, we are propos ing to scale the CY 2012 relative payment weights for ASCs according to the followi ng method. Holding ASC utilization and the mix of services constant from CY 2010, we are proposing to compare the total payment weight using the CY 2011 ASC relative paym ent weights (calculated under the ASC standard ratesetting methodology) with the total payment weight using the CY 2012 ASC relative payment weights (calculated under th e ASC standard ratesetting methodology) to take into account the change s in the OPPS relative paym ent weights between CY 2011 and CY 2012. We would use the ratio of CY 2011 to CY 2012 total payment weight (the weight scaler) to scale th e ASC relative payment weights for CY 2012. The proposed CY 2012 ASC scalar is 0.9373 and scaling woul d apply to the ASC relative payment weights of the covered surgical procedures and covered anci llary radiology services for which the ASC payment rates are base d on OPPS relative payment weights.CMS-1525-P 575 Scaling would not apply in the case of ASC payment for separately payable covered ancillary services that have a pr edetermined national payment amount (that is, their national ASC payment amounts are not based on OPPS relative payment weights), such as drugs and biologicals that are separa tely paid or services that are contractorpriced or paid at reasonable cost in ASCs . Any service with a predetermined national payment amount would be included in the ASC budget neutrality comparison, but scaling of the ASC relative payment weights woul d not apply to those services. The ASC payment weights for those services withoutpredetermined national payment amounts (that is, those services w ith national payment amounts th at would be based on OPPS relative payment weights) would be scaled to eliminate any difference in the total payment weight between the curr ent year and the update year. For any given year’s ratese tting, we typically use the most recent full calendar year of claims data to model budget neutrality adjustments. We currently have available 98 percent of CY 2010 ASC claims data. To create an analytic file to support calculation of th e weight scaler and budget neutrality adjustment for the wage index (discussed below), we summarized available CY 2010 ASC claims by provider and by HCPCS code. We used the National Provider Identifier for the purpose of identifying uni que ASCs within the CY 2010 claims data. We used the supplier zip code reported on th e claim to associate State, county, and CBSA with each ASC. This file, available to the public as a supporting data file for the proposed rule, is posted on the CMS Web site at: http://www.cms.gov/ASCPayment/01_Overview.asp#TopOfPage

.CMS-1525-P 576 b. Updating the ASC Conversion Factor Under the OPPS, we typically apply a budget neutrality adjustment for provider level changes, most notably a change in the wage index values for the upcoming year, to the conversion factor. Consistent with our final ASC payment policy, for the CY 2012 ASC payment system, we are proposing to calculate and apply the pre-floor and pre-reclassified hospital wage indices that are used for ASC payment adjustment to the ASC conversion factor, just as the OPPS wage index adjustment is calculated and applied to the OPPS conversion factor. For CY 2012, we calculated this proposed adjustment for the ASC payment system by using the most recent CY 2010 claims data available and estimating the difference in total payment that would be created by introducing the proposed CY 2012 pre-floor and pre-reclassifi ed hospital wage indi ces. Specifically, holding CY 2010 ASC utilization and servic e-mix and the proposed CY 2012 national payment rates after application of the weight scaler constant, we calculated the total adjusted payment using the CY 2011 pre-floor and pre-reclassified hospital wage indices and the total adjusted payment using the pr oposed CY 2012 pre-floor and pre-reclassified hospital wage indices. We used the 50-percen t labor-related share fo r both total adjusted payment calculations. We then compared the total adjusted payment calculated with the CY 2011 pre-floor and pre-reclassified hospi tal wage indices to the total adjusted payment calculated with the proposed CY 2012 pre-floor and pre-r eclassified hospital wage indices and applied the resulting ra tio of 1.0003 (the proposed CY 2012 ASC wage index budget neutrality adjustment) to the CY 2011 ASC conversion factor to calculate the proposed CY 2012 ASC conversion factor.CMS-1525-P 577 Section 1833(i)(2)(C)(i) of the Act require s that, if the Secretary has not updated the ASC payment amounts in a calendar year , the payment amounts “shall be increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. city average) as estimated by the Secretary for the 12-month period ending with the midpoint of the year involved.” Becaus e the Secretary does update the ASC payment amounts annually, we adopted a policy, whic h we codified at §416.171(a)(2)(ii), to update the ASC conversion factor using the CP I-U for CY 2010 and subsequent calendar years. Therefore, the annual update to the ASC payment system is the CPI-U (referred to as the CPI-U update factor). Section 3401(k) of the Affordable Care Act amended section 1833(i)(2)(D) of the Act by adding a new clause (v) which require s that “any annual update under [the ASC payment] system for the year, after applica tion of clause (iv), shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi) (II)” (which we refer to as the MFP adjustment) effective with the calendar year beginning January 1, 2011. Clause (iv) authorizes the S ecretary to provide for a reduc tion in any annual update for failure to report on quality measures. Clause (v) states that application of the MFP adjustment to the ASC payment system ma y result in the update to the ASC payment system being less than zero for a year a nd may result in payment rates under the ASC payment system for a year being less than su ch payment rates for the preceding year. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72062 through 72064), we revised §416.160 and §416.171 to reflect this provision of the Affordable Care Act (we note that these regulati ons do not reflect any reducti on in the annual update forCMS-1525-P 578 failure to report on quality measures because CMS had not implemented an ASC quality reporting program). As discussed in section XIV.K. of this proposed rule, we are proposing that ASCs begin submitting data on quality measures in CY 2012 for the CY 2014 payment determination. Because any reduction to the annual update under the ASC Quality Reporting Program will not occur until CY 2014, we are not proposing any changes to the payment methodology. We intend to addr ess payment changes based on failure to submit quality data under the ASC Quality Reporting Program in a future rulemaking. Without regard to the ASC Quality Reporting Program and in accordance with section 1833(i)(2)(C)(i) of the Act, before applying the MFP adjustment, the Secretary first determines the “percenta ge increase” in the CPI-U, whic h we interpret cannot be a negative number. Thus, in the instance where the percentage change in the CPI-U for a year is negative, we are pr oposing to hold the CPI-U update factor for the ASC payment system to zero. Section 1833(i) (2)(D)(v) of the Act, as a dded by section 3401(k) of the Affordable Care Act, then requires that the Secretary reduce the CPI-U update factor (which would be held to zero if the CPI-U percentage change is negative) by the MFP adjustment, and states that a pplication of the MFP adjustmentmay reduce this percentage change below zero. If the application of th e MFP adjustment to the CPI-U percentage increase would result in a MFP- adjusted CPI-U update factor th at is less than zero, then the annual update to the AS C payment rates would be negative and payments would decrease relative to the prior year. Illustrative examples of how the MFP adjustmentCMS-1525-P 579 would be applied to the ASC payment system update are found in the CY 2011 OPPS/ASC final rule with comm ent period (75 FR 72062 through 72064). For this proposed rule, for the 12-m onth period ending with the midpoint of CY 2012, the Secretary estimates that the CPI- U is 2.3 percent. The Secretary estimates that the MFP adjustment is 1.4 percen tage points based on the methodology for calculating the MFP adjustment finalized in the CY 2011 MPFS final rule with comment period (75 FR 73391 through 73399) as revised by the proposal discussed in the CY 2012 MPFS proposed rule. Therefore, we are pr oposing to reduce the CPI-U of 2.3 percent by the MFP adjustment specific to this CPI-U of 1.4 percentage points, resulting in an MFPadjusted CPI-U update factor of 0.9 percent. Therefore, we are proposing to apply a 0.9 percent MFP-adjusted update to the CY 2011 ASC conversion factor. For CY 2012, we also are proposing to ad just the CY 2011 ASC conversion factor ($41.939) by the wage adjustment for budget neutrality of 1.0003 in addition to the MFP-adjusted update factor of 0.9 percent di scussed above, which results in a proposed CY 2012 ASC conversion factor of $42.329. 3. Display of Proposed CY 2012 ASC Payment Rates Addenda AA and BB to this proposed rule (w hich are referenced in section XVII. of this proposed rule and av ailable via the Internet on the CMS Web site) display the proposed updated ASC payment rates for CY 2012 for covered surgical procedures and covered ancillary services, respectively. These addenda contain several types of information related to the proposed CY 2012 payment rates. Specifically, in Addendum AA, a “Y” in the column titled “Subject to Multiple Procedure Discounting” indicatesCMS-1525-P 580 that the surgical procedure will be subject to the multiple procedure payment reduction policy. As discussed in the CY 2008 O PPS/ASC final rule with comment period (72 FR 66829 through 66830), most covered su rgical procedures are subject to a 50-percent reduction in the ASC payment fo r the lower-paying procedure when more than one procedure is performed in a single operative session. Display of the comment indicator “CH” in the column titled “Comment Indicator” indicates a change in payment policy for the item or service, including identifying discontinued HCPCS codes, designating items or services newly paya ble under the ASC payment system, and identifying items or services with changes in the ASC payment i ndicator for CY 2012. Display of the comment indicator “NI” in the column titled “Comment Indicator” indicates that the code is new (or substantia lly revised) and that the payment indicator assignment is an interim assignment that is open to comment on the final rule with comment period. The values displayed in the column titled “CY 2012 Payment Weight” are the proposed relative payment weights for each of the listed services for CY 2012. The payment weights for all covered surgical pr ocedures and covered ancillary services whose ASC payment rates are based on OPPS relative payment weights are scaled for budget neutrality. Thus, scaling was not applied to the device portion of the device-intensive procedures, services that are paid atthe MPFS nonfacility PE RVUbased amount, separately payable covered anci llary services that have a predetermined national payment amount, such as drugs and bi ologicals that are separately paid under the OPPS, or services that are contractor-pri ced or paid at reasonable cost in ASCs.CMS-1525-P 581 To derive the proposed CY 2012 paym ent rate displayed in the “CY 2012 Payment” column, each ASC payment weight in the “CY 2012 Payment Weight” column is multiplied by the proposed CY 2012 conversion factor of $42.329. The conversion factor includes a budget neutrali ty adjustment for changes in the wage index values and the CPI-U update factor as reduced by th e productivity adjustment (as discussed in section XV.H.2.b. of this proposed rule). In Addendum BB, there are no relative payment weights displayed in the “CY 2012 Payment Weight” column for items a nd services with predetermined national payment amounts, such as separately pa yable drugs and biologicals. The “CY 2012 Payment” column displays the proposed CY 2012 national unadjusted ASC payment rates for all items and services. The pr oposed CY 2012 ASC payment rates listed in Addendum BB for separately payable drugs a nd biologicals are based on ASP data used for payment in physicians’ offices in April 2011. XIV. Hospital Outpatient Quality Re porting Program Updates and ASC Quality Reporting Program A. Background 1. Overview CMS has implemented quality measure reporting programs for multiple settings of care. These programs promote higher qualit y, more efficient health care for Medicare beneficiaries. The quality data reporting program for hospital outpatient care, known as the Hospital Outpatient Quality Reporti ng (Hospital OQR) Program , formerly known as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), has beenCMS-1525-P 582 generally modeled after the qual ity data reporting program for hospital inpatient services known as the Hospital Inpatient Quality Re porting (Hospital IQR) Program (formerly known as the Reporting Hospital Quality Da ta for Annual Payment Update (RHQDAPU) Program). Both of these quality reporting programs for hospital services, as well as the program for physicians and other eligible pr ofessionals, known as the Physician Quality Reporting System (formerly known as the Physician Quality Reporting Initiative (PQRI)), have financial incentives for the re porting of quality data to CMS. CMS also has implemented quality reporting programs fo r home health agencies and skilled nursing facilities that are based on conditions of pa rticipation, and an end-stage renal disease (ESRD) Quality Incentive Program (76 FR 628 through 646) that links payment to performance. In implementing the Hospital OQR Pr ogram and other quality reporting programs, we have focused on measures th at have high impact and support CMS and HHS priorities for improved quality and effici ency of care for Medicare beneficiaries. Our goal is ultimately to align the clinical qu ality measure requirements of the Hospital OQR Program and various other programs, including the Hospital IQR Program, and the proposed ASC Quality Reporting Program, with the reporting requirements implemented under the Health Information Technology for Economic and Clinical Health (HITECH) Act, so that the burden of reporting can be re duced. In developing th is and other quality reporting programs, as well as the Hospital Inpatient Value-Based Purchasing (Hospital Inpatient VBP) Program, we applied the fo llowing principles for the development and use of measures:CMS-1525-P 583

● Pay-for-reporting, public reporting, and value-based purchasing programs should rely on a mix of standard s, processes, outcomes, and patient experience of care measures, including measures of care transitions and changes in patient functional status. Across all programs, we seek to move as qui ckly as possible to the use of primarily outcome and patient experience of care measures. To the extent practicable and appropriate, outcome and patient experience of care measures should be adjusted for risk factors or other appropriate patient population or provider characteristics.

● To the extent possible and recognizing differences in payment system maturity and statutory authorities, meas ures should be aligned acro ss public reporting and payment systems under Medicare and Medicaid. The meas ure sets should evolve so that they include a focused set of measures appropria te to the specific provider category that reflects the level of care and the most important areas of service and measures for that provider category.

● The collection of information burden on providers should be minimized to the extent possible. To this end, we continuous ly seek to align our measures with the adoption of meaningful use st andards for health information technology (HIT), so that data can be submitted and calculated via ce rtified EHR technology with minimal burden.

● To the extent practicable and feasible , and recognizing differe nces in statutory authorities, measures used by CMS should be endorsed by a national, multi-stakeholder organization. Measures should be aligned with best practi ces among other payers and the needs of the end users of the measures. We invite public comment on these principles.CMS-1525-P 584 2. Statutory History of the Hospital Outp atient Quality Reporting (Hospital OQR) Program We refer readers to the CY 2011 OPPS/A SC final rule with comment period (75 FR 72064) for a detailed discussion of th e statutory history of the Hospital OQR Program. 3. Technical Specification U pdates and Data Publication a. Maintenance of Technical Specifications for Quality Measures Technical specifications for each Hospita l OQR measure are listed in the Hospital OQR Specifications Manual, which is poste d on the CMS QualityNet Web site at http://www.QualityNet.org . We maintain the technical specifications for the measures by updating this Hospital OQR Speci fications Manual and including detailed instructions and calculation al gorithms. In some cases wh ere the specifications are available elsewhere, we may include links to Web sites hosting technical specifications. These resources are for hospitals to use when collecting and submitting data on required

measures. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 through 68767), we established a subregulatory pro cess for making updates to the technical specifications that we use to calculate Hosp ital OQR measures. Th is process is used when changes to the measure specifications are necessary due to ch anges in scientific evidence, treatment guidelines, or consensus among affected parties. Changes due to these reasons may not coincide with the timi ng of our regulatory actions, but nevertheless should be made so that the Hospital OQR m easures are calculated based on the most up-CMS-1525-P 585 to-date scientific and consensus standards. We indicated that notif ication of technical changes to the measure specifications is made via the QualityNet Web site, http://www.QualityNet.org , and in the Hospital OQR Sp ecifications Manual. The notification of changes to the measure t echnical specifications occurs no less than 3 months before any changes become e ffective for purposes of reporting under the Hospital OQR Program. The Hospital OQR Specifications Manual is released every 6 months and addenda are released as necessary. This release sc hedule provides at least 3 months of advance notice for substantial change s such as changes to ICD-9, CPT, NUBC, and HCPCS codes, and at least 6 months of advance noti ce for changes to data elements that would require significant systems changes. b. Publication of Hospital OQR Program Data Section 1833(t)(17)(E) of th e Act requires that the Secretary establish procedures to make data collected under Hospital OQR ava ilable to the public. It also states that such procedures must ensure that a hospital ha s the opportunity to review the data that are to be made public with respect to the hospita l prior to such data being made public. To meet these requirements, data that a hospital has submitted for the Hospital OQR Program are typically displayed on CMS We b sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov , after a preview period. The Hospital Compare Web site is an interactive Web tool that as sists beneficiaries by pr oviding information on hospital quality of care. This information mo tivates beneficiaries to work with theirCMS-1525-P 586 doctors and hospitals to discuss the quality of care hospitals provide to patients, providing additional incentives to hospitals to improve the quality of care that they furnish. Under our current policy, we publish quality data by the corresponding hospital CCN, and indicate instances where data from tw o or more hospitals are combined to form the publicly reported measur es on the Hospital Compare Web site. This approach is consistent with the approach taken under th e Hospital IQR Program. Consistent with our current policy, we make Hospital OQR data publ icly available whether or not the data have been validated for payment purposes. In general, we strive to display hos pital quality measures on the Hospital Compare Web site as soon as possible after th ey have been adopted and have been reported to CMS. However, if there are unresolved display issues or pending design considerations, we may make th e data available on other, non-interactive, CMS Web sites such as http://www.cms.hhs.gov/HospitalQualityInits/ . Publicly reporting the information in this manner, though not on the interactive Hospital Compare Web site, allows us to meet the requirement under sec tion 1833(t)(17)(E) of th e Act for establishing procedures to make quality data submitted available to the public following a preview period. When we display hospital quality in formation on non-interactive CMS Web sites, affected parties would be notified via CMS listservs, CMS e-mail blasts, national provider calls, and QualityNet announcements re garding the release of preview reports followed by the posting of data on a We b site other than Hospital Compare

. We also require hospitals to complete and submit a registration form (“participation form”) in order to partic ipate in the Hospital OQR Program. WithCMS-1525-P 587 submission of this participation form, participating hospitals agree that they will allow CMS to publicly report the quality measure data submitted under the Hospital IQR Program, including measures that we calculate using Medicare claims. B. Proposed Revision to Measures Previous ly Adopted for the Hospital OQR Program for the CY 2012, CY 2013, and CY 2014 Payment Determinations 1. Background We refer readers to the following OPPS/ ASC final rules with comment periods for a history of measures adopted for the Hospital OQR Program, including lists of: 11 measures adopted for the CY 2011 payment determination (74 FR 60637); 15 measures adopted for the CY 2012 pa yment determination (75 FR 72083 through 72084); 23 measures adopted for the CY 2013 payment determination (75 FR 72090); and 23 measures adopted for the CY 2014 pa yment determination (75 FR 72094). The table below also shows the 23 measures previously adopted for these payment determinations: Hospital OQR Program Measures Previously Adopted for the CY 2011, CY 2012, CY 2013, and CY 2014*** Payment Determinations OP-1: Median Time to Fibrinolysis OP-2: Fibrinolytic Thera py Received Within 30 Minutes OP-3: Median Time to Transfer to Anothe r Facility for Acute Coronary Intervention OP-4: Aspirin at Arrival OP-5: Median Time to ECG OP-6: Timing of Antibiotic Prophylaxis OP-7: Prophylactic Antibiotic Se lection for Surgical Patients OP-8: MRI Lumbar Spine for Low Back Pain OP-9: Mammography Follow-up Rates OP-10: Abdomen CT – Us e of Contrast Material OP-11: Thorax CT – Use of Contrast MaterialCMS-1525-P 588 Hospital OQR Program Measures Previously Adopted for the CY 2011, CY 2012, CY 2013, and CY 2014*** Payment Determinations OP-12: The Ability for Providers with HIT to Receive Laboratory Data Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable Data* OP-13: Cardiac Imaging for Preoperati ve Risk Assessment for Non Cardiac Low Risk Surgery* OP-14: Simultaneous Use of Brain Computed Tomography (CT) and Sinus Computed Tomography (CT)* OP-15: Use of Brain Computed Tomogra phy (CT) in the Emergency Department for Atraumatic Headache* OP-16: Troponin Results for Emergency De partment acute myocardial infarction (AMI) patients or chest pain patien ts (with Probable Cardiac Chest Pain ) Received Within 60 minutes of Arrival** OP-17: Tracking Clinical Results between Visits** OP-18: Median Time from ED Arriva l to ED Departure for Discharged ED Patients** OP-19: Transition Record with Specified Elements Received by Discharged Patients** OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional** OP-21: ED- Median Time to Pain Management for Long Bone Fracture ** OP-22: ED- Left Without Being Seen** OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who Received Head CT Scan Interp retation Within 45 mi nutes of Arrival ** * New measure adopted beginning with the CY 2012 payment determination. ** New measure adopted beginning with the CY 2013 payment determination. *** All 23 measures were adopted for the CY 2014 payment determination. 2. Proposed Revision to Hospital OQR Program Measures Previously Adopted for the CY 2013 Payment Determination In the CY 2011 OPPS/ASC final rule with comment period, we finalized the adoption of the chart-abstracted measure OP -22 – Left Without Being Seen (75 FR 72088 through 72089). This measure was endorsed (N QF # 0499) as part of an NQF project entitled “National Voluntary C onsensus Standards for Emergency Care.” This measure assesses the percentage of patients who leav e the Emergency Department (ED) without being evaluated by qualified medical pers onnel, which is an indication of EDCMS-1525-P 589 overcrowding, and lack of timely access to care . We are proposing that beginning with the CY 2013 payment determination, hospitals would submit aggregate numerator and denominator counts once a year using a Web-based form available through the QualityNet Web site for this measure. This proposed process is different from that which is used to collect other chart-abstracted m easures because it would not require hospitals to submit patient-level information for this measure, and would not require quarterly submission of data. We believe this propos ed process will reduce the potential data collection and submission burden for this measure. We are proposing that for the CY 2013 payment determination, data submission for this measure would occur between July1, 2012 and August 15, 2012. We also are proposing that for the CY 2013 payment dete rmination, the aggregate counts for the numerator (the total numbe r of patients who left w ithout being evaluated by a physician/advance practice nurse /physician’s assistant) a nd the denominator (total number of patients who signed in to be evaluated for em ergency services) would be submitted by hospitals and would span the time period from January 1, 2011 through December 31, 2011. We invite public commen t on this proposed approach to data collection for OP-22 for the CY 2013 Hospita l OQR Program and subsequent payment determinations, and on the time period to be assessed for this measure for the CY 2013 payment determination. The updated specifi cations for this measure will be made available in the July 2011 Hosp ital OQR Specifications Manual.CMS-1525-P 590 C. Proposed New Quality Measures for the CY 2014 and CY 2015 Payment Determinations 1. Considerations in Expanding and Updati ng Quality Measures under the Hospital OQR Program In general, when selecting measures fo r the Hospital OQR Program, we take into account several considerations and goals. Th ese include: (a) e xpanding the types of measures beyond process of care measures to include an increased number of outcome measures, efficiency measures, and patients' experience-of-care measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering the burden on hospitals in collecting chart-abstracted data ; (d) harmonizing the measures used in the Hospital OQR Program with other CMS qua lity programs to align incentives and promote coordinated efforts to improve quali ty; (e) seeking to use measures based on alternative sources of data thatdo not require chart abstractio n or that utilize data already being reported by many hospitals , such as data that hospita ls report to clinical data registries, or all-payer claims data bases; a nd (f) weighing the relevance and utility of the measures compared to the burden on hospita ls in submitting data under the Hospital OQR Program. Specifically, we assign priority to quality measures that assess performance on: (a) conditions that result in the greates t mortality and morbidity in the Medicare population; (b) conditions thatare high volume and high cost for the Medicare program; and (c) conditions for which wide cost and treatment variations have been reported, despite established clinical gui delines. We used and continue to use these criteria toCMS-1525-P 591 guide our decisions regarding what measur es to add to the Hospital OQR Program

measure set. In the CY 2009 OPPS/ASC final rule w ith comment period, we adopted four claims–based quality measures that do not re quire a hospital to submit chart-abstracted clinical data (73 FR 68766). This supports our goal of expanding the measures for the Hospital OQR Program while minimizing the burden upon hospitals and, in particular, without significantly increasing the chart abst raction burden. In addition to claims-based measures, we are considering registries and EHRs as alternative ways to collect data from hospitals. A registry is a collection of clinical data for purposes of assessing clinical performance, quality of care, and opportuni ties for quality improvement. Many hospitals submit data to and participate in existing regi stries. In addition, registries often capture outcome information and provide ongoing quali ty improvement feedback to registry participants. Instead of requiring hospitals to submit the same data to CMS that they are already submitting to registries, we could collect the data directly from the registries with the permission of the hospital, thereby enabli ng us to expand the Hospital OQR Program measure set without increasing the burden of data collection for those hospitals participating in the registries. The data thatwe would receive from registries would be used to calculate quality m easures required under the Hosp ital OQR Program, and would be publicly reported like other Hospital OQR Program quality measures, encouraging improvements in the quality of care. In th e CY 2010 OPPS/ASC final rule with comment period (74 FR 60633), we responded to publ ic comments on such an approach.CMS-1525-P 592 In the CY 2009 OPPS/ASC final rule with comment period, we also stated our intention to explore mechanisms for data submission using EHRs (73 FR 68769). When we refer to the term Qualified EHR, we intend for it to have the same meaning as set forth by the Office of the National Coordi nator for Health Information Technology (ONC) (45 CFR 170.102) which has adopted th e statutory definition of Qualified EHR found in section 3000(13) of the Public Health Service Act. Thatsection defines a Qualified EHR as “an electronic record of health-related information on an individual that -- (A) includes patie nt demographic and clinical hea lth information, such as medical history and problem lists; and (B) has the ca pacity -- (i) to provi de clinical decision support; (ii) to support physician order entry; (iii) to capture and query information relevant to health care quality; and (iv) to exchange electr onic health information with, and integrate such information from other sour ces.” Additionally, when we refer to the term, Certified EHR Technology, we intend for it to have the same meaning as set forth by the ONC at 45 CFR 170.102 as follows: “C ertified EHR Technology” means (1) A complete EHR that meets the requirements incl uded in the definition of a Qualified EHR and has been tested and certified in accordan ce with the certification program established by the National Coordinator as having met all applicable cert ification criter ia adopted by the Secretary; or (2) a combination of EHR Modules in which each constituent EHR Module of the combination has been tested and certified in accordance with the certification program established by the National Coordinator as having met all applicable certification criteria adopted by the Secretary, and the resultant combination also meets the requirements included inthe definition of a Qualified EHR.CMS-1525-P 593 Establishing a data submission mechanism using EHRs will require interoperability between EHRs and our data collection systems, additional infrastructure development on the part of hospitals and CM S, and the adoption of standards for the capturing, formatting, and transmission of data elements that make up the measures. However, once these activities are accomplishe d, the adoption of measures that rely on data obtained directly from EHRs would enable us to expand the Hospital OQR Program measure set with less cost and burden to hos pitals. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60633 through 606 34), we responded to public comments on such an approach. Continuing to reduce our reliance on th e chart-abstraction mechanism would allow us and hospital outpatient department s to devote available resources towards maximizing the potential of registries and EH Rs for quality measurement reporting. Both mechanisms hold the promise of more sophi sticated and timely reporting of clinical quality measures. Clinical data registries allow the collection of more detailed data, including outcomes. Registri es can also provide feedb ack and quality improvement information based on reported data. Finally, clin ical data registries can also receive data from EHRs, and therefore, serve as an altern ative means to reporting clinical quality data extracted from an EHR. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72071 through 72174), we added new measures over a three year period for the CY 2012, CY 2013, and CY 2014 payment determinations. We believe this process will assist hospitals in planning, meeting future reporting requirement s, and implementing quality improvementCMS-1525-P 594 efforts. We will also have more time to de velop, align, and implement the infrastructure necessary to collect data on the measures a nd make payment determinations. The fact that we finalized measures for a three year period of time (for example, for the CY 2012, CY 2013 and CY 2014 payment determinations in the CY 2011 OPPS/ASC final rule with comment period) does not preclude us from proposing to adopt additional measures or changing the list of measures for these payment determinations through subsequent rulemaking cycles that affect thes e future payment determinations. We have previously expanded th e Hospital OQR Program measure set dramatically by adopting measures over severa l payment determinations in order to allow hospital outpatient departments adequate time to plan and implement the reporting of quality data for the CY 2012, CY 2013 and CY 2014 payment determinations. In this proposed rule, we are proposing to add ne w measures to the existing Hospital OQR measure set for the CY 2014 payment dete rmination and are proposing to add new measures for the CY 2015 payment determination. 2. Proposed New Hospital OQR Program Quality Measures for the CY 2014 Payment Determination As stated above, the CY 2014 measure set for the Hospital OQR Program currently contains 23 measures that we a dopted in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72094). In this pr oposed rule, we are proposing to adopt a number of additional measures for the CY 2014 measure set.CMS-1525-P 595 a. Proposed New National Healthcare Safety Network (NHSN) Healthcare Associated Infection (HAI) Measure for the CY 2014 Pa yment Determination: Surgical Site Infection (NQF #0299) Healthcare Associated Infections (HAIs) is a topic area widely acknowledged by HHS, the Institute of Medicine (IOM), the Nati onal Priorities Partnership, and others as a high priority requiring measurement and im provement. HAIs are among the leading causes of death in the United States. CDC estim ates that as many as 2 million infections are acquired each year in hospitals and result in approximately 90,000 deaths. 1 It is estimated that more Americans die each y ear from HAIs than from auto accidents and homicides combined. HAIs not onl y put the patient at risk, but also increase the days of hospitalization required for patients and add co nsiderable health care costs. HAIs are largely preventable through interventions such as be tter hygiene and advanced scientifically tested techniques for surgical patients. Therefore, many health care consumers and organizations are calling for public disclosure of HAIs, arguing that public reporting of HAI rates provides the in formation health care consumers need to choose the safest hospitals, and gives hospitals an incentive to improve infection control efforts. This proposed measure is currently collected by the Nationa l Healthcare Safety Network (NHSN) as part of State-mandated reporting and surveillance requirements for hospitals in some States. Additionally, da ta submission for this measure through EHRs may be possible in the near future.

1 McKibben. L., Horan, T.: Guidance on public reporting of healthcare- associated infections: recommendations of the Healthcare Infection Control Practices Adviso ry Committee. AJIC 2005; 33:217– 26.CMS-1525-P 596 The NHSN is a secure, Internet-based surveillance system maintained and managed by the CDC, and can be utilized by all types of healthcar e facilities in the United States, including acute care hospitals, long term acute care hospitals, psychiatric hospitals, rehabilitation hospitals, outpatient dialysis cen ters, ambulatory surgery centers, and long term care facilities. The NHSN is provided free of charge to hospitals. The NHSN enables healthcare facilities to collect and use data about HAIs, clinical practices known to prevent HAIs, the incidence or pr evalence of multidrug -resistant organisms within their organizations, and other advers e events. Some States use the NHSN as a means for healthcare facilitie s to submit data on HAIs mandated through their specific State legislation. Currently, 21 States require hospitals to report HAIs using the NHSN, and the CDC supports more than 4, 000 hospitals that are using NHSN. Increasingly, more surgical procedures are being performed in hospital outpatient department settings and ASCs. Therefore, we have determined that this measure is “appropriate for the measurement of the qua lity of care furnished by hospitals in outpatient settings” as required under section 1833(t)(17)(C)(i) of the Act. This proposed HAI measure assesses the percentage of surgi cal site infections occurring within 30 days after an NHSN-defined operative procedure if no implant is left in place or within one year if an implant is in place, and the inf ection appears to be related to the operative procedure. Infections are identified on original admission or upon readmission to the facility of original operative procedure within the relevanttime frame (30 days for no implants; within 1 year for implants). Th e specifications for this proposed HAI measure can be found at http://www.cdc.gov/nhsn/psc.html

.CMS-1525-P 597 We also believe that this measure meets the requirement under section 1833(t)(17)(C)(i) of the Act that measures selected for the Hospital OQR Program

“ reflect consensus among affected parties and, to the extent f easible and practicable, shall include measures set forth by one or more national consensus building entities.” This measure was NQF-endorsed in 2007 and was adopted by the Hospital Quality Alliance in 2008. We note that this measure also was adopted for the Hospital IQR Program beginning with the FY 2014 payment determin ation (75 FR 50211) and its adoption into the Hospital OQR Program would further our goal of aligning meas ures across programs where feasible. We are proposing that submission of da ta for this proposed NHSN measure for the CY 2014 payment determination would relate to infection events occurring between January 1, 2013 and June 30, 2013. We ar e proposing that hospital outpatient departments use the existing NHSN infrastructure and protocols that already exist for this proposed measure to report it for Hospita l OQR Program purposes. We invite public comment on our proposal to adopt this HAI measure into the Hospital OQR Program for the CY 2014 payment determination. b. Proposed New Chart-Abstracted Measur es for the CY 2014 Payment Determination In the CY 2011 OPPS/ASC final rule with comment period, we stated that we would not finalize five proposed NQF-endorsed di abetes care measures because we were in the process of refining the chart-abstract ed numerator definitions for these measures (75 FR 72091). We also stated that we intend ed to again propose to adopt these measures for the CY 2014 payment determination. We now are proposing to adopt these fiveCMS-1525-P 598 diabetes care measures for the CY 2014 pa yment determination as chart-abstracted measures. These five measures are: (1) Hemoglobin A1c Management (NQF #0059); (2) Diabetes Measure Pair: A. Lipid Manage ment: Low Density Lipoprotein Cholesterol (LDL-C) < 130, B. Lipid Management: LD L-C < 100 (NQF #0064); (3) Diabetes: Blood Pressure Management (NQF #0061); (4) Diabetes: Eye Exam (NQF #0055); and (5) Diabetes: Urine Protein Screening (NQF #0062). We note that these five measures are electronically specified. We hope to be ab le to collect such information via EHRs in the future, and we solicit comments on using EH R for data collection in the future. In addition, we are proposing to adopt another new chart-abstracted measure, Cardiac Rehabilitation Patient Referral from an Ou tpatient Setting (NQF #0643), for the CY 2014 payment determination. Below are descriptions of each of these six proposed new chart-abstracted measures. (1) Proposed Diabetes Measure: Hemoglobin A1c Management (NQF #0059) In general, diabetes mellitus is a chroni c disease that impacts the lives of a large portion of the population and consumes a signif icant amount of U.S. healthcare dollars. With the prevalence of diabetes in the Medi care-eligible populati on expected to double, costs are expected to increase almost fourfold to $171 million. 2 Uncontrolled diabetes often leads to biochemical imbalances that can lead to acute life-threatening events, such as diabetic ketoacidosis and hyperosmolar , or nonketotic coma. In patients with insulin-dependent diabetes, the risk of de velopment or progression of retinopathy, nephropathy, and neuropathy can be reduced by 50 to 75 percent by intensive outpatient

2 Huang, E.S., Basu, A., O’Grady, M., Capretta, J.C. : Projecting the future diabetes population size and related costs for the U.S. Diabetes Care. 2009;32 (12):2225-29.CMS-1525-P 599 treatment of hyperglycemia compared to c onventional treatment. Early treatment may help slow or halt the progression of diabet ic complications, and following the guidelines for screening may assist those patients with no outward sign of diabetic complications to be identified earlier through re gular screening tests. Some guidelines recommend that the HgA1c level be tested during an initial a ssessment and in follow-up assessments which should occur at no longer than 3-month intervals. 3 Other guidelines recommend that the HgA1c level be tested at least twice a year in patients with stable glycemic control and who are meeting treatment goals, and quarter ly in patients whose HgA1c level does not meet target glycemic goals. 4 Section 1833(t)(17)(C)(i) of the Act requires the Secr etary to develop measures appropriate for the measurement of the quality of care furnished by hospitals in outpatient settings, that these measures reflect consen sus among affected partie s and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building ent ities. Because this measure is NQF-endorsed, we believe that this measure meets the requirement of reflecting consensus among affected parties. However, we note that consensus among affect ed parties can be reflected through means other than NQF endorsement. As discussed above, this measure is appropriate for measuring quality of care in the hospital outpa tient department setting, in which many patients with diabetes are treated.

3 The American Association of Clinical Endocri nologists Medical Guidelines for the Management of Diabetes Mellitus: The AACE System of Intensive Diabetes Self-Management -2002 Update. 4 American Diabetes Association. Standards of Medical Care in Diabet es. Diabetes Care. 2008 Jan:31 (Suppl 1):S12-54.CMS-1525-P 600 Lower HgA1c levels are associated with reduced microvascular and neuropathic complications of diabetes. This NQF-endorsed measure measures the percentage of adult patients with diabetes aged 18-75 years witha most recent HgA1c level greater than 9 percent (poor control). The specifications for this measure are located in Appendix A (beginning page A-60) of the 2008 NQF Repor t titled “National Voluntary Consensus Standards for Ambulatory Care—Part 1” available at the following link: http://www.qualityforum.org/Publications/ 2008/03/National_Voluntary_Consensus_Stan dards_for_Ambulatory_Care%E2%80%93Part_1.aspx Glycosylated hemoglobin (HgA1c) assa y measures average blood glucose over the preceding two to three mont hs, rather than just one point in time. HgA1c values fluctuate less frequently than fasting glucose values and give clinicians a better integrated view of the patient’s average blood sugar over time. High HgA1c is a more reliable indicator of chronic high blood sugar. We invite public comment on this proposed

measure. (2) Proposed Diabetes Measure Pair: A. Lipid Management: Low Density Lipoprotein Cholesterol (LDL-C) <130, B. Lipid Management: LDL-C <100 (NQF #0064) LDL-C measures the development of athe rosclerotic plaque which increases the cardiac events risk for diabetic patients, w ho already face heart disease death rates that are about two to four times higher than these rates are for non-diabetic patients. 5 Improved dyslipidemia management helps to miti gate the risk for cardiovascular disease. Lipid-lowering therapy for diab etics has been a consistentrecommendation in several

5 American Diabetes Association. Standards of Medical Care in Diabet es. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.CMS-1525-P 601 guidelines, prompted by randomized trials suppo rting statin therapy to lower the risk of cardiovascular involvemen t for this population. Despite the evidence basis and guideline support, only a minority of patients with diab etes are prescribed statin treatment or achieve target LDL-C goals. 6 Section 1833(t)(17)(C)(i) of the Act requires the Secr etary to develop measures appropriate for the measurement of the quality of care furnished by hospitals in outpatient settings, that these measures reflect consen sus among affected partie s and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building entities. Because this measure is NQF-endorsed, we believe that this measure meets the requirement of reflecting consensus among affected parties. However, we note that consensus among affect ed parties can be reflected through means other than NQF endorsement. As discussed above, this measure is appropriate for measuring quality of care in the hospital outpatient department setting which serve many patients with diabetes who ofte n have high level of LDL-C. Early treatment of hyperlipidemia as i ndicated by high level of LDL-C may help to slow or halt the progression of cardiovascul ar disease and impact the quality of the life of the diabetic patient, affecting the pa tient’s life expectancy and decreasing costs involved in treating diabetic complications . This NQF-endorsed measure assesses: (i) the percentage of adult patients with diabetes aged 18-75 years whose most recent LDL-C test result was < 130 mg/d l; and (ii) the percentage of adult patients with diabetes aged 18-75 years whose most recent LDL-C test result during the measurement year was

6 Das, S.R., Vaeth, P.A., Stanek, H.G., de Lemos, J.A., Dobbins, R.L., McGuire, D.K.: Increased cardiovascular risk associated with diabetes in Dallas County. Am Heart J 2006;151:1087-93.CMS-1525-P 602 < 100 mg/dl. The specifications for this m easure are located in Appendix A (beginning page A-60) of the 2008 NQF Report titled “Na tional Voluntary Consensus Standards for Ambulatory Care—Part 1” availa ble at the following link: http://www.qualityforum.org/Publications/ 2008/03/National_Voluntary_Consensus_Stan dards_for_Ambulatory_Care%E2%80%93Part_1.aspx . We invite public comment on this proposed measure. (3) Proposed Diabetes Measure: Blood Pressure Management (NQF #0061) Blood pressure control reduces the ri sk of cardiovascular disease and microvascular complications in patients withdiabetes. Well-controlled blood pressure impacts the quality of the life of the diabetic patient, affect s the patient’s life expectancy, and decreases the costs involved intreating diabetic complications. Section 1833(t)(17)(C)(i) of the Act requires the Secret ary to develop measures appropriate for the measurement of the quality of care furnished by hospitals in outpatient settings, that these measures reflect consen sus among affected partie s and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building ent ities. Because this measure is NQF-endorsed, we believe that this measure meets the requirement of reflecting consensus among affected parties. However, we note that consensus among affect ed parties can be reflected through means other than NQF endorsement. This measure is appropriate for meas uring the quality of care in the hospital outpatient departments wh ich serve many patients with diabetes and suffer from high blood pressure.CMS-1525-P 603 Early treatment of high blood pressure ma y help slow or halt the progression of kidney involvement and damage. 7 This NQF-endorsed measure measures the percentage of patient visits with blood pressure measur ement recorded among all patients visits aged > 18 years with diagnosed hypert ension. The specifications fo r this measure are located in Appendix A (beginning page A-60) of the 2008 NQF Report titled “National Voluntary Consensus Standards for Ambulatory Care—Part 1” available at the following link: http://www.qualityforum.org/Publications/ 2008/03/National_Voluntary_Consensus_Stan dards_for_Ambulatory_Care%E2%80%93Part_1.aspx . We invite public comment on this proposed measure. (4) Proposed Diabetes Measure: Eye Exam (NQF #0055) A dilated eye exam helps to detect th e risk for vision-threatening diabetic retinopathy which is prevalent among people with diabetes. Data from the 2011 National Diabetes Fact Sheet shows that diabetes is the leading cause of new cases of blindness among adults aged 20–74 years. 8 However, dilated eye exams for diabetic patients can prevent retinopathy th rough early detection 9 and stereoscopic retinal photography is sometimes used to grade diabetic retinopathy severity. Section 1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures appropriate for the measurement of the quality of care furnished by hospitals in outpatient

7 Centers for Disease Control and Prevention. Nationa l diabetes fact sheet: general information and national estimates on diabetes in the United States, 20 112007. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Diseas e Control and Prevention, 20112008. 8 Centers for Disease Control and Prevention. National diabetes fact sheet: general information and national estimates on diabetes in the United States, 20112007. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Co ntrol and Prevention, 20112008. 9 American Diabetes Association. Standards of medical care in diabet es. Diabetes Care. 2007 Jan;30 (Suppl 1):S8-15.CMS-1525-P 604 settings, that these measures reflect consen sus among affected partie s and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building ent ities. Because this measure is NQF-endorsed, we believe that this measure meets the requirement of reflecting consensus among affected parties. However, we note that consensus among affect ed parties can be reflected through means other than NQF endorsement. This measure is appropriate for measuring quality of care in the hospital outpatient departments which se rve many patients with diabetes who are at risk for diabetic retinopathy. This NQF-endorsed measure measures th e percentage of adult patients with diabetes age 18 to 75 years who received a dilated eye exam or seven standard field stereoscopic photos with interp retation by an ophthalmologist or optometrist, or imaging to verify diagnosis from ster eoscopic photos during the report ing year, or during the prior year, if the patient is at low risk for retinopa thy. A patient is consid ered low risk if the patient has no evidence of retinopathy in th e prior year. The specifications for this measure are located in Appendix A (beginni ng page A-60) of the 2008 NQF Report titled “National Voluntary Consensus Standards for Ambulatory Care—Part 1” available at the following link: http://www.qualityforum.org/Publications/ 2008/03/National_Voluntary_Consensus_Stan dards_for_Ambulatory_Care%E2%80%93Part_1.aspx . We invite public comment on this proposed measure.CMS-1525-P 605 (5) Proposed Diabetes Measure: Urine Protein Screening (NQF #0062) Urine protein screening for microalbumin detects an abnormal amount of protein albumin leaks in the urine by the capillaries of the kidney. High leve ls of blood sugar in uncontrolled diabetes can cause damage to th e capillaries in the kidneys. Diabetics accounted for 44 percent of new cases of kidney disease. In 2005, a total of 178,689 diabetics with ESRD were on dialysis or rece ived a kidney transplant in the United States and Puerto Rico. 10 In 2009, MedPAC reported costs fo r the 330,000 Medicare recipients receiving dialysis treatment for ESRD at over $8 billion. 11 Section 1833(t)(17)(C)(i) of the Act requires the Secret ary to develop measures appropriate for the measurement of the quality of care furnished by hospitals in outpatient settings, that these measures reflect consen sus among affected partie s and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building ent ities. Because this measure is NQF-endorsed, we believe that this measure meets the requirement of reflecting consensus among affected parties. However, we note that consensus among affect ed parties can be reflected through means other than NQF endorsement. As discussed above, this measure is appropriate for measuring quality of care inthe hospital outpa tient departments which serve many patients with diabetes who are at risk for kidney diseases. Early urine screenings for microalb umin may prevent kidney disease from worsening to ESRD. This NQF-endorsed measure measures the percentage of adult

10 Centers for Disease Control and Prevention. Nationa l diabetes fact sheet: general information and national estimates on diabetes in the United States, 20 07. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Diseas e Control and Prevention, 2008. 11 MedPAC. Outpatient dialysis service: assessing payment adequacy and updating payments. Report to the Congress: Medicare payment policy. 2009 Mar;131-56.CMS-1525-P 606 diabetic patients ages 18 – 75 years with at least one test for microalbumin during the measurement year or who had evidence of medical attention for existing nephropathy (diagnosis of nephropathy or documentation of microalbuminuria or albuminuria). The specifications for this measure are located in Appendix A (beginning page A-60) of the 2008 NQF Report titled “Nati onal Voluntary Consensus Standards for Ambulatory Care—Part 1” available at the following link: http://www.qualityforum.org/Publications/ 2008/03/National_Voluntary_Consensus_Stan dards_for_Ambulatory_Care%E2%80%93Part_1.aspx . We invite public comment on this proposed measure. (6) Proposed Cardiac Rehabilitation Measure: Patient Referral from an Outpatient Setting (NQF #0643) Cardiac rehabilitation improves the qu ality of life, reduces modifiable cardiovascular risk factors, enhances adhere nce to preventable medications, and lowers morbidity and mortality. 12 Despite these benefits, cardi ac rehabilitation is significantly underutilized by patients with heart disease and there is significant geographical variation in referral rates and lower use in wome n, non-whites, older patients and patients on Medicaid. 13 A recent study of Medicare benefi ciaries, using 70,040 matched pairs of patients hospitalized for corona ry conditions or revasculariz ation procedures, found that mortality rates were 21 percent to 34 percen t lower in cardiac rehabilitation users

12 Wenger, N.K.: Current status of cardiac rehab ilitation. J. Am Coll Cardiol 2008; 51:1619-1631. 13 Suaya, J.A., Shepard, D.S. , Normand, S.L., et al.: Use of cardi ac rehabilitation by Medicare beneficiaries after myocardial infarction or coronary bypass surgery. Circulation. 2007;116:1653-62CMS-1525-P 607 compared to nonusers. 14 Evidence from registries which include a cardiac rehabilitation performance measure indicated that only a bout 18 percent of e ligible patients were referred to cardiac rehabilitation. 15 Under our regulations, 42 CFR 410.49, cardiac rehabilitation is covered for pa tients who have had one or more of the following: an acute myocardial infarction within the preceding 12 months, curren t stable angina, individuals who have undergone coronary bypass surgery, a percutaneous coronary intervention or coronary stenting, heart valve repair or replacement, or a heart-lung transplant. In May 2010, the NQF endorsed two cardi ac rehabilitation referral performance measures as part of the call for care coordi nation performance measures. These measures are: (1) Cardiac Rehabilitation: Patient Referral From an Inpatient Setting (NQF #0642) – The percentage of patients admitted to the hospital with a qualifying cardiovascular disease (CVD) event who are referre d to an early outpatient cardiac rehabilitation/secondary prevention program; and (2) Cardiac Rehabilitation: Patient Referral From an Outpatient Setting (NQF #0643 ) – The percentage of patients evaluated in an outpatient setting who in the previous 12 months experienced an acute myocardial infarction or chronic stable angina or who have undergone coronary artery bypass (CABG) surgery, a percutaneous coronary intervention (PCI), cardiac valve surgery (CVS), or cardiac transplantati on who have not already particip ated in an early outpatient cardiac rehabilitation/secondary prevention pr ogram for the qualifying event and who are referred to an early outpatient cardiac rehabilita tion/secondary prevention program unless

14 Suaya, J.A., Stason, W.B., Ades, P.A., et al.: Cardiac rehabilitation and survival in older coronary patients. J. Am Coll Cardiol. 2009;54:25-33. 15 Chan, P.S., Oetgen, W.J., Buchanan, D., Mitchell, K. et al.: Cardiac performance measure compliance on outpatients: the American College of cardiology and National Cardiovascular data registry’s PINNACLE (Practice Innovation and Clinical Excellence) program. J. Am Coll Cardiol 2010 56(1) 8-14)CMS-1525-P 608 there is a documented medical or patient or iented reason why a referral was not made. We are proposing to adopt the second (NQF #0643) of these measures for the CY 2014 Hospital OQR Program. The measure specifica tions are located in Appendix A (Pages A4 and A5) of the 2010 NQF consensus report entitled “ Preferred Practices and Performance Measures for Measuring and Reporting Care Coordination ” which is available at the following link: http://www.qualityforum.org/Publications/ 2010/10/Preferred_Practices_and_Performanc e_Measures_for_Measuring_and_Re porting_Care_Coordination.aspx This proposed measure targets patien ts who have experienced a qualifying cardiovascular event. These patients ar e commonly seen in hospital outpatient departments and, for this reason, we believe th at the proposed measur e is appropriate for the measurement of the quality of care (i ncluding medication errors) furnished by hospitals in outpatient settings as required under section 1833(t)(17)(C )(i) of the Act. The measure also is NQF-endorsed, and theref ore meets the requirement that measures selected for the program “reflect consensus among affected parties and, to the extent feasible and practicable, that these measures include measures set forth by one or more national consensus building entities” under section 1833(t) (17)(C)(i) of the Act. We are proposing to adopt the NQF-e ndorsed Cardiac Rehabilitation Patient Referral from an Outpatient Setting measure for CY 2014 payment determination. The goal of this measure is to improve the de livery of cardiac care in order to reduce cardiovascular mortality and morbidity and optimize the health of patients suffering from

CVD.CMS-1525-P 609 We invite public comment on this proposed measure.

c. Proposed New Structural Measures For the CY 2014 payment determination, we are proposing to add two structural measures: 1) Safe Surgery Checklist Use; and 2) Hospital Outpatient Volume for Selected Outpatient Surgical Procedures. In general, structural measures assess the characteristics and capacity of the pr ovider to deliver quality health care. (1) Proposed Safe Surgery Checklist Use Measure This proposed structural measure as sesses whether a hospital outpatient department utilizes a Safe Surgery ch ecklist that assesses whether effective communication and safe practi ces are performed during thr ee distinct perioperative periods: (1) the period prior to the administration of anesth esia; (2) the period prior to skin incision; and (3) the period of closure of incision and prior to the patient leaving the operating room. The use of such checklists ha s been credited with dramatic decreases in preventable harm, complications and post-surgical mortality 16 . In November 2010, the New England Journal of Medicine (NEJM) published a study concl uding that surgical complications were reduced by one-third, and mortality by nearly half, when a safe surgery checklist was used. 17

We believe that effective communication a nd the use of safe surgical practices during surgical procedures will significantly reduce preventable surgical deaths and complications. For example, mistakes in su rgery can be prevente d by ensuring that the

16 Haynes, A.B.; Weiser, T.G.; Berry, W.G. et. al (2009). “A Surgical Safety Checklist to Reduce Morbidity and Mortality in a Global Population.”. New England Journal of Medicine. 360: 491-499. 17 de Vries EN, Prins HA, Crolla RMPH, et al. Effect of a comprehensive surgical safety system on patient outcomes. N Engl J Med 2010;363: 1928-37CMS-1525-P 610 correct surgery is pe rformed on the correct patient and at the correct place on the patient’s body. 18 A safe surgery checklist would also reduce the potential for human error, which we believe would increase th e safety of the surgical environment. The safe surgery checklists of which we are aware typically include safe surgery practices corresponding to three critical perioperative peri ods: the period prior to the administration of anesthesia, the period prior to skin incision, and the period of closure of incision and prior to the patient leaving th e operating room. Some examples of safe surgery practices that can be performed duri ng each of these three perioperative periods are shown in the table below:

First critical point (period prior

to administering anesthesia ) Second critical point (period prior to skin incision) Third critical point (period of closure of incision and prior to patient leaving the operating room )
● Verbal confirmation of patient identity ● Mark surgical site ● Check anesthesia machine/medication ● Assessment of allergies, airway and aspiration risk ● Confirm surgical team members and roles ● Confirm patient identity, procedure, and surgical incision site ● Administration of antibiotic prophylaxis within 60 minutes before incision ● Communication among surgical team members of anticipated critical events ● Display of essential imaging as appropriate ● Confirm the procedure ● Complete count of surgical instruments and accessories ● Identify key patient concerns for recovery and management of the patient

One example of a checklist that lists safe surgery practices du ring each of these three perioperative periods is the World Heal th Organization Surgic al Safety Checklist, which was adopted by The World Federation of Societies of Anesthesiologists as an

18 Hospital National Patient Safety Goals. The Joint Commission Accreditation Hospital Manual, 2011. http://www.jointcommission.org/st andards_information/npsgs.aspxCMS-1525-P 611 international standard of practice. This checklist can be found at: http://www.who.int/patientsafety/saf esurgery/ss_checklist/en/index.html

. The adoption of a structural measure that assesses Safe Surgery Checklist use would align our patient safety initiatives with those of several surgical specialty societies including: The American College of Surg eons’ Nora Institute for Patient Safety, the American Society of Anesthesiologists, Th e Joint Commission, the National Association for Healthcare Quality and the Association of periOperative Register ed Nurses (AORN). For this proposed structural measure, a hos pital outpatient department would indicate whether or not it uses a safe surgery checklist for its surgical procedures that includes safe surgery practices during ea ch of the three critical pe rioperative periods discussed above. The measure would assess whether the hospital uses a safe surgery checklist in the hospital outpatient department for surgi cal procedures, but would not require a hospital to report whether it uses a checklist in connection with a ny individual outpatient procedures. The proposed Safe Surgery Checklist st ructural measure is not NQF-endorsed. However, we believe that consensus among affected parties can be reflected through means other than NQF endorsement including: consensus achieved during the measure development process; consensus shown thr ough broad acceptance and use of measures; and consensus through public comment. The proposed safe surgery checklist measure assesses the adoption of a best practice for surgical care thatis broadly accepted and in widespread use among affected parties. In addition to being adopted by The World Federal of Societies of Anesthesiologists, the use of a safe surgery checklist is one of theCMS-1525-P 612 safe surgery principles e ndorsed by the Council on Surgical and Perioperative Safety, which is comprised of the American Asso ciation of Nurse Anesthetists, American College of Surgeons, American Association of Surgical Physician Assistants, American Society of Anesthesiologists, American So ciety of PeriAnesthes ia Nurses, AORN, and Association of Surgical Tec hnologists. Two State agencies (Oregon, South Carolina), the Veterans Health Administration 19 , numerous hospital systems, State hospital associations (such as California, and South Carolina), national accrediting organizations and large private insurers have endorsed the use of a safe surgery checklist as a best practice for reducing morbidity, mortality, and medical errors. 20, 21 Because the use of a safe surgery checklist is a widely accepted best practice for surgical care, we believe that the proposed structural measure of Safe Surgery Checkli st use reflects consensus among affected parties. We also note that The Joint Co mmission has included safe surgery checklist practices among those to be used to achieve National Patient Safety Goals adopted for 2011 for surgeries performed in ambu latory settings and hospitals. For CY 2014 payment determination, we are proposing that data collection for this structural measure for hospital outpatient departments will be from July 1, 2013 through August 15, 2013 for the time period January 1, 2012 through December 31, 2012. These data will be collected via a Web-based tool available on the QualityNet Web site that is currently employed for the collection of structural measures

19 Neily, J; Mills, PD, Young-Xu, Y. (2010). “Ass ociation between implementation of a Medical Team Training Program and Surgical Mortality”. JAMA. 304 (15): 1693-1700. 20 Haynes, AB; Weiser, TG; Berry, WR et al (2009) “A Surgical Safety Checklist to Reduce Morbidity and Mortality in a Global Population”. NEJM. 360:491-499. 21 Birkmeyer, JD (2010) “Strategies for Improving Su rgical Quality – Checklists and Beyond.” NEJM. 363: 1963-1965.CMS-1525-P 613 for the Hospital IQR Program and the Hospital OQR Program. We invite public comments on our proposal to add this new st ructural measure to the CY 2014 Hospital OQR Program measure set. (2) Proposed Hospital Outpatient Department Volume for Selected Outpatient Surgical Procedures Measure There is substantial evidence in recent peer-reviewed clinical literature that volume of surgical procedures, particularly of high risk surgical pro cedures, is related to better patient outcomes, including decr eased surgical errors and mortality [1], [2], [3] . This may be attributable to greater experience and/ or surgical skill, gr eater comfort with and, hence, likelihood of application of standardi zed best practices, and increased experience in monitoring and management of surgical pati ents for the particular procedure. For this reason, the National Quality Forum has previous ly endorsed measures of total al l-patient surgical volume for Isolated CABG and Valve Surgeries (NQF #0124), Percutaneous Coronary Intervention (PCI) (NQF #0165) , Pediatric Heart Surgery (NQF #0340), Abdominal Aortic Aneurism Repair ( NQF #357), Esophageal Resection (#0361), and Pancreatic Resection (NQF #0366). Additi onally, many consumer-oriented Web sites that display health care quality informati on required to be reported under State law (California, New York, Texas, Washington, Florida, Illinois, Mi chigan, Oregon) and private organizations (Leapfrog Group, U.S. News & World Report) are reporting

[1] Livingston, E.H.; Cao, J “Procedure Volume as a Predictor of Surgical Outcomes”. JAMA. 2010;304(1):95-97. [2] David R. Flum, D.R.; Salem, L.; Elrod, J.B.; Delli nger, E.P.; Cheadle, A. Chan, L. “Early Mortality Among Medicare Beneficiaries Undergoing Bariatric Surgical Procedures”. JAMA. 2005;294(15):1903- 1908. [3] Schrag, D; Cramer, L.D.; Bach, P.B.; Cohen, A.M. ; Warren, J.L.; Begg, C.B “ Influence of Hospital Procedure Volume on Outcomes Fo llowing Surgery for Colon Cancer” JAMA. 2000; 284 (23): 3028-3035.CMS-1525-P 614 procedure volume, in addition to provider performance on surgical process (SCIP measures) and outcome measures (SSI, Patient Safety Indicators, and Mortality), in order to provide more context to consumers choos ing a health care provider. The currently NQF-endorsed measures of procedure volum e (noted above) relate to surgeries performed only in inpatient settings, and w ould not be applicable to the types of procedures approved to be performed in HOPDs and ASCs. The table below, which shows the proporti on of procedures dur ing calendar year 2010 performed in hospital outpatient department s stratified by broad categories, reveals that most hospital outpatient procedures (99%) fall into one of 8 categories: Cardiovascular, Eye, Gastrointestinal, Gen itourinary, Musculoskeletal, Nervous System, Respiratory, and Skin. CY 2010 Hospital Outpatient Data Procedure Category % of Total Services Cardiovascular 75.50% Chest 0.00% Ear 0.20% Endocrine 0.10% Eye 1.70% Gastrointestinal 5.70% Genitourinary 2.70% Hemic & Lymphatic 0.30% Maternity 0.00% Musculoskeletal 3.80% Nervous System 2.80% Radiology 0.10% Respiratory 1.00% Skin 6.20% Total 100.00%CMS-1525-P 615

Because surgical volume is associated w ith better quality, and surgical procedures are performed in hospital outpa tient departments, we believe that surgical volume is appropriate for measuring the quality of these eight categor ies of surgical procedures performed in an HOPD. For the CY 2014 pa yment determination, we are proposing that HOPDs would report all-patient volume data with respect to these eight categories between the dates July 1, 2013 and August 15, 2013 with respect to the time period January 1, 2012 through December 31, 2012. In other words, under this proposal, an HOPD would report its CY 2012 a ll-patient volume data for these eight categories of procedures during the 45 day window of July 1, 2013 to August 15, 2013. The table below lists the specific HCPCS codes for each of the 8 procedure categories for which hospitals would be required to report the all-patient vol ume data. Like the other structural measures in the Hospital OQR pr ogram, data on this pr oposed measure would be collected via an online Web-based tool th at will be made available to HOPDs via the QualityNet Web site. We invite public comment on this proposal. In summary, for the CY 2014 payment de termination, in addition to the 23 measures we previously adopted in the CY 2011 OPPS/ASC final w ith comment period, we are proposing to adopt 1 new NHSN HAI m easure, 6 additional new chart-abstracted measures, and 2 new structural measures. W ith respect to the proposed surgical site infection HAI measure, HOPDs would be re quired to report the data to the NHSN beginning with January 1, 2013 to through June 30, 2013 infection events and would beCMS-1525-P 616 required to use the procedures set out by th e NHSN. We are proposing that submission of data on the five proposed diabetes meas ures and the proposed cardiac rehabilitation measure would begin with first quarte r CY 2013 (January 1, 2013 to March 31, 2013) encounters. With respect to the proposed st ructural measures, we are proposing that HOPDs submit data between July 1, 2013 and August 15, 2013 with re spect to a calendar year 2012 reporting time period. We invite public comments on thes e proposals for the CY 2014 payment determination. The proposed complete m easure set for the Hospital OQR Program CY 2014 payment determination, including th e measures we adopted in the CY 2011 OPPS/ASC final rule with comment peri od, is reflected in the table below.

CY 2014 Hospital OQR Program Measure Set Reflecting Measures Previously Adopted and the Proposed Addition of 1 NHSN HAI Measure, 6 Chart-Abstracted Measures, and 2 Structural Measures OP-1: Median Time to Fibrinolysis OP-2: Fibrinolytic Thera py Received Within 30 Minutes OP-3: Median Time to Transfer to Anothe r Facility for Acute Coronary Intervention OP-4: Aspirin at Arrival OP-5: Median Time to ECG OP-6: Timing of Antibiotic Prophylaxis OP-7: Prophylactic Antibiotic Se lection for Surgical Patients OP-8: MRI Lumbar Spine for Low Back Pain OP-9: Mammography Follow-up Rates OP-10: Abdomen CT – Us e of Contrast Material OP-11: Thorax CT – Use of Contrast Material OP-12: The Ability for Providers with HIT to Receive Laboratory Data Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable Data* OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac Low Risk Surgery * OP-14: Simultaneous Use of Brain Comput ed Tomography (CT) and Sinus Computed Tomography (CT)*CMS-1525-P 617 CY 2014 Hospital OQR Program Measure Set Reflecting Measures Previously Adopted and the Proposed Addition of 1 NHSN HAI Measure, 6 Chart-Abstracted Measures, and 2 Structural Measures OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department for Atraumatic Headache* OP-16: Troponin Results for Emergency Department acute myocardial infarction (AMI) patients or chest pain patients (with Probable Cardiac Chest Pain ) Received Within 60 minutes of Arrival ** OP-17: Tracking Clinical Results between Visits** OP-18: Median Time from ED Arrival to ED Departure for Discharged ED Patients** OP-19: Transition Record with Specified Elements Received by Discharged Patients** OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional** Op-21: ED- Median Time to Pain Ma nagement for Long Bone Fracture ** OP-22: ED Patient Left Without Being Seen** OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who Received Head CT Scan Interpretati on Within 45 minutes of Arrival ** OP-24: Surgical Site Infection*** OP-25: Diabetes: Hemoglobin A1c Management *** OP-26: Diabetes Measure Pair: A Lipid mana gement: low density lipoprotein cholesterol (LDL-C) <130, B Lipid management: LDL-C <100 *** OP-27: Diabetes: Blood Pr essure Management *** OP-28: Diabetes: Eye Exam*** OP-29: Diabetes: Urin e Protein Screening *** OP-30: Cardiac Rehabilitation Patient Re ferral From an Outpatient Setting *** OP-31: Safe Surgery Checklist Use***

OP-32: Hospital Outpatient Volume Data on Se lected Outpatient Surgical Procedures*** Procedure Category Corresponding HCPCS Codes Gastrointestinal 40000 through 49999, G0104, G0105,G0121,C9716, C9724, C9725, 0170T Eye 65000 through 68999, 0186, 0124T, 0099T, 0017T, 0016T, 0123T, 0100T, 0176T, 0177T, 0186T, 0190T, 0191T, 0192T, 76510, 0099T Nervous System 61000 through 64999, G0260, 0027T, 0213T, 0214T, 0215T, 0216T, 0217T, 0218T, 0062T Musculoskeletal 20000 through 29999, 0101T, 0102T, 0062T, 0200T, 0201T Skin 10000 through 19999, G0247, 0046T, 0268T, G0127, C9726, C9727 Genitourinary 50000 through 58999, 0193T, 58805CMS-1525-P 618 CY 2014 Hospital OQR Program Measure Set Reflecting Measures Previously Adopted and the Proposed Addition of 1 NHSN HAI Measure, 6 Chart-Abstracted Measures, and 2 Structural Measures Cardiovascular 33000 through 37999 Respiratory 30000 through 32999

* New measure for the CY 2012 payment determination. ** New measure for the CY 2013 payment determination. *** Proposed new measure for the CY 2014 payment determination. 3. Proposed Hospital OQR Program Measures for the CY 2015 Payment Determination a. Proposed Retention of CY 2014 Hospita l OQR Measures for the CY 2015 Payment Determination In general, unless otherwise specified, we retain measures from one payment determination to the next. Accordingly, we are proposing that all of the measures we finalize for the CY 2014 payment determinati on continue to be used for the CY 2015 payment determination. We invite public comment on this proposal. b. Proposed New NHSN HAI Measure for the CY 2015 Payment Determination For the measure set to be used for the CY 2015 payment determination, we are proposing to adopt an additional HAI measur e entitled Influenza Vaccination Coverage among Healthcare Personnel (HCP ) (NQF # 0431). This measure is currently collected by the CDC via the NHSN. Rates of serious illness and death resulting from influenza and its complications are increased in high-risk populations such as persons over 50 years or under four years of age, and persons of any age who have underlying conditions that put them at an increased risk. HCP can acquire influenza from patients and can transmit influenza toCMS-1525-P 619 patients and other HCP. Many HCP provide care for, or are in frequent contact with, patients with influenza or pati ents at high risk for complications of influenza. The involvement of HCP in influenza transm ission has been a long-standing concern. 22,23,24 Vaccination is an effective preventive meas ure against influenza, and can prevent many illnesses, deaths, and losses in productivity. 25 HCP are consider ed a high priority for expanding influenza vaccine use. Achieving and sustaining high influenza vaccination coverage among HCP is intended to help protect HCP and their patients and reduce disease burden and healthcare costs. Resu lts of several studies indicate that higher vaccination coverage among HCP is associated with lower incidence of nosocomial influenza. 26,27,28 Such findings have led some to call for mandatory influenza vaccination of HCP. 29,30,31,32, 33

22 Maltezou, H.C., Drancourt, M.: Nosocomial influen za in children. Journal of Hospital Infection 2003; 55:83-91 23 Hurley, J.C., Flockhart, S.: An influenza outbreak in a regional residential facility. Journal of Infection Prevention 2010; 11:58-61 24 Salgado, C.D., Farr, B.M., Hall, K.K., Hayden, F.G. : Influenza in the acute hospital setting. The Lancet Infectious Diseases 2002; 2:145-155. 25 Wilde, J.A., McMillan, J. A., Serwint, J., Butta, J., O’Riordan, M.A., Steinhoff, M.C.: Effectiveness of influenza vaccine in health care professionals: a rand omized trial. The Journal of the American Medical Association 1999; 281:908-913. 26 Salgado, C.D., Giannetta, E.T., Ha yden, F.G., Farr, B.M.: Preventing in fluenza by improving the vaccine acceptance rate of clinicians. Infection Control and Hospital Epidemiology 2004; 25: 923-928. 27 Potter, J., Stott, D.J., Roberts, M.A., et al.: In fluenza vaccination of health -care workers in long-termcare hospitals reduces the mortality of elderly patients. Journal of Infectious Diseases 1997; 175:1-6. 28 Hayward, A.C., Harling, R., Wetten, S., et al.: Eff ectiveness of an influenza vaccine programme for care home staff to prevent death, morbidity, and health service use among residents: cluster randomised controlled trial. British Medical Journal 2006; 333:1241-1246. 29 Talbot, T.R., Bradley, S.F., Cosgrove, S.E., et al .: SHEA position paper: Influenza vaccination of healthcare workers and vaccine allo cation for healthcare wo rkers during vaccine shortages. Infection Control and Hospital Epidemiology 2005; 26:882-890 30 American College of Physicians (ACP), ACP polic y on influenza vaccination of health care workers. http://www.acponline.org/runni ng_practice/quality_improvement/projects/adult_immuniz ation/flu_hcw.pdf

. 31 Greene, L.R., Cain, T.A., Dolan, S.A. et al. : APIC position paper: in fluenza immunization of healthcare personnel. Association of Professionals in Infection Control (APIC). November 2008. http://www.apic.org/Content/NavigationMenu/Practi ceGuidance/Topics/Influenza/APIC_Position_Paper_ICMS-1525-P 620 Until recently, vaccination coverage among HCP has been well below the national Healthy People 2010 target of 60 percent, 34 but preliminary data suggest 62 percent of HCP reported receiving seasonal influenza vaccine in 2009-2010. 35 Only 37 percent reported receiving the 2009 pandemic A/H1N1 vaccine. 36 HCP refers to all personnel working in h ealthcare settings who have the potential for exposure to patients and/or to infec tious materials, including body substances, contaminated medical supplies and equipment, contaminated environmental surfaces, or contaminated air. 37 HCP may include (but are not lim ited to) physicians, nurses, nursing assistants, therapists, technici ans, emergency medical service personnel, dental personnel, pharmacists, laboratory personnel, autopsy pers onnel, students and trainees, contractual staff not employed by the healthcar e facility, and persons (for example, clerical, dietary, house-keeping, laundry, security, maintenance, billing, and volunteers) not directly involved in patient care but potentially exposed to infec tious agents that can be

nfluenza_11_7_08final_revised.pdfhttp://www.apic.or g/Content/NavigationMenu/PracticeGuidance/Topics /Influenza/APIC_Position_Paper_Influenza_11_7_08final_revised.pdf

. 32 National Patient Safety Foundation (NPSF), Mandator y flu vaccinations for hea lthcare workers. Press Release, November 18, 2009. http://www.npsf.org/pr/p ressrel/2009-11- 18.php

. 33 Infectious Diseases Society of Am erica (IDSA), IDSA poli cy on mandatory immunization of health care workers against seasonal and 2009 H1N1 influenza. Infectious Dis eases Society of America (IDSA). September 30, 2009. http://www.idsociety.org/HCWimmunization/

. 34 Walker, F.J., Singleton, J.A., Lu, P., Wooten, K.G., Strika s, R.A.: Influenza vacci nation of healthcare workers in the United States, 1989-2002. Infection Control and Hospital Epidemiology 2006; 27:257-265. 35 http://www.cdc.gov/mmwr/preview/mmwrhtml/rr55e209a1.htm Influenza Vaccination of Health-Care Personnel Recommendations of the Healthcare Infection Contro l Practices Advisory Committee (HICPAC) and the Advisory Committee on I mmunization Practices 36 Centers for Disease Control and Prevention., Interim results: Influenza A (H1N1) 2009 and Monovalent Seasonal Influenza Vaccination Coverage Among H ealth-Care Personnel—Unite d States August 2009- January 2010. Morbidity and Mortality Weekly Report (MMWR); 59:357-362. Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5912a1.htm 37 Adapted from: Pearson ML., Bridge s CB., Harper SA., : Influenza v accination of health-care personnel: Recommendations of the Healthcare Infection Contro l Practices Advisory Committee (HICPAC) and the Advisory Committee on Immunization Practices (ACI P). Morbidity and Mortality Weekly Report (MMWR) 2006; 55:1-16. Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/rr5502a1.htmCMS-1525-P 621 transmitted to and from HCP and patients. Se ttings in which HCP may work include, but are not limited to, acute care hosp itals, long-term care facilities, skilled nursing facilities, rehabilitation centers, physicians’ offices, ur gent care centers, outpatient clinics, home health agencies, and emergency medical services. Currently, four States have “offer” la ws for influenza vaccination of HCP, meaning that vaccine must be offered to HCP by healthcare facilities; and three States (Alabama, California, and New Hampshire) ha ve “ensure” laws for influenza vaccination of HCP, meaning that vaccination of non-immu ne HCP is mandatory in the absence of a specified exemption or refusal; and, additionall y, numerous hospitals and other healthcare facilities have established policies requiring mandatory influenza vaccination of their

HCP. 38 Currently, no State requires that hospita ls report this measure to NHSN. However, approximately 13 hospitals (including long term acute care and rehabilitation), outpatient hemodialysis centers, long term car e facilities, and ambulatory surgical centers are currently reporting HCP immunization data to NHSN. In September 2009, CDC released the Healthcare Personnel Safety (HPS) Component of NHSN, which complements Patient Safety and Biovigilan ce components available in NHSN. The HPS Component replaced CDC’s National Surveill ance System for Health Care Workers (NaSH) and is comprised of two modules: the Blood/Body Flui d Exposure Module and the Influenza Vaccination and Ma nagement and Exposure Module. 39 Currently, participation in either modul e is voluntary. The current Influenza Vaccination and

38 For additional information regarding healthcare f acilities’ influenza vaccine policies, please see: http://www.immunize. org/honor%2Droll/

. http://www.immunize.org/honor%2Droll/

. 39 Available at: http://www.cdc.gov/nhsn/hps.htmlh ttp://www.cdc.gov/nhsn/hps.html

.CMS-1525-P 622 Management and Exposure Module may soon offe r options for healthcare facilities to submit vaccination summary data. NHSN plans to partner with vendor-based surveillance systems to permit periodic data extractions into NHSN. The modules feature basic, custom, and a dvanced analysis cap abilities available in real-time, which allow individual healthcare facilities to compile and analyze their own data, as well as benchmark these results to aggregate NHSN estimates. The HPS Component can assist participating faciliti es in developing surv eillance and analysis capabilities to permit the timely recogniti on of HCP safety problems and prompt interventions with appropriate measures. Influenza vaccination data submitted to CDC will ultimately capture regional trends on the yearly uptake of the vaccine, prophylaxis and treatment for healthcare personnel, as well as the elements within yearly influenza campaigns that succeed or require improvement . At the State and national levels, the HPS Component will aid in monitoring rates and trends. Due to the significant impact of HCP in fluenza vaccination on patient outcomes, we believe this measure is appropriate fo r measuring the qualityof care in hospital outpatient departments. Healthcare Personne l (HCP) Influenza Vaccination is one of the HAI measures that we proposed to adopt for the FY 2015 Hospital IQR Program in the FY 2012 IPPS/LTCH PPS proposed rule. This measure assesses the percentage of healthcare personnel who have been immunized for influenza during the flu season. The specifications for this measure are available at http://www.cdc.gov/nhsn/PDFs /HSPmanual/HPS_Manual.pdfCMS-1525-P 623 The proposed HCP Influenza Vaccination measure is NQF-endorsed for the hospital setting and applies to the hospital outpatien t setting. Therefore, this measure meets the requirement for measure selection und er section 1833(t)(17)(C )(i) of the Act. We are proposing to adopt the Influe nza Vaccination Coverage among Healthcare Personnel measure that is collected by th e CDC via the NHSN. The NHSN proposed reporting mechanism for this proposed HAI m easure is discussed in greater detail in section XIV.C.2.a. of this proposed rule. Data submission for this NHSN proposed measure would relate to immunizations from Octobe r 1, 2013 through March 31, 2014 for the CY 2015 payment determination. We are proposing that hospital outpatient departments use the NHSN infrastructure and pr otocol to report the measure for Hospital OQR purposes. We invite public comment on our proposal to adopt this HAI measure into the Hospital OQR Program for the CY 2015 payment determination.

Proposed Hospital OQR Program Measure Set for the CY 2015 Payment Determination OP-1: Median Time to Fibrinolysis OP-2: Fibrinolytic Thera py Received Within 30 Minutes OP-3: Median Time to Transfer to Anothe r Facility for Acute Coronary Intervention OP-4: Aspirin at Arrival OP-5: Median Time to ECG OP-6: Timing of Antibiotic Prophylaxis OP-7: Prophylactic Antibiotic Se lection for Surgical Patients OP-8: MRI Lumbar Spine for Low Back Pain OP-9: Mammography Follow-up Rates OP-10: Abdomen CT – Us e of Contrast Material OP-11: Thorax CT – Use of Contrast Material OP-12: The Ability for Providers with HIT to Receive Laboratory Data Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable Data* OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac Low RiskCMS-1525-P 624 Proposed Hospital OQR Program Measure Set for the CY 2015 Payment Determination Surgery * OP-14: Simultaneous Use of Brain Comput ed Tomography (CT) and Sinus Computed Tomography (CT)* OP-15: Use of Brain Computed Tomogra phy (CT) in the Emergency Department for Atraumatic Headache* OP-16: Troponin Results for Emergency Depa rtment acute myocardial infarction (AMI) patients or chest pain patients (with Probable Cardiac Chest Pain ) Received Within 60 minutes of Arrival ** OP-17: Tracking Clinical Results between Visits** OP-18: Median Time from ED Arrival to ED Departure for Disc harged ED Patients** OP-19: Transition Record with Specified Elements Received by Discharged Patients** OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional** OP-21: ED- Median Time to Pain Ma nagement for Long Bone Fracture ** OP-22: ED - Patient Le ft Without Being Seen** OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who Received Head CT Scan Interpretati on Within 45 minutes of Arrival ** OP-24: Surgical Site Infection (via NHSN)*** OP-25: Diabetes: Hemoglobin A1c Management *** OP-26: Diabetes Measure Pair: A Lipid ma nagement: low density lipoprotein cholesterol (LDL-C) <130, B Lipid management: LDL-C <100 *** OP-27: Diabetes: Blood Pr essure Management *** OP-28: Diabetes: Eye Exam*** OP-29: Diabetes: Urin e Protein Screening *** OP-30: Cardiac Rehabilitation Patient Re ferral From an Outpatient Setting *** OP-31: Safe Surgery Checklist Use***

OP-32: Hospital Outpatient Volume Data on Se lected Outpatient Surgical Procedures*** Procedure Category Corresponding HCPCS Codes Gastrointestinal 40000 through 49999, G0104, G0105,G0121,C9716, C9724, C9725, 0170T Eye 65000 through 68999, 0186, 0124T, 0099T, 0017T, 0016T, 0123T, 0100T, 0176T, 0177T, 0186T, 0190T, 0191T, 0192T, 76510, 0099T Nervous System 61000 through 64999, G0260, 0027T, 0213T, 0214T, 0215T, 0216T, 0217T, 0218T, 0062T Musculoskeletal 20000 through 29999, 0101T, 0102T, 0062T, 0200T, 0201TCMS-1525-P 625 Proposed Hospital OQR Program Measure Set for the CY 2015 Payment Determination Skin 10000 through 19999, G0247, 0046T, 0268T, G0127, C9726, C9727 Genitourinary 50000 through 58999, 0193T, 58805
Cardiovascular 33000 through 37999 Respiratory 30000 through 32999

OP-33: Influenza Vaccination Covera ge among Healthcare Personnel (HCP) **** * New measure for the CY 2012 payment determination. ** New measure for the CY 2013 payment determination. *** Proposed new measure for the CY 2014 payment determination. **** Proposed new measure for the CY 2015 payment determination.

D. Possible Quality Measures under Considera tion for Future Inclusion in the Hospital OQR Program The current measure set for Hospital OQR includes measures that assess imaging efficiency patterns, care transitions, and th e use of HIT. We are proposing in this proposed rule to add measures to the CY 2014 and CY 2015 measure sets addressing diabetes care, HAIs, referrals for cardiac re habilitation, and Safe Surgery Checklist use. Thus, the measures that we have previously adopted for the Hospital OQR Program, as well as the proposed measures being proposed in this proposed rule , address infection outcomes and infection control processes. In previous years’ rulemakings, we have provided lists of measures th at are under consideration fo r future adoption into the Hospital OQR measure set. Below is a list of potential measurement areas that we are considering for future Hospital OQR paymen t determinations (beginning with CY 2015) for which we are soliciting public comment. In particular, we seek comment on the inclusion of Patient Experience of Care Meas ures in the Hospital OQR measure set for aCMS-1525-P 626 future payment determination, such as ex isting Consumer Assessment of Healthcare Providers and Systems ( CAHPS) surveys for clinicians/groups and the CAHPS Surgical Care Survey, sponsored and submitted by the American College of Surgeons (ACS) and the Surgical Quality Alliance (SQA). We also intend to align the surgical safety measures across the HOPD and ASC settings and would seek to utilize comparab le data to assess patient safety in these settings. We seek comment on the potential submission of such measures by HOPDs via quality codes submitted on claims in the future. We also seek comment on the inclusion of measures of Anesthesia related Complicat ions in the Hospital OQR measurement set. Measures and Measurement Topics Under Consideration for Future Hospital OQR Program Payment Det erminations Beginning with CY 2015 Measures for future development: Procedure Specific Measures Colonoscopy and other Endoscopy measures Cataract Surgery measures Cancer Care Adjuvant Chemotherapy is Considered or Ad ministered within 4 Months of Surgery to Patients Under Age 80 with AJCC III Colon Cancer. Adjuvant Hormonal Therapy for Patients with Breast Cancer Needle Biopsy to Establish Diagnosis of Cancer Precedes Surgical Excision/Resection. Heart Failure Heart Failure: Angiotensi n-Converting Enzyme (ACE) Inhibitor or Angiotensin Receptor Blocker (ARB) Therapy for Left Ventricular Systolic Dysfunction (LVSD) Heart Failure: Left Ventricula r Ejection Fraction Assessment Heart Failure: Combination Medical Th erapy for Left Ventricular Systolic Dysfunction Heart Failure: Beta-Blocker Therapy fo r Left Ventricular Systolic Dysfunction Heart Failure: Counseling re garding Implantable Cardiove rter-Defibrillator (ICD) Implantation for Patients with Left Ventri cular Systolic Dysfunction on Combination Medical TherapyCMS-1525-P 627

Heart Failure: Patients with Left Vent ricular Systolic Dysfunction on Combination Medical Therapy Heart Failure: Symptom Management Heart Failure: Symptom and Activity Assessment Heart Failure: Patient Education Heart Failure: Overuse of Echocardiography Heart Failure: Post-Discharge Appoi ntment for Heart Failure Patients Surgical Safety Patient Fall Patient Burn Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong Implant Hospital Transfer/Admission Patient Experience-of-Care Consumer Assessment of Healthcare Provi ders and Systems (CAHPS) surveys for clinicians/groups CAHPS Surgical Care Survey Anesthesia Related Complications Death Cardiac Arrest Perioperative Myocardial Infarction Anaphylaxis Hyperthermia Transfusion Reaction Stroke, Cerebral Vascular Accide nt, or Coma following anesthesia Visual Loss Medication Error Unplanned ICU admission Patient intraoperative awareness Unrecognized difficult airway Reintubation Dental Trauma Perioperative aspiration Vascular access complication, including vascular injury or pneumothorax Pneumothorax following attempted vasc ular access or regional anesthesia Infection following epidural or spinal anesthesia Epidural hematoma following spin al or epidural anesthesiaCMS-1525-P 628 High Spinal Postdural puncture headache Major systemic local anesthetic toxicity Peripheral neurologic deficit following regional anesthesia Infection following pe ripheral nerve block Additional Measurement Topics NQF Serious Reportable Events in Healthcare Medication Reconciliation Chemotherapy Post-discharge follow up Post-discharge ED vi sit within 72 hours Breast cancer detection rate

We invite public comment on these meas ures and other topics that we might consider proposing to adopt beginnin g with the Hospital OQR Program CY 2015 payment determination. We also are seeki ng suggestions and rationales to support the adoption of measures and topics for the Ho spital OQR Program which do not appear in the table above. E. Proposed Payment Reduction for Hospitals That Fail to Meet the Hospital OQR Program Requirements for the CY 2012 Payment Update 1. Background Section 1833(t)(17)(A) of the Act, which applies to subsection (d) hospitals (as defined under section 1886(d)(1)(B) of the Act), requires that hos pitals that fail to report data required to be submitted on the measures selected by the Secretary, in the form and manner, and at a time, required by the Secr etary under section 1833(t) (17) of the Act, incur a 2.0 percentage point reduction to thei r OPD fee schedule increa se factor, that is, the annual payment update factor. Section 1833(t )(17)(A)(ii) of the Ac t specifies that anyCMS-1525-P 629 reduction applies only to the payment year i nvolved and will not be taken into account in computing the applicable OPD fee schedule increase factor for a subsequent payment

year. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68769 through 68772), we discussed how the payment reduction for failure to meet the administrative, data collection, and data submission requireme nts of the Hospital OQR Program affected the CY 2009 payment update applicable to OPPS payments for HOPD services furnished by the hospitals defined under section 1886(d)(1 )(B) of the Act to which the program applies. The application of a reduced OPD fee schedule increa se factor results in reduced national unadjusted payment rates that apply to certain outpatient items and services provided by hospitals that are re quired to report outpatient qual ity data and that fail to meet the Hospital OQR Program requirements. All other hospitals paid under the OPPS receive the full OPPS payment update without the reduction. The national unadjusted payment rates for many services paid under the OPPS equal the product of the OPPS c onversion factor and the scal ed relative weight for the APC to which the service is assigned. Th e OPPS conversion factor, which is updated annually by the OPD fee schedule increase factor, is used to calculate the OPPS payment rate for services with the following status indicators (listed in Addendum B to this proposed rule, which is available via the In ternet on the CMS Web site): “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “V,” “U,” or “X.” In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68770), we adopted a policy that payment for all services assigned these status indicators would be subject to the reduc tion of the nationalCMS-1525-P 630 unadjusted payment rates for applicable hospitals , with the exception of services assigned to New Technology APCs with assigned status indicator “S” or “T ,” and brachytherapy sources with assigned status indicator “U,” whic h were paid at charges adjusted to cost in CY 2009. We excluded services assigned to New Technology APCs from the list of services subject to the reduced national unadjusted payment rates because the OPD fee schedule increase factor is not used to update the payment rates for these APCs. In addition, section 1833(t)(16)(C) of the Act, as amended by section 142 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), specifically required that brachythera py sources be paid during CY 2009 on the basis of charges adjusted to cost, rather than under the standard OPPS methodology. Therefore, the reduced conversio n factor also was not applicable to CY 2009 payment for brachytherapy sources b ecause payment would not be based on the OPPS conversion factor and, consequently, the payment rates for these services were not updated by the OPD fee schedule increase factor . However, in accordance with section 1833(t)(16)(C) of the Act, as amended by section 142 of the MIPPA, payment for brachytherapy sources at charges adjusted to cost expired on January 1, 2010. Therefore, in the CY 2010 OPPS/ASC final rule with comment period (74 FR 60641), we finalized our CY 2010 proposal, without modification, to apply the reduction to payment for brachytherapy sources to hospitals that fail to meet the quality data reporting requirements of the Hospital OQR Program fo r brachytherapy services furnished on and after January 1, 2010.CMS-1525-P 631 The OPD fee schedule increase factor, or ma rket basket update, is an input into the OPPS conversion factor, which is used to calculate OPPS payment rates. To implement the requirement to reduce the market basket update for hospitals that fail to meet reporting requirements, we calculate two conversion factors: a full market basket conversion factor (that is, the full conversi on factor), and a reduced market basket conversion factor (that is, the reduced conversion factor). We then calculate a reduction ratio by dividing the reduced conversion factor by the full conversion factor. We refer to this reduction ratio as the “reporting ratio” to indicate that it applies to payment for hospitals that fail to meet their reporting re quirements. Applying th is reporting ratio to the OPPS payment amounts results in reduced national unadjusted payment rates that are mathematically equivalent to the reduced national unadjusted payment rates that would result if we multiplied the scaled OPPS relati ve weights by the reduced conversion factor. To determine the reduced national unadjusted pa yment rates that applied to hospitals that failed to meet their quality reporting requi rements for the CY 2010 OPPS, we multiply the final full national unadjusted paym ent rate in Addendum B to the CY 2010 OPPS/ASC final rule with comment period by the CY 2010 OPPS fina l reporting ratio of 0.980 (74 FR 60642). In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68771 through 68772), we established a policy that the Me dicare beneficiary’s minimum unadjusted copayment and national unadjusted copayment fo r a service to which a reduced national unadjusted payment rate applies would each equal the product of th e reporting ratio and the national unadjusted copayment or the mini mum unadjusted copayment, as applicable,CMS-1525-P 632 for the service. Under this policy, we a pply the reporting ratio to both the minimum unadjusted copayment and national unadjusted c opayment for those hospitals that receive the payment reduction for failure to meet the Hospital OQR Program reporting requirements. This application of the re porting ratio to the national unadjusted and minimum unadjusted copayments is calcula ted according to §419.41 of our regulations, prior to any adjustment for a hospital’s fa ilure to meet the quality reporting standards according to §419.43(h). Beneficiaries and secondary payers thereby share in the reduction of payments to these hospitals. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68772), we established the policy that all other applicab le adjustments to the OPPS national unadjusted payment rates apply in those cases when the OPD fee schedule increase factor is reduced for hospitals that fail to meet th e requirements of the Hospital OQR Program. For example, the following standard adjustme nts apply to the redu ced national unadjusted payment rates: the wage index adjustment; the multiple procedure adjustment; the interrupted procedure adjustment; the rural sole community hospital adjustment; and the adjustment for devices furnished with full or partial credit or wit hout cost. We believe that these adjustments continue to be equally applicable to payments for hospitals that do not meet the Hospital OQR Program requirements. Similarly, outlier payments will continue to be made when the criteria are met. For hospitals that fail to meet the quality data reporting requirements, the hospitals' co sts are compared to the reduced payments for purposes of outlier eligibility and paym ent calculation. This policy conforms to current practice under the IPPS. We con tinued this policy in the CY 2010 OPPS/ASCCMS-1525-P 633 final rule with comment period (74 FR 60642), and in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72099). For a complete discussion of the OPPS outlier calculation and eligibility crit eria, we refer readers to se ction II.G. of this CY 2012 OPPS/ASC proposed rule. 2. Proposed Reporting Ratio Application and Associated Adjustment Policy for CY 2012 We are proposing to continue our estab lished policy of applyi ng the reduction of the OPD fee schedule increase factor through the use of a reporting ratio for those hospitals that fail to meet the Hospital OQR Program requirements for the full CY 2012 annual payment update factor. For the CY 2012 OPPS, the proposed reporting ratio is 0.980, calculated by dividing the proposed re duced conversion factor of $68.052 by the proposed full conversion factor of $69.420. We are proposing to continue to apply the reporting ratio to all services calculated using the OPPS conversion factor. For the CY 2012 OPPS, we are proposing to apply the reporting ratio, when applicable, to all HCPCS codes to which we have assigned stat us indicators “P,” “Q1,” “Q2,” “Q3,” “R,” “S,” “T,” “V,” “U,” and “X” (other than new technology APCs to which we have assigned status indicators “S” and “T”). We are proposing to continue to exclude services paid under New Technology APCs. We are proposing to continue to apply the reporting ratio to the national unadjusted payment rates and the minimum unadjusted and national unadjusted copayment rate s of all applicable services for those hospitals that fail to meet the Hospital OQR Program reporting requirements. We also are proposing to continue to apply all othe r applicable standard adjustments to the OPPS national unadjusted payment rates for hospitals that fail to meet the requirements of the HospitalCMS-1525-P 634 OQR Program. Similarly, we are proposing to continue to calculate OPPS outlier eligibility and outlier payment based on the re duced payment rates for those hospitals that fail to meet the reporting requirements. We invite public comme nts on these proposals. F. Extraordinary Circumstances Extension or Waiver for CY 2012 and Subsequent Years In our experience, there have been tim es when hospitals have been unable to submit required quality data due to extraordinary circumstances that are not within their control. It is our goal to not penalize hospitals for such circumstances and we do not want to unduly increase their burden during these times. Therefore, in the CY 2010 OPPS/ASC final rule with comment peri od (74 FR 60046 through 600647), we adopted a process for hospitals to request and for CMS to grant extensions or waivers with respect to the reporting of required quality data wh en there are extraordinary circumstances beyond the control of the hospital. In th e CY 2011 OPPS/ASC final rule with comment period (75 FR 72103), we retained these proc edures with some modifications. For CY 2012 and subsequent years, we are proposing to retain these procedures with one modification. We are proposing to extend thes e procedures to the submission of medical record documentation for purposes of comply ing with our validation requirement for the Hospital OQR Program. Under this process, in the event of extr aordinary circumstances, such as a natural disaster, not within the control of the hospital, for the hospital to receive consideration for an extension or waiver of the requirement to submit quality data or medical record documentation for one or more quarters, a hos pital would submit to CMS a request formCMS-1525-P 635 that would be made available on the QualityNet Web site. The following information should be noted on the form:

● Hospital CCN;

● Hospital Name;

● CEO and any other designated personne l contact information, including name, email address, telephone number, and mailing ad dress (must include a physical address, a post office box address is not acceptable);

● Hospital’s reason for requesti ng an extension or waiver;

● Evidence of the impact of the extrao rdinary circumstances, including but not limited to photographs, newspaper and other media articles; and

● A date when the hospital would agai n be able to submit Hospital OQR data and/or medical record documentation, a nd a justification for the proposed date. The request form would be signed by th e hospital’s CEO. A request form would be required to be submitted within 45 days of the date that the extraordinary circumstance occurred. Following receipt of such a request, CMS would— (1) Provide a written acknowledgement us ing the contact information provided in the request, to the CEO and any additional designated hospital personnel, notifying them that the hospital’s reque st has been received; (2) Provide a formal response to the CEO and any additional designated hospital personnel using the contact information provi ded in the request notifying them of our decision; andCMS-1525-P 636 (3) Complete our review of any CY 2012 request and communicate our response within 90 days following our receipt of such a request. We note that we might also decide to gran t waivers or extensions to hospitals that have not requested them when we determine th at an extraordinary ci rcumstance, such as an act of nature (for example, hurricane) aff ects an entire region or locale. If we make the determination to grant a waiver or extens ion to hospitals in a region or locale, we would communicate this decision to hospitals and vendor s through routine communication channels, including but not limited to e-mails and notices on the QualityNet Web site. We invite public comment on this propos al to retain our existing process for granting extraordinary circumstances extensions or waivers, and to extend this process to the submission of medical record documentation, for the Hospital OQR Program. G. Proposed Requirements for Reporting of Hospital OQR Data for CY 2013 and Subsequent Years To participate in the Hospital OQR Program, hospitals must meet administrative, data collection and submission, and data va lidation requirements (if applicable). Hospitals that do not meet Hospital OQR Progr am requirements, as we ll as hospitals not participating in the Program and hospitals that withdraw from the Program, will not receive the full OPPS payment rate update . Instead, in accordance with section 1833(t)(17)(A) of the Act, those hospitals will receive a reduction of 2.0 percentage points to their OPD fee schedul e increase factor for the applicable payment year. WeCMS-1525-P 637 established the payment determination requirements for the CY 2012 payment update in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72099 through 72106). With respect to the payment determinations for CY 2013 and subsequent years, we are proposing to implement the requirements listed below. Most of these requirements are the same as the requireme nts we implemented for the CY 2012 payment determination, with some proposed modifications. 1. Administrative Requirements for CY 2013 and Subsequent Years To participate in the Hospital OQR Program, we are proposing that several administrative steps be completed. These steps are the same as those we finalized for the CY 2012 payment determination and w ould require the hospital to:

● Identify a QualityNet security admi nistrator who follows the registration process located on the QualityNet Web site ( http://www.QualityNet.org ) and submits the information to the appropriate CMS-de signated contractor. All CMS-designated contractors would be identified on the QualityNet Web site. The same person may be the QualityNet security administrator for both the Hospital IQR Program and the Hospital OQR Program. Based on our experi ence, we believe that the QualityNet security administrator typically fulfills a variety of tasks related to the hospital’s ability to participate in the Hospital OQR Program, su ch as: creating, approving, editing and/or terminating QualityNet user accounts within the organization; monitoring QualityNet usage to maintainproper security and confidentiality measures; and serving as a point of contac t for information regarding QualityNet and the Hospital OQR Program. However, the main purpose of the QualityNetCMS-1525-P 638 Administrator is to serve as a contact for security purposes. Because of CMS information systems security requirement s, the hospital would be required to maintain a current QualityNet security administrator for as long as the hospital participates in the program. While only a single QualityNet security administrator would be required for program purposes, we suggest to hospitals that it may be beneficial to have more than one QualityNet security administrator for back-up

purposes.

● Register with QualityN et, regardless of the method used for data submission.

● Complete and submit an online particip ation form if this form (or a paper Notice of Participation form) has not been previously complete d, if a hospital has previously withdrawn, or if the hospital acquires a ne w CCN. For Hospital OQR Program purposes, hospitals that share the sa me CCN would be required to complete a single online participation form. At this ti me, the participation form for the Hospital OQR Program is separate from the partic ipation form required for the Hospital IQR Program and completing a form for each progra m is required. Agreeing to participate includes acknowledging that the data submitted to the CMS-designated contractor would be submitted to CMS, shared with one or more other CMS contractors that support the implementation of the Hospital OQR Program, and be publicly reported. We are proposing to retain the procedures and update the deadlines for submitting the participation form which we establishe d in the CY 2011 OPPS/AS C final rule with comment period (75 FR 72100):CMS-1525-P 639 Hospitals with Medicare acceptance dates on or after January 1 of the year prior to the annual payment update affected: For the CY 2013 and subsequent years payment updates, we are proposing that any hospital that has a Medicare acceptance date on or after January 1 of the year prior to the annual payment update affected (for example, 2012 would be the year prior to the affected CY 2013 annual payment update), including a new hospital and hospitals thathave merged, must submit a completed participation form no later than 180 days fr om the date identified as its Medicare acceptance date on the CMS Certification and Survey Provider Enhanced Reporting (CASPER) system. Hospitals typically receive a package notifying them of their new CCN after they receive their Me dicare acceptance date. The Me dicare acceptance date is the earliest date that a hosp ital can receive Medicare payment for the services that it furnishes. Completing the participation form would include supplying the name and address of each hospital campus that shares the same CCN. The use of the Medicare acceptance date as beginning the timeline for Hospital OQR Program participation allows us to m onitor more effectively hospital compliance with the requirement to complete a partic ipation form because a hospital’s Medicare acceptance date is readily available to CM S through its data systems. In addition, providing an extended time period to regi ster for the program would allow newly functioning hospitals sufficient time to get thei r operations fully functional before having to collect and submit quality data. We are aware that Medicare acceptance date s may be back-dated. In that event, we would consider a hospital’s request to allow additional time to elect to participate.CMS-1525-P 640 Hospitals with Medicare acceptance dates before January 1 of the year prior to the affected annual payment update: For the CY 2013 and subsequent years payment update, we are proposing that any hos pital that has a Medicare acceptance date before January 1 of the year prior to the affected annual payment update (for example, 2012 would be the year prior to the affectedCY 2013 annual payment update) that is not currently participating in Hospital OQR and wishes to participate in the Hospital OQR Program must submit a participation form by March 31 of the year pr ior to the affected annual payment update. We are proposing a de adline of March 31, because we believe it would give hospitals sufficient time to decide whether they wish to participate in the Hospital OQR Program, as well as put into place the necessary staff and resources to timely report data for first quarter of the yea r’s services. This requirement would apply to all hospitals whether or not the ho spital billed for payment under the OPPS. For the CY 2013 and subsequent years pa yment updates, we are proposing that any Hospital OQR participating hospital that wants to withdraw may do so at any time from January 1 to November 1 of the year pr ior to the affected annual payment update. A hospital that withdraws during this time period for any annua l payment update would not be able to later sign up to participate for that payment update, would receive a 2.0 percentage point reduction to its OPD fee schedule increase factor for that year, and would be required to submit a ne w participation form in order to participate in any future year of the Hospital OQR Program. We note that once a hospital has submitted a participation form, it is considered to be an active Hospital OQR Program participantCMS-1525-P 641 until such time as the hospital submits a withdrawal form to CMS or is designated as closed in the CMS CASPER system. We invite public comment on th ese proposed Hospital OQR Program administrative requirements for the CY 2013 and subsequent years’ payment determinations. 2. Form, Manner, and Timing of Data Subm ission for CY 2013 and Subsequent Years We are proposing that, to be eligible to receive the full OPD fee schedule increase factor for any payment determination, hospitals must comply with our submission requirements for chart-abstracted data, population and sampling data, claims-based measure data, and structural quality measur e data, including all-patient volume data: a. Proposed CY 2013 and CY 2014 Data Subm ission Requirements for Chart-Abstracted Measure Data Submitted Directly to CMS With respect to the proposed chart-abstra cted measures for which hospitals would submit data directly to CMS, we ar e proposing for CY 2013 and CY 2014 that participating hospitals submit chart-abstract ed data for each applicable quarter by the deadline posted on the QualityNet Web site; th ere must be no lapse in data submission. For the CY 2013 program, we are proposing that the applicable quarters would be as follows: 3 rdquarter CY 2011, 4 th quarter CY 2011, 1 st quarter CY 2012, and 2 ndquarter CY 2012. Hospitals that did not participat e in the CY 2012 Hospital OQR Program, but would like to participate in the CY 2013 Hospital OQR Program, and that have a Medicare acceptance date on the CASPER sy stem before January 1, 2012, would begin data submission with respect to 1 st quarter CY 2012 encounters using the CY 2013CMS-1525-P 642 measure set that was finalized in the CY 2012 OPPS/ASC final rule with comment period. For those hospitals with Medicare acceptance dates on or after January 1, 2012, data submission must begin with the first full quarter following the submission of a completed online participation form. For the CY 2014 program, we are proposi ng that the applicable quarters for previously finalized measures would be as follows: 3 rdquarter CY 2012, 4 th quarter CY 2012, 1 st quarter CY 2013, and 2 ndquarter CY 2013. With re spect to our proposed measures (5 Diabetes measures and 1 Card iac Rehabilitation meas ure), the applicable quarters would be 1 st quarter CY 2013 and 2 ndquarter CY 2013. Hospitals that did not participate in the CY 2013 Hospital OQR Progr am, but would like to participate in the CY 2014 Hospital OQR Program, and that ha ve a Medicare acceptance date on the CASPER system before January 1, 2013, would begin data submission with respect to

1 st

quarter CY 2013 encounters using the CY 2014 measure set that was finalized in the CY 2013 OPPS/ASC final rule with comment pe riod. For those hospitals with Medicare acceptance dates on or after January 1, 2013, datasubmission must begin with the first full quarter following the submission of a completed online participation form. We are proposing that hospitals must submit all required data according to the data submission schedule that is made available on the QualityNet Web site ( https://www.QualityNet.org ). This Web site meets or exceeds all current HIPAA requirements. Submission deadlines would be, in general, approximately 4 months after the last day of each calendar quarter. T hus, for example, the proposed submission deadline for data for services furnis hed during the first quarter of CY 2012CMS-1525-P 643 (January-March, 2012) would be on or ar ound August 1, 2012. The actual submission deadlines would be posted on the http://www.QualityNet.org Web site. We are proposing that hospitals submit chart-abstracted data to the OPPS Clinical Warehouse using either the CMS Abstrac tion and Reporting Tool for Outpatient Department (CART-OPD) measures or the t ool of a third-party vendor that meets the measure specification requirements for data transmission to QualityNet. We are proposing that hospitals must collect Hospital OQR data from outpatient hospital encounters to which the required meas ures apply. In prev ious rulemakings, we have utilized various terms for describi ng the unit of care fo r outpatient hospital reporting, including encounter, epis ode, episode of care, and discharge. We note that for outpatient hospital services, the term encounter is explicitly used and defined in the Medicare Benefit Policy Ma nual (Pub. 100-02), Chapter 6, S ection 20.3, which states “A hospital outpatient ‘encounter’ is a direct personal contact between a patient and a physician, or other person who is authorized by State licensure law and, if applicable, by hospital or CAH staff bylaws, to order or furnish hospital services for diagnosis or treatment of the patient.” For Medicare outpatient services, the terms episode and episode of care also are used. When discus sing inpatient services, the Medicare Benefit Policy Manual specifically refers to discha rges; the term encounter is not used in reference to inpatient servi ces. Thus, for Hospital OQR, we are examining encounters, episodes, or episodes of care and would use these terms in connection with the Hospital OQR Program.CMS-1525-P 644 We will make every effort to ensure that data elements common to both inpatient and outpatient settings are defined consisten tly for purposes of quality reporting (such as “time of arrival”). We are proposing that hospitals must submit quality data using the CCN under which the care was furnished. To be accepted into the OPPS Clinical Warehouse and to meet data submission requirements, data submissions, at a minimum, must be timely, complete, and accurate. Data submissions are considered to be “timel y” when data are successfully accepted into the OPPS Clinical Warehouse on or before the reporting deadline. A “complete” submission would be determined based on whet her the data satisfy the sampling criteria that are published and maintained in the Ho spital OQR Specifications Manual, and must correspond to both the aggregate number of encounters submitted by a hospital and the number of Medicare claims the hospital submits for payment; requirements for utilizing the option of sampling are discussed below. We strongly recommend that hospita ls review OPPS Clinical Warehouse feedback reports and the Hospital OQR Provide r Participation Reports that are accessible through their QualityNet accounts. These report s enable hospitals to verify whether the data they or their vendors submitted were accepted into the OPPS Clinical Warehouse and the date/time that such acceptance occurr ed. We also note that irrespective of whether a hospital submits data to the OPPS Clinical Warehous e itself or uses a vendor to complete the submissions, the hospital is responsible for ensuring that Hospital OQR requirements are met.CMS-1525-P 645 b

. Eligibility to Voluntarily Sample and Proposed Data Submission Exception for Low Patient Volume for CY 2 013 and Subsequent Years If a hospital has a sufficiently large number of eligible encounters with respect to a measure, the hospital has the option to sa mple those encounters and submit data only for these sampled encounters, rather than submitting data on all of the eligible encounters. This sampling scheme, which in cludes the minimum number of encounters that a hospital must have in order to sample , is set out in the Hospital OQR Specifications Manual at least 3 months in advance of each data submission deadline. We note that sampling is not required and hospitals may submit more cases than the minimum set by our sampling scheme and may submit up to all of their cases if they desire to do so. We changed the notification timeframe for this samp ling scheme to at leas t 3 months from at least 4 months to be consistent with th e Hospital OQR Specificat ions Manual release schedule. If a hospital chooses to sample fo r a particular quarter, the hospital must meet the sampling requirements for the required ch art-abstracted measures that quarter. In addition, to reduce the burden on hospitals that treat a low number of patients but otherwise meet the submission requirements for a particular quality measure, we are proposing to continue our policy that hospitals that have five or fewer encounters (both Medicare and non-Medicare) for any measure included in a measure topic in a quarter would not be required to submit patient level data for the entire measure topic for that quarter. Even if hospitals would not be requi red to submit patient level data because they have five or fewer encount ers (both Medicare and non- Medicare) for any measure included in a measure topic in a quarter, we note that they may voluntarily do so.CMS-1525-P 646 c. Proposed Population and Sampling DataRequirements Beginning with the CY 2013 Payment Determination and for Subsequent Years During the past three years of the Hospital OQR Program, the submission of population and sampling data was not requ ired, though hospitals could submit, on a voluntary basis, the aggregate numbers of out patient encounters which are eligible for submission under the Hospital OQR Program and sample size counts. These aggregated numbers of outpatient encounters represent th e number of outpatie nt encounters in the universe of all possible cases eligible for data reporting under the Hospital OQR Program. For the CY 2012 payment update, we proposed, but did not adopt, a policy to require submission of this popul ation and sample size data. We are now proposing that beginning with the CY 2013 payment determination, hospitals must submit on a quarterly basis, aggregate population and sample size counts for Medicare and non-Medicare encounter s for the measure populations for which chart-abstracted data must be submitted. Under this proposal, a hospital would s ubmit on a quarterly basis an aggregate population and sample size count with respect to each measure regard less of whether any patients met the inclusion criteria for the m easure population. For example, if a hospital did not treat any patients who met the incl usion criteria for a specific measure, the hospital would still be required to submit a zero for its quarterly aggregate population and sample count to meet the requirement. Our analysis of third quarter CY 2010 outpatient hospital submitted data shows that for hospitals that submitted abstracted data for encounters, at least 99 percent ofCMS-1525-P 647 these providers voluntarilyreported both population and sampling data. Data completeness was also assessed by comparing reported Medicare cases to submitted claim counts, minimum encount er count thresholds based on reported population sizes, and minimum sample size thresholds based on reported population size s. We found that less than 10 percent of hospita ls differed significantly in their Medicare self-reported encounters versus Medicare claim counts in the Clinical Warehouse, and less than 20 percent did not meet case count or sample size minimum thresholds. Based upon this analysis, we believe that hospitals have had sufficient time to become familiar with Hospital OQR data reporting and have devel oped data systems necessary to support this proposed requirement; in fact recent data suggestthat the vast majority of hospitals have done so. We are proposing that the deadlines fo r the reporting of aggregate numbers of outpatient hospital encounters and sample si ze counts would be the same as those for reporting data for chart–abstracted measures , and these deadlines would be posted on the data submission schedule that would be avai lable on the QualityNet Web site. Hospitals would be permitted to submit this information prior to the deadline; this would allow us to advise hospitals regarding their incomplete submission status as appropriate and give hospitals sufficient time to make appropria te revisions before the data submission deadline. We plan to use the aggregate population and sample size data to assess data submission completeness to the OPPS Clinic al Warehouse and adherence to sampling requirements for Medicare and non-Medicare patients.CMS-1525-P 648 d. Proposed Claims-Based Measure Data Requirements for the CY 2013 and CY 2014 Payment Determinations For the claims-based measures, we are proposing to calculate the measures using the hospital’s Medicare claims data as speci fied in the Hospital OQR Specifications Manual; no additional data submission is re quired for hospitals. For the CY 2013 and CY 2014 payment updates, we would utilize paid Medicare FFS claims for services furnished from January 1, 2010 to December 31, 2010 and January 1, 2011 to December 31, 2011, respectively. e. Proposed Structural Measure Data Requirements for the CY 2013 and CY 2014 Payment Determinations For the CY 2013 payment determination, we are proposing that hospitals would be required to submit data on the structural measures, including OP-17: Tracking Clinical Results between Visits, between July 1, 2012 and August 15, 2012 with respect to the time period of January 1, 2011 to December 31, 2011. As discussed above, we are proposing to adopt two new structural measures for the CY 2014 payment determination, OP-31: Sa fe Surgery Checklist Use, and OP-32: Hospital Outpatient Department Volume for Se lected Outpatient Surgical Procedures. We are proposing that for the CY 2014 pa yment determination, hospitals would be required to submit data on all structural measures between July 1, 2013 and August 15, 2013 with respect to the time period from January 1, 2012 to December 31, 2012.CMS-1525-P 649 f. Proposed Data Submission Deadlines for the Proposed NHSN HAI Surgical Site Infection Measure for the CY 2014 Payment Determination As discussed above, we are proposing to adopt a new HAI measure for the CY 2014 payment determination: surgical site infection. We are proposing to use the data submission and reporting standard proce dures that have been set forth by CDC for NHSN participation in general and for submi ssion of this measure to NHSN. We refer readers to the CDC’s NHSN Web site ( http://www.cdc.gov/nhsn ) for detailed data submission and reporting procedures. We belie ve that these procedures are feasible because they are already widely used by ove r 4,000 hospitals reporting HAI data to the NHSN. Our proposal seeks to reduce hospi tal burden by aligning CMS data submission and reporting procedures with NHSN procedur es currently used by hospitals, including hospitals complying with 28 State HAI re porting requirements. The submission timeframes for the CY 2014 payment determinat ion that we are proposing to use for the proposed HAI measure are shown below. Ho spitals would be required to submit their quarterly data to the NHSN for Hospital OQR purposes according to the schedule shown in the table below (any updates to this sc hedule made by CMS will be posted on the QualityNet Web site).

Proposed Submission Timeframe for the Pr oposed Surgical Site Infection Measure for the CY 2014 Payment Determination CY 2013 Infection Events CDC-NHSN Collection and Quarterly Report Final Submission Deadline for Hospital OQR Program CY 2014 Payment Determination Q1 (Jan 1 to Mar 31, 2013) January 31 st to August 1 st August 1, 2013 Q2 (Apr 1 to Jun 30, 2013) April 30 th to November 1 st November 1, 2013CMS-1525-P 650

Hospitals would have until the Hospital OQR final submission deadline to submit their quarterly data to NHSN. After the final Hospital OQR Program submission deadline has occurred for each CY 2013 quarter to be used toward the CY 2014 payment determination, we will obtain the hospital-specific calculations generated by the NHSN for the Hospital OQR Program. g. Proposed Data Submission Requirements fo r OP-22, ED-Patient Left Without Being Seen, for the CY 2013 and CY 2014 Payment Determinations With respect to OP-22: ED-Patient Le ft Without Being See n, we are proposing that hospitals would be required to subm it data once for each of the CY 2013 and CY 2014 payment determinations via a Web-ba sed tool located on the QualityNet Web site. For the CY 2013 payment determination, hospitals would be required to submit data between July 1, 2012 and August 15, 2012 with respect to the time period from January 1, 2011 to December 31, 2011. Fo r the CY 2014 payment determination, hospitals would be required to submit da ta between July 1, 2013 and August 15, 2013 with respect to the time period of January 1, 2012 to December 31, 2012. We invite public comment on these pr oposals for data collection and submission requirements.CMS-1525-P 651 3. Hospital OQR Program Validation Requireme nts for Chart-Abstracted Measure Data Submitted Directly to CMS: Proposed Da ta Validation Approach for the CY 2013 Payment Determination a. Randomly Selected Hospitals Similar to our approach for the CY 2012 payment determination ( 75 FR 72103 through 72106), we are proposing to validate char t-abstracted data submitted directly to CMS from randomly selected hospitals for the CY 2013 payment determination. To reduce hospital burden and to faci litate our efforts to reallocate resources in the event that we finalize the targeting proposal discussed below, for the CY 2013 payment determination, we are proposing to reduce th e number of randomly selected hospitals from 800 to 450. We have found that hospitals are consistently reporting high accuracy rates for chart-abstract ed measures and that variation among hospitals is relatively low. We believe that this low level of variation between hospitals will allow us to reduce the sample size while not diminishing our ability to make statistical inferences from the sample. Thus, we believe that we can safely reduce sample size and still have sufficient case numbers for purposes of validation. Becau se these 450 hospitals will be selected randomly, every Hospital OQR Program participating hospital will be eligible each year for validation selection. To be eligible for random select ion for validation, a hospital must be coded as open in the OSCAR system at the time of selection and must have submitted at least 10 encounters to the OPPS Clinical Warehouse during the data collection period for the CY 2013 payment dete rmination. We are proposing this 10CMS-1525-P 652 encounter minimum so that we have a suffici ent sample size for calcu lating a sta tistically valid validation score. b. Proposed Use of Targeting Criteria fo r Data Validation Selection for CY 2013 (1) Background In the CY 2011 OPPS/ASC proposed rule ( 75 FR 46381), we stated that we were considering building upon what we proposed as a validation approach for the Hospital OQR Program. We noted that we were cons idering, in addition to selecting a random sample of hospitals for validation purposes, selecting targeted hosp itals based on criteria designed to measure whether the data these hospitals have reporte d raises a concern regarding data accuracy. Because hospitals ha d gained little expe rience with validation under the Hospital OQR at that time, we noted th at we were considering this approach for possible use beginning with the CY 2013 paymen t determination. Examples of targeting criteria suggested for inclusion:

● Abnormal data patterns identified such as consistently high Hospital OQR measure denominator exclusion rates resulti ng in unexpectedly low denominator counts;

● Whether a hospital had pr eviously failed validation;

● Whether a hospital had not been previ ously selected for validation for 2 or more consecutive years;

● Whether a hospital had low submitte d case numbers relative to population sizes; or

● Whether a hospital had any extreme outlier values for submitted data elements.CMS-1525-P 653 We invited comment on whether, in a ddition to random sampling for validation, we should use targeted validation and, if so, what criteria for targe ting we should adopt. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72106) we responded to the comments we received and noted that for the CY 2013 payment determination, Hospital OQR Program data repor ting will have been completed for four payment determinations: CYs 2009, 2010, 2011, and 2012. Further, hospitals will have had the opportunity to learn from the validation process. We also stated that we intended to propose to implement validation targeting cr iteria for CY 2013 and subsequent years in the CY 2012 OPPS/ASC proposed rule. (2) Proposed Targeting Criteria for Da ta Validation Selection for CY 2013 In addition to proposing to randomly selec ting 450 hospitals for validation, we are proposing to select up to an additional 50 hos pitals based upon targeting criteria. A hospital could be selected for validati on based on targeting criteria if it:

● Fails the validation requirement that applies to the CY 2012 payment determination; or

● Has an outlier value for a measure based on the data it submits. We are proposing to define an “outlier value” for pur poses of this targeting as a measure value that appears to deviate markedly from the measure values for other hospitals. For a normally distributed variable, ne arly all values of the vari able lie within 3 standard deviations of the mean; very few values li e past the 3 standard deviation mark. One definition of an outlier is a va lue that exceeds this threshold. 40 In order to target very

40 Ruan, Da, Chen, Guoguing, Kerre, Etienne E., an d Wets, Geert, (2010), Intelligent Data Mining: Techniques and Applications, Studies in Computational Intelligence , Vol. 5, Page 318.CMS-1525-P 654 extreme values, we are proposing to target hospi tals that greatly exceed this threshold; such extreme values strongly suggest that da ta submitted is inaccurate. Specifically, we are proposing to select hospita ls for validation if their m easure value for a measure is greater than 5 standard devi ations from the mean, placing the expected occurrence of such a value outside of this range at 1 in 1,744,278. If more than 50 hospitals meet either of the above targeting criteria, then up to 50 would be selected randomly from this pool of hospitals. c. Encounter Selection For each selected hospital (random or target ed), we are proposing to validate up to 48 randomly selected patient encounters (12 per quarter; 48 per y ear) from the total number of encounters that the hospital su ccessfully submitted to the OPPS Clinical Warehouse. If a selected hospital has subm itted less than 12 encounters in one or more quarters, only those encounters available would be validated. For each selected encounter, a designated CMS c ontractor would request th at the hospital submit the supporting medical record documentation that corresponds to the encounter. We continue to believe that validating a larger number of encounters per hospital for fewer hospitals at the measure level has several benefits. We believe that this approach is suitable for the Hospital OQR Program because it will: produce a more reliable estimate of whether a hospital’s submitt ed data have been abstracted accurately; provide more statistically reliable estimate s of the quality of care delivered in each measured hospital as well as at a national level; and reduce overall burden, for example inCMS-1525-P 655 submitting validation documentation, because hosp itals most likely will not be selected to undergo validation each year, and a smaller number hospitals per year will selected. For all selected hospitals, we will not be selecting cases stratified by measure or topic; our interest is whether the data submitted by hospitals accurately reflects the care delivered and documented in the medical record, not what the accuracy is by measure or whether there are differences by measure or t opic. We are proposing to validate data for April 1, 2011 to March 31, 2012 encounters as this provides a full year of the most recent data possible to use for purposes of comp leting the validation in time to make the CY 2013 payment determinations. d. Validation Score Calculation For the CY 2013 payment determination, we are proposing to use the validation calculation approach finalized for the CY 2012 payment dete rmination with validation being done for each selected hospital. Specifically, we are proposing to conduct a measures level validation by calculating each measure within a submitted record using the independently abstracted data and then co mparing this to the measure reported by the hospital; a percent agreement would then be calculated. We would also compare the measure category for quality measures with continuous units of measurement, such as time, so that for these measures, both the ca tegory and the measure would need to match. To receive the full OPPS OPD fee schedul e increase factor for CY 2013, we are proposing that hospitals must a ttain at least a 75 percent re liability score, based upon the proposed validation process. We are propos ing to use the upper bound of a two-tailed 95 percent confidence interval to estimate the va lidation score. If th e calculated upper limitCMS-1525-P 656 is above the required 75 percent reliability threshol d, we would consider a hospital’s data to be “validated” for payment purposes. Becau se we are more interested in whether the measure has been accurately reported, we would continue to focus on whether the measure data reported by the hospital matches the data documented in the medical record as determined by our reabstraction. We are proposing to calculat e the validation score using the same methodology we finalized for the CY 2012 payment determination (75 FR 72105). We also are proposing to uti lize the same medical record documentation submission procedures that we also fina lized for the CY 2012 payment determination (75 FR 72104) with one modification; we are proposing to shorten the time period given to hospitals to submit medical record doc umentation to the CMS contractor from 45 calendar days to 30 calendar days. This proposed change in submission timeframe will align the process with requirements in 42 CFR 476.78(b)(2), which allow 30 days for chart submission in the context of QIO revi ew. We are proposing this deadline of 30 days also to reduce the time for data valid ation completion to increase timeliness of providing hospitals with feedback on their abstraction accuracy. 4. Additional Data Validation Conditions under Consideration for CY 2014 and Subsequent Years We continue to consider building upo n our validation approach of targeting hospitals to address data quali ty concerns and to ensure th at our payment decisions are made using accurate data. Thus, we are requesting public comment on the following additional targeting criteria to se lect hospitals for validation:CMS-1525-P 657

● Whether a hospital that was open unde r its current CCN and had not been selected for validation in the pr evious 3 years. This is cons istent with validation targeting criteria we recently proposed to impl ement for the CY 2015 Hospital IQR Program (76 FR 25920 through 25921).

● Whether a hospital had submitted a low number of encounters relative to population sizes; or

● Whether a hospital reported significant numbers of “Unable to Determine” data elements. We welcome public comment on these propos als, and are specifically interested in receiving public comments on definitions of what low numbers relative to population sizes and what would constitute significant numbers of “Unable to Determine” data elements. H. Proposed Hospital OQR Reconsiderati on and Appeals Procedures for CY 2013 and Subsequent Years When the Hospital IQR Program was init ially implemented, it did not include a reconsideration process for hospitals. S ubsequently, we received many requests for reconsideration of those payment decisions and, as a result, established a process by which participating hospitals would submit requests for recons ideration. We anticipated similar concerns with th e Hospital OQR Program and, therefore, in the CY 2008 OPPS/ASC final rule with comment period (72 FR 66875), we stated our intent to implement for the Hospital OQR Program a reconsideration proce ss modeled after the reconsideration process we implemented fo r the Hospital IQR Program. In the CY 2009CMS-1525-P 658 OPPS/ASC final rule with co mment period (73 FR 68779), we adopted a reconsideration process that applied to the CY 2010 paymen t decisions. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60654 th rough 60655), we continued this process for the CY 2011 payment update. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72106 through 72108), we continued this process for the CY 2012 payment update with some modification. We are proposing to continue th is process for the CY 2013 payment determination and subsequent years. Unde r this proposed proce ss, a hospital seeking reconsideration must--

● Submit to CMS, via QualityNet, a Reconsideration Request form that will be made available on the QualityNet Web site; this form must be submitted by February 3 of the affected payment year (for example, for the CY 2013 payment determination, the request must be submitted by February 3, 2013) and must contain the following information: oo Hospital CCN. oo Hospital Name. oo CMS-identified reason for not mee ting the requirements of the affected payment year’s Hospital OQR Program as provided in any CMS notification to the hospital. oo Hospital basis for requesting recons ideration. This must identify the hospital’s specific reason(s) for believing it met the affected year’s Hospital OQR Program requirements and should receive the full OPD fee schedule increase factor.CMS-1525-P 659 oo CEO and any additional designated hospital personnel contact information, including name, e-mail address, telephone number, and mailing address (must include physical address, not just a post office box). oo A copy of all materials that the hospital submitted to comply with the requirements of the affected year’s Hospital OQR Program. Such material might include, but may not be limited to, the applicable Notic e of Participation form or completed online registration form, and measure data that the hospital submitted via QualityNet.

● Paper copies of all the medical record documentation that it submitted for the initial validation (if applicable). We ar e proposing that hospitals would submit this documentation to a designated CMS contractor which would have authority to review patient level information. We would post th e address where hospitals are to send this documentation on the QualityNet Web site.

● To the extent that the hospital is re questing reconsideration on the basis that CMS has determined it did not meet an a ffected year’s validation requirement, the hospital must provide a written justification for each appealed data element classified during the validation process as a mismatch. On ly data elements that affect a hospital’s validation score would be elig ible to be reconsidered. We would review the data elements that were labeled as mismatched as well as the written justifications provided by the hospital, and make a decisi on on the reconsideration request. We note that, consistent with our policy for CY 2012 reconsiderations, reconsideration request forms would not n eed to be signed by the hospital’s CEO. Following receipt of a request for reconsideration, CMS would--CMS-1525-P 660

● Provide an e-mail acknowledgement, using the contact information provided in the reconsideration request, to the CEO a nd any additional designated hospital personnel notifying them that the hospital’ s request has been received.

● Provide a formal response to the hospital CEO and any additional designated hospital personnel, using the contact informa tion provided in the reconsideration request, notifying the hospital of the outcome of the reconsideration process. We intend to complete any reconsider ation reviews and communicate the results of these determinations within 90 days fo llowing the deadline for submitting requests for reconsideration. We also propose to apply the same po licies that we fina lized for the CY 2012 payment determination regarding the scope of our review when a hospital requests reconsideration because it failed our valid ation requirement. These policies are as follows:

● If a hospital requests reconsideration on the basis that it disagrees with a determination that one or more data elements were classified as mismatches, we would only consider the hospital’s request if the hospital timely submitted all requested medical record documentation to the CMS contractor each quarter under the validation process.

● If a hospital requests reconsideration on the basis that it disagrees with a determination that one or more medical records it submitted during the quarterly validation process was classified as an i nvalid record selectio n (that is, the CMS contractor determined that one or more me dical records submitted by the hospital did not match what was requested, thus resulting in a zero validation score for the encounter(s)),CMS-1525-P 661 our review would initially be limited to determining whether the medical documentation submitted in response to the designated CM S contractor’s request was the correct documentation. If we determine that th e hospital did submit the correct medical documentation, we would abstract the data el ements and compute a new validation score for the encounter. If we conc lude that the hospital did not submit the correct medical record documentation, we would not furt her consider the hospital’s request.

● If a hospital requests reconsideration on the basis that it disagrees with a determination that it did not submit the reque sted medical record documentation to the CMS contractor within the proposed 30 cal endar day timeframe, our review would initially be limited to determining whether the CMS contractor received the requested medical record documentation within 30 calendar days, and wh ether the hospital received the initial medical record request and reminder notice. If we determine that the CMS contractor timely received paper copi es of the requested medical record documentation, we would abstract data elemen ts from the medical record documentation submitted by the hospital and compute a validation score for the hospital. If we determine that the hospital received two letters requesti ng medical documentation but did not submit the requested documentation wi thin the 30 calendar day period, we would not further consider the hospital’s request. If a hospital is dissatisfied with th e result of a Hospital OQR reconsideration decision, the hospital would be able to file an appeal under 42 CFR Part 405, Subpart R (PRRB appeal).CMS-1525-P 662 We invite public comment on our proposed CY 2013 Hospital OQR Program reconsideration and appeals procedures. I. Electronic Health Records (EHRs) Starting with the FY 2006 IPPS final rule, we have encouraged hospitals to take steps toward the adoption of EHRs (also refe rred to in previous rulemaking documents as electronic medical records) that will allow for reporting of clinical quality data from EHRs to a CMS data repository (70 FR 47420 through 47421). We sought to prepare for future EHR submission of quality measures by sponsoring the creation of electronic specifications for quality measures under c onsideration for the Hospital IQR Program. Through the EHR Incentive Programs we expect that the submission of quality data through EHRs will provide a foundation for esta blishing the capacity of hospitals to send, and for CMS, in the future, to receive, qua lity measures via hospital EHRs for Hospital IQR Program measures. We expect the Ho spital IQR and Hospital OQR Programs to transition to the use of certified EHR tec hnology, for measures that otherwise require information from the clinical record. This would allow us to collect data for measures without the need for manual chart abstrac tion. In the FY 2012 IPPS/LTCH PPS proposed rule (75 FR 25894), we identified FY 2015 as a potential transition date to move to EHR-based submission and phase out manual chart abstraction. We al so anticipate such a transition for hospital outpatient measures, although likely somewhat after the transition for hospital inpatient measures. This is a result of the fact that the clinical quality measures in the EHR Incentive Program currently are primarily aligned with the Hospital IQR Program, rather than the Hospital OQR Pr ogram. Our goals are to align the hospitalCMS-1525-P 663 quality reporting programs, to seek to a void redundant and dup licative reporting of quality measures for hospitals, and to rely largely on EHR submission for measures based on clinical record data. J. 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Eligible Hospitals and CAHs 1. Background Under section 4102(a) of the American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5), eligible hospitals and CAHs may qualify for incentive payments if they successfully demonstrate meaningful use of certified EHR technology. The final rule for the Medicare EHR Incentive Program (75 FR 44314) established the Stage 1 criteria for meaningful use, whic h include, among other requirements, that eligible hospitals and CAHs report clinical qu ality measures (CQMs) to CMS, in addition to meeting other objectives and measures descri bed in the final rule. The final rule also requires that for the 2012 payment year and s ubsequent years, an eligible hospital or CAH using certified EHR tec hnology must submit informatio n on the specified clinical quality measures electronically. However, for the 2011 payment year, eligible hospitals and CAHs are required to submit CQM result s as calculated by certified EHR technology through attestation, rather than submit the information elect ronically. In the final rule (75 FR 44380), we also stated that we antic ipated that we would have completed the necessary steps to have the capacity to r eceive information on CQMs electronically for the 2012 payment year. However, we also acknowledged that if we do not have the capacity to accept electronic report ing of CQMs in 2012, consistent withCMS-1525-P 664 sections 1848(o)(2)(B)(ii ) and 1886(n)(3)(B)(ii) of the Act, we would continue to rely on attestation for reporting CQMs as a requireme nt for demonstrating meaningful use of certified EHR technology for the 2012 payment year. We also stated in the final rule that, with respect to electronic submission of information on clinical quality measures, certified EHR technology will be required to transmit calculated clinical quality measure results under the PQRI 2009 Registry XML specification. We noted that this was th e only such standard that the certified EHR technology would be able to support based on the standards that have been adopted for certified EHR technology (75 FR 44435; see also 45 CFR 170.205(f)). Since the publication of the final rule, we have determined that it is not feasible to receive electronically the info rmation necessary for clinical quality measure reporting based solely on the use of PQRI 2009 Regi stry XML Specification content exchange standard as is required for certified EHR technol ogy. This is because the specification is tailored to the elements required for 2009 PQ RI Registry XML submission, rather than constituting a more generic standard. As a result, we are proposing to modify the requirement that clinical quality measure reporting must be done electronically. Specifically, we are proposing that for th e 2012 payment year and subsequent years, eligible hospitals and CAHs may continue to report clinical quality measure results as calculated by certified EHR technology by a ttestation, as for the 2011 payment year. Alternatively, for the 2012 paymen t year, eligible hospitals a nd CAHs would be able to participate in the proposed FY 2012 Medi care EHR Incentive Program Electronic Reporting Pilot for Eligible Hospitals and C AHs (Electronic Reporting Pilot) which isCMS-1525-P 665 further described below. We are proposing to revise our regulati ons at §495.8(b)(2)(ii) and proposing to add §495.8(b)(2 )(vi) that would reflect these proposals for reporting CQMs through attestation and the Electronic Reporting Pilot. 2. Proposed Electronic Reporting Pilot Section 1886(n)(3)(B)(ii) of the Act provides authority for the Secretary to accept information on CQMs electronically on a pilo t basis. For payment year 2012, we are proposing that eligible hospita ls and CAHs participating in the Medicare EHR Incentive Program may meet the CQM reporting requi rement of the EHR Incentive Program for payment year 2012 by participating in the pr oposed Electronic Reporting Pilot. We are proposing that participation in this Electroni c Reporting Pilot would be voluntary and that eligible hospitals and CAHs may continue to attest to the results of CQMs calculated by certified EHR technology as they did for the 2011 payment year. We would encourage participation in th e proposed Electronic Reporting Pilot in view of our desire to adequa tely pilot electronic submission of CQMs and to move to a system of reporting where eligible hospitals and CAHs can qualify for CQM reporting for both the Hospital IQR and Hospital OQR Programs, and the EHR Incentive Program. We strongly encourage eligible hospitals and CAHs to participate in the proposed Electronic Reporting Pilot as it provides opportu nities to test the interoperability and functionality of the certified EHR technology that they have implemented. We believe that the participation of eligible hospitals and CAHs in the proposed Electronic Reporting Pilot would help advance EHR-based reporti ng in the Hospital IQR and Hospital OQR Programs.CMS-1525-P 666 Eligible hospitals and CAHs w ould need to be registered in order to participate in the proposed Electronic Reporting Pilot. Eligible hospitals and CAHs wishing to participate in the proposed Electronic Reporting Pilot for the CQMs would register by indicating their desire and inte nt to participate in the pr oposed Electronic Reporting Pilot as part of the attestation process for th e Medicare EHR Incentive Program. We are proposing that eligible hospita ls and CAHs that participat e in the proposed Electronic Reporting Pilot and meet its submission requi rements would satisfy the requirements for reporting clinical qual ity measures under the Medicare EHR Incentive Program. Such eligible hospitals and CAHs would therefore not need to attest to the results of clinical quality measures calculated by certified EH R technology. As described below, for the purpose of the proposed Electronic Reporting Pi lot, CMS would calcula te the results of the clinical quality measures for eligible hos pitals and CAHs based on patient level data submitted for Medicare patients. The proposed Electronic Reporting Pilot would require eligible hospitals and CAHs to submit inform ation on the same 15 CQMs that were listed in Table 10 of the final rule (75 FR 44418 through 44420) for the Medicare and Medicaid EHR Incentive Programs and such informati on would be obtained from the certified EHR technology used by the elig ible hospital or CAH. We are proposing that electronic su bmission of the 15 CQMs through this proposed Electronic Reporting Pilot would be sufficient to meet the core objective for reporting CQMs for the Medicare EHR Incentive Program for the 2012 payment year. Since the reporting of CQMs is only one of th e 14 core meaningful use objectives for eligible hospitals and CAHs for the Medicare EHR Incentive Program, an eligibleCMS-1525-P 667 hospital or CAH that chooses to participat e in the proposed Elect ronic Reporting Pilot would still be required to meet and attest to the other core and menu set objectives and their associated measures using the attest ation module for the program on the CMS Web site

. After the eligible hospital or CAH had at tested and CMS has received electronic submission of the CQMs from an eligible hos pital or CAH participating in the proposed Electronic Reporting Pilot, CMS would determ ine whether the eligible hospital or CAH has successfully met all the requirements fo r the Medicare EHR Incentive Program. We expect this determination would be made w ithin 2 months after the end of the payment year and not later than November 30, 2013. Eligible hospitals and CAHs who do not meet the reporting requirements through the Electronic Reporting Pilot may meet such requirement through attestation. We are pr oposing that eligible hospitals and CAHs, alternatively, may attest, but still participat e in the proposed Electronic Reporting Pilot. 3. CQM Reporting under the Propos ed Electronic Reporting Pilot Under §495.6(f)(9), we require Medicare e ligible hospitals and CAHs (which would include those participating in th e proposed Electronic Reporting Pilot) to successfully report hospital clin ical quality measures to CMS in the manner specified by CMS. We are proposing that eligible hospitals and CAHs participating in the proposed Electronic Reporting Pilot must submit CQ M data on all 15 CQMs listed in Table 10 of the final rule (75 FR 44418 through 44420) to CMS, via a secure portal based on data obtained from the eligible hospita l or CAH’s certified EHR technology.CMS-1525-P 668 In the final rule for the Medicare an d Medicaid EHR Incentive Programs, we stated that we will require eligible hospita ls and CAHs to report aggregate-level CQM data (75 FR 44432). However, we note that for the purpose of the proposed Electronic Reporting Pilot, we are proposing that eligible hospitals and CAHs participating in the proposed Electronic Reporting Pilot would s ubmit patient-level CQM data for Medicare patients only. Aside from requiring attestati on to other objectives/measures based on data for all patients, specifically, we are proposing that eligible hospitals and CAHs participating in the proposed Electronic Repor ting Pilot would: (1) submit CQM data on Medicare patients only; (2) submit Medicare patient-level data from which CMS may calculate CQM results using a uniform calculati on process, rather than aggregate results calculated by the eligible hospital or C AH’s certified EHR technology; (3) submit one full Federal fiscal year of CQM data, regardle ss of the eligible hospital or CAH’s year of participation in the Medicare and Medicai d EHR Incentive Programs; and (4) use electronic specifications for transmission as specified by CMS which we expect would be Level 1 QRDA. As noted previously, for the proposed Electronic Reporting Pilot, CQM data on which the eligible hospital or CAH’s submissi on is based must be obtained from certified EHR technology. However, the functionality of reporting these CQMs to CMS will not rely on the certification pro cess. Eligible hospitals and CAHs participating in the proposed Electronic Reporting Pilot would report CQMs based on a pilot measurement period of one full Federal fiscal year (October 1, 2011 through September 30, 2012), regardless of whether the eligible hospital or CAH is in its first year of participation inCMS-1525-P 669 the Medicare and Medicaid EHR Incentive Programs. The period for submitting information on CQMs under the proposed Electronic Reporting Pilot would be October 1, 2012 through November 30, 2012, which is the 60 days following the close of the measurement period. The CQM reporting format would be as specified by CMS, which we expect would be Quality Data Re porting Architecture (QRDA) Level 1. We would offer a test period beginning July 1, 2012, which would allow eligible hospitals, CAHs, or their designee to submit CQM repor ts to CMS with the requirements that would be used in the proposed Electronic Repor ting Pilot. The test period would remain open. Additional details incl uding educational materials about participation in the proposed Electronic Reporting Pilot would be provided on the QualityNet Web site at http://www.qualitynet.org

. We invite public comment on the propos ed Electronic Reporting Pilot discussed above. K. Proposed ASC Quality Reporting Program 1. Background Section 109(b) of the MIEA TRHCA ame nded section 1833(i) of the Act by redesignating clause (iv) as clau se (v) and adding new clause (iv) to paragraph (2)(D) and by adding new paragraph (7). Section 1833(i)(2 )(D)(iv) of the Act authorizes, but does not require, the Secretary to implement the revised ASC payment system “in a manner so as to provide for a reducti on in any annual update for fa ilure to report on quality measures in accordance with paragraph (7).” Section 1833(i)(7)(A) of the Act states that the Secretary may provide that any ASC thatdoes not submit quality measures to theCMS-1525-P 670 Secretary in accordance with pa ragraph (7) will incur a 2.0 percentage point reduction to any annual increase provided under the revised ASC payment system for such year. It also specifies that a reduction for one year cannot be ta ken into account in computing any annual increase factor for a subsequent year. Section 1833(i)(7)(B) of the Act provides that, “[e]xcept as the Secretary may otherwise provide,” the hospita l outpatient quality data provisions of subparagraphs (B) through (E) of section 1833(t)(17) of the Act shall apply to ASCs in a similar manner to the manner in which they apply under these paragraphs to hospita ls under the Hospital OQR Program and any reference to a hospital, outpatient setting, or outpatient hospital services is deemed a reference to an ASC, th e setting of an ASC, or services of an ASC, respectively. Section 1833(t)( 17)(B) of the Act requires that hospitals submit quality data in a form and manner, and at a ti me, that the Secretary specifies. Section 1833(t)(17)(C)(i) of the Act requires the Secretary to develop measures appropriate for the measurement of the qua lity of care (including medication errors) furnished by hospitals in outpatient settings, that these measures reflect consensus among affected parties and, to the ex tent feasible and practicable, that these measures include measures set forth by one or more nationa l consensus building entities. Section 1833(t)(17)(C)(ii) of the Act allo ws the Secretary to select m easures that are the same as (or a subset of) the measures for which data are required to be submitted under the Hospital IQR Program. Section 1833(t)(17 )(D) of the Act give s the Secretary the authority to replace measures or indicators as appropriate, su ch as where all hospitals are effectively in compliance or the measures or indicators have been subsequently shownCMS-1525-P 671 not to represent the best clinical practice. Section 1833(t)(17)(E) of the Act requires the Secretary to establish procedures for making data submitted under the Hospital OQR Program available to the public. Such pro cedures include providi ng hospitals with the opportunity to review their data before these data are released to the public. For a more detailed discussion of the provisions in §1833(t)(17) of the Act, please see section XIV.A.3.b. of this proposed rule. In the CY 2008 OPPS/ASC final rule with comment period (72 FR 66875), the CY 2009 OPPS/ASC final rule with co mment period (73 FR 68780), the CY 2010 OPPS/ASC final rule with comment peri od (74 FR 60656), and the CY 2011 OPPS/ASC final rule with comment period (75 FR 72109) , we did not implement a quality data reporting program for ASCs. We determined th at it would be more appropriate to allow ASCs to acquire some experience with the revised ASC payment system, which was implemented for CY 2008, before implemen ting new requirements, such as public reporting of quality measures. However, in th ese rules, we indicated that we intended to implement the provisions of section 109(b) of the MIEA-TRHCA in the future. In preparation for proposing an ASC qua lity reporting program, in the CY 2011 OPPS/ASC proposed rule, we solicited public comment on the following measures under consideration for ASC quality da ta reporting: (1) Patient Fall in the ASC; (2) Patient Burn; (3) Hospital Transfer/Admission; (4 ) Wrong Site, Side, Patient, Procedure, Implant; (5) Prophylactic IV Antibiotic Timing; (6) Appropriate Surgical Site Hair Removal; (7) Surgical Site Infection (SS I); (8) Medication Administration VarianceCMS-1525-P 672 (MAV); (9) Medication Reconcilia tion; and (10) VTE Measures: Outcome/Assessment/Prophylaxis (75 FR 46383). In addition to preparing to propose imp lementation of an ASC quality reporting program, the Department developed a plan to implement a value-based purchasing (VBP) program for payments under the Medicare progr am under title XVIII of the Act for ASCs as required by section 3006(f) of the Afford able Care Act, as added by section 10301(a) of the Affordable Care Act. We also have recently submitted a Report to Congress, as required by section 3006(f)(4) of the Affordable Care Act, entitled “Medicare Ambulatory Surgical Center Value-Based Purc hasing Implementation Plan” that contains this plan. This report is found on our Web site at: http://www.cms.gov/ASCPaymen t/downloads/C_ASC_RTC%202011.pdf . Currently, we do not have express statutory authority to implement an ASC VBP Program. Should there be legislation to authorize CMS to implement an ASC VBP program, we will develop the program and propose it through rulemaking. In this proposed rule, we are proposing to implement the ASC Quality Reporting Program beginning with the CY 2014 payment determination, with data collection beginning in CY 2012 for most of the measur es to be used for the CY 2014 payment determination. 2. ASC Quality Reporting Program Measure Selection a. Proposed Timetable for Selecting ASC Quality Measures We are proposing to adopt measures for three CY payment determinations for the ASC Quality Reporting Program in this rulemaki ng. Therefore, in this proposed rule, weCMS-1525-P 673 are proposing to adopt measures for the CYs 2014, 2015, and 2016 payment determinations. To the extent that we fina lize some or all of the measures for future payment determinations, we would not be pr ecluded from proposing to adopt additional measures or changing the list of measures for future payment determinations through annual rulemaking cycles so that we may address changing program needs arising from new legislation or from changes in HHS and CM S priorities. Under th is approach, in the CY 2013 or CY 2014 rulemaking cycle, we coul d propose any additions or revisions to the measures we adopted in the CY 2012 rulemaking cycle for the CY 2014 payment determination or for future payment determinatio ns. This is consistent with our approach to proposing measures for multiple payment determinations for the Hospital IQR and Hospital OQR Programs. We believe this pr oposed process will assist ASCs in planning, meeting future reporting requirements, and implementing quality improvement efforts. We also would have more time to devel op, align, and implement the infrastructure necessary to collect data on the measures and make payment determinations. This flexibility would enable us to adapt the program to support changes in HHS and CMS priorities and any new legislative requirem ents. We invite public comments on this proposal. b. Considerations in the Selection of Measures for the ASC Quality Reporting Program Section 1833(i)(7)(B) of the Act states th at §1833(t)(17)(C) of the Act shall apply with respect to ASC services in a similar ma nner in which they apply to hospitals for the Hospital OQR Program, except as the S ecretary may otherwise provide. The requirements at 1833(t)(17)(C)(i) of the Act state that measures developed shall “beCMS-1525-P 674 appropriate for the measurement of the qua lity of care (including medication errors) furnished by hospitals in outpatient settings and that reflect consensus among affected parties and, to the extent feas ible and practicable, shall include measures set forth by one or more national consen sus building entities.” In selecting proposed measures for the ASC Quality Reporting Program and other quality reporting programs, we have focused on measures that have a high impact on and support HHS and CMS priorities for improve d health care outcomes, quality, safety, efficiency and satisfaction for patients. Our goal for the future is to expand any measure set adopted for ASC quality reporting to address these priorities more fully and to align ASC quality measure requirements with those of other reporting programs as appropriate, including the Hospital OQR Program, the Hosp ital IQR Program, the Physician Quality Reporting System, and reporting requiremen ts implemented under the HITECH Act so that the burden for reporting will be reduced. In general, we prefer to adopt measures that have been endorsed by the NQF b ecause it is a national multi-stakeholder organization with a well-documented and rigor ous approach to consensus development. However, as we have noted in previous rulemaking for the Hospital OQR Program (75 FR 72065), the requirement that measures reflect consensus among affected parties can be achieved in other wa ys, including through the measure development process, through broad acceptance and use of the measure(s), and through public comment. In developing this and other quality re porting programs, as well as the Hospital Inpatient VBP Program, we applied the followi ng principles for the development and useCMS-1525-P 675 of measures. We invite public comment on th ese principles in the ASC quality reporting

context.

● Pay-for-reporting, public reporting, and value-based purchasing programs should rely on a mix of standa rds, process, outcomes, and patient experience of care measures, including measures of care transitions and changes in patient functional status. Across all programs, we seek to move as qui ckly as possible to the use of primarily outcome and patient experience measures. To the extent practicable and appropriate, outcome and patient experience measures should be adjusted for risk or other appropriate patient population or provider/supplier characteristics.

● To the extent possible and recognizing differences in payment system maturity and statutory authorities, meas ures should be aligned acro ss public reporting and payment systems under Medicare and Medicaid. The meas ure sets should evolve so that they include a focused core set of measures appropriate to the spec ific provider/supplier category that reflects the level of care a nd the most important areas of service and measures for that provider/supplier.

● The collection of information s hould minimize the burden on providers/ suppliers to the extent possible. To this end, we will continuously seek to align our measures with the adoption of meaningful use standards for HIT, so that data can be submitted and calculated via certifie d EHR technology with minimal burden.

● To the extent practicable and feasible , and within the scope of our statutory authorities for various quality reporting a nd value-based purchasi ng programs, measures used by CMS should be endorsed by a natio nal, multi-stakeholder organization.CMS-1525-P 676 Measures should be aligned with best practic es among other payers and the needs of the end users of the measures. We believe that ASC facilities are similar, insofar as the delivery of surgical and related nonsurgical services, to HOPDs. Sim ilar standards and guide lines can be applied between hospital outpatient de partments and ASCs with re spect to surgical care improvement, given that many of the same su rgical procedures are provided in both settings. Measure harmonization assures that comparable care in different settings can be evaluated in similar ways, which further assures that quality measurement can focus more on the needs of a patient with a particular cond ition rather than on th e specific program or policy attributes of the setting in which the ca re is provided. In general, our goal is to adopt harmonized measures that assess the quality of care given across settings and providers/suppliers and to us e the same measure specificatio ns based on clinical evidence and guidelines for the care being assessed rega rdless of provider/supplie r type or setting. This harmonization goal is also supporte d by a commenter to the CY 2011 OPPS/ASC proposed rule, who recommended CMS align AS C quality measures with State and other Federal requirements (75 FR 72109). Our CY 2014 measure proposals for ASCs align closely with those discussed in the Report to Congress entitled “Medicare Am bulatory Surgical Center Value-Based Purchasing Implementation Plan” and with thos e proposed for future consideration in the CY 2011 OPPS/ASC proposed rule (75 FR 46383). Furthermore, the measures that we are proposing for ASCs fall in to the parameter of our stated framework for the ASC Quality Reporting Program, discussed above . The initial measure set that we areCMS-1525-P 677 proposing for the CY 2014 payment determin ation addresses outcome measures and infection control process measures. Six of the eight initial m easures that we are proposing for the CY 2014 payment determination are recommended by the ASC Quality Collaborative (ASC QC) and are NQF-endorse d. The seventh measure that we are proposing is appropriate for measuring ambul atory surgical care, is NQF-endorsed, is currently in use in the Physician Quality Re porting System, and is similar to a measure that is being utilized in th e Hospital OQR program, and theref ore aligns across settings in which outpatient surgery is performed. We are proposing collecting these seven measures via “quality data codes” to be placed on Part B claims submitted by ASCs for Medicare fee-for-service patie nts beginning January 1, 2012. The eighth measure we are proposing for the ASC Quality CY 2014 paymen t determination is an outcome measure of Surgical Site Infection (SSI) to be submitted in 2013 via the CDC’s National Healthcare Safety Network (NHSN). Simila rly, hospital inpatient departments will begin reporting this measure to the CDC under th e Hospital IQR Program in 2012, and we are also currently proposing in this rule that hospital outpatient departments begin reporting this measure to the CDC under the Hospital OQR Program in 2013. Thus, this measure would be aligned across quality reporting programs for facilities performing surgery. 3. Proposed ASC Quality Measures for the CY 2014 Payment Determination a. Proposed Claims-Based Measures Requiring Submission of Quality Data Codes (QDCs) beginning January 1, 2012 We are proposing to adopt seven NQF-e ndorsed claims-based measures, six of which were developed by the ASC QC. The ASC QC is a cooperative effort ofCMS-1525-P 678 organizations and companies formed in 2006 with a common interestin ensuring that ASC quality data is measured and reported in a meaningful way. Stakeholders in the ASC QC include ASC corporations, ASC a ssociations, professional societies and accrediting bodies that focus on ASC quality and safety. The ASC QC initiated a process of standardizing ASC quality measure de velopment through eval uation of existing nationally endorsed quality measures to determin e which could be directly applied to the outpatient surgery facility setting. Th e ASC QC in its ASC Quality Measure Implementation Guide version 1.4 states that“it focused on outcomes and processes that ASC facilities could influence or impact, outcomes that ASC facilities would be aware of given their limited contact with the patient, and outcomes that would be understandable and important to key stakeholders in ASC car e, including patients, providers and payers.” The ASC QC developed and pilot-tested fi ve facility-level measures (Patient Burn; Patient Fall in th e ASC; Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong Implant; Hospital Transf er/Admission, and Prophyl actic IV Antibiotic Timing) for feasibility and usability. On November 15, 2007, these five measures were endorsed by the NQF. On September 25, 2008, a sixth ASC QC-developed facility-level measure, “Appropriate Surgical Site Hair Removal” was NQF-endorsed as “Ambulatory Surgery Patients with Appropriate Method of Hair Removal.” Of the six ASC QC measures, the Prophylactic IV Antibiotic Ti ming and Ambulatory Surgery Patients with Appropriate Method of Hair Removal measures are infection control process measures, and the rest are outcome measures. All si x of these measures were listed as underCMS-1525-P 679 consideration in the CY 2011 OPPS/ASC proposed rule (75 FR 46383). We are proposing these six measures for use in the CY 2014 payment determination. The seventh claims-based measure we are proposing for the CY 2014 payment determination is Selection of Prophylactic Antibiotic: First OR Second Generation Cephalosporin. This measure was develope d by the American Medical Association’s (AMA’s) Physician Consortium for Performa nce Improvement, a national, diverse, physician-led group that identifi es, develops, and promotes implementation of evidencebased clinical performance measures that re flect best practices. This measure is NQF-endorsed. It is an infection control pro cess measure and is currently adopted in the Hospital IQR Program and Physician Quality Reporting System (PQRS). We are proposing to collect all seven measures using the claims-based quality data codes (QDCs) data collection mechanism. We are proposing to require ASCs to report on ASC claims a quality data code (QDC ) to be used for reporting quality data. We are proposing that an ASC would need to add a QDC to any claim involving a proposed claims-based quality measure. CM S is in the process of developing QDCs for each proposed claims-based quality measure. The QDC will be a CPT Category II code or a HCPCS Level II G-code if an appropr iate CPT code is not available. More information on the QDCs that will be associated with the proposed quality measures will be provided in the CY 2012 OPPS/ASC final rule with comment period. Additionally, CMS is proposing to create a new ASC paym ent indicator “M5” (Quality measurement code used for reporting purposes only; no payment made) for assignment to the QDC to clarify that no payment is associated with the QDC for that claim. If one or more of theseCMS-1525-P 680 measures are finalized as proposed, an ASC would need to begin submitting these QDCs on any Medicare Part B claims pertaini ng to the measures on January 1, 2012. For the first six measures listed, the AS C QC measures specifications can be found at http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd f . 41 For the seventh measure, the specificati ons can be found on the PQRS Web site at: http://www.cms.gov/apps/ama/license.asp ?file=/pqrs/downloads/2011_PhysQualRptg_M easureSpecificationsManual_033111.pdf

. These seven proposed measures are di scussed in more detail below: (1) Patient Burns (NQF #0263) The ASC Quality Measures: Implementati on Guide Version 1.4 states that every patient receiving care in an ASC setting has th e potential to experi ence a burn during an episode of care, given the multitude of factors that could pose risks for patient burns in the surgical and procedural se ttings. The Guide cited a rece nt publication from the ECRI Institute that relates an incr eased risk of burns associated with newer electrosurgical devices due to their application of higher electrical current for l onger time intervals. Other common sources of burns in a surgic al setting include chemical and thermal sources, and radiation, scalds, and fires. Clin ical practice guidelines for reducing the risk of burns have been established by the Ameri can Society of Anesthesiologists (ASA) and Association of Operating Room Nurses (AORN). This NQF-endorsed measure assesses the percentage of ASC admissions experiencing a burn prior to discharge. The NQF-endorsed specifications for ASC QC

41 ASC Quality Measures: Implementation Guide Versio n 1.4, ASC Quality Collaboration, December 2010.CMS-1525-P 681 measure can be found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd
f . The ASC QC in their ASC Quality M easure Implementation Guide version 1.4 defines a “burn” for purposes of this measure as “[u]ninte nded tissue injury caused by any of the six recognized m echanisms: scalds, contact, fi re, chemical, electrical or radiation (e.g., warming devices , prep solutions, and electros urgical unit or laser).” We believe that this measure would allow stakehol ders to develop a bett er understanding of the incidence of these events and furt her refine means to ensure prevention. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe thatthis measure is appropriate to measure quality in ASCs since they serve surgical pa tients who may face the risk of burns during ambulatory surgical procedures. Furthermore, we believe that this measure meets the consensus requirement and the requirement th at it be set forth by a national consensus building entity because it was developed by the ASC QC and is endorsed by the NQF. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASC services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes allCMS-1525-P 682 ASC admissions, our proposal to use inform ation submitted on claims to calculate these measures requires that we restrict the measure population to the population for which CMS receives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF has indicated in recent exchanges that our proposal to use Medicare Part B claims submitted by ASCs to calculate the measure consistently with the measure specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are pa rt of the broader population to wh ich the measure applies. If finalized, ASCs would need to place QDCs rele vant to this measure on Medicare Part B claims beginning January 1, 2012 in order to report this measure for purposes of the CY 2014 payment determination. (2) Patient Fall (NQF #0266) Falls, particularly in the elderly, can cause injury and loss of functional status, and falls in healthcare settings can be prevente d through assessment of risk, care planning, and patient monitoring. Health care settings are being calle d upon to report patient falls and to take steps to reduce the risk of falls . The ASC QC indicates in their ASC quality measure implementation guide the use of anxiol ytics, sedatives, and anesthetic agents may put patients undergoing outpatient surgery at increased risk for falls. Guidelines and best practices for the prevention of falls, and management of patients after falls have been made available by the Agency for Healthcare Research and Quality ( http://www.ahrq.gov/qual/transform.htm ), and the National Center for Patient Safety ( http://www.patientsafety.gov ).CMS-1525-P 683 This NQF-endorsed measure assesses the percentage of ASC admissions experiencing a fall in the ASC. The NQF -endorsed specifications for this ASC QC measure can be found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd
f

. The ASC QC in their ASC Quality M easure Implementation Guide version 1.4 defines a “fall” as “a sudden, uncontrolled, un intentional, downward displacement of the body to the ground or other object, excluding fa lls resulting from violent blows or other purposeful actions”, which is consistent w ith the definition set forth by the National Center for Patient Safety. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe thatthis measure is appropriate to measure quality in ASCs because it was specifically de veloped to measure quality of surgical care furnished by ASCs, as measured by patient fa lls. Furthermore, we believe that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building en tity because it was developed by the ASC QC and is NQF-endorsed. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASCCMS-1525-P 684 services furnished for Medicare fee-fo r-service beneficiaries from January 1, 2012 through December 31, 2012. While the NQF-endor sed specification for this measure includes all ASC admissions, our proposal requires that we restrict the measure population to the population for which CMS re ceives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF ha s indicated in recent exchanges that our proposal to use Medi care Part B claims submitted by ASCs to calculate the measure consistently with th e measure specificati on is an appropriate application of the NQF-endorsed measure to a su bset of patients that are part of the broader population to which the measure applie s. If finalized, ASCs would need to place QDCs relevant to this measure on Medicare Part B claims beginni ng January 1, 2012 in order to report this measure for purpo ses of the CY 2014 payment determination. (3) Wrong Site, Wrong Side, Wrong Pa tient, Wrong Procedure, Wrong Implant (NQF #0267) Surgeries and procedures performed on th e wrong site/side, and wrong patient can result in significant impact on patients, in cluding complications, se rious disability or death. While the prevalence of such serious errors may be rare, such events are considered serious reportable events, and ar e included in the NQF’s Serious Reportable Events in Healthcare 2006 Update. 42 The Joint Commission (a not-for-profit organization that accredits and certifies heal th care organizations and programs in the US) has issued a

42 http://www.qualityforum.org/Publications/2007/03/S erious_Reportable_Events_in_Healthcare%E2%80%9 32006_Update.aspxCMS-1525-P 685 Universal Protocol to prevent such serious surgical errors. 43 The proposed NQF-endorsed measure assesses the percentage of ASC admissions experiencing a wrong site, wrong side, wrong patient, wrong proce dure, or wrong implant. The ASC QC in their ASC Quality Measures: Implementation Guide Version 1.4 defines “wrong” as “not in accordance with intended site, side, patient, procedure or implant.” The NQF-endorsed specifications for this ASC QC measure can be found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd f. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe thatthis measure is appropriate to measure quality in ASCs because the measure assesses the quality of surgical care provided in ASCs as measured by the percenta ge of surgical errors. Furthermore, we believe that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building en tity because it was developed by the ASC QC and is endorsed by the NQF. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASC

43 Joint Commission. Universal Protocol for Preventing Wrong Site, Wrong Procedure, Wrong Person Surgery. Available at http://www.jointcommission. org/standards_informati on/up.aspx. Last accessed December 14 , 2010.CMS-1525-P 686 services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes all ASC admissions, our proposal to use inform ation submitted on claims to calculate these measures requires that we restrict the measure population to the population for which CMS receives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF has indicated in recent exchanges that our proposal to use Medicare Part B claims submitted by ASCs to calculate the measure consistently with the measure specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are pa rt of the broader population to wh ich the measure applies. If finalized, ASCs would need to place QDCs rele vant to this measure on Medicare Part B claims beginning January 1, 2012 in order to report this measure for purposes of the CY 2014 payment determination. (4) Hospital Transfer/Admission (NQF #0265) The transfer or admission of a surgical patient from an outpatient setting to an acute care setting can be an indication of a complication, serious medical error, or other unplanned negative patient outcome. While acute intervention may be necessary in these circumstances, a high rate of such incidents may indicate suboptimal practices or patient selection criteria. The proposed NQF-endor sed measure assesses the rate of ASC admissions requiring a hospital transfer or hospital admission upon discharge from the ASC. The ASC QC defines “hospital transf er/admission” as “any transfer/admission from an ASC directly to an acute care hos pital, including hospital emergency room.”CMS-1525-P 687 The NQF-endorsed specifications for th is ASC QC measure can be found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd
f

. The ASC QC believes that this “measure would allow ASCs to assess their guidelines for procedures performed in the facility and patient selection if tr ansfers/admissions are determined to be at a level higher than exp ected. If commonalities are found in patients who are transferred or admitted, guidelines may require revision.” Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe this measure is appropriate to measure quality in ASCs because it assesses outpatient surgical care quality in the form of the rate of surgical outpatients needing acute care interven tions. Furthermore, we believe that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building en tity because it was developed by the ASC QC and is endorsed by the NQF. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASC services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes all ASC admissions, our proposal to use inform ation submitted on claims to calculate theseCMS-1525-P 688 measures requires that we restrict the measure population to the population for which CMS receives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF has indicated that our proposal to use Medicare Part B claims submitted by ASCs to calculate th e measure consistently with the measure specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are part of the br oader population to which the m easure applies. If finalized, ASCs would need to place QDCs relevant to this measure on Medi care Part B claims beginning January 1, 2012 in order to report this measure for purposes of the CY 2014 payment determination. (5) Prophylactic Intravenous (IV ) Antibiotic Timing (NQF #0264) Timely preoperative administration of in travenous antibiotics to surgical patients is an effective practice in reducing the risk of developing a surgical site infection, which in turn is associated with reduced health care burden and cost, and better patient

outcomes. 44 45 46 The measurement of timely antibiotic administration for surgical patients is occurring in the Hospital IQ R Program, Hospital OQR Program and the Physician Quality Reporting System. The NQF-endorsed ASC QC measure assesses the rate of ASC patients who received IV antibiotics ordered for surgical site infection prophylaxis on time. The NQF-endorsed specific ations for this ASC QC measure can be

44 Classen, D. et al.: The timing of prophylactic administration of antibiotics and the risk of surgical wound infection. NEJM. 1992;326(5):281-286. 45 Silver, A. et al.: Timeliness and use of antibiotic pr ophylaxis in selected inpatient surgical procedures. The Antibiotic Prophylaxis Study Group. Am J Surg. 1996;171(6):548-552. 46 Dounis, E., Tsourvakas, S., Kalivas, L., and Giam acellou, H.: Effect of time interval on tissue concentrations of cephalosporins after tourniquet infl ation. Highest levels achieved by administration 20 minutes before inflation. Acta Orthop Scand. 1995;66(2):158-60.CMS-1525-P 689 found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd f. The ASC QC measure implementation guide defines “antibiotic administered on time” as “[a]ntibiotic infusion ... initiated within one hour prio r to the time of the initial surgical incision or the beginning of the procedure (e.g., introduction of endoscope, insertion of needle, inflati on of tourniquet) or two hours prior if vancomycin or fluoroquinolones are administered.” The meas ure also defines “prophylactic antibiotic” as “an antibiotic prescribed with the intent of reducing the probability of an infection related to an invasive proce dure. For purposes of this me asure, the following antibiotics are considered prophylaxis for surgical s ite infections: Ampicillin/sulbactam, Aztreonam, Cefazolin, Cefmetazole, Cefote tan, Cefoxitin, Cefuroxime, Ciprofloxacin, Clindamycin, Ertapenem, Erythromycin, Gatifloxacin, Gentamicin, Levofloxacin, Metronidazole, Moxifloxacin, Neomycin a nd Vancomycin.” All prophylactic IV antibiotics administered for surgical site infection would need to have their infusion initiated within the one hour time frame, except for vancomycin or fluoroquinolones, where infusion must be initiated within th e two hours time frame. The ASC QC Guide states that “[i]n cases involving more than one antibiotic, all antib iotics must be given within the appropriate time frame in order fo r the case to meet criteria.” The timing of the antibiotic starts at the time the antibiotic is initiated with a preoperative order. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to developCMS-1525-P 690 measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe this measure is appropriate to measure quality in ASCs because it assesses the quality of care for surgical patients in an outpatient setting as measured by timely antibiotic administrati on. Furthermore, we believe that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building en tity because it was developed by the ASC QC and is endorsed by the NQF. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-based QDCs data collection mechanism for ASC services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes all ASC admissions, our proposal to use inform ation submitted on claims to calculate these measures requires that we restrict the measure population to the population for which CMS receives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF has indicated in recent exchanges that our proposal to use Medicare Part B claims submitted by ASCs to calculate the measure consistently with the measure specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are pa rt of the broader population to wh ich the measure applies. If finalized, ASCs would need to place QDCs rele vant to this measure on Medicare Part BCMS-1525-P 691 claims beginning January 1, 2012 in order to report this measure for purposes of the CY 2014 payment determination. (6) Ambulatory Surgery Patients with A ppropriate Method of Hair Removal (NQF #0515) The ASC QC 47 cited evidence that “[r]azors can cause microscopic cuts and nicks to the skin, not visible to the eye. Use of razors prior to surgery increases the incidence of wound infection when compared to clippi ng, depilatory use or no hair removal at all.” 48 A 1999 guideline issued by the CDC suggests that if hair must be removed from a surgical site, that it preferably be done with clippers rather than razors in order to minimize cuts and nicks to the skin which may increase the risk of a surgical site infection 49 In 2002, the Association of Opera ting Room Nurses published similar guidelines for appropriate hair removal. 50 While a similar measure is being considered for retirement from the Hospital IQR Progr am because it displays a high degree of performance with little variab ility or room for improvement , we believe that there is significant, variability in practice and level of adherence to this guideline in outpatient surgical settings such as ASCs is not known, and accordingly, this measure is still appropriate for use in the ASC setting. We are proposing to adopt the NQF-endorsed measure to capture the percentage of ASC admi ssions with appropriate surgical site hair removal. The NQF-endorsed specifications fo r this ASC QC measure can be found at:

47 ASC QC Quality measures: Implementation Guide ve rsion 1.4. ASC Quality Collaboration. December 2010. 48 Seropian, R., Reynolds, B.M.: Wound infections afte r preoperative depilatory versus razor preparation. Am J Surg.1971 Mar;121(3):251-4. 49 http://www.cdc.gov/ncidod/dhqp/pdf/guidelines/SSI.pdf 50 Association of Operating Room Nurses. Recommended pr actices for skin prepara tion of patients. AORN J. 2002 Jan;75(1):184-7.CMS-1525-P 692 http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd
f

. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe this measure is appropriate to measure quality in ASCs because it assesses quality of surgical care performed in ASCs, as measured by appropriate surgical site hair removal. Furthermore, we be lieve that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building entity because it was developed by the ASC QC and is endorsed by the NQF. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASC services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes all ASC admissions, our proposal to use inform ation submitted on claims to calculate these measures that we restrict the measur e population to the population for which CMS receives claims. Therefore, for this program , we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF indicated in recent excha nges that our proposal to use Medicare Part B claims submitted by ASCs to calculate th e measure consistently with the measureCMS-1525-P 693 specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are part of the br oader population to which the m easure applies. If finalized, ASCs would need to place QDCs relevant to this measure on Medi care Part B claims beginning January 1, 2012 in order to repor t this measure for purposes of CY 2014 payment determination. (7) Selection of Prophylact ic Antibiotic: First OR S econd Generation Cephalosporin (NQF #0268) Surgical outcomes are affected by the sele ction of appropriate antibiotics. Current guidelines indicate that first or second ge neration cephalosporins are effective for prevention of surgical site infections in mostcases. The goal of this proposed measure is to ensure safe, cost-effective, broad spectrum antibiotics are used as a first line prophylaxis unless otherwise indicated. Th is measure was developed by the AMA’s Physician Consortium for Performance Improvement, a national, diverse, physician-led group that identifies, develops, and promotes implementation of evidence-based clinical performance measures that reflect best practices. This measure received NQFendorsement under a 2008 project entitled “Hospital Care: Sp ecialty Clinician Performance Measures,” and it a ssesses the percentage of surgical patients aged 18 years and older undergoing procedures with the in dications for a first OR second generation cephalosporin prophylactic antibiotic, who had an order for cefazolin or cefuroxime for antimicrobial prophylaxis. While we recognize that this measure is not specifically endorsed for the ASC setting, we believe that th is measure is highly relevant for use in ASCs because it assesses adherence to best practices for use of prophylactic antibioticsCMS-1525-P 694 for outpatient surgical patients. Accordingly, we propose to adopt an application of this NQF-endorsed measure for use in the ASC Quality Reporting Program. The measure specifications for this proposed measure can be found at: http://www.cms.gov/pqrs/downloads/2011_Phys QualRptg_MeasuresGroups_Specificatio nsManual_033111.pdf?agree=yes&next=Accept

. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe this measure is appropriate for measurement of quality care in an ASC because it specifically assesses quality care, as measured by adherence to best practices for prophylactic antibiotics provided for outpatient surgical patients. It is not feasible or practi cable to adopt an NQF-endorsed measure of prophylactic antibiotic selection specifically for AS Cs because there is no such NQF-endorsed measure. We note that secti on 1833(t)(17) of the Act does not require that each measure we adopt for the ASC Quality Reporting Program be endorsed by a national consensus building entity, or by the NQF specifically. Further, section 1833(i)(7)(B) of the Act states that s ection 1833(t)(17) of the Act, which contains this requirement, applies to the ASC Quality Reporting Program, except as the Secretary may otherwise provide. Under this provision, th e Secretary has furthe r authority to adoptCMS-1525-P 695 measures that are not NQF-endorsed or measur es that have not been endorsed for the ASC setting. The proposed adoption of this measure in the ASC Quality Reporting Program also is consistent with our goal to align measur es across settings, as it is also used in the Physician Quality Reporting System, and a similar measure (NQF #0528) has been implemented in the Hospital OQR Program and the Hospital IQR Program. We invite public comment on our proposal to adopt this measure for the CY 2014 payment determination using the claims-bas ed QDC data collection mechanism for ASC services furnished for Medicare patients from January 1, 2012 through December 31, 2012. While the NQF-endorsed speci fication for this measure includes all surgical patients, our proposal to use info rmation submitted on claims to calculate these measures requires that we restrict the measure population to the population for which CMS receives claims. Therefore, for this program, we would need to calculate the measures based on claims submitted for ASC services furnished to Medicare fee-for-service beneficiaries. NQF has indicated in recent exchanges that our proposal to use Medicare Part B claims submitted by ASCs to calculate the measure consistently with the measure specification is an appropriate application of the NQF-endorsed measure to a subset of patients that are pa rt of the broader population to wh ich the measure applies. If finalized, ASCs would need to place QDCs rele vant to this measure on Medicare Part B claims beginning January 1, 2012 in order to report this measure for purposes of the CY 2014 payment determination.CMS-1525-P 696 b. Surgical Site Infection Rate (NQF #0299) HAIs are among the leading causes of death in the United States. CDC estimates that as many as 2 million infections are acquired each year in hospitals and result in approximately 90,000 deaths. 51 It is estimated that more Americans die each year from HAIs than from auto accidents and homicides combined. HAIs not only put the patient at risk, but also increase the days of hos pitalization required for patients and add considerable health care costs. HAIs are la rgely preventable for surgical patients through application of perioperative be st practices such as those listed in the CDC’s SSI prevention guidelines. Therefore, many hea lth care consumers and organizations are calling for public disclosure of HAIs, argui ng that public reporting of HAI rates provides the information health care consumers need to choose the safest hospitals, and gives hospitals an incentive to improve infection control efforts. This proposed measure is currently collected by the National Healthcare Safety Network (NHSN) as part of Statemandated reporting and surveillance requireme nts for hospitals in some States. Additionally, data submission for this measur e through EHRs may be possible in the near future. This measure is NQF-endorsed and we ar e also proposing to adopt it for the CY 2014 Hospital OQR Program. It also has been adopted for the FY 2014 Hospital IQR Program. Because we are proposing the same measure for Hospital OQR program in this rule, we refer readers to the discussion of this measure in section XIV.C.2.a. of this proposed rule. The measure sp ecifications can be found at

51 McKibben

. L

. , Horan , T .: Guidance on public reporting of healthcare-a ssociated infections: recommendations of the Healthcare Infection Control Practices Advisory Committee. AJIC 2005;33:217–26.CMS-1525-P 697 http://www.cdc.gov/nhsn/psc.html . The NQF describes this measure as the “percentage of surgical site infection even ts occurring within thirty days after the operative procedure if no implant is left in place, or [within] one year if an implant is in place in patients who had an NHSN operative procedure performed during a specified time period and the infection appears to be related to the operative procedure.” Read together, section 1 833(i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. Increasingly, su rgical procedures are being performed in hospital outpatient department settings a nd ASCs. We believe this measure is appropriate for measuring quality of care in ASCs because it applies to outcomes for surgical patients undergoing procedures that are performed in ASCs . Furthermore, we believe that this measure meets the consensus requirement and the requirement that it be set forth by a national consensus building ent ity because it is endorsed by the NQF. The proposed adoption of this measure in th e ASC Quality Reporting Program also is consistent with our goal to align measures across settings because we have proposed this measure for the Hospital OQR Program for CY 2014 payment determination and have previously adopted it for Hospital IQR Progr am for the FY 2014 payment determination. Therefore, we are proposing to adopt the Surg ical Site Infection Rate measure that isCMS-1525-P 698 collected by the CDC via the NHSN for the ASC Quality Reporting Program for the CY 2014 payment determination. Data submission for this measure for the CY 2014 payment determination would begin with infection events occurring on or after January 1, 2013 through June 30, 2013. The proposed reporting mechanism for this proposed HAI measure via the NHSN is discussed in greater detail in section XIV.C.2.a. of this pr oposed rule. We invite public comment on this proposed measure and the reporting mechanism. In summary, we are proposing to adopt 7 claims-based measures using the QDC data collection mechanism, and one NHSN HAI measure of Surgical Site Infection Rate for a total of eight measures for ASCs for the CY 2014 payment determination. We believe the proposal falls within our stated framework for the ASC Quality Reporting Program. For the CY 2014 payment determination, we are proposing that data submission for the claims-based measures begin on January 1, 2012 and end December 31, 2012. For the CY 2014 payment determination, we are proposing that data submission for the NHSN-based SSI measure begin with infecti on events occurring between January 1, 2013 and June 30, 2013. This proposed measure is currently collected by the NHSN as part of State-manda ted reporting and survei llance requirements for hospitals in some States. The NHSN is a secure, Internet-based surveillance system maintained and managed by the CDC, and can be utilized by all types of healthcar e facilities in the United States, including acute care hospitals, long term acute care hospitals, psychiatric hospitals, rehabilitation hospita ls, outpatient dialysis centers, ASCs, and long term careCMS-1525-P 699 facilities. The NHSN reporting infrastructure is provided free of charge to healthcare providers/suppliers to access and use for repor ting data regarding h ealthcare safety and infections. The NHSN enables healthcare facilities to coll ect and use data about HAIs, clinical practices known to prevent HAIs, the incidence or prevalence of multidrugresistant organisms within their organizations, and other adverse events. Some States use the NHSN as a means for health care facilities to submit data on HAIs mandated through their specific State legisl ation. We invite public comments on our proposals. The proposed measures for ASCs for the CY 2014 payment determination are listed below with the ASC prefix:

ASC Program Measurement Set Proposed for the CY 2014 Payment Determination (Data submission to occur in 2012 and 2013) ASC-1: Patient Burn* ASC-2: Patient Fall* ASC-3: Wrong Site, Wrong Side, Wrong Pati ent, Wrong Procedure, Wrong Implant* ASC-4: Hospital Transfer/Admission* ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing* ASC-6: Ambulatory Surgery Patients with Appropriate Method of Hair Removal* ASC-7: Selection of Prophylactic An tibiotic First OR Second Generation Cephalosporin* ASC-8: Surgical Site Infection Rate** * Data submission proposed to begin in CY 2012. **Data submission proposed to begin in CY 2013.CMS-1525-P 700 4. Proposed ASC Quality Measures for CY 2015 Payment Determination a. Retention of Measures Adopted for the CY 2014 Payment Determination in the CY 2015 Payment Determination In general, unless we otherwise specify in the retirement section of a rule, we propose to retain measures from one CY pa yment determination to another. We are proposing to retain the eight measures we are proposing to adopt for the CY 2014 payment determination, if they are finalized in the CY 2012 OPPS/A SC final rule with comment period, for the CY 2015 payment dete rmination. We invite public comments on this proposal. b. Proposed Structural Measures for the CY 2015 Payment Determination For the CY 2015 payment determination, we are proposing to a dopt two structural measures: Safe Surgery Checklist Use, and ASC Facility Volume Data on Selected ASC Surgical Procedures. We di scuss these proposals below. (1) Safe Surgery Checklist Use A sound surgery safety checklist could minimize the most common and avoidable risks endangering the lives and well-being of surgical patients. The purpose of this proposed structural measure is to assess whet her ASCs are using a sa fe surgery checklist that covers effective communication and help s ensure that safe practices are being performed at three critical perioperative peri ods: prior to administration of anesthesia, prior to incision, and prior to the patient l eaving the operating room. The use of such checklists has been credited with dramatic decreases in preventable harm, complicationsCMS-1525-P 701 and post-surgical mortality 52 . In November 2010, the New England Journal of Medicine published a study concluding that surgical complications we re reduced by one-third, and mortality by nearly half, when a safe surgery checklist was used. 53

We believe that effective communication and the use of safe surgical practices during surgical procedures will significantly reduce preventable surgical deaths and complications. Some examples of safe surg ery practices that can be performed during each of these three perioperative peri ods are shown in the table below:

First critical point (prior to administering anesthesia ) Second critical point(prior to skin incision) Third critical point (prior to patient leaving the operating room )
● Verbal confirmation of patient identity ● Mark surgical site ● Check anesthesia machine/medication ● Assessment of allergies, airway and aspiration risk ● Confirm surgical team members and roles ● Confirm patient identity, procedure, and surgical incision site ● Administration of antibiotic prophylaxis within 60 minutes before incision ● Communication among surgical team members of anticipated critical events ● Display of essential imaging as appropriate ● Confirm the procedure ● Complete count of surgical instruments and accessories ● Identify key patient concerns for recovery and management of the patient

For example, mistakes in surgery can be prevented by ensuring that the correct surgery is performed on the correct patientand at the correct place on the patient’s body. 54 A safe surgery checklist would also re duce the potential for human error, which would increase the safety of the surgical e nvironment. An example of a checklist that

52 Haynes, A.B.; Weiser, T.G.; Berry, W.G. et. al (2009). “A Surgical Safety Checklist to Reduce Morbidity and Mortality in a Global Population”. New England Journal of Medicine. 360: 491-499. 53 de Vries EN, Prins HA, Crolla RMPH, et al. Effect of a comprehensive surgical safety system on patient outcomes. N Engl J Med 2010;363: 1928-37 54 Hospital National Patient Safety Goals. The Joint Commission Accreditation Hospital Manual, 2011. http://www.jointcommission.org/st andards_information/npsgs.aspxCMS-1525-P 702 employs safe surgery practices at each of th ese three perioperative periods is the World Health Organization Surgical Safety Ch ecklist, which was adopted by The World Federation of Societies of Anesthesiologists as an international standard of practice. This checklist can be found at: http://www.who.int/patientsafety/saf esurgery/ss_checklist/en/index.html

. The adoption of a structural measure that assesses Safe Surgery Checklist Use would align our patient safety in itiatives with those of several surgical specialty societies including: the American College of Surg eons’ Nora Institute for Patient Safety, the American Society of Anesthesiologists, Th e Joint Commission, the National Association for Healthcare Quality and the AORN. The measure would assess whether the ASC uses a safe surgery checklist in general, and w ould not require an ASC to report whether it uses a checklist in connection wi th any individual procedures. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. This measure is appropriate for the measurement of quality of care furnished by ASCs because it pertains to best practices for surgeries, and ASCs perform ambulatory surgeries. It also reflects consensus among affected parties. As stated in section XIV.C.2.c.1 of this propos ed rule, we believe that consensus among affected parties can be refl ected through means other than NQF endorsement, includingCMS-1525-P 703 consensus achieved during the measure deve lopment process; consensus shown through broad acceptance and use of measures; a nd consensus through public comment. The proposed safe surgery checklist measure a ssesses the adoption of a best practice for surgical care that is broadly accepted and in widespread use among aff ected parties. In addition to being adopted by Th e World Federation of Societie s of Anesthesiologists, the use of a safe surgery check list is one of the safe surg ery principles endorsed by the Council on Surgical and Perioperative Safety 55 , which is comprised of the American Association of Nurse Anesthe tists, the American College of Surgeons, the American Association of Surgical Physician Assistants, the American Society of Anesthesiologists, the American Society of PeriAnesthesia Nurs es, AORN, and the Association of Surgical Technologists. Two State agencies (Oregon, South Carolina), the Veterans Health Administration 56 , numerous hospital systems, Stat e hospital associations (such as California and South Carolina) , national accrediting organi zations and large private insurers have endorsed the use of a safe surg ery checklist as a best practice for reducing morbidity, mortality, and medical errors. 57, 58 Because the use of a safe surgery checklist is a widely accepted best pr actice for surgical care, we believe that the proposed structural measure of Safe Surgery Checkli st Use reflects consensus among affected parties. We also note that The Joint Co mmission has included safe surgery checklist practices among those to be used to achieve National Patient Safety Goals adopted for

55 http://www.cspsteam.org/safesurgery checklist/safesurgerychecklist.html 56 Neily, J; Mills, PD, Young-Xu, Y. (2010). “Ass ociation between implementation of a Medical Team Training Program and Surgical Mortality”. JAMA. 304 (15): 1693-1700. 57 Haynes, AB; Weiser, TG; Berry, WR et al (2009) “A Surgical Safety Checklist to Reduce Morbidity and Mortality in a Global Population”. NEJM. 360:491-499. 58 Birkmeyer, JD (2010) “Strategies for Improving Su rgical Quality – Checklists and Beyond.” NEJM. 363: 1963-1965.CMS-1525-P 704 2011 for surgeries performed in am bulatory settings and hospitals 59 . The Safe Surgery Checklist Use structural measure is not NQF-endorsed, and there is no NQF-endorsed measure of safe surgery checklist use de spite the broad acceptance and widespread endorsement of this practice. Therefore, it is not feasible or pr acticable to adopt an NQF-endorsed measure of safe surgery ch ecklist use because there is no such NQF-endorsed measure. We note that secti on 1833(t)(17) of the Act does not require that each measure we adopt for the ASC Quality Reporting Program be endorsed by a national consensus building entity, or by the NQF specifically. Further, section 1833(i)(7)(B) of the Act states that section 1833(t)(17) of th e Act, which contains this requirement, applies to the ASC Quality Repo rting Program, except as the Secretary may otherwise provide. Under this provision, the Secretary has further au thority to adopt nonendorsed measures. We note that the proposed adoption of this measure in the ASC Quality Reporting Program is consistent with our goal to align measures across settings because we are also proposing the same m easure for the Hospital OQR Program for CY 2014 payment determination. For the CY 2015 payment determination, we are proposing that data collection for this structural measure for ASCs wo uld begin on July 1, 2013 and end on August 15, 2013 for the entire time period from January 1, 2012 through December 31, 2012. In other words, an AS C would report whethe r their facility employed a safe surgery checkli st that covered each of th e three critical perioperative periods for the entire calendar year of 2012 during the 45-day window from July 1 through August 15, 2013. The information for this structural measure would be collected

59 http://www.jointcommission.org/standards_information/npsgs.aspxCMS-1525-P 705 via an online Web-based tool that will be made available to ASCs via the QualityNet Web site. This collection mechanism is also us ed to collect structur al measures and other information for other programs, specifically for the Hospital IQR and Hospital OQR

programs. We invite public comments on our proposal to add this new structural measure to the ASC quality measurement set and the submission process for the CY 2015 payment determination. (2) ASC Facility Volume Data on Selected ASC Surgical Procedures There is substantial evidence in recent peer-reviewed clinical literature that volume of surgical procedures, particularly of high risk surgical procedures, is related to better patient outcomes, including decr eased surgical errors and mortality. 60, 61, 62 This may be attributable to greater experience and/ or surgical skill, greater comfort with and hence likelihood of application of standardized best practices, and increased experience in monitoring and management of surgical pati ents for the particular procedure. For this reason, the National Quality Foru m has endorsed measures of total all-patient surgical volume for Isolated CABG and Valve Surger ies (NQF #0124), Percutaneous Coronary Intervention (PCI) (NQF #0165), Pediatri c Heart Surgery (NQF #0340), Abdominal Aortic Aneurism Repair (NQF #357), Esopha geal Resection (#0361), and Pancreatic Resection (NQF #0366). Additionally, many consumer-oriented Web sites reporting

60 Livingston, E.H.; Cao, J “P rocedure Volume as a Predicto r of Surgical Outcomes”. JAMA. 2010;304(1):95-97. 61 David R. Flum, D.R.; Salem, L.; Elrod, J.B.; Delli nger, E.P.; Cheadle, A. Chan, L. “Early Mortality Among Medicare Beneficiaries Undergoing Bariatric Surgical Procedures”. JAMA. 2005;294(15):1903- 1908. 62 Schrag, D; Cramer, L.D.; Bach, P.B.; Cohen, A.M. ; Warren, J.L.; Begg, C.B “ Influence of Hospital Procedure Volume on Outcomes Fo llowing Surgery for Colon Cancer” JAMA. 2000; 284 (23): 3028-3035.CMS-1525-P 706 health care quality information sponsored by States (California, New York, Texas, Washington, Florida, Illinoi s, Michigan, Oregon) and pr ivate organizations (Leapfrog Group, U.S. News & World Report) are repo rting procedure volume, in addition to provider performance on surgical process (SCI P measures) and outcome measures (SSI, Patient Safety Indicators, a nd Mortality), because it prov ides beneficial performance information to consumers choosing a health care provider,. The currently NQF-endorsed measures of procedure volume (noted above ) relate to surgeries only performed in inpatient settings, and would not be applicable to the types of procedures approved to be performed in HOPDs and ASCs. The recently issued Report to Congress entitled “Medicare Ambulatory Surgical Center Value-Based Purchasing Implementation Plan” included an analysis of CY 2009 ASC claims for Medicare bene ficiaries. When stratified by specialty category, CMS identified six procedure categor ies that historically consti tute 98.5 percent of the total volume of procedures perfor med in ASCs: Gastrointestinal, Eye, Nervous System, Musculoskeletal, Skin, and Genitourinary. We are proposing that ASCs submit all patient volume data on these six broad categorie s of surgical procedures as a structural measure to be used for the ASC Quality Reporting Program CY 2015 payment determination. In section XIV. C.2.c.(2) of this proposed rule , we are also proposing that HOPDs submit similar all patient volume data for eight broad procedure categories. Structural measures assess whether a provi der/facility possesses conditions for the care of patients that are associated with better quality. Read together, section 1833(i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary,CMS-1525-P 707 except as the Secretary may otherwise provide , to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more na tional consensus building entities. Because surgical volume is associated with better qua lity, and surgical pro cedures are performed in ASCs, we believe that surgical volume is appropriate for measuring the quality of these six categories of surgical procedures performed in ASCs. We have previously established for other programs that we belie ve consensus among affected parties can be reflected through various means including wide spread use among industry stakeholders. We believe that the ASC Facility Volume Data on Selected ASC Surgical Procedures structural measure reflects consensus among affected partie s as being associated with quality of surgical care because of recen t evidence published in well-respected and widely circulated peer-review ed clinical literature, and because of its widespread reporting among States and private stakeh olders on Web sites featuring quality information. Because the current volume meas ures are endorsed for inpatient procedures, many of which are not performed in outpatient se ttings such as ASCs, it is not feasible or practicable to utilize NQF endorsed measures of volume for ASCs. Further, section 1833(i)(7)(B) of the Act states that section 1833(t)(17) of th e Act, which contains this requirement, applies to the ASC Quality Repo rting Program, except as the Secretary may otherwise provide. Under this provision, the Secretary has further au thority to adopt nonendorsed measures. For the CY 2015 payment determination, we are proposing that ASCs would report these data with respect to these six categories between the datesCMS-1525-P 708 July 1, 2013 and August 15, 2013 with respect to the time period January 1, 2012 through December 31, 2012. In other words, under this proposal, an ASC would report its CY 2012 all-patient volume data for these si x categories of proce dures during the 45-day window of July 1 to August 15, 2013. The ta ble below lists the HCPCS codes for which hospitals would be required to report all-patient volume data. Like the structural measures in the Hospital OQR program, data on this proposed measure would be collected via an online Web-based tool that will be made available to ASCs via the QualityNet Web site. This collection mechanism is also used to collect structural measures and other information for other pr ograms (Hospital IQR and Hospital OQR). We invite public comment on this proposal. In summary, for the CY 2015 payment dete rmination, we are proposing to retain the eight measures proposed for the CY 2014 pa yment determination, if they are adopted in the final rule with comment period, and to add two structural measures. We invite public comments on these proposals for the CY 2015 payment determination. The proposed measures for ASCs for CY 2015 pa yment determination are listed below:

Proposed ASC Program Measurement Set for the CY 2015 Payment Determination ASC-1: Patient Burn ASC-2: Patient Fall ASC-3: Wrong Site, Wrong Side, Wrong Pa tient, Wrong Procedure, Wrong Implant ASC-4: Hospital Transfer/Admission ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing ASC-6: Ambulatory Surgery Patients w ith Appropriate Method of Hair Removal ASC-7: Selection of Prophylactic Antib iotic: First OR Second Generation Cephalosporin ASC-8: Surgical Site Infection RateCMS-1525-P 709 Proposed ASC Program Measurement Set for the CY 2015 Payment Determination ASC-9: Safe Surgery Checklist Use* ASC-10: ASC Facility Volume Data on Selected ASC Surgical Procedures* Procedure Category Corresponding HCPCS Codes Gastrointestinal 40000 through 49999, G0104, G0105,G0121,C9716, C9724, C9725, 0170T Eye 65000 through 68999, 0186, 0124T, 0099T, 0017T, 0016T, 0123T, 0100T, 0176T, 0177T, 0186T, 0190T, 0191T, 0192T, 76510, 0099T Nervous System 61000 through 64999, G0260, 0027T, 0213T, 0214T, 0215T, 0216T, 0217T, 0218T, 0062T Musculoskeletal 20000 through 29999, 0101T, 0102T, 0062T, 0200T, 0201T Skin 10000 through 19999, G0247, 0046T, 0268T, G0127, C9726, C9727 Genitourinary 50000 through 58999, 0193T, 58805 *New proposed measures for CY 2015 payment determination. 5. Proposed ASC Quality Measures for the CY 2016 Payment Determination a. Retention of Measures Adopted for the CY 2015 Payment Determination in the CY 2016 Payment Determination In general, unless otherwise specified in the retirement section of a rule, we propose to retain measures from one CY pa yment determination to the next. We are proposing to retain the ten m easures we are proposing to adopt for the CY 2015 payment determination, if they are finalized in an OPPS/ASC final rule with comment period, for the CY 2016 payment determination. We i nvite public comment on this proposal. b. Proposed HAI Measure: Influenz a Vaccination Covera ge among Healthcare Personnel (HCP) (NQF #0431) The Influenza Vaccination among Health care Personnel measure assesses the percentage of healthcare personnel who have been immunized for influenza during the fluCMS-1525-P 710 season. The specifications for this measure are available at http://www.cdc.gov/nhsn/PDFs /HSPmanual/HPS_Manual.pdf

. For the ASC CY 2016 payment determina tion, we are proposing to adopt this NQF-endorsed HAI measure. We also are proposing to adopt this measure for the Hospital OQR Program for the CY 2015 payment determination. We re fer readers to the discussion in section XIV.C.3.b. of this proposed rule for a detailed description of this

measure. Read together, section 1833( i)(7)(B) of the Act and s ection 1833(t)(17)(C)(i) of the Act require the Secretary, except as the Se cretary may otherwise provide, to develop measures appropriate for the measurement of the quality of care (including medication errors) furnished by ASCs, that reflect consensus among affected parties and, to the extent feasible and practicable, that include measures set forth by one or more national consensus building entities. We believe this measure is appropriate for measuring quality of care in ASCs due to the significant impact of HCP influenza vaccination on the spread of influenza among patients. Furthermore, we believe that this measure meets the consensus requirement and the requirement th at it be set forth by a national consensus building entity because it is endorsed by the NQF. We are proposing that ASCs use the NHSN infrastructure and protocol to report the measure for ASC Quality Reporting Program purposes. Collection of data via the NHSN for this measure will begin with immunizations from October 1, 2013 to March 31, 2014 for the CY 2016 payment determination. We invite public comment on ourCMS-1525-P 711 proposal to adopt this HAI measure into the ASC Quality Reporting Program for the CY 2016 payment determination. In summary, for the CY 2016 payment de termination, we are proposing to retain the ten measures that we adopt for the CY 2015 payment determination (if these proposals are finalized in a fi nal rule) and to add one NHSN HAI measure. The proposed measures for ASCs for the CY 2016 paym ent determination are listed below:

Proposed ASC Program Measureme nt Set for the CY 2016 Payment Determination ASC-1: Patient Burn ASC-2: Patient Fall ASC-3: Wrong Site, Wrong Side, Wrong Pa tient, Wrong Procedure, Wrong Implant ASC-4: Hospital Transfer/Admission ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing ASC-6: Ambulatory Surgery Patients with Appropriate Method of Hair Removal ASC-7: Selection of Prophylactic Antib iotic: First OR Second Generation Cephalosporin ASC-8: Surgical Site Infection Rate ASC-9: Safe Surgery Checklist Use ASC-10: ASC Facility Volume Data on Selected ASC Surgical Procedures Procedure Category Corresponding HCPCS Codes Gastrointestinal 40000 through 49999, G0104, G0105,G0121,C9716, C9724, C9725, 0170T Eye 65000 through 68999, 0186, 0124T, 0099T, 0017T, 0016T, 0123T, 0100T, 0176T, 0177T, 0186T, 0190T, 0191T, 0192T, 76510, 0099T Nervous System 61000 through 64999, G0260, 0027T, 0213T, 0214T, 0215T, 0216T, 0217T, 0218T, 0062T Musculoskeletal 20000 through 29999, 0101T, 0102T, 0062T, 0200T, 0201T Skin 10000 through 19999, G0247, 0046T, 0268T, G0127, C9726, C9727 Genitourinary 50000 through 58999, 0193T, 58805CMS-1525-P 712 Proposed ASC Program Measureme nt Set for the CY 2016 Payment Determination ASC- 11: Influenza Vaccination Coverage among Healthcare Personnel * *New proposed measure for CY 2016 payment determination. 6. ASC Measure Topics fo r Future Consideration Below is a list of future measurement ar eas that we are considering for future ASC Quality Reporting Program payment determ inations for which we seek comment. In particular, we seek comment on the in clusion of Patient Experience of Care Measures in the ASC Qualit y Reporting Program measure set for a future payment determination, such as existing Consumer Assessment of Healthcare Providers and Systems (CAHPS) surveys for clinicians/gr oups and the CAHPS Surgical Care Survey, sponsored and submitted by the American Colle ge of Surgeons (ACS) and the Surgical Quality Alliance (SQA). We also, in part icular, seek comment on the inclusion of procedure-specific measures for cataract surgery, colonoscopy and endoscopy, and for measures of Anesthesia Related Complicati ons in the ASC Quality Reporting Program

measure set. Measures and Measurement Topics under Consideration for Future Payment Determinations Patient Experience of Care: Consumer Assessment of Healthcare Provi ders and Systems (CAHPS) surveys for clinicians/groups CAHPS Surgical Care Survey Procedure Specific Measures Colonoscopy and other Endoscopy measures Cataract Surgery measures Anesthesia Related Complications: Death Cardiac Arrest Perioperative Myocardial InfarctionCMS-1525-P 713 Measures and Measurement Topics under Consideration for Future Payment Determinations Anaphylaxis Hyperthermia Transfusion Reaction Stroke, Cerebral Vascular Accide nt, or Coma following anesthesia Visual Loss Medication Error Unplanned ICU admission Patient intraoperative awareness Unrecognized difficult airway Reintubation Dental Trauma Perioperative aspiration Vascular access complication, including vascular injury or pneumothorax Pneumothorax following attempted vasc ular access or regional anesthesia Infection following epidural or spinal anesthesia Epidural hematoma following spin al or epidural anesthesia High Spinal Postdural puncture headache Major systemic local anesthetic toxicity Peripheral neurologic deficit following regional anesthesia Infection following pe ripheral nerve block Additional Future Measurement Topics: NQF Serious Reportable Events in Healthcare Medication administration variance Medication reconciliation Venous thromboembolism measures: outcome/assessment/prophylaxis. Presence of Physician duri ng Entire Recovery Period Post-discharge follow up Post-discharge ED vi sit within 72 hours We invite public comment on these quality measures and measurement topics so that we may consider proposing to adopt th em for future ASC Quality Reporting Program payment determinations beginning with the CY 2015 payment determination. We alsoCMS-1525-P 714 are seeking suggestions for additional meas ures and rationales for the ASC Quality Reporting Program that are not listed in the table above. 7. Technical Specification U pdates and Data Publication a. Maintenance of Technical Specifications for Quality Measures We are proposing to provide technical spec ifications, and in some cases, links to technical specifications hosted on external th ird party Web sites, for the ASC Quality Reporting Program measure in a Specifications Manual, to be posted after publication of the CY 2012 OPPS/ASC final rule with co mment period, on the CMS QualityNet Web site at http://www.QualityNet.org . Currently, the specifica tions for the proposed ASC measures for the CY 2014, CY 2015 and CY 2016 payment determinations, with the exception of the two structural measures, can be found at: http://www.ascquality.org/documents/ASCQu alityCollaborationImplementationGuide.pd
f

; http://www.cms.gov/apps/ama/license.asp ?file=/pqrs/downloads/2011_PhysQualRptg_M easureSpecificationsManual_033111.pdf ; http://www.cdc.gov/nhsn/psc.html ; and http://www.cdc.gov/nhsn/PDFs /HSPmanual/HPS_Manual.pdf . The specifications for the two structural measures are included in the di scussion above and in th e table of measures proposed for the CY 2015 payment determination. We are proposing to maintain the t echnical specifications for the measures adopted for the ASC quality reporting program by updating this Specifications Manual and including detailed instruc tions and calculation algorithms as appropriate. In someCMS-1525-P 715 cases where the specifications are available elsewhere, we may include links to Web sites hosting technical specifications. We currently use this same process for Hospital OQR Program measures, as discussed above in sec tion XIV.A.3.a. of this proposed rule. We are proposing to follow the same technical sp ecification maintenance process for the ASC Quality Reporting Program measures and we invite public comments on this proposal. In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766 through 68767), we established a subregul atory process for updates to th e technical specifications that we use to calculate Hospital OQR Program measures. This process is used when changes to the measure specifications are necessa ry due to changes in scientific evidence or other substantive changes, thereby giving CMS the option to seek re-endorsement of that measure. We note that NQF endorsement of an OQR measure is not required under sections 1833(i)(2)(D)(iv), (i)(7 ) or (t)(17) of the Act. Th e legal standard for adopting Hospital OQR measures is consensus among affect ed parties, and to the extent feasible and practicable, measures that are set fort h by a consensus building entity. The legal standard for adopting ASC measures is this same standard, except as the Secretary may otherwise provide. Changes of this nature to measures adopted for the ASC Quality Reporting Program may not coincide with the timing of our regulatory actions, but nevertheless require inclusion in the meas ure specifications so that measures are calculated based on the most up-to-date scient ific standards and ̧ in some instances ̧ consensus standards. For the Hospital OQR Program, we indicated that notification of changes to the measure specifications is availabl e on the QualityNet Web site,CMS-1525-P 716 http://www.QualityNet.org , and in the Hospital OQR Progr am Specifications Manual and would occur no less than 3 months before a ny changes become effective for purposes of reporting under the Hospital OQR Program. The Hospital OQR Program Specifications Manual is released every 6 months and adde nda are released as necessary providing at least 3 months of advance notice for substant ial changes such as changes to ICD-9, CPT, NUBC, and HCPCS codes, and at least 6 mont hs notice for substantive changes to data elements that would require significant syst ems changes. We are proposing to follow the same subregulatory process for the ASC Qu ality Reporting Program for updates to the technical specifications. We invite public comments on this proposal. b. Publication of ASC Qua lity Reporting Program Data Section 1833(t)(17)(E) of th e Act requires that the Secretary establish procedures to make data collected under the Hospital OQR Program available to the public. It also states that such procedures must ensure th at a hospital has the opportunity to review the data that are to be made public with respect to the hospital prior to such data being made public. These requirements under section 1833(t )(17)(E) of the Act also apply to the ASC Quality Reporting Program except as the Secretary may otherwise provide. We are proposing to make data that an ASC ha s submitted for the ASC Quality Reporting Program available on a CMS Web site after providing ASCs an opportunity to preview the data to be made public. We are proposing that these data would be displayed at the CMS Certification Number (CCN) level. Publishing this information encourages beneficiaries to work with their doctors a nd ASCs to discuss the quality of care ASCs provide to patients, thereby pr oviding an additional incentive to ASCs to improve theCMS-1525-P 717 quality of care that they furnish. We intend to propose more detail on the publication of data in a later rulemaking. We solicit public comment on these proposed processes of making ASC quality data available to the public. 8. Proposed Requirements for Reporting of ASC Quality Data for the CY 2014 Payment Determination To participate in the ASC Quality Reporting Program for the CY 2014 payment determination, we are proposing that ASCs must meet data collection and data submission requirements. We intend to propose administrative requirements, data validation and data completeness requirements, reconsideration and appeals processes, and CY 2015 payment determination reporting requirements in the CY 2013 OPPS/ASC proposed rule with comment period. a. Proposed Data Collection and Submission Requirements for the Proposed Claims-Based Measures We are proposing that, to be eligible for the full CY 2014 ASC annual payment update, ASCs would be required to submit comp lete data on individual quality measures through a claims-based reporting mechanism by submitting the appropriate QDCs on the ASC’s Medicare claims. For the CY 2014 pa yment determination, we are proposing to utilize Medicare fee-for-service ASC cl aims for services furnished between January 1, 2012 and December 31, 2012. We are proposing to consider an ASC as participating in the ASC Quality Reporting Program for CY 2014 payment determination if the ASC includes QDCs specified for the program on their CY 2012 clai ms relating to the proposed measures ifCMS-1525-P 718 finalized. As no determinations will be made affecting payment until the CY 2014 annual payment update, we are proposing this approach as to reduce ASC burden. We intend to provide additional details regard ing participation notification and other administrative requirements in CY 2013 rulemaking. We are proposing that data completene ss for claims-based measures would be determined by comparing the number of claims meeting measure specifications that contain the appropriate QDCs with the num ber of claims that would meet measure specifications, but did not have the appropriate QDCs on the submitted claim. We intend to propose how we will assess data completeness for claims-based measures in the CY 2013 OPPS/ASC proposed rule. We request public comment on these proposals and are specifically interested in receiving public co mment on what constitutes complete data in regard to our proposed ASC claims-based measures utilizing QDCs and methods to assess completeness. b. Proposed Data Submission Deadlines for th e Proposed Surgical Site Infection Rate

Measure As discussed above, we are proposing to adopt a HAI measure, Surgical Site Infection Rate, for the CY 2014 payment dete rmination. We are proposing to use the data submission and reporting standard proce dures that have been set forth by the CDC for NHSN participation in gene ral and for submission of th is measure to NHSN. We refer readers to the CDC’s NHSN Web site ( http://www.cdc.gov/nhsn ) for detailed data submission and reporting procedures. Our proposal seeks to reduce ASC burden by aligning CMS data submission and reporti ng procedures with NHSN proceduresCMS-1525-P 719 currently utilized by healthcare providers a nd suppliers. The submission timeframes for the CY 2014 payment determination that we are proposing to use for the proposed Surgical Site Infection Rate measure are show n below. ASCs must submit their quarterly data to NHSN for ASC Quality Data Reporting purposes within the date intervals shown in the table below (any updates to this sche dule will be posted on the QualityNet Web site). Proposed Submission Timeframe for the Pr oposed Surgical Site Infection Rate Measure for the CY 2014 Payment Determination CY 2013 Infection Events CDC-NHSN Collection and Quarterly Report Final Submission Deadline for ASC Quality Reporting CY 2014 Payment Determination Q1 (Jan 1 to Mar 31, 2013) January 31 st to August 1 st August 1, 2013 Q2 (Apr 1 to Jun 30, 2013) April 30 th to November 1 st November 1, 2013

We request public comments on these proposals. XV. Proposed Changes to Whole Hospital and Rural Provider Exceptions to the Physician Self-Referral Prohibition: Exception for Expansion of Facility Capacity; and Proposed Changes to Provider Agreement Regulations Relating to Patient Notification Requirements A. Background Section 1877 of the Act, also known as the physician self -referral law: (1) prohibits a physician from making referrals for certain “designated health services” (DHS) payable by Medicare to an entity wi th which the physician (or an immediate family member) has a financial relationshi p (ownership or compensation), unless an exception applies; and (2) prohib its the entity from filing cl aims with Medicare (or billingCMS-1525-P 720 another individual, entity, or third party payer) for those DHS furnished as a result of a prohibited referral. The Act establishes a number of specific exceptions and grants the Secretary the authority to crea te regulatory exceptions that pose no risk of program or patient abuse. Section 1877(d) of the Act sets forth a dditional exceptions related to ownership or investment interests held by a physician (or an immediate family member of a physician) in an entity that furnishes DHS. Section 1877(d)(2) of the Act provides an exception for ownership or investment interests in rural provi ders. In order for an entity to qualify for the exception, the DHS must be furnished in a rural area (as define d in section 1886(d)(2) of the Act) and substantially all of the DHS furnished by the entity must be furnished to individuals residing in a rura l area. Section 1877(d)(3) of the Act provides an exception, known as the “whole hospital” exception, for ow nership or investment interests in a hospital located outside of Puerto Rico, provided that the re ferring physician is authorized to perform services at the hospital and the ownershi p or investment interest is in the hospital itself (and not mere ly in a subdivision of the hospital). B. Changes Made by the Affordable Care Act 1. Provisions Relating to Exceptions to Owner ship and Investment Prohibition (Section 6001(a) of the Affordable Care Act) Section 6001(a) of the Affordable Care Act amended the whole hospital and rural provider exceptions to impose additional restrictions on physician ownership or investment in hospitals. The statute defines a “physician owne r or investor” in a hospital as a physician or immediate family member of a physician who has a direct or indirectCMS-1525-P 721 ownership or investment interest in a hospita l. We will refer to hospitals with such “physician owners or investors” as “physician-owned hospitals.” We addressed section 6001(a) of the Affordable Care Act in the CY 2011 OPPS/ASC final rule with commen t period (75 FR 71800). In §411.362, we implemented most of the requirements of s ection 6001(a) of the AC A, including patient safety requirements. In sections XV.B.2. a nd C. of this proposed rule, we address the process for a hospital to request an excepti on to the prohibition on expansion of facility capacity under section 60 01(a)(3) of the Affordable Care Act. In section D. of this proposed rule, we address re lated patient notification re quirements in the provider agreement regulations. 2. Provisions of Section 6001(a)(3 ) of the Affordable Care Act The amended whole hospital and rural prov ider exceptions provide that a hospital may not increase the number of operating rooms, procedure rooms, and beds beyond that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of this date, but did have a provider agreement in effect on December 31, 2010, the date of effect of such agreement). Section 6001(a)(3) of the Affordable Care Act added new section 1877(i)(3)(A)(i) of the Act to set forth that the Secretary shall establis h and implement an exception process to the prohibition on expansion of facility capacit y. Referrals are prohibited if made by physician owners or investors after facility expansion and prior to the Secretary granting an exception. Exceptions for expanding facility capacity will protect only those referralsCMS-1525-P 722 made after the exception is granted. In this proposed rule, we set forth proposed regulations for this process at §411.362(c) and related definitions at §411.362(a). The proposed regulations at §411.362(c) se t forth the process for a hospital to request an exception. Proposed new §411.362(c)(2) outlines the requirements for an applicable hospital request and §411.362(c)(3) outlines the requirements for a high Medicaid facility request. These terms are defined at sections 1877(i)(3)(E) and 1877(i)(3)(F) of the Act. The statute is clear that an applicable hospital may apply for an exception up to once every 2 years. Using our rulemaking authority under sections 1871 and 1877(i)(3)(A)(i) of the Act, we are propos ing to interpret the statute to impose the same 2-year frequency limit to apply also to high Medicaid faciliti es as discussed in section XV.C.2. of this proposed rule. We are proposing to set forth the elemen ts required for a complete request for an exception under proposed new §411.362(c)(4). The opportunity for community input (required by section 1877(i)(3)(A )(ii) of the Act) and timing of a complete request are described in proposed §411.362(c)(5). Unde r proposed §411.362(c)(5), we are proposing to provide an opportunity for individuals a nd entities in the comm unity in which the hospital is located to provide input with respect to the hospi tal’s request for an exception. For purposes of this proposed rule, when the st atute refers to an “application,” we use the term “request.” Because section 1877(i)(3)(D) of the Act pr ovides that any increase in the number of operating rooms, procedure rooms, and be ds for which a hospital is licensed pursuant to being granted an exception may occur only in facilities on the hospital’s main campus,CMS-1525-P 723 we are proposing a definition of the “mai n campus of the hosp ital” at §411.362(a), as discussed below. Additionally, we are propos ing a definition of the “baseline number of operating rooms, procedure rooms, and beds” for purposes of section 1877(i)(3)(C)(ii) of the Act. Section 1877(i)(3)(H) of the Act provides that the Secretary shall publish the final decision with respect to an application in the Federal Register no later than 60 days after receiving a complete application. Under se ction XV.C.4. of this proposed rule, below, we discuss our proposal for publishing decisions in the Federal Register as well as on the CMS Web site. Under section 1877(i)(3)(A) of the Ac t, the Secretary must promulgate regulations concerning the process for a hospital to apply for an exception by January 1, 2012, and implement this proce ss on February 1, 2012. We anticipate an effective date of January 1, 2012, for these pr oposed regulations. Below, we set out our proposals related to the excepti on process in greater detail. C. Proposed Changes Relating to the Pro cess for an Exception to the Prohibition on Expansion of Facility Capacity In order to conform our regulations to the amendments made to the rural provider and whole hospital exceptions by section 6001(a)(3) of the Affordable Care Act, we are proposing to add two definitions in §411.362( a) and a new §411.362(c) to establish the process by which an applicable hospital or high Medicaid facility may request an exception to the prohibition on expansion of facility capacity. We are proposing to define the terms “baseline number of operati ng rooms, procedure rooms, and beds” andCMS-1525-P 724 “main campus of the hospital.” The process we are proposing sets forth the relevant data sources and the elements of a co mplete request for an exception. 1. Applicable Hospital Below we separately discuss each of the statutory criteria th at a hospital must satisfy to qualify as an “applicable hospita l.” We are proposing the processes by which a hospital can determine whether it satisf ies each criterion. The proposed data requirements for each criterion are furthe r discussed in each section below. We are proposing that data from the CMS Healthcare Cost Report Information System (HCRIS) be used to determine wh ether a hospital satisfies the inpatient admission, bed capacity, and bed occupancy crite ria. We currently consider HCRIS to contain a sufficient amount of data for a partic ular fiscal year if HCRIS contains data from at least 6,100 hospitals for that fiscal ye ar. Therefore, we ar e proposing that HCRIS must contain data from at le ast 6,100 hospitals for a particular year in order for that year’s data to be used under the exception process. If HCRIS doe s not contain sufficient data for that year, data from the most recent year(s) that satisfy the threshold should be used. CMS will post the average percent of to tal inpatient Medicaid admissions per county, the average bed capacity per State, the national average bed capacity, and the average bed occupancy per St ate on the CMS Web site at: http://www.cms.gov/physicianselfreferral/ 85_physician_owned_hospitals.asp. Hospitals can access these data to assess whether they satis fy the respective criteria to qualify as an applicable hospital. CMS will make a reasonable effort to ensure that the data containedCMS-1525-P 725 in HCRIS are correct and complete at the tim e of disclosure. We are soliciting public comment on proposing and justifying alternat ive data sources other than HCRIS that could result in more accurate determinations as to whether a hospital satisfies the relevant criteria. a. Percentage Increase in Population Section 1877(i)(3)(E)(i) of the Act provides that an applicable hospital means a hospital that is located in a county in wh ich the percentage increase in the population during the most recent 5-year period (as of the application date) is at least 150 percent of the percentage increase in th e population growth of the Stat e in which the hospital is located during that period, as esti mated by the Bureau of the Census. To determine the percentage increase in population in the county and State in which the hospital is located, we are propos ing at §411.362(c)(2)(i) th at the hospital use population estimates provided by the Bureau of the Census. If the hospital is located in an area referred to by the Bureau of the Cens us as a county equivalent area, such as an independent city, borough, or census area, the hospital should use the Bureau of the Census estimates for the county equivalent area in which it is located. For the remainder of this subsection, “county” refers to bot h a county and a county equivalent area. We recognize that the Bureau of the Census may not provi de county and State population size estimates that are current as of the date that a hospital submits its request for an exception. We are proposing that a hospital should use only the most recent estimates available to perform the necessarycalculations. For example, if a hospital submits a request for an exception in 2012, but the most recent year for which the BureauCMS-1525-P 726 of the Census has estimates is 2010, the hospital should perform the necessary calculations using estimates fo r years 2010 and 5 years prior. We are proposing also thatthe hospital use county and State population estimates for the same years. For example, if a hospi tal submits a request fo r an exception in 2012 and the most recent year for which the Bu reau of the Census has State and county population estimates is 2011 and 2010, respec tively, the hospital should perform the necessary calculations using estimates fo r years 2010 and 5 years prior. We are proposing to review a request based on the population estimates available as of the date that a hospital submits its re quest even if the Bureau of the Census updates its estimates after the hospital submits its reque st and prior to our decision. b. Inpatient Admissions Section 1877(i)(3)(E)(ii) of the Act provides that an applicable hospital means a hospital that has an annual percent of tota l inpatient admissions under Medicaid that is equal to or greater than the average percent with respect to such admissions for all hospitals located in the county in which the hospital is located. We are proposing at §411.362(c)(2)(ii) to require hospitals to ca lculate inpatient ad missions using filed hospital cost report discharge data. We are proposing that, in calculating the hospital’s annual percent of total Medicaid inpatient admissions, the hospital should divide the number of discharges for the year that are paid for under Medicaid by the to tal number of discharges for the year paid for by any govern mental or private payor. We are soliciting public comment on other data sources that could be used to provide an accurate estimateCMS-1525-P 727 of the annual percent of total Medicaid inpa tient admissions for the applicable hospital and for all hospitals in the same county. The statute does not specify the number of years for which the hospital’s annual percent of total inpatient admi ssions under Medicaid must be equal to or greater than the average percent with respect to such admissions for all hospitals located in the county in which the hospital is located. We are proposing at §411.362(c)(2)( ii) that a hospital must satisfy this criterion for each of the 3 most recent fiscal years for which data are available as of the date the hospital submits a request. We invite public comment on whether 3 years of data are sufficient to indicate a le gitimate need by the hospital to increase its number of operating rooms, procedure room s, and beds and, if not, how many years of data we should consider in evaluating a request for an exception. We are proposing at §411.362( c)(2)(ii) that the hospita l would estimate its annual percentage of total inpatient admissions under Medicaid. The hospital would reference its own filed cost reports for the 3 most recent fiscal years for which data are available. We are proposing that we would review a re quest based on the data available as of the date the hospital submits its request. We pl an to issue guidance to further address the process for a hospital to estimate its annual pe rcentage of total inpatient admissions under Medicaid. The guidance will also explai n how CMS will determine and provide the average percentages of inpatient admissi ons under Medicaid for each county. c. Nondiscrimination Section 1877(i)(3)(E)( iii) of the Act provides that an applicable hospital does not discriminate against benefici aries of Federal health car e programs and does not permitCMS-1525-P 728 physicians practicing at the hospi tal to discriminate against su ch beneficiaries. We are proposing to incorporate this requirement at §411.362(c)(2)(iii) of the regulations. d. Bed Capacity Section 1877(i)(3)(E)(iv) of the Act provides that an applicable hospital means a hospital that is located in a State in which the average bed capacity in the State is less than the national average bed capacity. The statute does not specify a time period over which a State’s average bed capacity must be less than the national average bed capacity. We are proposing at §411.362(c)(2 )(iv) that the Stat e average bed capacity must be less than the national average bed capacity for each of the 3 most recent fiscal years for which data are available as of the date that a hos pital submits its request. We invite public comment on whether 3 years of data are suffi cient to indicate a legitimate need by the hospital to increase its number of operating rooms, procedure rooms, and beds and, if not, how many years of data we should consider in evaluating any request for an exception. Under our proposed process, CMS would us e filed hospital cost reporting data to determine State and national average bed cap acities. We plan to issue guidance explaining how CMS will determine and provide the average bed capacities. We are proposing that we would review a request base d on the data available as of the date a hospital submits its request. e. Bed Occupancy Section 1877(i)(3)(E)(v) of the Act provide s that an applicable hospital means a hospital that has an average bed occupancy ra te that is greater than the average bed occupancy rate in the State in which the hospi tal is located. The st atute does not specifyCMS-1525-P 729 the time period over which the hospital’s aver age bed occupancy rate must be greater than the State average bed occupancy rate . We are proposing at §411.362(c)(2)(v) that the hospital’s bed occupancy rate must be gr eater than the State average bed occupancy rate for each of the 3 most recent fiscal year s for which data are available as of the date that a hospital submits its request. We inv ite public comment on whether 3 years of data are sufficient to indicate a legitimate need by the hospital to increase the number of its operating rooms, procedure rooms, and beds and, if not, how many years of data we should consider in evaluating any request for an exception. We are proposing at §411.362(c)(2)(v) th at the hospital use filed hospital cost reporting data to calculate its own average bed occupancy rate. We plan to issue guidance explaining how the hospital can calcul ate its bed occupancy rate. The guidance would also explain how CMS will determine a nd provide the State bed occupancy rates. We are proposing that we would review a re quest based on the data available as of the date that the hospital submits its request. 2. High Medicaid Facility Below we separately discuss each of the statutory criteria th at a hospital must satisfy to qualify as a “high Medicaid facility.” We are proposing the processes by which a hospital can determine whether it satis fies each criterion. The proposed data requirements for each criterion are further discussed in the sections below. As discussed in section XV.C.1. of this proposed rule, we currently consider HCRIS to contain a sufficient amount of data for a partic ular fiscal year once HCRIS contains data from at least 6,100 hospitals for that year. Therefore, we are proposing thatCMS-1525-P 730 HCRIS must contain data from at least 6,100 hos pitals for a particular year in order for that year’s data to be used under the ex ception process. If HCRIS does not contain sufficient data for that year, data from the mo st recent year(s) that satisfies the threshold should be used. a. Number of Hospitals in County Section 1877(i)(3)(F)(i) of the Act provides that a high Medicaid facility means a hospital that is not the sole hospital in a county. We are pr oposing to incorporate this requirement into the regu lations at §411.362(c)(3)(i). b. Inpatient Admissions Section 1877(i)(3)(F)(ii) of the Act provides that a hi gh Medicaid facility means a hospital that, with respect to each of the 3 mo st recent years for which data are available, has an annual percent of tota l inpatient admissions under Medicai d that is estimated to be greater than such percent with respect to su ch admissions for any other hospital located in the county in which the hosp ital is located. We are pr oposing to incorporate this requirement at §411.362(c)(3)(ii) of the regulations. We are proposing at § 411.362(c)(3)(ii) that the hospital estimate its annual percentages of total inpatient admissions unde r Medicaid for each of the 3 most recent fiscal years for which data are available. We also are proposing th at the hospital estimate the annual percentage of such admissions for all other hospitals located in the county in which the hospital is located for each of the 3 most recent fiscal ye ars for which data are available. We are proposing that we would review a request based on the data available as of the date that the hospital submits its request.CMS-1525-P 731 We are proposing to require the applican t hospital to use filed hospital cost reporting discharge data as a proxy for inpa tient admissions under Medicaid. CMS will post the data necessary for a hospital to calculate the annual percentage of total inpatient admissions under Medicaid for all other hospi tals located in the county in which the hospital is located on the CMS Web site at: http://www.cms.gov/physicianselfreferral/ 85_physician_owned_hospitals.asp. We plan to issue guidance that further describes the process for hospitals to estimate inpatient admissions under Medicaid. c. Nondiscrimination Section 1877(i)(3)(F)(iii) of the Act provides that a high Medicaid facility does not discriminate against be neficiaries of Federal hea lth care programs and does not permit physicians practicing at th e hospital to discriminate ag ainst such beneficiaries. We are proposing to incorporate this require ment at §411.362(c)(3)(iii) of the regulations. 3. Procedure for Submitting a Request We are not creating an application form th at a hospital must complete to apply for an exception to the prohibition on expansion of facility capacity. Rather, we are proposing that a hospital subm it to CMS a request that includes the information and documentation set forth in proposed §411.362(c)(4)(ii). We are proposing that each request mu st include: (i) the name and address, National Provider Identification number(s) (NPI), Tax Identification Number(s) (TIN), and CMS Certification Number(s ) (CCN) of the hospital; (ii) the county in which the hospital is located; a nd (iii) the name, title, address, and daytime telephone number of aCMS-1525-P 732 contact person who will be available to discuss the request with CMS on behalf of the hospital. Each request must include a clea r statement as to whether the hospital is requesting an exception as an applicable hosp ital or a high Medicaid facility. We are proposing that each request submitted by a hospi tal must include a clear explanation of how it satisfies the criteria us ing the information discussed in sections XV.C.1. or 2. of this proposed rule. This includes performi ng, recording, and submitting all calculations necessary to submit a complete request. The hospital’s request must state that it does not discriminate against benefici aries of Federal health car e programs and does not permit physicians practicing at the hospi tal to discriminate against su ch beneficiaries. Finally, we encourage hospitals to clearly label all documentation submitted with a request and indicate the criteria for which the do cumentation provides supporting information. We are proposing at §41 1.362(c)(4)(ii)(E) th at each request must include documentation supporting the hospital’s calcula tion of the hospital’s baseline number of operating rooms, procedure rooms, and beds as defined at section 1877(i)(3)(C)(iii) of the Act; the hospital’s number of operating rooms, procedure rooms, and beds for which the hospital is licensed as of the date that the hospital submits its request; and the additional number of operating rooms, procedure rooms, and beds by which the hospital requests to expand. Finally, we are proposing at §411.362(c)(4)( iii) that each request must include a certification signed by an authori zed representative of the hospital attesting that all of the information provided is true and correct to the best of his or her knowledge and belief.CMS-1525-P 733 We are proposing at §411.362(c )(4)(i) that a hosp ital must either mail an original and one copy of its request to CMS or s ubmit its request electronically. If a hospital submits its request electronically, the hospital must also submit an or iginal, hard copy of the required certification. 4. Community Input Section 1877(i)(3)(A)(ii) of the Act provi des that individuals and entities in the community in which the applicable hospital is located shall have an opportunity to provide input on the applicable hospital’s re quest for an exception to the prohibition against facility expansion. We are proposing to incorporate this provision in proposed §411.362(c)(5) of the regulations. We are proposing that the community input must take the form of written comments. In addition, using our rulemaking authority under sections 1871 and 1877(i)(3)(A)(i) of the Act, we are prop osing that individuals and entities in the community in which a high Medica id facility is lo cated may have the same opportunity to submit written comments. We are proposing at §411.362(c)(5) that a hospital must disc lose on any public Web site for the hospital that it is requ esting an exception. The notice should be accessible to the public and should remain poste d from the time a request is submitted to CMS until a decision is finalized by CMS. Once CMS has received the statements, certifications, and documentation required for a hospital’s request, CMS will report that the hospital is requesting an exception on the CMS Hospital Listserv and will post the hospital’s request for an exception on the CMS Web site. For specific information on how to subscribe to the CMS Hospital Listserv , please access the CMS Web site atCMS-1525-P 734 http://www.cms.gov/MLNProducts/dow nloads/MailingLists_FactSheet.pdf . In addition, we are proposing that a notice of the hos pital’s request will be published in the Federal Register . We are proposing at §411.362(c)(5) to allow individuals and entities in the community 30 days from the date of the notice’s publication in the Federal Register to submit written comments. Examples of community input includ e documentation demonstrating that the hospital does not satisfy one or more of the data criteria or that th e hospital discriminates against beneficiaries. These are examples only; we are not rest ricting the types of community input that may be submitted. We are proposing at §411.362(c)(5) that written comments must be submitted by mail or electronically to CMS. We are proposing at §411.362(c )(5)(i) that we wi ll consider a request complete if CMS does not receive any written comments dur ing the 30-day period after notice of the hospital’s request is published in the Federal Register

. If CMS receives written comments, CMS will notify the hospita l in writing. We are proposing at §411.362(c )(5)(ii) to allow th e hospital 30 days af ter CMS notifies the hospital of the written comments to submit information and documentation that rebut the written comments. We will consider the reque st complete at the end of the 30-day period provided for the hospital’s rebuttal, regardless of whether the hospital submits additional information or documentation. We reserve the right to perform our own calculations based on a review of the material submitted and of information generally available to

CMS.CMS-1525-P 735 5. Permitted Increase Section 1877(i)(3)(C)(i) of the Act provi des that a hospital granted an exception from the Secretary may increase the number of operating rooms, procedure rooms, and beds for which the hospital is licensed above its baseline number of operating rooms, procedure rooms, and beds. If the hospital has been grante d a previous exception from the Secretary, the hospital may increase above the number of operati ng rooms, procedure rooms, and beds for which the hospital is lic ensed after application of the most recent increase under such an exception. a. Amount of Permitted Increase Section 1877(i)(3)(C)(ii) of the Act provide s that the Secretary shall not permit an increase in the number of operating rooms, procedure rooms, and beds for which an applicable hospital is licensed to the extent such increase would re sult in the number of operating rooms, procedure rooms, and beds fo r which the applicable hospital is licensed exceeding 200 percent of the baseline number of operating rooms, procedure rooms, and beds of the applicable hosp ital. We are proposing to in corporate this provision at §411.362(c)(6)(i) of the regulations. Using our rulemaking authority under s ections 1871 and 1877(i)(3)(A)(i) of the Act, we are proposing to similarly limit the in crease in the number of operating rooms, procedure rooms, and beds for which a high Medi caid facility may request an exception. We are soliciting public comment on whether the proposed limit would be sufficient to balance the intent of the general prohibition on expans ion with the purpose of theCMS-1525-P 736 exception process to provide the opportunity to expand in areas where a sufficient need for access to high Medicaid facilities is demonstrated. A hospital must determine its baseline facility capacity to ensure that an expansion is within the lim its set forth at section 1877(i) (3)(C)(ii) of the Act and to submit a complete request. Section 1877(i)(3 )(C)(iii) of the Act defines the “baseline number of operating rooms, procedure rooms, and beds” as the number of operating rooms, procedure rooms, and beds for which the applicable hospital is licensed as of [March 23, 2010] (or, in the case of a hospital that did not have a provider agreement in effect as of such date but does have such an agreement in effect on December 31, 2010, the effective date of such pr ovider agreement). We are pr oposing to incorporate this definition, with the clarification that it al so applies to high Me dicaid facilities, at §411.362(a) of the regulations. b. Location of Permitted Increase Section 1877(i)(3)(D) of the Act provides that any increase in the number of operating rooms, procedure rooms, and beds fo r which an applicable hospital is licensed may occur only in facilities on the main campus of the applicable hospital. We are proposing to incorporate this provision at proposed §411.362(c)(6 )(ii) of the regulations. We are proposing to define the term “main campus” as the term “ca mpus” is defined at §413.65(a)(2). Using our rulemaking author ity under sections 1871 and 1877(i)(3)(A)(i) of the Act, we are proposing that, with re spect to high Medicaid facilities, the limitation on expansion of hospital capacity, as set fo rth at section 1877(i)(1)(B) of the Act,CMS-1525-P 737 similarly applies to the number of operati ng rooms, procedure rooms, and licensed beds on the “campus” of the high Medicaid facility. 6. Decisions Section 1877(i)(3)(H) of the Act states that the Secretary shall publish in the Federal Register the final decision with respec t to an application for an exception to the prohibition against facility e xpansion not later than 60 days after receiving a complete application. We are proposing to codify th is provision at §411.362(c)(7). To facilitate access to decisions, we are propos ing to post our decisions on the CMS Web site as well. The posted information will include the hospi tal’s name, address, county, and our final decision. If an exception is granted under this section, we will al so post the number of operating rooms, procedure rooms, and beds by which the hospital may expand under the granted exception. We believe that posting decisions on the CMS Web site will enable us to inform the public and the affected commun ity of our decisions in a timely manner and in a centralized location. 7. Limitation on Review Section 1877(i)(3)(I) of the Act provides that there shall be no administrative or judicial review of the pro cess, either under section 1869 , section 1878 , or otherwise. We incorporated this limitation on review at proposed §411.362(c)(8) of the regulations. We interpret this limitation on review to mean th at CMS’ decision with respect to whether a hospital qualifies for an ex ception is not reviewable.CMS-1525-P 738 8. Frequency of Request Section 1877(i)(3)(B) of the Act provides that the exception process shall permit an applicable hospital to apply for an ex ception up to once every 2 years. We are incorporating this provision at § 411.362(c)(1). Using our authority under sections 1871 and 1877 of the Act, we similarly are proposi ng to permit a high Medicaid facility to submit a request for an exception up to once every 2 years from the date of a CMS decision on the hospital’s most r ecent request. We are proposing to consider the date of a CMS decision to be the date of the letter sent to the requesting party. D. Proposed Changes Related to Provider Agreement Regulations on Patient Notification Requirements Section 1866 of the Act states that a pr ovider of services shall be qualified to participate in the Medicare program and shall be eligible for Medicare payments if it files a Medicare provider agreement and abides by the requirements appl icable to Medicare provider agreements. These requirements are incorporated in our existing regulations at 42 CFR Part 489, Subparts A and B (Provider Agreements and Supplier Approval). Section 5006 of the Deficit Reduction Act of 2005 mandated the Secretary to develop a strategic and implementing plan to address certain issues with respect to physician ownership of specialty hospitals. As part of that plan, we used our authority under sections 1866, 1820(e)(3), and 1861(e)(9) of the Act (as well as our general rulemaking authority under sections 1102 and 1871 of the Act) to impose certain additional requirements on physician-owned hospitals as pa rt of their provider agreements. These new requirements were established in the FY 2008 IPPS final rule with comment periodCMS-1525-P 739 (72 FR 47385 through 47391) and the FY 2009 IPPS final rule (73 FR 48686 through 48688). Specifically, we added a new provision to require that all hospitals and CAHs: (1) furnish all patients written notice at the be ginning of their inpatient hospital stay or outpatient service if a doctor of medicine or a doctor of osteopathy is not present in the hospital 24 hours per day, 7 days per week; a nd (2) describe how the hospital or CAH will meet the medical needs of any patient who develops an emergency medical condition at a time when no physician is present in th e hospital or CAH. These requirements are codified at §489.20(w). The requirements of §§489.20(u) and (w) were made applicable to both inpatient hospital stays and outpatient services because, as we stated in the FY 2008 IPPS final rule with comment period, th ese provisions are in the interest of the health and safety of all indivi duals who receive services in these institutions. The notice requirements are intended to permit individua ls to make more informed decisions regarding their treatment. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72251), we stated that we saw no reason to treat the safety of hospital inpatients differently than hospital outpatients, and, thus, applied thes e patient safety requirements to hospital inpatients and outpatients. We continue to believe that both hospital inpatients and outpatients should receive these disclosures pr ior to admission. However, after hospitals in general informed us that it would be unduly burdensome to provide disclosures to all outpatients, and hospitals with emergency departments reported the individual notice requirement makes the registration process more cumbersome and time-consuming thanCMS-1525-P 740 is desirable in the emergency department setting, we revisited this issue. We have reconsidered the patient safe ty requirements related to pa tient notification of physician presence, and in this proposed rule, we are proposing that hospital outpatients would need to receive such disclosures only where the ri sk of an emergency or the length of the outpatient visit make their situations more lik e that of hospital inpa tients. Under this proposal, disclosures would be required only for those outpatients receiving observation services, surgery, or any ot her procedure requir ing anesthesia. Signage would be required for hospital outpatients in the emerge ncy department, as we recognize the merit of finding a less cumbersome manner to provide the required notice in this setting. Other hospital outpatient encounters are relatively short and, in many cases, scheduled in advance. The risk of emergency is relatively low in most of these scheduled encounters. As a result, we believe the safety of these particular hospital outpa tients would not be compromised in any way if hospitals were notrequired to provide disclosures in these circumstances. In this proposed rule, we are proposing to revise paragraph (w)(1) of §489.20 to reduce the categories of outpatients who must be notified if a hospital does not have a physician on site 24 hours per day/7 days pe r week. We are propos ing that only those outpatients who receive observation services, surgery, or services involving anesthesia, must receive such written notice. We be lieve this change would reduce burden, but ensure that notice goes to those categori es of patients who are more likely to find themselves in a situation where a physician is not present when an emergency develops. (We note that we are not making any changes to similar patient safety requirements forCMS-1525-P 741 physician-owned hospitals at §411.362(b)(5)(i).) We are proposing to add a provision that notice would be required atthe beginning of a planned or unplanned inpatient stay or outpatient visit, and we provide explanation of when a planned or unplanned stay or visit begins. We are proposing to add a provision to state that an unplanned stay or visit begins at the earliest point at which the pati ent presents to the hospital. The current regulation describes when a stay or visit begins by referri ng to the time when a package of information is provided regarding schedul ed preadmission testing and registration for a planned hospital admission or outpatient serv ice. However, many admissions to the hospital are unplanned admissions of patients wh o present on an unsch eduled visit to the emergency department. Therefore, it was neces sary to clarify when we considered such unplanned stays or visits begin. We are proposing to add a new paragr aph (w)(2) to §489.20 (existing paragraph (w)(2) would be redesignated as discussed belo w) that would require a hospital that is a main provider that has one or more remote locat ions of a hospital or sa tellites to make the determination of whether notice is require d separately at each location providing inpatient services. We are proposing to us e the terms “main provi der,” “remote location of a hospital,” and “satellite” as these te rms are defined at §4 13.65(a)(2), §412.22(h), or §412.25(e), as applicable. We are proposing that notice would be required for all applicable patients, that is, all inpatients and applicable outpatients, at each location at which inpatient services are furnished and at which a doctor of medicine or doctor of osteopathy is not present 24 hours per day/7 da ys per week. We are proposing to move language that is currently in paragraph (w)(1) to a new pa ragraph (w)(3), governing theCMS-1525-P 742 content of the written notice. We are propos ing to redesignate existing paragraph (w)(2), which requires the hospital to receive a si gned acknowledgment from the patient who has received a notice that the pa tient understands th at a physician may not be present during all hours in which services ar e furnished to the patient, as paragraph (w)(4) and to revise the redesignated paragraph. We are proposi ng to add a provision to state that, before providing an outpatient service to an outpa tient for whom a notice is required, the hospital must receive the signed acknowledgm ent. This revision would make this requirement consistent with our proposed revisions to paragraph (w)(1) limiting the notice requirement to certain categories of outpatients. We are proposing to add a new paragr aph (w)(5) which would require every hospital that has a dedicated emergency depa rtment in which a doctor of medicine or doctor of osteopathy is not present 24 hours per day/7 days per week to post a notice conspicuously in a place or places likely to be noticed by all individuals entering the dedicated emergency department. “Dedicat ed emergency department” would have the meaning found in existing §489.24(b) of the regu lations. We would require the notice to state that the hospital does not have a doctor of medicine or doctor of osteopathy present in the hospital 24 hours per day/7 days per w eek, and to indicate how the hospital will meet the needs of any patient with an em ergency medical condition, as that term is defined in §489.24(b), at a time when no docto r of medicine or doctor of osteopathy is present within the hospital. In the event that there is a decision to admit a patient from the emergency department as an inpatient, the individualized written disclosure and acknowledgment would have to be made at the time the patient is admitted.CMS-1525-P 743 XVI. Additional Proposals for the Hosp ital Value-Based Purchasing (Hospital VBP) Program A. Hospital VBP Program 1. Legislative Background Section 3001(a) of the Affordable Care Act added section 1886(o) to the Act. This section requires the Secretary to es tablish a hospital inpatient value-based purchasing program under which value-based incentive payments are made in a fiscal year to hospitals meeting performance standa rds established for a performance period for such fiscal year. Both the performance standards and the performance period for a fiscal year are to be established by the Secretary. Section 1886(o)(1)(B) of the Act dir ects the Secretary to begin making value-based incentive payments under the Ho spital Inpatient Value-Based Purchasing Program (Hospital VBP Program) to hospitals for discharges occurring on or after October 1, 2012. These incentive paymen ts will be funded for FY 2013 through a reduction of 1.0 percent to the FY 2013 base operating DRG payment amount for each discharge, as required by secti on 1886(o)(7)(B)(i) of the Act. Section 1886(o)(1)(C) of the Act provides that the Hospital VBP Program applies to subsection (d) hospitals (as defined in se ction 1886(d)(1)(B) of th e Act), but excludes from the definition of the term “hospital,” with respect to a fiscal year: (1) a hospital that is subject to the payment reduction under se ction 1886(b)(3)(B)(viii) (I) of the Act (the Hospital IQR Program) for such fiscal ye ar; (2) a hospital for which, during the performance period for the fiscal year, th e Secretary cited deficiencies that poseCMS-1525-P 744 “immediate jeopardy” to the health or safety of patients; and (3) a hospital for which there are not a minimum number (as determin ed by the Secretary) of measures for the performance period for the fiscal year invol ved, or for which there are not a minimum number (as determined by the Secretary) of cases for the measures that apply to the hospital for the performance period for such fiscal year. 2. Overview of the Hospital I npatient VBP Program Final Rule We recently issued the Hospital Inpa tient VBP Program Final Rule, which implemented the Hospital VBP Program gr am under section 1886(o) of the Act (76 FR 26490 through 26547). The Hospital Inpatient VBP Program Final Rule was developed based on extensive research we conducted on hospital va lue-based purchasing, including research that formed the basis of a 2007 report we submitted to Congress, entitled “Report to Congress: Plan to Implement a Medicare Hospital Value-Based Purchasing Program.” This report is available on our Web site ( https://www.cms.gov/AcuteInpatientPPS/dow nloads/HospitalVBPPlanRTCFINALSUB MITTED2007.pdf ) and takes into account input from stakeholders and other interested parties. As described more fully in the Hospita l Inpatient VBP Program Final Rule, we adopted for the FY 2013 Hospital VBP Program 13 measures that we have already adopted for the Hospital IQR Program, cat egorized into two domains (76 FR 26495 through 26511). We grouped 12 clinical process of care measures into a clinical process of care domain, and placed the HCAHPS surveymeasure into a patient experience of care domain. We adopted a 3-quarter pe rformance period from July 1, 2011 throughCMS-1525-P 745 March 31, 2012 for these measures (76 FR 26494 through 26495). To determine whether a hospital meets the proposed performance standards for these measures, we will compare each hospital’s performance during th is performance period to its performance during a 3-quarter baseline period from July 1, 2009 through March 31, 2010 (76 FR 26493 through 26495). We also finalized a methodology for asse ssing the total performance of each hospital based on performance standards under which we will score each hospital based on achievement and improvement ranges for each applicable measure. We will calculate a Total Performance Score for each hospital by combining the greater of the hospital’s achievement or improvement points for each measure to determine a score for each domain, weighting each domain score (f or the FY 2013 Hospital VBP Program, the weights will be clinical pr ocess of care = 70 percent, patient experience of care = 30 percent), and adding together the weighted domain scores. We will convert each hospital’s Total Performance Score into a value-based incentive payment using a linear exchange function. We refer readers to the Hospital Inpatient VBP Program Final Rule for further explanation of the de tails of the FY 2013 Hospital VBP Program (76 FR 26490 through 26547). For FY 2014, we adopted 13 outcome m easures comprised of 3 mortality measures, 2 AHRQ composite measures, a nd 8 hospital-acquired condition (HAC) measures (76 FR 26511). These measures are discussed fully in the Hospital Inpatient VBP Program Final Rule (76 FR 26510 th rough 26511). These finalized outcome measures for FY 2014 are set forth below.CMS-1525-P 746

Finalized Outcome Measures for the FY 2014 Hospital VBP Program Mortality Measures (Medicare Patients) ● Acute Myocardial Infarcti on (AMI) 30-day mortality rate ● Heart Failure (HF) 30-day mortality rate ● Pneumonia (PN) 30-day mortality rate AHRQ Patient Safety Indicators (PSIs) , Inpatient Quality Indicators (IQIs) Composite Measures ● Complication/patient safety for selected indicators (composite) ● Mortality for selected medical conditions (composite) Hospital Acquired Condition Measures ● Foreign Object Retained After Surgery ● Air Embolism ● Blood Incompatibility ● Pressure Ulcer Stages III & IV ● Falls and Trauma: (Includes: Fr acture, Dislocation, Intracranial Injury, Crushing Injury, Burn, Electric Shock) ● Vascular Catheter-Associated Infection ● Catheter-Associated Urin ary Tract Infection (UTI) ● Manifestations of Poor Glycemic Control

3. Proposed Additional FY 2014 Ho spital VBP Program Measures For the FY 2014 Hospital VBP Program, we are proposing to reta in all 13 of the clinical process of care and pa tient experience of care measur es that we adopted for the FY 2013 Hospital VBP Program. We also ar e proposing to add one measure to the clinical process of care domain: SCIP-Inf- 9: Postoperative Urinary Catheter Removal on Postoperative Day 1 or 2. This measure wa s specified for the Hospital IQR Program beginning with FY 2011 and subsequent payment determination years (74 FR 43869 through 43870), and information about the m easure first appeared on Hospital Compare in December 2010. Thus, we believe that this measure meets the requirement in section 1886(o)(2)(C)(i) of the Act to be included in the Hospital VBP Program because it has been specified for the Hospital IQR Program and will have been displayed on HospitalCMS-1525-P 747 Compare for at least one year before the appl icable performance period begins. In addition, SCIP-Inf-9 is NQF-endorsed (#453). The measure is relevant for the Hosp ital VBP Program because it assesses a practice that reduces Catheter Associated Urinary Tract In fection (CAUTI), and improves patient safety, which is highlighted as one of the Institute of Medicine’s six quality aims along with effectiveness, patient-centeredne ss, timeliness, efficiency, and equity. SCIP-Inf-9 is one of the NQF-endorsed SCIP infection prevention measures; these measures are referenced as a whole among th e metrics listed in the HHS Action Plan to Prevent HAIs. This Action Plan can be found at the following Web site: http://www.hhs.gov/ash/init iatives/hai/actionplan/ . Furthermore, this measure meets other criteria considered for measure selection for the Hospital VBP Program, such as not being “topped-out” and displaying meaningful variability among hospi tals. Therefore, we believe it would be a meaningful meas ure to include in the Hospital VBP Program. The table below lists the clinical process of care and patient experience of care measures we are proposing to adopt for the FY 2014 Hospital VBP Program. We note that these measures are currently NQF-endorse d and we will continue to monitor these measures to ensure that they reliably meas ure hospital quality, for example, ensuring that, among other things, these measures are not “t opped-out,” and their measurement criteria remain endorsed by NQF and/or are otherwise appropriate. To the extent we determine that these measures are topped-out, we may choose not to finalize them.CMS-1525-P 748

Proposed Clinical Process of Care and Pati ent Experience of Care Measures for the FY 2014 Hospital VBP Program Clinical Process of Care Measures Measure ID Measure Description Acute myocardial infarction AMI-7a Fibrinolytic Therapy Received With in 30 Minutes of Hospital Arrival AMI-8a Primary PCI Received Within 90 Minutes of Hospital Arrival Heart Failure HF-1 Discharge Instructions Pneumonia PN-3b Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient Healthcare-associated infections SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision SCIP-Inf-2 Prophylactic Antibiotic Se lection for Surgical Patients SCIP-Inf-3 Prophylactic Antibiotics Discon tinued Within 24 Hours After Surgery End Time SCIP-Inf-4 Cardiac Surgery Patients w ith Controlled 6AM Postoperative Serum Glucose SCIP-Inf-9 Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2 Surgeries SCIP-Card-2 Surgery Patients on a Beta Bloc ker Prior to Arriva l That Received a Beta Blocker During the Perioperative Period SCIP-VTE-1 Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery Patient Experience of Care Measures Measure ID Measure Description HCAHPS Hospital Consumer Assessment of Healthcare Providers and Systems Survey* *Proposed dimensions of the HCAHPS survey for use in the FY 2014 Hospital VBP Program are: Communication with Nurses, Communication with Doct ors, Responsiveness of Hospital Staff, Pain Management, Communication about Medicines, Cleanliness and Quietness of Hospital Environment, Discharge Information and Overall Rating of Hospital. We invite public comment on these proposals.CMS-1525-P 749 4. Proposed Minimum Numbers of Cases and Measures for the Outcome Domain for the FY 2014 Hospital VBP Program a. Background Section 1886(o)(1)(C)(ii)(III) of the Act requires the Secretary to exclude for the fiscal year hospitals that do not report a minimum number (as determined by the Secretary) of measures that apply to the hos pital for the performance period for the fiscal year. Section 1886(o)(1)(C)(ii)(I V) of the Act requires the Secretary to exclude for the fiscal year hospitals that do not report a minimum number (as determined by the Secretary) of cases for the measures that ap ply to the hospital for the performance period for the fiscal year. In the Hospital Inpa tient VBP Program Final Rule, we adopted 13 outcome measures for the FY 2014 Hospita l VBP Program (76 FR 26511), but we did not adopt a minimum number of cases for such measures to apply to hospitals, nor did we adopt a minimum number of m easures necessary for the outcome domain to be included in the Total Performance Score. Under section 1886(o)(1)(C)(i ii) of the Act, in determining the minimum number of reported measures and cases under sect ions 1886(o)(1)(C)(ii) (III) and (IV), the Secretary must conduct an independent anal ysis of what minimu m numbers would be appropriate. As described in the Hosp ital Inpatient VBP Final Rule (76 FR 26528 through 26529), to fulfill this requirement, we commissione d Brandeis University to perform an independent analysis that examin ed technical issues concerning the minimum number of cases per measure and the mini mum number of measures per hospital for clinical process of care measures needed to de rive reliable domain scores. Based on thatCMS-1525-P 750 analysis, we finalized our policy to exclude any clinical process of care measures for which a hospital reported fewer than 10 cas es, and to exclude from the Hospital VBP Program any hospital to which fewer than 4 of the clinical process of care measures applied. We also finalized our proposal to exclude any hospital reporting fewer than 100 HCAHPS surveys during the perfor mance period (76 FR 26529 through 26531). To determine the minimum numbers of measures and cases that should be required for the outcome domain, we agai n commissioned Brandeis University to perform an independent analysis. This an alysis examined hospital performance on the 13 finalized outcome measures using data fromthe proposed baseline periods (discussed below) for the FY 2014 Hospital VBP Program. As we did to analyze the reliability of scores in the clinical process of care doma in, different minimum numbers of cases and measures were tested to determine the co mbination of minimum numbers of cases and measures that would lead to reliable scores in the outcome domain while allowing the maximum number of hospitals to be scored for the Hospital VBP Program. Concurrent with the Brandeis analysis, we contracted with researchers at Mathematica Policy Research (Mathematica) to explore the mini mum number of cases a hospital would need to report for each individual outcome measure. b. Proposed Minimum Number of Cases for Mortality Measures, AHRQ Composite Measures, and HAC Measures The analyses by Brandeis and Mathematica determined that in order to receive a score on a mortality measure, the hospital would need to report a minimum of 10 cases, and in order to receive a sc ore on an AHRQ composite measur e, a hospital would need toCMS-1525-P 751 report a minimum of 3 cases. Consistent withthese analyses, we are proposing that these case minimums would apply for the FY 2014 Hospital VBP Program. Mathematica also examined the minimum number of cases a hospital would need to report in order to receive a reliable score on each HAC measure. Along with reliability concerns, when conducting this analysis, Math ematica also took into consideration our view, more fully explained in section XVI.A.6.d. of this proposed rule, that the incidence of HACs raises significant safety and quality concerns for patients and for the Medicare program. Therefore, we believe that a hos pital should be held accountable when HACs occur in all instances in order to protect and promote patient safety. Mathematica concluded that a minimum of one Medicare claim would be sufficient to compute an accurate score on each HAC measure, and in accordance with this conclusion, we are proposing that hospitals be evaluated ba sed on the presence or absence of HAC occurrences, regardless of the number of Medi care cases a hospital tr eats, as long as the hospital submits at least one Medicare cl aim during the performance period. As we discuss further below, we anticipate that all participating hospitals wi ll submit at least one Medicare claim during the performance pe riod, which would be sufficient for the hospitals to receive a score on se ven of the eight HAC measures. c. Proposed Minimum Numbers of Measures for Outcome Domain Brandeis researchers also analyzed the re liability of the outcome domain scores for hospitals depending upon the total numbe r of outcome measures on which they reported. The analysis showed that the da ta provide a meaningful and sufficiently reliable indication of outcomes for hospitals in the outcome domain as long as theCMS-1525-P 752 hospitals submit the minimum number of cas es (discussed above) on each of 11 outcome measures for FY 2014. Specifically, the anal ysis found that using at least 11 outcome measures per hospital provided sufficiently comp arable reliability of hospitals’ scores in the outcome domain (particularly in terms of rank ordering relative to other hospitals) as compared with what hospitals’ scores would have been if they had reported on more outcome measures. Brandeis concluded that this 11 measure minimum could be comprised of the 8 HAC measures, togeth er with 3 measures comprised of any combination of the 3 mortality measures and the 2 AHRQ composite measures. We note that, in conducting its analysis , Brandeis evaluate d how the outcome domain score would be affected if a hospital reported all ei ght finalized HAC measures. However, one of these HAC measures, Forei gn Object Retained After Surgery, will not apply to a very small subset of hospitals thatdo not perform surgerie s. Taking this into account, as well as our own further analysis which shows that the reliability of the outcome domain score would not be significantlydifferent as a statistical matter, we are proposing that the minimum number of measures a hospital would need to report in order to receive a score on the outcome domain is 10, comprised of 7 of the 8 HAC measures (all but the Foreign Object Re tained After Surgery measure) , along with 3 other measures comprised of any 3 of the other outcome measures (for example, 2 AHRQ composite measures and 1 mortality measure, or 3 mort ality measures). We believe that this proposal is consistent with the conclusions reached by Brandeis. In addition, from an inclusiveness standpoint, we believe that a 10 measure minimum will maximize hospital participation in the FY 2014 Hospital VBP Program.CMS-1525-P 753 Furthermore, because we believe that ev ery domain is an important component of an accurate Total Performance Score, we ar e proposing that, in order for a hospital to receive a Total Performance Score and be included in the FY 2014 Hospital VBP Program, the hospital must have enough cases and measures to report on all finalized domains. This proposed requirement should not impose any new barri er to hospitals or greatly reduce the number of hospitals in the FY 2014 Hospital VBP Program as compared to the FY 2013 Hospital VBP Program , when hospitals will only be scored on clinical process of care and patient experien ce of care measures. This is because, as stated above, an analysis of the existing data shows th at virtually all hospitals participating in the FY 2014 Hospital VBP Pr ogram will report on a sufficient number of cases and measures to receive outcome domain scores in addition to the clinical process and patient experience domain scores for FY 2014. We invite public comment on the pr oposed minimum numbers of cases and measures required for the FY 2014 Hospital VBP Program. We also invite public comment on the proposed requirement that hospi tals must report on all four domains (if finalized) to receive a Tota l Performance Score for the FY 2014 Hospital VBP Program. 5. Proposed Performance Periods and Baseline Periods for FY 2014 Measures Section 1886(o)(4) of the Ac t requires the Secretary to establish a performance period for the Hospital VBP Program for a fiscal year that begins a nd ends prior to the beginning of such fiscal year.CMS-1525-P 754 a. Proposed Clinical Process of Care Doma in and Patient Experience of Care Domain Performance Period and Baseline Period For the FY 2014 Hospital VBP Program, we are proposing a 9-month (3-quarter) performance period from April 1, 2012 to D ecember 31, 2012 for the clinical process of care and patient experience of care domain measures. As described in the Hospital Inpatient VBP Final Rule (76 FR 26494 through 26495), due to various statutory deadlines and other challenges we faced in implementing the FY 2013 Hospital VBP Program in a timely fashion, we adopted a 3- quarter performance period for the clinical process of care and patient experience of care domains for the FY 2013 payment determination. We have stated our intent to move to a 12-month performance period when feasible. While a 12-month performan ce period is not yet feasible for FY 2014, we believe that this proposed 3- quarter performance period will allow us to notify hospitals of the amount of their value-based incentive pa yment at least 60 days before the start of FY 2014. It would also allow us to consid er selecting CY 2013, a 12-month performance period, as the performance period for the FY 2015 Hospital VBP Program. In addition, this proposed performance period for FY 2014 would begin immediatel y after the end of the FY 2013 performance period, provide reliable performance information, and ensure that incentive payments can be made beginning with October 1, 2013 discharges. As we explained in the Hospital Inpatient VBP Program Final Rule (76 FR 26485), we believe that baseline data should be used from a comparable 9-month (3-quarter) period. Therefore, we are proposing April 1, 2010 to December 31, 2010 asCMS-1525-P 755 the baseline period for these proposed measures for FY 2014. We invite public comment on these proposals. b. Proposed Outcome Domain Perfor mance Periods and Baseline Periods In the Hospital Inpatient VBP Program proposed rule, we proposed an 18-month performance period of July 1, 2011 to December 31, 2012 and an 18-month baseline period of July 1, 2008 to December 31, 2009 fo r the three mortalityoutcome measures currently specified under the Hospital IQ R Program (MORT-30-AMI, MORT-30-HF, MORT-30-PN). In response to public comment and for reasons discussed in the Hospital Inpatient VBP Program Final Rule (76 FR 26494), we adopted a 12-month performance period of July 1, 2011 to June 30, 2012 and a 12-month baseline period of July 1, 2009 to June 30, 2010 for these measures. In the Hospital Inpatient VB P Program Final Rule, we st ated that we would begin the performance period for the proposed HAC and AHRQ measures 1 year after such measures were included on Hospital Compare . Because all the finalized HAC and AHRQ measures were incl uded on Hospital Compare on March 3, 2011, we finalized March 3, 2012 as the start of the performance period for these measures in the Hospital Inpatient VBP Program Final Rule (76 FR 26494 through 26495). We stated in the Hospital Inpatient VBP Program Final Rule (76 FR 26495) that we would propose the end performance period date for thes e measures in this proposed rule. In order for the HAC and AHRQ measures to be scored for the FY 2014 Hospital VBP Program, the performance period for th ese measures would need to end by the fourth quarter of FY 2012 to allow us suffici ent time to collect and process the necessaryCMS-1525-P 756 claims data. We note that this time pe riod needs to be longer for HAC and AHRQ measures than for clinical process and pa tient experience measures, which are based on chart-abstracted data and surveys rather than claims. Claims data require at least three months following a given calendar quarter to process and necessi tate two additional months to complete measure calculation, incl uding risk adjustment, statistical modeling, quality assurance, programmi ng, and generating reports on pa tient-level data, which is provided to hospitals. Therefore, we are proposing to adopt a nearly 7-month performance period for the HAC and AHRQ measures for FY 2014 by sele cting September 30, 2012 as the end of the performance period. While we would prefer to use a 12-month performance period, analysis of existing data indicates that a 7-month performance period would provide sufficiently robust values on these critical measures. As stated above, because we believe that a comparable period should be selected for the baseline data, we are proposing to set March 3, 2010 to September 30, 2010 as the baseline period for the proposed HAC and AHRQ measures for the FY 2014 Hospital VBP Program. We invite public comment on these proposals. The following tables include all proposed and finalized baseline and performance periods for the FY 2013 and FY 2014 program years.



### FY 2013 Hospital VBP Program Baseline and Performance Periods Domain Baseline Period Performance Period

Clinical Process July 1, 2009 – March 31, 2010 July 1, 2011 – March 31, 2012CMS-1525-P 757 

### FY 2013 Hospital VBP Program Baseline and Performance Periods Patient Experience July 1, 2009 – March 31, 2010 July 1, 2011 – March 31, 2012



### FY 2014 Hospital VBP Program Baseline and Performance Periods Domain Baseline Period Performance Period

Clinical Process* April 1, 2010 - December 31, 2010 April 1, 2012 - December 31, 2012 Patient Experience* April 1, 2010 - December 31, 2010 April 1, 2012 - December 31, 2012 Efficiency* May 15, 2010 – 90 days prior to February 14, 2011 May 15, 2012 – February 14, 2013

Outcomes

• Mortality

• HAC*

• AHRQ* • July 1, 2009 – June 30, 2010

• March 3, 2010 – September 30, 2010

• March 3, 2010 – September 30, 2010 • July 1, 2011 – June 30, 2012

• March 3, 2012 - September 30, 2012

• March 3, 2012 – September 30, 2012 *Proposed 6. Proposed Performance Standards for the FY 2014 Hospital VBP Program a. Background Section 1886(o)(3)(A) of the Act requires the Secretary to establish performance standards for the measures selected under the Hospital VBP Program for a performance period for the applicable fiscal year. The performance standards must include levels of achievement and improvement, as required by se ction 1886(o)(3)(B) of the Act, and must be established and announced not later th an 60 days before the beginning of the performance period for the fiscal year invol ved, as required by s ection 1886(o )(3)(C) ofCMS-1525-P 758 the Act. Achievement and improvement st andards are discussed more fully in the Hospital Inpatient VBP Program Final Ru le (76 FR 26511 through 26513). In addition, when establishing the performance standard s, section 1886(o)(3)(D) of the Act requires the Secretary to consider appr opriate factors, such as: (1 ) practical experience with the measures, including whether a significant propo rtion of hospitals failed to meet the performance standard during previous perfor mance periods; (2) hist orical performance standards; (3) improvement rates; and (4) the opportunity for continued improvement. (1) Mortality Measures In the Hospital Inpatient VBP Program Fi nal Rule, we finalized the achievement performance standard (achievement threshold) for each of the proposed FY 2014 Hospital VBP Program mortality measures at the median of hospital performance (50th percentile) during the applicable baseline pe riod. We also finalized the improvement performance standard (improvement thresh old) for each mortality measure at each specific hospital’s performance on each measure during the baseline period of July 1, 2009 to June 30, 2010 (76 FR 26511 through 76 FR 26512). In addition, we finalized the precise achieveme nt thresholds for these mortality measures (76 FR 26513), as shown below:

Achievement Thresholds for the FY 2014 Hospital VBP Program Mortality Outcome Measures (Displ ayed as Survival Rates) Mortality Outcome Measures Measure ID Measure Description Performance Standard (Achievement Threshold) Benchmark

MORT-30- Acute Myocardial 0.8477 0.8673CMS-1525-P 759 Achievement Thresholds for the FY 2014 Hospital VBP Program Mortality Outcome Measures (Displ ayed as Survival Rates) AMI Infarction (AMI) 30- Day Mortality Rate MORT-30- HF Heart Failure (HF) 30- Day Mortality Rate 0.8861 0.9042 MORT-30 PN Pneumonia (PN) 30- Day Mortality Rate 0.8818 0.9021 (2) Proposed Medicare Spe nding Per Beneficiary Measure In section IV.B.3.b.(2)(A) of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25927), we proposed to calculate a rati o of the Medicare spending per beneficiary amount for each hospital to the median Medi care spending per beneficiary amount across all hospitals during the perf ormance period. We proposed to set the achievement threshold at the median Medicare spending per beneficiary ratio across all hospitals during the performance period. The proposed value of the achievement performance standard (achievement threshold) for the Medicare Spending per Beneficiary measure would be 1.0. This would be the middle rati o, or the Medicare spending per beneficiary for the median hospital divided by the median Medicare spending per beneficiary for all hospitals. Likewise, in section IV.B.3.b.(2)(B) of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25927 through 25928), we proposed to set the improvement performance standard (improvement threshold) for the proposed Medicare spe nding per beneficiary measure at the hospital’s own Medicare spen ding per beneficiary ratio, as calculated during the proposed baseline period. We also proposed to set the achievement performance benchmark at the mean of the lowest decile of Medicare spending per beneficiary ratios during the performance pe riod, and that the improvement benchmarkCMS-1525-P 760 would be equal to the achievement performance benchmark for the performance period, which is the mean of the lowest decile of Medicare spending per beneficiary ratios. We refer readers to the FY 2012 IPPS/LTCH proposed rule for a complete discussion of these proposals. b. Proposed Clinical Process of Care and Patient Experien ce of Care FY 2014 Performance Standards As discussed in section XVI.B.5.a. of this proposed rule, we are proposing to adopt a 9-month (3-quarter) performance period of April 1, 2012 to December 31, 2012 for the clinical process of care and patien t experience of care measures for the FY 2014 Hospital VBP Program. To set achievement and improvement performance standards for these proposed measures for the FY 2014 Hospital VBP Program, we are proposing to use the same approach adopted in the Hospita l Inpatient VBP Program Final Rule. That approach, as well as our rationale for adopti ng it, is explained in detail at 76 FR 26511 through 76 FR 26513. We are proposing to se t the achievement performance standard (achievement threshold) for each propos ed measure at the median of hospital performance (50th percentile) during the proposed baseline period of April 1, 2010 through December 31, 2010. We also are propos ing to set the improvement performance standard (improvement threshold) for each of the proposed measures at each specific hospital’s performance on the applicable m easure during the proposed baseline period of April 1, 2010 through December 31, 2010. We ar e proposing to set each benchmark for each measure as the mean of the top decile pe rformance of applicable hospitals during the proposed baseline period. We invite public comment on these proposals.CMS-1525-P 761 We set out proposed achievement performa nce standards for the proposed clinical process of care and patient experience of care measures using the applicable baseline period data in the table below. Proposed Achievement Performa nce Standards for Proposed FY 2014 Clinical Process of Care and Patient Experience of Care Measures Measure ID Measure Description Performance Standard (Achievement Threshold) Benchmark

Process of Care Measures AMI-7a Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival 0.8066 0.9630 AMI-8a Primary PCI Received Within 90 Minutes of Hospital Arrival 0.9344 1.0000 HF-1 Discharge Instructions 0.9266 1.0000 PN-3b Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital 0.9730 1.0000 PN-6 Initial Antibiotic Selection for CAP in Immunocompetent Patient 0.9446 1.0000 SCIP-Inf-1 Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision 0.9807 1.0000 SCIP-Inf-2 Prophylactic Antibiotic Selection for Surgical Patients 0.9813 1.0000 SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time 0.9663 0.9996 SCIP-Inf-4 Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose 0.9634 1.0000 SCIP-Inf-9 Postoperative Urinary Catheter Removal on Post 0.9286 0.9989CMS-1525-P 762 Proposed Achievement Performa nce Standards for Proposed FY 2014 Clinical Process of Care and Patient Experience of Care Measures Measure ID Measure Description Performance Standard (Achievement Threshold) Benchmark

Operative Day 1 or 2 SCIP-Card-2 Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period 0.9565 1.0000 SCIP-VTE-1 Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered 0.9462 1.0000 SCIP-VTE-2 Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery 0.9492 0.9983 Patient Experience of Care Measure HCAHPS Communication with Nurses 75.79% 84.99% Communication with Doctors 79.57% 88.45% Responsiveness of Hospital Staff 62.21% 78.08% Pain Management 68.99% 77.92% Communication about Medicines 59.85% 71.54% Hospital Cleanliness & Quietness 63.54% 78.10% Discharge Information 82.72% 89.24% Overall Rating of Hospital 67.33% 82.55%CMS-1525-P 763 c. AHRQ Measures For the reasons we have discussed in the Hospital Inpatient VBP Program Final rule (76 FR 26514), we are proposing to se t the achievement performance standard (achievement threshold) for each AHRQ com posite measure at the median of hospital performance (50th percentile) during the pr oposed baseline period of March 3, 2010 to September 30, 2010. We are proposing to se t the benchmark for each AHRQ composite measure at the mean of the top decile of hospital performance during the proposed baseline period of March 3, 2010 to Septembe r 30, 2010. We also ar e proposing to set the improvement performance standard (improvement threshold) for each of the proposed measures at each specific hos pital’s performance on the applicable measure during the proposed baseline period of March 3, 2010 to September 30, 2010. d. HAC Measures We adopted eight HAC measures in the Ho spital Inpatient VBP Final Rule. For each of these eight HAC measures, at leas t one quarter of hospitals achieved a 100 percent rating based on administrative data fo r all IPPS hospitals participating in the Hospital IQR Program for Medicare di scharges from October 1, 2008 through June 30, 2010 (that is, they do not have any re portable HAC occurrences). In addition, based on the administrative data from Oct ober 1, 2008 through June 30, 2010, at least one half of all hospitals achieved a measure ra te of 100 percent on six of the eight HAC measures (Foreign Object Retained After Su rgery; Air Embolism; Blood Incompatibility; Pressure Ulcer Stages III and IV; Catheter -Associated UTI; Manifestations of Poor Glycemic Control). Accordingly, the achieveme nt threshold for these measures would beCMS-1525-P 764 zero if we proposed to set performance stan dards for each individual measure using the same methodology that we finalized withrespect to the mortality measures. We believe that the HAC measures are ex tremely important in promoting patient safety, improving quality of care, and reduci ng costs. According to a 2010 HHS Office of the Inspector General report, entitled “A dverse Events in Hospitals: National Incidence Among Medicare Beneficiaries” ( http://oig.hhs.gov/oei/reports/oei-06-09-00090.pdf ), an estimated 13.5 percent of hosp italized Medicare beneficiarie s experienced adverse events during their hospital stay s. We believe that all the fi nalized HAC measures assess the presence of conditions and outcomes that are reasonably preventable if high quality care is furnished to the Medicare beneficiary. We also believe that the incidence of HACs in general raises major patient safety issues fo r Medicare beneficiaries. Outcome measures, including HAC outcome measures, are widely regarded by the provider community as strongly indicative of the quali ty of medical care and as integral to reporting and improving quality and patient safety. Therefor e, we believe it is important to include HAC outcome measures in the Hospital VBP Program. For these reasons, we are proposing that ou r topped-out policy would not apply to the HAC measures. We also are proposing to treat the eight individual HAC measures as a single aggregate HAC score for purposes of sc oring, and believe that this approach will enable us to calculate meaningful distinct ion among hospitals and variation in hospital performance. In addition, this aggregation of the scores for the HAC measures ensures that the HAC measures do not unduly outweigh the remainder of the measures in the outcome domain. Accordingly, in taking in to account our HAC policy and reliabilityCMS-1525-P 765 concerns, we are proposing to set achievemen t performance standards, benchmarks, and improvement performance standards based on hospital combined performance on seven or eight HAC measures, as applicable, dur ing the proposed performance or baseline period. Because certain hospitals will repor t on only seven of the eight HAC measures, we are proposing separate standards for hospital perfor mance depending on whether the hospitals report on seven or eight HAC measures . As discussed more fully below, we are also proposing to score hospital performance on the HAC measures by combining hospital performance scores on each of the HAC measures to calculate a single, aggregate HAC score for this purpose. As finalized in the Hospital Inpatient VBP Program Final Rule (76 FR 26514), we are proposing to set the achiev ement performance standard (achievement threshold) for the HAC aggregate score for those hospitals th at report on all eight of the HAC measures at the median of hospital performance (50th pe rcentile) of those hospitals reporting on all eight of the HAC measures during the proposed baseline period of March 3, 2010 to September 30, 2010. We are proposing to set the achievement performance standard (achievement threshold) for th e HAC aggregate score for thos e hospitals that report on seven of the HAC measures at the median of hospital performance (50th percentile) on only those seven measures for those hospitals reporting on either seven or eight of the HAC measures during the proposed ba seline period of March 3, 2010 to September 30, 2010. We are proposing to set the benchmark for the HAC aggregate score for those hospitals that report on all eight of the HAC measures at the mean of the top decile ofCMS-1525-P 766 hospital performance for those hospitals repo rting on all eight HAC measures during the proposed baseline period of March 3, 2010 to September 30, 2010. We are proposing to set the benchmark for the HAC aggregate score for those hospitals that report on seven of the HAC measures at the mean of the top d ecile of hospital performance on only those sevenmeasures for hospitals reporting on eith er seven or eight of the HAC measures during the proposed baseline period of March 3, 2010 to September 30, 2010. We also are proposing to set the improvement performance standard (improvement threshold) for the HAC a ggregate score at each specific hospital’s performance during the proposed baseline period of March 3, 2010 to September 30, 2010, whether the hospitals repo rt on seven or eight HAC measures. Please see below for further discussion of the aggregate HAC scoring methodology. We note that the performance standa rds for the HAC aggregate score are displayed in the table below as a score com posed of all eight indi vidual HAC measures. We recognize that all hospitals report on seven of these i ndividual measures, and nearly all (about 95 percent) of hospita ls report all eight. However, a small number of hospitals do not report on the Foreign Object Removal after Surgery HAC measure. We believe that any numerical differences between th e HAC performance standards for hospitals reporting on seven of eight HAC measures compared to the standards for hospitals reporting on all eight HAC measures will be statistically insignificant. However, we intend to provide updated performance stan dards in the CY 2012 OPPS/ASC final rule with comment period for those hospitals only reporting on seven of the eight HAC

measures.CMS-1525-P 767 We invite public comment on the proposed methodology for setting performance standards for the aggregate HAC score fo r HAC measures finalized for the FY 2014 Hospital VBP Program. We specify the proposed performance standards for the aggregate HAC score (all eight measures ) and AHRQ measures using the proposed baseline period data in the table belo w. We note that, for both AHRQ and HAC measures, a lower value represents bette r performance on the measures. Thus, a “perfect” score on each m easure would be a 0.00.

Proposed Achievement Performance St andards for FY 2014 HAC* and AHRQ Measures Outcome Measures Measure ID Measure Description Performance Standard (Achievement Threshold) Benchmark

HACs** Hospital Acquired Conditions per 1,000 (aggregated) 0.00109 0.0000

AHRQ Composite Complication/patient safety for selected indicators (composite) 0.4006 0.2754

AHRQ Composite Mortality for selected medical conditions (composite) 0.7542 0.6130

* Finalized HACs for use in the FY 2014 Hospital VBP Program include: Foreign Object Retained After Surgery, Air Embolism, Blood Incompatibility , Pressure Ulcer Stages III & IV, Falls and Trauma, Vascular Catheter Associat ed Infections, Catheter Associat ed Urinary Tract Infection, and Manifestations of Poor Glycemic Control. ** HAC performance standards were calculated using data from hospitals reporting on 8 HAC measures. The final rule will include the performa nce standards for hospitals reporting on seven HAC measures.CMS-1525-P 768 7. Proposed FY 2014 Hospital VB P Program Scoring Methodology a. Proposed FY 2014 Domain Scoring Methodology In the Hospital Inpatient VBP Program Final Rule, we adopted a methodology for scoring all clinical process of care, patient experience of care, and outcome measures. As noted in the Hospital Inpatient VBP Program Final Rule, this methodology outlines an approach that we believe is well-underst ood by patient advocates, hospitals and other stakeholders because it was developed during a year-long process that involved extensive stakeholder input, and was presented by us in a report to Congress. Further, we have conducted extensive research on a number of other scoring models for the Hospital VBP Program to ensure a high level of confid ence in the scoring methodology (76 FR 26514). In addition, we believe that, for simplicity a nd consistency of the Hospital VBP Program, it is important to score hospitals under the same methodology for subse quent fiscal years, with appropriate modifications to accommoda te new domains and measures. Therefore, we are proposing to use the same scoring methodology for these measures in the FY 2014 Hospital VBP Program, with the changes disc ussed below for HAC measures. We also refer readers to discussion of the proposed Medicare Spending per Beneficiary measure in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25927 through 25928). We invite public comment on this proposal. b. Proposed HAC Measures Scoring Methodology We are proposing to score the HAC m easures using an aggregated HAC rate based on the unweighted average of the rates of the individual HAC measures. However, as explained above, we are aw are that hospitals may only re port on seven of the eightCMS-1525-P 769 finalized HAC measures. This is because so me hospitals do not pe rform surgeries, and therefore would not submit eligible claims that would be the basis for the Foreign Object Retained After Surgery HAC measure. The remaining seven HAC measures would apply to all hospitals, however, because all hospita ls that participate in the Hospital VBP Program will submit eligible claims for these measures. We also anticipate that most hospitals will report on all eight of the indi vidual HAC measures because most hospitals that participate in the Hospital VBP Program perform surgeries and would submit eligible surgical claims that would be the basis for the Foreign Object Retained After Surgery HAC measure. Accordingly, we are proposi ng that the aggregate HAC score for each hospital be calculated as the equally-weighted average of the rate s on all HAC measuresfor which the hospital reports Medicare claims, which will most often be an equallyweighted average of the rates on all eight m easures, but may be scores on seven of the HAC measures. As stated above, the HAC a ggregate score will be calculated if a hospital submits at least one Medicare claim during the performance period. For example, if a hospital submits one or more Medicare claims during the performance period, and those claims do not indicate any HAC occurrences, the hospital will receive a perfect score on all applicable HAC measures . The aggregate HAC rate would then be used to assign points in accordance with the proposed performance standards discussed above to calculate an indivi dual hospital’s aggregate HAC achievement and improvement scores. The single aggregate HAC score would be the greater of the hospital’s achievement or improvement score. The hospital’s aggregate HAC score would be combined with the hospital’s score on othe r outcome measures to derive an outcomeCMS-1525-P 770 domain score, with the aggr egate HAC score weighted equa lly with the other outcome measures in the domain. We note that in as signing points for this aggregate HAC score, lower aggregate HAC scores represent bett er performance. We believe our proposed aggregate scoring methodology for HAC measur es allows us to meaningfully score hospitals on these critical patient safety measures. We welcome public comment on this proposal. 8. Ensuring HAC Reporting Accuracy For the FY 2013 Hospital VBP Program, the validation process we adopted for the Hospital IQR Program will ensure th at the Hospital VBP data are accurate (76 FR 26537 through 26538). In addition, Medicare Administrative Contractors (MACs) review claims to ensure that accurate Medicare payments are made. This claims review ensures that HAC data included on the claims are accurately reported both for the Hospital IQR Program and the Hospital VBP Program. In addition, we are considering proposing to adopt additional targeting to a ssess the accuracy of HAC data reported on claims. Specifically, we are considering targetin g a subset of hospitals that report zero or an aberrantly low percentage of HACs on Me dicare fee-for-service IPPS claims relative to the overall national average of HACs. This consideration is supported by our analysis of HAC rates calculated using data from Medicare fee-for-service clai ms from October 1, 2008 through June 30, 2010. We publicly released these rates in March 2011, and they can be found on our Web site

at: http://www.cms.gov/Hosp italQualityInits/06_HACPost.asp#TopOfPage . This analysis revealed a range in hospital-reporting of th e eight HACs from a low of 0.0001CMS-1525-P 771 percent (that is, 1 discharge out of ever y 100,000 applicable discharges) of hospital inpatient discharges (23 discharges) repor ting a blood incompatibility, to a high of 0.0564 percent (that is, 56.4 discharges out of ev ery 100,000 applicable discharges) reporting Falls and Trauma. According to this analys is, however, these HAC rates appear to be underreported occurrences when compared to similar HAI measures. For example, the Catheter Associated Urinary Tract Infecti on (CAUTI) measure rate was 5.4 percent, or 54 out of every 1,000 eligible discharges , as reported in the AHRQ 2008 National Healthcare Quality Report. This rate is more than 125 times greater than the national HAC reported CAUTI rate of 0.317 out of ev ery 1,000 eligible discharges. While we recognize that definitional differences in th e measures might contribute to this rate difference, we also believe th at underreporting of HAC claims data contributed to this difference. It is important to note that th e 5.4 percent CAUTI rate was calculated using medical record documentation as a data source and a random sample of Medicare beneficiaries for acute care hospital stays, as discussed in a separate Federal report about healthcare quality (AHRQ 2008 National Healthca re Quality Report). We note that this analysis is exploratory in nature, and we cannot definitively conclude any systematic underreporting by any particular hospitals. Nonetheless, we believe that this analysis provides sufficient information for CMS to consider development of a HAC validation process to assess potential underreporting by hospitals and ensure accurate reporting among all hospitals reporting HACs on Medicare claims. Our goal is to improve quality and patient safety through accurate reporti ng of hospital quality data and accurately linking quality to payment in the Hospital VBP Program. We strive to ensure accurateCMS-1525-P 772 reporting, and we believe that validating a ra ndom subset of hospitals that report an aberrantly low number of HAC s would strengthen our overa ll effort to link value to quality. We welcome public comments rega rding our considerati on of a HAC validation process. We also note that we intend to ta ke appropriate action if we discover systematic underreporting of HAC and other adverse event info rmation, including, where appropriate, reporting such instances to the HHS Office of the Inspector General for its review. 9. Proposed Domain Weighting for FY 2014 Hospital VBP Program For the FY 2013 Hospital VBP Program, we adopted a weighting scheme that weights the clinical process of care domain at 70 percent of the Tota l Performance Score, and weights the patient experi ence of care domain at 30 percen t. However, the addition of the outcome domain and the proposed addi tion of an efficiency domain necessitate the adoption of a different doma in weighting scheme than we adopted for the FY 2013 Hospital VBP Program. We discuss below the factors we considered in determining the appropriate weight to propose for each domain in the FY 2014 Hospital VBP Program. As we have previously stated, we believe that the patient’s experience associated with receiving inpatient services in a hospita l is important in determining the hospital’s overall quality of care for purposes of the Ho spital VBP Program. However, we also believe that a majority of the Total Perfor mance Score should be based on the objective data submitted by hospitals on the measures selected for the Hospital VBP Program. Thus, as we finalized for the FY 2013 Hospital VBP Program, we are proposing to weight the patient experience of care domain at 30 percent for the FY 2014 Hospital VBPCMS-1525-P 773 Program. We believe that this weighting propos al appropriately incentivizes hospitals to provide patient-centered care across the full spect rum of their services. As we stated in the Hospital Inpatient VBP Program Final Ru le (76 FR 26491), we believe that domains need not be given equal weight, and thatover time, scoring methodologies should be weighted more towards outcomes, patient experience of care a nd functional status measures (measures assessing physical and me ntal capacity, capability, well-being and improvement). Consistent w ith this policy and our analys is showing that many of the clinical process of care meas ures are nearly topped-out, we are proposing to reduce the weighting for the clinical pro cess of care domain to 20 percent. We also are proposing to weight the outcome domain at 30 percent of the Total Performance Score for the FY 2014 Hospital VBP Program. Because we be lieve that scoring hospitals on outcome measures will improve treatment outcomes and patient safety, we intend to propose increasing the weighting for the outcome doma in in subsequent fiscal years as more outcome measures become available. As we indicated in the FY 2012 I PPS/LTCH PPS proposed rule (76 FR 25927 through 25928), we believe that efficiency is an important component of improving outcomes, the patient experience of care a nd the overall quality of care provided to Medicare beneficiaries in the inpatient hospital setting. Ho wever, we also recognize the importance of clinical quality based upon i ndustry standards of car e and the patients’ experience of care. Accordingly, we are propos ing to weight the effi ciency domain at 20 percent of the Total Performance Scor e for the FY 2014 Hospital VBP Program.CMS-1525-P 774 Therefore, we are proposing the follow ing domain weights for the FY 2014 Total Performance Score: outcome domain = 30 percent; clinical process of care domain = 20 percent; patient experience of care domain = 30 percent; and efficiency domain = 20 percent. Under this proposed weighting scheme, the clinical care-related domains (process of care and outcome domains) would, together, constitute 50 percent of the total performance score (20 percent for clinical process of care and 30 percent for outcome), the patient experience of care domain would constitute 30 percent, and the efficiency domain would consti tute 20 percent. We believe that this proposed weighting scheme will hold hospitals accountable for all aspects of patient care, including clinical outcomes and efficiency. We invite public comment on the propos ed weighting of the four proposed domains to be used in the calculation of the Total Performance Score for the FY 2014 Hospital VBP Program. B. Proposed Review and Correction Pr ocess under the Hospital VBP Program 1. Background Section 1886(o)(10)(A)(i) of the Act requires the Secretary to make information available to the public regarding individua l hospital performance in the Hospital VBP Program, including: (1) performance of the hos pital on each measure that applies to the hospital; (2) the performance of the hospital with respect to each condition or procedure; and (3) the hospital’s Total Performance Score. To meet this requirement, we stated our intention in the Hospital Inpatient VBP Progr am Final Rule to publish hospital scores with respect to each measure, each hospita l’s condition-specific score (that is, theCMS-1525-P 775 performance score with respect to each condi tion or procedure, for example, AMI, HF, PN, and SCIP), each hospital’s domain-spec ific score, and each hospital’s Total Performance Score on Hospital Compare (76 FR 26534 through 26536). We intend to make proposals related to making this in formation publicly available in future rulemaking. Section 1886(o)(10)(A)(ii) of the Act requires the Secretary to ensure that each hospital has the opportunity to review, and submit corrections for, the information to be made public with respect to each hospita l under section 1886(o)( 10)(A)(i) of the Act prior to such information being made public.For the FY 2013 Hospital VBP Program, the finalized measures consist of chartabstracted clinical process of care measures and a patient experience of care measure. We are proposing that hospitals will have an opportunity to review and correct chartabstracted data and patient experience data through the processes discussed below. We intend to make additional proposals regardi ng the review and correction of outcome measures, efficiency measures, and domain, condition, and Total Performance Scores in future rulemaking. 2. Proposed Review and Corrections of Data Submitted to the QIO Clinical Warehouse on Chart-Abstracted Process of Ca re Measures and Measure Rates We are proposing that the process utili zed to give hospitals an opportunity to review and correct data submitted on the Hospital IQR Program chart-abstracted measures also be used to allow hospita ls to correct data and measure rates on chart-abstracted measures for the Hospital VB P Program. Under this proposed process,CMS-1525-P 776 hospitals would continue to ha ve the opportunity to review and correct data they submit on all Hospital IQR Program chart-abstracted measures, whether or not the measure is adopted as a measure for the Hospital VB P Program. We are proposing to use the Hospital IQR Program’s data submission, revi ew, and correction processes, which will allow for review and correction of data on a continuous basis as it is being submitted for the Hospital IQR Program, which in turn w ould allow hospitals to correct data and measure rates used to calculate the Hospita l VBP Program Total Performance Score for those hospitals that participate in both program s. We believe this process would satisfy the requirement in section 1886(o )(10)(A)(ii) of the Act to al low hospitals to review and submit corrections for one of the pieces of information th at will be made public with respect to each hospital – the measure rates fo r chart-abstracted measures. For hospitals that do not participate in th e Hospital IQR Program but do participate in the Hospital VBP Program, such as Maryland hospitals, we intend to make proposals regarding how those hospitals will be able to review a nd correct their Hospital VBP data in future rulemaking. Under the Hospital IQR Program, hospitals currently have an opportunity to submit, review, and correct any of the chart-abstracted information submitted to the QIO Clinical Warehouse for the full 4 1⁄2 months follo wing the last discharg e date in a calendar quarter. (We note that in the FY 2012 IPPS/ LTCH PPS proposed rule (76 FR 25915), we proposed to reduce the submission period from 41⁄2 months to 104 days.) Hospitals can begin submitting data on the first discharge day of any reporting quarter. Hospitals are encouraged to submit data early in the subm ission schedule so that they can identifyCMS-1525-P 777 errors and resubmit data before the quarterly submission deadline. Users are able to view and make corrections to the data that they submit within 24 hours of submission. The data are populated into reports that are updated nightly with all data that have been submitted and successfully processed for the prev ious day. Hospitals are able to view a report each quarter which shows the numerator, denominator and percentage of total for each Clinical Measure Set and Strata. That report contains the hospital’s performance on each measure set/strata submitted to the QIO Clinical Warehouse. The numerator is the number of cases that satisfies the cond itions of the performance measure, and a denominator is the number of successfully accepted cases in the measure population evaluated by the performance measure. The pe rcentage of total is calculated by using the numerator divided by the denominator multiplie d by 100. This measure rate is the same as the Hospital VBP measure rate. We believe that 4 1⁄2 months is sufficient ti me for hospitals to be able to submit, review data, make corrections to the data, and view their percentage of total, or measure rate, on each Clinical Measure Set/Strata fo r use in both the Hospital IQR and Hospital VBP Programs. Additionally, because this process is familiar to most hospitals, use of this existing framework reduces the burden that could have been place d on hospitals that participate in the Hospital IQR Program if th ey had to learn a new process for submitting data for the Hospital VBP Program. Following the period in which hospitals can review and correct data and measure rates for chart- abstracted measures as specified above, we propose that hospitals will have no further oppo rtunity to correct such data or measure

rates.CMS-1525-P 778 We are proposing that once the hospital ha s an opportunity to review and correct data related to chart-abstracted measures submitted in the Hospital IQR Program, we will consider that the hospital has been given the opportunity to review and correct this data and measure rates for purposes of the Ho spital VBP Program, and these measure rates will be used to calculate domain, condition, and Total Performance Scores for the Hospital VBP Program without further review and correction. We i nvite public comment on this proposal. 3. Proposed Review and Correction Proce ss for Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Data We are proposing a “two-phase” proc ess for the review and correction of HCAHPS data. Under this proposed process, hospitals would have the opportunity to review and correct data they submitted on all HCAHPS Hospital IQR Program items in the first phase, whether or not such items or combination of items are adopted as HCAHPS dimensions for the Hospital VBP Pr ogram. In the second phase, hospitals would have the opportunity to review the patient-mix and mode adjusted HCAHPS scores (details on the HCAHPS adju stment process may be found at: http://www.hcahpsonline.org/files/Fina l%20Draft%20Description%20of%20HCAHPS% 20Mode%20and%20PMA%20with%20botto m%20box%20modedoc%20April%2030,% 202008.pdf ) on dimensions that we will use to score hospitals under the Hospital VBP Program to determine whether they belie ve CMS calculated their scores on these dimensions correctly. We believe that this proposal for a two-phase review process will expedite hospital review and correction of data . We also believe that this proposal willCMS-1525-P 779 improve quality of care because hospitals wi ll be able to timely review their HCAHPS scores and respond efficiently in improving patient care to addre ss areas of weakness reflected in their scores. We are not proposing to release a ny patient level data to the public. This proposed review process would only grant each hospita l the authority to review and correct the hospital’s patient-level data. a. Phase One: Review and Correction of HCAHPS Data Submitted to the QIO Clinical Warehouse For the first phase of the HCAHPS review and correction process, we proposed to reduce the HCAHPS submission deadline under the Hospital IQR Program by one week in order to create a 1-week period for hospitals to review and correct their HCAHPS data. We included this proposal to reduce the submission deadline in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25916). Currently, hospitals have approximately 14 weeks after the end of a calendar qua rter to submit HCAHPS data for that quarter to the QIO Clinical Warehouse. Under this proposal, hospitals would have approximately 13 weeks after the end of a calendar qua rter to submit HCAHPS data for that quarter to the QIO Clinical Warehouse and a 1-week period to re view and correct that data. During the 13-week submission period, hospitals would be able to resubmit their data to make corrections to the patient-level records. The 1-week review and correction period would occur immediately after the 13-w eek data submission deadline. The proposed 1-week review and corre ction period would allow hospitals to provide missing data or replace incorrect data in the data files they have submitted to the QIO Clinical Warehouse. The 1-week review and correction period will allow hospitalsCMS-1525-P 780 to identify any issues with the data they had submitted in the 13-week submission period. Hospitals will have the opportunity to review frequency distributions of all of their submitted data items, which include hospital summary information, patient administrative data, and patient survey responses, and re submit their HCAHPS data files to correct identified issues during the 1-week review and correction period. We define the term “review and correct” to mean that hospitals cancorrect their existing data records, but not add new data records. Accordingly, hospitals would not be allowed to add new patientlevel records or remove existing patient-lev el records during the review and correction period. Following the conclusion of the 1-w eek review and correc tion period, hospitals would not be allowed to review, correct, or submit additional HCAHPS data for the applicable calendar quarter. b. Phase Two: Review and Correction of HCAHPS Scores for the Hospital VBP Program In the second phase of the proposed HCAHPS review and correction process, hospitals would be given the opportunity to review their scores on the HCAHPS items that will be used in the Hospital VBP Progr am. These HCAHPS scores are constructed after the data that hospitals had submitted have been analyzed to identify and remove incomplete surveys and after adjustments for the effects of patient-mix and survey mode have been applied. (Details on the HCAHP S adjustment process may be found at: http://www.hcahpsonline.org/files/Fina l%20Draft%20Description%20of%20HCAHPS% 20Mode%20and%20PMA%20with%20botto m%20box%20modedoc%20April%2030,% 202008.pdf .) Hospitals would have approximate ly 1 week to examine their HCAHPSCMS-1525-P 781 dimension scores for the applicable Ho spital VBP Program performance period. A participating hospital would have the oppor tunity to question CMS if the hospital believes its scores were miscalculated. We would respond to a hospital’s inquiries by checking the calculation and, if necessary, re calculating the hospital’s HCAHPS scores. In this proposed second phase of the HCAHPS review and correction process, hospitals would not be allowed to change or submit new HCAHPS data or delete existing data. Their right to correct information during this period would be limited to reviewing their HCAHPS dimension scores and notifying CMS of any errors in its calculation of those scores. We intend to propose the procedural aspects of the second phase of the proposed HCAHPS review and correcti on process in the FY 2013 I PPS/LTCH PPS proposed rule. In summary, for the chart-abstracted and patient experience of care measures, we are proposing that existing procedures for subm ission, review, and co rrection related to chart-abstracted measures under the Hospita l IQR Program, coupled with the proposed two phase review of HCAHPS scores discus sed above, would constitute an opportunity for review and correction of measure data and measure rates under the Hospital VBP Program. Because these procedures give hospi tals the opportunity to review and correct the data and/or measure rates, such data and measure rates may be used to calculate domain, condition, and Total Performance Sc ores for the Hospital VBP Program. We intend to make proposals related to making th is information publicly available, and to make additional proposals regarding the revi ew and correction of outcome measures, efficiency measures, and do main, condition, and Total Performance Scores in future rulemaking. We invite public comment on these proposals.CMS-1525-P 782
XVII. Files Available to th e Public via the Internet In the past, a majority of the Addendato which we referred throughout the preamble of the OPPS/ASC proposed and final ru les appeared in the printed version of the Federal Register as part of the annual rulemakings . However, beginning with this CY 2012 proposed rule, the Addenda of the pr oposed and final rule s will be published and available only via the Inte rnet on the CMS Web site. We note that our existing regulations at §§416.166(b), 416.17 1(b), and 416.173 provide for the annual publication of the covered surgical procedures and th e payment rates under the ASC payment system in the Federal Register . In this proposed rule, we ar e proposing to revise these three regulations to reflect the option of annually publishing the Addenda containing the covered surgical procedures and payment rates under the ASC payment system via the Internet on the CMS Web site. To view the Addenda of the CY 2012 O PPS/ASC proposed rule pertaining to the CY 2012 proposed payments under the OPPS, go to the CMS Web site at: http:// www.cms.hhs.gov/HospitalOutpatientPPS/HORD and select “1525-P” from the list of regulations. All Addenda for this proposed rule are c ontained in the zipped folder entitled “2012 OPPS NPRM Addend a” at the bottom of the page. To view the Addenda of the CY 2012 O PPS/ASC proposed rule pertaining to the CY 2012 proposed payments under the ASC payment system, go to the CMS Web site at: http:// www.cms.gov/ASCPayment/ASCRN/ and select “1525-P” from the list of regulations. All Addenda for this proposed rule are contained in the zipped folder entitled “Addendum AA, BB, DD1, and DD2” at the bottom of the page.CMS-1525-P 783 A. Information in Addenda Relate d to the Proposed CY 2012 Hospital OPPS Addenda A and B provide various data pertaining to the proposed CY 2012 payment for items and services under the OPPS. Specifically, Addendum A includes a list of all proposed APCs to be payable under the OPPS, including the proposed scaled relative weights, the proposed national unadjusted payment ra tes, the proposed national unadjusted copayments, and the proposed minimum unadjusted copayments for each APC that we are proposing for CY 2012. Addendum B includes a list of all active HCPCS codes, including the proposed APC a ssignments, the proposed scaled relative weights, the proposed nati onal unadjusted payment rate s, the proposed national unadjusted copayments, the proposed minimum unadjusted copayments, and the proposed payment status indicators a nd proposed comment indicators for CY 2012

OPPS. For the convenience of the public, we al so are including on the CMS Web site a table that displays the HCPCS code data in Addendum B sorted by APC assignment, identified as Addendum C. Addendum D1 defines the proposed paym ent status indicators that we are proposing to use in Addenda A and B. Addendum D2 defines the proposed comment indicators that are used in Addendum B. Addendum E lists the HCPCS codes that are proposed to be only payable to hospitals as inpatient procedures and that are not payable under the OPPS for CY 2012. Addendum L cont ains the proposed out-migration wage adjustment for CY 2012. Addendum M lists th e HCPCS codes that are proposed to be members of a composite APC and identifies the proposed composite APC to which eachCMS-1525-P 784 is assigned. This addendum al so identifies the proposed status indicator for each HCPCS code and a proposed comment indicator if there is a proposed change in the code’s status with regard to its membership in the compos ite APC. Each of the HCPCS codes included in Addendum M has a single procedure paymen t APC, listed in Addendum B, to which it is assigned when the criteria for assignment to the composite APC are not met. When the criteria for payment of the code through the composite APC are met, one unit of the composite APC payment is paid, thereby provi ding packaged payment for all services that are assigned to the composite APC accordin g to the specific I/OCE logic that applies to the APC. We refer readers to the discus sion of composite APCs in section II.A.2.e. of this proposed rule for a complete desc ription of the proposed composite APCs. Addendum N, “Proposed Bypass Codes for Creating ‘Pseudo’ Single Procedure Claims for CY 2012 OPPS,” contains a list of the HCPCS codes that we are proposing to use to create “pseudo” single claims from mu ltiple procedure claims so that the most claims data can be used to set median cost s for the CY 2012 OPPS. We refer readers to section II.A.1.b. of this proposed rule for a full discussion of th e use of this file in the proposed 2012 OPPS ratesetting process. Adde ndum N contains the following elements for the proposed CY 2012 bypass codes: (1) HCPCS code; (2) short descriptor; (3) overall bypass indicator; a nd (4) an indicator if the c ode was not used as a bypass code in ratesetting activities prior to th is CY 2012 proposed rule. The addendum was previously issued as a table (usually Table 1) in the pream ble of the applicable proposed or final rule. We are issuing it as an addendum in this propose d rule because it is lengthyCMS-1525-P 785 and users can better analyze the file if it is furnished in Excel format on the CMS Web site. B. Information in Addenda Related to the Proposed CY 2012 ASC Payment System Addenda AA and BB provide various datapertaining to the proposed CY 2012 payment for the covered surgical procedures and covered ancillary services for which ASCs may receive separate payment. Addendum AA lists, for CY 2012, the proposed ASC covered surgical procedures, whether th e procedure is proposed to be subject to multiple procedure discounting, the proposed comment and payment indicators for each procedure, and the proposed payment weights and rates for each procedure. Addendum BB displays, for CY 2012, the proposed ASC covered ancillary services, the proposed comment and payment indicators for each service, and the proposed payment weights and rates for each service. Addendum DD1 defines the proposed paym ent indicators that are used in Addenda AA and BB. Addendum DD2 defines the proposed comment indicators that are used in Addenda AA and BB. To view the Addenda that pertain to the lis t of proposed surgical procedures to be excluded from Medicare payment if furnishe d in ASCs, go to the CMS Web site at: http://www.cms.gov/ASCPayment/ASCRN/ and select “1525-P” from the list of regulations. The proposed excluded ASC proce dures are contained in the zipped folder titled “Addendum EE” at the bo ttom of the page. The pr oposed excluded procedures listed in Addendum EE are surg ical procedures that are as signed to the OPPS inpatient list, are not covered by Medica re, are reported using a CPT unlisted code, or have beenCMS-1525-P 786 determined to pose a significant safety risk to a Medicare benefici ary when performed in an ASC or for which standard medical practi ce dictates that the beneficiary typically requires active medical monitoring and car e at midnight following the procedure. The Medicare Physician Fee Schedule (MPFS) data files are lo cated at the CMS Web site at: http://www.cms.gov/PhysicianFeeSched/

. The links to all of the FY 2012 IPPS proposed wage index-related tables (that are used for the CY 2012 OPPS) are acce ssible on the CMS Web site at: http://www.cms.gov/AcuteInpatientPPS/WIFN

. XVIII. Collection of Information Requirements A. Legislative Requirement s for Solicitation of Comments Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in the Federal Register and to solicit public commen t before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2 )(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

● The need for the information collecti on and its usefulness in carrying out the proper functions of our agency.

● The accuracy of our estimate of the information collection burden.

● The quality, utility, and clarity of the information to be collected.

● Recommendations to minimize the information collection burden on the affected public, including auto mated collection techniques.CMS-1525-P 787 In this proposed rule, we are soliciting public comments on each of the issues outlined above as discussed below that contained information collection requirements. B. Requirements in Regulation Text This proposed rule contains the fo llowing proposed information collection requirements specified in the regulatory text: 1. ICRs Regarding Basic Commit ments of Providers (§489.20) Section 489.20(w) contains a physician pr esence disclosure requirement that requires disclosure when a doctor of medici ne or a doctor of osteopathy is not onsite 24 hours per day, 7 days per week. The burde n associated with the physician presence disclosure requirement is the time and e ffort necessary for each hospital and CAH to develop a standard notice to furnish to its pa tient, obtain the required patients signatures, and maintain a copy in the patient’s medical re cord. Although this requirement is subject to the PRA, the associated burden is approved under OMB control number 0938-1034. Our proposed amendment to §489.20(w) w ould require that, for hospitals and CAHs that are not physician owned, the existing physician presence disclosure requirement regarding outpatient services would apply only to out patients receiving observation services, surgery, and procedur es requiring anesthesia. The burden associated with this requirement would be greatly reduced and includes revisions to the time and effort necessary for each hospital and CAH to revise and disseminate the existing standard notice to its patients. The requirements in §489.20(w) apply to all hospitals as defined in §489.24(b). We estimate that there are approximately 2,597 hospitals and CAHs that may not have a doc tor or medicine or a doctor of osteopathyCMS-1525-P 788 onsite at all times. We estimate that it will take each hospital or CAH 4 hours to develop or amend and review a disclosure form on a one-time basis, 30 seconds to make each disclosure, another 30 seconds to obtain the patient’s signature, and an additional 30 seconds to include a copy of the notice in th e patient’s medical record. We estimate that on average each hospital or CAH that is subj ect to the disclosure requirement will make 1966 disclosures per year. The estimated a nnual burden associated with developing an amended form, obtaining patient signatures , and copying and recording the form is 137,872 hours at a cost of approximately $2,551,148. 2. ICRs Regarding Exceptions Process Re lated to the Prohibition of Expansion of Facility Capacity (§411.362) As discussed in section XV. of this proposed rule, our proposed new §411.362(c) would establish and implement a process unde r which an applicable hospital or high Medicaid facility may apply for an exception to the prohibition on expansion of facility capacity. A physician-owned hospital would be allowed to request an exception under proposed §411.362(c) by providing information to CMS regarding the hospital’s baseline number of operating rooms, procedure rooms, and beds for which the hospital is licensed as of March 23, 2010, and specifying the increase in the number of operating rooms, procedure rooms and beds it is requesting unde r the exceptions proce ss. In addition, the hospital would have to provide supporting do cumentation to CMS regarding the criteria it must satisfy. We estimate that 265 phys ician-owned hospitals would request an exception. We estimate that it would take each hospital 8 hours and 17.5 minutes to complete the request process at the cost of $417.74 for each hospital. Overall, the annualCMS-1525-P 789 burden for this process is estimated atapproximately 2,153 hour s at the cost of approximately $110,707. These estimates do not include time or cost burden estimates for hospitals to read and pr ovide rebuttal statements in response to community input comments, which is included in the proposed regulation, and the associated time and costs for the hospital to send them to CMS. Du e to the voluntary natu re of this criterion, time and cost burden estimates would be diffi cult to anticipate as this is an unknown variable.

PROPOSED REVISED ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS

Regulation Section(s) OMB Control

No. Number of Respondents Number of Responses Burden per Response

(hours) Total Annual Burden (hours) Hourly Labor Cost of Reporting ($) Total Labor Cost of Reporting ($) Total Capital/ Maintenance

Costs ($) Total Cost ($) §489.20 0938- 1034 2,597 1,966 0.019 137,872* 18.50 2,551,148 0 2,551,148 §411.362 0938- New 265 265 8.29 2,153 51,42 110,707 0 110,707 Total 2,862 2,231 140,025 2,661,855 * Represents the revised burden estimate asso ciated with the requirement. It does not reflect the burden currently approved under OCN 0938-1034. C. Proposed Associated Information Coll ections Not Specified in Regulatory Text In this proposed rule, we make refere nce to proposed associated information collection requirements that are not discussed in the regulation text contained in this document. The following is a di scussion of those requirements. 1. Hospital Outpatient Quality Reporting (Hospital OQR) Program As previously stated in section XIV. of this proposed ru le, the Hospital OQR Program has been generally modeled after the quality data reporting program for the Hospital IQR Program. We refer readers to the CY 2011 OPPS/ASC final rule withCMS-1525-P 790 comment period (75 FR 72064 through 72110 and 72111 through 72114) for a detailed discussion of Hospital OQR Program inform ation collection requirements we have previously finalized. 2. Hospital OQR Program Measures for the CY 2012, CY 2013, CY 2014, and CY 2015 Payment Determinations a. Previously Adopted Hospital OQR Progr am Measures for the CY 2012, CY 2013, and CY 2014 Payment Determinations In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68766), we retained the 7 chart-abstracted measures we used in CY 2009 and adopted 4 new claimsbased imaging measures for the CY 2010 pa yment determination, bringing the total number of quality measures for which hospitals must submit data to 11 measures. In the CY 2010 OPPS/ASC final rule with comme nt period (74 FR 60637), we required hospitals to continue to submit data on the same 11 measures for the CY 2011 payment determination. The burden associated with the aforementioned data submission requirements is currently approve d under OCN: 0938-1109 and expires October 31, 2013. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72071 through 72094), we adopted measures for the CY 2012, CY 2013, and CY 2014 payment determinations. For the CY 2012 payment determination, we retained the 7 chart-abstracted measures and the 4 claims-based imaging measures we used for the CY 2011 payment determination. We also adopted 1 structural HIT measure that tracks HOPDs’ ability toCMS-1525-P 791 receive lab results electronically, and 3 claims -based imaging efficiency measures. These actions bring the total number of measures for the CY 2012 payment determination for which hospitals must submit data to 15 meas ures. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72112 through 72113) , we discussed the burden associated with these information collection requirements. For the CY 2013 payment determination, we required that hospitals continue to submit data for all of the quality measures that we adopted for the CY 2012 payment determination. We also adopted 1 structural HIT measure assessing the ability to track clinical results between visi ts, 6 new chart-abstracted me asures on the topics of HOPD care transitions and ED efficiency, as well as 1 chart-abstracted ED-AMI measure that we proposed for the CY 2012 payment determinatio n but which we decided to finalize for the CY 2013 payment determination. These actions bring the total number of quality measures for the CY 2013 payment determina tion for which hospitals must submit data

to 23 measures. In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72071 through 72094), for the CY 2014 payment determina tion, we retained the CY 2013 payment determination measures, but did not adopt any additional measures. In the CY 2011 OPPS/ASC final rule with comment peri od (75 FR 72112 through 72113), we discussed the burden associated with these in formation collection requirements. The 23 measures that we adopted in the CY 2011 OPPS/ASC final rule with comment period to be used for the CY 2012 through CY 2014 payment determinations are listed in the table below.CMS-1525-P 792 Hospital OQR Program Measurement Se t Adopted in the CY 2011 OPPS/ASC Final Rule with Comment Period to be Used for the CY 2012, CY 2013, and CY 2014 Payment Determinations OP-1: Median Time to Fibrinolysis OP-2: Fibrinolytic Therapy Received Within 30 Minutes OP-3: Median Time to Transfer to Another Facility for Acute Coronary Intervention OP-4: Aspirin at Arrival OP-5: Median Time to ECG OP-6: Timing of Antibiotic Prophylaxis OP-7: Prophylactic Antibiotic Selection for Surgical Patients OP-8: MRI Lumbar Spine for Low Back Pain OP-9: Mammography Follow-up Rates OP-10: Abdomen CT – Use of Contrast Material OP-11: Thorax CT – Use of Contrast Material OP-12: The Ability for Providers with HIT to Receive Laboratory Data Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable Data OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac Low Risk Surgery OP-14: Simultaneous Use of Brain Co mputed Tomography (CT) and Sinus Computed Tomography (CT) OP-15: Use of Brain Computed Tomography (CT) in the Emergency Department for Atraumatic Headache OP-16: Troponin Results for Emergency De partment acute myocardial infarction (AMI) patients or chest pain patien ts (with Probable Cardiac Chest Pain ) Received Within 60 minutes of Arrival OP-17: Tracking Clinical Results between Visits OP-18: Median Time from ED Arrival to ED Departure for Discharged ED Patients OP-19: Transition Record with Specified Elements Received by Discharged Patients OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional OP-21: ED- Median Time to Pain Management for Long Bone Fracture OP-22: ED- Patient Without Being Seen OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who Received Head CT Scan Interp retation Within 45 minutes of Arrival

b. Additional Proposed Hospital OQR Program Measures for CY 2014 In the CY 2011 OPPS/ASC final rule with comment period, we did not adopt any new measures for the CY 2014 payment de termination. In this CY 2012 OPPS/ASCCMS-1525-P 793 proposed rule, we are proposing to add, for the CY 2014 payment determination, 6 chart-abstracted measures, 2 structural meas ures (including hospital outpatient volume data for selected outpatient surgical proce dures), and 1 HAI surgical site infection measure. Thus, for the CY 2014 payment determination, we are proposing that there would be a total of 32 measures. The comp lete proposed measure set we are proposing for the CY 2014 payment determination, includin g measures we have previously adopted, is shown below. Proposed CY 2014 Hospital OQR Program Measure Set Reflecting Measures Previously Adopted and the Proposed Additions OP-1: Median Time to Fibrinolysis OP-2: Fibrinolytic Thera py Received Within 30 Minutes OP-3: Median Time to Transfer to Anothe r Facility for Acute Coronary Intervention OP-4: Aspirin at Arrival OP-5: Median Time to ECG OP-6: Timing of Antibiotic Prophylaxis OP-7: Prophylactic Antibiotic Se lection for Surgical Patients OP-8: MRI Lumbar Spine for Low Back Pain OP-9: Mammography Follow-up Rates OP-10: Abdomen CT – Us e of Contrast Material OP-11: Thorax CT – Use of Contrast Material OP-12: The Ability for Providers with HIT to Receive Laboratory Data Electronically Directly into their Qualified/Certified EHR System as Discrete Searchable Data* OP-13: Cardiac Imaging for Preoperative Risk Assessment for Non Cardiac Low Risk Surgery * OP-14: Simultaneous Use of Brain Comput ed Tomography (CT) and Sinus Computed Tomography (CT)* OP-15: Use of Brain Computed Tomogra phy (CT) in the Emergency Department for Atraumatic Headache* OP-16: Troponin Results for Emergency Depa rtment acute myocardial infarction (AMI) patients or chest pain patients (with Proba ble Cardiac Chest Pain) Received Within 60 minutes of Arrival ** OP-17: Tracking Clinical Results between Visits** OP-18: Median Time from ED Arrival to ED Departure for Disc harged ED Patients** OP-19: Transition Record with Specified Elements Received by Discharged Patients**CMS-1525-P 794 Proposed CY 2014 Hospital OQR Program Measure Set Reflecting Measures Previously Adopted and the Proposed Additions OP-20: Door to Diagnostic Evaluation by a Qualified Medical Professional** Op-21: ED- Median Time to Pain Ma nagement for Long Bone Fracture ** OP-22: ED patient Le ft Before Being Seen** OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who Received Head CT Scan Interpretati on Within 45 minutes of Arrival ** OP-24: Surgical Site Infection*** OP-25: Hemoglobin A1c Poor C ontrol in Diabetic Patients *** OP-26: Low Density Lipoprotein (LDL -C) Control in Diabetic Patients *** OP-27: High Blood Pressure Cont rol in Diabetic Patients *** OP-28: Dilated Eye Exam in Diabetic Patients *** OP-29: Urine Screening for Microalbumin or Medical Attention for Nephropathy in Diabetic Patients *** OP-30: Cardiac Surgery Referral*** OP-31: Safety Surgery Checklist*** OP-32: Hospital Outpatient Department Volume for Selected Outpatient Surgical Procedures***

*New measure for the CY 2012 payment determination. **New measure for the CY 2013 payment determination. ***Proposed new measure for the CY 2014 payment determination.

We will calculate the claims-based measur es using Medicare FFS claims data and do not require additional hospital data subm issions, and we are using the same data submission requirements related to the chart-abstracted abstracted quality measures that are submitted directly to CMS that we used for the CY 2011 and CY 2012 payment determinations. For the structural measur es, including the collec tion of all-patient volume for selected outpatient procedures; hos pitals will enter data into a Web-based collection tool during a specifi ed collection period once annu ally. For the collection of HAI data, we are proposing that hospitals would use the NHSN infrastructure and protocol to report the measure for Hosp ital OQR Program purposes. The NHSN is aCMS-1525-P 795 Web-based reporting tool hosted by CDC and is provided free of charge to hospitals. Under the Hospital OQR Program requirements, hospitals must complete and submit a notice of participation form fo r the Hospital OQR Program if they not already done so or have withdrawn from participation. By su bmitting this document, hospitals agree that they will allow CMS to publicly report the measures for which they have submitted data under the Hospital OQR Program. For the CY 2014 payment determinati on, the burden associated with these requirements (including those previously adopt ed and those currently proposed) is the time and effort associated with completing th e notice of participati on form, collecting and submitting the data on the 32 measures. For the chart-abstracted measures where data is submitted directly to CMS, we estimate that there will be approximately 3,200 respondents per year. For hospitals to collect and submit the information on the chart-abstracted measures (including the OP -22 measure for which we are proposing that data be submitted via a Web-based tool rather than via an electronic file) we estimate it will take 35 minutes per sampled case. Based upon the data submitted for the CY 2011 payment determination and our estimates for the additional proposed measures, we estimate there will be a total of 1,307,510 cases per year, approximately 409 cases per year per respondent. The estimated annua l burden associated with the submission requirements for these chart-abstracted measures is 762,278 hours (1,307,510 cases per year x 0.583 hours per case). For the structural measures, exclud ing the proposed all-patient volume for selected surgical procedures measure, we estimate that each participating hospital willCMS-1525-P 796 spend 10 minutes per year to collect and s ubmit the required data, making the estimated annual burden associated with this m easure 1,603 hours (3,200 hospitals x 0.167 hours per hospital x 3 structural measures per hospital). For the collection of data for the proposed HAI Surgical Site Infection measure, we estimate that approximately 1,200 hospitals are participating in the Hospital OQR Program, but are not currently submitting HAI data to the NHSN. Based upon burden estimates associated with the collecti on of NHSN data currently approved under OCN: 0920-0666, we estimate that additiona l annual burden associated with this proposed measure will be 17,269 hours (0.533 hr per response x estimated 27 responses per hospital x 1,200 hospitals). For the proposed collection of all-patien t volume for selected outpatient surgical procedures, because hospitals must dete rmine their populations for data reporting purposes and most hospitals are voluntarily reporting populat ion and sampling data for Hospital OQR Program purposes, we believe th e only additional burden associated with this proposed requirement would be the reporting of the data using the Web-based tool. We estimate that each participating hospital wi ll spend 10 minutes per year to collect and submit the data, making the estimated annua l burden associated with this measure 534 hours (3,200 hospitals x 0.167 hours per hospital). c. Proposed Hospital OQR Program Measures for CY 2015 For the CY 2015 payment determinati on, we are proposing to retain the requirement that hospitals must complete a nd submit a notice of participation form for the Hospital OQR Program. For the CY 2015 payment determination, we also areCMS-1525-P 797 proposing to retain the measures used for CY 2014 payment determination (including, if adopted, the measures proposed in this pr oposed rule) and to add one additional HAI measure, Healthcare Personnel (HCP) Influe nza Vaccination. Achieving and sustaining high influenza vaccination coverage among HC P is intended to help protect HCP and their patients and reduce disease burden and healthcare costs. For the CY 2015 payment determinati on, the burden associated with these proposed requirements is the time and effort associated with co mpleting the notice of participation form, collecting and submitting the data on the proposed measures, and collecting and submitting proposed all-patient volume data for selected outpatient surgical procedures. For the proposed chart-abstracted measures, we estimate that there will be approximately 3,200 respondents per year . For hospitals to collect and submit the information on the proposed chart-abstracted m easures where data is submitted directly to CMS, we estimate it will take 35 minutes per sampled case. Based upon the data submitted for the CY 2011 payment determination and our estimates for the additional proposed measures, we estimate there will be a total of 1,307,510 cases per year, approximately 409 cases per year per respondent. The estimated annual burden associated with the aforementioned proposedsubmission requirements for the proposed chart-abstracted data is 762,278 hours (1,307,510 cases per year x 0.583 hours per case). For the proposed structural measures, we estimate that each part icipating hospital will spend 10 minutes per year to collect and submit the data, making the estimated annual burden associated with th is proposed measure 1,603 hour s (3,200 hospitals x 0.167 hours per hospital x 3 structural measures per hospital).CMS-1525-P 798 For the proposed collection of HAI da ta, we estimate that approximately 1,200 hospitals are participating in the Hospital OQR Program, but are not currently submitting HAI data to the NHSN. We base our burde n estimates upon burden estimates associated with the collection of NHSN data current ly approved under OCN: 0920-0666. For the proposed Surgical Site Infection HAI measure, we estimate that hospitals will incur an additional burden of 17,269 hours (0.533 hours per response x an estimated 27 responses per hospital x 1,200 hospitals). For the proposed collection of HCP In fluenza Vaccination HAI measure data, we estimate that hospitals will incur an a dditional burden of 14,400 hours (2.0 hours per response x an estimated 6 respons es per hospital x 1,200 hospitals). For the proposed collection of all-pati ent volume data for selected outpatient surgical procedures, because hospitals must determine their populations for data reporting purposes and most hospitals are voluntarily reporting populat ion and sampling data for Hospital OQR purposes, we believe the only additional burden associated with this proposed requirement will be the reporting of the data using the Web-based tool. We estimate that each participating hospital will spend 10 minutes per year to collect and submit the data, making the estimated annua l burden associated with this proposed measure 534 hours (3,200 hospitals x 0.167 hours per hospital). We invite public comment on the bu rden associated with these proposed information collection requirements.CMS-1525-P 799 3. Proposed Hospital OQR Program Validation Requirements for CY 2013 In this proposed rule, we are proposing to retain most of the requirements related to data validation for CY 2013 that we adopt ed in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72103 through 72106) for CY 2012, with some revisions. While these requirements are subject to the PR A, they are currently approved under OCN: 0938-1109 and expire October 31, 2013. Similar to our approach for the CY 2012 Hospital IQR Program payment determination (75 FR 72103 through 72106), we are proposing to validate data from randomly selected hospitals for the CY 2013 payment determination, but we are proposing to reduce the number of hospitals from 800 to 450. We note that, because hospitals would be selected randomly, every hospital participating in the Hospital OQR Program would be eligible each year for validation selection. In the CY 2011 OPPS/ASC proposed rule and final rule with comment period (75 FR 46381 and 72106, respectively), we di scussed additional data validation conditions under consideration for CY 2013 and s ubsequent years. In this proposed rule, we are proposing to select for validati on, up to 50 additional hospitals based upon targeting criteria. For each selected hospital, we would randomly select up to 48 patient episodes of care per year (12 per quarter) for validation pur poses from the total number of cases that the hospital successfully submitted to the O PPS Clinical Warehouse during the applicable time period. However, if a selected hospital s ubmitted less than 12 cases in one or more quarters, only those cases av ailable would be validated.CMS-1525-P 800 The burden associated with the propose d CY 2013 requirement is the time and effort necessary to submit validation data to a CMS contractor. We estimate that it would take each of the sampled hospitals approxima tely 12 hours to comply with these proposed data submission requirements. To comply with the proposed requirements, we estimate each hospital must submit up to 48 cases for the affected year for review. We are proposing that selected hospitals comply w ith these requirements per year, which would result in a total of up to 24,000 charts being submitted by the sampled hospitals. The estimated annual burden associated with the proposed data validation process for CY 2013 is approximately 6,000 hours. We also are proposing to reduce the d eadline from 45 days to 30 days for hospitals to submit requested medical record documentation to a CMS contractor to support our validation process. This proposal may create an additional administrative burden for hospitals selected for validation. However, this proposed deadline is in line with our QIO regulations at §476.78 and the to tal burden would be the time required to comply with the requirements for copying and mailing in a 30-day period 12 charts for each of four quarters for CY 2013. We invite public comment on the bu rden associated with these proposed information collection requirements. 4. Proposed Hospital OQR Program Reconsideration and Appeals Procedures In the CY 2009 OPPS/ASC final rule with comment period (73 FR 68779), we adopted a mandatory reconsideration pro cess that applied to the CY 2010 payment decisions. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60654CMS-1525-P 801 through 60655), we continued this process for the CY 2011 payment update. In the CY 2011 OPPS/ASC final rule with comme nt period (75 FR 72106 through 72108), we continued this process for the CY 2012 paym ent update with some modifications. We eliminated the requirement that the reconsid eration request form be signed by the hospital CEO to facilitate electronic submission of the form and reduce hospital burden. We are proposing to continue this process for the CY 2013 payment determination. While there is burden associated with filing a re consideration request, 5 CFR 1320.4 of the Paperwork Reduction Act of 1995 regulations excludes collection ac tivities during the conduct of administrative actions such as re determinations, reconsiderations, and/or appeals. 5. ASC Quality Reporting Program In this proposed rule, we are proposing to adopt seven claims-based measures for collection beginning in CY 2012 and one NHSN HAI measure of Surgical Site Infection for collection beginning in CY 2013. These measures would be used for the CY 2014 payment determination. We are proposing to collect quality measure data for the seven claims-based measures by using Quality Data Codes (QDCs) placed on submitted claims beginning with services furnished from January 1, 2012 through December 31, 2012. Data collection for the HAI measure would be gin with infection events occurring on or after January 1, 2013 through June 30, 2013. The eight proposed measures are:

● Patient Burns (NQF #0263)

● Patient Falls (NQF #0266)CMS-1525-P 802

● Wrong Site, Wrong Side, Wrong Patient , Wrong Procedure, Wrong Implant (NQF #0267)

● Hospital Transfer /Admission (NQF #0265)

● Prophylactic Intravenous (IV) Antibiotic Timing (NQF #0264)

● Ambulatory Surgery Patients with Appr opriate Method of Hair Removal (NQF #0515)

● Selection of Prophylactic Antibi otic: First OR Second Generation Cephalosporin(NQF #0268)

● Surgical Site Infection Rate (NQF #0299) Approximately 71 percent of ASCs part icipate in Medical Event Reporting, which includes reporting on the first four proposed claims-based measures listed above. Between January 1995 and December 2007, ASCs reported 126 events, an average of 8.4 events per year (Florida Medical Quality Assu rance, Inc. and Health Services Advisory Group. Ambulatory Surgery Center Envir onmental Scan (July 2008) (Contract No. GS-10F-0096T).). Thus, we estimate the bur den to report QDCs on this number of claims per year for the first four claims-bas ed measures to be nominal due to the small number of cases (less than 1 case per month per ASC). The remaining proposed claims-based meas ures concern surgical procedures. We estimate the burden associated with submitting QDCs for these measures to be 465,703 hours (5,577,280 claims per year x 50 percen t of claims requiring quality data code information x 0.167 hours per claim). We refe r readers to the HHS Report to Congress: Medicare Ambulatory Surgical Center Va lue-Based Purchasing Implementation Plan,CMS-1525-P 803 available at the Web site: https://www.cms.gov/ASCPayment/downloads/C_ASC_RTC%202011.pdf as the source for the number of ASCs and number of claims per year to calculate ASC burden estimates. For the collection of the Surgical Site Infection HAI data, we are proposing that ASCs would use the NHSN infrastructure and protocol to report the measure for ASC Quality Reporting Program purposes discussed above. For the Surgical Site Infection HAI measur e, we estimate that it will require ASCs an additional 8,275 hours (0.533 hours per respon se x an estimated 3 responses per ASC x 5,175 ASCs). We base the time per re sponse for our burden estimate on burden estimates associated with the collection of NHSN data currently approved under OCN: 0920-0666, and the number of ASCs from to the HHS Report to Congress: Medicare Ambulatory Surgical Center Value-Based Pu rchasing Implementation Plan, available at the Web site: https://www.cms.gov/ASCPayment/downloads/C_ASC_RTC%202011.pdf

. For CY 2015 payment determination, we are proposing to retain the eight measures we are proposing to adopt for CY 2014 payment determination (if they are adopted) and we are proposing to add two structural measures. For the structural measures, we are proposing that ASCs would enter required information using a Web-based collec tion tool between July 1, 2013 and August 15, 2013. For the Safe Surgery Checklist Use structural measure, we estimate that each participating ASC will spend 10 minutes per year to collect and submit theCMS-1525-P 804 required data, making the estimated annual burden associated with this measure 864 hours (5,175 ASCs x 0.167 hours per ASC). For the ASC Facility Volume Data on Selected ASC Surgical Procedures structural measure, we estimate that each participating ASC will spend 10 minutes per year to collect and submit the required data, making the estimated annual burden associated with this measure, 864 hours (5,175 ASCs x 0.167 hours per ASC). For the CY 2016 payment determination, we are proposing to retain the ten measures we are proposing to adopt for the CY 2015 payment determination (if they are adopted) , and are proposing to add one stru ctural measure, Influenza Vaccination Coverage Among Healthcare Personnel (NQF #0431). We estimate that each participating ASC will spend 10 minutes per year to collect and submit the data via a Web-based tool, ma king the estimated annual burden associated with this proposed measure 864 hours (5,175 ASCs x 0.167 hours per ASC). 6. Proposed 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Hospitals and CAHs Under 42 CFR 495.6(f)(9), we require eligib le hospitals and CAHs participating in the Medicare EHR Incentive Program (which would include those participating in the proposed 2012 Medicare EHR Incentive Pr ogram Electronic Reporting Pilot) to successfully report hospital clinical qualit y measures (CQMs) to CMS in the manner specified by CMS. Although we are proposing that eligible hosp itals and CAHs may continue to attest CQMs in 2012, they may al so choose to particip ate in the proposed 2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Hospitals andCMS-1525-P 805 CAHs. We are proposing that eligible hospitals and CAHs participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot must submit CQM data on all 15 CQMs (listed in Table 10 of the final rule (75 FR 44418 through 44420) for the Medicare and Medicaid EHR Incentive Program) to CMS, via a secure portal based on data obtained from the eligible hospi tal’s or CAH’s certified EHR technology. Eligible hospitals and CAHs are required to report on core and menu set criteria for Stage 1 meaningful use. The reporting of cl inical quality measures is part of the core set. We estimate that it would take an eligible hospital or CAH 0.5 hour to submit the required CQM information via the proposed 2012 Medicare EHR Incentive Program Electronic Reporting Pilot. Therefore, the es timated total burden for all 4,922 Medicare eligible hospitals and CAHs participati ng in the reporting Pilot (3,620 acute care hospitals and 1,302 CAHs) is 2,461 hours. We believe that an eligible hospita l or CAH might assi gn a Computer and Information Systems Managers to submit th e CQM information on their behalf. We estimate the cost burden for an eligible hos pital or CAH to submit the CQMs and hospital quality requirements is $29.64 (0.5 hour x $59.27 (mean hourly rate for computer and information systems managers based on the 2010 Bureau of Labor Statistics) and the total estimated annual cost burden for all eligible hospitals and CAHs to submit the required CQMs is $145,889 ($29.64 x 4,922 hospitals and CAHs). We are soliciting public comments on the estimated numbers of eligible hospitals and CAHs that may registered for the Medicare EHR Incentive Program Electronic Reporting Pilot that would submit the CQM information via the proposed Electr onic Reporting Pilot in FY 2012. We alsoCMS-1525-P 806 invite public comments on the type of personne l or staff that would mostly likely submit on behalf of eligible hospitals and CAHs. 7. Additional Topics In addition to seeking OMB approval for the proposed information collection requirements associated with the Hospital OQR Program, we are seeking public comment on several issues that may ultimately affect the burden associated with the Hospital OQR Program. Specifically, in this proposed rule, we are proposing to reta in measures for the CY 2015 payment determinations, adopt ne w measures for the CY 2014 and CY 2015 payment determinations, and we are seeki ng comments on other possible measures under consideration for adoption into the Hospital OQR Program. We also are soliciting public comments on collecting chart-abstracted data for one measure for the CY 2013 payment determination via a Web-based tool, and on the continued use of an extraordinary circumstance extension or waiver for re porting quality data, a nd additional data validation conditions that we are considering adopting beginning with the CY 2014 payment determination. We also are seeking public comment on our proposals for an ASC Quality Reporting Program for the ASC payment determinations for CYs 2014, 2015 and 2016. To obtain copies of the supporting st atement and any related forms for the proposed paperwork collections refere nced above, access CMS’ Web site at http://www.cms.hhs.gov/Paperwork@cms.hhs.gov , or call the Reports Clearance Office

at 410-786-1326.CMS-1525-P 807 We invite public comments on thes e potential information collection requirements. If you comment on these information colle ction and recordkeeping requirements, please do either of the following: 1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; or 2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget,

Attention: CMS Desk Officer, (CMS–1525–P)

Fax: (202) 395–6974; or E-mail: OIRA

_ submission@omb.eop.gov

. XIX. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowle dge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this proposed rule, and, when we proceed with a subsequent document(s), we will respond to those comments in the preamble to that document. XX. Economic Analyses A. Regulatory Impact Analysis 1. Introduction We have examined the impacts of this proposed rule as required by Executive Order 12866 on Regulatory Pl anning and Review (September 30, 1993, Executive OrderCMS-1525-P 808 13563 on Improving Regulation and Regulator y Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (Septemb er 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)). Executive Orders 12866 and 13563 direct agenci es to assess all costs and benefits of available regulatory alterna tives and, if regulation is n ecessary, to select regulatory approaches that maximize net benefits (inc luding potential economi c, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both co sts and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated as an “economically” significant rule under sect ion 3(f)(1) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget. We have prepared a Regulatory Impact Analysis th at, to the best of our ability, presents the costs and benefits of the proposed rule. We are soliciting public comments on the Regulatory Impact Analysis provided. 2. Statement of Need This proposed rule requests public co mment on the CMS proposal to update the Medicare hospital outpatient prospective payment rates and the ambulatory surgical center prospective paym ent rates for CY 2012. The proposed rule is necessary to enable CMS to acquire and consider the public co mments on the proposed changes to payment policies and payment rates for services furn ished by hospitals and CMHCs to outpatientsCMS-1525-P 809 for CY 2012. We are required under secti on 1833(t)(3)(C)(ii) of the Act to update annually the OPPS conversion factor used to de termine the APC payment rates. We also are required under section 1833(t)(9)(A) of the Act to review, not less often than annually, and revise the groups, the relative payment weights, and the wage and other adjustments described in secti on 1833(t)(2) of the Act. In addition, we must review the clinical integrity of payment groups and weights at least annually. This proposed rule also requests public comment on the CMS proposal to update the ASC payment rates for CY 2012. The proposed rule is necessary to enable CMS to acquire and consider public comments on th e proposed changes to payment policies and payment rates for covered surgical procedures and covered ancillary services that are performed in an ASC for CY 2012. Because the ASC payment rates are based on the OPPS relative weights for the majority of the procedures performed in ASCs, the ASC payment rates are updated annually to reflect annual changes to the OPPS weights. In addition, because the services provided in ASCs are id entified by HCPCS codes which are reviewed and revised either quarterly or annually, depending on the HCPCS codes, it is necessary to update the ASC payment rates annually to re flect these changes to HCPCS codes. In addition, we are required under section 1833(i)(1) of the Act to review and update the list of surgical procedures that ca n be performed in an ASC not less often than every 2 years. Section 1833(t)(17) of the Act requires that subsection (d) hospitals that fail to meet quality reporting requirements under the Hospital OQR Program to incur a reduction of 2.0 percentage point s to their OPD fee schedule in crease factor. In sectionCMS-1525-P 810 XIV. of this proposed rule, we are proposi ng additional policies affecting the Hospital OQR Program for CY 2013, CY 2014, and CY 2015 that hospitals would have to meet in order to receive the full OP D fee schedule increase factor . We are soliciting public comments on these proposed additional policies. In this proposed rule, to further impl ement section 6001(a)(3) of the Affordable Care Act, we set forth the proposed process for a hospital to request an exception to the prohibition on expansion of facility capacity under the whole hospital and rural provider exceptions to the physician self-referral prohib ition. We also set forth a related proposal for amendments to the patient safety requireme nts in the provider agreement regulations. We are soliciting public comment s on these proposed changes. Section 1886(o)(1)(B) of the Act di rects the Secretary to begin making value-based incentive payments under the Hospital VBP Program to hospitals for discharges occurring on or af ter October 1, 2012. In this pr oposed rule, we are proposing to add one chart-abstracted measure for the FY 2014 payment determination under the Hospital Inpatient VBP Program. We are soliciting public comme nts on this proposed additional measure. Section 109(b) of the MIEA TRHCA stat es that the Secretary may implement a quality reporting system for ASCs in a ma nner so as to provide for a reduction of 2.0 percentage point s in any annual update with respect to the year involved, for failure to report on quality measures. In this proposed rule, we are proposing to establish an ASC Quality Reporting Program with the collecti on of seven quality measures beginning in

CY 2012.CMS-1525-P 811 3. Overall Impacts for Proposed OPPS and ASC Provisions We estimate that the effects of the proposed OPPS provisions that would be implemented by this proposed rule would result in expenditures exceeding $100 million in any 1 year. We estimate the total increa se (from proposed changes in this proposed rule as well as enrollment, utilization, and case-mix change s) in expenditures under the OPPS for CY 2012 compared to CY 2011 to be approximately $3.285 billion. Because this proposed rule for the OPPS is “economi cally significant” as measured by the $100 million threshold and also a major rule under the Congressional Review Act, we have prepared a regulatory impact analysis that, to the best of our abil ity, presents the costs and benefits of this rulemaking. Table 51 of this proposed rule displays the redistributional impact of the proposed CY 2012 changes on OPPS payment to various groups of hospitals and for CMHCs. We estimate that the effects of the proposed ASC provisions that would be implemented by this proposed rule for the ASC payment system would result in expenditures exceeding $100 million in any one year. We estimate the total increase (from proposed changes in this proposed ru le as well as enrollment, utilization, and case-mix changes) in expenditures unde r the ASC payment system for CY 2012 compared to CY 2011 to be approximately $224 million. Because this proposed rule for the ASC payment system is “economically significant” as measured by the $100 million threshold and also a major rule under the C ongressional Review Act, we have prepared a regulatory impact analysis of changes to the AS C payment system that, to the best of our ability, presents the costs and benefits of this rulemaking. Table 52 and Table 53 of thisCMS-1525-P 812 proposed rule display the redistributional im pact of the CY 2012 proposed changes on ASC payment, grouped by specialty area and then grouped by procedures with the greatest ASC expenditures, respectively. 4. Detailed Economic Analyses a. Effects of Proposed OPPS Changes in This Proposed Rule We are proposing to update the OPPS paym ent rates and to revise several OPPS payment policies for CY 2012. We are requir ed under section 1833( t)(3)(C)(ii) of the Act to update annually the conversion factor us ed to determine the APC payment rates. We also are required under sec tion 1833(t)(9)(A) of the Act to review, not less often than annually, and revise the groups, the relative payment weights, and the wage and other adjustments described in secti on 1833(t)(2) of the Act. In addition, we must review the clinical integrity of payment groups and weight s at least annually. Consistent with our historical proactice in this proposed rule, we are propos ing to update the conversion factor and the wage index adjustment for hos pital outpatient services furnished beginning January 1, 2012, as we discuss in sections II .B. and II.C., respectiv ely, of this proposed rule. We discuss our implementation of sec tion 10324 of the Affordable Care Act, as amended by HCERA, authorizing a wage inde x of 1.00 for certain frontier States. We also are proposing to revise the relative APC payment weights using claims data for services furnished on and after January 1, 2010, through and including December 31, 2010, and updated cost report info rmation. We are proposing to continue the current payment adjustment for rural SCHs, including EACHs. Finally, we list theCMS-1525-P 813 19 drugs and biologicals in Table 26 of this proposed rule that we are proposing to remove from pass-through payment status for CY 2012. Under this proposed rule, we estimate th at the update change to the conversion factor and other adjustments (but not in cluding the effects of outlier payments, pass-through estimates, and the application of the frontier State wage adjustment for CY 2012), would increase total OPPS payments by 1.5 percent in CY 2012. The proposed changes to the APC weights, the chan ges to the wage indices, the continuation of a payment adjustment for rural SCHs, including EACHs, and the proposed payment adjustment for cancer hospitals would not increase OPPS payments because these changes to the OPPS are budget neutral. Howe ver, these proposed updates would change the distribution of payments within the budget neut ral system as shown in Table 51 below and described in more detail in this secti on. We also estimate that the total proposed change in payments between CY 2011 and CY 2012, considering all payments, including proposed changes in estimate d total outlier payments, pass-through payments, and the application of the frontier State wage adjust ment outside of budget neutrality, in addition to the application of the pr oposed OPD fee schedule increase factor after all adjustments required by sections 1833(t)(3 )(F) and 1833(t)(3)(G) of the Act, would increase total estimated OPPS payments by 1.5 percent. (1) Limitations of Our Analysis The distributional impacts pr esented here are the projec ted effects of the proposed CY 2012 policy changes on various hospital gr oups. We post on the CMS Web site our hospital-specific estimated payments for CY 2012 with the other supportingCMS-1525-P 814 documentation for this proposed rule. To vi ew the hospital-specific estimates, we refer readers to the CMS Web site at: http ://www.cms.hhs.gov/HospitalOutpatientPPS/. At the Web site, select “regulations and notices” from the left side of the page and then select “CMS-1525-P” from the list of regulati ons and notices. The hos pital-specific file layout and the hospital-specific file are listed with the ot her supporting documentation for this proposed rule. We show hospital-specific data only for hospitals whose claims were used for modeling the impacts shown in Table 51 below. We do not show hospital-specific impacts for hospitals whose claims we were unable to use. We refer readers to section II.A.2. of th is proposed rule for a discussion of the hospitals whose claims we do not use for ratesetting and impact purposes. We estimate the effects of the proposed individual policy changes by estimating payments per service, while holding all other payment policies constant. We use the best data available, but do not attempt to predict behavioral responses to our policy changes. In addition, we do not make adjustments for fu ture changes in variables such as service volume, service mix, or number of encounters. As we have done in previous rules, we are soliciting public comment and informati on about the anticipat ed effects of our proposed changes on providers and our methodology for estimating them. (2) Estimated Effects of This Proposed Rule on Hospitals Table 51 below shows the estimated impact of this proposed rule on hospitals. Historically, the first line of the impact table, which estimates the proposed change in payments to all facilities, has always incl uded cancer and children’s hospitals, which are held harmless to their pre-BBA amount. We also include CMHCs in the first line thatCMS-1525-P 815 includes all providers because we include CM HCs in our weight scalar estimate. As discussed in section II.F. of this proposed rule, we are propos ing to extend an adjustment to certain cancer hospitals unde r section 3138 of the Affordable Care Act. Because these hospitals would continue to be eligible to receive hold harmless payments (under our standard policy), we now include a second li ne for all hospitals, excluding permanently held harmless hospitals and CMHCs, and we al so include a column that shows the impact on other hospitals of the proposed budget neutral cancer adjustment. We present separate impacts for CMHC s in Table 51 because CMHCs are paid only for partial hospitalization services and CMHCs are a di fferent provider type from hospitals. In CY 2011, we are paying CMHCs under APC 0172 (Level I Partial Hospitalization (3 services) for CMHCs) a nd APC 0173 (Level II Pa rtial Hospitalization (4 or more services) for CMHCs), and we ar e paying hospitals for partial hospitalization services under APC 0175 (Level I Partial Hosp italization (3 services) for hospital-based PHPs) and APC 0176 (Level II Partial Hosp italization (4 or more services) for hospital-based PHPs). For CY 2012, we are proposing to continue this APC payment structure and to base payment fully on the medi an costs calculated using claims and cost report data for the type of provider for whic h rates are being set, that is, hospital or CMHC. We display the impact on CMHCs of this proposed policy below, and we discuss the impact on hospitals as part of our discussion of the impact of proposed changes on hospitals for CY 2012. The estimated increase in the total paym ents made under the OPPS is determined largely by the increase to the conversion factor set under the methodology in the statute.CMS-1525-P 816 The distributional impacts pres ented do not include assumptions about changes in volume and service mix. Section 1833(t)(3)(C)(iv) of the Act provides that, for purposes of this subparagraph subject to paragr aph (17) and subparagraph (F) of this paragraph, the OPD fee schedule increase factor is equal to the market basket pe rcentage increase applicable under section 1886(b)(3)(B )(iii) of the Act. The proposed market basket percentage increase applicable under secti on 1886(b)(3)(B)(iii) of the Act, which we refer to as the IPPS market basket in this di scussion, is 2.8 percent. Ho wever, section 1833(t)(3)(F)(i) of the Act reduces that 2.8 pe rcent by the proposed productivi ty adjustment described in section 1886(b)(3)(B )(xi)(II) of the Act which we pr opose to be 1.2 percentage points (which is theMFP adjustment for FY 2012 as proposed in the FY 2012 IPPS / LTCH proposed rule), and section 1833(t)(3)(F)(ii) and 1833(t)(3)(G)(ii) of the Act further reduce the amount by 0.1 percentage point, re sulting in the OPD fee schedule increase factor of 1.5 percent, which we are proposi ng to use in the calc ulation of the CY 2012 OPPS proposed conversion factor. We refer readers to section II.B. of this proposed rule for a detailed discussion of the calculation of the conversion factor and the source of its components. Section 10324 of the Affordable Care Act, as amended by HCERA, further authorized additional expenditures outside budg et neutrality for hospitals in certain frontier States that have a wage index of 1.00. The amounts attributable to this frontier State wage index adjustment are incorporat ed into the CY 2012 estimates in Table 51. Table 51 shows the estimated redistri bution of hospital and CMHC payments among providers as a result of APC reconfigur ation and recalibrati on; wage indices and the rural adjustment; the combined impact of the APC recalibration, wage and ruralCMS-1525-P 817 adjustment effects, and the OPD fee schedul e increase factor update to the conversion factor; the effect of the pr oposed budget neutral adjustment to payments made to the 11 cancer hospitals that meet th e classification criteria in section 1886(d)(1)(B)(v) of the Act; the frontier State wage index adjustme nt; and, finally, estimated redistribution considering all proposed payments for CY 2012 relative to all payments for CY 2011, including the impact of changes in estimatedoutlier payments, and changes to the passthrough payment estimate. We did not model an explicit budget neutrality adjustment for the rural adjustment for SCHs because we ar e not proposing to make any changes to the policy for CY 2012. Because the proposed update s to the conversion factor (including the update of the OPD fee schedule increase factor, that is, the proposed IPPS market basket amount less the productivity adjustment required by section 1833(t)(3)(F)(i) of the Act and less the adjustment required by sections 1833(t)(3)(F )(ii) and 1833(t)(3)(G)(ii) of the Act; the subtraction of the estimated cost of the cancer adjustment; the subtraction of the estimated cost of the rural adjustment; a nd the subtraction of th e estimated cost of projected pass-through payment for CY 2012), are applied uniformly across services, observed redistributions of payments in the impact table for hospitals largely depend on the mix of services furnished by a hospital (f or example, how the AP Cs for the hospital's most frequently furnished services would ch ange), and the impact of the wage index changes on the hospital. However, total paym ents made under this system and the extent to which this proposed rule would redistri bute money during implementation also would depend on changes in volume, practice patterns , and the mix of serv ices billed between CY 2011 and CY 2012 by various groups of hospitals, which CMS cannot forecast.CMS-1525-P 818 Overall, we estimate that the proposed OPPS rates for CY 2012 would have a positive effect for providers paid under the OPPS, resulting in a 1.5 percent estimated increase in Medicare payments. Removing pa yments to cancer and children’s hospitals because their payments are held harmless to the pre-OPPS ratio between payment and cost and removing payments to CMHCs suggest that these proposed changes would result in a 1.1 percent estimated increase in Me dicare payments to all other hospitals. To illustrate the impact of the proposed CY 2012 changes, our analysis begins with a baseline simulation m odel that uses the final CY 2011 weights, the FY 2011 final IPPS wage indices that include reclassifications, and the fi nal CY 2011 conversion factor. Column 2 in Table 51 shows the independent effect of the proposed changes resulting from the reclassification of services am ong APC groups and the recalibration of APC weights, based on 12 months of CY 2010 OPPS hospital claims data and the most recent cost report data. We modeled the effect of the proposed APC recalibration changes for CY 2012 by varying only the weights (the final CY 2011 weights versus the proposed CY 2012 weights calculated using the serv ice mix and volume in the CY 2010 claims used for this proposed rule) and calculating the percent difference in weight. Column 2 also reflects the effect of the proposed ch anges resulting from the APC reclassification and recalibration changes and any changes in multiple procedure discount patterns or conditional packaging that occur as a result of the proposed cha nges in the relative magnitude of payment weights. Column 3 reflects the independent effect s of the proposed updated wage indices, including the proposed application of budget neutrality for the rural floor policy on aCMS-1525-P 819 nationwide basis. This column excludes th e effects of the frontier State wage index adjustment, which is not budget neutral and is included in Column 6. We did not model a budget neutrality adjustment for the rural adjustment for SCHs because we are not proposing to make any changes to the polic y for CY 2012. We modeled the independent effect of updating the wage indices by varying only th e wage indices, holding APC relative weights, service mix, and the rural adjustment constant and using the proposed CY 2012 scaled weights and a CY 2011 c onversion factor that included a budget neutrality adjustment for the effect of changing the wage indices between CY 2011 and

CY 2012. Column 4 demonstrates the independen t effect of the pr oposed cancer hospital payment adjustment. For CY 2012 we are proposing to make additional payment to raise each cancer hospital’s payment to cost ratio (PCR) to the weighted average PCR for all other hospitals paid under the OPPS. We are proposing to accomplish this by adjusting each cancer hospital’s OPPS payment by the percentage difference between their individual PCR (without TOPs) and the weighted average PCR of the other hospitals paid under the OPPS. This results in an increase in estimated payments to cancer hospitals of 38.8 percent compared to the estimated paym ent that would have been made under the OPPS to these hospitals as a class in CY 2011, but does not represent the estimated net increase in payment to cancer hospitals for CY 2012. After accounting for TOPs that we estimate cancer hospitals would no longer receive as a result of increased payment under the OPPS, the net increase in estimated pa yment to cancer hospitals for CY 2012 would be approximately 9 percent.CMS-1525-P 820 Column 5 demonstrates the combined “budget neutral” impact of proposed APC recalibration (that is, Column 2), the wage inde x update (that is, Column 3), as well as the impact of updating the convers ion factor with the OPD fee schedule increase factor, the proposed 2.8 percent hospital market basketupdate less the multifactor productivity adjustment required by section 1833(t)(3)(F)(i) of the Act which we are proposing to be 1.2 percentage points, and less the 0.1 percentage point re duction required by sections 1833(t)(3)(F)(ii) and 1833(t)(3)(G)( ii) of the Act, which resulted in an OPD fee schedule increase factor of 1.5 percent). We m odeled the independent effect of the budget neutrality adjustments and the OPD fee schedu le increase factor by using the weights and wage indices for each year, and using a CY 2011 conversion factor that included the OPD fee schedule increase and a budget neutrality ad justment for differences in wage indices. Column 6 demonstrates the cumulative impact of the proposed budget neutral adjustments from Columns 2 through 4, and th e OPD fee schedule incr ease factor of 1.5 percent reflected in Column 5, combined w ith the non-budget neutral frontier State wage index adjustment, discussed insection II.C.1. of this propos ed rule. This differs from Column 5 solely based on application of the proposed nonbudget neutral frontier Stage wage index adjustment. Column 7 depicts the full impact of the proposed CY 2012 policies on each hospital group by including the effect of a ll the proposed changes for CY 2012 (including the APC reconfiguration and recalibration show n in Column 2) and comparing them to all estimated payments in CY 2011. Colu mn 7 shows the combined budget neutral effects of Columns 2 through 4, plus the im pact of the frontier State wage indexCMS-1525-P 821 adjustment; the proposed change to the fi xed-dollar outlier threshold from $2,025 to $2,100 as discussed in section II. G. of this proposed rule; th e change in the hospital OQR payment reduction for the small number of hospi tals in our impact model that failed to meet the reporting requirements (discussed in section XIV.E. of this proposed rule); and the impact of increasing the es timate of the percentage of total OPPS payments dedicated to transitional pass-through paym ents. Of the 107 hospitals that failed to meet the OQR reporting requirements for the full CY 2011 upda te (and assumed, for modeling purposes, to be the same number for CY 2012), we incl uded 30 hospitals in our model because they had both CY 2010 claims data and recent co st report data. We estimate that the cumulative effect of all proposed changes for CY 2012 would increase payments to all providers by 1.5 percent for CY 2012. We modeled the indepe ndent effect of all changes in Column 7 using the final weights for CY 2011 and the proposed weights for CY 2012. We used the final conversion factor for CY 2011 of $68.876 and the proposed CY 2012 conversion factor of $69.420 discussed in sec tion II.B. of this pr oposed rule in this model. Column 7 also contains simulated outlier payments for each year. We used the charge inflation factor used in th e FY 2012 IPPS/LTCH PPS proposed rule of 9.08 percent (1.0908) to increase individual costs on the CY 2010 claims, and we used the most recent overall CCR in the April 2011 Outpatient Provider-Specific File (OPSF) (76 FR 26025). Using the CY 2010 claims and a 4.44 percent charge in flation factor, we currently estimate that outlier payments for CY 2011, using a multiple threshold of 1.75 and a fixed-dollar threshold of $2,025 should be approximately 1.1 percent of totalCMS-1525-P 822 payments. Outlier payments of 1.1 percent are incorporated in the CY 2011 comparison in Column 6. We used the same set of claims and a charge inflation factor of 9.08 percent (1.0908) and the CCRs in the Ap ril 2011 OPSF, with an adjustment of 0.9850, to reflect relative changes in cost and charge inflation between CY 2010 and CY 2012, to model the CY 2012 outliers at 1.0 pe rcent of estimated total payments using a multiple threshold of 1.75 and a fixed-dollar threshold of $2,100. Column 1: Total Number of Hospitals The first line in Column 1 in Table 51 shows the total numbe r of facilities (4,141), including designated cancer and children’s hospitals and CMHCs for which we were able to use CY 2010 hospital outpatient and CMHC claims to model CY 2011 and CY 2012 payments, by classes of hospitals. We excl uded all hospitals for which we could not accurately estimate CY 2011 or CY 2012 payment and entities that are not paid under the OPPS. The latter entities incl ude CAHs, all-inclusive hospitals, and hospitals located in Guam, the U.S. Virgin Islands, Northern Mari ana Islands, American Samoa, and the State of Maryland. This process is discussed in gr eater detail in section II.A. of this proposed rule. At this time, we are unable to calcul ate a disproportionate sh are (DSH) variable for hospitals not particip ating in the IPPS. Hospitals for which we do not have a DSH variable are grouped separately and generally include freestanding psychiatric hospitals, rehabilitation hospitals, and long-term care hospitals. We show the total number (3,879) of OPPS hospitals, excluding the hold-harmless cancer and children’s hospitals and CMHCs, on the second line of the table. We excluded cancer and children’s hospitals because section 1833(t)(7)(D) of the Act perm anently holds harmless cancer hospitalsCMS-1525-P 823 and children’s hospitals to th eir “pre-BBA amount” as spec ified under the terms of the statute and, therefore, we removed them from our impact analyses. We show the isolated impact on 200 CMHCs at the bottom of the impact table and discuss that impact separately below. Column 2: Proposed APC Changes Due to Reassignment and Recalibration This column shows the combined effects of the proposed reconfiguration, recalibration, and other policies (such as se tting payment for separately payable drugs and biologicals at ASP+4 percent with an accompanying reduction in the amount of cost associated with packaged drugs and bi ologicals and changes in payment for PHP services). Overall, we estimate that proposed changes in APC reassignment and recalibration across all services paid under the OPPS would increase payments to urban hospitals by 0.2 percent. We estimate that both large and other urban hospitals would experience an increase of 0.2 percent, all attr ibutable to recalibration. We estimate that urban hospitals billing fewer than 21,000 lines for OPPS services would experience decreases ranging from 0.2 percent to 5.5 percen t. The decrease of 5.5 percent for urban hospitals billing fewer than 5,000 lines per year is attribut able to the decline in the proposed payment for APC 0034 (Mental Health Services Composite), for which the payment rate is proposed to be set at th e payment rate for APC 0176 (Level II Partial Hospitalization (4 or more services) for hos pital-based PHPs). Urban hospitals billing 21,000 or more lines for OPPS services would ex perience increases of 0.1 to 0.5 percent. Overall, we estimate that rural hospitals w ould experience an increas e of 0.2 percent as a result of changes to the APC structure. We estimate that rural hospitals of all bed sizesCMS-1525-P 824 would experience increases of 0.1 to 0.5 pe rcent as a result of the proposed APC recalibration. We estimate that rural hosp itals that report fewer than 5,000 lines for OPPS services would experience a decrease of 1.2 percent, while rural ho spitals that report 5,000 or more lines for OPPS services would experience an increase of 0.1 to 0.9 percent in payment as a result of proposed APC recalibration. Among teaching hospitals, we estimate that the impact resulting from APC recalibration would include a decrease of 0.1 pe rcent for major teaching hospitals and an increase of 0.3 for minor teaching hospitals and nonteaching hospitals. Classifying hospitals by type of owners hip suggests that voluntary, proprietary, and governmental hospitals would experience no change or estimated increases of 0.1 to 0.3 percent as a result of the proposed APC recalibration. Finally, we estimate that hospitals for which DSH payments are not av ailable would experien ce a decrease of 7.5 to 7.7 percent. Hospitals for which DSH is not available furnish a large number of psychiatric services and we believe that the proposed decline in payment for APC 0176 is the cause for this estimated decline in payment. Column 3: Proposed New Wage Indices and the Effect of the Rural Adjustment This column estimates the impact of applying the proposed FY 2012 IPPS wage indices for the CY 2012 OPPS without the infl uence of the frontier State wage index adjustment which is not budget neutral. Th e frontier State wage index adjustment is reflected in the combined impact shown in Columns 6 and 7. We are proposing to continue the rural payment adjustment of 7.1 percent to rural SCHs for CY 2012, as described in section II.E.2. of this proposed rule. We estimate that the combination ofCMS-1525-P 825 updated wage data and nationwide applicati on of rural floor budget neutrality would redistribute payment among regions. We also updated the list of counties qualifying for the section 505 out-migration adjustment. Ov erall, we estimate that urban hospitals would experience no change from CY 2011 to CY 2012, and that rural hospitals would experience decreases of 0.2 to 0.4 percent as a result of the updated wage indices. We estimate that hospitals located in urban New England, Middle Atlantic, West North Central, West South Central, and Puerto Rico regions would e xperience increases of 0.1 to 0.5 percent while other urban regions wo uld experience no change or decreases of 0.2 to 0.7 percent. Hospitals in urban New Engl and are expected to see an increase of 3.8 percent as a result of the im plementation of the rural floor. See section II.C. for more information. We estimate that hospitals in ru ral West North Central, West South Central, and Pacific States would experience increase s of 0.1 to 0.5 percent, respectively, while other rural regions would experience decreases from 0.2 to 0.7 percent. Column 4: Proposed Cancer Hospital Payment Adjustment This column estimates the budget neut ral impact of applying the proposed hospital-specific CY 2012 can cer adjustment authori zed by section 3138 of the Affordable Care Act, which would result in an estimated aggregate increase in OPPS payments to dedicated cancer hospitals of 38.8 percent for the CY 2012 OPPS. After accounting for TOPs that we estimate would no longer be made, the net impact would result in an increase in payment to these hospitals of approximately 9 percent. We estimate that all other hospitals would expe rience a decrease of 0.6 to 0.7 percent inCMS-1525-P 826 CY 2012 as result of the adjustment to pa yments to the cancer hospitals under this proposed payment adjustment. Column 5: All Proposed Budget Neutrality Changes Combined with the Proposed OPD Fee Schedule Increase We estimate that, for most classes of hospitals, the addition of the proposed OPD fee schedule increase factor of 1.5 percent would mitigate the nega tive impacts created by the budget neutrality adjustments made in Co lumns 2 and 3. While all other classes of hospitals would receive an increase after th e update is applied to the budget neutrality adjustments, urban hospitals that bill fewer than 11,000 lin es and rural hospitals that report fewer than 5,000 lines would experience de creases. In particular, urban hospitals that report fewer than 5,000 lines would experience a cumulative decrease, after application of the proposed OPD fee schedule increase factor and th e budget neutrality adjustments, of 4.3 percent, largely as a re sult of the proposed decrease in payment for APC 0034 (Mental Health Services Com posite). OPPS payment for APC 0034 is proposed to continue being set to the pa yment rate of APC 0176 (Level II Partial Hospitalization (4 or more services) for hospital-based PHPs), which experienced a decline based on updated cost repo rt and hospital claims data. Overall, we estimate that these propose d changes would increase payments to urban hospitals by 1.1 percent. We estimate th at large urban hospita ls and “other” urban hospitals would also experien ce an increase of 1.1 percent. We estimate that rural hospitals would experience a 0.8 percent incr ease as a result of the proposed OPD fee schedule increase factor and othe r budget neutrality adjustments.CMS-1525-P 827 Among teaching hospitals, we estimate th at the observed impacts resulting from the proposed OPD fee schedule increase factor and other budget neutrality adjustments would include an increase of 1.2 percent for major teaching hospitals and an increase of 1.0 percent for minor teaching hospitals. Classifying hospitals by type of owners hip suggests that proprietary hospitals would experience an estimated increase of 0.7 percent, while voluntary hospitals would experience an estimated increase of 1.2 percent and government hospitals would experience an estimated increase of 0.6 percent. Column 6: Proposed Frontier State Wage Index Adjustment This column shows the impact of all budget neutrality adjustments, application of the proposed 1.5 percent OPD fee schedule in crease factor, and the non-budget neutral impact of applying the proposed frontier Stat e wage adjustment (that is, the proposed frontier State wage index change in addition to all changes reflected in Column 4). In general, we estimate that all facilities w ould experience a combined increase of 1.6 percent and that all hospitals would experi ence a combined increas e of 1.1 percent. Hospitals in the rural Mountain region would experience an increase of 2.3 percent, most of which is attributable to the proposed frontier State wage adjustment. Similarly, hospitals in both the urban and rural West North Central region would experience an increase of 1.8 percent, most of which is a ttributable to the propos ed frontier State wage adjustment.CMS-1525-P 828 Column 7: All Proposed Changes for CY 2012 Column 7 compares all proposed change s for CY 2012 to estimated final payment for CY 2011, including the proposed changes in the outlier threshol d, payment reductions for hospitals that failed to meet the OQR reporting requirements, and the difference in pass-through estimates that are not include d in the combined percentages shown in Column 5. This column includes estimate d payment for a few hospitals receiving reduced payment because they did not meet their hospital outpatient quality measure reporting requirements; however, we estimate that the anticipated change in payment between CY 2011 and CY 2012 for these hospita ls would be negligible. (We further discuss the estimated impacts of hospitals’ failure to meet these requirements below in section XX.A.4.d. of this proposed rule.) Over all, we estimate that facilities would experience an increase of 1.5 percent under this proposed rule in CY 2012 relative to total spending in CY 2011. The projected 1.5 percent in crease for all facili ties in Column 7 of Table 51 reflects the proposed 1.5 percent OP D fee schedule increase factor, less 0.00 percent for the change in the pass-thr ough estimate between CY 2011 and CY 2012, less 0.06 percent for the difference in estimated outlier payments between CY 2011 (1.06 percent) and CY 2012 (1.0 percent), less 0.09 percent due to the section 508 wage adjustment, plus 0.10 percent due to the frontie r State wage index adjustment. When we exclude cancer and children’s hospitals (which are held harmless to their pre-BBA amount) and CMHCs, the estimated incr ease is 1.5 percen t after rounding. We estimate that the combined effect of all proposed changes for CY 2012 would increase payments to urban hospitals by 1.2 percent. We estimate that large urbanCMS-1525-P 829 hospitals would experience a 1.1 percent incr ease, while “other” ur ban hospitals would experience an increase of 1.2 per cent. We estimate that urban hospitals that bill less than 5,000 lines of OPPS services would experi ence a decrease of 4.2 percent, largely attributable to the proposed decline in pa yment for APC 0034 (Mental Health Services Composite). We estimate that urban hospita ls that bill 11,000 or more lines of OPPS services would experience increases between 0.6 percent and 1.5 percent, while urban hospitals that report betw een 5,000 and 10,999 lines would ex perience a decrease of 0.8 percent. Overall, we estimate that rural hospitals would experience a 0.9 percent increase as a result of the combined effects of all proposed changes for CY 2012. We estimate that rural hospitals that b ill less than 5,000 lines of OPPS services would experience a decrease of 0.7 percent and th at rural hospitals that bill 5,000 or more lines of OPPS services would experience increases ranging from 0.8 to 1.7 percent. Among teaching hospitals, we estimate that the impacts resulting from the combined effects of all proposed changes w ould include an increas e of 1.2 percent for major teaching hospitals and 1.1 percent for minor teaching hospitals and non-teaching hospitals. In our analysis, we have also stratified hospitals by type of ownership. Based on this analysis, we estimate th at voluntary hospitals would receive an increase of 1.3 percent, proprietary hospitals would receive an increase of 0.8 percent, and governmental hospitals would experience an increase of 0.7 percent. (3) Estimated Effects of This Proposed Rule on CMHCsCMS-1525-P 830 The last line of Table 51 demonstrates the isolated impact on CMHCs. In CY 2011, CMHCs are paid under four APCs fo r services under the OPPS: APC 0172 (Level I Partial Hospitalization (3 serv ices) for CMHCs); APC 0173 (Level II Partial Hospitalization (4 or more services) for CMHCs); APC 0175 (Level I Partial Hospitalization (3 services) for hospital-ba sed PHPs); and APC 0176 (Level II Partial Hospitalization (4 or more services) for hos pital-based PHPs). We implemented these four APCs for CY 2011. We adopted payment rates for each APC based on the cost data derived from claims and cost reports for the provider type to which the APC is specific and provided a transition to CMHC rates ba sed solely on CMHC data for the two CMHC PHP per diem rates. For CY 2012, we ar e proposing to contin ue the four APC provider-specific structure we adopted for CY 2011 and to base payment fully on the cost data for the type of provider furnishing the se rvice. We modeled th e impact of this APC policy assuming that CMHCs would continue to provide the same number of days of PHP care, with each day having ei ther 3 services or 4 or more services, as seen in the CY 2010 claims data used for this CY 2012 O PPS/ASC proposed rule. We excluded days with one or two services because our polic y only pays a per diem rate for partial hospitalization when 3 or more qualifying se rvices are provided to the beneficiary. Because the relative payment weights for APC 0172 and APC 0173 for CMHCs both decline in CY 2012 due to CMHC cost data for partial hospitalization services provided by CMHCs, we estimate that there would be a 34.2 percent decrease in payments to CMHCs due to these APC policy changes (shown in Column 2).CMS-1525-P 831 Column 3 shows that the estimated impact of adopting the proposed CY 2012 wage index values have no in fluence on payments to CMHCs. Column 4 shows that CMHCs would receive a 0.7 percen t reduction as a result of the proposed cancer hospital adjustment. We note that all providers pa id under the OPPS, including CMHCs, would receive a proposed 1.5 percent OP D fee schedule increase fact or. Column 5 shows that combining this proposed OPD fee schedule incr ease factor, along with proposed changes in APC policy for CY 2012 and the proposed CY 2012 wage index updates, results in an estimated decrease of 33.2 percent. Column 6 shows that adding the frontier State wage adjustment results in no change to the cumulative 33.2 percent decrease. Column 7 shows that adding the proposed changes in outlier and pass-though payments would result in a 33.1 percent d ecrease in payment for CMHC s that reflects all proposed changes for CY 2012. The impact of the changes to hospital payment rates for partial hospitalization services is reflected in the impact of all pr oposed changes on hospitals. The impact of the decline in payment for APC 0034 appears most notably in small urban hospitals that furnish primarily outpatient psychiatric services. All providers paid under the OPPS woul d receive a proposed 1.5 percent OPD fee schedule increase factor under this policy. Combining this proposed OPD fee schedule increase factor with proposed change s in APC policy for CY 2012, the proposed CY 2012 wage index updates, and with pr oposed changes in ou tlier and pass-through payments, we estimate that the combined im pact on hospitals within the OPPS systemCMS-1525-P 832 would be a 1.5 percent increase in total pa yment for CY 2012. Table 51 presents the estimated impact of the proposed changes to the OPPS for CY 2012.

TABLE 51.—ESTIMATED IMPACT OF THE CY 2012 PROPOSED CHANGES FOR THE HOSPITAL OUTPATIENT PROSPECTIVE PAYMENTS SYSTEM

(1) (2) (3) (4) (5) (6) (7)

Number of Hospitals APCRecalibration New Wage Index and

RuralAdjustment New Cancer Hospital PaymentAdjustment Comb (cols 2, 3,4) with Market Basket Update Comb (col 5) with Frontier

Wage IndexAdjustment All Changes ALL FACILITIES * 4,141 0.0 0.0 0.0 1.5 1.6 1.5 ALL HOSPITALS 3,879 0.2 0.0 -0.6 1.0 1.1 1.1 (excludes hospitals permanently held harmless and CMHCs) URBAN HOSPITALS 2,928 0.2 0.0 -0.6 1.1 1.2 1.2 LARGE URBAN 1,592 0.2 0.0 -0.7 1.1 1.1 1.1 (GT 1 MILL.) OTHER URBAN 1,336 0.2 0.0 -0.6 1.1 1.3 1.2 (LE 1 MILL.)

RURAL HOSPITALS 951 0.2 -0.3 -0.7 0.8 1.0 0.9 SOLE COMMUNITY 385 0.1 -0.2 -0.6 0.8 1.3 0.9 OTHER RURAL 566 0.3 -0.4 -0.7 0.8 0.8 0.9 BEDS (URBAN) 0 - 99 BEDS 1,007 -0.1 0.1 -0.7 0.8 0.9 0.8 100-199 BEDS 856 0.4 0.1 -0.7 1.3 1.4 1.3 200-299 BEDS 445 0.4 0.1 -0.7 1.3 1.5 1.4 300-499 BEDS 417 0.2 -0.1 -0.6 1.0 1.0 1.0 500 + BEDS 203 0.0 0.1 -0.6 1.0 1.0 1.1 BEDS (RURAL) 0 - 49 BEDS 340 0.2 -0.1 -0.7 0.9 1.1 1.0 50- 100 BEDS 364 0.1 -0.3 -0.6 0.6 0.9 0.7 101- 149 BEDS 140 0.5 -0.2 -0.7 1.1 1.3 1.2 150- 199 BEDS 60 0.2 -0.4 -0.7 0.6 1.2 0.7 200 + BEDS 47 0.1 -0.3 -0.6 0.8 0.8 0.8 VOLUME (URBAN) LT 5,000 Line s 611 -5.5 0.4 -0.7 -4.3 -4.2 -4.2CMS-1525-P 833
5,000 - 10,999 Lines 146 -1.5 -0.1 -0.7 -0.8 -0.6 -0.8 11,000 - 20,999 Lines 255 -0.2 -0.1 -0.7 0.6 0.6 0.6 21,000 - 42,999 Lines 490 0.5 -0.1 -0.7 1.2 1.2 1.2 42,999 - 89,999 Lines 738 0.5 0.1 -0.7 1.5 1.5 1.5 GT 89,999 Lines 688 0.1 0.0 -0.6 1.0 1.1 1.1 VOLUME (RURAL) LT 5,000 Li nes 71 -1.2 -0.2 -0.7 -0.7 1.4 -0.7 5,000 - 10,999 Lines 81 0.9 0.1 -0.7 1.8 1.9 1.7 11,000 - 20,999 Lines 184 0.3 -0.3 -0.7 0.8 1.0 0.8 21,000 - 42,999 Lines 286 0.4 -0.3 -0.7 0.9 1.2 1.0 GT 42,999 Lines 329 0.1 -0.3 -0.6 0.7 0.9 0.8 REGION (URBAN) NEW ENGLAND 150 0.0 3.8 -0.6 4.6 4.6 4.4 MIDDLE ATLANTIC 351 0.1 0.1 -0.6 1.1 1.1 1.0 SOUTH ATLANTIC 452 0.3 -0.6 -0.7 0.6 0.6 0.7 EAST NORTH CENT. 469 0.3 -0.6 -0.6 0.6 0.6 0.6 EAST SOUTH CENT. 184 0.4 -0.7 -0.6 0.5 0.5 0.7 WEST NORTH CENT. 193 0.1 0.1 -0.6 1.1 1.8 1.3 WEST SOUTH CENT. 489 0.3 0.3 -0.7 1.4 1.4 1.5 MOUNTAIN 202 0.2 0.0 -0.6 1.0 1.4 1.2 PACIFIC 390 0.0 -0.2 -0.7 0.7 0.7 0.8 PUERTO RICO 48 0.3 0.5 -0.7 1.6 1.6 1.7 REGION (RURAL) NEW ENGLAND 26 -0.5 -0.5 -0.6 -0.1 -0.1 0.1 MIDDLE ATLANTIC 68 0.2 -0.2 -0.6 0.9 0.9 1.0 SOUTH ATLANTIC 162 0.4 -0.2 -0.7 1.0 1.0 1.1 EAST NORTH CENT. 126 0.2 -0.7 -0.7 0.4 0.4 0.3 EAST SOUTH CENT. 172 0.6 -0.6 -0.7 0.8 0.8 0.9 WEST NORTH CENT. 101 -0.4 0.2 -0.6 0.7 1.8 1.0 WEST SOUTH CENT. 201 0.4 0.1 -0.7 1.3 1.3 1.3 MOUNTAIN 66 0.2 -0.6 -0.6 0.5 2.3 0.5 PACIFIC 29 0.1 0.5 -0.6 1.5 1.5 1.7

TEACHING STATUS NON-TEACHING 2,891 0.3 -0.1 -0.7 1.0 1.1 1.1 MINOR 699 0.3 -0.1 -0.6 1.0 1.2 1.1 MAJOR 289 -0.1 0.4 -0.6 1.2 1.2 1.2

DSH PATIENT PERCENT 0 7 -0.7 0.0 -0.7 0.1 0.1 0.3 GT 0 - 0.10 343 0.2 0.2 -0.7 1.2 1.3 1.3 0.10 - 0.16 359 0.4 -0.4 -0.7 0.8 0.9 0.8 0.16 - 0.23 733 0.3 0.0 -0.7 1.1 1.3 1.1CMS-1525-P 834

0.23 - 0.35 1,037 0.3 0.0 -0.6 1.2 1.3 1.2 GE 0.35 789 0.1 0.1 -0.6 1.0 1.0 1.2 DSH NOT AVAILABLE ** 611 -7.5 0.5 -0.7 -6.2 -6.2 -6.1

URBAN TEACHING/DSH TEACHING & DSH 901 0.2 0.1 -0.6 1.1 1.2 1.2 NO TEACHING/DSH 1,446 0.4 -0.1 -0.7 1.2 1.2 1.3 NO TEACHING/NO DSH 6 -0.7 0.0 -0.7 0.1 0.1 0.3 DSH NOT AVAILABLE** 575 -7.7 0.6 -0.7 -6.3 -6.3 -6.2

TYPE OF OWNERSHIP VOLUNTARY 2,060 0.3 0.1 -0.6 1.2 1.3 1.3 PROPRIETARY 1,259 0.0 -0.1 -0.7 0.7 0.8 0.8 GOVERNMENT 560 0.1 -0.4 -0.6 0.6 0.6 0.7

CMHCs 200 -34.2 0.0 -0.7 -33.2 -33.2 -33.1 Cancer Hospitals 11 0.2 0.6 38.8 41.5 41.5 37.8 Column (1) shows total hospitals and/or CMHCs.

Column (2) shows the impact of proposed changes resulting from the reclassification of HCPCS codes among APC groups and the proposed recalibration of APC weights based on CY 2010 hospital claims data. Column (3) shows the proposed budget neutral impact of updating the wage index by applying the FY 2012 hospital inpatient wage index. See section II.C. for discussion of the estimated increase in payments to urban New England hospitals Column (4) shows the proposed budget neutral estimated impact within the OPPS of applying a proposed cancer hospital adjustment to all OPPS services. Howe ver, we note that after accounting for the TOPs that we estimate cancer hospitals would no longer receive, the proposed net increase in paymen t to cancer hospitals would be approximately 9 percent. Column (5) shows the impact of all proposed budget neutra lity adjustments and the proposed addition of the 1.5 percent OPD fee schedule increase factor (2.8 percent reduced by 1.2 percentage points for the proposed productivity adjustment and further reduced by 0.1 percentage point in order to satisfy statutory requirements set forth in the Affordable Care Act). Column (6) shows the proposed non-budget neutral impact of applying the frontier State wage adjustment, after application of the CY 2012 proposed OPD fee schedule increase factor. Column (7) shows the proposed additional adjustments to the conversion factor resulting from a proposed change in the pass-through estimate and adds proposed outlier payments. This column also shows the expiration of section 508 wages on September 30, 2011 and the application of the proposed frontier State wage adjustment for CY 2012.

*These 4,141 providers include children and cancer hospitals, which are held harmless to pre-BBA amounts, and CMHCs. ** Complete DSH numbers are not available for providers that are not paid under IPPS, including rehabilitation, psychiatric, and long-term care hospitals.CMS-1525-P 835 (4) Estimated Effect of This Proposed Rule on Beneficiaries For services for which the beneficiary pays a copayment of 20 percent of the payment rate, the beneficiary share of paymen t would increase for services for which the OPPS payments would rise and would decr ease for services for which the OPPS payments would fall. For example, for a service assigned to Level IV Needle Biopsy/Aspiration Except Bone Marrow (APC 0037) in the CY 2011 OPPS, the national unadjusted copayment is $228.76, and the minimum unadjusted copayment is $215.24, 20 percent of the national unadjusted payment rate of $1,076.14. For CY 2012, the proposed national unadjusted copayment for APC 0037 is $225.55, a decline from the copayment in effect for CY 2011. The pr oposed minimum unadjusted copayment for APC 0037 is $213.25 or 20 percent of the proposed CY 2012 national unadjusted payment rate for APC 0037 of $1,066.25. Th e proposed minimum unadjusted copayment would decline because the CY 2011 payment rate for APC 0037 would decline for CY 2012. For further discussion on the calcul ation of the proposed national unadjusted copayments and minimum unadjusted copayments, we refer readers to section II.I. of this proposed rule. We note that the proposed rural hospital and cancer hospital payment adjustments would result in corresponding incr eases in the beneficiary copayment, where those payment adjustments are applied. In all cases, the statute limits beneficiary liability for copayment for a procedure to the hospital in patient deductible for the applicable year. The CY 2011 hospital inpatie nt deductible is $1,132 ( 75 FR 68799 through 68800). The CY 2012 hospital inpatient deductib le was not known at the tim e this proposed rule was developed.CMS-1525-P 836 In order to better understand the impact of changes in copayment on beneficiaries, we modeled the percent change in total copa yment liability using CY 2010 claims. We estimate, using the claims of the 4,141 hosp itals and CMHCs on which our modeling is based, that total beneficiary liability for copayments would increase as an overall percentage of total payments, from 22.0 percent in CY 2011 to 22.1 percent in CY 2012 due largely to changes in service mix. (5) Effects on Other Providers The relative weights and payment amount s established under the OPPS affect the payments made to ASCs as discussed in secti on XIII. of this proposed rule. No types of providers other than hospitals and ASCs are affected by the changes we are proposing in this proposed rule. (6) Effects on the Medi care and Medicaid Programs The effect on the Medicare program is expected to be $3.285 billion in additional program payments for OPPS services furnishe d in CY 2012. The effect on the Medicaid program is expected to be limited to incr eased copayments that Medicaid may make on behalf of Medicaid recipients who are also Medicare beneficiaries. We refer readers to our discussion of the impact on beneficiaries under section XX.A.4.a.(4). of this proposed rule. (7) Alternatives Considered Alternatives to the changes we are pr oposing to make and the reasons for our selected alternatives are di scussed throughout this proposed rule. Some of the majorCMS-1525-P 837 issues discussed in this proposed rule and the alternatives considered are discussed below.

● Alternatives Considered for Payment of the Acquisition and Pharmacy Overhead Costs of Drugs and Biologicals That Do Not Have Pass-Through Status We are proposing that, for CY 2012, the OPPS would make payment for separately payable drugs and biologicals at ASP+4 percent, and this payment would continue to represent combined payment for both the acquisition and pharmacy overhead costs of separately payable drugs and biologi cals. In addition, because we are proposing to continue to make a pharmacy overhead adjustment for CY 2012, we believe it is appropriate to account for infl ation that has occurred sin ce the overhead redistribution amount of $200 million was applied in CY 2011. Th erefore, as discussed in further detail in section V.B.3. of this proposed rule, we believe that approximately $161 million of the estimated $705 million in pharmacy overhead cost currently attributed to coded packaged drugs and biologicals with an ASP and $54 million of the estimated $502 million in pharmacy overhead cost currently attributed to coded and uncoded packaged drugs and biologicals without an ASP shoul d, instead, be attributed to separately payable drugs and biologicals to provide an adjustment for the pharmacy overhead costs of these separately payable products. As a result, we also are proposing to reduce the cost of packaged drugs and biologicals that is incl uded in the payment for procedural APCs to offset the proposed $215 million adjustment to payment for separately payable drugs and biologicals. We are proposing that any re distribution of pharmacy overhead cost that may arise from CY 2012 final rule claims da ta would occur only from some drugs andCMS-1525-P 838 biologicals to other drugs and bi ologicals, thereby maintaining the estimated total cost of drugs and biologicals under the OPPS. We considered two alternatives for pa yment of the acquisition and pharmacy overhead costs of drugs and bi ologicals that do not have pa ss-through status for CY 2012. The first alternative we considered, but ar e not proposing, is to compare the estimated aggregate cost of separately payable drugs and biologicals in our claims data to the estimated aggregate ASP dollars for separately payable drugs and bi ologicals, using the ASP as a proxy for average acquisition cost, to calculate the estimat ed percent of ASP that would serve as the best proxy for the combined acquisition and pharmacy overhead costs of separately payable drugs an d biologicals (70 FR 68642), but without redistribution of estimated pharmacy overhead costs. Under this methodology without redistribution, using April 2011 ASP informa tion and costs derived from CY 2010 OPPS claims data, we estimated the combined ac quisition and overhead costs of separately payable drugs and biologicals to be ASP-2 percent. As discu ssed in section V.B.3. of this proposed rule, we also determined that th e combined acquisition and overhead costs of packaged drugs are 188 percent of ASP. We did not choose this alternative because we believe that this analysis indicates that our standard drug payment methodology has the potential to “compress” the calculated costs of separately payable drugs and biologicals to some degree when there is no redistributi on of estimated pharmacy overhead costs. Further, we recognize that th e attribution of pharmacy overh ead costs to packaged or separately payable drugs and biologi cals through our standard drug payment methodology of a combined payment for acquisition and pharmacy overhead costsCMS-1525-P 839 depends, in part, on the treatment of all dr ugs and biologicals each year under our annual drug packaging threshold. Changes to the packaging threshold may result in changes to payment for the overhead cost of drugs and biol ogicals that do not reflect actual changes in hospital pharmacy overhead cost for those products. The second alternative we considered and the one we are proposing for CY 2012 is to continue our pharmacy overhead redi stribution methodology and proposing to apply an inflation allowance and redistribute $215 million in overhead costs from packaged coded and uncoded drugs and biologicals to separately payable drugs and biologicals which would result in a payment for non- pass-through separately payable drugs and biologicals at ASP+4 percent, which would continue to represent a combined payment for both the acquisition costs of separate ly payable drugs and biologicals and the pharmacy overhead costs applicable to these pr oducts. We also are proposing to reduce the cost of packaged drugs and biologicals th at is included in the payment for procedural APCs to offset the $215 million adjustment to payment for separately payable drugs and biologicals, resulting in payment for packag ed drugs and biologicals of ASP+123 percent under our proposal. We chose this alternative because we be lieve that it provides the most appropriate redistribution of pharmacy overhead costs asso ciated with drugs and biologicals, based on the analyses discussed in sec tion V.B.3. of this proposed rule.

● Proposed OPPS Payment Adjustment for Certain Cancer Hospitals Section 3138 of the Affordable Care Act instructs the Secretary to conduct a study to determine if outpatient costs, including th e cost of drugs and biologicals, incurred byCMS-1525-P 840 cancer hospitals described in section 1886(d )(1)(B)(v) of the Ac t with respect to ambulatory classification groups exceed the co sts incurred by other hospitals furnishing services under this subsecti on (section 1833(t) of the Act). Further, section 3138 of the Affordable Care Act provides that if the cancer hospitals’ costs with respect to APC groups are determined to be greater than the costs of other hospitals paid under the OPPS, the Secretary shall provide an appropriate budget neutral payment adjustment to reflect these higher costs. As discussed in detail in s ection II. F. of this proposed rule, using the claims and cost report data that we used unde r the modeled proposed CY 2011 OPPS, we constructed our traditional pr ovider-level database of co sts, modeled payments, units, service mix, wage index and other provider info rmation that we typically use to establish class adjustments under the OPPS. We observed that cancer hospitals were more costly with respect to APC groups than other hospitals paid under the OPPS, having a standardized cost per discounted unit of $150.12 compared to a standardized cost per discounted unit of $94.14 for all other hospitals. Having reviewed the cost data from the st andard analytic database and determined that cancer hospitals are more costly with respect to APC groups than other hospitals within the OPPS system, we are proposing a payment adjustment for cancer hospitals for CY 2012 based on a comparison of costliness relati ve to payments using cost report data. Specifically, our proposed adjustment is as fo llows: If a hospital described in section 1886(d)(1)(B)(v) of the Act has a PCR (as determ ined by the Secretary) that is less than the weighted average PCR of other hospitals furnishing services under section 1833(t) ofCMS-1525-P 841 the Act (as determined by the Secretary) (T arget PCR) for covered hospital outpatient department services (except pass-through devi ces defined in section 419.66), the payment adjustment is the percentage difference betw een the PCR of the hospital and the Target PCR. The CY 2012 proposed rule cost reportdata indicated a cancer hospital weighted average PCR of 0.647 (range = 0.56 to 0.82) an d a weighted average PCR for all other hospitals equal to 0.901. Our proposed adju stment would result in an estimated 39.3 percent aggregate increase in budget neutral payments to can cer hospitals. For a cancer hospital with an individual PCR that is above the weighted average PCR of other hospitals furnishing services under the OPPS, we are proposin g a zero percent adjustment for services furnished on and after January 1, 2012. We considered three alternatives for the proposed OPPS payment adjustment for certain cancer hospitals. The first alternativ e we considered, but ar e not proposing, is to use our standard payment regression model in stead of cost report data to identify an appropriate payment adjustment for cancer hosp itals. We used this approach in our CY 2006 OPPS final rule with comment period to establish the 7.1 percent payment adjustment for rural SCHs (70 FR 68556 thr ough 68561). However, in constructing our analysis of cancer hospitals’ costs relative to other hospitals, we considered whether our standard analytical approach would lead to valid results. The analyses presented in the CY 2006 OPPS proposed and final rules were de signed to establish an adjustment for a large class of rural hospitals. In contrast, section 3138 of the Affordable Care Act is specifically limited to identifying an adjustment for 11 cancer hospitals to the extent that their costs with respect to APC groups ex ceeded the costs incurred by other hospitalsCMS-1525-P 842 furnishing services under section 1833(t) of the Act. With su ch a small sample size (11 out of approximately 4,000 hospitals paid unde r the OPPS), we were concerned that the standard explanatory and paym ent regression models used to establish the rural hospital adjustment would lead to imprecise estimates of payment adjustments for this small group of hospitals. Further, section 3138 of the Affordable Care Act specifies explicitly that cost comparisons between classes of hos pitals must include the cost of drugs and biologicals. In our CY 2006 an alysis of rural hospitals, we excluded the cost of drugs and biologicals in our model because the extr eme units associated with proper billing for some drugs and biologicals can bias the ca lculation of a service mix index, or volume weighted average APC relative weight, for each hospital (70 FR 42698). Therefore, we chose not to pursue our standard combinat ion of explanatory and payment regression modeling to determine a can cer hospital adjustment. The second alternative we considered, but are not proposing, is to provide the same adjustment to all cancer hospitals ba sed on the difference between the weighted average PCR for all cancer hospitals (0.647) a nd the weighted average PCR for all other hospitals (0.901). This class adjustment, in stead of a hospital speci fic adjustment, would provide a 39.3 percent payment increase for each cancer hospital. Because this alternative did not seem equitable to other hos pitals furnishing services under OPPS as it would result in a PCR for most cancer hospitals that is higher the weighted average PCR of other hospitals furnishing services under OPPS and a much larger budget neutrality adjustment, we did not propose this alternative.CMS-1525-P 843 The third alternative we considered, a nd the one we are proposing for CY 2012, is to provide a hospital specific payment adjust ment to cancer hospitals that have a PCR that is less than the weighted average PCR of other hospitals furnishing services under the OPPS, for covered hospital outpatient department services (except pass-through devices) furnished on and after January 1, 2012, based on the percent difference between each cancer hospital’s PCR and the weighted av erage PCR of other OPPS hospitals using the most recent cost report data. For cancer hospitals with an i ndividual PCR that is above the weighted average PCR of other hospi tals furnishing services under the OPPS, we are proposing a zero percen t adjustment for services fu rnished on and after January 1, 2012. For purposes of calculating a proposed adjustment, we chose to rely on this straightforward assessment of pa yments and costs from the cost report data because of the concerns outlined above with respect to th e small number of hospitals, and because of the challenges associated with accurately including drug and biological costs in our standard regression models. We believe that an appropriate adjustment would redistribute enough payments from other hospi tals paid under the OPPS to the cancer hospitals to give cancer hospitals a PCR that is comparable to the average PCR for other hospitals paid under the OPPS.

● Alternatives Considered for the Supervision of Hospital Outpatient Therapeutic Services In the CY 2011 OPPS/ASC final rule with comment period (75 FR 72012), we stated our intent to develop through our CY 2012 rulemaking an independent review process that enables the agency to re quest, with stakeholder input, advisoryCMS-1525-P 844 recommendations regarding the appropriate supervision level for individual outpatient therapeutic services. We considered three alte rnatives with regard to the nature of the advisory recommendations regarding the appr opriate supervision le vel for individual outpatient therapeutic services. The first alternative we considered bu t are not proposing is to use an existing body other than the APC Panel such as the Relative Value Scale Update Committee to make recommendations to CMS with regard to the level of supervision that would be required for outpatient therapeutic services. We did not choose a different existing body because we did not believe there was an alte rnative that had an appropriate balance of subject matter expertise or that would be able to furnish the appropriate advice. The second alternative we considered but are not proposing is to establish a new non-advisory body such as a Technical Expert Panel. We did not propose to establish a new entity because currently we have no funding to do so. Moreover, it is not clear that the resources of a new body are necessary for the supervision deliber ations, especially once initial determinations are made regardi ng key services. Also, we believe it is important to obtain advice that carries the weight of a Federal advisory recommendation. The third alternative we considered, and the one we selected, is to propose to establish the Federal Advisory APC Panel as an independent review body that would evaluate individual outpatient therapeutic services for potential assignment by CMS of general (lower) or personal (higher) superv ision. We are proposing to amend the APC Panel charter to render the Panel more approp riate for this task by expanding its scope to include the topic of supervision. We also ar e proposing to add two to four members toCMS-1525-P 845 the Panel who would be representative of CA Hs, so that all types of hospitals who are subject to the supervision rules for paymen t would be represented in developing the Panel’s recommendations. We are proposing to use the standard APC Panel protocols with respect to frequency of meetings and r eceiving requests for eval uation of services. We believe it is important to obtain advice th at carries the weight of a Federal advisory recommendation, because it may have greater le gitimacy both with stakeholders and with CMS compared to the opinions of other t ypes of groups. The APC Panel has a long and excellent history of providing va luable advice to CMS with rega rd to the clinical issues associated with the APC groupings of hospita l outpatient therapeutic services under the OPPS, and we believe that extension of the function of the Panel to providing advice on supervision of individual hospita l outpatient therapeutic services will result in both full consideration of the views of a ll types of hospitals and the be st possible clinical decisions with respect to the level of s upervision that should be requ ired as a condition of Medicare payment. b. Effects of Proposed ASC Payment System Changes in This Proposed Rule On August 2, 2007, we published in the Federal Register the final rule for the revised ASC payment system, effective January 1, 2008 (72 FR 42470). In that final rule, we adopted the methodologies to set pa yment rates for covered ASC services to implement the revised payment system so that it would be designed to result in budget neutrality as required by s ection 626 of Pub. L. 108-173; established that the OPPS relative payment weights would be the basis for payment and that we would update the system annually as part of the OPPS rule making cycle; and provi ded that the revisedCMS-1525-P 846 ASC payment rates would be phased in over 4 ye ars. During the 4-year transition to full implementation of the ASC payment rates, pa yments for surgical procedures performed in ASCs that were on the CY 2007 ASC list of covered surgical procedures were made using a blend of the CY 2007 ASC payment ra te and the ASC payment rate calculated according to the ASC standard ratesetting methodology for the applicable transitional year. In CY 2009, we paid ASCs using a 50/50 blend, in which payment was calculated by adding 50 percent of the CY 2007 ASC rate for a surgical procedure on the CY 2007 ASC list of covered surgical procedures and 50 percent of the CY 2009 ASC rate calculated according to the ASC standa rd ratesetting methodology for the same procedure. For CY 2010, we transitioned th e blend to a 25/75 blend of the CY 2007 ASC rate and the CY 2010 ASC payment rate cal culated according to the ASC standard ratesetting methodology. In CY 2011, we are paying ASCs for all covered surgical procedures, including those on the CY 2007 ASC list, at the ASC payment rates calculated according to the ASC standard ratesetting methodology. ASC payment rates are calculated by mu ltiplying the ASC conversion factor by the ASC relative payment weight. As discusse d fully in section XIII. of this proposed rule, we set the proposed CY 2012 ASC rela tive payment weights by scaling CY 2012 ASC relative payment weights by the ASC scal ar of 0.9373. The estimated effects of the updated relative payment weights on paymen t rates during this second year of full implementation of the ASC payment rates cal culated according to the ASC standard ratesetting methodology are varied and are reflected in the es timated payments displayed in Tables 52 and 53 below.CMS-1525-P 847 Beginning in CY 2011, section 3401 of the Af fordable Care Act requires that the annual update to the ASC payment system, wh ich is the consumer price index for all urban consumers (CPI-U), be reduced by th e productivity adjustment. The Affordable Care Act defines the productiv ity adjustment to be equal to the 10-year moving average of changes in annual economy-wide privat e nonfarm business multi-factor productivity (MFP) (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost repor ting period, or other annual period). We calculated the proposed CY 2012 ASC conversion factor by adjusting the CY 2011 ASC conversion factor by 1.0003 to account for changes in th e pre-floor and pre-reclassified hospital wage indices between CY 2011 and CY 2012 and by applying the proposed CY 2012 MFP-adjusted CPI-U of 0.9 percent (2.3 perc ent CPI-U minus a productivity adjustment of 1.4 percent percentage points). The proposed CY 2012 ASC conversion factor is $42.329. (1) Limitations of Our Analysis Presented here are the projected effect s of the proposed changes for CY 2012 on Medicare payment to ASCs. A key limitation of our analysis is our inability to predict changes in ASC service mix between CY 2010 and CY 2012 with prec ision. We believe that the net effect on Medicare expenditu res resulting from the proposed CY 2012 changes would be small in the aggregate for all ASCs. However, such changes may have differential effects across surgic al specialty groups as ASCs continue to adjust to the payment rates based on the polic ies of the revised ASC paym ent system. We are unable to accurately project such changes at a disa ggregated level. Clearly, individual ASCsCMS-1525-P 848 would experience changes in payment that di ffer from the aggregated estimated impacts presented below. (2) Estimated Effects of This Pr oposed Rule on Payments to ASCs Some ASCs are multispecialty facilities that perform the gamut of surgical procedures, from excision of le sions to hernia repair to cat aract extraction; others focus on a single specialty and perform only a limited range of surgical procedures, such as eye, digestive system, or orthopedic procedur es. The combined effect on an individual ASC of the proposed update to the CY 2012 payments would depend on a number of factors, including, but not limited to, the mix of services the ASC provi des, the volume of specific services provided by the ASC, the pe rcentage of its patie nts who are Medicare beneficiaries, and the extent to which an ASC provides different services in the coming year. The following discussion presents tables that display estimates of the impact of the proposed CY 2012 update to the revised ASC payment system on Medicare payments to ASCs, assuming the same mix of services as reflected in our CY 2010 claims data. Table 52 depicts the estimated aggregate percen t change in payment by surgical specialty or ancillary items and services group by comparing estimated CY 2011 payments to estimated CY 2012 payments, and Table 53 shows a comparison of estimated CY 2011 payments to estimated CY 2012 payments for pr ocedures that we estimate would receive the most Medicare payment in CY 2012. Table 52 shows the estimated effects on aggregate proposed Medicare payments under the revised ASC payment system by surg ical specialty or ancillary items and services group. We have aggregated th e surgical HCPCS codes by specialty group,CMS-1525-P 849 grouped all HCPCS codes for covered ancillaryitems and services into a single group, and then estimated the effect on aggregated payment for surgical specialty and ancillary items and services groups. The groups are sorted for display in descending order by estimated Medicare program payment to ASCs . The following is an explanation of the information presented in Table 52.

● Column 1—Surgical Specialty or Ancillary Items and Services Group indicates the surgical specialty into which ASC proce dures are grouped or th e ancillary items and services group which includes all HCPCS codes for covered an cillary items and services. To group surgical procedures by surgical specialty, we used the CPT code range definitions and Level II HCPCS codes and Category III CPT codes as appropriate, to account for all surgical procedures to wh ich the Medicare pr ogram payments are attributed.

● Column 2—Estimated CY 2011 ASC Payments were calculated using CY 2010 ASC utilization (the most recent fu ll year of ASC utilization) and CY 2011 ASC payment rates. The surg ical specialty and ancillary items and services groups are displayed in descending order base d on estimated CY 2011 ASC payments.

● Column 3—Estimated CY 2012 Percent Change is the aggregate percentage increase or decrease in Medicare program pa yment to ASCs for each surgical specialty or ancillary items and services group that woul d be attributable to updates to proposed ASC payment rates for CY 2012 compared to CY 2011. As seen in Table 52, we estimate thatthe proposed update to ASC rates for CY 2012 would result in a 0 per cent decrease in aggregate payment amounts for eye andCMS-1525-P 850 ocular adnexa procedures, a 1 percent increase in aggregate payment amounts for digestive system procedures, and a 2 percen t increase in aggregate payment amounts for nervous system procedures. Generally, for the surgical specialty gr oups that account for less ASC utilization and spending, we estimate that the payment effects of the CY 2012 update are variable. For instance, we estimate that, in the aggr egate, payment for genitourinary system procedures and hemic & lymphatic systems pr ocedures would increase by 5 percent and 4 percent, respectively, whereas auditory syst em procedures and cardiovascular system procedures would decrease by 5 percent and 4 percent, respectively, under the proposed

CY 2012 rates. An estimated increase in aggregate paym ent for the specialty group does not mean that all procedures in the group would experien ce increased payment rates. For example, the estimated modest increase for CY 2012 for genitourinary system procedures is likely due to an increase in the ASC payment wei ght for some of the high volume procedures, such as CPT code 50590 (Fragmenting of kidney stone ) where estimated payment would increase by 25 percent for CY 2012. Also displayed in Table 52 is a separa te estimate of Medicare ASC payments for the group of separately payable covered an cillary items and serv ices. The payment estimates for the covered surgical procedures include the costs of packaged ancillary items and services. Payment for New T echnology Intraocular Lenses (NTIOLs) is captured under this category. Because the NT IOL class for reduced spherical aberration expired on February 26, 2011, and a new NTIO L class was not approved during CY 2011CMS-1525-P 851 rulemaking, we redistributed the estimated paym ent dedicated to separately paid NTIOLs in CY 2011 while the NTIOL class was active to other services for CY 2012. Therefore, we estimate that aggregate payments for these items and services would decrease by 30 percent for CY 2012.

TABLE 52.—ESTIMATED IMPACT OF THE PROPOSED CY 2012 UPDATE TO THE ASC PAYMENT SYSTEM ON AGGREGATE CY 2012 MEDICARE PROGRAM PAYMENTS BY SURGICAL SPECIALTY OR ANCILLARY ITEMS AND SERVICES GROUP

Surgical Specialty Group (1) Estimated CY 2011

ASC Payments (in Millions) (2) Estimated CY 2012 Percent Change (3) Total $3,400 1% Eye and ocular adnexa $1,435 0% Digestive system $689 1% Nervous system $454 2% Musculoskeletal system $420 2% Genitourinary system $150 5% Integumentary system $132 1% Respiratory system $43 0% Cardiovascular system $32 -4% Ancillary items and services $29 -30% Auditory system $11 -5% Hematologic & lymphatic systems $5 4% Table 53 below shows the estimated impact of the proposed updates to the revised ASC payment system on aggregate ASC payments for selected surgical procedures during CY 2012. The table displays 30 of the procedures receiving the greatest estimated CY 2011 aggregate Medicare payments to AS Cs. The HCPCS codes are sorted in descending order by estimated CY 2011 program payment.

● Column 1–HCPCS code

.CMS-1525-P 852

● Column 2–Short Descriptor of the HCPCS code.

● Column 3–Estimated CY 2011 ASC Payments were calculated using CY 2010 ASC utilization (the most recent full year of ASC utilization) and the CY 2011 ASC payment rates. The estimated CY 2011 paym ents are expressed in millions of dollars.

● Column 4–Estimated CY 2012 Percent Change reflects the percent differences between the estimated ASC payment for CY 2011 and the estimated payment for CY 2012 based on the proposed update. As displayed in Table 53, 21 of the 30 procedures with the greatest estimated aggregate CY 2011 Medicare payment are included in the 3 surgical specialty groups that are estimated to account for the most Me dicare payment to ASCs in CY 2011, specifically eye and ocular adnexa, digestive sy stem, and nervous system surgical groups. Consistent with the estimated payment effect s on the surgical specialty groups displayed in Table 52 the estimated effects of the proposed CY 2012 update on ASC payment for individual procedures show n in Table 53 are varied. The ASC procedure for which the most Medicare payment is estimated to be made in CY 2011 is the cataract remova l procedure reported with CPT code 66984 (Cataract surg w/iol 1 stage). We estimat e that the proposed update to the ASC rates would result in a 0 percent change for this procedure in CY 2012. The estimated payment effects on two of the other three eye and ocular adnexa pr ocedures included in Table 53 are slightly more significant. We estimate that the payment rate for CPT code 66821 (After cataract laser surgery) would in crease by 2 percent and payment for CPT code 67042 (Vit for macular hole) would increase by 3 percent.CMS-1525-P 853 We estimate that the proposed payment rates for all of the digestive system procedures included in Table 53 would change by -3 to +3 percent in CY 2012. During the previous 4-year tr ansition to the revised ASC paymen t system, payment for most of the high volume digestive system procedures decreased each year because, under the previous ASC payment system, the payment rates for many high volume endoscopy procedures were almost the same as the pa yments for the procedures under the OPPS. The estimated effects of the proposed CY 2012 update on the nine nervous system procedures for which the most Medicare ASC payment is estimated to be made in CY 2011 would be variable. Our estimates indicate that the proposed CY 2012 update would result in payment increases of 2 to 3 per cent for 6 of the 9 procedures and result in a 1 to 5 percent decrease for the other 3 ner vous system procedures. The nervous system procedure for which we estimate a negative effect on CY 2012 payments is CPT code 63650 (Implant neuroelectrodes) which is expected to have payment decrease of 5 percent. The estimated payment effects for most of the remaining pr ocedures listed in Table 53 would be positive. For example, the payment rate for musculoskeletal CPT codes 26055 (Incise finger te ndon sheath) is estimated to increase 4 percent over the CY 2011 payment rates. Musculoskeletal pr ocedures are expected to account for a greater percentage of CY 2012 Medicare ASC spending as we estimate that payment for procedures in that surgical specialty group would increase under the revised payment system in CY 2012.CMS-1525-P 854

TABLE 53.--ESTIMATED IMPACT OF THE PROPOSED CY 2012 UPDATE TO THE ASC PAYMENT SYSTEM ON AGGREGATE PAYMENTS FOR SELECTED PROCEDURES

CPT/HCPCS Code*

(1) Short Descriptor (2) Estimated CY 2011 ASC Payments

(in millions) (3) Estimated CY 2012 Percent Change (4) 66984 Cataract surg w/iol, 1 stage $1,083 0% 43239 Upper GI endoscopy, biopsy $158 -3% 45380 Colonoscopy and biopsy $133 2% 45378 Diagnostic colonoscopy $100 2% 45385 Lesion removal colonoscopy $87 2% 66982 Cataract surgery, complex $79 0% 62311 Inject spine l/s (cd) $66 2% 64483 Inj foramen epidural l/s $66 2% 66821 After cataract laser surgery $56 2% 15823 Revision of upper eyelid $41 0% 64493 Inj paravert f jnt l/s 1 lev $40 2% 63650 Implant neuroelectrodes $38 -5% G0105 Colorectal scrn; hi risk ind $32 3% 29881 Knee arthroscopy/surgery $31 0% 29826 Shoulder arthroscopy/surgery $31 2% 64721 Carpal tunnel surgery $30 2% 29827 Arthroscop rotator cuf repr $27 2% 29880 Knee arthroscopy/surgery $26 0% 63685 Insrt/redo spine n generator $26 -1% G0121 Colon ca scrn not hi rsk ind $25 3% 45384 Lesion remove colonoscopy $24 2% 43235 Uppr gi endoscopy, diagnosis $23 -3% 52000 Cystoscopy $20 1% 28285 Repair of hammertoe $19 0% 64622 Destr paravertebrl nerve l/s $19 3% 64590 Insrt/redo pn/gastr stimul $16 -1% 62310 Inject spine c/t $16 2% 26055 Incise finger tendon sheath $16 4% 50590 Fragmenting of kidney stone $15 25% 67042 Vit for macular hole $14 3%CMS-1525-P 855 *Note that HCPCS codes proposed for deletion for CY 2012 are not displayed in this table. The previous ASC payment system served as an incentive to ASCs to focus on providing procedures for which they determin ed Medicare payments would support their continued operation. We note that, historic ally, the ASC payment rates for many of the most frequently performed procedures in ASCs were similar to the OPPS payment rates for the same procedures. Conversely, procedures with ASC payment rates that were substantially lower than the OPPS rates we re performed least often in ASCs. We believed that the revised ASC payment system would encourage greater efficiency in ASCs and would promote significant increase s in the breadth of surgical procedures performed in ASCs because it distributes paym ents across the entire spectrum of covered surgical procedures based on a coherent system of relative weights th at are related to the clinical and facility resource re quirements of those procedures. The CY 2010 claims data that we us ed to develop the proposed CY 2012 ASC payment system relative payment weights and rates reflect the third year of utilization under the revised payment system. Although the ch anges in the claims data are not large, the data reflect increased Me dicare ASC spending for proce dures that were newly added to the ASC list in CY 2008. Our estimates based on CY 2010 data indicate that for CY 2012 there would be especially noticeable increases in spending for the hematologic and lymphatic systems compared to the previous ASC payment system. (3) Estimated Effects of This Proposed Rule on Beneficiaries We estimate that the proposed CY 2012 update to the ASC payment system would be generally positive for beneficiaries with respect to the new procedures that we are adding to the ASC list of covered surgic al procedures and for those that we areCMS-1525-P 856 designating as office-based for CY 2012. First, other than certain preventive services where coinsurance and the Part B deductible is waived to comply with sections 1833(a)(1) and (b) of the Act, the ASC coinsuran ce rate for all procedur es is 20 percent. This contrasts with procedures performed in HOPDs, where the benefi ciary is responsible for copayments that range from 20 percent to 40 percent of the procedure payment. Second, ASC payment rates under the revised payment system are lower than payment rates for the same procedures under the OPPS; therefore, the beneficiary coinsurance amount under the ASC payment system almost always would be less than the OPPS copayment amount for the same services. (T he only exceptions would be if the ASC coinsurance amount exceeds the inpatient de ductible. The statute requires that copayment amounts under the OPPS not exceed th e inpatient deductible.) Furthermore, the additions to the ASC list of covered surg ical procedures would provide beneficiaries access to more surgical procedures in ASCs . Beneficiary coinsurance for services migrating from physicians' offices to ASCs may decrease or incr ease under the revised ASC payment system, depending on the partic ular service and the relative payment amounts for that service in the physician's of fice compared to the ASC. However, for those additional procedures that we are proposing to de signate as office-based in CY 2012, the beneficiary coinsurance amount w ould be no greater than the beneficiary coinsurance in the physician's office. (4) Alternatives Considered Alternatives to the changes we are pr oposing to make and the reasons that we have chosen specific options are discussed th roughout this proposed rule. Some of theCMS-1525-P 857 major ASC issues discussed in this propos ed rule and the options considered are discussed below.

● Alternatives Considered for Office-Based Procedures According to our final policy for the revised ASC payment system, we designate as office-based those procedures that are added to the ASC list of covered surgical procedures in CY 2008 or later years and that we determine are predominantly performed in physicians’ offices based on considerati on of the most recent available volume and utilization data for each individual proce dure HCPCS code and, if appropriate, the clinical characteristics, utilization, and volum e of related HCPCS codes. We establish payment for procedures designated as office-b ased at the lesser of the MPFS nonfacility practice expense payment amount or the ASC rate developed according to the standard methodology of the revised ASC payment system. In developing this proposed rule, we reviewed CY 2010 utilization data for all surgical procedures added to the ASC list of covered surgical procedures in CY 2008 or later years and for those procedures for whic h the office-based designation is temporary in the CY 2011 OPPS/ASC final rule with comment period (75 FR 72036 through 72038). Based on that review, and as discu ssed in section XIII.C .1.b. of this proposed rule, we are proposing to newly designate 10 surgical procedures as permanently office-based and proposing to make temporary office-based designations for 8 procedures in CY 2012 that were designated as tem porarily office-based for CY 2011. We considered two alternatives in developing this policy.CMS-1525-P 858 The first alternative we considered wa s to make no change to the procedure payment designations. This would mean that we would pay for the ten procedures we are proposing to designate as permanently offi ce-based and the eight procedures we are proposing to designate as temporarily office- based at an ASC payment rate calculated according to the standard ratesetting methodology of the revised ASC payment system. We did not select this alternative because our analysis of the data a nd our clinical review indicated that all 10 proce dures we are proposing to designate as permanently office-based, as well as the 8 procedures th at we are proposing to designate temporarily as office-based, are considered to be pre dominantly performed in physicians’ offices. Consistent with our final policy adopted in the August 2, 2007 final rule (72 FR 42509 through 42513), we were concerned that maki ng payments at the standard ASC payment rate for the 10 procedures we are proposing to designate as permanently office-based and the 8 procedures we are propos ing to designate as temporar ily office-based could create financial incentives for the procedures to shift from physicians’ offices to ASCs for reasons unrelated to cl inical decisions regarding the most appropriate setting for surgical care. Further, consistent with our policy, we believe that when adequate data become available to make permanent determinations about procedures with temporary officebased designations, maintaining the tem porary designation is no longer appropriate. The second alternative we considered and the one we are proposing for CY 2012 is to designate 10 additional procedures as permanently office-based for CY 2012 and to designate 8 procedures as temporarily office -based in CY 2012 that were designated as temporarily office-based for CY 2011. We chose this alterna tive because our claims dataCMS-1525-P 859 and clinical review indicate that these procedures could be considered to be predominantly performed in physicians’ offices. We believe that designating these procedures as office-based, which results in the CY 2012 ASC payment rate for these procedures potentially being capped at the CY 2012 physicians’ office rate (that is, the MPFS nonfacility practice expense payment amount), if applicab le, is an appropriate step to ensure that Medicare payment policy does not create financial incentives for such procedures to shift unnecessarily from physicians’ offices to ASCs, consistent with our final policy adopted in th e August 2, 2007 final rule. c. Accounting Statements and Tables As required by OMB Circul ar A-4 (available at http://www.whitehouse.gov/om b/circulars/a004/a-4.pdf ), we have prepared two accounting statements to illustrate the impacts of this proposed rule. The first accounting statement, Table 54 below, illustrates the cl assification of expenditures for the CY 2012 estimated hospital OPPS incurr ed benefit impacts associated with the proposed CY 2012 OPD fee schedule increase shown in this proposed rule, based on the FY 2012 President’s Budget. The second accounting statement, Table 55 below, illustrates the classification of expenditures associated with the 0.9 percent proposed CY 2011 update to the revised ASC payment system, based on th e provisions of this proposed rule and the baseline spending estimates for ASCs in th e FY 2012 President’s Budget. Lastly, both tables classify all estimated impacts as transfers.CMS-1525-P 860
TABLE 54.--ACCOUNTING STATEMENT: CY 2012 ESTIMATED HOSPITAL

OPPS TRANSFERS FROM CY 2011 TO CY 2012 ASSOCIATED WITH THE PROPOSED CY 2012 HOSPITAL OUTP ATIENT OPD FEE SCHEDULE INCREASE Category Transfers Annualized Monetized Transfers $0.5 billion From Whom to Whom Federal Govern ment to outpatient hospitals and other providers who received payment under the hospital OPPS Total $0.5 billion

TABLE 55.--ACCOUNTING STATEM ENT: CLASSIFICATION OF ESTIMATED TRANSFERS FROM CY 2011 TO CY 2012 AS A RESULT OF THE

PROPOSED CY 2012 UPDATE TO THE REVISED ASC PAYMENT SYSTEM Category Transfers Annualized Monetized Transfers $26 million

From Whom to Whom Federal Government to Medicare Providers and Suppliers Total $26 million

d. Effect of Proposed Requirements for th e Hospital Outpatient Quality Reporting (OQR) Program In section XVI. of the CY 2009 OPPS/A SC final rule with comment period (73 FR 68758 through 68781), section XVI. of the CY 2010 OPPS/ASC final rule with comment period (74 FR 60629 through 60655) , and section XVI. of the CY 2011 OPPS/ASC final rule with comment pe riod (75 FR72064 through 72110), we discussed our requirements for subsection (d) hospitals to report qual ity data under the Hospital OQR Program in order to receive the full OP D fee schedule increase factor for CY 2010, CY 2011, and CY 2012-2014, respectively. In secti on XIV. of this proposed rule, we areCMS-1525-P 861 proposing additional policies affecting the Hospital OQR Program for CY 2013, CY 2014, and CY 2015. We determined that 107 hospitals did not meet the requirements to receive the full OPD fee schedule increase fact or for CY 2011. Most of thes e hospitals (over 90 of the 107) received little or no OPPS payment on an annual basis and did not participate in the Hospital OQR Program. We estimate that 120 hospitals may not receive the full OPD fee schedule increase factor in CY 2012. We are unable at this time to estimate the number of hospitals that may not receive the full OPD fee schedule increas e factor in CY 2013, CY 2014 and CY 2015. In section XVI.E.3.a. of the CY 2010 O PPS/ASC final rule with comment period (74 FR 60647 through 60650), for the CY 2011 payment update, as part of the validation process, we required hospitals to submit pape r copies of requested medical records to a designated contractor within the required timeframe. Failure to submit requested documentation could result in a 2 percenta ge point reduction to a hospital’s CY 2011 OPD fee schedule increase factor, but the fail ure to attain a validation score threshold would not. In section XVI.D.3.b of the CY 2011 OPPS/ ASC final rule with comment period, we finalized our proposal to validate data submitted by 800 hospitals of the approximately 3,200 participating hospitals for purposes of the CY 2012 Hospital OQR Program payment determination. We stated our belief that this approach was suitable for the CY Hospital OQR Program because it would: produce a more reliable estimate of whether a hospital’s submitted data have been abstracted accurately; provide moreCMS-1525-P 862 statistically reliable estimates of the quality of care delivered in each selected hospital as well as at the national level; and reduce ove rall hospital burden becau se most hospitals would not be selected to undergo validati on each year. We adopted a threshold of 75 percent as the threshold for the validation score because we believed this level was reasonable for hospitals to achieve while still ensuring accuracy of the data. Additionally, this level is consistent with what we a dopted in the Hospital Inpatient Quality Reporting (IQR) Program (formerly re ferred to as the Reporting Hospital Quality Data for Annual Payment Update (RHQDAP U) program)) (75 FR 50225 through 50229). As a result, we believed that the effect of our validation process for CY 2012 would be minimal in terms of the number of hosp itals that would not meet all program requirements. In this proposed rule, we are proposing to validate data submitted by up to 500 of the approximately 3,200 participating hospita ls for purposes of the CY 2013 Hospital OQR Program payment determination. Unde r our policy for the CY 2011 and CY 2012 payment determinations, and under our proposal for CY 2013, we stated that we would conduct a measure level validation by assess ing whether the measure data submitted by the hospital matches the independent ly reabstracted measure data. As stated above, we are unable to estima te the number of hospitals that may not receive the full OPD fee schedule increase fact or in CY 2013. Therefore, we are unable to estimate the number of hospitals th at would fail the validation documentation submission requirement for the proposed CY 2013 payment update.CMS-1525-P 863 The validation requirements for CY 2011, CY 2012, and the validation requirement proposed for CY 2013 would re sult in result in medical record documentation for approximately 7,300 cases for CY 2011, 9,600 cases per quarter for CY 2012, and approximately 6,000 cases per quarter for CY 2013, respectively, being submitted to a designated CMS contractor. We would pay for the cost of sending this medical record documentation to the designate d CMS contractor at the rate of 12 cents per page for copying and approximately $1.00 pe r case for postage. We have found that an outpatient medical chart is generally up to 10 pages. T hus, as a result of validation requirements effective for the CY 2011 and CY 2012 payment determinations, and proposed for the CY 2013 payment determination, respectively, we would have expenditures of approximately $16,060 fo r CY 2011, $21,120 per quarter for CY 2012, and approximately $13,200 per quarter for CY 2013. Again, as we would pay for the data collection effort, we believe that a requ irement for medical record documentation for 7,300 total cases for CY 2011, a maximum of 12 cases per quarter fo r 800 hospitals for CY 2012, and a maximum of 12 cases per quarter for up to 500 hospitals for CY 2013 represents a minimal burden to Hospital OQR Program participating hospitals. In previous years, medical record documentation was requested by a CMS contractor and hospitals were given 45 days from the date of the request to submit the requested documentation. In section XIV. G.3.d. of this proposed rule, for the CY 2013 payment determination, we are proposing to reduce the time from 45 days to 30 days for hospitals to submit requested medical reco rd documentation to meet our validation requirement; this may create an additional ad ministrative burden. The total burden wouldCMS-1525-P 864 be a maximum of 12 charts for each of the f our quarters that must be copied and mailed within a 30-day period after the end of each quarter. We are proposing this deadline of 30 days to align the process with requirem ents in 42 CFR 476.78(b)(2), which allows 30 days for chart submission in the context of QIO review and to reduce the time for data validation completion to increase timeline ss of providing hospitals feedback on their abstraction accuracy. e. Effects of Proposed Changes to Physician Self-Referral Regulations Section 6001(a) of the Affordable Care Act amended the whole hospital and rural provider exceptions (sections 1877(d)(2) and (d )(3) of the Act, respectively) to impose additional restrictions on phys ician ownership or investment in hospitals. The amended whole hospital and rural provider exceptions pr ovide that a hospital may not increase the number of operating rooms, procedure r ooms, and beds beyond that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of this date, but did have a provider agreement in effect on December 31, 2010, the date of effect of such agreement). Section 6001(a)(3) of the Affordable Care Act added ne w section 1877(i)(3)(A)(i) of th e Act to set forth that the Secretary shall establish and implement an exception process to the prohibition on expansion of facility capacity. Most physician-owned hospitals are unabl e to qualify for the ownership and investment exception at section 1877(d)(1) of the Act. Section 1877(d)(1) of the Act provides an exception for owners hip or investment in publicly traded securities in a corporation where there is stockholder e quity exceeding $75 million at the end of theCMS-1525-P 865 corporation’s most recent fiscal year or on av erage during the previous 3 fiscal years; or the ownership involves mutual funds in a company that has assets greater than $75 million. Studies by the OIG and GAO have concluded that physician-owned hospitals tend to be smaller and are unable to meet the $75 million threshold. The proposed regulations at §411.362(c) set forth the proposed process for a hospital to request an exception to the prohi bition on expansion of facility capacity. Proposed new §411.362(c)(2) outlines the requirem ents for an applicable hospital request and §411.362(c)(3) outlines the requirements for a high Medicaid facili ty request. Our proposed regulations would require each hospi tal desiring an exception to access certain data and make estimates based on that data to determine if the hospital meets the relevant criteria. For example, a hospital would be required to access data furnished by the CMS Healthcare Cost Report Information System (H CRIS) and by the Bureau of the Census, in addition to referencing data from the hospita l’s individual cost reports and making certain estimates on the basis of its cost report data . We believe the impact of these requirements on affected hospitals would be minimal. Our proposed regulations would require e ach hospital requesti ng an exception to provide documentation supporting its calculation s to demonstrate that it satisfies the relevant criteria. Our proposed regulations w ould further require each hospital to provide documentation to support information rela ted to its number of operating rooms, procedure rooms, and beds. This informati on would include, for example, the number of operating rooms, procedure rooms, and beds fo r which the hospital is licensed as of the date that the hospital submits a request for an exception. Each hospital would also beCMS-1525-P 866 required to provide a detailed explanation regarding whether and how it satisfies each of the relevant criteria. We believe physician-o wned hospitals would be minimally affected by these requirements. Our proposed regulations would require e ach hospital requesti ng an exception to disclose on a public Web site for the hospita l that it is requesti ng an exception. Our proposed regulations would requ ire each hospital to certify that it does not discriminate and does not permit physicians to discriminate ag ainst beneficiaries of Federal health care programs. In addition, under our proposed regulations, if CMS we re to receive input from the community related to a particular hospital’s request fo r an exception, the hospital may submit a rebuttal statement in re sponse to input from the community. We believe the impact of these requirement s on physician-owned hospitals would be minimal. We believe our proposals w ould affect a relatively small number of physicianowned hospitals. We estimate that 265 physic ian-owned hospitals are eligible to apply for an exception. We believe accurately estim ating the number of hospitals choosing to request an exception would be impracticable. Further, we are not aware of any existing data or projections that may produce an estimate with reasonable certainty. As a result, we are choosing to estimate th at each of the 265 eligible hospitals will request an exception in order to avoid underestimating th e potential impact. We are not aware of any data that may indicate the potential incr ease in operation rooms, procedure rooms, or beds pursuant to exceptions potentially approve d. We also have no data or projectionsCMS-1525-P 867 that may help estimate the number of physicians that would be affected by this proposed rule as a result of their owne rship interests in hospitals. The proposed requirements concerning th e criteria and process for hospitals seeking an exception to the prohibition on expa nsion of facility capacity are consistent with the physician self-referral statute and re gulations and the current practices of most hospitals. Thus, our proposed requirement s would present a negligible impact on physician-owned hospitals. Physician-owned hos pitals would bear costs associated with requesting an exception to the prohibition on faci lity expansion. In part because hospitals are currently undertaking the cost s of producing a cost report, we believe that the cost of referencing the required data and making the re quired estimates would be negligible. In addition, we believe the costs of provid ing supporting documentation, certifying nondiscrimination against beneficiaries of Fe deral health care programs, and submitting other required information necessary to requestan exception to CMS would be minimal. We believe that beneficiaries may be positively impacted by these proposed provisions. Specifically, an increase in operating rooms, procedure rooms, and beds may augment the volume or nature of services offered by physician-owned hospitals. An expansion in the number of hospital beds may also permit additional inpatient admissions and overnight stays. Increased operating room s, procedure rooms, and beds may result in improved access to health care facilities and se rvices. We believe that our proposals are necessary to conform our regulat ions to the amendments to section 1877 of the Act. We also believe the proposed regulations would help minimize anticompetitive behavior thatCMS-1525-P 868 can affect the decision as to where a benefi ciary receives health care services and would possibly enhance the services furnished. In this proposed rule, we are soliciting public comments on each of the issues outlined above that contain estimates of th e costs and benefits of the proposed rule. f. Effects of Proposed Changes to Pr ovider Agreement Regulations on Patient Notification Requirements In section XV.D. of this proposed rule, we discuss our proposal concerning the requirement that all hospitals and critical access hospitals must furnish written notice to their patients at the beginning of their hospita l stay or outpatient visit if a doctor of medicine or a doctor of osteopathy is not pr esent in the hospital 24 hours per day, 7 days per week, and that the notice must indicate how the hospital will meet the medical needs of any patient who develops an emergency me dical condition at a time when there is no physician present in the hospital. In this proposed rule, we are proposing to modify the provider agreement regulations to reduce th e categories of outpatients who must be notified if hospital does not have a doctor of medicine or doctor of osteopathy on site 24 hours per days/7 days per week. We are proposing that only t hose outpatients who receive observation services, surgery, or se rvices involving anesth esia must receive written notice. We are not making any change s to our patient safety requirements for physician-owned hospitals at §411.362(b)(5)(i). We continue to believe that patients should be made aware of whether or not a docto r of medicine or a doctor of osteopathy is present in the hospital at all times, and the hos pital’s plans to addre ss patient’s emergency medical conditions when a doctor of medicine or a doctor of osteopathy is not present.CMS-1525-P 869 We believe our proposed changes to the provider agreement regulations would result in only a minor change in the number of hospitals that are subject to the disclosure requirements, specifically those multicampus hospitals that currently have 24 hour per day, seven day per week presence of a doctor of medicine or a doctor of osteopathy on one, but not all of their campuses with inpati ent services. We anticipate that very few multicampus hospitals would fall into this cat egory. Rather, the primary impact of the proposed regulation would be to change the number of annual written disclosures given by hospitals to patients. We believe the co st of implementing these provisions borne by hospitals would be limited to a one-time cost associated with completing minor revisions to portions of the hospitals policies and pr ocedures related to patient admission and registration, as well as providi ng written notification to pati ents and affected staff. Therefore, we do not believe that these proposed changes will have any significant economic impact on hospitals. We do not anticipate that our proposals wi ll have a significant economic impact on a substantial number of physicians, other he alth care providers and suppliers, or the Medicare or Medicaid programs a nd their beneficiaries. Specifically, we believe that this proposed rule will affect mostly hospitals, physicians, and beneficiaries. The proposed changes concerning the disclosure of the presen ce of a doctor of medicine or a doctor of osteopathy in hospitals is consistent w ith the physician self-referral statute and regulations as well as the cu rrent practices of most hos pitals. Thus, our physician presence disclosure proposal would present a negligible economic impact on the hospital.CMS-1525-P 870 Overall, we believe that beneficiar ies will be positively impacted by these provisions. Specifically, disc losure of physician presence equips patients to make informed decisions about wh ere they elect to receive care. Our proposal makes no significant change that has the potential to im pede patient access to health care facilities and services. In fact, we believe that our proposal will help minimize anti-competitive behavior that can affect th e decision as to where a bene ficiary receives health care services and possibly the quality of the services furnished. g. Effects of Additional Proposed Hospital VBP Program Requirements Section 1886(o)(1)(B) of the Act dir ects the Secretary to begin making value-based incentive payments under the Hospital VBP Program to hospitals for discharges occurring on or after Octobe r 1, 2012. These incentive payments will be funded for FY 2013 through a reduction to the FY 2013 base operating MS–DRG payment amount for each discharge of 1 per cent, as required by s ection 1886(o)(7)(B)(i) of the Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 2015 is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017 and subsequent years is 2 percent. In section XVI.A.3. of this proposed rule, we are proposing additional requirements forthe FY 2014 Hospital VBP Program. Specifically, we are proposing to add one chartabstracted measure to the Hospital VBP measure set for the FY 2014 payment determination. Because this additional measure is chart-abstracted and is required for the Hospital IQR Program, its inclusion in the Ho spital VBP Program does not result in any additional burden because the Hospital VBP Pr ogram uses data that are required for the Hospital IQR Program.CMS-1525-P 871 h. Effects of the Proposed EHR Reporting Pilot Under section XIV.J. of this proposed rule, we are proposing to allow eligible hospitals and CAHs that are participating in the EHR Incen tive Program to meet the CQM reporting requirement of the program fo r payment year 2012 by participating in the Medicare EHR Incentive Program Electroni c Reporting Pilot. This proposal would facilitate the use of an electronic infrastructure that supports the use of EHRs by hospitals and CAHs to meet the requirements in various CMS programs and reduce reporting burden simultaneously. Through this pilot, we have encouraged hospitals to take steps toward the adoption of EHRs that will allow for reporting of clinical quality data from EHRs to a CMS data repository. We expect that the submission of quality data through EHRs will provide a foundation for establishi ng the capacity of hosp itals to send, and for CMS, in the future, to receive, quality meas ures via hospital EHRs for the Hospital IQR Program’s measures. Hospitals that choose to participate in the EHR Incentive Program by means of this pilot for the purpose of meeting the CQM reporting requirement of Meaningful Use will be taking those first step s toward reporting clinical quality data in such a way. B. Regulatory Flexibility Act (RFA) Analysis The RFA requires agencies to analyze options for regulatory relief of small entities, if a rule has a signi ficant impact on a substantial nu mber of small entities. For purposes of the RFA, we estimate that most hospitals, ASCs and CMHCs are small entities as that term is used in the RFA. For purposes of the RFA, most hospitals are considered small businesses according to th e Small Business Administration’s sizeCMS-1525-P 872 standards with total revenues of $34.5 million or less in any single year. Most ASCs and most CMHCs are considered small businesse s with total revenues of $10 million or less in any single year. For details, see the Small Business Administration’s Web site at http://sba.gov ; choose “Contracting” and select “Tab le of Small Business Size Standards” in PDF or Excel. In addition, section 1102(b) of the Social Security Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. Th is analysis must conf orm to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located out side of a metropolitan st atistical area and has fewer than 100 beds. We estimate that this proposed rule may have a significant impact on approximately 704 sm all rural hospitals. The analysis above, together with the re mainder of this preamble, provides a Regulatory Flexibility Analysis an d a Regulatory Impact Analysis. C. Unfunded Mandates Reform Act Analysis Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before i ssuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $135 million. This proposed rule would not mandate any requi rements for State, local, or tribal governments, nor would it aff ect private sector costs.CMS-1525-P 873 D. Conclusion The changes we are proposing would affectall classes of hosp itals paid under the OPPS and would affect both CMHCs and ASCs . We estimate that most classes of hospitals paid under the OPPS w ould experience a modest increase or a minimal decrease in payment for services furnished under th e OPPS in CY 2012. Table 51 demonstrates the estimated distributional impact of th e OPPS budget neutrality requirements that would result in a 1.5 percent increase in paymen ts for all services paid under the OPPS in CY 2012, after considering all proposed changes to APC reconfiguration and recalibration, as well as the proposed OPD fee schedule increase factor, wage index changes, including the proposed frontier State wage index adjustment, estimated payment for outliers, and changes to the pass-through pa yment estimate. However, some classes of providers that are paid under the OPPS w ould experience significant gains and others would experience modest losses in OPPS payments in CY 2012. Specifically, we estimate that the 11 dedicated cancer hospitals that met the classification criteria in section 1883(d)(1)(B)(v ) of the Act, as a class, would receive an increase in payments under the OPPS of 38.8 percent for CY 2012, a lthough after accounting for the TOPs that we estimate they would no longer receive due to increased payments under the OPPS, the net increase in payment to these hospitals woul d be approximately 9 percent. In contrast, we estimate that CMHCs would see an overall decrease in payment of 33.1 percent as a result of the proposed full transition in CY 2012 to payment rates for partial hospitalization services at CMHCs based on cost report and claims data submitted by

CMHCs.CMS-1525-P 874 The proposed updates to the ASC payment sy stem for CY 2012 would affect each of the approximately 5,000 ASCs currently appr oved for participation in the Medicare program. The effect on an individual ASC would depend on its mix of patients, the proportion of the ASC’s patients th at are Medicare be neficiaries, the degree to which the payments for the procedures offered by th e ASC are changed under the revised payment system, and the extent to which the ASC provi des a different set of procedures in the coming year. Table 52 demonstrates the estimated distributional impact among ASC surgical specialties of the MFP-adjusted CPI-U update of 0.9 percent proposed for

CY 2012. XXI. Federalism Analysis Executive Order 13132 establishes certain requ irements that an agency must meet when it promulgates a proposed rule (and subseq uent final rule) that imposes substantial direct costs on State and local governments , preempts State law, or otherwise has Federalism implications. We have examined the OPPS and ASC provisions included in this proposed rule in accordance with Executive Order 13132, Fede ralism, and have determined that they would not have a substantial di rect effect on State, local or tribal governments, preempt State law, or otherwise have a Federalism imp lication. As reflected in Table 51 of this proposed rule, we estimate that OPPS paymen ts to governmental hospitals (including State and local governmental hospitals) would increase by 1.5 percent under this proposed rule. While we do not know the num ber of ASCs with government ownership, we anticipate that it is small. We belie ve that the proposed provisions related toCMS-1525-P 875 payments to ASCs in CY 2012 would not affect payments to any ASCs owned by government entities. The analyses we have provided in sec tion XX.A. of this proposed rule, in conjunction with the remainder of this document, demonstrates that this proposed rule is consistent with the regulato ry philosophy and principles id entified in Executive Order 12866, the RFA, and secti on 1102(b) of the Act. This proposed rule would affect payments to a substantial number of small rural hospitals and a small number of rural ASCs, as well as other classes of hospitals and ASCs, and some effects may be significant. List of Subjects
42 CFR Part 410 Health facilities, Health professions, La boratories, Medicare, Rural areas, X-rays.

42 CFR Part 411 Kidney diseases, Medicare, Physician referral, Reporting and recordkeeping requirements.

42 CFR Part 416 Health facilities, Health professions , Medicare, Reporting and recordkeeping requirements.

42 CFR Part 419 Hospitals, Medicare, Reporting an d recordkeeping requirements.

42 CFR Part 489 Health facilities, Medicare, Reporting and recordkeeping requirements.CMS-1525-P 876

42 CFR Part 495 Computer technology, Electronic health r ecords, Electronic transactions, Health, Health care. Health information technology, Hea lth insurance, Health records, Hospitals, Incorporation by reference, Laboratories, Medicaid, Medicare, Privacy, Reporting and recordkeeping requirements, Public health, Security. For reasons stated in the preamble of th is document, the Centers for Medicare & Medicaid Services is proposing to ame nd 42 CFR Chapter IV as set forth below: PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS 1. The authority citation for Part 410 continues to read as follows: Authority : Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh). 2. Section 410.27 is amended by— a. Revising the section heading. b. Revising paragraph (a). c. In paragraph (b), removing the cross-reference “§410.168” and adding in its place the cross-reference “§410.29”. d. In paragraph (c), removing the cr oss-reference “§410.168” and adding in its place the cross-reference “subpart G of Part 424 of this chapter”. e. Redesignating paragraphs (d) th rough (f) as paragra phs (e) through (g), respectively. f. Adding a new paragraph (d). The revisions and addition read as follows:CMS-1525-P 877 §410.27 Therapeutic outpatient hospital or CAH services and supplies incident to a physician’s or nonphysician prac titioner’s service: Conditions. (a) Medicare Part B pays for therapeu tic hospital or CAH services and supplies furnished incident to a physician’s or nonphysician practitioner’s service, which are defined as all services and s upplies furnished to hospital or CAH outpatients that are not diagnostic services and that aid the p hysician or nonphysician practitioner in the treatment of the patient, including drugs and biologicals that cannot be self-administered,
if— (1) They are furnished— (i) By or under arrangeme nts made by the participati ng hospital or CAH, except in the case of a SNF resident as prov ided in §411.15(p) of this subchapter; (ii) As an integral although incide ntal part of a phys ician’s or nonphysician practitioner’s services; (iii) In the hospital or CAH or in a depa rtment of the hospital or CAH, as defined in §413.65 of this subchapter; and (iv) Under the direct supervision (or other level of superv ision as specified by CMS for the particular service) of a physic ian or a nonphysician practitioner as specified in paragraph (g) of this section, s ubject to the following requirements: (A) For services furnished in the hospital or CAH, or in an outpatient department of the hospital or CAH, both on and off-cam pus, as defined in §413.65 of this subchapter, “direct supervision” means that the phys ician or nonphysician practitioner must be immediately available to furnish assistance and direction throughout the performance ofCMS-1525-P 878 the procedure. It does not mean that the physician or nonphysician practitioner must be present in the room when th e procedure is performed; (B) Certain therapeutic services and supplies may be assigned either general supervision or personal supervision. When such assignment is made, g eneral supervision means the definition specif ied at §410.32(b)(3)(i), and personal supervision means the definition specified at §410.32(b)(3)(iii); (C) Nonphysician practitioners may direc tly supervise services that they may personally furnish in accordance with State law and all additional requirements, including those specified in §§410.71, 410.73, 410.74, 410.75, 410.76, and 410.77; (D) For pulmonary rehabilitation, card iac rehabilitation, a nd intensive cardiac rehabilitation services, direct supervision must be furnished by a doctor of medicine or a doctor of osteopathy, as specified in §§410.47 and 410.49, respectively; and (E) For nonsurgical extended duration therape utic services (extended duration services) , which are hospital or CAH outpatient therap eutic services that can last a significant period of time, have a substantia l monitoring component that is typically performed by auxiliary personnel, have a low risk of requiring the physician's or appropriate nonphysician practitioner's immediate availability after th e initiation of the service, and are not primarily surgical in na ture, Medicare requires a minimum of direct supervision during th e initiation of the service wh ich may be followed by general supervision at the discretion of the supervising physician or the appropriate nonphysician practitioner. “Initiation” means the beginning portion of the nonsurgical extended duration therapeutic service which ends when the patient is stable and the supervisingCMS-1525-P 879 physician or the appropriate nonphysician practitioner determin es that the remainder of the service can be delivered safe ly under general supervision. (2) In the case of part ial hospitalization services, al so meet the conditions of paragraph (e) of this section.
* * * * * (d) Rules on emergency services furnishe d to outpatients in a foreign country are specified in subpart H of Part 424 of this chapter.
* * * * *

PART 411—EXCLUSIONS FROM ME DICARE AND LIMITATIONS ON
MEDICARE PAYMENT 3. The authority citation for Part 41 1 continues to read as follows: Authority: Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w -101 through 1395w-152, 1395hh and 1395nn). 4. Section 411.362 is amended by— a. Adding in paragraph (a) definitions of “baseline number of operating rooms, procedure rooms, and beds” and “main campus of the hospital” in alphabetical order. b. Revising paragraph (b)(2). c. Adding paragraph (c). The revision and additions read as follows: §411.362 Additional requirements concerning physician ownership and investment in hospitals. (a) * * *CMS-1525-P 880 Baseline number of operating rooms, procedure rooms, and beds means the number of operating rooms, procedure rooms, and beds for which the applicable hospital or high Medicaid facility is licensed as of March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in eff ect as of such date, but does have a provider agreement in effect on December 31, 2010, the date of effect of such agreement). Main campus of the hospital means “campus” as defined at § 413.65(a)(2).
* * * * * (b) * * * (2) Prohibition on facility expansion . The hospital may not increase the number of operating rooms, procedure rooms, and beds beyond that for which the hospital is licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of this date, but does have a provider agreement in effect on December 31, 2010, the effective date of such agreement), unless an exception is granted pursuant to paragraph (c) of this section.
* * * * * (c) Criteria for an individual hospital seeking an exception to the prohibition on facility expansion. (1) General . An applicable hospital or high Medicaid facility may request an exception from the prohibition on facility e xpansion up to once every 2 years from the date of a CMS decision on the hospital’s most recent request. (2) Criteria for applicable hospital . An applicable hospital is a hospital that satisfies all of the following criteria:CMS-1525-P 881 (i) Population increase . Is located in a county that has a percentage increase in population that is at least 150 pe rcent of the percentage increa se in population of the State in which the hospital is located during the most recent 5-year period for which data are available as of the date that the hospital submits its request. To calculate State and county population growth, a hospital must us e Bureau of the Census estimates. (ii) Medicaid inpatient admissions . Has an annual percen t of total inpatient admissions under Medicaid that is equal to or greater than the average percent with respect to such admissions for all hospitals lo cated in the county in which the hospital is located for each of the 3 most recent fiscal years for which data are available as of the date that the hospital submits its request. A hospital must use file d hospital cost report discharge data to estimate its annual pe rcent of total inpatient admissions under Medicaid. (iii) Nondiscrimination . Does not discriminate agai nst beneficiaries of Federal health care programs and does not permit phys icians practicing at the hospital to discriminate against such beneficiaries. (iv) Average bed capacity . Is located in a State in which the average bed capacity in the State is less th an the national average bed capacity for each of the 3 most recent fiscal years for which data are available as of the date that the hospital submits its request. (v) Average bed occupancy . Has an average bed occupancy rate that is greater than the average bed occupancy rate in the St ate in which the hospital is located for each of the 3 most recent fiscal years for which data are available as of the date that theCMS-1525-P 882 hospital submits its request. A hospital mu st use filed hospital cost report data to determine its average bed occupancy rate. (3) Criteria for high Medicaid facility . A high Medicaid facility is a hospital that satisfies all of the following criteria: (i) Sole hospital . Is not the sole hos pital in the county in which the hospital is located. (ii) Medicaid inpatient admissions . With respect to each of the 3 most recent fiscal years for which data are available as of the date the hospital submits its request, has an annual percent of total inpatient admissi ons under Medicaid that is estimated to be greater than such percent with respect to su ch admissions for any other hospital located in the county in which the hospital is located. A hospital must us e filed hospital cost report discharge data to estimate its annual per centage of total inpatient admissions under Medicaid and the annual per centages of total inpatient admissions under Medicaid for every other hospital located in the co unty in which the hospital is located. (iii) Nondiscrimination . Does not discriminate agai nst beneficiaries of Federal health care programs and does not permit phys icians practicing at the hospital to discriminate against such beneficiaries. (4) Procedure for submitting a request . (i) A hospital must either mail an original and one copy of the wr itten request to CMS or subm it the request electronically to CMS. If a hospital submits the request electronically, the hos pital must mail an original hard copy of the signe d certification set forth in pa ragraph (c)(4)(iii) of this section to CMS.CMS-1525-P 883 (ii) A request must include the following information: (A) The name, address, National Provi der Identification number(s) (NPI), Tax Identification Number(s) (TIN), and CMS Cer tification Number(s) (CCN) of the hospital requesting an exception. (B) The county in which the hospital requesting an exception is located. (C) The name, title, address, and daytime telephone number of a contact person who will be available to discuss the reque st with CMS on behalf of the hospital. (D) A statement identifying the hospital as an applicable hospital or high Medicaid facility and a detailed explan ation with supporting documentation regarding whether and how the hospital satisfies each of the criteria for an applicable hospital or high Medicaid facility. The re quest must state that the ho spital does not discriminate against beneficiaries of Federal health care programs and does not permit physicians practicing at the hospital to discrimi nate against such beneficiaries. (E) Documentation supporting the hospita l’s calculations of its baseline number of operating rooms, procedure rooms, and beds; the hospital’s number of operating rooms, procedure rooms, and beds for which the hospital is licensed as of the date that the hospital submits a request for an exceptio n; and the additional number of operating rooms, procedure rooms, and beds by which the hospital requests to expand. (iii) A request must include the follo wing certification signe d by an authorized representative of the hospita l: “With knowledge of the penalties for false statements provided by 18 U.S.C. 1001, I certify that all of the information provided in the request and all of the documentation provided with the request is true and co rrect to the best ofCMS-1525-P 884 my knowledge and belief.” An authorized re presentative is the chief executive officer, chief financial officer, or other comparable officer of the hospital. (5) Community input and timing of complete request . Upon submitting a request for an exception and until th e hospital receives a CMS decision, the hospital must disclose on any public Web site for the hos pital that it is requesting an exception. Individuals and entities in the hospital’s community may provide input with respect to the hospital’s request no later th an 30 days after CMS publishe s notice of the hospital’s request in the Federal Register . Such input must take the form of written comments. The written comments must be either ma iled or submitted electronically to CMS. (i) If CMS does not receive written comments from the community, a request will be deemed complete at the end of the 30-day period. (ii) If CMS receives written commen ts from the community, the hospital has 30 days after CMS notifies the hospital of the written comments to submit a rebuttal statement. A request will be deemed complete at the end of this 30-day period regardless of whether the hospital submits a rebuttal statement. (6) A permitted increase under this section— (i) May not exceed 200 percent of the hospital’s baseline number of operating rooms, procedure rooms, and beds; and (ii) May occur only in faciliti es on the hospital’s main campus. (7) Publication of final decisions . Not later than 60 days after receiving a complete request, CMS will publis h the final decision in the Federal Register

.CMS-1525-P 885 (8) Limitation on review . There shall be no administ rative or judicial review under section 1869, section 1878, or otherwis e of the process under this section (including the establishment of such process).

PART 416—AMBULATORY SURGICAL SERVICES 5. The citation for Part 416 c ontinues to read as follows: Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and1395hh). 6. Section 416.166 is amended by revising paragraph (b) to read as follows: §416.166 Covered surgical procedures. * * * * * (b) General standards . Subject to the exclusions in paragraph (c) of this section, covered surgical procedures are surgical procedures specified by the Secretary and published in the Federal Register and/or via the Internet on the CMS Web site that are separately paid under the OPPS, that would not be expected to pose a significant safety risk to a Medicare beneficiary when perfor med in an ASC, and for which standard medical practice dictates that the beneficiary would not typica lly be expected to require active medical monitoring and care at midnight following the procedure.CMS-1525-P 886 * * * * * 7. Section 416.171 is amended by revising paragraphs (b) and (d) to read as follows: §416.171 Determination of paymen t rates for ASC services. * * * * * (b) Exception. The national ASC payment rates for the following items and services are not determined inaccordance with paragraph (a) of this section but are paid an amount derived from the payment rate for the equivalent item or service set under the payment system established in part 419 of this subchapter as updated annually in the Federal Register and/or via the Intern et on the CMS Web site.
* * * * * (d) Limitation on payment rates for office -based surgical procedures and covered ancillary radiology services . Notwithstanding the provisions of paragraph (a) of this section, for any covered surgical pro cedure under §416.166 that CMS determines is commonly performed in physicians’ offices or for any covered ancillary radiology service, excluding those listed in paragraphs (d )(1) and (2) of this section, the national unadjusted ASC payment rates for these procedur es and services will be the lesser of the amount determined under paragraph (a) of this section or the amount calculated at the nonfacility practice expense relative valu e units under § 414.22( b)(5)(i)(B) of this subchapter multiplied by the conversion f actor described in § 414.20(a)(3) of this subchapter.CMS-1525-P 887 (1) The national unadjusted ASC paymen t rate for covered ancillary radiology services that involve certain nuclear medicine procedures w ill be the amount determined under paragraph (a) of this section. (2) The national unadjusted ASC paymen t rate for covered ancillary radiology services that use contrast agents will be the amount dete rmined under paragraph (a) of this section.
* * * * * 8. Section 416.173 is revi sed to read as follows: §416.173 Publication of revised paymen t methodologies and payment rates. CMS publishes annually, through noti ce and comment rulemaking in the Federal Register and/or via the Interneton the CMS Web site, the payment methodologies and payment rates for ASC services and designa tes the covered surgical procedures and covered ancillary services for which CMS will make an ASC payment and other revisions as appropriate.

PART 419—PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL
OUTPATIENT DEPARTMENT SERVICES 9. The authority citation for Part 419 continues to read as follows: Authority: Secs. 1102, 1833(t), and 1871 of the So cial Security Act (42 U.S.C. 1302, 1395(t), and1395hh). 10. Section 419.32 is amended by: a. Revising paragraph (b)(1)(iv)(A).CMS-1525-P 888 b. Removing the word “and” that appears at the end of paragraph (b)(1)(iv)(B)(1 ). c. Removing the period and adding “; a nd” in its place at the end of paragraph (b)(1)(iv)(B)(2 ). d. Adding a new paragraph (b)(1)(iv)(B)(3 ). The revision and addition read as follows: §419.32 Calculation of prospective payment ra tes for hospital outpatient services. * * * * * (b) * * * (1) * * * (iv)(A) For calendar year 2003 and subs equent years, by the hospital inpatient market basket percentage increase applicable under section 1886(b)(3 )(B)(iii) of the Act, reduced by the factor(s) specified in para graph (b)(1)(iv)(B) of this section. (B) * * * (3 ) For calendar year 2012, a multifactor pr oductivity adjustment (as determined by CMS) and 0.1 percentage point.
* * * * * 11. Section 419.43 is amended by adding pa ragraph (i) to read as follows: §419.43 Adjustments to national program payment and beneficiary copayment

amounts.
* * * * *CMS-1525-P 889 (i) Payment adjustment for certain cancer hospitals .—(1) General rule . CMS provides for a payment adjustment for covere d hospital outpatient department services furnished on or after January 1, 2012, by a hos pital described in se ction 1886(d)(1)(B)(v) of the Act. (2) Amount of payment adjustment . The amount of the payment adjustment under paragraph (i)(1) of this section is determined by the Secretary as follows: (i) If a hospital desc ribed in section 1886(d)(1)( B)(v) of the Act has a payment-to-cost ratio (as determined by the S ecretary) that is less than the weighted average payment-to-cost ratio of other hospita ls furnishing services under section 1833(t) of the Act (as determined by the Secretary) (referred to as the target payment-to-cost ratio), for covered hospital outpatient departme nt services except pass-through devices as defined in §419.66, the payment adjustment is the percentage difference between the payment-to-cost ratio of the hospital a nd the target payment-to-cost ratio. (ii) If a hospital described in se ction 1886(d)(1)(B)(v) of the Act has a payment-to-cost ratio (as determined by the S ecretary) that is less than the weighted average payment-to-cost ratio of other hospita ls furnishing services under section 1866(t) of the Act (as determined by the Secretary) (referred to as the target payment –to-cost ratio), for pass-through devices as defined in §419.66, the payment adjustment is zero percent. (iii) If a hospital described in se ction 1886(d)(1)(B)(v) of the Act has a payment-to-cost ratio (as determined by the S ecretary) that is great er than the targetCMS-1525-P 890 payment–to-cost ratio (as determined by the Secretary), for covered hospital outpatient department services, the payment adjustment is zero percent. (3) Budget neutrality . CMS establishes the payment adjustment under paragraph (i)(1) of this section in a budget neutral manner. 12. Section 419.70 is amended by revising paragraphs (d)(2) introductory text and (d)(6) to read as follows: §419.70 Transitional adjustments to limit decline in payments.

* * * * * (d) * * * (2) Temporary treatment for small ru ral hospitals on or after January 1, 2006

. For covered hospital outpatient services furnished in a calendar year from January 1, 2006, through December 31, 2011, for which the prospective payment system amount is less than the pre-BBA amount, the amount of payment under this part is increased by 95 percent of that differe nce for services furnished during CY 2006, 90 percent of that differen ce for services furnished dur ing CY 2007, and 85 percent of that difference for services furnis hed during CYs 2008, 2009, 2010, and 2011 if the hospital—
* * * * * (6) Temporary treatment for sole community hospitals on or after January 1, 2010, and through December 31, 2011 . For covered hospital outpatient services furnished on or after January 1, 2010, through December 31, 2011, for which the prospective payment system amount is less than the pre-BBA amount, the amount ofCMS-1525-P 891 payment under this part is in creased by 85 percent of that di fference if the hospital is a sole community hospital as defined in § 412.92 of this chapter or is an essential access community hospital as described under § 412.109 of this chapter.
* * * * *

PART 489--PROVIDER AGREEMEN TS AND SUPPLIER APPROVAL 13. The authority citation for Part 489 continues to read as follows: Authority: Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh). 14. Section 489.20 is amended by revising pa ragraph (w) to read as follows: §489.20 Basic commitments. * * * * * (w)(1) In the case of a ho spital as defined in §489.24(b), to furnish written notice to all patients at the beginning of their planned or unplanned inpatient hospital stay or at the beginning of any planned or unplanned out patient visit for obser vation, surgery or any other procedure requirin g anesthesia, if a doctor of medici ne or a doctor of osteopathy is not present in the hospital 24 hours per day, 7 days per week, in order to assist the patients in making informed decisions rega rding their care, in accordance with § 482.13(b)(2) of this subchapter. For purposes of this paragraph, a planned hospital stay or outpatient visit begins with the provis ion of a package of information regarding scheduled preadmission testing and registra tion for a planned hospital admission forCMS-1525-P 892 inpatient care or outpatient serv ice. An unplanned hospital stay or outpatient visit begins at the earliest point at which the patient presents to the hospital. (2) In the case of a hospi tal that is a main provider and has one or more remote locations of a hospital or one or more sa tellites, as these terms are defined in § 413.65(a)(2), § 412.22(h), or § 412.25(e) of this ch apter, as applicable , the determination is made separately for the main provider a nd each remote location or satellite whether notice to patients is required. Notice is re quired at each location at which inpatient services are furnished at which a doctor of medicine or doctor of osteopathy is not present 24 hours per day, 7 days per week. (3) The written notice must state that the hospital does not have a doctor of medicine or a doctor of osteopathy present in the hospital 24 hours per day, 7 days per week, and must indicate how th e hospital will meet the medical needs of any patient who develops an emergency medical condition, as defined in § 489.24(b), at a time when there is no doctor of medicine or doctor of osteopathy present in the hospital. (4) Before admitting a patient or providing an outpatient service to outpatients for whom a notice is required, the hospital must receive a signed acknowledgment from the patient stating that the patient understands that a doctor of medicine or doctor of osteopathy may not be present during all hours serv ices are furnished to the patient. (5) Each dedicated emergency department, as that term is defined in § 489.24(b), in a hospital in which a doctor of medicine or doctor of osteopathy is not present 24 hours per day, 7 days per week must post a notice conspicuously in a place or places likely to be noticed by all individuals entering the dedicated emergency department. The postedCMS-1525-P 893 notice must state that the hospital does not ha ve a doctor of medicine or a doctor of osteopathy present in the hosp ital 24 hours per day, 7 days per week, and must indicate how the hospital will meet the medical needs of any patient with an emergency medical condition, as defined in § 489.24(b), at a time when there is no doctor of medicine or doctor of osteopathy pres ent in the hospital.

PART 495--STANDARDS FOR TH E ELECTRONIC HEALTH RECORD
TECHNOLOGY INCENTIVE PROGRAM 15. The authority citation for Part 495 continues to read as follows: Authority : Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh). 16. Section 495.8 is amended by revi sing paragraph (b)(2)(ii) and adding paragraph (b)(2)(vi) to read as follows: §495.8 Demonstration of meaningful use criteria. * * * * * (b) * * * (2) * * * (ii) Reporting clinical quality information . For § 495.6(f)(9) “R eporting hospital clinical quality measures to CMS or, in the case of Medicaid eligible hospitals, the States,” report the hospital quality measures selected by CMS to CMS (or in the case of Medicaid eligible hospitals, the States) in the form and manner sp ecified by CMS (or in the case of Medicaid eligible hospitals, the States).
* * * * *CMS-1525-P 894 (vi) Exception for Medicare eligib le hospitals and CAHs for FY 2012-- Participation in the Medicare EHR Incentive Program Electronic Reporting Pilot . In order to satisfy the clinical quality measur e reporting objective in § 495.6(f)(9), aside from attestation, a Medicare eligible hosp ital or CAH may participate in the Medicare EHR Incentive Program Electronic Reporting Pilot.
* * * * *CMS-1525-P (Catalog of Federal Domestic Assistan ce Program No. 93.773, Medicare—Hospital Insurance; Program No. 93.774, Medicare—Suppl ementary Medical Insurance Program; and Program No. 93.778 (M edical Assistance)

Dated: June 24, 2011

______________________________ Donald M. Berwick, Administrator, Centers for Medicare & Medicaid Services

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Dated: June 28, 2011

___________________________ Kathleen Sebelius, Secretary

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BILLING CODE 4120-01-PCMS-1525-P 896

[FR Doc. 2011-16949 Filed 07/01/2011 at 4:15 pm; Publication Date: 07/18/2011]