[Federal Register Volume 69, Number 219 (Monday, November 15, 2004)]
[Rules and Regulations]
[Pages 65682-66233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24759]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 419



Medicare Program; Changes to the Hospital Outpatient Prospective 
Payment System and Calendar Year 2005 Rates; Final Rule

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 419

[CMS-1427-FC]
RIN 0938-AM75


Medicare Program; Changes to the Hospital Outpatient Prospective 
Payment System and Calendar Year 2005 Payment Rates

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period revises the Medicare 
hospital outpatient prospective payment system to implement applicable 
statutory requirements and changes arising from our continuing 
experience with this system and to implement certain related provisions 
of the Medicare Prescription Drug, Improvement, and Modernization Act 
(MMA) of 2003. In addition, the final rule with comment period 
describes final changes to the amounts and factors used to determine 
the payment rates for Medicare hospital outpatient services paid under 
the prospective payment system. These changes are applicable to 
services furnished on or after January 1, 2005.
    In this final rule with comment period, we are responding to public 
comments received on the January 6, 2004 interim final rule with 
comment period relating to MMA provisions that were effective January 
1, 2004, and finalizing those policies. Further, we are responding to 
public comments received on the November 7, 2003 final rule with 
comment period pertaining to the ambulatory payment classification 
assignment of Healthcare Common Procedure Coding System (HCPCS) codes 
identified in Addendum B of that rule with the new interim (NI) comment 
indicators (formerly referred to as condition codes).

DATES: Effective Date: This final rule with comment period is effective 
on January 1, 2005.
    Comment Date: We will consider comments on the ambulatory payment 
classification assignments of HCPCS codes identified in Addendum B with 
new interim comment codes and other areas specified throughout this 
preamble, if we receive them at the appropriate address, as provided 
below no later than 5 p.m. on January 14, 2005.

ADDRESSES: In commenting, please refer to file code CMS-1427-FC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of three ways (no duplicates, 
please):

1. Electronically

    You may submit electronic comments to http://www.cms.hhs.gov/regulations/ecomments (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word).

2. By Mail

    You may mail written comments (one original and two copies) to the 
following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1427-FC, P.O. 
Box 8010, Baltimore, MD 21244-8018.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.

3. By Hand or Courier

    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) before the close of the comment 
period to one of the following addresses. If you intend to deliver your 
comments to the Baltimore address, please call telephone number (410) 
786-7195 in advance to schedule your arrival with one of our staff 
members. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201, or 7500 Security Boulevard, 
Baltimore, MD 21244-1850.

(Because access to the interior of the 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 proof of 
filing by stamping in and retaining an extra copy of the comments 
being filed.)

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. After the close of the 
comment period, CMS posts all electronic comments received before the 
close of the comment period on its public website. Written comments 
received timely will be available for public inspection as they are 
received, generally beginning approximately 4 weeks after publication 
of a document, at the headquarters of the Centers for Medicare & 
Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244, Monday 
through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an 
appointment to view public comments, phone (410) 786-7195.

FOR FURTHER INFORMATION CONTACT: Dana Burley, (410) 786-0378, 
Outpatient prospective payment issues and Suzanne Asplen, (410) 786-
4558, Partial hospitalization and community mental health center 
issues.

SUPPLEMENTARY INFORMATION:

Availability of Copies and Electronic Access

    Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, PO Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-
6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As 
an alternative, you can view and photocopy the Federal Register 
document at most libraries designated as Federal Depository Libraries 
and at many other public and academic libraries throughout the country 
that receive the Federal Register.
    This Federal Register document is also available from the Federal 
Register online database through GPO Access, a service of the U.S. 
Government Printing Office. The Web site address is: http://www.gpoaccess.gov/fr/index.html.

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

ACEP--American College of Emergency Physicians
AHA--American Hospital Association
AHIMA--American Health Information Management Association
AMA--American Medical Association
APC--Ambulatory payment classification
AMP--Average manufacturer price
ASP--Average sales price
ASC--Ambulatory surgical center
AWP--Average wholesale price
BBA--Balanced Budget Act of 1997, Public Law 105-33
BIPA--Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000, Public Law 106-554
BBRA--Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
of 1999, Public Law 106-113
CAH--Critical access hospital
CCR--(Cost center specific) cost-to-charge ratio
CMHC--Community mental health center

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CMS--Centers for Medicare & Medicaid Services (formerly known as the 
Health Care Financing Administration)
CORF--Comprehensive outpatient rehabilitation facility
CPT--[Physicians'] Current Procedural Terminology, Fourth Edition, 
2004, copyrighted by the American Medical Association
CRNA--Certified registered nurse anesthetist
CY--Calendar year
DMEPOS--Durable medical equipment, prosthetics, orthotics, and 
supplies
DMERC--Durable medical equipment regional carrier
DRG--Diagnosis-related group
DSH--Disproportionate share hospital
EACH--Essential Access Community Hospital
E/M--Evaluation and management
EPO--Erythropoietin
ESRD--End-stage renal disease
FACA--Federal Advisory Committee Act, Public Law 92-463
FDA--Food and Drug Administration
FI--Fiscal intermediary
FSS--Federal Supply Schedule
FY--Federal fiscal year
HCPCS--Healthcare Common Procedure Coding System
HCRIS--Hospital Cost Report Information System
HHA--Home health agency
HIPAA--Health Insurance Portability and Accountability Act of 1996, 
Public Law 104-191
ICD-9-CM--International Classification of Diseases, Ninth Edition, 
Clinical Modification
IME--Indirect medical education
IPPS--(Hospital) inpatient prospective payment system
IVIG--Intravenous immune globulin
LTC--Long-term care
MedPAC--Medicare Payment Advisory Commission
MDH--Medicare-dependent hospital
MMA--Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MSA--Metropolitan Statistical Area
NCCI--National Correct Coding Initiative
NCD--National Coverage Determination
OCE--Outpatient code editor
OMB--Office of Management and Budget
OPD--(Hospital) outpatient department
OPPS--(Hospital) outpatient prospective payment system
PET--Positron Emission Tomography
PHP--Partial hospitalization program
PM--Program memorandum
PPI--Producer Price Index
PPS--Prospective payment system
PPV--Pneumococcal pneumonia (virus)
PRA--Paperwork Reduction Act
QIO--Quality Improvement Organization
RFA--Regulatory Flexibility Act
RRC--Rural referral center
SBA--Small Business Administration
SCH--Sole community hospital
SDP--Single drug pricer
SI--Status indicator
TEFRA--Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TOPS--Transitional outpatient payments
USPDI--United States Pharmacopoeia Drug Information

    To assist readers in referencing sections contained in this 
document, we are providing the following outline of contents:

Outline of Contents

I. Background
    A. Legislative and Regulatory Authority for the Outpatient 
Prospective Payment System
    B. Excluded OPPS Services and Hospitals
    C. Prior Rulemaking
    D. APC Advisory Panel
    1. Authority for the APC Panel
    2. Establishment of the APC Panel
    3. APC Panel Meetings and Organizational Structure
    E. Provisions of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003
    F. Summary of the Provisions of the August 16, 2004 Proposed 
Rule
    G. Public Comments Received on the August 16, 2004 Proposed Rule
    H. Public Comments Received on the January 6, 2004 Interim Final 
Rule with Comment Period
    I. Public Comments Received on the November 7, 2003 Final Rule 
with Comment Period
II. Changes Related to Ambulatory Payment Classifications (APCs)
    A. APC Changes: General
    B. APC Panel Review and Recommendations
    1. February 2004 Panel Meeting.
    2. September 2004 Panel Meeting
    3. Contents of This Section of the Preamble
    4. APC 0018: Biopsy of Skin/Puncture of Lesion
    5. Level I and II Arthroscopy
    6. Angiography and Venography Except Extremity
    a. February 2004 Panel Meeting
    b. Public Comments Received
    c. Final Policy for CY 2005
    7. Packaged Codes in APCs
    C. Limits on Variations Within APCs: Application of the 2 Times 
Rule
    1. Cardiac and Ambulatory Blood Pressure Monitoring
    2. Electrocardiograms
    3. Excision/Biopsy
    4. Posterior Segment Eye Procedures
    5. Laparoscopy
    6. Anal/Rectal Procedures
    7. Nerve Injections
    8. Anterior Segment Eye Procedures
    9. Pathology
    10. Immunizations
    11. Pulmonary Tests
    12. Clinic Visits
    13. Other APC Assignment Issues
    a. Catheters for Brachytherapy Services
    b. Peripherally Inserted Central Catheters (PICC)
    c. External Fixation Devices
    d. Apheresis
    e. Imaging for Intravenous Cholangiogram (IVC) Filter Placement 
and Breast Biopsy
    f. Hysteroscopic Endometrial Ablation Procedures
    g. Hysteroscopic Female Sterilization
    h. Urinary Bladder Residual Study
    i. Intracranial Studies, Electrodiagnostic Testing, Autonomic 
Testing, and EEG
    j. Therapeutic Radiation Treatment
    k. Hyperthermia Procedures
    l. Physician Blood Bank Services
    m. Caloric Vestibular Test
    n. APC 0365--Level II Audiometry
    o. Noncoronary Intravascular Ultrasound (IVUS)
    p. Electronic Analysis of Neurostimulator Pulse Generators
    q. Endoscopic Ultrasound Services
    r. External Counterpulsation
    D. Exceptions to the 2 Times Rule
    E. Coding for Stereostatic Radiosurgery Services
    1. Background
    2. Proposal for CY 2005
    3. Public Comments Received and Departmental Responses
    4. Final Policy for CY 2005
    F. Movement of Procedures from New Technology APCs to Clinically 
Appropriate APCs
    1. Background
    2. APC Panel Review and Recommendation
    3. Proposed and Final Policy for CY 2005
    a. Computerized Reconstruction CT of Aorta
    b. Left Ventricular Pacing, Lead and Connector
    c. Positron Emission Tomography (PET) Scans
    d. Bard Endoscopic Suturing System
    e. Stretta System
    f. Gastrointestinal Tract Capsule Endoscopy
    g. Proton Beam Therapy
    4. Public Comments Received Relating to Other New Technology APC 
Issues
    a. Computerized Reconstruction CT of Aorta
    b. Kyphoplasty
    c. Laser Treatment of Benign Prostatic Hyperplasia (BPH)
    d. Computerized Tomographic Angiography (CTA)
    e. Acoustic Heart Sound Services
    f. Laparoscopic Ablation Renal Mass
    g. Intrabeam Intra-Operative Therapy
    h. New Technology Process Issues
    G. Changes to the Inpatient List
    H. Assignment of ``Unlisted'' HCPCS Codes
    1. Background
    2. Proposed and Final Policies for CY 2005
    I. Addition of New Procedure Codes
    J. OPPS Changes Relating to Coverage of Initial Preventive 
Physical Examinations and Mammography under Public Law 108-173
    1. Payment for Initial Preventive Physical Examinations (Section 
611 of Pub. L. 108-173)
    a. Background
    b. Amendments to Regulations
    c. Assignment of New HCPCS Codes for Payment of Initial 
Preventive Physical Examinations
    d. APC Assignment of Initial Preventive Physical Examinations
    2. Payment for Certain Mammography Services (Section 614 of Pub. 
L. 108-173)
III. Recalibration of APC Relative Weights for CY 2005
    A. Database Construction

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    1. Treatment of Multiple Procedure Claims
    2. Use of Single Procedure Claims
    B. Calculation of Median Costs for CY 2005
    C. Adjustment of Median Costs for CY 2005
    1. Device-Dependent APCs
    a. APC 0226: Implantation of Drug Infusion Reservoir
    b. APC 0048: Arthroscopy with Prosthesis
    c. APC 0385: Level I Prosthetic Urological Procedures
    d. APC 0119: Implantation of Infusion Device and APC 0115: 
Cannula/Access Device Procedures
    2. Treatment of Specified APCs
    a. APC 0315: Level II Implantation of Neurostimulator
    b. APC 0651: Complex Interstitial Radiation Application
    c. APC 0659: Hyperbaric Oxygen Therapy
    3. Other APC Median Cost Issues
    a. APC 0312 Radioelement Applications
    b. Percutaneous Radiofrequency Ablation of Liver Tumors
    c. Heparin Coated Stents
    d. Aqueous Drainage Assist Device
    4. Required Use of C-Codes for Devices
    5. Submission of External Data
    D. Calculation of Scaled OPPS Payment Weights
IV. Payment Changes For Devices
    A. Pass-Through Payments For Devices
    1. Expiration of Transitional Pass-Through Payments for Certain 
Devices
    2. Proposed and Final Policies for CY 2005
    B. Provisions for Reducing Transitional Pass-Through Payments to 
Offset Costs Packaged Into APC Groups
    1. Background
    2. Proposed and Final Policies for CY 2005
    C. Criteria for Establishing New Pass-Through Device Categories
V. Payment Changes for Drugs, Biologicals, and Radiopharmaceutical 
Agents, and Blood and Blood Products
    A. Transitional Pass-Through Payment for Additional Costs of 
Drugs and Biologicals
    1. Background
    2. Expiration in CY 2004 of Pass-Through Status for Drugs and 
Biologicals
    3. Drugs and Biologicals With Pass-Through Status in CY 2005
    B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-
Through Status
    1. Background
    2. Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
    3. Payment for Drugs, Biologicals, and Radiopharmaceuticals 
Without Pass-Through Status That Are Not Packaged
    a. Payment for Specified Covered Outpatient Drugs
    b. Treatment of Three Sunsetting Pass-Through Drugs as Specified 
Covered Outpatient Drugs
    c. CY 2005 Payment for Nonpass-Through Drugs, Biologicals, and 
Radiopharmaceuticals with HCPCS Codes But Without OPPS Hospital 
Claims Data
    d. Payment for Separately Payable Nonpass-Through Drugs and 
Biologicals
    e. CY 2005 Change in Payment Status for HCPCS Code J7308
    4. Public Comments Received on the January 6, 2004 Interim Final 
rule With Comment Period and Departmental Responses
    C. Coding and Billing for Specified Outpatient Drugs
    D. Payment for New Drugs, Biologicals, and Radiopharmaceuticals 
Before HCPCS Codes Are Assigned
    1. Background
    2. Provisions of Public Law 108-173
    E. Payment for Vaccines
    F. Changes in Payment for Single Indication Orphan Drugs
    G. Changes in Payment Policy for Radiopharmaceuticals
    H. Coding and Payment for Drug Administration
    I. Payment for Blood and Blood Products
VI. Estimated Transitional Pass-Through Spending in CY 2005 for 
Drugs, Biologicals, and Devices
    A. Basis for Pro Rata Reduction
    B. Estimate of Pass-Through Spending for CY 2005
VII. Other Policy Decisions and Policy Changes
    A. Statewide Average Default Cost-to-Charge Ratios
    B. Transitional Corridor Payments: Technical Change
    C. Status Indicators and Comment Indicators Assigned in 
Outpatient Code Editor (OCE)
    1. Payment Status Indicators
    2. Comment Indicators
    D. Observation Services
    E. Procedures That Will be Paid Only as Inpatient Procedures
    F. Hospital Coding for Evaluation and Management Services
    1. Background
    2. Proposal for Evaluation and Management Guidelines
    G. Brachytherapy Payment Issues Related to Public Law 108-173
    1. Payment for Brachytherapy Sources (Section 621(b) of Pub. L. 
108-173)
    2. HCPCS Codes and APC Assignments for Brachytherapy Sources
    H. Payment for APC 0375, Ancillary Outpatient Services When 
Patient Expires
VIII. Conversion Factor Update for CY 2005
IX. Wage Index Changes for CY 2005
X. Determination of Payment Rates and Outlier Payments for CY 2005
    A. Calculation of the National Unadjusted Medicare Payment
    B. Hospital Outpatient Outlier Payments
    C. Payment for Partial Hospitalization
    1. Background
    2. PHP APC Update for CY 2005
    3. Separate Threshold for Outlier Payments to CMHCs
    D. General Public Comments
XI. Beneficiary Copayments for CY 2005
    A. Background
    B. Copayment for CY 2005
XII. Addendum Files Available to the Public Via Internet
XIII. Collection of Information Requirements
XIV. Regulatory Impact Analysis
    A. OPPS: General
    B. Impact of Changes in this Final Rule with Comment Period
    C. Alternatives Considered
    D. Limitations of Our Analysis
    E. Estimated Impacts of this Final Rule with Comment Period on 
Hospitals
    F. Projected Distribution of Outlier Payment
    G. Estimated Impacts of This Final Rule with Comment Period on 
Beneficiaries
XV. Regulation Text

Addenda

Addendum A--List of Ambulatory Payment Classification (APCs) with 
Status Indicators, Relative Weights, Payment Rates, and Copayment 
Amounts for CY 2005
Addendum B--Payment Status by HCPCS Code and Related Information--CY 
2005
Addendum C--Healthcare Common Procedure Coding System (HCPCS) Codes 
by Ambulatory Payment Classification (APC) (Available only on CMS 
Web site via Internet. See section XIII. of the preamble of this 
final rule with comment period.)
Addendum D1--Payment Status Indicators for Hospital Outpatient 
Prospective Payment System
Addendum D2--Comment Indicators
Addendum E--CPT Codes That Are Paid Only as Inpatient Procedures

I. Background

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

    When the Medicare statute was originally enacted, Medicare payment 
for hospital outpatient services was based on hospital-specific costs. 
In an effort to ensure that Medicare and its beneficiaries pay 
appropriately for services and to encourage more efficient delivery of 
care, the Congress mandated replacement of the cost-based payment 
methodology with a prospective payment system (PPS). The Balanced 
Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, 
added section 1833(t) to the Social Security Act (the Act) authorizing 
implementation of a PPS for hospital outpatient services. The Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (BBRA) (Pub. 
L. 106-113), enacted on November 29, 1999, made major changes that 
affected the hospital outpatient PPS (OPPS). The Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. 
L. 106-554), enacted on December 21, 2000, made further changes in the 
OPPS. Section 1833(t) of the Act was also recently amended by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA), Public Law 108-173, enacted on December 8, 2003 (these 
amendments are discussed later under section I.E. of this final rule 
with comment period). The OPPS was first

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implemented for services furnished on or after August 1, 2000. 
Implementing regulations for the OPPS are located at 42 CFR Part 419.
    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the ambulatory payment 
classification (APC) group to which the service is assigned. We use 
Healthcare Common Procedure Coding System (HCPCS) codes (which include 
certain Current Procedural Terminology (CPT) codes) and descriptors to 
identify and group the services within each APC group. The OPPS 
includes payment for most hospital outpatient services, except those 
identified in section I.B. of this final rule with comment period. 
Section 1833(t)(1)(B)(ii) of the Act provides for Medicare payment 
under the OPPS for certain services designated by the Secretary that 
are furnished to inpatients who have exhausted their Part A benefits or 
who are otherwise not in a covered Part A stay. In addition, the OPPS 
includes payment for partial hospitalization services furnished by 
community mental health centers (CMHCs).
    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 inpatient hospital wage index value for the locality in which the 
hospital or CMHC is located.
    All services and items within an APC group are comparable 
clinically and with respect to resource use (section 1833(t)(2)(B) of 
the Act). In accordance with section 1833(t)(2) of the Act, subject to 
certain exceptions, services and items within an APC group cannot be 
considered comparable with respect to the use of resources if the 
highest median (or mean cost, if elected by the Secretary) for an item 
or service in the APC group is more than 2 times greater than the 
lowest median cost for an item or service within the same APC group 
(referred to as the ``2 times rule''). In implementing this provision, 
we use the median cost of the item or service assigned to an APC group.
    Special payments under the OPPS may be made for new technology 
items and services in one of two ways. Section 1833(t)(6) of the Act 
provides for temporary additional payments or ``transitional pass-
through payments'' for certain drugs, biological agents, brachytherapy 
devices used for the treatment of cancer, and categories of medical 
devices for at least 2 but not more than 3 years. For new technology 
services that are not eligible for 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 APC cost bands. These cost bands allow us to price these 
new procedures more appropriately and consistently. Similar to pass-
through payments, these special payments for new technology services 
are also temporary; that is, we retain a service within a new 
technology APC group until we acquire adequate 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 excluded payment for 
ambulance, physical and occupational therapy, and speech-language 
pathology services, for which payment is made under a fee schedule. The 
Secretary exercised the broad authority granted under the statute to 
exclude from the OPPS those services that are paid under fee schedules 
or other payment systems. Such excluded services include, for example, 
the professional services of physicians and nonphysician practitioners 
paid under the Medicare Physician Fee Schedule; laboratory services 
paid under the clinical diagnostic laboratory fee schedule; services 
for beneficiaries with end-stage renal disease (ESRD) that are paid 
under the ESRD composite rate; and services and procedures that require 
an inpatient stay that are paid under the hospital inpatient 
prospective payment system (IPPS). We set forth the services that are 
excluded from payment under the OPPS in Sec.  419.22 of the 
regulations.
    Under Sec.  419.20 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 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 to take into 
account changes in medical practice, changes in technology, and the 
addition of new services, new cost data, and other relevant information 
and factors. Since implementing the OPPS, we have published final rules 
in the Federal Register annually to implement statutory requirements 
and changes arising from our experience with this system. For a full 
discussion of the changes to the OPPS, we refer readers to these 
Federal Register final rules.\1\
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    \1\ Interim final rule with comment period, August 3, 2000 (65 
FR 47670); interim final rule with comment period, November 13, 2000 
(65 FR 67798); final rule and interim final rule with comment 
period, November 2, 2001 (66 FR 55850 and 55857); final rule, 
November 30, 2001 (66 FR 59856); final rule, December 31, 2001 (66 
FR 67494); final rule, March 1, 2002 (67 FR 9556); final rule, 
November 1, 2002 (67 FR 66718); final rule with comment period, 
November 7, 2003 (68 FR 63398); and interim final rule with comment 
period, January 6, 2004 (69 FR 820).
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    On November 7, 2003, we published a final rule with comment period 
in the Federal Register (68 FR 63398) that revised the OPPS to update 
the payment weights and conversion factor for services payable under 
the calendar year (CY) 2004 OPPS on the basis of claims data from April 
1, 2002 through December 31, 2002. In this final rule with comment 
period, we are finalizing the APC assignments and addressing public 
comments received pertaining to the new interim HCPCS codes listed in 
Addendum B of the November 7, 2003 final rule with comment period 
identified by new interim (NI) comment indicators (formerly referred to 
as condition codes). Subsequent to publishing the November 7, 2003 
final rule with comment period, we published a correction of the final 
rule with comment period on December 31, 2003 (68 FR 75442). That 
December 31, 2003 document corrected technical errors in the November 
7, 2003 final rule with comment period and included responses to a 
number of public comments that were inadvertently omitted from the 
November 2003 final rule with comment period.
    On January 6, 2004, we published in the Federal Register an interim 
final rule with comment period (69 FR 820) that implemented provisions 
of Public Law 108-173 that affected payments made under the OPPS, 
effective January 1, 2004. We are finalizing this interim

[[Page 65686]]

final rule and addressing public comments associated with that rule in 
this final rule with comment period.

D. APC Advisory Panel

1. Authority of the APC Panel
    Section 1833(t)(9)(A) of the Act, as amended by section 201(h) of 
the BBRA of 1999, requires that we consult with an outside panel of 
experts to review the clinical integrity of the payment groups and 
weights under the OPPS. The Advisory Panel on APC Groups (the APC 
Panel), discussed under section I.D.2. of this preamble, fulfills this 
requirement. The Act further specifies that the Panel will act in an 
advisory capacity. This expert panel, which is to be composed of 15 
representatives of providers subject to the OPPS (currently employed 
full-time, not consultants, in their respective areas of expertise), 
reviews and advises us about the clinical integrity of the APC groups 
and their weights. The APC Panel is not restricted to using our data 
and may use data collected or developed by organizations outside the 
Department in conducting its review.
2. Establishment of the APC Panel
    On November 21, 2000, the Secretary signed the charter establishing 
the Advisory Panel on APC Groups. The APC Panel is technical in nature 
and is governed by the provisions of the Federal Advisory Committee Act 
(FACA), as amended (Public Law 92-463). On November 1, 2002, the 
Secretary renewed the charter. The renewed charter indicates that the 
APC Panel continues to be technical in nature, is governed by the 
provisions of the FACA, may convene up to three meetings per year, and 
is chaired by a Federal official.
    Originally, in establishing the APC Panel, we solicited members in 
a notice published in the Federal Register on December 5, 2000 (65 FR 
75943). We received applications from more than 115 individuals who 
nominated either colleagues or themselves. After carefully reviewing 
the applications, we chose 15 highly qualified individuals to serve on 
the APC Panel. Because of the loss of four APC Panel members due to the 
expiration of terms of office on March 31, 2004, we published a Federal 
Register notice on January 23, 2004 (69 FR 3370) that solicited 
nominations for APC Panel membership. From the 24 nominations that we 
received, we chose four new members. The entire APC Panel membership is 
identified on the CMS Web site at http://www.cms.hhs.gov/faca/apc/apcmem.asp.
3. APC Panel Meetings and Organizational Structure
    The APC Panel first met on February 27, February 28, and March 1, 
2001. Since that initial meeting, the APC Panel has held five 
subsequent meetings, with the last meeting taking place on September 1, 
2, and 3, 2004. Prior to each of these biennial meetings, we published 
a notice in the Federal Register to announce each meeting and, when 
necessary, to solicit nominations for APC Panel membership. For a more 
detailed discussion about these announcements, refer to the following 
Federal Register notices: December 5, 2000 (65 FR 75943), December 14, 
2001 (66 FR 64838), December 27, 2002 (67 FR 79107), July 25, 2003 (68 
FR 44089), and December 24, 2003 (68 FR 74621), and August 5, 2004 (69 
FR 47446).
    During these meetings, the APC Panel established its operational 
structure that, in part, includes the use of three subcommittees to 
facilitate its required APC review process. Currently, the three 
subcommittees are the Data Subcommittee, the Observation Subcommittee, 
and the Packaging Subcommittee. The Data Subcommittee is responsible 
for studying the data issues confronting the APC Panel and for 
recommending viable options for resolving them. This subcommittee was 
initially established on April 23, 2001, as the Research Subcommittee 
and reestablished as the Data Subcommittee on April 13, 2004. The 
Observation Subcommittee, which was established on June 24, 2003, and 
reestablished with new members on March 8, 2004, reviews and makes 
recommendations to the APC Panel on all issues pertaining to 
observation services paid under the OPPS, such as coding and 
operational issues. The Packaging Subcommittee, which was established 
on March 8, 2004, studies and makes recommendations on issues 
pertaining to services that are not separately payable under the OPPS 
but are bundled or packaged APC payments. Each of these subcommittees 
was established by a majority vote of the APC Panel during a scheduled 
APC Panel meeting. All subcommittee recommendations are discussed and 
voted upon by the full APC Panel.
    For a detailed discussion of the APC Panel meetings, refer to the 
hospital OPPS final rules cited in section I.C. of this preamble. Full 
discussions of the APC Panel's February 2004 and September 2004 
meetings and the resulting recommendations are included in sections 
II., III., IV., V., and VI. of this preamble under the appropriate 
subject headings.

E. Provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003

    On December 8, 2003, the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA), Public Law 108-173, was enacted. 
Public Law 108-173 made changes to the Act relating to the Medicare 
OPPS. In a January 6, 2004 interim final rule with comment period, we 
implemented provisions of Public Law 108-173 relating to the OPPS that 
were effective for CY 2004. In this final rule with comment period, we 
are responding to public comments received on the January 6, 2004 
interim final rule and finalizing that rule. In addition, in this final 
rule with comment period, we are implementing the following sections of 
Public Law 108-173 that are effective for CY 2005:
    <bullet> Section 611, which provides for Medicare coverage of an 
initial preventive physical examination under Part B, subject to the 
applicable deductible and coinsurance, as an outpatient department 
(OPD) service payable under the OPPS. The provisions of section 611 
apply to services furnished on or after January 1, 2005, but only for 
individuals whose coverage period under Medicare Part B begins on or 
after that date.
    <bullet> Section 614, which provides that screening mammography and 
diagnostic mammography services are excluded from payment under the 
OPPS. This amendment applies to screening mammography services 
furnished on or after the date of enactment of Public Law 108-173 (that 
is, December 8, 2003), and in the case of diagnostic mammography, to 
services furnished on or after January 1, 2005.
    <bullet> Section 621(a)(1), which requires special classification 
of certain separately paid radiopharmaceutical agents and drugs or 
biologicals, and specifies the pass-through payment percentages, 
effective for services furnished on or after January 1, 2005, for the 
three categories of ``specified covered OPD drugs'' defined in the 
statute: sole source drug; innovator multiple source drug; and 
noninnovator multiple source drug. In addition, payment for these drugs 
for CYs 2004 and 2005 does not have to be made in a budget neutral 
manner.
    <bullet> Section 621(a)(2), which specifies the reduced threshold 
for the establishment of separate APCs with respect to drugs or 
biologicals from $150 to $50 per administration for drugs and 
biologicals furnished in CYs 2005 and 2006.

[[Page 65687]]

    <bullet> Section 621(a)(3), which excludes separate drug APCs from 
outlier payments. Specifically, no additional payment will be made in 
the case of APC groups established separately for drugs and 
biologicals.
    <bullet> Section 621(b), which requires that all devices of 
brachytherapy consisting of a seed or seeds (or radioactive source) 
furnished on or after January 1, 2004, and before January 1, 2007, be 
paid based on the hospital's charges for each device, adjusted to cost. 
This provision also requires that these brachytherapy services be 
excluded from outlier payments.

F. Summary of the Provisions of the August 16, 2004 Proposed Rule

    On August 16, 2004, we published a proposed rule in the Federal 
Register (69 FR 50447) that set forth proposed changes to the Medicare 
hospital OPPS and to implement provisions of Public Law 108-173 
specified in section I.E. of this preamble that would be effective for 
services furnished on or after January 1, 2005. The following is a 
summary of the major changes that we proposed to make:
1. Changes to the APC Groups
    As required by section 1833(t)(9)(A) of the Act, we proposed the 
annual update of the APC groups and the relative payment weights. This 
section also requires that we consult with an outside panel of experts, 
the Advisory Panel on APC Groups, to review the clinical integrity of 
the groups and weights under the OPPS. Based on analyses of Medicare 
claims data and recommendations of the APC Panel, we proposed to 
establish a number of new APCs and to make changes to the assignment of 
HCPCS codes under a number of existing APCs.
    We also discussed the application of the 2 times rule and proposed 
exceptions to it; coding for stereotactic radiosurgery services; the 
proposed movement of procedures from the new technology APCs; the 
proposed changes to the list of procedures that will be paid as 
inpatient services; and the proposed addition of new procedure codes to 
the APCs.
2. Recalibrations of APC Relative Payment Weights
    In the proposed rule, we discussed the methodology used to 
recalibrate the proposed APC relative payment weights and set forth the 
proposed recalibration of the relative weights for CY 2005.
3. Payment Changes for Devices
    In the proposed rule, we discussed proposed changes to the pass-
through payment for devices and the methodology used to reduce, if 
applicable, transitional pass-through payments to offset costs packaged 
into APC groups.
4. Payment Changes for Drugs, Biologicals, Radiopharmaceutical Agents, 
and Blood and Blood Products
    In the proposed rule, we discussed our proposed payment changes for 
drugs, biologicals, radiopharmaceutical agents, and blood and blood 
products.
5. Estimated Transitional Pass-Through Spending in CY 2005 for Drugs, 
Biologicals, and Devices
    In the proposed rule, we discussed the proposed methodology for 
measuring whether there should be an estimated pro rata reduction for 
transitional pass-through drugs, biologicals, and devices for CY 2005.
6. Other Policy Decisions and Proposed Policy Changes
    In the proposed rule, we presented our proposals for CY 2005 
regarding the following:
    <bullet> Update of statewide default cost-to-charge ratios (CCRs).
    <bullet> A conforming change to the regulation relating to the use 
of the first available cost reporting period ending after 1996 and 
before 2001 for determining a provider's payment-to-cost ratio to 
calculate transitional corridor payments for hospitals paid under the 
OPPS that did not have a 1996 cost report.
    <bullet> Changes in the status indicators and comment indicators 
assigned to APCs for CY 2005.
    <bullet> Elimination of the diagnostic tests criteria as a 
requirement for hospitals to qualify for separate payment of 
observation services under APC 0339 (Observation) and changes to the 
guidelines to hospitals for counting patients' time spent in 
observation care.
    <bullet> Payment under the OPPS for certain procedures currently 
assigned to the inpatient list.
    <bullet> Strategy for giving the public notice of new 
implementation guidelines for new evaluation and management codes.
    <bullet> Addition of three new HCPCS codes and descriptors for 
brachytherapy sources that would be paid separately, pursuant to Public 
Law 108-173.
    <bullet> Modification of the HCPCS code descriptors for 
brachytherapy source descriptors for which units of payment are not 
already delineated.
    <bullet> Payment for services furnished emergently to an outpatient 
who dies before admission to a hospital as an inpatient.
7. Conversion Factor Update for CY 2005
    As required by section 1833(5)(3)(C)(ii) of the Act, in the 
proposed rule, we proposed to update the conversion factor used to 
determine payment rates under the OPPS for CY 2005.
8. Wage Index Changes for CY 2005
    In the proposed rule, we discussed the proposed retention of our 
current policy to apply the IPPS wage indices to wage adjust the APC 
median costs in determining the OPPS payment rate and the copayment 
standardized amount. These indices reflect major changes for CY 2005 
relating to hospital labor market areas as a result of OMB revised 
definitions of geographical statistical areas; hospital 
reclassifications and redesignations, including the one-time 
reclassifications under section 508 of Public Law 108-173; and the wage 
index adjustment based on commuting patterns of hospital employees 
under section 505 of Public Law 108-173.
9. Determination of Payment Rates and Outlier Payments for CY 2005
    In the proposed rule, we discussed how APC payment rates are 
calculated and how the payment rates are adjusted to reflect geographic 
differences in labor-related costs. We also discussed proposed changes 
in the way we would calculate outlier payments for CY 2005.
10. Regulatory Impact Analysis
    In the proposed rule, we set forth our analysis of the impact that 
the proposed changes would have on affected hospitals and CMHCs.

G. Public Comments Received on the August 16, 2004 Proposed Rule

    We received over 550 timely pieces of correspondence containing 
multiple comments on the August 16, 2004 proposed rule. Summaries of 
the public comments and our responses to those comments are set forth 
in the various sections of this preamble under the appropriate heading.
    We received a number of general public comments on our proposed 
changes to the OPPS for CY 2005.
    Comment: Some commenters were concerned about the extent to which 
OPPS payment rates have fluctuated from year to year. Because Medicare 
payment is a very significant portion of income for most hospitals, 
they stated that the instability in the OPPS payment rates makes it 
difficult for hospitals to plan and budget. They indicated that there 
is a tremendous degree of variation across APCs in terms of payment to 
cost ratios and that they

[[Page 65688]]

would expect that after three years of operating the OPPS, the payment 
to cost ratios would be much more stable. One commenter offered to 
share analysis of payment to cost ratios with CMS. Commenters stated 
that such variation in payments compared to costs puts full-service 
hospitals and their communities at risk because limited-service, or 
``niche'' providers can easily identify and redirect patients with more 
lucrative APCs to their facilities, leaving full-service hospitals with 
a disproportionate share of patients who receive services that are 
assigned to the underpaid APCs.
    Response: We recognize hospitals' need for stability in payments 
for hospital outpatient services. We would appreciate receiving studies 
of the extent to which there is variation across APCS in terms of 
payment to cost ratios across the multiple years of the OPPS to aid us 
in assessing factors that might contribute to instability in the 
payment rates.
    Comment: One commenter indicated that the entire OPPS is 
underfunded, as it pays only 87 cents of every dollar of hospital 
outpatient care provided to Medicare beneficiaries. The commenter 
stated that it will continue to work with Congress to address 
inadequate payment rates and updates in order to ensure access to 
hospital-based outpatient services for Medicare beneficiaries.
    Response: Our early analyses indicated that the OPPS was, in its 
inception, based on payment that was less than cost due to statutory 
reductions in payment for hospital outpatient costs prior to the 
enactment of the Balanced Budget Act of 1997, which authorized the 
current OPPS. We agree that the commenter will need to work with 
Congress to change certain fundamental features of the OPPS. For 
example, the base amounts upon which the OPPS was established, the 
rules concerning budget neutrality, and subsequent out-year adjustments 
such as annual reductions in coinsurance and adjustments to outlier and 
pass-through payment allocations are established in statute and, as 
such, would require legislation to amend.
    Comment: One commenter objected to the use of the display date to 
start the 60-day comment period for the proposed rule. The commenter 
stated that the display copy did not contain all of the information 
included in the proposed rule, such as the comment due date, and did 
not satisfy the statute's requirement that the notice of proposed 
rulemaking be published in the Federal Register, with provision for a 
60-day comment period. The commenter indicated that the use of the 
display date to start the comment period gives reviewers too short a 
period of time to comment properly and also, in this case, gives CMS an 
inadequate period of time to review the comments and prepare the final 
rule. The commenter urged CMS to publish a proposed rule no later than 
late July to provide more time for CMS to consider public comments.
    Response: While the law requires that we provide a 60-day public 
comment period and that the notice of proposed rulemaking be published 
in the Federal Register, it does not require that the date of Federal 
Register publication be the first day of the comment period. The two 
requirements are independent. We post the proposed rule on the CMS Web 
site on the date of display of the proposed rule at the Federal 
Register, thereby making the proposed rule far more easily available to 
the public than was the case when the only public dissemination was 
publication in the Federal Register, and satisfying the requirement for 
a 60-day comment period. By making the proposed rule available on the 
CMS Web site (as well as at the Federal Register), we provided the 
public with access to not only the proposed rule but also to all of the 
supporting files and documents cited in the proposed rule in a manner 
that can be used for analysis. We note that the computer files posted 
on the Web site can be manipulated for independent analysis. Therefore, 
we believe that beginning the comment period for the proposed rule with 
the display date at the Federal Register, and posting the proposed rule 
and data files on the CMS Web site on the display date, fully complies 
with the statute and provides a far better opportunity for the public 
to have meaningful input than the past practice under which the comment 
period began with the publication date in the Federal Register a week 
or longer after the display date and no other data in any other form 
was furnished.
    With respect to the publication date of the proposed rule, we 
publish the proposed rule as soon as it is practicable for us to do so. 
Our process for development of the proposed rule begins with a winter 
meeting of the APC Panel based on the earliest possible data analysis 
for the forthcoming year. We then pull claims for the period ending 
December of the data year and also pull cost report data for 
development of CCRs to apply to the claims data. This step cannot be 
started until approximately March 1 of the year and the development of 
the proposed rule data takes considerable time as there are many 
analyses to be performed and decisions to be made before each stage of 
data development can be undertaken. We have to balance the need to 
improve the process and to deal with each year's special issues with 
the need to issue a proposed rule in sufficient time to permit the 
public to comment and to permit us sufficient time to review the 
comments and develop the final rule. Each year we review the timeline 
and process to determine how we can best achieve that balance, while 
ensuring that we issue the best possible proposed rule for public 
comment.

H. Public Comments Received on the January 6, 2004 Interim Final Rule 
With Comment Period

    We received approximately 40 timely pieces of correspondence 
containing multiple comments on the MMA provisions relating to payment 
for drugs and brachytherapy under the OPPS that were included in the 
January 6, 2004 interim final rule with comment period. Summaries of 
the public comments and our responses to those comments are set forth 
in sections V. and VII.G. of this preamble under the appropriate 
heading.

I. Public Comments Received on the November 7, 2003 Final Rule With 
Comment Period

    We received 25 timely pieces of correspondence on the November 7, 
2003 final rule with comment period, some of which contained multiple 
comments on the APC assignment of HCPCS codes identified with the new 
interim condition indicators (now referred to as condition codes) in 
Addendum B of that final rule with comment period. Summaries of the 
public comments and our responses to those comments are set forth in 
various sections of this preamble under the appropriate subject areas.

II. Changes Related to Ambulatory Payment Classifications (APCs)

    Section 1833(t)(2)(A) of the Act requires the Secretary to develop 
a classification system for covered hospital outpatient services. 
Section 1833(t)(2)(B) provides that this classification system may be 
composed of groups of services, so that services within each group are 
comparable clinically and with respect to the use of resources. In 
accordance with these provisions, we developed a grouping 
classification system, referred to as the Ambulatory Payment 
Classification Groups (or APCs), as set forth in Sec.  419.31 of the 
regulations. We use Level I and Level II Healthcare Common Procedure 
Coding System (HCPCS) codes and descriptors to identify and group the 
services within each APC. The APCs are organized such that each

[[Page 65689]]

group is homogeneous both clinically and in terms of resource use. 
(However, new technology APCs that are temporary groups for certain 
approved services are structured based on cost rather than clinical 
homogeneity.) Using this classification system, we have established 
distinct groups of surgical, diagnostic, and partial hospitalization 
services, and medical visits. Because of the transitional pass-through 
provisions, we also have developed separate APC groups for certain 
medical devices, drugs, biologicals, radiopharmaceuticals, and devices 
of brachytherapy.
    We have packaged into each procedure or service within an APC group 
the cost associated with those items or services that are directly 
related and integral to performing a procedure or furnishing a service. 
Therefore, we would not make separate payment for packaged items or 
services. For example, packaged items and services include: Use of an 
operating, treatment, or procedure room; use of a recovery room; use of 
an observation bed; anesthesia; medical/surgical supplies; 
pharmaceuticals (other than those for which separate payment may be 
allowed under the provisions discussed in section V. of this preamble); 
and incidental services such as venipuncture. Our packaging methodology 
is discussed in section IV.B.3. of this final rule with comment period.

A. APC Changes: General

    Under the OPPS, we pay for hospital outpatient services on a rate-
per-service basis that varies according to the APC group to which the 
service is assigned. Each APC weight represents the median hospital 
cost of the services included in that APC relative to the median 
hospital cost of the services included in APC 0601, Mid-Level Clinic 
Visits. The APC weights are scaled to APC 0601 because a mid-level 
clinic visit is one of the most frequently performed services in the 
outpatient setting.
    Section 1833(t)(9)(A) of the Act requires the Secretary to review 
the components of the OPPS not less than annually and to revise the 
groups and relative payment weights and make other adjustments to take 
into account changes in medical practice, changes in technology, and 
the addition of new services, new cost data, and other relevant 
information and factors. Section 1833(t)(9)(A) of the Act, as amended 
by section 201(h) of the BBRA of 1999, also requires the Secretary, 
beginning in CY 2001, to consult with an outside panel of experts to 
review the APC groups and the relative payment weights.
    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 (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 (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.
    Section 419.31 of the regulations sets forth the requirements for 
the APC system and the determination of the payment weights. In this 
section, we discuss the changes that we proposed to the APC groups; the 
APC Panel's review and recommendations from the February 2004 meeting 
and our proposals in response to those recommendations; the application 
of the 2 times rule and proposed exceptions to it; coding for 
stereotactic radiosurgery services; the proposed movement of procedures 
from the new technology APCs; the proposed changes to the inpatient 
list; and the proposed additions of new procedures codes to the APCs. 
In addition, in this section under the appropriate subject heading, we 
present the APC Panel's review and recommendations of items discussed 
at the September 1, 2, and 3, 2004 meeting held after publication of 
the proposed rule and our final decisions on these recommendations. We 
then present our final policies that are effective for CY 2005.

B. APC Panel Review and Recommendations

1. February 2004 Panel Meeting
    As stated above, the APC Panel held its first 2004 meeting on 
February 18, 19, and 20, 2004, to discuss the revised APCs for the CY 
2005 OPPS. In preparation for that meeting, we published a notice in 
the Federal Register on December 24, 2003 (68 FR 74621), to announce 
the location, date, and time of the meeting; the agenda items; and the 
fact that the meeting was open to the public. In that notice, we 
solicited public comment specifically on the items included on the 
agenda for that meeting. We also provided information about the APC 
Panel meeting on the CMS Web site: http://www.cms.hhs.gov/faca/apc/panel.
    Oral presentations and written comments submitted for the February 
2004 APC Panel meeting met, at a minimum, the adopted guidelines for 
presentations set forth in the Federal Register document (68 FR 74621). 
In conducting its APC review, the APC Panel heard testimony and 
received evidence in support of the testimonies from a number of 
interested parties. For the February 2004 deliberations, the APC Panel 
used hospital outpatient claims data for the period January 1, 2003, 
through September 30, 2003, that provided, at a minimum, median costs 
for the APC structure in place in CY 2004 and that was based on CCRs 
used for setting the CY 2004 payment rates. The data set presented to 
the APC Panel represented 9 months of the CY 2003 data that we proposed 
to use to recalibrate the APC relative weights and to calculate the 
proposed APC payment rates for CY 2005. In sections II.B.4. through 7. 
and sections II.C. through I. of this preamble, we summarize the APC 
issues discussed during the APC Panel's February 2004 meeting, the 
Panel's recommendations, the proposals that we included in the August 
16, 2004 proposed rule, our proposals with respect to those 
recommendations, and the policies that we are finalizing for CY 2005 in 
this final rule with comment period.
2. September 2004 Panel Meeting
    As stated earlier, the APC Panel held its second 2004 meeting on 
September 1-3, 2004. In preparation for that meeting, we published a 
notice in the Federal Register on August 5, 2004 (69 FR 47446) to 
announce the location, date, and time of the meeting, the agenda items, 
and the fact that the meeting was open to the public. In that notice, 
we solicited public comments specifically on the items included on the 
agenda for that meeting. During the September 2004 APC Panel meeting, 
the APC Panel heard testimony on a number of the proposed changes in 
APCs included in the August 16, 2004 proposed rule. We are summarizing 
the topics that were discussed at the September 2004 Panel meeting and 
the APC Panel's recommendations on each topic in the chart below. We 
have included references to the appropriate section of this preamble 
for the more detailed discussion of each recommendation.
    For the September 2004 deliberations, the APC Panel used the 
hospital outpatient claims data that we used in developing the proposed 
rule; that is, data for the period of January 1, 2003,

[[Page 65690]]

through December 31, 2003, including updated CCRs.
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[[Page 65691]]


3. Contents of This Section of the Preamble
    The discussion in this section II.B. of this final rule with 
comment period is limited to APC changes regarding APCs other than 
those that violate the 2 times rule and those that represent drugs, 
biologicals, and transitional pass-through devices, or those that are 
new technology APCs. The specific APC Panel review and recommendations 
applicable to those APCs are discussed in sections II.C., IV., III., 
and II.F., respectively, of the preamble to this final rule with 
comment period.
4. APC 0018: Biopsy of Skin/Puncture of Lesion
    During the February 2004 APC Panel meeting, one presenter 
recommended moving CPT tracking codes 0046T (Catheter lavage, mammary 
duct(s)) and 0047T (Each additional duct) from APC 0018 and placing 
them in an APC that more accurately reflects each of the procedures. 
The APC Panel recommended that we reassign CPT codes 0046T and 0047T to 
APC 0021, Level III Excision/Biopsy.
    In the August 16, 2004 proposed rule, we proposed to accept the APC 
Panel's recommendation. We did not receive any public comments on our 
proposal. Therefore, we are adopting as final, without modification, 
our proposal to reassign CPT codes 0046T and 0047T to APC 0021.
5. Level I and II Arthroscopy
APC 0041: Level I Arthroscopy
APC 0042: Level II Arthroscopy
    We testified before the APC Panel at its February 2004 meeting 
regarding a comment that we received in 2003 requesting that we 
reassign CPT code 29827 (Arthroscopy, shoulder with rotator cuff 
repair) from APC 0041 to APC 0042, based on its similarity to CPT 29826 
(Arthroscopy, shoulder decompression of subacromial space with partial 
acromioplasty without coracoacromial release). Our clinical staff 
considered the request and determined that APCs 0041 and 0042 should be 
reconfigured to improve clinical homogeneity. An APC Panel presenter 
provided evidence to support moving CPT code 29827 to an APC that would 
more accurately recognize the complexity of that procedure. We 
requested the APC Panel's recommendation regarding a total revision of 
these two APCs.
    The APC Panel recommended that we reevaluate the codes in APCs 0041 
and 0042 and propose restructuring that would improve the clinical 
homogeneity in the two APCs.
    In the August 16, 2004 proposed rule, we proposed to accept the APC 
Panel's recommendation and to revise APCs 0041 and 0042 as presented in 
Tables 1 and 2 of that proposed rule. We received one public comment on 
our proposed restructuring.
    Comment: One commenter requested that we move code 0014T from APC 
0041 to APC 0042. The commenter provided information in support of its 
belief that the procedure more accurately matches the clinical work and 
resource inputs of APC 0042 than of APC 0041.
    Response: We agree with the commenter and are assigning the 
procedure to APC 0042. The tracking code 0014T is being retired and the 
successor code is CPT code 29868 (Arthroscopy, knee, surgical, 
osteochondral autograft(s) meniscal transplantation (including 
arthrotomy for meniscal insertion, medial or lateral). Placement of 
this code in APC 0042 is subject to comment in response to this final 
rule with comment period because the code is a new code for CY 2005.
    Accordingly, restructured APCs 0041 and 0042 for CY 2005, as 
modified based on the public comment received, are shown in Tables 1 
and 2 below.

[[Page 65692]]

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[[Page 65693]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.002

BILLING CODE 4120-01-C
6. Angiography and Venography Except Extremity
APC 0279: Level II Angiography and Venography Except Extremity
APC 0280: Level III Angiography and Venography Except Extremity
APC 0668: Level I Angiography and Venography Except Extremity
a. February 2004 Panel Meeting
    As requested by the APC Panel, at the February 2004 Panel meeting, 
we presented our proposal for reconfiguring APCs 0279, 0280, and 0668 
that reflected changes based on prior input with outside clinical 
experts. The APC Panel had previously reviewed these APCs during its 
January 2003 meeting and had recommended that we not restructure these 
three APCs until we received input from clinical experts in the field. 
When we updated the APC groups in CY 2003, we accepted the APC Panel's 
recommendation and made no changes to APCs 0279, 0280, and 0668.
    A review of these APCs was prompted by a commenter who requested 
that we move CPT code 75978 (Repair venous blockage) from APC 0668 to 
APC 0280 and that we move CPT code 75774 (Artery x-ray, each vessel) 
from APC 0668 to APC 0279. The commenter submitted evidence in support 
of these requests and testified before the APC Panel regarding the 
common use of CPT code 75978 for treating dialysis patients and the 
often required multiple intraoperative attempts to succeed with this 
procedure for such patients.
    After receiving input from the clinical experts, we determined that 
these three APCs should be revised to improve their clinical 
homogeneity. At the February 2004 meeting, we presented our proposed 
restructuring of APCs 0279, 0280, and 0668 to the APC Panel. The APC 
Panel concurred with our proposal.
    In addition, subsequent to the APC Panel meeting, we discovered 
several procedures in these APCs that were more appropriately placed in 
other APCs in order to remedy any 2 times rule violations. We included 
those modifications in our proposed restructured APCs published in 
Table 3 in the August 16, 2004 proposed rule.
b. Public Comments Received
    Comment: Several commenters requested that CMS postpone or cancel 
the proposed plans for moving angiography codes 75960 (Transcatheter 
introduction of intravascular stent(s), (non-coronary vessel) 
percutaneous and/or open, radiological supervision and interpretation, 
each vessel), 75962 (Transluminal balloon angioplasty, peripheral 
artery, radiological supervision and interpretation), 75964 
(Transluminal balloon angioplasty, each additional peripheral artery, 
radiological supervision and interpretation), 75966 (Transluminal 
balloon angioplasty, renal or other visceral artery, radiological 
supervision and interpretation), and 75968 (Transluminal balloon 
angioplasty, each additional visceral artery, radiological supervision 
and interpretation), which are integral to a number of angioplasty and 
stent placement procedures, from APC 0280 to APC 0668. One commenter 
indicated that the proposed decreases in payments for these services 
that would result from their APC reassignment were inconsistent with 
CMS' proposal to limit payment decreases for device-dependent APCs. 
Another commenter was particularly concerned that code 75962, which is 
used for angioplasty of arterial blockages, may have a wide range of 
associated procedure costs. The commenters stated that aggregate 
payment for all services billed for many high volume procedures such as 
peripheral transluminal angioplasty and single stent placement will 
decrease by 16 to 21 percent, in large part due to the reassignment of 
codes 75960, 75962, 75964, 75966, and 75968 to the lower level APC 0668 
in the angiography and venography except extremity series and

[[Page 65694]]

to their placement on the bypass list. Two commenters were concerned 
that supervision and interpretation services as part of peripheral 
atherectomy procedures were assigned to higher paying APC 0279, 
potentially providing hospitals with an incentive to perform 
atherectomy instead of angioplasty or stent procedures, or both. 
Further, the commenters suggested that the lower payment for the 
supervision and interpretation services moved to APC 0668 for CY 2005 
provides an incentive for hospitals to treat patients on an inpatient 
basis or may limit beneficiaries' access to the outpatient procedures. 
One commenter indicated that the cost and complexity of performing 
angiographic procedures for angioplasty are similar, if not more 
complex, than those of performing angiographic procedures for 
atheretomy.
    The commenters did not understand why CMS reassigned the 
supervision and interpretation codes from a Level III to a Level I APC 
and believed that CMS did not take into account the higher level of 
hospital resources and staffing required for certain therapeutic 
radiology supervision and interpretation services. Further, they 
questioned the assumptions CMS adopted in the creation of the bypass 
list to develop ``pseudo''single claims. They suggested that there 
might be significant differences between the multiple procedure claims 
that CMS converts to ``pseudo'' single claims and those that CMS is 
unable to use. Thus, the commenters questioned the reliability of the 
claims data and encouraged CMS to use external data as the basis for 
the decisionmaking. One commenter noted that, of a large number of 
claims for APC 0668, 79 percent accounted for device costs and 81 
percent accounted for room charges, but CMS' single claim methodology 
had only 4 percent of claims accounting for device costs or room 
charges.
    Finally, one commenter, a group of providers, stated that they 
expected substantial payment decreases to result from the proposed 
restructuring of APCs 0279, 0280, and 0668. The commenter suggested 
that CMS should establish a mechanism (such as dampening) to offset 
large payment swings similar to those anticipated as a result of the 
CMS proposal.
    Response: Our analyses of claims data used for the CY 2004 OPPS and 
several past comments led us to recognize the need to restructure APCs 
0279, 0280, and 0668 for the CY 2005 OPPS. There were only two services 
in APC 0668 for CY 2004, APC 0279 was excepted from the 2 times rule in 
CY 2004, and the median costs for individual services in APCs 0668, 
0279, and 0280 showed significant overlap. The APC Panel also 
acknowledged the need to reconfigure these APCs. In our proposed rule, 
we presented the restructured APCs in which the procedures within each 
APC demonstrated both clinical and resource homogeneity, and our final 
data confirmed the appropriate assignment of the services. For 
instance, the peripheral atherectomy supervision and interpretation 
codes (75992 through 75996) assigned to the Level II APC (0279) 
consistently had higher median costs than the supervision and 
interpretation codes for intravascular stent placement or peripheral or 
visceral artery balloon angioplasty, which are assigned to the Level I 
APC (0668). For CY 2005, the median costs for the supervision and 
interpretation codes for stent placement and angioplasty were much 
lower than the median cost of their prior APC 0280 ($1,181) and were 
within the range of median costs ($239-$444) for other procedures 
assigned to APC 0668. As APCs 0668, 0279, and 0280 are not device-
dependent APCs because we expect the devices to be reported with the 
interventional procedures provided (that are in device-dependent APCs), 
it would be inappropriate to apply the device-dependent APC policy to 
APCs 0668, 0279, and 0280. In addition, there were no violations of the 
2 times rule in the restructured APCs 0668, 0279, or 0280 based on full 
year 2003 hospital claims data.
    The supervision and interpretation codes 75960, 75962, 75964, 
75966, and 75968, along with peripheral atherectomy supervision and 
interpretation CPT codes, were proposed for the bypass list for CY 
2005. As the commenters noted, we recognized that angiography and 
venography services generally involve multiple procedure claims, and 
less than 10 percent of bills for APCs 0668, 0279, and 0280 were 
available for ratesetting for CY 2004. We proposed to place a number of 
radiological supervision and interpretation codes on the bypass list 
for CY 2005 because we believed that these codes should have little 
packaging associated with them and we recognized that their addition to 
the bypass list might enable us to use significantly more data from 
multiple procedure claims for APCs 0668, 0279, 0280, and others. We did 
not expect that devices and room charges would generally be packaged 
with the supervision and interpretation services, but rather would be 
packaged with the interventional procedures they accompanied. This 
accounts for the low percentage of device and room costs on the single 
bills in APC 0668 used for the median calculation. None of the 
commenters provided any information about why it would be inappropriate 
to include these codes on the bypass list, other than to point out the 
decline in proposed payment rates for the services. If packaging 
appropriately attributable to the supervision and interpretation 
services through the bypass procedure had been assigned to the 
interventional procedures that the supervision and interpretation 
services accompanied (such as angioplasty or stent placement), there 
should have been increases in the median costs for the interventional 
procedures. We did not see any such significant increases, and believe 
that our data do not indicate any specific packaging allocation 
problems with respect to the supervision and interpretation services. 
We have no evidence of underreporting of costs used to calculate the 
median costs for APC 0668.
    For CY 2005, we had a significantly greater number of single claims 
available for use in median calculation for APCs 0668, 0279, and 0280. 
For example, for CY 2005, the median costs for the two supervision and 
interpretation codes with the highest volume that were of concern to 
the commenters (codes 75960 and 75962) were based on 20 percent of 
claims in contrast to only 1 percent used last year. While it is 
possible, as suggested by the commenters, that there may be differences 
between the packaging in multiple procedure claims that we were able to 
convert to ``pseudo'' single claims and those that we were unable to 
use, we have no reason to believe that these issues are unique to these 
APCs or especially problematic for these supervision and interpretation 
services. Our goal continues to be to use as much of our historical 
hospital claims data to set payment rates as possible. As we have 
consistently stated, we are pursuing strategies to improve our ability 
to utilize multiple procedure claims for median calculation, including 
discussions with the APC Panel Data Subcommittee.
    With regard to the commenter's suggestion that we establish a 
mechanism to offset payment changes from one year to the next, we 
understand the commenter's desire for a stable system. However, while 
we are not convinced that an overall dampening policy is required, we 
continue to work toward improving the hospital claims data through 
education, data management, and data analyses. We believe that we have 
achieved significant improvements so far.

[[Page 65695]]

c. Final Policy for CY 2005
    After consideration of the APC Panel's recommendations and the 
public comments we received on the August 16, 2004 proposal, we are 
finalizing our proposal for the restructuring of APCs 0668, 0279, and 
0280.
    Tables 3, 4, and 5 reflect the final restructuring of APCs 0668, 
0279, and 0280.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR15NO04.003


[[Page 65696]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.004

BILLING CODE 4120-01-C
7. Packaged Codes in APCs
    As a result of requests from the public, the Packaging Subcommittee 
of the APC Panel was established to review all the CPT codes with a 
status indicator of ``N.'' Status indicator ``N'' indicates that 
payment for packaged codes is bundled into the payment that providers 
receive for separately payable codes for items or services provided on 
the same day. Providers have often suggested that many codes could be 
billed alone, without any separately payable service on the claim, and 
requested that these codes not be assigned status indicator ``N.'' The 
Packaging Subcommittee identified areas for change of some packaged CPT 
codes for items or services that could be provided as the sole service 
on a given date. During the September 2004 meeting, the APC Panel 
accepted the report of the Packaging Subcommittee and made the 
following recommendations:
    <bullet> The Panel recommended that the Packaging Subcommittee 
review packaged codes individually instead of making a global decision 
for all packaged codes.
    <bullet> The Panel recommended that CMS assign a modifier to CPT 
codes 36540 (Collect blood venous device), 36600 (Withdrawal of 
arterial blood), 51701 (Insert bladder catheter), and 97602 (Wound[s] 
care, non-selective) to be used when these codes are the only code on 
that particular claim for the same date of service. The APC Panel 
indicated that it would revise this subset of codes once data become 
available.
    <bullet> The Panel recommended that CMS educate providers and 
intermediaries on the correct billing procedures for the packaged CPT 
codes 36540, 36600, 51701, and 97602.
    <bullet> The Panel recommended that CMS not change the status 
indicator for CPT 76397 (Ultrasound guidance for vascular access). The 
Panel indicated that it would review the data on this code as they 
become available.
    <bullet> The Panel recommended that the Packaging Subcommittee 
continue to meet throughout the year to discuss other problematic 
packaged codes.
    CMS is considering the recommendation that a modifier be used when 
certain codes are the only codes on a particular claim for the same 
date of service. We note that code 97602 is assigned a status indicator 
of ``A'' in this final rule with comment period, and is no longer 
payable under OPPS. Therefore, a modifier, if applicable, would not be 
assigned for this code.
    Comment: One commenter asked CMS to review all the packaged codes 
to determine which codes should become separately payable. Several 
commenters also requested that codes 36540 (Collect blood venous 
device), 36600 (Withdrawal of arterial blood), and 97602 (Wound[s] 
care, nonselective) become separately payable because they are often 
the only procedure on a bill. In cases where there is no separately 
payable code on a claim, providers do not receive payment for these 
packaged services.
    Response: We appreciate the commenters' suggestions. As stated 
above, the APC Panel Packaging Subcommittee recently reviewed all the 
packaged codes. We are currently

[[Page 65697]]

considering whether to create a modifier to be used for CPT codes 
36540, 36600, and 51701 when these codes appear on a claim without any 
separately payable code on the same date of service. As stated above, 
code 97602 will not be payable under OPPS for CY 2005 and, therefore, 
is excluded from this discussion. Additional detailed suggestions for 
the Packaging Subcommittee should be submitted to <a href="/cdn-cgi/l/email-protection#e6a7b6a5b68788838aa6858b95c88e8e95c8818990"><span class="__cf_email__" data-cfemail="f3b2a3b0a3929d969fb3909e80dd9b9b80dd949c85">[email protected]</span></a> 
with ``Packaging Subcommittee'' in the subject line.
    Comment: Two commenters requested that code 76937 (Ultrasound 
guidance for vascular access) be assigned to APC 0268 (Ultrasound 
Guidance Procedures), with status indicator ``S'' instead of the 
proposed status indicator ``N.''
    Response: We are accepting the APC Panel's recommendations that 
code 76937 remain packaged for CY 2005. We are concerned that there 
will be unnecessary utilization of this procedure if it is separately 
payable. In addition, because code 76937 only became effective on 
January 1, 2004, there are currently no claims data for this code. When 
we review the CY 2004 claims data for the CY 2006 payment rates, we 
will reexamine the status of code 76937. We also note that the APC 
Panel Packaging Subcommittee remains active, and additional issues and 
new data concerning the packaging status of codes will be shared for 
their consideration as information becomes available.
    Comment: Several commenters requested that the following CPT codes 
become unpackaged: 42550 (Injection for salivary x-ray) and other x-ray 
injection codes; 75998 (Fluoroscopic guidance for central venous access 
device placement); 74328 (Endoscopic catheterization of the biliary 
ductal system, S&I); 74329 (Endoscopic catheterization of the 
pancreatic ductal system, S&I); 74330 (Combined endoscopic 
catheterization of the biliary and pancreatic ductal systems, S&I); 
36500 (Insert of catheter, vein); 75893 (venous sampling by catheter); 
75989 (abscess drainage under x-ray); 76001 (Fluoroscope exam); 76003 
(Needle localization by x-ray); 76005 (Fluoroguide for spine inject); 
90471 and 90472 (Immunization administration); 94760, 94761, and 94762 
(Pulse oximetry); and G0269 (Occlusive device in vein art). The 
commenters were concerned that the OPPS has denied hospitals 
reimbursement for these services.
    Response: Hospitals include charges for packaged services on their 
claims, and the costs associated with these packaged services are then 
bundled into the costs for separately payable procedures on the claims. 
Hospitals may use CPT codes to report any packaged services that were 
performed, consistent with CPT coding guidelines. Because these imaging 
codes are packaged, their presence on a claim that includes a code for 
another separately payable service does not necessarily result in the 
claim being a multiprocedure claim. Payment for these imaging services 
is packaged in this way into payment for the separately payable 
services with which the imaging services are billed.
    The Packaging Subcommittee reviewed every code that was packaged in 
CY 2004. The Committee narrowed the list of packaged codes to a list of 
potentially problematic codes and subsequently reviewed utilization and 
median cost data for these codes. One of the main criteria evaluated by 
the Packaging Subcommittee to determine whether a code should become 
unpackaged was how likely it was for the code to be billed without any 
other code for separately payable services on the claim. We encourage 
submission of clinical scenarios involving currently packaged codes to 
the Packaging Subcommittee for review at future meetings. Submissions 
should be sent to the <a href="/cdn-cgi/l/email-protection#d091809380b1beb5bc90b3bda3feb8b8a3feb7bfa6"><span class="__cf_email__" data-cfemail="1958495a4978777c75597a746a3771716a377e766f">[email protected]</span></a> with ``Packaging 
Subcommittee'' in the subject line.
    We will continue to package CPT codes 42550 and other x-ray 
injection codes, 75998, 73428, 74329, 74330, 36500, 75893, 75989, 
76001, 76003, 76005, 90471, 94472, 94760, 94761, 94762, and G0269 for 
CY 2005 and will discuss these codes with the APC Panel Packaging 
Subcommittee.
    Comment: One commenter requested that the status indicator for code 
G0102 (Prostate cancer screening; digital rectal examination) be 
changed from packaged to separately payable. The commenter indicated 
that the screening is administered as part of the initial preventive 
physical examination. The commenter stated, ``The payment for G0102 
will be zero because it is identified with status indicator `N' which 
means it is packaged and not paid for separately.''
    Response: Currently, under the OPPS, we do not make separate 
payment for code G0102. Its costs are bundled into the costs of other 
separately payable services furnished by the hospital on the same day. 
For example, a digital rectal examination is usually furnished as part 
of an evaluation and management service, so its payment would generally 
be bundled into payment for the evaluation and management service when 
a covered evaluation and management service is furnished on the same 
day as the digital rectal examination. It is a relatively quick and 
simple procedure. Likewise, when the examination is performed during 
the same visit as the initial preventive examination, we would expect 
that costs associated with the examination would be bundled into the 
costs for the initial preventive examination. Accordingly, we are 
continuing to package code G0102.
    Comment: One commenter requested that we map code G0168 (Wound 
closure by adhesive) to an APC instead of assigning status indicator 
``N'' to the code. The commenter was concerned that access to wound 
adhesives would be reduced if this code is not separately payable.
    Response: Wound adhesives are considered supplies used to repair 
lacerations and surgical incisions. These products are used instead of 
sutures to close wounds. We do not make separate payments for sutures 
under the OPPS. Providers are paid when they use wound adhesives in the 
same manner as they are paid for other ``packaged'' procedures. The 
charges for code G0168 should be packaged into whichever procedure(s) 
is billed on the same date of service. Payment to the provider reflects 
the cost of performing the procedure and the related supplies.

C. Limits on Variations Within APCs: Application of the 2 Times Rule

    Section 1833(t)(2) of the Act provides that the items and services 
within an APC group cannot be considered comparable with respect to the 
use of resources if the median (or mean) 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. 
However, the statute authorizes the Secretary to make exceptions to 
this limit on the variation of costs within each APC group in unusual 
cases such as low volume items and services. No exception may be made 
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. We implemented this statutory provision in Sec.  419.31 of the 
regulations. Under this regulation, we elected to use the highest 
median cost and lowest median cost to determine comparability.
    During the APC Panel's February 2004 meeting, we presented data and 
information concerning a number of APCs that violate the 2 times rule 
and asked the APC Panel for its recommendation. We discuss below the 
APC Panel's recommendations specific to each of these APCs, our 
proposals in

[[Page 65698]]

response to the APC Panel's recommendations that were discussed in the 
August 2004 proposed rule, and our final policies.
1. Cardiac and Ambulatory Blood Pressure Monitoring
APC 0097: Cardiac and Ambulatory Blood Pressure Monitoring
    We expressed concern to the APC Panel that APC 0097 appears to 
violate the 2 times rule. We sought the APC Panel's recommendation on 
revising the APC to address the violation. Based on clinical 
homogeneity considerations, the APC Panel recommended that we not 
restructure APC 0097 for CY 2005.
    We proposed to accept the APC Panel's recommendation that we make 
no changes to APC 0097 for CY 2005. We did not receive any public 
comments on our proposal. Accordingly, in this final rule, we are not 
making any changes to APC 0097 for CY 2005.
2. Electrocardiograms
APC 0099: Electrocardiograms
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0099 appears to violate the 2 times rule. We asked the APC 
Panel to recommend options for resolving this violation. Based on 
clinical homogeneity considerations, the APC Panel recommended that we 
not alter the structure of APC 0099 for CY 2005.
    We proposed to accept the APC Panel's recommendation that we make 
no changes to APC 0099 for CY 2005. We did not receive any public 
comments on our proposal. Accordingly, in this final rule with comment 
period, we are not making any changes to APC 0099 for CY 2005.
3. Excision/Biopsy
APC 0019: Level I Excision/Biopsy
APC 0020: Level II Excision/Biopsy
APC 0021: Level III Excision/Biopsy
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0019 appears to violate the 2 times rule. We advised the APC 
Panel that this violation was not evident in CY 2004 because the CY 
2002 median cost data used in calculating the CY 2004 APC updates 
supported moving CPT codes 11404 (Removal of skin lesion) and 11623 
(Removal of skin lesion) from APC 0020 and APC 0021. However, based on 
the CY 2003 data reviewed by the APC Panel, APC 0019 would violate the 
2 times rule. Therefore, we asked the APC Panel to recommend an 
approach to resolve the violation. We asked the APC Panel if we should 
leave this APC as is; divide APC 0019 into two separate APCs; or move 
some codes in APC 0019 to higher level excision/biopsy APCs. In making 
its recommendation, the APC Panel noted that the 2 times violation in 
APC 0019 was minor, and recommended that we not modify APC 0019.
    We proposed to accept the APC Panel's recommendation to not make 
any modifications to APC 0019 for CY 2005. We did not receive any 
public comments on our proposal. Accordingly, in this final rule with 
comment period, we are not making any changes to APC 0019 for CY 2005.
4. Posterior Segment Eye Procedures
APC 0235: Level I Posterior Segment Eye Procedures
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0235 appears to violate the 2 times rule. At the August 2003 
APC Panel meeting, the APC Panel recommended that we monitor the data 
for APC 0235 for review at its February 2004 meeting. In order to 
address the apparent violation, we asked the APC Panel to consider 
moving a few CPT codes from APC 0235 into a higher level posterior 
segment eye procedure APC. The APC Panel noted that the 2 times 
violation in APC 0235 was minor, and recommended that we not change APC 
0235.
    We proposed to accept the APC Panel's recommendation that we make 
no changes to the structure of APC 0235 for CY 2005. We receive one 
public comment regarding this proposal.
    Comment: One commenter urged CMS not to finalize the proposal to 
keep the CY 2004 structure of APC 0235 for CY 2005. The commenter asked 
CMS to consider moving codes 67220 (Treatment of choroids lesion), 
67221 (Ocular photodynamic therapy), 67225 (Eye photodynamic therapy, 
add-on), 67101 (Repair detached retina), and 67141 (Treatment of 
retina) to a higher level Posterior Segment Eye Procedure APC.
    Response: After further analysis, we continue to believe that the 
resources and clinical characteristics of these codes are most 
compatible and homogeneous with those services in Level I Posterior 
Segment Eye Procedures, APC 0235. We plan to discuss the possible 
restructuring of APCs 0235, 0236, and 0237 (Level I, Level II, and 
Level III Posterior Segment Eye Procedures, respectively) at the next 
APC Panel meeting. We invite comments on these APCs.
    In this final rule with comment period, we are adopting as final 
the proposal not to make any changes to APC 0235 for CY 2005.
5. Laparoscopy
APC 0130: Level I Laparoscopy
APC 0131: Level II Laparoscopy
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0130 appears to violate the 2 times rule. We suggested moving 
CPT code 44970 (Laparoscopy, appendectomy) from APC 0130 to APC 0131. 
The APC Panel recommended that we make this change.
    We proposed to accept the APC Panel's recommendation to move CPT 
code 44970 from APC 0130 to APC 0131. We did not receive any public 
comments on our proposal. Accordingly, in this final rule with comment 
period, we are adopting as final without modification our proposal to 
move CPT code 44970 from APC 0130 to APC 0131.
6. Anal/Rectal Procedures
APC 0148: Level I Anal/Rectal Procedure
APC 0155: Level II Anal/Rectal Procedure
APC 0149: Level III Anal/Rectal Procedure
APC 0150: Level IV Anal/Rectal Procedure
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0148 appears to violate the 2 times rule. We suggested moving 
CPT code 46020 (Placement of seton) from APC 0148 to a higher level 
anal/rectal procedure APC. The APC Panel reviewed the four anal/rectal 
APCs (APC 0148, 0149, 0150, and 0155) and recommended moving CPT codes 
46020 and 46706 (Repair of anal fistula with glue) from APC 0148 to APC 
0150. The APC Panel also recommended moving CPT codes 45005 (Drainage 
of rectal abscess) and 45020 (Drainage of rectal abscess) from APC 0148 
to APC 0155.
    We proposed to accept the APC Panel's recommendations specific to 
APC 0148. We received one favorable public comment on our proposal. 
Accordingly, in this final rule with comment period, we are adopting as 
final without modification our proposal and are moving CPT codes from 
APC 0148 to APCs 0150 and 0155 as shown in the Table 6 below.

[[Page 65699]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.005

7. Nerve Injections
APC 0204: Level I Nerve Injections
APC 0206: Level II Nerve Injections
APC 0207: Level III Nerve Injections
APC 0203: Level IV Nerve Injections
    We expressed concern to the APC Panel that APC 0203 and APC 0207 
appear to violate the 2 times rule. After careful consideration of new 
data presented during the February 2004 meeting, the APC Panel 
recommended moving CPTs 64420 (Nerve block injection, intercostal 
nerve), 64630 (Injection treatment of nerve), 64640 (Injection 
treatment of nerve), and 62280 (Treatment of a spinal cord lesion) from 
APC 0207 to APC 0206. The APC Panel also recommended moving CPT code 
62282 (Treatment of a spinal canal lesion) from APC 0207 to APC 0203.
    After reviewing more recent, complete calendar year data that was 
not available in February 2004, we proposed to accept only the APC 
Panel's recommendation to move CPTs 64630 and 64640 from APC 0207 to 
APC 0206 and to make some other changes that we believed were 
appropriate to improve the nerve injection APCs' clinical and resource 
homogeneity, as shown in Tables 7, 8, and 9 of the proposed rule.
    We received two comments regarding our proposed reassignment of 
four CPT codes from APC 0203 to APC 0207 to address an apparent 
violation of the 2 times rule.
    Comment: Commenters urged CMS not to finalize the proposed changes 
to CPT codes 64620 (Injection treatment of nerve), 64680 (Injection 
treatment of nerve), 62263 (Lysis epidural adhesions) and 62264 
(Epidural lysis on single day), which we proposed to move from APC 0203 
to APC 0207. The commenters stated that the proposed payment for these 
services was well below the cost of the resources required to provide 
the services at an acceptable standard of care. The commenters 
requested that we not move these four codes from APC 0203.
    Response: After further analysis, we agree with the commenters that 
CPT codes 64620, 62263, and 62264 should remain in APC 0203 based on 
clinical and resource homogeneity with the services in APC 0203. 
Therefore, in this final rule with comment period, we are not moving 
these three codes from APC 0203, as displayed in Table 9B below.
    However, based on our final CY 2003 hospital data for CPT code 
64680, utilizing over half of the several hundred total bills for this 
service for calculation of median hospital costs, we continue to 
believe that the resources and clinical characteristics of destruction 
of the celiac plexus by neurolytic nerve agent are most compatible and 
homogeneous with those services in Level III Nerve Injections, APC 
0207. Therefore, in this final rule with comment period, we are 
adopting as final the proposed movement of CPT code 64680 from APC 0203 
to APC 0207, as displayed in Table 9B below.
    Accordingly, all of the final APC reassignments of nerve injections 
codes in this final rule with comment period are displayed below in 
Tables 7, 8, 9A, and 9B.

[[Page 65700]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.006


[[Page 65701]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.007

8. Anterior Segment Eye Procedures
APC 0232: Level I Anterior Segment Eye Procedures
APC 0233: Level II Anterior Segment Eye Procedures
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0233 appears to violate the 2 times rule. We suggested moving 
CPT codes 65286 (Repair of eye wound), 66030 (Injection treatment of 
eye), and 66625 (Removal of iris) from APC 0233 to APC 0232. The APC 
Panel agreed and recommended that we move CPT codes 65286, 66030, and 
66625 from APC 0233 to APC 0232.
    We proposed to accept the APC Panel's recommendation and to 
reassign these three codes. We received one public comment on our 
proposal.
    Comment: One commenter asserted that the costs for performing the 
procedures under CPT codes 65286 and 66625 are similar to the costs for 
performing procedures in APC 0233 and requested that these codes not be 
moved to APC 0232.
    Response: After further analysis, we continue to believe that the 
resources and clinical characteristics of codes 62586 and 66625 are 
most compatible and homogeneous with those services in Level I Anterior 
Segment Eye Procedures, APC 0232.
    Therefore, in this final rule with comment period, we are adopting 
as final without modification our proposal and are moving CPT codes 
65286, 66030, and 66625 from APC 0233 to APC 0232 as shown in the Table 
10 below.
[GRAPHIC] [TIFF OMITTED] TR15NO04.008


[[Page 65702]]


9. Pathology
APC 0343: Level II Pathology
APC 0344: Level III Pathology
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0343 appears to violate the 2 times rule. We suggested moving 
CPT code 88346 (Immunoflourescent study) from APC 0343 to APC 0344. The 
APC Panel concurred with our proposal.
    We proposed to accept the APC Panel's recommendation and to move 
CPT code 88346 from APC 0343 to APC 0344. We received one public 
comment on our proposal.
    Comment: One commenter requested that CMS split APC 0344 into two 
APCs to create another level for the pathology procedures. The 
commenter stated that creation of another level would lead to more 
economically homogenous APCs to provide payment that more closely 
covers the costs of the procedures. The commenter pointed out that APC 
0344, as currently configured, violates the 2 times rule and 
recommended that CMS split APC 0344 into two APCs and that CMS should 
assign them to a newly created APC rather than finalize its proposal to 
assign the new computer-assisted image analysis procedures to APC 0344.
    Response: We believe that our proposed reassignment of CPT code 
88346 from APC 0343 to 0344, as recommended by the APC Panel, will 
improve the resource and clinical homogeneity of the APCs. We are 
reluctant to make further reassignments without hospital cost data to 
support changes. Several of the codes that the commenter is concerned 
about, including APC codes 88360 (Morphometric analysis, tumor 
immunohistochemistry, quantitative or semiquantitative, each antibody; 
manual), 88368 (Morphometric analysis, in situ hybridization, each 
probe; manual), and 88367 (Morphometric analysis, in situ 
hybridization, each probe; using computer assisted technology) were new 
in CY 2004 and CY 2005 and, as such, we do not have available claims 
data for analysis.
    Given the new codes mentioned by the commenter and the 2 times rule 
violations in APC 0342 and 0344, we expect that we will want to solicit 
the advice of the APC Panel regarding the configuration of all the 
pathology APCs: 0342, 0343, 0344, and 0661, at their next meeting. We 
will reexamine the APCs for future updates to the OPPS, but will not 
make other changes to the APCs at this time.
    In this final rule with comment period, we are adopting as final 
without modification our proposal and are moving CPT code 88346 from 
APC 0343 to APC 0344.
10. Immunizations
APC 0355: Level III Immunizations (for CY 2005: Level I Immunizations)
APC 0356: Level IV Immunizations (for CY 2005: Level II Immunizations)
    We expressed concern to the APC Panel at its February meeting that 
APCs 0355 and 0356 appear to violate the 2 times rule. In order to 
eliminate this violation, we suggested moving CPT 90636 (Hepatitis A/
Hepatitis B vaccine, adult dose, intramuscular use) from APC 0355 to 
APC 0356. We also suggested moving CPT codes 90375 (Rabies immune 
globulin, intramuscular or subcutaneous), 90740 (Hepatitis B vaccine, 
dialysis or immunosuppressed patient, intramuscular), 90723 
(Diphtheria-pertussis-tetanus, Hepatitis B, Polio vaccine, 
intramuscular), and 90693 (Typhoid vaccine, AKD, subcutaneous) from APC 
0356 to APC 0355.
    The APC Panel recommended moving CPT 90636 from APC 0355 to APC 
0356 and CPT codes 90740, 90723, and 90693 from APC 0356 to APC 0355. 
The APC Panel delayed making a recommendation on CPT 90375 and 
requested that we collect additional cost data on this procedure for 
discussion at the next scheduled APC Panel meeting.
    In the August 16, 2004 proposed rule, we proposed to accept the APC 
Panel's recommended changes to move CPT code 90740 from APC 0356 to 
0355, and to move CPT code 90636 from 0355 to 0356. Based on our review 
of more recent claims data than were available to the APC Panel, we 
also determined that the medians for CPT codes 90693 and 90375 are 
below the $50 drug packaging threshold. Therefore, we also proposed to 
package both CPT codes 90693 and 90375 and to change the status 
indicator for CPT code 90723 to ``E'' because it is not payable by 
Medicare.
    We received one public comment relating to CPT code 90740.
    Comment: One commenter requested that CMS not reassign CPT code 
90740 Recombivax 40mcg/mL (a brand name for Hepatitis B vaccine), from 
APC 0356 (Level II Immunizations) to APC 0355 (Level I Immunizations), 
as proposed. The commenter stated that the CMS median cost of $5.55 is 
erroneous and that the lowest published price for Recombivax 40mcg/mL 
in the Federal Supply Schedule is $79.33. Therefore, the commenter 
believed that code 90740 does not violate the 2 times rule when 
assigned to APC 0356.
    Response: We are using the CY 2003 hospital claims as the basis for 
payment and we believe we have adequate claims on which to base payment 
for CPT code 90740 for CY 2005. We were able to use 99 percent of the 
claims for CPT code 90740 for median calculation and believe that our 
assignment of CPT code 90740 for CY 2005 is appropriate.
    In this final rule with comment period, we are adopting as final 
without modification our proposal and are moving CPT code 90740 from 
APC 0356 to APC 0355 and CPT code 90636 from APC 0355 to APC 0356, as 
shown in Table 11, and packaging both CPT codes 90693 and 90375.
[GRAPHIC] [TIFF OMITTED] TR15NO04.009


[[Page 65703]]


11. Pulmonary Tests
APC 0367: Level I Pulmonary Tests
APC 0368: Level II Pulmonary Tests
APC 0369: Level III Pulmonary Tests
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0369 appears to violate the 2 times rule. We suggested moving 
CPT code 94015 (Patient recorded spirometry) from APC 0369 to APC 0367. 
The APC Panel concurred with our proposal.
    In the August 16, 2004 proposed rule, we proposed to accept the APC 
Panel's recommendation and to move CPT code 94015 from APC 0369 to APC 
0367. In addition, during our analysis of more recent claims data 
following the APC Panel meeting, we noted that APC 0367 violated the 2 
times rule. Therefore, we proposed to reassign CPT codes 94375, 94750, 
94450, 94014, 94690, and 93740 to APC 0368.
    We did not receive any public comments on our proposal. 
Accordingly, in this final rule with comment period, we are adopting as 
final without modification our proposal and are moving CPT code 94015 
from APC 0369 to APC 0367 and reassigning CPT codes 93740, 94014, 
94375, 94450, 94690, and 94750 to APC 0368, as shown in Table 12A.
[GRAPHIC] [TIFF OMITTED] TR15NO04.010

12. Clinic Visits
APC 0600: Low Level Clinic Visits
    We expressed concern to the APC Panel at its February 2004 meeting 
that APC 0600 appears to violate the 2 times rule. We suggested moving 
HCPS code G0264 (Assessment other than CHF, chest pain, asthma) to a 
higher level clinic visit. The APC Panel recommended that we not make 
any changes to APC 0600.
    We proposed to accept this recommendation and not make any changes 
to APC 0600 for CY 2005. We received one public comment on our proposal 
from a provider group.
    Comment: One comment recommended that CMS investigate further the 
apparent two times violation in APC 0600. The commenter believed that, 
although the APC Panel did not recommend reassignment of HCPCS code 
G0264 (Initial nursing assessment of patient directly admitted to 
observation with diagnosis other than CHF, chest pain or asthma or 
patient directly admitted to observation with diagnosis of CHF, chest 
pain or asthma when the observation stay does not qualify for G0244), 
in order to remedy the apparent violation, CMS should make the 
reassignment of G0264 to a much higher level clinic visit (APC 0602, 
High Level Clinic Visit) due to the resources involved in directly 
admitting a patient to observation. The commenter provided examples of 
services that the commenter believed are part of the initial 
observation nursing assessment provided by a hospital, including 
patient registration, comprehensive nursing clinical admission 
assessment, initiation of physician orders, coordination and scheduling 
of ancillary services, administration of medications, and assessment of 
discharge planning needs.
    Response: We do not agree with the commenter's assertion that the 
services coded using G0264 are necessarily more resource intensive than 
a low-level clinic visit. The beneficiary whose observation stay would 
be coded using G0264 presents to the hospital following a physician 
visit. The beneficiary has already been assessed by the physician who, 
as a result of the assessment, has decided that observation care is 
warranted. We are concerned that hospitals may be attributing costs to 
the initial nursing assessment that are more appropriately attributable 
to observation services themselves, such as administration of 
medications, scheduling of tests to be conducted during the period of 
observation, and discharge planning. It is not apparent why the 
services provided in the hospital associated with admission to 
observation care (including some of those listed by the commenter) 
should require the resources of a High Level Clinic Visit (APC 0602) as 
the commenter suggested. Thus, we agree with the APC Panel's 
recommendation to leave G0264 in APC 0600.
    Accordingly, in this final rule with comment period, we are 
adopting as final our proposal not to make any changes to APC 0600 for 
CY 2005.
13. Other APC Assignment Issues
    We received a number of comments about specific APC assignments and 
payment amounts that were generated by our proposed rates or proposed 
changes to HCPCS code APC assignments resulting from our revisions to 
address violations of the 2 times rule. Those changes were not all 
specifically discussed in the proposed rule, but were open to comment. 
We respond to these comments in this section of the final rule.
a. Catheters for Brachytherapy Services
    Comment: One commenter asked that CMS consider carefully in which 
APCs to place new CPT codes 19296, 19297, and 19298 (for placement of 
catheters into the breast for brachytherapy) because the services have, 
heretofore, been coded under unlisted code 19499, which is assigned to 
APC 0028 (Level I Breast Surgery) and with a proposed payment amount of 
$1,081 for CY 2005. The commenter believed that this

[[Page 65704]]

proposed amount is too low to appropriately reflect the costs of these 
services.
    Response: We have assigned new CPT codes 19296 and 19298 in New 
Technology APC 1524 (New Technology-Level XIV ($3,000-$3,500)) with a 
payment amount of $3,250 and CPT code 19297 in APC 1523 (New 
Technology-Level XXIII ($2,500-$3,000)) with a payment amount of $2,750 
for CY 2005 OPPS. These are new codes and the APC assignments were not 
included in the proposed rule. Therefore, the APC assignments are 
subject to comment.
b. Peripherally Inserted Central Catheters (PICC)
    We received one comment regarding our proposed APC reassignment of 
CPT codes 36568 (Insertion of peripherally inserted central venous 
catheter (PICC), without subcutaneous port or pump; under 5 years of 
age) and 36569 (Insertion of peripherally inserted central venous 
catheter (PICC), without subcutaneous port or pump; age 5 years or 
older to APC 0187 (Miscellaneous placement/repositioning). We made the 
proposal based on a recommendation by the APC Panel during its February 
2004 meeting.
    Comment: One commenter requested that we not reassign CPT codes 
36568 and 36569 from APC 0032 to APC 0187 as proposed.
    Response: We proposed to reassign the PICC lines to APC 0187 based 
on our agreement with the APC Panel that there are significant 
differences in the clinical complexity and resource use associated with 
the procedures assigned to APC 0032 compared to PICC line insertion. We 
will reevaluate the APC assignment of the PICC line insertion once we 
have sufficient data to evaluate the assignment.
c. External Fixation Devices
    Comment: One commenter indicated that APC 0046 (Open/Percutaneous 
Treatment Fracture) contains violations of the two times rules and 
should be broken into multiple APCs so that CPT codes 20690 (Apply bone 
fixation device) and 20692 (Apply bone fixation device), which are for 
application of external fixation devices, could be paid appropriate 
amounts. Other commenters asked that CMS require that claims for these 
codes must contain codes for the devices and asked that we revise the 
definition of C1713 (Anchor/screw for opposing bone to bone or soft 
tissue to bone (implantable)) to also apply to external fixation 
devices and to remove the requirement that the device be implantable. 
One commenter also asked that we instruct providers to bill code 20690 
or 20692 when external fixation is provided with the reduction of a 
fracture and asked that we create a new APC to contain CPT codes 20690 
and 20692.
    Response: CPT codes 20690 and 20692 are currently in APC 0050 and 
no changes were proposed for 2005 OPPS. There are no 2 times violations 
in the APC in which they are located and each of these codes represents 
approximately one percent of the volume in the APC. Therefore we see no 
reason to create a new APC for these codes. The CPT codes for treatment 
of a fracture often include with or without fixation in the definition 
of the code. Where fixation is included in the definition of the code, 
it would be miscoding to also report 20690 or 20692; these codes should 
be reported if, and only if, fixation is not included in the definition 
of the CPT code for treatment of the fracture. Providers should review 
the CPT instructions and look to the AMA's guidance on coding if they 
have questions about when these codes should be reported.
d. Apheresis
    Comment: Two commenters disagreed with our proposed reassignment of 
CPT code 36515 (Apheresis, adsorp/reinfuse) to APC 0111 (Blood Product 
Exchange) and recommended that the code be reassigned to APC 0112 
(Apheresis, Photopheresis and Plasmapheresis). One of the commenters, a 
medical specialty society, indicated that the procedure involves an 
expensive disposable supply item that costs more than the proposed 
payment rate for APC 0111. In addition, this commenter stated that the 
proposed payment rate would be significantly less than the physician's 
office payment, which the commenter concluded indicated that the charge 
data used to establish the median cost of the procedure may be 
incorrect.
    Response: APC assignments are based on clinical homogeneity and 
comparable resource utilization for all CPT and HCPCS codes within an 
APC. After careful review, we disagree with the commenters that CPT 
code 36515 should be reassigned to APC 0112. We believe that the 
resources required for CPT code 36515 are more similar to the other CPT 
codes in APC 0111. Thus, for CY 2005, we are adopting as final our 
proposal to assign CPT code 36515 to APC 0111, effective January 1, 
2005.
e. Imaging for Intravenous Cholangiogram (IVC) Filter Placement and 
Breast Biopsy
    Comment: One commenter requested that we move CPT code 75940 
(Percutaneous placement of IVC filter, radiological supervision and 
interpretation) from APC 0187 (Miscellaneous Placement/Repositioning) 
to APC 0280 (Level III Angiography and Venography Except Extremity) and 
CPT code 76095 (Stereotactic localization guidance for breast biopsy or 
needle placement, each lesion, radiological supervision and 
interpretation) from APC 0187 (Miscellaneous Placement/Repositioning) 
to APC 0289 (Needle Localization for Breast Biopsy). The commenter 
believed that imaging for IVC filter placement and breast biopsy are 
entirely unrelated services to the central venous access surgical 
procedures comprising the majority of the codes in APC 0187.
    Response: We understand the commenter's concern regarding the 
clinical inconsistency between the services described by CPT codes 
75940 and 76095, which are assigned to APC 0187, and the central venous 
access (CVA) procedures that are also assigned to APC 0187. However, we 
disagree with the commenter's recommendation that CPT codes 75940 and 
76095 be reassigned. First, if we were to accept the commenter's 
recommendation to reassign CPT code 75940 to APC 0280 and CPT code 
76095 to APC 0289, the resource homogeneity of those two APCs would be 
compromised, and we would be significantly overpaying CPT code 75940 
and underpaying CPT code 76095 based on the median costs of those two 
codes relative to the median costs of the procedures currently assigned 
to APCs 0280 and 0289, respectively. Further, we lack data for a number 
of the CVA codes in APC 0187 because they are new codes that were 
established in CY 2004. We believe that these new CVA codes are 
clinically similar to the codes that comprise APC 0187, and we estimate 
that they are also similar in terms of resource costs, which is why we 
assigned them to APC 0187. Once we have accumulated data for these new 
codes, we will review the configuration of APC 0187, and make whatever 
changes are appropriate in future updates. Therefore, we are 
maintaining CPT codes 75940 and 76095 in APC 0187 for CY 2005.
f. Hysteroscopic Endometrial Ablation Procedures
    Comment: Some commenters opposed the APC Panel recommendation that 
both CPT codes 0009T (Endometrial cryoablation) and 58563 
(Hysteroscopic endometrial ablation) be assigned to APC 0387 (Level II 
Hysteroscopy) in CY 2005. The commenters were concerned that adding 
endometrial cryoablation

[[Page 65705]]

(CPT 0009T) to APC 0387 would seriously weaken the clinical homogeneity 
of APC 0387 because CPT 0009T (Endometrial ablation with ultrasonic 
guidance) does not use hysteroscopy, and it requires an ultrasound 
machine and a separate capital unit, or compressor console, to provide 
cryotherapeutic energy. Instead, the commenters urged CMS not to keep 
CPT code 58563 in APC 0387, but rather, to assign it to APC 0202, in 
addition to assigning code 0009T to APC 0202, as we had proposed. One 
commenter argued that the clinical homogeneity of APC 0202 would be 
enhanced by grouping the two endometrial ablation procedures that use 
visualization to monitor and confirm the destruction of the endometrium 
in the same APC. Moreover, moving both CPT codes 58563 and 0009T to APC 
0202 would highlight APC 0202's clinical homogeneity as a more device-
intensive family of new technology procedures while better organizing 
APC 0387 as the group of non-device hysteroscopic procedures involving 
surgical removal or resection of intrauterine tissue for reasons other 
than abnormal uterine bleeding (AUB). The same commenter also believed 
that assigning both codes to APC 0202 would negate any inappropriate 
incentives to use either treatment because of payment. Other commenters 
asked that CMS create a new APC for endometrial cryoablation and place 
that APC on the device-dependent list as it did for cryoablation of the 
prostate because they have found that the device is 70 percent of the 
total cost of endometrial cryoablation. The commenters asked that the 
new APC be paid at least $3,448 to appropriately reflect the hospital's 
cost of the service.
    Response: After careful consideration of the comments, we have 
decided to make final for CY 2005 our proposal to retain hysteroscopic 
endometrial ablation (CPT code 58563) in APC 0387. In addition, we are 
making final for CY 2005 our proposal to assign endometrial 
cryoablation with ultrasonic guidance to APC 0202. (We note that CPT 
code 0009T for endometrial cryoablation with ultrasonic guidance is 
replaced by new CPT code 58356 for CY 2005.). We believe that the need 
for a hysteroscope to perform hysteroscopic endometrial ablation makes 
it similar to the other services in APC 0387. On the other hand, 
Endometrial cryoablation uses a device but not a hysteroscope and, 
therefore, is more clinically compatible with APC 0202, which contains 
other resource intensive gynecologic services that also use a device 
but not a hysteroscope. Moreover, APC 0202 is a device-dependent APC 
and, therefore, a more appropriate placement for a procedure that uses 
a device.
g. Hysteroscopic Female Sterilization
    Comment: One commenter indicated that the AMA intended create a new 
CPT level III tracking code for hysteroscopic female sterilization for 
CY 2005 and urged CMS to assign it to APC 0202. The commenter indicated 
that this new service places implants through a hysteroscope to occlude 
the fallopian tubes and that, therefore, it should be assigned to APC 
0202, which would provide appropriate payment for this new service for 
which the implants cost $1,000 to $1,500.
    Response: This service is represented by new CPT code 58565 
(Hysteroscopic fallopian tube cannulation and micro insert placement), 
which was created after the issuance of the proposed rule. We are 
placing this new code to APC 0202 for CY 2005 for the OPPS. The 
placements of new codes in APCs, such as this code, are subject to 
comment during the comment period of this final rule with comment 
period.
h. Urinary Bladder Residual Study
    Comment: One commenter asked us to keep CPT code 78730 (Urinary 
bladder residual study) in APC 0404 (Renal and Genitourinary Studies 
Level I) instead of moving it to APC 0340 (Minor Ancillary Procedures). 
The commenter noted that this code is being misused to report other 
than urinary bladder residual imaging.
    Response: CPT code 78730 was created and originally valued for the 
Medicare Physician Fee Schedule as a procedure that required the 
services of a nuclear medicine technician. Subsequently, the use of the 
code has changed so that it is now used primarily by urologists. We do 
not believe that urologists perform services requiring nuclear medicine 
technicians and so, as the commenter pointed out, it appears that the 
code may now be utilized for coding a service that is different from 
that for which it was created.
    However, we are not reassigning the code at this time, as requested 
by the commenter, pending further review. To that end, we would 
appreciate submission of resource data from other physician specialties 
that use CPT code 78730 for us to review in the context of our hospital 
data so that we can examine this issue further.
i. Intracranial Studies, Electrodiagnostic Testing, Autonomic Testing, 
and EEG
    We received one comment relating to the APC assignments for several 
electrodiagnostic testing, autonomic testing, and EEG codes.
    Comment: One commenter requested that CPT code 93888 (Intracranial 
study) be moved from APC 0266 (Level II Diagnostic Ultrasound Except 
Vascular) and assigned to APC 0267 (Level III Diagnostic Ultrasound 
Except Vascular) as it was in CY 2002; that CPT codes 95870 (Muscle 
test, nonparaspinal), 95900 (Motor nerve conduction test), and 95904 
(Sensory NCV) be assigned to APC 0218 (Level II Nerve Muscle Tests); 
that CPT codes 95921, 95922, and 95923 (Autonomic nerve function tests) 
be assigned to APC 216 (Level III Nerve and Muscle Tests); and that CPT 
codes 95953 and 95956 (EEG monitoring) be assigned to APC 209 (Extended 
EEG Studies and Sleep Studies, Level II).
    Response: Based on our final CY 2003 hospital data for CPT codes 
93888, 95870, 95900, 95904, 95921, and 95922, we continue to believe 
that the resources and clinical characteristics of those codes are most 
compatible with other services in the APCs to which they are assigned. 
We made no proposal to change any of those APC assignments. Therefore, 
in this final rule with comment period, we are finalizing our continued 
placement of CPT code 93888 in APC 0266; CPT codes 95870, 95900, and 
95904 in APC 0215; and CPT codes 95921 and 95922 in APC 0218. We are 
moving CPT code 95923 from APC 0215 to APC 0218 because the resources 
for this code are most compatible and homogenous with those services in 
Level II Nerve and Muscle Tests.
    Based on our further review of CPT codes 95953 and 95956, we are 
moving these two CPT codes, as well as code 95950, to APC 0209 
(Extended EEG Studies and Sleep Studies, Level II). Based on our review 
of clinical and resource use characteristics of these CPT codes, we 
discovered that 95953, 95956 and 95950 all are more homogenous with 
procedures assigned to APC 0209 than in their current APCs. Although we 
did not propose to make these reassignments in the proposed rule, based 
in part on the comment received and our further review, we are making 
these reassignments in this final rule with comment period in the 
interest of clinical and resource use homogeneity.
    Accordingly, we are reassigning the CPT codes relating to 
intracranial studies, electrodiagnostics testing, autonomic testing, 
and EEG to APCs, as displayed below in Table 12B.

[[Page 65706]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.011

j. Therapeutic Radiation Treatment
    Comment: Some commenters objected to the proposed movement of CPT 
code 77370 (Radiation physics consult) from APC 0305 (Level II 
Therapeutic Radiation Treatment Preparation) to APC 0304 (Level I 
Therapeutic Radiation Treatment Preparation), with a proposed reduction 
in the payment rate by 51 percent from the CY 2004 payment rate of 
$200.60. The commenters indicated that the current CY 2004 payment rate 
is already inadequate. The commenters expressed concern that the 
proposed payment of $98.27 would not compensate for the costs incurred 
to deliver this service and urged that CPT code 77370 remain in APC 
0305.
    Response: The median of $134.22 for CPT code 77370 was based on 95 
percent of the total CY 2003 claims (33,070 single procedure claims out 
of 34,792 total claims). Based on these claims data, we believe that 
the movement of CPT code 77370 from APC 0305 (with a proposed median of 
$229.92) to APC 0304 (with a proposed median of $99.92) is appropriate. 
Therefore, we are finalizing our movement of CPT code 77370 from APC 
0305 to APC 0304 for CY 2005.
k. Hyperthermia Procedures
    Comment: One commenter expressed concern about the 9-percent 
decrease in the proposed payment rate for hyperthermia procedures (CPT 
codes 77600 through 77605) assigned to APC 0314 (Hyperthermic 
Therapies). The commenter asserted that the hospital charges do not 
reflect the tremendous capital costs associated with hyperthermia 
procedures. The commenter suspected that the questionably high 
utilization for these procedures may be a result of miscoding. The 
commenter requested that CMS consider the hyperthermia practice expense 
data submitted through the Practice Expense Advisory Council (PEAC) and 
Medicare Physician Fee Schedule (MPFS) processes. The commenter urged 
CMS to maintain the CY 2004 payment rates for hyperthermia through CY 
2005 to allow additional time for the commenter to educate providers on 
the proper coding and cost reporting for hyperthermia.
    Response: We believe the data do not support the commenter's 
concern that a high utilization for these codes is indicative of 
miscoding, as we do not consider 552 total claims to reflect a high 
utilization that gives rise to question. The payment rate for APC 0314 
for CY 2005 noted in the proposed rule was set using 86 percent of the 
total claims (that is, 452 single procedure claims out of 522 total 
claims), which we consider to be sufficiently robust for ratesetting 
purposes. Therefore, we will not consider practice expense data 
submitted through the PEAC or MPFS processes.
l. Physician Blood Bank Services
    Comment: One commenter asked that CMS place CPT codes 86077, 86078 
and 86079 (Physician blood bank services) into an APC and make payment 
for them under the OPPS. The commenter indicated that the current 
assignment of status indicator ``A'' is assigned to HCPCS codes that 
are paid under another fee schedule but that these services are not 
paid under any other fee schedule or payment system and, therefore, the 
hospital is not being paid for these services. The commenter noted that 
the services had status indicator ``X'' for minor services and had APC 
assignments in the CY 2003 OPPS.
    Response: We agree and have assigned these CPT codes to APC 343 
with status indicator ``X.'' These services consist mainly of physician 
professional services, which are paid through the Medicare Physician 
Fee Schedule, but we expect there may also be some hospital resources 
utilized. We have given these codes a condition code of ``NI'' (new 
interim) in this interim final rule with comment because they were not 
paid under the OPPS in CY 2004 and because we were not able to use the 
data for these codes in the calculation of the median cost for APC 343.
m. Caloric Vestibular Test
    Comment: One commenter requested an explanation for the proposed 
movement of CPT code 92543 (Caloric vestibular test) from APC 0363 
(Level I Otorhinolaryngologic Function Tests) to APC 0660 (Level 2 
Otohinplaryngologic Function Tests), and CPT codes 92553 (Audiometry, 
air and bone) and 92575 (Sensorineural acuity test) from APC 0365 
(Level II Audiometry) to APC 0364 ((Level I Audiometry).
    Response: We regularly review CPT codes to ensure that they are in 
appropriate clinical APCs, based on resource use and clinical 
homogeneity. Upon review, we have found that code 92543 fits more 
appropriately in a higher-paying APC in the same family of 
otorhinolaryngologic function test APCs, while codes 92553 and 92575 
fit in a lower-paying APC in the same family of audiometry APCs.
n. APC 0365--Level II Audiometry
    Comment: One commenter stated that the services in APC 0365 (Level 
II Audiometry) are not clinically homogeneous and also violate the 2 
times rule, sometimes by a spread of 300 percent. The commenter asked 
that CMS split the APC into two APCs: one containing CPT codes 92604, 
92602, 92603, 92601 and 92561 and a second new APC containing CPT codes 
92577, 92579, 92582, 92557.
    Response: We agree that revision of this APC would result in 
improved clinical homogeneity and better grouping of services with 
similar resources. Therefore, we are establishing a new APC 0366 (Level 
III Audiometry), and are placing in the new APC those

[[Page 65707]]

services that are specific to aural rehabilitation after cochlear 
implantation: CPT codes 92601, 92602, 92603, and 92604.
o. Noncoronary Intravascular Ultrasound (IVUS)
    Comment: One commenter requested that CMS keep CPT code 37250 
(Intravascular ultrasound (non-coronary vessel) during diagnostic 
evaluation and/or therapeutic intervention; initial vessel) in APC 0670 
(Level II Intravascular and Intracardiac Ultrasound and Flow Reserve) 
and to use only those claims that capture intravascular ultrasound 
(IVUS) device-related costs to calculate the median cost for this 
procedure.
    Response: We assigned CPT 37250 to APC 0416 (Level I Intravascular 
and Intracardiac Ultrasound and Flow Reserve) in the proposed rule. We 
created two levels for IVUS by creating APC 0416 in order to recognize 
both the clinical and resource use differences between the coronary and 
noncoronary vessel procedures, as well as the initial vessel and each 
additional vessel procedures. Prior to creation of APC 0416, all IVUS 
procedures, coronary and noncoronary, as well as initial vessel and 
each additional vessel, were assigned to APC 0670. Based on analysis of 
our CY 2003 hospital claims data, we concluded that the services in APC 
0670 had widely varying median costs, with lower median costs for both 
the each additional vessel (noncoronary and coronary) and initial 
noncoronary vessel services in APC 0670, as compared with the initial 
coronary vessel IVUS. We recognized that the additional vessel services 
would not require a second costly device in most cases. We also noted 
that the initial vessel coronary IVUS code, CPT 92978, includes imaging 
supervision and the interpretation and report, while the initial vessel 
noncoronary IVUS code, CPT 37250, does not include the radiological 
supervision and interpretation, which is billed using another CPT code. 
Thus, we believe that the hospital resources utilized to perform 
initial vessel noncoronary and coronary IVUS are likely to be different 
because the service elements in the CPT codes vary. Based on this 
review, we believe CPT 37250, a noncoronary vessel procedure with a 
median cost of $361, is appropriately assigned to APC 0416 and would be 
significantly overpaid if assigned to APC 0670.
    For CY 2005, we did not have the ``C'' coded claims to use to 
identify device-related costs with the level of specificity that was 
possible for CY 2004. However, we had significantly more claims 
available for CPT 37250 for ratesetting this year than for CY 2004. We 
believe that the data on which the assignment to APC 0416 was based 
were reflective of hospital claims data regarding the resources 
utilized for the service. As we note elsewhere in this preamble, we 
will be requiring the use of device codes to report all devices 
utilized, beginning January 1, 2005.
    Accordingly, in this final rule we are finalizing the assignment of 
CPT 37250 to APC 0416 for CY 2005.
p. Electronic Analysis of Neurostimulator Pulse Generators
    Comment: One commenter stated that the services in APC 0692 
(Electronic Analysis of Neurostimulator Pulse Generators) are not 
clinically homogeneous and also violate the 2 times rule. The commenter 
asked that CMS split the APC into two APCs: one containing CPT codes 
95972 and 95975, and a second new APC containing CPT codes 95970, 
95971, and 95974.
    Response: We recognize that there is a violation of the two times 
rule in APC 0692. Therefore, we are moving CPT code 95970 to APC 0218 
(Level II Nerve and Muscle Tests), which places it in a clinical APC 
that is suitable in terms of resource use for the service and results 
in APC 0692 conforming to the 2 times rule.
q. Endoscopic Ultrasound Services
    Comment: One commenter asked that CMS create a separate APC for 
endoscopic ultrasound services because the commenter believed that 
there are unique costs associated with them. The commenter also 
believed that ultrasound costs were not packaged into the median for 
endoscopic ultrasound services because of correct coding edits that 
define endoscopic ultrasound services as including ultrasound.
    Response: We have no reason to believe that the costs for 
endoscopic ultrasound services do not contain the costs for the 
ultrasound component of the service. Ultrasound services are included 
in the definition of the endoscopy CPT codes, and the hospital would 
include charges for the ultrasound in the charge for endoscopy that 
uses ultrasound services. We believe that the current APC placement of 
the codes for endoscopic ultrasound services in APC 0141 (Level I Upper 
GI Procedures) is valid, both with regard to clinical homogeneity and 
resource use.
r. External Counterpulsation (ECP)
    Comment: Several commenters requested that G0166 (External 
Counterpulsation) in APC 0678 (External Counterpulsation) be assigned 
status indicator ``S'' rather than ``T'' and that CMS maintain the 
payment rate for external counterpulsation at the CY 2004 level. The 
commenters asserted that external counterpulsation is a stand-alone 
procedure and that assigning it a status indicator ``T'' has 
contributed to declining and inadequate payment rates for the services. 
The commenters argued that the proposed payment rate for CY 2005 is not 
reflective of the costs of the service and that the rate should be 
consistent with other cardiovascular equipment trends such as 
echocardiography. They contended that the claims data CMS used are 
erroneous and pointed out that the payment rate has decreased every 
year since CY 2000, from $112.72 in CY 2004 to a proposed rate of 
$105.38 for CY 2005. The commenter also speculated that ``batching'' or 
``misreporting'' of claims also may be contributing to the rate decline 
trend for external counterpulsation.
    Response: We do not believe that the rate decrease for these 
procedures has anything to do with the ``T'' status indicator. The rate 
for external counterpulsation proposed in the August 16, 2004 proposed 
rule was based on virtually all (35,764) of the 37,565 hospital claims 
submitted and the APC is comprised of only this one procedure. We are 
confident that the claims data are representative of actual costs and 
as such, that the proposed decreased rate is appropriate.
    The status indicator only affects the payment rate when external 
counterpulsation is billed with another procedure that has a status 
indicator ``T.'' There are few multiple procedure claims for this 
procedure in the CY 2003 claims data and, thus, only a very small 
effect of multiple procedure discounting was possible.
    In the absence of supporting information from the commenters, it is 
not clear what the commenters mean by considering the batching of 
claims as contributing to the payment decrease. It is also not clear 
whether or not the commenters' belief that misreporting may be 
contributing to the rate decline trend for external counterpulsation is 
justified. However, we encourage hospitals to code accurately.

D. Exceptions to the 2 Times Rule

    As discussed earlier, the Secretary is authorized to make 
exceptions to the 2 times limit on the variation of costs within each 
APC group in unusual cases such as low volume items and services.
    Taking into account the APC changes that we proposed for CY 2005 
based on the APC Panel recommendations discussed in section II.C. of 
this

[[Page 65708]]

preamble and the use of CY 2003 claims data to calculate the median 
cost of procedures classified in the APCs in the August 16, 2004 
proposed rule, we discussed our review of all the APCs to determine 
which APCs would not meet the 2 times limit. We used the following 
criteria to decide whether to propose exceptions to the 2 times rule 
for affected APCs:
    <bullet> Resource homogeneity.
    <bullet> Clinical homogeneity.
    <bullet> Hospital concentration.
    <bullet> Frequency of service (volume).
    <bullet> Opportunity for upcoding and code fragments.
    For a detailed discussion of these criteria, refer to the April 7, 
2000 OPPS final rule with comment period (65 FR 18457).
    In the August 16, 2004 proposed rule, we proposed to exempt 54 APCs 
from the 2 times rule based on the criteria cited above. In cases in 
which a recommendation of 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 these recommendations were based on explicit 
consideration of resource use, clinical homogeneity, hospital 
specialization, and the quality of the data used to determine the APC 
payment rates that we proposed for CY 2005. The median cost for 
hospital outpatient services for these and all other APCs can be found 
at Web site: http//www.cms.hhs.gov.
    We received one public comment on our proposal.
    Comment: One commenter recommended that we use statistical methods 
to determine variations in the medians of services mapped to an APC. 
Specifically, the commenter suggested the cost data for an APC should 
include the standard deviation and the coefficient of variation using 
the geometric mean as the basis for the measure of dispersion. The 
commenter recommended that very few APCs be allowed to violate the 2 
times rule.
    Response: We appreciate the commenter's recommendations. We will 
consider these recommendations for future recalibrations. We do 
currently review the range of standard descriptive statistics for all 
APCs, including, but not limited to, the standard deviation and 
coefficient of variation. As we stated in the proposed rule, we used 
multiple criteria to assess whether to propose exceptions to the 2 
times rule for affected APCs, including resource and clinical 
homogeneity, hospital concentration, frequency of services, and 
opportunities for upcoding and code fragments. Despite an increase in 
the number of clinical APCs in the OPPS over the last several years, 
the number of APCs excepted from the 2 times rule has remained 
relatively stable.
    The proposed rule listed exceptions from the 2 times rule based on 
data from January 1, 2004 through September 30, 2004. For this final 
rule with comment period, we used data from January 1, 2003 through 
December 31, 2003. As a result of the additional data, the list of APCs 
that we are excepting from the 2 times rule has been updated. In this 
final rule with comment period, we are adopting 57 APCs as excepted 
from the 2 times rule, as shown in Table 13 below.
BILLING CODE 4120-01-P

[[Page 65709]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.012


[[Page 65710]]


BILLING CODE 4120-01-C

E. Coding for Stereotactic Radiosurgery Services

1. Background
    In the November 7, 2003 final rule with comment period (68 FR 
63403), we discussed the APC Panel's consideration of HCPCS codes G0242 
(Cobalt 60-based stereotactic radiosurgery plan) and G0243 (Cobalt 60-
based stereotactic radiosurgery delivery). At its August 22, 2003 
meeting, the APC Panel discussed combining the coding for these 
procedures under one code, with the payment for the new code derived by 
adding together the payments for HCPCS codes G0242 and G0243. The APC 
Panel recommended that we solicit additional input from professional 
societies representing neurosurgeons, radiation oncologists, and other 
experts in the field before recommending changes to the coding 
configuration for Cobalt 60-based stereotactic radiosurgery planning 
and delivery.
    In a correction to the November 7, 2003 final rule with comment 
period, issued on December 31, 2003 (68 FR 75442), we considered a 
commenter's request to combine HCPCS codes G0242 and G0243 into a 
single procedure code in order to capture the costs of this treatment 
in a single procedure claim because the majority of patients receive 
the planning and delivery of this treatment on the same day. We 
responded to the commenter's request by explaining that several other 
commenters stated that HCPCS code G0242 was being misused to code for 
the planning phase of linear accelerator-based stereotactic 
radiosurgery planning. Because the claims data for HCPCS code G0242 
represent costs for linear accelerator-based stereotactic radiosurgery 
planning (due to misuse of the code), in addition to Cobalt 60-based 
stereotactic radiosurgery planning, we were uncertain of how to combine 
these data with HCPCS code G0243 to determine an accurate payment rate 
for a combined code for planning and delivery of Cobalt 60-based 
stereotactic radiosurgery.
    In consideration of the misuse of HCPCS code G0242 and the 
potential for causing greater confusion by combining HCPCS codes G0242 
and G0243, we created a planning code for linear accelerator-based 
stereotactic radiosurgery (HCPCS code G0338) to distinguish this 
procedure from Cobalt 60-based stereotactic radiosurgery planning. We 
maintained both HCPCS codes G0242 and G0243 for the planning and 
delivery of Cobalt 60-based stereotactic radiosurgery treatment, 
consistent with the use of two G-codes for planning (HCPCS code G0338) 
and delivery (HCPCS codes G0173, G0251, G0339, G0340, as applicable) of 
each type of linear accelerator-based treatment. We indicated that we 
intend to maintain these new codes in their current new technology APCs 
until the payment rates could be set using medians from this expanded 
set of codes. We also stated that we would solicit input from the APC 
Panel at its February 2004 meeting.
    During the February 2004 APC Panel meeting, several presenters 
discussed with the APC Panel their rationale for requesting that HCPCS 
codes G0242 and G0243 be combined into a single procedure code. One 
presenter explained that the request to combine the codes was made 
because certain fiscal intermediaries were rejecting claims in which 
HCPCS codes G0242 and G0243 were reported with a surgery revenue code. 
Although we have not issued any national instructions to fiscal 
intermediaries to deny claims for these services if they are billed 
with a surgery revenue code, the presenter stated that we may have 
indirectly led some fiscal intermediaries to believe that Cobalt 60-
based stereotactic radiosurgery should be reported with a radiation 
therapy revenue code because the procedure is separated into a planning 
code and a delivery code, which reflect the coding pattern of a 
radiation therapy procedure rather than a single code for a surgical 
procedure. The presenter stated that because of the way that CMS has 
coded this procedure, some fiscal intermediaries have established local 
edits to deny claims in which HCPCS codes G0242 and G0243 are reported 
on a claim with a surgery revenue code.
    The APC Panel recommended that CMS work with the presenters to 
determine if any fiscal intermediaries have established local edits to 
reject claims in which HCPCS codes G0242 and G0243 are reported on a 
claim, and to determine specific reasons for any such local edits. The 
APC Panel also recommended that CMS take necessary action to ensure 
that any such claims are not being denied payment due to local edits. 
The APC Panel did not agree that the solution to ensuring payment was 
to combine HCPCS codes G0242 and G0243 into a single code, but rather 
recommended that CMS educate fiscal intermediaries as to the 
appropriate procedures for submission of these claims for Medicare 
payment.
2. Proposal for CY 2005
    In the August 16, 2004 proposed rule, for CY 2005, we proposed to 
accept the APC Panel's recommendation to work with the presenters to 
ensure that claims in which HCPCS codes G0242 and G0243 are reported 
are not being inappropriately denied payment due to local edits 
established by fiscal intermediaries. In the meantime, for CY 2005, we 
proposed to maintain HCPCS code G0242 in New Technology APC 1516 (New 
Technology, Level XVI) at a payment rate of $1,450, and HCPCS code 
G0243 in New Technology APC 1528 (New Technology, Level XXVIII) at a 
payment rate of $5,250. These payment rates are the same as those 
established for CY 2004.
3. Public Comments Received and Departmental Responses
    Comment: Numerous comments urged CMS to replace HCPCS codes G0242 
(Cobalt 60-based multisource photon SRS, planning) and G0243 (Cobalt 
60-based multisource photon SRS, delivery) with one surgical code (that 
is, CPT code 61793, Stereotactic radiosurgery, one or more lesions) for 
billing Cobalt 60-based multisource photon stereotactic radiosurgery. 
These commenters explained that Cobalt 60-based multisource photon SRS 
is considered to be a one session, neurosurgical procedure and is not 
separated into planning and delivery sessions. One commenter contended 
that this procedure is managed and performed exclusively by 
neurosurgeons.
    In response to the OPPS final rule with comment period published on 
November 7, 2003, one commenter suggested that a combined surgical code 
representing Cobalt 60-based stereotactic radiosurgery could be 
appropriately assigned to APC 0222 (Implantation of Neurological 
Device), APC 0226 (Implantation of Drug Infusion Reservoir), or APC 
0227 (Implantation of Drug Infusion Device) to reflect the device 
costs, the neurosurgical nature of the procedure, and the clinical 
homogeneity of the other CPT codes that currently reside in these APCs.
    In response to the OPPS final rule with comment period published on 
November 7, 2003, and the OPPS proposed rule published on August 16, 
2004, several commenters indicated that the current coding structure 
has resulted in a low volume of single procedure claims for these 
codes, reflecting the fact that single procedure claims are billed in 
error for this procedure due to the necessity of billing both HCPCS 
codes G0242 and G0243 to capture the planning and delivery costs of 
this procedure. These commenters explained that the concept of planning 
and delivery is representative of radiation

[[Page 65711]]

therapy and, therefore, does not accurately describe Cobalt 60-based 
multisource photon SRS. The commenters believed that the creation of 
HCPCS codes G0242 and G0243 has created an unnecessary burden on 
hospitals because commercial payors do not recognize these codes. One 
commenter described the burden of reporting the same service using two 
different coding systems as the costs associated with hiring and 
training additional staff, preparing individual negotiations with 
insurers, and addressing the rejection of claims and the delay of 
treatments.
    In contrast, three commenters objected to the use of the term 
``radiosurgery'' to describe Cobalt 60-based multisource photon SRS 
planning and delivery. One of these commenters indicated that Cobalt 
60-based multisource photon SRS is a radiation therapy procedure. This 
commenter contended that the indirect costs of operating a radiation 
therapy department are considerably higher than that of a surgery 
department, when factoring in the cost of a radiation physicist and 
therapist. The commenter further indicated that the cost-to-charge 
ratio (CCR) for the radiation therapy cost center more accurately 
reflects the costs of providing this service relative to a surgical 
designation. Another commenter objected to our use of the term 
``radiosurgery'' and asserted that this term is a misleading 
nomenclature because surgery is not involved, except for the placement 
of an externally attached coordinate reference frame. The commenter 
explained that this treatment usually consists of one or more high dose 
radiation treatments delivered by either a linear accelerator or a 
cobalt 60-based unit and, therefore, should be referred to as 
``stereotactic radiation therapy.''
    In response to the OPPS final rule with comment period published on 
November 7, 2003, one commenter urged that CMS not attempt to label 
stereotactic radiosurgery as either neurosurgery or external beam 
radiotherapy, and explained that stereotactic radiosurgery is a unique 
procedure that combines elements of both neurosurgery and external beam 
radiotherapy. This commenter recommended that we recognize CPT codes 
specifically designed for stereotactic radiosurgery.
    Response: Considering the wide range of conflicting recommendations 
we received from commenters, we believe that appropriate coding for 
Cobalt 60-based multisource photon SRS remains a highly contentious and 
unsettled area of interest among hospitals, neurosurgeons, radiation 
oncologists, and non-Medicare payors. Based upon our reading of the 
comments and the observations of CMS staff, we do not believe that 
Cobalt 60-based multisource photon SRS can be easily classified as 
either a neurosurgical or radiation therapy procedure specifically. 
Rather, for the safe and effective delivery of Cobalt 60-based 
multisource photon SRS to typical patients with brain lesions, the 
contributions of hospital physician and nonphysician staff with 
expertise in neurosurgery and radiation therapy are essential for both 
the planning of the treatment and its delivery.
    In the OPPS November 30, 2001 final rule in which we first 
established payment rates for stereotactic radiosurgery planning and 
treatment using G-codes in lieu of CPT codes, we noted that, for 
historical hospital claims for CPT code 61793 (Stereotactic 
radiosurgery), other combinations of codes from the radiation oncology 
CPT code section were billed most of the time as well. This confirmed 
our recognition of the multidisciplinary nature of the service. 
However, we note that the classification of stereotactic radiosurgery 
as either neurosurgery or radiation therapy is not relevant to payment 
for the service under the OPPS. Therefore, for purposes of the OPPS, we 
have not attributed the service to one specialty or the other.
    While we consider the adoption of CPT codes that describe this 
service, we will continue to maintain HCPCS codes G0242 and G0243 as 
separate codes in their respective new technology APCs 1516 and 1528 
for CY 2005. Although we recognize that the single claims data we 
collect from these codes may include aberrant claims due to the 
necessity of billing both HCPCS codes G0242 and G0243 on the same date 
of service for a correctly coded claim, the adoption of CPT code 61793 
to replace HCPCS codes G0242 and G0243, as recommended by some 
commenters, would not resolve the multiple procedure claims dilemma due 
to the fact that typically hospitals would need to bill additional CPT 
codes along with CPT code 61793 to report the full range of services 
that are currently bundled into HCPCS codes G0242 and G0243. For 
example, in our November 30, 2001 final rule in which we described our 
determination of the total cost for stereotactic radiosurgery, to model 
costs for planning, we added the median costs of CPT codes 77295 (the 
most typical simulation code billed with CPT code 61793), 77300, 77370 
(the most common physics consult billed with CPT code 61793), and 77315 
(the most common dose plan billed with CPT code 61793). Furthermore, 
the descriptor for CPT code 61793 describes multiple forms of 
stereotactic radiosurgery (that is, stereotactic radiosurgery, one or 
more lesions; particle beam, gamma ray or linear accelerator), rather 
than Cobalt 60-based multisource photon SRS alone. The adoption of CPT 
code 61793 under the OPPS would have the effect of nullifying all of 
the stereotactic radiosurgery G-codes, which we are unwilling to do 
without cost data supporting an equal payment for all forms of 
stereotactic radiosurgery. In light of all the above-mentioned reasons, 
we believe that any stereotactic radiosurgery code changes for CY 2005 
would be premature without cost data to support a code restructuring. 
In the meantime, we will continue to pay HCPCS codes G0242 and G0243 
under their current respective new technology APCs 1516 and 1528 for CY 
2005, as we continue to analyze new methods for resolving the issue of 
multiple procedure claims.
    Comment: In response to the OPPS final rule with comment period 
published on November 7, 2003, and the OPPS proposed rule published on 
August 16, 2004, several commenters urged CMS to recognize the surgical 
nature of Cobalt 60-based multisource photon SRS by mapping the 
procedure to a surgical revenue code. The commenters claimed that some 
Medicare fiscal intermediaries continue to reject claims in which HCPCS 
codes G0242 and G0243 are reported with a surgery revenue code, and 
encouraged CMS to issue national instructions on the correct billing 
for stereotactic radiosurgery procedures. The commenters believed that 
revenue codes are established by the general APC in which the procedure 
resides. Another commenter stated that the placement of HCPCS codes 
G0242 and G0243 in new technology APCs labeled as radiation therapy has 
misled Medicare fiscal intermediaries to assume that a radiation 
revenue code must be reported with these claims. This commenter 
indicated that, as a result of providers reporting a radiation revenue 
code when billing HCPCS codes G0242 and G0243 and Medicare applying a 
radiation CCR ratio to these codes, the median costs for HCPCS codes 
G0242 and G0243 were understated, as the CCR for radiation is around 33 
percent compared to a 45-percent to 55-percent CCR for surgery cost 
centers.
    In response to the OPPS final rule with comment period published on 
November 7, 2003, and the OPPS proposed rule published on August 16, 
2004, two commenters objected to the

[[Page 65712]]

assignment of HCPCS codes G0243 and G0173 to the same new technology 
APC 1528. The commenters argued that these two procedures should not be 
grouped into the same APC because they are clinically dissimilar and do 
not share the same level of resource intensity. The commenter believed 
that an APC grouping should be determined by the clinical nature of the 
procedure, its resource cost, the type of physician necessary to 
perform the procedure, the clinical setting in which the procedure is 
performed, and the clinical outcomes of the procedure. Another 
commenter indicated that the cost of Cobalt 60-based SRS multisource 
photon SRS delivery is 2.45 times the cost of linear accelerator-based 
SRS delivery, which the commenter believed to be an unacceptable 
violation of the 2 times rule. In contrast, one commenter reported that 
its facility has experienced no delays or claims rejections as a result 
of the current coding structure for stereotactic radiosurgery. The 
commenter urged CMS to maintain the current coding structure for Cobalt 
60-based multi-source photon SRS planning and delivery, asserting that 
providers who carefully review the code descriptors should experience 
no delays or claims rejections.
    Response: We believe the commenter's concerns regarding the 
clinical similarity and the application of the 2 times rule to a new 
technology APC reflect a misunderstanding of the purpose of the new 
technology APCS. We assign procedures to a new technology APC when we 
do not have adequate claims data upon which to determine the relative 
median cost of performing a procedure, and must rely on other sources 
of information (that is, external data that have been made publicly 
available) to determine its appropriate payment. New technology APCs do 
not carry clinical descriptors, such as radiation therapy; rather, the 
descriptor for each new technology APC represents a particular cost 
band (for example, $1,400 to $1,500). Payment for items assigned to a 
new technology APC is the mid-point of the band (for example, $1,450). 
As we stated in our proposed rule, we have worked together with some of 
the commenters to identify specific fiscal intermediaries who may be 
rejecting claims in which HCPCS codes G0242 and G0243 are reported. 
However, to date, we have been unable to identify any such local edits. 
Nor have we received examples of rejected claims from providers to 
enable us to determine why payment was not made for the claims. CMS 
will continue to work with providers and contractors to clarify coding 
and billing for all stereotactic radiosurgery procedures through 
program instructions, Medlearn Matters articles, and other outreach 
activities.
    Comment: One commenter understood that the Advisory Panel on APC 
Groups is invested with the responsibility of providing correct coding 
for hospitals, and contended that the Panel should address in more 
detail the coding issues for stereotactic radiosurgery procedures. This 
commenter further indicated that the Panel is composed almost entirely 
of physicians rather than hospital financial personnel or hospital 
coders, to which the commenter objected as creating a direct conflict 
with hospital interests.
    Response: We do not agree with the commenter's concerns regarding 
the Advisory Panel on APC Groups. The Panel is governed by the 
provisions of Pub. L. 92-463, which set forth standards for the 
formation and use of advisory panels (42 U.S.C. 13951 (t); section 
1833(t) of the Act). According to the Charter, the function of the 
Panel is to review the APC groups and their associated weights and 
advise the Secretary of Health and Human Services and the Administrator 
of CMS concerning the clinical integrity of the APC groups and their 
weights. The subject-matter of the Panel includes to the following 
issues and related topics: addressing whether procedures are similar 
both clinically and in terms of resource use; assigning new CPT codes 
to APCs; reassigning codes to different APCs; and reconfiguring the 
APCs into new APCs. Responsibility for providing correct coding for 
hospitals does not fall within the purview of the Panel. Furthermore, 
we wish to reassure the commenter about the makeup of the Panel. The 
commenter's understanding that the Panel is almost entirely composed of 
physicians and lacks representation from hospital financial personnel 
or hospital coders is not accurate. As required by the Charter, all of 
the Panel members are currently employed in a full-time status by a 
hospital and serve as representatives of their hospital employer. 
Furthermore, only approximately half of the Panel members hold a 
medical degree, while the other half of the Panel members hold a 
hospital coding certification or nursing, pharmacy, or business 
degree(s), or both, or serve as hospital reimbursement officers, or 
both.
    Comment: We received numerous comments suggesting various 
simplifications of the coding structure for SRS planning and delivery. 
Some commenters urged that CMS develop one uniform series of treatment 
codes for the various types of stereotactic radiation therapy, based on 
the process of care rather than a vendor-specific technology. One 
commenter suggested that CMS eliminate HCPCS codes G0338 (Linear 
accelerator-based SRS planning) and G0242 (Multi-source Cobalt 60-based 
photon SRS planning) and recognize existing CPT codes 77295 or 77301 to 
describe stereotactic radiation therapy planning, which the commenter 
believed would more accurately describe the process of care and reduce 
duplication in codes. Another commenter recommended that CMS eliminate 
HCPCS code G0242, and recognize HCPCS code G0338 for describing all 
forms of stereotactic radiosurgery planning by deleting the phrase that 
restricts the code to linear accelerator-based stereotactic 
radiosurgery planning.
    In contrast, a commenter responding to the OPPS final rule with 
comment period published on November 7, 2003, suggested that CMS 
eliminate HCPCS code G0338, and recognize HCPCS code G0242 for all 
stereotactic radiosurgery planning by deleting the phrase that 
restricts the code to multisource Cobalt 60-based photon SRS planning. 
Other commenters recommended that CMS simplify the stereotactic 
radiosurgery delivery codes as well by eliminating HCPCS codes G0173 
(SRS delivery, complete session) and G0251 (Linear accelerator-based 
SRS delivery, fractionated sessions), and recognizing HCPCS codes G0339 
(Image guided, robotic linear accelerator-based SRS, complete or first 
session) and G0340 (Image guided, robotic linear accelerator-based SRS, 
second through fifth sessions) for all forms of stereotactic 
radiosurgery delivery by removing the word ``robotic'' from their 
descriptors. Another commenter suggested an alternative option for 
simplifying the stereotactic radiosurgery delivery codes by eliminating 
HCPCS codes G0339 and G0340, and recognizing HCPCS codes G0173 and 
G0251. This commenter recommended that CMS modify the descriptors for 
HCPCS codes G0173 and G0251 by deleting the linear accelerator 
specification so the codes apply to all forms of stereotactic 
radiosurgery delivery and deleting the maximum number of five sessions 
per course of treatment from the descriptor of HCPCS code G0251. One 
commenter suggested that CMS eliminate HCPCS codes G0173, G0251, G0339, 
and G0340 and recognize HCPCS code G0243 as including all stereostactic 
radiosurgery delivery procedures by deleting the phrase that restricts 
its use to

[[Page 65713]]

multisource Cobalt 60-based photon stereotactic radiosurgery delivery.
    In response to the OPPS final rule with comment period published on 
November 7, 2003, one commenter indicated that HCPCS code G0340 (Image 
guided, robotic linear accelerator-based SRS, second through fifth 
sessions) should not be described by radiosurgery, contending that 
radiosurgery is defined by a single session treatment. The commenter 
recommended that the descriptor for HCPCS code G0340 be changed to 
``image-guided, robotic, linear accelerator-based radiation therapy-
hypofractionated delivery.'' One commenter responded to the OPPS 
proposed rule by applauding CMS for placing the first fraction of a 
multiple session treatment delivery of image-guided robotic linear 
accelerator-based stereotactic radiosurgery (described by HCPCS code 
G0339) in the same APC as a complete single session treatment delivery 
of image-guided robotic linear accelerator-based stereotactic 
radiosurgery, and stated that the resources consumed are identical, 
regardless of whether additional treatment sessions are delivered. This 
commenter agreed with CMS' placement of subsequent fractionated 
sessions in a lower paying APC to reflect the fewer resources consumed 
during the delivery of subsequent sessions.
    In response to the OPPS final rule with comment period published 
November 7, 2003, several commenters supported CMS' decision to assign 
HCPCS codes G0338 (Linear accelerator-based stereotactic radiosurgery 
planning) and G0242 (Cobalt 60-based, multi-source photon stereotactic 
radiosurgery planning) to the same APC, and stated that the resource 
costs of both types of stereotactic radiosurgery planning are 
comparable. Another commenter applauded CMS' creation of HCPCS code 
G0338 to differentiate linear accelerator stereotactic radiosurgery 
planning from multisource photon stereotactic radiosurgery planning 
(HCPCS code G0242), due to the differences in their clinical uses and 
cost resources.
    In response to the OPPS final rule with comment period published on 
November 7, 2003, one commenter supported the creation of HCPCS codes 
G0339 and G0340, as long as these codes are used exclusively for 
extracranial stereotactic radiosurgery treatments, such as those of the 
spine, lung, and pancreas. Due to limited cost data and clinical 
efficacy published on image-guided, robotic stereotactic radiosurgery 
used to treat extracranial indications, the commenter believed that the 
costs for this new and emerging technology would be more accurately 
captured by limiting the use of HCPCS codes G0339 and G0340 to 
extracranial stereotactic radiosurgery treatments.
    Several commenters requested that CMS present their recommendations 
to the Advisory Panel on APC Groups during its next meeting in the 
event that the stereotactic radiosurgery code descriptors cannot be 
modified in time for the CY 2005 final rule.
    Response: For reasons stated in a previous response, we believe 
that any stereotactic radiosurgery code changes for CY 2005 would be 
premature without cost data to support a code restructuring. For 
instance, in preparation of the CY 2006 OPPS Update, we intend to 
conduct data analysis for the first time for HCPCS codes G0338, G0339, 
and G0340, which were newly created G-codes for CY 2004. Therefore, 
until we have completed any such analysis, we will continue to maintain 
HCPCS codes G0173, G0251, G0338, G0339, G0242, and G0243 in their 
respective new technology APCs for CY 2005 as we consider the adoption 
of CPT codes to describe all stereotactic radiosurgery procedures for 
CY 2006, including the new CPT tracking codes 0082T (Stereotactic body 
radiation therapy, treatment delivery, one or more treatment areas, per 
day) and 0083T (Stereotactic body radiation therapy, treatment 
management, per day) that the AMA intends to make effective January 1, 
2005. For CY 2005, we will assign a status indicator of ``E'' for CPT 
code 0082T to reflect the fact that the current G-codes for 
stereotactic radiosurgery treatment delivery include this service, and 
a status indicator of ``N'' for CPT code 0083T because we consider the 
treatment management per session bundled into the current stereotactic 
radiosurgery treatment delivery G-codes.
    In reference to commenters' request that CMS present their 
recommendations for stereotactic radiosurgery code restructuring to the 
Advisory Panel on APC Groups, we refer the readers to the discussion 
above in an earlier response concerning the purview of the Panel's 
responsibilities. To the extent that the APC assignments for 
stereotactic radiosurgery codes are an issue, we may bring those to the 
attention of the Panel.
    Comment: In response to the OPPS final rule with comment period 
published on November 7, 2003, several commenters expressed concern 
that the placement of HCPCS code G0340 (Image-guided robotic linear 
accelerator-based SRS delivery, fractionated treatment) in a higher 
paying new technology APC than G0251 (Non-robotic linear accelerator-
based SRS delivery, fractionated treatment) creates a financial 
incentive to use robotic SRS technology over non-robotic stereotactic 
radiosurgery technology. The commenters urged that HCPCS codes G0251 
and G0340 be placed in the same APC until clinical evidence supports an 
improved clinical outcome using robotic stereotactic radiosrugery as 
compared to non-robotic stereotactic radiosurgery and sound financial 
data supports payment differentiation. In addition to placing G0251 and 
G0340 in the same APC, one commenter urged that CMS remove the language 
``or first session of fractionated treatment'' from the descriptor for 
G0339 and remove the language ``second through fifth sessions'' from 
the descriptor for G0340, so that placement of HCPCS codes G0251 and 
G0340 in the same APC will result in equal payments for the first 
session of fractionated therapy, regardless of the type of technology 
used to deliver fractionated stereotactic radiosurgery.
    In response to the OPPS final rule with comment published on 
November 7, 2003, and the OPPS proposed rule published on August 16, 
2004, several commenters asserted that the creation of HCPCS codes 
G0339 and G0340 was unnecessary, on the premise that all stereotactic 
radiosurgery and radiotherapy equipment is image guided and robotic. 
One commenter expressed concern that the creation of HCPCS codes G0339 
and G0340, the limitation of HCPCS code G0340 to five fractionated 
sessions, and the placement of HCPCS code G0340 in a higher paying APC 
than other SRS modalities inadvertently amount to an endorsement by CMS 
of the CyberKnife technology. The commenter believed that the current 
payment rate for CyberKnife therapy results in excessive copayments for 
beneficiaries and unfairly advantages a technology that has provided 
insufficient clinical evidence of an improved outcome above existing 
stereotactic radiosurgery and radiotherapy modalities, and has provided 
CMS with no convincing cost data to support such an excessive return on 
investment. The commenter believed that if CMS had consulted the 
Medicare Coverage Advisory Committee (MCAC) or the Medical Technology 
Council (MTC), which advise CMS on whether specific medical treatments 
and technology should receive coverage, neither the MCAC nor the MTC 
would have recommended coverage for the CyberKnife technology. Other

[[Page 65714]]

commenters urged that CMS eliminate what they believe to be an unfair 
advantage given to HCPCS code G0339 by modifying the descriptor for 
HCPCS code G0173 (SRS delivery, complete session) to describe a 
complete session or first session of linear accelerator-based 
stereotactic radiosurgery delivery, and modifying the descriptor for 
HCPCS code G0251 to describe second through fifth sessions of linear 
accelerator-based stereotactic radiosurgery delivery, so that the first 
session of a multiple session treatment will be paid equal to that of a 
complete session, regardless of the type of stereotactic radiosurgery 
technology used.
    Response: We disagree with commenters who believe that the creation 
of HCPCS codes G0339 and G0340, the limitation of HCPCS code G0340 to 
five fractionated sessions, and the placement of HCPCS code G0340 in a 
higher paying APC than other stereotactic radiosurgery modalities 
amount to an endorsement by CMS of a particular technology. We also 
note that the code descriptors for HCPCS codes G0339 and G0340 do not 
limit themselves to the CyberKnife technology. As other commenters 
indicated, the term ``image-guided robotic'' applies to other types of 
stereotactic radiosurgery besides CyberKnife. The OPPS payment system 
establishes payment rates for services based on relative resources 
utilized by hospitals to provide such services, based primarily on 
historical claims data if data are available. If hospital claims data 
are unavailable, we may consider external data to assist us. From 2000 
through 2002, the manufacturer of one type of image-guided robotic 
stereotactic radiosurgery technology (that is, CyberKnife), along with 
several hospitals, provided CMS with cost data indicating the level of 
resources utilized in the provision of this form of stereotactic 
radiosurgery. We believe these data support the current placement of 
HCPCS codes G0339 and G0340 in their respective new technology APCs 
1528 and 1525 for CY 2005.
    To date, we have not received such cost data on non-robotic linear 
accelerator-based stereotactic radoisurgery (that is, on HCPCS codes 
G0173 and G0251) to aid us in determining if the current payment 
differentiation is appropriate. Therefore, we will maintain HCPCS codes 
G0339 and G0340 in APCs 1528 and 1525, respectively, and make no 
changes to their descriptors for CY 2005. In reference to CMS 
consulting a medical technology council for advice on new technology 
coverage, we refer the readers to section II.F.4.,''Public Comments 
Received Relating to Other New Technology APC Issues,'' of this final 
rule with comment period for a discussion of the recently established 
Council on Technology and Innovation.
    Comment: A number of commenters, mostly providers of radiation 
oncology centers or departments, pointed out that stereoscopic kV x-ray 
guidance using infrared and/or camera technology is a new and important 
technology that allows for improved precision in radiation therapy 
targeting. These commenters indicated that kV x-ray guidance is not 
described by any current HCPCS or CPT code and requested that CMS 
create a new HCPCS G-code for payment under the OPPS. In addition, one 
commenter requested that CMS establish a new HCPCS code necessary for 
target localization in conjunction with intensity modulated radiation 
therapy, stereotactic radiotherapy, and stereotactic radiosurgery.
    Response: The kV x-ray guidance using infrared technology came to 
our attention by means of an application to be considered for 
assignment to a new technology APC. We have recently concluded that the 
kV x-ray guidance should receive a temporary ``C'' code for OPPS 
payment under certain circumstances described below, and that it should 
be placed into a new technology APC. Therefore, we are creating the 
following HCPCS code to describe kV x-ray guidance using infrared 
technology:
    HCPCS code C9722 (Stereoscopic kV x-ray imaging with infrared 
tracking for localization of target volume)
    We are assigning the new HCPCS code C9722 to New Technology APC 
1502 at a payment of $75, effective on January 1, 2005.
    While we are assigning a C-code and payment for hospital costs, we 
are not assigning a G-code because we believe that the interested party 
should seek a CPT code from the AMA. We believe that the CPT Editorial 
Panel needs to assess the need for a code for the service, and, if a 
code is granted, evaluate the resources necessary to provide this 
service. This technology has been available for more than 2 years. We 
consider this time period to be sufficient for the interested party to 
request a CPT code from the AMA.
    In addition, in our definition and payment instructions for this 
service, we are limiting additional payment for this service to 
occasions when kV x-ray is not billed with stereotactic radiosurgery 
delivery G-codes. As all stereotactic radiosurgery delivery services 
require guidance, the current payments for the stereotactic 
radiosurgery delivery G-codes (HCPCS codes G0173, G0243, G0251, G0339, 
and G0340) bundle payment for guidance services with stereotactic 
radiosurgery delivery.
4. Final Policy for CY 2005
    We are adopting our proposal to maintain HCPCS codes G0173, G0242, 
G0243, G0251, G0338, and G0339 in their respective new technology APCs 
for CY 2005. We will consider the adoption of CPT codes to describe all 
stereotactic radiosurgery procedures in the future.

F. Movement of Procedures From New Technology APCs to Clinically 
Appropriate APCs

1. Background
    In the November 30, 2001 final rule (66 FR 59903), we made final 
our proposal to change the period of time during which a service may be 
paid under a new technology APC. Beginning in CY 2002, we retained 
services within new technology APC groups until we acquired adequate 
data to enable us to assign the service to a clinically appropriate 
APC. This policy allows us to move a service from a new technology APC 
in less than 2 years if sufficient data are available. It also allows 
us to retain a service in a new technology APC for more than 3 years if 
sufficient data upon which to base a decision for reassignment have not 
been collected.
    In the November 7, 2003 final rule with comment period, we 
implemented a comprehensive restructuring of the new technology APCs to 
make the payment levels more consistent (68 FR 63416). We established 
payment levels in $50, $100, and $500 intervals and expanded the number 
of new technology payment levels.
2. APC Panel Review and Recommendation
    During the APC Panel's February 2004 meeting, the APC Panel heard 
testimony from several interested parties who requested specific 
modifications to the APCs for the radiation oncology APC. They asked 
the APC Panel to make several recommendations: (1) That we move CPT 
code 77418 (Radiation treatment delivery, Intensity-modulated radiation 
therapy (IMRT)) from APC 0412 (IMR Treatment Delivery) back into a new 
technology APC; (2) that we dampen, or limit, any possible payment 
reductions to APC 0301 (Level II Radiation Therapy); (3) that we accept 
more external data to evaluate costs; and (4) that we identify more 
claims that are useful for ratesetting.

[[Page 65715]]

    In response to the testimony presented, the APC Panel recommended 
that we reassign CPT code 77418 to the new technology APC 1510 for CY 
2005 and that we explain to providers any steps we take to limit 
payment reductions to APC 0301 so that they can better plan for future 
years during which we may decide not to apply a dampening, or payment 
reduction limitation, to the rates for APC 0301.
    In the August 16, 2004 proposed rule, we did not propose to accept 
the APC Panel's recommendations because we believe that we have ample 
claims data for use in determining an appropriate APC payment rate for 
CPT code 77418. Moreover, we believe that the development of median 
cost for CPT code 77418 based on those data is representative of 
hospital bills.
    We have over 255,000 claims for this service, and over 95 percent 
were single claims that we could use for ratesetting. Moreover, the APC 
medians have been stable for the last 2 years of data. As indicated by 
our claims data, returning code 77418 to new technology APC 1510 would 
result in a payment for the service that is significantly higher than 
the resources utilized to provide it.
    We refer the readers to section II.F.4., ``Public Comments Received 
Relating to Other New Technology APC Issues,'' of this final rule with 
comment period for a discussion of the public comments and our final 
policy regarding the APC placement of CPT code 77418 for CY 2005.
    Comment: Several commenters objected to the proposed assignment of 
CPT code 77418 to APC 0412 at a payment rate of $307.78. These 
commenters disagreed with CMS' conclusion that the significant volume 
of single claims used to set the payment rate accurately reflects the 
costs hospitals incur to provide this service, and argued that 
hospitals are inaccurately coding this service and submitting 
insufficient charges for delivering this therapy. One commenter raised 
concerns that some providers are incorrectly billing procedures other 
than IMRT under CPT code 77418. Commenters urged CMS to accept the 
recommendation of the Advisory Panel on APC Groups to return CPT code 
77418 to a new technology APC with a payment rate comparable to the CY 
2003 payment rate of $400.
    Response: As we noted previously, we do not accept the Panel's 
recommendation to move CPT code 77418 back to a new technology APC. We 
believe the 2 years (that is, CYs 2002 and 2003) that CPT code 77418 
was in new technology APC 0710 allowed ample opportunity for providers 
to receive proper instruction on correctly coding and billing for this 
service. The proposed payment rate of $307.78 for CY 2005 was set using 
96 percent of the total claims (that is, 246,045 single procedure 
claims out of 255,020 total claims) for CPT code 77418, which deeply 
supports its current placement in clinical APC 0412. Therefore, we will 
maintain CPT code 77418 in APC 0412 for CY 2005.
    Comment: Several commenters objected to the proposed movement of 
CPT code 77301 (Radiotherapy dose plan, IMRT) from new technology APC 
1510 (New Technology, Level X) with a payment rate of $850 to clinical 
APC 0310 (Radiation treatment preparation, Level III) with a payment 
rate of $811.91. The commenters indicated that this procedure is 
relatively new and that hospitals appear to be inaccurately reporting 
the costs of providing this service. The commenters recommended that, 
until more data can be collected and analyzed, CMS retain CPT code 
77301 in new technology APC 1510 at a payment rate of $850.
    Response: We move a procedure from a new technology APC to a 
clinical APC when we have adequate claims data for ratesetting. We 
believe that the proposed movement of CPT code 77301 from new 
technology APC 1510 to clinical APC 0310 is appropriate, considering 
that 88 percent of the total claims (66,076 single procedure claims out 
of 74,911 total claims) were used to set the payment rate of $811.91 
for APC 0301. Furthermore, CPT code 77301 has been placed in a new 
technology APC for the past 3 years (that is, CY 2002 through CY 2004), 
which we believe to be ample time for providers to receive proper 
instruction on correctly coding and billing for CPT code 77301. 
Therefore, as proposed, we are moving CPT code 77301 from new 
technology APC 1510 to clinical APC 0310 for CY 2005.
    Comment: One commenter requested that new CPT 0073T (Compensator-
based beam modulation treatment delivery of inverse planned treatment 
using three or more high resolution (milled or cast) compensator 
convergent beam modulated fields, per treatment session) be assigned to 
APC 0412 with an ``S'' status indicator. The commenter believed that 
the assignment of 0073T should be the same as that for CPT 77418.
    Response: We agree with the commenter and are assigning CPT 0073T 
to APC 0412 with status indicator ``S'' for CY 2005.
3. Proposed and Final Policy for CY 2005
    There are 24 procedures currently assigned to new technology APCs 
for which we have data adequate to support assignment into clinical 
APCs. Therefore, in the August 16, 2004 proposed rule, we proposed to 
reassign these procedures to clinically appropriate APCs. We proposed 
to assign 24 of the procedures that were listed in Table 14 of the 
proposed rule to clinically appropriate APCs using CY 2003 claims data 
to set medians on which payments would be based.
    As we did in the proposed rule, we present below a further 
explanation to provide a fuller understanding of the payment rates for 
several of the procedures that we proposed to move out of new 
technology APCs and into clinical APCs.
a. Photodynamic Therapy of the Skin
    For CPT code 96567 (Photodynamic therapy of the skin), the impact 
of the payment decrease between CY 2004 and CY 2005 is actually low, as 
the CY 2004 payment included the topically applied drug required to 
perform this procedure and the CY 2005 payment does not. We will now 
pay separately for the drug billed under HCPCS code J7308 in CY 2005. 
We have adequate claims data on which to base payment for that 
procedure in a clinically appropriate APC. Payment based on those data 
in addition to removal of the drug for separate payment resulted in a 
lower median cost for the APC.
    Comment: Several commenters objected to the proposed movement of 
CPT code 96567 (Photodynamic therapy of the skin) from New Technology 
APC 1540 (New Technology, Level III) with a payment rate of $150 to 
clinical APC 0013 (Level II Debridement and Destruction) with a 
proposed payment rate of $66.15. The commenters recognized that the 
drug (that is, HCPCS code J7308) used with this procedure is no longer 
bundled into the payment for CPT code 96567, and agreed that some 
payment reduction is appropriate. However, the commenters indicated 
that the proposed payment rate for APC 0013 would not cover the costs 
of providing this service even after excluding the costs of the drug.
    Response: We believe that the resources and the clinical nature of 
CPT code 96567 are consistent with other codes that are placed in APC 
0013. Therefore, in this final rule with comment period, we are 
finalizing our proposal to move CPT code 96567 from New Technology APC 
1540 to clinical APC 0013 for CY 2005.

[[Page 65716]]

    Comment: One commenter brought to our attention that CPT code 96571 
(Photodynamic therapy, additional 15 minutes) may have been moved 
mistakenly from New Technology APC 1541 to clinical APC 0012 (Level I 
Debridement and Destruction). The commenter suggested that CPT code 
96571 be placed in the same clinical APC 0013 (Level II Debridement and 
Destruction) as CPT code 96570 (Photodynamic therapy, 30 minutes).
    Response: We agree with the commenter that CPT code 96571 was 
mistakenly moved to APC 0012 in the proposed rule. Because CPT code 
96571 is an add-on code for an additional 15 minutes of photodynamic 
therapy, reported in addition to CPT code 96570, which describes the 
first 30 minutes of therapy, we believe that both codes, with status 
indicator ``T,'' should be placed in APC 0015 (Level III Debridement 
and Destruction). Therefore, in this final rule with comment period, we 
are moving CPT code 96571 from New Technology APC 1541 to clinical APC 
0015 for CY 2005.
b. Left Ventricular Pacing, Lead and Connection
    Based on a comparison of payment rates for CY 2004 and CY 2005, it 
appears that there is a large increase in payment that results from 
reassigning CPT code 33224 (Insertion of left ventricular pacing, lead 
and connection) from its new technology APC to a clinical APC. The 
difference is due to the fact that the CY 2005 APC payment includes the 
cost of the left ventricular lead that was not included in the CY 2004 
new technology APC payment. The left ventricular lead was paid as a 
pass-through device under HCPCS code C1900 in CY 2004, but is not 
eligible for pass-through payments in CY 2005, and, as such, is now 
included in the APC for the procedure.
    Similarly, the CY 2005 payment rate for CPT code 33225 (Left 
ventricular pacing lead add-on) includes the cost of the ventricular 
lead. However, for code 33225, the data are still somewhat unstable. 
Therefore, in the proposed rule, we maintained CPT code 33225 in a new 
technology APC, but at a higher payment level, to reflect the 
additional cost of the lead.
    We received no comments and, therefore, we are reassigning CPT code 
33224 to a clinical APC for CY 2005.
c. Positron Emission Tomography (PET) Scans

PET-FDG (Nonmyocardial)

    In the proposed rule, we noted that a number of positron emission 
tomography (PET) scans currently are classified into APC 1516. We 
recognized that PET is an important technology in many instances and 
want to ensure that the technology remains available to Medicare 
beneficiaries when medically necessary. We believe that we have 
sufficient data to assign PET scans to a clinically appropriate APC. 
However, we have been told that if the effect of doing so is to reduce 
payment significantly for the procedure, it may hinder access to this 
technology. Therefore, as indicated in the August 16, 2004 proposed 
rule, we considered three options as the proposed payment for these 
procedures in CY 2005, based on our review of the 2003 claims data for 
the PET procedures. We specifically invited comments on each of these 
options.
    Option 1: Continue in CY 2005 the current assignment of the scans 
to New Technology APC 1516 prior to assigning to a clinical APC.
    Option 2: Assign the PET scans to a clinically appropriate APC 
priced according to the median cost of the scans based on CY 2003 
claims data. Under this option, we would assign PET scans to APC 0420 
(PET Imaging).
    Option 3: Transition assignment to a clinical APC in CY 2006 by 
setting payment in CY 2005 based on a transition payment of a 50-50 
blend of the median cost and a New Technology APC payment for CY 2004. 
We would assign the scans to New Technology APC 1513 for the blended 
transition payment.
    We included the proposed rates for these options in Addendum B of 
the proposed rule.
    Comment: Many commenters supported maintaining a number of PET 
scans in New Technology APC 1516 for CY 2005, as presented under option 
1 of the proposed rule. These commenters expressed concern that options 
2 and 3 set forth in the proposed rule would greatly impede patient 
access to PET technology. They stated that options 2 and 3 fail to 
account for the significant degree of variation in hospital mark-up 
practices and capital depreciation methods associated with PET 
procedures and, therefore, underestimate hospitals' costs for 
performing PET scans. These commenters further explained that the 
majority of hospitals report PET procedures under an overall diagnostic 
radiology revenue code rather than distinguishing PET procedures under 
a diagnostic nuclear medicine revenue code. The commenters expressed 
concern that PET claims data, when adjusted using a cost to charge 
ratio not specific to PET, underestimate the relative costs associated 
with PET imaging procedures.
    Another commenter commissioned a time-and-motion study at nine PET 
facilities in geographically diverse regions of the United States to 
estimate hospitals' actual costs for providing PET scans. According to 
the commenter, this cost study concluded that many hospitals could not 
afford to provide PET scans at a payment rate below $1,450. In 
addition, the commenter indicated that the cost study suggested that 
hospitals need to perform three or more scans per day in order to break 
even at the current payment rate of $1,450 per scan. The commenter 
pointed out that using a marketing share-weighted average, the cost 
study found that PET facilities across the United States are performing 
an average of 2.63 PET scans per day, translating into a loss of 
$165.18 per scan for most PET providers at the current payment rate of 
$1,450 per scan. However, the commenter did not clarify whether this 
national average of performing 2.63 PET scans per day reflects 
utilization by both hospitals and freestanding PET centers. The 
commenter urged that PET remain in new technology APC 1516 for CY 2005, 
and noted that any reductions in payment, including the proposed 
blended payment rate of $1,150, would significantly impede patient 
access to this technology, especially in rural settings where the 
volume of PET scans tends to be lower. Another commenter that provides 
FDG to 300 PET imaging centers in geographically diverse regions of the 
United States reviewed their May, June, and July 2004 data for these 
PET centers and reported an average number of 1.88 PET scans provided 
per day and a median of 1.3 PET scans provided per day across the 300 
PET centers. Again, the commenter did not clarify whether this national 
average of performing 1.88 PET scans per day reflects utilization by 
both hospitals and freestanding PET centers. This commenter expressed 
concern that any reduction in payment for PET scans, with or without a 
reduction in payment for FDG, may drive many PET centers into an 
operating deficit and reduce the availability of PET scans for Medicare 
beneficiaries.
    Response: We appreciate the many comments we received on this topic 
and the efforts undertaken by several of the commenters to provide us 
with additional data concerning the costs of providing the scans. We 
acknowledge variations in hospital markup practices, capital 
depreciation and other cost allocation methods, although we note that 
the CCRs in the various reported cost centers (that is, Nuclear 
Medicine,

[[Page 65717]]

Imaging Department, Radiology) for PET procedures are fairly 
consistent. The median hospital CCR for these cost centers ranges from 
0.3118 to 0.3172, and does not vary greatly from the median overall 
hospital CCR of 0.33. We believe that the robust number of claims (that 
is, 55,838 single procedure claims out of 61,492 total claims, 
representing 91 percent of the total claims) provides sufficient data 
to assign PET scans to a clinically appropriate APC. However, we 
received numerous comments indicating that any reduction in payment for 
PET scans would hinder access by Medicare beneficiaries to this 
technology. Based on our review of the comments, we are setting the CY 
2005 payment for PET scans based on a 50-50 blend of the median cost 
and the CY 2004 new technology APC payment rate, as presented under 
option 3 in the proposed rule. PET scans will be assigned to new 
technology APC 1513 for a blended payment rate of $1,150 for CY 2005.
    Comment: One commenter pointed out that the CY 2003 hospital claims 
data may not account for the current shift to PET/CT technology, which 
the commenter stated has virtually doubled the cost of launching a 
viable PET operation, from an average cost of $1,200,000 for a 
dedicated PET scanner to an average cost of $2,400,000 for a PET/CT 
scanner. The commenter estimated that approximately 90 percent of the 
PET systems currently being sold are PET/CT scanners and predicted that 
the current installed base of approximately 35 percent PET/CT and 65 
percent dedicated PET will shift to an overwhelming majority of PET/CT 
scanners within the next 5 years. The commenter argued that investment 
in a PET/CT scanner is important to be competitive in the marketplace, 
due to better capability for detecting malignancies. The commenter 
stated that the higher capital costs of a PET/CT operation require a 
patient volume of between four and five patients per day to break even 
compared to a patient volume of between two and three patients for a 
dedicated PET operation. According to the commenter, the number of 
claims for PET remains relatively low compared to MRI and CT scans, 
comprising less than 1 percent of all imaging procedures performed in 
the United States. Therefore, the commenter argued that providers would 
be unlikely to recover significant losses through increased patient 
volume.
    Several commenters indicated that the American Medical Association 
will be creating three new CPT codes 78814, 78815, and 78816 to 
describe PET with concurrent CT for anatomical localization for CY 
2005. One commenter recommended that CMS assign these new CPT codes for 
PET/CT scans to three different new technology APCs, while another 
commenter recommended that CMS place these new CPT codes in new 
technology APC 1516 at a payment rate of $1,450.
    Response: The current G code descriptors do not describe PET/CT 
scan technology, and should not be reported to reflect the costs of a 
PET/CT scan. At present, we have decided not to recognize the CPT codes 
for PET/CT scans that the AMA intends to make effective January 1, 
2005, because we believe the existing codes for billing a PET scan 
along with an appropriate CT scan, when provided, preserve the scope of 
coverage intent of the PET G-codes as well as allow for the continued 
tracking of the utilization of PET scans for various indications. We 
plan to issue billing guidance through program instructions and 
provider education articles for hospitals to use when they provide both 
a PET and CT scan to patients in their outpatient department. While we 
acknowledge that PET/CT scanners may be more costly to purchase than 
dedicated PET scanners, a PET/CT scanner is versatile and may also be 
used to perform individual CT scans, thereby potentially expanding its 
use if PET/CT scan demand is limited.
    Comment: One commenter supported assigning PET procedures to new 
technology APC 1513 at a payment rate of $1,150, based on a 50-50 blend 
of the median cost and the CY 2004 new technology payment, as presented 
under option 3 of the proposed rule. This commenter stated that option 
3 provides the best balance between ensuring continued beneficiary 
access to this valuable technology and the need for CMS to consistently 
apply its ratesetting methodology to determine payment rates. Another 
commenter supported the assignment of PET procedures into a clinically 
appropriate APC that pays at least $1,200. This commenter believed that 
a payment of at least $1,200 would compensate adequately for the 
technology and necessary staffing.
    Response: We agree with the commenters that a balance must be 
reached between ensuring continued beneficiary access to PET scans and 
the necessity for CMS to apply consistently its rate-setting 
methodology. Balancing the concern regarding possible adverse effects 
on patient access that might result from a substantial precipitous 
reduction in payment with information from thousands of hospital claims 
and the cost data we received from commenters, we are setting the CY 
2005 payment for PET scans based on a 50-50 blend of the median cost 
and the CY 2004 new technology APC payment rate, as presented under 
option three in the proposed rule. We believe we have reached this 
balance for CY 2005 by assigning PET scans to new technology APC 1513 
for a blended payment rate of $1,150.
    Comment: Another commenter addressed the issue of three new CPT 
codes 78811, 78812, and 78813 for tumor PET imaging to replace CPT code 
78810 (Tumor imaging, positron emission tomography, metabolic 
evaluation) for CY 2005. The commenter recommended that CMS adopt these 
new CPT codes in place of the existing G-codes and place them in new 
clinical APCs, which would result in one level for brain PET scans, two 
levels for cardiac PET scans, and three levels for tumor PET scans.
    Response: At present, we believe that the existing G-codes for PET 
scans adequately serve the purpose of tracking utilization of PET scans 
for various indications. Therefore, CMS will continue to recognize the 
existing G-codes for PET scans.
    Comment: One commenter requested that CMS provide the number of 
single procedure claims that support assigning FDG-PET scans to a 
clinically appropriate APC according to the median cost of the scans, 
as presented under option 2 in the proposed rule.
    Response: The number of single procedure claims used to create the 
median of $898.64 discussed in the proposed rule under option 2 for APC 
0420 (PET imaging) totaled 55,838 single procedure claims out of 61,492 
total claims.

PET (Myocardial)

    Comment: One commenter brought to our attention that CPT code 78459 
(myocardial imaging, PET, metabolic evaluation) and HCPCS code G0230 
(PET imaging; metabolic assessment for myocardial viability following 
inconclusive SPECT study) are both currently paid under OPPS and 
describe nearly the same procedure, with the exception that HCPCS code 
G0230 has a more narrow description. The commenter understood that CMS 
had intended to replace HCPCS code G0230 with CPT code 78459, but was 
confused by the payable status indicator for both codes. Two commenters 
recommended that CMS clarify the proper use of these codes and move CPT 
code 78459 from APC 0285 (Myocardial Positron Emission Tomography), 
with a payment rate of $690.61 to APC 1516 with a payment rate of 
$1,450.
    Response: We appreciate the commenter bringing to our attention the

[[Page 65718]]

duplication of codes for myocardial PET imaging for metabolic 
assessment. At present, we will change the status indicator for CPT 
code 78459 (Myocardial imaging, PET, metabolic evaluation) to ``B,'' 
not payable under the OPPS, and move HCPCS code G0230 (PET imaging; 
metabolic assessment for myocardial viability following inconclusive 
SPECT study), along with the other PET codes currently assigned to APC 
1516, from APC 1516 to APC 1513 for CY 2005. We will seek advice on the 
APC placement of HCPCS code G0230 from the Advisory Panel on APC Groups 
during their next meeting.
    Comment: Several commenters indicated that the resources, other 
than the radiopharmaceuticals, required to perform the PET myocardial 
perfusion imaging studies assigned to APC 0285 (Myocardial Positron 
Emission Tomography) do not differ significantly from many of the PET 
tumor imaging procedures contained in new technology APC 1516. These 
commenters requested an explanation for the payment rate decrease from 
$1,058.87 in the proposed rule for the CY 2004 update to $772.08 in the 
final rule for the CY 2004 update, and the further decrease to $690.61 
in the proposed rule for the CY 2005 update. The commenters objected to 
CMS creating an exception to the 2 times rule for APC 0285. The 
commenters believed that the small volume of these procedures and the 
complexity of multiple G-codes to describe both single and multiple 
imaging sessions preclude reasonable conclusions about the cost of 
providing these services. The commenters recommended that CMS move the 
18 G-codes from APC 0285 paying $690.61 to APC 1516 with a payment rate 
of $1,450. The commenters further recommended that we reduce the 
complexity of billing for these procedures by collapsing these eighteen 
G-codes into two CPT codes based on resources for single and multiple 
studies, replacing HCPCS codes G0030-G0047 with CPT code 78491 
(Myocardial imaging, PET, perfusion; single study at rest or stress) 
and CPT code 78492 (Myocardial imaging, PET, perfusion; multiple 
studies at rest or stress).
    Response: The steady decline of the payment rate for APC 0285 since 
the CY 2004 proposed rule is attributable to the 153-percent increase 
in the number of single procedure claims used to set the payment rate 
for APC 0285, which gave rise to better data to more accurately set the 
payment rate. In the CY 2004 proposed rule, we used 613 single 
procedure claims out of 1,584 total claims (39 percent of total claims) 
to set the CY 2004 proposed payment rate of $1,058.87. In the CY 2004 
final rule, we used 1,089 single procedure claims out of 1,778 total 
claims (61 percent of total claims) to set the CY 2004 final payment 
rate of $772.08. In the CY 2005 proposed rule, we used 1,451 single 
procedure claims out of 1,946 total claims (75 percent of total claims) 
to set the CY 2005 proposed payment rate of $690.61. At present, 
composition of APC 0285 will be maintained for CY 2005 while we collect 
claims data on HCPCS codes G0030 through G0047. Based on our CY 2003 
data for the specific G-codes, we cannot identify a predictable pattern 
of increased hospital costs associated with multiple studies as 
compared with single studies. We will present before the Advisory Panel 
on APC Groups during their next meeting the commenters' recommendation 
to recognize CPT codes 78491 and 78492 as representing single and 
multiple myocardial PET studies and movement of these codes from APC 
0285 to APC 1516. We note that we will be moving the PET scans 
currently in APC 1516 to APC 1513 for CY 2005, and will bring that to 
the Panel's attention as they consider potential APC movement of the 
myocardial PET studies.
d. Bard Endoscopic Suturing System
    For CY 2005, we proposed to create APC 0422 for Level II Upper GI 
Procedures and to assign HCPCS code C9703 (the Bard Endoscopic Suturing 
System), as well as other procedures to APC 0422 based on clinical and 
resource homogeneity. Currently, HCPCS code C9703 is assigned to New 
Technology APC 1555, with a payment of $1,650. Our examination of CY 
2003 claims data for HCPCS code C9703 revealed that 137 of the 171 
single claims were from a single institution with an extremely low and 
consistent cost per claim. We do not believe that those 137 claims 
represent the service described by HCPCS code C9703, which includes an 
upper gastrointestinal endoscopy along with suturing of the 
esophagogastric junction. Therefore, in establishing the median for APC 
0422, we did not use the 137 claims, which we believe were incorrectly 
coded.
    Comment: Several commenters opposed the movement of HCPCS code 
C9703 (Bard Endoscopic Suturing System) from New Technology APC 1555 
with a payment rate of $1,650 to clinical APC 0422 (Level II Upper GI 
Procedures) with a proposed payment rate of $1,274. The commenters 
indicated that the proposed payment under APC 0422 is inadequate to 
cover even the equipment costs alone. The commenters contended that the 
claims data are insufficient to support movement of this procedure out 
of its new technology APC and into a clinical APC, and urged CMS to 
maintain HCPCS code C9703 in New Technology APC 1555 with a payment 
rate of $1,650.
    Response: As we stated in the proposed rule, our examination of the 
CY 2003 claims data for APC 0422 revealed that 137 of the 171 single 
claims for HCPCS code C9703 were incorrectly coded. Therefore, the 
remaining single claims were used in establishing the median for APC 
0422. Considering that HCPCS code C9703 has remained in a new 
technology APC for 2 years with a relatively modest volume, we are not 
convinced that maintaining HCPCS code C9703 in a new technology APC 
will necessarily result in a high volume for future ratesetting. 
Furthermore, the median cost as calculated for HCPCS code C9703, using 
the subset of single claims, has been relatively stable over the past 2 
years and consistent with the median for APC 0422. In addition, in 
keeping with our practice to use CPT codes, if possible, we will 
discontinue HCPCS code C9703 and instruct providers to report service 
with this technology under CPT code 0008T (Upper gastrointestinal 
endoscopy with suture), which will be payable under the OPPS for CY 
2005. In this final rule with comment period, we are finalizing our 
proposal to move HCPCS code C9703, which will be replaced with CPT code 
0008T, from New Technology APC 1555 to clinical APC 0422 for CY 2005. 
Code 0008T is assigned status indicator ``NI'' and, as such, is open 
for public comment during the 60-day comment period associated with 
this final rule with comment period.
e. Stretta System
    Comment: Several commenters objected to the movement of HCPCS code 
C9701 (Stretta system) from New Technology APC 1557 with a payment rate 
of $1,850 to clinical APC 0422 (Level II Upper GI Procedures) with a 
proposed payment rate of $1,274. The commenters indicated that the 
proposed payment is inadequate to cover even the equipment costs alone, 
and urged CMS to maintain HCPCS code C9701 in New Technology APC 1557 
with a payment rate of $1,850.
    Response: The single claims volume for HCPCS code C9701 has 
remained modest for the past 2 years of its placement in a new 
technology APC. Therefore, we do not believe that maintaining HCPCS 
code C9701 in a new technology APC will necessarily result in a high 
volume for future

[[Page 65719]]

ratesetting. Furthermore, the median cost for HCPCS code C9701 has been 
stable over the past 2 years and consistent with the median for APC 
0422. Moreover, we can now discontinue HCPCS code C9701 and will 
instruct providers to report service with this technology under CPT 
code 43257 (Upper gastrointestinal endoscopy with delivery of thermal 
energy), a new CPT code that will be payable under OPPS for CY 2005. We 
are finalizing our proposal to move HCPCS code C9701, which will be 
replaced with CPT code 43257, from New Technology APC 1557 to clinical 
APC 0422 for CY 2005.
f. Gastrointestinal Tract (GI) Capsule Endoscopy
    Comment: Several comments opposed our proposal to move CPT code 
91110 (GI Capsule Endoscopy) from New Technology APC 1508 with a 
payment rate of $650 to clinical APC 0141 (Level I Upper GI Procedures) 
with a proposed payment rate of $464.52 for CY 2005. (CPT code 91110 
(Capsule Endoscopy) replaced HCPCS code G0262 in CY 2004. HCPCS code 
G0262 was mapped to New Technology APC 1508 in CY 2004.) The commenters 
explained that the cost data for CPT code 91110 are unreliable due to 
multiple coding changes over the last 3 years and, therefore, believed 
that the data should not be used to set the payment rate. The 
commenters indicated that the device costs are $450, and under the 
proposed payment rate, only $14 would be available to cover the service 
portion of the procedure. The commenters expressed concern that patient 
access to care would be hindered by moving the service into clinical 
APC 0141. The commenters also contended that the proposed assignment of 
this procedure to APC 0141 is inappropriate because none of the other 
services that reside in APC 0141 require a device of significant cost 
and the codes are not clinically homogeneous with CPT code 91110. The 
commenters urged CMS to maintain CPT code 91110 in New Technology APC 
1508 with a payment rate of $650. One commenter suggested that CMS 
assign a C code to the capsule and instruct providers to bill this C-
code along with HCPCS code G0262. One commenter requested that, if CMS 
does not maintain CPT code 91110 in new technology APC 1508, CMS 
consider two additional options: (1) Limiting the rate reduction for CY 
2005 to 5 percent of the CY 2004 rate; or (2) assign CPT code 91110 to 
APC 0142 (Small Intestine Endoscopy), which the commenter stated would 
be a compromise because the payment of $503.20 would still ``underpay'' 
the hospital for the costs of providing the procedure.
    Response: Generally, we do not establish C-codes for devices 
outside of the pass-through process, so we will not assign a C-code to 
the capsule. We remind providers that they should include the charges 
for device costs associated with this capsule within the charges 
reported for CPT code 91110. We agree with the commenters that CPT code 
91110 may not belong in APC 0141 based on clinical homogeneity and 
resource consumption. We had almost 4,000 single claims, about 90 
percent of all CY 2003 claims for capsule endoscopy, available for use 
in calculating the median cost of the service. We have confidence that 
our median reflects hospital resources needed to perform the service. 
As one commenter recommended, we believe that the resource costs and 
clinical nature of CPT code 91110 are more consistent with other codes 
that reside in APC 0142. Therefore, in this final rule with comment 
period, we are moving CPT code 91110 from New Technology APC 1508 to 
clinical APC 0142 for CY 2005, as the commenter suggested.
g. Proton Beam Therapy
    Comment: Several commenters urged CMS to maintain intermediate (CPT 
code 77523) and complex (CPT code 77525) proton beam therapies in New 
Technology APC 1511 at a payment rate of $950 for CY 2005. The 
commenters indicated that the proposed payment rate of $678.31 for CY 
2005 does not capture the significant difference in resource 
consumption and complexity between the simple and the intermediate/
complex procedures. These commenters expressed concern that the low 
volume of claims submitted by only two facilities provides volatile and 
insufficient data for movement into the proposed clinical APC 0419 
(Proton Beam Radiation Therapy) at a payment rate of $678.31. They 
pointed out that more than four additional centers are currently under 
construction or in the planning phases in response to the high demand 
for this technology. The commenters explained that the extraordinary 
capital expense of between $70-$125 million and high operating costs of 
a proton beam necessitate adequate payment for this service to protect 
the financial viability of this emerging technology. They feared that a 
payment reduction would halt diffusion of this technology and 
negatively impact patient access to this cancer treatment.
    Two commenters explained that the CY 2005 proposed payment rates 
for CPT codes 77523 (intermediate proton beam treatment) and 77525 
(complex proton beam treatment) were based on costs derived by applying 
CCRs from the most recent Medicare cost reports to charges reported on 
CY 2003 claims submitted by two hospitals, which were the only two 
proton therapy centers in operation in the United States at the time. 
The commenters further indicated that these two hospitals, from which 
all of the intermediate and complex proton therapies claims were 
derived, reported the costs and charges of proton therapy along with 
the costs and charges for all other radiation therapy services on the 
radiation therapy department line. One commenter calculated an overall 
radiation therapy department CCR of 0.2442 using CY 2003 data from one 
of these hospitals. This commenter then calculated a proton beam 
therapy CCR of 0.4175 by isolating the costs and charges for proton 
beam therapy from the costs and charges for the overall radiation 
therapy department. The commenter applied this proton beam therapy CCR 
of 0.4175 to calculate the costs based on average CY 2003 charges for 
intermediate and complex proton beam treatments and reported a cost of 
$1,105.96 for intermediate proton beam treatment and a cost of 
$1,216.60 for complex proton beam treatment, significantly above 
Medicare's proposed payment rate of $678.31 for CY 2005.
    Commenters believed that this understatement of costs in the 
Medicare cost reports from these two hospitals is largely responsible 
for the inadequacy of the proposed payment rates for intermediate and 
complex proton beam treatments. The commenters requested that CMS apply 
the proton beam therapy CCR of 0.4175, based on proton beam specific 
cost data provided by one of these commenters, for determining the 
median costs of proton beam therapy. The commenters believed that the 
revised costs support the maintenance of CPT codes 77523 and 77525 in 
New Technology APC 1511 at a payment rate of $950 for CY 2005. The 
commenters also noted the recommendation of the Advisory Panel on APC 
Groups to maintain intermediate and complex proton beam therapies in 
New Technology APC 1511 at a payment rate of $950 for CY 2005 and urged 
CMS to adopt that recommendation.
    Response: We will not apply the commenter's calculated CCR to 
determine the median costs of proton beam therapy because we are unable 
to replicate the commenter's proton beam therapy CCR calculation of 
0.4175 by

[[Page 65720]]

isolating the costs and charges for proton beam therapy from the costs 
and charges for the overall radiation therapy department. However, 
having considered the concerns of numerous commenters that patient 
access to proton beam therapy may be impeded by a significant reduction 
in OPPS payment, we are setting the CY 2005 payment for CPT codes 77523 
and 77525 by calculating a 50-50 blend of the median cost of $690.45 
derived from 2003 claims and the CY 2004 new technology APC payment 
rate of $950. We will use the result of that calculation ($820) to 
assign intermediate and complex proton beam therapies (CPT codes 77523 
and 77525) to New Technology APC 1510 for a blended payment rate of 
$850 for CY 2005.
    After consideration of these public comments and based upon our 
review of the latest claims data available, we are moving the 
procedures listed in Table 14 from their current new technology APCs to 
the APCs listed, as we have adequate data on these procedures to enable 
us to make the necessary APC assignment.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR15NO04.013


[[Page 65721]]


BILLING CODE 4120-01-C
4. Public Comments Received Relating to Other New Technology APC Issues
a. Computerized Reconstruction CT of Aorta
    In the August 16, 2004 proposed rule, we proposed to reassign code 
G0288 (Reconstruction, CTA of aorta for preoperative planning and 
evaluation post vascular surgery) from New Technology APC 1506 to 
clinical APC 0417 (Computerized Reconstruction) for CY 2005.
    Comment: Several commenters expressed concern about our proposal to 
move G0288 from New Technology APC 1506 to clinical APC 0417. The 
commenter asserted that the reassignment results in a decreased payment 
amount from $450 to approximately $247, a rate that commenters believe 
is too low to cover the costs of providing the service.
    The commenters suggested that CMS use external data to calculate 
rates rather than relying on hospital claims data, that CMS maintain 
G0288 in its current new technology APC assignment until hospital 
claims are more accurate, or that CMS go ahead with the reassignment to 
a clinical APC but continue to base payment on a rate that is 
consistent with the CY 2004 rate. One commenter provided invoices from 
hospitals across the country to support its assertion that our proposed 
payment will be to low.
    One commenter also requested that CMS change the descriptor for 
code G0288 to read ``Three-dimensional pre-operative and post-operative 
computer-aided measurement planning and simulation in accordance with 
measurements and modeling specifications of the Society for Vascular 
Surgery'' in order to ensure that the code is only used for true three-
dimensional preoperative and postoperative computer-aided measurement 
planning and simulation technologies.
    Response: A predecessor C-code to G0288 had a new technology APC 
assignment in CY 2002, with a payment level of $625. The C-code was 
deleted for CY 2003, and G0288, a more general treatment planning code, 
was then assigned to the same new technology APC for CY 2003, with a 
payment of $625. For CY 2004, we proposed to move G0288 from a new 
technology APC to a clinical APC based on over 1,000 claims, with a 
median cost of $272. Based on hospital data provided by a commenter on 
the CY 2004 proposed rule and our conclusion that there may have been 
Medicare claims that understated the costs of the treatment planning 
software, we placed G0288 in a new technology APC with a payment of 
$450 for CY 2004, consistent with a 50/50 blend of our data with the 
analysis of a commenter. For CY 2005, we believe we have adequate 
claims data on which to base payment for G0288 and to reassign the 
service to its own clinical APC. We had almost 5,000 total claims for 
code C9703 (first 3 months of CY 2003 when the C-code was still in the 
grace period) and G0288, and over half of these were single claims 
available for APC median calculation. We are confident that the median 
cost for APC 0417 reflects hospital resource costs, and we are 
reassured by the consistency of our median cost data over the past 
several years for this service.
    Accordingly, we are adopting as final our proposal to assign code 
G0288 to APC 0417 for CY 2005.
    We are not changing the name of G0288 at this time. However, we 
will take the commenter's suggestion into consideration in the future 
if the need arises. We revised the descriptor for the code for CY 2004 
to clarify that the service can be used for treatment planning prior to 
surgery and for postsurgical monitoring. We believe that the current G 
code descriptor appropriately describes the service.
b. Kyphoplasty
    Comment: One commenter, a manufacturer of medical devices used to 
restore spinal function and treat vertebral compression fractures, 
suggested that CMS should place kyphoplasty, a new procedure to treat 
vertebral compression fractures, into New Technology APC 1535. The 
commenter stated that kyphoplasty is currently billed using code 22899 
(Unlisted procedure of the spine). The commenter claimed that, 
according to our policy, because CMS received its application before 
June 2004, the procedure is eligible for new technology APC payments in 
October 2004. The commenter was surprised that it did not see a 
proposal to place kyphoplasty into a new technology APC in our proposed 
rule or in the October 2004 OPPS update. The commenter stated that 
using an unlisted code creates problems concerning billing and payment 
for hospitals.
    Response: We have completed our evaluation of the new technology 
application for kyphoplasty and have assigned new C-codes that describe 
the procedure. We have assigned these codes to existing clinical APC 
0051 rather than to a new technology APC. We believe that APC 0051 is 
appropriate for kyphoplasty in terms of clinical characteristics and 
resource costs. Reasonable placement into an existing APC that is 
appropriate in terms of clinical characteristics and resource costs is 
one of our criteria in deciding whether a service should be placed into 
a new technology APC (66 FR 59900, November 30, 2001).
    Concerning the commenter's assertion that because CMS received its 
application before June 2004, the procedure is eligible for payment 
status as a new technology APC in October 2004, we remind the public 
that the timing of eligibility for payment, if any, is not bound to 
when an application is filed with CMS. As we state on the CMS Web site 
notice at http://www.cms.gov, if an application is filed by a certain 
date (for example, by June 1), the earliest date that such an item or 
service can be considered for new payment status is the following 
quarter (for example, October 1). This means that any additional coding 
and payment, if warranted, could begin later than the following 
quarter. Because it is important that our payment and coding systems do 
not impede access by Medicare beneficiaries to the best available 
medical care, we review all applications as quickly as possible, given 
the complexity of the issues and the thoroughness we believe such 
reviews require. The timing of completion of our evaluation of any 
specific application depends on such factors as the complexity of the 
application, the completeness of all materials submitted, whether the 
review team requires additional information and the amount of time 
before we receive additional materials and information. Of course, the 
service needs to be otherwise eligible for assignment to a new 
technology APC (or as a pass-through assignment in the case of a new 
device, drug, or biological).
    We note that while we consider these new codes as final, the codes 
and the placement of the services are subject to comment within 60 days 
of the publication of this final rule with comment period, as stated 
elsewhere in this rule. Moreover, the public may comment on our 
placement of services to the APC Panel, which often hears comments and 
testimony concerning the placement of new services brought to us by 
interested parties.
    Accordingly, the codes for kyphoplasty are:
    C9718 Kyphoplasty, one vertebral body, unilateral or bilateral 
injection
    C9719 Kyphoplasty, one vertebral body, unilateral or bilateral 
injection; each additional vertebral body (list separately in addition 
to code for primary procedure)

[[Page 65722]]

c. Laser Treatment of Benign Prostatic Hyperplasia (BPH)
    In the August 16, 2004 proposed rule, HCPCS code C9713 (Non-contact 
laser vaporization of prostate, including coagulation control of 
intraoperative and postoperative bleeding) was assigned to New 
Technology APC 1525 for CY 2005. The assignment of this code to New 
Technology APC 1525 was a continuation of the new technology APC 
placement established on April 1, 2004.
    Comment: One commenter, the manufacturer of medical equipment used 
in the treatment of benign prostatic hyperplasia (BPH) stated that its 
product, the GreenLight Laser, was the only technology available that 
uses a 532nm or ``green'' wavelength as an energy source and that CMS 
had assigned code C9713 in response to an application for a new 
technology APC assignment from Laserscope. The commenter indicated that 
other technologies that do not employ the same energy wavelength and 
the same noncontact vaporization technique should not be billed with 
code C9713. The commenter expressed concern that the costs of the other 
techniques are less than those for GreenLight Laser and thus the other 
techniques should not be paid under New Technology APC 1525. The 
commenter requested CMS to revise the descriptor of code C9713 to 
describe only 532nm laser technologies such as the GreenLight Laser.
    Response: We acknowledge that HCPCS code C9713 was established 
following our review of the new technology application from Laserscope. 
We also agree that code C9713 may be used by hospitals to report such 
procedures using the Laserscope product, the GreenLight PVP, described 
in the application for new technology assignment. We established code 
C9713 based on our understanding of the information provided to us that 
the service may be different from other services used to treat BPH. We 
look forward to receiving and assessing the medical review, analysis, 
and evaluation of the service and technology through the usual AMA 
coding and payment processes. In general, we do not tailor temporary 
procedure codes in the ``C'' series to particular products and have not 
been persuaded that a redefinition of code C9713 is necessary at this 
time. With respect to other techniques for treatment of BPH, we would 
rely on the hospitals to determine which HCPCS code, whether C9713 or 
one of the CPT codes, most accurately describes the procedure for 
treatment of BPH for which they are billing. With regards to the 
commenter's claim that the costs of other techniques described by code 
C9713 are less than warranted by the New Technology APC 1525, our 
policy is to review the costs of services assigned to New Technology 
APCs each year to determine if an alternate placement in another APC is 
warranted. We continue to believe that placement of code C9713 in a new 
technology APC is appropriate for CY 2005.
d. Computerized Tomographic Angiography (CTA)
    In the August 16, 2004 proposed rule, we included the APC 
assignment and the payment rate for computed tomographic angiography 
(CTA). These procedures, coded using one of several CPT codes, 
depending on the body region under study, involve acquisition of a CT 
scan with and without contrast material, as well as image post-
processing. The assigned CTA CPT codes under APC 0662 had a proposed 
payment rate of $320.60. That proposed payment rate was slightly lower 
than that for a CT scan ($323.21) and significantly lower than the sum 
of the proposed payment for CT scan and image reconstruction, CPT code 
76375 ($98), billed separately.
    Comment: A number of commenters were concerned about the lower 
payment rates for the CTA procedures and asked CMS to review and revise 
the proposed payment rate.
    The commenters pointed out that, prior to 2001, two codes were used 
to code for the procedure: one for the CT scan and another for the 3-D 
reconstruction. The commenters indicated that, in 2001, CPT codes were 
created to enable specific coding for CTA procedures, including image 
post-processing in the CTA codes, but those codes were still assigned 
to the same APC (0333) as CT procedures that did not include image 
reconstruction. They added that, in CY 2003, the CTA procedures were 
assigned to their own APC (0662). The commenters asserted that in spite 
of the creation of an APC specific to CTA procedures, the OPPS payment 
amounts have not reflected the additional costs for CTA compared to CT. 
They believed that the low payment rates are due to continuing 
confusion and conflicting information among providers concerning 
appropriate billing and charging practices associated with CTA 
procedures.
    One commenter performed a number of analyses in an attempt to 
understand and address the apparent billing problems. In its 
investigation, the commenter discovered that, in 2002, only 40 percent 
of all hospitals that performed both CT and CTA charged more for CTA 
than for CT. The commenter also found in its study of hospital charge 
structures that there is wide variation in methods employed by 
hospitals and that only 29 percent of hospitals use costs to set 
charges.
    While all commenters recommended that CMS adjust the payment rate 
for CTA procedures to equal that for APC 0333 plus APC 0282, one 
commenter recommended that we do this using the adjustment made under 
the Medicare Physician Fee Schedule for CY 2003 as a model. That 
commenter suggested that we should ignore CTA claims and instead rely 
on CT claims (APC 0333) plus reimbursement for image reconstruction 
(APC 0282) as a basis for setting the rate for CTA services.
    Other alternative suggestions provided by the commenter include: 
use only CTA claims that are ``logical;'' change coding instructions 
and edits to allow CTA to be billed in addition to image 
reconstruction; or make an administrative adjustment to increase CTA 
payment.
    Finally, the commenters encouraged CMS to investigate alternative 
methods for calculating CCRs in order to achieve more accurate costs on 
which to base our rates.
    Response: Although we understand the commenters' points of view and 
appreciate the comprehensive analyses they shared with us, we cannot 
identify any action that would be appropriate for us to take. As the 
commenters are aware, we rely on hospital claims data to set payment 
rates and have made clear our intent to rely solely on those claims by 
CY 2007. If the claims data are inaccurate, especially across a broad 
spectrum of providers as the commenters believe is evidenced in this 
case, we have no way to determine which claims are more or less 
accurate than any others.
    To implement the commenters' suggestion that we make the payment 
rate for CTA (APC 0662) equal to the sum of the rates for CT alone (APC 
0333) plus image reconstruction (APC 0282) would require that we have 
accurate cost information about the cost of image reconstruction for 
CTA specifically and for CT alone, as utilized with CTA. This is not 
the case. The image reconstruction code CPT 76375 (coronal, sagittal, 
multiplanar, oblique, 3-dimensional and/or holographic reconstruction 
of computed tomography, magnetic resonance imaging, or other 
tomographic modality) is not limited to image reconstruction performed 
for CTA and may be used in any number of other procedures. Based on the 
available CPT codes for CTA, we

[[Page 65723]]

would not expect any current utilization of CPT code 76375 to be for 
CTA post-image processing, unless there was no appropriate CTA code to 
describe the body region imaged. We believe this would be rare. In 
addition, our current cost data for CT alone do not necessarily reflect 
the resources utilized for the CT portion of CTA.
    We also do not believe that for the last 3 years there has been 
conflicting information given to providers concerning appropriate 
billing and charging practices associated with CTA procedures. The CPT 
code descriptors clearly include image post-processing for CTA 
procedures. In response to previous comments, we did provide a separate 
APC for CTA procedures beginning in CY 2003 in recognition that 
hospital resources might be different for CTA procedures as compared 
with CT procedures. From the over 100,000 claims for CTA procedures 
from CY 2003, we were able to use about 50 percent of the claims to 
determine hospitals' costs for the services. Our number of claims for 
CTA procedures increased significantly between CY 2002 and CY 2003. 
From the 2003 full year of data, we have calculated that median 
hospital costs for the APCs for CT and CTA services were approximately 
equal, at $329. Because hospitals set their own charges for services, 
which we then convert to costs, we see no reason why adding the costs 
for CT alone plus the costs for image reconstruction would necessarily 
provide a better estimate of costs for CTA than our analysis of our 
specific CTA claims.
    Similarly, in order to make an adjustment akin to that made for the 
Medicare Physician Fee Schedule for CY 2003, we would need to have 
accurately coded cost data for the individual components of CTA, 
performed in the context of CTA, on which to base that change. We do 
not have that data, and the OPPS system, unlike the Medicare Physician 
Fee Schedule, relies upon historical hospital claims data to develop 
relative costs of services.
    Lastly, we do not agree that we should provide coding guidance that 
differs from that embodied in the CPT code descriptors in this case. 
Our current edits that do not allow CTA to be billed in addition to 
image reconstruction are consistent with the CPT code descriptors for 
CTA procedures.
    We created a separately paid, specific APC for those procedures in 
an attempt to provide an accurate payment for CTA. Moreover, by 
creating a unique APC for the procedures, we provided the means for 
hospitals to bill for all of the costs associated with CTA, entirely 
separate from their billing for CT. We cannot now assume that the 
claims billed for that APC are incorrect and that those billed for CT 
alone are correct.
    We acknowledge the commenters' belief that the claims are flawed 
and that hospitals' divergent charge structures do not result in 
consistent charging for CT scans, CTAs or image reconstruction, but 
note that those claims comprise the data on which the OPPS relies for 
payment of a wide variety of hospital outpatient services. We must rely 
on hospitals to manage their charge structures in a manner that 
accurately and best reflects the services provided.
    For the reasons stated above, we will not alter the payment rates 
for CTA, APC 0662, for CY 2005. Once again, we encourage hospitals to 
take all actions necessary to assure that they are billing accurately 
and including all resources utilized to deliver services. As discussed 
in detail in section III. of this preamble, we are continuing our work 
to refine the CCRs used for ratesetting.
e. Acoustic Heart Sound Services
    Comment: Several commenters addressed the need to assign a recently 
created code for acoustic heart sound services for recording and 
computer analysis to an APC. One of the commenters indicated that the 
acoustic heart sound recording can be performed in the first 5 minutes 
of an emergency department service, together with an ECG, to enable the 
earliest possible detection of acute cardiac conditions. The commenter 
related that AMA's CPT Editorial Panel created three new Category III 
codes for acoustic heart sound recording that correspond to performing 
the procedure, physician interpretation of results, and recording and 
interpretation in combination. The commenter contended that one of 
these codes, CPT Category III code 0069T (Acoustic heart sound 
recording and computer analysis only) could be payable under the OPPS. 
The commenters noted that we did not propose an APC assignment for code 
0069T in our proposed rule, and they requested an APC assignment 
effective January 1, 2005. One of the commenters believed that the most 
appropriate clinical APC to assign this code is APC 0099 
(Electrocardiograms).
    Response: One of the commenters, a manufacturer of the acoustic 
heart sound system, had previously applied for assignment of these 
codes to new technology APCs and we have previously evaluated the three 
acoustic heart sound services. We agree that only code 0069T could be 
payable under the OPPS. The comment that acoustic heart sound recording 
can be performed in the first 5 minutes of a visit by an ECG 
technician, together with an ECG, to enable the earliest possible 
detection of acute cardiac conditions, demonstrates that there are 
limited additional facility resources associated with the acoustic 
heart sound recording in conjunction with an ECG. It is also our 
understanding that the AMA's coding advice indicates that the acoustic 
heart sound services are to be used in conjunction with 
electrocardiography services. We believe it is worthwhile to recognize 
code 0069T under the OPPS to track its utilization and develop cost 
data. However, because the service may be performed quickly and is 
always accompanied by an ECG, we are assigning a packaged status to 
code 0069T for CY 2005. Although not separately payable under the OPPS, 
charges for the acoustic heart sound service will be packaged with 
charges for the separately payable services with which it is performed. 
With regards to the comment that we did not assign an APC in our 
proposed rule, we note that we do not recognize under the OPPS new CPT 
codes on a mid-year basis, even though the AMA may assign new tracking 
codes mid-year, as it did in this case. We assign new CPT codes on an 
annual basis, effective with our January 1 updates to the OPPS. Because 
this is a new code assignment that was not proposed in the CY 2005 
proposed rule, interested parties will be able to comment on this new 
payment assignment in response to this final rule with comment period. 
This code is included in Addendum B.
f. Laparoscopic Ablation Renal Mass
    Comment: Commenters asked that we move CPT code 50542 (Laparoscopic 
ablation renal mass) out of APC 0131 (Level II Laparoscopy) and place 
it in new technology APC 1574 (New Technology, Level XXXVII ($9,500-
$10,000) until meaningful data can be obtained for the procedure. The 
commenter indicated that the procedure, including required devices, 
might cost approximately $10,000 because of the cost of the cryosurgery 
device. The commenter indicated that because they did not find any 
claims for this code that contained the device code for cryoablation 
probes (C2618), CMS should discard the data as being valid to set the 
weight for this code.
    Response: Code 50542 represents a service that may or may not be 
performed with cryoablation equipment. Therefore, the absence of the 
device code for cryoablation probes on the

[[Page 65724]]

claims may be an accurate reflection of the service as it was 
performed. The median cost for the service appears to be appropriately 
placed in APC 0131 and the service is clinically coherent with other 
services in APC 0131. Therefore, we are retaining its placement in APC 
0131 for CY 2005.
g. Intrabeam Intra-Operative Therapy
    Comment. One commenter, the manufacturer of the Intrabeam Intra-
Operative Therapy System, commented that this procedure, a treatment 
for women diagnosed with early-stage breast cancer, which is currently 
assigned to APC 0312 (Radioelement Applications) and is billed using 
CPT code 77776, is currently underpaid in APC 0312. The commenter 
claimed that there is no current APC mechanism to capture the cost 
information specific to this technology, and there are insufficient 
Medicare claims data at this time to make an appropriate clinical APC 
assignment. The commenter requested that CMS assign the Intrabeam 
procedure to a new technology APC. In addition, the commenter requested 
that CMS create two new level II HCPCS codes with the following 
descriptors: (1) Surgical placement and removal of intra-operative 
direct application x-ray source using surgical closure techniques; and 
(2) Administration of radiation therapy by intra-operative direct 
application of x-ray source.
    Response. We recently received from the manufacturer of the 
Intrabeam Intra-Operative Radiation Therapy procedure an application 
for assignment of this procedure to a new technology APC. We are 
currently engaged in review of that application.
h. New Technology Process Issues
    Comment: In response to the OPPS final rule with comment period 
published November 7, 2003, one commenter asserted that CMS had failed 
to establish an acceptable method for evaluating the costs and clinical 
efficacy of therapeutic medical technologies before assigning a code 
and New Technology APC payment under the OPPS. The commenter urged CMS 
to propose evaluation criteria for determining costs and clinical 
efficacy. In developing such criteria, the commenter encouraged CMS to 
require that all filings with the FDA be submitted to CMS for review 
and for CMS to rely heavily on the predicated device in the FDA 
application, require all privately held companies to provide CMS with a 
list of investors/owners, utilize generally accepted accounting 
principles, seek advice from the Medicare Coverage Advisory Committee 
(MCAC) or the Medical Technology Council (MTC), consider evaluation 
methods used by other health insurers, and consider recommendations 
from experts in the field. The commenter believed that if CMS had 
consulted the MCAC or the MTC, which advise CMS on whether specific 
medical treatments and technology should receive coverage, neither the 
MCAC nor the MTC would have recommended coverage for the CyberKnife 
technology, as an example.
    In response to our August 16, 2004 proposed rule, one commenter, a 
device manufacturer, urged CMS to make changes to the pass-through and 
new technology application and evaluation processes to provide 
disclosure of applications filed with CMS and to create an opportunity 
for the public to comment on the disposition of proposed or final 
actions on applications. The commenter believed that public processes 
can be adopted, while retaining CMS' quarterly update capability for 
coding and payment.
    Response: As required by section 942(a) of Pub. L. 108-173, we 
recently established the Council on Technology and Innovation (CTI) 
which brings together CMS senior leadership to better coordinate 
coverage, coding and payment policy to support the goal of high 
quality, high value care. The CTI aims to provide CMS with improved 
methods for developing practical information about the clinical 
benefits of new medical technologies to aid in achieving more efficient 
coverage and payment of these medical technologies. The CTI will also 
help identify and develop study methods for gathering reliable evidence 
about the risks and benefits of new and existing medical technologies 
that can be carried out more easily on a regular basis, such as simple 
protocols, registries, and other study methods.
    The CTI will support CMS' efforts to develop better evidence on the 
safety, effectiveness, and cost of new and approved technologies to 
help promote their more effective use. As directed in section 942(a) of 
Pub. L. 108-173, the CMS Council coordinates the activities of Medicare 
coverage, coding, and payment for new technologies and the exchange of 
information on new technologies between CMS and other entities charged 
with making similar considerations and decisions.

G. Changes to the Inpatient List

    At the APC Panel's February 2004 meeting, we advised the APC Panel 
of a request that we had received to move four codes for percutaneous 
abscess drainage 44901 (Drain append. abscess, percutaneous), 49021 
(Drain abdominal abscess), 49041 (Drain percutaneous abdominal 
abscess), 49061 (Drain, percutaneous, retroper. abscess)) from the 
inpatient list and to assign them to appropriate APCs. The APC Panel 
also recommended that we evaluate other codes on the inpatient list for 
possible APC assignment and that we consider eliminating the inpatient 
list.
    In the August 16, 2004 proposed rule, we proposed to remove the 
four above-cited codes and assign them to clinically appropriate APCs, 
as recommended by the APC Panel. We also proposed to assign code 44901 
to APC 0037, code 49021 to APC 0037; code 49041 to APC 0037; and code 
49061 to APC 0037. We discuss in section VII.E. of this final rule with 
comment period our response to the APC Panel's recommendation that we 
either abolish the inpatient list or evaluate it for any appropriate 
changes, the public comments we received on our proposal, and our 
responses to those public comments.

H. Assignment of ``Unlisted'' HCPCS Codes

1. Background
    Some HCPCS codes are used to report services that do not have 
descriptors that define the exact service furnished. They are commonly 
called ``unlisted'' codes. The code descriptors often contain phrases 
such as: ``unlisted procedure,'' ``not otherwise classified,'' or ``not 
otherwise specified.'' The unlisted codes typically fall within a 
clinical or procedural category, but they lack the specificity needed 
to describe the resources used in the service. For example, CPT code 
17999 is defined as ``Unlisted procedure, skin, mucous membrane and 
subcutaneous tissue.'' The unlisted codes provide a way for providers 
to report services for which there is no HCPCS code that specifically 
describes the service furnished. However, the lack of specificity in 
describing the service prevents us from assigning the code under the 
Medicare OPPS to an APC group based on clinical homogeneity and median 
cost.
    In the August 16, 2004 proposed rule, we listed in Table 15 our 
proposed APC reassignments of unlisted HCPCS codes. In most cases, the 
unlisted codes are assigned to the lowest level, clinically appropriate 
APC group under the Medicare OPPS. This creates an incentive for 
providers to select the appropriate, specific HCPCS code to describe 
the service if one is available. In addition, if there is no HCPCS code 
that accurately describes the service, placing the unlisted code in the 
lowest level APC group provides an incentive

[[Page 65725]]

for interested parties to secure a code through the AMA's CPT process 
that will describe the service. Once a code that accurately describes 
the service is created, we can collect data on the service and place it 
in the correct APC based on the clinical nature of the service and its 
median cost.
    We do not use the median cost for the unlisted codes in the 
establishment of the weight for the APC to which the code is assigned 
because, by definition of the code, we do not know what service or 
combination of services is reflected in the claims billed using the 
unlisted code.
    Our review of HCPCS code assignments to APCs has revealed that 
there are a number of unlisted codes that are not assigned to the 
lowest level APC.
2. Proposed and Final Policy for CY 2005
    In the August 16, 2004 proposed rule, we proposed to reassign 
specified unlisted HCPCS codes for CY 2005 OPPS to the lowest level APC 
in the clinical grouping in which the unlisted code is located. We 
displayed a listing of our proposed reassignment of the unlisted HCPCS 
codes in Table 15 of the proposed rule.
    We received a number of public comments on our proposals.
    Comment: Some commenters supported placing all unlisted codes in 
the lowest paid APC and noted that they believed that there are others, 
such as CPT code 43999 (Unlisted procedure stomach), which is now in 
APC 0141, that should be added to the list of those to be placed in the 
lowest APC. They recommended that CMS review the entire list of CPT 
codes to find others that should be moved to the lowest level APC.
    Some commenters opposed placing ``unlisted'' or ``not otherwise 
classified'' codes in the lowest APC applicable to the category of 
service. They believed that it is inappropriate for CMS to develop 
payment policies aimed at forcing stakeholders to seek new HCPCS codes 
for the services being performed. They indicated that moving these 
codes to the lowest paying APC would decrease payment for 18 of the 20 
procedures by more than 70 percent and would create a barrier to new 
technology. They indicated that CMS should analyze the costs associated 
with particular unlisted codes and assign them to APCs that 
appropriately reflect the cost to perform the services but in the 
meantime, should retain them in the existing APCs in which they are 
placed. One commenter urged us to follow the process that is followed 
for physician payment when unlisted codes are used, with fiscal 
intermediaries negotiating payment for the unlisted code depending on 
the actual service provided each time. One commenter indicated that 
putting the unlisted codes in the lowest level APC provides a 
disincentive for facilities to adopt new technology because it will not 
be paid adequately.
    Response: We appreciate the support of the commenters who agreed 
with placing unlisted codes in the lowest APC for the clinical 
category. With respect to the comment that CPT code 43999 should be 
moved out of APC 0141 and should be placed in the lowest APC for 
gastrointestinal procedures, we have not moved it from APC 0141 because 
we believe that APC 0141 is the lowest APC appropriate to the clinical 
category of services for CPT code 43999.
    We have reviewed again the proposed list of unlisted or ``not 
otherwise classified'' codes being moved to the lowest APC and based on 
that re-review have determined that we do not need to make any 
additional changes to that proposed list in this final rule with 
comment period.
    By definition, ``unlisted'' or ``not otherwise classified'' codes 
do not describe the services being performed, and the services coded 
using ``unlisted'' codes vary over time as new CPT and HCPCS codes are 
developed. Therefore, it is impossible for any level of analysis of 
past hospital data to result in appropriate placement of the service 
for the upcoming year in an APC in which there is clinical integrity of 
the groups and weights. Therefore, we believe that the appropriate 
default, in the absence of a code that describes the service being 
furnished, is placement in the lowest level APC within the clinical 
category in which the unlisted code falls. We see no need to expand the 
process that is followed for physician payment of unlisted codes to the 
outpatient hospital setting. The assignment of the unlisted codes to 
the lowest level APC in the clinical category specified in the code 
provides a reasonable means for interim payment until such time as 
there is a code that specifically describes what is being paid. It 
encourages the creation of codes where appropriate and mitigates 
against overpayment of services that are not clearly identified on the 
bill. For new technologies that are complete services but may not have 
yet been granted a specific CPT code, the new technology payment 
mechanism is available under OPPS. Outlier payments may also be 
available under the OPPS in a case of an expensive new technology for 
which a specific code is not available and for which the costs of the 
new procedure exceed the outlier threshold.
    Comment: One commenter indicated that the principal problem behind 
the use of unlisted or not otherwise classified codes is the AMA's bias 
against giving CPT codes for new services and technologies unless a 
physician group requests the code to provide a mechanism for increased 
physician payment for the service. The commenter asked that CMS, as the 
largest and most powerful licensee of CPT, influence the AMA to reduce 
the amount of time it takes to release new CPT codes for use in the 
OPPS so that the need for use of unlisted codes will diminish and the 
new services can be paid appropriately more quickly after they come 
onto the market. The commenter also asked that CMS reduce its 
``barriers'' to placement of new services that require new technologies 
into new technology APCs or to granting of pass through payment status. 
The commenter indicated that lowering these ``barriers'' also would 
eliminate much of the use of the unlisted codes.
    Response: An individual, a physician group, or a manufacturer may 
submit a request for a new CPT code. CMS works collaboratively with the 
AMA to establish new CPT codes, recognizing that the process is 
governed and controlled by the AMA. The AMA CPT process involves 
methodical consideration of new coding proposals, which may be time 
consuming. In addition, the payment system changes required by new 
codes take some time to implement. Under the OPPS, we make available 
the pass-through and new technology payment mechanisms, using C-codes 
and G-codes to allow new services, devices, and technologies to be 
available to clinicians and providers to facilitate appropriate payment 
for such services. The commenter did not indicate what ``barriers'' to 
placement of new services exist. However, to assist the public, we 
provide further guidance in section IV.C. of the preamble concerning 
additional comments on the topic of the surgical insertion or 
implantation criterion for the pass-through device payment mechanism.
    In this final rule with comment period, we are adopting as final, 
without modification, the proposed reassignment of unlisted HCPCS codes 
to move all unlisted or ``not otherwise classified'' codes to the 
lowest level APC that is appropriate to the clinical nature of the 
service, as displayed in Table 15.

[[Page 65726]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.014

I. Addition of New Procedure Codes

    During the first two quarters of CY 2004, we created 85 HCPCS codes 
that were not addressed in the November 7, 2003 final rule with comment 
period that updated the CY 2004 OPPS. We have designated the payment 
status of those codes and added them to the April and July updates of 
the 2004 OPPS (Transmittals 3144, 3154, 3322, and 3324). We showed 
these codes in Table 16 of the proposed rule. Thirty of the new codes 
were created to enable providers to bill for brand name drugs and to 
receive payments at a rate that differs from that for generic 
equivalents, as mandated in section 1833(t)(14)(A)(i) of the Act as 
added by Pub. L. 108-173. In the August 16, 2004 proposed rule, we 
solicited comment on the APC assignment of these services. Further, 
consistent with our annual APC updating policy, we proposed to assign 
the new HCPCS codes for CY 2005 to the appropriate APCs.
    We did not receive any public comments on our proposal. 
Accordingly, in this final rule with comment period, we are adopting as 
final our proposal to assign the new HCPCS codes for CY 2005 to the 
appropriate APCs, as shown in Addendum B of this final rule with 
comment period, without modification.

J. OPPS Changes Relating to Coverage of Initial Preventive Physical 
Examinations and Mammography Services Under Pub. L. 108-173

1. Payment for Initial Preventive Physical Examinations (Section 611 of 
Pub. L. 108-173)
a. Background
    Section 611 of Pub. L. 108-173 provides for coverage under Medicare 
Part B of an initial preventive physical examination for new 
beneficiaries, effective for services furnished on or after January 1, 
2005. This provision applies to beneficiaries whose coverage period 
under Medicare Part B begins on or after January 1, 2005, and only for 
an initial preventive physical examination performed within 6 months of 
the beneficiary's initial coverage date.
    Current Medicare coverage policy does not allow for payment for 
routine physical examinations (or checkups) that are furnished to 
beneficiaries. Before the enactment of Pub. L. 108-173, all preventive 
physical examinations had been excluded from coverage based on section 
1862(a)(7) of the Act, which states that routine physical checkups are 
excluded services. This exclusion is specified in regulations under 
Sec.  411.15(a). In addition, preventive physical examinations had been 
excluded from coverage based on section 1862(a)(1)(A) of the Act. This 
section of the Act provides that items and services must be reasonable 
and necessary for the diagnosis or treatment of illness or injury or to 
improve the functioning of a malformed body member (as implemented in 
regulations under Sec.  411.15(k)).
    Coverage of initial preventive physical examinations is provided 
only under Medicare Part B. As provided in the statute, this new 
coverage allows payment for one initial preventive physical examination 
within the first 6 months after the beneficiary's first Part B coverage 
begins, although that coverage period may not begin before

[[Page 65727]]

January 1, 2005. We also note that Pub. L. 108-173 did not make any 
provision for the waiver of the Medicare coinsurance and Part B 
deductible for the initial preventive physical examination. Payment for 
this service would be applied to the required Medicare Part B 
deductible, which is $110 for CY 2005, if the deductible has not been 
met, and the usual coinsurance provisions would apply.
b. Amendments to Regulations
    In the August 16, 2004 proposed rule, we proposed to amend our 
regulations to add a new Sec.  410.16 that would provide for coverage 
of initial preventive physical examinations in various settings, 
including the hospital outpatient department, as specified in the 
statute, and specify the condition for coverage and limitation on 
coverage. In addition, we proposed to conform our regulations on 
exclusions from coverage under Sec.  411.15(a)(1) and Sec.  411.15(k) 
to the provisions of section 611 of Pub. L. 108-173. Specifically, we 
proposed to specify an exception to the list of examples of routine 
physical checkups that are excluded from coverage under Sec.  411.15(a) 
and to add a new exclusion under Sec.  411.15(k)(11).
    We proposed to amend Sec.  419.21 of the OPPS regulations to add a 
new paragraph (e) to specify payment for an initial preventive physical 
examination as a Medicare Part B covered service under the OPPS if the 
examination is furnished within the first 6 months of the beneficiary's 
first Medicare Part B coverage.
    We noted that the initial preventive physical examination was also 
addressed in detail in our proposed rule to update the Medicare 
Physician's Fee Schedule for CY 2005 (69 FR 47487, August 5, 2004). 
However, because we believe the same elements of the initial physical 
examination furnished in a physician's office would also apply when the 
examination is performed in a hospital outpatient clinic, we proposed 
to revise the applicable regulations to reflect this requirement.
    Section 611(b) of Pub. L. 108-173 defines an ``initial preventive 
physical examination'' to mean physicians'' services consisting of--
    (1) A physical examination (including measurement of height, 
weight, blood pressure, and an electrocardiogram (EKG), but excluding 
clinical laboratory tests) with the goal of health promotion and 
disease detection; and
    (2) Education, counseling, and referral with respect to screening 
and other preventive coverage benefits separately authorized under 
Medicare Part B, excluding clinical laboratory tests.
    Specifically, section 611(b) of Pub. L. 108-173 provides that the 
education, counseling, and referral services with respect to the 
screening and other preventive services authorized under Medicare Part 
B include the following:
    (1) Pneumococcal, influenza, and hepatitis B vaccine and their 
administration;
    (2) Screening mammography;
    (3) Screening pap smear and screening pap smear and screening 
pelvic examination;
    (4) Prostate cancer screening tests;
    (5) Colorectal cancer screening tests;
    (6) Diabetes outpatient self-management training services;
    (7) Bone mass measurements;
    (8) Screening for glaucoma;
    (9) Medical nutrition therapy services for individuals with 
diabetes and renal disease;
    (10) Cardiovascular screening blood tests; and
    (11) Diabetes screening tests.
    Section 611(d)(2) of Pub. L. 108-173 amended sections 
1861(s)(2)(K)(i) and (s)(2)(K)(ii) of the Act to specify that the 
services identified as physicians' services and referred to in the 
definition of initial preventive physical examination include services 
furnished by a physician assistant, a nurse practitioner, or a clinical 
nurse specialist. We refer to these professionals as ``qualified 
nonphysician practitioners.''
    Based on the language of the statute, our review of the medical 
literature, current clinical practice guidelines, and United States 
Preventive Services Task Force recommendations, we proposed (under 
proposed new Sec.  410.16(a), Definitions) to interpret the term 
``initial preventive physical examination'' for purposes of this new 
benefit to include all of the following services furnished by a doctor 
of medicine or osteopathy or a qualified nonphysician practitioner:
    (1) Review of the beneficiary's comprehensive medical and social 
history. We proposed to define ``medical history'' to include, as a 
minimum, past medical and surgical history, including experience with 
illnesses, hospital stays, operations, allergies, injuries, and 
treatments; current medications and supplements, including calcium and 
vitamins; and family history, including a review of medical events in 
the patient's family, including diseases that may be hereditary or 
place the individual at risk. We proposed to define ``social history'' 
to include, at a minimum, history of alcohol, tobacco, and illicit drug 
use; work and travel history; diet; social activities; and physical 
activities.
    (2) Review of the beneficiary's potential (risk factors) for 
depression (including past experiences with depression or other mood 
disorders) based on the use of an appropriate screening instrument that 
the physician or qualified nonphysician practitioner may select from 
various available standardized screening tests for this purpose, unless 
the appropriate screening instrument is defined through the national 
coverage determination (NCD) process.
    (3) Review of the beneficiary's functional ability and level of 
safety (that is, at a minimum, a review of the following areas: Hearing 
impairment, activities of daily living, falls risk, and home safety), 
based on the use of an appropriate screening instrument, which the 
physician or qualified nonphysician practitioner may select from 
various available standardized screening tests for this purpose, unless 
the appropriate screening instrument is further defined through the NCD 
process.
    (4) An examination to include measurement of the beneficiary's 
height, weight, blood pressure, a visual acuity screen, and other 
factors as deemed appropriate, based on the beneficiary's comprehensive 
medical and social history and current clinical standards.
    (5) Performance of an electrocardiogram and interpretation.
    (6) Education, counseling, and referral, as deemed appropriate, 
based on the results of elements (1) through (5) of the definition of 
the initial preventive physical examination.
    (7) Education, counseling, and referral, including a written plan 
for obtaining the appropriate screening and other preventive services, 
which are also covered as separate Medicare Part B benefits; that is, 
pnuemococcal, influenza, and hepatitis B vaccines and their 
administration, screening mammography, screening pap smear and 
screening pelvic exams, prostate cancer screening tests, diabetes 
outpatient self-management training services, bone mass measurements, 
screening for glaucoma, medical nutrition therapy services, 
cardiovascular screening blood tests, and diabetes screening tests.
    As we indicated in the OPPS proposed rule, we are addressing the 
public comments that we received on our proposal to revise our 
regulations to include specific coverage of initial preventive physical 
examinations under Medicare Part B and finalizing our coverage policy 
for initial preventive physical examinations in the final rule for the 
CY 2005 Medicare Physician Fee

[[Page 65728]]

Schedule published elsewhere in this issue.
c. Assignment of New HCPCS Codes for Payment of Initial Preventive 
Physical Examinations
    There was no CPT code that contained the specific elements included 
in the initial preventive physical examination. Therefore, in the 
August 16, 2004 proposed rule, we proposed to establish a new HCPCS 
code to be used to bill for the new service under both the Medicare 
Physician Fee Schedule and the OPPS. We proposed a code, GXXXX, for the 
full service, including an EKG, but not including the other previously 
mentioned preventive services that are currently separately covered and 
paid under the Medicare Part B screening benefits. When these other 
preventive services are performed, they should be billed using the 
existing appropriate HCPCS and CPT codes.
    For payment under the Medicare Physician Fee Schedule, relative 
value units were proposed for the new HCPCS code for the initial 
preventive physical based on equivalent resources and work intensity to 
those contained in CPT evaluation and management code 99203 (New 
patient, office or other outpatient visit) and CPT 93000 
(Electrocardiogram, complete) (69 FR 47487, August 5, 2004). The 
``technical component'' of the Medicare Physician Fee Schedule (the 
costs other than those allocated for the physician's professional 
services and professional liability insurance which are billed and paid 
for separately, when appropriate) is the portion of the fee schedule 
payment that is most comparable to what Medicare pays under the OPPS. 
The estimated ``technical component'' of the Medicare Physician Fee 
Schedule payment for GXXXX was between $50 and $100.
d. APC Assignment of Initial Preventive Physical Examination
    Given our lack of cost data to guide assignment of the new code to 
a clinically appropriate APC, in our proposed rule, we proposed 
assignment of the new code GXXXX (Initial preventive physical 
examination) to New Technology APC 1539 (New Technology, Level II) with 
a payment level between $50 and $100. We believed that the proposed 
temporary assignment to a new technology APC would allow us to pay for 
the new benefit provided in the OPD while we accrued claims data and 
experience on which to base a clinically relevant APC assignment in the 
future.
    We received a number of public comments regarding the proposed 
payment for the initial preventive physical examination and its 
proposed APC placement.
    Comment: A number of commenters highlighted billing and operational 
concerns with the definition of a single HCPCS code, GXXXX, for the 
initial preventive physical examination. The commenters explained that, 
in hospitals where the EKG was performed in a separate department from 
the location of the physical examination, the technician charging for 
the service would have no way of distinguishing an EKG related to the 
initial preventive physical examination from other EKG tracings 
performed for diagnostic purposes, for which the hospital would bill 
for that specific service. The commenters noted that physicians often 
send their patients to hospitals for the EKG tracing, and if hospitals 
performed the EKG associated with the initial preventive physical 
examination in this context, they would have no way to bill for the 
EKG. The commenters presented various alternative coding possibilities 
for our consideration to address these situations.
    Response: Section 611 of Pub. L. 108-173 does require a screening 
EKG to be performed as part of the initial preventive physical 
examination visit. In view of the different circumstances that may 
occur when performing the full initial preventive physical examination, 
we are establishing four new G codes for the initial preventative 
physical examination for CY 2005.
    <bullet> G0344: Initial preventive physical examination; face-to-
face visit, services limited to new beneficiary during the first 6 
months of Medicare Part B enrollment. This code is assigned a status 
indicator ``V'' for the OPPS.
    <bullet> G0366: Electrocardiogram, routine EKG with at least 12 
leads; performed as a component of the initial preventive physical 
examination with interpretation and report. This code is assigned a 
status indicator ``B'' for the OPPS.
    <bullet> G0367: Electrocardiogram, tracing only, without 
interpretation and report, performed as a component of the initial 
preventive physical examination. This code is assigned status indicator 
``S'' for the OPPS.
    <bullet> G0368: Electrocardiogram, interpretation and report only, 
performed as a component of the initial preventive physical 
examination. This code is assigned status indicator ``A'' for the OPPS.
    In the hospital, performance of the complete initial preventive 
physical examination service would be coded using both the G0344 and 
G0367 codes. As required by the statute, the new codes describe the 
visit and the EKG, but not the other previously mentioned preventive 
services that are currently separately covered and paid under the 
Medicare Part B screening benefits. When these other preventive 
services are performed, they should be billed using the existing 
appropriate HCPCS and CPT codes.
    To comply with Pub. L. 108-173, the initial preventive physical 
examination must include the EKG, regardless of whether a diagnostic 
EKG had previously been performed. Both components of the initial 
preventive physical examination, the examination and the EKG, must be 
performed to fulfill the statutory benefit for either of the components 
to be paid. Billing instructions for providers will be issued.
    In addition to our decision to create two codes for hospitals to 
report for performance of the initial preventive physical examination 
service, we are assigning the codes to appropriate APCs as follows: 
G0344 is assigned to APC 0601 (Mid Level Clinic Visits), and G0367 is 
assigned to APC 0099 (Electrocardiograms). These APC assignments result 
in a total payment of approximately $78, slightly more than the $75 
payment rate proposed for the comprehensive initial preventive physical 
examination service in the proposed rule.
    Comment: A few commenters requested that CMS increase the payment 
for the initial preventive physical examination benefit and stated that 
the payment rate set is too low to cover the required clinical 
resources.
    Response: As stated in our proposed rule, the payment rate for the 
comprehensive initial preventive physical examination service under the 
OPPS was based on the rate proposed under the Medicare Physician Fee 
Schedule, which utilized estimates of necessary resources for the 
initial preventive physical examination benchmarked against the 
resources required to deliver existing evaluation and management and 
electrocardiogram services in the physician office. Based on comments 
concerning the adequacy of our proposed payment for the comprehensive 
initial preventive physical examination service and our decision to 
separate the examination service from the EKG for coding and payment 
purposes, we explicitly compared the resources we anticipated for the 
examination service delivered in the hospital to the OPPS median cost 
for the existing new office or other outpatient visit service which was 
used as a crosswalk. CPT code 99203 (Office

[[Page 65729]]

or other outpatient visit for a new patient) is in APC 0601, which has 
a median cost of $57.66. The AMA/Specialty Society RVS Update Committee 
survey data for code 99203 showed 51 minutes of staff time, and we 
believe the initial preventive physical examination will reflect 
comparable time and consumption of hospital resources. As we expect the 
hospital resources utilized for code G0344 to be similar to those 
needed for clinic visits for which we have historical hospital cost 
data, we will place G0344 in APC 0601 rather than in a new technology 
APC as we proposed for the initial preventive physical examination 
comprehensive service. We expect the hospital resources utilized for 
the screening EKG tracing, code G0367, to be very similar to those 
necessary for a diagnostic EKG tracing, code 93005 and assigned to APC 
0099. Together these APCs (0601 and 0099) will pay approximately $78, 
several more dollars than we proposed for the comprehensive service. We 
will monitor our claims data for the initial preventive physical 
examination services as hospitals gain experience delivering the 
services. We are finalizing our placement of code G0344 in APC 0601 for 
CY 2005 and code G0367 in APC 0099 for 2005.
    Comment: Several commenters asked that CMS provide explicit 
instructions and guidelines, respectively, to providers and 
beneficiaries regarding the details of what will be included in the new 
initial preventive physical examination benefit, the eligibility 
requirements, and how providers should bill Medicare for the new 
service. One commenter asked if the preventive physical examination 
will be subject to the evaluation and management guidelines.
    Response: We will release appropriate manual and transmittal 
instructions and information from the CMS educational components for 
the medical community, including a MedLearn Matters article and fact 
sheets such as the ``2005 Payment Changes for Physicians and Other 
Providers: News From Medicare for 2005''. The medical community can 
join this effort in educating physicians and beneficiaries by their own 
communications, bulletins, or other publications. In addition, we have 
specifically included information on the new initial preventive 
physical examination benefit in the 2005 version of the Medicare and 
You Handbook and revised booklet, Medicare's Preventive Services. A new 
2-page fact sheet on all of the new preventive services, including the 
initial preventive physical examination benefit, will be available this 
Fall, and a bilingual brochure for Hispanic beneficiaries will also be 
available in the near future. Information will be disseminated by CMS 
regional offices, State Health Insurance Assistance Programs (SHIPs), 
and various partners at the national, State, and local levels. 
Information on the new benefit will also be made available to the 
public through Web site, http://www.medicare.gov, the partner Web site 
to http://www.cms.hhs.gov, the toll free number 1-800-MEDICARE, 
numerous forums hosted by CMS, and conference exhibits and 
presentations.
    The initial preventive physical examination will not be subject to 
each hospital's internal set of evaluation and management guidelines 
that hospitals were instructed to develop at the implementation of the 
OPPS in the August 7, 2000 final rule (65 FR 18451) because we have 
defined one explicit service, without levels.
    Comment: Several commenters asked how providers of initial 
preventive physical examination services will know if a particular 
beneficiary is eligible to receive the new benefit due to the statutory 
time and coverage frequency (one-time benefit) limitations.
    Response: The statute provides for coverage of a one-time initial 
preventive physical examination that must be performed for new 
beneficiaries by qualified physicians or certain specified nonphysician 
practitioners within the first 6 month period following the effective 
date of the beneficiary's first Medicare Part B coverage. Because 
physicians or qualified nonphysician practitioners may not have the 
complete medical history for a particular new beneficiary, including 
information on possible use of the one-time benefit, these clinicians 
are largely relying on their own medical records and the information 
the beneficiary provides to them in establishing whether or not the 
initial preventive physical examination benefit is still available to a 
particular individual and has not been performed by another qualified 
practitioner. Because a second initial preventive physical examination 
will always fall outside the definition of the new Medicare benefit, an 
advance beneficiary notice (ABN) need not be issued in those instances 
where there is doubt regarding whether the beneficiary has previously 
received an initial preventive physical examination. The beneficiary 
will always be liable for a second initial preventive physical 
examination, no matter when it is conducted. However, for those 
instances where there is sufficient doubt as to whether the statutory 
6-month period has lapsed, the physician or qualified nonphysician 
practitioner should issue an ABN to the beneficiary that indicates that 
Medicare may not cover and pay for the service. If the physician or 
qualified nonphysician practitioner does not issue an ABN to the 
beneficiary and Medicare denies payment for the service because the 
statutory time limitation for conducting the initial preventive 
physical examination has expired, the physician or qualified 
nonphysician practitioner may be held financially liable.
    Comment: One commenter recommended that CMS compare the 
requirements of the initial preventive physical examination to the 
contemplated requirements for similar but not-yet-disclosed facility-
specific evaluation and management level definitions. The commenter 
wanted to ensure that the technical requirements are comparable between 
the new benefit and similar evaluation and management service 
definitions being contemplated by CMS.
    Response: We will take the commenter's recommendation into 
consideration in our ongoing work to develop new evaluation and 
management codes for the OPPS.
2. Payment for Certain Mammography Services (Section 614 of Pub. L. 
108-173)
    Section 614 of Pub. L. 108-173 amended section 1833(t)(1)(B)(iv) of 
the Act to provide that screening mammography and diagnostic 
mammography services are excluded from payment under the OPPS. This 
amendment applies to screening mammography services furnished on or 
after December 8, 2003 (the date of the enactment of Pub. L. 108-173), 
and in the case of diagnostic mammography, to services furnished on or 
after January 1, 2005. As a result of this amendment, both screening 
mammography and diagnostic mammography will be paid under the Medicare 
Physician Fee Schedule.
    In the August 16, 2004 proposed rule, we proposed to amend Sec.  
419.22 of the regulations by adding a new paragraph(s) to specify that 
both screening mammography and diagnostic mammography will be excluded 
from payment under the OPPS, in accordance with section 614 of Pub. L. 
108-173. We received a few public comments on our proposal.
    Comment: A few commenters expressed support for the movement of 
payment for diagnostic mammograms from the OPPS to the Medicare 
Physician Fee Schedule.
    Response: We appreciate the commenters' support. Additional

[[Page 65730]]

discussion of section 614 of Pub. L. 108-173 can be found in the final 
rule for the CY 2005 Medicare Physician Fee Schedule published 
elsewhere in this issue.
    Comment: A few commenters recommended that the payment rates for 
mammography be increased. The commenters stated that beneficiary access 
to mammography is being limited due to a growing number of radiologists 
who refuse to read mammograms due to low payment and high malpractice 
rates and recent closure of a large number of centers across the 
country.
    Response: We set the payment rates for diagnostic mammography based 
on hospital claims data, consistent with the payment methodology for 
OPPS services. In fact, in accordance with section 614 of Pub. L. 108-
173, which requires that diagnostic mammography be paid now under the 
Medicare Physician Fee Schedule, payment is set using an entirely 
different process. This statutory change in the payment process results 
in a somewhat increased payment for mammography procedures from that 
under the OPPS.
    Comment: One commenter asked CMS to clarify that the increase in 
payment for diagnostic mammography furnished in the hospital outpatient 
department does not ``come out of the [Medicare Physician Fee Schedule] 
budget.''
    Response: The increase in payment for diagnostic mammography 
furnished in the hospital outpatient department has no effect on 
payment for Medicare Physician Fee Schedule services. We are using the 
Medicare Physician Fee Schedule rate to set Medicare payment for 
diagnostic mammography furnished in the hospital outpatient department, 
as required by statute. Further, we are not including diagnostic 
mammography in our model for setting the relative weights under the 
OPPS. Thus, the increase in payment for diagnostic mammography 
furnished in the hospital outpatient department also has no effect on 
payment for any other OPPS services.
    In this final rule, we are adopting, as final without modification, 
our proposed revision of Sec.  419.22 to incorporate the provisions of 
section 614 of Pub. L. 108-173.

III. Recalibration of APC Relative Weights for CY 2005

A. Database Construction

    Section 1833(t)(9)(A) of the Act requires that the Secretary review 
and revise the relative payment weights for APCs at least annually, 
beginning in CY 2001 for application in CY 2002. In the April 7, 2000 
OPPS final rule (65 FR 18482), we explained in detail how we calculated 
the relative payment weights that were implemented on August 1, 2000, 
for each APC group. Except for some reweighting due to APC changes, 
these relative weights continued to be in effect for CY 2001. This 
policy is discussed in the November 13, 2000 interim final rule (65 FR 
67824 through 67827).)
    In the August 16, 2004 OPPS proposed rule, we proposed to use the 
same basic methodology that we described in the April 7, 2000 final 
rule to recalibrate the relative APC weights for services furnished on 
or after January 1, 2005, and before January 1, 2006. That is, we 
proposed to recalibrate the weights based on claims and cost report 
data for outpatient services. We proposed to use the most recent 
available data to construct the database for calculating APC group 
weights. We provide a complete description of the data processes we 
proposed to use for the creation of the CY 2005 OPPS payment rates in 
the August 16, 2004 proposed rule (69 FR 50448).
    For the purpose of recalibrating APC relative weights for CY 2005 
displayed in this final rule with comment period, we used the most 
recent available claims data, which were the approximately 132 million 
final action claims for hospital OPD services furnished on or after 
January 1, 2003, and before January 1, 2004. Of the 132 million final 
action claims for services provided in hospital outpatient settings, 
106 million claims were of the type of bill potentially appropriate for 
use in setting rates for OPPS services (but did not necessarily contain 
services payable under the OPPS). Of the 106 million claims, we were 
able to use 51 million whole claims (from which we created 84 million 
single procedure claim records) to set the final OPPS CY 2005 APC 
relative weights. We used claims from this period that had been 
processed before June 30, 2004, to calculate the APC weights and 
payments contained in Addenda A and B of this final rule with comment 
period.
    We received one general public comment on our proposed OPPS 
database construction for CY 2005 discussed in the August 16, 2004 
proposed rule.
    Comment: One commenter suggested that CMS use a nationally 
representative sample of hospitals from which cost data could be 
collected for purposes of setting relative weights. The commenter 
suggested that such a sample could be used to validate findings from 
the larger claims data set or to establish median costs that more 
accurately reflect the costs of providing device-related procedures and 
other outpatient services, or both. As an alternative, the commenter 
suggested conducting a demonstration project using a sample of 
hospitals that would receive small grants for set up and training to 
test the feasibility of collecting a valid reliable and manageable data 
set from which to develop payment rates.
    Response: We believe that the Medicare hospital outpatient claims 
and hospital cost reports are the best, nationally representative 
database of such information at present. Nevertheless, we acknowledge 
that an approach that would involve the collection of additional 
hospital data from a representative sample could have some merit. 
However, in addition to the resources that would be required for us to 
pursue such an approach, we also are concerned about the costs to 
hospitals associated with such an additional data collection effort. 
Nevertheless, we remain interested and invite additional suggestions 
from hospitals and other stakeholders on ways to enhance the data we 
now use to set relative weights for services paid under the OPPS.
1. Treatment of Multiple Procedure Claims
    For CY 2005, we proposed to continue to use single procedure claims 
to set the medians on which the weights would be based (69 FR 50474). 
As indicated in the August 16, 2004 proposed rule, we received many 
requests that we ensure that the data from claims that contain charges 
for multiple procedures were included in the data from which we 
calculate the CY 2005 relative payment weights (69 FR 50474). 
Requesters believe that relying solely on single procedure claims to 
recalibrate APC relative weights fails to take into account data for 
many frequently performed procedures, particularly those commonly 
performed in combination with other procedures. They believe that, by 
depending upon single procedure claims, we base relative payment 
weights on the least costly services, thereby introducing downward bias 
to the medians on which the weights are based.
    We agree that, optimally, it is desirable to use the data from as 
many claims as possible to recalibrate the relative payment weights, 
including those with multiple procedures. As discussed in the 
explanation of single procedure claims below, we have used the date of 
service on the claims and a list of codes to be bypassed to create 
``pseudo'' single claims from multiple procedure claims. We refer to 
these newly created single procedure claims

[[Page 65731]]

as ``pseudo'' singles because they were submitted by providers as 
multiple procedure claims.
2. Use of Single Procedure Claims
    We use single procedure claims to set the median costs for APCs 
because we are, so far, unable to ensure that packaged costs can be 
correctly allocated across multiple procedures performed on the same 
date of service. However, bypassing specified codes that we believe do 
not have significant packaged costs enables use of more data from 
multiple procedure claims. For CY 2003, we created ``pseudo'' single 
claims by bypassing HCPCS codes 93005 (Electrocardiogram, tracing), 
71010 (Chest x-ray), and 71020 (Chest x-ray) on a submitted claim. 
However, we did not use claims data for the bypassed codes in the 
creation of the median costs for the APCs to which these three codes 
were assigned because the level of packaging that would have remained 
on the claim after we selected the bypass code was not apparent and, 
therefore, it was difficult to determine if the medians for these codes 
would be correct.
    For CY 2004, we created ``pseudo'' single claims by bypassing these 
three codes and also by bypassing an additional 269 HCPCS codes in 
APCs. We selected these codes based on a clinical review of the 
services and because it was presumed that these codes had only very 
limited packaging and could appropriately be bypassed for the purpose 
of creating ``pseudo'' single claims. The APCs to which these codes 
were assigned were varied and included mammography, cardiac 
rehabilitation, and level I plain film x-rays. To derive more 
``pseudo'' single claims, we also broke claims apart where there were 
dates of service for revenue code charges on that claim that could be 
matched to a single procedure code on the claim on the same date.
    As in CY 2003, we did not include the claims data for the bypassed 
codes in the creation of the APCs to which the 269 codes were assigned 
because, again, we had not established that such an approach was 
appropriate and would aid in accurately estimating the median cost for 
that APC. For CY 2004, from about 16.3 million otherwise unusable 
claims, we used about 9.5 million multiple procedure claims to create 
about 27 million ``pseudo'' single claims. For the CY 2005 OPPS rates 
in this final rule with comment period, from about 24 million otherwise 
unusable claims, we used about 18 million multiple procedure claims to 
create about 52 million ``pseudo'' single claims.
    For CY 2005, we proposed to continue using date of service matching 
as a tool for creation of ``pseudo'' single claims and take a more 
empirical approach to creating the list of codes that we would bypass 
to create ``pseudo'' single claims. The process we proposed for CY 2005 
OPPS resulted in our being able to use some part of 89 percent of the 
total claims eligible for use in OPPS ratesetting and modeling in 
developing this final rule with comment period. In CY 2004, we used 
some part of the data from 82 percent of eligible claims. This process 
enabled us to use, for CY 2005, 84 million single bills for 
ratesetting: 52 million ``pseudo'' singles and 33 million ``natural'' 
single bills.
    We proposed to bypass the 383 codes, which we published in Table 17 
of the proposed rule (69 FR 50476 through 50486), to create new single 
claims and to use the line-item costs associated with the bypass codes 
on these claims in the creation of the median costs for the APCs into 
which they are assigned (69 FR 50474 through 50486). Of the codes on 
this list, only 123 (32 percent) were used for bypass in CY 2004.
    We developed the proposed bypass list using four criteria:
    a. We developed the following empirical standards by reviewing the 
frequency and magnitude of packaging in the single claims for payable 
codes other than drugs and biologicals. We proposed to use these 
standards to determine codes that could be bypassed to create 
``pseudo'' single claims for median setting. (More explanation 
regarding the use of these standards is provided in our August 16, 2004 
OPPS proposed rule (69 FR 50475).)
    <bullet> There were 100 or more single claims for the code.
    <bullet> Five percent or fewer of the single claims for the code 
had packaged costs on that single claim for the code.
    <bullet> The median cost of packaging observed in the single claim 
was equal to or less than $50.
    <bullet> The code is not a code for an unlisted service.
    b. We examined APCs relying on a low volume of single claims, and 
it became apparent that several radiological supervision and 
interpretation codes were commonly billed with the procedural codes in 
the APCs. We then reviewed all radiological supervision and 
interpretation codes to assess their viability as bypass codes. For the 
codes included on the proposed list published in Table 17, we 
determined that, generally, the packaging on claims, including these 
radiological supervision and interpretation codes, should be associated 
with the procedure performed.
    c. We examined radiation planning and related codes provided by a 
professional organization. In the organization's opinion, the codes 
could safely be bypassed and used without packaging to set medians for 
the APCs into which these codes are assigned. Many of the codes the 
organization recommended met our criteria under item a., and the 
remaining codes were close. Therefore, after reviewing such codes, we 
proposed to adopt as bypass codes all radiation planning and related 
codes as provided by the organization.
    d. We included HCPCS codes 93005 and 71010. These codes have been 
bypassed for the past 3 years and generate a significant amount of new 
single claims because they are very commonly done on the same date of 
surgery. They have low median packaged costs and a low percentage of 
single claims with any packaged costs, 6 percent and 18 percent, 
respectively.
    In the August 16, 2004 proposed rule, we invited public comment on 
the ``pseudo'' single process, including the bypass list and the 
criteria. We received a number of public comments on our proposals.
    Comment: Some commenters stated that CMS should provide an impact 
analysis by medical specialty and APC for the bypass list. Commenters 
indicated that 26 radiation oncology codes, which represent over 40 
percent of the radiation oncology codes, are on the proposed list and 
that it is not clear what impact the inclusion of these codes will have 
on payment for radiation oncology procedures.
    Response: The OPPS pays hospitals for the hospital services they 
furnish and, therefore, we focus our impact analysis on the providers 
who provide services and to whom the payment is made. It is impractical 
to do an impact analysis by hospital category, much less medical 
specialty and APC, for each and every step of the process we use to 
establish medians on which we base our payment rates.
    However, to facilitate the public's ability to do specialized 
detailed analyses beyond what is practical for us to do, we make 
available the claims we use to set median costs. Specifically, the 
claims we used to set the payment rates for CY 2004 OPPS and CY 2005 
OPPS are available to the public for public use in extended and focused 
analysis at any level of interest. Moreover, exhaustive discussion of 
our process is contained in both the CY 2004 and CY 2005 OPPS final 
rule with comment period claims accounting documents that are available 
on www.cms.hhs.gov/providers/

[[Page 65732]]

hopps.asp, to facilitate the use of such claims for further analysis. 
Therefore, we provide to the public the data needed for a focused 
exhaustive analysis of impact by medical specialty or on any basis on 
which any party with a special interest has a particular concern.
    The 383 bypass codes presented in Table 17 of the proposed rule 
represent the result of an empirical and clinical analysis that 
identified HCPCS codes for which we could not observe significant 
packaged costs in the CY 2003 claims data and for which there was no 
clinical reason that a procedure or service should have significant 
packaged costs. These criteria are detailed in the proposed rule and 
were carefully chosen to avoid the inaccurate redistribution of 
packaged costs (69 FR 50474 through 50475). Inclusion of a HCPCS code 
on the bypass list is not predicated on the median impact, but rather 
empirical evidence or clinical arguments that these procedures do not 
contain significant packaged costs that would call into question their 
appropriateness for inclusion on the bypass list.
    Comment: Most commenters supported the use of a bypass list and 
date of service matching as a way to use more data from multiple 
claims. One commenter was concerned that the bypass list may 
inappropriately break multiple claims into single procedure claims by 
assuming that the amount and frequency of packaging on procedures found 
on single bills was the same as would exist on multiple procedure 
claims. The commenter stated that claims involving multiple APCs are by 
their nature the most complex combinations of services requiring many 
more resources than if they were performed singly and that, therefore, 
CMS may be incorrect to generalize that the packaging found on single 
bills would also be present for the same procedure done as a multiple 
procedure. Another commenter opposed the use of the bypass list, citing 
it as a ``bandaid'' and as not a satisfactory way to deal with the 
presence of multiple procedure claims over the long run. The commenter 
indicated that, given the OPPS experience gained over the past years, 
CMS should be able to perform a study of multiple procedure claims that 
provides a mechanism for using them.
    Response: We have retained and used the proposed bypass methodology 
in creating the median costs used to set the CY 2005 OPPS relative 
payment weights in this final rule with comment period. We believe that 
the use of the bypass list gives us considerably more single claims for 
ratesetting than had we not used it and that it is a valid 
representation of codes for which there is seldom any packaging and for 
which the packaging that exist, is minimal. Given the inability of any 
concrete processes that provide a way to attribute packaging on 
multiple bill claims, we believe that the best and only alternative 
available is for us to use the packaging on single bill claims to 
determine whether a code can be safely bypassed in the creation of 
``pseudo single'' claims for median setting. We continue to examine the 
means by which we could use all multiple procedure claims and to invite 
additional recommendations from the public on how we might do so.
    Comment: One commenter strongly objected to any method of using 
multiple procedure claims that would rely in any way on payment weights 
because the commenter believed that any such method would compound 
problems in the data by carrying them forward into future years.
    Response: We expect to examine a number of different ways of using 
the data from multiple procedure claims and will evaluate each 
carefully before we discard any particular process. As we have in the 
past for updating the OPPS, if we decide to pursue any particular 
process change, we will discuss our findings and any proposed changes 
to the OPPS median development process in the proposed rule and 
consider public comments on the proposal before we change the process.
    Comment: Some commenters indicated that the use of single procedure 
claims means that the most typical correctly coded claims are not used 
for many services. They added that many of the procedures that implant 
a device are actually replacing an existing device, which means that 
the removal of the device is billed with one code while the implant is 
billed with another code on the same claim on the same date of service, 
thereby creating a multiple procedure claim that will become two 
``pseudo'' single claims under the CMS process. The commenters also 
stated that services that are provided only in addition to other 
services, such as noncoronary intravascular ultrasound, can never be 
correctly coded as a single procedure claim. They contended that such 
correctly coded claims will be multiple major procedure claims and thus 
will not be used for median cost setting. The commenters stated that 
the nature of some services being routinely performed in combination 
with other services means that, under the current CMS methodology, only 
small percentages of the claims will be used to set the medians and 
that those claims are likely to be the incorrectly coded claims.
    Response: We recognize that there are categories of service that 
are typically done in combination with other services at such frequency 
that acquiring valid single procedure claims is very difficult, if not 
impossible. We are planning to explore these services for which the 
medians are set based on a small percentage of the claims that are 
submitted with the APC Panel in the future to determine what methods 
may be available to deal effectively with these situations.
    In the August 16, 2004 proposed rule, we also discussed suggestions 
that we had received for creating ``pseudo'' single claims, which 
included recommendations that the costs in packaged revenue codes and 
packaged HCPCS codes be allocated separately to paid HCPCS codes based 
on the prior year's payment weights or payment rates for the single 
procedures. Still other suggestions recommended that we allocate the 
packaged costs in proportion to the charges or to the costs for the 
major procedures based on the current year's claims. We are concerned 
that using a prior year's median costs, relative weights or payment 
rates as the basis to allocate current year's packaged costs to current 
year costs for payable HCPCS codes may not be appropriate. For example, 
if two procedures are performed and one uses an expensive device, this 
methodology would split the costs of the device between the service 
that uses the device and a service that does not use the device, thus 
resulting in an incorrect allocation of the packaged costs. For this 
reason, we did not propose to incorporate these suggestions in our 
ratesetting methodology. However, we stated in our proposed rule that 
we intended to examine them more thoroughly.
    We did not propose a methodology beyond use of dates of service and 
the expanded bypass list. However, we solicited specific proposals that 
would be provided as comments on how multiple procedure claims can be 
better used in calculating the relative payment weights.
    Comment: One commenter asked that CMS clarify whether the 
``pseudo'' single claims data for CPT codes 93307 (Echo exam of heart), 
93303 (Echo transthoracic), and 93320 (Doppler echo exam, heart) were 
used in setting APC relative weights and, if so, the impact of this 
proposal. Another commenter asked that CMS clarify whether HCPCS codes 
for drugs, radiopharmaceuticals, and blood products were bypassed to 
create ``pseudo'' singles. The commenter

[[Page 65733]]

believed that packaged costs are never associated with these items; 
therefore, they should always be bypassed.
    Response: The claims data for the three referenced CPT codes were 
used in setting the APC relative weights for these services. They were 
included in the list of bypass codes because they met the criteria for 
inclusion, which focused on selecting only claims that often did not 
include packaged services and for which packaging on the single bills 
was very modest.
    We agree with the commenter that drugs, radiopharmaceuticals, and 
blood products would rarely be expected to have associated packaged 
costs. Presence of codes for these items on a claim does not result in 
a multiple claim, as we do not consider the items to be major 
procedures.
    Comment: One commenter asked that CMS add CPT codes 76362 (Computed 
tomography guidance for, and monitoring of, visceral tissue ablation), 
76394 (Magnetic resonance guidance for, and monitoring of, visceral 
tissue ablation), and 76940 (Us guide, tissue ablation) to the bypass 
list because they are often billed with CPT code 47382 (Radiofrequency 
ablation procedures of the liver) and CPT code 20982 (Radiofrequency 
ablation procedures of the bone). The commenter believed that this 
approach would create more single claims for those codes.
    Response: The three CPT codes that the commenter requested we add 
to the bypass list did not have sufficient claims volume at the time 
the bypass list was created to meet the criteria for inclusion. When we 
next review the bypass list, we will examine these codes for inclusion 
on any future bypass list.
    Comment: One commenter objected to use of data-based criteria as 
the only determinant of whether services are included on the bypass 
list. Specifically, the commenter objected to the inclusion of CPT 
evaluation and management codes 99213 and 99214 on the bypass list even 
though CPT codes 99211, 99212, and 99215 are not included on the list. 
The commenter believed that CMS should not assume that these codes do 
not typically have packaged costs associated with them because less 
than 5 percent of the claims with the code appeared on a claim with 
packaged charges. The commenter believed that all codes that ``meet the 
5 percent data test'' should be qualitatively reviewed to determine 
whether clinical practice and charging methods support the assertion 
that packaged dollars are not related to the service proposed for the 
bypass list. The commenter also recommended that CMS include on the 
bypass list ``add-on'' CPT codes that have a status indicator of ``N'' 
so that the remaining packaged services on the claim would be packaged 
to the main procedure if that were the only other APC reported on the 
claim. The commenter recommended that ``add-on'' CPT codes with APC 
payment should be accepted as bypass codes if the only other CPT code 
on the claim is the main procedure.
    Response: The commenter is incorrect in believing that the only 
criterion used to determine if a code were suitable for inclusion on 
the bypass list was whether 5 percent of the claims for the code 
appeared with packaged charges. As we discussed above, there were a 
number of criteria that had to be met which were focused on ensuring 
that packaging did not occur often or in significant amounts when it 
did occur. We reviewed the clinical appropriateness of the codes that 
were derived from applying the criteria, and did not remove any as a 
result of the review. Given the large volume of evaluation and 
management services, we believe that the evaluation and management 
codes we included on the bypass list were appropriate for inclusion. As 
we discussed with regard to the radiological supervision and evaluation 
codes and the simple EKG and chest x-ray codes, clinical practice and 
charging methods were also factors in determining inclusion on the 
bypass list.
    With respect to the add-on codes, those that have a status 
indicator of ``N'' would not cause a claim to be a multiple procedure 
claim (because they are not separately paid). Thus it would not be 
useful to add them to the bypass list (which is intended to break 
multiple procedure claims into two single claims). Those add-on codes 
that are paid separately may or may not have packaging associated with 
them. Thus, it would be incorrect to assume that all packaging on the 
claim would be associated with the core procedure to which the add-on 
code is an appendage. For example, insertion of a left ventricular 
pacing lead as an add-on procedure to the insertion of a cardioverter-
defibrillator carries considerable packaged costs with the add-on 
service, such as the device, significant additional operating room 
time, and extra drugs and medical supplies, and, therefore, it would 
not be suitable for inclusion on the bypass list.
    After carefully reviewing all public comments received, we are 
adopting as final the bypass codes listed in Table 16 below.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

B. Calculation of Median Costs for CY 2005

    In this section of the preamble, we discuss the use of claims to 
calculate the OPPS payment rates for CY 2005. (The hospital outpatient 
prospective payment page on the CMS Web site on which this final rule 
with comment period is posted provides an accounting of claims used in 
the development of the final rates: http://www.cms.hhs.gov/hopps.) The 
accounting of claims used in the development of the final rule with 
comment period is included under supplemental materials for this final 
rule with comment period. That accounting provides additional detail 
regarding the number of claims derived at each stage of the process. In 
addition, we note that below we discuss the files of claims that 
comprise the data sets that are available for purchase under a CMS data 
user contract. Our CMS Web site, http://www.cms.hhs.gov/providers/hopps 
includes information about purchasing the following two OPPS data 
files: ``OPPS limited data set'' and ``OPPS identifiable data set.''
    In this final rule with comment period, we are using the same 
methodology as proposed in the August 16, 2004 proposed rule to 
establish the relative weights that we used in calculating the OPPS 
payment rates for CY 2005 shown in Addenda A and B to this final rule 
with comment period. This methodology is as follows:
    We used outpatient claims for full CY 2003 to set the relative 
weights for CY 2005. To begin the calculation of the relative weights 
for CY 2005, we pulled all claims for outpatient services furnished in 
CY 2003 from the national claims history file. This is not the 
population of claims paid under the OPPS, but all outpatient claims 
(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).
    We then excluded claims with condition codes 04, 20, 21, and 77. 
These are claims that providers submitted to Medicare knowing that no 
payment will 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, and the U.S. Virgin Islands 
because hospitals in those geographic areas are not paid under the 
OPPS.
    We divided the remaining claims into the three groups shown below. 
Groups

[[Page 65744]]

2 and 3 comprise the 106 million claims that contain hospital bill 
types paid under the OPPS.
    1. Claims that were not bill types 12X, 13X, 14X (hospital bill 
types), or 76X (CMHC bill types). Other bill types, such as ASCs, bill 
type 83, are not paid under the OPPS and, therefore, these claims were 
not used to set OPPS payment.
    2. Bill types 12X, 13X, or 14X (hospital bill types). These claims 
are hospital outpatient claims.
    3. Bill type 76X (CMHC). (These claims are later combined with any 
claims in item 2 above with a condition code 41 to set the per diem 
partial hospitalization rate determined through a separate process.)
    In previous years, we have begun the CCR calculation process using 
the most recent available cost reports for all hospitals, irrespective 
of whether any or all of the hospitals included actually filed hospital 
outpatient claims for the data period. However, in developing the 
proposed rule and this final rule with comment period, we first limited 
the population of cost reports to only those for hospitals that filed 
outpatient claims in CY 2003 before determining whether the CCRs for 
such hospitals were valid. This initial limitation changed the 
distribution of CCRs used during the trimming process discussed below.
    We then calculated the CCRs at a departmental level and overall for 
each hospital for which we had claims data. We did this using hospital 
specific data from the Hospital Cost Report Information System (HCRIS). 
As indicated in the proposed rule, we used the same CCRs as those used 
in calculating the relative weights that we used in developing the 
proposed rule. We did not recalculate CCRs to reflect updated cost 
report data.
    We then flagged CAHs, which are not paid under the OPPS, and 
hospitals with invalid CCRs. These included claims from hospitals 
without a CCR; those from hospitals paid an all-inclusive rate; those 
from hospitals with obviously erroneous CCRs (greater than 90 or less 
than .0001); and those from hospitals with 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 departmental level 
by removing the CCRs for each cost center as outliers if they exceeded 
+/-3 standard deviations of the geometric mean. In prior years, we did 
not trim CCRs at the departmental level. However, for CY 2005, as 
proposed, we trimmed at the departmental CCR level to eliminate 
aberrant CCRs that, if found in high volume hospitals, could skew the 
medians. We used a four-tiered hierarchy of cost center CCRs to match a 
cost center to a revenue code with the top tier being the most common 
cost center and the last tier being the default CCR. If a hospital's 
departmental CCR was deleted by trimming, we set the departmental CCR 
for that cost center to ``missing,'' so that another departmental CCR 
in the revenue center hierarchy could apply. If no other departmental 
CCR could apply to the revenue code on the claim, we used the 
hospital's overall CCR for the revenue code in question.
    We then converted the charges on the claim by applying the CCR that 
we believed was best suited to the revenue code indicated on the line 
with the charge. (We discussed in greater detail the allowed revenue 
codes in the proposed rule (69 FR 50487).) If a hospital did not have a 
CCR that was appropriate to the revenue code reported for a line-item 
charge (for example, a visit reported under the clinic revenue code but 
the hospital did not have a clinic cost center), we applied the 
hospital-specific overall CCR, except as discussed in section V.H. of 
this final rule with comment period, for calculation of costs for 
blood.
    Thus, we applied CCRs as described above to claims with bill types 
12X, 13X, or 14X, excluding all claims from CAHs and hospitals in 
Maryland, Guam, or the U.S. Virgin Islands, and flagged hospitals with 
invalid CCRs. We excluded claims from all hospitals for which CCRs were 
flagged as invalid.
    We identified claims with condition code 41 as partial 
hospitalization services of CMHCs and removed them to another file. 
These claims were combined with the 76X claims identified previously to 
calculate the partial hospitalization per diem rate.
    We then excluded claims without a HCPCS code. We also removed 
claims for observation services to another file. We removed to another 
file claims that contained nothing but flu and pneumococcal pneumonia 
(``PPV'') vaccine. Influenza and PPV vaccines are paid at reasonable 
cost and, therefore, these claims are not used to set OPPS rates. We 
note that the two above mentioned separate files containing partial 
hospitalization claims and the observation services claims are included 
in the files that are available for purchase as discussed above.
    We next copied line-item costs for drugs, blood, and devices (the 
lines stay on the claim but are copied off onto another file) to a 
separate file. No claims were deleted when we copied these lines onto 
another file. These line-items are used to calculate the per unit 
median for drugs, radiopharmaceuticals, and blood and blood products. 
The line-item costs were also used to calculate the per administration 
cost of drugs, radiopharmaceuticals, and biologicals (other than blood 
and blood products) for purposes of determining whether the cost of the 
item would be packaged or paid separately. Section 1833(t)(16)(B) of 
the Act, as added by section 621(a)(2) of Pub. L. 108-173, requires the 
Secretary to lower to $50 the threshold for separate payment of drugs 
and biologicals and the per administration cost derived using these 
line-item cost data would be used to make that decision for CY 2005. As 
discussed in the November 7, 2003 OPPS final rule with comment period 
(68 FR 63398), we had also applied a $50 threshold to these items for 
the CY 2004 update to the OPPS.
    We then divided the remaining claims into five groups.
    1. Single Major Claims: Claims with a single separately payable 
procedure, all of which would be used in median setting.
    2. Multiple Major Claims: Claims with more than one separately 
payable procedure or multiple units for one payable procedure. As 
discussed below, some of these can be used in median setting.
    3. Single Minor Claims: Claims with a single HCPCS code that is not 
separately payable. These claims may have a single packaged procedure 
or a drug code.
    4. Multiple Minor Claims: Claims with multiple HCPCS codes that are 
not separately payable without examining dates of service. (For 
example, pathology codes are packaged unless they appear on a single 
bill by themselves.) The multiple minor file has claims with multiple 
occurrences of pathology codes, with packaged costs that cannot be 
appropriately allocated across the multiple pathology codes. However, 
by matching dates of service for the code and the reported costs 
through the ``pseudo'' single creation process discussed earlier, a 
claim with multiple pathology codes may become several ``pseudo'' 
single claims with a unique pathology code and its associated costs on 
each day. These ``pseudo'' singles for the pathology codes would then 
be considered a separately payable code and would be used like claims 
in the single major claim file.
    5. Non-OPPS Claims: Claims that contain no services payable under 
the OPPS are 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.

[[Page 65745]]

    We note that the claims listed in numbers 1, 2, and 4 above are 
included in the data files that can be purchased as described above.
    We set aside the single minor claims and the non-OPPS claims 
(numbers 3 and 5 above) because we did not use either in calculating 
median cost.
    We then examined the multiple major and multiple minor claims 
(numbers 2 and 4 above) to determine if we could convert any of them to 
single major claims using the process described previously. We first 
grouped items on the claims by date of service. If each major procedure 
on the claim had a different date of service and if the line-items for 
packaged HCPCS and packaged revenue codes had dates of service, we 
broke the claim into multiple ``pseudo'' single claims based on the 
date of service.
    After those single claims were created, we used the list of 
``bypass codes'' in Table 16 of this final rule with comment period to 
remove separately payable procedures that we determined contain limited 
costs or no packaged costs from a multiple procedure bill. A discussion 
of the creation of the list of bypass codes used for the creation of 
``pseudo'' single claims is contained in section III.A.2. of this 
preamble.
    When one of the two separately payable procedures on a multiple 
procedure claim were on the bypass code list, the claim was split into 
two single procedure claims 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 retained the packaged revenue code charges and the 
packaged HCPCS charges.
    We excluded those claims that we were not able to convert to 
singles even after applying both of the techniques for creation of 
``pseudo'' singles. We then packaged the costs of packaged HCPCS (codes 
with status indicator ``N'' listed in Addendum B to this final rule 
with comment period) and packaged revenue codes into the cost of the 
single major procedure remaining on the claim. The list of packaged 
revenue codes is shown in Table 17 below.
    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, 56 million claims were 
left. This subset of claims is roughly one-half of the 106 million 
claims for bill types paid under the OPPS. Of these 56 million claims, 
we were able to use some portion of 52 million (91 percent) whole 
claims to create the 84 million single and ``pseudo'' single claims for 
use in the CY 2005 median payment ratesetting.
    We also excluded claims that either had zero costs after summing 
all costs on the claim or for which CMS lacked an appropriate provider 
wage index. For the remaining claims, we then wage adjusted 60 percent 
of the cost of the claim (which we determined to be the labor-related 
portion), as has been our policy since initial implementation of the 
OPPS, to adjust for geographic variation in labor-related costs. We 
made this adjustment by determining the wage index that applied to the 
hospital that furnished the service and dividing the cost for the 
separately paid HCPCS code furnished by the hospital by that wage 
index. As proposed, we used the final pre-reclassified wage indices for 
IPPS and any subsequent corrections. We used 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 would 
result in the most accurate adjusted median costs.
    We then excluded claims that were outside 3 standard deviations 
from the geometric mean cost for each HCPCS code. We used the remaining 
claims to calculate median costs for each separately payable HCPCS 
code; first, to determine the applicability of the ``2 times'' rule, 
and second, to determine APC medians as based on the claims containing 
the HCPCS codes assigned to each APC. As stated previously, section 
1833(t)(2) of the Act provides that, subject to certain exceptions, the 
items and services within an APC group cannot be considered comparable 
with respect to the use of resources if the highest median (or mean 
cost, if elected by the Secretary) for an item or service in the group 
is more than 2 times greater than the lowest median cost for an item or 
service within the same group (``the 2 times rule''). Finally, we 
reviewed the medians and reassigned HCPCS codes to different APCs as 
deemed appropriate. Section III.B. of this preamble includes a 
discussion of the HCPCS code assignment changes that resulted from 
examination of the medians and for other reasons. The APC medians were 
recalculated after we reassigned the affected HCPCS codes.
    A detailed discussion of the medians for blood and blood products 
is provided at section V.I. of this preamble. We provide a discussion 
of the medians for APC 0315 (Level II Implantation of Neurostimulator), 
and APC 0651 (Complex Interstitial Radiation Application), at sections 
III.C.2.a. and III.C.2.b., respectively, of this preamble.
    A discussion of the medians for APCs that require one or more 
devices when the service is performed is provided at section III.C. of 
this preamble. A discussion of the median for observation services is 
provided at section VII.D. of this preamble and a discussion of the 
median for partial hospitalization is provided at section X.C. of this 
preamble.
    We received a number of public comments concerning our proposed 
data processes for calculating the CY 2005 OPPS relative weights and 
median costs.
    Comment: Some commenters requested that CMS provide specialty-
specific and APC-specific impact tables that provide additional 
information and analysis of its proposal to trim CCRs on a departmental 
basis. The commenters stated that CMS should justify why it trimmed 
departmental CCRs at <plus-minus>3 standard deviations from the 
geometric mean and explain the impact of the change.
    Response: We chose to trim at <plus-minus>3 standard deviations 
from the geometric mean because cost and charge data are traditionally 
log normal distributed and because the 3 standard deviations threshold 
is standard policy for identifying outliers in CMS' payment systems. We 
do not believe that an impact analysis for the departmental-level CCR 
trim is necessary because the overall number of cost-centers trimmed 
were minimal relative to the number of hospitals and because this trim 
only removed extreme department CCRs, both low and high. We fully 
expect that, had we chosen not to trim at the department-level, extreme 
cost estimates would have been removed during our trim at the HCPCS-
level performed later in the data development process.
    For example, we trimmed the most department CCRs, 68, from cost 
center 5500, Medical Supplies Charged to Patients. The low CCRs that 
were trimmed ranged from 0.00008 to 0.0281. The high CCRs that were 
trimmed ranged from 0.39530 to 6069.17. Even after the department-level 
trim, only 7 percent of the hospitals in our data set defaulted to the 
overall CCR for services mapped to this cost center.
    Comment: One commenter stated that the CCRs fell between 1996 and 
2002 because charges were increasing faster than costs and that this 
change resulted in a significant payment decrease for hospitals for 
which we used the default CCR. The commenter urged CMS to instruct 
fiscal intermediaries to work with these hospitals in determining

[[Page 65746]]

CCRs that will provide accurate cost estimates.
    Response: The commenter misunderstood the source of the CCRs used 
to adjust hospital costs to charges for OPPS median setting. We do not 
use the CCRs that fiscal intermediaries calculate for purposes of 
outlier payments, and cost reimbursement. Instead, we use hospital 
specific data from the health care cost reporting information system 
and independently calculate CCRs for each standard and nonstandard cost 
center in which the costs of outpatient services are to be found as 
well as an overall CCRs for the costs of outpatient care. Hence, 
intermediaries have no role in the calculation of the CCRs used to 
reduce charges to approximate costs for OPPS median cost setting.
    Comment: One commenter asked that CMS justify why did it not use 
cost-to-charge data from all hospitals for CY 2005 OPPS calculations 
when, in the past, CMS used cost report data from all hospitals without 
regard to whether the hospital had filed data during a specified 
period.
    Response: In the past, we first calculated CCRs for all providers, 
trimmed the overall hospital CCRs, and then compared the providers for 
which we had valid CCRs to the providers for which we had claims data. 
For CY 2005 OPPS, we first determined the providers for which we had 
claims data and we then calculated the CCRs for those hospitals so that 
the trimming would occur only across the hospitals for which we had 
claims data because a CCR is of value only if there are claims to which 
to apply it.
    Comment: One commenter urged CMS to greatly expand the outpatient 
code editor (OCE) edits to return to providers claims that fail edits 
that are appropriate to the type of service being billed. The commenter 
cited as examples, the creation of edits that return claims for 
chemotherapy administration procedures if anti-neoplastics (cancer 
chemotherapy) are not also billed on the same day and edits that return 
claims for services that require the use of contrast agents if no 
contrast agent were billed. The commenter believed that this would 
greatly improve the data on which median costs are set.
    Response: We do not intend, at this time, to greatly expand the OCE 
edits to force correct coding as the commenter recommends beyond the 
edits for correct coding of device procedures that are discussed in 
section III.C.4 of this final rule with comment period. While we 
recognize that these kinds of edits would likely result in better 
coding, they would also impose a significant burden on hospitals. We 
do, however, encourage hospitals to review their claims completion 
processes carefully and to edit their claims before they are submitted 
to maximize the likelihood that the claims are correct and complete. 
Such a practice would both assist us in developing better OPPS rates, 
but more importantly, ensure that hospitals are being correctly paid 
for all of the services they furnish to our beneficiaries.
    Comment: One commenter noted the prevalence of drug billing and 
charging errors and recommended that CMS revise its median trimming 
methodology for drugs from <plus-minus>3 standard deviations from the 
geometric mean to a trim by provider by drug based on the correlation 
of units and charges. This approach assumes that hospitals engaged in 
accurate and consistent unit coding and billing will demonstrate a 
strong correlation between units and per unit charges. The commenter 
noted that CMS' current trim is very conservative, especially for low 
costs per unit because it will only eliminate negative cost values, 
which do not exist in the data. The commenter further suggested that 
CMS' trim of department-level CCR's and the use of C-code only claims 
to set device medians are comparable to this proposal.
    Response: We agree that billing accurate units has proven 
challenging for some hospitals in light of various differences in 
packaged versus delivered units, changing drug pricing, and unit 
changes in HCPCS codes. Clearly, our goal in conducting the current 
trim at <plus-minus>3 standard deviations from the geometric mean is to 
remove aberrant per unit costs, or costs that are so far removed from 
the geometric mean that the probability of their occurrence is less 
than 1 percent. However, even after this trim is conducted, we remain 
concerned about the per unit cost estimates for some drug codes.
    We believe, however, that the current trim of drug costs, while 
conservative, is not as limiting as suggested in the comment. The 
natural logarithm of costs per unit less than $1 will be negative. The 
trim compares the natural logarithm of the cost to the geometric mean, 
<plus-minus>3 standard deviations and removes low and high cost 
observations. The low trim threshold may also be negative if costs are 
less than $1. In addition to using a trim, we also rely on a median 
cost rather than an average cost. Averages are subject to the influence 
of extreme outliers. Using a median instead of a mean eliminates this 
concern. Assuming most line-items for any given drug are coded 
correctly, using a trim and the median should provide a robust per unit 
cost estimate. Nonetheless, we do recognize that for selected low-
volume or complex products, this approach is still not sufficient to 
remove all errors.
    We are concerned, however, about implementing systematic trimming 
at the provider-level as suggested by the commenter for several 
reasons. First, this approach would remove the data for multiple 
providers from any given median calculation, making the assumption that 
their data were inaccurate, when, in fact, a few instances of poor 
coding may adversely impact the provider's correlation coefficient. 
Thus, a provider may actually be coding and charging accurately in many 
cases. In rare instances, we have removed a specific provider when it 
is more than obvious that the data are erroneous, but we only do this 
after a careful review of the provider's claims data. It is our 
preference to remove aberrant line-items rather than a provider's 
entire data for any given drug. Second, correlation coefficients for a 
provider may fluctuate if they are based on very low-volume, even if 
the majority of line-items appear accurate. Third, the commenter's 
proposed correlation coefficient approach lacks a generally accepted 
threshold when a providers' data should be removed, unlike the widely 
accepted trim of 3 standard deviations from the mean. Finally, this 
approach assumes that a negative correlation coefficient implies that a 
provider erred in setting its charging practices.
    While we agree that the proposed trim seeks to improve the accuracy 
of the claims data, which is the goal of all trimming, we disagree that 
the commenter's proposed trim is necessarily comparable to the use of a 
department-level CCR trim and the limitation of claims to those with C-
codes for estimating medians for device-dependent APCs. The department-
level trim does not eliminate a provider entirely, it eliminates the 
department-level CCR for a specific hospital and replaces this CCR with 
the overall CCR for that hospital. Relying on C-coded claims to 
calculate device-dependent medians assures us that the device was used 
with the device-dependent procedure. The specific cost associated with 
the device code is not considered in subsetting claims and the 
subsetting is done by claim, not by provider. While the commenter's 
proposed methodology is not appropriate for use at this time, we 
nonetheless believe that the commenter's suggested approach can serve 
as a useful tool in helping us begin the process of identifying 
providers Comment: One commenter indicated that using the overall CCR 
where the

[[Page 65747]]

departmental CCR cannot be used may skew the costs derived from 
application of CCRs to charges. The commenter suggested that CMS 
develop a method for replacing departmental CCRs similar to that used 
for blood and blood products whereby the CCR that would apply would not 
be the overall CCR but a national CCR calculated based on the 
departmental CCRs of hospitals that do report the more pertinent 
specific cost centers on their cost reports.
    Response: We will consider whether doing so is practical and 
whether it would yield more accurate cost estimates. However, there 
were very specific characteristics of the reporting of blood such as a 
very specific cost center and very specific revenue codes that may not 
exist for other services.
    Comment: One commenter asked that CMS undertake a study to improve 
the reporting of costs in conjunction with the CCR development. The 
commenter stated that a more timely process should be implemented so 
that currently accurate CCRs are used to translate hospital charges to 
costs and that consideration should be given to attaining greater 
detail from the hospitals to calculate the CCRs to better reflect the 
full line of services being offered by hospitals.
    Response: We study means by which we could improve the development 
of cost-to-charge ratios annually. We also use the most current cost 
report data from the HCRIS system to calculate the cost to-charge-
ratios and we use charges from the most current claims data. However, 
hospitals have great latitude in the way they organize their costs and 
complete their cost reports. We have no plans to alter the existing 
instructions to require cost report detail that is not currently 
provided. We will, instead, continue to examine how the data currently 
submitted by hospitals can be used to secure the most accurate 
estimates of cost for the full range of services furnished by 
hospitals.
    After carefully reviewing all comments, we are adopting as final, 
for OPPS services furnished on or after January 1, 2005, the process 
for calculating median costs that we described in this section and the 
list of packaged services shown in Table 17 below. This table contains 
the list of packaged services by revenue code that we used in 
developing the APC weights and medians listed in Addenda A and B of 
this final rule with comment period.
BILLING CODE 4120-01-P

[[Page 65748]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.025


[[Page 65749]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.026

BILLING CODE 4120-01-C

C. Adjustment of Median Costs for CY 2005

1. Device-Dependent APCs
    Table 19, which we published in the proposed rule (69 FR 50492), 
contains a list of APCs consisting of HCPCS codes that cannot be 
provided without one or more devices. For CY 2002 OPPS, we used 
external data in part to establish the medians used for weight setting. 
At that time, many devices were eligible for pass-through payment. For 
that year, we estimated that the total amount of pass-through payments 
would far exceed the limit imposed by statute. To reduce the amount of 
a pro rata adjustment to all pass-through items, we packaged 75 percent 
of the cost of the devices (using external data furnished by commenters 
on the August 24, 2001 proposed rule) into the median cost for the APCs 
associated with these pass-through devices. The remaining 25 percent of 
the cost was considered to be pass-through payment. (Section VI. of 
this preamble includes a discussion of the pro rata adjustment.)
    For CY 2003 OPPS, which was based on CY 2001 claims data, we found 
that the median costs for certain device-dependent APCs when all claims 
were used were substantially less than the median costs used for CY 
2002. We were concerned that using the medians calculated from all 
claims would result in payments for some APCs that would not compensate 
the hospital even for the cost of the device. Therefore, we calculated 
a median cost using only claims from hospitals that had separately 
billed the pass-through device in CY 2001 (that is, hospitals whose 
claims contained the C-code for the pass-through device). Furthermore, 
for any APC (whether device-dependent or not) where the median cost 
would have decreased by 15 percent or more from CY 2002 to CY 2003, we 
limited decreases in median costs to 15 percent plus half of the amount 
of any reduction beyond 15 percent (68 FR 47984). For a few particular 
device-dependent APCs for which we believed that access to the service 
was in jeopardy, we blended external data furnished by commenters on 
the August 9, 2002 proposed rule (67 FR 57092) with claims data to 
establish the median cost used to set the payment rate. For CY 2003, we 
also eliminated the HCPCS C-codes for the devices and returned to 
providers those claims on which the deleted device codes were used. 
(The November 1, 2002 OPPS final rule (67 FR 66750) and section III.C.4 
of this preamble contain a discussion regarding the required use of C-
codes for specific categories of devices.)
    For CY 2004 OPPS, which was based on CY 2002 claims data, we used 
only claims on which hospitals had reported devices to establish the 
median cost for the device-dependent APCs in Table 18. We did this 
because we found that the median costs calculated when we used all 
claims for these services were inadequate to cover the cost of the 
device if the device was not separately coded on the claim. Using only 
claims containing the code for the device (a C-code) provided costs 
that were closer to those used for CY 2002 and CY 2003 for these 
services. For a few particular APCs in which we believed that access to 
the service was in jeopardy, we used external data provided by 
commenters on the August 12, 2003 proposed rule in a 50 percent blend 
with claims data to establish the device portion of the median cost 
used to set the payment rate (68 FR 63423). We also reinstated for CY 
2004, but on a voluntary basis, the reporting of C-codes for devices.
    Thus, in developing the median costs for device-dependent APCs for 
CYs 2002, 2003, and 2004, we applied certain adjustments to our claims 
data as provided under the authority of section 1833(t)(9)(A) of the 
Act to ensure equitable payments to the hospitals for the provision of 
such services. As stated in the August 16, 2004 proposed rule, we have 
continued to receive comments from interested parties as part of the 
APC Panel process urging us to determine whether the claims data that 
would be used in calculating the median costs for device-dependent APCs 
for payment in CY 2005 would represent valid relative costs for these 
services (69 FR 50490). Careful analysis of the CY 2003 data that we 
used in calculating the median costs for the CY 2005 OPPS payment rates 
revealed problems similar to those discussed above in calculating 
device-dependent APC median costs based solely on claims data. 
Calculation of the CY 2005 median costs for the device-dependent APCs 
indicated that some of the medians appeared to appropriately reflect 
the costs of the services, including the cost of the device, and others 
did not. Of the 41 device-dependent APCs analyzed, 27 have median costs 
that are lower than the medians on which the OPPS payments were based 
in CY 2004. In contrast, 14 device-dependent APCs have median costs 
that are higher than the medians on which OPPS payments were based in 
CY 2004.
    The differences between the CY 2004 payment medians and the 
proposed CY 2005 median costs using CY 2003 claims data are 
attributable to several factors. As discussed above, the CY 2004 
payment medians were based on a subset of claims that contained the 
codes for the devices without which the procedures could not be 
performed, and several APCs were adjusted using external data. The CY 
2005 OPPS median costs on which the proposed payment rates in the 
August 16, 2004 proposed rule were based, were calculated based on all 
single bills, including ``pseudo'' single bills, for the services in 
the APCs and (not a subset

[[Page 65750]]

of claims containing device codes) and were not adjusted using external 
data. In fact, as stated previously, we eliminated device coding 
requirements for hospitals in CY 2003. Consequently, there were no 
device codes reported for almost all devices in the CY 2003 claims 
data. Thus, it was not possible to use only the CY 2003 claims data 
containing device codes to calculate APC device-dependent medians as 
was done in CY 2004. Similarly, it was not possible to calculate a 
percentage of the APC cost attributed to device codes based on CY 2003 
claims data.
    In light of these data issues for CY 2005, we examined several 
alternatives to using CY 2003 claims data to calculate the proposed 
median costs for device-dependent APCs. As discussed in the August 16, 
2004 proposed rule, we considered using CY 2004 OPPS medians with an 
inflation factor, as recommended by the APC Panel and by several 
outside organizations. We rejected this option because it would not 
recognize any changes in relative costs for these APCs and would not 
direct us towards our goal of using all single claims data as the basis 
for payment weights for all OPPS services.
    We also considered using the medians we calculated from all single 
bills with no adjustments. However, the results of using this approach 
without increasing the payments for some important high cost services 
for CY 2005 could result in the closing of hospital programs that 
provide these services thus, jeopardizing access to needed care. 
Therefore, we did not adopt this approach.
    In addition, we considered subsetting claims based on the presence 
of charges in certain revenue codes. These revenue codes include: 272, 
sterile supplies; 275, pacemakers; 278, other implants; 279, other 
supplies/devices; 280, oncology; 289, other oncology; and 624, 
investigational devices. We determined that the medians increased for 
some device-dependent APCs when we used only claims with a charge in at 
least one of these revenue codes, but our analysis provided no reliable 
evidence that the charges that would be found in these revenue codes 
were necessarily for the cost of the device.
    Further, we considered using CY 2002 claims to calculate a ratio 
between the median calculated using all single bills and the median 
calculated using only claims with HCPCS codes for devices on them, and 
applying that ratio to the median calculated using all single bills 
from CY 2003 claims data. We rejected this option because it assumes 
that the relationship between the costs of the claims with and without 
codes for devices is a valid relationship not only for CY 2002 but CY 
2003 as well. It also assumes no changes in billing behavior. We have 
no reason to believe either of these assumptions is true and, 
therefore, we did not choose this option.
    In summary, we considered and rejected all of the above options. We 
have given special treatment to the device-dependent APCs for the past 
3 years, recognizing that, in a new payment system, hospitals need time 
to establish correct coding processes and, considering the need to 
ensure continued access to these important services. After 3 years of 
such consideration, we believe that it is time to begin a transition to 
the use of pure claims data for these services (reflected in these 
APCs) to ensure the appropriate relativity of the median costs for all 
payable OPPS services. Our goal is to establish payment rates that 
provide appropriate relative payment for all services paid under the 
OPPS without creating payment disincentives that may reduce access to 
care.
    Therefore, we proposed to base median costs for device-dependent 
APCs in CY 2005 on the greater of (1) median costs calculated using CY 
2003 claims data, or (2) 90 percent of the APC payment median for CY 
2004 for such services. We proposed this adjustment because we believe 
that some variation in median costs is to be expected from year to 
year, and we believe that recognizing up to a 10 percent variation in 
our payment approach is a reasonable limit. In the August 16, 2004 
proposed rule, we solicited comments on all aspects of theses issues 
and particularly on steps that can be taken in the future to transition 
from the historic payment medians to claims based median costs for OPPS 
ratesetting for these important services. In addition, we discussed 
this issue with the APC Panel at its September 1 through 2, 2004 
meeting. The Panel recommended that we base median costs for these APCs 
on no less than 95 percent of the CY 2004 median not to exceed 105 
percent of the CY 2004 payment median.
    We received numerous public comments on our proposals.
    Comment: A number of commenters objected to the proposal to set the 
payment medians for device APCs at 90 percent of the CY 2004 payment 
median for the APC. They indicated that many of these APCs had already 
been reduced substantially over the past few years and that permitting 
them to be reduced another 10 percent would mean that some hospitals 
may close their programs and send patients to other hospitals for these 
services. Some commenters recommended that the median costs for these 
APCs be set at 100 percent of the CY 2004 payment median. Some 
commenters recommended that CMS use the CY 2004 payment median plus an 
update amount as the median cost for the CY 2005 OPPS. Commenters also 
recommended that instead of using median costs from claims data with 
any adjustment, that we collect actual hospital acquisition data or use 
cost data provided by manufacturers and other stakeholders and 
substitute that data for the device portion of the median costs. They 
indicated that we used external data in the past and that we should do 
so this year also. They cited APCs 0081, 0107, 0108, 0225, 0229, 0259, 
0385, and 0386 as cases in which the proposed APC payment rates were 
less than the cost of the devices and as those for which CMS should use 
external data in setting the payment rates for CY 2005. A commenter 
supported the proposal to pay the greater of the CY 2005 claims based 
median or 90 percent of the CY 2004 payment median.
    Response: For the reasons discussed below, we set the adjusted CY 
2005 OPPS device-dependent median at the greater of the CY 2005 OPPS 
unadjusted median or 95 percent of the CY 2004 OPPS adjusted final 
payment median rather than the greater of the CY 2005 unadjusted median 
or 90 percent of the CY 2004 OPPS adjusted final median as we proposed 
in the August 16, 2004 proposed rule. We view this as a transition to 
the full use of claims data to set the medians for these services. The 
integrity of a prospective payment system lies heavily in its reliance 
on a standardized process applied to a standardized data source. The 
use of external data can, as some commenters point out, unfairly 
unbalance the payments and result in inequities in payment. (Section 
III.C.5. of this preamble includes a discussion on the use of external 
data.)
    We considered setting the medians at the CY 2004 adjusted final 
payment medians with and without further inflation, but we think a 
certain amount of fluctuation in costs from year to year is to be 
expected as the costs of services decline after they have been on the 
market for some time. Moreover, we considered our proposal to pay the 
greater of the CY 2005 unadjusted median or 90 percent of the CY 2004 
OPPS adjusted final payment median, but acknowledged the concerns of 
the commenters who believe that setting the comparison at 95 percent of 
the CY 2004 OPPS final adjusted payment median was more appropriate and 
less likely to impede access to these important services. We recognize 
that adjustments

[[Page 65751]]

to median costs derived from claims data may be necessary yet again in 
the CY 2006 OPPS due to the voluntary nature of the reporting of device 
codes in CY 2004. However, as discussed further below at section 
III.C.4. of this preamble in our discussion of mandatory coding for 
devices, we expect that reporting of device codes in the CY 2005 claims 
will enable us to rely upon the claims data for setting the median 
costs without adjustment in CY 2007.
    Comment: Some commenters opposed the APC Panel's recommendation to 
limit increases in median costs for device APCs to 5 percent over the 
CY 2004 payment median because the commenters believe such a limit 
would be arbitrary and would be a hindrance to the improvement of cost 
data.
    Response: We agree and we have not limited the extent to which the 
median costs for device-dependent APCs may increase for the CY 2005 
OPPS. We believe that in a number of cases, providers are reporting the 
charges for the devices and have otherwise greatly improved coding of 
their services, resulting in increases in median costs that appear to 
appropriately reflect the costs of the services furnished. We have no 
indication that the increases do not otherwise properly reflect the 
costs of services and, therefore, see no reason to constrain the 
increases that have resulted.
    Comment: Some commenters stated that CMS should look long term to 
determining a factor through regression analysis that enables CMS to 
adjust the charges for high cost devices so that the methodology will 
result in more accurate costs for high cost devices.
    Response: We will review and consider the results of credible 
studies of the possible compression of all charges, both for high cost 
services and low cost services. Studies that focus only on part of the 
spectrum of hospital charges, for example, those which look at low 
markup of high cost items but not at high markup of low cost items, 
would not be useful in a relative weight system.
    Comment: Some commenters indicated that hospitals typically markup 
high cost items and services less than they markup low cost items and 
services and that CMS' cost finding methodology does not recognize this 
because it applies a uniform cost-to-charge ratio (for the department 
or hospital overall) to the charges, which then yields distorted costs. 
They recommended that CMS resolve this problem using external data from 
manufacturers and other stakeholders until such time that CMS can 
comply with the GAO study that recommended that CMS ``analyze variation 
in hospital charge setting to determine if the OPPS payment rates 
uniformly reflect hospitals' costs of provided outpatient services and 
if they do not, to make appropriate changes to the methodology.'' The 
commenters asked that CMS provide explicit instructions to hospitals 
regarding how to adequately capture and charge for high cost devices.
    Response: As we discussed previously, we have decided not to use 
external data to adjust the APC payment rates for CY 2005 OPPS. We do, 
however, reassess our existing methodology each year to determine how 
we can best create rates that uniformly reflect hospitals' cost of 
providing outpatient services. We will not provide instructions to 
hospitals regarding how to capture and charge for high cost devices. As 
a matter of policy, we do not tell hospitals how to set their charges 
for their services. However, we will continue to inform hospitals of 
the importance of their charge data in future ratesetting and encourage 
them to include all appropriate charges on their Medicare claims.
    Comment: One commenter objected to us applying the wage index 
adjustment to the cost of a device in a device-dependent APC because, 
as the commenter stated, the wage index is intended to address the 
identified differential in wages across localities. The commenter 
contends that there is no demonstration of a similar differential in 
the costs of devices across localities.
    Response: Previous studies have shown that across the entirety of 
all services paid under OPPS, approximately 60 percent of total cost is 
labor related. Therefore we believe it is appropriate to apply the wage 
index to 60 percent of the payment for each service. The application of 
the wage index to the payment for the device-dependent APC can either 
inflate the total payment for the device-dependent APC or reduce it 
depending on whether the hospital is in a high cost or low cost area. 
In many cases, if we ceased to apply the wage index adjustment to 60 
percent of the APC payment, the payment to the hospital for the APC 
would be significantly reduced. We will, however, consider whether it 
is appropriate to continue to apply the wage index adjustment as we 
currently do.
    Comment: One commenter asked that we add CPT codes 47382, 
(Radiofrequency ablation procedures of the liver) and CPT code 20982, 
(Radiofrequency ablation procedures of the bone) to the list of device-
dependent APCs because they require the use of devices.
    Response: We will consider whether these services should be added 
to the list of device-dependent APCs in the future. However, it is 
unclear to us what proportion of total cost of each of these procedures 
is the cost of the device because codes are not reported for the 
devices. We do not agree that the cost of the devices could be derived 
from charges reported in particular revenue codes because there is no 
identification of the items charged under any revenue code.
    Comment: Some commenters indicated that the reductions in APC 
payments following termination of pass-through status for devices have 
resulted in the elimination of programs at hospitals that have chosen 
to no longer implant prosthetic devices.
    Response: We share the concern that beneficiaries should have 
access to services covered under Medicare and believe that our payment 
policies under OPPS have consistently taken this concern into account.
    Comment: Some commenters indicated that the proposed payment rates 
for APCs 0081, 0107, 0108, 0222, 0229, 0385, and 0386 are inadequate 
and do not cover the cost of the device; therefore, they do not provide 
payment for the facility services. The commenters stated that hospitals 
have taken a loss on these services for several years and cannot 
continue to provide the services at a loss. The commenters developed 
alternative cost estimates using external data and urged CMS to use 
these data rather than its claims data as the basis for developing 
median costs.
    Response: As stated, for device-dependent APC in general, we have 
not used external data to adjust any median costs for CY 2005 OPPS. 
Instead, we set the medians for these APCs at the greater of the median 
cost for CY 2005 derived using claims data or 95 percent of the CY 2004 
OPPS adjusted payment median. Beginning in CY 2005, we will also 
require that the claims containing codes assigned to these APCs also 
contain a code for an appropriate device for the claim to be paid, so 
that in CY 2007 we will have correctly coded claims to help us in 
setting the payment weights.
    Comment: Some commenters stated that the proposed payment for 
cryoablation of the prostate (CPT code 55873) is insufficient to cover 
the cost for the procedure. They further stated that CMS should factor 
in external data that shows hospital costs to exceed $9,000, eliminate 
or adjust claims for APC 0674 in which the charges for

[[Page 65752]]

cryoablation probes are less than $7500, or discard all claims 
containing CPT code 55873 in the Medicare database for which the total 
hospital costs are less than $6500. The commenters indicated that 
access to this care would be impeded if the APC payment is not 
sufficient to pay the full cost of the service. The commenters believed 
that APC payment at less than full costs for the service will give rise 
to the use of alternative means of treating prostate cancer. These 
commenters indicated that the charges hospitals report on their claims 
are seldom sufficient to result in the full cost of all of the supplies 
and equipment needed to furnish the service. The commenters also 
indicated that when the only claims used to set the median are those 
for which the code for cryoablation probes is found, the median 
increases significantly.
    Response: The codes for the cryoablation probes used in providing 
cryoablation of the prostate were billed in CY 2003 because they were 
paid as pass-through payments in CY 2003. Therefore, they exist in the 
claims data and we used them to screen for correctly coded claims in 
setting the median cost for APC 0674. The median derived using the 
subset of claims is $6,562.69, a decrease of 5.10 percent from the CY 
2004 final payment median for APC 0674. Therefore, based on the device-
dependent APC policy that we are finalizing for CY 2005, we set the 
median for APC 0674 at 95 percent of the CY 2004 final payment median, 
or $6,569.33.
    Comment: Some commenters supported the increased payment for 
cochlear implant services (CPT code 69930 in APC 0259) even though they 
indicated that they believe that the Medicare payment continues to be 
insufficient to fully pay for the costs of both the device and the 
procedure. One commenter provided an independent statistical analysis 
of the Medicare claims data and invoice data that the commenter 
indicated revealed hospital costs of $27,954 based on a screen of 
claims that contained HCPCS code L8614 and asked that CMS set the 
payment at that amount. Some commenters stated that they believe that 
some hospitals are using the cochlear implant codes to code 
implantation of less expensive implantable hearing aid devices. The 
commenter also asked that CMS provide education and develop a guidance 
document for hospitals specific to coding and billing for cochlear 
implant surgery.
    Response: The device code for cochlear implants remained active in 
CY 2003 because Medicare uses it for purposes other than the OPPS. In 
developing the CY 2005 OPPS medians, we created a subset of claims for 
implantation of cochlear implants that contained the device code and 
calculated the median for the CY 2005 OPPS using only those correctly 
coded claims. This yielded a median cost of $26,006.74, which we used 
as the basis for the APC 0259 payment weight for the CY 2005 OPPS. 
While it is certainly possible that some hospitals are misusing the 
code for cochlear implantation to bill for less costly implanted 
hearing aid devices, we have no way to make that determination using 
the claims data. However, we note that hospitals billing in such a 
manner do so at their own risk of being found to have filed a false 
claim. We will consider what general education activities we need to 
undertake with regard to all devices but we are disinclined to focus on 
specific devices to the exclusion of others.
    Comment: One commenter indicated that the proposed decrease in 
payment rates for APC 0039 (Level I Implantation of Neurostimulator) is 
not acceptable as it would not enable hospitals to cover the cost of 
the service. Moreover, the commenter stated that hospitals have failed 
to code and bill correctly for this service and that there are no 
disincentives for incorrect coding and billing. The commenter further 
stated that the only diagnosis on the claims for APC 0039 should be 
that for epilepsy because that is the fundamental reason for implanting 
the device. However, according to the commenter, examination of the 
claims for APC 0039 revealed that only 12 percent of those claims 
contained an epilespsy diagnosis; therefore, the remaining claims 
caused the median to incorrectly represent the implantation of the 
device for treatment of epilepsy. The commenter recommended that CMS 
use external data to ensure that the costs of the device and procedure 
are adequate to avoid discouraging hospitals from providing the care.
    Response: As with other device-dependent APCs, the absence of 
device codes on the claims for CY 2003 means that we were unable to 
screen the claims to positively identify which claims include the 
neurostimulator device costs and we are not confident that screening 
only for the diagnosis of epilepsy will resolve the coding problem. 
Therefore, we have set the median for APC 0039 at 95 percent of the CY 
2004 final adjusted payment median.
    Comment: Some commenters objected to the assignment of status 
indicator ``T'' to APC 0229 (Transcatheter Placement of Intravascular 
Stent) because they believe it should not be subject to the multiple 
procedure reduction due to its dependence on a device. They believed 
that the payment for the services is undervalued because it is 
typically done with other procedures and that it is further underpaid 
by the application of the multiple procedure reduction.
    Response: We have not changed the status indicator for APC 0229 
because the cost of the device for services in this APC is less than 50 
percent of the total cost of the service. Therefore, the multiple 
procedure reduction of 50 percent does not result in the APC payment 
being less than the device cost. Moreover, there are efficiencies when 
multiple services are performed on the same day that we believe justify 
applying the multiple procedure reduction to the services in this APC.
    Comment: One commenter asked that CMS require hospitals to show the 
actual acquisition cost for devices on the bill using a UB92 value code 
and the amount. The commenter recommended that where 50 percent or more 
of the APC is attributable to packaged device cost, CMS should obtain 
actual device information and use it to determine if APC cost 
calculations are reasonable.
    Response: We do not believe the imposition of an additional 
reporting requirement would be effective. Such a requirement would be 
both burdensome and unlikely to provide the actual hospital acquisition 
cost because hospitals have the ability to reflect general rebates and 
discounts on a per device basis.
    Comment: One commenter asked that we make separate payments for 
CRT-Ds (pacemaker-defibrillators) for which there was a new technology 
add-on payment under the IPPS for FY 2005, so that payment for this 
service under the IPPS and the OPPS would be better aligned.
    Response: CRT-Ds were paid on a pass-through basis under the OPPS 
in CYs 2001 and 2002. Their OPPS pass-through status expired in CY 2003 
and their component services were packaged into clinical APC 0107 
(Insertion of Cardioverter-Defibrillator) and APC 0108 (Insertion/
Replacement/Repair of Cardioverter-Defibrillator Leads) and. 
Accordingly, no separate additional payment is appropriate for these 
devices.
    After carefully reviewing the comments, considering the APC Panel 
recommendations and examining the claims data, we are adjusting the 
medians for device-dependent APCs based on comparison of the CY 2005 
median costs and the CY 2004 final payment median costs. Specifically, 
we decided to set the median costs for these

[[Page 65753]]

APCs at the higher of the CY 2005 median cost from our claims data or 
95 percent of the CY 2004 final adjusted median cost used to set the 
payment in CY 2004 rather than 90 percent of the CY final adjustment 
median cost as we proposed.
    We believe that this adjustment methodology provides an appropriate 
transition to eventual use of all single bill claims data without 
adjustment, and that the methodology moves us towards the goal of using 
all single bill data without adjustment by CY 2007. It is a simple and 
easily understood methodology for adjusting median costs. Where 
reductions occur compared to CY 2004 OPPS, we believe that, under this 
methodology, the reductions will be sufficiently modest that providers 
will be able to accommodate them without ceasing to furnish services 
that Medicare beneficiaries need.
    In addition, beginning in CY 2005, as proposed, we are requiring 
hospitals to bill all device-dependent procedures using the appropriate 
C-codes for the devices. We believe that this approach mitigates 
against the reduction of access to care while encouraging hospitals to 
bill correctly for the services they furnish. We intend this 
requirement to be the first step towards use of all available single 
bill claims data to establish medians for device-dependent APCs. Our 
goal is to use all single bills for device-dependent APCs in developing 
the CY 2007 OPPS, which we expect to base on data from claims for 
services furnished in CY 2005. We further discuss our coding 
requirement in section III.C.4. of this preamble.
    Table 18 below, which is sorted by APC, contains the CY 2004 OPPS 
payment medians, the CY 2005 OPPS final adjusted medians using single 
bill claims from January 1, 2003, through December 31, 2003), and the 
medians derived from the adjustment processes discussed further below.
BILLING CODE 4120-01-P

[[Page 65754]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.027


[[Page 65755]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.028


[[Page 65756]]


BILLING CODE 4120-01-C
    We also note that as a result of our initial data analysis for 
device-dependent APCs, we proposed to make the following additional 
adjustments to specific device-dependent APCs for the reasons 
specified:

a. APC 0226: Implantation of Drug Infusion Reservoir

    We proposed to remove APC 0226 (Implantation of Drug Infusion 
Reservoir) from the list of device-dependent APCs and to use its 
unadjusted single bill median of $2,793.30 as the basis for the payment 
weight. CPT code 62360 (Implantation or replacement of device for 
intrathecal or epidural drug infusion, subcutaneous reservoir) is 
assigned to APC 0226. In CY 2002, when we packaged 75 percent of the 
cost of the device into the payment for the procedure with which the 
device was billed to reduce the pro rata adjustment, we inadvertently 
packaged the cost of an implantable infusion pump (C1336 and C1337) 
rather than that of a drug reservoir. Our data indicated that the 
reservoir used in performing CPT code 62360 costs considerably less 
than an implantable infusion pump, and we believe that the median cost 
for APC 0226 appropriately reflects the relative cost of the service 
and the required device.
    We did not receive any public comments on this proposal. 
Accordingly, we have removed APC 0226 from the device-dependent APC 
list and used its unadjusted single bill median of $2,541.43 as the 
basis for its CY 2005 relative payment weight.

b. APC 0048: Arthroscopy With Prosthesis

    In addition, we proposed to delete APC 0048 (Arthroplasty with 
Prosthesis) from the list of device-dependent APCs for CY 2005 and to 
not adjust the median costs for this APC because we believe that the CY 
2005 median cost for this APC as restructured is reasonable and 
appropriate. Based on our careful analysis of the CY 2003 claims data 
for this APC, we believe the difference between the CY 2004 and CY 2005 
median cost is attributable to the migration of certain high cost CPT 
codes (23470, 24361, 24363, 24366, 25441, 25442, 25446) from APC 0048 
to new APC 0425 (Level II Arthroplasty with Prosthesis) and, as such, 
this change would not adversely limit beneficiary access to this 
important service. Therefore, we did not propose to apply a device-
dependent adjustment to the median cost for APC 0048.
    We did not receive any public comments on this proposal. 
Accordingly, for CY 2005 we are removing APC 0048 from the device-
dependent list and are not adjusting the median cost for this APC.

c. APC 0385: Level I Prosthetic Urological Procedures

    We proposed to move CPT code 52282 (Cystourethroscopy, insert 
urethral stent), from APC 0385 (Level I Prosthetic Urological 
Procedure) and assign it to APC 0163 (Level IV Cystourethoscopy and 
other Genitourinary Procedures), for clinical homogeneity. As titled, 
APC 0385 was intended for the assignment of certain urological 
procedures that require the use of prosthetics. However, CPT code 52282 
requires the use of a stent rather than a urological prosthetic. 
Therefore, we proposed to reassign CPT code 52282 to APC 0163. 
Recalculation of the median cost for APC 0385 after reassigning CPT 
code 52282 yielded a median cost for that APC that is consistent with 
its CY 2004 median payment. Thus, we did not propose a device-dependent 
adjustment for the median cost for APC 0385.
    Comment: Some commenters asked that we keep CPT code 52282 in APC 
0385 and not move it to APC 0163. These commenters believed that 
placement of CPT code 52282 in APC 0385 would maintain clinical 
coherence and resource similarity. They also supported the APC Panel's 
recommendation that all three codes, which we proposed to move from APC 
0385 to 0386 (CPT codes 53440, 53444, and 54416) should be retained in 
APC 0385 for CY 2005 OPPS because they are dissimilar in terms of the 
nature of the surgical procedure and the sophistication of the 
prosthetic urology device that is implanted.
    Response: We have moved CPT code 52282 from APC 0385 to APC 0163 
because we believe that this service is more compatible from a clinical 
and resource perspective with the other cystourethroscopy services 
assigned to APC 0163 than with services assigned to APC 0385. We have 
retained CPT codes 53440 and 53444 to APC 0385 because the median costs 
for these procedures in the CY 2003 data that were used to develop this 
final rule with comment period indicate that the resources required for 
them are similar to those for CPT code 54400, which is also assigned to 
APC 0385. However, we have placed CPT code 54416 in APC 0386 because 
the median cost shows that the resources are much more like those for 
services assigned to APC 0386 than the median costs for services in APC 
0385. CPT code 54416 requires removal and replacement of a non-
inflatable or inflatable prosthesis and our resource data demonstrate 
relatively high costs for the service, most typically associated with 
replacement of an inflatable prosthesis. Thus, the nature of the 
services are sufficiently similar such that CPT code 54416 is 
clinically coherent with the services in APC 0386.

d. APC 0119: Implantation of Infusion Device and APC 0115: Cannula/
Access Device Procedures

    We proposed to remove CPT code 49419 (Insert abdom cath for chemo 
tx), from APC 0119 (Implantation of Infusion Pump) and assign it to APC 
0115 (Cannula/Access Device Procedures) to achieve clinical homogeneity 
within APC 0115. Unlike all the other codes assigned to APC 0115, HCPCS 
code 49419 does not require the use of an infusion pump. Rather, this 
code is used when inserting an intraperitoneal cannula or catheter with 
a subcutaneous reservoir. Thus, we believed it would be more 
appropriate clinically to reassign HCPCS code 49419 to APC 0115 that 
includes procedures that require the use of devices similar to that 
required for CPT code 49419.
    Comment: One commenter recommended that we move the CPT code 36260 
(Insertion of infusion pump) and CPT code 36563 (Insert tunneled cv 
catheter) from APC 0119 to APC 0227 (Implantation of Drug Infusion 
Device), which is also for implantation of infusion pumps. The 
commenter indicated that all of these services are for implantation of 
infusion pumps and that the external cost data on the pumps are not 
dissimilar.
    Response: We have not combined the codes in these APCs because they 
are not clinically homogeneous. Specifically, the services in APC 0227 
are for the insertion of spinal infusion pumps and those in APC 0119 
are for insertion of vascular infusion pumps. We see no clinical reason 
to move these codes as suggested by the commenter.
2. Treatment of Specified APCs

a. APC 0315: Level II Implantation of Neurostimulator

    As stated in the August 16, 2004 proposed rule, CPT code 61866 
(Implant neurostim arrays) was brought to our attention by means of an 
application for a new device category for transitional pass-through 
payment for the Kinetra<SUP>[reg]</SUP> neurostimulator, a dual channel 
neurostimulator currently approved and used for Parkinson's disease. We 
denied approval for a new device category for the 
Kinetra<SUP>[reg]</SUP> neurostimulator because the device is described 
by a previously

[[Page 65757]]

existing category, C1767 (Generator, neurostimulator (implantable)).
    The manufacturer of Kinetra<SUP>[reg]</SUP> stated that the AMA 
created CPT 61886 to accommodate implantation of the 
Kinetra<SUP>[reg]</SUP> neurostimulator and that no services other than 
implantation of the Kinetra<SUP>[reg]</SUP> are currently described by 
that CPT code. Even though the Kinetra<SUP>[reg]</SUP> did not receive 
full FDA pre-market approval until December 2003, hospital outpatient 
claims were reported in CYs 2002 and 2003 (289 total claims in CY 2003) 
for this device. The manufacturer asserted that these claims must have 
been miscoded because the Kinetra<SUP>[reg]</SUP> could not have been 
used in performing CPT code 61886 before obtaining FDA approval in 
December 2003. Therefore, the manufacturer did not believe that the 
device cost could be included in the median for CPT code 61886, which 
has been assigned to APC 0222.
    In examining the CY 2003 claims for CPT code 61866, we noted that 
many of the claims also contained codes for procedures related to 
treatment with cranial nerve stimulators, including the placement of 
electrodes for cranial nerve stimulation. The placement of the cranial 
neurostimulator electrodes used with the Kinetra<SUP>[reg]</SUP> is 
currently an inpatient rather than outpatient procedure. Therefore, we 
would not expect patients being prepared for cranial nerve stimulation 
to also have a Kinetra<SUP>[reg]</SUP> neurostimulator for deep brain 
stimulation for Parkinson's disease placed at the same time. Thus, it 
seems possible that the CY 2003 claims for CPT code 61886, generally, 
are incorrectly coded and do not include the dual chamber 
neurostimulator in the reported charges.
    Prior to the availability of the dual channel neurostimulator 
Kinetra<SUP>[reg]</SUP> for bilateral deep brain stimulation, it is our 
understanding that patients diagnosed with Parkinson's disease had two 
single channel neurostimulator generators implanted in the same 
operative session. According to the Kinetra<SUP>[reg]</SUP> 
manufacturer, this device will now replace the insertion of two single 
channel neurostimulators and the cost of the Kinetra<SUP>[reg]</SUP> is 
equivalent to the cost of two single channel neurostimulators. Given 
this information, we examined our CY 2003 claims data and found that 69 
single claims were reported for patients with a diagnosis of 
Parkinson's disease and that 2 single channel neurostimulator pulse 
generators (CPT code 61885) were implanted on the same day. The median 
cost for these claims was $20,631. Other than the device costs, we 
believe the procedural costs for the insertion of two single channel 
devices or one dual channel device should be roughly comparable. 
Therefore, we proposed to establish a new APC 0315, Level II 
Implantation of Neurostimulator, for CPT code 61886, and assign it a 
median cost of $20,631. Because of our concern that hospitals correctly 
code OPPS claims for CPT code 61886, we also proposed to require device 
coding (C-code) for APC 0315 to improve the coding on all claims for 
placement of a dual channel cranial neurostimulator pulse generator or 
receiver, as we proposed for APC 0039, Implantation of Neurostimulator, 
for placement of a single channel cranial neurostimulator, discussed in 
section III. C. of this preamble.
    Comment: We received one comment in support of our proposed median 
cost for APC 0315.
    Response: We appreciate the commenter's support. Accordingly, we 
are finalizing our CY 2005 proposal to assign CPT code 61886 to APC 
0315 with an assigned median cost of $20,633.70.

b. APC 0651: Complex Interstitial Radiation Application

    For CY 2003, APC 0651 included CPT code 77778 (Complex interstitial 
radiation source application). This code was not to be used for 
prostate brachytherapy because we created HCPCS codes G0256 (Prostate 
brachytherapy with palladium sources) and G0261 (Prostate brachytherapy 
with iodine sources) in which we packaged the cost for placement of 
needles or catheters and sources into a single APC payment for each G 
code (67 FR 66779). When we calculated the median from all single bills 
for CPT code 77778 from CY 2003 data for CY 2005 OPPS, we found that 73 
percent of the single bills for this APC were for prostate 
brachytherapy and, therefore, were miscoded. The median for APC 0651, 
using all single bills, including those miscoded for prostate 
brachytherapy, was $2,641.67. When we removed the incorrectly coded 
claims for prostate brachytherapy, which we believed to contain 
brachytherapy sources and which are paid separately for CY 2004 and 
will be paid separately for CY 2005, the median was $1,491.39. This is 
the amount that we proposed for payment for CY 2005 OPPS for APC 0651. 
The proposed median was considerably higher than the median cost of 
$589.72 for CY 2004 OPPS (from CY 2002 claims data).
    We believed that this adjusted median was appropriate for APC 0651 
when used for prostate brachytherapy because the service described by 
CPT code 77778 is only one of several components of the payment for the 
service in its entirety. When it is used for prostate brachytherapy, 
hospitals should also bill for the placement of the needles and 
catheters using CPT code 55859 and should also bill the brachytherapy 
sources separately. Hospitals will be paid for both APCs and for the 
cost of sources.
    Section 621(b)(1) of Pub. L. 108-173 specifically provides separate 
payment in CY 2005 ``* * * for a device of brachytherapy, consisting of 
a seed or seeds (or radioactive source) * * *'' at the hospital's 
charge adjusted to cost. We proposed to package the cost of other 
services such as the needles or catheters into the payment for the 
brachytherapy APCs and not to pay on the same basis as the 
brachytherapy sources because the law does not include needles and 
catheters in its definition of brachytherapy sources to be paid on 
charges adjusted to cost.
    We also recognized that APC 0651 is used for brachytherapy services 
other than prostate brachytherapy and that, in some of those cases, 
there are no other separate procedure codes for placement of the 
needles or catheters. In those cases, which are represented in the 
claims we used to calculate the proposed median (once the miscoded 
claims for prostate brachytherapy were excluded), we believed that the 
charges for CPT code 77778 may have included the placement of the 
needles or catheters and, therefore, the median may be somewhat 
overstated when used as the basis for payment for prostate 
brachytherapy and the other forms of brachytherapy that have procedure 
codes for placement of needles and catheters. Similarly, we believed 
that the median may be understated when used to pay for brachytherapy 
services for which there are no separate HCPCS codes for needle or 
catheter placement. We considered whether to create new G codes for the 
placement of catheters and needles for the brachytherapy services for 
which such codes do not exist, but we were concerned that doing so 
might create unneeded complexity and that the existing data may not 
support establishing medians for the new codes. We requested comments 
on how to address those services for which there are currently no HCPCS 
codes for placement of needles and catheters for brachytherapy 
applications.
    Comment: Commenters indicated that the absence of codes for 
brachytherapy needle/catheter placement is problematic because 
hospitals are forced to use existing ``not otherwise classified'' codes 
that makes claims analysis difficult for ratesetting. They asked that 
we create three ``not otherwise classified'' HCPCS codes for the 
placement of needles and catheters

[[Page 65758]]

for application of brachytherapy sources other than prostate 
brachytherapy so that they can be billed and paid appropriately. 
Specifically, they asked (1) that CMS create a code for 1-4 needles/
catheters and place it in APC 1507; (2) that CMS create a code for 
placment of 5-10 catheters and place it in New Technology APC 1513; and 
(3) that CMS create a new code for more than 10 needles/catheters and 
place it in New Technology APC 1522.
    Response: We have not created HCPCS codes for needle/catheter 
placement for CY 2005 as suggested by the commenters. We do not believe 
that the requested new, ``not otherwise classified'' codes would be any 
more meaningful for OPPS ratesetting than the existing ``not otherwise 
classified'' codes.
    As explained in the November 30, 2001 final rule (66 FR 59897), new 
Technology APCs are for complete procedures, not devices or drugs or 
biologicals, but such items may be part of the cost of the complete 
service. To qualify for OPPS payment under the new technology APCs, a 
service must meet the following criteria:
    <bullet> Service must be a complete service.
    <bullet> Service must not be described by an existing HCPCS code or 
combination of codes.
    <bullet> Service could not have been adequately represented in the 
claims data used for the most current annual OPPS payment update.
    <bullet> Service does not qualify for additional payment under 
pass-through payment provisions.
    <bullet> Service cannot reasonably be placed in an existing APC 
group that is appropriate in terms of clinical characteristics and 
resource costs.
    <bullet> Service is medically reasonable and necessary.
    <bullet> Service falls within scope of Medicare benefits.
    Processes and requirements for pass-through and new technology 
service APC applications are provided in more detail on the OPPS Web 
site: http://www.cms.hhs.gov/poviders/hopps/.
    Implicit in the criteria is that there exists a meaningful 
description of the services for which new technology status is being 
requested. We do not believe the ``not otherwise classified'' codes 
proposed by the commenters are sufficiently specific that they could 
satisfy the criteria. We believe that CPT already contains sufficient 
``not otherwise classified'' codes for the coding of placement of 
brachytherapy needles and catheters in locations of the body for which 
specific codes do not now exist. We are unable to specify the ``not 
otherwise classified'' codes that should be used because the ``not 
otherwise classified'' codes are generally categorized by body part or 
function, and, therefore, the code that would apply depends on the 
location in the body in which the needles and catheters are being 
placed. For example, placement of needles or catheters in a shoulder 
muscle would be coded differently from placement of needles or 
catheters in the pancreas.
    Comment: Some commenters supported the proposed payment for APC 
0651 (Complex Interstitial Radiation Source Application). They 
indicated that, together with separate payment for the brachytherapy 
sources and the placement of needles and catheters, the proposed 
payment would provide adequate payment for these important services.
    Response: We appreciate the commenters' support. Further discussion 
regarding the payment for APC 0651 is provided at III.C.2.b.
    Comment: One commenter indicated that there are many supplies and 
devices other than needles and catheters that are used in providing 
brachytherapy and asked that CMS develop codes for them so that they 
could be billed as coded items because such coding would facilitate 
capture of all the costs associated with performing the services.
    Response: We have not created new device codes for the supplies and 
equipment that the commenter requested because such items are 
incidental to the service. We do not believe that such incidental items 
justify development of new device codes.
    In this final rule with comment period, the median cost for APC 
0651 is $1,283.44, resulting in a national unadjusted payment rate of 
$1,248.93. There were fewer CY 2003 final action claims for this 
service in the database that was constructed from the most current 
claims data and used to develop the weights and median costs for this 
final rule with comment period. Twelve hospitals whose claims had 
appeared in the CY 2003 claims data used to calculate the proposed 
weights and median costs withdrew their claims before we pulled the 
data for this final rule with comment period. This may have been 
because they realized that they had billed incorrectly and withdrew the 
claims to bill correctly.
    Our examination of the claims data set for this final rule with 
comment period reveals that the claims largely appear to not include 
charges for brachytherapy sources. The unadjusted median cost that 
resulted from use of these claims is $1,283.44, a 117 percent increase 
over the median cost for CY 2004 for this APC. As we noted previously, 
the median should reflect accurately the appropriate claims for the 
APC. We have no reason to believe that this median is flawed. 
Therefore, we have used it as the basis for the CY 2005 OPPS unadjusted 
payment rate of $1,248.93.
c. APC 0659: Hyperbaric Oxygen Therapy
    In the August 16, 2004 proposed rule, we stated that over the past 
year, we have received a number of questions about billing and payment 
for HCPCS code C1300 (Hyperbaric oxygen under pressure, full body 
chamber, per 30 minute interval). In light of these issues, we 
carefully examined the CY 2003 single procedure claims data that we 
proposed to use to calculate the CY 2005 median for APC services. Based 
on our examination of single procedure claims filed for HCPCS code 
C1300 in CY 2003, we believe that the claims for these services were 
either miscoded or the therapy was aborted before its completion. The 
claims that we examined reflected a pattern that is inconsistent with 
the clinical delivery of this service. Hyperbaric oxygen therapy (HBOT) 
is prescribed for clinical conditions such as promoting the healing of 
chronic wounds. It is typically prescribed on average for 90 minutes 
and, therefore, you would expect hospitals to bill multiple units of 
HBOT to achieve full body hyperbaric oxygen therapy. In addition to the 
therapeutic time spent at full hyperbaric oxygen pressure, treatment 
involves additional time for achieving full pressure (descent), 
providing air breaks to prevent neurological and other complications 
from occurring during the course of treatment, and returning the 
patient to atmospheric pressure (ascent). Our examination of the claims 
data revealed that providers who billed multiple units of C1300 
reported a consistent charge for each ``30 minute'' unit. Conversely, 
providers who billed only a single unit of C1300, suggesting either a 
miscoded or aborted service, reported a charge that was 3 to 4 times 
greater than the per ``30 minute'' unit reported by providers billing 
multiple units of HCPCS code C1300. While it appears that many of the 
single procedure HBOT claims that we examined represented billing for a 
full 90 to 120 minutes of HBOT (including ascent, descent, and air 
break time), they were improperly billed as 1 unit rather than as 3 or 
4 units of HBOT. Consequently, this type of incorrect coding would 
result in an inappropriately high per 30 minute median cost for HBOT or 
a median cost

[[Page 65759]]

for HBOT of $177.96 derived using single service claims and ``pseudo'' 
single service claims. This is a significant issue because HBOT is the 
only procedure assigned to APC 0659.
    Our initial analysis of the HBOT claims data further revealed that 
about 40 percent of all HBOT claims included packaged costs. To confirm 
our belief that these packaged costs were not associated with HBOT, we 
examined the other major payable procedures billed in conjunction with 
HBOT. As a result, we identified billed services such as drug 
administration and wound debridement that we would typically expect to 
have associated packaged services. We also looked at the magnitude of 
packaged costs in our single bills and found the majority of these 
costs were small, less than $30, and concentrated in revenue codes 25X, 
Pharmacy, and 27X, Medical/Surgical Supplies.
    As a result of these coding anomalies, we proposed to calculate a 
``30 minute'' median cost for APC 0659, using a total of 30,736 claims 
containing multiple units or multiple occurrences of HBOT, about 97 
percent of all HBOT claims. Based on our finding, we proposed to 
exclude claims with only one unit of HBOT. We estimated costs on these 
claims using the respiratory therapy cost center CCR when one was 
available. Otherwise we used the hospital's overall CCR. Using this 
proposed methodology, the proposed median cost per unit of C1300 was 
$82.91. Based on hospitals' charges on correctly coded claims, we 
believe this estimate is much more accurate for 30 minutes of HBOT. 
Thus, we proposed a median cost for APC 0659 of $82.91 for CY 2005.
    We received many public comments on this proposal.
    Comment: Overall, commenters expressed concern about the proposed 
reduction in payment for HBOT. There also was great consistency in the 
comments. Almost all the commenters cited a recent research report by 
The Lewin Group (Lewin) that examined our methodology for calculating a 
payment rate for APC 0659 and offered us several alternatives for 
identifying a median for HBOT. In their evaluation of our proposed 
change for calculating a median for HBOT, The Lewin Group ultimately 
concluded that, while our proposed use of claims with multiple units of 
C1300 in lieu of the clams with a single unit of C1300 was appropriate 
for calculating the median cost, we used an inappropriate cost-to-
charge ratio to estimate costs from charges on those multiple unit 
claims.
    Lewin surveyed the majority of hospitals billing Medicare for HBOT, 
requesting specific pages from each hospital's cost report to determine 
where HBOT services are reported and the associated CCR. Lewin received 
completed responses from 120 hospitals, a 30 percent response rate. The 
majority of responding hospitals, 63 percent, frequently broke out the 
costs of hyperbaric/wound care in a subscripted cost center on their 
cost report. In addition, 24 percent included their costs in the 
respiratory therapy cost center, and the remainder included their costs 
in disparate cost centers including emergency room and physical 
therapy. For those hospitals reporting separate line-items for 
hyperbaric/wound care, Lewin used CMS claims data to estimate a median 
CCR of 0.400 as compared with the median CCR for respiratory therapy of 
0.248. Lewin also sought to establish the generalizability of their 
sample findings by demonstrating that responding hospitals were 
geographically diverse and that the respiratory therapy CCR for the 
responding hospitals was comparable to that observed in the claims 
data. Finally, Lewin used their survey findings to estimate a 
proportional difference in CCRs between respiratory therapy and the 
observed, hyperbaric-related CCRs of 1.411 and, applying this 
adjustment to the CMS claims data, they calculated a payment rate of 
$118.21.
    Practically all commenters offered four possible alternatives to 
our proposed methodology. First, commenters suggested that CMS leave 
HBOT reimbursement at its CY 2004 level until CMS can accurately 
estimate costs and charges for HBOT. Second, commenters suggested that 
CMS apply The Lewin Group methodology in estimating median cost. Third, 
commenters suggested that CMS adopt The Lewin Group's estimated median 
of $118.21 per 30 minutes. With regard to this specific recommendation, 
several commenters stated that they thought that the $118 rate was 
appropriate, and one commenter believed a rate of $120 or greater would 
be acceptable. Finally, commenters suggested that CMS default to the 
overall CCR of 0.47 in lieu of using the respiratory therapy CCR.
    Response: We agree with the commenters that The Lewin Group 
analysis provides sufficient evidence that the CCR for HBOT is not 
reflected solely in the respiratory therapy cost center. With regard to 
the first recommended alternative, we do not believe it is appropriate 
to maintain the CY 2004 HBOT payment rate for CY 2005. We have clearly 
demonstrated that the single procedure claims are inappropriate for 
calculating a median cost, and the submitted research did not dispute 
our median calculation methodology. We cannot undertake the recommended 
second alternative and replicate The Lewin Group's methodology because 
the hyperbaric/wound care cost report cost center line-items are 
neither standard nor non-standard cost centers. We presume that these 
line-items for hyperbaric/wound care are subscripted cost centers that 
are ultimately rolled-up in to a standard cost center on the electronic 
cost report data. Without the specific subscripted information, we 
cannot calculate a cost-to-charge ratio specific to HBOT.
    We also do not believe it is appropriate to adopt the $118.21 
estimate made by Lewin using its survey results and our data, the third 
recommended alternative. The Lewin survey indicates diversity among 
hospitals in the subscripted location of reported hyperbaric oxygen 
costs on the cost report. In addition, the $118.21 is based on an 
adjustment to the CCR that assumes all nonresponding hospitals report 
their costs in the hospital-specific hyperbaric oxygen-related cost 
centers, even though roughly one-fourth of hospitals in the Lewin 
sample were demonstrated to report costs in the respiratory therapy 
cost center and 13 percent reported costs in other cost centers. The 
submitted research further indicates fairly substantial variation in 
the CCRs for the responding hospitals in the HBOT-related cost centers. 
In light of this, we agree to adopt the last recommended alternative, 
which is to calculate the median using the overall CCR. As several 
commenters noted, defaulting to the hospital's overall CCR is standard 
OPPS policy when an appropriate cost center cannot be assigned to a 
revenue code. We estimate an overall, hospital-weighted, median CCR for 
all hospitals of 0.33 and a hospital-weighted, median CCR for 
respiratory therapy for all hospitals of 0.27. Using the overall CCR to 
estimate costs from charges associated with HCPCS code C1300, we 
calculated a median cost of $93.26 using 38,505 claims in the final 
rule data. We used this median to set the final CY 2005 payment for APC 
0659.
    Comment: One commenter conducted an internal study of 11 member 
hospitals and reported a median total cost of $126.42. The study 
findings acknowledged that we found billing anomalies in the claims 
with single units, but noted that our proposed approach will have 
unintended financial consequences. The commenter requested that we 
review our claims data to ensure HBOT rates that reflect the full cost 
of providing HBOT services.

[[Page 65760]]

    Response: As discussed above, we agree that the proposed cost for 
HBOT was too low because it relied solely on the respiratory therapy 
CCR. However, based on the volume and consistency of claims for HBOT, 
we still believe that the claims data are correct. As already 
discussed, we will base payment for HBOT on a median calculated using 
the overall hospital CCR. Further, the purpose of OPPS is not to pay 
the full cost of a service for any given hospital, but rather to 
proportionally redistribute total OPPS dollars in a manner that 
reflects relative resource use. APC payment rates are based on the 
median cost of a group of services, or in this case, one service, to 
achieve the averaging effect of a prospective payment system and are 
not intended to reimburse the full cost to a specific hospital. The 
costs for these 11 member hospitals may fall above the median cost for 
all hospitals billing HBOT.
    Comment: One commenter reviewed CMS claims with multiple units and 
found an overall average of 15 units of HBOT per claim. This commenter 
recommended that CMS review a sample of medical records.
    Response: We expect that this finding is the result of outlier 
claims and unit coding errors. In our analyses of HBOT claims for the 
proposed rule, we found that the vast majority of claims, 93 percent, 
were for 3 to 5 units of service. Further, The Lewin Group analysis 
reviewed above did not dispute the appropriateness of using claims with 
multiple units for calculating a median cost. As discussed above, we 
believe that the appropriate concern in estimating a median cost for 
HBOT is the disparity in charging and cost reporting practices among 
hospitals and not with the claims themselves, a finding that mitigates 
the need for medical record review.
    Comment: One commenter recommended that CMS continue to compile 
claims data on HBOT and refer this issue to the APC Panel before making 
changes.
    Response: By using claims with multiple units, we believe that we 
have ample claims data. However, the APC Panel is an official public 
forum designed to consider and advise us on APC-related issues. If this 
is a particular concern to the public, the public is invited to present 
this concern at the next APC Panel meeting.
    After carefully reviewing all comments received, we are basing 
payment for HBOT on a median calculated using the overall hospital CCR 
rather than the respiratory therapy CCR as proposed. As discussed 
above, using the overall CCR to estimate costs from charges associated 
with HCPCS code C1300, we calculated a final CY 2005 payment for APC 
0659 of $90.75.
3. Other APC Median Cost Issues
a. APC 0312 Radioelement Applications
    Comment: Some commenters stated that the payment rate for APC 0312 
(Radioelement Applications) is inadequate to pay for the staff, 
supplies and appliances that are needed to furnish the service. The 
commenters further stated that the APC payment should be similar to 
that for APC 0651.
    Response: The median for APC 0312 has increased significantly from 
the CY 2004 payment median of $199.90 to the CY 2005 OPPS final rule 
with comment period median of $326.65. Moreover, we were able to use 28 
percent of the total claims in CY 2003 for this APC to set the median 
cost for the CY 2005 OPPS. Therefore, we see no reason to adjust the 
median for this APC to the level of APC 0651.
b. Percutaneous Radiofrequency Ablation of Liver Tumors
    Comment: Some commenters objected to the proposal to move CPT code 
47382 (Percutaneous radiofrequency of liver tumors), from a New 
Technology APC to clinical APC 0423 (Level II Percutaneous Abdominal 
and Biliary Procedures) because they believe that there is an 
inadequate number of claims on which to base median costs, and that 
median costs are inappropriately low because device costs associated 
with performing this procedure are underreported. They indicated that 
the proposed reimbursement does not cover the costs of the single use 
catheters used in performing the service. The commenters stated that 
revenue codes should be used to screen for appropriately coded claims. 
They contended that if CMS cannot complete this analysis for this final 
rule with comment period, CMS should retain CPT code 47382 in a new 
technology APC at the CY 2004 payment rate until more representative 
cost data are available. They argued that this latter approach is 
consistent with how CMS has handled APC payments for PET services since 
CY 2001. The commenters also recommended that CPT codes 76362 (CT 
guidance for and monitoring of visceral tissue ablation), 76394 
(Magnetic resonance imaging for and monitoring of visceral tissue 
ablation), and 76940 (Ultrasound guidance for and monitoring of 
visceral tissue ablation) be added to the bypass list so that more 
single bills could be used to set the median for CPT code 47382.
    Response: We believe that the claims volume is sufficiently 
adequate to remove CPT code 47382 from New Technology APC 1557 and 
place it in a clinical APC. Moreover, the median cost, $1,801.84, 
derived from the CY 2003 claims data for APC 0423, is very close to the 
payment that was made for New Technology APC 1557 of $1,850. Therefore, 
as proposed, this service will be placed in clinical APC 0423 and paid 
based on its historic claims data for services furnished for the CY 
2005 OPPS.
    In addition, the three CPT codes that the commenter recommended we 
add to the bypass list do not meet the CY 2005 criteria for inclusion 
on the list. However, we will consider their inclusion when we next 
review items for inclusion in CY 2006.
c. Heparin Coated Stents
    Comment: One commenter objected to CMS' policy that heparin coated 
stents should be coded under C1874 (Stent, coated/cov w/del sys) 
because the commenter believes that to do so will adversely affect the 
median cost of the stents. The commenter urged us to create a unique C-
code if HCPCS codes G0290 and G0291, which are used for placement of 
drug eluting stents, are retired.
    Response: HCPCS codes G0290 and G0291 will remain active codes for 
CY 2005 and we see no reason to create another C-code at this time. We 
will determine whether there is a need for another C-code to 
differentiate between stents if and when HCPCS codes G0290 and G0291 
are retired.
d. Aqueous Drainage Assist Device
    Comment: One commenter asked that CMS ensure that the costs of code 
C1783 (Aqueous drainage assist device) are packaged with the costs of 
the procedures with which the device is most commonly billed. The 
commenter stated that codes C1783, L8610 and L8612 would usually be 
billed with procedures that are in APC 0673.
    Response: We package the costs of devices that are billed on the 
same claim with the procedural APCs into the cost of the procedural 
APC. Thus, the extent to which the costs of these devices are packaged 
into the median cost for the procedure depends upon the extent to which 
the hospitals include the charges for the devices on the claim, with or 
without including the code for the device. To the extent that hospitals 
included charges for these devices on the claims for the procedures in 
which they were used, those charges would be converted to costs and 
packaged into the median cost for the procedure.

[[Page 65761]]

4. Required Use of C-Codes for Devices
    An important ancillary issue in regard to using hospital outpatient 
claims data to calculate median costs for a device-dependent APC is 
whether to require that hospitals bill the HCPCS codes for the devices 
that are required for use in the provision of the services in these 
APCs. We deleted HCPCS codes for devices in CY 2003 because hospitals 
objected to the complexity of this coding, and we believed that 
hospitals would charge for the devices in appropriate revenue codes. 
Our review of the claims data does not support this belief. Hospitals 
do not appear to routinely include the charges for the devices they use 
when they bill for all of the related services in the device-dependent 
APCs. Therefore, as discussed in the August 16, 2004 proposed rule, we 
proposed requiring hospitals to code devices for APCs to improve the 
quality of the claims data in support of our transition to the use of 
all single claims to establish payment rates for those APCs. We made 
this proposal cautiously, as we realize that it imposes a burden on 
hospitals to code the devices.
    For the CY 2005 OPPS, we proposed to require coding of devices 
required for APCs for which we proposed to adjust the median costs for 
the CY 2005 OPPS. The APCs and the devices that were proposed for 
device coding were published in Table 20 of the August 16, 2004 
proposed rule (69 FR 50497 through 50499). Specifically, if one device 
is shown for one APC, that device would have to be billed on the claim 
for a service in that APC or the claim would be returned to the 
provider for correction. If more than one device is shown for one APC, 
the provider would be required to bill one of the device codes shown on 
the same claim with the service in that APC for the claim to be 
accepted.
    We also proposed to require coding of C1900 (Left ventricular lead) 
required to perform the service described in APC 0418, Left Ventricular 
Lead, because the service cannot be done without the lead, and because 
the device has been billed separately for pass-through payment in CYs 
2003 and 2004. We believe that continued coding of the device would not 
impose a burden on hospitals. Similarly, because of our concerns 
regarding the correct coding of claims for CPT code 61886 (Implant 
neurostim arrays), assigned to APC 0315 (discussed in greater detail in 
section III.C.2.a. of this preamble), we proposed to require device 
coding for APC 0315 (Level II Implantation of Neurostimulator) to 
improve the coding on claims for placement of a dual channel cranial 
neurostimulator pulse generator or receiver, just as we proposed to 
require device coding for APC 0039 (Implantation of Neurostimulator) 
for placement of a single channel cranial neurostimulator as noted 
below.
    We solicited comments on the proposed C-code requirements.
    In addition, we announced in the proposed rule that we are 
considering expanding the device coding requirements in the future. We 
believed that, by requiring device coding for a small subset of device-
dependent APCs each year, we would minimize the marginal annual coding 
burden on hospitals and begin to improve data for these APCs, which 
have consistently proven to be problematic. We believed coding of 
devices was essential if we were to improve the accuracy of claims data 
sufficiently to better calculate the correct relative costs of device-
dependent APCs in relation to the other services paid under the OPPS.
    We asked that the public inform us of the device codes that are 
essential to the procedures contained in the device-dependent APCs 
listed in Table 20 of the proposed rule. The alphanumeric HCPCS codes 
for devices that were reactivated for CY 2004 OPPS can be found on the 
CMS Web site at http://www.cms.hhs.gov/providers under coding. They are 
in the section of alphanumeric codes that begin with the initial letter 
``C.''
    We received a number of comments regarding our request.
    Comment: In general, commenters supported a requirement for 
mandatory device coding for all devices, not only those for which CMS 
proposed mandatory reporting. However, they had different views 
regarding what the requirement should contain and how it should be 
enforced. Some commenters asked that we require that all procedures for 
device-dependent APCs contain a C-code to identify the device used in 
the procedure. They indicated that they believed that this requirement 
is crucial to acquiring valid cost data for these services. Some 
commenters were concerned about the administrative burden that required 
C-coding imposes on hospitals and urged CMS to reassess the burden 
within 2 years if it imposes mandatory C-coding for devices. Other 
commenters urged CMS to implement a grace period of no less than 90 
days after implementation of the CY 2005 OPPS to enable hospitals to be 
sure that they are prepared for device code edits. During this period, 
the commenters wanted intermediaries to accept the codes and not return 
incorrectly coded claims. The commenters indicated that the edits 
should be included in this final rule with comment period so that 
hospitals can begin to work on them as soon as possible. Those 
commenters suggested that the device codes for which edits will not be 
implemented in CY 2005 should not be required until CY 2006. The 
commenters indicated that both OCE and intermediary systems must be 
ready to handle this change, and that no edits should be implemented if 
they are not and if providers have not had at least 30 days notice. 
Some commenters urged CMS to base any edits or list of required device 
codes on CPT codes, not APCs, because in some cases, not all codes in 
an APC require the same device. One commenter objected to the use of 
edits to return to providers claims that contain a procedure code that 
cannot be done without a device but which contain no device code. The 
commenter indicated that CMS has been inconsistent in its policies 
governing coding of devices since the inception of the OPPS and should 
provide some greater period of stability in coding before it edits for 
the presence of the device codes.
    Response: We appreciate the comments, but continue to believe 
coding of devices is vital to enhancing the device-dependent APC claims 
data. Therefore, as proposed, effective for services provided on or 
after January 1, 2005, we will require hospitals to include device 
category codes on claims when such devices are used in conjunction with 
procedures billed and paid for under the OPPS. While we are requiring 
use of these device codes for reporting all such devices effective 
January 1, 2005, we will not implement the edits contained in Table 19 
until April 1, 2005, to provide time for further review and for 
hospitals to prepare for them. The edits will not apply to claims that 
contain a procedure code reported with a modifier 73 or 74 to signify 
an interrupted procedure because we recognize that in those cases, the 
procedure might have been interrupted before the device was implanted.
    We will apply the edits at the CPT/HCPCS code level to be as 
precise as possible. Table 19 includes the edits that we expect to go 
into effect April 1, 2005. The table of edits and the definitions of 
the C-codes (Table 20 of this preamble) will be posted on the CMS Web 
site on the OPPS page. As noted on Table 19, there are some CPT codes 
for which edits cannot be established, for example, because of the 
optional nature of the use of a device when performing the service. 
Although there is no official comment period

[[Page 65762]]

associated with implementation of the edits, we welcome comments on the 
edits to be implemented on April 1, 2005, particularly from hospitals 
to whose claims the edits will apply and from medical specialties whose 
physicians use the devices in the procedures performed in hospital 
outpatient settings. Comments may be sent to <a href="/cdn-cgi/l/email-protection#5d1228292d3c29343833290d0d0e1d3e302e7335352e733a322b"><span class="__cf_email__" data-cfemail="eaa59f9e9a8b9e838f849ebabab9aa898799c4828299c48d859c">[email protected]</span></a> 
if possible, by December 1, 2004.
    In the future, we will consider edits for additional procedure 
codes in other device-dependent APCs. We will post all final edits on 
the CMS Web site with an announcement of the calendar quarter in which 
we expect to implement them. We will also provide them in a Medlearn 
Matters article. Any future edits will be implemented as always as part 
of the quarterly OCE release. We intend to expand the editing of 
device-dependent procedure codes for appropriate device C-codes as 
expeditiously but also as carefully as possible. The next group of 
device procedures for which we will consider edits will include those 
procedures in APCs for which we set the median cost at 95 percent of 
the CY 2004 payment median but for which we did not propose edits in 
the August 16, 2004 proposed rule.
    Comment: One commenter asked that CMS encourage manufacturers to 
put the applicable HCPCS device C-code on the device package and that 
CMS work with FDA to expedite placement of C-codes on device packages. 
The commenter also urged CMS to simplify the C-codes to be consistent 
with the information routinely reported by physicians in operative 
reports. The commenter gave, as an example, the seven device codes used 
with APC 0087 (Noncoronary Angioplasty or Atherectomy), all of which 
could be reported using only one code for ``transluminal catheter''. 
The commenter stated that such simplification would greatly improve the 
likelihood that the device is coded on the claim because the 
description that distinguishes one of the seven codes from another is 
typically not documented in the hospital's record and is not 
information the coder would know. Other commenters asked that CMS 
actively undertake a program designed to educate providers on how to 
bill for devices and how to set charges for high cost devices so that 
future updates to the OPPS will more accurately reflect the costs of 
these services. Some commenters urged CMS to create and maintain a file 
on the CMS Web site that contains a complete crosswalk of devices codes 
to CPT codes in the device APCs. Some commenters asked that CMS provide 
a detailed revenue code to device code crosswalk so that hospitals will 
promote more uniformity in billing for devices.
    Response: We will carefully examine how we can facilitate correct 
coding of devices, including possible communication with the FDA. We 
will also consider the extent to which we can simplify the HCPCS codes 
for devices to facilitate straightforward coding. Finally, we will 
determine the extent to which we can improve provider education 
regarding correct coding for devices. However, we will not undertake 
any activity designed to advise hospitals on how to set charges for 
their services or to designate what revenue codes hospitals should use 
on a device-specific basis.
    The edits that we created to ensure the coding of devices for the 
selected APCs that are listed in Table 19 of this preamble are also 
available as an Excel file in the supporting documentation of this 
final rule with comment period that will be posted on the CMS Web site 
and will also be contained in the transmittals for the January 2005 
OPPS update and OCE release. Moreover, as described above, we will post 
any added edits for device coding on the OPPS page of the CMS Web site 
so that providers can have ready access to them.
    Comment: Some commenters asked that we add particular device and 
procedure combinations to the table of edits. Specifically, a commenter 
asked that we add APC 0259 (Cochlear Implant Surgery) as paired with 
device code L8614 (Cochlear implant), and APC 0040 paired with both 
device codes C1778 (Lead neurostimulator) and C1883 (Adapter/extension 
packing lead or neurostimulator lead). Another commenter asked that we 
add code C1787 (Patient programmer, neurostimulator) to the required 
devices for APC 0222. Another commenter asked that the same device 
codes be required for the CPT codes in APC 0087 as we proposed to 
require for APC 0085 because the commenter believes that the same 
devices are used in both APCs. Other commenters asked that we include 
edits for other APCs, for example, APC 0385 (Level I Prosthetic 
Urological Procedures) and APC 0386 (Level I Prosthetic Urological 
Procedures).
    Response: Except as discussed below, we have not added any APCs to 
the list that we proposed be edited for device codes at this time. 
Although our policy to require hospitals to code all devices is 
effective January 1, 2005, we will not implement edits until April 1, 
2005. We will consider the comments regarding additional edits for 
later implementation. We believe that it is preferable to focus first 
on the APCs most affected and to add subsequent edits after careful 
deliberation. In this manner we can minimize the potential for adverse 
effects on claims processing and hospitals' cash flow.
    However, we have added one CPT code to the list of codes that will 
be edited for device codes. We inadvertently omitted a proposed edit 
for CPT code 33225 (Left ventricular pacing lead add-on), which we 
proposed to place in New technology APC 1525. This procedure uses the 
device code C1900 (Left ventricular lead), whose pass-through status 
expires in January 2005. We proposed that when the lead is implanted as 
a stand-alone procedure using CPT code 33224 (Insert pacing lead and 
connect), we would edit for the presence of the device code for the 
lead on the claim. However, we believe that it is also appropriate to 
edit for the presence of the lead on a claim for the add-on code, CPT 
code 33225, and that it should pose no additional burden on hospitals 
because hospitals have been required to bill the device code C1900 for 
pass-through payment since CY 2004.
    Summary of provisions related to required use of C-codes for 
devices that we are making final beginning in CY 2005:
    1. Hospitals are required to report device category codes on claims 
when such devices are used in conjunction with procedure(s) billed and 
paid for under the OPPS in order to improve the claims data used 
annually to update the OPPS payment rates.
    2. Beginning April 1, 2005, the OCE will include edits to ensure 
that certain procedure codes are accompanied by an associated device 
category code.
    3. CMS will post the OCE edits that are to be implemented beginning 
April 1, 2005 on the CMS Web site to give hospitals and the provider 
community ample opportunity to review them and provide feedback prior 
to implementation.
    4. Edits will apply at the CPT/HCPCS code level rather than the APC 
level.
    5. Edits will not apply when a procedure code is reported with a 
modifier -73 or -74 to designate an incomplete procedure.
    6. CMS will add edits as needed in future quarterly updates of the 
OCE to ensure that hospitals are reporting device category codes 
appropriately with associated procedure codes. CMS will post future 
device category and procedure code edits on the CMS Web site to give 
hospitals and the provider

[[Page 65763]]

community ample opportunity for input prior to implementation.
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BILLING CODE 4120-01-C
5. Submission of External Data
    In the August 16, 2004 proposed rule, we stated that we would 
consider external data submitted with respect to any APC to the extent 
that such data enable us to verify or adjust claims data where we are 
convinced that such an adjustment to the median cost is appropriate. 
Further, we stated that all comments and any data we use would be 
available for public inspection and commenters should not expect that 
any data furnished as part of the comment

[[Page 65770]]

would be withheld from public inspection. We also stated that parties 
who submit external data for devices should also submit a strategy that 
can be used to determine what part of the median cost represents the 
device to which the external data applies. We stated in the proposed 
rule that external data that are likely to be of optimal use should 
meet the following criteria:
    <bullet> Represent a diverse group of hospitals both by location 
(for example, rural and urban) and by type (for example, community and 
teaching). We preferred that commenters identify each hospital, 
including location with city and State, nonprofit vs. for profit 
status, teaching vs. nonteaching status, and the percent of Medicare 
vs. non-Medicare patients receiving the service. A pseudo identifier 
could be used for the hospital identification. Data should be submitted 
both ``per hospital'' and in the aggregate.
    <bullet> Identify the number of devices billed to Medicare by each 
hospital as well as any rebates or reductions for bulk purchase or 
similar discounts and identify the characteristics of providers to 
which any such price rebates or reductions apply.
    <bullet> Identify all HCPCS codes with which each item would be 
used.
    <bullet> Identify the source of the data.
    <bullet> Include both the charges and costs for each hospital for 
CY 2003.
    Meeting the criteria would help enable us to compare our CY 2003 
claims data to the submitted external data and help us determine 
whether the submitted data are representative of hospitals that submit 
claims under the OPPS.
    We noted in the proposed rule that information containing 
beneficiary-specific information (for example, medical records, and 
invoices with beneficiary identification on it) must be altered, if 
necessary, to remove any individually identifiable information, such as 
information that identifies an individual, diagnoses, addresses, 
telephone numbers, attending physician, medical record number, and 
Medicare or other insurance number. Moreover, individually identifiable 
beneficiary medical records, including progress notes, medical orders, 
test results, and consultation reports must not be submitted to us. 
Similarly, photocopies of checks from hospitals or other documents that 
contain bank routing numbers must not be submitted to us.
    We received a number of public comments concerning the submission 
of external data.
    Comment: Some commenters supported use of claims data and strongly 
opposed use of data from external sources to set the OPPS payment 
rates. They believed that claims data more accurately reflects the 
costs hospitals incur to provide outpatient services. They strongly 
opposed use of external data because they believe that item specific 
adjustments will make OPPS unduly complex and result in unfair 
imbalances in payments. They believed that CMS should remain committed 
to the principles of prospective payment and the use of the averaging 
process rather than seeking to pay actual cost for one element of costs 
(for example, new technology) at the expense of all other items, which 
would result after application of mandated budget neutrality 
adjustments. Conversely, other commenters indicated that CMS should 
rely on external data in lieu of claims data for procedures that 
require high cost devices because the CMS methodology of applying a 
cost-to-charge ratio to charges to acquire costs will always result in 
costs that are below the actual acquisition cost of the device and 
that, barring a significant change in CMS' cost finding process, 
external data are the only means by which valid cost data for high cost 
devices can be introduced into the OPPS. Some commenters provided 
external data on the devices of interest to them and some provided 
specific amounts calculated using external data, which they asked that 
we substitute for claims data in setting the weight for the APC of 
interest to them.
    Response: We have not applied numbers from external data in our 
adjustments of median costs for the CY 2005 OPPS. While recognizing 
that external data aids in our general analysis of determining payment 
rates, we believe that generally such use of external data is not the 
optimal way to set payment rates for services in a relative weight 
system. As we discussed in section III.C.5. of this preamble, we 
believe that using external data has a significant potential for 
creating an unfair imbalance in a prospective payment system. However, 
we appreciate the efforts of some commenters in providing us with 
external data.
    Comment: Some commenters urged us to use external data in the 
construction of APC rates and urged us to use confidential data for 
this purpose. Some commenters are concerned about the criteria CMS 
proposed for external data and urged us to expand the use of 
confidential external data to calculate future payment rates whenever 
such data are indicated and proven reliable based on the data's merits. 
The commenter did not suggest criteria for determining if confidential 
proprietary external data are reliable.
    Response: As we indicated in the August 16, 2004 proposed rule, all 
information sent in response to comments will be made available to the 
public for review. We believe that all parties who are affected by the 
payment rates set under this system should have access to the 
information on which the rates are set.
    Comment: One commenter indicated that CMS should use external data 
for all device APCs in which the device cost exceeds 5 percent of the 
total APC cost because to do otherwise would unfairly benefit some 
categories of services compared to other categories of services.
    Response: We have not used external data to adjust any medians for 
the CY2005 OPPS. As discussed above, we applied the same adjustment 
rules to all device medians.
    After carefully reviewing all public comments received, we have 
decided not to use any external data to adjust the median costs for the 
CY 2005 OPPS for the reasons discussed above.

D. Calculation of Scaled OPPS Payment Weights

    Using the median APC costs discussed previously, we calculated the 
relative payment weights for each APC for CY 2005 shown in Addenda A 
and B to this final rule with comment period. As in prior years, we 
scaled all the relative payment weights to APC 0601 (Mid-Level Clinic 
Visit) because it is one of the most frequently performed services in 
the hospital outpatient setting. We assigned APC 0601 a relative 
payment weight of 1.00 and divided the median cost for each APC by the 
median cost for APC 0601 to derive the relative payment weight for each 
APC. Using CY 2003 data, the median cost for APC 0601 is $57.32 for CY 
2005.
    Section 1833(t)(9)(B) of the Act requires that APC reclassification 
and recalibration changes, wage index changes, and other adjustments be 
made in a manner that assures that aggregate payments under the OPPS 
for CY 2005 are neither greater than nor less than the aggregate 
payments that would have been made without the changes. To comply with 
this requirement concerning the APC changes, we compared aggregate 
payments using the CY 2004 relative weights to aggregate payments using 
the CY 2005 proposed relative weights. Based on this comparison, we 
proposed to make an adjustment to the weights for purposes of budget 
neutrality. The unscaled weights were adjusted by 0.984667135 for 
budget neutrality. The CY 2005

[[Page 65771]]

relative weights, which incorporate the recalibration adjustments 
explained in this section, are listed in Addendum A and Addendum B to 
this final rule with comment period.
    Section 1833(t)(14)(H) of the Act, as added by section 621(a)(1) of 
Pub. L. 108-173, states that ``Additional expenditures resulting from 
this paragraph shall not be taken into account in establishing the 
conversion factor, weighting and other adjustment factors for 2004 and 
2005 under paragraph (9) but shall be taken into account for subsequent 
years.'' Section 1833(t)(14) provides the payment rates for certain 
specified covered outpatient drugs. Therefore, the incremental cost of 
those specified covered outpatient drugs (as discussed in section II.J. 
of this final rule with comment period) is excluded from the budget 
neutrality calculations but the base median cost of the drugs continues 
to be a factor in the calculation of budget neutrality. Accordingly, we 
calculated median costs for the specified covered outpatient drugs to 
which this section applies and used those medians and the frequencies 
in the calculation of the scaler for budget neutrality.
    Under section 1833(t)(16)(C) of the Act, as added by section 
621(b)(1) of Pub. L. 108-173, payment for devices of brachytherapy 
consisting of a seed or seeds (or radioactive source) is to be made at 
charges adjusted to cost for services furnished on or after January 1, 
2004 and before January 1, 2006. As we stated in our January 6, 2004 
interim final rule, charges for the brachytherapy sources will not be 
used in determining outlier payments and payments for these items will 
be excluded from budget neutrality calculations, consistent with our 
practice under the OPPS for items paid at cost. (We provide a 
discussion of brachytherapy payment issues at section VII.G. of this 
final rule with comment period.)

IV. Payment Changes for Devices

A. Pass-Through Payments for Devices

1. Expiration of Transitional Pass-Through Payments for Certain Devices
    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. This period begins 
with the first date on which a transitional pass-through payment is 
made for any medical device that is described by the category. In our 
November 7, 2003 final rule with comment period (68 FR 63437), we 
specified six device categories currently in effect that would cease to 
be eligible for pass-through payment effective January 1, 2005.
    The device category codes became effective April 1, 2001, under the 
provisions of the BIPA. Prior to pass-through device categories, we 
paid for pass-through devices under the OPPS on a brand-specific basis. 
All of the initial category codes that were established as of April 1, 
2001, have expired; 95 categories expired after CY 2002 and 2 
categories expired after CY 2003. All of the categories listed in Table 
21, along with their expected expiration dates, were created since we 
published the criteria and process for creating additional device 
categories for pass-through payment on November 2, 2001 (66 FR 55850 
through 55857). We based the expiration dates for the category codes 
listed in that table on the date on which a category was first eligible 
for pass-through payment.
    There are six categories for devices that would have been eligible 
for pass-through payments for at least 2 years as of December 31, 2004. 
In our November 7, 2003 final rule with comment period, we finalized 
the December 31, 2004 expiration dates for these six categories. (Three 
other categories listed in Table 21, as proposed, C1814, C1818, and 
C1819, will expire on December 31, 2005.) As indicated in Table 21, as 
proposed, the six categories that will expire as of December 31, 2004, 
are: C1783, C1884, C1888, C1900, C2614, and C2632. Each category 
includes devices for which pass-through payment was first made under 
the OPPS in CY 2002 or CY 2003.
    In the November 1, 2002 final rule, we established a policy for 
payment of devices included in pass-through categories that are due to 
expire (67 FR 66763). For CY 2003, we packaged the costs of the devices 
no longer eligible for pass-through payments into the costs of the 
procedures with which the devices were billed in CY 2001. There were 
few exceptions to this established policy (brachytherapy sources for 
other than prostate brachytherapy, which is now also separately paid in 
accordance with section 621(b)(2) of Pub. L. 108-173). For CY 2004, we 
continued to apply this policy for categories that expired on January 
1, 2004.
2. Proposed and Final Policy for CY 2005
    In the August 16, 2004 proposed rule, we proposed to continue to 
base the expiration date for a device category on the earliest 
effective date of pass-through payment status of the devices that 
populate the category. This basis for determining the expiration date 
of a device category is the same as that used in CY 2003 and CY 2004.
    We also proposed that payment for the devices that populate the six 
categories that would cease to be eligible for pass-through payment 
after December 31, 2004, would be made as part of the payment for the 
APCs with which they are billed. This methodology for packaging device 
cost is consistent with the packaging methodology that we describe in 
section III. of this final rule with comment period. To accomplish 
this, we proposed to package the costs of devices that would no longer 
be eligible for pass-through payment in CY 2005 into the HCPCS codes 
with which the devices are billed.
    In the proposed rule, we noted that category C1819 (Tissue 
localization excision device) was added subsequent to our proposed rule 
for CY 2004. We first announced the start date and the proposed 
expiration date for this device category in our November 7, 2003 final 
rule with comment period. Therefore, we proposed to maintain the 
category's December 31, 2005 expiration date. We invited specific 
comments on the proposed expiration date for category C1819.
    We received a number of public comments on our proposals relating 
to the expiration dates for transition pass-through devices.
    Comment: One commenter noted that C1884 (Embolization protection 
system) is used for carotid stenting. The commenter recommended that 
CMS continue paying pass-through payment for C1884 until carotid 
stenting APC costs are established.
    Response: Carotid stenting procedures are on the inpatient list for 
the OPPS and, therefore, are not paid by Medicare when performed in the 
outpatient hospital setting. To the extent that C1884 has been used 
with other procedures payable under the OPPS, we packaged the costs of 
C1884 into the APCs that include the procedures with which this device 
code was billed.
    Comment: One commenter objected to our proposal to remove HCPCS 
code C1884 from pass-through status, effective January 1, 2005. The 
commenter believed that the service had been unfairly subjected to the 
device offset because it was totally new and did not replace any 
existing device. The commenter claimed that, for CY 2003, code C1884 
inappropriately received very little pass-through payment when the 
device was used. The commenter indicated that CMS subsequently 
recognized its error by changing the offset policy for CY 2004, the 
second year of the device's pass-through status,

[[Page 65772]]

and, therefore should give the device a third year of pass-through 
payment.
    Response: We disagree with the commenter that we inappropriately 
made little pass-through payments for C1884. The commenter is correct 
that, for CY 2004, following notice and comment rulemaking, we changed 
the policy for applying offsets. As of January 1, 2004, we apply 
offsets, on a device-category-specific basis, when we determine that an 
APC contains costs associated with the device. Under the policy in 
effect prior to CY 2004, we applied offsets when a device category was 
billed with any of the APCs on our device offset list. This policy 
change affected all the categories in effect in CYs 2003 and 2004, 
including C1884. Some of these categories went into effect as of 
January 1, 2003; thus their pass-through status will expire after 
exactly 2 years. Other categories began receiving pass-through payments 
in the middle of 2002. Therefore, their categories will have more than 
2, but less than 3 years with pass-through payment. We would not be 
able to extend pass-through payment for the second group of categories 
for an additional year, because they would then have greater than the 
statutory maximum of 3 years of pass-through payment.
    We see no reason to adopt the commenter's suggestions to only 
change the status for code C1884. In CY 2003, C1884, like all our other 
pass-through categories, was subject to the same offset policy. 
Therefore, we are not changing the expiration date of device category 
C1884.
    This device will cease to be a pass-through device effective 
January 1, 2005, at which time it will have had 2 years of pass-through 
payment.
    We note that the expiration dates of C1884 and most other 
categories (the exception being C1819, discussed below) that were in 
effect at the time of our final rule for CY 2004 (68 FR 63437) were 
made final in that same rule, having been proposed in the proposed rule 
for CY 2004. We are now merely reaffirming that policy.
    A few commenters supported our proposal to remove the six device 
categories from further pass-through payments and our proposal to 
package the costs of these devices into the cost of the APCs with which 
they are billed. The commenters indicated that incorporating these 
technologies into the APC system will minimize special payment 
incentives to use certain devices over others.
    Comment: One commenter was concerned that pass-through payment for 
a brachytherapy-related solution (C2632, Brachytherapy solution, 
Iodine-125, per mCi) would expire from pass-through payment after 
December 31, 2004, under our proposal, and requested a third year of 
pass-through payment, until December 31, 2005, because pass-through 
payment has been made only since January 1, 2003. The commenter claimed 
that this category still qualifies for another year of pass-through 
payment.
    Response: Because the brachytherapy solution in question, C2632, is 
a brachytherapy source separately payable under the OPPS according to 
section 621(b) of Pub. L. 108-173, it will continue to receive cost-
based payment as of January 1, 2005, based on those statutory 
provisions, rather than on the pass-through payment provisions. Section 
VII.G. of this final rule with comment period explains those provisions 
and includes code C2632 for cost-based payment in CY 2005. As 
indicated, in regard to other comments concerning expired categories, 
this brachytherapy device will have had 2 years of pass-through status 
on January 1, 2005. Our policy is that pass-through devices are removed 
from pass-through status as soon as permitted under the statute. 
Therefore, this device will cease to be a pass-through device effective 
January 1, 2005, at which time it will have had 2 years of pass-through 
payment.
    Comment: A few commenters were concerned that pass-through payment 
for C2614 (Probe, percutaneous lumbar diskectomy) in APC 0220 (Level I 
Nerve Procedures) would expire from pass-through payment after December 
31, 2004, under our proposal, and requested that CMS continue to pay 
for this device category separately on a pass-through basis. The 
commenters were under the impression that the methodology used to 
determine whether or not a device category would continue to be 
eligible for payment in CY 2005 was if it showed ``that there were no 
close or identifiable costs associated with the devices relating to the 
respective APCs that are normally billed with them.''
    One commenter indicated that the payment for APC 0220 is not 
sufficient to cover the cost of the high end disposable RF lumbar probe 
coded under C2614. The commenter was also concerned that this device, 
which is used in performing CPT code 62287 (Percutaneous diskectomy), 
and which costs $1,150, will cease to be eligible for pass-through 
payments effective January 2005. The commenter stated that the device 
has increased effectiveness and reduced recovery time for patients but 
unless CMS increases the payment for APC 0220 for which we proposed to 
pay $996.69, hospitals will be forced to cease using it in 2005. The 
commenter urged that CMS continue pass-through payment for C2614 until 
such time as the payment rate for APC 0220 is adequate to cover the 
cost of the probe.
    Response: The commenters are incorrect in their understanding of 
our criteria for proposing to expire device categories. We proposed to 
expire C2614 because it has received pass-through payment for at least 
2 years, which is also the basis for our proposal to expire the other 
five device categories listed for expiration in CY 2005 in our proposed 
rule. A device with no close or identifiable costs associated with the 
devices relating to the respective APCs that are normally billed with 
them is actually a factor in determining whether to apply an offset, 
which would reduce the pass-through payment amount, as explained in the 
August 16, 2004 proposed rule (69 FR 50501). As indicated, similar to 
other responses in regard to other comments concerning other categories 
due to expire, this disc decompression device will have had 2 years of 
pass-through status on January 1, 2005. Our policy is that pass-through 
devices are removed from pass-through status as soon as permitted under 
the statute. Therefore, this device will cease to be a pass-through 
device effective January 1, 2005, at which time it will have had 2 
years of pass-through payment.
    We have considered the commenter's concern regarding placement of 
code C2614, the code for a device that is used in performing CPT code 
62287, in APC 0220 and find that the resource costs for CPT code 62287 
may be more appropriate for APC 0221 (Level II Nerve Procedures). 
Therefore, we have reassigned CPT code 62287 to APC 0221, for which the 
CY 2005 payment rate is $1,635.87.
    Comment: One commenter recommended that CMS continue to pay for 
C2614 as a pass-through device category until CMS determines how the 
procedure, percutaneous lumbar diskectomy, is coded for determination 
of accurate APC cost weighting.
    Response: As explained previously, we packaged costs of the C-code 
devices into the APCs that include the procedures with which the device 
codes were billed. We are packaging the costs related to code C2614 in 
this manner.
    Comment: One commenter, a device manufacturer, recommended that CMS 
extend the expiration date for pass-through payment of C1819 (Tissue 
localization excision device) until December 31, 2006, instead of 
ending pass-through payment after CY 2005. The commenter claimed that 
CMS will have only a partial year of data for the

[[Page 65773]]

CY 2006 year, unless it extends the date that the category is effective 
for pass-through payment. This commenter claimed that the proposed 
payment for APC 0028, in which therapeutic breast cancer procedures, 
CPT codes 19125 and 19160, are placed, increased by only $100 and does 
not represent any device codes. The commenter asserted that CMS needs 
to collect data over 2 years and increase payment for APC 0028 to at 
least $1,345 starting in CY 2007. The commenter also pointed out that 
two categories set to expire after December 31, 2005, C1814 (Retinal 
tamonade device, silicone oil) and C1818 (Integrated keratoprosthesis), 
would be paid as pass-through devices several months longer than C1819, 
resulting in a greater amount of data for ratesetting than will be 
available for C1819.
    Response: We believe it is premature to make any conclusions and 
recommendations concerning the payment rate for APC 0028 for CY 2006 or 
CY 2007. Presumably, after the pass-through period ends, the device 
costs of category code C1819 will be included in the median costs of 
APC 0028 if the device is billed with procedures that are included in 
that APC. We reiterate that, as with other categories due to expire, 
this tissue localization device will have had 2 years of pass-through 
status on January 1, 2006. Our policy is that pass-through devices are 
removed from pass-through status as soon as permitted under the 
statute. Therefore, this device will cease to be a pass-through device 
effective January 1, 2006.
    In this final rule with comment period, we are finalizing the 
proposed expiration dates for device categories as specified in the 
proposed rule, as indicated in Table 21 below.
[GRAPHIC] [TIFF OMITTED] TR15NO04.036

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

1. Background
    In the November 30, 2001 final rule, we explained the methodology 
we used to estimate the portion of each APC rate that could reasonably 
be attributed to the cost of the associated devices that are eligible 
for pass-through payments (66 FR 59904). Beginning with the 
implementation of the CY 2002 OPPS update (April 1, 2002), we deducted 
from the pass-through payments for the identified devices an amount 
that reflected the portion of the APC payment amount that we determined 
was associated with the cost of the device, as required by section 
1833(t)(6)(D)(ii) of the Act. In the November 1, 2002 final rule, we 
published the applicable offset amounts for CY 2003 (67 FR 66801).
    For the CY 2002 and CY 2003 OPPS updates, to estimate the portion 
of each APC rate that could reasonably be attributed to the cost of an 
associated pass-through device eligible for pass-through payment, we 
used claims data from the period used for recalibration of the APC 
rates. Using those claims, we calculated a median cost for every APC 
without packaging the costs of associated C-codes for device categories 
that were billed with the APC. We then calculated a median cost for 
every APC with the costs of the associated device category C-codes that 
were billed with the APC packaged into the median. Comparing the median 
APC cost without device packaging to the median APC cost including 
device packaging enabled us to determine the percentage of the median 
APC cost that is attributable to the associated pass-through devices. 
By applying those percentages to the APC payment rates, we determined 
the applicable amount to be deducted from the pass-through payment, the 
``offset'' amount. We created an offset list comprised of any APC for 
which the device cost was at least 1 percent of the APC's cost.
    As first discussed in our November 1, 2002 final rule (67 FR 66801) 
the offset list that we publish each year is a list of offset amounts 
associated with those APCs with identified offset amounts developed 
using the methodology described above. As a rule, we do not know in 
advance which procedures and APCs may be billed with new categories. 
Therefore, an offset amount is applied only when a new device category 
is billed with an APC appearing on the offset list. The list of 
potential offsets for CY 2004 is currently published on the CMS Web 
site: http://www.cms.hhs.gov, as ``Device-Related Portions of 
Ambulatory Payment Classification Costs for 2004.''
    For CY 2004, we modified our policy for applying offsets to device 
pass-through payments. Specifically, we indicated that we would apply 
an offset to a new device category only when we could determine that an 
APC contains costs associated with the device. We continued our 
existing methodology for determining the offset amount, described 
above. We were able to use this methodology to establish the device 
offset amounts for CY 2004 because providers reported device codes (C-
codes) on the CY 2002 claims used for CY 2004 OPPS. However, for the CY 
2005 update to the OPPS, we proposed to use CY 2003 claims that do not 
include device coding. (Section III. of this final rule with comment 
period contains a fuller discussion of our proposed and final 
requirement for use

[[Page 65774]]

of C-codes for CY 2005.) In the CY 2004 OPPS update, we reviewed the 
device categories eligible for continuing pass-through payment in CY 
2004 to determine whether the costs associated with the device 
categories are packaged into the existing APCs. Based on our review of 
the data for the categories existing in CY 2004, we determined that 
there were no close or identifiable costs associated with the devices 
relating to the respective APCs that are normally billed with them. 
Therefore, for those device categories, we set the offset to $0 for CY 
2004.
2. Proposed and Final Policy for CY 2005
    As we proposed in the August 16, 2004 proposed rule, in this final 
rule with comment period for CY 2005, we are continuing to review each 
new device category on a case-by-case basis as we did in CY 2004 to 
determine whether device costs associated with the new category are 
packaged into the existing APC structure. We are setting the offsets to 
$0 for the currently established categories that would continue for 
pass-through payment into CY 2005. If, during CY 2005, we create a new 
device category and determine that our data contain identifiable costs 
associated with the devices in any APC, we will adjust the APC payment 
if the offset is greater than $0. If we determine that device offsets 
greater than $0 are appropriate for any new category that we create 
during CY 2005, we will announce the offset amounts in the program 
transmittal that announces the new category.
    Further, as we proposed, in this final rule with comment period for 
CY 2005, we are using the device percentages (portion of the APC median 
cost attributable to the packaged device) that we developed for 
potential offsets in CY 2004 and apply these percentages to the CY 2005 
payment amounts to obtain CY 2005 offset amounts, in cases where we 
determine that an offset is appropriate. As proposed, we are using the 
device percentage developed for CY 2004 because, as noted above, for 
the CY 2005 update to the OPPS, we are using CY 2003 claims that do not 
include device codes. Therefore, we are not easily able to determine 
the device portions of APCs for CY 2003 claims data. We have posted the 
list of device-dependent APCs and their respective device portions on 
the CMS Web site: http://www.cms.hhs.gov for CY 2004 We will update the 
device portions as a percentage of final CY 2005 APC payments and post 
these on the CMS Web site.
    We did not receive any public comments on our proposed policy for 
reducing transitional pass-through payments to offset costs packaged 
into APC groups.

C. Criteria for Establishing New Pass-Through Device Categories

    Comment: Several commenters from the medical device community asked 
that CMS revise the criteria under which it evaluates applications for 
pass-through status for new device categories. The commenters 
specifically requested that CMS eliminate the current requirement that 
items that are included in new pass-through device categories must be 
surgically inserted or implanted through a surgically created incision. 
The commenters expressed concern that the current requirement may 
prevent access to innovative and less invasive technologies, 
particularly in the areas of gynecologic, urologic, colorectal and 
gastrointestinal procedures. These commenters asked that CMS change the 
surgical insertion or implantation criterion to allow pass-through 
payment for potential new device categories that include items 
introduced into the human body through a natural orifice, as well as 
through a surgically created incision.
    Several of the commenters recommended that CMS allow the creation 
of a new pass-through category for items implanted or inserted through 
a natural orifice, as long as the other existing criteria are met. The 
commenters do not believe that such an expansion of the criteria would 
significantly increase the amount spent on pass-through device 
categories and asked that CMS implement this change in January 2005. A 
few commenters predicted that this modification would result in 
expenditures of less than one quarter of the total amount available for 
pass-through payments. A few commenters further asked that CMS allow 
new categories, even if the name or terminology associated with the 
requested category resembles an expired category, even if that entails 
modifying the description of the expired category. One commenter 
claimed that manufacturers of technologies that are implanted through a 
surgically created opening have two options for incremental payment: 
(1) Pass-through payment; and (2) new technology APC, and that those 
not requiring a surgical incision have only one option for additional 
payment (the new technology APC).
    Response: We share the views of the commenters about the importance 
of ensuring access for Medicare beneficiaries to new technologies that 
offer substantial clinical improvement in the treatment of their 
medical conditions. We also recognize that, since the initial 
implementation of the OPPS, there have been beneficial changes in the 
methods by which some conditions are treated. These are issues that the 
agency takes very seriously and considers in the context of both pass-
through device categories and payment for new, complete procedures 
through assignment to either a new technology APC or an existing 
clinical APC.
    We note that other payment mechanisms exist within the OPPS for 
complete procedures that use new technology. These other payment 
mechanisms (establishment of a new code, where appropriate, and 
assignment to either a new technology APC or to a clinical APC) are 
already available, and do not require the implantation of a device 
through a surgical incision.
    We are also interested in hearing the views of other parties and 
receiving additional information on these issues. While we appreciate 
and welcome additional comments on these issues from the medical device 
makers, we are also interested in hearing the views of Medicare 
beneficiaries, of the hospitals that are paid under the OPPS and of 
physicians and other practitioners who attend to patients in the 
hospital outpatient setting. For that reason, we are soliciting 
additional comments on this topic within the 60-day comment period for 
this final rule with comment period. (See the ADDRESSES section of this 
preamble for information on submitting comments. When submitting 
comments on this issue, please include the caption ``Device 
Categories'' at the beginning of your comment.) In framing their 
comments, commenters are asked to consider the following questions:
    1. The comments discussed above refer to devices introduced into 
the body through natural orifices. We are seeking comments on whether 
this includes orifices that are either naturally or surgically created, 
as in the case of ostomies? If you believe this includes only natural 
orifices, why do you distinguish between natural and surgically created 
orifices?
    2. How would you define ``new,'' with respect to time and to 
predecessor technology? What additional criteria or characteristics do 
you believe distinguish ``new'' devices that are surgically introduced 
through an existing orifice from older technology that also is inserted 
through an orifice?
    3. What characteristics do you consider to distinguish a device 
that might be eligible for a pass-through category even if inserted 
through an

[[Page 65775]]

existing orifice from materials and supplies such as sutures, clips or 
customized surgical kits that are used incident to a service or 
procedure?
    4. Are there differences with respect to instruments that are seen 
as supplies or equipment for open procedures when those same 
instruments are passed through an orifice using a scope?
    Concerning the request that we allow new categories for new devices 
by modifying the descriptors of existing categories, we note there are 
systems difficulties with changing a descriptor of an existing HCPCS 
code, such as payment considerations of claims prior to when a 
modification would be made. Moreover, both hospitals and manufacturers 
have informed us in the past that coding changes have led to confusion 
on the part of hospital coders. Modifying established device category 
C-codes would only exacerbate any such coding confusion. Therefore, we 
note that we are not inclined to change the descriptors of existing C-
codes at this time.
    Comment: One commenter recommended that CMS revise the cost 
significant criterion for establishing new device categories for pass-
through payment. The commenter stated that medical devices are 
sometimes used as part of procedures that are secondary to a primary 
procedure, and in these cases the cost significance threshold of at 
least 25 percent of the APC rate associated with the services performed 
with the device should be adjusted downward to reflect the lower APC 
payment made for the secondary service. The commenter provided as an 
example those cases when the secondary procedure would be subject to 
the multiple procedure discount, thus lowering the APC payment 
associated with the procedure by 50 percent. The commenter indicated 
that this scenario happens infrequently.
    Response: We disagree that our cost significance criterion for a 
proposed new device category for pass-through payment requires revision 
or adjustment. The criterion commented on requires that the estimated 
average reasonable cost of devices in a proposed new device category 
exceeds 25 percent of the applicable APC payment amount for the service 
associated with the device category (67 FR 66785). Very few new device 
category applications are denied for pass-through payment because they 
do not meet this cost criterion. If the proposed category of devices 
can be billed with more than one APC, we generally use the lowest APC 
payment rate applicable for use with the nominated device when we test 
against this cost criterion, thus increasing the probability the device 
will pass the cost significance criterion. We do not believe any 
further adjustment is needed for this cost criterion.
    Therefore, we are not making any additional changes to our policy 
for CY 2005.

V. Payment Changes for Drugs, Biologicals, Radiopharmaceutical Agents, 
and Blood and Blood Products

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

1. Background
    Section 1833(t)(6) of the Act provides for temporary additional 
payments or ``transitional pass-through payments'' for certain drugs 
and biological agents. As originally enacted by the BBRA, this 
provision required 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 biological agents and brachytherapy used for the treatment of 
cancer; and current radiopharmaceutical drugs and biological products. 
For those drugs and biological agents referred to as ``current,'' the 
transitional pass-through payment began on the first date the hospital 
OPPS was implemented (before enactment of BIPA (Pub. L. 106-554), on 
December 21, 2000).
    Transitional pass-through payments are also required for certain 
``new'' drugs, devices and biological agents that were not being paid 
for as a hospital OPD service as of December 31, 1996, and whose cost 
is ``not insignificant'' in relation to the OPPS payment for the 
procedures or services associated with the new drug, device, or 
biological. Under the statute, transitional pass-through payments can 
be made for at least 2 years but not more than 3 years. In Addenda A 
and B to this final rule with comment period, pass-through drugs and 
biological agents are identified by status indicator ``G.''
    The process to apply for transitional pass-through payment for 
eligible drugs and biological agents can be found on pages of our CMS 
Web site: http://www.cms.hhs.gov. If we revise the application 
instructions in any way, we will post the revisions on our Web site and 
submit the changes to the Office of Management and Budget (OMB) for 
approval, as required under the Paperwork Reduction Act (PRA). 
Notification of new drugs and biological application processes is 
generally posted on the OPPS Web site at: http://www.cms.hhs.gov/hopps.
2. Expiration in CY 2004 of Pass-Through Status for Drugs and 
Biologicals
    Section 1833(t)(6)(C)(i) of the Act specifies that the duration of 
transitional pass-through payments for drugs and biologicals must be no 
less than 2 years and no longer than 3 years. The drugs whose pass-
through status will expire on December 31, 2004, meet that criterion. 
In the August 16, 2004 proposed rule, Table 22 listed the 13 drugs and 
biologicals for which we proposed that pass-through status would expire 
on December 31, 2004.
    Comment: One commenter, a national hospital association, supported 
our proposal to remove these 13 drugs from the pass-through status on 
December 31, 2004.
    Response: We appreciate the commenters' support for our proposal.
    For this final rule with comment period, in Table 22 below, we are 
specifying the drugs and biologicals for which pass-through status will 
expire on December 31, 2004. This listing is the same as that published 
in the proposed rule.

[[Page 65776]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.037

3. Drugs and Biologicals With Pass-Through Status in CY 2005
    As we proposed in the August 16, 2004 proposed rule, we are 
continuing pass-through status for CY 2005 for 18 drugs and biologicals 
listed in Table 23 of this final rule with comment period. The APCs and 
HCPCS codes for drugs and biologicals that will have pass-through 
status in CY 2005 are assigned status indicator ``G'' in Addendum A and 
Addendum B, respectively, to this final rule with comment period.
    Section 1833(t)(6)(D)(i) of the Act sets the payment rate for pass-
through eligible drugs (assuming that no pro rata reduction in pass-
through payment is necessary) as the amount determined under section 
1842(o) of the Act. Section 303(c) of Pub. L. 108-173 amended Title 
XVIII of the Act by adding new section 1847A. This new section 
establishes the use of the average sales price (ASP) methodology for 
payment for drugs and biologicals described in section 1842(o)(1)(C) of 
the Act furnished on or after January 1, 2005. Therefore, as we 
proposed in the August 16, 2004 proposed rule, in CY 2005, we will pay 
under the OPPS for drugs and biologicals with pass-through status 
consistent with the provisions of section 1842(o) of the Act as amended 
by Pub. L. 108-173 at a rate that is equivalent to the payment these 
drugs and biologicals will receive in the physician office setting, and 
established in accordance with the methodology described in the CY 2005 
Physician Fee Schedule final rule published elsewhere in this issue.
    Section 1833(t)(6)(D)(i) of the Act also sets the amount of 
additional payment for pass-through eligible drugs and biologicals (the 
pass-through payment amount). The pass-through payment amount is the 
difference between the amount authorized under section 1842(o) of the 
Act, and the portion of the otherwise applicable fee schedule amount 
(that is, the APC payment rate) that the Secretary determines is 
associated with the drug or biological.
    In this final rule with comment period, we are adopting as final 
our proposal to amend Sec.  419.64 of the regulations to conform this 
section to these changes. Specifically, we are revising paragraph (d) 
to provide that, subject to any reduction determined under Sec.  
419.62(b), the payment for a drug or biological with pass-through 
status equals the amount determined under section 1842(o) of the Act, 
minus the portion of the APC payment amount that we determine is 
associated with the drug or biological.
    As we explained in the August 16, 2004 proposed rule, we will make 
separate payment, beginning in CY 2005, for new drugs and biologicals 
with an HCPCS code consistent with the provisions of section 1842(o) of 
the Act, as amended by Pub. L. 108-173, at a rate that is equivalent to 
the payment they would receive in a physician office setting, whether 
or not we have received a pass-through application for the item. 
Accordingly, beginning in CY 2005, the pass-through payment amount for 
new drugs and biologicals that we determine have pass-through status 
equals zero. That is, when we subtract the amount to be paid for pass-
through drugs and biologicals under section 1842(o) of the Act, as 
amended by Pub. L. 108-173, from the portion of the otherwise 
applicable fee schedule amount, or the APC payment rate associated with 
the drug or biological that would be the amount paid for drugs and 
biologicals under section 1842(o) of the Act as

[[Page 65777]]

amended by Pub. L. 108-173, the resulting difference is equal to zero.
    We have used the second quarter ASP numbers for budget neutrality 
estimates, impact analysis, and for completing Addenda A and B because 
those were the most recent numbers available to us in time for 
publication. Changes in program payments due to quarterly updates of 
ASP for pass-through drugs are factored into our budget neutrality 
estimates. To be consistent with the ASP-based payments that will be 
made when these drugs and biologicals are furnished in physician 
offices, we plan to make any appropriate adjustments to the amounts 
shown in Addendum A and B if later quarter ASP submissions indicate 
that adjustments to the payment rate are necessary. We will announce 
such changes in our program instructions to implement quarterly 
releases and post any revisions to the Addenda on the http://cms.hhs.gov Web site.
    In the proposed rule, we listed in Table 23 the drugs and 
biologicals for which we proposed pass-through status continuing in CY 
2005. We also included in Addendum B to the proposed rule the proposed 
CY 2005 rates for these pass-through drugs and biologicals based on 
data reported to CMS as of April 30, 2004. Since publication of the 
proposed rule on August 16, 2004, we have approved two additional drugs 
and biologicals for pass-through payment beginning on or after October 
1, 2004. These products are Vidaza that has been assigned HCPCS code 
C9218 (Injection, azacitidine, per 1 mg) and Myfortic that has been 
assigned HCPCS code J7518 (Mycophenolic acid, oral, per 180 mg). (See 
Change Request 3420, Transmittal 290 issued August 27, 2004.) In 
addition, three more products have been approved for pass-through 
status beginning or after January 1, 2005. They are Orthovice (HCPCS 
code C9220, Sodium Hyaluronate per 30 mg dose, for intra-articular 
injection), GraftJacket (Repair)(HCPCS code C9221, Acellular dermal 
tissue, matrix per 16cm2), and GraftJacket (Soft Tissue)(HCPCS code 
C9222, Decellularized Soft Tissue Scaffold, per 1 cc). These new 
eligible pass-through items are listed in Table 23 below.
    We received several public comments on the proposed listing and 
payment rates for drugs and biologicals for pass-through status 
continuing in CY 2005.
    Comment: Two commenters stated that the proposed payment rate for 
HCPCS code C9203 (Injection, Perflexane lipid microsphere, per single 
use vial) is inappropriate and should be re-examined. They state that 
the methods used to price the drug are inconsistent with the Pub. L. 
108-173, which requires that payments for pass-through drugs be based 
at either 106 percent of reported average sales price (ASP) or 83 
percent of the average wholesale price (AWP). Pricing at 95 percent of 
AWP for C9203 creates a competitive disadvantage for contrast agents no 
longer being paid as pass-through drugs.
    One commenter suggests that CMS create a class of echocardiography 
contrast agents similar to the class established for anti-emetic drugs. 
This allows for a uniform methodology to price drugs and ensures 
patient access to all drugs in the same therapeutic class. An 
alternative proposal identified by the commenter, is to base the 
payment for Imagent on the method applicable to the pricing for all 
other specified covered outpatient drugs (that is, 83 percent of the 
AWP). Yet another proposal included either maintaining pass-through 
status for all contrast agents or removing Imagent from pass-through 
designation. Another commenter recommended that the payment rate for 
all contrast agents be based on median costs reflected in hospital 
outpatient claims data.
    Response: Whereas separate payment was already being made for the 
contrast agents, either as a pass-through item or as a ``specified 
covered outpatient drug,'' the 5HT3 anti-emetic products varied in 
their payment status, that is, some were packaged and some were paid 
separately. Although we are making final our proposal to pay separately 
for the 5HT3 anti-emetic products in CY 2005 in this final rule with 
comment period, the intent of this policy discussed in section IV.B.2. 
of this preamble is not to standardize payment for already separately 
payable drugs. For this reason, the policy does not apply to the 
echocardiography contrast agents. Therefore, we are not accepting the 
commenter's recommendation that we create a class of echocardiography 
contrast agents similar to the class for anti-emetic drugs.
    Other proposals to: (1) Change the pass-through payment status for 
Imagent to a ``specified covered outpatient drug,'' (2) extend the 
pass-through payment status for other contrast agents, or (3) use 
hospital claims data to establish payment for Imagent are not provided 
for under the statute. Imagent obtained pass-through status effective 
on April 1, 2003, and will remain a pass-through drug for CY 2005.
    Since the ASP for contrast agents was not reported in time for use 
in developing the APC payments for this final rule with comment period, 
the CY 2005 first quarter APC payment for Imagent is based on 95 
percent of the AWP reported as of May 1, 2003. As previously stated, we 
plan to update payments for pass-through drugs on a quarterly basis. 
Beginning in April 2005, payment for Imagent will be based on 106 
percent of the reported ASP.
    Comment: Several commenters wrote in support of our proposal to 
remove 13 drugs and biologic agents from the pass-through table as the 
pass-through period for these items will end on January 1, 2005. Many 
commenters were very much in favor of our proposal for setting the 
pass-through payment portion of drugs. They wrote that zero pass-
through payments ensures pass-though drugs and biologicals receive the 
full payment while at the same time eliminates the risk of a pro-rata 
reduction from occurring. Other commenters urged CMS to update ASP 
based payment rates for therapies with transitional pass-through status 
on a quarterly basis as is done for the drugs and biologicals 
administered in physician offices and paid for in accordance with the 
same statutory requirements as the drugs and biologicals with pass-
through status under the OPPS. Otherwise, they argued, patient access 
to innovative drug and biological therapies in appropriate outpatient 
settings could be jeopardized.
    Response: We appreciate the comments that support our decision to 
remove 13 drugs pass-through and biologicals for which pass-through 
status expires at the end of CY 2004 from the table. With respect to 
those drugs and biologicals that will continue to be on pass-through 
status or that may be granted pass-through status in CY 2005, we agree 
that our payment rules and amounts should be consistent with the ASP-
based payments that will be made when these drugs and biologicals are 
furnished in physician offices since payment for both settings is 
governed by the same provisions of the Act. Therefore, we plan to make 
any appropriate adjustments to the amounts shown in Addendum A and B if 
later quarter ASP submissions indicate that adjustments to the payment 
rate are necessary. Changes in total payments due to quarterly updates 
of ASP for pass-through drugs are factored into our budget neutrality 
estimates.
    In this final rule with comment period, we are not making any 
changes to the listing as a result of public comments. Table 23 below 
lists the drugs and biologicals that will have pass-through status in 
CY 2005. Addendum B of this final rule with

[[Page 65778]]

comment period lists the final CY 2005 rates for these pass-through 
drugs and biologicals, which are assigned status indicator ``G'' based 
on data reported to CMS as of July 30, 2004.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR15NO04.038

BILLING CODE 4120-01-C

B. Drugs, Biologicals, and Radiopharmaceuticals Without Pass-Through 
Status

1. Background
    Under the OPPS, we currently pay for drugs, biologicals including 
blood and blood products, and radiopharmaceuticals that do not have 
pass-through status in one of two ways: packaged payment and separate 
payment (individual APCs). We explained in the April 7, 2000 final rule 
(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 from Medicare for packaged items and 
supplies, and hospitals may not bill beneficiaries separately for any 
packaged items and supplies whose costs are recognized and paid for 
within the national OPPS payment rate for the associated

[[Page 65779]]

procedure or service. (Program Memorandum 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. Notwithstanding our 
commitment to package as many costs as possible, we are aware that 
packaging payments for certain drugs, biologicals, and 
radiopharmaceuticals, especially those that are particularly expensive 
or rarely used, might result in insufficient payments to hospitals, 
which could adversely affect beneficiary access to medically necessary 
services. As discussed in the November 7, 2003 OPPS final rule with 
comment period (68 FR 63445), in CY 2004 we packaged payment for drugs, 
biologicals, and radiopharmaceuticals into the APCs with which they 
were billed if the median cost per day for the drug, biological, or 
radiopharmaceutical was less than $50. We established a separate APC 
payment for drugs, biologicals, and radiopharmaceuticals for which the 
median cost per day exceeded $50. Our rationale for establishing a $50 
threshold was also discussed in the November 7, 2003 OPPS final rule 
with comment period (68 FR 63444 through 63447).
2. Criteria for Packaging Payment for Drugs, Biologicals, and 
Radiopharmaceuticals
    Section 621(a)(2) of Pub. L. 108-173 amended section 1833(t)(16) of 
the Act by adding a new subparagraph (B) to require that the threshold 
for establishing separate APCs for drugs and biologicals be set at $50 
per administration for CYs 2005 and 2006. For CY 2005, we proposed to 
continue our policy of paying separately for drugs, biologicals, and 
radiopharmaceuticals whose median cost per day exceeds $50 and 
packaging the cost of drugs, biologicals, and radiopharmaceuticals 
whose median cost per day is less than $50 into the procedures with 
which they are billed.
    We calculated the median cost per day using claims data from 
January 1, 2003, to December 31, 2003, for all drugs, biologicals, and 
radiopharmaceuticals that had an HCPCS code during this time period and 
were paid (via packaged or separate payment) under the OPPS. Items such 
as single indication orphan drugs, certain vaccines, and blood and 
blood products were excluded from these calculations and our treatment 
of these is discussed separately in sections V.F., E., and I., 
respectively, of this preamble. In order to calculate the median cost 
per day for drugs, biologicals, and radiopharmaceuticals to determine 
their packaging status in CY 2005, in the August 16, 2004 proposed 
rule, we proposed to use the methodology that was described in detail 
in the CY 2004 OPPS proposed rule (68 FR 47996 through 47997) and 
finalized in the CY 2004 final rule with comment period (68 FR 63444 
through 63447). We requested comments on the methodology we proposed to 
continue to use to determine the median cost per day of these items.
    We proposed to apply an exception to our packaging rule to one 
particular class of drugs, the injectible and oral forms of anti-emetic 
treatments. The HCPCS codes to which our exception to the packaging 
rule for CY 2005 would apply were listed in Table 24 of the proposed 
rule (69 FR 50506). Our calculation of median cost per day for these 
products showed that, if we were to apply our packaging rule to these 
items, two of the injectible products would be packaged and one would 
be separately payable. In addition, two of the oral products would be 
separately payable and one would be packaged. Chemotherapy is very 
difficult for many patients to tolerate as the side effects are often 
debilitating. In order for beneficiaries to achieve the maximum 
therapeutic benefit from chemotherapy and other therapies with side 
effects of nausea and vomiting, anti-emetic use is often an integral 
part of the treatment regimen. We wanted to ensure that our payment 
rules did not impede a beneficiary's access to the particular anti-
emetic that is most effective for him or her as determined by the 
beneficiary and his or her physician. Therefore, we proposed to pay 
separately for all six injectible and oral forms of anti-emetic 
products in CY 2005.
    We received several public comments on our proposed criteria for 
packaging payment for drugs, biologicals, and radiopharmaceuticals.
    Comment: Many commenters supported our proposal to continue paying 
separately for drugs, biologicals, and radiopharmaceuticals whose 
median costs per day exceed $50. The commenters encouraged CMS to 
continue to maintain the threshold at $50 after CY 2006 and recommended 
that any additional packaging threshold be examined carefully prior to 
future implementation so that beneficiary access to therapies will not 
be compromised as a result. One of the commenters, however, remained 
concerned about the packaging of other drugs and biologicals that fell 
below the $50 threshold and recommended that CMS make separate payments 
for drugs and biologicals that meet one or both of the following 
criteria: products with median cost per day of at least $50; or 
products that are eligible for separate payment in other outpatient 
sites of care and that received a separate payment previously under the 
OPPS. Another commenter expressed concern about the site of service 
incentives presented by some drugs being paid when furnished in the 
physicians' offices, while being packaged in the hospital setting. The 
commenter urged CMS to consider several options, including: Making 
separate payment for all drugs in CY 2005 that were separately paid 
under a previous OPPS payment rate and are separately paid for in 
physicians' offices; lowering the packaging threshold, for example, to 
$10 or $20; paying separately for all drugs for which the 106 percent 
of ASP payment amount in the physicians' office is at least $10; or 
establishing procedures to ensure that drugs used for similar 
indications (including off-label uses) are either all packaged or all 
paid separately. MedPAC, to the contrary, expressed concern about the 
use of an arbitrary cut-off of $50 per administration for separate 
payment of drugs. It stated that separate payment for certain more 
expensive drugs gave hospitals an incentive to use those drugs rather 
than those that are packaged, and the threshold also gave manufacturers 
an incentive to price their drugs to ensure that they are above $50 per 
administration. MedPAC recommended that CMS should carefully analyze 
alternative thresholds or the creation of larger bundles to allow for 
alternative approaches once the MMA provision requiring a $50 threshold 
expires in CY 2007.
    Response: We appreciate the support of many commenters for our 
packaging policy for CY 2005. Section 621(a)(2) of Pub. L. 108-173 
requires that the threshold for establishing separate APCs for drugs 
and biologicals be set at $50 per administration for CYs 2005 and 2006. 
Therefore, we cannot change the threshold amount for CY 2005 as some of 
the commenters have suggested. We will take all of the commenters' 
recommendations into consideration as

[[Page 65780]]

we work on our packaging proposal for the CY 2007 OPPS.
    However, in light of the commenters' concerns, we have decided to 
apply our equitable adjustment authority to establish several 
exceptions to the packaging threshold. We note that there were seven 
drugs and biologicals that we proposed to pay separately for in our 
proposed rule. However, when we recalculated their median costs per day 
using all of the hospital claims used for this final rule with comment 
period, their median costs per day were less than $50. We considered 
several payment options for these drugs and biologicals, such as 
packaging all of the items in CY 2005 or paying separately for all of 
them as we had proposed. However, after evaluating these drugs 
carefully, we decided to finalize the following payment policy for 
these items:
    <bullet> Drugs and biologicals that were paid separately in CY 2004 
and have median costs per day less than $50 based on the hospital 
claims data being used for the CY 2005 final rule with comment period 
would continue to receive separate payment in CY 2005.
    <bullet> Those drugs and biologicals that are packaged in CY 2004 
and that have median costs per day less than $50 based on the hospital 
claims data being used for the CY 2005 final rule with comment period 
would remain packaged in CY 2005.
    We believe these policies are the most equitable for this 
particular set of drugs given the fluctuations in median hospital cost 
relative to the $50 threshold and their status in CY 2004.
    Table 24 lists the seven drugs and biologicals to which this policy 
will apply along with their CYs 2004 and 2005 payment status indicator. 
The four items that will be separately paid under this policy meet the 
definition of sole source ``specified covered outpatient drugs'' and 
will be paid between 83 percent and 95 percent of their AWP in CY 2005.
[GRAPHIC] [TIFF OMITTED] TR15NO04.039

    Comment: One commenter indicated that CMS was proposing a packaging 
policy that appeared to be different from the MMA requirement because a 
particular drug may be administered more than once per day. Therefore, 
the commenter added, a drug with a cost per administration of less than 
$50 that is administered more than once per day would qualify for 
separate payment under CMS' proposed policy, but would not qualify for 
separate payment under the MMA requirement. The commenter indicated 
that the overall impact of this discrepancy is that there will be less 
packaging of drugs under the OPPS than Congress intended. The commenter 
was unclear as to whether CMS had the authority to deviate from the 
statute in this way.
    Response: We note that the hospital claims data do not indicate 
whether there were multiple administrations of the same drug on a 
single day. Accordingly, we must assume that for all cases there was 
only a single administration of each drug per day. For packaging 
purposes, the median cost per day for each drug and biological must, 
therefore, serve as a proxy for its cost per administration. We will, 
however, continue to explore ways to distinguish single versus multiple 
drug administrations for future OPPS updates.
    Comment: Numerous commenters, including several manufacturers of 
pharmaceutical products, individual hospitals, and hospital 
associations, strongly supported CMS' proposed exception to exclude the 
six injectible and oral forms of 5HT3 anti-emetic products from the 
packaging threshold and allow separate payment for all of them. One 
commenter indicated that CMS' claims data used to determine median cost 
per day may not be a reliable source for accurate median costs for 
these products and may understate their actual acquisition and related 
costs. Another commenter stated that if the $50 threshold were applied 
to this class of drugs, it would have created an incentive for 
hospitals to choose therapies based on the opportunity for payment and 
not their appropriateness for each individual patient. The commenters 
agreed that this policy would help to ensure beneficiary access to the 
most appropriate anti-emetic drug for cancer care. Several commenters 
also urged CMS to give careful thought to the effects of packaging on 
patient access to other types of drugs and biological therapies. 
However, one commenter indicated that, in recent months, the

[[Page 65781]]

wholesale acquisition cost for one of the injectible anti-emetic drugs 
specified in the proposed exception was reduced by the manufacturer by 
seventy-three percent. If the proposed exception were applied to this 
drug, the payment would provide a margin of over one hundred dollars 
for each dose administered and the outcome would be contrary to the 
stated intent of the proposal. The commenter believed that CMS could 
not have anticipated the perverse payment situation that would result 
under such an exception and recommended that CMS reconsider and 
withdraw the exception to the packaging rule for this class of drugs.
    Response: We appreciate the commenters' support of our proposal to 
pay for the six 5HT3 products separately. We also recognize the 
concerns raised by a commenter informing us of the price reduction for 
one of the injectible products. However, we firmly believe that 
packaging some of the 5HT3 anti-emetic products and paying separately 
for others may negatively impact a beneficiary's access to the 
particular anti-emetic that is most effective for him or her as 
determined by the beneficiary and his or her physician. Therefore, we 
are finalizing our policy to pay separately for all six injectible and 
oral forms of anti-emetic products in CY 2005. We note that this policy 
only affects drugs of a particular class (in this case, 5HT3 anti-
emetic products) that vary in their payment status (that is, packaged 
or paid separately), and our intent is not to generally standardize 
payment methodologies for separately payable drugs of the same class.
    Comment: One commenter expressed operational concerns about billing 
for oral anti-emetics associated with chemotherapy. The commenter 
indicated that it will be extremely difficult to bill for these drugs 
when the same HCPCS codes are used for the drugs' use in nausea not 
associated with chemotherapy and requested that CMS consider 
establishing a separate HCPCS code or an edit that will only allow 
payment when a cancer diagnosis is on the claim.
    Response: The following HCPCS codes are those hospitals use to 
report the six 5HT3 products irrespective of their use: J1260 
(Injection, Dolasetron, Mesylate, 10 mg), Q0180 (Dolasetron Mesylate, 
100 mg, oral), J1626 (Injection, Graniestron Hydrochloride, 100 mcg), 
Q0166 (Granisetron Hydrochloride, 1 mg, oral), J2405 (Injection, 
Ondansetron Hydrochloride, per 1 mg), and Q0179 (Ondansetron 
Hydrochloride 8 mg, oral). The policy discussed above applies only to 
the packaging status of these products, not to their coverage status. 
Hospitals should continue billing in accordance with existing coverage 
rules.
    Comment: We received comments on the packaging status of several 
drugs, biologicals, and radiopharmaceutical agents where the commenters 
indicated that the items were incorrectly packaged and should be paid 
separately as sole source ``specified covered outpatient drugs.'' 
Specific items mentioned in the comments were HCPCS codes A9524, Q3010, 
J2790, and J7525. The commenters asserted that the median cost per day 
calculations for these products were based on inaccurate and incomplete 
hospital claims data because the hospitals were not likely to have been 
charging appropriately for the products or billing the correct number 
of units. One of the commenters also cited changes in HCPCS code 
descriptors and the lag time in hospitals updating their charge masters 
to reflect revised code descriptors as possible reasons for why the 
hospital claims data may be skewed and may not be reflective of 
hospitals' actual acquisition costs. Another commenter asserted that 
since many of these drugs were packaged in CY 2003, the claims data did 
not capture the drugs' actual costs. Commenters urged CMS to review 
only the ``correctly coded'' claims when determining median cost per 
day for these products, use external data to help determine appropriate 
payment rates, or pay for the drugs separately as sole source 
``specified covered outpatient drugs'' since these items meet that 
definition. Another commenter requested that CMS retain the CY 2004 
payments until there is enough data to accurately determine payment 
rates.
    Response: We understand commenters' concerns about the median cost 
per day for these particular items. To determine which claims for 
drugs, biologicals and radiopharmaceuticals are ``correctly coded'' 
would require that we attempt to assess which claims indicate that the 
number of units billed were or were not clinically reasonable. Given 
variations among patients with respect to the appropriate doses, the 
variety of indications with different dosing regimens for some agents, 
our lack of information about how many doses were administered on a 
given day, the possibility of off-label uses, and our desire not to 
question the clinical judgment of the prescribing providers on these 
issues, we do not believe that an approach that attempts to identify 
and use only ``correctly coded'' claims is feasible. The hospital 
claims database is the best and most complete source of data we have 
for establishing median hospital costs for the services and items paid 
for under the OPPS.
    In section III.B. of this final rule with comment period, we 
discuss comments concerning our methodology for units trimming. It is 
possible that some other approaches to units trimming could increase 
the derived cost per day for some drugs but could also result in 
decreases for some. For others, it could result in no difference for 
the drug in relation to the $50 threshold. As a test, we applied 
several different unit trim approaches to one of the codes for which we 
received comments and still did not achieve a median cost per day above 
$50. Nevertheless, we appreciate the thoughtful comments we have 
received on this topic and will consider the issue of units trimming in 
later development of our OPPS payment rates. For our final policy for 
CY 2005, however, we retain the methodology that we proposed. We will 
also encourage hospitals to carefully consider the descriptions of each 
HCPCS code when determining the number of units to bill for drugs, 
biologicals and radiopharmaceuticals. We will consider special efforts 
related to particular items. We would note, also, that the payment 
hospitals receive for a particular drug is based on the number of units 
billed. If a hospital underreports the number of units administered to 
a patient due to a misunderstanding about the definition of the code, 
the hospital will not receive the full amount to which it is entitled. 
Conversely, hospitals should not report more units than appropriate 
based on the coding description and the amount required to treat the 
patient.
3. Payment for Drugs, Biologicals, and Radiopharmaceuticals Without 
Pass-Through Status That Are Not Packaged
a. Payment for Specified Covered Outpatient Drugs
    Section 621(a)(1) of Pub. L. 108-173 amended section 1833(t) of the 
Act by adding a new subparagraph (14) that requires special 
classification of certain separately paid radiopharmaceutical agents 
and drugs or biologicals and mandates specific payments for these 
items. Under section 1833(t)(14)(B)(i), 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 exists 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

[[Page 65782]]

included in the definition of ``specified covered outpatient drugs.'' 
These exceptions are:
    <bullet> 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.
    <bullet> A drug or biological for which a temporary HCPCS code has 
not been assigned.
    <bullet> During CYs 2004 and 2005, an orphan drug (as designated by 
the Secretary).
    Section 1833(t)(14)(A)(i) of the Act, as added by section 621(a)(1) 
of Pub. L. 108-173, specifies payment limits for three categories of 
specified covered outpatient drugs in CY 2004. Section 1833(t)(14)(F) 
of the Act defines the three categories of specified covered outpatient 
drugs based on section 1861(t)(1) and sections 1927(k)(7)(A)(ii), 
(k)(7)(A)(iii), and (k)(7)(A)(iv) of the Act. The categories of drugs 
are ``sole source drugs,'' ``innovator multiple source drugs,'' and 
``noninnovator multiple source drugs.'' The definitions of these 
specified categories for drugs, biologicals, and radiopharmaceutical 
agents under Pub. L. 108-173 were discussed in the January 6, 2004 OPPS 
interim final rule with comment period (69 FR 822), along with our use 
of the Medicaid average manufacturer price database to determine the 
appropriate classification of these products. Because of the many 
comments received on the January 6, 2004 interim final rule with 
comment period, the classification of many of the drugs, biologicals, 
and radiopharmaceuticals changed from that initially published. These 
changes were announced to the public on February 27, 2004, Transmittal 
112, Change Request 3144. Additional classification changes were 
implemented in Transmittals 3154 and 3322.
    We received 25 public comments associated with the January 6, 2004 
interim final rule with comment period. These public comments are 
summarized under section V.B.4. of this preamble.
    Section 1833(t)(14)(A) of the Act, as added by section 621(a)(1) of 
Pub. L. 108-173, also provides that payment for these specified covered 
outpatient drugs is to be based on its ``reference average wholesale 
price,'' that is, the AWP for the drug, biological, or 
radiopharmaceutical as determined under section 1842(o) of the Act as 
of May 1, 2003 (section 1833(t)(14)(G) of the Act). Section 621(a) of 
Pub. L. 108-173 also amended the Act by adding section 
1833(t)(14)(A)(ii), which requires that:
    <bullet> A sole source drug must, in CY 2005, be paid no less than 
83 percent and no more than 95 percent of the reference AWP.
    <bullet> An innovator multiple source drug must, in CY 2005, be 
paid no more than 68 percent of the reference AWP.
    <bullet> A noninnovator multiple source drug must, in CY 2005, be 
paid no more than 46 percent of the reference AWP.
    Section 1833(t)(14)(G) of the Act defines ``reference AWP'' as the 
AWP determined under section 1842(o) as of May 1, 2003. We interpreted 
this to mean the AWP set under the CMS single drug pricer (SDP) based 
on prices published in the Red Book on May 1, 2003.
    For CY 2005, we proposed to determine the payment rates for 
specified covered outpatient drugs under the provisions of Pub. L. 108-
173 by comparing the payment amount calculated under the median cost 
methodology as done for procedural APCs (described previously in the 
preamble) to the AWP percentages specified in section 
1833(t)(14)(A)(ii) of the Act.
    Specifically, for sole source drugs, biologicals, and 
radiopharmaceuticals, we compared the payments established under the 
median cost methodology to their reference AWP. We proposed to 
determine payment for sole source items as follows: If the payment 
falls below 83 percent of the reference AWP, we would increase the 
payment to 83 percent of the reference AWP. If the payment exceeds 95 
percent of the reference AWP, we would reduce the payment to 95 percent 
of the reference AWP. If the payment is no lower than 83 percent and no 
higher than 95 percent of the reference AWP, we would make no change.
    Comment: A few commenters strongly opposed the decrease in the 
payment floor for sole source specified covered outpatient drugs from 
88 percent of AWP in CY 2004 to 83 percent of AWP in CY 2005. The 
commenters believed that the decrease was inappropriate and lacked 
sound policy justification. The commenters recommended that for CY 2005 
the payment floor for sole source specified covered outpatient drugs be 
maintained at 88 percent of AWP. One commenter, however, was concerned 
about the proposed payment rate for HCPCS code J9395 (Injection, 
Fulvestrant, 25 mg), which is based on 83 percent of AWP instead of 85 
percent of AWP that is the CY 2004 payment level. The commenter 
asserted that CMS's use of median cost data to establish appropriate 
payment rates for specified covered outpatient drugs is faulty for this 
drug because of concerns about the accuracy of the hospital median cost 
data. The commenter also indicated that several payment changes 
affecting this drug were likely to have created a significant degree of 
confusion among hospitals that may have negatively skewed hospital 
median cost data and led CMS to correlate the data to an AWP-based 
payment percentage that is too low. Another commenter urged CMS to 
create an exceptions process that would provide for appropriate 
adjustments within the MMA-specified payment corridor upon submission 
of data documenting potential access problems or a payment rate 
significantly lower than the acquisition cost of the drug. The 
commenter indicated that creating such an approach would help to 
minimize disruption to patient access to drugs in the hospital 
outpatient setting. To the contrary, several commenters were pleased 
with the payment rates for certain products at 83 percent of their 
AWPs.
    Response: Section 621(a) of Pub. L. 108-173 is very specific in 
requiring that a sole source drug must be paid no less than 83 percent 
and no more than 95 percent of the reference AWP in CY 2005. We used 
the 83 percent of AWP as the payment floor to set payment rates for 
sole source drugs, unless payments based on median costs were higher, 
as we lack any data to determine what would be the appropriate payment 
level between 83 percent and 95 percent of AWP for all sole source 
drugs. We set up a payment floor to avoid paying for these drugs at 
different arbitrarily determined payment levels. We note that if data 
show that the payment rate for a drug falls between the 83 percent 
floor and 95 percent ceiling, the drug is paid at the payment rate.
    We have responded to comments about the relative hospital data from 
our claims above and in other sections of this preamble. While we 
certainly share the desire to provide beneficiaries with access to the 
drugs that are reasonable and necessary for the treatment of their 
conditions, we do not agree with the comments that we should pay above 
the 83 percent floor established by the MMA for sole source drugs if 
the median hospital cost falls below this floor. We believe the intent 
of the law is to use hospital cost data as the best available 
information in setting the payment rates for most items paid for under 
the OPPS. In the case of sole source specified covered outpatient 
drugs, the MMA provides for a floor of 83 percent of the reference AWP 
for those items for which the payment based on relative hospital costs 
would fall below 83 percent of the AWP and a ceiling of 95 percent of 
the reference AWP for items where the relative

[[Page 65783]]

hospital costs from our claims data exceed that amount. We are not 
convinced that the 83 percent AWP floor is a barrier to appropriate 
treatment.
    Comment: One commenter, the manufacturer of 
AGGRASTAT<SUP>[reg]</SUP>, requested that CMS convert the current 
temporary outpatient HCPCS code C9109 (Injection, Tirofiban HCl, 6.25 
mg) to a permanent national HCPCS code with a base dose of 5 mg and 
continue to maintain the permanent national HCPCS code J3245 
(Injection, Tirofiban HCl, 12.5 mg). The commenter asserted that HCPCS 
codes with units of 5 mg and 12.5 mg would properly reflect the actual 
doses of AGGRASTAT<SUP>[reg]</SUP> that currently exist in the market.
    Response: For 2005, the National HCPCS Panel decided to delete 
HCPCS codes C9109 and J3245 and create a new HCPCS code J3246 
(Injection, Tirofiban HCl, 0.25 mg). We hope that the creation of this 
new HCPCS code will ameliorate the commenter's concerns about 
appropriate coding for this product.
    Comment: We received a number of comments on the packaging status 
of HCPCS codes J7505 (Muromonab-CD3, parenteral, 5 mg) and J9266 
(Pegaspargase, single dose vial). The commenters stated that these two 
products were incorrectly packaged because the data used to determine 
packaging status were flawed and requested that both products be paid 
separately as sole source drugs at a rate between 83 percent and 95 
percent of their AWPs.
    Response: There were several drugs and biologicals that we proposed 
to package in the proposed rule, including the two products mentioned 
in the comments. However, when we recalculated their median costs per 
day using all of the hospital claims from CY 2003 used for this final 
rule with comment period, we determined that their median costs per day 
were greater than $50. Therefore, for CY 2005, we will pay for these 
drugs and biologicals separately. Items that meet the definition of 
``specified covered outpatient drugs'' (SCOD) will be paid according to 
the payment methodologies established in the MMA, and payment for items 
that do not meet the definition will be based on their median unit 
cost. Table 25 lists the drugs and biologicals that were proposed as 
packaged drugs and biologicals but will be paid separately in CY 2005. 
The table also indicates the methodology that will be used to determine 
their APC payment rates in CY 2005.
[GRAPHIC] [TIFF OMITTED] TR15NO04.040

    Comment: One commenter was concerned about the proposed payment 
rates for HCPCS codes A9502 (Supply of radiopharmaceutical diagnostic 
imaging agent, technetium Tc 99m tetrofosmin, per unit dose) and Q3005 
(Supply of radiopharmaceutical diagnostic imaging agent, technetium Tc-
99m mertiatide, per mci). The commenter indicated that payment 
corrections made for these two products in the February 27, 2004 CMS 
Transmittal 113 resulted in significant payment reductions. The 
commenter was concerned that significant payment fluctuations and 
reductions were counter-productive to the provision of quality care and 
will negatively impact the operational viability of nuclear medicine 
departments. Therefore, the commenter urged CMS to reconsider their 
proposed payments for these two products.
    Response: We understand the commenter's concern about the impact of 
fluctuations in payment rates for HCPCS codes A9502 and Q3005. However, 
we note that the payment rates that were listed in the January 6, 2004 
interim final rule with comment period for these products were 
calculated using incorrect reference AWPs as indicated in the February 
27, 2004 CMS Transmittal 113. Therefore, we made corrections to the 
AWPs for these products and recalculated their payment rates according 
to the payment methodology required by the MMA for sole source 
``specified covered outpatient drugs''.
    Comment: One commenter requested that CMS support a decision by the 
HCPCS Alpha-Numeric Editorial Panel to issue separate permanent and 
universal drug codes for echocardiography contrast agents for which 
applications have been submitted. Specifically, the commenter 
recommended that CMS support the application submitted for the creation 
of a J-code for Definity, which is currently being reported as HCPCS 
code C9112 (Injection, perflutren lipid microsphere, per 2 ml vial).
    Response: Decisions regarding the creation of permanent HCPCS codes 
are coordinated by the National HCPCS Panel. Comments related to the 
HCPCS code creation process and decisions made by the National HCPCS 
Panel are

[[Page 65784]]

outside the scope of this rule; therefore, we will not respond to this 
comment. We note that until a J-code is established for this product, 
hospitals can continue to bill for this product using the HCPCS code 
C9112.
    Comment: Several commenters expressed concern about the proposed 
payment for intravenous immune globulin. They were concerned that CMS 
calculated the reference AWP for this code using AWPs for one or more 
products that were no longer commercially available. For example, 
Carimune and Panglobulin were removed from the market and replaced with 
Carimune NF and Panglobulin NF, respectively. The commenters requested 
that CMS review the current pricing data on the brand products that are 
currently in the market place and recalculate payment for IVIG as a 
sole source specified covered outpatient drug. Another commenter was 
concerned about the proposed payment rate for HCPCS code J7198 (Anti-
inhibitor, per IU). The commenter indicated CMS calculated the 
reference AWP for this code using an AWP for a product called Autoplex 
that was discontinued from the market in May 2004 and recommended that 
CMS calculate payment for this HCPCS code using cost data associated 
with the product Feiba VH that currently exists in the market.
    Response: We agree with the comments and accordingly recalculated 
the base AWP for HCPCS code J1563 (Immune globulin, intravenous, 1 g) 
excluding AWPs for the two discontinued products, Panglobulin and 
Carimune. Similarly, we excluded the AWP for the discontinued product, 
Autoplex, when redetermining the base AWP for HCPCS code J7198 (Anti-
inhibitor, per IU). We then recalculated their payment rates as sole 
source ``specified covered outpatient drugs.'' We note that these 
changes resulted in an increase in the base AWPs for both products.
    Comment: One commenter, the maker of the product billed under HCPCS 
code C9201 (Dermagraft, 37.5 cm2), requested that CMS set its CY 2005 
payment rate under the OPPS identical to the payment rate in the 
physician office setting. The commenter anticipated a payment rate of 
$574.41 (third quarter ASP plus 6 percent) when it is used in the 
physician office setting during CY 2005; however, the proposed payment 
rate as a sole source drug under the OPPS was $529.54. The commenter 
indicated that Dermagraft's cost to all customers is identical 
regardless of the site of service and establishing a payment rate under 
the OPPS below the cost of the product to hospitals would hinder their 
access to medical technologies for which they will not recover their 
costs. Additionally, we received comments from an association 
representing a group of specialty hospitals and a professional 
association expressing concern about the proposed payment level for 
HCPCS code J3395 (Injection, verteporfin, 15 mg). The commenters 
indicated that the payment rate for this product is significantly less 
than the acquisition cost for outpatient facilities and requested that 
CMS pay for it at a rate that covers the cost of acquiring the drug. 
The commenter also stated that accurate pricing information for the 
drug should be available when CMS receives final data from the 
manufacturer on October 31, 2004 and that the final OPPS payment rate 
should be reflective of the pricing data.
    Response: The products described by HCPCS codes C9201 and J3395 
meet the definition of sole source ``specified covered outpatient 
drugs.'' The MMA specifies the methodology that determines payment for 
this group of drugs under the OPPS where, for CY 2005, sole source 
drugs must be paid between 83 percent and 95 percent of their reference 
AWP. Since payments for these two products based on the median cost 
methodology were less than 83 percent of their AWPs, their CY 2005 
payment levels were established at 83 percent of their AWP. In these 
cases, we believe the statute specifically addresses the payment 
methodology for these drugs.
    Comment: A few commenters were concerned about the proposed payment 
rates for some separately payable drugs and biologicals that did not 
fall under the category of ``specified covered outpatient drugs.'' 
These products would be either paid as pass-through items or their 
payment rates were based on median cost data; however, the commenters 
requested that the products be paid as sole source ``specified covered 
outpatient drugs.'' One of the commenters requested that external data 
be used to correct the payment rate for their product. Several 
rationales were cited for this request to change the payment 
methodology, such as the use of inaccurate and incomplete hospital 
claims data to determine payment rates that are lower than actual 
hospital acquisition costs and eliminating payment differentials 
between drugs of the same class.
    Response: We believe that the MMA defines the items that are to be 
considered ``specified covered outpatient drugs'' for payment purposes 
under the OPPS, and these drugs do not meet the definition. We also 
recognize that classifying these products as sole source ``specified 
covered outpatient drugs'' would increase their payments; however, we 
are not convinced that the payment rates for these products calculated 
under current methodologies are insufficient.
    In developing our August 16, 2004 proposed rule, there was one sole 
source item, Co 57 cobaltous chloride (HCPCS code C9013), for which we 
could not find a reference AWP amount. However, we had CY 2003 claims 
data for HCPCS code C9013, and therefore, we proposed to derive its 
payment rate using its median cost per unit. We requested comments on 
our proposed methodology for determining the payment rate for HCPCS 
code C9013. We received a few comments in response to our proposal.
    Comment: The manufacturer of the product billed under HCPCS code 
C9013 (Supply of Co 57 cobaltous chloride, radiopharmaceutical 
diagnostic imaging agent), Rubatrope, along with other commenters, 
indicated that Rubatrope is an FDA-approved radiopharmaceutical and a 
sole source drug that meets the definition of a ``specified covered 
outpatient drug;'' therefore, it should be paid between 83 percent and 
95 percent of AWP. The manufacturer of Rubatrope indicated that it had 
experienced problems with the production of this product in the past 2 
years and thus production was discontinued. However, the product will 
be commercially available from November 2004. The commenter also 
indicated that it would send CMS an AWP for this product once it 
becomes available. Therefore, for CY 2005, the commenters strongly 
urged CMS to establish payment for C9013 as a sole source drug at 83 
percent of AWP.
    Response: We understand the commenters' concern about the payment 
rate for this product and note that HCPCS code C9013 was considered a 
sole source ``specified covered outpatient drug'' in the proposed rule. 
However, as we were not able to determine a reference AWP for this 
product, we based its proposed payment rate on its median cost from the 
claims data. At the time of the publication of this final rule, we were 
still unable to find an AWP for this product, and thus, in the absence 
of an AWP for this product, as proposed we will use the product's 
median cost to base its CY 2005 payment rate. However, if we determine 
an AWP for HCPCS code C9013, we will issue a change to its payment 
accordingly in a quarterly update of the OPPS.
    We note that there are three radiopharmaceutical products for which

[[Page 65785]]

we proposed a different payment policy in CY 2005. These products are 
represented by HCPCS codes A9526 (Ammonia N-13, per dose), C1775 (FDG, 
per dose (4-40 mCi/ml), and Q3000 (Rubidium-Rb-82). 
Radiopharmaceuticals are classified as a ``specified covered outpatient 
drug'' according to section 1833(t)(14)(B)(i)(I) of the Act and their 
payment is dependent on their classification as a single source, 
innovator multiple source, or noninnovator multiple source product as 
defined by sections 1927 (k)(7)(A)(iv), (ii), and (iii) of the Act. 
Upon further analysis of these items, we determined that these three 
products do not meet the statutory definition of a sole source item or 
a multiple source item. Pub. L. 108-173 requires us to pay for 
``specified covered outpatient drugs'' using specific payment 
methodologies based on their classification and does not address how 
payment should be made for items that do not meet the definition of a 
sole source or multiple source item. Therefore, in the August 16, 2004 
proposed rule, we proposed to set the CY 2005 payment rates for these 
three products based on median costs derived from CY 2003 hospital 
outpatient claims data, which would reflect hospital costs associated 
with these products. With regard to HCPCS code A9526, we have no 
hospital outpatient cost data for this HCPCS code. We received 
correspondence from an outside source stating that Rubidium-Rb-82 
(HCPCS code Q3000) is an alternative product used for procedures for 
which Ammonia N-13 is also used and these two products are similar in 
cost. Therefore, we proposed to establish a payment rate for Ammonia N-
13 that is equivalent to the payment rate for Rubdium Rb-82.
    We listed the proposed CY 2005 payment rates for these three items 
in Table 25 of the proposed rule (69 FR 50507), requested comments on 
the proposed payment rates and invited commenters to submit external 
data if they believe the proposed CY 2005 payment rates for these items 
do not adequately represent actual hospital costs.
    We received many public comments on the proposed payment rates for 
the three items.
    Comment: Many commenters were concerned about the proposed 
reduction in the payment rate for FDG in CY 2005. They stated that FDG 
meets the definition of ``specified covered outpatient drugs,'' and the 
MMA requires that ``specified covered outpatient drugs'' be classified 
as sole source drugs, innovator multiple source drugs, or noninnovator 
multiple source drugs, and be reimbursed according to a percentage of 
the reference AWP during CY 2005. Several commenters understood the 
difficulty CMS had in classifying FDG into one of the three categories 
of ``specified covered outpatient drugs.'' However, one of the 
commenters was concerned that CMS abandoned the methodology prescribed 
by the MMA and created another payment category for ``specified covered 
outpatient drugs,'' which the commenter believed is outside the scope 
of the MMA.
    A commenter suggested that CMS assign FDG to the category that most 
closely reflects the underlying regulatory and economic environment for 
the production of FDG, which is the innovator multiple source drug 
category. The commenter explained that the production and sale of FDG 
is unusual in that the FDA does not yet require an approved New Drug 
Application (NDA) or Abbreviated New Drug Application (ANDA). The 
commenter also stated that the FDA is currently drafting special 
criteria to govern NDAs and ANDAs for the production and marketing of 
FDG, and eventually, manufacturers will be required to submit either an 
NDA or ANDA in order to sell FDG. Right now, there are no approved 
ANDAs or ``generics'' for FDG, and none of the FDA approved products is 
therapeutically equivalent. The commenter indicated that FDG is sold 
commercially by at least three manufacturers and is produced by 
numerous hospitals and academic medical centers for their own use, thus 
making it a multiple source drug. However, until the FDA finalizes its 
requirements for NDAs and ANDAs for FDG and all manufacturers have an 
opportunity to comply with those regulations, all FDG marketed in the 
United States should be considered a ``brand'' version. Although the 
different FDG products distributed are not rated as equivalent by the 
FDA, FDG was originally marketed under an NDA, and currently there are 
multiple distributors. Thus, although FDG does not meet all aspects of 
the multiple source innovator drug definition, given the inaccuracies 
of the hospital outpatient claims data, this commenter, along with 
several others, recommended that FDG be paid under the MMA at 68 
percent of its AWP. Alternatively, some commenters requested that CMS 
keep the CY 2005 payment for FDG at its CY 2004 level until the 
completion of the GAO hospital acquisition cost survey, which will 
allow for a more reliable basis for setting payment based on average 
acquisition cost. One commenter stated that CMS should use external 
data submitted by hospitals to determine the true costs of this 
product. External data from a survey of 2002 nuclear medicine costs 
reported by hospitals were submitted, and the results indicated that 
median cost to hospitals for one dose of FDG is $425. Another commenter 
stated that their current cost for administering one dose of FDG to 
patients receiving PET scans is $450 and that CMS should research real 
market costs for this product before reducing payment by $126 from the 
current CY 2004 payment rate
    The commenters all agreed that CMS should not use CY 2003 hospital 
claims data to calculate payment for FDG in CY 2005 because the 
reported data fails to accurately capture the actual acquisition cost 
to hospitals along with all the reasonable costs needed to safely 
prepare, store, administer, and dispose of the product. Commenters 
indicated that the HCPCS code descriptor for C1775 is written in a way 
that requires hospitals to use the same code to report FDG with a 
concentration of 4mci/ml as they use to report FDG with a concentration 
of 40 mci/ml, thus making the claims data unreliable, and also, 
hospitals did not have clear billing and charging guidance. Thus, the 
commenters claimed that the FDG data from CY 2003 are a flawed basis 
upon which to make a payment determination and would significantly 
underpay hospitals. Commenters noted that a reduction in payment for 
FDG to the proposed payment rate would limit utilization and access to 
FDG PET because of the financial losses the providers will suffer.
    Response: We appreciate these thoughtful comments on our proposed 
payment rate for FDG. Based on the unique regulatory processes that 
affect the manufacturing and marketing of FDG, we believe that it is 
reasonable for us to classify FDG as an innovator multiple source drug. 
Therefore, we will not reinstate the HCPCS code C9408 (FDG, brand, per 
dose), which we inadvertently deleted as stated in the October 2004 
Update of the OPPS (CMS Transmittal 290). In CY 2005, hospitals should 
use C1775 to bill for all FDG products.
    With respect to calculating payment for FDG in CY 2005, the MMA 
requires that an innovator multiple source drug must be paid no more 
than 68 percent of the reference AWP. The MMA sets forth a payment 
ceiling for the brand innovator multiple source drugs, but does not 
provide a payment floor for them. We believe that the intent of the 
statute is to use available hospital

[[Page 65786]]

claims to set payment rates for most items paid under OPPS; therefore, 
we apply the ceiling only when the payment for an item based on the 
median hospital cost for the drug exceeds the ceiling. As we described 
in section V.A.3.a. of this final rule with comment period, for 
innovator multiple source drugs, we set the payment rate at the lower 
of the payment rate calculated under the standard median cost 
methodology or 68 percent of the AWP. We have applied this methodology 
to all of the other innovator multiple source drugs; therefore, we do 
not believe that it would be appropriate for us to exempt FDG from this 
methodology and pay for it at 68 percent of AWP, the ceiling for 
innovator products. We believe that basing payment for this item on 
relative hospital costs, with the application as appropriate of the 
previously mentioned ceiling, not only meets the intent but also the 
requirements of the MMA. The payment rate for C1775 in CY 2005 will be 
$221.11.
    Comment: The manufacturer of CardioGen-82, also known as Rubidium 
Rb-82, along with other commenters asserted that this product does meet 
the classification of a sole source drug as defined by the MMA. The 
commenters indicated that FDA approval for this product was received 
under an NDA, and there is currently only one manufacturer of the 
Cardiogen-82 generators used to produce Rubidium Rb-82. Also, there is 
no FDA-approved generic product for Rubidium Rb-82. One of the 
commenters indicated that a survey was conducted to obtain data on 
actual hospital costs for Rubidium Rb-82, which showed that the median 
per dose cost to hospitals was $244.73. Thus, the commenter believed 
that CMS hospital cost data were flawed and do not represent true 
hospital costs; therefore, the hospital claims cost data should not be 
used to set the payment rate for Rubidium Rb-82 in CY 2005. Other 
commenters indicated that median cost data used by CMS to calculate the 
payment rate for Rubidium Rb-82 underreport the actual and reasonable 
hospital costs needed to safely prepare, store, administer, and dispose 
of the product. The commenters urged CMS to recognize HCPCS code Q3000 
(Supply of radiopharmaceutical diagnostic imaging agent, Rubidium Rb-
82, per dose) as a sole source drug and set its payment at 83 percent 
of its AWP, or at minimum, retain the CY 2004 payment rate.
    Response: We appreciate these comments. Based on further evaluation 
of the appropriate classification for this product, we agree with the 
commenters that Rubidium Rb-82 should be classified as a sole source 
product. Therefore, payment for Q3000 will be made at 83 percent of AWP 
as its payment based on the median cost methodology is less than 83 
percent of AWP. The payment rate for Rubidium Rb-82 in CY 2005 will be 
$153.39 per dose.
    Comment: Numerous commenters were concerned about the proposed 
payment rate for HCPCS code A9526 (Ammonia N-13, per dose). Some of the 
commenters stated that CMS proposed to treat HCPCS codes Q3000 
(Rubidium Rb-82, per dose) and A9526 under a ``presumptive functional 
equivalence'' in setting the same payment rate for these products when 
they are not functionally equivalent. It was also stated that Rubidium 
Rb-82 and Ammonia N-13 are used for similar procedures, but they have 
different costs, clinical composition, and utilization patterns. 
Another commenter indicated that Rubidium Rb-82 significantly differs 
from the other PET radiopharmaceuticals as it is produced by a 
radionuclide generator system, compared to FDG and Ammonia N-13 that 
are made in cyclotrons. A commenter also stated that Ammonia N-13 has 
no commercial vendors; whereas, Rubidium Rb-82 is produced and 
distributed by one commercial vendor. Some commenters suggested that 
CMS pay for A9526 separately, similar to other ``specified covered 
outpatient drugs.'' On the other hand, other commenters recommended 
that, in the absence of reliable cost data or a published AWP, CMS 
should use the cost of FDG as a proxy for the cost of Ammonia N-13, 
since these products have equivalent production costs.
    Response: We recognize the concerns raised by commenters about our 
proposal to pay for Ammonia N-13 at the same payment rate as Rubidium 
Rb-82. We acknowledge that Ammonia N-13 meets the definition of 
``specified covered outpatient drugs;'' however, we have not been able 
to determine an AWP for this product. Thus, we cannot set a payment 
rate for this product based on a percentage of its AWP. While some of 
the commenters recommended that we set the payment rate for Ammonia N-
13 at the same level as that for FDG, we are aware this would give rise 
to the same concerns raised by commenters regarding payment for Ammonia 
N-13 and Rubidium Rb-82. Therefore, we are not adopting our proposed 
payment policy for Ammonia N-13. Based on the complete CY 2003 hospital 
claims data that were used for this final rule with comment period, we 
were able to identify claims submitted for Ammonia N-13; therefore, for 
CY 2005, we will use median cost derived from the claims data to set 
the payment for this product. The CY 2005 payment rate for A9526 will 
be $109.86 per dose.
    Comment: A number of commenters, including several cancer research 
centers and trade associations representing the radionuclide and 
radiopharmaceutical industry, biomedical science, and the biotechnology 
industry, as well as the manufacturers of Bexxar (billed using HCPCS 
codes C1080, C1081, and G3001) and Zevalin (billed using HCPCS codes 
C1082 and C1083), expressed concern that 83 percent of AWP is 
insufficient to reimburse hospitals for the cost of acquiring Zevalin 
and Bexxar. Several commenters, including the manufacturer of Zevalin, 
were concerned that the proposed payment rates for Zevalin are 
inadequate to facilitate patient access to this critical therapy. One 
commenter stated that, because Zevalin is a radioimmunotherapy, its 
purchase and use are subject to state regulatory safeguards that limit 
its availability in the oncology practices; therefore, its access in 
the hospital outpatient setting is crucial. The commenter urged CMS to 
maintain the 2004 payment rates for Zevalin, which are at 88 percent of 
AWP, into CY 2005, and indicated that this stability would make 
treatment with Zevalin more economically feasible for hospitals.
    One commenter, the manufacturer of Bexxar, expressed concern about 
what they identified as several ``inequities'' in the coding and 
proposed payments for Bexxar and Zevalin. Specifically, the commenter 
pointed out that the payment proposed for Bexxar in CY 2005 is more 
than $1500 less than the payment proposed for Zevalin. This commenter 
further recommended that payment for Bexxar be set at its wholesale 
acquisition cost, which is $19,500, or 95 percent of the RAWP, which 
would be $22,230. Several commenters indicated that CMS has the option 
to exceed the floor of 83 percent of AWP established under the MMA for 
sole source specified covered outpatient drugs, which would enable CMS 
to set a rate for Bexxar and Zevalin commensurate with their cost.
    Two commenters recommended that CMS consider external data where 
available to supplement its payment determinations for Bexxar and 
Zevalin.
    Response: We share the commenters' concerns that Medicare payment 
rates not be a barrier to beneficiary access to radioimmunotherapy for 
the treatment of non-Hodgkins lymphoma. However, we do not agree with 
the comments that we should set the OPPS payment rates

[[Page 65787]]

for Zevalin and Bexxar based on their CY 2004 payment levels, on 
external data, on their WAC, or on any payment amount other than that 
which is consistent the designation of radiopharmaceuticals in the MMA 
as specified covered outpatient drugs.
    Zevalin and Bexxar are radiopharmaceuticals, and the MMA includes 
them as ``specified covered outpatient drugs'' for the OPPS payment 
purposes. Each meets the definition of a sole source drug. We believe 
the intent of the law is that we set payment rates for most items paid 
for under the OPPS using hospital cost data from the best and most 
recent information available, unless the statute directs otherwise, as 
in the case of drugs with pass-through status or new drugs without 
HCPCS codes. The MMA provides a floor of 83 percent of the reference 
AWP in CY 2005 for sole source specified covered outpatient drugs for 
which payment based on relative hospital costs would be less. 
Similarly, the MMA provides a cap of 95 percent of the reference AWP in 
CY 2005 for sole source specified covered outpatient drugs for which 
payment based on relative hospital costs would be higher. The statute 
provides a payment floor and ceiling for sole source ``specified 
covered outpatient drugs,'' at no lower than 83 percent of AWP or 
higher than 95 percent of AWP; the statute does not require a payment 
at some intermediate level that falls between 83 percent and 95 percent 
of AWP.
    Payment for Zevalin based on relative hospital costs drawn from CY 
2003 claims data would fall below 83 percent of the reference AWP. As 
we did in the case of other sole source drugs for which payment based 
on hospital claims would be lower than 83 percent of AWP, we proposed 
to set payment for Zevalin at 83 percent of the reference AWP. We also 
proposed to set payment for Bexxar in CY 2005 as a sole source 
radiopharmaceutical at 83 percent of AWP because, like Zevalin, it is a 
radiopharmaceutical and, therefore, a sole source specified covered 
outpatient drug under the MMA. We discuss in section V.G. of this final 
rule with comment period that we are making final our proposal to treat 
radiopharmaceuticals the same as we treat drugs and biologicals for 
purposes of ratesetting, with two exceptions: We will set payment for 
new radiopharmaceuticals for which we have no claims data, and for new 
radiopharmaceuticals with pass-through status effective on or after 
January 1, 2005, based on the MMA CY 2005 payment requirements for 
specified covered outpatient drugs. We have no ASP for Bexxar because 
it is a radiopharmaceutical, and manufacturers have not been required 
to submit ASP for radiopharmaceuticals. We have no claims data from 
which to calculate relative hospital costs for Bexxar because of the 
newness of the product. Therefore, we are setting payment for Bexxar in 
accordance with the MMA requirement that a sole source specified 
covered outpatient drug be paid no less than 83 percent of AWP in CY 
2005.
    Comment: A number of commenters, including several cancer centers 
and a nuclear medicine trade association, asked that CMS provide 
payment to hospitals for the cost of compounding each patient-specific 
dose of Bexxar, noting that the compounding costs amount to several 
thousand dollars in addition to the cost of the drug itself. One of 
these commenters recommended that the cost of compounding Bexxar be 
included in the payment for the product and that C1080 and C1081 be 
assigned to a new technology APC to reflect the total cost of the 
product plus compounding. One commenter, the manufacturer of Bexxar, is 
concerned because the payment proposed for Bexxar in CY 2005 does not 
include payment for the cost of compounding that is required to prepare 
patient specific doses of diagnostic and therapeutic I-131 tositumomab, 
whether done by the hospital's own radiopharmacy or by a commercial 
radiopharmacy. The commenter estimates that hospitals incur a 
compounding cost of $2,000-$3,000 to furnish Bexxar to a single patient 
when a commercial radiopharmacy does the compounding. The commenter 
recommends that CMS either base payment for Bexxar on 95 percent of 
AWP, continue payment for Bexxar at the CY 2004 level, or establish a 
new code to enable hospitals to bill separately for Bexxar compounding 
costs.
    Response: Because Zevalin and Bexxar are radiopharmaceuticals that 
fall under the category of sole source specified covered drugs 
established by the MMA, the payment rates for these products are based 
on AWP, as required by the MMA. To the extent that compounding costs 
are reflected in the AWP, the payment rate includes these costs. If 
hospitals incur additional compounding costs for the radiolabeled 
monoclonal antibodies, those costs could be reported as a separate line 
item charge with an appropriate revenue code or packaged into the 
charge for CPT codes 78804 and 79403, which could result in an outlier 
payment if the outlier threshold for those services was exceeded. The 
MMA requires that MedPAC submit a report to the Secretary by July 1, 
2005 on adjustment of payment for ambulatory payment classifications 
for specified covered outpatient drugs to take into account overhead 
and related expenses, such as pharmacy services and handling costs. We 
look forward to receiving this report in anticipation that the data 
collected by MedPAC will enable us to address drug-related overhead 
costs in future OPPS updates.
    Comment: Several commenters expressed concerns that the payment 
rates proposed for Bexxar could result in clinicians having to make 
treatment decisions based upon payment considerations rather than 
medical considerations, and could result in physicians having to deny 
patients a potential life-saving therapy. The same commenters were 
concerned that the payment proposed for Zevalin and Bexxar does not 
recognize all of the additional costs associated with the provision of 
radiolabeled antibody therapy or radioimmunotherapy (RIT) for the 
treatment of non-Hodgkins lymphoma. These commenters urged CMS to 
consider all of the costs associated with this therapy when setting 
payment rates for each component of the regimen and recommended that 
CMS ensure that total payment to hospitals be commensurate with all of 
the actual costs that hospitals incur to acquire, prepare, and 
administer radiolabeled antibodies and to perform all of the additional 
procedures associated with RIT, thereby ensuring that patient access to 
these vital therapies will not be jeopardized.
    Response: We share the commenters' concerns about the extent to 
which payment considerations influence treatment decisions. However, we 
believe that to the extent that radioimmunotherapy proves to be an 
efficacious treatment for patients with certain forms of non-Hodgkins 
lymphoma, payment in the aggregate for the full array of procedures and 
services associated with this new form of treatment affords hospitals 
sufficient flexibility to ensure that payment is not a barrier to 
beneficiary access when it is deemed reasonable and necessary.
    Table 26 below lists the final APC payment rates for sole source 
drugs, biologicals, and radiopharmaceuticals effective January 1, 2005 
to December 31, 2005.
BILLING CODE 4120-01-P

[[Page 65788]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.041


[[Page 65789]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.042


[[Page 65790]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.043


[[Page 65791]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.044

    In order to determine the payment amounts for innovator multiple 
source and noninnovator multiple source forms of the drug, biological, 
or radiopharmaceutical, we compared the payments established under the 
median cost methodology to their reference AWP. For innovator multiple 
source items, we proposed to set payment rates at the lower of the 
payment rate calculated under our standard median cost methodology or 
68 percent of the reference AWP. For noninnovator multiple source 
items, we proposed to set payment rates at the lower of the

[[Page 65792]]

payment rate calculated under our standard median cost methodology or 
46 percent of the reference AWP. We followed this same methodology to 
set payment amounts for innovator multiple source and noninnovator 
multiple source ``specified covered outpatient drugs'' that were 
implemented by the January 6, 2004 interim final rule with comment 
period. We listed the proposed payment amounts in Table 26 of the 
proposed rule.
    Comment: One commenter, an association of cancer centers, indicated 
that CMS proposed the same payment rate for both the brand name and 
generic versions of a drug. Given that CMS does not have separate HCPCS 
code level data for brand versus generic drugs in the CY 2003 claims 
data, the commenter indicated that it did not understand how CMS could 
use claims data to justify equivalent payment levels for both brand and 
generic versions of a drug. The commenter was also concerned about the 
adequacy of using the CY 2003 claims data to calculate the costs of 
these products and making comparisons to the payment rate ceilings set 
forth by the MMA for multi-source drugs, especially for the brand name 
drugs. Therefore, the commenter requested that CMS pay for all brand 
name drugs at 68 percent of AWP and pay for generics by comparing the 
calculated cost using the claims data to the 46 percent of AWP 
threshold and selecting the lower of the two as the payment rate.
    Response: For CY 2005, as for the current year, the MMA sets forth 
different payment ceilings for the brand and generic versions of the 
drug. The MMA does not provide a payment floor for either the brand or 
generic versions of such items. Only sole source drugs have a payment 
floor and ceiling. As stated elsewhere in this final rule with comment 
period, the CY 2005 payment rate for innovator multiple source (brand 
name) drugs may not exceed 68 percent of the reference AWP. The payment 
for noninnovator multiple source (generic) drugs may not exceed 46 
percent of the reference AWP. In determining payment rates, we apply 
those ceilings only when the payment for an item based on the median 
hospital cost for the drug exceeds one of these ceilings. In some 
cases, the payment based on the median hospital cost falls below the 46 
percent ceiling for generic drugs. In such cases, the payment rate 
would be the same for brand and generic versions. However, we believe 
that basing payment for these items on relative hospital costs, with 
the application as appropriate of the previously mentioned ceilings not 
only meets the intent but also the requirements of the MMA.
    Comment: A few commenters indicated that the proposed payment rate 
of $410.45 for HCPCS code A9600 (Supply of therapeutic 
radiopharmaceutical, Strontium-89, per mci) would underpay hospitals 
for this product since the payment rate was based on flawed CMS median 
cost data that do not accurately reflect the real acquisition cost of 
this drug by hospitals. The commenters believed that hospital costs for 
A9600 are approximately $800 per mci and requested that CMS adjust the 
payment accordingly. One commenter, who was the manufacturer of this 
product, asserted that the product is expensive and difficult to 
manufacture since it is produced in small quantities. The commenter 
also indicated that the reduction in the payment rate for this product 
is driving the underutilization of this product and increasing the use 
of costly narcotic analgesics, thus resulting in a decrease in quality 
of life and a rise in the cost of health care. Another commenter stated 
that the HCPCS codes for diagnostic and therapeutic iodine products 
(C1064, C1065, C1188, C1348, A9528, A9529, A9530, A9531, A9517 and 
A9518) all describe in various years and forms diagnostic and 
therapeutic Iodine 131 and that these codes have had varying 
descriptions that have resulted in flawed cost data. The commenter 
submitted data indicating that the cost for I-131 in the capsule form 
is higher than for solution, and recommended that CMS use external data 
to restore and correct payment rates for the Iodine 131 product so that 
the payment more accurately reflects actual hospital costs.
    Response: We understand the commenters' concerns about establishing 
appropriate payment rates for these products. We believe that the 
intent of the statute is to use available hospital claims to set 
payment rates for most items paid under the OPPS. In the case of 
multiple source drugs such as these products, the MMA requires that 
innovator and noninnovator multiple source drugs be paid no more than 
68 percent and 46 percent of their AWP, respectively.
    As previously stated, for innovator multiple source drugs, we set 
the payment rate at the lower of the payment rate calculated under the 
standard median cost methodology or 68 percent of the AWP; and for 
noninnovator multiple source drugs, we set the payment rate at the 
lower of the payment rate calculated under the standard median cost 
methodology or 46 percent of the AWP. Using the most recent available 
data, we determined that the payment rates based on median cost for 
these drugs were lower than both 68 percent and 46 percent of their 
AWPs; therefore, the payment rates for both the innovator and 
noninnovator forms of these products were based on their median costs.
    Comment: One commenter, the maker of one of the viscosupplement 
drugs, was concerned that the proposed payment rates for the four 
competitive products are inequitable and will harm beneficiary access 
to these therapies. The commenter indicated that currently two of the 
products, Hyalgan and Supartz, are billed using HCPCS code J7317 
(Sodium Hyaluronate, per 20 to 25 mg dose for intra-articular 
injection), and this HCPCS code has been classified as a multi-source 
drug. The commenter assumed that another product, Orthovisc, would also 
be billed under HCPCS code J7317. However, the fourth product, Synvisc, 
is classified as a sole source drug and billed under HCPCS code J7320 
(Hylan G-F20, 16 mg, for intra-articular injection). The commenter 
strongly believed that classifying these products differently resulted 
in payment rates that will create significant payment inequities and 
unjustified market distortions. To correct the payment inequity across 
the class of viscosupplements, the commenter recommended that CMS 
create separate HCPCS codes for these products and treat each product 
as a sole source drug. Another commenter strongly recommended that 
Orthovisc, a new product, be recognized as a pass-through under the 
OPPS, and be assigned a separate C-code for payments under that system.
    Response: We recognize the commenter's concern about payment for 
these viscosupplement drugs under the OPPS. The National HCPCS Panel 
coordinates decisions regarding the creation of permanent HCPCS codes; 
therefore, comments related to the HCPCS creation process and decisions 
made by the National HCPCS Panel are outside the scope of this rule. 
However, we note that the product Orthovisc received approval for pass-
through status under the OPPS effective January 1, 2005, and a new 
temporary C-code has been established to allow hospitals to receive 
pass-through payments for this product.
    Comment: A commenter requested that CMS show three separate tables 
for the nonpass-through drugs; that is, one for sole source drugs, one 
for innovator multiple source drugs, and one for noninnovator multiple 
source drugs.

[[Page 65793]]

    Response: We have accepted the commenter's suggestion and created 
three distinct tables listing the sole source drugs, innovator multiple 
sources drugs, and noninnovator multiple source drugs.
    Tables 27 and 28 below list the final payment amounts for innovator 
and noninnovator multiple source drugs, biologicals, and 
radiopharmaceuticals, respectively, effective January 1, 2005 to 
December 31, 2005.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR15NO04.045


[[Page 65794]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.046

BILLING CODE 4120-01-C
b. Treatment of Three Sunsetting Pass-Through Drugs as Specified 
Covered Outpatient Drugs
    As we discussed in the August 16, 2004 proposed rule, there are 13 
drugs and biologicals whose pass-through status will expire on December 
31, 2004. Table 29 below lists these drugs and biologicals.
    Pass-through payment was made for 10 of these 13 items as of 
December 31, 2002. Therefore, these 10 items now qualify as specified 
covered outpatient drugs under section 1833(t)(14) of the Act, as added 
by section 621(a) of Pub. L. 108-173, as described above. However, 
pass-through status for three of the pass-through drugs and biologicals 
that will expire on December 31, 2004 (C9121, Injection, Argatroban; 
J9395, Fulvestrant; and J3315, Triptorelin pamoate), was first made 
effective on January 1, 2003. These items are specifically excluded 
from the definition of ``specified covered outpatient drugs'' in 
section 1833(t)(14)(B)(ii) of the Act, because they are not drugs or 
biologicals for which pass-through payment was first made on or before 
December 31, 2002. Pub. L. 108-173 does not address how

[[Page 65795]]

to set payment for items whose pass-through status expires in CY 2004, 
but for which pass-through payment was not made as of December 31, 
2002.
    Therefore, we proposed to pay for the three expiring pass-through 
items for which payment was first made on January 1, 2003, rather than 
on or before December 31, 2002 using the methodology described under 
section 1833(t)(14) of the Act for specified covered outpatient drugs. 
We believed that this methodology would allow us to determine 
appropriate payment amounts for these products in a manner that is 
consistent with how we pay for drugs and biologicals whose pass-through 
status was effective as of December 31, 2002, and that does not 
penalize those products for receiving pass-through status beginning on 
or after January 1, 2003 and expiring December 31, 2004. In Table 27 in 
the proposed rule, we listed the CY 2005 OPPS payment rates that we 
proposed for these three drugs and biologicals.
    Of the 13 products for which we proposed that pass-through status 
expire on December 31, 2004, we proposed to package two of them (C9113, 
Inj. Pantoprazole sodium and J1335, Ertapenum sodium) because their 
median cost per day falls below the $50 packaging threshold. We 
proposed to pay for the remaining 11 drugs and biologicals as sole 
source items according to the payment methodology for sole source 
products described above.
    We note that darbepoetin alfa (Q0137) will be considered a 
``specified covered outpatient drug'' in CY 2005. Payment for these 
drugs is governed under section 1833(t)(14) of the Act. Specifically, 
we proposed that darbepoetin alfa would be paid as a sole source drug 
at a rate between 83 percent and 95 percent of its reference AWP. 
Accordingly, we specifically solicited comments on whether we should 
again apply an equitable adjustment, made pursurant to section 
1833(t)(2)(E) of the Act, to the price for this drug.
    Comment: Numerous commenters applauded CMS for proposing a fair and 
consistent payment methodology for drugs and biologicals whose pass-
through status expires on December 31, 2004, and supported the proposal 
to treat these three therapies as specified covered outpatient drugs. 
They also encouraged CMS to expand this treatment to all separately 
paid drugs and biologicals in the future. A few commenters, including 
MedPAC, disagreed with our proposal to pay for the three expiring pass-
through items for which payment was first made on January 1, 2003, as 
``specified covered outpatient drugs.'' One commenter indicated that 
because these three drugs were excluded from the statutory definition 
of ``specified covered outpatient drug,'' it did not believe that CMS 
had the authority to treat newer drugs expiring out of pass-through 
status as specified covered outpatient drugs. Therefore, the commenter 
believed that CMS should pay for newer drugs expiring from pass-through 
status at 106 percent ASP, the rate applicable to the physician 
setting. MedPAC expressed concern about treating these 3 expiring pass-
through drugs differently from the older, historically packaged drugs 
that are now eligible for separate payment and whose payments will be 
based on the median cost from the claims data. MedPAC indicated that 
the purpose of the pass-through payments is to allow time to accumulate 
data on costs and that there seemed to be no reason to believe that 
claims data are more accurate for one category of drugs that the other. 
Therefore, the drugs coming off pass-through, which do not fall under 
the SCOD category, and the older drugs should be paid consistently.
    Response: We appreciate the commenters' support for our proposal to 
treat the three items for which pass-through status expires on December 
31, 2004, but that were approved for pass-through status effective 
January 1, 2003, similar to the other drugs and biologicals whose pass-
through status expires December 31, 2004, but that were approved for 
pass-through status on or before December 31, 2002. The statute does 
not address payment for drugs and biologicals that had pass-through 
status effective on January 1, 2003, but not on or before December 31, 
2002. These items are newer drugs than the older products that never 
received pass-through status. We have accumulated cost data for these 
three drugs throughout the same 2-year period during which we 
accumulated cost data for the other drugs and biologicals whose pass-
through status expires on December 31, 2004. Therefore, noting that the 
statute does not address drugs whose pass-through status likewise 
expires on December 31, 2004, but was approved on January 1, 2003, we 
believe it is reasonable to pay for these three drugs in a manner 
consistent with how we pay for the other drugs whose pass-through 
status likewise sunsets on December 31, 2004.
    Comment: We received a number of comments concerning our proposal 
to pay for both epoetin alfa (marketed under trade name of Procrit) and 
darbepoetin alfa (marketed under the trade name of 
Aranesp<SUP>[reg]</SUP>) based on 83 percent of their individual 
reference AWPs. A number of commenters also wrote in response to our 
solicitation for comments concerning the application of our equitable 
adjustment authority in determining the payment rate for darbepoetin 
alfa. Commenters acknowledged that both biologicals meet the MMA 
definition of specified covered outpatient drug (SCOD) and that the 
pass-through status of darbepoetin alfa ends on January 1, 2005. One of 
the commenters supported the proposal to establish payment for 
darbepoetin alfa as a SCOD, to base CY 2005 payment on its reference 
AWP, and to discontinue the application of an equitable adjustment to 
reduce the statutorily mandated payment for any product paid under the 
OPPS in CY 2005. This commenter stated the proposed payment for 
darbepoetin alfa as a sole source SCOD is fully consistent with section 
621 of the MMA and that this is consistent with the method of payment 
for all other sole source SCODs. The commenter further stated that when 
drafting the language for section 622 of the MMA, Congress intended to 
ensure that considerations of functional equivalence were not applied 
to darbepoetin alfa after its pass-through status expired. This 
commenter acknowledges that section 1833(t)(2)(E) of the Act permits 
CMS to make ``adjustments as determined to be necessary to ensure 
equitable payments.'' However, this commenter stated that payments for 
the two products are already inherently equitable at the proposed rates 
because they are comparably priced and because CMS proposed to set the 
payment rates for the two products using the same methodology. The 
commenter noted that when CMS first applied the equitable adjustment 
for darbepoetin alfa, in CY 2003, CMS had only three choices for 
establishing drug payments under the OPPS: (1) Packing payment with 
related services; (2) using charges from outpatient claims to derive 
median cost; and (3) paying separately under the pass-through 
provisions, at 95 percent of AWP. The commenter notes the new payment 
methodology for all sole source ``specified covered outpatient drugs'' 
and argues that by applying this methodology to both of these 
biologicals, CMS would establish a level playing field and assure that 
market-based forces remain operable. This commenter also provided data 
concerning the clinical efficacy of darbepoetin alfa.
    Many of the other commenters stated that CMS' application of its 
equitable adjustment authority deviated from the MMA's intent to pay 
for sole source

[[Page 65796]]

products and multi-source products under separate payment 
methodologies. The commenters were concerned about the significant 
impact that application of such authority may have on a company's 
decision to continue developing innovator products. The commenters also 
argued that applying such a policy could inject CMS into clinical 
decisions based solely on economic considerations and create payment 
incentives that distort patient decisions properly entrusted to 
treating physicians. One commenter recommended that if CMS plans to 
utilize this authority again, then CMS should hold a public forum and 
provide interested parties with an opportunity to submit written 
comments about the standards that will be used to determine equitable 
adjustment. Other commenters argued that CMS should comply with the MMA 
and protect patient access to innovative therapies by not applying 
functional equivalence or a similar standard to any drug in 2005 or 
future years.
    One commenter on this topic also provided detailed results of 
clinical studies that the commenter believes support the necessity of a 
continuation of the equitable payment adjustment. This commenter 
further stated that the clinical data support the use of a particular 
conversion ratio in making such an adjustment. The commenter noted that 
without an equitable adjustment policy, both drugs would be paid at 83 
percent of each product's AWP. The commenter estimated weekly payments 
for the two drugs under four scenarios: an equitable adjustment based 
on three different conversion ratios and the proposed policy of 
treating each drug independently without application of an equitable 
adjustment. According to this commenter, overall Medicare expenditures 
and beneficiary coinsurance payments would increase for the treatment 
of chemotherapy-induced anemia in the absence of an equitable payment 
adjustment. The commenter's estimates assume a 50 percent market share 
for each of the two drugs and estimated 2005 spending based on 2003 
OPPS claims data with anemia market unit growth assumptions of 35 
percent in 2004 and 22 percent in 2005. The commenter also noted that 
the MMA did not remove the Secretary's authority to establish 
adjustments to ensure equitable payments and that the Secretary retains 
the authority to determine the CY 2005 payment rate for darbepoetin 
alfa using the equitable payment policy applied in CY 2003 and CY 2004. 
This commenter also argued that the MMA prohibition on the use of a 
functional equivalence standard applies only to pass-through drugs and 
only to future implementation.
    A comment from MedPAC on this issue indicated that as costs to the 
Medicare program continue to grow, the program will need to examine 
tools for obtaining value in its purchasing. MedPAC believed that, 
absent evidence that the CMS' use of its equitable adjustment to set 
equivalent payment rates for Procrit and Aranesp<SUP>[reg]</SUP> denied 
beneficiaries' access to needed treatments, CMS should pursue value-
based purchasing where possible.
    Response: As the commenters noted, while we proposed a payment rate 
for darbepoetin alfa as a sole source SCOD based on its reference AWP, 
we also specifically solicited comments on whether we should again 
apply an equitable adjustment, made pursuant to section 1833(t)(2)(E) 
of the Act, to establish the payment for this drug in CY 2005. After 
careful consideration of the thoughtful and well-documented comments 
concerning this issue, we have concluded that it is still appropriate 
to apply an adjustment to the payment for darbepoetin alfa under our 
authority in section 1833(t)(2)(E) of the Act to ensure that equitable 
payments for these two products under the OPPS continue in CY 2005. We 
agree with those commenters that argued that section 1833(t)(2)(E) of 
the Act was not affected by the provisions of the MMA and that we 
retain our authority to make such adjustments to payments under the 
OPPS. As we have done previously, we will reassess the need to exercise 
our adjustment authority when we next review the payment rates under 
the OPPS.
    To apply an equitable adjustment for CY 2005, we reviewed the 
analysis we conducted during 2003 and the additional data we received 
in 2004. As we discussed in further detail in our November 7, 2003 
final rule with comment period for the 2004 update to the OPPS (68 FR 
63455) and our November 1, 2002 final rule with comment period for the 
2003 update (67 FR 66758), because darbepoetin alfa has two additional 
carbohydrate side-chains, it is not structurally identical to epoetin 
alfa. The addition of these two carbohydrate chains affects the 
biologic half-life of the compound. This change in turn affects how 
often the biological can be administered, which yields a different 
dosing schedule for darbepoetin alfa by comparison to epoetin alfa. 
Amgen has FDA approval to market darbepoetin alfa under the trade name 
<SUP>[reg]</SUP> for treatment of anemia related to chronic renal 
failure (including patients on and not on dialysis) and for treatment 
of chemotherapy-related anemia in cancer patients. Epoetin alfa, which 
is marketed by Ortho Biotech under the trade name Procrit, is approved 
by FDA for marketing for the following conditions: (1) Treatment of 
anemia of chronic renal failure (including for patients on and not on 
dialysis); (2) treatment of Zidovudine-related anemia in HIV patients; 
(3) treatment of anemia in cancer patients on chemotherapy; and (4) 
treatment of anemia related to allogenic blood transfusions in surgery 
patients.
    The two biologicals are dosed in different units. Epoetin alfa is 
dosed in Units per kilogram (U/kg) of patient weight and darbepoetin 
alfa in micrograms per kilogram (mcg/kg). The difference in dosing 
metric is due to differences in the accepted convention at the time of 
each product's development. At the time epoetin alfa was developed, 
biologicals (such as those like epoetin alfa that are produced by 
recombinant DNA technology) were typically dosed in International Units 
(or Units for short), a measure of the product's biologic activity. 
They were not dosed by weight (for example, micrograms) because of a 
concern that weight might not accurately reflect their standard 
biologic activity. The biologic activity of such products can now be 
accurately predicted by weight, however, and manufacturers have begun 
specifying the doses of such biologicals by weight. No standard formula 
exists for converting amounts of a biologic dosed in Units to amounts 
of drug dosed by weight.
    The process that we used in 2003 to define the payment conversion 
ratio between the two biologicals for CY 2004 is described in the 
November 7, 2003 final rule with comment period. We refer readers to 
that discussion, found at 68 FR 63455, for more complete details on 
that process and the data received and reviewed by CMS during the 
process. At the conclusion of the 2003 process, we established a 
conversion ratio of 330 Units of epoetin alfa to 1 microgram of 
darbepoetin alfa (330:1) for establishing the CY 2004 payment rate for 
darbepoetin alfa.
    During the comment period, each company presented additional data 
concerning their products. Based upon our analysis to date, we continue 
to believe that the conversion ratio used for CY 2004 is appropriate 
for purposes of establishing equitable payment under the OPPS for both 
epoetin alfa and darbepoetin alfa for CY 2005. Initial review of new 
information submitted by the commenters provides no compelling

[[Page 65797]]

evidence that the conversion ratio of 330:1 is unreasonable. Therefore, 
for this final rule with comment period, we have established payment 
for darbepoetin alfa by applying the conversion ratio of 330:1 to 83 
percent of the AWP for epoetin alfa. The resulting payment rate for 
darbepoetin alfa is $3.66 per microgram. We will continue to assess the 
data we have received thus far and invite the submission of additional 
information. In order to fully evaluate and assess this issue in 
determining whether any further adjustment of the conversion ratio is 
necessary, additional analysis will be required. If, after additional 
review and analysis, we determine that a different conversion ratio is 
more appropriate, we will make a change in the payment rate for 
darbepoetin alfa to reflect the change in ratio as soon as possible.
    We do not believe that our application of an equitable adjustment 
will create a barrier to treatment for the conditions for which these 
products are prescribed or to the product of choice of the beneficiary 
and his or her treating physician. According to the most recent average 
sales price (ASP) information collected by CMS and available in time 
for this final rule with comment period, 106 percent of ASP for 
darbepoetin alfa is $3.69 per microgram. This amount would have been 
the basis for payment under the OPPS on January 1, 2005 if pass-through 
status did not expire and if we did not apply an equitable adjustment. 
Furthermore, as we have emphasized in prior rulemaking on this topic, 
our conversion of amounts of a biologic dosed in Units to amounts of a 
drug dosed by weight strictly for the purpose of calculating a payment 
rate should not in any way be viewed as a statement regarding the 
clinical use of either product. The method we use to convert Units to 
micrograms in order to establish equitable payments is not intended to 
serve as a guide for dosing individual patients in clinical practice. 
By using a conversion ratio solely for the purpose of establishing 
equitable payments, CMS is not attempting to establish a lower or upper 
limit on the amount of either biological that a physician should 
prescribe to a patient. We expect that physicians will continue to 
prescribe these biologicals based on their own clinical judgment of the 
needs of individual patients.
    Table 29 below lists the final CY 2005 OPPS payment rates for the 
three sunsetting pass-through drugs and biologicals that will be 
treated as specified covered outpatient drugs.
[GRAPHIC] [TIFF OMITTED] TR15NO04.047

c. CY 2005 Payment for Nonpass-through Drugs, Biologicals, and 
Radiopharmaceuticals With HCPCS Codes, But Without the OPPS Hospital 
Claims Data
    Pub. L. 108-173 does not address the OPPS payment in CY 2005 for 
new drugs and biologicals 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 dictates 
payment for such drugs and biologicals in CY 2005, and because we have 
no hospital claims data to use in establishing a payment rate for them, 
we investigated other possible options to pay for these items in CY 
2005. Clearly, one option is to continue packaging payment for these 
new drugs and biologicals that have their own HCPCS codes until we 
accumulate sufficient claims data to calculate median costs for these 
items. Another option is to pay for them separately using a data source 
other than our claims data. The first option is consistent with the 
approach we have taken in prior years when claims data for new services 
and items have not been available to calculate median costs. However, 
because these new drugs and biologicals may be expensive, we are 
concerned that packaging these new drugs and biologicals may jeopardize 
beneficiary access to them. In addition, we do not want to delay 
separate payment for a new drug or biological solely because a pass-
through application was not submitted.
    Therefore, for CY 2005, we proposed to pay for these new drugs and 
biologicals with HCPCS codes but which do not have pass-through status 
at a rate that is equivalent to the payment they would receive in the 
physician office setting, which would be established in accordance with 
the methodology described in the CY 2005 Medicare Physician Fee 
Schedule proposed rule (69 FR 47488, 47520 through 47524). We noted 
that this payment methodology is the same as the methodology that will 
be used to calculate the OPPS payment amount that pass-through drugs 
and biologicals will be paid in CY 2005 in accordance with section 
1842(o) of the Act, as amended by section 303(b) of Pub. L. 108-173, 
and section 1847A of the Act. Thus, we proposed to treat new drugs and 
biologicals with established HCPCS codes the same, irrespective of 
whether pass-through status has been determined. We also proposed to 
assign status indicator ``K'' to HCPCS codes for new drugs and 
biologicals for which we have not received a pass-through application.
    In light of our August 16, 2004 proposal, we understood that 
manufacturers might be hesitant to apply for pass-through status. 
However, we did not believe there would be many instances in CY 2005 
when we would not receive a pass-through application for a new drug or 
biological that has an HCPCS code. To avoid delays in setting an 
appropriate payment amount for new drugs and biologicals and to 
expedite the processing of claims, we strongly encouraged manufacturers 
to continue submitting pass-through applications for new drugs and 
biologicals when FDA

[[Page 65798]]

approval for a new drug or biological is imminent to give us advance 
notice to begin working to create an HCPCS code and APC. The 
preliminary application would have to be augmented by FDA approval 
documents and final package inserts once such materials become 
available. However, initiating the pass-through application process as 
early as possible would enable us to expedite coding and pricing for 
the new drugs and biologicals and accelerate the process for including 
them in the next available OPPS quarterly release.
    In the August 16, 2004 proposed rule, we discussed how we proposed 
to pay in CY 2005 for new drugs and biologicals between their FDA 
approval date and assignment of an HCPCS code and APC. We shared the 
desire of providers and manufacturers to incorporate payment for new 
drugs and biologicals into the OPPS as expeditiously as possible to 
eliminate potential barriers to beneficiary access and to minimize the 
number of claims that must be processed manually under the OPPS interim 
process for claims without established HCPCS codes and APCs, and we 
solicited public comments on our proposal.
    Comment: Several commenters commended CMS's proposal to set payment 
rates for new drugs with HCPCS codes using the same methodology 
proposed to set payment for drugs with pass-through status, regardless 
of whether a pass-through application has been submitted for the new 
drug. They applauded CMS for acknowledging that packaging payment for 
these new therapies might jeopardize beneficiary access to them. 
However, a comment from MedPAC indicated that CMS's proposal to pay 106 
percent of ASP for this particular group of drugs and biologicals 
represented a change in policy where drugs of this nature were 
previously packaged until sufficient claims data were accumulated to 
calculate payment rates, unless they received pass-through status via 
an application process. MedPAC was concerned that the newly approved 
drugs and biologicals that do not go through the pass-through payment 
mechanism will be added to the OPPS system without any control on 
spending since this policy does not have a budget neutrality provision, 
similar to pass-through payments. Given that the pass-through policy 
existed as a controlled mechanism for introducing new drugs into the 
OPPS, these drugs should either be treated through the pass-through 
process or continue to be packaged under the previous policy.
    Response: We appreciate the commenters' support for our proposal to 
pay for new drugs with HCPCS codes, but without pass-through status and 
hospital claims data under the same methodology that will be used to 
pay for them in the physician office setting. We also understand 
MedPAC's concern about budget neutrality associated with this policy. 
Our intent in paying for new drugs and biologicals with HCPCS codes, 
but without pass-through status and hospital claims data, separately, 
was that we recognized that some of these new products would be 
important new therapies in treatment of such diseases as cancer. We 
also believe that the MMA provision that requires CMS to pay for new 
drugs and biologicals before a code is assigned indicates that Congress 
intended for us to pay separately for new items until we have hospital 
claims data that would allow us to determine whether the product should 
be packaged. We are concerned that packaging their payments may prevent 
hospitals from acquiring these products and in turn harm beneficiaries' 
access to them. We do not expect the volume of new drugs and 
biologicals to which we would apply this policy in CY 2005 to be so 
significant as to have an effect on budget neutrality. Moreover, we 
would not expect this policy to have a differential impact on budget 
neutrality any more than payment for the drugs would affect pass-
through spending had the drugs been approved for pass-through status. 
We also believe (and strongly encourage) that stakeholders will 
continue to apply for pass-through status for new drugs, biologicals 
and radiopharmaceuticals as a means of ensuring that we have all of the 
information required to establish accurate payments for these items as 
quickly as possible. At the same time, if we were to package all such 
items, we are concerned that it would provide a disincentive for 
manufacturers to come forward and request codes for new items. Under 
the MMA provision described above, we are required to pay for new drugs 
and biologicals without HCPCS code at 95 percent of AWP, which we would 
expect to generally be higher than 106 percent of ASP. We also believe 
the MMA provision regarding drugs without HCPCS codes indicates that 
Congress clearly intended that we pay separately for new drugs and 
biologicals. Therefore, for CY 2005 we will finalize the policy that we 
proposed to pay separately for new drugs and biologicals with HCPCS 
codes but without pass-through status and hospital claims data based on 
the payment for the same new products in a physician office.
    We will, however, monitor this carefully during the course of CY 
2005 and reassess the policy for CY 2006. In CY 2005, payment for these 
new drugs and biologicals will be based on 106 percent of ASP. In the 
absence of ASP data, we will use wholesale acquisition cost (WAC) for 
the product to establish the initial payment rate. If WAC is also 
unavailable, then we will calculate payment at 95 percent of the May 1, 
2003 AWP or the first reported AWP for the product. We have used the 
second quarter ASP data from CY 2004 because those were the most recent 
numbers available to us in time for the publication for this rule. To 
be consistent with the ASP-based payments that will be made when these 
drugs and biologicals are furnished in the physician offices, we plan 
to make any appropriate adjustments to the amounts shown in Addendum A 
and B if later quarter ASP submissions indicate that adjustments to the 
payment rates are necessary. We will announce such changes in our 
program instructions to implement quarterly releases and post any 
revisions to the addenda on the www.cms.hhs.gov Web site. We will 
similarly adjust payment for items for which we used AWP or WAC because 
ASP was not available if ASP becomes available from later quarter 
submissions.
    For CY 2005, we will apply this policy to three drugs and 
biologicals that are new effective January 1, 2005 and do not have 
pass-through status and hospital claims data. These drugs will be 
separately payable under the OPPS, and thus, we have assigned them to 
status indicator ``K''. Table 30 below lists these drugs and 
biologicals and the payment methodologies used to calculate their APC 
payments listed in Addendum A and B of this rule.

[[Page 65799]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.048

    We have also identified several drugs and biologicals with new 
HCPCS codes created effective January 1, 2004, that do not meet the 
definition of ``specified covered outpatient drugs'' and for which we 
would not have CY 2003 hospital claims data. These items are packaged 
in CY 2004, and we also proposed to package them for CY 2005 in the 
proposed rule. To avoid negatively impacting beneficiary access to 
these new products by packaging them, we will be paying for these drugs 
in CY 2005 under the same methodology that will be used to pay for them 
in the physician office setting. The rules for determining payment for 
these drugs will be the same as the rules for new drugs with HCPCS 
codes but without pass-through status in CY 2005. In CY 2005, these 
drugs will be separately payable under the OPPS, and thus, we have 
assigned status indicator ``K'' to these drugs. Table 31 below lists 
these drugs and biologicals and the payment methodologies used to 
calculate their APC payments listed in Addendum A and B of this rule.
    We note that CPT 90715 (Tdap vaccine > 7 im) was newly created in 
2004; however, we will not apply this payment policy to this code 
because all of the vaccines similar to this product are packaged in CY 
2004 and will remain packaged in CY 2005. This payment policy also will 
not apply to new radiopharmaceuticals since all radiopharmaceuticals 
meet the definition of ``specified covered outpatient drugs''. 
Therefore, payment for new radiopharmaceuticals will be made according 
to the payment methodologies established for ``specified covered 
outpatient drugs'' under section 1833(t)(14)(A)(ii) of the Act.
[GRAPHIC] [TIFF OMITTED] TR15NO04.049

    Comment: One commenter noted that CMS historically had declined to 
process pass-through applications prior to FDA approval, consequently 
many manufacturers have ceased submitting early applications. The 
commenter stated that manufacturers may be uncomfortable submitting the 
detailed information required for the pass-through application prior to 
securing FDA approval. The commenter suggested that a more realistic 
expectation of the timeframe for pass-through application would be at 
or subsequent to FDA approval, when the product launch is imminent.
    Response: We recognize that some manufacturers may be concerned 
about submitting detailed information for pass-through application in 
advance of FDA's approval for their product. However, we reiterate that 
we strongly encourage manufacturers to continue submitting pass-through 
applications when FDA approval for a new drug or biological is imminent 
to give us advance notice to begin working to create a HCPCS code and 
an APC for their product. While we will not be able to give final 
approval to the pass-through application prior to FDA approval, early 
notification about the product prior to FDA approval can expedite the 
granting of a new product-specific code and implementation of

[[Page 65800]]

that code and appropriate payment rate within our system.
d. Payment for Separately Payable NonPass-Through Drugs and Biologicals
    As discussed in section V.B.2. of the August 16, 2004 proposed 
rule, for CY 2005, we used CY 2003 claims data to calculate the 
proposed median cost per day for drugs, biologicals, and 
radiopharmaceuticals that have an assigned HCPCS code and are paid 
either as a packaged or separately payable item under the OPPS. Section 
1833(t)(14) of the Act, as added by section 621(a) of Pub. L. 108-173, 
specified payment methodologies for most of these drugs, biologicals, 
and radiopharmaceuticals. However, this provision did not specify how 
payment was to be made for separately payable drugs and biologicals 
that never received pass-through status and that are not otherwise 
addressed in section 1833(t)(14) of the Act. Some of the items for 
which such payment is not specified are (1) those that have been paid 
separately since implementation of the OPPS on August 1, 2000, but are 
not eligible for pass-through status, and (2) those that have 
historically been packaged with the procedure with which they are 
billed but, based on the CY 2003 claims data, their median cost per day 
is above the legislated $50 packaging threshold. Because Pub. L. 108-
173 does not address how we are to pay for such drugs and biologicals 
(any drug or biological that falls into one or the other category and 
that has a per day cost greater than $50), we proposed to set payment 
based on median costs derived from the CY 2003 claims data. Because 
these products are generally older or low-cost items, or both, we 
believe that the payments will allow us to provide adequate payment to 
hospitals for furnishing these items. In the proposed rule, we listed 
in Table 28 the drugs and biologicals to which the proposed payment 
policy would apply.
    We received numerous public comments on our proposal.
    Comment: A commenter expressed concern about the proposed payment 
rate for HCPCS code J7342 (Dermal tissue, of human origin, with or 
without other bio-engineered or processed elements, with metabolically 
active elements, per square centimeter) when billed by Maryland-based 
hospitals and comprehensive outpatient rehabilitation facilities 
(CORFs).
    Response: We understand the commenter's concern; however, Maryland-
based hospitals and CORFs are excluded from payment under the OPPS and 
the OPPS payment rates do not apply to them. This final rule with 
comment period addresses only the providers that are paid under the 
OPPS. Therefore, this comment is outside the scope of this rule.
    Comment: An association for manufacturers of contrast agents 
supported CMS' proposal to pay separately for certain MRI contrast 
agents (for example, HCPCS codes A4643 and A4647). However, the 
commenter was concerned that the payment rates for these products were 
based on CY 2003 hospital claims data and that the overall accuracy of 
the hospital median cost data is questionable; therefore, the commenter 
recommended that CMS review the proposed payment rates for MRI contrast 
agents and requested that such review include a confirmation that the 
median cost data used as the basis for calculating the payment rates 
are correct. The commenter also indicated that the proposed rule did 
not have unit descriptors for the HCPCS codes A4643 and A4647 and 
requested that CMS add the unit descriptor, ``up to 20 ml'' to HCPCS 
codes A4643 and A4647 in order to provide further clarity and 
facilitate more accurate coding and billing by hospitals.
    Response: We understand the commenter's concern about setting 
appropriate payment rates for these products. These products do not 
meet the definition of ``specified covered outpatient drugs'' as 
defined in the MMA; however, we do have a significant number of CY 2003 
hospital claims data for these products. It is our general policy under 
the OPPS to use the most recent available hospital claims data in 
setting the OPPS payment rates. For CY 2005, both of these products 
will be separately payable items. The payment rate for A4643 will be 
based on approximately 14,200 claims for approximately 27,000 services, 
and payment for A4647 will be based on approximately 87,600 claims for 
approximately 155,000 services.
    We believe that the CY 2003 claims data contain a sufficiently 
robust set of claims for both products on which to base the payment 
rates for these items using the methodology that will be used for other 
separately payable non-pass-through drugs and biologicals. With respect 
to adding unit descriptors to A4643 and A4647, we suggest that the 
commenter pursue these changes through the process set up by the 
National HCPCS Panel.
    Comment: A commenter expressed concern that CMS may have 
inappropriately packaged low osmolar contrast material (LOCM) drugs 
into APCs based on a determination that the drugs do not meet CMS's 
packaging rule because they are below the $50 threshold required for 
separate payment. The commenter questioned the accuracy of the median 
cost data used as the basis for CMS's decision as CMS' paid claims 
files for LOCM do not include unit descriptors for the HCPCS codes 
A4644, A4645, and A4646. The commenter is concerned that this makes it 
difficult to interpret the data in any meaningful way for purposes of 
determining what the payment rates for these drugs should be and 
whether they should be paid separately, in particular, because the dose 
administered per procedure can range from 10 ml to 200 ml. The 
commenter also believed that CMS should pay for LOCM drugs separately 
in the hospital outpatient setting because they are paid as such in the 
physician office setting. Therefore, the commenter recommended that CMS 
exercise its discretion to apply an exception to the packaging rule to 
LOCM as it did with the anti-emetics and allow separate payment for 
LOCM drugs in CY 2005. The commenter also suggested that CMS assign the 
unit descriptor ``per 10 ml'' to HCPCS codes A4644, A4645, and A4646.
    Response: We recognize that the commenter is concerned about the 
packaging of the three LOCM products. Based on the methodology used to 
calculate median cost per day for drugs and biologicals, as explained 
in section V.B.2. of the preamble, we determined that the per day costs 
of these products were below $50. Therefore, these items were packaged. 
We note that the LOCM products are a unique class of drugs that have 
always been packaged from the beginning of the OPPS in August 1, 2000, 
and this is the first year that we looked into the cost data for these 
drugs to determine whether they should be paid separately. We realize 
that for CY 2005 these drugs will be packaged under the OPPS, but will 
receive separate payment in the physician office setting. However, 
based upon the statutory packaging threshold for drugs and biologicals 
as per administration cost less than $50, we believe that it is 
appropriate for us to package the LOCM drugs under the OPPS. With 
respect to adding unit descriptors to HCPCS code A4644, A4645, and 
A4646, we suggest that the commenter pursue these changes through the 
process set up by the National HCPCS Panel.
    Comment: We received comments concerning the new Part D 
prescription drug benefit mandated by the MMA and the intersection 
between drugs covered by Part D and Part B.
    Response: Because such issues are not within the scope of this CY 
2005 OPPS

[[Page 65801]]

final rule with comment period, we will not respond to those comments 
in this document.
    Comment: We received many comments from makers of drug and 
biological products, national trade associations, and an association 
for cancer centers suggesting that CMS should expand the future rate-
setting methodology for ``specified covered outpatient drugs'' to 
include all drugs and biologicals that either are or were previously 
paid separately under the OPPS, regardless of whether the drugs meet or 
exceed the $50 threshold. The commenters also recommended that CMS also 
work with GAO and MedPAC to ensure that their respective studies of the 
acquisition costs and pharmacy service and overhead costs include all 
of these drugs and biologicals and that the studies are thorough and 
will contain all the information CMS needs to set proper payment rates 
in the future. Many of these commenters were concerned about CMS' use 
of claims, other data, and the methodologies used to establish the OPPS 
payments for drugs and biologicals that do not meet the definition of 
``specified covered outpatient drugs'' and therefore, are not 
statutorily required to be included in these studies. The commenters 
suggested that CMS should not implement different methodologies for 
``specified covered outpatient drugs'' and other separately paid drugs 
in CY 2006; instead, CMS should ensure appropriate payment for all 
Medicare covered drugs by applying the acquisition cost-based payment 
methodology to all separately paid drugs. One commenter believed that 
Congress fully intended for all separately paid drugs and biologicals 
to be paid based on hospital acquisition costs, as informed by these 
studies. Another commenter recommended that CMS continue to accept 
external cost data that may be submitted by knowledgeable stakeholders, 
such as manufacturers, providers, or patients to provide verification 
of hospital acquisition costs for specific drugs and biologicals. One 
commenter indicated that it would like to work with CMS as it prepares 
the hospital acquisition cost survey for the CY 2006 rates.
    Response: We appreciate the interest expressed by many of the 
commenters regarding the MMA-mandated surveys that will be conducted by 
the GAO and MedPAC of hospital acquisition cost for drugs and 
biologicals and their overhead and related costs, respectively. 
However, we note that these provisions of the MMA affect payment for 
drugs and biologicals in CY 2006, and thus, these comments fall outside 
the scope of this rule. Therefore, we will not be responding to these 
comments at this time.
    Comment: A commenter requested that CMS examine every HCPCS J-code 
for drugs to ensure that the dosage definitions for the HCPCS codes are 
set at the lowest available manufacturers' dosage and match the 
customary dispensing packaging.
    Response: Changes to the HCPCS J-codes are made by the National 
HCPCS Panel; therefore, this comment is outside the scope of this OPPS 
final rule. We suggest that the commenter pursue these changes through 
the process established by the National HCPCS Panel.
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e. CY 2005 Change in Payment Status for HCPCS Code J7308
    Since implementation of the OPPS on August 1, 2000, HCPCS code 
J7308 (Aminolevulinic acid HCI for topical administration, 20 percent 
single unit dosage form) has been treated as a packaged item and 
denoted as such using status indicator ``N''. Thus, historically we 
have not allowed separate payment for this drug under the OPPS and it 
does not meet the statutory definition of a specified covered 
outpatient drug. For CY 2005, we proposed to allow separate payment for 
this drug at 106 percent of ASP, which is equivalent to the payment 
rate that it would receive under the Medicare Physician Fee Schedule. 
We proposed a CY 2005 ASP and payment under the OPPS for HCPCS code 
J7308 of $88.86. We solicited comments on our proposed payment 
methodology for HCPCS code J7308 for CY 2005.
    We did not receive any comments on our proposed policy. However, we 
did receive a comment on this policy in response to the January 6, 2004 
interim final rule with comment period, which we discuss below.
    Comment: One commenter requested that HCPCS code J7308 be paid 
separately under the OPPS because its cost is in excess of the $50 
median cost per day threshold, and the drug is also paid separately 
under the Medicare Physician Fee Schedule in CY 2004.
    Response: We agree with the commenter and will finalize our policy 
to pay separately for J7308 at the payment rate that it would receive 
under the Medicare Physician Fee Schedule. The payment rate listed in 
Addenda A and B of the August 16, 2005 proposed rule was based on the 
second quarter ASP submission for CY 2004. As stated in section V.A. 3. 
of this final rule with comment period, we plan to make any appropriate 
adjustments to the amount shown in Addenda A and B if later quarter ASP 
submissions indicate that adjustments to the payment rate for this drug 
is necessary.
4. Public Comments Received on the January 6, 2004 Interim Final Rule 
With Comment Period and Departmental Responses
    As discussed in section V.B.3. of this final rule with comment 
period, on January 6, 2004, we published in the Federal Register an 
interim final rule with comment period (69 FR 822) that implemented 
section 621(a)(1) of Pub. L. 108-173. Section 621(a)(1) specified 
payment limits on three categories of specific covered outpatient drugs 
and defined these three categories of drugs.
    We received many pieces of correspondence that contained public 
comments associated with the January 6, 2004 interim final rule with 
comment period. Many of the comments expressed concerns about the 
following issues: treating radiopharmaceuticals as ``drugs;'' 
establishing mechanisms to pay for drugs without HCPCS codes at 95 
percent of AWP; correcting the classification of specific items to sole 
source ``specified covered outpatient drugs;'' eliminating the use of 
``equitable adjustments'' to the OPPS payment for drugs and biologicals 
or applying any functional equivalence standards; paying separately for 
drugs that are either packaged or whose payment is based on median cost 
as ``specified covered outpatient drugs''; expanding the list of items 
that will be studied in the MMA-mandated GAO and MedPAC surveys of 
certain OPD services; using the cost-to-charge methodology and the 
hospital outpatient claims data to set payment rates for certain drugs 
and biologicals; identifying and establishing appropriate payment rates 
for innovator and noninnovator multiple source drugs; and changing 
HCPCS code descriptors for radiopharmaceuticals to reflect the products 
as administered to patients.
    We will not address these comments separately in this section 
because these issues are discussed in detail throughout this entire 
section (section V.) of this final rule with comment period. However, 
for those public comments that are not specifically addressed in 
section V., a summary of them and our responses to those comments 
follow:
    Comment: A commenter suggested that CMS create separate HCPCS codes 
for Neoral, Sandimmune, and the other cyclosporine products. The 
commenter indicated that currently all of these products are being 
billed using HCPCS code J7502 (Cyclosporine, oral, 100 mg). The 
commenter stated that the payment rates for the brand name products 
should not be linked to the payment rates for the non-innovator 
products because this situation creates access issues to the branded 
products, and CMS should not limit patient access to the specific 
formulation deemed medically appropriate for the individual needs of 
the specific patients.
    Response: We note that for both CYs 2004 and 2005, hospitals can 
use HCPCS code C9438 to bill for the brand name forms of oral 
cyclosporine. As stated V.A.3.a. of this final rule with comment 
period, the MMA set forth different payment ceilings for the brand and 
generic versions of a drug where the CY 2005 payment rate for innovator 
multiple source (brand name) drugs may not exceed 68 percent of the 
reference AWP and the payment for generic versions may not exceed 46 
percent of the reference AWP. We explained previously that we apply 
those ceilings only where the payment for an item based on the median 
hospital cost for the drug exceeds one of these ceilings. In some 
cases, the payment based on the median hospital cost falls below the 46 
percent ceiling for generic drugs. In such cases, the payment rate 
would be the same for brand and generic versions. We believe that 
basing payment for these items on relative hospital costs, with the 
application as appropriate of the previously mentioned ceilings not 
only meets the intent but also the requirements of the MMA.
    Comment: A commenter recommended that CMS consider pricing 
information from several authoritative sources when determining the 
reference AWP, including Red Book and First Data Bank, on a case-by-
case basis since such pricing information can be used to resolve 
outstanding payment issues and ensure greater accuracy in calculating 
the OPPS payment rates.
    Response: We appreciate this comment and will consider this 
recommendation when we reassess the OPPS payment rates.
    Comment: Several commenters noted that CMS changed the 
classification for many of the biologicals products to sole source 
``specified covered outpatient drugs'' in the February 27, 2004 CMS 
Transmittal 113 without discussing why the changes were made. One of 
the commenters indicated that the definition for sole source 
``specified covered outpatient drugs'' in the MMA is different from the 
Medicaid rebate definition. The commenter stated that the MMA defined 
sole source drugs as: (1) A biological product (as defined under 
section 1861(t)(1) of the Act); or (2) a single source drug (as defined 
in section 1927(k)(7)(A)(iv) of the Act). The commenters requested that 
CMS clarify that it intends to treat all biological products as sole 
source drugs in the future as the law requires.
    Response: We agree with the commenters that biologicals products 
are defined as sole source ``specified covered drugs'' in the MMA, and 
we will determine payment rates for these products accordingly.
    Comment: We received several comments on the mechanism for 
establishing payment rates for innovator and noninnovator multiple 
source drugs. One commenter urged CMS to set the payment rates closer 
to the actual

[[Page 65804]]

costs for all products and services and provide differential 
reimbursement for innovator multiple source products only if their 
actual acquisition costs were markedly higher than that for the 
noninnovator multiple source products. Another commenter indicated that 
innovator and noninnovator multiple source drugs were discounted very 
similarly, and therefore, differential payments were not necessary. A 
commenter also requested that CMS obtain legislative approval to price 
these innovator and noninnovator multiple source drugs using a blended 
payment rate set halfway between 46 percent and 68 percent of their 
reference AWPs.
    Response: We appreciate these suggestions and note that the 
methodology that will be used to determine payment rates for innovator 
and noninnovator multiple source drugs in CY 2005 is described in 
detail in section V.A.3.a. of this final rule with comment period.

C. Coding and Billing for Specified Outpatient Drugs

    As discussed in the January 6, 2004 interim final rule with comment 
period (69 FR 826), hospitals were instructed to bill for sole source 
drugs using the existing HCPCS code, which were priced in accordance 
with the provisions of newly added section 1833(t)(14)(A)(i) of the 
Act, as added by Pub. L. 108-173. However, at that time, the existing 
HCPCS codes did not allow us to differentiate payment amounts for 
innovator multiple source and noninnovator multiple source forms of the 
drug. Therefore, effective April 1, 2004, we implemented new HCPCS 
codes via Program Transmittal 112 (Change Request 3144, February 27, 
2004) and Program Transmittal 132 (Change Request 3154, March 30, 2004) 
that providers were instructed to use to bill for innovator multiple 
source drugs in order to receive appropriate payment in accordance with 
section 1833(t)(14)(A)(i)(II) of the Act. Providers were also 
instructed to continue to use the current HCPCS codes to bill for 
noninnovator multiple source drugs to receive payment in accordance 
with section 1833(t)(14)(A)(i)(III). In this manner, drugs, 
biologicals, and radiopharmaceuticals will be appropriately coded to 
reflect their classification and be paid accordingly. In the August 16, 
2004 proposed rule, we proposed to continue this coding practice in CY 
2005 with payment made in accordance with section 1833(t)(14)(A)(ii) of 
the Act.
    We received a few public comments on our proposal.
    Comment: Several commenters urged that CMS delete certain newly 
created C codes (C9400,Thallous Chloride, brand; C9401 Strontium-89 
chloride, brand; C9402 Th I131 so iodide cap, brand; C9403 Dx I131 so 
iodide cap, brand; C9404 Dx So iodide sol, brand; C9405 Th I131 so 
iodide, sol. brand) because radiopharmaceuticals are better 
characterized as either sole source or innovator multiple source drugs. 
The commenters indicated that the creation of the new codes implied 
that some radiopharmaceuticals are generic products and others are 
brand, but there was no identification of which product falls within 
which code. Further, there was no payment difference between some of 
the radiopharmaceutical brand products versus generics. The commenters 
believed these products did not fit the conventional brand versus 
generic distinctions, and should all be recognized as brand drugs until 
the GAO report provides additional data. Also, the commenters 
recommended that the current A-codes be retained at the payment levels 
CMS proposes for ``brand'' drugs and believed that deletion of these 
codes should result in payment for the corresponding 
radiopharmaceuticals based on their status as a sole source or 
innovator multi-source drug and would significantly lessen hospital 
administrative burden and confusion. Another commenter indicated that 
hospitals needed further clarification on which manufacturers' products 
can be billed under the HCPCS codes created for the brand and generic 
forms of a product.
    Response: As stated in section V.A.3.a. of this final rule with 
comment period, section 621(a) of Pub. L. 108-173 sets forth different 
payment ceilings for the brand and generic versions of a drug where the 
CY 2005 payment rate for innovator multiple source (brand name) drugs 
may not exceed 68 percent of the reference AWP and the payment for 
generic versions may not exceed 46 percent of the reference AWP. We 
explained previously that we apply those ceilings only where the 
payment for an item based on the median hospital cost for the drug 
exceeds one of these ceilings. In some cases, the payment based on the 
median hospital cost falls below the 46 percent ceiling for generic 
drugs. In such cases, as the commenters indicate, the payment rate 
would be the same for brand and generic versions.
    We will not be providing a list of brand name and generic products 
for hospitals to use in determining whether their product is a brand 
name or generic product. We believe that hospitals are in the best 
position to correctly determine which type of products they are using. 
We refer the commenter to the definitions of innovator and noninnovator 
multiple source drugs stated in the January 6, 2004 interim final rule 
with comment period (69 FR 822). Hospitals can also use the FDA's 
Orange Book in determining whether an item they use is a brand name 
product.

D. Payment for New Drugs, Biologicals and Radiopharmaceuticals Before 
HCPCS Codes Are Assigned

1. Background
    Historically, hospitals have used a code for an unlisted or 
unclassified drug, biological, or radiopharmaceutical or used an 
appropriate revenue code to bill for drugs, biologicals, and 
radiopharmaceuticals furnished in the outpatient department that do not 
have an assigned HCPCS code. The codes for not otherwise classified 
drugs, biologicals, and radiopharmaceuticals are assigned packaged 
status under the OPPS. That is, separate payment is not made for the 
code, but charges for the code would be eligible for an outlier payment 
and, in future updates, the charges for the code are packaged with the 
separately payable service with which the code is reported for the same 
date of service.
    Drugs and biologicals that are newly approved by the FDA and for 
which an HCPCS code has not yet been assigned by the National HCPCS 
Alpha-Numeric Workgroup could qualify for pass-through payment under 
the OPPS. An application must be submitted to CMS in order for a drug 
or biological to be assigned pass-through status, along with a 
temporary C-code for billing purposes, and an APC payment amount. Pass-
through applications are reviewed on a flow basis, and payment for 
drugs and biologicals approved for pass-through status is implemented 
throughout the year as part of the quarterly updates of the OPPS.
    In the November 7, 2003 final rule with comment period (68 FR 
63440), we explained how CMS generally pays under the OPPS for new 
drugs and biologicals that are assigned HCPCS codes, but that are not 
approved for pass-through payment, and for which CMS had no data upon 
which to base a payment rate. These codes do not receive separate 
payment, but are assigned packaged status. Hospitals were urged to 
report charges for the new codes even though separate payment is not 
provided. Charges reported for the new codes are used to determine 
hospital costs and payment rates in future updates. For CY 2004, we 
again

[[Page 65805]]

noted that drugs that were assigned an HCPCS code effective January 1, 
2004, and that were assigned packaged status, remain packaged unless 
pass-through status is approved for the drug. If pass-through status is 
approved for these drugs, pass-through payments are implemented 
prospectively in the next available quarterly release.
2. Provisions of Pub. L. 108-173
    Section 621(a)(1) of Pub. L. 108-173 amended section 1833(t) of the 
Act by adding paragraph (15) to provide for payment for new drugs and 
biologicals until HCPCS codes are assigned under the OPPS. Under this 
provision, we are required to make payment for an outpatient drug or 
biological that is furnished as part of covered OPD services for which 
a HCPCS code has not been assigned in an amount equal to 95 percent of 
AWP. This provision applies only to payments under the OPPS, effective 
January 1, 2004. However, we did not implement this provision in the 
January 6, 2004 interim final rule with comment period because we had 
not determined at that time how hospitals would be able to bill 
Medicare and receive payment for a drug or biological that did not have 
an identifying HCPCS code.
    As stated earlier, at its February 2004 meeting, the APC Panel 
heard presentations suggesting how to make payment for a drug or 
biological that did not have a code. The APC Panel recommended that we 
work swiftly to implement a methodology to enable hospitals to file 
claims and receive payment for drugs that are newly approved by the 
FDA. The APC Panel further recommended that we consider using temporary 
or placeholder codes that could be quickly assigned following FDA 
approval of a drug or biological to facilitate timely payment for new 
drugs and biologicals.
    We explored a number of options to make operational the provisions 
of section 1833(t)(15) of the Act, as added by section 621(a)(1) of 
Pub. L. 108-173, as soon as possible. One of the approaches that we 
considered was to establish a set of placeholder codes in the 
Outpatient Code Editor (OCE) and the PPS pricing software for the 
hospital OPPS (PRICER) that we would instruct hospitals to use when a 
new drug was approved. Hospitals would be able to submit claims using 
the new code but would receive no payment until the next quarterly 
update. By that time, we would have installed an actual payment amount 
and descriptor for the code into the PRICER, and would mass-adjust 
claims submitted between the date of FDA approval and the date of 
installation of the quarterly release. A second option that we 
considered was to implement an APC, a C-code, and a payment amount as 
part of the first quarterly update following notice of FDA approval of 
a drug or biological. Hospitals would hold claims for the new drug or 
biological until the quarterly release was implemented and then submit 
all claims for the drug or biological for payment using the new C-code 
to receive payment on a retroactive basis. We also considered 
instructing hospitals to bill for a new drug or biological using a 
``not otherwise classified'' code for which they would receive an 
interim payment based on charges converted to cost. Final payment would 
then be reconciled at cost report settlement. While each of these 
approaches might enable hospitals to begin billing for a newly approved 
drug or biological as soon as it received FDA approval, each approach 
had significant operational disadvantages, such as increased burden on 
hospitals or payment delays, or the risk of significant overpayments or 
underpayments that could not be resolved until cost report settlement.
    We adopted an interim approach that we believe balances the need 
for hospitals to receive timely and accurate payment as soon as a drug 
or biological is approved by the FDA with minimal disruption of the 
OPPS claims processing modules that support the payment of claims. On 
May 28, 2004 (Transmittal 188, Change Request 3287), we instructed 
hospitals to bill for a drug or biological that is newly approved by 
the FDA by reporting the National Drug Code (NDC) for the product along 
with a new HCPCS code C9399, Unclassified drug or biological. When 
C9399 appears on a claim, the OCE suspends the claim for manual pricing 
by the fiscal intermediary. The fiscal intermediary prices the claim at 
95 percent of its AWP using Red Book or an equivalent recognized 
compendium, and processes the claim for payment. This approach enables 
hospitals to bill and receive payment for a new drug or biological 
concurrent with its approval by the FDA. The hospital does not have to 
wait for the next quarterly release or for approval of a product-
specific HCPCS to receive payment for a newly approved drug or 
biological or to resubmit claims for adjustment. Hospitals would 
discontinue billing C9399 and the NDC upon implementation of an HCPCS 
code, status indicator, and appropriate payment amount with the next 
quarterly update.
    In the August 16, 2004 proposed rule, we proposed to formalize this 
methodology for CY 2005 and to expand it to include payment for new 
radiopharmaceuticals to which a HCPCS code is not assigned (see section 
V.G. of this preamble). We solicited comments on the methodology and 
expressed particular interest in the reaction of hospitals to using 
this approach to bill and receive timely payment under the OPPS for 
drugs, biologicals, and radiopharmaceuticals that are newly approved by 
the FDA, prior to assignment of a product-specific HCPCS code.
    We received a number of public comments on our proposal.
    Comment: One commenter, a state hospital association, is concerned 
about the ability of hospitals to correctly code for newly approved 
drugs and biologicals without HCPCS codes using the NDC codes. The 
commenter indicates that typically only pharmacy systems within 
hospitals can properly handle the assignment and reporting of a drug's 
NDC, not the hospital billing systems. Additionally, the use of the 
Remarks field to report the NDC creates payment delays as it requires 
manual review and pricing by the fiscal intermediaries. Several 
commenters, including a national hospital association and several state 
hospital associations, recommended that CMS adopt a new revenue code 
subcategory for hospitals to use when reporting these newly FDA-
approved drugs and biologicals on UB-92 paper claims. The hospital 
could use the new revenue code along with the reported NDC in the 
revenue-code description field. Establishing a new revenue code field, 
to be used with the description field, allows clearinghouses to scan 
the paper UB-92 and then convert the data into the appropriate HIPAA 
standard for auto adjudication. The FI would then no longer have to 
suspend these paper claims for manual pricing, because it would build 
logic into the system to auto-adjudicate these claims. The hospital 
would then continue to report C9399 (HCPCS code indicating Unclassified 
drug or biological) in the HCPCS field, the units in the Unit field, 
the date the drug was administered in the date field, and finally, the 
price of these drugs in the Total Charges field. These commenters 
believed that this alternative policy would greatly improve the current 
process for both hospitals and fiscal intermediaries.
    Response: We read the hospital associations' recommendation for an 
alternative approach to report NDCs on UB-92 paper claims with interest 
and will explore its feasibility with the different components within 
CMS that are responsible for claims processing, information technology 
and systems,

[[Page 65806]]

and HIPAA standards. It appears that time-consuming systems changes 
could be required were we to adopt such an approach, which could delay 
implementation, but we will consider the proposal carefully.
    Comment: A maker of pharmaceuticals commends CMS for implementing 
the mechanism where hospitals can bill and be paid for new drugs 
without HCPCS codes. However, the commenter is concerned that the use 
of a miscellaneous code may result in significant payment delays and 
potentially prevent patient access to new therapies. The commenter 
suggests that CMS monitor claims submission, timely processing, and 
payments more closely so that patient access to new therapies is not 
impeded. Another commenter suggested that CMS should modify this 
mechanism if necessary to ensure patients have access to cutting-edge 
drugs. One commenter suggested that CMS explore with its contractors 
the feasibility of automating processing of these claims by including 
the NDC number as a claims processing field when the miscellaneous C 
code appears on a claim since such a process would eliminate the 
additional costs of manual claim review and expedite provider payment.
    Response: We share the commenters' concerns that claims processing 
systems not impede beneficiary access to new drug therapies. However, 
we believe the approach that we implemented in CY 2004 and that we 
proposed to adopt permanently beginning in CY 2005, which requires the 
use of HCPCS code C9399 to be reported with an appropriate NDC, will 
result in hospitals receiving payment for new drugs more quickly 
compared to the process that we followed previously, even though some 
manual handling of claims is required. We agree with the commenter who 
suggested that CMS closely monitor claims submission, timely 
processing, and payments for new drugs, and we intend to do so.
    Comment: One commenter encouraged CMS to reconsider the payment 
policy that requires the reporting of the NDC for new drugs as 
``mandatory'' and consider making the NDC ``optional.'' For providers 
unable to automate the reporting of the NDC number due to software 
limitations, it suggested that CMS consider allowing providers the 
option of listing the NDC number in the detailed drug name as reported 
on the itemized statement of charges that can be requested along with 
the UB reporting the C9399 code.
    Response: As we have indicated in previous responses to commenters' 
suggestions regarding ways to implement the payment requirement for new 
drugs and biologicals that have not been assigned a HCPCS code, we will 
also consider this commenter's recommendation to determine its 
feasibility.
    Comment: Several commenters urged CMS to reconsider the policy of 
preloading several new codes into CMS' computer system and assigning 
them to new drugs and biologicals as the Food and Drug Administration 
approved them, rather than requiring manual processing of claims using 
a single miscellaneous code. If CMS determines that the current policy 
is imposing too great an administrative burden on hospitals and delays 
in processing claims that harm hospitals' ability to provide new drugs 
and biologicals to Medicare beneficiaries, the commenters urged CMS to 
reconsider its proposal and to explore preloading placeholder codes 
instead.
    Response: Preloading placeholder codes was one of the options that 
we considered before we implemented C9399, but we found that this 
approach had its disadvantages, most of which stemmed from concerns 
about delays related to the dissemination of new codes to providers and 
installing prices into the claims processing modules in a timely 
manner. We propose to monitor throughout CY 2005 the use of HCPCS code 
C9399 and NDC codes to evaluate whether this approach is an improvement 
over how hospitals were previously paid for new drugs to which a HCPCS 
code had not been assigned and to determine if changes in the process 
would be beneficial.
    Comment: One commenter indicated that requiring hospitals to submit 
the National Drug Code on claims imposes an enormous administrative 
burden on hospitals because there is no field for NDCs on the claims 
form and, therefore, NDCs cannot be entered on the claim automatically. 
Rather, claims must be flagged and adjusted manually. The commenter 
suggested that the best solution is to close the lag time between FDA 
approval and HCPCS assignment of a new drug. By creating a seamless 
execution of approval and code assignment, CMS can ensure that the MMA 
mandate is fulfilled in the least burdensome manner and that providers 
are adequately paid for providing these new drugs.
    Response: While the use of NDCs may impose a degree of reporting 
burden on hospitals, we believe that, in spite of the inconvenience of 
manual reporting and claims processing, this approach is the most 
efficient way to expedite payment to hospitals for newly approved drugs 
to which a HCPCS code has not been assigned.
    Comment: One commenter, an association for cancer centers, 
supported CMS' proposal for reporting new drugs without HCPCS codes 
using C9399 and any other necessary data. However, the commenter 
requested clarification from CMS on whether C9399 can only be used for 
injectible drugs or whether this code can also be used to report all 
newly approved FDA drugs (including oral drugs). The commenter believed 
that C9399 can be used for all Medicare-covered drugs, including oral 
anti-emetics and oral chemotherapeutics with IV equivalents, but 
requested that CMS clarify this issue to ensure that fiscal 
intermediaries correctly process this new code.
    Response: Our instructions regarding how hospitals may report a new 
drug using C9399 and NDCs only indicate the method by which hospitals 
can bill Medicare for payment if the new drug is covered by the 
Medicare program. These instructions do not represent a determination 
that the Medicare program covers a new drug for which a hospital 
submits a bill using C9399. In addition to determining payment, fiscal 
intermediaries must determine whether a drug billed with C9399 meets 
all program requirements for coverage. For example, they must assess 
whether the drug is reasonable and necessary to treat the beneficiary's 
condition and whether the drug is excluded from payment because it is 
usually self-administered. The same rules, regulations, and policies 
that apply to coverage of drugs, biologicals, and radiopharmaceutical 
agents that already have a HCPCS code also apply to newly approved 
items for which a HCPCS code has not yet been assigned.
    Comment: Two commenters urged CMS to publish the approved drugs and 
radiopharmaceuticals that may be submitted under HCPCS code C9399, as 
well as the appropriate units of measure applicable for each drug or 
biological and the payment amount for the drug based on 95 percent of 
the AWP. One commenter indicated that hospitals are concerned that they 
will not identify all of the drugs that are eligible for this payment 
and are also concerned that they may inappropriately assign the HCPCS 
code to drugs that are not eligible for this payment. Additionally, 
there is an administrative burden placed both on providers and the 
fiscal intermediaries when CMS does not publish the payment rates for 
these drugs.
    Response: We understand that use of C9399 and NDCs is a departure 
from how hospitals have become accustomed

[[Page 65807]]

to preparing Medicare claims for the OPPS services. However, the MMA 
mandates that hospitals be paid 95 percent of AWP for new drugs until a 
HCPCS code is assigned to that drug. We believe this MMA provision is 
intended to ensure that hospitals can receive timely payment for new 
drugs, biologicals, and radiopharmaceuticals without having to wait for 
a HCPCS code to be created and disseminated or for an OPPS payment 
amount to be implemented in a quarterly OPPS update. Generally, CMS 
learns of FDA approval of a new product at approximately the same time 
the public learns of the approval. Hospitals may wish to look to their 
advocacy associations for assistance in monitoring the FDA Web site to 
identify new products as they are approved, as a supplemental 
information source. We also intend to explore ways hospitals could 
systematically receive timely reports of newly approved drugs by means 
other than checking the FDA Web site. However, how to report a product 
rests with the hospital, as it does for any drug, biological, 
radiopharmaceutical agent, procedure, or service, with or without a 
HCPCS code. Therefore, we are not accepting the commenters' suggestion 
that we publish the approved drugs and radiopharmaceuticals that may be 
submitted under HCPCS code C9399, as well as the appropriate units of 
measure applicable for each drug or biological and the payment amount 
for the drug based on 95 percent of the AWP. Rather, we prefer to focus 
our resources on updating the OPPS on a quarterly basis with codes, APC 
assignments, and payment amounts for drugs, biologicals, and 
radiopharmaceuticals newly approved by the FDA during the prior 
quarter.
    We have carefully considered commenters' recommendations and 
concerns, and we believe that our proposed methodology for using C9399 
and NDC codes to bill for drugs, biologicals, and radiopharmaceutical 
agents newly approved by FDA to which a HCPCS code is not assigned is 
the most efficient and practicable approach at this time to ensure 
timely, appropriate Medicare payment for these new products. Therefore, 
we are making final for CY 2005 our proposed methodology, without 
modification.

E. Payment for Vaccines

    Outpatient hospital departments administer large numbers of 
immunizations for influenza (flu) and pneumococcal pneumonia (PPV), 
typically by participating in immunization programs. In recent years, 
the availability and cost of some vaccines (particularly the flu 
vaccine) have fluctuated considerably. As discussed in the November 1, 
2002 final rule (67 FR 66718), we were advised by providers that the 
OPPS payment was insufficient to cover the costs of the flu vaccine and 
that access of Medicare beneficiaries to flu vaccines might be limited. 
They cited the timing of updates to the OPPS rates as a major concern. 
They indicated that our update methodology, which uses 2-year-old 
claims data to recalibrate payment rates, would never be able to take 
into account yearly fluctuations in the cost of the flu vaccine. We 
agreed with this concern and decided to pay hospitals for influenza and 
pneumococcal pneumonia vaccines based on a reasonable cost methodology. 
As a result of this change, hospitals, home health agencies (HHAs), and 
hospices, which were paid for these vaccines under the OPPS in CY 2002, 
have been receiving payment at reasonable cost for these vaccines since 
CY 2003. We are aware that access concerns continue to exist for these 
vaccines. However, we continue to believe that payment other than on a 
reasonable cost basis would exacerbate existing access problems. 
Therefore, in the August 16, 2004 proposed rule, we proposed to 
continue paying for influenza and pneumococcal pneumonia vaccines under 
the reasonable cost methodology in CY 2005.
    Comment: Several commenters applauded CMS' proposal to continue to 
pay for vaccines under the reasonable cost methodology. The commenters 
indicated that payment on a reasonable cost basis helps ensure that the 
OPPS rates are adequate to cover hospitals' costs of providing vaccines 
to Medicare beneficiaries, protecting their health, and reducing 
Medicare's costs of treating influenza and other preventable illnesses.
    Response: We appreciate the commenters' continued support of our 
policy to pay for influenza and pneumococcal pneumonia vaccines at 
reasonable cost and finalize our proposal in this final rule with 
comment period. We note that for CY 2005 a new CPT code for an 
influenza vaccine was created. The new CPT code 90656 (Influenza virus 
vaccine, split virus, preservative free, for use in individuals 3 years 
and above, for intramuscular use) will be paid at reasonable cost in CY 
2005. We have assigned status indicator ``L'' (Not Paid under OPPS. 
Paid at reasonable cost) to this new CPT code.

F. Changes in Payment for Single Indication Orphan Drugs

    Section 1833(t)(1)(B)(i) of the Act gives the Secretary the 
authority to designate the hospital outpatient services to be covered. 
The Secretary has specified coverage for certain drugs as orphan drugs 
(section 1833(t)(14)(B)(ii)(III) of the Act as added by section 
621(a)(1) of Pub. L. 108-173). Section 1833(t)(14)(C) of the Act as 
added by section 621(a)(1) of Pub. L. 108-173, gives the Secretary the 
authority in CYs 2004 and 2005 to specify the amount of payment for an 
orphan drug that has been designated as such by the Secretary.
    We recognize that orphan drugs that are used solely for an orphan 
condition or conditions are generally expensive and, by definition, are 
rarely used. We believe that if the cost of these drugs were packaged 
into the payment for an associated procedure or visit, the payment for 
the procedure might be insufficient to compensate a hospital for the 
typically high cost of this special type of drug. Therefore, in the 
August 16, 2004 proposed rule, we proposed to continue making separate 
payments for orphan drugs based on their currently assigned APCs.
    In the November 1, 2002 final rule (67 FR 66772), we identified 11 
single indication orphan drugs that are used solely for orphan 
conditions by applying the following criteria:
    <bullet> The drug is designated as an orphan drug by the FDA and 
approved by the FDA for treatment of only one or more orphan 
conditions(s).
    <bullet> The current United States Pharmacopoeia Drug Information 
(USPDI) shows that the drug has neither an approved use nor an off-
label use for other than the orphan condition(s).
    Eleven single indication orphan drugs were identified as having met 
these criteria and payments for these drugs were made outside of the 
OPPS on a reasonable basis.
    In the November 7, 2003 final rule with comment period (68 FR 
63452), we discontinued payment for orphan drugs on a reasonable cost 
basis and made separate payments for each single indication orphan drug 
under its own APC. Payments for the orphan drugs were made at 88 
percent of the AWP listed for these drugs in the April 1, 2003 single 
drug pricer, unless we were presented with verifiable information that 
showed that our payment rate did not reflect the price that is widely 
available to the hospital market. For CY 2004, Ceredase (alglucerase) 
and Cerezyme (imiglucerase) were paid at 94 percent of AWP because 
external data

[[Page 65808]]

submitted by commenters on the August 12, 2003 proposed rule caused us 
to believe that payment at 88 percent of AWP would be insufficient to 
ensure beneficiaries' access to these drugs.
    In the December 31, 2003 correction of the November 7, 2003 final 
rule with comment period (68 FR 75442), we added HCPCS code J9017, 
arsenic trioxide (per unit) to our list of single indication orphan 
drugs. As of the time of our August 16, 2004 proposed rule, the 
following were the 12 orphan drugs that we have identified as meeting 
our criteria: J0205 Injection, alglucerase, per 10 units; J0256 
Injection, alpha 1-proteinase inhibitor, 10 mg; J9300 Gemtuzumab 
ozogamicin, 5 mg; J1785 Injection, imiglucerase, per unit; J2355 
Injection, oprelvekin, 5 mg; J3240 Injection, thyrotropin alpha, 0.9 
mg; J7513 Daclizumab parenteral, 25 mg; J9015 Aldesleukin, per vial; 
J9017 Arsenic trioxide, per unit; J9160 Denileukin diftitox, 300 mcg; 
J9216 Interferon, gamma 1-b, 3 million units and Q2019 Injection, 
basiliximab, 20 mg. In the August 16, 2004 proposed rule, we did not 
propose any changes to this list of orphan drugs for CY 2005.
    In the proposed rule, we noted that had we not classified these 
drugs as single indication orphan drugs for payment under the OPPS, 
they would have met the definition as a single source specified covered 
outpatient drug and been paid lower payments which could impede 
beneficiary access to these unique drugs dedicated to the treatment of 
rare diseases. Instead, for CY 2005, under our authority at section 
1833(t)(14)(C) of the Act, we proposed to pay for all 12 single 
indication orphan drugs, including Ceredase and Cerezyme, at the rate 
of 88 percent of AWP or 106 percent of the ASP, whichever is higher. 
However, for drugs where 106 percent of the ASP would exceed 95 percent 
of AWP, payment would be capped at 95 percent of AWP, which is the 
upper limit allowed for sole source specific covered outpatient drugs. 
For example, Ceredase and Cerezyme would each be paid at 95 percent of 
the AWP because payment at ASP plus 6 percent for these two drugs not 
only exceeds 88 percent of the AWP but also exceeds 95 percent of the 
AWP. We proposed to pay the higher of 88 percent of AWP or 106 percent 
of ASP capped at 95 percent of AWP to ensure that beneficiaries will 
continue to have access to such important drugs.
    We received the following comments to our August 16, 2004 proposed 
rule on single indication orphan drugs.
    Comment: A few commenters recommended that CMS adopt the FDA's 
definition of an orphan drug as under the Orphan Drug Act. The 
commenters indicated that CMS should expand the current list of 12 
single-indication orphan drugs that receive special treatment to 
include several other FDA-designated orphan drugs. One commenter 
requested that CMS adopt a utilization threshold to identify orphan 
drugs that would receive the special treatment rather than using its 
current criteria.
    Response: Using the statutory authority in section 1833(t)(1)(B)(i) 
of the Act, which gives the Secretary broad authority to designate 
covered OPD services under the OPPS, we have established criteria which 
distinguish single-indication orphan drugs from other drugs designated 
as orphan drugs by the FDA under the Orphan Drug Act. Our determination 
to provide special payment for these drugs neither affects nor deviates 
from FDA's classification of any drugs as orphan drugs. The special 
treatment given to this subset of FDA-designated orphan drugs is 
intended to ensure that beneficiaries have continued access to these 
life-saving therapies given that these drugs have a relatively low 
volume of patient use, lack any other non-orphan indication and are 
typically very costly. Although we are not expanding our criteria to 
identify orphan drugs that will receive special payment for CY 2005, we 
will consider the commenters' recommendation of a utilization threshold 
in future changes to the OPPS orphan drug list.
    Comment: We received comments from different drug manufacturers 
separately requesting that Campath (J9010, Alemtuzumab), Elitek (J2783, 
Rasburicase), Vidaza (C9218, Azacitidine for injectable suspension), 
and Botox (J0585, Botulinum toxin type A) be included in the list of 
single-indication orphan drugs that will receive special payment for CY 
2005.
    Response: After careful review of the requests for these four drugs 
to be included in the list of single-indication orphan drugs, we have 
determined that Campath (J9010) and Vidaza (C9218) do meet our criteria 
for inclusion in the list. Thus, effective for January 1, 2005, J9010 
and C9218 will be paid in accordance with the payment policy for single 
indication orphan drugs for CY 2005. However, we have determined that 
Elitek (J2783) and Botox (J0585) do not meet the criteria for inclusion 
in the list because these drugs have an off-label use as indicated by 
the 2004 United States Pharmacopoeia Drug Information (USPDI).
    Comment: Several commenters, including manufacturers of alpha-1 
proteinase inhibitor (J0256) sold under the brand names Prolastin, 
Aralast and Zemaira, submitted comments expressing concern over the 
decrease in the payment rate for HCPCS J0256 from the CY 2004 level to 
the CY 2005 proposed rate. The majority of commenters requested that 
the payment rate for J0256 be frozen at the CY 2004 levels, rather than 
based on the AWP of Prolastin, the least expensive drug among the three 
name brands. As some commenters explained, Prolastin has experienced 
supply shortages in the past and if the payment rate for the alpha-1 
therapy did not take into account the higher AWPs of Aralast or 
Zemaira, it would be inadequate to cover the actual acquisition costs 
of the drugs to hospitals.
    The manufacturer of Aralast requested that CMS exclude pricing 
information associated with Prolastin when setting the payment rate for 
J0256. The commenter stated that although Prolastin is currently 
available and used in greater quantities than either Aralast or Zemaira 
, it has experienced supply shortages in the past. Therefore, according 
to the commenter, the payment rate for J0256 needs to be such that 
patients will have continued access to all three brand names. 
Alternatively, the commenter recommended that new HCPCS codes could be 
created so each brand name could be paid appropriately or CMS could 
freeze the payment rate for J0256 at the CY 2004 levels, as the 
majority of commenters recommended.
    The manufacturer of Zemaira expressed concern that the proposed 
payment rate does not meet the actual hospital acquisition cost for 
this brand name, which is the newest of the three brand names to come 
on the market to be used in alpha-1 therapy.
    We received a comment from an organization representing voluntary 
health organizations and individual patients that stated that the 
proposed payments for CY 2005 were adequate to avoid problems with 
access to the orphan drugs that patients with rare diseases need. In 
addition, the commenter requested that CMS take actions to monitor any 
changes in beneficiaries' access to orphan drugs as a result of payment 
changes, to review the claims database for changes in utilization 
patterns, to seek input from beneficiaries about access problems, and 
to inform beneficiaries about payment changes and the potential impact 
of such changes on their access.
    We also received recommendations from a patient advocacy 
organization requesting that CMS work with the manufacturers of the 
alpha-1 therapy to obtain the data necessary to raise the proposed OPPS 
rate of $2.46 (per 10 mg) or to establish the ASP rate which may

[[Page 65809]]

enhance patient access to care. The commenter also recommended that CMS 
base the payment rate for J0256 on all available brands.
    Response: After careful evaluation of the issues and concerns 
raised by commenters in response to our proposed rule, we recognize 
that our proposed payment rate for HCPCS code J0256 may create an 
unanticipated access problem during periods of short supply. Therefore, 
in order to ensure continued beneficiaries' access to this important 
drug, we will base the payment rate for HCPCS code J0256 on all three 
brands of the alpha-1 proteinase inhibitor currently available on the 
market. The adjusted AWP of HCPCS code J0256 will be based on the 
volume-weighted average of the three drugs. The adjusted AWP will be 
updated each quarter, as necessary, to reflect any changes in the 
individual AWP or relative weight of each drug in the calculation of 
the AWP for HCPCS code J0256. We would expect that as the volume and/or 
individual AWP increases or decreases for a brand, these changes will 
be captured in its relative weight and will be reflected in the 
adjusted AWP for HCPCS code J0256.
    We share the commenters' concern for protecting beneficiaries' 
access to these therapies used for rare disease conditions. As part of 
our process of developing special payment rates for single indication 
orphan drugs in CY 2005, our analysis of CY 2003 claims data does not 
indicate a decrease in utilization of any orphan drugs that may signify 
barriers to beneficiaries' access to these drugs.
    Comment: Several commenters recommended that CMS eliminate the 95 
percent AWP cap on single-indication orphan drugs whose ASP plus 6 
percent would exceed their 88 percent AWP. According to the commenters, 
these drugs would not be subject to the 95 percent AWP cap when 
administered in the physician's office. They argued that CMS should pay 
for these drugs at the same rate, irrespective of the site of service.
    We received a request from the drug manufacturer of Ontak to 
increase the payment rate for the drug from 88 percent of the May 2004 
AWP to 92 percent of the current AWP. Alternatively, the commenter 
requested that CMS remove the 95 percent AWP cap for J9160 (Ontak).
    Response: We believe that access to these life-saving therapies is 
extremely important and after careful consideration, we will not 
implement the cap of 95 percent of AWP for any of the single-indication 
orphan drug for those drugs whose 106 percent ASP exceeds 88 percent of 
AWP. Effective for CY 2005, payment for all single-indication orphan 
drugs will be set at the higher of 106 percent of the most current ASP 
or 88 percent of the most current AWP.
    Comment: A few commenters recommended that CMS update the payment 
rates quarterly, based on the latest ASP and AWP data available. They 
argue that to lock in the rates for a year based on outdated 
information could impede patient access to these drugs.
    Response: We agree with the commenters and will base payments for 
single-indication orphan drugs on a quarterly comparison of ASP and AWP 
data. Appropriate adjustments to the payment amounts shown in Addendum 
A and B will be made if ASP submissions and AWP data in a later quarter 
indicate that adjustments to the payment rates are necessary. These 
changes to the Addenda will be announced in our program instructions 
released on a quarterly basis and posted on our Web site at http://www.cms.hhs.gov.
    Comment: We also received a comment from the manufacturer of 
Fabrazyme requesting that CMS consider making payment for Fabrazyme 
(C9208, agalsidase beta) as a single-indication orphan drug. The 
commenter believes that by statute, CMS is required to pay for the drug 
at 106 percent of ASP; however, the commenter stated that if CMS were 
to somehow reach a different conclusion, it would request to be treated 
as a single-indication orphan drug.
    Response: We agree with the commenter that the statute requires 
that payment for Fabrazyme (C9208), a drug that currently has pass-
through status, be made at 106 percent of ASP for CY 2005.
    In summary, we have set payment rates for single-indication orphan 
drugs according to the following policy, effective January 1, 2005:
    <bullet> We are using the same criteria that we implemented in CY 
2003 to identify single indication orphan drugs used solely for an 
orphan condition for special payment under the OPPS; and,
    <bullet> We are setting payment under the CY 2005 OPPS for single 
indication orphan drugs at the higher of 88 percent of the AWP or the 
ASP plus 6 percent, updated quarterly to reflect the most current AWP 
and ASP data.
    While we are not implementing the 95 percent AWP cap on single-
indication orphan drugs in CY 2005, we will monitor this decision and 
may apply the cap in future OPPS updates.

G. Change in Payment Policy for Radiopharmaceuticals

    In the November 1, 2002 OPPS final rule (67 FR 66757), we 
determined that we would classify any product containing a therapeutic 
radioisotope to be in the category of benefits described under section 
1861(s)(4) of the Act. We also determined that the appropriate benefit 
category for diagnostic radiopharmaceuticals is section 1861(s)(3) of 
the Act. We stated in the November 1, 2002 final rule that we will 
consider neither diagnostic nor therapeutic radiopharmaceuticals to be 
drugs as defined in 1861(t) of the Act (67 FR 66757). Therefore, 
beginning with the CY 2003 OPPS update, and continuing with the CY 2004 
OPPS update, we have not qualified diagnostic or therapeutic 
radiopharmaceuticals as drugs or biologicals.
    As we stated in the August 16, 2004 proposed rule, when we analyzed 
the many changes mandated by Pub. L. 108-173 that affect how we would 
pay for drugs, biologicals, and radiopharmaceuticals under the OPPS in 
CY 2005, we revisited the decision that we implemented in CY 2003 not 
to classify diagnostic and therapeutic radiopharmaceuticals as drugs or 
biologicals. In our analysis, we noted that although we did not 
consider radiopharmaceuticals for pass-through payment in CYs 2003 and 
2004, we did apply to radiopharmaceuticals the same packaging threshold 
policy that we applied to other drugs and biologicals, and which we 
proposed to continue in CY 2005. In addition, for the CY 2004 OPPS 
update, we applied the same adjustments to median costs for 
radiopharmaceuticals that we applied to separately payable drugs and 
biologicals that did not have pass-through status (68 FR 63441).
    In our review of this policy, we noted that section 
1833(t)(14)(B)(i) of the Act, as amended by section 621(a) of Pub. L. 
108-173, does include ``radiopharmaceutical'' within the meaning of the 
term ``specified covered outpatient drugs,'' although neither section 
621(a)(2) nor section 621(a)(3) of Pub. L. 108-173 includes a reference 
to radiopharmaceuticals.
    In an effort to provide a consistent reading and application of the 
statute, we proposed to apply to radiopharmaceuticals certain 
provisions in section 621 of Pub. L. 108-173 which affect payment for 
drugs and biologicals billed by hospitals for payment under the OPPS. 
We believed it was reasonable to include radiopharmaceuticals in the 
general category of drugs in light of their

[[Page 65810]]

inclusion as specified covered outpatient drugs in section 
1833(t)(14)(B) of the Act, as added by section 621(a)(1) of Pub. L. 
108-173.
    Section 621(a)(1) of Pub. L. 108-173, which amends section 1833(t) 
of the Act by adding a new subparagraph (14) affecting payment for 
radiopharmaceuticals under the OPPS, is unambiguous. This provision 
clearly requires that separately paid radiopharmaceuticals be 
classified as ``specified covered outpatient drugs.'' Therefore, in CY 
2005, we proposed to continue to set payment for radiopharmaceuticals 
in accordance with these requirements, which are discussed in detail in 
section V.B.3. of this preamble.
    Section 1833(t)(16)(B) of the Act, as added by section 621(a)(2) of 
Pub. L. 108-173, requires us to reduce the threshold for the 
establishment of separate APCs with respect to drugs and biologicals to 
$50 per administration for drugs and biologicals furnished in 2005 and 
2006. We proposed to apply the $50 packaging threshold methodology 
discussed in section V.B.2. of this final rule with comment period to 
radiopharmaceuticals as well as to drugs and biologicals.
    Section 1833(t)(15) of the Act, added by section 621(a)(1) of Pub. 
L. 108-173, requires us to make payment equal to 95 percent of the AWP 
for an outpatient drug or biological that is covered and furnished as 
part of covered OPD services for which a HCPCS code has not been 
assigned. We proposed, beginning in CY 2005, to extend to 
radiopharmaceuticals the same payment methodology discussed in section 
V.D. of this preamble for new drugs and biologicals before HCPCS codes 
are assigned. That is, we proposed to pay for newly approved 
radiopharmaceuticals, as well as newly approved drugs and biologicals, 
at 95 percent of AWP prior to assignment of a HCPCS code.
    Section 1833(t)(5)(E) of the Act, as added by section 621(a)(3) of 
Pub. L. 108-173, excludes separate drug and biological APCs from 
outlier payments. Beginning in CY 2005, we proposed to apply section 
621(a)(3) of Pub. L. 108-173 to APCs for radiopharmaceuticals. That is, 
beginning in CY 2005, radiopharmaceuticals would be excluded from 
receiving outlier payments.
    Consistent with our proposed policy to apply to radiopharmaceutical 
agents payment policies that apply to drugs and biologicals, we further 
proposed, beginning in CY 2005, to accept applications for pass-through 
status for certain radiopharmaceuticals. That is, we proposed on a 
prospective basis to consider for pass-through status those 
radiopharmaceuticals to which a HCPCS code is first assigned on or 
after January 1, 2005. As we explain in section V.A.3. of this final 
rule with comment period, section 1833(t)(6)(D)(i) of the Act sets the 
payment rate for pass-through eligible drugs and biologicals as the 
amount determined under section 1842(o) of the Act. In the August 16, 
2004 proposed rule, we proposed to pay for drugs and biologicals with 
pass-through status in CY 2005 consistent with the provisions of 
section 1842(o) of the Act as amended by Pub. L. 108-173, at a rate 
that is equivalent to the payment these drugs and biologicals would 
receive in the physician office setting and set in accordance with the 
methodology described in the Medicare Physician Fee Schedule Proposed 
Rule for CY 2005 (69 FR 47488, 47520 through 47524).
    We issued an interim final rule with comment period entitled 
``Medicare Program: Manufacturer Submission of Manufacturer's Average 
Sales Price (ASP) Data for Medicare Part B Drugs and Biologicals'' in 
the April 6, 2004 Federal Register, related to the calculation and 
submission of manufacturer's ASP data (69 FR 17935). We need these data 
in order to determine payment for drugs and biologicals furnished in a 
physician office setting in accordance with the methodology described 
in the Medicare Physician Fee Schedule Proposed Rule (69 FR 47488, 
47520 through 47524). However, the April 6, 2004 interim final rule 
with comment period excludes radiopharmaceuticals from the data 
reporting requirements that apply to Medicare Part B covered drugs and 
biologicals paid under sections 1842(o)(1)(D), 1847A, or 
1881(b)(13)(A)(ii) of the Act (69 FR 17935). As a consequence, we would 
not have the same type of data available to determine payment for a new 
radiopharmaceutical approved for pass-through status after January 1, 
2005 that would be available to determine payment for a new drug or 
biological with pass-through status in CY 2005.
    Therefore, in order to set payment for a new radiopharmaceutical 
approved for pass-through status in accordance with 1842(o) of the Act 
and in a manner that is consistent with how we proposed to set payment 
for a pass-through drug or biological, we proposed a methodology that 
would apply solely to new radiopharmaceuticals for which payment would 
be made under the OPPS and for which an application for pass-through 
status is submitted after January 1, 2005. That is, in order to receive 
pass-through payment for a new radiopharmaceutical under the OPPS, a 
manufacturer would be required to submit data and certification for the 
radiopharmaceutical in accordance with the requirements that apply to 
drugs and biologicals under section 303 of Pub. L. 108-173 as set forth 
in the interim final rule with comment period issued in the April 6, 
2004 Federal Register (66 FR 17935) and described on the CMS Web site 
at http://cms.hhs.gov. We proposed that payment would be determined in 
accordance with the methodology applicable to drugs and biologicals 
that is discussed in the CY 2005 Medicare Physician Fee Schedule 
proposed rule (69 FR 47488, 47520-47524). In the event the manufacturer 
seeking pass-through status for a radiopharmaceutical does not submit 
data in accordance with the requirements specified for new drugs and 
biologicals, we proposed to set payment for the new radiopharmaceutical 
as a specified covered outpatient drug, under section 1833(t)(14)(A) as 
added by section 621(a)(1) of Pub. L. 108-173.
    We received many public comments on our proposals.
    Comment: Many commenters applauded CMS for proposing to treat 
radiopharmaceuticals as drugs and encouraged CMS to continue to pay for 
these products as ``specified covered outpatient drugs'' under the 
OPPS, consistent with section 621(a) of the MMA. They indicated that 
this policy ensures consistent treatment of drugs and 
radiopharmaceuticals, eliminates confusion related to the prior 
differences in their treatment under the OPPS, and facilitates patient 
access to these important therapies in clinically appropriate settings. 
One of the commenters also supported the proposal to exclude 
radiopharmaceuticals from receiving outlier payments in CY 2005.
    Response: We appreciate the commenters' support of our policy to 
treat radiopharmaceuticals as drugs and will finalize this policy for 
CY 2005.
    Comment: Several commenters opposed our proposal to require 
manufacturers to submit ASP data for radiopharmaceutical agents with 
pass-through status. One manufacturer of radiopharmaceuticals stated 
that there are significant practical problems and legal barriers to 
reporting ASP for radiopharmaceuticals. The commenter indicated that 
manufacturers often sell the components of a radiopharmaceutical to 
independent radiopharmacies. These radiopharmacies then sell unit doses 
to many hospitals; however, some hospitals also purchase the components

[[Page 65811]]

of the radiopharmaceutical and prepare the radiopharmaceutical through 
in-house radiopharmacies. This commenter asserted that the end result 
is that there is very often no ASP for the finished radiopharmaceutical 
product. For example, there may only be manufacturer pricing for the 
components; however, the price set by the manufacturer for one 
component of a radiopharmaceutical does not directly translate into the 
acquisition cost of the ``complete'' radiopharmaceutical, which may 
result from the combination of several components. This commenter 
recommended that CMS be consistent and not require ASP in the OPPS, as 
CMS does not require ASP for radiopharmaceuticals in the Medicare 
Physician Fee Schedule. The commenter thus urged CMS to determine 
payment for pass-through radiopharmaceuticals as specified covered 
outpatient drugs, based on AWP or acquisition costs. Another commenter 
recommended that CMS set payment for all pass-through 
radiopharmaceuticals in CY 2005 using the AWP-based ``specified covered 
outpatient drugs'' payment methodology, regardless of whether ASP data 
are available for the drug and stated that this methodology is more 
appropriate for these products, because it will be more likely to 
ensure adequate payment as use of the product is adopted, and thus will 
provide for robust cost data for future rate-setting purposes.
    Response: We appreciate these comments and understand the concerns 
commenters stated regarding our proposal to require manufacturers of 
radiopharmaceutical agents with pass-through status to submit ASP data. 
We recognize the complexities of determining ASP for 
radiopharmaceuticals because of their unique preparation processes; 
therefore, we agree with the commenters' concerns about finalizing the 
proposed policy. Because radiopharmaceuticals are not paid on ASP in 
the physician office setting, manufacturers of these agents will not be 
required to report ASPs for payment purposes under the OPPS. Therefore, 
payment for radiopharmaceuticals with pass-through status will be made 
in accordance with their status as sole source ``specified covered 
outpatient drugs.'' That is, in the absence of both ASP data and 
hospital claims data, we will set payment for new radiopharmaceuticals 
approved for pass-through status beginning in CY 2005 at the floor for 
sole source ``specified coveraged outpatient drugs,'' which is 83 
percent of the AWP.
    Comment: A few commenters urged CMS to revise the HCPCS code 
descriptors for radiopharmaceutical products that do not currently have 
``per dose'' or ``per study'' descriptors and indicated that ``per 
dose'' or ``per study'' code descriptors will facilitate the collection 
of more accurate charge and cost data which are necessary to establish 
equitable payment for radiopharmaceutical agents.
    Response: We recognize the concerns expressed by these commenters. 
As we have stated in the November 7, 2003 OPPS final rule with comment 
period (68 FR 63451), we continue to believe that in changing 
descriptors to ``per dose'' or ``per study'', we will lose specificity 
with respect to the data we will receive from hospitals. We are not 
convinced that there is a programmatic need to change the 
radiopharmaceutical code descriptors to ``per dose'' or that claims 
data based on the current code descriptors are problematic for setting 
payment rates for these products. However, we will continue to work 
with industry representatives to ensure that the current HCPCS 
descriptors are appropriate and review this issue in the future, if 
needed. Furthermore, we stress the importance of proper coding by 
providers so that we can obtain accurate data for future rate setting.
    Comment: A commenter strongly supported CMS requiring that 
hospitals report all HCPCS codes for drugs including those that are 
packaged and indicated that this will enable CMS to track costs and 
help to ensure that only correctly coded claims (those with 
radiopharmaceuticals) are used in setting payment rates for nuclear 
medicine procedures. Therefore, the commenter recommended that CMS 
require continued reporting of HCPCS codes for all radiopharmaceuticals 
(packaged and non-packaged products).
    Response: We will continue to strongly encourage hospitals to 
report charges for all drugs using the correct HCPCS codes for the 
items used, including the drugs that have packaged status in CY 2005. 
We agree with the commenter that it is most useful to us when we have a 
robust set of claims for each item paid for under the OPPS. We would 
note, however, that with just a very few exceptions, hospitals do 
appear to be reporting charges for drugs, biologicals and 
radiopharmaceuticals using the existing HCPCS codes, even when such 
items have packaged status. At this time, we do not believe it is 
necessary to institute a requirement for drugs as we are doing for the 
device category codes. However, we will continue to monitor this 
through our annual analysis of claims data and will reconsider this in 
the future, if we determine that it is necessary.

H. Coding and Payment for Drug Administration

    Since implementation of the OPPS, Medicare OPPS payment for 
administration of cancer chemotherapy drugs and infusion of other drugs 
has been made using the following HCPCS codes:
    <bullet> Q0081, Infusion therapy other than chemotherapy, per visit
    <bullet> Q0083, Administration of chemotherapy by any route other 
than infusion, per visit
    <bullet> Q0084, Administration of chemotherapy by infusion only, 
per visit
    <bullet> Q0085, Administration of chemotherapy by both infusion and 
another route, per visit
    In the CY 2004 proposed rule, we proposed to change coding and 
payment for these services to enable us to pay more accurately for the 
wide range of services and the drugs that we package into these per 
visit codes. (Background discussion on these codes is included in the 
August 12, 2003 OPPS proposed rule (68 FR 47998). Commenters on the CY 
2004 proposed rule recommended that we use the CPT codes for drug 
administration. One commenter provided a crosswalk from the CPT codes 
for drug administration to the Q codes that we could use in a 
transition. We did not implement this in the final rule for CY 2004 
OPPS but indicated that we would consider it for CY 2005 and would 
discuss it with the APC Panel at its February 2004 meeting.
    Commenters and the APC Panel recommended that we discontinue use of 
code Q0085 for CY 2004 because codes Q0083 and Q0084 could be used 
together to report the services described by code Q0085. We did 
implement this change for CY 2004 and made code Q0085 nonpayable for CY 
2004 OPPS.
    At the February 2004 APC Panel meeting, we presented a proposal 
from an outside organization that matched CPT codes for chemotherapy 
and nonchemotherapy infusions to the Q codes currently used to pay for 
these services under the OPPS. We asked the APC Panel for their 
perspective on the potential benefit of using the proposed coding 
approach as the basis for billing and determining the OPPS payment for 
administering these drugs. The APC Panel recommended that CMS continue 
to review the organization's proposed coding crosswalk with the goal of 
using it to transition from the use of Q-codes

[[Page 65812]]

to that of CPT codes to bill for administration of these drugs.
    In the August 16, 2004 proposed rule, for CY 2005, we proposed to 
use the CPT codes for drug administration but to crosswalk the CPT 
codes into APCs that reflect how the services would have been paid 
under the Q codes. Although hospitals would bill the CPT codes and 
include the charges for each CPT code on the claim, payment would be 
made on a per visit basis, using the cost data from the per visit Q 
codes (Q0081, Q0083 and Q0084) to set the payment rate for CY 2005. See 
Table 29 of the proposed rule for the proposed crosswalk of CPT codes 
into APCs based on the Q codes (69 FR 50521). The only change from the 
crosswalk that was submitted by the outside organization is that we 
proposed a Q code and APC crosswalk for CPT code 96549 (Unlisted 
chemotherapy procedure), rather than bundling that service. We believe 
that Q0083 is the code that would have previously been reported by 
hospitals to describe the unlisted service. In addition, this would 
place the unlisted service in our lowest resource utilization APC for 
chemotherapy, consistent with our policy for other unlisted services.
    We proposed to establish the Q code and APC crosswalk for CPT code 
96549 because there is no CPT specific charge or frequency data on 
which to set payments. The CY 2005 OPPS is based on CY 2003 claims data 
which used the Q codes. Therefore, the only cost data available to us 
for establishment of median costs is the data based on the Q codes for 
drug administration. Moreover, the only frequency data that are 
available for use in calculating the scalar for budget neutrality of 
payment weights are the frequency data for the Q codes. Therefore, the 
payments set for the CPT codes must use the cost data for the Q codes 
and must result in the same payments that would have been made had the 
Q codes been continued.
    Under this proposed methodology, hospitals would report the 
services they furnish with the CPT codes and would show the charges 
that they assign to the CPT codes on the claim. The Medicare OCE would 
assign the code to an APC whose payment is based on the per visit Q 
code that would have been used absent coding under CPT. In most cases, 
the OCE would collapse multiple codes or multiple units of the same CPT 
code into a single unit to be paid a single APC amount. This approach 
is needed because the data for the Q codes is reported on a per visit 
basis and more than one unit of a CPT code can be provided in a visit.
    For example, CPT code 96410 (Chemotherapy administration infusion 
technique, up to 1 hour) is for infusion of chemotherapy drugs for the 
first hour, and CPT code 96412 is for chemotherapy infusion up to 8 
hours, each additional hour. The claims data used to set the APC 
payment rate for these codes is for a per visit amount (taken from CY 
2003 data for Q0084 a per visit code). The frequency data on the claim 
are also on a per visit basis. For CY 2005, we proposed that CPT code 
96410 would be paid one unit of APC 0117 (to which CPT code 96410 would 
be crosswalked) and no separate payment would be made for CPT code 
96412, regardless of whether one unit or more than one unit is billed. 
CPT code 96412 would be a packaged code for CY 2005. Under the Q code 
data on which the payment weight for APC 0117 is based, the per visit 
amount would represent a payment that is appropriate for all drug 
administration services in a visit (that is, one unit of CPT code 96410 
and as many units of CPT code 96412 as were furnished in the same 
visit).
    Similarly, we proposed that when a hospital bills 3 units of CPT 
code 96400 (Chemotherapy administration, subcutaneous or intramuscular, 
with or without local anesthesia), the OCE would assign one unit of APC 
0116 for that code. (APC 0116 is the APC to which CPT code 96400 would 
be crosswalked.) The payment would be based on Q0083, a per visit code, 
because, absent the ability to be paid based on CPT codes, the hospital 
would have billed one unit of Q0083 (for the 3 injections) had we not 
discontinued the Q codes for CY 2005. The OCE would assume that there 
was one and only one visit in which there were 3 injections and would 
pay accordingly (that is, one unit of APC 0116).
    We noted that if we adopt the CPT codes for drug administration to 
ensure accurate payment in the future, it would be critical for 
hospitals to bill the charges for the packaged CPT codes for drug 
administration for CY 2005 (that is, the CPT codes with SI=N), even 
though there would be no separate payment for them in CY 2005. For CY 
2007 OPPS, CY 2005 claims data would be used as the basis for setting 
median costs for each CPT code, based on the reported charges reduced 
to cost, and would determine what APC configuration ensures most 
appropriate payment for the CPT drug administration codes. If hospitals 
do not bill charges in CY 2005 for the packaged drug administration CPT 
codes such as CPT codes 96412, 96423, 96545, or 90781, they would 
jeopardize our ability to make accurate payments for services billed 
and paid under these codes in CY 2007 when we use the CY 2005 data to 
set the payment weights.
    Comment: Most commenters supported our proposal to code drug 
administration using CPT codes instead of the HCPCS codes. They 
indicated that it would be less burdensome for hospitals to code 
services using just one method for Medicare and all other payers. Some 
commenters opposed the use of CPT codes unless CMS pays an amount for 
each use of the CPT code, as CMS does under the Medicare Physician Fee 
Schedule.
    Response: We cannot pay an amount for each use of each CPT code 
because all of our drug administration cost data are on a per visit 
(not a per code) basis as charges for each of the following three 
HCPCPS codes, Q0081, Q0083, and Q0084, are reported for a visit and not 
a service.
    We agree that billing for drug administration using the CPT codes 
will be less burdensome to hospitals and will also facilitate 
development of more accurate payment rates for drug administration 
services in future years. For CY 2005 OPPS, we will collapse the CPT 
codes billed for drug administration into a single unit of the 
applicable APC for payment as we do not have the CPT code specific 
claims data for use in establishing a CPT code specific payment. 
However, we anticipate that we would have the necessary claims for CY 
2007 OPPS to set an appropriate APC payment rate for the services 
described by the CPT codes.
    Comment: Several commenters asked that we affirm that hospitals may 
report CPT codes 90780 (intravenous infusion for therapy/diagnosis 
administered by physician or under direct supervision of physician; up 
to one hour) and 90781 (each additional hour up to (8) hours), 
notwithstanding that the administration is not done by a physician or 
under the direct supervision of a physician. The commenters stated that 
such services are typically administered in hospitals by nurses without 
direct physician supervision and that if hospitals report these codes 
only when the full definition of the code is met, they would not be 
able to report the infusion services they furnish.
    Response: We do not view the language of these CPT codes' 
definitions as being an obstacle to or inconsistent with the use of the 
codes by hospitals for billing Medicare. We view our general 
requirements regarding physician supervision (with respect to payment 
for services that are incident to a physician's service in the 
outpatient hospital setting) as meeting the

[[Page 65813]]

physician supervision aspect of the codes and thus, do not believe that 
use of the codes in the hospital outpatient setting would be prevented 
by the inclusion of the language in the code definition.
    Comment: A commenter asked that we change the status indicator for 
CPT code 90780 and 90781 to ``X'' from ``T'' thereby eliminating the 
multiple procedure reduction for these codes, which in CY 2005 will 
replace HCPCS code Q0081 in billing for the administration of infusion 
therapy. The commenter stated that there is no situation in which the 
time and resources involved in infusion care should be reduced in the 
case of an observation patient.
    Response: We disagree. The costs of space, utilities and staff 
attendance are duplicated when the beneficiary is receiving another 
service at the same time as infusion therapy, in particular when the 
patient is in observation. Hence it is appropriate to apply a multiple 
procedure reduction to infusion therapy particularly when the patient 
is in observation status. We believe it is necessary to understand how 
the OCE multiple procedure discounting logic functions. Line-items with 
a service indicator of ``T'' are subject to multiple procedure 
discounting unless modifiers 76, 77, 78, and/or 79 are present on the 
claim. The ``T'' line-item with the highest payment amount will not be 
discounted but all other ``T'' line items will be discounted as 
multiple procedures. All line-items that do not have a service 
indicator of ``T'' will be ignored in determining the discount. 
Therefore, if the only other services reported with infusion therapy 
are an emergency department or other visit code, or diagnostic tests 
and services assigned status indicator ``S,'' the infusion therapy code 
would not be subject to the multiple procedure discounting.
    Comment: Several commenters stated that multiple visits per day for 
antibiotic infusion are common and the drug administration policies 
should permit such visits to be paid separately. The commenters stated 
that multiple visits for chemotherapy are possible and that provisions 
should be made for billing and paying them when they occur.
    Response: We agree with the commenters on this issue. The reporting 
and payment for these multiple visits and services will not be an issue 
once payment for drug administration under the OPPS is made based on 
CPT code-specific data. However, until such time, hospitals will need 
to use modifier 59 (distinct procedure) when billing charges for 
services furnished during multiple visits that follow the initial 
visit. For CPT codes 90780 and 90781, where there are multiple visits 
for infusion on the same day, the hospital should report CPT code 90780 
with modifier 59 and CPT code 90781, if appropriate, with modifier 59 
for each separate visit for infusion. With modifier 59 appended to CPT 
codes 90780 and 90781, the OCE will allow up to 4 units of APC 0120 
(Infusion of nonchemotherapy drugs) to be paid. Similarly, for the 
chemotherapy administration codes, where there is no modifier 59 
reported, the OCE will collapse all codes that map to a particular APC 
into one unit of that APC and will pay one unit of each applicable APC. 
The system will assume that all services were furnished in one single 
encounter. Where the chemotherapy services are provided in multiple 
encounters, the hospital will need to show modifier 59 on the service 
furnished in the second encounter. The OCE will map those services into 
an additional unit of each applicable APC and will pay for each visit. 
The OCE will not, for a single date of service, pay more than 4 units 
of APC 120, nor more than 2 units of APCs 116 and 117 (chemotherapy by 
route other than infusion and infusion of chemotherapy drugs). We 
intend to reassess these limits based on provider feedback and our 
review of later claims data.
    Comment: One commenter asked that CMS ensure that the costs for CPT 
code 90780 (Infusion therapy one hour) are included in payment for CPT 
codes 67221 (Ocular photodynamic therapy) and 67225 (Eye photodynamic 
therapy add-on) because CPT code 90780 is bundled into both of these 
procedure codes.
    Response: The procedure code definition for CPT code 67221 
specifies that intravenous infusion is included, and CPT code 67225 is 
to be listed separately in addition to CPT code 67221, if a second eye 
is treated. Therefore, the National Correct Coding Initiative (NCCI) 
edits preclude payment for CPT code 90780 with CPT codes 67221 and 
67225 because the charges for the procedure CPT codes 67221 and 67225 
are presumed to include all costs of administering the drug. Correct 
coding would not include reporting CPT code 90780 for the same visits 
when photodynamic therapy was provided. We expect that hospitals will 
include their charges for the necessary infusion in their charges for 
the procedure codes when they bill CPT codes 67221 or 67225, so that 
our claims data reflect the costs of all resources necessary to perform 
the services.
    Comment: Several commenters urged CMS to adopt the new and revised 
AMA definitions for drug administration, which will be HCPCS G-codes in 
the CY 2005 Medicare Physician Fee Schedule, because the existing CPT 
codes do not adequately capture the costs of the range of drug 
administrations. They also urged CMS to educate providers on the 
correct use of the new CPT codes. The commenters indicated that 
implementing the new CPT codes for drug administration will be more 
difficult in hospitals than in physicians' offices because the services 
are typically provided in more places in hospitals than in physicians' 
offices.
    Response: For CY 2005 OPPS, we are implementing the existing CPT 
codes for drug administration rather than the new G-codes that will be 
used for the Medicare Physician Fee Schedule payments. We do not intend 
to use the new HCPCS G-codes for the OPPS drug administration services 
until such time as the new CPT codes for those services are issued in 
CY 2006. We believe that it would be disruptive to hospitals if we 
required them to implement the HCPCS alphanumeric codes for drug 
administration in CY 2005 and then switch to the new CPT codes in CY 
2006. While only a subset of the physician community administers anti-
neoplastic drugs in their offices, we believe that most hospitals do so 
on an outpatient basis and hence most hospitals would have to change to 
the new HCPCS codes for CY 2005, only to change again to new CPT codes 
for CY 2006. However, we are told that all hospitals use the current 
CPT codes to bill other payers and crosswalk from the current CPT codes 
to the Q codes to bill Medicare. Thus, using the current CPT codes 
should be easier for hospitals than their current method for billing 
Medicare. This would not be the case if we were to require that they 
use the new HCPCS codes for drug administration.
    Comment: One commenter indicated that CMS should revise the OPPS to 
mirror the policy under the Medicare Physician Fee Schedule that pays 
separately for each drug administered to permit the payment of one unit 
of each APC for each and every drug administered. The commenter stated 
that since CMS acknowledged that there are additional resources used 
with each administration of a drug, it should apply the same policy to 
hospitals since all of these services are furnished by nurses, whether 
in a physician's office setting or a hospital setting.
    Response: We are moving to the use of CPT codes for CY 2005 OPPS. 
However, we will not be paying an APC amount for each unit of each CPT 
code.

[[Page 65814]]

The APC rate is, by necessity, based on historic data for a code that 
was billed and reported on a per visit basis. Therefore, to pay each 
unit of a CPT code an APC amount would not accurately reflect the 
resources used and would result in an overpayment of the costs of the 
services provided.
    Comment: A commenter asked CMS to permit hospitals to continue 
billing HCPCS codes Q0081, Q0083 and Q0084 for drug administration 
until April 1, 2005 so that hospitals that do not currently bill the 
CPT codes for drug administration may have a transition period to 
convert to CPT code billing.
    Response: The three cited Q-codes will be deactivated for the OPPS 
effective January 1, 2005 and therefore cannot be used up to April 1, 
2005. As discussed in our proposed rule, we are eliminating the 90-day 
grace period for deleted codes effective January 1, 2005. We are 
adopting this policy because the Health Insurance Portability and 
Accountability Act (HIPAA) transaction and code set rules require usage 
of the medical code that is valid at the time that the service is 
provided. Details regarding elimination of the 90-day grace period for 
billing deleted codes were issued to our contractors on February 4, 
2004, in Transmittal 89, Change Request 3093. Moreover, we are not 
aware that there are any hospitals that do not bill the CPT codes for 
drug administration, as hospitals have told us that all payers other 
than Medicare require that they use the CPT codes and will not accept 
the Q-codes.
    Comment: A commenter asked that CMS use the first two quarters of 
the CY 2005 claims to set the median costs for drug administration in 
CY 2006 OPPS so that the transition to the more accurate payments under 
the CPT codes could begin earlier than CY 2007.
    Response: As the CY 2005 claims data will be the basis for the CY 
2007 payment weights, we regret that we are unable to transition to the 
new payments earlier than CY 2007 because of the time required to 
access the CY 2005 claims data and to process and construct our 
database for ratesetting and impact analyses. The second quarter of CY 
2005 data will not be available to us until at least August 15, 2005, 
which is far too late for us to have developed and published any CY 
2006 proposed rule.
    After carefully reviewing all comments received, we are adopting as 
final our proposal to use the CPT codes for drug administration, 
effective January 1, 2005. We will collapse the CPT codes billed into a 
single unit of the applicable APC for payment. In addition, we are 
establishing the Q-code and APC crosswalk for CPT code 96549 and will 
be paying 1 unit of APC 0117 for CPT code 96410 (to which CPT code 
96410 will be crosswalked). We will not make a separate payment for CPT 
code 96412 regardless of whether 1 unit or more units are billed. For 
CY 2005, CPT code 96412 will be a packaged and not paid separately. 
Further, when a hospital bills 3 units of CPT code 96400 (Chemotherapy 
administration, subcutaneous or intramuscular, with or without local 
anesthesia), the OCE will assign 1 unit of APC 0116 for that code and 
the payment will be based on HCPCS code Q0083, a per visit code. 
Modifier 59 may be used with codes in APCs 0116, 0117, and 0120 to 
signify additional encounters on the same date of service for which 
additional APC payments may be made.
    Table 33 below contains the crosswalk of CPT codes for drug 
administration to drug administration APCs for CY 2005. The last two 
columns of this table indicate the maximum number of units of the APC 
that the OCE will assign without or with modifier 59, respectively.
BILLING CODE 4120-01-P

[[Page 65815]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.051

BILLING CODE 4120-01-C

I. Payment for Blood and Blood Products

    Since the OPPS was first implemented in August 2000, separate 
payments have been made for blood and blood products in APCs rather 
than packaging them into payment for the procedures with which they 
were administered. Administrative costs for processing and storage 
specific to the transfused blood product are included in the blood 
product APC payment, which is based on hospitals' charges. Payment for 
the collection, processing, and storage of autologous blood, as 
described by CPT code 86890, is made

[[Page 65816]]

through APC 0347 (Level III Transfusion Laboratory Procedures).
    In CY 2000, payments for bloods were established based on external 
data provided by commenters due to limited Medicare claims data. From 
CY 2000 to CY 2002, blood and blood product payment rates were updated 
for inflation. For CY 2003, as described in the November 1, 2002 final 
rule (67 FR 66773), we applied a special dampening methodology to blood 
and blood products that had significant reductions in payment rates 
from CY 2002 to CY 2003, when median costs were first calculated from 
hospital claims. Using the dampening methodology, we limited the 
decrease in payment rates for blood and blood products to approximately 
15 percent. For CY 2004, as recommended by the APC Panel, we froze 
payment rates for blood and blood products at CY 2003 levels. This 
allowed us to undertake further study of the issues raised by 
commenters and presenters at the August 2003 and February 2004 APC 
Panel meetings.
    In the August 16, 2004 proposed rule for CY 2005 OPPS, we proposed 
to continue to pay separately for blood and blood products. We also 
proposed to establish new APCs that would allow each blood product to 
be in its own separate APC, as several of the blood product APCs 
currently contained multiple blood products with no clinical 
homogeneity or whose product-specific median costs may not have been 
similar. Thus, we also proposed to reassign some of these HCPCS codes 
already contained in certain APCs to new APCs. (See Table 30 of the 
proposed rule (69 FR 50523.)
    Other than for autologous blood products, hospital reimbursement 
for the costs of collection, processing, and storage of blood and blood 
products are made through the OPPS payments for specific blood product 
APCs. Wastage and other administrative costs for blood are attributable 
to overhead and distributed across all hospital services linked to cost 
centers in the Medicare cost report, through the standard process of 
converting charges to costs using hospitals' CCRs for each cost center 
on the cost report.
    In the August 16, 2004 proposed rule, we noted that comments to 
previous OPPS rules had stated that the CCRs that we used to adjust 
claim charges to costs for blood in past years were too low, resulting 
in underestimation of the true hospital costs for blood and blood 
products. In response, we conducted a thorough analysis of the OPPS 
claims to compare CCRs between hospitals with a blood-specific cost 
center and hospitals defaulting to the overall hospital CCR. Our past 
methodology for determining CCRs for blood products included a default 
to the overall CCR when any given provider had chosen not to report 
costs and charges in a blood-specific cost center on the cost report. 
After matching the two blood-specific cost centers to the 38X and 39X 
revenue codes, we observed a significant difference in CCRs utilized 
for conversion of blood product charges to costs for those hospitals 
with and without blood-specific cost centers. The median CCR for those 
hospitals with a blood-specific cost center was 0.66 for revenue code 
38X and 0.64 for revenue code 39X, and for those defaulting to the 
overall hospital CCR, the result was a CCR of 0.34 for revenue code 38X 
and 0.33 for revenue code 39X. The median overall CCR for all hospitals 
in the CY 2005 analysis was 0.33.
    In light of this information, we applied the methodology described 
in our August 16, 2004 proposed rule to calculate simulated medians for 
each blood and blood product based on our CY 2003 claims data. We 
assumed that those hospitals not reporting costs and charges in a 
blood-specific cost center on their annual cost report, in general, 
face similar costs and engage in comparable charging practices for 
blood as those reporting a blood-specific cost center. For those 
hospitals not reporting a blood-specific cost center, we simulated a 
blood-specific CCR, which we then applied to convert charges to costs 
for blood products. Overall, this methodology increased the estimated 
median costs of blood and blood products by 25 percent for CY 2005 
relative to the median costs used to set CY 2004 APC rates. For 
example, the estimated median for HCPCS code P9016 (Red blood cells, 
leukocyte reduced), the most frequently billed blood product, increased 
by 32 percent relative to the CY 2004 median.
    As discussed in the proposed rule, in reviewing the simulated 
medians calculated using the methodology described above relative to 
those medians used to set CY 2004 payment rates, we noticed that some 
low-volume blood products (< 1,000 units) demonstrated significant 
decreases in median costs utilizing our general methodology. Overall, 
the simulated median costs for low-volume blood products declined by 14 
percent for CY 2005. Because a small sample size can lead to great 
variability in point estimates, we sought to increase the number of 
units of low-volume blood products by combining CY 2002 and CY 2003 
claims data for the low-volume products. We used the simulated CCRs to 
calculate costs from charges from CY 2002 and CY 2003 claims data. To 
ensure that we combined comparable costs, we updated the simulated 
costs on the CY 2002 claims to the base year of CY 2003 using the 
Producer Price Index (PPI) for blood and derivatives for human use 
(Commodity Code <greek-i>063711). This is the PPI used to update blood 
and blood product prices in the market basket (67 FR 50039, August 1, 
2002). We recognize that not all of the low-volume blood products had 
claims in CY 2002.
    After combining the 2 years of claims data, we were able to raise 
the volume of blood units billed for several of these products above 
1,000 units. Since the publication of the proposed rule, additional 
claims data from the last quarter of CY 2003 have become available to 
us. The data showed that a few of the blood products had utilization in 
CY 2003 that exceeded the 1,000 unit low-volume threshold and will not 
be subject to the low-volume blood product payment adjustment described 
below, that we are adopting for CY 2005. The low-volume blood products 
that we are adopting as final are listed below in Table 31 of this 
final rule with comment period.
    The DHHS Advisory Committee on Blood Safety and Availability has 
recommended that CMS establish payment rates for blood and blood 
products based on current year acquisition costs and actual total costs 
of providing such blood products. At the February 2004 APC Panel 
meeting, the APC Panel recommended that CMS use external data to derive 
costs of blood and blood products in order to establish payment rates. 
At the September 2004 APC Panel meeting, the APC Panel recommended that 
CMS freeze payment rates for low-volume blood products for CY 2005 at 
CY 2004 levels. The Panel also recommended that CMS consider using 
external data for setting payment rates for blood and blood products in 
the future.
    We received the following comments on our August 16, 2004 proposed 
rule regarding payment for blood and blood products.
    Comment: A few commenters expressed strong support for payment 
rates developed using hospital data rather than blood industry data. 
The commenters urged CMS to exercise caution in using blood industry 
data and to consider evaluating the data for their validity, 
reliability and consistency with geographic variations in costs, in 
addition to being publicly available and subject to audit.
    Response: We agree with the commenters that the OPPS payment rates 
should be based on the most

[[Page 65817]]

recently available and accurate hospital claims data. However, in rare 
circumstances when accurate hospital claims data capturing the full 
costs of services may not be available, we evaluate all external data 
very carefully to make sure that they meet our external data criteria. 
As discussed above, in setting all blood and blood product payment 
rates for CY 2005, we have relied upon data from hospital claims 
submitted to CMS.
    Comment: Several commenters expressed concern about the proposed 
payment rates for blood and blood products. The commenters indicated 
that despite increases in the CY 2005 proposed payment rates for blood 
and blood products, the proposed payment rates still do not meet the 
actual costs to hospitals of acquiring these products. Some commenters 
stated that, in addition to hospital coding and billing problems, only 
a small number of hospitals were actually reporting blood costs, and 
that lack of reporting explains why the payment rates are still 
significantly below hospital acquisition costs. The commenters 
expressed concerns that this would create barriers to access to a safe 
blood supply for Medicare beneficiaries.
    The commenters also expressed concerns about reductions in payment 
rates for low-volume blood products. They recommended that CMS either 
freeze payment rates at the CY 2004 OPPS levels for low-volume blood 
products that experienced a decrease in their proposed rates or use 
external data in setting payment rates for these products.
    Response: We appreciate the commenters' concerns and share the same 
concern for protecting beneficiaries' access to a safe blood supply. As 
with all of the OPPS services, we prefer to rely on our claims data 
whenever possible. Comments received for previous rules also suggested 
that current hospital blood costs are not captured because hospitals 
underreport blood on their claims because it is too costly to bill for 
blood. However, our thorough analysis of billing for blood from CY 2003 
claims data indicated that 81 percent of all hospitals included in our 
ratesetting and modeling for CY 2005 billed at least one unit of blood 
or blood product in CY 2003. Of these hospitals however, only 47 
percent reported separate costs and charges in the two cost centers 
specific to blood on their most recent annual cost reports. It may be 
that those hospitals billing for blood but not reporting costs and 
charges on their cost reports for either of the two blood-specific cost 
centers reported their blood costs and charges under other cost 
centers, such as operating room. As discussed in the proposed rule, we 
simulated blood-specific hospital CCRs to account for these reporting 
differences and used these simulated CCRs to develop proposed median 
costs for blood products for CY 2005. Our claims data clearly show that 
the vast majority of hospitals do bill the OPPS for blood and blood 
products. In addition, the distribution of costs for individual 
products provides no evidence of significant coding problems.
    As explained in the preamble of this section, we estimate that by 
using our new methodology of simulating medians and implementing the 
proposed payment rates for blood and blood products, excluding low-
volume blood products, there would be a 25 percent increase in payment 
for blood and blood products overall. This includes a 32 percent 
increase in payment from CY 2004 for leukocyte reduced red blood cells 
(HCPCS code P9016), the highest volume blood product in the hospital 
OPD, and a 25 percent increase in payment for each unit of red blood 
cells (HCPCS code P9021), the second highest volume blood product.
    After carefully reviewing all of the public comments received 
timely regarding low-volume blood products, we are convinced that due 
to the low utilization of these products, in addition to possible 
hospital coding and billing problems for these low-volume products, the 
claims data may not have captured the complete costs of these products 
to hospitals as fully as possible. We believe it is imperative that 
Medicare beneficiaries have full access to all medically necessary 
blood and blood products, including products that are infrequently 
utilized. Therefore, for blood products that would have experienced a 
decrease in median cost from CY 2004 to CY 2005 based on our proposed 
methodology, we are establishing CY 2005 payment rates that are 
adjusted to a 50/50 blend of CY 2004 product-specific OPPS median costs 
and our proposed CY 2005 simulated medians. This adjustment methodology 
will allow us to undertake further study of the issues raised by 
commenters and by presenters at the September 2004 APC Panel meeting, 
without putting beneficiary access to these low-volume blood products 
at risk.
    Comment: One commenter suggested that CMS survey all hospitals 
across the country to investigate direct and indirect costs for blood. 
The commenter expressed concern that our proposed rates were 
insufficient to cover the costs of blood and its testing and storage. 
The commenter also expressed the need for continued increases in 
payments for blood products.
    Response: We appreciate the commenter's recommendation and will 
take it into consideration as needed, when we reassess the payment 
rates for blood and blood products. While we believe our payment rates 
are appropriate and adequate for the provision of blood and blood 
product services, we are aware of the increasing number of tests 
required to ensure the safety of the nation's blood supply, which could 
possibly add to the costs of processing blood and blood products. The 
APC payment rates for blood and blood products are intended to cover 
the costs of medically necessary testing by community blood banks or 
blood banks operated by hospitals. However, the APC payment rates are 
not meant to include costs of tests requiring a specific patient's 
blood, such as cross-matching in preparation for transfusion, because 
these tests are separately payable under the OPPS.
    Comment: Several commenters, including a hospital association, 
recommended that CMS issue more specific guidance to hospitals for 
billing of blood-related services in order to improve hospital claims 
data. Specifically, commenters requested that CMS address issues 
related to application of the Medicare blood deductible, differences 
between donor and nondonor states, hospital markups for blood costs, 
the appropriate use of HCPCS code P9011 (Split blood unit) in billing, 
blood processing and preparation costs and autologous blood collection. 
In addition, the same commenter recommended that CMS share its draft 
guidance for review with the Outpatient Medicare Technical Advisory 
Group (MTAG) or the National Uniform Billing Committee (NUBC), or both, 
to ensure it is correct, comprehensive, and reflective of the billing 
provider's perspective.
    Response: We recognize the need for comprehensive billing 
guidelines for hospitals and other providers to address a variety of 
blood-related services under the OPPS. In the near future, we intend to 
provide further billing guidelines to clarify our original Program 
Transmittal A-01-50 issued on April 12, 2001 (CR Request 1585) 
regarding correct billing for blood-related services. We agree with the 
commenters and intend to gather information from all relevant and 
available resources.
    Comment: One commenter, a hospital association, indicated that the 
revenue code 390 (Blood Storage and Processing) should not have been 
included in Table 18 (Proposed Packaged Services by

[[Page 65818]]

Revenue Codes) of the August 16, 2004 proposed rule. The commenter 
expressed concern that by including revenue code 390 in this table, 
hospitals would not be paid for the services because of a line-item 
claim rejection.
    Response: We are clarifying that a HCPCS code billed with revenue 
codes listed in Table 18 of the proposed rule could be paid separately 
as long as the HCPCS code is not assigned a status indicator of ``N.'' 
When a revenue code charge is billed without a HCPCS code, the charge 
is reduced to cost using the appropriate CCR for the revenue code. This 
cost is then added to a line item charge (reduced to cost) for a 
separately payable HCPCS code. This allows costs associated with 
uncoded revenue code charges to be captured so we can make a more 
accurate payment for the claim. If we did not add the costs of the line 
item revenue code charges without HCPCS codes, the full cost data for 
all resources necessary to deliver a separately payable service might 
not be captured, possibly resulting in a lesser payment for the claim.
    In summary, after carefully reviewing all public comments received 
timely, we are adopting as final for CY 2005 OPPS the following 
proposals:
    <bullet> To continue to pay separately for blood and blood 
products, to establish new APCs that would place each blood product in 
its own separate APC, and to implement proposed APC reassignments for 
such blood and blood products.
    <bullet> Effective for services furnished on or after January 1, 
2005, in this final rule with comment period, we are providing that the 
payment rates for blood and blood products, excluding low-volume blood 
products whose CY 2005 simulated medians decreased from the CY 2004 
medians, will be determined according to the methodology we described 
in the August 16, 2004 proposed rule.
    <bullet> Effective for services furnished on or after January 1, 
2005, in this final rule with comment period, we are providing that the 
CY 2005 payment rates for low-volume blood products that would have 
experienced a decrease in median costs from CY 2004 to CY 2005 based on 
our proposed methodology are adjusted to a 50/50 blend of CY 2004 
product-specific median costs and our proposed CY 2005 simulated 
medians.
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VI. Estimated Transitional Pass-Through Spending in CY 2005 for Drugs, 
Biologicals, and Devices

A. Basis for Pro Rata Reduction

    Section 1833(t)(6)(E) of the Act limits the total projected amount 
of transitional pass-through payments for a given year to an 
``applicable percentage'' of projected total Medicare and beneficiary 
payments under the hospital OPPS. For a year before CY 2004, the 
applicable percentage is 2.5 percent; for CY 2004 and subsequent years, 
we specify the applicable percentage up to 2.0 percent.
    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 
prospective uniform 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 reduction to the conversion factor.
    For devices, making an estimate of pass-through spending in CY 2005 
entails estimating spending for two groups of items. The first group 
consists of those items for which we have claims data for procedures 
that we believe used devices that were eligible for pass-through status 
in CY 2003 and CY 2004 and that would continue to be eligible for pass-
through payment in CY 2005. The second group consists of those items 
for which we have no direct claims data, that is, items that became, or 
would become, eligible in CY 2004 and would retain pass-through status 
in CY 2005, as well as items that would be newly eligible for pass-
through payment beginning in CY 2005.

B. Estimate of Pass-Through Spending for CY 2005

    In the August 16, 2004 proposed rule, we proposed to set the 
applicable percentage cap at 2.0 percent of the total OPPS projected 
payments for CY 2005. In this final rule with comment period, we are 
setting the applicable percentage cap at the same 2.0 percent.
    We are using the same methodology described in the proposed rule to 
estimate the pass-through spending for CY 2005. To estimate CY 2005 
pass-through spending for device categories in the first group 
described above, we used volume information from CY 2003 claims data 
for procedures associated with a pass-through device and manufacturer's 
price information from applications for pass-through status. This 
information was projected forward to CY 2005 levels, using inflation 
and utilization factors based on total growth in Medicare Part B as 
projected by the CMS Office of the Actuary (OACT).
    To estimate CY 2005 pass-through spending for device categories 
included in the second group, that is, items for which we have no 
direct claims data, we used the following approach: For categories with 
no claims data in CY 2003 that would be active in CY 2005, we followed 
the methodology described in the November 2, 2001 final rule (66 FR 
55857). That is, we used price information from manufacturers and 
volume estimates based on claims for procedures that would most likely 
use the devices in question. This information was projected forward to 
CY 2005 using the inflation and utilization factors supplied by the CMS 
OACT to estimate CY 2005 pass-through spending for this group of device 
categories. For categories that become eligible in CY 2005, we will use 
the same methodology. No new device categories for January 1, 2005, 
were announced after the publication of the proposed rule. Therefore, 
the estimate of pass-through spending does not incorporate any pass-
through spending for categories made effective January 1, 2005.
    With respect to CY 2005 pass-through spending for drugs and 
biologicals, as we explain in section V.A.3. of this final rule with 
comment period, the pass-through payment amount for new drugs and 
biologicals that we determine have pass-through status equals zero. 
Therefore, our estimate of total pass-through spending for drugs and 
biologicals with pass-through status in CY 2005 equals zero.

[[Page 65821]]

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    In accordance with the methodology described above, we estimate 
that total pass-through spending for devices in CY 2005 would equal 
approximately $23.4 million, which represents 0.10 percent of total 
OPPS projected payments for CY 2005. This figure includes estimates for 
the current device categories continuing into CY 2005, in addition to 
projections for categories that first become eligible during CY 2005. 
This estimate is significantly lower than previous year's estimates 
because of the method we discuss in section V.A.3. of this preamble for 
determining the amount of pass-through payment for drugs and 
biologicals with pass-through status in CY 2005.
    Therefore, we will institute no pro rata reduction for CY 2005.
    In section V.G. of this final rule with comment period, we indicate 
that we are accepting pass-through applications for new 
radiopharmaceuticals that are assigned a HCPCS code on or after January 
1, 2005. The pass-through amount for new radiopharmaceuticals approved 
for pass-through status in CY 2005 would be the difference between the 
OPPS payment for the radiopharmaceutical, that is, the payment amount 
determined for the radiopharmaceutical as a sole source specified 
covered drug, and the payment amount for the radiopharmaceutical under 
section 1842(o) of the Act. However, we have no information identifying 
new radiopharmaceuticals to which a HCPCS code might be assigned after 
January 1, 2005 for which pass-through status would be sought. We also 
have no data regarding payment for new radiopharmaceuticals with pass-
through status under the methodology that we specify in section V.G. 
However, we do not believe that pass-through spending for new 
radiopharmaceuticals in CY 2005 will be significant enough to 
materially affect our estimate of total pass-through spending in CY 
2005. Therefore, we are not including radiopharmaceuticals in our 
estimate of pass-through spending in CY 2005.
    Because we estimate pass-through spending in CY 2005 will amount to 
0.10 percent of total projected OPPS CY 2005 spending, we are returning 
1.90 percent of the pass-through pool to adjust the conversion factor, 
as we discuss in section VIII. of this preamble.
    We received a few public comments on our estimate of CY 2005 pass-
through spending for drugs, biologicals, and devices.
    Comment: One commenter, a hospital organization, commended CMS for 
returning a portion of the pass-through pool that exceeds its estimate 
for pass-through payments for CY 2005, by increasing the conversion 
factor.
    Response: We appreciate the commenter's support.
    Comment: One commenter was concerned that CMS did not provide 
information on the extent to which amounts that are actually spent on 
pass-through payments and outlier payments compared to the amounts that 
are carved out of the total amount allowed OPPS payments for these 
projected payments. The commenter was concerned that the amounts carved 
out for these purposes may not actually be spent and thus would be lost 
to hospitals.
    Response: We are required by law to estimate the amounts that we 
expect to spend on pass-through payments and outliers each year before 
the start of the calendar year. We share the commenter's interest in 
making those estimates as accurately as possible to ensure that 
hospitals receive the amount to which they are entitled. We make our 
final estimate for each calendar year to the best of our ability based 
on all of the most recently available data when we prepare our final 
rule, including comments we receive concerning those issues in response 
to the proposed rule. With respect to the availability of data, we have 
established limited data sets that include the set of claims we use 
for, first, the proposed rule and, ultimately, the final rule 
estimates. For example, the claims for CY 2003 used for the final rule 
for CY 2005 will be available to the public in a limited data set 
format. We will continue to assess the means by which we provide such 
information to determine if there are alternate ways to ensure that our 
stakeholders obtain the information that is important to them on a 
timely basis.

VII. Other Policy Decisions and Policy Changes

A. Statewide Average Default Cost-to-Charge Ratios

    CMS uses cost-to-charge ratios (CCRs) to determine outlier 
payments, payments for pass-through devices, and monthly interim 
transitional corridor payments under the OPPS. Some hospitals do not 
have a valid CCR. These hospitals include, but are not limited to, 
hospitals that are new and have not yet submitted a cost report, 
hospitals that have a CCR that falls outside predetermined floor and 
ceiling thresholds for a valid CCR, or hospitals that have recently 
given up their all-inclusive rate status. When OPPS was first 
implemented in CY 2000, we used CY 1996 and CY 1997 cost reports to 
calculate default urban and rural CCRs for each State to use in 
determining the reasonable cost-based payments for those hospitals 
without a valid CCR (Program Memorandum A-00-63, CR 1310, issued on 
September 8, 2000). In the August 16, 2004 OPPS proposed rule, we 
proposed to update the default ratios for CY 2005.

[[Page 65822]]

    As we proposed, in this final rule, we calculated the statewide 
default CCRs using the same CCRs that we use to adjust charges to costs 
on claims data. Table 31 lists the final CY 2005 default urban and 
rural CCRs by State. These CCRs are the ratio of total costs to total 
charges from each provider's most recently submitted cost report, for 
those cost centers relevant to outpatient services. We also adjusted 
these ratios to reflect final settled status by applying the 
differential between settled to submitted costs and charges from the 
most recent pair of settled to submitted cost reports.
    The majority of submitted cost reports, 87 percent, were for CY 
2002. We only used valid CCRs to calculate these default ratios. That 
is, we removed the CCRs for all-inclusive hospitals, CAHs, and 
hospitals in Guam and the U.S. Virgin Islands because these entities 
are not paid under the OPPS, or in the case of all-inclusive hospitals, 
because their CCRs are suspect. We further identified and removed any 
obvious error CCRs and trimmed any outliers. We limited the hospitals 
used in the calculation of the default CCRs to those hospitals that 
billed for services under the OPPS during CY 2003.
    Finally, we calculated an overall average CCR, weighted by a 
measure of volume, for each State except Maryland. This measure of 
volume is the total lines on claims and is the same one that we use in 
our impact tables. Calculating a rate for Maryland presented a unique 
challenge. There are only a few providers in Maryland that are eligible 
to receive payment under the OPPS. However, we had no usable in-house 
cost report data for these Maryland hospitals, which is why we remove 
Maryland providers from our claims data for modeling OPPS. Therefore, 
we obtained data from the fiscal intermediary for Maryland, which we 
attempted to use in calculating the CCRs for Maryland, but which we 
ultimately determined could not be used to calculate representative 
CCRs. The cost data for three Maryland hospitals with very low volumes 
of services and cost data were so irregular that we lacked confidence 
that it would result in a valid statewide CCR. Thus, for Maryland, we 
used an overall weighted average CCR for all hospitals in the nation to 
calculate the weighted average CCRs appearing in Table 37. The overall 
decrease in default statewide CCRs can be attributed to the general 
decline in the ratio between costs and charges widely observed in the 
cost report data.

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BILLING CODE 4120-01-C
    Comment: Several commenters recommended that CMS instruct fiscal 
intermediaries to work with those facilities that have given up their 
all-inclusive rate status to quickly determine an appropriate CCR that 
will provide an accurate estimate of costs for each facility.
    Response: We have already instructed intermediaries to update CCRs 
in a timely manner. In Program Memorandum A-03-004 dated January 17, 
2003, we instructed fiscal intermediaries to recalculate each 
provider's CCR on an ongoing basis whenever a more recent full year 
cost report becomes available, which includes tentatively settled cost 
reports. Fiscal intermediaries will calculate a hospital-specific CCR 
for all-inclusive rate hospitals, as with all hospitals relying on 
default CCRs, when their first tentatively settled cost report becomes 
available after no longer being considered as all-inclusive rate 
hospitals.
    Comment: A few commenters asserted that the decrease in CCRs 
between 1996 and 2002 was caused by the fact that charges were 
increasing faster than costs and that the increase in charges has been 
much lower since 2003. They requested that CMS take this fact into 
account in developing default CCRs.
    Response: We did not inflate charges when calculating the default 
CCRs, and therefore, we do not believe that there is a need to adjust 
for charge inflation since CY 2002.

B. Transitional Corridor Payments: Technical Change

1. Provisions of the August 16, 2004 Proposed Rule
    When the OPPS was implemented, every provider was eligible to 
receive an additional payment adjustment (or transitional corridor 
payment) if the payments it received under the OPPS were less than the 
payment it would have received for the same services under the prior 
reasonable cost-based system (section 1833(t)(7) of the Act). 
Transitional corridor payments were intended to be temporary payments 
for most providers but permanent payments for cancer and children's 
hospitals to ease their transition from the prior reasonable cost-based 
payment system to the prospective payment system. Section 411 of Pub. 
L. 108-173 amended section 1833(t)(7)(D)(i) of the Act to extend such 
payments through December 31, 2005, for rural hospitals with 100 or 
fewer beds and extended such payments for services furnished during the 
period that begins with the provider's first cost reporting period 
beginning on or after January 1, 2004 and ends on December 31, 2005, 
for sole community hospitals located in rural areas. Accordingly, 
transitional corridor payments are only available to children's 
hospitals, cancer hospitals, rural hospitals having 100 or fewer beds, 
and sole community hospitals located in rural areas.
    At the time the OPPS was implemented, section 1833(t)(7)(F)(ii) of 
the Act defined the payment-to-cost ratio (PCR) used to calculate the 
``pre-BBA amount'' \2\ for purposes of calculating the transitional 
corridor

[[Page 65826]]

payments to be determined using the payments and reasonable costs of 
services furnished during the provider's cost reporting period ending 
in calendar year 1996. The BIPA, Pub. L. 106-554, enacted on December 
21, 2000, revised that requirement. Section 403 of BIPA amended section 
1833(t)(7)(F)(ii)(I) of the Act to allow transitional corridor payments 
to hospitals subject to the OPPS that did not have a 1996 cost report 
by authorizing use of the first available cost reporting period ending 
after 1996 and before 2001 in calculating a provider's PCR.
---------------------------------------------------------------------------

    \2\ Section 1833(t)(7) of the Act defined the ``pre-BBA'' amount 
for a period as the amount equal to the product of (1) the payment-
to-cost ratio for the hospital based on its cost reporting period 
ending in 1996, and (2) the reasonable cost of the services for the 
period. (Emphasis added.) In this context, BBA refers to the 
Balanced Budget Act of 1997, Pub. L. 105-33, enacted on August 5, 
1997.
---------------------------------------------------------------------------

    Although we discussed the BIPA amendment in the CY 2002 OPPS 
proposed rule published on August 24, 2001 (66 FR 44674), and 
implemented the amendment through Program Memorandum No. A-01-51, 
issued on April 13, 2001, we failed to revise the regulations at Sec.  
419.70(f)(2) to reflect the change. In the August 16, 2004 OPPS 
proposed rule, we proposed a technical correction to Sec.  419.70(f)(2) 
to conform it to the provision of section 1833(t)(7)(F)(ii)(I) of the 
Act.
    We did not receive any comments on this proposed technical change. 
Accordingly, in this final rule with comment period, we are adopting as 
final without modification our proposal and correcting Sec.  
419.70(f)(2) to conform it to the provision of section 
1833(t)(7)(F)(ii)(I) of the Act.
    However, we did receive several comments on the proposed rule 
related to the transitional corridor payments.
    Comment: A few commenters expressed appreciation for the extension 
of transitional corridor payments for children's hospitals, cancer 
hospitals, rural hospitals having 100 or fewer beds, and sole community 
hospitals located in rural areas, but requested that CMS consider 
extending payment protections to rural hospitals that are not eligible 
for transitional corridor payments. The commenters noted that rural 
hospitals that have converted to critical access hospitals are paid at 
cost and, therefore, have a competitive advantage over rural hospitals 
that are not eligible for transitional corridor payments and cannot 
convert to critical access hospital status. One commenter requested 
protection for rural hospitals that provide emergency services.
    A few commenters noted that the transitional corridor payment 
provision for rural hospitals having 100 or fewer beds and sole 
community hospitals located in rural areas expires on December 31, 
2005, and requested that CMS further extend this payment protection.
    Response: We share the concerns of rural hospitals and do not 
intend to limit access to health care to beneficiaries in rural areas. 
However, we note that the statute is very specific and does not provide 
transitional corridor payments for entities other than those listed in 
the statute, nor extend transitional corridor payments past December 
31, 2005, for rural or sole community hospitals.
2. Comments on the Provisions of the January 6, 2004 Interim Final Rule 
With Comment Period
    As discussed in the January 6, 2004 interim final rule with comment 
period (69 FR 828), section 411(a)(1)(B) of Pub. L. 108-173 provided 
that hold harmless transitional corridor provisions shall apply to sole 
community hospitals located in rural areas. Section 411(a)(2) states 
that the effective date for section 411(a)(1)(B) ``shall apply with 
respect to cost reporting periods beginning on or after January 1, 
2004'' for sole community hospitals located in rural areas. The 
Conference Agreement for Pub. L. 108-173 states, ``The hold harmless 
provisions are extended to sole community hospitals located in a rural 
area starting for services furnished on or after January 1, 2004 * * 
*''
    Comment: Commenters noted that there appears to be a discrepancy 
between the effective date in section 411 of Pub. L. 108-173 and the 
Conference Agreement. The commenters noted that, in accordance with 
section 411, a sole community hospital with a cost reporting period 
beginning on a date other than January 1 will not receive transitional 
corridor payments and ``interim'' transitional corridor payments for 
services furnished after December 31, 2003, and before the beginning of 
the provider's next cost reporting period.
    Response: Section 411(a)(2) of Pub. L. 108-173 provides the 
effective date with respect to the transitional corridor payments 
applied to sole community hospitals. Specifically, a sole community 
hospital with a cost reporting period beginning on or after April 1, 
2004, is subject to the hold harmless provisions. We note that if a 
hospital qualifies as both a rural hospital having 100 or fewer beds 
and as a sole community hospital located in a rural area, for purposes 
of receiving transitional corridor payments and interim transitional 
corridor payments, the hospital will be treated as a rural hospital 
having 100 or fewer beds. In this case, transitional corridor payments 
would begin on January 1, 2004, and there would be no gap in 
transitional corridor payments.

C. Status Indicators and Comment Indicators Assigned in the Outpatient 
Code Editor (OCE)

1. Payment Status Indicators
    The payment status indicators (SIs) that we assign to HCPCS codes 
and APCs under the OPPS play an important role in determining payment 
for services under the OPPS because 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. As we proposed, for CY 2005, we are providing our status 
indicator assignments for APCs in Addendum A, for the HCPCS codes in 
Addendum B, and the definitions of the status indicators in Addendum D1 
to this final rule with comment period.
    Payment under the OPPS is based on HCPCS codes for medical and 
other health services. These codes are used for a wide variety of 
payment systems under Medicare, including, but not limited to, the 
Medicare fee schedule for physician services, the Medicare fee schedule 
for durable medical equipment and prosthetic devices, and the Medicare 
clinical laboratory fee schedule. For purposes of making payment under 
the OPPS, we must be able to signal the claims processing system 
through the Outpatient Code Editor (OCE) software, as to HCPCS codes 
that are paid under the OPPS and those codes to which particular OPPS 
payment policies apply. We accomplish this identification in the OPPS 
through the establishment of a system of status indicators with 
specific meanings. Addendum D1 contains the definitions of each status 
indicator for purposes of the OPPS for CY 2005.
    We assign one and only one status indicator to each APC and to each 
HCPCS code. Each HCPCS code that is assigned to an APC has the same 
status indicator as the APC to which it is assigned.
    In the August 16, 2004 OPPS proposed rule, for CY 2005, we proposed 
to use the following status indicators in the specified manner:
    <bullet> ``A'' to indicate services that are paid under some 
payment method other than OPPS, such as under the durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS) fee schedule 
or the Medicare Physician Fee Schedule. Some, but not all, of these 
other payment systems are identified in Addendum D1 to this final rule 
with comment period.
    <bullet> ``B'' to indicate the services that are not payable under 
the OPPS when submitted on an outpatient hospital Part B bill type, but 
that may be payable by

[[Page 65827]]

fiscal intermediaries to other provider types when submitted on an 
appropriate bill type.
    <bullet> ``C'' to indicate inpatient services that are not payable 
under the OPPS.
    <bullet> ``D'' to indicate a code that is discontinued, effective 
January 1, 2005.
    <bullet> ``E'' to indicate items or services that are not covered 
by Medicare or codes that are not recognized by Medicare.
    <bullet> ``F'' to indicate acquisition of corneal tissue, which is 
paid on a reasonable cost basis and certain CRNA services that are paid 
on a reasonable cost basis.
    <bullet> ``G'' to indicate drugs, biologicals, and 
radiopharmaceutical agents that are paid under the OPPS transitional 
pass-through rules.
    <bullet> ``H'' to indicate devices that are paid under the OPPS 
transitional pass-through rules and brachytherapy sources that are paid 
on a cost basis.
    <bullet> ``K'' to indicate drugs, biologicals (including blood and 
blood products), and radiopharmaceutical agents that are paid in 
separate APCs under the OPPS, but that are not paid under the OPPS 
transitional pass-through rules.
    <bullet> ``L'' to indicate flu and pneumococcal immunizations that 
are paid at reasonable cost but to which no coinsurance or copayment 
apply.
    <bullet> ``N'' to indicate services that are paid under the OPPS, 
but for which payment is packaged into another service or APC group.
    <bullet> ``P'' to indicate services that are paid under the OPPS, 
but only in partial hospitalization programs.
    <bullet> ``S'' to indicate significant procedures that are paid 
under the OPPS, but to which the multiple procedure reduction does not 
apply.
    <bullet> ``T'' to indicate significant services that are paid under 
the OPPS and to which the multiple procedure payment discount under the 
OPPS applies.
    <bullet> ``V'' to indicate medical visits (including emergency 
department or clinic visits) that are paid under the OPPS.
    <bullet> ``X'' to indicate ancillary services that are paid under 
the OPPS.
    <bullet> ``Y'' to indicate nonimplantable durable medical equipment 
that must be billed directly to the durable medical equipment regional 
carrier rather than to the fiscal intermediary.
    We proposed the payment status indicators identified above for each 
HCPCS code and each APC in Addenda A and B and requested comments on 
the appropriateness of the indicators we have assigned.
    We received several public comments on our proposal relating to 
status indicators.
    Comment: Two commenters, representing radionuclide, 
radiopharmaceutical, and nuclear medicine interests, expressed concern 
about assignment of status indicator ``N'' in Transmittal 290, issued 
August 27, 2004, to the new revenue codes for diagnostic and 
therapeutic radiopharmaceuticals, revenue codes 0343 and 0344, that 
were effective October 1, 2004. The commenters recommended changing the 
status indicators for both 0343 and 0344 to ``K'' for nonpass-through 
drugs, biologicals, and radiopharmaceutical agents, and asked that CMS 
clarify and notify hospitals to use these revenue codes when billing 
and reporting costs for radiopharmaceuticals that can be paid 
separately. The commenters also stated that clarifying that these are 
nonpass-through and not packaged will assist CMS in tracking and 
analyzing costs for the radiopharmaceuticals and contribute to more 
accurate payment determinations. They recommended that CMS require 
hospitals to use the new revenue codes to report charges for 
radiopharmaceuticals.
    Response: The assignment of status indicator ``N'' to revenue codes 
0343 and 0344 in Transmittal 290 relates to OCE treatment of lines on a 
claim that report a charge with a revenue code but with no HCPCS code. 
The assignment of certain status indicators to revenue codes reported 
in the attachment to quarterly OPPS updates entitled ``Summary of Data 
Modifications'' is an OCE specification only, and should not be 
confused with how we use the status indicators listed in Addendum D1 
that we assign to HCPCS codes and to APCs.
    Additional information related to how revenue codes are used can be 
found in Pub. 100-04, Medicare Claims Processing, Chapter 4, Section 
20, Subsection 5.1.1, entitled ``Packaged Revenue Codes.'' As indicated 
in that section, certain revenue codes when reported on an OPPS bill 
without a HCPCS code, including revenue codes 0343 and 0344, are 
considered packaged services that are to be factored into the 
transitional outpatient payment and outlier calculations.
    Although we strongly encourage hospitals to report charges and 
HCPCS codes for diagnostic and therapeutic radiopharmaceuticals using 
revenue codes 0343 and 0344, respectively, we generally try to not to 
impose requirements on the assignment of HCPCS codes to revenue codes 
for OPPS services because the way hospitals assign costs varies so 
widely. Nevertheless, we agree with the commenters that, to the extent 
hospitals report charges for radiopharmaceuticals, both packaged and 
separately payable, using the new revenue codes 0343 and 0344, our cost 
data related to radiopharmaceuticals should be more precise.
    We will review our manual instructions and previous issuances 
related to the reporting of revenue codes and make any revisions needed 
to clarify and update those instructions.
    Comment: One commenter asked that CMS change the status indicator 
for code 90780 and 90781 to ``X'' from ``T'' and thereby cease the 
application of the multiple procedure reduction to these services, 
which will be billed for administration of infusion therapy in place of 
Q0081 for CY 2005. The commenter indicated that there is no situation 
in which the time and resources involved in infusion care should be 
reduced in the case of an observation patient.
    Response: We disagree. The costs of space, utilities and staff 
attendance are duplicated when the beneficiary is receiving another 
service at the same time as infusion therapy, in particular when the 
patient is in observation. Hence, a multiple procedure reduction to 
infusion therapy is appropriate, particularly when the patient is in 
observation status. However, we are noting how the multiple procedure 
discounting logic in the OCE functions. Line items with a service 
indicator of ``T'' are subject to multiple procedure discounting unless 
modifiers 76, 77, 78, or 79, or all, are present. The ``T'' line item 
with the highest payment amount will not be multiple procedure 
discounted, and all other ``T'' line items will be multiple procedure 
discounted. All line items that do not have a service indicator of 
``T'' will be ignored in determining the discount. Therefore, if the 
only other services reported with infusion therapy are an emergency 
department or other visit code, or diagnostic tests and services 
assigned status indicator ``S,'' the infusion therapy code would not be 
subject to the multiple procedure discounting.
2. Comment Indicators
    In the November 1, 2002 and the November 7, 2003 final rules with 
comment period, which implemented changes in the OPPS for CYs 2003 and 
2004, respectively, we provided code condition indicators in Addendum 
B. The code condition indicators and their meaning are as follows:
    <bullet> ``DG''--Deleted code with a grace period; Payment will be 
made under the deleted code during the 90-day grace period.

[[Page 65828]]

    <bullet> ``DNG''--Deleted code with no grace period; Payment will 
not be made under the deleted code.
    <bullet> ``NF''--New code final APC assignment; Comments were 
accepted on a proposed APC assignment in the Proposed Rule; APC 
assignment is no longer open to comment.
    <bullet> ``NI''--New code interim APC assignment; Comments will be 
accepted on the interim APC assignment for the new code.
    Medicare had permitted a 90-day grace period after implementation 
of an updated medical code set, such as the HCPCS, to give providers 
time to incorporate new codes in their coding and billing systems and 
to remove the discontinued codes. HCPCS codes are updated annually 
every January 1, so the grace period for billing discontinued HCPCS was 
implemented every January 1 through March 31.
    The Health Insurance Portability and Accountability Act (HIPAA) 
transaction and code set rules require usage of the medical code set 
that is valid at the time that the service is provided. Therefore, 
effective January 1, 2005, CMS is eliminating the 90-day grace period 
for billing discontinued HCPCS codes. Details about elimination of the 
90-day grace period for billing discontinued HCPCS codes were issued to 
our contractors on February 6, 2004, in Transmittal 89, Change Request 
3093.
    In order to be consistent with the HIPPA rule that results in the 
elimination of the 90-day grace period for billing discontinued HCPCS 
codes, in the August 16, 2004 OPPS proposed rule, we proposed, 
effective January 1, 2005, to delete code condition indicators ``DNG'' 
and ``DG''. We proposed to designate codes that are discontinued 
effective January 1, 2005 with status indicator ``D,'' as described in 
section VII.C.1. of this preamble.
    Further, we proposed to rename ``code condition'' indicators as 
``comment indicators.'' In Addendum D2 to this final rule with comment 
period, we list the following two comment indicators that we had 
proposed to use to identify HCPCS codes assigned to APCs that are or 
are not subject to comment:
    <bullet> ``NF''--New code, final APC assignment; Comments were 
accepted on a proposed APC assignment in the Proposed Rule; APC 
assignment is no longer open to comment.
    <bullet> ``NI''--New code, interim APC assignment; Comments will be 
accepted on the interim APC assignment for the new code.
    We did not receive any public comments on our proposal relating to 
comment indicators. We are implementing the comment indicators and 
discontinuing the use of code condition indicators as we proposed, 
without modification.

D. Observation Services

    Frequently, beneficiaries are placed in ``observation status'' in 
order to receive treatment or to be monitored before making a decision 
concerning their next placement (that is, admit to the hospital or 
discharge). This status assignment occurs most frequently after surgery 
or a visit to the emergency department. For a detailed discussion of 
the clinical and payment history of observation services, see the 
November 1, 2002 final rule with comment period (67 FR 66794).
    Before the implementation of the OPPS in CY 2000, payment for 
observation care was made on a reasonable cost basis, which gave 
hospitals a financial incentive to keep beneficiaries in ``observation 
status'' even though clinically they were being treated as inpatients. 
With the initiation of the OPPS, observation services were no longer 
paid separately; that is, they were not assigned to a separate APC. 
Instead, costs for observation services were packaged into payments for 
the services with which the observation care was associated.
    Beginning in early 2001, the APC Panel began discussing the topic 
of separate payment for observation services. In its deliberations, the 
APC Panel asserted that observation services following clinical and 
emergency room visits should be paid separately, and that observation 
following surgery should be packaged into the payment for the surgical 
procedure. For CY 2002, we implemented separate payment for observation 
services (APC 0339) under the OPPS for three medical conditions: chest 
pain, congestive heart failure, and asthma. A number of accompanying 
requirements were established, including the billing of an evaluation 
and management visit in conjunction with the presence of certain 
specified diagnosis codes on the claim, hourly billing of observation 
care for a minimum of 8 hours up to a maximum of 48 hours, timing of 
observation beginning with the clock time on the nurse's admission note 
and ending at the clock time on the physician's discharge orders, a 
medical record documenting that the beneficiary was under the care of a 
physician who specifically assessed patient risk to determine that the 
beneficiary would benefit from observation care, and provision of 
specific diagnostic tests to beneficiaries based on their diagnoses. In 
developing this policy for separately payable observation services, we 
balanced issues of access, medical necessity, potential for abuse, and 
the need to ensure appropriate payment. We selected the three medical 
conditions, noted previously, and the accompanying diagnosis codes and 
diagnostic tests to avoid significant morbidity and mortality from 
inappropriate discharge while, at the same time, avoiding unnecessary 
inpatient admissions.
    Over the past 2 years, we have continued to review observation care 
claims data for information on utilization and costs, along with 
additional information provided to us by physicians and hospitals 
concerning our current policies regarding separately payable 
observation services. Our primary goal is to ensure that Medicare 
beneficiaries have access to medically necessary observation care. We 
also want to ensure that separate payment is made only for 
beneficiaries actually receiving clinically appropriate observation 
care.
    In January 2003, the APC Panel established an Observation 
Subcommittee. Over the last year, this subcommittee has held 
discussions concerning observation care and reviewed data extracted 
from claims that reported observation services. The subcommittee 
presented the results of its deliberations to the full APC Panel at the 
February 2004 meeting. The APC Panel recommendations regarding 
observation care provided under the OPPS were broad in scope and 
included elimination of the diagnosis requirement for separate payment 
for observation services, elimination of the requirement for the 
concomitant diagnostic tests for patients receiving observation care, 
unpackaging of observation services beyond the typical expected 
recovery time from surgical and interventional procedures, and 
modification of the method for measuring beneficiaries' time in 
observation to make it more compatible with routine hospital practices 
and their associated electronic systems.
    In response to the APC Panel recommendations, we undertook a number 
of studies regarding observation services, while acknowledging data 
limitations from the brief 2-year experience the OPPS has had with 
separately payable observation services.
    To assess the appropriateness of the APC Panel's recommendation not 
to pay separately for observation services following surgical or 
interventional procedures, we analyzed the claims for these procedures 
to determine the extent to which the claims reported packaged 
observation services codes. This analysis revealed that while

[[Page 65829]]

observation services are being reported on some claims for surgical and 
interventional procedures, the great majority of claims for these 
procedures reported no observation services. The packaged status of 
these observation services codes may result in underreporting their 
frequency, but the proportion of surgical and interventional procedures 
reported with the packaged observation services codes was so small that 
any increase would not change our substantive conclusion. This 
confirmed our belief that, although an occasional surgical case may 
require a longer recovery period than expected for the procedure, as a 
rule, surgical outpatients do not require observation care. Given the 
rapidly changing nature of outpatient surgical and interventional 
services, it would be difficult to determine an expected typical 
recovery time for each procedure. We have concerns about 
overutilization of observation services in the post-procedural setting 
as partial replacement for recovery room time. However, we noted that, 
to the extent observation care or extended recovery services are 
provided to surgical or interventional patients, the cost of that care 
is packaged into the payment for the procedural APC which may result in 
higher median costs for those procedures.
    We also analyzed the possibility of expanding the list of medical 
conditions for separately payable visit-related observation services, 
altering the requirements for diagnostic tests while in observation, 
and modifying the rules for counting time in observation care.
    We looked at CY 2003 OPPS claims data for all packaged visit-
related observation care for all medical conditions in order to 
determine whether or not there were other diagnoses that would be 
candidates for separately payable observation services. Our analysis 
confirmed that the three diagnoses that are currently eligible for 
separate payment for observation services are appropriate, as those 
diagnoses are frequently reported in our visit-related claims with 
packaged observation services. In fact, diagnoses related to chest pain 
were, by far, the diagnosis most frequently reported for observation 
care, either separately payable or packaged. Other diagnoses that 
appeared in the claims data with packaged observation services included 
syncope and collapse, transient cerebral ischemia, and hypovolemia.
    The packaged status of those observation stays means that the data 
are often incomplete and the frequency of services may be 
underreported. Generally, information about packaged services is not as 
reliably reported as is that for separately paid services. However, we 
are not convinced that, for those other conditions (such as 
hypovolemia, syncope and collapse, among others), there is a well-
defined set of hospital services that are distinct from the services 
provided during a clinic or emergency room visit. Separately payable 
observation care must include specific, clinically appropriate 
services, and we are still accumulating data and experience for the 
three medical conditions for which we are currently making separate 
payment. Therefore, we believed it was premature to expand the 
conditions for which we would separately pay for visit-related 
observation services.
    Hospitals have indicated that, even in the cases where the 
diagnostic tests have been performed, to assure that billing 
requirements for separately payable observation services under APC 0339 
are met, they must manually review the medical records to prepare the 
claims. If they do not conduct this manual review, they may not be 
coding appropriately for separately payable observation services.
    As noted in our August 16, 2004 proposed rule, we have also 
received comments from the community and the APC Panel asserting that 
the requirements for diagnostic testing are overly prescriptive and 
administratively burdensome, and that hospitals may perform tests to 
comply with the CMS requirements, rather than based on clinical need. 
For example, a patient admitted directly to observation care with a 
diagnosis of chest pain may have had an electrocardiogram in a 
physician's office just prior to admission to observation and may only 
need one additional electrocardiogram while receiving observation care. 
Thus, two more electrocardiograms performed in the hospital as required 
under the current OPPS observation policy might not be medically 
necessary.
    We continue to believe that the diagnostic testing criteria we 
established for the three medical conditions are the minimally 
appropriate tests for patients receiving a well-defined set of hospital 
observation services for those conditions. The previous example, 
notwithstanding, we also continue to believe that the majority of these 
tests would be performed in the hospital outpatient setting. We define 
observation care as an active treatment to determine if a patient's 
condition is going to require that he or she be admitted as an 
inpatient or if the condition resolves itself and the patient is 
discharged. The currently required diagnostic tests reflect that an 
active assessment of the patient was being undertaken, and we believe 
they are generally medically necessary to determine whether a 
beneficiary will benefit from being admitted to observation care and 
aid in determining the appropriate disposition of the patient following 
observation care.
    After careful consideration, we agree that specifying which 
diagnostic tests must be performed as a prerequisite for payment of APC 
0339 may be imposing an unreasonable reporting burden on hospitals and 
may, in some cases, result in unnecessary tests being performed. 
Therefore, in the August 16, 2004 proposed rule, we proposed, beginning 
in CY 2005, to remove the current requirements for specific diagnostic 
testing, and to rely on clinical judgment in combination with internal 
and external quality review processes to ensure that appropriate 
diagnostic testing (which we expect would include some of the currently 
required diagnostic tests) is provided for patients receiving high 
quality, medically necessary observation care.
    Accordingly, we proposed that, beginning in CY 2005, the following 
tests would no longer be required to receive payment for APC 0339 
(Observation):
    <bullet> For congestive heart failure, a chest x-ray (71010, 71020, 
71030), and electrocardiogram (93005) and pulse oximetry (94760, 94761, 
94762)
    <bullet> For asthma, a breathing capacity test (94010) or pulse 
oximetry (94760, 94761, 94762)
    <bullet> For chest pain, two sets of cardiac enzyme tests; either 
two CPK (82550, 82552, 82553) or two troponins (84484, 84512) and two 
sequential electrocardiograms (93005)
    We believe that this proposed policy change would benefit hospitals 
because it would reduce administrative burden, allow more flexibility 
in management of beneficiaries in observation care, provide payment for 
clinically appropriate care, and remove a requirement that may have 
resulted in duplicative diagnostic testing.
    We received numerous public comments supporting our proposed 
policy. We did not receive any comments that opposed the proposed 
policy. Therefore, we are adopting, without modification, our proposal 
to no longer require specified diagnostic tests to receive payment for 
APC 0339, beginning in CY 2005.
    Hospitals and the APC Panel further suggested that we modify the 
method for accounting for the beneficiary's time in observation care. 
Currently, hospitals report the time in observation beginning with the 
admission of the beneficiary to

[[Page 65830]]

observation and ending with the physician's order to discharge the 
patient from observation. There are two problems related to using the 
time of the physician discharge order to determine the ending time of 
observation care. First, providers assert that it is not possible to 
electronically capture the time of the physician's orders for 
discharge. As a result, manual medical record review is required in 
order to bill accurately. Second, the hospital may continue to provide 
specific discharge-related observation care for a short time after the 
discharge orders are written and, therefore, may not be allowed to 
account for the full length of the observation care episode. In an 
effort to reduce hospitals' administrative burden related to accurate 
billing, in the proposed rule, we proposed to modify our instructions 
for counting time in observation care to end at the time the outpatient 
is actually discharged from the hospital or admitted as an inpatient. 
Our expectation was that specific, medically necessary observation 
services were being provided to the patient up until the time of 
discharge. However, we did not expect reported observation time to 
include the time patients remain in the observation area after 
treatment is finished for reasons that include waiting for 
transportation home.
    Although beneficiaries may be in observation care up to 48 hours or 
longer, we believed that, in general, 24 hours was adequate for the 
clinical staff to determine what further care the patient needs. In CY 
2005, we proposed to continue to make separate payment for observation 
care based on claims meeting the requirement for payment of HCPCS code 
G0244 (Observation care provided by a facility to a patient with CHF, 
chest pain, or asthma, minimum 8 hours, maximum 48 hours). However, we 
proposed not to include claims reporting more than 48 hours of 
observation care in calculating the final payment rate for APC 0339.
    We received several public comments on our proposal.
    Comment: A number of commenters urged that CMS include claims for 
stays greater than 48 hours in the data used to calculate the payment 
rate for observation because any such claims in our dataset would have 
withstood local fiscal intermediary scrutiny for reasonableness and 
medical necessity and should therefore be regarded as legitimate for 
pricing calculations. One commenter requested that CMS provide 
clarification to fiscal intermediaries regarding billing for stays that 
exceed 48 hours because code G0244 (Observation care provided by a 
facility to a patient with CHF, chest pain or asthma, minimum 8 hours, 
maximum 48 hours) would seem to preclude billing G0244 for stays that 
exceed 48 hours but that otherwise meet all the criteria for payment.
    Response: In an effort to clarify the apparent confusion cited by 
commenters with regard to billing for stays that exceed 48 hours, 
beginning in CY 2005, we are changing the descriptor for HCPCS code 
G0244 to read as follows:
    G0244, Observation care provided by a facility to a patient with 
CHF, chest pain or asthma, minimum 8 hours.
    We expect that hospitals will report one unit of G0244 for each 
hour of observation care provided to patients for congestive heart 
failure, chest pain, or asthma, with a minimum 8 units billed to be 
eligible for separate observation payment.
    We carefully considered the comments that urged us to include 
reporting more than 48 hours to calculate the median cost of G0244. The 
final payment rate for APC 0339 listed in Addendum A is based on all CY 
2003 claims for G0244 taken from the National Claims History file, 
without regard to units of service. Prior to implementation of the 
OPPS, when hospital outpatient services were paid on a reasonable cost 
basis, Medicare did allow payment for observation services that 
exceeded 48 hours when medical review determined that a more extended 
period of observation care was reasonable and necessary. Since 
implementation of the OPPS, Medicare has ceased paying separately for 
observation care, with the exception of services reported with G0244, 
because payment for observation services was packaged into payment for 
services with which observation services were reported. We believe 
that, in the overwhelming majority of cases, decisions can be and are 
routinely made in less than 48 hours whether to release a beneficiary 
from the hospital following resolution of the reason for the outpatient 
visit or whether to admit the beneficiary as an inpatient. Therefore, 
we intend to revisit this issue in future updates.
    For the reasons stated above, we are not adopting as final for CY 
2005, our proposal to exclude claims for G0244 that reported more than 
48 hours of observation from calculation of the median cost for APC 
0339.
    We also proposed the following requirements to receive separate 
payment for HCPCS code G0244 in APC 0339 for medically necessary 
observation services involving specific goals and a plan of care that 
are distinct from the goals and plan of care for an emergency 
department, physician office, or clinic visit:
    <bullet> The beneficiary must have one of three medical conditions: 
congestive heart failure, chest pain, or asthma. The hospital bill must 
report as the admitting or principal diagnosis an appropriate ICD-9-CM 
code to reflect the condition. The eligible ICD-9-CM diagnosis codes 
for CY 2005 are shown in Table 38 below.
    <bullet> The hospital must provide and report on the bill an 
emergency department visit (APC 0610, 0611, or 0612), clinic visit (APC 
0600, 0601, or 0602), or critical care (APC 0620) on the same day or 
the day before the separately payable observation care (G0244) is 
provided. For direct admissions to observation, in lieu of an emergency 
department visit, clinic visit, or critical care, G0263 (Adm with CHF, 
CP, asthma) must be billed on the same day as G0244.
    <bullet> HCPCS code G0244 must be billed for a minimum of 8 hours.
    <bullet> No procedures with a `T' status indicator, except the code 
for infusion therapy of other than a chemotherapy drug (CPT code 90780) 
can be reported on the same day or day before observation care is 
provided.
    <bullet> Observation time must be documented in the medical record 
and begins with the beneficiary's admission to an observation bed and 
ends when he or she is discharged from the hospital.
    <bullet> The beneficiary must be in the care of a physician during 
the period of observation, as documented in the medical record by 
admission, discharge, and other appropriate progress notes that are 
timed, written, and signed by the physician.
    <bullet> The medical record must include documentation that the 
physician explicitly assessed patient risk to determine that the 
beneficiary would benefit from observation care.
    We received numerous public comments on our proposal.
    Comment: Most commenters applauded our proposal to eliminate the 
requirement that specified diagnostic tests be reported in order to 
receive payment for HCPCS code G0244. However, many commenters 
expressed disappointment that CMS did not propose to expand the 
conditions for which separate payment would be provided for observation 
care. One commenter, representing cancer centers, requested that CMS 
study febrile neutropenia, chemotherapy hypersensitivity reaction, 
hypovolemia, and electrolyte imbalance as conditions that would warrant 
separate payment for observation. A few commenters

[[Page 65831]]

supported the APC Panel recommendation that we eliminate altogether the 
diagnosis coding requirement for APC 0339. One commenter stated that 
medical care included in hourly observation charges billed under 
revenue code 762 for syncope and collapse, transient cerebral ischemia, 
and hypovolemia is medically necessary and distinct from services 
rendered in the emergency department or a clinic, is similar to that 
furnished to patients with congestive heart failure, asthma, and chest 
pain, and should therefore be paid for separately.
    Response: We appreciate the support expressed by numerous 
commenters for the changes in requirements that we proposed for CY 2005 
in order for hospitals to receive separate payment for observation 
services. As we indicate below, we are making final most of the changes 
that we proposed, with some modifications based on comments that we 
received. Although we are not going to implement in the CY 2005 OPPS 
the recommendations made by commenters and the APC Panel to expand 
separate payment for observation to include conditions in addition to 
congestive heart failure, asthma, and chest pain, we will continue to 
analyze our data and study the impact of such a change for 
reconsideration in future updates of the OPPS.
    Comment: Several commenters supported our proposal to change how we 
define ending time or ``discharge'' from observation care. However, 
those commenters also requested further clarification of what we mean 
by ``discharge.''
    Response: We carefully considered the thoughtful comments related 
to our proposal to modify the current policy regarding the time that 
should be recorded to designate when observation care ends. Based on 
suggestions from commenters, we are elaborating upon our proposal to 
define as the end of observation, the time the outpatient is either 
discharged from the hospital or admitted as an inpatient. Specifically, 
we consider the time when a patient is ``discharged'' from observation 
status to be the clock time when all clinical or medical interventions 
have been completed, including any necessary followup care furnished by 
hospital staff and physicians that may take place after a physician has 
ordered that the patient be released or admitted as an inpatient. 
However, observation care does not include time spent by the patient in 
the hospital subsequent to the conclusion of therapeutic, clinical, or 
medical interventions, such as time spent waiting for transportation to 
go home.
    Comment: A few commenters requested clarification of the starting 
time for observation. One commenter recommended that CMS make it clear 
that observation time begins with the patient's placement in the bed 
and initiation of observation care, regardless of whether the bed is in 
a holding area or is in an actual observation bed or unit, as long as 
appropriate observation care is being provided. Another commenter asked 
if CMS will allow providers to document observation start time on any 
applicable document in the medical record and not limit the start time 
documentation to the nurse's observation admission note.
    Response: We have stated in past issuances and rules that 
observation time begins at the clock time appearing on the nurse's 
observation admission note, which coincides with the initiation of 
observation care or with the time of the patient's arrival in the 
observation unit (66 FR 59879, November 30, 2001; Transmittal A-02-026 
issued on March 28, 2002; and Transmittal A-02-129 issued on January 3, 
2003.) In the August 16, 2004 proposed rule, we stated that observation 
time must be documented in the medical record and begins with the 
beneficiary's admission to an observation bed (69 FR 50534). We agree 
with the commenter on the need for clarification, and we will reiterate 
in provider education materials developed for the CY 2005 OPPS update 
that observation time begins at the clock time documented in the 
patient's medical record, which coincides with the time the patient is 
placed in a bed for the purpose of initiating observation care in 
accordance with a physician's order.
    Comment: One commenter, a hospital trade association, recommended 
that CMS reconsider requiring hospitals to report one of the ICD-9-CM 
diagnosis codes designated for payment of APC 0339 as the admitting or 
principal diagnosis on the hospital claim. The commenter was concerned 
that, if we restrict the position of the diagnosis code to the 
admitting or principal field, many claims that otherwise meet the 
criteria for separate payment of observation will not be payable 
because coding rules and the frequency by which Medicare beneficiaries 
with asthma, congestive heart failure or chest pains have other 
presenting signs, symptoms, and clinical conditions will result in 
inappropriate placement of the requisite diagnosis code. Therefore, the 
commenter recommended that CMS accept the required diagnosis code in 
any diagnosis code field.
    Response: Our proposal to require hospitals to report one of the 
specified ICD-9-CM codes in the admitting or principal diagnosis field 
is a modification of policy that we implemented in the November 30, 
2001 final rule (66 FR 59880). We disagree with the commenter that this 
requirement will result in many claims for APC 0339 not being paid. 
Rather, we believe that requiring hospitals to report the signs, 
symptoms, and conditions that are the reason for the patient's visit 
will enhance coding accuracy and ensure that we are paying 
appropriately for APC 0339 by limiting separate payment to those 
observation services furnished to monitor asthma, chest pain, or 
congestive heart failure. If we continued to accept the required ICD-9-
CM diagnosis code as a secondary diagnosis, we would remain concerned 
that we may be making separate payment for observation for conditions 
other than asthma, congestive heart failure or chest pain because these 
conditions are reported in the secondary diagnosis field even though 
they are not the clinical reason that the patient is receiving 
observation services.
    Because we want to give hospitals ample time to incorporate this 
requirement into their billing systems, we will not implement this 
requirement before April 1, 2005. However, we are making final in this 
final rule with comment period the requirement that, beginning April 1, 
2005, hospitals must report a qualifying ICD-9 CM diagnosis code in 
Form Locator (FL) 76, Patient Reason for Visit, and/or FL 67, principal 
diagnosis, in order for the hospital to receive separate payment for 
APC 0339. If a qualifying ICD-9 diagnosis code(s) is reported in the 
secondary diagnosis field but is not reported in either the Patient 
Reason for Visit field (FL 76) or the principal diagnosis field (FL 
67), separate payment for APC 0339 will not be allowed.
    Comment: One commenter requested that CMS modify the requirement 
that there be documentation that the physician has explicitly assessed 
the beneficiary risk to determine that he would benefit from 
observation care.
    Response: We expect that, prior to issuing an order to place a 
patient in observation status, it is standard procedure for the 
physician to assess the patient's condition to determine the clinically 
appropriate intervention that is most likely to result in maximum 
benefit for the patient given his or her condition at that time. To 
expect documentation of that assessment in the medical record of a 
patient for whom an order to receive observation care has been issued 
is not new, excessive, or

[[Page 65832]]

unduly burdensome, but rather is an essential part of the patient's 
medical record to support the medically reasonable and necessary nature 
of the services ordered and furnished.
    Comment: One commenter requested that CMS allow observation care 
following surgery if recovery time is longer than expected.
    Response: As stated in the proposed rule, this situation is 
precisely contrary to the purpose of the observation care benefit. We 
again note that recovery time has been factored into the payment for 
the surgery. Although there is variation among patients' recovery 
times, that variation is part of the averaging that is inherent in a 
prospective payment system. Those costs are not considered as part of 
the payment for observation care, which serves an entirely different 
purpose for beneficiaries in the outpatient setting.
    Comment: One commenter recommended adding ICD-9-CM diagnosis code 
427.31 (Atrial fibrillation) to the list of specified diagnosis codes 
that could be included on claims for separately payable observation 
services furnished to patients with congestive heart failure or chest 
pain, or both.
    Response: While many patients may have chronic atrial fibrillation 
that is asymptomatic, we agree that some patients may present chest 
pain as a significant symptom associated with atrial fibrillation. 
Atrial fibrillation may also complicate acute myocardial infarction. 
Patients who are being evaluated and managed with observation care for 
chest pain in a hospital may be found to have symptomatic atrial 
fibrillation as the likely etiology of their chest discomfort following 
comprehensive assessment. However, we would generally expect that 
patients with chest pain and atrial fibrillation receiving observation 
services in the hospital would be receiving these services specifically 
for their chest pain and that one of the chest pain diagnoses already 
on our list of diagnosis codes would be present on the claim as the 
reason for the visit or the principal diagnosis. Similarly, with 
respect to atrial fibrillation and congestive heart failure, congestive 
heart failure is an independent predictor of atrial fibrillation. 
However, as with chest pain and atrial fibrillation, we would generally 
expect that patients with congestive heart failure and atrial 
fibrillation receiving observation services in the hospital to be 
receiving these services specifically for their congestive heart 
failure and that one of the congestive heart failure diagnoses already 
on our list of diagnosis codes would be present on the claim as the 
reason for the visit or the principal diagnosis.
    Therefore, while we agree with the commenter's suggestion that code 
427.31 could be viewed as a reasonable diagnosis code for chest pain 
for which separate payment for observation services might be made under 
the OPPS, we believe it is unnecessary and redundant to add it to the 
list for chest pain because any of the existing ICD-9-CM diagnosis 
codes listed in Table 32 for chest pain suffices for purposes of the 
OPPS observation payment policy. Likewise, we are not adding code 
427.31 to the list of acceptable congestive heart failure diagnoses for 
which separate payment for observation services is made by the OPPS.
    Comment: One commenter recommended that diagnostic heart 
catheterization procedures, CPT codes 93510 through 92529, performed 
within 24 hours of an observation stay not disqualify separate payment 
for the observation even though these codes are assigned status 
indicator ``T,'' because it is not uncommon for patients admitted 
through the emergency department to observation for chest pain to be 
followed up with a diagnostic heart catheterization within 24 hours.
    Response: This scenario was discussed during the February 2004 APC 
Panel meeting, although it was not advanced as a formal recommendation. 
While we are not adopting the commenter's recommendation at this time, 
we are making final in this final rule with comment period several 
changes in the requirements for separate payment for observation care, 
for implementation in CY 2005. We believe further analysis of any 
impact of such a change, in addition to analysis of the other changes 
being implemented in CY 2005, is necessary. We note that by the APC 
Panel may wish to consider this in future meetings.
    Comment: One commenter, representing a health system, suggested 
extensive billing and coding changes to further simplify claims 
submission for observation services. These suggestions included 
revision of the definition of HCPCS code G0263 and elimination of HCPCS 
code G0264 for direct admissions; replacing use of HCPCS code G0244 
with a revenue code and CPT codes and letting the OCE determine if the 
criteria for payment of APC 0339 are met; clarification of billing for 
postanesthesia care unit (PACU) services; and use of revenue codes to 
distinguish between observation in a clinic and observation in an 
emergency department.
    Response: We welcome the commenter's suggestions and will endeavor 
during the next year to evaluate their feasibility and impact of any 
such changes. However, we recognize that extensive systems changes 
would be required to implement many of these suggestions, but will 
consider them for possible implementation in future updates of the 
OPPS.
    After carefully considering the public comments received related to 
our proposed requirements to receive separate payment for observation 
services in CY 2005, we are adopting our proposal as final without 
modification.
BILLING CODE 4120-01-P

[[Page 65833]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.058


[[Page 65834]]


[GRAPHIC] [TIFF OMITTED] TR15NO04.059

BILLING CODE 4120-01-C

E. Procedures That Will Be Paid Only as Inpatient Procedures

    Before implementation of the OPPS, Medicare paid reasonable costs 
for services provided in the outpatient department. 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 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.
    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. In the April 7, 2000 final rule with comment period, we 
identified procedures that are typically provided only in an inpatient 
setting and, therefore, would not be paid by Medicare under the OPPS 
(65 FR 18455). These procedures comprise what is referred to as the 
``inpatient list.'' The inpatient list specifies those services that 
are only paid when provided in an inpatient setting. These are services 
that require inpatient care because of the nature of the procedure, the 
need for at least 24 hours of postoperative recovery time or monitoring 
before the patient can be safely discharged, or the underlying physical 
condition of the patient. As we discussed in the April 7, 2000 final 
rule with comment period (65 FR 18455) and the November 30, 2001 final 
rule (66 FR 59856), we use the following criteria when reviewing 
procedures to determine whether or not they should be moved from the 
inpatient list and assigned to an APC group for payment under the OPPS:
    <bullet> Most outpatient departments are equipped to provide the 
services to the Medicare population.
    <bullet> The simplest procedure described by the code may be 
performed in most outpatient departments.
    <bullet> The procedure is related to codes that we have already 
removed from the inpatient list.
    In the November 1, 2002 final rule (67 FR 66792), we added the 
following criteria for use in reviewing procedures to determine whether 
they should be removed from the inpatient list and assigned to an APC 
group for payment under the OPPS:
    <bullet> We have determined that the procedure is being performed 
in multiple hospitals on an outpatient basis; or

[[Page 65835]]

    <bullet> We have determined that the procedure can be appropriately 
and safely performed in an ASC and is on the list of approved ASC 
procedures or proposed by us for addition to the ASC list.
    In the November 7, 2003 final rule with comment period, we did not 
implement any changes in our payment policies for the OPPS inpatient 
list. However, we addressed issues and concerns raised by commenters in 
response to the August 12, 2003 proposed rule and further clarified 
payment policies related to the OPPS inpatient list.
    At the February 2004 meeting, the APC Panel made the recommendation 
to remove the following four abscess drainage CPT codes from the 
inpatient list: 44901, 49021, 49041, and 49061. As discussed in the 
proposed rule, we agreed with the APC Panel's recommendation and we 
proposed to remove these four abscess codes from the inpatient list and 
to assign them to APC 0037 for OPPS payment in CY 2005.
    The APC Panel also made a recommendation to either eliminate the 
inpatient list from the OPPS or to evaluate the current list of 
procedures for any other appropriate changes. As recommended by the APC 
Panel, we sought to identify additional procedure codes to propose for 
removal from the inpatient list, consistent with the criteria listed 
above. To assist us in identifying procedures that were being widely 
performed on an outpatient basis for clinical review, we looked for 
services on the inpatient list that were performed on Medicare 
beneficiaries in all sites of service other than the hospital inpatient 
setting approximately 60 percent or more of the time. We relied on 
CY2003 Medicare Part B Extract and Summary System (BESS) data for this 
information. We chose 60 percent as a threshold because, in general, we 
believe that a procedure should be specifically considered for removal 
from the inpatient list if there is evidence that it is being performed 
less than one half of the time in the hospital inpatient setting. For 
procedures where data demonstrate that they are being delivered to 
Medicare beneficiaries in a safe and appropriate manner on an 
outpatient basis in a variety of different hospitals, we believe that 
it is reasonable to consider the removal of these procedures from the 
inpatient list. After further clinical evaluation of codes that met our 
60-percent threshold to ensure that these procedures met our other 
criteria for removal from the inpatient list and were truly appropriate 
for consideration, we proposed to place 20 procedures that are on the 
inpatient list for the CY 2004 OPPS into clinical APCs for payment 
under the OPPS for CY 2005. We proposed to assign all of these codes 
the status indicator ``T.'' Two additional services, CPT codes 00174 
and 00928, were proposed to be removed and assigned a status indicator 
``N'' because, under the OPPS, anesthesia codes are packaged into the 
procedures with which they are billed.
    We proposed not to accept the APC Panel's recommendation to 
completely eliminate the inpatient list for CY 2005. We solicited 
comments, especially from professional societies and hospitals, on 
whether any procedures on the CY 2005 proposed inpatient list were 
appropriate for removal and whether any other such procedures should be 
separately paid under the OPPS. We also asked commenters who recommend 
that a procedure that is currently on the inpatient list be 
reclassified to an APC to include evidence (preferably from peer-
reviewed medical literature) that the procedure is being performed on 
an outpatient basis in a safe and effective manner. We requested that 
commenters suggest an appropriate APC assignment for the procedure and 
furnish supporting data to assist us in determining, based on comments, 
if the procedure could be payable under the OPPS in CY 2005.
    We received a number of public comments on our proposal to retain 
the inpatient list and to delete 22 procedure codes from the inpatient 
list and our solicitation of additional procedures currently on the 
inpatient list that should be reclassified to an APC, with supporting 
evidence.
    Comment: One commenter recommended that CMS remove the following 
CPT codes for spinal procedures currently on the inpatient list: CPT 
codes 22554, 22585, 22840, 22842, 22845, 22846, 22855, 63043, 63044, 
63075, and 63076. The commenter submitted several published articles 
related to the performance of these procedures in the hospital 
outpatient setting.
    Response: After careful review of the list of procedures and the 
accompanying articles submitted by the commenter, we believe these 
procedures should remain on the inpatient list for CY 2005. All of the 
procedures recommended by the commenter for removal were performed more 
than 90 percent of the time in the hospital inpatient setting on 
Medicare beneficiaries according to our BESS data. There was no 
evidence submitted to demonstrate that the procedures were being 
provided safely and effectively to patients demographically similar to 
Medicare beneficiaries in multiple hospitals in the outpatient hospital 
setting. We are concerned that none of the published studies, with the 
exception of one, included patients in the general Medicare-eligible 
age range of 65 years or older. We do not believe that experience in 
providing these major spinal procedures to young and middle-aged adults 
in the outpatient setting can necessarily be generalized as safe and 
appropriate for typical Medicare beneficiaries.
    Comment: One commenter requested that CPT code 58260 (Vaginal 
hysterectomy) be removed from the inpatient list. The commenter stated 
that surgeons at the hospital believed that performing this procedure 
in an outpatient setting has been a standard of practice for a long 
time.
    Response: According to our BESS data, the procedure described by 
CPT 58260 was performed more than 90 percent of the time in the 
hospital inpatient setting on Medicare beneficiaries. There was no 
evidence submitted by the commenter to demonstrate that this procedure 
was being provided safely and effectively to patients demographically 
similar to Medicare beneficiaries in multiple hospitals in the 
outpatient hospital setting. Thus, we believe this procedure should 
remain on the inpatient list.
    Comment: Several commenters, including a hospital association, 
recommended the elimination of the inpatient list, echoing the APC 
Panel's recommendation from February 2004. The commenters stated that, 
while it is appropriate to leave the decision of site of service to the 
physicians, hospitals are unable to receive payment for services on 
this list that are performed in the hospital outpatient setting. One 
commenter argued that the current policy penalizes beneficiaries 
because they must be admitted as inpatients to receive these 
procedures, rather than receiving these services in an outpatient 
setting and being allowed to return home.
    Response: In the November 7, 2003 final rule (67 FR 66797), we 
specified the inpatient list to include services that are payable by 
Medicare only when provided in an inpatient setting. These are services 
that generally require inpatient care because of the nature of the 
procedure, the need for at least 24 hours of postoperative recovery 
time or monitoring before the patient can be safely discharged, or the 
underlying physical condition of the Medicare beneficiary. We also 
listed in the November 7, 2003 final rule (68 FR 63466) the criteria 
that we use to evaluate whether a procedure should be

[[Page 65836]]

removed from the inpatient list. We do not believe that all services 
can be safely and effectively delivered to Medicare beneficiaries in 
the outpatient setting. We are concerned that elimination of the 
inpatient list could result in unsafe or uncomfortable care for 
Medicare beneficiaries. Among the potential results are long 
observation stays after some procedures and imposition of OPPS 
copayments, which could differ significantly from a patient's inpatient 
cost-sharing responsibilities.
    We believe that it is important for hospitals to educate physicians 
on Medicare services provided under the OPPS to avoid inadvertently 
providing services in an outpatient setting that are more appropriate 
to an inpatient setting.
    Comment: A few commenters recommended that CMS consider developing 
an appeals process to address circumstances in which payment for a 
procedure provided on an outpatient basis is denied because it is on 
the inpatient list.
    Response: We would like to emphasize that procedures on the 
inpatient list that are performed on a patient whose status is that of 
an outpatient are not payable under Medicare. CPT codes assigned a 
status indicator of ``C,'' such as those listed in Addendum E, are not 
payable under the OPPS, except under conditions described in the 
November 1, 2002 final rule (67 FR 66799).
    Comment: A few commenters requested that CMS clarify the criteria 
and the sources of data used to determine whether a procedure is 
appropriate for removal from the list. Other commenters expressed 
concern with the 60-percent threshold criterion used to evaluate codes 
for removal from the inpatient list. One commenter recommended that CMS 
revise its criteria because major teaching hospital outpatient 
departments often are the first places to perform services that had 
previously been performed only in the inpatient setting. This commenter 
argued that there would most likely be a time gap between when these 
services could be performed safely in teaching hospital outpatient 
departments and their dissemination to most hospitals' outpatient 
departments. The commenter recommended that the determining factor 
regarding whether a procedure should be removed from the inpatient list 
should be whether the procedure can be performed safely in an 
outpatient department and not the number of outpatient departments in 
which the procedure is performed.
    Response: We recognize that teaching hospitals may have more 
technologically advanced equipment, more experienced staff, and greater 
resources than nonteaching hospitals. These characteristics may lead 
teaching hospitals to be the first places to perform on an outpatient 
basis some procedures on the inpatient list. On the other hand, 
community, nonteaching hospitals have pioneered the movement of some 
procedures to the outpatient setting, in part because of their 
responsiveness to identified local needs or their development of 
specific pathways for care. We cannot expect that all hospitals will 
have the necessary staff experience, resources, equipment, and interest 
to move many procedures to the outpatient setting. For these reasons, 
we do not believe that procedures that have been demonstrated to be 
performed safely and effectively on an outpatient basis in any single 
hospital or small group of hospitals alone are routinely appropriate 
for removal from the inpatient list.
    In addition, we want to clarify that the 60-percent threshold 
discussed in our proposed rule is not an established criterion that we 
use to determine whether a procedure is appropriate for removal from 
the inpatient list. The 60-percent threshold was used as an operational 
tool to identify from the entire inpatient list those procedures that 
we believe are currently already being performed in the outpatient 
setting a majority of the time based on our CY 2003 BESS data, so that 
these services could then undergo clinical review against the criteria 
for removal from the inpatient list. The BESS database aggregates all 
physician billing throughout the year for each service provided to 
Medicare beneficiaries and billed under the Medicare Physician Fee 
Schedule. Summary data include information regarding the site of 
service (hospital inpatient, hospital outpatient, physician's office, 
among others) and specialty of the physician performing the service. We 
emphasize that our review of the codes recommended by the commenters 
for removal from the list was not based on this threshold. Rather, our 
determination was based on the set of criteria described in the 
November 7, 2003 final rule (68 FR 63466).
    We encourage hospitals and physicians to submit recommendations 
regarding procedures they believe meet our criteria for removal from 
the inpatient list at any time. We ask that evidence be submitted to 
demonstrate that the procedure is being performed on an outpatient 
basis in a safe and appropriate manner in a variety of different types 
of hospitals.
    Comment: Numerous commenters supported the proposed removal of the 
22 CPT codes from the inpatient list. In addition, a few commenters 
expressed support for retaining the list of inpatient procedures. One 
commenter stated that eliminating the list could create an increase in 
inappropriate observation stays by assigning observation status to 
patients whose status should have been inpatient.
    Response: We appreciate the commenters' support.
    In this final rule, we are finalizing our proposed retention of the 
inpatient list for the OPPS. We also are finalizing our proposal to 
remove 22 procedures from the CY 2004 list. Table 39 below lists the 
procedure codes that are being removed from the inpatient list and 
their APC assignments, effective January 1, 2005.
BILLING CODE 4120-01-P

[[Page 65837]]

[GRAPHIC] [TIFF OMITTED] TR15NO04.060

BILLING CODE 4120-01-C

F. Hospital Coding for Evaluation and Management Services

1. Background
    Currently, for claims processing purposes, we direct hospitals to 
use the CPT codes used by physicians to report clinic and emergency 
department visits on claims paid under the OPPS. However, as discussed 
in the proposed rule, we have received comments suggesting that the CPT 
codes are insufficient to describe the range and mix of services 
provided to patients in the clinic and emergency department setting 
because they are defined to reflect only the activities of physicians 
(for example, ongoing nursing care, and patient preparation for 
diagnostic tests). For both clinic and emergency department visits, 
there are currently five levels of care. To facilitate proper coding, 
we require each hospital to create an internal set of guidelines to 
determine what level of visit to report for each patient (April 7, 
2000, final rule with comment period (65 FR 18434)).
    We have continued our efforts to address the situation of proper 
coding of clinic and emergency department visits to ensure proper 
Medicare payments to hospitals. Commenters who responded to the August 
24, 2001 OPPS proposed rule (66 FR 44672) recommended that we retain 
the existing evaluation and management coding system until facility-
specific evaluation and management codes for emergency department and 
clinic visits, along with national coding guidelines, were established. 
Commenters also recommended that we convene a panel of experts to 
develop codes and guidelines that are simple to understand and to 
implement, and that are compliant with the HIPAA requirements. We 
agreed with these commenters, and in our November 1, 2002 OPPS final 
rule (67 FR 66792), we stated that we believed the most appropriate 
forum for development of new code definitions and guidelines would be 
an independent expert panel that could provide information and data to 
us. We believed that, in light of the expertise of organizations such 
as the AHA and the AHIMA, these organizations were particularly well 
equipped to do so and to provide ongoing education to providers.
    The AHA and the AHIMA, on their own initiative, convened an 
independent expert panel comprised of members of the AHA and AHIMA, as 
well as representatives of the American College of Emergency 
Physicians, the Emergency Nurses Association, and the American 
Organization of Nurse Executives, to develop code descriptions and 
guidelines for hospital emergency department and clinic visits and to 
provide us with the information and data. In June 2003, we received the 
panel's input concerning a set of national coding guidelines for 
emergency and clinic visits.

[[Page 65838]]

    As we noted in the proposed rule, we are still considering the 
panel's set of coding guidelines. Although we did not propose the 
panel's set of coding guidelines, we received several comments on the 
Panel's coding guidelines and are continuing to review these public 
comments. In the November 7, 2003 OPPS final rule with comment period 
(68 FR 63463), we also indicated that we would implement new evaluation 
and management codes only when we are also ready to implement 
guidelines for their use. As we have not yet proposed new evaluation 
and management codes, we again note that we will allow ample 
opportunity for public comment, systems changes, and provider education 
before implementing such new coding requirements.
2. Proposal for Evaluation and Management Guidelines
    In the November 7, 2003 OPPS final rule with comment period (68 FR 
63463), we discussed our primary concerns and direction for developing 
the proposed coding guidelines for emergency department and clinic 
visits and indicated our plans to make available for public comment the 
proposed coding guidelines that we are considering through the CMS OPPS 
Web site as soon as we have completed them.
    We received a number of comments on our proposal.
    Comment: Many commenters supported the development of evaluation 
and management codes and guidelines in the hospital outpatient setting 
and urged CMS to move forward as quickly as possible with reviewing the 
guidelines presented by the AHA and AHIMA Evaluation and Management 
Panel. Several commenters expressed concern that the current lack of 
uniformity impairs CMS' ability to gather consistent, meaningful data 
on services provided in the emergency department and hospital clinics. 
Commenters reminded CMS of its commitment to make the evaluation and 
management codes and guidelines available for public comment and to 
provide at least 6 to 12 months notice prior to implementation of the 
new evaluation and management codes and guidelines.
    Response: As stated in the August 16, 2004 OPPS proposed rule, we 
intend to make available for public comment the proposed coding 
guidelines that we are considering through the CMS OPPS Web site as 
soon as we have completed them. As stated in the August 16, 2004 OPPS 
proposed rule, we will notify the public through our ``listserve'' when 
the proposed guidelines will become available. To subscribe to this 
listserve, individuals should access the following Web site: http://www.cms.hhs.gov/medlearn/listserv.asp and follow the directions to the 
OPPS listserve. When we post the proposed guidelines on the Web site, 
we will provide ample opportunity for the public to comment.
    In addition, we will provide ample time to train clinicians and 
coders on the use of new codes and guidelines and for hospitals to 
modify their systems. We anticipate providing at least 6 to 12 months 
notice prior to implementation of the new evaluation and management 
codes and guidelines. We will continue working to develop and test the 
new codes even though we have not yet made plans for their 
implementation.

G. Brachytherapy Payment Issues Related to Pub. L. 108-173

1. Payment for Brachytherapy Sources (Section 621(b) of Pub. L. 108-
173)
    Sections 621(b)(1) and (b)(2) of Pub. L. 108-173 amended the Act by 
adding section 1833(t)(16)(C) and section 1833(t)(2)(H), respectively, 
to establish separate payment for devices of brachytherapy consisting 
of a seed or seeds (or radioactive source) based on a hospital's 
charges for the service, adjusted to cost. Charges for the 
brachytherapy devices may not be used in determining any outlier 
payments under the OPPS. In addition, consistent with our practice 
under the OPPS to exclude items paid at cost from budget neutrality 
consideration, these items must be excluded from budget neutrality as 
well. The period of payment under this provision is for brachytherapy 
sources furnished from January 1, 2004 through December 31, 2006.
    In the OPPS interim final rule with comment period published on 
January 6, 2004 (69 FR 827), we implemented sections 621(b)(1) and 
621(b)(2)(C) of Pub. L. 108-173. We stated that we will pay for the 
brachytherapy sources listed in Table 4 of the interim final rule with 
comment period (69 FR 828) on a cost basis, as required by the statute. 
The status indicator for brachytherapy sources was changed to ``H.'' 
The definition of status indicator ``H'' was for pass-through payment 
only for devices, but the brachytherapy sources affected by new 
sections 1833(t)(16)(C) and 1833(t)(2)(H) of the Act are not pass-
through device categories. Therefore, we also changed, for CY 2004, the 
definition of payment status indicator ``H'' to include nonpass-through 
brachytherapy sources paid on a cost basis. This use of status 
indicator ``H'' was a pragmatic decision that allowed us to pay for 
brachytherapy sources in accordance with new section 1833(t)(16)(C) of 
the Act, effective January 1, 2004, without having to modify our claims 
processing systems. We stated in the January 6, 2004 interim final rule 
with comment period that we would revisit the use and definition of 
status indicator ``H'' for this purpose in the OPPS update for CY 2005. 
Therefore, in the August 16, 2004 proposed rule, we solicited further 
comments on this policy.
    We received several public comments on our August 16, 2004 proposal 
and on the January 6, 2004 interim final rule with comment period.
    Comment: One commenter, a hospital association, recommended that 
CMS establish a new status indicator for brachytherapy sources paid on 
a cost basis other than the status indicator ``H'', which is also used 
for device categories paid on a transitional pass-through basis. The 
commenter noted that, because brachytherapy sources are subject to 
coinsurance and devices paid on a pass-through basis are not, a 
separate status indicator is needed for consistency in the 
classification of status indicators.
    Response: The commenter is correct that beneficiaries are not 
subject to copayment for the cost of device categories with pass-
through payment, while beneficiaries are subject to copayment for other 
separately paid brachytherapy sources. However, our systems' logic 
incorporates this difference in copayment for pass-through device 
categories versus nonpass-through brachytherapy sources, even though 
the status indicator for each is ``H''. Therefore, we are not 
establishing a separate status indicator at this time. However, we will 
consider making a change if the need arises.
    Comment: A number of commenters on the January 6, 2004 interim 
final rule with comment period urged us to continue to use, for CY 
2005, the C-codes and descriptors that we published in that interim 
final rule with comment period (69 FR 828) for both prostate and 
nonprostate brachytherapy that we implemented for CY 2004. Several 
commenters also suggested that we add the phrase ``per source'' to each 
of the brachytherapy source descriptors to reinforce that each source 
equals one unit of payment.
    Response: We agree and are retaining the current brachytherapy 
source C-codes and descriptors with which hospitals are familiar. We 
have been using these codes and descriptors since we unpackaged 
brachytherapy sources when the pass-through payment for

[[Page 65839]]

these sources ended on December 31, 2002, in addition to other C-codes 
that we established either for pass-through payment (for example, 
C2632) or nonpass-through payment (for example, C2633). We also note 
that, in the August 16, 2004 proposed rule, we proposed adding ``per 
source'' to each of the applicable brachytherapy descriptors, similar 
to the APC Panel's recommendation (and the commenter's suggestion) to 
do so for two new high-activity source categories, discussed below. We 
are adopting this clarification as final policy in this final rule with 
comment period and adding ``per source'' to the brachytherapy source 
descriptors that are paid on a per unit basis for each source.
2. HCPCS Codes and APC Assignments for Brachytherapy Sources
    As we indicated in the January 6, 2004 interim final rule with 
comment period, we began payment for the brachytherapy source in HCPCS 
code C1717 (Brachytx source, HCR lr-192) based on the hospital's charge 
adjusted to cost beginning January 1, 2004. Prior to enactment of Pub. 
L. 108-173, these sources were paid as packaged services in APC 0313. 
As a result of the requirement under Pub. L. 108-173 to pay for C1717 
separately, we adjusted the payment rate for APC 0313, Brachytherapy, 
to reflect the unpackaging of the brachytherapy source. We received no 
public comments on this methodology, and we are finalizing the payment 
methodology in this final rule with comment period.
    Section 1833(t)(2)(H) of the Act, as added by section 621(b)(2)(C) 
of Pub. L. 108-173, mandated the creation of separate groups of covered 
OPD services that classify brachytherapy devices separately from other 
services or groups of services. The additional groups must be created 
in a manner that reflects the number, isotope, and radioactive 
intensity of the devices of brachytherapy furnished, including separate 
groups for Palladium-103 and Iodine-125 devices.
    We invited the public to submit recommendations for new codes to 
describe brachytherapy sources in a manner that reflects the number, 
radioisotope, and radioactive intensity of the sources. We requested 
commenting parties to provide a detailed rationale to support 
recommended new codes. We stated that we would propose appropriate 
changes in codes for brachytherapy sources in the CY 2005 OPPS update.
    At its meetings of February 18 through 20, 2004, the APC Panel 
heard from parties that recommended the addition of two new 
brachytherapy codes and HCPCS codes for high activity Iodine-125 and 
high activity Paladium-103. The APC Panel, in turn, recommended that 
CMS establish new HCPCS codes and new APCs, on a per source basis, for 
these two brachytherapy sources.
    We considered this recommendation and agreed with the APC Panel. 
Therefore, in the August 16, 2004 proposed rule, we proposed to 
establish the following two new brachytherapy source codes for CY 2005:
    <bullet> Cxxx1 Brachytherapy source, high activity, Iodine-125, per 
source.
    <bullet> Cxxx2 Brachytherapy source, high activity, Paladium-103, 
per source.
    In addition, we believe the APC Panel's recommendation to establish 
new HCPCS codes that would distinguish high activity Iodine-125 from 
high activity Paladium-103 on a per source basis should be implemented 
for other brachytherapy code descriptors, as well. Therefore, as stated 
previously, we proposed to include ``per source'' in the HCPCS code 
descriptors for all those brachytherapy source descriptors for which 
units of payment are not already delineated.
    Further, a new linear source Paladium-103 came to our attention in 
CY 2003 by means of an application for a new device category for pass-
through payment. While we declined to create a new category for pass-
through payment, we believe that this source falls under the provisions 
of Pub. L. 108-173 for separate cost-based payment as a brachytherapy 
source. Accordingly, we proposed to add, for separate payment, the 
following code of linear source Paladium-103: Cxxx3 Brachytherapy 
linear source, Paladium-103, per 1 mm.
    We received a number of public comments on our August 16, 2004 
proposed rule and on the January 6, 2004 interim final rule with 
comment period, which deal with these issues.
    Comment: In response to the January 6, 2004 interim final rule with 
comment period, several commenters recommended adding two new 
brachytherapy source codes and descriptors, to reflect the ranges in 
radioactive intensities that are frequently required in clinical 
practice for Iodine-125 and Palladium-103. The recommendations are for 
high activity payment codes for these two isotopes. The commenters 
recommended the following specific descriptors:
    Cxxx1 Brachytherapy source, Low Dose Rate, High Activity Iodine-
125, greater than 1.01 mCi (NIST), per source.
    Cxxx2 Brachytherapy source, Low Dose Rate, High Activity Palladium-
103, greater than 2.2 mCi (NIST), per source.
    The commenters suggested that CMS include in the two proposed APCs 
and HCPCS codes an appropriate measurement of minimum radioactivity in 
mCi, based on calibrations establish by the National Institute of 
Standards and Technology (NIST).
    In response to the August 16, 2004 OPPS proposed rule, one 
commenter agreed with our proposal to create two new brachytherapy 
codes for high activity Iodine-125 and Palladium-103 sources, but 
recommended that we change the proposed descriptors. The commenter 
again recommended that we add the mCi (NIST) descriptions for the high 
activity ranges to these new high activity Iodine-125 and Palladium-103 
sources we proposed.
    Response: During its meetings of February 18 through 20, 2004, the 
APC Panel recommended that CMS establish two new HCPCS codes and APCs 
for High Activity Iodine-125 and High Activity Palladium-103 on a per 
source basis, but did not recommend adoption of other specific language 
regarding mCi in the descriptions above. As previously mentioned, in 
the August 16, 2004 proposed rule, we noted the APC Panel's 
recommendation to establish two new HCPCS codes and APCs for these high 
activity sources, as noted above.
    We agree that, with the establishment of these new codes, which are 
the first to specify high activity, we should provide an appropriate 
quantitative measurement of minimum source activity to specifically 
differentiate the high activity sources from other sources with 
differences in radioactive intensity for the two isotopes.
    Accordingly, we are accepting the commenter's suggestion to utilize 
the calibrations established by the NIST to specify the high activity 
ranges.
    The final code descriptors are:
    C2634 Brachytherapy source, High Activity Iodine-125, greater than 
1.01 mCi (NIST), per source.
    C2635 Brachytherapy source, High Activity Palladium-103, greater 
than 2.2 mCi (NIST), per source.
    Comment: One commenter objected to our proposal to create the two 
high activity brachytherapy codes based on radioactive intensity and 
claimed that there is uncertainty regarding availability of radioactive 
substance and that providers will need to distinguish between low and 
high activity without a definition of high activity.
    Response: We have now defined high activity level in our code 
descriptors for C2634 and C2635, using calibrations

[[Page 65840]]

established by the NIST. We will implement these codes with the 
definitions described herein.
    Comment: One commenter on the January 6, 2004 interim final rule 
with comment period suggested that we include ``low dose rate'' into 
the descriptors for each of the existing APCS for which the low dose 
rate may be applicable, to clarify that those descriptors refer to 
``low dose rate'' brachytherapy.
    Response: We do not believe that changes in the descriptors of all 
APCs and HCPCS codes are warranted without evidence that there are 
alternative low and high dose rate sources requiring a high or low dose 
rate indicator in the C-code descriptor to distinguish among the 
sources. In this manner, if there are both low and high dose rate 
forms, they may be paid on a cost basis for brachytherapy sources 
described by the same C-code until a new code is indicated for a high 
dose rate source. If we receive evidence that high dose rate sources 
are used in clinical practice, we will determine at that time whether 
to establish new codes and APCs and whether the existing codes need to 
be modified in some way.
    Comment: One commenter on the January 6, 2004 interim final rule 
with comment period recommended that we establish a new source category 
for Brachytherapy linear source, Palladium-103, per 10 millimeter 
length. The commenter claimed that this linear source is provided in 
10-millimeter lengths from 10 to 60 millimeters, and not on a ``per 
seed'' basis. Although the commenter indicated there were dosimetry 
studies comparing the Palladium-103 linear source to the per seed form, 
the commenter recommended against using the same Palladium-103 code for 
both sources, claiming it would cause confusion in billing and cost 
reporting.
    Response: We agree that a separate code for Palladium-103 linear 
source should be established for payment under Pub. L. 108-173. In our 
proposed rule, we indicated that we were aware of a new linear source 
Palladium-103, which came to our attention by means of an application 
for a new device category for pass-through payment. We stated that, 
while we decided not to create a new category for pass-through payment, 
we believed that the new linear source falls under the provisions of 
Pub. L. 108-173 for separate cost-based payment as a brachytherapy 
source. Therefore, we proposed to add the following code for linear 
source Palladium-103: Cxxx3 Brachytherapy linear source, Palladium-103, 
per 1 mm. We believe that the 1 millimeter increments of payment 
affords greater flexibility for describing other linear source 
Palladium-103 sources that may enter the market and be sold in other 
than 10 mm increments.
    We received several public comments in support of our proposed 
addition and descriptor of Brachytherapy linear source, Palladium-103, 
per 1 mm. Therefore, in this final rule with comment period, we are 
establishing the new code and descriptor for this new brachytherapy 
source, to be paid at cost:
    C2636 Brachytherapy linear source, Palladium-103, per 1 mm.
    Comment: One commenter on the January 6, 2004 interim final rule 
with comment period stated that CMS should pay for codes C1715 
(Brachytherapy needle) and C1728 (Catheter, brachytherapy seed 
administration) on a cost basis as well as brachytherapy sources, 
asserting that these are brachytherapy devices.
    Response: Brachytherapy needles and catheters for administration of 
sources are not brachytherapy devices under section 621(b) of Pub. L. 
108-173. Section 1833(t)(16)(C) of the Act specifies that, to qualify 
for payment at charges reduced to cost, a device of brachytherapy must 
consist of ``a seed or seeds (or radioactive sources).'' The special 
payment provision does not include needles or catheters in the 
definition of devices of brachytherapy. Therefore, in this final rule 
with comment period, we are not establishing new payment categories for 
these devices that were formerly paid as transitional pass-through 
devices.
    Comment: One commenter, a developer of a brachytherapy radiation 
system, recommended that CMS create a C-code and APC for miscellaneous 
brachytherapy sources for payment of new brachytherapy sources at cost 
in accordance with Pub. L. 108-173. This commenter contended that such 
a miscellaneous source code would allow CMS to pay hospitals for new 
brachytherapy sources in the interval between FDA approval of the 
source and the development of specific coding for new sources.
    Response: Section 621(b) of Pub. L. 108-173 requires us to 
establish new codes and separate payment for specific seed or seeds or 
other radioactive sources of brachytherapy. We do not believe that the 
statute contemplates a separate payment for an over-inclusive (``catch-
all'') category such as a miscellaneous brachytherapy source code. Such 
a category would inappropriately include all new brachytherapy sources 
until separate payment is established. Moreover, we note that hospitals 
and brachytherapy source manufacturers might be able to use a 
miscellaneous category to bill Medicare for brachytherapy systems that 
do not meet our standard of a separately payable radioactive source of 
brachytherapy. In addition, new brachytherapy sources may be added more 
frequently than annually, when we are able to add new codes and payment 
instructions to our electronic claims processing systems. Therefore, in 
this final rule with comment period, we are not creating a new code of 
miscellaneous brachytherapy sources.
    Table 40 provides a complete listing of the HCPCS codes, long 
descriptors, APC assignments and status indicators that we will use for 
brachytherapy sources paid under the OPPS in CY 2005.

                               Table 40.--Separately Payable Brachytherapy Sources
----------------------------------------------------------------------------------------------------------------
          HCPCS                 Long descriptor        APC            APC title           New status indicator
----------------------------------------------------------------------------------------------------------------
C1716....................  Brachytherapy source,        1716  Brachytx source, Gold     H
                            Gold 198, per source.              198.
C1717....................  Brachytherapy source,        1717  Brachytx source, HDR Ir-  H
                            High Dose Rate Iridium             192.
                            192, per source.
C1718....................  Brachytherapy source,        1718  Brachytx source, Iodine   H
                            Iodine 125, per source.            125.
C1719....................  Brachytherapy source,        1719  Brachytx source, Non-HDR  H
                            Non-High Dose Rate                 Ir-192.
                            Iridium 192, per source.
C1720....................  Brachytherapy source,        1720  Brachytx source,          H
                            Palladium 103, per                 Palladium 103.
                            source.
C2616....................  Brachytherapy source,        2616  Brachytx source, Yttrium- H
                            Yttrium-90, per source.            90.
C2632*...................  Brachytherapy solution,      2632  Brachytx sol, I-125, per  H
                            Iodine125, per mCi.                mCi.
C2633....................  Brachytherapy source,        2633  Brachytx source, Cesium-  H
                            Cesium-131, per source.            131.

[[Page 65841]]

 
C2634**..................  Brachytherapy source,        2634  Brachytx source, HA, I-   H
                            High Activity, Iodine-             125.
                            125, greater than 1.01
                            mCi (NIST), per source.
C2635**..................  Brachytherapy source,        2635  Brachytx source, HA, P-   H
                            High Activity,                     103.
                            Palladium-103, greater
                            than 2.2 mCi (NIST),
                            per source.
C2636**..................  Brachytherapy linear         2636  Brachytx linear source,   H
                            source, Palladium-103,             P-103.
                            per 1MM.
----------------------------------------------------------------------------------------------------------------
* Currently paid as a pass-through device category, scheduled to expire from pass-through payment as of January
  1, 2005.
** Newly created brachytherapy payment codes beginning January 1, 2005.

    Comment: A few commenters requested that CMS discuss in the OPPS 
final rule the process for adding other new brachytherapy devices for 
qualification under the separate cost-based payment methodology under 
Pub. L. 108-173. The commenters urged CMS to add new brachytherapy 
devices for separate cost-based payment on a quarterly basis, rather 
than annually.
    Response: In the OPPS interim final rule published on January 6, 
2004 that implemented the brachytherapy provisions of Pub. L. 108-173 
for CY 2004, we invited the public to submit recommendations for new 
codes to describe brachytherapy sources in a manner reflecting the 
number, radioisotope, and radioactivity intensity of the sources (69 FR 
828). We requested that commenters provide a detailed rationale to 
support recommended new codes. The public may send such recommendations 
to the Division of Outpatient Care, Mailstop C4-05-17, Centers for 
Medicare and Medicaid Services, 7500 Security Blvd., 21244. We will 
endeavor to add new brachytherapy source codes and descriptors to our 
systems for payment on a quarterly rather than an annual basis.

H. Payment for APC 0375, Ancillary Outpatient Services When Patient 
Expires

    In CY 2003, we implemented a new modifier -CA, Procedure payable 
only in the inpatient setting when performed emergently on an 
outpatient who dies before admission. The purpose of this modifier is 
to allow payment, under certain conditions, for outpatient services on 
a claim that have the same date of service as a HCPCS code with status 
indicator ``C'' that is billed with modifier -CA. When a procedure with 
status indicator ``C'' (inpatient services not payable under the OPPS) 
was billed with modifier -CA, we made payment of a fixed amount, under 
New Technology APC 0977.
    In the November 7, 2003 final rule with comment period, we 
implemented APC 0375 to pay for services furnished in CY 2004 on the 
same date billed for a procedure code with modifier -CA (68 FR 63467). 
We were concerned that our policy of paying a fixed amount under a new 
technology APC for otherwise payable outpatient services furnished on 
the same date of service that a procedure with status indicator ``C'' 
is performed emergently on an outpatient would not result in 
appropriate payment for these services. That is, continuing to make 
payment under a new technology APC would not allow us to establish a 
relative payment weight for the services, subject to recalibration 
based on actual hospital costs.
    We implemented a payment rate of $1,150 for APC 0375, which is the 
payment amount for the restructured New Technology--Level XIII, APC 
1513, that replaced APC 0977, in CY 2004. We also stated that for the 
CY 2005 update of the OPPS, we would calculate a median cost and 
relative payment weight for APC 0375 using charge data from CY 2003 
claims for line items with a HCPC code and status indicator ``V,'' 
``S,'' ``T,'' ``X,'' ``N,'' ``K,'' ``G,'' and ``H,'' in addition to 
charges for revenue codes without a HCPCS code, that have the same date 
of service reported for a procedure billed with modifier -CA. We would 
then determine whether to set payment for APC 0375 based on our claims 
data or continue a fixed payment rate for these special services.
    In accordance with this methodology, for CY 2005 we reviewed the 
services on the 18 claims that reported modifier -CA in CY 2003. We 
calculated a median cost for the aggregated payable services on the 18 
claims reporting modifier -CA in the amount of $2,804.18. The mix of 
outpatient services that were reported appeared reasonable for a 
patient with an emergent condition requiring immediate medical 
intervention, and revealed a wide range of costs, which would also be 
expected. As we indicated in the August 16, 2004 proposed rule, we 
proposed to set the payment rate for APC 0375 in accordance with the 
same methodology we have followed to set payment rates for the other 
procedural APCS in CY 2005, based on the relative payment weight 
calculated for APC 0375.
    Comment: A few commenters were concerned whether the proposed rate 
of $2,757.68 for CY 2005 appropriately reflects the costs incurred by 
hospitals in cases where the -CA modifier is reported and requested 
that CMS review the rate and adjust it accordingly for CY 2006.
    Response: We appreciate the commenters' concerns. Services with a -
CA modifier appended are paid under APC 0375. As we explained in our 
August 16, 2004 proposed rule, the proposed rate of $2,757.68 for CY 
2005 was calculated using actual claims billed in CY 2003. The final 
payment rate for CY 2005, using the updated data file, is calculated as 
$3,214.22. As we stated previously, review of the claims data revealed 
a reasonable mix of outpatient services that a hospital could be 
expected to furnish during an encounter with a patient with an emergent 
condition requiring immediate medical intervention, as well as cases 
with a wide range of costs. We will continue to monitor the 
appropriateness of this payment rate as we develop future rules.

VIII. Conversion Factor Update for CY 2005

    Section 1833(t)(3)(C)(ii) of the Act requires us to update the 
conversion factor used to determine payment rates under the OPPS on an 
annual basis. Section 1833(t)(3)(C)(iv) of the Act provides that, for 
CY 2005, the update is equal to the hospital inpatient market basket 
percentage increase applicable to hospital discharges under section 
1886(b)(3)(B)(iii) of the Act.
    The forecast of the hospital market basket increase for FY 2005 
published in the IPPS final rule on August 11, 2004 is 3.3 percent (69 
FR 49272), the same as the forecast published in the IPPS proposed rule 
on May 18, 2004 (69 FR 28374) and referenced in the CY 2005 OPPS August 
16, 2004 proposed rule. To set the OPPS conversion factor

[[Page 65842]]

for CY 2005, we increased the CY 2004 conversion factor of $54.561, as 
specified in the November 7, 2003 final rule with comment period (68 FR 
63459), by 3.3 percent.
    In accordance with section 1833(t)(9)(B) of the Act, we further 
adjusted the conversion factor for CY 2004 to ensure that the revisions 
we are making to our updates by means of the wage index are made on a 
budget-neutral basis. For the OPPS proposed rule, we calculated a 
budget neutrality factor of 1.001 for wage index changes by comparing 
total payments from our simulation model using the FY 2005 IPPS wage 
index values to those payments using the FY 2004 IPPS wage index 
values. For this final rule with comment period, we calculated a budget 
neutrality factor of 0.9986 for wage index changes by comparing total 
payments from our simulation model using the revised final FY 2005 IPPS 
wage index values to those payments using the current (FY 2004) IPPS 
wage index values. In addition, for CY 2005, allowed pass-through 
payments have decreased to 0.10 percent of total OPPS payments, down 
from 1.3 percent in CY 2004. The conversion factor is also adjusted by 
the difference in estimated pass-through payments of 1.20 percent.
    The market basket increase update factor of 3.3 percent for CY 
2005, the required wage index budget neutrality adjustment of 
approximately 0.9986, and the 1.20 percent adjustment to the pass-
through estimate result in a conversion factor for CY 2005 of $56.983.
    We did not receive any public comments on the proposed conversion 
factor update for CY 2005.

IX. Wage Index Changes for CY 2005

    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 and the copayment 
standardized amount attributable to labor and labor-related cost. This 
adjustment must be made in a budget neutral manner. As we have done in 
prior years, we proposed to adopt the IPPS wage indices and extend 
these wage indices to TEFRA hospitals that participate in the OPPS but 
not the IPPS.
    As discussed in the proposed rule and finalized in section III.B. 
of this preamble, we standardize 60 percent of estimated costs (labor-
related costs) for geographic area wage variation using the IPPS wage 
indices that are calculated prior to adjustments for reclassification 
to remove the effects of differences in area wage levels in determining 
the OPPS payment rate and the copayment standardized amount.
    As published in the original OPPS April 7, 2000 final rule (65 FR 
18545), OPPS has consistently adopted the final IPPS wage indices as 
the wage indices for adjusting the OPPS standard payment amounts for 
labor market differences. As initially explained in the September 8, 
1998 OPPS proposed rule, we believed and continue to believe that using 
the IPPS wage index as a source of an adjustment factor for OPPS is 
reasonable and logical, given the inseparable, subordinate status of 
the hospital outpatient within the hospital overall. We also continue 
to believe that individual hospitals do not distinguish in hiring 
practices between their inpatient and outpatient departments and that 
hospitals face one labor market for both inpatient and outpatient 
services. Further, because hospital staff frequently provide services 
in both the inpatient and outpatient departments, labor costs 
associated with the hospital outpatient services are generally 
reflected in the hospital wage and salary data that are the basis of 
the IPPS wage index. In accordance with section 1886(d)(3)(E) of the 
Act, the IPPS wage index is updated annually. In the August 16, 2004 
proposed rule, we proposed to use the corrected proposed FY 2005 
hospital IPPS wage index for urban areas published in the Federal 
Register on June 25, 2004 (69 FR 35919) and the proposed FY 2005 
hospital IPPS wage index for rural areas published in the Federal 
Register on May 18, 2004 (69 FR 28580) to determine the wage 
adjustments for the OPPS payment rate and the copayment standardized 
amount for CY 2005.
    We customarily publish the wage index tables in the final rule for 
the OPPS update. We are not including the tables in this final rule 
with comment period as CMS is in the process of reviewing the wage 
indices for IPPS. This review may impact the wage index values. We 
emphasize that our methodology for calculating the wage index for the 
OPPS has not changed. As noted above, our policy has consistently been 
to adopt the IPPS wage index for purposes of payment under the OPPS. We 
will publish finalized tables in a later Federal Register document.
    We note that the FY 2005 IPPS wage indices reflect a number of 
changes as a result of the new OMB standards for defining geographic 
statistical areas, the implementation of an occupational mix adjustment 
as part of the wage index, and new wage adjustments provided for under 
Pub. L. 108-173. The following is a brief summary of the changes in the 
FY 2005 IPPS wage indices and any adjustments that we are applying to 
the OPPS for CY 2005. (We refer the reader to the August 11, 2004 IPPS 
final rule (69 FR 49026-49070) and the October 7, 2004 IPPS correction 
notice (69 FR 60242) for a fuller discussion of the changes to the wage 
indices.)
    A. The use of the new Core Based Statistical Areas (CBSAs) issued 
by the Office of Management and Budget (OMB) as revised standards for 
designating geographical statistical areas based on the 2000 Census 
data, to define labor market areas for hospitals for purposes of the 
IPPS wage index. The OMB revised standards were published in the 
Federal Register on December 27, 2000 (65 FR 82235), and OMB announced 
the new CBSAs on June 6, 2003, through an OMB bulletin. In the FY 2005 
hospital IPPS final rule, CMS adopted the new OMB definitions for wage 
index purposes. We treated, as urban, hospitals located in MSAs and 
treated, as rural, hospitals that are located in Micropolitan Areas or 
Outside CBSAs. To help alleviate the decreased payments for previously 
urban hospitals that became rural under the new MSA definitions, we 
allowed these hospitals to maintain their assignment to the MSA where 
they previously had been located for the 3-year period from FY 2005 
through FY 2007. To be consistent, we are applying the same criterion 
to TEFRA hospitals paid under the OPPS but not under the IPPS and to 
maintain that MSA designation for determining a wage index for the next 
3 years. This policy will impact four TEFRA providers for purposes of 
OPPS payment. In addition to this ``hold harmless'' provision, the IPPS 
final rule implemented a one-year transition for hospitals that 
experienced a decrease in their FY 2005 wage index compared to their FY 
2004 wage index due solely to the changes in labor market definitions. 
These hospitals received 50 percent of their wage indices based on the 
new MSA configurations and 50 percent based on the FY 2004 labor market 
areas. For purposes of the OPPS, we also are applying this 50-percent 
transition blend to TEFRA hospitals.
    B. The incorporation of a blend of an occupational mix adjusted 
wage index into the unadjusted wage index to reflect the effect of 
hospitals' employment choices of occupational categories to provide 
specific patient care. Specifically, OPPS will adopt the 10-percent 
blend of an average hourly wage, adjusted for occupational mix, and 90 
percent of an average hourly wage, unadjusted for occupational mix, as 
finalized in the IPPS final rule. As discussed in the IPPS final rule, 
this

[[Page 65843]]

blend is appropriate because this was the first time that the 
occupational mix survey was administered and optimum data could not be 
collected in the limited timeframe available. In addition, CMS had no 
baseline data to use in developing a desk review program that could 
ensure the accuracy of the occupational mix survey data. Moving slowly 
to implement the occupational mix adjustment is also appropriate 
because of changing trends in the hiring nurses due changes in State 
law governing staffing levels and physician shortages. Finally, the 
blend minimizes the impact of the occupational mix adjustment on 
hospitals' wage index values without nullifying the value and intent of 
the adjustment.
    C. The reclassifications of hospitals to geographic areas for 
purposes of the wage index. For purposes of the OPPS wage index, we are 
adopting all of the IPPS reclassifications in effect for FY 2005, 
including reclassifications that the Medicare Geographic Classification 
Review Board (MGCRB) approved under the one-time appeal process for 
hospitals under section 508 of Pub. L. 108-173.
    D. The implementation of an adjustment to the wage index to reflect 
the ``out-migration'' of hospital employees who reside in one county 
but commute to work in a different county with a higher wage index, in 
accordance with section 505 of Pub. L. 108-173 (August 11, 2004 IPPS 
final rule (69 FR 49061 through 49067), as revised and corrected on 
October 7, 2004 (69 FR 60242)). Hospitals paid under the IPPS located 
in the qualifying section 505 ``out-migration'' counties received a 
wage index increase. We are applying the same criterion to TEFRA 
hospitals paid under the OPPS but not paid under the IPPS. Therefore, 
TEFRA hospitals located in a qualifying section 505 county will also 
receive an increase to their wage index under OPPS.
    We will use final revised IPPS indices to adjust the payment rates 
and coinsurance amounts that we are publishing in this OPPS final rule 
with comment period for CY 2005.
    In general, geographic labor market area reclassifications must be 
done in a budget neutral manner. Accordingly, in calculating the OPPS 
budget neutrality estimates for CY 2005, we have included the wage 
index changes that result from MGCRB reclassifications, implementation 
of section 505 of Pub. L. 108-173, and other refinements made in the 
IPPS final rule, such as the 50-percent transition blend for hospitals 
with FY 2005 wage indices that decreased solely as a result of the new 
MSA definitions. However, we did not take into account the 
reclassifications that resulted from implementation of the one-time 
appeal process under section 508 of Pub. L. 108-173. Section 508 set 
aside $900 million to implement the section 508 reclassifications. We 
considered the increased Medicare payments that the section 508 
reclassifications would create in both the IPPS and OPPS when we 
determined the impact of the one-time appeal process. Because the 
increased OPPS payments already counted against the $900 million limit, 
we did not consider these reclassifications when we calculated the OPPS 
budget neutrality adjustment.
    We received a number of public comments on the application of the 
FY 2005 IPPS wage indices under the OPPS.
    Comment: In general, commenters approved of CMS' adoption of the FY 
2005 final rule wage indices for IPPS. Several commenters requested 
clarification that CMS would adopt the temporary, 1-year relief for 
hospitals with wage areas changing due to the revised labor market 
definitions provided in the FY 2005 IPPS final rule.
    Response: We are adopting the IPPS temporary, 1-year relief 
provision of a 50/50 blend of old and new wage indices in this OPPS 
final rule with comment period. Hospitals billing Medicare under IPPS 
in FY 2005 will receive the same wage index for OPPS.
    Comment: One commenter requested clarification that CMS would adopt 
the technical correction to the IPPS wage index to include counties 
incorrectly excluded from the out-migration adjustment under section 
505 of Pub. L. 108-173.
    Response: In this OPPS final rule with comment period, we are 
adopting all technical corrections to the FY 2005 IPPS final rule wage 
indices, including the referenced correction to the out-migration 
counties.
    Comment: Several commenters requested clarification that CMS would 
adopt the wage index provisions for ``Special Circumstances of 
Hospitals in All-Urban States.''
    Response: We are adopting all of the changes to the IPPS wage 
indices discussed in the FY 2005 IPPS final rule and any subsequent 
corrections to that final rule, including calculation of a wage index 
floor for hospitals in all-urban States.
    Comment: One commenter noted that the wage index listed in the 
impact file that we made available on the CMS Web site for the August 
16, 2004 proposed rule listed a different wage index from the wage 
index adopted in the FY 2005 IPPS final rule and requested 
clarification that the hospital would receive the IPPS final rule wage 
index.
    Response: We note that the proposed wage indices have to be 
assembled before the IPPS wage indices are finalized in order to model 
impact tables for the OPPS proposed rule. The final wage indices used 
for payment in CY 2005 for OPPS will reflect the wage indices in the FY 
2005 IPPS final rule and any subsequent corrections to that final rule.
    Comment: Several commenters, specifically individual hospitals 
adversely impacted by the final FY 2005 IPPS wage index, requested that 
CMS address several issues beyond the scope of the OPPS proposed rule, 
such as exempting hospitals from the new wage indices and employing 
former wage indices, calculating new wage indices or recalculating the 
current wage indices with additional provider or providers removed, 
calculating new ``in-migration'' adjustments, and, where permanent wage 
indices changes are not possible, providing a transition period beyond 
the 1-year 50/50 blend discussed above or extending ``hold harmless'' 
provisions. One commenter also requested that adversely impacted 
hospitals be able to bill under the provider numbers of affiliated 
institutions.
    Response: As noted earlier in this section of the preamble, we 
believe, and other commenters concurred, that hospitals face the same 
labor costs for their inpatient and outpatient departments and that 
separate wage indices are not appropriate for different integrated 
components of the same institution. It is for this reason that we have 
always adopted the same wage index for both the IPPS and the OPPS 
payment systems. Moreover, our policy has consistently been to use the 
IPPS wage indices and, to the extent these wage indices are used, the 
IPPS process provides an opportunity for hospitals to comment 
specifically on the construction of the IPPS wage indices.
    Comment: Several commenters requested that CMS reduce the labor-
related share from the current 60 percent to some smaller percentage, 
frequently 52 percent or less, for outpatient payment purposes for 
hospitals in areas with a Medicare wage index of 1.0 or lower to 
maintain consistency with the inpatient hospital policy.
    Response: Section 403 of Pub. L. 108-173 mandated that the IPPS 
make a change to the labor-related share of the wage index, reducing 
the percentage from 71 to 62 for hospitals in areas with a wage index 
of 1.0 or lower. However, as discussed in the IPPS final rule (69

[[Page 65844]]

FR 49069, August 11, 2004), prior to this mandate, we had determined 
that the labor-related share was increasing for inpatient services, not 
declining. Unlike IPPS, OPPS has no mandate to reduce the labor-related 
share, and we believe the current 60 percent labor-related share 
remains appropriate for OPPS payment purposes. We recognize that the 
IPPS final rule discusses CMS' current analyses of the labor-related 
share, and we will carefully consider any research findings in light of 
their appropriateness for OPPS.
    Comment: Several commenters expressed concern that CMS proposed to 
adopt the IPPS proposed wage index rather than the IPPS final wage 
index.
    Response: As we have stated previously in this section of the 
preamble, we note that we are adopting the final IPPS wage indices and 
any subsequent corrections for the OPPS.

X. Determination of Payment Rates and Outlier Payments for CY 2005

A. Calculation of the National Unadjusted Medicare Payment

    The basic methodology for determining prospective payment rates for 
OPD services under the OPPS is set forth in existing regulations at 
Sec. Sec.  419.31 and 419.32. The payment rate for services and 
procedures for which payment is made under the OPPS is the product of 
the conversion factor calculated in accordance with section VIII. of 
this final rule with comment period, and the relative weight determined 
under section III. of this final rule with comment period. Therefore, 
the national unadjusted payment rate for APCs contained in Addendum A 
to this final rule with comment period and for payable HCPCS codes in 
Addendum B to this final rule with comment period (Addendum B is 
provided as a convenience for readers) was calculated by multiplying 
the CY 2005 scaled weight for the APC by the CY 2005 conversion factor.
    To determine the payment that will be made in a calendar year under 
the OPPS to a specific hospital for an APC for a service other than a 
drug, in a circumstance in which the multiple procedure discount does 
not apply, we take the following steps:
    Step 1. Calculate 60 percent (the labor-related portion) of the 
national unadjusted payment rate. Since initial implementation of the 
OPPS, we have used 60 percent to represent our estimate of that portion 
of costs attributable, on average, to labor. (See the April 7, 2000 
final rule with comment period (65 FR 18496 through 18497), for a 
detailed discussion of how we derived this percentage.)
    Step 2. Determine the wage index area in which the hospital is 
located and identify the wage index level that applies to the specific 
hospital. The wage index values assigned to each area reflect the new 
geographic statistical areas as a result of revised OMB standards 
(urban and rural) to which hospitals would be assigned for FY 2005 
under the IPPS, reclassifications through the Medicare Classification 
Geographic Review Board, LUGAR, and section 401 of Pub. L. 108-173, and 
the reclassifications of hospitals under the one-time appeals process 
under section 508 of Pub. L. 108-173. Assess whether the previous MSA-
based wage index is higher than the CBSA-based wage index, and, if 
higher, apply a 50/50 blend. The wage index values include the 
occupational mix adjustment described in section IX. of this final rule 
with comment period that was developed for the IPPS.
    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. This step is to be followed only if the hospital has chosen 
not to accept reclassification under step 2 above.
    Step 4. Multiply the applicable wage index determined under Steps 2 
and 3 by the amount determined under Step 1 that represents the labor-
related portion of the national unadjusted payment rate.
    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.

B. Hospital Outpatient Outlier Payments

    For OPPS services furnished between August 1, 2000, and April 1, 
2002, we calculated outlier payments in the aggregate for all OPPS 
services that appear on a bill in accordance with section 1833(t)(5)(D) 
of the Act. In the November 30, 2001 final rule (66 FR 59856 through 
59888), we specified that, beginning with CY 2002, we calculate outlier 
payments based on each individual OPPS service. We revised the 
aggregate method that we had used to calculate outlier payments and 
began to determine outlier payments on a service-by-service basis.
    As explained in the April 7, 2000 final rule with comment period 
(65 FR 18498), we set a projected target for outlier payments at 2.0 
percent of total payments. For purposes of simulating payments to 
calculate outlier thresholds, we set the projected target for outlier 
payments at 2.0 percent for CYs 2001, 2002, 2003, and 2004. For reasons 
discussed in the November 7, 2003 final rule with comment period (68 FR 
63469), for CY 2004, we established a separate outlier threshold for 
CMHCs. For CY 2004, the outlier threshold is met when costs of 
furnishing a service or procedure by a hospital exceed 2.6 times the 
APC payment amount or when the cost of furnishing services by a CMHC 
exceeds 3.65 times the APC payment amount. The current outlier payment 
is calculated to equal 50 percent of the amount of costs in excess of 
the threshold.
    As we proposed, for CY 2005, we are continuing to set the projected 
target for outlier payments at 2.0 percent of total OPPS payments (a 
portion of that 2.0 percent, 0.6 percent, will be allocated to CMHCs 
for partial hospitalization program (PHP) services).
    Outlier payments are intended to ensure beneficiary access to 
services by having the Medicare program share in the financial loss 
incurred by a provider associated with individual, extraordinarily 
expensive cases. They are not intended to pay hospitals additional 
amounts for specific services on a routine basis. In its March 2004 
Report, MedPAC found that 50 percent of OPPS outlier payments in CY 
2004 were for 21 fairly common services that had relatively low APC 
payment rates, such as plain film x-rays and pathology services. We 
remain concerned by the MedPAC findings which indicate that a 
significant portion of outlier payments are being made for high volume, 
lower cost services rather than for unusually high cost services, 
contrary to the intent of an outlier policy. (A full discussion of the 
2004 MedPAC recommendations related to the OPPS and the CMS response to 
those recommendations can be found in section XII. of this preamble.)
    In light of the MedPAC findings, in the August 16, 2004 proposed 
rule, we proposed to change the standard we have used to qualify a 
service for outlier payments since the OPPS was originally implemented. 
That is, in addition to the outlier threshold we have applied since the 
beginning of the OPPS, which requires that a hospital's cost for a 
service exceed the APC payment rate for that service by a specified 
multiple of the APC payment rate, we proposed to add a fixed dollar 
threshold that would have to be met in order for a service to qualify 
for an outlier payment. Section 1833(t)(5)(A) of the Act gives the

[[Page 65845]]

Secretary the authority to impose a fixed dollar threshold in addition 
to an APC multiplier threshold. By imposing a dollar threshold, we 
expect to redirect outlier payments from lower cost, relatively simple 
procedures to more complex, expensive procedures for which the costs 
associated with individual cases could be exceptionally high and for 
which hospitals would be at greater risk financially.
    In the proposed rule, we proposed to require that, in order to 
qualify for an outlier payment, the cost of a service must exceed 1.5 
times the APC payment rate and the cost must also exceed the sum of the 
APC rate plus a $625 fixed dollar threshold. Based upon our review of 
the data, a proposed threshold of $625 best met our 2.0 percent 
projected target. When the cost of a hospital outpatient service 
exceeds these thresholds, we proposed to pay 50 percent of the amount 
by which the cost of furnishing the service exceeds 1.5 times the APC 
payment rate (the APC multiple) as an outlier payment.
    However, in this final rule, we are increasing the proposed APC 
multiplier of 1.5 to 1.75 and the fixed-dollar threshold from $625 to 
$1,175. This revision to the proposed rule estimates results from the 
inclusion of a charge inflation factor of 18.76 percent to account for 
charge inflation between the CY 2003 claims data that we used to model 
the outlier thresholds and their application in CY 2005. As we note 
below, many hospital associations expressed concern that the proposed 
$625 threshold for outlier payments was too high and suggested that 
OPPS consider the decision in the IPPS final rule to lower the charge 
inflation assumption from 31.1 percent to 18.76 percent. These same 
commenters suggested that we provide the details of the assumptions 
used to set outlier thresholds and asked that we ensure that the 
charges used to set outlier thresholds were not inappropriately 
inflated.
    Previously, OPPS has not used a charge inflation factor to adjust 
charges on the claims used to model the payment system to reflect 
current dollars. We have historically set the projected target for 
outlier payments at 2 percent of the estimated spending under the 
proposed payment system, but have modeled that projected target without 
inflating charges on the claims, which usually lag behind the proposed 
system by 2 years. This year, we used CY 2003 claims to model the CY 
2005 payment system. When we modeled the thresholds discussed in the 
August 16, 2004 proposed rule, we did not include a charge inflation 
factor. By not adjusting for charge inflation between CY 2003 and CY 
2005, the estimated service costs will be lower than those that will be 
billed under OPPS next year. Underestimated service costs also led us 
to underestimate our outlier thresholds. As reflected in the comments, 
we should have included a charge inflation factor similar to that used 
in the IPPS outlier calculation when we developed the proposed outlier 
payments. In this final rule with comment period, we have done so as 
explained below, which results in an APC multiplier of 1.75 and a 
fixed-dollar threshold of $1,175.
    To calculate the 1.75 multiple and $1,175 fixed-dollar thresholds, 
we first estimated the 2-percent projected target for outlier payments 
by estimating 2 percent of total spending in CY 2005 using the CY 2005 
APC payment rates in this final rule with comment period and services 
in the CY 2003 claims. We then inflated the charges on these claims by 
18.76 percent, which is the estimated increase in charges between CY 
2003 and CY 2005 used in the outlier policy for the IPPS final rule. We 
believe the use of this estimate is appropriate for OPPS because, with 
the exception of the routine service cost centers, hospitals use the 
same cost centers to capture costs and charges across inpatient and 
outpatient services. As also noted in the IPPS final rule, we believe 
that this inflation factor is more appropriate than an adjustment to 
costs because charges increase at a faster rate than costs. We then 
used the same CCRs that we used to adjust charges to costs in our 
ratesetting process to estimate a cost for each service from the 
inflated charges on the CY 2003 claims. Although these CCRs are based 
largely on CY 2002 cost report data, we did not adjust them for 
probable increases in charges relative to costs between CY 2002 and CY 
2005. Finally, we estimated a multiple threshold and fixed-dollar 
threshold that would produce outlier payments that met our 2-percent 
projected target amount.
    The large increase in the fixed-dollar threshold is largely a 
function of the additive impact of increasing all estimated outlier 
payments by 18.76 percent and restricting increased estimates of 
outlier payments to a fixed, projected target of 2 percent, as well as 
the addition of a fixed-dollar threshold to determine outlier 
eligibility instead of using only a multiple threshold to determine 
outlier payment. As charges are inflated, each estimated outlier 
payment is higher by some proportional amount, but the total dollar 
increase varies with the magnitude of the difference in the cost of the 
service and APC payment rate. The addition of the fixed-dollar 
threshold policy ensures that outlier payments are made for high-cost 
services, thereby increasing the dollar amount of outlier payments and 
the total dollar impact of 18.76 percent that must be contained within 
the projected outlier target. Further, the actual based on outlier 
payment for a service is not affected by the fixed-dollar threshold 
but, rather, is the difference between the hospital's cost and the 
product of the multiple threshold and the APC payment rate. Changing 
the fixed-dollar threshold does not impact the amount of outlier 
payment. Adding the inflation adjustment to charges also increases the 
number of services eligible for an outlier payment under the proposed 
1.5 multiple and $625 fixed-dollar thresholds. The combined impact of 
more services and higher payments greatly increases estimated outlier 
payments. Therefore, in order to reduce the number of services eligible 
for higher payments and the payments themselves to stay within our 
projected target of 2 percent of total OPPS payments, we had to raise 
both the fixed-dollar and multiple thresholds.
    We are setting the dollar threshold at a level that will, for all 
intents and purposes, exclude outliers for a number of lower cost 
services. For example, under the CY 2004 methodology, a service mapped 
to an APC with a payment rate of $20 would only have to exceed $52 (2.6 
x APC payment amount) in order to qualify for an outlier payment. Our 
final policy for CY 2005 with the additional fixed dollar threshold 
will require that the service in this example exceed $1,195 in order to 
qualify for an outlier payment. That is, the cost of the service will 
have to exceed both 1.75 times the APC payment rate, or $35, and $1,195 
($20 + $1,175).
    The dollar threshold will also enable us to lower the APC 
multiplier portion of the total outlier threshold from 2.6 to 1.75. We 
have chosen a multiple of 1.75 because this continues to recognize some 
variability relative to APC payment implicit in the current statute, 
but limits its impact in determining outlier payments. Under the 
changes to the outlier methodology, it will also be easier for the 
higher cost cases of a complex, expensive procedure or service to 
qualify for outlier payments because the $1,175 threshold is a small 
portion of the total payment rate for high cost services. For example, 
under the CY 2004 methodology, a service mapped to an APC with a 
payment rate of $20,000 would have to exceed $52,000 in order to 
qualify for an outlier

[[Page 65846]]

payment but, as proposed for CY 2005, will have to exceed only $35,000. 
That is, the cost of the service will have to exceed both 1.75 times 
the APC payment rate, or $35,000, and $21,175 ($20,000 + $1,175). 
Further, outlier payments for unusually expensive cases would be higher 
because the APC multiplier for outlier payment would decrease from 2.6 
to 1.75 times the APC payment rate.
    Comment: Many commenters, including MedPAC, favored our proposed 
outlier policy that redirects outlier payments to expensive procedures 
for which hospitals' financial risk is potentially greater. (Under the 
proposed rule, outlier payments would be made when the cost of a 
separately payable service exceeds both 1.5 times the APC payment and a 
fixed dollar amount.) Several commenters agreed with this revision in 
policy, but requested that CMS monitor the impact of the new policy on 
hospitals with a relatively high volume of low cost cases and find some 
way to ensure that providers of less-intensive services be afforded 
outlier ``protection.''
    Response: As noted above, outlier payments are intended to ensure 
beneficiary access to services by having the Medicare program share in 
the financial loss incurred by a provider associated with individual, 
extraordinarily expensive cases. They are not intended to pay hospitals 
additional amounts for specific services on a routine basis, and we 
demonstrated in Table 39 of the proposed rule that this policy 
moderately redistributes outlier dollars to providers of high-cost, 
complex services, such as teaching hospitals. We will continue to model 
the distribution of outlier payments among hospitals. However, the 
purpose of the new policy is to limit financial risk attributable to 
patients whose costs are extraordinarily high. Therefore, our goal is 
to redirect outlier payments to those services that better meet our 
goal of providing outlier payments to those costly services with high 
financial risk. The intent is not to continue to provide a significant 
portion of outlier payments to high volume, low cost services.
    Using the final rule data and updated charge inflation estimates, 
we have modeled a fixed-dollar threshold of $1,175 for CY 2005.
    Comment: Several commenters requested data that support the 
presumption that the revised outlier methodology will definitely result 
in payment of 2 percent of total OPPS payments. The commenters also 
urged CMS to release data on actual outlier payments made in CY 2004 
and in prior years, and to continue to report this data in the future.
    Response: The outlier thresholds and payment percentages are 
determined each year based on our best estimate of the thresholds and 
payment percentages needed to achieve the projected target of outlier 
payment. As discussed above, in order to estimate the outlier multiple 
and fixed-dollar thresholds, we first estimated 2 percent of the total 
spending using the APC payment rates in this final rule with comment 
period and the services in the CY 2003 claims. Using this estimate, we 
inflated the charges on the CY 2003 claims to reflect CY 2005 dollars 
using the 1.1876 inflation adjustment used in the IPPS final rule. We 
then applied the overall CCR for each hospital based on their most 
recently submitted cost report, whether tentatively settled or final, 
and if tentatively settled, adjusted by a submitted-to-settled ratio 
taken from the previous year's cost report. These are the same CCRs 
that we use in our ratesetting process. We then estimated outlier 
payments for various combinations of multiple and fixed-dollar 
thresholds until we reached the targeted outlier expenditures.
    Interested parties may calculate the amount of outlier spending 
from previous years. Such information is available in the claims data, 
not the limited data set, available from CMS for this final rule with 
comment period.
    Comment: Several commenters were concerned that the proposed fixed-
dollar threshold of $625 was too high. Specifically, the commenters 
were concerned that CMS had overstated its charge inflation estimates 
in calculating the fixed dollar threshold, as had been done in the FY 
2005 IPPS proposed rule. The commenters requested that CMS review its 
estimates and make comparable adjustments to these in the FY 2005 IPPS 
final rule.
    Response: As noted previously, the OPPS had not used a charge 
inflation factor. In this final rule with comment period, we realized 
that we should have adopted a charge inflation estimate. We used the 
charge inflation estimate used in the IPPS final rule of 18.76 percent 
to update charges on the CY 2003 claims that we used to model the 
fixed-dollar threshold in order to reflect CY 2005 dollars. Comparable 
to IPPS, we did not update the CCRs that we employed to estimate costs 
from these inflated charges. The CCRs are based on hospitals' most 
recently submitted cost report, frequently CY 2002, adjusted by the 
most recent settled-to-submitted ratio, and were not updated for 
changes in relative costs and charges since the cost report year.
    Comment: One commenter supported the proposed change, but urged CMS 
to adopt MedPAC's recommendation to fully eliminate outpatient outlier 
payments and to increase the base APC rates by a commensurate amount. 
The commenter asserted that the separate payment of services under OPPS 
eliminates the need for an outlier policy.
    Response: We believe that an outlier policy is necessary and 
appropriate under the OPPS. Outlier payments dampen the financial risk 
of and improve beneficiary access to expensive, complex outpatient 
services. The range of services provided in the outpatient setting 
continues to expand, continually including more services previously 
performed in the inpatient setting. Many of these procedures are high-
cost, extensive, and as complex as inpatient procedures. The device-
dependent APCs provide a good example. We agree that separate payment 
for many individual services under OPPS reduces the need for an 
extensive outlier policy, but do not believe it eliminates the need 
entirely. We believe that the lower outlier payment percentage under 
the OPPS of 50 percent relative to 80 percent under the IPPS and the 
smaller OPPS projected outlier target of 2 percent relative to the IPPS 
projected target of between 5 and 6 percent reflect the more limited 
outlier liability associated with the outpatient payment system.
    Comment: One commenter disagreed with our proposed policy and noted 
that it will substantially restrict outlier payments for a lot of 
outpatient services and recommended that CMS remove the fixed-dollar 
threshold and apply outlier payments only when the cost of a service 
exceeds 1.5 times the APC payment.
    Response: We disagree with the commenter as removing the fixed-
dollar threshold and relying only on a multiple of 1.5 or 1.75 would 
result in outlier payments well in excess of the proposed 2-percent 
projected target. To meet the projected target, we would have to raise 
the multiple threshold to 2.95 if we eliminated the fixed dollar 
threshold.
    Comment: Several commenters requested that CMS release limited data 
set data files in a more timely manner.
    Response: We have always attempted to, and will continue to, 
provide data necessary for evaluation of the OPPS in a timely manner. 
For example, this year, several data files were available through CMS' 
Web site before the publication of the proposed rule.
    Comment: Several commenters recommended that CMS consider 
reinstating outlier payments at the claim

[[Page 65847]]

level, rather than at the individual service level, resulting in easier 
administration of outliers and payments that are more equitable for 
high cost patients.
    Response: We believe that calculating outliers on a service-by-
service basis is the most appropriate way to calculate outliers for 
outpatient services. Outliers on a claim or bill basis requires both 
the aggregation of costs and the aggregation of OPPS payments thereby 
introducing some degree of offset among services; that is, the 
aggregation of low cost services and high cost services on a bill may 
result in the claim or bill not meeting the outlier criterion. While 
the implementation of service-based outliers is somewhat more complex 
because it involves allocating the costs of packaged services across 
multiple payable codes, we believe that under this approach, outlier 
payments are more appropriately directed to those specific services for 
which a hospital incurs significantly increased costs. We also believe 
that the introduction of the fixed dollar threshold improves payment 
for expensive patients by targeting outlier payments to the more high-
cost, complex services.
    Comment: One commenter requested that CMS demonstrate the accuracy 
of its assumption that providers are receiving inappropriate outlier 
payments and suggest that the distribution of packaged costs on a claim 
could be affecting the outlier determination and payment. The commenter 
specifically requested that CMS exempt all drug administration APCs 
from the new fixed-dollar threshold methodology.
    Response: We agree that the allocation of packaged costs could 
modestly under or overestimate the cost of a single procedure for 
purposes of determining outlier payments. However, this observation 
cannot explain the huge concentration of services in low-cost, simple 
procedures receiving outlier payments observed by MedPAC in its March 
2004 report referenced above. This concentration is clearly a function 
of the multiple threshold policy.
    In accordance with section 1833(t)(5) of the Act, we have set a 
uniform fixed-dollar outlier threshold that applies to all OPPS 
services in a given calendar year. We cannot exempt specific services 
from the outlier methodology because the statute does not provide for 
different thresholds for different types of OPPS services. Further, the 
magnitude of the multiple and fixed dollar thresholds is determined 
prospectively before the beginning of each year based on all OPPS 
services qualifying for outlier payments in that year.
    Comment: One commenter was concerned that CMS does not provide 
information to determine how the amounts that are actually spent on 
pass-through and outlier payments compare to the amount that is carved 
out of the total amount allowed OPPS payment for these projected 
payments. The commenter was concerned that the amounts carved out for 
these purposes may not actually be spent and thus, would be lost to 
hospitals.
    Response: We are required by law to estimate the amounts that we 
expect to spend on pass-through and outlier payments each year before 
the start of the calendar year. We share the commenter's interest in 
assuring that those estimates are made as accurately as possible to 
ensure that hospitals receive the amount to which they are entitled by 
law. We make our final estimate for each calendar year to the best of 
our ability based on all of the best data available at the time we 
prepare our final rule, including comments we receive in response to 
our proposed rule. With respect to the availability of data for 
modeling our outlier estimates, we have established limited data sets 
which include the set of claims we used first for the proposed rule 
estimates and, ultimately, for those for our final rule with comment 
period. For example, the CY 2003 claims used in ratesetting and 
modeling for this final rule with comment period for CY 2005 OPPS will 
be available to the public in a limited data set format. However, 
estimates of total outlier payments made in previous years are not 
available in the limited data set, in no small part because outlier 
payments on these claims would underestimate total outlier payments. 
Interested parties can estimate total outlier expenditures from a full 
year of OPPS claims data. We will continue to assess the means by which 
we provide data.
    Comment: One commenter who did not support the proposed outlier 
policy suggested that the payment for outliers in low-cost services 
could be an indication that the APC payment rate is too low for these 
services. The commenter also wondered if the concentration of outlier 
payments in low-cost services was the result of high packaged costs 
appearing with these separately payable services, and indicated that 
one example might include packaged observation services. Ultimately, 
this commenter suggested that a better understanding of why outlier 
payments are directed to common services is necessary before a change 
in policy can be supported.
    Response: As MedPAC discussed in its March 2004 report, the main 
reason to include outlier policies with prospective payment systems is 
to limit providers' financial risk attributable to patients whose costs 
are extraordinarily high relative to the median cost of providing the 
service. We believe that such risk is more substantial in high cost 
procedures. When the financial risk of providing a service becomes too 
high, providers may choose not to provide the service, an outcome that 
can harm beneficiary access.
    The CY 2004 outlier policy does not distinguish between high cost 
services and low cost services. In fact, MedPAC found that 50 percent 
of OPPS outlier payments in CY 2004 were for services in low-paying 
APCs. These observations suggested the need to modify the outlier 
policy to provide better protection against financial risk. The fixed-
dollar threshold limits financial risk to providers who provide high-
cost services.
    Although it is possible that extensive packaged costs have created 
the current concentration of outliers in low cost services, it is 
unlikely in most circumstances. Separately payable services 
consistently billed with extensive packaged costs would ultimately 
increase payment rates as packaged costs were incorporated in the cost 
of the payable service. Although packaged observation services can be 
extensive, the review of OPPS claims data indicates that there are too 
many outlier payments to be associated with the limited number of 
claims with packaged observation services. We believe the current 
policy creates an easy threshold for low-cost services to qualify for 
outlier payments and does little to protect hospitals against the 
financial risk associated with complex and high-cost services.

C. Payment for Partial Hospitalization

1. Background
    Partial hospitalization is an intensive outpatient program of 
psychiatric services provided to patients as an alternative to 
inpatient psychiatric care for beneficiaries who have an acute mental 
illness. A partial hospitalization program (PHP) may be provided by a 
hospital to its outpatients or by a Medicare-certified CMHC. Section 
1833(t)(1)(B)(i) of the Act provides the Secretary with the authority 
to designate the hospital outpatient services to be covered under the 
OPPS. Section 419.21(c) of the Medicare regulations that implement this 
provision specifies that payments under the OPPS will be made for 
partial hospitalization services

[[Page 65848]]

furnished by CMHCs. Section 1883(t)(2)(C) of the Act requires that we 
establish relative payment weights based on median (or mean, at the 
election of the Secretary) hospital costs determined by 1996 claims 
data and data from the most recent available cost reports. Payment to 
providers under the OPPS for PHPs represents the provider's overhead 
costs associated with the program. Because a day of care is the unit 
that defines the structure and scheduling of partial hospitalization 
services, we established a per diem payment methodology for the PHP 
APC, effective for services furnished on or after August 1, 2000. For a 
detailed discussion, see the April 7, 2000 OPPS final rule (65 FR 
18452).
2. PHP APC Update for CY 2005
    As proposed, for calculation of the CY 2005 per diem payment in 
this final rule, we used the same methodology that was used to compute 
the CY 2004 per diem payment. For CY 2004, the per diem amount was 
based on three quarters of hospital and CMHC PHP claims data (for 
services furnished from April 1, 2002, through December 31, 2002). We 
used data from all hospital bills reporting condition code 41, which 
identifies the claim as partial hospitalization, and all bills from 
CMHCs because CMHCs are Medicare providers only for the purpose of 
providing partial hospitalization services. We used CCRs from the most 
recently available hospital and CMHC cost reports to convert each 
provider's line item charges as reported on bills, to estimate the 
provider's cost for a day of PHP services. Per diem costs are then 
computed by summing the line item costs on each bill and dividing by 
the number of days on the bill.
    Unlike hospitals, CMHCs do not file cost reports electronically and 
the cost report information is not included in the Healthcare Cost 
Report Information System (HCRIS). The CMHC cost reports are held by 
the Medicare fiscal intermediaries. In a Program Memorandum issued on 
January 17, 2003 (Transmittal A-03-004), we directed fiscal 
intermediaries to recalculate hospital and CMHC CCRs using the most 
recently settled cost reports by April 30, 2003. Following the initial 
update of CCRs, fiscal intermediaries were further instructed to 
continue to update a provider's CCR and enter revised CCRs into the 
outpatient provider specific file. Therefore, for CMHCs, we use CCRs 
from the outpatient provider specific file. For CY 2005, we analyzed 12 
months of data for hospital and CMHC PHP claims for services furnished 
between January 1, 2003, and December 31, 2003. Updated CCRs reduced 
the median cost per day for CMHCs. The revised medians are $310 for 
CMHCs and $215 for hospitals. Combining these files results in a median 
per diem PHP cost of $289. As with all APCs in the OPPS, the median 
cost for each APC is scaled to be relative to a mid-level office visit 
and the conversion factor is applied. The resulting APC amount for PHP 
is $281.33 for CY 2005, of which $56.33 is the beneficiary's 
coinsurance.
    Comment: One commenter summed payments for three Group Therapy 
Sessions (APC 0325) and one Extended Individual Therapy Session (APC 
0323) and requested that amount as the minimum for a day of PHP.
    Response: We do not believe this is an appropriate comparison. It 
is important to note that the APC services cited by the commenter (APC 
0325 and APC 0323) are not PHP services, but rather single outpatient 
therapeutic sessions. As stated earlier, we used data from PHP programs 
(both hospitals and CMHCs) to determine the median cost of a day of 
PHP. PHP is a program of services where savings can be realized by 
hospitals and CMHCs over delivering individual psychotherapy services. 
In addition, a minimal day of PHP treatment does encompass three 
services.
    Comment: One commenter requested that the same provisions given to 
rural hospital outpatient departments also be given to rural CMHCs.
    Response: We believe the commenter may be referring to the 
statutory hold harmless provisions. Section 1833(t)(7)(D) of the Act 
authorizes such payments, on a permanent basis, for children's 
hospitals and cancer hospitals and, through CY 2005, for rural 
hospitals having 100 or fewer beds and sole community hospitals in 
rural areas. Section 1866(t)(7)(D) of the Act does not authorize hold 
harmless payments to CMHC providers.
3. Separate Threshold for Outlier Payments to CMHCs
    In the November 7, 2003 final rule with comment period (68 FR 
63469), we indicated that, given the difference in PHP charges between 
hospitals and CMHCs, we did not believe it was appropriate to make 
outlier payments to CMHCs using the outlier percentage target amount 
and threshold established for hospitals. There was a significant 
difference in the amount of outlier payments made to hospitals and 
CMHCs for PHP. Further analysis indicated the use of outlier payments 
was contrary to the intent of the outlier policy as discussed 
previously in section X.B. above. Therefore, for CY 2004, we 
established a separate outlier threshold for CMHCs. We designated a 
portion of the estimated 2.0 percent outlier target amount specifically 
for CMHCs, consistent with the percentage of projected payments to 
CMHCs under the OPPS in CY 2004, excluding outlier payments.
    As stated in the November 7, 2003 final rule with comment period, 
CMHCs were projected to receive 0.5 percent of the estimated total OPPS 
payments in CY 2004. The CY 2004 outlier threshold is met when the cost 
of furnishing services by a CMHC exceeds 3.65 times the APC payment 
amount. The current outlier payment percentage is 50 percent of the 
amount of costs in excess of the threshold.
    CMS and the Office of the Inspector General are continuing to 
monitor the excessive outlier payments to CMHCs. However, we do not yet 
have CY 2004 claims data that will show the effect of the separate 
outlier threshold for CMHCs that was effective January 1, 2004. 
Therefore, for CY 2005, as discussed in section X.B. of this preamble, 
we are continuing to set the target for hospital outpatient outlier 
payments at 2.0 percent of total OPPS payments. We are also allocating 
a portion of that 2.0 percent, 0.6 percent, to CMHCs for PHP services. 
We are adopting as final 0.6 percent for CMHCs because the percentage 
of CMHC's payment to total OPPS payment rose slightly in the CY 2003 
claims data. In the absence of CY 2004 claims data, we developed 
simulations for CY 2005. As discussed in section X.B. of this final 
rule, we are establishing a dollar threshold in addition to an APC 
multiplier threshold for hospital OPPS outlier payments. However, 
because PHP is the only APC for which CMHCs may receive payment under 
the OPPS, we would not expect to redirect outlier payments by imposing 
a dollar threshold. Therefore, we are not establishing a dollar 
threshold for CMHC outliers. In this final rule, we are setting the 
outlier threshold for CMHCs for CY 2005 at 3.5 percent times the APC 
payment amount and the CY 2005 outlier payment percentage applicable to 
costs in excess of the threshold at 50 percent.
    Comment: One commenter expressed concern about a separate outlier 
threshold for partial hospitalization services because many partial 
hospitalization programs are hospital based. The commenter recommended 
that CMS use the same threshold for all hospital services.
    Response: We agree that the same outlier policy should apply to all

[[Page 65849]]

hospital services. Under OPPS, we establish two sets of outlier 
thresholds, one for hospitals and one for CMHCs. The higher multiple 
threshold of 3.5 is reserved for services provided by CMHCs only. 
Hospitals billing for partial hospitalization will be subject to the 
outlier thresholds and payment percentages identified for all hospital 
services.

XI. Beneficiary Copayments for CY 2005

A. Background

    Section 1833(t)(3)(B) of the Act requires the Secretary to set 
rules for determining copayment amounts to be paid by beneficiaries for 
covered OPD services. Section 1833(t)(8)(C)(ii) of the Act specifies 
that the Secretary must reduce the national unadjusted copayment amount 
for a covered OPD service (or group of such services) furnished in a 
year in a manner so that the effective copayment rate (determined on a 
national unadjusted basis) for that service in the year does not exceed 
specified percentages. For all services paid under the OPPS in CY 2005, 
the specified percentage is 45 percent of the APC payment rate. The 
statute provides a further reduction in CY 2006 so that the national 
unadjusted coinsurance for an APC cannot exceed 40 percent in CY 2006 
and in calendar years thereafter. 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 coinsurance amount cannot 
be less than 20 percent of the OPD fee schedule amount.
    Comment: One commenter expressed concern that the law does not 
further reduce the maximum coinsurance rate for CY 2007. The commenter 
believed that this may cause coinsurance rates to stagnate at 40 
percent for a few years. The commenter indicated that its organization 
will continue to advocate for a legislative change that would 
accelerate the copayment buy-down.
    Response: We understand the concerns of this organization. In CY 
2004, we determined that 63 percent of APCs had a national unadjusted 
coinsurance rate of 20 percent. Therefore, we will continue to apply 
our current methodology for calculating national unadjusted coinsurance 
rates, as explained in earlier Federal Register notices, which ensures 
that the copayments of the remaining 37 percent of APCs will continue 
to decrease relative to increases in payment rates.

B. Copayment for CY 2005

    For CY 2005, we determined copayment amounts for new and revised 
APCs using the same methodology that we implemented for CY 2004 (see 
the November 7, 2003 OPPS final rule with comment period, 68 FR 63458). 
The unadjusted copayment amounts for services payable under the OPPS 
effective January 1, 2005 are shown in Addendum A and Addendum B of 
this final rule with comment period.

XII. Addendum Files Available to the Public Via Internet

    The data referenced for Addendum C to this final rule with comment 
period are available on the following CMS Web site via Internet only: 
http://www.cms.hhs.gov/providers/hopps/. We are not republishing the 
data represented in this Addendum to this final rule with comment 
period because of its volume. For additional assistance, contact Chris 
Smith Ritter at (410) 786-0378. Addendum C--Healthcare Common Procedure 
Coding System (HCPCS) Codes by Ambulatory Payment Classification (APC).
    This file contains the HCPCS codes sorted by the APCs into which 
they are assigned for payment under the OPPS. The file also includes 
the APC status indicators, relative weights, and OPPS payment amounts.

XIII. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

XIV. Regulatory Impact Analysis

A. OPPS: General

    We have examined the impacts of this final rule with comment period 
as required by Executive Order 12866 (September 1993, Regulatory 
Planning and Review), the Regulatory Flexibility Act (RFA) (September 
19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive 
Order 13132.
1. Executive Order 12866
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs 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). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year).
    We estimate the effects of the provisions that will be implemented 
by this final rule with comment period will result in expenditures 
exceeding $100 million in any 1 year. We estimate the total increase 
(from changes in this final rule with comment period as well as 
enrollment, utilization, and case-mix changes) in expenditures under 
the OPPS for CY 2005 compared to CY 2004 to be approximately $1.5 
billion. Therefore, this final rule with comment period is an 
economically significant rule under Executive Order 12866, and a major 
rule under 5 U.S.C. 804(2).
2. Regulatory Flexibility Act (RFA)
    The RFA requires agencies to determine whether a rule would have a 
significant economic impact on a substantial number of small entities. 
For purposes of the RFA, small entities include small businesses, 
nonprofit organizations, and government agencies. Most hospitals and 
most other providers and suppliers are small entities, either by 
nonprofit status or by having revenues of $6 million to $29 million in 
any 1 year (65 FR 69432).
    For purposes of the RFA, we have determined that approximately 37 
percent of hospitals would be considered small entities according to 
the Small Business Administration (SBA) size standards. We do not have 
data available to calculate the percentages of entities in the 
pharmaceutical preparation manufacturing, biological products, or 
medical instrument industries that would be considered to be small 
entities according to the SBA size standards. For the pharmaceutical 
preparation manufacturing industry (NAICS 325412), the size standard is 
750 or fewer employees and $67.6 billion in annual sales (1997 business 
census). For biological products (except diagnostic) (NAICS 325414), 
with $5.7 billion in annual sales, and medical instruments (NAICS 
339112), with $18.5 billion in annual sales, the standard is 50 or 
fewer employees (see the standards Web site at http://www.sba.gov/regulations/siccodes/). Individuals and States are not included in the 
definition of a small entity.
3. Small Rural Hospitals
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a

[[Page 65850]]

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. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we previously defined a small rural hospital as a hospital with 
fewer than 100 beds that is located outside of a Metropolitan 
Statistical Area (MSA) (or New England County Metropolitan Area 
(NECMA)). However, under the new labor market definitions that we are 
adopting in this final rule with comment period (consistent with the FY 
2005 IPPS final rule), we no longer employ NECMAs to define urban areas 
in New England. Therefore, we now define a small rural hospital as a 
hospital with fewer than 100 beds that is located outside of an MSA. 
Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-
21) designated hospitals in certain New England counties as belonging 
to the adjacent NECMA. Thus, for purposes of the OPPS, we classify 
these hospitals as urban hospitals. We believe that the changes in this 
final rule with comment period will affect both a substantial number of 
rural hospitals as well as other classes of hospitals and that the 
effects on some may be significant. Therefore, we conclude that this 
final rule with comment period will have a significant impact on a 
substantial number of small entities.
4. Unfunded Mandates
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule that may result in an expenditure in 
any 1 year by State, local, or tribal governments, in the aggregate, or 
by the private sector, of $110 million. This final rule with comment 
period does not mandate any requirements for State, local, or tribal 
governments. This final rule with comment period also does not impose 
unfunded mandates on the private sector of more than $110 million 
dollars.
5. Federalism
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes any rule (proposed or final rule) 
that imposes substantial direct costs on State and local governments, 
preempts State law, or otherwise has Federalism implications.
    We have examined this final rule with comment period in accordance 
with Executive Order 13132, Federalism, and have determined that it 
would not have an impact on the rights, roles, and responsibilities of 
State, local or tribal governments. The impact analysis (see Table 41) 
shows that payments to governmental hospitals (including State, local, 
and tribal governmental hospitals) will increase by 3.7 percent under 
this final rule with comment period.
    Comment: One commenter expressed concern that CMS had removed the 
eye and ear specialty hospital category from our regulatory impact 
analysis and requested that we reinstate this line-item. They further 
requested information on why specific analyses were retained for cancer 
and children's hospitals.
    Response: We removed the specific regulatory impact analysis of eye 
and ear hospitals because, unlike cancer and children's hospitals, they 
are not specifically protected by statute. Section 1833(t)(7)(D) of the 
Act holds harmless cancer hospitals, children's hospitals, small rural 
hospitals with less than 100 beds, and sole community hospitals in 
rural areas. These hospitals cannot receive less payment in CY 2005 
than they did in the CY 2004. However, because hold harmless provisions 
for cancer and children's hospitals are permanent, we will not 
specifically identify these hospital classes in future impact analyses.
    Comment: One commenter expressed concern about the observed impact 
on teaching hospitals, specifically the observed increase of 2.9 
percent under the proposed system, which is less than the overall 
increase modeled for all hospitals of 4.6 percent in the proposed rule. 
This commenter requested that CMS conduct analyses assessing the need 
for an adjustment for specific classes of hospitals, which is within 
CMS' regulatory authority. The commenter further suggested that these 
analyses assess whether teaching hospitals rely more on pass-through, 
outlier, transitional corridor, and device-dependent APC payments, and 
suggested that an adjustment is necessary if this is the outcome.
    Response: We agree that it is important to monitor ongoing trends 
for specific classes of hospitals, and we are especially concerned when 
hospitals experience a negative increase. In this specific instance, 
major teaching hospitals are experiencing a positive increase in 
payments. We also agree that major teaching hospitals may be more 
dependent on costs estimated outside of the primary impact tables 
provided in the regulation. However, we are not convinced that a 
reliance on pass-through, outlier, or transitional corridor payments is 
a reason to propose an adjustment. This is especially true in light of 
the outlier policy as proposed, which redirects money to complex and 
costly procedures that are more likely to be performed at academic 
medical institutions.

B. Impact of Changes in This Final Rule With Comment Period

    We are adopting as final the proposed changes to the OPPS that are 
required by the statute. 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 are also required under 
section 1833(t)(9)(A) of the Act to revise, not less often than 
annually, the wage index and other adjustments. In addition, we must 
review the clinical integrity of payment groups and weights at least 
annually. Accordingly, in this final rule with comment period, we are 
updating the conversion factor and the wage index adjustment for 
hospital outpatient services furnished beginning January 1, 2005, as we 
discuss in sections VIII. and IX., respectively, of this final rule 
with comment period. We also have revised the relative APC payment 
weights using claims data from January 1, 2003, through December 31, 
2003. Finally, we are removing 6 device categories and 13 drugs and 
biological agents from pass-through payment status. In particular, see 
section V.A.2 with regard to the expiration of pass-through status for 
devices and see section IV.A.2 with regard to the expiration of pass-
through status for drugs and biological agents.
    Under this final rule with comment period, the update change to the 
conversion factor as provided by statute as well as the additional 
money for the OPPS payments in CY 2005 as authorized by Pub. L. 108-
173, including money for drugs and increases in the wage indices, will 
increase total OPPS payments by 4.0 percent in CY 2005. The changes to 
the wage index and to the APC weights (which incorporate the cessation 
of pass-through payments for several drugs and devices) would not 
increase OPPS payments because the OPPS is budget neutral. However, the 
wage index and APC weight changes would change the distribution of 
payments within the budget neutral system as shown in Table 41 and 
described in more detail in this section.

C. Alternatives Considered

    Alternatives to the changes we are making and the reasons that we 
have chosen the options we have are discussed throughout this final 
rule with comment period. Some of the

[[Page 65851]]

major issues discussed in this final rule with comment period and the 
options considered are discussed below.
1. Payment for Device-Dependent APCs
    We package payment for an implantable device into the APC payment 
for the procedure performed to insert the device. Because almost all 
devices lost pass-through status at the end of CY 2002, we discontinued 
use of separate codes to report devices in CY 2003. We have found that 
claims that we use to set payment rates for device-dependent APCs 
frequently have packaged costs that are much lower than the cost of the 
device. This is attributed, in part, to variations in hospital billing 
practices. In response, we reestablished device codes for reporting on 
a voluntary basis in CY 2004.
    The APC Panel recommended that we use CY 2004 device-dependent APC 
rates updated for inflation as the CY 2005 payments. We considered this 
option but did not adopt it because it would not recognize changes in 
relative cost for these APCs and would not advance us towards our goal 
of using unadjusted claims data as the basis for payment weights for 
all OPPS services.
    In addition to consideration of the APC Panel's recommendation, we 
considered using CY 2002 claims to calculate a ratio between the median 
calculated using all single bills and the median calculated using only 
claims with HCPCS codes for devices on them, and applying that ratio to 
the median calculated using CY 2003 claims data. We rejected this 
option because it assumes that the relationship between the costs of 
the claims with and without codes for devices is a valid relationship 
not only for CY 2002 but CY 2003 as well. It also assumes no changes in 
billing behavior. We have no reason to believe either of these 
assumptions is true and, therefore, we did not choose this option. We 
also considered using external data provided by manufacturers and other 
stakeholders as the estimated device cost. We did not choose this 
alternative because we believe that, in a relative weight system, there 
should be a single stable and objective source of data for setting 
relative weights for all items and services for which payment is made 
in the system.
    We do not believe that any of the above options would help us 
progress toward reliance on our data. Rather than adopt any of those 
approaches, we developed an option to adjust the payment for only those 
device-dependent APCs that have the most dramatic decreases for CY 
2005. We believe that the better payment approach for determining 
median costs for device-dependent APCs in CY 2005 is to base these 
medians on the greater of: (1) Median costs calculated using CY 2003 
claims data; or (2) 95 percent of the APC payment median used in CY 
2004 for these services. We believe that this adjustment methodology 
provides an appropriate transition to eventual use of all single bill 
claims data without adjustment.
    We are also requiring hospitals to report C-codes for device 
categories used in conjunction with procedures billed and paid for 
under the OPPS. We have decided to implement edits, starting April 1, 
to enforce the reporting of C-codes to bill for most of the device-
dependent procedures for which we adjusted the medians for CY 2005, as 
well as for a few APCs that require devices that are coming off pass-
through payment in CY 2005 (a continuation of current billing 
practice). We believe that adoption of our proposal will mitigate 
barriers to beneficiary access to care while encouraging hospitals to 
bill correctly for the services they furnish. For a more detailed 
discussion of this issue, see section III.C. of this final rule with 
comment period.
2. Hospital Outpatient Outlier Payments
    In its March 2004 Report, MedPAC made a recommendation to the 
Congress to eliminate the outlier provision under the OPPS. MedPAC made 
its recommendation after studying outlier payments on claims for 
services furnished during CY 2002 and concluding that in 2002, 50 
percent of outlier payments were paid for 21 fairly common services 
that had relatively low APC payment rates, while high cost services 
accounted for only a small share of outlier payments. However, outlier 
payments are required under the statute. Therefore, we cannot 
discontinue outlier payments absent a legislative change by the 
Congress.
    In light of the MedPAC findings, we are adopting a fixed-dollar 
threshold in addition to the threshold based on a multiple of the APC 
amount that we have applied since the beginning of the OPPS. A fixed-
dollar threshold will redirect OPPS outlier payments toward the complex 
and expensive services that can create high financial risk for a 
hospital. In its comments on the proposed rule, MedPAC recognized that 
elimination of the outlier policy for OPPS requires a legislative 
change and approved of the proposed policy to adopt a fixed-dollar 
threshold. For a more detailed discussion of this issue, see section X. 
of this final rule with comment period.

D. Limitations of Our Analysis

    The distributional impacts presented here are the projected effects 
of the policy changes, as well as the statutory changes that would be 
effective for CY 2005, on various hospital groups. We estimate the 
effects of 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. We also do not make adjustments for future changes in 
variables such as service volume, service mix, or number of encounters.

E. Estimated Impacts of This Final Rule With Comment Period on 
Hospitals

    The estimated increase in the total payments made under OPPS is 
limited by the increase to the conversion factor set under the 
methodology in the statute. The distributional impacts presented do not 
include assumptions about changes in volume and service-mix. However, 
total payments actually made under the system also may be influenced by 
changes in volume and service-mix, which CMS cannot forecast. The 
enactment of Pub. L. 108-173 on December 8, 2003, provided for the 
payment of additional dollars in 2004 and 2005 to providers of OPPS 
services outside of the budget neutrality requirements for both 
specified covered outpatient drugs (see section V.A.3.a. of this final 
rule with comment period) and the wage indexes for specific hospitals 
through reclassification reform in section 508 of Pub. L. 108-173 (see 
section IX. of this final rule with comment period). Table 41 shows the 
estimated redistribution of hospital payments among providers as a 
result of a new APC structure and wage indices, which are budget 
neutral; the estimated distribution of increased payments in CY 2005 
resulting from the combined impact of APC recalibration and wage 
effects, and market basket update to the conversion factor; and 
estimated payments considering all payments for CY 2005 relative to all 
payments for CY 2004. In some cases, specific hospitals may receive 
more total payment in CY 2005 than in CY 2004, while, in other cases, 
they may receive less total payment than they received in CY 2004. 
However, our impact analysis suggests that no class of hospitals would 
receive less total payments in CY 2005 than in CY 2004. Because updates 
to the conversion factor, including the market basket and any 
reintroduction of pass-through dollars, are applied uniformly, observed 
redistributions of payments in the impact table largely depends on the

[[Page 65852]]

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, the extent 
to which this final rule redistributes money during implementation will 
also depend on changes in volume, practice patterns, and case-mix of 
services billed between CY 2003 and CY 2005.
    Overall, the final OPPS rates for CY 2005 will have a positive 
effect for all hospitals paid under OPPS. Adopted changes will result 
in a 4.0 percent increase in Medicare payments to all hospitals, 
exclusive of outlier and transitional pass-through payments. As 
described in the preamble, budget neutrality adjustments are made to 
the conversion factor and the relative weights to ensure that the 
revisions in the wage indices, APC groups, and relative weights do not 
affect aggregate payments. The impact of the wage and APC recalibration 
changes are fairly moderate across most classes of hospitals.
    To illustrate the impact of the CY 2005 changes adopted in this 
final rule with comment period, our analysis begins with a baseline 
simulation model that uses the final CY 2004 weights, the FY 2004 final 
post-reclassification IPPS wage indices, as subsequently corrected, 
without changes in wage indices resulting from section 508 
reclassifications, and the final CY 2004 conversion factor. Columns 2 
and 3 in Table 41 reflect the independent effects of the changes in the 
APC reclassification and recalibration changes and the wage indices, 
respectively. These effects are budget neutral, which is apparent in 
the overall zero impact in payment for all hospitals in the top row. 
Column 2 shows the independent effect of changes resulting from the 
reclassification of HCPCS codes among APC groups and the recalibration 
of APC weights based on a complete year of CY 2003 hospital OPPS claims 
data. We modeled the independent effect of APC recalibration by varying 
only the weights, the final CY 2004 weights versus the final CY 2005 
weights, in our baseline model, and calculating the percent difference 
in payments. Column 3 shows the impact of updating the wage indices 
used to calculate payment by applying the final FY 2005 IPPS wage 
indices, as subsequently corrected. In addition to new wage data, the 
new IPPS wage indices use the CBSA system as the basis for geographic 
adjustment for wages, rather than the MSA designations used previously. 
The FY 2005 IPPS wage indices also include the new adjustment for 
occupational mix, the reclassifications of hospitals to geographic 
areas by the MGCRB, the increased payment authorized by section 505 of 
Pub. L. 108-173 for out-migration, hold-harmless provisions for 
hospitals redesignated from urban to rural by the new labor market 
definitions, and the one-year transition, 50/50 blend for hospitals 
that experienced a decrease in their FY 2005 wage index compared to 
their FY 2004 wage index due solely to the changes in labor market 
definitions. The OPPS wage indices used in Column 3 do not include wage 
increases due to reclassification of hospitals through section 508 of 
Pub. L. 108-173. We modeled the independent effect of introducing the 
new wage indices by varying only the wage index between years, using CY 
2004 weights, and a CY 2004 conversion factor that included a budget 
neutrality adjustment for changes in wage effects between 2004 and 
2005.
    Column 4 demonstrates the combined ``budget neutral'' impact of APC 
recalibration and wage index updates on various classes of hospitals, 
as well as the impact of updating the conversion factor with the market 
basket. We modeled the independent effect of budget neutrality 
adjustments and the market basket update by using the weights and wage 
indices for each year, and using a CY 2004 conversion factor that 
included a budget neutrality adjustment for differences in wages and 
the market basket increase. Finally, column 5 depicts the full impact 
of final CY 2005 policy on each hospital group by including the effect 
of all the changes for CY 2005 and comparing them to the full effect of 
all payments in CY 2004, including those authorized by Pub. L. 108-173. 
Column 5 shows not only the combined budget neutral effects of APC and 
wage updates, and the market basket update, but it also shows the 
effects of additional monies added to the OPPS as a result of Pub. L. 
108-173 and pass-through money returned to the conversion factor from 
CY 2004. We modeled the independent effect of all changes using the 
final weights for CY 2004 and CY 2005 with additional money for drugs 
authorized by section 621 of Pub. L. 108-173, final wage indices 
including wage index increases for hospitals eligible for 
reclassification under section 508 of Pub. L. 108-173, and the CY 2005 
conversion factor of $56.983.

Column 1: Total Number of Hospitals

    Column 1 in Table 41 shows the total number of hospital providers 
(4,296) for which we were able to use CY 2003 hospital outpatient 
claims to model CY 2004 and CY 2005 payments by classes of hospitals. 
We excluded all hospitals for which we could not accurately estimate CY 
2004 or CY 2005 payment and entities that are not paid under the OPPS. 
The latter include critical access hospitals, all-inclusive hospitals, 
and hospitals located in Guam, the U.S. Virgin Islands, and the State 
of Maryland. This process is discussed in greater detail in section 
III.B of this final rule with comment period. In prior years, we 
displayed non-TEFRA hospitals paid under PPS separately from TEFRA 
hospitals in our impact and outlier tables. The distinction between 
TEFRA and non-TEFRA holds little value for OPPS as all hospitals are 
treated equally under the OPPS payment system. For this reason, we did 
not include TEFRA hospitals as a distinct hospital category in Table 
41. The impact on this specific class of hospitals is captured in the 
rows addressing disproportionate share (DSH) as we only calculate a DSH 
variable for hospitals participating in the IPPS. Finally, of the 
hospitals displayed in Table 41 and Table 42, it is important to note 
that section 1833(t)(7)(D) of the Act holds harmless cancer hospitals, 
children's hospitals, small rural hospitals with less than 100 beds, 
and sole community hospitals in rural areas. The hold harmless 
provisions for cancer and children's hospitals are permanent; these 
hospitals cannot receive less payment in CY 2005 than they did in the 
CY 2004. For this reason, we will not specifically identify these 
classes of hospitals in future impact analyses.

Column 2: APC Recalibration

    The APC reclassification and recalibration changes tend to favor 
rural hospitals especially those characterized as small, although the 
overall redistribution impact is modest. Rural hospitals show a 0.6 
percent increase, which is somewhat less than that observed in the 
proposed rule of 0.9. Specifically, rural hospitals with 50 to 100 beds 
show a 0.8 percent increase and rural hospitals with 101 to 149 beds 
show a 0.7 percent increase attributable to the APC recalibration. Mid-
volume hospitals performing between 11,000 and 20,999 services 
experience an increase of 1.0 percent. Rural hospitals also show 
overall increases by region, with the East North Central and East South 
Central regions benefiting by at least 0.9 percent and the South 
Atlantic and West North Central regions benefiting by 0.7 percent.
    Urban hospitals show, on an average, a 0.2 percent decrease, which 
is comparable to that observed in the

[[Page 65853]]

proposed rule. This decrease is spread among all urban hospitals. Large 
urban hospitals experience a decline of 0.1 percent and ``other'' urban 
hospitals experience a decline of 0.2 percent. Urban hospitals with 
greater than 200 beds show decreases, and the largest urban hospitals 
with bed size greater than 500 report a decrease of 0.9 percent. The 
smallest urban hospitals report a positive percent increases. Urban 
hospitals providing the lowest volume of services and those providing 
the highest also demonstrate negative impacts from APC recalibration. 
Decreases for urban hospitals are also concentrated in some regions, 
specifically, the South Atlantic, West South Central, Mountain, and 
Pacific experience decreases of at least 0.1 percent. West South 
Central loses the most, 0.9 percent.
    The largest observed impacts among other hospital classes resulting 
from APC recalibration include declines of 1 percent for major teaching 
hospitals and 2.3 percent for hospitals without a valid DSH variable, 
most of which are TEFRA hospitals. Hospitals treating more low-income 
patients (high DSH percentage) also demonstrate declines of 0.8 
percent. However, hospitals treating fewer low-income patients 
experience positive impacts from APC recalibration. Government 
hospitals demonstrate a decline of 0.8 percent. The specialty 
hospitals, cancer and children's hospitals, also would experience 
declines of 2.4 and 1.5 percent due to APC recalibration, respectively, 
if they were not held harmless under section 1833(t)(7)(D) of the Act.
    In general, APC changes effect the distribution of hospital 
payments by increasing payments to small rural hospitals while 
decreasing payments made to large urban hospitals, including major 
teaching hospitals and those serving a high percentage of low-income 
patients.

Column 3: Wage Effect

    Changes introduced by the new IPPS wage indices had a modest 
impact, but the distributions have changed since the proposed rule with 
the changes and additional provisions included in the final IPPS wage 
indices. Decreases in OPPS payment due to the new wage indices are 
generally located in rural hospitals, although specific classes of 
other hospitals also experience declines. Overall, urban hospitals 
experience no change in payments as a result of the new wage indices. 
However, large urban hospitals experience an increase of 0.1 percent. 
We estimate that rural hospitals will experience a decrease in payments 
of 0.2 percent. This pattern of urban gain and rural loss is evident in 
all of the urban and rural comparisons. Low-volume urban hospitals with 
fewer than 5,000 services and urban hospitals in the West South Central 
region show the largest percentage increase of 0.5.
    Rural hospitals show modest decreases for most bed sizes but show 
the largest losses for hospitals with more than 200 beds. The new wage 
indices result in a 0.5 percent decrease for the largest rural 
hospitals. Similarly, high volume rural hospitals demonstrate an 
anticipated decline of 0.4 percent. Hospitals located in the New 
England and Middle Atlantic regions show a negative impact due to wage 
index changes regardless of urban or rural designation. However, rural 
hospitals in New England and the Middle Atlantic experience the largest 
decreases among regions of 0.7 and 0.6 percent, respectively. Rural 
hospitals in the South Atlantic, East North Central, East South 
Central, and Mountain regions also experience decreased payments. Rural 
sole community hospitals show the same impact as other rural hospitals; 
they experience a decline of 0.2 percent.
    Looking across other categories of hospitals, major teaching 
hospitals are estimated to lose 0.3 percent. Almost all hospitals 
serving low-income patients lose 0.1 percent. Hospitals for which DSH 
is not available, mostly TEFRA hospitals, lose 0.3 percent.

Column 4: Budget Neutrality and Market Basket Update

    In general, the market basket update alleviates any negative 
impacts on payments created by the budget neutrality adjustments made 
in columns 2 and 3. As column 4 demonstrates, with the addition of the 
market basket update, we do not expect any class of hospital providers 
to experience an overall negative impact as a result of the proposed 
changes to OPPS for CY 2005. Further, the redistributions created by 
APC recalibration tend to offset those created by the new wage indices. 
For example, rural hospitals gain 0.6 percent from the APC changes but 
lose 0.2 percent as a result of changes to the wage indices, leading to 
an overall adjustment of 3.7 percent with the addition of the market 
basket. Urban hospitals show a decrease of 0.2 percent resulting from 
APC recalibration and no change as a result of the new wage index, 
leading to an update in column 4 of 3.2 percent.
    For several classes of hospitals, positive or neutral wage effects 
do not offset the larger impacts of APC recalibration leading to lower 
update amounts. For example, low volume urban hospitals experience a 
negative APC recalibration effect of 1.1, but a positive wage effect of 
0.5. The result is an overall update of 2.6, which is less than the 
market basket. A few hospital providers may experience much lower and 
much higher update amounts than the market basket because the combined 
impact of the budget neutrality adjustments for the APC recalibration 
and the new wage index are reinforcing. Urban hospitals with more than 
500 beds show a gain of 2.2 percent because the impact of APC 
recalibration was -0.9 percent and the new wage indices added -0.1 
percent. Major teaching hospitals experience a decline in payment due 
to APC recalibration of -1.0 and a decline due to wage indices of -0.3 
resulting in an overall, budget neutral update of 2.0. Hospitals for 
which we have no DSH variable, mostly TEFRA hospitals, will experience 
a decrease in payments due to both APC recalibration and the new wage 
indices, leading to a budget neutral increase of 0.7 percent. Hospitals 
serving a high number of low-income patients experience an overall 
update of 2.4 percent. Finally, cancer hospitals show an update of only 
0.2 percent, and children's hospitals, of only 2.0 percent, but 
statutory provisions ensure that each of these hospitals is ``held 
harmless'' relative to last year's payments.
    A few hospitals may also gain from the combined positive effect of 
the APC recalibration and the wage effect. Overall, mid-volume urban 
hospitals and urban hospitals with a small number of beds, rural 
hospitals in the East South and North Central, West North and South 
Central, and nonteaching hospitals experience positive impacts from 
both APC recalibration and the new wage indices.

Column 5: All Changes for CY 2005

    Column 5 compares all changes for CY 2005 to a final simulated 
payment for CY 2004 and includes all additional dollars resulting from 
provisions in Pub. L. 108-173 in both years and the difference in pass-
through estimates. Overall, we estimate that hospitals will gain 4.0 
percent under this final rule with comment period relative to total 
spending with Pub. L. 108-173 dollars for drugs and wage indices in CY 
2004. Hospitals do receive a 4.5-percent increase in dollars (3.3 
percent for the market basket and 1.2 percent for pass-through dollars 
returned to the conversion factor), which is reflected in the 
conversion factor. However, hospitals received more additional money 
from provisions in Pub. L. 108-173 for spending on drugs and wage

[[Page 65854]]

indices in CY 2004 than in CY 2005. This is largely a result of the 
decline in the statutory minimum payment for sole source specified 
covered outpatient drugs from 88 percent to 83 percent of AWP. The 
observed 4.0 percent reflects this difference in spending.
    Some hospitals experience large increases in addition to those 
already garnered under budget neutrality. In rural areas, hospitals 
providing between 11,000 and 20,999 services are projected to 
experience an increase of 5.1 percent. Rural hospitals in the East 
South Central, West North Central, and West South Central are all 
projected to experience an increase of at least 5 percent. Very small 
urban hospitals, less than 99 beds, will experience an increase of 4.9 
percent. On the other hand, a handful of types of hospitals will 
experience much smaller updates. Large urban hospitals will receive an 
update of 3.9 percent. Urban hospitals in the Middle Atlantic and 
Mountain regions will experience updates less than or equal to 3.5 
percent. Rural hospitals in New England and the Middle Atlantic also 
have updates less than or equal to 3.5 percent.
    Major teaching hospitals are projected to experience a smaller 
increase in payments, 2.6 percent, than the 4.0 percent aggregate for 
all hospitals due to negative impacts from both the APC recalibration, 
the new wage indices, and most probably the decline in spending for 
drugs under Pub. L. 108-73. Hospitals serving a disproportionate share 
of low-income patients also experience a lower increase, 3.4 percent. 
Hospitals for which there is no DSH information, mostly TEFRA 
hospitals, are estimated to receive an update of 0.3 percent. This low-
observed increase appears to be largely due to APC recalibration issues 
and declines in the payment for drugs. The impact of final payment on 
the specialty hospitals, cancer and children's hospitals, is not shown. 
If these hospitals were paid under OPPS, the cancer hospitals would 
experience a negative impact. However, these hospitals are held 
harmless and, therefore, will not experience any decline in payment. As 
noted above, we do not intend to specifically identify these hospitals 
in our future impact analyses.

F. Projected Distribution of Outlier Payments

    As stated in section X.B. of this preamble, we have a projected 
target of 2 percent of the estimated CY 2005 expenditures to outlier 
payments. For CY 2005, we are adopting a fixed-dollar threshold. As 
discussed in section X.B. of the preamble, we are changing our current 
policy, which sets the outlier threshold using only a multiple of the 
APC payment rate, to a policy that includes both a multiple of the APC 
payment rate and a new fixed dollar threshold. This policy will better 
target outlier payments to higher cost, complex cases that create 
greater financial risk for hospitals.
    For CY 2005, we are specifically proposing to require that, in 
order to qualify for an outlier payment, the cost of a service must 
exceed 1.75 times the APC payment rate and the cost must also exceed 
the sum of the APC rate plus a $1,175 fixed-dollar threshold. The 
outlier payment under this policy remains at 50 percent of the cost 
minus the multiple of the APC payment rate.
    Table 42 below compares the percentage of outlier payments relative 
to total projected payments for the simulated CY 2004 and CY 2005 
outlier policies. As discussed in section X.B. of this preamble, we 
included a charge inflation factor in our modeling for this final rule 
with comment period that was not included in our modeling for the 
proposed rule. This resulted in increased thresholds for both the 
simulated CY 2004 and final CY 2005 outlier policies. To provide an 
accurate comparison for the new policy, we estimated the CY 2004, 
multiple-only policy, using the CY 2003 claims with inflated charges to 
pay total outlier payments that are 2 percent of total estimated 
spending. This resulted in a multiple threshold of 2.95.
    Overall, Table 42 demonstrates that the outlier policy accomplishes 
the goal of redistributing outlier payments to hospitals performing 
more expensive procedures and incurring greater financial risk. 
Notwithstanding the inclusion of a charge inflation factor, the 
observed distributions for both policies differ very little from those 
provided in the proposed rule. First, based on the mix of services for 
the hospitals that would be paid under the OPPS in CY 2005, fewer 
hospitals would receive outlier payments. This is appropriate as more 
outlier money is targeted to specific services. We estimate that 
approximately 85 percent of all hospitals will receive outlier payments 
under the new policy, whereas 95 percent of all hospitals were 
estimated to get outlier payments under the CY 2004 policy.
    We estimate that the redistribution of outlier payments is modest, 
rarely shifting total payments by more than 1 percent. In light of 
this, many hospitals receiving outlier payments under the previous 
policy will continue to receive outlier payments but for a different 
set of services. Nonetheless, this final outlier policy appears to 
accomplish the goal of redirecting payments to high-cost, expensive 
services. The adopted outlier policy tends to benefit large urban 
hospitals, teaching hospitals, proprietary hospitals, and hospitals 
serving a moderate share of low-income patients. The distribution 
observed here may offset the less than average increases in payment 
observed for these same classes of hospitals in the overall impact 
Table 41. Selected hospitals are predicted to lose outlier payments. 
Rural hospitals, specifically those that show a small number of beds 
and provide a low volume of services, are eligible for fewer outlier 
payments when compared to other types of hospital categories, but, in 
general, these hospitals experience greater OPPS payment increases. 
Government hospitals experience a decrease in outlier payments of 0.3 
percent, and TEFRA hospitals are projected to lose 1.2 percent in 
outlier payments.

G. Estimated Impacts of This Final Rule With Comment Period on 
Beneficiaries

    For services for which the beneficiary pays a coinsurance of 20 
percent of the payment rate, the beneficiary share of payment will 
increase for services for which OPPS payments will rise and will 
decrease for services for which OPPS payments will fall. For example, 
for a mid-level office visit (APC 0601), the minimum unadjusted 
copayment in CY 2004 was $10.71. In this final rule with comment 
period, the minimum unadjusted copayment for APC 601 is $11.22 because 
the OPPS payment for the service will increase under this final rule 
with comment period. In another example, for a Level III Pathology 
Procedure (APC 0344), the minimum unadjusted copayment in CY 2004 was 
$17.16. In this final rule with comment period, the minimum unadjusted 
copayment for APC 0344 is $15.66 because the minimum unadjusted 
copayment is limited to 45 percent of the APC payment rate for CY 2005, 
as discussed in section XI. of this final rule with comment period.
    However, in all cases, the statute limits beneficiary liability for 
co-payment for a service to the inpatient hospital deductible for the 
applicable year. This amount is $912 for CY 2005.

BILLING CODE 4102-01-P

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BILLING CODE 4120-01-C

Conclusion

    The changes in this final rule with comment period affect all 
classes of hospitals. Some hospitals experience significant gains and 
others less significant gains, but all hospitals will experience 
positive updates in OPPS payments in CY 2005. Table 41 demonstrates the 
estimated distributional impact of the OPPS budget neutrality 
requirements and an additional 4.0 percent increase in payments for CY 
2005, exclusive of outlier and transitional pass-through payments, 
across various classes of hospitals. Table 42 demonstrates the 
distributional impact of outlier payments under the new policy of a 
multiple and fixed-dollar threshold. These two tables and the 
accompanying discussion, in combination with the rest of this final 
rule with comment period, constitute a regulatory impact analysis.
    In accordance with the provisions of Executive Order 12866, this 
final rule with comment period was reviewed by the Office of Management 
and Budget.

XV. Regulation Text

List of Subjects in 42 CFR Part 419

    Hospitals, Medicare, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR Chapter IV, Part 419, as set forth 
below:

[[Page 65863]]

PART 419--PROSPECTIVE PAYMENT SYSTEM FOR HOSPITAL OUTPATIENT 
DEPARTMENT SERVICES

0
1. 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, 1395l(t), and 1395hh).


0
2. Section 419.21 is amended by adding a new paragraph (e) to read as 
follows:


Sec.  419.21  Hospital outpatient services subject to the outpatient 
prospective payment system.

* * * * *
    (e) Effective January 1, 2005, an initial preventive physical 
examination, as defined in Sec.  410.16 of this chapter, if the 
examination is performed no later than 6 months after the individual's 
initial Part B coverage date that begins on or after January 1, 2005.

0
3. Section 419.22 is amended by adding a new paragraph (s) to read as 
follows:


Sec.  419.22  Hospital outpatient services excluded from payment under 
the hospital outpatient prospective payment system.

* * * * *
    (s) Effective December 8, 2003, screening mammography services and 
effective January 1, 2005, diagnostic mammography services.

0
4. Section 419.64 is amended by revising paragraph (d) to read as 
follows:


Sec.  419.64  Transitional pass-through payments: Drugs and 
biologicals.

* * * * *
    (d) Amount of pass-through payment. Subject to any reduction 
determined under Sec.  419.62(b), the pass-through payment for a drug 
or biological equals the amount determined under section 1842(o) of the 
Social Security Act, minus the portion of the APC payment amount that 
CMS determines is associated with the drug or biological.

0
5. Section 419.70 is amended by revising the section heading and 
paragraphs (f)(2)(i) and (f)(2)(ii) to read as follows:


Sec.  419.70  Transitional adjustment to limit decline in payments.

* * * * *
    (f) Pre-BBA amount defined. * * *
    (2) Base payment-to-cost ratio defined. * * *
    (i) The provider's payment under this part for covered outpatient 
services furnished during one of the following periods, including any 
payment for these services through cost-sharing described in paragraph 
(e) of this section:
    (A) The cost reporting period ending in 1996; or
    (B) If the provider does not have a cost reporting period ending in 
1996, the first cost reporting period ending on or after January 1, 
1997, and before January 1, 2001; and
    (ii) The reasonable costs of these services for the same cost 
reporting period.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: October 28, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: October 28, 2004.
Tommy G. Thompson,
Secretary.

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[FR Doc. 04-24759 Filed 11-2-04; 4:45 am]
BILLING CODE 4120-01-P


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