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: Hospital Outpatient Prospective Payment; 

Ambulatory Surgical Center Payment; Hospital Value-Based Purchasing Program; 

Physician Self-Referral; and Provider Agreement Regulations on Patient 

Notification Requirements 

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

ACTION: Proposed rule. 

SUMMARY: This proposed rule would revise the Medicare hospital outpatient 

prospective payment system (OPPS) to implement 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 outpatient services paid under the OPPS. These 

proposed changes would be applicable to services furnished on or after January 1, 2012. 

 In addition, this proposed rule would update the revised Medicare ambulatory 

surgical center (ASC) payment system to implement applicable statutory requirements 

and changes arising from our continuing experience with this system. In this proposed 

rule, we set forth the proposed relative payment weights and payment amounts for 

services furnished in ASCs, specific HCPCS codes to which these proposed changes 

would apply, and other proposed ratesetting information for the CY 2012 ASC payment 
CMS-1525-P 2 

system. These proposed changes would be applicable to services furnished on or after 

January 1, 2012. 

 We are proposing to revise the requirements for the Hospital Outpatient Quality 

Reporting (IQR) Program, add new requirements for ASC Quality Reporting System, and 

make additional changes to provisions of the Hospital Inpatient Value-Based Purchasing 

(VBP) Program. 

 We also are proposing to allow eligible hospitals and CAHs participating in the 

Medicare Electronic Health Record (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 Incentive Program Electronic Reporting Pilot. 

 In addition, we are proposing to make changes to the rules governing the whole 

hospital and rural provider exceptions to the physician self-referral prohibition for 

expansion of facility capacity and changes to provider agreement regulations on patient 

notification requirements. 

DATES: Comment Period: To be assured consideration, 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 [insert 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 limitations, we cannot accept comments 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 encourage 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 comments 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 Hubert H. Humphrey Building is not readily 

available to persons without Federal Government identification, commenters are 

encouraged to leave their comments in the CMS drop slots located in the main lobby of 

the building. A stamp-in clock is available for persons wishing to retain 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 indicated as appropriate for hand or courier 

delivery may be delayed and received after the comment period. 

Submission of comments on paperwork requirements. You may submit comments 

on this document's paperwork requirements by following the instructions at the end of the 

“Collection of Information Requirements” 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 outpatient prospective payment issues. 

 Char Thompson, (410) 786-0378, Ambulatory surgical center issues. 

 Michele Franklin, (410) 786-4533, and Jana Lindquist, (410) 786-4533, Partial 

hospitalization and community mental 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, Patient 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 viewing by the public, including any personally 
CMS-1525-P 6 

identifiable or confidential business information that is included in a comment. We post 

all comments received before the close of the comment period on the following Web site 

as soon as possible after they have been received: http://www.regulations.gov. Follow 

the search instructions on that Web site to view public comments. 

Comments received timely will also be available for public inspection, generally 

beginning approximately 3 weeks after publication 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 appointment to view public comments, phone 

1-800-743-3951. 

Electronic Access

 This Federal Register document is also available from the Federal Register

online database through Federal Digital System (FDsys), a service of the U.S. 

Government Printing Office. This database can be accessed via the internet at 

http://www.gpo.gov/fdsys/. 

Addenda Available Only Through the Internet on the CMS Web Site 

 In the past, a majority of the Addenda referred 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 only 
CMS-1525-P 7 

on the CMS Web site. The Addenda relating to the OPPS are 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 referenced in this proposed rule, we refer 

readers to section XVII. Readers who experience 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 Appearing in This Federal Register Document 

ACEP American College of Emergency Physicians 

AHA American Hospital Association 

AHIMA American Health Information 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 Reinvestment 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. 105-33 
CMS-1525-P 8 

BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance 

Program] Balanced Budget Refinement Act of 1999, Pub. L. 106-113 

BIPA Medicare, Medicaid, 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 Procedural 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 Service 
CMS-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 Reconciliation 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 Agency 
CMS-1525-P 10 

HIPAA Health Insurance Portability 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 Extension 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, Improvement, and Modernization Act of 

2003, Pub. L. 108-173 

MMEA Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309 

MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 110-173 

MPFS Medicare Physician Fee Schedule 

MSA Metropolitan Statistical Area 
CMS-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 Reporting 
CMS-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 payment systems under the Medicare program: 

the Hospital Outpatient Prospective Payment System (OPPS) and the Ambulatory 

Surgical Center (ASC) payment system. In addition, we are proposing to make changes 

to the rules governing limitations on certain physician referrals to hospitals in which 

physicians have an ownership or investment interest, the provider agreement regulations 

on patient notification requirements, and the rules governing the Hospital Inpatient 

Value-Based Purchasing (VBP) Program. The provisions relating to the OPPS are 

included in sections I. through 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 proposed rule and are available via the Internet on 

the CMS Web site at the URL indicated in section XVII. The provisions related to the 

ASC payment system are included in sections XIII., XIV., and XVII. through XXI. of 

this proposed rule. Addenda AA, BB, DD1, DD2, and EE, which relate to the ASC 
CMS-1525-P 13 

payment system, are referenced in section XVII. of this proposed rule and are available 

via the Internet on the CMS Web site at the URL indicated in section XVII. The 

provisions relating to physician referrals to hospitals in which physicians have an 

ownership or investment interest and to the provider agreement regulations on patient 

notification requirements are included in section XV., and the 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 and Organizational Structure 

 E. Summary of the Major Contents of this Proposed Rule 

 1. Proposed Updates Affecting OPPS Payments 

 2. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies 

3. Proposed OPPS Payment for Devices 

4. Proposed OPPS Payment Changes for Drugs, Biologicals, and 

Radiopharmaceuticals 
CMS-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 Partial 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 Relating to Physician Self-Referral 

Prohibition and Provider Agreement Regulations on Patient Notification 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 Weights 
CMS-1525-P 15 

1. Database Construction 

a. Database Source and Methodology 

 b. Proposed Use of Single and Multiple Procedure Claims 

 c. Proposed Calculation and Use of Cost-to-Charge Ratios (CCRs) 

 2. Proposed Data Development Process 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 Records and Median Cost Calculations 

 d. Proposed Calculation of Single Procedure 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 Revascularization 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 Composite APC Criteria-Based Median Costs 
CMS-1525-P 16 

 (1) Extended Assessment and Management Composite APCs (APCs 8002 and 

8003) 

 (2) Low Dose Rate (LDR) Prostate Brachytherapy Composite APC (APC 8001) 

 (3) Cardiac Electrophysiologic Evaluation and Ablation Composite APC 

(APC 8000) 

 (4) Mental Health Services Composite APC (APC 0034) 

 (5) Multiple Imaging Composite 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 Recommendations 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 CCRs 
CMS-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 Certain Cancer Hospitals Described by Section 

1886(d)(1)(B)(v) of the Act 

1. Background 

 2. Study of Cancer Hospital Costs 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 Adjusted Medicare Payment from the National 

Unadjusted Medicare Payment 

I. Proposed Beneficiary Copayments 

 1. Background 

 2. Proposed OPPS Copayment Policy 
CMS-1525-P 18 

 3. Proposed Calculation of an Adjusted Copayment Amount for an APC Group 

III. Proposed OPPS Ambulatory Payment Classification (APC) Group Policies 

 A. Proposed OPPS Treatment of New CPT and Level II HCPCS Codes 

 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 

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 Will 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 Neurostimulator Electrodes (APC 0687) 

2. Computed Tomography of Abdomen 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 AICD 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 Drugs, Biologicals, and Radiopharmaceuticals 

 A. Proposed OPPS Transitional Pass-Through Payment for Additional Costs of 

Drugs, Biologicals, and Radiopharmaceuticals 

 1. Background 

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

CY 2012 
CMS-1525-P 20 

 3. Proposed Drugs, Biologicals, and Radiopharmaceuticals with New or 

Continuing Pass-Through Status in CY 2012 

 4. Proposed Provisions for Reducing Transitional Pass-Through Payments for 

Diagnostic Radiopharmaceuticals and 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 Packaging of Payment for HCPCS Codes that 

Describe Certain Drugs, Nonimplantable Biologicals, and Therapeutic 

Radiopharmaceuticals (“Threshold-Packaged Drugs”) 

 c. Proposed Packaging Determination for HCPCS Codes That Describe the Same 

Drug or Biological But Different Dosages 

 d. Proposed Packaging of Payment for Diagnostic Radiopharmaceuticals, 

Contrast Agents, and Implantable Biologicals (“Policy-Packaged” Drugs and Devices) 
CMS-1525-P 21 

 3. Proposed Payment for Drugs and Biologicals without Pass-Through Status 

That Are Not Packaged 

 a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and 

Other Separately Payable and Packaged 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, But 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 for 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 2012 
CMS-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 Standards 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. Summary 
CMS-1525-P 23 

XI. Proposed OPPS Payment Status 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 Lists of Codes and Payment Rates for ASC 

Covered Surgical Procedures and Covered Ancillary Services 
CMS-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 Level 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 Procedures Designated as Office-Based 

 (1) Background 

 (2) Proposed Changes for CY 2012 to Covered Surgical Procedures Designated 

as Office-Based 

 c. Proposed ASC Covered Surgical Procedures Designated as Device-Intensive 

 (1) Background 

 (2) Proposed Changes to List of Covered Surgical Procedures Designated as 

Device-Intensive for CY 2012 

 d. ASC Treatment of Surgical Procedures Proposed for Removal from the OPPS 

Inpatient List for CY 2012 
CMS-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 Payments 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 Process for Payment Adjustment 

 3. Requests to Establish New NTIOL 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 Indicators 
CMS-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 Payment 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 Updates and Data Publication 

 a. Maintenance of Technical Specifications for Quality Measures 

 b. Publication of Hospital OQR Program Data 

 B. Proposed Revision to Measures Previously Adopted for the Hospital OQR 

Program for the CY 2012, CY 2013, and CY 2014 Payment Determinations 

 1. Background 
CMS-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 the CY 2014 Payment Determination: Surgical 

Site Infection (NQF #0299) 

 b. Proposed New Chart-Abstracted 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 Protein Screening (NQF #0062) 

 (6) Cardiac Rehabilitation: Patient Referral from an Outpatient Setting 

(NQF #0643)

 c. Proposed New Structural Measures 
CMS-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 Consideration 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 Reporting of Hospital OQR Data for CY 2013 and 

Subsequent Years 

 1. Administrative Requirements for CY 2013 and Subsequent Years 
CMS-1525-P 29 

 2. Form, Manner, and Timing of Data Submission for CY 2013 and Subsequent 

Years 

 a. Proposed CY 2013 and CY 2014 Data Submission 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 Data 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 the CY 2014 Payment Determination 

 g. Proposed Data Submission Requirements 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 Validation 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) Background 
CMS-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 Program 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 Determination 
CMS-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 Patient, Wrong Procedure, Wrong Implant 

(NQF #0267) 

 (4) Hospital Transfer/Admission (NQF #0265) 

 (5) Prophylactic IV Antibiotic Timing (NQF #0264) 

 (6) Ambulatory Patient with Appropriate Method of Surgical Hair Removal 

(NQF #0515) 

 (7) Prophylactic Antibiotic Selection 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 for 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 for the CY 2015 Payment Determination in the 

CY 2016 Payment Determination 
CMS-1525-P 32 

 b. Proposed HAI Measure: Influenza Vaccination Coverage among Healthcare 

Personnel (HCP) (NQF #0431) 

 6. ASC Measure Topics for 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 Quality 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 for 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 Agreement 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 Act 
CMS-1525-P 33 

 C. Proposed Changes Relating to the Process 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 Provider Agreement Regulations on Patient 

Notification Requirements 
CMS-1525-P 34 

XVI. Additional Proposals for the Hospital Inpatient Value-Based Purchasing (Hospital 

VBP) Program 

 A. Hospital VBP Program 

 1. Legislative Background 

 2. Overview of the Hospital Inpatient VBP Program Final Rule 

 3. Proposed Additional FY 2014 Hospital VBP Program Measures 

 4. Proposed Minimum Number 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 Experience of Care FY 2014 

Performance Standards 
CMS-1525-P 35 

 c. AHRQ Measures 

 d. HAC Measures 

 7. Proposed FY 2014 Hospital VBP Program Scoring Methodology 

 a. Proposed FY 2014 Domain Scoring Methodology 

 b. Proposed HAC Measure Scoring Methodology 

 8. Ensuring HAC Reporting Accuracy 

 9. Proposed Domain Weighting for FY 2014 Hospital VBP Program 

 B. Proposed Review and Correction Process 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 Process 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 the Public Via the Internet 

 A. Information in Addenda Related to the Proposed CY 2012 Hospital OPPS 

 B. Information in Addenda Related to the Proposed CY 2012 ASC Payment 

System 

XVIII. Collection of Information Requirements 
CMS-1525-P 36 

 A. Legislative Requirements for Solicitation of Comments 

 B. Requirements in Regulation Text 

 1. ICRs Regarding Basic Commitments of Providers (§489.20) 

 2. ICRs Regarding Exceptions Process Related 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 Incentive Program Electronic Reporting Pilot 

for Hospitals and CAHs 

 7. Additional Topics 

XIX. Response to Comments 

XX. Economic Analysis 
CMS-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 Regulations 
CMS-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 the 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 services was based on hospital-specific costs. In an effort 

to ensure that Medicare and its beneficiaries pay appropriately for services and to 

encourage more efficient delivery of care, the Congress mandated replacement of the 

reasonable cost-based payment methodology with a prospective payment system (PPS). 

The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) added section 1833(t) to the 

Act authorizing implementation of a PPS for hospital outpatient services. The OPPS was 

first implemented for services furnished on or after August 1, 2000. Implementing 

regulations for the OPPS are located at 42 CFR Part 419. 
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 OPPS: 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 Improvements and Extension Act under Division B of 

Title I of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) (Pub. L. 109-

432), enacted on December 20, 2006; the Medicare, Medicaid, and SCHIP Extension Act 

of 2007 (MMSEA) (Pub. L. 110-173), enacted 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 the 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 (Pub. L. 111-152), enacted on March 30, 2010. 

(These two public laws are collectively known as the Affordable Care Act, and most 

recently the Medicare and Medicaid Extenders Act of 2010 (MMEA, Pub. L. 111-309).) 

 Under the OPPS, we pay for hospital outpatient services on a rate-per-service 

basis that varies according to the ambulatory payment classification (APC) group to 

which the service is assigned. We use the Healthcare Common Procedure Coding 

System (HCPCS) (which include certain Current Procedural Terminology (CPT) codes) 

to identify and group the services within each APC group. The OPPS includes payment 

for most hospital outpatient services, except those identified in section I.B. of this 
CMS-1525-P 40 

proposed rule. Section 1833(t)(1)(B) of the Act provides for payment under the OPPS 

for hospital outpatient services designated by the Secretary (which includes partial 

hospitalization services furnished by community mental health centers (CMHCs)) and 

hospital outpatient services that are furnished to inpatients who have exhausted their Part 

A benefits, or who are otherwise not in a covered Part A stay. 

 The OPPS rate is an unadjusted national payment amount that includes the 

Medicare payment and the beneficiary copayment. This rate is divided into a 

labor-related amount and a nonlabor-related amount. The labor-related amount is 

adjusted for area wage differences using the hospital inpatient wage index value for the 

locality in which the hospital or CMHC is located. 

 All services and items within an APC group are comparable clinically and with 

respect to resource use (section 1833(t)(2)(B) of the Act). In accordance with 

section 1833(t)(2) of the Act, subject to certain exceptions, items 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 times rule”). In implementing 

this provision, we generally use the median cost of the item or service assigned to an 

APC group. 

 For new technology items and services, special payments under the OPPS may be 

made in one of two ways. Section 1833(t)(6) of the Act provides for temporary 

additional payments, which we refer to as “transitional pass-through payments,” for at 
CMS-1525-P 41 

least 2 but not more than 3 years for certain drugs, biological agents, brachytherapy 

devices used for the treatment of cancer, and categories of other medical devices. For 

new technology services that are not eligible for transitional pass-through payments, and 

for which we lack sufficient data to appropriately assign them to a clinical APC group, 

we have established special APC groups based on costs, which we refer to as 

New Technology APCs. These New Technology APCs are designated by cost bands 

which allow us to provide appropriate and consistent payment for designated new 

procedures that are not yet reflected in our claims data. Similar to pass-through 

payments, an assignment to a New Technology APC is temporary; that is, we retain a 

service within a New Technology APC until we acquire sufficient data to assign it to a 

clinically appropriate APC group. 

B. Excluded OPPS Services and Hospitals

 Section 1833(t)(1)(B)(i) of the Act authorizes the Secretary to designate the 

hospital outpatient services that are paid under the OPPS. While most hospital outpatient 

services are payable under the OPPS, section 1833(t)(1)(B)(iv) of the Act excludes 

payment for ambulance, physical and occupational therapy, and speech-language 

pathology services, for which payment is made under a fee schedule. It also excludes 

screening mammography, diagnostic mammography, and effective January 1, 2011, an 

annual wellness visit providing personalized prevention plan services. The Secretary 

exercised the authority granted under the statute to also exclude from the OPPS those 

services that are paid under fee schedules or other payment systems. Such excluded 

services include, for example, the professional services of physicians and nonphysician 
CMS-1525-P 42 

practitioners paid under the Medicare Physician Fee Schedule (MPFS); laboratory 

services paid under the Clinical Laboratory Fee Schedule (CLFS); services for 

beneficiaries with end-stage renal disease (ESRD) that are paid under the ESRD 

composite rate; and services and procedures that require an inpatient stay that are paid 

under the hospital inpatient prospective payment system (IPPS). We set forth the 

services that are excluded from payment under the OPPS in 42 CFR 419.22 of the 

regulations. 

 Under §419.20(b) of the regulations, we specify the types of hospitals and entities 

that are excluded from payment under the 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; critical 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 first implemented for services furnished on 

or after August 1, 2000. Section 1833(t)(9) of the Act requires the Secretary to review 

certain components of the OPPS, not less often than annually, and to revise the groups, 

relative payment weights, and other adjustments that take into account changes in 

medical practices, changes in technologies, and the addition of new services, new cost 

data, and other relevant information and factors. 
CMS-1525-P 43 

 Since initially implementing the OPPS, we have published final rules in the 

Federal Register annually to implement statutory requirements and changes arising from 

our continuing experience with this system. 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 appears in the November 24, 2010 Federal Register

(75 FR 71800). In that final rule with comment period, we revised the OPPS to update 

the payment weights and conversion factor for services payable under the CY 2011 OPPS 

on the basis of claims data from January 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 assignment of HCPCS codes identified in 

Addendum B to that rule with the new interim (“NI”) comment indicator, and public 

comments received on the August 3, 2010 OPPS/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 Panel, 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 collected or developed by organizations outside 

the Department in conducting its review. 

2. Establishment of the APC Panel 

 On November 21, 2000, the Secretary signed the initial charter establishing the 

APC Panel. This expert panel, which may be composed of up to 15 representatives of 

providers (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 provisions of the Federal Advisory Committee Act 

(FACA). Since its initial chartering, the Secretary has renewed 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 specifies, among other 

requirements, that: the APC Panel continues to be technical in nature; is governed by the 
CMS-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 and other information pertaining to the 

APC Panel, including its charter, Federal Register notices, membership, meeting dates, 

agenda topics, and meeting reports, can be viewed on the CMS Web site at: 

http://www.cms.hhs.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassification

Groups.asp#TopOfPage. 

3. APC Panel Meetings and Organizational Structure 

 The APC Panel first met on February 27 through March 1, 2001. Since the initial 

meeting, the APC Panel has held multiple meetings, 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 necessary, to solicit nominations for APC 

Panel membership and to announce new members. 

 The APC Panel has established an operational structure that, in part, includes the 

use of three subcommittees to facilitate its required APC review process. The three 

current subcommittees are the Data Subcommittee, the 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 hospital outpatient visits paid 
CMS-1525-P 46 

under the OPPS (for example, APC configurations and APC payment weights). The 

Subcommittee for APC Groups and SI Assignments advises the Panel on the following 

issues: the appropriate SIs to be assigned to HCPCS codes, including but not limited to 

whether a HCPCS code or a category of codes 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 continue 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 recommendations made by the APC Panel at the 

February/March 2011 APC Panel meeting are included in the sections of this proposed 

rule that are specific to each recommendation. For discussions of earlier APC Panel 

meetings and recommendations, we refer readers to previously published hospital 

OPPS/ASC proposed and final rules, the CMS Web site mentioned earlier in this section, 

and the FACA database at: http://fido.gov/facadatabase/public.asp. 

E. Summary of the Major Contents of this CY 2012 OPPS/ASC Proposed Rule

In this proposed rule, we set forth proposed changes to the Medicare hospital 

OPPS for CY 2012 to implement statutory requirements 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 updated 
CMS-1525-P 47 

payment weights, covered surgical procedures, and covered ancillary items and services 

based on the proposed OPPS update. In addition, we are proposing to make changes to 

the rules governing limitations on certain physician referrals to hospitals in which 

physicians have an ownership or investment interest, provider agreement regulations on 

patient notification requirements, and the rules 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 proposing changes in the amounts and factors for 

calculating the full annual update increase 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 payment rate and the 

copayment standardized amount attributable to labor-related cost. 

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

● The proposed application of hold harmless transitional outpatient payments 

(TOPs) for certain small rural hospitals, extended 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 Payment 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 Drugs, Biologicals, and Radiopharmaceuticals 

 In section V. of this proposed rule, we discuss the proposed CY 2012 OPPS 

payment for drugs, biologicals, and radiopharmaceuticals, including the proposed 

payment for drugs, biologicals, and radiopharmaceuticals 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 for 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 Partial 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 list and assign to APCs for payment under the 

OPPS. 
CMS-1525-P 50 

9. Proposed Policies on Supervision Standards for Outpatient Services in Hospitals and 

CAHs 

 In section X. of this proposed rule, we discuss proposed policy changes relating to 

the supervision of outpatient 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 General (OIG), and by the APC Panel regarding the 

OPPS for CY 2012. 

12. Proposed Updates to the Ambulatory Surgical 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 quality data for the OPD fee schedule increase factor for 

CY 2013 and subsequent calendar years; set forth the requirements for data collection 

and submission; and discuss the reduction to the OPPS OPD fee schedule increase factor 

for hospitals that fail to meet the Hospital OQR Program requirements. We also discuss 
CMS-1525-P 51 

proposed measures for reporting ASC quality data for the annual payment update factor 

for CYs 2014, 2015, and 2016; and set forth the requirements for data collection and 

submission for the annual payment update. 

14. Proposed Changes to EHR Incentive Program for Eligible Hospitals and CAHs 

Regarding Electronic Submission of Clinical Quality Measures (CQMs) 

 In section XIV.J. of this proposed rule, we are proposing to allow eligible 

hospitals and CAHs participating in the Medicare EHR Incentive Program to meet the 

CQM reporting requirement of the EHR Incentive Program for payment year 2012 by 

participating in the 2012 Medicare EHR Incentive Program Electronic Reporting Pilot. 

15. Proposed Changes to Provisions Relating to Physician Self-Referral Prohibition and 

Provider Agreement Regulations on Patient 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 changes to the provider agreement 

regulations on patient notification 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 proposed 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 Rule with Comment 

Period

 We received approximately 43 timely pieces of correspondence on the CY 2011 

OPPS/ASC final rule with comment 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 indicators 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 comment 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 explained in detail how we calculated the 

relative payment weights that were implemented 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 after January 1, 2012, and before January 1, 2013 

(CY 2012), using the same basic methodology that we described in the CY 2011 

OPPS/ASC final rule with comment 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 weights. For the purpose of recalibrating the 

proposed APC relative payment weights for CY 2012, we used approximately 

138 million final action claims (claims for which 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 before January 1, 2011. (For 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 rates for this proposed 

rule, approximately 105 million claims were the type of bill potentially appropriate for 

use in setting rates for OPPS services (but did not necessarily contain services payable 

under the OPPS). Of the 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 ratios (CCRs) or no HCPCS codes reported on the claim). From 

the remaining approximately 102 million claims, we created approximately 100 million 
CMS-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 section). 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 bills 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 procedure claims (as defined below), with the 

intention of using more appropriate data from the 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 information in our data development 

process, we are proposing to only use claims (or portions of each claim) that are 

appropriate for ratesetting purposes. Ultimately, 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 (which are referenced in section 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 the 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 hospitals represented in our claims data. We 

continue to believe that it is appropriate to use the most current full calendar year claims 

data and the most recently submitted cost reports to calculate the median costs 

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 proposing 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 based 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 appropriately allocated across multiple procedures 

performed on the same date of service. 

It is generally desirable to use the data from as many claims as possible to 

recalibrate the APC relative payment weights, 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 costs, we are able to use more data from 

multiple procedure claims. In many cases, this enabled us to create multiple “pseudo” 

single procedure claims from claims that were submitted as multiple procedure claims 
CMS-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 “pseudo” single procedure claims. The history of our use of a 

bypass list to generate “pseudo” single procedure claims is well documented, most 

recently in the CY 2011 OPPS/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 creation 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 the composite APC model to one additional 

clinical area, multiple imaging services (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 create them for CY 2012. We refer readers to 

section II.A.2.e. of this proposed rule for discussion of the use of claims to establish 

median costs for composite APCs. 

 We are proposing to continue to apply these processes to enable us to use as much 

claims data as possible for ratesetting for the CY 2012 OPPS. This methodology enabled 

us to create, for this proposed rule, approximately 67 million “pseudo” single procedure 

claims, including multiple imaging composite “single session” bills (we refer readers to 
CMS-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 and “single session” procedure bills represented 

approximately 67 percent of all single procedure bills used to calculate median costs. 

 For CY 2012, we are proposing to bypass 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 packaging 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 and use the updated year’s data (for CY 2012, 

data available for the February 28-March 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 bypass all of the HCPCS 

codes on the CY 2011 OPPS bypass list because they 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 in 
CMS-1525-P 58 

Table 1 of this proposed rule. We also are proposing to remove HCPCS codes that are 

not separately paid under the OPPS because the purpose of the bypass list is to obtain 

more data for those codes relevant to ratesetting. None of these 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 empirical 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” single procedure claims for any given code 

is comparable to packaging for that code in the multiple procedure claims. The proposed 

criteria for the bypass list are: 

● There are 100 or more “natural” single procedure claims for the code. This 

number of single procedure claims ensures that observed outcomes are sufficiently 

representative of packaging that might occur in the multiple claims. 

● Five percent or fewer of the “natural” single procedure claims for the code 

have packaged costs on that single procedure claim for the code. This criterion results in 

limiting the amount of packaging being redistributed to the separately payable procedures 
CMS-1525-P 59 

remaining on the claim after the bypass code is removed and ensures that the costs 

associated with the bypass code represent the cost of the bypassed service. 

● The median cost of packaging observed in the “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 volume 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 updated, we considered whether it would be 

appropriate to update the $50 packaged cost threshold for inflation when examining 

potential bypass list additions. As discussed 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 packaged cost threshold more restrictive over 

time when considering additions to the bypass list. Therefore, adjusting the threshold by 

the market basket would prevent continuing decline in the threshold’s real value. For 

CY 2011, based on CY 2009 claims data, we proposed to apply the final market basket of 

3.6 percent published in the CY 2009 OPPS/ASC final rule with comment period 

(73 FR 26584) to the $50 packaged cost threshold 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 for CY 2011 of $50 ($51.80 rounded to $50). We 
CMS-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 nearest $5 increment, would appropriately 

account for the effects of inflation when considering 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 compared to the price of inputs for hospital services in the 

prior year. We are proposing for CY 2012, based 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 market basket. By applying 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 the 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 continue to include, on the bypass list, HCPCS 

codes that CMS medical advisors 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 and 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 bypass list certain HCPCS 

codes in order to purposefully direct the assignment of packaged costs to a companion 

code where services always appear together and where there would otherwise be few 
CMS-1525-P 61 

single procedure claims available for ratesetting. For example, we have previously 

discussed our reasoning for adding HCPCS code G0390 (Trauma response team 

associated with hospital critical care service) and the CPT 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 “pseudo” single procedure claims from bypassed 

codes that are also members of multiple imaging composite APCs changed. When 

creating the set of “pseudo” single procedure claims, claims that contain “overlap bypass 

codes” (those HCPCS codes that are both on the bypass list and are members of the 

multiple imaging composite APCs) were identified first. These HCPCS codes were then 

processed to create multiple imaging composite “single session” bills, that is, claims 

containing HCPCS codes from only one imaging family, thus suppressing the initial use 

of these codes as bypass codes. However, these “overlap bypass codes” were retained on 

the bypass list because, at the end of the “pseudo” single processing logic, we reassessed 

the claims without suppression of the “overlap bypass codes” under our longstanding 

“pseudo” single process to determine whether we could convert additional claims to 

“pseudo” single procedure claims. (We refer readers 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. “Overlap bypass codes” that are members of 

the proposed multiple imaging composite APCs are identified by asterisks (*) in 
CMS-1525-P 62 

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). 

 Addendum N to this proposed rule includes 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, therefore, 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 codes existed in CY 2010 and were covered 

OPD services in that period, and CY 2010 claims 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 proposed multiple imaging composite APCs are 

identified by asterisks (*) in the third column of Addendum N to this proposed rule. 

HCPCS codes that we are proposing to add for 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 therefore 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 center crosswalk. To calculate the APC median 

costs on which the proposed CY 2012 APC payment rates are based, we calculated 

hospital-specific overall ancillary CCRs and hospital-specific 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 claims processed during CY 2010. We applied 

the hospital-specific CCR to the hospital’s charges at the most detailed level possible, 

based on a revenue code-to-cost center crosswalk that contains a hierarchy of CCRs used 

to estimate costs from charges for each revenue code. That crosswalk is available for 
CMS-1525-P 64 

review and continuous comment on the CMS Web site at: 

http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage. 

To ensure the completeness of the revenue 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 proposed 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 proposing to use nonstandard Medicare cost 

report cost center 3280 (Electrocardiogram (EKG) and Electroencephalography (EEG)) 

as the primary cost center and to use standard cost center 5400 (Electroencephalography 

(EEG)) as the secondary cost center. We believe that MEG, which evaluates brain 

activity, is similar to EEG, which also evaluates brain activity, and that the few hospitals 

that furnish MEG are likely to furnish it in the 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 revenue 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 note that revenue codes with effective dates in 
CMS-1525-P 65 

CY 2011 are not relevant to this process because these new revenue codes were not 

applicable to claims for services furnished during CY 2010. 

In accordance with our longstanding policy, we calculated CCRs for the standard 

and nonstandard cost centers accepted by the electronic cost report database. In general, 

the most detailed level at which we calculated CCRs was the hospital-specific 

departmental level. For a discussion of the hospital-specific overall ancillary CCR 

calculation, we refer readers to the CY 2007 OPPS/ASC final rule with comment period 

(71 FR 67983 through 67985). One longstanding exception to this general methodology 

for calculation of CCRs used for converting charges to costs on each claim is the 

calculation of median blood costs, as discussed in section II.A.2.d.(2) of this proposed 

rule and which has been our standard policy since the CY 2005 OPPS. 

For the CCR calculation process, we used the 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 paramedical education programs and weighted the 

outpatient charges by the volume of outpatient services furnished by the hospital. We 

refer readers to the CY 2007 OPPS/ASC final rule with comment period for more 

information (71 FR 67983 through 67985). We first limited the population of cost 

reports to only those for hospitals that filed outpatient claims in CY 2010 before 

determining whether the CCRs for such hospitals were valid. 

 We then calculated the CCRs for each cost 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 System (HCRIS). We used the most recent 
CMS-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 recent available cost report was submitted but 

not settled, we looked at the last settled cost report to determine the ratio of submitted to 

settled cost using the overall 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-specific 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 ancillary CCR. We are proposing to continue this 

longstanding methodology for 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-based weights 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-cost 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 compression 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 cost 
CMS-1525-P 67 

and charges for individual services 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 discussed 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 final 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 relative weights and the IPPS MS-DRG (Medicare severity) 

cost-based relative weights. The RTI final report can be found on RTI’s Web site at: 

http://www.rti.org/reports/cms/HHSM-500-2005-

0029I/PDF/Refining_Cost_to_Charge_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 comment 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 finalized our proposal for both the OPPS and 
CMS-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 Equipment” 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. Accordingly, 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 subscripted 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 Supplies 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 separate new cost center line and description which bears a 

logical relationship to the standard 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. For example, Line 55 of Worksheet A on Form 

CMS 2552-96 (the Medicare hospital cost report) is “Medical Supplies Charged to 

Patients.” The additional cost center, which isolates the costs of “Implantable Medical 

Supplies Charged to Patients”, was created 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 (Intraocular 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 availability of data in the “Implantable Devices 
CMS-1525-P 69 

Charged to Patients” cost center. In order to develop a robust analysis regarding the use 

of cost data from the “Implantable Devices Charged to Patients” cost 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 Devices 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 upload of CY 2009 cost report data that we could use for this 

proposed rule. We have determined that there are only 437 hospitals that have completed 

the “Implantable Devices Charged to Patients” 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 proposing to use data from the 

“Implantable Devices Charged to Patients” cost center to create a distinct CCR for 

Implantable Devices Charged to Patients for use in calculating the OPPS relative weights 

for CY 2012. We will reassess the availability 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 hospital cost report form to estimate costs from charges for 

implantable devices for the CY 2013 OPPS relative weights. For a complete discussion 

of the rationale for the creation of the new cost center for “Implantable Devices Charged 

to Patients,” public comments, and our responses, we refer readers 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 changes included modifications to the cost 

reporting software and the addition 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 the next release of the cost 

report software. These changes have been made 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 Rehabilitation,” “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,” “Hyperbaric Oxygen Therapy,” and “Lithotripsy” 

for use on Worksheet A. These three new nonstandard 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 crosswalk we are proposing to use for calculating payment rates for 

CY 2012 OPPS. Specifically, the nonstandard cost centers are: 3120 (Cardiac 

Catheterization Laboratory); 3230 (CAT Scan); 3430 (Magnetic Resonance Imaging 

(MRI)). The revenue code to cost center crosswalk that we are proposing to use for 
CMS-1525-P 71 

purposes of estimating the median costs of items and services for the CY 2012 OPPS is 

available for review and continuous comment (outside of comment on this proposed rule) 

on the CMS Web site at: 

http://www.cms.gov/HospitalOutpatientPPS/03_crosswalk.asp#TopOfPage

Furthermore, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 

50080), we finalized our proposal to create new standard cost centers for “Computed 

Tomography (CT),” “Magnetic Resonance Imaging (MRI),” and “Cardiac 

Catheterization,” and to require that hospitals report the costs and charges for these 

services under new cost centers 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 and charges of CT scans, MRI, and cardiac 

catheterization differ significantly from the costs and charges of other services included 

in the standard associated cost center. RTI also concluded that both the IPPS and OPPS 

relative weights would better estimate the costs of those services if CMS were to add 

standard costs centers for CT scans, MRI, and cardiac catheterization 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 PPS final rule (75 FR 50075 through 50080) for 

a more detailed discussion on the reasons for the creation of standard cost centers for CT 

scans, MRI, and cardiac catheterization.) The new standard cost centers for MRI, CT 

scans, and cardiac catheterization are effective for cost report periods beginning on or 

after May 1, 2010, on the revised cost report Form CMS-2552-10. CMS issued the new 
CMS-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/itemdetail.asp?filterType=none&filterByDID=-

99&sortByDID=1&sortOrder=ascending&itemID=CMS021935&intNumPerPage=10 . 

Once at this Web site, users should double click on “Chapter 40.” 

We believe that improved cost report software, the incorporation of new standard 

and nonstandard cost centers, and the elimination 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 Process and Calculation of Median Costs 

 In this section of this proposed 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 posted provides an accounting of claims used in 

the development of the proposed payment rates at: 

http://www.cms.gov/HospitalOutpatientPPS. The accounting of claims used in the 

development of this proposed rule is included on the CMS Web site under supplemental 

materials for this CY 2012 OPPS/ASC proposed 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 includes the additional variables previously 

available only in the OPPS Identifiable Data Set, including 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 sections II.A.2.a. through 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 rates 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 the population of claims paid under the OPPS, but 

all outpatient claims (including, for example, critical access hospital (CAH) claims and 

hospital claims for clinical laboratory services 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 Medicare knowing that no payment would be 

made. For example, providers submit claims with a condition code 21 to elicit an official 

denial notice from Medicare and document that a service is not covered. We then 

excluded claims for services furnished in Maryland, Guam, the U.S. Virgin Islands, 

American Samoa, and the Northern Mariana Islands because hospitals in those 

geographic areas are not paid under the OPPS, 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 hospital 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 types). Other bill types are not paid under the 

OPPS and, therefore, these claims were not used to set OPPS payment. 

 2. Claims that were bill types 12X, 13X or 14X. Claims with bill types 12X and 

13X are hospital outpatient claims. Claims with bill type 14X are laboratory specimen 

claims, of which we use a subset for the limited 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 hospital-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 and 
CMS-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-inclusive rate; those from hospitals with obviously erroneous CCRs 

(greater than 90 or less than 0.0001); and those from hospitals with overall ancillary 

CCRs that were identified as outliers (3 standard deviations from the geometric mean 

after removing error CCRs). In addition, we trimmed the CCRs at the cost center (that is, 

departmental) level by removing the CCRs for each cost center as outliers if they 

exceeded +/- 3 standard deviations from the geometric mean. We used a four-tiered 

hierarchy of cost center CCRs, which is the revenue code-to-cost center crosswalk, to 

match a cost center to every possible revenue code appearing in the outpatient claims that 

is relevant to OPPS services, with the top tier being the most common cost center and the 

last tier being the default CCR. If a hospital’s cost center CCR was deleted by trimming, 

we set the CCR for that cost center to “missing” so that another cost center CCR in the 

revenue center hierarchy could apply. If no other cost center CCR could apply to the 

revenue code on the claim, we used the hospital’s overall ancillary CCR for the revenue 

code in question as the default CCR. For example, if a visit was reported under the clinic 

revenue code but the hospital did not have a clinic cost center, we mapped the 

hospital-specific overall ancillary CCR to the clinic revenue code. The revenue 

code-to-cost center crosswalk is available 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 identified 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 hospitals in Maryland, Guam, the U.S. Virgin 

Islands, American Samoa, and the Northern Mariana Islands and claims from all hospitals 

for which CCRs were flagged as invalid. 

 We identified claims with condition code 41 as partial hospitalization services of 

hospitals and moved them to another file. 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 HCPCS code. We moved to another file 

claims that contained nothing but influenza and pneumococcal pneumonia (PPV) 

vaccines. Influenza and PPV vaccines are paid at reasonable cost and, therefore, these 

claims are not used to set OPPS rates. 

 We next copied line-item costs for drugs, blood, and brachytherapy sources to a 

separate file (the lines stay on the claim, but are copied onto 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 and a per day mean and median cost for drugs 

and nonimplantable biologicals, therapeutic radiopharmaceutical agents, and 

brachytherapy sources, as well as other information 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 acquisition and pharmacy 
CMS-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 policy for CY 2012. Therefore, we used the 

line-item cost data for drugs and biologicals for which we had a HCPCS code with ASP 

pricing information to calculate the ASP+X values, 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 (per 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, whether separately paid or packaged), ASP-2 

percent (for drugs and biologicals that are separately paid), 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 drugs 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 (Pharmacy (also see 063X, an extension of 

025X)), 026X (IV Therapy), and 063X (Pharmacy – Extension of 025X). This total 

excludes the cost of diagnostic and therapeutic radiopharmaceuticals because they are not 

reported under pharmacy revenue codes or under the pharmacy cost center on the hospital 

cost report. Our CY 2012 proposal to redistribute $215 million in estimated costs from 

coded and uncoded packaged drugs to separately payable drugs represents the 
CMS-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 million, 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 overhead 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 radiopharmaceuticals, 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 the 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 percent. 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 were not paid during claim processing, 

presumably for a line-item rejection or denial. The number of edits for valid OPPS 

payment in the Integrated Outpatient Code Editor (I/OCE) and elsewhere has grown 

significantly in the past few years, especially with the implementation of the full 

spectrum of National Correct Coding Initiative (NCCI) edits. To ensure that we are using 

valid claims that represent the cost of payable 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 would 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 off the inpatient list for 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 packaged 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 continue the policy we implemented for 

CY 2011 to exclude line-item data for pass-through drugs and biologicals (status 

indicator “G” for CY 2010) and nonpass-through drugs and biologicals (status indicator 

“K” for CY 2010) where the charges reported on the claim for the line were either denied 

or rejected during claims processing. Removing lines that were eligible for payment but 

were not paid ensures that we are using appropriate data. The trim avoids using cost data 
CMS-1525-P 80 

on lines that we believe were defective or invalid because those rejected or denied lines 

did not meet the Medicare requirements for payment. For example, edits may reject a 

line for a separately paid drug because the number of units billed exceeded the number of 

units that would be reasonable and, therefore, is likely a billing 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, therefore, should not be used 

for ratesetting. We believe that removing lines with valid status 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 calculation 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 proposing 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 indicator of “F,” “G,” 

“H,” “K,” “L,” “R,” “U,” or “N,” and classifying “other” procedures as any code having 

a status indicator other than one that we have 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 brachytherapy sources; status indicator “Q1” to all 

“STVX-packaged codes;” status indicator “Q2” 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 separately through 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 indicators “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 continue to evaluate whether the criteria for 

separate payment of codes with status indicator “Q1” or “Q2” are met in determining 

whether they are treated as major or minor codes. 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 indicator “Q3” are paid under individual APCs 

unless they occur in the combinations that qualify for payment as composite APCs and, 

therefore, they carry the status 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: 
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 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 indicator “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, status 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 status 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 procedure 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 contained one unit of one code when the bilateral modifier was 

appended to the code and the code was conditionally or independently bilateral. In these 

cases, the claims represented more than one unit of the service described by the code, 

notwithstanding that only one unit was billed. 

 3. Single 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 indicator “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 services payable under the OPPS 

(that is, all status indicators other than those listed for major or minor status). These 

claims were excluded from the files used for the OPPS. Non-OPPS claims have codes 

paid under other fee schedules, for example, durable medical equipment or clinical 

laboratory tests, and do not contain a code for a separately payable or packaged OPPS 

service. Non-OPPS claims include claims for 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 Medicare 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. Claims that contain codes to which we have 

assigned status indicators “Q1” (“STVX-packaged”) 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 contain codes to which we have assigned status 

indicator “Q3” (composite APC members) appear in both the data of the single and 
CMS-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 claims for dates of service to determine if we 

could break them into “pseudo” single procedure claims using the dates of service for all 

lines on the claim. If we could create claims with single major procedures by using dates 

of service, we created a single procedure claim record for each separately 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 proposed 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 determined contained limited or no packaged 

costs or that were otherwise suitable for inclusion on the bypass list from a multiple 

procedure bill. As discussed above, we ignore the “overlap bypass codes,” 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” are 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 list, 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 procedure (but no bypass code) retained the 

packaged revenue code charges and the packaged 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 dividing 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 procedure claim from that residual claim record, which retained 

the costs of packaged revenue codes and packaged HCPCS codes. This enabled us to use 

claims that would otherwise be multiple procedure claims and could not be used. 

We 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 service 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 codes,” a single unit of a single 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 procedure 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 indicator “Q1” 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 “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 procedure claim for that code: additional units 

of the status indicator “Q1” HCPCS code with 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 indicator for the selected code from the data 

status indicator of “N” to the status indicator of the APC to which the selected procedure 

was assigned for further data processing and considered this claim as a major procedure 

claim. We used this claim in the calculation 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 multiple units of a single code with status 

indicator “Q2,” we selected the status indicator “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 for 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 indicator of “N” to the status indicator of the APC to which the 

selected code was assigned, and we considered 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 “Q2” HCPCS code that had 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 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”; codes with status indicator “Q1” (“STVX-packaged”); and other 

packaged HCPCS codes and packaged revenue code costs. We favor status indicator 
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“Q2” over “Q1” HCPCS codes because “Q2” HCPCS codes have higher CY 2011 

relative weights. If a status indicator “Q1” HCPCS code had a higher CY 2011 relative 

weight, it would become the primary code for the simulated single bill process. We 

changed the status indicator for the selected status indicator “Q2” (“T-packaged”) code 

from a data status indicator of “N” to the status indicator of the APC to which the 

selected code was assigned and we considered this claim as a major procedure claim. 

 We then applied our process for creating “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 codes 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 major claims and to multiple procedure minor 

claims. As has been our practice in recent years, we also excluded claims that contained 

codes that were viewed as independently or conditionally bilateral and that contained the 

bilateral modifier (Modifier 50 (Bilateral procedure)) because the line-item cost for the 

code represented the cost of two units of the procedure, notwithstanding that hospitals 

billed the code with a unit of one. 

We are proposing to continue to apply this methodology for the purpose of 

creating pseudo single procedure claims for CY 2012 OPPS. 
CMS-1525-P 89 

c. Completion of Claim Records and Median Cost Calculations 

 We then packaged the costs of packaged HCPCS codes (codes with status 

indicator “N” listed in Addendum B to this proposed rule (which is referenced in section 

XVII. of this proposed rule and available via 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 services reported under packaged revenue codes in 

Table 2 below that appeared on the claim without 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 adopted an APC Panel recommendation that 

CMS should review the final list of packaged revenue codes for consistency with OPPS 

policy and ensure that future versions of the I/OCE edit accordingly. As we have in the 

past, we will continue to compare 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 listed in Table 2 of the 

CY 2009 OPPS/ASC proposed rule with the most 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 period (74 FR 60362 through 60363), we finalized 

changes to the packaged revenue code list based on our examination of the updated 
CMS-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. Therefore, for CY 2012, we are proposing to 

continue to package the costs that we derive from the charges reported without HCPCS 

code under the revenue codes displayed in Table 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 and Devices; Non-sterile Supply 

0272 Medical/Surgical Supplies and Devices; Sterile Supply 

0275 Medical/Surgical Supplies and Devices; Pacemaker 

0276 Medical/Surgical Supplies and Devices; Intraocular Lens 

0278 Medical/Surgical Supplies and Devices; Other Implants 
CMS-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 Incident to Other DX Services 

0379 Anesthesia; Other Anesthesia 

0390 

Administration, Processing and Storage for Blood and Blood Components; 

General Classification 

0392 

Administration, Processing and Storage for Blood and Blood Components; 

Processing and Storage 

0399 

Administration, Processing and Storage for Blood and Blood Components; 

Other Blood Handling 

0621 

Medical Surgical Supplies – Extension of 027X; Supplies Incident to 

Radiology 

0622 

Medical Surgical Supplies – Extension of 027X; Supplies Incident to Other 

DX Services 

0623 Medical Supplies – Extension of 027X, Surgical Dressings 

0624 Medical Surgical Supplies – Extension 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; Inpatient Peritoneal Dialysis (Non-CAPD) 

0803 

Inpatient Renal Dialysis; Inpatient Continuous Ambulatory Peritoneal 

Dialysis (CAPD) 
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Revenue 

Code Description 

0804 

Inpatient Renal Dialysis; Inpatient Continuous Cycling Peritoneal Dialysis 

(CCPD) 

0809 Inpatient Renal Dialysis; Other Inpatient Dialysis 

0810 Acquisition of Body Components; General Classification 

0819 Inpatient Renal Dialysis; Other Donor 

0821 Hemodialysis-Outpatient or Home; Hemodialysis Composite or Other Rate 

0824 Hemodialysis-Outpatient or Home; 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 policy, 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 packaging flag number 3 to claims on which 

hospitals submitted token charges less than $1.01 for a service with status indicator “S” 

or “T” (a major separately payable service 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 that 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 payment) on the assumption that, where the charge 

equaled the payment, to apply a CCR to the charge would not yield a valid estimate of 
CMS-1525-P 93 

relative provider cost. We are proposing to continue these processes for the CY 2012 

OPPS. 

 For the remaining claims, we then standardized 60 percent of the costs of the 

claim (which we have previously determined to be the labor-related portion) for 

geographic differences in labor input costs. We made this adjustment by determining the 

wage index that applied to the hospital that furnished the service and dividing the cost for 

the separately paid HCPCS code furnished by the hospital by that wage index. The 

claims accounting that we provide for the proposed and final rule contains the formula we 

use to standardize the total cost for the effects of the wage index. As has been our policy 

since the inception of the OPPS, we are proposing 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 which the hospital is located than the 

post-reclassification wage indices and, therefore, would result in the most accurate 

unadjusted median costs. 

 In accordance with our longstanding practice, 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 units for each HCPCS code on the bypass list 

(because, as discussed above, we used claims that contain multiple units of the bypass 

codes). 

 After removing claims for hospitals with error CCRs, claims without HCPCS 

codes, claims for immunizations not covered under the OPPS, and claims for services not 

paid under the OPPS, approximately 102 million claims were left. Using these 102 
CMS-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 discussed 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 considered comparable with respect to the use of 

resources if the highest median (or mean cost, if elected by the Secretary) for an item or 

service in the group is more than 2 times greater than the lowest median cost for an item 

or service within the same group (the 2 times rule). 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 codes 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 within the set of approximately 

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 

negligible impact on the APC median. Unlisted codes are not used in establishing the 
CMS-1525-P 95 

percent of claims contributing to the APC, nor are their costs used in the calculation of 

the APC median. Finally, we reviewed the median 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-specific medians and the 

APC medians were weighted to account for the inclusion of multiple units of the bypass 

codes in the creation of “pseudo” single 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 costs are calculated using variations of the 

process outlined above. Specifically, section II.A.2.d. of this proposed rule addresses the 

proposed calculation of single APC criteria-based median costs. Section II.A.2.e. of this 

proposed rule discusses the proposed calculation of composite APC criteria-based median 

costs. Section VIII.B. of this proposed rule addresses the methodology for calculating the 

proposed median costs for partial hospitalization services. 

APC Panel Recommendations Regarding Data Development: At the 

February 28-March 1, 2011 APC Panel Meeting, we provided the APC Panel Data 

Subcommittee with a list of all APCs fluctuating by greater than 10 percent when 

comparing the CY 2011 OPPS final rule median costs based on CY 2009 claims 

processed through June 30, 2010, to those based on CY 2010 OPPS/ASC final rule data 
CMS-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 request (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 Subcommittee with a summary of cost and 

CCR data related to the Myocardial Positron Emission Tomography (PET) imaging APC, 

APC 0307, as well as the associated diagnostic 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 Panel 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. 
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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 Procedure 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 rates for device-dependent APCs in previous 

years and a detailed discussion 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 procedure-to-device 

edits and device-to-procedure edits 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 rule 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 that 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 resynchronization therapy.) This 

methodology utilizes claims data that generally represent the full cost of the required 
CMS-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-device and device-to-procedure edits; do not 

contain token charges (less than $1.01) for devices; do not contain the “FB” modifier 

signifying that the device was furnished without cost to the provider, supplier, or 

practitioner, or where a full credit was received; and do not contain 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 appropriate 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 continue to believe the standard methodology for 

calculating median costs for device-dependent APCs gives us the most appropriate 

median costs for device-dependent APCs in which 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 methodology (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-dependent 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 Valvuloplasty” to “Level I Endovascular 

Revascularization of the Lower Extremity”; the title of APC 0229 from “Transcatheter 
CMS-1525-P 99 

Placement of Intravascular Shunt and Stents” to “Level II Endovascular 

Revascularization of the Lower Extremity”; and the title of APC 0319 from 

“Endovascular Revascularization of the Lower 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 Neurostimulator Electrodes,” and the title of APC 

0061 from “Laminectomy, Laparoscopy, or Incision for Implantation of Neurostimulator 

Electrodes” to “Level II Implantation/Revision/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 proposed rule, we are proposing to delete APC 

0418 (Insertion of Left Ventricular 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 services that are assigned to APC 0108 to the proposed IPPS 

standardized payment amount for MS-DRG 227 (Cardiac Defibrillator Implant without 

Cardiac Catheterization and without Medical Complications and Comorbidities) because 

we do not believe that it would be equitable 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 median cost or the IPPS standardized payment 

rate for MS-DRG 227. We are proposing to continue 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 DEVICE-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 Electrode 
CMS-1525-P 101 

Proposed 

CY 2012 

APC 

Proposed 

CY 2012 

Status 

Indicator 

Proposed CY 2012 APC Title 

0319 T 

Level III Endovascular Revascularization 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 Intraperitoneal 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 products through APCs rather than packaging payment for 

them into payments for the procedures with which they are administered. Hospital 

payments for the costs of blood and blood products, 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 utilizes actual or 

simulated CCRs from the most recently available 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 products 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-specific 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 center often resulted in an underestimation of 

the true hospital costs for blood and blood products. Specifically, in order to address the 

differences in CCRs and to better reflect hospitals’ costs, we are proposing to continue to 

simulate blood CCRs for each hospital that does not report a blood 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 hospitals not reporting costs and charges for blood 

cost centers on their cost reports in order to simulate blood-specific CCRs for those 

hospitals. We calculated the median costs upon which the proposed CY 2012 payment 

rates for blood and blood products are based 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 absence 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 believe 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 costs of these products for hospitals without 

blood cost centers and, therefore, 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 for 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 final 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 median 
CMS-1525-P 104 

cost calculated based on the standard OPPS methodology. For CY 2012, we are 

proposing to continue to use the standard 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 allergy 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 all of the tests provided. Services assigned to APC 0381 

(Single Allergy Tests) reflect the CPT codes that 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 allergy tests per encounter; therefore, for these 

procedures, only one unit of the service is billed 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 calculated for this proposed rule according to the 

standard single claims OPPS methodology, is approximately $51, significantly higher 

than the CY 2011 OPPS/ASC final rule median cost of approximately $33 that was 

calculated according to the “per unit” methodology, and greater than we would expect for 

these procedures that are to be reported “per test” with the appropriate number of units. 

Some claims for single allergy tests still appear to provide charges that represent a 

“per visit” charge, rather than a “per test” charge. Therefore, consistent with our 
CMS-1525-P 105 

payment policy for single allergy tests since 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 refer 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 under pressure, full body chamber, per 30 

minute interval) for hyperbaric oxygen therapy (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 occurrence 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 established that HBOT would 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 rationale for using the hospital’s overall CCR can 
CMS-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 this methodology to estimate the median cost 

for HBOT. The median costs of HBOT using this methodology have been relatively 

stable for several years. 

For CY 2012, we are proposing to continue using the same methodology to 

estimate a “per unit” median cost for HCPCS code C1300. This methodology results in a 

proposed APC median cost of approximately $107 using 370,519 claims with multiple 

units or multiple occurrences for HCPCS code C1300 for CY 2012. 

(5) Payment for Ancillary Outpatient Services 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 modifier “–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 outpatient) with an emergent, life-threatening 

condition, and the patient dies before being admitted as an inpatient. HCPCS modifier 

“-CA” is defined as a procedure payable only 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 hospitals on the use of this modifier. For a 

complete description of the history of the policy and the development of the payment 

methodology for these services, we refer readers to the CY 2007 OPPS 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 for using HCPCS modifier “–CA.” That is, we 

are proposing to calculate the relative payment weight for APC 0375 by using all claims 

reporting a status indicator “C” (inpatient procedures) appended with HCPCS modifier 

“-CA.” For the history and detailed explanation of the methodology, we refer readers to 

the CY 2004 OPPS final rule (68 FR 63467 through 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 established 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 the presence of the HCPCS modifier “-CA” 

appended to an inpatient only procedure and not according to the standard APC criteria of 

clinical and resource homogeneity. Cost variation for APC 0375 from year to year is 

anticipated and acceptable as long as hospitals continue judicious reporting of the 

HCPCS modifier “-CA.” Table 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 median 
CMS-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 Revascularization section of the 2011 CPT code book to 

describe endovascular revascularization procedures of the lower extremity performed for 

occlusive disease. In the CY 2011 OPPS/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 endovascular revascularization CPT codes to APCs that we 

believe are comparable with respect to clinical characteristics and resources required to 

furnish the services. Specifically, we were able to use the existing CY 2009 hospital 

outpatient claims data and most recent cost report 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 and 
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“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 endovascular 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 believe 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 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 71842), we developed these criteria based on our clinicians’ understanding of 

services that were reported by CY 2009 CPT codes 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 resource 

use. 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 Intravascular 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 comment 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 identified 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. We 
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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 meeting, the APC Panel recommended that 

CMS provide data to allow the Panel to investigate and monitor the APC weights for the 

lower extremity revascularization procedures in light of CPT coding changes for 

CY 2011. We are accepting the APC Panel’s recommendation and will provide 

additional data to the Panel at an upcoming meeting. 

For CY 2012, we are proposing to continue with the CY 2011 methodology that 

was described previously in this section in determining the APC assignments for the CPT 

codes that describe endovascular revascularization of the lower extremity. The 

predecessor endovascular revascularization CPT 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 proposing to continue for CY 2012 to use the 

existing hospital outpatient claims and cost report data from the previous endovascular 

revascularization CPT codes to simulate an estimated median cost for the new 

endovascular revascularization CPT codes in determining the appropriate APC 

assignments. 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 

for the upcoming year. In this case, review of the procedures with significant claims data 

in APC 0083 showed a 2 times rule violation. Specifically, APC 0083, as it was initially 
CMS-1525-P 111 

configured, showed that the range of the CPT median costs for the procedures with 

significant claims data was approximately between $3,252 (for CPT code 35476 

(Transluminal balloon angioplasty, percutaneous; venous)) and $7,174 (for CPT code 

37221 (Revascularization, endovascular, open or percutaneous, iliac artery, unilateral, 

initial vessel; with transluminal stent placement(s), includes angioplasty within the same 

vessel, when performed)), resulting in a 2 times 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 assigned 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 violation for APC 0083 noted above. Based on this 

reconfiguration, the CY 2010 claims data available for this proposed rule were used to 

calculate a median cost of approximately $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 significantly greater 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 assigned to these APCs. Specifically, we are 

proposing to revise the APC title for APC 0083 from “Coronary or Non-Coronary 
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Angioplasty and Percutaneous Valvuloplasty” to “Level I Endovascular 

Revascularization of the Lower Extremity”; 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 the proposed status indicators and APC 

assignments for the endovascular revascularization of the lower extremity CPT codes. 

Table 5 below lists the endovascular revascularization of the lower extremity CPT codes 

along with their proposed status indicator and APC assignments for CY 2012. 

TABLE 5.—PROPOSED APCs TO WHICH ENDOVASCULAR 

REVASCULARIZATION OF THE LOWER 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 0083 
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(7) Non-Congenital Cardiac Catheterization (APC 0080) 

For CY 2011, the AMA CPT Editorial Panel deleted 19 non-congenital cardiac 

catheterization-related CPT codes and replaced 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 Editorial Panel deleted 19 non-congenital cardiac 

catheterization-related CPT codes from the 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/ASC final rule with comment period, along with the process 

by which we assigned the new CPT codes to APCs that we believe are comparable with 

respect to clinical characteristics and resources required to furnish the cardiac 

catheterization services described 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 payable CPT codes for CY 2011. Specifically, 

to estimate the hospital costs associated with the 20 new non-congenital cardiac 

catheterization-related CPT codes based on their CY 2011 descriptors, we used claims 

and cost report data from CY 2009. Because of the substantive coding changes 

associated with the new non-congenital cardiac catheterization-related CPT codes for CY 

2011, we used our CY 2009 single and “pseudo” single claims data to simulate the new 

CY 2011 CPT code definitions. We stated that many of the new CPT codes were 
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previously reported using multiple CY 2009 CPT codes, and we provided a crosswalk of 

the new CY 2011 cardiac catheterization CPT codes mapped to the CY 2009 cardiac 

catheterization CPT codes in Table 11 of the CY 2011 OPPS/ASC final rule with 

comment period (75 FR 71849). Table 11 showed the 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 these criteria based on our clinicians’ 

understanding of services that were reported by CY 2009 CPT codes that, in various 

combinations, reflect the services provided that are described in the new CPT codes. We 

used approximately 175,000 claims for the new non-congenital catheterization-related 

CPT codes, together with the single and “pseudo” single procedure claims for the 

remaining congenital catheterization-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 in Table 11 are new for CY 2011, they were 

identified with comment indicator “NI” in Addendum 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 the 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 continue with the CY 2011 methodology in 

determining the APC assignments for the cardiac catheterization CPT codes. The 

predecessor cardiac catheterization CPT codes were in existence prior to CY 2011 and 
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were assigned to APC 0080 based on claims data and cost report data. Given that these 

data are available for the services described 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 from the predecessor cardiac catheterization CPT 

codes to simulate an estimated median cost for the new cardiac catheterization CPT codes 

in determining the appropriate APC assignments. 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 for 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 for the CY 2011 OPPS/ASC final rule with 

comment period. For CY 2012, we are not proposing 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 continuation of these APC assignments. 

We are soliciting public comments on the proposed status indicators and the APC 

assignments for the CY 2012 cardiac catheterization 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 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 

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/atrial 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 (eg, vagus nerve) neurostimulator electrode 

array and pulse generator) and indicates that it describes the services formerly included in 

the combinations of (1) CPT code 64573 (Incision for implantation of neurostimulator 

electrodes; cranial nerve) and CPT code 61885 (Insertion or replacement of cranial 
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neurostimulator pulse generator or receiver, direct or inductive coupling; with connection 

to a single electrode array); or (2) CPT 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 electrode arrays). As we discussed in the 

CY 2011 OPPS/ASC final rule with comment 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 public comment. In some, but not all, cases, 

we are able to use the existing data from established 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 neurostimulator 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 hospital costs of CPT code 64568 based on its 

CY 2011 descriptor, we used CY 2009 claims and 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 for 
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CPT code 64568 from 298 single claims to set a final payment rate for CY 2011 for the 

new code. We created APC 0318 (Implantation 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 Electrodes, 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 simulating 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 creation of additional groups of covered OPD 
CMS-1525-P 119 

services that classify devices of brachytherapy consisting of a seed or seeds (or 

radioactive source) (“brachytherapy sources”) separately from other services or groups of 

services. The additional groups must reflect the number, isotope, and radioactive 

intensity of the brachytherapy sources furnished 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 may not be used in determining any outlier 

payments under the OPPS for that period in which payment is based on charges adjusted 

to cost. Consistent with our practice under the OPPS to exclude items paid at cost from 

budget neutrality consideration, these items were 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 for 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 amendments to the Act and our proposals to pay 

for brachytherapy sources at prospective payment rates based on their source specific 

median costs from CY 2007 through 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 methodology 
CMS-1525-P 120 

for brachytherapy sources, consistent with section 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 methodology for brachytherapy sources, consistent 

with section 1833(t)(2)(C) of the Act (75 FR 71980). We also finalized our proposals to 

continue the policy we first implemented in the CY 2010 OPPS/ASC final rule with 

comment period (74 FR 60537 and 75 FR 71980) regarding payment for new 

brachytherapy sources for which we have no claims 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 external data and other 

relevant information regarding 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 proposals 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 (75 FR 71980 

through 71981 and 75 FR 60537). Hospitals could receive outlier payments for 

brachytherapy sources if the costs of furnishing 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 hospitals to receive additional payments in CY 2010 and 
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CY 2011 under certain circumstances through the 7.1 percent rural 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 median costs based on claims data to set 

the relative payment weights for hospital outpatient services. This payment methodology 

results in more consistent, predictable, and equitable payment amounts per source across 

hospitals by eliminating some of the extremely 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 hospitals 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 payment 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 NOS 
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codes, HCPCS codes C2698 and C2699, at a rate equal to the lowest stranded or 

non-stranded prospective payment rate for such 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 that specific coding and payment could be 

established. 

 We also are proposing to continue the 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 OPPS/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, with prospective payment rates set based on 

our consideration of external data and other relevant information regarding the expected 

costs of the sources to hospitals. 

 Consistent with our policy regarding APC 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. Hospitals can receive 

outlier payments for brachytherapy sources if the costs of furnishing brachytherapy 
CMS-1525-P 123 

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 

through 71979, respectively), implementation of prospective payments for brachytherapy 

sources would provide opportunities for eligible hospitals to receive additional payments 

in CY 2012 under certain circumstances through the 7.1 percent rural adjustment, as 

described in section II.E. of this proposed rule. 

Therefore, we are proposing to pay for 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 Internet on the CMS Web site) for the proposed 

CY 2012 payment rates for brachytherapy sources, identified with status indicator “U.” 

For more detailed discussion of the legislative 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 other parties to submit recommendations to us 

for new HCPCS codes to describe new brachytherapy sources consisting of a radioactive 

isotope, including a detailed rationale to support recommended new sources. Such 

recommendations should be directed to the Division of Outpatient Care, Mail Stop 

C4-05-17, Centers for Medicare and Medicaid 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 Composite APC Criteria-Based Median Costs 

 As discussed in the CY 2008 OPPS/ASC 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 composite APCs to provide a single payment for 

groups of services that are typically performed together during a single clinical encounter 

and that result in the provision of a complete service. Combining payment for multiple 

independent services into a single OPPS payment in this way enables hospitals to manage 

their resources with maximum flexibility by monitoring and adjusting the volume and 

efficiency of services themselves. An additional 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 volume and/or incorrectly coded. Under the 

OPPS, we currently have composite APC policies for extended assessment and 

management services, low dose rate (LDR) prostate brachytherapy, cardiac 

electrophysiologic evaluation and ablation services, mental health services, and multiple 

imaging services. We refer readers to the 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 continue, with some modifications, our 

established composite APC policies for extended assessment and management, LDR 

prostate brachytherapy, cardiac electrophysiologic evaluation and ablation, mental health 
CMS-1525-P 125 

services, and multiple imaging services, as discussed 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 composite APC for cardiac resynchronization therapy services, 

as discussed in section II.A.2.e.(6) of this proposed rule. 

(1) Extended Assessment and Management Composite APCs (APCs 8002 and 8003) 

 For CY 2012, we are proposing to continue to include composite APC 8002 

(Level I Extended Assessment and Management Composite) and composite APC 8003 

(Level II Extended Assessment and Management Composite) in the OPPS. For 

CY 2008, we created these two composite APCs to provide payment to hospitals in 

certain circumstances when extended assessment and management of a patient occur (an 

extended visit). In most circumstances, observation services are supportive 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 and is an integral part of a 

patient’s extended encounter of care, payment is made for the entire care encounter 

through one of two composite APCs as appropriate. 

 As defined for the CY 2008 OPPS, composite 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 conjunction with observation services of substantial 

duration (72 FR 66648 through 66649). Composite APC 8003 describes an encounter for 

care provided to a patient that includes a high level (Level 4 or 5) Type A emergency 

department visit, a high level (Level 5) Type B emergency department visit, or critical 

care services in conjunction with observation services of substantial duration. HCPCS 
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code G0378 (Observation services, per hour) is assigned status indicator “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), the Integrated Outpatient Code Editor 

(I/OCE) evaluates every claim received to determine if payment through a composite 

APC is appropriate. If payment through a composite APC is inappropriate, the I/OCE, in 

conjunction with the OPPS Pricer, determines the appropriate status indicator, APC, and 

payment for every code on a claim. The specific 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 selected 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, documentation, 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 hospital 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, Change Request 6492, issued May 22, 2009 and 
CMS-1525-P 127 

implemented July 6, 2009). We are not proposing to change these reporting requirements 

for the CY 2012 OPPS. 

 For CY 2012, we are proposing to continue 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 these services. We are proposing to calculate 

the median costs for APCs 8002 and 8003 using all single and “pseudo” single procedure 

claims for CY 2010 that meet the criteria for payment of each composite APC. 

Specifically, to calculate the proposed median 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 which we have assigned status indicator “T” 

that is reported with a date of service 1 day earlier than the date 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, HCPCS code G0379 (Direct referral of 

patient for hospital observation care) on the same 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)); or CPT code 99215 (Office or other outpatient visit for the 
CMS-1525-P 128 

evaluation and management of an established patient (Level 5)) provided on the same 

date of service or one day before the 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 evaluation and management of a patient (Level 5)); 

CPT code 99291 (Critical care, evaluation and 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 policies, when calculating the median 

costs for the clinic, Type A emergency department visit, Type B emergency department 

visit, and critical care APCs (0604 through 0617 and 0626 through 0630), we utilize our 

methodology that excludes those claims for visits that are eligible for payment through 

the two extended assessment and management 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 assessment 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 expanding 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 decided not to pursue for CY 2012 the expanded 

extended assessment and management composite APCs that we analyzed because, while 

the composites that we modeled would serve to further limit 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 observation. In addition, expanded assessment and 

management composite APCs do not address certain concerns about extended 

observation services raised by stakeholders at CMS’ observation listening session last 

year (that is, observation time not counting 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 proposing 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 we 
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finalized for CYs 2009, 2010, and 2011. We also are proposing to calculate the median 

costs for APCs 8002 and 8003 using the same methodology 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 APC and applied the standard packaging and 

trimming rules to the claims before calculating 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 calculated from 16,770 single and “pseudo” single 

bills that met the required criteria. 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 treatment 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/catheters. At least two CPT 

codes are used to report the composite treatment service because there are separate codes 

that describe placement of the needles/catheters and the application of the brachytherapy 

sources: CPT code 55875 (Transperineal placement of needles or catheters into prostate 

for interstitial radioelement application, with or without cystoscopy) and CPT code 77778 

(Interstitial radiation source application; complex). Generally, the component services 

represented by both codes are provided in the same operative session in the same hospital 

on the same date of service to the Medicare beneficiary being treated with LDR 
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brachytherapy for prostate cancer. As discussed 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 median 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 the 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 furnished 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 the same date of service 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 occurrences in which the services are billed 

individually, hospitals have continued to receive 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 history of OPPS payment for LDR prostate 
CMS-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 continue paying for LDR prostate 

brachytherapy services using the composite APC methodology proposed and 

implemented for CY 2008 through CY 2011. That 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 procedure 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 for APCs 0163 (Level IV Cystourethroscopy and 

Other Genitourinary Procedures) and 0651 (Complex Interstitial Radiation Source 

Application), the APCs to which CPT codes 55875 and 77778 are assigned, respectively. 

The median costs for APCs 0163 and 0651 would continue to be calculated using single 

and “pseudo” single procedure claims. We believe that this composite APC contributes 

to our goal of creating hospital incentives for efficiency and cost containment, while 

providing hospitals with the most flexibility to manage their resources. We also continue 

to believe that data from claims reporting both services required for LDR prostate 

brachytherapy provide the most accurate median 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 the proposed CY 2012 payment for composite 
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APC 8001 is based. The proposed median cost for composite APC 8001 for CY 2012 is 

approximately $3,364. This is an increase compared 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 proposed 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 other. We believe the proposed CY 2012 median 

cost for composite APC 8001 of approximately $3,364, calculated from claims we 

believe to be correctly coded, would result in a reasonable and appropriate payment rate 

for this service in CY 2012. 

(3) Cardiac Electrophysiologic Evaluation 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, correctly coded claims for these services often 

include multiple codes for component services that are reported with different CPT codes 

and that, prior to CY 2008, were always paid separately through different APCs 

(specifically, APC 0085 (Level II Electrophysiologic Evaluation), APC 0086 (Ablate 

Heart Dysrhythm Focus), and APC 0087 (Cardiac Electrophysiologic 

Recording/Mapping)). As a result, there would never be many single bills for cardiac 

electrophysiologic evaluation and ablation services, and those that 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 persistent concerns regarding the limited and 

reportedly unrepresentative single bills available for use in calculating the median costs 

for these services according to our standard OPPS methodology. 

Effective January 1, 2008, we established APC 8000 (Cardiac Electrophysiologic 

Evaluation and Ablation Composite) to pay for a composite service made up of at least 

one specified electrophysiologic evaluation service and one specified electrophysiologic 

ablation service. Calculating a composite APC for these services allowed us to utilize 

many more claims than were available to establish the individual APC median costs for 

these services, and we also saw this composite 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 payment rate for composite APC 8000 is based, 

we used multiple procedure claims that contained at least one CPT code from group A for 

evaluation services and at least one CPT code from group B for ablation services reported 

on the same date of service on an individual 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 readers to the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66655 through 66659). Where a service in group A is furnished 

on a date of service that is different from the date of service for a code in group B for the 

same beneficiary, 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 use 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 and 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 ablation services is the most efficient and 

effective way to use the claims data for the majority of these services and best represents 

the hospital resources associated with performing the common combinations of these 

services that are clinically typical. 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 cost of $11,598 calculated from a high volume of 

correctly coded multiple procedure claims would result in an accurate and appropriate 
CMS-1525-P 136 

proposed payment for cardiac electrophysiologic 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 procedures 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 right 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 attempted induction of 

arrhythmia; with right atrial pacing and 

recording, right ventricular pacing and 

recording, His bundle recording 93620 0085 Q3 

Group B

Intracardiac catheter ablation of 

atrioventricular node function, 

atrioventricular conduction for creation of 

complete heart block, with or without 

temporary pacemaker placement 93650 0085 Q3 
CMS-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 catheter ablation of 

arrhythmogenic focus; for treatment of 

supraventricular tachycardia by ablation of 

fast or slow atrioventricular pathways, 

accessory atrioventricular connections or 

other atrial foci, singly or in combination 93651 0086 Q3 

Intracardiac catheter 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 continue our longstanding policy of limiting 

the aggregate payment for specified less resource-intensive mental health services 

furnished on the same date to the payment for a day of partial hospitalization, which we 

consider to be the most resource-intensive of all outpatient 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 discussion 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 should pay more for a day of individual mental 

health services under the OPPS than the partial hospitalization per diem payment. 

As discussed in detail in section VIII. of this proposed rule, for CY 2012, we are 

proposing to continue using a provider-specific two tiered payment approach for partial 

hospitalization services that distinguishes payment made for services furnished in a 

CMHC from payment made for services furnished in a hospital. Specifically, we are 
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proposing one APC for partial hospitalization program days with three services furnished 

in a CMHC (APC 0172, (Level I Partial Hospitalization (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. Similarly, we are proposing one APC for partial 

hospitalization program days with three services furnished 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 furnished in a hospital (APC 0176, Level II Partial 

Hospitalization (4 or more services) for Hospital-Based PHPs). We are proposing that 

the payment rates for these two APCs be based on the median per diem costs calculated 

using data only from hospitals. 

Because our longstanding policy of limiting 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 payment 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 that could be paid through this composite APC 

compared with the HCPCS codes that could be paid through partial hospitalization 
CMS-1525-P 139 

APC 0176. When the aggregate payment for specified mental health services provided 

by one hospital to a single beneficiary on one date of service based on the payment rates 

associated with the APCs for the individual services exceeds the maximum per diem 

partial hospitalization payment, we are proposing 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 the hospital would continue to be paid one 

unit of APC 0034. The I/OCE currently determines, and we are proposing for CY 2012 

that it would continue to determine, whether to pay these specified mental 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 specified 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 procedures were performed during a single session 

using the same imaging modality. Based on extensive data analysis, we determined that 

this practice neither reflected nor promoted the efficiencies hospitals can achieve when 

performing multiple imaging procedures during 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. We 
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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 comment period (75 FR 71859 through 71860). 

While there are three imaging families, there 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 services 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. For example, if the hospital 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 HCPCS codes to report imaging procedures, 

and the I/OCE determines when combinations 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 composite 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 future 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 utilization 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 performed on the same date of service using the 

multiple imaging composite payment methodology. The proposed CY 2012 payment 
CMS-1525-P 142 

rates for the five multiple imaging composite APCs (APC 8004, APC 8005, APC 8006, 

APC 8007, and APC 8008) are based 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 removed 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 calculating the proposed multiple imaging composite 

APC median costs appear in Table 9 of this proposed 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 bypass 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 creation of “pseudo” single procedure claims 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 imaging service resource cost. Like all single 
CMS-1525-P 143 

bills, the new composite “single session” claims were for the same date of service and 

contained no other separately paid services in order to isolate the session imaging costs. 

Our last step after processing all claims through the “pseudo” single process was to 

reassess the remaining multiple procedure claims using the full bypass list and bypass 

process in order to determine if we could make other “pseudo” single bills. That is, we 

assessed whether a single separately paid service remained on the claim after removing 

line-items for the “overlap bypass codes.” 

As discussed in detail in section III.D.2. of this proposed rule, we are proposing to 

establish two APCs to which we would propose 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 create new APC 0331 (Combined Abdominal and 

Pelvis CT Without Contrast), to which we are proposing to assign CPT code 74176 

(Computed tomography, abdomen and pelvis; without contrast material); and we are 

proposing to create new APC 0334 (Combined Abdominal 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 one or both body regions, followed by contrast 

material(s) and further sections 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 proposing not to use 
CMS-1525-P 144 

those claims listed in Table 21 in section III.D.2. of this proposed rule 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 calculate 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 composite 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 referenced in section XVII. of this proposed 

rule and available via the Internet 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 this proposed rule (which is referenced in 

section XVII. of this proposed rule and available via the Internet 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, comp 
CMS-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 with 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/dye 
CMS-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 procedure is performed during the same session as a 

“with contrast” CT or CTA procedure, the 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 dye 
CMS-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/dye 
CMS-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 performed 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 with 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 dye 
CMS-1525-P 150 

(6) Cardiac Resynchronization Therapy Composite APC (APCs 0108, 0418, 0655, and 

8009) 

 Cardiac resynchronization therapy (CRT) uses 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 performed 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 combinations of CPT codes for the insertion 

of pulse generators and the insertion of the leads associated with ICDs, along with the 

insertion of the pacing electrode. For the implantation of a pulse generator, hospitals may 

use CPT code 33240 (Insertion of single or dual chamber pacing cardioverterdefibrillator pulse generator), which is the only CPT code assigned to APC 0107 

(Insertion of Cardioverter-Defibrillator) 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 cardioverter-defibrillator and insertion 

of pulse generator), which is the only CPT code assigned to APC 0108 

(Insertion/Replacement /Repair of Cardioverter-Defibrillator Leads) for CY 2011. 

 For CRT-P, hospitals may use CPT codes 33206 (Insertion or replacement of 

permanent pacemaker with transvenous electrode(s); atrial) and 33207 (Insertion or 

replacement of permanent pacemaker with transvenous electrode(s); ventricular), which 

are assigned to APC 0089 (Insertion/Replacement of Permanent Pacemaker and 
CMS-1525-P 151 

Electrodes) for CY 2011. Hospitals also may use CPT code 33208 (Insertion or 

replacement of permanent pacemaker with transvenous electrode(s); atrial and 

ventricular), for the implantation of a pacemaker 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 pacing electrode, which is assigned to APC 

0418 (Insertion of Left Ventricular 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, have 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 asserted that claims data for these services 

demonstrate that the percentage of single claims 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 creation of a new composite APC for CRT-D and 
CMS-1525-P 152 

recommended that CMS reconsider creating a composite APC or group of composite 

APCs for CRT-D and CRT-P. While we did 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 insertion procedures listed previously in 

this section (described by CPT codes 33240, 33249, 33206, 33207, and 33208) performed 

in combination with the insertion of a pacing electrode (described by CPT code 33225). 

Table 10 below outlines the four potential composite APCs that we modeled. 

Specifically, we provide a description of each potential composite APC, the combination 

of CPT codes that we used to define the potential composite APC, the frequency of 

claims that met the definition of the potential composite APC that could be used to 

calculate a median cost for the potential composite APC, and the median cost calculated 

for the potential composite APC. Table 10 below contains the results from our 

calculations for the four potential 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 section 1833(t)(1)(B) of the Act, we are 

proposing to create a new composite APC 8009 (Cardiac Resynchronization Therapy 

with Defibrillator Composite), listed as potential 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 significant claims volume, and would combine a 

procedure currently in APC 0418 with a procedure currently in APC 0108 

(Insertion/Replacement/Repair of Cardioverter-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 inherent 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 accurate payment for these services because such 

a methodology is specifically designed to provide 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 represents the full cost of the services when 

they are furnished in the same encounter. We also believe that there 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 demonstrate that these services are commonly 

performed together. While the other combinations 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 APCs only for combinations of 

services that are commonly performed together. 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 at the most comparable Medicare-severity 

diagnosis-related group (MS-DRG) payment rate established under the IPPS that would 

be provided to acute care hospitals for providing 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 Defibrillator Implant without 

Cardiac Catheterization without Major Complication or Comorbidity), as adopted in the 

FY 2012 IPPS/LTCH PPS final rule. We would 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 shares 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 payment 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 defibrillator implantation for those inpatients 

without major complications or comorbidities, it represents the payment made for 

hospital inpatients who are most similar to patients who would receive CRT-D on an 

outpatient basis, because hospital outpatients are generally less sick than hospital 
CMS-1525-P 156 

inpatients and because patients who had complications 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 with 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 payment than under the IPPS because the 

OPPS payment would, by definition, include fewer items and services than the 

corresponding IPPS MS-DRG payment. For example, the IPPS MS-DRG payment 

includes payment for drugs and diagnostic tests 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 outpatient setting compared to the inpatient 

setting. We also believe that limiting payment for CRT-D services under the OPPS to the 

IPPS MS-DRG payment will ensure appropriate 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 would be less costly to provide care for these 

patients, who would also spend less time in the 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 edits that would return claims to providers 
CMS-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 permanent pacemaker with transvenous 

electrode(s); atrial); 

● 33207 (Insertion or replacement of permanent pacemaker with transvenous 

electrode(s); ventricular); 

● 33208 (Insertion or replacement of permanent pacemaker with transvenous 

electrode(s); atrial and ventricular); 

● 33212 (Insertion or replacement of pacemaker pulse generator only; single 

chamber, atrial or ventricular); 

● 33213 (Insertion or replacement of pacemaker pulse generator only; dual 

chamber, atrial or ventricular); 

● 33214 (Upgrade of implanted pacemaker system, conversion 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 electrodes, permanent pacemaker or 

cardioverter-defibrillator); 

● 33222 (Revision or relocation of skin 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 single or dual chamber pacing cardioverter-defibrillator 

pulse generator); or 

● 33249 (Insertion or repositioning of electrode 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 proposing to move CPT 33225 from APC 0418 to 

APC 0108. We believe that moving these codes 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 the payment rate from one year to the next. 

We also are proposing to change the name of APC 0108 from 

“Insertion/Replacement/Repair of Cardioverter-Defibrillator Leads” to 

“Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes.” 

Similarly, we are proposing to move CPT 33224 from APC 0418 to APC 0655 and to 

change the name of APC 0655 from “Insertion/Replacement/Conversion of a Permanent 

Dual Chamber Pacemaker” to “Insertion/Replacement/Conversion of a Permanent Dual 
CMS-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 the 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 APC 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 Resynchronization Therapy - ICD Pulse Generator and 

Leads)), for which we are proposing that payment would be capped at the IPPS payment 

rate for MS-DRG 227. In other words, we would 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 insertion (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 budget 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 payment weights for budget neutrality. 

3. Proposed Changes to Packaged Services 
CMS-1525-P 160 

a. Background 

The OPPS, like other prospective payment systems, relies on the concept of 

averaging, where the payment may be more or less than the estimated cost of providing a 

service or bundle of services for a particular patient, but with the exception of outlier 

cases, the payment is adequate to ensure access to appropriate care. Packaging payment 

for multiple interrelated services into a single payment creates incentives for providers to 

furnish services in the most efficient way by enabling hospitals to manage their resources 

with maximum flexibility, thereby encouraging long-term cost containment. For 

example, where there are a variety of supplies that could be used to furnish a service, 

some of which are more expensive than others, packaging encourages hospitals to use the 

least expensive item that meets the patient’s needs, rather than to routinely use a more 

expensive item. Packaging also encourages hospitals to negotiate carefully with 

manufacturers and suppliers to reduce the purchase price of items and services or to 

explore alternative group purchasing arrangements, thereby encouraging the most 

economical health care. Similarly, packaging encourages hospitals to establish protocols 

that ensure that necessary services are furnished, while carefully scrutinizing the services 

ordered by practitioners to maximize the efficient use of hospital resources. Packaging 

payments into larger payment bundles promotes the stability of payment for services over 

time. Finally, packaging also may reduce the importance of refining service-specific 

payment because there is more opportunity for hospitals to average payment across 

higher cost cases requiring many ancillary services and lower cost cases requiring fewer 

ancillary services. For these reasons, packaging payment for services that are typically 
CMS-1525-P 161 

ancillary and supportive to a primary 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 primary 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 uncommon cases when they do not meet their 

respective criteria for packaged 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 ancillary and supportive to a primary diagnostic or therapeutic 
CMS-1525-P 162 

modality. We use the term “independent service” to refer to the HCPCS codes that 

represent the primary therapeutic or diagnostic 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 services provided in an encounter or episodeof-care, it is possible that we might propose to bundle payment for a service that we now 

refer to as “independent.” 

Hospitals include HCPCS codes and charges for packaged services on their 

claims, and the estimated costs associated with those 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 appropriateness 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 for 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 services; (5) diagnostic radiopharmaceuticals; 

(6) contrast media; and (7) observation services. We specifically chose these categories 

of HCPCS codes for packaging because we believe that the items and services described 
CMS-1525-P 163 

by the codes in these categories are typically ancillary and supportive to a primary 

diagnostic or therapeutic modality and, in those cases, are an integral part of the primary 

service they support. 

In addition, in the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66650 through 66659), we finalized additional packaging for the CY 2008 OPPS, 

which included the establishment of new composite APCs for CY 2008, specifically 

APC 8000 (Cardiac Electrophysiologic Evaluation 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 final 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 statutory requirements to differentiate between 

imaging services provided with contrast and 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 and 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 packaging and bundling payment involve a 

balance between ensuring that payment is adequate to enable the hospital to provide 
CMS-1525-P 164 

quality care and establishing incentives for efficiency through 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 Regarding 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 factors, including whether the service is normally 

provided separately or in conjunction with other services; how likely it is for the costs of 

the packaged code to be appropriately mapped to the separately payable codes with 

which it was performed; and whether the expected cost of the service is relatively low. 

As discussed 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 has expanded to include 

assisting CMS with assignment of HCPCS codes 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 considered packaging issues at several earlier 

meetings. For discussions of earlier APC Panel 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 APC 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, and made five recommendations related to 

packaging and to the function of the subcommittee. The Report of the 

February 28-March 1, 2011 meeting of the APC Panel may be found at the website at: 

http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGrou

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 responses to those recommendations. One 

recommendation that evolved from the discussions of the APC Groups and Status 

Indicator Subcommittee that is specific to HCPCS 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 status 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 status 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 ancillary and dependent upon an independent 

separately paid procedure. At the APC Panel’s February 2010 meeting, the manufacturer 

of the electromagnetic navigation bronchoscopy (ENB) technology, one of several 

technologies that can be used to perform the service described by HCPCS code 31627, 

asserted that use of the ENB technology during a bronchoscopy procedure enables access 

to distal lesions that are otherwise not accessible without use of the ENB technology. 

The manufacturer also stated that without 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, the 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_AdvisoryPanelonAmbulatoryPaymentClassificationGrou

ps.asp. 

We stated in the CY 2011 OPPS/ASC proposed 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 the 
CMS-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 ancillary to a primary 

diagnostic or therapeutic modality. 

At its August 23-24, 2010 meeting, the APC 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 winter 2011 meeting for review. After 

consideration of all of the information provided 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 separately 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_AdvisoryPanelonAmbulatoryPaymentClassificationGrou

ps.asp. 

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 HCPCS 
CMS-1525-P 168 

code 31627 be paid separately on the basis that the cost of the technology 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 procedure to hospital 

outpatients. 

In response to the request of the APC Panel at its August 2010 meeting, we 

presented the available data on HCPCS code 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 September 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 hospitals 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 reported on 0 to 4 percent of the claims for 

bronchoscopy codes with which CPT guidance states that it is permissible to report 

HCPCS code 31627, with the exception of HCPCS code 31626 (Bronchoscopy, rigid or 

flexible, including fluoroscopic guidance, when 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 Panel data. The APC Panel considered this 

information in its formulation of Recommendation 4 that CMS continue to package 

payment for HCPCS code 31627 into the payment for the bronchoscopy code with which 

HCPCS code 31627 is reported. Subsequent to the APC Panel meeting, examination and 
CMS-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 presentation and the information presented by CMS 

staff, the APC Panel recommended that HCPCS code 31627 continue to be assigned a 

status indicator of “N.” The Panel further recommended that CMS continue to collect 

claims data for HCPCS code 31627. We are proposing to accept both of the APC Panel’s 

recommendations for the CY 2012 OPPS. Specifically, 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 procedure 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 bronchoscopy code is assigned. We continue to 

believe that HCPCS code 31627, for which there are several different technologies, 

describes a service that is supportive and ancillary to the primary bronchoscopy 

procedure with which it must be reported, 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 CPT, HCPCS code 31627 may only be furnished 

in addition to a bronchocsopy service and therefore we believe that it is ancillary and 

supportive to the bronchsocopy service with which it must be reported. We agree to 
CMS-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 (Bronchoscopy, 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 approximately $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 $2,708 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 similar 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 unconditionally packaged codes without separately 

paid procedures: 

● HCPCS code G0177 (Training and educational services related to the care and 

treatment of patient's disabling mental health problems per session (45 minutes or more));

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

● HCPCS code 75940 (Percutaneous placement of IVC filter, radiological 

supervision and interpretation);

● HCPCS code 76937 (Ultrasound guidance 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: HCPCS 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 proposing 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 status indicator “N”), 

or conditionally (for which we are proposing to continue to assign status indicators “Q1”, 

“Q2”, or “Q3”) are displayed in Addendum B of this proposed rule (which is referenced 

in section XVIII. of this proposed rule and 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, select CMS 1525-P and then select the folder 

labeled “2012 OPPS Proposed Rule Addenda” from the list of supporting files. Open the 

zipped file and select Addendum B, which is available as both an Excel file and a text 

file. 

 The proposed continuation of our standard policy regarding packaging of drugs 

and biologicals, implantable biologicals, 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 implanted through a surgical incision 
CMS-1525-P 173 

or a natural orifice is commonly referred to throughout this proposed rule as an 

“implantable biological.” 

 The proposed creation of a new composite APC for CY 2012 for payment of the 

insertion of cardiac resynchronization 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 proposed rule (which are referenced in 

section XVIII. of this proposed rule and available via the Internet on the CMS Web site). 

In years prior to CY 2007, we standardized all the relative payment weights to APC 0601 

(Mid Level Clinic Visit) because mid-level clinic visits were among the most frequently 

performed services in the hospital outpatient setting. We assigned APC 0601 a relative 

payment weight of 1.00 and divided the median cost for each APC by the median cost for 

APC 0601 to derive the relative payment weight for each APC. 

 Beginning with the CY 2007 OPPS (71 FR 67990), we standardized all of the 

relative payment weights to APC 0606 (Level 3 Clinic Visits) because we deleted 

APC 0601 as part of the reconfiguration of the 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 representing the median cost of some of the most frequently 

provided services, we are proposing to continue to use the median cost of the mid-level 
CMS-1525-P 174 

clinic visit APC (APC 0606) to calculate unscaled weights. Following our standard 

methodology, but using the proposed CY 2012 median cost for APC 0606, for CY 2012 

we assigned APC 0606 a relative payment weight of 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 requires that APC reclassification and 

recalibration changes, wage index changes, and other adjustments be made in a budget 

neutral manner. Budget neutrality ensures that 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 changes. To comply with this requirement 

concerning the APC changes, we are proposing to compare the estimated aggregate 

weight using the CY 2011 scaled relative weights to the estimated aggregate weight using 

the proposed CY 2012 unscaled relative weights. For CY 2011, we multiplied the 

CY 2011 scaled APC relative weight applicable to a service paid under the OPPS by the 

volume of that service from CY 2010 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 rather than scaled weights. We then 

calculated the weight scaler by dividing the CY 2011 estimated aggregate weight by the 

proposed CY 2012 estimated aggregate weight. The service-mix is the same in the 
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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 using CY 2010 claims data, holding all other 

components of the payment system constant to isolate changes in total weight. Based on 

this comparison, we adjusted the unscaled relative weights for purposes of budget 

neutrality. The proposed CY 2012 unscaled relative payment weights were adjusted by 

multiplying them by a proposed weight scaler of 1.4647 to ensure that the proposed 

CY 2012 relative weights are budget neutral. 

Section 1833(t)(14) of the Act provides the payment rates for certain “specified 

covered outpatient drugs.” That section states that “Additional expenditures resulting 

from this paragraph shall not be taken into account in establishing the conversion factor, 

weighting and other adjustment factors for 2004 and 2005 under paragraph (9) but shall 

be taken into account for subsequent years.” 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 neutrality calculations for the CY 2012 OPPS. 

The proposed scaled relative payment weights listed 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) incorporate 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 requires 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 basket 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 would 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 adjustments to the OPD fee schedule update for 

CY 2012. 

Specifically, section 1833(t)(3)(F) requires that the OPD fee schedule increase 

factor under subparagraph (C)(iv) be reduced by the adjustments described in section 

1833(t)(3)(F) of the Act. Specifically, section 1833(t)(3)(F)(i) of the Act requires that the 

OPD fee schedule increase factor under subparagraph (C)(iv) be reduced by the 

productivity adjustment described in section 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 Secretary 
CMS-1525-P 177 

for the 10-year period ending with the applicable fiscal year, year, cost reporting period, 

or other annual period) (the “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 fee schedule increase factor for CY 2012 by 

the proposed MFP adjustment of 1.2 percentage points for FY 2012. Since the OPD fee 

schedule increase factor is based 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 proposed rule, we are also proposing that 

if more recent data are subsequently 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 adjustment in the CY 2012 final rule. We 

believe that it is appropriate to apply the MFP adjustment, which is calculated on a fiscal 

year basis, to the OPD fee schedule increase 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 in 
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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 reduction to the OPD fee schedule increase 

factor under subparagraph (C)(iv). Therefore, we are proposing to apply a 0.1 percentage 

point reduction to the OPD fee 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 subparagraph (C)(iv) being less than 

0.0 for a year, and may result in payment rates 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 schedule 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 adjustment 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 reduce 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 increase applicable under 

section 1886(b)(3)(B)(iii) of the Act is further reduced by the adjustments necessary to 

satisfy the requirements in sections 1833(t)(3)(F) and (t)(3)(G) of the Act. 
CMS-1525-P 179 

Hospitals that fail to meet the reporting requirements of the Hospital OQR 

Program would continue to be subject to a further reduction of additional 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 rates made for their services as required by 

section 1833(t)(17) of the Act. For a complete discussion of the Hospital OQR 

requirements and the payment reduction for hospitals 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 percent. 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 make 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 factor 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 neutrality 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 comparing total estimated payments from our 
CMS-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 that pass-through spending for both drugs and 

biologicals and devices for CY 2012 would equal approximately $64.5 million, which 

represents 0.15 percent of total projected 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 percent 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 factor 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 requirements of the Affordable Care Act), the 

required proposed wage index budget neutrality 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 the pass-through spending 

result in a proposed conversion factor for CY 2012 of $69.420, which reflects the full 

OPD fee schedule increase, after 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 requirements of the Hospital OQR Program for the 
CMS-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 increase 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 fail to meet the Hospital OQR requirements 

(a difference of -$1.368 in the proposed conversion factor relative to those hospitals that 

met the Hospital OQR requirements). 

 In summary, for CY 2012, we are proposing 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 that are required for CY 2012 in order 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 adjustments described in §419.32(b)(1)(iv)(B). We 

are proposing to use a reduced conversion factor of $68.052 in the calculation of 

payments for hospitals that fail to comply with the Hospital OQR requirements to reflect 

the reduction to the OPD fee schedule increase 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 geographic wage differences, the portion of the OPPS 

payment rate, which includes the copayment standardized amount, that is attributable to 

labor and labor-related cost. This portion of the OPPS payment rate is called the OPPS 

labor-related share. This adjustment must be made in a budget neutral manner and 

budget neutrality is discussed in section 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 analysis that determined that, for all hospitals, 

approximately 60 percent of the costs of services paid under the OPPS were attributable 

to wage costs. We confirmed that this labor-related share for outpatient services is 

appropriate during our regression analysis for the payment adjustment for rural hospitals 

in the CY 2006 OPPS final rule with comment period (70 FR 68553). Therefore, we 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 this proposed rule, for estimating national 

median APC costs, we standardize 60 percent 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 standardization process removes the effects of 
CMS-1525-P 183 

differences in area wage levels from the determination of a national unadjusted OPPS 

payment rate and the copayment amount. 

 As published in the original OPPS April 7, 2000 final rule with comment period 

(65 FR 18545), the OPPS has consistently adopted the final fiscal year IPPS wage index 

as the calendar year wage index for adjusting the OPPS standard payment amounts for 

labor market differences. Thus, the wage index 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 OPPS proposed rule, we believed that using 

the IPPS wage index as the source of an adjustment factor for the OPPS is reasonable and 

logical, given the inseparable, subordinate status of the HOPD within the hospital overall. 

In accordance with section 1886(d)(3)(E) of the Act, the IPPS wage index is updated 

annually. 

The Affordable Care Act contains provisions 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 national, rather than 

State-specific, basis through a uniform, national adjustment to the area wage index 

(76 FR 26021). In addition, section 10324 of the Affordable Care Act requires CMS to 

establish an adjustment to create a wage index floor of 1.00 for hospitals located in States 

determined to be frontier States. 

Section 10324 specifies that, for services furnished beginning CY 2011, the wage 

adjustment factor applicable to any hospital outpatient department that is located in a 
CMS-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 states 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 OPPS, 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 specific inpatient hospital with which it is 

associated. Therefore, if the associated hospital 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 PPS final rule (75 FR 50160) for a detailed 

discussion regarding this provision, including our methodology 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, including, but not limited to, reclassification of 

hospitals to different geographic areas, the rural floor provisions, an adjustment for 
CMS-1525-P 185 

occupational mix, and an adjustment to the 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. In addition, 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 recent extension of the 

provision was included in section 102 of the Medicare and Medicaid Extender Act, which 

extends, through FY 2011, section 508 reclassifications as well as certain special 

exceptions. The latest extension 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 exception 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 same time period as under the IPPS. In 

addition, because the OPPS pays on a calendar year basis, the effective date under OPPS 

for all other non-section 508 and non-special exception providers is July 1, 2011, instead 

of April 1, 2011, so that these providers may also receive a full 6 months of payment 

under the revised wage index comparable to IPPS. 

 For purposes of the OPPS, we are proposing to continue our policy in CY 2012 to 

allow non-IPPS hospitals paid under the OPPS to qualify for the out-migration 
CMS-1525-P 186 

adjustment if they are located in a section 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 cannot reclassify, they are 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, beginning 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 waived its deemed urban status and, thus, is 

rural for all purposes under the IPPS, including being considered rural for the 

disproportionate share hospital (DSH) 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 the 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 hospitals 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 the 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 broad discretionary authority 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 labor and labor-related costs across geographic 

regions . . . .” In other prospective payment systems, we do not adopt the adjustments 

applied to the IPPS wage index, such as the 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 differences has in the past been both reasonable 

and logical, given the inseparable, 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 indexes 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 converted 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 State 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 rural floor is of sufficient magnitude that it 

requires all hospital wage indexes to be reduced approximately 0.62 percent as a result of 
CMS-1525-P 188 

nationwide budget neutrality for the rural floor (or more than a 0.4 percent total payment 

reduction to all IPPS hospitals). 

In addition to the CAH conversion, we recently 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, through 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 individual urban to rural conversion allowing payment 

redistributions of this magnitude. 

We believe the above discussions demonstrate 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 situations where all hospitals in a State receive a 

wage index higher than that of the single highest wage index urban hospital in the State. 

As stated above, the statute does not require the Secretary to use the IPPS wage 

adjustment factor to wage adjust OPPS payments and copayments, nor to apply to OPPS 

payment and copayment calculation the same adjustment that the law requires be applied 

to the IPPS wage adjustment factor. 

We are considering adopting a policy that would address situations where IPPS 

wage index adjustments, such as the rural floor, are resulting in significant fluctuations in 

the wage index. One option would be to not apply 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 State 
CMS-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 including the rural floor, 

geographic reclassifications and all other wage index adjustments; (2) adopt the IPPS 

wage index for the OPPS in its entirety except 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 neutrality within each State 

instead of nationally; or (4) adopt another decision 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, and 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 incentive to reclassify from urban to rural status 

primarily to increase rural floors across a State, and would ensure that the rural floor is 

based upon hospitals located 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 Internet on the CMS Web 

site), which includes non-IPPS hospitals 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 calculated from the hospital’s most recent cost 

report to determine outlier payments, payments for pass-through devices, and monthly 

interim transitional corridor payments under the OPPS during the PPS year. Medicare 

contractors cannot calculate a CCR for some hospitals 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, hospitals 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 using the most recent cost report data. We 

discuss our policy for using default CCRs, including setting the ceiling threshold for a 

valid CCR, in the CY 2009 OPPS/ASC final rule with comment period (73 FR 68594 
CMS-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 continue 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 claims 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 proposing 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 relevant 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-items on hospital claims corresponding to the 

year of the majority of cost reports used to calculate 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 rule, 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 percent were for cost reporting periods 
CMS-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 weighted CCR is used for Maryland because it 

takes into account each hospital’s volume, rather than treating each hospital equally. We 

refer readers to the CY 2005 OPPS final 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 changes in the statewide average 

default CCRs between CY 2011 and CY 2012 are modest and the few significant changes 

are associated with areas that have a small number of hospitals. 

Table 11 below lists the proposed statewide average default CCRs for OPPS 

services furnished on or after January 1, 2012. 

TABLE 11.–-PROPOSED CY 2012 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 0.291
CMS-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 0.182
CMS-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 0.245
CMS-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 (referred to as the pre-BBA amount). Section 

1833(t)(7) of the Act provides that the transitional corridor payments are temporary 

payments for most providers and were intended 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 Act 
CMS-1525-P 196 

originally provided for transitional corridor payments to rural hospitals with 100 or fewer 

beds for covered OPD services furnished before January 1, 2004. However, section 411 

of Pub. L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend these payments 

through December 31, 2005, for rural hospitals with 100 or fewer beds. Section 411 also 

extended the transitional corridor payments to sole community hospitals (SCHs) located 

in rural areas for services furnished during the 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 the Act, as amended by section 411 of Pub. L. 

108-173, for rural hospitals having 100 or fewer beds and SCHs located in rural areas 

expired on December 31, 2005. 

 Section 5105 of Pub. L. 109-171 reinstituted the 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 payment 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, and by 85 percent of the amount of that 

difference for CY 2008. 

 For CY 2006, we implemented section 5105 of Pub. L. 109-171 through 

Transmittal 877, issued on February 24, 2006. In the Transmittal, we did not specifically 

address whether TOPs apply to essential access community hospitals (EACHs), which 

are considered to be SCHs under section 1886(d)(5)(D)(iii)(III) of the Act. Accordingly, 
CMS-1525-P 197 

under the statute, EACHs are treated as SCHs. 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 final rule with comment period (71 FR 68010 

and 68228), we updated §419.70(d) of our regulations to reflect 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 eligible 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 section 1833(t)(7)(D)(i) of the 

Act by extending the period of TOPs to rural hospitals with 100 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 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 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 incorporate the provisions of section 147 of Pub. L. 110-275. In 

addition, we made other technical changes to §419.70(d)(2) to more precisely capture our 
CMS-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 correction to the heading 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 services provided on or after January 1, 2010, rural hospitals and 

SCHs (including EACHs) having 100 or fewer 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 extended the period of TOPs to 

SCHs (including EACHs) for 1 year, for services provided before January 1, 2011, with 

section 3121(b) of the Affordable Care Act removing the 100-bed limitation applicable to 

such SCHs for covered OPD services furnished on and after January 1, 2010, and before 

January 1, 2011. In accordance with section 3121 of the Affordable Care Act, when the 

OPPS payment 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 payment 

amounts for CY 2010. Accordingly, in the CY 2011 OPPS/ASC final rule with comment 
CMS-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 Medicaid 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 SCH (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 the 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 section 1886(d)(5)(D)(iii) of the Act (including 

EACHs) removing the 100-bed limit applicable to such SCHs for covered OPD services 

furnished on or after January 1, 2010 and before January 1, 2012. Therefore, for such 

hospitals, 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 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 and 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, biologicals, brachytherapy sources, and devices 
CMS-1525-P 200 

paid under the pass-through payment policy in accordance with section 1833(t)(13)(B) of 

the Act, as added by section 411 of Pub. L. 108-173. Section 411 gave the Secretary the 

authority to make an adjustment to OPPS payments for rural hospitals, effective 

January 1, 2006, if justified by a study of the difference in costs by APC between 

hospitals in rural areas and hospitals in urban areas. Our analysis 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 and biologicals, brachytherapy sources, and 

devices paid under the pass-through payment 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 are considered to be SCHs under section 

1886(d)(5)(D)(iii)(III) of the Act. Thus, under the statute, EACHs are treated as SCHs. 

Therefore, in the CY 2007 OPPS/ASC final rule with comment period (71 FR 68010 and 

68227), for purposes of receiving this rural adjustment, we revised §419.43(g) to clarify 

that EACHs are also eligible to receive the rural SCH adjustment, assuming these entities 

otherwise meet the rural adjustment criteria. 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 budget neutral and applied before calculating 

outliers and copayment. As stated in the CY 2006 OPPS final rule with comment period 

(70 FR 68560), we would not reestablish the adjustment amount on an annual basis, but 
CMS-1525-P 201 

we may review the adjustment in the future and, if appropriate, would revise the 

adjustment. We provided the same 7.1 percent adjustment to rural SCHs, including 

EACHs, again in CYs 2008 through 2011. Further, in the CY 2009 OPPS/ASC final rule 

with comment period (73 FR 68590), we updated the regulations at §419.43(g)(4) to 

specify, in general terms, that items paid at charges adjusted to costs by application of a 

hospital-specific CCR are excluded from the 7.1 percent payment adjustment. 

 For the CY 2012 OPPS, we are proposing to continue our policy of a budget 

neutral 7.1 percent payment adjustment for rural SCHs, including EACHs, for all services 

and procedures paid under the OPPS, excluding separately payable drugs and biologicals, 

devices paid under the pass-through payment policy, 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 rural 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 cancer hospitals identified 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 SCHIP Balanced Budget 
CMS-1525-P 202 

Refinement Act of 1999, Congress created section 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 permanently held harmless to their “pre-BBA” 

amount, and they receive Transitional Outpatient Payments (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 section 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 reporting period (or periods) occurring in the current year and the base 

payment-to-cost ratio (PCR) for the hospital. The “pre-BBA” amount, including the 

determination of the base PCR, are defined at 42 CFR 419.70(f). TOPs are calculated on 

Worksheet E, Part B, of the Hospital and 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 budget neutrality calculations. Almost all of 

the 11 cancer hospitals receive TOPs each year. The volume weighted average 

payment-to-cost ratio (PCR) for the cancer hospitals 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 costs incurred by cancer hospitals described 
CMS-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 furnishing services under 

section 1833(t) of the Act as determined appropriate by the Secretary. In addition, 

section 3138 of the Affordable Care Act requires the Secretary to take into consideration 

the cost of drugs and biologicals incurred by such hospitals when studying cancer 

hospital costliness. Further, section 3138 of the Affordable Care Act provides that if the 

Secretary determines that cancer hospitals’ costs with respect to APC groups are 

determined to be greater than the costs of other hospitals furnishing services under 

section 1833(t) of the Act, the Secretary shall provide an appropriate adjustment to reflect 

these higher costs. Cancer hospitals described in section 1886(d)(1)(B)(v) of the Act 

remain eligible for TOPs (which are not budget neutral) and outlier payments (which are 

budget neutral). 

2. Study of Cancer Hospitals’ Costs Relative to Other Hospitals 

It has been our standard analytical approach 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 hospital 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 discussion 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 the costs faced by individual hospitals, whether 
CMS-1525-P 204 

urban or rural, are a function of many varying factors, including local labor supply and 

the complexity and volume of services provided (70 FR 42699). 

In constructing our analysis of cancer hospitals’ costs with respect to APC groups 

relative to other hospitals, we considered whether our standard analytical approach to use 

a combination of explanatory and payment regression models would lead to valid results 

for this particular study, or whether we should develop a different or modified analytic 

approach. We note that the analyses presented 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 Act is specifically limited to identifying an 

adjustment for 11 cancer hospitals to the extent 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 size (11 out of approximately 4,000 hospitals paid 

under the OPPS), we were concerned that the standard explanatory and payment 

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 

hospitals must include the cost of drugs and biologicals. 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 standard 
CMS-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 analytical dataset consisting of variables related to 

assessing costliness with respect to APC groups, including 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 for the myriad factors that contribute to observed 

costs, we believed that stark differences in cost between 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 payment, 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 hospital (“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 could bias the calculation of hospital-weighted statistics. We then removed an 

additional 66 hospitals with a cost per unit of more than 3 standard deviations from the geometric mean 
CMS-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 under 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; the 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 respect to APC groups under the modeled OPPS system, 

and they allowed us to assess the relative costliness 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 remaining 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 portion 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 cost 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 observed 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 other 
CMS-1525-P 207 

hospitals. That is, cancer hospitals’ average cost per 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 DEVIATIONS FOR KEY VARIABLES 

BY CANCER AND NON-CANCER 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 standard 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 hospital cost report 

data from Worksheet E, Part B (where TOPs are calculated on the Hospital and Hospital 

Health Care Complex Cost Report each year) in order to determine whether our findings 

were further supported by cost report data and to determine an appropriate proposed 

payment adjustment methodology for CY 2011 based on cost report data. Analyses on 

our standard analytic database and descriptive statistics presented in Table 12 above did 
CMS-1525-P 208 

not consider TOPs in assessing costliness of cancer hospitals relative to other hospitals 

furnishing services under section 1833(t) of the Act. There were 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 retrospective 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 neutral 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 aggregate 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 other potential factors that could 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 these 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 indicated 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 under 
CMS-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 used 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 payments 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), whereas 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 percent 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 findings that the cancer hospitals cost per 

discounted unit standardized for service mix remains much higher than the standardized 

cost per discounted unit of all 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 concerns outlined above with 
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respect to the small number of hospitals, and because of the challenges associated with 

accurately including drug and biological costs in our standard regression models. We 

believed that an appropriate adjustment would 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 hospital’s OPPS payment by the percentage difference between the 

hospital’s individual PCR (without TOPs) and the weighted 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 percent 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 the 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 hospital 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 harmless payment under the TOPs provision to 
CMS-1525-P 211 

APC payments. Noting that the majority of cancer care provided in the country is 

provided by the non-cancer hospitals that would experience a payment reduction under 

the CY 2011 proposal, commenters also suggested that the associated budget neutral 

payment reduction of 0.7 percent was not appropriate or equitable to other OPPS 

hospitals. Commenters also expressed concern that the proposed payment adjustment 

would increase beneficiary copayments. That is, they believed that the proposed cancer 

hospital adjustment would increase APC payments and, because beneficiary copayment 

is a percentage of the APC payment, Medicare beneficiaries seeking services at the 

11 designated cancer hospitals would experience higher copayments due to the proposed 

methodology. These commenters strongly encouraged CMS to implement the adjustment 

in a way that does not increase beneficiary copayments. These commenters also 

indicated that CMS should have taken into account the concentration of outpatient 

services at the designated cancer hospitals, as compared to other OPPS hospitals, and 

adjust the PCR benchmark higher. The commenters argued that other PPS hospitals have 

the ability to improve their Medicare margins through other payment systems, but that 

cancer hospitals receive the majority 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 broad range of very important issues and 

concerns associated with the proposed cancer hospital payment adjustment, we 
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determined that further study and deliberation was necessary and, therefore, we did not 

finalize the CY 2011 proposed payment adjustment 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 could not be included when establishing the PCR 

target given the current statutory language in section 1833(t)(18) of the Act that was to 

capture costliness with respect to APC groups. Specifically, section 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 into 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 assessment of the costs incurred by the 11 cancer 

hospitals to APC groups, we cannot include TOPs, 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) provides that this adjustment is applied for covered OPD 

services for which the “PPS amount” is less than the “pre-BBA” amount. The “PPS 

amount” means, with respect to covered OPD services, “the amount payable under this 

title [Title 18] for such services (determined without regard to this paragraph) . . .” (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 of 
CMS-1525-P 213 

“the amount payable under this title.” Further, we note that the Affordable Care Act 

requires that any cancer hospital 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. Specifically, section 1833(t)(8) of the Act sets forth 

the methodology for calculating the copayment 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 subsection 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 (computed under paragraph (3)(D)) for the 

service or group and year is adjusted for relative differences in the cost of labor and other 

factors determined by the Secretary, as computed 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 required to be provided under paragraph (2)(E). 

Therefore, the statute is clear that the cancer 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 concentration relative to that of other OPPS 

hospitals when establishing an appropriate PCR benchmark, we believe it is inappropriate 

to incorporate the payments associated with other Medicare payment systems when 

determining a payment adjustment under the OPPS. 

After a thorough review and deliberation of the issues associated with the cancer 

hospital payment adjustment proposed for CY 2011, we continue to believe a 

straightforward and appropriate method to adjust 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 redistribute enough payments from other hospitals 

furnishing services under the OPPS to the cancer hospitals to give each 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 and after January 1, 2012, we are proposing that, for a cancer 

hospital with an individual PCR (as determined by the Secretary) below the weighted 

average PCR for other hospitals furnishing services 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 receiving pass-through status as defined in 42 CFR 419.66) by the 

percent difference between the hospital’s individual 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 pass-through status as 
CMS-1525-P 215 

defined in 42 CFR 419.66 which are furnished on and after January 1, 2012, , we are 

proposing a zero percent adjustment. For a cancer hospital with an individual PCR (as 

determine by the Secretary) above the weighted average PCR for other hospitals 

furnishing services under section 1833(t) of the Act (as determined by the Secretary), we 

are proposing a zero percent adjustment for covered hospital outpatient services furnished 

on and after January 1, 2012. 

In order to calculate PCRs for hospitals furnishing services under the OPPS 

(including cancer hospitals) for the proposed CY 2012 cancer hospital payment 

adjustment, we used the same extract of cost report 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 hospital’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 use 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 cost reporting periods ending in FY 2009 and 

FY 2010. The cost report data for the other hospitals 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 set because we do not believe that their cost 

structure reflects the costs of most hospitals paid under the OPPS and therefore their 

inclusion may bias the calculation of hospital-weighted statistics. We also removed 206 
CMS-1525-P 216 

hospitals with cost report data that were not complete (missing OPPS payments, 

including outliers, missing aggregate cost data, or both), so that all cost reports in the 

study would have both the payment and cost data 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 reported on Worksheet E, Part B, for the 

hospitals included in our CY 2012 modeling should be sufficiently accurate for assessing 

hospital’s relative costliness because 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 average, the OPPS payments to other hospitals 

furnishing services under the OPPS are approximately 90 percent of reasonable cost 

(resulting in a PCR of 0.901). Individual 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 other hospitals furnishing services under the 

OPPS in the CY 2012 dataset, we would make a hospital-specific payment adjustment by 

adjusting the wage-adjusted OPPS payment for covered OPD services (except devices 

receiving pass-through status because these items and services are always paid at the 

estimated full cost and, therefore, no payment adjustment is necessary) furnished on and 

after January 1, 2012, by the percent difference between the hospital’s individual PCR 
CMS-1525-P 217 

and the weighted average PCR of other hospitals furnishing services under the OPPS in 

the CY 2012 dataset. This proposed methodology would result in the proposed 

percentage payment adjustments for the 11 cancer hospitals appearing in Table 13 below. 

In addition, we note that we are proposing 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 outpatient services furnished on or after January 

1, 2012, by cancer hospitals described in section 1886(d)(1)(B)(v) of the Act. Proposed 

new paragraph (i)(2) would specify how the amount of the payment adjustment to cancer 

hospitals is established. Proposed new paragraph (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 payment 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 are 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 payment adjustment above zero percent would 

not be necessary. 

We note that the proposed payment adjustment for all cancer 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 report data. The dataset of hospital cost report data that we 
CMS-1525-P 218 

used to model this proposed payment adjustment 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 recalculated annually. The 340B drug program 

allows certain hospitals to purchase certain 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, therefore, may cause significant changes in 

each cancer hospital’s PCR compared to the previous year’s calculation. Therefore, we 

are proposing to recalculate the PCR of each cancer hospital and the weighted average 

PCR of the other hospitals furnishing services under 1833(t) on an annual basis in order 

to determine an appropriate hospital specific payment adjustment 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 payment for all hospitals paid 

under the OPPS, including cancer hospitals and TOPs for cancer hospitals. Because 

outlier payments are made within budget neutrality, outlier payments are assessed after 

all budget neutral payments for an individual 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 and TOPs are assessed after final payments have 

been made. If this proposed payment adjustment is finalized, we estimate that there 

would be no cancer hospitals that would continue to receive TOPs. We are proposing to 

update the hospital-specific cancer hospital payment adjustments in Table 13 using the 

more recent cost reports that will become available 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 traditional multiple threshold, in order to better 

target outliers to those high cost and complex procedures where a very costly service 

could present a hospital with significant financial loss. If 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 rate. Before CY 2009, this outlier payment 

had historically been considered a final payment by longstanding OPPS policy. We 

implemented a reconciliation process similar to the IPPS outlier reconciliation process for 

cost reports with cost reporting periods beginning on or after January 1, 2009 

(73 FR 68594 through 68599). 

It has been our policy for the past several years to report the actual amount of 

outlier payments as a percent of total spending in the claims being used to model the 

proposed OPPS. Our current estimate of total outlier payments as a percent of total 

CY 2010 OPPS payment, using available CY 2010 claims and the revised OPPS 

expenditure estimate for the Presidential Budget for FY 2012, is approximately 

1.11 percent of the total aggregated OPPS payments. Therefore, for CY 2010, we 
CMS-1525-P 221 

estimate that we paid at 0.11 percent above the CY 2010 outlier target of 1.0 percent of 

total aggregated OPPS payments. 

As explained in the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 71887 through 71889), we set our projected 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 the total estimated aggregate payments under the OPPS. 

Using CY 2010 claims data and CY 2011 payment 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 continue our policy of estimating outlier 

payments to be 1.0 percent of the estimated aggregate total payments under the OPPS for 

outlier payments. We are proposing that a portion of that 1.0 percent, specifically 0.14 

percent, would be allocated to CMHCs for PHP outlier payments. This is the amount of 

estimated outlier payments that would result from the proposed CMHC outlier threshold 

as a proportion of total estimated outlier payments. As discussed in section VIII.C. of 
CMS-1525-P 222 

this proposed rule, for CMHCs, we are proposing to continue our longstanding policy 

that if a CMHC’s cost for partial hospitalization services, paid under either APC 0172 

(Level I Partial Hospitalization (3 services) 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 calculated 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 aggregate outlier payments would equal 

1.0 percent of estimated aggregate total payments under the OPPS, we are proposing that 

the hospital outlier threshold be set so that outlier payments would be triggered when the 

cost of furnishing a service or procedure by a hospital exceeds 1.75 times the APC 

payment amount and exceeds the APC payment rate plus a $2,100 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 threshold for this proposed rule using 

largely the same methodology 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 maintained by the Medicare contractors and 

used by the OPPS Pricer to pay claims. The claims that we use to model each OPPS 

update lag by 2 years. For this proposed rule, we used CY 2010 claims to model the 
CMS-1525-P 223 

CY 2012 OPPS. In order to estimate the proposed CY 2012 hospital outlier payments for 

this proposed rule, we inflated the charges on the CY 2010 claims using the same 

inflation factor of 1.0908 that we used to estimate the IPPS fixed-dollar 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 charges from the CY 2010 charges reported on 

CY 2010 claims. The methodology for determining 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 costs 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 could systematically overestimate the OPPS 

hospital outlier threshold if we did not apply a CCR inflation adjustment factor. 

Therefore, we are proposing to apply the same CCR inflation adjustment factor that we 

are proposing to apply for the FY 2012 IPPS outlier calculation to the CCRs used to 

simulate the proposed CY 2012 OPPS outlier payments that determine the fixed-dollar 

threshold. Specifically, for CY 2012, we are proposing to apply an adjustment of 0.9850 

to the CCRs that were in the April 2011 OPSF to trend them forward from CY 2011 to 

CY 2012. The methodology for calculating this proposed adjustment is discussed in the 

FY 2012 IPPS/LTCH PPS proposed rule (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 2011 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 approximate CY 2012 charges). We simulated 

aggregated CY 2012 hospital outlier payments using these costs for several different 

fixed-dollar thresholds, holding the 1.75 multiple 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 equaled 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 outlier payment that equals 50 percent of the 

amount by which the cost of furnishing the service exceeds 1.75 times the APC payment 

amount when both the 1.75 multiple threshold and the proposed fixed-dollar threshold of 

$2,100 are met. For CMHCs, we are proposing 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. 

 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 required 
CMS-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 percentage 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 quality data and that fail to 

meet the Hospital OQR requirements. For hospitals 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 payment calculation. For more information on the Hospital OQR 

Program, we refer readers to section XIV. of this proposed rule. 

3. Outlier Reconciliation 

 In the CY 2009 OPPS/ASC final rule with comment period (73 CFR 68599), we 

adopted as final policy a process to reconcile hospital or CMHC outlier payments at cost 

report settlement for services furnished during cost reporting periods beginning in 

CY 2009. OPPS outlier reconciliation more fully ensures accurate outlier payments for 

those facilities that have CCRs that fluctuate significantly relative to the CCRs of other 

facilities, and that receive a significant amount of outlier payments (73 FR 68598). As 

under the IPPS, we do not adjust the fixed-dollar 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 nature of the system. Our proposed outlier 

threshold calculation assumes that overall ancillary CCRs accurately estimate hospital 
CMS-1525-P 226 

costs based on the information available to us at the time we set the prospective fixeddollar outlier threshold. For these reasons, as we have previously discussed in the CY 

2009 OPPS/ASC final rule with comment period (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 Adjusted 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 existing 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 section 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 section 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 proposed 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 Act, which applies to hospitals as defined 

under section 1886(d)(1)(B) of the Act, requires that hospitals that fail to submit data 
CMS-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 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 apply to certain outpatient items and services 

provided by hospitals that are required to report outpatient quality data and that fail to 

meet the Hospital Outpatient Quality Reporting (OQR) Program (formerly referred to as 

the Hospital Outpatient Quality Data Reporting Program (HOP QDRP)) requirements. 

For further discussion of the payment reduction 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 that 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 conditionally packaged services (status indicator 

of “Q1” and “Q2”) qualify for separate payment. 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 interested in calculating the payment amount that they would 

receive for a specific service from the national unadjusted payment rates presented 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) 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 payment 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 times 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 national unadjusted payment rate, depending on 

whether the hospital met its Hospital OQR Program requirements in order to receive the 

full CY 2012 OPPS fee schedule increase factor of 1.50 percent. 

 Step 1. Calculate 60 percent (the labor-related 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 attributable, 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 hospital outpatient services is 
CMS-1525-P 229 

appropriate during our regression analysis for the payment adjustment for rural hospitals 

in the CY 2006 OPPS final rule with comment period (70 FR 68553). 

 The formula below is a mathematical representation of Step 1 and identifies the 

labor-related portion of a specific payment 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 in which the hospital is located and 

identify the wage index level that applies to the specific hospital. The wage index values 

assigned to each area reflect the 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 section 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 section II.C. of this 

proposed rule.) We are proposing to continue 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 hospital employees who reside in the county, but 

who work in a different county with a higher wage index, in accordance with section 505 

of Pub. L. 108-173. Addendum L to this proposed rule (which is referenced in section 

XVII. of this proposed rule and available via the Internet on the CMS 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 Internet 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 redesignated under section 1886(d)(8) 

or section 1886(d)(10) of the Act. 

 Step 4. Multiply the applicable wage index determined under Steps 2 and 3 by 

the amount determined under Step 1 that represents the labor-related portion of the 

national unadjusted payment rate. 

 The formula below is a mathematical representation of Step 4 and adjusts the 

labor-related portion of the national payment rate for the specific service by the wage 

index. 

Xa

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

Xa = .60 * (national unadjusted payment rate) * applicable wage index. 

 Step 5. Calculate 40 percent (the nonlabor-related portion) of the national 

unadjusted payment rate and add that amount to the resulting product of Step 4. The 

result is the wage index adjusted payment rate for the relevant wage index area.
CMS-1525-P 231 

 The formula below is a mathematical representation of Step 5 and calculates the 

remaining portion of the national payment rate, the amount not attributable to labor, and 

the adjusted payment for the specific service. 

Y is the nonlabor-related portion of the national unadjusted payment rate. 

Y = .40 * (national unadjusted payment rate) 

Adjusted Medicare Payment = Y + Xa 

 Step 6. If a provider is a SCH, set forth in the regulations at §412.92, or an 

EACH, which is considered to be a SCH under section 1886(d)(5)(D)(iii)(III) of the Act, 

and located in a rural area, as defined in §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 representation of Step 6 and applies the 

rural adjustment for rural SCHs. 

Adjusted Medicare Payment (SCH or EACH) = Adjusted Medicare Payment * 1.071 

 We have provided examples below of the calculation of both the proposed full 

and reduced national unadjusted payment rates 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 service 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 hospital 
CMS-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 national unadjusted payment is $135.40 (.40 * 

$338.51). The proposed nonlabor-related portion 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 the effective copayment rate (determined on a 

national unadjusted basis) for 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 paid 
CMS-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 provides that, for a covered OPD service (or 

group of such services) furnished in a year, the national unadjusted copayment amount 

cannot be less than 20 percent of the OPD fee schedule amount. 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 deductible. 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 requirements, including flexible sigmoidoscopies and 

screening colonscopies, and waived the Part B deductible for screening colonoscopies 

that become diagnostic during the procedure. Our discussion of the changes made by the 

Affordable Care Act with regard to copayments for preventive services furnished on and 

after January 1, 2011 may be found in section XII.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 that 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 proposing to use the same standard rounding 

principles that we have historically used in instances where the application of our 

standard copayment methodology would result in a copayment amount that is less than 

20 percent and cannot be rounded, under standard 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 rounding principles.) 

The proposed national unadjusted copayment 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 section XVII. of this proposed rule and available 

via the Internet on the CMS Web site). As discussed in section XIV.E. of this proposed 

rule, for CY 2012, the proposed Medicare beneficiary’s minimum unadjusted copayment 

and national unadjusted copayment for a service to which a reduced national unadjusted 

payment rate applies would equal the product of the reporting ratio and the national 

unadjusted copayment, or the product of the reporting ratio and the minimum unadjusted 

copayment, respectively, for the service. 

3. Proposed Calculation of an Adjusted Copayment Amount for an APC Group 

 Individuals interested in calculating the national copayment liability for a 

Medicare beneficiary for a given service provided by a hospital that met or failed to meet 

its Hospital OQR Program requirements should 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 national 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 section XVII. of this proposed rule and available 

via the Internet on the CMS Web site), the beneficiary 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 Steps 2 through 4 under section II.H. of this 

proposed rule. Calculate the rural adjustment for eligible providers as indicated in Step 6 

under section II.H. of this proposed rule. 

 Step 3. Multiply the percentage calculated in Step 1 by the payment rate 

calculated in Step 2. The result is the wage-adjusted copayment amount for the APC. 

The formula below is a mathematical representation of Step 3 and applies the 

beneficiary percentage to the adjusted payment rate for a service calculated under 

section II.H. of this proposed rule, with and without the rural adjustment, 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 rule 
CMS-1525-P 236 

(which are referenced in section XVII. of this proposed rule and available via the Internet 

on the CMS Web site). We note that the proposed national unadjusted 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. Specifically, CMS recognizes the following codes 

on OPPS claims: (1) Category I CPT codes, which describe medical services and 

procedures; (2) Category III CPT codes, which describe new and emerging technologies, 

services, and procedures; and (3) Level II HCPCS codes, which are used primarily to 

identify products, supplies, temporary procedures, and services not described by 

CPT codes. CPT codes are established by the American Medical Association (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 annual 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 the 
CMS-1525-P 237 

formal rulemaking process via OPPS quarterly update CRs. This quarterly process offers 

hospitals 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 

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 quarterly 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 codes 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 section XVII. of this proposed rule and available via the Internet 

on the CMS Web site), while those codes 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 2013 
CMS-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 proposing 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 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 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, were flagged with comment indicator “NI” 

(New code, interim APC assignment; comments 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, which were subject to public comment following 

publication of the CY 2011 OPPS/ASC final rule with comment period. We will respond 
CMS-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 the July 2011 OPPS quarterly update CR 

(Transmittal 2234, Change Request 7443, dated May 27, 2011), we recognized several 

new HCPCS codes for separate payment under the OPPS. Effective April 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 HCPCS 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 Category 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 codes. Specifically, as displayed in Table 15 

below, we provided separate payment for the following HCPCS codes: 

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

● HCPCS code C9281 (Injection, pegloticase, 1 mg) 
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● HCPCS code C9282 (Injection, ceftaroline fosamil, 10 mg) 

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

● HCPCS code C9729 (Percutaneous laminotomy/laminectomy (intralaminar 

approach) for decompression of neural elements, (with ligamentous resection, 

discectomy, facetectomy and/or foraminotomy, 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) beginning 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 assigned to pass-through status beginning 

January 1, 2011, when the code was implemented. Because HCPCS code Q2040 

describes the same drug as HCPCS code C9278, we are continuing its pass-through status 

and assigning the HCPCS Q-code to the same APC and status indicator as its predecessor 

HCPCS C-code, as shown in Table 15 below. Specifically, HCPCS code Q2040 is 

assigned to APC 9278 and status indicator “G.” 

We are proposing to assign the Level II HCPCS codes listed in Table 15 to the 

specific proposed APCs and status indicators set forth in this proposed rule. 

TABLE 15.—LEVEL II HCPCS CODES 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 9280 
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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/laminectomy (intralaminar 

approach) for decompression of neural elements, 

(with ligamentous resection, discectomy, facetectomy 

and/or foraminotomy, when performed) any method 

under indirect image guidance, with the use of an 

endoscope when performed, single or multiple levels, 

unilateral or bilateral; lumbar 

T 0208 

Q2040* Injection, incobotulinumtoxin A, 1 unit G 9278 

*Level II HCPCS code C9278 was deleted March 31, 2011, and replaced with HCPCS 

code Q2040 effective April 1, 2011.

Through the July 2011 OPPS quarterly update CR, which included HCPCS codes 

that were made effective July 1, 2011, we allowed separate payment for 11 of the 17 new 

Level II HCPCS codes. Specifically, as displayed 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 (Injection, ipilimumab, 10 mg) 

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

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

● HCPCS code C9406 (Iodine I-123 ioflupane, diagnostic, per study dose, up to 

5 millicuries) 

● HCPCS code C9730 (Bronchoscopic bronchial thermoplasty with imaging 

guidance (if performed), radiofrequency ablation of airway smooth muscle, 1 lobe) 
CMS-1525-P 242 

● HCPCS code C9731 (Bronchoscopic bronchial thermoplasty with imaging 

guidance (if performed), radiofrequency ablation 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, hydroxyprogesterone caproate, 1 mg) 

● HCPCS code Q2043 (Sipuleucel-t, minimum of 50 million autologous cd54+ 

cells activated with pap-gm-csf, including leukapheresis and all other preparatory 

procedures, per infusion) 

● HCPCS code Q2044 (Injection, belimumab, 10 mg) 

We note that two of the Level II HCPCS 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 status 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 July 1, 2011. HCPCS code J7184 was assigned to 

pass-through status when it was made effective January 1, 2011; however, the code is 

“Not Payable by Medicare” because HCPCS code J7184 is replaced with HCPCS code 

Q2041 effective July 1, 2011. Therefore, HCPCS code J7184 was reassigned to status 

indicator “E” effective July 1, 2011. Because 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” effective July 1, 2011. However, because the dosage 

descriptor for HCPCS code Q2041 is not the same as HCPCS code J7184, we reassigned 
CMS-1525-P 243 

HCPCS code Q2041 to a new APC to maintain data consistency for future rulemaking. 

Specifically, HCPCS code Q2041 was assigned to APC 1352 effective July 1, 2011. In 

addition, HCPCS code Q2043 replaced HCPCS code C9273 (Sipuleucel-t, minimum of 

50 million autologous cd54+ cells activated with pap-gm-csf, including leukapheresis and 

all other preparatory procedures, per infusion) beginning July 1, 2011. HCPCS code 

C9273 was assigned to pass-through 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 status 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 Durable Medical Equipment, Prosthetics, 

Orthotics, and Supplies (DMEPOS) Fee Schedule and not the OPPS. These codes are 

listed in Table 16 below, and are assigned to either 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 proposed status indicators, APC assignments, and 

payment rates for CY 2012. 

TABLE 16.—NEW LEVEL II HCPCS CODES 

IMPLEMENTED IN JULY 2011 
CMS-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 container, 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 $2.90
CMS-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 million 

autologous cd54+ cells activated with papgm-csf, including leukapheresis and all 

other preparatory procedures, 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 policy of recognizing 

Category I CPT vaccine codes for which FDA 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, Category 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 the 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 displayed in Table 17 of this proposed rule, we 

allow separate payment for the following CPT codes: 

● CPT code 0263T (Intramuscular autologous bone marrow cell therapy, with 

preparation of harvested cells, multiple injections, one leg, including ultrasound 

guidance, if performed; complete procedure including unilateral or bilateral bone marrow 

harvest) 

● CPT code 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) 
CMS-1525-P 246 

● CPT code 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 marrow harvest only for intramuscular 

autologous bone marrow cell therapy) 

● CPT code 0267T (Implantation or replacement of carotid sinus baroreflex 

activation device; lead only, unilateral (includes intra-operative interrogation, 

programming, and repositioning, when performed)) 

● CPT code 0268T (Implantation or replacement of carotid sinus baroreflex 

activation device; pulse generator only (includes intra-operative interrogation, 

programming, and repositioning, when performed)) 

● CPT code 0269T (Revision or removal of carotid sinus baroreflex activation 

device; total system (includes generator placement, unilateral or bilateral lead placement, 

intra-operative interrogation, programming, and repositioning, when performed)) 

● CPT code 0270T (Revision or removal of carotid sinus baroreflex activation 

device; lead only, unilateral (includes intra-operative interrogation, programming, and 

repositioning, when performed)) 

● CPT code 0271T (Revision or removal of carotid sinus baroreflex activation 

device; pulse generator only (includes intra-operative interrogation, programming, and 

repositioning, when performed)) 

● CPT code 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, with 
CMS-1525-P 247 

interpretation and report (eg, battery status, lead impedance, pulse amplitude, pulse 

width, therapy frequency, pathway mode, burst mode, therapy start/stop times each day)) 

● CPT code 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) 

● CPT 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) 

● CPT 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) (As published in the July 2011 OPPS 

quarterly update CR, CPT code 0275T replaced 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 or 
CMS-1525-P 248 

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)) 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 provided in the inpatient setting because of the 

clinical circumstances under which these procedures are performed. There are no new 

Category I Vaccine CPT codes for the July 2011 update. 

Table 17 below lists the Category III CPT codes that were implemented in 

July 2011 for which we are proposing to allow separate payment, along with their 

proposed status indicators, proposed APC assignments, and proposed payment rates for 

CY 2012. 

TABLE 17.—CATEGORY III CPT 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 unilateral 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 $2,166.33
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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 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 device; pulse generator 

only (includes intra-operative interrogation, 

programming, and repositioning, when 

performed) 

S 0039 $14,743.58

0269T 

Revision or removal of carotid 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 carotid sinus baroreflex 

activation device; lead only, unilateral 

(includes intra-operative interrogation, 

programming, and repositioning, when 

performed) 

T 0687 $1,496.15

0271T 

Revision or removal of carotid sinus baroreflex 

activation device; pulse generator only 

(includes intra-operative 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 $80.78
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We are soliciting public comments on the CY 2012 proposed status indicators and 

the proposed APC assignments and payment rates, if applicable, for the Level II HCPCS 

codes and the Category III CPT codes that are 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 proposing to finalize their status 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 $3,535.92
CMS-1525-P 251 

rule with comment period. Because the July 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 rule, but these codes are listed in Tables 16 

and 17, respectively. We are proposing to incorporate these codes into Addendum B to 

the CY 2012 OPPS/ASC final rule with comment 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 displayed in Table 15 are included in 

Addendum B to this proposed rule (which is referenced in section XVII. of this proposed 

rule and available via the Internet on the CMS website), where their proposed CY 2012 

payment rates also are shown. 

2. Proposed Process for New Level II HCPCS Codes and Category I and Category III 

CPT Codes for Which We Will Be Soliciting 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 OPPS for the following calendar year. All 
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of these codes are flagged with comment indicator “NI” in Addendum B to the 

OPPS/ASC final rule with comment period to indicate that we are assigning them an 

interim payment status which is subject to public comment. 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 comments in the OPPS/ASC 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 Addendum B (which is available via 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 final 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 payment rates, if applicable, would be open to 

public 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. 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 rule, and are listed in Table 17, will not 
CMS-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 department services. Section 1833(t)(2)(B) of the 

Act provides that the Secretary 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 system, referred to as Ambulatory Payment 

Classifications (APCs), as set forth in §419.31 of the regulations. 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 homogeneous both clinically and in terms of 

resource use. Using this classification system, we have established distinct groups of 

similar services. We also have developed separate APC groups for certain medical 

devices, drugs, biologicals, therapeutic radiopharmaceuticals, and brachytherapy devices. 

 We have packaged into payment for each procedure or service within an APC 

group the costs associated with those items or services that are directly related to, and 

supportive of, performing the main 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 discussed in section V. of this proposed 

rule); (7) incidental services such as venipuncture; and (8) guidance services, image 

processing services, intraoperative services, imaging supervision and interpretation 

services, diagnostic radiopharmaceuticals, and contrast media. Further discussion of 

packaged services is included in section 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 typically performed together during a single clinical encounter 

and that result in the provision of a complete 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 evaluation and ablation, mental health services, and multiple 

imaging services. Further discussion of composite 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 Hospital Clinic Visits). The APC weights are 

scaled to APC 0606 because it is the middle level hospital clinic visit APC (the Level 3 
CMS-1525-P 255 

hospital clinic visit CPT code out of five levels), and because middle level hospital clinic 

visits are among the most frequently furnished services in the hospital outpatient setting. 

 Section 1833(t)(9)(A) of the Act requires the Secretary to review, on a recurring 

basis occurring no less than annually and revise the groups, the relative payment weights, 

and the wage and other adjustments to take into account changes in medical practice, 

changes in technology, the addition of new services, new cost data, and other relevant 

information and factors; the Act further requires us to repeat this process on a basis that is 

not less often than annually. Section 1833(t)(9)(A) of the Act also requires the Secretary, 

beginning in CY 2001, to consult with an expert outside advisory panel composed of an 

appropriate selection of representatives of providers to review (and advise the Secretary 

concerning) the clinical integrity of the APC groups and the relative payment weights 

(the APC Panel recommendations for specific services for the CY 2012 OPPS and our 

responses to them are discussed in the relevant specific sections throughout this proposed 

rule). 

 Finally, section 1833(t)(2) of the Act provides that, subject to certain exceptions, 

the items and services within an APC group cannot be considered comparable with 

respect to the use of resources if the highest median cost (or 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 authorizes the Secretary to make exceptions to 

the 2 times rule in unusual cases, such as low-volume items and services (but the 
CMS-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 under 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 resources, if the median cost of the highest cost 

item or service within an APC group is more than 2 times greater than the median of the 

lowest cost item or service within that same group. In making this determination, we 

consider only those HCPCS codes that are significant based on the number of claims. 

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 codes 

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 within the set of approximately 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 negligible impact on the APC median. In this 

proposed rule, we are proposing to make exceptions to this limit on the variation of costs 
CMS-1525-P 257 

within each APC group in unusual cases, such as low volume items and services for 

CY 2012.

During the APC Panel’s February 2011 meeting, 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-specific 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 which we are proposing changes to their HCPCS 

codes’ APC assignments in Addendum B (available via the Internet) to this proposed 

rule. In these cases, to eliminate a 2 times violation or to improve clinical and resource 

homogeneity, we are proposing to reassign the codes to APCs that contain services that 

are similar with regard to both their clinical and resource characteristics. 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 services that are observed in the CY 2010 claims 

data newly available for CY 2012 ratesetting. We also are proposing changes to the 

status indicators for some codes that are not specifically and separately discussed in this 
CMS-1525-P 258 

proposed rule. In these cases, we are proposing 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 perspective based on the policies that we are 

proposing for CY 2012. 

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) identifies with 

comment indicator “CH” those HCPCS codes for which we are proposing a change to the 

APC assignment or status indicator that were initially assigned 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 exceptions to the 2 times limit on the variation 

of costs within each APC group in unusual cases such as low-volume items and services. 

Taking into account the APC changes that we are proposing for CY 2012 based on the 

APC Panel recommendations that are discussed mainly 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 CMS Web site), and the use of 

CY 2010 claims data to calculate the median costs of procedures classified in the APCs, 

we reviewed all the APCs to determine which APCs would not satisfy the 2 times rule. 

We used the following criteria to decide whether to propose exceptions to the 2 times rule 

for affected APCs: 
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 rule lists 17 APCs that we are proposing to exempt 

from the 2 times rule for CY 2012 based on the criteria cited above and based on claims 

data processed from January 1, 2010, through 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 times 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, hospital specialization, and the 

quality of the CY 2010 claims data used to determine the APC payment rates that we are 
CMS-1525-P 260 

proposing for CY 2012. The proposed median costs for hospital outpatient 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 Pacemakers, 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 Otorhinolaryngologic 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 we 
CMS-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 bands are assigned under the OPPS. Payment for 

each APC is made at the mid-point of the 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 New Technology APCs, ranging from the lowest 

cost band assigned to APC 1491 (New Technology – 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 across 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”' (Significant Procedures, Not Discounted when Multiple. Paid under 

OPPS; separate APC payment) and the other set with a status indicator of “T” 

(Significant Procedure, Multiple Reduction Applies. Paid under OPPS; separate APC 
CMS-1525-P 262 

payment). These current New Technology APC configurations allow us to price new 

technology services more appropriately and consistently. 

Every year we receive many requests for higher payment amounts under our New 

Technology APCs for specific procedures under the OPPS because they require the use 

of expensive equipment. We are taking this opportunity to reiterate our response in 

general to the issue of hospitals’ capital expenditures as they relate to the OPPS and 

Medicare. 

Under the OPPS, one of our goals is to make payments that are appropriate for the 

services that are necessary for the treatment of Medicare beneficiaries. The OPPS, like 

other Medicare payment systems, is budget neutral 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 providing care to Medicare beneficiaries in costefficient settings, and we believe that our rates 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, parties 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 Medicare should make full payment. Medicare 

does not, and we believe should not, assume responsibility for more than its share of the 

costs of procedures based on Medicare beneficiary projected utilization and does not set 
CMS-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 about their entire patient base (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 circumstance, including those for the purchase and 

maintenance of capital equipment. We rely on hospitals to make their decisions 

regarding the acquisition of high cost equipment with the understanding that the 

Medicare program must be careful to establish its initial payment rates, including those 

made through New Technology APCs, for new services that lack hospital claims data 

based on realistic utilization projections for all such services delivered in cost-efficient 

hospital outpatient settings. As the OPPS acquires claims data regarding hospital costs 

associated with new procedures, we regularly examine the claims data and any available 

new information regarding the clinical aspects of new procedures to confirm that our 

OPPS payments remain appropriate for procedures as they transition 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 Technology 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 Technology 
CMS-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 availability of refined New Technology APC cost bands, reassign the 

procedure or service to a different New Technology APC that most appropriately reflects 

its cost. 

Consistent with our current policy, we are proposing for CY 2012 to retain 

services within New Technology APC groups until we gather sufficient claims data to 

enable us to assign the service to a clinically appropriate APC. The flexibility associated 

with this policy allows us to move a service from a New Technology APC in less than 

2 years if sufficient 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 collected. Table 19 below lists the HCPCS 

codes and associated status indicators that 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 procedures described by a HCPCS G-code 

receiving payment through a New Technology APC. Specifically, HCPCS code G0417 

(Surgical pathology, gross and microscopic examination for prostate needle saturation 

biopsy sampling, 21-40 specimens) is assigned to New Technology APC 1506 (New 

Technology - Level VI ($400 - $500)); HCPCS code G0418 (Surgical pathology, gross 

and microscopic examination for prostate needle saturation biopsy sampling, 41-60 
CMS-1525-P 265 

specimens) is assigned to New Technology APC 1511 (New Technology - Level XI 

($900 - $1,000)); and HCPCS code G0419 (Surgical pathology, gross and microscopic 

examination for prostate needle saturation biopsy 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 data for claims submitted for CY 2010 

indicates that prostate saturation 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 hospital 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 believe 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 proposing 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 three 
CMS-1525-P 266 

HCPCS G-codes, based on clinical and resource considerations. These procedures and 

their proposed APC assignments 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 1508 
CMS-1525-P 267 

D. Proposed OPPS APC-Specific Policies

1. Revision/Removal of Neurostimulator 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 spinal neurostimulator electrode plate/paddle(s) placed 

via laminotomy or laminectomy, including fluoroscopy, when performed), 63663 

(Revision, including replacement, when performed, of spinal neurostimulator electrode 

percutaneous array(s), including fluoroscopy, 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 Electrodes), which had 

a CY 2011 final rule median cost of approximately $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 (Revision or removal of spinal neurostimulator 

electrode percutaneous array(s) or plate/ paddle(s)) and created new CPT codes 63661, 

63662, 63663, and 63664 to differentiate between revision and removal procedures, and 

to also differentiate between percutaneous leads (arrays) and surgical leads 

(plates/paddles). 

 As discussed in the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 71913), we have received several comments objecting to the placement of CPT 

codes 63663 and 63664 in APC 0687 because, the commenter stated, these codes are 

used to report both revision and replacement of neurostimulator electrodes. The 
CMS-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 did 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 electrodes or replacing them, and that 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/replacement 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 supply and other input costs, as well as other services in the 

same APC that are comparable in resource cost and clinical homogeneity. We noted that 

we expect that hospital charges for a service, which are derived from the cost of a service, 

can vary across individual patients. Therefore, we expect variability in the estimated cost 

of a service, across cases in a hospital and among 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 meeting, 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 generator) to determine whether they represent 

primarily device replacements or device revisions. We are accepting this 
CMS-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, neurostimulator (implantable)) or C1897 (Lead, 

neurostimulator test kit (implantable)) to the frequency of claims with CPT codes 63663 

or 63664 billed without HCPCS codes C1778 and C1897, in order to determine whether 

they represent primarily device replacements or device revisions. We found that 61 

percent of claims containing CPT codes 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 majority of the claims did not contain 

HCPCS code C1778 or C1897, these findings suggest 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 proposed 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, which 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 APC 0687 to APC 0040 (Percutaneous 

Implantation of Neurostimulator Electrodes), which has a CY 2012 proposed median cost 

of approximately $4,516 that is more consistent with the median costs for CPT codes 

63663 and 63664. We also are proposing to change the title of APC 0040 to “Level I 

Implantation/Revision/Replacement of Neurostimulator 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 “Laminectomy, Laparoscopy, or Incision for 

Implantation of Neurostimulator Electrodes” to “Level II 

Implantation/Revision/Replacement of Neurostimulator 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 their 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 Abdomen 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 material(s)); and CPT 

code 74178 (Computed tomography, abdomen and pelvis; without contrast material in 

one or both body regions, followed by contrast material(s) and further sections in one or 
CMS-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 APC 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 other 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 forthcoming 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 include 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 comment period, an interim status 
CMS-1525-P 272 

indicator and/or APC assignment for all new CPT codes that are announced by the AMA 

CPT Editorial Board subsequent to the OPPS/ASC 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 identified the new codes for abdominal/pelvis CT for CY 2011 

in Addendum B of the CY 2011 OPPS/ASC final rule with comment period as having 

new interim APC assignments by showing a comment 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 meeting, 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 provided comments on the interim assignment of 

these codes for CY 2011 stated that the most appropriate approach to establishing 
CMS-1525-P 273 

payment for these new codes is to assign these 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 codes and that, therefore, payments would be 

more accurate and better reflective of the relative cost of the services under the OPPS if 

we were to establish payment rates for the codes for CY 2012 using claim data that 

reflect the combined cost of the two predecessor codes. They noted that when these 

services were reported in CY 2010 using two CPT 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 Contrast) for which the CY 2010 payment 

was $419.45. Similarly, the services being reported 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 similar 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 the 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 establishment of payment rates for these services 

based on historic claims data for the combinations of predecessor codes that are now 

reported by CPT codes 74176, 74177, and 74178 would result in a more accurate and 
CMS-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 which 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 full 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 (Combined 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 new APC 0334 (Combined Abdominal and Pelvis 

CT With Contrast), to which we are proposing to assign CPT codes 74177 and 74178 for 

the CY 2012 OPPS and for which we are proposing 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 codes, 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, and 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 simulating 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 that it is appropriate to create APCs comprised 

only of services for which we calculated medians using claims data for the predecessor 

codes. To the extent this policy is finalized, we would reassess whether 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 WERE 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; without contrast material, followed 

by contrast material(s) and further sections 
CMS-1525-P 276 

For purposes of selecting claims to be used 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 refer readers to section II.A.2.e.5 of this 

proposed rule for discussion of the imaging composite APCs. 

TABLE 21.--COMBINATIONS OF PREDECESSOR CPT CODES USED TO 

SIMULATE MEDIAN COSTS FOR THE 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 72194
CMS-1525-P 277 

After we selected the claims that contained one and only one unit of each code in 

each combination, we deleted claims that contained other separately paid HCPCS codes 

if those codes did not appear on the bypass list (we refer readers to section II.A.1.b. of 

this proposed rule and to Addendum 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 list to create simulated single procedure 

claims for CPT codes 74178, 74177, and 74178. Using the remaining simulated single 

procedure claims for the combined abdominal and pelvis CT services, we applied our 

standard trimming, packaging, and wage standardization 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 methodology 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 code assigned to APC 0331, the simulated 

median cost for APC 0331 also would be approximately $417. We found that using this 

proposed methodology, the simulated median cost for CPT code 74177 was 

approximately $570 and the simulated median cost for CPT code 74178 was 

approximately $638, and that the simulated 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 where 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 assigned to imaging composite APC 

8005 (CT and CTA Without Contrast), for which 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 contrast is used, we are proposing that the code would be 

assigned to APC 8006 (CT and CTA With Contrast), 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), continue 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 composite 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 establish 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 which we would base the CY 2012 payment rates 
CMS-1525-P 279 

because we believe that to do so would result 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 continued assignment of the codes to the single 

service APCs to which we made interim assignments 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 surface reconstruction; amniotic membrane 

transplantation, multiple layers) to include the words "multiple layers" to further clarify 

the code descriptor. In addition, the AMA 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 other 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 amniotic membrane on the ocular surface for 

wound healing; self-retaining) and 65779 (Placement 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 assigning them to an APC. In determining the 

APC assignments for CPT codes 65778 and 65779, we took into consideration the 
CMS-1525-P 280 

clinical and resource characteristics involved 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 0244 (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 Procedures) with a payment 

rate of approximately $559, and CPT code 65779 to APC 0255 (Level II Anterior 

Segment Eye Procedures) with a payment rate of approximately $519. In addition, we 

assigned both CPT codes 65778 and 65779 to comment 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 assignment 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 code 65780, which did not specify 

“multiple layers,” and as such these new codes should continue to be assigned to APC 

0244. Further, the presenter stated that the costs of the new procedures described by CPT 

codes 65778 and 65779 are very similar to the procedure described by CPT code 65780. 
CMS-1525-P 281 

The APC Panel recommended that CMS reassign both CPT codes 65778 and 

65779 to APC 0233 (Level III Anterior Segment Eye Procedures), citing clinical 

similarity to procedures already in APC 0233. Based on clinical as well as resource 

similarity to the other procedures 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 the clinical characteristics of the procedure 

described by CPT code 65778, we also are proposing 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 different than placing a 

bandage contact lens on the surface of the eye to cover a corneal epithelial defect. CPT 

code 65778 describes the simple placement of a special type of bandage (a self-retaining 

amniotic membrane device) on the surface of the eye, which would most commonly be 

used in the HOPD to cover the surface of the eye after a procedure that results in a 

corneal epithelial defect. Given the characteristics of this procedure and its likely use in 

the HOPD, we are proposing to conditionally package CPT code 65778 for CY 2012 and 

reassign its status indicator from “T” to “Q2” to indicate that the procedure is packaged 

when it is billed on the same date with another procedure or service that is also assigned 

to status indicator “T.” Otherwise, separate payment would be made for the procedure. 
CMS-1525-P 282 

In summary, for CY 2012, we are proposing 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 proposed 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 implementation 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 for 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 APC assignments for CPT codes 

65778, 65779, and 65780 in CY 2012 for the CY 2013 OPPS rulemaking cycle. The 

amniotic membrane procedures and their 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 0244 
CMS-1525-P 283 

4. Upper Gastrointestinal Services (APCs 0141, 0419, and 0422) 

 For CY 2011, there are two upper gastrointestinal (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 rate of $1,148.75. In the CY 2011 OPPS/ASC 

proposed rule, we proposed to reconfigure APCs 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 reconfiguration 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, asked 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 they believed would provide payment rates 

that would more accurately reflect the median 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 procedures 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 and 
CMS-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 results with the APC Panel. The APC Panel recommended 

that CMS create an intermediate level upper GI procedures APC (APC Panel 

Recommendation 13). The APC Panel recommendations and report may be found at the 

APC Panel Web site, located at: 

http://www.cms.gov/FACA/05_AdvisoryPanelonAmbulatoryPaymentClassificationGrou

ps.asp. 

For the reasons we discuss below, we are accepting the APC Panel 

recommendation to propose to establish three levels of upper GI procedure APCs and to 

propose to adopt the reconfiguration recommended by stakeholders because we believe 

that the proposed reconfiguration will provide payments that 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 procedures, 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 reconfiguration 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 believe that we would 

need to propose to reassign HCPCS codes 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 that 
CMS-1525-P 285 

would otherwise exist for CY 2012 and that the resulting median costs will provide 

payments that are more reflective of the relative costs of the services being furnished. 

Therefore, for CY 2012, we are proposing to create new APC 0419 (Level II 

Upper GI Procedures), as recommended by the stakeholders, and we are proposing to 

reassign HCPCS codes previously assigned to APCs 0141 and 0422 to the three APC 

configuration. Table 23 below contains the proposed HCPCS reassignments for CY 2012 

using the proposed three APC reconfiguration. We believe that this proposed 

reconfiguration classifies upper GI CPT codes in groups that demonstrate the best clinical 

and resource homogeneity. For APC 0141, we calculated 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 20 124,837
CMS-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 $822.22 346 455
CMS-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 $1,721.16 150 288
CMS-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 (MIPPA) 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 established 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 comprehensive pulmonary rehabilitation benefit 

provided in section 1861(fff) of the Act. Moreover, there were no alphanumeric HCPCS 

codes that described the comprehensive pulmonary rehabilitation benefit in effect for CY 

2008 (on which the CY 2010 OPPS was based) 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 (includes monitoring), one hour, per 
CMS-1525-P 289 

session, up to two sessions per day) and assigned the code to APC 0102 (Level II 

Pulmonary Treatment), which we also created for CY 2010 OPPS. Because none of the 

pulmonary treatment codes for which there were charges for CY 2008 or CY 2009 

accurately described the comprehensive pulmonary 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 comprehensive pulmonary rehabilitation service. 

Instead, for the CY 2010 OPPS, which was based on claims for services in 

CY 2008, we calculated a median “per session” cost that we simulated from historical 

hospital claims data for pulmonary 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 provided 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 session” 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 procedures to improve respiratory function 

or increase strength or endurance of respiratory muscles, two or more individuals 

(includes monitoring), the group code that is without limitation on time duration, and one 

unit of HCPCS code G0237 (Therapeutic procedures to increase strength or endurance of 

respiratory muscles, one on one, face to face, per 15 minutes (includes monitoring) or 
CMS-1525-P 290 

HCPCS code G0238 (Therapeutic procedures to improve respiratory function or increase 

strength or endurance of respiratory muscles, one on one, face to face, per 15 minutes 

(includes monitoring), the individual, 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 was consistent with public comments that 

suggested that pulmonary rehabilitation is often provided in group sessions in the HOPD, 

although patients commonly require additional one-on-one care in order to fully 

participate in the program. We note that our 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 with 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 services, for patients receiving pulmonary 

therapy services in the HOPD based upon CY 2008 claims. We concluded that the 

typical session of pulmonary rehabilitation 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 tests 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 oximetry)); 94664 (Demonstration 

and/or evaluation of patient utilization of an aerosol generator, nebulizer, metered dose 
CMS-1525-P 291 

inhaler or IPPB device); and 94667 (Manipulation chest wall, such as cupping, 

percussion and vibration to facilitate lung function; initial 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 identifying these “per session” claims, which we believe to 

represent 1 hour of care, we summed the costs on them and calculated the median cost for 

the set of selected claims. In light of the cost and clinical similarities of pulmonary 

rehabilitation and the existing 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 the simulated median cost for 

HCPCS code G0424, constructed to include the costs of these services where furnished, 

was our best estimate of the expected hospital 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 pulmonary rehabilitation benefit was covered. For 

CY 2011, which was based on claims for services 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 historical hospital claims data for similar pulmonary therapy 

services for the CY 2011 OPPS. The CY 2011 OPPS final rule median cost of 
CMS-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 provided the pulmonary rehabilitation benefit 

beginning on January 1, 2010. Specifically, 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 found that higher volumes of single bills both in 

absolute numbers and as a percentage of total 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 process for calculating the median costs on 

which the OPPS payment rates are based. Using 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 in 
CMS-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 calculated 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 median 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 median calculation process to hospital claims 

data for CY 2010. We believe that this difference arises because the median simulation 

methodology we used for CY 2010 and CY 2011 selected claims that contained multiple 

procedures and packaged the costs of numerous services into the “per session” cost for 

the simulated code where numerous services appeared on the same date of service. Our 

simulation methodology assumed that hospitals would include the charges for these 

additional services in their CY 2010 charges 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 percent of hospitals paid under the OPPS, reported HCPCS 

code G0424 and that the median line item median 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 HCPCS 
CMS-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 codes under which charges for HCPCS code G0424 

were reported and the percentage of cost that was associated with packaged costs, such as 

oxygen, drugs, and medical supplies. We found that the median line item charge for 

HCPCS code G0424 in the CY 2012 proposed rule data was approximately $150 and that 

the median CCR was 0.29. We also found that the most frequently reported revenue code 

for HCPCS code G0424 was revenue code 410 (Respiratory therapy), approximately 

108,000 single bills, and with revenue code 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 total 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 the single bills supports the proposed median 

cost of $38 per unit as a valid estimate of the relative cost of one unit of HCPCS code 

G0424. 

 In summary, our examination of the claims and cost data for HCPCS code G0424 

causes us to believe that the proposed median cost that we calculated from claims data for 

HCPCS code G0424 was calculated correctly according to our longstanding standard 

median cost calculation methodology. Therefore, we are proposing to base the CY 2012 

OPPS payment rate for HCPCS code G0424 and APC 0102 on the median cost that we 
CMS-1525-P 295 

derive from applying our standard median calculation methodology to the CY 2010 

charges and cost data for HCPCS code G0424. 

6. Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes 

(APC 0108) 

For CY 2011, only HCPCS code 33249 (Insertion or repositioning of electrode 

lead(s) for single or dual chamber pacing cardioverter-defibrillator and insertion of pulse 

generator) is assigned to APC 0108 (Insertion/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 codes assigned to APC 0418: 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) (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-defibrillator pulse generator (including revision of 

pocket, removal, insertion, and/or replacement of generator)). APC 0418 is titled 

“Insertion of left ventricular pacing electrode” 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 proposing to revise the title of APC 0108 to read 

“Insertion/Replacement/Repair of AICD Leads, Generator, and Pacing Electrodes” for 

CY 2012. Under our standard methodology, using CY 2010 claims data, we calculated a 

median cost of approximately $27,361 for APC 0108. 

We also are proposing to assign HCPCS code 33224 to APC 0655 because it is 

similar in clinical characteristics and median costs to the other services in APC 0655, and 

to revise the title of APC 0655 to read “Insertion/Replacement/Conversion of a 

Permanent Dual Chamber Pacemaker or Pacing 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 rate. We are proposing the changes to the 

titles of APCs 0108 and 0655 to better describe the proposed content of the APCs. 

Because the reassignment of HCPCS code 33225 to APC 0108 and HCPCS 33244 to 

APC 0655 would result in APC 0418 containing no HCPCS codes, 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 not 
CMS-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 service, they would be paid through proposed 

new composite APC 8009 (Cardiac Resynchronization Therapy with Defibrillator 

Composite) and that the payment rate for proposed composite APC 8009 would be 

limited to the proposed IPPS standardized payment amount for MS-DRG 227 (Cardiac 

Defibrillator Implant without Cardiac Catheterization and without Medical Complications 

and Comorbidities), which is currently estimated 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 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 nonlabor and 

labor-related shares of the proposed FY 2012 IPPS operating standardized amount 

(nonwage-adjusted) labor-related share $3,182.06 + nonlabor-related share $1,950.30 = 

$5,132.36) which were obtained from Table1B. For further detail 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 authority 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 for 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 most 
CMS-1525-P 298 

comparable DRG to APC 0108 because, like APC 0108, MS-DRG 227 includes 

implantation of a defibrillator in patients who do not have medical complication or 

comorbidities. If we were to base payment 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 payment 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, which, by definition, includes fewer items and 

services than an inpatient stay during which the patient has the same procedure. In 

contrast, the amount Medicare would pay for an inpatient stay includes continuous skilled 

nursing care, room and board, all medications, and 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 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 would be less costly to care for these patients as outpatients, who would also 

spend less time in the facility and receive fewer 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 ventricular leads in one setting of care over another by 

paying more in the outpatient setting compared to the inpatient setting. 
CMS-1525-P 299 

We are proposing to continue all other standard policies that apply to 

device-dependent procedures, including the procedure-to-device edits that were 

established beginning in the CY 2005 OPPS for claims processing and median 

calculation; and calculation of and 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, for CY 2012, we are proposing that if the 

APC 0108 median cost that we will calculate 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 would establish the OPPS payment amount at 

the IPPS standardized payment rate for 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 final 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 median cost ofr APC 0108. These proposed 

changes would be made in a budget neutral manner, 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, under the OPPS, a category of 

devices be eligible for transitional pass-through payments for at least 2, but not more than 
CMS-1525-P 300 

3, years. This pass-through payment 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 which pass-through payment is effective for the 

category. The date on which a pass-through category 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 finalize 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 package 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 claims data used to set the payment rates (67 FR 66763). 

Brachytherapy sources, which are now separately paid in accordance with 

section 1833(t)(2)(H) of the Act, are an exception to this established policy. 

 There currently is one new device category eligible for pass-through payment, 

described by HCPCS code C1749 (Endoscope, 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-through 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-through payments for at least 2, but not more 
CMS-1525-P 301 

than 3, years from the date on which pass-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)(iii) of the Act requires that, under the 

OPPS, a category of devices be eligible for transitional pass-through payments for at least 

2, but not more than 3 years. Device pass-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 expiration 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 Transitional Pass-Through Payments to Offset 

Costs Packaged into APC Groups 

a. Background 

We have an established policy to estimate the portion of each APC payment rate 

that could reasonably be attributed to the cost of the associated devices that are eligible 

for pass-through payments (66 FR 59904). We deduct from the pass-through payments 

for identified device categories eligible for pass-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 APC 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 APC payment rate that could reasonably be 

attributed to the cost of an associated device eligible for pass-through payment, using 
CMS-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 applicable device APC offset 

amounts for eligible pass-through device categories through 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 application for a new device category for pass-through 

payment is not insignificant in relation to the APC payment 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 procedures 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 finalized a new policy to specify that 

the pass-through evaluation process and pass-through payment methodology for 

implantable biologicals that are surgically inserted or implanted (through a surgical 

incision or a natural orifice; also referred to as “implantable biologicals”) 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. 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-through category, which could include a newly eligible 

implantable biological, beginning in CY 2010 using the same methodology we have 

historically used to calculate and set device APC offset amounts for device categories 

eligible for pass-through payment (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 biologicals. 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 application for a new device category for pass-through 

payment is not insignificant in relation to the APC payment amount for the service 

related to the category of devices. Further, for CY 2010, we no longer used the 

“policy-packaged” drug APC offset amounts for evaluating the cost significance of 

implantable biological pass-through applications under review and for setting the APC 

offset amounts that would apply to pass-through payment 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 that the pass-through evaluation process 

and pass-through payment methodology for implantable biologicals that are surgically 

inserted or implanted (through a surgical incision or a natural orifice) and that are newly 
CMS-1525-P 305 

approved for pass-through status beginning on or after January 1, 2010, be the device 

pass-through process and payment methodology only. 

b. Proposed CY 2012 Policy 

We are proposing to continue our policy, for CY 2012, that the pass-through 

evaluation process and pass-through payment methodology for implantable biologicals 

that are surgically inserted or implanted (through 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 calculating 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 category on a case-by-case basis to determine 

whether device costs associated with the new category are already packaged into the 

existing APC structure. If device costs packaged 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 category. As stated earlier, these device APC 

offset amounts also would be used in order to evaluate whether the cost of a device in an 

application for a new device category for pass-through payment is not insignificant in 

relation to the APC payment amount 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 continue 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 calculate and set device APC offset amounts for device categories 

eligible for pass-through payment, and to include the costs of implantable biologicals in 

the calculation of the device APC offset amounts, 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 available for use by the public in developing potential 

CY 2012 device pass-through payment applications 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 policies related to pass-through payment for 

devices: (1) treating implantable biologicals, that are surgically 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 payment methodology; (2) including implantable 

biologicals in calculating the device APC offset amounts; (3) using the device APC offset 
CMS-1525-P 307 

amounts to evaluate whether the cost of a device (defined to include implantable 

biologicals) in an application for a new device 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 device pass-through payments based on device 

costs already included in the associated procedural APCs, when we determine that device 

costs associated with the new category are 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 several field actions on and recalls of medical 

devices as a result of implantable device failures. In many of these cases, the 

manufacturers have offered devices without cost to the hospital 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 the full costs of those 

devices, our standard ratesetting methodology for device-dependent APCs uses only 

claims that contain the correct device code 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” modifier signifying that the 

device was furnished with partial credit. As discussed in section 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 hospital receives a device without cost or 

with full credit, in CY 2007, we implemented 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 cases 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 cases 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 hospital is instructed to report as the device 

charge the difference between its usual charge for the device being implanted and its 

usual charge for the device for which it received full credit. In CY 2008, we expanded 

this payment adjustment policy to include cases in which hospitals receive partial credit 

of 50 percent or more of the cost of a specified device. Hospitals are instructed to append 

the “FC” modifier to the procedure code that reports the service provided to furnish the 

device when they receive a partial credit of 50 percent or more 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 percent of the device offset for partial credit 
CMS-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 copayment is based on the reduced payment 

amount when either the “FB” or the “FC” modifier is billed and the procedure and device 

codes appear on the lists of procedures and devices to which this policy applies. We refer 

readers to the CY 2008 OPPS/ASC 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 and 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 constructed 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 without 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 description of our standard 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 that the beneficiary cost sharing 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 rule with comment period for determining 

the APCs to which this policy applies (71 FR 68072 through 68077). Specifically: (1) all 

procedures assigned to the selected APCs must involve implantable 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 (at least temporarily); and (3) the device offset amount must 

be significant, which, for purposes of this policy, is defined as exceeding 40 percent of 

the APC cost. We also are proposing to continue to restrict the devices 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 proportion of the total payment rate for an APC. 

As we stated in the CY 2011 OPPS/ASC final 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 particular 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 significant 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 no 
CMS-1525-P 311 

cost/full credit and partial credit device adjustment policy applied 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 criteria for CY 2012. Based on the CY 2010 

claims data available for this proposed rule, we are not proposing any changes to the 

APCs and devices to which this policy applies. However, as discussed in section 

II.A.2.e.(6) of this proposed rule, we are proposing 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 devices 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 would 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 devices would apply in CY 2012. In the CY 2012 

OPPS/ASC final rule with comment period, we will update the lists of APCs and devices 

to which the no cost/full credit and partial credit device adjustment policy would apply 
CMS-1525-P 312 

for CY 2012, consistent with the three selection criteria discussed earlier in this section, 

based on the final CY 2010 claims data available 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 device 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 percent of the device offset when both a device 

code listed in Table 25 is present on the claim 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 procedures and devices to which this policy applies. 

TABLE 24.—PROPOSED APCs 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 WHICH 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 kit 
CMS-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 payments” for certain drugs and biologicals (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 sources used for the treatment of cancer; and 
CMS-1525-P 316 

current radiopharmaceutical drugs and biologicals. 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 payments 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 insignificant” in relation to the OPPS payments for the procedures 

or services associated with the new drug or biological. For pass-through payment 

purposes, radiopharmaceuticals are included as “drugs.” Under the statute, transitional 

pass-through payments for a drug or biological described in section 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 and 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 rule 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 biological, 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 applicable Medicare OPD fee schedule that the Secretary 

determines is associated with the drug or biological. 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 acquisition areas and the year established under 
CMS-1525-P 317 

such section as calculated and adjusted by the Secretary. As we noted in the CY 2009 

OPPS/ASC final rule with comment period (73 FR 68633), the Part B drug CAP program 

was postponed beginning in CY 2009 (Medicare Learning Network (MLN) Matters 

Special Edition 0833, available via the Web site: http://www.cms.gov). As of 

publication of this proposed rule, the postponement of the Part B drug CAP program 

remains in effect, and there is no effective 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 comment period (75 FR 71928), if the program is reinstituted 

during CY 2012 and Part B drug CAP rates become available, we would again use the 

Part B drug CAP rate for pass-through drugs and biologicals if they are a part of the Part 

B drug CAP program. Otherwise, we would continue to use the rate that would be paid 

in the physician’s office setting for all drugs and biologicals with pass-through status. 

 This methodology for determining the pass-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 biological. Section 1847A 

of the Act establishes the average sales price (ASP) methodology, which is used for 

payment for drugs and biologicals described 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 average wholesale price (AWP). In this 

proposed rule, the term “ASP methodology” and “ASP-based” are inclusive of all data 
CMS-1525-P 318 

sources and methodologies described therein. 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 schedule” amount was equivalent to the amount 

to be paid for pass-through drugs and biologicals under section 1842(o) of the Act (or 

section 1847B of the Act, if the drug or biological is covered under a competitive 

acquisition contract). We concluded for those years that the 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 drugs 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 drugs and biologicals is 

explained on the CMS Web site at: 

http://www.cms.hhs.gov/HospitalOutpatientPPS/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 Table 26 below. All of these drugs and 
CMS-1525-P 319 

biologicals 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 were approved 

for pass-through status on or before January 1, 2010. With the exception of those groups 

of drugs and biologicals that are always packaged when they do not have pass-through 

status, specifically diagnostic radiopharmaceuticals, contrast agents, and implantable 

biologicals, our standard methodology for providing payment for drugs and biologicals 

with expiring pass-through status in an upcoming calendar year is to determine the 

product’s estimated per day cost and compare 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 biological’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 payment 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 packaging of all nonpass-through 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 iobenguane, 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 esterase 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 9253 
CMS-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 Radiopharmaceuticals 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 biologicals 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 approved 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 indicator “G” in Addenda A and B, which are 

referenced in section XVIII of this proposed 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 biologicals (the pass-through payment amount) as the difference 

between the amount authorized under section 1842(o) of the 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 otherwise applicable OPD fee schedule that the 

Secretary determines is associated with the drug or biological. Payment for drugs and 
CMS-1525-P 322 

biologicals with pass-through status under the OPPS is currently made at the physician’s 

office payment rate of ASP+6 percent. We believe it is consistent with the statute to 

propose to continue to provide payment for drugs and biologicals 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 biologicals at ASP+6 percent, equivalent to the rate these drugs 

and biologicals would receive in the physician’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 diagnostic radiopharmaceuticals, their pass-through 

payment amount would be equal to ASP+6 percent 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 remaining three implantable 

biologicals approved on or before January 1, 2010, under pass-through status as a drug or 

biological. Therefore, as described in the CY 2010 OPPS/ASC final rule with comment 

period (74 FR 60476) and as proposed in this proposed 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 for 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 continue to update pass-through payment rates on 

a quarterly basis on the CMS Web site during 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 pass-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 basis, as appropriate. As is our standard 

methodology, we annually review new permanent HCPCS codes and delete temporary 

HCPCS C-codes if an alternate permanent HCPCS 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 radiopharmaceuticals that are granted pass-through status 

based on the ASP methodology. As stated above, for purposes of pass-through payment, 

we consider radiopharmaceuticals to be drugs under the OPPS. Therefore, if a diagnostic 

or therapeutic radiopharmaceutical receives pass-through status during CY 2012, we are 

proposing to follow the standard ASP methodology to determine the pass-through 

payment rate that drugs receive under section 1842(o) of the Act, which is ASP+6 

percent. If ASP data are not available for a radiopharmaceutical, we are proposing to 
CMS-1525-P 324 

provide pass-through payment at WAC+6 percent, the equivalent payment provided to 

pass-through drugs and biologicals without ASP information. If WAC information is 

also not available, we are proposing to provide payment for the pass-through 

radiopharmaceutical at 95 percent 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 whereby payment for all nonpass-through diagnostic 

radiopharmaceuticals, contrast agents, and implantable biologicals is packaged into 

payment for the associated procedure. We are proposing to continue 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 section 1842(o) of the 

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 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 described in the CY 2009 

OPPS/ASC final rule with comment 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 “policy-packaged” drug APC offset amount for 

the associated clinical APC in which the drug or biological is utilized. The calculation of 

the “policy-packaged” drug APC offset amounts are described in more detail in section 
CMS-1525-P 325 

IV.A.2. of this proposed rule. It follows that the copayment 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 would, 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 agents that would otherwise 

be packaged if the item did not have pass-through status to zero for CY 2012. The 

separate OPPS payment to a hospital for the pass-through diagnostic radiopharmaceutical 

or contrast agent, after taking 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 for these items in Addenda A and B to the 

proposed rule (which are referenced in section XVII. of this proposed rule 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 granted 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 separately 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 at least 2, but not more than 3, years. The 

payment rate reflecting a pass-through payment amount of ASP+6 percent is not included 

in Addenda A and B of this proposed rule because these Addenda solely reflect codes and 

prices effective as of the second quarter of CY 2011, or April 2011. 

TABLE 27.—PROPOSED DRUGS 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 9365 
CMS-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 July 1, 2011, and are not included in the 

Addenda to this proposed rule. 
CMS-1525-P 328 

***HCPCS code J1572 has a status indicator of “G,” effective July 1, 2011. 

4. Proposed Provisions for Reducing Transitional Pass-Through Payments for Diagnostic 

Radiopharmaceuticals and Contrast Agents to Offset Costs Packaged into APC Groups 

a. Background 

Prior to CY 2008, diagnostic radiopharmaceuticals 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 diagnostic radiopharmaceuticals and contrast 

agents as ancillary and supportive items and services into their associated nuclear 

medicine procedures. Therefore, beginning in CY 2008, nonpass-through diagnostic 

radiopharmaceuticals and contrast agents were not subject to the annual OPPS drug 

packaging threshold to determine their packaged or separately payable payment status, 

and instead all nonpass-through diagnostic radiopharmaceuticals and contrast agents were 

packaged as a matter of policy. For CY 2012, we are proposing to continue to package 

payment for all nonpass-through diagnostic radiopharmaceuticals 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 described above, section 1833(t)(6)(D)(i) of the Act 

specifies that the transitional 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 with pass-through status 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 granted pass-through status beginning 

July 1, 2011, and is proposed to continue receiving pass-through status in CY 2012. We 

currently apply the established radiopharmaceutical payment offset policy to 

pass-through payment for this product. As described 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 those 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 the 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 could reasonably be attributed to the cost of 

predecessor diagnostic radiopharmaceuticals when considering a new diagnostic 

radiopharmaceutical for pass-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 redefine 
CMS-1525-P 330 

“policy-packaged” drugs as only nonpass-through diagnostic radiopharmaceuticals and 

contrast agents, as a result of the policy discussed in sections V.A.4. and V.B.2.d. of the 

CY 2010 OPPS/ASC final rule with comment period (74 FR 60471 through 60477 and 

60495 through 60499, respectively) that treats nonpass-through implantable biologicals 

that are surgically inserted or implanted (through a surgical incision or a natural orifice) 

and implantable biologicals that are surgically inserted or implanted (through a surgical 

incision or a natural orifice) with newly approved pass-through status beginning in 

CY 2010 or later as devices, rather than drugs. To determine the actual APC offset 

amount for pass-through diagnostic radiopharmaceuticals that takes into consideration the 

otherwise applicable OPPS payment amount, we multiply the “policy-packaged” drug 

offset fraction by the APC payment amount for the nuclear medicine procedure with 

which the pass-through diagnostic radiopharmaceutical is used and, accordingly, reduce 

the separate OPPS payment for the pass-through 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 71936), we finalized a policy to require 

hospitals to append modifier “FB” to specified nuclear medicine procedures when the 

diagnostic radiopharmaceutical is received at no cost/full credit. These instructions are 

contained within the I/OCE CMS specifications 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 medicine procedures when the diagnostic 
CMS-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 procedures 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 charge of less than $1.01 in cases in which the diagnostic 

radiopharmaceutical is furnished without cost or with full credit. 

For CY 2011, we finalized a policy to apply the diagnostic radiopharmaceutical 

offset policy to payment for pass-through diagnostic radiopharmaceuticals, as described 

above. For CY 2012, we are proposing to continue to apply 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 diagnostic 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 Emission 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 specifies that the transitional 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 contrast agent 

with pass-through status under the OPPS: HCPCS code C9275 (Injection, 

hexaminolevulinate hydrochloride, 100 mg, 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 WAC+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 necessary 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 estimate 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 pass-through payment (74 FR 60482 through 60484). 

For CY 2012, as we did in CY 2011, we are proposing to continue to apply this same 

policy to contrast agents. Specifically, we are proposing to utilize the “policy-packaged” 

drug offset fraction for clinical APCs 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 CY 2010, we finalized a policy 

to redefine “policy-packaged” drugs as only nonpass-through diagnostic 

radiopharmaceuticals and contrast agents (74 FR 60495 through 60499). To determine 

the actual APC offset amount for pass-through 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 contrast agent by this amount. We are 
CMS-1525-P 334 

proposing to continue to apply 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 procedural APC would be applied to payments for 

the contrast agent to ensure that duplicate payment is not made for the contrast agent. 

We are proposing to continue to post 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 purposes of both evaluating cost significance for 

candidate pass-through device categories and drugs and biologicals, including contrast 

agents, and establishing any appropriate APC offset amounts. Specifically, the file will 

continue to provide, for every OPPS clinical APC, the amounts and percentages of APC 

payment associated with packaged implantable 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” drug 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 policy is described in detail in the CY 2010 

OPPS/ASC final rule with comment period (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 procedural APC listed in Table 29, a specific offset based on the 
CMS-1525-P 335 

procedural APC would be applied to payment for the contrast agent to ensure that 

duplicate payment is not made for the contrast agent. 

TABLE 29.--PROPOSED APCs TO WHICH 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 Angioplasty and Percutaneous 

Valvulopasty. 

0093 Vascular Reconstruction/Fistula Repair without Device. 

0104 Transcathether Placement of Intracoronary Stents. 

0128 Echocardiogram with Contrast. 

0152 Level I Percutaneous Abdominal 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 Ventricular Pacing Elect. 

0442 Dosimetric Drug Administration. 

0653 Vascular Reconstruction/Fistula 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, Biologicals, and Radiopharmaceuticals without 

Pass-Through Status

1. Background 

 Under the CY 2011 OPPS, we currently pay for drugs, biologicals, and 

radiopharmaceuticals that do not have pass-through 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 rate for the procedure or treatment with 

which the products are usually furnished. Hospitals do not receive separate payment for 

packaged items and supplies, and hospitals may not bill beneficiaries separately for any 

packaged items and supplies whose costs are recognized and paid within the national 

OPPS payment rate for the associated procedure or service. (Transmittal A-01-133, 

issued on November 20, 2001, explains in greater 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, packaging the costs of items and services into the 

payment for the primary procedure or service with which they are associated encourages 

hospital efficiencies and also enables hospitals to manage their resources with maximum 

flexibility. 
CMS-1525-P 337 

 Section 1833(t)(16)(B) of the Act set the threshold for establishing separate APCs 

for drugs and biologicals at $50 per administration for CYs 2005 and 2006. Therefore, 

for CYs 2005 and 2006, we paid separately for drugs, biologicals, and 

radiopharmaceuticals whose per day cost exceeded $50 and packaged 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 radiopharmaceuticals that were not new and did not have 

pass-through status was established at $55. For CYs 2008 and 2009, the packaging 

threshold for drugs, biologicals, and radiopharmaceuticals 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 packaging threshold for drugs, 

biologicals, and radiopharmaceuticals that were 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 of 
CMS-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 average Producer Price Index (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 quarter of CY 2007. We then rounded the resulting dollar amount 

to the nearest $5 increment in order to determine 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 separate 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 and 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 Actuary (OACT). We note that we are not 

proposing a change to the PPI that is used to calculate 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 generally as the PPI for Prescription Drugs below. We 

chose this PPI as it reflects price changes associated with the average mix of all 
CMS-1525-P 339 

pharmaceuticals in the overall economy. In addition, we chose this price series because it 

is publicly available and regularly published, improving public access and transparency. 

Forecasts of the PPI for Prescription Drugs are developed by IHS Global Insight, Inc., a 

nationally recognized economic and financial forecasting firm. As actual inflation for 

past quarters replaced forecasted amounts, the PPI estimates for prior quarters have been 

revised (compared with those used in the 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 packaging threshold for CY 2012 of $80. (For a 

more detailed discussion of the OPPS drug packaging threshold and the use of the PPI for 

Prescription Drugs, we refer readers to the 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 Biologicals, and Therapeutic Radiopharmaceuticals 

(“Threshold-Packaged Drugs”) 

 To determine their proposed CY 2012 packaging status for this proposed rule, we 

calculated on a HCPCS code-specific basis (with the exception of those drugs and 

biologicals with multiple HCPCS codes that include different dosages as described in 

section V.B.2.c. of this proposed rule and excluding diagnostic radiopharmaceuticals, 

contrast agents, and implantable biologicals that we are proposing to continue to package 

in CY 2012, as discussed in section V.B.2.d. of this proposed rule) the per day cost of all 

drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals (collectively 

called “threshold-packaged” drugs) that had a HCPCS code in CY 2010 and were paid 
CMS-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 therapeutic radiopharmaceuticals to determine their 

proposed packaging status in CY 2012, we used 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 nonimplantable biological HCPCS code of ASP+4 

percent (which is the payment rate we are proposing for separately payable drugs and 

nonimplantable biologicals for CY 2012, as discussed 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 determine 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 this proposed rule and 

available via the Internet) because these are the 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, effective April 1, 2011. For items that did not 

have an ASP-based payment rate, such as some therapeutic radiopharmaceuticals, we 

used their mean unit cost derived from the CY 2010 hospital claims data to determine 
CMS-1525-P 341 

their per day cost. We are proposing to package items with a per day cost less than or 

equal to $80 and identified items with a per 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 the 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 therapeutic 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 identified as separately payable in the final rule 

with comment period will be subject to quarterly updates. For our calculation of per day 

costs of HCPCS codes for drugs and nonimplantable biologicals in the CY 2012 

OPPS/ASC final rule with comment period, we are proposing to use ASP data from the 

first quarter of CY 2011, which is the basis for calculating payment rates for drugs and 

biologicals in the physician’s office setting 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 budget 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 nonimplantable biologicals included in Addenda 

A and B to the final rule with comment period will be based on ASP data from the second 
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quarter of CY 2011, which will be the basis for calculating payment rates for drugs and 

biologicals in the physician’s office setting 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 used for physician’s office and OPPS payment 

as of January 1, 2012. For items that do not currently have an ASP-based payment rate, 

we are proposing to recalculate their mean unit cost from all of the CY 2010 claims data 

and updated cost report information available 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 therapeutic radiopharmaceuticals in this CY 2012 

OPPS/ASC proposed rule may be different from the same drug HCPCS code’s packaging 

status determined based on the data used for the final rule with comment period. Under 

such circumstances, we are proposing to continue 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 status (packaged or separately payable) in 

CY 2011. Specifically, for CY 2012, we are proposing to apply the following policies to 

these HCPCS codes for drugs, nonimplantable biologicals, and therapeutic 

radiopharmaceuticals whose relationship to the proposed $80 drug packaging threshold 

changes: 

● HCPCS codes for drugs and nonimplantable biologicals that were paid 

separately in CY 2011 and that are proposed for separate payment in CY 2012, and that 
CMS-1525-P 343 

then have per day costs equal to or less than $80, based on the ASPs and hospital claims 

data used for this CY 2012 proposed rule, would continue to receive separate payment in 

CY 2012. 

● HCPCS codes for drugs and nonimplantable biologicals that were packaged in 

CY 2011 and that are proposed for separate payment in CY 2012, and that then have per 

day costs equal to or less than $80, based on the ASPs and hospital claims data used for 

this CY 2012 proposed rule, would remain packaged in CY 2012. 

● HCPCS codes for drugs and nonimplantable biologicals for which we are 

proposing packaged payment in CY 2012 but then 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 packaged 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 claims 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 purposes, 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 several other drugs under the CY 2009 OPPS 

(73 FR 68665). During CYs 2008 and 2009, we applied a policy that assigned the status 

indicator of the previously 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 resulting status indicator for each HCPCS code 

according to the general, established HCPCS 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 drug or biological did 

not create inappropriate payment incentives for hospitals to report 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 claims data for the HCPCS codes describing 

different dosages of the same drug or biological that were newly 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 these 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 HCPCS codes instead of 

others, particularly because we do not currently require hospitals to report all drug and 

biological HCPCS codes under the OPPS in consideration of our previous policy that 

generally recognized only the 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 determinations for these codes could lead to payment incentives 

for hospitals to report certain HCPCS codes for drugs instead of others. Making 

packaging determinations on a drug-specific basis eliminates these incentives and allows 

hospitals flexibility in choosing to report all HCPCS codes for different dosages of the 
CMS-1525-P 346 

same drug or only the lowest dosage HCPCS code. Therefore, we are proposing to 

continue our policy to make packaging determinations 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 packaging 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 describe 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 descriptor. All HCPCS codes listed in Table 30 

below had ASP pricing information available for this CY 2012 OPPS/ASC proposed rule. 

Therefore, we multiplied the weighted average ASP+4 percent per unit payment amount 

across all dosage levels of a specific drug or biological by the estimated units per day for 

all HCPCS codes that describe each drug or biological 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 drug or biological would be 

separately payable). The proposed packaging 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 CODES TO WHICH THE CY 2012 

DRUG-SPECIFIC PACKAGING DETERMINATION 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 globulin, intramuscular over 10 cc K 

J1642 

Injection, heparin sodium, (heparin 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 sulfate, up to 500 mg N 

J2270 Injection, morphine sulfate, up to 10 mg N 

J2271 Injection, morphine sulfate, 100mg N 

J2788 

Injection, rho d immune globulin, human, minidose, 50 

micrograms (250 i.u.) K 

J2790 

Injection, rho d immune globulin, 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, ovine, 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 N 
CMS-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 use 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 use 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, 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 

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-emetic, 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 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 

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 N 
CMS-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-emetic, 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 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 

Q0178 

Hydroxyzine pamoate, 50 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 

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 calculating 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 diagnostic 
CMS-1525-P 350 

radiopharmaceuticals and contrast agents into the payment for the associated procedure, 

regardless of their per day costs. In addition, in CY 2009 we adopted a policy that 

packaged the payment for nonpass-through implantable biologicals into payment for the 

associated surgical procedure on the claim (73 FR 68633 through 68636). We refer to 

diagnostic radiopharmaceuticals and contrast agents collectively as “policy-packaged” 

drugs and implantable biologicals 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 that includes operating and capital-related costs 

that are directly related and integral to performing a procedure or furnishing a service on 

an outpatient basis including, but not limited to, implantable prosthetics, implantable 

durable medical equipment, and medical and surgical supplies. Packaging costs into a 

single aggregate payment for a service, encounter, or episode-of-care is a fundamental 

principle that distinguishes a prospective payment system from a fee schedule. In 

general, packaging the costs of items and services into the payment for the primary 

procedure or service with which they are associated encourages hospital efficiencies and 

also enables hospitals to manage their resources with maximum flexibility. 

Prior to CY 2008, we noted that the proportion of drugs, biologicals, and 

radiopharmaceuticals that were separately paid under the OPPS had increased in recent 

years, a pattern that we also observed for procedural services under the OPPS. Our final 

CY 2008 policy that packaged payment for all nonpass-through diagnostic 

radiopharmaceuticals and contrast agents, regardless of their per day costs, contributed 
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significantly to expanding the size of the OPPS 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 supporting 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) the statutorily required OPPS drug packaging 

threshold has expired; (2) we believe that diagnostic radiopharmaceuticals and contrast 

agents function effectively as supplies that enable the provision 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 prospectively based on a measure of average 

hospital acquisition cost. For these reasons, we believe it is appropriate to continue to 

treat diagnostic radiopharmaceuticals and contrast agents differently from other SCODs 

for CY 2012. Therefore, we are proposing to continue packaging payment for all contrast 

agents and diagnostic radiopharmaceuticals, collectively referred to as “policy-packaged” 

drugs, regardless of their per day costs, for CY 2012. We also are proposing to continue 

to package the payment for diagnostic radiopharmaceuticals into the payment for the 

associated nuclear medicine procedure and to package the payment for contrast agents 

into the payment of the associated echocardiography imaging procedure, regardless of 

whether the agent met the OPPS drug packaging threshold. We refer readers to the 

CY 2010 OPPS/ASC final rule with comment period for a detailed discussion of nuclear 

medicine and echocardiography services (74 FR 35269 through 35277). 
CMS-1525-P 352 

In CY 2009, we adopted a final policy to package payment for all nonpassthrough implantable biologicals that are surgically inserted or implanted (through a 

surgical incision or a natural orifice) like our longstanding policy that packaged payment 

for all implantable nonbiological devices without pass-through status. We finalized a 

policy in CY 2010 to package payment for nonpass-through implantable biologicals that 

are surgically inserted or implanted (through a surgical incision or a natural orifice) into 

the body, considering them to be devices. For 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 orifice) into the body, considering 

them to be devices. Three of the products with expiring pass-through status for CY 2012 

are biologicals that, according to their FDA-approved indications, are only surgically 

implanted. These products are described by HCPCS codes C9361 (Collagen matrix 

nerve wrap (NeuroMend Collagen Nerve Wrap), per 0.5 centimeter length), C9362 

(Porous purified collagen matrix bone void filler (Integra Mozaik Osteoconductive 

Scaffold Strip), per 0.5 cc), and C9364 (Porcine implant, Permacol, per square 

centimeter). Like the two implantable biologicals with expiring pass-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 the 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 surgically implanted devices. As a result of 

our proposed packaged payment methodology for nonpass-through implantable 

biologicals, we are proposing to package payment for HCPCS codes C9361, C9362, and 
CMS-1525-P 353 

C9364 and assign them status indicator “N” for CY 2012. In addition, any new 

biologicals without pass-through status that are surgically inserted or implanted (through 

a surgical incision or a natural 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 reporting ensures that the costs of these products 

that may be, but are not always, used as implanted biologicals are appropriately packaged 

into payment for the associated implantation procedures. 

3. Proposed Payment for Drugs and Biologicals without Pass-Through Status That Are 

Not Packaged 

a. Proposed Payment for Specified Covered Outpatient Drugs (SCODs) and Other 

Separately Payable and Packaged Drugs and Biologicals 

Section 1833(t)(14) of the Act defines 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 either is a radiopharmaceutical 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 Act requires that payment for SCODs in 

CY 2006 and subsequent years be equal to the average acquisition cost for the drug for 

that year as determined by the Secretary, subject to any adjustment for overhead costs 

and taking into account the hospital acquisition 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 hospital 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 percent pursuant to section 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 and 
CMS-1525-P 355 

related expenses. Section 1833(t)(14)(E)(ii) of the Act authorizes the Secretary to adjust 

the weights for ambulatory procedure classifications 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 regarding pharmacy overhead costs in HOPDs and 

summarized the findings of that study: 

● Handling costs for drugs, biologicals, and radiopharmaceuticals administered 

in the HOPD are not insignificant; 

● Little information is available about the magnitude of pharmacy overhead 

costs; 

● Hospitals set charges for drugs, biologicals, and radiopharmaceuticals at levels 

that reflect their respective handling costs; and 

● Hospitals vary considerably in their likelihood of providing services that utilize 

drugs, biologicals, or radiopharmaceuticals with different handling costs. 

 As a result of these findings, MedPAC developed seven drug categories for 

pharmacy and nuclear medicine handling costs 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 payment of pharmacy overhead under the OPPS. 

 1. CMS should establish separate, budget neutral payments to cover the costs 

hospitals incur for handling separately 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 charges 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 overhead 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 HCPCS 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 the number of drugs that may fit into more 

than one category and would lessen any undesirable payment policy incentives to utilize 

particular forms of drugs or specific preparation 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 majority of commenters did not support our 
CMS-1525-P 357 

proposal regarding pharmacy overhead and urged us not to finalize this policy, as it 

would be administratively burdensome for hospitals 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 calculated by comparing 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 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 overhead 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 percent rate that we finalized was higher than 

the equivalent average ASP-based amount calculated 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 accumulation 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 from 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 services. 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 meeting, the APC Panel recommended that 

hospitals not be required to separately report charges for pharmacy overhead and 

handling and that payment for overhead be included 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 did not finalize the proposal to instruct 

hospitals to separately report 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 their 
CMS-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 equivalent 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 for pharmacy overhead costs in the line-item 

charges for the associated drugs reported on claims. 

 For CY 2009, we proposed to pay separately payable drugs and biologicals at 

ASP+4 percent, including both SCODs and other drugs without CY 2009 OPPS 

pass-through status, based on our standard drug payment methodology. We also 

continued to explore mechanisms to improve the 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 drugs with low pharmacy overhead costs 

(73 FR 41492). We noted that we expected that CCRs from the proposed new cost 

centers would be available in 2 to 3 years to refine OPPS drug cost estimates by 

accounting for differential hospital markup practices for drugs with high and low 

overhead costs. After consideration of the 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 to 
CMS-1525-P 360 

Patients” cost center into two cost centers largely due to concerns raised by hospitals 

about the associated administrative burden. Instead, we indicated in the CY 2009 

OPPS/ASC final rule with comment period (73 FR 68659) that we would continue to 

explore other potential approaches to improve our drug cost estimation methodology, 

thereby increasing payment accuracy for separately payable drugs and biologicals. 

 In response to the CMS proposals for the CY 2008 and CY 2009 OPPS, a group 

of pharmacy stakeholders (hereinafter referred to as the pharmacy stakeholders), 

including some cancer hospitals, some pharmaceutical manufacturers, and some hospital 

and professional associations, commented that 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 packaged drugs at ASP+6 percent, as separate 

pharmacy overhead payments for separately payable drugs. They indicated 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 drug or biological HCPCS code would be 

assigned to one of the three overhead categories, and the separate pharmacy overhead 
CMS-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 availability to find a method to improve that data in a way 

that did not impose unacceptable administrative 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 and biologicals with an ASP, which resulted in our proposal 

to pay for the acquisition and pharmacy overhead costs of separately payable drugs and 

biologicals that did not have pass-through payment status at ASP+4 percent. We 

calculated estimated overhead cost for coded packaged drugs and biologicals by 

determining the difference between the aggregate claims cost for coded packaged drugs 

and biologicals with an ASP and the ASP dollars (ASP multiplied by the drug’s or 

biological’s units in the claims data) for those 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 OPPS/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 cost, specifically between one-third and 

one-half of that cost, included in our claims data for coded packaged drugs and 

biologicals with reported ASP data should be attributed 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 reduce 
CMS-1525-P 362 

the costs of coded drugs and biologicals 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 any 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 biologicals, 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 data, and applying our longstanding 

methodology for calculating the total cost of separately payable drugs and biologicals in 

our claims compared to the ASP dollars for the same drugs and biologicals, without 

applying the proposed overhead cost redistribution, we determined that the estimated 

aggregate cost of separately payable drugs and biologicals (status indicators “K” and 

“G”), including acquisition and pharmacy overhead costs, was equivalent to ASP-2 

percent. Therefore, under the standard 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, their equivalent average ASP-based payment 

rate. We also determined that the estimated aggregate cost of coded packaged drugs and 

biologicals with an ASP (status indicator “N”), including acquisition and pharmacy 

overhead costs, was equivalent to ASP+247 percent. 

While we had no way of assessing whether this current distribution of overhead 

cost to coded packaged drugs and biologicals with an ASP was appropriate, we 
CMS-1525-P 363 

acknowledged that the established method of converting billed charges to costs had the 

potential to “compress” the calculated costs to some degree. Further, we recognized that 

the attribution of pharmacy overhead costs to packaged or separately 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 with 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 biologicals), based on our standard drug payment 

methodology, should, at least for CY 2010, be attributed 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 payable 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 believed that the pharmacy stakeholders’ 

recommendation to set packaged drug and biological 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 higher 
CMS-1525-P 364 

observed ASP+X percent than ASP+6 percent 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 biological or to the 

complexity of the handling, preparation, or storage 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 explained that layered on these indirect costs 

are direct costs of staff, supplies, and equipment that are directly attributable only to the 

storage, handling, preparation, and distribution 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 overhead cost currently associated 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 cost associated with packaged drugs and 

biologicals was $132 million, whereas one-half was $198 million. 

Within the one-third to one-half parameters, we proposed that reallocating 

$150 million in drug and biological cost observed 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 biologicals. Based on this redistribution, we 
CMS-1525-P 365 

proposed a CY 2010 payment rate for separately payable drugs and biologicals of ASP+4 

percent. Redistributing $150 million represented 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 redistribution of pharmacy overhead cost that may 

arise from CY 2010 final rule data would occur 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 would 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 participate in the 340B program 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 biologicals would be taken into account in the 

calculation of the weight scaler that would apply to the relative 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 million 
CMS-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 payable drugs and biologicals as a conservative 

estimate of the pharmacy overhead cost of uncoded packaged drugs and biologicals that 

should be appropriately associated with the cost of separately payable drugs and 

biologicals (74 FR 60517). We believed that our proposal to reallocate $150 million of 

costs from coded packaged drugs and biologicals, 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 biologicals 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 reported under the pharmacy revenue code without 

HCPCS codes that are likely pharmacy overhead for separately payable drugs. 

Therefore, we reallocated $50 million or 8 percent of the total cost of uncoded packaged 

drug and biological cost in order to represent 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 comparable to that of coded packaged drugs 

and biologicals with an ASP. We stated that we could not know the amount of overhead 

associated with these drugs without making significant assumptions about the amount of 

pharmacy overhead cost associated with the 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 percent (that would have 

resulted from no pharmacy overhead cost redistribution from packaged to separately 

payable drugs and biologicals), to ASP+7 percent (that would have resulted from 

redistribution of pharmacy overhead cost based on expansive assumptions about the 

nature of uncoded packaged drug and biological cost). We finalized a policy of 

redistributing pharmacy overhead cost 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 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 determined 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 multiplied 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 acquisition and pharmacy overhead costs, was 

ASP-1 percent, which also would be the ASP-based payment rate under the standard 

methodology that we established in CY 2006 (75 FR 46275). Additionally, we 

determined that the total estimated aggregate 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 pharmacy overhead costs, was equivalent to ASP+296 percent. 

Finally, we determined that the total estimated cost for both packaged drugs and 

biologicals with a HCPCS code and separately 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 cost of separately payable drugs and 

biologicals and related pharmacy overhead for those drugs and biologicals, we 

redistributed $150 million from the pharmacy overhead 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 redistribution 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 biologicals 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 were within the parameters established in the CY 2010 

OPPS/ASC final rule. In addition, 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 described above, continues to be 

applicable to determining payments for SCODs for CY 2012. This provision requires 
CMS-1525-P 369 

that payment for SCODs be equal to the average acquisition cost for the drug for that year 

as determined by the Secretary, subject to any adjustment for overhead costs and taking 

into account the hospital acquisition cost survey data collected by the GAO in CYs 2004 

and 2005 and later periodic surveys conducted by the Secretary as set forth in the statute. 

If hospital acquisition cost data are not available, section 1833(t)(14)(A)(iii)(II) of the 

Act requires that payment be equal to payment rates established 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 for 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 into three categories: physician-administered drugs (drugs 

furnished incident to a physician's service), drugs delivered through DME (drugs 

furnished under the durable medical equipment benefit), and drugs specifically covered 

by a statutory provision (certain oral anti-cancer and immunosuppressive 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 handling costs. As discussed in V.B.3.a. of this 

proposed rule, since CY 2006, we have used ASP 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 status, including both SCODs 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 methodology to include an adjustment for 

pharmacy overhead. As explained previously, we have acknowledged, and continue to 

believe, that the established method of converting billed charges 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 separately 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. To some unknown 

extent, we believe that some pharmacy overhead costs attributed to packaged drugs and 

biologicals may include pharmacy overhead costs for separately payable drugs. 

For this CY 2012 OPPS/ASC proposed rule, we are proposing to continue to use 

our standard methodology for determining 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 multiplied 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 acquisition and pharmacy overhead costs, is 

ASP-2 percent, which also would be the ASP-based payment rate under the standard 
CMS-1525-P 371 

methodology that we established in CY 2006 (75 FR 46275). Additionally, we 

determined that the total estimated aggregate cost for packaged drugs and biologicals 

with a HCPCS code for which manufacturers report ASP data (status indicator “N”), 

including acquisition and pharmacy overhead costs, is equivalent to ASP+188 percent. 

Finally, we determined that the total estimated cost for both packaged drugs and 

biologicals with a HCPCS code and separately 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 percent. 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 coded drugs and biologicals before application 

of the proposed overhead adjustment methodology. 

TABLE 31.—CY 2012 PROPOSED RULE 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+188
CMS-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 and related pharmacy overhead for those drugs 

and biologicals. Specifically, we recognize that payment at ASP-2 percent for such costs 

may not be sufficient. We also acknowledge that ASP +188 percent may overstate the 

combined acquisition and pharmacy overhead cost of packaged drugs and biologicals. 

Therefore, given this issue, for CY 2012, we are proposing to continue the CY 2010 and 

CY 2011 overhead adjustment methodology, which 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 redistribution amount of $200 million was applied in 

CY 2011. Therefore, we are proposing to apply an inflation allowance to account for 

inflation and changes in the prices of pharmaceuticals in the overall economy. We are 
CMS-1525-P 373 

proposing to adjust the overhead redistribution amount of $200 million using the PPI for 

Pharmaceuticals for Human Use. The PPI for Pharmaceuticals for Human Use 

(Prescription) (Bureau of Labor Statistics (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 pharmaceuticals in the overall economy. We refer 

to this series generally as the PPI for Prescription Drugs. We believe that this price series 

is appropriate to use to update the overhead redistribution amount because the PPI for 

Prescription Drugs is publicly available and regularly published and because we have 

successfully utilized the PPI for Prescription Drugs for the past 5 years to update the drug 

packaging threshold as described in section V.B.2.a. of this proposed rule. 

In order to apply the inflation allowance to the overhead 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 updated overhead redistribution amount. After 

adjusting the $200 million overhead redistribution amount for inflation using the PPI for 

Prescription Drugs, we determined that $161 million 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 biologicals. The proposed redistribution amount 

of $161 million in overhead cost from coded packaged drugs and biologicals is within the 

redistribution parameters established in the CY 2010 OPPS/ASC final rule with comment 

period of roughly one-third to one-half of overhead cost in coded packaged drugs and 

biologicals. The total proposed redistribution amount from both coded and uncoded 
CMS-1525-P 374 

packaged drugs and biologicals to separately paid drugs and biologicals would therefore 

be $215 million. Having determined to redistribute overhead, we also continue to believe 

that the methodology to redistribute a portion of drug overhead cost from packaged coded 

and uncoded drugs and biologicals to separately payable drugs and biologicals while 

keeping the total cost of drugs and biologicals in the claims data constant continues to be 

appropriate for the reasons set forth in the CY 2010 OPPS/ASC final rule with comment 

period (74 FR 60501 through 60517). Therefore, 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 biologicals to separately payable drugs and 

biologicals. 

In the CY 2010 OPPS/ASC final rule with comment period, we reallocated $150 

million in overhead cost from coded packaged drugs and biologicals with an ASP to 

separately payable drugs and biologicals with an ASP, or one-third of the pharmacy 

overhead cost of these products based upon the 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 redistribute to separately payable drugs and 

biologicals. Therefore, we made a conservative estimate, as compared with the case of 

coded packaged drugs and biologicals with an ASP 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 cost of uncoded packaged drugs and biologicals with no ASP. 

We made the assumption that whatever pharmacy overhead cost inappropriately 
CMS-1525-P 375 

associated with uncoded packaged drugs and biologicals would not be less than 8 percent 

of total uncoded drugs and biologicals cost. 

For this CY 2012 OPPS/ASC proposed rule, 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 amount of $161 million in overhead cost from coded packaged 

drugs and biologicals with an ASP or approximately 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 overhead 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 proposal 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 redistribution of cost would occur from other 
CMS-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 pharmacy overhead costs to 

address any charge compression in the standard methodology. This would result in a 

proposed CY 2012 payment rate for separately payable drugs and biologicals of ASP+4 

percent. We note that, in past years, the 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 would result in an ASP+X amount that is 

different from ASP+4. 

As indicated in Table 31 above, if we were 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 biologicals at ASP-2 percent. However, because 

we are concerned about the possibility of underpaying for separately payable drugs and 

biologicals, we believe that a pharmacy overhead adjustment using a redistribution 

methodology for determining the amount of payment 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 compression 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’ longstanding policy under the OPPS to refrain 

from instructing hospitals on the appropriate revenue code to use to charge for specific 

services, we continue to encourage hospitals to bill all drugs and biologicals with HCPCS 

codes, regardless of whether they are separately payable or packaged, and to ensure that 

drug costs are completely reported, using appropriate 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 separate payment for the items and services. 
CMS-1525-P 378 

In summary, for the reasons set forth above and considering the data limitations 

we have previously discussed, we are proposing 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 proposing to redistribute 

$161 million in overhead costs from coded packaged drugs and biologicals and $54 

million in overhead costs from uncoded packaged 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 parameters established in the CY 2010 OPPS/ASC 

final rule with comment period of roughly one-third to one-half of overhead cost in coded 

packaged drugs and biologicals. Approximately 11 percent of drug cost in uncoded 

packaged drugs and biologicals would be redistributed 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 for 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 biologicals under the CY 2012 
CMS-1525-P 379 

OPPS because we believe excluding data from hospitals that participate 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 hospitals in the context of a proposed CY 2012 drug 

and biological payment policy that pays all hospitals the same rate for separately payable 

drugs and biologicals (74 FR 60517). In addition, we are proposing that 340B hospitals 

continue to be paid the same amounts for separately payable drugs and biologicals as 

hospitals that do not participate in the 340B program for CY 2012 because commenters 

have generally opposed differential payment for hospitals based on their 340B 

participation status. In addition, we are proposing 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 payments for separately payable drugs and 

biologicals be taken into account in the calculation of the weight scaler that would apply 

to the relative 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. 

We note that we continue to pursue 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 data, we have previously proposed multiple 

mechanisms to improve the cost data available to us, but have not implemented those 

proposals due to hospital concerns about the administrative burden. We continue to be 
CMS-1525-P 380 

interested in developing mechanisms that improve the cost data available to us while 

minimizing to the extent possible the administrative burden on hospitals. For the past 

3 years, we have proposed an internal adjustment to redistribute an amount from 

packaged coded and uncoded drugs and biologicals to separately payable drugs and 

biologicals, because the results of our standard drug payment methodology are unlikely 

to accurately reflect the full cost of acquisition 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 reporting 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 for 
CMS-1525-P 381 

radiopharmaceuticals at average acquisition cost 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 policy 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 based 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 provide prospective payment for therapeutic 

radiopharmaceuticals (defined as those Level II HCPCS codes 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, 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(a) of the Medicare, Medicaid, and SCHIP Extension 

Act of 2007 (Pub. L. 110–173), to further extend the payment period for therapeutic 

radiopharmaceuticals based on hospitals’ charges adjusted to cost through 
CMS-1525-P 382 

December 31, 2009. Therefore, for CY 2009, we finalized a policy to continue to pay 

hospitals for therapeutic radiopharmaceuticals at charges adjusted 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 allowed manufacturers to submit the ASP data in a 

patient-specific dose or patient-ready form in order to properly calculate the ASP amount 

for a given HCPCS code. This resulted in payment for nonpass-through separately paid 

therapeutic radiopharmaceuticals at ASP+4 percent 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 therapeutic radiopharmaceuticals under the ASP 

methodology adopted for separately payable drugs and biologicals, 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 radiopharmaceuticals continues to be appropriate for 

nonpass-through separately payable therapeutic 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 biologicals (proposed at ASP+4 percent, as 

discussed in section V.B.3.b. of this proposed 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 radiopharmaceuticals, according to our usual process 

for updating the payment rates for separately payable drugs and biologicals, on a 

quarterly basis if updated ASP information is available. 

The proposed CY 2012 payment rates for nonpass-through separately payable 

therapeutic radiopharmaceuticals are included in Addenda A and B to this proposed rule 

(which is referenced in section 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-through separately payable drugs and biologicals under 

the OPPS and continued paying an updated furnishing fee. That is, for CY 2011, we 

provided payment for blood clotting factors under the OPPS at ASP+5 percent, plus an 
CMS-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 payment. 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 proposed payment policy for other nonpass-through 

separately payable drugs and biologicals, and to continue our policy for payment of the 

furnishing fee using an updated amount. Our rationale 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 update is based on the percentage increase 

in the Consumer Price Index (CPI) for medical 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 the proposed rules. Therefore, 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, Improvement, 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 have assigned HCPCS codes, but that do not 

have a reference AWP or approval for payment 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 radiopharmaceuticals with HCPCS codes (specifically those 

new drug, biological, and radiopharmaceutical HCPCS codes in each of those calendar 

years that did not crosswalk to predecessor 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 adjusted to cost for radiopharmaceuticals. For 

CYs 2008 and 2009, we finalized a policy to provide payment for new drugs (excluding 

contrast agents and diagnostic radiopharmaceuticals) and biologicals (excluding 

implantable biologicals for CY 2009) with HCPCS codes, but which did not have passthrough status and were without OPPS hospital claims data, at ASP+5 percent and 
CMS-1525-P 386 

ASP+4 percent, respectively, consistent with the final OPPS payment methodology for 

other separately payable drugs and biologicals. New therapeutic radiopharmaceuticals 

were paid at charges adjusted to cost based on the statutory requirement for CY 2008 and 

CY 2009 and payment for new diagnostic radiopharmaceuticals 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 data, at ASP+4 percent, consistent with the 

CY 2010 payment methodology for other separately payable nonpass-through drugs, and 

nonimplantable biologicals. We also finalized a policy to extend the CY 2009 payment 

methodology to new therapeutic radiopharmaceutical 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 for 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 percent. This policy was continued in the 

CY 2011 OPPS/ASC final rule with comment 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 have pass-through status, and are without 

OPPS hospital claims data at ASP+5 percent. 

 For CY 2012, we are proposing to continue our payment policies for new drugs 

(excluding contrast agents and diagnostic radiopharmaceuticals), nonimplantable 

biologicals, and therapeutic radiopharmaceuticals that have HCPCS codes that do not 

crosswalk to CY 2011 HCPCS codes, do not have pass-through status, and are without 
CMS-1525-P 387 

OPPS hospital claims data. We are proposing to provide payment for new CY 2012 

drugs (excluding contrast agents and diagnostic radiopharmaceuticals), nonimplantable 

biologicals, and therapeutic radiopharmaceuticals, at ASP+4 percent, consistent with the 

proposed CY 2012 payment methodology for other separately payable nonpass-through 

drugs, nonimplantable biologicals, and therapeutic radiopharmaceuticals. We believe this 

proposed policy would ensure that new nonpass-through drugs, nonimplantable 

biologicals and therapeutic radiopharmaceuticals would be treated like other drugs, 

nonimplantable biologicals, and therapeutic 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 equivalent to the payment these drugs and 

biologicals would receive in the physician’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 radiopharmaceuticals, contrast agents, and 

implantable biologicals with HCPCS codes but without claims data (those new CY 2012 

diagnostic radiopharmaceuticals, contrast agents, and implantable biological HCPCS 

codes that do not crosswalk to predecessor HCPCS codes), consistent with the proposed 

packaging of all existing nonpass-through diagnostic radiopharmaceuticals, contrast 

agents and implantable biologicals, as discussed 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 the policy we implemented beginning in 

CY 2005 of using the WAC for the product to establish the initial payment rate for new 

nonpass-through drugs and biologicals with HCPCS codes, but which are without OPPS 

claims data. However, we note that if the 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 paid nonpass-through drugs and nonimplantable 

biologicals, including therapeutic radiopharmaceuticals) to HCPCS codes for new drugs 

and nonimplantable biologicals without OPPS claims data and for which we have not 

granted pass-through status. With respect to new, nonpass-through drugs, 

nonimplantable biologicals, and therapeutic radiopharmaceuticals, for which we do not 

have ASP data, we are proposing that once their ASP data become available in later 

quarterly submissions, their payment rates under the OPPS would be adjusted so that the 

rates would be based on the ASP methodology and 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 proposed policy, which is consistent with prior years’ policies 

for these items, would ensure that new nonpass-through drugs, nonimplantable 

biologicals, and therapeutic radiopharmaceuticals would be treated like other drugs, 

nonimplantable biologicals, and therapeutic 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 equivalent to the payment these drugs and 
CMS-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 radiopharmaceuticals with HCPCS codes, but which do not 

have pass-through status and are without claims data, on the WACs for these products if 

ASP data for these therapeutic radiopharmaceuticals 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 therapeutic radiopharmaceuticals 

without OPPS claims data for which we have not granted pass-through status. 

Consistent with other ASP-based payment, for CY 2012 we are proposing to 

announce any changes to the payment amounts for new drugs and biologicals in the 

CY 2012 OPPS/ASC final rule with comment period 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 payment rates for these drugs and biologicals are 

necessary. The payment rates for new therapeutic 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 development of this proposed rule. However, these agents 

will be included in Addendum B to the CY 2012 OPPS/ASC final rule with comment 
CMS-1525-P 390 

period where they will be assigned 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 and 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, but which have pricing information available 

for the ASP methodology. We note that there are currently no therapeutic 

radiopharmaceuticals in this category. 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 separately 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 outpatient 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 which 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 diagnostic radiopharmaceuticals, contrast agents, 

and implantable biologicals, which we are proposing to continue to package regardless of 
CMS-1525-P 391 

cost as discussed in more detail in section V.B.2.d. of this proposed rule) in CY 2012. 

We are proposing that the CY 2012 payment 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 physician’s office setting, in the 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 hydrochloride, 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 concentrate, 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 other 
CMS-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 previously stated that we were unable to 

determine their per day cost and we packaged these items for the year, assigning these 

items status indicator “N.” 

For CY 2010, we finalized a policy to change 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 pricing 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 information 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 indicator “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 that lacked CY 2009 claims data and pricing information for 

the ASP methodology. We also continued our policy 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 that lack CY 2010 claims data and pricing

information for the ASP methodology. All drugs and biologicals without CY 2010 
CMS-1525-P 393 

hospital claims data and data based on the ASP methodology that are assigned status 

indicator “E” on this basis at the time of this proposed rule for CY 2012 are displayed in 

Table 34 below. If pricing information becomes 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-2a, recombinant, 3 million 

units E 

VI. Proposed Estimate of OPPS Transitional Pass-Through Spending for Drugs, 

Biologicals, Radiopharmaceuticals, and Devices 

A. Background

Section 1833(t)(6)(E) of the Act limits the total projected amount of transitional 

pass-through payments for drugs, biologicals, radiopharmaceuticals, and categories of 

devices for a given year to an “applicable percentage” (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 year (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 the calendar year that the total amount of 

pass-through payments in that year would exceed the applicable percentage, 

section 1833(t)(6)(E)(iii) of the Act requires a uniform prospective reduction in the 

amount of each of the transitional pass-through payments made in that year to ensure that 

the limit is not exceeded. We make an estimate of pass-through spending to determine 

not only whether payments exceed the applicable percentage, but also to determine the 

appropriate pro rata reduction to the conversion factor for the projected level of 

pass-through spending in the following year in order to ensure that total estimated 

pass-through spending for the prospective payment year is budget 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. The first group of items consists of device 

categories that were recently made eligible 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. The second group contains items 

that we know are newly eligible, or project may be newly eligible, for device 

pass-through payment in the remaining quarters of CY 2011 or beginning in CY 2012. 

Beginning in CY 2010, the pass-through evaluation process and pass-through payment 

for implantable biologicals newly approved for pass-through payment beginning on or 

after January 1, 2010, that are surgically inserted or implanted (through a surgical 
CMS-1525-P 395 

incision or a natural orifice; also referred to herein as “implantable biologicals”) is the 

device pass-through process and payment methodology only (74 FR 60476). For 

CY 2012, we are proposing that the estimate of pass-through spending for implantable 

biologicals newly eligible for pass-through payment beginning in CY 2012 be included in 

the pass-through spending estimate for this second group of device categories. The sum 

of the CY 2012 pass-through estimates for these two groups of device categories would 

equal the total CY 2012 pass-through spending estimate for device categories with 

pass-through status. 

For devices eligible for pass-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, exceeds the portion of the otherwise applicable 

OPPS fee schedule payment that the Secretary determines is associated with the device. 

As discussed in section IV.A.2. of this proposed 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 existing APC structure. For each device category 

that becomes newly eligible for device pass-through payment, including implantable 

biologicals from CY 2010 forward, we estimate pass-through spending to be the 

difference between payment for the device category and the device APC offset amount, if 

applicable, for the procedures that would use the device. If we determine that the 
CMS-1525-P 396 

predecessor device costs for the new device category are not already included in the 

existing APC structure, the pass-through spending 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 establishes the pass-through payment amount as the amount 

by which the amount authorized under section 1842(o) of the Act (or, if the drug or 

biological is covered under a competitive acquisition contract 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 determines is associated with the drug or 

biological. Because we are proposing to pay for most nonpass-through separately 

payable drugs and nonimplantable biologicals under the CY 2012 OPPS at ASP+4 

percent, which represents the otherwise applicable fee schedule amount associated with 

most pass-through drugs and biologicals, 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 estimate of drug and nonimplantable biological 

pass-through payment for CY 2012 would not be zero, as discussed below. Furthermore, 

payment for certain drugs, specifically diagnostic radiopharmaceuticals, contrast agents, 

and implantable biologicals without pass-through status, will always be packaged into 

payment for the associated procedures because these products will never be separately 

paid. However, all pass-through diagnostic radiopharmaceuticals and contrast agents 
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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, like other pass-through drugs and biologicals. 

Therefore, our estimate of pass-through payment 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 biologicals proposed to continue on pass-through 

status for CY 2012 and, therefore, we are not proposing to include implantable 

biologicals in our estimate of pass-through payment. Payment for nonpass-through 

implantable biologicals will continue to be packaged into the payment for the associated 

procedure as described in section V.B.2.d of this proposed rule. 

In section V.A.4. of this proposed rule, we discuss our proposed policy to 

determine if the cost of certain “policy-packaged” drugs, including diagnostic 

radiopharmaceuticals and contrast agents, are already packaged into the existing APC 

structure. If we determine that a “policy-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 proposing to offset the amount of pass-through 

payment for diagnostic radiopharmaceuticals and 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 radiopharmaceutical or contrast agent that is 

attributable to diagnostic radiopharmaceuticals or contrast agents, which we refer to as 

the “policy-packaged” drug APC offset amount. If we determine that an offset is 

appropriate for a specific diagnostic radiopharmaceutical or contrast agent receiving 
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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 readers to the Medicare Learning Network (MLN) Matters 

Special Edition article SE0833 for more information, available via the CMS Web site at: 

http://www.cms.gov/MLNMattersArticles/downloads/SE0833.pdf. As of the publication 

of this proposed rule, the postponement 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 devices, the first group of drugs and 

nonimplantable biologicals requiring a pass-through payment estimate consists of those 

products that were recently made eligible for 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 projected OPPS payments for CY 2012, consistent with our OPPS 

policy from CY 2004 through CY 2011 (75 FR 71975). 
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For the first group of devices for pass-through payment estimate purposes, there 

currently is one device category, C1749 (Endoscope, retrograde imaging/illumination 

colonoscope device (implantable)) that became 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 expenditures related to C1749 will be approximately 

$35 million. 

In estimating our proposed CY 2012 pass-through spending for device categories 

in the second group, which also includes any estimate for implantable biologicals that are 

eligible for pass-through payment, we include: device categories 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 implantable 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 contingent projections for new device categories (including 

categories that describe implantable 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 approving 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 categories for CY 2012 (spending for the first 
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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 payment and continuing on pass-through status for CY 2012, we 

are proposing to utilize the most recent Medicare physician’s office data regarding their 

utilization, information provided in the respective pass-through applications, historical 

hospital claims data, pharmaceutical industry 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 contrast agents) that would be continuing on pass-through 

status in CY 2012, we estimate the proposed 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 drugs and nonimplantable biologicals that 

would be separately paid at ASP+4 percent, 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 (or WAC+6 percent, or 95 percent of AWP, 
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if ASP or WAC information is not available) and the “policy-packaged” drug APC offset 

amount, if we have determined that the diagnostic radiopharmaceutical or contrast agent 

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. For this proposed 

rule, we are proposing to continue to use the methodology used in CY 2011 to calculate a 

proposed spending estimate for this first 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 group (that is, drugs and nonimplantable biologicals that we 

know at the time of development of this proposed rule would be newly eligible for 

pass-through payment in CY 2012, additional drugs and nonimplantable 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 initially eligible for pass-through payment in the 

second through fourth quarters of CY 2012), we are proposing to use utilization estimates 

from pass-through applicants, pharmaceutical industry data, clinical information, recent 

trends in the per unit ASPs of hospital outpatient drugs, and projected annual changes in 

service volume and intensity as our basis for making the CY 2012 proposed pass-through 

payment estimate. We are also considering the most recent OPPS experience in 

approving new pass-through drugs and nonimplantable biologicals. Using our proposed 

methodology for estimating CY 2012 pass-through payments for this second group of 
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drugs, we calculated a proposed spending estimate for this second group of drugs and 

nonimplantable biologicals to be approximately $13.8 million. 

 As discussed in section V.A. of this proposed rule, radiopharmaceuticals are 

considered drugs for pass-through purposes. Therefore, we include radiopharmaceuticals 

in our proposed CY 2012 pass-through spending estimate for drugs and biologicals. Our 

proposed CY 2012 estimate for total pass-through spending for drugs and biologicals 

(spending for the first group of drugs and nonimplantable biologicals ($5.7 million) plus 

spending for the second group of drugs and nonimplantable biologicals ($13.8 million)) 

equals $19.5 million. 

In summary, in accordance with the methodology described above in this section, 

for this proposed rule, we estimate that total pass-through spending for the device 

categories and the drugs and nonimplantable biologicals that are continuing to receive 

pass-through payment in CY 2012 and those device categories, drugs, and 

nonimplantable biologicals that first become eligible for pass-through payment during 

CY 2012 would be approximately $64.5 million (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. 
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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) services 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 services 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 HCPCS codes that apply to Type B emergency 

departments. For OPPS purposes, we recognize critical care codes as those CPT codes 

used by hospitals to report critical care services that involve the “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 physician and/or hospital staff engaged in active 

face-to-face critical care of a critically ill or critically injured patient. Under the OPPS, 

we also recognize HCPCS code G0390 (Trauma response team associated with hospital 

critical care service) for the 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 care 
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services, and trauma team activation provided in association with critical care services for 

CY 2012. These codes are listed 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 evaluation and management of a patient 

(Level 1) 

99282

Emergency department visit for the evaluation and management of a patient 

(Level 2)

99283

Emergency department visit for the evaluation and management of a patient 

(Level 3)

99284

Emergency department visit for the evaluation and management of a patient 

(Level 4)

99285

Emergency department visit for the evaluation and management of a patient 

(Level 5)

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)
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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 changes in patterns of 

utilization or cost, it bring those issues before 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 different CPT codes for clinic visits based 

on whether the patient being treated is a new patient 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 patient 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 prior 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 within the 3 years prior to a visit would be 

considered to be a new patient for that visit. We refer readers to the CY 2009 OPPS/ASC 
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final rule with comment period (73 FR 68677 through 68680) for a full discussion of the 

refined definitions. 

We continue to believe that defining new 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 codes, 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 recognize 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 methodology that excludes those claims for visits that are eligible for 

payment through the extended assessment and management composite APC 8002 (Level 

I Extended Assessment and Management Composite). We continue to believe that this 

approach results in the most accurate cost 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 the OPPS—Type A emergency departments and 

Type B emergency departments. As described in greater detail below, by providing 

payment for two types of emergency departments, we recognize, for OPPS payment 
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purposes, both the CPT definition of an emergency department, which requires the 

facility to be available 24 hours, and the requirements for emergency departments 

specified in the provisions of the Emergency Medical Treatment and Labor Act 

(EMTALA) (Pub. L. 99-272), which do not stipulate 24-hour availability 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 emergency department to distinguish it from a 

Type B emergency department. A Type A emergency department must be available to 

provide services 24 hours a day, 7 days a week, and meet one or both of the following 

requirements related to the EMTALA definition of a dedicated emergency department 

specified at 42 CFR 489.24(b), specifically: (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, advertising, 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 visit 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 Emergency Visits), and APC 0616 (Level 5 

Emergency Visits). We defined a Type B emergency department as any dedicated 
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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 department 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 departments incur EMTALA obligations with 

respect to an individual 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 clinics or Type A emergency departments, in the 

CY 2007 OPPS/ASC final rule with comment period (71 FR 68132), we finalized a set of 

five HCPCS G-codes for use by hospitals to report visits to all entities that meet the 

definition of a dedicated emergency department 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 HCPCS G-codes would serve as a vehicle to 

capture median cost and resource differences among visits provided by Type A 

emergency departments, Type B emergency departments, and clinics. We stated that the 

reporting of specific HCPCS G-codes for emergency department visits provided in 

Type B emergency departments would permit us to specifically collect 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 to 
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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 that 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 than 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 hospital resource costs for the same level of 

visits in a Type A or Type B emergency department. Therefore, for CY 2009, we 

adopted the August 2008 APC Panel recommendation to assign Levels 1 through 4 

Type B emergency department visits to their 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/ASC final rule with comment period 

(74 FR 60548 through 60551), analyses of CY 2008 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 consistent with the distributions 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 associated with Level 5 Type B emergency 
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department visits compared to the HCPCS code-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 emergency 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 differences between Type A and Type B emergency 

department visits is consistent with the distributions 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 median 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 (Level 3 Type B Emergency Department 

Visit), APC 0629 (Level 4 Type B Emergency Department Visit), and APC 0630. 

 For CY 2012, we continue to believe that this 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 proposing to continue to 

pay for Type B emergency department visits in CY 2012 based on their median costs 

through the five levels of Type B emergency department APCs (APCs 0626 through 

0630). We also note that, as discussed in section II.A.2.e.(1) of this proposed rule and 

consistent with our CY 2011 policy, when calculating the proposed median costs for the 

emergency department visit and critical care APCs (0609 through 0617 and 0626 through 
CMS-1525-P 411 

0630), we are proposing to utilize 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 approach would result in the most accurate 

cost estimates for APCs 0604 through 0608 for CY 2012. 

 Table 36 below displays the proposed median costs for each level of Type B 

emergency department visit APCs under the 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 DEPARTMENT 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 AMA 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 minutes) and 99292 (Critical care, evaluation and 

management of the critically ill or critically injured patient; each additional 30 minutes 

(List separately in addition to code for primary service)) to include a wide range of 

ancillary services such as electrocardiograms, chest X-rays and pulse oximetry. As we 
CMS-1525-P 412 

have stated in manual instruction, we expect hospitals to report in accordance with CPT 

guidance unless we instruct otherwise. For critical care in particular, we instructed 

hospitals that any 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 hospital reporting purposes, critical care codes do 

not include the specified ancillary services. Beginning in CY 2011, hospitals that report 

in accordance with the CPT guidelines should report 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 comment period that we believe it is inappropriate to pay 

separately in CY 2011 for the ancillary services that hospitals 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 care services and established a payment rate 
CMS-1525-P 413 

based on our historical data, into which the cost of 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 services. We assigned status 

indicator “Q3” (Codes That May Be Paid Through a Composite APC) to the ancillary 

services to indicate that payment 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 the 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 that were included in the definition of critical care prior to 

CY 2011 and that will be conditionally packaged into the payment for critical care 

services when provided on the same date of service 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 guidance 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 comment period of calculating a payment rate for critical care 

services based on our historical data, into which the cost of the ancillary services is 

intrinsically packaged. We are proposing to continue to implement claims processing 
CMS-1525-P 414 

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. 

3. Visit Reporting Guidelines 

 Since April 7, 2000, we have instructed hospitals to report facility resources for 

clinic and emergency department hospital outpatient visits using the CPT E/M codes and 

to develop internal hospital guidelines for reporting the appropriate visit level. Because a 

national set of hospital-specific 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 designed to reasonably relate the 

intensity of hospital resources to the different levels of effort represented by the codes. 

As noted in detail in the CY 2008 OPPS/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 hospital 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 indicated that hospitals were billing consistently 

over time and in a manner that distinguished between visit levels, resulting in relatively 

normal distributions nationally for the OPPS, as well as for specific classes of hospitals. 

The results of these analyses were generally consistent with our understanding of the 

clinical and resource characteristics of different levels of hospital outpatient clinic and 

emergency department visits. In the CY 2008 OPPS/ASC proposed rule (72 FR 42764 
CMS-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 own internal guidelines to report visits was 

currently more practical and appropriately flexible for hospitals. We explained that, 

although we have reiterated our goal since CY 2000 of creating national guidelines, this 

complex undertaking for these important and common hospital services was proving 

more challenging than we initially anticipated 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 hospitals had worked diligently and carefully to 

develop and implement their own internal guidelines that reflected the scope and types of 

services they provided throughout the hospital 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 could apply to the reporting of visits in all 

hospitals and specialty clinics. In addition, the stable distribution of clinic and 

emergency department visits reported under the OPPS over the past several years 

indicated that hospitals, both nationally in the aggregate and grouped by specific hospital 

classes, were generally billing in an appropriate and consistent manner as we would 

expect in a system that accurately distinguished among different levels of service based 

on the associated hospital resources. 

Therefore, we did not propose to implement national visit guidelines for clinic or 

emergency department visits for CY 2008. As we have done since publication of the 
CMS-1525-P 416 

CY 2008 OPPS/ASC final rule with comment period, we again examined the distribution 

of clinic and Type A emergency department visit levels based upon updated CY 2010 

claims data available for the CY 2012 proposed rule. Analysis of this data confirmed that 

we continue to observe a normal and relatively stable distribution of clinic and 

emergency department visit levels in hospital 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 visits, 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 aggregate, hospitals’ charges for these higher level emergency 

department visits seem to be trending upward year over year. We welcome comment on 

whether this is consistent with individual hospitals’ experiences in developing, 

implementing, and refining their own guidelines over the last several years. We continue 

to believe that generally, hospitals are billing in an appropriate and consistent manner that 

distinguishes among different levels 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 comment period (72 FR 66648), we continue to expect that 

hospitals will not purposely change 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 continued expectation that hospitals’ internal guidelines 

will comport with the principles listed in the CY 2008 OPPS/ASC final rule with 
CMS-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 outpatient program of psychiatric services 

provided to patients as an alternative to inpatient 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 hospitalization services and some conditions under 

which Medicare payment for the items and services 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 center (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 amended the description of a PHP in our 

regulations to specify that the program must be a distinct and organized intensive 

ambulatory treatment program offering less than 24-hour daily care “other than in an 

individual’s home or in an inpatient or residential setting.” In addition, in accordance 

with section 1301(a) of HCERA 2010, we revised the definition of a CMHC in the 

regulations to conform to the definition set forth 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 with comment period (75 FR 71990). Section 
CMS-1525-P 418 

1833(t)(1)(B)(i) of the Act provides the Secretary 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 services furnished by CMHCs as well as those 

services furnished by hospitals to their outpatients. Section 1833(t)(2)(C) of the Act, in 

pertinent part, requires the Secretary to “establish relative payment weights for covered 

OPD services (and any groups of such services 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 Secretary may establish groups of covered OPD 

services, within a classification system developed by the Secretary for covered OPD 

services, so that services classified within each group are comparable 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 Secretary to “review not less often 

than annually and revise the groups, the relative payment weights, and the wage and other 

adjustments described in paragraph (2) to take into account changes in medical practice, 

changes in technology, the addition of new services, new cost data, and other relevant 

information and factors.” Because a day of care is the unit that defines the structure and 

scheduling of partial hospitalization services, we established a per diem payment 

methodology for the PHP 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 year, while the median per diem cost for 

hospital-based PHPs remained relatively constant. We were concerned that CMHCs may 

have increased and decreased their charges in response to Medicare payment policies. 

Therefore, we began efforts to strengthen the PHP benefit through extensive data analysis 

and policy and payment changes in the 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 second refined our methodology for computing the 

PHP median per diem costs by computing a separate 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 comment period (72 FR 66671 through 66676). 

In CY 2009, we implemented several regulatory, policy, and payment changes, 

including a two-tiered payment approach for 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 section 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, for CY 2009, we finalized our policy to deny 

payment for any PHP claims for days when fewer than 3 units of therapeutic services are 

provided. 
CMS-1525-P 420 

Furthermore, for CY 2009, we revised the regulations at 42 CFR 410.43 to codify 

existing basic PHP patient eligibility criteria and 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 benefit. We also revised the partial hospitalization benefit 

to include several coding updates. We refer readers to section X.C.2. of the CY 2009 

OPPS/ASC final rule with comment period (73 FR 68695 through 68697) for a full 

discussion of these requirements. 

For CY 2010, we retained the two-tiered payment approach for PHP services and 

used only hospital-based PHP data in computing the per diem payment rates. We used 

only hospital-based PHP data because we were concerned about further reducing both 

PHP APC per diem payment rates without knowing the impact of the policy and payment 

changes we made in CY 2009. Because of the 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 determine 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) and 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 hospital-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), for 
CMS-1525-P 421 

CY 2011, using CY 2009 cost data, CMHC costs had significantly decreased again. We 

attributed the decrease to the lower cost structure of CMHCs compared to hospitals, and 

not the impact of CY 2009 policies. CMHCs had a lower cost structure than hospitalbased PHP providers, in part because the data showed that CMHCs provide fewer PHP 

services in a day and use less costly staff than 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-based PHP programs at a lower rate than their 

cost structure reflects could lead to closures and possible access problems for hospitalbased programs for Medicare beneficiaries. Creating the four payment rates (two for 

CMHC PHPs and two for hospital-based PHPs) 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 provider type was supported by several hospitalbased PHP commenters who responded to the CY 2011 OPPS/ASC proposed rule (75 FR 

71992). 

For CY 2011, we instituted a 2-year transition period for CMHC providers to 

CMHC rates based solely on CMHC data for 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 percent of the difference between the CY 2010 final hospitalbased medians and the CY 2011 final CMHC medians and then adding that number to the 

CY 2011 final CMHC medians. A 2-year transition under this methodology would move 
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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 same 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 final 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/ASC 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 outpatients 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 from both hospitals and CMHCs in determining 

the relative payment weights for the OPPS rates 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 derived solely from hospitals. The Secretary has 

filed a motion to dismiss in this case, which is pending before the district court. 

 In addition to raising various jurisdictional defenses in the Paladin case, the 

Secretary argued that the agency had permissibly interpreted the statute in determining 

the relative payment weights for the OPPS 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 Secretary to “establish relative 

payment weights for covered OPD services (and any groups of such services . . .) . . . 

based on . . . hospital costs.” Numerous courts have held that “based on” does not mean 
CMS-1525-P 423 

“based exclusively on.” Thus, it was reasonable 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 and the relative payment weights for hospitalbased PHP services based exclusively on hospital 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 rates for PHP services provided by CMHCs to 

be based solely on CMHC cost data, whereas the corresponding relative payment weights 

for hospital-provided PHP services would be based exclusively on hospital cost data. 

Section 1833(t)(2)(C) of the Act requires the Secretary to “establish relative payment 

weights for covered OPD services (and any groups of such services described in 

subparagraph (B)) based on . . . hospital costs.” In pertinent part, subparagraph (B) 

provides that “the Secretary may establish groups of covered OPD services . . . so that 

services classified within each group are comparable clinically and with respect to the use 

of resources.” In accordance with subparagraph (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 creating the original APC for PHP services (APC 

0033), we did “establish” the initial relative payment weight for PHP services, provided 
CMS-1525-P 424 

in hospital-based and CMHC-based settings, 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 services based exclusively on hospital costs. 

For CY 2009, we adopted a two-tiered APC methodology (in lieu of the original APC 

0033) under which CMS paid one rate for days 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 data. For CY 2011, we added two new APCs 

(APCs 0175 and 0176) for PHP services provided 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 the Act make plain that the data source for 

the relative payment weights is subject to change from one period to another. Section 
CMS-1525-P 425 

1833(t)(2)(C) of the Act provides that, in establishing the relative 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 used 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 relative payment weights, and the 

wage and other adjustments described in paragraph (2) to take into account changes in 

medical practice, changes in technology, the addition of new services, new cost data, and 

other relevant information and factors.” For purposes of the CY 2012 update, we 

exercised our authority under section 1833(t)(9)(A) of the Act to change the data source 

for the relative payment weights for PHP services 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 per 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 CATEGORY, 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 refined 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 claims 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 the median per diem costs for hospital-based 

PHPs, given the same units of service. The approximate median per diem costs for 3 

services are $98 for CMHC PHPs compared 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 Level I services (3 services); and from 

$172 for CY 2009 to $123 for CY 2011 for Level II services (4 or more services). For 
CMS-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 (using 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 targeted fraud and abuse efforts implemented by the Department’s 

Center for Program Integrity and the Office 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 hospital-based PHPs have historically been 

consistent in their median costs since the inception 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 decreased 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 (using 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 whose costs inflated the 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 provider 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 CMHC 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 rates 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 support access to the PHP benefit, including a more intensive 

level of care, while also providing appropriate payment commensurate with the cost 

structures of CMHC PHPs and hospital-based PHPs. We invite public comments on our 

proposal to calculate the CMHC PHP APC per diem payment rates using only CMHC 

claims data and the hospital-based PHP APC 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 MEDIAN PER DIEM COSTS FOR 

CMHC PHP SERVICES 

Proposed 

APC 

Group Title Proposed Median 

Per Diem Costs 

0172 Level I Partial Hospitalization (3 services) for 

CMHCs 

$97.78

0173 Level II Partial Hospitalization (4 or more 

services) for CMHCs 

$113.62

TABLE 39.--PROPOSED CY 2012 MEDIAN PER DIEM COSTS FOR 

HOSPITAL-BASED PHP SERVICES 

Proposed 

APC 

Group Title Proposed Median 

Per Diem Costs 

0175 Level I Partial Hospitalization (3 services) for 

hospital-based PHPs 

$162.34

0176 Level II Partial Hospitalization (4 or more 

services) for hospital-based PHPs 

$189.87
CMS-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, given the difference in PHP charges between hospitals and 

CMHCs, we did not believe it was appropriate to make outlier payments to CMHCs 

using the outlier percentage target amount and threshold established for hospitals. Prior 

to that time, there was a significant difference in the amount of outlier payments made to 

hospitals and CMHCs for PHP services. In addition, further analysis indicated that using 

the same OPPS outlier threshold for both hospitals and CMHCs did not limit outlier 

payments to high-cost cases and resulted in excessive outlier payments to CMHCs. 

Therefore, beginning in CY 2004, we established a separate outlier threshold for 

CMHCs. The separate outlier threshold for 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 outlier payments indicates that the separate 

outlier threshold for CMHCs has been successful in keeping outlier payments to CMHCs 

in line with the percentage of OPPS payments made to CMHCs. 

 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 that 1.0 percent, an amount equal to 0.14 percent of outlier 

payments (or 0.0014 percent of total OPPS payments), would be allocated to CMHCs for 
CMS-1525-P 430 

PHP outlier payments. In section II.G. of this proposed rule, we are proposing to set a 

dollar threshold in addition to an APC multiplier 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 threshold 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 gives 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, Medicare paid reasonable costs for services 

provided in the HOPD. The claims submitted were subject to medical review by the 

fiscal intermediaries to determine the appropriateness of providing certain 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 comment 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 specifies those services for which the hospital 

will be paid only when provided in the inpatient 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 recovery time or monitoring before the patient can be safely 

discharged. As we discussed in that rule and in the November 30, 2001 final rule with 

comment period (66 FR 59884), we may use any 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 assigned to an APC group for payment under the 

OPPS when provided in the hospital outpatient setting. Those criteria include the 

following: 

● Most outpatient departments are equipped 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 that 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 reviewing procedures to determine whether they 
CMS-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 procedure is being performed in numerous 

hospitals on an outpatient basis; or 

● A determination is made that the procedure 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 Addendum E to this proposed rule (which is 

referenced in section XVII. of this proposed rule and available via 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 currently 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 potential removal from the inpatient list for CY 2012. 

We then clinically reviewed these two potential 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 meeting of the APC Panel, we solicited the 

APC Panel’s input on the appropriateness of removing these two procedures from the CY 

2012 inpatient list: CPT codes 21346 (Open treatment of nasomaxillary complex fracture 
CMS-1525-P 433 

(Lefort II type); with wiring and/or local fixation) and 54411 (Removal and replacement 

of all components of a multi-component inflatable penile prosthesis through an infected 

field at the same operative session, including irrigation and debridement of infected 

tissue). 

As we indicated in the CY 2011 final rule with comment period (75 FR 71996),we 

solicited the APC Panel’s input 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, with 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 procedures identified in a comment letter 

addressed to the APC Panel: CPT codes 61154 (Burr hole(s) with evacuation and/or 

drainage of hematoma, extradural or subdural); 61156 (Burr hole(s); with aspiration of 

hematoma or cyst, intracerebral); and 61210 (Burr hole(s); for implanting ventricular 

catheter, reservoir, eeg electrode(s), pressure recording device, or other cerebral 

monitoring device (separate procedure)). Following the discussion at its February 28-

March 1, 2011 meeting, the APC Panel recommended that CMS remove from the CY 

2012 inpatient list CPT codes 21346, 54411, 35045, 54650, and 61210. The APC Panel 

made no recommendation regarding CPT codes 61154 and 61156. 

Additionally, during the February 28-March 1, 2011 meeting of the APC Panel, an 

APC Panel member requested removal of the following CPT codes from the CY 2012 
CMS-1525-P 434 

inpatient list: 22551 (Arthrodesis, anterior interbody, including 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, osteophytectomy and decompression of spinal cord and/or nerve 

roots; cervical below C2, each additional interspace (List separately in addition to code 

for separate procedure)); 22554 (Arthrodesis, anterior interbody technique, including 

minimal discectomy to prepare interspace (other than for decompression); cervical below 

C2); 22585 (Arthrodesis, anterior interbody technique, including minimal discectomy to 

prepare interspace (other than for decompression); cervical below C2, each additional 

interspace (List separately in addition to code for primary procedure)); 61107 (Twist drill 

hole(s) for subdural, intracerebral, or ventricular puncture; for implanting ventricular 

catheter, pressure recording device, or other intracerebral monitoring device); and 63267 

(Laminectomy for excision or evacuation of intraspinal lesion other than neoplasm, 

extradural; lumbar). Following the discussion at its February 28-March 1, 2011 meeting, 

the APC Panel recommended that CMS remove from the CY 2012 inpatient list CPT 

codes 22551, 22552, 22554, 22585, 61107, and 63267. 

For CY 2012, we are proposing to accept 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 procedures for some Medicare beneficiaries, 

based upon the evaluation criteria mentioned above. We also are proposing to not accept 

the APC Panel’s recommendations to remove the procedures described by CPT codes 
CMS-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 beneficiaries, based upon the evaluation criteria 

mentioned above, due to the clinical intensity of services provided. Furthermore, 

according to our utilization data, the procedures described by CPT codes 22551, 22552, 

22554, 22585, 54411, 61107, 61210, and 63267 have very low volume in the outpatient 

hospital setting. We note that despite its low overall volume, CPT code 54411 is 

performed a significant percentage of the time in the outpatient hospital setting; however, 

we do not believe that the outpatient procedures 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 invite 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 status indictors are displayed in Table 40 

below. 

TABLE 40.—PROCEDURES PROPOSED FOR REMOVAL FROM THE 

INPATIENT LIST AND THEIR PROPOSED 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 T 
CMS-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, for 

intra-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 period, CMS established the 

hospital OPPS and indicated that direct supervision is the standard for all hospital 

outpatient therapeutic services covered and paid by Medicare in hospitals and in 

provider-based departments (PBDs) of hospitals (65 FR 18524 through 18526). 

Currently, as discussed in the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 72008), this standard requires the supervisory practitioner to be immediately 

available to furnish assistance and direction throughout the performance of a hospital 

outpatient therapeutic service or procedure. In the CY 2000 OPPS final rule with 

comment period, we established in regulation 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 each service, that is, general, direct or 

personal supervision. Since that time, we have clarified and refined these rules in several 
CMS-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 provide 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 establishment of the OPPS: general, direct, and 

personal supervision. Over time, we have tailored 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 office 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 presence within any specific physical 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 extended duration therapeutic services (extended 

duration services) for which we require direct supervision during an initiation period, 

followed by a minimum standard of general supervision for the duration of the service 

(75 FR 72012). Under the OPPS, general supervision means that the service is furnished 
CMS-1525-P 438 

under the overall direction 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 supervision means that the physician or appropriate nonphysician 

practitioner is immediately available to furnish assistance and direction throughout the 

performance of a therapeutic service or procedure; however, he or she does not have to be 

present in the room where the service or procedure is being performed. 

In the CY 2000 OPPS final rule with comment period (65 FR 18524 through 

18526), we adopted physician supervision policies as a condition of payment under the 

OPPS to ensure that Medicare pays for high quality hospital outpatient services that are 

furnished in a safe and effective manner and consistent with Medicare requirements. The 

agency has long divided hospital outpatient services into the two categories of 

“diagnostic” services and other “therapeutic” 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 nondiagnostic services to be “therapeutic services” 

which would include, but not be limited to, the services listed under section 

1861(s)(2)(B) of the Act as incident to the services of physicians. As early as 1985, the 

agency defined therapeutic services as those services and supplies (including the use of 

hospital facilities) which are incident to the services of physicians in the treatment of 

patients (Section 3112.4 of the Medicare Part A Intermediary Manual (May 1985)). In 

recognition of this historic classification of services, we established a direct supervision 

standard for outpatient therapeutic services under our regulation at §410.27, which 

establishes the conditions for payment for outpatient hospital services provided “incident 
CMS-1525-P 439 

to” physicians’ services. In the text of §410.27, we also established 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 provider under §413.65 of the regulations 

(§410.27(a)(1)(iii)). Since 2000, we have maintained the classification of services as 

either diagnostic or therapeutic in our manual guidance that establishes 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 direct supervision standard, we applied the 

requirements of §§410.27(a)(1)(i) and (a)(1)(iii) regarding under arrangement and 

provider-based site of service to all outpatient therapeutic services that are paid under the 

OPPS (Section 20.5, Chapter 6 of the Medicare Benefit Policy Manual (Pub. 100-02)). 

In the CY 2000 OPPS final rule with comment period, we amended our regulation 

at §410.27 to specify that direct supervision is required for outpatient 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 regulations. We specified further in the 

regulation that direct supervision means the physician must be present on the premises of 

the location and immediately available to furnish assistance and direction throughout the 

performance of the service or procedure. The requirement to be “immediately available” 

was included in the regulation, 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 have 
CMS-1525-P 440 

to be present in the room when the procedure 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 amendment 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 the 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 standard 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 outpatient hospital diagnostic services 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 having 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 comment period (74 FR 60588 through 60591, and 

60680), we revised §410.28(e) to extend the supervision 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 diagnostic services under the regulation at 

§410.28(e) explicitly apply to hospitals that are paid in accordance with section 1833(t) 
CMS-1525-P 441 

of the Act, which is the statutory 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 outpatient diagnostic services at this time. The supervision 

requirements for outpatient diagnostic services were also set forth in Section 20.4, 

Chapter 6, of the Medicare Benefit Policy Manual. 

In the years following establishment of the initial OPPS regulations, we began to 

receive inquiries from providers about the supervision requirements. Many of these 

inquiries led us to believe that some hospitals may have misunderstood our statement to 

the effect that we assume physician supervision requirements are met for services 

furnished on the hospital premises, and were providing either general supervision or no 

supervision for therapeutic services furnished incident to physicians’ services in the 

outpatient setting and for which we had established 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 requirements for outpatient hospital therapeutic and 

diagnostic services. We clarified that therapeutic 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. We 
CMS-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 furnished in locations other than PBDs (that is, in 

the hospital and under arrangement in nonhospital facilities). Accordingly, we expanded 

and refined the regulatory language regarding direct supervision of diagnostic services in 

those locations to refer to presence of the supervisory practitioner in the hospital or PBD 

(for services furnished in those locations) or in the office suite (for services furnished 

under arrangement in nonhospital space). For therapeutic services, we increased 

hospitals’ flexibility regarding the direct supervision requirement by allowing all 

nonphysician practitioners whose services are those the practitioner is legally authorized 

to perform under State law that “would otherwise 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 a 
CMS-1525-P 443 

doctor of osteopathy because, as we discussed 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 these services are physician-supervised (section 

144(a)of the Medicare Improvements for Patients and Providers Act of 2008, Pub. L. 

110-275). In addition, in the CY 2011 OPPS/ASC 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 present, interruptible, and able to furnish 

assistance and direction throughout the performance of the procedure, but without 

reference to any particular physical boundary. 

In the CY 2010 OPPS/ASC final rule with comment period, we finalized a 

technical correction to the regulation at §410.27 to clarify that the direct supervision 

requirement under that section applies to services 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 only to “hospital,” to clarify that 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 technical correction because the Act applies 

the same regulations to hospitals and CAHs when appropriate (CAHs are included if “the 

context otherwise requires” under section 1861(e) of the Act). 

In response to our clarification that CAHs are subject to the direct supervision 

standard for payment of outpatient therapeutic services, CAHs and the hospital 
CMS-1525-P 444 

community at large suggested that CAHs should be exempt from this requirement 

because the requirement is at odds with longstanding and prevailing practices of many 

CAHs. For example, commenters noted that, due to low volume of services, a 

practitioner retained on the campus of a small rural hospital or CAH to meet supervision 

requirements may not have other concurrent responsibilities or patient care, which could 

lead to inefficiencies. In their correspondence and discussion in public forums, CAHs 

and small rural hospitals explicitly raised concerns about services that extend after 

regular operating hours, especially observation services. They asserted that direct 

supervision is not clinically necessary for some services that have a significant 

monitoring component that is typically performed by nursing or other auxiliary staff, 

including IV hydration, blood transfusions, and chemotherapy. They stated that their 

facilities have protocols to safely deliver all of these services, relying on nursing or other 

hospital staff to provide the service and having a physician or nonphysician practitioner 

available by phone to furnish assistance and direction throughout the duration of the 

therapeutic service. 

We provided guidance regarding the flexibility that we believe exists within our 

requirement for direct supervision for an emergency physician or nonphysician 

practitioner, who would be the most likely practitioners staffing a small rural hospital or 

CAH, to provide the supervision, on the CMS Web site at: 

http://www.cms.gov/HospitalOutpatientPPS/05_OPPSGuidance.asp#TopOfPage. 

However, these hospitals continued to express difficulty in meeting the standard. Small 

rural hospitals and CAHs indicated that, regulations notwithstanding, many of them did 
CMS-1525-P 445 

not have appropriate staff arrangements to provide the required supervision of some 

services, particularly services being provided after hours or consisting of a significant 

monitoring component that last for an extended 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 requests, 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/HospitalOutpatientPPS/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 maintaining an appropriate level of quality and 

safety and consistent with the incident to statutory provision. Specifically, we redefined 

direct supervision to remove all requirements that the supervisory practitioner remain 

present within a particular physical boundary, although we continued to require 

immediate availability. We also established a new category of services, “nonsurgical 

extended duration therapeutic services” (extended duration services), which have a 

substantial monitoring component. We specified that direct supervision is required for 
CMS-1525-P 446 

these services during an initiation period, but once the supervising physician or 

nonphysician practitioner has determined the patient is stable, the service can continue 

under general supervision. 

In addition, in response to concerns expressed by the industry about appropriate 

levels of supervision for certain services furnished 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 stakeholder requests for assignment of supervision levels other than 

direct supervision for specific outpatient hospital therapeutic services. We stated that the 

review entity would evaluate services for assignment of both higher (personal) and lower 

(general) levels of supervision because, in the course of evaluating a given service, the 

review entity may find that personal supervision is the 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 available at the CMS Website at: 

http://www.cms.gov/HospitalOutpatientPPS/Downloads/CMS_1504FC_OPPS_2011_FR

_Physician_Supervision_Nonenf_Notice.pdf). In addition, we expanded the 

nonenforcement notice to include small and rural hospitals that have 100 or fewer beds, 

as defined by TOPs criteria, because we believe 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 service-specific supervision standards, and we 

requested public comment both on that idea and 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 Committee Act (FACA, Pub. L. 92-463) to make 

independent recommendations to CMS. The 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 discussion 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 community and from rural stakeholders. In this 

proposed rule, we discuss these comments and our proposals for the independent review 

process in CY 2012, taking into account the comments received in response to the 

CY 2011 OPPS/ASC final rule with comment period. 

With respect to outpatient hospital diagnostic services, following our revisions to 

the regulation at §410.28(e) in the CY 2010 OPPS/ASC final rule with comment period 

described above, we have received very few comments from stakeholders regarding our 

revised policy. Therefore, we are not proposing any changes to those requirements in this 

proposed rule. 
CMS-1525-P 448 

B. Issues Regarding the Supervision of Hospital 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 independent 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 review process; and potential means of evaluating services. 

Commenters were generally favorable towards the establishment of an 

independent review entity, including use of the APC Panel as that entity, provided that 

CMS expand the APC Panel charter and its membership to include representatives of 

CAHs. They also were concerned that CMS ensure an adequate representation of 

clinicians on the Panel to provide the appropriate clinical review of supervision levels. 

Some commenters supported creation by law of a new committee comprised solely of 

clinicians (at least 15 multi-specialty physicians 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 percent of committee members be comprised of 

representatives of CAHs and other providers from rural States, with recommendations for 

supervision levels decided by majority vote. Other commenters preferred use of an 

existing body (for example, the APC Panel or the Relative Value Scale Update 

Committee (RUC)) and emphasized inclusion of nonclinical professionals with expertise 

in hospital/facility resource consumption in order to balance the panel’s expertise. Some 
CMS-1525-P 449 

commenters sought to assure that if the APC Panel were selected, it would remain 

appropriately balanced and qualified to carry out its current role in APC deliberations 

under section 1833(t)(9)(A) of the Act. Commenters also were supportive of CMS using 

its authority to convene a Technical Expert Panel (TEP) as the review 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 appropriate option is to use an existing body for 

reviewing supervision levels. We agree with commenters that the review body should be 

representative of all types of facilities that 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 represent a minority of hospital outpatient service 

volume and payments. In addition, while we agree with commenters that clinical 

expertise is critical to this review process, we believe that additional perspectives should 
CMS-1525-P 450 

be represented, including those of hospital administrators and coding representatives. 

Under the FACA, committees and their subcommittees must have balanced membership 

with respect to points of view represented and the topics that are under their 

consideration; therefore, a Federal advisory review entity would be required to have a 

balanced representation of geographic interests, 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 review process, most commenters requested 

that we subject the recommendations of the review entity and CMS’ decisions to notice 

and comment rulemaking. However, most commenters also requested a “real-time” 

process that would be more flexible than annual rulemaking and allow for continuous 

evaluation of services. Commenters further requested that there be a mechanism for 

reconsideration of CMS’ decisions. In addition, they requested that CMS not allow any 

information presented to the review entity in the course of the review process to be used 

for enforcement purposes. 

We believe that employing a subregulatory process to establish CMS’ final 

decisions may best serve the interests of beneficiaries and also meet the needs of other 

stakeholders. While rulemaking would arguably provide some additional procedural 

protections to stakeholders in terms of an opportunity for notice and comment, due to the 

time involved in rulemaking, stakeholders would 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 address any problems associated with supervision 
CMS-1525-P 451 

levels, for example access to care. Historically, 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 process 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 therapeutic services, we believe we should 

provide an opportunity for public comment on our proposed decisions (which would be 

based upon the review entity’s recommendations) prior to finalizing them. 

We agree with commenters that there should be a means of requesting 

reevaluation of CMS’ decisions. However, because there is a potential for significant 

administrative burden in reconsidering requests for reevaluation, we believe that 

stakeholders should be required to provide significant justification to support 

consideration of a request for a change in supervision levels that has previously been 

considered, such as new clinical evidence, new technology, or new techniques in how 

patient care is furnished. In addition, we believe that new consideration of previously 

considered requests should receive the same independent evaluation as the initial request. 

Therefore, once we decide to consider a decision, 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 request that we establish a default supervision 

standard of general supervision 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 services for assignment of personal supervision 

because many services that might qualify for personal supervision are already personally 

performed by a physician or nonphysician practitioner. Commenters also noted that 

certain services are not furnished personally by these practitioners and instead are 

furnished personally by auxiliary personnel such 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 other 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 statute does not explicitly mandate direct 

supervision, direct supervision is the most appropriate level of supervision for most 

hospital outpatient services that are authorized for payment as “incident to” physicians’ 

services unless personal supervision 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 supervision is appropriate, as we have for 

extended duration services, and that CMS has authority to accept a recommendation by 

the review entity of general supervision for a given service. However, we continue to 

believe that direct supervision is the most appropriate level of supervision for the great 

majority of hospital outpatient therapeutic services and, as such, it is the proper choice for 

a default supervision standard. 

In the course of evaluating a stakeholder request for review of the supervision 

level required for a given service, the independent review entity may recommend that 

personal supervision is the most appropriate level of supervision for the service. It may 

also be appropriate to assign personal supervision to certain services to ensure that 

auxiliary personnel or personnel in training (such as medical students) are adequately 

supervised. As we indicated 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 beneficiaries. Accordingly, we believe that the 

review entity should have authority to recommend personal supervision for a service if, in 

the course of its evaluation, it believes that personal 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 consideration 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 the risk of adverse outcomes and susceptibility 

to medical error associated with the provision of specific hospital outpatient 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 requested that CMS evaluate surgical procedures 

(especially minor surgical procedures) and portions of the surgical recovery period for 

general supervision. We continue to support direct supervision as the default supervision 

level for all hospital outpatient therapeutic services. We believe it would be appropriate 

to solicit services for evaluation from stakeholders, in a process similar to that currently 

used to solicit agenda items for the APC Panel 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 prioritize requests according to service volume, 

total expenditures for the service, frequency of requests, and the repetition of requests 
CMS-1525-P 455 

from prior public comments. In addition, we propose to require the submitter of a request 

to furnish a justification for the request, supported 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 service is furnished in a CAH or rural facility, 

taking into consideration the workforce typically 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 particular 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 types 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 for 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 section 1861(s)(2)(K) of the Act. In addition, under their State 

scope of practice, RNs are not licensed to independently furnish these services. Under 

the condition of participation regulation at §482.11, hospitals must comply with these 
CMS-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 supervision of an appropriately higher level 

practitioner), even in a CAH or rural facility that may be experiencing difficulty 

obtaining a higher level practitioner to supervise or furnish those services. In this case, 

the statute and the regulations determine at the service level which nonphysician 

professionals can and cannot supervise therapeutic services. 

Furthermore, we note that we anticipate extending the notice of nonenforcement 

for direct supervision of outpatient therapeutic services in both CAHs and small rural 

hospitals another year through 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 services described in 

paragraphs or subparagraphs of section 1861(s) of the Act other than section 

1861(s)(2)(B) of the Act, which describes outpatient hospital services incident to 

physicians’ services. Over the years, and particularly in recent months, we have received 

inquiries asking that we explain or clarify our application of the payment conditions 

under our regulation at §410.27, which explicitly applies to “hospital services and 
CMS-1525-P 457 

supplies furnished incident to a physician service to outpatients,” to outpatient therapeutic 

services other than those specified under section 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 section 1861(s)(4) of the Act) or ambulatory surgical center 

services (described under section 1832(a)(2)(F)(i) of the 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 Act 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 Act, 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 the OPPS, we required that hospital services 

and supplies furnished to outpatients incident to a physician’s service must be furnished 

“on a physician’s order by hospital personnel 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 hospital outpatients as “incident to services” 

(sections 3112 and 3112.4 of the Medicare Intermediary 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 the regulation text of §410.27 only 

explicitly refers to “incident to” services, we note that our policy is longstanding and, in 
CMS-1525-P 458 

fact, predates the OPPS. In longstanding manual guidance, we have expressed our view 

that direct supervision is required for hospital outpatient therapeutic services, and 

suggested that this requirement stems from the “incident to” nature of those services. In 

the CY 2010 OPPS/ASC final rule with comment period, we stated, “Therapeutic 

services and supplies which hospitals provide on an outpatient basis are those services 

and supplies (including the use of hospital facilities) which are incident to the services of 

physicians and practitioners in the treatment of patients” (74 FR 60584 through 60585). 

We indicated that outpatient therapeutic services and supplies 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 therapeutic services 

are, in some sense, furnished “incident to” a physician’s service even when described by 

benefit categories other than the specific “incident to” provision in section 1861(s)(2)(B) 

of the Act. Because hospital outpatient therapeutic services are furnished “incident to” a 

physician’s professional service, we believe the conditions for payment, including the 

direct supervision standard, should apply to all of these services. As discussed above, 

because the statute includes specific requirements for physician supervision of PR, CR, 

and ICR, we believe that those statutory specifications take precedence over the agency’s 

general requirements. 
CMS-1525-P 459 

C. Proposed Policies on Supervision Standards for Outpatient Therapeutic Services in 

Hospitals and CAHs

 In this proposed rule, we are proposing policies for the independent review 

process, grouped under three key topics: selection 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 standards. Specifically, we would use 

the discretionary authority in the Panel charter 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 subject to the supervision rules for payment would 

be represented. However, CAHs would not participate in deliberations 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 representation, that is charged to evaluate 

appropriate supervision standards for individual services and present its deliberations to 

the full Panel. Each member of the full Panel would then vote to decide on the Panel’s 

recommendation to CMS.

 We are proposing to use the APC Panel for many reasons. As we discussed 

above, funding is not available to CMS at this time to convene a new entity. Also, it is 
CMS-1525-P 460 

not clear that the entire resources of a new body are necessary to accomplish the 

consideration of service-specific supervision standards, especially once initial 

determinations are made regarding key services. 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 may have greater legitimacy both with 

stakeholders and with CMS compared to the opinions of other types of groups. 

 In addition to being already established and funded, the APC Panel would 

necessarily be inclusive and well-balanced because it is subject to the FACA rules. 

Consistent with stakeholders’ requests that the 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, supervision – that are under 

their consideration. In addition, the Panel incorporates clinical 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 agency decisions based on APC Panel 

recommendations through sub-regulatory guidance. We would use a process similar to 

the one currently used to set supervision levels for diagnostic services under the MPFS, 

which are adopted for provision of those services in the hospital outpatient setting. CMS’ 

decisions (which would be based upon the Panel’s recommendations) would be posted on 
CMS-1525-P 461 

the OPPS Web site for public review and comment, and would be effective either in July 

or January following the most recent APC Panel meeting, or only in January of the 

upcoming payment year. In setting the diagnostic supervision levels under the MPFS, 

there is no provision for public comment. However, 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 notice and comment on our proposed decisions 

prior to finalizing them. 

The flexibility of a subregulatory process in comparison to rulemaking would 

allow stakeholders to submit requests for evaluations of services on a more frequent basis 

(at least twice a year at APC 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. Subjecting 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 independently to ask the Panel to review the 

supervision level for one or more services as necessary. If we receive an unmanageable 
CMS-1525-P 462 

number of requests, we are proposing to prioritize requests by service volume, total 

expenditures and/or frequency of requests. We also are proposing to prioritize services 

requested for review through public comment 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 that is sought, supported to the extent possible with clinical 

evidence. We also would consider these justifications 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 which 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 whether there is a significant likelihood that the 

supervisory practitioner would need to reassess the patient and modify treatment during 

or immediately following the therapeutic intervention, 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 well beyond, the likelihood of the need to 

manage medical emergencies during or after the provision of the service. As we have 

stated in previous rules (74 FR 60580 and 75 FR 72007 and 72010), the supervisory 

responsibility is more than the mere capacity to respond to an emergency. It also 

includes being available to reassess the patient and potentially modify treatment as 

needed on a nonemergency basis. It includes the ability to redirect or take over 

performance of the service and to issue any additional necessary orders. 

We are proposing that, in the event there has been a previous consideration and 

decision on the supervision standard for a service, we would consider the request and, as 

warranted, forward the request to the APC Panel for its review. For requests for review 

of a service that has already been considered, we are proposing to require the requestor to 

submit new evidence to support a change in policy, for example, evidence of a change in 

clinical practice patterns due to new techniques 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 work toward establishing the independent 

review process, we anticipate that we will extend the notice of nonenforcement of the 

requirement for direct supervision 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, through 
CMS-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 continue to deliberate on 

any policy alternatives. Under our current timeline, we would not complete policy 

decisions on many key services 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 review entity to recommend that CMS assign 

either personal or general supervision to other hospital outpatient therapeutic services, we 

are proposing to define these terms in the regulations at proposed new §410.27(b)(1)(vi). 

We are proposing to use the definitions established 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) and “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 general 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 application 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 regulations 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 nevertheless subject to the conditions 
CMS-1525-P 465 

of payment in §410.27 when they are furnished to hospital outpatients and paid under the 

OPPS or to CAHs under section 1834(g) of the Act. 

We believe that this clarification could most readily be accomplished by more 

specifically defining the services and supplies described in the regulation text to which 

the requirements at §410.27 apply. Accordingly, 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 read, “Medicare Part B pays for therapeutic 

hospital or CAH services and supplies furnished 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 Section 20.5, Chapter 6, of the Medicare Benefit 

Policy Manual, to mean “all services and supplies furnished to hospital or CAH 

outpatients that are not diagnostic services and that aid the physician or practitioner in the 

treatment of the patient.” We would also add the term “therapeutic” 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 nonphysician practitioner’s service: Conditions.” 

 We believe it is important that we continue to apply the requirements in §410.27 

to all hospital outpatient therapeutic 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 main 
CMS-1525-P 466 

hospital and any on-campus or off-campus departments of hospitals. In particular, 

§410.27(a)(1)(iii) subjects hospital outpatient services to the requirements in §413.65 for 

PBDs of hospitals. The provider-based regulations in §413.65 govern numerous aspects 

of PBD operations including quality assurance, accountability to hospital medical 

director staff, licensure, personnel management, how far the departments can be located 

from the main hospital, and assurance that 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 govern the liabilities of the beneficiary and 

other parties when hospitals contract services out. It is important 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 arrangements with hospitals to furnish hospital 

outpatient services. We believe we should clarify 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 hospital is not permitted 

to furnish services to hospital outpatients under arrangements with an ASC because ASCs 

are paid under section 1833(i)(2)(D) of the Act (the ASC 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 outpatient therapeutic services under arrangements 

and obtain payment at the OPPS rate rather than the ASC rate. This practice would 
CMS-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 Office 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 directly involved in the delivery of care. 

Sections 410.27(b) and (c) subject services to other significant 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 under other benefit categories that are not 

explicitly defined as “incident to” services. For example, stereotactic radiosurgery (a 

radiation therapy service under 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 supervision, 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 intended to omit large classes of 

services that are routinely furnished to hospital 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 obsolete. We believe that §410.27(b) refers 

to §410.168 in error and should instead reference §410.29 (Limitations on drugs and 

biologicals). We are proposing to correct §410.27(b) so that it 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 replaced §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 in a foreign country are specified in subpart 

H of Part 424 of this chapter”. Accordingly, we are proposing to redesignate the existing 

paragraphs (d) through (f) of §410.27 as paragraphs (e) through (g), respectively. 

 In addition, we noted that CAHs are not specifically named in the definition of 

nonsurgical extended duration therapeutic services 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 correction 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 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) 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 that are subject to the 

supervision rules for payment. We are proposing to use the standard APC Panel 

protocols with respect to frequency of meetings and receiving requests for evaluation and 

reconsideration of services. However, CMS’ decisions based on the Panel’s 

recommendations would not be subject to notice and comment rulemaking, in contrast to 

recommendations by the Panel on issues other than supervision. We are proposing 

several means of prioritizing requests for evaluations, 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 general supervision for all hospital outpatient 

therapeutic services, we are proposing definitions for these terms in this proposed rule. 

We anticipate extending the notice of nonenforcement 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 our 
CMS-1525-P 470 

policy decisions on many key services that are reviewed during that year. In addition, we 

are proposing to clarify our policy that 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 redefine the services 

described in that section to clarify the nature and scope of the included services. 

XI. Proposed OPPS Payment Status 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 particular OPPS policies apply to the code. The 

proposed CY 2012 status indicator assignments for APCs and HCPCS codes are shown 

in Addendum A and Addendum B, respectively 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 preamble 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 the CY 2011 OPPS/ASC final rule 

with comment period. The proposed CY 2012 status 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 Paid 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 Paid 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 definitions of status indicators listed 

above for the CY 2012 OPPS. The proposed CY 2012 status indicators and their 
CMS-1525-P 473 

definitions are displayed in both the table 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 Diagnostic 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 Addendum 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 definitions 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 That Are Not Payable by 

Medicare on Outpatient Claims 

 We are not proposing changes to the definitions of payment 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 indicators 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 effect for the CY 2011 OPPS. 
CMS-1525-P 476 

● “CH”—Active HCPCS codes in current and next calendar year; status indicator 

and/or APC assignment have changed or active 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 public’s review of the changes 

that we are proposing for CY 2012. 

We are proposing to use the “CH” comment indicator in the CY 2012 OPPS/ASC 

final rule with comment period to indicate HCPCS 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 using the “CH” indicator in the CY 2012 

OPPS/ASC final rule with comment 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 that 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 current 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 receive 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 describes 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 labeled with comment indicator “NI” in Addendum 

B to the CY 2012 OPPS/ASC final rule with comment period. 

Only HCPCS codes with comment indicator “NI” in the CY 2012 OPPS/ASC 

final rule with comment period will be subject to comment. HCPCS codes that do not 

appear with comment indicator “NI” in the 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 to 
CMS-1525-P 478 

which comment indicator “NI” is not appended 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 proposing 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 section 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 later than March and June of each year that 

contain its Medicare payment policy recommendations. This section describes recent 

recommendations relevant to the OPPS that have been made by MedPAC. 

 The March 1, 2011 MedPAC “Report to Congress: Medicare Payment Policy” 

included the following recommendation relating to the Medicare hospital IPPS and, in 

part, to the Medicare hospital OPPS: 

 Recommendation 3: “The Congress should increase payment rates for the acute 

care hospital inpatient and outpatient 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 future years to fully recover all overpayments 

due to documentation and coding improvements.” (page 60) 
CMS-1525-P 479 

 MedPAC further stated that: “For outpatient hospital services, the Commission is 

concerned that significant payment disparities among Medicare’s ambulatory care 

settings (hospital outpatient departments, ambulatory surgical centers, and physician 

offices) for similar services are fostering undesirable financial incentives. Physician 

practices and ambulatory surgical centers are being reorganized as hospital outpatient 

entities in part to receive higher reimbursements. 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 relative risks of the patient populations. The 

Commission is concerned by the trend to reorganize 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 factor 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/documents/Mar11_EntireReport.pdf. 

B. APC Panel Recommendations

 Recommendations made by the APC Panel meeting held on February 28 and 

March 1, 2011 are discussed in the sections of this proposed rule 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_AdvisoryPanelonAmbulatoryPaymentClassificationGrou

ps.asp. 

C. OIG Recommendations

The mission of the Office of the Inspector General (OIG), as mandated by 

Pub. L. 95–452, as amended, is to protect the integrity of the U.S. Department of Health 

and Human Services (HHS) programs, as well as the health and welfare of beneficiaries 

served by those programs. This statutory mission is carried out through a nationwide 

network of audits, investigations, and inspections. 

On October 22, 2010, the OIG published a memorandum report entitled “Payment 

for Drugs under the Hospital Outpatient 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 the OIG regarding the payment for 

drugs under the OPPS, and we will take the findings in its report into consideration in the 

development of our proposed payment policy for CY 2012. 

XIII. Proposed Updates to the Ambulatory Surgical Center (ASC) Payment System 

A. Background

1. Legislative Authority for the ASC Payment System 

 Section 1832(a)(2)(F)(i) of the Act provides that benefits under Medicare Part B 

include payment for facility services furnished 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 an ASC, 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 our regulations. The regulations at 42 CFR Part 416, Subpart 

B describe the general conditions and requirements for ASCs, and the regulations at 

Subpart C explain the specific conditions 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 reviewing the appropriateness of the payment 

amount provided under section 1833(i)(2)(A)(iii) of the Act for intraocular lenses (IOLs) 

that belong to a class of new technology intraocular lenses (NTIOLs). That process was 

the subject of a final rule entitled “Adjustment in Payment Amounts for New Technology 

Intraocular Lenses Furnished 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 Prescription 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 Secretary to implement a revised ASC payment 

system to be effective not later than January 1, 2008. Section 626(c) of the MMA 

amended section 1833(a)(1) of the Act by adding new subparagraph (G), which requires 

that, beginning with implementation of the revised ASC payment system, payment for 

surgical procedures furnished in ASCs shall be 80 percent of the lesser of the actual 

charge for the services or the amount determined by the Secretary under the revised 

payment system. 

 Section 109(b) of the Medicare Improvements and Extension Act of 2006 of the 

Tax Relief and Health Care Act of 2006 (MIEA-TRHCA), Pub. L. 109-432, amended 

section 1833(i) of the Act by redesignating clause (iv) as clause (v) and adding a 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 

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 ASC 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 under section 1861(ddd)(3)(A) of the Act as 

described in section 1861(ww)(2) of the Act (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 population 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 colorectal cancer screening tests that become 

diagnostic. These provisions apply 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 productivity adjustment, which is equal to the 

10-year moving average of changes in annual economy-wide private nonfarm business 

multi-factor productivity (as projected by the Secretary for the 10-year period ending 

with the applicable fiscal year, year, cost reporting period, or other annual period). 

Application of this productivity adjustment to the ASC payment system may result in the 

update to the ASC payment system being less than zero for a year and may result in 
CMS-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 legislative 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 identifying 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 association with those covered surgical procedures 

beginning in CY 2008. We also established a policy for treating new and revised 

Healthcare Common Procedure Coding System (HCPCS) and Current Procedural 

Terminology (CPT) codes under the ASC payment system. 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 ASC covered surgical procedures on the OPPS 

relative payment weight multiplied by the ASC 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 predominantly performed in the office setting and 

covered ancillary radiology services (where ASC payment may be based on the MPFS 
CMS-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 and 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 provide 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 and 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 and 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 listed for some CPT codes in Addendum B to 
CMS-1525-P 486 

the CY 2010 MPFS final rule with comment period (74 FR 62017), which were incorrect 

due to methodological errors and were subsequently 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 identified 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 ASC 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 correction 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 and lists of covered surgical procedures 

and covered ancillary services. We corrected some of the ASC rates that were published 

in Addenda AA and BB, as well as errors in the preamble text, in a correction notice 

published in the Federal Register on March 11, 2011 (76 FR 13292). The corrections to 

the ASC Addenda were primarily due to changes 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, affected office-based and ancillary radiology payment under the 

ASC payment system. Following legislative changes to the MPFS for CY 2011 

associated with passage of section 101 of the Medicare and Medicaid Extenders Act of 

2010 that occurred after publication of the CY 2011 OPPS/ASC and MPFS final rules 

with comment periods, we posted revised ASC Addenda on our Web site to reflect 
CMS-1525-P 487 

associated changes to office-based and ancillary radiology payment under the ASC 

payment system. 

3. Policies Governing Changes to the Lists of Codes and Payment Rates for ASC 

Covered Surgical Procedures and Covered Ancillary Services 

The August 2, 2007 final rule established our policies for determining which 

procedures are ASC covered surgical procedures and covered 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 require active medical monitoring and care at 

midnight following the procedure (“overnight stay”). We adopted this standard for 

defining which surgical procedures are covered surgical procedures under the ASC 

payment system as an indicator of the complexity of the procedure and its 

appropriateness for Medicare payment in ASCs. We use this standard only for purposes 

of evaluating procedures to determine whether or not they are appropriate for Medicare 

beneficiaries in ASCs. We define surgical procedures as those described 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 crosswalk 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-priced, including, but not limited to, procurement of corneal 

tissue; certain drugs and biologicals for which separate payment is allowed under the 

OPPS; and certain radiology services for which 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 separately 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 surgical procedures and 

covered ancillary services in conjunction 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 procedures, drugs, biologicals, and certain 

other covered ancillary services on the OPPS payment policies, we also provide quarterly 

updates for ASC services throughout the year (January, April, July, and October). The 

updates are to implement newly created Level II HCPCS and Category 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 the 
CMS-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, and payment rates for, covered surgical 

procedures and covered ancillary services, we undertake a review of excluded surgical 

procedures (including all procedures newly 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 criteria for designation as ASC covered surgical 

procedures or covered ancillary 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, payment rates, are used as the basis for the 

payment of covered surgical procedures and covered ancillary services under the revised 

ASC payment system. This joint update process 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 codes, which describe medical services and 

procedures; (2) Category III CPT codes, which describe new and emerging technologies, 

services, and procedures; and (3) Level II HCPCS codes, which are used primarily to 
CMS-1525-P 490 

identify products, supplies, temporary procedures, and services not described by 

CPT codes. CPT codes are established by the American Medical Association (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 through the ASC quarterly update Change Requests (CRs) and 

through the annual rulemaking cycle. 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 are recognized on Medicare claims) outside of the formal 

rulemaking process via ASC quarterly update CRs. 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 rulemaking process. We solicit comments on the 

new codes recognized for ASC payment and finalize our proposals related to these codes 

through our annual rulemaking process. 

We finalized a policy in the August 2, 2007 final rule to evaluate each year all 

new Category I and Category III CPT codes and Level II HCPCS codes that describe 

surgical procedures, and to make preliminary determinations in the annual OPPS/ASC 

final rule with comment period regarding whether 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 through 42535). In addition, we identify new 

codes as ASC covered ancillary services based 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 TIMEFRAME 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 

July 1, comment period 

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 

January 1, comment period 

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 proposing 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 comment period) or whether we will be soliciting public 

comments in the CY 2012 OPPS/ASC final rule with comment period (and responding to 
CMS-1525-P 492 

those comments in the CY 2013 OPPS/ASC final 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 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, were flagged with 

comment indicator “N1” in Addendum AA and BB to the CY 2011 OPPS/ASC final rule 

with comment period to indicate that we were 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 rule 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 Which We Are Soliciting Public Comments in 

this CY 2012 OPPS/ASC Proposed Rule 

In the April and July CRs, we made effective for April 1 or July 1, 2011, a total of 

13 new Level II HCPCS codes and 6 new Category 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 covered 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 services. Specifically, as displayed in Table 42 below, these 
CMS-1525-P 493 

included HCPCS codes C9280 (Injection, eribulin mesylate, 1 mg), C9281 (Injection, 

pegloticase, 1 mg), C9282 (Injection, 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 deleted for dates of service April 1, 2011 

and forward, because it was replaced 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 biological Level II HCPCS codes to the list 

of covered ancillary services. Specifically, 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/tetracaine 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), Wilate, 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), and Q2044 (Injection, belimumab, 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 surgical procedure on the ASC list; payment based on OPPS rate) 

to these 13 new Level II HCPCS codes to indicate that they are separately paid when 
CMS-1525-P 494 

provided in ASCs. We are soliciting public comment on the proposed CY 2012 ASC 

payment indicators and payment rates for the drugs 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 ASC rates posted for the 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 the 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 this OPPS/ASC proposed rule, our policy is to 

include these HCPCS codes and their proposed payment indicators and 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 and payment indicators will 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 CODES 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, incobotulinumtoxin A, 1 unit K2 

TABLE 43.—NEW LEVEL II HCPCS CODES 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 million 

autologous cd54+ cells activated with papgm-csf, including leukapheresis and all 

other preparatory procedures, 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, effective 
CMS-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 effective for July are not available to us in 

time for incorporation into the Addenda to the OPPS/ASC proposed rule, our policy is to 

include the codes, their proposed payment indicators, 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 rates will be included in Addendum AA to the 

CY 2012 OPPS/ASC final rule with comment period. 

We are proposing to assign payment indicator “G2” (Non-office-based surgical 

procedure added in CY 2008 or later; payment 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 ASCs. We are soliciting public 

comment on these proposed payment indicators and the payment rates for the new 

Category III CPT codes that were newly recognized as ASC covered surgical procedures 

in July 2011 through the quarterly update CR, as listed in Table 44 below. We are 

proposing to finalize their payment indicators 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 unilateral 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 marrow harvest only for 

intramuscular autologous bone marrow cell 

therapy 

G2 $1,218.58 

0269T 

Revision or removal of carotid 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 carotid sinus baroreflex 

activation device; lead only, unilateral 

(includes intra-operative interrogation, 

programming, and repositioning, when 

performed) 

G2 $841.60 

0271T 

Revision or removal of carotid sinus baroreflex 

activation device; pulse generator only 

(includes intra-operative interrogation, 

programming, and repositioning, when 

performed) 

G2 $1,126.88 
CMS-1525-P 498 

In summary, for CY 2011, we are soliciting 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 quarterly update CRs. These codes are listed in Tables 42, 43 

and 44 of this proposed rule. We are proposing to finalize their payment indicators and 

their payment rates, if applicable, in the CY 2012 OPPS/ASC final rule with comment 

period. 

3. Proposed Process for New Level II HCPCS 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 HCPCS codes that are effective January 1 in 

the final rule with comment period updating the ASC payment system 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 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 comment period updating the ASC payment system 

for the following calendar year. All of these codes are flagged with comment indicator 

‘‘NI’’ in Addenda AA and BB to the OPPS/ASC final rule with comment period to 

indicate that we are assigning them an interim payment status which is subject to public 

comment. The payment indicator and payment rate, if applicable, for all such codes 
CMS-1525-P 499 

flagged with comment indicator ‘‘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 period the new Category I and III CPT codes 

effective January 1, 2012 that would be incorporated 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 would be flagged with comment indicator ‘‘NI’’ 

in Addenda AA and BB to the CY 2012 OPPS/ASC final rule with comment period to 

indicate that we have assigned them an interim payment status. Their payment indicators 

and payment rates, if applicable, would be open to public 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 codes that currently are paid under the 

OPPS, but not included on the ASC list of covered surgical procedures, to determine if 

changes in technology and/or medical practice changed the clinical appropriateness of 
CMS-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 Medicare beneficiaries or would require 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 Procedures 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 added to the ASC list of covered surgical 

procedures in CY 2008 or later years that we determine are performed predominantly 

(more than 50 percent of the time) in physicians’ offices based on consideration of the 

most recent available volume and utilization data for each individual procedure code 

and/or, if appropriate, the clinical characteristics, utilization, and volume 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 classification (72 FR 42512). The procedures 

that were added to the ASC list of covered surgical procedures beginning in CY 2008 that 

we determined were office-based were identified in Addendum AA to that rule by 

payment indicator “P2” (Office-based surgical 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 surgical procedures added to ASC list in CY 2008 or later 

with MPFS non-facility PE RVUs; payment based on MPFS non-facility PE RVUs); or 
CMS-1525-P 501 

“R2” (Office-based surgical procedure added 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 relative 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 Covered 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 procedures that are assigned payment indicator 

“G2” in CY 2011, as well as for those procedures assigned one of the temporary 

office-based payment indicators, specifically “P2*,” “P3*,” or “R2*” in the CY 2011 

OPPS/ASC final rule with comment 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 performed more than 50 percent of the time in 
CMS-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 permanently 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 R2 
CMS-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 including other nonexcisional 

destructive procedures or perfusion of 

vestibuloactive drugs (single or multiple 

perfusions); transcanal 

G2 P3 

We also reviewed CY 2010 volume and utilization data and other information for 

the 23 procedures finalized for temporary office-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 data for eight procedures: CPT code 0099T 

(Implantation of intrastromal corneal ring segments); CPT code 0124T (Conjunctival 
CMS-1525-P 504 

incision with posterior extrascleral placement of pharmacological agent (does not include 

supply of medication)); CPT code 0226T (Anoscopy, high resolution (HRA) (with 

magnification and chemical agent enhancement); diagnostic, including 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), platelet rich plasma, any tissue, including 

image guidance, harvesting and preparation when performed); CPT code C9800 (Dermal 

injection procedure(s) for facial lipodystrophy syndrome (LDS) and provision of 

Radiesse or Sculptra dermal filler, including all items and supplies); CPT code 37761 

(Ligation of perforator vein(s), subfascial, open, including ultrasound guidance, when 

performed, 1 leg); and CPT code 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). Consequently, we are proposing to maintain their 

temporary office-based designations for CY 2012. 

As a result of our review of the remaining 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 designated 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 vascular 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 tissue 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 tissue 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 CPT codes are sufficient to indicate that 

these procedures are not performed predominantly in physicians’ offices and, therefore, 

should not be assigned an office-based payment indicator in CY 2012. 

The proposed CY 2012 payment indicator designations 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 proposed 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 tissue 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 tissue 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 tissue of foot or toe, 

subcutaneous; 1.5 cm or greater P3* G2 

28041 

Excision, tumor, soft tissue of foot or toe, 

subfascial (eg, intramuscular); 1.5 cm or 

greater 

R2* G2 

28043 Excision, tumor, soft tissue of foot or toe, 

subcutaneous; less than 1.5 cm P3* G2 

28045 

 Excision, tumor, soft tissue of foot or toe, 

subfascial (eg, intramuscular); less than 1.5 

cm 

P3* G2 
CMS-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 rich 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 all 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 Procedures Designated as Device-Intensive 

(1) Background 

As discussed in the August 2, 2007 final rule (72 FR 42503 through 42508), we 

adopted a modified payment methodology for calculating the ASC payment rates for 

covered surgical procedures that are assigned to the subset 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 the procedure is adequate to provide packaged 

payment for the high-cost implantable devices used in those procedures. We assigned 

payment indicators “H8” (Device-intensive procedure on ASC list in CY 2007; paid at 

adjusted rate) and “J8” (Device-intensive procedure added to ASC list in CY 2008 or 

later; paid at adjusted rate) to identify the procedures that were eligible for ASC payment 

calculated according to the modified methodology, depending on whether the procedure 

was included on the ASC list of covered surgical 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 this 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 subject 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 payment 
CMS-1525-P 510 

methodology will apply in CY 2012 or later will be assigned payment indicator “J8” 

(Device-intensive procedure; paid at adjusted rate). 

(2) Proposed Changes to List of Covered 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 device-intensive procedure payment methodology 

for CY 2012, consistent with the proposed OPPS device-dependent APC update, 

reflecting the proposed APC assignments of procedures, designation of APCs as devicedependent, and APC device offset percentages 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 that we are proposing to designate as 

device-intensive and that would be subject to the device-intensive procedure payment 

methodology for CY 2012 are listed in Table 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 in Table 47 below. All of these procedures are included in 

Addendum AA to this proposed rule (which is referenced in section XVII. of this 

proposed rule and available via the 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 2012 

DeviceDependent 

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 2012 

DeviceDependent 

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/Re

pair of CardioverterDefibrillator Leads 87% 

33240 Insert pulse 

generator J8 0107 Insertion of CardioverterDefibrillator 88% 

33249 Eltrd/insert 

pace-defib J8 0108 

Insertion/Replacement/Re

pair 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 2012 

DeviceDependent 

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 

Implant 

neuroelectrodes 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 2012 

DeviceDependent 

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 

Implant 

neuroelectrodes J8 0040 

Level I 

Implantation/Revision/Re

placement of 

Neurostimulator 

Electrodes 

55% 

64555 

Implant 

neuroelectrodes J8 0040 

Level I 

Implantation/Revision/Re

placement of 

Neurostimulator 

Electrodes 

55% 

64560 

Implant 

neuroelectrodes J8 0040 

Level I 

Implantation/Revision/Re

placement of 

Neurostimulator 

Electrodes 

55% 

64561 

Implant 

neuroelectrodes J8 0040 

Level I 

Implantation/Revision/Re

placement of 

Neurostimulator 

Electrodes 

55% 

64565 

Implant 

neuroelectrodes 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 2012 

DeviceDependent 

APC 

Offset 

Percentage

64568 

Implant 

neuroelectrodes J8 0318 

Implantation of 

Neurostimulator 

Electrodes, Cranial Nerve 

86% 

64575 

Implant 

neuroelectrodes J8 0061 

Laminectomy, 

Laparoscopy, or Incision 

for Implantation of 

Neurostimulator Electr 

64% 

64577 

Implant 

neuroelectrodes J8 0061 

Laminectomy, 

Laparoscopy, or Incision 

for Implantation of 

Neurostimulator Electr 

64% 

64580 

Implant 

neuroelectrodes J8 0061 

Laminectomy, 

Laparoscopy, or Incision 

for Implantation of 

Neurostimulator Electr 

64% 

64581 

Implant 

neuroelectrodes 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 2012 

DeviceDependent 

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 possible 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 procedures. We believe that these three procedures 

should continue to be excluded from the ASC list of covered surgical procedures for 

CY 2012 because they would be expected to pose a significant 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 section IX.B. of this proposed rule. The 
CMS-1525-P 517 

HCPCS codes for these three procedures and their long descriptors are listed in Table 48 

below. 

TABLE 48.—PROCEDURES PROPOSED FOR EXCLUSION FROM THE 

ASC LIST OF COVERED PROCEDURES FOR CY 2012 THAT ARE 

PROPOSED FOR REMOVAL FROM THE CY 2012 OPPS INPATIENT LIST 

CPT Code Long Descriptor 

21346 Open treatment of nasomaxillary complex fracture (Lefort II 

type); with wiring and/or local fixation 

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 

54650 Orchiopexy, abdominal approach, for intra-abdominal testis 

(eg, Fowler-Stephens) 

 We invite public comment on this proposal. 

2. Covered Ancillary Services 

Consistent with the established ASC payment system policy, we are proposing to 

update the ASC list of covered ancillary services 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 changes 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 section XIII.F. of this proposed rule, is used in Addendum 

BB to this proposed rule (which is referenced in section XVII. of this proposed rule and 

available on via the Internet on the CMS Web site) to indicate covered ancillary services 
CMS-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 Surgical Procedures and Covered Ancillary 

Services

1. Proposed Payment for Covered Surgical Procedures 

a. Background 

Our ASC payment policies for covered surgical procedures under the revised 

ASC payment system are fully described in the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66828 through 66831). Under our established policy for the 

revised ASC payment system, the ASC standard ratesetting methodology of multiplying 

the ASC relative payment weight for the procedure by the ASC conversion factor for that 

same year is used to calculate 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 according to the ASC standard ratesetting 

methodology. The rate calculation established for device-intensive procedures (payment 

indicator “J8”) is structured so that the packaged 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 period 
CMS-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 the 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 procedures formerly subject to the transitional 

payment methodology (payment indicators “A2” and “H8”) using the standard rate 

setting methodology, incorporating the device-intensive methodology, as appropriate. 

Payment rates for office-based procedures (payment indicators “P2,” “P3,” and 

“R2”) are the lower of the MPFS non-facility PE RVU-based 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 (payment 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 according 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 Surgical Procedure Payment Rates for CY 2012 

 We are proposing to update ASC payment rates for CY 2012 using the established 

rate calculation methodologies under §416.171. Under §416.171(c)(4), the transitional 
CMS-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 for procedures formerly subject to the 

transitional payment methodology (payment indicators “A2” and “H8”) using the 

proposed CY 2012 ASC rate calculated according to the ASC standard ratesetting 

methodology, incorporating the device-intensive procedure methodology, as appropriate. 

We are proposing to continue to use the amount calculated under the ASC standard 

ratesetting methodology for procedures assigned payment indicator “G2.” We are 

proposing to modify or delete the payment indicators for procedures that were subject to 

transitional payment prior to CY 2011 (we refer 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 procedures 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 amounts for device-intensive procedures based 

on the CY 2012 OPPS proposal that reflects updated OPPS device offset percentages, and 

to make payment for office-based procedures 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 for costly devices implanted in ASCs at 

no cost or with full or partial credit as set forth in §416.179 is consistent 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 that are assigned to APCs under the OPPS to 

which this policy applies. We refer readers 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 credit devices (73 FR 68742 through 68745). 

Consistent with the OPPS, we are proposing 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 policy 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 furnished at no cost or with full credit from the 

manufacturer, the ASC would append the HCPCS “FB” modifier on the line with the 

procedure to implant the device. The contractor would reduce payment to the ASC by 

the device offset amount that we estimate represents the cost of the device when the 
CMS-1525-P 522 

necessary device is furnished without cost to the ASC or with full credit. We would 

provide the same amount of payment reduction based on the device offset amount in 

ASCs that would apply under the OPPS under the 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 payment 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 would 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 cost of a device listed in Table 50 below. In 

order to report that they received a partial credit of 50 percent or more 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 Medicare contractor after 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 procedure 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 PROCEDURES 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 of 

CardioverterDefibrillator Leads 

87% 43% 

33240 Insert pulse 

generator J8 0107 

Insertion of 

CardioverterDefibrillator 88% 44% 

33249 Eltrd/insert 

pace-defib J8 0108 

Insertion/Replacement

/Repair of 

CardioverterDefibrillator 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 COST 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 rec 
CMS-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 Deductible 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 under section 1861(ddd)(3)(A) of the Act as 

described in section 1861(ww)(2) of the Act (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 population 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 provisions and identified 

the ASC covered surgical and ancillary services 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 discussion 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 double 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) uses 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 performed by the implantation of an ICD along with a pacing 

electrode is referred to as “CRT–D.” As detailed in section II.A.2.e.(6) of this proposed 

rule, we are proposing to create an OPPS composite APC (Composite APC 8009 

(Cardiac Resynchronization Therapy - ICD Pulse Generator and Leads)) which would be 

used when 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)) and CPT code 

33249 (Insertion or repositioning of electrode lead(s) for single or dual chamber pacing 

cardioverter-defibrillator and insertion of pulse generator) 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 severity diagnosis-related group (MS-DRG) 

payment rate established under the IPPS that would 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 Defibrillator Implant without Cardiac 

Catheterization without Major Complication or Comorbidity). This would ensure 

appropriate and equitable payment to hospitals and that we do not create an inappropriate 

payment incentive to provide CRT-D services in one setting of care over another by 
CMS-1525-P 531 

paying more for CRT-D in the outpatient setting compared to the inpatient setting. 

Specifically, for the CY 2012 OPPS, we are proposing 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 payment 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 establish 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. Again, 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 (which is the lesser of the APC 8009 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 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 and 33249 are performed on the same date of 

service to receive the appropriate CRT-D composite payment. 

In a related issue, as detailed in section III.D.6 of this proposed rule, CPT codes 

33225 and 33249 are the only procedures proposed for inclusion in APC 0108. We are 
CMS-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 the lesser of the APC 0108 median cost or the 

IPPS standardized payment rate for MS-DRG 227. For ASC payment in CY 2012, we 

are proposing to apply the device-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 particular type of service and its payment policy 

under the OPPS. Our overall policy provides separate ASC payment for certain ancillary 

items and services integrally related to the provision of ASC covered surgical procedures 

that are paid separately under the OPPS and provides packaged ASC payment for other 

ancillary items and services that are packaged 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 ancillary services also to be paid, ancillary items and services 

must be provided integral to the performance of ASC covered surgical procedures for 

which the ASC bills Medicare. 
CMS-1525-P 533 

Our ASC payment policies provide separate 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 radiology 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 RE RVU 

amount, regardless of which is lower. This modification to the ASC payment 

methodology for ancillary services 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 procedures 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 these 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 for the cost associated with the diagnostic 

radiopharmaceuticals. 

ASC payment policy for brachytherapy sources generally mirrors the payment 

policy under the OPPS. We finalized our policy in the CY 2008 OPPS/ASC final rule 
CMS-1525-P 534 

with comment period (72 FR 42499) to pay for brachytherapy sources applied in ASCs at 

the same prospective rates that were adopted under the OPPS or, if OPPS rates were 

unavailable, at contractor-priced 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 June 30, 2008, brachytherapy sources be paid 

under the OPPS at charges adjusted to cost. Therefore, consistent with our final overall 

ASC payment policy, we paid ASCs at contractor-priced rates for brachytherapy sources 

provided in ASCs during that period of time. Beginning 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 OPPS/ASC final rule with comment period (72 FR 67165 

through 67188). Immediately prior to the publication of the 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, Medicaid, and SCHIP Extension Act of 2007, 

Pub. L. 110-173) to extend the requirement that brachytherapy sources be paid under the 

OPPS at charges adjusted to cost through December 31, 2009. Therefore, consistent with 

final ASC payment policy, ASCs continued to be paid at contractor-priced rates for 

brachytherapy sources provided integral to ASC covered surgical procedures during that 

period of time. 

 Other separately paid covered ancillary services in ASCs, specifically corneal 

tissue acquisition and device categories with OPPS pass-through status, do not have 

prospectively established ASC payment rates according to the final policies of the revised 
CMS-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 transplantation. Devices that are eligible 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 imaging/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 update the ASC payment rates and make 

changes to ASC payment indicators as necessary to maintain consistency between the 

OPPS and ASC payment system regarding the packaged or separately payable status of 

services and the proposed CY 2012 OPPS and ASC payment rates. The proposed 

CY 2012 OPPS payment methodologies for separately payable drugs and biologicals and 

brachytherapy sources are discussed in section II.A. and section V.B. of this proposed 

rule, respectively, and we are proposing to set the CY 2012 ASC payment rates for those 

services equal to the proposed CY 2012 OPPS rates. 

Consistent with established ASC payment 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 and 
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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 procedure (payment indicator “N1”). Radiology 

services that we are proposing to pay based on the ASC standard ratesetting methodology 

are assigned payment indicator “Z2” (Radiology 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 payment is based on the MPFS non-facility PE 

RVU-based amount are assigned payment indicator “Z3” (Radiology service paid 

separately when provided integral to a surgical procedure on ASC list; payment based on 

MPFS non-facility PE RVUs). 

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 radiology 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 nuclear medicine procedures in CY 2012. In 
CMS-1525-P 537 

addition, because the same issue exists for radiology 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 payment 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 regulation text at §416.171(d) to reflect this 

proposal. 

Most covered ancillary services and their proposed payment indicators are listed 

in Addendum BB to this proposed rule (which is referenced in section XVII. of this 

proposed rule and available via the 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 applications to establish new classes of new 

technology intraocular lenses (NTIOLs) and for recognizing new candidate intraocular 

lenses (IOLs) inserted during or subsequent to cataract extraction 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 the calendar year in which 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 receipt 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 consideration 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 benefits 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 predominant, class-defining 

characteristic associated with the improved clinical outcome with designated members of 

an active or expired NTIOL class; and 

● Criterion 3 (42 CFR 416.195(a)(4)): Evidence demonstrates that use of the 

IOL results in measurable, clinically meaningful, improved outcomes in comparison with 
CMS-1525-P 539 

use of currently available IOLs. The statute 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 Process for Payment Adjustment 

For a request to be considered complete, we require submission of the information 

that is found in the guidance document entitled “Application Process and Information 

Requirements for Requests for a New Class 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 final 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 consideration of applications for establishment of a new NTIOL class. 

When a new NTIOL class is created, we identify the predominant characteristic of 

NTIOLs in that class that sets them apart from other IOLs (including those previously 

approved as members of other expired or active 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 publication of the ASC payment update final rule, 

consistent with the statutory requirement. 

3. Requests to Establish New NTIOL Classes 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 optic, 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 improve driving safety 

under glare conditions,” with these IOLs as members of the class. We reviewed a similar 
CMS-1525-P 541 

request by Alcon during the CY 2011 NTIOL application cycle (75 FR 72052). As part 

of its CY 2012 request, Alcon 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 IOLs by the FDA. This information included the approved labeling for the 

candidate IOLs, a summary of the IOLs’ safety and effectiveness, a copy of the FDA’s 

approval notifications, and instructions for their use. 

In its CY 2012 request, Alcon asserts that its request is based on studies 

demonstrating that the Acrysof Natural IOLs 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 glare that impairs the ability of the eye to 

differentiate objects from the background. Alcon 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 describe 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 NTIOLs, we would base our determination on 

consideration of the three major criteria at 42 CFR 416.195(a) and listed above. We have 

begun our review of Alcon's request to recognize its Acrysof Natural IOLs as NTIOLs 

and concurrently establish a new class of NTIOLs. We are soliciting public comment on 

these candidate IOLs with respect to the 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 relevance in comparison with currently available 

IOLs must have been approved by the FDA for 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 clinical 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 comments regarding the assertion that the 

specific blue light filtering properties associated with the candidate IOLs improve driving 

safety via the reduction of glare disability. 

Second, according to 42 CFR 416.195(a)(3), we also require that the candidate 

IOL not be described by an active or expired 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 from consideration as a member of a 

new class of NTIOL a lens that includes as one of its characteristics a class-defining 

characteristic associated with members of an active or expired class. Only if that shared 

characteristic were the predominant characteristic of the lens would it be precluded from 
CMS-1525-P 543 

approval as a new class of NTIOL. However, if the lens featured other characteristics, 

one or more of which predominated, that were clearly tied with improved clinical 

outcomes, the lens would not be disqualified from consideration as an NTIOL just 

because it also shared a characteristic with members 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 Reduction in Preexisting 

Astigmatism classes, both of which were created in 2000 and expired in 2005, and the 

Reduced Spherical Aberration class, which was 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 example, IOLs recognized as members of the 

reduced spherical aberration class are characterized 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 characteristic 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 purposes of satisfying §416.195(a)(3), CMS must 
CMS-1525-P 544 

be able to determine which lens characteristic is predominant for Alcon’s model 

SN60WF, asphericity (resulting in reduced spherical aberration) or blue-light filtering. If 

the predominant characteristic is asphericity, then the model SN60WF IOL would be 

disqualified under §416.195(a)(3). This determination is particularly relevant given that 

the clinical benefit attributed to both of these lens characteristics is improved night 

driving. To our knowledge, Alcon has not compared the IOL model SN60WF (a bluelight filtering aspheric IOL) to a non-blue-light 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 attributable to the aspheric optic. Such 

information would assist us in evaluating whether blue-light filtering predominates or is 

subordinate to the IOL’s asphericity. 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 comments 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 also require that an applicant submit 

evidence demonstrating that use of the IOL results 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 available IOLs for purposes of such comparisons, and we received 

several comments in response to our solicitation (71 FR 68178). We agreed with 
CMS-1525-P 545 

commenters that we should 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. This means that we do not 

expect that “currently available lenses” would remain static over time and always 

necessarily default to the classic spherical monofocal IOL for every candidate NTIOL 

class. Therefore, we believe that “currently available lenses” for purposes of reviewing 

NTIOL requests should depend upon the class-defining characteristic and the associated 

purported improved clinical outcome of the candidate NTIOL. For example, for some 

candidate NTIOLs the most appropriate comparison 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 monofocal IOLs represent the currently 

available IOLs against which the candidate NTIOLs should be compared in order to 

establish a new class. According to publicly available data from Market Scope, LLC, 

IOLs with aspheric optics accounted for over 86 percent of the IOLs implanted in the 

United States during 2010. In addition, data submitted by Alcon shows that the 

overwhelming majority of IOLs sold by Alcon have aspheric optics. Furthermore, the 

aspheric design that results in reduced spherical aberration was the class defining 

characteristic for IOLs recognized as members 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) was safer night driving 
CMS-1525-P 546 

(71 FR 4588). Alcon asserts that what makes its candidate IOLs superior to other 

currently available IOLs is improved driving safety under glare conditions. Glare 

conditions during driving primarily occur at night due to headlights from oncoming cars. 

The primary improved clinical outcome from reduced spherical aberration IOLs (an 

expired NTIOL class) was safer night driving 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 currently available IOLs against which the Alcon 

blue filtering IOLs should be compared is aspheric IOLs. In particular, the relevant 

comparison would be the performance of an aspheric 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 driving. We seek public comment on our view 

of “currently available lenses” for the purposes of evaluating Alcon’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 hypothesis that blue light filtering IOLs improve 

driving safety under glare conditions as compared to currently available IOLs. The first 

of these two submitted articles is: Hammond B, et al. Contralateral 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 contrast 
CMS-1525-P 547 

threshold, and photostress recovery time) in eyes with blue-light-filtering 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 effect 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 and 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 request. 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 other 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 clinical 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 optics 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 the new class would be based? 

● Are the submitted data enough to prove that the blue filtering optic is 

responsible for reduction in glare disability as asserted by applicant? 

● Did these studies use an appropriate comparator IOL? 

 Furthermore, in accordance with our established NTIOL review process, we are 

also seeking public comments on all of the review criteria for establishing a new NTIOL 

class that would be based on the ability of the 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 consideration regarding Alcon’s candidate IOLs. 

b. Requestor/Manufacturer: Bausch & Lomb, Inc. (B&L) 

Lens Model Numbers: Xact Foldable Hydrophobic Acrylic Ultraviolet 

Light-Absorbing Posterior Chamber Intraocular 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 IOL optic when the IOL is in an aqueous 

environment. According to B&L, “glistenings have been associated with decreased 
CMS-1525-P 549 

contrast sensitivity, increased glare, decreased 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 risks 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. Final FDA labeling is currently pending. 

In its CY 2012 request, B&L asserts that because the Xact IOLs are 

glistening-free, they eliminate the decreased contrast sensitivity, increased glare, 

decreased visual acuity, and impaired fundus visualization associated with glistenings, 

and may likewise decrease the need for explantations associated with those conditions. 

B&L also concludes that use of a glistening-free IOL results in measurable, clinically 

meaningful, improved outcomes in comparison with 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 applications 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 IOLs as NTIOLs and concurrently establish a new class of 

NTIOLs. We are soliciting public comment on these candidate IOLs with respect to the 

established NTIOL criteria 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 relevance in comparison with currently available 

IOLs must have been approved by the FDA for 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 glistenings on visual outcomes.” [Emphasis added.] 

 “Testing established that glistenings were 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 conducted outside of the United States. In this study, 172 eyes of 

142 patients were examined at least once between 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 glistening-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 glistenings in IOLs, and the 

incidence of glistenings severe enough to cause measurable visual symptoms in recently 
CMS-1525-P 551 

pseudophakic Medicare beneficiaries. In addition, we are interested in public comments 

regarding the assertion by B&L that the glistening-free property associated with the Xact 

IOLs would eliminate the decreased contrast sensitivity, increased glare, decreased visual 

acuity, and impaired fundus visualization associated 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 predominant, class-defining 

characteristic associated with improved clinical 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 proposed class-defining 

characteristic and associated clinical benefits of the Xact IOLs, specifically the 

glistening-free property, cannot be similar to the class-defining characteristics and 

associated benefits of the three expired NTIOL classes. We welcome public comments 

that address whether the proposed class-defining characteristic and associated clinical 

benefits of the candidate B&L IOLs are described by the expired NTIOL classes. 

Third, our NTIOL evaluation criteria also require that an applicant submit 

evidence demonstrating that use of the IOL results 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 also believe that “currently available lenses” for purposes of 

reviewing NTIOL requests should depend upon the class-defining characteristic and the 
CMS-1525-P 552 

associated purported improved clinical outcome of the candidate NTIOL class. For 

purposes of reviewing B&L’s request to establish a new NTIOL class for CY 2012, we 

believe that the full spectrum of currently available IOL materials should be represented 

in the comparator IOLs, but that the particular design of the optic (for example, aspheric 

versus spherical) is less critical to evaluating the benefits of glistening-free IOLs as 

glistenings are related more to the IOL optic material than to the optical surface 

characteristics of the IOL. We are seeking public comment on our view of “currently 

available lenses” for the purposes of evaluating B&L’s candidate IOLs against currently 

available IOLs. 

We are reviewing the evidence submitted 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 glistenings 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 material types. However, there are several 

significant questions with respect to glistenings, and we solicit public comment on these 

questions as follows: 

● Is there a particular IOL material type that is more likely to result in 

symptomatic glistenings relative to other material types? 

● What is the clinical significance (from the patient’s perspective) 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 severity 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 “aseptically 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 package for delivery to the operating field. 

According to Hoya, the iSert System has the following benefits, in that 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 reusable forceps or injectors 

used for other foldable IOLs; 

● Provides a clinical advantage compared to existing IOLs by allowing the IOL 

to be placed in the eye without contacting external ocular tissues or reusable injection 

instruments; and 

● Improves overall safety of cataract/IOL surgery by reducing the number of 

reusable instruments that must be properly 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 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, 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 are 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 soliciting 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 relevance in comparison with currently available 
CMS-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 the following under the heading DEVICE 

DESCRIPTION: 

 “The Hoya iSertTM Model PY-60R Intraocular Lens (IOL) is an ultraviolet 

absorbing posterior chamber intraocular lens designed 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 loaded 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 iSertTM Model PY-60R Intraocular Lens is indicated for primary 

implantation in the capsular bag of the eye for 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) requires that “[c]laims 

of specific clinical benefits and/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 iSert System lacks any such claims. The only 

statement in the above-quoted language from the FDA label that is any different from the 

typical device description and indications for a standard spherical monofocal IOL is the 

statement that the “PY-60R is loaded in a disposable injector consists [sic] of Case, Tip, 
CMS-1525-P 556 

Body, Slider, Rod, Plunger, and Screw.” However, 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. Therefore, it would appear that the Hoya iSertSystem 

PY-60R IOL would not satisfy the requirements of 42 CFR 416.195(a)(2). However, we 

are soliciting public comments on this matter 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 recognition as an NTIOL and to concurrently 

establish a new class of NTIOLs that result in a “reduction of postoperative residual 

refractive error.” According to Lenstec, the Softec HD PS IOL achieves a “reduction of 

postoperative residual refractive error” by its availability in 0.25 diopter (D) increments 

with a tolerance of ±0.11 D, while all other current 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 with IOLs available only in 0.50 D increments. 

This greater refractive accuracy of the Softec HD PS is due to the chosen IOL power 

likely being closer to the calculated (desired) 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 expects 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 refractive 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 application on consideration of the three major 

evaluation criteria that are discussed above. We have begun our review of Lenstec's 

request to recognize its Softec HD PS IOL as an NTIOL and concurrently 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 relevance in comparison with currently available 

IOLs must have been approved by the FDA for 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 claims of specific clinical benefits and/or lens characteristics with 

established clinical relevance in comparison with currently available IOLs. We are 

interested in public comments on whether an IOL being offered in quarter diopter 
CMS-1525-P 558 

increments can be considered a “lens characteristic 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 increments is more appropriately considered not 

a lens characteristic per se, but instead just a manufacturer specification. 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 with improved 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 classes. Lenstec states the following in its 

application: 

 “The Softec HD IOL, the parent to the 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 included in the just-closed “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 previously 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 characteristic 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 for the surgeon, it does not appear to affect 

the functionality of the IOL. We request comments 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 also require that an applicant submit 

evidence demonstrating that use of the IOL results 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 also believe that “currently available lenses” for purposes of 

reviewing NTIOL requests should depend upon the class-defining characteristic and the 

associated purported improved clinical outcome 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. Lenstec asserts that what makes its candidate IOL 
CMS-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 study that is the subject of an article that 

is currently in press and another unpublished 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 predictability 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.com/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 investigators to control for all of the variables 

that impact post-cataract surgery refractive outcome and/or isolate the effect of the 

availability of the Softec HD PS IOL in quarter diopter increments. Lenstec compared 

the postoperative refractive errors of these study subjects to the results from an unrelated 

study performed outside of the United States (using IOLs that were available only in 0.50 
CMS-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 study 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 increments and labeled with a manufacturing 

tolerance of ±0.11D (the labeled group) and 51 were implanted with IOLs available in 

0.50 D increments without a labeled manufacturing tolerance (the unlabeled group). 

Postoperative outcomes were assessed, and prediction error was calculated and compared 

between groups. Mean error 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 statistically 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 that within ±0.25 D 

prediction error was achieved in 63 percent of the patients in the labeled group compared 

to 43 percent in the unlabeled group (p=0.03), and for within ±0.50 D, 84 percent and 

69 percent (p=0.06), respectively. We request comments from the public regarding the 

Lenstec NTIOL request and the evidence submitted by Lenstec, and in particular would 

like the public to comment on the following: 

● What is the clinical significance (from the patient’s perspective) of a small 

amount of residual spherical refractive error after cataract surgery? 
CMS-1525-P 562 

● What is the likelihood that a Medicare beneficiary receiving a monofocal IOL 

will require some form of postoperative refractive correction (that is, post-cataract 

surgery glasses), which is a Medicare benefit? 

● If the overwhelming majority of Medicare beneficiaries receiving a monofocal 

IOL will require some form of postoperative refractive correction (that is, post-cataract 

surgery glasses), does that lessen the clinical significance of reduced postoperative 

residual refractive error? 

● Are the studies described above properly designed to test Lenstec’s hypothesis? 

● Do the studies described above adequately prove Lenstec’s hypothesis? 

All comments on these requests must be received 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 five 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 comment period (72 FR 66855). We created 

Addendum DD1 to define ASC payment indicators 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 receive 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 lists 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 identify, for the revised ASC payment system, the 

status of a specific HCPCS code and its payment 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 assigned is subject to comment. The comment 
CMS-1525-P 564 

indicator “NI” is also assigned to existing codes with substantial revisions to their 

descriptors such that we consider 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 the 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 section XVII. of this proposed rule and available 

via the Internet on the CMS Web site) to indicate that a new payment indicator is 

proposed for assignment to an active HCPCS code for the next calendar year; an active 

HCPCS code is proposed for addition to the list 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 readers that a change has been made from one 

calendar year to the next, but do not indicate that the change is subject to comment. The 

full definitions of the proposed payment indicators 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 payment under the standard methodology for the 

revised ASC payment system. Payment indicators “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 procedures 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 transitional payment period has ended and it is no longer 

necessary to identify device-intensive procedures that are subject to transitional 

payments, we are proposing to delete the ASC payment indicator “H8.” We are 

proposing that all device-intensive procedures, for which the 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 later” 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 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. 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 comment 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. Subparagraphs (B) and (D) of section 1805(b)(1) 

of the Act require MedPAC to submit reports to Congress not later than March 1 and 

June 15 of each year that present its Medicare payment policy reviews and 

recommendations and its examination of issues affecting the Medicare program, 

respectively. The March 2011 MedPAC “Report 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 implement a 0.5 percent increase in 

payment rates for ambulatory surgical center services in calendar year 2012 concurrent 

with requiring ambulatory surgical centers 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 requires 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 period ending with the midpoint of the year 

involved. The statute set the update at zero for CY 2008 and CY 2009. We indicated 

that we planned to implement the annual updates through an adjustment to the conversion 

factor under the ASC payment system beginning in CY 2010 when the statutory 

requirement for a zero update no longer applies. Further, we noted that that we would 
CMS-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/ASC 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 report, “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 ASC 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 information to set and revise the payment rates for 

ASCs, but instead rely on the relativity of hospital outpatient costs 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 ASCs to do so could be administratively 

burdensome for ASCs. 

In 2009, MedPAC made a similar recommendation 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 solicited public comment on the feasibility 
CMS-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 issues 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 regarding 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 insurmountable 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 Medicare payments and evaluate the ASC update. 

Other commenters, however, opposed the requirement that ASCs submit cost data to 

CMS because they believed such a requirement would be unnecessary and 

administratively burdensome. Commenters generally 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 feasibility 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 submit 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 (Pub. L. 109-432) gives the Secretary the 

authority to implement ASC quality measure reporting 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 that 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 Conversion 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 rates 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 the 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 revised 
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ASC payment system in the first year would be budget neutral to estimated total 

Medicare payments under the prior (CY 2007) ASC payment system (the ASC 

conversion factor is multiplied by the relative 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 aggregate Medicare expenditures that would have 

occurred in CY 2008 in the absence of the revised system, taking into consideration the 

cap on ASC payments in CY 2007 as required under section 1833(i)(2)(E) of the Act 

(72 FR 42522). 

 We note that we consider the term “expenditures” in the context of the budget 

neutrality requirement under section 1833(i)(2)(D)(ii) of the Act to mean expenditures 

from the Medicare Part B Trust Fund. We do not consider expenditures to include 

beneficiary coinsurance and copayments. This 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 expenditures has minimal impact for subsequent 

budget neutrality adjustments calculated within 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 finalized 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 comment period. The application of that methodology to the 
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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, consistent with the final policy, we calculated the 

CY 2008 ASC payment rates by multiplying the ASC relative payment weights by the 

final CY 2008 ASC conversion factor of $41.401. For covered office-based surgical 

procedures and covered ancillary radiology services, excluding nuclear medicine 

procedures, the established policy is to set 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 discussed in the CY 2008 OPPS/ASC final rule with 

comment period (72 FR 66841 through 66843), we also adopted alternative ratesetting 

methodologies for specific types of services (for 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 ASC payment system accounts for geographic 

wage variation when calculating individual ASC payments by applying the pre-floor and 

pre-reclassified hospital wage indices to the 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 when calculating individual ASC payments by applying the 

pre-floor and pre-reclassified hospital wage index values that CMS calculates for 

payment, using updated Core Based Statistical Areas (CBSAs) issued by OMB in 

June 2003. The reclassification provision provided at section 1886(d)(10) of the Act is 

specific to hospitals. We believe that using the most recently available raw pre-floor and 
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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 certain rural statewide wage index values that result from 

reclassification. We continue to believe that the unadjusted hospital wage indices, which 

are updated yearly and are used by many other Medicare payment systems, appropriately 

account for geographic variation 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 been to 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 methodology to ASCs located in CBSA 25980 

Hinesville-Fort Stewart, GA, and CBSA 22 Rural Massachusetts. In CY 2011, we 

identified another area, specifically, CBSA 11340 Anderson, SC for which there is no 

IPPS hospital whose wage index data would be used to set the wage index for that area. 

Generally, we would use the methodology described 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 comment (75 FR 72058 through 72059), we 

finalized our proposal to set the ASC wage index by calculating 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 set the wage index for 

that area. In other situations, where there are no IPPS hospitals located in a relevant labor 
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market area, we will continue our current policy of calculating an urban or rural area’s 

wage index by calculating the average of the 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 weights each year using the national OPPS 

relative payment weights (and MPFS non-facility 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 proposing to scale the CY 2012 relative payment 

weights for ASCs according to the following 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 payment weights (calculated under the ASC 

standard ratesetting methodology) with the total payment weight using the CY 2012 ASC 

relative payment weights (calculated under the ASC standard ratesetting methodology) to 

take into account the changes in the OPPS relative payment 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 the ASC relative payment weights for CY 2012. The proposed 

CY 2012 ASC scalar is 0.9373 and scaling would apply to the ASC relative payment 

weights of the covered surgical procedures and covered ancillary radiology services for 

which the ASC payment rates are based on OPPS relative payment weights. 
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 Scaling would not apply in the case of ASC payment for separately payable 

covered ancillary services that have a predetermined 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 separately 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 would not apply to those services. The ASC 

payment weights for those services without predetermined national payment amounts 

(that is, those services with national payment amounts that would be based on OPPS 

relative payment weights) would be scaled to eliminate any difference in the total 

payment weight between the current year and the update year. 

For any given year’s ratesetting, 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 the 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 unique ASCs within the CY 2010 claims data. 

We used the supplier zip code reported on the 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. 
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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-reclassified hospital wage indices. Specifically, 

holding CY 2010 ASC utilization and service-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 proposed CY 2012 pre-floor and pre-reclassified 

hospital wage indices. We used the 50-percent labor-related share for both total adjusted 

payment calculations. We then compared the total adjusted payment calculated with the 

CY 2011 pre-floor and pre-reclassified hospital wage indices to the total adjusted 

payment calculated with the proposed CY 2012 pre-floor and pre-reclassified hospital 

wage indices and applied the resulting ratio 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. 
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Section 1833(i)(2)(C)(i) of the Act requires 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.” Because the Secretary does update the ASC payment 

amounts annually, we adopted a policy, which we codified at §416.171(a)(2)(ii), to 

update the ASC conversion factor using the CPI-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 requires that “any annual update under [the ASC 

payment] system for the year, after application 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 Secretary to provide for a reduction 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 may result in the update to the ASC payment 

system being less than zero for a year and may result in payment rates under the ASC 

payment system for a year being less than such 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 regulations do not reflect any reduction in the annual update for 
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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 address 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 “percentage increase” in the CPI-U, which 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 proposing to hold the CPI-U update factor for the ASC payment 

system to zero. Section 1833(i)(2)(D)(v) of the Act, as added 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 application of the MFP adjustment may reduce this percentage 

change below zero. If the application of the MFP adjustment to the CPI-U percentage 

increase would result in a MFP-adjusted CPI-U update factor that is less than zero, then 

the annual update to the ASC payment rates would be negative and payments would 

decrease relative to the prior year. Illustrative examples of how the MFP adjustment 
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would be applied to the ASC payment system update are found in the CY 2011 

OPPS/ASC final rule with comment period (75 FR 72062 through 72064). 

For this proposed rule, for the 12-month 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 percentage 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 proposing 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 adjust 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 discussed 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 (which are referenced in section XVII. 

of this proposed rule and available 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” indicates 
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that the surgical procedure will be subject to the multiple procedure payment reduction 

policy. As discussed in the CY 2008 OPPS/ASC final rule with comment period 

(72 FR 66829 through 66830), most covered surgical procedures are subject to a 

50-percent reduction in the ASC payment for 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 payable under the ASC payment system, and 

identifying items or services with changes in the ASC payment indicator for CY 2012. 

Display of the comment indicator “NI” in the column titled “Comment Indicator” 

indicates that the code is new (or substantially 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 procedures 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 at the MPFS nonfacility PE RVUbased amount, separately payable covered ancillary services that have a predetermined 

national payment amount, such as drugs and biologicals that are separately paid under the 

OPPS, or services that are contractor-priced or paid at reasonable cost in ASCs. 
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To derive the proposed CY 2012 payment 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 neutrality adjustment for changes in the wage index values and 

the CPI-U update factor as reduced by the 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 and services with predetermined national 

payment amounts, such as separately payable drugs and biologicals. The “CY 2012 

Payment” column displays the proposed CY 2012 national unadjusted ASC payment 

rates for all items and services. The proposed CY 2012 ASC payment rates listed in 

Addendum BB for separately payable drugs and biologicals are based on ASP data used 

for payment in physicians’ offices in April 2011. 

XIV. Hospital Outpatient Quality Reporting 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 quality, more efficient health care for Medicare 

beneficiaries. The quality data reporting program for hospital outpatient care, known as 

the Hospital Outpatient Quality Reporting (Hospital OQR) Program, formerly known as 

the Hospital Outpatient Quality Data Reporting Program (HOP QDRP), has been 
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generally modeled after the quality data reporting program for hospital inpatient services 

known as the Hospital Inpatient Quality Reporting (Hospital IQR) Program (formerly 

known as the Reporting Hospital Quality Data 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 professionals, known as the Physician Quality 

Reporting System (formerly known as the Physician Quality Reporting Initiative 

(PQRI)), have financial incentives for the reporting of quality data to CMS. CMS also 

has implemented quality reporting programs for home health agencies and skilled nursing 

facilities that are based on conditions of participation, 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 Program and other quality reporting 

programs, we have focused on measures that have high impact and support CMS and 

HHS priorities for improved quality and efficiency of care for Medicare beneficiaries. 

Our goal is ultimately to align the clinical quality 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 reduced. In developing this and other quality 

reporting programs, as well as the Hospital Inpatient Value-Based Purchasing (Hospital 

Inpatient VBP) Program, we applied the following principles for the development and 

use of measures: 
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● Pay-for-reporting, public reporting, and value-based purchasing programs 

should rely on a mix of standards, 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 quickly 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, measures should be aligned across public reporting and payment 

systems under Medicare and Medicaid. The measure sets should evolve so that they 

include a focused set of measures appropriate 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 continuously seek to align our measures with the 

adoption of meaningful use standards for health information technology (HIT), so that 

data can be submitted and calculated via certified EHR technology with minimal burden. 

● To the extent practicable and feasible, and recognizing differences in statutory 

authorities, measures used by CMS should be endorsed by a national, multi-stakeholder 

organization. Measures should be aligned with best practices among other payers and the 

needs of the end users of the measures. 

 We invite public comment on these principles. 
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2. Statutory History of the Hospital Outpatient Quality Reporting (Hospital OQR) 

Program 

 We refer readers to the CY 2011 OPPS/ASC final rule with comment period 

(75 FR 72064) for a detailed discussion of the statutory history of the Hospital OQR 

Program. 

3. Technical Specification Updates and Data Publication 

a. Maintenance of Technical Specifications for Quality Measures 

 Technical specifications for each Hospital OQR measure are listed in the Hospital 

OQR Specifications Manual, which is posted on the CMS QualityNet Web site at 

http://www.QualityNet.org. We maintain the technical specifications for the 

measures by updating this Hospital OQR Specifications Manual and including detailed 

instructions and calculation algorithms. In some cases where 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 process for making updates to the technical 

specifications that we use to calculate Hospital OQR measures. This process is used 

when changes to the measure specifications are necessary due to changes in scientific 

evidence, treatment guidelines, or consensus among affected parties. Changes due to 

these reasons may not coincide with the timing of our regulatory actions, but nevertheless 

should be made so that the Hospital OQR measures are calculated based on the most up-
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to-date scientific and consensus standards. We indicated that notification of technical 

changes to the measure specifications is made via the QualityNet Web site, 

http://www.QualityNet.org, and in the Hospital OQR Specifications Manual. The 

notification of changes to the measure technical specifications occurs no less than 

3 months before any changes become effective 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 schedule provides at least 3 months of advance 

notice for substantial changes such as changes to ICD-9, CPT, NUBC, and HCPCS 

codes, and at least 6 months of advance notice for changes to data elements that would 

require significant systems changes. 

b. Publication of Hospital OQR Program Data 

 Section 1833(t)(17)(E) of the Act requires that the Secretary establish procedures 

to make data collected under Hospital OQR available to the public. It also states that 

such procedures must ensure that 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. To 

meet these requirements, data that a hospital has submitted for the Hospital OQR 

Program are typically displayed on CMS Web 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 assists beneficiaries by providing information on 

hospital quality of care. This information motivates beneficiaries to work with their 
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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 two or more hospitals are combined to form 

the publicly reported measures on the Hospital Compare Web site. This approach is 

consistent with the approach taken under the Hospital IQR Program. Consistent with our 

current policy, we make Hospital OQR data publicly available whether or not the data 

have been validated for payment purposes. 

In general, we strive to display hospital quality measures on the Hospital 

Compare Web site as soon as possible after they have been adopted and have been 

reported to CMS. However, if there are unresolved display issues or pending design 

considerations, we may make the 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 section 1833(t)(17)(E) of the Act for establishing 

procedures to make quality data submitted available to the public following a preview 

period. When we display hospital quality information on non-interactive CMS Web sites, 

affected parties would be notified via CMS listservs, CMS e-mail blasts, national 

provider calls, and QualityNet announcements regarding the release of preview reports 

followed by the posting of data on a Web site other than Hospital Compare. 

We also require hospitals to complete and submit a registration form 

(“participation form”) in order to participate in the Hospital OQR Program. With 
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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 Previously 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 payment 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 payment 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 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 
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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 Preoperative 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 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 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 Interpretation Within 45 minutes 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 (NQF # 0499) as part of an NQF project 

entitled “National Voluntary Consensus Standards for Emergency Care.” This measure 

assesses the percentage of patients who leave the Emergency Department (ED) without 

being evaluated by qualified medical personnel, which is an indication of ED 
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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 measures 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 proposed 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 July 1, 2012 and August 15, 2012. We also are 

proposing that for the CY 2013 payment determination, the aggregate counts for the 

numerator (the total number of patients who left without being evaluated by a 

physician/advance practice nurse/physician’s assistant) and the denominator (total 

number of patients who signed in to be evaluated for emergency services) would be 

submitted by hospitals and would span the time period from January 1, 2011 through 

December 31, 2011. We invite public comment on this proposed approach to data 

collection for OP-22 for the CY 2013 Hospital 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 specifications for this measure will be made 

available in the July 2011 Hospital OQR Specifications Manual. 
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C. Proposed New Quality Measures for the CY 2014 and CY 2015 Payment 

Determinations

1. Considerations in Expanding and Updating Quality Measures under the Hospital OQR 

Program 

In general, when selecting measures for the Hospital OQR Program, we take into 

account several considerations and goals. These include: (a) expanding 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 quality programs to align incentives and 

promote coordinated efforts to improve quality; (e) seeking to use measures based on 

alternative sources of data that do not require chart abstraction or that utilize data already 

being reported by many hospitals, such as data that hospitals report to clinical data 

registries, or all-payer claims data bases; and (f) weighing the relevance and utility of the 

measures compared to the burden on hospitals 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 greatest mortality and morbidity in the Medicare 

population; (b) conditions that are 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 guidelines. We used and continue to use these criteria to 
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guide our decisions regarding what measures to add to the Hospital OQR Program 

measure set. 

In the CY 2009 OPPS/ASC final rule with comment period, we adopted four 

claims–based quality measures that do not require 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 abstraction 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 opportunities for quality improvement. Many hospitals 

submit data to and participate in existing registries. In addition, registries often capture 

outcome information and provide ongoing quality 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 enabling 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 that we would receive from registries would be 

used to calculate quality measures required under the Hospital OQR Program, and would 

be publicly reported like other Hospital OQR Program quality measures, encouraging 

improvements in the quality of care. In the CY 2010 OPPS/ASC final rule with comment 

period (74 FR 60633), we responded to public 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 Coordinator for Health Information Technology 

(ONC) (45 CFR 170.102) which has adopted the statutory definition of Qualified EHR 

found in section 3000(13) of the Public Health Service Act. That section defines a 

Qualified EHR as “an electronic record of health-related information on an individual 

that -- (A) includes patient demographic and clinical health information, such as medical 

history and problem lists; and (B) has the capacity -- (i) to provide clinical decision 

support; (ii) to support physician order entry; (iii) to capture and query information 

relevant to health care quality; and (iv) to exchange electronic health information with, 

and integrate such information from other sources.” 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: “Certified EHR Technology” means (1) A 

complete EHR that meets the requirements included in the definition of a Qualified EHR 

and 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; 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 in the 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 CMS, and the adoption of standards for the 

capturing, formatting, and transmission of data elements that make up the measures. 

However, once these activities are accomplished, 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 hospitals. In the CY 2010 OPPS/ASC final rule 

with comment period (74 FR 60633 through 60634), we responded to public comments 

on such an approach. 

Continuing to reduce our reliance on the chart-abstraction mechanism would 

allow us and hospital outpatient departments to devote available resources towards 

maximizing the potential of registries and EHRs for quality measurement reporting. Both 

mechanisms hold the promise of more sophisticated and timely reporting of clinical 

quality measures. Clinical data registries allow the collection of more detailed data, 

including outcomes. Registries can also provide feedback and quality improvement 

information based on reported data. Finally, clinical data registries can also receive data 

from EHRs, and therefore, serve as an alternative 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 requirements, and implementing quality improvement 
CMS-1525-P 594 

efforts. We will also have more time to develop, align, and implement the infrastructure 

necessary to collect data on the measures and 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 these future payment determinations. 

 We have previously expanded the Hospital OQR Program measure set 

dramatically by adopting measures over several 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 new measures to the existing Hospital OQR 

measure set for the CY 2014 payment determination 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 adopted in the CY 2011 OPPS/ASC final rule 

with comment period (75 FR 72094). In this proposed 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 Payment Determination: Surgical Site 

Infection (NQF #0299) 

Healthcare Associated Infections (HAIs) is a topic area widely acknowledged by 

HHS, the Institute of Medicine (IOM), the National Priorities Partnership, and others as a 

high priority requiring measurement and improvement. 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.1

 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 

hospitalization required for patients and add considerable health care costs. HAIs are 

largely preventable through interventions such as better 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 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 State-mandated reporting and surveillance requirements for 

hospitals in some States. Additionally, data 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 Advisory 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 healthcare facilities in the 

United States, including acute care hospitals, long term acute care hospitals, psychiatric 

hospitals, rehabilitation hospitals, outpatient dialysis centers, 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 prevalence of multidrug-resistant organisms 

within their organizations, and other adverse events. Some States use the NHSN as a 

means for healthcare facilities 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 quality 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 surgical 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 infection 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 relevant time frame (30 days for no 

implants; within 1 year for implants). The 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 feasible 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 determination (75 FR 50211) and its adoption into 

the Hospital OQR Program would further our goal of aligning measures across programs 

where feasible. 

We are proposing that submission of data 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 are proposing that hospital outpatient 

departments use the existing NHSN infrastructure and protocols that already exist for this 

proposed measure to report it for Hospital 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 Measures 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 diabetes care measures because we were 

in the process of refining the chart-abstracted numerator definitions for these measures 

(75 FR 72091). We also stated that we intended to again propose to adopt these measures 

for the CY 2014 payment determination. We now are proposing to adopt these five 
CMS-1525-P 598 

diabetes care measures for the CY 2014 payment determination as chart-abstracted 

measures. These five measures are: (1) 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); and 

(5) Diabetes: Urine Protein Screening (NQF #0062). We note that these five measures 

are electronically specified. We hope to be able to collect such information via EHRs in 

the future, and we solicit comments on using EHR for data collection in the future. In 

addition, we are proposing to adopt another new chart-abstracted measure, Cardiac 

Rehabilitation Patient Referral from an Outpatient 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 chronic disease that impacts the lives of a large 

portion of the population and consumes a significant amount of U.S. healthcare dollars. 

With the prevalence of diabetes in the Medicare-eligible population 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 development 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 conventional treatment. Early treatment may 

help slow or halt the progression of diabetic complications, and following the guidelines 

for screening may assist those patients with no outward sign of diabetic complications to 

be identified earlier through regular screening tests. Some guidelines recommend that the 

HgA1c level be tested during an initial assessment 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 quarterly in patients whose HgA1c level does not 

meet target glycemic goals.4

 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 

settings, that these measures 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. 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 affected 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, in which many 

patients with diabetes are treated. 

 

3

 The American Association of Clinical Endocrinologists 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 Diabetes. 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 with a 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 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

Glycosylated hemoglobin (HgA1c) assay measures average blood glucose over 

the preceding two to three months, 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 atherosclerotic plaque which increases the 

cardiac events risk for diabetic patients, who 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 mitigate the risk for cardiovascular disease. 

Lipid-lowering therapy for diabetics has been a consistent recommendation in several 

 

5

 American Diabetes Association. Standards of Medical Care in Diabetes. Diabetes Care. 2007 Jan;30 

(Suppl 1):S8-15. 
CMS-1525-P 601 

guidelines, prompted by randomized trials supporting statin therapy to lower the risk of 

cardiovascular involvement for this population. Despite the evidence basis and guideline 

support, only a minority of patients with diabetes are prescribed statin treatment or 

achieve target LDL-C goals.6

 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 

settings, that these measures 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. 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 affected 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 often have high level of LDL-C. 

 Early treatment of hyperlipidemia as indicated by high level of LDL-C may help 

to slow or halt the progression of cardiovascular disease and impact the quality of the life 

of the diabetic patient, affecting the patient’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/dl; 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 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. 

(3) Proposed Diabetes Measure: Blood Pressure Management (NQF #0061) 

Blood pressure control reduces the risk of cardiovascular disease and 

microvascular complications in patients with diabetes. Well-controlled blood pressure 

impacts the quality of the life of the diabetic patient, affects the patient’s life expectancy, 

and decreases the costs involved in treating diabetic complications. 

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 

settings, that these measures 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. 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 affected parties can be reflected through means 

other than NQF endorsement. This measure is appropriate for measuring the quality of 

care in the hospital outpatient departments which serve many patients with diabetes and 

suffer from high blood pressure. 
CMS-1525-P 603 

 Early treatment of high blood pressure may 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 measurement recorded among all patients visits aged 

> 18 years with diagnosed hypertension. The specifications for 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 the 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 through early detection9

 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. 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 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 Control and Prevention, 20112008. 9

 American Diabetes Association. Standards of medical care in diabetes. Diabetes Care. 2007 Jan;30 

(Suppl 1):S8-15. 
CMS-1525-P 604 

settings, that these measures 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. 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 affected 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 serve many patients with diabetes who are at 

risk for diabetic retinopathy. 

 This NQF-endorsed measure measures the percentage of adult patients with 

diabetes age 18 to 75 years who received a dilated eye exam or seven standard field 

stereoscopic photos with interpretation by an ophthalmologist or optometrist, or imaging 

to verify diagnosis from stereoscopic photos during the reporting year, or during the prior 

year, if the patient is at low risk for retinopathy. A patient is considered low risk if the 

patient has no evidence of retinopathy in the prior year. The specifications for 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. 
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 levels of blood sugar in 

uncontrolled diabetes can cause damage to the 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 received a kidney transplant in the United States 

and Puerto Rico.10 In 2009, MedPAC reported costs for 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 Secretary to develop measures 

appropriate for the measurement of the quality of care furnished by hospitals in outpatient 

settings, that these measures 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. 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 affected 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 departments which serve many 

patients with diabetes who are at risk for kidney diseases. 

 Early urine screenings for microalbumin may prevent kidney disease from 

worsening to ESRD. This NQF-endorsed measure measures the percentage of adult 

 

10 Centers for Disease Control and Prevention. National diabetes fact sheet: general information and 

national estimates on diabetes in the United States, 2007. Atlanta, GA: U.S. Department of Health and 

Human Services, Centers for Disease 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 “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. 

(6) Proposed Cardiac Rehabilitation Measure: Patient Referral from an Outpatient 

Setting (NQF #0643) 

Cardiac rehabilitation improves the quality of life, reduces modifiable 

cardiovascular risk factors, enhances adherence to preventable medications, and lowers 

morbidity and mortality.12 Despite these benefits, cardiac rehabilitation is significantly 

underutilized by patients with heart disease and there is significant geographical variation 

in referral rates and lower use in women, non-whites, older patients and patients on 

Medicaid.13 A recent study of Medicare beneficiaries, using 70,040 matched pairs of 

patients hospitalized for coronary conditions or revascularization procedures, found that 

mortality rates were 21 percent to 34 percent lower in cardiac rehabilitation users 

 

12 Wenger, N.K.: Current status of cardiac rehabilitation. J. Am Coll Cardiol 2008; 51:1619-1631. 13 Suaya, J.A., Shepard, D.S., Normand, S.L., et al.: Use of cardiac rehabilitation by Medicare beneficiaries 

after myocardial infarction or coronary bypass surgery. Circulation. 2007;116:1653-62 
CMS-1525-P 607 

compared to nonusers.14 Evidence from registries which include a cardiac rehabilitation 

performance measure indicated that only about 18 percent of eligible patients were 

referred to cardiac rehabilitation.15 Under our regulations, 42 CFR 410.49, cardiac 

rehabilitation is covered for patients who have had one or more of the following: an acute 

myocardial infarction within the preceding 12 months, current 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 cardiac rehabilitation referral performance 

measures as part of the call for care coordination 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 referred 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 transplantation who have not already participated in an early outpatient 

cardiac rehabilitation/secondary prevention program for the qualifying event and who are 

referred to an early outpatient cardiac rehabilitation/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 oriented 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 specifications 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_Reporting_Care_Coordination.aspx

This proposed measure targets patients who have experienced a qualifying 

cardiovascular event. These patients are commonly seen in hospital outpatient 

departments and, for this reason, we believe that the proposed measure is appropriate for 

the measurement of the quality of care (including 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 therefore 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-endorsed Cardiac Rehabilitation Patient 

Referral from an Outpatient Setting measure for CY 2014 payment determination. The 

goal of this measure is to improve the delivery 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 provider to deliver quality health care.

(1) Proposed Safe Surgery Checklist Use Measure 

This proposed structural measure assesses whether a hospital outpatient 

department utilizes a Safe Surgery checklist that assesses whether effective 

communication and safe practices are performed during three distinct perioperative 

periods: (1) the period prior to the administration of anesthesia; (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 has been credited with dramatic decreases in 

preventable harm, complications and post-surgical mortality16. In November 2010, the 

New England Journal of Medicine (NEJM) published a study concluding 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 and the use of safe surgical practices 

during surgical procedures will significantly reduce preventable surgical deaths and 

complications. For example, mistakes in surgery can be prevented 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: 1928-37 
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correct surgery is performed 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 the safety of the surgical environment. 

 The safe surgery checklists of which we are aware typically include safe surgery 

practices corresponding to three critical perioperative periods: 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 the operating room. Some examples of safe 

surgery practices that can be performed during 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 during each of these 

three perioperative periods is the World Health Organization Surgical 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/standards_information/npsgs.aspx
CMS-1525-P 611 

international standard of practice. This checklist can be found at: 

http://www.who.int/patientsafety/safesurgery/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 Surgeons’ Nora Institute for Patient Safety, the 

American Society of Anesthesiologists, The Joint Commission, the National Association 

for Healthcare Quality and the Association of periOperative Registered Nurses (AORN). 

For this proposed structural measure, a hospital outpatient department would indicate 

whether or not it uses a safe surgery checklist for its surgical procedures that includes 

safe surgery practices during each of the three critical perioperative periods discussed 

above. The measure would assess whether the hospital uses a safe surgery checklist in 

the hospital outpatient department for surgical procedures, but would not require a 

hospital to report whether it uses a checklist in connection with any individual outpatient 

procedures. 

The proposed Safe Surgery Checklist structural 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 through 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 that is 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 the 
CMS-1525-P 612 

safe surgery principles endorsed by the Council on Surgical and Perioperative Safety, 

which is comprised of the American Association of Nurse Anesthetists, American 

College of Surgeons, American Association of Surgical Physician Assistants, American 

Society of Anesthesiologists, American Society of PeriAnesthesia Nurses, AORN, and 

Association of Surgical Technologists. Two State agencies (Oregon, South Carolina), the 

Veterans Health Administration19, 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 Checklist use reflects consensus among affected 

parties. We also note that The Joint Commission has included safe surgery checklist 

practices among those to be used to achieve National Patient Safety Goals adopted for 

2011 for surgeries performed in ambulatory 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). “Association 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 Surgical 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 structural 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 procedures, is related to 

better patient outcomes, including decreased surgical errors and mortality[1], [2], [3]. 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 patients for the particular procedure. For this 

reason, the National Quality Forum has previously endorsed measures of total all-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). Additionally, many consumer-oriented Web sites 

that display health care quality information required to be reported under State law 

(California, New York, Texas, Washington, Florida, Illinois, Michigan, 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.; Dellinger, 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 Following 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 choosing a health care provider. The currently 

NQF-endorsed measures of procedure volume (noted above) relate to surgeries 

performed only in inpatient settings, and would not be applicable to the types of 

procedures approved to be performed in HOPDs and ASCs. 

The table below, which shows the proportion of procedures during calendar year 

2010 performed in hospital outpatient departments stratified by broad categories, reveals 

that most hospital outpatient procedures (99%) fall into one of 8 categories: 

Cardiovascular, Eye, Gastrointestinal, Genitourinary, 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 with better quality, and surgical procedures 

are performed in hospital outpatient departments, we believe that surgical volume is 

appropriate for measuring the quality of these eight categories of surgical procedures 

performed in an HOPD. For the CY 2014 payment 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 all-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 volume data. Like the other 

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 HOPDs via the 

QualityNet Web site. 

We invite public comment on this proposal. 

In summary, for the CY 2014 payment determination, in addition to the 23 

measures we previously adopted in the CY 2011 OPPS/ASC final with comment period, 

we are proposing to adopt 1 new NHSN HAI measure, 6 additional new chart-abstracted 

measures, and 2 new structural measures. With respect to the proposed surgical site 

infection HAI measure, HOPDs would be required to report the data to the NHSN 

beginning with January 1, 2013 to through June 30, 2013 infection events and would be 
CMS-1525-P 616 

required to use the procedures set out by the NHSN. We are proposing that submission 

of data on the five proposed diabetes measures and the proposed cardiac rehabilitation 

measure would begin with first quarter CY 2013 (January 1, 2013 to March 31, 2013) 

encounters. With respect to the proposed structural measures, we are proposing that 

HOPDs submit data between July 1, 2013 and August 15, 2013 with respect to a calendar 

year 2012 reporting time period. 

We invite public comments on these proposals for the CY 2014 payment 

determination. The proposed complete measure set for the Hospital OQR Program 

CY 2014 payment determination, including the measures we adopted in the CY 2011 

OPPS/ASC final rule with comment period, 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 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 Computed 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 Management 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 Interpretation Within 45 minutes of Arrival ** 

OP-24: Surgical Site Infection*** 

OP-25: Diabetes: Hemoglobin A1c Management *** 

OP-26: Diabetes Measure Pair: A Lipid management: low density lipoprotein cholesterol 

(LDL-C) <130, B Lipid management: LDL-C <100 *** 

OP-27: Diabetes: Blood Pressure Management *** 

OP-28: Diabetes: Eye Exam*** 

OP-29: Diabetes: Urine Protein Screening *** 

OP-30: Cardiac Rehabilitation Patient Referral From an Outpatient Setting *** 

OP-31: Safe Surgery Checklist Use*** 

OP-32: Hospital Outpatient Volume Data on Selected 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, 58805 
CMS-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 Hospital 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 determination 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 measure 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 to 
CMS-1525-P 619 

patients and other HCP. Many HCP provide care for, or are in frequent contact with, 

patients with influenza or patients at high risk for complications of influenza. The 

involvement of HCP in influenza transmission has been a long-standing concern.22,23,24

Vaccination is an effective preventive measure against influenza, and can prevent 

many illnesses, deaths, and losses in productivity.25 HCP are considered 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. Results 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 influenza 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 randomized trial. The Journal of the American Medical 

Association 1999; 281:908-913. 

26 Salgado, C.D., Giannetta, E.T., Hayden, F.G., Farr, B.M.: Preventing influenza 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.: Influenza 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.: Effectiveness 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 allocation for healthcare workers during vaccine shortages. Infection 

Control and Hospital Epidemiology 2005; 26:882-890 

30 American College of Physicians (ACP), ACP policy on influenza vaccination of health care workers. 

http://www.acponline.org/running_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: influenza immunization of healthcare 

personnel. Association of Professionals in Infection Control (APIC). November 2008. 

http://www.apic.org/Content/NavigationMenu/PracticeGuidance/Topics/Influenza/APIC_Position_Paper_I
CMS-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 healthcare settings who have the potential 

for exposure to patients and/or to infectious materials, including body substances, 

contaminated medical supplies and equipment, contaminated environmental surfaces, or 

contaminated air.37 HCP may include (but are not limited to) physicians, nurses, nursing 

assistants, therapists, technicians, emergency medical service personnel, dental personnel, 

pharmacists, laboratory personnel, autopsy personnel, students and trainees, contractual 

staff not employed by the healthcare 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 infectious agents that can be 

 nfluenza_11_7_08final_revised.pdfhttp://www.apic.org/Content/NavigationMenu/PracticeGuidance/Topics

/Influenza/APIC_Position_Paper_Influenza_11_7_08final_revised.pdf. 32 National Patient Safety Foundation (NPSF), Mandatory flu vaccinations for healthcare workers. Press 

Release, November 18, 2009. http://www.npsf.org/pr/pressrel/2009-11- 18.php. 33 Infectious Diseases Society of America (IDSA), IDSA policy on mandatory immunization of health care 

workers against seasonal and 2009 H1N1 influenza. Infectious Diseases Society of America (IDSA). 

September 30, 2009. http://www.idsociety.org/HCWimmunization/. 34 Walker, F.J., Singleton, J.A., Lu, P., Wooten, K.G., Strikas, R.A.: Influenza vaccination of healthcare 

workers in the United States, 1989-2002. Infection Control and Hospital Epidemiology 2006; 27:257-265. 

35http://www.cdc.gov/mmwr/preview/mmwrhtml/rr55e209a1.htm Influenza Vaccination of Health-Care 

Personnel 

Recommendations of the Healthcare Infection Control Practices Advisory Committee (HICPAC) and the 

Advisory Committee on Immunization Practices 36 Centers for Disease Control and Prevention., Interim results: Influenza A (H1N1) 2009 and Monovalent 

Seasonal Influenza Vaccination Coverage Among Health-Care Personnel—United 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

37Adapted from: Pearson ML., Bridges CB., Harper SA., : Influenza vaccination of health-care personnel: 

Recommendations of the Healthcare Infection Control Practices Advisory Committee (HICPAC) and the 

Advisory Committee on Immunization Practices (ACIP). Morbidity and Mortality Weekly Report 

(MMWR) 2006; 55:1-16. Available at: http://www.cdc.gov/mmwr/preview/mmwrhtml/rr5502a1.htm
CMS-1525-P 621 

transmitted to and from HCP and patients. Settings in which HCP may work include, but 

are not limited to, acute care hospitals, long-term care facilities, skilled nursing facilities, 

rehabilitation centers, physicians’ offices, urgent care centers, outpatient clinics, home 

health agencies, and emergency medical services. 

Currently, four States have “offer” laws for influenza vaccination of HCP, 

meaning that vaccine must be offered to HCP by healthcare facilities; and three States 

(Alabama, California, and New Hampshire) have “ensure” laws for influenza vaccination 

of HCP, meaning that vaccination of non-immune HCP is mandatory in the absence of a 

specified exemption or refusal; and, additionally, numerous hospitals and other healthcare 

facilities have established policies requiring mandatory influenza vaccination of their 

HCP.38

Currently, no State requires that hospitals report this measure to NHSN. 

However, approximately 13 hospitals (including long term acute care and rehabilitation), 

outpatient hemodialysis centers, long term care 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 Biovigilance components available in NHSN. The HPS 

Component replaced CDC’s National Surveillance System for Health Care Workers 

(NaSH) and is comprised of two modules: the Blood/Body Fluid Exposure Module and 

the Influenza Vaccination and Management and Exposure Module.39 Currently, 

participation in either module is voluntary. The current Influenza Vaccination and 

 

38 For additional information regarding healthcare facilities’ 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.htmlhttp://www.cdc.gov/nhsn/hps.html. 
CMS-1525-P 622 

Management and Exposure Module may soon offer 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 advanced analysis capabilities 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 facilities in developing surveillance and analysis 

capabilities to permit the timely recognition 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 influenza vaccination on patient outcomes, 

we believe this measure is appropriate for measuring the quality of care in hospital 

outpatient departments. Healthcare Personnel (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.pdf
CMS-1525-P 623 

 The proposed HCP Influenza Vaccination measure is NQF-endorsed for the 

hospital setting and applies to the hospital outpatient setting. Therefore, this measure 

meets the requirement for measure selection under section 1833(t)(17)(C)(i) of the Act. 

We are proposing to adopt the Influenza Vaccination Coverage among Healthcare 

Personnel measure that is collected by the CDC via the NHSN. The NHSN proposed 

reporting mechanism for this proposed HAI measure 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 October 1, 2013 through March 31, 2014 

for the CY 2015 payment determination. We are proposing that hospital outpatient 

departments use the NHSN infrastructure and protocol 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 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 
CMS-1525-P 624 

Proposed Hospital OQR Program Measure Set for the 

CY 2015 Payment Determination 

Surgery * 

OP-14: Simultaneous Use of Brain Computed 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 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 Management 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 Interpretation 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 management: low density lipoprotein cholesterol 

(LDL-C) <130, B Lipid management: LDL-C <100 *** 

OP-27: Diabetes: Blood Pressure Management *** 

OP-28: Diabetes: Eye Exam*** 

OP-29: Diabetes: Urine Protein Screening *** 

OP-30: Cardiac Rehabilitation Patient Referral From an Outpatient Setting *** 

OP-31: Safe Surgery Checklist Use*** 

OP-32: Hospital Outpatient Volume Data on Selected 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 
CMS-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 Coverage 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 Consideration 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 the 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 rehabilitation, 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 that are under consideration for future adoption into the 

Hospital OQR measure set. Below is a list of potential measurement areas that we are 

considering for future Hospital OQR payment 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 Measures in the Hospital OQR measure set for a 
CMS-1525-P 626 

future payment determination, such as existing 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 comparable 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 Complications in the Hospital OQR measurement set. 

Measures and Measurement Topics Under Consideration for Future 

Hospital OQR Program Payment Determinations 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 Administered 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: Angiotensin-Converting Enzyme (ACE) Inhibitor or Angiotensin 

Receptor Blocker (ARB) Therapy for Left Ventricular Systolic Dysfunction (LVSD) 

Heart Failure: Left Ventricular Ejection Fraction Assessment 

Heart Failure: Combination Medical Therapy for Left Ventricular Systolic 

Dysfunction 

Heart Failure: Beta-Blocker Therapy for Left Ventricular Systolic Dysfunction 

Heart Failure: Counseling regarding Implantable Cardioverter-Defibrillator (ICD) 

Implantation for Patients with Left Ventricular Systolic Dysfunction on Combination 

Medical Therapy 
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Heart Failure: Patients with Left Ventricular 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 Appointment 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 Providers 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 Accident, 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 vascular access or regional anesthesia 

Infection following epidural or spinal anesthesia 

Epidural hematoma following spinal or epidural anesthesia 
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High Spinal 

Postdural puncture headache 

Major systemic local anesthetic toxicity 

Peripheral neurologic deficit following regional anesthesia 

Infection following peripheral nerve block 

Additional Measurement Topics 

NQF Serious Reportable Events in Healthcare 

Medication Reconciliation 

Chemotherapy 

Post-discharge follow up 

Post-discharge ED visit within 72 hours 

Breast cancer detection rate 

 

We invite public comment on these measures and other topics that we might 

consider proposing to adopt beginning with the Hospital OQR Program CY 2015 

payment determination. We also are seeking suggestions and rationales to support the 

adoption of measures and topics for the Hospital 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 hospitals 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 Secretary under section 1833(t)(17) of the Act, 

incur a 2.0 percentage point reduction to their OPD fee schedule increase factor, that is, 

the annual payment update factor. Section 1833(t)(17)(A)(ii) of the Act specifies that any 
CMS-1525-P 629 

reduction applies only to the payment year involved 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 requirements 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 increase factor results in reduced 

national unadjusted payment rates that apply to certain outpatient items and services 

provided by hospitals that are required to report outpatient quality 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 conversion factor and the scaled relative weight for the 

APC to which the service is assigned. The 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 Internet 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 reduction of the national 
CMS-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,” which 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 brachytherapy sources be paid during 

CY 2009 on the basis of charges adjusted to cost, rather than under the standard OPPS 

methodology. Therefore, the reduced conversion factor also was not applicable to 

CY 2009 payment for brachytherapy sources because 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 for brachytherapy services furnished on and 

after January 1, 2010. 
CMS-1525-P 631 

The OPD fee schedule increase factor, or market 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 conversion 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 requirements. Applying this 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 relative weights by the reduced conversion factor. 

To determine the reduced national unadjusted payment rates that applied to hospitals that 

failed to meet their quality reporting requirements for the CY 2010 OPPS, we multiply 

the final full national unadjusted payment rate in Addendum B to the CY 2010 

OPPS/ASC final rule with comment period by the CY 2010 OPPS final 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 Medicare beneficiary’s minimum unadjusted 

copayment and national unadjusted copayment for a service to which a reduced national 

unadjusted payment rate applies would each equal the product of the reporting ratio and 

the national unadjusted copayment or the minimum unadjusted copayment, as applicable, 
CMS-1525-P 632 

for the service. Under this policy, we apply the reporting ratio to both the minimum 

unadjusted copayment and national unadjusted copayment for those hospitals that receive 

the payment reduction for failure to meet the Hospital OQR Program reporting 

requirements. This application of the reporting ratio to the national unadjusted and 

minimum unadjusted copayments is calculated according to §419.41 of our regulations, 

prior to any adjustment for a hospital’s failure 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 applicable 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 the requirements of the Hospital OQR Program. 

For example, the following standard adjustments apply to the reduced 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 without 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' costs are compared to the reduced payments 

for purposes of outlier eligibility and payment calculation. This policy conforms to 

current practice under the IPPS. We continued this policy in the CY 2010 OPPS/ASC 
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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 criteria, we refer readers to section 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 established policy of applying 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 reduced 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 status 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 rates 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 other applicable standard adjustments to the OPPS national 

unadjusted payment rates for hospitals that fail to meet the requirements of the Hospital 
CMS-1525-P 634 

OQR Program. Similarly, we are proposing to continue to calculate OPPS outlier 

eligibility and outlier payment based on the reduced payment rates for those hospitals that 

fail to meet the reporting requirements. 

We invite public comments on these proposals. 

F. Extraordinary Circumstances Extension or Waiver for CY 2012 and Subsequent Years

 In our experience, there have been times 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 period (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 when there are extraordinary circumstances 

beyond the control of the hospital. In the CY 2011 OPPS/ASC final rule with comment 

period (75 FR 72103), we retained these procedures with some modifications. For 

CY 2012 and subsequent years, we are proposing to retain these procedures with one 

modification. We are proposing to extend these procedures to the submission of medical 

record documentation for purposes of complying with our validation requirement for the 

Hospital OQR Program. 

 Under this process, in the event of extraordinary 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 hospital would submit to CMS a request form 
CMS-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 personnel contact information, including name, 

email address, telephone number, and mailing address (must include a physical address, a 

post office box address is not acceptable); 

● Hospital’s reason for requesting an extension or waiver; 

● Evidence of the impact of the extraordinary circumstances, including but not 

limited to photographs, newspaper and other media articles; and 

● A date when the hospital would again be able to submit Hospital OQR data 

and/or medical record documentation, and a justification for the proposed date. 

 The request form would be signed by the 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 using the contact information provided in 

the request, to the CEO and any additional designated hospital personnel, notifying them 

that the hospital’s request has been received; 

 (2) Provide a formal response to the CEO and any additional designated hospital 

personnel using the contact information provided in the request notifying them of our 

decision; and 
CMS-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 grant waivers or extensions to hospitals that 

have not requested them when we determine that an extraordinary circumstance, such as 

an act of nature (for example, hurricane) affects an entire region or locale. If we make 

the determination to grant a waiver or extension to hospitals in a region or locale, we 

would communicate this decision to hospitals and vendors through routine 

communication channels, including but not limited to e-mails and notices on the 

QualityNet Web site. 

 We invite public comment on this proposal 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 validation requirements (if applicable). 

Hospitals that do not meet Hospital OQR Program requirements, as well 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 schedule increase factor for the applicable payment year. We 
CMS-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 requirements 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 would require the hospital to: 

● Identify a QualityNet security administrator who follows the registration 

process located on the QualityNet Web site (http://www.QualityNet.org) and submits 

the information to the appropriate CMS-designated 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 experience, 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, such as: creating, approving, 

editing and/or terminating QualityNet user accounts within the organization; 

monitoring QualityNet usage to maintain proper security and confidentiality 

measures; and serving as a point of contact for information regarding QualityNet and 

the Hospital OQR Program. However, the main purpose of the QualityNet 
CMS-1525-P 638 

Administrator is to serve as a contact for security purposes. Because of CMS 

information systems security requirements, 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 QualityNet, regardless of the method used for data submission. 

● Complete and submit an online participation form if this form (or a paper 

Notice of Participation form) has not been previously completed, if a hospital has 

previously withdrawn, or if the hospital acquires a new CCN. For Hospital OQR 

Program purposes, hospitals that share the same CCN would be required to complete a 

single online participation form. At this time, the participation form for the Hospital 

OQR Program is separate from the participation form required for the Hospital IQR 

Program and completing a form for each program 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 established in the CY 2011 OPPS/ASC 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 that have merged, must submit a completed 

participation form no later than 180 days from 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 Medicare acceptance date. The Medicare acceptance date is 

the earliest date that a hospital 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 monitor more effectively hospital compliance 

with the requirement to complete a participation form because a hospital’s Medicare 

acceptance date is readily available to CMS through its data systems. In addition, 

providing an extended time period to register for the program would allow newly 

functioning hospitals sufficient time to get their operations fully functional before having 

to collect and submit quality data. 

We are aware that Medicare acceptance dates 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 hospital 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 affected CY 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 prior to the affected 

annual payment update. We are proposing a deadline 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 year’s services. This requirement would apply 

to all hospitals whether or not the hospital billed for payment under the OPPS. 

For the CY 2013 and subsequent years payment 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 prior to the affected annual payment update. A 

hospital that withdraws during this time period for any annual 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 new 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 participant 
CMS-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 these proposed Hospital OQR Program 

administrative requirements for the CY 2013 and subsequent years’ payment 

determinations. 

2. Form, Manner, and Timing of Data Submission 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 measure data, including all-patient volume data: 

a. Proposed CY 2013 and CY 2014 Data Submission Requirements for Chart-Abstracted 

Measure Data Submitted Directly to CMS 

 With respect to the proposed chart-abstracted measures for which hospitals would 

submit data directly to CMS, we are proposing for CY 2013 and CY 2014 that 

participating hospitals submit chart-abstracted data for each applicable quarter by the 

deadline posted on the QualityNet Web site; there must be no lapse in data submission. 

For the CY 2013 program, we are proposing that the applicable quarters would be as 

follows: 3rd quarter CY 2011, 4th quarter CY 2011, 1st quarter CY 2012, and 2nd quarter 

CY 2012. Hospitals that did not participate 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 system before January 1, 2012, would begin 

data submission with respect to 1st quarter CY 2012 encounters using the CY 2013 
CMS-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 proposing that the applicable quarters for 

previously finalized measures would be as follows: 3rd quarter CY 2012, 4th quarter 

CY 2012, 1st quarter CY 2013, and 2nd quarter CY 2013. With respect to our proposed 

measures (5 Diabetes measures and 1 Cardiac Rehabilitation measure), the applicable 

quarters would be 1st quarter CY 2013 and 2nd quarter CY 2013. Hospitals that did not 

participate in the CY 2013 Hospital OQR Program, but would like to participate in the 

CY 2014 Hospital OQR Program, and that have a Medicare acceptance date on the 

CASPER system before January 1, 2013, would begin data submission with respect to 

1st quarter CY 2013 encounters using the CY 2014 measure set that was finalized in the 

CY 2013 OPPS/ASC final rule with comment period. For those hospitals with Medicare 

acceptance dates on or after January 1, 2013, data submission 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. Thus, for example, the proposed submission 

deadline for data for services furnished during the first quarter of CY 2012 
CMS-1525-P 643 

(January-March, 2012) would be on or around 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 Abstraction and Reporting Tool for Outpatient 

Department (CART-OPD) measures or the tool 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 measures apply. In previous rulemakings, we 

have utilized various terms for describing the unit of care for outpatient hospital 

reporting, including encounter, episode, 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 Manual (Pub. 100-02), Chapter 6, Section 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 discussing inpatient services, the Medicare Benefit 

Policy Manual specifically refers to discharges; the term encounter is not used in 

reference to inpatient services. 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 consistently 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 “timely” when data are successfully accepted into 

the OPPS Clinical Warehouse on or before the reporting deadline. A “complete” 

submission would be determined based on whether the data satisfy the sampling criteria 

that are published and maintained in the Hospital 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 hospitals review OPPS Clinical Warehouse 

feedback reports and the Hospital OQR Provider Participation Reports that are accessible 

through their QualityNet accounts. These reports 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 occurred. We also note that irrespective of 

whether a hospital submits data to the OPPS Clinical Warehouse 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 2013 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 sample those encounters and submit data only 

for these sampled encounters, rather than submitting data on all of the eligible 

encounters. This sampling scheme, which includes 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 sampling scheme to at least 3 months from at 

least 4 months to be consistent with the Hospital OQR Specifications Manual release 

schedule. If a hospital chooses to sample for a particular quarter, the hospital must meet 

the sampling requirements for the required chart-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 required to submit patient level data because they 

have five or fewer encounters (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 Data Requirements 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 required, though hospitals could submit, on a 

voluntary basis, the aggregate numbers of outpatient encounters which are eligible for 

submission under the Hospital OQR Program and sample size counts. These aggregated 

numbers of outpatient encounters represent the number of outpatient 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 population 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 encounters for the measure populations for which 

chart-abstracted data must be submitted. 

 Under this proposal, a hospital would submit on a quarterly basis an aggregate 

population and sample size count with respect to each measure regardless of whether any 

patients met the inclusion criteria for the measure population. For example, if a hospital 

did not treat any patients who met the inclusion 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 of 
CMS-1525-P 647 

these providers voluntarily reported both population and sampling data. Data 

completeness was also assessed by comparing reported Medicare cases to submitted 

claim counts, minimum encounter count thresholds based on reported population sizes, 

and minimum sample size thresholds based on reported population sizes. We found that 

less than 10 percent of hospitals 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 developed data systems necessary to support this 

proposed requirement; in fact recent data suggest that the vast majority of hospitals have 

done so. 

 We are proposing that the deadlines for the reporting of aggregate numbers of 

outpatient hospital encounters and sample size 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 available 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 appropriate 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 Clinical 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 specified in the Hospital OQR Specifications 

Manual; no additional data submission is required 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: Safe Surgery Checklist Use, and OP-32: 

Hospital Outpatient Department Volume for Selected Outpatient Surgical Procedures. 

We are proposing that for the CY 2014 payment 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 procedures that have been set forth by CDC for 

NHSN participation in general and for submission 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 believe that these procedures are feasible 

because they are already widely used by over 4,000 hospitals reporting HAI data to the 

NHSN. Our proposal seeks to reduce hospital burden by aligning CMS data submission 

and reporting procedures with NHSN procedures currently used by hospitals, including 

hospitals complying with 28 State HAI reporting requirements. The submission 

timeframes for the CY 2014 payment determination that we are proposing to use for the 

proposed HAI measure are shown below. Hospitals 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 schedule made by CMS will be posted on the 

QualityNet Web site). 

Proposed Submission Timeframe for the Proposed 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 31st to August 1st August 1, 2013 

Q2 (Apr 1 to Jun 30, 2013) April 30th to November 1st November 1, 2013 
CMS-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 for OP-22, ED-Patient Left Without Being 

Seen, for the CY 2013 and CY 2014 Payment Determinations 

 With respect to OP-22: ED-Patient Left Without Being Seen, we are proposing 

that hospitals would be required to submit data once for each of the CY 2013 and 

CY 2014 payment determinations via a Web-based 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. For the CY 2014 payment determination, 

hospitals would be required to submit data 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 proposals for data collection and submission 

requirements. 
CMS-1525-P 651 

3. Hospital OQR Program Validation Requirements for Chart-Abstracted Measure Data 

Submitted Directly to CMS: Proposed Data 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 chart-abstracted data submitted directly to 

CMS from randomly selected hospitals for the CY 2013 payment determination. To 

reduce hospital burden and to facilitate 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 the number of randomly selected hospitals 

from 800 to 450. We have found that hospitals are consistently reporting high accuracy 

rates for chart-abstracted 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. Because 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 selection 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 determination. We are proposing this 10 
CMS-1525-P 652 

encounter minimum so that we have a sufficient sample size for calculating a statistically 

valid validation score. 

b. Proposed Use of Targeting Criteria for 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 considering, in addition to selecting a random 

sample of hospitals for validation purposes, selecting targeted hospitals based on criteria 

designed to measure whether the data these hospitals have reported raises a concern 

regarding data accuracy. Because hospitals had gained little experience with validation 

under the Hospital OQR at that time, we noted that we were considering this approach for 

possible use beginning with the CY 2013 payment determination. Examples of targeting 

criteria suggested for inclusion: 

● Abnormal data patterns identified such as consistently high Hospital OQR

measure denominator exclusion rates resulting in unexpectedly low denominator counts; 

● Whether a hospital had previously failed validation; 

● Whether a hospital had not been previously selected for validation for 2 or 

more consecutive years; 

● Whether a hospital had low submitted 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 addition to random sampling for validation, 

we should use targeted validation and, if so, what criteria for targeting 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 reporting 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 criteria for CY 2013 and subsequent years in 

the CY 2012 OPPS/ASC proposed rule. 

(2) Proposed Targeting Criteria for Data Validation Selection for CY 2013 

In addition to proposing to randomly selecting 450 hospitals for validation, we are 

proposing to select up to an additional 50 hospitals based upon targeting criteria. A 

hospital could be selected for validation 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 purposes of this targeting as a measure value 

that appears to deviate markedly from the measure values for other hospitals. For a 

normally distributed variable, nearly all values of the variable lie within 3 standard 

deviations of the mean; very few values lie past the 3 standard deviation mark. One 

definition of an outlier is a value that exceeds this threshold.40 In order to target very 

 

40 Ruan, Da, Chen, Guoguing, Kerre, Etienne E., and 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 hospitals that greatly exceed this threshold; 

such extreme values strongly suggest that data submitted is inaccurate. Specifically, we 

are proposing to select hospitals for validation if their measure value for a measure is 

greater than 5 standard deviations 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 targeted), we are proposing to validate up to 

48 randomly selected patient encounters (12 per quarter; 48 per year) from the total 

number of encounters that the hospital successfully submitted to the OPPS Clinical 

Warehouse. If a selected hospital has submitted less than 12 encounters in one or more 

quarters, only those encounters available would be validated. For each selected 

encounter, a designated CMS contractor would request that 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 submitted data have been abstracted accurately; 

provide more statistically reliable estimates of the quality of care delivered in each 

measured hospital as well as at a national level; and reduce overall burden, for example in 
CMS-1525-P 655 

submitting validation documentation, because hospitals 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 topic. 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 completing 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 determination 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 comparing 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 category and the measure would need to match. 

 To receive the full OPPS OPD fee schedule increase factor for CY 2013, we are 

proposing that hospitals must attain at least a 75 percent reliability score, based upon the 

proposed validation process. We are proposing to use the upper bound of a two-tailed 95 

percent confidence interval to estimate the validation score. If the calculated upper limit 
CMS-1525-P 656 

is above the required 75 percent reliability threshold, we would consider a hospital’s data 

to be “validated” for payment purposes. Because 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 calculate the validation score 

using the same methodology we finalized for the CY 2012 payment determination 

(75 FR 72105). We also are proposing to utilize the same medical record documentation 

submission procedures that we also finalized 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 documentation 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 review. We are proposing this deadline of 30 

days also to reduce the time for data validation 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 upon our validation approach of targeting 

hospitals to address data quality concerns and to ensure that our payment decisions are 

made using accurate data. Thus, we are requesting public comment on the following 

additional targeting criteria to select hospitals for validation: 
CMS-1525-P 657 

● Whether a hospital that was open under its current CCN and had not been 

selected for validation in the previous 3 years. This is consistent with validation targeting 

criteria we recently proposed to implement 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 proposals, 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 Reconsideration and Appeals Procedures for CY 2013 and 

Subsequent Years

 When the Hospital IQR Program was initially implemented, it did not include a 

reconsideration process for hospitals. Subsequently, 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 reconsideration. We anticipated 

similar concerns with the 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 process modeled after the 

reconsideration process we implemented for the Hospital IQR Program. In the CY 2009 
CMS-1525-P 658 

OPPS/ASC final rule with comment period (73 FR 68779), we adopted a reconsideration 

process that applied to the CY 2010 payment decisions. In the CY 2010 OPPS/ASC final 

rule with comment period (74 FR 60654 through 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 this process for the CY 2013 payment 

determination and subsequent years. Under this proposed process, 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 meeting 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 reconsideration. 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 Notice 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 are proposing that hospitals would submit this 

documentation to a designated CMS contractor which would have authority to review 

patient level information. We would post the address where hospitals are to send this 

documentation on the QualityNet Web site. 

● To the extent that the hospital is requesting reconsideration on the basis that 

CMS has determined it did not meet an affected year’s validation requirement, the 

hospital must provide a written justification for each appealed data element classified 

during the validation process as a mismatch. Only data elements that affect a hospital’s 

validation score would be eligible 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 decision on the reconsideration request. 

 We note that, consistent with our policy for CY 2012 reconsiderations, 

reconsideration request forms would not need 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 and 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 information provided in the reconsideration request, 

notifying the hospital of the outcome of the reconsideration process. 

 We intend to complete any reconsideration reviews and communicate the results 

of these determinations within 90 days following the deadline for submitting requests for 

reconsideration. 

 We also propose to apply the same policies that we finalized for the CY 2012 

payment determination regarding the scope of our review when a hospital requests 

reconsideration because it failed our validation 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 invalid record selection (that is, the CMS 

contractor determined that one or more medical 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 CMS contractor’s request was the correct 

documentation. If we determine that the hospital did submit the correct medical 

documentation, we would abstract the data elements and compute a new validation score 

for the encounter. If we conclude that the hospital did not submit the correct medical 

record documentation, we would not further 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 requested medical record documentation to the 

CMS contractor within the proposed 30 calendar 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 whether the hospital 

received the initial medical record request and reminder notice. If we determine that the 

CMS contractor timely received paper copies of the requested medical record 

documentation, we would abstract data elements 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 requesting medical documentation but 

did not submit the requested documentation within the 30 calendar day period, we would 

not further consider the hospital’s request. 

 If a hospital is dissatisfied with the 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 referred 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 consideration 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 establishing the capacity of hospitals to send, 

and for CMS, in the future, to receive, quality measures via hospital EHRs for Hospital 

IQR Program measures. We expect the Hospital IQR and Hospital OQR Programs to 

transition to the use of certified EHR technology, 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 abstraction. 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 also 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 Program. Our goals are to align the hospital 
CMS-1525-P 663 

quality reporting programs, to seek to avoid redundant and duplicative 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, which include, among other requirements, that 

eligible hospitals and CAHs report clinical quality measures (CQMs) to CMS, in addition 

to meeting other objectives and measures described in the final rule. The final rule also 

requires that for the 2012 payment year and subsequent years, an eligible hospital or 

CAH using certified EHR technology must submit information on the specified clinical 

quality measures electronically. However, for the 2011 payment year, eligible hospitals 

and CAHs are required to submit CQM results as calculated by certified EHR technology 

through attestation, rather than submit the information electronically. In the final rule 

(75 FR 44380), we also stated that we anticipated that we would have completed the 

necessary steps to have the capacity to receive information on CQMs electronically for 

the 2012 payment year. However, we also acknowledged that if we do not have the 

capacity to accept electronic reporting of CQMs in 2012, consistent with 
CMS-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 requirement 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 the 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 information necessary for clinical quality measure reporting 

based solely on the use of PQRI 2009 Registry XML Specification content exchange 

standard as is required for certified EHR technology. This is because the specification is 

tailored to the elements required for 2009 PQRI 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 the 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 attestation, as for the 2011 payment year. 

Alternatively, for the 2012 payment year, eligible hospitals and CAHs would be able to 

participate in the proposed FY 2012 Medicare EHR Incentive Program Electronic 

Reporting Pilot for Eligible Hospitals and CAHs (Electronic Reporting Pilot) which is 
CMS-1525-P 665 

further described below. We are proposing to revise our regulations 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 pilot basis. For payment year 2012, we are 

proposing that eligible hospitals and CAHs participating in the Medicare EHR Incentive 

Program may meet the CQM reporting requirement of the EHR Incentive Program for 

payment year 2012 by participating in the proposed Electronic Reporting Pilot. We are 

proposing that participation in this Electronic 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 the proposed Electronic Reporting Pilot in 

view of our desire to adequately 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 opportunities 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 reporting in the Hospital IQR and Hospital OQR 

Programs. 
CMS-1525-P 666 

Eligible hospitals and CAHs would 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 intent to participate in the proposed Electronic Reporting Pilot 

as part of the attestation process for the Medicare EHR Incentive Program. We are 

proposing that eligible hospitals and CAHs that participate in the proposed Electronic 

Reporting Pilot and meet its submission requirements would satisfy the requirements for 

reporting clinical quality 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 EHR technology. As described below, for the 

purpose of the proposed Electronic Reporting Pilot, CMS would calculate the results of 

the clinical quality measures for eligible hospitals and CAHs based on patient level data 

submitted for Medicare patients. The proposed Electronic Reporting Pilot would require 

eligible hospitals and CAHs to submit information 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 information would be obtained from the certified EHR 

technology used by the eligible hospital or CAH. 

We are proposing that electronic submission 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 the 14 core meaningful use objectives for 

eligible hospitals and CAHs for the Medicare EHR Incentive Program, an eligible 
CMS-1525-P 667 

hospital or CAH that chooses to participate in the proposed Electronic Reporting Pilot 

would still be required to meet and attest to the other core and menu set objectives and 

their associated measures using the attestation module for the program on the CMS Web 

site.

After the eligible hospital or CAH had attested and CMS has received electronic 

submission of the CQMs from an eligible hospital or CAH participating in the proposed 

Electronic Reporting Pilot, CMS would determine whether the eligible hospital or CAH 

has successfully met all the requirements for the Medicare EHR Incentive Program. We 

expect this determination would be made within 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 proposing that eligible hospitals and CAHs, 

alternatively, may attest, but still participate in the proposed Electronic Reporting Pilot. 

3. CQM Reporting under the Proposed Electronic Reporting Pilot 

Under §495.6(f)(9), we require Medicare eligible hospitals and CAHs (which 

would include those participating in the proposed Electronic Reporting Pilot) to 

successfully report hospital clinical 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 CQM 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 hospital or CAH’s certified EHR technology.
CMS-1525-P 668 

In the final rule for the Medicare and Medicaid EHR Incentive Programs, we 

stated that we will require eligible hospitals 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 submit patient-level CQM data for Medicare 

patients only. Aside from requiring attestation to other objectives/measures based on 

data for all patients, specifically, we are proposing that eligible hospitals and CAHs 

participating in the proposed Electronic Reporting 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 calculation process, rather than aggregate results 

calculated by the eligible hospital or CAH’s certified EHR technology; (3) submit one 

full Federal fiscal year of CQM data, regardless of the eligible hospital or CAH’s year of 

participation in the Medicare and Medicaid 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 submission is based must be obtained from certified 

EHR technology. However, the functionality of reporting these CQMs to CMS will not 

rely on the certification process. 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 in 
CMS-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 Reporting 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 reports to CMS with the requirements that 

would be used in the proposed Electronic Reporting Pilot. The test period would remain 

open. Additional details including 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 proposed Electronic Reporting Pilot discussed 

above. 

K. Proposed ASC Quality Reporting Program

1. Background 

Section 109(b) of the MIEA TRHCA amended section 1833(i) of the Act by redesignating clause (iv) as clause (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 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 
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Secretary in accordance with paragraph (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 taken 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 hospital 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 hospitals under the Hospital 

OQR Program and any reference to a hospital, outpatient setting, or outpatient hospital 

services is deemed a reference to an ASC, the 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 time, 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 quality of care (including medication errors) 

furnished by hospitals in outpatient settings, that these measures 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. Section 

1833(t)(17)(C)(ii) of the Act allows the Secretary to select measures 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 gives the Secretary the 

authority to replace measures or indicators as appropriate, such as where all hospitals are 

effectively in compliance or the measures or indicators have been subsequently shown 
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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 procedures include providing 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 comment period (73 FR 68780), the CY 2010 

OPPS/ASC final rule with comment period (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 that 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 implementing new requirements, such as public 

reporting of quality measures. However, in these 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 quality reporting program, in the CY 2011 

OPPS/ASC proposed rule, we solicited public comment on the following measures under 

consideration for ASC quality data 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 (SSI); (8) Medication Administration Variance 
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(MAV); (9) Medication Reconciliation; and (10) VTE Measures: 

Outcome/Assessment/Prophylaxis (75 FR 46383). 

In addition to preparing to propose implementation of an ASC quality reporting 

program, the Department developed a plan to implement a value-based purchasing (VBP) 

program for payments under the Medicare program under title XVIII of the Act for ASCs 

as required by section 3006(f) of the Affordable 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 Purchasing Implementation Plan” that contains 

this plan. This report is found on our Web site at: 

http://www.cms.gov/ASCPayment/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 measures 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 rulemaking. Therefore, in this proposed rule, we 
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are proposing to adopt measures for the CYs 2014, 2015, and 2016 payment 

determinations. To the extent that we finalize some or all of the measures for future 

payment determinations, we would not be precluded 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 CMS priorities. Under this approach, in the 

CY 2013 or CY 2014 rulemaking cycle, we could 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 determinations. This is consistent with our approach 

to proposing measures for multiple payment determinations for the Hospital IQR and 

Hospital OQR Programs. We believe this proposed process will assist ASCs in planning, 

meeting future reporting requirements, and implementing quality improvement efforts. 

We also would have more time to develop, 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 requirements. 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 that §1833(t)(17)(C) of the Act shall apply 

with respect to ASC services in a similar manner in which they apply to hospitals for the 

Hospital OQR Program, except as the Secretary may otherwise provide. The 

requirements at 1833(t)(17)(C)(i) of the Act state that measures developed shall “be 
CMS-1525-P 674 

appropriate for the measurement of the quality of care (including medication errors) 

furnished by hospitals in outpatient settings and that reflect consensus among affected 

parties and, to the extent feasible and practicable, shall include measures set forth by one 

or more national consensus 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 improved 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 Hospital IQR Program, the Physician Quality 

Reporting System, and reporting requirements 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 because it is a national multi-stakeholder 

organization with a well-documented and rigorous 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 ways, 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 reporting programs, as well as the Hospital 

Inpatient VBP Program, we applied the following principles for the development and use 
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of measures. We invite public comment on these principles in the ASC quality reporting 

context. 

● Pay-for-reporting, public reporting, and value-based purchasing programs 

should rely on a mix of standards, 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 quickly 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, measures should be aligned across public reporting and payment 

systems under Medicare and Medicaid. The measure sets should evolve so that they 

include a focused core set of measures appropriate to the specific provider/supplier 

category that reflects the level of care and the most important areas of service and 

measures for that provider/supplier. 

● The collection of information should 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 certified EHR technology with minimal burden. 

● To the extent practicable and feasible, and within the scope of our statutory 

authorities for various quality reporting and value-based purchasing programs, measures 

used by CMS should be endorsed by a national, multi-stakeholder organization. 
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Measures should be aligned with best practices 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. Similar standards and guidelines can be applied 

between hospital outpatient departments and ASCs with respect to surgical care 

improvement, given that many of the same surgical 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 condition rather than on the specific program or 

policy attributes of the setting in which the care 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 use the same measure specifications based on clinical evidence 

and guidelines for the care being assessed regardless of provider/supplier type or setting. 

This harmonization goal is also supported by a commenter to the CY 2011 OPPS/ASC 

proposed rule, who recommended CMS align ASC 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 Ambulatory Surgical Center Value-Based 

Purchasing Implementation Plan” and with those 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 into the parameter of our stated framework for the ASC 

Quality Reporting Program, discussed above. The initial measure set that we are 
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proposing for the CY 2014 payment determination addresses outcome measures and 

infection control process measures. Six of the eight initial measures that we are 

proposing for the CY 2014 payment determination are recommended by the ASC Quality 

Collaborative (ASC QC) and are NQF-endorsed. The seventh measure that we are 

proposing is appropriate for measuring ambulatory surgical care, is NQF-endorsed, is 

currently in use in the Physician Quality Reporting System, and is similar to a measure 

that is being utilized in the Hospital OQR program, and therefore 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 patients beginning January 1, 2012. The eighth measure we are 

proposing for the ASC Quality CY 2014 payment determination is an outcome measure 

of Surgical Site Infection (SSI) to be submitted in 2013 via the CDC’s National 

Healthcare Safety Network (NHSN). Similarly, hospital inpatient departments will begin 

reporting this measure to the CDC under the 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-endorsed claims-based measures, six of 

which were developed by the ASC QC. The ASC QC is a cooperative effort of 
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organizations and companies formed in 2006 with a common interest in ensuring that 

ASC quality data is measured and reported in a meaningful way. Stakeholders in the 

ASC QC include ASC corporations, ASC associations, professional societies and 

accrediting bodies that focus on ASC quality and safety. The ASC QC initiated a process 

of standardizing ASC quality measure development through evaluation of existing 

nationally endorsed quality measures to determine which could be directly applied to the 

outpatient surgery facility setting. The 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 care, including patients, providers and payers.” 

The ASC QC developed and pilot-tested five facility-level measures (Patient 

Burn; Patient Fall in the ASC; Wrong Site, Wrong Side, Wrong Patient, Wrong 

Procedure, Wrong Implant; Hospital Transfer/Admission, and Prophylactic 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 Timing and Ambulatory Surgery Patients with 

Appropriate Method of Hair Removal measures are infection control process measures, 

and the rest are outcome measures. All six of these measures were listed as under 
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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 developed by the American Medical Association’s 

(AMA’s) Physician Consortium for Performance Improvement, a national, diverse, 

physician-led group that identifies, develops, and promotes implementation of evidencebased clinical performance measures that reflect best practices. This measure is 

NQF-endorsed. It is an infection control process 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. CMS 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 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 comment 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. If one or more of these 
CMS-1525-P 680 

measures are finalized as proposed, an ASC would need to begin submitting these QDCs 

on any Medicare Part B claims pertaining to the measures on January 1, 2012. 

For the first six measures listed, the ASC QC measures specifications can be 

found at 

http://www.ascquality.org/documents/ASCQualityCollaborationImplementationGuide.pd

f . 41 For the seventh measure, the specifications 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 discussed in more detail below: 

(1) Patient Burns (NQF #0263) 

 The ASC Quality Measures: Implementation Guide Version 1.4 states that every 

patient receiving care in an ASC setting has the potential to experience a burn during an 

episode of care, given the multitude of factors that could pose risks for patient burns in 

the surgical and procedural settings. The Guide cited a recent publication from the ECRI 

Institute that relates an increased risk of burns associated with newer electrosurgical 

devices due to their application of higher electrical current for longer time intervals. 

Other common sources of burns in a surgical setting include chemical and thermal 

sources, and radiation, scalds, and fires. Clinical practice guidelines for reducing the risk 

of burns have been established by the American 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 Version 1.4, ASC Quality Collaboration, December 2010. 
CMS-1525-P 681 

measure can be found at: 

http://www.ascquality.org/documents/ASCQualityCollaborationImplementationGuide.pd

f . The ASC QC in their ASC Quality Measure Implementation Guide version 1.4 

defines a “burn” for purposes of this measure as “[u]nintended tissue injury caused by 

any of the six recognized mechanisms: scalds, contact, fire, chemical, electrical or 

radiation (e.g., warming devices, prep solutions, and electrosurgical unit or laser).” We 

believe that this measure would allow stakeholders to develop a better understanding of 

the incidence of these events and further refine means to ensure prevention. 

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 national 

consensus building entities. We believe that this measure is appropriate to measure 

quality in ASCs since they serve surgical patients who may face the risk of burns during 

ambulatory surgical procedures. Furthermore, we believe 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-based QDC data collection mechanism for ASC 

services furnished for Medicare patients from January 1, 2012 through 

December 31, 2012. While the NQF-endorsed specification for this measure includes all 
CMS-1525-P 682 

ASC admissions, our proposal to use information 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 part of the broader population to which the measure applies. If 

finalized, ASCs would need to place QDCs relevant 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 prevented through assessment of risk, care planning, 

and patient monitoring. Healthcare settings are being called 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 anxiolytics, 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/ASCQualityCollaborationImplementationGuide.pd

f. The ASC QC in their ASC Quality Measure Implementation Guide version 1.4 

defines a “fall” as “a sudden, uncontrolled, unintentional, downward displacement of the 

body to the ground or other object, excluding falls resulting from violent blows or other 

purposeful actions”, which is consistent with the definition set forth by the National 

Center for Patient Safety. 

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 national 

consensus building entities. We believe that this measure is appropriate to measure 

quality in ASCs because it was specifically developed to measure quality of surgical care 

furnished by ASCs, as measured by patient falls. Furthermore, we believe 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 

NQF-endorsed. 

We invite public comment on our proposal to adopt this measure for the CY 2014 

payment determination using the claims-based QDC data collection mechanism for ASC 
CMS-1525-P 684 

services furnished for Medicare fee-for-service beneficiaries from January 1, 2012 

through December 31, 2012. While the NQF-endorsed specification for this measure 

includes all ASC admissions, our proposal 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 part of the 

broader population to which the measure applies. If finalized, ASCs would need to place 

QDCs relevant 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. 

(3) Wrong Site, Wrong Side, Wrong Patient, Wrong Procedure, Wrong Implant 

(NQF #0267) 

 Surgeries and procedures performed on the wrong site/side, and wrong patient can 

result in significant impact on patients, including complications, serious disability or 

death. While the prevalence of such serious errors may be rare, such events are 

considered serious reportable events, and are 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 health care organizations and programs in the US) has issued a 

 

42

http://www.qualityforum.org/Publications/2007/03/Serious_Reportable_Events_in_Healthcare%E2%80%9

32006_Update.aspx 
CMS-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 procedure, 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/ASCQualityCollaborationImplementationGuide.pd

f.

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 national 

consensus building entities. We believe that this measure is appropriate to measure 

quality in ASCs because the measure assesses the quality of surgical care provided in 

ASCs as measured by the percentage 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 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-based 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_information/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 specification for this measure includes all 

ASC admissions, our proposal to use information 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 part of the broader population to which the measure applies. If 

finalized, ASCs would need to place QDCs relevant 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-endorsed measure assesses the rate of ASC 

admissions requiring a hospital transfer or hospital admission upon discharge from the 

ASC. The ASC QC defines “hospital transfer/admission” as “any transfer/admission 

from an ASC directly to an acute care hospital, including hospital emergency room.” 
CMS-1525-P 687 

 The NQF-endorsed specifications for this ASC QC measure can be found at: 

http://www.ascquality.org/documents/ASCQualityCollaborationImplementationGuide.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 transfers/admissions are 

determined to be at a level higher than expected. 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 section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 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 interventions. Furthermore, we believe 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-based QDC data collection mechanism for ASC 

services furnished for Medicare patients from January 1, 2012 through 

December 31, 2012. While the NQF-endorsed specification for this measure includes all 

ASC admissions, our proposal to use information submitted on claims to calculate these 
CMS-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 the 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 broader population to which the measure applies. If finalized, 

ASCs would need to place QDCs relevant 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. 

(5) Prophylactic Intravenous (IV) Antibiotic Timing (NQF #0264) 

 Timely preoperative administration of intravenous 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 IQR 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 specifications 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 prophylaxis 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 Giamacellou, H.: Effect of time interval on tissue 

concentrations of cephalosporins after tourniquet inflation. 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/ASCQualityCollaborationImplementationGuide.pd

f.

The ASC QC measure implementation guide defines “antibiotic administered on 

time” as “[a]ntibiotic infusion ... initiated within one hour prior to the time of the initial 

surgical incision or the beginning of the procedure (e.g., introduction of endoscope, 

insertion of needle, inflation of tourniquet) or two hours prior if vancomycin or 

fluoroquinolones are administered.” The measure also defines “prophylactic antibiotic” 

as “an antibiotic prescribed with the intent of reducing the probability of an infection 

related to an invasive procedure. For purposes of this measure, the following antibiotics 

are considered prophylaxis for surgical site infections: Ampicillin/sulbactam, 

Aztreonam, Cefazolin, Cefmetazole, Cefotetan, Cefoxitin, Cefuroxime, Ciprofloxacin, 

Clindamycin, Ertapenem, Erythromycin, Gatifloxacin, Gentamicin, Levofloxacin, 

Metronidazole, Moxifloxacin, Neomycin and 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 the two hours time frame. The ASC QC Guide 

states that “[i]n cases involving more than one antibiotic, all antibiotics must be given 

within the appropriate time frame in order for 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 section 1833(t)(17)(C)(i) of 

the Act require the Secretary, except as the Secretary may otherwise provide, to develop 
CMS-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 administration. Furthermore, we believe 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-based QDCs data collection mechanism for ASC 

services furnished for Medicare patients from January 1, 2012 through 

December 31, 2012. While the NQF-endorsed specification for this measure includes all 

ASC admissions, our proposal to use information 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 part of the broader population to which the measure applies. If 

finalized, ASCs would need to place QDCs relevant to this measure on Medicare Part B 
CMS-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 Appropriate Method of Hair Removal (NQF 

#0515) 

 The ASC QC47 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 clipping, 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 Operating Room Nurses published similar 

guidelines for appropriate hair removal.50 While a similar measure is being considered 

for retirement from the Hospital IQR Program because it displays a high degree of 

performance with little variability 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 admissions with appropriate surgical site hair 

removal. The NQF-endorsed specifications for this ASC QC measure can be found at: 

 

47 ASC QC Quality measures: Implementation Guide version 1.4. ASC Quality Collaboration. December 

2010. 

48 Seropian, R., Reynolds, B.M.: Wound infections after 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 practices for skin preparation of patients. AORN 

J. 2002 Jan;75(1):184-7. 
CMS-1525-P 692 

http://www.ascquality.org/documents/ASCQualityCollaborationImplementationGuide.pd

f. 

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 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 believe 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-based QDC data collection mechanism for ASC 

services furnished for Medicare patients from January 1, 2012 through 

December 31, 2012. While the NQF-endorsed specification for this measure includes all 

ASC admissions, our proposal to use information submitted on claims to calculate these 

measures 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 indicated in recent exchanges that our proposal to use Medicare Part 

B claims submitted by ASCs to calculate the measure consistently with the measure 
CMS-1525-P 693 

specification is an appropriate application of the NQF-endorsed measure to a subset of 

patients that are part of the broader population to which the measure applies. If finalized, 

ASCs would need to place QDCs relevant to this measure on Medicare Part B claims 

beginning January 1, 2012 in order to report this measure for purposes of CY 2014 

payment determination.

(7) Selection of Prophylactic Antibiotic: First OR Second Generation Cephalosporin

(NQF #0268) 

 Surgical outcomes are affected by the selection of appropriate antibiotics. Current 

guidelines indicate that first or second generation cephalosporins are effective for 

prevention of surgical site infections in most cases. 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. This 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: Specialty Clinician 

Performance Measures,” and it assesses the percentage of surgical patients aged 18 years 

and older undergoing procedures with the indications 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 this measure is highly relevant for use in 

ASCs because it assesses adherence to best practices for use of prophylactic antibiotics 
CMS-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_PhysQualRptg_MeasuresGroups_Specificatio

nsManual_033111.pdf?agree=yes&next=Accept. 

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 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 practicable to adopt an NQF-endorsed measure of 

prophylactic antibiotic selection specifically for ASCs because there is no such 

NQF-endorsed measure. We note that section 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 the Act, which contains 

this requirement, applies to the ASC Quality Reporting Program, except as the Secretary 

may otherwise provide. Under this provision, the Secretary has further authority to adopt 
CMS-1525-P 695 

measures that are not NQF-endorsed or measures 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 measures 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-based QDC data collection mechanism for ASC 

services furnished for Medicare patients from January 1, 2012 through 

December 31, 2012. While the NQF-endorsed specification for this measure includes all 

surgical patients, our proposal to use information 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 part of the broader population to which the measure applies. If 

finalized, ASCs would need to place QDCs relevant 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 hospitalization required for patients and add 

considerable health care costs. HAIs are largely preventable for surgical patients through 

application of perioperative best practices such as those listed in the CDC’s SSI 

prevention guidelines. Therefore, many health care consumers and organizations are 

calling for public disclosure of HAIs, arguing 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 requirements for hospitals in some States. 

Additionally, data submission for this measure through EHRs may be possible in the near 

future. 

This measure is NQF-endorsed and we are 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 specifications can be found at 

 

51 McKibben. L., Horan, T.: Guidance on public reporting of healthcare-associated 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 events 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 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 national 

consensus building entities. Increasingly, surgical procedures are being performed in 

hospital outpatient department settings and 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 entity because it is endorsed by the NQF. The 

proposed adoption of this measure in the 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 Program for the FY 2014 payment determination. 

Therefore, we are proposing to adopt the Surgical Site Infection Rate measure that is 
CMS-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 proposed 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 infection events occurring 

between January 1, 2013 and June 30, 2013. This proposed measure is currently 

collected by the NHSN as part of State-mandated reporting and surveillance 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 healthcare facilities in the 

United States, including acute care hospitals, long term acute care hospitals, psychiatric 

hospitals, rehabilitation hospitals, outpatient dialysis centers, ASCs, and long term care 
CMS-1525-P 699 

facilities. The NHSN reporting infrastructure is provided free of charge to healthcare 

providers/suppliers to access and use for reporting data regarding healthcare safety and 

infections. The NHSN enables healthcare facilities to collect 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 healthcare facilities to submit data on HAIs mandated through 

their specific State legislation. 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 Patient, 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 Antibiotic 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 payment 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/ASC final rule with 

comment period, for the CY 2015 payment determination. 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 adopt two structural 

measures: Safe Surgery Checklist Use, and ASC Facility Volume Data on Selected ASC 

Surgical Procedures. We discuss 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 whether ASCs are using a safe surgery checklist 

that covers effective communication and helps ensure that safe practices are being 

performed at three critical perioperative periods: prior to administration of anesthesia, 

prior to incision, and prior to the patient leaving the operating room. The use of such 

checklists has been credited with dramatic decreases in preventable harm, complications 
CMS-1525-P 701 

and post-surgical mortality52. In November 2010, the New England Journal of Medicine 

published a study concluding that surgical complications were 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 surgery practices that can be performed during 

each of these three perioperative periods 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 patient and at the correct place on the patient’s 

body.54 A safe surgery checklist would also reduce the potential for human error, which 

would increase the safety of the surgical environment. 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/standards_information/npsgs.aspx
CMS-1525-P 702 

employs safe surgery practices at each of these three perioperative periods is the World 

Health Organization Surgical Safety Checklist, 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/safesurgery/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 Surgeons’ Nora Institute for Patient Safety, the 

American Society of Anesthesiologists, The 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 would not require an ASC to report whether it 

uses a checklist in connection with any individual procedures. 

Read together, section 1833(i)(7)(B) of the Act and section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 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 proposed rule, we believe that consensus among 

affected parties can be reflected through means other than NQF endorsement, including 
CMS-1525-P 703 

consensus achieved during the measure development process; consensus shown through 

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 that is broadly accepted and in widespread use among affected parties. In 

addition to being adopted by The World Federation of Societies of Anesthesiologists, the 

use of a safe surgery checklist is one of the safe surgery principles endorsed by the 

Council on Surgical and Perioperative Safety55, which is comprised of the American 

Association of Nurse Anesthetists, the American College of Surgeons, the American 

Association of Surgical Physician Assistants, the American Society of Anesthesiologists, 

the American Society of PeriAnesthesia Nurses, AORN, and the Association of Surgical 

Technologists. Two State agencies (Oregon, South Carolina), the Veterans Health 

Administration56, 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.57, 58 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 Checklist Use reflects consensus among affected 

parties. We also note that The Joint Commission has included safe surgery checklist 

practices among those to be used to achieve National Patient Safety Goals adopted for 

 

55 http://www.cspsteam.org/safesurgerychecklist/safesurgerychecklist.html 56 Neily, J; Mills, PD, Young-Xu, Y. (2010). “Association 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 Surgical Quality – Checklists and Beyond.” NEJM. 

363: 1963-1965. 
CMS-1525-P 704 

2011 for surgeries performed in ambulatory settings and hospitals59. The Safe Surgery 

Checklist Use structural measure is not NQF-endorsed, and there is no NQF-endorsed 

measure of safe surgery checklist use despite the broad acceptance and widespread 

endorsement of this practice. Therefore, it is not feasible or practicable to adopt an 

NQF-endorsed measure of safe surgery checklist use because there is no such 

NQF-endorsed measure. We note that section 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 the Act, which contains this 

requirement, applies to the ASC Quality Reporting Program, except as the Secretary may 

otherwise provide. Under this provision, the Secretary has further authority 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 measure 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 would 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 ASC would report whether their facility 

employed a safe surgery checklist that covered each of the 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.aspx 
CMS-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 used to collect structural 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 decreased 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 patients for the particular procedure. For this 

reason, the National Quality Forum has endorsed measures of total all-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). Additionally, many consumer-oriented Web sites reporting 

 

60 Livingston, E.H.; Cao, J “Procedure Volume as a Predictor of Surgical Outcomes”. JAMA. 

2010;304(1):95-97.

61 David R. Flum, D.R.; Salem, L.; Elrod, J.B.; Dellinger, 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 Following 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, Illinois, Michigan, Oregon) and private organizations (Leapfrog 

Group, U.S. News & World Report) are reporting procedure volume, in addition to 

provider performance on surgical process (SCIP measures) and outcome measures (SSI, 

Patient Safety Indicators, and Mortality), because it provides 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 beneficiaries. When stratified by specialty category, CMS 

identified six procedure categories that historically constitute 98.5 percent of the total 

volume of procedures performed in ASCs: Gastrointestinal, Eye, Nervous System, 

Musculoskeletal, Skin, and Genitourinary. We are proposing that ASCs submit all 

patient volume data on these six broad categories 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 provider/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 section 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 national consensus building entities. Because 

surgical volume is associated with better quality, and surgical procedures 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 believe consensus among affected parties can be 

reflected through various means including widespread use among industry stakeholders. 

We believe that the ASC Facility Volume Data on Selected ASC Surgical Procedures 

structural measure reflects consensus among affected parties as being associated with 

quality of surgical care because of recent evidence published in well-respected and 

widely circulated peer-reviewed clinical literature, and because of its widespread 

reporting among States and private stakeholders on Web sites featuring quality 

information. Because the current volume measures are endorsed for inpatient procedures, 

many of which are not performed in outpatient settings 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 the Act, which contains this 

requirement, applies to the ASC Quality Reporting Program, except as the Secretary may 

otherwise provide. Under this provision, the Secretary has further authority 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 dates 
CMS-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 six categories of procedures during the 45-day 

window of July 1 to August 15, 2013. The table 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 programs (Hospital IQR and Hospital OQR). 

We invite public comment on this proposal. 

In summary, for the CY 2015 payment determination, we are proposing to retain 

the eight measures proposed for the CY 2014 payment 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 payment 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 Patient, 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 Antibiotic: First OR Second Generation 

Cephalosporin 

ASC-8: Surgical Site Infection Rate 
CMS-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 payment determination to the next. We are 

proposing to retain the ten measures 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 invite public comment on this proposal. 

b. Proposed HAI Measure: Influenza Vaccination Coverage among Healthcare 

Personnel (HCP) (NQF #0431) 

The Influenza Vaccination among Healthcare Personnel measure assesses the 

percentage of healthcare personnel who have been immunized for influenza during the flu 
CMS-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 determination, 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 refer 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 section 1833(t)(17)(C)(i) of 

the Act require the Secretary, 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 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 that 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 our 
CMS-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 determination, we are proposing to retain 

the ten measures that we adopt for the CY 2015 payment determination (if these 

proposals are finalized in a final rule) and to add one NHSN HAI measure. The proposed 

measures for ASCs for the CY 2016 payment determination are listed below: 

Proposed ASC Program Measurement Set for the CY 2016 Payment 

Determination 

ASC-1: Patient Burn 

ASC-2: Patient Fall 

ASC-3: Wrong Site, Wrong Side, Wrong Patient, 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 Antibiotic: 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, 58805 
CMS-1525-P 712 

Proposed ASC Program Measurement 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 for Future Consideration 

Below is a list of future measurement areas that we are considering for future 

ASC Quality Reporting Program payment determinations for which we seek comment. 

In particular, we seek comment on the inclusion of Patient Experience of Care 

Measures in the ASC Quality Reporting Program measure set for a future payment 

determination, such as existing 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, in particular, seek comment on the inclusion of 

procedure-specific measures for cataract surgery, colonoscopy and endoscopy, and for 

measures of Anesthesia Related Complications 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 Providers 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 Infarction 
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Measures and Measurement Topics under Consideration for Future Payment 

Determinations 

Anaphylaxis 

Hyperthermia 

Transfusion Reaction 

Stroke, Cerebral Vascular Accident, 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 vascular access or regional anesthesia 

Infection following epidural or spinal anesthesia 

Epidural hematoma following spinal or epidural anesthesia 

High Spinal 

Postdural puncture headache 

Major systemic local anesthetic toxicity 

Peripheral neurologic deficit following regional anesthesia 

Infection following peripheral 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 during Entire Recovery Period 

Post-discharge follow up 

Post-discharge ED visit within 72 hours 

We invite public comment on these quality measures and measurement topics so 

that we may consider proposing to adopt them for future ASC Quality Reporting Program 

payment determinations beginning with the CY 2015 payment determination. We also 
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are seeking suggestions for additional measures and rationales for the ASC Quality 

Reporting Program that are not listed in the table above. 

7. Technical Specification Updates and Data Publication

a. Maintenance of Technical Specifications for Quality Measures 

 We are proposing to provide technical specifications, and in some cases, links to 

technical specifications hosted on external third 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 comment period, on the CMS QualityNet Web 

site at http://www.QualityNet.org. Currently, the specifications 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/ASCQualityCollaborationImplementationGuide.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 discussion above and in the table of measures 

proposed for the CY 2015 payment determination. 

 We are proposing to maintain the technical specifications for the measures 

adopted for the ASC quality reporting program by updating this Specifications Manual 

and including detailed instructions and calculation algorithms as appropriate. In some 
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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 section XIV.A.3.a. of this proposed rule. We 

are proposing to follow the same technical specification 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 subregulatory process for updates to the technical specifications 

that we use to calculate Hospital OQR Program measures. This process is used when 

changes to the measure specifications are necessary 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. The legal standard for adopting 

Hospital OQR measures is consensus among affected parties, and to the extent feasible 

and practicable, measures that are set forth 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 measure specifications so that measures are 

calculated based on the most up-to-date scientific standards and ̧ in some instances ̧ 

consensus standards. 

 For the Hospital OQR Program, we indicated that notification of changes to the 

measure specifications is available on the QualityNet Web site, 
CMS-1525-P 716 

http://www.QualityNet.org, and in the Hospital OQR Program Specifications Manual and 

would occur no less than 3 months before any changes become effective for purposes of 

reporting under the Hospital OQR Program. The Hospital OQR Program Specifications 

Manual is released every 6 months and addenda are released as necessary providing at 

least 3 months of advance notice for substantial changes such as changes to ICD-9, CPT, 

NUBC, and HCPCS codes, and at least 6 months notice for substantive changes to data 

elements that would require significant systems changes. We are proposing to follow the 

same subregulatory process for the ASC Quality Reporting Program for updates to the 

technical specifications. We invite public comments on this proposal. 

b. Publication of ASC Quality Reporting Program Data 

 Section 1833(t)(17)(E) of the 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 that 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 has 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 and ASCs to discuss the quality of care ASCs 

provide to patients, thereby providing an additional incentive to ASCs to improve the 
CMS-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 complete 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 payment determination, we are proposing to 

utilize Medicare fee-for-service ASC claims 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 claims relating to the proposed measures if 
CMS-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 regarding participation notification and other 

administrative requirements in CY 2013 rulemaking. 

 We are proposing that data completeness for claims-based measures would be 

determined by comparing the number of claims meeting measure specifications that 

contain the appropriate QDCs with the number 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 comment 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 the 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 determination. We are proposing to use the 

data submission and reporting standard procedures that have been set forth by the CDC 

for NHSN participation in general and for submission 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. Our proposal seeks to reduce ASC burden by 

aligning CMS data submission and reporting procedures with NHSN procedures 
CMS-1525-P 719 

currently utilized by healthcare providers and 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 shown 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 schedule will be posted on the QualityNet Web 

site). 

Proposed Submission Timeframe for the Proposed 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 31st to August 1st August 1, 2013 

Q2 (Apr 1 to Jun 30, 2013) April 30th to November 1st 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 with which the physician (or an immediate 

family member) has a financial relationship (ownership or compensation), unless an 

exception applies; and (2) prohibits the entity from filing claims with Medicare (or billing 
CMS-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 create regulatory exceptions that pose no risk of program or 

patient abuse. 

 Section 1877(d) of the Act sets forth additional 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 providers. In order for an entity to qualify for 

the exception, the DHS must be furnished in a rural area (as defined 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 rural area. Section 1877(d)(3) of the Act provides an exception, 

known as the “whole hospital” exception, for ownership or investment interests in a 

hospital located outside of Puerto Rico, provided that the referring physician is 

authorized to perform services at the hospital and the ownership or investment interest is 

in the hospital itself (and not merely in a subdivision of the hospital). 

B. Changes Made by the Affordable Care Act

1. Provisions Relating to Exceptions to Ownership 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 owner or investor” in a hospital 

as a physician or immediate family member of a physician who has a direct or indirect 
CMS-1525-P 721 

ownership or investment interest in a hospital. 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 comment period (75 FR 71800). In §411.362, we 

implemented most of the requirements of section 6001(a) of the ACA, including patient 

safety requirements. In sections XV.B.2. and C. of this proposed rule, we address the 

process for a hospital to request an exception to the prohibition on expansion of facility 

capacity under section 6001(a)(3) of the Affordable Care Act. In section D. of this 

proposed rule, we address related patient notification requirements in the provider 

agreement regulations. 

2. Provisions of Section 6001(a)(3) of the Affordable Care Act 

 The amended whole hospital and rural provider 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 establish and implement an exception process to the 

prohibition on expansion of facility capacity. 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 referrals 
CMS-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) set 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 proposing to interpret the statute to impose the 

same 2-year frequency limit to apply also to high Medicaid facilities as discussed in 

section XV.C.2. of this proposed rule. 

 We are proposing to set forth the elements 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). Under proposed §411.362(c)(5), we are proposing 

to provide an opportunity for individuals and entities in the community in which the 

hospital is located to provide input with respect to the hospital’s request for an exception. 

For purposes of this proposed rule, when the statute refers to an “application,” we use the 

term “request.” 

 Because section 1877(i)(3)(D) of the Act provides that any increase in the number 

of operating rooms, procedure rooms, and beds 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 “main campus of the hospital” at §411.362(a), as 

discussed below. Additionally, we are proposing 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 section 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 Act, the Secretary must promulgate 

regulations concerning the process for a hospital to apply for an exception by 

January 1, 2012, and implement this process on February 1, 2012. We anticipate an 

effective date of January 1, 2012, for these proposed regulations. Below, we set out our 

proposals related to the exception process in greater detail. 

C. Proposed Changes Relating to the Process 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 operating rooms, procedure rooms, and beds” and 
CMS-1525-P 724 

“main campus of the hospital.” The process we are proposing sets forth the relevant data 

sources and the elements of a complete request for an exception. 

1. Applicable Hospital 

 Below we separately discuss each of the statutory criteria that a hospital must 

satisfy to qualify as an “applicable hospital.” We are proposing the processes by which a 

hospital can determine whether it satisfies each criterion. The proposed data 

requirements for each criterion are further discussed in each section below. 

We are proposing that data from the CMS Healthcare Cost Report Information 

System (HCRIS) be used to determine whether a hospital satisfies the inpatient 

admission, bed capacity, and bed occupancy criteria. We currently consider HCRIS to 

contain a sufficient amount of data for a particular fiscal year if HCRIS contains data 

from at least 6,100 hospitals for that fiscal year. Therefore, we are proposing that HCRIS 

must contain data from at least 6,100 hospitals for a particular year in order for that 

year’s data to be used under the exception process. If HCRIS does 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 total inpatient Medicaid admissions per 

county, the average bed capacity per State, the national average bed capacity, and the 

average bed occupancy per State 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 satisfy the respective criteria to qualify as an 

applicable hospital. CMS will make a reasonable effort to ensure that the data contained 
CMS-1525-P 725 

in HCRIS are correct and complete at the time of disclosure. We are soliciting public 

comment on proposing and justifying alternative 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 which 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 the population growth of the State in which the hospital is 

located during that period, as estimated 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 proposing at §411.362(c)(2)(i) that 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 Census 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 both a county and a county equivalent area. 

 We recognize that the Bureau of the Census may not provide 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 necessary calculations. For example, if a hospital 

submits a request for an exception in 2012, but the most recent year for which the Bureau 
CMS-1525-P 726 

of the Census has estimates is 2010, the hospital should perform the necessary 

calculations using estimates for years 2010 and 5 years prior. 

 We are proposing also that the hospital use county and State population estimates 

for the same years. For example, if a hospital submits a request for an exception in 2012 

and the most recent year for which the Bureau of the Census has State and county 

population estimates is 2011 and 2010, respectively, the hospital should perform the 

necessary calculations using estimates for 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 request even if the Bureau of the Census updates its estimates 

after the hospital submits its request 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 total 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 calculate inpatient admissions 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 total number of 

discharges for the year paid for by any governmental or private payor. We are soliciting 

public comment on other data sources that could be used to provide an accurate estimate 
CMS-1525-P 727 

of the annual percent of total Medicaid inpatient 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 admissions 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 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 a request for an exception. 

 We are proposing at §411.362(c)(2)(ii) that the hospital 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 request based on the data available as of the 

date the hospital submits its request. We plan to issue guidance to further address the 

process for a hospital to estimate its annual percentage of total inpatient admissions under 

Medicaid. The guidance will also explain how CMS will determine and provide the 

average percentages of inpatient admissions 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 beneficiaries of Federal health care programs and does not permit 
CMS-1525-P 728 

physicians practicing at the hospital to discriminate against such 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 State 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 hospital submits its request. We invite public 

comment on whether 3 years of data are sufficient 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 use filed hospital cost reporting data to 

determine State and national average bed capacities. 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 based 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 provides that an applicable hospital means a 

hospital that has an average bed occupancy rate that is greater than the average bed 

occupancy rate in the State in which the hospital is located. The statute does not specify 
CMS-1525-P 729 

the time period over which the hospital’s average 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 greater than the State average bed occupancy 

rate for each of the 3 most recent fiscal years for which data are available as of the date 

that a hospital submits its request. We invite 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) that 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 calculate its bed occupancy rate. The guidance 

would also explain how CMS will determine and provide the State bed occupancy rates. 

We are proposing that we would review a request 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 that a hospital must 

satisfy to qualify as a “high Medicaid facility.” We are proposing the processes by which 

a hospital can determine whether it satisfies 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 particular fiscal year once HCRIS 

contains data from at least 6,100 hospitals for that year. Therefore, we are proposing that 
CMS-1525-P 730 

HCRIS must contain data from at least 6,100 hospitals for a particular year in order for 

that year’s data to be used under the exception process. If HCRIS does not contain 

sufficient data for that year, data from the most 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 proposing to incorporate this 

requirement into the regulations at §411.362(c)(3)(i). 

b. Inpatient Admissions 

 Section 1877(i)(3)(F)(ii) of the Act provides that a high Medicaid facility means a 

hospital that, with respect to each of the 3 most recent years for which data are available, 

has an annual percent of total inpatient admissions under Medicaid that is estimated to be 

greater than such percent with respect to such admissions for any other hospital located in 

the county in which the hospital is located. We are proposing 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 under Medicaid for each of the 3 most recent 

fiscal years for which data are available. We also are proposing that 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 years 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 applicant hospital to use filed hospital cost 

reporting discharge data as a proxy for inpatient 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 hospitals 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 beneficiaries of Federal health care programs and does not 

permit physicians practicing at the hospital to discriminate against such beneficiaries. 

We are proposing to incorporate this requirement at §411.362(c)(3)(iii) of the regulations. 

3. Procedure for Submitting a Request 

 We are not creating an application form that a hospital must complete to apply for 

an exception to the prohibition on expansion of facility capacity. Rather, we are 

proposing that a hospital submit 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 must 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; and (iii) the name, title, address, and daytime telephone number of a 
CMS-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 clear statement as to whether the hospital is 

requesting an exception as an applicable hospital or a high Medicaid facility. We are 

proposing that each request submitted by a hospital must include a clear explanation of 

how it satisfies the criteria using the information discussed in sections XV.C.1. or 2. of 

this proposed rule. This includes performing, recording, and submitting all calculations 

necessary to submit a complete request. The hospital’s request must state that it does not 

discriminate against beneficiaries of Federal health care programs and does not permit 

physicians practicing at the hospital to discriminate against such beneficiaries. Finally, 

we encourage hospitals to clearly label all documentation submitted with a request and 

indicate the criteria for which the documentation provides supporting information. 

 We are proposing at §411.362(c)(4)(ii)(E) that each request must include 

documentation supporting the hospital’s calculation 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 authorized 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 hospital must either mail an original 

and one copy of its request to CMS or submit its request electronically. If a hospital 

submits its request electronically, the hospital must also submit an original, hard copy of 

the required certification. 

4. Community Input 

 Section 1877(i)(3)(A)(ii) of the Act provides 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 request 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 proposing that individuals and entities in the 

community in which a high Medicaid facility is located may have the same opportunity to 

submit written comments. 

 We are proposing at §411.362(c)(5) that a hospital must disclose on any public 

Web site for the hospital that it is requesting an exception. The notice should be 

accessible to the public and should remain posted 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 at 
CMS-1525-P 734 

http://www.cms.gov/MLNProducts/downloads/MailingLists_FactSheet.pdf. In addition, 

we are proposing that a notice of the hospital’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 include documentation demonstrating that the 

hospital does not satisfy one or more of the data criteria or that the hospital discriminates 

against beneficiaries. These are examples only; we are not restricting 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 will consider a request complete if 

CMS does not receive any written comments during 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 hospital in writing. We 

are proposing at §411.362(c)(5)(ii) to allow the hospital 30 days after CMS notifies the 

hospital of the written comments to submit information and documentation that rebut the 

written comments. We will consider the request 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 provides 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 granted a previous exception from 

the Secretary, the hospital may increase above the number of operating rooms, procedure 

rooms, and beds for which the hospital is licensed 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 provides 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 result in the number of 

operating rooms, procedure rooms, and beds for which the applicable hospital is licensed 

exceeding 200 percent of the baseline number of operating rooms, procedure rooms, and 

beds of the applicable hospital. We are proposing to incorporate this provision at

§411.362(c)(6)(i) of the regulations. 

 Using our rulemaking authority under sections 1871 and 1877(i)(3)(A)(i) of the 

Act, we are proposing to similarly limit the increase in the number of operating rooms, 

procedure rooms, and beds for which a high Medicaid 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 expansion with the purpose of the 
CMS-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 limits 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 provider agreement). We are proposing to incorporate this 

definition, with the clarification that it also applies to high Medicaid 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 for 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 “campus” is defined at 

§413.65(a)(2). Using our rulemaking authority under sections 1871 and 1877(i)(3)(A)(i) 

of the Act, we are proposing that, with respect to high Medicaid facilities, the limitation 

on expansion of hospital capacity, as set forth at section 1877(i)(1)(B) of the Act, 
CMS-1525-P 737 

similarly applies to the number of operating 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 respect to an application for an exception to the 

prohibition against facility expansion not later than 60 days after receiving a complete 

application. We are proposing to codify this provision at §411.362(c)(7). To facilitate 

access to decisions, we are proposing to post our decisions on the CMS Web site as well. 

The posted information will include the hospital’s name, address, county, and our final 

decision. If an exception is granted under this section, we will also 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 community 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 process, 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 that CMS’ decision with respect to whether a 

hospital qualifies for an exception 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 exception 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 proposing 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 recent 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 provider 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 applicable 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 part of their provider agreements. These 

new requirements were established in the FY 2008 IPPS final rule with comment period 
CMS-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 beginning 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; and (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 the 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, these provisions are in the interest of the 

health and safety of all individuals who receive services in these institutions. The notice 

requirements are intended to permit individuals 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 these patient safety requirements to hospital 

inpatients and outpatients. We continue to believe that both hospital inpatients and 

outpatients should receive these disclosures prior 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 than 
CMS-1525-P 740 

is desirable in the emergency department setting, we revisited this issue. We have 

reconsidered the patient safety requirements related to patient notification of physician 

presence, and in this proposed rule, we are proposing that hospital outpatients would need 

to receive such disclosures only where the risk of an emergency or the length of the 

outpatient visit make their situations more like that of hospital inpatients. Under this 

proposal, disclosures would be required only for those outpatients receiving observation 

services, surgery, or any other procedure requiring anesthesia. Signage would be 

required for hospital outpatients in the emergency 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 outpatients would not be 

compromised in any way if hospitals were not required 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 per week. We are proposing that only those 

outpatients who receive observation services, surgery, or services involving anesthesia, 

must receive such written notice. We believe this change would reduce burden, but 

ensure that notice goes to those categories 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 for 
CMS-1525-P 741 

physician-owned hospitals at §411.362(b)(5)(i).) We are proposing to add a provision 

that notice would be required at the 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 patient presents to the hospital. The current 

regulation describes when a stay or visit begins by referring to the time when a package 

of information is provided regarding scheduled preadmission testing and registration for a 

planned hospital admission or outpatient service. However, many admissions to the 

hospital are unplanned admissions of patients who present on an unscheduled visit to the 

emergency department. Therefore, it was necessary to clarify when we considered such 

unplanned stays or visits begin. 

We are proposing to add a new paragraph (w)(2) to §489.20 (existing paragraph 

(w)(2) would be redesignated as discussed below) that would require a hospital that is a 

main provider that has one or more remote locations of a hospital or satellites to make the 

determination of whether notice is required separately at each location providing 

inpatient services. We are proposing to use the terms “main provider,” “remote location 

of a hospital,” and “satellite” as these terms are defined at §413.65(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 days per week. We are proposing to move 

language that is currently in paragraph (w)(1) to a new paragraph (w)(3), governing the 
CMS-1525-P 742 

content of the written notice. We are proposing to redesignate existing paragraph (w)(2), 

which requires the hospital to receive a signed acknowledgment from the patient who has 

received a notice that the patient understands that a physician may not be present during 

all hours in which services are furnished to the patient, as paragraph (w)(4) and to revise 

the redesignated paragraph. We are proposing to add a provision to state that, before 

providing an outpatient service to an outpatient for whom a notice is required, the 

hospital must receive the signed acknowledgment. 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 paragraph (w)(5) which would require every 

hospital that has a dedicated emergency department 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. “Dedicated emergency department” would have the 

meaning found in existing §489.24(b) of the regulations. 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 week, and to indicate how the hospital will 

meet the needs of any patient with an emergency medical condition, as that term is 

defined in §489.24(b), at a time when no doctor 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 Hospital 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 establish a hospital inpatient value-based 

purchasing program under which value-based incentive payments are made in a fiscal 

year to hospitals meeting performance standards 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 directs the Secretary to begin making 

value-based incentive payments under the Hospital Inpatient Value-Based Purchasing 

Program (Hospital VBP Program) to hospitals for discharges occurring on or after 

October 1, 2012. These incentive payments 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 section 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 section 1886(d)(1)(B) of the 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 section 1886(b)(3)(B)(viii)(I) of the Act (the 

Hospital IQR Program) for such fiscal year; (2) a hospital for which, during the 

performance period for the fiscal year, the Secretary cited deficiencies that pose 
CMS-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 determined by the Secretary) of measures for the 

performance period for the fiscal year involved, 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 Inpatient VBP Program Final Rule 

We recently issued the Hospital Inpatient VBP Program Final Rule, which 

implemented the Hospital VBP Program gram 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 value-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/downloads/HospitalVBPPlanRTCFINALSUB

MITTED2007.pdf) and takes into account input from stakeholders and other interested 

parties. 

As described more fully in the Hospital 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, categorized 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 survey measure into a patient experience of 

care domain. We adopted a 3-quarter performance period from July 1, 2011 through 
CMS-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 this 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 assessing 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 (for the FY 2013 Hospital VBP Program, the 

weights will be clinical process 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 details of the FY 2013 Hospital VBP Program 

(76 FR 26490 through 26547). 

For FY 2014, we adopted 13 outcome measures comprised of 3 mortality 

measures, 2 AHRQ composite measures, and 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 through 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 Infarction (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: Fracture, Dislocation, Intracranial 

Injury, Crushing Injury, Burn, Electric Shock) 

● Vascular Catheter-Associated Infection 

● Catheter-Associated Urinary Tract Infection (UTI) 

● Manifestations of Poor Glycemic Control 

3. Proposed Additional FY 2014 Hospital VBP Program Measures 

For the FY 2014 Hospital VBP Program, we are proposing to retain all 13 of the 

clinical process of care and patient experience of care measures that we adopted for the 

FY 2013 Hospital VBP Program. We also are 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 was specified for the Hospital IQR Program 

beginning with FY 2011 and subsequent payment determination years (74 FR 43869 

through 43870), and information about the measure 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 Hospital 
CMS-1525-P 747 

Compare for at least one year before the applicable performance period begins. In 

addition, SCIP-Inf-9 is NQF-endorsed (#453). 

The measure is relevant for the Hospital VBP Program because it assesses a 

practice that reduces Catheter Associated Urinary Tract Infection (CAUTI), and improves 

patient safety, which is highlighted as one of the Institute of Medicine’s six quality aims 

along with effectiveness, patient-centeredness, 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 the 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/initiatives/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 hospitals. Therefore, 

we believe it would be a meaningful measure 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-endorsed and we will continue to monitor these 

measures to ensure that they reliably measure hospital quality, for example, ensuring that, 

among other things, these measures are not “topped-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 Patient 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 Within 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 Selection for Surgical Patients 

SCIP-Inf-3 Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery 

End Time 

SCIP-Inf-4 Cardiac Surgery Patients with 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 Blocker Prior to Arrival 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 Doctors, 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 hospital for the performance period for the fiscal 

year. Section 1886(o)(1)(C)(ii)(IV) 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 apply to the hospital for the performance period 

for the fiscal year. In the Hospital Inpatient VBP Program Final Rule, we adopted 

13 outcome measures for the FY 2014 Hospital 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 measures necessary for the outcome domain to be included 

in the Total Performance Score. 

Under section 1886(o)(1)(C)(iii) of the Act, in determining the minimum number 

of reported measures and cases under sections 1886(o)(1)(C)(ii)(III) and (IV), the 

Secretary must conduct an independent analysis of what minimum numbers would be 

appropriate. As described in the Hospital Inpatient VBP Final Rule (76 FR 26528 

through 26529), to fulfill this requirement, we commissioned Brandeis University to 

perform an independent analysis that examined technical issues concerning the minimum 

number of cases per measure and the minimum number of measures per hospital for 

clinical process of care measures needed to derive reliable domain scores. Based on that 
CMS-1525-P 750 

analysis, we finalized our policy to exclude any clinical process of care measures for 

which a hospital reported fewer than 10 cases, 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 performance period (76 FR 26529 through 26531). 

To determine the minimum numbers of measures and cases that should be 

required for the outcome domain, we again commissioned Brandeis University to 

perform an independent analysis. This analysis examined hospital performance on the 

13 finalized outcome measures using data from the 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 domain, different minimum numbers of cases and 

measures were tested to determine the combination 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 minimum 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 score on an AHRQ composite measure, a hospital would need to 
CMS-1525-P 751 

report a minimum of 3 cases. Consistent with these 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, Mathematica 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 hospital 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 based on the presence or absence of HAC 

occurrences, regardless of the number of Medicare cases a hospital treats, as long as the 

hospital submits at least one Medicare claim during the performance period. As we 

discuss further below, we anticipate that all participating hospitals will submit at least one 

Medicare claim during the performance period, which would be sufficient for the 

hospitals to receive a score on seven of the eight HAC measures. 

c. Proposed Minimum Numbers of Measures for Outcome Domain 

Brandeis researchers also analyzed the reliability of the outcome domain scores 

for hospitals depending upon the total number of outcome measures on which they 

reported. The analysis showed that the data provide a meaningful and sufficiently 

reliable indication of outcomes for hospitals in the outcome domain as long as the 
CMS-1525-P 752 

hospitals submit the minimum number of cases (discussed above) on each of 11 outcome 

measures for FY 2014. Specifically, the analysis found that using at least 11 outcome 

measures per hospital provided sufficiently comparable 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, together 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 evaluated how the outcome 

domain score would be affected if a hospital reported all eight finalized HAC measures. 

However, one of these HAC measures, Foreign Object Retained After Surgery, will not 

apply to a very small subset of hospitals that do not perform surgeries. Taking this into 

account, as well as our own further analysis which shows that the reliability of the 

outcome domain score would not be significantly different 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 Retained 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 mortality 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 every domain is an important component of 

an accurate Total Performance Score, we are 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 barrier 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 experience of care measures. This is because, as 

stated above, an analysis of the existing data shows that virtually all hospitals 

participating in the FY 2014 Hospital VBP Program 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 proposed minimum numbers of cases and 

measures required for the FY 2014 Hospital VBP Program. We also invite public 

comment on the proposed requirement that hospitals must report on all four domains (if 

finalized) to receive a Total 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 Act requires the Secretary to establish a performance 

period for the Hospital VBP Program for a fiscal year that begins and ends prior to the 

beginning of such fiscal year. 
CMS-1525-P 754 

a. Proposed Clinical Process of Care Domain 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 December 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 performance 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 payment at least 60 days before the start of 

FY 2014. It would also allow us to consider 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 immediately 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 as 
CMS-1525-P 755 

the baseline period for these proposed measures for FY 2014. We invite public comment 

on these proposals. 

b. Proposed Outcome Domain Performance 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 for the three mortality outcome measures 

currently specified under the Hospital IQR 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 VBP Program Final Rule, we stated 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 included 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 these 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 these measures would need to end by the 

fourth quarter of FY 2012 to allow us sufficient time to collect and process the necessary 
CMS-1525-P 756 

claims data. We note that this time period needs to be longer for HAC and AHRQ 

measures than for clinical process and patient 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 necessitate two additional 

months to complete measure calculation, including risk adjustment, statistical modeling, 

quality assurance, programming, and generating reports on patient-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 selecting 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, 2012 
CMS-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 section 1886(o)(3)(B) of the Act, and must 

be established and announced not later than 60 days before the beginning of the 

performance period for the fiscal year involved, as required by section 1886(o)(3)(C) of 
CMS-1525-P 758 

the Act. Achievement and improvement standards are discussed more fully in the 

Hospital Inpatient VBP Program Final Rule (76 FR 26511 through 26513). In addition, 

when establishing the performance standards, section 1886(o)(3)(D) of the Act requires 

the Secretary to consider appropriate factors, such as: (1) practical experience with the 

measures, including whether a significant proportion of hospitals failed to meet the 

performance standard during previous performance periods; (2) historical performance 

standards; (3) improvement rates; and (4) the opportunity for continued improvement. 

(1) Mortality Measures 

In the Hospital Inpatient VBP Program Final 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 period. We also finalized the improvement 

performance standard (improvement threshold) 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 achievement thresholds for these mortality measures (76 FR 26513), 

as shown below: 

Achievement Thresholds for the FY 2014 Hospital VBP Program Mortality 

Outcome Measures (Displayed as Survival Rates) 

Mortality Outcome Measures 

Measure 

ID 

Measure Description Performance 

Standard 

(Achievement 

Threshold) 

Benchmark 

MORT-30- Acute Myocardial 0.8477 0.8673 
CMS-1525-P 759 

Achievement Thresholds for the FY 2014 Hospital VBP Program Mortality 

Outcome Measures (Displayed 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 Spending 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 ratio of the Medicare spending per beneficiary 

amount for each hospital to the median Medicare spending per beneficiary amount across 

all hospitals during the performance 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 ratio, 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 spending per beneficiary 

measure at the hospital’s own Medicare spending 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 period, and that the improvement benchmark 
CMS-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 Experience 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 patient 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 Hospital Inpatient VBP Program Final Rule. That 

approach, as well as our rationale for adopting it, is explained in detail at 76 FR 26511 

through 76 FR 26513. We are proposing to set the achievement performance standard 

(achievement threshold) for each proposed 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 proposing to set the improvement performance 

standard (improvement threshold) for each of the proposed measures at each specific 

hospital’s performance on the applicable measure during the proposed baseline period of 

April 1, 2010 through December 31, 2010. We are proposing to set each benchmark for 

each measure as the mean of the top decile performance of applicable hospitals during the 

proposed baseline period. We invite public comment on these proposals. 
CMS-1525-P 761 

We set out proposed achievement performance 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 Performance 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 0.9989 
CMS-1525-P 762 

Proposed Achievement Performance 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 set the achievement performance standard 

(achievement threshold) for each AHRQ composite measure at the median of hospital 

performance (50th percentile) during the proposed baseline period of March 3, 2010 to 

September 30, 2010. We are proposing to set 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 September 30, 2010. We also are proposing to set 

the improvement performance standard (improvement threshold) for each of the proposed 

measures at each specific hospital’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 Hospital Inpatient VBP Final Rule. For 

each of these eight HAC measures, at least one quarter of hospitals achieved a 100 

percent rating based on administrative data for all IPPS hospitals participating in the 

Hospital IQR Program for Medicare discharges from October 1, 2008 through 

June 30, 2010 (that is, they do not have any reportable HAC occurrences). In addition, 

based on the administrative data from October 1, 2008 through June 30, 2010, at least one 

half of all hospitals achieved a measure rate of 100 percent on six of the eight HAC 

measures (Foreign Object Retained After Surgery; Air Embolism; Blood Incompatibility; 

Pressure Ulcer Stages III and IV; Catheter-Associated UTI; Manifestations of Poor 

Glycemic Control). Accordingly, the achievement threshold for these measures would be 
CMS-1525-P 764 

zero if we proposed to set performance standards for each individual measure using the 

same methodology that we finalized with respect to the mortality measures. 

We believe that the HAC measures are extremely important in promoting patient 

safety, improving quality of care, and reducing costs. According to a 2010 HHS Office 

of the Inspector General report, entitled “Adverse 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 hospitalized Medicare beneficiaries experienced adverse events 

during their hospital stays. We believe that all the finalized 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 for Medicare beneficiaries. Outcome measures, 

including HAC outcome measures, are widely regarded by the provider community as 

strongly indicative of the quality of medical care and as integral to reporting and 

improving quality and patient safety. Therefore, we believe it is important to include 

HAC outcome measures in the Hospital VBP Program. 

For these reasons, we are proposing that our 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 scoring, and believe that this approach will 

enable us to calculate meaningful distinction 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 into account our HAC policy and reliability 
CMS-1525-P 765 

concerns, we are proposing to set achievement performance standards, benchmarks, and 

improvement performance standards based on hospital combined performance on seven 

or eight HAC measures, as applicable, during the proposed performance or baseline 

period. Because certain hospitals will report on only seven of the eight HAC measures, 

we are proposing separate standards for hospital performance 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 achievement performance standard (achievement threshold) for 

the HAC aggregate score for those hospitals that report on all eight of the HAC measures 

at the median of hospital performance (50th percentile) 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 the HAC aggregate score for those 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 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 all eight of the HAC measures at the mean of the top decile of 
CMS-1525-P 766 

hospital performance for those hospitals reporting 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 decile of hospital performance on only those 

sevenmeasures for hospitals reporting on either 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 aggregate score at each specific hospital’s 

performance during the proposed baseline period of March 3, 2010 to 

September 30, 2010, whether the hospitals report on seven or eight HAC measures. 

Please see below for further discussion of the aggregate HAC scoring methodology. 

We note that the performance standards for the HAC aggregate score are 

displayed in the table below as a score composed of all eight individual HAC measures. 

We recognize that all hospitals report on seven of these individual measures, and nearly 

all (about 95 percent) of hospitals 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 the 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 standards 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 for 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 below. We note that, for both AHRQ and HAC 

measures, a lower value represents better performance on the measures. Thus, a 

“perfect” score on each measure would be a 0.00. 

Proposed Achievement Performance Standards 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 Associated Infections, Catheter Associated 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 performance standards for hospitals reporting on seven HAC 

measures. 
CMS-1525-P 768 

7. Proposed FY 2014 Hospital VBP 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-understood 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 confidence in the scoring methodology (76 FR 26514). 

In addition, we believe that, for simplicity and consistency of the Hospital VBP Program, 

it is important to score hospitals under the same methodology for subsequent fiscal years, 

with appropriate modifications to accommodate 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 discussed 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 measures using an aggregated HAC rate 

based on the unweighted average of the rates of the individual HAC measures. However, 

as explained above, we are aware that hospitals may only report on seven of the eight 
CMS-1525-P 769 

finalized HAC measures. This is because some hospitals do not perform 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 hospitals 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 individual 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 proposing that the aggregate HAC score for each 

hospital be calculated as the equally-weighted average of the rates on all HAC measures 

for which the hospital reports Medicare claims, which will most often be an equallyweighted average of the rates on all eight measures, but may be scores on seven of the 

HAC measures. As stated above, the HAC aggregate 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 individual 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 other outcome measures to derive an outcome 
CMS-1525-P 770 

domain score, with the aggregate HAC score weighted equally with the other outcome 

measures in the domain. We note that in assigning points for this aggregate HAC score, 

lower aggregate HAC scores represent better performance. We believe our proposed 

aggregate scoring methodology for HAC measures 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 that 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 assess the accuracy of HAC data reported on 

claims. Specifically, we are considering targeting a subset of hospitals that report zero or 

an aberrantly low percentage of HACs on Medicare 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 claims 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/HospitalQualityInits/06_HACPost.asp#TopOfPage. This 

analysis revealed a range in hospital-reporting of the eight HACs from a low of 0.0001 
CMS-1525-P 771 

percent (that is, 1 discharge out of every 100,000 applicable discharges) of hospital 

inpatient discharges (23 discharges) reporting a blood incompatibility, to a high of 0.0564 

percent (that is, 56.4 discharges out of every 100,000 applicable discharges) reporting 

Falls and Trauma. According to this analysis, however, these HAC rates appear to be 

underreported occurrences when compared to similar HAI measures. For example, the 

Catheter Associated Urinary Tract Infection (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 every 1,000 eligible discharges. While we 

recognize that definitional differences in the measures might contribute to this rate 

difference, we also believe that underreporting of HAC claims data contributed to this 

difference. It is important to note that the 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 Healthcare 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 reporting of hospital quality data and accurately 

linking quality to payment in the Hospital VBP Program. We strive to ensure accurate 
CMS-1525-P 772 

reporting, and we believe that validating a random subset of hospitals that report an 

aberrantly low number of HACs would strengthen our overall effort to link value to 

quality. We welcome public comments regarding our consideration of a HAC validation 

process. We also note that we intend to take appropriate action if we discover systematic 

underreporting of HAC and other adverse event information, 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 Total Performance Score, 

and weights the patient experience of care domain at 30 percent. However, the addition 

of the outcome domain and the proposed addition of an efficiency domain necessitate the 

adoption of a different domain 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 hospital is important in determining the hospital’s 

overall quality of care for purposes of the Hospital VBP Program. However, we also 

believe that a majority of the Total Performance 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 VBP 
CMS-1525-P 773 

Program. We believe that this weighting proposal appropriately incentivizes hospitals to 

provide patient-centered care across the full spectrum of their services. As we stated in 

the Hospital Inpatient VBP Program Final Rule (76 FR 26491), we believe that domains 

need not be given equal weight, and that over time, scoring methodologies should be 

weighted more towards outcomes, patient experience of care and functional status 

measures (measures assessing physical and mental capacity, capability, well-being and 

improvement). Consistent with this policy and our analysis showing that many of the 

clinical process of care measures are nearly topped-out, we are proposing to reduce the 

weighting for the clinical process 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 believe that scoring hospitals on outcome 

measures will improve treatment outcomes and patient safety, we intend to propose 

increasing the weighting for the outcome domain in subsequent fiscal years as more 

outcome measures become available. 

As we indicated in the FY 2012 IPPS/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 and the overall quality of care provided to 

Medicare beneficiaries in the inpatient hospital setting. However, we also recognize the 

importance of clinical quality based upon industry standards of care and the patients’ 

experience of care. Accordingly, we are proposing to weight the efficiency domain at 20 

percent of the Total Performance Score for the FY 2014 Hospital VBP Program. 
CMS-1525-P 774 

Therefore, we are proposing the following 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 constitute 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 proposed 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 Process 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 individual hospital performance in the Hospital VBP 

Program, including: (1) performance of the hospital 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 Program Final Rule to publish hospital scores 

with respect to each measure, each hospital’s condition-specific score (that is, the 
CMS-1525-P 775 

performance score with respect to each condition or procedure, for example, AMI, HF, 

PN, and SCIP), each hospital’s domain-specific 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 information 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 hospital 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 regarding 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 Care Measures and Measure Rates 

We are proposing that the process utilized to give hospitals an opportunity to 

review and correct data submitted on the Hospital IQR Program chart-abstracted 

measures also be used to allow hospitals to correct data and measure rates on 

chart-abstracted measures for the Hospital VBP Program. Under this proposed process, 
CMS-1525-P 776 

hospitals would continue to have 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 VBP Program. We are proposing to use the 

Hospital IQR Program’s data submission, review, 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 would allow hospitals to correct data and 

measure rates used to calculate the Hospital VBP Program Total Performance Score for 

those hospitals that participate in both programs. We believe this process would satisfy 

the requirement in section 1886(o)(10)(A)(ii) of the Act to allow hospitals to review and 

submit corrections for one of the pieces of information that will be made public with 

respect to each hospital – the measure rates for chart-abstracted measures. For hospitals 

that do not participate in the 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 and 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 following the last discharge 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 submission schedule so that they can identify 
CMS-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 previous 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 conditions of the performance measure, and a 

denominator is the number of successfully accepted cases in the measure population 

evaluated by the performance measure. The percentage of total is calculated by using the 

numerator divided by the denominator multiplied by 100. This measure rate is the same 

as the Hospital VBP measure rate. 

We believe that 4 1⁄2 months is sufficient time 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 for 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 placed on hospitals that 

participate in the Hospital IQR Program if they 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 opportunity to correct such data or measure 

rates. 
CMS-1525-P 778 

We are proposing that once the hospital has 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 Hospital 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 invite public comment 

on this proposal. 

3. Proposed Review and Correction Process for Hospital Consumer Assessment of 

Healthcare Providers and Systems (HCAHPS) Data 

 We are proposing a “two-phase” process 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 Program. In the second phase, hospitals 

would have the opportunity to review the patient-mix and mode adjusted HCAHPS 

scores (details on the HCAHPS adjustment process may be found at: 

http://www.hcahpsonline.org/files/Final%20Draft%20Description%20of%20HCAHPS%

20Mode%20and%20PMA%20with%20bottom%20box%20modedoc%20April%2030,%

202008.pdf) on dimensions that we will use to score hospitals under the Hospital VBP 

Program to determine whether they believe 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 will 
CMS-1525-P 779 

improve quality of care because hospitals will be able to timely review their HCAHPS 

scores and respond efficiently in improving patient care to address areas of weakness 

reflected in their scores. We are not proposing to release any patient level data to the 

public. This proposed review process would only grant each hospital 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 quarter 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 quarter to submit HCAHPS data for that quarter to the QIO 

Clinical Warehouse and a 1-week period to review 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-week data submission deadline. 

 The proposed 1-week review and correction 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 hospitals 
CMS-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 resubmit 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 can correct 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-level records during the review and correction 

period. Following the conclusion of the 1-week review and correction 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 Program. 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 HCAHPS adjustment process may be found at: 

http://www.hcahpsonline.org/files/Final%20Draft%20Description%20of%20HCAHPS%

20Mode%20and%20PMA%20with%20bottom%20box%20modedoc%20April%2030,%

202008.pdf.) Hospitals would have approximately 1 week to examine their HCAHPS 
CMS-1525-P 781 

dimension scores for the applicable Hospital VBP Program performance period. A 

participating hospital would have the opportunity 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, recalculating 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 correction process in the FY 2013 IPPS/LTCH PPS proposed rule. 

In summary, for the chart-abstracted and patient experience of care measures, we are 

proposing that existing procedures for submission, review, and correction related to 

chart-abstracted measures under the Hospital IQR Program, coupled with the proposed 

two phase review of HCAHPS scores discussed above, would constitute an opportunity 

for review and correction of measure data and measure rates under the Hospital VBP 

Program. Because these procedures give hospitals 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 Scores for the Hospital VBP Program. We 

intend to make proposals related to making this information publicly available, and to 

make additional proposals regarding the review and correction of outcome measures, 

efficiency measures, and domain, condition, and Total Performance Scores in future 

rulemaking. We invite public comment on these proposals. 
CMS-1525-P 782 

XVII. Files Available to the Public via the Internet 

In the past, a majority of the Addenda to which we referred throughout the 

preamble of the 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 of the proposed and final rules will be published 

and available only via the Internet on the CMS Web site. We note that our existing 

regulations at §§416.166(b), 416.171(b), and 416.173 provide for the annual publication 

of the covered surgical procedures and the payment rates under the ASC payment system 

in the Federal Register. In this proposed rule, we are 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 OPPS/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 contained in the zipped folder 

entitled “2012 OPPS NPRM Addenda” at the bottom of the page. 

To view the Addenda of the CY 2012 OPPS/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 Related 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 rates, 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 assignments, the proposed scaled relative 

weights, the proposed national unadjusted payment rates, the proposed national 

unadjusted copayments, the proposed minimum unadjusted copayments, and the 

proposed payment status indicators and proposed comment indicators for CY 2012 

OPPS. 

For the convenience of the public, we also 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 payment 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 contains the proposed out-migration wage 

adjustment for CY 2012. Addendum M lists the HCPCS codes that are proposed to be 

members of a composite APC and identifies the proposed composite APC to which each 
CMS-1525-P 784 

is assigned. This addendum also 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 composite APC. Each of the HCPCS codes included 

in Addendum M has a single procedure payment 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 providing packaged payment for all services 

that are assigned to the composite APC according to the specific I/OCE logic that applies 

to the APC. We refer readers to the discussion of composite APCs in section II.A.2.e. of 

this proposed rule for a complete description 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 multiple procedure claims so that the most 

claims data can be used to set median costs for the CY 2012 OPPS. We refer readers to 

section II.A.1.b. of this proposed rule for a full discussion of the use of this file in the 

proposed 2012 OPPS ratesetting process. Addendum N contains the following elements 

for the proposed CY 2012 bypass codes: (1) HCPCS code; (2) short descriptor; 

(3) overall bypass indicator; and (4) an indicator if the code was not used as a bypass 

code in ratesetting activities prior to this CY 2012 proposed rule. The addendum was 

previously issued as a table (usually Table 1) in the preamble of the applicable proposed 

or final rule. We are issuing it as an addendum in this proposed rule because it is lengthy 
CMS-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 data pertaining 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 the 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 payment 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 list of proposed surgical procedures to be 

excluded from Medicare payment if furnished 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 procedures are contained in the zipped folder 

titled “Addendum EE” at the bottom of the page. The proposed excluded procedures 

listed in Addendum EE are surgical procedures that are assigned to the OPPS inpatient 

list, are not covered by Medicare, are reported using a CPT unlisted code, or have been 
CMS-1525-P 786 

determined to pose a significant safety risk to a Medicare beneficiary when performed in 

an ASC or for which standard medical practice dictates that the beneficiary typically 

requires active medical monitoring and care at midnight following the procedure. 

The Medicare Physician Fee Schedule (MPFS) data files are located 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 accessible on the CMS Web site at: 

http://www.cms.gov/AcuteInpatientPPS/WIFN. 

XVIII. Collection of Information Requirements 

A. Legislative Requirements 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 comment 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 collection and its usefulness in carrying out the 

proper functions of our agency. 

● The accuracy of our estimate of the information collection burden. 

● The quality, utility, and clarity of the information to be collected. 

● Recommendations to minimize the information collection burden on the 

affected public, including automated collection techniques. 
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 following proposed information collection 

requirements specified in the regulatory text: 

1. ICRs Regarding Basic Commitments of Providers (§489.20) 

Section 489.20(w) contains a physician presence disclosure requirement that 

requires disclosure when a doctor of medicine or a doctor of osteopathy is not onsite 

24 hours per day, 7 days per week. The burden associated with the physician presence 

disclosure requirement is the time and effort necessary for each hospital and CAH to 

develop a standard notice to furnish to its patient, obtain the required patients signatures, 

and maintain a copy in the patient’s medical record. 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) would require that, for hospitals and 

CAHs that are not physician owned, the existing physician presence disclosure 

requirement regarding outpatient services would apply only to outpatients receiving 

observation services, surgery, and procedures 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 doctor or medicine or a doctor of osteopathy 
CMS-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 the patient’s medical record. We estimate that 

on average each hospital or CAH that is subject to the disclosure requirement will make 

1966 disclosures per year. The estimated annual 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 Related 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 under 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 under the exceptions process. In addition, the 

hospital would have to provide supporting documentation to CMS regarding the criteria it 

must satisfy. We estimate that 265 physician-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 annual 
CMS-1525-P 789 

burden for this process is estimated at approximately 2,153 hours at the cost of 

approximately $110,707. These estimates do not include time or cost burden estimates 

for hospitals to read and provide 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. Due to the voluntary nature of this criterion, 

time and cost burden estimates would be difficult 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 associated with the requirement. It does not 

reflect the burden currently approved under OCN 0938-1034. 

C. Proposed Associated Information Collections Not Specified in Regulatory Text

In this proposed rule, we make reference to proposed associated information 

collection requirements that are not discussed in the regulation text contained in this 

document. The following is a discussion of those requirements. 

1. Hospital Outpatient Quality Reporting (Hospital OQR) Program 

 As previously stated in section XIV. of this proposed rule, 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 with 
CMS-1525-P 790 

comment period (75 FR 72064 through 72110 and 72111 through 72114) for a detailed 

discussion of Hospital OQR Program information 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 Program 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 payment 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 comment 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 approved 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 to 
CMS-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 measures. 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 visits, 6 new chart-abstracted measures 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 determination 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 determination 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 determination, 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 period (75 FR 72112 through 72113), we discussed 

the burden associated with these information 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 Set 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 Computed 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 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 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 Interpretation 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 determination. In this CY 2012 OPPS/ASC 
CMS-1525-P 793 

proposed rule, we are proposing to add, for the CY 2014 payment determination, 

6 chart-abstracted measures, 2 structural measures (including hospital outpatient volume 

data for selected outpatient surgical procedures), 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 complete proposed measure set we are proposing 

for the CY 2014 payment determination, including 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 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 Computed 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 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** 
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 Management for Long Bone Fracture ** 

OP-22: ED patient Left Before Being Seen** 

OP-23: ED- Head CT Scan Results for Acute Ischemic Stroke or Hemorrhagic Stroke who 

Received Head CT Scan Interpretation Within 45 minutes of Arrival ** 

OP-24: Surgical Site Infection*** 

OP-25: Hemoglobin A1c Poor Control in Diabetic Patients *** 

OP-26: Low Density Lipoprotein (LDL-C) Control in Diabetic Patients *** 

OP-27: High Blood Pressure Control 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 measures using Medicare FFS claims data and 

do not require additional hospital data submissions, 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 measures, including the collection of all-patient 

volume for selected outpatient procedures; hospitals will enter data into a Web-based 

collection tool during a specified collection period once annually. For the collection of 

HAI data, we are proposing that hospitals would use the NHSN infrastructure and 

protocol to report the measure for Hospital OQR Program purposes. The NHSN is a 
CMS-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 for the Hospital OQR Program if they not already done so or 

have withdrawn from participation. By submitting 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 determination, the burden associated with these 

requirements (including those previously adopted and those currently proposed) is the 

time and effort associated with completing the notice of participation 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 annual 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, excluding the proposed all-patient volume for 

selected surgical procedures measure, we estimate that each participating hospital will 
CMS-1525-P 796 

spend 10 minutes per year to collect and submit the required data, making the estimated 

annual burden associated with this measure 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 collection of NHSN data currently approved under 

OCN: 0920-0666, we estimate that additional 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-patient volume for selected outpatient surgical 

procedures, because hospitals must determine their populations for data reporting 

purposes and most hospitals are voluntarily reporting population and sampling data for 

Hospital OQR Program purposes, we believe the 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 will spend 10 minutes per year to collect and 

submit the data, making the estimated annual 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 determination, we are proposing to retain the 

requirement that hospitals must complete and submit a notice of participation form for 

the Hospital OQR Program. For the CY 2015 payment determination, we also are 
CMS-1525-P 797 

proposing to retain the measures used for CY 2014 payment determination (including, if 

adopted, the measures proposed in this proposed rule) and to add one additional HAI 

measure, Healthcare Personnel (HCP) Influenza Vaccination. 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. 

 For the CY 2015 payment determination, the burden associated with these 

proposed requirements is the time and effort associated with completing 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 measures 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 proposed submission 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 participating hospital will 

spend 10 minutes per year to collect and submit the data, making the estimated annual 

burden associated with this proposed measure 1,603 hours (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 data, 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 burden estimates upon burden estimates associated 

with the collection of NHSN data currently 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 Influenza Vaccination HAI measure data, we 

estimate that hospitals will incur an additional burden of 14,400 hours (2.0 hours per 

response x an estimated 6 responses per hospital x 1,200 hospitals). 

 For the proposed collection of all-patient volume data for selected outpatient 

surgical procedures, because hospitals must determine their populations for data reporting 

purposes and most hospitals are voluntarily reporting population 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 annual burden associated with this proposed 

measure 534 hours (3,200 hospitals x 0.167 hours per hospital). 

 We invite public comment on the burden 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 adopted 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 PRA, 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 discussed additional data validation 

conditions under consideration for CY 2013 and subsequent years. In this proposed rule, 

we are proposing to select for validation, 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 purposes from the total number of cases that 

the hospital successfully submitted to the OPPS Clinical Warehouse during the applicable 

time period. However, if a selected hospital submitted less than 12 cases in one or more 

quarters, only those cases available would be validated. 
CMS-1525-P 800 

 The burden associated with the proposed 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 approximately 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 with 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 deadline 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 total 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 burden 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 process that applied to the CY 2010 payment 

decisions. In the CY 2010 OPPS/ASC final rule with comment period (74 FR 60654 
CMS-1525-P 801 

through 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 modifications. We 

eliminated the requirement that the reconsideration 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 reconsideration request, 5 CFR 1320.4 of the 

Paperwork Reduction Act of 1995 regulations excludes collection activities during the 

conduct of administrative actions such as redeterminations, 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 begin 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 Appropriate Method of Hair Removal (NQF 

#0515) 

● Selection of Prophylactic Antibiotic: First OR Second Generation 

Cephalosporin(NQF #0268) 

● Surgical Site Infection Rate (NQF #0299) 

 Approximately 71 percent of ASCs participate 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 Assurance, Inc. and Health Services Advisory 

Group. Ambulatory Surgery Center Environmental Scan (July 2008) (Contract No. 

GS-10F-0096T).). Thus, we estimate the burden to report QDCs on this number of 

claims per year for the first four claims-based measures to be nominal due to the small 

number of cases (less than 1 case per month per ASC). 

 The remaining proposed claims-based measures 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 percent of claims requiring quality data code 

information x 0.167 hours per claim). We refer readers to the HHS Report to Congress: 

Medicare Ambulatory Surgical Center Value-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 measure, we estimate that it will require ASCs 

an additional 8,275 hours (0.533 hours per response x an estimated 3 responses per ASC 

x 5,175 ASCs). We base the time per response 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 Purchasing 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 collection 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 the 
CMS-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 structural 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, making 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 eligible hospitals and CAHs participating 

in the Medicare EHR Incentive Program (which would include those participating in the 

proposed 2012 Medicare EHR Incentive Program Electronic Reporting Pilot) to 

successfully report hospital clinical quality measures (CQMs) to CMS in the manner 

specified by CMS. Although we are proposing that eligible hospitals and CAHs may 

continue to attest CQMs in 2012, they may also choose to participate in the proposed 

2012 Medicare EHR Incentive Program Electronic Reporting Pilot for Hospitals and 
CMS-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 hospital’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 clinical 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 estimated total burden for all 4,922 Medicare 

eligible hospitals and CAHs participating in the reporting Pilot (3,620 acute care 

hospitals and 1,302 CAHs) is 2,461 hours. 

 We believe that an eligible hospital or CAH might assign a Computer and 

Information Systems Managers to submit the CQM information on their behalf. We 

estimate the cost burden for an eligible hospital 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 Electronic Reporting Pilot in FY 2012. We also 
CMS-1525-P 806 

invite public comments on the type of personnel 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 retain measures for the 

CY 2015 payment determinations, adopt new measures for the CY 2014 and CY 2015 

payment determinations, and we are seeking 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 reporting quality data, and 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 statement and any related forms for the 

proposed paperwork collections referenced 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 these potential information collection 

requirements. 

If you comment on these information collection 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 acknowledge or respond to them individually. 

We will consider all comments we receive by the date and time specified in the DATES

section of this 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 Planning and Review (September 30, 1993, Executive Order 
CMS-1525-P 808 

13563 on Improving Regulation and Regulatory Review (January 18, 2011), the 

Regulatory Flexibility Act (RFA) (September 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 agencies to assess all costs and benefits 

of available regulatory alternatives and, if regulation is necessary, to select regulatory 

approaches that maximize net benefits (including potential economic, environmental, 

public health and safety effects, distributive impacts, and equity). Executive Order 13563 

emphasizes the importance of quantifying both costs and benefits, of reducing costs, of 

harmonizing rules, and of promoting flexibility. This rule has been designated as an 

“economically” significant rule under section 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 that, 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 comment on the CMS proposal to update the 

Medicare hospital outpatient prospective payment rates and the ambulatory surgical 

center prospective payment rates for CY 2012. The proposed rule is necessary to enable 

CMS to acquire and consider the public comments on the proposed changes to payment 

policies and payment rates for services furnished by hospitals and CMHCs to outpatients 
CMS-1525-P 809 

for CY 2012. We are required under section 1833(t)(3)(C)(ii) of the Act to update 

annually the OPPS conversion factor used to determine 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 section 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 the 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 identified 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 reflect 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 can 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 points to their OPD fee schedule increase factor. In section 
CMS-1525-P 810 

XIV. of this proposed rule, we are proposing 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 OPD fee schedule increase factor. We are soliciting public 

comments on these proposed additional policies. 

 In this proposed rule, to further implement 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 prohibition. We also set forth a related proposal 

for amendments to the patient safety requirements in the provider agreement regulations. 

We are soliciting public comments on these proposed changes. 

 Section 1886(o)(1)(B) of the Act directs the Secretary to begin making 

value-based incentive payments under the Hospital VBP Program to hospitals for 

discharges occurring on or after October 1, 2012. In this proposed 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 comments on this proposed 

additional measure. 

 Section 109(b) of the MIEA TRHCA states that the Secretary may implement a 

quality reporting system for ASCs in a manner 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 collection 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 increase (from proposed changes in this proposed 

rule as well as enrollment, utilization, and case-mix changes) 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 “economically 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 ability, 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 rule as well as enrollment, utilization, and 

case-mix changes) in expenditures under 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 Congressional Review Act, we have prepared a 

regulatory impact analysis of changes to the ASC payment system that, to the best of our 

ability, presents the costs and benefits of this rulemaking. Table 52 and Table 53 of this 
CMS-1525-P 812 

proposed rule display the redistributional impact 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 payment rates and to revise several OPPS 

payment policies for CY 2012. We are required under section 1833(t)(3)(C)(ii) of the 

Act to update annually the conversion factor used to determine 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 section 1833(t)(2) of the Act. In addition, we must review the 

clinical integrity of payment groups and weights at least annually. Consistent with our 

historical proactice in this proposed rule, we are proposing to update the conversion 

factor and the wage index adjustment for hospital outpatient services furnished beginning 

January 1, 2012, as we discuss in sections II.B. and II.C., respectively, of this proposed 

rule. We discuss our implementation of section 10324 of the Affordable Care Act, as 

amended by HCERA, authorizing a wage index 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 information. We are proposing to continue 

the current payment adjustment for rural SCHs, including EACHs. Finally, we list the 
CMS-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 that the update change to the conversion 

factor and other adjustments (but not including 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 changes 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. However, these proposed updates would change 

the distribution of payments within the budget neutral system as shown in Table 51 below 

and described in more detail in this section. We also estimate that the total proposed 

change in payments between CY 2011 and CY 2012, considering all payments, including 

proposed changes in estimated total outlier payments, pass-through payments, and the 

application of the frontier State wage adjustment outside of budget neutrality, in addition 

to the application of the proposed 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 presented here are the projected effects of the proposed 

CY 2012 policy changes on various hospital groups. We post on the CMS Web site our 

hospital-specific estimated payments for CY 2012 with the other supporting 
CMS-1525-P 814 

documentation for this proposed rule. To view 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 regulations and notices. The hospital-specific file 

layout and the hospital-specific file are listed with the other 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 this 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 future 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 information about the anticipated 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 included cancer and children’s hospitals, which are 

held harmless to their pre-BBA amount. We also include CMHCs in the first line that 
CMS-1525-P 815 

includes all providers because we include CMHCs in our weight scalar estimate. As 

discussed in section II.F. of this proposed rule, we are proposing to extend an adjustment 

to certain cancer hospitals under 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 line for all hospitals, excluding permanently 

held harmless hospitals and CMHCs, and we also include a column that shows the impact 

on other hospitals of the proposed budget neutral cancer adjustment. 

 We present separate impacts for CMHCs in Table 51 because CMHCs are paid 

only for partial hospitalization services and CMHCs are a different provider type from 

hospitals. In CY 2011, we are paying CMHCs under APC 0172 (Level I Partial 

Hospitalization (3 services) for CMHCs) and APC 0173 (Level II Partial Hospitalization 

(4 or more services) for CMHCs), and we are paying hospitals for partial hospitalization 

services under APC 0175 (Level I Partial Hospitalization (3 services) for hospital-based 

PHPs) and APC 0176 (Level II Partial Hospitalization (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 median costs calculated using claims and cost 

report data for the type of provider for which 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 payments 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 presented 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 paragraph (17) and subparagraph (F) of this paragraph, the OPD 

fee schedule increase factor is equal to the market basket percentage increase applicable 

under section 1886(b)(3)(B)(iii) of the Act. The proposed market basket percentage 

increase applicable under section 1886(b)(3)(B)(iii) of the Act, which we refer to as the 

IPPS market basket in this discussion, is 2.8 percent. However, section 1833(t)(3)(F)(i) 

of the Act reduces that 2.8 percent by the proposed productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) of the Act which we propose 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, resulting in the OPD fee schedule increase 

factor of 1.5 percent, which we are proposing to use in the calculation 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 budget 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 incorporated into the CY 2012 estimates in Table 51. 

 Table 51 shows the estimated redistribution of hospital and CMHC payments 

among providers as a result of APC reconfiguration and recalibration; wage indices and 

the rural adjustment; the combined impact of the APC recalibration, wage and rural 
CMS-1525-P 817 

adjustment effects, and the OPD fee schedule increase factor update to the conversion 

factor; the effect of the proposed budget neutral adjustment to payments made to the 

11 cancer hospitals that meet the classification criteria in section 1886(d)(1)(B)(v) of the 

Act; the frontier State wage index adjustment; and, finally, estimated redistribution 

considering all proposed payments for CY 2012 relative to all payments for CY 2011, 

including the impact of changes in estimated outlier 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 are not proposing to make any changes to the 

policy for CY 2012. Because the proposed updates 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; and the subtraction of the 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 (for example, how the APCs for the hospital's 

most frequently furnished services would change), and the impact of the wage index 

changes on the hospital. However, total payments made under this system and the extent 

to which this proposed rule would redistribute money during implementation also would 

depend on changes in volume, practice patterns, and the mix of services 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 payments 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 Medicare payments to all other hospitals. 

 To illustrate the impact of the proposed CY 2012 changes, our analysis begins 

with a baseline simulation model that uses the final CY 2011 weights, the FY 2011 final 

IPPS wage indices that include reclassifications, and the final CY 2011 conversion factor. 

Column 2 in Table 51 shows the independent effect of the proposed changes resulting 

from the reclassification of services among 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 service 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 changes 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 changes in the relative 

magnitude of payment weights. 

 Column 3 reflects the independent effects of the proposed updated wage indices, 

including the proposed application of budget neutrality for the rural floor policy on a 
CMS-1525-P 819 

nationwide basis. This column excludes the 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 policy for CY 2012. We modeled the independent 

effect of updating the wage indices by varying only the 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 conversion 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 independent effect of the proposed 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 payment 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 payment 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 index update (that is, Column 3), as well as the 

impact of updating the conversion factor with the OPD fee schedule increase factor, the 

proposed 2.8 percent hospital market basket update 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 reduction 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 modeled the independent effect of the budget 

neutrality adjustments and the OPD fee schedule 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 adjustment for differences in wage indices. 

 Column 6 demonstrates the cumulative impact of the proposed budget neutral 

adjustments from Columns 2 through 4, and the OPD fee schedule increase factor of 1.5 

percent reflected in Column 5, combined with the non-budget neutral frontier State wage 

index adjustment, discussed in section II.C.1. of this proposed 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 all the proposed changes for CY 2012 (including 

the APC reconfiguration and recalibration shown in Column 2) and comparing them to 

all estimated payments in CY 2011. Column 7 shows the combined budget neutral 

effects of Columns 2 through 4, plus the impact of the frontier State wage index 
CMS-1525-P 821 

adjustment; the proposed change to the fixed-dollar outlier threshold from $2,025 to 

$2,100 as discussed in section II.G. of this proposed rule; the change in the hospital OQR 

payment reduction for the small number of hospitals 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 estimate of the percentage of total OPPS payments dedicated 

to transitional pass-through payments. Of the 107 hospitals that failed to meet the OQR 

reporting requirements for the full CY 2011 update (and assumed, for modeling purposes, 

to be the same number for CY 2012), we included 30 hospitals in our model because they 

had both CY 2010 claims data and recent cost 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 independent 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 section II.B. of this proposed rule in this 

model. 

 Column 7 also contains simulated outlier payments for each year. We used the 

charge inflation factor used in the 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 inflation 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 total 
CMS-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 April 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 percent 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 number 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 excluded 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 include CAHs, all-inclusive hospitals, and hospitals located in 

Guam, the U.S. Virgin Islands, Northern Mariana Islands, American Samoa, and the State 

of Maryland. This process is discussed in greater detail in section II.A. of this proposed 

rule. At this time, we are unable to calculate a disproportionate share (DSH) variable for 

hospitals not participating 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 permanently holds harmless cancer hospitals 
CMS-1525-P 823 

and children’s hospitals to their “pre-BBA amount” as specified 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 setting 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 biologicals 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 attributable 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 percent. The decrease of 5.5 percent for urban 

hospitals billing fewer than 5,000 lines per year is attributable 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 the payment rate for APC 0176 (Level II Partial 

Hospitalization (4 or more services) for hospital-based PHPs). Urban hospitals billing 

21,000 or more lines for OPPS services would experience increases of 0.1 to 0.5 percent. 

Overall, we estimate that rural hospitals would experience an increase of 0.2 percent as a 

result of changes to the APC structure. We estimate that rural hospitals of all bed sizes 
CMS-1525-P 824 

would experience increases of 0.1 to 0.5 percent as a result of the proposed APC 

recalibration. We estimate that rural hospitals that report fewer than 5,000 lines for 

OPPS services would experience a decrease of 1.2 percent, while rural hospitals 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 percent for major teaching hospitals and an 

increase of 0.3 for minor teaching hospitals and nonteaching hospitals. 

 Classifying hospitals by type of ownership 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 available would experience 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 influence of the frontier State wage index 

adjustment which is not budget neutral. The 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 of 
CMS-1525-P 825 

updated wage data and nationwide application 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. Overall, 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 experience increases of 

0.1 to 0.5 percent while other urban regions would experience no change or decreases of 

0.2 to 0.7 percent. Hospitals in urban New England are expected to see an increase of 3.8 

percent as a result of the implementation of the rural floor. See section II.C. for more 

information. We estimate that hospitals in rural West North Central, West South Central, 

and Pacific States would experience increases 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 neutral impact of applying the proposed 

hospital-specific CY 2012 cancer adjustment authorized 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 experience a decrease of 0.6 to 0.7 percent in 
CMS-1525-P 826 

CY 2012 as result of the adjustment to payments 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 negative impacts created by 

the budget neutrality adjustments made in Columns 2 and 3. While all other classes of 

hospitals would receive an increase after the update is applied to the budget neutrality 

adjustments, urban hospitals that bill fewer than 11,000 lines and rural hospitals that 

report fewer than 5,000 lines would experience decreases. 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 the budget neutrality 

adjustments, of 4.3 percent, largely as a result of the proposed decrease in payment for 

APC 0034 (Mental Health Services Composite). OPPS payment for APC 0034 is 

proposed to continue being set to the payment rate of APC 0176 (Level II Partial 

Hospitalization (4 or more services) for hospital-based PHPs), which experienced a 

decline based on updated cost report and hospital claims data. 

 Overall, we estimate that these proposed changes would increase payments to 

urban hospitals by 1.1 percent. We estimate that large urban hospitals and “other” urban 

hospitals would also experience an increase of 1.1 percent. We estimate that rural 

hospitals would experience a 0.8 percent increase as a result of the proposed OPD fee 

schedule increase factor and other budget neutrality adjustments. 
CMS-1525-P 827 

 Among teaching hospitals, we estimate that 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 ownership 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 increase factor, and the non-budget neutral 

impact of applying the proposed frontier State 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 would experience a combined increase of 1.6 

percent and that all hospitals would experience a combined increase 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 attributable to the proposed frontier State wage 

adjustment. 
CMS-1525-P 828 

Column 7: All Proposed Changes for CY 2012

 Column 7 compares all proposed changes for CY 2012 to estimated final payment 

for CY 2011, including the proposed changes in the outlier threshold, payment reductions 

for hospitals that failed to meet the OQR reporting requirements, and the difference in 

pass-through estimates that are not included in the combined percentages shown in 

Column 5. This column includes estimated 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 hospitals 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.) Overall, 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 increase for all facilities in Column 7 of 

Table 51 reflects the proposed 1.5 percent OPD fee schedule increase factor, less 0.00 

percent for the change in the pass-through 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 frontier 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 increase is 1.5 percent 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 urban 
CMS-1525-P 829 

hospitals would experience a 1.1 percent increase, while “other” urban hospitals would 

experience an increase of 1.2 percent. We estimate that urban hospitals that bill less than 

5,000 lines of OPPS services would experience a decrease of 4.2 percent, largely 

attributable to the proposed decline in payment for APC 0034 (Mental Health Services 

Composite). We estimate that urban hospitals 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 between 5,000 and 10,999 lines would experience 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 bill less than 5,000 lines of OPPS services would experience a 

decrease of 0.7 percent and that 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 would include an increase 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 that 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 CMHCs 
CMS-1525-P 830 

 The last line of Table 51 demonstrates the isolated impact on CMHCs. In 

CY 2011, CMHCs are paid under four APCs for services under the OPPS: APC 0172 

(Level I Partial Hospitalization (3 services) for CMHCs); APC 0173 (Level II Partial 

Hospitalization (4 or more services) for CMHCs); APC 0175 (Level I Partial 

Hospitalization (3 services) for hospital-based PHPs); and APC 0176 (Level II Partial 

Hospitalization (4 or more services) for hospital-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 based solely on CMHC data for the two CMHC 

PHP per diem rates. For CY 2012, we are proposing to continue 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 service. We modeled the impact of this APC 

policy assuming that CMHCs would continue to provide the same number of days of 

PHP care, with each day having either 3 services or 4 or more services, as seen in the CY 

2010 claims data used for this CY 2012 OPPS/ASC proposed rule. We excluded days 

with one or two services because our policy only pays a per diem rate for partial 

hospitalization when 3 or more qualifying services 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 influence on payments to CMHCs. Column 4 shows that 

CMHCs would receive a 0.7 percent reduction as a result of the proposed cancer hospital 

adjustment. We note that all providers paid under the OPPS, including CMHCs, would 

receive a proposed 1.5 percent OPD fee schedule increase factor. Column 5 shows that 

combining this proposed OPD fee schedule increase 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 decrease in payment for CMHCs 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 proposed 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 would receive a proposed 1.5 percent OPD fee 

schedule increase factor under this policy. Combining this proposed OPD fee schedule 

increase factor with proposed changes in APC policy for CY 2012, the proposed 

CY 2012 wage index updates, and with proposed changes in outlier and pass-through 

payments, we estimate that the combined impact on hospitals within the OPPS system 
CMS-1525-P 832 

would be a 1.5 percent increase in total payment 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 

APC 

Recalibration 

New 

Wage 

Index and 

Rural 

Adjustment 

New 

Cancer 

Hospital 

Payment 

Adjustment 

Comb 

(cols 2, 

3,4) with 

Market 

Basket 

Update 

Comb 

(col 5) 

with 

Frontier 

Wage 

Index 

Adjustment 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 Lines 611 -5.5 0.4 -0.7 -4.3 -4.2 -4.2 
CMS-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 Lines 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 1.1 
CMS-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. However, we note that after accounting for the TOPs that we estimate cancer hospitals 

would no longer receive, the proposed net increase in payment to cancer hospitals would be approximately 9 percent. 

Column (5) shows the impact of all proposed budget neutrality 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 payment would increase for services for which the 

OPPS payments would rise and would decrease 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 proposed 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. The 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 calculation 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 increases 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 inpatient deductible for the applicable year. 

The CY 2011 hospital inpatient deductible is $1,132 (75 FR 68799 through 68800). The 

CY 2012 hospital inpatient deductible was not known at the time 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 copayment liability using CY 2010 claims. We 

estimate, using the claims of the 4,141 hospitals 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 amounts established under the OPPS affect the 

payments made to ASCs as discussed in section 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 Medicare and Medicaid Programs 

 The effect on the Medicare program is expected to be $3.285 billion in additional 

program payments for OPPS services furnished in CY 2012. The effect on the Medicaid 

program is expected to be limited to increased 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 proposing to make and the reasons for our 

selected alternatives are discussed throughout this proposed rule. Some of the major 
CMS-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 biologicals. 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 inflation that has occurred since the overhead redistribution 

amount of $200 million was applied in CY 2011. Therefore, 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 should, 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 included 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 redistribution of pharmacy overhead cost that 

may arise from CY 2012 final rule claims data would occur only from some drugs and 
CMS-1525-P 838 

biologicals to other drugs and biologicals, thereby maintaining the estimated total cost of 

drugs and biologicals under the OPPS. 

We considered two alternatives for payment of the acquisition and pharmacy 

overhead costs of drugs and biologicals that do not have pass-through status for CY 2012. 

The first alternative we considered, but are 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 biologicals, using the 

ASP as a proxy for average acquisition cost, to calculate the estimated percent of ASP 

that would serve as the best proxy for the combined acquisition and pharmacy overhead 

costs of separately payable drugs and biologicals (70 FR 68642), but without 

redistribution of estimated pharmacy overhead costs. Under this methodology without 

redistribution, using April 2011 ASP information and costs derived from CY 2010 OPPS 

claims data, we estimated the combined acquisition and overhead costs of separately 

payable drugs and biologicals to be ASP-2 percent. As discussed in section V.B.3. of this 

proposed rule, we also determined that the 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 redistribution of estimated pharmacy overhead costs. 

Further, we recognize that the attribution of pharmacy overhead costs to packaged or 

separately payable drugs and biologicals through our standard drug payment 

methodology of a combined payment for acquisition and pharmacy overhead costs 
CMS-1525-P 839 

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. 

 The second alternative we considered and the one we are proposing for CY 2012 

is to continue our pharmacy overhead redistribution 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 separately payable drugs and biologicals and the 

pharmacy overhead costs applicable to these products. We also are proposing to reduce 

the cost of packaged drugs and biologicals that 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 packaged drugs and biologicals of ASP+123 percent 

under our proposal. 

 We chose this alternative because we believe that it provides the most appropriate 

redistribution of pharmacy overhead costs associated with drugs and biologicals, based 

on the analyses discussed in section 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 the cost of drugs and biologicals, incurred by 
CMS-1525-P 840 

cancer hospitals described in section 1886(d)(1)(B)(v) of the Act with respect to 

ambulatory classification groups exceed the costs incurred by other hospitals furnishing 

services under this subsection (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 section II. F. of this proposed rule, using the claims and 

cost report data that we used under the modeled proposed CY 2011 OPPS, we 

constructed our traditional provider-level database of costs, modeled payments, units, 

service mix, wage index and other provider information 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 standard 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 relative to payments using cost report data. 

Specifically, our proposed adjustment is as follows: If a hospital described in section 

1886(d)(1)(B)(v) of the Act has a PCR (as determined by the Secretary) that is less than 

the weighted average PCR of other hospitals furnishing services under section 1833(t) of 
CMS-1525-P 841 

the Act (as determined by the Secretary) (Target PCR) for covered hospital outpatient 

department services (except pass-through devices defined in section 419.66), the payment 

adjustment is the percentage difference between the PCR of the hospital and the Target 

PCR. The CY 2012 proposed rule cost report data indicated a cancer hospital weighted 

average PCR of 0.647 (range = 0.56 to 0.82) and a weighted average PCR for all other 

hospitals equal to 0.901. Our proposed adjustment would result in an estimated 39.3 

percent aggregate increase in budget neutral payments to cancer 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 proposing 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 alternative we considered, but are not proposing, is to 

use our standard payment regression model instead of cost report data to identify an 

appropriate payment adjustment for cancer hospitals. 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). 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 designed 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 exceeded the costs incurred by other hospitals 
CMS-1525-P 842 

furnishing services under section 1833(t) of the Act. With such a small sample size (11 

out of approximately 4,000 hospitals paid under the OPPS), we were concerned that the 

standard explanatory and payment 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 hospitals must include the cost of drugs and 

biologicals. 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 standard combination of explanatory and payment regression 

modeling to determine a cancer hospital adjustment. 

 The second alternative we considered, but are not proposing, is to provide the 

same adjustment to all cancer hospitals based on the difference between the weighted 

average PCR for all cancer hospitals (0.647) and the weighted average PCR for all other 

hospitals (0.901). This class adjustment, instead of a hospital specific adjustment, would 

provide a 39.3 percent payment increase for each cancer hospital. Because this 

alternative did not seem equitable to other hospitals 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, and the one we are proposing for CY 2012, is 

to provide a hospital specific payment adjustment 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 average PCR of other OPPS hospitals using 

the most recent cost report data. For cancer hospitals with an individual PCR that is 

above the weighted average PCR of other hospitals furnishing services under the OPPS, 

we are proposing a zero percent adjustment for services furnished on and after January 1, 

2012. 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 concerns outlined above with respect to the 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 hospitals 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 request, with stakeholder input, advisory 
CMS-1525-P 844 

recommendations regarding the appropriate supervision level for individual outpatient 

therapeutic services. We considered three alternatives with regard to the nature of the 

advisory recommendations regarding the appropriate supervision level for individual 

outpatient therapeutic services. 

 The first alternative we considered but 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 alternative 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 deliberations, especially 

once initial determinations are made regarding 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) 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 
CMS-1525-P 845 

the Panel who would be representative of CAHs, so that all types of hospitals who are 

subject to the supervision rules for payment 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 receiving requests for evaluation of services. 

We believe it is important to obtain advice that carries the weight of a Federal advisory 

recommendation, because it may have greater legitimacy both with stakeholders and with 

CMS compared to the opinions of other types of groups. The APC Panel has a long and 

excellent history of providing valuable advice to CMS with regard to the clinical issues 

associated with the APC groupings of hospital outpatient therapeutic services under the 

OPPS, and we believe that extension of the function of the Panel to providing advice on 

supervision of individual hospital outpatient therapeutic services will result in both full 

consideration of the views of all types of hospitals and the best possible clinical decisions 

with respect to the level of supervision that should be required 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 payment 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 section 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 rulemaking cycle; and provided that the revised 
CMS-1525-P 846 

ASC payment rates would be phased in over 4 years. During the 4-year transition to full 

implementation of the ASC payment rates, payments 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 rate 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 standard ratesetting methodology for the same 

procedure. For CY 2010, we transitioned the blend to a 25/75 blend of the CY 2007 ASC 

rate and the CY 2010 ASC payment rate calculated 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 multiplying the ASC conversion factor by 

the ASC relative payment weight. As discussed fully in section XIII. of this proposed 

rule, we set the proposed CY 2012 ASC relative payment weights by scaling CY 2012 

ASC relative payment weights by the ASC scalar of 0.9373. The estimated effects of the 

updated relative payment weights on payment rates during this second year of full 

implementation of the ASC payment rates calculated according to the ASC standard 

ratesetting methodology are varied and are reflected in the estimated payments displayed 

in Tables 52 and 53 below. 
CMS-1525-P 847 

Beginning in CY 2011, section 3401 of the Affordable Care Act requires that the 

annual update to the ASC payment system, which is the consumer price index for all 

urban consumers (CPI-U), be reduced by the productivity adjustment. The Affordable 

Care Act defines the productivity adjustment to be equal to the 10-year moving average 

of changes in annual economy-wide private nonfarm business multi-factor productivity 

(MFP) (as projected by the Secretary for the 10-year period ending with the applicable 

fiscal year, year, cost reporting 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 the 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 percent 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 effects 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 precision. We believe 

that the net effect on Medicare expenditures resulting from the proposed CY 2012 

changes would be small in the aggregate for all ASCs. However, such changes may have 

differential effects across surgical specialty groups as ASCs continue to adjust to the 

payment rates based on the policies of the revised ASC payment system. We are unable 

to accurately project such changes at a disaggregated level. Clearly, individual ASCs 
CMS-1525-P 848 

would experience changes in payment that differ from the aggregated estimated impacts 

presented below. 

(2) Estimated Effects of This Proposed Rule on Payments to ASCs 

Some ASCs are multispecialty facilities that perform the gamut of surgical 

procedures, from excision of lesions to hernia repair to cataract extraction; others focus 

on a single specialty and perform only a limited range of surgical procedures, such as 

eye, digestive system, or orthopedic procedures. 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 provides, the volume of 

specific services provided by the ASC, the percentage of its patients 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 percent 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 procedures 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 surgical specialty or ancillary items and 

services group. We have aggregated the surgical HCPCS codes by specialty group, 
CMS-1525-P 849 

grouped all HCPCS codes for covered ancillary items 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 procedures are grouped or the ancillary items and 

services group which includes all HCPCS codes for covered ancillary 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 which the Medicare program payments are 

attributed. 

● Column 2—Estimated CY 2011 ASC Payments were calculated using 

CY 2010 ASC utilization (the most recent full year of ASC utilization) and CY 2011 

ASC payment rates. The surgical specialty and ancillary items and services groups are 

displayed in descending order based on estimated CY 2011 ASC payments. 

● Column 3—Estimated CY 2012 Percent Change is the aggregate percentage 

increase or decrease in Medicare program payment to ASCs for each surgical specialty or 

ancillary items and services group that would be attributable to updates to proposed 

ASC payment rates for CY 2012 compared to CY 2011. 

As seen in Table 52, we estimate that the proposed update to ASC rates for 

CY 2012 would result in a 0 percent decrease in aggregate payment amounts for eye and 
CMS-1525-P 850 

ocular adnexa procedures, a 1 percent increase in aggregate payment amounts for 

digestive system procedures, and a 2 percent increase in aggregate payment amounts for 

nervous system procedures. 

 Generally, for the surgical specialty groups 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 aggregate, payment for genitourinary system 

procedures and hemic & lymphatic systems procedures would increase by 5 percent and 

4 percent, respectively, whereas auditory system 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 payment for the specialty group does not mean 

that all procedures in the group would experience 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 weight 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 separate estimate of Medicare ASC payments for 

the group of separately payable covered ancillary items and services. The payment 

estimates for the covered surgical procedures include the costs of packaged ancillary 

items and services. Payment for New Technology Intraocular Lenses (NTIOLs) is 

captured under this category. Because the NTIOL class for reduced spherical aberration 

expired on February 26, 2011, and a new NTIOL class was not approved during CY 2011 
CMS-1525-P 851 

rulemaking, we redistributed the estimated payment 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 ASCs. 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 payments 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 Medicare payment to ASCs in CY 2011, 

specifically eye and ocular adnexa, digestive system, and nervous system surgical groups. 

Consistent with the estimated payment effects on the surgical specialty groups displayed 

in Table 52 the estimated effects of the proposed CY 2012 update on ASC payment for 

individual procedures shown 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 removal procedure reported with CPT code 66984 

(Cataract surg w/iol 1 stage). We estimate 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 procedures included in 

Table 53 are slightly more significant. We estimate that the payment rate for CPT code 

66821 (After cataract laser surgery) would increase 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 transition to the revised ASC payment 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 payments 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 percent for 6 of the 9 procedures and result in 

a 1 to 5 percent decrease for the other 3 nervous 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 procedures listed in 

Table 53 would be positive. For example, the payment rate for musculoskeletal CPT 

codes 26055 (Incise finger tendon sheath) is estimated to increase 4 percent over the 

CY 2011 payment rates. Musculoskeletal procedures 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 determined Medicare payments would support their 

continued operation. We note that, historically, 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 were performed least often in ASCs. We 

believed that the revised ASC payment system would encourage greater efficiency in 

ASCs and would promote significant increases in the breadth of surgical procedures 

performed in ASCs because it distributes payments across the entire spectrum of covered 

surgical procedures based on a coherent system of relative weights that are related to the 

clinical and facility resource requirements of those procedures.

The CY 2010 claims data that we used 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 changes in the claims data are not large, 

the data reflect increased Medicare ASC spending for procedures 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 surgical procedures and for those that we are 
CMS-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 coinsurance rate for all procedures is 20 percent. 

This contrasts with procedures performed in HOPDs, where the beneficiary 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. (The only exceptions would be if the ASC 

coinsurance amount exceeds the inpatient deductible. The statute requires that 

copayment amounts under the OPPS not exceed the inpatient deductible.) Furthermore, 

the additions to the ASC list of covered surgical procedures would provide beneficiaries 

access to more surgical procedures in ASCs. Beneficiary coinsurance for services 

migrating from physicians' offices to ASCs may decrease or increase under the revised 

ASC payment system, depending on the particular service and the relative payment 

amounts for that service in the physician's office compared to the ASC. However, for 

those additional procedures that we are proposing to designate as office-based in 

CY 2012, the beneficiary coinsurance amount would be no greater than the beneficiary 

coinsurance in the physician's office. 

(4) Alternatives Considered 

 Alternatives to the changes we are proposing to make and the reasons that we 

have chosen specific options are discussed throughout this proposed rule. Some of the 
CMS-1525-P 857 

major ASC issues discussed in this proposed 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 consideration of the most recent available volume and 

utilization data for each individual procedure HCPCS code and, if appropriate, the 

clinical characteristics, utilization, and volume of related HCPCS codes. We establish 

payment for procedures designated as office-based 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 which 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 discussed 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 temporarily office-based for CY 2011. We 

considered two alternatives in developing this policy. 
CMS-1525-P 858 

The first alternative we considered was 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 office-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 and our clinical review 

indicated that all 10 procedures we are proposing to designate as permanently 

office-based, as well as the 8 procedures that we are proposing to designate temporarily 

as office-based, are considered to be predominantly 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 making 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 proposing to designate as temporarily office-based could create 

financial incentives for the procedures to shift from physicians’ offices to ASCs for 

reasons unrelated to clinical 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 temporary 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 alternative because our claims data 
CMS-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 applicable, 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 the August 2, 2007 final rule. 

c. Accounting Statements and Tables 

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/omb/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 classification of expenditures for the CY 2012 

estimated hospital OPPS incurred 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 the provisions of this proposed rule and the 

baseline spending estimates for ASCs in the 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 OUTPATIENT OPD FEE SCHEDULE 

INCREASE 

Category Transfers 

Annualized Monetized Transfers $0.5 billion 

From Whom to Whom Federal Government to outpatient hospitals and 

other providers who received payment under 

the hospital OPPS 

Total $0.5 billion 

TABLE 55.--ACCOUNTING STATEMENT: 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 the Hospital Outpatient Quality Reporting 

(OQR) Program

 In section XVI. of the CY 2009 OPPS/ASC 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 period (75 FR72064 through 72110), we discussed 

our requirements for subsection (d) hospitals to report quality data under the Hospital 

OQR Program in order to receive the full OPD fee schedule increase factor for CY 2010, 

CY 2011, and CY 2012-2014, respectively. In section XIV. of this proposed rule, we are 
CMS-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 factor for CY 2011. Most of these 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 increase factor in CY 2013, 

CY 2014 and CY 2015. 

 In section XVI.E.3.a. of the CY 2010 OPPS/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 paper copies of requested medical records to a 

designated contractor within the required timeframe. Failure to submit requested 

documentation could result in a 2 percentage point reduction to a hospital’s CY 2011 

OPD fee schedule increase factor, but the failure 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 more 
CMS-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 overall hospital burden because most hospitals 

would not be selected to undergo validation 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 adopted in the Hospital Inpatient 

Quality Reporting (IQR) Program (formerly referred to as the Reporting Hospital Quality 

Data for Annual Payment Update (RHQDAPU) 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 hospitals 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 hospitals for purposes of the CY 2013 Hospital 

OQR Program payment determination. Under 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 assessing whether the measure data submitted by 

the hospital matches the independently reabstracted measure data. 

 As stated above, we are unable to estimate the number of hospitals that may not 

receive the full OPD fee schedule increase factor in CY 2013. Therefore, we are unable 

to estimate the number of hospitals that 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 result 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 designated CMS contractor at the rate of 12 cents 

per page for copying and approximately $1.00 per case for postage. We have found that 

an outpatient medical chart is generally up to 10 pages. Thus, 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 for 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 requirement for medical record documentation for 

7,300 total cases for CY 2011, a maximum of 12 cases per quarter for 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 record documentation to meet our validation 

requirement; this may create an additional administrative burden. The total burden would 
CMS-1525-P 864 

be a maximum of 12 charts for each of the four 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 requirements 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 timeliness 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 physician ownership or investment in hospitals. The amended 

whole hospital and rural provider 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 establish and implement an exception process to the prohibition on 

expansion of facility capacity. 

Most physician-owned hospitals are unable 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 ownership or investment in publicly traded securities in a 

corporation where there is stockholder equity exceeding $75 million at the end of the 
CMS-1525-P 865 

corporation’s most recent fiscal year or on average 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 prohibition on expansion of facility capacity. 

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. Our 

proposed regulations would require each hospital 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 (HCRIS) and by the Bureau of the Census, in 

addition to referencing data from the hospital’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 each hospital requesting an exception to 

provide documentation supporting its calculations to demonstrate that it satisfies the 

relevant criteria. Our proposed regulations would further require each hospital to provide 

documentation to support information related to its number of operating rooms, 

procedure rooms, and beds. This information would include, for example, the 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 exception. Each hospital would also be 
CMS-1525-P 866 

required to provide a detailed explanation regarding whether and how it satisfies each of 

the relevant criteria. We believe physician-owned hospitals would be minimally affected 

by these requirements. 

Our proposed regulations would require each hospital requesting an exception to 

disclose on a public Web site for the hospital that it is requesting an exception. Our 

proposed regulations would require each hospital to certify that it does not discriminate 

and does not permit physicians to discriminate against beneficiaries of Federal health care 

programs. In addition, under our proposed regulations, if CMS were to receive input 

from the community related to a particular hospital’s request for an exception, the 

hospital may submit a rebuttal statement in response to input from the community. We 

believe the impact of these requirements on physician-owned hospitals would be 

minimal. 

We believe our proposals would affect a relatively small number of physicianowned hospitals. We estimate that 265 physician-owned hospitals are eligible to apply 

for an exception. We believe accurately estimating 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 that each of the 265 eligible hospitals will request an 

exception in order to avoid underestimating the potential impact. We are not aware of 

any data that may indicate the potential increase in operation rooms, procedure rooms, or 

beds pursuant to exceptions potentially approved. We also have no data or projections 
CMS-1525-P 867 

that may help estimate the number of physicians that would be affected by this proposed 

rule as a result of their ownership interests in hospitals. 

The proposed requirements concerning the criteria and process for hospitals 

seeking an exception to the prohibition on expansion of facility capacity are consistent 

with the physician self-referral statute and regulations and the current practices of most 

hospitals. Thus, our proposed requirements would present a negligible impact on 

physician-owned hospitals. Physician-owned hospitals would bear costs associated with 

requesting an exception to the prohibition on facility expansion. In part because hospitals 

are currently undertaking the costs of producing a cost report, we believe that the cost of 

referencing the required data and making the required estimates would be negligible. In 

addition, we believe the costs of providing supporting documentation, certifying 

nondiscrimination against beneficiaries of Federal health care programs, and submitting 

other required information necessary to request an 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 rooms, procedure rooms, and beds may result in 

improved access to health care facilities and services. We believe that our proposals are 

necessary to conform our regulations to the amendments to section 1877 of the Act. We 

also believe the proposed regulations would help minimize anticompetitive behavior that 
CMS-1525-P 868 

can affect the decision as to where a beneficiary 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 the costs and benefits of the proposed rule. 

f. Effects of Proposed Changes to Provider 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 hospital stay or outpatient visit if a doctor of 

medicine or a doctor of osteopathy is not present 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 medical 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 the 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 those outpatients who 

receive observation services, surgery, or services involving anesthesia must receive 

written notice. We are not making any changes 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 doctor of medicine or a doctor of osteopathy is 

present in the hospital at all times, and the hospital’s plans to address 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 inpatient services. We anticipate that very few 

multicampus hospitals would fall into this category. 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 cost 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 procedures related to patient admission and 

registration, as well as providing written notification to patients 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 will have a significant economic impact 

on a substantial number of physicians, other health care providers and suppliers, or the 

Medicare or Medicaid programs and their beneficiaries. Specifically, we believe that this 

proposed rule will affect mostly hospitals, physicians, and beneficiaries. The proposed 

changes concerning the disclosure of the presence of a doctor of medicine or a doctor of 

osteopathy in hospitals is consistent with the physician self-referral statute and 

regulations as well as the current practices of most hospitals. Thus, our physician 

presence disclosure proposal would present a negligible economic impact on the hospital. 
CMS-1525-P 870 

 Overall, we believe that beneficiaries will be positively impacted by these 

provisions. Specifically, disclosure of physician presence equips patients to make 

informed decisions about where they elect to receive care. Our proposal makes no 

significant change that has the potential to impede patient access to health care facilities 

and services. In fact, we believe that our proposal will help minimize anti-competitive 

behavior that can affect the decision as to where a beneficiary 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 directs the Secretary to begin making 

value-based incentive payments under the Hospital VBP Program to hospitals for 

discharges occurring on or after October 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 percent, as required by section 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 for 

the 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 Hospital VBP Program does not result in any 

additional burden because the Hospital VBP Program 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 Incentive Program to meet the 

CQM reporting requirement of the program for payment year 2012 by participating in 

the Medicare EHR Incentive Program Electronic 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 establishing the capacity of hospitals to send, and for 

CMS, in the future, to receive, quality measures 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 steps 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 significant impact on a substantial number 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 the Small Business Administration’s size 
CMS-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 businesses 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 “Table 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. This analysis must conform 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 outside of a metropolitan statistical area and has 

fewer than 100 beds. We estimate that this proposed rule may have a significant impact 

on approximately 704 small rural hospitals. 

The analysis above, together with the remainder of this preamble, provides a 

Regulatory Flexibility Analysis and 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 issuing 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 requirements for State, local, or tribal 

governments, nor would it affect private sector costs. 
CMS-1525-P 873 

D. Conclusion

 The changes we are proposing would affect all classes of hospitals paid under the 

OPPS and would affect both CMHCs and ASCs. We estimate that most classes of 

hospitals paid under the OPPS would experience a modest increase or a minimal decrease 

in payment for services furnished under the OPPS in CY 2012. Table 51 demonstrates 

the estimated distributional impact of the OPPS budget neutrality requirements that 

would result in a 1.5 percent increase in payments 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 payment estimate. However, some classes 

of providers that are paid under the OPPS would 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, although 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 would 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 system for CY 2012 would affect each 

of the approximately 5,000 ASCs currently approved 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 that are Medicare beneficiaries, the degree to which the 

payments for the procedures offered by the ASC are changed under the revised payment 

system, and the extent to which the ASC provides 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 requirements that an agency must meet 

when it promulgates a proposed rule (and subsequent 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, Federalism, and have determined that they 

would not have a substantial direct effect on State, local or tribal governments, preempt 

State law, or otherwise have a Federalism implication. As reflected in Table 51 of this 

proposed rule, we estimate that OPPS payments 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 number of ASCs with government ownership, 

we anticipate that it is small. We believe that the proposed provisions related to 
CMS-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 section XX.A. of this proposed rule, in 

conjunction with the remainder of this document, demonstrates that this proposed rule is 

consistent with the regulatory philosophy and principles identified in Executive Order 

12866, the RFA, and section 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, Laboratories, 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 and 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 records, Electronic transactions, Health, 

Health care. Health information technology, Health 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 this document, the Centers for Medicare & 

Medicaid Services is proposing to amend 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 cross-reference “§410.168” and adding in its 

place the cross-reference “subpart G of Part 424 of this chapter”. 

 e. Redesignating paragraphs (d) through (f) as paragraphs (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 practitioner’s service: Conditions.

 (a) Medicare Part B pays for therapeutic hospital or CAH services and supplies 

furnished incident to a physician’s or nonphysician practitioner’s service, which are 

defined as all services and supplies furnished to hospital or CAH outpatients that are not 

diagnostic services and that aid the physician 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 arrangements made by the participating hospital or CAH, except 

in the case of a SNF resident as provided in §411.15(p) of this subchapter; 

 (ii) As an integral although incidental part of a physician’s or nonphysician 

practitioner’s services; 

 (iii) In the hospital or CAH or in a department of the hospital or CAH, as defined 

in §413.65 of this subchapter; and 

 (iv) Under the direct supervision (or other level of supervision as specified by 

CMS for the particular service) of a physician or a nonphysician practitioner as specified 

in paragraph (g) of this section, subject 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-campus, as defined in §413.65 of this subchapter, 

“direct supervision” means that the physician or nonphysician practitioner must be 

immediately available to furnish assistance and direction throughout the performance of 
CMS-1525-P 878 

the procedure. It does not mean that the physician or nonphysician practitioner must be 

present in the room when the procedure is performed; 

 (B) Certain therapeutic services and supplies may be assigned either general 

supervision or personal supervision. When such assignment is made, general supervision

means the definition specified at §410.32(b)(3)(i), and personal supervision means the 

definition specified at §410.32(b)(3)(iii); 

 (C) Nonphysician practitioners may directly 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, cardiac rehabilitation, and 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 therapeutic services (extended duration 

services), which are hospital or CAH outpatient therapeutic services that can last a 

significant period of time, have a substantial 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 the initiation of the 

service, and are not primarily surgical in nature, Medicare requires a minimum of direct 

supervision during the initiation of the service which 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 supervising 
CMS-1525-P 879 

physician or the appropriate nonphysician practitioner determines that the remainder of 

the service can be delivered safely under general supervision. 

 (2) In the case of partial hospitalization services, also meet the conditions of 

paragraph (e) of this section. 

* * * * * 

 (d) Rules on emergency services furnished to outpatients in a foreign country are 

specified in subpart H of Part 424 of this chapter. 

* * * * *

PART 411—EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON 

MEDICARE PAYMENT

3. The authority citation for Part 411 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 effect 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 expansion 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 percent of the percentage increase 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 use Bureau of the Census estimates. 

 (ii) Medicaid inpatient admissions. Has an annual percent of total 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 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 filed hospital cost report 

discharge data to estimate its annual percent of total inpatient admissions under 

Medicaid. 

 (iii) Nondiscrimination. Does not discriminate against beneficiaries of Federal 

health care programs and does not permit physicians 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 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 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 State 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 
CMS-1525-P 882 

hospital submits its request. A hospital must 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 hospital 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 admissions under Medicaid that is estimated to be 

greater than such percent with respect to such admissions for any other hospital located in 

the county in which the hospital is located. A hospital must use filed hospital cost report 

discharge data to estimate its annual percentage of total inpatient admissions under 

Medicaid and the annual percentages of total inpatient admissions under Medicaid for 

every other hospital located in the county in which the hospital is located. 

 (iii) Nondiscrimination. Does not discriminate against beneficiaries of Federal 

health care programs and does not permit physicians 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 written request to CMS or submit the request electronically 

to CMS. If a hospital submits the request electronically, the hospital must mail an 

original hard copy of the signed certification set forth in paragraph (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 Provider Identification number(s) (NPI), Tax 

Identification Number(s) (TIN), and CMS Certification 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 request with CMS on behalf of the hospital. 

 (D) A statement identifying the hospital as an applicable hospital or high 

Medicaid facility and a detailed explanation with supporting documentation regarding 

whether and how the hospital satisfies each of the criteria for an applicable hospital or 

high Medicaid facility. The request must state that the hospital does not discriminate 

against beneficiaries of Federal health care programs and does not permit physicians 

practicing at the hospital to discriminate against such beneficiaries. 

 (E) Documentation supporting the hospital’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 exception; and the additional number of operating 

rooms, procedure rooms, and beds by which the hospital requests to expand. 

 (iii) A request must include the following certification signed by an authorized 

representative of the hospital: “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 correct to the best of 
CMS-1525-P 884 

my knowledge and belief.” An authorized representative 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 the hospital receives a CMS decision, the hospital must 

disclose on any public Web site for the hospital 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 than 30 days after CMS publishes 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 mailed 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 comments 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 facilities on the hospital’s main campus. 

 (7) Publication of final decisions. Not later than 60 days after receiving a 

complete request, CMS will publish the final decision in the Federal Register. 
CMS-1525-P 885 

 (8) Limitation on review. There shall be no administrative or judicial review 

under section 1869, section 1878, or otherwise of the process under this section 

(including the establishment of such process). 

 PART 416—AMBULATORY SURGICAL SERVICES 

5. The citation for Part 416 continues 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 performed in an ASC, and for which standard 

medical practice dictates that the beneficiary would not typically 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 payment rates for ASC services.

* * * * * 

 (b) Exception. The national ASC payment rates for the following items and 

services are not determined in accordance 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 Internet 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 procedure 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 procedures 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 value units under § 414.22(b)(5)(i)(B) of this 

subchapter multiplied by the conversion factor described in § 414.20(a)(3) of this 

subchapter. 
CMS-1525-P 887 

 (1) The national unadjusted ASC payment rate for covered ancillary radiology 

services that involve certain nuclear medicine procedures will be the amount determined 

under paragraph (a) of this section.

 (2) The national unadjusted ASC payment rate for covered ancillary radiology 

services that use contrast agents will be the amount determined under paragraph (a) of 

this section. 

* * * * * 

 8. Section 416.173 is revised to read as follows: 

§416.173 Publication of revised payment methodologies and payment rates.

 CMS publishes annually, through notice and comment rulemaking in the Federal 

Register and/or via the Internet on the CMS Web site, the payment methodologies and 

payment rates for ASC services and designates 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 Social 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 “; and” 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 rates for hospital outpatient services.

* * * * * 

 (b) * * * 

 (1) * * * 

 (iv)(A) For calendar year 2003 and subsequent 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 paragraph (b)(1)(iv)(B) of this section. 

 (B) * * * 

 (3) For calendar year 2012, a multifactor productivity adjustment (as determined 

by CMS) and 0.1 percentage point. 

* * * * * 

11. Section 419.43 is amended by adding paragraph (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 covered hospital outpatient department services 

furnished on or after January 1, 2012, by a hospital described in section 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 described in section 1886(d)(1)(B)(v) of the Act has a 

payment-to-cost ratio (as determined by the Secretary) that is less than the weighted 

average payment-to-cost ratio of other hospitals 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 department 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 and the target payment-to-cost ratio. 

 (ii) If a hospital described in section 1886(d)(1)(B)(v) of the Act has a 

payment-to-cost ratio (as determined by the Secretary) that is less than the weighted 

average payment-to-cost ratio of other hospitals 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 section 1886(d)(1)(B)(v) of the Act has a 

payment-to-cost ratio (as determined by the Secretary) that is greater than the target 
CMS-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 rural 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 difference for services furnished during CY 2006, 

90 percent of that difference for services furnished during CY 2007, and 85 percent of 

that difference for services furnished 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 of 
CMS-1525-P 891 

payment under this part is increased by 85 percent of that difference 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 AGREEMENTS 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 paragraph (w) to read as follows: 

§489.20 Basic commitments. 

* * * * * 

(w)(1) In the case of a hospital 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 outpatient visit for observation, surgery or any 

other procedure requiring anesthesia, if a doctor of medicine 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 regarding 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 provision of a package of information regarding 

scheduled preadmission testing and registration for a planned hospital admission for 
CMS-1525-P 892 

inpatient care or outpatient service. 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 hospital that is a main provider and has one or more remote 

locations of a hospital or one or more satellites, as these terms are defined in § 

413.65(a)(2), § 412.22(h), or § 412.25(e) of this chapter, as applicable, the determination 

is made separately for the main provider and each remote location or satellite whether 

notice to patients is required. Notice is required 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 the 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 services 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 posted 
CMS-1525-P 893 

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 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 present in the hospital. 

 PART 495--STANDARDS FOR THE 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 revising 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) “Reporting 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 specified by CMS (or in 

the case of Medicaid eligible hospitals, the States). 

* * * * * 
CMS-1525-P 894 

 (vi) Exception for Medicare eligible hospitals and CAHs for FY 2012--

Participation in the Medicare EHR Incentive Program Electronic Reporting Pilot. In 

order to satisfy the clinical quality measure reporting objective in § 495.6(f)(9), aside 

from attestation, a Medicare eligible hospital or CAH may participate in the Medicare 

EHR Incentive Program Electronic Reporting Pilot. 

* * * * * 
CMS-1525-P 

(Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital 

Insurance; Program No. 93.774, Medicare—Supplementary Medical Insurance Program; 

and Program No. 93.778 (Medical Assistance) 

Dated: June 24, 2011 

 ______________________________ 

 Donald M. Berwick, 

 Administrator,

 Centers for Medicare & Medicaid 

 Services. 

Dated: June 28, 2011 

 ___________________________ 

 Kathleen Sebelius,

 Secretary. 

BILLING CODE 4120-01-P 
CMS-1525-P 896 

[FR Doc. 2011-16949 Filed 07/01/2011 at 4:15 pm; Publication Date: 07/18/2011]